U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 7, 1997
KMS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-2917 38-1842108
(State or other (Commission (IRS Employer
jurisdiction of file Number) Identification No.)
incorporation or
organization)
101 North Main Street, Ann Arbor, Michigan 48104
(Address of principal executive offices)
Registrant's telephone number, including area code: (313) 769-1100
N/A
(Former name or former address, if changed since last report)
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ITEM 5
On March 7, 1997, the United States Court of Appeals for the Federal Circuit
in Case No. 94-593C affirmed the judgment of the United States Court of
Federal Claims, denying the breach of contract claim (the "Breach Case") by
KMS Industries, Inc.'s (the Company) wholly owned subsidiary, KMS Fusion,
Inc. ("Fusion"), against the United States Department of Energy ("DOE").
This decision is a material adverse development for the Company. The Breach
Case has previously been described in the Annual Report and Form 10-KSB for
the year ending December 31, 1995 (the "Form 10-KSB").
Due to its complete lack of financial liquidity, the Company is currently
unable (1) to operate in the normal course of business, (2) to prepare and
file audited financial statements for the year ending December 31, 1996,
with the U.S. Securities and Exchange Commission ("SEC"), (3) to prepare or
distribute an Annual Report and Form 10-KSB and a Proxy Statement to its
stockholders or (4) to hold an Annual Meeting of its Stockholders. The
Company will not comply with the reporting requirements of the Securities
Exchange Act of 1934. The Company's continued existence is in doubt and the
future appears very uncertain. The Company has a deficit net worth and is
unable to pay its bills as they become due. Unless and until funds are
available to do so, the Company is unable to communicate directly with its
stockholders. In the interim, attached hereto as Exhibit 99.2 are the
unaudited financial statements of the Company for the fiscal year ended
December 31, 1996. Such financial statements have been prepared by
management of the Company, in accordance with past practices.
If and when the Company's financial situation improves materially, the
Company will use its best efforts to (a) prepare the Annual Report and Form
10-KSB for the year ending December 31, 1997, containing audited financial
data, certified by an independent public accounting firm, (b) distribute the
Proxy Statement and amended Annual Report and Form 10-KSB to its
stockholders and (c) call an extraordinary meeting of its stockholders.
Messrs. Long and Liddy, Chairman and President of the Company, respectively,
have negotiated agreements with the Company to defer payment of severance
and salary owed them and have advanced cash to the Company to enable the
Company to pay its bills. Messrs. Long and Liddy are presently secured
creditors of the Company.
In accordance with the terms of the Employment Agreements between the
Company and each of Messrs. Long and Liddy, the Company's failure to pay
each of them their respective compensation from and after October 1, 1996 in
cash constituted the termination of their employment and gave rise to an
obligation to pay each of them a severance payment in the amount of $120,000
and $90,000, respectively. Mr. Fry, as the sole independent member of the
Board of Directors of the Company accepted the claims of Messrs. Long and
Liddy for severance and agreed that the Company will pay such severance to
each of them. From October 1, 1996 to March 31, 1997, each of Messrs. Long
and Liddy have continued to serve as employees of the Company at a reduced
salary of $7,500 and $5,625 per month, respectively. It is contemplated
that after March 30, 1997 Messrs. Long and Liddy may continue as employees
of the Company on a part-time basis at the same salary. All payments for
severance and salary are being accrued and have not been paid in cash.
Messrs. Long and Liddy have advanced the Company the sum of $60,000 in cash
for operating expenses which the Company is obligated to repay. Messrs.
Long and Liddy may make future cash advances. However, neither of Messrs.
Long nor Liddy have made any undertaking or assurances of additional future
financial support for the Company.
The Company's obligations to Messrs. Long and Liddy in connection with
severance pay in the amount of $120,000 and $90,000 respectively, and any
present and future (a) accrued but unpaid salary and (b) cash advances to
the Company are described in those certain Agreements dated February 28,
1997 between the Company and each of them, copies of which are attached
hereto as Exhibits 10.1 and 10.2 ("Agreements"). Pursuant to the
Agreements, Messrs. Long and Liddy are acknowledged to be creditors of the
Company and have been granted a security interest in all of the Company's
assets to secure the Company's obligations to each of them. There are no
other secured creditors of the Company at this time. Messrs. Liddy and Long
have each also agreed to purchase 100,000 shares of the Company's Common
Stock at a price per share of $0.07 which was the approximate bid price for
the Company's Common Stock on the date they agreed to purchase the stock.
As a result of such purchases, Messrs. Long and Liddy will be the beneficial
owners of 20.1% and 26.1%, respectively, of the outstanding shares
(including for the purpose of such calculation shares which may be acquired
pursuant to presently exercisable warrants and options). In addition, the
Company has reduced the exercise price on all outstanding options and
warrants owned by Messrs. Long and Liddy to a new exercise price of $0.07
per share.
The Company's obligations to Messrs. Long and Liddy, as set forth in the
Agreements, contemplate that the Company will pay Messrs. Long and Liddy as
soon as practicable after the Company has the resources to make such
payments. In any event, all obligations to Messrs. Long and Liddy pursuant
to the Agreements will become fully due and payable on December 31, 1997, if
not sooner. In view of the Company's present financial circumstances, it is
not clear that the Company will be in a position to meet its obligations to
Messrs. Long and Liddy when they become due. Messrs. Long and Liddy are
free to, and presently intend to, exercise any and all of their rights as
secured creditors if the Company defaults on any of its obligations under
the Agreements.
Mr. Rocko W. Mazzaro, the Company's Chief Financial Officer, ceased to be a
full-time employee of the Company on February 15, 1997. This event was
caused by his evaluation of the Company's near term prospects and financial
condition. He has agreed to assist the Company on a part-time basis
provided that such assistance does not in any way conflict with his duties
with his new employer.
The Company's near and long future depends significantly upon the outcome of
litigation against the U.S. Government. In light of the recent judgment of
the United States Court of Appeals for the Federal Circuit in the Breach
Case, the sole possibility for recovery from the DOE rests on the outcome of
the case involving the claim for costs incurred by Fusion during the year,
1987 through 1991 in the performance of contract R&D for the DOE (the "Cost
Case"). The Company expects to have a result in that matter within the next
few months. The Cost Case has previously been described in the Form 10-KSB.
Any judgment in favor of Fusion will be subject to a $2 million set-off in
favor of the government to the payment of fees for legal and support
services and to the contingent interests of Messrs. Long and Liddy. It is
possible that KMS Fusion, Inc. would receive little or nothing as a result
of the impact of these factors.
The Company plans, to the extent of its resources, to continue to pursue the
litigation to its conclusion. The Company may not be able to do so because
of a lack of resources. In such an event, the Company may not realize
anything from the litigation. The Company may have to settle on unfavorable
terms or abandon the litigation.
If the cash proceeds of the litigation are not available to the Company in a
timely fashion (i.e., when the Company needs the cash), the Company and/or
its stockholders could lose all or part of any rights in or claims they may
have to the proceeds of the litigation. Any number of circumstances,
including, but not limited to, a default by the Company on its obligations
to Messrs. Long and Liddy and/or other creditors could result in the loss of
the rights of the stockholders of the Company to all or part of the proceeds
of the litigation.
The Company hopes during 1997 to be able to develop and sell products based
on the patented OG(TM) technology owned by its wholly-owned subsidiary, KMS
Technology, Inc. ("KMST"). Its ability to do so has been and will remain
severely constrained by its lack of financial resources. The Company has
sought external financing for this project but has not had any success.
Without additional financing in the near term, it is very doubtful that the
Company will be able to successfully realize its goal of communicating this
or any other technology. The Company will continue to seek ways to develop
or license the technology owned by KMST but no assurances can be made that
it will be successful in doing so.
Unless substantial funds are realized in a timely fashion from such
litigation, the Company will probably be unable to continue in existence.
It is very uncertain whether substantial funds will be realized by the
Company in a timely fashion from such litigation. The Company's future,
given the current cash crisis confronting it and the uncertainty surrounding
the timing and the amount of any funds that may be realized from litigation,
as well as the offsets to any recovery, is very bleak.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
None.
(b) Pro Forma Financial Information.
None.
(c) Exhibits
10.1 Employment Agreement with Patrick B. Long
10.2 Employment Agreement with Terence C. Liddy
10.3 Stock Purchase Agreement with Patrick B. Long
10.4 Stock Purchase Agreement with Terence C. Liddy
99.1 Press Release
99.2 Unaudited Financial Statements
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
KMS INDUSTRIES, INC.
By: /s/ Patrick B. Long
Patrick B. Long
Chairman of the Board and Chief Executive Officer
(principal executive officer)
Exhibit 10.1
AGREEMENT
This Agreement is made February 28, 1997, to be effective as of
October 1, 1996, between KMS Industries, Inc., a Delaware corporation
("Company") and Patrick B. Long ("Executive").
BACKGROUND
A. Company is engaged in protracted litigation with the United
States Government to recover substantial amounts due the Company. As a
result of the litigation, Company is in difficult financial circumstances
and lacks funds with which to carry on its activities.
B. Executive and Company are parties to an Employment Agreement
dated December 29, 1995 ("Employment Agreement") providing for Executive's
employment with Company through December 31, 1996.
C. Effective October 1, 1996, Company was unable to meet its salary
obligations to Executive under the Employment Agreement, triggering a
severance obligation to Executive under the Employment Agreement.
D. In order to permit the Company to be able to press its claims
against the Government and otherwise continue operations, Executive has
continued to provide services to Company without compensation, and has also
advanced the sum of $27,500 to the Company.
E. The parties wish to enter in arrangements which will provide
financial relief to Company, and which will induce Executive to continue to
perform services on behalf of Company.
THEREFORE, it is hereby agreed as follows:
1. Cash Advances. Company acknowledges receipt of the following
cash advances from Executive as of the dates indicated:
$10,000 December 6, 1996
$10,000 January 7, 1997
$7,500 January 27, 1997
Executive is not obligated to provide any further cash advances to Company,
but in the event of such advances, the amount and date thereof shall be
endorsed on an attachment to this Agreement. All amounts advanced under
this Section are referred to as "Cash Advances." Cash Advances shall bear
interest at the rate of 12% per annum from the date of advance to the date
of payment.
2. Temporary Waiver of Contractual Payments Due Executive. Company
acknowledges the following obligations to Executive, and Executive agrees to
defer payment thereon as set forth in Section 3:
An obligation in the amount of $120,000 which became due October 1,
1996 pursuant to Section 8 of the Employment Agreement.
Unpaid salary for the period commencing October 1, 1996 until
termination of Executive's employment, at the rate of $7,500 per month.
The amounts accrued or accruing under this Section, and the
estimated tax withholdings which will accrue if and when the amounts are
paid to Executive shall be recorded as liabilities on the Company's books.
Such amounts, net of tax withholdings, are referred to as the "Deferred
Obligations." Deferred Obligations shall bear interest at the rate of 12%
per annum from the date the obligation was due until the date of payment.
3. Repayment of Cash Advances and Deferred Obligations. Cash
Advances and Deferred Obligations, together with accrued interest, will be
paid to Executive as soon as practicable after Company has the resources
with which to make the payments. Partial payments shall be applied first to
interest, then to principal of the Cash Advances, and then to principal of
the Deferred Obligations. In any event, the Cash Advances and Deferred
Obligations, together with accrued interest, shall become fully due and
payable on December 31, 1997.
Provided further that upon any default or violation of the terms of
this Agreement by Company, all or any part of the indebtedness owed by
Company hereunder shall, at the option of Executive, become immediately due
and payable without notice or demand. If a voluntary or involuntary case in
bankruptcy, receivership, or insolvency is at any time instituted by or
against Company, or if any levy, writ of attachment, garnishment, execution,
or similar process is issued or placed on any property of Company, then all
such indebtedness shall automatically become immediately due and payable,
without notice or demand.
4. Security for Repayments.
(a) Company hereby grants to Executive a security interest in all
of its assets, tangible and intangible, in favor of Executive to secure
Company's obligations hereunder.
(b) Company and another senior executive are entering into a
corresponding agreement containing the same substantive terms and
conditions. The security interests created under such other agreement and
under this Agreement shall be in pari passu in all respects and shall be
enforced concurrently.
5. Adjustment to Options and Warrants. As an inducement to
Executive to continue to agree to the provisions hereof and continue to
perform services for Company, Company agrees that the exercise price of all
existing options and warrants held by Executive to purchase Company Common
Stock is hereby changed to $.07 per share, the estimated current market
price of Company Common Stock.
6. Stock Purchase. In accordance with the terms of the Stock
Purchase Agreement attached as Exhibit A, Company shall issue to Executive,
and Executive agrees to purchase, 100,000 shares of Company Common Stock at
a price of $.07 per share.
7. Continued Services. In consideration of the foregoing,
Executive agrees to continue to perform services for the Company until March
31, 1997. Thereafter Executive may serve as an at-will employee on a month
to month basis on mutually agreeable terms. The term of the Employment
Agreement shall be deemed extended until March 31, 1997, subject to the
arrangements set forth in this Agreement.
Notwithstanding the foregoing provision, the Company acknowledges
its obligations under Section 4 of the Employment Agreement, and agrees that
such obligations shall continue beyond the term of this Agreement and the
payment of such obligations will not be subject to any of the conditions set
forth in Section 4 of the Employment Agreement regarding the termination of
Executive's employment.
8. Board of Directors Approval. The foregoing arrangements have
been approved by the Board of Directors and determined to be in the
Company's best interests at this time.
Executed as of the date first written above.
By: /s/ Patrick B. Long KMS INDUSTRIES, INC.
Patrick B. Long
By: /s/ Terence C. Liddy
TERENCE C. LIDDY, President
And By: /s/ Richard E. Fry
RICHARD E. FRY, Independent Director
Exhibit 10.2
AGREEMENT
This Agreement is made February 28, 1997, to be effective as of
October 1, 1996, between KMS Industries, Inc., a Delaware corporation
("Company") and Terence C. Liddy ("Executive").
BACKGROUND
A. Company is engaged in protracted litigation with the United States
Government to recover substantial amounts due the Company. As a result of
the litigation, Company is in difficult financial circumstances and lacks
funds with which to carry on its activities.
B. Executive and Company are parties to an Employment Agreement dated
December 29, 1995 ("Employment Agreement") providing for Executive's
employment with Company through December 31, 1996.
C. Effective October 1, 1996, Company was unable to meet its salary
obligations to Executive under the Employment Agreement, triggering a
severance obligation to Executive under the Employment Agreement.
D. In order to permit the Company to be able to press its claims
against the Government and otherwise continue operations, Executive has
continued to provide services to Company without compensation, and has also
advanced the sum of $27,500 to the Company.
E. The parties wish to enter in arrangements which will provide
financial relief to Company, and which will induce Executive to continue to
perform services on behalf of Company.
THEREFORE, it is hereby agreed as follows:
1. Cash Advances. Company acknowledges receipt of the following cash
advances from Executive as of the dates indicated:
$10,000 December 6, 1996
$10,000 January 7, 1997
$7,500 January 27, 1997
Executive is not obligated to provide any further cash advances to
Company, but in the event of such advances, the amount and date thereof
shall be endorsed on an attachment to this Agreement. All amounts advanced
under this Section are referred to as "Cash Advances." Cash Advances shall
bear interest at the rate of 12% per annum from the date of advance to the
date of payment.
2. Temporary Waiver of Contractual Payments Due Executive. Company
acknowledges the following obligations to Executive, and Executive agrees to
defer payment thereon as set forth in Section 3:
An obligation in the amount of $90,000 which became due October 1, 1996
pursuant to Section 8 of the Employment Agreement.
Unpaid salary for the period commencing October 1, 1996 until
termination of Executive's employment, at the rate of $5,625 per month.
The amounts accrued or accruing under this Section, and the estimated
tax withholdings which will accrue if and when the amounts are paid to
Executive shall be recorded as liabilities on the Company's books. Such
amounts, net of tax withholdings, are referred to as the "Deferred
Obligations." Deferred Obligations shall bear interest at the rate of 12%
per annum from the date the obligation was due until the date of payment.
3. Repayment of Cash Advances and Deferred Obligations. Cash Advances
and Deferred Obligations, together with accrued interest, will be paid to
Executive as soon as practicable after Company has the resources with which
to make the payments. Partial payments shall be applied first to interest,
then to principal of the Cash Advances, and then to principal of the
Deferred Obligations. In any event, the Cash Advances and Deferred
Obligations, together with accrued interest, shall become fully due and
payable on December 31, 1997.
Provided further that upon any default or violation of the terms of
this Agreement by Company, all or any part of the indebtedness owed by
Company hereunder shall, at the option of Executive, become immediately due
and payable without notice or demand. If a voluntary or involuntary case in
bankruptcy, receivership, or insolvency is at any time by or against
Company, or if any levy, writ of attachment, garnishment, execution, or
similar process is issued or placed on any property of Company, then all
such indebtedness shall automatically become immediately due and payable,
without notice or demand.
4. Security for Repayments.
(a) Company hereby grants to Executive a security interest in all
of its assets, tangible and intangible, in favor of Executive to secure
Company's obligations hereunder.
(b) Company and another senior executive are entering into a
corresponding agreement containing the same substantive terms and
conditions. The security interests created under such other agreement and
under this Agreement shall be in pari passu in all respects and shall be
enforced concurrently.
5. Adjustment to Options and Warrants. As an inducement to Executive
to continue to agree to the provisions hereof and continue to perform
services for Company, Company agrees that the exercise price of all existing
options and warrants held by Executive to purchase Company Common Stock is
hereby changed to $.07 per share, the estimated current market price of
Company Common Stock.
6. Stock Purchase. In accordance with the terms of the Stock Purchase
Agreement attached as Exhibit A, Company shall issue to Executive, and
Executive agrees to purchase, 100,000 shares of Company Common Stock at a
price of $.07 per share.
7. Continued Services. In consideration of the foregoing, Executive
agrees to continue to perform services for the Company until March 31, 1997.
Thereafter Executive may serve as an at-will employee on a month to month
basis on mutually agreeable terms. The term of the Employment Agreement
shall be deemed extended until March 31, 1997, subject to the arrangements
set forth in this Agreement.
Notwithstanding the foregoing provision, the Company acknowledges its
obligations under Section 4 of the Employment Agreement, and agrees that
such obligations shall continue beyond the term of this Agreement and the
payment of such obligations will not be subject to any of the conditions set
forth in Section 4 of the Employment Agreement regarding the termination of
Executive's employment.
8. Board of Directors Approval. The foregoing arrangements have been
approved by the Board of Directors and determined to be in the Company's
best interests at this time.
Executed as of the date first written above.
KMS INDUSTRIES, INC.
/s/ Terence C. Liddy By: /s/ Patrick B. Long
TERENCE C. LIDDY PATRICK B. LONG
Chief Executive Officer
And By: /s/ Richard E. Fry
RICHARD E. FRY
Independent Director
Exhibit 10.3
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is entered into on February 28, 1997
between KMS INDUSTRIES, INC., a Delaware corporation ("Company"), and
PATRICK B. LONG ("Purchaser"), pursuant to an Agreement between the parties
dated February 28, 1997 ("Agreement").
BACKGROUND:
A. Purchaser serves as Chairman of the Board and Chief Executive
Officer of Company pursuant to an Employment Agreement approved by the
Company's Board of Directors on December 15, 1995 and executed on December
29, 1995 and extended by the Agreement.
B. The arrangements contemplated by the Agreement, including this
stock purchase transaction, are the result of extensive negotiations between
Company through its independent director, and Purchaser. Such arrangements
are intended to provide financial relief to Company, and to induce Purchaser
to continue to perform services on behalf of Company.
C. The Agreement contemplates a purchase by Purchaser from Company of
100,000 shares of common stock of Company, exercise price of $.07 per share;
such purchase is being implemented by this Stock Purchase Agreement.
THEREFORE, it is hereby agreed as follows:
1. Stock Purchase. Purchaser hereby agrees to purchase, and Company
hereby agrees to sell to Purchaser, at the Closing as defined in Section 2
below, 100,000 shares of common stock of Company at a cash price of $.07
per share, for an aggregate of $7,000. This price was established in the
Agreement, and was determined by the Board of Directors to be the current
market price of common stock of Company as of the date of the Agreement.
2. Closing. A Closing shall take place at a mutually convenient time
and place within forty-five days after the execution of this Stock Purchase
Agreement. At the Closing, Purchaser shall tender the sum of $7,000 in cash
or other immediately available funds, and Company shall tender certificates
representing 100,000 shares of common stock of Company issued in favor of
Purchaser or Purchaser's nominee.
3. Purchaser's Securities Law Representations. In connection with the
purchase of stock pursuant to this Stock Purchase Agreement, Purchaser
represents to Company and acknowledges that: (i) as the result of his
positions with the Company, he is fully informed about the business,
financial condition and prospects of the Company; (ii) Purchaser is
acquiring the stock for investment purposes and not with a view to resale or
distribution; (iii) Purchaser understands that the stock will not be
registered under the Securities Act of 1933 or under the Michigan Securities
Act and agrees that he will not sell or transfer the stock for a period of
two years after the date hereof except pursuant to registration under such
Acts; and (iv) the certificates for stock will bear a restrictive legend
providing that no sale or other transfer may be made except pursuant to
registration or exemption under the Securities Act of 1933 and any
applicable state securities law, such exemption to be confirmed by an
opinion of counsel for the Company that the proposed sale or transfer does
not violate state or federal securities laws.
4. Piggyback Registration Rights. In the event Company proposed in
the future to register any additional shares of its common stock or other
securities pursuant to the Securities Act of 1933 in connection with the
public offering of such securities (other than a registration relating
solely to the sale of securities to participants in a Company stock plan, or
a registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the stock purchased pursuant to this Agreement), the
Company shall promptly give Purchaser written notice of such proposed
registration. Upon the written request of Purchaser within twenty days
after the receipt of such notice from the Company, the Company shall use its
best efforts to include the shares purchased hereunder in such registration.
Company shall pay all expenses of the registration, excluding underwriting
discounts and commissions relating to Purchaser's shares. As a condition to
Company's obligations hereunder, Purchaser must accept the terms of the
offering as agreed upon between Company and underwriters selected by
Company, must provide promptly all information requested by the underwriters
selected by Company, must provide promptly all information requested by the
underwriters, and must execute and deliver all documents required by the
underwriters. In any event, the quantity of Purchaser's shares included in
such registration shall at all times be limited to that amount which the
underwriters determine will not jeopardize the success of the offering by
the Company.
Executed at Ann Arbor, Michigan on the date first above written.
KMS INDUSTRIES, INC.
/s/ Patrick B. Long By: /s/ Terence C. Liddy
PATRICK B. LONG TERENCE C. LIDDY, President
And By: /s/ Richard E. Fry
RICHARD E. FRY
Independent Director
Exhibit 10.4
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is entered into on February 28, 1997
between KMS INDUSTRIES, INC., a Delaware corporation ("Company"), and
TERENCE C. LIDDY ("Purchaser"), pursuant to an Agreement between the parties
dated February 28, 1997 ("Agreement").
BACKGROUND:
A. Purchaser serves as Chairman of the Board and Chief Executive
Officer of Company pursuant to an Employment Agreement approved by the
Company's Board of Directors on December 15, 1995 and executed on December
29, 1995 and extended by the Agreement.
B. The arrangements contemplated by the Agreement, including this
stock purchase transaction, are the result of extensive negotiations between
Company through its independent director, and Purchaser. Such arrangements
are intended to provide financial relief to Company, and to induce Purchaser
to continue to perform services on behalf of Company.
C. The Agreement contemplates a purchase by Purchaser from Company of
100,000 shares of common stock of Company, exercise price of $.07 per share;
such purchase is being implemented by this Stock Purchase Agreement.
THEREFORE, it is hereby agreed as follows:
1. Stock Purchase. Purchaser hereby agrees to purchase, and Company
hereby agrees to sell to Purchaser, at the Closing as defined in Section 2
below, 100,000 shares of common stock of Company at a cash price of $.07
per share, for an aggregate of $7,000. This price was established in the
Agreement, and was determined by the Board of Directors to be the current
market price of common stock of Company as of the date of the Agreement.
2. Closing. A Closing shall take place at a mutually convenient time
and place within forty-five days after the execution of this Stock Purchase
Agreement. At the Closing, Purchaser shall tender the sum of $7,000 in cash
or other immediately available funds, and Company shall tender certificates
representing 100,000 shares of common stock of Company issued in favor of
Purchaser or Purchaser's nominee.
3. Purchaser's Securities Law Representations. In connection with the
purchase of stock pursuant to this Stock Purchase Agreement, Purchaser
represents to Company and acknowledges that: (i) as the result of his
positions with the Company, he is fully informed about the business,
financial condition and prospects of the Company; (ii) Purchaser is
acquiring the stock for investment purposes and not with a view to resale or
distribution; (iii) Purchaser understands that the stock will not be
registered under the Securities Act of 1933 or under the Michigan Securities
Act and agrees that he will not sell or transfer the stock for a period of
two years after the date hereof except pursuant to registration under such
Acts; and (iv) the certificates for stock will bear a restrictive legend
providing that no sale or other transfer may be made except pursuant to
registration or exemption under the Securities Act of 1933 and any
applicable state securities law, such exemption to be confirmed by an
opinion of counsel for the Company that the proposed sale or transfer does
not violate state or federal securities laws.
4. Piggyback Registration Rights. In the event Company proposed in
the future to register any additional shares of its common stock or other
securities pursuant to the Securities Act of 1933 in connection with the
public offering of such securities (other than a registration relating
solely to the sale of securities to participants in a Company stock plan, or
a registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the stock purchased pursuant to this Agreement), the
Company shall promptly give Purchaser written notice of such proposed
registration. Upon the written request of Purchaser within twenty days
after the receipt of such notice from the Company, the Company shall use its
best efforts to include the shares purchased hereunder in such registration.
Company shall pay all expenses of the registration, excluding underwriting
discounts and commissions relating to Purchaser's shares. As a condition to
Company's obligations hereunder, Purchaser must accept the terms of the
offering as agreed upon between Company and underwriters selected by
Company, must provide promptly all information requested by the underwriters
selected by Company, must provide promptly all information requested by the
underwriters, and must execute and deliver all documents required by the
underwriters. In any event, the quantity of Purchaser's shares included in
such registration shall at all times be limited to that amount which the
underwriters determine will not jeopardize the success of the offering by
the Company.
Executed at Ann Arbor, Michigan on the date first above written.
KMS INDUSTRIES, INC.
/s/ Terence C. Liddy By: /s/ Patrick B. Long
TERENCE C. LIDDY PATRICK B. LONG
Chief Executive Officer
And By: /s/ Richard E. Fry
RICHARD E. FRY
Independent Director
Exhibit 99.1
PRESS RELEASE
MARCH 10, 1997
DATELINE: Ann Arbor, Michigan, March 10, 1997
BODY:
KMS Industries, Inc. (NASDAQ Symbol: KMSI) today announced that the United
States Court of Appeals for the Federal Circuit in Case No. 94-593C affirmed
the judgment of the United States Court of Federal Claims, denying the
breach of contract claim by the Company's wholly owned subsidiary, KMS
Fusion, Inc., against the United States Department of Energy. This decision
is a material adverse development for the Company.
Another case is pending before the United States Court of Claims involving
claims by KMS Fusion, Inc. for reimbursement for costs incurred by KMS
Fusion, Inc. during the years 1987 through 1991 in the performance of
contract R&D for the United States Department of Energy. The Company
expects to have a result in that matter within the next few months. Any
judgment in favor of KMS Fusion, Inc. will be subject to a $2 million set-
off in favor of the government and to the payment of fees for legal and
support services. It is possible that KMS Fusion, Inc. would receive little
or nothing as a result of the impact of these factors.
For further information, contact: Mr. Terence C. Liddy or Mr. Patrick B.
Long
Exhibit 99.2
CONSOLIDATED INCOME STATEMENTS
KMS INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited)
(In thousands except per share data)
One Month Ended Twelve Months Ended
December 31 December 31
--------------- --------------------
1996 1995 1996 1995
------ ------ ------ ------
Net Operating Revenues
Gross operating revenues $ 0 $ 12 $ 0 $ 129
Allowances and adjustment 0 0 105 174
------ ------ ------ ------
Net Operating Revenues 0 12 105 303
Costs and Expenses
Cost of revenue 0 7 0 52
Research and development 0 0 0 0
Selling, general and
administrative 56 122 795 903
------ ------ ------ ------
Total Costs and Expenses 56 129 795 955
Other Income (Expense)
Interest income 0 0 2 6
Interest expense 0 0 0 (1)
Other 0 2 54 114
------ ------ ------ ------
Total Other Income 0 2 56 119
------ ------ ------ ------
Loss Before Income Taxes (56) (115) (634) (533)
Provision for Income Taxes 0 0 0 0
------ ------ ------ ------
Net Income (Loss) $ (56) $ (115) $ (634) $ (533)
====== ====== ====== ======
Net Income (Loss) Per
Common and Common
Equivalent Share $(0.02) $(0.05) $(0.19) $(0.22)
====== ====== ====== ======
Weighted Average Common
and Common Equivalent
Shares Outstanding 2,959 2,459 3,276 2,460
<PAGE>
<PAGE>
CONSOLIDATED BALANCE SHEET
KMS INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited)
(In thousands)
December 31 December 31
1996 1995
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 6 $ 463
Receivables 5 41
Other 40 48
----- -----
Total Current Assets 51 552
Property and equipment
Leasehold improvements 6 6
Machinery and equipment 267 261
Less accumulated
depreciation (245) (233)
----- -----
Net Property and
Equipment 28 34
Other assets 24 53
----- -----
Total Assets $ 103 $ 639
===== =====
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 240 $ 258
Accrued compensation
and benefit costs 99 70
Other accrued liabilities 101 104
----- -----
Total Current Liabilities 440 432
Stockholders' equity
Common stock - $0.08 par value
Authorized - 10,000,000 shares
Issued - 2,992,561 shares
in 1996 and 2,492,561
shares in 1995 239 199
Additional paid-in
capital 29,266 29,216
Accumulated deficit (29,714) (29,080)
Treasury stock at cost-
33,872 shares in 1996
and 33,772 shares in
1995 (128) (128)
------ ------
Total Stockholders' Equity (337) (207)
------ ------
Total Liabilities and
Stockholders' Equity $103 $639
====== ======
<PAGE>
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
KMS INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited)
(In thousands)
Twelve Months Ended
December 31
-------------------
1996 1995
------ ------
From Operating Activities
Net loss from operations before
extraordinary item ($634) ($533)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 12 9
Gain on disposals of property
and equipment 0 0
Change in assets and liabilities which
provided (used) cash:
Receivables 36 21
Other current assets 8 0
Accounts payable (18) 51
Accrued liabilities 26 (173)
------ ------
Total adjustments 64 (92)
------ ------
Net cash provided by
used in operating activities (570) (625)
From Investing Activities
Purchases of property and equipment (6) (8)
Proceeds from sale of equipment 0 0
Other 29 15
------ -------
Net cash provided by investing
activities 23 7
------ -------
From Financing Activities
Proceeds from sale of common stock 90 0
Payments on notes payable 0 0
------ -------
Net cash provided by (used in)
financing activities 90 0
------ -------
Increase in cash and cash equivalents
from operations (457) (618)
Cash and cash equivalents at January 1 463 1,081
------ -------
Cash and cash equivalents at December 31 $ 6 $ 463
====== =======
Supplemental Disclosure of Cash
Flow Information:
Cash paid during the period for:
Interest $ 0 $ 1
Income taxes 0 25
