SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, For Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
MARGO NURSERY FARMS, INC.
(Name of Registrant as Specified in Its Charter)
MARGO NURSERY FARMS, INC.
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on the table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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MARGO NURSERY FARMS, INC.
ROAD 690
KILOMETER 5.8
VEGA ALTA, PUERTO RICO 00762
November 17, 1997
Dear Shareholders:
You are cordially invited to attend a special meeting of shareholders
of Margo Nursery Farms, Inc. ("Margo"), to be held on December 15, 1997 at 10:00
a.m., local time, at the offices of Pietrantoni Mendez & Alvarez, Suite 1901,
Banco Popular Center, 209 Munoz Rivera Avenue, San Juan, Puerto Rico.
At the meeting, shareholders will be asked to consider and approve the
reincorporation of Margo as a Puerto Rico corporation. The business of Margo
would continue to be operated by a newly organized Puerto Rico corporation that
will adopt the name "Margo Nursery Farms, Inc." You would have the same
ownership interest in the new Puerto Rico corporation as you now have in Margo.
Your shares of stock would be automatically converted on a share-for-share basis
into shares of stock in the new Puerto Rico corporation without your having to
exchange your present stock certificates.
For the reasons set forth in the accompanying proxy statement, which
you are urged to read, your Board of Directors strongly believes that the
reincorporation of Margo as a Puerto Rico corporation will be advantageous to
Margo and its shareholders and unanimously recommends that you vote "For" the
proposal.
It is important that your shares be represented at the meeting whether
or not you are able to attend personally. Accordingly, I urge you to complete,
sign and date the enclosed Proxy Card and return it in the enclosed envelope as
promptly as possible.
Sincerely,
Michael J. Spector
Chairman of the Board,
Chief Executive Officer
and President
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MARGO NURSERY FARMS, INC.
ROAD 690
KILOMETER 5.8
VEGA ALTA, PUERTO RICO 00762
-----------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 15, 1997
-----------------------------------------------------
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Margo
Nursery Farms, Inc. ("Margo"); will be held on December 15, 1997 at 10:00 a.m.,
local time, at the offices of Pietrantoni Mendez & Alvarez, Suite 1901, Banco
Popular Center, 209 Munoz Rivera Avenue, San Juan, Puerto Rico, for the
following purposes:
(1) To consider and act upon the reincorporation of Margo as a
Puerto Rico corporation. The reincorporation of Margo would result in
(a) Margo merging with and into a new Puerto Rico corporation which
would change its name to Margo Nursery Farms, Inc. and would conduct
the business presently being conducted by Margo, and (b) all holders of
Margo common stock becoming holders, on a share-for-share basis, of
shares of common stock of the new Puerto Rico corporation, all as more
fully described in the accompanying proxy statement.
(2) To transact such other business as may properly be brought
before the meeting or any adjournment thereof.
The Board of Directors has designated the close of business on November
11, 1997 as the record date for the determination of shareholders entitled to
notice of and to vote at the meeting and any and all adjournments thereof.
Holders of Margo common stock are entitled to dissenters' right of
appraisal. If the reincorporation of Margo as a Puerto Rico corporation is
approved, dissenting shareholders may be entitled, subject to compliance with
the requirements of the Florida Business Corporation Act, to receive the fair
value of their shares. See "Dissenters' Right" in the accompanying Proxy
Statement and Exhibit B to said Proxy Statemment.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING WHETHER
OR NOT YOU ARE ABLE TO ATTEND THE MEETING IN PERSON. PLEASE COMPLETE, SIGN AND
DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED STAMPED
ENVELOPE. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE THE SHARES REGISTERED
IN YOUR NAME IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR
PROXY CARD.
By order of the Board of Directors,
Margaret D. Spector
Secretary
Vega Alta, Puerto Rico
November 17, 1997
<PAGE>
MARGO NURSERY FARMS, INC.
ROAD 690
KILOMETER 5.8
VEGA ALTA, PUERTO RICO 00762
------------------------------------
PROXY STATEMENT
------------------------------------
SPECIAL MEETING OF STOCKHOLDERS
to be held on December 15, 1997
This Proxy Statement is being furnished to the holders of the common
stock, $.001 par value ("Margo Common Stock") of MARGO NURSERY FARMS, INC., a
Florida corporation ("Margo"), in connection with the solicitation of proxies by
the Board of Directors of Margo for a Special Meeting of Stockholders (the
"Special Meeting") to be held at the place and time and for the purposes set
forth in the accompanying Notice of Special Meeting Shareholders. This Proxy
Statement and accompanying form of proxy are first being sent to stockholders on
or about November 18, 1997.
The Board of Directors has ordered the Special Meeting to be held on
Monday, December 15, 1997, and has fixed the close of business on November 11,
1997, as the record date (the "Record Date") for the determination of
stockholders entitled to receive notice of, and to vote at, the Special Meeting
or at any adjournment or postponement thereof. The presence, in person or by
proxy, of the holders of a majority of the outstanding shares of Margo Common
Stock is necessary to constitute a quorum at the meeting. In determining the
presence of a quorum at the Special Meeting, abstentions are counted and "broker
non-votes" are not. A "broker non-vote" results when a broker or nominee has
physically indicated on the proxy that it does not have discretionary authority
to vote on a particular matter (even though those shares may be enticed to vote
on other matters). The Florida Business Corporation Act, as currently in effect
("FBCA") provides that the proposed reincorporation will be approved if the
votes cast in favor of the action represent a majority of the shares entitled to
be cast on the action. Therefore, under FBCA, abstentions and broker non-votes
shall have the same effect as a vote against the proposed reincorporation.
As of the Record Date, Margo had 1,895,322 outstanding shares of Margo
Common Stock. Holders of Margo Common Stock are entitled to one vote per share,
exercisable in person or by proxy, at all
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meetings of stockholders. The Margo Common Stock is the only class of Margo's
securities which is entitled to vote on any matter submitted to a vote at the
Special Meeting.
Proxies in the accompanying form, properly executed, duly returned to
Margo and not revoked, will be voted in the manner specified. If no instructions
are made, such shares will, except as provided in the second paragraph of this
Proxy Statement, be voted (i) for the approval of the reincorporation of Margo
as a Puerto Rico corporation pursuant to which Margo would merge into a new
Puerto Rico corporation which would change its name to "Margo Nursery Farms,
Inc." and would conduct the business presently being conducted by Margo; (ii) in
the proxyholder's discretion on any other matters that may properly come before
the Special Meeting. Returning a signed proxy will not affect a stockholder's
right to attend the Special Meeting and to vote in person, since proxies are
revocable. A proxy for the Special Meeting may be revoked at any time prior to
its use by submission of a later dated proxy, by delivery of written notice of
revocation to the President of Margo, or by voting in person at the Special
Meeting. Presence at the Special Meeting does not of itself revoke a proxy.
Margo will pay the entire cost of soliciting proxies for the Special
Meeting. Solicitation of proxies may be made through personal visits or
telephone calls to stockholders or their representatives by officers and other
employees of Margo, who will receive no additional compensation therefor.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November 14, 1997, the number of
shares of Margo Common Stock owned beneficially by the following persons and the
percentage of all shares outstanding represented by such ownership: (a) each
director and executive officer of Margo; (b) all executive officers and
directors of Margo as a group; and (c) each person or entity known by Margo to
be the beneficial owner of more than five percent (5%) of the outstanding Margo
Common Stock. Unless otherwise stated, all shares are held with sole investment
and voting power.
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<TABLE>
<CAPTION>
AMOUNT
NAME OF OF
BENEFICIAL OWNER BENEFICIAL PERCENT
OWNERSHIP(1) OF CLASS(1)
- --------------------------------------------------------------------- -------------------- -----------------
<S> <C> <C>
DIRECTORS AND MANAGEMENT
Michael J. Spector.......................................... 1,272,382(2) 65.8%
Highway 690, Km. 5.8
Vega Alta, PR 00646
Margaret D. Spector......................................... 1,272,382(2) 65.8%
Highway 690, Km. 5.8
Vega Alta, PR 00646
Frederick D. Moss........................................... 9,000(3) (4)
Blas Ferraiuoli............................................. 8,500(3) (4)
Michael A. Rubin............................................ 4,000(3) (4)
All directors, nominees and
executive officers as a group,
consisting of nine persons,
including those named above................................ 1,321,622(5) 67.28%
</TABLE>
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(1) The percent of class held by each person includes the number of shares of
Margo Common Stock the named person(s) has the right to acquire upon
exercise of stock options that are exercisable within 60 days of November
14, 1997 (except in the case of Mr. and Mrs. Spector in which case all
shares issuable upon exercise of stock options are included whether or nor
exercisable within 60 days of November 14, 1997). Shares owned by Mr. and
Mrs. Spector include the amount of shares owned by their spouse and
therefore are shown more than once. See footnote (2) below. Such shares are
shown only once, however, in the total for all directors and officers as a
group.
(2) Includes 947,194 shares held directly by Mr. Spector and 269, 688 shares
held directly by Mrs. Spector. Also, includes stock options to acquire
30,000 and 7,500 shares held by Mr. Spector and Mrs. Spector, respectively.
The Spectors share voting and investment power over the shares owned by each
other.
(3) Includes 4,500, 4,500 and 1,000 shares issuable upon exercise of stock
options exercisable on or within 60 days of November 14, 1997, in the case
of Messrs. Moss, Ferraiuoli and Rubin, respectively.
(4) Represents less than 1%.
(5) Includes 37,500 shares issuable upon exercise of stock options to Mr. and
Mrs. Spector and 28,700 shares issuable upon exercise of stock options to
other executive officers and directors that are exercisable on or within 60
days of November 14, 1997.
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<TABLE>
<CAPTION>
AMOUNT
NAME OF OF
BENEFICIAL OWNER BENEFICIAL PERCENT
OWNERSHIP(1) OF CLASS(1)
- --------------------------------------------------------------------- -------------------- -----------------
<S> <C> <C>
OTHER PRINCIPAL HOLDERS
J. Morton Davis............................ 189,149(6) 9.9%
D.H. Blair Holdings, Inc.
D.H. Blair Investment Banking Corp.
44 Wall Street
New York, New York 10005
</TABLE>
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(6) This amount consists of 189,149 shares held in the name of D.H. Blair
Investment Banking Corp., a registered broker-dealer which is wholly-owned
by D.H. Blair Holdings, Inc. which in turn is wholly-owned by J. Morton
Davis. This amount is based upon a Schedule 13G dated February 9, 1995 filed
with the Securities and Exchange Commission. According to the Schedule 13G,
Mr. Davis shares the power to vote and dispose all 189,149 shares of Margo
Common Stock reported with the Boards of Directors of Blair Investment and
Blair Holdings.
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PROPOSED REORGANIZATION
GENERAL
For the reasons set forth below under "Purpose," the Board of Directors
and management of Margo believe that it is in the best interests of Margo and
its shareholders to reincorporate Margo as a Puerto Rico corporation. Margo
Transition Corp. ("Transition"), a corporation organized under the laws of
Puerto Rico, was established to accomplish the reincorporation of Margo pursuant
to a proposed merger of Margo and Transition. As a result of the proposed
merger, all current Margo shareholders will have the same equity interest in
Transition as they now have in Margo. Margo's business will continue to be
conducted by Transition. The consolidated capitalization, assets and liabilities
of Transition following the reorganization will be the same as Margo's
immediately prior to the reincorporation, except for any expenses incurred in
connection with the transaction or the payment of any taxes payable by Margo,
which in either case are not expected to be substantial. Prior to the
consummation of the proposed reincorporation, Margo Bay Farms, Inc., a
wholly-owned subsidiary of Margo, will be merged with and into Margo, with Margo
being the surviving corporation.
The reincorporation will be accomplished by means of a merger, the
basic features of which are as follows:
1. Margo has formed Transition, as a corporate entity incorporated
under the laws of Puerto Rico.
2. Upon consummation of the proposed reincorporation, Margo will be
merged with and into Transition, with Transition being the surviving corporation
of such merger. Transition will then change its name to Margo Nursery Farms,
Inc. and will succeed to all the rights, assets, liabilities and obligations of
Margo. As a result, the business presently conducted by Margo will be conducted
under the name Margo Nursery Farms, Inc. by Transition.
3. All holders of Margo Common Stock will become holders, on a
share-for-share basis, of shares of common stock of Transition having the same
rights with respect to Transition as their shares of Margo Common Stock now have
with respect to Margo.
PURPOSE
The principal reasons for the reincorporation of Margo as a
Puerto Rico corporation are the following:
1. UNITED STATES INCOME TAXES.
Margo, as a corporation organized in the State of Florida and doing
business in Puerto Rico, is subject to United States income tax with respect to
all its income, including income from sources within Puerto Rico. Margo is also
subject to Florida and Puerto Rico
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taxes. In the past, Margo has not had any United States income tax liability
with respect to its non-United States source income because of its election to
be treated as a possessions corporation for federal income tax purposes pursuant
to Section 936 of the Internal Revenue Code of 1986, as amended (the "Code") for
taxable years commencing prior to January 1, 1996 and Section 30A of the Code
for taxable years commencing after December 31, 1995. For the applicable taxable
years, Sections 936 and 30A of the Code allow United States corporations that
meet certain requirements and elect its application ("Possession Corporations")
a credit, subject to qualification of the source and nature of the income and
certain other limitations, for the United States federal tax on income derived
from sources outside of the United States that is attributable to business
operations in Puerto Rico. The Section 936 credit and the Section 30A credit
have been used by Margo to shelter from United States income taxation all of its
nonUnited States source income from its business operations.
As a result of amendments incorporated in the Small Business Job
Protection Act of 1996, the Section 936 credit is now being phased out over a
ten-year period through the year 2005 and is available only for existing 936
Corporations. The Section 936 credit is limited to forty percent (40%) of the
credit previously allowed prior to 1994. The 1996 Amendments also created
Section 30A of the Code, as explained below. In addition, the 1996 Amendments
eliminated the credit previously available for income derived from certain
qualified investments in Puerto Rico.
For taxable years commencing after December 31, 1995 and beginning
before January 1, 2006, Section 30A permits a "qualifying domestic corporation"
("QDC") that meets certain gross income tests to claim a credit (the "Section
30A Credit") against the federal income tax imposed on taxable income derived
from sources outside the United States from the active conduct of a trade or
business in Puerto Rico or from the sale of substantially all the assets used in
such business ("possession income"). Margo is a QDC and has elected to be
taxable under Section 30A for taxable years commencing after December 31, 1995.
The Section 30A Credit will not be available for taxable years commencing after
December 31, 2005.
The Section 30A Credit is limited to the sum of (i) sixty percent (60%)
of qualified possession wages as defined in the Code, which includes wages up to
eight-five percent (85%) of the maximum earnings subject to the OASDI portion of
Social Security taxes, plus an allowance for fringe benefits of fifteen percent
(15%) of qualified possession wages, (ii) a specified percentage of depreciation
deductions ranging between fifteen percent (15%) and sixty-five percent (65%)
based on the class life of tangible property, and (iii) a portion of Puerto Rico
income taxes paid by the QDC, up to a nine percent (9%) effective tax rate.
While Margo has to date been able to shelter all its income with the
Section 30A Credit, if Margo is successful in significantly
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increasing its revenues in the future, it might not be able to shelter all of
its income under the Section 30A Credit. Furthermore, the Section 30A Credit
will not be available after the year 2005. Thus, double taxation of some of
Margo's possession income could occur if it does not reincorporate into a Puerto
Rico corporation.
As a corporation organized under the laws of Puerto Rico Margo would be
subject to Unites States income taxes only on its fixed or determinable, annual
or periodical income from United States sources and also, in the event it
becomes engaged in business in the United States, on its income effectively
connected with its United States trade or business. Therefore, in the event the
reincorporation is consummated, the possibility of taxation under the Code would
be avoided because as a Puerto Rico corporation, Margo would not be subject to
United States income taxes on its non-United States operating income.
2. PUERTO RICO INCOME TAXES.
From a Puerto Rico income tax point of view, the proposed
reincorporation will also offer certain institutional investors an advantage
that under Margo's current legal structure is not available. Dividends paid by
Margo to corporations or partnerships organized under the laws of Puerto Rico or
corporations or partnerships organized elsewhere but engaged in a Puerto Rico
trade or business do not qualify for a dividends received deduction and
therefore are totally subject to Puerto Rico income tax. However, if the
reincorporation takes place, these shareholders would be entitled to claim,
subject to certain limitations, an eighty-five percent (85%) dividends received
deduction with respect to dividends received from Transition.
3. UNITED STATES AND PUERTO RICO ESTATE AND GIFT TAXES.
For certain individual shareholders, the reincorporation of Margo as a
Puerto Rico corporation could also improve the United States and Puerto Rico
estate and gift tax consequences related to the transfer by death or gift of
shares of Margo. Under the Code and the PR Code, the transfer by death or gift
of property situated in Puerto Rico by certain United States citizens who at the
time of death or gift are residents of Puerto Rico is not subject to United
States and Puerto Rico estate and gift tax. See "Tax Consequences of the
Conversion - Puerto Rico Tax Consequences - Puerto Rico Estate and Gift Taxes."
Since Margo was organized under the laws of Florida, its shares are treated as
property situated in the United States. Accordingly, the transfer by death or
gift of shares of Margo by these shareholders may be subject to United States
and Puerto Rico estate or gift tax if at the time of the transfer of such shares
by death or gift Margo continues to be organized under the laws of Florida.
However, if Margo is converted into a Puerto Rico corporation, its shares will
be treated as situated outside the United States and within Puerto Rico.
Therefore, a transfer by death or gift of such shares by these shareholders
would not be subject to either United States or Puerto Rico estate or gift tax.
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4. PUERTO RICO CORPORATE PROPERTY TAX.
The reincorporation of Margo as a Puerto Rico corporation also
eliminates certain disadvantages that currently exist for certain of its
shareholders. Under certain circumstances, the shares of Margo Common Stock
owned by any corporation or partnership (whether or not organized under the laws
of Puerto Rico) that is engaged in a trade or business in Puerto Rico may be
subject to a personal property tax imposed by the municipalities of Puerto Rico
under the MPTA. If the reincorporation takes place, such shares would not be
subject to personal property tax in Puerto Rico.
5. OPERATIONAL COSTS.
By operating as a Florida corporation that has its principal place of
business in Puerto Rico, Margo is subject to multiple filing requirements under
the laws of the Unites States, Florida and Puerto Rico. This situation
represents additional operational costs which could be reduced if Margo converts
from a Florida corporation to a Puerto Rico corporation.
MERGER AGREEMENT
The Agreement and Plan of Merger (the "Merger Agreement") is attached
to this Proxy Statement as Exhibit A. The Merger Agreement has been unanimously
approved by the Board of Directors of both Margo and Transition. The Merger
Agreement has been executed but, pursuant to Florida law, the transactions
contemplated thereby cannot be consummated without the approval by the holders
of the majority of the outstanding shares of Margo Common Stock. The book value
of the Margo Common Stock will not be affected by the reorganization, except for
any expenses incurred in connection with the transaction or the payment of any
taxes payable by Margo, which in either case are not expected to be substantial.
See "Tax Consequences of the Conversion".
CONVERSION OF SHARES
Pursuant to the terms and conditions of the Merger Agreement, each
share of Margo Common Stock, $0.001 par value, which is outstanding immediately
prior to the merger will be converted into one share of Common Stock, $0.001 par
value, of Transition ("Transition Common Stock") having the same rights' powers,
qualifications, limitations and restrictions with respect to Transition as the
Margo Common Stock presently has with regard to Margo.
IT WILL NOT BE NECESSARY FOR SHAREHOLDERS TO SURRENDER THEIR
CERTIFICATES. Certificates representing Margo Common Stock will be deemed to be
certificates for an equal number of shares of Transition Common Stock. After the
merger, certificates that previously represented Margo Common Stock will be
replaced by certificates
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representing Transition Common Stock when submitted to the transfer agent with a
request that they be so replaced or when presented for transfer. If any
certificate is to be reissued in a name other than that in which the certificate
surrendered is registered, the person requesting such exchange shall pay any
transfer or other taxes incident thereto.
CONDITIONS OF MERGER
Consummation of the merger is subject to fulfillment, on or before the
effective date of the merger, of the following conditions: (1) approval by the
holders of a majority of the outstanding shares of Margo Common Stock; and (2)
receipt of a an opinion from Pietrantoni Mendez & Alvarez satisfactory in form
and substance to Margo, to the effect that the merger constitutes a tax-free
reorganization under the Internal Revenue Code of 1994, as amended, and as to
such further matters as are set forth below under "Federal Income Tax
Consequences".
TERMINATION
At any time prior to the comsummation of the merger, the Merger
Agreement may be terminated and the merger abandoned by the Board of Directors
of Margo. The Board of Directors presently knows of no reason why the merger may
be abandoned.
STOCK OPTION PLAN AND STOCK OPTION AGREEMENTS
On the effective date of the merger, Transition shall: (a) assume all
of the rights and obligations of Margo under the 1988 Stock Benefits Plan (the
"1988 Plan") of Margo, including, but not limited to, the Employee Stock Option
Plan and Employee Stock Benefits Plan adopted pursuant to the 1988 Plan; (b)
assume all of the rights and obligations of Margo under any outstanding stock
option agreements; and (c) reserve a sufficient number of shares of Transition
Common Stock to fulfill its obligations under the 1988 Plan and any outstanding
stock options.
DISSENTERS' RIGHTS
Holders of Margo Common Stock are entitled to dissenters' rights of
appraisal with respect to the merger contemplated herein pursuant to FBCA. The
following discussion is not a complete statement of the law in connection to
dissenters' rights under FBCA and is qualified in its entirety by the full text
of Subchapter 13 of FBCA, which is reprinted in its entirety as Exhibit B to
this Proxy Statement. A Margo shareholder who does not wish to accept Transition
Common Stock to be received pursuant to the terms of the Merger Agreement may
dissent from the merger and elect to receive the fair value of his shares as of
the day prior to the date the merger is approved by Margo shareholders.
A dissenting shareholder must deliver to Margo, before the vote on the
merger is taken, written notice of his intent to demand payment for his shares
if the proposed merger is effectuated, and the shareholder must not vote his
shares in favor of the merger. A proxy or vote against the proposed merger does
not constitute such notice of intent to demand payment. If the merger is
approved by the shareholders, Margo must give written notice within ten (10)
days after the shareholders authorized the merger to each dissenting shareholder
who filed a notice of intent to demand payment for his shares if the Merger
Agreement was adopted by the shareholders. A shareholder who elects to dissent
must file, within twenty (20) days after receiving notice of the adoption of the
Merger Agreement by Margo a notice of election for the payment of the fair value
of his shares, including the number, classes and series of shares as to which he
dissents; a shareholder who fails to file such election will be bound by the
terms and conditions of the Merger Agreement. Notwithstanding the foregoing, a
notice of election filed by a dissenting shareholder may be withdrawn in writing
by the shareholder at any time before an offer is made by Margo to pay for his
shares; no such notice of election may be withdrawn after such offer is made.
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A dissenting shareholder filing an election to dissent must also deposit the
certificates(s) representing his or her shares with Margo simultaneously with
the filing of the election. Upon filing a notice of election to dissent, a
dissenting shareholder shall thereafter be entitled to payment pursuant to the
procedure set forth in the applicable sections of FBCA and shall not be entitled
to vote or to exercise any other rights of a holder of Margo Common Stock.
Margo shall make a written offer to each dissenting shareholder to pay
an amount Margo estimates to be the fair value for such shares at the latest of
(i) ten (10) days after the expiration of the period in which shareholders may
file their notices of election to dissent; or (ii) within ten (10) days after
the effective date of the merger, but in no case later than ninety (90) days
after the merger is approved. If the merger has not been consummated before the
expiration on the 90-day period, the offer may be made conditional upon the
consummation of such action. Such notice and offer must enclose: (i) a balance
sheet of Margo as of the latest available date and not more than twelve (12)
months prior to the making of such offer; and (ii) a profit and loss statement
of Margo for the 12-month period ended on the date of such balance sheet. If the
shareholder accepts the offer within thirty (30) days after receiving the offer,
Margo must pay for the shares within ninety (90) days after making such offer or
the consummation of the merger, whichever is later.
If Margo fails to make such offer within the period specified under
FBCA, or if the dissenting shareholder fails to accept the same within the
period of thirty (30) days thereafter, Margo may file an action in any court of
competent jurisdiction in Dade County requesting that the fair value of such
shares be determined. Such action (i) must be filed by Margo within thirty (30)
days after receipt of written demand from any dissenting shareholder given
within sixty (60) days after the date on which the merger was effected, OR (ii)
may be filed by Margo, at its election, at any time within sixty(60) days after
the date on which the merger was effected. If Margo fails to institute the
proceeding within the period prescribed above, any dissenting shareholder may do
so in its name. All dissenting shareholders, other than shareholders who have
agreed with Margo as to the value of their shares, will be made parties to the
proceeding. Margo must pay each dissenting shareholder the amount found to be
due to such shareholder within ten (10) days after final determination of the
proceedings.
The costs and expenses of any such proceedings will be assessed against
Margo, but all or any part of such costs and expenses may be apportioned and
assessed as the court deems equitable against any or all of the dissenting
shareholders who are parties to the proceeding and to whom Margo has made an
offer to pay for their shares, if the court finds their refusal to accept such
offer to have been arbitrary, vexatious or not in good faith.
In order to exercise appraisal rights, a dissenting shareholder must
fully comply with the statutory procedures described above.
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Margo shareholders are urged to read the attached sections of FBCA regarding
appraisal rights in their entirety and to consult with their legal advisers.
Each shareholder of Margo who desires to assert his or her appraisal rights is
cautioned that failure on his or her part to adhere strictly to the appraisal
requirements of Florida law in any regard may cause a forfeiture of any
appraisal rights.
COMPARATIVE RIGHTS OF STOCKHOLDERS
If the merger contemplated herein is consummated, all shareholders of
Margo will become holders of Transition Common Stock. The rights of the holders
of Margo Common Stock who become holders of Transition Common Stock following
the merger will be governed by Transition's certificate of incorporation and
by-laws, as well as the laws of Puerto Rico, where Transition is incorporated.
Transition's certificate of incorporation will be identical to the articles of
incorporation of Margo immediately prior to the reorganization, except for (a)
the elimination of references in the certificate of incorporation to Margo's
Serial One Preferred Stock which have been redeemed, certain administrative
provisions required to conform Margo's Articles of Incorporation to the Puerto
Rico General Corporations Law of 1995 ("PRGCL") and (c) a provision limiting the
personal liability of directors, which is automatic under FBCA, but is only
effective under PRGCL if included in the certificate of incorporation. See
"Comparative Rights of Stockholders - Director's Liability".
The following summary compares the rights of the shareholders of Margo
Common Stock with the rights of the holders of Transition Common Stock. The
following information is qualified in its entirety by Transition's certificate
of incorporation and by-laws, as well as Margo's articles of incorporation and
by-laws, PRGCL and FBCA. A copy of the Certificate of Incorporation of
Transition is set forth on Annex A to the Merger Agreement attached hereto as
Exhibit A.
MERGERS, SHARES EXCHANGES AND SALES OF ASSETS
FBCA provides that mergers and sales of substantially all of the
property of a Florida corporation must be approved by a majority of the
outstanding shares of the corporation entitled to vote thereon. FBCA also
provides, however, that the shareholders of a corporation surviving a merger
need not approve the transaction if: (a) the articles of incorporation of the
surviving corporation will not differ from its articles before the merger, and
(b) each shareholder of a surviving corporation whose shares were outstanding
immediately prior to the effective date of the merger will hold the same number
of shares with identical designations, preferences, limitations and relative
rights, immediately after the merger.
PRGCL provides that mergers and sales of substantially all of the
assets of Puerto Rico corporations must be approved by a majority of the
outstanding stock of the corporation entitled to vote thereon. PRGCL also
provides, however, that the stockholders of the corporation surviving a merger
need not approve the transaction if: (i) the agreement of merger does not amend
in any respect the certificate of incorporation of such corporation; (ii) each
share of stock of such corporation outstanding immediately prior to the
effective date
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of the merger is to be an identical outstanding or treasury share of the
surviving corporation after the effective date of the merger; and (iii) either
no shares of common stock of the surviving corporation and no shares, securities
or obligations convertible into such stock are to be issued or delivered under
the plan of merger, or the authorized unissued shares or the treasury shares of
common stock of the surviving corporation to be issued or delivered under the
plan of merger, plus those initially issuable upon conversion of any other
shares, securities or obligations to be issued or delivered under such plan do
not exceed twenty percent (20%) of the shares of common stock of such
corporation outstanding immediately prior to the effective date of the merger.
RIGHTS OF DISSENTING STOCKHOLDERS
Under FBCA, a shareholder of a corporation has the right to dissent
from, and obtain the fair value of his or her shares in the event of, any of the
following actions:
(a) certain mergers involving the corporation,
(b) sale or exchange of all or substantially all of the assets
of the corporation,
(c) certain control-share acquisitions,
(d) certain share exchanges,
(e) certain amendments to the certificate of incorporation,
and
(f) any other corporate action, to the extent that the articles of
incorporation give shareholders the right to dissent and
obtain payment for his or her shares in connection with such
corporation action.
The right to dissent and obtain payment for the shares of a corporation
does not apply with respect to a merger, share exchange or proposed sale or
exchange of assets, if the shares of such corporation are 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 not fewer than 2,000 shareholders. Holders of Margo
Common Stock as of November 11, 1997 are entitled to dissenters' rights of
appraisal under FBCA. For a description of such appraisal right, see "Dissenters
Rights."
Under PRGCL, a stockholder has the right, under certain circumstances,
to dissent from certain mergers or consolidations and receive the fair value of
its shares in cash in lieu of the consideration such stockholder otherwise would
have received in the transaction. For this purpose, "fair value" may be
determined by
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using all relevant factors, including a reasonable interest rate. Such fair
value is determined by Puerto Rico Court of First Instance if a petition for
appraisal is timely filed. Appraisal rights are not available, however, to
stockholders of a corporation (i) if the shares are listed on a national
securities exchange or quoted on the Nasdaq National Market System, or held of
record by more than 2,000 stockholders and (ii) if stockholders are permitted by
the terms of the merger or consolidation to accept in exchange for their shares
(a) shares of stock of the surviving or resulting corporation, (b) shares of
stock of another corporation listed on a national securities exchange, quoted on
the Nasdaq National Market System or held of record by more than 2,000
stockholders, (c) cash in lieu of fractional shares of such stock, or (d) any
combination thereof. Stockholders are not permitted appraisal rights in a merger
if such corporation is the surviving corporation and no vote of its stockholders
is required.
STATE TAKEOVER LEGISLATION
Certain provisions of FBCA attempt to discourage various types of
coercive takeover practices involving a corporation and one or more of its
significant shareholders. The main statutory provisions which address hostile
corporate takeovers are Sections 607.0901 and 607.0902 of FBCA. Section 607.0901
of FBCA requires that certain affiliated transactions between the corporation
and any person who is the beneficial owner of more than ten percent (10%) of the
outstanding voting shares of the corporation (an "Interested Shareholder") be
approved by the affirmative vote of the holders of two-thirds of the
corporation's voting shares (other than the shares beneficially owned by the
Interested Shareholder), in addition to any affirmative vote required by any
other section of FBCA or by the corporation's articles of incorporation.
For purposes of FBCA Section 607.0901, affiliated transactions include:
(i) any merger or consolidation of the corporation or any subsidiary of the
corporation with the Interested Shareholder or an affiliate thereof; (ii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition to or
with the Interested Shareholder or any affiliate thereof of assets of the
corporation having an aggregate fair market value equal to five percent (5%) or
more of the aggregate fair market value of all the corporation's assets,
outstanding shares, earning power or net income; (iii) the issuance or transfer
by the corporation or any subsidiary of the corporation (in one transaction or a
series of transactions) of any shares of the corporation or any subsidiary of
the corporation which have an aggregate fair market value equal to five percent
(5%) or more or the aggregate fair market value of all the outstanding shares of
the corporation to the Interested Shareholder or any affiliate thereof except
pursuant to the exercise of warrants or rights to purchase stock offered, or a
dividend or distribution paid or made, pro rata to all shareholders of the
corporation; (iv) the adoption of any plan or proposal for the liquidation or
dissolution of the corporation
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proposed by, or pursuant to any agreement, arrangement, or understanding
(whether or not in writing) with, the Interested Shareholder or any affiliate
thereof; (v) any reclassification of securities (including, without limitation,
any stock split, stock dividend, or other distribution of shares in respect of
shares, or any reverse stock split) or recapitalization of the corporation, or
any merger or consolidation of the corporation with any subsidiary of the
corporation, or any other transaction, with the Interested Shareholder or any
affiliate thereof, which has the effect, directly or indirectly (in one
transaction or a series of transactions during any 12-month period), of
increasing by more than five percent (5%) the percentage of the outstanding
voting shares of the corporation or any subsidiary of the corporation
beneficially owned by the Interested Shareholder; or (vi) any receipt by the
Interested Shareholder or any affiliate thereof of the benefit, directly or
indirectly (except proportionately as a shareholder of the corporation), of any
loans, advances, guaranties, pledges, or other financial assistance or any tax
credits or other tax advantages provided by or through the corporation.
The two-thirds voting requirement does not apply to affiliated
transactions when any one of the following seven requirements are met: (i) the
affiliated transaction has been approved by a majority of the disinterested
directors; (ii) the corporation has not had more than 300 shareholders of record
at any time during the three years preceding the announcement date; (iii) the
Interested Shareholder has been the beneficial owner of at least eighty percent
(80%) of the corporation's outstanding voting shares for at least five (5) years
preceding the announcement date of the affiliated transaction; (iv) the
Interested Shareholder is the beneficial owner of at least ninety percent (90%)
of the outstanding voting shares of the corporation, exclusive of shares
acquired directly from the corporation in a transaction not approved by a
majority of the disinterested directors; (v) the corporation is an investment
company registered under the Investment Company Act of 1940; (vi) in the
affiliated transaction, consideration shall be paid to the holders of each class
or series of voting shares and certain conditions shall have been met including,
without limitation, (a) compliance with restrictions on the amount of the
consideration paid; (b) compliance with certain restrictions on the type of
consideration paid; (c) compliance with certain restrictions on the reduction of
dividends by the corporation during the 3-year period preceding the announcement
date; (d) compliance with restrictions on transactions between the corporation
and the Interested Shareholder pursuant to which the Interested Shareholder
receives any benefit (except proportionately as a shareholder of the
corporation) of loans, advances, guaranties or other financial assistance from
or through the corporation during the three year period preceding the
announcement date; and (e) the mailing of a proxy statement describing the
affiliated transaction to holders of voting shares of the corporation at least
twenty-five (25) days before the consummation of such affiliated transaction;
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or (vii) the corporation has elected, in compliance with FBCA, not to be
governed by this statute. The proposed merger was unanimously approved by all
the members of Margo's Board of Directors, thus, the provisions of Section
607.0901 do not apply to the proposed merger.
Margo is also subject to the provisions of Section 607.0902 of FBCA. In
general, the statute denies voting rights to shares purchased by an acquiring
person who has obtained or anticipates obtaining a specified level of voting
control in shares of an issuing public corporation as part of a control-share
acquisition, except to the extent that such voting rights are conferred by
resolution by the shareholders of the issuing public corporation. A vote of the
shareholders to confer voting power under the statute must meet the criteria set
forth in the statute, including the requirement for approval by a majority of
all votes entitled to be cast in each voting group entitled to vote separately,
excluding all interested shares. For purposes of the statute, an "issuing public
corporation" is a corporation which has more than 100 shareholders, has its
principal offices and place of business or substantial assets in the State of
Florida, and either has (i) more than ten percent (10%) of its shareholders
resident in Florida; or (ii) more than ten percent (10%) of its shares owned by
residents of Florida; or (iii) 1000 shareholders resident in Florida. Provisions
of this statute become effective when a person acquires or intends to acquire
stock which, when added to all other shares owned by such person or in respect
of which such person may exercise or direct voting power, either alone or as
part of a group, would entitle such person to exercise at least twenty percent
(20%) of the voting power of the issuing public corporation. The statute does
not apply to acquisitions of any shares of an issuing public corporation (i)
pursuant to a merger or share exchange effected in compliance with FBCA, or (ii)
which have been approved by the board of directors of such issuing public
corporation. Since the proposed merger complies with FBCA and was approved by
the Board of Directors of Margo, the provisions of Section 607.0902 are not
applicable to the merger.
PRGCL does not have any statutory provisions addressing corporate
takeover practices.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS
Section 607.1002 of FBCA permits the Board of Directors to amend the
Articles of Incorporation of a corporation in certain minor respects without
stockholder action, but Section 607.1003 requires most amendments to be adopted
by the stockholders upon recommendation of the Board of Directors. Amendments
may be adopted by a majority of the votes cast, a quorum being present, unless
the proposed amendment is one which would create dissenters' rights, in which
case, amendments may only be adopted by a majority of the votes entitled to be
cast.
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Any shareholder of a corporation has the right under FBCA to dissent
and obtain payment of the fair value of his shares in the event that the
articles of incorporation of the corporation are amended if the shareholder is
entitled to vote on the amendment and if such amendment would adversely affect
such shareholder by: (i) altering or abolishing any preemptive rights attached
to any of his shares; (ii) altering or abolishing the voting rights pertaining
to any of his shares; (iii) effecting an exchange, cancellation or
reclassification of any of his shares if such action affects his voting rights
or his percentage of equity in the corporation, or effecting a reduction or
cancellation of accrued dividends or other arrearages with respect to such
shares; (iv) reducing the stated redemption price of any of the shareholder's
redeemable shares, or altering any provision with respect to any sinking fund
for the redemption of shares, or making any shares subject to redemption when
they are not otherwise redeemable; (v) making noncumulative any dividends on the
shareholder's preferred shares; (vi) reducing the stated dividend preference on
any of the shareholder's preferred shares; and (vii) reducing any stated
preferential amount payable on any of the shareholder's preferred Shares upon
liquidation of the corporation. The procedure to exercise appraisal rights with
respect to an amendment to the articles of incorporation is set forth in Section
607.1320 of FBCA and is identical to the procedure regarding appraisal rights in
case of a merger. See "Dissenter's Rights".
Section 607.1020 of FBCA permits the Board of Directors of a
corporation to amend or repeal the by-laws unless FBCA or the articles of
incorporation provide otherwise. The stockholders entitled to vote have
concurrent power to amend or repeal the by-laws.
Under PRGCL, a Puerto Rico corporation's certificate of incorporation
may be amended by the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote thereon, and a majority of the outstanding
stock of each class entitled to vote as a class, unless the certificate requires
the vote of a larger portion of the stock. There are no dissenters' rights under
PRGCL with respect to amendments to the articles of incorporation.
According to PRGCL, the authority to adopt, amend or repeal the by-laws
of a corporation once a corporation has received payment for its shares rests
with the shareholders unless such power is granted to the Board of Directors.
Margo's articles of incorporation confer such power to either its Board of
Directors or shareholders. Transition's certificate of incorporation will
include an identical provision.
DIVIDENDS
FBCA authorizes the board of directors of a corporation to make
distributions to its shareholders subject to any restrictions contained in its
articles of incorporation; provided, that a distribution may
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not be made if, after giving it effect: (i) the corporation would not be able to
pay its debts as they become due in the usual course of business; or (ii) the
corporation's total assets would be less than the sum of its total liabilities
plus (unless the articles of incorporation permit otherwise) the amount that
would be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution.
PRGCL permits a corporation to declare and pay dividends out of surplus
or, if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or for the preceding fiscal year as long as the amount
of capital of the corporation following the declaration and payment of the
dividend is not less than the aggregate amount of the capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, PRGCL generally provides that a corporation
may redeem or repurchase its shares only if the capital of the corporation is
not impaired and such redemption or repurchase would not impair the capital of
the corporation.
Margo's by-laws state that dividends in cash or property may be
declared and paid only out of the unreserved and unrestricted earned surplus of
the corporation or out of capital surplus, but each dividend paid out of capital
surplus shall be identified as a distribution of capital surplus, and the amount
per share from such surplus shall be disclosed to the stockholders. Transition's
by-laws will contain an identical provision.
For a description of Transition's anticipated dividend policy, see
"Financial Information".
SPECIAL MEETINGS OF STOCKHOLDERS; ACTION WITHOUT A MEETING
Special meetings of shareholders may be called under FBCA by the board
of directors, the persons authorized under the articles of incorporation or
by-laws, or upon the written consent of the holders of at least ten percent
(10%) of the shares entitled to vote at the meeting, unless a greater
percentage, not to exceed fifty percent (50%), is required by the articles of
incorporation. PRGCL states that such special meetings may be called only by the
board of directors, unless the certificate of incorporation or by-laws provide
otherwise.
Margo's by-laws provide that special meetings of Margo's stockholders
may be called by the President, Board of Directors, or when requested in writing
by the holders of not less than ten percent (10%) of all the shares entitled to
vote at the meeting. Transition's by-laws will contain an identical provision.
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Section 607.0704 of FBCA permits any action required or permitted by
FBCA to be taken at an annual or special meeting of stockholders to be taken
instead without meeting by written consent of stockholders having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Article 7.17 of PRGCL contains a provision similar to Section
607.0704 of FBCA.
VOTING
Both FBCA and PRGCL authorize the articles of incorporation of a
corporation to provide for cumulative voting for the election of directors.
Each holder of Margo Common Stock is entitled to one vote for each
share held, and such holders are not entitled to cumulative voting rights in the
election of directors, pursuant to Margo's articles of incorporation or by-laws.
Transition's certificate of incorporation and by-laws will not provide for
cumulative voting.
DIRECTOR ELECTIONS
Margo's directors are elected at an annual meeting of stockholders to
hold office until the next succeeding annual meeting pursuant to Margo's
articles of incorporation and by-laws. Each director holds office for the term
for which he is elected and until his successor has been elected and qualified
or until his earlier resignation, removal from office or death. The certificate
of incorporation and by-laws of Transition will contain the same provisions as
Margo's articles of incorporation and by-laws regarding the election of
directors.
REMOVAL OF DIRECTORS
Section 607.0808 of FBCA provides that the shareholders may remove one
or more directors, with or without cause, at a meeting of shareholders, provided
that the notice of the meeting states that the purpose, or one of the purposes,
of the meeting is the removal of the director. The by-laws of Margo incorporate
the above provision, which will be adopted in Transition's by-laws.
Section 4.01(k) of PRGCL states that as a general rule any director or
the board of directors as a whole may be removed with or without cause by the
holders of a majority of the voting shares of a corporation, unless: (i) the
board of directors is classified into groups in which case the director may be
removed only with cause; and (ii) if cumulative voting is authorized under the
certificate of incorporation of the corporation, in which case a director may
not be removed without cause if the number of votes sufficient to elect him
under cumulative voting is voted against his removal.
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VACANCIES
Under both FBCA and PRGCL whenever a vacancy occurs on a board of
directors, including a vacancy resulting from an increase in the number of
directors, it may be filled by the affirmative vote of a majority of the
remaining directors, though less than a quorum, unless the articles of
incorporation provide otherwise. A sole remaining director may also fill such a
vacancy pursuant to PRGCL. If the holders of shares of any voting group are
entitled to elect a class of one or more directors by the provisions of the
articles of incorporation, vacancies in such classes may be filled under FBCA
and PRGCL by a majority of the directors then in office elected by such voting
group or by a sole remaining director as elected; FBCA also authorizes holders
of shares of that group to fill such vacancy.
PRGCL authorizes any officer, shareholder, executor, administrator,
guardian or other fiduciary to call a special meeting or request the Court of
First Instance of Puerto Rico to summarily order the election of directors if
the corporation does not have any directors at any given time. PRGCL also
provides for the Court of First Instance of Puerto Rico to order an election to
fill vacancies or newly created directorships upon the application of the
holders of ten percent (10%) of the outstanding shares having a right to vote
for such directors if, at the time of filling such directorships, the directors
then in office constitute less than a majority of the entire board as
constituted immediately prior to any increase.
The by-laws of Margo authorize a vacancy in the Board of Directors to
be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors. The by-laws of Transition
will contain an identical provision.
INDEMNIFICATION
Under Section 607.0850 of FBCA, the directors and officers of Margo may
be indemnified against certain liabilities which they may incur in their
capacity as officers and directors. Such indemnification is generally available
if the officer acted in good faith and in a manner he or she reasonably believed
to be in, or not opposed to, the best interest of Margo, and with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. Indemnification may also be available unless a court of competent
jurisdiction establishes by final adjudication that the actions or omissions of
the executive are material to the cause of action so adjudicated and
constituted: (a) a violation of the criminal law, unless the executive had
reasonable cause to believe his or her conduct was lawful or had no reasonable
cause to believe his or her conduct was unlawful; (b) a transaction from which
the executive derived an improper personal benefit; or (c) willful misconduct or
conscious disregard for the best interest of Margo in a proceeding by or in the
right of Margo to procure a judgment in its favor or in a proceeding by or in
the right of a shareholder.
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Margo's articles of incorporation require Margo to indemnify its officers and
directors to the full extent permitted by the statute. Further, to the extent
that the proposed indemnitee is successful in the merits or otherwise in the
defense of any action, suit or proceeding (or any claim, issue or matter
therein) he or she must be indemnified against expenses (including attorney's
fees) actually and reasonably incurred by him or her in connection with such
proceeding.
Section 4.08 of PRGCL contains detailed and comprehensive provisions
providing for indemnification of directors and officers of Puerto Rico
corporations against expenses, judgments, fines and settlements in connection
with litigation. Under PRGCL, such indemnification is available if it is
determined that the proposed indemnitee acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In actions brought by or
in the right of Transition, such indemnification is limited to expenses
(including attorneys' fees) actually and reasonably incurred in the defense or
settlement of such action if the indemnitee acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
Transition and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person has been adjudged to be liable to
Transition unless and only to the extent that the Puerto Rico Court of First
Instance or the court in which the action was brought determines upon
application that in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
To the extent that the proposed indemnitee has been successful on the
merits or otherwise in defense of any action, suit or proceeding (or any claim,
issue or matter therein), he or she must be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
The certificate of incorporation of Transition will contain a provision
identical to that existing in Margo's certificate of incorporation to the effect
that the corporation will indemnify any officer or director, or any former
officer or director, to the full extent permitted by law.
DIRECTOR'S LIABILITY
Section 607.0831 of FBCA provides that a director of Margo will not be
personally liable for monetary damages to Margo or any other person for any
statement, vote, decision or failure to act, regarding corporate management or
policy, by a director unless: (a) the director breached or failed to perform his
duties as a director, and (b) the director's breach of or failure to perform
those duties constitutes: (1) a violation of the criminal law, unless the
director had reasonable
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cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful, (2) a transaction in which the director derived an
improper personal benefit, (3) a payment of certain unlawful dividends and
distributions, (4) in a proceeding by or in the right of Margo to procure
judgment in its favor or by or in the right of a shareholder, conscious
disregard for the best interests of Margo, or willful misconduct, or (5) in a
proceeding by or in the right of someone other than Margo or a shareholder,
recklessness or an act or omission which was committed in bad faith or with
malicious purpose or in a manner exhibiting wanton and willful disregard of
human rights, safety or property. This provision would absolve directors of
Margo of personal liability for negligence in the performance of their duties,
including gross negligence. It would not permit a director to be exculpated,
however, from liability for actions involving conflicts of interest or breaches
of the traditional "duty of loyalty" to Margo and its shareholders, and it could
not affect the availability of injunctive and other equitable relief as a
remedy.
Under PRGCL, any certificate of incorporation may include a provision
to eliminate or reduce the personal liability of the directors of a corporation
in connection with monetary damages resulting from the failure of a director to
perform his fiduciary duties to the corporation, unless the director's liability
arises from: (i) a breach of the directors' duty of loyalty towards the
corporation or its shareholders; (ii) any act or omission committed by the
director that was not in good faith, or that involved improper intentional
conduct or any violation of law knowingly committed by the director; (iii) the
illicit payment of dividends by a corporation; and (iv) a transaction in which
the director derives an improper personal benefit. This provision would absolve
directors from personal liability for negligence in the performance of their
fiduciary duties toward the corporation, including gross negligence. The
provision, however, would not permit a director to be exculpated from liability
involving conflicts of interest or breaches of the traditional duty of loyalty
to Transition and its stockholders. The certificate of incorporation of
Transition will include such a provision limiting a director's liability.
The provision limiting a director's liability does not eliminate the
duty of care imposed upon directors of Transition. It only eliminates a
director's personal monetary liability to Transition and the shareholders for
damages arising out of the director's breach of his fiduciary duty of care to
the extent permitted by Puerto Rico law as it now exists or may be amended in
the future. In addition, such provision will not preclude the availability of
equitable remedies (such as injunction or rescission) for breach of fiduciary
duty of care. The provision will not change the liabilities of directors under
the federal securities laws and will not limit or eliminate the liability of
directors for monetary damages in suits brought by third parties (including
governmental and regulatory agencies) for breach of such duty. Furthermore, the
provision applies only to the personal liability of directors (whether or not
they are also officers) acting as directors and has no effect on the potential
liability of individuals for their actions as officers of Transition.
PREEMPTIVE RIGHTS
The holders of Margo Common Stock have no preemptive rights to acquire
any additional shares of Margo Common Stock. Similarly, the holders of
Transition Common Stock will not have such preemptive rights.
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PREFERRED STOCK
The articles of incorporation of Margo authorize the issuance of
250,000 shares of one cent ($0.01) par value series preferred stock, and the
board of directors is authorized to amend the articles of incorporation from
time to time to divide the preferred stock into series and to determine the
number of shares of each series and the relative rights, preferences and
limitations of each such series. The certificate of incorporation of Transition
will contain an identical provision. See "Description of Capital Stock of
Transition."
TAX CONSEQUENCES OF THE CONVERSION
UNITED STATES AND PUERTO RICO INCOME
AND OTHER TAX CONSEQUENCES OF THE CONVERSION
The following discussion summarizes certain United States and Puerto
Rico tax aspects of the proposed merger. This discussion is based on the United
States Internal Revenue Code of 1986, as amended (the "Code"), the Puerto Rico
Internal Revenue Code of 1994, as amended (the "PR Code") and the Puerto Rico
Municipal Property Tax Act of 1991, as amended (the "MPTA"), all as in effect on
the date of this Proxy Statement.
Some portions of the discussion are based on the assumption that (i) at
the time of the merger the fair market value of Transition Common Stock would be
approximately equal to the fair market value of Margo Common Stock surrendered
pursuant thereto, (ii) at the time of the merger there is no plan or intention
by the stockholders of Margo to sell, exchange, or otherwise dispose of any
shares of Transition received in the merger that would reduce the Margo
shareholders' ownership of Transition stock to a number of shares having a
value, as of the date of the merger of less than fifty percent (50%) of the
value of all of the formerly outstanding stock of Margo (including Margo stock
held by dissenters and Margo stock redeemed prior to the merger) as of the date
of the merger, (iii) there is no plan or intention to have Transition reacquire
any of its stock issued in the merger, (iv) any plan or intention to have Margo
or Transition sell or otherwise dispose of any of the assets of Margo prior to
or after the merger (except for dispositions made in the ordinary course of
business), would be independent from and not related to in any manner to the
plan of merger, (v) the liabilities of Margo
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assumed by Transition, plus the liabilities, if any, to which the assets are
subject, were incurred by Margo in the ordinary course of its business, (vi)
the fair market value of the assets of Margo transferred to Transition will
equal or exceed the sum of the liabilities assumed by Transition, plus the
amount of liabilities, if any, to which the transferred assets are subject,
(vii) following the merger, Transition would continue the historic business of
Margo or use a significant portion of Margo's historic business assets in its
business, (viii) Margo, its stockholders and Transition would pay their
respective expenses, if any, incurred in connection with the merger, and (ix)
Transition would not be a "Passive Foreign Investment Company" or a "Controlled
Foreign Corporation" for purposes of the Code.
1. UNITED STATES INCOME TAX CONSEQUENCES
- MARGO
For purposes of the Code, the merger would be treated as a taxable sale
by Margo of each of its appreciated tangible and intangible assets to Transition
in exchange for Transition Common Stock and a distribution by Margo to its
stockholders of Transition Common Stock.
Any gain required to be recognized by Margo in connection with the
transfer of an appreciated tangible asset used by it in the active conduct of
its trade or business in Puerto Rico and the gain of which is considered to be
from sources outside the United States, will qualify for the Section 30A Credit.
Accordingly, Margo will not be subject to federal income tax on such a gain if
Margo's Section 30A Credit base for the year of the merger is sufficient to
offset such federal income tax. However, the amount of gain required to be
recognized by Margo on the transfer of its tangible assets that (i) is derived
from sources within the United States, or (ii) is attributable to tangible
assets not used in the active conduct of a trade or business in Puerto Rico,
will not qualify for the Section 30A Credit and, therefore, would be subject to
federal income tax.
With respect to the transfer of Margo's intangible assets to
Transition, any gain required to be recognized by Margo on the transfer of such
assets to Transition would not qualify for the Section 30A Credit and would
therefore be entirely subject to United States income tax.
The United States income tax that would be imposed on Margo as a result
of the transfer of its appreciated tangible and intangible assets to Transition
depends on the determination of the fair market value of such assets as of the
effective date of the merger. The Board of Directors of Margo believes that any
tax liability associated with the merger of Margo with and into Transition will
be insignificant because it will have sufficient credit under Section 30A to
shelter any tax that would be payable with respect to the transfer of tangible
assets related to its trade or business in Puerto Rico and that it
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will not recognize any tangible gain from the transfer of its assets
in Florida. Moreover, Margo does not expect to realize any gain from
the transfer of intangible assets.
- TRANSITION
Transition would not be required to recognize any gain or loss on the
receipt of Margo's tangible and intangible assets in exchange for Transition
Common Stock.
- THE STOCKHOLDERS
A stockholder of Margo would not be required to recognize gain or loss
as a result of the deemed exchange of Margo Common Stock for Transition Common
Stock. Furthermore, the basis of Transition Common Stock received by a
stockholder of Margo would be the same basis of the converted common stock of
Margo and the holding period of Transition Common Stock received by each
stockholder would include the holding period Margo Common Stock held by such
stockholder immediately prior to the merger, provided that such shares of Margo
were held by such stockholder as a capital asset on the date of the merger. The
Margo stockholders may be subject to certain information and notice requirements
imposed by regulations issued under Section 367(b) of the Code.
A dissenting shareholder (other than an individual that is a bona fide
resident of Puerto Rico for the entire taxable year) will be required to
recognize gain and be subject to federal income if the amount received pursuant
to the exercise of dissenter's rights exceeds such shareholder's adjusted basis
in the Margo stock surrendered.
- DIVIDENDS PAID BY TRANSITION
Except as further explained below, dividends paid by Transition to its
stockholders would constitute ordinary gross income for purposes of the Code.
Subject to certain exceptions and limitations, income taxes paid to
Puerto Rico by stockholders of Transition that are individual residents of the
United States or certain domestic corporations (as defined for purposes of the
Code) with respect to dividends paid by Transition will qualify as income taxes
paid to a possession of the United States for purposes of the foreign tax credit
rules of the Code.
In addition, provided that less than twenty-five (25%) of the gross
income of Transition on an ongoing basis is effectively connected (or treated as
effectively connected) with the conduct of a trade or business within the United
States, dividends paid by Transition would be treated as income from sources
outside the United States and from sources within Puerto Rico. Accordingly,
dividends paid
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<PAGE>
by Transition to an individual that for the entire taxable year in which the
dividend is received is a bonafide resident of Puerto Rico, would be excludable
from the gross income of such individual under Section 933(1) of the Code.
As an exception to the above source of income rule, dividends paid by
Transition to certain corporations from the accumulated earnings and profits of
Margo that are treated by the Code as being received by Transition as a result
of the merger, would be treated as income from sources within the United States
to the extent such dividends qualify for the dividend received deduction rules
of Section 243 of the Code.
- SALE OR EXCHANGE OF TRANSITION COMMON STOCK
Any gain to be recognized by a United States resident (as defined in
Section 865 of the Code) from the sale or exchange of Transition Common Stock
will generally constitute income from sources within the United States.
However, any such gain derived by an individual that is a bonafide
resident of Puerto Rico during the entire taxable year will constitute income
from sources within Puerto Rico and therefore, excludable from gross income
pursuant to Section 933(l) of the Code.
- UNITED STATES ESTATE AND GIFT TAXES
The transfer by death or gift of Transition Common Stock is subject to
United States estate and gift taxes. However, such a transfer by a United States
citizen that acquired such citizenship solely by reason of birth or residence in
Puerto Rico and that at the time of death or gift is domiciled in Puerto Rico is
not subject to United States estate or gift taxes under the Code.
2. PUERTO RICO TAX CONSEQUENCES
- INCOME TAX
- MARGO, TRANSITION, AND THE STOCKHOLDERS
Margo understands that the merger would constitute a tax free
reorganization for purposes of the PR Code. Under these circumstances, (i) no
gain or loss would be recognized by Margo upon the transfer of its tangible and
intangible assets to Transition in exchange for Transition Common Stock, (ii) no
gain or loss would be recognized by Margo upon the distribution to its
stockholders of Transition Common Stock, (iii) no gain or loss would be
recognized by Transition upon receiving Margo's tangible and intangible assets
in exchange for Transition Common Stock, and (iv) Margo stockholders would not
recognize gain or loss upon the deemed exchange of Margo Common Stock for
Transition Common Stock. Furthermore, the basis
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<PAGE>
of Transition Common Stock received by a stockholder of Margo would be the same
basis of the converted common stock of Margo and the holding period of
Transition Common Stock received by each stockholder would include the holding
period of the common stock of Margo held by such stockholder immediately prior
to the merger.
Margo will obtain an opinion of counsel to the effect that the
merger constitutes a tax free reorganization under the PR Code.
A gain realized by a dissenting shareholder on account of
surrendering Margo stock pursuant to the exercise of dissenter rights will be
subject to Puerto Rico income tax if such shareholder is an individual resident
of Puerto Rico or a corporation or partnership created or organized under the
laws of Puerto Rico.
In the case of a gain realized by a dissenting shareholder not
described in the preceding paragraph, such gain will be subject to Puerto Rico
income tax (and in certain circumstances a tax to be withheld at source of up to
twenty-five percent (25%) of the consideration received will be imposed) only if
(i) in the case of an individual citizen of the United States, such gain is
treated as income derived from sources within Puerto Rico, or (ii) in the case
of a foreign corporation or partnership or non-resident alien individual, such
gain is income from sources within Puerto Rico or is effectively connected with
a trade or business in Puerto Rico. To the extent such gain is subject to Puerto
Rico income tax, a dissenting shareholder that is also subject to federal income
tax on the gain may not be able to claim the Puerto Rico income tax imposed
thereon against the applicable federal income tax. Margo may request a ruling
from the Puerto Rico Department of the Treasury to provide that a dissenter's
gain should not be treated as income from sources within Puerto Rico.
- DIVIDENDS PAID BY TRANSITION
The following discussion assumes that dividends paid by
Transition would constitute income from sources within Puerto Rico under the PR
Code.
The Puerto Rico income tax treatment of dividends paid by
Transition would be as follows:
(i) INDIVIDUALS. Stockholders of Transition that
are individuals would be subject to a Puerto Rico tax of ten percent (10%)
imposed on the total amount of dividends distributed by Transition from its
earnings and profits derived from its taxable operations and from its operations
covered by the Agricultural Tax Incentives Act of 1995, as amended ("ATIA").
Transition would be required to withhold the ten percent (10%) tax at the time
of the dividend distributions. These stockholders may elect to be taxed on the
dividends at the regular graduated Puerto Rico income tax rates.
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Dividends distributed by Transition from earnings and
profits derived from its operations covered by the Puerto Rico Tax Incentives
Act of 1997, as amended ("TIA") would be subject to a ten percent (10%) tax to
be withheld at source. Stockholders that are individuals residents of Puerto
Rico are entitled to credit against their Puerto Rico income tax liability, the
ten percent (10%) withheld by Transition from such dividends.
(ii) PUERTO RICO CORPORATIONS AND PARTNERSHIPS.
Dividends paid by Transition to a corporation organized under the laws of Puerto
Rico or a partnership organized under the laws of Puerto Rico would generally
constitute ordinary gross income. In computing its Puerto Rico income tax
liability a Puerto Rico corporation or partnership (other than a "special
partnership" or "subchapter N corporation") would be entitled to claim a
dividend received deduction equal to eight-five percent (85%) of the dividends
distributed by Transition from earnings and profits derived from its taxable
operations (the "Dividend Deduction"). Margo may request a ruling from the
Puerto Rico Department of the Treasury to confirm that dividends distributed by
Transition from earnings and profits covered by the ATIA qualify for the
Dividend Deduction. Dividends distributed by Transition from earnings and
profits derived from its operations covered by the TIA would not qualify for the
Dividend Deduction but would be subject to a tax of ten percent (10%) to be
withheld at source.
(iii) FOREIGN CORPORATIONS AND PARTNERSHIPS.
Dividends distributed by Transition from earnings and profits derived from
taxable operations and operations covered by the ATIA or the TIA to a
corporation or partnership organized under the laws of a country other than
Puerto Rico and that is not engaged in a trade or business in Puerto Rico, would
be subject to a tax of ten percent (10%) that would be required to be withheld
at source by Transition or any paying agent. The ten percent (10%) tax would be
imposed on the total amount of dividends received without the benefit of any
deductions.
If the foregoing corporation or partnership is
engaged in a trade or business in Puerto Rico, dividends paid by Transition to
such entities from earnings and profits derived from its taxable operations and
operations covered by the ATIA would constitute "income effectively connected"
with the conduct of a trade or business for purposes of the PR Code. The
dividends would not be subject to withholding at source and would be required to
be reported as gross income in the entity's Puerto Rico income tax return and
subject to the ordinary income tax rates. In computing its income tax liability
under the PR Code, the foreign corporation or partnership would be entitled to
claim the "Dividend Deduction" subject to the limitations previously discussed.
Dividends distributed by Transition from its operations covered under the TIA
would not qualify for the Dividend Deduction and would be subject to a tax of
ten percent (10%) to be withheld at source.
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- SALE OR EXCHANGE OF TRANSITION COMMON STOCK
Any gain realized by a stockholder of Transition from the
sale, exchange or redemption of Transition Common Stock will not be subject to
the Puerto Rico income tax under the PR Code only if the gain is income from
sources without Puerto Rico and such stockholder (i) is an individual citizen of
the United States not a resident of Puerto Rico, (ii) an individual not a
citizen of the Unites States and not engaged in a trade or business in Puerto
Rico, or (iii) a corporation or partnership organized under the laws of a
country other than Puerto Rico and not engaged in a trade or business in Puerto
Rico.
Any gain to be recognized by a stockholder of Transition from
the sale or exchange of Transition Common Stock will constitute income from
sources within Puerto Rico if title to and beneficial ownership of the stock is
transferred in Puerto Rico. Any gain realized by a Transition stockholder on
account of a redemption of Transition Common Stock will constitute income from
sources within Puerto Rico.
- PROPERTY TAX CONSEQUENCES UNDER THE MPTA
Under the MPTA the common stock of Transition would not be subject to
personal property taxes.
- PUERTO RICO ESTATE AND GIFT TAXES
The transfer by death or gift of Transition Common Stock by a United
States citizen that acquired such citizenship solely by reason of birth or
residence in Puerto Rico and that at the time of death or gift is domiciled in
Puerto Rico is not subject to Puerto Rico estate or gift taxes under the PR
Code.
MANAGEMENT AFTER MERGER
The directors and officers of Margo at the date of the merger will
continue to serve as directors and officers of Transition.
ARTICLES OF INCORPORATION AND BY-LAWS OF TRANSITION
If the merger is consummated, the certificate of incorporation of
Transition, a copy of which is attached as Annex A to the Merger Agreement
attached hereto as Exhibit A, will be substantially identical to the existing
articles of incorporation of Margo, except for (a) the elimination of references
in the articles of incorporation to Margo's Series One Preferred Stock which
have been redeemed, (b) certain administrative provisions required to conform
Margo's articles of incorporation to PRGCL and (c) a provision limiting the
personal liability of directors, which is automatic under FBCA, but is only
effective under PRGCL if included in the certificate of incorporation. See
"Comparative Rights of Stockholders - Director's Liability".
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The by-laws of Transition, as such by-laws affect the rights of
shareholders, are, in the opinion of Margo's management, substantively the same
to the existing by-laws of Margo.
DESCRIPTION OF CAPITAL STOCK OF TRANSITION
The authorized capital stock of Transition as of the effective date of
the merger will consist of 250,000 shares of Preferred Stock, $0.01 par value,
and 10,000,000 shares of Transition Common Stock, $0.001 par value, which is the
same as the present capitalization of Margo.
SERIAL PREFERRED STOCK. Subject to certain limitations, the Board of
Directors of Transition will be authorized to issue the Preferred Stock in one
or more series, to fix the number of shares in each series, and to determine the
terms and features, including the designations, limitations, preferences and
other rights, of the shares of each series. Among other things, the Board has
the authority to determine the voting powers, if any, and the dividend,
redemption and conversion rights and liquidation preferences, if any, with
respect to each series.
COMMON STOCK. The holders of Transition Common Stock will be entitled
to participate equally in dividends if and when declared by the Board of
Directors, and in the event of the liquidation of Transition, to share pro rata
in any distribution of assets.
The holders of Transition Common Stock will be entitled to one vote per
share in the election of directors and on all other matters. Holders of
Transition Common Stock will not have cumulative voting rights or preemptive or
subscription rights. All shares of Transition Common Stock to be issued in the
merger will be fully paid and nonassessable.
FINANCIAL INFORMATION
After the merger the consolidated financial statements of Margo and
Transition will be substantially the same as Margo's financial statements had
the merger and related transactions not occurred.
LEGAL OPINION. The legality of the Transition Common Stock to be issued
in the merger will be passed upon for Transition by Pietrantoni Mendez &
Alvarez, San Juan, Puerto Rico.
DIVIDEND POLICY. The payment of dividends on Transition Common Stock
will depend upon its earnings, financial condition and capital requirements and
is subject to the discretion of the Board of Directors. Margo has not paid a
dividend since February 1993.
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EFFECTIVENESS OF MERGER. The merger will become effective on the later
of: (i) the date the Certificate of Merger is filed with the Secretary of State
of Florida; and (ii) the date a Certificate of Merger is filed with the
Secretary of State of Puerto Rico. Such filing will be made only after the
required approval by the shareholders of Margo and after fulfillment or waiver
of the other conditions to the Merger Agreement. See "Conditions of Merger."
VOTE REQUIRED
The affirmative vote of a majority of the outstanding shares of Margo
and Transition Common Stock is required to approve the merger. Margo, as the
sole stockholder of Transition, has already approved the merger. THE BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THIS PROPOSAL. Michael J. Spector and Margaret D. Spector (the "Spectors")
jointly own more than a majority of the outstanding shares of Margo Common
Stock. As a result, the Spectors have sufficient votes to approve the merger
contemplated herein. See "Security Ownership of Certain Beneficial Owners and
Management." The Spectors have indicated that they intend to vote FOR the
merger.
OTHER BUSINESS
Each proxy solicited hereby also confers discretionary authority on the
Board of Directors of Margo to vote the proxy with respect to matters incident
to the conduct of the meeting, and upon such other matters as may properly came
before the Special Meeting. Management is not aware of any business that may
properly came before the Special Meeting other than those matters described
above in this Proxy Statement. However, if any other matters should properly
came before
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the Special Meeting, it is intended that proxies solicited hereby will be voted
with respect to those other matters in accordance with the judgment of the
persons voting the proxies.
BY ORDER OF THE BOARD OF DIRECTORS
Margaret D. Spector
Secretary
Vega Alta, Puerto Rico
November 17, 1997
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EXHIBIT A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of this
___ day of ______________, 1997, by and among MARGO NURSERY FARMS, INC., a
Florida corporation ("Margo Farms"), and MARGO TRANSITION CORP., a Puerto Rico
corporation ("Transition" or the "Surviving Corporation"). Margo Farms and
Transition are hereinafter collectively referred to as the "Constituent
Corporations".
WITNESSETH:
WHEREAS, Margo Farms is a Florida corporation with its principal place
of business in the Commonwealth of Puerto Rico;
WHEREAS, Transition is a wholly-owned subsidiary of Margo
Farms;
WHEREAS, Transition was created to accomplish the reincorporation of
Margo Farms as a Puerto Rico corporation pursuant to the merger of the
Constituent Corporations;
WHEREAS, the Constituent Corporations recognize that the
reincorporation of Margo Farms as a Puerto Rico corporation will generally
provide for greater administrative and operational flexibility and more
efficient tax planning;
WHEREAS, the Constituent Corporations recognize that the
reincorporation may be effected through a merger in accordance with Section
607.1104 of the Florida Business Corporation Act (the "FBCA") and Article 10.02
of the Puerto Rico General Corporation Law of 1995 (the "PRGCL") with Transition
as the surviving corporation, but with said corporation changing its name to
Margo Nursery Farms, Inc. and conducting the business presently conducted by
Margo Farms.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties hereto hereby agree as follows:
1. MERGER. Margo Farms shall merge with and into Transition in
accordance with the terms and conditions of this Agreement and the provisions of
Section 607.1104 of the FBCA and Article 10.02 of PRGCC (the "Merger").
Transition shall be the surviving
<PAGE>
2
corporation and shall continue its corporate existence under its current
articles of incorporation filed under the Puerto Rico General Corporation Law of
1995. Upon the Effective Date (as hereinafter defined), the separate existence
of Margo Farms shall cease.
2. EFFECTIVE DATE. The Merger shall become effective at 11:59 p.m. on
December 31, 1997 the date (the "Effective Date").
3. CHANGE OF NAME. The Surviving Corporation shall change its name to
Margo Nursery Farms, Inc.
4. EFFECT OF MERGER. Upon the Effective Date:
(a) Margo Farms and Transition shall become a single corporation and
the separate corporate existence of Margo Farms shall cease;
(b) The Surviving Corporation shall succeed to and possess all of the
rights, privileges, powers and immunities of Margo Farms which,
together with all of the assets, properties, business, patents,
trademarks, and goodwill of Margo Farms, of every type and description
wherever located, shall vest in the Surviving Corporation without
further act or deed and the title to any real property or other
property vested by deed or otherwise in Margo Farms shall not revert or
in any way be impaired by reason of the Merger;
(c) all rights of creditors and all liens upon any property of the
Constituent Corporations shall be unimpaired; The Surviving Corporation
shall be subject to all of the contractual restrictions, disabilities
and duties of the Constituent Corporations; and all debts, liabilities
and obligations of the respective Constituent Corporations shall
thereafter attach to the Surviving Corporation and may be enforced
against it to the same extent as if said debts, liabilities and
obligations had been incurred or contracted by it, provided, however,
that nothing herein is intended to or shall extend or enlarge any
obligation or the lien of any indenture, agreement or other instrument
executed or assumed by the Constituent Corporations; and
(d) without limitation of the foregoing provisions of this Section 4,
all corporate acts, plans, policies, contracts, approvals and
authorizations of the Constituent Corporations,
<PAGE>
3
their shareholders, Boards of Directors, committees elected or
appointed by the Boards of Directors, officers and agents, which were
valid and effective and which did not have terms expressly requiring
termination by virtue of the Merger, shall be taken for all purposes as
the acts, plans, policies, contracts, approvals and authorizations of
the Surviving Corporation as they were with respect to the Constituent
Corporations.
5. CERTIFICATE OF INCORPORATION; BY-LAWS. At the Effective Date, the
Certificate of Incorporation and By-laws of Transition as in effect immediately
prior to the Effective Date shall be the Certificate of Incorporation and
By-laws of the Surviving Corporation. The Certificate of Incorporation of the
Surviving Corporation is attached hereto as Annex A.
6. DIRECTORS AND OFFICERS. At the Effective Date, the directors and
officers of Margo Farms immediately prior to the Effective Date, shall be the
directors and offices of the Surviving Corporation until their respective
successors shall have been duly elected or appointed.
7. CONVERSION OF SHARES AND STOCK OPTIONS. At the Effective Date, each
of the following transactions shall be deemed to occur simultaneously:
(a) Each share of common stock of Margo Farms, $.001 par value ("Margo
Farms Common Stock"), authorized and issued immediately prior to the
Effective Date shall, by virtue of the Merger and without any action on
the part of the holder thereof, be converted into and become one fully
paid and nonassessable share of common stock, $.001 par value, of the
Surviving Corporation ("Transition Common Stock");
(b) Each share of Transition Common Stock issued and outstanding
immediately prior to the Effective Date, all of which are owned by
Margo Farms, shall, by virtue of the Merger and without any action on
the part of the holder thereof, automatically be canceled.
(c) Upon the Effective Date, each option or other right to acquire
Margo Farms Common Stock which is issued and outstanding immediately
prior to the Effective Date, shall be converted, without any action on
the part of the holder thereof, into the right to acquire an equivalent
number of the shares of Transition Common Stock, on the same terms and
conditions under which such holder could have acquired the shares of
Margo Farms Common STock.
8. EXCHANGE OF SECURITIES.
(a) After the Effective Date, each certificate theretofore representing
authorized and issued shares of Margo Farms
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4
Common Stock shall represent the same number of shares of Common Stock
of the Surviving Corporation.
(b) At any time on or after the Effective Date, each holder of
certificates theretofore evidencing ownership of shares of Margo Farms
Common Stock will be entitled, upon surrender of such certificates to
the transfer agent of the Surviving Corporation, to receive in exchange
therefor one or more new stock certificates evidencing ownership of the
number of shares of Transition Common Stock into which such Margo Farms
Common Stock shall have been converted in the Merger. If any
certificate representing shares of Transition Common Stock is to be
issued in a name other than that in which the certificate so
surrendered in exchange therefor is registered, it shall be a condition
of the issuance thereof that the certificate so surrendered shall be
properly endorsed and otherwise in proper form for transfer and the
person requesting such exchange shall pay to the transfer agent any
transfer or other taxes required by reason of the issuance of
a certificate representing shares of Transition Common Stock in any
name other than that of the registered holder of the certificate
surrendered, or otherwise required, or shall establish to the
satisfaction of the transfer agent that such tax has been paid or is
not payable.
(c) On the Effective Date, the stock transfer books of Margo Farms
shall be deemed closed and no transfer of shares of Margo Farms Common
Stock then outstanding shall thereafter be made or consummated.
9. ASSUMPTION OF STOCK OPTION PLAN AND STOCK OPTION AGREEMENTS. On the
Effective Date, Transition shall: (a) assume all of the rights and obligations
of Margo Farms under the 1988 Stock Benefits Plan (the "1988 Plan") of Margo
Farms, including, but not limited to, the Employee Stock Option Plan and
Employee Stock Benefits Plan adopted pursuant to the 1988 Plan; (b) assume all
of the rights and obligations of Margo Farms under any outstanding stock option
agreements; and (c) reserve a sufficient number of shares of Transition Common
Stock to fulfil its obligations under the 1988 Plan and any outstanding stock
options.
10. ARTICLES OF MERGER. Upon the execution of this Agreement, the
parties shall promptly execute the appropriate Articles of Merger and
Certificates of Merger as required by the FBCA and the PRGCL attached and file
the same with the Secretaries of State of the State of Florida and the
Commonwealth of Puerto Rico.
11. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the Merger, and supersedes all prior
agreements, written or oral, with respect thereto.
12. FURTHER ACTIONS. All necessary action shall be taken to transfer
information, contracts, assets, or any other property so that this Agreement be
effected pursuant to the provisions included herein.
<PAGE>
5
13. AUTHORIZATION. The appropriate officers of the Constituent
Corporations are authorized for and on behalf of and in the name of the
Constituent Corporations to take or cause to be taken all such actions and to
execute or cause to be executed such certificates and other documents as may be
deemed necessary by them or desirable in order to effectuate this Agreement and
to change the name of Transition to Margo Nursery Farms, Inc.
14. BENEFITS. This Agreement shall be binding upon and inure to benefit
the parties, their personal representatives, estates, successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
MARGO NURSERY FARMS, INC. MARGO TRANSITION CORP.
By: By:
------------------------ ----------------------
<PAGE>
ANNEX A
CERTIFICATE OF INCORPORATION
OF
MARGO TRANSITION CORP.
The undersigned, for the purpose of organizing a corporation under the
General Corporation Law of 1995 of the Commonwealth of Puerto Rico (the "General
Corporation Law") does execute this Certificate of Incorporation and does hereby
certify as follows:
FIRST: NAME OF CORPORATION. The name of this Corporation is Margo
Transition Corp. (hereinafter referred to as the "Corporation").
SECOND: DURATION. This Corporation shall have perpetual existence.
<PAGE>
2
THIRD: PURPOSE. The Corporation is organized for the purpose of
transacting any and all lawful business and engaging in any lawful act or
activity for which corporations may be organized under the General Corporation
Law.
FOURTH: CAPITAL STOCK:
(a) The Corporation is authorized to issue 10,000,000 shares of one
cent ($0.01) par value common stock, which shall be designated "Common Stock."
Except as provided in this article or otherwise by law, the entire voting power
for the election of directors and for all other purposes shall be vested
exclusively in the holders of the Common Stock.
(b) The Corporation is authorized to issue 250,000 additional shares of
one cent ($.01) par value series preferred stock, which shall be designated
"Preferred Stock." The Board of Directors is authorized to amend this
Certificate of Incorporation from time to time to divide the Preferred Stock
into series and to determine the number of shares of each such series and the
relative rights, preferences and limitations of the shares of each such series.
Whenever the Board of Directors acts under the preceding sentence, it shall
adopt a resolution setting forth its actions and stating the designations and
number of shares, and the relative rights, preference and limitations of the
shares of each series thereby created
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3
or with respect to which it has made a determination or change, which rights,
preference and limitations may differ with respect to the various series, and
shall execute and file in the office of the Secretary of State a Certificate of
Designation to the Certificate of Incorporation, as provided by law, with
respect to such actions. Without limiting the foregoing, the Board of Directors
is expressly authorized to so fix and determine, with respect to each series:
1. The number of shares which shall constitute that
series and the name or designation of the series;
2. The rate and times at which dividends on that series shall
be paid, and whether and the extent to which such dividends shall be cumulative
or non-cumulative;
3. The right or rights, if any, of the holders of shares of
that series to receive dividends payable on a parity with or in preference to
the dividends payable on shares of any other class or series;
4. The preferential rights of the holders of shares of
that series upon the liquidation of, or upon any distribution of
the assets of, the Corporation;
5. The terms, if any, upon which the holders of the shares of
that series may convert such shares into shares of any class or classes or of
any series;
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4
6. The terms and conditions, if any, on which shares of that
series may be redeemed, including the redemption price or prices and the period
or periods of such redemption;
7. The terms or amount of any sinking fund or purchase fund
for the purchase or redemption of shares of that series;
8. Voting rights, if any, of the shares of that series;
and
9. Any other rights and preferences of such shares, to the
full extent now or hereafter permitted by the laws of the Commonwealth of Puerto
Rico.
FIFTH: REGISTERED OFFICE AND RESIDENT AGENT. The physical and mailing
address of its designated office in the Commonwealth of Puerto Rico is: Road
690, Kilometer 5.8, Vega Alta, Puerto Rico, 00762. The resident agent at said
office is Michael J. Spector.
SIXTH: INCORPORATOR. The name and address of the sole incorporator, who
will exercise no further authority following the filing of this Certificate of
Incorporation in the Department of State of the Commonwealth of Puerto Rico, is
as follows:
Amneriz Veloso
Suite 1901
Popular Center
209 Munoz Rivera Avenue
San Juan, Puerto Rico 00918
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5
SEVENTH: BOARD OF DIRECTORS. The Corporation shall have five (5)
directors. The number of directors may be increased or diminished from time to
time by the by-laws but shall never be less than one (1). The names and
addresses of the initial directors who shall act until their successors are duly
elected and qualified are set forth below:
Michael J. Spector
Road 690, Kilometer 5.8
Vega Alta, Puerto Rico 00762
Frederick Moss
37 Riverside Drive, Apt. 14A
New York, New York 10023
Michael A. Rubin
7777 SW 114th St.
Miami, Florida
Margaret D. Spector
Road 690, Kilometer 5.8,
Vega Alta, Puerto Rico 0762
Blas R. Ferrauioli
Banco Popular Center, Suite 1822
209 Munoz Rivera Avenue
San Juan, Puerto Rico 00918
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6
EIGHT: BY-LAWS. The By-Laws of this Corporation may be adopted,
altered, amended or repealed by either the stockholders or directors.
NINTH: LIABILITY OF DIRECTORS. A director of this Corporation shall not
be personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except to the extent such exemption
from liability or limitation thereof is not permitted under the General
Corporation Law, as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect any
right or protection of a director of the Corporation existing hereunder with
respect to any act or omission occurring prior to or at the time of such
amendment, modification or repeal.
TENTH: INDEMNIFICATION. The Corporation shall indemnify any officer or
director, or any former officer or director, to the full extent permitted by
law.
ELEVENTH: AMENDMENT. The Corporation reserves the right to amend or
repeal any provisions contained in this Certificate of Incorporation, in
accordance with the provisions of the General Corporation Law.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Incorporation this 10th day of November, 1997.
By:/s/ AMNERIZ E. VELOSO
------------------------
AMNERIZ E. VELOSO
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EXHIBIT B
607.1301 DISSENTER'S RIGHTS; DEFINITIONS.
The following definitions apply to Sections 607.1302 and 607.1320.
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair Value," with respect to the dissenter's shares, means the
value of the shares as of the close of business on the day prior to the
shareholders' authorization date, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' Authorization Date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on which
the corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to Section 607.1104, the day prior to the date on which a copy
of the plan of merger was mailed to each shareholder of record of the subsidiary
corporation.
607.1302 RIGHT OF SHAREHOLDERS TO DISSENT.
(1) Any shareholder of a corporation has the right to dissent from, and
obtain payment of the fair value of his or her shares in the event of, any of
the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is
a party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with
its parent under Section 607.1104, and the shareholders
would have been entitled to vote on action taken, except for
the applicability of Section 607.1104;
(b) Consummation of the sale or exchange of all, or substantially
all, of the property of the corporation, other than in the usual and regular
course of business, if the shareholder is
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entitled to vote on the sale or exchange pursuant to Section 607.1202, including
a sale in dissolution but not including a sale pursuant to court order or a sale
for cash pursuant to a plan by which all or substantially all of the net
proceeds of the sale will be distributed to the shareholders within 1 year after
the date of sale;
(c) As provided in Section 607.0902(11), the approval of a
control-share acquisition;
(d) Consummation of a plan of share exchange to which the
corporation is a party as the corporation the shares of which will be acquired,
if the shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the
shareholder is entitled to vote on the amendment and if such amendment would
adversely affect such shareholder by:
1. Altering or abolishing any preemptive rights attached to
any of his or her shares;
2. Altering or abolishing the voting rights pertaining to
any of his or her shares, except as such rights may be
affected by the voting rights of new shares than being
authorized of any existing or new class or series of shares;
3. Effecting an exchange, cancellation, or reclassification
of any of his or her shares, when such exchange,
cancellation, or reclassification would alter or abolish the
shareholder's voting rights or alter his or her percentage
of equity in the corporation, of effecting a reduction or
cancellation of accrued dividends or other arrearages in
respect to such shares;
4. Reducing the stated redemption price of any of the
shareholder's redeemable shares, altering or abolishing any
provision relating to any sinking fund for the redemption or
purchase of any of his or her shares, or making any of his
or her shares, or making any of his or her shares subject to
redemption when they are not otherwise redeemable;
5. Making noncumulative, in whole or in part, dividends of
any of the shareholder's preferred shares which had
therefore been cumulative;
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6. Reducing the stated dividend preference of any of the
shareholder's preferred shares; or
7. Reducing any stated preferential amount payable on any of
the shareholder's preferred shares upon voluntary or
involuntary liquidations; or
(f) Any corporate action taken, to the extent the articles of
incorporation provide that a voting or nonvoting shareholder is entitled to
dissent and obtain payment for his or her shares.
(2) A shareholder dissenting from any amendment specified in paragraph
(1)(e) has the right to dissent only as to those of his or her shares which are
adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares registered in
his or her name. In that event, the shareholder's rights shall be determined as
if the shares as to which he or she has dissented and his or her other shares
were registered in the names of different shareholders.
(4) Unless the articles of incorporation otherwise provide, this section
does not apply with respect to a plan of merger or share exchange or a proposed
sale or exchange of property, to the holders of shares of any class or series
which, on the record date fixed to determine the shareholders entitled to vote
at the meeting of shareholders at which such action is to be acted upon or to
consent to any such action without a meeting, were either registered 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 but not fewer than 2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his or her
shares under this section may not challenge the corporate action creating his or
her entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
607.1320 PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS.
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1. (a) If a proposed corporate action creating dissenters' rights under
Section 607.1302 is submitted to a vote at a shareholders' meeting, the meeting
notice shall state that shareholders are or may be entitled to assert
dissenters' rights and be accompanied by a copy of Sections 607.1301, 607.1302
and 607.1320. A shareholder who wishes to assert dissenters' rights shall:
i. Deliver to the corporation before the vote is taken
written notice of the shareholder's intent to demand
payment for his or her shares if the proposed action is
effectuated, and
ii. Not vote his or her shares in favor of the proposed action. A
proxy or vote against the proposed action does not constitute
such a notice of intent to demand payment.
(b) If proposed corporate action creating dissenters' rights
under Section 607.1302 is effectuated by written consent without a meeting, the
corporation shall deliver a copy of Sections 607.1301, 607.1302 and 607.1320 to
each shareholder simultaneously with any request for the shareholder's written
consent or, if such a request is not made, within ten (10) days after the date
the corporation received written consents without a meeting from the requisite
number of shareholders necessary to authorize the action.
2. Within ten (10) days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his or her shares pursuant to
paragraph 1(a) or, in the case of action authorized by written consent, to each
shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
3. Within twenty (20) days after the giving of notice to him or her,
any shareholder who elects to dissent shall file with the corporation a notice
of such election, stating the shareholder's name and address, the number,
classes, and series of shares as to which he or she dissents, and a demand for
payment of the fair value of his or her shares. Any shareholder failing to file
such election to dissent within the period set forth shall be bound by the terms
of the proposed corporate action. Any shareholder filing an election to dissent
shall deposit his or her certificates for
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2
certificated shares with the corporation simultaneously with the filing of the
election to dissent. The corporation may restrict the transfer of uncertificated
shares from the date the shareholder's election to dissent is filed with the
corporation.
4. Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall not
be entitled to vote or to exercise any other rights of a shareholder. A notice
of election may be withdrawn in writing by the shareholder at any time before an
offer is made by the corporation, as provided in subsection 5, to pay for his or
her shares. After such offer, no such notice of election may be withdrawn unless
the corporation consents thereto. However, the right of such shareholder to be
paid the fair value of his or her shares shall cease, and the shareholder shall
be reinstated to have all his or her rights as a shareholder as of the filing of
his or her notice of election, including any intervening preemptive rights and
the right to payment of any intervening dividend or other distribution or, if
any such rights have expired, or any such dividend or distribution other than in
cash has been completed, in lieu thereof, at the election of the corporation,
the fair value thereof in cash as determined by the board as of the time of such
expiration or completion, but without prejudice otherwise to any corporate
proceedings that may have been taken in the interim if:
(a) Such demand is withdrawn as provided in this
section;
(b) The proposed corporate action is abandoned or rescinded or
the shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value
by a court has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such
shareholder is not entitled to the relief provided by this section.
6. If within thirty (30) days after the making of such offer any
shareholder accepts the same, payment for his or her shares shall be made within
ninety (90) days after the making of such offer or the consummation of the
proposed action, whichever is later. Upon payment of the agreed value, the
dissenting shareholder shall cease to have any interest in such shares.
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3
7. If the corporation fails to make such offer within the period
specified therefor in subsection 5 or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of thirty
(30) days thereafter, then the corporation, within thirty (30) days after
receipt of written demand from any dissenting shareholder given within sixty
(60) days after the date on which such corporate action was effected, shall, or
at its election at any time within such period of sixty (60) days may, file an
action in any court of competent jurisdiction in the county in this state where
the registered office of the corporation is located requested that the fair
value of such shares be determined. The court shall also determine whether each
dissenting shareholder, as to whom the corporation requests the court to make
such determination, is entitled to receive payment for his or her shares. If the
corporation fails to institute the proceeding as herein provided, any dissenting
shareholder may do so in the name of the corporation. All dissenting
shareholders (whether or not residents of this state), other than shareholders
who have agreed with the corporation as to the value of their shares, shall be
made parties to the proceeding as an action against their shares. The
corporation shall serve a copy of the initial pleading in such proceeding upon
each dissenting shareholder who is a resident of this state in the manner
provided by law for the service of a summons and complaint and upon each
nonresident dissenting shareholder either by registered or certified mail and
publication or in such other manner as is permitted by law. The jurisdiction of
the court is plenary and exclusive. All shareholders who are proper parties to
the proceeding are entitled to judgment against the corporation for the amount
of the fair value of their shares. The court may, if it so elects, appoint one
or more persons as appraisers to receive evidence and recommend a decision on
the question of fair value. The appraisers shall have such power and authority
as is specified in the order of their appointment or an amendment thereof. The
corporation shall pay each dissenting shareholder the amount found to be due him
or her within ten (10) days after final determination of the proceedings. Upon
payment of the judgment, the dissenting shareholder shall cease to have any
interest in such shares.
<PAGE>
MARGO NURSERY FARMS, INC.
PROXY-SPECIAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Michael J. Spector and Alfonso Ortega, and each
of them severally, as proxies, with full power of substitution, to vote on
behalf of the undersigned all of the shares of the Common Stock of MARGO NURSERY
FARMS, INC., a Florida corporation (the "Coompany"), which the undersigned is
entitled to vote at a Special Meeting of Stockholders of the Company to be
held at the offices of Pietrantoni Mendez & Alvarez, Suite 1901, Banco Popular
Center, 209 Munoz Rivera Avenue, San Juan, Puerto Rico on Monday, December 15,
1997 at 10:00 a.m. (local time), and at any adjournment or postponement thereof,
upon the following matters:
(1) Consideration of a proposal to reincorporate the Company as a
Puerto Rico corporation.
(2) to transact such other business as may properly come before the
annual meeting or any adjournment or postponement thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER ON THE OTHER SIDE HEREOF. IF NO DIRECTION IS GIVEN, SUCH SHARES WILL
BE VOTED "FOR" EACH OF THE ABOVE PROPOSALS.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
<PAGE>
PLEASE MARK
YOUR VOTES AS
INDICATED IN
THIS EXAMPLE [X]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
PROPOSAL (1) Reincorporation of Margo as a Puerto Rico corporation.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
PROPOSAL (2) In the discretion of such proxies, upon such other
matters as may properly come before the special meeting or any
adjournment or postponement thereof.
Dated:_________________________________________
_______________________________________________
Signature of Stockholder
_______________________________________________
Signature of Stockholder
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE, OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
JOINT OWNERS SHOULD BOTH SIGN. PLEASE BE SURE TO
DATE THE PROXY AND RETURN THE SAME PROMPTLY.
