CELCOR, INC.
1800 BLOOMSBURY AVENUE
OCEAN, NEW JERSEY 07712
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
(to be held on January 25, 1996)
Notice is hereby given that a special meeting of stockholders
of Celcor, Inc. (the "Company") will be held on January 25, 1996 at 10:00
a.m., eastern time, at the Sheraton LaGuardia East, 135-20 39th Avenue,
Flushing, New York, to:
1. Consider and act upon a proposal to approve an Agreement
and Plan of Merger dated as of March 15, 1995, between Northeast (USA)
Corp. ("Northeast"), a New York corporation, the stockholders of Northeast
and the Company, which provides for, among other things: (i) the merger of
Northeast with and into the Company (the "Merger"), with the Company
continuing as the surviving corporation; and (ii) the conversion of each
outstanding share of common stock, no par value, of Northeast into 10,000
shares of common stock, par value $.001 per share, of the Company ("Celcor
Common Stock"); all as more fully described in the attached Proxy
Statement;
2. Elect seven persons to serve as directors of the Company,
each such director to serve for a period of one year and thereafter until
his successor shall have been duly elected and shall have qualified;
3. (A) Ratify the issuance by the Company of 275,000 shares
of its Series C 8% Convertible Preferred Stock (the "Series C Preferred
Stock"), issued by the Company in June, 1994; and (B) approve an amendment
to the Company's certificate of incorporation expressly authorizing the
board of directors of the Company to establish the rights, preferences and
limitations of any other class or series of preferred stock which may be
issued in the future (none is presently contemplated). The Series C
Preferred Stock was issued to 13 individual investors in a private
placement. The purpose of the offering was to fund ongoing administrative
expenses of the Company and to provide a source of money which could be
used to help finance an acquisition or merger.
4. To consider and act upon any other matter which may
properly come before the meeting or any adjournment thereof.
The board of directors has fixed December 14, 1995 as the
record date for the special meeting and only holders of record of Celcor
Common Stock at the close of business on that date will be entitled to
receive notice of and to vote at the special meeting or any adjournment or
adjournments thereof.
Pursuant to the provisions of the Delaware General Corporation
Law, holders of Celcor Common Stock and Preferred Stock will have statutory
dissenters' rights with respect to the Merger. A copy of Section 262 of
the Delaware General Corporation Law is annexed to this Proxy Statement as
Exhibit A. Stockholders are advised that they must follow the procedures
set forth therein in order to properly perfect their right to dissent from
the Merger.
The affirmative vote of a majority of the outstanding shares of
Celcor Common Stock is required to approve the Merger and the other
proposals described above. A form of proxy is enclosed for use at the
Special Meeting if a stockholder is unable to attend in person. Each proxy
may be revoked at any time before it is exercised by giving written notice
to the Secretary, or by submitting a duly executed later dated proxy.
All stockholders are requested to complete, sign, date and
return the enclosed Proxy promptly, whether or not they expect to attend
the special meeting.
By Order of the Board of Directors
___________________________________
Stephen E. Roman, Jr., Secretary
Ocean, New Jersey
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, MANAGEMENT URGES YOU
TO DATE, SIGN AND MAIL THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE
ENCLOSED STAMPED ENVELOPE. YOU MAY REVOKE THE PROXY AT ANY TIME PRIOR TO
ITS EXERCISE. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON.
</page>
<PAGE>
PRELIMINARY PROXY STATEMENT
CELCOR, INC.
1800 Bloomsbury Avenue
Ocean, New Jersey 07712
The following Proxy Statement is furnished in connection with
the solicitation of proxies by the board of directors of Celcor, Inc. (the
"Company" or "Celcor"), a Delaware corporation. The proxies will be used
at a special meeting of stockholders of the Company (the "Special Meeting")
which will be held at the Sheraton LaGuardia East, 135-20 39th Avenue,
Flushing, New York on Thursday, January 25, 1996 at 10:00 a.m.
Proxies are being solicited from stockholders of record of the
Company in order to (i) consider and act upon an Agreement and Plan of
Merger, dated as of the 15th day of March, 1995 (the "Merger Agreement"), a
copy of which is annexed hereto as Exhibit B, by and between the Company,
Northeast (USA) Corp. ("Northeast") and the stockholders of Northeast
providing, among other things, for the merger of Northeast with and into
the Company (the "Merger"); (ii) elect seven persons to serve as directors
of the Company; (iii) ratify the issuance by the Company of 275,000 Shares
of its Series C 8% Convertible Preferred Stock (the "Series C Preferred
Stock"); and (iv) approve an amendment to the Company's certificate of
incorporation (the "Certificate of Incorporation"), expressly authorizing
the board of directors of the Company to establish the rights, preferences
and limitations of any other class or series of preferred stock which may
be issued in the future (none is presently contemplated).
Each share of Series C Preferred Stock may be converted into
three shares of Celcor Common Stock. Accordingly, 825,000 shares of Celcor
Common Stock would be issuable upon full conversion of the Series C
Preferred Stock. Such shares would represent 19.7% of the outstanding
Celcor Common Stock (13.9% of the outstanding shares after giving effect to
the additional shares issuable in connection with the Merger.)
Upon the consummation of the Merger Agreement, Northeast will
be merged with and into the Company, with the Company continuing as the
surviving corporation. Each outstanding share of common stock, no par
value of Northeast ("Northeast Common Stock"), other than shares held by
Northeast stockholders who dissent from the Merger ("Dissenting Shares"),
will be converted into the right to receive 10,000 shares of Celcor common
stock, par value $.001 per share (the "Celcor Common Stock"). Counsel for
Celcor has furnished an opinion that the Merger will constitute a
reorganization for federal income tax purposes.
The exchange rate which will be utilized in the Merger of
10,000 shares of Celcor Common Stock for each outstanding share of
Northeast Common Stock is the result of negotiations between the two
companies and reflects the judgment of the board of directors of the
Company, based upon the advice of its financial advisor, concerning the
relative value of the Northeast Common Stock and the Celcor Common Stock,
taking into consideration such factors as the market value of the Celcor
Common Stock, the value of Northeast's assets (its stock is not publicly
traded), and the value of Northeast's business and future prospects.
In establishing the exchange ratio which is being utilized,
the Board believed that the value of the Celcor Common Stock which will
be received by the Northeast stockholders is approximately $850,000
(based upon the average of the bid and ask prices reported immediately
prior to the time the Merger was announced). The net book value of Northeast
at the time the Merger was announced was $850,000. However, based
upon an analysis prepared by the Company's financial advisor, in which
comparable transactions and comparable companies were evaluated and a
discounted cash flow analysis was performed utilizing Northeast's projected
revenues, the Board believes that the value of Northeast is in excess
of $1.0 million. See "Proposal One - Approval of the Merger - Fairness
Opinion".
A total of 3,364,674 shares of Celcor Common Stock are
presently outstanding. It is anticipated that 1,750,000 shares of Celcor
Common Stock will be issued to the stockholders of Northeast pursuant to
the Merger Agreement. After giving effect to the issuance of such shares,
Northeast stockholders will hold approximately 34% of the outstanding
shares of Celcor Common Stock (calculated before giving effect to the
conversion of the outstanding Series C Preferred Stock), and approximately
29% of the outstanding shares of Celcor Common Stock (calculated after
giving effect to the full conversion of the Series C Preferred Stock).
The shares of Celcor Common Stock issuable to Northeast
stockholders will not be registered pursuant to the Securities Act of 1933,
as amended (the "Securities Act"), or applicable state securities laws in
reliance on exemptions under such laws. Accordingly, the subsequent sale
or transfer of the Celcor Common Stock issued to the stockholders of
Northeast will be restricted. The transfer of such shares will be
permitted only if such shares are registered for sale pursuant to the
Securities Act and applicable state securities laws, or will be transferred
in a transaction which is exempt from the registration requirements of the
Securities Act and such laws. The certificates for the Celcor Common Stock
issued to Northeast stockholders will bear an appropriate restrictive
legend to provide notice of the restrictions on the further transfer of
such shares.
Celcor Common Stock is registered pursuant to Section 12(g) of
the Securities Exchange Act of 1934. It is not actively traded, but
quotations are available in the "Pink Sheets." As a result of the absence
of an active market for the stock, bid-ask spreads are often substantial.
On August 12, 1994, the day prior to the first public announcement of the
Merger, the low bid and high ask price per share of Celcor Common Stock was
$1.00 and $2.00, respectively. On March 17, 1995, the day prior to the
announcement of the signing of the Merger Agreement, the low bid and high
ask price per share of Celcor Common Stock was $.25 and $2.25,
respectively.
<PAGE>
TABLE OF CONTENTS
Page
Available Information 1
Incorporation of Certain Documents by Reference 2
Information Concerning the Special Meeting 3
General 3
Date, Place and Time of Special Meeting 3
Purpose of Special Meeting 3
Voting; Revocation of Proxy; Quorum
and Vote Required 3
Costs of Solicitation 4
Dissenters' Rights 4
Proposal One - Approval of the Merger 6
Approval Sought 6
History of Celcor 6
Background of the Merger 7
Terms of the Merger 10
Business of Northeast 11
Stockholders of Northeast 13
Recommendation of the Board of Directors 15
Fairness Opinion 16
Additional Terms of the Merger Agreement 19
Issuance of Restricted Shares 20
Effective Date of the Merger 20
Accounting Treatment 20
Federal Income Tax Consequences 21
Rights of Dissenting Stockholders 22
Selected Financial Data for the Company and Northeast 24
Celcor, Inc. 24
Northeast (USA) Corp. 25
Management's Discussion and Analysis of
Financial Condition and Results of Operations 26
Celcor, Inc. 26
Liquidity 26
Statement of Operations 27
Northeast (USA) Corp. 27
Results of Operations 27
Financial Condition and Liquidity 29
Financial and Operating Plans for the Next 12 Months 30
Proposal Two - Election of Directors 31
Nominees 31
Executive Compensation 33
Section 16 Compliance 34
Common Stock of the Company 34
Market Price Information 34
Dividend Policy 35
Security Ownership of Certain Beneficial
Owners and Management 36
Certain Relationships and Related
Party Transactions 38
Proposal Three -
Ratification of Issuance of Series C Preferred Stock 39
Approval of Amendment to Certificate of Incorporation 40
Description of Capital Stock of the Company
Celcor Common Stock 42
Preferred Stock 42
Description of Series C Convertible Preferred Stock 43
Dividends 43
Pre-emptive Rights 43
Liquidation 43
Redemption 43
Conversion 44
Voting 45
Experts 45
Presence of Accountants at Special Meeting 45
Other Matters 45
EXHIBITS
Section 262 of the Delaware General Corporation
Law - Appraisal Rights A
Agreement and Plan of Merger among Celcor, Inc.,
Northeast (USA) Corp. and the Stockholders of Northeast B
Fairness Opinion of Chartered Capital Advisers, Inc. C
Form of Proxy D
Proposed Amendment to Certificate of Incorporation E
Financial Statements F
AVAILABLE INFORMATION
Celcor is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files proxy statements, reports and other information
with the Securities and Exchange Commission (the "Commission"). Proxy
statements, reports and other information concerning Celcor can be
inspected and copied at Room 1024 of the Commission's offices at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices in New York (7 World Trade Center, 13th Floor, New York, New York
10048) and in Chicago (Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661). Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement and, if given or made,
such information or representation should not be relied upon as having been
authorized. Neither the delivery of this Proxy Statement, nor any
distribution of the securities issuable in connection with the Merger
Agreement, shall, under any circumstances, create any implication that
there has been no change in the information concerning Celcor contained in
this Proxy Statement since the date of such information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Securities and Exchange
Commission by the Company pursuant to the Exchange Act are incorporated by
reference in this Proxy Statement:
1. The Company's Annual Report on Form 10-KSB for its fiscal
year ended June 30, 1995.
2. The Company's Quarterly Report on Form 10-QSB, as
amended, for the fiscal quarter ended September 30, 1995.
All documents and reports subsequently filed by the Company
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Proxy Statement and prior to the date of the Special Meeting
shall be deemed to be incorporated by reference in this Proxy Statement and
to be a part hereof from the date of filing of such documents or reports.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or
superseded for the purposes of this Proxy Statement to the extent that a
statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies
or supersedes such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a
part of this Proxy Statement.
The Company hereby undertakes to provide, without charge to
each person, including any stockholder, to whom a copy of this Proxy
Statement has been delivered, upon written or oral request of such person,
a copy of any and all information that has been incorporated by reference
in this Proxy Statement (excluding exhibits, unless specifically
incorporated therein). Requests for such copies should be directed to
Celcor, Inc., 1800 Bloomsbury Ave., Ocean, New Jersey, 07712; Attention:
Mr. Stephen E. Roman, Jr., telephone number (908) 922-3158. In order to
insure timely delivery of the documents, any requests should be made by
January 15, 1996.
INFORMATION CONCERNING THE SPECIAL MEETING
General.
This Proxy Statement is being furnished to holders of Celcor
Common Stock in connection with the solicitation of proxies by the board of
directors of Celcor for use at a Special Meeting of stockholders to be held
on Thursday, January 25, 1996, and any adjournment or adjournments thereof,
to consider and take action upon (i) the Merger Agreement; (ii) the
election of directors; (iii) the ratification of the issuance by the
Company of 275,000 shares of its Series C Preferred Stock; (iv) a proposed
amendment to the Company's Certificate of Incorporation expressly
authorizing the board of directors of the Company to establish the rights,
preferences and limitations of any other class or series of preferred stock
which may be issued in the future (none is presently contemplated); and (v)
the transaction of such other business as may properly come before the
Special Meeting and any adjournment thereof.
This Proxy Statement, the attached Notice and the form of
Proxy enclosed herewith are first being mailed to stockholders of Celcor
on or about December 29, 1995.
Date, Place and Time of Special Meeting.
The Special Meeting will be held at the Sheraton LaGuardia
East, 135-20 39th Avenue, Flushing, New York on Thursday, January 25, 1996
at 10:00 a.m., EST. Only holders of record of Celcor Common Stock at the
close of business on December 14, 1995 will be entitled to receive notice
of, and to vote at, the Special Meeting. At the close of business on the
record date, there were 3,364,674 shares of Celcor Common Stock outstanding
and entitled to vote at the Special Meeting, which were held of record by
226 stockholders. Each such share is entitled to one vote. This Proxy
Statement is also being furnished to holders of the Company's Series C
Preferred Stock; however, such stockholders will not be entitled to vote on
any of the matters presented to holders of Celcor Common Stock at the
Special Meeting.
Purpose of Special Meeting.
At the Special Meeting, the holders of Celcor Common Stock will
be asked to approve the Merger Agreement, a copy of which is attached to
this Proxy Statement as Exhibit B. Stockholders are also being asked to
elect directors, to ratify the creation and issuance by the Company of
275,000 shares of the Company's Series C Preferred Stock and to approve a
related amendment to the Company's Certificate of Incorporation.
Voting; Revocation of Proxy; Quorum and Vote Required.
A form of proxy is enclosed for use at the Special Meeting if a
stockholder is unable to attend in person. Each proxy may be revoked at
any time before it is exercised by giving written notice to the secretary
of the Special Meeting, or by submitting a duly executed, later dated
proxy. All shares represented by valid proxies pursuant to this
solicitation (and not revoked before they are exercised) will be voted as
specified in the form of proxy. If the proxy is signed but no
specification is given, the shares subject thereto will be voted in favor
of the Merger, in favor of the board's nominees for election to the board
of directors, in favor of the ratification of the issuance of the Series C
Preferred Stock and approval of the amendment to the Certificate of
Incorporation. A majority of the shares outstanding on the record date
will constitute a quorum for purposes of the Special Meeting. Votes will
not be considered cast, however, if the shares are not voted for any
reason, including if an abstention is indicated as such on a written proxy
or ballot, or if votes are withheld by a broker. Such abstentions and
broker non votes will be considered solely for purposes of determining
whether a quorum is present. Assuming that a quorum is present, directors
will be elected by a plurality of the votes cast. Each other proposal will
require the affirmative approval of a majority of the shares of Celcor
Common Stock outstanding on the record date. The Company understands
(based upon information provided by five affiliates of the Company) that a
total of 1,557,983 shares (46.3% of the shares entitled to vote), are
committed to voting in favor of each of the proposals being considered by
stockholders. Although these commitments do not assure passage of the
proposals, it makes such passage highly likely.
Costs of Solicitation.
The entire cost of soliciting these proxies will be borne by
the Company. The Company estimates that such cost (comprised primarily of
legal and accounting expenses, postage and printing costs) will be
approximately $30,000. In following up the original solicitation of
proxies by mail, the Company may make arrangements with brokerage houses
and other custodians, nominees and fiduciaries to send proxies and proxy
materials to the beneficial owners of Celcor Common Stock and may reimburse
them for their expenses in so doing. If necessary, the Company may also
use its officers to solicit proxies from stockholders, either personally,
by telephone or special letter. The officers will not be separately
compensated in connection therewith.
Even if they plan to attend the Special Meeting, holders of
Celcor Common Stock are requested to complete, date and sign the
accompanying proxy and return it promptly to the Company in the enclosed,
postage paid envelope.
Dissenters' Rights.
Pursuant to Section 262 of the General Corporation Law of the
State of Delaware, a copy of which is attached hereto as Exhibit A, any
holder of Celcor Common Stock or Series C Preferred Stock who objects to
the Merger will be entitled to dissent and exercise appraisal rights. That
Section enables an objecting stockholder to be paid, in cash, the value of
his Celcor Common Stock or Series C Preferred Stock, as applicable, as
determined by the Delaware Court of Chancery, provided that the following
conditions are satisfied:
(1) Such stockholder must file with the Company a written
demand for appraisal of his shares, separate and apart from any proxy
or vote against the Merger, before the taking of the vote on the
Merger. If a stockholder elects to exercise dissenters' rights, such
right may only be exercised as to all shares of Celcor capital stock
held by the dissenting stockholder.
(2) Such stockholder must not vote in favor of the Merger,
nor submit a proxy in which directions are not given.
(3) Within 120 days after the Effective Date of the Merger,
either the Company or any stockholder who has complied with Section
262 may, by petition filed in the Delaware Court of Chancery, demand
a determination by the Court of the value of the shares of all
objecting stockholders with whom agreements as to the value of such
shares have not been reached.
Within 10 days after the Effective Date of the Merger, the Company will
notify each stockholder who has complied with Section 262 and not voted
for, or consented to, the Merger of the date on which the Merger became
effective.
If the Company and the dissenting stockholder cannot agree on
the value of the shares, the Court, based upon an appraisal prepared by an
independent appraiser, will make its own determination. Under Delaware
law, the dissenting shares would be valued on a going concern and not a
liquidation basis. An appraiser would be obligated to determine the
intrinsic value of the shares, without giving effect to the proposed
Merger, considering all factors and elements which reasonably may enter
into such a determination, including market value, asset value, earnings
prospects and the nature of the enterprise. The value determined by the
court may be more than, less than or equal to the Merger consideration
(i.e., the value of the Celcor Common Stock after the Merger).
Notwithstanding the foregoing, at any time within 60 days after
the Effective Date of the Merger or thereafter, with the written approval
of the Company, any objecting stockholder shall have the right to withdraw
his demand for appraisal and to accept the terms offered pursuant to the
Merger, provided that no appraisal proceeding in the Delaware Court of
Chancery may be dismissed without the approval of such Court. The costs of
an appraisal proceeding may be determined by such Court and taxed upon the
parties as the Court deems equitable under the circumstances.
FAILURE BY A STOCKHOLDER TO FOLLOW THE STEPS REQUIRED BY
DELAWARE LAW FOR PERFECTING HIS DISSENTER'S RIGHTS WILL RESULT IN THE LOSS
OF SUCH RIGHTS.
PROPOSAL ONE
APPROVAL OF THE MERGER
Approval Sought.
Stockholders are being asked to approve an Agreement and Plan
of Merger, dated as of March 15, 1995 (the "Merger Agreement"), a copy of
which is annexed hereto as Exhibit B, among the Company, Northeast (USA)
Corp. and the stockholders of Northeast, which provides for, among other
things (i) the merger of Northeast with and into the Company, with the
Company continuing as the surviving corporation (the "Merger"), and (ii)
the conversion of each outstanding share of common stock, no par value, of
Northeast ("Northeast Common Stock") into 10,000 shares of Celcor Common
Stock.
The affirmative vote of a majority of the outstanding shares of
Celcor Common Stock is required for the approval of this proposal. The
Company understands (based upon information provided by five affiliates of
the Company) that a total of 1,557,583 shares (46.3% of the shares entitled
to vote), are committed to voting in favor of this proposal. Although
these commitments do not assure passage of the proposals, it makes such
passage highly likely.
The exchange rate of 10,000 shares of Celcor Common Stock for
each share of Northeast Common Stock was negotiated by the board of
directors of the Company on the basis of the advice of its financial
advisor and its independent judgment concerning the relative value of a
share of Northeast Common Stock and a share of Celcor Common Stock, taking
into consideration such factors as the market value of the Celcor Common
Stock, the value of Northeast's assets, and value of Northeast's business
and future prospects. See "Background of the Merger" and "Fairness
Opinion".
History of Celcor.
Celcor was organized on January 16, 1984 to exploit new markets
created by the approval of the new "cellular" mobile telephone technology
by the Federal Communications Commission and the deregulation of the
telecommunications industry. After the completion of its initial public
offering in February, 1985, the Company extended its business into other
areas in the telecommunications field, such as radio paging and (through
its acquisition of the Pay Telephone Company, Inc. in December, 1985), the
private pay telephone market, and the private network switching business.
However, because the growth and profitability of its operations
fell short of expectations and because of the limited success of a second
public financing in July of 1987, the Company, beginning in 1987, began
selling or closing some of its operations. By February, 1991, the Company
had ceased or had sold all of its operations.
Unable to obtain financing to repay debt or fund operations of
any kind, the Company, in April of 1991, filed for protection under Chapter
11 of the United States Bankruptcy Code. In March of 1992, the Company's
only subsidiary, the Pay Telephone Company, Inc., filed a Chapter 7
bankruptcy petition and was liquidated. There was no distribution to
creditors.
Pursuant to a Stock Purchase Agreement (the "Majestic
Agreement"), dated June 20, 1991 and amended October 29, 1991, between the
Company and Majestic International, Inc. ("Majestic"), the Company was able
to secure additional equity capital and emerge from bankruptcy. The
Majestic Agreement, among other things, provided for the sale by the
Company to Majestic of shares of Celcor Common Stock constituting a 49%
interest in the Company. The purchase price for the shares was $155,000.
Also, pursuant to the Majestic Agreement, the Company filed a
reorganization plan (the "Plan"), with the Bankruptcy Court, which utilized
the proceeds received from Majestic to pay administrative claims associated
with the bankruptcy proceeding and to settle all existing debts of the
Company. On May 28, 1992, the Plan was approved by the Bankruptcy Court.
Subsequently, 8,242,000 shares of Celcor Common Stock were sold to Majestic
(1,648,400 shares after giving effect to a subsequent one for five reverse
stock split) and 824,200 shares (164,840 shares on a post split basis) were
issued to two finders (618,150 shares to Lyncroft Corp. and 206,050 to Yung
Hua Ho). The result of these transactions was the emergence of the Company
from bankruptcy with virtually no assets or liabilities.
Since its emergence from bankruptcy, the Company has not
conducted any business activities, but has been seeking new business
opportunities, especially with entities having business interests or
operations in and with the People's Republic of China.
In order to raise capital with which to fund its immediate
limited operations, and to become more attractive to a potential
operational partner, the Company raised $825,000 during May and June of
1994 from the sale of the Series C Preferred Stock in a private placement.
The Series C Preferred Stock was sold to thirteen individual investors (all
but two of whom reside in Taiwan or Thailand) and consisted of the sale of
275,000 shares of such stock at a price of $3 per share. The investors do
not act as a group and are not otherwise affiliated with the Company;
except that one preferred stockholder (Chin-Sung Chen) is a nominee for
director. Each share of Series C Preferred Stock is convertible into three
shares of Celcor Common Stock. See "Proposal Three - Ratification of Sale
of Series C Preferred Stock and Amendment to the Certificate of
Incorporation" and "Description of Capital Stock of the Company."
Background of the Merger
David Chow, one of the Company's directors, and Majestic, its
largest shareholder (and its principal), are residents of Taiwan and have
significant experience doing business in China. Based upon this
experience, they believe there are significant opportunities for American
companies in China. Areas identified as being of particular interest are
the pharmaceutical and cosmetics industries. Given the Company's limited
resources, the board determined to seek business opportunities for the
Company in the People's Republic of China through mergers, acquisitions and
joint ventures.
In May, 1994, the Company initiated discussions with Northeast,
a privately held company which has significant business relationships with
entities located in the People's Republic of China, concerning a possible
business combination between the two companies. Organized in February,
1993, Northeast may be deemed to be an affiliate of Celcor by virtue of
certain family inter-relationships among the individuals controlling the
two companies. Mr. Su Shi Lo is the controlling stockholder of Majestic,
which in turn, is the largest stockholder of the Company, holding 19.4% of
the outstanding shares of Celcor Common Stock. Mr. Lo's daughter, Jennifer
Lo Wu, is the chairperson and her husband, Dr. Nanshan Wu, is the president
of Northeast. In addition, Jennifer Lo Wu is the sole stockholder of
Lyncroft Corp., a stockholder of both Northeast and Celcor.
After a detailed analysis by the Board of the business
opportunities available to the Company through an affiliation with
Northeast, including due consideration to the conflicts involved, on August
15, 1994, the Company signed a letter of intent with Northeast under the
terms of which the Company agreed to effect the merger of Northeast with
and into the Company. The terms of the letter of intent provided that the
consummation of the Merger would be subject to the execution of a
definitive merger agreement, stockholder approval and the completion of due
diligence. None of the current members of the Board of Directors of the
Company is affiliated with Majestic or Northeast.
Northeast holds the rights to certain technology used to
manufacture various vitamin products and vitamin based cosmetics and has
entered into an agreement with Northeast General Pharmaceutical Factory,
one of the largest pharmaceutical companies in the People's Republic of
China, providing for the production and distribution of vitamins and
cosmetics. See "Business of Northeast".
In August, 1994, in anticipation of the Merger, the Company
loaned $700,000 to Northeast, which was used by Northeast to fund its
obligations under the joint venture agreement between Northeast and
Northeast General Pharmaceutical Factory, described in more detail below.
The loan is secured by a pledge by the stockholders of Northeast of their
Northeast Common Stock. The Company was able to fund this loan by using
the proceeds received by it from the sale of the Series C Preferred Stock.
During March, 1995, Stephen E. Roman, Jr., the president of
Celcor, met with Dr. Nanshan Wu, the president of Northeast, to negotiate
the definitive Merger Agreement. Following these negotiations, the
definitive Merger Agreement was executed by the parties on March 15, 1995.
In July, 1995, the board of directors of the Company
unanimously determined, subject to the receipt of a fairness opinion, that
the Merger Agreement was in the best interests of the Company and approved
the execution and delivery of the Agreement.
In making this determination, the board concluded that a merger
with Northeast would offer a number of important potential benefits to the
Company, including the following:
- the opportunity to acquire an interest in a recently formed
joint venture between Northeast and Northeast General
Pharmaceutical Factory, a state owned enterprise founded in
1946, which is a large pharmaceutical company in China.
Northeast General Pharmaceutical Factory employs 10,000
people and manufactures and distributes more than 80
products, both throughout China, and for export outside of
China;
- the existence of a substantial market in China for low cost
consumer products (China has a population in excess of 1.1
billion people), including the products expected to be
produced by the joint venture (vitamins and cosmetics),
with little competition;
- the possibility of distributing the joint venture's
products in the United States and other markets;
- the possibility of using the distribution channels which
will be developed by the joint venture in China to
distribute products obtained elsewhere; and
- the opportunity to acquire an interest in Northeast (albeit
a start-up company), which in the view of the Board, has
significant potential for growth arising from (i) its
ownership of formulae for the production of vitamin and
body care products, and (ii) the experience of Northeast's
management (and the management of Northeast General
Pharmaceutical Factory) in doing business in China.
The board also considered the risks and potential disadvantages
associated with the Merger. Effectively, the Merger will result in a
change in control. After the Merger, the stockholders of Northeast will,
in the aggregate, hold 34% of the outstanding Celcor Common Stock. If such
shares are voted together, the shares held by the former Northeast
stockholders might constitute a plurality of the outstanding shares and
could thereby control the election of directors and other matters.
Moreover, after the Merger, the Company will be managed by the present
management of Northeast.
The board also recognized that the Merger will significantly
increase the Company's working capital needs, as significant cash will be
required to implement the business plan of Northeast. There can be no
assurances that the combined company will be successful in raising the
capital which will be required. Finally, the board recognized that there
is significantly greater risk to doing business in China when compared to
doing business in the United States. Despite these concerns, the board
concluded that the potential returns justify the greater risks being taken.
As a "shell company" with no existing business and an insignificant net
worth, the board believers that there is little additional risk to
stockholders. The Company emerged from bankruptcy in 1992 with a de
minimis amount of assets and since then, has been unable to identify any
other prospective business partners with an interest in the Company. The
board believes that if the Merger is not approved, the only alternatives
available to the Company would be to liquidate (in which case it is
unlikely that there would be any distribution to stockholders), or to
continue as a "dormant" company until another business combination is
identified. The board believes that given the current financial condition
of the Company, it is unlikely that any other business combination would
provide the same value to stockholders.
The Board recognizes that the value of Northeast is largely
speculative. It is a relatively new company with limited assets. It has
only recently recognized its first revenues and Northeast's expenses
currently exceed its revenues. However, based upon the projected growth in
revenues, the board believes that Northeast has a reasonable prospect of
becoming profitable. Accordingly, as with many start-ups, value must be
established by evaluating the experience of comparable companies and by
applying a reasonable multiple to projected future earnings. The Board
believes that the exchange ratio of 10,000 to 1 was based upon conservative
assumptions concerning both the value of the Company and the value of
Northeast.
Terms of the Merger.
On the effective date of the Merger (the "Effective Date"),
Northeast will merge with and into Celcor, with Celcor continuing as the
surviving corporation. All of the common stock of Northeast issued and
outstanding immediately prior to the consummation of the Merger (other than
Dissenting Shares, if any), will be converted into shares of Celcor Common
Stock. All of the Celcor Common Stock and Series C Preferred Stock which
is issued and outstanding immediately prior to the consummation of the
Merger will remain outstanding and will not change as a result of the
Merger. 3,364,674 shares of Celcor Common Stock and 275,000 shares of
Series C Preferred Stock are presently outstanding. The Certificate of
Incorporation of Celcor shall be and remain the certificate of
incorporation of the surviving corporation and the by-laws of Celcor shall
be the by-laws of the surviving corporation.
Upon the Effective Date, each share of Northeast Common Stock
outstanding immediately prior to the Effective Date shall, by virtue of the
Merger, be converted into the right to receive 10,000 shares of Celcor
Common Stock. Any shares of Northeast Common Stock held by Celcor or
Northeast on the Effective Date shall be canceled and will be given no
effect in the Merger. It is anticipated that 1,750,000 shares of Celcor
Common Stock will be issued pursuant to the Merger. After giving effect to
the issuance of such shares, but excluding the shares of Celcor Common
Stock issuable upon the conversion of the Series C Preferred Stock, the
former Northeast stockholders will hold approximately 34% of the
outstanding Celcor Common Stock (calculated before giving effect to the
825,000 shares of Celcor Common Stock issuable upon the conversion of the
outstanding Series C Preferred Stock) and approximately 29% of the
outstanding shares of Celcor Common Stock (calculated after giving effect
to the full conversion of the outstanding Series C Preferred Stock).
On or immediately after the Effective Date, each holder of an
outstanding certificate or certificates which prior thereto represented
shares of Northeast Common Stock, shall surrender the same to Celcor. Each
Northeast stockholder who shall have surrendered its certificate
representing shares of Northeast Common Stock shall be entitled to receive,
in exchange therefor, a certificate or certificates representing the number
of whole shares of Celcor Common Stock into which the Northeast Common
Stock shall have been converted.
When the Merger becomes effective, the former stockholders of
Northeast shall thereupon cease to have any rights in respect of Northeast
Common Stock, other than the right to receive the certificates for Celcor
Common Stock. Unless and until any certificates shall be so surrendered
and exchanged, (i) the holders of Northeast Common Stock shall not have any
voting rights in respect of the Celcor Common Stock into which the shares
of Northeast Common Stock shall have been converted, and (ii) dividends or
other distributions (if any) payable to holders of record of shares of
Celcor Common Stock shall not be paid to the holder of the certificate.
Upon surrender of the certificate representing shares of Northeast Common
Stock, the dividends or other distributions which shall be or become
payable subsequent to the Effective Date with respect to the number of
whole shares of Celcor Common Stock represented by the certificate issued
in exchange for the surrendered Northeast certificate, shall be paid, but
without interest. No fraction of a share of Celcor Common Stock will be
issued pursuant to the Merger.
Business of Northeast
Northeast was organized in February, 1993 in the expectation of
pursuing business opportunities in China for the production and
distribution of pharmaceutical and body care products. The principal
executive offices of Northeast are located at 113-25 14th Avenue, College
Point, New York and the telephone number at that address is (718) 886-3400.
In May, 1994, Northeast entered into a joint venture agreement
with Northeast General Pharmaceutical Factory ("Northeast General
Pharmaceutical"), a state owned Chinese pharmaceutical manufacturer located
in Shenyang, China. Pursuant to the joint venture agreement, the parties
created Shenyang United Vitatech as a Chinese limited company ("United
Vitatech"). The stated purpose of the joint venture is to manufacture and
sell medicine, nutrition, health and cosmetic products. United Vitatech
will have an initial capitalization of U.S. $5.75 million, U.S. $2.5
million to be contributed by Northeast General Pharmaceutical and balance
of U.S. $3.25 million to be provided by Northeast through contributions of
cash and technology. Of the amount to be contributed by Northeast, U.S.
$2.1 million will be in cash (payable in three installments in July, 1994,
June 1995 and December, 1995), with the balance of the capital to be in the
form of a contribution of proprietary technology and formulae for the
production of vitamin products. At the present time, $1.0 million has been
contributed to United Vitatech by Northeast. Northeast has deferred the
payment of the installment which was due in June, 1995 until the joint
venture has a need for the funds. United Vitatech will use these funds to
build a new factory in Shenyang and since other temporary production
facilities have been provided by Northeast General Pharmaceutical, there is
no immediate need to build the new factory. Of the amount which has been
contributed to date by Northeast General Pharmaceutical, $750,000 was in
cash and the balance consisted of a contribution to the venture of the
development rights (valued at $1,750,000) to build an office and factory
complex on an 84,000 square meter parcel of land located in Shenyang,
China. In exchange for its capital contribution, Northeast received a 56%
interest in the joint venture and elects 4 of 7 directors.
Under the joint venture agreement, Northeast General
Pharmaceutical is responsible for (i) obtaining all government approvals
required for the joint venture to operate, (ii) organizing the design and
construction of joint venture production facilities, (iii) providing
initial manufacturing capability, and (iv) handling customs and import
requirements for equipment which the joint venture may acquire.
Northeast is obligated under the agreement to provide (i)
production management, (ii) employee training and construction design for a
new building, and (iii) technology. The agreement has a 30 year term, but
may be extended by applying to the Chinese government for an extension.
The vitamin formulae and technology provided to the joint venture by
Northeast was acquired by it from Mannion Consultants (one of Northeast's
shareholders) under a technology agreement. Under this agreement, Mannion
transferred to Northeast various formulas and procedures for making a
variety of health care, vitamin and cosmetic products in exchange for 80
shares of Northeast's Common Stock (approximately 46% of Northeast's
outstanding shares). Mannion is a privately held corporation based in
Taiwan.
United Vitatech has received Chinese government approval to
produce a chewable Vitamin C tablet and is seeking additional government
approvals for a multi-vitamin and pre-natal vitamin. The Vitamin C tablet
is currently being manufactured for the joint venture by Northeast General
Pharmaceutical, but once other products are approved, the joint venture
intends to construct its own factory in Shenyang to produce its own
products.
Under the current manufacturing agreement, Northeast General
Pharmaceutical provides labor and equipment to manufacture the vitamins and
Northeast provides managerial and technical support. Plans to construct an
office and factory complex on the land contributed to the venture in
Shenyang are now being reviewed by Chinese regulatory authorities and it is
anticipated that construction will begin in calendar year 1996. The
facility will be built in stages, with a portion of an office complex and
production and warehouse space built first.
United Vitatech is also importing into China a soft gel skin
care series called Jennifer-E-18. This product comes in heart shaped
capsules which are broken open and applied to a person's face. The
principal ingredients of the product are ginseng and Vitamin E. Test
marketing of this product began in Shenyang, China in March, 1995 and test
marketing expanded to Beijing in May, 1995. Limited distribution of this
product has also commenced in the United States, South America and the
Caribbean.
Initially, United Vitatech will seek to distribute its products
primarily in Liao Ning Province and the surrounding region. Located in
northeast China, this region (formerly known as Manchuria) has a population
in excess of 200 million people and is believed by the management of
Northeast to be among the most promising in China for the distribution of
consumer products. Northeast has initiated an advertising campaign for its
products on Chinese television and recognized its first revenues in the
latter part of fiscal 1995. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Northeast" and "Northeast
Financial Statements".
In addition to its participation in the joint venture,
Northeast is involved in importing and distributing bulk ascorbic acid in
the United States. Ascorbic acid, which is used to manufacture synthetic
vitamin C, is derived from corn. The largest corn fields in China are
located in the northeast region of the country, making the region conducive
to supporting the growth of this business. Management of Northeast
believes that by producing this product in China, Northeast will gain a
significant price advantage over its much larger U.S. and European
competitors. Since July, 1994, Northeast has imported and sold
approximately 135 tons of ascorbic acid in the United States. The ascorbic
acid is purchased from Northeast General Pharmaceutical, Northeast's joint
venture partner. Its initial customers have been chemical wholesalers that
sell bulk chemicals to pharmaceutical companies. The bulk ascorbic acid
purchased by pharmaceutical companies will be processed and used in vitamin
products. To date, most of the purchases made of ascorbic acid have been
against firm orders to sell the product. Since it does not maintain an
inventory and acts essentially as a wholesaler, profit margins on these
sales are low (approximately 5%). This part of Northeast's business tends
to be opportunistic - sales are only made when adequate supplies are
available, pricing is favorable and the Company has an interested buyer.
Northeast also owns a small parcel of land in Queens, New York,
which was contributed to the corporation by Dziou Thai, one of Northeast's
stockholders, in exchange for 30 shares of Northeast Common Stock. Tung
Ying, the controlling stockholder, of Dziou Thai, is the brother of Dr. Wu,
the Chairman of Northeast. The value of the land recorded on Northeast's
balance sheet at the time the property was acquired was $600,000. The area
in which the land is located is a mixed residential and commercial
neighborhood with a high concentration of Chinese businesses and residents.
Northeast acquired the land intending to develop the parcel as a combined
residential and office facility to provide living and office space to
individuals from the northeast region of China who are in New York for an
extended visit. However, in order to devote its limited resources to its
operations in China, Northeast is presently attempting to sell the
property. Northeast has obtained a current appraisal of the property and
recorded a write-down of $180,000 with respect to this asset during the
year ended June 30, 1995 to reflect the current fair market value of
$420,000. This write-down is based upon an appraisal performed in January,
1995 by RCI Appraisal Corporation, which received a fee of $300 for the
appraisal.
The Company has been advised that Northeast is a defendant in a
suit brought by China Trust Bank. China Trust alleges that Northeast
overdrew its account with it by approximately $50,000 and that this amount
is due and owing to the Bank. Northeast has filed a counterclaim in which
it has alleged that China Trust erroneously paid out $195,000 of its funds
pursuant to a letter of credit. Pending the outcome of this litigation,
Northeast has recorded the amount of the overdraft as a liability on its
financial statements.
Stockholders of Northeast
Northeast presently has five stockholders. Set forth in the
table below is the identity and address of each of the stockholders of
Northeast, its affiliation with Northeast or the Company and the number and
percentage of the outstanding shares of Northeast Common Stock owned by the
stockholder.
Percentage of
Name and Address Affiliation No of Shares Outstanding
Shares
Northeast General Northeast's joint 10 5.7%
Pharmaceutical Factory venture partner
No 37 Zhong Gong Bei St. in United Vitatech %
Tiexi District
Shenyang, China
Lyncoft Corporation Jennifer Lo Wu, the sole 10 5.7%
165 Grist Mill Lane stockholder of Lyncoft, is
Great Neck, NY 11023 Chairman of Northeast. She
is the wife of Dr.
Nanshan Wu, the President
of Northeast, and the
daughter of Su Shi Lo, the
controlling stockholder of
Majestic (the largest
stockholder of Celcor). In
addition, Lyncroft
Corporation is the holder
of 3.67% of Celcor's
outstanding Common Stock.
Dziou Tai Associates the sole principal of Dziou 30 17.1%
106 Grist Mill Lane Tai Associates is the
Great Neck, NY 11023 brother of Dr. Nanshan Wu,
the President of Northeast
Fowler Holding Ltd. None 45 25.7%
First Floor, No.63,
Section 1
Ting Cho Road
Taipei, Taiwan
Mannion Consultants, Ltd. developed vitamin 80 45.7%
No 2, 4th Floor Alley 23 technology utilized by
Land 290 United Vitatech, continues
Chung Shan N. Road to provide consulting
Taipei, Taiwan services and is compensated
at the rate of US $8,000
per month
Following the Merger, it is anticipated that Dr. Nanshan Wu and
Jennifer Wu will each be actively involved in managing the business of the
Company. Jennifer Wu will serve as Chairman of the Company and Dr. Wu will
be its President. In addition, it is expected that Mannion Consultants,
Ltd. will continue to be involved in the development and testing of the
Company's products.
Recommendation of the Board of Directors.
The board of directors of Celcor unanimously approved the
Merger Agreement on July 11, 1995. The board believes that the Merger is
in the best interests of stockholders and recommends that stockholders vote
for the proposed Merger. The current members of the Board of Directors are
David Chow and Stephen E. Roman, Jr., neither of whom is affiliated with
Majestic or Northeast.
Numerous factors were considered by the board in approving and
recommending that stockholders approve the Merger Agreement. Most
important of these factors is the manner in which the board believes
Northeast can help the Company achieve its long-term objective (as
expressed in the Company's strategic plan) of entering into the
pharmaceutical and cosmetics industries in the People's Republic of China.
The board believes that, based upon the relationship which Northeast has
with Northeast General Pharmaceutical Factory, Northeast will be able to
provide the Company with unique access to Chinese production facilities and
markets.
The Board recognized that there are significant risks
associated with doing business in China, and in particular, in
concentrating the Company's future business activities in China. Among the
more significant risks are the great political and economic instability
prevailing in China, including the ever-changing political relationships
between China and the United States, the continuing evolution of the
Chinese economy from pure communism to a mixed economy, an uncertain legal
and regulatory environment, currency fluctuations and uncertainty
concerning the ability of the Company to repatriate its investment from
China. Nevertheless, the Board has concluded that the potential returns
available justify the level of risk being assumed.
Other factors considered by the Board included the agreed upon
exchange ratio and the tax-free nature of the transaction to the
stockholders of both companies for federal income tax purposes. The board
also evaluated and took into consideration the following:
(i) the Board's familiarity with the financial
condition, business prospects and strategic objectives of Celcor.
Since emerging from bankruptcy in the summer of 1992, the Company has
been unable to conduct any operations and has had no revenues. The
Company is unable to enter into a new line of business without a
significant capital infusion. The Board believes that a sale of the
Company is not feasible since the Company has no significant assets
to sell. Accordingly, the Board believes that it is in the best
interests of stockholders to merge with another company. During the
last three years, the Company has made inquiries to identify other
prospective merger partners, but has been unable to locate any other
company with an interest in merging with the Company;
(ii) the trading history of Ceclor's Common Stock;
(iii) the Board's analysis of Northeast's history,
business, financial condition and prospects;
(iv) the familiarity which each of the directors has
with business conditions and opportunities and the difficulties
encountered by American companies in attempting to do business in the
People's Republic of China; and
(v) the terms and conditions of the Merger Agreement,
including that fact that the consideration will consist of the
issuance of additional shares of Common Stock of the Company.
In addition, the directors met with Chartered Capital Advisers,
Inc., investment bankers retained by the Company to evaluate the Merger
from a financial point of view. Based upon these discussions, and the
analysis conducted by the investment bankers, the investment bankers issued
and the board considered the fairness opinion provided by the investment
bankers.
Fairness Opinion.
The Company has retained the investment banking firm of
Chartered Capital Advisers, Inc. ("Chartered Capital") to serve as its
financial advisor in connection with the Merger.
Chartered Capital provides merger and acquisition and valuation
services on behalf of corporate clients, investors, financial institutions,
investment funds, attorneys, the courts and participants in employee
benefit plans.
Chartered Capital has rendered its opinion to the board of
directors of Celcor that the terms of the Merger are fair to the
stockholders of Celcor from a financial point of view. In reaching its
conclusion, Chartered Capital considered, among other things, certain
financial and publicly available information concerning the trading of, and
the market for, the Celcor Common Stock. Chartered Capital also reviewed
various documents with respect to Northeast, including, but not limited to:
(i) historical financial information; (ii) prospective financial
information; (iii) a business plan; (iv) its joint venture agreement with
Northeast General Pharmaceutical Factory; (v) a technology agreement with
Mannion Consultants, Ltd. For additional information concerning the joint
venture agreement and technology agreement, see "Business of Northeast."
Chartered Capital reviewed the Merger Agreement, and interviewed the
management of each company and their attorneys and accountants. To
evaluate the fairness of the Merger, Chartered Capital considered various
financial, economic, and market information deemed to be relevant and
believes that there is an adequate financial basis to support its fairness
opinion. Key considerations of the opinion were:
- The aggregate capitalized value of the shares of Celcor
Common Stock to be issued to Northeast stockholders is
approximately $850,000, based upon the market value of the
Celcor Common Stock. Each of the valuation analyses
performed supported a value for Northeast in excess of
$850,000.
- The value of the Celcor Common Stock that will be issued is
below the price at which Northeast Common Stock was
originally issued to the Northeast stockholders.
- Since the stock to be issued is restricted stock, the
Northeast stockholders will be unable to "cash out"
following the consummation of the proposed Merger, so their
financial interests will be similar to those of Celcor
stockholders. Marketability restrictions will cause the
financial interests of the Northeast stockholders to be
similar to those of the Celcor stockholders -- success will
depend upon the long-term appreciation of the value of the
Celcor Common Stock.
- Although the average of the bid/asked prices of Celcor
common stock was 94 cents during the four weeks ended March
17, 1995, the net assets per common share of Celcor were
a deficit amount at March 31, 1995. Celcor had no significant
intangible assets or other assets that are not reflected in
its balance sheet at March 31, 1995. Accordingly, the value
of the Celcor Common Stock offered as consideration to
Northeast stockholders may be less than its aggregate
capitalized value, which reduces the economic cost of the
proposed Merger. The average of the bid/asked prices in
July, 1994, the month prior to the first public announcement
of the Merger, was 49 cents.
- The valuation analyses performed by Chartered Capital
included the following:
(a) Chartered Capital analyzed Northeast based on a
multiple of projected earnings, book value, and sales
of publicly traded companies deemed to be relevant to
the value of Northeast for valuation purposes. The
companies used for this analysis were International
Vitamin Corp., Jones Medical Industries, Natural
Alternatives International, Nature's Bounty and PDK
Labs.
(b) Chartered Capital analyzed Northeast based on a
multiple of sales, total assets, and net assets paid in
thirty-seven acquisitions of public and private
companies involved in the manufacture or distribution
of vitamins, pharmaceutical products, and health and
beauty aids.
(c) Chartered Capital analyzed Northeast based on
discounted cash flow analysis using the cash flow
projections for the first four years after the proposed
Merger, prepared by the management of Northeast.
Projected cash flows were discounted at rates between
40% and 50%; additional discounts were applied to take
into consideration geopolitical risk, dependence upon a
few key executives, and the nonmarketability of
Northeast common stock.
(d) Chartered Capital engaged a licensed real estate
appraiser to ascertain the reasonableness of the value
of the real estate reflected in the financial
statements of Northeast.
These analyses support values for Northeast that are in excess
of the value of the Celcor Common Stock which will be received
by Northeast stockholders. Based upon these valuation
approaches, the value of Northeast ranged from a low of $2.3
million to a high of $5.6 million, which, in each case, is in
excess of the $850,000 value ascribed to the shares of Celcor
Common Stock which will be received by the Northeast
stockholders and is equal to the net book value of Northeast on
June 30, 1994, the end of the quarter immediately preceding the
signing of the letter of intent and announcement of the Merger.
- Absent the proposed transaction, Celcor Common Stock does
not appear to afford any potential for appreciation in
value; if Northeast is successful, there is significant
appreciation potential. After considering the foregoing
analysis, the Board established the exchange ratio on the
following basis:
DETERMINATION OF EXCHANGE RATIO
Value per share of Celcor Common Stock1 $ .4875
Value of Northeast (USA) Corp2 850,000
Number of Shares issuable to Northeast Stockholders....1,750,000
$850,000 = 1,743,590
.4875 (rounded to 1,750,000 shares)
Exchange Ratio ......................................10,000 to 1
1,750,000 (shares issuable)
175 (number of outstanding
shares of Northeast)
________________
1 Based upon the mean daily market price (average of high bid and
ask prices) (as reported by the National Quotation Bureau) for the
15 trading days prior to July 22, 1994 (the first public announcement
of the Merger was on August 12, 1994).
2 Based upon the net book value of Northeast at June 30, 1994. As
noted above, other valuation approaches reflect a value for Northeast
which is significantly in excess of $850,000. However for purposes
of establishing the exchange ratio, a more conservative approach
to value (based solely upon book value) was utilized. 850,000
In rendering its opinion, Chartered Capital relied, without
independent verification, on the accuracy and completeness of the
information concerning each corporation which it considered necessary in
rendering its opinion. Copies of the written opinion, which describe the
assumptions made and the matters considered by such firm, is attached to
this Proxy Statement as Exhibit C and such opinion should be read by each
stockholder in its entirety.
Celcor has agreed to pay to Chartered Capital a fee of $15,000
for its services in connection with the Merger. Of such fee, $5,000 became
payable at the time Chartered Capital was retained, $5,000 was payable upon
the completion of the valuation analysis and the remaining $5,000 is
payable at the time the fairness opinion is delivered. Celcor has also
agreed to reimburse Chartered Capital for certain of its expenses and to
indemnify Chartered Capital against certain potential liabilities and
expenses, including liabilities under the federal securities laws.
Additional Terms of the Merger Agreement.
The Merger Agreement provides for customary representations and
warranties by each party to the transaction including, among others, (i)
its due incorporation and organization, (ii) capitalization, (iii) title
and condition of assets, (iv) material contracts, (v) absence of employee
benefit plans, (vi) licenses and permits, (vii) compliance with other
instruments, (viii) need for consents, (ix) compliance with laws, (x)
accuracy of financial statements,(xi) authority and enforceability of
Merger Agreement, and (xii) absence of litigation.
Prior to the Effective Date (as defined in the Merger
Agreement), each corporation has agreed to conduct its business only in the
ordinary course of business and to provide access to the other company to
facilitate the completion of all necessary due diligence investigations.
The obligations of Celcor and Northeast to consummate the
Merger are subject to the satisfaction of the following conditions, among
others, unless waived: (i) approval and adoption of the Merger Agreement
by the requisite stockholder votes by the stockholders of each corporation,
(ii) the absence of any pending litigation or proceeding initiated by any
governmental authority to enjoin or prohibit the Merger, (iii) the
continued accuracy of the representations and warranties made by the
parties, (iv) the performance by each party of its respective obligations
under the Merger Agreement, and (v) the receipt of certain opinions,
certificates and consents.
The stockholders of Northeast are obligated to indemnify Celcor
against any claims, actions, suits, proceedings, investigations and damages
arising from or relating to (i) any breach or failure of Northeast to
perform any of its covenants or agreements, (ii) the inaccuracy of any
representation or warranty made by Northeast, (iii) any fixed or contingent
obligation or liability not disclosed in Northeast's financial statements,
and (iv) any liability for taxes, other than those which were accrued as
liabilities by Northeast on its balance sheet.
Issuance of Restricted Shares.
The shares of Celcor Common Stock issuable pursuant to the
Merger will not be registered under the Securities Act of 1933, as amended
(the "Securities Act"), or the securities laws of any state, but will be
issued in reliance upon the exemption from registration afforded by Section
4(2) of the Securities Act and Regulation D promulgated by the Securities
and Exchange Commission thereunder and similar exemptions from registration
available under state securities laws. Under the terms of the Merger
Agreement, the stockholders of Northeast acknowledged their understanding
that the shares of Celcor Common Stock which will be received by them will
not be registered under the Securities Act and applicable state securities
laws and that such shares may not be transferred, sold or assigned until
such shares are registered pursuant to the Securities Act and applicable
state securities laws. The stockholders of Northeast will be required to
represent to Celcor at the closing that (i) each such stockholder is
acquiring the shares for its own account, for investment purposes and not
for resale or distribution, (ii) that such stockholder has the ability to
bear the economic risk associated with the investment, and (iii) that the
stockholder has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of an
investment in the Celcor Common Stock.
The Celcor Common Stock issuable to the Northeast stockholders
may not be sold or transferred in the absence of registration under the
Securities Act and applicable state securities laws, or the availability of
an exemption from such registration requirements. Each certificate of
Celcor Common Stock issued pursuant to the Merger will bear an appropriate
restrictive legend prohibiting the transfer of such shares.
Effective Date of the Merger.
The Merger will become effective (the "Effective Date") at the
time that a Certificate of Merger is filed in accordance with the Delaware
General corporation Law and Articles of Merger are filed in accordance with
the New York Business Corporation Act. These filings will be made within
five days after the Merger Agreement is approved by the stockholders of
Celcor, unless the parties agree to a later date.
Accounting Treatment.
The Merger will be accounted for as a reverse acquisition
whereby, for accounting purposes, Northeast will be the acquiror of Celcor,
and the transaction will be accounted for as a recapitalization of
Northeast. It is characterized as a reverse acquisition because even
though Celcor will continue as the surviving Corporation, only Northeast
has significant assets or operations. Also, Northeast management will
manage the combined entity and its stockholders may control the election of
the board and other matters. Since Celcor is a shell with no operations,
its assets will be recorded in the balance sheet of the combined company at
book value.
The unaudited pro forma financial information contained in this
Proxy Statement has been prepared accounting for the Merger as a reverse
acquisition.
Federal Income Tax Consequences.
THE FOLLOWING IS A SUMMARY OF THE OPINION PROVIDED BY COUNSEL
TO THE COMPANY OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER. THIS SUMMARY IS NOT A COMPLETE DESCRIPTION OF ALL THE CONSEQUENCES
OF THE MERGER.
THIS SUMMARY IS BASED UPON RELEVANT PROVISIONS OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, THE APPLICABLE TREASURY REGULATIONS
PROMULGATED THEREUNDER, JUDICIAL AUTHORITY AND CURRENT ADMINISTRATIVE
RULINGS AND PRACTICE, ALL OF WHICH ARE SUBJECT TO CHANGE, POSSIBLY ON A
RETROACTIVE BASIS. THIS SUMMARY DOES NOT ADDRESS ALL ASPECTS OF FEDERAL
INCOME TAXATION THAT MAY BE RELEVANT TO PARTICULAR STOCKHOLDERS IN LIGHT OF
THEIR PERSONAL CIRCUMSTANCES, OR TO STOCKHOLDERS SUBJECT TO SPECIAL
TREATMENT UNDER THE CODE (FOR EXAMPLE, S CORPORATIONS, CERTAIN ESTATES AND
TRUSTS, INSURANCE COMPANIES, FOREIGN PERSONS, TAX EXEMPT ORGANIZATIONS,
TAXPAYERS SUBJECT TO THE ALTERNATIVE MINIMUM TAX, FINANCIAL INSTITUTIONS,
BROKERS, DEALERS OR HOLDERS THAT OWN 10% OR MORE OF THE VOTING POWER OF
NORTHEAST). THE COMPANY HAS NOT REQUESTED A RULING FROM THE INTERNAL
REVENUE SERVICE WITH RESPECT TO THESE MATTERS.
EACH STOCKHOLDER'S INDIVIDUAL CIRCUMSTANCES MAY AFFECT THE TAX
CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER. IN ADDITION, NO
INFORMATION IS PROVIDED HEREIN WITH RESPECT TO THE TAX CONSEQUENCES OF THE
MERGER UNDER APPLICABLE FOREIGN, STATE OR LOCAL LAWS. CONSEQUENTLY, EACH
NORTHEAST STOCKHOLDER IS ADVISED TO CONSULT ITS OWN TAX ADVISOR AS TO THE
SPECIFIC IMPACT ON SUCH STOCKHOLDER OF FEDERAL, FOREIGN, STATE OR LOCAL
LAWS.
Counsel to the Company has provided its opinion that the Merger
will be treated as a tax-free reorganization as defined in Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"),
and that, accordingly, (i) no gain or loss will be recognized by the
stockholders of Northeast upon the exchange of their shares of Northeast
Common Stock solely for shares of Celcor Common Stock pursuant to the
Merger; (ii) the basis of the Celcor Common Stock received by each
stockholder of Northeast in exchange for shares of Northeast Common Stock
will be the same, immediately after the exchange, as the basis of such
stockholders' Northeast Common Stock exchanged therefor, and (iii) the
holding period for any Celcor Common Stock received in exchange for
Northeast Common Stock will include the period during which the Northeast
Common Stock surrendered for exchange was held, provided such stock was
held as a capital asset on the date of the exchange.
A dissenting Northeast stockholder who receives only cash for
his shares of Northeast Common Stock will recognize gain or loss for
federal income tax purposes measured by the difference, if any, between
such holder's basis in the stock and the amount received by him for his
stock. The gain or loss will be characterized for federal income tax
purposes as capital gain or loss or as ordinary income. The gain or loss
will be characterized as capital if (i) the holder's shares of Northeast
Common Stock are held as capital assets, and (ii) the holder receives cash
with respect to all shares of Northeast Common Stock which he owns,
including shares owned by application of the attribution rules of Section
318 of the Code.
Section 318 of the Code provides, in part, that a stockholder
will be considered to be the owner of shares which are owned by certain
corporations, partnerships, trusts and estates in which the stockholder has
a beneficial ownership interest, shares which such stockholder has an
option to acquire, and shares owned by certain members of his family (not
including brothers and sisters). Under certain circumstances, the
attribution rules with respect to shares attributed from a family member
may be waived.
Rights of Dissenting Stockholders.
Pursuant to Section 262 of the General Corporation Law of the
State of Delaware, a copy of which is attached hereto as Exhibit A, any
holder of Celcor Common Stock or Series C Preferred Stock who objects to
the Merger will be entitled to dissent and exercise appraisal rights. That
Section enables an objecting stockholder to be paid, in cash, the value of
his Celcor Common Stock or Series C Preferred Stock, as applicable, as
determined by the Delaware Court of Chancery, provided that the following
conditions are satisfied:
(1) Such stockholder must file with the Company a written
demand for appraisal of his shares, separate and apart from any proxy
or vote against the Merger, before the taking of the vote on the
Merger. If a stockholder elects to exercise dissenters' rights, such
right may only be exercised as to all shares of Celcor capital stock
held by the dissenting stockholder.
(2) Such stockholder must not vote in favor of the Merger,
nor submit a proxy in which directions are not given.
(3) Within 120 days after the Effective Date of the Merger,
either the Company or any stockholder who has complied with Section
262 may, by petition filed in the Delaware Court of Chancery, demand
a determination by the Court of the value of the shares of all
objecting stockholders with whom agreements as to the value of such
shares have not been reached.
Within 10 days after the Effective Date of the Merger, the Company will
notify each stockholder who has complied with Section 262 and not voted
for, or consented to, the Merger of the date on which the Merger became
effective.
If the Company and the dissenting stockholder cannot agree on
the value of the shares, the Court, based upon an appraisal prepared by an
independent appraiser, will make its own determination. Under Delaware
law, the dissenting shares would be valued on a going concern and not a
liquidation basis. An appraiser would be obligated to determine the
intrinsic value of the shares, without giving effect to the proposed
Merger, considering all factors and elements which reasonably may enter
into such a determination, including market value, asset value, earnings
prospects and the nature of the enterprise. The value determined by the
court may be more than, less than or equal to the Merger consideration
(i.e., the value of the Celcor Common Stock after the Merger).
Notwithstanding the foregoing, at any time within 60 days after
the Effective Date of the Merger or thereafter, with the written approval
of the Company, any objecting stockholder shall have the right to withdraw
his demand for appraisal and to accept the terms offered pursuant to the
Merger, provided that no appraisal proceeding in the Delaware Court of
Chancery may be dismissed without the approval of such Court. The costs of
an appraisal proceeding may be determined by such Court and taxed upon the
parties as the Court deems equitable under the circumstances.
FAILURE BY A STOCKHOLDER TO FOLLOW THE STEPS REQUIRED BY
DELAWARE LAW FOR PERFECTING HIS DISSENTER'S RIGHTS WILL RESULT IN THE LOSS
OF SUCH RIGHTS.
SELECTED FINANCIAL DATA
FOR THE COMPANY AND NORTHEAST
The following is a summary of selected financial data for the
Company and Northeast. See the financial statements included herein for
more complete information.
CELCOR, INC.
The following financial information has been derived from
Celcor's financial statements for each of the three month periods ended
September 30, 1994 and 1995 and the fiscal years set forth below, which
statements are unaudited, except for the fiscal years ended June 30, 1993,
1994 and 1995. The statements for the fiscal years ended June 30, 1994 and
1995 and the three month periods ended September 30, 1994 and 1995 are
included herein. The information for the three month periods ended
September 30, 1994 and 1995 and the years ended June 30, 1991 and 1992 is
unaudited but, in the opinion of management of Celcor, includes all
adjustments, consisting of normal recurring adjustments, necessary to
present fairly the financial data for such periods. The following should
be read in conjunction with the financial statements and notes related
thereto included elsewhere herein.
<TABLE>
(In thousands, except per share amounts)
At June 30 and for the year At September 30 and
then ended for the three months
then ended
<S> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1995 1994
Revenues from continuing
operations - - - - - - -
Loss before discontinued
operations and extraordinary
item.. ($80) ($ 54) ($ 4) ($ 23) ($ 135)($ 27)($ 11)
Net income (loss) (1) ( 80) (54) (4) 2,010 (133) ( 27) ( 11)
Loss per common share
before discontinued opera-
tions and extraordinary item (.02) (.02) - (.05) (.10) (.01) -
Net income (loss) per common
share (.02) (.02) - 1.30 (.10) (.01) -
Working capital (deficit) (15) 765 19 (157) (2,166) (42) 54
Total assets 712 769 19 - 29 701 761
Total liabilities 27 4 25 157 2,195 43 7
Long-term debt and redeemable
preferred stock - - 25 - 139 - -
Stockholders' equity (deficit) 685 765 (6) (157) (2,166) 658 754
Dividends per common share None None None None None None None
</TABLE>
_______
(1)For the 1991 period, income from discontinued operations totaled $1,501.
For the 1992 period, discontinued operations consisted of a $447,129 gain
on the liquidation of a subsidiary and a $1,585,184 gain on extinguishment
of debt as an extraordinary item.
The above information reflects the consolidated results of Celcor, Inc.
and The Pay Telephone Company, Inc. through the 1992 fiscal year. The Pay
Telephone Company filed for liquidation pursuant to Chapter 7 of the United
States Bankruptcy Code and was liquidated during the 1992 fiscal year.
Effective July 1, 1992, the Company adopted fresh start reporting standards
as a result of its reorganization under Chapter 11 of the Bankruptcy Code.
Consequently, the 1993 fiscal year and subsequent periods may not be
comparable to the earlier periods reported above.
NORTHEAST (USA) CORP.
The following year end financial information has been derived from
Northeast's audited financial statements for each of the fiscal years set
forth below, which statements for the years ended June 30, 1995 and 1994
are included herein. The financial information for the three month periods
ended September 30, 1995 and 1994 was derived from unaudited financial
statements for those periods. In the opinion of management, the unaudited
financial statements include all adjustments, consisting of normal
recurring adjustments, necessary to present the financial data for such
periods. The following should be read in conjunction with the financial
statements and notes related thereto included elsewhere herein.
<TABLE>
(In thousands)
At June 30, and for the year then ended At September 30 and
for the three months
then ended
1995 1994 1993(1) 1995 1994
<S> <C> <C> <C> <C> <C>
Revenues $ 905 $ -- $ -- $ 49 $ --
Net income (loss) (700) (234) (16) (114) (50)
Working capital (deficit) (110) 699 124 (345) 578
Total assets 3,413 3,416 136 3,420 4,096
Total liabilities 998 155 2 1,186 897
Long-term debt --- -- -- -- --
Stockholders' equity 225 841 134 106 785
Dividends per common share None None None None None
_______________
(1) The date of inception of Northeast's operations was February, 1993
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CELCOR
Liquidity
Since its emergence from Chapter 11 Bankruptcy proceedings at the
beginning of its 1993 fiscal year, the Company has had no operations or
business. Subsequent to its reorganization, the Company had virtually no
assets or liabilities and its need for working capital has been minimal.
At the time of its emergence from bankruptcy, the Company was able to
secure $40,000 in loa.ns from an unaffiliated investor (an individual
residing in Taiwan), which was sufficient to fund the Company's minimal
administrative expenses. In order for the Company to actively pursue its
business plan to seek new business opportunities, such as mergers,
acquisitions or joint ventures, more substantial permanent financing was
required. In fiscal 1994, the Company was able to obtain $780,000 in
equity capital through the private placement of the Series C Preferred
Stock. The holder of the $40,000 loan payable by the Company converted the
loan and interest payable thereon to shares of the Series C Preferred
Stock, making the total proceeds received from the Series C Preferred Stock
issuance $825,000. After the conclusion of the offering of the Series C
Preferred Stock, $700,000 of the proceeds was loaned to Northeast in
anticipation of the Merger. See "Proposal One-Approval of the Merger -
Background of the Merger". The Company believes that if the Merger with
Northeast is consummated (see Note 7 to the Company's Financial
Statements), the Company will require significant additional capital to
fund its obligations under the joint venture agreement with Northeast
General Pharmaceutical, to pay ongoing operating expenses and to support
the Company's working capital needs. Alternatively, should the Merger with
Northeast not be consummated, the Company may be unable to recover the loan
balance in cash from Northeast and would be illiquid. While the Company
believes that the value inherent in the stock of Northeast (which the
Company holds as collateral against the loan) would be adequate for the
ultimate recovery (in future years) of the loan balance, additional capital
in the short term would be required for the Company to operate in any
capacity. The Company's short term cash requirements after September 30,
1995 have been funded by the receipt of $20,000 from Northeast as a partial
payment on the loan previously made to Northeast by the Company. However,
as Northeast's cash resources are limited, it is uncertain as to how long
Northeast could continue to provide working capital to the Company through
additional payments in respect of such loan.
In anticipation of the Merger with Northeast, the Company intends to
raise additional capital to fund the continuing operations of the combined
entity through one or more private placements of debt and equity
securities, utilizing both domestic and foreign investment sources. Should
the Merger not be consummated, the Company does not believe it will have
any ability to raise additional capital. The Company has current plans to
sell up to 2,000,000 shares of its Common Stock (together with warrants to
purchase an additional 1,000,000 shares) in a private offering. It is
anticipated that offers will be made primarily to non U.S. persons in
compliance with Regulation S, adopted pursuant to the Securities Act of
1933, as amended. No commitments to purchase any such shares have been
received and there can be no assurances that any such offering will be
successful, or will proceed in the manner presently contemplated.
Because of the above mentioned liquidity concerns, the Company's
independent accountants, in their report, have issued an explanatory
paragraph regarding the Company's ability to carry out its business plans.
Statement Of Operations
Three Month Period Ended September 30, 1994 Compared to Three Month Period
Ended September 30, 1995.
During the 1994 and 1995 periods, the Company had no ongoing operations and
maintained its corporate existence (regulatory and tax filings, stock
transfer costs, etc.) with minimal administrative expenditures. However,
in both periods the Company incurred legal and administrative costs in
conjunction with its anticipated merger with Northeast. See also "Proposal
One - Approval of Merger." These costs were more significant in the 1995
period as the Company neared its proxy solicitation and merger
consummation.
Fiscal 1994 Compared to Fiscal 1995
During the 1995 fiscal year, the Company was actively involved in its
efforts to consummate a merger with Northeast, with which it signed a
letter of intent on August 15, 1994 and a Merger Agreement on March 15,
1995. As such, the Company incurred substantial legal and accounting fees
in conjunction with this transaction, which increased the loss compared to
the 1994 fiscal year. Apart from its activities related to the Merger, the
Company had no ongoing operations in either year and no revenues. It
incurred a relatively modest amount of expenses in each year in order to
maintain its corporate existence (SEC filings, tax returns and stock
transfer fees).
NORTHEAST (USA) CORP.
Results of Operations
Three Month Period Ended September 30, 1994 Compared to Three Month Period
Ended September 30, 1995
During the 1994 period, Northeast, having only recently been formed,
was still in the process of organizing and setting up its operations, both
domestically and with respect to United Vitatech (its 56% owned subsidiary)
in Shenyang, China. As such, Northeast had no revenues during this period.
During the 1995 period, Northeast recognized revenues of approximately
$50,000, approximately half coming from sales of small quantities of
ascorbic acid and approximately half coming from sales of the Jennifer skin
care product line. There were no large sales of bulk ascorbic acid during
this period (as had been made in the previous quarter) as ascorbic acid
prices from Northeast's Chinese supplier were unfavorable during the
quarter. Recently, however, indications are that prices are declining and
Northeast expects to sell larger quantities of ascorbic acid in the future.
It should be noted that the profit margin on sales of bulk ascorbic acid
are very low, but Northeast will continue to pursue these sales due to the
correspondingly low selling expenses associated with such sales.
Losses for the 1994 period totaled $49,864, compared to $114,216 for
the 1995 period (after deduction for minority interest in the net loss).
Several factors contributed to the increased loss. Losses for the 1994
period were less as Northeast was just starting its operations. As
Northeast was further along in this process for the 1995 period, a higher
level of administrative and other expenses were incurred, which outpaced
the amount of gross profit Northeast generated on its limited sales. For
example, in the 1995 period Northeast purchased fixed assets and thus
depreciation expense increased. Selling expenses increased as Northeast
began to get its selling effort more organized (advertising expense and
brochure printing accounted primarily for this increase). The increase in
general and administrative expenses from the 1994 period to the 1995 period
can be summarized as follows:
(1) In China, there was an increase in the number of employees,
resulting in increased compensation costs. Additional rental expense was
incurred in connection with the establishment by United Vitatech of an
office in Beijing. In addition, United Vitatech, which had previously
shared office space with Northeast's joint venture partner, moved to its
own offices in Shenyang, thereby incurring increased rental costs and
ancillary costs to set up the office.
(2) Domestically, administrative expenses increased primarily as a
result of increased professional fees (incurred as a result of its proposed
merger with Celcor) and costs incurred to set up a new office (Northeast
moved to a new location in August, 1995).
Year ended June 30, 1994
Compared to the Year ended June 30, 1995.
For the fiscal year ended June 30, 1994, Northeast had no
revenues from operations. During this period Northeast was in the process
of establishing its operations, both in the U.S. and in Shenyang, China.
The loss is primarily the result of general and administrative expenses,
(primarily office salaries, travel costs and office rental) incurred for
this purpose.
For the fiscal year ended June 30, 1995, Northeast recognized
its first revenues, primarily a result of sales of bulk ascorbic acid
(vitamin C), which it purchased in China from Northeast General
Pharmaceutical, its joint venture partner, and resold in the United States.
As Northeast prepared a selling effort for its domestic operations and its
Chinese subsidiary, costs and expenses were incurred with little revenue
being realized. Additionally, the Chinese subsidiary operated for only six
months in the 1994 year and a full twelve months for the 1995 fiscal year,
thus accounting for a portion of the increase in costs and expenses from
year to year. Costs and expenses for the 1995 period consisted primarily
of depreciation and amortization (a result of the purchase of certain fixed
assets), salaries (as Northeast continues to expand its operations from its
initial start-up phase), travel costs (incurred due to frequent travel to
China by Northeast personnel), and professional and consulting fees
(incurred as a result of (1) the anticipated merger with Celcor and (2)
consulting fees incurred in the establishment of manufacturing activities
in China). Due to the early stage of development of Northeast and its
limited sales to date, the level of expenses is disproportionate to the
volume of sales. As sales increase, selling, general and administrative
expenses will constitute a declining percentage of sales.
As noted above, Northeast's revenues during the 1995 period
were primarily derived from the sale of bulk ascorbic acid. Northeast
generally makes bulk purchases of this material from China only when it has
a buyer for such quantity in the U.S. Because a sale takes place almost
simultaneously with the purchase, Northeast incurs only minimal expenses in
connection with the sale. It is for this reason that Northeast accepts a
low profit margin on these sales. Due to the uncertainty of the supply
from China and the price at which the supply will be available to
Northeast, it is not known if these profit margins will increase on future
sales of ascorbic acid.
During the 1995 fiscal year, Northeast recorded a write down of
$180,000 in connection with vacant land which it owns. Northeast intends
to sell the property in the near future and has based the write down on a
current appraisal of the property.
Financial Condition and Liquidity
Northeast will require significant additional capital to carry
out its business plans. Northeast believes that much of its ability to
raise additional capital will be dependent on the consummation of the
proposed Merger with Celcor. Should the Merger be consummated, the
combined entity would have a greater ability to raise additional capital
through a private placement and/or public offering of debt or equity
securities. Northeast's consolidated cash balance of $351,400 at June 30,
1995 is primarily a result of the receipt of a $700,000 loan from Celcor.
Should the proposed Merger with Celcor not take place, Northeast would not
have the ability to repay the $700,000 loan and may not have the ability to
raise any significant amount of additional capital.
Subsequent to the 1995 fiscal year end, for short-term working
capital purposes, Northeast borrowed $50,000 from a bank and $150,000 from
its president (which was used in part to repay the earlier bank loan).
Additionally, Northeast is offering for sale a parcel of vacant property
which it owns. If a buyer can be found, Northeast expects it would realize
approximately $400,000 from such a sale. Northeast's bank has recently
indicated a willingness to advance $150,000 in loans to Northeast with the
land being used as collateral.
Since Northeast is currently unprofitable, the $150,000 in
short term loans it has recently obtained, as well as the additional
$150,000 expected to be made available by a bank, may be insufficient to
fund it to the point when it can generate positive cash flow from
operations. It is not known how quickly the vacant land can be sold.
Because of these liquidity concerns, Northeast's independent accountants,
in their report, have issued an explanatory paragraph regarding the
uncertainty of Northeast's ability to carry out its business plans.
Financial and Operating Plans for the Next 12 Months
Northeast's operational plans include (1) domestically, the
development of new products and the expansion of its marketing efforts, and
(2) expansion of the operations of its Chinese subsidiary, both in
production and marketing capabilities. To carry out these plans, Northeast
must fund the following cash requirements in the next 12 months:
1. Pursuant to the terms of the joint venture agreement
under which Northeast's majority owned subsidiary, United Vitatech, was
formed, Northeast is scheduled to make additional cash investments in
United Vitatech according to the following schedule:
By June 30, 1995 - $600,000
By December 31, 1995 - 500,000
Total additional cash investment required $1,100,000
Of this total, approximately $600,000 would be utilized to
build an office, factory and warehouse in Shenyang, China. While
architect's plans have been substantially completed, construction will not
commence until Northeast's cash investment (above) has been completed. If
Northeast is successful in raising the required capital, construction could
commence in the spring or summer of 1996.
The capital contribution scheduled to be made on June 30, 1995
has been deferred by Northeast as Northeast believes it will be easier for
it to raise this capital subsequent to the pending Merger with Celcor. At
present, United Vitatech does not require the capital for operational
purposes. The funds required for the construction of production facilities
in China are not immediately needed as United Vitatech currently leases
space for its operations. Should United Vitatech's operations subsequently
generate a need for the additional capital contribution, Northeast has
obtained a verbal commitment from an individual residing in Europe (who is
not presently a stockholder of Northeast) to make a loan to Northeast to
enable Northeast to satisfy its June 30, 1995 $600,000 obligation to United
Vitatech. This commitment is not a binding obligation and there can be no
assurances that Northeast will be able to obtain this loan, if needed. It
is anticipated that should the Merger with Celcor take place, this loan, if
made, would be converted into Celcor Common Stock. No terms for any such
conversion have been discussed. Should the Merger not be consummated,
Northeast has no current identifiable source to repay this loan, other than
to issue additional stock of Northeast.
2. It is anticipated that as long as the Merger with
Northeast is still in process, Celcor will continue to extend the due date
of the $700,000 loan due it from Northeast. Should the Merger with Celcor
be consummated, the note will be canceled. If the Merger is never
consummated and Northeast is unable to repay the note, Celcor will have the
right to exercise its remedies under the terms of a pledge agreement
whereby the Northeast stockholders pledged their shares of Northeast to
Celcor as security for the note. In such event, Celcor would have the
right to acquire the shares itself or sell them to a third party.
3. For product development, marketing costs and working
capital for its domestic operations, Northeast believes it will require an
additional $1 million in financing.
To fund the needs described above, Northeast believes it will
require approximately $2.0 million in additional financing. This assumes
that the Merger with Celcor will take place, eliminating the need to repay
the $700,000 loan, and that Northeast will not be required to repay bank
debt and the officer loan prior to the date Northeast begins to generate,
positive cash flow.
As with any new, growing business, Northeast believes
additional outside capital may be required by it on ongoing basis to fund
its longer term expansion.
PROPOSAL TWO
ELECTION OF DIRECTORS
Nominees
The holders of Celcor Common Stock will elect seven directors
at the special meeting, each of whom will be elected for a one year term.
Unless a stockholder either indicates "withhold authority" on his proxy or
indicates on his proxy that his shares should not be voted for certain
nominees, it is intended that the persons named in the proxy will vote for
the election of the persons named in the table below to serve until the
expiration of their terms and thereafter until their successors shall have
been duly elected and shall have qualified. Discretionary authority is
also solicited to vote for the election of a substitute for any of said
nominees who, for any reason presently unknown, cannot be a candidate for
election. The Board of Directors has no reason to believe that any of the
nominees will be unavailable for election. Directors will be elected by a
plurality of the votes cast at the Special Meeting.
Each of the nominees named below has consented to being named
as a nominee in this Proxy Statement and has agreed to serve as a director
at the Special Meeting, but such consent is conditioned upon the approval
of the Merger by stockholders.
The table below sets forth the names and ages (as of December
10, 1995) of each of the nominees, the other positions and offices
presently held by each such person with the Company, the period during
which each such person has served on the board of directors of the Company,
and the principal occupations and employment of each such person during the
past five years.
NAME AGE PRESENT POSITION DIRECTOR
OF THE
COMPANY
SINCE
Stephen E. Roman, Jr.(1) 47 Director 1994
David Chow (2) 35 Director 1993
Eugene Cha (3) 38 -- --
Frank Nelson (4) 73 -- --
Jennifer Lo Wu (5) 42 -- --
Chin-Sung (Joe) Chen (6) 43 -- --
Michael Hsu (7) 55 -- --
_______________
(1) Mr. Roman was elected to the Board of Directors of the Company in
June, 1994. He has served as president and secretary since June of
1994 on a part-time basis. He was vice president - finance and chief
financial officer since 1984 and served in this capacity on a part-
time basis from October, 1989 to June, 1994. Mr. Roman is a
certified public accountant and is self-employed. Mr. Roman is also
the chief financial officer of a privately held company involved in
the personal security industry and has a number of other business
interests. Mr. Roman beneficially owns 16,153 shares of Celcor
Common Stock.
(2) David Chow is Managing Director of Center Laboratories, Taiwan, and
Center Pharmaceutical Co., Ltd., People's Republic of China.
Additionally, Mr. Chow is Chairman of the Taiwan Pharmaceutical
Association, Director of the China Pharmaceutical Development
Association and Director of the GMP Committee of the China
Pharmaceutical Industrial Association. Mr. Chow does not
beneficially own any shares of Celcor Common Stock.
(3) Eugene Cha is an attorney and since 1987 had been a partner in the
law firm of Cha & Pan, a firm with offices in New York and China. He
holds law degrees from both National Taiwan University and the
University of Michigan. He is also a member of the National Assembly
of the Republic of China. Mr. Cha does not beneficially own any
shares of Celcor Common Stock.
(4) Frank A. Nelson is president of Zhou Lin International, Inc. and has
served in this capacity for more than 12 years. Zhou Lin is a
medical devices manufacturing and marketing company. From 1988 to
1994, Mr. Nelson was also president of Natural Pharmaceutical
International, Inc., a natural pharmaceutical products research and
development company. Since January, 1994, Mr. Nelson has also served
as Chairman of Health Guard International, Inc., a health food
manufacturing and marketing company. Mr. Nelson does not
beneficially own any shares of Celcor Common Stock.
(5) Jennifer Lo Wu is a trained pharmacist and from February, 1993 until
the present date has served as chairperson of Northeast. Ms. Wu also
serves as chairperson of Shenyang United Vitatech Ltd., Northeast's
Chinese joint venture. Prior to her association with Northeast, Ms.
Wu was a real estate agent in Flushing, New York. Ms. Wu is married
to Dr. Nanshan Wu, the president of Northeast. Ms. Wu is the sole
stockholder of Lyncroft Corp., which owns 123,630 shares of Celcor
Common Stock and 10 shares of Northeast Common Stock.
(6) Chin-Sung (Joe) Chen is presently general manager of Hyscios Pharmacy
International Co., Ltd., a distributor of pharmaceutical products
based in Taipei, Taiwan. Prior to his association with Hyscios, Mr.
Chen was employed for approximately 16 years by Lederle, where he
served in a variety of increasing responsible positions. From April,
1991 to November, 1993, Mr. Chen was national marketing manager of
Lederle Taiwan. Mr. Chen does not beneficially own any shares of
Celcor Common Stock.
(7) Michael Hsu has served as a part time vice-president-finance of the
Company since June 1994. Mr. Hsu is also a self-employed certified
public accountant and has been engaged in this capacity for more than
the last 5 years. Mr. Hsu does not beneficially own any shares of
Celcor Common Stock.
Presently, the Company has two directors - David Chow and
Stephen E. Roman, Jr., both of whom are standing for re-election. The last
meeting of stockholders of the Company at which directors were elected was
held on November 20, 1993. At the time, stockholders elected Paul Siu,
David Chow and Hong Yuan Shi to serve as directors. On May 18, 1994, Mr.
Shi resigned as a director and on May 23, 1994, Mr. Siu resigned as a
director. Mr. Roman was elected to the Board in June, 1994 by Mr. Chow,
the remaining director, following the resignation of Messrs. Shi and Siu,
each of whom resigned because of an inability to participate as board
members in a meaningful way. Mr. Shi is the deputy managing director of
Northeast General Pharmaceutical Factories Group and chief economist and
general director of Northeast General Pharmaceutical Factory. As a
resident of China, Mr. Shi was unable to attend meetings of the Board. Mr.
Siu resigned for personal reasons to pursue other opportunities. The board
of directors does not presently have an audit, compensation or nominating
committee. There was one meeting of the board of directors during the
fiscal year ended June 30, 1995, which was attended by Mr. Roman and Mr.
Chow (either in person or by proxy).
Executive Compensation
During the Company's fiscal year ended June 30, 1995, Mr. Roman
received an aggregate of $15,750 in compensation from the Company. This
amount includes all cash and non-cash compensation, bonuses, deferred
compensation and perquisites. No other compensation of any kind was paid
to any executive officer or director of the Company. The Company does not
presently have any long-term incentive plan, deferred compensation plan,
stock option or stock grant plan, pension plan or other benefit plans. The
Company does not presently have any employment contracts, termination of
employment, or change in control arrangements with any of its executive
officers.
Under the terms of the Merger Agreement, the following persons
have been designated to serve as executive officers of the Company
following the consummation of the Merger:
Name Age Title
Jennifer Wu 42 Chairman
Dr. Nanshan Wu 45 President
Stephen E. Roman, Jr. 47 Vice president,
secretary and chief
financial officer
Michael Hsu 55 Treasurer
Information concerning Mr. Roman has been provided above. Mr.
Hsu is and for the last five years has been a self-employed certified
public accountant. He has served without compensation as vice president -
finance and treasurer of the Company since June 1994 on a part-time basis.
Dr. Wu presently serves as the president of Northeast and has served in
this capacity since Northeast was first organized in February, 1993. Dr.
Wu is also an obstetrician/ gynecologist and for the last five years has
maintained an active medical practice.
Section 16 Compliance
Based solely upon a review of Forms 3 and 4 and amendments
thereto furnished to Celcor, Celcor believes that Messrs. Chow and Hsu have
each filed a Form 3 in their capacity as officers or directors of the
Company, but that such filings were not made on a timely basis. Neither
individual owns any shares of Celcor Common Stock. In addition, Celcor
believes that Majestic International, Inc., which is believed to be the
beneficial owner of more than 10% of the outstanding Celcor Common Stock
has filed a Form 3, but that such filing was not made on a timely basis.
Celcor further believes that Shenyang Tianfa Social Service Company and
Verchi Holdings Limited, each owns in excess of 10% of the outstanding
Celcor Common Stock and has not filed a Form 3 with respect to such
beneficial ownership.
COMMON STOCK OF THE COMPANY
Market Price Information
The Company's Common Stock is traded over-the-counter and its
quotations are carried in the National Quotation Bureau's daily "Pink
Sheets".
The following table shows the range of high and low bid or last
trade quotations for the Company's Common Stock in the over-the-counter
market as reported to the Company by the National Quotation Bureau
Incorporated. No review of the daily Pink Sheets for the periods indicated
has been undertaken by the Company. The quotations reflect prices between
dealers, without retail mark-ups, mark-downs or commissions and may not
necessarily represent actual transactions or be indicative of prices at
which the Company's stock was traded. In November of 1993, the Company
effected a reverse stock split on a one for five basis. All bids reflected
below have been adjusted to give effect to the reverse split.
FISCAL YEAR FISCAL QTR. ENDED LOW BID HIGH BID
1994 September 30, 1993 $ .005 $ .05
December 31, 1993 .02 .025
March 31, 1994 .05 .05
June 30, 1994 .25 .31
1995 September 30, 1994 .12 1.25
December 31, 1994 .25 .87
March 31, 1995 .25 .87
June 30, 1995 .25 .87
1996 September 30, 1995 .12 .37
Through December 13 1995 .12 .62
On August 12, 1994, the day prior to the first reported announcement of
the Merger, the low bid and high ask price for Celcor Common Stock was
$1.00 and $2.00, respectively. On March 17, 1995, the day prior to the
signing of the definitive Merger Agreement, the low bid and high ask price
was $.25 and $2.25, respectively.
The number of record holders of the Company's Common Stock, as of
December 10, 1995, was approximately 226. However, the Company believes
that there may be substantially more beneficial holders.
Dividend Policy.
The Company has not paid any dividends on its Common Stock since its
inception. The Company anticipates that for the foreseeable future,
earnings, if any, will be retained for use in the business or for other
corporate purposes, and it is not anticipated that cash dividends will be
paid on its Common Stock.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of Celcor Common
Stock owned by each person who, as of December 10, 1995, owned of record,
or was known by the Company to own beneficially, more than 5% of the
outstanding shares of Celcor Common Stock, as well as the ownership of
Celcor Common Stock by each current director of the Company, each nominee
for director and the shares beneficially owned by all current executive
officers and directors as a group. The percentages have been calculated on
the basis of the 3,364,674 shares which are presently outstanding and does
not give effect to the additional shares issuable in connection with the
Merge or those issuable upon the conversion of the Series C Preferred
Stock. Majestic International, Inc., by virtue of its stock ownership and
David Chow and Stephen E. Roman, Jr., as directors, may be deemed to be
controlling persons of the Company, as such term is defined in Section 20
of the Securities Exchange Act of 1934.
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
Majestic International, Inc.
227 Gloucester Rd.
Wan Chi, Hong Kong (1) 648,400 19.4%
Shenyang Tianfa Social
Service Company (2)
No 37 Zhong Gong Bei Street
Tiexi District
Shenyang, Peoples Republic
of China 450,000 13.5%
Verchi Holdings Limited (2)
Room 312, Entrance 3, Bldg 14,
Compound 3, Jingouhe Road
Wukesong - Haidian District
Beijing, Peoples Republic of
China 550,000 16.5%
Barbara Edwards
800 Palisades Avenue
Fort Lee, NJ 07024 219,810 6.53%
Builtland Partners
1271 Ave. of the Americas
Suite 4200
New York, NY 171,800 (3) 5.1%
David Chow
Shinwi Road
Section 2
No. 34
6th Floor
Taipei, Taiwan -- --
Stephen E. Roman, Jr.
1800 Bloomsbury Avenue
Ocean, New Jersey 16,153 --
Eugene Cha
c/o Cha & Pan
36 W. 44th Street
New York, New York 10036 -- --
Frank A. Nelson
4296 Lares Circle
Salt Lake City, Utah 84124 -- --
Jennifer Lo Wu
129-09 26th Avenue
Suite 202
Flushing, NY 11355 123,620 (4) 3.67%
Chin-Sung Chen
Pei-an Rd.
No. 21, Lane 595
3rd Floor
Taipei, Taiwan
(5)
Michael Hsu
136-21 Roosevelt Avenue
Flushing, NJ 11354 -- --
Current Executive Officers and 16,153 --
Directors as a group (3 persons)
_______________
(1) Majestic, the Company's largest stockholder, acquired all of its
Celcor Common Stock from the Company in 1992 in connection with the
adoption of a plan of reorganization and emergence of the Company
from bankruptcy. The principal of Majestic is Su Shi Lo, a resident
of Taiwan. Majestic is a private investment company that has other
investments in Taiwan and China.
(2) On September 27, 1994, Majestic sold 450,000 shares of Celcor Common
Stock to Shenyang Tianfa Social Service Company and 550,000 shares to
Verchi Holdings Limited ("Verchi"). Both sales were effected in
private transactions. The Company has been advised that neither
Shenyang Tianfa Social Service Company nor Verchi is an affiliate of
Majestic and that the sales were negotiated on an arms' length basis.
The principal stockholder of Verchi is Haifeng Li, a resident of
Beijing, China. The Company understands that Verchi was formed by
Mr. Li to acquire its interest in Celcor. The Company has been
informed that Tianfa Social Service Company is an "investment club"
organized by a group of individual investors in Shenyang, China.
Some members of this club, or members of their family, are believed
to be employees of Northeast General Pharmaceutical Factory,
Northeast's joint venture partner in Northeast's United Vitatech
subsidiary.
(3) Includes 34,800 shares held by the Milstein Foundation, an affiliate
of Builtland. Builtland Partners is a partnership comprised of the
following partners: Seymour Milstein, Howard Milstein, Paul Milstein
(a former director of the Company), Philip Milstein, Edward Milstein,
Barbara Zalaznik, Dr. Roslyn Meyer and Constance Lederman.
(4) Includes shares owned by Lyncroft Corp., a corporation of which Ms.
Wu is the sole stockholder.
(5) 210,000 shares of Celcor Common Stock are issuable upon conversion of
70,000 shares of Series C Preferred Stock held by such stockholder.
Certain Relationships and Related Party Transactions
Celcor and Northeast may be deemed to be related parties by
virtue of certain family inter-relationships among the individuals
controlling the two companies. Mr. Su Shi Lo is the controlling
stockholder of Majestic, which, in turn, is the largest stockholder of the
Company, holding 19.4% of the outstanding shares of Celcor Common Stock.
Mr. Lo's daughter, Jennifer Lo Wu is the chairperson and her husband, Dr.
Nanshan Wu, is the president of Northeast. In addition, Jennifer Lo Wu is
the sole stockholder of Lyncroft Corp., a stockholder of both Northeast and
Celcor.
In August, 1994, the Company made a loan to Northeast in the
amount of $700,000, which was used by Northeast to fund a portion of its
obligation to contribute capital under the joint venture agreement with
Northeast General Pharmaceutical. The loan is evidenced by a promissory
note dated August 9, 1994. The loan is on an interest free basis until
November, 1995 and thereafter accrues interest at an annual rate of fifteen
(15%) per annum. The Company has obtained a stock pledge from the
stockholders of Northeast whereby all of the outstanding stock of Northeast
secures the repayment of the loan. At the time the Merger is consummated,
the loan will be canceled. If the Merger is not consummated and Northeast
is unable to repay the loan at maturity, the Company will be entitled to
exercise its remedies under the Pledge Agreement.
Northeast purchases bulk ascorbic acid for resale from
Northeast General Pharmaceutical, its joint venture partner.
PROPOSAL THREE
A. RATIFICATION OF ISSUANCE OF SERIES C PREFERRED STOCK
In May and June of 1994, the Company issued and sold 275,000
shares of a new series of preferred stock, designated as Series C 8%
Convertible Preferred Stock ("Series C Preferred Stock"). The shares were
issued at $3.00 per share and resulted in gross proceeds to the Company of
$825,000. The Series C Preferred Stock was issued to individual investors
in a private placement. None of the investors was a stockholder of the
Company prior to acquiring the Series C Preferred Stock. Of the 13
purchasers, two reside in New York, one in Thailand, and the remaining 10
investors are residents of Taiwan.
The Series C Preferred Stock provides for the payment of
cumulative dividends at an annual rate of 8%. Each share is convertible at
any time after July 1, 1994 and prior to June 30, 1997 into three shares of
Celcor Common Stock, subject to adjustment in certain circumstances.
Accordingly, 825,000 shares of Celcor Common Stock would be issuable upon
full conversion of the Series C Preferred Stock. Such shares would
represent 19.7% of the outstanding Celcor Common Stock (13.9% of the
outstanding shares after giving effect to the additional shares issuable in
connection with the Merger.). At the time of issuance of the Series C
Preferred Stock, the high and low bid price for Celcor Common Stock was
$.31 and $.25, respectively. The conversion price of $1.00 a share was
intended to establish a conversion rate significantly above the market
price of the Celcor Common Stock in order to make conversion desirable only
if there is a significant increase in the future in the price of the Celcor
Common Stock. The holders of the Series C Preferred Stock generally do not
vote on any matter submitted to stockholders for a vote. For more
information concerning the rights, preferences and limitations of the
Series C Preferred Stock, see "Description of Capital Stock of the Company
- - Description of Series C 8% Convertible Preferred Stock."
Of the proceeds received by the Company from the sale of the
Series C Preferred Stock, $700,000 was used to make a loan to Northeast.
The remaining $125,000 was used to pay offering expenses, ongoing
administrative expenses and the costs associated with the Merger and this
proxy solicitation.
The Certificate of Incorporation of the Company authorizes the
issuance of 2,000,000 shares of preferred stock. Section 151(g) of the
Delaware General Corporation Law provides that a board of directors may
establish the powers, designations, preferences and relative rights of a
new class or series of capital stock if expressly authorized to do so by
the certificate of incorporation. Although the Company believes that this
authority was intended by the Company's Certificate of Incorporation, there
is, at present, no express delegation to the board in the Certificate of
Incorporation of power to specify the relative rights and preferences of
the Series C Preferred Stock. Accordingly, the board is asking
stockholders to ratify the creation of the Series C Preferred Stock.
Although no such claim has been asserted, the risk exists that
the issuance of the Series C Preferred Stock without stockholder approval
could be challenged. If such a claim was asserted and was successful, it
is possible that the Series C Preferred Stock could be held to have been
invalidly issued. It is difficult to predict what the consequences of such
a determination might be. In order to eliminate this uncertainty, the
board recommends that stockholders ratify the issuance of the Series C
Preferred Stock.
B. APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION
The Company is also seeking stockholder approval to amend its
Certificate of Incorporation to insert express language confirming the
right of the board, in the future, to create one or more additional series
or classes of capital stock, each containing such powers, designations,
preferences and relative rights as may be established by the board. The
Company has no present plans to issue any additional shares of preferred
stock of any class or series; however, as the Company's business expands
following the Merger, it will face a continuing need for capital. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." A copy of the proposed Amendment is annexed hereto as Exhibit
E.
The board believes that such authority is necessary in order to
ensure that the Company has sufficient flexibility to create new
securities, as needed, on an expeditious basis, in order to meet the
Company's needs.
This authority would remain subject to the limitation,
presently contained in the Certificate of Incorporation, limiting the
aggregate number of shares of preferred stock which may be issued to
2,000,000.
If stockholders do not vote in favor of this proposal, it will
be necessary for the board to seek stockholder approval each time the
Company proposes to issue a new series of preferred stock. The delays
attendant to seeking stockholder approval would make it difficult for the
Company to go into the market quickly when market conditions favor such
financing. As a result, after obtaining stockholder approval, the Company
may be unable to consummate a proposed financing because the opportunity to
sell the new series of preferred stock on favorable terms may no longer be
available. In addition, the Company would incur significant additional
expenses to solicit stockholder approval each time a determination was made
to sell preferred stock.
At the same time, stockholders should be aware that by
delegating such broad authority to the board, the board will be authorized
to create preferred stock in the future with voting, conversion or
redemption rights which could adversely affect the economic rights or
voting power of the holders of Celcor Common Stock. Among other things,
the preferred stock could be used to discourage the acquisition of the
Company or the Celcor Common Stock in the future.
Stockholders must vote separately on each part of this
proposal. The affirmative vote of a majority of the outstanding shares of
Celcor Common Stock is required for the approval of each part of the
proposal. Accordingly, stockholders may choose to ratify the issuance of
the Series C Preferred Stock, but vote against the proposal to amend the
Certificate of Incorporation. The effect of such a vote would be to
require stockholder approval any time the board proposed to issue a new
series of preferred stock.
For the reasons described above, the board recommends that
stockholders vote in favor of each part of this proposal.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
The authorized capital stock of the Company consists of
20,000,000 shares of Celcor Common Stock and 2,000,000 shares of preferred
stock, $.001 par value (the "Preferred Stock"). The following summary is
qualified in its entirety by reference to the Company's Restated
Certificate of Incorporation, a copy of which is available for inspection
at the Company's executive offices. The discussion below assumes that
stockholders approve the proposed amendment to the Company's certificate of
incorporation, described above under the caption "Proposal Three - A.
Ratification of Issuance of Series C Preferred Stock; B. Approval of
Amendment to Certificate of Incorporation."
Celcor Common Stock
Subject to the prior rights, if any, of holders of the
Preferred Stock, the holders of Celcor Common Stock have equal rights to
dividends when, as and if declared by the board of directors, from funds
legally available therefor. Holders of Celcor Common Stock do not have any
pre-emptive rights, nor are any shares subject to redemption. Upon
liquidation, dissolution or winding up of the Company, and after payment to
creditors and subject to the rights of the holders of Preferred Stock, the
assets will be divided pro rata on a share-for-share basis among the
holders of the shares of Celcor Common Stock. All shares of Celcor Common
Stock now outstanding, and shares to be outstanding upon consummation of
the Merger, are and will be fully paid, validly issued and nonassessable.
The holders of Celcor Common Stock exercise all of the voting
power, except as required by law or as specifically reserved to other
classes upon the occurrence of certain events as described below. Each
share of Celcor Common Stock allows the holder thereof to one vote.
Holders of the Celcor's Common Stock do not have cumulative voting rights,
which means that the holders of more than 50% of the shares voting for the
election of directors can elect all of the directors and, in that event,
the holders of the remaining shares will not be able to elect anyone to the
board of directors.
The Company has never paid any dividends to holders of Celcor
Common Stock. It is the present intention of the Company not to pay any
cash or stock dividends on Celcor Common Stock for the foreseeable future.
Preferred Stock
Shares of Preferred Stock are issuable from time to time in one
or more series and with such designations, powers, preferences, rights,
qualifications, limitations, or restrictions as may be determined by the
board of directors, consistent with the Certificate of Incorporation, and
with the laws of the State of Delaware. Unless the nature of a particular
transaction and the rules of law applicable thereto require such approval,
the board of directors has the authority to issue these shares without
stockholder approval. The board of directors, without stockholder
approval, can thus issue preferred stock with voting and conversion rights
which could adversely affect the voting power of the common stockholders.
The Preferred Stock could thus be used to discourage the acquisition of the
Company or its Common Stock. The Company has no present plans,
arrangements, commitments or understandings to issue any additional
Preferred Stock.
Series A and Series B Preferred shares have previously been
retired or converted as applicable.
Description of Series C 8% Convertible Preferred Stock
Dividends
Holders of Series C Preferred Stock have a preference in the
payment of dividends over the payment of dividends on Celcor Common Stock,
or any other class of Celcor stock junior to the Series C Preferred Stock
with respect to dividends (other than a dividend payable in the form of
Celcor Common Stock or such other junior stock). Dividends are cumulative
and payable quarterly on the last day of March, June, September and
December at a rate of $0.24 per annum per share out of funds legally
available therefor.
Preemptive Rights
Holders of Series C Preferred Stock are not entitled to
preemptive or subscriptive rights for the purchase of additional shares of
any class of Celcor capital stock.
Liquidation
If Celcor voluntarily or involuntarily liquidates, dissolves or
winds-up (any of the above referred to as a "Liquidation") the holders of
Series C Preferred Stock will have a preference of $3.00 per share, plus
all dividends accrued and unpaid thereon, whether or not declared, to the
date of payment, or such lesser amount remaining after the claims of all
creditors have been satisfied, before any payments will be made with
respect to Celcor Common Stock or any other class of Celcor stock ranking
junior to the Series C Preferred Stock as to payment upon liquidation. In
the event that, upon any such Liquidation, the available assets of Celcor
are insufficient to pay the liquidation preference on the outstanding
shares of Series C Preferred Stock, the holders of all such shares will
share ratably in any distribution of assets in proportion to the full
amounts to which they would otherwise be respectively entitled.
Redemption
Shares of Series C Preferred Stock will be redeemable, in whole
or in part, at any time after July 1, 1996, at the option of the board of
directors of Celcor, at $4.50 per share plus all dividends accrued and
unpaid on such shares to the date of redemption. If any proposed
redemption shall be of less than all of the outstanding shares of Series C
Preferred Stock, the redemption shall be effected pro rata according to the
number of shares held by each holder of such shares.
Conversion
Holders of shares of Series C Preferred Stock have the right,
at their option, at any time during the period beginning July 1, 1994 and
ending on June 30, 1997 (unless the shares have been called for redemption,
in which case such period shall end on, but not after, the close of
business on the date fixed for redemption) (the "Conversion Period"), to
convert each share of Series C Preferred Stock into three shares of fully
paid and non-assessable shares of Celcor Common Stock. Shares of Celcor
Common Stock will be delivered, and the person exercising such option will
be deemed to be the holder of shares of Celcor Common Stock, upon surrender
to Celcor, or its transfer agent appointed for such conversion, of the
certificate or certificates representing shares of Series C Preferred Stock
being converted. Upon conversion, no allowance or adjustment will be made
with respect to the dividends upon either class of Celcor stock. Shares of
Series C Preferred Stock that have been converted will not be reissued.
The number of shares of Celcor Common Stock issuable upon
conversion of a share of Series C Preferred Stock is subject to adjustment
(to the nearest one-hundred thousandth (1/100,000) of a share, or the
nearest one one-thousandth (1/1,000) of one cent, as appropriate) in
certain events, including (i) subdivision, combination, reclassification or
split-up of Celcor Common Stock; (ii) the issuance of Celcor Common Stock
as a dividend on Celcor Common Stock; (iii) the issuance or sale of Celcor
Common Stock (excluding certain shares described below) including an
issuance or sale by way of the issuance of options or rights to subscribe
for shares of Celcor Common Stock or the issuance of securities convertible
into, exchangeable for, or carrying rights of purchase of, shares of Celcor
Common Stock, for a consideration per share other than the Conversion Price
then in effect. The Conversion Price is an amount equal to the number of
shares of Celcor Common Stock into which one share of Series C Preferred
Stock will be converted, divided by three dollars ($3.00) and is initially
set at one dollar ($1.00). Notwithstanding the above, no adjustment will
be made to the number of shares of Celcor Common Stock issuable upon
conversion of Series C Preferred Stock upon the issuance of shares pursuant
to options or stock purchase agreements granted to, or entered into with,
officers and employees of Celcor, or of any subsidiary thereof, provided
that the number of shares so issued does not exceed 300,000 shares of
Celcor Common Stock, as such number of 300,000 shares shall be adjusted in
the case of subdivision, combination, reclassification, split-up or stock
dividend of the outstanding shares of Celcor Common Stock. Except as
described above, no adjustment will be made to the number of shares of
Celcor Common Stock issuable upon conversion of Series C Preferred Stock.
No adjustment in the conversion rate will be required, however,
unless such adjustment (aggregated with any other adjustments calculated,
but not previously effected by reason of this limitation) would require an
increase or decrease in the Conversion Price of at least ten cents ($0.10).
Any calculated adjustment not effected because of this limitation, however,
will be carried forward and taken into account in any subsequent
adjustment.
Voting
Holders of Celcor Series C Preferred Stock have no voting
rights, except as provided by law and except that, so long as any shares of
Celcor Series C Preferred Stock are outstanding, Celcor may not, without
the consent of the holders of at least 66 2/3% of the aggregate number of
shares of Celcor Series C Preferred Stock then outstanding:
(i) alter or change the preferences, special rights or powers
of the Celcor Preferred Stock so as to adversely affect the Celcor
Series C Preferred Stock; or
(ii) consolidate or merge with or into another corporation
(whether or not Celcor is the surviving Corporation), or sell all or
substantially all of its assets to another corporation, unless in
connection therewith, lawful and adequate provision is made whereby
the holders of Celcor Series C Preferred Stock shall receive the
right to convert during the Conversion Period (as defined above) into
the kind and amount of shares of stock and other securities to be
received by holders of the number of shares of Celcor Common Stock
into which the Celcor Series C Preferred Stock might have been
converted immediately prior to such consolidation, merger or sale,
which right is subject to adjustment as described above.
Experts
The audited financial statements of Celcor and Northeast
included in this proxy statement have been audited by BDO Seidman, LLP,
independent certified public accountants, to the extent and for the periods
indicated in their reports (which contain an explanatory paragraph
regarding uncertainties as to their ability to continue as going concerns),
appearing elsewhere herein, and are included herein in reliance upon such
reports given upon the authority of said firm as experts in accounting and
auditing.
Presence of Accountants
at Special Meeting
Representatives of BDO Seidman, the Company's independent
accountants for the Company's current and most recently completed fiscal
years, are not expected to be present at the Special Meeting, but will be
available by telephone to respond to appropriate questions of stockholders.
Other Matters
At the time that this Proxy Statement was mailed to
stockholders, management was not aware of any matter, other than the
matters described herein, that would be presented for action at the Special
Meeting. If other matters properly come before the Special Meeting, it is
intended that shares represented by proxies will be voted with respect to
those matters in accordance with the best judgment of the persons voting
them.
If a stockholder intends to present a proposal at the next
Annual Meeting of Stockholders, the proposal must be received by the
Company in writing no later than June 30, 1996, in order for such proposal
to be eligible for inclusion in the Company's Proxy Statement and form of
proxy for next year's meeting.
By Order of the Board of Directors
Stephen E. Roman, Jr., Secretary
Dated: December 22, 1995
EXHIBIT A
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to such
shares, who continuously holds such shares through the effective
date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in
writing pursuant to 228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of his
shares of stock under the circumstances described in subsections
(b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock
corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what
is ordinarily meant by those words and also membership interest
of a member of a nonstock corporation; and the words "depository
receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or
fractions thereof, solely of stock of a corporation, which stock
is deposited with the depository.
(b) Appraisal 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 251, 252,
254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series
of stock, which stock, or depository receipts in respect thereof,
at the record date fixed to determine the stockholders entitled
to receive notice of and to vote at the meeting of stockholders
to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or
(ii) held of record by more than 2,000 holders; and further
provided that no appraisal rights shall be available for any
shares of stock of the constituent corporation surviving a merger
if the merger did not require for its approval the vote of the
holders of the surviving corporation as provided in subsection
(f) of 251 of this title.
(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 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of
stock or depository receipts at the effective date of the
merger or consolidation will be either listed on a national
securities exchange or designated as a national market
system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs
a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs
a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under 253 of this title
is not owned by the parent corporation immediately prior to the
merger, appraisal rights shall be available for the shares of the
subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be
available for the shares of any class or series of its stock as a
result of an amendment to its certificate of incorporation, any
merger or consolidation in which the corporation is a constituent
corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains
such a provision, the procedures of this section, including those
set forth in subsections (d) and (e) of this section, shall apply
as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date
for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (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 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
228 or 253 of this title, the surviving or resulting
corporation, either before the effective date of the merger or
consolidation or within 10 days thereafter, shall notify each of
the stockholders entitled to appraisal rights of the effective
date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent
corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered
mail, return receipt requested, addressed to the stockholder at
his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days
after the date of mailing of the notice, demand in writing from
the surviving or resulting corporation the appraisal of his
shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his
shares.
(e) Within 120 days after the effective date of the merger
or consolidation, the surviving or resulting corporation or any
stockholder who has complied with subsections (a) and (d) hereof
and who is otherwise entitled to appraisal rights, may file a
petition in the Court of Chancery demanding a determination of
the value of the stock of all such stockholders. Notwithstanding
the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have
the right to withdraw his demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days
after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections
(a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate
number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation
or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or
resulting corporation, which shall, within 20 days after such
service, file in the office of the Register of Chancery in which
the petition was filed a duly verified list containing the names
and addresses of all stockholders who have demanded payment for
their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting
corporation. If the petition shall be filed by the surviving or
resulting corporation, the petition shall be accompanied by such
a duly verified list. The Register in Chancery, if so ordered by
the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown
on the list at the addresses therein stated. Such notice shall
also be given by 1 or more publications at least 1 week before
the day of the hearing, in a newspaper of general circulation
published in the City of Wilmington, Delaware or such publication
as the Court deems advisable. The forms of the notices by mail
and by publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall
determine the stockholders who have complied with this section
and who have become entitled to appraisal rights. The Court may
require the stockholders who have demanded an appraisal for their
shares and who hold stock represented by certificates to submit
their certificates of stock to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the
Court may dismiss the proceedings as to such stockholder;
(h) After determining the stockholders entitled to an
appraisal, the Court shall appraise the shares, determining their
fair value exclusive of any element of value arising from the
accomplishment or expectation of the merger or consolidation,
together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant
factors. In determining the fair rate of interest, the Court may
consider all relevant factors, including the rate of interest
which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon
application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding,
the Court may, in its discretion, permit discovery or other
pretrial proceedings and may proceed to 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 Register in Chancery, if such is
required, may participate fully in all proceedings until it is
finally determined that he is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto.
Interest may be simple or compound, as the Court may direct.
Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and in the case of
holders of shares represented by certificates, upon the surrender
to the corporation of the certificates representing such stock.
The Court's decree may be enforced as other decrees in the Court
of Chancery may be enforced, whether such surviving or resulting
corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the
Court and taxed upon the parties as the Court deems equitable in
the circumstances. Upon application of a stockholder, the Court
may order all or a portion of the expenses incurred by 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.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal
rights as provided in subsection (d) of this section shall be
entitled to vote such stock for any purpose or to receive payment
of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition
for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written
withdrawal of his demand for an appraisal and an acceptance of
the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder
to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such
approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been
converted had they assented to the merger or consolidation shall
have the status of authorized and unissued shares of the
surviving or resulting corporation.
EXHIBIT B
AGREEMENT AND PLAN
OF MERGER
AMONG
CELCOR, INC.,
NORTHEAST (USA) CORP.
and
THE STOCKHOLDERS
of
NORTHEAST (USA) CORP.
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS 1-1
ARTICLE II THE PLAN OF MERGER 2-1
2.01 The Merger and the Surviving Corporation 2-1
2.02 Effectiveness of the Merger 2-2
2.03 Exchange of Securities 2-2
2.04 Adjustment Upon Recapitalization 2-3
2.05 Securities Law Matters 2-3
ARTICLE III REPRESENTATIONS AND WARRANTIES 3-1
3.1. Representation and Warranties of Northeast
and Stockholders 3-1
3.1.1 Organization of Northeast 3-1
3.1.2 Capitalization 3-1
3.1.3 Subsidiaries 3-1
3.1.4 Foreign Qualifications 3-2
3.1.5 Other Business Names 3-2
3.1.6 Owned Real Estate Interests 3-2
3.1.7 Leased Real Estate 3-2
3.1.8 Tangible Personal Property 3-2
3.1.9 Intangible Personal Property; Computer Programs 3-2
3.1.10 Stockholders; Title to Northeast Stock 3-3
3.1.11 Title to Assets 3-3
3.1.12 Material Contracts 3-4
3.1.13 Labor Matters 3-4
3.1.14 Benefit Plans; ERISA 3-5
3.1.15 Licenses and Permits 3-5
3.1.16 Authority Relative to Agreement; Enforceability 3-5
3.1.17 Compliance with Other Instruments; Consents 3-6
3.1.18 Compliance with Applicable Laws 3-6
3.1.19 Environmental Compliance 3-6
3.1.20 Financial Statements 3-7
3.1.21 Taxes 3-7
3.1.22 Litigation 3-8
3.1.23 Brokerage 3-8
3.1.24 Full Disclosure 3-8
3.2 Representations and Warranties of Celcor 3-8
3.2.1 Organization 3-8
3.2.2 Capitalization 3-8
3.2.3 Authorization 3-9
3.2.4 Title to Assets 3-9
3.2.5 No Third Party Consent Required; No Violation of
Other Instruments 3-9
3.2.6 Litigation 3-9
3.2.7 Brokerage 3-10
3.2.8 Financial Statements 3-10
3.2.9 Full Disclosure 3-10
ARTICLE IV ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES4-1
4.01 Corporate Approval 4-1
4.02 Stockholders' Agreement to Vote 4-1
4.03 Conduct of Business 4-1
4.04 Negative Covenants 4-1
4.05 Filing with Securities and Exchange Commission 4-1
4.06 Access 4-1
4.07 Best Efforts 4-2
4.08 Brokers or Finders 4-2
4.09 Environmental Matters 4-2
4.10 Exclusive Dealing 4-3
ARTICLE V THE CLOSING 5-1
5.01 The Closing 5-1
5.02 Termination 5-1
5.03 Liability on Termination 5-1
5.04 Termination Fees 5-2
ARTICLE VI CONDITIONS TO OBLIGATION OF EACH PARTY 6-1
6.01 No Prohibition of Transaction 6-1
6.02 Compliance with Law 6-1
6.03 Proceedings, Documentation and Consents 6-1
6.04 Tax Free Reorganization 6-1
ARTICLE VII CONDITIONS TO THE OBLIGATION OF CELCOR TO CLOSE 7-1
7.01 Representations and Warranties True at
the Closing Date 7-1
7.02 No Material Adverse Change: Officers' Certificates 7-1
7.03 Corporation's Performance 7-1
7.04 Necessary Corporate Approvals 7-1
7.05 Resolutions Authorizing the Execution of
this Agreement 7-1
7.06 Opinion of Counsel 7-1
7.07 Investment Letters 7-1
7.08 Satisfactory Searches 7-2
7.09 Environmental Review 7-2
7.10 Consents to Transaction 7-2
7.11 Dissenters' Rights 7-2
7.12 Title Insurance 7-2
7.13 Financial Statements 7-2
7.14 Fairness Opinion 7-2
7.15 Results of Investigation 7-2
ARTICLE VIII CONDITIONS TO NORTHEAST'S OBLIGATION TO CLOSE 8-1
8.01 Representations and Warranties True at the Closing 8-1
8.02 Celcor's Performance 8-1
8.03 No Material Adverse Change 8-1
8.04 Authority 8-1
8.05 Opinion of Celcor's Counsel 8-1
8.06 Results of Investigation 8-1
ARTICLE IX SURVIVAL OF REPRESENTATIONS AND INDEMNIFICATION 9-1
9.01 Representations to Survive Closing 9-1
9.02 Indemnification by the Stockholders 9-1
9.03 Indemnification by Celcor 9-1
9.04 Enforcement of Indemnification Rights 9-2
9.05 Remedies Cumulative 9-3
ARTICLE X MISCELLANEOUS 10-1
10.01 Notices 10-1
10.02 Assignability and Parties in Interest 10-1
10.03 Expenses 10-2
10.04 Governing Law 10-2
10.05 Counterparts 10-2
10.06 Headings 10-2
10.07 Pronouns 10-2
10.08 Complete Agreement 10-2
10.09 Modifications, Amendments and Waivers 10-2
10.10 Severability 10-2
APPENDICES
SECTION
DESCRIPTION REFERENCE
Appendix A Private Placement Questionnaire 2.05(a), 7.07
Appendix B Opinion of Northeast's Counsel 7.06
Appendix C Opinion of Celcor's Counsel 8.05
EXHIBITS
EXHIBIT
DESCRIPTION REFERENCE
Shareholders of Subsidiaries which are not wholly owned 3.1.3
Description of real estate interests 3.1.6
Leased real estate 3.1.7
Equipment List 3.1.8
Joint Venture and similar agreements 3.1.9
Shareholder List 3.1.10
Material Contracts 3.1.12
U.S. Employees 3.1.13
Underground Tanks 3.1.19
Tax elections 3.1.21
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") has
been made and entered into as of this ____ day of ___________,
1995, among Celcor, Inc., a Delaware corporation ("Celcor"),
Northeast (USA) Corp., a New York corporation ("Northeast"), and
the shareholders of Northeast listed on the signature page of
this Agreement ("Stockholders").
R E C I T A L S:
1. The respective Boards of Directors of Celcor and
Northeast have determined that it is in the best interests of
each corporation and its respective stockholders that Northeast
be merged with and into Celcor (the "Merger") in accordance with
the laws of the States of Delaware and New York in the manner and
on the terms and conditions set forth herein.
2. Stockholders own 100% of the issued and
outstanding voting stock of Northeast and have agreed to vote
their shares in favor of the Merger contemplated hereby.
3. Pursuant to the Merger, the outstanding capital
stock of Northeast will be converted into the right to receive
shares of Celcor common stock ("Celcor Stock") on the basis of
10,000 shares of Celcor Stock for each outstanding share of
Northeast common stock.
4. The respective Boards of Directors of Celcor and
Northeast desire to effectuate the Merger as a tax free
reorganization for United States federal income tax purposes.
NOW, THEREFORE, in consideration of the mutual
agreements and covenants contained herein, the parties hereby
adopt this Agreement as and for a Plan of Reorganization (the
"Plan") under Section 368(a)(1)(A) of the Internal Revenue Code
of 1986, as amended and agree that Northeast shall be merged with
and into Celcor and that the terms and conditions of such Merger
and the mode of carrying the same into effect shall be as
follows:
ARTICLE I
DEFINITIONS
The terms defined in this Article (except as otherwise
expressly provided in this Agreement) for all purposes of this
Agreement shall have the respective meanings specified in this
Article.
1.01 "Affiliate" shall mean any entity controlling or
controlled by another person, under common control with another
person, or controlled by any entity which controls such person.
1.02 "Agreement" shall mean this Agreement, and all the
exhibits and other documents attached to or referred to in the
Agreement, and all amendments and supplements, if any, to the
Agreement.
1.03 "Closing" shall mean the meeting of the parties at
which the Closing Documents shall be exchanged by the parties,
except for those documents, or other items specifically required
to be exchanged at a later time.
1.04 "Closing Date" shall mean May 25, 1995, or such
other date as agreed to by the parties on which the Closing
occurs.
1.05 "Closing Documents" shall mean the papers,
instruments and documents required to be executed and delivered
at the Closing pursuant to this Agreement.
1.06 "Code" shall mean the Internal Revenue of 1986, or
any successor law, and regulations issued by the Internal Revenue
Service pursuant to the Internal Revenue Code or any successor
law.
1.07 "Encumbrance" shall mean any charge, claim,
community property interest, condition, equitable interest, lien,
option, pledge, security interest, right of first refusal, or
restriction of any kind, including any restriction on use, voting
(in the case of any security), transfer, receipt of income, or
exercise of any other attribute of ownership.
1.08 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
1.09 "GAAP" shall mean generally accepted accounting
principles applied in a manner consistent with prior periods.
1.10 "Knowledge" Any limitation or qualification of a
representation or warranty made in this Agreement which is based
on "knowledge" shall include facts known, or which should be
known, to the following person, in the case of a representation
or warranty by Celcor: Stephen E. Roman, Jr. and the following
person in the case of a representation or warranty made by
Northeast: Nanshan Wu.
1.11 "Ordinary Course of Business" shall mean actions
consistent with the past practices of the designated party which
are similar in nature and style to actions customarily taken by
the designated party and which do not require, and in the past
have not received, specific authorization by the board of
directors of the designated party.
1.12 "Regulated Substances" includes any pollutant,
chemical substance, hazardous wastes, hazardous substances or
contaminant regulated under, or defined in or pursuant to the
Solid Waste Disposal Act, as amended (42 U.S.C. 6901 et seq.)
("SWDA"), the Comprehensive Environmental Response Compensation
and Liability Act (42 U.S.C. 9601 et seq.) ("CERCLA"), the Toxic
Substance Control Act, as amended (15 U.S.C. 2601, et seq.), the
Clean Air Act, as amended (42 U.S.C. 7401 et seq.), the Clean
Water Act, as amended (33 U.S.C. 1251, et seq.), and any other
federal, state or local law or regulation designed to provide
safe and healthful working conditions and to reduce occupational
safety and health hazards.
1.13 "SEC" shall mean the Securities and Exchange
Commission.
1.14 "Taxes" shall include federal, state and local
income taxes, capital gains tax, value-added taxes, franchise,
personal property and real property taxes, levies, assessments,
tariffs, duties (including any customs duty), business license or
other fees, sales, use and any other taxes relating to the assets
of Celcor or Northeast, as applicable, or the business of Celcor
or Northeast, as applicable, for all periods up to and including
the Closing Date, together with any related charge or amount,
including interest, fines, penalties and additions to tax, if
any, arising out of tax assessments.
1.15 "Transaction" shall mean the transaction
contemplated by this Agreement.
1.16 Terms Defined in Other Sections. The following
terms are defined elsewhere in this Agreement in the following
Sections:
Act 2.05(a)
Celcor Heading
Celcor Stock 2.03(a)
Effective Date 2.01(a)
Loss or Losses 10.02
Merger Recital 1
Northeast Heading
Northeast Stock 2.03(b)
Outside Date 5.01
Plan Recitals
Stockholders Heading
Surviving Corporation 2.01(a)
ARTICLE II
THE PLAN OF MERGER
2.01 The Merger and the Surviving Corporation.
(a) Merger. Upon the date on which the Merger is
to be effective, as determined pursuant to Section 2.02
("Effective Date"), Northeast shall be merged with and into
Celcor. Celcor shall be the surviving corporation (the
"Surviving Corporation"). The separate existence of Northeast
shall cease and the existence of Celcor shall continue unaffected
and unimpaired by the Merger, with all of the rights, privileges,
immunities and powers, and subject to all of the duties and
liabilities of a corporation organized under the general
corporation law of the State of Delaware. All rights,
privileges, powers, immunities and franchises of Northeast shall,
on the Effective Date, be automatically vested in Celcor. All
real and personal property of Northeast, tangible and intangible,
of every kind and description, shall become vested in Celcor and
all liabilities, claims and obligations of Northeast may be
enforced against Celcor, all without further action or deed by
either party. In all other respects, the effect of the Merger
shall be as set forth in Delaware General Corporation Law 252
("Delaware General Corporation Law" or "DGCL").
(b) Certificate of Incorporation. The
Certificate of Incorporation of Celcor shall be and remain the
Certificate of Incorporation of the Surviving Corporation
following the Effective Date, until the same shall be altered or
amended, except that such Certificate of Incorporation shall be
amended (i) to change the name of the Surviving Corporation to
"Northeast, Inc." and (ii) to increase, if determined to be
necessary, the authorized capital stock to that number of shares
which is sufficient to enable Celcor to issue the number of
shares of its common stock contemplated by the Merger.
(c) By-Laws. The by-laws of Celcor shall be the
by-laws of the Surviving Corporation following the Effective
Date, until the same shall be altered or amended.
(d) Directors. From and after the Effective
Date, the Board of Directors of the Surviving Corporation shall
consist of Eugene Cha, Frank Nelson, Jennifer Lo Wu, Joe Chen,
David Chow, Shi Hong-Yuan and Michael Hsu, until their respective
successors shall be duly elected and qualified.
(e) Officers. From and after the Effective Date,
the officers of the Surviving Corporation shall consist of the
persons listed below, holding the respective office listed
opposite such person's name, until their respective successors
shall be duly elected or appointed and qualified:
Name Title
Nanshan Wu President
Stephen E. Roman, Jr. Vice President, Treasurer and
Chief Financial Officer
Michael Hsu Secretary
2.02 Effectiveness of Merger.
(a) Certificate of Merger. Following the
approval of the Merger by the respective stockholders of Celcor
and Northeast and upon the fulfillment or waiver of the
conditions specified in Articles VI, VII and VIII hereof, and
provided that this Agreement has not been terminated and
abandoned pursuant to Article V hereof, Celcor shall cause a
Certificate of Merger to be executed, acknowledged and filed with
the Secretary of State of Delaware as provided in Section 252(c)
of the DGCL and with the New York Department of State, as
provided in Sections 904 and 907 of the Business Corporation Law
of the State of New York ("B.C.L.").
(b) Effective Date. The Merger shall become
effective immediately upon the filing of the Certificate of
Merger referred to in Section 2.02(a) hereof with the Secretary
of State of the State of Delaware and with the Secretary of State
of the State of New York.
2.03 Exchange of Securities. The manner of converting
the securities of Northeast into securities of the Surviving
Corporation at the Effective Date shall be as follows:
(a) Celcor's Shares. Each share of common stock
of Celcor ("Celcor Stock") which shall be outstanding at the
Effective Date shall remain outstanding, as the outstanding
common stock of the surviving corporation.
(b) Northeast Common Stock. Each share of Common
Stock, no par value, of Northeast ("Northeast Stock") outstanding
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 the right to receive 10,000 shares of Celcor
Stock.
(c) Treasury Stock. Any shares of Northeast
Stock held by Celcor, any subsidiary of Celcor, or in Northeast's
treasury on the Effective Date shall be canceled and given no
effect in the Merger.
(d) Records. For the purposes of this Agreement,
the stock transfer books of Northeast shall be closed as of the
Effective Date, and no transfer of record of any shares of
Northeast Stock shall take place after the Effective Date.
(e) Surrender of Northeast Stock Certificates.
On or immediately after the Closing Date, each holder of an
outstanding certificate or certificates which prior thereto
represented shares of Northeast Stock shall surrender the same to
Celcor. Each Stockholder who shall have surrendered his
certificate for shares of Northeast Stock shall be entitled to
receive in exchange therefor a certificate or certificates
representing the number of whole shares of Celcor Stock into
which Northeast Stock shall have been converted and exchanged.
When the Merger becomes effective, the former stockholders of
Northeast shall thereupon cease to have any rights in respect of
Northeast Stock, other than to receive the certificates for
Celcor Stock described in Section 2.03(b) hereof. Unless and
until any certificates shall be so surrendered and exchanged, (i)
the holder shall not have any voting rights in respect of Celcor
Stock into which the shares of Northeast Stock shall have been so
converted and exchanged, and (ii) dividends or other
distributions payable to holders of record of shares of Celcor
Stock following the Effective Date shall not be paid to the
holder of the certificate. Upon surrender of the certificate
representing shares of Northeast Stock, there shall be paid to
the record holder of the certificate the amount of the dividends
or other distributions which shall have become payable following
the Effective Date with respect to the number of whole shares of
Celcor Stock represented by the certificate issued in exchange
for the surrendered certificate, but without interest.
2.04 Adjustment Upon Recapitalization. Subject to the
limitations of Section 4.03 hereof, the number of shares of
Celcor Stock to be issued at the Closing shall be appropriately
adjusted in the event that, prior to the Effective Date, the
Celcor Stock should be split, combined, or otherwise
recapitalized, or if any stock dividend should be paid on the
Celcor Stock, or the record date for the payment of any such
stock dividend should occur.
2.05 Securities Law Matters.
(a) Private Offering. Northeast and Stockholders
understand that the Celcor Stock to be issued and delivered to
Stockholders pursuant to the Merger will not be registered under
the Securities Act of 1933, as amended (the "Act"), but will be
issued in reliance upon the exemption afforded by Section 4(2) of
the Act and Regulation D promulgated by the SEC thereunder, and
that Celcor is relying upon the truth and accuracy of the
representations set forth in the answers to the questionnaire in
the form of Appendix A hereto delivered concurrently with the
execution of this Agreement. Each certificate of Celcor Stock
issued pursuant to this Agreement shall bear the following
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED PURSUANT TO THE
SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE TRANSFERRED UNLESS THEY ARE SO REGISTERED
OR, IN THE OPINION OF COUNSEL ACCEPTABLE TO
THIS CORPORATION, SUCH TRANSFER IS EXEMPT FROM
REGISTRATION.
Celcor shall give instructions to its transfer agent consistent
with the foregoing legend.
(b) Limited Transfer Rights. The Stockholders
may not transfer, sell or assign the Celcor Stock until such
shares are registered pursuant to the Act; provided that, in the
absence of such registration, a Stockholder may transfer shares
of Celcor Stock to one or more members of a group consisting of
(i) the spouse or children of any Stockholder, and (ii) one or
more trusts for their benefit; provided however, that the
transferee in each case will furnish Celcor with an investment
letter in form and substance satisfactory to counsel for Celcor
who shall be satisfied with the competence of such persons to
give an investment letter.
(c) Blue Sky Filings. Celcor shall promptly
institute and diligently prosecute such proceedings before, and
make such filings with, such state regulatory agencies as may be
necessary or appropriate in connection with or preliminary to the
issuance of Celcor Stock required to be issued to the
Stockholders pursuant to the Merger and any solicitation of the
Stockholders for their approval of the Plan and the matters
related hereto.
(d) Removal of Legend. If any Stockholder
desires to sell his Celcor Stock at any time after the Closing,
he shall notify Celcor of that desire and the number of shares he
desires to sell, together with such other information concerning
the transferee or purchaser and the manner of sale as counsel to
Celcor shall request. If counsel for Celcor is of the opinion
that such Celcor Stock may be sold without registration under the
Act, and shall render that opinion in writing to the Stockholder
and the Transfer Agent for Celcor Stock, the Transfer Agent shall
deliver to that Stockholder, certificates which are free of any
restrictive legend representing shares of Celcor Stock equal in
number to the number of shares submitted for transfer by that
Stockholder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Northeast and
Stockholders. Northeast and the Stockholders jointly and
severally represent and warrant to Celcor as follows:
3.1.1 Organization of Northeast. Northeast is a
corporation, duly organized, validly existing, and in good
standing under the laws of the State of New York, and has all
requisite corporate power, franchises, and licenses to own its
property and conduct the business in which it is engaged.
Complete copies of Northeast's certificate of incorporation, by-
laws, as amended, minutes, stock transfer records and agreements,
if any, among some or all of the Stockholders have been delivered
to Celcor.
3.1.2 Capitalization.
3.1.2.1 Northeast has an authorized capital stock
consisting of 200 shares of common stock, no par value per
share, of which 175 shares are issued and outstanding. All
of such shares of Northeast Stock have been validly issued,
fully paid, are non-assessable, and were issued in
compliance with applicable federal and state securities
laws.
3.1.2.2 Northeast does not have outstanding any
subscriptions, options, rights, warrants, convertible
securities or other agreements or commitments to issue, or
contracts or any other agreements obligating Northeast to
issue, or to transfer from treasury, any shares of its
capital stock of any class or kind, or securities
convertible into such stock. No persons who are now holders
of Northeast Stock, and no persons who previously were
holders of Northeast Stock, are or ever were entitled to pre-
emptive rights, other than persons who exercised or waived
those rights.
3.1.3 Subsidiaries. Northeast does not directly or
indirectly have any subsidiaries, nor hold any equity interest in
any corporation, partnership or joint venture, other than
Shenyang United Vitatech Ltd. and Northeast (Shenyang) Consulting
Co. Ltd. (together, the "Subsidiaries"). The Subsidiaries are
each corporations, duly organized, validly existing and in good
standing under the laws of The Peoples Republic of China, and
each has all requisite corporate power, licenses and franchises
to own its properties and assets and conduct the business in
which it is engaged. Complete copies of the certificate of
incorporation, by-laws, as amended, minutes, stock transfer
records and agreements, if any, among some or all of the
stockholders of the Subsidiaries (if not wholly owned by
Northeast) have been delivered to Celcor. Exhibit 3.1.3 lists
the shareholders of any Subsidiary which is not wholly owned.
3.1.4 Foreign Qualifications. Northeast and each
Subsidiary is duly qualified to conduct business as a foreign
corporation in each state or other jurisdiction in which it is
required to be so qualified.
3.1.5 Other Business Names. Neither Northeast nor
any Subsidiary transacts business under any trade name or
fictitious name.
3.1.6 Owned Real Estate; Real Estate Interests.
3.1.6.1 Northeast and each Subsidiary has
good and marketable title to the land which it owns, all of
which is listed on Exhibit 3.1.6 annexed hereto. The real
estate owned by Northeast is unimproved vacant land which
has been acquired to build a residential and office facility
located in Queens, New York. The land is not subject to any
mortgage, lien or similar encumbrance.
3.1.6.2 The interest held by Shenyang United
Viatech, Ltd. in certain real estate located in Shenyang,
China to develop a factory to produce vitamin and cosmetic
products is also described in Exhibit 3.1.6 annexed hereto.
3.1.7 Leased Real Estate. Neither Northeast nor
any Subsidiary leases any real estate from any person, nor has
Northeast or any Subsidiary leased any real estate to any person,
except as described in Exhibit 3.1.7.
3.1.8 Tangible Personal Property.
3.1.8.1 Exhibit 3.1.8 annexed hereto identifies
all items initially valued at more than $10,000.00 of
machinery, motor vehicles, computer equipment, furniture,
fixtures, leasehold improvements, and all other tangible
personal property owned and used by Northeast and its
Subsidiaries in connection with their business on the date
hereof.
3.1.8.2 Northeast and its Subsidiaries do not
lease any equipment which involve monthly payments of more
than $1,000.00 on account of any such lease. Copies of all
equipment leases which are in effect have been or will
promptly be furnished to Celcor. Northeast is not in
default under any of such equipment leases and is not aware
of any fact which, with notice and/or passage of time, would
constitute such a default. All personal property owned by
Northeast or its Subsidiaries, or leased and used by
Northeast or any Subsidiary in its business is in good
condition, normal wear and tear excepted, and is in good
operating order.
3.1.9 Intangible Personal Property; Computer
Programs.
3.1.9.1 Northeast and its Subsidiaries do not own
any patents, patent applications, inventions, trademarks,
trademark applications, copyrights, trade names or
proprietary technology, except for certain formulas for the
production of vitamins and cosmetic products described on
Exhibit 3.1.9. Except as listed on Exhibit 3.1.9 annexed
hereto, neither Northeast nor any Subsidiary is a party to
any distributorship, franchise, joint venture or license
agreements (whether as grantor or grantee). Copies of all
written instruments which evidence such intangible personal
property have been or will promptly be delivered to Celcor.
3.1.9.2 There are no infringement or other claims
or demands against Northeast or its Subsidiaries with
respect to any items of intangible personal property, and no
proceedings have been instituted, are pending, or to the
knowledge of Northeast, have been threatened to terminate or
cancel any agreement affording to Northeast the right to use
any intangible asset, or which challenge the rights of
Northeast or its Subsidiaries with respect to any of its
intangible assets; and there are no facts known to Northeast
which make it likely that any such license or similar
agreement will not be renewed at its next expiration date or
which might reasonably serve as the basis, in whole or in
part, of any claim that any part of the business carried on
by Northeast or any Subsidiary infringes the patent,
trademark, trade name, copyright, or other rights of any
other person. Northeast (or one of its Subsidiaries) is the
sole and exclusive owner of each of said items of intangible
personal property.
3.1.9.3 Northeast does not use, is not licensed
to use and has no need to use any patent, patent
application, trademark, trademark application, trade name,
formula or copyright which is owned by an unrelated third
party.
3.1.10 Stockholders; Title to Northeast Stock.
Exhibit 3.1.10 annexed hereto contains a complete list of the
names and addresses of all the Stockholders of Northeast and the
number of shares of Northeast Stock owned by each of them. Each
of the persons listed on such Exhibit is the record and
beneficial owner of the shares of Northeast Stock listed on that
Exhibit, owns those shares of Northeast Stock free and clear of
any security interests, liens, encumbrances or claims, (other
than a pledge of the shares in favor of Celcor), and has the
unrestricted right to vote the Northeast Stock owned by such
person in favor of the Transaction and transfer such shares to
Celcor without the consent of any person.
3.1.11 Title to Assets. Northeast and its
Subsidiaries have good and marketable title in and to all of
their property reflected in the most recent consolidated
financial statement plus all assets purchased by Northeast and
its Subsidiaries since the date of that financial statement, less
all assets which Northeast and its Subsidiaries have disposed of
in the ordinary course, which property is free and clear of any
security interests, consignments, liens, judgments, encumbrances,
restrictions, or claims of any kind. The only liens or security
interests which exist and, at the Closing will exist, on
Northeast's assets are those which either (a) secure liabilities
disclosed on the financial statements annexed hereto, or (b) are
liens for current taxes or assessments not yet due.
3.1.12 Material Contracts. Exhibit 3.1.12 annexed
hereto identifies the following contracts, leases and other
obligations to which Northeast or any of its Subsidiaries is a
party or by which any of them is bound and which are not
identified elsewhere in any other Exhibit to this Agreement: (a)
contracts with or loans to any of Northeast's stockholders,
officers, directors, employees, agents, consultants, advisors,
salesmen, distributors or sales representatives; (b) secured
loans and unsecured loans and lines of credit; (c) contracts
restricting Northeast or any of its Subsidiaries from doing
business in any areas or in any way limiting competition; (d)
contracts calling for aggregate payments by Northeast or by any
of its Subsidiaries in excess of $50,000 and which are not
terminable without cost or liability on notice of 60 days or
less; and (e) guarantees by Northeast or by any of its
Subsidiaries of the obligations of any other party, except those
resulting from the endorsement of customer checks deposited by
the payee for collection. Except as disclosed on Exhibit 3.1.12,
Northeast and each of its Subsidiaries have, in all material
respects, performed or complied with all material obligations
required on their part to be performed or complied with through
the date hereof under any of such contracts, obligations or
commitments to which each is a party or otherwise bound and no
default has occurred thereunder, whether waived or not waived,
which could have an adverse effect upon the business or financial
condition of or impose a liability upon Northeast or any of its
Subsidiaries. All parties to such contracts, obligations or
commitments with Northeast or any of its Subsidiaries are in
substantial compliance therewith and no event has occurred which,
through the giving of notice or the passage of time or both,
would cause or constitute a material default under any such
contracts, obligations or commitments, or would cause the
acceleration of any obligation of any party thereto. Copies of
the contracts listed or referred to in Exhibit 3.1.12 have been
or will promptly be delivered or made available to Celcor.
3.1.13 Labor Matters.
3.1.13.1 There are presently no employment or
consulting contracts with or covenants against competition
by, any present or former employees of Northeast or any of
its Subsidiaries.
3.1.13.2 Annexed hereto as Exhibit 3.1.13 is a
current list showing the names of all United States
employees of Northeast and its Subsidiaries, their original
dates of employment, job titles and annual rate of pay for
salaried employees and hourly rates for hourly employees.
3.1.13.3 All employees of Northeast and its
Subsidiaries are employees at will who may be terminated by
Northeast at any time with no obligation to make any payment
except wages to the date of termination.
3.1.13.4 Neither Northeast nor any of its
Subsidiaries is indebted to, nor a creditor of, any
Stockholder or of any relative of any of such Stockholder,
except for accrued wages and salaries.
3.1.13.5 Northeast and its Subsidiaries are in
compliance with all federal and state laws respecting
employment, wages and hours, and in compliance with any
relevant Chinese laws. Northeast and its subsidiaries are
not engaged in any discriminatory hiring or employment
practices or any unfair labor practices nor have any
employment discrimination or unfair labor practice
complaints against Northeast or any of its Subsidiaries been
filed, or to the knowledge of Northeast or any Subsidiary
threatened to be filed, with any Chinese, or any U.S.
federal or state agency having jurisdiction over Northeast's
labor matters. Neither Northeast nor any of its
Subsidiaries has been threatened by any former employee with
any suit alleging wrongful termination, nor does Northeast
have knowledge of facts which might form a basis for such a
suit.
3.1.13.6 Northeast and its Subsidiaries have not,
directly or through agents and independent contractors,
employed any unauthorized aliens, as defined in 8 U.S.C.
Section 1324a(h)(3). Northeast and its Subsidiaries have
complied, or caused any such agent or independent
contractor, to comply with the employment verification and
record-keeping requirements of 8 U.S.C. Section 1324a and 8
C.F.R. Section 274a, as amended.
3.1.14 Benefit Plans; ERISA. Neither Northeast, nor
any of its Affiliates maintains a group health plan (within the
meaning of Section 5000(b)(1) of the Code). Northeast does not
now and has never maintained, sponsored or contributed to any
plan or program or arrangement providing post-termination of
employment retirement, health, dental, disability or life
insurance benefits with respect to employees or former employees
and their spouses and dependents.
3.1.15 Licenses and Permits. Northeast and its
Subsidiaries and their respective employees or agents have all
material licenses, permits, orders, approvals and authorizations
required by Northeast or any such Subsidiary for the conduct of
businesses as presently and anticipated to be conducted
(including both U.S. and Chinese licenses, permits,
authorizations or approvals). Northeast and its Subsidiaries are
acting within the terms of such licenses, permits, orders, and
approvals. Neither Northeast nor any of its Subsidiaries has
received any notice of investigation, evaluation or suspension of
any such licenses, permits, orders, approvals or authorizations.
To the best knowledge of Northeast and its Subsidiaries, no
suspension or cancellation of any such licenses, permits, orders,
approvals and authorizations has been threatened or is
contemplated.
3.1.16 Authority Relative to Agreement;
Enforceability. The execution, delivery and performance of this
Agreement is within the legal capacity and power of Northeast and
the Stockholders and have been duly authorized by all requisite
corporate action on the part of Northeast. This Agreement is a
legal, valid and binding obligation of Northeast and the
Stockholders, enforceable against Northeast and the Stockholders
in accordance with its terms, except insofar as its enforcement
may be limited by (a) bankruptcy, insolvency, moratorium or
similar laws affecting the enforcement of creditors' rights
generally and (b) equitable principles limiting the availability
of equitable remedies. All persons who execute this Agreement on
behalf of Northeast have been duly authorized to do so.
3.1.17 Compliance with Other Instruments; Consents.
Neither the execution of this Agreement, nor the consummation of
the Transaction, will conflict with, violate or result in a
breach or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default), or result in
the termination of, or accelerate the performance required by, or
result in the creation of any lien or encumbrance upon any of the
assets of Northeast or any of its Subsidiaries under any
provision of any certificate of incorporation, by-law, indenture,
mortgage, lien, lease, agreement, contract, instrument, or any
other restriction of any kind or character to which Northeast or
any of its Subsidiaries is subject or by which Northeast or any
of its Subsidiaries is bound, or require the consent of any third
party or governmental agency. To the extent the consent of
Celcor to the Merger is required under the terms of that certain
pledge agreement among Celcor and the shareholders of Northeast,
by its execution of this Agreement, Celcor consents to the
Merger.
3.1.18 Compliance with Applicable Laws. Northeast
and its Subsidiaries are in compliance with all Chinese and U.S.
federal, state, county, and municipal laws, ordinances,
regulations, judgments, orders or decrees applicable to the
conduct of the business of each, or to the assets owned, used, or
occupied by each, and neither Northeast nor any of its
Subsidiaries has received notice or advices to the contrary. All
reports required by any or all Chinese and U.S. federal, state
and local governments have been timely filed and all information
contained therein is true and correct. Neither the execution of
this Agreement, nor consummation of the Transaction will (a)
violate any order, writ, injunction, statute, rule or regulation
applicable to Northeast or any of its Subsidiaries, or (b)
require the consent, approval, authorization or permission of, or
the filing with or the notification of any Chinese or U.S.
federal, state or local government agency.
3.1.19 Environmental Compliance.
3.1.19.1 Northeast and its Subsidiaries are in
compliance with all applicable Chinese and U.S. federal,
state and local laws and regulations relating to pollution
control and environmental contamination and all laws and
regulations with regard to record-keeping, notification and
reporting requirements respecting Regulated Substances.
Neither Northeast nor any of its Subsidiaries has been
alleged to be in violation of, nor has any of the foregoing
Companies been subject to any administrative or judicial
proceeding pursuant to such laws or regulations, either now
or any time during the past three years.
3.1.19.2 None of the real property owned, used
and/or occupied by Northeast or any Subsidiary and located
in the United Stated has ever been used by previous or
current owners, users and/or operators to generate,
manufacture, refine, transport, treat, store, handle,
dispose, transfer or process Regulated Substances.
3.1.19.3 Except as listed on Exhibit 3.1.19
annexed hereto, Northeast and its Subsidiaries do not own or
use underground storage tanks at any of the real property
owned or occupied by Northeast or any of its Subsidiaries.
If such tanks are owned or used, Northeast and its
Subsidiaries have complied in all respects with all laws
regulating underground storage tanks and the Federal
Technical Standards and Corrective Action Requirements for
Owners and Operators of Underground Storage Tanks (40 C.F.R.
Part 280).
3.1.20 Financial Statements. Northeast and its
Subsidiaries have delivered to Celcor consolidated balance sheets
and related consolidated statements of operations, changes in
stockholders' equity and cash flows for the fiscal years ended
June 30, 1993 and June 30, 1994 and the four months and one year
then ended, in each case audited by BDO Seidman, independent
certified public accountants. Within thirty days of the date of
this Agreement, Northeast and its Subsidiaries will deliver an
unaudited consolidated balance sheet dated December 31, 1994 and
consolidated statement of operations, changes in stockholders'
equity and cash flows for the six months ended December 31, 1994.
The audited financial statements fairly present and the interim
financial statements, when delivered, will present, the financial
position of Northeast and its Subsidiaries and the results of
their operations as at the dates and for the periods to which
they apply, and such statements have been (and in the case of the
interim statements, will be) prepared in conformity with GAAP,
applied on a consistent basis throughout the periods involved.
The interim statements will include all adjustments (subject only
to normal year-end audit adjustments) necessary for a fair
presentation of Northeast's consolidated financial position and
results of operations for that period.
3.1.21 Taxes.
3.1.21.1 All tax and information returns required
to have been filed by Northeast or any of its Subsidiaries
have either been filed with the appropriate taxing authority
or Northeast has filed for any required extension; and all
Taxes of Northeast and its Subsidiaries have been paid (or
estimated taxes have been deposited) to the extent such
payments are required prior to the date hereof or accrued on
the books of Northeast and its Subsidiaries. The returns
were (or will be) correct as (or when) filed. Northeast's
consolidated financial statements include adequate provision
for Taxes incurred or accrued as of the date of the most
recent balance sheet. True and complete copies of the most
recent federal, state and local tax returns of Northeast or
any of its Subsidiaries will promptly be delivered to Celcor
when filed.
3.1.21.2 None of the federal taxes and state and
local franchise and sales tax returns of Northeast and its
Subsidiaries have been audited (or examined by IRS in the
case of federal tax returns). No assessments or additional
Taxes have been proposed or threatened against Northeast or
any Subsidiary or any of their respective assets, and
neither Northeast nor any Subsidiary has executed any waiver
of the statute of limitations on the assessment or
collection of any Tax Liabilities.
3.1.21.3 There are no pending investigations of
Northeast or any of its Subsidiaries or their respective tax
returns by any federal, state or local taxing authority, and
there are no federal, state, local or foreign tax liens upon
any of Northeast's assets or the assets of any Subsidiary.
3.1.21.4 Exhibit 3.1.21 annexed hereto lists any
elections which Northeast has made with respect to the
income tax treatment of any items which cannot be revoked
without the consent of the Commissioner of Internal Revenue.
3.1.22 Litigation. There are no legal,
administrative, arbitration or other proceedings or claims
pending or to the knowledge of Northeast, threatened, against
Northeast, or any of its Subsidiaries, nor is Northeast or any
Subsidiary subject to any existing judgment which might affect
the financial condition, business, property or prospects of
Northeast or any Subsidiary; nor has Northeast or any Subsidiary
received any inquiry from an agency of the federal or of any
state or local government about the Transaction, or about any
violation or possible violation of any law, regulation or
ordinance affecting its business or assets; nor has Northeast or
any Subsidiary been subject to any products liability claims
during the three years ended on the date of this Agreement.
3.1.23 Brokerage. No broker or finder has rendered
services to Northeast or to any Stockholder in connection with
the Transaction.
3.1.24 Full Disclosure. No representation or
warranty made by Northeast or any Subsidiary in this Agreement,
and no certification furnished or to be furnished to Celcor
pursuant to this Agreement contains or will contain any untrue
statement of a material fact or omits, or will omit, to state a
material fact necessary to make the statements contained herein
or therein not misleading.
3.2 Representations and Warranties of Celcor. Celcor
hereby represents and warrants to Northeast and Stockholders
that:
3.2.1 Organization. Celcor is duly organized,
validly existing, and in good standing under the laws of the
state of its incorporation and has the corporate power to
execute, deliver, and perform this Agreement.
3.2.2 Capitalization.
3.2.2.1 Celcor has an authorized capital stock
consisting of 20,000,000 shares of common stock, par value
$0.001 per share, of which 3,364,674 shares are issued and
outstanding and 2,000,000 shares of preferred stock, par
value $0.001 per share, of which 275,000 shares are issued
and outstanding. All of such shares of stock have been
validly issued, fully paid, are non-assessable, and were
issued in compliance with applicable federal and state
securities laws.
3.2.2.2 Except for its outstanding convertible
preferred stock, Celcor does not have outstanding any
subscriptions, options, rights, warrants, convertible
securities or other agreements or commitments to issue, or
contracts or any other agreements obligating Celcor to
issue, or to transfer from treasury, any shares of its
capital stock of any class or kind, or securities
convertible into such stock. No persons who are now holders
of Celcor Stock, and no persons who previously were holders
of Celcor Stock, are or ever were entitled to pre-emptive
rights other than persons who exercised or waived those
rights.
3.2.3 Authorization. The execution and delivery of
this Agreement and the consummation of the Transaction have been
duly authorized by the Board of Directors of Celcor. This
Agreement constitutes the legal, valid and binding obligation of
Celcor, enforceable against it in accordance with its terms,
except insofar as the enforcement thereof may be limited by
bankruptcy, insolvency, or similar laws affecting the enforcement
of creditors' rights generally and subject to equitable
principles limiting the availability of equitable remedies. All
persons who have executed this Agreement on behalf of Celcor have
been duly authorized to do so.
3.2.4 Title to Assets. Celcor has good and
marketable title in and to all of its properties reflected in the
most recent financial statement, plus all assets purchased by
Celcor since the date of that financial statement, less all
assets which Celcor has disposed of in the ordinary course, which
property is free and clear of any security interests,
consignments, liens, judgments, encumbrances, restrictions, or
claims of any kind. The only liens or security interests which
exist and, at the Closing will exist, on Celcor's assets are
those which either (a) secure liabilities disclosed in the
financial statements annexed hereto, (b) secure the ownership
interests of lessors' of equipment used by Celcor, or (c) are
liens for current taxes or assessments not yet due.
3.2.5 No Third Party Consent Required; No Violation
of Other Instruments. Except for the need to obtain the consent
of its stockholders, neither the execution nor the performance of
this Agreement by Celcor requires the consent of any third party,
nor will it violate or result in a breach or constitute a default
under any provision of the certificate of incorporation or by-
laws of Celcor, or any indenture, mortgage, lien, lease,
agreement, contract, instrument, order, judgment, decree,
statute, ordinance, regulation or any other restriction of any
kind or character to which Celcor is subject or by which it is
bound.
3.2.6 Litigation. There are no legal,
administrative, arbitration or other proceedings or claims
pending, or to the knowledge of Celcor, threatened, against
Celcor, nor is Celcor subject to any existing judgment which
might affect the financial condition, business, property or
prospects of Celcor; nor has Celcor received any inquiry from an
agency of the federal or of any state or local government about
the Transaction, or about any violation or possible violation of
any law, regulation or ordinance affecting its business or
assets; nor has Celcor been subject to any products liability
claims during the three years ended on the date of this
Agreement.
3.2.7 Brokerage. No broker or finder has rendered
services to Celcor in connection with the Transaction.
3.2.8 Financial Statements. Celcor has delivered
to Northeast Celcor's Annual Report to the SEC on Form 10-K for
its year ended June 30, 1994, which includes its financial
statements as of that date and for two years then ended, and its
quarterly report to the SEC on Form 10-Q for the three and six
month periods ended December 31, 1994. Those statements fairly
present the financial position of Celcor as at the dates and for
the periods to which they apply and have been prepared in
conformity with GAAP.
3.2.9 Full Disclosure. No representation or
warranty made by Celcor in this Agreement, and no certification
furnished or to be furnished to Northeast and the Stockholders
pursuant to this Agreement contains or will contain any untrue
statement of a material fact or omits, or will omit, to state a
material fact necessary to make the statements contained herein
or therein not misleading.
ARTICLE IV
ADDITIONAL COVENANTS AND AGREEMENTS OF
THE PARTIES
4.01 Corporate Approval. Promptly following the date
hereof, Celcor will call a special meeting of its stockholders
for the purpose of considering and approving this Agreement, the
Transaction and the Plan. Celcor shall promptly call that
meeting by preparing a proxy statement and giving written notice
to all its stockholders in accordance with its by-laws and
applicable corporation law.
4.02 Stockholders' Agreement to Vote. Promptly
following the date hereof, Northeast will either call a special
meeting of its stockholders for the purpose of considering and
approving this Agreement, the Transaction and the Plan, or will
obtain the written consent of its stockholders with respect to
such matters. The undersigned Stockholders hereby agree to vote
all Northeast Stock which they own in favor of the Transaction.
4.03 Conduct of Business. Prior to the Closing Date,
each corporation shall conduct its business only in the Ordinary
Course of Business, except as otherwise permitted by this
Agreement or consented to the other party in writing. Each party
shall promptly advise the other in writing of any material
adverse change in the business, assets or prospects of such
corporation. Without the prior consent of the other party,
neither Northeast nor Celcor shall, prior to the Effective Date,
(a) issue, sell, purchase or redeem, or grant options or warrants
or rights to purchase, or otherwise agree to issue, sell,
purchase or redeem, any common stock or other securities; (b)
incur any indebtedness or other liability, or discharge any
obligation or liability other than in the Ordinary Course of
Business; (c) make any distribution to its stockholders; (d)
amend its Certificate of Incorporation or by-laws; (e) enter into
an employment agreement or make any changes in compensation or
other employment benefits for its executive officers; (f) sell or
otherwise dispose of any of its material assets; (g) mortgage,
pledge or subject to lien or other Encumbrance any of its assets;
or (h) acquire or enter into a contract to acquire any business
or material asset.
4.05 Filing With Securities And Exchange Commission.
Northeast recognizes that Celcor may be required to report the
Transaction to the SEC on Form 8-K and will be obligated to
solicit shareholder approval pursuant to a proxy statement, each
of which must be accompanied by financial statements of
Northeast. Northeast shall cause its regular accountants to
furnish such statements to Celcor and to consent to the use of
those statements and their related report in said proxy statement
and Form 8-K.
4.06 Access. Between the date hereof and the Closing
Date, each party shall give to the other and their respective
designees full access, during normal business hours and upon
reasonable notice, in such a manner as not to disrupt normal
business activities, to the premises, property, material
contracts and books of account and records of such party. Each
party will hold, and will cause all of its directors, officers,
employees and representatives to hold in complete confidence, all
information so obtained and will use such information only for
the purpose of conducting its due diligence investigation. If
the Transaction is not consummated as contemplated herein, each
party will return to the other all returnable information and
data and will not disclose any such data or information to any
other person. Such obligation of confidentiality shall not
extend to any information which is shown to have been previously
known to the party to whom the information was provided, or
generally known to others engaged in the same trade or business
as the party who provided the information, or that is part of
public knowledge.
4.07 Best Efforts. Northeast, the Stockholders and
Celcor shall use their best efforts, and shall cooperate with and
assist each other in their efforts to obtain such consents and
approvals of third parties as may be necessary to consummate the
Transaction and to permit each party to enjoy the benefits of the
Transaction without any cost beyond that contemplated by this
Agreement.
4.08 Brokers or Finders. Each party agrees to hold the
other harmless and to indemnify it against the claims of any
persons or entities claiming to be entitled to any brokerage
commission, finder's fee, advisory fee or like payment from such
other party based upon actions of the indemnifying party in
connection with the Transaction.
4.09 Environmental Matters.
4.9.1 Celcor shall have the right, at its expense,
to make such environmental studies of any real property owned by
Northeast and its Subsidiaries, or any real property which
Northeast and its Subsidiaries have the right to acquire, as it
shall deem necessary to determine whether there is any reason to
believe there is contamination to any soil, subsurface condition
or groundwater caused by the presence of a Regulated Substance
which could give rise to an obligation to perform remediation or
clean-up, and whether Northeast's underground fuel storage tanks,
if any, leak. If there should be evidence of the presence of any
Regulated Substance or improper installation or leakage of a
tank, Celcor will so advise the Stockholders who will cause
Northeast to take whatever action is necessary to remediate the
situation, including clean up of contaminated soil, removal of
the tank, if appropriate, or removal of the contents of the tank
and filling of the tank with sand or other non-polluting
material. The entire cost of that cleanup shall be accrued as a
liability of Northeast.
4.9.2 If the Closing shall occur prior to the
completion of that remediation, the cleanup cost, as estimated by
a consultant acceptable to Celcor and Northeast, shall be accrued
as a liability of Northeast. If the actual cost of that cleanup,
including but not limited to the cost of preliminary studies,
tank and soil removal, installation and operation of monitoring
wells, governmental fees and fines relating to that pollution and
remediation should exceed the estimate, the Stockholders shall
jointly and severally reimburse Celcor for the excess cost.
4.9.3 If Celcor determines that any such tank is
not leaking, it shall so advise the Stockholders who shall then
have no further obligation with respect to the tank other than to
pay for the cost of upgrading the tank as required by the Federal
Technical Standards and Correction Action Requirements for Owners
and Operators of Underground Storage Tanks and any applicable
state statute or regulation dealing with Northeast's underground
tanks.
4.10 Exclusive Dealing. Until this Agreement shall be
consummated or terminated in accordance with its terms, neither
Northeast nor any Stockholder shall take, or permit any other
person acting on its or his behalf, to take or refrain from
taking any action, directly or indirectly, to encourage, initiate
or engage in discussions or negotiations with, or provide
information to, any person or group other than Celcor with
respect to any purchase of the stock of Northeast or any purchase
of any substantial portion of the assets of, or merger with,
Northeast, other than disclosures consented to in writing by
Celcor. Northeast and the Stockholders shall promptly notify
Celcor of any solicitation or inquiry which any of them receive
with respect to any such matter.
ARTICLE V
THE CLOSING
5.01 The Closing. The Closing shall take place at the
offices of Lowenstein, Sandler, Kohl, Fisher & Boylan, 65
Livingston Avenue, Roseland, New Jersey 07068, commencing at
9:00 a.m. local time on the Closing Date, provided that all
conditions precedent to the obligations of Northeast and Celcor
to close have then been met or waived. Either party may postpone
the Closing for a reasonable period of time if necessary to
enable it to perform any obligations hereunder. If the Closing
shall not take place on or before the 120 day following the date
hereof (the "Outside Date"), this Agreement may be terminated at
the option of either party, other than a party whose act or
failure to act prevented the Closing from occurring on or before
the Outside Date.
5.02 Termination. This Agreement may be terminated at
any time until completion of the Closing as follows: (a) by
mutual consent of Celcor and Northeast; (b) by Celcor or
Northeast, respectively, if, at or before the completion of the
Closing, any material condition set forth herein upon the
obligation of such party to consummate the Transaction shall not
have been duly satisfied or waived; (c) by Celcor or Northeast if
the Closing shall not have occurred on or before the Outside
Date, but no party shall be entitled to terminate pursuant to
this clause if its own acts or failures to act delay the Closing
beyond the Outside Date; or (d) by Celcor or Northeast,
respectively, if it shall have discovered that any representation
or warranty made herein for its benefit, or in any certificate,
schedule or document furnished to it, pursuant to this Agreement
is untrue in any material respect, or if the other party shall
have defaulted in the performance of any obligation to be
performed by such party under this Agreement; provided, however,
that in order to terminate this Agreement under Section 5.02 (b)
or (d), the party seeking to terminate this Agreement shall, upon
discovery of a breach or default, give written notice thereof to
the other party and the other party shall fail to cure the breach
or default within ten (10) days after receipt of such notice.
5.03 Liability on Termination. Upon any termination of
this Agreement pursuant to Section 5.02 (a), no party shall have
any liability or obligation hereunder (except to observe the
confidentiality provisions hereof), and each party shall bear the
expenses incurred by it. If a party should terminate pursuant to
Section 5.02(b) or Section 5.02(d), the terminating party shall
have no liability, but the defaulting party shall not be excused
from liability to the other party unless it can clearly
demonstrate that the failure to perform was caused by persons or
acts beyond its control. If the termination is the result of an
event described in Section 5.02(c) above, the terminating party
shall have no liability to the other party provided that the
terminating party did not delay the closing beyond the Outside
Date, but the party causing that delay shall not be excused from
liability to the other party unless it can clearly demonstrate
that such delay was caused by persons or acts beyond its control.
5.04 Termination Fees. In order to induce each party
to enter into this Agreement, and as a means of compensating the
parties for the substantial efforts and direct and indirect
monetary costs incurred and to be incurred in connection with the
Transaction, (i) in the event that Celcor terminates this
Agreement as a result of Northeast's failure to satisfy any of
the conditions set forth in Article VII, Northeast shall
reimburse Celcor for all reasonable out-of-pocket expenses
actually incurred by it or on its behalf in connection with this
Agreement and the Transaction in an amount not to exceed $25,000;
and (ii) in the event that Northeast terminates this Agreement as
a result of Celcor's failure to satisfy any of the conditions set
forth in Article VIII, Celcor shall reimburse Northeast for all
reasonable out-of-pocket expenses actually incurred by it or on
its behalf in connection with this Agreement and the transaction
in an amount not to exceed $25,000; provided, however, that any
claim that a representation of a party, which is based on the
knowledge of such party, is false shall not give rise to a claim
under this Section unless that representation is false to the
knowledge of such party on the date of this Agreement.
ARTICLE VI
CONDITIONS TO OBLIGATION OF EACH PARTY
The obligation of each party to effect the Transaction
shall be subject to the fulfillment, at or prior to the Closing
Date, of the following conditions:
6.01 No Prohibition of Transaction.
(a) No third party shall have instituted any suit
or proceeding to restrain, enjoin or otherwise prevent the
consummation of the Transaction, or to seek damages from or
impose obligations upon either party by reason of the Transaction
which, in such party's reasonable judgment, would involve expense
or lapse of time that would be materially adverse to that party's
interest.
(b) No order shall have been issued by any court
or administrative body to inquire into, restrain, enjoin or
otherwise prevent consummation of the Transaction.
6.02 Compliance with Law. There shall have been
obtained all permits, approvals and consents of any governmental
body or agency which counsel for Celcor or Northeast may
reasonably deem necessary or appropriate to consummate the
Transaction in compliance with laws applicable to the
Transaction, assets or business of either party.
6.03 Proceedings, Documentation and Consents. All
proceedings and Closing Documents contemplated by this Agreement,
together with all consents to and approvals of the Transaction
(the form and substance of all of which shall be reasonably
satisfactory to the parties) as are necessary to effect the
Merger, shall have been obtained.
6.04 Tax Free Reorganization. The Merger and the
receipt by the shareholders of Northeast of shares of Celcor
Stock in exchange for their shares of Northeast Stock shall
constitute a tax free reorganization pursuant to Section
368(a)(i)(A) of the Internal Revenue Code of 1986, as amended.
ARTICLE VII
CONDITIONS TO THE OBLIGATION OF CELCOR TO CLOSE
The obligations of Celcor hereunder are subject to the
satisfaction, on or prior to the Closing Date, of all the
following conditions, compliance with which or the occurrence of
which may be waived in whole or in part by Celcor in writing.
7.01 Representations and Warranties True at the Closing
Date. Except for changes contemplated by this Agreement and
changes which do not individually or in the aggregate have a
material adverse effect upon the assets or business acquired, the
representations and warranties of Northeast contained in Article
III shall be deemed to have been made again at and as of the
Closing Date and shall then be true and correct, except for
changes in the Ordinary Course of Business of Northeast.
7.02 No Material Adverse Change; Officers'
Certificates. During the period from the date of this Agreement
to the Closing Date there shall not have been any material
adverse change in the financial condition, results of operations
or prospects of Northeast, nor any material loss or damage to its
assets, whether or not insured, which materially adversely
affects its ability to conduct its business.
7.03 Corporation's Performance. Each of the
obligations of Northeast to be performed on or before the Closing
Date pursuant to the terms of this Agreement shall have been duly
performed.
7.04 Necessary Corporate Approvals. The board of
directors and stockholders of Northeast shall have duly
authorized and approved the execution and delivery of this
Agreement and all corporate action necessary or proper on the
part of Northeast to authorize the execution, delivery and
performance of this Agreement and the Plan, shall have been taken
on or prior to the Closing Date.
7.05 Resolutions Authorizing the Execution of this
Agreement. At the Closing, Northeast will furnish to Celcor
copies of the resolutions or consents of Northeast's board of
directors and its stockholders, appropriately certified by
Northeast's secretary, authorizing the execution, delivery, and
performance of this Agreement and the Plan.
7.06 Opinion of Counsel. Northeast shall have
furnished Celcor with a favorable opinion dated on and as of the
Closing Date, of Cha and Pan, counsel to Northeast, in the form
of Appendix B hereto.
7.07 Investment Letters. On or prior to the Closing
Date, each Stockholder shall have executed and delivered to
Celcor a letter agreement and questionnaire in the form of
Appendix A hereto, it being understood that Celcor, in issuing
the Celcor Stock, will be relying on the representations of said
persons therein contained.
7.08 Satisfactory Searches. Celcor shall have received
evidence, satisfactory to it, that (a) Northeast is duly
organized, validly existing and in good standing in its state of
incorporation, (b) Northeast is qualified to do business as a
foreign Corporation where, in the opinion of counsel to
Northeast, it is required to be so qualified, and (c) Northeast
has good title to all assets listed in its financial statements
free and clear of all Encumbrances.
7.09 Environmental Review. Celcor shall not have
discovered the presence of Regulated Substances on any real
property owned by Northeast requiring remediation under any
federal or state law, rule or regulation, nor any improper
installation of or leakage from any underground storage tanks on
such real property, or any violation of environmental laws, rules
or regulations with regard to such Regulated Substance or such
tanks on such property that shall not have been remediated prior
to the Closing Date.
7.10 Consents to Transaction. On or prior to the
Closing Date, Northeast shall furnish Celcor with such consents
to the Transaction as in the opinion of Celcor or its counsel are
required to permit Ceclor to enjoy the benefits of the
Transaction without any cost beyond that contemplated by this
Agreement.
7.11 Dissenters' Rights. Northeast shall not have
received notices from any holders of any class of Northeast Stock
of their intent to dissent from the Transaction.
[7.12 Title Insurance. Celcor shall have obtained
a title insurance policy or binder insuring the Surviving
Corporation's interest in any real estate owned by Northeast.]
7.13 Financial Statements. Northeast shall have
delivered to Celcor, at Northeast's expense, a consolidated
balance sheet of Northeast as of June 30, 1994, and consolidated
statements of income and cash flows for the year ended June 30,
19994, certified by BDO Seidman and interim financial statements
for the six months ended December 31, 1994, all, as required by
SEC Regulation S-X.
7.14 Fairness Opinion. Celcor shall have received an
opinion from Chartered Capital Advisors, Inc., dated as of the
date of the proxy statement sent to its stockholders, to the
effect that the rate of exchange of Celcor Stock for Northeast
Stock is fair to the stockholders of Celcor from a financial
point of view, and such opinion shall not have been withdrawn
prior to the date of the meeting of Celcor stockholders held for
the purpose of approving the Plan.
7.15 Results of Investigation. Celcor shall have
determined in good faith that the results of its investigation do
not show any losses, liabilities, commitments, contingencies or
other conditions of or relating to Northeast which are not set
forth or reflected in the financial statements of Northeast
previously delivered to Celcor or have not been otherwise
disclosed to Celcor and which in the aggregate materially and
adversely affect the business, financial condition, properties,
results of operations, forecasts or prospects of Northeast (as
defined in SEC regulations).
ARTICLE VIII
CONDITIONS TO NORTHEAST'S OBLIGATION TO CLOSE
The obligations of Northeast hereunder are subject to
the satisfaction, on or prior to the Closing Date, of the
following conditions, compliance with which, or the occurrence of
which may be waived in whole or in part in writing by Northeast.
8.01 Representations and Warranties True at the
Closing. The representations and warranties of Celcor contained
in Article III shall be deemed to have been made again at and as
of the Closing Date and shall then be true and correct in all
material respects except for changes in the Ordinary Course of
Business of Celcor.
8.02 Celcor's Performance. Each of the obligations of
Celcor to be performed on or before the Closing Date, pursuant to
the terms of this Agreement, shall have been duly performed at
the Closing Date. There shall have been no change in Celcor's
financial or business condition, nor any litigation or
proceeding, actual or threatened, which is reasonably likely to
prevent Celcor from performing any obligation undertaken by it
under this Agreement which is to be performed after the Closing.
8.03 No Material Adverse Change. During the period
from the date of this Agreement to the Closing Date, there shall
not have been any material adverse change in the financial
condition, results of operations or prospects of Celcor, nor any
material loss or damage to its assets, whether or not insured,
which materially affects Celcor's ability to conduct its
business.
8.04 Authority. All actions required to be taken by or
on the part of Celcor to authorize the execution, delivery and
performance of this Agreement by Celcor and the consummation of
the Transaction shall have been duly and validly taken by the
Board of Directors and stockholders of Celcor.
8.05 Opinion of Celcor's Counsel. Celcor shall have
furnished Northeast with an opinion of Lowenstein, Sandler, Kohl,
Fisher & Boylan, P.C., counsel to Celcor, dated the Closing Date,
in the form of Appendix C hereto. Such opinion may expressly
rely as to matters of fact upon certificates of appropriate
officers of Celcor or appropriate governmental officials. Copies
of such certificates shall be delivered to Northeast.
8.06 Results of Investigation. Northeast shall have
determined in good faith that the results of its investigation do
not show any losses, liabilities, commitments, contingencies or
other conditions of or relating to Celcor which are not set forth
or reflected in the financial statements of Celcor previously
delivered to Northeast or have not been otherwise disclosed in
writing to Northeast and which in the aggregate materially and
adversely affect the business, financial condition, properties,
results of operations, forecasts or prospects of Celcor.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND INDEMNIFICATION
9.01 Representations to Survive Closing. The
representations and warranties of Celcor, Northeast and the
Stockholders contained herein or in any document furnished
pursuant hereto shall survive the Closing of the Transaction, but
the exclusive remedy following the Closing for a breach of any
representation or warranty shall be to assert a claim in
accordance with the provisions of this Article IX. Except as
provided in this Article IX, neither Celcor, Northeast, nor their
respective stockholders, directors or officers, shall have any
liability to the other after the Effective Date on account of any
breach or failure or the incorrectness of any of those
representations and warranties.
9.02 Indemnification by the Stockholders.
(a) Obligation to Indemnify. The Stockholders
jointly and severally agree to and do hereby indemnify, and agree
to defend and hold Celcor and the Surviving Corporation and their
respective directors, officers, employees, fiduciaries, agents
and affiliates, and each other person, if any, who controls such
persons, harmless against any claims, actions, suits,
proceedings, investigations, losses, expenses, damages,
obligations, liabilities, judgments, fines, fees, costs and
expenses (including costs and reasonable attorneys' fees) and
amounts paid in settlement of any pending, threatened or
completed claim, action, suit, proceeding or investigation
(collectively "Loss" or "Losses") which arise or result from or
are related to (i) any breach or failure of Northeast and the
Stockholders to perform any of their covenants or agreements set
forth herein, (ii) the inaccuracy of any representation or
warranty made by Northeast and Stockholders herein, (iii) any
fixed or contingent obligation or liability of Northeast
(including but not limited to liabilities arising in tort,
contract, guarantees and indemnities) which existed as of the
Closing Date and would be required by GAAP to be disclosed on
Northeast's financial statements, or in the notes thereto, and is
not so disclosed prior to Closing, and (iv) any liability for
Taxes, other than those which are accrued as liabilities of
Northeast, together with interest and penalties and additions to
tax, if any, arising out of tax assessments. No liability shall
attach under this Section 9.02, however, until Celcor has
incurred a Loss or Losses in the aggregate totaling fifty
thousand dollars ($50,000) and no claim shall be asserted by
Celcor after one year in the case of claims asserted on the basis
of clause (i), two years in the case of a claim asserted on the
basis of clause (ii) or (iii), and no time limitation in the case
of a claim asserted on the basis of clause (iv).
(b) Reimbursement on Demand. The Stockholders
will reimburse Celcor from time to time on demand for any payment
made by Celcor at any time in respect of any Loss which Celcor
may sustain or incur to which the foregoing indemnity relates.
9.03 Indemnification by Celcor.
(a) Obligation to Indemnify. Celcor agrees to
and does hereby indemnify and hold Northeast and the Stockholders
harmless against any claims, losses, damages, expenses or
liabilities (including costs and reasonable attorney's fees)
resulting to Northeast and the Stockholders from (i) any breach
or failure of Celcor to perform any of its covenants or
agreements set forth herein, (ii) the inaccuracy of any
representations or warranties made by Celcor herein, (iii) any
fixed or contingent obligation or liability of Celcor (including
but not limited to liabilities arising in tort, contract,
guarantees and indemnities) which existed as of the Closing Date
and would be required by GAAP to be disclosed on Celcor's
financial statements, or in the notes thereto, and is not so
disclosed prior to closing, and (iv) any liability for Taxes,
other than those which are accrued as liabilities of Celcor,
together with interest and penalties and additions to tax, if
any, arising out of tax assessments. No liability shall attach
under this Section 9.03, however, until the stockholders have
incurred a Loss or Losses in the aggregate totaling fifty
thousand dollars ($50,000) and no claim shall be asserted by
Northeast or the stockholders after one year in the case of
claims asserted on the basis of clause (i), two years in the case
of a claim asserted on the basis of clause (ii) or (iii) and no
time limitation in the case of a claim asserted on the basis of
clause (iv).
(b) Reimbursement on Demand. Celcor will
reimburse the Stockholders from time to time on demand for any
payment made by the Stockholders at any time in respect of any
Loss which the Stockholders may sustain or incur to which the
foregoing indemnity relates.
9.04 Enforcement of Indemnification Rights.
(a) Notification. Any person or entity seeking
enforcement of indemnification rights hereunder shall notify each
potentially liable person or entity of (i) any payment made in
respect of any liability, obligation or claim to which the
foregoing indemnity applies, (ii) any Loss which such person or
entity may sustain or incur, to which the foregoing indemnity
relates, and (iii) any claim made or suit filed against such
person or entity with respect to Northeast or Celcor, as
applicable, their respective assets or this Agreement. Such
notification shall include a specific demand for indemnification
and defense if such person or entity wishes to assert his or its
indemnification rights hereunder.
(b) Disputes. If there is any dispute as to the
right to indemnification and defense hereunder, the disputing
party shall give the other party written notice of such dispute,
specifying in detail the basis of the dispute, not later than 20
days after receipt of demand for indemnification. The parties
agree to resolve any such dispute pursuant to the New Jersey
Alternate Procedure for Dispute Resolution Act (N.J.S.A. 2A:23A).
All parties hereto agree to submit to the jurisdiction of such
court for the purpose of such suit or suits.
(c) Time Limit. If there is no dispute as to the
right to indemnification with respect to any such demand within
such 20 day period, TIME BEING OF THE ESSENCE, or upon resolution
of any such dispute by the parties or by a court, the person or
entity entitled to indemnification shall be promptly paid the
amount of such demand, the amount agreed to by the parties or the
amount ordered by a court.
(d) Calculation of Loss. In determining the
amount of any Loss, net after tax proceeds of insurance received
shall reduce the Loss. Tax benefits, if any, derived from such
Loss by the party seeking indemnification shall not reduce the
Loss, unless the amount paid to indemnify it for such Loss shall
not be treated by it as income subject to federal or state income
tax, in which event the amount of the Loss shall be reduced by
the tax benefits derived therefrom.
(e) Litigation Procedure. If a party entitled to
be indemnified pursuant to this Article IX notifies the other
party of the commencement of an action against it, the party
obligated to provide indemnification will be entitled, at his or
its own expense, to (i) participate in, and (ii) except in the
case of a claim that relates to a tax liability, assume the
defense of the action. If the indemnifying party wishes to
assume the defense of that action, counsel selected by the
indemnifying party shall be reasonably satisfactory to the
indemnified party, and the indemnified party shall cooperate in
all reasonable respects, at its cost and expense, with the
indemnifying party and such counsel in the investigation and
defense of such action and any appeal arising therefrom. After
the indemnifying party shall notify the indemnified party of its
election to assume the defense of any such action, the
indemnifying party will not be liable to the indemnified party
under this Article IX for any legal fees or other expense
subsequently incurred by the indemnified party in connection with
the defense thereof. Even if the indemnifying party should
assume the defense of any such actions, the indemnified party
shall have the right at its expense to participate in the defense
thereof. If the indemnifying party assumes the defense of any
such actions, it shall not settle or otherwise compromise any
such action without the prior written consent of the indemnified
party. If the indemnifying party should fail or refuse to assume
the defense of any such action, the indemnifying party shall
jointly and severally reimburse the indemnified party for the
fees and expenses of counsel engaged by it to defend that action.
9.05 Remedies Cumulative. Persons or entities entitled
to indemnification hereunder shall be entitled to such
indemnification from time to time and shall be entitled to rely
upon one or more provisions of this Agreement without waiving its
right to rely upon any other provisions at the same time or any
other time.
ARTICLE X
MISCELLANEOUS
10.01 Notices. All notices, requests, demands and
other communications hereunder shall be in writing and shall be
deemed delivered if delivered by hand, by telecopier, by courier
or mailed by certified or registered mail, postage prepaid,
addressed as follows:
If to Celcor:
Celcor, Inc.
Attn: Mr. Stephen E. Roman, Jr.
1800 Bloomsbury Avenue
Wanamassa, NJ 07712
Tel: (908) 922-3158
Fax No.: (908) 922-2221
with a copy to:
Lowenstein, Sandler, Kohl, Fisher & Boylan
Attn: George J. Mazin, Esq.
65 Livingston Avenue
Roseland, NJ 07068
Tel. (201) 992-8700
Fax No. (201) 992-5820
If to Northeast or the Stockholders:
Northeast (USA) Corp.
Attn: Dr. N. Wu
129-09 26th Ave.
Flushing, N.Y. 11355
Fax No.
with copy to:
Cha Pan
36 West 44th Street
New York, NY 10036
Fax No. (212) 575-1830
10.02 Assignability and Parties in Interest. This
Agreement shall not be assignable by any of the parties hereto
without the consent of all other parties hereto. This Agreement
shall inure to the benefit of and be binding upon the parties
hereto and their respective successors. Nothing in this
Agreement is intended to confer, expressly or by implication,
upon any other person any rights or remedies under or by reason
of this Agreement.
10.03 Expenses. Each party shall, except as
otherwise specifically provided, bear its own expenses and costs,
including the fees of any attorney retained by it, incurred in
connection with the preparation of this Agreement and
consummation of the Transaction.
10.04 Governing Law. This Agreement shall be
governed by, and construed and enforced in accordance with, the
laws of the State of New Jersey. Northeast consents to the
personal jurisdiction of the federal and state courts in the
State of New Jersey in connection with any action arising under
or brought with respect to this Agreement.
10.05 Counterparts. This Agreement may be executed
as of the same effective date in one or more counterparts, each
of which shall be deemed an original.
10.06 Headings. The headings and subheadings
contained in this Agreement are included solely for ease of
reference, and are not intended to give a full description of the
contents of any particular Section and shall not be given any
weight whatever in interpreting any provision of this Agreement.
10.07 Pronouns, etc. Use of male, female and
neuter pronouns in the singular or plural shall be understood to
include each of the other pronouns as the context requires. The
word "and" includes the word "or". The word "or" is disjunctive
but not necessarily exclusive.
10.08 Complete Agreement. This Agreement, the
Appendices hereto, and the documents delivered pursuant hereto or
referred to herein or therein contain the entire agreement
between the parties with respect to the Transaction and, except
as provided herein, supersede all previous negotiations,
commitments and writings.
10.09 Modifications, Amendments and Waivers. This
Agreement shall not be modified or amended except by a writing
signed by Celcor and Northeast. Prior to the Closing, either
Celcor or Northeast may amend any of the exhibits to Article III
by giving the other party notice of such amendments. If such
amended disclosures reveal material adverse information about the
party making the change, the recipient of the information may
terminate this Agreement without liability to the other party.
10.10 Severability. If any term or other provision
of this Agreement is invalid, illegal, or incapable of being
enforced by any rule of law or public policy, all other terms and
provisions of this Agreement will nevertheless remain in full
force and effect so long as the economic or legal substance of
the Transaction is not affected in any manner adverse to any
party hereto. Upon any such determination that any term or other
provision is invalid, illegal, or incapable of being enforced,
the parties hereto will negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as
closely as possible in any acceptable manner to the end that the
Transaction is consummated to the extent possible.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year first above written.
ATTEST: CELCOR, INC.
/S DARLENE L. RUBIN By: /S STEPHEN E. ROMAN, JR.
President
ATTEST: NORTHEAST (USA) CORP.
/S DEBRA WANG By: /S JENNIFER LO
Jennifer Lo
Chairperson
By: /S TING-HUI LIN
Ting-Hui Lin President
Mannion Consultants, Ltd.
By: /S S.Y. UENG
S.Y. Ueng General Manager
Fowler Holding Ltd.
By: /S T. Y. WU
T. Y. Wu General Partner
Dziou Tai Associates
By: /S CHRISTINE HUANG
Christine Huang Secretary
Lyncroft Corporation
By: /S DENG MING MING
Deng Ming Ming Representative in USA
Northeast General Pharmaceutical Factory
EXHIBIT A
QUESTIONNAIRE
This form should be completed by a corporate officer of the Stockholder.
1. Please furnish the following information:
Name of Stockholder: _________________________________________
Name of person completing form: ______________________________
Address: ____________________________________________________
______________________________________________________________
Telephone Number: ( ) ________________________________
Taxpayer Identification Number(s) of Stockholder: ___________
Provide the following information for the person making investment decisions
for the Stockholder:
2. Employment Information:
Occupation or Profession(s): ________________________________
Current Position or Title: __________________________________
Length of Time in Present Position: _________________________
Nature of Business: _________________________________________
Name and Address of Employer(s): ____________________________
Office Telephone Number: ( ) __________________________
3. List any business or professional education, including degrees
received, if any:
_____________________________________________________________
_____________________________________________________________
4. List any professional licenses or registrations,
including bar admissions, accounting certificates, real
estate brokerage licenses, and SEC, NASD, or state broker-
dealer registrations held by you:
5(a). If the Stockholder is an accredited investor within the
meaning of Section 501(a) of Regulation D, as adopted pursuant to
the Securities Act of 1933, check the appropriate box below to
indicate the basis upon which the undersigned stockholder
qualifies as an accredited investor:
CHECK THE APPROPRIATE BOX(ES).
Subscriber is:
[ ] A corporation, business trust or
partnership which has not been formed
for the purpose of making this
investment and which has total assets
in excess of $5,000,000.
[ ] An entity which has not been formed
for the purpose of making an
investment in the Company and in which
all of the equity owners are qualified
accredited investors, on the basis of
income (annual income of not less than
$200,000, or $300,000 with a spouse)
or net worth (not less than $1,000,000
net worth, including home, furnishings
and automobiles).
5(b). The undersigned stockholder is not an accredited investor
_____________.
Approximate net worth $_______________.
6. Rule 506 of the Securities and Exchange Commission requires
that each purchaser have sufficient knowledge and experience
in financial and business matters that it is capable of
evaluating the merits and risks of an investment in the
Common Stock, or that such purchaser retain the services of a
Purchaser Representative (who may be an attorney, accountant
or other financial advisor) for the purpose of this
particular transaction.
I hereby represent that:
The officers and professional advisors of the undersigned
stockholder have such knowledge and experience in financial
and business matters that they are capable of evaluating the
merits and risks of an investment in the Common Stock.
I understand that the Company will be relying on the accuracy
and completeness of my responses to the questions in this
questionnaire and I represent and warrant to the Company as
follows:
(i) The answers to the above questions are complete and
correct and may be relied upon by the Company in
determining whether the offering in connection with
which I have executed this questionnaire is exempt from
registration under the Securities Act of 1933, pursuant
to Rule 506 or otherwise; and
(ii) I will notify the Company immediately of any material
change in any statement made herein that occurs prior
to the consummation of the Merger.
Date: _______________ Stockholder Name: ______________
Signed by: _____________________
Title: _________________________
APPENDIX B
_____________, 1995
Celcor, Inc.
1800 Bloomsbury Avenue
Wanamassa, New Jersey 07712
Dear Ladies and Gentlemen:
We have acted as counsel to Northeast (USA) Corp., a New York
corporation (the "Company" or "Northeast"), in connection with
its merger with Celcor, Inc. ("Celcor"), pursuant to an Agreement
and Plan of Merger among the Company, Celcor and the stockholders
of Northeast (the "Northeast Stockholders"), dated as of
__________, 1995 (the "Agreement"). This opinion is delivered
pursuant to Section 7.06 of the Agreement. Capitalized terms not
otherwise defined herein shall have the meanings provided in the
Agreement.
As counsel to the Company, we have reviewed the Agreement and
have examined such corporate records, certificates and other
documents, and have considered such questions of law as we
considered appropriate for purposes of rendering this opinion.
In our examination of such records and documents, we have assumed
the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to
authentic documents of all documents submitted to us as
certified, conformed or photostatic copies.
As to certain factual matters material to the opinions expressed
herein, we have relied on the representations of Northeast in the
Agreement and on certificates of public officials and officers of
Northeast, all without independent investigation.
In this opinion, we express no opinion as to the laws of any
jurisdiction other than the federal laws of the United States of
America, the laws of the State of New York and to the extent
relevant, The People's Republic of China.
Based upon the foregoing and subject to the qualifications,
exceptions and limitations set forth herein, we are of the
opinion that:
1. The Company is duly organized, validly existing and in good
standing under the laws of the State of New York and has all
requisite corporate power, franchises and licenses to own its
property and conduct the business in which it is engaged.
2. The Company has the corporate power and authority to enter
into and perform the Agreement.
3. The Company does not directly or indirectly have any
subsidiaries, nor hold any equity interest in any corporation,
partnership or joint venture, other than Shenyang United Vitatech
Ltd. and Northeast (Shenyang) Consulting Co. Ltd. (together, the
"Subsidiaries"). The Subsidiaries are each corporations, duly
organized, validly existing and in good standing under the laws
of The Peoples Republic of China, and each has all requisite
corporate power, licenses and franchises to own its properties
and assets and conduct the business in which it is engaged.
4. The Company has an authorized capital stock consisting of
200 shares of common stock, no par value, of which 175 shares are
presently issued and outstanding. The outstanding shares of
Northeast common stock are validly issued, fully paid and non-
assessable.
5. To the best of our knowledge, the Company does not have
outstanding any subscriptions, options, rights, warrants,
convertible securities or other agreements or commitments to
issue, or contracts or any other agreements obligating Northeast
to issue, or to transfer from treasury, any shares of its capital
stock of any class or kind, or securities convertible into such
stock. No persons who are now holders of Northeast Stock, and no
persons who previously were holders of Northeast Stock, are or
ever were entitled to pre-emptive rights, other than persons who
exercised or waived those rights.
6. The Company and each Subsidiary is duly qualified to conduct
business as a foreign corporation in each state or other
jurisdiction in which it is required to be so qualified.
7. To the best of our knowledge, neither the Company nor any
Subsidiary transacts business under any trade name or fictitious
name.
8. The execution and delivery of this Agreement and the
consummation of the transaction contemplated thereby (the
"Transaction") have been duly authorized by the Board of
Directors and Northeast Stockholders. The Agreement constitutes
the legal, valid and binding obligation of Northeast, enforceable
against it and its shareholders in accordance with its terms,
except insofar as the enforcement thereof may be limited by
bankruptcy, insolvency, or similar laws affecting the enforcement
of creditors' rights generally and subject to equitable
principles limiting the availability of equitable remedies. All
persons who have executed this Agreement on behalf of Northeast
have been duly authorized to do so.
9. Neither the execution of this Agreement, nor
consummation of the Transaction will (a) violate any order, writ,
injunction, statute, rule or regulation applicable to Northeast
or any of its Subsidiaries, or (b) require the consent, approval,
authorization or permission of, or the filing with or the
notification of any Chinese or U.S. federal, state or local
government agency. Neither the execution nor the performance of
this Agreement by Northeast will conflict with, violate or result
in a breach or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default), or
result in the termination of, or accelerate the performance
required by, or result in the creation of any lien or encumbrance
upon any of the assets of Northeast or any of its Subsidiaries
under any provision of the certificate of incorporation or by-
laws of Northeast or its Subsidiaries, or any indenture,
mortgage, lien, material lease, agreement, or other material
contract or instrument known to us, or any order, judgment or
decree of which we are aware, or any statute, ordinance or
regulation to which Northeast or its Subsidiaries are subject or
by which they are bound.
10. To the best of our knowledge (i) there are no infringement
or other claims or demands against Northeast or its Subsidiaries
with respect to any items of intangible personal property; and
(ii) no proceedings have been instituted, are pending, or have
been threatened to terminate or cancel any agreement affording to
Northeast the right to use any intangible asset, or which
challenge the rights of Northeast or its Subsidiaries with
respect to any of its intangible assets.
11. To the best of our knowledge, Northeast is not in default of
any of its obligations under the Joint Venture Agreement and
related regulations with China Northeast Pharmaceutical Factory
pursuant to which Shenyang United Vitatech Pharmaceutical Factory
was established and such agreement is in full force and effect.
12. To the best of our knowledge, (i) the Company and its
Subsidiaries and their respective employees or agents have all
material licenses, permits, orders, approvals and authorizations
required by Northeast or any such Subsidiary for the conduct of
business as presently and anticipated to be conducted (including
both U.S. and Chinese licenses, permits, authorizations or
approvals); (ii) Northeast and its Subsidiaries are acting within
the terms of such licenses, permits, orders, and approvals; (iii)
neither Northeast nor any of its Subsidiaries has received any
notice of investigation, evaluation or suspension of any such
licenses, permits, orders, approvals or authorizations; and (iv)
no suspension or cancellation of any such licenses, permits,
orders, approvals and authorizations has been threatened or is
contemplated.
13. To the best of our knowledge, the Company and its
Subsidiaries are in compliance with all Chinese and U.S. laws,
ordinances, regulations, judgments, orders or decrees applicable
to the conduct of the business of each, or to the assets owned,
used, or occupied by each, and neither Northeast nor any of its
Subsidiaries has received notice or advices to the contrary.
14. To our best knowledge (i) there are no legal,
administrative, arbitration or other proceedings or claims
pending or threatened, against Northeast; (ii) Northeast is not
subject to any existing judgment which might affect the financial
condition, business, property or prospects of Northeast; (iii)
Northeast has not received any inquiry from an agency of the
federal or of any state or local government about the
Transaction, or about any violation or possible violation of any
law, regulation or ordinance affecting its business or assets;
and (iv) Northeast has not been subject to any products liability
claims during the three years ended on the date of this
Agreement.
15. Upon the filing of the Certificate of Merger with the
Secretary of State of New York, the merger will have become
effective in accordance with the provisions of the Business
Corporation Law of the State of New York.
This opinion is rendered to you solely for your benefit in
connection with the Agreement. This opinion may not be relied
upon by you for any other purpose, nor may it be disclosed to or
relied upon by any other person, firm or corporation for any
purpose without our prior written consent.
Very truly yours,
CHA & PAN
By: ________________________
___________________, Esq.
APPENDIX C
[Letterhead of Lowenstein, Sandler, Kohl, Fisher & Boylan]
_____________, 1995
Northeast (USA) Corp.
129-09 26th Ave.
Flushing, N.Y. 11355
Dear Ladies and Gentlemen:
We have acted as counsel to Celcor, Inc., a Delaware corporation
(the "Company"), in connection with its merger with Northeast
(USA) Corp. ("Northeast"), pursuant to an Agreement and Plan of
Merger among the Company, Northeast and the stockholders of
Northeast (USA) Corp. (the "Northeast Stockholders"), dated as of
__________, 1995 (the "Agreement"). This opinion is delivered
pursuant to Section 8.05 of the Agreement. Capitalized terms not
otherwise defined herein shall have the meanings provided in the
Agreement.
As counsel to the Company, we have reviewed the Agreement and
have examined such corporate records, certificates and other
documents, and have considered such questions of law as we
considered appropriate for purposes of rendering this opinion.
In our examination of such records and documents, we have assumed
the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to
authentic documents of all documents submitted to us as
certified, conformed or photostatic copies.
As to certain factual matters material to the opinions expressed
herein, we have relied on the representations of Celcor in the
Agreement and on certificates of public officials and officers of
Celcor, all without independent investigation.
In this opinion, we express no opinion as to the laws of any
jurisdiction other than the federal laws of the United States of
America, the laws of the State of New Jersey and to the extent
relevant, the laws of the State of Delaware.
Based upon the foregoing and subject to the qualifications,
exceptions and limitations set forth herein, we are of the
opinion that:
1. The Company is validly existing and in good standing under
the laws of Delaware.
2. The Company has the corporate power and authority to enter
into and perform the Agreement.
3. The Company has an authorized capital stock consisting of
20,000,000 shares of common stock, par value $0.001 per share,
and 2,000,000 shares of preferred stock, par value $0.001 per
share. The shares of Celcor common stock being issued to the
Northeast Stockholders upon consummation of the merger will be
validly issued, fully paid and non-assessable.
4. The execution and delivery of this Agreement and the
consummation of the Transaction have been duly authorized by the
Board of Directors of Celcor. This Agreement constitutes the
legal, valid and binding obligation of Celcor, enforceable
against it in accordance with its terms, except insofar as the
enforcement thereof may be limited by bankruptcy, insolvency, or
similar laws affecting the enforcement of creditors' rights
generally and subject to equitable principles limiting the
availability of equitable remedies. All persons who have
executed this Agreement on behalf of Celcor have been duly
authorized to do so.
5. Except for the need to obtain the consent of its
stockholders, which consent has been obtained, neither the
execution nor the performance of this Agreement by Celcor
requires the consent of any third party, nor will it violate or
result in a breach or constitute a default under any provision of
the certificate of incorporation or by-laws of Celcor, or any
indenture, mortgage, lien, material lease, agreement, or other
material contract or instrument known to us, or any order,
judgment or decree of which we are aware, or any statute,
ordinance or regulation to which Celcor is subject or by which it
is bound.
6. To our best knowledge (i) there are no legal,
administrative, arbitration or other proceedings or claims
pending or threatened, against Celcor; (ii) Celcor is not subject
to any existing judgment which might affect the financial
condition, business, property or prospects of Celcor; (iii)
Celcor has not received any inquiry from an agency of the federal
or of any state or local government about the Transaction, or
about any violation or possible violation of any law, regulation
or ordinance affecting its business or assets; and (iv) Celcor
has not been subject to any products liability claims during the
three years ended on the date of this Agreement.
7. Upon the filing of the Certificate of Merger with the
Secretary of State of Delaware, the merger will have become
effective in accordance with the provisions of the Delaware
General Corporation Law.
This opinion is rendered to you solely for your benefit in
connection with the Agreement. This opinion may not be relied
upon by you for any other purpose, nor may it be disclosed to or
relied upon by any other person, firm or corporation for any
purpose without our prior written consent, except that copies of
this opinion may be furnished to and relied upon by the Northeast
Stockholders.
Very truly yours,
LOWENSTEIN, SANDLER, KOHL,
FISHER & BOYLAN
A Professional Corporation
By: ________________________
George J, Mazin, Esq.
A Member of the Firm
EXHIBIT C
August 9, 1995
Board of Directors
Celcor, Inc.
Post Office Box 2184
Ocean, New Jersey 07712
Dear Members of the Board of Directors:
We understand that Celcor, Inc. ("Celcor") and
Northeast (USA) Corp. ("Northeast") have entered into a
merger agreement (the "Merger") pursuant to which Northeast
will be merged into Celcor. In connection with the Merger,
Celcor will issue 1,750,000 shares of its common stock in
exchange for all of the outstanding common stock of
Northeast.
You have requested our opinion of the Merger with
respect to fairness, from a financial point of view, to
Celcor. Chartered Capital Advisers, Inc. is customarily
engaged in the valuation of businesses and their securities
in connection with mergers & acquisitions, private
placements, shareholder transactions, estate and gift taxes,
litigation, and for other purposes.
In connection with rendering our opinion we have, among
other things:
(1) Reviewed the Agreement and Plan of Merger Among
Celcor, Inc., Northeast (USA) Corp. and the Stockholders of
Northeast (USA) Corp.;
(2) Reviewed the Preliminary Proxy Statement
prepared by Celcor;
(3) Analyzed financial information with respect to
Northeast, including but not limited to audited financial
statements as of and for the period from inception (February
24, 1993) through June 30, 1994, unaudited financial
statements as of and for the nine months ended March 31,
1995, and management forecasts of sales and earnings through
1998;
(4) Reviewed various documents with respect to
Northeast, including but not limited to, a business plan and
agreements pertaining to: (a) the manufacture and sale of
products in China; (b) the distribution outside of China of
products manufactured by the Chinese joint venture partner
of Northeast; (c) the rights to the technology to produce
certain products to be sold by Northeast; and (d) the
development of vacant land owned by Northeast;
(5) Analyzed financial information with respect to
Celcor, including but not limited to, the Form 10Q as of and
for the nine months ended March 31, 1995, the Form 10K as of
and for the year ended June 30, 1994, the 1993 annual
report, and a private placement memorandum prepared in
connection with the issuance of Series C 8% Convertible
Preferred Stock;
(6) Engaged an experienced real estate appraiser
who has visited the undeveloped property located in
Flushing, New York that is owned by Northeast, and confirmed
to us that its fair market value, exclusive of soft costs,
was not materially different from the amount disclosed in
the balance sheet of Northeast as of June 30, 1994;
(7) Held discussions with certain members of both
Northeast and Celcor senior management and with the
independent accountant of Northeast concerning the past,
current, and planned operations, financial condition, and
business prospects of each company;
(8) Discussed with the legal advisors of Celcor the
results of their due diligence of Northeast;
(9) Reviewed the historical market prices of Celcor
common stock;
(10) Reviewed the composition of ownership of
Northeast and Celcor common stock;
(11) Reviewed the financial terms of the Merger; and
(12) Considered such other information, financial
studies, and analyses as we deemed relevant, and performed
such analyses, studies, and investigations as we deemed
appropriate.
Chartered Capital Advisers, Inc. has assumed and relied
upon, without independent verification, the accuracy and
completeness of the information reviewed by us. With
respect to any projections, we assumed that they have been
reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial
performance of Northeast. We have also assumed without
independent verification that Northeast owns and has
adequate legal protection for all material tangible assets
and intellectual property that it purports to own, and that
key agreements to which Northeast purports to be a party are
valid and enforceable. We have also assumed that the Merger
will be a nontaxable transaction that will be accounted for
as a purchase. Accordingly, we do not make any warranties,
nor do we make any representations with respect to the
aforementioned items.
We have not performed an appraisal of the assets,
liabilities, or intellectual property of Northeast, nor have
we been furnished with any such valuations or appraisals.
We have assumed that the assessments of management have been
made in good faith and reflect the best currently available
management judgments as to the matters covered. Our opinion
is necessarily based upon economic, market, and other
conditions as in effect on, and the information made
available to us as of, the date of this letter. Our opinion
is limited to the fairness of the Merger as of the date
hereof, from a financial point of view. We make no
representations with respect to the business decision to
effect the Merger or any other terms of the Merger. This
opinion does not represent our opinion as to what the value
of Celcor or Northeast may be as of the date of this letter.
We understand that in considering the Merger, the Board
of Directors of Celcor has considered a wide range of
financial and nonfinancial factors, many of which are beyond
the scope of this letter. This letter is not intended to
substitute for the Board's exercise of its own business
judgment in reviewing the Merger.
Based upon and subject to the foregoing considerations,
it is our opinion as financial advisors that the Merger is
fair from a financial point of view to Celcor.
The foregoing opinion is to be used solely for the
information and assistance of Celcor. Accordingly, it is
understood and agreed that no person other than Celcor and
its officers and directors shall be allowed to use or rely
upon this opinion.
Very truly yours,
CHARTERED CAPITAL ADVISERS, INC.
Ronald G. Quintero, CPA, CFA
Managing Director
EXHIBIT D
CELCOR, INC.
This Proxy is Solicited from all holders of Common Stock by the Board of
Directors for a Special Meeting of Stockholders, January 25, 1996.
The undersigned hereby appoints Stephen E. Roman, Jr. and Michael Hsu, and
each of them, attorneys and proxies, with power of substitution in each of
them, to vote for and on behalf of the undersigned at the Special Meeting of
Stockholders of Celcor, Inc. ("Celcor") to be held on January 25, 1996, and
at any adjournment or adjournments thereof, upon matters properly coming
before the Special Meeting as set forth in the related Notice of Meeting
and Proxy Statement (the "Proxy Statement"), both of which have been
received by the undersigned, and upon all such other matters that may
properly be brought before the meeting and/or any adjournment or
adjournments thereof, as to which the undersigned hereby confers
discretionary authority upon said proxies. Without otherwise limiting
the general authorization given hereby, said attorneys and proxies are
instructed to vote as follows:
1. Approval of an Agreement and Plan of Merger (the "Merger Agreement"),
among Celcor, Northeast (USA) Corp. ("Northeast"), and the shareholders of
Northeast, providing, among other things, for the merger of Northeast with
and into Celcor, and the issuance of shares of Celcor Common Stock to the
holders of Northeast Common Stock, as more fully described in the Proxy
Statement. (The Board of Directors recommends a vote "FOR".)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Election of the Board's nominees for Directors. (The Board of
Directors recommends a vote "FOR".)
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below). to vote for all
nominees listed below
Nominees: Stephen E. Roman, Jr., Eugene Cha, Frank Nelson, Jennifer Lo Wu,
Chin-Sung (Joe) Chen, David Chow and Michael Hsu
Instruction: To withhold authority to vote for any one or more nominees,
strike a line through such nominee(s) name above
3. Ratification and confirmation of the authorization and issuance of
275,000 shares of Series C 8% Convertible Preferred Stock, par value one
mil ($0.001) per share, as more fully described in the Proxy Statement.
(The Board of Directors recommends a vote "For".)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approval of a proposed amendment to the Company's Certificate of
Incorporation expressly authorizing the Board of Directors to establish
the rights, preferences and limitations of any class or series of preferred
stock which may be issued in the future. (The Board of Directors recommends
a vote "FOR".)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, said proxies are authorized to vote upon such
other business as may properly come before the Special Meeting.
UNLESS OTHERWISE SPECIFIED IN THE SQUARES PROVIDED IN THIS PROXY, THIS PROXY
WILL BE VOTED (i) FOR THE RATIFICATION AND APPROVAL OF THE MERGER AGREEMENT,
(ii) FOR THE ELECTION OF ALL OF THE BOARD'S NOMINEES FOR DIRECTOR, (iii) FOR
THE RATIFICATION AND CONFIRMATION OF THE AUTHORIZATION AND ISSUANCE OF THE
SERIES C 8% CONVERTIBLE PREFERRED STOCK AND (iv) FOR THE ADOPTION OF THE
PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
Please sign this proxy and return it promptly whether or not you expect to
attend the Special Meeting. You may nevertheless vote in person if you attend.
Please sign exactly as your name appears hereon. Give full title if an
Attorney, Trustee, Guardian, etc. For an account in the name of two or more
persons, each should sign, or if one signs, he should attach evidence of his
authority.
This proxy is to be used only by holders of Celcor, Inc. Common Stock.
Dated:_____________________________, 1996
Signed:_________________________________
_______________________________________
EXHIBIT E
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CELCOR, INC.
Celcor, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State
of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of
Celcor, Inc. resolutions were duly adopted setting forth a
proposed amendment of the Certificate of Incorporation of said
corporation, declaring said amendment to be advisable and calling
a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed
amendment is attached hereto as Exhibit A.
SECOND: That thereafter, pursuant to resolution of its
Board of Directors, a special meeting of the stockholders of said
corporation was duly called and held, upon notice in accordance
with Section 222 of the General Corporation Law of the State of
Delaware, at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in
accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Celcor, Inc. has caused this
Certificate to be signed by Stephen E. Roman, Jr., its President,
and Michael W. Hsu, its Secretary, this ___ day of _______, 1995.
By: _______________________________
Stephen E. Roman, Jr., President
ATTEST: __________________________
Michael W. Hsu, Secretary
Celcor, Inc./Northeast (USA) Corp.
Index to Financial Statements
Celcor, Inc. Pro Forma Condensed Consolidated Financial
Statements - Unaudited:
Introduction F-2
Balance sheet as of September 30, 1995 F-3
Statement of operations for the three months ended
September 30, 1995 F-4
Statement of operations for the year ended
June 30, 1995 F-5
Notes to pro forma condensed consolidated
financial statements F-6
Celcor, Inc. Financial Statements:
Report of independent certified public accountants F-7
Balance sheets as of June 30, 1995 and September 30, 1995 F-8
Statements of operations for the years ended
June 30, 1995 and 1994 and the three months ended
September 30, 1995 and 1994 F-9
Statements of stockholders' equity for the years ended
June 30, 1995 and 1994 and the three months ended
September 30, 1995 F-10
Statements of cash flows for the years ended June 30,
1995 and 1994 and the three months ended
September 30, 1995 and 1994 F-11
Notes to financial statements F-12 - F-14
Northeast (USA) Corp. Consolidated Financial Statements -
Audited:
Report of independent certified public accountants F-15
Balance sheets as of June 30, 1995 and September 30, 1995 F-16
Statements of operations for the years ended
June 30, 1995 and 1994 and the three months ended
September 30, 1995 and 1994 F-17
Statements of stockholders' equity for the years ended
June 30, 1995 and 1994 and the three months ended
September 30, 1995 F-18
Statements of cash flows for the years ended
June 30, 1995 and 1994 and the three months ended
September 30, 1995 and 1994 F-19
Summary of accounting policies F-20 - F-22
Notes to consolidated financial statements F-23 - F-26
F-1
Celcor, Inc. Unaudited Pro Forma Condensed
Consolidated Financial Statements
Introduction
The following unaudited pro forma condensed consolidated balance sheet as of
September 30, 1995, and the unaudited pro forma condensed consolidated
statements of operations for the three months ended September 30, 1995 and the
year ended June 30, 1995 reflect the pro forma condensed consolidated
financial statements of Celcor, Inc. giving effect to the pro forma
adjustments described herein as though the merger with Northeast (USA) Corp.
had been consummated at September 30, 1995 for the condensed consolidated
balance sheet and at July 1, 1994 for the condensed consolidated statements
of operations.
The unaudited pro forma condensed consolidated financial statements should be
read in conjunction with the notes thereto and with the historical financial
statements of Celcor, Inc. and Northeast (USA) Corp. included elsewhere herein.
See "Index to Financial Statements". The unaudited pro forma
condensed consolidated statements of operations are not necessarily
indicative of operating results that would have been achieved had the merger
actually been consummated at July 1, 1994 and should not be construed as
indicative of future operations.
Under the terms of the merger agreement, Celcor, Inc. will issue 1,750,000
shares of its common stock in exchange for all of the outstanding shares of
common stock of Northeast (USA) Corp. The transaction is being accounted for
as a reverse acquisition whereby Northeast (USA) Corp. is the acquirer
for accounting purposes.
Celcor Inc.
Pro Forma Condensed Consolidated Balance Sheet
(Unaudited)
September 30, 1995
Northeast
Celcor, Inc. (USA) Corp. Adjustments Pro forma
Assets
Current:
Cash and cash equivalents $836 $236,427 $- $237,263
Receivables - 56,973 - 56,973
Inventory - 429,889 - 429,889
Other - 117,785 - 117,785
______________________________________________________________________________
836 841,074 - 841,910
Notes receivable 700,000 - (700,000)(2) -
Property and equipment, net - 422,786 - 422,786
Land held for sale - 420,000 - 420,000
Intangible assets - 1,723,569 - 1,723,569
Other assets - 12,515 - 12,515
_______________________________________________________________________________
$700,836 $3,419,944 $(700,000) $3,420,780
_______________________________________________________________________________
Liabilities and Stockholders'
Equity
Current:
Accounts payable $32,339 $ 35,401 $ - $ 67,740
Accrued expenses 10,614 250,323 - 260,937
Notes payable - 900,000 (700,000)(2) 200,000
______________________________________________________________________________
42,953 1,185,724 (700,000) 528,677
Minority interest - 2,128,065 - 2,128,065
_______________________________________________________________________________
42,953 3,313,789 (700,000) 2,656,742
_______________________________________________________________________________
Stockholders' equity:
Preferred stock 275 - - 275
(1,050,000)(1)
Common stock 3,515 1,050,000 1,750(1) 5,265
Additional paid-in
capital 1,570,475 - 882,968(1) 2,453,443
Accumulated deficit (165,282) (1,064,211) 165,282(1) (1,064,211)
-
Treasury stock (751,100) - - (751,100)
Foreign translation
adjustment - 120,366 - 120,366
_______________________________________________________________________________
657,883 106,155 - 764,038
_______________________________________________________________________________
$700,836 $3,419,944 $(700,000) $3,420,780
_______________________________________________________________________________
See accompanying notes to pro forma condensed
consolidated financial statements.
F-3
Celcor, Inc.
Pro Forma Condensed Consolidated Statement of Operations
(Unaudited)
Three months ended September 30, 1995
Northeast
Celcor, Inc. (USA) Corp. Adjustments Pro forma
Sales $ - $49,019 $- $49,019
Expenses:
Cost of sales - 39,426 - 39,426
Selling, general and
administrative 27,171 183,346 - 210,517
Interest expense - 2,396 - 2,396
_______________________________________________________________________________
27,171 225,168 - 252,339
________________________________________________________________________________
(27,171) (176,149) - (203,320)
Minority interest - 61,933 - 61,933
________________________________________________________________________________
Net loss $ (27,171) $(114,216) $- $ (141,387)
Net loss per share $ (.01) $ (.03)
Weighted average common
shares outstanding $3,364,674 5,114,674(4)
See accompanying notes to pro forma condensed
consolidated financial statements.
F-4
Celcor, Inc.
Pro Forma Condensed Consolidated Statement of Operations
(Unaudited)
Year ended June 30, 1995
Northeast
Celcor, Inc. (USA) Corp. Adjustments Pro forma
Sales $ - $904,795 $ - $904,795
Expenses:
Cost of sales - 860,556 - 860,556
Selling, general and
administrative 80,106 787,131 25,000(3) 892,237
Loss on write-down of land - 180,000 - 180,000
Interest expense - 7,680 - 7,680
_______________________________________________________________________________
80,106 1,835,367 25,000 1,940,473
_______________________________________________________________________________
(80,106) (930,572) (25,000) (1,035,678)
Minority interest - 230,615 - 230,615
________________________________________________________________________________
Net loss $(80,106) $ (699,957) $ (25,000) $ (805,063)
Net loss per share $ (.02) $ (.16)
Weighted average common
shares outstanding 3,364,674 5,114,674(4)
See accompanying notes to pro forma condensed
consolidated financial statements.
F-5
Celcor, Inc.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
1. To record issuance of 1,750,000 shares of Celcor, Inc. common stock
to acquire Northeast (USA) Corp. As discussed in the introduction
section, the acquisition was recorded as a reverse acquisition.
2. To eliminate intercompany loan.
3. To accrue costs (professional fees) at June 30, 1995 relating to
the merger. No accrual was necessary at September 30, 1995 since
most costs were incurred during the period then ended.
4. Average number of Celcor, Inc. common stock plus 1,750,000 shares
issued to merge with Northeast (USA) Corp.
F-6
Report of Independent Certified Public Accountants
The Board of Directors and Stockholders
Celcor, Inc.
Ocean, New Jersey
We have audited the accompanying balance sheet of Celcor, Inc. as of June 30,
1995, and the related statements of operations, stockholders' equity, and cash
flows for each of the two years in the period ended June 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Celcor, Inc. as of June 30,
1995, and the results of its operations and its cash flows for each of the two
years in the period ended June 30, 1995 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has no current source of revenues or funds and has a
working capital deficit as of June 30, 1995. In addition, the Company may
acquire Northeast (USA) Corp. (see Note 5) which will require additional funds
to finance the combined operations. These matters raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome
of these uncertainties.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
August 25, 1995
F-7
CELCOR, INC.
Balance Sheets
June 30, 1995 September 30, 1995
(unaudited)
Assets
Current:
Cash $ 12,037 $ 836
___________________________________________________________________________
Total current assets 12,037 836
Notes receivable (Note 5) 700,000 700,000
____________________________________________________________________________
$ 712,037 $700,836
Liabilities and Stockholders' Equity
Current:
Accounts payable $ - $ 32,339
Accrued expenses 26,983 10,614
___________________________________________________________________________
Total current liabilities 26,983 42,953
Stockholders' equity:
Preferred stock - 8% convertible;
$.001 par value; liquidation
preference of $3.00; Series
C - 2,000,000 shares authorized;
275,000 shares issued and
outstanding (Note 4) 275 275
Common stock - $.001 par value;
20,000,000 shares authorized;
3,514,894 shares issued and
3,364,674 outstanding (Note 2) 3,515 3,515
Additional paid-in capital 1,570,475 1,570,475
Accumulated deficit (138,111) (165,282)
Treasury stock - 150,220
shares at cost (751,100) (751,100)
_________________________________________________________________________
Total stockholders' equity 685,054 657,883
_________________________________________________________________________
$ 712,037 $ 700,836
See accompanying notes to financial statements.
F-8
Celcor, Inc
Statement of Operations
Year ended June 30, Three months ended
September 30,
1995 1994 1995 1994
(unaudited)
Revenue $ - $ - $ - $ -
General and administrative expenses 80,106 50,325 27,171 10,987
________________________________________________________________________________
Operating loss (80,106) (50,325) (27,171) (10,987)
Other expense - interest - (3,261) - -
________________________________________________________________________________
Net loss $(80,106) $(53,586) $(27,171) $(10,987)
Net loss per share $ (.02) $ (.02) $ (.01) $ -
See accompanying notes to financial statements.
F-9
<TABLE> Celcor, Inc.
Statements of Stockholders' Equity
Common stock Preferred stock
Shares(1) Amount Shares Amount Additional Accumulated Treasury
paid-in capital deficit stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993 3,514,894 $3,515 - $ - $ 745,750 $ (4,419) $(751,100) $(6,254)
Sale of cumulative preferred
Series C shares in private
placement (Note 4) - - 260,000 260 779,740 - - 780,000
Conversion of notes payable
and accrued interest to
Series C preferred
shares (Note 4) - - 15,000 15 44,985 - - 45,000
Net loss - - - - - (53,586) - 53,586)
____________________________________________________________________________________________________________________________________
Balance, June 30, 1994 3,514,894 3,515 275,000 275 1,570,475 (58,005) (751,100) 765,160
Net loss - - - - - (80,106) - (80,106)
____________________________________________________________________________________________________________________________________
Balance, June 30, 1995 3,514,894 3,515 275,000 275 1,570,475 (138,111) (751,100) 685,054
Net loss (unaudited) - - - - - (27,171) - (27,171)
____________________________________________________________________________________________________________________________________
Balance, September 30, 1995
(unaudited) 3,514,894 $ 3,515 275,000 $275 $ 1,570,475 $(165,282) $(751,100) $657,883
See accompanying notes to financial statements.
___________________
(1) Adjusted retroactively for the effect of a one-for-five reverse stock
split (Note 2).
F-10
</TABLE>
Celcor, Inc.
Statement of Cash Flows
<TABLE>
Three months ended
Year Ended June 30, September 30,
1995 1994 1995 1994
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(80,106) $(53,586) $(27,171) $(10,987)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Increase (decrease) in liabilities:
Accounts payable and
accrued expenses 22,859 3,770 15,970 2,969
____________________________________________________________________________
Net cash used in operating
activities (57,247) (49,816) (11,201) (8,018)
Cash flows from investing activities:
Loan to Northeast (USA) (Note 5) (700,000) - - (700,000)
Cash flows from financing activities:
Borrowings of notes payable - 20,000 - -
Proceeds from sale of stock - 780,000 - -
______________________________________________________________________________________
Net cash provided by
financing activities - 800,000 - -
_______________________________________________________________________________________
Net increase (decrease) in cash (757,247) 750,184 (11,201) (708,018)
Cash, beginning of year 769,284 19,100 12,037 769,284
_______________________________________________________________________________________
Cash, end of year $ 12,037 $769,284 $ 836 $ 61,266
Supplemental disclosure of cash
flows information:
Cash paid during the year for:
Interest $- $- $- $-
Noncash financing activity -
conversion of debt to
preferred stock $- $45,000 $- $-
See accompanying notes to financial statements.
F-11
Celcor, Inc.
Notes to Financial Statements
(Information for September 30, 1995 and 1994 is unaudited)
1. Nature of Business Celcor, Inc. (the "Company") is a Delaware corporation.
The Company emerged from Chapter 11 bankruptcy
proceedings in July of 1992 and has had no business
operations since 1991. Its current business plans
include the seeking of business opportunities in
the People's Republic of China through acquisitions,
mergers, joint ventures and/or the formation of
operating subsidiaries.
2. Summary of Significant
Accounting Policies Basis of Presentation
The Company's financial statements have been presented
on the basis that it is a going concern, which
contemplates the realization of assets and the
satisfaction of liabilities in the normal course of
business. The Company has incurred losses and has no
current source of revenues or funds and has a
working capital deficit as of June 30, 1995. In
addition, the Company plans to acquire Northeast (USA)
Corp. (see Note 5) which will require additional funds
to finance the combined operations. The Company's
continued existence is dependent upon its ability
to secure adequate financing. Should the
acquisition take place, the Company plans to raise
capital for the combined entity through a private
placement; however, there are no assurances that the
financing will occur. The financial statements do not
include any adjustments that might result from the
outcome of these uncertainties.
Common Stock
On September 20, 1993, the Company's Board of Directors
and stockholders approved a one-for-five reverse
stock split. Accordingly, all share data has been
restated for periods prior to the stock split.
Net Loss Per Common Share
The weighted average number of common shares
outstanding used in computing net loss per common
share was 3,364,674 in 1995 and 1994. The weighted
average number of common shares used in computing
the net loss per common share does not include any
shares issuable upon the assumed conversion of the
preferred stock, since the effect would have been
to decrease net loss per common share in each period.
F-12
Celcor, Inc.
Notes to Financial Statements
(Information for September 30, 1995
and 1994 is unaudited)
Interim Periods
The results of operations for the three months ended
September 30, 1995 and 1994 are not necessarily
indicative of the results to be expected for the full
fiscal year. All information for the three months ended
September 30, 1995 and 1994 is unaudited and, in the
opinion of management, contains all adjustments,
consisting only of normal recurring accruals,
necessary for a fair statement of such information
for the respective periods.
3. Income Taxes The Company follows the liability method of accounting
for income taxes in accordance with Statement
of Financial Accounting Standards No. 109 (SFAS 109),
"Accounting for Income Taxes". Under SFAS 109,
deferred income taxes are provided at the enacted
marginal rates on the difference between the
financial statement and income tax carrying amounts of
assets and liabilities. The Company has a net
operating loss carryforward of $135,000 which expires
in years through 2010. Losses prior to June 30,
1992 were forfeited as a result of the change in
ownership of the Company. At June 30, 1995, deferred
tax assets relating to the net operating loss totaling
$47,000 were offset by a valuation allowance, since
utilization of the loss is uncertain.
4. Preferred Stock In May 1994, the Company sold 260,000 shares of its
newly designated Series C convertible preferred
stock, $.001 par value, for an aggregate amount
of $780,000 to a group of private investors. The
preferred shares may be converted in whole or in part
at any time through June 30, 1997 into three shares
of common stock. The Company has the right, at any
time after July 1, 1996, to redeem the shares at
$4.50. The shares carry a stated dividend rate
of 8% per annum. Dividends are cumulative and are
payable on June 30, 1997 and quarterly thereafter.
Cumulative dividends totaled $71,500 at June 30, 1995
and $88,000 at September 30, 1995.
F-13
Celcor, Inc.
Notes to Financial Statements
(Information for September 30, 1995 and 1994 is unaudited)
In connection with the offering of 8% cumulative
preferred shares, $45,000 of notes payable and
accrued interest were converted into 15,000 shares
of Series C convertible preferred stock at a rate of
$3.00 per share.
5. Potential Acquisition
and Notes Receivable On August 15, 1994, the Company signed a letter of
intent to acquire Northeast (USA) Corp.
("Northeast") and, on March 15, 1995, executed an
Agreement and Plan of Merger with Northeast. The
transaction is subject, among other conditions, to
completion of a due diligence examination and
stockholder approval. Northeast stockholders would
receive 1,750,000 shares of the Company's common
stock for all of the issued and outstanding shares
of Northeast. Northeast is a manufacturer and
distributor of various vitamin products with
operations in the People's Republic of China and
the United States. On August 9, 1994, the Company
loaned $700,000 to Northeast. This loan, evidenced
by a promissory note, does not bear interest until
the original maturity date, November 30, 1994, at
which time interest would have accrued at 15% per
annum. The maturity date of the loan has been extended
to February 28,1996 by the Company as the Company's
proposed merger with Northeast continues to proceed.
Concurrent to the note, Northeast's stockholders
pledged all existing shares of their common stock
as collateral. Although Northeast currently does
not have the necessary funds to repay the loan,
management of the Company believes that the value of
the above-mentioned collateral exceeds the amount of
the loan. Accordingly, no valuation reserve was
considered necessary at June 30, 1995 or September
30, 1995. Since the loan is not currently
collectible, the loan has been recorded as a long-
term asset on the accompanying balance sheets.
F-14
Report of Independent Certified Public Accountants
Northeast (USA) Corp.
New York, New York
We have audited the accompanying consolidated balance sheet of Northeast (USA)
Corp. and subsidiaries as of June 30, 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended June 30, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Northeast
(USA) Corp. and subsidiaries at June 30, 1995, and the results of their
operations and their cash flows for each of the two years in the period ended
June 30, 1995, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in the summary of accounting
policies to the financial statements, the Company has incurred recurring
losses since inception, has no current source of funds and has a working
capital deficit as of June 30, 1995. The Company's continued existence is
dependent upon its ability to secure adequate financing. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
September 25, 1995
F-15
Northwest (USA) Corp. and Subsidiaries
Consolidated Balance Sheets
September 30,
June 30, 1995 1995
(unaudited)
Assets
Current:
Cash and cash equivalents $351,400 $236,427
Receivables 34,534 56,973
Inventory (Note 2) 432,121 429,889
Other 70,058 117,785
_______________________________________________________________________
Total current assets 888,113 841,074
Property and equipment, net (Note 3) 348,535 422,786
Land held for sale (Note 4) 420,000 420,000
Intangible assets - land use
rights, net 1,742,666 1,723,569
Other assets 13,610 12,515
________________________________________________________________________
$ 3,412,924 $ 3,419,944
Liabilities and Stockholders' Equity
Current:
Notes payable - Celcor, Inc.(Note 8) $700,000 $700,000
Note payable - officer (Note 9) - 150,000
Note payable - bank (Note 9) - 50,000
Accounts payable 94,363 35,401
Accrued expenses 203,820 250,323
_______________________________________________________________________
Total current liabilities 998,183 1,185,724
Commitments (Notes 1, 6 and 8)
Minority interest (Note 1) 2,189,998 2,128,065
________________________________________________________________________
Stockholders' equity (Note 8):
Common stock, no par value -
shares authorized 200;
issued and outstanding 175 1,050,000 1,050,000
Accumulated deficit ( 949,995) (1,064,211)
Foreign translation adjustments 124,738 120,366
_______________________________________________________________________
Total stockholders' equity 224,743 106,155
_______________________________________________________________________
$3,412,924 $ 3,419,944
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-16
Northeast (USA) Corp. and Subsidiaries
Consolidated Statements of Operations
</TABLE>
<TABLE>
Year ended June 30, Three months ended September 30,
1995 1994 1995 1994
(unaudited)
<S> <C> <C> <C> <C>
Sales (Note 7) $904,795 $ - $ 49,019 $ -
Expenses:
Cost of sales (Note 7) 860,556 - 39,426 -
Selling, general and
administrative 787,131 312,736 183,346 72,224
Loss on write-down of
land held for sale (Note 4) 180,000 - - -
Interest 7,680 910 2,396 -
_______________________________________________________________________________________
1,835,367 313,646 225,168 72,224
Loss before minority
interest (930,572) (313,646) (176,149) (72,224)
Minority interest in
loss of joint venture 230,615 79,487 61,933 22,360
________________________________________________________________________________________
Net loss $ (699,957) $ (234,159) $(114,216) $ (49,864)
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-17
Northeast (USA) Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE> Foreign Total
translation stockholders'
Common stock Deficit adjustments equity
(s) <C> <C> <C> <C>
Balance, July 1, 1993 $150,000 $(15,879) $- $134,121
Issuance of 45 shares for cash 300,000 - - 300,000
Issuance of 30 shares for property 600,000 - - 600,000
Issuance of 80 shares for technology - - - -
Net loss - (234,159) - (234,159)
Translation adjustments - - 40,887 40,887
_______________________________________________________________________________________
Balance, June 30, 1994 1,050,000 (250,038) 40,887 840,849
Net loss - (699,957) - (699,957)
Translation adjustments - - 83,851 83,851
_______________________________________________________________________________________
Balance, June 30, 1995 1,050,000 (949,995) 124,738 224,743
Net loss (unaudited) - (114,216) - (114,216)
Translation adjustments (unaudited) - - (4,372) (4,372)
_______________________________________________________________________________________
Balance, September 30, 1995
(unaudited) $1,050,000 $(1,064,211) $120,366 $106,155
See accompanying summary of accounting policies
and notes to consolidated financial statements.
</TABLE>
F-18
<TABLE>
Northeast (USA) Corp. and Subsidiaries
Consolidated Statements of Cash Flows
Three months ended
Year ended June 30, September 30,
1995 1994 1995 1994
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(699,957) $(234,159) $ (114,216) $(49,864)
___________________________________________________________________________________
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 129,545 9,332 34,132 740
Loss on write-down of land
to realizable value 180,000 -
Minority interest (230,615) (79,487) (61,933) (5,918)
(Increase) decrease in:
Receivables (32,163) (2,371) (22,439) (26,390)
Inventory (430,921) (1,200) 2,232 (233,320)
Other assets (77,144) (700) (46,627) (5,204)
(Decrease) increase in:
Accounts payable and accrued
expenses 183,428 113,090 (12,459) 41,948
Other (199) (9,691) - -
___________________________________________________________________________________
Total adjustments (278,069) 28,973 (107,094) (228,144)
___________________________________________________________________________________
Net cash used in operating
activities (978,026) (205,186) (221,310) (278,008)
____________________________________________________________________________________
Cash flows from investing activities:
Capital expenditures (192,376) (201,624) (89,286) ( 29,245)
____________________________________________________________________________________
Cash flows from financing activities:
Proceeds from sale of stock - 300,000 - -
Proceeds from note payable - stockholder- 40,000 150,000 -
Proceeds from notes 750,000 - 50,000 700,000
Repayment of notes (90,000) - - -
Proceeds from minority investor - 750,000 - -
___________________________________________________________________________________
Net cash provided by financing
activities 660,000 1,090,000 200,000 700,000
____________________________________________________________________________________
Effect of exchange rate changes on
cash 11,592 40,887 (4,377) (31,510)
____________________________________________________________________________________
Net increase (decrease) in
cash and cash equivalents (498,810) 724,077 (114,973) 361,237
Cash and cash equivalents, beginning
of period 850,210 126,133 351,400 850,210
____________________________________________________________________________________
Cash and cash equivalents, end of
period $351,400 $850,210 $236,427 $1,211,447
____________________________________________________________________________________
Noncash financing and investing activities:
In 1994, the Company issued 110
shares of its common stock, valued
at $600,000, for property and
technology.
In 1994, the minority investor in
a joint venture contributed land
use rights, valued at $1,750,000,
to the joint venture.
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-19
</TABLE>
Northeast (USA) Corp. and Subsidiaries
Summary of Accounting Policies
(Information for September 30, 1995 and 1994 is unaudited)
Line of Business Northeast (USA) Corp. (the "Company") was incorporated
on February 24, 1993 in New York. The Company markets
skin and body care products in the United States,
Korea, Taiwan and China, as well as sells, on a
wholesale basis, bulk ascorbic acid which it
purchases from a Chinese manufacturer (affiliate).
Through its 56% owned Chinese subsidiary, it
manufactures vitamin products for the Chinese market.
The Company commenced operations during the fiscal
year ended June 30, 1995.
Basis of Presentation The Company's financial statements have been presented
on the basis that it is a going concern, which
contemplates the realization of assets and the
satisfaction of liabilities in the normal course of
business. The Company has incurred losses, has no
current source of funds and has a working capital
deficit as of June 30, 1995. The Company's continued
existence is dependent upon its ability to secure
adequate financing. Should the acquisition with
Celcor, Inc. take place (see Note 8), the combined
entity will attempt to raise capital through a private
placement; however, there are no assurances that the
financing will occur. The financial statements do not
include any adjustments that might result from
the outcome of these uncertainties.
Principles of
Consolidation The consolidated financial statements include the
accounts of the Company, Shenyang United
Vitatech Ltd. ("UV"), a majority-owned joint
venture (see Note 1), and Northeast (Shenyang)
Consulting Co., Ltd., an inactive wholly-owned
subsidiary. Both subsidiaries are located in
Shenyang, China. All material intercompany
accounts and transactions are eliminated.
Cash and Cash
Equivalents The Company considers investments with original
maturities of three months or less when purchased
to be cash equivalents. Cash balances at June 30,
1995 and September 30, 1995 consist primarily of
Chinese bank accounts.
Inventories Inventories are valued at the lower of cost or market.
Cost is determined by the first-in, first-out (FIFO)
method.
F-20
Northeast (USA) Corp. and Subsidiaries
Summary of Accounting Policies
(Information for September 30, 1995 and 1994 is unaudited)
Property and Equipment,
and Depreciation Property and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed
on the straight-line method over the estimated useful
lives of the assets.
Intangible Assets In fiscal 1994, the Company issued 80 shares of its
common stock to Mannion Consultants Ltd. ("Mannion")
to obtain certain proprietary technology which is
finished and ready for commercialization and which will
be used in producing the Company's vitamin and
cosmetic products. The technology did not have an
ascertainable book value as of the date of the
transfer. Accordingly, no valuation has been
assigned by the Company for this technology or the
issued common shares. Mannion was not previously
affiliated with either the Company or Celcor, Inc.
(see Note 8).
The minority investor, NEGPF, contributed certain
land use rights in mainland China as part of its
investment in UV. This subsidiary will build a factory
to produce and sell vitamin and cosmetic products
on this land. NEGPF's cost basis for the land use
rights ($1,750,000) was used to value this contribution.
The rights have a life of 30 years, the life of
the joint venture agreement (see Note 1). Amortization
on the land use rights totalled approximately $90,000
for the year ended June 30, 1995.
Translation of Foreign
Currencies The financial position and results of
operations of the Company's foreign subsidiaries
are accounted for using the local currency as the
functional currency. Assets and liabilities of these
subsidiaries are translated at the exchange rate in
effect at year-end. Income statement accounts are
translated at the average rate of exchange prevailing
during the year. Translation adjustments arising from
the use of differing exchange rates from period
to period and exchange gains and losses on
intercompany balances of a long-term investment nature
are included in the cumulative translation adjustment
account in stockholders' equity.
F-21
Northeast (USA) Corp. and Subsidiaries
Summary of Accounting Policies
(Information for September 30, 1995 and 1994 in unaudited)
Income Taxes The Company follows Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109"), "Accounting for
Income Taxes". SFAS No. 109 is an asset and
liability approach that requires the recognition of
deferred tax assets and liabilities for the expected
future tax consequences of events that have been
recognized in the Company's financial statements or tax
returns.
Revenue Recognition The Company recognizes its revenues upon shipment of
the related goods.
Research and
Development Research and development costs (which have been
immaterial to date) are expensed as incurred.
Interim Periods The results of operations for the three months
ended September 30, 1995 and 1994 are not necessarily
indicative of the results to be expected for the
full fiscal year. All information for the three
months ended September 30, 1995 and 1994 is
unaudited and, in the opinion of management,
contains all adjustments, consisting only of
normal recurring accruals, necessary for a
fair statement of such information for the
respective periods.
Reclassification Certain 1994 balances were reclassified to conform
with the 1995 presentation.
F-22
Northeast (USA) Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Information for September 30, 1995 and 1994
is unaudited)
1. Joint Venture
Agreement The Company formed a joint venture agreement with
NEGPF whereby both companies agreed to establish UV.
UV will construct a factory to produce and sell vitamin
and cosmetic products. The Company will contribute a
portion of the technology it acquired in fiscal 1994
(see Summary of Accounting Policies) and cash of
$2.1 million in consideration of 56.52% ownership of
UV. In October 1994, the Company paid $1 million to
UV. The balance of the Company's cash investment
($1.1 million) is to be paid by December 31, 1995.
The Company's contributions to UV have been (or
will be) eliminated in consolidation.
NEGPF agreed to contribute land use rights (see
Summary of Accounting Policies) and cash of
$750,000 in consideration of 43.48% ownership of UV.
These contributions were made prior to June 30, 1994.
The minority interest balances at June 30, 1995 and
September 30, 1995 represent NEGPF's investment in UV
as of those dates, reduced for its share of UV's
losses.
2. Inventories Inventories consist of the following:
June 30,1995 September 30, 1995
Raw materials $242,194 $ 303,215
Work-in-process 14,421 8,309
Finished goods 175,506 118,365
________________________________________________________
$432,121 $429,889
F-23
Northeast (USA) Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Information for September 30, 1995 and 1994
is unaudited)
3. Property and
Equipment Property and equipment consist of the following:
September 30,
June 30,1995 1995
Machinery and equipment $158,507 $206,486
Furniture and fixtures 26,268 32,243
Automobiles 211,516 211,059
Leasehold improvements - 26,847
396,291 476,635
______________________________________________________
Less: Accumulated depreciation 47,756 53,849
______________________________________________________
$348,535 $422,786
4. Land Held for Sale In 1994, thirty (30) shares of the Company's common
stock were issued to Dziou Tai Associates (a company
controlled by a relative of the chief executive officer
of the Company) in exchange for land in Queens,
New York. The Company originally planned to build
a residential and office complex on the land. The
property acquired was valued at the predecessor
owner's cost basis of $600,000.
During fiscal 1995, the Company decided to sell the
land. The land was written down by $180,000 to reflect
the estimated realizable value of the land. The asset
has been classified as long term since the Company
cannot determine when the asset will be sold. See
Note 9.
5. Income Taxes At June 30, 1995, the Company had a net operating loss
for Federal income tax purposes of $364,000 which
expires in 2008. A deferred tax asset of $120,000 has
been offset by a valuation allowance of the same amount.
The Company also has a foreign net operating loss in
the amount of $705,000 which expires in 2000. Deferred
tax assets of $235,000 have been offset by a valuation
allowance.
6. Commitments The Company leases office space in New York on a
month-to-month basis. Rent expense totaled $37,000
in fiscal 1995 and $28,000 in fiscal 1994.
F-24
Northeast (USA) Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Information for September 30, 1995 and 1994
is unaudited)
The Company has a consulting fee arrangement with one
of its shareholders. The fee is $8,000 per month and
expires in December 1996. Expenses totaled $108,000 in
fiscal 1995 and $54,000 in fiscal 1994.
7. Business Operations The Company is located in New York and the
subsidiaries (which were formed in fiscal 1994) are
located in China. The identifiable assets of the Chinese
operation total $2,900,000 at June 30, 1995 and
$2,350,000 at June 30, 1994. The pre-tax loss of
the Chinese operation totals $530,000 and $180,000
and the capital expenditures were $140,000 and $198,000
for the years ended June 30, 1995 and 1994,
respectively. Almost all sales occurred domestically.
Sales to one customer totaled $819,000 in fiscal 1995.
There were no sales to this customer during the period
ended September 30, 1995. The majority of purchases of
inventory were from NEGPF.
8. Potential Acquisition
and Notes Payable
to Celcor On August 15, 1994, the Company signed a letter of
intent to merge with Celcor, Inc. ("Celcor") and,
on March 15, 1995, executed an Agreement and Plan of
Merger with Celcor. The transaction is subject, among
other conditions, to completion of a due diligence
examination and stockholder approval. The Company's
stockholders would receive 1,750,000 shares of
Celcor's common stock for all of the issued and
outstanding shares of the Company.
On August 9, 1994, Celcor loaned $700,000 to the
Company. This loan, evidenced by a promissory note,
does not bear interest until the original maturity
date, November 30, 1994, at which time interest
would have accrued at 15% per annum. The maturity
date of the loan has been extended to February 28,
1996 by Celcor as the proposed merger continues to
proceed. Concurrent to the note, the Company's
stockholders pledged all existing shares of their
common stock as collateral. In October and November
1995, the Company repaid $20,000 of this loan.
F-25
Northeast (USA) Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Information for September 30, 1995 and 1994
is unaudited)
9. Notes Payable On July 11, 1995, the Company entered into an unsecured
promissory note for $50,000 with a bank due in 90 days
paying interest at 11.5%. This note was repaid by the
Company on its maturity date in October 1995.
In September 1995, the president of the Company loaned
$150,000 to the Company. The loan is payable on demand
and has interest at 11.25%.
F-26
