As filed with the Securities and Exchange Commission on July 3, 2000
Registration No. 33-____________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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iTract, Inc.
(Exact name of Registrant as specified in its charter)
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Delaware 7310 66-0584851
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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Highway 690, Kilometer 5.8
Vega Alta, Puerto Rico 00692
(787) 883-2570
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
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Michael J. Spector
Chief Executive Officer
iTract, Inc.
P.O. Box 706
Dorado, Puerto Rico 00646
(787) 883-2570
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
Ignacio Alvarez, Esq. Alfred G. Smith, Esq.
Pietrantoni Mendez & Alvarez LLP Shutts & Bowen LLP
Suite 1901, Banco Popular Center 1500 Miami Center
209 Munoz Rivera Avenue 201 South Biscayne Boulevard
San Juan, Puerto Rico 00918 Miami, Florida 33131
(787) 274-4911 (305) 379-9147
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Approximate date of commencement of proposed sale to public: As soon as
practicable after the Registration Statement becomes effective and all other
conditions under the merger agreements (described in the Proxy
Statement/Prospectus herein) are satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Institution G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ______________
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] ________________________
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CALCULATION OF REGISTRATION FEE
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Title of each class of securities Amount to be Proposed maximum offering Proposed maximum Amount of
to be registered registered price per share aggregate offering price registration fee
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Common Stock, par value $0.001 per share 2,009,822(1) $12(2) $24,117,864(2) $6,368
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Common Stock, par value $0.001 per share 12,680,057(3) $0(4) $0(4) $0
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(1) Represents the maximum number of shares of common stock of iTract, Inc.
(the "Registrant") to be issued in exchange for the common stock of
Margo Caribe, Inc.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) on the basis of the last sales price per
share of the common stock of Margo Caribe, Inc. on June 28, 2000
reported by the Nasdaq SmallCap Market.
(3) Represents the maximum number of shares of common stock of the
Registrant to be issued in exchange for the membership units of itract,
LLC.
(4) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2). Pursuant to such rule, with respect to the
shares of Registrant's common stock being exchanged for membership
units of itract, LLC, no offering price is reflected since itract, LLC
has an accumulated capital deficit and its membership units have no
principal amount, par value or stated value.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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[LOGO]
MARGO CARIBE, INC.
MERGER PROPOSAL--YOUR VOTE IS VERY IMPORTANT
The board of directors of Margo Caribe, Inc. has approved transactions
that will result in:
o the sale of Margo's existing nursery and other subsidiaries;
o the merger of Margo with and into a newly formed Delaware
corporation named "iTract, Inc." that will be headquartered in
New York, New York; and
o the merger of a wholly-owned subsidiary of iTract, Inc. with
and into itract, LLC, a privately held early-stage Internet
based company organized to build a system designed to allow
its users to develop and launch direct marketing campaigns
using e-mail, fax and postal mail simultaneously from a user's
personal computer.
If both mergers are completed, Margo's shareholders will receive one
share of iTract, Inc. common stock for each share of Margo common stock. iTract,
Inc. will issue 12,680,057 shares of common stock to members of itract, LLC as a
result of the itract, LLC merger. Upon completion of both mergers, on a fully
diluted basis, Margo's shareholders will own 13.2% of iTract, Inc. and itract,
LLC members will own 86.8% of iTract, Inc. and itract, LLC will be a
wholly-owned subsidiary of iTract, Inc.
We are asking the Margo shareholders to approve the merger with iTract,
Inc. and the sale of Margo's existing nursery and other subsidiaries. In
addition, Margo is asking its shareholders to vote on the election of directors.
Margo's annual meeting will be held:
______________, 2000
10:00 a.m.
The Bankers Club of Puerto Rico
Banco Popular Center
209 Munoz Rivera Avenue
San Juan, Puerto Rico
We cannot complete the transactions unless the shareholders of Margo
approve and adopt the merger agreement with iTract, Inc. and the sale of Margo's
existing nursery and other subsidiaries . Michael J. Spector, the Chairman of
the Board, Chief Executive Officer and President of Margo, and Margaret D.
Spector, the Secretary of Margo, who hold approximately 65.7% of the outstanding
Margo common stock, have agreed to vote all of their shares of Margo common
stock in favor of the proposed transactions.
We believe the proposed transactions will offer us significant
opportunities to create shareholder value.
MICHAEL J. SPECTOR
Chairman of the Board, Chief Executive
Officer and President
Margo Caribe, Inc.
Consider the risks described on pages 9 through 18 of this document.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the securities to be issued under this
document or determined if this document is truthful or complete. Any
representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated _________, 2000, and is first
being mailed to the shareholders of Margo on or about ________, 2000.
<PAGE>
Margo has not authorized anyone to give any information or make any
representation about the proposed transactions, iTract, Inc., itract, LLC or
Margo that differs from, or adds to, the information in this proxy
statement/prospectus or in Margo's documents that are publicly filed with the
SEC. Therefore, if anyone does give you different or additional information, you
should not rely on it.
If you are in a jurisdiction where it is unlawful to offer to exchange
or sell, or to ask for offers to exchange or buy, the securities offered by this
proxy statement/prospectus or to ask for proxies, or if you are a person to whom
it is unlawful to direct such activities, then the offer presented by this proxy
statement/prospectus does not extend to you.
The information contained in this proxy statement/prospectus speaks
only as of its date unless the information specifically indicates that another
date applies. Certain information in this proxy statement/prospectus about
itract, LLC has been supplied by itract, LLC.
itract, LLC is a privately held company and its securities are not
registered under the Securities Act of 1933 or the Securities Exchange Act of
1934. This proxy statement/prospectus is a prospectus with respect to the
issuance of iTract, Inc. common stock to the holders of Margo common stock and
itract, LLC membership units. However, this proxy statement/prospectus is a
proxy statement only with respect to Margo.
USE OF DEFINED TERMS
For purposes of clarity whenever the term "itract" is used in this
proxy statement/prospectus it refers only to itract, LLC, an early-stage
Internet based company. Also, whenever the term "Holdings" is used in this proxy
statement/prospectus, it refers to iTract, Inc., the newly-formed Delaware
corporation that, after consummation of the transactions described herein, will
be a holding company with itract as its sole subsidiary.
<PAGE>
MARGO CARIBE, INC.
------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on ________, 2000
------------------------------------
To the Shareholders of Margo Caribe, Inc.:
Margo Caribe, Inc., a Puerto Rico corporation ("Margo"), will hold its
annual meeting of shareholders at The Bankers Club of Puerto Rico, Banco Popular
Center, 209 Munoz Rivera Avenue, San Juan, Puerto Rico, on _________, at 10:00
a.m., local time, to vote on:
1. Approval of the Agreement and Plan of Merger, dated as of June 21,
2000, by and between Margo and iTract, Inc., a newly-formed Delaware
corporation.
2. Approval of the Stock Purchase Agreement, dated as of June 30, 2000,
by and between Margo and Empresas Margo, Inc., providing for the sale of Margo's
existing nursery and other subsidiaries.
3. Reelection of the existing five directors to the board of Margo to
serve until consummation of the merger of Margo with iTract, Inc. and, if the
merger is not consummated, until their successors are duly elected.
4. Any other matters that properly come before the meeting of Margo's
shareholders, or any adjournments or postponements of the Margo meeting.
Record holders of Margo common stock at the close of business on
________, 2000, will receive notice of and may vote at the meeting, including
any adjournments or postponements. A list of these shareholders will be
available for inspection for ten days before the meeting at Margo's offices at
Road 690, Kilometer 5.8, Vega Alta, Puerto Rico 00692.
The approval and adoption of the merger agreement with Holdings and the
stock purchase agreement with Empresas Margo, Inc. will require the affirmative
vote of the holders of a majority of the shares of Margo common stock
outstanding on the record date. Election of directors will require the
affirmative vote of a plurality of the votes cast at the annual meeting.
Margaret D. Spector
Secretary
_________, 2000
Your vote is important. Please mark, sign, date and return your proxy
promptly, whether or not you plan to attend our annual meeting. Our board of
directors unanimously recommends that you vote FOR approval of the matters to be
voted on at our annual meeting.
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TABLE OF CONTENTS
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Page
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QUESTIONS AND ANSWERS ABOUT THE TRANSACTION.......................................................................1
SUMMARY...........................................................................................................3
The Companies.................................................................................................3
The Mergers...................................................................................................3
The Sale of Margo's Existing Subsidiaries.....................................................................4
What Holders of Margo Stock Will Receive in the Reincorporation Merger........................................4
Reasons for the itract Merger.................................................................................4
Recommendations to Margo Shareholders.........................................................................4
Votes Required for Approval of Merger with Holdings and the Sale of the Businesses............................4
Opinions of Financial Advisors................................................................................4
Interests of Persons Involved in the Merger...................................................................5
Board of Directors and Management of Holdings following the Merger with itract................................5
Dissenters' Rights of Appraisal...............................................................................5
Regulatory....................................................................................................5
Federal and Puerto Rico Income Tax Consequences...............................................................6
Exchange of Stock Certificates................................................................................6
Listing on the NASDAQ SmallCap Market.........................................................................6
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION............................................................6
COMPARATIVE PER SHARE INFORMATION.................................................................................7
RISK FACTORS......................................................................................................9
Risks Associated with itract's Business.......................................................................9
itract Has a History of Losses and an Expectation of Continuing Losses...................................9
itract's Business Will Suffer If the Market for Outsourced Direct Marketing Services in General,
and Email and Fax Marketing Services in Particular, Fails to Grow..............................10
Intense Competition Exists in Internet-Based Direct Marketing Services and itract Expects
Competition to Continue to Intensify...........................................................10
itract's Inability to Comply with Federal Law Relating to the Transmission of Unsolicited
Faxes May Harm itract's Business...............................................................10
itract's Failure to Manage its Planned Rapid Growth Could Cause its Business to Suffer..................10
Delays in Upgrading of itract's Web site and Offering New Services May Harm
itract's Business..............................................................................10
itract's Faxing Capabilities are Dependent on Third Party Licenses and Relationships; itract
May Need to License Additional Technologies to Succeed in its Business.........................11
Unknown Software Defects Could Disrupt itract's Services................................................11
itract's Quarterly Operating Results May Fluctuate and Fall below Market Expectations Which Could
Negatively Affect The Value of Holdings' Common Stock Following the itract Merger..............11
itract May Not Be Able to Obtain Additional Capital to Fund its Operations When Needed..................12
itract's Business Will Suffer If it Does Not Attract and Retain Additional Highly Skilled Personnel.....12
Need to Attract and Retain Executive Personnel..........................................................12
itract May Not Be Able to Successfully Operate its Business If itract's Newly Formed
Management Team Does Not Work Effectively Together.............................................13
Entities Affiliated With itract Will Have Significant Control of Holdings after the itract Merger;
Conflicts of Interest..........................................................................13
itract May Face Claims for Activities of its Customers Which Could Harm itract's Business...............13
itract May Lose Customers and its Reputation May Suffer Because of Spam; Government
Regulation of Email Transmissions..............................................................13
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itract Expects to Engage in Future Acquisitions That Could Entail Risks.................................14
itract Depends on Third-party Vendors for the Delivery of Postal Mail...................................14
Risks Associated with itract's Technology....................................................................14
If itract is Unable to Adequately Protect its Intellectual Property, its Business Will Suffer...........14
itract's Proprietary Technology May Be Subject to Infringement Claims Which Could Harm
its Business...................................................................................14
If itract Fails to Upgrade its Systems and Infrastructure to Expand its Business and to Accommodate
Increases in Email and Fax Transmissions, itract May Experience Slower Response Times
or System Failures.............................................................................15
Failure to Keep Pace with Rapidly Changing Technology and Market Conditions Could Affect
itract's Competitiveness.......................................................................15
If itract Encounters System Failure, it May Not Be Able to Provide Adequate Service and its
Business and Reputation Could Be Damaged.......................................................15
Service Interruptions from itract's Third Party Internet and Telecommunications Providers
Could Harm its Business........................................................................16
Risks Associated with the Internet...........................................................................16
itract's Business Will Suffer If the Internet Does Not Achieve Continuing, Widespread Acceptance
as a Marketing and Communications Medium.......................................................16
itract Will Not Be Able to Increase its Business Unless Consumers and Businesses Increase
Their Use of the Internet and the Internet Is Able to Support the Demands of this Growth.......16
Increased Governmental Regulation and Legal Uncertainties May Impair the Growth of the Internet
and Decrease Demand for itract's Services or Increase itract's Cost of Doing Business..........16
Changes in Telecommunications Regulations Could Cause Reduced Demand for itract's Services..............17
Other risks relating to your investment in Margo and, following the reincorporation merger, in Holdings......17
Margo's stock price has been, and is likely to continue to be, extremely volatile.......................17
Your investment in Holdings stock may become illiquid and you may lose your entire investment...........17
Penny stock regulations may affect your ability to sell Holdings' securities............................18
Anti-takeover provisions in Holdings' charter could negatively impact the trading price of its
securities.....................................................................................18
Following the Mergers, Holdings will be Required to Indemnify the Former Officers and Directors
of Margo and its Affiliates....................................................................18
No Dividends will be Paid in the Near Future............................................................18
FORWARD-LOOKING STATEMENTS.......................................................................................19
THE MARGO ANNUAL MEETING.........................................................................................19
Purpose, Time and Place......................................................................................19
Record Date; Voting Power....................................................................................19
Votes Required...............................................................................................20
Voting of Proxies............................................................................................20
Revocability of Proxies......................................................................................20
Solicitation of Proxies......................................................................................21
Executive Compensation.......................................................................................21
Share Ownership of Management and Certain Shareholders.......................................................23
Section 16(a) Beneficial Ownership Reporting Compliance......................................................24
PROPOSED REINCORPORATION MERGER AND MERGER WITH ITRACT...........................................................26
General......................................................................................................26
Background of the Transaction................................................................................26
Recommendations of Margo's Board of Directors and Reasons for the Transactions...............................27
Opinion of Financial Advisor Regarding Merger with itract....................................................28
Terms of the Merger Agreement with Holdings..................................................................30
Federal Income Tax Consequences..............................................................................34
Puerto Rico Tax Consequences.................................................................................36
Terms of the Merger Agreement with itract....................................................................37
Material Federal Income Tax Consequences.....................................................................43
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Directors and Principal Officers of Holdings after the Merger................................................47
Interests of Certain Persons in the Merger...................................................................48
Indemnification and Insurance................................................................................49
Accounting Treatment.........................................................................................49
Restriction on Resales by Affiliates.........................................................................49
INFORMATION ABOUT HOLDINGS.......................................................................................49
DESCRIPTION OF HOLDINGS' SECURITIES..............................................................................50
COMPARATIVE RIGHTS OF SHAREHOLDERS OF MARGO AND HOLDINGS.........................................................51
COMPARATIVE RIGHTS OF MEMBERS OF ITRACT AND SHAREHOLDERS OF HOLDINGS.............................................54
SELECTED FINANCIAL DATA..........................................................................................56
Selected Financial Data of Margo.............................................................................56
INFORMATION ABOUT ITRACT.........................................................................................60
Business Overview............................................................................................60
Industry Overview............................................................................................60
Itract's Business............................................................................................61
Revenue Sources..............................................................................................63
Itract Sales and Marketing ..................................................................................63
Technology...................................................................................................65
Competition..................................................................................................66
Intellectual Property Rights.................................................................................66
Government Regulation........................................................................................67
Employees and Facilities.....................................................................................68
Legal Proceedings............................................................................................68
Certain Relationships and Related Transactions ..............................................................68
Executive Compensation.......................................................................................69
Employment Agreements........................................................................................69
Financial Statements.........................................................................................69
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ITRACT......................................................69
Overview.....................................................................................................70
Historical Results of Operations.............................................................................70
Liquidity and Capital Resources..............................................................................71
Web site Development Costs...................................................................................72
Recently Issued Accounting Standards.........................................................................72
Year 2000 Compliance.........................................................................................73
INFORMATION ABOUT MARGO..........................................................................................73
Business.....................................................................................................73
Principal Operations.........................................................................................73
Income Taxes.................................................................................................77
Property.....................................................................................................77
Legal Proceedings............................................................................................78
Market for Common Equity and Related Shareholder Matters.....................................................79
Financial Statements.........................................................................................79
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF MARGO...........................................................................79
Results of Operations for Each of the Years Ended December 31, 1999, 1998 and 1997...........................79
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Results of Operations for the Quarters Ended March 31, 2000 and 1999.........................................82
Financial Condition..........................................................................................83
PROPOSED SALE OF MARGO'S BUSINESSES..............................................................................85
ELECTION OF DIRECTORS TO SERVE UNTIL CONSUMMATION OF THE MERGER..................................................92
Information Concerning Existing Margo Directors..............................................................92
Certain Relationships and Related Transactions...............................................................93
LEGAL MATTERS....................................................................................................94
EXPERTS..........................................................................................................94
WHERE YOU CAN FIND MORE INFORMATION..............................................................................94
APPENDICES
APPENDIX A - Reincorporation Merger Agreement
APPENDIX B - itract Merger Agreement
APPENDIX C - Stock Purchase Agreement
APPENDIX D - Opinion of Schwartz Heslin Group, Inc.
APPENDIX E - Opinion of San Juan Holdings, Inc.
APPENDIX F - Section 10.12 of the Puerto Rico General
Corporations Law - Appraisal Rights
APPENDIX G - Certificate of Incorporation of iTract, Inc.
APPENDIX H - Bylaws of iTract, Inc.
APPENDIX I - Margo Financial Statements for the year ended December 31, 1999
APPENDIX J - Margo Financial Statements for the three months ended March 31, 2000
APPENDIX K - itract Financial Statements for the period from May 12, 1999 (inception)
to June 30, 1999, for period from July 1, 1999 to December 31, 1999
and for the period from May 12, 1999 (inception) to December 31, 1999
APPENDIX L - itract Financial Statements for the three months ended March 31, 2000
and for the period from May 12, 1999 (inception) to March 31, 2000
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QUESTIONS AND ANSWERS ABOUT
THE TRANSACTION
Q: Why is Margo proposing these transactions?
A: Margo believes that the consummation of these transactions presents an
opportunity for Margo's shareholders to participate in an Internet
based company that is developing a system that will allow companies to
direct market their products and services in a more efficient and cost
effective manner. The mergers will afford itract access to Margo's cash
obtained from the sale of Margo's existing nursery and other
subsidiaries. To review Margo's reasons for the merger in greater
detail, see pages 26 to 28.
Q: Why is Margo proposing to merge with Holdings, a new Delaware
corporation, prior to the merger with itract?
A: Since Margo is a Puerto Rico corporation, a merger of Margo or a
subsidiary of Margo with and into itract would have been a taxable
transaction to itract's members for federal income tax purposes. By
first merging Margo with and into itract, Inc., a Delaware corporation,
the merger of a subsidiary of Holdings with and into itract will be
tax-exempt to itract's members for federal income tax purposes to the
extent that they are transferring property to Holdings for stock. Also,
Delaware is one of the preferred jurisdictions for public companies
because of its established body of corporate law. Thus, Margo and
itract believe that being organized as a Delaware corporation may
facilitate Holdings' ability to obtain debt and equity financing in the
future.
Q: Will the mergers with Holdings and itract have any effect on the
currently outstanding shares of Margo?
A: Yes. Following Margo's merger with Holdings, Margo's shareholders will
receive one share of common stock of Holdings for each share of Margo
common stock. The merger of the subsidiary of Holdings into itract and
the issuance of the Holdings common stock to itract's members will not
have any effect on the shares of Holdings common stock received by
Margo shareholders in the reincorporation merger, except that the
number of outstanding shares of Holdings will increase from
approximately 2.0 million shares to approximately 15.2 million shares.
Following the completion of both mergers, on a fully diluted basis,
Margo's shareholders will own 13.2% of Holdings and itract's members
will own 86.8% of Holdings. Following the transactions, Holdings will
be a holding company whose sole asset will be its 100% membership
interest in itract.
Q: Why is Margo proposing to sell its nursery and other subsidiaries?
A: The sale of Margo's nursery and other subsidiaries is a condition to
the obligation of itract to consummate the itract merger.
Q: Who needs to approve the reincorporation merger and the sale of Margo's
businesses?
A: Holders of a majority of Margo's outstanding common stock need to
approve the proposed reincorporation merger and the sale of Margo's
nursery operations and other businesses. Michael J. Spector, the
Chairman of the Board, Chief Executive Officer and President of Margo,
and Margaret D. Spector, the Secretary of Margo, who together hold
65.7% of the outstanding shares of Margo common stock, have agreed to
vote all of their shares of Margo common stock in favor of the proposed
transactions.
Q: What does a holder of Margo common stock need to do now?
A: After reading this proxy statement/prospectus, such holders need to
indicate on their proxy card how they want to vote their shares and
sign and mail the completed proxy card in the enclosed return envelope
as soon as possible so that their shares can be represented and voted
at the Margo annual meeting.
Q: If you own shares of Margo common stock held in "street name" by a
broker, can that broker vote those shares for you?
A: A broker that holds shares of Margo common stock will not be able to
vote those shares without instructions from the beneficial owner of
those shares. Therefore, owners of Margo
1
<PAGE>
common stock should instruct their broker to vote their shares,
following the procedure provided by their brokers.
Q: Can a holder of Margo common stock change its vote after signing the
proxy card?
A: Yes. Holders of Margo common stock can change their vote at any time
before their proxy card is voted at the annual meeting. This can be
done in one of three ways. First, holders may send a written notice to
Margaret D. Spector, Secretary of Margo (at the address set forth on
page 2), stating that the proxy should be revoked. Second, a new proxy
card may be completed and submitted to Ms. Spector in the same manner.
Third, Margo's shareholders may attend the annual meeting and vote in
person. Attendance alone will not, however, revoke a proxy. If a broker
has been instructed to vote Margo shares, the broker's procedures must
be followed to change those instructions.
Q: When does Margo expect the mergers to be completed?
A: Margo expects to complete the mergers during the third quarter of 2000.
Q: Will the composition of Holdings' board of directors following the
mergers be different than Margo's board of directors prior to the
mergers?
A: Yes. As a condition to the consummation of the merger with itract,
Holdings' directors must resign and a new board consisting of designees
of itract will be elected. For information regarding the directors of
Holdings following the merger with itract, see "Directors and Principal
Officers of Holdings after the Merger" at pages 47 to 48.
Q: What other matters will be voted on at the meeting?
A: In addition to approving the reincorporation merger, the Margo
shareholders will also be asked to vote on the following proposals:
o The approval of the Stock Purchase Agreement with Empresas
Margo, Inc., providing for the sale of Margo's existing
nursery and other subsidiaries.
o The reelection of the current five directors to serve on
Margo's board of directors until the consummation of the
reincorporation merger and, if the reincorporation merger is
not consummated, until their successors are duly elected.
When casting their votes on these additional proposals, Margo's
shareholders desiring the consummation of the merger with itract should
bear in mind that shareholder approval of the reincorporation merger
and of the sale of the nursery and other subsidiaries is a condition
which must be met by Margo before itract is obligated to consummate the
merger.
Q: Where can more information about Margo be found?
A: Margo files periodic reports and other information with the Securities
and Exchange Commission. This information may be read or copied at the
SEC's public reference facilities. Please call the SEC at
1-800-SEC-0330 for information about these facilities. This information
is also available at the SEC's Internet site (http://www.sec.gov) and
the offices of the National Association of Securities Dealers. For a
more detailed description of information available, see "Where You Can
Find More Information" at page 94.
Q: Who can help answer any questions?
A: If you are a Margo shareholder and have more questions about the
proposed transaction, you can contact:
Alfonso Ortega
Chief Financial Officer
Margo Caribe, Inc.
Road 690, Kilometer 5.8
Vega Alta, Puerto Rico 00692
Telephone: (787) 883-2570
2
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SUMMARY
This summary highlights selected information from this proxy
statement/prospectus. It does not contain all of the information that may be
important to you. You should carefully read this entire document and the other
documents which are referred to herein. Together, these documents will give you
a more complete description of the transactions Margo is proposing.
The Companies
Margo Caribe, Inc.
Road 690, Kilometer 5.8
Vega Alta, Puerto Rico 00692
(787) 883-2570
Margo Caribe, Inc. ("Margo") is a Puerto Rico corporation engaged in
the production and distribution of tropical and flowering plants, the sale and
distribution of lawn and garden products as well as landscaping design and
installation services. Margo is also engaged in seeking sites for the
development of residential housing projects.
itract, LLC
220 West 19th Street, 12th Floor
New York, New York 10011
(212) 647-8483
itract, LLC ("itract") is a privately-held Internet based company that
was organized in May 1999 to address the needs of small to medium-sized
businesses that desire a more efficient and cost-effective means to direct
market their products and services. The itract system is intended to allow these
businesses to analyze, assemble and launch their direct marketing campaigns in a
simple low-cost and effective manner. By accessing itract's Web site, users will
be able to develop and launch comprehensive direct marketing campaigns
delivering fax, e-mail and postal mail to a targeted audience of both on-line
and off-line prospective customers. To date, itract has not earned any revenues.
itract anticipates that it will begin to generate revenues following the launch
of its Web site on June 30, 2000.
iTract, Inc.
Road 690, Kilometer 5.8
Vega Alta, Puerto Rico 00692
(787) 883-2570
iTract, Inc. ("Holdings") is a Delaware corporation that was formed by
Margo on April 5, 2000 as a wholly-owned subsidiary for the sole purpose of
effecting the merger transactions. Holdings has no assets other than a
wholly-owned subsidiary (which also has no assets) which will merge with and
into itract. Prior to such merger, Margo will merge into Holdings with Holdings
as the survivor of such merger. Following these transactions, Holdings will be a
holding company whose sole asset will be its 100% membership interest in itract.
As a result of these mergers, the current shareholders of Margo and members of
itract will be shareholders of Holdings.
The Mergers
The merger agreement between Margo and Holdings is the document that
governs the reincorporation of Margo as a Delaware corporation by merging Margo
with and into Holdings It is attached to this proxy statement/prospectus as
Appendix A. The agreement and plan of merger among Margo, Holdings, itract LLC,
iTract Acquisition Company, LLC and International Commerce Exchange Systems,
Inc. ("ICES") is the document that governs the merger of iTract Acquisition
Company LLC, a wholly-owned subsidiary of Holdings, with and into itract. It is
attached to this proxy statement/prospectus as Appendix B. Margo encourages you
to read these documents, as they are the legal documents that govern the
mergers.
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The Sale of Margo's Existing Subsidiaries
The stock purchase agreement with Empresas Margo, Inc., is the document
that governs the sale of Margo's nursery subsidiary and other subsidiaries to
Empresas Margo, Inc. It is attached to this proxy statement/prospectus as
Appendix C. Margo encourages you to read this document as it governs the
disposition of all of Margo's current businesses.
What Holders of Margo Stock Will Receive in the Reincorporation Merger
Each share of Margo common stock will be exchanged for one share of
Holdings common stock at the effective date of the reincorporation merger of
Margo with and into Holdings.
What Holders of itract Membership Units Will Receive in the itract Merger
Holders of itract membership units will receive in the itract merger an
amount of shares of Holdings common stock that will constitute, on a fully
diluted basis, 86.8% the outstanding shares of Holdings common stock immediately
following the itract merger.
Reasons for the itract Merger
Margo believes that the merger with itract offers its shareholders the
opportunity to create shareholder value by participating in a growing sector of
commerce and the economy-the Internet.
Recommendations to Margo Shareholders
Margo's board of directors believes that the proposed transactions are
fair to Margo's shareholders and in their best interests, and unanimously
recommends that the Margo shareholders vote "FOR" the following items:
o approval of the merger agreement with Holdings providing for
the reincorporation of Margo as a Delaware corporation;
o approval of the stock purchase agreement with Empresas Margo,
Inc., providing for the sale of Margo's nursery subsidiary and
other subsidiaries; and
o reelection of the existing five directors to serve as Margo's
board of directors pending consummation of the merger with
Holdings and, if the merger is not consummated, until their
successors are duly elected.
The reincorporation merger and the sale of Margo's nursery subsidiary
and other subsidiaries are conditions to the itract merger.
Votes Required for Approval of Merger with Holdings and the Sale of the
Businesses
Holders of more than 50% of Margo's outstanding common stock need to
approve the proposed reincorporation merger and the stock purchase agreement
providing for the sale of Margo's nursery subsidiary and other subsidiaries.
Margo's directors and officers, and their affiliates, own approximately 68% of
Margo's outstanding common stock. Michael J. Spector, Margo's Chairman of the
Board, Chief Executive Officer and President, and his wife, Margaret D. Spector,
Margo's Secretary, have entered into an agreement to vote all of their shares of
Margo, constituting 65.7% of the outstanding Margo common stock, in favor of the
reincorporation merger of Margo with Holdings and the sale of the nursery
operations and other businesses. The vote of Mr. and Mrs. Spector in favor of
the proposal submitted in this proxy statement/prospectus is sufficient for
their approval. The vote of itract's members is not required for the
consummation of the itract merger.
Opinions of Financial Advisors
Schwartz Heslin Group, Inc. provided a written opinion to Margo's board
of directors as to the fairness of the merger with itract to Margo's
shareholders from a financial point of view. This written opinion is attached as
Appendix D to this document. You should read this entire opinion carefully, as
well as the additional information set forth under the heading "THE
TRANSACTION--Opinion of Financial Advisor Regarding Merger with itract"
4
<PAGE>
at pages 28 to 30, to understand the procedures followed, assumptions made,
matters considered and limitations of the review undertaken by Schwartz Heslin
Group in providing its opinion.
San Juan Holdings, Inc. provided a written opinion to Margo's board of
directors as to the fairness to Margo's shareholders of the sale by Margo of its
nursery and other subsidiaries from a financial point of view. This written
opinion is attached as Appendix E to this document. You should read this entire
opinion carefully, as well as the additional information set forth under the
heading "SALE OF MARGO'S BUSINESSES-Opinion of Financial Advisor Regarding Sale
of Margo's Businesses" at pages 89 to 91, to understand the procedures followed,
assumptions made, matters considered and limitations of the review undertaken by
San Juan Holdings, Inc. in providing its opinion.
These opinions are directed to Margo's board of directors and do not
constitute a recommendation to any of Margo's shareholders as to how such
shareholders should vote at the annual meeting.
Interests of Persons Involved in the Merger
In connection with the execution of the letter of intent between Margo
and itract, Michael J. Spector, the Chairman of the Board and Chief Executive
Officer of Margo, and J. Morton Davis, who beneficially own 65.7% and 9.8%,
respectively, of Margo's outstanding common stock, made a $2.0 million loan to
ICES, the indirect parent company of itract. The entire principal balance plus
accrued interest on the loan is payable immediately following the effective time
of the merger with itract. If the itract merger is not consummated, this loan
will be converted into common stock of ICES.
Michael J. Spector owns all of the outstanding capital stock of
Empresas Margo, Inc. and will act as its Chief Executive Officer.
In addition, all options to purchase shares of Margo common stock held
by Margo's officers and directors will be converted into options to purchase the
same number of shares of Holdings common stock and such options will become
immediately exercisable upon consummation of the reincorporation merger. See
"THE MARGO ANNUAL MEETING-Share Ownership of Management and Certain
Shareholders."
Board of Directors and Management of Holdings following the Merger with itract
Upon consummation of the merger with itract, the board of directors of
Holdings will initially consist of six directors designated by itract. The
present management team of itract will serve as Holdings' management team after
the merger. See "THE TRANSACTION-Directors and Principal Officers of Holdings
after the Merger."
Dissenters' Rights of Appraisal
Margo Shareholders
Holders of Margo common stock who dissent to the reincorporation merger
have the right to seek an appraisal of, and to be paid in cash an amount that
the Puerto Rico Court decides is the fair value of their shares. This amount may
be more or less than the value of the shares of the Holdings common stock you
would receive pursuant to the reincorporation merger.
Section 10.12 of the Puerto Rico General Corporations Law of 1995,
which governs the rights of shareholders of Puerto Rico companies who wish to
seek appraisal of their shares, is discussed under the heading "THE
TRANSACTION-Terms of the Merger Agreement with Holdings-Dissenters' Rights of
Appraisal" at pages 32 to 34, and is attached to this proxy statement/prospectus
as Appendix F. If you wish to exercise your dissenter's rights of appraisal, you
must not vote in favor of the merger with Holdings and must take a series of
steps which are set out in full in Appendix F.
Regulatory Approval
No submissions to the Antitrust Division of the Department of Justice
and the Federal Trade Commission are required of Margo pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act.
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Federal and Puerto Rico Income Tax Consequences
The exchange of shares of common stock of Margo for shares of common
stock of Holdings will be a taxable transaction for U.S. shareholders for
federal income tax purposes.
It is a condition to the closing of the transactions contemplated by
the merger agreement with itract that Margo receive a ruling from the Puerto
Rico Treasury Department confirming that the merger of Margo into Holdings
qualifies as a tax-free reorganization for Puerto Rico income tax purposes.
The merger of a subsidiary of Holdings with itract has been structured
so that neither Holdings, its shareholders, nor itract will recognize any gain
or loss for Federal income taxes in that merger. itract's members will not
recognize any gain or loss for Federal income tax purposes in that merger to the
extent they exchange property for stock.
For a description of certain Puerto Rico and Federal income tax
consequences of the transaction to holders of the Margo common stock, see "THE
TRANSACTION-Terms of the Merger Agreement with Holdings-Federal and Puerto Rico
Income and Other Tax Consequences of the Reincorporation Merger" commencing on
page 34 and "THE TRANSACTION-Terms of the Merger Agreement with itract-Material
Federal Income Tax Consequences" commencing on page 43.
Exchange of Stock Certificates
After the reincorporation merger with Holdings is completed, you will
be sent written instructions for exchanging your Margo stock certificates for
new Holdings stock certificates.
Listing on the NASDAQ SmallCap Market
Margo's common stock is listed on the Nasdaq SmallCap Market under the
symbol "MRGO." Holdings will apply to have its shares of common stock listed on
the Nasdaq SmallCap Market. It is a condition to the obligation of itract to
consummate the itract merger that the shares of Holdings be listed on the Nasdaq
SmallCap Market.
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table shows the financial results actually achieved by
each of Margo and itract (the "historical figures") as well as the results as if
the companies had been combined for the period shown (the "pro forma combined"
figures) under the following circumstances: (1) that the sale of Margo's nursery
and other subsidiaries to Empresas Margo, Inc. has been consummated, (2) that
all outstanding stock options to purchase shares of Margo and options to
purchase membership units of itract were exercised, and (3) that no Margo
shareholder dissents to the reincorporation merger and exercises any appraisal
rights. You should not assume that Margo and itract would have achieved the
combined pro forma results if they had actually been combined during the periods
shown.
Margo's and itract's historical figures for the three months ended
March 31, 2000 are unaudited, but management of Margo and itract each believes
that its own figures reflect all normal recurring adjustments necessary for a
fair presentation of the financial position and results of operations for that
period. You should not assume that the results for the three months ended March
31, 2000 will be repeated in later periods.
Selected Historical and Pro Forma Data as of March 31, 2000
(Unaudited)
Margo itract Pro Forma
Historical Historical Equivalent
---------- ---------- ----------
Total assets $8,783,972 $387,016 $5,733,511
Cash and cash equivalents 640,046 7,523 5,354,018
Total liabilities 2,541,584 1,185,347 1,195,347
Shareholders' equity (deficiency) 6,242,388 (798,331) 4,538,163
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Selected Historical and Pro Forma Data for the Period Ended
December 31, 1999(1) and the Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
Three Months Ended Period Ended
March 31, 2000 December 31, 1999(1)
(Unaudited)
------------------------------------------ -------------------------------------------
Pro Forma
Margo itract Pro Forma Margo itract Equivalent
Historical Historical Equivalent Historical Historical (Unaudited)
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $2,107,556 0 0 $6,201,233 0 0
Net Loss ($19,233) ($850,554) ($850,554) ($127,867) ($494,302) ($494,302)
</TABLE>
-------------
(1) Margo's fiscal year is the calendar year ending December 31, while itract's
fiscal year ends June 30. This period refers to Margo's fiscal year ended
December 31, and covers for itract the period from May 12, 1999 (inception) to
December 31, 1999.
COMPARATIVE PER SHARE INFORMATION
The following table sets forth unaudited data concerning the net income
(loss), dividends or distributions and book value per share of common stock for
Margo and per membership unit for itract on a pro forma basis after giving
effect to the proposed mergers. The book value per share or unit is not
presented for the period ended December 31, 1999 as a pro forma balance sheet
was not prepared as of this date.
Pro Forma Per Share Data
Three Months Period Ended
Ended March 31, 2000 December 31, 1999(1)
-------------------- --------------------
Net loss per weighted
average common share
(basic and diluted) ($0.06) ($0.03)
Weighted average common
shares outstanding 15,225,924 15,225,924
Dividends declared per share -- --
Book value per share at
end of period $0.30 N/A
-------------
(1) This period refers to Margo's fiscal year ended December 31, and covers for
itract the period from May 12, 1999 (inception) to December 31, 1999.
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<PAGE>
The following tables set forth data concerning the historical net
income (loss), dividends or distributions and book value per share of common
stock for Margo and per membership unit for itract.
Margo Historical Per Share Data
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
(Unaudited)
--------------------------- ------------------------------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income (loss) per weighted
average common share
(basic and diluted) ($0.01) $0.03 ($0.07) ($0.59) ($0.40)
Weighted average common shares
outstanding 1,878,860 1,875,322 1,875,322 1,878,655 1,895,322
Dividends declared per share -- -- -- -- --
Book value per share at
end of period $3.32 $3.43 $3.33 $3.39 $3.97
</TABLE>
itract Historical Per Unit Data
Three Months Period from May 12, 1999
Ended March 31, 2000 (inception) through
(Unaudited) December 31, 1999
-------------------- ------------------------
Net loss per weighted
average membership unit
(basic and diluted) ($0.08) ($0.05)
Weighted average
membership unit outstanding 10,719,997 10,000,000
Distributions declared per
membership unit -- --
Book value per membership
unit at end of period ($0.07) ($0.05)
8
<PAGE>
RISK FACTORS
In addition to the other information contained in this proxy
statement/prospectus, shareholders of Margo should carefully review the
following factors in deciding whether to vote in favor of approval of the
proposed transactions.
Following the transactions, Holdings will be a holding company whose
sole asset will be its 100% membership interest in itract. Therefore, when
voting on the proposed transactions, you should consider the risks and
difficulties that may be encountered by itract, an early-stage internet based
company. These risks include risks particular to itract and its technology, and
general risks associated with companies doing business on the Internet.
Risks Associated with itract's Business
itract Has a Limited Operating History and May Never Achieve Profitability.
itract was organized in May 1999 and has not generated any revenue to
date. itract has expended and will continue to expend substantial resources to
create, launch and enhance its services. Because of itract's limited operating
history, it is extremely difficult to evaluate its business and prospects.
itract's revenue and income potential are unproven. Since the way in which the
Internet is used is constantly changing, itract may need to change its business
strategy to adapt to those changes. itract's business should be evaluated in
light of the risks and difficulties frequently encountered by early-stage
companies engaged in Internet commerce. Such risks include:
o lack of sufficient capital;
o uncertain market acceptance of its products and services;
o the ability to develop and upgrade infrastructure;
o competition;
o reliance on the Internet;
o dependence upon and need to hire key personnel;
o need to manage changing operations;
o regulatory risks associated with itract's business.
itract may not be successful in addressing these risks, and its business
strategy may not be successful.
itract Has a History of Losses and an Expectation of Continuing Losses.
itract has incurred losses since inception, including a net loss of
$850,554 for the quarter ended March 31, 2000. As of March 31, 2000, itract had
an accumulated deficit of $798,331, representing accumulated losses of
$1,344,856 offset by capital contributions of $546,525. itract expects to
continue to incur losses and have negative cash flow from operations for the
foreseeable future.
itract has invested substantial capital in technology and
infrastructure development, and expects to expend even greater amounts in these
areas as it begins to provide its services to customers on its Web site. itract
will need to invest substantial financial and other resources to complete
development of its Web site and develop and introduce new services. In addition,
itract will be required to expend substantial financial resources to expand its
sales and marketing efforts and operating infrastructure. itract expects that
its cost of revenue, and sales and marketing, general and administrative, and
customer support expenses, as well as other expenses, will increase if and when
revenues are realized. itract will need to generate significant revenue to
achieve profitability. Further, even if itract were to achieve profitability,
itract may not be able to sustain profitability in the future.
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<PAGE>
itract's Business Will Suffer If the Market for Outsourced Direct Marketing
Services in General, and Email and Fax Marketing Services in Particular, Fails
to Grow.
The market for outsourced direct marketing via email and fax is new and
rapidly evolving. If sufficient demand for itract's services does not develop,
itract may not generate sufficient revenue to offset its costs and itract may
never become profitable. Market acceptance of itract's services will depend on
the acceptance and use of outsourced email and fax direct marketing services.
These services are very different from the traditional advertising and direct
mail methods that itract's targeted customers have historically used to attract
new customers and maintain customer relationships. Businesses that have already
invested substantial resources in traditional or other methods of marketing and
communications may be reluctant to adopt new marketing strategies and methods.
Consumers may also be reluctant to alter established patterns of purchasing
goods and services.
Intense Competition Exists in Internet-Based Direct Marketing Services and
itract Expects Competition to Continue to Intensify.
Competition for Internet-based direct marketing in general, and email
and fax services in particular, is intense. If itract does not respond
successfully to competitive pressures, itract may not be able to develop
sufficient market share to support its operations. itract may not be able to
compete successfully against current or future competitors. Such competitors
include the in-house email capabilities of many businesses. An increasing number
of companies are entering the market for direct marketing alternatives via the
Internet. Many of itract's competitors have greater brand recognition, longer
operating histories, larger customer bases and greater financial, marketing and
other resources than itract. These factors may place itract at a disadvantage
when itract responds to its competitors' pricing strategies, technological
advances and other initiatives. Additionally, itract's competitors may develop
or provide services that are superior to itract's or that achieve greater market
acceptance. itract expects competition to persist and intensify. Barriers to
entry may be substantial and itract may face substantial and growing competitive
pressures from companies both in the United States and abroad. See "Information
About itract - Competition" for a list of itract's competitors.
itract's Inability to Comply with Federal Law Relating to the Transmission of
Unsolicited Faxes May Harm itract's Business.
Federal law makes it unlawful to use a computer or other device to send
an unsolicited advertisement to a telephone facsimile machine, and provides a
private right of action to recover $500 for each violation of this law. To the
extent itract sells fax numbers to its customers, itract intends that all such
numbers will belong to individuals that have explicitly agreed to receive
advertisements transmitted to their fax machines. In addition, itract will
require its customers that use their own fax mailing lists to acknowledge that
such lists consist only of individuals that have agreed to receive the
information being transmitted. However, despite itract's efforts, there can be
no assurance that itract will be able to comply with the law, and itract may
also be held responsible for violations of its customers. If itract is found to
have violated this federal law, itract may have to pay significant damages, its
reputation will be harmed and its business will suffer.
itract's Failure to Manage its Planned Rapid Growth Could Cause its Business to
Suffer.
itract's failure to manage its growth effectively could result in
service disruptions, loss of competitive position and lack of adequate financial
controls. itract plans to expand its operations rapidly and to significantly
augment its infrastructure. itract must effectively manage its operational,
customer service and financial systems, procedures and controls to manage this
planned growth. Any growth will result in increased responsibility for existing
and new management personnel. itract's ability to grow will depend in part on
its ability to recruit, train, motivate and manage employees. Growth will place
a significant strain on itract's managerial, operational and financial
resources.
Delays in Upgrading of itract's Web site and Offering New Services May Harm
itract's Business.
itract has completed the testing of a "beta"version of its software and
launched a basic "version 1.0" of its Web site on June 30, 2000. itract has
experienced delays in the development and launch of its Web site. In addition,
several features intended to be provided by the itract system were not included
in version 1.0. These features, which itract intends to make available by
September 2000, will provide itract's clients with a wide variety of targeted
marketing capabilities and the use of "reward points." Several
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<PAGE>
factors may delay the development and launch of these additional features as
well as any other new services which may be developed in the future. itract also
expects to improve the itract system on an ongoing basis to increase its ease of
use and to remedy any defects that it may discover. Delays or failure to improve
the itract system or to develop new services could result in itract's failure to
attract and retain clients and may result in the loss of existing clients.
itract's Faxing Capabilities are Dependent on Third Party Licenses and
Relationships; itract May Need to License Additional Technologies to Succeed in
its Business.
itract licenses software technology which enables it to send faxes
through the Internet, and itract is dependent on support services provided by
third parties for the integration of such software with itract's hardware and
proprietary software. If itract's outside service providers cease operations or
otherwise become unavailable to itract, and itract is not able to promptly find
a suitable replacement, the itract system will be unable to transmit faxes and
itract's business will be materially harmed. Prior to the launch of "version
1.0" of the itract system, itract anticipated licensing such software and
obtaining support services from a particular entity which subsequently ceased
operations. As a result, itract was forced to delay the launch of version 1.0 of
its Web site and incur additional costs. If a similar occurrence were to occur
in the future, itract's business could be disrupted and may be adversely
affected.
In the future, itract may need to license additional technologies to
remain competitive. There is no assurance that itract will be able to license
these technologies on commercially reasonable terms, or at all. itract's
inability to obtain any license could delay the development of its services
until equivalent technology can be identified, licensed and integrated. Such
delays could cause itract's business to suffer. Further, third party licenses
may expose itract to increased risks. Such risks include:
o risks related to the integration of new technology;
o the diversion of resources from the development of itract's
own proprietary technology; and
o itract's inability to generate revenue from licensed
technology sufficient to offset associated acquisition and
maintenance costs.
Unknown Software Defects Could Disrupt itract's Services.
itract's service offerings depend on its complex proprietary software.
Such software often contains defects, particularly when first introduced or when
new versions are released. These defects may not be discovered until after such
software has been in use for a significant amount of time. Accordingly, the
itract system may be subject to unknown defects. These defects could:
o cause service interruptions;
o increase itract's service costs;
o cause itract to lose revenue;
o delay market acceptance; and
o divert itract's development resources.
Although itract tests its software, itract may not discover software
defects that affect current or planned services or enhancements until after they
are deployed.
itract's Quarterly Operating Results May Fluctuate and Fall below Market
Expectations Which Could Negatively Affect The Value of Holdings' Common Stock
Following the itract Merger.
itract's operating results will be difficult to predict. itract's
future quarterly operating results may fluctuate significantly. If this occurs,
Holdings' results may not meet the expectations of securities analysts or
investors and
11
<PAGE>
the price of Holdings' common stock would likely decline, perhaps substantially.
Factors that may cause fluctuations of itract's operating results include the
following:
o the level of market acceptance of itract's products and
services;
o delays itract may encounter in introducing new products and
services;
o competitive developments; and
o changes in pricing policies and resulting margins.
itract expects that most of its revenues will be derived from email,
fax and postal marketing services. The volume and timing of orders are difficult
to predict because the market for these products is in its infancy and the sales
cycle may vary substantially from customer to customer. Moreover, itract's sales
are expected to fluctuate due to seasonal or cyclical marketing campaigns.
itract May Not Be Able to Obtain Additional Capital to Fund its Operations When
Needed.
itract expects that the cash available to Holdings upon the
consummation of the itract merger, together with anticipated revenues from its
services, will be sufficient to fund its capital requirements through the fiscal
year ending June 30, 2001. However, itract's capital requirements are subject to
numerous contingencies associated with early-stage companies. itract may be
required to seek additional financing in the event of delays, cost overruns or
unanticipated expenses associated with a company in an early stage of
development or in the event itract does not realize anticipated revenues. In
addition, itract may seek financing in the future to expand its service
offerings or to make strategic acquisitions. There can be no assurance that such
financing will be available, or that, if available, such financing will be on
terms favorable to itract.
If itract cannot obtain adequate funds on acceptable terms, itract may
be unable to:
o fund its capital requirements;
o take advantage of strategic opportunities;
o respond to competitive pressures; and
o develop or enhance its services.
If Holdings raises additional funds through the issuance of equity
securities, shareholders of Holdings following the itract merger may experience
dilution, and if Holdings raises funds by issuing debt, it may be subject to
certain limitations on its operations.
itract's Business Will Suffer If it Does Not Attract and Retain Additional
Highly Skilled Personnel.
itract currently has only seven employees. In order for itract to
succeed, it must identify, attract, retain and motivate highly skilled
technical, managerial, sales and marketing personnel. Failure to retain and
attract necessary personnel will limit itract's ability to compete effectively
and provide services to its customers. itract plans to significantly expand its
operations and will need to hire additional personnel as its business grows.
Competition for qualified personnel is intense. itract may experience
difficulties in hiring highly skilled technical personnel due to significant
competition for experienced personnel in the Internet industry.
Need to Attract and Retain Executive Personnel.
Following the itract merger, itract will need to recruit and hire
additional executive officers, including a Chief Executive Officer and a full
time Chief Financial Officer. Such personnel are in short supply, and the
competition for their services is intense. The process of identifying and
recruiting executive personnel with the requisite combination of skills may be
lengthy. Failure to recruit such personnel could have an adverse impact on the
ability of itract to successfully implement its business plan.
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<PAGE>
itract May Not Be Able to Successfully Operate its Business If itract's Newly
Formed Management Team Does Not Work Effectively Together.
If itract's management team is unable to work together effectively, its
business could be harmed. As itract was only formed in May 1999, its executive
officers and employees have had a limited time to work together and may not be
able to work together effectively.
Entities Affiliated With itract Will Have Significant Control of Holdings after
the itract Merger; Conflicts of Interest.
ICES, through its subsidiary The TechDepartment.com, Inc., currently
owns approximately 91.7% of itract's outstanding units. Upon the consummation of
the itract merger, the TechDepartment.com will own approximately 80% of the
outstanding common stock of Holdings. Henry Kauftheil is currently the sole
manager of itract and, upon the effectiveness of the itract merger, will be the
Chairman of the Board of Holdings. Mr. Kauftheil is also the sole director of
the TechDepartment.com and the Chairman and a controlling shareholder of ICES.
Mr. Kauftheil controls the voting capital stock of both ICES and, as Chairman of
ICES, of The TechDepartment.com. In addition, as described in the section of
this proxy statement/prospectus entitled "Information About itract-Relationship
with ICES and its Affiliates," itract currently occupies space leased by ICES
and is provided various services from ICES and its affiliates such as investment
banking, legal and accounting services as well as computer hardware, software
and network services. itract is also indebted to ICES and its affiliates in the
amount of $1,003,103 as of March 31, 2000. These arrangements create conflicts
of interest for Mr. Kauftheil and the entities that he controls in acting in the
best interests of himself and these entities as opposed to the shareholders of
itract. Additionally, Mr. Kauftheil and these entities will be able to
significantly influence all matters requiring approval by shareholders,
including the election of directors and the approval of mergers or other
business combination transactions. This concentration of ownership might also
have the effect of delaying or preventing a change in control.
itract May Face Claims for Activities of its Customers Which Could Harm itract's
Business.
A wide variety of laws and regulations govern the content of
advertisements and regulate the sale of products and services. There is also
uncertainty as to the application of these laws to the emerging world of
advertising on the Internet. itract cannot predict whether its role in
facilitating the marketing activities of its customers would expose it to
liability under these laws. Providers of Internet products and services have
been sued in the past, sometimes successfully, based on the content of material.
In addition, some of the content may be compiled by itract or other parties. If
such content is improperly used, it could result in liability. itract may also
face civil or criminal liability for unlawful advertising or other activities of
its customers. If itract is exposed to this kind of liability, itract could be
required to pay substantial fines or penalties, redesign its business methods,
discontinue some of its services or otherwise expend resources to avoid
liability. Any costs incurred as a result of that liability or asserted
liability could harm itract's business.
itract May Lose Customers and its Reputation May Suffer Because of Spam;
Government Regulation of Email Transmissions.
A number of states have passed statutes prohibiting and/or regulating
the transmission of unsolicited commercial email ("spam"). A number of statutes
have also been introduced in Congress and state legislatures to impose penalties
for sending unsolicited emails which, if passed, could impose additional
restrictions on itract's business. In addition, a California court recently held
that unsolicited email distribution is actionable as an illegal trespass for
which the sender could be subject for monetary damages.
While itract believes that its system and controls comply with current
laws, there is no assurance that the itract system will not be utilized to
transmit spam. Further, the growth and development of the market for online
email may prompt calls for more stringent consumer protection laws that may
impose additional burdens on those companies conducting business online.
If itract fails in its efforts to limit the distribution of unsolicited
bulk email, or spam, itract's business and reputation may be harmed and itract
may be subject to claims for violations of Federal or state civil or criminal
law. In addition, spam-blocking efforts by others may also result in the
blocking of legitimate messages forwarded by itract on behalf of its customers.
itract's reputation may be harmed if email addresses with its domain names are
used in this manner. Any of these events may cause itract's customers to become
dissatisfied with its services and such customers may terminate their
relationship with itract.
13
<PAGE>
itract Expects to Engage in Future Acquisitions That Could Entail Risks.
itract expects to pursue acquisition or investment opportunities that
would complement its current services, enhance its technical capabilities or
offer growth opportunities. Acquisitions could entail many risks, such as:
o difficulties in integrating acquired operations, technologies
or services;
o unanticipated costs associated with acquisitions that could
harm operating results;
o negative effects on the market price of Holdings common stock
resulting from acquisition-related charges and the
amortization of goodwill;
o risks of entering markets in which itract has no or limited
prior experience; and
o dilution to then existing shareholders if shares of Holdings'
common stock are issued as consideration in such acquisitions.
itract Depends on Third-party Vendors for the Delivery of Postal Mail.
itract will be dependent on one or more third-party vendors to handle
the physical packaging and mailing of the postal mail to be delivered through
the itract system. Accordingly, the failure of such vendors to satisfy on a
timely basis the requirements of itract's customers could harm itract's
business, operations and reputation. In addition, the termination of itract's
relationship with such vendors without itract finding a prompt replacement would
adversely effect itract's operations.
Risks Associated with itract's Technology
If itract is Unable to Adequately Protect its Intellectual Property, its
Business Will Suffer.
itract's ability to successfully compete is substantially dependent
upon its internally developed technology, which it protects through a
combination of copyright, trade secret and trademark law. itract has no issued
patents or patent applications pending. In addition, effective copyright and
trademark protection may be unenforceable or limited in certain countries. The
failure of itract to adequately protect its proprietary rights may harm its
business. In addition, unauthorized parties may attempt to copy or otherwise
obtain and use itract's products or technology. Policing unauthorized use of
itract's products is difficult, and itract cannot be certain that the steps it
has taken will prevent misappropriation of its technology, particularly in
foreign countries where the laws may not protect its proprietary rights as fully
as in the United States. For a more detailed description of the protection of
itract's intellectual property, please see "Information About itract --
Intellectual Property Rights."
itract's Proprietary Technology May Be Subject to Infringement Claims Which
Could Harm its Business.
There is a substantial risk of litigation regarding intellectual
property rights in the Internet industry. Claims against itract may be asserted
based on itract's use of its own proprietary technology or technology which it
licenses from third parties. Third parties may assert exclusive patent,
copyright, trademark and other intellectual property rights to technologies and
related standards that are utilized by itract. Future claims of infringement
against itract with respect to it and its technology, with or without merit,
could:
o be time-consuming to defend;
o result in costly litigation;
o divert management's attention and resources;
o cause delays in delivering products and services;
o require the payment of monetary damages;
o result in an injunction which would prohibit itract from
offering a particular product or service; or
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<PAGE>
o require itract to enter into royalty or licensing agreements.
Royalty or licensing agreements, if required, may not be negotiated by
itract on acceptable terms, or at all. For additional information, please see
"Information About itract -- Intellectual Property Rights."
If itract Fails to Upgrade its Systems and Infrastructure to Expand its Business
and to Accommodate Increases in Email and Fax Transmissions, itract May
Experience Slower Response Times or System Failures.
itract will need to expand its network infrastructure as the number of
its customers increases and as such customers' requirements change.
Additionally, itract must adapt its network infrastructure to the increasing
volume and complexity of information itract's customers wish to transmit. If
itract does not add sufficient capacity to handle the growing volume and
complexity of messages, itract could suffer slower response times or system
failures which could result in a loss of customers. itract intends to make
substantial investments in new hardware and in upgrading its software to
increase capacity. itract's services may be unable to handle growing message
volume and complexity. The expansion of itract's network infrastructure will
also require substantial financial, operational and managerial resources.
In addition, itract may not be able to accurately project the rate or
timing of email and fax transmission increases or upgrade its systems and
infrastructure to accommodate future traffic levels. As itract upgrades its
network infrastructure to increase capacity available to its customers, itract
may encounter equipment or software incompatibility which may cause delays in
implementation. itract may not be able to expand or adapt its network
infrastructure to meet additional demand of its clients or itract's clients'
changing requirements in a timely manner or at all.
Failure to Keep Pace with Rapidly Changing Technology and Market Conditions
Could Affect itract's Competitiveness.
itract will operate in an industry that is characterized by:
o rapid technological change;
o frequent new service introductions;
o changing client demands; and
o the emergence of new industry standards and practices that
could render itract's services, proprietary technology and
systems obsolete.
itract must continually improve the performance, features and
reliability of itract's services, particularly in response to competitive
offerings. itract's success will depend, in part, on itract's ability to enhance
its services and to develop new services, functionality and technology that
address the increasingly sophisticated and varied needs of itract's prospective
clients. The development of itract's technology and necessary service
enhancements entail significant technical and business risks and require
substantial expenditures and lead-time. itract may not be able to keep pace with
the latest technological developments or adapt itract's services to client
requirements or emerging industry standards.
If itract Encounters System Failure, it May Not Be Able to Provide Adequate
Service and its Business and Reputation Could Be Damaged.
itract's ability to successfully receive orders for its services from
customers and send email and fax messages and provide acceptable levels of
customer service largely depends on the efficient and uninterrupted operation of
itract's computer and communications hardware and network systems. itract's
operations will depend on its ability to protect its computer systems against
damage from a variety of sources, including telecommunications failures,
malicious human acts, including computer viruses, and natural disasters. All of
itract's communications systems will be located in New York, New York. As a
result, if there were to be a natural disaster affecting the New York area,
itract's communications systems could be disrupted and itract's business would
be harmed. itract may not be able to
15
<PAGE>
relocate quickly under those circumstances. If any of these events occur, itract
may be unable to provide its customers with services for indefinite periods of
time.
Service Interruptions from itract's Third Party Internet and Telecommunications
Providers Could Harm its Business.
itract will depend heavily on third party providers of Internet and
telecommunications services. Any interruption by itract's Internet and
telecommunications providers would likely disrupt the operation of itract's
business, causing a loss of revenue and a potential loss of clients.
Risks Associated with the Internet
itract's Business Will Suffer If the Internet Does Not Achieve Continuing,
Widespread Acceptance as a Marketing and Communications Medium.
itract's revenue and profitability will be adversely affected if the
Internet does not achieve continuing, widespread acceptance as a marketing and
communications medium. itract's future success will depend substantially upon
the continued evolution of the Internet as an attractive platform for marketing
and communications applications and the use of outsourcing to solve businesses'
marketing needs. Most businesses and consumers have only limited experience with
the Internet as a marketing and communications medium.
itract Will Not Be Able to Increase its Business Unless Consumers and Businesses
Increase Their Use of the Internet and the Internet Is Able to Support the
Demands of this Growth.
itract's success depends on increasing use of the Internet by consumers
and businesses. If use of the Internet as a medium for consumer and business
communications does not continue to increase, demand for itract's services will
be limited. Consumers and businesses might not increase their use of the
Internet for a number of reasons, such as:
o high Internet access costs;
o perceived security and privacy risks;
o legal and regulatory issues;
o inconsistent service quality; and
o unavailability of cost-effective, high-speed service.
Even if consumers and businesses increase their use of the Internet,
the Internet infrastructure may not be able to support the demands of this
growth. The Internet infrastructure must be continually improved and expanded in
order to alleviate overloading and congestion. Failure to do so will degrade the
Internet's performance and reliability. Internet users may experience service
interruptions as a result of outages and other delays occurring throughout the
Internet. Frequent outages or delays may cause consumers and businesses to slow
or stop their use of the Internet as a communications medium.
Increased Governmental Regulation and Legal Uncertainties May Impair the Growth
of the Internet and Decrease Demand for itract's Services or Increase itract's
Cost of Doing Business.
With the exception of state anti-spam laws, there are currently few
laws and regulations directly applicable to the Internet and commercial email
services. However, the adoption of additional laws or regulations may impair the
growth of itract's business and the use of the Internet thereby decreasing the
demand for itract's services and increasing itract's cost of doing business. A
number of laws have been proposed involving the Internet, including laws
addressing:
o user privacy;
o pricing;
16
<PAGE>
o content;
o copyrights;
o characteristics and quality of services; and
o consumer protection.
Changes in Telecommunications Regulations Could Cause Reduced Demand for
itract's Services.
Several telecommunications carriers are advocating that the Federal
Communications Commission regulate the Internet in the same manner as other
telecommunications services by imposing access fees on Internet service
providers. These regulations could substantially increase the costs of
communicating on the Internet. This, in turn, could slow the growth in Internet
use and thereby decrease the demand for itract's services.
Other risks relating to your investment in Margo and, following the
reincorporation merger, in Holdings
Margo's stock price has been, and is likely to continue to be, extremely
volatile.
Following Margo's announcement of the itract merger, Margo's stock
price has been volatile and following the consummation of the proposed
transactions, Holdings' stock price is likely to continue to be volatile.
In addition, the Nasdaq SmallCap Market, where many publicly held
Internet companies are traded, has recently experienced extreme price and volume
fluctuations. These fluctuations are often unrelated or disproportionate to the
operating performance of these companies. The trading prices of many Internet
companies' stocks were recently at or near historical highs and the price to
earnings multiples of many Internet companies are substantially above historical
levels. These trading prices and multiples may not be sustainable. The market
price of Holdings' common stock may be adversely affected by industry volatility
regardless of its actual operating performance. In the past, following periods
of volatility in the market price of a company's securities, securities class
action litigation often has been instituted against that company. Similar
litigation, if instituted against Holdings, could result in substantial costs
and a diversion of its management's attention and resources.
Your investment in Holdings stock may become illiquid and you may lose your
entire investment.
Following the reincorporation merger, Holdings will be required to meet
Nasdaq's initial inclusion requirements which require it to have:
o net tangible assets (total assets, excluding goodwill, minus
total liabilities) of at least $4 million, or a market
capitalization exceeding $50 million, or net income (in the
latest fiscal year or two of the last three fiscal years)
exceeding $750,000;
o at least 1 million shares in the public float with a market
value of at least $5 million (not including shares held
directly or indirectly by any of Holdings' officers or
directors or by any other person who beneficially owns more
than ten percent of Holdings' total outstanding shares);
o a minimum bid price of Holdings' common stock of $4 per share;
o at least three market makers for Holdings common stock;
o at least 300 shareholders of Holdings common stock (each of
which holds at least 100 shares of common stock); and
o an operating history of at least one year or a market
capitalization exceeding $50 million.
In addition, Holdings will be required to meet certain corporate
governance tests promulgated by Nasdaq.
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<PAGE>
Although the listing of Holdings' securities on Nasdaq is a condition
to the closing of the itract merger, Holdings may not meet all of the
requirements for initial listing and the parties to the itract merger agreement
may determine to waive the listing requirement.
Even if Holdings' securities are listed on Nasdaq following the
reincorporation merger, Holdings. will need to meet the continued listing
requirements of the Nasdaq Stock Market to remain listed. The failure of
Holdings to meet the initial listing or maintenance requirements of Nasdaq could
result in Holdings' securities trading on the OTC Bulleting Board or in the
"pink sheets". As a consequence, an investor could find it more difficult to
dispose of or to obtain accurate quotations as to the market value of Holdings'
securities. Among other things, failure to list or delisting from Nasdaq may
cause a decline in Holdings' stock price as well as difficulty in obtaining
future financing.
Penny stock regulations may affect your ability to sell Holdings' securities.
If Holdings' securities fail to be listed on Nasdaq, such securities
would become subject to Rule 15g-9 under the Exchange Act, which imposes
additional sales practice requirements on broker dealers which sell such
securities to persons other than established customers and accredited investors.
Under these rules, broker-dealers who recommend penny stocks to persons other
than established customers and "accredited investors" must make a special
written suitability determination for the purchaser and receive the purchaser's
written agreement to a transaction prior to sale. Securities are exempt from
these rules if the market price is at least $5.00 per share.
The SEC has adopted regulations that generally define a penny stock to
be any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. These exceptions include an equity security
listed on the Nasdaq SmallCap Market, and an equity security issued by an issuer
that has:
o net tangible assets of at least $2,000,000, if the issuer has
been in continuous operation for three years;
o net tangible assets of at least $5,000,000, if the issuer has
been in continuous operation for less than three years; or
o average revenue of at least $6,000,000 for the preceding three
years. Unless an exception is available, the regulations
require the delivery, prior to any transaction involving a
penny stock, of a disclosure schedule explaining the penny
stock market and the associated risks.
Anti-takeover provisions in Holdings' charter could negatively impact the
trading price of its securities.
Following the merger, Holdings' board of directors will have the
authority to issue up to 5,000,000 shares of preferred stock without the need
for shareholder approval. The board may also determine the economic and voting
rights of this preferred stock. The holders of Holdings' common stock could be
adversely affected by the issuance of preferred stock. Issuance of preferred
stock could impede or prevent transactions that would cause a change in control
of Holdings. This might discourage bids for Holdings common stock at a premium
over its market price and adversely affect the trading price of Holdings' common
stock. Holdings has no current plans to issue shares of preferred stock.
Following the Mergers, Holdings will be Required to Indemnify the Former
Officers and Directors of Margo and its Affiliates.
Under the merger agreement with itract, Holdings is required to
indemnify and hold harmless each present and former officer and director of
Holdings, Margo, and Margo's other subsidiaries, from and against all claims and
losses incurred in connection with any claim or lawsuit pertaining to any matter
that existed or occurred at or prior to the time of the itract merger.
No Dividends will be Paid in the Near Future.
Following the consummation of the proposed transactions, Holdings does
not anticipate that it will pay dividends in the foreseeable future. Holdings is
likely to reinvest any funds that might otherwise be available for the payment
of dividends in further development of its business following the itract merger.
18
<PAGE>
FORWARD-LOOKING STATEMENTS
The forward looking statements made in this proxy statement/prospectus
might prove inaccurate, resulting in a material difference between such
statements and the actual results of Margo or Holdings.
Some of the statements under "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business", "Information About itract" and elsewhere in this proxy
statement/prospectus constitute forward-looking statements. These statements
involve known and unknown risks, uncertainties and other factors that may cause
actual results, levels of activity, performance or achievements following the
mergers to be materially different from any future results, levels of activity,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among other things, those listed under "Risk
Factors" and elsewhere in this proxy statement/prospectus.
In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "plans,"
"intends," "anticipates," "believes," "thinks," "estimates," "predicts,"
"potential" or "continue" or the negative of such terms and other comparable
terminology.
THE MARGO ANNUAL MEETING
Purpose, Time and Place
Margo is furnishing this proxy statement/prospectus to the holders of
shares of Margo common stock in connection with the solicitation of proxies by
its board of directors for use at Margo's annual meeting to be held on
_________, 2000. The annual meeting will be held at The Bankers Club of Puerto
Rico, Banco Popular Center, 209 Munoz Rivera Avenue, San Juan, Puerto Rico, at
10:00 a.m. local time and at any adjournments or postponements thereof.
At the annual meeting, the holders of Margo common stock will be asked
to vote on proposals to:
o adopt and approve the agreement and plan of merger, dated as
of June 21, 2000, by and between Margo and Holdings, providing
for the reincorporation merger;
o adopt and approve the stock purchase agreement, dated as of
June 30, 2000, between Margo and Empresas Margo, Inc.,
providing for the sale of Margo's nursery operations and other
businesses;
o reelect the existing five directors to serve as Margo's board
of directors pending consummation of the merger with Holdings
and, in the event that the merger is not consummated, until
such time as their successors are duly elected;
Record Date; Voting Power
Margo's board of directors has fixed the close of business (5:00 p.m.,
Puerto Rico time) on ___________, 2000 as the record date for determining the
holders of shares of Margo common stock entitled to notice of, and to vote at,
the annual meeting. Only holders of record of Margo common stock at the close of
business on the record date will be entitled to notice of, and to vote at, the
annual meeting.
At the close of business on the record date, ___________ shares of
Margo common stock were issued and outstanding and entitled to vote at the
annual meeting. Holders of record of Margo common stock are entitled to one vote
per share on any matter which may properly come before the meeting. Votes at the
annual meeting may be cast in person or by proxy.
The presence at Margo's annual meeting, either in person or by proxy,
of the holders of a majority of the outstanding shares of Margo common stock
entitled to vote is necessary to constitute a quorum in order to transact
business at the meeting. However, in the event that a quorum is not present at
the annual meeting, Margo expects to adjourn or postpone the meeting in order to
solicit additional proxies.
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Votes Required
Approval by Margo's shareholders of the board of directors' proposals
to adopt and approve the reincorporation merger with Holdings and the
transactions contemplated by the merger agreement and the sale of Margo's
nursery operations and other businesses will require the affirmative vote of the
holders of a majority of the shares of Margo common stock outstanding on the
record date. Under applicable Puerto Rico law, in determining if the board's
proposals to adopt and approve the reincorporation merger with Holdings and the
transactions contemplated by the merger agreement and the sale of Margo's
nursery operations and other businesses have been approved by Margo's
shareholders, abstentions by shareholders will have the same effect as a vote
against the proposals, although they will count toward the presence of a quorum.
Brokers who hold shares of Margo common stock as nominees, in the
absence of instructions from the beneficial owners thereof, will not have
discretionary authority to vote for approval and adoption of the reincorporation
merger or the sale of the nursery farm and other businesses, but brokers who
hold shares of Margo common stock as nominees will have such authority to vote
such shares for the election of directors. Any shares which are not voted
because the nominee-broker lacks discretionary authority will have the same
effect as a vote against the proposals. Accordingly, any beneficial owner of
Margo common stock whose stock is held by a broker as a nominee should instruct
their broker as to how to vote their shares. See "Voting of Proxies" below.
The affirmative vote of a plurality of the votes cast at the annual
meeting will be required for the election of directors. For purposes of the
election of directors, abstentions will not be treated as votes cast and will
have no effect on the result of the vote. A properly executed proxy marked
"WITHHOLD AUTHORITY" with respect to the election of one or more directors will
not be treated as voted with respect to the directors indicated, although it
will be counted for purposes of determining whether there is a quorum.
Michael J. Spector and Margaret D. Spector (the "Spectors") jointly own
more than a majority of the outstanding shares of Margo common stock. In
connection with the execution of the merger agreement with itract, the Spectors
entered into an agreement whereby they agreed to vote all their shares in favor
of the reincorporation merger and the sale of Margo's businesses. The Spectors
have sufficient votes to approve each of the proposals being submitted herewith
and have indicated that they intend to vote for each of such proposals,
including the election of the existing five directors. See "Security Ownership
of Certain Beneficial Owners and Management."
Voting of Proxies
Shares of Margo common stock represented by properly executed proxies
that Margo receives prior to the start of the annual meeting will be voted at
the annual meeting in the manner specified by such proxies. Margo shareholders
should be aware that, if their proxy is properly executed but does not contain
voting instructions, their proxy will be voted FOR adoption and approval of each
of the proposals before the annual meeting. Margo shareholders should also be
aware that, if their proxy is not submitted or is improperly executed, their
proxy will be voted against adoption and approval of each of the proposals.
Margo does not expect that any matter other than as described herein
will be brought before the annual meeting. If other matters are properly
presented before the meeting, the persons named in a properly executed proxy
will have authority to vote in accordance with their judgment on any other such
matter, including without limitation, any proposal to adjourn or postpone the
meeting or otherwise concerning the conduct of the meeting; provided, that a
properly executed proxy that has been designated to vote against the adoption
and approval of the proposals will not be voted, either directly or through a
separate proposal, to adjourn the meeting to solicit additional votes.
Revocability of Proxies
The grant of a proxy on the enclosed proxy card or a vote by telephone,
does not preclude a shareholder from voting in person. Also, a shareholder of
Margo may revoke or change their vote on a proxy at any time prior to its
exercise by:
o delivering, prior to the start of the annual meeting, to
Margaret Spector, Secretary of Margo, Road 690, Kilometer 5.8,
Vega Alta, Puerto Rico 00692, a written notice of revocation
bearing a later date or time than the proxy previously
delivered to Margo,
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o delivering to the Secretary of Margo, at the prior address, a
duly executed proxy with different instructions bearing a
later date or time than the proxy previously delivered to
Margo, or
o attending the annual meeting and voting in person.
Margo does not expect to adjourn its annual meeting for a period of
time long enough to require the setting of a new record date for such meeting.
If an adjournment occurs, it will have no effect on the ability of Margo's
shareholders of record as of the record date to exercise their voting rights or
to revoke any previously delivered proxies.
Solicitation of Proxies
Margo will bear the cost of the solicitation of proxies from its own
shareholders. In addition to solicitation by mail, Margo's directors, officers
and employees may solicit proxies from our shareholders by telephone, telegram
or in person. Arrangements will also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation material
to the beneficial owners of stock held of record by such persons, and Margo will
reimburse such brokers, custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses in connection therewith.
Executive Compensation
Summary Compensation Table
The following table sets forth information regarding compensation of
Margo's chief executive officer during each of the three years ended December
31, 1999, 1998 and 1997. No other executive officer of Margo earned more than
$100,000 during 1999.
<TABLE>
<CAPTION>
Annual Compensation
----------------------------
Number of
Name of Individual and Stock Options All Other
Position with the Company Salary Bonus Granted(1) Compensation(2)
------------------------- ------ ----- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Michael J. Spector 1999 $104,000 $ - 2,500 $8,000(2)
Chairman, President, Chief 1998 104,000 - 2,500 8,000
Executive Officer and Director 1997 160,000 - - -
</TABLE>
---------------
(1) Includes 2,500 options granted to Margaret D. Spector, Michael J.
Spector's wife, for each of 1998 and 1999.
(2) Represents matching contribution under Margo's Salary Deferral
Retirement Plan.
Grant of Stock Options
No stock options were granted to Michael J. Spector during the year
ended December 31, 1999. However, the table below provides certain information
regarding stock options granted to Margaret D. Spector as discussed above, which
for SEC reporting purposes, Mr. Spector is deemed to beneficially own.
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<PAGE>
<TABLE>
<CAPTION>
Potential realizable value at
assumed annual rates of
stock price appreciation
from date of grant to end
of option term
------------------------------------
# of shares
underlying % of total
options options granted Exercise Price Expiration
Name granted(2) in Fiscal Year ($/share)(3) Date 5% 10%
------ ------------ ---------------- -------------- ------ ---- ----
<S> <C> <C> <C> <C> <C> <C>
Michael J. Spector(1) 2,500 12.5% $2.75 05-17-09 $1,075 $3,200
</TABLE>
-------------
(1) Represents options to acquire 2,500 shares granted to Margaret D.
Spector.
(2) Options become exercisable at the rate of 20% on the each of first,
second, third, fourth and fifth anniversary of the grant date. Upon
consummation of the itract merger, all options will become immediately
exercisable.
(3) The exercise price is based on 110% of the last sales price for Margo's
common stock on May 17, 1999, the date of grant.
Options Exercised During 1999 and Option Values at December 31, 1999
The following table sets information on outstanding options held by
Margo's chief executive officer and their value at December 31, 1999. There were
no exercises of options during 1999. Value is calculated as the difference
between the last sales price of the common stock and the exercise price at
December 31, 1999, the last day the common stock traded during 1999. Upon
consummation of the itract merger, all outstanding options of Margo will vest
and become immediately exercisable. The information in the table is based on the
original vesting schedule of the options without taking into account that such
options will become automatically exercisable as part of the itract merger.
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying In-The-Money
Unexercised Options Options at
at 12/31/99 12/31/99 (1)(2)
--------------------------- ----------------------------
Shares
Acquired Value
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
------ ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Spector(1) - - 31,000 11,500 $331 $1,325
</TABLE>
---------------
(1) Includes 12,500 options held by Margaret D. Spector, the wife of
Michael J. Spector.
(2) Based on the last sales price of $25/16 per share on December 31, 1999
and an exercise price of $3.16, $3.44 and $1.65 for 20,000, 10,500 and
500 exercisable options, respectively, and an exercise price of $3.44,
$1.65 and $2.75 for 7,000, 2,000 and 2,500 of unexercisable options,
respectively.
Employment Contracts
Margo does not have an employment contract with Michael J. Spector.
Salary Deferral Retirement Plan
During 1998, Margo established a Salary Deferral Retirement Plan (the
"Retirement Plan") under the provisions of the Puerto Rico Internal Revenue Code
of 1994. The retirement plan only covers employees of Margo Caribe, Inc., the
parent company, who are at least 21 years of age and have completed one year of
service. Under the terms of the retirement plan, Margo matches up to 100% of the
pre-tax contributions made by its employees in an amount equal to 10% of their
basic salary subject to a maximum of $8,000. For the year ended December 31,
1999, Margo paid approximately $38,000 representing the matching contributions
under the retirement plan for all participants.
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<PAGE>
Share Ownership of Management and Certain Shareholders
The following tables set forth, as of June 1, 2000, the number of shares of
common stock of Margo owned beneficially by the following persons: (a) each
director of Margo; (b) all executive officers and directors of Margo as a group;
and (c) each person known to Margo who owns more than 5% of the outstanding
common stock of Margo. Unless otherwise stated, all shares are held with sole
investment and voting power. The amount of shares shown below includes, as
described in footnote 1, the amount of shares that the named person has the
right to acquire pursuant to the exercise of stock options. All outstanding
options of Margo will vest and become immediately exercisable upon consummation
of the itract merger.
Security Ownership as of June 1, 2000
<TABLE>
<CAPTION>
Name
(Position with the Company) Amount Beneficially Owned(1) Percent of Class(1)
--------------------------- ---------------------------- -------------------
<S> <C> <C>
Michael J. Spector 1,279,182(2) 66.5%
(Executive Officer and Director)
Margaret D. Spector 1,279,182(2) 66.5%
Carr. 690, Km. 5.8
Vega Alta, Puerto Rico 00646
(Executive Officer and Director)
J. Morton Davis 185,249(3) 9.8%
D.H. Blair Holdings, Inc.
D.H. Blair Investment Banking Corp.
44 Wall Street
New York, New York 1005
(Five Percent Shareholder)
Frederick D. Moss (Director) 20,500 1.1%
Blas R. Ferraiuoli (Director) 16,500 (4)
Michael A. Rubin (Director) 17,500 (4)
All Executive Officers and 1,365,982 68.9%
Directors as a Group
(7 persons)
</TABLE>
-----------------
(1) For each person or group includes the number of shares of common stock
the named person(s) has the right to acquire upon exercise of stock
options as shown below:
o Michael J. Spector and Margaret D. Spector - 42,500 shares
o Frederick D. Moss - 0
o Blas R. Ferraiuoli - 12,500 shares
o Michael A. Rubin - 10,000 shares
o All Executive Officers and Directors as a Group - 91,500 shares
Percent of class does not include shares of common stock issuable upon exercise
of stock options held by other persons.
(2) Includes 939,394 shares held directly by Mr. Spector and 297,288 shares
held by Mrs. Spector. Also includes stock options to acquire 30,000 and
12,500 shares held by Mr. Spector and Mrs. Spector, respectively. The
Spectors share voting and investment power over the shares owned by
each other.
(3) This amount consists of 184,149 shares held in the name of D.H. Blair
Investment Banking Corp., a registered broker-dealer which is
wholly-owned by D.H. Blair Holdings, Inc., which in turn is
wholly-owned by J. Morton Davis and of 1,100 shares owned by Rosalind
Davidowitz, the spouse of Mr. Davis. This amount is based upon a
Schedule 13G dated February 9, 1995, as amended, filed with the SEC.
(4) Less than one percent.
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<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934, as amended, requires
Margo's directors and executive officers to report their ownership of and
transactions in Margo's common stock to the SEC and the National Association of
Securities Dealers. Copies of these reports are also required to be supplied to
Margo. Specific dates for filing these reports have been established by the SEC,
and Margo is required to report in the annual report any failure of its
directors and executive officers to file by the relevant due date any of these
reports during the fiscal year ended December 31, 1999. Based solely on its
review of the copies of the report received by it, Margo believes that all such
filing requirements were satisfied, except that each of Blas R. Ferraiuoli,
Frederick D. Moss, Michael Rubin and Margaret D. Spector failed to timely file
one report each, related to receipt of stock options. Frederick D. Moss failed
to timely file two additional reports related to three purchases of common stock
and Rene Llerandi failed to timely file one report related to the purchase of
common stock.
Performance Graph
The following performance graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement/prospectus into any filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that Margo specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
The Performance Graph compares the yearly percentage change in Margo's
cumulative total stockholder return on its common stock to that of the Center of
Research in Securities Prices ("CRSP") Index for NASDAQ Stock Market (US
Companies) and a Peer Group Index. The Peer Group Index consists of corporations
engaged in the nursery business (Calloways Nursery Inc., Hines Horticulture Inc.
and Griffin Land and Nurseries Inc.) The Performance Graph assumes (1) that $100
was invested on December 30, 1994 in the case of each of the CRSP Index for
NASDAQ Stock Market (U.S. Companies), the Peer Group Index and Margo's common
stock; and (2) the reinvestment of all dividends.
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<PAGE>
Comparison of Five-Year Cumulative Total Returns
Performance Graph for
Margo Caribe, Inc.
[GRAPH OMITTED]
Legend
<TABLE>
<CAPTION>
CRSP Total Returns Index for: 12/1994 12/1995 12/1996 12/1997 12/1998 12/1999
---------------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Margo Caribe, Inc. 100.0 161.0 125.6 73.2 92.7 90.2
Nasdaq Stock Market (US Companies) 100.0 141.3 173.9 213.1 300.4 557.6
Self-Determined Peer Group 100.0 70.6 70.6 129.4 200.3 188.5
</TABLE>
Companies in the Self-Determined Peer Group
CALLOWAYS NURSERY INC GRIFFIN LAND AND NURSERIES INC
HINES HORTICULTURE INC
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 12/30/1994.
25
<PAGE>
PROPOSED REINCORPORATION MERGER AND MERGER WITH ITRACT
General
This proxy statement/prospectus is being furnished to Margo
shareholders in connection with the solicitation of proxies by Margo's board of
directors from holders of the shares of Margo common stock for use at the annual
shareholders' meeting to be held on ________, 2000. This proxy
statement/prospectus also constitutes a prospectus of Holdings, which is part of
a registration statement on Form S-4 filed with the SEC under the Securities
Act, in order to register the shares of Holdings common stock to be issued to
the holders of shares of Margo common stock and holders of itract membership
units.
Background of the Transaction
Since the early part of 1998, the board of directors of Margo
determined that it had to seek alternatives to enhance shareholder value. Margo
began by looking for ways to become more efficient such as eliminating its
unprofitable Florida operations. These efforts began to bear results with sales
increasing by 16% during 1999 and the net losses from operations being reduced
to $128,000 for 1999, compared to $1,113,000 for 1998. The board also examined
the possibility of diversifying into real estate development. Puerto Rico's
residential construction market has experienced various years of strong growth.
To this end, Margo organized a real estate development company in the early part
of 1998 and in August 1999 Margo optioned a 109 acre site for possible
development as a real estate project. Despite these efforts the stock price of
Margo continued to trade below book value.
During the later part of December 1999, Michael J. Spector, the
Chairman of the Board and Chief Executive Officer of Margo was approached by
Alan Stahler, an investment banker based in New York City. Mr. Stahler asked Mr.
Spector whether Margo would consider the possibility of merging with an
early-stage Internet company. Mr. Stahler is the son-in-law of J. Morton Davis,
the principal shareholder of D.H. Blair Investment Banking Corporation, which
owns approximately 9.8% of Margo's outstanding common stock prior to the
contemplated transactions.
Mr. Stahler explained that this type of transaction would allow Margo
shareholders the ability to participate at an early stage in an Internet
company. It would also provide the Internet company with a vehicle for becoming
a publicly held company without some of the costs and uncertainties involved in
a public offering.
On December 30, 1999, Mr. Spector met in New York City with Mr. Davis
and Mr. Henry Kaufthiel, Chairman of ICES. ICES owns equity interests in various
early-stage Internet companies. Certain affiliates of Mr. Davis have equity
interests in ICES, and ICES through another entity owns approximately 92% of the
equity interests of itract LLC. At the meeting, Mr. Kaufthiel explained to Mr.
Spector the various Internet businesses that were being developed by ICES.
During the first two weeks of January 2000, Mr. Spector met various
times with Margo's outside counsel as well as with Blas Ferraiuoli and Michael
Rubin, two of Margo's outside directors, to generally discuss the type of
transaction that Margo might engage in with one of the Internet companies
affiliated with ICES.
On January 18, 2000, Mr. Spector met in New York with Mr. Stahler, Mr.
Davis and Mr. Kaufthiel and other representatives of ICES. At the meeting,
representatives of itract presented their business plan for the first three
years of operations.
On January 19, 2000, Mr. Davis informed Mr. Spector that he felt that
itract LLC would be willing to pursue a merger transaction with Margo in which
the members of itract would receive approximately 88% of the outstanding common
stock of the resulting company in the merger.
During the next two weeks, Mr. Spector discussed the idea of a possible
merger on general terms with members of Margo's board of directors and outside
attorneys. During this period, Mr. Spector requested more detailed financial
projections from itract, which he received on January 27, 2000.
26
<PAGE>
During the week of January 31, 2000 Mr. Spector invited Mr. Kaufthiel
and other members of the itract management to come to Puerto Rico and make a
detailed presentation to Margo's board of directors. Mr. Spector also invited
Mr. Stahler and Mr. Davis to attend the meeting.
Mr. Kaufthiel accepted Mr. Spector's invitation and itract made a
presentation of its business plan and projections to Margo's board of directors
on February 7, 2000 in San Juan, Puerto Rico. Immediately following the meeting,
Margo's board of directors held a special meeting and authorized Mr. Spector to
negotiate and execute a non-binding letter of intent with itract. Negotiations
between the parties continued during February 7 and February 8 and a non-binding
letter of intent was executed in the evening of February 8, 2000. Under the
terms of the letter of intent, the holders of membership units of itract are
entitled to receive approximately 88% of the outstanding common stock of Margo
following the merger.
On February 10, 2000, Margo's board of directors voted to create a
committee consisting of its independent board members to review the proposed
transaction with itract. On March 9, 2000, Margo retained the services of the
Schwartz Heslin Group, Inc., an independent investment banking firm, to render
an opinion on the fairness of the proposed merger to Margo's shareholders from a
financial point of view.
In the weeks following the signing of the letter of intent,
representatives of Margo and itract conducted due diligence investigations,
studied the tax implications of the transaction and negotiated the terms of the
merger agreement. On April 4, 2000, Margo's board of directors held a special
meeting to review the recommendations of the special committee and the report
made by the Schwartz Heslin Group, Inc. The board subsequently voted to approve
the merger agreement, subject to such minor changes as management might deem
advisable.
Further negotiations ensued. As a result of such negotiations, the
percentage ownership to be received by the members of itract was reduced from
88% to 86.8%. This reduction was based on Margo's understanding that certain
amounts owed by itract to ICES and its affiliated entities reduced the value of
itract. A special board meeting was held on April 11, 2000 to approve the final
terms of the merger agreement. Margo's board of directors once again approved
the agreement and the merger agreement was executed in the evening of April 11,
2000.
Recommendations of Margo's Board of Directors and Reasons for the Transactions
Margo's board of directors believes that the proposed transactions are
fair to, and in the best interests of, Margo and its shareholders. Accordingly,
Margo's board of directors has unanimously approved the merger agreement with
Holdings and the purchase agreement with Empresas Margo, Inc. and recommends
that Margo shareholders vote FOR the approval and adoption of those agreements
and the transactions contemplated thereby.
Margo's board of directors believes that the consummation of the
transactions present an opportunity for Margo shareholders to participate in a
growing sector of commerce and the economy--the Internet.
In reaching its decision to approve the reincorporation merger and the
sale of the existing nursery and other subsidiaries and recommend their approval
to Margo's shareholders, Margo's board of directors consulted with Margo's
management, as well as with its financial and legal advisors, and considered a
variety of factors, including the following:
o Market prices of its common stock over recent periods.
o The business prospects of its existing nursery and related
operations.
o Margo's going concern value.
o Margo's inability to obtain crop insurance for damage caused
by hurricanes.
o The future prospects of itract in the Internet marketing
business, as contemplated by itract's business plan.
27
<PAGE>
o A review of possible alternatives, including continuing as a
publicly or privately held corporation.
o The written opinion of Schwartz Heslin Group, Inc. that, as of
the date of such opinion and based upon and subject to certain
matters stated in such opinion, the conversion ratio is fair,
from a financial point of view, to Margo's shareholders. A
copy of such opinion, which sets forth the assumptions made,
matters considered and limitations on the review undertaken,
is attached as Appendix D to this proxy statement/prospectus
and is incorporated herein by reference.
o The structure and terms of the merger agreement with itract.
The above discussion of the information and factors considered by
Margo's board of directors is not intended to be exhaustive, but includes all
material factors considered by the board. In reaching its determination to
approve and recommend the merger, Margo's board of directors did not assign any
relative or specific weights to the foregoing factors, and individual directors
may have given differing weights to different factors. Margo's board of
directors unanimously recommends that Margo shareholders vote FOR adoption and
approval of the merger agreement.
Opinion of Financial Advisor Regarding Merger with itract
Margo retained Schwartz Heslin Group, Inc. ("Schwartz Heslin") to act
as its financial advisor to render a fairness opinion in connection with the
itract merger, based on Schwartz Heslin's qualifications, expertise and
reputation. On April 11, 2000, Scwartz Heslin rendered to Margo's board of
directors its written opinion that, as of such date and based upon the
considerations set forth in the opinion, the itract merger was fair from a
financial point of view to the holders of the shares of Margo's common stock.
The full text of the Scwartz Heslin opinion is attached as Appendix D to this
proxy statement/prospectus.
Margo's stockholders are urged to read the opinion carefully and in its
entirety. The Schwartz Heslin opinion is directed to Margo's board of directors,
addressed only the fairness of the itract merger transaction from a financial
point of view to the holders of the shares of Margo common stock, and does not
address any other aspect of the itract merger or constitute a recommendation to
any of Margo's stockholders or the members of itract as to how such stockholders
or members should vote on the merger. This summary is qualified in its entirety
by reference to the full text of such opinion.
Pursuant to an engagement agreement dated March 8, 2000, Schwartz
Heslin was engaged by Margo's board of directors to render an opinion as to
whether the itract merger was fair to the shareholders of Margo from a financial
point of view. In rendering the opinion, it was Schwartz Heslin's understanding
that the itract merger is the merger of a subsidiary of Holdings with itract
whereby Holdings would acquire itract in an all stock transaction. In the
reincorporation merger, Margo's existing common stock would be exchanged for
shares of common stock of Holdings. itract's members would receive shares of
Holdings common stock representing 86.8% of Holdings common stock after the
itract merger (on a fully diluted basis).
Schwartz Heslin is a firm that provides a broad range of financial
consulting and advisory services. Schwartz Heslin has been engaged in a number
of transactions to render valuation and fairness opinions for both private and
public companies. Schwartz Heslin has previously not provided any financial
advisory services to Margo or itract.
For purposes of its opinion and in connection with its review of the
itract merger, Schwartz Heslin reviewed and analyzed, among other things, the
following: (a) the itract merger agreement; (b) the letter of intent, dated
February 8, 2000; (c) itract's Business Plan, dated March 17, 2000; (d) certain
internal information, financial and operational in nature (including projections
prepared by management of itract and ICES) concerning the business and
operations of itract; (e) the unaudited balance sheet and income statement of
itract as of February 29, 2000; and (f) audited financial statements for Margo
for the years ended December 31, 1999 and 1998.
Schwartz Heslin considered such other information, financial studies,
analyses, investigations and financial, economic and market criteria that it
deemed relevant. Schwartz Heslin also had discussions with certain officers and
employees of Margo and itract to review the foregoing as well as other matters
it believed relevant to its analysis.
28
<PAGE>
In connection with its opinion, with Margo's permission and without any
independent verification, Schwartz Heslin relied on the accuracy and
completeness of all the financial and other information reviewed by it,
furnished, or otherwise communicated to it by Margo or obtained by Schwartz
Heslin from publicly available sources. Schwartz Heslin did not make an
independent valuation or appraisal of the assets or liabilities of Margo and was
not furnished with any such valuation or appraisal. Any inaccuracies in the
information on which Schwartz Heslin relied could materially affect its opinion.
In conjunction with rendering its written opinion dated April 11, 2000
to the board of directors of Margo, Schwartz Heslin presented a summary of its
analysis to the Board on April 4, 2000. Set forth below is a brief summary of
the analyses performed by Schwartz Heslin in reaching its April 11, 2000
opinion.
Market Approach.
Under this approach, Schwartz Heslin used three valuation methods: (1)
the guideline company method, (2) the merger and acquisition method, and (3) the
industry performance guideline method.
Under the guideline company method, Schwartz Heslin selected six
comparable companies and calculated median market multiples based on the ratio
of market value to revenues, earnings before interest, taxes, depreciation and
amortization ("EBITDA") and net income. Applying these multiples to itract's
forecasted values produced a potential value for itract of $119 million. The
comparable public companies were: Clickaction, Inc., Doubleclick, Inc., Siebel
Systems, Inc., Digital Impact, Inc., Exactis.com, Inc., and 24/7 Media, Inc.
Under the merger and acquisition method, Schwartz Heslin determined
price multiples for selected similar businesses that have recently been sold.
The price multiples used were price to total assets, price to equity and price
to revenue for each of three projected years, weighted more for the first year.
The median multiples calculated were applied to the projected itract values.
Each multiple was also weighted based on observations of current Internet
company valuations. The application of this method produced a potential value
for itract of $43 million.
Under the industry performance guideline method, industry multiples
were selected for similar businesses that have publicly available financial
information. The price multiples used were price to total assets, price to
equity and price to revenue for each of three projected years (weighted more for
the first year). The median multiples calculated were applied to the projected
itract values. Each multiple was also weighted based on observations of current
Internet company valuations. The application of this method produced a potential
value for itract of $90.5 million.
Income Approach.
Under the income approach, Schwartz Heslin performed a discounted cash
flow analysis of itract based on the forecasted information provided by itract's
management. The projected cash flows were discounted to present values using a
discount rate of 33.41%, which reflect different assumptions regarding the
required rates of return of holders and prospective buyers of Holdings common
stock. The application of this method produced a potential value for itract of
$41 million.
Implied Market Value.
Schwartz Heslin considered the public market's reaction to the
announcement of the itract merger. The publicly traded stock of Margo rose
substantially after the announcement of the itract merger, indicating that the
market views the itract merger favorably. The price of Margo's common stock
increased from $5.75 per share immediately prior to the announcement to $35 per
share shortly after the announcement, and closed at $17 per share on February 9,
2000, the day of the announcement. The stock price has fluctuated between
approximately $11 and $30 per share from February 10, 2000 to March 31, 2000, on
relatively low volume. The volatility in the stock price tends to indicate that
trading in Margo's common stock is being done in a highly speculative manner
with respect to the value of itract. Nevertheless, the trading prices for
Margo's common stock provides an indication of the perceived value
29
<PAGE>
of itract, although not necessarily its fair value. Using these trading values
and applying a discount factor, after taking into consideration the dilution to
Margo's shareholders as a result of the itract merger, provides a potential
value for itract of $38 million.
No company or transaction used in the above analyses is identical to
Margo, itract or the itract merger. Accordingly, an analysis of the results of
the foregoing is not mathematical; rather, it involves complex considerations
and judgments concerning differences in financial and operating characteristics
of the companies and other facts that could affect the public trading value of
the companies to which they are being compared.
The material analyses performed by Schwartz Heslin have been summarized
above. Nonetheless, the summary set forth above does not purport to be a
complete description of the analyses performed by Schwartz Heslin. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances. Therefore, such an opinion is not
readily susceptible to a summary description. Schwartz Heslin did not form a
conclusion as to whether any individual analysis, considered in isolation,
supported or failed to support an opinion as to fairness. Rather, in reaching
its conclusion, Schwartz Heslin considered the results of the analyses in light
of each other and ultimately reached its opinion based on the results of all
analyses taken as a whole. Schwartz Heslin did not place a particular reliance
or weight on any particular analysis, but instead concluded that its analyses,
taken as whole, supported its determination.
In performing its analyses, Schwartz Heslin made numerous assumptions
with respect to itract's performance, general business and economic conditions
and other matters. The analyses performed by Schwartz Heslin are not necessarily
indicative of future actual values or future results, which may be significantly
more or less favorable than suggested by such analyses. The analyses do not
purport to be appraisals or to reflect prices at which a company might actually
be sold or the prices at which any securities may trade at the present time or
at any time in the future. Schwartz Heslin used in its analyses various
projections of future performance prepared by the management of itract. The
projections were based on numerous variables and assumptions which are
inherently unpredictable and must be considered not certain of occurrence as
projected. Accordingly, actual results could vary significantly from those
assumed in the projections and any related analyses. Schwartz Heslin has not
expressed an opinion or given any form of assurance for the underlying data
presented in their opinion and/or their valuation report nor has Schwartz Heslin
expressed any opinion or given any form of assurance that itract can achieve its
business plan. Furthermore, Schwartz Heslin's opinion does not address the
relative merits of the itract merger as compared to any alternative business
strategies that might exist for Margo or the effect of any other business
combination in which Margo might engage.
Pursuant to the terms of Schwartz Heslin's engagement, Margo has agreed
to pay Schwartz Heslin for its financial advisory services in connection with
the fairness opinion an aggregate fee of $25,000. Margo also has agreed to
reimburse Schwartz Heslin for reasonable out-of-pocket expenses incurred by it
in performing its services, including fees and expenses for legal counsel and
other advisors, and to indemnify Schwartz Heslin and certain related persons and
entities against certain liabilities, including liabilities under the federal
securities laws, arising out of Schwartz Heslin's engagement.
Terms of the Merger Agreement with Holdings
This section of the proxy statement/prospectus describes material
provisions of the merger agreement with Holdings. The description of the merger
agreement contained in this proxy statement/prospectus does not purport to be
complete. For a complete understanding of the terms and conditions of the merger
agreement, all of Margo's shareholders are urged to read the entire merger
agreement, attached as Appendix A to this proxy statement/prospectus carefully
and in its entirety.
General
Holdings, a corporation organized under the laws of the State of
Delaware, was established to accomplish the reincorporation of Margo in Delaware
pursuant to the proposed merger of Margo and Holdings. As a result of the
reincorporation merger, all current Margo shareholders will have the same equity
interest in Holdings as they now
30
<PAGE>
have in Margo. However, upon consummation of the merger with itract, Margo
shareholders will own, on a fully diluted basis, 13.2% of the outstanding common
stock of Holdings. Prior to the consummation of the proposed reincorporation
merger, Margo will have sold its nursery and other subsidiaries pursuant to the
stock purchase agreement with Empresas Margo, Inc. See, "Sale of Business"
below.
Upon consummation of the proposed reincorporation, Margo will be merged
with and into Holdings, with Holdings being the surviving corporation of such
merger. All holders of Margo common stock will become holders, on a
share-for-share basis, of shares of common stock of Holdings having the same
rights with respect to Holdings as their shares of Margo common stock now have
with respect to Margo. Holdings will succeed to all rights, assets, liabilities
and obligations of Margo. The closing of the reincorporation merger would occur
immediately prior to the closing of the merger with itract.
Purpose
The reason for the reincorporation of Margo as a Delaware corporation
is that it allows the merger with itract, as discussed below, to qualify as a
tax-free exchange for most of the members of itract for federal income tax
purposes. Also, Delaware is one of the preferred jurisdictions for public
companies because of its established body of corporate law. Thus, Margo and
itract believe that being a Delaware corporation will help Holdings' ability to
obtain debt and equity financing in the future.
Conversion of Shares
Pursuant to the terms and conditions of the merger agreement, each
share of Margo common stock, $0.001 par value, which is outstanding immediately
prior to the merger will be converted into one share of common stock, $0.001 par
value, of Holdings having the same rights, powers, qualifications, limitations
and restrictions with respect to Holdings as the Margo common stock presently
has with regard to Margo.
It will not be necessary for shareholders to surrender their
certificates. Certificates representing Margo common stock will be deemed to be
certificates for an equal number of shares of Holdings common stock. After the
merger, certificates that previously represented Margo common stock will be
replaced by certificates representing Holdings common stock when submitted to
the transfer agent with a request that they be so replaced or when presented for
transfer. If any certificate is to be reissued in a name other than that in
which the certificate surrendered is registered, the person requesting such
exchange shall pay any transfer or other taxes incident thereto.
Conditions of Merger
Consummation of the merger with Holdings is subject to fulfillment, on
or before the effective time of the merger, of the following conditions: (1)
approval by the holders of a majority of the outstanding shares of Margo common
stock, (2) satisfaction of all conditions to the consummation of the merger with
itract, as discussed below, and (3) receipt of a ruling from the Puerto Rico
Treasury Department and an opinion of counsel from Pietrantoni Mendez & Alvarez
LLP to the effect that the merger constitutes a tax-free reorganization under
the Puerto Rico Internal Revenue Code of 1994, as amended.
Termination
At any time prior to the consummation of the reincorporation merger,
the merger agreement may be terminated and the merger abandoned by the board of
directors of Margo. The board of directors would abandon the merger if the
conditions set forth above are not satisfied.
Stock Options
All options to purchase Margo common stock outstanding as of the
effective time of the reincorporation merger shall, by virtue of such merger and
without any further action on the part of Margo or the holders of such options,
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<PAGE>
be converted into the options to acquire the same number of shares of Holdings
common stock and for the same exercise price.
Dissenters' Rights of Appraisal
Pursuant to Section 10.12 of the Puerto Rico General Corporations Law
of 1995 ("PRGCL"), the holder of record of any shares of Margo common stock who
does not vote such holder's shares in favor of adoption and approval of the
merger agreement with Holdings may assert appraisal rights and elect to have the
"fair value" of such holder's shares of Margo common stock determined and paid
to such holder, provided that such holder complies with the requirements of
Section 10.12 of the PRGCL, summarized below. All references to and summaries of
the rights of Margo dissenting shareholders are qualified in their entirety by
reference to the text of Section 10.12 of the PRGCL which is attached to this
proxy statement/prospectus as Appendix F.
Any shareholder entitled to vote on the merger who desires that Margo
purchase the shares of Margo common stock held by such shareholder (the
"dissenting shares") must not vote in favor of adoption and approval of the
reincorporation merger. Shares of Margo common stock voted in favor of adoption
and approval of the reincorporation merger will be disqualified as dissenting
shares.
Shareholders whose shares are not voted in favor of adoption and
approval of the reincorporation merger and who, in all other respects, follow
the procedures specified in Section 10.12 of the PRGCL, will be entitled to have
their Margo common stock appraised by the Puerto Rico Court of First Instance
(the "Court") and to receive payment of the "fair value" of such shares,
exclusive of any element of value arising from the accomplishment or expectation
of the merger, as determined by the Court. The procedures set forth in Section
10.12 of the PRGCL must be strictly complied with. Failure to follow any such
procedures will result in a termination or waiver of the shareholders' appraisal
rights under Section 10.12 of the PRGCL.
Under Section 10.12 of the PRGCL, a holder of Margo common stock
electing to exercise appraisal rights must:
1. Deliver to Margo, before taking of the vote on the merger, a
written demand for appraisal of such holder's Margo common
stock which reasonably informs Margo of the identity of the
shareholder of record and that such record shareholder intends
to demand appraisal of such holder's shares. Such written
demand is in addition to and separate from any consent or vote
with respect to the reincorporation merger. Neither a vote
against, nor abstention from voting with respect to the
reincorporation merger, nor a failure to consent to the
merger, will satisfy the requirement that a written demand for
appraisal be delivered to Margo before the vote on the merger.
Such written demand for appraisal should be delivered either
in person to the Secretary of Margo, or by mail to Road 690,
Kilometer 5.8, Vega Alta, Puerto Rico 00692, Attention:
Secretary of Margo, prior to _______, 2000; and
2. Not vote in favor of, or consent in writing to, the
reincorporation merger. A failure to vote against the merger,
or not respond to a request for written consent, will not
constitute a waiver of appraisal rights.
The written demand for appraisal must be made by or for the holder of
record of shares of Margo common stock. Accordingly, such demand must be
executed by or for such shareholder of record, fully and correctly, as such
shareholder's name appears on the stock certificates representing the shares. If
the applicable shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be made in such
capacity, and if the applicable shares are owned of record by more than one
person, as in a joint tenancy or tenancy in common, such demand should be
executed by or for all joint owners. An authorized agent, including one of two
or more joint owners, may execute the demand for appraisal for a shareholder of
record. However, the agent must identify the record owner(s) and expressly
disclose the fact that, in executing the demand, the agent is acting as agent
for the record owner(s).
A record owner, such as a broker, who holds shares as nominee for other
persons may exercise appraisal rights with respect to the shares held for all or
less than all of such other persons. In such case, the written demand should
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set forth the number of shares covered by it. Where no number of shares is
expressly mentioned, the demand will be presumed to cover all of the shares
outstanding in the name of such record owner.
Within 10 days after the effective time of the merger, Margo is
required to, and will, notify each shareholder who has satisfied the foregoing
conditions of the date on which the effective time occurred and that appraisal
rights are available with respect to shares for which a demand has been
submitted. Within 120 days after the effective time, Margo, or any such
shareholder who has satisfied the foregoing conditions and otherwise is entitled
to appraisal rights under Section 10.12 of the PRGCL, may file a petition in the
Court demanding a determination of the value of the shares held by all
shareholders entitled to appraisal rights. If no such petition is filed,
appraisal rights will be lost for all shareholders who previously had demanded
appraisal of their shares. Shareholders of Margo seeking to exercise appraisal
rights should not assume that Margo will file a petition with respect to the
appraisal of the value of their shares or that Margo will initiate any
negotiations with respect to the "fair value" of such shares. Accordingly, such
shareholders should regard it as their obligation to take all steps necessary to
perfect their appraisal rights in the manner prescribed in Section 10.12 of the
PRGCL.
Within 120 days after the date of the effective time, any shareholder
who has complied with the applicable provisions of Section 10.12 of the PRGCL
will be entitled, upon written request, to receive from Margo a statement
setting forth the aggregate number of shares not voted in favor of the
reincorporation merger and with respect to which demands for appraisal were
received by Margo, and the number of holders of such shares. Such statement must
be mailed within 10 days after the written request therefor has been received by
Margo or within 10 days after expiration of the period for delivery of demands
for appraisal, whichever is later.
If a petition for an appraisal is timely filed, at the hearing on such
petition the Court will determine the shareholders of Margo entitled to
appraisal rights. After determining the shareholders entitled to an appraisal,
the Court will appraise the value of the shares of Margo common stock owned by
such shareholders, determining the "fair value" of such shares exclusive of any
element of value arising from the accomplishment or expectation of the
reincorporation merger and the transactions described herein.
The Court will direct payment by Margo of the fair value of such shares
together with a fair rate of interest, if any, on such fair value to
shareholders entitled thereto upon surrender to Margo of stock certificates. 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
shareholder, the Court may, in its discretion, order that all or a portion of
the expenses incurred by any shareholder in connection with an appraisal
proceeding, including, without limitation, reasonable attorneys' fees and fees
and expenses of experts, be charged pro rata against the value of all the shares
entitled to appraisal.
Although Margo believes that the merger is fair, no representation is
made as to the outcome of the appraisal of fair value as determined by the
Court, and shareholders should recognize that such appraisal could result in a
determination of a value higher or lower than, or the same as, the consideration
to be received in the merger. Moreover, Margo does not presently anticipate
offering cash consideration in excess of the fair market value of such merger
consideration (calculated as of the completion of the merger) to any shareholder
exercising appraisal rights, and reserves the right to assert, in any appraisal
proceeding, that, for purposes of Section 10.12 of the PRGCL the "fair value" of
a share of Margo common stock is less than the fair market value of such merger
consideration (calculated as of the completion of the merger) that would
otherwise be received by such shareholder. In determining the "fair value" of
shares of Margo common stock, the Court is required to take into account all
relevant factors. Therefore, such determination could be based upon
considerations other than, or in addition to, the price paid for shares and the
asset value of shares of Margo common stock, including, without limitation, the
market value of shares and the asset values and earning capacity of Margo.
Section 10.12 of the PRGCL provides that "fair value" is to be "exclusive of any
element of value arising from the accomplishment or expectation of the merger."
Any holder of shares of Margo common stock who has demanded an
appraisal in compliance with Section 10.12 of the PRGCL will not, after the
effective time of the merger, be entitled to vote such holder's shares for any
purpose nor be entitled to the payment of dividends or other distributions on
such shares other than those payable to shareholders of record as of a date
prior to the effective time of the merger.
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If no petition for an appraisal is filed within 120 days after the date
of the effective time, or if a holder of shares delivers to Margo a written
withdrawal of such holder's demand for an appraisal and an acceptance of the
merger either within 60 days after the effective time or with the written
approval of Margo after such period, then the right of such shareholder to an
appraisal will cease and such shareholder will receive the merger consideration
for their Margo shares and become a shareholder of Holdings. Margo reserves the
right to give or withhold such written approval in its sole discretion. No
appraisal proceeding in the Court will be dismissed as to any shareholder
without the approval of the Court, which approval may be conditioned on such
terms as the Court deems just.
Federal and Puerto Rico Income and Other Tax Consequences of the Reincorporation
Merger
The following discussion summarizes certain Federal and Puerto Rico tax
aspects of the proposed reincorporation merger. This discussion is based on the
United States Internal Revenue Code of 1986, as amended (the "Code"), the Puerto
Rico Internal Revenue Code of 1994, as amended (the "PR Code") and the Puerto
Rico Municipal Property Tax Act of 1991, as amended (the "MPTA"), all as in
effect on the date of this proxy statement.
Some portions of the discussion are based on the assumption that (1) at
the time of the reincorporation merger the fair market value of Holdings common
stock would be approximately equal to the fair market value of Margo common
stock surrendered pursuant thereto, (2) at the time of the reincorporation
merger there is no plan or intention by the shareholders of Margo to sell,
exchange, or otherwise dispose of any shares of Holdings received in the
reincorporation merger that would reduce the Margo shareholders' ownership of
Holdings common stock to a number of shares having a value, as of the date of
the reincorporation merger of less than 50% of the value of all of the formerly
outstanding common stock of Margo (including Margo shares held by dissenters and
Margo shares redeemed prior to the reincorporation merger) as of the date of the
reincorporation merger, (3) there is no plan or intention to have Holdings
reacquire any of its common stock issued in the reincorporation merger, (4) the
liabilities of Margo assumed by Holdings, plus the liabilities, if any, to which
the assets are subject, were incurred by Margo in the ordinary course of its
business, (5) the fair market value of the assets of Margo transferred to
Holdings will equal or exceed the sum of the liabilities assumed by Holdings,
plus the amount of liabilities, if any, to which-the transferred assets are
subject, (6) following the reincorporation merger, Holdings would continue to
conduct a business and, (7) Margo, its shareholders and Holdings would pay their
respective expenses, if any, incurred in connection with the reincorporation
merger.
This discussion does not address all aspects of Federal and Puerto Rico
taxation that may be relevant to a holder of Margo or Holdings common stock in
light of that shareholder's particular circumstances or to a shareholder subject
to special rules such as: (1) an individual shareholder that is not a citizen of
the United States; (2) a financial institution or insurance company; (3) a
tax-exempt organization; (4) a dealer or broker in securities; or (5) a
shareholder that holds Margo or Holdings common stock or that acquired Margo or
Holdings common stock pursuant to the exercise of options or otherwise as
compensation.
Margo strongly urges each holder of Margo common stock to consult his
or her tax advisor to determine the Federal and Puerto Rico tax consequences of
the merger that may be applicable to the particular shareholder.
Federal Income Tax Consequences
Margo
For purposes of the Code, the reincorporation merger would be treated
as a taxable sale by Margo of each of its appreciated tangible and intangible
assets to Holdings in exchange for Holdings common stock and a distribution by
Margo to its shareholders of Holdings' common stock.
Since at the effective time of the reincorporation merger Margo will be
considered a foreign corporation that is not engaged in a United States trade or
business under the Code, Margo will not be subject to Federal income tax on such
a gain.
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Holdings
Holdings would not be required to recognize any gain or loss on the
receipt of Margo's tangible and intangible assets in exchange for Holdings
common stock.
The Shareholders
The reincorporation merger would be treated as a taxable exchange for
federal income tax purposes by a shareholder of Margo common stock for Holdings'
common stock. Thus, Margo shareholders would generally be required to recognize
a gain or loss on the exchange of the Margo common stock for Holdings' common
stock under the Code measured by the difference as of the effective time of the
reincorporation merger between the fair market value of Holdings' common stock
received and the holder's tax basis in the Margo common stock.
Holders of Margo common stock that are corporations organized under the
laws of the Commonwealth of Puerto Rico, would be subject to federal income tax
on gains derived from the exchange of Margo common stock for Holdings' common
stock only if the gain is effectively connected to a U.S. trade or business
carried on by such corporation.
Gains, if any, from exchange of the Margo's common stock for Holdings'
common stock by individuals who are bona fide residents of Puerto Rico during
the entire taxable year generally is treated as Puerto Rico source income and
therefore excluded from U.S. Federal income taxation if the Puerto Rico resident
pays a Puerto Rico income tax at an effective rate of at least 10% on the gain.
Because such gain is subject to tax in Puerto Rico at progressive rates that
generally exceed 10%, in many cases it will be excluded from U.S. taxation under
this rule. However, a resident of Puerto Rico who is not subject to a 10% tax on
gain from the sale of such holder's Margo common stock nevertheless may treat
the gain as Puerto Rico source income not subject to U.S. Federal income tax if
the requirements of Notice 89-40 are met. The Code provisions governing the
source of the gain authorizes the Secretary of the Treasury to issue regulations
making the 10% tax requirement inapplicable to bona fide residents of Puerto
Rico. In Notice 89-40, the IRS announced that regulations would be issued that
would provide that gain from the sale of stock individuals who had been bona
fide residents of Puerto Rico for the entire taxable year would be Puerto Rico
source, and therefore excluded from U.S. Federal income taxation, whether or not
the individual paid a 10% on the gain to Puerto Rico. Unless contrary authority
is issued, an individual resident of Puerto Rico who meets the conditions
described in the notice may treat a gain from the exchange of the Margo common
stock for Holdings' common stock as Puerto Rico source income.
Dividends Paid by Holdings
Dividends paid by Holdings out of its earnings and profits to its
shareholders would constitute ordinary gross income for purposes of the Code.
Sale or Exchange of Holdings' common stock
Holders of Holdings' common stock would be required to recognize a gain
or loss on the sale, exchange or other disposition of Holdings' common stock for
federal income tax purposes under the Code.
Corporations organized under the laws of the Commonwealth of Puerto
Rico would be subject to U.S. Federal income tax on gains derived from the sale,
exchange or other disposition of Holdings' common stock only if the gain is
effectively connected to a U.S. trade or business carried on by such
corporation.
Gains, if any, from the sale, exchange or other disposition of the
Holdings' common stock by individuals who are bona fide residents of Puerto Rico
during the entire taxable year generally are treated as Puerto Rico source
income and, therefore, excluded from U.S. taxation if the Puerto Rico resident
pays a Puerto Rico income tax at an effective rate of at least 10% on the gain.
Because such gain is subject to tax in Puerto Rico at progressive rates that
generally exceed 10%, in many cases it will be excluded from U.S. taxation under
this rule. However, a resident of Puerto Rico who is not subject to a 10% tax on
gain from the sale of such holder's Margo common stock
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nevertheless may treat the gain as Puerto Rico source income not subject to
federal income tax if the requirements of Notice 89-40 are met. The Code
provisions governing the source of the gain authorize the Secretary of the
Treasury to issue regulations making the 10% tax requirement inapplicable to
bona fide residents of Puerto Rico. In Notice 89-40, the IRS announced that
regulations would be issued that would provide that gain from the sale of stock
by individuals who had been bona fide residents of Puerto Rico for the entire
taxable year would be Puerto Rico source income, and therefore excluded from
U.S. Federal income taxation, whether or not the individual paid a 10% on the
gain to Puerto Rico. Unless contrary authority is issued, an individual resident
of Puerto Rico who meets the conditions described in the notice may treat a gain
from the sale, exchange or other disposition of the Holdings' common stock as
Puerto Rico source income under the Code.
United States Estate and Gift Taxes
The transfer by death or gift of Holdings' common stock is generally
subject to federal estate and gift taxes under the Code.
Puerto Rico Tax Consequences
Income Tax
Margo, Holdings' and the Shareholders
Margo understands that the reincorporation merger would constitute a
tax-free reorganization for purposes of the PR Code. Under these circumstances:
1. no gain or loss would be recognized by Margo upon the transfer
of its tangible and intangible assets to Holdings in exchange
for Holdings' common stock;
2. no gain or loss would be recognized by Margo upon the
distribution to its shareholders of Holdings' common stock;
3. no gain or loss would be recognized by Holdings upon receiving
Margo's tangible and intangible assets in exchange for
Holdings' common stock; and
4. Margo's shareholders would not recognize gain of loss upon the
deemed exchange of Margo common stock for Holdings' common
stock.
Furthermore, shareholder's basis in Holdings' common stock received in
the reincorporation merger would be the same basis as such holder had in shares
of Margo common stock and the holding period of Holdings' common stock received
by each shareholder would include the holding period of the common stock of
Margo held by such shareholder immediately prior to the reincorporation merger.
Margo has requested a ruling from the Puerto Rico Department of
Treasury to the effect that the reincorporation merger constitutes a tax-free
reorganization under the PR Code. The administrative practice of the Puerto Rico
Department of Treasury is to require as a condition of issuing this ruling that
Margo be deemed to distribute a dividend of its current and accumulated earnings
and profits to its shareholders. To this date, the Puerto Rico Department of the
Treasury has not issued this ruling and no assurance can be given that the
ruling will in fact be issued. The receipt of the ruling confirming the tax-free
reorganization treatment of the reincorporation merger is a condition to the
closing of the itract merger.
A gain realized by a dissenting shareholder on account of surrendering
Margo stock pursuant to the exercise of dissenter rights will generally be
subject to Puerto Rico income taxes.
In the case of a gain realized by a dissenting shareholder not
described in the preceding paragraph, such gain will be subject to Puerto Rico
income tax (and in certain circumstances a tax to be withheld at source of up to
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25% of the consideration received will be imposed) only if (1) in the case of an
individual citizen of the United States, such gain is treated as income derived
from sources within Puerto Rico, or (2) in the case of a foreign corporation or
partnership or non-resident alien individual, such gain is income from sources
within Puerto Rico or is effectively connected with a trade or business in
Puerto Rico. To the extent such gain is subject to Puerto Rico income tax, a
dissenting shareholder that is also subject to Federal income tax on the gain
may not be able to claim the Puerto Rico income tax imposed thereon against the
applicable Federal income tax.
Dividends Paid by Holdings
The shareholders of Holdings that are individuals and residents of
Puerto Rico and corporations or partnerships organized pursuant to the laws of
the Commonwealth of Puerto Rico will be subject to a Puerto Rico income tax as
ordinary income on the total amount of dividends distributed by Holdings from
its earnings and profits.
Sale or Exchange of Holdings' common stock
Any gain realized by a shareholder of Holdings from the sale, exchange
or redemption of Holdings' common stock will not be subject to the Puerto Rico
income tax under the PR Code if the gain is income from sources outside of
Puerto Rico and such shareholder (1) is an individual citizen of the United
States and not a resident of Puerto Rico, (2) an individual not a citizen of the
United States and not engaged in a trade or business in Puerto Rico, or (3) a
corporation or partnership organized under the laws of a country other than
Puerto Rico and not engaged in a trade or business in Puerto Rico.
Any gain to be recognized by a shareholder of Holdings from the sale or
exchange of Holdings' common stock will constitute income from sources within
Puerto Rico if title to and beneficial ownership of the stock is transferred in
Puerto Rico. Any gain realized by a Holdings shareholder on account of a
redemption of Holdings' common stock will constitute income from sources within
Puerto Rico.
Property Tax Consequences Under the MPTA
Under the MPTA, Holdings' common stock would not be subject to personal
property taxes.
Puerto Rico Estate and Gift Taxes
The transfer by death or gift of Holdings' common stock by an
individual resident of Puerto Rico would be subject to Puerto Rico estate or
gift taxes under the PR Code.
Terms of the Merger Agreement with itract
This section of the proxy statement/prospectus describes material
provisions of the merger agreement with itract. The description of the merger
agreement contained in this proxy statement/prospectus does not purport to be
complete. For a complete understanding of the terms and conditions of the merger
agreement, you are urged to read the merger agreement, attached as Appendix B to
this proxy statement/prospectus carefully and in its entirety.
Closing; Effective Time
The closing of the merger will take place at the offices of Kronish
Lieb Weiner & Hellman LLP, 1114 Avenue of the Americas, New York, New York, on
the fifth business day after satisfaction or waiver of all of the conditions set
forth in the merger agreement, unless another time or date is agreed to by
Holdings and itract. Subject to the provisions of the merger agreement, on the
closing date, Holdings and itract will file a certificate of merger or other
appropriate documents with the Secretary of State of Delaware in accordance with
the relevant provisions of the Delaware corporations statutes, as a result of
which iTract Acquisition Company, LLC, a wholly owned subsidiary of Holdings,
will merge with and into itract and itract will become a wholly owned subsidiary
of Holdings. The merger will become effective at such time as the certificate of
merger is duly filed with the Secretary of State of Delaware.
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The Merger Consideration
Each member of itract will be entitled to receive at the effective time
of the merger a pro rata share of the "Merger Consideration", rounded to the
nearest whole number, based on the proportion that the itract units held by that
member immediately prior to the merger bears to the total number of issued and
outstanding itract units at the time of the merger. The "Merger Consideration"
is the number of shares of common stock of Holdings equal to the difference
between the "Maximum itract Shares" and the number of shares of Holdings that
will be subject to options and warrants to acquire shares of Holdings' common
stock issued to the current holders of options and warrants of itract in
connection with the merger. As of the date of this proxy statement/prospectus,
there are 453,500 membership units subject to outstanding warrants of itract and
127,500 shares subject to outstanding options of Margo. There are no outstanding
warrants or other convertible securities of Margo.
The "Maximum itract Shares" will be determined by the following
formula:
Margo common stock + Margo common stock underlying
outstanding outstanding options
0.868 x ------------------------------------------------------------
0.132
This means that Margo anticipates exchanging 12,680,057 shares of
Holdings common stock for the itract membership units exchanged in the merger,
with up to an additional 536,045 shares being available upon exercise of the
outstanding warrant issued by itract to InfoSpace. See "Information About
itract-itract's Business-Marketing." Accordingly, on a fully diluted basis
assuming exercise of all outstanding options and warrants, Holdings common stock
received by the itract members in the merger will represent 86.8% of the
outstanding Holdings common stock immediately after the merger.
Cancellation of itract Units; Fractional Shares
At the effective time of the itract merger, all outstanding itract
membership units will automatically be cancelled and holders of such units will
be entitled to receive, as soon as is practicable, certificates representing
shares of Holdings' common stock. No certificates representing fractional shares
of Holdings' common stock will be issued upon the surrender of the itract
membership units.
Representations and Warranties
Each of itract, Holdings, iTract Acquisition Company, LLC ("iTract
Acquisition Sub") and Margo have made certain customary representations and
warranties in the merger agreement relating to, among other things:
o its organization and the organization of its subsidiaries,
when applicable;
o its capital structure;
o the authorization, execution, delivery and enforceability of
the merger agreement and related matters;
o the absence of conflicts under its charter, bylaws and
material agreements;
o material contracts;
o litigation;
o taxes and tax returns;
o employee benefit plans;
o compliance with applicable laws;
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o title to assets and properties;
o the accuracy of information supplied by it contained in this
proxy statement/prospectus;
o its business activities;
o its financial statements and the accuracy of the information
contained therein;
o the absence of certain material changes and events;
o the accuracy of books, records, accounts and internal
accounting controls;
o broker's and finder's fees;
o insurance;
o labor matters and relations;
o employees;
o intellectual property and software; and
o business locations.
The merger agreement also contains representations and warranties of
Margo relating to:
o registration of its securities and filing of documents with
the SEC; and
o listing of its securities on the Nasdaq SmallCap Market.
Certain Covenants
Margo's, Holdings' and iTract Acquisition Sub's Conduct of Business
Prior to the Merger. Margo and Holdings (following the reincorporation merger)
have agreed that, until the earlier of the termination of the itract merger
agreement or the effective time of the itract merger, they will conduct their
business in the ordinary course. Each of Margo, Holdings and iTract Acquisition
Sub have also agreed not to:
o amend its articles or certificate of incorporation or bylaws
(except to include certain indemnification provisions);
o organize any subsidiary or acquire any capital stock or other
equity securities of any person or any equity or ownership
interest in any business;
o incur any debt or liabilities of any kind other than in the
ordinary course of business or in furtherance of the merger
with itract and the transactions contemplated thereby;
o grant or extend any power of attorney other than in the
ordinary course of business which does not affect a material
part of Margo's business;
o fail to keep in full force and effect insurance comparable in
amount and scope of coverage to insurance now carried by it;
o (1) split, combine or reclassify its outstanding capital stock
or declare, set aside or pay any dividend or distribution
payable in cash, stock, property or otherwise, (2) spin-off
any assets or businesses, sell any
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assets or businesses or effect any extraordinary corporate
transaction (excluding the sale of the nursery and other
subsidiaries to Empresas Margo, Inc.), in which Margo or
Holdings, as the case may be, retains all of the proceeds from
such sale, (3) engage in any transaction for the purpose of
effecting a recapitalization, or (4) engage in any transaction
or series of related transactions which has a similar effect
to any of the foregoing;
o sell, pledge or dispose of, or agree to issue, sell, pledge or
dispose of, any additional shares of, or any options, warrants
or rights of any kind to acquire any shares of its capital
stock of any class, or any debt or equity securities
convertible into or exchangeable for such capital stock or
amend or modify the terms and conditions of any of the
foregoing, provided, however, that Margo may issue shares upon
exercise of outstanding options;
o (1) redeem, purchase, acquire or offer to purchase or acquire
any shares of its capital stock, other than as required by the
governing terms of such securities, (2) take any action which
would jeopardize the treatment of the itract merger as a
tax-free exchange within the meaning of Section 351 of the
Internal Revenue Code, and (3) make any acquisition of any
assets or businesses (other than purchases of assets in the
ordinary course of business);
o fail to promptly advise itract in writing of any material
adverse effect with respect to Margo, Holdings or any of their
subsidiaries; or
o agree or otherwise commit, whether in writing or otherwise, to
do, or take any action or omit to take any action that would
result in, a breach or violation of any of the foregoing.
itract's Conduct of Business Prior to the Merger. itract has agreed
that, until the earlier of the termination of the merger agreement or the
effective time of the itract merger, it will conduct its business in the
ordinary course and in the manner currently conducted and proposed to be
conducted. In addition, itract has agreed not to:
o amend its certificate of formation in an adverse manner;
o organize any subsidiary or acquire any capital stock or other
equity securities of any person or any equity or ownership
interest in any business;
o incur any debt or liabilities of any kind other than in the
ordinary course of business or in furtherance of the proposed
merger and the transactions contemplated thereby;
o grant or extend any power of attorney other than in the
ordinary course of business which does not affect the material
part of its business;
o fail to keep in full force and effect insurance comparable in
amount and scope of coverage to insurance now carried by it;
o split, combine or reclassify its outstanding membership
interests or declare, certify or pay any dividend or
distribution payable in cash, stock, property or otherwise,
spin off any assets or business, sell any assets or business,
effect any extraordinary corporate transaction in which it
retains all the proceeds from such sale, engage in any
transaction for the purpose of effecting any recapitalization
or engage in any transaction or series of related transactions
which have a similar effect on any of the foregoing;
o sell, pledge, dispose of or agree to issue, sell or dispose of
any additional interests or any options, warrants or rights of
any kind, to acquire any interest in other securities, or any
debt or securities convertible into or exchangeable for such
membership interests or modify or amend the terms and
conditions of any of the foregoing, provided, however, that
itract may issue interests upon exercise of outstanding
options, and provided further itract may issue additional
options and additional units if such options and units shall
be converted into options or common stock of Holdings at the
effective time of the merger;
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o redeem, purchase, acquire or offer to purchase or acquire any
interests other than as required by certain agreements,
o make any acquisition of any assets or businesses other than
purchases of assets in the ordinary course of business;
o fail to promptly advise Margo and Holdings in writing of any
material adverse effect with respect to itract;
o take any action which would jeopardize the treatment of the
merger as a tax-free exchange within the meaning of Section
351 of the Internal Revenue Code; or
o agree or otherwise commit, whether in writing or otherwise, to
do, or take any action or omit to take any action that would
result in, a breach or violation of any of the foregoing.
No Solicitation
Each of Margo, Holdings, itract and iTract Acquisition Sub has agreed
that, prior to the earlier of the termination or effective time of the itract
merger, it will not solicit, initiate or encourage any inquiries, proposals or
offers from any person relating to any business combination with respect to
itract, Margo or Holdings or any sale of a material portion of its assets and/or
capital stock, other than with respect to the sale of Margo's nursery and other
subsidiaries.
Conditions to the Consummation of the Merger
The respective obligations of Margo, Holdings and iTract Acquisition
Sub to consummate the itract merger are subject to the satisfaction or waiver of
several conditions, including:
o the shareholders of Margo shall have approved and adopted the
reincorporation merger agreement with Holdings and the sale of
the nursery operations and other businesses;
o Margo shall have received the fairness opinion of Schwartz,
Heslin Group, Inc. that the merger with itract is fair, from a
financial point of view, to Margo's shareholders;
o Margo shall have received the fairness opinion of San Juan
Holdings, Inc. that the sale of the nursery operations and
other operating businesses is fair, from a financial point of
view, to Margo's shareholders;
o the Registration Statement on Form S-4 of which this proxy
statement/prospectus is a part, shall have become effective
and no stop order suspending such effectiveness shall be in
effect;
o no injunction, order or decree of any federal or state court
or administrative or governmental body which prevents
consummation of the merger shall be in effect;
o the shares of Holdings shall be listed on the Nasdaq SmallCap
Market;
o Margo shall have received a ruling from the Puerto Rico
Treasury Department confirming that the reincorporation merger
qualifies as a tax-free reorganization under the Puerto Rico
Internal Revenue Code of 1994;
o evidence that the loans made by Michael J. Spector and J.
Morton Davis to ICES in the aggregate principal amount of
$2,000,000 shall be repaid, with interest thereon, immediately
following the merger;
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o each member of itract receiving shares in Holdings and each
holder of options in itract shall have executed lock-up
agreements pursuant to which each such person agrees not to
dispose of their shares until eight months after the effective
time of the merger;
o the delivery of an indemnification agreement by ICES with
respect to the ownership by itract of certain intellectual
property free of any encumbrances.
Except as may be waived by itract, the obligation of itract to
consummate the merger is also subject to satisfaction of several conditions,
including:
o the representations and warranties of Margo, Holdings and
iTract Acquisition Sub contained in the merger agreement shall
be true and correct in all material respects as of the closing
date of the merger, and Margo, Holdings and iTract Acquisition
Sub shall have performed in all material respects their
obligations under the merger agreement as of the closing date;
o Margo shall have merged with and into Holdings;
o the sale of the nursery and other subsidiaries shall have been
consummated;
o at the effective time of the merger, Holdings shall have a
cash and cash equivalents of not less than $5,000,000 and not
be subject to liabilities exceeding $10,000 in the aggregate;
o the Holdings common stock shall be listed on the Nasdaq
SmallCap Market;
o each director, officer and employee of Holdings and iTract
Acquisition Sub shall resign effective as of the effective
time of the merger and the resigning directors of Holdings
shall have appointed as their successors the persons
designated by itract;
o each holder of 5% or more of Holdings' common stock
immediately prior to the merger shall have executed a lock-up
agreement pursuant to which it agrees not to dispose of such
shares until four months after the consummation of the merger,
subject to certain exceptions set forth in the merger
agreement;
o receipt of opinions of counsel that the merger with itract
qualifies as a tax-free exchange under Section 351 of the
Internal Revenue Code and is not subject to taxation in Puerto
Rico
o receipt of a ruling from the Puerto Rico Treasury Department
and an opinion of counsel that the merger of Margo into
Holdings qualifies as a tax-free reorganization under the
Puerto Rico Internal Revenue Code;
o receipt of a release from Michael J. Spector, Margaret D.
Spector and Margo Nursery Farms Inc. whereby said persons
release Margo, Holdings, itract and ICES from all liability
relating to the occupancy by Margo and its subsidiaries of the
nursery farm leased from Mr. and Mrs. Spector; and
o receipt of an indemnification agreement from Michael J.
Spector and Margo Nursery Farms, Inc. pursuant to which said
persons agree to indemnify Holdings, itract and ICES for a
breach of certain environmental representations.
Indemnification and Insurance
After the effective time of the itract merger, Holdings will indemnify
and hold harmless each present and former officer and director of Margo,
Holdings, iTract Acquisition Sub and the other subsidiaries of Margo against any
claims, liabilities, costs or expenses pertaining to any matter existing or
occurring before or after the effective time of the merger to the fullest extent
permitted by the certificate of incorporation and by-laws of Margo immediately
prior to the consummation of the merger with Holdings
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Termination
The merger agreement may be terminated prior to the completion of the
itract merger only as follows:
o by written agreement of all the parties at any time;
o unilaterally by Margo or Holdings if satisfaction of any of
the conditions to their obligations becomes impossible and is
not waived or the merger has not occurred by August 15, 2000
(subject to a 60 day extension if this proxy
statement/prospectus has not been declared effective by the
SEC), in either case other than as a result of a material
breach or default by Margo, Holdings or Michael J. Spector;
o unilaterally by itract if satisfaction of any of the
conditions to its obligations becomes impossible and is not
waived or the merger has not occurred by August 15, 2000
(subject to a 60 day extension if this proxy
statement/prospectus has not been declared effective by the
SEC), in either case other than as a result of a material
breach or default by itract;
o unilaterally by Margo or Holdings if itract has breached the
agreement in any material respect and such breach has not been
cured within ten days after notice thereof; and
o unilaterally by itract if Margo or Holdings has breached the
agreement in any material respect and such breach has not been
cured within ten days after notice thereof.
Expenses
In the event the merger agreement is terminated as set forth above,
there is no further liability or obligation of any party, except that:
o if the agreement is terminated by Margo or Holdings as a
result of a material breach by itract, itract and ICES shall
be obligated to reimburse Margo and Holdings for all
out-of-pocket expensed incurred by them in connection with the
agreement and the transactions contemplated thereby up to a
maximum of $100,000; and
o if the agreement is terminated by itract as a result of a
material breach by Margo or Holdings, Margo and Holdings shall
be obligated to reimburse itract for all out-of-pocket
expensed incurred by it in connection with the agreement and
the transactions contemplated thereby up to a maximum of
$100,000.
Material Federal Income Tax Consequences
The following discussion summarizes the material Federal income tax
consequences of the merger of iTract Acquisition Sub into itract and ownership
and disposition of shares of Holdings common stock received by itract members in
that merger that are applicable to holders of Holdings common stock and itract
members. It is based on the Code, applicable U.S. Treasury Regulations, judicial
authority, and administrative rulings and practice, all as of the date of this
proxy statement/prospectus, and all of which are subject to change, including
changes with retroactive effect. The discussion below does not address any
state, local or foreign tax consequences of the merger, or estate or gift tax
considerations. Each itract member's tax treatment may vary depending upon the
particular situation of such member.
Holdings and Holdings Shareholders
For purposes of the Code, the itract merger will be treated as a
nontaxable transfer to a controlled corporation by itract members of their
membership interests (or by itract of its assets followed by a liquidation of
itract). Holdings will not be subject to Federal income tax on the receipt of
those interests. After the itract merger, itract will be a "disregarded entity"
that is not treated as separate from Holdings for Federal income tax purposes.
Holdings' basis in itract's assets will be equal to the sum of the bases of the
interests itract members transferred to Holdings (or, if
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the transaction is treated as a transfer by itract of its assets followed by a
liquidation of itract, equal to itract's basis in the assets).
Persons who were Holdings shareholders prior to the itract merger will
not transfer or receive any property in the itract merger. Thus, the itract
merger will not affect the Federal income tax liability of Holdings'
shareholders.
itract Members
This discussion does not address all aspects of Federal income taxation
that may be relevant to an itract member in light of that member's particular
circumstances or to a member subject to special rules such as:
1. a financial institution or insurance company;
2. a tax-exempt organization;
3. an S corporation;
4. a taxpayer subject to alternative minimum tax;
5. a dealer or broker in securities; or
6. a person that is not a U.S. holder.
For these purposes, the term "U.S. holder" means a person that is a
citizen or resident of the United States, a corporation, partnership, or other
entity created or organized in the United States or under the laws of the United
States or of any political subdivision thereof, an estate whose income is
includible in gross income for United States federal income tax purposes
regardless of source, or a trust if a U.S. court is able to exercise primary
supervision over the administration of the trust or one or more U.S. persons
have the authority to control all substantial decisions of the trust. Each
itract member is urged to consult his or her tax advisor to determine the
Federal tax consequences of the itract merger that may be applicable to the
particular shareholder.
Some portions of this discussion are based on the assumption that the
following statements are true as of the date of this proxy statement/prospectus
and that they will remain true until the date of the itract merger:
1. itract has not issued additional membership units (including
membership units issued pursuant to warrants or options) since
March 31, 2000, and will not issue additional membership units
or options to acquire membership units prior to the itract
merger;
2. at the time of the itract merger, the adjusted tax basis of
each member's interest in itract will equal or exceed the
member's share of itract's liabilities, and the aggregate
adjusted tax basis of itract's assets will equal or exceed
itract's liabilities;
3. the fair market value of the shares of Holdings common stock
received by itract members with respect to itract membership
interests associated with membership units held prior to
December 1999 will be no greater than the value of such
interests surrendered in the itract merger;
4. no holder of an option or warrant to acquire itract membership
units or Holdings stock will have a plan to exercise the
option or warrant other than a generalized plan to realize the
value of the option or warrant at some indefinite time in the
future before it expires;
5. the number of shares of Holdings common stock to be received
with respect to all of the itract membership interests was
determined by arm's-length negotiations among itract members
and the managements of itract and Holdings;
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6. in connection with the itract merger, no itract member will
receive, directly or indirectly, any consideration from
itract, Margo, or iTract Acquisition Sub other than shares of
Holdings common stock;
7. except to the extent that holders of earlier-issued membership
units may be shifting value to holders of later-issued
membership units at the time of the itract merger, none of the
shares of Holdings common stock received in the itract merger
by an itract member will be separate consideration for, or
allocable to, any employment, consulting, or similar agreement
with respect to services;
8. the itract merger agreement and the documents described in the
itract merger agreement and this proxy statement/prospectus
represent the entire understanding between or among itract,
ICES, Holdings, Margo, and iTract Acquisition Sub and between
or among such entities and the members of itract or the
shareholders of ICES, Holdings, or Margo with respect to the
itract merger, and there are no written or oral agreements
regarding the itract merger other than those expressly
referred to in the itract merger agreement and this proxy
statement/prospectus;
9. none of the itract members has any plan or intention to
dispose of the shares of Holdings common stock received in the
itract merger;
10. on each date on which itract issued membership units, the
value of itract was equal to or greater than the value of
itract on the previous date on which membership units were
issued;
11. neither Margo nor Holdings will have issued any options to
purchase Margo or Holdings common stock between March 31,
2000, and the date of the itract merger;
12. the itract members each hold their membership interest, and
will hold their shares of Holdings common stock, as "capital
assets" within the meaning of the Code; and
13. at the time of the itract merger, the assets of itract will
not include any "investment company property" other than cash
in an amount no greater than $100,000, and the assets of
Holdings (treating all assets of wholly owned subsidiaries as
owned by Holdings) will not include any "investment company
property" other than cash in an amount no greater than
$6,000,000.
"Investment company property" includes the following types of
property:
(a) money;
(b) stocks and other equity interests in a corporation
(other than wholly owned subsidiary corporations),
evidences of indebtedness, options, forward or
futures contracts, notional principal contracts and
derivatives;
(c) any foreign currency;
(d) any interest in a real estate investment trust, a
common trust fund, a regulated investment company, a
"publicly-traded partnership" (as defined in the
Code) or any other equity interest (other than in a
corporation) that is readily convertible into, or
exchangeable for, any asset described in (a) to (e);
(e) certain interests in precious metals;
(f) interests in any entity if substantially all of the
assets of the entity consist of assets described in
(a) to (e); and
(g) any interest in any entity not described in (f) to
the extent the value of such interest is attributable
to assets listed in (a) to (e).
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This discussion is not binding on the Internal Revenue Service (the
"IRS") or the courts. Neither Margo, Holdings, nor itract has sought or will
seek any rulings from the IRS with respect to the positions discussed herein,
and there can be no assurance that the IRS will not take a different position
concerning the tax consequences of the itract merger or ownership or disposition
of shares of itract common stock or that any such position would not be
sustained.
Receipt of Shares of Holdings Common Stock in the itract Merger
To the extent that itract members receive shares of Holdings common
stock in exchange for their itract membership interests, they will be treated as
having received their stock in a nontaxable transfer to a controlled
corporation. Such itract members will not be subject to Federal income tax
liability on the gain realized on the transfer, and each such itract member's
basis in his or her Holdings stock will equal his or her basis in his or her
transferred itract membership interest.
Because the capital accounts associated with itract membership units
will tend to be greater with respect to earlier-issued membership units, and
because the shares of Holdings common stock will be issued to the members in the
same ratio that profit and loss is shared, the holders of earlier-issued
membership units may be deemed to have received additional shares of Holdings
common stock, which they transferred to the holders of later-issued membership
units. If so, the value of such shares will be income to the holders of the
later-issued membership units. The holders of earlier-issued membership units
should not recognize gain on this deemed transfer because they should be treated
as having contributed a portion of their membership interest to itract before
the merger, after which itract should be treated as having issued the membership
interests to the holders of later-issued units, or as having contributed a
portion of their shares to Holdings after the merger, after which Holdings
should be treated as issuing shares to the holders of later-issued membership
units.
Any persons that are treated as having received Holdings stock in
exchange for services (rather than for a membership interest in itract) will not
be treated as having received the stock in a nontaxable transaction, and will be
subject to Federal income tax on the receipt of compensation.
Distributions by Holdings
A distribution on shares of Holdings common stock will be taxable to
the holder as ordinary dividend income to the extent that the amount of the
distribution does not exceed Holdings' current or accumulated earnings and
profits allocable to such distribution (as determined for federal income tax
purposes). To the extent that the amount of the distribution exceeds Holdings'
current or accumulated earnings and profits allocable to such distribution, the
distribution will be treated as a return of capital, thus reducing the holder's
adjusted tax basis in the shares of Holdings common stock with respect to which
such distribution was made. The amount of any such excess distribution that
exceeds the holder's adjusted tax basis in the shares of Holdings common stock
will be taxed as capital gain and will be long-term capital gain if the holder's
holding period for the shares of Holdings common stock exceeds one year. If the
holder received his or her shares of Holdings common stock in exchange for his
or her itract membership interest, the holding period for that holder's shares
of Holdings common stock will include the period for which the holder held his
or her itract membership interest. If the holder received his or her shares of
Holdings common stock in exchange for services, his or her holding period will
commence on the day following the day on which he or she received the shares of
Holding common stock. There can be no assurance that Holdings will have
sufficient earnings and profits to cause distributions on the shares of Holdings
common stock to be treated as dividends for federal income tax purposes. For
purposes of the remainder of this discussion, the term "dividend" refers to a
distribution paid out of current or accumulated earnings and profits, unless the
context indicates otherwise.
Dividends received by corporate holders will generally be eligible for
the 70% dividends-received deduction under of the Code. There are, however, many
exceptions and restrictions relating to the availability of the
dividends-received deduction, such as restrictions relating to (1) the holding
period of the stock on which the dividends are received, (2) debt-financed
portfolio stock, (3) dividends treated as "extraordinary dividends," and (4)
taxpayers that pay alternative minimum tax. Corporate holders should consult
their own tax advisors regarding the extent, if any, to which such exceptions
and restrictions may apply to their particular factual situations. The Code
requires a
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corporate holder to satisfy a separate 46-day (91-day, in the case of certain
preferred stock dividends) holding period requirement with respect to each
dividend in order to be eligible for the dividends-received deduction with
respect to such dividend.
Sale or Exchange of Holdings Common Stock
Holders of shares of Holdings common stock will be required to
recognize a gain or loss on the sale, exchange or other disposition of shares of
Holdings common stock for Federal income tax purposes under the Code. In
determining their holding period, holders who received their stock in exchange
for their itract membership interests will include the period for which they
held their interests prior to the itract merger.
Directors and Principal Officers of Holdings after the Merger
In accordance with the merger agreement, all of the then current
members of the board of Holdings will resign immediately prior to the effective
time of the itract merger and will designate as their successors persons
designated by itract. In addition, all of Holdings' executive officers and
employees will resign as of the effective time, to be replaced by the executive
officers appointed by the board of directors of Holdings following the itract
merger.
Listed below is biographical information for each person who is
expected to be a director or executive officer of Holdings upon completion of
the itract merger. itract is engaged in an active search for, and intends to
name, a permanent chief executive officer, a permanent chief financial officer
and other executive officers following the itract merger.
Name Age Position
---- --- --------
Henry Kauftheil 39 Chairman of the Board
Kevin Kerzner 38 Director, Executive Vice President and
Interim Chief Executive Officer
Joseph C. Sienkiewicz 44 Director and Interim Chief Financial Officer
Anthony Peluso 36 Vice President-Marketing
Eli Ofek 38 Director
Robert Goodman 36 Director
David Rothstein 45 Director
Henry Kauftheil has been the sole manager of itract since its inception
in May 1999. Since 1995, Mr. Kauftheil has been the Chairman of ICES, a
privately held company that primarily develops, invests in and operates Internet
technology related companies. Through one of its subsidiaries, ICES acted as
founder of itract. Mr. Kauftheil also serves as an officer, director or manager
of each of the subsidiaries of ICES. Mr. Kauftheil is also a director of
YouNetwork Corporation, a developer of e-commerce software tools, which files
quarterly and annual reports with the SEC.
Kevin Kerzner was a founder of, and is the current Executive Vice
President of itract. Following the itract merger, he will also serve as the
Interim Chief Executive Officer of Holdings. From January 1998 until he joined
itract in May 1999, Mr. Kerzner was the Executive Vice President of ICES
Enterprises, Inc., the predecessor to The TechDepartment.com, Inc., itract's
majority member. From September 1996 to December 1997, Mr. Kerzner was a
director of sales for eMarketplaces, Inc., a subsidiary of ICES. From July 1995
to August 1996, with the exception of four months during which he worked as
National Sales Director at IDT Corporation, a telecommunications company, Mr.
Kerzner was the principal of Rtech, a consulting company which he founded.
Joseph C. Sienkiewicz, a certified public accountant, has been ICES's
Chief Financial Officer since November 1999, and will serve on an interim basis
as the Chief Financial Officer of Holdings following the itract merger. Prior to
joining ICES, from February 1997 to September 1999, Mr. Sienkiewicz served as
Chief Financial Officer at Atwood Richards Inc., a $500 million international
multilateral trading company. From February 1996 to January 1997, Mr.
Sienkiewicz served as Chief Financial Officer of Ogden Aviation Services, an
airline services company
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and prior to that, from December 1992 to December 1995, he served as the Chief
Financial Officer of the Revlon Retail Group. Mr. Sienkiewicz has also served in
management accounting positions at KPMG, The Great A&P Tea Company and Simon &
Schuster. Mr. Sienkiewicz has an MS in Federal Taxation from Pace University and
a BS in Accounting from Seton Hall University. Mr. Sienkiewicz is also a
director of YouNetwork Corporation.
Anthony Peluso joined itract in January 2000 as its Vice President of
Marketing. Prior to joining itract, Mr. Peluso was employed as Account Director
at Toolbox Communications, an integrated marketing communications company, from
June 1999 to December 1999. From July 1997 to November 1999, Mr. Peluso worked
for WHS, a division of Arnold Advertising in Boston, MA. as an Account
Supervisor. Mr. Peluso also served as Advertising and Promotions Manager for
1-800-FLOWERS from 1995-1997. Mr. Peluso's experience also includes management
positions at Avis Rent-A-Car and Young & Rubicam Advertising. Mr. Peluso has a
BS in Marketing from St. John's University.
Dr. Eli Ofek has been an Associate Professor of Finance at New York
University's Stern School of Business since 1991. Dr. Ofek has a Ph.D. in
Finance from the University of Chicago's Graduate School of Business and has a
B.A. in Accounting and Economics from Tel Aviv University. Dr. Ofek also serves
as a director of ICES.
Robert Goodman is currently employed by the Federal Reserve Bank of New
York as a Senior Technical Specialist, where he has been since 1988 in various
positions of increasing responsibilities. His current role includes designing
Internet e-commerce solutions for U.S. Treasury Auctions. Mr. Goodman has a B.S.
in Business Management and Finance and an M.A. in Management Information Systems
from Brooklyn College. Mr. Goodman also serves as director of ICES.
David Rothstein is the president of Dalow Industries, a privately-held
jewelry business located in Brooklyn, New York, which supplies mid-range,
general category jewelry to the nationwide wholesale market and to large
regional retailers. Mr. Rothstein has managed the business of Dalow Industries
in various capacities for the past 18 years. He is also the Chairman of the
Board of Directors and President of Yeshiva Ohr Shraga, a private school located
in Brooklyn, New York. He received his Jurist Doctorate from Brooklyn Law School
in 1983 and his Bachelors of Arts from Brooklyn College in 1978.
Interests of Certain Persons in the Merger
You should be aware that, as described below, certain executive
officers and directors of Margo have interests in the merger that are different
from, or in addition to, your interests and that may create potential conflicts
of interest.
Except as described below, Margo is not aware of any material interest
in the merger of its executive officers and directors, other than those as
shareholders of Margo generally.
In connection with the execution of the letter of intent between Margo
and itract, Michael J. Spector and J. Morton Davis, who beneficially own 65.7%
and 9.8%, respectively, of Margo's outstanding common stock, made a $2.0 million
loan to ICES, the indirect parent company of itract. The entire principal
balance plus accrued interest on the loan is payable immediately following the
effective time of the merger with itract. If the itract merger is not
consummated, this loan will be converted into common stock of ICES.
In addition, all options to purchase shares of Margo common stock held
by Margo's officers and directors will be converted into options to purchase the
same number of shares of Holdings' common stock and such options will become
immediately exercisable upon consummation of the reincorporation merger.
Executive officers and directors of Margo own options to purchase
shares of Margo common stock, as more fully described in "Election of Directors
to Serve until Consummation of the Merger" at pages 92 to 94.
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Indemnification and Insurance
Pursuant to the merger agreement, Holdings has agreed to indemnify each
present and former director and officer of Margo, Holdings, iTract Acquisition
Sub and Margo's subsidiaries against claims, liabilities, costs and expenses
incurred in connection with claims arising out of or pertaining to matters
existing or occurring at or prior to the effective time of the merger.
See "THE MERGER--Terms of the Merger Agreement--Indemnification and
Insurance."
Accounting Treatment
The itract merger will be accounted for as a reverse merger. As a
result, itract will be considered to be the acquiring entity and Holdings the
acquired entity for accounting purposes, even though Holdings is the acquirer
for legal purposes. The historical financial information of itract will become
the historical financial information of Holdings and historical stockholders'
equity and earnings per share prior to the merger will be retroactively restated
for the equivalent number of shares to be received in the merger.
Restriction on Resales by Affiliates
The shares of Holdings' common stock to be issued to Margo shareholders
and members of itract in the mergers are being registered under the Securities
Act, subject to certain lock-up agreements. These shares may be traded freely
and without restriction by those shareholders who are not deemed to be
"affiliates" of Holdings or itract, as that term is defined under the Securities
Act.
An affiliate of Holdings or itract is a person who directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, Holdings or itract, as the case may be. Any
subsequent transfer by an affiliate of Holdings or itract must be permitted by
the resale provisions of Rule 145 under the Securities Act (or Rule 144 under
the Securities Act, in the case of persons who become affiliates of Holdings
after the merger) or otherwise permitted under the Securities Act, and not be
subject to any lock-up agreement. These restrictions are expected to apply to
the directors, executive officers and principal stockholders of Holdings.
Certain current officers, directors, shareholders, managers and members
of Margo and itract will enter into such lock-up agreements. Under the itract
merger agreement, each member of itract receiving shares of Holdings' common
stock in the itract merger will enter into an agreement whereby such member will
agree, for a period of eight months following the closing of the merger, not to
sell, assign or transfer any securities of Holdings held by such member or
acquired by such member. In addition, each holder of more than 5% of Margo's
common stock will enter into an agreement whereby such holder will agree, for a
period of four months following the closing of the merger, not to sell, assign
or transfer any securities of Holdings held by such shareholder or acquired by
such shareholder. However, Michael J. Spector and Margaret D. Spector will be
able to pledge their shares of Holdings common stock to an unaffiliated lender
as collateral for purposes of financing the purchase of Margo's nursery
operations and other businesses without such lender being subject to the lock-up
provisions, and Margaret D. Spector will be able to sell up to 30,000 of
Holdings' common stock during such four months period.
INFORMATION ABOUT HOLDINGS
Holdings is a Delaware corporation that was formed by Margo on April 5,
2000 as a wholly-owned subsidiary for the sole purpose of effecting the merger
transactions. Holdings has no assets other than a wholly-owned subsidiary (which
also has no assets) which will merge with and into itract. Prior to such merger,
Margo will merge into Holdings with Holdings as the survivor of such merger.
Following these transactions, Holdings will be a holding company whose sole
asset will be its 100% membership interest in itract. As a result of these
mergers, the current shareholders of Margo and members of itract will be
shareholders of Holdings.
Holdings' current directors are the same as Margo's directors. Michael
J. Spector also serves as President and Chief Executive Officer of Holdings.
Upon the consummation of the itract merger, all of these directors and officers
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will resign and are expected to be replaced with the persons listed under
"Directors and Principal Officers of Holdings after the Merger."
DESCRIPTION OF HOLDINGS' SECURITIES
As of the date of this proxy statement/prospectus, Holdings' authorized
capital stock consists of 100,000,000 shares of common stock, par value $.001
per share, and 5,000,000 shares of "blank check" preferred stock, par value
$.001 per share. No other classes of capital stock are authorized under
Holdings' certificate of incorporation.
Common Stock
itract Inc. issued 1,000 shares of common stock to Margo. Approximately
2 million shares of common stock will be issued in connection with the
reincorporation merger of Margo into Holdings and approximately 12.8 million
shares of common stock will be issued to itract members in connection with the
itract merger. At the effective time of the reincorporation merger and the
itract merger, the issued and outstanding shares of Holdings common stock will
be duly authorized, validly issued and nonassessable. Holders of the Holdings
common stock will have no preemptive, redemption, conversion, subscription or
sinking fund rights. Such holders will be entitled to receive dividends when and
as declared by the board of directors of Holdings out of funds legally available
for payment. Upon liquidation, dissolution or winding up of Holdings, the
holders of the common stock may share ratably in the assets, subject to the
rights and preferences of any outstanding preferred stock.
Each holder of Holdings' common stock is entitled to one vote per share
of common stock held of record by such holder. Holdings' common shareholders do
not have any right to cumulate votes for the election of directors.
Preferred Stock
The board of directors of Holdings has the power, without further vote
of the shareholders, to authorize the issuance of up to 5,000,000 shares of
preferred stock and to fix the terms, limitations, rights, privileges and
preferences of any of these shares of preferred stock. This power includes the
ability to establish voting, dividend, redemption, conversion, liquidation and
other rights and preferences for any or these shares. There are presently no
shares of Holdings preferred stock outstanding.
Holdings Long Term Incentive Plan
In ________, 2000 the board of directors of Holdings adopted, and
Margo, as Holdings' sole stockholder, approved, the 2000 Long Term Incentive
Plan (the "Plan"), which provides for the grant by Holdings of awards of
restricted stock and options to purchase common stock. The maximum number of
shares of common stock which may be issued and sold under the Plan is
___________. The Plan, which expires in ________, 2010, will be administered by
the board of directors or a committee of the board of directors of Holdings. The
purposes of the Plan are to ensure the retention of existing executive
personnel, key employees, directors, consultants and advisors who are expected
to contribute to Holdings future growth and success and to provide additional
incentive by permitting such individuals to participate in the ownership of
Holdings.
Options granted under the Plan may be either incentive options or
non-qualified options. Incentive options granted under the Plan are exercisable
for a period of up to 10 years from the date of grant at an exercise price which
is not less than the fair market value of Holdings' common stock on the date of
the grant, except that the term of an incentive option granted under the Plan to
a stockholder owning more than 10% of the outstanding voting power may not
exceed five years and its exercise price may not be less than 110% of the fair
market value of the common stock on the date of the grant. To the extent that
the aggregate fair market value, as of the date of grant, of the shares for
which incentive options become exercisable for the first time by an optionee
during the calendar year exceeds $100,000, the portion of such option which is
in excess of the $100,000 limitation will be treated as a non-qualified option.
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Options granted under the Plan to officers, directors or employees of
Holdings may be exercised only while the optionee is employed or retained by
Holdings or within 90 days of the date of termination of the employment
relationship or directorship. However, where termination is by reason of death
or permanent disability of the optionee, options which are exercisable at such
time may be exercised within 12 months of the date of termination of the
employment relationship or directorship. Upon the exercise of an option, payment
may be made by cash or by any other means that the board of directors or the
committee determines. No option may be granted under the Plan after _______,
2010.
In addition to providing for the granting of options, the Plan provides
for awards of "restricted stock." Such restricted stock will be subject to
restrictions on transfer and subject to forfeiture upon termination of
employment, for such periods as shall be specified by board of directors or the
committee on the granting of each such award of restricted stock.
Options or restricted stock may be granted only to such employees,
officers and directors of, and consultants and advisors to, Holdings or any
subsidiary of Holdings as the board of directors or the committee shall select
from time to time in its sole discretion, provided that only employees of
Holdings or a subsidiary of Holdings shall be eligible to receive incentive
options.
The board of directors may amend or terminate the Plan except that
stockholder approval is required to effect a change so as to increase the
aggregate number of shares that may be issued under the Plan (unless adjusted to
reflect such changes as a result of a stock dividend, stock split,
recapitalization, merger or consolidation of Holdings) to modify the
requirements as to eligibility to receive options, to increase materially the
benefits accruing to participants or as otherwise may be required by Rule 16b-3
or Section 422 of the Code. No action taken by the board may materially and
adversely affect any outstanding option grant without the consent of the
optionee.
Under current tax law, there are no Federal income tax consequences to
either the employee or Holdings on the grant of non-qualified options if granted
under the terms set forth in the Plan. Upon exercise of a non-qualified option,
the excess of the fair market value of the shares subject to the option over the
option price (the "Spread") at the date of exercise is taxable as ordinary
income to the optionee in the year it is exercised and is deductible by Holdings
as compensation for Federal income tax purposes, provided Holdings complies with
applicable withholding and/or reporting rules. The optionee's basis in the
shares will be equal to the fair market value on the date taxation is imposed
and the holding period commences on such date.
Incentive option holders incur no regular Federal income tax liability
at the time of grant or upon exercise of such option, assuming that the optionee
was an employee of Holdings from the date the option was granted until 90 days
before such exercise. However, upon exercise, the Spread must be added to
regular Federal taxable income in computing the optionee's "alternative minimum
tax" liability. An optionee's basis in the shares received on exercise of an
incentive stock option will be the option price of such shares for regular
income tax purposes. No deduction is allowable to Holdings for Federal income
tax purposes in connection with the grant or exercise of such option.
Transfer Agent
ChaseMellon Shareholder Services, L.L.C., New York, New York, will
serve as transfer agent for the shares of common stock of Holdings.
COMPARATIVE RIGHTS OF SHAREHOLDERS OF MARGO AND HOLDINGS
The following is a summary of the material differences between the
current rights of Margo shareholders and the rights they will have as Holdings
shareholders after the reincorporation merger. The rights of Margo shareholders
are currently governed by Puerto Rico law, the Margo articles of incorporation
and the Margo bylaws. Upon completion of the reincorporation merger, holders of
Margo common stock will become holders of Holdings' common stock and their
rights will be governed by Delaware law, Holdings' certificate of incorporation
and Holdings' by-laws.
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<PAGE>
The following discussion is not intended to be complete and is
qualified in its entirety by reference to the certificate of incorporation and
bylaws of Margo and Holdings, copies of which are attached to this proxy
statement/prospectus as Appendices G and H, respectively.
Authorized and Outstanding Share Capital
Margo. The authorized capital stock of Margo consists of 10 million
shares of common stock, par value $.001 per share, and 250,000 shares of
preferred stock, par value $.01 per share. As of June 15, 2000, there were
1,882,322 shares of Margo common stock outstanding and no shares of preferred
stock outstanding.
Holdings The total authorized capital stock of Holdings consists of 100
million shares of common stock, par value $0.001 per share, and 5 million shares
of blank check preferred stock, par value $0.001 per share. Holdings has 1,000
shares of common stock outstanding, all of which are held by Margo and will be
cancelled in the reincorporation merger. No shares of preferred stock have been
issued.
Board of Directors
Margo. The Margo bylaws provide that the number of directors of Margo
shall be five. The act of the majority of the directors present at a meeting at
which a quorum is present is the act of the board of directors of Margo. Each
director shall hold office until the annual meeting of the shareholders next
succeeding his election and until his successor is elected and qualified, or
until his prior death, resignation or removal.
Holdings The Holdings bylaws provide that the number of directors of
Holdings shall be fixed from time to time by the board of directors. The act of
the majority of the directors present at a meeting at which a quorum is present
is the act of the board of directors of Holdings. Each director shall hold
office until the annual meeting of the shareholders next succeeding his election
and until his successor is elected and qualified, or until his prior death,
resignation or removal.
Newly Created Directorships and Vacancies
Margo. The Margo bylaws provide that any vacancy in the board,
including any vacancy created by reason of an increase in the number of
directors, may be filed by the affirmative vote of a majority of the remaining
directors though less than a quorum of the board. A director elected to fill a
vacancy shall hold office until the next election of directors by the
shareholders.
Holdings The Holdings bylaws provide that vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. A director elected to fill a vacancy
shall hold office for the remainder of the full term of the class of directors
in which the new directorship was created or the vacancy occurred and until such
director's successors shall have been duly elected and qualified, or until their
earlier resignation or removal.
Removal of Directors
Margo. The Margo bylaws provide that at a meeting of shareholders
called expressly for the purpose of removal of directors, the board or any
individual director may be removed from office, with or without cause, by a vote
of shareholders holding a majority of the outstanding shares entitled to vote at
an election of directors.
Holdings The Holdings bylaws provide that any director may be removed
from office, with or without cause, by a vote of shareholders holding at least
75% of the outstanding shares entitled to vote at an election of directors.
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Special Meetings of Shareholders
Margo. The Margo bylaws provide that special meetings of Margo
shareholders shall be held when directed by the President or the Margo board, or
when requested in writing by the holders of not less than 10% of all shares
entitled to vote at the meeting.
Holdings The Holdings bylaws provide that special meetings of Holdings
shareholders may be called by the Chairman, the President, any Executive Vice
President, any Vice President, the Secretary or any Assistant Secretary, and
shall be called by any such officer at the request in writing of a majority of
the board of directors or a majority of the shareholders entitled to vote.
Shareholder Action by Written Consent
Margo. The Margo bylaws provide that any action required or permitted
to be taken at any meeting of the shareholders may be taken by written consent
of the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to take such action at a meeting at which all the
shares entitled to vote thereon were present and voted.
Holdings The Holdings bylaws provide that any action required or
permitted to be taken at any meeting of the shareholders may be taken by written
consent of the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to take such action at a meeting at
which all the shares entitled to vote thereon were present and voted. However,
if shareholder consent is less than unanimous in electing directors, Delaware
law provides that written consent may be used provided that all directorships to
which directors could be elected at an annual meeting are vacant and filled by
such action.
Shareholder Proposal and Nomination Procedure
Margo. The Margo bylaws and certificate of incorporation are silent on
the issue of advance notice of shareholder proposals and director nominations at
annual meetings. The Puerto Rico General Corporations Law does not explicitly
require that shareholder proposals be the subject of an advance notice to
shareholders.
Holdings. The Holdings bylaws provide that at any annual meeting of
shareholders, only such business shall be conducted as shall have been: (i)
specified in the notice of the meeting given by or at the direction of the
Holdings board; or (ii) otherwise properly brought before the annual meeting by
a stockholder. The stockholder must give notice of the business proposed to be
brought before the annual meeting to the secretary of Holdings not less than 50
days nor more than 60 days prior to the annual meeting and comply with the
applicable requirements of the Securities Exchange Act of 1934.
A stockholder's notice to Holdings' Secretary must describe each matter
the stockholder proposes to bring before the annual meeting, the name and record
address of the stockholder proposing such business, the class and number of our
shares which are beneficially owned by the stockholder, and any material
interest of the stockholder in such business.
Similarly, any stockholder desiring to nominate a person to stand for
election to our board of directors must make a written nomination to our
Secretary not less than 50 days nor more than 60 days prior to the meeting. The
notice must set forth (a) as to each person whom the stockholder proposes to
nominate for election as a director, (i) the name, age, business address, and
residence address of the nominee, (ii) the principal occupation or employment of
the nominee, (iii) the class and number of our shares which are beneficially
owned by the nominee, (iv) any other information about the nominee that is
required to be disclosed in solicitations for proxies for election of directors
pursuant to Rule 14a under the Securities Exchange Act, and (v) any other
information about the nominee that is required pursuant to any statute, or any
rule or regulation of any governmental authority; and (b) as to the stockholder
giving notice, (i) the name and record address of the stockholder, and (ii) the
class and number of our shares beneficially owned by the stockholder.
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Amendment to Governing Documents
Margo. The Margo certificate of incorporation provides that the bylaws
shall be subject to alteration, amendment or repeal by either the shareholders
or directors.
Holdings. The Holdings bylaws provide that the bylaws may be altered,
amended or repealed, in whole or in part, or new bylaws may be adopted by the
stockholders or by the board of directors, provided that notice of such
alteration, amendment, repeal or adoption be contained in the notice of such
meeting of stockholders or directors, as the case may be. All such amendments
must be approved by either the holders of a majority of the outstanding capital
stock entitled to vote thereon or by a majority of the entire board of directors
then in office.
Antitakeover Provisions
Margo. The Margo certificate of incorporation and bylaws do not contain
any provisions with respect to business combinations. Under the Puerto Rico
General Corporations Law, an agreement of merger, or the sale, lease or exchange
of all or substantially all of a corporation's assets, must be approved by the
corporation's board of directors and the holders of a majority of the
outstanding shares of stock entitled to vote thereon. As discussed above, the
certificate of incorporation provides that the board of directors has the
authority to issue preferred stock without shareholder approval. Issuance of
preferred stock could impede or prevent transactions that would result in a
change of control of Margo.
Holdings. The Holdings certificate of incorporation and bylaws do not
contain any provisions with respect to business combinations. Under the Delaware
General Corporation Law, an agreement of merger, or the sale, lease or exchange
of all or substantially all of a corporation's assets, must be approved by the
corporation's board of directors and the holders of a majority of the
outstanding shares of stock entitled to vote thereon. As discussed above, the
certificate of incorporation provides that the board of directors has the
authority to issue preferred stock without shareholder approval. Issuance of
preferred stock could impede or prevent transactions that would result in a
change of control of Holdings.
The Delaware General Corporation Law also contains a business
combination statute, which restricts "business combinations" between a domestic
corporation and an "interested stockholder." A "business combination" means one
of various types of transactions, including mergers, that increases the
proportionate voting power of the interested stockholder. An "interested
stockholder" means any person, or its affiliate or associate, that owns or
controls 15% or more of the outstanding shares of the corporation's voting
stock.
COMPARATIVE RIGHTS OF MEMBERS OF ITRACT
AND SHAREHOLDERS OF HOLDINGS
The following is a summary of the material differences between the
current rights of itract members and the rights they will have as shareholders
of Holdings after the mergers. The rights of itract members are currently
governed by Delaware law (including Delaware's Limited Liability Company Act)
and itract's Limited Liability Company Agreement. Upon consummation of the
mergers, itract's sole member will be Holdings, the members of itract
immediately preceding the mergers will become shareholders of Holdings, and
their rights will be governed by Delaware law (including the General Corporation
Law), Holdings' certificate of incorporation and by-laws.
The following discussion is not intended to be complete and is
qualified in its entirety by reference to itract's Limited Liability Company
Agreement and the certificate of incorporation and bylaws of Holdings. All
references below to itract's Limited Liability Company Agreement are references
to itract's Limited Liability Company Agreement as currently in effect. itract's
Limited Liability Company Agreement will be amended and restated at the
effective time of the merger as set forth in Exhibit A to the itract merger
agreement which is attached to this proxy statement/prospectus as Appendix B.
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<PAGE>
Ownership Interest
itract. A member's interest in itract is represented by the ownership
of "units" and such member's capital account. There is no limit on the number of
units of itract that may be issued to members. A member's capital account
consists of the amount of capital contributed by such member to itract,
increased for, among other things, allocations of profit, and reduced for, among
other things, allocations of loss and distributions to such member. In general,
distributions to members are made pro rata according to the number of units held
by each member, provided that distributions are not made to reduce a member's
capital account below zero unless and until all members' capital accounts have
been reduced to zero.
Holdings. A shareholder's interest in Holding is represented by the
ownership of Holdings capital stock. The total authorized capital stock of
Holdings consists of 100 million shares of common stock, par value $0.001 per
share, and 5 million shares of preferred stock, par value $0.001 per share.
Former members of itract will be issued shares of common stock in the itract
merger. No shares of preferred stock have been issued or will be issued as a
result of the mergers. For a more complete description of Holdings' securities,
see "Description of Holdings Securities."
Management
itract. Under itract's Limited Liability Company Agreement, its
business and affairs are managed by a single Manager, who has full discretion
make all decisions with respect to its business and broad powers to bind itract.
The Manager may also delegate functions relating to day to day operations to
officer, agents, consultants and employees.
Holdings. Under Delaware law and Holdings' bylaws, the business and
affairs of Holdings is managed by or under the direction of its board of
directors. Under Holdings' bylaws, the number of directors will be fixed from
time to time by the board of directors. It is expected that following the
mergers, the number of directors of Holdings will be fixed at six. The act of
the majority of the directors present at a meeting at which a quorum is present
is the act of Holdings' board of directors. Each director shall hold office
until the annual meeting of the shareholders next succeeding his election and
until his successor is elected and qualified, or until his prior death,
resignation or removal. Officers of Holdings are chosen by the board of
directors in accordance with Holdings' bylaws.
Meetings and Voting
itract. Under itract's Limited Liability Company Agreement, itract is
not required to hold annual or regular meetings of its members, although the
Manager of itract may call special meetings of members. Each unit entitles the
holder thereof to one vote on a matter submitted to a vote of the members, and
any action otherwise required to be taken at a meeting of members may be taken
by written consent of the holders of units having not less than the minimum
number of votes that would be necessary to take such action at a meeting at
which all members entitled to vote thereon were present and voted.
Holdings. Holdings bylaws provides for annual meetings of its
shareholders to elect directors and transact such other business as may properly
be brought before the meeting. In addition, special meetings of Holdings'
shareholders may be called by the appropriate officers of Holdings or at the
direction of shareholders owning a majority of the capital stock of Holdings
issued and outstanding and entitled to vote. Any action required or permitted to
be taken at any meeting of Holdings' shareholders may be taken by written
consent of the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to take such action at a meeting at
which all the shares entitled to vote thereon were present and voted.
Tax Treatment
itract. itract is treated as a partnership for federal income tax
purposes. Generally, itract as an entity is not subject to income taxation;
instead its members are responsible for income taxes on itract's income
regardless of whether members receive any distributions. Losses generated by
itract's operations are allocated to members and
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<PAGE>
may not be currently deductible by them for income tax purposes against certain
types of income realized by them, including compensation, interest, dividends
and active business income.
Holdings. Holdings, as a corporation, is subject to income taxation.
Shareholders of Holdings will not generally be responsible for taxes on
Holdings' income but will be subject to capital gains tax for gains realized
upon their disposition of shares of Holdings capital stock. To the extent
Holdings pays any distributions to its shareholders in a year in which Holdings
has current or historical earnings and profits, its shareholders will have to
pay ordinary income tax in respect of such distributions. However, Holdings does
not anticipate paying dividends for the foreseeable future. See "Material
Federal Income Tax Consequences."
SELECTED FINANCIAL DATA
Selected Financial Data of Margo
The following table sets forth certain selected consolidated audited
financial data for Margo on a historical basis, for each of the five years ended
December 31, 1999. The selected financial data should be read in conjunction
with the Management's Discussion and Analysis of Financial Condition and Results
of Operations of Margo, and Margo's consolidated financial statements for the
year ended December 31, 1999, which are attached to this proxy
statement/prospectus as Appendix I.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------
Earnings Statement Data: 1999 1998 1997 1996 1995
---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $6,201,233 $ 5,349,244 $ 6,548,912 $6,108,865 $ 4,933,718
Gross profit 2,230,111 1,726,173 1,365,335 2,137,340 1,777,358
Selling, general and administrative expenses 2,395,350 2,122,976 2,604,106 2,130,114 2,110,380
Income (loss) from operations (165,239) (396,803) (1,238,771) 7,226 (333,022)
Loss before income tax provision (127,867) (1,112,837) (750,534) (553,722) (386,334)
Net loss (127,867) (1,112,837) (750,534) (577,214) (396,334)
Net loss per common share - basic
and diluted ($.07) ($.59) ($.40) ($.30) ($.21)
Weighted average number of common
shares outstanding 1,875,322 1,878,655 1,895,322 1,895,322 1,895,322
Balance Sheet Data:
Working capital $4,306,446 $ 3,396,453 $ 4,151,894 $ 4,113,799 $ 5,020,099
Total assets 8,916,981 7,990,208 8,952,088 10,396,211 15,400,582
Long-term debt (excluding current portion) 338,597 85,880 252,883 427,078 354,707
Stockholders' equity 6,241,776 6,369,643 7,529,980 8,271,350 8,848,402
</TABLE>
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<PAGE>
Selected Financial Data of itract
The following table sets forth certain selected audited financial data
of itract for the period from May 12, 1999 (inception) through December 31,
1999. The selected financial data should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations of itract and itract's financial statements for the period from May
12, 1999 (inception) through December 31, 1999, which are attached to this proxy
statement/prospectus as Appendix K.
Period from May 12, 1999 (inception)
through December 31, 1999
------------------------------------
Statement of Operations Data:
Revenues 0
Web Site Development Costs ($244,826)
Selling General and
Administrative Expenses ($249,476)
Net Loss ($494,302)
Balance Sheet Data:
Cash $ 958
Total Assets $239,208
Total Liabilities $733,510
Member's Deficit ($494,302)
Pro Forma Financial Statements
Introduction to Pro Forma Financial Statements (Unaudited)
The accompanying unaudited pro forma balance sheet presents the
financial position of Margo and itract as of March 31, 2000, assuming the
reincorporation merger, the itract merger and the sale of Margo's nursery and
other subsidiaries have been completed as of the balance sheet date. The pro
forma statements of operations for the period ended December 31, 1999 and for
the three months ended March 31, 2000 for Margo and itract, respectively,
reflect the reincorporation merger, the itract merger and the sale of Margo's
nursery and other subsidiaries, as if the transactions had occurred on the first
day of the fiscal year presented and carried forward to the interim period
presented.
The itract merger will be accounted for as a reverse merger. As a
result, itract will be considered to be the acquiring entity and Holdings the
acquired entity for accounting purposes, even though Holdings' subsidiary is the
legal acquirer. The historical financial information of itract will become the
historical financial information of Holdings and historical stockholders' equity
and earnings per share prior to the merger have been retroactively restated for
the equivalent number of shares to be received in the merger. The pro forma
financial statements subsequent to the itract merger include: (1) the pro forma
balance sheet as of March 31, 2000, with the net assets of itract at historical
costs; (2) the pro forma results of operations for the three-month period ended
March 31, 2000 and for the period ended December 31, 1999.
The pro forma financial information does not purport to be indicative
of the results which would have actually been obtained had such transactions
been completed as of the assumed dates and for the periods presented or which
may be obtained in the future.
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<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA BALANCE SHEET
As of March 31, 2000
----------------------------------------------------------------------------------------
(a) (b)
Pro Forma Holdings
Adjustments (formerly Reverse
Margo Reincorporation Margo) After Acquisition
Before Merger Reincorporation and Pro
Reincorporation and Sale Merger and Sale Forma Pro Forma
Merger of Business of Business itract Adjustments Holdings
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 640,046 $ 4,359,954 $ 5,000,000 $ 7,523 $ 346,495 $ 5,354,018(c)
Short-term investments 500,000 (500,000) -- -- -- --
Accounts receivable, net 1,451,240 (1,451,240) -- 1,000 -- 1,000
Inventories 3,120,234 (3,120,234) -- -- -- --
Current portion of notes
receivable 475,000 (475,000) -- -- -- --
Prepaid expenses and other
current assets 282,266 (282,266) -- 7,973 -- 7,973
----------- ----------- ----------- ----------- ----------- -----------
Total current assets 6,468,786 (1,468,786) 5,000,000 16,496 346,495 5,362,991
Property and equipment, net 1,786,853 (1,786,853) -- -- -- --
Due from shareholder 335,610 (335,610) -- -- -- --
Notes receivable 67,915 (67,915) -- -- -- --
Other assets 124,808 (124,808) -- 370,520 -- 370,520
----------- ----------- ----------- ----------- ----------- -----------
Total assets $ 8,783,972 $(3,783,972) $ 5,000,000 $ 387,016 $ 346,495 $ 5,733,511
=========== =========== =========== =========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of
long-term debt $ 79,613 $ (79,613) $ -- $ -- $ -- $ --
Notes payable 1,100,000 (1,100,000) -- -- -- --
Accounts payable 744,930 (734,930) 10,000 93,805 -- 103,805
Accrued expenses 166,559 (166,559) -- 88,439 -- 88,439
Intercompany accounts -- -- -- 1,003,103 -- 1,003,103
----------- ----------- ----------- ----------- ----------- -----------
Total current liabilities 2,091,102 (2,081,102) 10,000 1,185,347 -- 1,195,347
Deferred revenue 111,885 (111,885) -- -- -- --
Long-term debt 338,597 (338,597) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities 2,541,584 (2,531,584) 10,000 1,185,347 -- 1,195,347
----------- ----------- ----------- ----------- ----------- -----------
Shareholders' Equity:
Preferred stock
Common stock 1,922 -- 1,922 -- 13,344 15,266(c)(d)
Additional paid-in capital 4,657,544 -- 4,657,544 -- 759,973 5,417,517(c)(d)(e)
Retained earnings (deficit) 1,679,210 (1,252,388) 426,822 (798,331) (426,822) (798,331)(e)
Treasury stock (96,288) -- (96,288) -- -- (96,288)
----------- ----------- ----------- ----------- ----------- -----------
Total shareholders' equity 6,242,388 (1,252,388) 4,990,000 (798,331) 346,495 4,538,163
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity $ 8,783,972 $(3,783,972) $ 5,000,000 $ 387,016 $ 346,495 $ 5,733,511
=========== =========== =========== =========== =========== ===========
</TABLE>
58
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<TABLE>
<CAPTION>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2000
-------------------------------------------------------------------------------------------
(b)
Holdings
(formerly Reverse
Margo (a)(f) Margo) After Acquisition
Before Reclassifications Reincorporation and Pro
Reincorporation and Sale of Merger and Sale Forma Pro Forma
Merger Business of Business itract Adjustments Holdings
----------- ----------- --------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 2,107,556 $(2,107,556) $ -- $ -- $ -- $ --
Cost of sales 1,372,128 (1,372,128) -- -- -- --
----------- ----------- --------- ----------- -------- -----------
Gross profit 735,428 (735,428) -- -- -- --
Web site development costs -- -- -- 51,941 -- 51,941
Selling, general and
administrative expenses 608,404 (608,404) -- 798,613 -- 798,613
----------- ----------- --------- ----------- -------- -----------
Income (loss) from operations 127,024 (127,024) -- (850,554) -- (850,554)
Other income (expense):
Interest income 28,155 (28,155) -- -- -- --
Interest expense (26,240) 26,240 -- -- -- --
Proposed merger expenses (157,281) 157,281 -- -- -- --
Miscellaneous income 9,109 (9,109) -- -- -- --
----------- ----------- --------- ----------- -------- -----------
(146,257) 146,257 -- -- -- --
----------- ----------- --------- ----------- -------- -----------
Net loss $ (19,233) $ 19,233 $ -- $ (850,554) $ -- $ (850,554)
=========== =========== ========= =========== ======== ===========
<CAPTION>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Period Ended December 31, 1999(g)
-------------------------------------------------------------------------------------------
(b)
Holdings
(formerly Reverse
Margo (a)(f) Margo) After Acquisition
Before Reclassifications Reincorporation and Pro
Reincorporation and Sale of Merger and Sale (g) Forma Pro Forma
Merger Business of Business itract Adjustments Holdings
----------- ----------- --------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 6,201,233 $(6,201,233) $ -- $ -- $ -- $ --
Cost of sales 3,971,122 (3,971,122) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Gross profit 2,230,111 (2,230,111) -- -- -- --
Web site development costs -- -- -- 244,826 -- 244,826
Selling, general and
administrative expenses 2,395,350 (2,395,350) -- 249,476 -- 249,476
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations (165,239) 165,239 -- (494,302) -- (494,302)
Other income (expense):
Interest income 105,914 (105,914) -- -- -- --
Interest expense (46,876) 46,876 -- -- -- --
Write-down of note -- -- -- --
receivable (80,000) 80,000
Gain from damages caused
by Hurricane Georges,
net of insurance proceeds 12,880 (12,880)
Miscellaneous income 45,454 (45,454) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Loss from continuing operations (127,867) 127,867 -- (494,302) -- (494,302)
Loss on disposal of nursery
and related segments -- (642,388) (642,388) -- 642,388 --
----------- ----------- ----------- ----------- ----------- -----------
Net loss $ (127,867) $ (514,521) $ (642,388) $ (494,302) $ 642,388 $ (494,302)
=========== =========== =========== =========== =========== ===========
</TABLE>
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<PAGE>
Notes to Unaudited Pro Forma Financial Statements
(a) Represents the expected sale of Margo's subsidiaries (Margo Nursery
Farms, Inc., Margo Garden Products, Inc., Margo Landscaping and Designs, Inc.,
Rain Forest Products Group, Inc., Margo Development Corporation and Margo Flora,
Inc.) for an assumed price of $5,000,000 in cash, plus the assumption of debt of
approximately $600,000, pursuant to the terms of the stock purchase agreement
with Empresas Margo. See (f) below.
(b) Margo, a Puerto Rico corporation, will merge with and into a wholly
owned subsidiary, Holdings, a Delaware corporation, pursuant to the
reincorporation merger. As a result of the reincorporation merger, each
stockholder of Margo will receive one share of Holdings for every Margo share
that such stockholder owns.
(c) Assumes exercise of outstanding stock options to acquire 127,500
shares of Margo common stock. Margo is expected to receive cash of $346,495,
which will increase common stock by $128 and additional paid-in capital by
$346,368. Also assumes that no Margo shareholder dissents to the reincorporation
merger and exercises any appraisal rights.
(d) Assumes Holdings will issue 12,680,057 new shares of its common
stock to itract members in exchange for all of the outstanding units of itract
and 536,045 shares of its common stock upon the exercise of the outstanding
warrant issued by itract to InfoSpace. This transaction will increase common
stock and decrease additional paid-in capital by $13,216.
(e) Elimination of Margo's retained earnings of $426,822 with a
corresponding increase in additional paid-in-capital.
(f) Elimination of Margo's non-recurring loss on sale of subsidiaries
(determined on the basis of the assumed price mentioned in (a) above and the net
assets as of March 31, 2000) revenues and expenses and the elimination of the
subsidiaries revenues and expenses. Margo acted as a holding company and did not
engage in any substantive business activities.
(g) Information for itract, which operates on a June 30 fiscal year,
covers the period from May 12, 1999 (inception) to December 31, 1999.
INFORMATION ABOUT ITRACT
Business Overview
itract was formed as a Delaware limited liability company in May 1999.
itract is an Internet based company established to address the needs of small to
medium sized businesses that desire a more efficient and cost effective means to
direct market their products and services. itract's system is intended to allow
these businesses to analyze, assemble and launch their direct marketing
campaigns in a simple, low-cost and effective manner. By accessing itract's Web
site, itract customers will be able to develop and launch comprehensive direct
marketing campaigns delivering email, fax and traditional postal mail to a
targeted audience of both on-line and off-line prospective customers. Itract has
completed successful testing of a "beta" version of its software and launched a
basic "version 1.0" of its system from its Web site (www.itract.com) on June 30,
2000.
Industry Overview
DIRECT MARKETING
Direct marketing has traditionally been conducted by mailing marketing
information directly to consumers. More recently, with the growth of the
Internet and advances in telecommunications technology, direct marketers have
begun to utilize email and fax machines to deliver their marketing messages to
prospective customers. According to the Direct Marketing Association, overall
media spending for direct marketing initiatives reached
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$176.5 billion in 1999, up 7.2% over 1998's expenditures. Direct marketing
advertising expenditures represented 57.1% of total U.S. advertising
expenditures in 1999. Direct marketing expenditures for business-to-business, at
$90 billion, accounted for 51% of total 1999 direct marketing expenditures.
According to the Direct Marketing Association, in 1999 a total of $42.2 billion
was spent on direct mail campaigns, up from $39.3 billion spent in 1998. In
addition, the Direct Marketing Association also predicts that direct mailing
expenditures will grow at a rate of 6.2% annually through 2004. Total U.S.
direct marketing sales business-to-business grew by 10.4% from $626.4 billion in
1998 to $691.6 billion in 1999, and are expected to grow at an annual rate of
7.4% to $1.17 trillion in 2004.
The Internet and Email
The Internet has emerged as a significant tool for global
communications, commerce and media. The growth of the Internet is the result of
a number of factors, including the extensive and growing installed base of
advanced personal computers in the home and workplace, increasingly faster and
cheaper access to the Internet, improvements in network infrastructure and
bandwidth, development of Internet-based applications and increasingly useful
content available online. Email is one of the most popular applications
associated with the Internet. Increased use of the Internet has resulted in the
widespread adoption of email as a regular and dependable communications medium.
The ability to inexpensively communicate at any time and from any
location with Internet access has resulted in the rapid increase in email use in
recent years. Continued growth in the use of email is being driven by its
convenience, speed, low cost and the ability to send increasingly large and
complex files and attachments, including documents, spreadsheets and multimedia.
Today, email is becoming increasingly critical to business-to-consumer and
business-to-business communications. Forrester Research estimates that three
billion solicited commercial emails were sent during 1997 and predicts that 250
billion commercial emails will be sent in 2002 for both consumer and business
email users.
Email Marketing
Consumer marketing has traditionally been conducted through a variety
of media, including direct mail and telephone. The widespread adoption of the
Internet and email has enabled companies to create new direct marketing and
communications strategies to target and acquire new customers, as well as
enhance existing customer relationships. The Direct Marketing Association has
estimated that approximately $1.3 billion was spent on direct marketing through
the Internet in 1999 and predicts that this number will grow to $8.6 billion by
2004. Email marketing and communications strategies are gaining acceptance among
a wide variety of businesses. In a 1999 Forrester Research study, 70% of online
retail, manufacturing and media companies surveyed indicated that email
marketing is "important" or "very important" to their sales and marketing
strategy and that 66% of such companies are using email for promotional
activities. itract believes that email marketing is more cost effective than
traditional direct marketing methods and enables significantly faster
communication with a larger audience.
Fax Marketing
Technological advances over the past decade have improved the speed and
quality of facsimile transmissions and reduced the cost of fax machines to
consumers, resulting in a large and increasing worldwide installed base of fax
machines. The proliferation of fax machines and their ease of operation has
caused fax usage to increase significantly as a principal means of
business-to-business communications. Declining telephony costs and improved
transmission technologies have made the transmission of documents by fax a
cost-effective and preferred alternative to mail, courier and telex services. In
addition, there recently has been a substantial increase in the installed base
of fax-capable personal computers.
Itract's Business
itract's system is being designed to assist small businesses in
analyzing, assembling and delivering targeted direct marketing campaigns without
the high cost, long lead times and production difficulties associated with
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traditional direct marketing. itract expects that the ease of use and
functionality of the itract system will allow customers to increase sales,
improve effective communication and reduce marketing costs.
itract is developing an all-inclusive Internet based direct marketing
system designed to empower itract's small business customers with the ability to
develop and launch a direct marketing campaign from a single computer, using
bulk email, "blast" fax mail or traditional postal mail. To utilize the itract
system, the user will access itract's Web site and upload its authored document,
which may be a marketing announcement, catalog or any other type of business
message, together with a mailing list. The mailing list, if it is the user's own
list, may consist of a combination of email addresses, fax telephone numbers and
traditional postal addresses. In addition, with version 1.0 of the itract
system, users will be able to purchase permission-based email mailing lists from
itract. Subsequent upgraded versions of the itract system are intended to
provide customers with the ability to purchase mailing lists consisting of
permission based fax numbers or postal addresses. Once the authored document and
mailing list are provided to itract through its Web site, itract's "smart send"
system is intended to be capable of transmitting the authored document to each
prospect on the mailing list, through email, fax or traditional postal mail.
itract's Internet based direct marketing system will simultaneously reach both
the on-line and off-line marketplace.
itract will use its best efforts to adhere to all federal and state
laws and regulations relating to the transmission of spam (unsolicited email)
and faxes. In addition to taking steps to ensure that the itract system is not
used to transmit unsolicited email or fax, itract will provide every recipient
of information transmitted through the itract system with the ability to contact
itract at no cost to "opt-out" of receiving future solicitations through itract.
Furthermore, itract will create its own proprietary "opt-in" mailing list
database consisting of individuals who have registered with itract on its Web
site.
Finally, while not available on version 1.0, itract expects that future
upgrades of its system will incorporate a rewards/incentives program and include
reporting tools that itract customers will be able to use to increase the
effectiveness of their direct marketing campaigns.
LIST RENTAL/PURCHASE
An integral feature of itract's system will be the ability to provide
users, for a fee, with targeted mailing lists (initially consisting of email
addresses) which may be purchased directly from itract on its Web site.
Subsequent versions of the itract system are intended to allow users to purchase
fax numbers and postal addresses from a choice of list companies available
through itract's Web site. In addition, in the future, itract customers will be
able to purchase itract's proprietary, permission based mailing list, which it
will compile from information provided directly to itract by individuals
accessing itract's Web site. To date, itract has entered into agreements with
two list provider companies. Both of these agreements are for a three-year
period. One of these agreements is with a provider of permission-based email
listings, and the other with a provider of permission-based fax listings. Under
these agreements, itract, at no initial cost, has been granted the nonexclusive
right to resell such mailing lists to its customers, and pays the list providers
royalties upon sales to itract customers. itract may enter into agreements with
other list provider companies which require itract to pay initial licensing
fees. Using features expected to be accessible on its Web site, itract users
will be able to construct mailing lists tailored to their demographic,
geographic, product and/or service specifications.
In addition to providing users with targeted mailing lists, itract's
Web site is intended to allow customers to manage, analyze, search and
manipulate the data contained in their contact lists (whether or not purchased
from itract).
FREERIDE.COM(R)REWARDS PROGRAM
To generate increased use and loyalty, the itract system will
incorporate a rewards and loyalty points program. To this end, itract has
entered into an agreement with FreeRide.com, LLC, an established online rewards
and loyalty points program organization. Rewards points provided through
FreeRide will be used in three ways. To generate increased response rates,
itract customers will be able to provide prospects that respond to its direct
marketing efforts with rewards points. itract customers will also earn rewards
points for utilizing the itract system. In addition, anyone
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who registers for itract's permission-based registry will be eligible to
instantly receive reward points. Reward points will be redeemable at both online
and offline retailers that participate in FreeRide's program, as well as for
itract services. Under the terms of this agreement, itract will pay FreeRide a
specified price for each "Point" awarded by itract under the agreement.
SPAM PRECAUTIONS, ANTI-SPAM REGISTRY
All email lists provided by itract, including those lists purchased
from third party list providers, will be designed, to the greatest extent
practicable, to include only prospects that have specifically requested to
receive information of interest or have been given the option to opt out from
receiving information but have not done so. All fax mailing lists provided by
itract will be purchased from third party list providers which represent that
such lists only include prospects that have specifically requested to receive
information of interest. In addition, all recipients of information email or
faxes through the itract system will be given the option, by accessing itract's
Web site, to "opt out" from receiving future unsolicited information of the
nature received, and/or opting in to receiving future solicitations in specific
categories of interest. To encourage individuals to provide itract with specific
opt in information, as well as basic personal information such as name, address,
phone and fax numbers and email address, itract intends to award FreeRide(R)
Points to individuals providing itract with such information. In this manner,
itract will be able to build both an "Anti-Spam registry" (containing the names
of individuals who have requested not to receive information), and a proprietary
permission based database consisting of the individuals who have "opted in."
The Anti-Spam registry will be used by itract customers (whether using
their own or purchased mailing lists) to ensure that individuals in the registry
who have so requested do not receive unsolicited information. Moreover,
customers using the itract system with their own mailing lists will be required
to acknowledge an "anti-spam" disclaimer that will appear on screen before
continuing. Accordingly, the itract system will attempt to minimize the legal
and ethical issues related to the transmission of spam (unsolicited mass email
or fax).
Revenue Sources
itract intends to generate revenue from multiple sources. itract users
will be charged both an annual subscription fee (currently anticipated to be
$49.95) and a transmission fee for each email, fax and piece of postal mail
delivered by itract. In addition, itract will charge its customers for its
internally produced permission-based mailing list databases, and itract will
earn commissions on mailing lists purchased by itract users through itract's Web
site from third party list companies. itract will also charge its customers who
purchase reward points for use in their direct marketing campaigns.
ITRACT PRIVATE LABEL PROGRAM
itract intends to generate additional revenues from its private label
program, pursuant to which itract will enter into agreements with strategic
partners to provide them with "private label" versions of the itract system
which will be accessible from the Web site of such third parties. In addition to
maintenance and development fees that these parties will be required to pay to
itract for itract's development and management of these private label Web sites,
revenues generated from the itract system through strategic partners' Web sites
will be shared with itract according to contracted for rates. In this manner,
itract's private label program will enable it to gain access to customers that
may not otherwise have utilized the itract solution from itract's own Web site.
Itract Sales and Marketing
SALES
itract's sales program will use the following three methods:
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1. Web site Sales
itract's Web site (www.itract.com) is being designed to function as one
of itract's primary sales methods. A major marketing goal is to drive traffic to
the itract Web site. The "front end" of the Web site is being designed to sell
itract services and is the portal to the user site. The member site will be
designed for functional ease-of-use and generation of renewal income.
The front end of the itract Web site is being designed to grab the
customer's attention in the first few seconds. itract believes it succinctly
articulates the benefits of the itract system and will encourage customers to
purchase its online services. A prospect will be able to visit the itract Web
site for the first time, purchase credits and mount a direct marketing campaign
all on the same day. On every page of the itract Web site, the user will have
the opportunity to purchase itract's services. A specially created navigation
bar provides users with immediate access to the information they require.
itract's sales promotion/service description, pricing, ordering, help desk, and
contact information are all specially designed to be user friendly.
An integral part of the itract Web site will be the member site, which
itract believes will be highly sophisticated yet easy-to-use. The member site is
being designed from the user point of view. A step-by-step process will walk the
customer through importing and building its mailing lists, attaching documents,
adding rewards points and transmitting the data to user-specific groups designed
by the customer.
The member site will be designed to generate renewal revenue. It will
include an automated function, which notifies the customer when it has fallen
below a predetermined number of credits in its account. This message will prompt
the customer to purchase more credits at that time and reward the customer with
bonus e-mail credits or reward points for doing so. There will be a hyper-link
directly into the "Purchase More Credits" function of the member site, where the
customer will be able to purchase more credits.
2. Private Label Program
The itract private label program is being designed to facilitate the
creation of strategic relationships with companies that private label itract's
services. The private label program will allow these companies to market the
itract facility from their own Web site and under their own name to their
existing customer base. This is intended to permit increased sales of itract's
services while keeping direct sales costs low. By partnering with companies that
target particular industry segments, itract believes it will gain access to a
relevant customer base, which in turn will increase itract's online sales.
Because these partnerships will be performance-based, itract will compensate its
strategic partners only when a purchase is made, making this channel highly
cost-effective.
itract will initially leverage its existing relationship with
eMarketplaces, Inc., an indirect majority owned subsidiary of ICES.
eMarketplaces is an e-commerce provider that utilizes proprietary technology to
create community-oriented, business-to-business electronic marketplaces for
specific industries. Under an agreement entered into between itract and
eMarketplaces, itract will provide eMarketplaces with a "private label" version
of the itract system so that existing customers of eMarketplaces will be able to
purchase itract's services. itract will seek to enter into agreements with other
strategic partners.
3. Direct Sales
itract's in-house sales force currently consists of a Vice President of
Marketing and one additional account executive, and itract intends to hire
additional account executives consistent with its growth needs as required. The
in-house sales force will focus on strategic selling. itract's initial target
market will consist of the following:
Affiliate Programs - itract will seek to enter into one or more
agreements that will provide it access to an "affiliate network" of companies
doing business on the Internet. These agreements will provide itract with the
ability to engage network affiliates (for a fee based either on revenues
generated through such Web site, or customers referred through such Web site or
other similar criteria) to provide links on their Web sites to itract's Web
site. In
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this manner, if itract is able to successfully engage such affiliates, itract
will be able to reach prospective customers that may not otherwise have been
aware of itract's services.
On-line and Off-Line Businesses and Services - itract will use its own
itract system to bulk e-mail and fax promotional information regarding the
itract system's capabilities to on-line and off-line businesses.
Trial Offer - itract will make its services available on a trial offer
basis to selected customers at rates below its regular subscription rate
($49.95), and with a minimum purchase, will give these customers a certain
number of free e-mails and fax transmissions.
MARKETING
To familiarize the public with the itract system and its capabilities
and build brand awareness, itract has entered into several promotional and
marketing agreements which will allow itract to incorporate several methods into
its marketing strategy. To this end, itract has entered into agreements with
both an advertising agency and a public relations agency.
In addition, itract has recently entered into an agreement with
InfoSpace.com, Inc. InfoSpace maintains an Internet content, commerce and
community Web site. Pursuant to the agreement, InfoSpace will post itract
promotional placements (which will include textual and graphic links to itract's
Web site) on various locations of its Web site. InfoSpace has committed to
providing itract a specified number of "impressions" over the two year term of
the agreement. An "impression" is defined as a user's viewing an InfoSpace Web
site page that has an itract promotional placement and connecting to itract's
Web site through such link. itract's sole remedy for InfoSpace's failure to meet
this commitment is the ability of itract to extend the term of the agreement up
to a maximum of 12 additional months until such commitment is met. As
consideration for such services, InfoSpace has been granted a warrant to
purchase for nominal value up to a maximum of approximately 3.52% of the shares
of Holdings common stock that will be outstanding immediately following the
itract merger. The warrant will vest over the two-year term of the agreement,
subject to InfoSpace meeting specified performance targets, measured by the
number of InfoSpace users viewing the itract promotional placements. In
addition, under the terms of the warrant, if the itract merger is not
consummated by August 15, 2000, then such warrant will be canceled, and
InfoSpace will instead be compensated by monthly cash payments (to the extent
the contracted performance targets are reached).
Technology
itract's proprietary software will be able to interactively determine
the proper delivery method for a client's message. This software is implemented
in ColdFusion. The itract system was originally developed for itract and has
been further refined by itract's own programmers with the assistance of
independent consultants engaged by itract. The system consists of itract's
proprietary software, which incorporates licensed software for the transmission
of faxes, linked to a network of web servers, fax servers, and email servers,
redundantly connected to deliver these messages.
In addition to relying on third parties for the software that enables
the itract system to send faxes through the Internet, itract is dependent on
support services provided by third parties for the integration of such software
with itract's hardware and proprietary software. Prior to the launch of "version
1.0" of the itract system, itract anticipated licensing such software and
obtaining support services from a particular entity which subsequently ceased
operations. As a result, itract was forced to delay the launch of version 1.0 of
its Web site and incur additional costs. While itract has made alternative
arrangements to enable the itract system to provide fax capabilities, if
itract's current service providers were unable to provide itract with the
services it needs to transmit faxes, itract's business could be disrupted.
Clients will be able to upload, and then purchase, contact lists of
various demographic profiles, group these contacts by any methodology they wish,
and then contact any or all of them using the itract system by a simple online
interface that accepts immediate online input or attachment of a document the
client has previously authored. itract will handle the delivery of the rendered
documents to the client's customers.
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itract has contracted with an outside data facility provider to provide
itract with a data facility, located in New York, New York, where itract will
maintain its Web servers, fax servers and email servers. As both an ISP
(Internet Service Provider) and CLEC (Competitive Local Exchange Carrier), this
provider will provide itract with both Internet connectivity for its email
services and telephony services for fax transmission.
Competition
itract will compete both with traditional providers of direct marketing
services and new entrants to the market that provide email and fax direct
marketing services. In addition, the majority of businesses today use their
internal email systems to provide solutions to manage and deliver outbound email
campaigns. Many of itract's current and potential competitors have greater name
recognition, longer operating histories, larger customer bases, and
significantly greater financial, technological, marketing, public relations,
sale, distribution and other resources.
For companies seeking outsourced solutions, itract will compete with
email outsourcing companies that offer services similar to those provided by
itract, including email distribution, list management and reporting. Key
competitors include Exactis.com, yesmail.com, Bigfoot International, Digital
Impact and MessageMedia. Other competitors offer both fax and email service,
such as Cynet, Inc., 24/7 Media, Net Moves Corp., Click Action, Message Blaster
and Boomerang.com, and still other competitors of itract provide fax services
only, such as efax.com. itract will also compete with E-Letter, Inc. an online
direct mail service company whose service is limited to postal mail.
The direct marketing industry in general, and the email marketing
industry in particular, is intensely competitive. The market is highly
fragmented, with the largest companies accounting for only a small portion of
the market. There are few barriers to entry, as evidenced by the many new
entrants to the market, and it is expected that established and new entities
will continue to enter the market. While itract believes that it may be one of
the first companies to provide a fully-integrated communications system that
through email, fax and postal mail, will simultaneously reach the on-line and
off-line marketplace, there can be no assurance that itract will be able to
compete effectively with current or future competitors.
itract's ability to compete will depend on the success of its sales and
marketing efforts, and will further depend upon itract's ability to offer:
o technical expertise;
o consistent and reliable service;
o features and functionality;
o full service solutions; and
o direct marketing expertise.
Intellectual Property Rights
itract's success and ability to compete are substantially dependent
upon its technology and intellectual property. While itract relies on copyright,
trade secret and trademark law to protect its technology and intellectual
property, itract believes that factors such as the technological and creative
skills of its personnel, new product and service developments, frequent product
and service enhancements and reliable product and service maintenance are more
essential to establishing and maintaining an intellectual property leadership
position. itract has one trademark application pending for the mark "itract" and
has no patents or patent applications pending. Others may develop products and
services that are similar or superior to those provided by itract.
itract has entered into confidentiality agreements with its employees,
consultants and corporate partners and intends to control access to, and
distribution of its products, documentation and other proprietary information.
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Despite itract's efforts to protect its proprietary rights, unauthorized parties
may attempt to copy or otherwise obtain and use its products, services or
technology. Policing unauthorized use of proprietary information is difficult,
and the steps itract has taken might not prevent misappropriation of its
technology, particularly in foreign countries where the laws may not protect its
proprietary rights as fully as do the laws of the United States.
Substantial litigation regarding intellectual property rights exists in
the technology industry. From time to time, third parties may assert exclusive
patent, copyright, trademark and other intellectual property rights to
technologies and related standards that are important to itract. itract may
increasingly be subject to infringement claims as the number of competitors in
its industry segments grows and the functionality of products in different
industry segments overlaps. In addition, many of itract's competitors may have
filed or intend to file patent applications covering aspects of their technology
that they may claim itract's intellectual property infringes. Although itract
has not been party to any litigation asserting claims that allege infringement
of intellectual property rights, there can be no assurance that itract will not
be a party to litigation in the future. Any third party claims, with or without
merit, could be time-consuming to defend, result in costly litigation, divert
management's attention and resources, cause product introduction delays or
require itract to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
itract, if at all. A successful claim of product infringement against itract
could harm itract's business.
Government Regulation
There is a growing body of laws and regulations applicable to access to
or commerce on the Internet. Due to the increasing popularity and use of the
Internet, it is likely that a growing number of laws and regulations will be
adopted at the international, federal, state and local level with respect to the
Internet or direct marketing services covering issues such as user privacy,
pricing, content, copyrights, distribution, and characteristics and quality of
products and services. Further, the growth and development of the market for
email direct marketing may prompt calls for more stringent consumer protection
laws that may impose additional burdens on those companies conducting business
online. The adoption of any additional laws or regulations may impair the growth
of the Internet or email direct marketing, which could, in turn, decrease the
demand for itract's products and services and increase itract's cost of doing
business, or otherwise harm its business. Moreover, the applicability to the
Internet of existing laws in various jurisdictions governing issues such as
property ownership, sales and other taxes, libel and personal privacy is
uncertain and may take years to resolve. Any such new legislation or regulation,
the application of laws and regulations from jurisdictions whose laws do not
currently apply to itract's business or the application of existing laws and
regulations to the Internet could harm itract's business.
Legislation has recently been enacted in several states relating to the
sending of unsolicited emails, a practice commonly referred to as "spamming."
The federal government and several states, including New York, are considering,
or have considered, similar legislation. Although the provisions of these
current and contemplated laws vary, they generally limit or prohibit both the
transmission of unsolicited emails and the use of familiar spamming techniques
such as the use of forged or fraudulent routing and header information. Some
states, including California, require that unsolicited emails include opt-out
instructions and that senders of such emails honor any opt-out requests, a
requirement that is consistent with itract's own permission email policies.
itract believe that its permission-based email system will not be affected by
such legislation because it does not send unsolicited messages and because its
current practices are intended to comply with current and proposed legislation.
However, if itract is unable to prevent the transmission of unsolicited email,
it may be subject to claims for violations by its customers of federal or state
civil or criminal law. In addition, there can be no assurance that such
legislation or similar legislation will not also affect permission-based email
marketing in a way that could force itract to change its business practices,
particularly in light of the rapidly evolving state of the law in this area. In
such event, itract's business could suffer.
In addition to the laws regulating the Internet and the transmission of
email, Federal law makes it unlawful to use a computer or other device to send
an unsolicited advertisement to a telephone facsimile machine, and provides a
private right of action to recover $500 for each violation of this law. To the
extent itract sells fax numbers to its customers, itract intends that all such
numbers will belong to individuals that have explicitly agreed to receive
advertisements transmitted to their fax machines. In addition, itract will
require its customers that use their own fax mailing lists to acknowledge that
such list consist only of individuals that have agreed to receive the
information
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being transmitted. However, despite itract's efforts, there can be no assurance
that itract will be able to comply with the law, and itract may also be held
responsible for violations of its customers. If itract is found to have violated
this federal law, itract may have to pay significant damages, its reputation
will be harmed and its business will suffer.
Employees and Facilities
itract employs seven full-time employees, who are located at itract's
principal executive offices at 220 West 19th Street, 12th Floor, New York, New
York 10011. itract occupies these facilities pursuant to an occupancy agreement
with its indirect majority owner, ICES. Under such agreement, itract pays ICES a
monthly amount based on the number of itract employees located at these
facilities. ICES does not have a current lease for these premises and has been
served with a notice of eviction, although ICES is in negotiations with the
landlord for the lease of such premises. itract believes that if it is forced to
vacate the premises at 220 West 19th Street, it will be able to find suitable
replacement offices, although the terms of any such agreement may be at a
greater cost than itract's current occupancy agreement. itract's telephone
number is (212) 647-8483. itract's home page is located at www.itract.com.
Information contained on itract's Web site shall not be deemed a part of this
prospectus/proxy statement.
Legal Proceedings
itract is not currently a party to any material legal proceedings.
Certain Relationships and Related Transactions
ICES, through its subsidiary The TechDepartment.com Inc., currently
owns approximately 91.7% of itract's outstanding membership units. Upon the
consummation of the itract merger, TechDepartment.com Inc. will own
approximately 80% of the outstanding common stock of Holdings. ICES develops,
invests in, and operates Internet technology related companies.
Henry Kauftheil is currently the sole manager of itract and, at the
effective time of the itract merger, will be the Chairman of the Board of
Holdings. Mr. Kauftheil is also the sole director of The TechDepartment.com and
the Chairman and a controlling shareholder of ICES.
itract currently occupies space previously leased by ICES, for which it
pays ICES a monthly amount based on the number of itract employees located at
these facilities. Such amount was approximately $5,600 for the month of May, and
may increase as itract employs additional personnel. See "Employees and
Facilities."
Pursuant to a written agreement dated as of May 12, 1999, itract pays
ICES a monthly fee of $10,000 in consideration of certain services provided by
ICES to itract, including investment banking, legal and accounting services.
itract also is a party to an agreement with CoreActive ACG, LLC,
another majority-owned subsidiary of ICES, pursuant to which itract pays
CoreActive $850 per month for each itract employee that utilizes computer
hardware, software and network services provided by CoreActive.
itract has also compensated CoreActive ACG, LLC in the amount of
$485,000 in connection with the development of certain components of the itract
system by employees of ICES and certain of its affiliates. ICES and these
affiliates have executed an Assignment of Intellectual Property pursuant to
which ICES and such affiliates have conveyed all of their rights in the itract
system to itract.
In connection with the agreements and obligations described above, at
March 31, 2000, itract owed ICES and certain of its affiliates the aggregate
amount of $1,003,103. Pursuant to the Agreement and Plan of Merger, itract has
agreed that prior to the effective time of the itract merger, all amounts owed
by itract to ICES and its affiliates at February 29, 2000 will be discharged and
converted into capital contributions to itract, except for the amount of
$525,000 (plus interest) payable to CoreActive on demand.
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Executive Compensation
No executive compensation was paid during the fiscal year ended June
30, 1999. Certain entities controlled by Henry Kauftheil, the Manager of itract,
received fees from itract for the year ended June 30, 1999, as set forth under
"Certain Relationships and Related Transactions." Upon the consummation of the
itract merger, the limited liability company agreement of itract will be amended
to provide, among other things, that the business and affairs of itract be
managed and controlled by its sole member, Holdings, eliminating the position of
"Manager." Accordingly, after the merger, Mr. Kauftheil will cease to be the
Manager of itract, although it is anticipated that Mr. Kauftheil will serve as
the Chairman of the Board of Holdings, following the merger.
Employment Agreements
Kevin Kerzner, Pursuant to an employment agreement dated as of January
1, 2000, Kevin Kerzner is employed as the Executive Vice President of itract.
The agreement is for an initial term of three years, and will extend
automatically unless written notice is given by either party at least 90 days
prior to the end of the initial term. If the agreement is automatically renewed,
it will continue to be extended on annual basis until terminated by either party
pursuant to the agreement. Mr. Kerzner will receive an annual base salary of
$120,000 in the first year of his employment period, increasing to $150,000 and
$200,000 respectively in the second and third years of his employment with
itract. Mr. Kerzner will also be eligible to receive a bonus based on the
performance of itract. The agreement also entitles Mr. Kerzner to certain other
benefits, including medical insurance and participation in certain benefit plans
that are or may be available to employees of itract. Under the terms of the
agreement, Mr. Kerzner is prohibited from competing with itract for a period of
one year following his employment with itract. The agreement may be terminated
by itract at any time for "cause" as specified in the agreement.
Anthony Peluso. Pursuant to an employment agreement dated as of January
15, 2000, Anthony Peluso is employed as the Vice President -- Marketing of
itract. The agreement is for an initial term of three years, and will extend
automatically unless written notice is given by either party at least 90 days
prior to the end of the initial term. If the agreement is automatically renewed,
it will continue to be extended on annual basis until terminated by either party
pursuant to the agreement. Notwithstanding the foregoing, the agreement may be
terminated by itract at any time upon three months' notice and the payment of
severance pay equal to three months of base salary. Mr. Peluso receives an
annual base salary of $100,000 (subject to increase in the discretion of
itract), and will be eligible to receive a bonus based on the performance of
itract. The agreement also entitles Mr. Peluso to certain other benefits,
including medical insurance and participation in certain benefit plans that are
or may be available to employees of itract. Under the terms of the agreement,
Mr. Peluso is prohibited from competing with itract for a period of two years
following his employment with itract. The agreement may be terminated by itract
at any time for "cause" as specified in the agreement.
Financial Statements
The audited balance sheets of itract as of December 31, 1999 and June
30, 1999 and the related statements of operations and members' deficit and
statements of cash flows for the period from May 12, 1999 (inception) to
December 31, 1999, for the six months ended December 31, 1999 and the period
from May 12, 1999 (inception) to June 30, 1999 are attached to this proxy
statement/prospectus as Appendix K. The unaudited balance sheet of itract as of
March 31, 2000 and the related statements of operations and members' deficit and
statements of cash flows for the three month period then ended and for the
period from May 12, 1999 (inception) to March 31, 2000 are attached to this
proxy statement/prospectus as Appendix L.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ITRACT
The matters discussed in this section contain forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and Section 27A of the Securities Act of 1933, as amended,
that involve risks and uncertainties. All statements other than statements of
historical information provided herein may
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be deemed to be forward-looking statements. Without limiting the foregoing, the
words "may", "will", "should", "could", "intends", "thinks", "estimates",
"believes", "anticipates", "plans", "expects", or the negative of such terms,
and similar expressions are intended to identify forward-looking statements.
Factors that could cause actual results to differ materially from those
reflected in the forward-looking statements include, but are not limited to,
those discussed in this section and elsewhere in this filing, including those
discussed under "Risks Associated With itract's Business." Readers are cautioned
not to place undue reliance on these forward-looking statements, which reflect
itract management's analysis, judgement, belief or expectation only as of the
date hereof. itract undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof.
Overview
itract was formed as a Delaware limited liability company and commenced
operations in May 1999. itract is a development stage company and it is a member
of an affiliated group of companies under common control of its indirect parent,
ICES. itract has a fiscal year ending June 30.
itract's system is being designed to provide a cost effective and
efficient means for its customers to direct market their products and services.
By accessing itract's Web site, itract's customers will be able to develop and
launch comprehensive direct marketing campaigns delivering e-mail, fax and
traditional postal mail to a targeted audience of both on-line and off-line
prospective customers. itract has completed successful testing of a "beta"
version of its software and launched a basic "version 1.0" of its system from
its Web site (www.itract.com) on June 30, 2000.
itract intends to generate revenues from multiple sources. itract users
will enter into subscription agreements with itract (currently anticipated at
$49.95 per annum) for unlimited access to itract's system. A transmission fee
will be charged for each e-mail, fax and piece of postal mail delivered by
itract. In addition, itract will charge its customers for its internally
produced permission-based mailing list databases, and itract will earn
commissions on mailing lists purchased by itract's users through its Web site
from third party list companies. itract also intends to charge its customers who
purchase reward points for use in their direct marketing campaigns. itract
expects its e-commerce transactions to generate substantially all of itract's
revenues in the future. However, to the extent that the number of subscribed
users of itract's system is less than anticipated or that such users do not
engage the anticipated volume of e-commerce transactions, revenues generated by
itract's system will be less than projected.
itract also anticipates deriving additional revenue from its private
label program pursuant to which itract will enter into agreements with strategic
partners to provide them with "private label" versions of the itract system
which will be accessible from the Web site of such third parties. In this
manner, itract's private label program will enable it to gain access to
customers that may not otherwise have utilized the itract system from itract's
own Web site.
itract believes that the continued expansion of its operations and
marketing efforts is essential to achieving its financial goals. itract
therefore intends to continue to increase expenditures in all areas of its
operations, resulting in continued increases in cost of revenues and selling,
general and administrative expenses.
Historical Results of Operations
Historical Comparison of the six months ended December 31, 1999 and the
three months ended March 31, 2000.
Revenue
itract has had no revenue to date. itract anticipates that it will
begin to generate revenues following the launch of its Web site on June 30,
2000.
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Selling, General and Administrative Expenses
Selling and marketing expenses consist of salaries, travel expenses for
sales staff, marketing expenses for itract's system, marketing materials and
promotions. Sales and marketing expenses amounted to $18,673, for the six months
ended December 31, 1999, and $76,385, for the three months ended March 31, 2000.
The increase is consistent with itract's plan, which commenced during the first
quarter of 2000, to build an infrastructure and to market its system
aggressively, in order to increase the number of strategic alliances, value
added services, and ultimately, the number of users. As itract continues to
expand sales and launch new services, itract expects to incur significant
promotional expenses as well as expenses related to the hiring of additional
sales and marketing personnel, increased advertising, public relations campaigns
and events marketing. itract anticipates that these costs will substantially
increase in future periods.
General and administrative expenses consist primarily of salaries and
related costs for general corporate functions, including executive, finance,
administration, facilities and fees for professional services. General and
administrative expenses amounted to $169,198, for the six months ended December
31, 1999, and $722,229, for the three months ended March 31, 2000. This increase
is primarily due to a non-cash compensation charge of $546,525 as a result of
the issuance of membership units as payment for services rendered, expenses due
to the hiring of additional personnel between January 1, 2000 and March 31, 2000
and the increase in overhead and support services necessary to support
operations. itract anticipates that its general and administrative expenses will
continue to increase significantly as itract expands its infrastructure and
administrative staff.
Provision for Income Taxes
No provision is required to be made by itract for Federal and State
income taxes. Under the Internal Revenue Code and similar state regulations,
itract has elected to be treated as a partnership; accordingly, the income of
itract is taxed to its members.
Liquidity and Capital Resources
Since inception, itract has funded its operations, working capital
needs and capital expenditures through loans and advances from its indirect
parent, ICES and affiliates of ICES. On February 24, 2000, in conjunction with
the proposed merger with Margo, ICES issued $2,000,000 in convertible notes to
certain shareholders of Margo. The proceeds of these notes are to be used to
fund the operations of itract on an as-needed basis until the effective time of
the itract merger. As of March 31, 2000, itract had cash and cash equivalents of
$7,523 as compared to total liabilities of $1,185,347.
itract's outstanding liabilities are principally comprised of loans and
advances due to ICES and affiliates of ICES. Pursuant to the Agreement and Plan
of Merger, itract has agreed that prior to the effective time of the itract
merger, all amounts owed by itract to ICES and its affiliates at February 29,
2000 will be discharged and converted into capital contributions to itract,
except for $525,000 (plus interest) representing principally the amount incurred
by itract for the development of its Web site, which amount shall be payable on
demand to CoreActive ACG, LLC, an affiliate of ICES.
itract anticipates that it will continue to increase its capital
expenditures in the near future due to anticipated growth in its operations,
infrastructure and personnel. In addition to any future commitments for capital
expenditures relating to leaseholds, improvements to infrastructure, additional
licenses for interactive elements (including content management software) and
Web site development and security, capital expenditures are expected to average
$208,000 monthly through the third quarter of the year 2000.
Sales and marketing expenditures are expected to average $ 740,000 per
month through the third quarter of the year 2000 in order to reach projected
levels of registered users, traffic and revenue from e-commerce transactions on
the itract system.
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Subsequent to March 31, 2000, itract entered into an agreement with
InfoSpace pursuant to which InfoSpace will post itract promotional placements on
various locations of its Web site. As consideration for such services, InfoSpace
has been granted a warrant to purchase, for nominal value, up to 3.52% of the
shares of Holdings' common stock that will be available immediately following
the itract merger. The warrant will vest over the two-year term of the agreement
subject to InfoSpace meeting specified performance targets. In addition, under
the terms of such agreement, if the itract merger is not consummated by August
15, 2000, then such warrant will be cancelled and InfoSpace will instead be
compensated by monthly cash payments (to the extent the contracted performance
targets are reached).
To date, the $2,000,000 advanced by ICES for purposes of funding itract
has been sufficient to meet itract's working capital and capital expenditure
needs. However, if the itract merger is not consummated, the cash anticipated to
be generated from itract's operations will be insufficient to satisfy its
liquidity requirements after September 2000, and itract would need to receive
additional loans and advances, sell its securities or modify its growth
strategy.
Upon completion of the itract merger, Holdings will have $5,000,000 in
cash, less the amounts previously advanced by ICES. It is anticipated that cash
balances on hand at the effective time of the itract merger together with the
anticipated cash flow from operations will be sufficient to fund working capital
and capital expenditures through June 30, 2001.
However, itract's capital requirements are subject to numerous
contingencies associated with early stage companies. itract may be required to
seek additional financing in the event of delays, cost overruns or unanticipated
expenses associated with a company in an early stage of development or in the
event itract does not realize anticipated revenues. To the extent that the
number of subscribed users of the itract system is less than anticipated or that
such users do not engage in the anticipated volume of e-commerce transactions,
cash flows generated by the itract system will be less than projected. In
addition, itract may seek financing in the future to expand its service
offerings or to make strategic acquisitions. There can be no assurance that such
financing will be available, or that, if available, such financing will be on
terms favorable to itract. Such financing may include the issuance of equity
securities which may result in dilution to the shareholders of Holdings.
Further, if Holdings raises funds by issuing debt, limitations may be placed on
its operations. Failure to obtain financing may impact itract's ability to
respond to competitive pressures or to take advantage of strategic
opportunities.
Web site Development Costs
Costs incurred to develop itract's Web site have been capitalized or
expensed based upon guidelines issued by the Emerging Issues Task Force
Consensus Issue No. 00-2. All costs associated with the planning stage, totaling
$296,767 through March 31, 2000, have been expensed as incurred. Costs incurred
in the Web site application and infrastructure, graphics and content development
stages, totaling $370,520 through March 31, 2000, have been capitalized.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments imbedded in other contracts
(collectively referred to as derivatives) and for hedging activities. SFAS 133
requires the recognition of all derivatives as either assets or liabilities in
the statement of financial position and the measurement of those instruments at
fair value. SFAS No. 133, as amended by SFAS No. 137, is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. As itract
does not engage or plan to engage in derivative or hedging activities, there
will be no impact to itract's results of operations, financial position or cash
flows upon the adoption of this standard.
itract implemented the provisions of Statement of Position ("SOP")
98-5, "Reporting on the Costs of Start-up Activities," effective May 1999. SOP
98-5, issued by the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants, requires that the costs of all
start-up activities, as defined in the
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SOP, be expensed as incurred. The adoption of the provisions of this SOP did not
materially impact the results of operations or the financial position of itract.
In October 1999, the Chief Accountant of the SEC requested that the
Financial Accounting Standards Board Emerging Issues Task Force ( the "EITF" )
address a number of accounting and financial reporting issues that the SEC
believes has developed with respect to Internet businesses. The SEC identified
twenty issues for which they believed some form of standard setting or guidance
may be appropriate either because (i) there appeared to be diversity in practice
or (ii) the issues are not specifically addressed in current accounting
literature or (iii) the SEC Staff is concerned that developing practice may be
inappropriate under generally accepted accounting principles. Many of the issues
identified by the SEC, including those which address barter and revenue
recognition, are potentially applicable to itract. Although the EITF has begun
to deliberate these issues, formal guidance has not been issued to date for the
majority of them. In addition, in December 1999, the SEC Staff issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements", which is required to be implemented in the quarter ended March 31,
2000. Although itract believes its historical accounting policies and practices
conform with generally accepted accounting principles, there can be no assurance
that the final consensus reached by the EITF on the Internet issues referred to
above, or other actions by standard setting bodies will not result in changes to
itract's historical accounting policies and practices or to the manner in which
certain transactions are presented and disclosed in itract's consolidated
financial statements. Although the SEC Staff issued SAB No. 101A on March 24,
2000 which delays the implementation of SAB No. 101, itract has adopted SAB No.
101 for its quarter ended March 31, 2000 with no material impact on its
financial position or its results of operations.
Year 2000 Compliance
itract has not experienced any material problems with network
infrastructure, software, hardware and computer systems related to the year
2000. itract is also not aware of any material Year 2000 problems with its
customers, suppliers or vendors. Accordingly, itract does not anticipate
incurring material expenses or experiencing any material operational disruptions
as a result of any Year 2000 issues.
INFORMATION ABOUT MARGO
Business
The principal business of Margo and its subsidiaries is the production
and distribution of tropical and flowering plants, the sale and distribution of
lawn and garden products as well as landscaping design and installation
services. Margo is also engaged in seeking sites for the development of
residential housing projects.
Principal Operations
During 1999 and 1998, Margo conducted operations in the Commonwealth of
Puerto Rico . During 1997, Margo also conducted operations in South Florida.
Puerto Rico Operations
Margo's operations in Puerto Rico are conducted at a 117 acre nursery
farm in Vega Alta, Puerto Rico, approximately 25 miles west of San Juan, and a
13 acre nursery in the Municipality of Barranquitas, Puerto Rico. The 117 acre
farm is leased from Michael J. Spector and Margaret D. Spector, who are
directors, officers and principal shareholders of Margo. See "Certain
Relationships and Related Transactions -- Lease and Option to Purchase Main
Nursery Farm" herein. The 13 acre facility in the Municipality of Barranquitas
is leased from Cali Orchids, Inc., an unrelated third party.
Margo is engaged in the production and distribution of tropical and
flowering plants. Its products are primarily utilized for the interior and
exterior landscaping of office buildings, shopping malls, hotels and other
commercial sites, as well as private residences. In Vega Alta, Margo produces
various types of palms, flowering and
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ornamental plants, trees, shrubs, bedding plants and ground covers. In
Barranquitas, Margo produces orchids, bromelias, anthuriums, spathiphylum and
poincettias. Its customers include wholesalers, retailers, chain stores and
landscapers primarily located in Puerto Rico and the Caribbean. Margo enjoys a
90% tax exemption under Puerto Rico law from income derived from its nursery
business in Puerto Rico.
Margo is a supplier of plants and lawn and garden products for The Home
Depot Puerto Rico, the largest mainland retailer of lawn and garden products
according to Nursery Retailer magazine. As of May 15, 2000, Home Depot had
opened two stores, and has announced plans to open seven additional stores in
Puerto Rico over the next three years. During the third quarter of 1999, Margo
became the largest supplier of live goods (plant material) to WalMart Stores,
which presently has nine stores throughout Puerto Rico.
Margo provides landscaping services to customers in Puerto Rico and the
Caribbean, including commercial as well as residential landscape design and
landscaping.
Margo is engaged in sales of lawn and garden products, including
plastic and terracotta pottery, planting media, such as soil and peat moss, and
mulch. Among the various lawn and garden product lines it distributes, Margo is
the exclusive distributor of Sunniland Corporation's fertilizer and pesticide
products as well as DEROMA Italian terracotta pottery for Puerto Rico and the
Caribbean.
Margo is also engaged in the manufacturing of potting soils, mulch,
professional growing mixes, river rock and gravels.
South Florida Operation
On August 15, 1997, after a review of Margo's South Florida operation
and in view of the strong competition in that market, Margo's board of directors
made the determination to close its operation in South Florida effective
September 30, 1997, and dispose of all related assets. On September 29 and
November 28, 1997, Margo sold the two nursery farms which comprised Margo's
facilities in South Florida.
Production
Margo's plants are propagated by using cuttings, plugs, liners, air
layers, seeds and tissue cultures. Cuttings are obtained from Margo's own stock
plants and from other nurseries for growout at Margo's facilities. The newly
planted cuttings take from two months to five years to mature into finished
products, depending on variety. Bedding plants and annuals take from four to
eight weeks to mature.
Margo's products are either field grown or container grown, depending
on the variety of plants and where they are grown. Most of these products start
out in small pots and are "stepped up" to larger pot sizes over time. Margo
produces both field and container grown material, as well as flowering, bedding
plants and hanging baskets.
Marketing
Margo's marketing efforts have been primarily directed at customers
throughout Puerto Rico and the Caribbean.
The principal customers of Margo are wholesalers, mass merchandisers,
chain stores, retailers, garden centers, hotels, landscapers, government
projects and commercial businesses located in Puerto Rico and the Caribbean.
Margo targets construction and government projects which require extensive
landscaping. In addition, Landscaping provides landscaping design, installation
and maintenance services which complement the sales function. For large
retailers in Puerto Rico (such as The Home Depot, WalMart Stores, Kmart, and
Masso Expo), Margo develops promotional programs which include deliveries to
customer outlets and special pricing based on volume.
For the three months ended March 31, 2000 and the year ended December
31, 1999, Margo's two largest customers accounted for approximately 16% and 26%,
respectively, of Margo's net sales. The Home Depot
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accounted for approximately 28% and 26% and WalMart Stores accounted for
approximately 8% and 12% of Margo's net sales for the three months ended March
31, 2000 and the year ended December 31, 1999, respectively.
During 1998 and 1997, Margo's single largest customer, Masso Expo
(formerly Builders Square) accounted for approximately 13% and 24%,
respectively, of Margo's net sales.
Margo does not have any significant delivery contracts extending over a
one year period with customers, including landscaping contracts.
Financial Information Relating to Principal Operations
The following table sets forth information regarding operations at each
of Margo's operating locations for the three month periods ended March 31, 2000
and 1999 and for each of the years ended December 31, 1999, 1998 and 1997 as
well as information regarding assets by location as of March 31, 2000, December
31, 1999, 1998 and 1997. The information is provided after the elimination of
intercompany transactions.
<TABLE>
<CAPTION>
Three months ended
March 31, Year ended December 31
------------------ -------------------------------
2000 1999 1999 1998 1997
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Sales by Location:
Puerto Rico:
Plants $ 1,051 $ 882 $ 3,781 $ 3,019 $ 2,957
Lawn and garden products 531 248 1,120 862 1,390
Landscaping 525 403 1,300 1,468 1,724
South Florida -- -- -- -- 478
------- ------- ------- ------- -------
$ 2,107 $ 1,533 $ 6,201 $ 5,349 $ 6,549
======= ======= ======= ======= =======
Operating Income (Loss) by Location:
Puerto Rico $ 127 $ 36 $ (165) $ (397) $ (722)
South Florida -- -- -- -- (517)
------- ------- ------- ------- -------
$ 127 $ 36 $ (165) $ (397) $(1,239)
======= ======= ======= ======= =======
Identifiable Assets by Location:
Puerto Rico $ 8,784 $ 7,847 $ 8,917 $ 7,990 $ 8,952
South Florida -- -- -- -- --
------- ------- ------- ------- -------
$ 8,784 $ 7,847 $ 8,917 $ 7,990 $ 8,952
======= ======= ======= ======= =======
</TABLE>
Trade Names and Trademark
Margo utilizes the Trade Names "Margo Farms" and "Margo Farms del
Caribe", and has registered the name "Margo Farms" as a trademark with the
United States Department of Commerce Patent and Trademark Office. In addition,
Margo has registered "Margo Farms del Caribe" (as a trade name) and "Rain
Forest" (as a trademark) with the Department of State of the Commonwealth of
Puerto Rico.
Competition
At the present time, Margo's sales efforts are primarily focused in
Puerto Rico and the Caribbean. Margo enjoys an advantage over its competitors
because it is the largest producer of quality nursery products in Puerto Rico.
Margo continues expanding its operations in Puerto Rico. Most of Margo's
competitors in Puerto Rico and the Caribbean are small nurseries and
landscapers.
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Seasonality
The demand for plants in Puerto Rico is year round, with increased
demand during spring, late fall and winter.
Working Capital Requirements of the Industry
The nursery industry requires producers to maintain large quantities of
stock plants and inventory to meet customer demand and to assure a new source of
products in the future. As a result, producers need to invest significant
amounts of capital in stock plants and inventory. Should the itract merger not
be consummated for any reason, Margo believes that it has sufficient working
capital for its existing nursery operations from cash flow generated from
operations and short-term borrowings.
Employees
At March 31, 2000, Margo had 183 full time employees, of which 163 were
directly involved in nursery production activities, and 20 in sales, accounting
and administration. None of its employees are represented by a union.
Government Regulation
The United States Department of Agriculture ("USDA") inspects cuttings
imported into the United States by Margo. In addition, USDA regulations control
various aspects of Margo's plant production process, including restrictions on
the types of pesticides and fertilizers. All pesticides and fertilizers utilized
by Margo are approved by the Environmental Protection Agency, as required by
USDA regulations. The USDA prohibits the importation of foreign soil into the
United States and limits the size of plants that can be imported into the United
States. Puerto Rico is considered part of the United States for purposes of the
USDA regulations.
Shipments of products may also be subject to inspections by certain
Puerto Rico or state officials. These officials may quarantine or destroy plants
that are contaminated or infected by hazardous organisms.
Margo's operations are subject to the Fair Labor Standards Act which
governs such matters as minimum wage requirements, overtime and other working
conditions. A large number of Margo's personnel are paid at or just above the
federal minimum wage level and, accordingly, changes in such minimum wage rate
have an adverse effect on Margo's labor costs.
Natural Hazards
Margo's operations are vulnerable to severe weather, such as
hurricanes, floods, storms and, to a lesser extent, plant disease and pests.
Margo believes that it currently maintains adequate insurance coverage for its
facilities and equipment. As of May 14, 2000, Margo had been unable to obtain
adequate crop and business interruption insurance coverage at a reasonable cost.
Margo intends to continue to seek to obtain crop and business interruption
insurance coverage at reasonable rates. However, no assurance can be given that
Margo will be able to obtain such insurance coverages.
Margo believes it has taken reasonable precautions to protect its
plants and operations from natural hazards. Margo's newer facilities are being
constructed with fabricated steel in an attempt to reduce the damage from any
future storms. Each of Margo's locations currently has access to a plentiful
water supply and facilities for the protection of many of their weathersensitive
plants.
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Industry Segments
Margo has three reportable segments identified by line of business: the
production and marketing of tropical and flowering plants, the sale of related
lawn and garden products and the provision of landscaping services. Certain
financial information concerning this industry segment is set forth in
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Margo and in Margo's Consolidated Financial Statements included as
Appendix I to this proxy statement/prospectus.
Income Taxes
Federal Taxes
As a Florida corporation, through December 31, 1997, Margo was subject
to federal income taxes on its worldwide operations. For U.S. income tax
purposes, Margo had elected the benefits of Section 936 ("Section 936") of the
Code, which provided a credit against Margo's income tax liability based
generally on a portion of wages paid by Margo in Puerto Rico.
The Small Business Job Protection Act of 1996 (the "1996 Amendments")
enacted into law on August 20, 1996, amended Section 936 by repealing the credit
available under this Section subject to a ten-year grandfather rule applicable
only for corporations that were actively conducting a trade or business in
Puerto Rico on October 13, 1995. In light of the phase-out of the benefits of
Section 936, Margo decided to change its jurisdiction of incorporation to Puerto
Rico, where it enjoys substantial tax benefits as discussed below. As a Puerto
Rico corporation, effective January 1, 1998, Margo is generally only subject to
U.S. income taxation to the extent it is engaged in a trade or business in the
United States or receives income from sources in the United States.
Puerto Rico Taxes
Margo is also subject to Puerto Rico income taxes from its Puerto Rico
operations. Subject to certain limitations, during 1997 Margo's federal income
tax liability was creditable against its Puerto Rico income tax liability.
The Agricultural Tax Incentives Act of the Commonwealth of Puerto Rico
(Act. No. 225 of December 1, 1995, as amended) provides its nursery operations
with a 90% tax exemption for income derived from "bonafide" agricultural
activities within Puerto Rico, including sales within and outside Puerto Rico,
as well as a 100% exemption from property, municipal and excise taxes. The Act
defines "bona fide agricultural activity" to include the nursery business. The
Act became effective for taxable years commencing on or after December 1, 1995.
Property
During 1999, Margo conducted its operations from nursery facilities
located in Puerto Rico.
Vega Alta Nursery Facility
Margo leases a 117 acre nursery facility in Vega Alta, Puerto Rico,
approximately 25 miles west of San Juan. The facility, which includes Margo's
corporate offices, consists of approximately 1,130,000 square feet of
shadehouses, propagation and mist facilities, as well as a 10,000 square foot
warehouse for Margo's lawn and garden products. The nursery facility also has
irrigation equipment and pump houses, shipping and storage areas, as well as a
home for a field supervisor.
The Vega Alta facility is leased from Michael J. Spector and Margaret
D. Spector (the "Spectors"), who are officers, directors and the major
shareholders of Margo, pursuant to a lease agreement dated January 1, 1993. The
lease provides for an initial term of five years subject to one additional
renewal term of five years at the option of
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Margo. During the initial term of the lease, rent was $19,000 per month. The
lease also provides that during the renewal term, the rent increases to the
greater of $24,000 per month, or the original $19,000 per month adjusted on the
basis of the increase in the Wholesale Price Index ("WPI") published by the
United States Department of Labor, Bureau of Labor Statistics, from the WPI
which was in effect on January 1, 1993 to the WPI in effect on January 1, 1998.
Under the lease, Margo must pay all taxes on the property, maintain certain
insurance coverage and otherwise maintain and care for the property. The lease
also contains an option which permits Margo to purchase the property at its
appraised value at any time during the term of the lease. In consideration of
the option, Margo must pay $1,000 per month. On January 1, 1998, Margo exercised
its renewal option at a monthly rental of $24,000. The Spectors have committed
to grant Margo an option to extend the lease for an additional period of five
years ending December 31, 2007.
On January 1, 1994, the lease agreement was amended to include an
additional 27 acres of land adjacent to the nursery facility at a monthly rental
of $1,750. This amendment did not provide for renewal or purchase options for
this tract of land. Effective January 1, 1998, Margo and the Spectors entered
into an amendment to the lease agreement which grants Margo the right to
continue to lease the 27 acre parcel on a month to month basis. Either party may
terminate this portion of the lease upon 30 days prior written notice. In
connection with this amendment, the Spectors also agreed to reimburse Margo by
no later than March 1, 2001, the unamortized value (approximately $45,000 at
February 1, 2000) of the leasehold improvements applicable to such parcel as of
the date of termination. Effective February 1, 2000, the lease agreement with
respect to the 27 acre parcel was terminated.
During the three months ended March 31, 2000 and the years ended
December 31, 1999 and 1998, total lease payments to the Spectors amounted to
$73,750, $309,000 and $309,000, respectively, in each case not including the
monthly payments for the option referred to above.
Barranquitas Nursery Facility
Effective January 1, 1997, Margo entered into a lease agreement with
Cali Orchids, Inc., to lease a 13 acre nursery facility located in the town of
Barranquitas, Puerto Rico. The lease has an initial term of five years and may
be renewed for two additional five-year terms at Margo's option. During the
first year of the initial term of the lease, monthly payments amount to $4,500.
During the remaining four years of the initial term of the lease, monthly
payments amount to $5,000. During the first and second renewal terms, monthly
payments increase to $6,000 and $7,000, respectively. The lease agreement does
not provide for any purchase option.
For the three months ended March 31, 2000 and each of the years ended
December 31, 1999 and 1998 total lease payments amounted to $15,000, $60,000 and
$45,000, respectively. Lease payments for 1998 reflect a rent abatement of
$15,000 due to damages caused by Hurricane Georges.
New Vega Alta Facility
On March 24, 1999, Margo leased two additional parcels of land from the
Puerto Rico Land Authority (an instrumentality of the Government of the
Commonwealth of Puerto Rico). The two parcels are adjacent to each other, have a
total capacity of 321 acres, and are located approximately one mile from Margo's
main nursery facility in Vega Alta. Among other things, the lease agreement
provides for an initial lease term of five years subject to three additional
renewal terms of five years, at the option of Margo. Lease payments are $33,625
per year. For the three months ended March 31, 2000 and the year ended December
31, 1999, lease payments of $8,406 and $25,219, respectively, were paid by
Margo. Lease payments for renewal terms are to be negotiated 90 days prior to
each renewal term.
Legal Proceedings
In the opinion of Margo's management, any pending or threatened legal
proceedings of which management is aware will not have a material adverse effect
on Margo's financial condition or results of operations.
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Market for Common Equity and Related Shareholder Matters
Margo's common stock is quoted on the Nasdaq Stock Market ("Nasdaq")
under the symbol MRGO.
The following table sets forth the high and low sales prices for
Margo's common stock, as reported by Nasdaq, for each of the calendar quarters
of 1999 and 1998. The last reported sales price for Margo's common stock on
February 8, 2000, the date prior to the announcement of the proposed merger with
itract, was $5.75. The last reported sales price for the Common Stock on June
28, 2000 was $12 per share.
2000 1999 1998
------------------- ----------------- --------------------
Quarter: High Low High Low High Low
-------- ---- --- ---- --- ---- ---
First $29.50 $2.31 $4 $2 1/16 $3 $1 7/8
Second -- -- 3 1/2 2 1/16 2 1/2 1 5/16
Third -- -- 3 1/4 2 3/16 4 1 7/16
Fourth -- -- 2 7/8 1 15/16 3 2
There were approximately 63 holders of record of the common stock as of
June 15, 2000. This amount includes custodians, brokers and other institutions
which hold the common stock as nominees for an undetermined number of beneficial
owners.
Margo did not pay any dividends on its common stock during 1999 or
1998.
Financial Statements
The audited consolidated balance sheets of Margo as of December 31,
1999 and 1998 and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1999 are attached to this proxy statement/prospectus
as Appendix I. The unaudited consolidated balance sheets of Margo as of March
31, 2000 and 1999 and the related consolidated statements of operations, changes
in shareholders' equity and cash flows for each of the quarterly periods ending
on those dates are attached to this proxy statement/prospectus as Appendix J.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF MARGO
Results of Operations for Each of the Years Ended December 31, 1999, 1998 and
1997
For the year ended December 31, 1999, Margo incurred a consolidated net
loss of approximately $128,000, compared to a net loss of $1,113,000 and
$751,000 in 1998 and 1997, respectively. These amounts represent a consolidated
net loss per common share of $.07, $.59 and $.40 for 1999, 1998 and 1997,
respectively.
Margo's net loss for the year ended December 31, 1999, was due to an
operating loss of approximately $165,000, which was offset by other income of
$37,000. The operating loss for the year ended December 31, 1999 was principally
due to an increase in selling, general and administrative expenses incurred
during the year.
Margo's net loss for the year ended December 31, 1998 was due to three
unrelated events experienced during the year. The first of these events was a
decrease in sales of approximately $1.2 million, which precluded additional
gross profit to absorb selling, general and administrative expenses. The second
and third events were non-operational
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in nature. These included the write-down of approximately $202,000 to the
carrying value of a note receivable and a loss of $609,000 as a result of
damages caused by Hurricane Georges on September 21, 1998.
During the year ended December 31, 1997, Margo closed its South Florida
operation and sold the major assets related to this operation, represented by
two parcels of land. Although the sale of these two properties resulted in a
gain of $474,574 for 1997, this gain was more than offset by a loss from
operations of approximately $1,239,000 of which $517,000 corresponded to the
South Florida operation, arising from storage and maintenance costs as well as
the write down associated with unsalable inventory and certain other
administrative costs related to the closing of the operation.
Sales
Consolidated net sales for the year ended December 31, 1999 were
approximately $6,201,000, representing an increase of 16% over sales of
$5,349,000 in 1998. The increase in sales for 1999 was principally due to the
result of increased sales volume to chain stores such as The Home Depot and
WalMart Stores, as well as a sales contract of mature trees with the
Municipality of San Juan. Increases in sales included increased sales of both
plant material of $762,000 and of lawn and garden products of $258,000. Sales of
landscaping services decreased by $168,000 due to higher volume of
post-Hurricane Georges services performed during the fourth quarter of 1998.
Consolidated net sales for the year ended December 31, 1998 were
approximately $5,349,000, representing a decrease of 18% from sales of
$6,549,000 in 1997. This decrease in sales for 1998 was principally due to a
reduction in sales of approximately $857,000 to one of Margo's major customers,
principally in sales of lawn and garden products, a decrease in the volume of
landscaping services of approximately $256,000 and the absence of sales of the
discontinued South Florida operation which had sales of approximately $478,000
in 1997. These decreases were offset by increases from new customer base as well
as a sales contract with the Puerto Rico Department of Transportation and Public
Works of approximately $221,000.
Gross Profits
The following table sets forth certain information regarding Margo's
costs and expenses as a percentage of net sales.
Years ended December 31,
--------------------------
1999 1998 1997
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of sales 64.0 67.8 79.2
------ ------ ------
Gross profit 36.0 32.2 20.8
Selling, general and administrative expenses 38.6 39.7 39.8
------ ------ ------
Loss from operations (2.6) (7.5) (19.0)
Interest income (expense), net .9 1.2 --
Other income (expenses), net (.4) (14.5) 7.5
Loss before income tax provision (2.1) (20.8) (11.5)
Income tax provision -- -- --
------ ------ ------
Net loss (2.1) (20.8) (11.5)
====== ====== ======
The table above reflects that consolidated gross profits as a
percentage of net sales were approximately 36%, 32%, and 21%, for the years
ended December 31, 1999, 1998 and 1997, respectively.
Margo's consolidated gross profit for the year ended December 31, 1999
was 36% compared to 32% for 1998, representing an increase of 4%. This increase
in gross profit was spread among all business segments. Gross profit
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from sales of plant material for 1999 was approximately 37% compared to 32% in
1998. This increase of 5% was due to higher margins under various sales
contracts during 1999, as well as sales of plant material during the Christmas
season. Gross profit from sales of lawn and garden products was approximately
38% for 1999, compared to 36% in 1998. This increase of 2% was due to higher
sales volume of Rain Forest products during 1999. Gross profit from sales of
landscaping services was approximately 25% for 1999 compared to 30% in 1998.
This decrease of 5% experienced during 1999 was directly related to an
unfavorable performance on a specific project during 1999.
Margo's consolidated gross profit for the year ended December 31, 1998
was 32% compared to 21% in 1997, representing an increase of 11%. This increase
in gross profit was directly related to the closing of Margo's unprofitable
South Florida operation during September 1997. To a lesser extent, the Puerto
Rico operation also had gross profit problems during 1997, arising from
excessive storage and maintenance costs of slow moving inventory.
Selling, General and Administrative Expenses
Margo's selling, general and administrative expenses ("SG&A") for 1999
were approximately $2,395,000 compared to $2,123,000 in 1998, representing an
increase of 13% in dollar terms and a decrease of 1% as a percentage of sales.
The increase in SG&A in dollar terms for 1999 was due to increases in shipping
and selling costs (principally salaries) as well as administrative salaries, a
portion of which were classified as clean up and debris removal in 1998, as a
result of the damages caused by Hurricane Georges.
Margo's SG&A for 1998 were approximately $2,123,000 compared to
$2,604,000 in 1997, representing a decrease of 18% in dollar terms. SG&A as a
percentage of sales remained at 40% in both 1998 and 1997. The decrease in
dollar terms was due to the non-recurrence of approximately $220,000 incurred at
the discontinued South Florida operation during 1997, as well as decreases in
shipping, travel and legal services during 1998.
Other Income and Expense
The decrease in interest income for the year ended December 31, 1999,
when compared to 1998, is due to lower yields obtained during 1999 on similar
investments.
The decrease in interest expense for the year ended December 31, 1999
when compared to 1998, is due to reductions in the outstanding principal
balances of long-term debt, despite an increase in notes payable and long-term
debt for in the latter part of 1999.
Hurricane Georges
Hurricane Georges struck Puerto Rico on September 21, 1998. As with
other hurricanes, the agricultural industry was the hardest hit sector. At its
Vega Alta facilities, Margo suffered moderate damage to all of its fabricated
steel structures (shadehouses) and near total destruction of all its wooden
shadehouses and its irrigation systems. Total property written down as a result
of the damages had a book value of approximately $171,000 at December 31, 1998.
At its Barranquitas facilities, moderate damage was also sustained to a portion
of its pull and cable shadehouses and its irrigation system, however, all of the
shadecloth covers were blown away. As of December 31, 1998, Margo had incurred
expenses of approximately $696,000 in connection with clean-up, restoration and
debris removal at both locations.
Margo's inventory of lawn and garden products did not suffer any
damages. However, inventory of plant material sustained significant damages as a
result of damage and destruction to shadehouses at both Company locations.
Inventory destroyed at both of Margo's locations as of December 31, 1998 had a
net realizable value of approximately $362,000. As of December 31, 1998, Margo
had received approximately $620,000 from its insurers for property damages, for
a loss of $609,000 from the damages caused by the hurricane.
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During 1999, Margo received an assistance payment of $12,880 from the
Farm Service Agency of the United States Department of Agriculture for debris
removal from damages caused by the hurricane.
The Puerto Rico Department of Agriculture has committed to provide
assistance to bona-fide agricultural enterprises for damages caused by the
hurricane. At December 31, 1999, the Puerto Rico Department of Agriculture had
approved $111,885 in assistance, subject to the formalization of an agreement,
which among other things requires the facility to be operated as a nursery farm
for a minimum period of ten years from the date of the signing. Accordingly,
Margo recorded a receivable and a deferred revenue to account for the assistance
at December 31, 1999.
Write Down of Note Receivable
Margo owns a note receivable from the sale of a former subsidiary to a
Dominican Republic company, which had a carrying value of approximately $302,000
at December 31, 1997. Refer to Note 5 to the Margo consolidated financial
statements for the year ended December 31, 1999. On February 12, 1997, Margo
obtained a junior lien on the borrower's property and equipment and modified the
terms of the note by waiving interest and principal payments until January 2000.
On September 23, 1998, Hurricane Georges struck the Dominican Republic. The
hurricane severely damaged the former subsidiary's facilities. As a result of
the damages caused by the hurricane, Margo determined to write down the carrying
value of the note to $100,000 as of September 30, 1998. The write down,
amounting to $201,621 was included as an other expense in the accompanying
consolidated statement of operations for the year ended December 31, 1998.
The borrower is now in default with certain modified repayment terms.
As a result, during the fourth quarter of 1999, Margo wrote down the carrying
value of the note to $20,000, and has included the $80,000 charge as an other
expense in the accompanying consolidated statement of operations for the year
ended December 31, 1999.
Sale of Land in South Florida
During 1997, Margo sold two parcels of land in South Florida at an
aggregate gain of $474,574, arising from Margo's decision to close its South
Florida operation.
Significant Fourth Quarter Adjustments
During the third quarter of 1999, Margo recorded $150,000 in revenues
based on estimates of amounts to be received in hurricane assistance payments
from the Puerto Rico Department of Agriculture. During the fourth quarter, Margo
was informed by the Puerto Rico Department of Agriculture that the actual amount
to be received in assistance payments was approximately $112,000. Moreover, the
Department of Agriculture informed Margo that the receipt of the payments would
be subject to an agreement that its nursery farm subsidiary would remain
operating as an agricultural business for ten years. Failure to meet this
requirement, could result in all or a portion of the amount received as
assistance payments being required to be repaid to the Department of
Agriculture. On the basis of this new information, during the fourth quarter of
1999, Margo took a charge against earnings of $150,000 to reverse the revenue
previously recognized during the third quarter of 1999 and recorded a receivable
and a deferred revenue of approximately $112,000 as of December 31, 1999.
Also, during the fourth quarter of 1999, Margo recorded a charge of to
earnings of $80,000 to write down the carrying value of a note receivable from
$`100,000 to $20,000, see "Write Down of Note Receivable".
Results of Operations for the Quarters Ended March 31, 2000 and 1999
During the first three months of 2000, Margo incurred a net loss of
approximately $19,000, or $.01 per share, compared to net income of
approximately $63,000 for the same period in 1999, or $.03 per share. However,
income
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from operations for the first three months of 2000 was approximately $127,000
compared to $36,000 for the same period in 1999.
The decrease in net profits for the first quarter 2000 is due to an
increase in non- operational expenses related to the ongoing merger transaction
with itract. Merger related expenses amounted to approximately $157,000 for the
three months ended March 31, 2000. Increase in income from operations for the
first three months of 2000 is principally due to increased sales, as discussed
below.
Sales
Margo's consolidated net sales for the first three months of 2000 were
approximately $2,108,000, compared to $1,533,000 for the same period in 1999, or
an increase of approximately 37%. The increase in sales for the first three
months of 2000 when compared to the same period in 1999 was due to increased
sales in all business segments, the highest of which were lawn and garden
products as a result of increased sales of Margo's Rain Forest product line, as
well as other increases in sales of lawn and garden products. This increase in
sales was principally the result of increased demand by large retail chains in
Puerto Rico.
Gross Profits
Margo's gross profit for the first three months of 2000 was 34.9%,
compared to 36.7% for the same period in 1999, or a decrease of approximately
1.8%.
The decrease in gross profit of 1.8% for the first three months of 2000
when compared to the same period in 1999 is principally due to a reduction in
margins of plant material, offset in part by the increase in margins of lawn and
garden products.
Selling, General and Administrative Expenses
SG&A were approximately $608,000 and $526,000 for the first three
months of 2000 and 1999, respectively, representing an increase of approximately
16% in dollar terms and a decrease of 5% as a percentage of sales.
The increase in SG&A in dollar terms for the first three months of 2000
when compared to the same period in 1999 is due, among other things, to
increases in repairs and maintenance expenses as well as salary increases in
shipping and landscaping.
Other Income and Expenses
The increase in interest income for the first three months of 2000 when
compared to the same period in 1999, is due to higher yields obtained during
2000 with similar investment balances. The increase in interest expense for 2000
when compared to 1999 is the result of additional borrowings of long-term debt
during the latter part of 1999.
During the first three months of 2000, Margo has been pursuing the
proposed merger with itract. Legal, accounting and other expenses incurred in
connection with the itract merger during the period amounted to approximately
$157,000.
Financial Condition
Margo's financial condition at March 31, 2000 remains comparable with
that of December 31, 1999. Margo's current ratio continues to be strong, with a
ratio of 3.1 to 1 at March 31, 2000, compared to 2.9 to 1 at December 31, 1999.
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At March 31, 2000, Margo had cash of approximately $640,000 and
short-term investments of $500,000, compared to cash of $1,083,000 and short
term investments of $500,000 at December 31, 1999. The decrease in cash at March
31, 2000 is due to cash outflows used in operations of $372,000, principally
from an increase in accounts receivable of approximately $356,000 as a result of
increased sales, as well as other minor cash outflows arising from additions to
property and equipment of $41,000 and repayment of long-term debt of $30,000.
As a result of a decrease in current liabilities as of March 31, 2000,
debt to equity ratio improved to approximately 41% compared to 43% at December
31, 1999.
Shareholders' equity at March 31, 2000 remained comparable to December
31, 1999 due to Margo's net loss for the quarter of approximately $19,000,
offset by a conversion of stock options into common stock of approximately
$20,000. There were no dividends declared nor issuance of capital stock during
the first quarter of 2000.
Current Liquidity and Capital Resources
Margo is presently current on all its obligations. Excess funds have
been invested in short-term bank instruments. Margo believes it has adequate
resources to meet its current and anticipated liquidity and capital requirements
related to its current nursery operations.
Inflation
The primary inflationary factors which may affect Margo's results of
operations and financial condition are the costs of labor and production
materials such as soil, pots, chemicals, fertilizer and plant cuttings. During
the last three years, the impact of inflation on the results of operations and
financial condition of Margo has been minimal due to the stability of wage
rates, except for the increase in minimum wage experienced during 1997, and the
availability of production materials from a wide variety of sources.
Margo does not anticipate that inflation will have a significant effect
on its future earnings or financial condition because increases caused by
inflation are ordinarily recovered through increases in prices.
Year 2000 Issue
The inability of computer hardware and software to recognize and
properly process data fields using a four-digit year to define the applicable
year is commonly referred to as the "Year 2000 Problem".
During 1999, Margo completed a review and evaluation of its hardware
and software programs and applications and modified and tested its software and
operating systems for Year 2000 compliance. As of the date of this proxy
statement/prospectus, Margo's hardware and software systems were fully
operational and Margo had not experienced any material adverse effect on its
operations as a result of Year 2000 Problems, nor had Margo been aware of
problems by either its major suppliers or customers.
Reclassifications
Certain reclassifications were made to the 1998 and 1997 consolidated
financial statements in order for them to be in conformity with the 1999
presentation.
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PROPOSED SALE OF MARGO'S BUSINESSES
Background to Sale of Businesses
The merger agreement with itract provides that it is a condition to the
obligation of itract to consummate the merger with the subsidiary of Holdings
that Margo have sold all assets, other than cash and cash equivalents, owned or
used by Margo and its subsidiaries in any of the businesses presently conducted
by any of them, including all the capital stock of Margo's subsidiaries owned by
Margo (other than Holdings' shares of common stock presently owned by Margo). To
satisfy this condition, Margo has entered into a stock purchase agreement with
Empresas Margo, Inc., which agreement has been approved by itract.
On March 17, 2000, Margo retained the services of San Juan Holdings,
Inc. ("SJ Holdings") an investment banking firm based in San Juan, Puerto Rico,
to seek potential buyers for its existing nursery business and to act as Margo's
financial advisor in such a transaction.
SJ Holdings prepared a Confidential Information Memorandum containing
operational and financial information regarding Margo's nursery operations.
Letters of inquiry were sent to approximately 31 firms which had either
previously expressed an interest in purchasing Margo's nursery operations or
which SJ Holdings had identified as persons in the nursery business that might
be interested in pursuing the purchase of Margo's nursery operations. All
parties were informed that an Information Memorandum would be forwarded to them
upon receipt of an executed confidentiality agreement. Four persons executed
confidentiality agreements and requested a Confidential Information Memorandum.
Indications of interest were received from only two firms, Pennock
Growers, Inc., a Puerto Rico based nursery company and Empresas Margo, a
corporation organized by Michael J. Spector. Mr. Spector owns all of the
outstanding capital stock of Empresas Margo.
The indication of interest received from Pennock Growers was for $4.0
million, subject to possible increase if they could obtain evidence to their
satisfaction supporting the projections contained in the Confidential
Information Memorandum. The Pennock Growers proposal provided for a structure
involving the sale of assets versus the stock of the subsidiaries and was
subject to a due diligence investigation. In addition, it provided that accounts
receivable over 90 days would not be purchased, that the existing inventory of
Margo's subsidiaries would be subject to adjustment based on a market evaluation
and that Margo would be required to pay all severance obligations under Puerto
Rico law with respect to existing employees. The Pennock Growers proposal also
stated that they would have to conduct further due diligence before agreeing to
assume any existing indebtedness of Margo.
Empresas Margo's indication of interest was for $5.0 million in cash
plus the assumption of $600,000 in debt. It was structured as a stock purchase
rather than an asset purchase and was not subject to due diligence investigation
or possible reduction in price due to valuation of accounts receivable and
inventory or payment of severance obligations. In addition, Empresas Margo's
proposal indicated that no post closing indemnification would be required from
Margo, a condition that itract had informed Margo they would insist on.
Based on the structural considerations discussed above, the Board
determined that it was very unlikely that they could obtain a binding offer from
Pennock Growers that would exceed the price proposed by Empresas Margo or that
would allow Margo to comply with the requirement in the itract merger agreement
that there be at least $5.0 million in cash and cash equivalents in Margo at the
time of the merger and liabilities not in excess of $10,000. Accordingly, the
Board decided to pursue further negotiations with Empresas Margo.
Negotiations between Margo and Empresas Margo ensued. On June 6, 2000,
a special meeting of the Board of Directors was held and based on the
considerations discussed above and the opinion of Margo's financial advisor, SJ
Holdings, the board of directors voted to approve the stock purchase agreement
with Empresas Margo.
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Recommendations of Margo's Board of Directors
Margo's board of directors believes that the proposed sale of its
nursery operation to Empresas Margo pursuant to the stock purchase agreement is
fair to, and in the best interest of, Margo and its shareholders. Margo's board
of directors, with Michael J. Spector and Margaret D. Spector abstaining, has
unanimously approved the stock purchase agreement with Empresas Margo and
recommends shareholders vote for the approval of the sale of all the stock of
Margo's subsidiaries pursuant to the stock purchase agreement.
In reaching its decision to approve the sale of its subsidiaries to
Empresas Margo, the board of directors consulted with Margo's financial and
legal advisors, and considered a variety of factors, including the following:
o that the merger agreement with itract provides that it is a
precondition to the transactions contemplated thereby that
Margo shall have sold all of its assets, other than cash
equivalents and the Board determined that the itract merger
was in the best interest of Margo and its shareholders;
o its determination that it was unlikely that Margo would
receive competing offers that were more favorable or that
could comply with the minimum quantitative and structural
requirements of the itract merger agreement.
o the structure and terms of the stock purchase agreement,
including the absence of post-closing indemnification or
severance obligations;
In making its determination, the Board considered the fact that Michael
J. Spector, the current Chairman of the Board and Chief Executive Officer of
Margo owned all of Empresas Margo, and that his ownership of Empresas Margo
raised various conflicts of interest.
The above discussion of the information and factors considered by
Margo's board of directors is not intended to be exhaustive, but includes all
material factors considered by the board. In reaching its determination to
approve and recommend the stock purchase agreement, Margo's board of directors
did not assign any relative or specific weights to the foregoing factors, and
individual directors may have given differing weights to different factors.
Because Margo shareholders must approve the stock purchase agreement
before itract is obligated to consummate the merger, Margo's board of directors
unanimously recommends that each of Margo shareholders vote "FOR" approval of
the stock purchase agreement.
Terms of the Stock Purchase Agreement
This discussion of the stock purchase agreement is not intended to be
complete and is qualified by reference to the stock purchase agreement attached
hereto as Appendix C.
Purchase and Sale of Shares
The stock purchase agreement provides for the sale by Margo to Empresas
Margo of all of the shares of stock owned by Margo in its subsidiaries (except
for the shares of Holdings) for a price of $5,000,000 plus the assumption of the
outstanding debt (after application of the cash collateral securing this debt)
of Margo. As of May 31, 2000, the outstanding principal amount of the debt to be
assumed was approximately $812,000. The closing will take place at the offices
of Pietrantoni Mendez & Alvarez LLP on the first business day following the
satisfaction or waiver of all conditions set forth in the stock purchase
agreement, unless another time or place is agreed to by Margo and Empresas
Margo.
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Representations and Warranties
Margo has made certain customary representations and warranties in the
stock purchase agreement relating to, among other things:
o its organization and the organization of its subsidiaries;
o the authorization, execution, delivery and enforceability of
the stock purchase agreement;
o the power and authority of each of its subsidiaries to conduct
its business;
o the capitalization of its subsidiaries;
o title to the shares of common stock of its subsidiaries;
o its financial statements;
o the absence of certain material changes and events;
o taxes and tax returns for each of its subsidiaries;
o material contracts;
o the absence of conflicts of its subsidiaries with proprietary
rights of third parties;
o employee benefit plans;
o litigation;
o labor matters and relations;
o insurance;
o the absence of conflicts under its charter, by-laws and
contracts or those of its subsidiaries;
o title to assets and properties of its subsidiaries;
o compliance with laws; and
o environmental matters.
Empresas Margo has also made certain customary representations and
warranties in the stock purchase agreement relating to:
o its organization;
o the authorization and enforceability of the stock purchase
agreement; and
o the absence of conflicts under its charter, by-laws or
governmental orders.
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Certain Covenants
Margo has agreed that until the closing of the purchase and sale of the
shares, Margo will cause its subsidiaries to conduct their businesses in the
ordinary course and use their best efforts to maintain satisfactory commercial
relationships.
Empresas Margo has agreed to retain all current employees of Margo's
subsidiaries and to honor their years of service for purposes of certain
employee benefits, without limiting its ability to terminate employees in the
ordinary course or as deemed necessary or advisable.
Conditions of Sale
The obligation of Empresas Margo to consummate the purchase and sale of
the shares is subject to the satisfaction or waiver of several customary
conditions, including:
o the accuracy of the representations and warranties of Margo as
of the closing date;
o the absence of any governmental order or proceeding affecting
the transaction; and
o the receipt of all governmental consents necessary for the
consummation of the transaction.
The obligation of Margo to consummate the purchase and sale of the
shares is subject to the satisfaction or waiver of several conditions,
including:
o the effectiveness of the registration statement filed by
Holdings with the SEC and evidence that the reincorporation
merger and the itract merger will occur concurrently with or
immediately following the closing of the sale of the shares.
o the accuracy of the representations and warranties of Empresas
Margo as of the closing date;
o the absence of any governmental order or proceeding affecting
the transaction;
o the receipt of all governmental consents necessary for the
consummation of the transaction; and
o the receipt of approval by Margo's shareholders of the stock
purchase agreement.
Survival of Representations
All representations, warranties, covenants and agreements made by Margo
and Empresas Margo in the stock purchase agreement or pursuant thereto expire on
the closing date and Margo has no liability with respect to such
representations, warranties, covenants and agreements.
Termination
The stock purchase agreement may be terminated prior to the closing
only as follows:
o by mutual consent of Margo and Empresas Margo;
o by either Margo or Empresas Margo at any time after October
15, 2000 if, through no fault of the party seeking
termination, the closing shall not have occurred;
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o by Empresas Margo, if Margo has materially breached the
agreement in a way that has rendered the satisfaction of any
condition to the obligations of Empresas Margo impossible and
such breach has not been waived by Empresas Margo;
o by Margo, if Empresas Margo has materially breached the
agreement in a way that has rendered the satisfaction of any
condition to the obligations of Margo impossible and such
breach has not been waived by Margo; and
o by either Margo or Empresas Margo if a final order from a
court of competent jurisdiction permanently enjoins the
transaction.
Expenses
Each party will bear its own expenses in connection with the
consummation of the purchase and sale of the shares. In the event of the
termination of the stock purchase agreement as set forth above, there is no
further obligation or liability of any party, except that:
o if the agreement is terminated by Margo as a result of a
material breach by Empresas Margo, Empresas Margo shall be
obligated to reimburse Margo for all out-of-pocket expenses
incurred by Margo in connection with the agreement and the
transactions contemplated thereby up to a maximum of $100,000;
and
o if the agreement is terminated by Empresas Margo as a result
of a material breach by Margo, Margo shall be obligated to
reimburse Empresas Margo for all out-of-pocket expenses
incurred by Empresas Margo in connection with the agreement
and the transactions contemplated thereby up to a maximum of
$100,000.
Opinion of Financial Advisor Regarding Sale of Margo's Businesses
Margo retained SJ Holdings to act as its financial advisor to render a
fairness opinion in connection with the sale of Margo's existing nursery and
other subsidiaries, based on SJ Holdings' qualifications, expertise and
reputation. On June 30, 2000, SJ Holdings rendered to Margo's board of directors
its written opinion that, as of such date and based upon the considerations set
forth in the opinion, the consideration to be received by Margo for the sale of
the subsidiaries, consisting of $5,000,000 and the assumption of certain debt as
set forth above, was fair to Margo from a financial point of view. The full text
of the SJ Holdings opinion is attached as Appendix E to this proxy
statement/prospectus.
Margo's stockholders are urged to read the opinion carefully and in its
entirety. The SJ Holdings opinion is directed to Margo's board of directors,
addressed only the fairness to Margo of the consideration to be received by
Margo for the sale of the subsidiaries from a financial point of view, and does
not address any other aspect of the sale of the subsidiaries or the itract
merger or constitute a recommendation to any of Margo's stockholders as to how
such stockholders should vote on the proposed sale of Margo's subsidiaries. This
summary is qualified in its entirety by reference to the full text of such
opinion.
SJ Holdings is a privately-owned merchant banking firm with principal
offices in San Juan, Puerto Rico, that also provides financial advisory and
investment banking services to small and middle market businesses and investor
groups. SJ Holdings has not previously provided any financial advisory services
to Margo or itract. However, in the ordinary course of business, an affiliate of
SJ Holdings holds accounts for certain customers that may, at any time, hold a
position in Margo's common stock.
For purposes of its opinion and in connection with its review of sale
of the subsidiaries, SJ Holdings reviewed and analyzed, among other things, the
stock purchase agreement with Empresas Margo, certain publicly available
business and financial information relating to Margo and Margo's financial
forecasts. SJ Holdings had discussions
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with certain officers of Margo about the business and prospects of Margo. SJ
Holdings also considered such other information, financial studies, analyses,
investigations and financial, economic and market criteria that it deemed
relevant. At the request of Margo's board of directors, SJ Holdings solicited
indications of interest in acquiring Margo's subsidiaries from U.S. nursery
companies and other third parties identified to it by Margo.
In connection with its opinion, with Margo's permission and without any
independent verification, SJ Holdings relied on the accuracy and completeness of
all the financial and other information reviewed by it, furnished, or otherwise
communicated to it by Margo or obtained by SJ Holdings from publicly available
sources. SJ Holdings did not make an independent valuation or appraisal of the
assets or liabilities of Margo and was not furnished with any such valuation or
appraisal. Any inaccuracies in the information on which SJ Holdings relied could
materially affect its opinion.
In conjunction with rendering its written opinion dated June 30, 2000
to the board of directors of Margo, SJ Holdings presented a summary of its
analysis to the Board on June 6, 2000. Set forth below is a brief summary of the
analyses performed by SJ Holdings in reaching its June 30, 2000 opinion.
Historical Trading Valuation Analysis.
Under this approach, SJ Holdings reviewed the historical trading prices
of Margo's common stock for the period from June 1996 through February 8, 2000,
the date of the announcement of the itract merger, and analyzed the implied
premium of Empresas Margo's offer to Margo's market capitalization during such
periods. Empresas Margo's offer represents an average premium of approximately
37%, 46% and 21% during the years 1997, 1998 and 1999. Based on these premiums,
SJ Holdings believes that Empresas Margo's offer, as compared to Margo's
historical market capitalization, is reasonable. Although the implied premium
for the period from January 2000 to February 8, 2000 is inconsistent with the
historical premiums set forth above, SJ Holdings believes that Margo's stock
price for this period reflected speculation related to the itract merger and
therefore is not indicative of Margo's intrinsic value.
Acquisition Premium Over Public Market Valuation Analysis.
Under this approach, SJ Holdings analyzed selected publicly announced
acquisition transactions during the period from January 1996 through June 2000
for companies in comparable industry groups, since there was no public
acquisition transaction in Margo's same industry group. SJ Holdings further
analyzed which specific transactions were more closely related to Margo's
business operations. The comparable industry groups were: wholesale food
products, wholesale natural and organic food products and wholesale and retail
general merchandise. Based on the acquisition premiums of the publicly announced
transactions in these comparable segments, which ranged from 14% to 24%, SJ
Holdings derived a range of market valuations for Margo. SJ Holdings discounted
such valuations by applying a discount rate of between 10% and 20% due to the
fact that the terms of the stock purchase agreement with Empresas Margo does not
contain any indemnification by Margo for breach of representations and
warranties, which would have been typical in transactions of this nature but was
not permitted by the terms of the itract merger agreement. This analysis
resulted in an adjusted implied valuation of Margo of between $4.2 million and
$5.2 million.
Comparable Public Company Analysis.
SJ Holdings analyzed certain financial information of comparable public
companies in the nursery and florist business. SJ Holdings considered the mean
and median range of the market value of these companies to their sales, assets,
book value, tangible book value and earnings before interest, taxes,
depreciation and amortization. Based on this analysis, SJ Holdings determined
that the measure of market value to book value represents a reasonable valuation
measure for Margo. Applying to Margo's book value the mean and median ranges of
the comparable public companies' ratio of market value to book value, and
factoring acquisition premiums ranging from 14% to 24% derived from the analysis
of publicly announced transactions, provided an implied acquisition value of
Margo
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from $4.3 million to $5.7 million. Discounting these valuations for the lack of
indemnification in the stock purchase agreement as discussed above, the
valuation under this analysis ranges from $3.4 million to $5.1 million. The
comparable public companies used are: Callaway's Nursery Inc., Dimon, Inc.,
Griffin Land & Nurseries, Hines Horticulture and USA Floral.
No company or transaction used in the above analyses is identical to
Margo. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other facts that could affect the public trading value of the
companies to which Margo is being compared.
Discounted Cash Flow Analysis.
Under this approach, SJ Holdings analyzed the financial and operational
projections provided by Margo's management and performed discounted cash flow
analyses applying discount rates ranging from 20% to 25% in order to reflect the
risk in Margo's cash flows and the lack of indemnification to Empresas Margo.
Assuming that Margo's sales grow at 75% of their projected level, and applying
the discount rates of 20% and 25% mentioned above, Margo's valuation ranges from
$4.9 million to $5.8 million. The projections used were based on numerous
variables and assumptions which are inherently unpredictable and must be
considered not certain of occurrence as projected.
Analysis of Market Solicitation of Indications of Interest.
As previously discussed SJ Holdings solicited indications of interest
from selected U.S. and Puerto Rico based potential buyers. Besides Empresas
Margo's offer, this solicitation resulted in only one indication of interest for
approximately $4 million.
The material analyses performed by SJ Holdings have been summarized
above. Nonetheless, the summary set forth above does not purport to be a
complete description of the analyses performed by SJ Holdings. The preparation
of a fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of these methods
to the particular circumstances. Therefore, such an opinion is not readily
susceptible to a summary description. SJ Holdings did not form a conclusion as
to whether any individual analysis, considered in isolation, supported or failed
to support an opinion as to fairness. Rather, in reaching its conclusion, SJ
Holdings considered the results of the analyses in light of each other and
ultimately reached its opinion based on the results of all analyses taken as a
whole. SJ Holdings did not place a particular reliance or weight on any
particular analysis, but instead concluded that its analyses, taken as whole,
supported its determination.
SJ Holdings' opinion does not address the relative merits of the itract
merger as compared to any alternative business strategies that might exist for
Margo or the effect of any other business combination in which Margo might
engage.
Pursuant to the terms of SJ Holdings' engagement, Margo has agreed to
pay SJ Holdings a fee of $25,000 in connection with its rendering of the
fairness opinion. Margo has also agreed to pay SJ Holdings for its financial
advisory services in connection with the sale of the subsidiaries an additional
fee of $50,000 contingent on the closing of the sale of the subsidiaries. Margo
also has agreed to reimburse SJ Holdings for reasonable out-of-pocket expenses
incurred by it in performing its services, including fees and expenses for legal
counsel, and to indemnify SJ Holdings and certain related persons and entities
against certain liabilities, including liabilities under the federal securities
laws, arising out of SJ Holdings' engagement. In the ordinary course of its
business, SJ Holdings and its affiliates may actively trade the equity
securities of Margo for their own accounts and for the accounts of customers
and, accordingly, may at any time hold long or short positions in such
securities.
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ELECTION OF DIRECTORS
TO SERVE UNTIL CONSUMMATION OF THE MERGER
One of the purposes of Margo's annual meeting is to re-elect the
existing five members of Margo's board of directors to serve until the
consummation of the reincorporation merger and in the event that the merger is
not consummated, until the next annual meeting of shareholders or until their
respective successors shall have been elected or qualified or until their
earlier resignation or removal.
Information Concerning Existing Margo Directors
The following table sets forth certain information regarding the
nominees for election to the board of directors of Margo as of June 15, 2000.
The background and experience of these persons are summarized in the paragraphs
following the table.
Name (Age at June 15, 2000) Positions with Margo
--------------------------- --------------------
Michael J. Spector (53) Chairman, President, Chief Executive Officer
and Director
Margaret D. Spector (48) Secretary and Director
Blas R. Ferraiuoli (55) Director
Frederick D. Moss (71) Director
Michael A. Rubin (57) Director
Each director of Margo holds office until the next annual meeting of
shareholders and until his or her successor has been elected and qualified.
Background of Directors
Set forth below is a summary of the background of each nominee for
director of Margo as of June 15, 2000.
MR. SPECTOR currently serves as the Chairman of the Board, Chief
Executive Officer and President of Margo. He has held these positions since the
organization of Margo in 1981. His wife, Margaret D. Spector, is Secretary and a
director of Margo.
MRS. SPECTOR currently serves as the Secretary and as a director of
Margo. She has held these positions since the organization of Margo in 1981.
Since July 1993, Mrs. Spector supervises Margo's lawn and garden distribution
business.
MR. FERRAIUOLI was elected a director of Margo in 1988 and continues to
hold that position. Since June 1994, he manages his own law firm in San Juan,
Puerto Rico. He was a partner in the law firm of Axtmayer, Adsuar, Muniz &
Goyco, San Juan, Puerto Rico from March 1994 to June 1994. Prior to March 1994,
he was a partner in the firm of Goldman, Antonetti, Cordova and Axtmayer. Mr.
Ferraiuoli practices civil, corporate and administrative law and has provided
services to Margo since 1987.
MR. MOSS was elected a director of Margo in 1988 and continues to hold
that position. Since 1986, he has been an independent financial consultant in
New York City. He has also served as the Chairman of the Board of Trustees of
the Cincinnati Stock Exchange since 1989.
MR. RUBIN was elected a director of Margo in 1995 and continues to hold
that position. Mr. Rubin is an attorney engaged in private practice. He has been
a partner in the law firm of Michael A. Rubin, P.A., Coral Gables, Florida, for
more than the past five years.
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Compensation of Directors
The directors of Margo who are not employees of Margo are paid a
quarterly retainer fee of $1,000 and an additional $1,000 for each meeting of
the board (or committee thereof) attended, plus any travel and out-of-pocket
expenses incurred in connection with the performance of their duties. No
separate fees are paid for committee meetings attended on the same day as a
regular board meeting. The directors of Margo who are employed by Margo do not
receive additional compensation for serving as directors. Margo also provides
directors liability insurance for its directors.
As provided under Margo's 1998 Stock Option Plan ("the 1998 Plan")
adopted on April 23, 1998, any nonemployee director of Margo who is in office on
the first business day following any annual meeting of shareholders shall
automatically receive on such date an option to acquire 2,500 shares of Common
Stock at the market price on such date.
During 1999, Messrs. Ferraiuoli, Moss, Rubin and Mrs. Spector each
received options to acquire 2,500 shares of Common Stock at an exercise price of
$2 1/2($2 3/4for Mrs. Spector), expiring on May 17, 2009, in accordance with the
1998 Plan.
Certain Relationships and Related Transactions
Amount due from/to Principal Shareholder
In connection with the settlement of litigation with Margo's former
principal lender ("the Bank"), on May 29, 1996 Margo advanced $340,158 on behalf
of Michael J. Spector, which was the portion of the settlement that corresponded
to claims made by the Bank against Mr. Spector in his individual capacity. This
amount was reduced by $66,506 that was due to Mr. Spector in connection with the
purchase in 1996 of a residence from a partnership controlled by Mr. Spector.
During 1997, Margo charged Mr. Spector for certain expenses paid on his behalf.
During March 1998, the amount owed by Mr. Spector was converted into a
non-interest bearing note due on March 2001. At December 31, 1999 and 1998, Mr.
Spector owed Margo $290,226.
Lease and Option to Purchase Main Nursery Farm
Effective January 1, 1993, Margo and the Spectors entered into a lease
agreement with respect to the main Puerto Rico nursery farm. The lease had an
initial term of five years renewable for one additional term of five years at
the option of Margo. During the initial term of the lease, rent was set at
$19,000 per month. During the renewal term, the rent increases to the greater of
(x) $24,000 per month or (y) the original $19,000 per month adjusted on the
basis of the increase in the Wholesale Price Index ("WPI") published by the
United States Department of Labor, Bureau of Labor Statistics, from the WPI
which was in effect on January 1, 1993 to the WPI in effect on January 1, 1998.
Additionally, Margo must pay all taxes on the property, maintain certain
insurance coverages and otherwise maintain and care for the property. The lease
also contains an option which permits Margo to purchase the property at its
appraised value at any time during the term of the lease. In consideration of
the option, Margo must pay the Spectors $1,000 per month. On January 1, 1998,
Margo exercised its renewal option at a monthly rental of $24,000. The Spectors
have committed to grant Margo an option to extend the lease for an additional
period of five years ending December 31, 2007.
Effective January 1, 1994, the lease agreement was amended to include
an additional 27-acre tract of land adjacent to the existing nursery facility
for $1,750 per month. The lease terms for this additional tract did not include
renewal or purchase options. Effective January 1, 1998, Margo and the Spectors
entered into an amendment to the lease agreement which grants Margo the right to
continue to lease the 27 acre parcel on a month to month basis. Either party may
terminate this portion of the lease upon 30 days prior written notice. In
connection with this amendment, the Spectors also agreed to reimburse Margo by
no later than March 1, 2001, the unamortized value (approximately $45,000 at
February 1, 2000) of the leasehold improvements applicable to said parcel as of
the date of termination. This agreement terminated effective February 1, 2000.
See "Information About Margo Caribe, Inc. --Property."
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Certain Other Relationships
During 1999, Margo engaged Blas Ferraiuoli and Michael A. Rubin, each a
director of Margo, to render legal services on behalf of Margo.
Investment by Michael J. Spector in International Commerce Exchange Systems,
Inc.
On February 24, 2000, Michael J. Spector together with another major
shareholder of Margo, made a $2.0 million loan to ICES, the indirect parent
company of itract. The loan bears interest at 1% over Prime Rate and is payable
in a single balloon payment on the closing date of the merger of Margo with
itract. If the merger with itract is not consummated, said loan will be
converted into common stock of ICES.
LEGAL MATTERS
The validity of the Holdings common stock to be issued to the Margo
shareholders and itract members in connection with the proposed mergers will be
passed upon for Holdings by Shutts & Bowen, LLP.
EXPERTS
The consolidated financial statements of Margo as of December 31, 1999
and 1998 and for each of the years in the three-year period ended December 31,
1999, appearing in this proxy statement/prospectus and in the registration
statement of which this proxy statement/prospectus is a part, have been audited
by Deloitte & Touche LLP, as set forth in their report thereon that appears
elsewhere in this proxy statement/prospectus, and are included in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
The financial statements of itract as of December 31, 1999 and for the
period from May 12, 1999 (inception) to December 31, 1999 included in this
prospectus and elsewhere in the registration statement have been audited by
Anchin, Block & Anchin, LLP, independent public accountants, as indicated in
their report with respect thereto and are included herein in reliance upon the
authority of said firm as experts in giving said report.
WHERE YOU CAN FIND MORE INFORMATION
Margo files annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information that Margo files at the Commission's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
Commission at 1-800-SEC-0330 for further information on the public reference
rooms. Margo public filings are also available to the public from commercial
document retrieval services and at the Internet World Wide Web site maintained
by the Commission at "http://www.sec.gov." Reports, proxy statements and other
information concerning Margo also may be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
Holdings has filed the registration statement to register with the SEC
the shares of Holdings common stock to be issued to Margo shareholders and to
the members of itract. This proxy statement/prospectus is a part of the
Registration Statement and constitutes a prospectus of Holdings and a proxy
statement of Margo for the Margo annual meeting. As allowed by Commission rules,
this proxy statement/prospectus does not contain all the information that
shareholders can find in the registration statement or the exhibits to the
registration statement.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of this
21st day of June, 2000, by and between MARGO CARIBE, INC., a Puerto Rico
corporation ("Margo"), and iTract, Inc., a Delaware corporation ("iTract" or the
"Surviving Corporation"). Margo and iTract are hereinafter collectively referred
to as the "Constituent Corporations".
WITNESSETH:
WHEREAS, Margo is a Puerto Rico corporation with its principal place of
business in the Commonwealth of Puerto Rico;
WHEREAS, iTract is a wholly-owned subsidiary of Margo Farms;
WHEREAS, iTract was created to accomplish the reincorporation of Margo
Farms as a Puerto Rico corporation pursuant to the merger of the Constituent
Corporations;
WHEREAS, the Constituent Corporations recognize that the
reincorporation may be effected through a merger in accordance with Section 252
of the Delaware General Corporation Law (the "DGCL") and Article 10.02 of the
Puerto Rico General Corporation Law of 1995 (the "PRGCL") with iTract as the
surviving corporation.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties hereto hereby agree as follows:
1. Merger. Margo shall merge with and into iTract in accordance with
the terms and conditions of this Agreement and the provisions of Section 252 of
the DGL and Article 10.02 of PRGCL (the "Merger"). iTract shall be the surviving
corporation and shall continue its corporate existence under its current
certificate of incorporation filed under the DGCL. Upon the Effective Date (as
hereinafter defined), the separate existence of Margo shall cease.
2. Effective Date. The Merger shall become the filing of the
appropriate certificates of merger under the DGCL and the PRGCL.
3. Effect of Merger. Upon the Effective Date:
(a) Margo and iTract shall become a single corporation
and the separate corporate existence of Margo shall cease;
(b) The Surviving Corporation shall succeed to and
possess all of the rights, privileges, powers and immunities
<PAGE>
of Margo which, together with all of the assets, properties, business,
patents, trademarks, and goodwill of Margo, of every type and
description wherever located, shall vest in the Surviving Corporation
without further act or deed and the title to any real property or other
property vested by deed or otherwise in Margo shall not revert or in
any way be impaired by reason of the Merger;
(c) all rights of creditors and all liens upon any property of
the Constituent Corporations shall be unimpaired; The Surviving
Corporation shall be subject to all of the contractual restrictions,
disabilities and duties of the Constituent Corporations; and all debts,
liabilities and obligations of the respective Constituent Corporations
shall thereafter attach to the Surviving Corporation and may be
enforced against it to the same extent as if said debts, liabilities
and obligations had been incurred or contracted by it, provided,
however, that nothing herein is intended to or shall extend or enlarge
any obligation or the lien of any indenture, agreement or other
instrument executed or assumed by the Constituent Corporations; and
(d) without limitation of the foregoing provisions of this
Section 3, all corporate acts, plans, policies, contracts, approvals
and authorizations of the Constituent Corporations, their shareholders,
Boards of Directors, committees elected or appointed by the Boards of
Directors, officers and agents, which were valid and effective and
which did not have terms expressly requiring termination by virtue of
the Merger, shall be taken for all purposes as the acts, plans,
policies, contracts, approvals and authorizations of the Surviving
Corporation as they were with respect to the Constituent Corporations.
4. Certificate of Incorporation; By-laws. At the Effective Date, the
Certificate of Incorporation and By-laws of iTract as in effect immediately
prior to the Effective Date shall be the Certificate of Incorporation and
By-laws of the Surviving Corporation.
5. Directors and Officers. At the Effective Date, the directors and
officers of Margo immediately prior to the Effective Date, shall be the
directors and offices of the Surviving Corporation until their respective
successors shall have been duly elected or appointed.
6. Conversion of Shares and Stock Options. At the Effective Date, each
of the following transactions shall be deemed to occur simultaneously:
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(a) Each share of common stock of Margo, $.001 par value
("Margo Common Stock"), authorized and issued immediately prior to the
Effective Date shall, by virtue of the Merger and without any action on
the part of the holder thereof, be converted into and become one fully
paid and nonassessable share of common stock, $.001 par value, of the
Surviving Corporation ("iTract Common Stock");
(b) Each share of iTract Common Stock issued and outstanding
immediately prior to the Effective Date, all of which are owned by
Margo, shall, by virtue of the Merger and without any action on the
part of the holder thereof, automatically be canceled.
(c) Upon the Effective Date, each option or other right to
acquire Margo Common Stock which is issued and outstanding immediately
prior to the Effective Date, shall be converted, without any action on
the part of the holder thereof, into the right to acquire an equivalent
number of the shares of iTract Common Stock, on the same terms and
conditions under which such holder could have acquired the shares of
Margo Common Stock.
7. Exchange of Securities.
(a) After the Effective Date, each certificate theretofore
representing authorized and issued shares of Margo Common Stock shall
represent the same number of shares of iTract Common Stock.
(b) At any time on or after the Effective Date, each holder of
certificates theretofore evidencing ownership of shares of Margo Common
Stock will be entitled, upon surrender of such certificates to the
transfer agent of the Surviving Corporation, to receive in exchange
therefor one or more new stock certificates evidencing ownership of the
number of shares of iTract Common Stock into which such Margo Common
Stock shall have been converted in the Merger. If any certificate
representing shares of iTract Common Stock is to be issued in a name
other than that in which the certificate so surrendered in exchange
therefor is registered, it shall be a condition of the issuance thereof
that the certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer and the person requesting such
exchange shall pay to the transfer agent any transfer or other taxes
required by reason of the issuance of a certificate representing shares
of iTract Common Stock in any name other than that of the registered
holder of the certificate surrendered, or otherwise required, or shall
establish to the
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satisfaction of the transfer agent that such tax has been paid
or is not payable.
(c) On the Effective Date, the stock transfer books of Margo
shall be deemed closed and no transfer of shares of Margo Common Stock
then outstanding shall thereafter be made or consummated.
8. Assumption of Stock Option Plan and Stock Option Agreements. On the
Effective Date, iTract shall: (a) assume all of the rights and obligations of
Margo under the 1988 Stock Benefits Plan and the Stock Option Plan adopted
pursuant thereto (the "1988 Plan") and the 1998 Stock Option Plan (the "1998
Plan") of Margo; (b) assume all of the rights and obligations of Margo under any
outstanding stock option agreements under the 1988 Plan, the 1998 Plan or
otherwise; and (c) reserve a sufficient number of shares of iTract Common Stock
to fulfill its obligations under the 1988 Plan, the 1998 Plan and any
outstanding stock options.
9. Certificate of Merger. Following the receipt of all required
shareholder approval, the parties shall promptly execute the appropriate
certificates of merger as required by the DGCL and the PRGCL and file the same
with the Secretaries of State of the State of Delaware and the Commonwealth of
Puerto Rico.
10. Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the Merger, and supersedes all prior
agreements, written or oral, with respect thereto.
11. Further Actions. All necessary action shall be taken to transfer
information, contracts, assets, or any other property so that this Agreement be
effected pursuant to the provisions included herein.
12. Authorization. The appropriate officers of the Constituent
Corporations are authorized for and on behalf of and in the name of the
Constituent Corporations to take or cause to be taken all such actions and to
execute or cause to be executed such certificates and other documents as may be
deemed necessary by them or desirable in order to effectuate this Agreement.
13. Benefits. This Agreement shall be binding upon and inure to benefit
the parties, their personal representatives, estates, successors and assigns.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
MARGO CARIBE, INC. iTRACT, INC.
By: /s/ MICHAEL J. SPECTOR By: /s/ MICHAEL J. SPECTOR
-------------------------------- -----------------------------
Michael J. Spector Michael J. Spector
Chairman of the Board, President
Chief Executive Officer
and President
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<PAGE>
APPENDIX B
AGREEMENT AND PLAN OF MERGER
DATED AS OF APRIL 11, 2000
BY AND AMONG
MARGO CARIBE, INC.,
ITRACT ACQUISITION COMPANY, LLC,
ITRACT, INC.
ITRACT, LLC
AND
INTERNATIONAL COMMERCE EXCHANGE SYSTEMS, INC.
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") dated as of
April 11, 2000, by and among MARGO CARIBE, INC., a Puerto Rico corporation
("MARGO"); iTRACT INC., a Delaware corporation ("PURCHASER"); iTRACT ACQUISITION
COMPANY, LLC, a Delaware limited liability company and a wholly-owned subsidiary
of Purchaser ("PURCHASER SUBSIDIARY"); iTRACT, LLC, a Delaware limited liability
company ("iTRACT"); and INTERNATIONAL COMMERCE EXCHANGE SYSTEMS, INC., a
Delaware corporation ("ICES").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Boards of Directors of Margo and Purchaser, and
the managers of Purchaser Subsidiary and iTract, have determined that it is in
the best interests of each such company and its respective stockholders and
members for Purchaser Subsidiary to merge with and into iTract (the "iTRACT
MERGER") upon the terms and subject to the conditions set forth herein;
WHEREAS, the Boards of Directors of Margo and Purchaser have
adopted resolutions approving this Agreement and the transactions contemplated
hereby;
WHEREAS, the managers and a majority of the members of
Purchaser Subsidiary and iTract have adopted resolutions approving this
Agreement and the transactions contemplated hereby pursuant to Section 18-209 of
the Delaware Limited Liability Company Act;
WHEREAS, the parties to this Agreement intend that the iTract
Merger shall qualify as an exchange within the meaning of Section 351 of the
Internal Revenue Code of 1986, as amended;
WHEREAS, ICES is the indirect beneficial owner of
approximately 78% of the outstanding interests in iTract; and
WHEREAS, prior to the Effective Time (as defined below), Margo
will reincorporate in Delaware by merging with and into Purchaser.
NOW, THEREFORE, in consideration of the premises and the
mutual representations, warranties, covenants and agreements hereinafter set
forth, the parties hereto do hereby agree as follows:
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1. CERTAIN DEFINITIONS.
-------------------
1.1 DEFINED TERMS. As used in this Agreement, the following
terms shall have the meanings specified or referred to below (terms defined in
the singular to have the correlative meaning in the plural and VICE VERSA):
"ACT" shall mean the Delaware Limited Liability Company Act.
"AFFILIATE" of any Person shall mean any Person which,
directly or indirectly, controls or is controlled by that Person, or is under
common control with that Person. For the purposes of this definition, "control"
(including, with correlative meaning, the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities or by contract or otherwise.
"AGREEMENT" shall have the meaning set forth in the recitals.
"ALTERNATIVE TRANSACTION" shall have the meaning set forth in
Section 9.8.
"ASSET SALE" shall have the meaning set forth in Section 6.4.
"BUSINESS DAY" shall mean any day that is not a Saturday or a
Sunday or a day on which banks located in New York City are authorized or
required to be closed.
"CLOSING" shall have the meaning set forth in Section 3.1.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended. All citations to the Code or to the regulations promulgated thereunder
shall include any amendments or any substitute or successor provisions thereto.
"CONTEMPLATED TRANSACTIONS" shall mean the iTract Merger, the
Reincorporation Merger and the Asset Sale, and the execution, delivery and
performance of and compliance with this Agreement and all other agreements to be
executed and delivered pursuant to this Agreement.
"CONTRACT" shall have the meaning set forth in Section 4.15.
"EFFECTIVE TIME" shall mean the date and time of consummation
of the iTract Merger, as evidenced by the filing of a certificate of merger with
the Secretary of State of the State of Delaware.
"ENCUMBRANCE" shall mean any security interest, pledge,
mortgage, lien, charge, encumbrance, license, easement, right-of-way, adverse
claim, preferential arrangement or restriction of any kind, including, but not
limited to, any restriction on the use, voting, transfer, receipt of income or
other exercise of any attributes of ownership.
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<PAGE>
"ENVIRONMENTAL LAWS" shall mean any Law, now or hereafter in
effect and as amended, and any judicial or administrative interpretation
thereof, including any judicial or administrative order, consent decree or
judgment, relating to the environment, health, safety or Hazardous Materials,
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended through the date hereof; the
Resource Conservation and Recovery Act, 42 U.S.C. ss.ss 6901 ET SEQ.; the
Hazardous Materials Transportation Act, 49 U.S.C. ss.ss 6901 ET SEQ.; the Clean
Water Act, 33 U.S.C. ss.ss 1251 ET SEQ.; the Toxic Substances Control Act, 15
U.S.C. ss.ss 2601 ET SEQ.; the Clean Air Act, 42 U.S.C. ss.ss 7401 ET SEQ.; the
Safe Drinking Water Act, 42 U.S.C. ss.ss 300f ET SEQ.; the Atomic Energy Act, 42
U.S.C. ss.ss 2011 ET SEQ.; the Federal Insecticide, Fungicide and Rodenticide
Act, 7 U.S.C. ss.ss 136 ET SEQ.; the Federal Food, Drug and Cosmetic Act, 21
U.S.C. ss.ss 301 ET SEQ.; and the Puerto Rico Public Policy Environmental Act,
12 LPRA ss.ss 1121 ET SEQ.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and the regulations and publications thereunder.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder.
"GAAP" shall mean generally accepted accounting principles in
the United States.
"GOVERNMENTAL BODY" shall mean any United States federal,
state or local, Puerto Rico, or any foreign government, governmental, regulatory
or administrative authority, agency or commission or any court, tribunal or
judicial or arbitral body or any quasi-governmental or private body exercising
any regulatory or taxing authority thereunder.
"HAZARDOUS MATERIALS" shall mean (a) petroleum and petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, transformers or other equipment that
contain polychlorinated biphenyls, and radon gas, (b) any other chemicals,
materials or substances defined as or included in the definition of "hazardous
substances," "hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants," "contaminants" or "pollutants" or words of
similar import, under any applicable Environmental Law, and (c) any other
chemical, material or substances exposure to which is regulated by any
Governmental Body.
"ICES" shall mean International Commerce Exchange Systems,
Inc., a Delaware corporation.
"INTELLECTUAL PROPERTY" shall mean any and all United States
and foreign: (a) inventions, whether or not patentable, whether or not reduced
to practice, and whether or not yet made the subject of a pending patent
application or applications, (b) ideas and conceptions of potentially patentable
subject matter, including, without limitation, any patent disclosures, whether
or not reduced to practice and whether or not yet made the subject of a pending
patent application or applications, (c) national (including, but not limited to
the United States) and multinational statutory invention registrations, patents
(including but not limited to design patents), patent
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<PAGE>
registrations and patent applications (including all reissues, divisions,
continuations, continuations-in-part, extensions and reexaminations) and all
rights therein provided by international treaties or conventions and all
improvements to the inventions disclosed in each such registration, patent or
application, (d) trademarks, service marks, trade dress, logos, trade names and
corporate names, whether or not registered and regardless of where used,
including but not limited to all common law rights, and registrations and
applications for registration thereof, including, but not limited to, all marks
registered in the United States Patent and Trademark office, the Trademark
Offices of the States and Territories of the United States of America, and the
Trademark Offices of other nations throughout the world, and all rights therein
provided by international treaties or conventions, (e) copyrights (including but
not limited to copyrights on designs) (registered or otherwise) and
registrations and applications for registration thereof, and all rights therein
provided by any national law, international treaties or conventions, (f)
computer software, including, without limitation, source code, operating systems
and specifications, data, data bases, files, documentation and other materials
related thereto, data and documentation, (g) trade secrets and confidential,
technical and business information (including but not limited to ideas,
formulas, compositions, inventions, and conceptions of inventions whether
patentable or unpatentable and whether or not reduced to practice), (h) whether
or not confidential, technology (including know-how and show-how), manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and supplier lists and
information, (i) any right arising under any law providing protection to
industrial or other designs, (j) copies and tangible embodiments of all the
foregoing, in whatever form or medium, (k) all rights to obtain and rights to
apply for patents, and to register trademarks and copyrights, and (l) all rights
to sue or recover and retain damages and costs and attorneys fees for present
and past infringement of any of the foregoing.
"IRS" means the Internal Revenue Service.
"iTRACT" shall mean iTract, LLC, a Delaware limited liability
company.
"iTRACT APPROVALS" shall have the meaning set forth in Section
4.5.
"iTRACT ASSETS" shall have the meaning set forth in Section
4.7(b).
"iTRACT INTELLECTUAL PROPERTY" shall have the meaning set
forth in Section 4.9.
"iTRACT LICENSES" shall have the meaning set forth in Section
4.17(a).
"iTRACT MERGER" shall mean the merger of Purchaser Subsidiary
with and into iTract, as contemplated by this Agreement.
"iTRACT PLANS" shall have the meaning set forth in Section
4.13(a).
"iTRACT RECENT BALANCE SHEET: shall have the meaning set forth
in Section 4.6(c).
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<PAGE>
"iTRACT UNITS" shall have the meaning set forth in Section
2.3(a).
"LAWS" shall mean all federal, state, local, regional,
municipal or foreign laws, statutes, regulations, ordinances, codes, decrees,
judgments, orders or other legal requirements and shall include the Laws of
Puerto Rico.
"LEASES" shall have the meaning set forth in Section 4.8
"MATERIAL ADVERSE EFFECT" shall mean, when used in connection
with any Person, any change, effect, event, occurrence, condition or development
that is or is reasonably likely to be materially adverse to (i) the business,
assets, liabilities, properties, results of operations, prospects or condition
(financial or otherwise) of such Person (excluding industry and general economic
changes) or (ii) the ability of such Person to perform its obligations under
this Agreement.
"MARGO" shall mean Margo Caribe, Inc., a Puerto Rico
corporation.
"MARGO APPROVALS" shall have the meaning set forth in Section
5.5.
"MARGO FINANCIAL STATEMENTS" shall have the meaning set forth
in Section 5.7.
"MARGO LICENSES" shall have the meaning set forth in Section
5.10.
"MARGO PLANS" shall have the meaning set forth in Section 5.9.
"MARGO RECENT BALANCE SHEET" shall have the meaning set forth
in Section 5.7(b).
"MARGO SEC DOCUMENTS" shall have the meaning set forth in
Section 5.7(a).
"MAXIMUM PURCHASER SHARES" shall have the meaning set forth in
Section 2.4.
"MEMBERS" shall mean the members of iTract prior to the
Effective Time.
"MERGER CONSIDERATION" shall have the meaning set forth in
Section 2.4.
"NASDAQ" shall mean The Nasdaq Stock Market, Inc.
"NASDAQ LISTING" shall have the meaning set forth in Section
6.5.
"NURSERY BUSINESS ASSETS" shall mean all assets, other than
cash and cash equivalents, owned or used by Margo or its Subsidiaries in
connection with any of the businesses presently conducted by any of them and
shall include the capital stock of Margo's Subsidiaries owned by Margo other
than Purchaser and Purchaser Subsidiary.
"PARTY" shall mean any of Margo, Purchaser, Purchaser
Subsidiary, iTract, the Members, and ICES.
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<PAGE>
"PERMITTED ENCUMBRANCES" shall have the meaning set forth in
Section 4.7(b).
"PERSON" shall mean any individual, corporation, limited
liability company, partnership, joint venture, trust, association,
unincorporated organization, other entity or Governmental Body.
"P.R. INTERNAL REVENUE CODE" shall mean the Puerto Rico
Internal Revenue Code of 1994, as amended. All citations to the Puerto Rico
Internal Revenue Code shall include any amendments or any substitute or
successor provisions thereto.
"PURCHASER" shall mean iTract Inc., a Delaware corporation and
wholly-owned subsidiary of Margo prior to the Effective Time.
"PURCHASER COMMON STOCK" shall mean the common stock, par
value $.001 per share, of Purchaser.
"PURCHASER SHARES" shall have the meaning set forth in Section
2.4.
"PURCHASER SUBSIDIARY" shall mean iTract Acquisition Company,
LLC, a Delaware limited liability company.
"REGISTRATION STATEMENT" shall have the meaning set forth in
Section 6.2.
"REINCORPORATION MERGER" shall mean the merger of Margo with
and into Purchaser, with Purchaser as the surviving corporation of such merger.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"STOCKHOLDER APPROVAL" shall have the meaning set forth in
Section 6.6. on
"SUBSIDIARY" shall mean with respect to any specified Person,
any other Person (a) whose board of directors or similar governing body, or a
majority thereof, may presently be directly or indirectly elected or appointed
by such specified Person, (b) whose management decisions and corporate actions
are directly or indirectly subject to the present control of such specified
Person, or (c) whose voting securities or equity securities are more than fifty
percent (50%) owned, directly or indirectly, by such specified Person.
"SURVIVING LLC" shall have the meaning set forth in Section
2.1.
"TAXES" shall mean all taxes, charges, fees, imposts, levies
or other assessments, including, without limitation, all net income, gross
receipts, capital, sales, use, ad valorem, value added, transfer, franchise,
profits, inventory, capital stock, license, withholding, payroll,
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<PAGE>
employment, social security, unemployment, excise, severance, stamp, occupation,
property and estimated taxes, customs duties, fees, assessments and charges of
any kind whatsoever, together with any interest and any penalties, fines,
additions to tax or additional amounts imposed by any Governmental Body and
shall include any transferee liability in respect of Taxes.
"TAX RETURNS" means any federal, state, local, Puerto Rico, or
foreign return, report, information return or other document (including any
related or supporting information) filed or required to be filed with any
Governmental Body in connection with the determination, assessment or collection
of any Taxes or the administration of any laws, regulations or administrative
requirements relating to any Taxes.
1.2 REFERENCES TO DOLLARS. References to dollars or "$" in this
Agreement shall mean United States dollars.
2. THE iTRACT MERGER.
------------------
2.1 THE iTRACT MERGER. Upon the terms and subject to the conditions of
this Agreement, and in accordance with the provisions of the Act, Purchaser
Subsidiary shall be merged with and into iTract as soon as practicable following
the satisfaction or waiver of the conditions set forth in Articles 7 and 8
hereof. Following the iTract Merger, iTract shall continue as the surviving
limited liability company (the "SURVIVING LLC") under its current name and shall
continue its existence under the laws of the State of Delaware and the separate
existence of Purchaser Subsidiary shall thereupon cease. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, by
virtue of the iTract Merger and without further act or deed, all properties,
rights, privileges, powers and franchises of iTract and Purchaser Subsidiary
shall vest in the Surviving LLC, and all debts, liabilities, obligations and
duties of iTract and Purchaser Subsidiary shall become the debts, liabilities,
obligations and duties of the Surviving LLC.
2.2 CONSUMMATION OF THE iTRACT MERGER AND EFFECTIVE TIME. The iTract
Merger shall be effected by the filing of a certificate of merger with the
Secretary of State of the State of Delaware in the form of EXHIBIT A to this
Agreement (the "CERTIFICATE OF MERGER"), pursuant to Section 18-209 of the Act.
Subject to the terms and conditions of this Agreement, the Parties hereto shall
take all other actions as may be required by Law to make the iTract Merger
effective.
2.3 CONVERSION OR CANCELLATION OF UNITS. The manner of converting or
canceling membership interests of iTract or Purchaser Subsidiary in the iTract
Merger shall be as follows. At the Effective Time;
(a) The units of membership interest of iTract (the "iTRACT
UNITS") issued and outstanding immediately prior to the Effective Time shall, by
virtue of the iTract Merger and without any action on the part of the holders
thereof, be converted into the right to receive the Merger Consideration. At the
Effective Time, all iTract Units shall, by virtue of the iTract Merger and
without any action on the part of the holders thereof, no longer be outstanding
and shall be canceled and retired and shall cease to exist.
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<PAGE>
(b) Each of Purchaser Subsidiary's units of membership
interest issued and outstanding immediately prior to the Effective Time shall,
by virtue of the iTract Merger and without any action on the part of the holder
thereof, be converted into one unit of membership interest of the Surviving LLC.
2.4 MERGER CONSIDERATION. The "MERGER CONSIDERATION" shall mean the
number of shares of Purchaser Common Stock equal to the difference between: (i)
Maximum Purchaser Shares (as defined below); and (ii) the number of shares of
Purchaser Common Stock that will be the subject of Purchaser Options pursuant to
Section 2.5 below. Each Member shall be entitled to receive its pro rata share
of the Merger Consideration (rounded to the nearest whole number of shares of
Purchaser Common Stock) based on the proportion that the iTract Units held by
such Member immediately prior to Effective Time bears to the total number of
issued and outstanding iTract Units at the Effective Time. The Maximum Purchaser
Shares shall mean the product of: (i) 0.868; and (ii) the quotient obtained by
dividing the sum of (aa) the number of shares of Purchaser Common Stock
outstanding immediately prior to the Effective Time, and (bb) the number of
shares of Purchaser Common Stock underlying all options, warrants and any other
securities convertible into shares of Purchaser Common Stock which are
outstanding immediately prior to the Effective Time, by 0.132. The shares of the
Purchaser Common Stock which constitute the Merger Consideration are referred to
as the "PURCHASER SHARES."
2.5 CONVERSION OF iTRACT OPTIONS. All of the options and warrants to
purchase iTract Units (the "iTRACT OPTIONS") outstanding immediately prior to
the Effective Time shall, by virtue of the iTract Merger and without any further
action on the part of iTract or the holders of such options or warrants, be
converted into options or warrants to acquire shares of the Purchaser Common
Stock (the "Purchaser Options"). Each Purchaser Option issued in exchange for an
iTract Option shall be exercisable for that whole number of shares of Purchaser
Common Stock (to the nearest whole share) that a holder of the number of iTract
Units subject to such iTract Option immediately prior to the Effective Time
would be entitled to receive under Section 2.4 hereof. The aggregate purchase
price for the shares of Purchaser Common Stock subject to each Purchaser Option
issued in exchange for an iTract Option shall be the same as the aggregate
purchase price for the iTract Units subject to the corresponding iTract Option
immediately prior to the Effective Time. Purchaser agrees that as soon as
practicable after the Effective Time it will cause to be filed one or more
registration statements on Form S-8 under the Securities Act in order to
register the shares of Purchaser Common Stock issuable upon exercise of the
converted iTract Options (if such shares may be registered on Form S-8).
2.6 CERTIFICATE OF FORMATION AND LIMITED LIABILITY COMPANY AGREEMENT.
The Certificate of Formation of iTract shall be and remain the Certificate of
Formation of the Surviving LLC. On the Effective Date, the limited liability
company agreement of the Surviving LLC shall be in the form annexed hereto as
EXHIBIT B.
2.7 MANAGERS AND OFFICERS.
---------------------
(a) At the Effective Time, the managers and officers of the
Surviving LLC shall be the managers and officers of iTract immediately prior to
the Merger.
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<PAGE>
(b) At the Effective Time, the directors and officers of the
Purchaser shall resign as directors and officers of the Purchaser and shall
appoint as their successors the Persons to be designated by iTract.
3. THE CLOSING.
-----------
3.1 CLOSING.
--------
(a) Unless this Agreement shall have been terminated pursuant
to Section 10.1, a closing of the iTract Merger (the "Closing") will be held at
the offices of Kronish Lieb Weiner & Hellman LLP, 1114 Avenue of the Americas,
New York, New York 10036, five (5) Business Days after the date on which the
conditions set forth in Sections 7 and 8 shall be satisfied or duly waived (or
such other place and date as Purchaser and iTract may agree in writing).
(b) At the Closing:
(1) iTract and the Members, as applicable, shall
deliver to Purchaser or Purchaser Subsidiary, as
applicable, all documents contemplated by Article 7,
to the extent not theretofore delivered.
(2) Purchaser or Purchaser Subsidiary, as applicable,
shall deliver to iTract all documents contemplated by
Article 8, to the extent not theretofore delivered.
(3) Purchaser shall deliver to the Members
certificates representing the Purchaser Shares.
4. REPRESENTATIONS AND WARRANTIES OF iTRACT .
-----------------------------------------
iTract represents and warrants to Margo, Purchaser and Purchaser
Subsidiary as follows:
4.1 ORGANIZATION AND GOOD STANDING. iTract is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Delaware. iTract has all requisite corporate power to own, operate
and lease its properties and carry on its business as the same is now being
conducted and as currently proposed to be conducted. Complete and correct copies
of the certificate of formation and limited liability company agreement of
iTract as currently in effect have been delivered to Margo. iTract has no
Subsidiaries nor does it own any equity interest in, or control directly or
indirectly, any other entity.
4.2 CAPITALIZATION OF iTRACT.
------------------------
(a) iTract has issued 10,728,700 iTract Units, all of which
are fully paid and non-assessable. Except as set forth on SCHEDULE 4.2(A), there
are no outstanding subscriptions, options,
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<PAGE>
rights, warrants, convertible securities, pre-emptive rights or other agreements
(other than this Agreement) or calls, demands or commitments of any kind
relating to the issuance, sale or transfer of any membership interests or other
equity securities of iTract, whether directly or upon the exercise or conversion
of other securities. There are no outstanding contractual obligations of iTract
to repurchase, redeem or otherwise acquire any interests in iTract or to provide
funds to, or make any investments (in the form of a loan, capital contribution
or otherwise), in any other Person. All of the outstanding iTract Units were
issued in compliance with all applicable federal and state securities laws.
(b) SCHEDULE 4.2(B) sets forth the name of each Person owning
iTract Units and the number of iTract Units owned by such Person.
4.3 AUTHORITY RELATIVE TO AGREEMENT. iTract has all requisite power and
authority, to execute, deliver and perform its obligations under this Agreement,
and has taken all action necessary in order to execute and deliver this
Agreement and to consummate the Contemplated Transactions. This Agreement has
been duly executed and delivered by iTract. This Agreement constitutes the valid
and binding obligation of iTract, enforceable against iTract in accordance with
its terms, subject to laws relating to bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium, marshaling or other laws and rules of
law affecting the enforcement generally of creditors' rights and remedies
(including such as may deny giving effect to waivers of debtors' or guarantors'
rights).
4.4 ABSENCE OF CONFLICT. Neither the execution and delivery of this
Agreement nor the consummation of the Contemplated Transactions will (a)
violate, conflict with, result in a material breach or termination of,
constitute a default under or give rise to a right to terminate or accelerate
(or an event which, with notice or lapse of time or both, would constitute the
same) (i) any material agreement, commitment, deed of trust, indenture, lease,
mortgage or other instrument to which iTract is a party or by which any of its
properties or assets is bound, (ii) the certificate of formation or limited
liability company agreement of iTract, or (iii) any Law, order of a Governmental
Body or any other restriction of any kind or character applicable to iTract or
any of its properties or assets, or (b) result in the creation or imposition of
any Encumbrance upon any properties or assets of iTract under any material
agreement or commitment to which iTract is a party or by which iTract or its
properties or assets may be bound, except, in each of the foregoing cases, for
such items as would not constitute a Material Adverse Effect with respect to
iTract.
4.5 CONSENTS AND APPROVALS; EFFECT OF CHANGE IN CONTROL. SCHEDULE 4.5
sets forth a complete list of all consents, waivers, registrations,
certificates, approvals, grants, franchises, concessions, permits, licenses,
exceptions or authorizations of, or declarations or filings with, or notices or
reports to, (a) any Governmental Body and (b) any other Person (including, but
not limited to, any party to a Contract or other agreement or commitment of
iTract) (collectively, the "iTRACT APPROVALS"), which iTract must obtain or make
in order to consummate the Contemplated Transactions. All iTract Approvals have
been obtained and are in full force and effect, and Purchaser is in full
compliance with each of such iTract Approvals.
4.6 FINANCIAL STATEMENTS.
--------------------
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(a) Attached to this Agreement as SCHEDULE 4.6(A) are true and
correct copies of the statements of operations and cash flows of iTract for the
period from inception through June 30, 1999, for the six month period ended
December 31, 1999 and for the eight month period ended February 29, 2000, and
balance sheets as of June 30, 1999, December 31, 1999 and February 29, 2000
(collectively the "iTRACT FINANCIAL STATEMENTS").
(b) The iTract Financial Statements comply as to form in all
material respects with applicable accounting requirements and have been prepared
in conformity with GAAP consistently applied (except as may be indicated in the
notes thereto or, in the case of unaudited financial statements, as permitted by
the rules and regulations of the SEC) and present fairly, in all material
respects, the financial position of iTract at the dates thereof and the results
of its operations and cash flows for the periods then ended (subject in the case
of unaudited interim financial statements to normal recurring year-end audit
adjustments).
(c) Except as set forth in SCHEDULE 4.6(C), iTract does not
have any liabilities or obligations (whether known or unknown, absolute,
accrued, contingent or otherwise and whether due or to become due) that were not
fully reflected or reserved against in the balance sheet of iTract as of
February 29, 2000 (the "iTRACT RECENT BALANCE SHEET") except for non-material
liabilities and obligations incurred in the ordinary course of business and
consistent with past practice (in nature and scope) since the date thereof. The
reserves reflected in the iTract Recent Balance Sheet are adequate, appropriate
and reasonable and the reserves reflected in the iTract Recent Balance Sheet are
in accordance with GAAP consistently applied. Since the date of the iTract
Recent Balance Sheet, there has been no change in the business, operations or
financial condition of iTract which has or could reasonably be expected to have
a Material Adverse Effect with respect to iTract.
4.7 TITLE TO PROPERTY; SUFFICIENCY; ENCUMBRANCES.
--------------------------------------------
(a) iTract has never owned any real property.
(b) Except for those properties or assets leased by iTract
(each of which is listed in Schedule 4.8(a)), or as disclosed in SCHEDULE
4.7(B), iTract owns all the properties and assets used in the conduct of its
business and, with respect to contract rights, is a party to and enjoys the
right to the benefits of all material contracts, agreements and other
arrangements used by iTract in the conduct of its business (all such properties,
assets and contract rights being the "iTRACT ASSETS"). iTract has good and
marketable title to all the iTract Assets, free and clear of all Encumbrances,
except for Permitted Encumbrances. As used herein, "PERMITTED ENCUMBRANCES"
means (i) statutory liens for current taxes or assessments not yet due or
delinquent, and (ii) those Encumbrances disclosed on SCHEDULE 4.7(B).
(c) Following the consummation of the Contemplated
Transactions, the Surviving LLC will continue to own the iTract Assets without
incurring any penalty or other adverse consequence, including, without
limitation, any increase in royalties, or licenses or other fees imposed as a
result of, or arising from, the consummation of the Contemplated Transactions.
Immediately following the Effective Time, the Surviving LLC shall own and
possess all documents,
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books, records, agreements and financial data of any sort used by iTract in the
conduct of its business.
4.8 LEASED PROPERTY.
---------------
(a) SCHEDULE 4.8 sets forth a true and complete list of each
lease under which iTract is a lessee or lessor (each, a "LEASE"). iTract has
delivered to Purchaser complete and correct copies of each such Lease. Each such
Lease is a valid and binding obligation of iTract, enforceable in accordance
with its terms, is in full force and effect, and except as set forth on SCHEDULE
4.8, upon consummation of the Contemplated Transactions, will continue to
entitle the Surviving LLC to the use and possession of the property specified in
such lease for the purposes for which such property is now being used by iTract,
without incurring any penalty or other adverse consequence, including without
limitation, any increase in rentals or other fees imposed as a result of or
arising from the consummation of the Contemplated Transactions.
(b) There is not under any of such Leases any material default
or any claim of a material default by iTract.
4.9 INTELLECTUAL PROPERTY RIGHTS.
----------------------------
(a) SCHEDULE 4.9 sets forth a list and brief description of
all Intellectual Property owned or licensed or used or held for use by iTract,
specifying as to each, as applicable: (i) the nature of such right, (ii) the
owner of such right and (iii) the jurisdiction in which registration has been
issued or applied for with respect to such right, including the respective
registration or application numbers. iTract owns or possesses adequate licenses
or rights to use all Intellectual Property necessary to the conduct of its
business as presently conducted and as proposed to be conducted as of the date
hereof, and no claim is pending or, to the knowledge of iTract, threatened to
the effect that the operations of iTract infringe upon or conflict with the
asserted rights of any other Person under any Intellectual Property and, to the
knowledge of iTract, there is no reasonable basis for any such claim (whether or
not pending or threatened). No claim is pending or, to the knowledge of iTract,
threatened to the effect that any such Intellectual Property owned or licensed
by iTract or by which iTract otherwise has the right to use, is invalid or
unenforceable by iTract, and, to the knowledge of iTract, there is no reasonable
basis for any such claim (whether or not pending or threatened). iTract has
taken reasonable steps to establish and maintain the confidentiality of all
manufacturing processes, formulae, trade secrets, customers lists and know how
of iTract, and, to the knowledge of iTract, all such items have remained
confidential. SCHEDULE 4.9 also contains a list of all licenses and sublicenses
and all consulting software development and other agreements relating to any
Intellectual Property of iTract, including the identity of all parties thereto.
iTract is not nor will it be as a result of the execution and delivery of this
Agreement and the consummation of the Contemplated Transactions, in violation of
any license, sublicense or agreement described in SCHEDULE 4.9.
(b) The Intellectual Property owned by iTract or, for which
iTract is the exclusive licensee, are free and clear of all liens and
encumbrances of every nature, are not currently being challenged in any way,
have not lapsed or expired, and are not involved in any pending or, to the
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knowledge of iTract, threatened interference proceedings. SCHEDULE 4.9 sets
forth all challenges to or any pending or threatened interference proceedings
relating to Intellectual Property known to iTract.
(c) Neither iTract nor any of its Affiliates has during the
preceding 5 years been sued or charged in writing with or have been a defendant
in any claim, suit, action or proceeding that involved a claim of infringement
of any of the Intellectual Property of iTract. iTract has no knowledge of any
other claim of infringement by iTract and no knowledge of any continuing
unauthorized use, misappropriation or infringement by any party of any
Intellectual Property of iTract. No Intellectual Property of iTract is subject
to any outstanding order, judgment, decree, stipulation or agreement restricting
the use thereof by iTract or restricting the licensing thereof by iTract to any
other party. Other than as set forth in SCHEDULE 4.9, iTract has not entered
into any agreement to indemnify any other person against any charge of
infringement of any Intellectual Property of iTract.
(d) As of April 18, 2000, none of the present or former
employees, officers and directors of iTract or their Affiliates will own,
directly or indirectly, in whole or in part, any Intellectual Property of iTract
or application therefor as set forth in SCHEDULE 4.9.
4.10 LITIGATION. There is no action, suit, inquiry, proceeding or
investigation by or before any court or Governmental Body pending or threatened
against or involving iTract, which questions or challenges the validity of this
Agreement or the Contemplated Transactions, and iTract has not received any
notice of any event or occurrence which could result in any such action, suit,
inquiry, proceeding or investigation nor, to the knowledge of iTract, is there
any valid basis for any such action, suit, inquiry, proceeding or investigation.
4.11 TAX MATTERS. iTract elected to be treated as a partnership for
federal income tax purposes upon its inception and has not changed such election
since such time. Except as set forth on SCHEDULE 4.11, all Tax Returns required
to be filed by iTract on or before the Effective Time by or on behalf of or with
respect to iTract have been or will be timely filed on or before the Effective
Time in accordance with all applicable laws. iTract is not delinquent in the
payment of any Tax nor has iTract requested any extension of time within which
to file any Tax Return, which Return has not since been timely filed. No
deficiency for any Tax or claim for additional Taxes has been proposed, asserted
or assessed by any Governmental Body against iTract. There is no audit, action,
suit, claim, proceeding or, any investigation or inquiry, whether formal or
informal, public or private, now pending or, to the knowledge of iTract,
threatened against or with respect to iTract in respect of any Tax. There are no
liens for Taxes upon the assets of iTract except liens for current Taxes not yet
due.
4.12 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1999,
except as set forth in SCHEDULE 4.12, iTract has conducted its business only in
the ordinary course and there has not been:
(i) any material adverse change in the financial condition,
operations, properties, assets, liabilities or business of iTract;
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(ii) any material damage, destruction or loss of any material
properties of iTract; and
(iii) any occurrence not included in paragraphs (i) through
(ii) of this Section which has resulted or, in which iTract has reason to
believe could reasonably be expected to result, in a Material Adverse Effect.
4.13 EMPLOYEE BENEFITS; EXECUTIVE OFFICERS; LABOR.
--------------------------------------------
(a) No employees of iTract are covered by collective
bargaining agreements or are members of unions. SCHEDULE 4.13 sets forth a true
and complete list of all written executive compensation plans, bonus plans,
incentive compensation plans, deferred compensation plans or agreements,
employee pension plans or retirement plans, employee profit sharing plans,
employee stock purchase plans, group life insurance, hospitalization insurance,
severance or other employee benefit plans (as defined in Section 3(3) of ERISA)
of iTract (the "iTRACT PLANS") providing for benefits for any employees of
iTract. iTract has no unfunded obligations relating to the iTract Plans. To the
extent applicable, the iTract Plans comply in all material respects with ERISA.
(b) Except as set forth in SCHEDULE 4.13, neither the
execution and delivery of this Agreement nor the consummation of any of the
Contemplated Transactions under this Agreement will entitle any current or
former employee of iTract to severance pay or other similar payment or
accelerate the time of payment or increase the amount or compensation due to any
such employee or former employee. iTract has no pending or, to the knowledge of
iTract, threatened labor disputes with its employees.
4.14 INSURANCE; CLAIMS. SCHEDULE 4.14 sets forth a true, correct and
complete list of all insurance policies of any kind or nature maintained as of
the date of this Agreement by or on behalf of iTract and relating to its
business and/or assets, indicating the type of coverage, name of insured, name
of insurance carrier or underwriter, premium thereon, policy limits and
expiration date of each policy. All such insurance policies are in full force
and effect, and iTract is not in default with respect to its obligations under
any such insurance policy and no notice of cancellation or termination has been
received with respect to any such policy.
4.15 MATERIAL CONTRACTS AND COMMITMENTS. SCHEDULE 4.15 contains a true,
complete and accurate list of all of the material contracts, agreements,
understandings or other obligations (whether written or oral) to which iTract is
a party or by which any of its assets or properties are bound (together with the
agreements disclosed on SCHEDULES 4.8, 4.9, 4.13, and 4.14 a "CONTRACT"),
including, but not limited to:
(a) all rental or use agreements, contracts, covenants or
obligations;
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(b) any contract, agreement, commitment or obligation to make
any capital expenditures;
(c) contracts, agreements, commitments or other obligations
with any Person containing any provision or covenant limiting the ability of
iTract to engage in any line of business or to compete with or to obtain
products or services from any Person or limiting the ability of any Person to
compete with or to provide products or services to, or obtain products or
services from, iTract, or covering indemnification of another Person;
(d) any profit-sharing or similar contract, agreement,
understanding or obligation with any Person;
(e) contracts, agreements, commitments or other obligations
with respect to the purchase or sale by or to iTract of any product, equipment,
facility, or similar item;
(f) license, royalty, franchise, distributorship, dealer,
service, sales agency, consulting, advisory, public relations or advertising
contracts, agreements, commitments or other obligations;
(g) contracts, agreements, commitments or other obligations to
provide services or facilities with a value in excess of $5,000 per annum by or
to iTract or to or by another Person;
(h) all joint ventures and joint marketing agreements; or
(i) all other material contracts, agreements, commitments, or
other obligations whether or not made in the ordinary course of business.
4.16 STATUS OF AGREEMENTS. All Contracts to which iTract is a party are
in full force and effect and constitute valid and binding obligations of iTract
and, to the knowledge of iTract, are binding on the other parties thereto. There
are no existing material defaults (or events which, with notice or lapse of time
or both, would constitute a default) by iTract or any other party thereunder.
iTract is not a party to any Contract that has or may reasonably be expected to
have, individually or in the aggregate, with any other Contracts a Material
Adverse Effect on iTract.
4.17 COMPLIANCE WITH LAW.
-------------------
(a) SCHEDULE 4.17(A) is a true and complete list of each
license, permit, order, authorization or approval of Governmental Bodies
("iTRACT LICENSES") held or obtained by iTract which is required in connection
with the business conducted by iTract. The operations of iTract have been
conducted in all material respects in accordance with all applicable Laws.
iTract has not received any notification of any asserted present or past failure
to comply with any such Laws. iTract has all iTract Licenses required for the
conduct of iTract's business and is not in violation of any such iTract License.
All such iTract Licenses are in full force and effect and no suspension or
cancellation thereof has been threatened of which iTract is aware.
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(b) iTract has obtained all iTract Licenses which are required
with respect to iTract under all Environmental Laws. iTract is in compliance in
all material respects with all terms and conditions of such required iTract
Licenses, and is also in compliance in all material respects with all
Environmental Laws. Except as set forth in SCHEDULE 4.17(B), there does not
exist as a result of any action or inaction of iTract or, to the knowledge of
iTract, as a result of any action or inaction of any other Person, nor has
iTract received notice of, any events, condition or circumstances which may
interfere with or prevent continued compliance, or which may give rise to any
liability, or otherwise form the basis of any claim, action, suit, proceedings,
hearing or investigation, based on or related to the violation of an
Environmental Law or the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling, or the emission, discharge, release
or threatened release into the environment, of any Hazardous Material.
(c) To the best of iTract's knowledge, no Hazardous Material
has been incorporated in, used on, stored on or under, released from, treated
on, transported to or from, or disposed of by iTract on or from any property
owned or leased by iTract or by any other Person such that, under Environmental
Laws (i) any such Hazardous Material would be required to be removed, cleaned up
or remediated before the property owned or leased by iTract could be altered,
renovated, demolished or transferred, or (ii) the owner or lessee of the
property (as applicable to iTract) could be subjected to liability for the
removal, clean up or remediation of such Hazardous Material; and iTract has not
received notification from any Governmental Bodies or other Persons relating to
Hazardous Material on or affecting any property owned or leased by iTract or
relating to any potential or known liability under Environmental Laws arising
from the ownership or leasing of any property.
4.18 NO BROKERS OR FINDERS. Except as set forth on SCHEDULE 4.18,
iTract has not, and its Affiliates, officers, directors or employees have not,
employed any broker or finder or incurred any liability for any brokerage or
finder's fee or commissions or similar payment in connection with any of the
Contemplated Transactions.
4.19 REGISTRATION STATEMENT. None of the information to be supplied by
iTract in writing for inclusion in the Registration Statement or any amendments
thereof or supplements thereto, at the time of the filing of the Registration
Statement, as amended or supplemented, or at the time it becomes effective, will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading; PROVIDED, that Margo shall furnish the Registration Statement and
any amendments or supplements thereto to iTract for its review a reasonable
period (and in no case less than 24 hours) prior to the filing of same with the
SEC and prior to the distribution thereof.
4.20 TAX REPORTING. Consistent with the intent of the parties hereto,
iTract shall treat, and cause their Affiliates to so treat, the iTract Merger as
an exchange under Section 351 with respect to all Tax Returns, to the extent
consistent with Law.
4.21 DISCLOSURE. No representations or warranties by iTract in this
Agreement and no statement contained in any schedules, exhibits or certificates
furnished or to be furnished by iTract
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to Margo, Purchaser or Purchaser Subsidiary or any of their representatives
pursuant to the provisions hereof, contains or will contain any untrue statement
of material fact or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading. Documents delivered or to be
delivered by iTract to Margo, Purchaser or Purchaser Subsidiary pursuant to this
Agreement are or will be true and complete copies of what they purport to be.
5. REPRESENTATIONS AND WARRANTIES OF MARGO, PURCHASER AND
------------------------------------------------------
PURCHASER SUBSIDIARY.
---------------------
Margo, Purchaser and Purchaser Subsidiary hereby, jointly and
severally, represent and warrant to iTract as follows:
5.1 ORGANIZATION AND GOOD STANDING. Margo is a corporation duly
organized, validly existing and in good standing under the laws of Puerto Rico.
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Purchaser Subsidiary is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Delaware. Each of Margo, Purchaser and Purchaser
Subsidiary has the requisite corporate power to own, operate and lease its
properties and carry on its business as the same is now being conducted, and
following the Reincorporation Merger, Purchaser will have all requisite
corporate power to own, operate and lease its properties and carry on its
business as the same are then being conducted. Complete and correct copies of
the certificate of incorporation and bylaws of Margo and Purchaser, and complete
and correct copies of the certificate of formation and limited liability company
agreement of Purchaser Subsidiary, as currently in effect, have been delivered
to iTract. Other than the Subsidiaries set forth on SCHEDULE 5.1, Margo has no
Subsidiaries.
5.2 CAPITALIZATION.
--------------
(a) The authorized capital stock of Margo consists of (i)
10,000,000 shares of common stock, par value $.001 per share, of which 1,882,322
shares are issued and outstanding as of the date of this Agreement and are fully
paid and non-assessable (ii) 250,000 shares of preferred stock, par value $.01
per share, of which no shares are outstanding. Except as set forth on SCHEDULE
5.2(A), there are no outstanding subscriptions, options, rights, warrants,
convertible securities, preemptive rights or other agreements (other than this
Agreement) or calls, demands or commitments of any kind relating to the issuance
of any capital stock or other equity securities of Margo, whether directly or
upon the exercise or conversion of other securities. There are no outstanding
contractual obligations of Margo to repurchase, redeem or otherwise acquire any
shares of Margo's capital stock or to provide funds to, or make any investment
(in the form of a loan, capital contribution or
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otherwise) in, any other Person. All of the outstanding securities of Margo were
issued in compliance with all applicable federal and state securities laws.
(b) The authorized capital stock of Purchaser consists of (i)
100,000,000 shares of common stock, par value $.001 per share, of which 10
shares are issued and outstanding as of the date of this Agreement, are fully
paid and non-assessable and owned by Margo, and (ii) 5,000,000 shares of
preferred stock, par value $.01 per share, of which no shares are currently
outstanding or will be outstanding at the Effective Time. Except as set forth on
SCHEDULE 5.2(B), there are no outstanding subscriptions, options, rights,
warrants, convertible securities, preemptive rights or other agreements (other
than this Agreement) or calls, demands or commitments of any kind relating to
the issuance, sale or transfer of any capital stock or other equity securities
of Purchaser, whether directly or upon the exercise or conversion of other
securities. There are no outstanding contractual obligations of Purchaser to
repurchase, redeem or otherwise acquire any shares of Purchaser's capital stock
or to provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any other Person.
(c) Purchaser owns 100% of the membership interests of
Purchaser Subsidiary and has no other Subsidiaries.
(d) All of the Purchaser Shares to be issued to the Members in
the Merger will, as of the Effective Time, be duly authorized and validly
issued, fully paid and nonassessable.
5.3 AUTHORITY RELATIVE TO AGREEMENT. Each of Margo, Purchaser and
Purchaser Subsidiary, as applicable, has all requisite power and authority,
corporate or otherwise, to execute, deliver and perform their obligations under
this Agreement and has taken all action necessary, corporate or otherwise, in
order to execute and deliver this Agreement. This Agreement has been duly
executed and delivered by Margo, Purchaser and Purchaser Subsidiary. This
Agreement constitutes the valid and binding obligations of Margo, Purchaser and
Purchaser Subsidiary, as applicable, enforceable against Margo, Purchaser and
Purchaser Subsidiary in accordance with its terms, subject to laws relating to
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium,
marshaling or other laws and rules of law affecting the enforcement generally of
creditors' rights and remedies (including such as may deny giving effect to
waivers of debtors' or guarantors' rights).
5.4 ABSENCE OF CONFLICT. Except as listed on SCHEDULE 5.4, neither the
execution and delivery of this Agreement nor the consummation of the
Contemplated Transactions will (a) violate, conflict with, result in a breach or
termination of, constitute a default under or give rise to a right to terminate
or accelerate (or an event which, with notice or lapse of time or both, would
constitute the same) (i) any agreement, commitment, deed of trust, indenture,
lease, mortgage or other instrument to which Margo, Purchaser and Purchaser
Subsidiary is a party or by which any of their respective properties or assets
are bound; (ii) the certificate of incorporation or bylaws of Margo or Purchaser
or the certificate of formation or limited liability company agreement of
Purchaser Subsidiary or (iii) any Law, order of a Governmental Body or any other
restriction of any kind or character applicable to Margo, Purchaser and
Purchaser Subsidiary or any of their respective properties or assets; except,
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in each of such cases, for such items as would not constitute, in the aggregate,
a Material Adverse Effect with respect to Margo, Purchaser or Purchaser
Subsidiary, as the case may be.
5.5 CONSENTS AND APPROVALS; EFFECT OF CHANGE IN CONTROL. SCHEDULE 5.5
sets forth a complete list of all consents, waivers, registrations,
certificates, approvals, grants, franchises, concessions, permits, licenses,
exceptions or authorizations of, or declarations or filings with, or notices or
reports to, (a) any Governmental Body and (b) any other Person (including, but
not limited to, any party to a contract or other agreement or commitment of
Margo) (collectively, the "MARGO APPROVALS"), which Margo or Purchaser must make
or obtain in order to consummate the Contemplated Transactions. Except as set
forth in SCHEDULE 5.5, there are no contracts or Margo Approvals by which Margo
or any of its assets or properties may be bound that contain any change in
control provisions that will become applicable or inapplicable as a result of
the consummation of the Contemplated Transactions.
5.6 TAX MATTERS.
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(a) Margo and its Subsidiaries have filed or caused to be
filed on a timely basis all Tax Returns that are or were required to be filed by
or with respect to them, their operations and their assets through the Effective
Time, pursuant to the Laws or administrative requirements of each Governmental
Body with taxing power over it or its assets. As of the time of filing, such Tax
Returns correctly reflected the facts regarding the income, business, assets,
operations, activities, status, and other matters of Margo and its Subsidiaries
and any other information required to be shown thereon. In particular, such Tax
Returns are not subject to penalties under Section 6662 of the Code or any
predecessor provision of law or any other provision of the Code. An extension of
time within which to file any Tax Return that has not been filed has not been
requested or granted. Margo and its Subsidiaries have delivered to Purchaser
true, complete and correct copies of all federal, state, local or foreign income
Tax Returns filed by them since formation. SCHEDULE 5.6(A) lists all state,
local and foreign jurisdictions in which Margo and its Subsidiaries have
previously filed or currently file Tax Returns, which are all of the state,
local or foreign taxing jurisdictions in which Margo and its Subsidiaries have
been or are required to file Tax Returns.
(b) With respect to all amounts in respect of Taxes imposed on
Margo and its Subsidiaries or for which Margo and its Subsidiaries are or could
be liable, whether to Governmental Bodies (as, for example, under law) or to
other persons or entities (as, for example, under tax allocation agreements),
with respect to all taxable periods or portions of periods through the Effective
Time, (i) all applicable tax laws and agreements have been fully complied with,
(ii) all such amounts required to be paid by Margo and its Subsidiaries to
Governmental Bodies or others on or before the date hereof have been paid,
except such taxes, if any, as are set forth in SCHEDULE 5.6(B) and are being
contested in good faith and as to which adequate reserves (determined in
accordance with GAAP consistently applied) have been provided in the Financial
Statements, and (iii) reserves have been established for the payment of all
Taxes not yet due and payable, which reserves are reflected on the Preliminary
Balance Sheet and are adequate and in accordance with the past custom and
practice of Margo and its Subsidiaries.
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(c) As of the date hereof, none of Margo and its Subsidiaries
have requested, executed or filed with the IRS or any other Governmental Body
any agreement or other document extending or having the effect of extending the
period for assessment or collection of any Taxes for which Margo and its
Subsidiaries could be liable.
(d) There exists no proposed tax assessment against Margo and
its Subsidiaries nor any lien for Taxes against any property of Margo and its
Subsidiaries except as disclosed in the Margo Financial Statements or on
SCHEDULE 5.6(d).
(e) All Taxes that Margo and its Subsidiaries are or were
required by law to withhold or collect have been duly withheld or collected and,
to the extent required, have been paid to the proper Governmental Body or other
Person.
(f) Margo and its Subsidiaries are not, were not and will not
be a party to, bound by or subject to any obligation under any tax sharing, tax
indemnity, tax allocation or similar agreement.
(g) There is no claim, audit, action, suit, proceeding, or
investigation with respect to Taxes due or claimed to be due from Margo and its
Subsidiaries or of any Tax Return filed or required to be filed by Margo and its
Subsidiaries pending or threatened against or with respect to Margo and its
Subsidiaries.
(h) Margo and its Subsidiaries have not made, and are not
parties to any agreement requiring them to make, any payment which would not be
deductible under Code Section 280G or which would be subject to the excise tax
imposed by Code Section 4999.
(i) Margo and its Subsidiaries have not executed or entered
into any closing agreement pursuant to Section 7121 of the Code or any
corresponding provision of state, local, Puerto Rico or foreign income tax law.
(j) Margo and its Subsidiaries have not filed a consent
pursuant to Section 341(f) of the Code (or any corresponding provision of state,
local or foreign income tax law) or agreed to have Section 341(f)(2) of the Code
(or any corresponding provision of state, local, Puerto Rico or foreign income
tax law) apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code) owned by Margo and its Subsidiaries.
(k) Margo and its Subsidiaries (i) have not agreed to or are
not required to make any adjustment pursuant to Section 481(a) of the Code (or
any corresponding provision of state, local, Puerto Rico or foreign income tax
law) by reason of a change in accounting method initiated by a Tax Affiliate,
(ii) are not aware that the IRS or any Governmental Body has proposed any such
adjustment or change in accounting method that relates to the business and
operations of Margo and its Subsidiaries, or (iii) have no application pending
with any Governmental Body requesting permission for any change in accounting
method that relates to the business and operations of Margo and its
Subsidiaries.
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(l) Except as Set forth in SCHEDULE 5.4(L), Margo and its
Subsidiaries do not hold any debt instrument with respect to which they are
reporting the income under the installment method or that has an adjusted basis
that is less than 90 percent of the stated redemption price at maturity.
(m) Margo and its Subsidiaries have no liability for the Taxes
of any person under Treas. Reg. ss. 1.1502-6, as a transferee or successor, or
otherwise.
(n) All material elections with respect to Taxes affecting
Margo and its Subsidiaries as of the date hereof are set forth in SCHEDULE
5.6(N). After the date hereof, no election with respect to Taxes will be made
without the written consent of Purchaser, which may not be unreasonably withheld
or delayed.
(o) None of the assets of Margo and its Subsidiaries is
required to be treated as owned by any other person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Code or otherwise pursuant
to the Code.
(p) None of the assets of Margo and its Subsidiaries directly
or indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code.
(q) None of the assets of Margo and its Subsidiaries are
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(r) Margo and its Subsidiaries have not participated in or
will not participate in an international boycott within the meaning of Section
999 of the Code.
(s) Neither Margo nor any of its Subsidiaries is and has been
a United States real property holding corporation (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(t) The transaction contemplated herein is not subject to the
tax withholding provisions of Section 3406 of the Code, Subchapter A of Chapter
3 of the Code, or any other provision of state, local, Puerto Rico or foreign
law.
(u) Margo and its Subsidiaries have not had either a permanent
establishment in any foreign country (other than Puerto Rico), as defined in any
applicable tax treaty or convention between the United States and such foreign
country, or business activity in any country other than the United States that
would subject it to a Tax in such country that would not apply to a United
States person without a business activity in such country.
(v) Except as set forth in SCHEDULE 5.6(V), neither Margo nor
any of its Subsidiaries is a party to any joint venture, partnership, or other
arrangement or contract that could be treated as a partnership for federal or
Puerto Rico income tax purposes.
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(w) Margo and its Subsidiaries do not file Tax Returns that
are combined, consolidated, unitary or otherwise joined with the tax reporting
obligations of any other Person.
5.7 SEC DOCUMENTS: FINANCIAL STATEMENTS.
-----------------------------------
(a) As of their respective filing dates (i) each quarterly and
other report and registration statement (without exhibits) filed by Margo since
December 31, 1995 (the "MARGO SEC DOCUMENTS"), complied in all material respects
with the applicable requirements of the Securities Act or the Exchange Act, as
the case may be, and (ii) none of the Margo SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading. The financial statements
of Margo included in the Margo SEC Documents (the "MARGO FINANCIAL STATEMENTS")
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in conformity with GAAP consistently applied
(except as may be indicated in the notes thereto or, in the case of unaudited
financial statements, as permitted by the rules and regulations of the SEC) and
present fairly, in all material respects, the financial position of Margo and
its consolidated subsidiaries at the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal, recurring and certain non-recurring
audit adjustments).
(b) Margo does not have any liabilities or obligations
(whether known or unknown, absolute, accrued, contingent or otherwise and
whether due or to become due) that were not fully reflected or reserved against
in the consolidated balance sheet of Margo as of December 31, 1999 (the "MARGO
RECENT BALANCE SHEET") except for non-material liabilities and obligations
incurred in the ordinary course of business and consistent with past practice
(in nature and scope) since the date thereof. The reserves reflected in the
Margo Recent Balance Sheet are adequate, appropriate and reasonable and the
reserves reflected in the Margo Recent Balance Sheet are in accordance with GAAP
consistently applied.
(c) Except as set forth on SCHEDULE 5.7(C), since the date of
the Margo Recent Balance Sheet to the date of this Agreement, there has been no
material adverse change in the business, operations or financial condition of
Margo or any event, condition or contingency that could reasonably be expected
to result in such a Material Adverse Effect with respect to Margo.
(d) The Margo Common Stock is registered under Section 12 of
the Exchange Act. Except as set forth in SCHEDULE 5.7], since March 31, 1995,
Margo has filed all reports, registration statements and other documents,
together with any amendments thereto, required to be filed under the Securities
Act and the Exchange Act, including, without limitation, reports on Form10-K,
Form 10-Q and Form 8-K, and Margo (and Purchaser following the Reincorporation
Merger) will file all such reports, registration statements and other documents
required to be filed by it from the date of this Agreement to the Effective
Time.
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5.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1999 to
the date of this Agreement, except as set forth in SCHEDULE 5.8, Margo has
conducted its business only in the ordinary course consistent with past practice
and there has not been:
(i) any material adverse change in the financial
condition, operations, properties, assets, liabilities or business of Margo;
(ii) any material damage, destruction or loss of any
material properties of Margo;
(iii) any material change in the manner in which the
business of Margo has been conducted;
(iv) any occurrence not included in paragraphs (i)
through (iii) of this Section which has resulted, or which Margo has reason to
believe could reasonably be expected to result, in a Material Adverse Effect.
5.9 EMPLOYEE BENEFITS; EXECUTIVE OFFICERS; LABOR.
--------------------------------------------
(a) Except as set forth on SCHEDULE 5.9(A), no employees of
Margo, Purchaser or their Subsidiaries are covered by collective bargaining
agreements or are members of unions. SCHEDULE 5.9(A) sets forth a true and
complete list of all written executive compensation plans, bonus plans,
incentive compensation plans, deferred compensation plans or agreements,
employee pension plans or retirement plans, employee profit sharing plans,
employee stock purchase plans, group life insurance, hospitalization insurance,
severance or other employee benefit plans (as defined in Section 3(3) of ERISA)
of Margo, Purchaser and their Subsidiaries (the "MARGO PLANS") providing for
benefits for any employees of Margo or its Subsidiaries. Margo has no agreement
or commitment to create any additional such Margo Plan. There are no unfunded
obligations relating to the Margo Plans. To the extent applicable, the Margo
Plans comply in all material respects with ERISA, the Code and the P.R. Internal
Revenue Code.
(b) Margo and Purchaser will provide notifications to all of
their employees of their rights under Section 4980B of the Code within the time
required for the giving of such notification under such section, and Margo and
Purchaser will comply with all of the other provisions of such Section 4980B in
connection with the iTract Merger, the Asset Sale and the other Contemplated
Transactions.
(c) Except as set forth on SCHEDULE 5.9,(c), neither the
execution and delivery of this Agreement nor the consummation of any of the
Contemplated Transactions under this Agreement will entitle any current or
former employee of Margo or Purchaser to severance pay or other similar payment,
or accelerate the time of payment or increase the amount of compensation due to
any such employee or former employee. Margo and Purchaser have no threatened or
pending labor disputes with their employees.
5.10 COMPLIANCE WITH LAW.
-------------------
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(a) Except as set forth on SCHEDULE 5.10(A), the operations of
Margo, Purchaser and their Subsidiaries have been conducted in all material
respects in accordance with all applicable Laws. Except as set forth on SCHEDULE
5.10(A), neither Margo nor Purchaser has received any notification of any
asserted present or past failure to comply with any such Laws. Except as set
forth in Schedule 5.10(b), Margo, Purchaser and their Subsidiaries have all
licenses, permits, orders, authorizations or approvals of Governmental Bodies
("MARGO LICENSES") required for the conduct of their businesses and are not in
violation of any such Margo License. All such Margo Licenses are in full force
and effect and no suspension or cancellation thereof has been threatened of
which Margo is aware.
(b) Margo, Purchaser and their Subsidiaries, as the case may
be, have obtained all Margo Licenses which are required with respect to Margo,
Purchaser and their Subsidiaries under all Environmental Laws. Margo, Purchaser
and their Subsidiaries are in compliance in all material respects with all terms
and conditions of such required Margo Licenses, and are also in compliance in
all material respects with all Environmental Laws. Except as set forth in
Schedule 5.10(b), there does not exist as a result of any action or inaction of
Margo, Purchaser or their Subsidiaries, or, to the knowledge of Margo any of the
predecessors of any of the foregoing, or, as a result of any action or inaction
of any other Person, nor has Margo or Purchaser or any of the predecessors of
any of the foregoing, received notice of, any events, condition or circumstances
which may interfere with or prevent continued compliance, or which may give rise
to any liability, or otherwise form the basis of any claim, action, suit,
proceedings, hearing or investigation, based on or related to the violation of
an Environmental Law or the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling, or the emission,
discharge, release or threatened release into the environment, of any Hazardous
Material which would result in a Material Adverse Effect on Margo or Purchaser
or any of their Subsidiaries or with respect to the Nursery Business Assets.
(c) To the best of Margo's knowledge, no Hazardous Material
has been incorporated in, used on, stored on or under, released from, treated
on, transported to or from, or disposed of by Margo, Purchaser or their
Subsidiaries or any of the predecessors of any of the foregoing, on or from any
property owned or leased by Margo, Purchaser or their Subsidiaries or any of the
predecessors of any of the foregoing, or by any other Person such that, under
Environmental Laws (i) any such Hazardous Material would be required to be
removed, cleaned up or remediated before the property owned or leased by Margo,
Purchaser or their Subsidiaries could be altered, renovated, demolished or
transferred, or (ii) the owner or lessee of the property (as applicable to
Margo, Purchaser or their Subsidiaries) could be subjected to liability for the
removal, clean up or remediation of such Hazardous Material; and neither Margo
nor Purchaser, their Subsidiaries or any of the predecessors of any of the
foregoing, has received notification from any Governmental Bodies or other
Persons relating to Hazardous Material on or affecting any property owned or
leased by Margo, Purchaser or any of their Subsidiaries or any of the
predecessors of any of the foregoing, or relating to any potential or known
liability under Environmental Laws arising from the ownership or leasing of any
property.
5.11 PURCHASER AND PURCHASER SUBSIDIARY'S OPERATIONS. Each of Purchaser
and Purchaser Subsidiary was formed solely for the purpose of engaging in the
Contemplated Transactions and has
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not (i) engaged in any business activities, (ii) conducted any operations other
than in connection with the Contemplated Transactions, (iii) incurred any
liabilities other than in connection with the Contemplated Transactions or (iv)
owned any assets or property.
5.12 LITIGATION. Except as listed in SCHEDULE 5.12, there is no action,
suit, inquiry, proceeding or investigation by or before any court or
Governmental Body pending or threatened against or involving Margo or Purchaser,
Purchaser Subsidiary or the Nursery Business Assets or which questions or
challenges the validity of this Agreement or the Contemplated Transactions, and
Margo has not received any notice of any event or occurrence which could result
in any such action, suit, inquiry, proceeding or investigation nor, to the
knowledge of Margo, is there any valid basis for any such action, suit, inquiry,
proceeding or investigation.
5.13 RECORDS. The books of account, corporate records and minute books
of Margo, Purchaser and Purchaser Subsidiary are complete and correct in all
material respects. Complete and accurate copies of all such books of account,
corporate records and minute books of Margo, Purchaser and Purchaser Subsidiary
have been provided to iTract.
5.14 NO BROKERS OR FINDERS. Except as set forth in SCHEDULE 5.14,
Purchaser and Purchaser Subsidiary have not, nor have any of their officers,
directors or employees, employed any broker or finder or incurred any liability
for any brokerage or finder's fee or commissions or similar payment in
connection with any of the Contemplated Transactions.
5.15 REGISTRATION STATEMENT. The Registration Statement and any
amendments thereof or supplements thereto, at the time of the filing or mailing,
at the time of the meeting of the stockholders of Margo to be held in connection
with the transactions contemplated by this Agreement, and at the time it is
filed or becomes effective, will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading; provided, that neither Margo nor
Purchaser shall have liability under this Section 5.15 for information supplied
by iTract or ICES or their respective officers, directors, stockholders or
affiliates in writing for inclusion in the Registration Statement.
5.16 NASDAQ. The Margo Common Stock has been approved for listing on
Nasdaq Small Cap market under the symbol "MRGO" and is in compliance in all
material respects with all rules and regulations of the National Association of
Securities Dealers, Inc. and Nasdaq applicable to Margo and the listing of such
securities on Nasdaq.
5.17 TAX REPORTING. Consistent with the intent of the parties hereto,
Purchaser and Purchaser Subsidiary shall treat, and cause their Affiliates to so
treat, the Merger as an exchange under Section 351 with respect to all Tax
Returns, to the extent consistent with Law.
5.18 DISCLOSURE. No representations or warranties by Margo, Purchaser
or Purchaser Subsidiary in this Agreement and no statement contained in any
schedules, exhibits or certificates furnished or to be furnished by Margo,
Purchaser or Purchaser Subsidiary to iTract or ICES pursuant to the provisions
hereof, contains or will contain any untrue statement of material fact or omits
or
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will omit to state any material fact necessary, in light of the circumstances
under which it was made, in order to make the statements herein or therein not
misleading. Documents delivered or to be delivered by Margo, Purchaser or
Purchaser Subsidiary to iTract or ICES pursuant to this Agreement are or will be
true and complete copies of what they purport to be.
6. COVENANTS RELATING TO REINCORPORATION AND CONTEMPLATED TRANSACTIONS.
-------------------------------------------------------------------
6.1 REINCORPORATION MERGER.
----------------------
(a) From and after the date of this Agreement, Margo and
Purchaser will take all commercially reasonable actions necessary to cause Margo
to be merged with and into Purchaser, with Purchaser as the surviving
corporation of such merger, so that as a result of such merger, Purchaser will
assume all of the assets, liabilities, properties and rights of Margo. In
effecting the Reincorporation Merger, Margo and Purchaser will cause each share
of Margo Common Stock to be converted into one share of Purchaser Common Stock,
so that immediately after the Reincorporation Merger, each Person that was
previously a holder of Margo Common Stock will be the holder of the same number
of shares of Purchaser Common Stock.
(b) All of the options to purchase Margo Common Stock (the
"Margo Options") outstanding as of the effective time of the Reincorporation
Merger shall, by virtue of the Reincorporation Merger and without any further
action on the part of Margo or the holders of such options, be converted into
Purchaser Options in the manner provided by this Section 6.1(b). Each Purchaser
Option issued in exchange for a Margo Option shall be exercisable for that whole
number of shares of Purchaser Common Stock (to the nearest whole share) that a
holder of the number of Margo Common Stock subject to such Margo Option
immediately prior to the effective time of the Reincorporation Merger would be
entitled to receive under Section 6.1(a) of this Agreement. The aggregate
purchase price for the shares of Purchaser Common Stock subject to each
Purchaser Option issued in exchange for a Margo Option shall be the same as the
aggregate purchase price for the Margo Common Stock subject to the corresponding
Margo Option immediately prior to such effective time. Purchaser agrees that as
soon as practicable after the Effective Time it will cause to be filed one or
more registration statements on Form S-8 under the Securities Act, in order to
register the shares of Purchaser Common Stock issuable upon exercise of the
converted Margo Options (if the issuance of such shares may be registered on
Form S-8).
6.2 REGISTRATION OF PURCHASER SHARES. In connection with the
Reincorporation Merger, Margo and Purchaser will (i) prepare and file with the
SEC a proxy/registration statement on Form S-4 (the "Registration Statement"),
(ii) use commercially reasonably efforts to cause the Registration Statement to
become effective as soon as practicable after filing, and (iii) cause the
Registration Statement to be mailed to Margo's shareholders immediately after it
has become effective. The Registration Statement will (A) solicit proxies to
vote in favor of (i) the Reincorporation Merger, and (ii) the approval of the
Contemplated Transactions, including the transactions contemplated by this
Agreement and the Asset Sale, (B) register the Purchaser Shares to be issued to
the former shareholders of Margo in connection with the Reincorporation Merger,
(C) register any Margo Options and any iTract Options to be outstanding after
the Effective Date (if required); and (D)
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register the Purchaser Shares to be issued to the Members as the Merger
Consideration.
6.3 COOPERATION OF iTRACT. iTract and ICES will furnish to Margo in
writing all information reasonably requested by Margo for use in connection with
the preparation of the Registration Statement and obtaining the effectiveness
thereof.
6.4 ASSET SALE.
----------
(a) Purchaser and/or Margo will take all commercially reasonable
efforts necessary to cause the Nursery Business Assets to be sold (the "ASSET
SALE") as soon as practicable after obtaining the approval of such sale from
Margo's shareholders. The Asset Sale shall be consummated on or prior to the
Effective Time.
(b) Margo shall provide iTract with a copy of any proposed purchase
agreement for the Asset Sale prior to its execution by Margo. The terms and
conditions of the purchase agreement must be reasonably acceptable to iTract,
including the structure of the transaction (i.e., an asset sale or a stock
sale). Notwithstanding the foregoing, iTract shall not be entitled to object to
the purchase price under the proposed purchase agreement if the purchase price
equals or exceeds $5,000,000 in cash. iTract shall either approve or disapprove
the terms and conditions of the purchase agreement within three business days of
its delivery by Margo to iTract. Margo shall not consummate the Asset Sale on
terms which are different from those set forth in the purchase agreement
approved by iTract without iTract's prior written consent (which may not be
unreasonably withheld).
6.5 NASDAQ LISTING. Margo shall timely notify Nasdaq of the
Contemplated Transactions and the shares to be issued in connection therewith.
The Parties shall together take such actions as are reasonably required to
obtain the approval of Nasdaq to list the Purchaser Shares on The Nasdaq
SmallCap Market immediately upon the effectiveness of the iTract Merger (the
"NASDAQ LISTING").
6.6 STOCKHOLDERS APPROVAL. Margo shall use commercially reasonable
efforts to obtain the approval of its stockholders (the "STOCKHOLDER APPROVAL")
of the Contemplated Transactions (to the extent required by applicable law and
the rules of Nasdaq) as soon as practicable following the date upon which the
Registration Statement is declared effective by the SEC. Subject to the
fiduciary duties of the Board of Directors of Margo under applicable law, Margo
shall, through its Board of Directors, recommend to the holders of Margo Common
Stock approval of this Agreement and the transactions contemplated by this
Agreement.
6.7 VOTING AGREEMENT OF SPECTOR. Concurrent with the execution of this
Agreement, Michael J. Spector, the principal shareholder of Margo, has entered
into an agreement with iTract in the form of EXHIBIT C, pursuant to which Mr.
Spector has agreed to vote all of the shares of Margo Common Stock held by him
in favor of the Contemplated Transactions.
6.8 iTRACT LOCK-UP AGREEMENTS. Prior to the effective date of the
Registration Statement, iTract and ICES shall cause each of the Members
receiving Purchaser Shares in the Merger (and each person who may receive shares
of Purchaser Common Stock upon the exercise of any iTract Options) to execute
and deliver to Purchaser the iTract Lock-Up Agreement in the form of EXHIBIT
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D to this Agreement, pursuant to which each such Person shall have agreed not to
sell, pledge, dispose of or otherwise transfer any of such shares until the
eight months after the Effective Time.
6.9 OCCUPANCY AGREEMENT. Prior to April 18, 2000, iTract shall have
entered into a written occupancy agreement with ICES relating to the lease by
iTract of a portion of the premises located at 220 West 19th Street, 12th Floor,
New York, New York.
7. CONDITIONS TO THE OBLIGATIONS OF MARGO, PURCHASER AND PURCHASER SUBSIDIARY.
--------------------------------------------------------------------------
The obligations of Margo, Purchaser and Purchaser Subsidiary to effect
the Contemplated Transactions, including the iTract Merger, shall be subject to
the satisfaction at or prior to the Effective Time of each of the following
conditions, any one or more of which may be waived by Margo or Purchaser, as
applicable to the extent permitted by applicable law:
7.1 LEGAL OPINION. Purchaser and Purchaser Subsidiary shall have
received the opinion of Kronish Lieb Weiner & Hellman LLP, counsel to iTract,
dated the Effective Time and addressed to Purchaser and Purchaser Subsidiary, in
form and substance reasonably acceptable to Margo.
7.2 NO INJUNCTION. There shall not be in effect or threatened any
injunction, order or decree of a Governmental Body of competent jurisdiction
that prohibits or delays, or seeks to prohibit or delay, consummation of any
material part of the transactions contemplated hereunder.
7.3 STOCKHOLDER APPROVAL. Margo shall have obtained the Stockholder
Approval.
7.4 FAIRNESS OPINION. (i) Margo shall have received an opinion of
Schwartz, Heslin Group, Inc. or another independent investment banking firm
addressed to Margo that the iTract Merger is fair, from a financial point of
view, to the stockholders of Margo and (following the Reincorporation Merger) to
the shareholders of Purchaser; and (ii) Margo shall have received an opinion of
San Juan Holdings, Inc. or another investment banking firm addressed to Margo
that the Asset Sale is fair, from a financial point of view, to the stockholders
of Margo.
7.5 REPRESENTATIONS, WARRANTIES AND AGREEMENTS. (i) The representations
and warranties of iTract set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as of the
Effective Time with the same effect as though made as of the Effective Time,
unless made as of another date, in which case they shall be true and correct in
all materials respects as of such date, (ii) iTract shall have performed and
complied in all material respects with the agreements contained in this
Agreement required to be performed and complied with by it prior to or as of the
Effective Time and (c) Purchaser shall have received certificates to the
foregoing effect signed by the manager of iTract.
7.6 APPROVALS. All iTract Approvals necessary in connection with the
execution, delivery and performance of this Agreement by iTract or for the
consummation of the Contemplated Transactions shall have been obtained or made
and shall be in full force and effect.
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7.7 REGISTRATION. The Registration Statement registering the Purchaser
Shares being issued to the shareholders of Margo in the Reincorporation Merger
shall be effective in accordance with the provision of the Securities Act, and
no stop order suspending such effectiveness shall have been issued and remain in
effect.
7.8 NASDAQ LISTING. The Purchaser Shares shall be listed on the Nasdaq
SmallCap Market.
7.9 NO MATERIAL ADVERSE EFFECT. No event, occurrence, fact, condition,
change, development or effect shall have occurred, exist or come to exist since
the date of this Agreement that, individually or in the aggregate, has
constituted or resulted in, or could reasonably be expected to constitute or
result in a Material Adverse Effect for iTract.
7.10 PROCEEDINGS SATISFACTORY. All certificates, opinions and other
documents to be delivered by iTract to Margo and Purchaser and all other
corporate or organizational matters to be accomplished by iTract prior to or at
the Closing shall be reasonably satisfactory to Margo, Purchaser and their
counsel.
7.11 SECRETARY OF STATE CERTIFICATES. Purchaser shall have received
certificates of the Secretary of State of the State of Delaware with respect to
iTract and ICES showing iTract and ICES to be validly existing and in good
standing in the State of Delaware.
7.12 MANAGER'S CERTIFICATE OF iTRACT. Purchaser shall have received a
certificate of the manager of iTract certifying (i) a true and complete copy of
the resolutions duly and validly adopted by the manager and a majority of the
Members of iTract, evidencing the authorization of the execution and delivery of
this Agreement and the consummation of the Contemplated Transactions, (ii) the
names and signatures of the manager and officers of iTract authorized to sign
this Agreement and the other documents to be delivered hereunder and (iii) a
true and complete copy of the certificate of formation and limited liability
company agreement of iTract.
7.13 SECRETARY'S CERTIFICATE. Margo and Purchaser shall have received
certificates of the Secretary or Assistant Secretary of ICES certifying (i) a
true and complete copy of the resolutions duly and validly adopted by the Board
of Directors of ICES evidencing the authorization of the execution and delivery
of this Agreement and the consummation of the Contemplated Transactions, (ii)
the names and signatures of the officers of ICES authorized to sign this
Agreement and the other documents to be delivered hereunder and (iii) a true and
complete copy of the certificate of incorporation and bylaws of ICES.
7.14 iTRACT LOCKUP AGREEMENTS. Each of the Members receiving Purchaser
Shares and each of the holders of the iTract Options shall have executed and
delivered to Purchaser the iTract Lock-Up Agreements.
7.15 PUERTO RICO RULING. Margo shall have received a ruling from the
Puerto Rico Department of the Treasury confirming that the Reincorporation
Merger qualifies as a tax free reorganization under the Puerto Rico Internal
Revenue Code of 1994, as amended.
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7.16 REPAYMENT OF LOANS FROM MICHAEL J. SPECTOR AND J. MORTON DAVIS.
Purchaser shall have delivered to Michael J. Spector and J. Morton Davis (the
"Lenders") reasonable evidence that the ICES Loans, including accrued interest
thereon, shall be repaid immediately following the Effective Time. The "ICES
Loans" consist of the loans made by the Lenders to ICES in the aggregate
principal amount of $2,000,000 (as evidenced by that certain Promissory Note in
the original principal amount of $ 1,715,000 payable to Michael J. Spector and
that certain Promissory Note in the original principal amount of $ 285,000
payable to J. Morton Davis).
7.17 ASSIGNMENT OF INTELLECTUAL PROPERTY. ICES, Core Active ACG LLC and
TheTechDept.com, Inc. shall have executed and delivered to iTract assignments,
in form and substance reasonably satisfactory to Margo, of all rights which any
of them may have in any of the Intellectual Property used by iTract, including
but not limited to, all rights to the "iTract" tradename, all rights to the
"iTract.com" domain registration, and all rights to the software developed by
them and utilized by iTract.
7.18 MODIFICATION OF TECHSPAN AGREEMENT. iTract shall have entered into
a modification of its existing agreement with TechSpan, Inc., in form and
substance reasonably satisfactory to Margo, to clarify that the software program
to be developed by TechSpan for iTract is a "work for hire" and iTract shall be
the sole and exclusive owner of such software.
7.19 RELEASE FROM MICHAEL HAAS. iTract shall obtain a release from
Michael Haas of any right to receive any compensation (including any
compensation in the form of equity) from iTract or any other Person in
connection with, or as a result of, the Contemplated Transactions.
7.20 INDEMNIFICATION BY ICES. ICES shall have executed and delivered to
Purchaser and iTract an indemnification agreement in form and substance
reasonably acceptable to Margo pursuant to which ICES shall agree to indemnify
Purchaser and iTract for any liability arising from the failure of iTract to own
or license the Intellectual Property set forth on Schedule 4.9 or the
Intellectual Property set forth on Schedule 4.9 being subject to any
Encumbrances other than Permitted Encumbrances.
8. CONDITIONS TO THE OBLIGATIONS OF iTRACT.
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The obligations of iTract to effect the iTract Merger shall be subject
to the satisfaction at or prior to the Effective Time of each of the following
conditions, any one or more of which may be waived by iTract, to the extent
permitted by applicable law:
8.1 LEGAL OPINION. iTract shall have received the legal opinion of
Shutts & Bowen LLP and Pietrantoni Mendez and Alvarez LLP, counsel to Purchaser,
in form and substance reasonably acceptable to iTract.
8.2 NO INJUNCTION. There shall not be in effect or threatened any
injunction, order or decree of a Governmental Body of competent jurisdiction
that prohibits or delays, or seeks to prohibit or delay, consummation of any
material part of the Contemplated Transactions.
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8.3 REPRESENTATIONS, WARRANTIES AND AGREEMENTS. (i) The representations
and warranties of Margo, Purchaser and Purchaser Subsidiary set forth in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as of the Effective Time with the same effect as though made
as of the Effective Time, unless made as of another date, in which case they
shall be true and correct in all material respects as of such date, (ii) Margo,
Purchaser and Purchaser Subsidiary shall have performed and complied in all
material respects with the agreements contained in this Agreement required to be
performed and complied with by them prior to or at the Closing; and (iii) iTract
shall have received a certificate to the foregoing effect signed by an
authorized executive officer of Purchaser.
8.4 REINCORPORATION. Margo shall have merged with and into Purchaser in
the manner contemplated by Section 6.1.
8.5 REGISTRATION. The Registration Statement registering the Purchaser
Shares being issued to the Members as the Merger Consideration shall be
effective in accordance with the provision of the Securities Act, and no stop
order suspending such effectiveness shall have been issued and remain in effect.
8.6 ASSET SALE. (i) The Asset Sale shall have been consummated, (ii)
Purchaser shall have no Subsidiaries other than Purchaser Subsidiary, (iii) at
the Effective Time, Purchaser shall have assets consisting of cash and cash
equivalents of at least $5,000,000, (iv) at the Effective Time, the aggregate
liabilities of the Purchaser (after deducting the amount of any cash and cash
equivalents in excess of $5,000,000) do not exceed $10,000; and (iv) iTract
shall have received a certificate to the foregoing effect signed by an executive
officer of Purchaser.
8.7 TAX-FREE EXCHANGE. iTract shall have received an opinion from
Kronish, Lieb, Weiner and Hellman LLP that the iTract Merger qualifies as a
tax-free exchange under Section 351 of the Code and an opinion from Pietrantoni
Mendez & Alvarez LLP that (i) the Reincorporation Merger qualifies as a tax free
reorganization under the P.R. Internal Revenue Code and (ii) the iTract Merger
is not subject to taxation in Puerto Rico.
8.9 APPROVALS. All Margo Approvals, including the Stockholder Approval,
necessary in connection with the execution, delivery and performance of this
Agreement by Margo, Purchaser and Purchaser Subsidiary or for the consummation
of the Contemplated Transactions shall have been obtained or made and shall be
in full force and effect.
8.10 PROCEEDINGS SATISFACTORY. All certificates, opinions and other
documents to be delivered by Margo, Purchaser or Purchaser Subsidiary to iTract
and ICES and all other corporate or organizational matters to be accomplished by
Margo, Purchaser or Purchaser Subsidiary prior to or at the Closing shall be
reasonably satisfactory to iTract and its counsel.
8.11 CORPORATE APPROVAL. Prior to the Effective Time, the Contemplated
Transactions, including this Agreement, shall have been duly approved by the
Board of Directors of Margo and
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Purchaser, and by the managers of Purchaser Subsidiary and the member of
Purchaser Subsidiary, in accordance with applicable law, and the Stockholder
Approval shall have been obtained.
8.12 SECRETARY OF STATE CERTIFICATES. iTract shall have received
certificates of the Secretary of State of the State of Delaware with respect to
Purchaser and Purchaser Subsidiary as of a recent date, showing Purchaser and
Purchaser Subsidiary to be validly existing and in good standing in the State of
Delaware.
8.13 RESIGNATIONS; ELECTION OF NEW DIRECTORS.
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(a) Each and every director, officer, manager and employee of
Margo, Purchaser and Purchaser Subsidiary shall either have been terminated or
tendered his or her resignation to Margo, Purchaser and Purchaser Subsidiary,
respectively, effective at the Effective Time.
(b) The directors and officers of the Purchaser shall have
resigned and shall have appointed as their successors the Persons designated by
iTract.
8.14 SECRETARY'S CERTIFICATE. iTract shall have received certificates
of the Secretary or Assistant Secretary of Purchaser and of the officer or
manager of Purchaser Subsidiary certifying (i) a true and complete copy of the
resolutions duly and validly adopted by the Boards of Directors of Purchaser and
Margo and by the managers of Purchaser Subsidiary, as applicable, evidencing the
authorization of the execution and delivery of this Agreement and the
consummation of the Contemplated Transactions, (ii) the names and signatures of
the officers of Purchaser and Margo and Purchaser Subsidiary, as applicable,
authorized to sign this Agreement and the other documents to be delivered
hereunder and (iii) a true and complete copy of the certificate of incorporation
and bylaws of Purchaser and of the certificate of formation and limited
liability company agreement of Purchaser Subsidiary.
8.15 LOCK UP AGREEMENT. Each Person who is the holder of 5% or more of
the Purchaser Common Stock immediately prior to the Effective Time shall have
executed and delivered to Purchaser a Lock Up Agreement in the form of EXHIBIT E
to this Agreement (the "Margo Lockup Agreement") pursuant to which each such
Person agrees not to dispose of such shares until four months after the
Effective Time; PROVIDED however that (i) Michael J. Spector and Margaret D.
Spector shall be entitled to pledge their shares of Purchaser Common Stock to a
unaffiliated lender for purposes of financing the Asset Sale, and (ii) up to
30,000 shares of Purchaser Common Stock owned by Margaret Spector shall be
excluded from the lock-up; and FURTHER PROVIDED, that such a lender shall not be
subject to the provisions of the Lock Up Agreement.
8.16 RELEASE OF CLAIMS. Michael J. Spector and Margaret D. Spector
(collectively, the "Spectors") and Margo Nursery Farms Inc. ("Margo Farms")
shall have executed and delivered a release in form and substance reasonably
acceptable to iTract (the "Spector Release"), pursuant to which each of the
Spectors and Margo Farms shall release Margo, Purchaser, iTract, ICES and their
respective affiliates from any and all liability to them arising from the
occupancy by Margo or its Subsidiaries of the nursery farm located at Vega Alta,
Puerto Rico leased by the Spectors to Margo
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Nursery Farms, Inc. under the Lease Agreement between Margo Nursery Farms, Inc.
and the Spectors (the "Spector Lease Agreement").
8.17 INDEMNIFICATION BY SPECTOR. Michael J. Spector and Margo Farms (if
the sale of the Nursery Business Assets is made to Michael Spector or any Person
affiliated with or related to Michael Spector) shall have executed and delivered
an indemnification agreement in form and substance reasonably acceptable to
iTract (the "Spector Indemnification Agreement"), pursuant to which Michael
Spector and Margo Farms shall, jointly and severally, agree to indemnify
Purchaser, iTract, ICES and their respective affiliates for any liability or
claim arising from a breach of the representations and warranties set forth in
Sections 5.10(b) and (c) of this Agreement; provided, that such indemnification
agreement shall not incorporate the references in Section 5.10(b) and (c)
relating to knowledge of Margo and materiality and shall exclude any exceptions
referred to in Schedule 5.10(b).
8.18 NASDAQ LISTING. The Purchaser Shares shall be listed on the Nasdaq
Small Cap Market.
8.19 PUERTO RICO RULING. Margo shall have received a ruling from the
Puerto Rico Department of the Treasury confirming that the Reincorporation
Merger qualifies as a tax free reorganization under the P.R. Internal Revenue
Code.
8.20 OTHER RELEASES. Margo shall have received releases, in form and
substance reasonably acceptable to iTract, with respect to the release of
Margo by the appropriate third parties with respect to any and all liabilities
or claims which may arise under the agreements listed on Schedule 8.20 hereto.
9. FURTHER AGREEMENTS OF THE PARTIES.
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9.1 EXPENSES. The Parties shall each bear their own respective expenses
incurred in connection with this Agreement and the Contemplated Transactions,
except as otherwise specifically provided herein.
9.2 ACCESS PRIOR TO THE CLOSING.
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(a) Between the date of this Agreement and the Effective Time,
each Party (the "REQUESTING PARTY") may from time to time request any of the
other Parties (the "REQUESTED PARTY"), upon reasonable notice to the Requested
Party, (i) to give the Requesting Party and its authorized representatives full
and complete access to all properties, personnel, facilities and offices of the
Requested Party and to the books and records of the Requested Party (and permit
the Requesting Party to make copies thereof), (ii) to permit the Requesting
Party to make inspections thereof, (iii) to cause the officers and employees of,
and consultants to, the Requested Party to furnish the Requesting Party with all
financial information and operating data and other information with respect to
the business and properties of the Requesting Party and to discuss with the
Requesting Party and its authorized representatives the affairs of the Requested
Party.
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(b) Between the date of this Agreement and the Effective Time,
each of the Parties shall use reasonable efforts to cause their respective
Affiliates, officers, directors, employees, auditors, attorneys, consultants,
advisors and agents, to treat as confidential and hold in strict confidence,
unless compelled to disclose by judicial or administrative process or, in the
opinion of its counsel, by other requirements of Law, and after prior written
notice to the other Party, all confidential information of iTract or Margo or
Purchaser, as the case may be, furnished to Margo or Purchaser by iTract or to
iTract by Margo or Purchaser, as the case may be, or any of their respective
representatives in connection with the Contemplated Transactions and will not
release or disclose such confidential information to any other Person, except
their respective auditors, attorneys, financial advisors and other consultants,
agents and advisors in connection with the consummation of the Contemplated
Transactions. If the Closing does not occur (i) such confidence shall be
maintained by the Parties and each Party shall use reasonable efforts to cause
its officers, directors, Affiliates and such other Persons to maintain such
confidence, except to the extent such information comes into the public domain
(other than as a result of an action by such Party, its officers, directors or
such other persons in contravention of this Agreement), (ii) each Party shall
and shall use reasonable efforts to cause its officers, directors, Affiliates
and such other Persons to refrain from using any of such confidential
information except in connection with this Agreement, and (iii) upon the request
of any Party, the other Party shall promptly return to the requesting Party any
written materials remaining in its possession, which materials it has received
from the requesting Party, or their respective representatives.
9.3 PUBLICITY. Between the date of this Agreement and the Effective
Time, except to the extent required by Law or the rules of the Nasdaq, none of
the Parties shall, and none of them shall permit any Affiliate to, issue any
press release or public announcement of any kind concerning, or otherwise
publicly disclose, the Contemplated Transactions without the consent of the
other; and in the event any such public announcement, release or disclosure is
required by Law or the rules of the Nasdaq, the Parties will consult prior to
the making thereof and use their best efforts to agree upon a mutually
satisfactory text.
9.4 CONDUCT OF BUSINESS OF iTRACT. Except as expressly permitted by
this Agreement, between the date of this Agreement and the Effective Time,
iTract shall conduct its business only in the manner currently conducted and
currently proposed to be conducted, and use all its reasonable efforts to
preserve intact its present business organization and employees and to preserve
the goodwill of Persons having business relations with iTract. Without limiting
the generality of the foregoing, except as otherwise expressly provided in this
Agreement, between the date of this Agreement and the Effective Time, iTract
shall pay accounts payable on a reasonable basis and pay and perform other
obligations of the business of iTract when they become due and payable in the
ordinary course of business, or when required to be performed, as the case may
be, and shall not:
(i) amend its certificate of formation in an adverse
manner;
(ii) organize any Subsidiary or acquire any capital
stock or other equity securities of any Person or any equity or ownership
interest in any business;
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(iii) incur any debt or liabilities of any kind other
than in the ordinary course of business or in furtherance of the iTract Merger
and the Contemplated Transactions;
(iv) grant or extend any power of attorney other than
in the ordinary course of business which does not affect the material part of
iTract business;
(v) fail to keep in full force and effect insurance
comparable in amount and scope of coverage to insurance now carried by it;
(vi) split, combine or reclassify its outstanding
membership interests or declare, certify or pay any dividend or distribution
payable in cash, stock, property or otherwise, spin off any assets or business,
sell any assets or business, effect any extraordinary corporate transaction in
which iTract retains all the proceeds from such sale, engage in any transaction
for the purpose of effecting any recapitalization or engage in any transaction
or series of related transactions which have a similar effect on any of the
foregoing;
(vii) sell, pledge, dispose of or agree to issue,
sell or dispose of any additional interests or any options, warrants or rights
of any kind, to acquire any interest in other securities, or any debt or
securities convertible into or exchangeable for such membership interests or
modify or amend the terms and conditions of any of the foregoing, PROVIDED,
HOWEVER, that iTract may issue interests upon exercise of outstanding iTract
Options, and PROVIDED FURTHER iTract may issue additional iTract Options and
additional iTract Units if such options and units shall be converted into
Purchaser Options or Purchaser Common Stock at the Effective Time under Article
2 of this Agreement;
(viii) redeem, purchase, acquire or offer to purchase
or acquire any interests other than as required by the Operating Agreement for
iTract,
(ix) make any acquisition of any assets or businesses
other than purchases of assets in the ordinary course of business;
(x) promptly advise Margo and Purchaser in writing of
any Material Adverse Effect with respect to iTract;
(xi) take any action which would jeopardize the
treatment of the Merger as an exchange within the meaning of Section 351 of the
Code; or
(xii) agree or otherwise commit, whether in writing
or otherwise, to do, or take any action or omit to take any action that would
result in, any of the foregoing.
9.5 CONDUCT OF BUSINESS OF MARGO, PURCHASER AND PURCHASER SUBSIDIARY.
Except as expressly permitted by this Agreement, between the date of this
Agreement and the Effective Time, Margo (and Purchaser following the
Reincorporation Merger) shall conduct its business only in the ordinary course
in substantially the same manner as heretofore conducted, and, other than with
respect to its efforts to effect the Reincorporation Merger and the Asset Sale,
use all its reasonable
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efforts to preserve intact its present business organization and employees and
to preserve the goodwill of Persons having business relations with Margo and its
Subsidiaries. Without limiting the generality of the foregoing, except as
otherwise expressly provided in this Agreement, and except in connection with
effecting the Reincorporation Merger in accordance with Section 6.1, between the
date of this Agreement and the Effective Time, Margo, Purchaser and Purchaser
Subsidiary shall pay accounts payable and pay and perform other obligations of
their businesses when they become due and payable in the ordinary course of
business consistent with past practice, or when required to be performed, as the
case may be, and each of them shall not:
(i) amend its articles or certificate of
incorporation or bylaws (except to include such provisions in Purchaser's
By-laws as is consistent with Section 9.11.);
(ii) organize any Subsidiary or acquire any capital
stock or other equity securities of any Person or any equity or ownership
interest in any business;
(iii) incur any debt or liabilities of any kind other
than in the ordinary course of business or in furtherance of the iTract Merger
and the Contemplated Transactions;
(iv) grant or extend any power of attorney other than
in the ordinary course of business which does not affect a material part of
Margo's business;
(v) fail to keep in full force and effect insurance
comparable in amount and scope of coverage to insurance now carried by it;
(vi) (i) split, combine or reclassify its outstanding
capital stock or declare, set aside or pay any dividend or distribution payable
in cash, stock, property or otherwise, (ii) spin-off any assets or businesses,
sell any assets or businesses or effect any extraordinary corporate transaction
(excluding the Asset Sale), in which Margo or Purchaser, as the case may be,
retains all of the proceeds from such sale, (iii) engage in any transaction for
the purpose of effecting a recapitalization, or (iv) engage in any transaction
or series of related transactions which as a similar effect to any of the
foregoing;
(vii) sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of, any additional shares of, or any options, warrants
or rights of any kind to acquire any shares of its capital stock of any class,
or any debt or equity securities convertible into or exchangeable for such
capital stock or amend or modify the terms and conditions of any of the
foregoing, PROVIDED, HOWEVER, that Margo may issue shares upon exercise of
outstanding Margo Options;
(viii) (i) redeem, purchase, acquire or offer to
purchase or acquire any shares of its capital stock, other than as required by
the governing terms of such securities, (ii) take any action (either before or
after the Effective Time) which would jeopardize the treatment of the Merger as
an exchange within the meaning of Section 351 of the Code, and (iii) make any
acquisition of any assets or businesses (other than purchases of assets in the
ordinary course of business);
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(ix) promptly advise iTract in writing of any
Material Adverse Effect with respect to Margo, Purchaser or any of their
Subsidiaries; or
(x) agree or otherwise commit, whether in writing or
otherwise, to do, or take any action or omit to take any action that would
result in, any of the foregoing.
After effecting the Asset Sale, neither Margo, Purchaser or Purchaser Subsidiary
will engage in or conduct any business except in connection with performing its
obligations under this Agreement.
9.6 CERTAIN ACTIONS BY MARGO. Notwithstanding the provisions of Section
9.5 of this Agreement, Margo and Purchaser shall have the right to take the
following actions at any time prior to the consummation of the iTract Merger:
(a) Margo or Purchaser, as applicable, shall have the right to
make a cash dividend to their shareholders, provided that such dividend
distribution does not cause Purchaser to have less than $5,000,000 in cash and
cash equivalents as of the Effective Time;
(b) Margo and Purchaser shall have the right to accelerate the
vesting of all Margo Options which are currently outstanding; (provided that
such Margo Options shall be included in the calculation of the Merger
Consideration under Section 2.4);
(c) Margo and Purchaser shall have the right to grant
additional Margo Options in such amounts and on such terms as may be approved by
the Board of Directors of Margo or Purchaser, PROVIDED that any such additional
Margo Options shall be included in the calculation of the Merger Consideration
under Section 2.4;
(d) Margo and Purchaser shall have the right to authorize the
modification of the terms of the Spector Lease Agreement.
(e) Margo and Purchaser shall have the right to authorize
Margo Nursery Farms, Inc., to enter into employment agreements with its key
executives, so long as neither Margo nor Purchaser shall have any liability
under such employment agreements on or after the Effective Time;
(f) Margo and Purchaser shall have the right to authorize a
payment of bonuses to the employees of Margo, Purchaser and their Subsidiaries
PROVIDED that such bonuses do not cause Purchaser to have less than $5,000,000
in cash and cash equivalents at the Effective Time; and FURTHER PROVIDED that
neither Margo nor Purchaser shall have any liability for such bonuses on or
after the Effective Date.
9.7 FURTHER ASSURANCES. Following the Closing, the Parties shall use
commercially reasonable efforts to cause each of their Affiliates, from time to
time, to execute and deliver such additional instruments, documents, conveyances
or assurances and take such other actions as shall be necessary, or otherwise
reasonably requested by the other Party, to confirm and assure the rights and
obligations provided for in this Agreement and render effective the consummation
of the Contemplated Transactions.
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9.8 EXCLUSIVITY. Through the earlier of the Effective Time or the date
of termination of this Agreement pursuant to Article 10 hereof, none of the
Parties shall (i) solicit, initiate or encourage the submission of inquiries,
proposals or offers from any Person relating to (x) any business combination
with respect to iTract, Margo or Purchaser; or (y) other then with respect to
the Asset Sale in the manner contemplated by this Agreement, the sale of a
material portion of the assets and/or capital stock of such Party (an
"ALTERNATIVE TRANSACTION"), (ii) enter into or participate in any negotiations,
nor initiate any discussions or continue any discussions initiated by others,
regarding any Alternative Transaction, or furnish to any other person any
information with respect to the assets or business of iTract for the purposes of
pursuing a possible Alternative Transaction with any other party, or (iii)
otherwise participate in, assist, facilitate or encourage any effort or attempt
by any other Person to do any of the foregoing. None of the Parties shall
authorize their investment bankers or other advisors to violate the provisions
of this paragraph and shall use reasonable efforts to prevent their investment
bankers or other advisors from violating the provisions of this paragraph.
9.9 CONSENTS: REGULATORY APPROVAL. Each Party will use commercially
reasonable efforts to obtain all Approvals from Persons or Governmental Bodies
in order to permit the consummation of the Contemplated Transactions.
9.10 REGISTRATION RIGHTS FOR PRINCIPAL SHAREHOLDERS. At the Effective
Time, Purchaser shall enter into a registration rights agreement in the form of
EXHIBIT D to this Agreement, pursuant to which Purchaser shall agree to register
shares of Purchaser Common Stock held by persons who were affiliates of Margo
and Purchaser immediately prior to the Effective Time, and the shares of
Purchaser Common Stock issued directly to Henry Kauftheil in exchange for the
iTract Units held by him as of the date of this Agreement.
9.11 INDEMNIFICATION OF FORMER DIRECTORS AND OFFICERS OF MARGO,
PURCHASER AND THEIR AFFILIATES.
(a) From and after the Effective Time, Purchaser shall
indemnify and hold harmless each present and former officer and director of
Margo, Purchaser, Purchaser Subsidiary and the other Subsidiaries of Margo prior
to the Effective Time (the "INDEMNIFIED PARTIES"), against all claims, losses,
liabilities, damages, judgments, fines, fees, costs and expenses, including
without limitation, attorney's fees and disbursements (collectively, "COSTS")
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Effective Time (including without limitation this Agreement and the Contemplated
Transactions) whether asserted or claimed prior to, at or prior to the Effective
Time, to the fullest extent permitted under the Certificate of Incorporation and
Bylaws of Margo or Purchaser, as the case may be, as in effect immediately prior
to the consummation of the Reincorporation Merger, including provisions relating
to advances and expenses incurred in the defense of any claim, actions, suit,
proceeding or investigation. Without limiting the foregoing, in the event that
any claim, action, suit or proceeding or investigation is brought against the
Indemnified Party (whether arising before or after the Effective Time), the
Indemnified Party may retain counsel satisfactory to such Indemnified Party and
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reasonably satisfactory to Purchaser and Purchaser shall advances the fees and
expenses of such counsel for the Indemnified Party in accordance with the
Certificate of Incorporation or Bylaws of the Purchaser in effect immediately
prior to the consummation of the iTract Merger, provided that as a condition to
the advance of expenses, the indemnified party must execute an undertaking to
reimburse Purchaser if indemnified party is ultimately determined not to be
entitled to indemnity.
(b) In the event that the Purchaser or any of its successors
or assigns (i) consolidates with, or merges into another person and shall be not
the continuing or surviving corporation of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its property assets to any
person, then, in any such case, to the extent necessary to effectuate the
purposes of this Section 9.11, proper provision shall be made so that the
successors and assigns of Purchaser shall succeed to the obligations set forth
in this Section 9.11.
9.12 AMENDING SCHEDULES. From time to time prior to the Closing, the
Parties shall promptly supplement or amend the Schedules to this Agreement with
respect to any matter arising after the date of this Agreement which, if
EXISTING or occurring at the date of this Agreement, would have been required to
have been set forth in the Schedules to this Agreement. Such supplement or
amendment shall have the effect of curing any related misrepresentation or
breach of warranty made in connection with the transactions contemplated by this
Agreement; PROVIDED, HOWEVER, that if such misrepresentation or breach is
material, each Party shall have a commercially reasonable period of time
following receipt of any supplemented or amended Schedules to elect (i) to
terminate this Agreement without any further liability to the Parties or (ii) in
such non-amending Party's sole discretion, to waive such breach and consummate
the transactions contemplated by this Agreement.
9.13 CAPITALIZATION OF CERTAIN EXPENSES. iTract shall, prior to the
Effective Time, convert all of the amounts payable by iTract to ICES and its
Affiliates as of February 29, 2000 into capital contributions to iTract (or
otherwise arrange to release iTract from such liabilities), PROVIDED, HOWEVER,
that the amount of $525,000 (plus interest) payable by iTract to Core Active ACG
LLC on demand, may remain as a liability of iTract. iTract acknowledges that the
amounts to be converted to capital contributions (or released) include, without
limitation, the (a) $100,000 payable to ICES, (b) $145,000 payable to
TheTechDept.com, Inc. and (c) $139,000 payable to ICES.
10. TERMINATION.
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10.1 TERMINATION PROCEDURES. This Agreement may be terminated before
the Effective Time only as follows:
(a) by written agreement of all of the Parties at any time;
(b) by Margo or Purchaser, by notice to iTract, if
satisfaction of any of the conditions to Purchaser's or Purchaser Subsidiary's
obligations set forth in Section 7 becomes impossible, and such condition has
not been waived by Margo and Purchaser or (y) has not occurred by August 15,
2000 (subject to up to a sixty (60) day extension if the Registration Statement
has not been declared effective by the SEC and the Parties are using their best
efforts to cause such
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effectiveness), in either case other than as a result of a material breach or
default of Purchaser, Margo or Spector;
(c) by iTract, by notice to Margo and Purchaser, if
satisfaction of any of the conditions to iTract's obligations set forth in
Section 8 becomes impossible, and such condition has not been waived by iTract
or (y) has not occurred by August 15, 2000 (subject to up to a sixty (60) day
extension if the Registration Statement has not been declared effective by the
SEC and the Parties are using their best efforts to cause such effectiveness),
in either case other than as a result of the breach or default by iTract;
(d) by Purchaser or Margo, by notice to iTract, if iTract has
breached this Agreement in any material respect and such breach has not been
cured within 10 days after written notice from Margo or Purchaser to iTract; or
(e) by iTract, by notice to Margo and Purchaser if either of
them have breached this Agreement in any material respect, and such breach has
not been cured within 10 days after written notice from iTract to Margo and
Purchaser.
10.2 EFFECT OF TERMINATION. In the event that this Agreement is
terminated pursuant to Section 10.1, this Agreement shall terminate without any
liability or further obligation of any Party (other than the obligations of the
Parties under Sections 9.1 and 9.2), except that: (i) in the event of the
termination of this Agreement by Margo or Purchaser under Section 10.1(d),
iTract and ICES shall be jointly and severally obligated to reimburse Margo and
Purchaser for all out-of-pocket expenses incurred by Margo and Purchaser in
connection with this Agreement and the Contemplated Transactions, up to a
maximum of $100,000; and (ii) in the event of the termination of this Agreement
by iTract under Section 10.1(e), Margo and Purchaser shall be jointly and
severally obligated to reimburse iTract for all out-of-pocket expenses incurred
by iTract incurred in connection with this Agreement and the Contemplated
Transactions, up to a maximum of $100,000; and (iii) none of the parties shall
be released from liability for any intentional misrepresentation or fraud.
11. MISCELLANEOUS.
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11.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS.
The representations, warranties, covenants and agreements of the Parties set
forth in this Agreement and in any certificate delivered pursuant to this
Agreement shall expire as of the Effective Time, other than the covenants and
agreements contained in Article 2 and Sections 6.1, 6.8, 9.7, 9.10, 9.11 and
Article 11.
11.2 ENTIRE AGREEMENT. This Agreement contains, and is intended as, a
complete statement of all of the terms and the arrangements between the Parties
with respect to the matters provided for, supersede any previous agreements and
understandings between the Parties with respect to those matters and cannot be
changed or terminated orally. No Party makes, and each Party hereby expressly
disclaims reliance upon, any representations or warranties with respect to the
Contemplated Transactions other than as expressly set forth in this Agreement.
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11.3 SEVERABILITY. In the event that a court of competent jurisdiction
shall finally determine that any provision of this Agreement or any portion
thereof is unlawful or unenforceable, such provision or portion thereof that is
not invalidated by such determination shall remain in full force and effect. To
the extent that a provision is deemed unenforceable by virtue of its scope but
may be made enforceable by limitation thereof, such provision shall be
enforceable to the fullest extent permitted under the laws and public policies
of the state whose laws are deemed to govern enforceability.
11.4 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the law of the State of New York applicable to agreements
made and to be performed therein without giving effect to conflicts of law
principles.
11.5 HEADINGS. The section headings contained in this Agreement are
solely for the purpose of reference, are not part of the Agreement of the
Parties and shall not in any way affect the meaning or interpretation of this
Agreement. All references in this Agreement to Sections, Schedules and Exhibits
are to sections, schedules and exhibits to this Agreement, unless otherwise
indicated.
11.6 NOTICES. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when (a) delivered by hand, (b)
transmitted by facsimile (and confirmed by return facsimile), or (c) delivered,
if sent by Express Mail, Federal Express or other express delivery service, or
registered or certified mail, return receipt requested, to the addressee at the
following addresses or telecopier numbers (or to such other addresses, or
telecopier number as a party may specify by notice given to the other party
pursuant to this provision):
If to Margo, Purchaser or Purchaser Subsidiary to:
Margo Caribe, Inc.
Carretera 690, KM 5.8
Vega Alta, Puerto Rico 00692
ATTENTION: Michael Spector
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Facsimile No.: (787) 883-3244
with copies to:
Shutts & Bowen LLP
201 South Biscayne Boulevard
Suite 1600
Miami, Florida 33131
ATTENTION: Alfred G. Smith, II, Esq.
---------
Facsimile No.: (305) 381-9982
and
Pietrantoni Mendez & Alvarez LLP
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<PAGE>
209 Avenida Munoz Rivera
San Juan, Puerto Rico 00918
ATTENTION: Ignacio Alvarez, Esq.
---------
Facsimile No.: (787) 274-1470
If to iTract, Surviving LLC or ICES, to:
iTract, LLC
18 West 18th Street
New York, New York 10011
ATTENTION: Henry Kauftheil
---------
Facsimile No.: (212) 647-0535
with copies to:
Mordy Gelber, Esq.
18 West 18th Street
New York, New York 10011
Facsimile No.: (212) 647-8921
and
Kronish Lieb Weiner & Hellman LLP
1114 Avenue of the Americas
New York, New York 10036
ATTENTION: Alison Newman, Esq.
---------
Facsimile No.: (212) 479-6275
11.7 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties and their respective successors and
permitted assigns. Nothing in this Agreement shall create or be deemed to create
any third party beneficiary rights in any Person who is not a Party, except for
(i) the rights of the Indemnified Parties under Section 9.11 of this Agreement;
(ii) the rights of the holders of the iTract Options and Margo Options under
Sections 2.5 and 6.1(b); and (iii) the rights of the shareholders of Margo and
Henry Kauftheil under Section 9.10. No assignment of this Agreement or of any
rights or obligations hereunder may be made by the Parties and any such
attempted assignment shall be void.
11.8 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.
11.9 AMENDMENT AND WAIVER. This Agreement may be amended, or any
provision of this Agreement may be waived, provided that such amendment or
waiver will be binding on a Party only if such amendment or waiver is set forth
in a writing executed by such Party. The waiver of any
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<PAGE>
Party hereto of a breach of any provision of this Agreement shall not operate or
be construed as a waiver of any other breach.
11.10 DISPUTE RESOLUTION.
------------------
(a) The Parties agree to attempt initially to solve all
claims, disputes or controversies arising under, out of or in connection with
this Agreement by conducting good faith negotiations. If the Parties are unable
to settle the matter between themselves, the matter shall thereafter be resolved
by alternative dispute resolution, starting with mediation and including, if
necessary, a final and binding arbitration.
(b) Whenever a Party shall decide to institute arbitration
proceedings, it shall give written notice to that effect to the other Parties.
The Party giving such notice shall refrain from instituting the arbitration
proceedings for a period of sixty (60) days following such notice. During such
period, the Parties shall make good faith efforts to amicably resolve the
dispute without arbitration. Any arbitration hereunder shall be conducted under
the rules of the American Arbitration Association. Each such arbitration shall
be conducted by a panel of three arbitrators with one arbitrator being appointed
by Margo (or by Purchaser if the Reincorporation Merger shall have been
previously effected), one arbitrator shall be appointed by iTract and the third
shall be appointed by the American Arbitration Association.
(c) Any such arbitration shall be held in New York, New York.
The arbitrators shall have the authority to grant specific performance. Judgment
upon the award so rendered may be entered in any court having jurisdiction or
application may be made to such court for judicial acceptance of any award and
an order of enforcement, as the case may be. In no event shall a demand for
arbitration be made after the date when institution of a legal or equitable
proceeding based on such claim, dispute or other matter in question would be
barred under this Agreement or by the applicable statute of limitations.
[The remainder of this page is intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement
as of the date and year first-above written.
MARGO CARIBE, INC.
By: /s/ Michael J. Spector
-----------------------------
Name: Michael J. Spector
Title: President and
Chief Executive Officer
iTRACT, LLC
By: /s/ Henry Kaufthiel
-----------------------------
Name: Henry Kaufthiel
Title: Manager
iTRACT ACQUISITION COMPANY, LLC,
By: /s/ Michael J. Spector
-----------------------------
Name: Michael J. Spector
Title:
iTRACT, INC.
By: /s/ Michael J. Spector
-----------------------------
Name: Michael J. Spector
Title:
INTERNATIONAL COMMERCE EXCHANGE
SYSTEMS, INC.
By: /s/ Henry Kaufthiel
-----------------------------
Name: Henry Kaufthiel
Title: Chairman
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<PAGE>
LIST OF SCHEDULES
MARGO/ITRACT MERGER AGREEMENT
<TABLE>
<CAPTION>
ITRACT SCHEDULES
<S> <C>
Schedule 4.2(a) Outstanding subscriptions, options, rights, warrants, etc.
Schedule 4.2(b) Ownership of iTract Units.
Schedule 4.5 iTract Approvals
Schedule 4.6(a) iTract Financial Statements
Schedule 4.6(c) Changes in business, operations or financial conditions of iTract
Schedule 4.7(b) Exceptions to Ownership of Properties; Permitted Encumbrances
Schedule 4.8 Leases
Schedule 4.9 Intellectual Property
Schedule 4.11 Tax Returns not timely filed by iTract
Schedule 4.12 Material adverse changes, etc.
Schedule 4.13 Employee benefit plans
Schedule 4.14 Insurance Policies
Schedule 4.15 Material Contracts
Schedule 4.17(a) iTract Licenses
Schedule 4.17(b) Environmental Matters
Schedule 4.18 Brokers
Schedule 5.1 Subsidiaries of Margo Caribe, Inc.
Schedule 5.2(a) List of Outstanding Options of Margo
Schedule 5.2(b) List of Outstanding Options of Purchaser
Schedule 5.4 Conflicts with Other Agreements
Schedule 5.5 Margo Approvals
Schedule 5.6(a) List of all State, Local and Foreign Jurisdictions in which
Margo and Subsidiaries have filed Tax Returns
Schedule 5.6(b) Taxes Being Contested by Tax Affiliates
Schedule 5.6(l) Debt Instruments Reported Under the Installment Method
Schedule 5.6(n) Material Tax Elections as of the Date of Merger
Schedule 5.6(v) Joint Ventures, Partnership and Other Similar Arrangements
Schedule 5.7(c) Material Adverse Changes Since December 31, 1999
Schedule 5.7(d) Reports not filed under the Exchange Act since December 31, 1995
Schedule 5.8 List of Certain Material Adverse Changes or Events or other Events
Outside the Ordinary Course of Business
Schedule 5.9(a) Employee Benefits Plans
Schedule 5.9(c) Severance Payments
Schedule 5.10(a) Material Failure to Comply with Applicable Law
Schedule 5.10(b) Environmental Law Violations
Schedule 5.12 Pending Litigation
Schedule 5.14 Brokers or Finders
Schedule 8.20 Other Releases
</TABLE>
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<PAGE>
EXHIBITS:
Exhibit A Form of Certificate of Merger merging iTract Acquisition
Company, LLC into iTract, LLC
Exhibit B Limited Liability Company Agreement of iTract, LLC following the
merger
Exhibit C Spectors Voting Agreement
Exhibit D iTract Lock-Up Agreement
Exhibit E Margo Lock-Up Agreement
Exhibit F Registration Rights Agreement
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<PAGE>
APPENDIX C
================================================================
STOCK PURCHASE AGREEMENT
Between
MARGO CARIBE, INC.
("SELLER")
and
EMPRESAS MARGO, INC.
("BUYER")
DATED AS OF JUNE 30, 2000
================================================================
<PAGE>
Section Page
------- ----
ARTICLE I - CERTAIN DEFINITIONS................................................1
ARTICLE II - SALE OF SHARES AND MARGO MARKS....................................4
2.1 SALE OF SHARES AND MARGO MARKS...................................4
2.2 PURCHASE PRICE...................................................4
ARTICLE III - CLOSING..........................................................4
3.1 CLOSING..........................................................4
3.2 SELLER'S DELIVERIES AT THE CLOSING...............................5
3.3 BUYER'S DELIVERIES AT THE CLOSING................................5
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF SELLER..........................6
4.1 ORGANIZATION AND AUTHORITY.......................................6
4.2 SUBSIDIARIES AND DOCUMENTS.......................................7
4.3 CAPITALIZATION OF SUBSIDIARIES...................................7
4.4 OWNERSHIP OF SHARES..............................................7
4.5 FINANCIAL STATEMENTS.............................................7
4.6 ABSENCE OF CHANGES...............................................7
4.7 TAX MATTERS......................................................8
4.8 NO CONFLICT WITH PROPRIETARY RIGHTS..............................8
4.9 NON-COMPETITION ARRANGEMENTS.....................................8
4.10 EMPLOYEE BENEFITS...............................................8
4.11 LITIGATION AND LABOR RELATIONS..................................9
4.12 PROPERTY AND LIABILITY INSURANCE................................9
4.13 CONSENTS AND APPROVALS..........................................9
4.14 PROPERTIES AND ASSETS..........................................10
4.15 COMPLIANCE WITH LAWS; LICENSES AND PERMITS.....................10
4.16 ENVIRONMENTAL MATTERS..........................................10
ARTICLE V - REPRESENTATIONS AND WARRANTIES BY BUYER...........................11
5.1 ORGANIZATION AND STANDING.......................................11
5.2 AUTHORITY.......................................................11
5.3 CONSENTS AND APPROVALS; NO VIOLATIONS...........................11
ARTICLE VI - CERTAIN COVENANTS AND AGREEMENTS OF SELLER
AND BUYER..........................................12
6.1 ACCESS TO INFORMATION...........................................12
6.2 DISCLOSURE SUPPLEMENTS..........................................12
6.3 CONSENTS AND APPROVALS..........................................13
6.4 FILINGS.........................................................13
6.5 COVENANT TO SATISFY CONDITIONS..................................13
6.6 FURTHER ASSURANCES..............................................13
6.7 CONDUCT OF THE BUSINESS OF THE SUBSIDIARIES;
INTERCOMPANY ACCOUNTS..............................14
6.8 PUBLIC DISCLOSURE...............................................14
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<PAGE>
ARTICLE VII - CONDITIONS PRECEDENT OF BUYER...................................14
7.1 REPRESENTATIONS AND WARRANTIES..................................14
7.2 COVENANTS.......................................................15
7.3 OFFICER'S CERTIFICATE...........................................15
7.4 NO ORDER OR PROCEEDINGS.........................................15
7.5 CONSENTS........................................................15
7.6 OPINION OF COUNSEL..............................................15
7.7 CONDUCT OF BUSINESS OF SUBSIDIARIES.............................15
7.8 CLOSING DELIVERIES..............................................16
ARTICLE VIII - CONDITIONS PRECEDENT OF SELLER.................................16
8.1 REPRESENTATIONS AND WARRANTIES..................................16
8.2 COVENANTS.......................................................16
8.3 OFFICER'S CERTIFICATE...........................................16
8.4 NO ORDER OR PROCEEDING..........................................16
8.5 CONSENTS........................................................17
8.6 OPINION OF COUNSEL..............................................17
8.7 iTract LLC MERGER...............................................17
8.8 CLOSING DELIVERIES..............................................17
8.9 STOCKHOLDER APPROVAL............................................17
ARTICLE IX - EMPLOYEE MATTERS.................................................18
9.1 RETENTION OF EMPLOYEES..........................................18
9.2 THIRD PARTY BENEFICIARIES.......................................18
ARTICLE X - SURVIVAL OF REPRESENTATIONS.......................................18
10.1 SURVIVAL OF REPRESENTATIONS....................................18
ARTICLE XI - TERMINATION AND ABANDONMENT......................................18
11.1 TERMINATION....................................................18
11.2 PROCEDURE AND EFFECT OF TERMINATION............................19
ARTICLE XII - MISCELLANEOUS...................................................19
12.1 EXPENSES OF THE PARTIES........................................19
12.2 PARTIES IN INTEREST............................................20
12.3 GOVERNING LAW..................................................20
12.4 CAPTIONS.......................................................20
12.5 ENTIRE AGREEMENT; AMENDMENTS...................................20
12.6 NOTICES........................................................20
12.7 COUNTERPARTS...................................................21
12.8 ASSIGNMENT.....................................................21
12.9 BROKERS........................................................22
12.10 ACCESS TO INFORMATION.........................................22
12.11 EXTENSION; WAIVER.............................................22
12.12 VALIDITY......................................................22
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<PAGE>
LIST OF EXHIBITS AND SCHEDULES
Exhibit A - List of Subsidiaries
Schedule 2.2 - Lists of Debts to be Assumed by Buyer
Schedule 4.3 - Authorized and outstanding capital
of Subsidiaries
Schedule 4.13 - Required consents and approvals
Schedule 4.15 - Compliance with Laws
Schedule 4.16 - Environmental Matters
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<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made and executed in San
Juan, Puerto Rico as of this 30st day of June, 2000, by and between Margo
Caribe, Inc., a Puerto Rico corporation ("Seller"), and Empresas Margo, Inc., a
Puerto Rico corporation ("Buyer") (collectively the "Parties").
BACKGROUND
WHEREAS, Seller owns all of the issued and outstanding shares of stock
(the "Shares") of the corporations listed in Exhibit A hereto (the
"Subsidiaries"); and
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase
from Seller, the Shares, as well as certain other proprietary rights of the
Seller, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the respective covenants,
representations and warranties contained herein, Seller and Buyer, intending to
be legally bound hereby, agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 "Affiliated Company" means a company or other entity which
directly or indirectly (through one or more intermediaries) controls, is
controlled by, or is under common control with either Seller, on the one hand,
or Buyer, on the other hand, as the case may be.
1.2 "Closing" means the consummation of the purchase and sale of the
Shares and the Margo Marks contemplated hereby which shall be effected by
delivery of the documents and instruments referred to in Sections 3.2 and 3.3
hereof, each in form and content satisfactory to Buyer, Seller and their
respective counsel and each dated or being effective as of the Closing Date.
1.3 "Closing Date" means the date on which the Closing occurs.
1.4 "Code" means the United States Internal Revenue Code of 1986, as
amended.
1.5 "Commonwealth" means the Commonwealth of Puerto Rico.
1.6 "Consent" means any consent, waiver, approval, authoriza tion or
permit.
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1.7 "Contracts" has the meaning set forth in Section 4.9(a).
1.8 "Damages" means all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses, including,
without limitation, defense costs, interest, penalties and attorneys' fees and
expenses.
1.9 "Decree" means the decree of industrial tax exemption issued to
Rain Forest Products Group, Inc. on January 1, 1997 by the Governor of the
Commonwealth of Puerto Rico, pursuant to the provisions of the Commonwealth's
Tax Incentives Act of 1987, as amended.
1.10 "Disclosure Schedules" means the schedules delivered to Buyer by
Seller and attached to this Agreement listing certain information with respect
to or exceptions to the representations and warranties of Seller contained in
this Agreement.
1.11 "Employee Benefit Plans" means all employee benefit and welfare
plans, programs, policies or arrangements maintained or contributed to by any of
the Subsidiaries for the benefit of employees of the Subsidiaries, all
personnel, payroll or severance policies of the Subsidiaries, all other fringe
benefits provided by the Subsidiaries for the benefit of employees of the
Subsidiaries and all employment, severance, termination, consulting and
retirement agreements to which any Subsidiary is a party.
1.12 "Encumbrance" means any lien, charge, restriction, security
interest or encumbrance of any nature.
1.13 "Environmental Law" means any federal, Commonwealth or municipal
statute, law or regulation in effect on or prior to the Closing Date relating to
pollution or protection of human health or the environment, including but not
limited to the Comprehensive Environmental Response, Compensation and Liability
Act, the Resource Conservation and Recovery Act, the Clean Air Act, the Clean
Water Act and similar Commonwealth laws.
1.14 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
1.15 "Financial Statements" means the consolidated audited statements
of Seller and the Subsidiaries as of December 31, 1999 and 1998 and for each of
the three years in the period ended December 31, 1999, and the unaudited
consolidated statements of the Seller and its subsidiaries as of and for the
three-month period ended March 31, 2000, copies of which have previously been
delivered to the Buyer.
1.16 "GAAP" means generally accepted accounting principles in the
United States.
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<PAGE>
1.17 "Governmental Entity" means any governmental or regulatory
authority, department, board, bureau, agency or commission, including courts of
competent jurisdiction, domestic or foreign.
1.18 "Information Memorandum" means the Confidential Information
Memorandum dated April 2000 describing the business of the Seller and the
Subsidiaries and heretofore delivered to Buyer.
1.19 "Interim Balance Sheet" means the consolidated unaudited balance
sheet of the Seller as of March 31, 2000.
1.20 "Litigation" means any action, lawsuit, claim, proceed ing or
investigation, in any court or before any federal, state, Commonwealth,
municipal or other governmental department, commis sion, board, bureau, agency
or instrumentality, domestic or foreign.
1.21 "Margo Marks" means each trademark, trade name, service mark and
patent which has been registered or for which an applica tion for registration
is pending in the name of Seller or any of the Subsidiaries, or in which the
Seller or any of the Subsidiaries have otherwise acquired rights under any
federal, state or Commonwealth laws, including but not limited to the right to
use the name "Margo."
1.22 "Material Adverse Effect" means an effect on the business,
financial condition or results of operations of the Subsidiaries, taken as a
whole, which is both material and adverse.
1.23 "Order" means any order, writ, judgment, injunction, decree,
statute, ordinance, rule or regulation.
1.24 "Person" means any natural person or legal entity not a
party to this Agreement.
1.25 "PRIRC" means the Puerto Rico Internal Revenue Code of
1994, as amended.
1.26 "Public Disclosure" means any press release or public announcement
or publicity statement or other disclosure to the public, including any
announcement to employees.
1.27 "Proprietary Information" means all writings for which a claim to
copyright, know-how, formulas and trade secrets have been recorded or claimed by
the Subsidiaries.
1.28 "Purchase Price" means the aggregate purchase price for the Shares
and the Margo Marks set forth in Section 2.2 hereof.
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<PAGE>
1.29 "Subsidiaries" or "Subsidiary" shall have the meaning assigned in
the introductory paragraph of this Agreement.
1.30 "Tax" means any, and "Taxes" means collectively all, federal,
state, Commonwealth, local and foreign taxes and assess ments, including all
interest, penalties and additions imposed with respect to such amounts.
ARTICLE II
SALE OF SHARES AND MARGO MARKS
2.1 SALE OF SHARES AND MARGO MARKS
Upon the terms and subject to the conditions contained in this
Agreement, Seller agrees to sell, assign and transfer to Buyer and Buyer agrees
to purchase from Seller at the Closing, for the consideration provided in
Section 2.2 below, the Shares and the Margo Marks, free and clear of any
Encumbrance.
2.2 PURCHASE PRICE
Upon the terms and subject to the conditions contained in this
Agreement, in consideration of the aforesaid sale, assignment and transfer of
the Shares and the Margo Marks at the Closing, Buyer will pay to Seller, in
cash, FIVE MILLION DOLLARS ($5,000,000) (the "Cash Purchase Price") by wire
transfer of immediately available funds to an account designated in writing by
Seller to Buyer at least two (2) business days prior to the Closing. The Buyer
shall also agree to expressly assume those debts or liabilities of the Seller
listed on Schedule 2.2 hereof. The payment of the cash amount and the assumption
of such indebtedness are hereinafter collectively referred to as the "Purchase
Price."
ARTICLE III
CLOSING
3.1 CLOSING
Upon the terms and subject to the conditions contained in this
Agreement, the Closing of the purchase and sale of the Shares and the Margo
Marks contemplated hereby will take place at the offices of Pietrantoni Mendez &
Alvarez LLP, Banco Popular Center, Suite 1901, 209 Munoz Rivera Avenue, Hato
Rey, Puerto Rico at 10:00 a.m. (local time), on the first business day following
the date on which all the conditions to each party's obligations
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<PAGE>
hereunder have been satisfied or waived, or at such other time or place or both
as the parties may agree.
Closing shall occur by delivery of the documents and instruments
described in Sections 3.2 and 3.3 hereof, each in form and content satisfactory
to Buyer, Seller and their respective counsel and each dated or being effective
as of the Closing Date.
3.2 SELLER'S DELIVERIES AT THE CLOSING
(a) Stock certificates representing the Shares, duly endorsed in
blank or accompanied by stock transfer powers;
(b) A certified copy of the resolutions adopted by the Board of
Directors of Seller authorizing the execution, delivery and performance by
Seller of this Agreement and the transactions contemplated hereby;
(c) Written resignations of all directors and officers of the
Subsidiaries requested by Buyer to resign prior to the Closing Date;
(d) The officer's certificate referred to in Section 7.3;
(e) The opinion of counsel referred to in Section 7.6;
(f) The stock books, stock ledgers, minute books and corporate
seals of the Subsidiaries;
(g) All records pertaining to bank accounts of the Subsidiaries;
(h) An assignment by Seller to Buyer of all of its rights with
respect to the Margo Marks; and
(i) Such other documents, instruments and certificates as may be
provided for under this Agreement or reasonably requested by Buyer prior to
Closing.
3.3 BUYER'S DELIVERIES AT THE CLOSING
(a) The Purchase Price;
(b) An assumption agreement in form and substance satisfactory to
Seller and its counsel pursuant to which Buyer agrees to assume all of Seller's
debt listed on Schedule 2.2 which shall have not been cancelled prior to or
concurrently with the Closing.
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<PAGE>
(c) One or more releases executed by each of the creditors listed
on Schedule 2.2 releasing the Seller and its successors and assigns from any and
all liability with respect to the debt listed on Schedule 2.2.
(d) A certified copy of the resolutions adopted by the Board of
Directors of Buyer authorizing the execution, delivery and performance by Buyer
of this Agreement and the transactions contemplated hereby;
(e) The officer's certificate referred to in Section 8.3; and
(f) The opinion of counsel referred to in Section 8.6; and
(g) Such other documents, instruments and certificates as may be
provided for under this Agreement or reasonably requested by Seller prior to
Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
4.1 ORGANIZATION AND AUTHORITY
(a) Seller and each of the Subsidiaries are corporations duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Puerto Rico. The execution, delivery and performance by Seller
of this Agreement have been duly authorized by all necessary corporate action on
the part of Seller. This Agreement has been duly executed and delivered by
Seller and, assuming due execution thereof by Buyer, constitutes a valid and
binding agreement of Seller enforceable against Seller in accordance with its
terms, except as may be limited by bankruptcy, insolvency, reorganization and
similar laws affecting the rights of creditors generally and by the availability
of equitable remedies.
(b) Each of the Subsidiaries (i) has all corporate power and
authority to own or lease its properties and to operate its business as
presently conducted; (ii) has all governmental licenses, authorizations and
permits required to own or lease its properties and to carry on its business as
presently conducted, and (iii) is duly qualified to do business and is in good
standing under the laws of the Commonwealth and each other jurisdiction in which
the conduct of its business or the ownership or leasing of its properties
requires such qualification, except in the case of clauses (ii) and (iii) where
the failure to have any such license,
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<PAGE>
authorization or permit to be so qualified or in good standing would not have a
Material Adverse Effect on the business of the Subsidiaries, taken as a whole.
4.2 SUBSIDIARIES AND DOCUMENTS
The Subsidiaries do not own any subsidiaries and do not own any capital
stock or other interest in any other corporation or business entity nor are any
of them subject to any obligations or requirements to make any investment in any
entity. True and complete copies of the charter documents, the by-laws and the
minutes of meetings of the Board of Directors and the sole stockholder of each
of Subsidiaries have heretofore been delivered to Buyer, and said charters and
by-laws are in full force and effect.
4.3 CAPITALIZATION OF SUBSIDIARIES
Each of the Subsidiaries entire authorized and outstanding capital is
as set forth in Schedule 4.3 hereof. All such issued and outstanding shares of
the Subsidiaries common stock have been duly and validly issued and are fully
paid and non-assessable, free of any preemptive rights and are owned by Seller
free and clear of any and all Encumbrances. Neither Seller nor any of the
Subsidiaries is a party to or bound by any options, calls, contracts or
commitments of any character relating to any issued or unissued stock or any
other equity security issued or to be issued by the Subsidiaries.
4.4 OWNERSHIP OF SHARES
Seller has good and marketable title to the Shares, free of any and all
Encumbrances and has full and unrestricted power and authority to sell, assign,
transfer and deliver to Buyer valid title to the Shares. Upon delivery of the
certificates representing the Shares as provided herein, Buyer will acquire good
and marketable title to the Shares, free and clear of any and all Encumbrances,
except those, if any, created by Buyer.
4.5 FINANCIAL STATEMENTS
The Financial Statements fairly present the financial position and
results of operations of Seller and the Subsidiaries on a consolidated basis as
of the date and for the periods presented, all in accordance with GAAP.
4.6 ABSENCE OF CHANGES
Since the date of the Interim Balance Sheet, the Subsidiaries have
conducted their business in the ordinary course of business and there has not
been:
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(a) any material adverse change in the financial condition,
operations, properties, assets, liabilities or business of the Subsidiaries,
taken as a whole.
(b) any damage, destruction or loss (whether or not covered by
insurance) which, either singly or in the aggregate, would have a Material
Adverse Effect.
4.7 TAX MATTERS
(a) Each Subsidiary has (i) timely (after giving effect to
applicable extensions) filed all material returns required to be filed by it
with respect to Taxes; (ii) timely paid all Taxes shown to have become due
pursuant to such returns and (iii) paid all other Taxes for which a notice of
assessment or demand for payment has been received.
(b) All Tax returns for each Subsidiary have been prepared in
accordance with all applicable laws and requirements and accurately reflect the
taxable income (or other measure of Tax) of the corporation filing the return.
(c) None of the Subsidiaries are a party to or bound by any Tax
allocation or Tax sharing agreement or have any current or potential contractual
obligation to indemnify any other Person with respect to Taxes.
(d) The Decree is in full force and effect.
4.8 NO CONFLICT WITH PROPRIETARY RIGHTS
(a) To the best knowledge of Seller, the conduct of the
Subsidiaries' respective businesses as presently conducted does not infringe or
otherwise conflict with any valid trademark, tradename, service mark, patent or
copyright of others in any way which would have a Material Adverse Effect.
4.9 NON-COMPETITION ARRANGEMENTS
Following the Closing, none of the Subsidiaries will be subject to
any agreement which contains covenants limiting the freedom of such Subsidiary
(or any successor) to compete in any line of business or with any Person.
4.10 EMPLOYEE BENEFITS
There are no claims, actions or proceedings (other than routine
claims for benefits) pending or, to the best knowledge of Seller, threatened,
against any Subsidiary with respect to any Employee Benefit Plan.
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4.11 LITIGATION AND LABOR RELATIONS
(a) There is no Litigation which, if decided adversely, would have
a Material Adverse Effect.
(b) There are (i) no labor disputes, material grievances,
arbitration proceedings, actual or threatened strikes, work stoppages or
slowdowns pending or, to the best knowledge of Seller, threatened against any
Subsidiary or affecting any Subsidiary by any of their employees or their
representatives; and (ii) no charges of unfair labor practices are pending or,
to the best knowledge of Seller, threatened before any governmental, regulatory
or administrative agency or authority.
(c) None of the Subsidiaries are a party to a collective
bargaining agreement.
(d) Each of the Subsidiaries has complied with and is currently in
compliance with all applicable federal and Commonwealth laws relating to
employment, labor and working conditions, except such noncompliance which, in
the aggregate, would not have a Material Adverse Effect, and Seller is not aware
of the existence of any liability for any material arrearages of wages (other
than current wages not yet due or payable), severance pay or other applicable
laws or regulations relating to labor, or any taxes or penalties for failure to
comply with any of such laws.
4.12 PROPERTY AND LIABILITY INSURANCE
The property and liability insurance coverage relating to the business
of the Subsidiaries is sufficient for compliance with all requirements of law
and of all agreements to which any Subsidiary is a party and provides coverage
in amounts which are adequate against all risks usually insured against by
Persons operating similar businesses.
4.13 CONSENTS AND APPROVALS
Except as set forth in Schedule 4.13, neither the execution and
delivery of this Agreement by Seller nor the consummation of the transactions
contemplated hereby will (a) violate any provision of the Certificate of
Incorporation or By-Laws (or other comparable governing documents) of Seller or
of any of the Subsidiaries, (b) require any Consent of, or filing with or
notification to, any Governmental Entity, (c) require any Consent under, or
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration of any obligation to repay) under, any contract to
which the Seller or any Subsidiary is a party or by which they or any of their
property or assets may be
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bound, or (d) violate any Order of any Governmental Entity applicable to Seller
or the Subsidiaries.
4.14 PROPERTIES AND ASSETS
Each of the Subsidiaries has good, valid and marketable title to all of
its properties and assets, including without limitation all assets reflected on
the Interim Balance Sheet and all assets acquired since the date of the Interim
Balance Sheet (except for assets since sold, used or otherwise disposed of in
the ordinary course of business consistent with past practices) free and clear
of all Encumbrances.
4.15 COMPLIANCE WITH LAWS; LICENSES AND PERMITS
(a) Except as set forth in Schedule 4.15, the operations of the
Subsidiaries have been conducted in accordance with applicable laws, except such
noncompliance which, in the aggregate, would not have a Material Adverse Effect.
4.16 ENVIRONMENTAL MATTERS
(a) Except as set forth in Schedule 4.16, each of the Subsidiaries
holds, and is in substantial compliance with, all material permits, licenses and
government authorizations required for the Subsidiaries to conduct their
respective business under any Environmental Law, and the Subsidiaries are
otherwise in compliance with all applicable Environmental Laws, except where the
failure to be in compliance would not have a Material Adverse Effect;
(b) None of the Subsidiaries have received any written request for
information, or been notified that they are a potentially responsible party,
under any Environmental Law with respect to any on-site or off-site location for
which liability is currently being asserted;
(c) None of the Subsidiaries have entered into or agreed to any
consent decree or order, and are not subject to any judgment, decree or order
relating to compliance with any Environmental Law or to investigation or cleanup
of regulated substances under any Environmental Law;
(d) No asbestos-containing material that could reasonably be
expected to pose a current hazard to health is present at any facility or
property owned or operated by any Subsidiary that could reasonably be expected
to have a Material Adverse Effect;
(e) None of the Subsidiaries have either expressly or by operation
of law assumed or otherwise become subject to the liability of any other Person
pursuant to any Environmental Law or
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any related common law theory that could reasonably be expected to have a
Material Adverse Effect;
(f) There are no other facts, events or circumstances with respect
to the past or present operations or facilities of any of the Subsidiaries or
any predecessor or affiliate thereof that would form the basis for any liability
(including contingent liability) or corrective or remedial obligation pursuant
to any Environmental Law or any related common law theory, including, without
limitation, any liability or obligation for on-site or off-site cleanup costs,
fines or penalties, property damage, personal injury or natural resources
damages that could reasonably be expected to have a Material Adverse Effect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES BY BUYER
Buyer represents and warrants to Seller as follows:
5.1 ORGANIZATION AND STANDING
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth and has full corporate power and
authority to enter into and perform this Agreement.
5.2 AUTHORITY
The execution, delivery and performance by Buyer of this Agreement have
been duly authorized by all necessary corporate action on the part of the Buyer.
This Agreement has been duly executed and delivered by Buyer and, assuming due
execution by Seller, constitutes a valid and binding agreement of Buyer
enforceable against Buyer in accordance with its terms, except as limited by
bankruptcy, insolvency, reorganization and similar laws affecting the rights of
creditors generally and by the availability of equitable remedies.
5.3 CONSENTS AND APPROVALS; NO VIOLATIONS
Neither the execution and delivery of this Agreement by Buyer nor the
consummation of the transactions contemplated hereby by Buyer will (a) violate
any provision of its Certificate of Incorporation or By-Laws, (b) require any
Consent of, or filing with or notification to, any Governmental Entity, except
where the failure to obtain such Consent or to make such filing or notification
would not impair, hinder or adversely affect the ability of Buyer to perform any
of its obligations under this Agreement or to consummate the transactions
contemplated hereby (a
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"Buyer Material Adverse Effect"), or (c) violate any Order of any Governmental
Entity applicable to Buyer, except such violations which, in the aggregate,
would not have a Buyer Material Adverse Effect.
ARTICLE VI
CERTAIN COVENANTS AND AGREEMENTS OF SELLER AND BUYER
6.1 ACCESS TO INFORMATION
(a) After the date of this Agreement, Seller shall continue to
permit Buyer and its representatives to have reasonable access during normal
business hours, upon reasonable advance notice, to the books and records,
properties and assets of the Subsidiaries, provided that such access shall be
conducted by Buyer and its representatives in such a manner as not to interfere
unreasonably with the business or operations of the Subsidiaries. Seller will
assist Buyer in conducting such review and investigation and, subject to the
aforesaid, will provide and will cause their independent public accountants to
provide Buyer, its employees, agents and representatives full access to, and
complete information concerning, all aspects of the businesses of the
Subsidiaries, including its books, records (including tax returns filed or in
preparation), personnel and premises and the audit work papers and other records
of its independent public accountants.
(b) In the event Seller is subject to a tax examination for years
prior to the Closing Date, after the Closing Date Buyer shall permit the Seller
and its representatives reasonable access during normal business hours, upon
reasonable advance notice, to the books and records of the Subsidiaries for the
periods under examination and will cooperate with Seller in making available to
Seller and its representatives financial information reasonably requested by
Seller for the tax audit, in either case, so long as it does not interfere
unreasonably with the business or operations of the Subsidiaries.
6.2 DISCLOSURE SUPPLEMENTS
From time to time prior to the Closing Date, Seller will supplement or
amend the disclosure schedules with respect to any matter hereafter arising
which, if existing or occurring at or prior to the date of this Agreement, would
have been required to be set forth or described in the disclosure schedules or
which is necessary to complete or correct any information in the disclosure
schedule or in any representation or warranty of Seller which has been rendered
inaccurate thereby; provided, however, that for the purposes of determining the
satisfaction of the condition set forth
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in Section 7.1 hereof, no such supplement or amendment shall be given effect.
6.3 CONSENTS AND APPROVALS
Each of the parties hereto shall use its best efforts to obtain as
promptly as practicable all Consents of Governmental Entities and third parties
required in connection with the consummation of the transactions contemplated by
this Agreement; it being understood, however, that neither party shall be
required, in satisfaction of its obligations under this or any other Section of
this Agreement, to agree to hold separate or sell any assets or operations or
otherwise take actions which it reasonably believes may interfere, in any
material respect, with the benefits intended to be realized by such party as a
result of the transactions contemplated hereby.
6.4 FILINGS
Promptly after the execution of this Agreement, each of the parties
hereto shall prepare and make or cause to be made any required filings,
submissions and notifications under the laws of any jurisdiction to the extent
that such filings are necessary to consummate the transactions contemplated
hereby, will use its best efforts to respond to and comply with any requests for
additional information made by any Governmental Entity, and will use its best
efforts to take all other actions necessary to consummate the transactions
contemplated hereby in a manner consistent with applicable law. Each of the
parties hereto will furnish to the other party such necessary information and
reasonable assistance as such other party may reasonably request in connection
with the foregoing.
6.5 COVENANT TO SATISFY CONDITIONS
Seller will use its best efforts to ensure that the conditions set
forth in Article VII hereof are satisfied, insofar as such matters are within
the control of Seller, and Buyer will use its best efforts to ensure that the
conditions set forth in Article VIII hereof are satisfied, insofar as such
matters are within the control of Buyer.
6.6 FURTHER ASSURANCES
Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use its best efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement. If at any time after the
Closing Date any further action is necessary or desirable to carry out the
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purposes of this Agreement, the parties hereto shall, at Buyer's expense, take
or cause to be taken all such reasonably necessary action, including, without
limitation, the execution and delivery of such further instruments and documents
as may be reasonably requested by either party for such purposes or otherwise to
consummate and make effective the transactions contemplated hereby.
6.7 CONDUCT OF THE BUSINESS OF THE SUBSIDIARIES; INTERCOMPANY
ACCOUNTS
(a) Prior to the Closing, except as consented to or approved by
Buyer in writing, Seller shall cause the Subsidiaries to:
(i) conduct their respective businesses in the ordinary and
usual course consistent with past practice;
(ii) use their best efforts to maintain satisfactory
relationships with customers, suppliers, distributors and others having
commercially beneficial business relationships;
(b) All intercompany accounts between the Subsidiaries and the
Seller shall be settled at or prior to the Closing.
(c) Seller shall apply the certificates of deposit with Banco
Santander Puerto Rico securing the indebtedness listed on Schedule 2.2 against
the amounts owed with respect to such indebtedness.
6.8 PUBLIC DISCLOSURE
The parties will consult with each other and agree on desirability,
timing and substance of any Public Disclosure, relating solely to the
transactions contemplated hereby. Subject to applicable law, including but not
limited to federal, state and Commonwealth securities laws, neither party will
make any Public Disclosure without the prior agreement of the other party as to
the time of the issuance, extent of distribution, and form and substance of the
Public Disclosure.
ARTICLE VII
CONDITIONS PRECEDENT OF BUYER
The obligation of Buyer to consummate the transactions contemplated
hereby is subject to the fulfillment or written waiver by Buyer of each of the
following conditions prior to or at the Closing:
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7.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of Seller made hereunder shall be
true and correct in all material respects as of the date hereof and at and as of
the Closing Date, with the same force and effect as though made at and as of the
Closing Date, except for changes permitted or contemplated by this Agreement.
7.2 COVENANTS
Seller shall have performed and complied in all material respects with
all covenants and agreements required by this Agreement to be performed or
complied with by Seller.
7.3 OFFICER'S CERTIFICATE
Buyer shall have received a certificate of an authorized officer of
Seller, dated the Closing Date, certifying that the conditions contained in
Sections 7.1 and 7.2 have been fulfilled.
7.4 NO ORDER OR PROCEEDINGS
No Order shall have been enacted, entered or promulgated (and remain in
effect) or have been enforced by any Governmental Entity which prohibits or
restricts the consummation of the transactions contemplated hereby. No action or
proceeding by any Governmental Entity shall have been commenced (and remain
pending) against Buyer, Seller, the Subsidiaries or any of their respective
Affiliated Companies seeking to prevent, delay or materially change the
transactions contemplated hereby or challenging any of the terms or provisions
of this Agreement or seeking material damages in connection therewith.
7.5 CONSENTS
All Consents of Governmental Entities necessary for consummation of the
transactions contemplated hereby shall have been obtained.
7.6 OPINION OF COUNSEL
Buyer shall have received an opinion or opinions of Pietrantoni Mendez
& Alvarez LLP, counsel to Seller, in form and substance reasonably satisfactory
to Buyer.
7.7 CONDUCT OF BUSINESS OF SUBSIDIARIES
Since the date of this Agreement, the respective businesses of the
Subsidiaries shall have been conducted, in all material respects, in the
ordinary and usual course consistent with past practice.
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7.8 CLOSING DELIVERIES
Buyer shall have received each of the following:
(a) all documents, instruments and other closing deliveries specified
in Section 3.2; and
(b) such other evidence as Buyer may reasonably request in order to
establish compliance with the conditions of Closing set forth herein.
ARTICLE VIII
CONDITIONS PRECEDENT OF SELLER
The obligation of Seller to consummate the transactions contemplated
hereby is subject to the fulfillment or written waiver by Seller of each of the
following conditions prior to or at the Closing:
8.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of Buyer made hereunder shall be
true and correct in all material respects as of the date hereof and at and as of
the Closing Date, with the same force and effect as though made at and as of the
Closing Date, except for changes permitted or contemplated by this Agreement.
8.2 COVENANTS
Buyer shall have performed and complied in all material respects with
all covenants and agreements required by this Agreement to be performed or
complied with by Buyer prior to or at the Closing.
8.3 OFFICER'S CERTIFICATE
Seller shall have received a certificate of an authorized officer of
Buyer, dated the Closing Date, certifying that the conditions contained in
Sections 8.1 and 8.2 have been fulfilled.
8.4 NO ORDER OR PROCEEDING
No Order shall have been enacted, entered or promulgated (and remain in
effect) or shall have been enforced by any Governmental Entity which prohibits
or restricts the consummation of the transactions contemplated hereby. No action
or proceeding by any Governmental Entity shall have been commenced (and remain
pending) against Buyer, Seller, the Subsidiaries or any of their respective
Affiliated Companies seeking to prevent, delay or materially change
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the transactions contemplated hereby or challenging any of the terms or
provisions of this Agreement or seeking material damages in connection
therewith.
8.5 CONSENTS
All Consents of Governmental Entities necessary for consummation of the
transactions contemplated hereby shall have been obtained.
8.6 OPINION OF COUNSEL
Seller shall have received an opinion of Aviles & Colon Morales, LLP,
counsel to Buyer, in form and substance reasonably satisfactory to Seller.
8.7 iTract LLC MERGER
The S-4 Registration Statement filed with the Securities and Exchange
Commission by iTract, Inc. shall have been declared effective and Seller shall
have received evidence reasonably satisfactory to Seller and its counsel that
the mergers contemplated by that certain Agreement and Plan of Merger, dated as
of April 11, 2000, by and among Margo Caribe, Inc., iTract Acquisition Company,
LLC, iTract, Inc., iTract, LLC and International Commercial Exchange Systems,
Inc. will occur concurrently with or immediately following the sale of the
Shares and the Margo Marks hereunder.
8.8 CLOSING DELIVERIES
Seller shall have received each of the following:
(a) all documents, instruments and other closing deliveries specified
in Section 3.3; and
(b) such other evidence as Seller may reasonably request in order to
establish compliance with the conditions of Closing set forth herein.
8.9 STOCKHOLDER APPROVAL
Seller shall have obtained the approval of its stockholders of this
Agreement and the transactions contemplated hereby.
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ARTICLE IX
EMPLOYEE MATTERS
9.1 RETENTION OF EMPLOYEES
Buyer agrees to retain the employees currently employed by the
Subsidiaries and to honor their years of service for purposes of determining
applicable employee benefits, including vacation and severance benefits. This
Agreement shall not limit the ability of Buyer to terminate employees in the
ordinary course of business or it otherwise deems necessary or advisable in
connection with the business of the Subsidiaries following the Closing.
9.2 THIRD PARTY BENEFICIARIES
Notwithstanding any provision to the contrary contained herein, no
employee or former employee of any of the Subsidiaries will be construed as a
third party beneficiary under this Article IX of this Agreement or otherwise.
ARTICLE X
SURVIVAL OF REPRESENTATIONS
10.1 SURVIVAL OF REPRESENTATIONS
All representations, warranties, covenants and agreements made by
either party to this Agreement or in any certificate delivered pursuant to this
Agreement shall expire on the Closing Date, and Seller shall have no liability
whatsoever with respect to said representations, warranties, covenants and
agreements other than the covenants and agreements contained in Article II
hereof and Sections 6.6, 6.8 and 11.1.
ARTICLE XI
TERMINATION AND ABANDONMENT
11.1 TERMINATION
This Agreement may be terminated at any time prior to the Closing Date
as follows:
(a) by mutual consent of Buyer and Seller;
(b) by either Buyer or Seller at any time after October 15, 2000
if, through no fault of the party seeking termination, the Closing shall not
have occurred;
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(c) by Buyer, if there has been a material violation or breach by
Seller of any agreement, representation, covenant or warranty contained in this
Agreement which has rendered the satisfaction of any condition to the
obligations of Buyer impossible and such violation or breach has not been waived
by Buyer;
(d) by Seller, if there has been a material violation or breach by
Buyer of any agreement, representation, covenant or warranty contained in this
Agreement which has rendered the satisfaction of any condition to the
obligations of Seller impossible and such violation or breach has not been
waived by Seller;
(e) by either Buyer or Seller if a court of competent jurisdiction
shall have issued an Order permanently restraining or prohibiting the
transactions contemplated by this Agreement, and such Order shall have become
final and nonappealable; or
11.2 PROCEDURE AND EFFECT OF TERMINATION
In the event of termination of this Agreement and abandonment of the
transactions contemplated hereby by either of the parties pursuant to Section
11.1 hereof, written notice thereof shall forthwith be given to the other party
hereto and this Agreement shall terminate and the transactions contemplated
hereby shall be abandoned, without any liability or further obligation except
that (i) in the event of the termination of this Agreement by Buyer under
Section 11.1(c), Seller shall be obligated to reimburse Buyer for all
out-of-pocket expenses incurred by Buyer in connection with this Agreement and
the transactions contemplated thereby, up to a maximum of $100,000 and (ii) in
the event of the termination of this Agreement by Seller under Section 11.1(d),
Buyer shall be obligated to reimburse Seller for all out-of-pocket expenses
incurred by Seller in connection with the Agreement and the transactions
contemplated thereby, up to a maximum of $100,000.
ARTICLE XII
MISCELLANEOUS
12.1 EXPENSES OF THE PARTIES
Buyer will pay its own expenses, and Seller will pay its own expenses
and the expenses of the Subsidiaries, including the expenses of its accountants
and attorneys, in connection with the negotiation, execution and consummation of
the transactions contemplated by this Agreement. Seller shall be responsible for
any and all stock transfer taxes or documentation, any other
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similar registration costs, taxes and fees in connection with the transfer of
the Shares contemplated hereby.
12.2 PARTIES IN INTEREST
This Agreement will inure to the benefit of and be binding on and
enforceable against the parties hereto and their respective successors and
permitted assigns.
12.3 GOVERNING LAW
This Agreement will be governed by and construed in accordance with the
laws of the Commonwealth, regardless of the laws that might otherwise govern
under applicable principles of conflict of laws thereof.
12.4 CAPTIONS
The captions and section numbers appearing in this Agreement are
inserted only as a matter of convenience and in no way define, limit or construe
the scope and intent of such sections nor in any way affect the interpretation
of this Agreement.
12.5 ENTIRE AGREEMENT; AMENDMENTS
This Agreement, the disclosure schedules and the documents and other
agreements referred to herein, set forth the entire agreement of the parties
with respect to the subject matter hereof, and supersede any prior oral or
written agreement or understanding (other than any confidentiality agreement
executed by the parties prior to this Agreement) between the parties. No
modification or amendment of this Agreement may be made except in writing signed
by both parties.
12.6 NOTICES
Any notices or communications required or permitted hereunder will be
deemed sufficiently given by either of the parties hereto to the other party if
such notice or communication is in writing and delivered in person or by a
nationally recognized overnight delivery service, sent via facsimile, or mailed
(postage prepaid), by registered or certified mail, return receipt requested, as
follows:
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If to Seller, to:
Margo Caribe, Inc.
Road 690, Kilometer 5.8
Vega Alta, Puerto Rico 00692
Fax: (787) 883-3244
Attention: Chief Executive Officer
with a required copy to:
Ignacio Alvarez, Esq.
Pietrantoni Mendez & Alvarez LLP
Banco Popular Center, Suite 1901
209 Munoz Rivera Avenue
Hato Rey, Puerto Rico 00918
Fax: (809) 274-1470
If to Buyer, to:
Empresas Margo, Inc.
Road 690, Kilometer 5.8
Vega Alta, Puerto Rico 00692
Fax: (787) 883-3244
Attention: Michael J. Spector
with a required copy to:
Luis Anibal Aviles Pagan, Esq.
Suite 1112, Home Mortgage Plaza
268 Ponce de Leon Avenue
San Juan, PR 00918
Fax: (787) 754-2077
or to such other address or addresses as hereafter will be furnished as provided
in this Section 12.6 by either of the parties hereto to the other party hereto.
Each such notice will be deemed to have been given as of the date received. A
return receipt, or evidence of refusal, obtained by the Post Office authorities
at the request of the sender, or the expiration of ten days after mailing, will
be conclusive as of the fact of receipt.
12.7 COUNTERPARTS
This Agreement may be executed in counterparts, each of which will be
deemed to be an original, and together will constitute one and the same
instrument.
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12.8 ASSIGNMENT
This Agreement may not be assigned by either party hereto without the
prior written consent of the other party, except that Buyer may assign its right
to any of its Affiliated Company, but no such assignment shall relieve Buyer of
its obligations hereunder.
12.9 BROKERS
Buyer and Seller each represent and warrant to the other that, except
for San Juan Holdings, Inc., the fees and expenses of which will be paid by
Seller, all negotiations between them have been carried out by them directly,
without the intervention of any third person, and that there are no broker's
commissions, finder's fees or other payment payable to any Person in connection
with the transactions contemplated hereby.
12.10 ACCESS TO INFORMATION
For a period of eighteen (18) months following the Closing Date, Buyer
will give Seller and its officers, employees and representatives reasonable
access, upon reasonable advance notice, to such documentation and information
which Seller or its affiliates may reasonably request for inspection and copying
at Seller's expense, provided that such access and inspection and copying shall
be conducted in such a manner as not to interfere unreasonably with the business
and operations of the Subsidiaries and, provided further, that Seller and its
officers, employees and representatives shall keep all such documentation and
information confidential.
12.11 EXTENSION; WAIVER
At any time prior to the Closing Date, the party entitled to the
benefits of the respective term or provision may (a) extend the time for the
performance of any of the obligations or other acts of the other party hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document, certificate or writing delivered pursuant hereto or
(c) waive compliance with any obligation, covenant, agreement or condition
contained herein. Any agreement on the part of either party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of the party entitled to the benefits of such extended or
waived term or provision.
12.12 VALIDITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, each of which shall remain in full force and effect.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MARGO CARIBE, INC.
By: /s/ MICHAEL RUBIN
-----------------------------
Name: Michael Rubin
Title: Director
EMPRESAS MARGO, INC.
By: /s/ MICHAEL J. SPECTOR
-----------------------------
Name: Michael J. Spector
Title: President and Chief
Executive Officer
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APPENDIX D
[SCHWARTZ HESLIN GROUP, INC. LETTERHEAD]
CONFIDENTIAL
April 11, 2000
Margo Caribe, Inc.
Carretera 690, Km. 5.8
Vega Alta, Puerto Rico 00692
Attention: Members of the Board Of Directors
Gentlemen:
You have requested that the Schwartz Heslin Group, Inc. ("SHG") deliver an
Opinion to the Board of Directors of Margo Caribe, Inc. ("Margo"), a Puerto Rico
corporation, that from a financial point of view, the following merger
transaction with respect to itract, LLC ("itract" or the "Company") is fair to
Margo's existing shareholders:
Under the Agreement and Plan of Merger by and among Margo Caribe, Inc.
("Margo") and itract, LLC ("itract,") dated April 11, 2000, itract, LLC
members would receive 86.8% of the issued and outstanding shares of common
stock of Margo (on a fully diluted basis) in exchange for all of the
membership units of itract. Margo will sell its existing operating
businesses prior to the merger. In addition, Margo must have at least $5
million in cash and cash equivalents and not be subject to liabilities
exceeding $10,000 as of the time of the effective closing. With respect to
itract, LLC, certain existing liabilities representing International
Commerce Exchange Systems, Inc. ("ICES") funded services and activities
will be converted to contributed capital in the amount of approximately
$384,000.
SHG issued a Valuation Report, which is an integral part of this Fairness
Opinion, on the Company as of March 31, 2000. The Valuation Report contains
detailed descriptions of our quantitative and qualitative analyses and
conclusions; the statement of valuation assumptions and limiting conditions; SHG
credentials; engagement letter; and a signed indemnification agreement.
In conducting our analysis and arriving at our Opinion as expressed herein, we
have considered such financial and other factors, as we have deemed appropriate
under the circumstances. We have reviewed, among other things, without
limitation, the following: (i) the March 17, 2000 itract, LLC Business Plan (ii)
certain internal information, financial and operational in nature (including
<PAGE>
Margo Caribe, Inc.
April 11, 2000
Page 2
projections prepared by itract and ICES management) concerning the business and
operations of itract; (iii) certain available information concerning the trading
of, and the trading market for, the Common Stock of Margo Caribe, Inc.; (iv)
certain publicly available information with respect to other companies that we
believe to be comparable in certain respects to itract (or one or more of its
business segments) and the trading markets for certain of such other companies'
securities as of March 31, 2000. We have also met with certain officers and
employees of itract to discuss the foregoing as well as other matters we believe
relevant to our inquiry. We have also taken into account our assessment of
market and financial conditions, as well as our experience in connection with
similar transactions and valuations generally including economic, business, and
financial market changes since March 31, 2000 through the signing of the Merger
Agreement on April 11, 2000.
In arriving at our Opinion, we have assumed and relied upon the accuracy and
completeness of all of the financial and other information provided us or
publicly available and have not attempted independently to verify any of such
information, nor have we made or obtained any independent evaluations or
appraisals of itract's ability to achieve its Business Plan as presented.
Accordingly, we express no opinion or any form of assurance for the underlying
data presented in this opinion and/or the Valuation Report nor do we express any
opinion or any form of assurance that itract can achieve its Business Plan as
presented. This Opinion, along with the Valuation Report, are to be used only
for the one purpose stated. Any use or reliance of this report for any other
purpose by you or third parties is invalid.
SHG is independent of itract, LLC, International Commerce Exchange Systems, Inc.
and Margo Caribe, Inc. and has no financial interest in either of these
businesses. Our fee for this Opinion is in no way influenced by the results of
our analysis.
Based upon and subject to the foregoing and based upon such other matters, as we
consider relevant, it is our Opinion that as of the date hereof, the cited
merger transaction is fair, from a financial standpoint, to existing
shareholders.
Very truly yours,
Schwartz Heslin Group, Inc.
/s/ Schwartz Heslin Group, Inc.
D-2
<PAGE>
APPENDIX E
[SAN JUAN HOLDINGS, INC. LETTERHEAD]
June 30, 2000
STRICTLY CONFIDENTIAL
Board of Directors
MARGO CARIBE, INC.
Road 690, Kilometer 5.8
Vega Alta, Puerto Rico 00692
Dear Members of the Board:
Margo Caribe, Inc. (the "Company") and iTract, LLC ("iTract"), a
developmental stage internet company, have entered into an Agreement and Plan of
Merger dated as of April 11, 2000 (the "Agreement"). Under the Agreement, the
Company would first reincorporate as a Delaware corporation pursuant to a merger
with a newly created Delaware corporation. A subsidiary of the new Delaware
corporation would then merge with iTract (the "iTract Merger"). As a condition
prior to consummating the iTract Merger, the Company is required to sell its
nursery and other operating businesses.
You have asked us to advise you with respect to the fairness to the
Company, from a financial point of view, of the consideration to be received by
the Company pursuant to the terms of the Stock Purchase Agreement, dated as of
June 30, 2000 (the "Stock Purchase Agreement"), between the Company and Empresas
Margo, Inc., a Puerto Rico corporation ("Empresas Margo"). The Stock Purchase
Agreement provides for the purchase by Empresas Margo, or an entity owned and
controlled by Empresas Margo, of all of the issued and outstanding shares (the
"Shares") of Margo Nursery Farms, Inc., Margo Garden Products, Inc., Margo
Landscaping & Design, Inc., Rain Forest Products, Inc., and Margo Development
Corp. (the "Subsidiaries"), which are wholly-owned subsidiaries of the Company
(the "Transaction"). In consideration of the aforesaid Transaction, Empresas
Margo shall pay to the Company a cash payment of $5.0 million plus the
assumption of the outstanding debt (after application of the cash collateral
securing this debt) of Margo. As of May 31, 2000, the outstanding principal
amount of the debt to be assumed was approximately $812,000 (the
"Consideration").
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company, as well as the Stock
Purchase Agreement. We have also reviewed certain other information, including
financial forecasts, provided to us by the Company and have met with the
Company's management to discuss the business and prospects of the Company.
We have also considered certain financial and stock market data of the
Company, and we have compared that data with similar data for other publicly
held companies in businesses similar to the Company and we have considered the
financial terms of certain other business combinations and other transactions
which have recently been effected. We also considered such other information,
financial studies, analyses and investigations and financial, economic and
market criteria which we deemed relevant. At the request of the Board of
Directors of the Company, we solicited indications of interest in acquiring the
Subsidiaries from certain U.S. nursery companies and other third parties
specifically identified to us by the Company.
<PAGE>
FAIRNESS OPINION LETTER--MARGO CARIBE, INC.
June 30, 2000
Page 2 of 2
In connection with our review, we have not assumed any responsibility
for independent verification of any of the foregoing information and have relied
on its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's management as to the future financial performance of the Company. In
addition, we have not been requested to make, and have not made, an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of the Company nor have we been furnished with any such evaluations or
appraisals. Our opinion is necessarily based upon financial, economic, market
and other conditions as they exist and can be evaluated on the date hereof.
With respect to the iTract Merger and Agreement, we have not been
provided and have not reviewed the terms of the iTract Merger, the Agreement, or
any information relating to iTract or any of the possible financial effects of
the iTract Merger. We understand that, as of the date hereof, the iTract Merger
is still pending based on the completion of certain terms and conditions,
including the sale of the Subsidiaries. Accordingly, we have not been requested
to opine as to, and our opinion does not in any manner take into consideration
any possible financial, business, economic or other consequence of the iTract
Merger to the Company or the shareholders of the Company.
We have acted as the Company's financial advisor in connection with the
sale of the Subsidiaries and will receive a fee for our services, a significant
portion of which is contingent upon the consummation of the sale of the
Subsidiaries. We have also received a fee for rendering this opinion.
In the ordinary course of business, our affiliate holds accounts for
certain customers that may, at any time, hold a position in the Company's common
stock.
It is understood that this letter is for the information of the Company
only in connection with its consideration of the Transaction, does not
constitute a recommendation to any stockholder as to how such stockholder should
vote on the proposed Transaction and is not to be quoted or referred to, in
whole or in part, nor shall this letter be used for any other purposes, without
our prior written consent; provided, however, that this letter may be included
in its entirety in any proxy statement/prospectus to be distributed to the
holders of Margo common stock in connection with the Transaction and the iTract
Merger.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Consideration to be received by the Company in the
Transaction is fair to the Company, from a financial point of view.
Very truly yours,
/s/ SAN JUAN HOLDINGS, INC.
SAN JUAN HOLDINGS, INC.
E-2
<PAGE>
APPENDIX F
PUERTO RICO GENERAL CORPORATIONS LAW
CHAPTER 10. MERGER OR CONSOLIDATION
Article 10.12. Appraisal Rights.
A. Any stockholder of a corporation organized in the Commonwealth of
Puerto Rico (i) 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, (ii) who
continuously holds such shares through the effective date of the merger or
consolidation,(iii) who has otherwise complied with subsection (D) of this
section and (iv) who has neither voted in favor of the merger or consolidation
nor consented thereto in writing pursuant to section 7.17 of this act shall be
entitled to an appraisal by the Court of First Instance (Superior Part) 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. 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 rights 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 sections 10.01,10.02, 10.04, 10.07 or 10.08 of this act:
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 the National
Association of Securities Dealers, Inc. (NASDAQ)-NMS; or
(ii) held of record by more than two thousand (2,000)
holders. 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 subsection (F) of section
10.01 of this act.
2. Notwithstanding paragraph (1) of this subsection, appraisal
rights 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
10.01, 10.02, 10.04, 10.07 and 10.08 of this act to accept for such stock
anything except:
(i) shares of stock of the corporation surviving or
resulting from such merger or consolidation, or
depository receipts in respect thereof;
(ii) 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 the National Association of
Securities Dealers, Inc. (NASDAQ)-NMS or held of record
by more than two thousand (2,000) holders;
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<PAGE>
(iii) cash in lieu of fractional shares or fractional
depository receipts described in the foregoing
subparagraphs (i) and (ii) of this paragraph; or
(iv) any combination of the I shares of stock, [depository
receipts] and cash in lieu of fractional shares or
fractional depository receipts described in the
foregoing subparagraphs (i), (ii) and (iii) of this
paragraph.
3. In the event all of the stock of a subsidiary domestic
corporation party to a merger effected under section 10.03 of this act is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary domestic 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 this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than twenty (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 reasonably 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
ten (10) days 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 7.17
or 10.03 of this act, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within ten (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. Such
notice shall include 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 twenty (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.
E. Within one hundred and twenty (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
First Instance (Superior Part) demanding a determination of the value of the
stock of all such stockholders. Notwithstanding the foregoing, at any time
within sixty (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 one hundred
twenty (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
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<PAGE>
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 ten (10) days after
his written request for such a statement is received by the surviving or
resulting corporation or within ten (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 twenty (20) days after such service file in the office of the
Department of State 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 Department of State, if so ordered
by the Court, shall give notice of the Puerto Rico Taxes 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 one or more
publications at least one week before the day of the hearing, in a newspaper of
general circulation published in San Juan, Puerto Rico or such publication as
the Court deems advisable. The form of the notice 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 of First Instance (Superior
Part),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
Department of State for notation thereon of the pendency of the appraisal
proceedings. If any stockholder fails to comply with such direction, the Court
may dismiss the proceedings as to such stockholder.
H. After determining the stockholders entitled to an appraisal, the Court
of First Instance (Superior-Part) shall determine their fair value taking into
consideration the 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. In determining the fair
value of the shares, the Court shall not take into consideration any element of
value arising from the accomplishment or expectation of the merger or
consolidation.
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 trial 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
Department of State, 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. 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 First Instance (Superior Part) may
be enforced, whether such surviving or resulting corporation be a domestic or
foreign corporation.
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, any 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.
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<PAGE>
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). 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 sixty (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 First Instance (Superior
Part) 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.
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<PAGE>
APPENDIX G
Certificate of Incorporation
of
iTract, Inc.
The undersigned, a natural person, for the purpose of organizing a
corporation under the laws of the State of Delaware, hereby certifies as
follows:
Article I - Name
The name of the Corporation is iTract, Inc. (the "Corporation").
Article II - Address of Registered Office; Name of Registered Agent
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle,
State of Delaware 19801. The name of its registered agent at that address is The
Corporation Trust Company.
Article III - Purpose
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may now or hereafter be organized under the
General Corporation Law of the State of Delaware, as set forth in Title 8 of the
Delaware Code, as in effect from time to time (the "DGCL").
Article IV - Capital Stock
A. Authorization. The total number of shares of all classes of capital
stock which the Corporation shall have authority to issue is 105,000,000 shares,
consisting of (i) 100,000,000 shares of common stock, par value $.001 per share
(the "Common Stock"), and (ii) 5,000,000 shares of preferred stock, par value
$.001 per share (the "Preferred Stock").
B. Preferred Stock. The Preferred Stock may be issued from time to time
in one or more classes or series, each of which shall have such designations,
number of shares or title, as shall be fixed by the Board of Directors of the
Corporation prior to the issuance of any shares of any such class or series.
Each such class or series of Preferred Stock shall consist of such number of
shares, and have such voting powers, full or limited, or no voting powers, and
such preferences and relative, participating, optional or other special rights
and such qualifications, limitations or restrictions thereof, as shall be stated
in such resolution or resolutions providing for the issue of such class or
series of Preferred Stock as may be adopted from time to time by the Board of
Directors prior to the issuance of any shares thereof pursuant to the authority
hereby expressly vested in it, all in accordance with the laws of the State of
Delaware.
<PAGE>
C. Common Stock. Except as otherwise provided in any Preferred Stock
authorized under Section B above, or as otherwise required by law, the entire
voting power for the election of directors and for all other purposes shall be
vested exclusively in the holders of the Common Stock. Each share of Common
Stock shall be entitled to one vote on all matters submitted to a vote of the
shareholders except on such matters exclusively related to the holders of
Preferred Stock. Each share of Common Stock shall be entitled to participate
equally in dividends declared and paid by the Corporation from legally available
funds. In the case of voluntary or involuntary liquidation, distribution or sale
of assets, dissolution, or winding up of the Corporation, holders of the Common
Stock are entitled to receive a pro rata portion of the amount distributed after
the payment of any liquidation preference of the Preferred Stock.
Article V - Limitation of Liability; Indemnification
A. No director shall be personally liable to the Corporation or any of
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any 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 DGCL, or (iv) for any transaction from
which the director derived an improper personal benefit. Any repeal or
modification of this Article V by the stockholders of the Corporation shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification with respect to any act or
omission occurring prior to such repeal or modification.
B. Indemnification. The Corporation shall indemnify to the full extent
authorized or permitted by law (as now or hereinafter in effect) any person
made, or threatened to be made, a defendant or witness to any action, suit or
proceeding (whether civil or criminal or otherwise) by reason of the fact that
he, his testator or intestate, is or was a director or officer of the
Corporation or by reason of the fact that such director or officer, at the
request of the Corporation, is or was serving any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, in
any capacity. Nothing contained herein shall affect any rights to
indemnification to which employees other than directors and officers may be
entitled by law. No amendment or repeal of this subsection B of this Article V
shall apply to or have any effect on any right to indemnification provided
hereunder with respect to any acts or omissions occurring prior to such
amendment or repeal.
Article VI - Incorporator
The name and mailing address of the sole incorporator is Alfred G.
Smith, II, and his address is 1600 Miami Center, 201 S. Biscayne Boulevard,
Miami, Florida 33131.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Incorporation as of this 4th day of April, 2000.
/S/ ALFRED G. SMITH
-------------------------------------
Alfred G. Smith, II, Incorporator
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<PAGE>
APPENDIX H
BYLAWS
OF
ITRACT, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
Section 2. Other Offices. The Corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine.
ARTICLE II
MEETING OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for
the election of directors or for any other purpose shall be held at such time
and place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors. In the absence of any such
designation, stockholders' meetings shall be held at the principal executive
office of the Corporation.
Section 2. Annual Meetings. The Annual Meetings of
Stockholders shall be held each year on such date and at such time as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting. At such
<PAGE>
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meetings the stockholders shall elect by a plurality vote a Board of Directors,
and transact such other business as may properly be brought before the meeting.
Section 3. Special Meetings. Unless otherwise prescribed by
law or by the Certificate of Incorporation, Special Meetings of Stockholders,
for any purpose or purposes, may be called by either (i) the Chairman, if there
be one, or (ii) the President, (iii) any Executive Vice-President, if there be
one (iv) any Vice President, if there be one, (v) the Secretary, or (vi) any
Assistant Secretary, if there be one, and shall be called by any such officer at
the request in writing of a majority of the Board of Directors or at the request
in writing of stockholders owning a majority of the capital stock of the
Corporation issued and outstanding and entitled to vote.
Section 4. Notice of Meetings. Whenever stockholders are
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given which notice shall state the place, date and hour of the
meeting, and, in the case of a Special Meeting, the purpose or purposes for
which the meeting is called. The written notice of any meeting shall be given to
each stockholder entitled to vote at such meeting not less than ten nor more
than sixty days before the date of the meeting. If mailed, notice is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at this address as it appears on the records of the Corporation.
<PAGE>
H-3
Business transacted at any meeting of stockholders shall be limited to the
purposes stated in the notice.
Section 5. Quorum. Except as otherwise provided by law or by
the Certificate of Incorporation, a majority of the voting power of the stock
issued and outstanding and entitled to vote at any meeting of stockholders, the
holders of which are present in person or represented by proxy, shall constitute
a quorum at all meetings of the stockholders for the transaction of business. A
quorum, once established, shall not be broken by the withdrawal of enough votes
to leave less than a quorum and the votes present may continue to transact
business until adjournment. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder entitled to vote at the
meeting.
Section 6. Voting. When a quorum is present at any meeting,
unless otherwise required by law, the Certificate of
<PAGE>
H-4
Incorporation or these Bylaws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
total voting power of the stock represented and entitled to vote thereat.
Section 7. Proxies. At each meeting of the stockholder, each
stockholder having the right to vote may vote in person or may authorize another
person or persons to act for him by proxy appointed by an instrument in writing
subscribed by such stockholder. No proxy shall be voted on or after three years
from its date, unless such proxy provides for a longer period. All proxies must
be filed with the Secretary of the Corporation at the beginning of each meeting
in order to be counted in any vote at the meeting. The Board of Directors, in
its discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in his discretion, may require that any votes cast at such meeting
shall be cast by written ballot.
Section 8. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking
<PAGE>
H-5
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.
Section 9. List of Stockholders Entitled to Vote. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
and class 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 of the Corporation who is
present.
Section 10. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 9 of this Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
<PAGE>
H-6
Section 11. Business Properly Brought Before An Annual
Meeting. At any annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the board,
or otherwise properly brought before the meeting by a stockholder. In addition
to any other applicable requirements, for business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, not less than 50 days nor more
than 60 days prior to the annual meeting; provided, however, that in the event
that less than 50 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of the
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stockholder of record proposing such business, (iii) the class and number of
shares of the Corporation which are beneficially owned by the stockholder, and
(iv) any material interest of the stockholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this Section 11 of this Article II provided, however,
that nothing in this Section 11 of this Article II shall be deemed to preclude
discussion by any stockholder of any business properly brought before the annual
meeting in accordance with said procedure.
The chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 11 of this
Article II, and if he should so determine, he shall so declare to the meeting
and any such business not properly brought before the meeting shall not be
transacted.
In addition to the provisions of this Section 11, a
stockholder shall also comply with the applicable requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder with respect to the matters set forth herein.
Nothing in these Bylaws shall be deemed to affect the rights of any stockholder
to request inclusion of proposals in the Corporation's proxy statement pursuant
to Rule 14a-8 under the Exchange Act.
<PAGE>
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ARTICLE III
DIRECTORS
Section 1. Nominations of Directors. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as Directors. Nominations of persons for election to the Board of the
Corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors, by any nominating committee or person appointed by the
Board of Directors or by any stockholder of the corporation entitled to vote for
the election of Directors at the meeting who complies with the notice procedures
set forth in this Section 1 of this Article III. Such nominations, other than
those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 50 days nor
more than 60 days prior to the meeting; provided, however, that in the event
that less than 50 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. Such stockholder's notice to the
Secretary shall set forth: (a) as to each person whom the stockholder proposes
to nominate for election or re-election as a
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Director, (i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the person, (iii) the
class and number of shares of capital stock of the Corporation which are
beneficially owned by the person, (iv) any other information relating to the
person that is required to be disclosed in solicitations of proxies for election
of Directors pursuant to Regulation 14A under the Exchange Act, and (v) any
other information relating to the person that is required pursuant to any
statute, or any rule or regulation of any governmental authority; and (b) as to
the stockholder giving the notice (i) the name and record address of the
stockholder, and (ii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the stockholder. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such proposed
nominee to serve as a Director of the Corporation. No person shall be eligible
for election as a Director of the Corporation unless nominated in accordance
with the procedures set forth herein. The chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that a nomination was not
made in accordance with the foregoing procedures, and if he should so determine,
he shall so declare to the meeting and the defective nomination shall be
disregarded.
Section 2. Number and Election of Directors. The Board of
Directors shall initially be fixed by the Incorporator
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and thereafter from time to time by the Board of Directors. Except as provided
in Section 3 of this Article, directors shall be elected by a plurality of the
votes cast at Annual Meetings of Stockholders. Each directors shall serve until
the next annual meeting of stockholders and until its successor is elected and
qualified. Any director may be removed from office, with or without cause and
only by the affirmative vote of the holders of at least 75% of the voting power
of all the shares of the Corporation entitled to vote generally in the election
of directors, voting together as a single class. Any director may resign at any
time upon notice to the Corporation. Directors need not be stockholders.
Section 3. Vacancies. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum, or by a sole remaining director,
and the directors so chosen shall hold office for the remainder of the full term
of the class of directors in which the new directorship was created or the
vacancy occurred and until such director's successors shall have been duly
elected and qualified, or until their earlier resignation or removal. No
decrease in the number of directors constituting the board of directors shall
shorten the term of any incumbent director.
Section 4. Duties and Powers. The property and business of the
Corporation shall be managed by or under the
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direction of the Board of Directors. In addition to the powers and authorities
by these Bylaws expressly conferred upon them, the Board may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.
Section 5. Meetings. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as may from time to time be determined by
the Board of Directors. Special meetings of the Board of Directors may be called
by the Chairman, if there be one, the President, or any one (1) director. Notice
thereof stating the place, date and hour of the meetings shall be given to each
director either by mail not less than forty-eight (48) hours before the date of
the meeting, by telephone, facsimile, email or telegram on twenty-four (24)
hours notice, or on such shorter notice as the person or persons calling such
meeting may deem necessary or appropriate in the circumstances.
Section 6. Quorum. Except as may be otherwise specifically
provided by law, the Certificate of Incorporation or these Bylaws, at all
meetings of the Board of Directors, a majority of the entire Board of Directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a
<PAGE>
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quorum shall be the act of the Board of Directors. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present. If only one
director is authorized, such sole director shall constitute a quorum.
Section 7. Actions of Board. Unless otherwise provided by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 8. Meetings by Means of Conference Telephone. Unless
otherwise provided by the Certificate of Incorporation or these Bylaws, members
of the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting pursuant to this Section 8 shall
constitute presence in person at such meeting.
Section 9. Committees. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors,
<PAGE>
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designate one or more committees, each such committee to consist of one or more
of the directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a designation
by the Board of Directors of an alternate member to replace the absent or
disqualified member, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. Any committee, to the
extent allowed by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it; but no such committee shall have the power or authority in
reference to amending the Certificate of Incorporation, adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws of the Corporation; and,
unless the resolution or the Certificate of Incorporation expressly so
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provides, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
Section 10. Chairman of the Board of Directors. The Board of
Directors in its discretion may choose a Chairman of the Board of Directors (who
must be a director). The Chairman of the Board of Directors, if there be one,
shall preside at all meetings of the stockholders and of the Board of Directors.
The Chairman of the Board of Directors shall also perform such other duties and
may exercise such other powers as from time to time may be assigned to him by
these Bylaws or by the Board of Directors.
Section 11. Compensation. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like reimbursement of expenses for attending committee meetings.
Section 12. Interested Directors. No contract or transaction
between the Corporation and one or more of its
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directors or officers, or between the Corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose if (i) the
material facts as to his or their relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
their committee, and the Board of Directors or committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or (ii) the material facts as to his or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the shareholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee thereof
or the shareholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
<PAGE>
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Section 13. Indemnification. (a) The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, 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 interest 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.
<PAGE>
H-17
(b) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in 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 interest of the Corporation and except that no such 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 of Delaware 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 such Court
of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer
of the Corporation shall be successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in paragraphs (a) and (b), or in
defense of any claim, issue
<PAGE>
H-18
or matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
herewith.
(d) Any indemnification under paragraphs (a) and (b) (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 present or former
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in paragraphs (a) and (b).
Such determination shall be made, with respect to person who is a director or
officer at the time of such determination, (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) by a committee of such directors designated
by a majority vote of such directors, even though less than a quorum, or (3) if
there are no such directors or if such directors so direct, by independent legal
counsel in a written opinion, or (4) by the stockholders.
(e) Expenses incurred by an officer or director in defending a
civil or criminal 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 such person is not entitled to
be indemnified by the Corporation as authorized in this Section 13. Such
expenses incurred by former directors and
<PAGE>
H-19
officer or other employees and agents may be so paid upon such terms and
conditions, if any, as the Corporation deems appropriate.
(f) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other paragraphs of this Section 13 shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
(g) The Board of Directors may authorize, by a vote of a
majority of a quorum of the Board of Directors, the Corporation 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 such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the Corporation
would have the power to indemnify such person against such liability under the
provisions of this Section 13.
(h) For the purposes of this Section 13, references to
"the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any
<PAGE>
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constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this Section, references to "other
enterprises" shall include employee benefit plans, references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the Corporation"
shall include 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 such person 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.
<PAGE>
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(j) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Section 13 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.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors, in its discretion, may also choose a Chief
Operating Officer, one or more Vice-Presidents, one or more Assistant
Secretaries and Assistant Treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 2 hereof. Any number of
offices may be held by the same person, unless otherwise prohibited by law, the
Certificate of Incorporation or these Bylaws. The officers of the Corporation
need not be stockholders of the Corporation nor need such officers be directors
of the Corporation.
Section 2. Election. The Board of Directors, at its first
meeting held after each Annual Meeting of stockholders shall elect the officers
of the Corporation who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors; and all officers of the Corporation shall hold
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office until their successors are chosen and qualified, or until their earlier
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the President or any Vice
President and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and power incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The Board of Directors may, by resolution, from time
to time confer like powers upon any other person or persons.
Section 4. President and Chief Executive Officer. The
President shall, subject to the supervisory powers as may be given by the Board
of Directors and, if there be one, the Chairman of the Board of Directors, be
the Chief Executive
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Officer of the Corporation and shall, subject to the control of the Board of
Directors, have general supervision, direction and control of the business and
officers of the Corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect. He or she shall execute all bonds,
mortgages, contracts and other instruments of the Corporation requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except that the other officers of the
Corporation may sign and execute documents when so authorized by these Bylaws,
the Board of Directors or the President. In the absence or disability of the
Chairman of the Board of Directors, or if there be none, the President shall
preside at all meetings of the stockholders and the Board of Directors. The
President shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him or her by these Bylaws or by
the Board of Directors.
Section 5. Chief Operating Officer. The Chief Operating
Officer shall have the day to day responsibility for the business operations of
the Corporation, reporting to the President and subject to the control of the
Board of Directors.
Section 6. Vice-Presidents and Executive Vice-Presidents. At
the request of the President or in his absence or in the event of his inability
or refusal to act, the Executive Vice-President or Executive Vice-Presidents or
the Vice-President or the Vice-Presidents if there is more than one (in the
order
<PAGE>
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designated by the Board of Directors) shall perform the duties of the President,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. Each Executive Vice-President or Vice-President
shall perform such other duties and have such other powers as the Board of
Directors from time to time may prescribe. If there be no Executive
Vice-President or Vice-President, the Board of Directors shall designate the
officer of the Corporation who, in the absence of the President or in the event
of the inability or refusal of the President to act, shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President.
Section 7. Secretary. The Secretary shall attend all meetings
of the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall be. If the Secretary shall be unable
or shall refuse to cause to be given notice of all meetings of the stockholders
and special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause
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such notice to be given. The Secretary shall have custody of the seal of the
Corporation and the Secretary or any Assistant Secretary, if there be one, shall
have authority to affix the same to any instrument requiring it and when so
affixed, it may be attested by the signature of the Secretary or by the
signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his signature. The Secretary shall see that all books,
reports, statements, certificates and other documents and records required by
law to be kept or filed are properly kept or filed, as the case may be.
Section 8. Treasurer. The Treasurer shall have the custody of
the corporate funds and 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 of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, 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 in such sum and with such surety or sureties as shall be
<PAGE>
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satisfactory to the Board of Directors 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.
Section 9. Assistant Secretaries. Except as may be otherwise
provided in these Bylaws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the President, any Vice-President, if there be one, or
the Secretary, and in the absence of the Secretary or in the event of his
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any
Vice-President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of his disability or refusal to act, shall perform the
duties of the Treasurer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with
<PAGE>
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such surety or sureties as shall be satisfactory to the Board of Directors 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.
Section 11. Other Officers. Such other officers as the Board
of Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the President or a Vice-President and (ii) by the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by him in the Corporation.
Section 2. Signatures. Where a certificate is countersigned by
(i) a transfer agent other than the Corporation or its employee, or (ii) a
registrar other than the Corporation
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or its employee, any other signature on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate issued, it may be
issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to advertise the same in
such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these Bylaws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by his attorney lawfully constituted in writing and upon the
surrender
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of the certificate therefor, which shall be canceled before a new
certificate shall be issued.
Section 5. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which 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. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares of the part of any other person, whether or
not it shall have
<PAGE>
H-30
express or other notice thereof, except as otherwise provided by
law.
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by
law, the Certificate of Incorporation or these Bylaws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at his
address as it appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail. Written notice may also be given
personally or by telegram, telex, facsimile, email or cable and shall be deemed
to be given at the time of receipt thereof if given personally or at the time of
transmission if sent by telegram, telex, facsimile, email or cable.
Section 2. Waivers of Notice. Whenever any notice is required
by law, the Certificate of Incorporation or these Bylaws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
<PAGE>
H-31
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
Section 3. Fiscal Year. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware." The
<PAGE>
H-32
seal may be used by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise.
ARTICLE VIII
AMENDMENTS
Section 1. These Bylaws may be altered, amended or repealed,
in whole or in part, or new Bylaws may be adopted by the stockholders or by the
Board of Directors, provided, however, that notice of such alteration,
amendment, repeal or adoption of new Bylaws be contained in the notice of such
meeting of stockholders or Board of Directors, as the case may be. All such
amendments must be approved by either the holders of a majority of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors then in office.
Section 2. Entire Board of Directors. As used in this Article
VIII and in these Bylaws generally, the term "entire Board of Directors" means
the total number of directors which the Corporation would have if there were no
vacancies.
<PAGE>
APPENDIX I
================================================================================
MARGO CARIBE, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1999
================================================================================
<PAGE>
MARGO CARIBE, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PAGE
---------------
<S> <C>
Independent Auditors' Report I-2
Financial Statements:
Consolidated Balance Sheets I-3
Consolidated Statements of Operations I-4
Consolidated Statements of Shareholders' Equity I-5
Consolidated Statements of Cash Flows I-6
Notes to Consolidated Financial Statements I-7
SCHEDULES
Schedule II - Valuation and Qualifying Accounts I-31
</TABLE>
All other schedules have been omitted since the required information is not
presented or not present in amounts sufficient to require submission of the
schedules, or because the information required is included in the consolidated
financial statements or notes thereto.
I-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Margo Caribe, Inc.
Vega Alta, Puerto Rico
We have audited the accompanying consolidated balance sheets of Margo Caribe,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the Index as Schedule II for
each of the three years in the period ended December 31, 1999. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Margo Caribe, Inc. and subsidiaries
as of December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects, the information set forth therein.
As discussed in Note 22, on February 9, 2000, the Company entered into a letter
of intent concerning a proposed merger after divesting its current core
business.
DELOITTE & TOUCHE LLP
San Juan, Puerto Rico
March 3, 2000
Stamp No. 1634930
affixed to original.
I-2
<PAGE>
MARGO CARIBE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Current Assets:
Cash and equivalents $1,082,592 $ 747,390
Short term investments 500,000 500,000
Accounts receivable, net 1,101,722 1,228,572
Inventories 3,108,408 2,264,372
Current portion of notes receivable 475,000 -
Prepaid expenses 263,447 190,804
---------- ----------
Total current assets 6,531,169 4,931,138
Property and equipment, net 1,902,863 2,094,799
Due from shareholder 290,226 290,226
Notes receivable, net of current portion 67,915 620,413
Other assets 124,808 53,632
---------- ----------
Total assets $8,916,981 $7,990,208
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 129,656 $ 158,468
Notes payable 1,100,000 500,000
Accounts payable 812,672 665,140
Accrued expenses 182,395 211,077
---------- ----------
Total current liabilities 2,224,723 1,534,685
Deferred revenue 111,885 -
Long-term debt, net of current portion 338,597 85,880
---------- ----------
Total liabilities 2,675,205 1,620,565
---------- ----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value; 250,000
shares authorized, no shares issued - -
Common stock, $.001 par value; 10,000,000
shares authorized, 1,915,122 shares issued,
1,875,322 shares outstanding 1,915 1,915
Additional paid-in capital 4,637,706 4,637,706
Retained earnings 1,698,443 1,826,310
Treasury stock, 39,800 common shares, at cost (96,288) (96,288)
---------- ----------
Total shareholders' equity 6,241,776 6,369,643
---------- ----------
Total liabilities and shareholders' equity $8,916,981 $7,990,208
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
I-3
<PAGE>
MARGO CARIBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998, 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Net Sales $6,201,233 $ 5,349,244 $6,548,912
Cost of Sales 3,971,122 3,623,071 5,183,577
---------- ----------- ----------
Gross profit 2,230,111 1,726,173 1,365,335
Selling, general and administrative expenses 2,395,350 2,122,976 2,604,106
---------- ----------- ----------
Loss from operations (165,239) (396,803) (1,238,771)
---------- ---------- ----------
Other income (expense):
Interest income 105,914 122,683 73,060
Interest expense (46,876) (62,020) (73,274)
Write-down of note receivable (80,000) (201,621) -
Recovery of loss (loss) from
damages caused by Hurricane
Georges, net of insurance proceeds 12,880 (609,009) -
Gain on sale of land in South Florida - - 474,574
Other income 45,454 33,933 13,877
---------- ---------- ----------
37,372 (716,034) 488,237
---------- ---------- ----------
Net loss $ (127,867) $(1,112,837) $ (750,534)
========== =========== ==========
Basic and diluted loss per common share $ (.07) $ (.59) $ (.40)
========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
I-4
<PAGE>
MARGO CARIBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
OUTSTANDING
COMMON COMMON ADDITIONAL CUMULATIVE
STOCK STOCK PAID-IN RETAINED TREASURY TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS STOCK ADJUSTMENT TOTAL
------------ ------ --------- -------- -------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 1,895,322 $1,915 $4,637,706 $3,689,681 $(48,788) $(9,164) $8,271,350
Realized loss on translation
adjustment
- - - - - 9,164 9,164
Net loss - - - (750,534) - - (750,534)
--------- ------ ---------- ---------- -------- -------- ----------
Balance at December 31, 1997 1,895,322 1,915 4,637,706 2,939,147 (48,788) - 7,529,980
Net loss - - - (1,112,837) - - (1,112,837)
Acquisition of treasury stock,
at cost
(20,000) - - - (47,500) - (47,500)
--------- ------ ---------- ---------- -------- -------- ----------
Balance at December 31, 1998 1,875,322 1,915 4,637,706 1,826,310 (96,288) - 6,369,643
Net loss - - - (127,867) - - (127,867)
--------- ------ ---------- ---------- -------- -------- ----------
Balance at December 31, 1999 1,875,322 $1,915 $4,637,706 $ 1,698,443 $(96,288) $ - $ 6,241,776
========= ====== ========== ========== ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
I-5
<PAGE>
MARGO CARIBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows operating activities:
Net loss $ (127,867) $(1,112,837) $ (750,534)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 543,165 527,791 491,634
Write-down of note receivable 80,000 201,621 -
Loss on disposal of property and equipment
related to Hurricane Georges - 171,039 -
Realized loss on translation adjustment - - 9,164
Gain on sale of land in South Florida - - (474,574)
Provision for bad debts 86,000 35,900 37,515
Gain on sale of equipment (16,451) - -
Changes in assets and liabilities affecting cash flows from operating
activities:
Accounts receivable 152,735 (213,523) (80,517)
Inventories (844,036) 173,756 298,981
Prepaid expenses (72,643) (89,012) 14,244
Advances from (to) shareholder - 1,255 (17,829)
Other assets (71,176) 5,279 8,238
Accounts payable 147,532 276,822 (242,254)
Accrued expenses (28,682) 46,812 (12,421)
Income taxes payable - - (23,492)
---------- ---------- -----------
Net cash provided by (used in) operating activities (151,423) 24,903 (741,845)
---------- ---------- -----------
Cash flows from investing activities:
Decrease in short term investments - - 504,000
Purchases of property and equipment (394,688) (374,034) (109,639)
Proceeds from sale of equipment 59,910 - -
Proceeds from sale of land in South Florida - - 812,630
Increase in notes receivable (5,611) - (6,800)
Collection on notes receivable 3,109 40,000 -
---------- ---------- -----------
Net cash provided by (used in) investing activities (337,280) (334,034) 1,200,191
---------- ---------- -----------
Cash flows from financing activities:
Increase in notes payable 600,000 - -
Acquisition of treasury stock - (47,500) -
Proceeds from long-term debt 395,418 - -
Repayments of long-term debt (171,513) (126,229) (174,586)
---------- ---------- -----------
Net cash provided by (used in) financing activities 823,905 (173,729) (174,586)
---------- ---------- -----------
Net increase (decrease) in cash and equivalents 335,202 (482,860) 283,760
Cash and equivalents at beginning of year 747,390 1,230,250 946,490
---------- ---------- -----------
Cash and equivalents at end of year $1,082,592 $ 747,390 $ 1,230,250
========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
I-6
<PAGE>
MARGO CARIBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
Note 1 - Business and Summary of Significant Accounting Policies
Margo Caribe, Inc. and subsidiaries (all Commonwealth of Puerto Rico
corporations and collectively, the "Company") are primarily engaged in the
production and distribution of a wide range of tropical plants for sale to
interior and exterior landscapers, wholesalers and retailers. The Company is
also engaged in the manufacturing and distribution of its own line ("Rain
Forest") of planting media, sales and distribution of lawn and garden products,
and provides landscaping design installation and maintenance services. The
Company is also engaged in seeking real estate sites for the development of
residential housing projects.
The Company's primary facility is located in Vega Alta, Puerto Rico. From this
facility, the Company sells principally to customers in Puerto Rico and the
Caribbean.
Effective June 1, 1998, the Company adopted a holding company structure. The
restructuring was accomplished by means of Margo Nursery Farms, Inc. ("Margo")
transferring substantially all of its assets and liabilities to a newly formed
Puerto Rico subsidiary ("Newco") in return for all the outstanding stock of
Newco. Newco continued to conduct the business previously operated by Margo as a
wholly-owned subsidiary of Margo and operates under the name of Margo Nursery
Farms, Inc. Margo now acts as the holding company for Newco as well as the other
existing subsidiaries of Margo. In connection with the holding company
restructuring, Margo changed its corporate name to Margo Caribe, Inc.
As further described in Note 22, during 2000 the Company may dispose of all of
its operating businesses as part of a proposed merger.
(a) Principles of Consolidation
For the years ended December 31, 1999 and 1998, the accompanying consolidated
financial statements include the financial statements of Margo Caribe, Inc. and
its wholly-owned subsidiaries, Margo Nursery Farms, Inc., Margo Landscaping and
Design, Inc., Margo Garden Products, Inc., Rain Forest Products Group, Inc. and
Margo Development Corporation. For the year ended December 31, 1997, the
consolidated financial statements
I-7
<PAGE>
also include the financial statements of Margo Bay Farms, Inc. and its wholly
owned subsidiaries, Tropiflower, Inc. and Margo Imports, B.V. (a Netherlands
company). These entities were merged with and into Margo Bay Farms, Inc. in
1997, in connection with the Company's decision to close operations in South
Florida. All significant intercompany accounts and transactions have been
eliminated in consolidation.
(b) Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months of
less to be cash equivalents. At December 31, 1999 and 1998, cash and equivalents
include $500,000 invested in a certificate of deposit bearing interest at 5.3%
and 4.6%, respectively, which has been pledged as collateral for notes payable
(refer to Note 8).
(c) Inventories
Inventory of plant material includes the cost of seeds, cuttings, pots, soil,
chemicals, fertilizers, direct labor and an allocation of overhead costs such as
depreciation and rent, among others. Inventories of plant material are stated at
the lower of cost (first-in, first-out) or market. Inventories of lawn and
garden products are stated at the lower of average cost of market.
(d) Property and Equipment and Related Depreciation and Amortization
Property and equipment are carried at acquisition cost. Depreciation and
amortization are provided over the estimated useful lives of the respective
assets on a straight-line basis. Such useful lives range from four to twenty
years.
The Company considers depreciation of certain facilities and equipment as a
direct cost of production of inventory. As inventory is sold, such cost is
charged to cost of sales.
I-8
<PAGE>
(e) Foreign Currency Translation
Assets and liabilities outside the United States and Puerto Rico are translated
to U.S. Dollars using exchange rates at the balance sheet date. Revenues and
expenses are translated at the average rates of exchange during the applicable
period. Effects of translation adjustments are deferred and included as a
separate component of shareholders' equity. There were no balances or
transactions involving foreign currency translation as of December 31, 1999 and
1998, or for the years then ended.
(f) Revenue Recognition
The Company recognizes sales of foliage and lawn and garden products upon
shipment from its facilities to customers. Revenues from landscaping services
are recognized as plants are installed at the customers' facilities. Certain
hurricane-related government assistance has been deferred and will be recognized
into income on a straight-line basis over a ten-year period during which certain
conditions must be complied with.
(g) Income Tax
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes". SFAS No. 109 requires
the use of the asset and liability method in accounting for income taxes.
Deferred income taxes are recognized for the future tax consequences of
temporary differences between the financial statement carrying amounts and the
tax bases of assets and liabilities.
Through December 31, 1997, the Company was a Florida corporation and filed a
final federal corporate income tax return for the taxable year then ended.
However, the Company elected to be treated as a possessions corporation under
Section 936 of the Internal Revenue Code, and accordingly, received a credit of
federal income tax payable for operations in Puerto Rico. Margo Bay Farms, Inc.,
a former wholly-owned Florida subsidiary, filed a final federal income tax
return for the year ended December 31, 1997.
I-9
<PAGE>
The Agricultural Tax Incentives Act of the Commonwealth of Puerto Rico ("Act No.
225" of December 1, 1995, as amended) provides the Company with a 90% tax
exemption for income derived from "bonafide" agricultural business, including
sales of nursery plants within Puerto Rico and outside Puerto Rico, as well as a
100% exemption from property, municipal and excise taxes.
(h) Loss per Common Share
The Company reports its earnings per share ("EPS") using Financial Accounting
Standards Board Statement No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128
requires dual presentation of basic and diluted EPS. Basic EPS is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock.
(i) Fair Value of Financial Instruments
The amounts included in the consolidated financial statements for cash and
equivalents, short term investments, accounts receivable, notes payable,
accounts payable and accrued expenses reflect their fair value due to the
short-term maturity of these instruments. The fair values of the Company's other
financial instruments are discussed in Notes 5 and 9.
(j) Impairment of Long-Lived Assets
The carrying value of property and equipment is evaluated periodically for
recoverability when considered in relation to the expected future undiscounted
cash flows of the underlying business over the estimated remaining useful life
of the asset.
(k) Accounting for Stock-Based Compensation Plans
The Company accounts for its stock-based compensation plans pursuant to the
provisions of Accounting Principles Board Opinion 25 and related
interpretations, which generally require that compensation cost be recognized to
the extent the market price of the related stock exceeds the exercise price at
the
I-10
<PAGE>
measurement date. However, Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation", provides an alternative
method for measuring compensation cost by measuring the fair value of the option
at the award date. Although the compensation cost measurement criteria is not
required to be adopted, SFAS 123 requires disclosure of pro forma information
regarding the effects of the application of its compensation cost measurement
criteria and of other information.
(l) Use of Estimates in the Preparation of Financial Statements
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 disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The allowance for doubtful accounts is an amount that management believes will
be adequate to absorb estimated losses on existing accounts receivable that may
become uncollectible based on evaluations of collectibility and prior credit
experience. Because of uncertainties inherent in the estimation process,
management's estimate of credit losses inherent in the existing accounts
receivable and related allowance may change in the near term.
The Company has recorded a deferred tax asset of approximately $608,000 which is
offset in full by a valuation allowance. Realization of the deferred tax asset
is dependent on generating sufficient taxable income in the future. The amount
of the deferred tax asset considered realizable could change in the near term if
estimates of future income are increased.
I-11
<PAGE>
Note 2 - Inventories
At December 31, 1999 and 1998, inventories comprised the following:
Description 1999 1998
-------------------------------- ---------- -------
Plant material $2,417,102 $1,700,250
Lawn and garden products 485,017 347,637
Raw material and supplies 206,289 216,485
---------- ----------
$3,108,408 $2,264,372
Note 3 - Accounts Receivable
At December 31, 1999 and 1998, accounts receivable comprised the following:
Description 1999 1998
--------------------------- ---------- -------
Trade receivables $1,054,120 $1,260,629
Hurricane assistance(Note 10) 111,885 -
Government reimbursement 50,000 57,887
Accrued interest 13,823 6,140
Employee advances 12,180 16,063
Other accounts receivable 17,714 11,553
---------- ----------
1,259,722 1,352,272
Less allowance for doubtful
accounts (158,000) (123,700)
---------- ----------
$1,101,722 $1,228,572
========== ==========
Note 4 - Short Term Investments
At December 31, 1999 and 1998, short term investments consisted of a $500,000
certificate of deposit bearing interest at 5.4% and 4.5%, respectively, which
was pledged as collateral for notes payable (refer to Note 8).
I-12
<PAGE>
Note 5 - Notes Receivable
The Company owns a note receivable with an outstanding principal balance of
$996,962, from the sale of Cariplant S.A. ("Cariplant") a former Dominican
Republic subsidiary, to Altec International C. por A. ("Altec"), another
Dominican Republic company. The note is collateralized by the common stock and
personal guarantee of the major shareholder of Cariplant.
From the inception of the note in March 1993, the Company received several
payments through December 1995. However, Altec has been unable to comply with
the terms of the note.
Due to the unfavorable collection experience as well as the difficulties of
operating in the Dominican Republic, in 1994 Company management wrote down the
carrying amount of the note to $316,000, representing the estimated value of
Cariplant's land and related improvements, including buildings, shadehouses, and
fixed and installed equipment.
On February 12, 1997, the Company obtained a junior lien in Cariplant's property
and equipment and entered into an agreement with Altec to modify the repayment
terms of the unpaid principal balance of $996,962, with payments of principal
and interest commencing in the year 2000. Payment of interest on the note was
waived through January 1, 2000.
On September 23, 1998, the Dominican Republic was struck by Hurricane Georges
severely damaging Cariplant's facilities. As a result of the damages caused by
the hurricane, the Company determined to write down the carrying value of the
note to $100,000. The write down, amounting to $201,621 was included as an other
expense in the accompanying consolidated statement of operations for the year
ended December 31, 1998.
Altec is now in default with the modified repayment terms. As a result, the
Company wrote down the carrying value of the note to $20,000, and has included
the $80,000 charge as other expense in the accompanying consolidated statement
of operations for the year ended December 31, 1999.
I-13
<PAGE>
At December 31, 1999 and 1998, notes receivable comprised the following:
<TABLE>
<CAPTION>
Description 1999 1998
--------------------------------------------------------------------- -------------- -----------
<S> <C> <C>
Note receivable from Altec $ 20,000 $100,000
8% mortgage note, collateralized by land in South Florida with
interest payments due monthly and principal due in a balloon
payment on November 28, 2000 (refer to Note 17(a)) 475,000 475,000
10% note, collateralized by real
property 26,331 26,331
Non-interest bearing notes, due on demand,
Personally guaranteed by present Company personnel
21,584 19,082
-------- --------
542,915 620,413
Less current portion (475,000) -
-------- --------
$ 67,915 $620,413
======== ========
</TABLE>
Amounts reflected in the balance sheet for notes receivable approximate their
current fair values based on market interest rates for comparable risks,
maturities and collateral. With respect to the Altec note, management believes
it is not practicable to estimate its fair value because of the difference
between the face value of the note and its carrying amount, as well as other
factors.
Note 6 - Property and Equipment
At December 31, 1999 and 1998, property and equipment comprised the following:
1999 1998
---- ----
Leasehold improvements $1,609,137 $1,590,145
Equipment and fixtures 1,534,280 1,618,312
Transportation equipment 326,422 407,266
Real estate property 224,327 224,327
---------- ----------
3,694,166 3,840,050
Less accumulated depreciation
and amortization (1,791,303) (1,745,251)
---------- ----------
$1,902,863 $2,094,799
========== ==========
I-14
<PAGE>
During the years ended December 31, 1999, 1998 and 1997, depreciation expense
charged to production was approximately $293,000, $276,000, and $258,000,
respectively.
Note 7 Due from Shareholder
At December 31, 1999 and 1998, amounts due from shareholder principally arise
from the settlement of litigation with the Company's former principal lender as
well as other advances of $4,688 made by the Company on his behalf. In March
1998, the Company's major shareholder signed a non-interest bearing note due in
March 2001 for $285,538 of the outstanding balance.
Note 8 - Notes Payable
At December 31, 1999 and 1998, the Company had short-term borrowings with a
commercial bank in Puerto Rico, comprised of the following:
Description 1999 1998
------------------------------------ ---- ----
Unsecured commercial line of credit
of $1 million, bearing interest at
2% over Libor rate (8.15% at
December 31,1999)due in February 2000 $ 100,000 $ -
Note payable, collateralized by cash
equivalent invested in a certifi-
cate of deposit, bearing interest
at 1% over interest earned by the
certificate (6.3% at December 31,
1999)due on demand 500,000 -
Note payable, collateralized by short
term borrowings invested in a
certificate of deposit, bearing
interest at 1% over interest earned
by the certificate (6.4% and 5.5% at
December 31, 1999
and 1998, respectively)due on demand 500,000 500,000
---------- --------
$1,100,000 $500,000
========== ========
I-15
<PAGE>
Note 9 - Long-Term Debt
At December 31, 1999 and 1998, long-term debt comprised the following:
Description 1999 1998
------------------------------------ ---- ----
Five-year term loans, bearing interest
at 2% over Libor rate (8.15% at
December 31, 1999), payable in
quarterly installments of $19,781,
through December 2004 $395,418 $ -
Five-year term loans, variable
interest rate, 8.25% and 8.0%
at December 31, 1999 and 1998,
respectively, payable in quarterly
installments of approximately
$31,000 through January 2000 and
$8,000 through October 2001,
including interest. The loans are
collateralized by transportation
and farm equipment 72,835 214,871
9.25% commercial loan, payable in
monthly installments of $2,000,
including interest, through April
2000, collateralized by real estate
property (prepaid during 1999) - 29,477
-------- --------
468,253 244,348
Less current portion (129,656) (158,468)
-------- --------
Long-term debt $338,597 $ 85,880
======== ========
Based on borrowing rates currently available to the Company for loans with
similar terms and maturities, the fair value of long-term debt approximates the
recorded amounts.
The annual aggregate maturities of long-term debt are as follows:
Year Ending
December 31, Amount
------------ ------
2000 $129,656
2001 103,403
2002 79,128
2003 79,128
2004 76,938
-------
$468,253
========
I-16
<PAGE>
Note 10 - Hurricane Georges
On September 21, 1998, Puerto Rico was struck by Hurricane Georges, a category 3
hurricane on the Saffir/Simpson scale. The hurricane severely damaged a portion
of the Company's facilities (shadehouses) and inventory of plant material.
For the year ended December 31, 1998, as a result of the damages caused by the
hurricane, the Company recorded the following loss:
Description Amount
----------- ------
Inventory damaged or destroyed $ 361,767
Restoration, clean-up and debris removal 696,373
Net carrying value of property destroyed 171,039
----------
1,229,179
Less: Proceeds from insurance claims (620,170)
----------
Loss from damages caused by the hurricane $ 609,009
==========
During 1999, the Company received an assistance payment of $12,880 from the Farm
Service Agency of the United States Department of Agriculture for debris removal
from damages caused by the hurricane. This assistance was recorded as other
income in the accompanying consolidated statement of operations for the year
ended December 31, 1999.
The Puerto Rico Department of Agriculture has committed to provide assistance to
bona-fide agricultural enterprises for damages caused by the hurricane. At
December 31, 1999, the Puerto Rico Department of Agriculture had approved
$111,885 in assistance, subject to the formalization of an agreement, which
among other things requires the facility to be operated as a nursery farm for a
minimum period of ten years from the date of signing. Accordingly, the Company
recorded a receivable and a deferred revenue to account for the assistance at
December 31, 1999.
Note 11 - Income Taxes
The Company provides for income taxes using the applicable statutory tax rates
in the related jurisdiction where it operates.
I-17
<PAGE>
Set forth below are explanations for the differences between the income tax
provision (benefit) and the amount computed by applying the Puerto Rico
statutory income tax rate of 39% (for 1997, the federal statutory income tax
rate of 34% was used) to loss before income tax provision:
<TABLE>
<CAPTION>
1999 1998 1997
----- ---- ----
<S> <C> <C> <C>
Income tax benefit computed by applying
tax rate $(49,870) $(434,005) $(255,181)
(Increase) decrease in income
tax benefit resulting from:
Puerto Rico tax exemption (66,519) 334,951 141,706
Effect of Florida and Puerto
Rico taxes (benefits) - - (11,807)
Increase (decrease) in
valuation allowances 116,389 99,054 (469,100)
Federal tax attributes lost
as result of reorganization,
including net operating loss
carryforwards - - 580,960
Other differences - - 13,422
---------- ---------- ----------
$ - $ - $ -
========= ========== ==========
</TABLE>
Deferred income taxes were recognized in the consolidated balance sheet at
December 31, 1999 and 1998 due to the tax effect of temporary differences and
loss carryforwards as follows:
1999 1998
---- ----
Deferred tax assets:
Net operating loss carryforwards $603,048 $352,880
Valuation allowance for accounts
receivable 5,371 5,029
-------- -------
608,419 357,909
Less valuation allowance (608,419) (357,909)
-------- -------
Net deferred tax asset $ - $ -
======== ========
I-18
<PAGE>
Note 12 - Loss Per Common Share
Basic and diluted loss per common share for the years ended December 31, 1999,
1998 and 1997 were determined as follows:
Basic loss per common share: 1999 1998 1997
--------------------------- --------- ----------- --------
Net loss available to common
shareholders $(127,867) $(1,112,837) $(750,534)
========= =========== =========
Weighted average number of common
shares outstanding 1,875,322 1,878,655 1,895,322
========= =========== =========
Basic loss per common share $ (.07) $ .59) $ (.40)
========= =========== =========
Diluted loss per common share:
-----------------------------
Net loss available to common
shareholders $(127,867) $(1,112,837) $(750,534)
========= =========== =========
Weighted average number of common
shares outstanding 1,875,322 1,878,655 1,895,322
Plus incremental shares from assumed
exercise of stock options - - -
---------- ----------- ---------
Adjusted weighted average shares 1,875,322 1,878,655 1,895,322
========== =========== =========
Diluted loss per common share $ (.07) $ (.59) $ (.40)
========== =========== =========
For the years ended December 31, 1999, 1998 and 1997, the effect of the assumed
exercise of stock options determined by using the treasury stock method was
antidilutive; thus no incremental shares were added to the weighted average
number of common shares outstanding.
Note 13 - Commitments and Contingencies
The Company is a party to various legal actions arising in the ordinary course
of business. In the opinion of management, the disposition of these matters will
not have a material adverse effect on the financial condition or results of
operations of the Company.
On August 31, 1999, the Company entered into an option agreement to purchase
approximately 109 acres of land in the Municipality of Barceloneta, Puerto Rico.
The Company paid $47,500 for the option agreement, which will be applied to the
purchase price of the land of $950,000. The option expires on April 16, 2000.
I-19
<PAGE>
Note 14 - Shareholders' Equity
(a) Preferred stock
The certificate of incorporation of the Company authorizes the issuance of
250,000 shares of one cent ($0.01) par value serial preferred stock, and the
Board of Directors is authorized from time to time to divide the preferred stock
into series and to determine the number of shares of each series and the
relative rights, preferences and limitations of each such series.
(b) Treasury Stock
At December 31, 1999, the Company had 39,800 shares of common stock in treasury,
of which 19,800 shares were acquired in 1988 at a cost of $48,788, and 20,000
shares were acquired in 1998 at a cost of $47,500.
Note 15 - Lease and Option Agreements
(a) Property in Vega Alta, Puerto Rico
The primary Puerto Rico facility is leased from Michael J. Spector and Margaret
D. Spector (the "Spectors"), who are officers, directors and major shareholders
of the Company.
Effective January 1, 1993, the Company entered into a lease agreement with the
Spectors for an initial five year period at a monthly rental of $19,000. In
addition, the Spectors have released the Company from responsibility from any
claims arising from the Company's use of a defective fungicide in its operations
at the nursery facility. The Company had an option to renew this lease for an
additional five year period at the greater of $24,000 per month, or the original
$19,000 per month adjusted on the basis of the increase in the Wholesale Price
Index ("WPI") published by the United States Department of Labor, Bureau of
Labor Statistics, from the WPI which was in effect on January 1, 1993 to the WPI
in effect on January 1, 1998. On January 1, 1998, the Company exercised its
option to renew the lease agreement with the Spectors at a monthly rental of
$24,000. The Spectors have committed to grant the Company an option to extend
the lease for an additional period of five years ending December 31, 2007.
I-20
<PAGE>
Under the above lease agreement, the Company has the option to purchase the
nursery facility at any time during the term of the lease, based on the
property's appraised value. The Company pays $1,000 per month for this purchase
option, which amount is expensed when paid.
Effective January 1, 1994, the Company amended the lease agreement with the
Spectors to include an additional 27 acres of land adjacent to the nursery
facility at a monthly rental of $1,750. This amendment did not provide for
renewal nor purchase options towards the additional 27 acres of land. Effective
January 1, 1998, the Company and the Spectors entered into an amendment to the
lease agreement which grants the Company the right to continue to lease the 27
acre parcel on a month to month basis. Either party may terminate this portion
of the lease upon 30 days prior written notice. In connection with this lease
amendment, the Spectors also agreed to reimburse the Company by no later than
March 1, 2001 for the unamortized value (approximately $45,000 at February 1,
2000) of the leasehold improvements applicable to said parcel as of the date of
termination. Effective February 1, 2000, the lease agreement with respect to the
27 acre parcel terminated.
Total rental payments amounted to approximately $309,000 in 1999 and 1998 and
$249,000 in 1997.
(b) Property in Barranquitas, Puerto Rico
Effective January 1, 1997, the Company entered into a lease agreement with Cali
Orchids, Inc. to lease a 13 acre nursery facility located in the town of
Barranquitas, Puerto Rico. The lease has an initial term of five years and may
be renewed for two additional five-year terms at the Company's option. During
the first year of the initial five-year term of the lease, monthly payments
amount to $4,500. During the remaining four years of the initial term of the
lease, monthly payments amount to $5,000. During the first and second renewal
terms, monthly payments increase to $6,000 and $7,000, respectively. The lease
agreement does not provide for any purchase option.
I-21
<PAGE>
Total rental payments amounted to $60,000, $45,000 and $54,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. Lease payments for 1998
reflect a rent abatement of $15,000 due to damages caused by Hurricane Georges.
(c) Other Properties in Vega Alta, Puerto Rico
On March 24, 1999, the Company leased two additional parcels of land from the
Puerto Rico Land Authority (an instrumentality of the Commonwealth of Puerto
Rico). The two parcels are adjacent to each other, have a total area of 321
acres, and are located approximately one mile from the Company's main nursery
facility in Vega Alta. Among other things, the lease agreement provides for an
initial lease term of five years subject to three additional renewal terms of
five years, at the option of the Company. During the initial term, total lease
payments amount to $33,625 per year. During 1999, lease payments of $25,219 were
made. Lease payments for renewal terms are to be negotiated 90 days prior to
each renewal term.
(d) Aggregate Lease Obligations and Expenses
The Company's obligations under the above and other non-cancelable operating
lease agreements in force at December 31, 1999, assuming the Company exercises
its renewal option on the Barranquitas, Puerto Rico property and excluding the
monthly payments for the purchase option previously mentioned, are as follows:
Year ending Minimum
December 31, Lease Payments
------------ --------------
2000 $ 416,500
2001 415,700
2002 426,700
2003 132,200
2004 99,400
Thereafter 600,500
---------
$2,091,000
==========
Total rental expense under all operating lease agreements amounted to
approximately $400,000, $354,000 and $303,000, for the years ended December 31,
1999, 1998 and 1997, respectively.
I-22
<PAGE>
Note 16 - Stock Option and Salary Deferral Plans
Effective April 1998, the Company adopted the 1998 Stock Option Plan (the "1998
Plan") to replace the Company's 1988 Stock Benefits Plan (the "1988 Plan").
Outstanding options granted under the previous plan, including all related
obligations and commitments, will continue to be honored by the Company.
Under the 1998 Plan, the Company's Board of Directors, through a committee, can
award options to purchase up to 200,000 shares of common stock (exclusive of
outstanding options under the previous plan) to eligible employees at 100% of
the fair market value at the time of the grant, except that options granted to
persons owning 10% or more of the outstanding common stock carry an exercise
price equal to 110% of the fair market value at the date of grant. The 1998 Plan
also provides for the automatic grant of options to purchase 2,500 shares of
common stock to each non-employee director on the first business day following
every annual meeting of shareholders.
Options vest ratably over a period of five years, become exercisable one year
from the date of grant and expire ten years after the date of grant. The status
of the stock options granted under the 1998 Plan and the prior 1988 Plan as of
December 31, 1997, 1998 and 1999, and changes during the years ended on those
dates, are as follows:
<TABLE>
<CAPTION>
Price per Share
---------------------------------------
Weighted
Average
Description Shares Range Price
----------------------------------------------- --------------- ----------------------- -----
<S> <C> <C> <C>
Outstanding, January 1, 1997 113,750 $2.00 to $3.44 $3.06
Granted - - -
Exercised - - -
Forfeited (27,500) 2.00 to 3.13 2.88
-------- -------------- ----
Outstanding, December 31, 1997 86,250 2.00 to 3.44 3.12
Granted 31,000 1.50 to 1.94 1.81
Exercised - - -
Forfeited (1,250) 2.00 2.00
-------- -------------- ----
Outstanding, December 31, 1998 116,000 1.50 to 3.44 2.78
Granted 20,000 2.25 to 2.75 2.41
Exercised - - -
Forfeited (1,500) 1.94 to 3.13 2.73
-------- -------------- ----
Outstanding, December 31, 1999 134,500 $1.50 to $3.44 $2.72
======== ============== =====
</TABLE>
I-23
<PAGE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Excercisable
-------------------------------------------- -- ---------------------------------
Weighted Average Weighted
Remaining Average Weighted Average
Range of Contractual Exercise Exercise
Exercise Price Outstanding Life (years) Price Exercisable Price
--------------- ----------- ------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$2.88 - $3.16 43,500 3.5 $ 3.01 43,500 $3.01
3.13 - 3.44 40,500 6.6 3.26 24,300 3.26
1.50 - 1.94 30,500 8.4 1.81 6,100 1.81
2.25 - 2.75 20,000 9.4 2.41 - -
---------------- --------- ----------- ------- -------- ------
$1.50 - $3.44 134,500 6.4 $2.72 73,900 $2.99
=============== ========= =========== ======= ======== ======
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations in measuring stock based
compensation, including options. Accordingly, no compensation expense has been
recognized for options granted under both plans. Had compensation expense been
determined based upon the fair value at the grant date for awards under any plan
consistent with SFAS No. 123, "Accounting for Stock-Based Compensation", ("SFAS
No. 123") the Company's net loss and net loss per share, on a pro forma basis,
would not have significantly changed from those reported. The Company did not
recognize compensation cost for the options granted to non-employees pursuant to
the requirements of SFAS No. 123 because its effect was not significant.
During 1998, the Company established a Salary Deferral Retirement Plan (the
"Retirement Plan") under the provisions of Article 1165(a)(4) of the regulations
under the Puerto Rico Internal Revenue Code of 1994. The retirement plan covers
all employees who are at least 21 years old and have completed one year of
service. The Company did not make any cash contributions to the retirement plan
during 1998. For the year ended December 31, 1999, the Company paid
approximately $38,000, representing the matching contributions under the
retirement plan for all participants.
I-24
<PAGE>
Note 17 - Supplemental Disclosures for the Statements of Cash Flows
(a) Non-Cash Investing Activities
During the year ended December 31, 1999, fully depreciated equipment with a cost
of $454,877 was written off, and equipment with a cost of $66,129 and a book
value of $43,459 was sold at a gain of $16,451. Also, during 1999, an account
receivable and a deferred revenue in the amount of $111,885 were established in
connection with certain government assistance.
During the year ended December 31, 1998, the Company wrote off fully depreciated
equipment with a cost of $505,070. Also during 1998, the Company wrote off
leasehold improvements with a cost of $365,278 and a book value of $171,039, as
a result of damages caused by Hurricane Georges.
During the year ended December 31, 1997, the Company wrote off stock plants with
a cost of $97,277 and a book value of $72,951. The write off was charged to an
accrual made as of December 31, 1996, for the possible impairment of assets at
the Company's South Florida location.
During 1997, the Company sold two properties at its South Florida location with
a cost of $1,088,594 and a book value of $990,105. Included in the determination
of the $474,574 gain on the sale of the property sold were $177,049 representing
the remaining balance of the accrual made at December 31, 1996 for the possible
impairment of assets at the Company's South Florida location. In connection with
the sale of one of the properties, the Company received a $475,000 mortgage note
from the buyer as part of the sales price.
(b) Other Cash Flow Transactions
During the years ended December 31, 1999, 1998 and 1997, the Company made
interest payments of approximately $44,400, $62,000, and $75,500, respectively.
During the years ended December 31, 1999, 1998 and 1997, the Company did not
make any income tax payments.
I-25
<PAGE>
Note 18 - Major Customers
During 1999, the Company's two largest customers accounted for approximately 26%
($1,592,000) of the Company's net sales. The first customer accounted for 14%
($864,000) and the second customer accounted for 12% ($728,000) of the Company's
net sales.
During 1998 and 1997 the Company's single largest customer accounted for
approximately 13% ($683,000) and 24% ($1,540,000), respectively, of the
Company's net sales.
Note 19 - Disposal of Margo Bay Farms, Inc.
On August 15, 1997, after a review of past and present performance of the
Company's South Florida operation, and in view of the strong competition in that
market, inadequate sales levels and lack of profitability, the Company's Board
of Directors made the determination to close this operation effective September
30, 1997, and dispose of all related assets. On September 29 and November 28,
1997, the Company sold the two nursery farms (a 54 acre and a 20 acre parcel)
which comprised the Company's facility in South Florida, resulting in a gain of
$474,574.
The South Florida operation which closed effective September 30, 1997, accounted
for net sales of approximately $478,000, and incurred a net loss of $27,000 for
the year ended December 31, 1997.
Note 20 - Significant Concentration of Risk
As discussed in Note 1, the Company's operations are principally concentrated in
Puerto Rico. The Company's operations are vulnerable to severe weather, such as
hurricanes, floods, storms and, to a lesser extent, plant disease and pests. The
Company believes that it currently maintains adequate insurance coverage for its
facilities and equipment. As of December 31, 1999, the Company had been unable
to obtain adequate crop and business interruption insurance coverage at a
reasonable cost. The Company intends to continue to seek to obtain crop and
business interruption insurance coverage at reasonable rates. However, no
assurance can be given that the Company will be able to obtain such insurance
coverages.
I-26
<PAGE>
The Company believes it has taken reasonable precautions to protect its plants
and operations from natural hazards. The Company's newer facilities are being
constructed with fabricated steel in an attempt to reduce the damage from any
future storms. Each of the Company's operations currently has access to a
plentiful water supply and facilities for the protection of many of their
weather-sensitive plants.
Accounts receivable are due from customers resident in Puerto Rico.
Concentration of credit risk with respect to accounts receivable is mitigated by
monitoring the operations and financial strength of the Company's customers.
Certain short-term certificates of deposit are placed with local financial
institutions. Such credit risk is mitigated by depositing the funds with high
credit quality financial institutions and limiting the amount of credit exposure
in any financial institution.
Note 21 - Segment Information
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
Disclosure about Segments of an Enterprise and Related Information ("SFAS 131").
SFAS 131 establishes standards for the way an enterprise reports information
about operating segments in annual financial statements and requires that
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. Operating segments are components of
an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. SFAS 131 requires a
reconciliation of total segment revenue and expense items and segment assets to
the amount in the enterprise's financial statements. SFAS 131 also requires a
descriptive report on how the operating segments were determined, the products
and services provided by the operating segments, and any measurement differences
used for segment reporting and financial statement reporting.
The Company's management monitors and manages the financial performance of three
primary business segments: the production and distribution of plants, sales of
lawn and garden products and landscaping services. The accounting policies of
the segments are the same as those described in the summary of significant
accounting policies. The Company evaluates performance based on net income or
loss.
I-27
<PAGE>
The financial information presented below was derived from the internal
management accounting system and is based on internal management accounting
policies. The information presented does not necessarily represent each
segments' financial condition and results of operations as if they were
independent entities.
<TABLE>
<CAPTION>
1999
-------------------------------------------------------------------------
Lawn & Garden
Plants Products Landscaping Totals
------------------ -------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Revenue from external customers $3,780,645 $1,120,342 $1,300,246 $6,201,233
Intersegment revenues 186,453 24,727 - 211,180
Interest income 105,914 - - 105,914
Interest expense 46,876 - - 46,876
Depreciation and amortization 444,765 33,868 64,532 543,165
Segment income (loss) 167,844 (132,515) (163,196) (127,867)
Segment assets 7,472,038 939,588 505,355 8,916,981
Expenditures for segment assets 296,380 53,015 45,293 394,688
1998
-------------------------------------------------------------------------
Lawn & Garden
Plants Products Landscaping Totals
------------------ -------------------- ----------------- ---------------
Revenue from external customers $3,019,406 $ 862,050 $1,467,788 $5,349,244
Intersegment revenues 247,785 26,736 - 274,521
Interest income 122,683 - - 122,683
Interest expense 62,020 - - 62,020
Depreciation and amortization 447,285 22,436 58,070 527,791
Segment loss 899,698 142,692 70,447 1,112,837
Segment assets 6,405,425 761,623 823,160 7,990,208
Expenditures for segment assets 374,034 - - 374,034
1997
-------------------------------------------------------------------------
Lawn & Garden
Plants Products Landscaping Totals
------------------ -------------------- ----------------- ---------------
Revenue from external customers $3,435,291 $1,389,617 $1,724,004 $6,548,912
Intersegment revenues 415,896 57,487 - 473,383
Interest income 73,060 - - 73,060
Interest expense 73,274 - - 73,274
Depreciation and amortization 412,716 22,652 56,266 491,634
Segment loss 331,731 239,249 179,554 750,534
Segment assets 7,411,884 827,389 712,815 8,952,088
Expenditures for segment assets 66,826 7,304 35,509 109,639
</TABLE>
I-28
<PAGE>
Note 22 - Subsequent Event
On February 9, 2000 the Company announced that it entered into a non-binding
letter of intent to merge with iTract, LLC ("iTract"), a privately held
developmental stage internet company building a communication tool that is
designed to allow its users to deliver a targeted marketing campaign using
e-mail, fax and postal mail. To date, iTract has not earned any significant
revenues.
iTract will seek to address the needs of businesses that desire more efficient,
expedient and cost- effective ways to promote and communicate products and
services to their target audiences. iTract will target small to medium sized
businesses that want to reach potential customers at a lower cost than
traditional direct marketing. iTract's system is designed to allow users to send
out faxes, e-mails and postal mail in volume from the same document directly off
the computer at the same time. iTract is also building a permission-based fax
and e-mail list that is demographically organized and can be custom configured
to meet the client's marketing needs.
Under the proposed transaction, the Company would first reincorporate as a
Delaware corporation pursuant to a merger (the "Reincorporation Merger") with a
newly created Delaware corporation. A subsidiary of the new Delaware corporation
would then merge with iTract (the "iTract Merger"). As a result of the iTract
Merger, iTract members would receive 88% of the issued and outstanding shares of
common stock of the new Delaware corporation (on a fully diluted basis assuming
exercise of all outstanding stock options) in exchange for all the outstanding
membership interests of iTract. Thus, following the iTract Merger, iTract
members would control the new Delaware corporation, holding 88% of its common
stock, with the Company's current shareholders holding 12%. Prior to the
effective time of the iTract Merger, all outstanding stock options held by
officers, directors and employees of the Company would vest and become
immediately exercisable. Following the merger, the new corporation will be named
iTract, Inc. A majority of the Board of Directors of the merged company would be
composed of members designated by iTract, and iTract's management would manage
the merged company. The letter of intent does not provide for any break-up fee.
It is anticipated that the Reincorporation Merger will be a taxable transaction
for U. S. shareholders for federal income tax purposes.
I-29
<PAGE>
It is a condition to the consummation of the iTract Merger that the Company sell
prior to the iTract Merger its nursery and other operating businesses. In
addition, as of the effective time of the merger, the Company must have at least
$5 million in cash and cash equivalents and not be subject to liabilities
exceeding $10,000 in the aggregate.
In connection with the execution of the letter of intent, Michael J. Spector,
President, Chief Executive Officer and the controlling shareholder of the
Company, and another major shareholder of the Company made a $2.0 million loan
to International Commerce Exchange Systems, Inc. ("ICES"), an indirect parent
company of iTract. The loan is payable in a single balloon payment on the
closing day of the iTract Merger. If the iTract Merger is not consummated, such
loan will be converted into common stock of ICES.
The parties anticipate that the transaction would close during the latter part
of the second quarter or early part of the third quarter of 2000, subject to the
negotiation of definitive agreements, the satisfactory completion of due
diligence examinations, and the satisfaction of various other conditions
customary and appropriate for this type of transaction, including the approval
of the merger by the majority of the Company's and iTract's equity holders, the
qualification of the iTract Merger as a tax-free reorganization for federal and
Puerto Rico income tax purposes, continued listing of the shares on the NASDAQ
Small Cap Market and obtaining an opinion from an investment banking firm
satisfactory to the Company that the transaction is fair to shareholders from a
financial point of view. The letter of intent provides that concurrent with the
execution of the merger agreement, Michael J. Spector will agree to vote his
Company shares, representing approximately 66% of the Company's outstanding
common stock, in favor of the merger. No assurance can be given that the Company
will reach a definitive merger agreement or that, if reached, the parties will
be able to satisfy the conditions to the consummation of the merger. If the
parties do not execute a merger agreement by April 14, 2000, the letter of
intent will be automatically terminated.
Note 23 - Reclassifications
Certain reclassifications were made to the 1998 and 1997 consolidated financial
statements in order for them to be in conformity with the 1999 presentation.
I-30
<PAGE>
SCHEDULE II
MARGO CARIBE, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLLUMN D COLLUMN E
--------- --------- ---------------------------------- ----------------- -------------
BALANCE CHARGED TO COSTS CHARGED TO
BEGINNING AND OTHER BALANCE
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
----------- --------- ---------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Allowance for doubtful accounts $123,700 $86,000 $ - $(51,700) $158,000
======== ======= ======= ======== ========
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts $ 76,000 $35,900 $11,800 $ - $123,700
======== ======= ======= ========== ========
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts $ 79,000 $37,515 $ - $(40,515) $ 76,000
======== ======= =========== ======== ========
</TABLE>
I-31
<PAGE>
APPENDIX J
================================================================================
MARGO CARIBE, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2000
================================================================================
<PAGE>
MARGO CARIBE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and December 31, 1999
ASSETS
2000 1999
(Unaudited) (Audited)
----------- -----------
Current assets:
Cash and equivalents $ 640,046 $ 1,082,592
Short-term investments 500,000 500,000
Accounts receivable, net 1,451,240 1,101,722
Inventories 3,120,234 3,108,408
Current portion of notes receivable 475,000 475,000
Prepaid expenses and other current assets 282,266 263,447
----------- -----------
Total current assets 6,468,786 6,531,169
Property and equipment, net 1,786,853 1,902,863
Due from shareholder 335,610 290,226
Notes receivable 67,915 67,915
Other assets 124,808 124,808
----------- -----------
Total assets $ 8,783,972 $ 8,916,981
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 79,613 $ 129,656
Notes payable 1,100,000 1,100,000
Accounts payable 744,930 812,672
Accrued expenses 166,559 182,395
----------- -----------
Total current liabilities 2,091,102 2,224,723
Deferred revenues 111,885 111,885
Long-term debt 338,597 338,597
----------- -----------
Total liabilities 2,541,584 2,675,205
----------- -----------
Commitments and contingencies - -
Shareholders' equity:
Preferred stock, $0.01 par value; 250,000
shares authorized, no shares issued - -
Common stock, $.001 par value; 10,000,000
shares authorized; 1,922,122 shares issued,
(1,915,122 in 1999) and 1,882,322 shares
outstanding (1,875,322 in 1999) 1,922 1,915
Additional paid-in capital 4,657,544 4,637,706
Retained earnings 1,679,210 1,698,443
Treasury stock, 39,800 common shares, at cost (96,288) (96,288)
---------- ---------
Total shareholders' equity 6,242,388 6,241,776
----------- ----------
Total liabilities and shareholders' equity $ 8,783,972 $ 8,916,981
=========== ===========
See accompanying notes to consolidated financial statements.
J-1
<PAGE>
MARGO CARIBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months ended March 31, 2000 and 1999
(Unaudited)
2000 1999
---------- ----------
Net sales $2,107,556 $1,533,064
Cost of sales 1,372,128 971,113
---------- ----------
Gross profit 735,428 561,951
Selling, general and administrative expenses 608,404 525,800
---------- ----------
Income from operations 127,024 36,151
---------- ----------
Other income (expense):
Interest income 28,155 25,882
Interest expense (26,240) (12,011)
Proposed merger expenses (157,281) -
Hurricane Georges assistance proceeds - 12,800
Miscellaneous income 9,109 600
---------- ----------
(146,257) 27,271
---------- ----------
Income (loss) before provision for income tax (19,233) 63,422
Provision for income tax - -
---------- ----------
Net income (loss) $ (19,233) $ 63,422
========== ==========
Basic and diluted income (loss)
per common share $(0.01) $ 0.03
========== ==========
See accompanying notes to consolidated financial statements.
J-2
<PAGE>
MARGO CARIBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Three Months ended March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Common Common Additional
stock stock paid-in Retained Treasury
shares amount capital earnings stock Total
--------- ------ ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 1,875,322 $1,915 $4,637,706 $1,698,443 $(96,288) $6,241,776
Issuance of common stock from
conversion of stock options 7,000 7 19,838 - - 19,845
Net income - - - (19,233) - (19,233)
--------- ------ ---------- ---------- --------- ----------
Balance at March 31, 2000 1,882,322 $1,922 $4,657,544 $1,679,210 $(96,288) $6,242,388
========= ====== ========== ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
J-3
<PAGE>
MARGO CARIBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (19,233) $ 63,422
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 111,203 109,210
Provision for uncollectible accounts receivable 6,000 6,000
Changes in assets and liabilities affecting
cash flows from operating activities:
Accounts receivable (355,518) 208,926
Inventories (11,826) (88,743)
Prepaid expenses and other current assets (18,819) (13,287)
Accounts payable (67,742) (126,473)
Accrued expenses (15,836) (43,184)
----------- -----------
Net cash provided by (used in)
operating activities (371,771) 115,871
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (40,577) (44,512)
----------- -----------
Net cash used in investing activities (40,577) (44,512)
----------- -----------
Cash flows from financing activities:
Repayment of long-term debt (50,043) (37,398)
Issuance of common stock from conversion
of stock options 19,845 -
----------- -----------
Net cash used in financing activities (30,198) (37,398)
----------- -----------
Net increase (decrease) in cash and equivalents (442,546) 33,961
Cash and equivalents at beginning of year 1,082,592 747,390
----------- -----------
Cash and equivalents at end of period $ 640,046 $ 781,351
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
J-4
<PAGE>
MARGO CARIBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
Note 1 - Basis of Presentation
These interim consolidated financial statements include the financial statements
of Margo Caribe, Inc. and its wholly-owned subsidiaries (collectively "the
Company"), Margo Nursery Farms, Inc., Margo Landscaping and Design, Inc., Margo
Garden Products, Inc., Rain Forest Products Group, Inc. and Margo Development
Corporation.
These interim consolidated financial statements are unaudited, but include all
adjustments that, in the opinion of management, are necessary for a fair
statement of the Company's financial position, results of operations and cash
flows for the periods covered. These statements have been prepared in accordance
with the United States Securities and Exchange Commission's instructions to Form
10-Q, and therefore, do not include all information and footnotes necessary for
a complete presentation of financial statements in conformity with generally
accepted accounting principles.
The preparation of interim financial statements relies on estimates. Therefore,
the results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the operating results to be expected for the year
ending December 31, 2000. These statements should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto included in
the Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
On April 11, 2000, the Company executed an Agreement and Plan of Merger with
iTract, LLC, a developmental stage internet company. To the extent the
transactions contemplated in the agreement are consumated, the Company will
cease being engaged in the current nursery and related businesses and would be
engaged in providing internet based marketing services.
Note 2 - Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of
J-5
<PAGE>
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
The allowance for doubtful accounts is an amount that management believes will
be adequate to absorb possible losses on existing accounts receivable that may
become uncollectible based on evaluations of collectibility and prior credit
experience. Because of uncertainties inherent in the estimation process,
management's estimate of credit losses inherent in the existing accounts
receivable and related allowance may change in the near term.
Note 3 - Inventories
At March 31, 2000 and December 31, 1999, inventories comprised the following:
Description 2000 1999
--------------------------- ---------- ----------
Plant material $2,532,215 $2,417,102
Lawn and garden products 420,859 485,017
Raw materials and supplies 167,160 206,289
---------- ----------
$3,120,234 $3,108,408
========== ==========
Note 4 - Notes Receivable
The Company owns a note receivable with an outstanding principal balance of
$996,962, from the sale of Cariplant S.A. (a former Dominican Republic
subsidiary) to Altec International, C. por A. ("Altec"), another Dominican
Republic company. The note is collateralized by the common stock and personal
guarantee of the major shareholder of Cariplant.
Since the inception of the note, the Company received various sporadic payments.
On February 12, 1997, the Company obtained a junior lien on Cariplant's property
and equipment and modified the repayment terms of the unpaid principal balance,
with payments of principal and interest commencing in the year 2000.
Altec is now in default with the modified repayment terms. As a result of the
unfavorable collection experience, as well as the difficulties of operating in
the Dominican Republic, the Company wrote down the carrying value of the note to
$20,000.
J-6
<PAGE>
At March 31, 2000 and December 31, 1999, notes receivable included the
following:
Description 2000 1999
--------------------------------------- --------- ---------
Note receivable from Altec $ 20,000 $ 20,000
8% mortgage note, collateralized by
land in South Florida, with interest
payments due monthly and principal
due in a balloon payment on November
28, 2000 475,000 475,000
10% note, collateralized by real
property 26,331 26,331
8% notes, due on demand, personally
guaranteed by Company personnel 21,584 21,584
--------- ---------
542,915 542,915
Less current portion (475,000) (475,000)
--------- ---------
$ 67,915 $ 67,915
========= =========
Note 5 - Property and Equipment
At March 31, 2000 and December 31, 1999 property and equipment consisted of the
following:
Description 2000 1999
--------------------------------------- --------- ---------
Leasehold improvements $ 1,289,318 $ 1,609,137
Equipment and fixtures 1,539,955 1,534,280
Transportation equipment 349,687 326,422
Real estate property 224,327 224,327
----------- -----------
3,403,287 3,694,166
Less accumulated depreciation and
amortization (1,616,434) (1,791,303)
----------- -----------
$ 1,786,853 $ 1,902,863
=========== ===========
J-7
<PAGE>
Note 6 - Net Income (loss) per Common Share
In 1997, the Company adopted Financial Accounting Standards Board Statement No.
128, Earnings Per Share ("SFAS 128"). SFAS 128 establishes standards for
computing and presenting earnings per share ("EPS"). It replaces the
presentation of primary EPS with basic EPS, and requires dual presentation of
basic and diluted EPS on the face of the statement of operations. Basic EPS is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock.
Basic and diluted income (loss) per common share at March 31, 2000 and 1999 were
computed as follows:
2000 1999
---------- ----------
Basic income (loss) per common share:
Net income (loss) available to
common shareholders $ (19,233) $ 63,422
========== ==========
Weighted average number of common
shares outstanding 1,878,860 1,875,322
========== ==========
Basic income (loss) per common share $ (0.01) $ 0.03
========== ==========
Diluted income per common share:
Net income (loss) available to
common shareholders $ (19,233) $ 63,422
========== ==========
Weighted average number of common
shares outstanding 1,878,860 1,875,322
Plus incremental shares from assumed
conversions of stock options -- 142,000
---------- ----------
Adjusted weighted average shares 1,878,860 2,017,322
========== ==========
Diluted income (loss) per common
share $ (0.01) $ 0.03
========== ==========
For the three months ended March 31, 2000, the effect of the assumed exercise of
stock options determined using the treasury
J-8
<PAGE>
stock method was antidilutive, thus no incremental shares were added to the
weighted average number of common shares outstanding.
Note 7 - Segment Information
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS 131 establishes standards for the way an enterprise reports
information about operating segments in annual financial statements and requires
that enterprises report selected information about operating segments in interim
financial reports issued to shareholders. Operating segments are components of
an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. The Statement requires a
reconciliation of total segment revenue and expense items and segment assets to
the amounts in the enterprise's financial statements. SFAS 131 also requires a
descriptive report on how the operating segments were determined, the products
and services provided by the operating segments, and any measurement differences
used for segment reporting and financial statement reporting.
The Company's management monitors and manages the financial performance of three
primary business segments: the production and distribution of plants, sales of
lawn and garden products and landscaping services. The accounting policies of
the segments are the same as those described in the summary of significant
accounting policies. The Company evaluates performance based on net income or
loss.
The financial information presented below was derived from the internal
management accounting system and are based on internal management accounting
policies. The information presented does not necessarily represent each
segments's financial condition and results of operations as if they were
independent entities.
J-9
<PAGE>
The Company's segment information as of and for the three months ended March 31,
2000 and 1999, is as follows:
<TABLE>
<CAPTION>
2000
--------------------------------------------------------------
Lawn & Garden
Plants Products Landscaping Totals
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from external customers $ 1,051,448 $ 531,025 $ 525,083 $ 2,107,556
Intersegment revenues 62,273 8,847 -- 71,120
Interest income 28,155 -- -- 28,155
Interest expense 26,240 -- -- 26,240
Depreciation and amortization 90,312 7,128 13,763 111,203
Segment income (loss) (59,926) 27,852 12,841 (19,233)
Segment assets 7,127,581 1,008,150 648,241 8,783,972
Expenditures for segment assets 40,577 -- -- 40,577
<CAPTION>
1999
--------------------------------------------------------------
Lawn & Garden
Plants Products Landscaping Totals
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from external customers $ 881,968 $ 247,911 $ 403,185 $ 1,533,064
Intersegment revenues 58,607 34,064 -- 92,671
Interest income 25,882 -- -- 25,882
Interest expense 12,011 -- -- 12,011
Depreciation and amortization 87,355 7,539 14,316 109,210
Segment income (loss) 86,316 (25,441) 2,547 63,422
Segment assets 6,512,442 764,444 569,689 7,846,575
Expenditures for segment assets 44,512 -- -- 44,512
</TABLE>
J-10
<PAGE>
Note 8 - Supplemental Disclosures for the Consolidated Statements
of Cash Flows
a) Non-cash investing activities
During the three months ended March 31, 2000, the Company transferred
unamortized leasehold improvements with a cost of $331,456 and a book value of
$45,384 as an amount due from shareholder, in connection with a commitment made
by the shareholder regarding the termination of a lease agreement of a 27 acre
parcel of land previously leased to the Company.
b) Other cash flow transactions
Other cash flow transactions for the three months ended March 31, 2000 and 1999,
include interest payments amounting to approximately $25,600 and $12,000,
respectively. There were no income tax payments for the three months ended March
31, 2000 and 1999.
J-11
<PAGE>
APPENDIX K
iTRACT, LLC
(A Development Stage Company)
---------
FINANCIAL REPORT
FOR THE PERIOD FROM MAY 12, 1999
(INCEPTION) TO JUNE 30, 1999
FOR THE PERIOD FROM JULY 1, 1999 TO
DECEMBER 31, 1999 AND
FOR THE PERIOD MAY 12, 1999 (INCEPTION)
TO DECEMBER 31, 1999
---------
<PAGE>
iTRACT, LLC
(A Development Stage Company)
INDEX TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
PAGE
----
INDEPENDENT AUDITORS" REPORT K-1
FINANCIAL STATEMENTS:
Balance Sheets K-3
Statements of Operations and Members' Deficit K-4
Statements of Cash Flows K-5
Notes to the Financial Statements K-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE MEMBERS OF
iTRACT, LLC
We have audited the accompanying balance sheets of iTRACT, LLC (A
Development Stage Company) as of December 31, 1999 and June 30, 1999 and the
related statements of operations and members' deficit and cash flows for the six
months ended December 31, 1999, for the period from May 12, 1999 (inception) to
June 30, 1999 and for the period May 12, 1999 (inception) to 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 audit.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
K-1.
<PAGE>
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of iTRACT, LLC
at December 31, 1999 and June 30, 1999, and the results of its operations and
members' deficit and its cash flows for the six months ended December 31, 1999,
for the period from May 12, 1999 (inception) to June 30, 1999, and for the
period May 12, 1999 (inception) to December 31, 1999, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the company will continue as a going concern. As discussed in Note 2 to the
financial statements, the company has suffered losses from operations and has
net capital and working capital deficiencies that raise substantial doubt about
the entity's ability to continue as a going concern. Management's plans in
regards to these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ ANCHIN, BLOCK & ANCHIN LLP
ANCHIN, BLOCK & ANCHIN LLP
New York, New York
March 16, 2000
K-2.
<PAGE>
iTRACT LLC
(A Development Stage Company)
BALANCE SHEETS
A S S E T S
December 31, June 30,
1999 1999
---- ----
CURRENT ASSETS:
Cash $ 958 $ --
OTHER ASSETS:
Web site development costs - Note 1 238,250 64,250
---------- ----------
TOTAL ASSETS $ 239,208 $ 64,250
========== ==========
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 25,177 $ 7,112
Due to affiliates - Note 3 708,333 288,238
---------- ----------
Total Liabilities 733,510 295,350
MEMBERS' DEFICIT ACCUMULATED DURING THE
DEVELOPMENT STAGE (494,302) (231,100)
---------- ----------
TOTAL LIABILITIES AND MEMBERS' DEFICIT $ 239,208 $ 64,250
========== ==========
See the accompanying Notes to the Financial Statements. K-3.
<PAGE>
iTRACT LLC
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND MEMBERS' DEFICIT
May 12, May 12,
1999 Six Months 1999
(Inception) to Ended (Inception) to
December 31, December 31, June 30,
1999 1999 1999
---- ---- ----
REVENUES $ -- $ -- $ --
WEB SITE DEVELOPMENT COSTS
COSTS - NOTE 1 244,826 75,331 169,495
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 249,476 187,871 61,605
---------- ---------- ----------
NET LOSS 494,302 263,202 231,100
MEMBERS' DEFICIT:
Beginning of period -- 231,100 --
---------- ---------- ----------
End of period $ 494,302 $ 494,302 $ 231,100
========== ========== ==========
See the accompanying Notes to the Financial Statements.
K-4.
<PAGE>
iTRACT LLC
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
May 12, May 12,
1999 Six Months 1999
(Inception) to Ended (Inception) to
December 31, December 31, June 30,
1999 1999 1999
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (494,302) $ (263,202) $ (231,100)
Adjustments to reconcile net loss to net cash
used in operating activities:
Increase in accounts payable and
accrued expenses 25,177 18,065 7,112
----------- ----------- -----------
Net Cash Used in Operating Activities (469,125) (245,137) (223,988)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Web site development costs (238,250) (174,000) (64,250)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from affiliates 708,333 420,095 288,238
----------- ----------- -----------
NET INCREASE IN CASH 958 958 --
CASH:
Beginning of period -- -- --
----------- ----------- -----------
End of period $ 958 $ 958 $ --
=========== =========== ===========
</TABLE>
See the accompanying Notes to the Financial Statements.
K-5.
<PAGE>
iTRACT LLC
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business Plan:
The company was organized in Delaware on May 12, 1999, as a
limited liability company (LLC). The company is a member of a group of
affiliated entities and has been in the development stage since its
formation.
The company is in the process of developing a website which
will offer an all inclusive internet based directed marketing system
that reaches the online and offline marketplaces simultaneously, which
it plans to license to others.
Subsequent to December 31, 1999 the company signed a
nonbinding letter of intent to merge with a publicly traded company
which intends to bring a minimum of $5,000,000 cash and cash
equivalents (and no other assets) and liabilities not to exceed $10,000
into the merged entity. The principal shareholders of this public
company have loaned an affiliate of the company $2,000,000 which is
intended to help finance the company until the merger, when the loans
are due. If the merger does not occur the loans are convertible into
stock of the company's affiliate.
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 disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Web Site Development Costs:
Costs incurred to develop the company's web site have been
capitalized or expensed based upon guidelines issued by the Emerging
Issues Task Force Consensus issue No. 00-2. All costs incurred in the
planning stage are expensed as incurred. Costs incurred in the web site
application and infrastructure, graphics and content development stage
are capitalized.
Income Taxes:
No provision is required for Federal and state taxes on the
income of the company. Under the Internal Revenue Code and similar
state regulations the company is treated as a partnership; accordingly,
the income of the company is taxed to the members.
K-6.
<PAGE>
NOTE 2 - GOING CONCERN:
The accompanying financial statements have been prepared assuming that
the company will continue as a going concern. The company has suffered
losses from operations, has a net capital deficiency and will require
additional capital to continue operating. These factors raise
substantial doubt about the entity's ability to continue as a going
concern.
Management believes the company will continue to have the financial
support of its members and affiliates and is seeking additional sources
of capital (see Note 1).
NOTE 3 - RELATED PARTY TRANSACTIONS:
The company has transactions with affiliates for various services
performed as follows:
<TABLE>
<CAPTION>
May 12, 1999 Six Months May 12, 1999
(Inception) to Ended (Inception) to
December 31, December 31, June 30,
1999 1999 1999
---- ---- ----
<S> <C> <C> <C>
Web site development (a) $413,000 $198,000 $215,000
Computer charges 27,200 20,400 6,800
Occupancy costs 42,972 30,848 12,124
Management and administrative fees 80,000 60,000 20,000
-------- -------- --------
$563,172 $309,248 $253,924
======== ======== ========
<FN>
(a) Certain of these costs have been capitalized (see note 1).
</FN>
</TABLE>
K-7.
<PAGE>
APPENDIX L
iTRACT, LLC
(A Development Stage Company)
---------
FINANCIAL REPORT
FOR THE THREE MONTHS ENDED MARCH 31, 2000
AND FOR THE PERIOD MAY 12, 1999 (INCEPTION)
TO MARCH 31, 2000
---------
<PAGE>
iTRACT, LLC
(A Development Stage Company)
INDEX TO THE FINANCIAL STATEMENTS
MARCH 31, 2000
PAGE
----
FINANCIAL STATEMENTS:
Balance Sheet L-1
Statements of Operations L-2
Statements of Members' Deficit L-3
Statements of Cash Flows L-4
Notes to the Financial Statements L-5
<PAGE>
iTRACT LLC
(A Development Stage Company)
BALANCE SHEET
MARCH 31, 2000
(Unaudited)
A S S E T S
CURRENT ASSETS:
Cash $ 7,523
Prepaid expenses and other current assets 7,973
Due from affiliate 1,000
-----------
Total Current Assets $ 16,496
OTHER ASSETS:
Web site development costs - Note 1 370,520
-----------
TOTAL ASSETS $ 387,016
===========
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 182,244
Due to affiliates - Note 3 1,003,103
-----------
Total Liabilities $ 1,185,347
MEMBERS' DEFICIT ACCUMULATED DURING THE
DEVELOPMENT STAGE (798,331)
-----------
TOTAL LIABILITIES AND MEMBERS' DEFICIT $ 387,016
===========
See the accompanying Notes to the Financial Statements.
L-1.
<PAGE>
iTRACT LLC
(A Development Stage Company)
STATEMENTS OF OPERATIONS
May 12, 1999 Three Months
(Inception) to Ended
March 31, March 31,
2000 2000
---- ----
(Unaudited) (Unaudited)
REVENUES $ -- $ --
WEB SITE DEVELOPMENT COSTS - NOTE 1 (296,767) (51,941)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES - NOTE 4 (1,048,089) (798,613)
------------ ----------
NET LOSS $ (1,344,856) $ (850,554)
============ ==========
See the accompanying Notes to the Financial Statements.
L-2.
<PAGE>
iTRACT LLC
(A Development Stage Company)
STATEMENTS OF MEMBERS' DEFICIT
May 12, 1999 Three Months
(Inception) to Ended
March 31, March 31,
2000 2000
---- ----
(Unaudited) (Unaudited)
MEMBERS' DEFICIT:
Beginning of period $ -- $ (494,302)
Net loss (1,344,856) (850,554)
Capital contributions 546,525 546,525
------------ ----------
End of period $ (798,331) $ (798,331)
============ ==========
See the accompanying Notes to the Financial Statements.
L-3.
<PAGE>
iTRACT LLC
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
May 12, 1999 Three Months
(Inception) to Ended
March 31, March 31,
2000 2000
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,344,856) $ (850,554)
Adjustments to reconcile net loss to net cash
used in operating activities:
Increase in members' equity in exchange for general
and administrative expenses incurred 546,525 546,525
Increase in prepaid and other current assets (7,973) (7,973)
Increase in accounts payable and accrued expenses 182,244 157,067
------------ ----------
Net Cash Used in Operating Activities (624,060) (154,935)
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Web site development costs capitalized (370,520) (132,270)
Advances to affiliate (1,000) (1,000)
------------ ----------
Net Cash Used in Investing Activities (371,520) (133,270)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from affiliates 1,003,103 294,770
------------ ----------
NET INCREASE IN CASH 7,523 6,565
CASH:
Beginning of period -- 958
------------ ----------
End of period $ 7,523 $ 7,523
============ ==========
</TABLE>
See the accompanying Notes to the Financial Statements.
L-4.
<PAGE>
iTRACT LLC
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements:
The financial information included herein is unaudited;
however, the information reflects all adjustments (consisting solely of
normal recurring adjustments) that, in the opinion of management, are
necessary to a fair presentation of the financial position, results of
operations, and cash flows for the interim periods.
Organization and Business Plan:
The company was organized in Delaware on May 12, 1999, as a
limited liability company (LLC). The company is a member of a group of
affiliated entities and has been in the development stage since its
formation.
The company is in the process of developing a website which
will offer an all inclusive internet based directed marketing system
that reaches the online and offline marketplaces simultaneously, which
it plans to license to others.
Subsequent to March 31, 2000 the company signed an agreement
and plan of merger to merge with a subsidiary of a publicly traded
company which intends to bring a minimum of $5,000,000 cash and cash
equivalents (and no other assets) and liabilities not to exceed $10,000
into the merged entity. The principal shareholders of this public
company have loaned an affiliate of the company $2,000,000 which is
intended to help finance the company until the merger, when the loans
are due. If the merger does not occur the loans are convertible into
stock of the company's affiliate. Additionally, the company and its
affiliate may be liable for up to $100,000 for reimbursement of merger
expenses incurred.
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 disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Web Site Development Costs:
Costs incurred to develop the company's web site have been
capitalized or expensed based upon guidelines issued by the Emerging
Issues Task Force Consensus issue No. 00-2. All costs incurred in the
planning stage are expensed as incurred. Costs incurred in the web site
application and infrastructure, graphics and content development stage
are capitalized.
L-5.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Income Taxes:
No provision is required for federal and state taxes on the
income of the company. Under the Internal Revenue Code and similar
state regulations the company is treated as a partnership; accordingly,
the income of the company is taxed to the members.
NOTE 2 - GOING CONCERN:
The accompanying financial statements have been prepared assuming that
the company will continue as a going concern. The company has suffered
losses from operations, has net capital and working capital
deficiencies and will require additional capital to continue operating.
These factors raise substantial doubt about the entity"s ability to
continue as a going concern.
Management believes the company will continue to have the financial
support of its members and affiliates and is seeking additional sources
of capital (see Note 1).
NOTE 3 - RELATED PARTY TRANSACTIONS:
The company has transactions with affiliates for various services
performed as follows:
May 12, 1999 Three Months
(Inception) to Ended
March 31, March 31,
2000 2000
(Unaudited) (Unaudited)
----------- -----------
Web site development (a) $485,000 $ 72,000
Computer charges 42,200 15,300
Occupancy costs 60,337 17,365
Management and administrative fees 110,000 30,000
-------- --------
$697,837 $134,665
======== ========
(a) Certain of these costs have been capitalized (see Note 1).
In conjunction with the agreement and plan of merger, (see Note 1)
several affiliates of the company are required to contribute a minimum
of approximately $384,000 of amounts due them, to the capital of the
company.
L-6.
<PAGE>
NOTE 4 - EQUITY BASED COMPENSATION:
During the three months ended March 31, 2000, the company issued
additional equity in exchange for general and administrative expenses
incurred as follows:
Recipient Fair Value
--------- ----------
Parent company (owned by officer of company) $ 261,750
Employees 25,125
Employees of affiliate 108,750
Consultants 150,900
----------
$ 546,525
==========
NOTE 5 - COMMITIMENTS AND CONTINGENCIES:
Employment Contract:
On January 1, 2000 the company entered into a three-year
employment agreement with its Executive Vice President whereby he will
receive a salary of $120,000, $150,000 and $200,000 for the first,
second and third years respectively, plus an additional bonus based on
the attainment of performance objectives.
Advertising and Promotion Agreements:
On April 3, 2000 the company entered into a two-year agreement
with an internet company to have it post the company's advertising and
promotional placements on the internet company's web sites. Based upon
certain performance requirements by the internet company, the company
may be liable for up to $83,333 per month (with a maximum of
$2,000,000) should the merger described in to Note 1 not take place by
August 15, 2000. If the merger occurs, these obligations will be
satisfied by the issuance of warrants to purchase up to 3.52% of the
company for $4,530.
In April 2000, the company entered into separate one-year
agreements with an advertising agency and a public relations firm
requiring monthly fees of $43,041 and $12,000, respectively.
L-7.
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 20. Indemnification of Directors and Officers.
A. Section 102(b)(7) of the Delaware General Corporation Law (the
"DGCL") provides that a corporation may include in its certificate of
incorporation a provision eliminating or limiting the personal liability of
directors to the corporation or its stockholders for monetary damages for breach
of a director's fiduciary duty. However, no such provision may eliminate or
limit the liability of a director for breaching his duty of loyalty, failing to
act in good faith, engaging in intentional misconduct or knowingly violating a
law, paying a dividend or approving a stock repurchase which was illegal, or
obtaining an improper personal benefit. A provision of this type has no effect
on the availability of equitable remedies, such as injunction or rescission, for
breach of fiduciary duty. Article V of iTract, Inc.'s Certificate of
Incorporation contains such a provision.
B. Section 145 of the DGCL authorizes Delaware corporations to
indemnify their officers and directors against liabilities arising out of
pending or threatened actions, suits or proceedings to which they are or may be
made parties by reason of being directors or officers. Such rights of
indemnification are not exclusive of any other rights to which such officers or
directors may be entitled under any by-law, agreement, vote of stockholders or
otherwise. The Certificate of Incorporation of iTract, Inc. provides that
iTract, Inc. shall indemnify its directors, officers and employees to the full
extent permitted by law. iTract, Inc. also maintains directors' and officers'
liability insurance on behalf of its directors and officers.
C. Section 13(a) of Article III of the iTract, Inc.'s By-laws (the
"By-laws") provides that iTract, Inc. shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of iTract, Inc.) by
reason of the fact that he is or was a director, officer, employee or agent of
iTract, Inc. or is or was serving at the request of iTract, Inc. as a director,
officer, employee or agent of another corporation or 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 iTract,
Inc., and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful.
Section 13(b) of Article III of the By-laws provides that iTract, Inc.
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of iTract, Inc. to procure a judgment in its favor by reason of the fact that
such person acted in any of the capacities set forth above, 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
under similar standards set forth in the preceding paragraph, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to iTract, Inc. unless and
only to the extent that the court in which such action or suit was brought shall
determine that despite the adjudication of liability, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
Section 13(c) of Article III of the By-laws provides that to the extent
a director or officer of iTract, Inc. has been successful on the merits or
otherwise in the defense of any action, suit or proceeding referred to in
Sections 13(a) and 13(b) of Article III of the By-laws or in the defense of any
claim, issue, or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
Section 13(e) of Article III of the By-laws provides that iTract, Inc.
may pay expenses incurred in defending a civil or criminal action, suit or
proceeding in advance of the final disposition of such action, suit or
proceeding if it receives an undertaking by or on behalf of such director or
officer to repay such amounts if it is ultimately determined that such person is
not entitled to be indemnified by iTract, Inc. as authorized in Section 13 of
Article III of the By-laws.
Sections 13(f) and 13(g) of Article III of the By-laws provide that
indemnification provided for by Section 13 of Article III of the By-laws shall
not be deemed exclusive of any other rights to which the indemnified party may
be entitled; and that iTract, Inc. may purchase and maintain insurance on behalf
of a director or officer of
II-1
<PAGE>
iTract, Inc. against any liability asserted against such person or incurred by
such person in any such capacity or arising out of such person's status as such,
whether or not iTract, Inc. would have the power to indemnify such person
against such liabilities under such liabilities under the provisions of Section
13 of Article III of the By-laws.
D. Section 9.11 of the Agreement and Plan of Merger, dated April 11,
2000, among Margo Caribe, Inc., iTract Acquisition Company, LLC, iTract, Inc.,
itract, LLC and International Commerce Exchange Systems, Inc., provides that
iTract, Inc. shall indemnify and hold harmless each present and former officer
and director of iTract, Inc. prior to the effective time of the merger with
itract, LLC against any claims, losses, liabilities, damages, costs and expenses
incurred in connection with any claim, action, suit, proceeding or investigation
arising out of or pertaining to matters existing or occurring at or prior to the
effective time of the merger with itract, LLC, whether asserted or claimed at or
prior to said effective time, to the fullest extent permitted under the
Certificate of Incorporation and Bylaws of iTract, Inc. as in effect immediately
prior to the merger of Margo with and into iTract, Inc.
Item 21. Exhibits and Financial Statement Schedules.
2.1 Merger Agreement, dated June 21, 2000, between Margo Caribe, Inc. and
iTract, Inc. (Attached to the proxy statement/prospectus constituting a
part of this Registration Statement as Appendix A.)
2.2 Agreement and Plan of Merger, dated as of April 11, 2000, among Margo
Caribe, Inc., iTract Acquisition Company, LLC, iTract, Inc., itract,
LLC and International Commerce Exchange Systems, Inc. (Attached to the
proxy statement/prospectus constituting a part of this Registration
Statement as Appendix B.)
3.1 Certificate of Incorporation of iTract, Inc. (Attached to the proxy
statement/prospectus constituting a part of this Registration Statement
as Appendix G.)
3.2 Bylaws of iTract, Inc. (Attached to the proxy statement/prospectus
constituting a part of this Registration Statement as Appendix H.)
4.1 Stock Option Plan.
5.1 Opinion regarding legality and consent of Shutts & Bowen LLP.*
8.1 Opinion of Pietrantoni Mendez & Alvarez LLP regarding material Puerto
Rico and Federal income tax consequences relating to reincorporation
merger.*
8.2 Opinion of Kronish Lieb Weiner & Hellman LLP regarding material Federal
income tax consequences relating to the itract merger.*
10.1 Agreement for Participation in Internet Loyalty Program, dated April
10, 2000, between itract, LLC and FreeRide.com LLC.
23.1 Consent of Shutts & Bowen LLP.*
23.2 Consent of Pietrantoni Mendez & Alvarez LLP.*
23.3 Consent of Kronish Lieb Weiner & Hellman LLP.*
23.4 Consent of Deloitte & Touche LLP.
23.5 Consent of Anchin, Block & Anchin LLP.
23.6 Consent of Schwartz Heslin Group, Inc.
23.7 Consent of San Juan Holdings, Inc.
24.1 Power of Attorney (included on page II-4).
99.1 Form of Margo Proxy Card.*
--------------------
* To be filed by a Pre-Effective Amendment to the Registration Statement.
II-2
<PAGE>
Item 22. Undertakings.
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
4. That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
5. That every prospectus (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
6. To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Municipality of San
Juan, Commonwealth of Puerto Rico, on the 30th day of June, 2000.
ITRACT, INC.
By: /S/ MICHAEL J. SPECTOR
--------------------------------
Michael J. Spector
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Michael J. Spector and Margaret D. Spector and each of them, each with
full power to act without the other, his true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him and in
his name, place and stead in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and any registration statement relating to the same offering as this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto each of said attorneys-in-fact and agents
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/Michael J. Spector Chairman of the Board, President, June 30, 2000
----------------------- Chief Executive Officer and
Michael J. Spector Director
/s/Margaret D. Spector Secretary and Director June 30, 2000
-----------------------
Margaret D. Spector
/s/Blas R. Ferraiuoli Director June 30, 2000
-----------------------
Blas R. Ferraiuoli
/s/ Frederick D. Moss Director June 30, 2000
-----------------------
Frederick D. Moss
/s/Michael A. Rubin Director June 30, 2000
-----------------------
Michael A. Rubin
/s/ Alfonso A. Ortega Vice President, Treasurer and June 30, 2000
----------------------- Principal Financial Officer and
Alfonso A. Ortega Accounting Officer
II-4
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
2.1 - Merger Agreement, dated June 21, 2000, between Margo Caribe, Inc. and
iTract, Inc. (Attached to the proxy statement/prospectus constituting a
part of this Registration Statement as Appendix A.)
2.2 - Agreement and Plan of Merger, dated as of April 11, 2000, among Margo
Caribe, Inc., iTract Acquisition Company, LLC, iTract, Inc., itract,
LLC and International Commerce Exchange Systems, Inc. (Attached to the
proxy statement/prospectus constituting a part of this Registration
Statement as Appendix B.)
3.1 - Certificate of Incorporation of iTract, Inc. (Attached to the proxy
statement/prospectus constituting a part of this Registration Statement
as Appendix G.)
3.2 - Bylaws of iTract, Inc. (Attached to the proxy statement/prospectus
constituting a part of this Registration Statement as Appendix H.)
4.1 - Stock Option Plan.
5.1 - Opinion regarding legality and consent of Shutts & Bowen LLP.*
8.1 - Opinion of Pietrantoni Mendez & Alvarez LLP regarding material Puerto
Rico and Federal income tax consequences relating to reincorporation
merger.*
8.2 - Opinion of Kronish Lieb Weiner & Hellman LLP regarding material Federal
income tax consequences relating to the itract merger.*
10.1 - Agreement for Participation in Internet Loyalty Program, dated April
10, 2000, between itract, LLC and FreeRide.com LLC.
23.1 - Consent of Shutts & Bowen LLP.*
23.2 - Consent of Pietrantoni Mendez & Alvarez LLP.*
23.3 - Consent of Kronish Lieb Weiner & Hellman LLP.*
23.4 - Consent of Deloitte & Touche LLP.
23.5 - Consent of Anchin, Block & Anchin LLP.
23.6 - Consent of Schwartz Heslin Group, Inc.
23.7 - Consent of San Juan Holdings, Inc.
24.1 - Power of Attorney (included on page II-4).
99.1 - Form of Margo Proxy Card.*
--------------------
* To be filed by a Pre-Effective Amendment to the Registration Statement.
