-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DYJJ/cudkX/mr/P2cRuLMG4Glf7dUWk5GKXwl5gfskbvnx6kzByUB9vS7SbCrEqU Kyu+NcWsypZorbpvGuin1g== 0000950170-97-000511.txt : 19970505 0000950170-97-000511.hdr.sgml : 19970505 ACCESSION NUMBER: 0000950170-97-000511 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19970502 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TASTY FRIES INC CENTRAL INDEX KEY: 0000791885 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 650259052 STATE OF INCORPORATION: NV FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-19239 FILM NUMBER: 97594632 BUSINESS ADDRESS: STREET 1: 650 SENTRY PKWY STE ONE CITY: BLUE BELL STATE: PA ZIP: 19422 BUSINESS PHONE: 6109412109 SB-2/A 1 As filed with the Securities and Exchange Commission on May 2, 1997. Registration Statement No. 333-19239 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 2 TO FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 TASTY FRIES, INC. (Name of Small Business Issuer in its Charter)
NEVADA 2000 65-0259052 (State of Incorporation) (Primary Standard Industrial (IRS Employer Identification No.) Classification Code Number)
650 SENTRY PARKWAY, SUITE ONE BLUE BELL, PENNSYLVANIA 19422 (610) 941-2109 (Address and telephone number of principal executive offices and principal place of business) EDWARD C. KELLY, PRESIDENT AND CHIEF EXECUTIVE OFFICER TASTY FRIES, INC. 650 SENTRY PARKWAY, SUITE ONE BLUE BELL, PENNSYLVANIA 19422 (610) 941-2109 (Name, address and telephone number of agent for service) Copies to: KIPNIS TESCHER LIPPMAN VALINSKY & KAIN, P.A. ONE FINANCIAL PLAZA, SUITE 2308 FORT LAUDERDALE, FLORIDA 33394 ATTENTION: MICHELLE KRAMISH KAIN, ESQ. (954) 467-1964 (954) 467-2264 (FAX) Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Act of 1933, as amended (the "Act"), check the following box: [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Act, check the following box and list the Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREFORE BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8 (A) OF THE ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8 (A), MAY DETERMINE.
TASTY FRIES, INC. CROSS REFERENCE SHEET FORM SB-2 ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS --------------------------------- --------------------- 1. Front of Registration Statement Facing Page of Registration Statement; and Outside Front Cover Page of Outside Front Cover Page Prospectus 2. Inside Front and Outside Back Inside Front and Outside Back Cover Pages of Prospectus Cover Pages 3. Summary Information and Prospectus Summary; Risk Factors; Risk Factors The Company 4. Use of Proceeds Prospectus Summary; Use of Proceeds 5. Determination of Offering Price Outside Front Cover Page; Price Use of Proceeds 6. Dilution Dilution 7. Selling Stockholders Selling Securityholders 8. Plan of Distribution Outside Front Cover Page; Risk Factors; Plan of Distribution 9. Legal Proceedings Business - Litigation 10. Directors, Executive Management Officers, Promoters and Control Persons 11. Security Ownership Principal Securityholders Of Certain Beneficial Owners and Management 12. Description of Securities Prospectus Summary; Risk Factors; Description of Securities. 3 FORM SB-2 ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS 13. Interests of Named Legal Matters; Experts Experts and Counsel 14. Disclosure of Commission Indemnification of Position on Indemnification Directors and Officers for Securities Act Liabilities 15. Organization Within Not Applicable Last Five Years 16. Description of Business Prospectus Summary; Business 17. Management's Discussion Management's Discussion and and Analysis or Plan of Analysis of Financial Condition and Results Operation(s) of Operation - Plan of Operation 18. Description of Property Business - Property 19. Certain Relationships and Certain Transactions Related Transactions 20. Market for Common Equity Outside Front Cover Page; Risk Factors; and Related Stockholder Matters Market for Common Equity; Dividend Policy; Description of Securities - Shares Eligible for Future Sale 21. Executive Compensation Executive Compensation 22. Financial Statements Financial Statements 23. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure Not Applicable
4 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED MAY 2, 1997 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS TASTY FRIES, INC. An Aggregate of 5,397,927 Shares of Common Stock (par value $.001 per share) This Prospectus relates to the sale of 5,397,927 post-split shares (the "Shares") of Common Stock, $.001 par value per share (the "Common Stock"), which includes 425,010 post-split shares of Common Stock to be issued upon the exercise of warrants (the "Warrant" or "Warrants") to be issued to certain Selling Securityholders (the "Warrant Shares") of Tasty Fries, Inc. (the "Company" or the "Issuer"), all of which may be offered and sold from time to time by such Selling Securityholders (the "Selling Securityholders") of the Issuer. See "SELLING SECURITYHOLDERS" and "PLAN OF DISTRIBUTION." Following the effective date of the Registration Statement of which this Prospectus is a part, the Shares and the Warrant Shares may be offered for sale, in whole or in part, in regular market transactions or through broker-dealers at prevailing market prices. The Selling Securityholders and any broker-dealer who participates in the distribution of the Shares or the Warrant Shares (which sometimes are collectively referred to herein as the "Shares") may be deemed to be underwriters ("Underwriters") within the meaning of the Securities Act of 1933, as amended (the "Act"). The Issuer will receive the proceeds from the exercise price of each Warrant so exercised, if any, but will not receive any proceeds from the sale of any of the Shares. The Issuer will incur certain expenses in connection with this offering. The Shares and the Warrant Shares involve certain investment risks. See "RISK FACTORS." There is currently a public trading market for the Shares on the OTC Bulletin Board. See "RISK FACTORS", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION" and "PLAN OF DISTRIBUTION." There can be no assurance, however, that such a trading market will further develop, continue or be sustained. On April 23, 1997, the reported closing bid price of the Common Stock was $1.56. See "RISK FACTORS." 5 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING HEREIN CONTAINED AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH JURISDICTION. ------------------------ UNTIL ________________, 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL BROKER-DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS WITH RESPECT TO SALES EFFECTED BY THEM. THE ISSUER IS REQUIRED BY THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, TO FILE PERIODIC REPORTS AND OTHER INFORMATION WITH THE SECURITIES AND EXCHANGE COMMISSION. SUCH MATERIAL MAY BE INSPECTED AT THE COMMISSION'S PRINCIPAL OFFICES AT 450 FIFTH STREET N.W., WASHINGTON, D.C. 20459 AND COPIES MAY BE OBTAINED ON PAYMENT OF CERTAIN FEES PRESCRIBED BY THE COMMISSION. THE ISSUER WILL FURNISH, UPON REQUEST AND AT ITS EXPENSE, TO THE HOLDERS OF THE SHARES AND THE WARRANT SHARES THE ISSUER'S FORM 10-KSB FOR THE MOST RECENTLY COMPLETED FISCAL YEAR CONTAINING AUDITED FINANCIAL STATEMENTS EXAMINED AND REPORTED UPON, AND WITH AN OPINION EXPRESSED BY, AN INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT. THE ISSUER MAY FURNISH OTHER UNAUDITED INTERIM REPORTS TO ITS SECURITYHOLDERS, UPON REQUEST, AS IT DEEMS APPROPRIATE. 6 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES OR INDICATES OTHERWISE, ALL REFERENCES IN THIS PROSPECTUS TO THE "COMPANY" OR "TASTY FRIES" SHALL MEAN TASTY FRIES, INC., A NEVADA CORPORATION, AND GIVE EFFECT TO THE 1 FOR 20 REVERSE STOCK SPLIT EFFECTIVE ON DECEMBER 23, 1996. THE COMPANY The Company was incorporated in Nevada on October 18, 1985 under the name Y.O. Systems, Ltd. and was formed as a "blank check" company for the purpose of seeking a business acquisition without regard to any specific industry or business but was unsuccessful. It subsequently changed its name to Metro Systems, Inc. in 1987. In July 1991 it acquired Adelaide Holdings, Inc., a private Delaware corporation, and changed its name to Adelaide Holdings, Inc. Thereafter, in September 1993, it changed its name to Tasty Fries, Inc. The Company is a Nevada corporation with its principal executive offices at 650 Sentry Parkway, Suite One, Blue Bell, Pennsylvania 19422. Its telephone number is (610) 941-2109. The Company has developed a patented french fries vending machine (the "Machine") and the related proprietary potato powder mix for the production of fresh french fries in the Machine (the "Potato Product") as well as other related products (collectively, the "Products") which it plans to market, distribute, and sell on a world-wide basis. The Company had previously received a federally registered trademark for its former name and logo, "Adelaide". The Company has subsequently federally registered its current name and logo, "Tasty Fries," as a federal trademark on the Supplemental Register and has been marketing the Machine and the Products under that name. See "RISK FACTORS-PATENT PROTECTION AND PROPRIETARY RIGHTS" and "BUSINESS-PATENTS AND PROPRIETARY RIGHTS." The Company's early plans were to principally market its products through an exclusive distributorship network which then current management believed would offer uniform and consistent products to consumers worldwide. In furtherance of this plan, the Company sold distributorships for different markets throughout the United States and several foreign countries. In mid-1995 a change in its marketing focus evolved which has resulted in the Company negotiating to reacquire distributorships previously sold. One such distributorship has been reacquired and negotiations are on-going for two others. The Company expects, in its discretion, to market and sell on a non-exclusive basis to companies with significant experience in the vending business in locations where it is not deemed feasible by management, due to costs, location and other factors, to be operated directly by the Company. The Company may, in certain circumstances, retain the ownership of the Machines and lease the Machines to distributors. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - PLAN OF OPERATION" AND "BUSINESS". 7 RISK FACTORS An investment in the Shares and the Warrant Shares involves various significant risks and prospective investors should carefully consider the matters discussed under "RISK FACTORS" prior to any investment in the Company. See "RISK FACTORS". THE OFFERING The principal terms of the Shares and the Warrant Shares offered hereby in the offering are summarized below. For a more complete description, see "DESCRIPTION OF SECURITIES". The Selling Securityholders will receive all the proceeds from the sale of the Shares. SECURITIES OFFERED
Common Stock..................... 4,972,917 post-split shares of Common Stock which may be sold, from time to time, in whole or in part, by the Selling Securityholders. Warrant Shares................... 425,010 post-split shares of Common Stock to be issued upon the exercise, in whole or in part, of the Warrants by the Warrantholders. The Company will receive the proceeds from the exercise of the Warrants, if any. Rights of Common The Shares and the Warrant Shares, once issued and Stock............................ outstanding, share equally in all rights of the Common Stock, including without limitation, dividend and voting rights. Proceeds to the All proceeds from the sale of the Shares and Warrant Shares Company.......................... (once the Warrants are exercised) will be received by the respective Selling Securityholders. The Company will receive the proceeds from the exercise of the Warrants, if any. To the extent that certain Shares being registered hereby underlie options and other outstanding warrants, the proceeds from such exercise, if any, would be received by the Company and would be utilized by the Company primarily for working capital purposes. See "USE OF PROCEEDS". Quotation........................ The Common Stock is quoted on the OTC Bulletin Board. Trading Symbol................... "FRYA"
8 SELECTED FINANCIAL DATA The selected financial data presented below for each of the two years ended January 31, 1996 and 1995, have been derived from the audited financial statements of the Company and give effect to the one for 20 reverse stock split effective on December 23, 1996. The selected financial data presented below for the nine months ended October 31, 1996 and October 31, 1995 are unaudited but, in management's opinion, includes all adjustments consisting of normal recurring adjustments necessary to present fairly the financial data for, and at the end of, such period. See "FINANCIAL STATEMENTS".
NINE MONTHS ENDED YEAR ENDED OCTOBER 31, JANUARY 31, ---------------- ----------------- 1995 1996 1995 1996 ---- ---- ---- ---- (unaudited) (audited) INCOME STATEMENT DATA: Revenues ..................... 0 478 0 618 Loss before interest expense . (793,692) (1,607,453) (2,064,038) (1,358,030) Interest expense ............. 25,197 6,404 14,895 26,458 Net loss ..................... (818,889) (1,613,857) (2,078,933) (1,384,488) Net loss per share ........... (.02) (.02) (.08) (.03) Net loss per share after ..... (.22) (.34) (1.29) (.36) reverse stock split BALANCE SHEET DATA: Total assets ................. 2,635,127 172,835 99,070 155,788 Working capital (deficit) .... 1,855,975 (596,939) (904,487) (499,010) Total liabilities ............ 779,152 1,120,686 1,410,792 980,283 Stockholders' equity (deficit) 1,885,604 (947,851) (1,311,722) (824,495)
9 RISK FACTORS THE PURCHASE OF THE SHARES AND WARRANT SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, TOGETHER WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE MAKING AN INVESTMENT DECISION. LIMITED OPERATING HISTORY; NO REVENUES FROM OPERATIONS; NO ASSURANCE OF SUCCESSFUL IMPLEMENTATION OF BUSINESS STRATEGY. Although the Company has operated since July 1991 in its current business, it has had virtually no revenues from operations. Substantially all cash received by the Company to date has been through the sale of equity and debt securities to investors in private placements. Limited funds have also been received from the downpayments made by certain distributors for their distribution rights for the Machine and the Products. As of October 31, 1996, the amount of all such downpayments aggregated $406,000. The Company has utilized the proceeds from the sale of securities and distributor downpayments to fund its research and development of the Machine and the Products, repay debt, satisfy Court judgments and court awards and for working capital purposes. The Company has incurred substantial net losses since 1991 and is still in its development stage. The Company continues to face all of the risks inherent in the growth of a developing business, including among other things, limited access to capital, and long delays in the implementation of its business plan resulting from the need to totally redesign, develop and test a new machine and a continuing lack of sufficient working capital to fund development and operations. There can be no assurances that the Company's business will ultimately be successful and/or profitable. As a result, the purchase of the Shares and Warrant Shares offered hereby must be regarded by investors as the placing of funds at a high and uncertain risk in a developing business with all of the unforeseen costs, expenses, problems and difficulties to which such businesses are subject. Investors in this offering may lose all or a substantial part of their investment. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - PLAN OF OPERATION", "BUSINESS" and "FINANCIAL STATEMENTS." HISTORY OF SUBSTANTIAL LOSSES; NEED FOR ADDITIONAL CAPITAL. The Company incurred net losses of $1,514,488 and $1,478,933 for the fiscal years ended January 31, 1996 and 1995, respectively, and a net loss for the nine months ended October 31, 1996 and 1995 of $1,613,857 and $818,889, respectively. In order to attain any profitability, the Company must commence commercial production and delivery of the Machine and its Products to distributors and lessees, if any, and successfully plan and control costs so as to produce a positive operating margin. There can be no assurance that the Company can do so, and the failure of the Company to achieve and maintain profitability could ultimately result in the inability of the Company to pay its financial obligations as they become due. This would, as it has in the past, have a material adverse effect on the Company. 10 The report of the Company's independent certified public accountants accompanying the Company's financial statements set forth elsewhere herein contains an explanatory paragraph that there exists substantial doubt about the Company's ability to continue as a going concern due to its continuing losses and lack of liquidity and capital resources. Unless the Company can continue to obtain financing from the issuance of Common Stock and/or through loans until such time as it has sufficient revenues from operations, as to which no assurances are given, the Company may be required to cease all operations. See "FINANCIAL STATEMENTS". At January 31, 1996 and 1995, the Company reported a working capital deficit of approximately $1,236,990 and ($1,210,487), respectively. As of October 31, 1996, the Company reported a working capital deficit of approximately ($972,439). Presently existing capital resources are not sufficient for the Company to maintain its current and planned operations through the remainder of the fiscal quarter ending April 30, 1997. The Company has historically funded its operations through a combination of the sale of securities, issuance of stock for services or in settlement of corporate obligations and to a much lesser extent, the downpayments of distributors. Until such time as the Company's operating results may reach a sufficient level to fund the Company's operations, as to which no assurances are given, the Company must continue to seek and obtain outside financing to fund its business and to meet its obligations as they become due. Although the Company is in discussions with several funding sources, no assurances can be given at this time that any will be consummated. Any debt or equity financing, to the extent available, as to which no assurances are given, may be dilutive to the interests of investors in this offering. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION" and "FINANCIAL STATEMENTS". NO MANUFACTURING FACILITIES; COMPLETION OF TOOLING. The Company has not and does not intend to establish its own manufacturing operations. The Company has been and will continue to be dependent upon third parties to manufacture its Machines and Products, including the Potato Product. In June 1996, the Company entered into a manufacturing agreement with a local Pennsylvania electronics company to manufacture the Machines. It previously had an agreement with Premier Design, Ltd. ("Premier"), a company owned by Mr. Edward Kelly, President and Chief Executive Officer of the Company and a former director, Harry Schmidt, to manufacture the Machine; however, in accordance with the terms of such agreement, which provides for Premier to receive a royalty for all Machines sold, the Company is negotiating with a subsidiary of Koors Industries, Inc., a multi-billion dollar Israeli conglomerate, to manufacture the Machine in Israel for distribution in certain territories. No assurances are given that a final agreement will be executed, and, if executed, when such Machines will be manufactured. See "BUSINESS - DESIGN AND MANUFACTURING" and "SELLING SECURITYHOLDERS". Before the Machines can be manufactured on a commercial basis, the Company's third party unaffiliated contractor must complete the necessary tooling of certain component parts which has been started but is now significantly delayed due to the Company's lack of capital to fund the completion. Once funding is received, the tooling process can be completed and commercial production can proceed. Although the Company is in negotiations to secure this 11 funding from three sources, no assurances can be given that either source or any other source of funding will ultimately be available to the Company. In such event, the Company will be unable to complete tooling which may require it to curtail or cease operations entirely. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION" and "BUSINESS." SIGNIFICANT LITIGATION. The Company is currently a party in several lawsuits, both as plaintiff and defendant. Two lawsuits against the Company have been settled and another is in the process of being settled. These settlements involve the payment of cash in varying amounts and at varying times, some of which has been paid and some which is to be paid in the future. Much of the litigation involving the Company over the last several years has resulted from the Company's inability to pay its obligations as they became due or because of a continuing lack of working capital. Based upon discussions among the parties, management believes that another pending material lawsuit will be settled in the first half of the current fiscal year although no assurances are given. The matter between the Company and California Food & Vending ("CFV") has been in varying stages of litigation for almost four years. In May 1996, the Company paid CFV all monies due, including all accrued interest, pursuant to the October 1994 arbitration award confirmed by the Court. It also paid CFV an additional $20,000 for one-half of distribution fees it received in February 1997. CFV now seeks to have a permanent receiver appointed by the Court to ensure that any monies received by the Company in the future to which CFV may be entitled are paid to CFV. The Company is vigorously opposing this motion on the grounds that CFV is not currently owed any money and is only entitled to money under certain specific circumstances. In the event a receiver is appointed by the Court, management is currently unable to accurately predict what effect, if any, it will have on the Company and its business. See "BUSINESS - LITIGATION". VIABILITY OF DISTRIBUTION AGREEMENTS. Due to the Company's current inability to complete the tooling process which results from a lack of necessary capital, the Company is unable to deliver any of its french fry vending machines to any distributors under existing distribution agreements. Although management has previously anticipated that commercial production would commence, there has been a continual inability to reach such stage. As a result, distributors who entered into distribution agreements with the Company in the past may no longer have the ability to meet their obligations thereunder. Accordingly, it is possible that one or more distribution agreements may no longer be viable. In such event, the Company does not intend to seek new distributors for such territories. Instead, the Company intends to sell to large vending machine companies with the financial resources to purchase Machines and the ability to service the Machines. No assurances are given that such independent operators will be secured. See "BUSINESS MARKETING THROUGH DISTRIBUTORSHIPS". NO CLEARLY DEFINED MARKETING PLAN. Although the Company previously marketed its french fry vending machine through agreements with distributors, it had never established a clearly defined marketing plan. 12 It had intended to utilize these exclusive distributorships to market its Machine and Products worldwide. Through discussions with consultants and other individuals and companies with experience in the vending business, a decision was made in mid-1995 to change this marketing focus by limiting, if not, ceasing all sales of exclusive distributorships to third parties and possibly reacquiring existing distributorships. It is the Company's present intention to market the Machines to large vending companies that have the ability to purchase Machines or lease them from the Company's leasing company, Forrest Financial Corp., on a long-term basis. Additionally, these companies would have the ability to service the Machines and order large quantities of Products, including Potato Product from the Company. See "BUSINESS - MARKETING THROUGH DISTRIBUTORSHIPS". PRODUCTION DEVELOPMENT RISKS. The Machines have been operated by the Company on a limited basis at trade shows, at previews to the investment banking community, at a limited number of beta test sites and, in certain instances, by distributors and others the United States and in foreign countries. Operating results have been excellent to date; however, the Machines are always subject to refinement, adjustment and improvement by the Company and its trained technical personnel. There is no assurance that the Machines will continue to perform in accordance with the Company's expectations over a long period of time. See "BUSINESS - THE MACHINE". PATENT PROTECTION AND PROPRIETARY RIGHTS. A patent was issued by the U.S. Patent and Trademark Office in July 1996 for the Machine to Mr. Edward C. Kelly, the inventor, who is President, Chief Executive Officer and Chairman of the Board of the Company. The patent, prior to issue, was assigned to Premier, a private company jointly owned by Mr. Kelly and Harry Schmidt, a former director of the Company, in January 1995 pursuant to the terms of an amendment ("the "Premier Amendment") to the Manufacturing Requirements Agreement, between the Company and Premier (the "Premier Agreement"). The Premier Amendment provides that the patent for the Machine will be assigned one-half (1/2) to the Company upon payment by the Company to Premier of one-half of the Machine's total development cost. The Company and Premier have verbally agreed that the Company's share of such development costs is $650,000 of which $100,000 has been paid to date. Pursuant to the terms of the Premier Agreement, until such time as the Company pays 50% of such amount ($325,000 of which $100,000 has been paid) with the balance to be paid in 12 months thereafter, the Company's one-half ownership of the patent will not be assigned. In the event that the Company is unable to pay the amounts owed to Premier, it may lose its rights to the Machine. In such event, the Company will still own its proprietary Potato Product and could license the Machine from Premier as to which no assurances are given. The loss of the rights to the Machine could have a materially adverse effect on the Company and its operations. The Company has also filed for patent protection to the Patent Cooperation Treaty ("PCT") for the Machine in 54 foreign countries which is currently pending. Even if the Company receives all patents applied for, there can be no assurances given that third parties will not assert infringement claims against the Company in the future or that others will not infringe 13 upon such patent. The cost of defending or commencing patent infringement litigation is expensive with no assurances as to the outcome thereof. The Company also has a federally registered trademark for its former name and logo, "Adelaide", and a federally registered trademark for its current name and logo, "Tasty Fries," on the Supplemental Register and has been marketing the Machine and its Products under that name. See "SUMMARY OF THE OFFERING", "BUSINESS" and "CERTAIN TRANSACTIONS". DEPENDENCE ON MANAGEMENT. The Company is wholly dependent upon the time, talent and experience of Edward C. Kelly, its President and Chief Executive Officer, who exercises control over the day-to-day affairs of the Company. The Company's future success is materially dependent on the continued services of Mr. Kelly and on its ability to attract, motivate and retain highly-qualified employees. Mr. Kelly has an Employment Agreement, as amended, with the Company and significant equity ownership of the Company. The loss of the services of Mr. Kelly for any reason could have a material adverse effect on the Company. The Company does not currently maintain key-man life insurance on Mr. Kelly or any of its other employees. See "MANAGEMENT" and "PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF MANAGEMENT". ISSUANCE OF ADDITIONAL SHARES; REVERSE SPLIT OF COMMON STOCK; OUTSTANDING OPTIONS, WARRANTS AND OTHER RIGHTS. Possible or actual sales of a substantial number of Shares and Warrant Shares by the Selling Securityholders in the offering could have a materially negative impact on the market price of the Common Stock of the Company. All 4,972,917 post-split Shares and 425,010 post-split Warrant Shares (once issued upon exercise) included in the Registration Statement of which this Prospectus is a part become transferable upon its effectiveness subject to certain lock-up restrictions. The availability of public trading for such a substantial number of Shares may have a material adverse effect on the trading prices of the Common Stock. See "SELLING SECURITYHOLDERS". Upon consummation of the Company's reverse split of its Common Stock on a 1 for 20 basis which was effective on December 23, 1996, and the change of its authorized common stock to 25,000,000 post-split shares and its par value to $.001 per share pursuant to an amendment to its Articles of Incorporation filed on December 18, 1996, all as approved by majority consent of its stockholders of record on December 6, 1996, the Board of Directors has the power to issue these authorized shares. The Company is presently committed to issue (i) 702,500 post-split shares upon the exercise of certain outstanding options at various exercise prices ranging from $2.00 to $5.00 per share, (ii) 27,000 post-split shares upon the exercise of certain outstanding warrants (other than the Warrants) exercisable at $2.00 per share, and (iii) 425,010 Warrant Shares pursuant to Warrants exercisable at the present time at $1.90 per share pursuant to the Stock Purchase Agreement between the Company, Whetstone Ventures Corporation, Inc. and Edward C. Kelly, President and Chief Executive Officer dated April 30, 1996 ( the "Stock Purchase Agreement"). Except as set forth herein, there are no other present commitments to issue any additional shares to any other persons. The Company may, in the future, issue shares for services or other corporate purposes as it has done in the past. Any 14 additional share issuances by the Company following the offering from its authorized but unissued shares would have the effect of diluting the interest of investors in this offering. See "PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF MANAGEMENT" and "DESCRIPTION OF SECURITIES - SHARES ELIGIBLE FOR FUTURE SALE." COMPETITION. The Company faces competition from other suppliers of french fries, including fast food outlets. The Company is aware of other companies which have test marketed french fry vending machines or are in the process of developing such machines. Certain of the companies may be currently viewed as competitors or which may become competitors in the future, have more capital and greater resources than the Company. Currently, the Company is aware of only one viable competitor which is Ore-Ida, a major manufacturer and distributor of frozen potato products. The Ore-Ida vending machine is not comparable to the Company's Machine for many reasons, including that it only cooks frozen french fries as contrasted to the Company's Machine which cooks french fries which are not and have never been frozen and are made from dehydrated potatoes which are mixed with water and cooked only when a vend is actually purchased. Management believes, although no assurances are given, that due to current consumer demand for french fried potatoes, that there will be strong competition in the future in the area of french fry vending once technological problems have been solved. See "BUSINESS - COMPETITION". PREFERRED STOCK AUTHORIZED FOR ISSUANCE. After the termination of this offering and regardless of the amount of securities which may be sold hereby, the Company will have available for issuance up to 5,000,000 shares of preferred stock, $.001 par value per share. The Company's directors are authorized to issue such preferred stock in one or more series and to fix the voting powers and the designations, preferences and relative participating, optional or other rights and restrictions thereof. Accordingly, the Company may issue one or more series of preferred stock in the future that will have preference over the Shares offered hereby with respect to the payment of dividends and upon its liquidation, dissolution or winding up or have voting or conversion rights which could adversely affect the voting power and percentage ownership of the holders of the preferred stock and Common Stock. See "DESCRIPTION OF SECURITIES - PREFERRED STOCK". SHARES ELIGIBLE FOR FUTURE SALE. As of the date hereof, the Company has 6,700,025 post-split shares of Common Stock issued and outstanding. Some of such shares of Common Stock will become eligible for public sale at various times, subject to compliance with an exemption from the registration requirements of the Act, such as Rule 144 or Rule 144A or earlier registration under the Act. No predictions can be made as to the effect, if any, that market sales of such shares or the availability of such shares for sale or any shares which may be later issued will have on the market price of the shares of Common Stock, which may prevail from time to time. Sales of substantial amounts of shares of Common Stock in the public market could adversely affect the market price of the Common Stock and could impair the Company's future ability to raise capital through an offering of equity securities. See "DESCRIPTION OF SECURITIES SHARES ELIGIBLE FOR FUTURE SALE". 15 LIMITED TRADING MARKET FOR COMMON STOCK AND WARRANTS. Prior to the date hereof, there has been a limited public trading market for the Common Stock and no market for the Warrants. The Common Stock has traded sporadically in limited volume in the over-the-counter market. There can be no assurances that a regular trading market for the Common Stock will develop or that, if developed, it will be sustained. It is not anticipated that a regular trading market will develop for the Warrants. NO DIVIDENDS. The Company has never paid any cash dividends on its Common Stock and the Board of Directors does not anticipate paying cash dividends in the foreseeable future. It currently intends to retain future earnings, if any, to finance the growth of the business. See "DIVIDEND POLICY". PENNY STOCK REGULATION. Broker-dealer practices in connection with transactions in "penny stocks" are regulated by certain penny stock rules adopted by the Commission. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. If the Company's securities become subject to the penny stock rules, investors may find it more difficult to sell their securities. 16 USE OF PROCEEDS The Company will not receive any proceeds from the sale of the Shares by the Selling Securityholders. The Company will receive proceeds from the exercise of the Warrants, if any, or from the exercise of other outstanding options and warrants, the underlying Shares of which, in some instances, are being registered hereby, from time to time, in whole or in part, when so exercised, if at all. Any proceeds received from the exercise of the Warrants and such other outstanding options and warrants would be used primarily for working capital. See "PROSPECTUS SUMMARY" and "SELLING SECURITYHOLDERS." DIVIDEND POLICY The Company has never paid a cash dividend on its Common Stock and does not expect to pay a cash dividend in the foreseeable future. The Board of Directors intends to retain all future earnings, if any, for use in the Company's business. See "RISK FACTORS - NO DIVIDENDS". 17 CAPITALIZATION The following table sets forth the capitalization of the Company at October 31, 1996, as adjusted to reflect the 1 for 20 reverse stock split effective on December 23, 1996 and to reflect the exercise of 50% of the Warrants and 100% of the Warrants. This table should be reviewed in conjunction with the financial statements of the Company and the notes thereto included elsewhere in this Prospectus. See "FINANCIAL STATEMENTS."
OCTOBER 31, 1996 ---------------- ACTUAL AS ADJUSTED AS ADJUSTED ------ FOR REVERSE SPLIT FOR REVERSE SPLIT AND EXERCISE OF AND EXERCISE OF 50% OF 100% OF WARRANTS(1) WARRANTS(1) -------- -------- Stockholders' Equity: Common Stock - $.001 par value; 25,000,000 shares authorized; 4,700,025 shares issued and outstanding 4,700 4,912,530 shares outstanding (50% of Warrants exercised) 4,913 5,125,035 shares outstanding (100% of Warrants exercised) 5,125 Additional Paid-in Capital 5,755,276 6,154,123 6,557,670 Retained Earnings (loss) (6,707,827) (6,707,827) (6,707,827) TOTAL STOCKHOLDERS' (947,851) (548,791) (145,032) EQUITY TOTAL CAPITALIZATION (947,851) (548,791) 145,032
- --------------- (1) The Company will receive proceeds from the exercise of the Warrants and from the exercise of other outstanding options and warrants, the underlying Shares of which, in some instances, are being registered hereby. See "SELLING SECURITYHOLDERS". The net proceeds from such exercises, if any, to the extent not immediately necessary for working capital purposes, may be temporarily invested in short-term obligations of government or banks. Even if all Warrants and such other options and warrants are exercised, the Company will still be required to seek and obtain additional financing from conventional sources, such as banks, or through the private sale of equity or debt securities. There can be no assurance that the Company will be able to obtain such financing or that such financing, if available, would be on terms and conditions acceptable to the Company. If the Company were unable to obtain needed funds, it could be forced to curtail or cease its activities. See "RISK FACTORS - HISTORY OF SUBSTANTIAL LOSSES; NEED FOR ADDITIONAL FINANCING". 18 DILUTION After giving effect to the 1 for 20 reverse stock split effective on December 23, 1996, as of October 31, 1996, the Company had 4,700,025 post-split shares of Common Stock outstanding with a net tangible book value of approximately $.001 per share. Assuming the exercise of all of the Warrants, giving effect to the reverse stock split of 1 for 20, effective on December 23, 1996, and assuming no other changes to the Company's financial position, the net tangible book value of the Company would be $(145,032) or approximately $.03 per share. This represents an immediate dilution of $1.93 per share to new investors and an immediate increase in the net tangible book value of shares held by present stockholders of $.17 per share. See "RISK FACTORS - ISSUANCE OF ADDITIONAL SHARES; REVERSE SPLIT OF COMMON STOCK; OUTSTANDING OPTIONS, WARRANTS AND OTHER RIGHTS". "Net tangible book value" is the amount that results from subtracting total liabilities, deferred costs and intangible assets of the Company from its total assets. "Dilution" is the difference between the public offering price and the net tangible book value of the Shares immediately after the offering. Additionally, dilution is calculated based on book value of the Company's assets, which may not necessarily reflect the actual market value of such assets.
The following table illustrates the per share dilution: Assuming 50% of Warrants Assuming 100% of Exercised(1) Warrants Exercised(1) Public offering price per $1.90 $1.90 Share Net tangible book value per ($.20) ($.20) Share before Warrants exercised Increase per Share $.17 $.17 attributable to existing stockholders Net tangible book value per $(.03) $(.03) Share after Warrants exercised Dilution of net tangible ----- ----- book value per Share of Warrants exercised
- ----------------- (1) There can be no assurances that any of the Warrants will be exercised. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION PLAN OF OPERATION Since 1993 the Company has encountered significant delays in connection with the production of its Machine which was initially caused by the necessity to design, develop and test a totally new Machine commencing in late 1993. As a result, the Company was unable to ship its Machine as originally anticipated by the end of 1993 or as intended in 1994. The Company completed the initial engineering development of the Machine during the last quarter of 1994 but continued to experience delays in the final stages of development and testing throughout 1995 and 1996, much of which resulted from a material lack of working capital and the necessity to allocate a material amount of the limited capital received from the private sales of equity and debt securities for litigation and related expenses, including payments mandated to be paid to California Food & Vending, Inc. ("CFV") by federal court order granting CFV's motion to assign benefits granted on March 16, 1996 (the "Court Order"). See "BUSINESS - LITIGATION." The Company anticipated that it would complete the testing of the Machine by September 1, 1995 based upon the expected delivery of the ten pre-production Machines in late July 1995, but actual testing did not commence until early December 1995 due to the delayed delivery of such pre-production Machines by Premier Design, Ltd. ("Premier"). As a result of such testing, certain modifications to and enhancements of the Machine were made. Further, testing occurred on a more limited basis than initially expected due to the lack of working capital discussed herein. Accordingly, no Machines were shipped to distributors in the fiscal year ended January 31, 1996 although a demonstration Machine was shipped to CFV in February 1996 pursuant to the Company's Settlement Agreement with CFV. See "BUSINESS - LITIGATION." The Company expected to commence commercial production of the Machine in September or October 1996, although no assurances were given that this date would be met. Due to a lack of working capital to complete the tooling of certain component parts of the Machine for commercial production, this schedule has been delayed until mid to late 1997. Although the Company is currently in negotiations with three funding sources, each of which individually is capable of providing the necessary funding to complete tooling and commence the commercial production process, no assurances can be given that the Company will finalize satisfactory agreements with one or more of such funding sources and secure the additional $350,000 necessary to complete the tooling process to meet such timetable. See "BUSINESS - - DESIGN AND MANUFACTURING." Since its inception, the Company has had no revenues from operations and has relied almost exclusively on stockholder loans, limited distribution deposits and private securities transactions to raise working capital to fund operations. At October 31, 1996 the Company had approximately $27,500 in cash. Until the investment of $1,250,000 in April and May 1996, as described below, funding had been substantially inadequate to allow the Company to continue its plan of operation. Accordingly, the Company secured additional funds through the sale of restricted Common Stock to the extent and on the best terms possible in light of its adverse financial position (see below). Despite the $1,250,000 investment, a significant amount of which was used to pay CFV and related expenses, the Company continues to seek additional funding, primarily for tooling expenses of approximately $350,000 and commercial production, and is in discussion with three unrelated funding sources as discussed herein . No assurances 20 can be given that the Company will be able to secure adequate financing from any source to pursue its current plan of operation, to meet its obligations or to commence commercial production or expand marketing over the next 12 months. If the Company is unable to obtain needed funds, it could be forced to curtail or cease its activities. See "RISK FACTORS" and "USE OF PROCEEDS". In connection with the development of the Machine, the Company paid $75,000 toward the first $150,000 of development costs as provided in the Premier Agreement. In April 1994, the Company advanced Premier $125,000 to be applied to the aggregate cost of manufacturing ten pre-production Machines to be placed in strategic locations for beta testing to gather data relating to, among other things, the Machine's performance, marketing trends and customer satisfaction. From May through July 1995, the Company paid Premier an aggregate of an additional $250,000 ($35,000 for each of ten pre-production Machines less the $125,000 paid in April 1994). The cost of these Machines was capitalized by the Company for $246,600; however, the only revenue to be realized from the sale of the ten pre-production Machines is $7,000 per Machine or $70,000 in the aggregate. In July 1996, the Company paid Premier $100,000 toward the $650,000 owing to Premier for its one-half share of the Machine's development costs. The remaining balance of $550,000 is still due and owed to Premier. Management anticipates utilizing proceeds from the consummation of a transaction with one or more of the three potential funding sources to pay Premier the $225,000 representing the amount currently necessary for one-half of the U.S. Patent on the Machine to be assigned to the Company pursuant to the terms of the Premier Amendment. See "RISK FACTORS - PATENT PROTECTION AND PROPRIETARY RIGHTS", "BUSINESS - DESIGN AND MANUFACTURING," and "FINANCIAL STATEMENTS". The ten pre-production Machines were placed at beta test sites located at bowling alleys and corporate office centers in the greater Philadelphia area and were monitored over a 90 day period by the Company. Testing of these Machines was successful based upon customer acceptance and approval, taste, price, convenience, Machine operation and the minimum down time experienced. The testing enabled management to correct and improve the Machine in certain key areas to enhance performance and operation. The Company's third party contractor commenced the of tooling certain component parts of the Machine in mid-summer 1996 to then be assembled by S & H Electronics, Inc., a local Pennsylvania manufacturer with whom the Company entered into a manufacturing agreement in June 1996 because of Premier's inability to manufacture the Machines under the terms of the Premier Amendment. See "BUSINESS - DESIGN AND MANUFACTURING." As previously discussed, the tooling process has been delayed due to the unavailability of working capital to complete same in the amount of approximately $350,000. If the necessary funding is received, as to which no assurances are given, then once tooling is completed and the Company is able to order Machines from the manufacturer for delivery to purchasers, the Company will require payment from such purchasers on terms which management believes will cover its cash payment requirements to the manufacturer so that the Company will not be required to advance cash for Machines or build an inventory, although no assurances are given that this will occur. If management is incorrect, the Company will be required to advance cash to the manufacturer. This will require the Company to raise additional funds. There can be no assurances given that any funding, including that which may be required to be advanced, will be available or if available, on terms satisfactory to the Company. 21 The Company presently estimates, based upon current distribution agreements, that it will provide at a minimum up to approximately 2,600 Machines to its existing and possible new distributors during the 12 months following delivery of the first commercial production Machines, assuming that such distributors will be able to comply with the terms of their distribution agreements. See "RISK FACTORS - VIABILITY OF DISTRIBUTORSHIP AGREEMENTS". This number of Machines is subject to the Company receiving the required upfront fees pursuant to their respective distribution agreements, as to which no assurances are given. (See the discussion of leasing above.) Further, although management previously anticipated that commercial production would commence in September or October 1996, it now anticipates that this will occur in mid to late 1997. No assurance can be given that this revised timetable will be met, when such Machines will be shipped or the number that will ultimately be shipped in the following 12 months. If a lesser number of Machines is purchased or leased, the Company's financial condition and operations will be materially and adversely effected unless it is able to sell to other operators who are not current distributors and/or through Forrest Financial Corp. (the "Leasing Company"). In connection with the Company's decision to refocus its marketing efforts and to secure a financing source that had the financial ability to purchase and lease Machines, in September 1996, the Company entered into a vendor agreement (the "Vendor Agreement") with the Leasing Company whereby the Leasing Company will provide lease financing to distributors and others who may wish to lease Machines rather than purchase. Pursuant to the terms of the Vendor Agreement, approximately $15,000,000 will be made available by the Leasing Company to qualified lessees for such purpose. The Leasing Company has since qualified approximately 1,400 vending companies which it believes have the financial capability and internal structure and experience to lease Machines from the Leasing Company and place them in geographically desirable locations. Once commercial production commences, the Leasing Company intends to contact each of these companies with the goal of entering into lease agreements for Machines. The Leasing Company will then purchase Machines directly from the Company at the anticipated sales price of approximately $9,000 and lease them for a period of three years. During this lease period, lessees will purchase Potato Product and related Products directly from the Company. After the three year lease term, the Leasing Company expects to take possession of the leased Machine and return it to the Company's manufacturer for refurbishment and modifications, if necessary, and the Company will be paid therefore. Thereafter, the Machine will be leased once again by the Leasing Company with the lease payment to be divided equally between the Company and the Leasing Company for the full term of the lease for each Machine so refurbished and leased. Management believes that the availability of financing to qualified lessees to lease the Machine may attract more vending machine companies and operators. To the extent that Machines are leased and funded in this manner, the Company expects that it will no longer be required to provide initial cash funding for production but rather will receive funding directly from the Leasing Company, as well revenue after year three from the refurbishment of the Machines, in addition to a continuing revenue stream for each Machine leased thereafter. This should, although no assurances are given, enable the Company to attain greater profit margins, and a potential cash flow source without incurring the attendant cost of capital. See "BUSINESS - MARKETING THROUGH DISTRIBUTORSHIPS". In addition, the Potato Product for use in the Machine was developed in 1995. Management estimates that the cost to establish a manufacturing line to produce the Potato Product is approximately $500,000. Due to the significant cost involved and the current 22 availability of certain other potato products which are comparable with the Company's Potato Product and can be used in the Machine, the Company does not currently intend to establish a manufacturing line at this time, Rather, management anticipates that it will enter into an exclusive license agreement for an alternative potato product in the near future on terms expected to be favorable to the Company. See "BUSINESS - AVAILABILITY OF RAW MATERIALS AND PRINCIPAL SUPPLIERS". In accordance with the terms of the Company's current distribution agreements, deposits and other down payments are non-refundable, and the Company has retained such fees upon termination of distribution rights in the past. Management believes that once commercial production of Machines is commenced and distributors notified and required to place orders for Machines, most of such distributors will be financially unable to do so. Notwithstanding the foregoing, as previously discussed, management shifted its marketing focus and has discontinued its practice of selling exclusive distributorships for territories based upon the belief that sales to experienced, well-financed vending companies on a non-exclusive basis would be more effective and ultimately more profitable than the existing distribution network was expected to be. No assurances can be given that management will successfully negotiate, market and develop this new market but management will continue to seek the most efficient and profitable ways to market and distribute the Machines and the Products. See "RISK FACTORS - VIABILITY OF DISTRIBUTORSHIP AGREEMENTS" and "BUSINESS - MARKETING THROUGH DISTRIBUTORSHIPS." As previously discussed, the Company has suffered from a continuous lack of working capital to fund the necessary tooling and related pre-production needs to commence commercial production of Machines. Management is currently in negotiations with three separate funding sources to provide the capital it requires to fully fund tooling and bring the Machine to market. Once funding is in place, management anticipates placing purchase orders with approved suppliers for 1,000 Machines. The Company expects to then release an order for 50 Machines and have these Machines placed at locations in the Greater Philadelphia metropolitan area. Management believes that this plan can be successfully implemented and should enable the Company to generate sufficient cash to support its operations from the date that the first 50 Machines are placed for operation. The balance of 950 Machines will thereafter be assembled as soon as the initial 50 Machines are fully field tested and all modifications to the electro/mechanical assemblies are documented and approved. Upon final submission of all tooling and drawings, the Company will have approximately eight to ten weeks in which to secure purchased items, set manufacturing and commence sub-assembly production. Management bases its belief that the plan can be successfully implemented upon the expected revenue to be received from the operation of these first 50 Machines. Specifically, management currently estimates that each of such 50 Machines strategically placed in high traffic areas such as railroad stations, schools and universities, and airports, will average approximately 40 vends per day six days per week which represents approximately a $2,600 net profit to the Company for each 500 vends. Based upon the number of pounds of Potato Product and related Products which will be used for this number of vends, their respective cost to the Company and price to be paid by distributors, (if any), and Machine operators, the Company should receive sufficient cash flow to support the modest expansion of operations over the next 12 months. Although management cannot assure the ultimate success of its plan, it is reasonably confident that it will enable the Company to continue its business and grow modestly. 23 If the Company is unable to obtain the desired funding from any of the three sources previously discussed, it is highly unlikely that it will be able to generate a sufficient amount of cash to support its operations during the 12 months following the date hereof, unless it is able to obtain the necessary funds from the sale of debt and/or equity during such period. Based upon its past history, management believes that it may be able to obtain funding in such manner but is unable to predict with any certainty the amount and terms thereof. Pursuant to the Company's settlement agreement with CFV, CFV is to receive certain royalty and other payments from the Company in the future only upon the occurrence of certain events. Specifically, CFV will receive (i) $350 for each Machine sold for the first 500 Machines and thereafter an amount equal to 35% of the difference between the price paid to the manufacturer and/or the wholesale price to the domestic or international purchaser, of a minimum of $350 up to a maximum of $500 per Machine, (ii) $.25 per pound of all Potato Product sold, commercially used or distributed, and (iii) an aggregate of $2,000,000 payable from domestic and international gross distribution fees and utilization fees received by the Company payable to CFV by receipt by CFV of 50% of all such fees received by the Company until paid in full. Thereafter, CFV will receive 25% of all distributorship fees received by the Company after the $2,000,000 is paid to CFV as previously described. The Company has taken into account all royalty payments to be made to CFV and others and has priced the Machine and Potato Product accordingly. Management therefore believes that the royalty payments to CFV, when due, will not have any material effect on its business. The drain on the limited capital available to the Company has adversely effected the Company. Since February 1995, the Company has been required to pay CFV in excess of $700,000 pursuant to the Court Order. In addition, there have also been increases in certain line item expenses as the Company has prepared for beta testing and commercial production. From fiscal 1995 to 1996, travel and entertainment expense increased from approximately $39,000 in 1995 to $101,000 in 1996 primarily due to costs incurred in connection with the Company's attendance at trade shows and travel to and attendance at meetings with investment bankers and potential investors. Expenses related to the research and development of the Machine increased from $47,400 in fiscal 1995 to approximately $276,000 in fiscal 1996 due to beta testing and the $225,000 paid during such period for the beta test machines. Consulting expenses increased from approximately $43,000 in fiscal 1995 to approximately $252,000 in fiscal 1996 and payroll and payroll tax increased from approximately $122,000 in fiscal 1995 to approximately $260,000 in fiscal 1996. The increase in consulting fees was primarily due to the Company's increased dependence on consultants to provide marketing and business expertise. The increased payroll and payroll tax expenses resulted from the Company paying Mr. Kelly's entire salary, one half of which had previously been paid by H&R Industries as part of the Machine's development costs. Management believes, although it cannot be assured, that it has made significant inroads in stabilizing its operating and overhead costs and should be able to move forward with its business plan as discussed herein. The Company has completed all marketing and warranty materials and the necessary technical manuals relative to the operation of the Machine. Further, it has finalized its training program and completed an instructional video for distributors, operators and the technicians who will ultimately service the Machine. Several technicians representing distributors have already attended the Company's training program. As of April 1, 1996 the Company had a total of six (6) full-time employees, including Leonard Klarich, who has served as Executive Vice President and Secretary since June 1996, 24 is a Company director and has previously provided consulting services to the Company during the current fiscal year. Mr. Klarich, experienced in operating larger companies than the Company, is responsible for marketing, distribution and administrative matters which has enabled Mr. Kelly to focus on tooling, production and assembly of the Machine and to seek regulatory approvals and design enhancements. Although preliminary matters have already been addressed for the necessary approvals, only commercial production Machines can obtain final approval. See "BUSINESS - EMPLOYEES" AND "MANAGEMENT". Additional employees are expected to be hired during the next 12 months if the Company's proposed plan of operation is successful and there is sufficient cash flow from operations, if any, which remains constant to support such additional expense. There can be no assurances that additional employees will be hired or that there will be sufficient income generated from operations to fund such additional expenses. If hired, such additional employees may include a food technician, a chief operating officer with significant experience in the vending machine business, a chief financial officer, and sales and marketing personnel. At the present time, management is unable to estimate how many employees will be needed during the next 12 months, if any. In the past, the Company had retained and may in the future retain consultants with significant experience in marketing and advertising and in the food vending business to assist the Company with its marketing efforts as well as other related matters. On May 23, 1996 the Company entered into a consulting agreement with LBI Group, Inc. ("LBI") to provide certain business consulting services, including marketing, for a 12 month period, subject to prior termination by either party upon at least 30 days prior notice. In consideration thereof, the Company granted an option to employees of LBI involved in providing such consulting services to the Company to purchase on a pro-rata basis an aggregate of 4,000,000 pre-split shares of free-trading Common Stock at an exercise price of $.05 per share. Such free-trading shares were issued by the Company upon exercise of the option by these LBI employees for $200,000 in July 1996. In August 1996 the Company, by letter, terminated the agreement with LBI for alleged non-performance. Prior thereto, the employees of LBI returned an aggregate of 1,000,000 pre-split shares to the Company which were canceled and returned to treasury. The Company has been negotiating with LBI for the return of additional shares. No assurances are given that any additional shares will be returned or what action, if any, the Company may take in connection therewith. In September 1995, the Company entered into an agreement with Acumen Services, Ltd. an off-shore Abaco, Bahamas company ("Acumen"), to purchase an aggregate of 21,500,000 pre-split shares of Common Stock of the Company for a purchase price of no less than $.10 per share payable pursuant to the terms of a Promissory Note from Acumen providing for payment of the purchase price on the earlier to occur of (i) the date that commercial production of the Machine commences or (ii) January 2, 1996. In late November 1995, when it was apparent that the delayed beta testing was about to commence, management and Acumen agreed to provide for payment of the purchase price to occur solely upon commercial production of the Machine. The 21,500,000 pre-split shares were held in escrow until October 1995 when the Company 25 agreed to the transfer of 3,900,000 pre-split shares from Acumen to its Trustee (an off-shore, non-U.S. person pursuant to Regulation S) and subject to payment in full for all shares so transferred as agreed. The Trustee and Acumen executed Regulation S representation letters and the Trustee also executed a Guaranty and Indemnity in favor of the Company agreeing to return the shares or pay for them upon the written request of the Company. In January 1996 the Company agreed to the transfer of an additional 3,000,000 pre-split shares by Acumen to the Trustee in the same manner and new Regulation S representation letters were executed by both parties and a Guaranty and Indemnity relative to such shares was executed by the Trustee. During the last quarter of the fiscal year ended January 31, 1996, Acumen transferred 2,000,000 pre-split of such shares to two non-U.S. persons in two separate off-shore transactions in conformity with Regulation S. Such non-U.S. persons thereafter directly paid the Company for these shares, in the aggregate amount of $100,000 (USD), representing a decrease in the price to be paid by Acumen to $.05 per share, based upon the then current market price of the Company's Common Stock. The Company believes that approximately 1,000,000 pre-split shares of the 3,000,000 pre-split shares transferred from Acumen to the Trustee were thereafter transferred to U.S. citizens in violation of Regulation S. The balance of the shares issued to Acumen were canceled and returned to the Company's treasury in late May 1996. A written request for either the return of 3,900,000 pre-split shares transferred to the Trustee or payment therefore was sent to the Trustee on May 30, 1996 but as of the date hereof, the shares have not been returned or paid for. On June 26 the Company instituted a lawsuit against the Trustee in the Circuit Court of the Eleventh Judicial Circuit in and for Dade County, Florida alleging breach of the Guaranty and Indemnity Agreement based upon the failure of the Trustee to return the 3,900,000 pre-split shares plus interest and attorneys' fees. On September 4, 1996, the Company obtained a Default against the Trustee. On October 28, 1996, the Trustee filed a Motion to Vacate Default. On October 29, 1996, the Company filed a Motion for Final Default Judgment. Pursuant to an Agreed Order dated March 5, 1997, the Company filed an Amended Complaint on March 28, 1997. Defendant's answer is due on or before April 28, 1997. On April 30, 1996 the Company entered into the Stock Purchase Agreement with an accredited investor to purchase an aggregate of 25,000,000 pre-split shares of restricted Common Stock at a purchase price of $.05 per share for aggregate gross proceeds to the Company of $1,250,000 payable (i) $500,000 on April 30, 1996 for 10,000,000 pre-split shares and (ii) the balance of $750,000 payable on or before May 30, 1996. An aggregate of $1,250,000 was paid to the Company on or before May 31, 1996. The investor also received 250,000 post-split shares and will receive Warrants to purchase 119,143 post-split shares. Although the Company entered into the Stock Purchase Agreement with one investor, certain other individuals provided a portion of the $1,250,000 used to fund such investor's purchase of the Company's Common Stock. In addition, a portion of the 25,000,000 pre-split shares issued to the investor were later transferred by such investor to the individuals who provided such funds on a pro-rata basis. As a result of requests by certain of these individuals who acquired shares from the investor, the Company returned an aggregate of $225,000 to these individuals in exchange for the shares of the Company's Common Stock held by them. These funds were replaced by the purchase of an equivalent number of shares of Common Stock by other investors for the same amount. The 26 purchaser and transferees of these shares of Common Stock, who have also received Warrants to purchase Warrant Shares on a pro-rata basis are listed herein as Selling Securityholders and their Shares and the Warrant Shares, once issued, among others, are being registered for sale hereby. See "PRINCIPAL SECURITYHOLDERS" and "SELLING SECURITYHOLDERS". The Stock Purchase Agreement, among other things, also provides for (i) the investor to receive 250,000 post-split shares of restricted Common Stock in consideration for the investment after the reverse split is effective, (ii) the appointment of a nominee to the Board of Directors, and (iii) the purchase of up to an additional $1,000,000 in value of restricted Common Stock promptly after a reverse stock split is approved by a majority of the Company's issued and outstanding shares of voting stock. The number of post-split shares to be purchased by the investor for the $1,000,000 shall be determined by dividing $1,000,000 by the average of the bid and asked price of the Common Stock on December 23, 1996, the effective date of the reverse split. To date, these shares have not been purchased. Further, the Stock Purchase Agreement provides that Edward C. Kelly, President of the Company, shall be issued 1,500,000 post-split shares of Common Stock for past, present and future services to the Company, exclusive of any salary, bonus or other compensation in any form received or to be received by Mr. Kelly, based upon a reverse split resulting in no greater than 6,000,000 post-split shares of the Company's Common Stock to be outstanding. All shares received will be restricted and will be registered in the Registration Statement of which this Prospectus is a part, together with the shares underlying the Warrants described below, to be filed with the Commission within 60 days from the date of payment for all 25,000,000 pre-split shares. Both the investor (and its transferees) and Mr. Kelly have agreed not to sell such shares for 60 days from the effective date of the Registration Statement. The investor and Mr. Kelly shall also receive Warrants to purchase the lesser of (i) 5,000,000 pre-split shares of restricted Common Stock or (ii) such amount of post-split shares to ensure that each of them shall maintain ownership of no less than 25% of the issued and outstanding Common Stock of the Company at any time for a period of three years from May 29, 1996 at an exercise price equal to the average of the bid and asked price per share on the effective date of the reverse split which is $1.90 per share. It was further agreed that the Warrant Shares would also be registered. These Warrants have been issued to the investors on a pro rata basis based upon the aggregate amount of their respective purchase. See "BUSINESS", "PRINCIPAL SECURITYHOLDERS", "CERTAIN TRANSACTIONS" and "SELLING SECURITYHOLDERS". On December 16, 1996, a majority of the issued and outstanding voting securities of the Company, by written consent, approved a 1 for 20 reverse stock split of the Company's Common Stock effective on December 23, 1996 and authorized an amendment to the Company's Articles of Incorporation to change its authorized common shares to 25,000,000 shares of Common Stock and its par value to $.001 per share. The Amendment was filed with the Nevada Secretary of State on December 18, 1996 and the reverse stock split was effective on December 23, 1996. See "DESCRIPTION OF SECURITIES". 27 BUSINESS GENERAL The Company has developed its own patented french fries vending machine (the "Machine") and the related proprietary potato powder mix for the production of french fries in the Machine (the "Potato Product") for marketing on a worldwide basis. The Company had previously received a federally registered trademark for its former name and logo,"Adelaide". The Company has subsequently federally registered its name and logo, "Tasty Fries", as a federal trademark on the Supplemental Register and has been marketing the Machine and its Products under that name. See "PATENTS AND PROPRIETARY RIGHTS" herein. The Company's early plans were to principally market its Products through an exclusive distributorship network which then current management believed would offer uniform and consistent Products to consumers worldwide. In furtherance of this plan, the Company sold distributorships for different markets throughout the United States and foreign countries. In 1995, under current management, the Company redirected its marketing focus by commencing to reacquire and negotiate the reacquisition of certain distributorships and sell Machines and Products on a non-exclusive basis to established well-financed vending companies. The Machines are expected to be located in high traffic locations such as airports, bus and train stations, universities, schools, military bases, theaters, work areas and recreational venues. The Company completed the final stages of beta testing of its Machines in the last quarter of the fiscal year ended January 31, 1996 and completed certain modifications to and enhancements of the Machine based upon such tests. Further, although the development of the Potato Product has been completed, due to the cost of establishing a manufacturing line to produce it, the Company anticipates entering into an exclusive license agreement for a comparable potato product for use in the Machine. Management originally anticipated that the beta site testing and development would be completed and Machines would be delivered by the end of the 1994 calendar year and then possibly by the end of the 1995 calendar year. This did not occur because (i) of the unanticipated amount of additional time necessary to completely design, develop and test a totally new Machine, (ii) the continuous lack of working capital available to fund the testing of the Machine and its commercial production, and (iii) the substantial time and funds necessary to satisfy the arbitration award in favor of California Food & Vending, Inc. ("CFV"). See "LITIGATION" herein. Further, beta site testing did not commence until early December 1995 which was longer than originally anticipated and therefore delayed even further the commercial production of Machines. See "MARKETING THROUGH DISTRIBUTORSHIPS" herein, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION" and "FINANCIAL STATEMENTS". 28 HISTORY In 1992, persons then associated with the Company filed a U.S. patent application with respect to a device for the vending of fresh french fried potatoes which was assigned to the Company on October 9, 1992. Substantial testing and test-marketing of the device resulted in the device failing to perform as anticipated and significant and numerous mechanical and design imperfections were encountered. Then current management of the Company decided to abandon the original device and retained the services of an expert engineer through Premier, Edward C. Kelly, to design and develop a completely new machine with totally different technology. At the time, Mr. Kelly had no affiliation with the Company. Production of such a device did not proceed as originally scheduled due to the unanticipated significant amount of time needed to design, engineer and test the new Machine and the continual lack of working capital to adequately fund the process. See "LITIGATION" herein, "MANAGEMENT" and "FINANCIAL STATEMENTS." DESIGN AND MANUFACTURING In January 1993, the Company entered into the Premier Agreement with Premier, a manufacturer based in Warminster, Pennsylvania which was formed by Harry Schmidt and Edward C. Kelly, for the purpose of designing and manufacturing a completely new french fries vending machine in a joint venture with the Company. The President of Premier is Harry Schmidt who subsequently was appointed to the Company's Board of Directors in May 1993 but did not stand for re-election to the Board in September 1995. Edward C. Kelly, an owner of Premier but not an officer or director of the Company at that time, was subsequently appointed by the Company's Board of Directors at that time as Executive Vice President from January 1994 to June 1994, President and Treasurer in June 1994, and has been a member of its Board of Directors since February 1994 and its Chairman since June 1996. See "MANAGEMENT" AND "SELLING SECURITYHOLDERS" The Premier Agreement provided that the manufacturer, Premier, would refine and manufacture the Machine which dispenses hot french fried potatoes; however, due to the substantial design and engineering flaws in the original licensed device, Premier, through Edward C. Kelly, in February 1993, recommended that the Company abandon said device and undertake the design and engineering of a totally new Machine. The Company and Premier then agreed to equally share the first $150,000 of development costs, which such costs included design, engineering and initial manufacturing costs projected over the initial 500 production machines or a lesser number as would be jointly determined by Premier and the Company. Development costs, if any, in excess of $150,000 would be advanced by Premier and reimbursed on the basis of $500 per Machine up to the first 200 Machines produced or $100,000, whichever was less. The first 500 Machines were to be priced at a cost to the Company not to exceed $7,000 plus $500 reimbursement for excess development costs, if any, with a goal of reducing the cost of the Machine in the future as feasible. After the first 500 Machines, the Premier Agreement required that the Company purchase the Machines from Premier based on 29 manufacturing cost plus 20%. The Premier Agreement could not be terminated by either party so long as Premier provided the Machines as required by the Company. Pursuant to the terms of the Premier Agreement, the first initial production of Machines was to be delivered by June 15, 1993, but due to the unanticipated amount of additional time necessary to completely design, develop and test a totally new Machine, the Machines were not delivered as planned. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION," "MANAGEMENT" and "CERTAIN TRANSACTIONS." On December 30, 1994, the Company and Premier amended the Premier Agreement (the "Premier Amendment") to provide that Premier supply the Company with ten pre-production Machines to be used at beta test sites for testing by Premier at a total cost of $35,000 per Machine for an aggregate purchase price of $350,000 to be paid by the Company. This amount was to be offset by the $125,000 advanced by the Company in April 1994 which amount was originally intended to be for development costs. In addition, Premier agreed to field test the Machines and, upon the Company receiving satisfactory results, agreed to manufacture the Machines exclusively for the Company. The Premier Amendment further provides, among other things, that (i) the first 500 Machines manufactured for distributors after the pre-production Machines, will be sold to the Company for $7,000 each, after which the price per Machine will be manufacturer's cost plus 20%, (ii) delivery of the Machines will take place within 180 days after receipt of a purchase order from the Company, (iii) any foreign or U.S. patents issued on the Machine or any aspects thereof shall be jointly owned by the Company and Premier upon delivery to the Company of an audited accounting of development costs from Premier and tender by the Company to Premier of 25% of such costs, with an additional 25% payable to Premier within 12 months thereof, (iv) Premier and the Company will seek independent bids on the manufacturing costs of the Machine from independent manufacturers, and if the parties agree to the terms (a lower manufacturing cost), Premier will purchase Machines from such manufacturer at the lower cost and be permitted to add its 20% mark-up to such price, and (v) the Company cannot license any party to manufacture the Machine without written consent from Premier. The Company, through Mr. Kelly as inventor, in good faith assigned the patent rights for the Machine to Premier solely in consideration for and reliance upon Premier's specific representations in the Premier Amendment, with the express understanding that Premier would immediately assign to the Company its one-half interest in the patent upon delivery to the Company of the audited accounting of development costs to be provided by Premier and payment by the Company thereof in accordance with the terms of the Premier Amendment. Premier did not provide the Company with an audited accounting as required by the Premier Amendment but with a spread sheet of costs. Further, Premier did not conduct the beta testing of the pre-production Machines as required by the Premier Amendment and the Company incurred the additional costs of such testing. Because no audited accounting of development costs was provided by Premier to the Company as required, the Company retained its independent auditors to audit the spreadsheet of development costs received from Premier. Based upon such audit, 30 the Company estimated that its share of the development costs was approximately $417,500 after adjustment for certain charges which were applied to the development costs by Premier but were unrelated to the development of the Machine and other duplicative billing, but not including the beta testing costs. After payment of $350,000 between May and July 1995 for the ten pre-production beta test Machines and other payments made, the Company's independent auditors estimated that the Company paid virtually all of its share of the development costs. Subsequently, after several months of discussion with Premier, the Company and Premier verbally agreed that the Company will pay an aggregate of $650,000 to Premier as its one-half share of all development costs of which $100,000 was paid in July 1996. Premier will also receive $250 per Machine manufactured by a third party. Management and the Board of Directors agreed to these terms based upon the potentially prohibitive costs to the Company resulting from protracted litigation (monetary and otherwise), additional delays in the commercial production of the Machine and the agreement of Premier to waive any rights it may have to manufacture the Machine. Upon payment of an additional $225,000 to Premier (representing payment of an aggregate of 50% of the Company's total share of development costs as required by the Premier Amendment), Premier will assign a one-half interest in the patent for the Machine to the Company in accordance with the terms of the Premier Amendment. See "RISK FACTORS - PATENT PROTECTION AND PROPRIETARY RIGHTS" AND "PATENTS AND PROPRIETARY RIGHTS" herein. As commencement of commercial production is a Company priority and Premier cannot manufacture the Machine pursuant to the terms of the Premier Amendment, on June 17, 1996, the Company announced its intention to award the manufacturing contract for the Machine to S&H Electronics of Robesonia, Pennsylvania ("S&H"), an unaffiliated third party, and subsequently entered into manufacturing agreement with S&H for such purpose. S&H is a contract manufacturer which specializes in the assembly and testing of electro-mechanical assemblies and equipment. The Company's central procurement station is expected to be located within the manufacturing site with initial manufacturing procedures to be supervised by Company personnel to insure strict compliance with NAMA (as defined herein) and U.S. Food & Drug Administration (FDA) regulations. The Company is currently in negotiations with a subsidiary of Koors Industries, a multi-billion dollar Israeli conglomerate, to manufacture Machines for the European, Middle Eastern and Asian markets. No final agreement has been reached and no assurances are given that this will occur. See "RISK FACTORS - NO MANUFACTURING FACILITIES; COMPLETION OF TOOLING". Although the Premier Amendment provides for delivery of the pre-production Machines within 180 days of a purchase order from the Company, Premier agreed to use its best efforts to complete these pre-production Machines on or before July 14, 1995 although no assurances were given. In connection therewith, the Company and Premier entered into an Escrow Agreement through which Premier was paid the balance of $175,000 for the ten pre-production Machines (after deduction of the $50,000 down payment made on May 5, 1995), in weekly increments of $17,500 over a ten week period commencing in May 1995 and ending in July 1995, provided that Premier meet certain pre-production schedule benchmarks during such time 31 period. The pre-production Machines were not completed by Premier within the intended time period and were not delivered to the Company until mid-November 1995. As a result, beta testing did not begin until early December 1995 which further delayed the opportunity for the commercial production of the Machine. See "CERTAIN TRANSACTIONS." THE MACHINE The Machine is designed to produce quality freshly made french fried potatoes utilizing a unique method that automatically converts a specifically formulated dehydrated Potato Product, with approximately an 18 to 24 month shelf life, into rehydrated potato mix, delivers this mix into a proprietary forming and cooking cycle, and finally into complete high-quality freshly made french fried potatoes. The Potato Product can be stored at room temperature, requires no refrigeration or freezing, and occupies less storage space than frozen fries, thereby offering greater storage capacity. The french fried potatoes are delivered to the consumer in a 10 ounce cup of 32 french fries. This is accomplished from the dehydrated mix to a completed order of quality fresh french fried potatoes in approximately 90 seconds. The utilization of a state-of-the-art combination of computer driven mechanics makes this possible. Also attached to the bottom of the vended cup are individually prepackaged portions of ketchup and salt. The attachment device currently has a patent pending before the U.S. Patent and Trademark office. See "PATENTS AND PROPRIETARY RIGHTS" herein. The design of the Machine permits the use of a vegetable oil so that it delivers a cholesterol-free product. Each vend contains french fries which are crisp and golden. The quality of the product is consistently uniform in each vend. The Machine has the capacity to produce 500 vends before any refill is required. The Machine is computer controlled and communicates with the consumer from the time the money is deposited into it until the time the vended cup of fresh french fried potatoes is delivered. The Machine can accept dollar bills, coins or any combination thereof, depending on the vend charge, which can be changed at anytime by simply reprogramming the dollar bill/coin component. The Machine requires a 220 volt electrical connection and is equipped with up-to-date computer technology using microprocessors and sensors, thus making it possible to continuously monitor all vending parts and report any potential problems. The Machine can report to a central data base, if required, to make this information available to the service company/refill operator. The Machine monitors the amount of vends, and simultaneously provides cash reports. Based upon the results of the beta testing and the operation of beta test machines in the field, the Company has no maintenance and repair track records to date, as the Machines have required no replacement parts. The Machines have been designed to be repaired on-site without the necessity of being returned to the manufacturer. It is anticipated that ongoing maintenance will be limited, and labor will involve the resupply of the Machines once Potato Product is required to be replenished. At such time oil will be replaced and additional cups and condiments will be restocked. Water will also be changed at such time unless the Machine is attached to a plumbing supply which is not necessary for the Machine's operation. The frequency with 32 which the Machine must be restocked depends completely upon the number of vends dispensed daily and how often the Machine's coin box is emptied. Normally, operators empty coin boxes frequently to reduce the potential for theft. Management anticipates that coin boxes will be emptied on average every three days for a moderately busy location. Management currently expects that the commercial sales price for the Machine will be approximately $9,000 per unit. Currently, the anticipated price per vend is $1.25, although the actual price may vary greatly from location to location based upon several factors, including supply and demand and local costs for electricity, labor, transportation, etc. MARKETING THROUGH DISTRIBUTORSHIPS The Company had, until late 1995, exclusively marketed the Machines and the Products through exclusive territorial distributorships. Although it has continued to market on a very limited basis through distributorships, current management has shifted its marketing focus to ultimately place Machines in locations not covered by exclusive distributorship agreements and reacquire certain existing distributorships, although no assurances are given that this marketing plan will be followed or not be revised in some manner. This shift occurred when management realized that exclusive distributorships for territories would not be ultimately practical or profitable. Management learned that major vending companies do not want to be sub-distributors but want to deal directly with the factory that manufactures the equipment. Additionally, these same companies have the established infrastructure which enable them to service the equipment that they purchase or lease. Such companies enter into their own agreements to place vending units at different locations and require the ability to use their discretion as to where to place machines. Furthermore, the Company's own internal research indicated that the largest profit margins and the greatest long-term area of profitability would be from the sale of Products. Accordingly, limiting to whom Machines could be sold and ultimately limiting their number through the sale of exclusive distributorships, could be financially detrimental to the Company's long-term operations, revenues and potential cash flow. See "MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION". In contemplation of selling Machines on a non-exclusive basis, the Company entered into the Vendor Agreement with Forrest Financial Corp. (the "Leasing Company") to provide lease financing to operators of the Machines who may wish to lease Machines rather than purchase. The Vendor Agreement provides that up to approximately $15,000,000 will be available to qualified lessees for this purpose. Management anticipates, but cannot assure, that operators will ultimately be established, experienced vending companies with significant financial resources and infrastructures that will enable them to place and service their Machines in their sole discretion. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION". 33 The existing distributorship agreements vary from territory to territory, but essentially require a non-refundable down payment and minimum annual payments usually over a five to ten year period. Most distributors must also pay $200 to $500 per Machine purchased as a credit toward the minimum annual payments. Most distributorship agreements require a minimum number of Machines to be purchased per year. The total price of the distributorship will vary substantially based on the estimated market potential of the particular territory which is usually based upon population and other relevant criteria. The Company has, to date, sold or granted an aggregate of 15 territorial distributorships, one of which has been reacquired by the Company and some of which were terminated by the Company for breach of the terms of the respective distributorship agreement. There are currently 10 distributorships which have not been terminated or reacquired. The distributor's obligations to make further payments, after tendering the initial deposit required upon execution of the distributorship agreement, are conditioned on the Company's ability to ship its Machines and related Products. The currently existing territories are listed as follows:
MINIMUM DEPOSIT YEARLY TERRITORY TOTAL PRICE RECEIVED PURCHASE(E) --------------------------------------------------------------------------------------- 1.(a) DE, D.C., $ 750,000 $ 50,000 100 machines MD & VA 2. Texas $ 750,000 $ 25,000 200 machines 3.(b) Israel $ 200,000 $ 40,000 100 machines 4. Pennsylvania $ 750,000 $ -0- 200 machines 5. AR, AZ, CO $1,500,000 $ 65,000 300 machines KS, LA, MI, MN, MS, MO, MT, NE, NV, NM, ND, OK, OR, UT, WA, WI & WY 6. Austria, $1,550,000 $ 60,000 500 machines Germany, Switzerland, Luxembourg, Belgium, Holland & Lichenstein 7.(c) Bulgaria, $4,000,000 $175,000 400 machines Czechoslovakia, (year one) (former),Denmark, Finland, France, 800 machines Greece, Italy, (years 2-9) 34 Norway, Poland, Portugal, Romania, 850 machines Spain, Sweden, (year 10) Turkey 8.(c) AL, AK, GA, IL, IN $1,000,000 $175,000 100 Machines KY, MS, NC, OH, SC, (year one) TN, WV 9. Dade, Broward, $ 250,000 $1,000 down 150 machines Monroe & Palm & $4,000 upon Beach County, delivery of Florida first machine 10. Brazil $ 250,000 $100,000 250 machines 11.(d) California - - -
(a) Assigned to a group which includes Harry Schmidt, a former director of the Company and President of Premier. See "CERTAIN TRANSACTIONS." (b) Deposit forfeited in August 1994 for non-performance and a new distributor paid an aggregate deposit of $40,000 for this territory. (c) Granted to International Tasty Fries, Inc., a publicly traded Nevada corporation. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION PLAN OF OPERATION," "PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF MANAGEMENT", "SELLING SECURITYHOLDERS" and "FINANCIAL STATEMENTS". (d) Granted to CFV by agreement and confirmed by the award of the arbitrator and subsequent Court Order. See "LITIGATION" herein. (e) No Machines have been purchased as of the date hereof. See "RISK FACTORS - VIABILITY OF DISTRIBUTORSHIP AGREEMENTS". The exclusive territorial distributorship agreements generally have a term of five to ten years, require the distributor to purchase all supplies for the Machines directly from the Company, and set forth uniform standards of operation. The agreements are transferable under certain conditions as uniformly established in the respective agreements and require the prior approval of the Company for sub-licensing and for sub-distributors. The majority of the agreements can be terminated by 30 day written notice from the Company in the event of default. In September 1993, December 1993, August 1994 and April 1995 the Company terminated distribution rights for Georgia, New Jersey, Israel and the United Kingdom, respectively, due to a failure to fulfill certain contractual obligations pursuant to the terms of the distributorship agreements and the respective deposits were forfeited. In September 1995 the Company repurchased the Canadian distributorship from Adelaide Vending (Canada) Ltd. for the original purchase price plus costs aggregating $100,000 (USD) for 1,000,000 shares of Common Stock at its then current market value and an option to acquire 50,000 post-split shares of Common Stock for two years at $5.00 (USD) per share, all pursuant to Regulation 35 S. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION", "PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF MANAGEMENT" and "CERTAIN TRANSACTIONS." Pursuant to the award of the arbitrator on October 25, 1994 and subsequent Court Order, CFV was granted distribution rights to California. There is no formal written distribution agreement between the Company and CFV. All terms and conditions related thereto would require negotiation between the parties which has not occurred to date. CFV has previously expressed an interest in returning the distributorship to the Company for a to-be-agreed upon price but no further discussions have taken place. No assurances are given that the Company will determine to reacquire this territory from CFV in the future. See "LITIGATION" herein. COMPETITION The Company faces competition from other suppliers of french fries, including fast food outlets. The Company is aware of other companies which have test marketed french fry vending machines or are in the process of developing such machines. Certain of the companies which are viewed as competitors or which may become competitors in the future, have more capital and greater resources than the Company. Currently, the Company is aware of only one viable competitor which is Ore-Ida, a major manufacturer and distributor of frozen potato products. The Ore-Ida vending machine is not comparable to the Company's Machine for many reasons, including that it only hot air cooks frozen french fries which must be kept frozen in the unit thereby requiring refrigeration. This contrasts with the Company's Machine which cooks only freshly made french fries and requires no refrigeration, thereby eliminating spoilage and potential loss from a power shortage. Management believes, although no assurances are given, that due to current consumer demand for french fried potatoes, it is anticipated that there will be strong competition in the future in the area of french fry vending once technological problems have been solved. See "RISK FACTORS - COMPETITION". AVAILABILITY OF RAW MATERIALS AND PRINCIPAL SUPPLIERS The Machine was initially intended to be manufactured by Premier pursuant to the Premier Agreement and the Amendment; however, Premier is not able to manufacture the Machine at a competitive price or even the first 500 Machines at $7,000 as required by the Amendment. See "DESIGN AND MANUFACTURING" herein. Certain individual components of the Machine are in the process of being tooled from custom made molds owned by the Company and produced by independent manufacturers or suppliers together with other parts including those which are custom designed. The tooling process has been delayed due to the lack of capital available to complete the process. Management believes there are several alternative sources of supplies and manufacturers for such items and that the loss of any one supplier would 36 have no material adverse effect upon the Company, although no assurance can be given. If substantial demand for the Machines develops then management believes, although no assurance is given, that it has or can readily locate and secure sources for subcontract manufacturing. See "RISK FACTORS - NO MANUFACTURING FACILITIES; COMPLETION OF TOOLING" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION". Management believes that the Company's consumable Products used in the dispensing of french fries are widely available from numerous suppliers. The Company has located and secured one alternative source for the potatoes which are compatible for use in the Machine from a major supplier and is aware of at least one other supplier of potatoes that can be used in the Machine. Until the Company determines to establish a manufacturing line to produce its Potato Product, as to which no assurance is given, it expects to enter into an exclusive license agreement to purchase potatoes from one of these suppliers on terms which are expected to be favorable to the Company. PATENTS AND PROPRIETARY RIGHTS The Machines inventor, Edward C. Kelly, President and Chief Executive Officer of the Company, was issued a patent by the U.S. Patent and Trademark office in July 1996. That patent is assigned to Premier as required by the Amendment in consideration for and with the express requirement, agreement and understanding that upon payment by the Company of its proportionate share of the Machine's audited development costs as required by the Amendment, the patent will be jointly owned by the Company and Premier. See "DESIGN AND MANUFACTURING" herein. The Company currently has applied for a patent for the attachment to the bottom of the vend cup with the United States Patent and Trademark Office. In addition, the Company is seeking but has not yet received patent protection in Japan, Israel and in those countries which are parties to the Patent Cooperation Treaty (PCT), specifically as follows: Albania Georgia Republic of Moldavia Slovakia Armenia Germany Macedonia Spain Austria Hungary Madagascar Sudan Australia Iceland Mongolia Sweden Barbados Kenya Malawi Tajikistan Bulgaria Mexico Turkmenistan Brazil Democratic Peoples' Norway Trinidad & Tobago Belarus Republic of Korea Canada Kjagyzstan New Zealand Uganda China Kazakhstan Poland Ukraine Czech Republic Latvia Portugal United Kingdom Denmark Liberia Romania Uzbekistan Estonia Lichtenstein Russian Federation Vietnam Finland Lithuania Singapore Luxembourg Slovenia 37 The Company also has obtained a federally registered trademark on the Supplemental Register for its name and logo, "Tasty Fries." Management intends to seek patent, trademark and related legal protection in the future where it deems the same to be beneficial. No assurances can be given that the Company will ultimately receive a patent on the vend cup attachment in the United States or elsewhere. In addition, such legal protections and precautions do not prevent third party development of competitive products or technologies. There can be no assurance; however, that the legal precautions and other measures taken by the Company will be adequate to prevent misappropriation of the Company's proprietary technology. Notwithstanding the foregoing, the Company does not intend to be solely dependent upon patent protection for any competitive advantage. The Company expects to rely on its technological expertise and early entry into the marketplace with respect to its Products. See "RISK FACTORS - PATENT PROTECTION AND PROPRIETARY RIGHTS." GOVERNMENTAL APPROVALS AND REGULATIONS The Machine was designed and developed in consideration of applicable governmental and industry rules and regulations. Management believes that the Machine complies with National Food Sanitation guidelines as well as Underwriter's Laboratory ("U.L.") procedures. The Machine must receive U.L. and National Food Standards (N.F.S.) approvals prior to sale and installation. The Company has requested that the Machine be inspected and expects to have the Machine inspected by various regulatory agencies during the production process but prior to sale and installation. In this regard, management has forwarded to U.L. a listing of all individually numbered parts used in the Machine. The Company is also seeking certification from the National Automatic Merchandising Association (NAMA). NAMA has previously informally inspected the Machine, the result of which was the subsequent installation of a sanitation cycle. Management has been advised that all certifications and approvals should be applied for upon commercial production and would not issue until such time. Management believes, although no assurance is given, that the required approvals from U.L., NAMA and the various regulatory agencies are obtainable and is not currently aware of anything that will delay the necessary approvals. Management is not aware of and does not believe that there are any specifically applicable compliance requirements under state or federal environmental or related laws relating to the manufacture and operation of the Machine. LITIGATION The following table sets forth the current status of the litigation in which the Company is a party: 38
NAME OF CASE COURT CLAIMS & AMOUNTS STATUS - ------------ ----- ---------------- ------ 1. California Food & Vending, U.S. District Court Central a) CFV's Motion to Show Cause Continued to June 1997 Inc. v. Adelaide Holdings, Inc.; District of California Why Tasty Fries Should Not Be et al. (Company is defendant) Found In Contempt For Failure To Compaly With Judgements b) CFV's Motion For Sanctions Continued to June 1997 For Failure To Provide Complete Discovery Responses c) CFV's Motion for Appointment Hearing held April 21, of a Permanent Receiver 1997, taken under submission by Court d) CFV's Motion to Compel Court to order Company to Further Production of Documents comply with production of and for Sanctions documents which are to be decided by the Court 2. California Food & Vending, U.S. States District Court Claims by cross-claimant Samuel Settled Inc. v. Adelaide Holdings, Central District of California Balan for issuance of 1,000,000 Inc; et al. (Company is defendant) pre-split shares of unrestricted Common Stock pursuant to Arbitration Award confirmed by Court 3. Richard Michael v. Tasty Circuit Court Orange County, Fries, Inc. F/K/A Adelaide Florida 1) Breach of Contract Discovery with no Holdings, Inc., et al. (Company 2) Accounting activity since is defendant) 3) Quantum Meuit December 1996 4) Breach of Verbal Agreements 4. Robert Portman, et al v. Tasty Superior Court of New Jersey, 1) Breach of Contract Settled Fries, Inc., et al. (Company is Monmouth County 2) Fradulent Inducement defendant) and Misrepresentation 3) Violation of NJ law re: consumer contracts 39 5. Prize Frize, Inc., William U.S. Court Central District 1) Misappropriation of trade Case removed to Federal Bartfield, Larry Wirth v. Matrix of California secrets Court for Patent (U.S.), Inc., Tasty Fries, Inc., 2) Unfair competition Infringement Claims; et al. (Company is defendant) 3) Conversion Discovery 4) Conspiracy 6. Gary J. Arzt and Threadneedle Circuit Court Dade County, Money lent by Plaintiffs to Summary judgment in Holdings v. Tasty Fries, Inc. Florida Company and default by Company favor of Plaintiff Artz (Company is defendant) on promissory note on promissory note for $59,000 7. Tasty Fries, Inc, v. E.P. Circuit Court Dade County, 1) Breach of Warranty and Answer due from Defendant Toothe, Trustee (Company is Florida Indemnity Agreements April 28, 1997 plaintiff) 2) Specific performance
40 DISCUSSION In March 1993, CFV filed a suit against the Company, its then-serving management (not including Edward C. Kelly and Leonard J. Klarich or any other current members of the Board of Directors) and others, in federal court in California alleging: a) breach of contract, b) fraud, c) securities fraud, d) constructive trust, and seeking an accounting and declaratory relief. CFV sought to prove its damages at trial, obtain an accounting and a declaration that it was entitled to all inventions, processes and improvements relating to any french fry machine developed by the Company. The lawsuit was stayed on July 6, 1993 pending the outcome of arbitration regarding the matter because the original agreement among the parties provided that the exclusive resolution of disputes among the parties was to be determined by binding arbitration. Arbitration of this matter took place in September 1994. On October 25, 1994 an award (the "Award") was rendered against the Company in the aggregate amount of $279,500 for domestic and international distribution fees owed to CFV pursuant to a March 17, 1992 Memorandum of Understanding (the "Memorandum") and a May 14, 1991 international joint venture agreement between the Company and CFV (the "Joint Venture Agreement"), and an additional $249,500 in compensatory damages, jointly and severally, as among the Company and Edward Abramson and Martin Balan, two former officers and directors of the Company. The award and compensatory damages totaling $529,000 were recorded in the Company's financial statements as of October 31, 1994. The Award also ordered (a) the enforcement of the terms of the Memorandum and the Joint Venture Agreement which, generally, provided for the payment by the Company of certain royalties, fees and profits to CFV in connection with future sales by the Company of the Company's vending machines and related products, and (b) the issuance by the Company to CFV of an option to purchase 2,000,000 pre-split shares of the Company's restricted Common Stock at an exercise price of $2.00 per share through March 17, 1997. In connection with the foregoing, an award was also entered on October 25, 1994 in favor of the cross-claimant, Samuel Balan who is the brother of Martin Balan, one of the former officers and directors of the Company. It requires, among other things, that the Company issue Samuel Balan 1,000,000 pre-split shares of unrestricted Common Stock. The financial statements do not reflect the issuance of these shares for the fiscal year ended January 31, 1996. Such shares, with restriction, were issued to him in June 1996. These previously issued 1,000,000 shares are included for registration in the Registration Statement of which this Prospectus is a part as further discussed below. On December 23, 1994, a Supplemental Award of Arbitrator ("Supplemental Award") was issued in connection with certain motions, oppositions, requests and replies. In connection therewith, CFV was awarded (i) attorneys' fees of $94,962.50 against the Company and (ii) costs of $29,896.43 against the Company and Edward Abramson and Martin Balan, its two former officers and directors, jointly and severally. In addition, the cross-claimant, Samuel 41 Balan, was awarded $4,099.34 for certain specific costs against the Company. The Company's Request for Clarification Re Fraud Damages was reviewed by the Arbitrator and denied. In February 1995, the Company, through the efforts of Mr. Kelly, President of the Company at the time, and CFV entered into a Settlement Agreement which supersedes the Award and Supplemental Award. The Settlement Agreement, which was subsequently amended on February 22, 1995 and February 23, 1995 (collectively the "Settlement Agreement"), provides, in pertinent part, among other things that (i) the Company shall pay to CFV the sum of $25,000 on or before February 28, 1995 and an additional $175,000 to be applied against the Supplemental Award as partial payment for past due royalties (which was paid), the balance payable over three (3) years commencing six (6) months after February 1, 1995 and shall bear interest at 10% per annum. The payment of the $175,000 originally due by March 10, 1995 was extended by agreement between the Company and CFV to March 15, 1995 and was paid by the Company, (ii) a royalty to CFV of $350 per machine for the first 500 Machines and thereafter a royalty equal to 35% of the difference between the price paid to the manufacturer and/or the wholesale price to the purchaser, domestic or international, of a minimum of $350 up to a maximum of $500 per Machine (the Award provides for $500 for every Machine and a 50% joint venture interest); (iii) $.25 per pound of all Potato Product sold, commercially used or distributed (the Award provides for 25% profit of all domestically related sales and 50% of all internationally related sales of all Products). CFV expressly waives any and all rights to profit participation in any other ancillary products of the Company upon timely payment of the royalty by the Company; (iv) CFV shall receive $2,000,000 payable from domestic and international gross distribution fees and utilization fees received by the Company as consideration for the reduction by CFV of its international distribution fee rights from 50% to 25% which shall be payable to CFV by receipt by CFV of 50% of all such fees until paid in full; and (v) an option to purchase 2,000,000 pre-split shares of the Company's restricted Common Stock at $.10 per share exercisable for four (4) years from February 1, 1995. The aggregate amount of $200,000 to be paid by the Company to CFV was paid in February and March 1995 as agreed. An additional payment of $80,000 was made in August 1995. The Company thereafter defaulted in the payment of $84,745.75 due February 1, 1996. As a result, CFV filed a Motion for a Temporary Protective Order ("TPO") in February 1996 in the Federal District Court for the Central District of California seeking an injunction freezing certain assets of the Company until such time as CFV's Motion for Assignment of Benefits could be heard by the Court on March 18, 1996. The TPO was issued by the Court on February 21, 1996 and the Motion for Assignment of Benefits was granted by the Court ex parte on March 15, 1996 (the "Court Order"). The Court Order provided, among other things, that the Company assign any monies it had in its possession at such time or received from third parties for investment, royalties, distribution fees or other sources be kept in a segregated account for the benefit of CFV and paid to CFV until the entire sum due, including accrued interest from August 1995 and attorney's fees incurred in connection with enforcement of the judgment, were paid in full. During April and May 1996, the Company paid CFV an aggregate of approximately $452,000 representing payment in full of all such amounts due and in satisfaction 42 of the Court Order. CFV filed a Partial Satisfaction of Judgment in June 1996 with the appropriate tribunals. The Company expensed $7,000 and $1,098,062 in fiscal year 1995 and 1996, respectively, in connection with this litigation. In February 1997, CFV sought and obtained a Temporary Protective Order in connection with the failure of the Company to pay CFV $20,000 of a distributorship fee which was extinguished when the $20,000 was paid. Also in February 1997, CFV also filed certain motions with the Court seeking a Temporary and Permanent Receiver to ensure that monies owed to CFV in the future would be paid to CFV due to the failure of the Company to pay to the CFV $20,000. In addition, CFV filed motions seeking sanctions against the Company for failure to provide complete discovery responses to interrogations, motions to compel further production of documents and for sanctions in connection therewith, and a Motion to Show Cause why the Company should not be held in contempt for failure to comply with the judgement of the Court due to the Company's failure to pay CFV the $20,000 of the distributorship downpayment received. The Court denied CFV's Motion to Appoint a Temporary Receiver and scheduled a hearing on the other Motions for March 24, 1997 and March 31, 1997. These hearings were continued until April 21, 1997 during which time the Company filed affidavits of Edward Kelly, President of the Company, and William Bartfield, President of Prize Frize, Inc., in support of the Company's opposition to CFV's Motions. CFV filed affidavits of its counsel, Ronald Palmieri, Esq. and Gary Arzt, former President and Chairman of the Board of the Company. Based upon the statements made in these affidavits, the Court continued the hearing on the Motion to Show Cause and the Motion for Sanctions until either June 9 or June 23, 1997. The Court has taken CFV's Motion to Appoint a Permanent Receiver under submission and will determine which documents it will compel the Company to produce by Order, in response to CFV's Motion to Compel Further Production of Documents. In connection with the award to Samuel Balan, on June 24, 1994, a lawsuit was instituted against the Company and a shareholder of the Company in Circuit Court for the 11th Judicial Circuit in and for Dade County, Florida by Samuel Balan, brother of Martin Balan, the former Chairman of the Board of the Company, alleging breach of contract, quantum meruit and seeking a declaratory judgment for entitlement to 1,100,000 pre-split shares of the Company's Common Stock and in excess of $300,000 for past due wages and expenses. This action was heard by the arbitrator as part of the arbitration between the Company and CFV. An award was entered in Mr. Balan's (cross-claimant's) favor on October 25, 1994. The Company paid the award in May 1996 and issued to him 1,000,000 pre-split restricted shares of Common Stock in June 1996. Such shares are included in the Registration Statement of which this Prospectus is a part. Counsel to Mr. Balan filed a motion with the Federal District Court for the Southern District of Florida on July 1, 1996 requesting that the Court convert the award of stock into a cash award. The Motion was heard on August 13, 1996 and on August 19, 1996, the Magistrate issued his report recommending dismissal of the Motion (without prejudice) for lack of jurisdiction. Mr. Balan filed a Motion to Show Cause in the Federal District Court for the Central District of California and the Court has stated that it will issue an Order to Show Cause Why the Company Should Not Be Held in Contempt for its alleged failure to abide by the judgment. This matter was settled by the parties on March 4, 1997. Pursuant thereto, the Company has (i) issued 43,750 shares of Common Stock being registered hereby, certain of which shares are subject to a lock-up agreement, and (ii) paid $60,000 of $70,000, the balance of which is due in May 1997. 43 On May 23, 1995, a lawsuit was instituted against the Company and Mr. Gary Arzt, former President, Secretary and Chairman of the Board of the Company, individually, by an alleged former agent of the Company in the Circuit Court in the Ninth Judicial Circuit in and for Orange County, Florida alleging (i) breach of contract, (ii) quantum meruit, (iii) breach of verbal contract, and (iv) requesting an accounting and seeking damages in excess of $15,000 for alleged commissions due on the sale of certain distributorships that he allegedly sold. The Company's and Mr. Arzt's answer denying the allegations and affirmative defenses to the complaint were filed on September 29, 1995. To date, preliminary discovery has been exchanged but the matter has not been set for trial. Management intends to vigorously defend this matter and believes, based upon the allegations in the complaint, that it will ultimately prevail; however, no assurances can be given at this time that this will be the result. On January 15, 1996, a lawsuit was instituted in New Jersey against the Company, Edward C. Kelly and Michelle Kramish Kain, individually, who is a shareholder of the law firm of Kipnis Tescher Lippman Valinsky & Kain, counsel to the Company, by a former consultant and current shareholder and his related companies alleging among other things: 1) breach of contract, 2) fraudulent inducement and misrepresentation and 3) violation of a New Jersey law relating to consumer contracts. The action related to an agreement entered into by the Company and to the individual plaintiff to file a registration statement with the Commission in October 1995 to register certain securities of the plaintiff. The Company and Kelly, through their independent counsel, answered the complaint and filed separate defenses. Thereafter, they filed a Motion for Partial Summary Judgment to dismiss the consumer fraud claims as a matter of law and sought leave to amend the answer to assert counterclaims, both of which were granted on May 20, 1996. Defendant Kain, through her counsel, answered the complaint by general denial and filed a Motion to vacate the service of summons and complaint and dismiss the complaint for lack of in personam jurisdiction. A hearing on the Motion was heard on May 10, 1996 and the Court entered an order on May 20, 1996 dismissing the action against Ms. Kain for lack of personal jurisdiction. This suit was settled in July 1996 and releases were executed. Pursuant to the settlement agreement, the Company is registering hereby the plaintiff's shares of the Company's Common Stock. See "SELLING SECURITYHOLDERS." On August 28, 1996, the Company and Edward C. Kelly, its President, Chief Executive Officer and Chairman of the Board were added as defendants to a Second Amended Complaint in litigation pending in the Riverside County Branch of the Superior Court of the State of California, between Prize Frize, Inc., William Bartfield and Larry Wirth, Plaintiffs, and Matrix (U.S.), Inc; Matrix, Inc.; Peter Fisher; International Tasty Fries, Inc.; Fry Factor, Inc.; Edward Trent; Xavier Castro; Marcellino Menendez; MXI, Inc.; Inter Trade Exchange Co.; Baltkor International; Sanad Company; Michael Krakow; Andrei Lutikov; Griffin Financial Management Corporation, Inc.; EZ Fries, Inc.; Samuel Hepburn; Dudley Muth; Richard O. Wahlgren; Gene Fruhling; Eurofrize, Inc.; Laszlo Kovacs; Seek, Inc.; Fresh Fries UK Ltd; Tega, S.A.; Tasty Fries, Inc; Premier Design, Ltd.; H&R Industries; and Edward C. Kelly as defendants. The causes of action alleged against the Company and Mr. Kelly include misappropriation of trade secrets, unfair competition, conversion and conspiracy. A Fourth Amended Complaint was filed by the plaintiffs against each of the named defendants alleging the same causes of action against the Company and Mr. Kelly. The plaintiffs have granted the Company and Mr. Kelly an extension of time to respond to the Fourth Amended Complaint. The lawsuit was removed to 44 the United States District Court for the Central District of California in March 1997 due to the patent infringement claims. On September 25, 1996, a lawsuit was instituted by Mr. Arzt against the Company in the Circuit Court of the 11th Judicial Circuit in and for Dade County, Florida for breach of a promissory note and reimbursement of certain alleged expenses incurred by Mr. Arzt as former Chairman of the Board of the Company. A judgment was entered by the Court in favor of Mr. Arzt in the amount of $59,000 in April 1997 and the parties are negotiating the payment of this judgement. See "MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION" for information regarding the Company's lawsuit against the Trustee of Acumen, which information regarding this lawsuit is hereby incorporated by reference. EMPLOYEES As of April 1, 1997, the Company had six full-time employees including Edward C. Kelly, President and Chief Executive Officer of the Company, Irene Kelly, his wife, who manages the Company's executive office, and Leonard J. Klarich who serves as Executive Vice President. Mr Klarich is also a director on the Company's Board of Directors. The Company expects to hire additional new employees during the next 12 months. Any other new employees would be hired upon commercial production and delivery of Machines, as to which no assurances can be given at this time. See "MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION" and "MANAGEMENT." None of the Company's employees are covered under a collective bargaining agreement. PROPERTIES The Company owns no significant properties. Since June 1994 it has leased executive office space at the premises located at 650 Sentry Parkway, Suite One, Blue Bell, Pennsylvania 19422. The lease, renewed for an additional 24 months commencing in June 1995, is for 1,020 square feet at a monthly rental of $1,650 plus additional base rent of $175. At the present time, management believes that this office space is sufficient but may require additional space if additional administrative personnel are hired during the next 12 months. In April 1996, the Company leased approximately 468 square feet of working space and 400 square feet of storage space located at 320 Elm Avenue, North Wales, Pennsylvania at $600 per month on a month to month basis for technical support purposes and storage of Machines. The lease may be terminated any time after January 1, 1997 on 60 days prior notice by the lessor and 30 days prior notice by the Company. 45 MARKET FOR COMMON EQUITY The Common Stock of the Company is quoted on the OTC Bulletin Board, under the symbol "FRYA". The following table sets forth the highest and lowest bid prices for the Common Stock for each calendar quarter during the last two years and subsequent interim periods as reported by the National Quotation Bureau. The prices set forth below represent interdealer quotations, without retail markup, markdown or commission and may not be reflective of actual transactions. FISCAL 1995 HIGH BID LOW BID ----------- -------- ------- First Quarter $.44 $.14 Second Quarter .21 .10 Third Quarter .21 .10 Fourth Quarter .17 .05 FISCAL 1996 ----------- First Quarter .52 .04 Second Quarter .41 .10 Third Quarter .27 .17 November 1 - December 22 .19 .11 December 23 - January 31(1) 2.88 1.75 FISCAL 1997 ----------- February 1 through April 23(1) 2.19 1.25 - --------------- (1) High and low bid prices from December 23, 1996 through April 23, 1997 give effect to the 1 for 20 reverse stock split effective on December 23, 1996. 46 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The current directors of the Company will serve until the next annual (or special in lieu of annual) meeting of shareholders at which directors are elected and qualified. Names, age, period served and positions held with the Company are as follows: POSITIONS NAME AGE WITH COMPANY ---- --- ------------ Edward C. Kelly 61 President, Chief Executive Officer, Treasurer and Chairman of the Board* Leonard J. Klarich 61 Executive Vice President, Secretary and Director** Jurgen A. Wolf 62 Director** Ian D. Lambert 51 Director Kurt R. Ziemer 41 Director - ------------------------------------------------------------------ * Mr. Gary J. Arzt was removed as Chairman of the Board of Directors on June 1, 1996 by consent of two-thirds of the shares entitled to vote in accordance with Nevada law and was removed as Secretary by the Board of Directors on June 3, 1996. Mr. Kelly was appointed Chairman of the Board by the Board of Directors on June 3, 1996. Mr. Kelly also serves on the Executive Committee of the Board of Directors. ** Member of the Executive Committee of the Board of Directors. Mr. Klarich was also appointed Secretary by the Board of Directors on June 3, 1996. EDWARD C. KELLY, Blue Bell, Pennsylvania. Mr. Kelly has been President of the Company since June 10, 1994, and a director since April 1994. He was appointed a member of the Executive Committee on September 18, 1995, and Chairman of the Board of Directors after the removal of Mr. Arzt in June 1996. From January 1994 until June 10, 1994 he was Executive Vice President of the Company. Mr. Kelly was President and a Director of Mega Manufacturing Co., Inc., a private manufacturing company from 1980 to 1994. Mega Manufacturing filed for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code on November 19, 1993. Mr. Kelly has been involved in the engineering and design of the Machine and is part owner of Premier Design, Ltd. Mr. Kelly received a degree in Mechanical Engineering from Penn State University and is a member of the American Association of Professional Engineers and the American Federation of Engineers. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION", "BUSINESS - DESIGN AND MANUFACTURING," "CERTAIN TRANSACTIONS", "PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF MANAGEMENT" and "SELLING SECURITYHOLDERS". 47 LEONARD J. KLARICH, Knoxville, Tennessee. Since September 1995, Mr. Klarich has been a director of the Company and also was a consultant to management from March through May 1996. Mr. Klarich was retained as Executive Vice President of the Company in June 1996 to assist in the day to day operations of the Company, with specific emphasis on distribution networks, distributors and marketing. He was also appointed Secretary in June 1996. Mr. Klarich was Chairman of the Board of K & D, a high-tech graphic design company located in Woodland Hills, California until early 1996. From 1976 to 1989 he owned and operated Avecor, Inc., a color for plastics manufacturing company with yearly sales in 1976 of $3,000,000. He sold Avecor in 1989 when its sales exceeded $40,000,000. Prior thereto, he spent a number of years as a chief operating officer of companies in need of turnaround due to financial concerns. He received a Bachelor of Arts from Hofstra University in 1967 and a Masters Degree in Marketing Research from the City College of New York. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION", "BUSINESS - EMPLOYEES" and PRINCIPAL SECURITYHOLDERS - SECURITY OF OWNERSHIP OF MANAGEMENT". JURGEN A. WOLF, Vancouver, British Columbia, Canada. Mr. Wolf has been a director of the Company and a member of the Executive Committee of the Board of Directors since September 18, 1995. Since 1983, he has been President of J.A. Wolf Projects Ltd., a private Vancouver company engaged in commercial and industrial contracting. He was a director of Yukon Spirit Mines and is a director and the controlling stockholder of Adelaide Vending (Canada) Ltd., both of which are and were distributors, respectively, of the Company's Machine. He also was a co-distributor of the Machine in the United Kingdom but those rights were terminated in April 1995 for non-payment of part of the distribution deposit by his co-distributor. Mr. Wolf also serves on the Board of Directors as a director of five (5) Canadian public companies, which include OJ Oil and Gas Corporation, Gulfside Industries, Ltd., Shoreham Resources, Ltd., Zeus Oil and Gas Corporation and Key Capital Group, Inc. See "BUSINESS - MARKETING THROUGH DISTRIBUTORSHIPS", "PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF MANAGEMENT", and "CERTAIN TRANSACTIONS". IAN D. LAMBERT, North Vancouver, British Columbia, Canada. Mr. Lambert was appointed as a director of the Company in July 1995 and was re-elected to the Board in September 1995. He is the President of International Tasty Fries, Inc. ("ITF"), a major stockholder in the Company whose shares are being registered hereby, and, until November 1996, was President of Yukon Spirit Mines Ltd., both of which are affiliates of the other and each of which have distributorship agreements with the Company for territories in North America and Europe. Mr. Lambert has been involved with the financing and management of numerous resource and industrial based public companies, both in Canada and the U.S., since the early 1980's, and currently is on the Board of Directors of six (6) publicly-traded companies of which only the Company is a reporting company. Prior to that time, he was an Information Systems executive with MacMillan Bloedel Ltd. and also the Manager, Systems Consulting for the Vancouver office of Deloitte Haskins & Sells. Mr. Lambert received a Bachelor of Commerce and Quantitative Analysis from the University of Saskatchewan in Canada in 1970. 48 See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION", "BUSINESS - MARKETING THROUGH DISTRIBUTORSHIPS", "PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF MANAGEMENT" and "SELLING SECURITYHOLDERS". KURT R. ZIEMER, New Holland, Pennsylvania. Mr. Ziemer was appointed to the Board of Directors on October 4, 1996 as the board designee of Whetstone Ventures Corporation, Inc. pursuant to the April 30, 1996 Stock Purchase Agreement with the Company. Since 1989 he has owned and operated Ziemer Buick-Pontiac-GMC Truck, Inc. located in New Holland, Pennsylvania. From 1977 until 1989, he served in several capacities for the auto dealership. Mr. Ziemer graduated from Penn State University in 1977 with a business degree in marketing and management. See "PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF MANAGEMENT" AND "SELLING SECURITYHOLDERS". 49
EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG TERM COMPENSATION ------------------- ---------------------- AWARDS PAYOUTS NAME FISCAL OTHER ALL AND YEAR ANNUAL RESTD. OTHER PRINCIPAL ENDED COMPEN- STOCK LTIP COMPEN- POSITION JANUARY 31 SALARY BONUS SATION AWARDS OPTIONS PAYOUTS SATION - ------------------------------------------------------------------------------------------------------------------------- Edward C. 1996 (1) 0.00 0 None (1) None (1) Kelly(3) 1995 (1) 0.00 0 None (1) None (1) President 1994 (1) 0.00 0 None (1) None (1) and Chief Executive Officer - -------------------------------------------------------------------------------------------------------------------------
(1) Mr. Kelly has served as President and Treasurer of the Company since June 10, 1994, a director since April 1994, Chairman of the Board since June 3, 1996, and was Executive Vice President from January 1994 to June 10, 1994. Mr. Kelly received $20,000 on February 1, 1994 for services rendered to the Company since October 1993. He was granted an option in April 1994 for 250,000 pre-split shares of restricted Common Stock exercisable at $.50 per share which was subsequently rescinded on July 8, 1994 by the Board and granted an option for 1,000,000 shares of restricted Common Stock exercisable at $.10 per share at any time until March 15, 1997. Pursuant to the terms of his October 1, 1994 employment agreement, Mr. Kelly received 960,000 pre-split shares of Common Stock issued pursuant to a registration statement on Form S-8 filed with the Commission in November 1994 for services rendered to the Company from February 1994 to June 1994. For the fiscal year ended January 31, 1995, Mr. Kelly received an aggregate of $49,000 in cash payments and Mr. Kelly or his assigns received an aggregate of 75,000 pre-split shares of restricted Common Stock in accordance with the terms of his employment agreement. For the fiscal year ended January 31, 1996, Mr. Kelly received an aggregate salary of $180,000, consisting of $160,000 in cash and 2,184,127 pre-split shares of restricted Common Stock pursuant to the terms of his employment agreement which was amended effective as of May 1, 1995 and provides (i) for salary of $20,000 per month of which $10,000 accrues until the Company is financially able to pay the accrued amount or Mr. Kelly elects to convert all or part of such accrued amount into restricted Common Stock at a conversion price of $.20 per share, (ii) an annual bonus or bonuses, if any, in an amount to be determined by the Board of Directors in its sole discretion, (iii) 2,000,000 pre-split shares of Common Stock as additional compensation for all services provided to the Company from June 4, 1994 through April 30, 1995 to be registered on Form S-8. He received the 2,000,000 pre-split shares of Common Stock issued pursuant to a registration statement on Form S-8 filed with the Commission on September 28, 1995 for services rendered to the Company from June 4, 1994 through April 30, 1995. This table does not include (i) $10,000 paid each month by H&R Industries, Inc., an affiliate of Premier pursuant to the Premier Agreement, from January 1994 through September 1995, which amount is included in the total development costs of the Machine, (ii) accrued director compensation of approximately $833.33 per month since September 1995, (iii) 1,500,000 post-split shares issued to Mr. Kelly pursuant to the Stock Purchase Agreement with Whetstone Ventures Corporation, Inc., which are being registered hereby, and (iv) options granted to each of Messrs. Kelly, Klarich, Wolf and Lambert on October 1 1996 by the Board of Directors for 50,000 post-split shares of restricted Common Stock exercisable for three years at $4.00 per share which are being registered hereby. See "BUSINESS - DESIGN AND MANUFACTURING", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION," "MANAGEMENT", "PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF MANAGEMENT" and "CERTAIN TRANSACTIONS." 50 OPTION GRANTS IN THE FISCAL YEAR ENDED JANUARY 31, 1997 On October 1, 1996, the Board of Directors granted options to Messrs. Kelly, Klarich, Wolf and Lambert, all members of the Board of Directors. Messrs. Kelly and Klarich are also executive officers of the Company. Such options are for each of them to purchase 50,000 post- split shares of Common Stock for a period of three years commencing October 1, 1996 at $4.00 per share. The shares underlying such options are being registered hereby. See "EXECUTIVE COMPENSATION." Pursuant to the 1995 Stock Option Plan adopted by the Board of Directors on July 1, 1995 and approved by the stockholders on September 18, 1995, non-employee directors receive options under a formula set forth in such Stock Option Plan determined by dividing the annual director's fee paid or accrued (accrued $10,000 per director for the fiscal year ended January 31, 1997) by the fair market value per share of Common Stock on the date of the grant ($.1225 at December 15, 1996). Each of Messrs. Klarich, Wolf, and Lambert received an option to purchase 4,082 post-split shares of Common Stock under the 1995 Stock Option Plan at an exercise price of $2.45 per share (representing fair market value per share as of December 15, 1996 giving effect to the reverse stock split), which options expire December 15, 2006. Mr. Ziemer received an option to purchase 680 post-split shares of Common Stock under the 1995 Stock Option Plan at an exercise price of $2.45 per share as of December 15, 1996, which expires December 15, 2006. This grant was prorated to reflect his appointment to the Board on October 4, 1996. COMPENSATION OF DIRECTORS The Directors were not entitled to compensation for their services prior to September 18, 1995. At the Board of Directors meeting held on September 18, 1995, the Board voted to approve payment of annual directors' fees of $10,000 per director plus reasonable expenses commencing as of such date. Payments for the fiscal year ending January 31, 1996 were accrued on a pro rata basis for the year and were accrued for the fiscal year ended January 31, 1997. These accrued fees will be paid when the Company is financially able to do so. All such accrued compensation for Messrs. Arzt (up to June 1996 when he was removed from the Board), Kelly, Wolf, Lambert and Klarich will be included in the audited financial statements for the fiscal year ended January 31, 1997. See "OPTION GRANTS IN THE FISCAL YEAR ENDED JANUARY 31, 1997" herein and "FINANCIAL STATEMENTS". EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS On October 1, 1994 the Company entered into an employment agreement with Edward C. Kelly, its then President and Treasurer. The employment agreement was for a three year term commencing retroactively to October 1, 1993 (the date on which Mr. Kelly began providing design, engineering and consulting services to the Company) and was automatically renewable for additional one year terms after expiration on September 30, 1996. Compensation was $10,000 per month commencing on October 1, 1994, of which $4,000 was payable in cash and 51 the balance of $6,000 accrued until the Company was financially able to pay the balance or Mr. Kelly converted the unpaid amount into restricted Common Stock at a conversion price of $.20 per share. Mr. Kelly received additional compensation of $10,000 per month paid by H&R Industries, Inc., a company owned by Harry Schmidt, a former director of the Company, which such payments were included in the development costs of the Machine. See "BUSINESS DESIGN AND MANUFACTURING", "EXECUTIVE COMPENSATION" and "CERTAIN TRANSACTIONS". In addition, Mr. Kelly received 960,000 pre-split shares of Common Stock registered on a Form S-8 registration statement filed with the Commission in November 1994 for services provided to the Company from October 1, 1993 through February 28, 1994 and 2,000,000 pre-split shares of Common Stock registered on a Form S-8 registration statement filed with the Commission on September 28, 1995. The employment agreement was subsequently amended but effective as of May 1, 1995 to provide the following changes: (i) salary of $20,000 (replacing $10,000 per month no longer being paid by H&R Industries, Inc.) per month payable $10,000 in cash with $10,000 accruing until the Company is financially able to pay such amount or Mr. Kelly elects to convert all or any part of such amount into restricted Common Stock based on a conversion ratio of $.20 per share; (ii) an employment term until April 30, 2001; (iii) an annual bonus or bonuses, if any, in an amount to be determined by the Board of Directors in its sole discretion; (iv) 2,000,000 pre-split shares of Common Stock registered on a Form S-8 registration statement as additional compensation for all services provided by Mr. Kelly to the Company from June 4, 1995 to April 30, 1995. All other terms and conditions of the October 1, 1994 employment agreement remain in full force and effect. The employment agreement, as amended, is automatically renewable for additional one (1) year terms without any further action by the Company or Mr. Kelly. The employment agreement, as amended, may be terminated by the Company for certain enumerated causes or upon written notice of the Company to Mr. Kelly 60 days prior to the end of any term or renewal thereof. See "EXECUTIVE COMPENSATION". The Company has from time to time entered into consulting agreements with outside consultants relating to different aspects of its business; however, it did not enter into any such agreements with current or former employees, officers or directors during the fiscal year ended January 31, 1996. Commencing in March 1996, Leonard Klarich, a director of the Company since September 1995, provided consulting services to the Company through May 31, 1996 and received as compensation for such services in June 1996 an option for 1,000,000 pre-split shares of Common Stock, immediately exercisable at an exercise price of $.05 per share for an aggregate of $50,000 paid by Mr. Klarich to the Company in August 1996. The option was exercised and the shares were registered in and issued pursuant to a registration statement on Form S-8 filed with the Commission in July 1996. See "PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF MANAGEMENT". 52 PRINCIPAL SECURITYHOLDERS SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth, as of April 1, 1997, the ownership of Common Stock by persons known to the Company who own beneficially more than 5% of the outstanding shares of Common Stock, as adjusted to give effect to the 1 for 20 reverse stock split effective on December 23, 1996:
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS - ---------------- -------------------- -------- International Tasty 515,000 7.7% Fries, Inc. Suite 602 595 Howe Street Vancouver, B.C. V6C 2T5(1) Usis International Capital 350,501 5.2% Corp. 2806 N. Clark Street Chicago, IL 60657(1) Whetstone Ventures 720,343 10.7% Corporation, Inc. 11 Waterfront Estates Estates Drive Lancaster, PA 17602(2)
- -------------------------------------- (1) All of these shares are shown of record as of April 1, 1997, pursuant to the Company's stock transfer records, all of which are being registered hereby. (2) Includes (i) all 351,000 post-split of the original 1,250,000 post-split shares sold to Whetstone Ventures Corporation, Inc., the balance of which were transferred to others listed herein as Selling Securityholders, (ii) 250,000 additional post-split shares, and (iii) 119,143 Warrant Shares underlying the Warrant to be issued to Whetstone Ventures Corporation, Inc., all of which are being registered hereby. Does not include 250,000 post-split shares of Common Stock to be issued to Whetstone Ventures Corporation, Inc. for consulting services pursuant to its April 30, 1996 Agreement with the Company, and an additional 37,500 post-split shares to be issued each year for five years commencing upon the effective date of the Registration Statement. 53 SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth, as of April 1, 1997, the beneficial Common Stock ownership of all directors, executive officers, and of all directors and officers as group, as adjusted to give effect to the 1 for 20 reverse stock split effected on December 23, 1996:
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS - ---------------- -------------------- -------- Edward C. Kelly 1,807,950 27.0% 650 Sentry Parkway Suite One Blue Bell, PA 19472(1) Jurgen A. Wolf 155,124 2.6% 1285 West Pender Street Vancouver, B.C. Canada(2) Leonard J. Klarich 92,624 1.4% 839 Claybrook Court Knoxville, TN 37923(3) Ian D. Lambert 55,124 * 1220 Eastview Road North Vancouver, B.C.(4) Kurt R. Ziemer 67,680 1.0% 599 Valley View Drive New Holland, PA 17557(5) All Officers and Directors 2,178,502 32.0% as a group (5 persons)
- ---------------------------------- * less than 1% 54 (1) Includes (i) an option for 50,000 post-split shares of restricted Common Stock presently exercisable at $2.00 per share until March 15, 1998, (ii) 57,450 post-split shares of Common Stock held by Irene Kelly, his wife, as to which Mr. Kelly claims beneficial ownership, (iii) an option for 50,000 post-split shares of Common Stock granted by the Board of Directors on October 1, 1996 exercisable until October 1, 1999 at for $4.00 per share, the shares underlying which are being registered hereby; and (iv) 1,500,000 post-split shares issued pursuant to the terms of the April 30, 1996 Stock Purchase Agreement as calculated in accordance with Rule 13d-3. being registered hereby. (2) Includes (i) an option to purchase 1,042 post-split shares of Common Stock exercisable at $2.40 per share until December 15, 2005, automatically granted to each non-employee director under the 1995 Stock Option Plan on December 15, 1995, (ii) an option to purchase 4,082 post-split shares of Common Stock exercisable at $2.45 per share until December 15, 2006, automatically granted to each non-employee director under the 1995 Stock Option Plan; (iii) an option to purchase 50,000 post-split shares of Common Stock granted by the Board of Directors on October 1, 1996 exercisable at $4.00 per share until October 1, 1999, the shares underlying which are being registered hereby; (iv) 50,000 post-split shares of Common Stock issued to Adelaide Vending (Canada) Ltd. for the reacquisition by the Company of the Canadian distributorship and an option granted to Adelaide Vending for 50,000 post-split shares of Common Stock exercisable at $5.00 per share until September 1, 1997, all as calculated in accordance with Rule 13d-3. Mr. Wolf is a director and the controlling stockholder of Adelaide Vending (Canada), Ltd.. See "BUSINESS - MARKETING THROUGH DISTRIBUTORSHIPS", "MANAGEMENT" and "SELLING SECURITYHOLDERS". (3) Includes (i) an option to purchase 1,042 post-split shares of Common Stock exercisable at $2.40 per share until December 15, 2005, automatically granted to each non-employee director under the 1995 Stock Option Plan on December 15, 1995, (ii) an option to purchase 4,082 post-split shares of Common Stock exercisable at $2.45 per share until December 15, 2006, automatically granted to each non-employee director under the 1995 Stock Option Plan; (iii) an option for 50,000 post-split shares of Common Stock granted by the Board of Directors on October 1, 1996 exercisable for $4.00 per share until October 1, 1999, as calculated in accordance with Rule 13d-3, the shares underlying which are being registered hereby. (4) Includes (i) 515,000 post-split shares issued to International Tasty Fries, Inc. in 1995 for an aggregate of $800,000 including a $175,000 loan converted into equity, (ii) an option to purchase 1,042 of Common Stock exercisable at $2.40 per share until December 15, 2005 granted to each non-employee director under the 1995 Stock Option Plan on December 15, 1995, (iii) an option to purchase 4,082 post-split shares of Common Stock exercisable at $2.45 per share until December 15, 2006, automatically granted to each non-employee director under the 1995 Stock Option Plan; and (iv) an option for 50,000 post-split shares of Common Stock granted by the Board of Directors on October 1, 1996 exercisable at $4.00 per share until October 1, 1999, as calculated in accordance with Rule 13d-3, which shares underlying such option are being registered hereby. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION", "MANAGEMENT", "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS" HEREIN, AND "SELLING SECURITYHOLDERS". (5) Includes Shares being registered hereby. Does not include 680 post-split shares underlying an option exercisable at $2.45 per share until December 15, 2006, automatically granted to each non-employee director under the 1995 Stock Option Plan. Mr. Ziemer's option has been prorated to reflect the date he was appointed to the Board of Directors on October 4, 1996. 55 CERTAIN TRANSACTIONS In April 1993, the Company issued a promissory note to Mr. Gary Arzt, then President, Secretary and Chairman of the Board of the Company, for up to $300,000 in funds which may be advanced to the Company. Such note was superseded on October 31, 1993 by a new promissory note in the amount of $129,946.55 (the "Note"). The Note, which bears interest at 8% per annum payable in quarterly installments, was due on or before November 1, 1994. In April 1995, the Note was partially repaid in the amount of $79,947. See "FINANCIAL STATEMENTS". Mr. Arzt filed a lawsuit against the Company for payment of the Note and other alleged expenses and a judgment was entered in his favor by the court in April 1997 for $59,000. See "BUSINESS - LITIGATION". In January 1993 the Company entered into the Premier Agreement which was subsequently amended in December 1994. Premier is owned by Edward Kelly, President, Chief Executive Officer and Chairman of the Board of Directors of the Company, and Harry Schmidt, a former director of the Company. At the time of the Premier Agreement, neither Mr. Kelly nor Mr. Schmidt were affiliated with the Company. At the time of the Premier Amendment, Mr. Kelly was President of the Company and both were serving on the Board of Directors. See "RISK FACTORS - NO MANUFACTURING FACILITIES; COMPLETION OF TOOLING, PATENT PROTECTION, AND PROPRIETARY RIGHTS", "BUSINESS - DESIGN AND MANUFACTURING", "MANAGEMENT", "EXECUTIVE COMPENSATION", and "SELLING SECURITYHOLDERS". In September 1995 the Company reacquired the Canadian distribution rights from Adelaide Vending (Canada) Ltd. for 1,000,000 pre-split shares (50,000 post-split shares) of Common Stock and an option to purchase 1,000,000 pre-split shares (50,000 post-split shares) of Common Stock at $.25 (US)($5.00 (US) post-split exercise price) for two years until September 1997. Mr. Wolf, a member of the Company's Board of Directors since September 18, 1995, is a major stockholder of Adelaide Vending (Canada) Ltd. Adelaide Vending (Canada) Ltd. had made a downpayment of $75,000 (US) for the Canadian distribution rights plus had incurred certain other organizational expenses in connection therewith which, totalled $100,000 (US) in the aggregate. As part of the Company's desire to operate the Machines directly and limit its dependence on third party operators, the Board of Directors determined to offer Adelaide Vending the opportunity to return the distributorship for 1,000,000 pre-split shares of Common Stock, the fair market value of which at the time was $100,000 (US) or $.10 per share and the option. See "PRINCIPAL SECURITYHOLDERS" and "SELLING SECURITYHOLDERS". In May 1995, the Company loaned Mr. Kelly $50,000 at 10% interest per annum. This loan is being repaid in accordance with a payment plan over the current fiscal year. In April 1996, the Company, Edward Kelly and Whetstone Ventures Corporation, Inc. entered into the Stock Purchase Agreement. Pursuant to the terms thereof, Mr. Kelly will receive a substantial number of Shares and Warrant Shares to ensure his ownership of no less than 25% of the outstanding Common Stock of the Company until May 1999. See 56 "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION", "PRINCIPAL SECURITYHOLDERS" and "SELLING SECURITYHOLDERS". 57 SELLING SECURITYHOLDERS The following tables provide the names of and the number of Shares and Warrant Shares offered for sale by each Selling Securityholder in the offering. After giving effect to the 1 to 20 reverse stock split approved by the written consent of the holders of a majority of the Company's outstanding Common Stock effective on December 23, 1996. Since the Selling Securityholders may sell all, some or none of their Shares or Warrant Shares, no estimate can be made of the number or percentage of Shares or Warrant Shares that each Selling Securityholder will own upon completion of the offering. Assuming that all of the Shares and Warrant Shares offered hereby are sold, no Selling Securityholder would own more than 1% of any outstanding class of stock unless otherwise indicated. See "PRINCIPAL SECURITYHOLDERS." The Shares offered by this Prospectus may be offered from time to time by the Selling Securityholders named below. Unless otherwise noted, no Selling Securityholder is an executive officer of the Company, or has had any material relationship with the Company or any of its affiliates within the past three years.
SHARES OWNED SHARES AFTER OFFERING OWNED BEFORE SHARES IF ALL SHARES NAME OF SECURITYHOLDER OFFERING OFFERED HEREBY SOLD (*) - ---------------------- -------- -------------- -------- Elizabeth A. Adams(1) 670 670 * Richard Adeelar(2) 10,051 10,051 * Daniel Amar(3) 14,070 14,070 * Michel Amar(4) 10,380 10,380 * Arcon Trade Development, Inc.(5) 250,000 250,000 * Don Arons(6) 1,340 1,340 * Samuel Balan(7) 43,750 43,750 * Donna Baron(8) 6,700 6,700 * Kuldep Bhargava(9) 33,500 33,500 * Richard J. Brown(10) 3,350 3,350 * Marilyn J. Butzer(11) 670 670 * Carlinde, Inc. 62,500 62,500 * Joseph Ceasar(12) 14,070 14,070 * Eric Cohen 52,188 52,188 * Robert Crowder 50,000 50,000 * Yaacov Cynamon(13) 10,051 10,051 * Stacey Zoto Desmond 1,250 1,250 * Jerry Dodd(14) 5,770 5,770 * Audrey A. Doerr(15) 16,750 16,750 * Debra A. Doerr(16) 16,750 16,750 * Danny Figa(17) 16,750 16,750 * Gary Fowler(18) 26,800 26,800 * 58 Richard Frank(19) 670 670 * David Gold(20) 6,700 6,700 * David Greenberg(21) 6,700 6,700 * Charlie Gregor(22) 2,010 2,010 * Jonathan Gross(23) 10,051 10,051 * Anne Guarra(24) 6,700 6,700 * Daryl Hagler(25) 33,550 33,550 * Carolyn Hallinan 45,938 45,938 * Chester A. Harberson 67,500 67,500 * Scott Hess(26) 670 670 * International Tasty Fries, Inc.(27) 515,000 515,000 * Iris Trading Develp(28) 67,000 67,000 * Diane Johnson(29) 6,700 6,700 * Tony Jones 10,067 10,067 * Elliot Kahan(30) 13,400 13,400 * Clifford Katz(31) 13,400 13,400 * Ron Katz(32) 67,000 67,000 * Edward C. Kelly(33) 1,807,950 1,600,000 207,950 Leonard Klarich(34) 92,624 50,000 42,624 Albert Kofsky 5,000 5,000 * Ian D. Lambert(27) 55,124 50,000 5,124 Eli Lavi(35) 16,750 16,750 * Yossef Lavi(36) 16,750 16,750 * Aizik Leibovitch(37) 13,400 13,400 * Jack Lonsdale 15,313 15,313 * Richard MacHenry, Jr.(38) 10,051 10,051 * Yechiel Meiteles(39) 13,400 13,400 * Daniel O'Connor & Juliana O'Connor JTTEN 5,000 5,000 * Albert & Irene Porambo 42,750 42,750 * PMGM, Inc. 50,000 50,000 * Robert Portman 33,334 33,334 * Angela Porto(40) 3,350 3,350 * David E. Ranalli(41) 10,051 10,051 * J.A. Rizzo(42) 16,750 16,750 * Francesca Roda(43) 3,350 3,350 * Francesca M J Roda & Darrell La Dow JTTEN(44) 3,350 3,350 * Joseph F. Roda(45) 150,751 150,751 * Melina Roda(46) 6,700 6,700 * Penelope Roda(47) 150,751 150,751 * Saverio B. Roda(48) 10,051 10,051 * Vitorio Roda(49) 6,700 6,700 * Harry Schmidt 34,375 34,375 * Amos Shamama(50) 6,030 6,030 * Dominic Spadea(51) 6,700 6,700 * Vincent Spadea(52) 3,350 3,350 * 59 Jim Speilman(53) 16,750 16,750 * Jim & Janet Speilman, JTTEN(54) 16,750 16,750 * Richard L. Stone(55) 6,700 6,700 * Tasty Fries, Israel(56) 100,000 100,000 * Al Thierman(57) 6,700 6,700 * Usis International Capital Corp(58) 350,501 350,501 * Larry Usner(59) 2,010 2,010 * J. Charles Walter, Jr.(60) 2,010 2,010 * Philip J V Watts(61) 8,710 8,710 * Steven Winfield(62) 10,051 10,051 * Whetstone Ventures Corp.(63) 720,343 720,343 * Charles L. Whetstone(64) 26,800 26,800 * Bradley Whittemore 15,625 15,625 * Jurgen A. Wolf(65) 155,124 150,000 5,124 Martin G. Young(66) 16,750 16,750 * Lewis Ziegler(67) 23,450 23,450 * Kurt R. Ziemer(68) 67,680 67,000 680 Mildred Ziemer(69) 2,010 2,010 * Richard D. Ziemer(70) 12,060 12,060 * Jody L. Zoto 1,250 1,250 * Louis Zoto 5,000 5,000 * Thomas M. Zoto 3,750 3,750 *
- --------------------- * Assumes (i) no sales are effected by the Selling Securityholders during the offering period other than pursuant to this Registration Statement, (ii) ownership of less than one percent unless otherwise indicated, and (iii) for purposes of this table, ownership with respect to a Securityholder does not include shares beneficially owned but held by other persons. For such information relating to directors and officers of the Company, see "PRINCIPAL SECURITYHOLDERS." (1) Includes 170 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (2) Includes 2,551 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (3) Includes 3,570 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (4) Includes 2,380 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (5) Includes (i) 17,000 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999, (ii) a warrant to purchase 50,000 shares of common stock exercisable at $1.00 per share until October 30, 1999, and (iii) 100,000 shares to be issued only upon the execution of a final agreement between the Company and Soltam, a subsidiary of Koors Industries, Israel. (6) Includes 340 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (7) See "BUSINESS - LITIGATION". 60 (8) Includes 1,700 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (9) Includes 8,500 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (10) Includes 850 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (11) Includes 170 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (12) Includes 3,570 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (13) Includes 2,551 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (14) Includes 1,770 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (15) Includes 4,250 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (16) Includes 4,250 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (17) Includes 4,250 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (18) Includes 6,800 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (19) Includes 170 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (20) Includes 1,700 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (21) Includes 1,700 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (22) Includes 510 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (23) Includes 2,551 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (24) Includes 1,770 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. 61 (25) Includes 8,550 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (26) Includes 170 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (27) Ian D. Lambert, President of International Tasty Fries, Inc., is a member of the Company's Board of Directors. The Shares being registered listed for Mr. Lambert do not include (i) 515,000 post-split shares owned by International Tasty Fries, Inc. which are being registered hereby but do include (ii) 50,000 post-split shares of Common Stock issuable upon exercise of an option granted on October 1, 1996 exercisable at $4.00 per share until October 1, 1999, as calculated in accordance with Rules 13d-3. See "MANAGEMENT" and "PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF MANAGEMENT". (28) Includes 17,000 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (29) Includes 1,700 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (30) Includes 3,400 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (31) Includes 3,400 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (32) Includes 17,000 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (33) Mr. Kelly is the current President, Treasurer, Chief Executive Officer and Chairman of the Board of the Company. The Shares being registered hereby include (i) 1,500,000 post-split shares issued to Mr. Kelly pursuant to the Stock Purchase Agreement between the Company and Whetstone Ventures Corporation, Inc., and (ii) 50,000 post-split shares of Common Stock issuable upon exercise of an option granted on October 1, 1996 exercisable at $4.00 per share until October 1, 1999, as calculated in accordance with Rule 13d-3. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION", "BUSINESS", "MANAGEMENT" and "PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF MANAGEMENT". (34) Includes 50,000 post-split shares of Common Stock issuable upon exercise of an option granted on October 1, 1996 at $4.00 per share until October 1, 1999, as calculated in accordance with Rule 13d-3, being registered hereby. (35) Includes 4,250 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (36) Includes 4,250 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (37) Includes 3,400 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. 62 (38) Includes 2,551 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (39) Includes 3,400 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (40) Includes 850 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (41) Includes 2,551 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (42) Includes 3,400 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (43) Includes 850 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (44) Includes 850 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (45) Includes 38,251 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (46) Includes 1,700 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (47) Includes 38,251 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (48) Includes 2,551 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (49) Includes 1,700 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (50) Includes 1,530 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (51) Includes 1,700 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (52) Includes 850 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (53) Includes 4,250 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (54) Includes 4,250 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. 63 (55) Includes 1,700 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (56) Includes 100,000 shares being registered hereby which are issuable only upon the execution of a final agreement by the Company and Soltam, a subsidiary of Koors Industries, Israel. (57) Includes 1,700 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (58) Includes 25,501 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (59) Includes 510 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (60) Includes 510 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (61) Includes 2,210 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (62) Includes 2,551 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (63) Includes (i) 351,000 post-split Shares owned by Whetstone Ventures Corporation, Inc., (ii) 250,000 post-split shares issued to Whetstone Ventures Corporation, Inc., and (iii) 119,143 Warrant Shares to be issued upon exercise of a Warrant to be issued pursuant to the terms of the Stock Purchase Agreement between the Company and Whetstone Ventures Corporation, Inc. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION", "BUSINESS" and "PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS". (64) Includes 6,800 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (65) Includes (i) 50,000 post-split shares of Common Stock listed in the name of Adelaide Vending (Canada), Ltd. of which Mr. Wolf is a major stockholder, (ii) 50,000 post-split shares of Common Stock issuable upon exercise of an option granted on October 1, 1996 at $4.00 per share until October 1, 1999, and (iii) 50,000 post-split shares of Common Stock issuable upon exercise of an option issued to Adelaide Vending (Canada) Ltd., at $5.00 per share until September 1, 1997, all as calculated in accordance with Rule 13d-3. (66) Includes 4,250 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (67) Includes 5,950 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (68) Mr. Ziemer is a director of the Company. See "MANAGEMENT". Includes 17,000 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. 64 (69) Includes 510 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. (70) Includes 3,060 Warrant Shares being registered hereby underlying a warrant exercisable at $1.90 per share until May 31, 1999. 65 DESCRIPTION OF SECURITIES THE COMPANY The authorized capital stock of the Company consists of 25,000,000 shares of Common Stock, $.001 par value, of which 6,700,025 post-split shares are issued and outstanding as of the date hereof. The Company has also authorized for issuance 5,000,000 shares of preferred stock, $.001 par value (the "Preferred Stock"), of which no shares are issued and outstanding as of the date hereof. COMMON STOCK Each outstanding share of Common Stock is fully paid and nonassessable. Holders of the Common Stock are entitled to one vote per share on each matter submitted to a vote at any meeting of stockholders or consent in lieu thereof under Nevada General Corporation Law. The Common Stock does not carry any cumulative voting rights and, therefore, a majority of the outstanding Common Stock will be able to elect the entire Board of Directors and, if they do so, minority stockholders would not be able to elect any members to the Board of Directors. The Common Stock is not subject to redemption and carries no preemptive, subscription or conversion rights. In the event of liquidation of the Company, the shares of Common Stock are entitled to share equally in corporate assets after satisfaction of all liabilities. There are no outstanding options, warrants or rights to purchase shares of the Company's Common Stock other than as offered hereby and/or as referred to herein. PREFERRED STOCK There are no plans to issue any shares of Preferred Stock at the present time. The relative rights, preferences, designations, rates, conditions, privileges, limitations, dividend rates, conversion rights, preemptive rights and terms of redemption, liquidation preferences and sinking terms thereof are to be determined by the Board of Directors, without any further vote or action by stockholders. The Board of Directors, without stockholder approval, may issue Preferred Stock in such series as it determines, with dividend rights, liquidation preferences or other rights that are superior to the rights of holders of Common Stock. The issuance of one or more series of Preferred Stock could adversely affect the voting power of the holders of the Common Stock and could have the effect of discouraging or making more difficult any attempt by a person or a group to attain control of the Company. See "RISK FACTORS - PREFERRED STOCK AUTHORIZED FOR ISSUANCE". WARRANTS The Company is registering 425,010 shares of Common Stock issuable up the exercise of an equal amount of Warrants. Each Warrant entitles the holder to purchase one share of the Company's Common Stock at any time for a period of three years commencing May 29, 1996 and ending May 29, 1999 at an exercise price per share equal to the average of the bid and asked price per share on December 23, 1996, the effective date of the reverse stock split. That exercise price is $1.90 per share. The Warrants are not entitled to any voting, dividend, 66 liquidation or other rights to which the Common Stock is entitled. In the event of any dissolution or winding up of the Company, the holders of the Warrants will not be entitled to participate in a distribution of the Company's assets. The Company may call for redemption all or any portion of the Warrants at $.001 per Warrant at any time upon a minimum of 30 days prior written notice mailed to the registered holders of the Warrants. The Company's right to redeem is subject to the right of the holders of the Warrants to exercise their purchase rights between the date of any notice of redemption date given by the Company. Any holders who do not exercise their Warrants prior to the redemption date will receive the redemption price of $.001 per Warrant and will forfeit their rights to purchase the Warrant Shares underlying the Warrants. The Warrants are subject to adjustment in the event of a stock split, reverse stock split, merger, reclassification or similar event. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the offering, the Company will have 6,912,930 post-split shares of Common Stock outstanding if 50% of the Warrants are exercised and 7,125,435 post-split shares of Common Stock outstanding if 100% of the Warrants are exercised without giving effect to the possible exercise of other outstanding options or warrants disclosed in this Prospectus. The 425,010 Warrant Shares, issuable upon the exercise of the Warrants to be issued, will be freely tradeable without restriction or further registration under the Act. In general, under the new provisions of Rule 144, which has been amended effective April 29, 1997, a person (or persons whose shares are aggregated) who has satisfied a one (1) year holding period may sell in ordinary market transactions through a broker or with a market maker, within any three (3) month period, a number of shares which does not exceed the greater of one percent (1%) of the number of outstanding shares of Common Stock or the average of the weekly trading volume of the Common Stock during the four (4) calendar weeks prior to such sale. Sales under Rule 144 require the filing of Form 144 with the Commission. If the shares of Common Stock have been held for more than two (2) years by a person who is not an affiliate, there is no limitation on the manner of sale or the volume of shares that may be sold and no Form 144 is required. An "affiliate" of the Company is any person who directly or indirectly controls, is controlled by or is under common control with, the Company. Affiliates of the Company may include its directors, executive officers and persons, directly or indirectly owning 10% or more of the outstanding Common Stock. No prediction can be made as to the effect, if any, that sales of shares of Common Stock or the availability of such shares for sale will have on the market prices prevailing from time to time. Nevertheless, the possibility that substantial amounts of Common Stock may be sold in the public market would likely have a material adverse effect on prevailing market prices for the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. See "RISK FACTORS - SHARES ELIGIBLE FOR FUTURE SALE" and "PLAN OF DISTRIBUTION". 67 TRANSFER AGENT The Company's transfer agent for the Common Stock and Warrants is StockTrans, Inc. located at 7 East Lancaster Avenue, Ardmore, Pennsylvania 19003-2318; telephone number (610) 649-7300. PLAN OF DISTRIBUTION The Shares and Warrant Shares offered hereby may be sold from time to time by the Selling Securityholders on the OTC Bulletin Board on terms to be determined at the times of such sales. The Selling Securityholders may also make private sales directly or through a broker or brokers. Alternatively, the Selling Securityholders may from time to time offer Shares and Warrant Shares offered hereby to or through underwriters, dealers or agents, who may receive consideration in the form of discounts and commissions. Such compensation, which may be in excess of ordinary brokerage commissions, may be paid by the Selling Securityholders and/or the purchasers of the Shares or Warrant Shares offered hereby for whom such underwriters, dealers or agents may act. The Selling Securityholders and any dealers or agents that participate in the distribution of the Shares or Warrant Shares offered hereby may be deemed to be "underwriters" as defined in the Act and any profits on the sale of such Shares or Warrant Shares offered hereby by them may be deemed discounts and commissions under the Act. The aggregate proceeds to the Selling Securityholders from sales of the Shares or Warrant Shares offered by Selling Securityholders will be the purchase price of such Shares or Warrant Shares less any broker's commissions. To the extent required, the specific Shares or Warrant Shares to be sold, the names of the Selling Securityholders, the respective purchase prices and public offering prices, the names of any such agent, dealer or underwriter, and any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying Prospectus Supplement or, if appropriate, a post-effective amendment to the Registration Statement of which this Prospectus is a part. In order to comply with the securities laws of certain states, if applicable, the Shares and Warrant Shares offered hereby will be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states Shares or Warrant Shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirements is available and is complied with. Under applicable rules and regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), any person engaged in the distribution of the Shares or Warrant Shares offered hereby may not simultaneously engage in market making activities with respect to the Shares or Warrant Shares for a period of two business days prior to the commencement of such distribution. In addition, and without limiting the foregoing, the Selling Securityholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Rules 10b-2, 10b-6 and 10b-7, which provisions may 68 limit the timing of purchases and sales of Shares or Warrant Shares by the Selling Securityholders. The Company will pay substantially all the expenses incurred by the Selling Securityholders and the Company incident to the offering and sale of the Shares and Warrant Shares offered hereby to the public, but excluding any underwriting discounts, commissions or transfer taxes. These offering expenses are estimated to be approximately $95,000. The Company has agreed to indemnify the Selling Securityholders against certain liabilities, including liabilities under the Act. LEGAL MATTERS Certain legal matters will be passed upon for the Company by Kipnis Tescher Lippman Valinsky & Kain, Attorneys at Law, Fort Lauderdale, Florida. EXPERTS The financial statements of Tasty Fries, Inc. as of January 31, 1996 and 1995, and for each of the years in the two-year period ended January 31, 1996 have been included herein and in the Registration Statement in reliance upon the report of Schiffman Hughes Brown, independent public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The January 31, 1996 and 1995 financial statements of Tasty Fries, Inc. included in this Prospectus have been certified by Schiffman Hughes Brown, independent public accountants, upon the authority of said firm as experts in giving said reports. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form SB-2 under the Act with respect to the Shares and Warrant Shares offered hereby. This Prospectus, which constitutes part of the Registration Statement, does not contain all the information contained in the Registration Statement and the exhibits thereto on file with Commission pursuant to the Act and the rules and regulations of the Commission thereunder. For further information with respect to the Company and the Shares and Warrant Shares offered hereby, reference is made to the Registration Statement and such exhibits. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete, and in each instance reference is made to the company of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by reference to the full text of such contract or document. The Company is subject to the informational requirements of the Exchange Act, and in accordance therewith files reports and other information with the Commission. Such reports, 69 other information and the Registration Statement, including exhibits thereto, may be inspected and copied at the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York, New York 10048, and Northwestern Atrium Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials can be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. The Commission also maintains a web site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Commission. The Commission's web site can be accessed at http://www.sec.gov. 70 INDEX TO FINANCIAL STATEMENTS For the years ended January 31, 1996 and 1995 PAGE and for the period October 18, 1985 (inception) ---- to January 31, 1996 Report of Independent Auditors......................................F-1 Balance Sheets......................................................F-2 Statements of Operations............................................F-3 Statements of Changes in Stockholders' Equity.......................F-4 Statements of Cash Flows............................................F-5 Notes to Financial Statements................................F-6 - F-11 For the three and nine months ended October 31, 1996 and 1995 Balance Sheets.....................................................F-12 Statements of Operations...........................................F-13 Statements of Changes in Stockholder's Equity......................F-14 Statements of Cash Flows...........................................F-15 Notes to Financial Statements...............................F-16 - F-19 71 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders of Tasty Fries, Inc. We have audited the accompanying balance sheets of Tasty Fries, Inc. (a development stage company) (formerly Adelaide Holdings, Inc.) as of January 31, 1996 and 1995, and the related statements of operations, stockholder's equity (deficiency), and cash flows for the years then ended and for the period from October 18, 1985 (inception) to January 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tasty Fries, Inc. as of January 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended and from October 18, 1985 (inception) to January 31, 1996, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company has incurred net losses since its inception and has experienced liquidity problems. Unless the Company can continue to obtain financing from the issuance of common stock and/or through loans, substantial doubt arises about the Company's ability to continue as a going concern (Note 1). The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Schiffman Hughes Brown Blue Bell, Pennsylvania June 10, 1996 F-1
TASTY FRIES, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS AS OF JANUARY 31, 1996 AND 1995 ASSETS 1996 1995 ---- ---- Current assets: Cash $ 5,273 $ 305 Vending machines (Note 3) 70,000 70,000 Loan receivable, officer (Note 4) 50,000 ------------------------ Total current assets 125,273 70,305 Property and equipment, net of accumulated depreciation of $16,834 in 1996 and $10,280 in 1995 30,515 28,765 ------------------------ $ 155,788 $ 99,070 ======================== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Note payable (Note 5) $ 25,000 $ 50,000 Note payable, shareholder/officer (Note 6) 50,000 129,947 Accounts payable and accrued expenses 106,269 166,783 Litigation settlements payable (Note 11) 443,014 628,062 ------------------------ Total current liabilities 624,283 974,792 ------------------------ Unearned revenue (Note 7) 356,000 436,000 ------------------------ Commitments and contingencies (Note 9) Stockholders' equity (deficiency): Common stock, $.01 par value; authorized 100,000,000 shares; issued and outstanding 77,000,495 shares at January 31, 1996 and 32,226,993 at January 31, 1995 770,005 322,270 Additional paid-in capital 5,591,470 2,075,490 Deficit accumulated in development stage (5,093,970) (3,709,482) ------------------------ 1,267,505 (1,311,722) Subscriptions receivable (Note 12) (2,092,000) ------------------------ (824,495) (1,311,722) ------------------------ $ 155,788 $ 99,070 ========================
See independent auditor's report and notes to financial statements F-2
TASTY FRIES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JANUARY 31, 1996 AND 1995 AND FOR THE PERIOD OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 1996 CUMULATIVE SINCE INCEPTION 1996 1995 ----------- ---- ---- Revenues $ 618 $ 618 $ 0 ------------- ------------ ------------ Costs and expenses: Research, machine and product development 752,104 265,615 177,400 Selling, general and administrative 3,196,723 1,086,033 798,576 -------------------------------------------------------- 3,948,827 1,351,648 975,976 -------------------------------------------------------- Net loss before other income (expense) (3,948,209) (1,351,030) (975,976) Other income (expense): Forfeited distributor deposits (Note 7) 15,000 10,000 Interest expense (55,699) (26,458) (14,895) Litigation settlement (Note 11) (1,105,062) (7,000) (1,098,062) -------------------------------------------------------- (1,145,761) (33,458) (1,102,957) -------------------------------------------------------- Net loss $(5,093,970) $(1,384,488) $(2,078,933) ======================================================= Net loss per share of common stock ($.07) ($.03) ($.08) ================================================== Weighted average shares outstanding 46,498,559 27,401,329 ===============================
See independent auditor's report and notes to financial statements F-3
TASTY FRIES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) FOR THE PERIOD FEBRUARY 1, 1993 TO JANUARY 31, 1996 PAID TOTAL COMMON IN RETAINED STOCKHOLDER STOCK CAPITAL EARNINGS EQUITY Balance, February 1, 1993 $212,704 $450,796 $(971,729) $(308,229) Issued 7,600,000 shares 76,000 464,000 540,000 Issued 220,000 shares for services 2,200 2,200 Redeemed 3,145,000 shares (31,450) 31,450 Net loss for the year ended January 31, 1994 (658,820) (658,820) -------------------------------------------------------------------- Balance, January 31, 1994 259,454 946,246 (1,630,549) (424,849) Issued 3,129,999 shares 31,300 547,950 579,250 Issued 2,151,622 shares for services 21,516 121,294 142,810 Issued 1,000,000 shares for litigation settlement 10,000 460,000 470,000 Net loss for year ended January 31, 1995 (2,078,933) (2,078,933) -------------------------------------------------------------------- Balance, January 31, 1995 322,270 2,075,490 (3,709,482) (1,311,722) Issued 36,415,000 shares 364,150 3,000,350 3,364,500 Issued 6,733,502 shares for services 67,335 381,880 449,215 Issued 625,000 shares for loan conversion 6,250 43,750 50,000 Issued 1,000,000 shares for repurchase of distributorship 10,000 90,000 100,000 Net loss for the year ended January 31, 1996 (1,384,488) (1,384,488) -------- ---------- ---------- ---------- Balance, January 31, 1996 $770,005 $5,591,470 $(5,093,970) $1,267,505 ====================================================================
See independent auditor's report and notes to financial statements F-4
TASTY FRIES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JANUARY 31, 1996 AND 1995 AND FOR THE PERIOD OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 1996 CUMULATIVE SINCE INCEPTION 1996 1995 ------------- ---- ---- Cash flows from operating activities: Net loss $(5,093,970) $(1,384,488) $(2,078,933) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 16,834 6,554 4,500 Common stock issued for services 631,725 449,215 142,810 Common stock issued for litigation settlement 470,000 470,000 Changes in assets and liabilities: Other assets (70,000) 5,000 Accounts payable and accrued expenses 549,284 (245,562) 682,889 Unearned revenue 356,000 (80,000) 80,000 ------------------------------------------------ Net cash used by operating activities (3,140,127) (1,254,281) (693,734) ------------------------------------------------ Net cash flows used in investing activities: Purchase of property and equipment (47,350) (8,304) (14,544) ------------------------------------------------ Cash flows from financing activities: Issuance of common stock 3,167,750 1,422,500 579,250 Loan receivable, officer (50,000) (50,000) Note payable, current 25,000 (25,000) Shareholder note 50,000 (79,947) ------------------------------------------------ Net cash provided by financing activities 3,192,750 1,267,553 579,250 ------------------------------------------------ Net increase (decrease) in cash 5,273 4,968 (129,028) Cash, beginning balance 0 305 129,333 ------------------------------------------------ Cash, ending balance $ 5,273 $ 5,273 $ 305 ================================================ Supplemental disclosure of cash flow information: Cash paid for interest $ 35,351 $ 22,636 $ 11,620 ================================================ Supplemental disclosures of non-cash financing activities: Issuance of common stock for services $ 629,525 $ 449,215 $ 142,810 ================================================ Issuance of common stock for conversion of note payable $ 75,000 $ 50,000 $ ================================================ Issuance of common stock for repurchase of distributorship $ 100,000 $ 100,000 $ ================================================ Issuance of common stock for litigation settlement $ 470,000 $ 470,000 ================================================
See independent auditor's report and notes to financial statements F-5 TASTY FRIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1996 AND 1995 1. Description of Business: On July 31, 1991 Metro Systems Inc., a Nevada Corporation, acquired 100% of the outstanding stock of Adelaide Holdings, Inc., a Delaware Corporation, for 13,500,000 shares of its common stock. The acquisition has been accounted for as a reverse acquisition. Metro Systems Inc. was a shell company having no assets or liabilities at the time of the reverse acquisition and changed the name of Metro Systems Inc. to Adelaide Holdings, Inc. Effective October 1, 1993 its name was changed to Tasty Fries, Inc. The Company is a development stage company since it has not completed designing, testing, and manufacturing its sole product, a vending machine which will cook and dispense french fries. The Company has entered into a manufacturing requirements agreement with a company which manufactures and assembles a variety of high technology equipment. The Company has received ten machines and it is anticipated that each machine can be sold for approximately $7,000. The difference between the anticipated selling price and the cost to obtain the machines has been charged to research, machine and product development costs. The president of the manufacturing company is a Director of Tasty Fries, Inc. and the president of Tasty Fries, Inc. owns 50% of the manufacturing company. From the corporation's date of inception, October 18, 1985, to date it has engaged in various business activities that were unprofitable. The Company had no revenues from operations since inception and its ability to continue as a going concern is dependent on the continuation of equity financing to fund the expenses related to successfully marketing the vending machine and resolving existing litigation (Note 10). Management is currently in negotiations with three separate funding sources to provide the working capital necessary to pay Premier and fund the tooling of the Machine. These funding sources will also assist the Company in manufacturing the first 50 machines and bring them to market, at which time the Company believes that sufficient cash will be generated to support its operations. Although management cannot assure the ultimate success of the above plan, it is reasonably confident that it will enable the Company to continue its business and grow modestly. 2. Significant accounting policies: Property and equipment: Property and equipment are carried at cost. Depreciation is calculated using the straight-line method over their estimated useful lives ranging from 3 to 7 years. Depreciation expense for January 31, 1996 and 1995 was $6,554 and $4,500, respectively. F-6 TASTY FRIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1996 AND 1995 2. Significant accounting policies (continued): Research, machine and product development: Research and development costs consist of expenditures incurred by the Company during the course of planned search and investigation aimed at the discovery of new knowledge which will be used to develop and test a vending machine and potato product for the formation of french fries. Research and development costs also include costs for significant enhancements or improvements to the machine and/or potato product. The Company expenses all such research and development costs as they are incurred. Unearned revenue: Represents monies received for distribution rights of the vending machines which the Company is still in the process of developing and testing. The Company records these monies as unearned revenue upon receipt. These deferrals will be recognized as income over the life of the machine upon commercial production of machines or upon forfeiture by distributors as a result of breach of contract. Since commercial production of the machine has not commenced, the unearned revenue is classified as a non-current liability. 3. Vending machines: Vending machines are carried at the lower of cost or market. During the year ended January 31, 1995, the Company paid to Premier, $246,600, for the production of ten reproduction machines. In the year ended January 31, 1995, the Company charged $176,600 to research and development expense. 4. Loan receivable, officer: Represent monies borrowed from the Company by an officer in May, 1995. The loan is due on demand, along with interest at 10% per annum. 5. Note Payable: Represents a single unsecured note from a third party shareholder which bears interest at the rate of 8% per annum. The note was due June 4, 1993 but has been extended indefinitely. The Company issued to the noteholder, options for 400,000 shares of its common stock on December 22, 1994, with an exercise price of 35 cents per share. The Company issued 180,000 and 90,000 shares of its common stock on December 22, 1994 and May 4, 1995, respectively, to the noteholder in addition to paying $30,600 on May 5, 1995. This payment of $30,600 on May 5, 1995 includes a principal payment of $25,000 and interest covering the period June, 1992 to March, 1995 in the amount of $5,600. The 180,000 and 90,000 shares issued to the noteholder at $.01 were consideration for indefinitely extending the repayment and recorded as a financing expense which is included in selling, general and administrative expense. F-7 TASTY FRIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1996 AND 1995 6. Note Payable, Shareholder/Officer: Represents the unsecured note from an existing shareholder/officer of the Company which bears interest at the rate of 8% per annum and is due and payable on demand. The Company reduced this note to $50,000 with a principal payment of $79,947 on May 1, 1995. In addition to the principal payment on May 1, 1995 of $79,947, the Company also paid interest in the amount of $9,576.14. 7. Unearned Revenue: During the year ended January 31, 1995, a distributor who had paid $10,000 to the Company for the rights to a distributorship, forfeited its rights in the distributorship. The remaining $5,000 in forfeited distributor deposits since inception of the Company occurred during the year ended January 31, 1994 when a distributor forfeited its rights to a distributorship. On September 5, 1995, the Company issued 1,000,000 shares of its common stock to repurchase the Canadian distributorship rights which the Company has shown as unearned revenue in the amount of $100,000. 8. Related Party Transactions: The Company paid salary to Mr. Edward Kelly, the president and director, during the fiscal year ended January 31, 1996 totaling $160,000. The Company also issued an aggregate of 2,184,127 shares of common stock (in lieu of cash compensation) to Mr. Edward Kelly during September, 1995 and October, 1996 for his services totaling $20,000. During the year ended January 31, 1995, the Company paid consulting fees to Mr. Edward Kelly of $49,000. The Company also issued 960,000 and 500,000 shares of common stock to Mr. Edward Kelly and Mr. Gary Arzt, respectively, for their services. These shares of common stock amounted to $9,600 for Mr. Edward Kelly for his services during the period prior to his becoming president in June, 1994 and $22,500 for Mr. Gary Arzt for his services as president from September, 1992 to June, 1993. Mr. Gary Arzt was the Company's chairman of the board until June 1, 1996. During the year ended January 31, 1994, the Company settled a lawsuit with Mr. Abramson and Mr. Balan, former officers of Adelaide Holdings, Inc., whereby they returned 3,145,000 shares of previously issued common stock to the Company. 9. Commitments and Contingencies: During the years ended January 31, 1996 and 1995, the Company paid $17,400 and $9,600, respectively, for the rental of office space. The Company represented that they will continue leasing this office space at a monthly rental of $1,650 until May 31, 1997. F-8 TASTY FRIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1996 AND 1995 10. Issuance of Common Stock: 44,773,502 total shares of common stock were issued during the year ended January 31, 1996. 36,415,000 shares were sold in private placements by the Company, 6,733,502 shares were issued for payment of advertising, marketing, consulting and legal services totaling $449,215, 625,000 shares were issued for a $50,000 loan conversion to common stock and 1,000,000 shares were issued for the repurchase of the Canadian distributorship rights (see Note 6). 5,281,621 total shares of common stock were issued during the year ended January 31, 1995. 3,129,999 shares were sold in private placements by the Company and 2,151,622 shares were issued for payment of advertising, marketing, consulting and legal services totaling $143,310. 11. Litigation: Former officers of the Company caused the Company to guarantee a lease for another corporation owned by them. The other corporation breached its lease obligation causing the landlord to assert a claim against the Company as guarantor for an amount due approximating $110,000. In October, 1994 the Company, without admitting any liability, settled the litigation assessment by paying the landlord $76,000. Upon payment of the $76,000, the Company was released as guarantor of the lease. On October 25, 1994 the Company received a copy of the award of the arbitrator in the American Arbitration Association matter of California Food & Vending, Inc. (CFV) vs. Tasty Fries, Inc. et.al. An award was rendered against the Company in the aggregate amount of $279,500 for domestic and international distribution fees owed to the plaintiff and $249,500 in compensatory damages. The award and compensatory damages totaling $529,000 have been recorded in the financial statements as of October 31, 1994. Payment (pursuant to a settlement agreement which supersedes the award) began in February, 1995 and was satisfied in full in May, 1996. The arbitration award also ordered (a) the enforcement of the terms of the Memorandum of Understanding dated March 17, 1992 and Joint Venture Agreement dated May 14, 1991 and (b) the issuance of an option to CFV for the purchase of 2,000,000 shares of the Company's common stock at a exercise price of $2.00 per share through March 17, 1997. In general, the terms provide for the payment by the Company of certain royalties, fees and profits to CFV in connection with future sales of Company vending machines and related products. The royalties, fees and profits payable in the future to CFV could become material, but there is no way to assign a dollar figure to this payable since it will be based on future Company sales. The Company is required to pay to CFV royalties of $350 per machine for the first 500 machines sold and 35% of the gross profit for machines sold thereafter. The Company will also have to pay CFV $.25 for each pound of potato product sold. These royalties will be expensed by the Company when incurred. F-9 TASTY FRIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1996 AND 1995 11. Litigation (continued): In connection with the foregoing, an award was entered in favor of cross-claimant, which requires, among other things, that the Company issue 1,000,000 shares of unrestricted common stock to the cross-claimant. These 1,000,000 shares of common stock were accounted for in the financial statements at market value at the time of the award (October 25, 1994). The shares were not issued by the Company until June, 1996. On January 5, 1995, the arbitrator in the case of California Food and Vending, Inc. (CFV) vs. the Company awarded CFV and cross-claimant legal fees amounting to $94,963 and $4,099, respectively. In addition, CFV was awarded one proto-type vending machine, which had a value of $7,000. The legal fees and the proto-type machine, totaling $106,062 were recorded in the financial statements. Payment pursuant to a settlement agreement which supersedes the award began in February, 1995 and was satisfied in full in May, 1996. On March 15, 1996, the Federal District Court for the Central District of California issued a Temporary Protective Order (TPO) against the Company since the Company defaulted on their February, 1996 installment payment to CFV. The TPO provided that any monies received by the Company currently, were to be paid to CFV until all monies due CFV were paid in full. The Company satisfied, in full, the CFV judgment in April and May, 1996 and rendered the TPO void. On May 23, 1995, an alleged former agent of the Company instituted a lawsuit against the Company and its former president Gary Arzt for breach of contract, quantum meruit, breach of verbal contract and requested damages in excess of $15,000 for unpaid commissions. The Company and Mr. Arzt responded to the lawsuit on September 29, 1995 denying the allegations. No date for trial has been set and the Company believes that the lawsuit is without merit and intends to vigorously defend this matter. Management and legal counsel believe that there will be no liability arising from this lawsuit. On January 15, 1996, a lawsuit was instituted alleging breach of contract, fraudulent inducement and misrepresentation, and violation of New Jersey law relating to consumer contracts. A settlement of this lawsuit occurred in July, 1996 and the Company agreed to register shares of the Company's common stock. This registration has not occurred and these shares will be recorded in the financial statements at fair market value at time of issuance. No provision has been recorded at the balance sheet date since the value of these shares to be issued is undeterminable and will not materially affect the Company's financial position. F-10 TASTY FRIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1996 AND 1995 12. Subscriptions receivable: In September, 1995, the Company entered into an agreement with Acumen Services, Ltd., an off-shore Abaco, Bahamas company, to purchase an aggregate of 21,500,000 shares of common stock at $.10 per share payable pursuant to a promissory note providing for payment upon the commencement of commercial production of the machine. The Company received $80,000 in December, 1995 from an unrelated third party who was issued shares of common stock. The balance of the remaining shares were canceled and returned to the Company's treasury in May, 1996 as a result of a dispute between the Company and Acumen. In January, 1996, the Company issued 1,000,000 shares to a third party individual investor for $50,000 with $28,000 cash received in late January, 1996 and the remaining $22,000 cash received in the middle of February, 1996. 13. Subsequent Events: In April, 1996 the Company borrowed $100,000 from M. Shankman Comm., Inc. and subsequently forwarded this money to CFV in partial satisfaction of the TPO. These borrowed monies are intended to be repaid by the Company during the fiscal year ending January 31, 1997 including interest at 10% per annum. On April 30, 1996, the Company received $500,000 in financing from an investor, which enabled the Company to satisfy the CFV Temporary Protective Order and will allow the Company to facilitate the production of its vending machine. Additional financing of $750,000 was obtained on May 31, 1996. In May, 1996, 10,000,000 shares of the Company's restricted common stock were issued to an investor at $.05 per share for $500,000. The Company issued an additional 15,000,000 shares of its restricted common stock at $.05 per share upon receipt of $750,000. 14. Common Stock Option Plan: The Company adopted incentive and nonqualified stock option plans for employees effective as of September 18, 1995. The plan also provides for stock options to be issued to non-employee directors based upon a formula set forth in the document. The incentive stock option plan is intended to qualify under Section 422 of the Internal Revenue Code. Under the terms of the plan, options to purchase common stock are granted at not less than the estimated fair market value at the date of the grant and are exercisable during specified future periods. There were no options granted as of January 31, 1996 to any executive officers, but non-employee directors received options to purchase 83,332 shares of common stock at an exercise price of $.12 per share. Adoption of SFAS 123 by the Company would require an expense of $9,999 in directors fees to be accrued for the 83,332 options at the fair value of $.12 on grant date. F-11
TASTY FRIES, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS ASSETS OCTOBER 31, JANUARY 31, 1996 1996 ----------- ----------- (UNAUDITED) Current Assets: Cash $ 27,747 $ 5,273 Machine 70,000 70,000 Loans receivable - officer 50,000 50,000 ------------------------------------ Total current assets 147,747 125,273 Property and equipment, net 25,088 30,515 ------------------------------------ $ 172,835 $ 155,788 =========== ========== LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current Liabilities: Note payable $ 25,000 $ 25,000 Note payable, shareholder/officer 50,000 50,000 Accounts payable and accrued expenses 669,686 106,269 Litigation settlements payable 443,014 ------------------------------------ Total current liabilities 744,686 624,283 ------------------------------------ Unearned revenue 376,000 356,000 ----------- ---------- Stockholders' Deficiency: Common stock, $.01 par value; authorized 100,000,000 shares; issued and outstanding 93,963,594 shares at October 31, 1996 and 77,000,495 at January 31, 1996 939,636 770,005 Additional paid-in capital 4,820,340 5,591,470 Deficit accumulated in development stage (6,707,827) (5,093,970) ------------------------------------- (947,851) 1,267,505 Subscriptions receivable (2,092,000) (947,851) (824,495) ------------------------------------- $ 172,835 $ 155,788 ====================================
F-12
TASTY FRIES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995 (Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED 1995 1996 1995 1996 ---- ---- ---- ---- Revenues $ 0 $ 0 $ 0 $ 478 ------------ ------------ ------------ ------------- Costs and expenses: Research, machine and product development 17,385 7,384 22,113 587,006 Selling, general and administrative 314,025 364,068 771,579 1,020,925 ------------------------------------------------------------------- 331,410 371,452 793,692 1,607,931 ------------------------------------------------------------------- Net loss before interest (331,410) (371,452) (793,692) (1,607,453) Interest expense 1,621 1,910 25,197 6,404 -------------------------------------------------------------------- Net loss $(333,031) $(373,362) $(818,889) $(1,613,857) ============================= ========= =========== Net loss per share of common stock $(.01) $(.01) $(.02) $( .02) ====== ====== ====== ======= Weighted average shares outstanding 55,625,617 93,963,594 41,151,847 83,068,472 ============ ============ ============ ===========
F-13
TASTY FRIES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) FOR THE NINE MONTHS ENDED OCTOBER 31, 1996 (Unaudited) TOTAL STOCKHOLDERS' COMMON PAID-IN RETAINED EQUITY STOCK CAPITAL EARNINGS (DEFICIENCY) ------------------------------------------------------------------- Balance, February 1, 1996 $770,005 $5,591,470 $(5,093,970) $1,267,505 Redemption of 20,700,000 shares issued to Acumen Services, Ltd. in September, 1995 (207,000) (1,863,000) (2,070,000) Issued 37,163,100 shares 361,631 1,031,870 1,393,501 Issued 1,500,000 shares for services 15,000 60,000 75,000 Net loss for nine months (1,613,857) (1,613,857) ----------------------------------------------------------------------- $939,636 $4,820,340 $(6,707,827) $ (947,851) ====================================================================
F-14
TASTY FRIES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995 (Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED 1995 1996 1995 1996 ---------------------------------------------------------------- Cash flows from operating activities: Net loss $ (333,031) $(373,362) $ (818,889) $(1,613,857) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 1,580 1,809 4,740 5,427 Issuance of common stock for services 246,960 421,714 75,000 Changes in assets and liabilities: Other assets (225,000) Unearned revenue (100,000) (80,000) 20,000 Accounts payable and accrued expenses (222,448) 99,902 (446,692) 120,404 ---------------------------------------------------------------- Net cash used by operating activities (406,939) (271,651) (1,144,127) (1,393,026) ---------------------------------------------------------------- Net cash flows used by investing activities: Purchase of property and equipment -0- -0- (5,604) -0- ---------------------------------------------------------------- Cash flows from financing activities: Issuance of common stock 415,000 1,314,500 1,415,500 Loan receivable, officer (50,000) Repayment of note payable (25,000) Note payable shareholder/officer (79,947) ---------------------------------------------------------------- Net cash provided by financing activities 415,000 1,159,553 1,415,500 ---------------------------------------------------------------- Net increase (decrease) in cash 8,061 (271,651) 9,822 22,474 Cash, beginning balance 2,066 299,398 305 5,273 ---------------------------------------------------------------- Cash, ending balance $ 10,127 $ 27,747 $ 10,127 $ 27,747 ================================================================ Supplemental disclosure of cash flow information: Cash paid for interest $ 360 $ 20 $ 22,636 $ 1,363 ================================================================ Supplemental disclosures of non-cash financing activities: Issuance of common stock for services $ 246,960 $ -0- $ 421,714 $ 75,000 ================================================================ Conversion of loan to common stock $ -0- $ -0- $ 50,000 $ -0- ================================================================
F-15 TASTY FRIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995 (Unaudited) 1. Basis of presentation: The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended October 31, 1996 are not necessarily indicative of the results that may be expected for the year ended January 31, 1997. The unaudited financial statements should be read in conjunction with the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended January 31, 1996. 2. Description of Business and Significant Accounting Policies: The Company is a development stage company since it has not completed designing, testing, and manufacturing its sole product, a vending machine which will cook and dispense french fries. The Company has incurred research and development costs from inception to October 31, 1996 totaling $1,346,110. The Company had entered into a manufacturing requirements agreement with Premier Design, Inc., a company which manufactures and assembles a variety of high technology equipment. The Company has determined that Premier will be unable to meet production requirements. The Company entered into an agreement with Premier to pay them $650,000 in research and development costs ($100,000 paid July, 1996; $550,000 due as of October 31, 1996). In exchange for 25% of research and development costs paid with the remaining balance paid over twelve months, Premier will assign one-half interest of the patents associated with the machine to Tasty Fries, Inc. This new agreement was executed by the Company to avoid significant costs from potential litigation proceedings and further delays in production of the machine. The additional research and development costs are reflected in the nine months loss figure. The President of the manufacturing company is a former Director of Tasty Fries, Inc. and the President of Tasty Fries, Inc. owns 50% of the manufacturing company. In June, 1996, the Company entered into a new manufacturing agreement with S&H Electronics, Inc. (a Pennsylvania corporation) to assemble the machines after the tooling phase is completed. From the corporation's date of inception, October 18, 1985, to date it has engaged in various business activities that were unprofitable. The Company has no revenues from operations, but does have immaterial revenues from operation of beta test machines. Its ability to continue as a going concern is dependent on the continuation of equity financing to fund the expenses related to successfully marketing the vending machine and resolving existing litigation (Note 5). F-16 TASTY FRIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995 (Unaudited) 2. Description of Business and Significant Accounting Policies (continued): Management is currently in negotiations with three separate funding sources to provide the working capital necessary to pay Premier and fund the tooling of the Machine. These funding sources will also assist the Company in manufacturing the first 50 machines and bring them to market, at which time the Company believes that sufficient cash will be generated to support its operations. Although management cannot assure the ultimate success of the above plan, it is reasonably confident that it will enable the Company to continue its business and grow modestly. 3. Unearned Revenue: In May 1996 the Company received payments totaling $20,000 for the rights to distribute its machines in Israel, Egypt and Jordan. 4. Issuance of Common Stock: There were no additional shares of common stock issued during the quarter ended October 31, 1996. 5. Litigation: Former officers of the Company caused the Company to guarantee a lease for another corporation owned by them. The other corporation breached its lease obligation causing the landlord to assert a claim against the Company as guarantor for an amount due approximating $110,000. In October, 1994, the Company, without admitting any liability, settled the litigation assessment by paying the landlord $76,000. Upon payment of the $76,000, the Company was released as guarantor of the lease. On October 25, 1994, the Company received a copy of the award of the arbitrator in the American Arbitration Association matter of California Food & Vending, Inc. (CFV) vs. Tasty Fries, Inc. et.al. An award was rendered against the Company in the aggregate amount of $279,500 for domestic and international distribution fees owed to the plaintiff and $249,500 in compensatory damages. The award and compensatory damages totaling $529,000 have been recorded in the financial statements as of October 31, 1994. Payment (pursuant to a settlement agreement which supersedes the award) began in February 1995 and was satisfied in full in May, 1996. F-17 TASTY FRIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995 (Unaudited) 5. Litigation (continued): The arbitration award also ordered (a) the enforcement of the terms of the Memorandum of Understanding dated March 17, 1992 and Joint Venture Agreement dated May 14, 1991 and (b) the issuance of on option to CFV for the purchase of 2,000,000 shares of the Company's common stock at an exercise price of $2.00 per share through March 17, 1997. In general, the terms provide for the payment by the Company of certain royalties, fees and profits to CFV in connection with future sales of Company vending machines and related products. The royalties, fees and profits payable in the future to CFV could become material, but there is no way to assign a dollar figure to this payable since it will be based on future Company sales. The Company is required to pay to CFV royalties of $350 per machine for the first 500 machines sold and 35% of the gross profit for machines sold thereafter. The Company will also have to pay CFV $.25 for each pound of potato product sold. These royalties will be expensed by the Company when incurred. In connection with the foregoing, an award was entered in favor of cross-claimant, which requires, among other things, that the Company issue 1,000,000 shares of unrestricted common stock to the cross-claimant. These 1,000,000 shares of common stock were accounted for in the financial statements at market value at the time of the award (October 25, 1994). The shares were not issued by the Company until June, 1996. On January 5, 1995 the arbitrator in the case of California Food and Vending, Inc. (CFV) vs. the Company awarded CFV and cross-claimant legal fees amounting to $94,963 and $4,099, respectively. In a addition, CFV was awarded one proto-type vending machine, which had a value of $7,000. The legal fees and the proto-type machine, totaling $106,062 were recorded in the financial statements. Payment pursuant to a settlement agreement which supersedes the award began in February, 1995 and was satisfied in full in May, 1996. On March 15, 1996, the Federal District Court for the Central District of California issued a Temporary Protective Order (TPO) against the Company since the Company defaulted on their February, 1996 installment payment to CFV. The TPO provided that any monies received by the Company currently, were to be paid to CFV until all monies due CFV were paid in full. The Company satisfied, in full, the CFV judgment in April and May, 1996 and rendered the TPO void. On May 23, 1995, an alleged former agent of the Company instituted a lawsuit against the Company and its former president, Gary Arzt, for breach of contract, quantum meruit, breach of verbal contract and requested damages in excess of $15,000 for unpaid commissions. The Company and Mr. Arzt responded to the lawsuit on September 29, 1995 denying the allegations. No date for trial has been set and the Company believes that the lawsuit is without merit and intends to vigorously defend this matter. Management believes that there will be no liability arising from this lawsuit. F-18 TASTY FRIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995 (Unaudited) 5. Litigation (continued): On January 15, 1996, a lawsuit was instituted alleging breach of contract, fraudulent inducement and misrepresentation and violation of New Jersey law relating to consumer contracts. A settlement of this lawsuit occurred in July, 1996 and the Company agreed to register shares of the Company's common stock. This registration has not occurred and these shares will be recorded in the financial statements at fair market value at time of issuance. No provision has been recorded at the balance sheet date since the value of these shares to be issued is undeterminable and will not materially affect the Company's financial position. In September 1995, the Company entered into an agreement with Acumen Services, Ltd., an off-shore Abaco, Bahamas company, to purchase an aggregate of 21,500,000 shares of common stock at $.10 per share payable pursuant to a promissory note providing for payment upon the commencement of commercial production of the machine. The Company received $80,000 in December, 1995 from an unrelated third party who was issued shares of common stock. The balance of the remaining shares were canceled and returned to the Company's treasury in May, 1996 as a result of a dispute between the Company and Acumen. In January, 1996, the Company issued 1,000,000 shares to a third party individual investor for $50,000 with $28,000 cash received in late January, 1996 and the remaining $22,000 cash received in the middle of February, 1996. F-19 =============================================================================== NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING BEING MADE HEREBY NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. -------------------- TABLE OF CONTENTS PAGE ---- PROSPECTUS SUMMARY.............................................................. SELECTED FINANCIAL DATA......................................................... RISK FACTORS.................................................................... USE OF PROCEEDS................................................................. DIVIDEND POLICY................................................................. CAPITALIZATION.................................................................. DILUTION........................................................................ MANAGEMENT'S DISCUSSION AND ANALYSIS - PLAN OF OPERATION............................................................. BUSINESS........................................................................ LITIGATION...................................................................... EMPLOYEES....................................................................... PROPERTIES...................................................................... MARKET FOR COMMON EQUITY........................................................ MANAGEMENT...................................................................... EXECUTIVE COMPENSATION.......................................................... PRINCIPAL SECURITYHOLDERS....................................................... CERTAIN TRANSACTIONS............................................................ SELLING SECURITYHOLDERS......................................................... DESCRIPTION OF SECURITIES....................................................... PLAN OF DISTRIBUTION............................................................ LEGAL MATTERS................................................................... EXPERTS......................................................................... ADDITIONAL INFORMATION.......................................................... INDEX TO FINANCIAL STATEMENTS................................................F-1 UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. =============================================================================== =============================================================================== 5,397,927 SHARES TASTY FRIES, INC. COMMON STOCK ========== PROSPECTUS ========== , 1997 =============================================================================== PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Article XVI of the Company's Articles of Incorporation, as amended, provides that no director or officer shall be liable to the Company or its stockholders for monetary damages for any breach of fiduciary duty by such person as a director or officer. Notwithstanding the foregoing sentence, a director or officer shall be liable to the extent provided by applicable law, (i) for acts or omissions which involve intentional misconduct, fraud or a knowing violation of law, or (ii) for the payment of dividends in violation of Section 78.300 of the Nevada General Corporation Law ("NRS"). The provisions hereof shall not apply to or have any effect on the liability of any officer or director of the Company for or with respect to any acts or omissions of such person occurring prior to such amendment on July 29, 1991. The NRS provide for indemnification where a person who was or is a party or is threatened to be made a party to any threatened, pending or contemplated action, suit or proceeding, whether civil, criminal, administrative or investigative (other than action by or in right of a corporation), by reason of fact he is or was a Director, Officer, employee or agent of a corporation or serving another corporation at the request of the corporation, against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement, actually and reasonably incurred by him if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation and, with respect to criminal action or proceeding, had no reasonable cause to believe his conduct unlawful. Lack of good faith is not presumed from settlement or nolo contendere plea. Indemnification of expenses (including attorneys' fees) allowed in derivative actions except in the case of misconduct in performance of duty to the corporation unless the Court decides indemnification is proper. To the extent any such person succeeds on the merits or otherwise, he shall be indemnified against expenses (including attorneys' fees). Determination that the person to be indemnified met applicable standards of conduct, if not made by the Court, is made by the Board of Directors by majority vote of a quorum consisting of the Directors not party to such action, suit or proceeding or, if a quorum is not obtainable or a disinterested quorum so directs, by independent legal counsel or by the stockholders. Expenses may be paid in advance upon receipt of undertakings to repay unless it shall ultimately be determined that he is entitled to be indemnified by the corporation. The Corporation may purchase indemnity insurance. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Act") may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, or otherwise, the Company has been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-1 ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. SEC Filing Fee $ 235.96 --------- NASD Filing Fee $ 577.87 --------- Transfer Agent Fee* $ 750.00 --------- Printing Costs (including stock certificates)* $ 2,500.00 --------- Legal fees and expenses* $70,000.00 --------- Accounting fees and expenses* $20,000.00 --------- Blue Sky fees and expenses* $ 0.00 --------- TOTAL $94,063.83 ========= - ------------ * Indicates expenses that have been estimated for the purpose of this filing. II-2 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. The following securities were sold by the Company within the past three (3) years and prior to the date of filing of this Registration Statement. There were no underwriting discounts or commissions paid in connection with the issuance of any of these securities. The following share amounts give effect to the 1 for 20 reverse stock split effective December 23, 1996.
NAME SHARES SOLD AMOUNT OF DATE OF ---- ----------- CONSIDERATION SALE CASH/OTHER ---- ---------- Acumen Services, Ltd.(1) 1,075,000 (1) 9/5/95 Samuel Balan 50,000 Court Award 10/24/94 Bundy & Associates, Inc. 5,000 $35,000 7/19/94 Eric Cohen 9,000 Loan to Company 12/21/94 Eric Cohen 4,500 Loan to Company 5/4/95 Robert Crowder 50,000 $100,000 11/20/94 Warren Dean 6,667 $35,000 7/20/94 Echo Partnership 6,667 $35,000 7/18/94 G.D. Fader 6,667 $35,000 7/19/94 Peter R. Fader 12,500 $20,000 7/19/94 Chester A. Harberson 5,000 Loan to Company 2/7/95 Chester A. Harberson 31,250 $50,000 5/10/95 Chester A. Harberson 31,250 $50,000 8/8/95 International Tasty Fries, Inc. 15,000 Loan to Company 3/16/95 International Tasty Fries, Inc. 500,000 Conversion of Loan 4/12/95 and $625,000 Tony Jones 8,824 Consulting Services 11/20/94 Dr. Albert Kofsky 5,000 $20,000 9/15/94 Daniel & Juliana O'Connor, 5,000 $87,500 9/6/94 JTWROS Mickey Ogden(2) 50,000 $50,000 10/10/95 John L. Patten 5,000 $15,000 9/27/94 PMGN, Inc. 50,000 $100,000 10/3/95 Jennifer Portman 2,567 Consulting Services 9/30/94 Jennifer Portman 5,715 Consulting Services 10/31/94 II-3 T. Kent Rainey 6,650 $22,500 1/18/94 Morton J. Robinson & Jane 5,000 $35,000 4/26/94 Robinson, TE Whetstone Ventures Corp., Inc. 500,000 $500,000 4/30/96 Whetstone Ventures Corp., Inc. 750,000 $750,000 5/31/96 Jurgen A. Wolf(2)(3) 50,000 Reacquisition of 9/5/96 Distributorship Jody L. Zoto 1,250 $5,000 9/15/94 Louis Zoto 5,000 $20,000 9/15/94 Stacey Desmond Zoto 1,250 $5,000 9/15/94 Thomas M. Zoto 3,750 $15,000 9/25/94
- ------------ (1) The consideration for these shares was a minimum of $.10 per share; however, only 150,000 post-split shares were sold. Of the balance, 730,000 post-split shares were canceled in May 1996 and the balance of 195,000 post-split shares are the subject of ongoing litigation. (2) Sold pursuant to Regulation S of the Securities Act of 1933, as amended. (3) Transferred to Adelaide Vending (Canada) Ltd. for reacquisition by the Company of the Canadian distributorship. Mr. Wolf is a director of Adelaide Vending and its majority stockholder. Unless otherwise indicated, the sales set forth above are claimed to be exempt from registration with the Securities and Exchange Commission pursuant to Section 4(2) of the Securities Act of 1933, as amended, as transactions by an issuer not involving any public offering, because (i) said transactions involved the issuance and sale by the Company of securities to financially sophisticated individuals who at the time of purchase were fully aware of the Company's activities, as well as its business and financial condition, (ii) there was no advertising for or general solicitation of investors, and (iii) when said securities were acquired for investment purposes, investors understood the ramifications of same. All certificates representing the shares issued by the Company as set forth herein, which are currently outstanding, have been properly legended. II-4 ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBIT NO. DESCRIPTION - ----------- ----------- 3.0 Articles of Incorporation, as amended** 3.1 Articles of Amendment to Articles of Incorporation of Tasty Fries, Inc. dated December 16, 1996 changing the authorized common shares and the par value* 3.2 By-Laws** 4.0 Form of Warrant Agreement** 5.0 Opinion of Kipnis Tescher Lippman Valinsky & Kain as to the legality of the securities being registered for sale** 10.0 Employment Agreement dated as of October 1, 1994 by and between Tasty Fries, Inc. and Edward C. Kelly* 10.1 Amendment to Employment Agreement between Tasty Fries, Inc. and Edward C. Kelly, effective as of May 1, 1995* 10.2 Forrest Financial Corporation Vendor Agreement, as amended, dated November 20, 1996 with Tasty Fries, Inc.** 10.3 Manufacturing Agreement between Tasty Fries, Inc. and S&H Electronics, Inc. dated August 22, 1996** 10.4 1995 Stock Option Plan* 10.5 Stock Purchase Agreement between Whetstone Ventures Corporation, Inc. and Tasty Fries, Inc. dated April 30, 1996* 10.6 Agreement between the Company and Whetstone Ventures Corporation, Inc. dated April 30, 1996** 10.7 Distribution Agreements** 23.0 Consent of Schiffman Hughes & Brown** 24.1 Consent of Kipnis Tescher Lippman Valinsky & Kain (included in Exhibit 5.0)** 27.0 Financial Data Schedule*
- ------------ * Previously filed ** Filed herewith II-5 ITEM 28. UNDERTAKINGS. The undersigned Company hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (a) To include any Prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Act"); (b) To reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (c) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) For purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in the form of Prospectus filed by the Company pursuant to Rule 424(b)(i) or (4) or 497(h) under the Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (5) For the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-6 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned in the City of Blue Bell, State of Pennsylvania, on April 28, 1997. TASTY FRIES, INC. By /S/ EDWARD C. KELLY --------------------------------------- Edward C. Kelly, Chief Executive Officer and Principal Financial Officer In accordance with the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement was signed by the following persons in the capacities and on the dates stated. SIGNATURE TITLE DATE --------- ----- ---- /S/EDWARD C. KELLY President, Chief April 28, 1997 - ---------------------------- Executive Officer, Edward C. Kelly Treasurer, and Chairman of the Board /S/LEONARD J. KLARICH Executive Vice April 28, 1997 - ---------------------------- President, Secretary Leonard J. Klarich and Director /S/JURGEN A. WOLF Director April 28, 1997 - ---------------------------- Jurgen A. Wolf /S/IAN LAMBERT Director April 28, 1997 - ---------------------------- Ian Lambert /S/KURT R. ZIEMER Director April 28, 1997 - ---------------------------- Kurt R. Ziemer II-7 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ----------- ----------- 3.0 Articles of Incorporation, as amended 3.2 By-Laws 4.0 Form of Warrant Agreement 5.0 Opinion of Kipnis Tescher Lippman Valinsky & Kain as to the legality of the securities being registered for sale 10.2 Forrest Financial Corporation Vendor Agreement, as amended, dated November 20, 1996 with Tasty Fries, Inc. 10.3 Manufacturing Agreement between Tasty Fries, Inc. and S&H Electronics, Inc. dated August 22, 1996 10.6 Agreement between the Company and Whetstone Ventures Corporation, Inc. dated April 30, 1996 10.7 Distribution Agreements 23.0 Consent of Schiffman Hughes & Brown
EX-3.0 2 EXHIBIT 3.0 FILED IN THE OFFICE OF THE SECRETARY OF STATE STATE OF NEVADA OCT 18 1985 NO. 7014-85 ARTICLES OF INCORPORATION OF Y.O. SYSTEMS, LTD. We the undersigned, being each of the original incorporators herein named, for the purpose of forming a corporation to do business both within and without the State of Nevada, and in pursuance of the corporation laws of the State of Nevada, being Chapter 78 of the Nevada Revised Statutes, do make and file these Articles of Incorporation hereby declaring and certifying that the facts herein stated are true: 1. The name of the corporation is Y. O. SYSTEMS, LTD. 2. Its principal office in the County of Washoe, State of Nevada is located at 350 South Center Street, Suite 404, Reno, Nevada 89501. The name and address of its Resident Agent is Elliott R. Pearson, 350 South Center Street, Suite 404, Reno, Nevada 89501. 3. The purposes for which the corporation is organized are to engage in any activity or business not in conflict with the laws of the State of Nevada or of the United States of America, and without limiting the generality of the foregoing, specifically: 1. To have and to exercise all the powers now or hereafter conferred by the laws of the State of Nevada upon corporations organized pursuant to the laws under which the corporation is organized and any and all acts amendatory thereof and supplemental thereto. 2. To discount and negotiate promissory notes, drafts, bill of exchange and other evidence of debts, and to collect for other money due them on notes, checks, drafts, bill of exchange, commercial paper and other evidence of indebtedness. 3. To purchase or otherwise acquire, own, hold, lease, sell, exchange, assign, transfer, mortgage, pledge or otherwise dispose of, to guaranty, to invest, trade, and deal in and with personal property of every class and description. 4. To enter into any kind of contract or agreement, cooperative or profit sharing plan with its officers or employees that the corporation may deem advantageous or expedient or otherwise to reward or pay such persons for their services as the directors may deem fit. 5. To purchase, lease, or otherwise acquire, in whole or in part, the business, the good will, rights, franchises and property of every kind, and to undertake the whole or any part of the assets or liabilities, of any person, firm, association, non-profit or profit corporation, or own property necessary or suitable for its purposes, and to pay the same in cash, in the stocks or bonds of this company or otherwise, to hold or in any manner dispose of the whole or any part of the business or property so acquired and to exercise all of the powers necessary or incidental to the conduct of such business. 6. To lend or borrow money and to negotiate and make loans, either on its own account or as agent, or broker for others. 7. To enter into, make, perform and carry out contracts of every kind and for any lawful purpose, without limit as to amount with any person, firm, association, cooperative profit or non-profit corporation, municipality, State or Government or any subdivision, district or department thereof. 8. To buy, sell, exchange, negotiate, or otherwise deal in, or hypothecate securities, stocks, bonds, debentures, mortgages, notes or other collaterals or securities, created or issued by any corporation wherever organized including this corporation, within such limits as may be provided by law, and while owner of any such stocks or other collaterals to exercise all rights, powers and privileges of ownership, including the right to vote the same; to subscribe for stock of any corporation to be organized, other than to promote the organization thereof. 9. To purchase or otherwise acquire, own, hold, lease, sell, exchange, assign, transfer, mortgage, pledge, license, or otherwise dispose of any letters, patents, copyrights, or trademarks of every class and description. 10. To do any and all other such acts, things, business or businesses in any manner connected with or necessary, incidental, convenient or auxiliary to do any of these objects hereinbefore enumerated, or calculated, directly or indirectly, to promote the interest of the corporation; and in carrying on its purposes, or for the purpose of obtaining or furthering any of its business, to do any and all acts and things, and to exercise any and all other powers which a co-partnership or natural person could do or exercise, and which now or hereafter may be authorized by law, here and in any other part of the world. 11. The several clauses contained in this statement of powers shall be construed as both purposes and powers. And the statements contained in each of these clauses shall be in no way limited or restricted, by reference to or inference from, the terms of any other clauses, but shall be regarded as independent purposes and powers: and no recitations, expression or declaration of specific or special powers or purposes herein enumerated shall be deemed to be exclusive; but is hereby expressly declared that all other lawful powers not inconsistent herewith, are hereby included. 4. The aggregate number of shares which the corporation shall have authority to issue is 200,000,000. Each share will have a par value of .001. 5. The governing board shall be styled "Directors", and the first Board shall be two (2) in number. So long as all of the shares of the corporation are owned beneficially and of record by either one or two shareholders, the number of directors may be less than three, but not less than the number of shareholders. Otherwise, the number of directors shall not be less than three. Subject to the foregoing limitations, the number of directors shall not be reduced to less than one, and may, at any time or times, be increased or decreased by a duly adopted amendment to these Articles of Incorporation, or in such manner as shall be provided in the By-Laws of the corporation duly adopted by either the Board of Directors or the shareholders. The names and addresses of the first Board of Directors are as follows: DIRECTORS ADDRESS Yolanda Oyler 10056 Suncrest Drive Ogden, Utah 84404 Rebecca Marsh c/o Yolanda Oyler 10056 Suncrest Drive Ogden, Utah 84404 6. All shares are to be non-assessable. 7. The names and addresses of the incorporators of the Corporation are as follows: NAME ADDRESS Elliott R. Pearson 350 S. Center Street, Suite 404 Reno, Nevada 89501 8. The period of its duration is perpetual. 9. Provisions for the regulation of the internal affairs of the corporation are contained in the By-Laws of this Corporation. DATED this 18 day of Oct., 1985. /S/ELLIOTT R. PEARSON --------------------- ELLIOTT R. PEARSON STATE OF NEVADA ) ) ss County of Washoe ) On this 18th day of October, 1985, personally appeared before me, a notary public ELLIOTT R. PEARSON , who acknowledged that he executed the above instrument. /S/NOTARY PUBLIC --------------------- Notary Public FILED FILING FEE: $ 50.00 IN THE OFFICE OF THE BY: CALVO & GREENE SECRETARY OF STATE OF THE GATEWAY CENTRE STATE OF NEVADA PENTHOUSE SUITE 800 FEB 27 1987 1975 EAST SUNRISE BLVD. [illegible] FORT LAUDERDALE, FL 33304 [illegible] No. 7014-85 Certificate of Amendment of Articles of Incorporation of Y.O. Systems, Ltd. Pursuant to the provisions of Nevada Revised Statutes, Title 7, Chapter 78, the undersigned officers do hereby certify: FIRST: The name of the Corporation is Y.O. Systems, Ltd. SECOND: The Board of Directors of the Corporation duly adopted the following resolutions on February 20, 1987. RESOLVED, that it is advisable in the judgment of the Board of Directors of the Corporation that the name of the Corporation that the name of the Corporation be changed, and that, in order to accomplish the same, Article "1" of the Articles of Incorporation be amended to read as follows: "1. The name of the Corporation is Metro Systems, Inc." FURTHER RESOLVED, that notice and special meeting of stockholders having been waived, that a special meeting of stockholders having been waived, and Written Consent in Lieu of Special Shareholder's Meeting by a majority of the stockholders entitled to vote having adopted the above Resolution pursuant to Nevada Revised Statutes, Title 7, Chapter 78, and FURTHER RESOLVED, that, because the said stockholders adopted the aforesaid proposed amendment by a written consent in favor thereof signed by the majority of stockholders, without a meeting, the Corporation is hereby authorized to make by the hands of it President or a Vice President and by its Secretary or an Assistant Secretary, a certificate setting forth the said amendments and to cause the same to be filed pursuant to the provisions of Nevada Revised Statutes, Title 7, Chapter 78. THIRD: The total number of outstanding shares having voting power of the Corporation is 32,000,000, and the total number of voted entitled to be cast by the holders of all of said outstanding shares is 32,000,000. FOURTH: By the written consent of the majority of stockholders of Y.O. Systems, Ltd., notice of a special meeting was duly waived, the amendment herein certified was adopted by the holders of 24,160,000 shares, which represent 24,160,000 votes, and which constitute at least a majority of all of the voting power of the holders of shares having voting power. Signed on Feb. 24, 1987. Y.O. Systems, Ltd. By: /S/JAMES E. FARRELL ------------------------------ James Farrell - President /S/SHERRIE SCHMIDMAYER ------------------------------ Sherrie Schmidmayer - Secretary STATE OF NEVADA : : ss.: COUNTY OF WASHOE : On Feb. 24, 1987, personally appeared before me, a Notary Public, for the State and County aforesaid, James E. Farrell, as President of the Y.O. Systems, Ltd., who acknowledged that they executed the above instrument. /S/NOTARY PUBLIC ------------------------------ NOTARY PUBLIC My Commission Expires: FILED FILING FEE: $425.00 DF C16138 IN THE OFFICE OF THE EXPEDITE #E014649 SECRETARY OF STATE OF THE THOMAS G. KIMBLE & ASSOCIATES STATE OF NEVADA ATTN: THOMAS G. KIMBLE JUL 30 1991 311 SO. STATE ST., STE. 440 [illegible] SALT LAKE CITY, UT 84111 [illegible] No. 7014-85 ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF METRO SYSTEMS, INC. Pursuant to the applicable provisions of the Nevada Business Corporations Act, the undersigned Corporation adopts the following Articles of Amendment to its Articles of Incorporation by stating the following: FIRST: The present name of the Corporation is Metro Systems, Inc. SECOND: The following amendments to its Articles of Incorporation were adopted by majority vote of shareholders of the Corporation on July 29, 1991 in the manner prescribed by Nevada law. 1. Article I, is amended as follows: ARTICLE I - NAME The name of the corporation (hereinafter called the Corporation) is Adelaide Holdings, Inc. ARTICLE IV - STOCK a. COMMON STOCK. The aggregate number of common shares which the corporation shall have authority to issue is 100,000,000 shares at a par value of $.01 per share. All common stock when issued shall be fully paid and non-assessable. No holder of shares of common stock of the corporation shall be entitled, as such, to any pre-emptive or preferential rights to subscribe to any unissued stock or any other securities which the corporation may now or thereafter be authorized to issue. The Board of Directors of the corporation may, however, at its discretion, by resolution determine that any unissued securities of the corporation shall be offered for subscription solely to the holders of common stock of the corporation or solely to the holders of any class or classes of such stock, in such proportions based on stock ownership as said board at its discretion may determine. Each share of common stock shall be entitled to one vote at stockholders meetings, either in person or by proxy. Cumulative voting in elections of Directors and all other matters brought before stockholders meetings, whether they be annual or special, shall not be permitted. b. PREFERRED STOCK. The Corporation shall have authority to issue 5,000,000 shares of Preferred Stock, $.001 par value per share, with such rights preferences and designations and to be issued in such series as determined by the Board of Directors of the corporation. 2. The Corporation has effectuated a 50 to 1 reverse stock split of its shares of common stock outstanding as of May 10, 1991 reducing said shares from 167,268,600 shares to 3,345,372 shares. Said reverse split to be effective with the commencement of business on July 31, 1991. 3. Article XVI is added as follows: LIABILITY OF OFFICERS AND DIRECTORS: No director or officer shall be liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such person as a director or officer. Notwithstanding the foregoing sentence, a director or officer shall be liable to the extent provided by applicable law, (i) for acts or omissions which involve intentional misconduct, fraud or a knowing violation of law, or (ii) for the payment of dividends in violation of NRS 78.300. The provisions hereof shall not apply to or have any effect on the liability or alleged liability of any officer or director of the corporation for or with respect to any acts or omissions of such person occurring prior to such amendment. THIRD: The number of shares of the Corporation outstanding and entitled to vote at the time of the adoption of said amendment was 167,268,600. FOURTH: The number of shares voted for such amendments was 148,500,000 (89%) and the number voted against such amendment was ___________. Dated this 29th day of July, 1991. METRO SYSTEMS, INC. By: /S/LYNN DIXON ------------------------------ Lynn Dixon, President and Secretary VERIFICATION STATE OF UTAH ) : ss. COUNTY OF SALT LAKE ) The undersigned being first duly sworn, deposes and states: that the undersigned is the Secretary of Metro Systems, Inc., that the undersigned has read the Articles of Amendment and knows the contents thereof and that the same contains a truthful statement of the Amendment duly adopted by the stockholders of the Corporation. /S/LYNN DIXON ------------------------------ Lynn Dixon, Secretary STATE OF UTAH ) : ss. COUNTY OF SALT LAKE ) Before me the undersigned Notary Public in and for the said County and State, personally appeared the President and Secretary of Metro Systems, Inc., a Nevada corporation, and signed the foregoing Articles of Amendment as their own free and voluntary act and deed pursuant to a corporate resolution for the uses and purposes set forth. IN WITNESS WHEREOF, I have set my hand and seal this 29th day of July, 1991. My Commission Expires: /S/THOMAS G. KIMBLE ----------------------------- NOTARY PUBLIC, residing at NOV. 1, 1993 SLC, UT ------------------------------ Received July 30, 1991 Secretary of State FILED IN THE OFFICE OF THE SECRETARY OF STATE OF THE STATE OF NEVADA SEP 28 1992 [illegible] [illegible] No. 7014-85 ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF ADELAIDE HOLDINGS, INC. Pursuant to the applicable provisions of the Nevada Business Corporations Act, Adelaide Holdings, Inc. (the "Corporation") adopts the following Articles of Amendment to its Articles of Incorporation by stating the following: FIRST: The present name of the Corporation is Adelaide Holdings, Inc. SECOND: The following amendment to its Articles of Incorporation was adopted by majority vote of shareholders of the Corporation on September 23rd, 1993 in the manner prescribed by Nevada law. 1. Article I, is amended as follows: NAME. The name of the corporation shall be: Tasty Fries, Inc. THIRD: The number of shares of the Corporation outstanding and entitled to vote at the time of the adoption of said amendment was 18,148,954. FOURTH: The number of shares voted for such amendment was 9,923,206 (55%) and no shares votes against such amendment. DATED this 23rd day of September, 1993. ADELAIDE HOLDINGS, INC. By: /S/JONATHAN DE YOUNG By: /S/CHARLES HALLINAN -------------------------------- ---------------------------- Jonathan De Young, Secretary Charles Hallinan, President STATE OF PENNSYLVANIA ) : ss. COUNTY OF MONTGOMERY ) The undersigned being first duly sworn, deposes and states: that the undersigned are the President and Secretary of Adelaide Holdings, Inc., that the undersigned have read the Articles of Amendment and know the contents thereof and that the same contains a truthful statement of the Amendment duly adopted by the directors and stockholders of the Corporation. /S/JONATHAN DEYOUNG ---------------------------- Jonathan DeYoung, Secretary STATE OF PENNSYLVANIA ) : ss. COUNTY OF MONTGOMERY ) On this 23rd day of September, 1993, personally appeared before me, Charles Hallihan as President and Jonathan DeYoung as Secretary of Adelaide Holdings, Inc., the signers of the foregoing instrument, whose identity is personally known to me or proven on the basis of satisfactory evidence, who voluntarily signed the document in my presence on behalf of said corporation and has taken an oath or affirmation before me duly attesting to the truthfulness of its contents. /S/NOTARY PUBLIC ------------------------- Notary Public EX-3.2 3 EXHIBIT 3.2 BYLAWS OF TASTY FRIES, INC. ARTICLE I - OFFICES The office of the Corporation shall be located in any City and State designated by the Board of Directors. The Corporation may also maintain other offices at such other places within or without the United States as the Board of Directors may, from time to time, determine. ARTICLE II - STOCKHOLDERS 1. ANNUAL MEETING. The annual meeting of the shareholders shall be held if called by the Board of Directors within five months after the close of the fiscal year of the Corporation for the purpose of electing directors, and transacting such other business as may properly come before the meeting. 2. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the president or by the directors, and shall be called by the president at the request of the holders of not less than 10 per cent of all the outstanding shares of the corporation entitled to vote at the meeting. 3. PLACE OF MEETING. The directors may designate any place, either within or without the State unless otherwise prescribed by statute, as the place of meeting for any annual meeting or for any special meeting called by the directors. A waiver of notice signed by all stockholders entitled to vote at a meeting may designate any place, either within or without the state unless otherwise prescribed by statute, as the place for holding such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal office of the corporation. 4. NOTICE OF MEETING. Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than 10 nor more than 50 days before the date of the meeting, either personally or by mail, by or at the direction of the president, or the secretary, or the officer or persons calling the meeting, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. 5. CLOSING OF TRANSFER BOOKS OR FIXING OR RECORD DATE. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or stockholders entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the directors of the corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in anycase, 30 days. If the stock transfer books shall be closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least 15 days immediately preceding such meeting. In lieu of closing the stock transfer books, the directors may fix in advance a date as the record date for any such determination of stockholders, such date in any case to be not more than 45 days and, in case of a meeting of which the particular action requiring such determination of stockholders is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders, or stockholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of stockholders. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof. 6. QUORUM. At any meeting of stockholders 50% of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If less than said number of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. 7. PROXIES. At all meetings of stockholders, a stockholder may vote byproxy executed in writing by the stockholder or by his duly authorized attorney in fact. Such proxy shall be filed withthe secretary of the corporation before or at the time of the meeting. 8. VOTING. Each stockholder entitled to vote in accordance with theterms and provisions of the certificate of incorporation and these by-laws shall be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such stockholders. Upon the demand of any stockholder, the vote for directors and upon any question before the meeting shall be by ballot. All elections for directors shall be decided by majority vote; all other questions shall be decided by majority vote except as otherwise provided by the Certificate of Incorporation or the laws of this State. ARTICLE III - POWER OF DIRECTORS 1. GENERAL POWERS. The business and affairs of the corporation shall be managed by its board of directors. The directors shall in all cases act as a board, and they may adopt such rules and regulations for the conduct of their meetings and the management of the corporation, as they may deem proper, not inconsistent with these by-laws and the laws of this State. 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the corporation shall be a minimum of three and a maximum of twenty-five. Each director shall hold office until the next annual meeting of stockholders and until his successor shall have been elected and qualified. 3. REGULAR MEETINGS. A regular meeting of the directors, shall be held without other notice than this by-law immediately after, and at the same place as, the annual meeting of stockholders. The directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution. 4. SPECIAL MEETINGS. Special meetings of the directors may be called by or at the request of the president or any two directors. The person or persons authorized to call special meetings of the directors may fix the place for holding any special meeting of the directors called by them. 5. NOTICE. Notice of any special meeting shall be given at least 5 days previously thereto by written notice delivered personally, or by telegram or mailed to each director at his business address. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. 6. QUORUM. At any meeting of the directors a majority of the directors shall constitute a quorum for the transaction of business, but if less than said number is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. 7. MANNER OF ACTING. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the directors. 8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the board for any reason except the removal of directors without cause may be filled by a vote of a majority of the directors then in office, although less than a quorum exists. Vacancies occurring by reason of the removal of directors without causeshall be filled by vote of the stockholders. A director elected to fill a vacancy caused by resignation, death or removal shall be elected to hold office for the unexpired term of his predecessor. 9. REMOVAL OF DIRECTORS. Any or all of the directors may be removed for cause by vote of the stockholders or by action of the board. Directors may be removed without cause only by vote of the stockholders. 10. RESIGNATION. A director may resign at any time by giving written notice to the board, the president of the secretary of the corporation. Unless otherwise specified in the notice, the resignation shall take effect upon receipt thereof by the board of such officer, and the acceptance of the resignation shall not be necessary to make it effective. 11. COMPENSATION. No compensation shall be paid to directors, as such, for their services, but by resolution of the board a fixed sum and expenses for actual attendance as each regular or special meeting of the board may be authorized. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 12. PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of the directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. 13. EXECUTIVE AND OTHER COMMITTEES. The board, by resolution, may designate from among its members an executive committee and other committees, each consisting of three or more directors. Each such committee shall serve at the pleasure of the board. ARTICLE IV - OFFICERS 1. NUMBER. The officers of the corporation shall be a president, a vice-president, a secretary and a treasurer, each of whom shall be elected by the directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the directors. Any two or more offices may be held by the same person. 2. ELECTION AND TERM OF OFFICE. The officers of the corporation to be elected by the directors shall be elected at a meeting of the directors held when determined by the directors. Each officer shall holdoffice until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. 3. REMOVAL. Any officer or agent elected or appointed by the directors may be removed by the directors whenever in their judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. 4. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the directors for the unexpired portion of the term. 5. SALARIES. The salaries of the officers shall be fixed from time to time by the directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. ARTICLE V - CONTRACTS, LOANS, CHECKS & DEPOSITS 1. CONTRACTS. The directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. 2. LOANS. No loans shall be determined on behalf of the corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the directors. Such authority may be general or confined to specific instances. 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the directors. 4. DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the directors may select. ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER 1. CERTIFICATES FOR SHARES. Certificates representing shares of the corporation shall be in such form as shall be determined by the directors. Such certificates shall be signed by the president and by the secretary or by such other officers authorized by law and by the directors. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the stockholders, the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the directors may prescribe. 2. TRANSFER OF SHARES. (a) Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, and cancel the old certificate; every such transfer shall be entered on the transfer books of the corporation which shall be kept at its principal office. (b) The corporation shall be entitled to treat the holder of record of any share as the holder in fact thereof, and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, except as expressly provided by the laws of this state. ARTICLE VII - FISCAL YEAR The fiscal year of the corporation shall end on the 31st day of January in each year. ARTICLE VIII - DIVIDENDS The directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law. ARTICLE IX - SEAL The directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation and the words, "Corporate Seal". ARTICLE X - WAIVER OF NOTICE Unless otherwise provided by law, whenever any notice is required to be given to any stockholder or director of the corporation under the provisions of these by-laws or under the provisions of the articles of incorporation, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE XI - ADMENDMENTS These by-laws may be altered, amended or repealed and new by-laws may be adopted by a vote of the stockholders representing a majority of all the shares issued and outstanding, at any annual stockholders' meeting or at any special stockholders' meeting when the proposed amendment has been set out in the notice of such meeting. EX-4 4 EXHIBIT 4.0 NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK WHICH MAY BE ISSUED ON ITS EXERCISE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND NEITHER THIS WARRANT NOR ANY SUCH SHARES MAY BE OFFERED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS (1) THEY ARE REGISTERED UNDER THE SECURITIES ACT OR (2) THE HOLDER HAS DELIVERED TO THE ISSUER AN OPINION OF COUNSEL, WHICH OPINION SHALL BE SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT THERE IS AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THAT REGISTRATION OTHERWISE IS NOT REQUIRED. TASTY FRIES, INC. WARRANT TO PURCHASE _________ SHARES OF COMMON STOCK FOR VALUE RECEIVED, _______________________________________ or his transferees or assigns (the "Holder"), is entitled to purchase, subject to the provisions hereof, from TASTY FRIES, INC., a Nevada corporation (the "Issuer"), __________ fully paid, validly issued and non-assessable shares of common stock, par value $.001 per share (the "Common Stock"), of the Issuer (the "Shares") at an exercise price of $1.90 which will entitle the holder to receive one share of Common Stock, subject to adjustment as provided below. The right to purchase the Shares under this Warrant is exercisable, in whole or in part, at any time after the date of this Warrant and prior to 5:00 p.m., New York City time, on May 31, 1999. The Shares deliverable upon exercise of this Warrant (including any adjusted number of Shares issuable pursuant to the provisions of this Warrant) are hereinafter sometimes referred to as "Warrant Shares" and the exercise price per Share in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the 1 of 8 "Exercise Price." This Warrant and all warrants issued upon transfer, division or in substitution thereof are hereinafter sometimes referred to as the "Warrants." (a) EXERCISE OF WARRANT. This Warrant may be exercised by presentation and surrender to the Issuer at its principal office, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the Warrant Shares. Payment shall be made by wire transfer or by certified or official bank check. As soon as practicable after the exercise of this Warrant, and in any event within five New York Stock Exchange, Inc. trading days, the Issuer shall issue and deliver to the Holder a certificate or certificates representing the number of Shares issuable upon the exercise of this Warrant (or such lesser number as shall be indicated on the Purchase Form), registered in the name of the Holder or its designee(s). If this Warrant is exercised only in part, the Issuer also shall issue and deliver to the Holder a new Warrant, substantially in the form of this Warrant, covering the number of Warrant Shares which then are issuable hereunder. Upon receipt by the Issuer of this Warrant at its office, in proper form for exercise, the Holder shall as of that date be deemed to be the holder of record of the number of Warrant Shares specified in the Purchase Form. The Issuer shall pay any and all documentary stamps or similar issue or transfer taxes payable in respect of the issue or delivery of Warrant Shares on the exercise of this Warrant. (b) RESERVATION OF SHARES. The Issuer shall at all times reserve and keep available, free from pre-emptive rights, out of its authorized but unissued capital stock, for issuance on the exercise of this Warrant, such number of Shares as shall be required for issuance and delivery upon the exercise of this Warrant. (c) FRACTIONAL SHARES. No fractional shares or scrip representing fractional shares shall 2 of 8 be issued upon the exercise of this Warrant. With respect to any fraction of a Share called for upon any exercise hereof, the Issuer shall pay to the Holder an amount in cash equal to such fraction multiplied by the Current Market Price per Share. As used in this Warrant, the "Current Market Price" of the Warrant Shares at any date shall be the last reported sale price per share on the New York Stock Exchange, Inc. trading day preceding that date. The "last reported sale price" for any day shall be (i) the last reported sale price of the Common Stock on the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation System (the "NASDAQ" National Market System"), or any similar system of automated dissemination of quotations of securities prices then in common use, if so quoted, or (ii) if not quoted as described in clause (c)(i), the last bid quotation for the Common Stock as reported by the National Quotation Bureau Incorporated if at least two securities dealers have inserted bid quotations for the Common Stock, or (iii) if the Common Stock is listed or admitted for trading on any national securities exchange, the last sale price, or the closing bid price if no sale occurred, of the Common Stock on the principal securities exchange on which the Common Stock is listed. If none of the conditions set forth above is met, the Current Market Price shall be the last sale price for a share of the Issuer's restricted Common Stock as sold by the Issuer in an offering exempt from registration under Regulation D of the Securities Act or similar exemption. (d) TRANSFER OF WARRANT. This Warrant may be transferred in whole or in part at any time; provided, however, that the Holder shall not transfer this Warrant to more than five persons or entities. Any such assignment shall be effectuated by the Holder executing the Assignment Form annexed hereto and surrendering this Warrant for cancellation to the Issuer at its principal office, 3 of 8 whereupon the Issuer shall issue in the name or names specified by the Holder (including the Holder) a new Warrant or Warrants of like tenor and representing in the aggregate rights to purchase the same number of Shares as are purchasable hereunder. Notwithstanding the foregoing, neither this Warrant nor the Warrant Shares shall be transferable unless (i) a registration statement under the Securities Act covering the Warrant Shares is in effect at such time or (ii) the Issuer has received at the Holder's sole expense an opinion from Issuer's counsel or from the Holder's counsel (which such counsel and opinion shall be reasonably satisfactory to the Issuer and its counsel) to the effect that such registration is not required and that the transfer being requested complies with applicable federal and state securities laws. In the event that the Holder seeks an opinion as to the transfer without registration from the Holder's counsel, the Issuer shall provide to the extent it is available without unreasonable effort or expense, such factual information to the Holder's counsel as may reasonably be requested for the purpose of rendering such opinion. (e) LOSS OR DESTRUCTION OF WARRANT. Upon receipt by the Issuer of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, including, in the Issuer's sole discretion, the posting of a security bond or similar instrument at the Holder's sole expense, and upon surrender and cancellation of this Warrant, if mutilated, the Issuer will execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall not constitute an additional contractual obligation on the part of the Issuer, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone. (f) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights 4 of 8 of a stockholder in the Issuer, either at law or equity, and the rights of the Holder are limited to those expressed in this Warrant and are not enforceable against the Issuer except to the extent set forth herein. (g) ANTI-DILUTION RIGHTS. (i) If at any time after the date hereof the Issuer declares or authorizes any dividend (other than a cash dividend), stock split, reverse stock split, combination, exchange of Shares, or there occurs any recapitalization, merger, consolidation, sale or acquisition of property or stock, reorganization or liquidation, or if the outstanding Shares are changed into the same or a different number of Shares of the same or another class or classes of stock of the Issuer, then the Issuer shall cause effective provision to be made so that the Holder shall, upon exercise of this Warrant following such event, be entitled to receive the number of shares of stock or other securities or the cash or property of the Issuer (or of the successor corporation or other entity resulting from any consolidation or merger) to which the Warrant Shares (and any other securities) deliverable upon the exercise of this Warrant would have been entitled if this Warrant had been exercised immediately prior to the earlier of (i) such event and (ii) the record date, if any, set for determining the stockholders entitled to participate in such event, and the Exercise Price shall be adjusted appropriately so that the aggregate amount payable by the Holder hereof upon the full exercise of this Warrant remains the same. The Issuer shall not effect any recapitalization, consolidation or merger unless, upon the consummation thereof, the successor corporation or entity shall assume by written instrument the obligation to deliver to the Holder hereof the shares of stock, securities, cash or property that the Holder shall be entitled to acquire in accordance with the foregoing provisions, 5 of 8 which instrument shall contain provisions calculated to ensure for the Holder, to the greatest extent practicable, the benefits provided for in this Warrant. (ii) If pursuant to the provisions of this Section (g) the Holder would be entitled to receive shares of stock or other securities upon the exercise of this Warrant in addition to the Shares issuable upon exercise of this Warrant, then the Issuer shall at all times reserve and keep available sufficient shares of other securities to permit the Issuer to issue such additional shares or other securities upon the exercise of this Warrant. (iii) The Issuer shall at any time if so requested by the Holder furnish a written summary of all adjustments made pursuant to this paragraph (g) promptly following any such request. (h) SURVIVAL. Any obligation of the Issuer under this Warrant, the complete performance of which may require performance beyond the term of this Warrant, shall survive the expiration of such term. 6 of 8 (i) AMENDMENTS AND WAIVERS. The respective rights and obligations of the Issuer and the Holder may be modified or waived only by a writing executed by the party against whom the amendment or waiver is to be enforced. IN WITNESS WHEREOF, the Issuer has caused this Warrant to be duly executed and delivered as of May 31, 1996. TASTY FRIES, INC. By: ----------------------------- Edward C. Kelly, President 7 of 8 PURCHASE FORM The undersigned hereby irrevocably elects to exercise the within Warrant as to ______________ shares and hereby makes payment of $______________ in payment of the actual exercise price thereof. INSTRUCTIONS FOR ISSUANCE OF COMMON STOCK CERTIFICATES Name: _______________________________________________________ (Please typewrite or print in block letters) Address: _______________________________________________________ _______________________________________________________ Signature:____________________ ASSIGNMENT FORM FOR VALUE RECEIVED, ________________________________________ hereby sells, assigns and transfer unto Name: _______________________________________________________ (Please typewrite or print in block letters) Address: _______________________________________________________ _______________________________________________________ the right to purchase Common Stock represented by this Warrant to the extent of __________ Common Stock as to which such right is exercisable and does hereby irrevocably constitute and appoint ____________ Attorney, to transfer the same on the books of the Issuer with full power of substitution in the premises. Dated: ______________, 199_ Signature:____________________ 8 of 8 EX-5 5 EXHIBIT 5.0 Kipnis Tescher Lippman Valinsky & Kain One Financial Plaza, Suite 2308 Fort Lauderdale, Florida 33394 Telephone: (954) 467-1964 April 29, 1997 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Tasty Fries, Inc. (the "Company")/Registration Statement on Form SB-2 Gentlemen: The undersigned has acted as special securities counsel to Tasty Fries, Inc., a Nevada corporation (hereinafter referred to as the "Company"), in connection with the registration of 5,397,927 shares of the Company's Common Stock, par value $.001 per share ("Shares"), as set forth in the above-mentioned Registration Statement. In our capacity as such counsel to the Company, we have examined the original or a copy of documents as we have deemed appropriate as the basis for the opinions herein expressed. In such examination we have assumed the genuineness of all of the signatures on original documents and the conformity to original documents of all copies submitted to us as conformed or photostatic copies. As to various questions of fact material to such opinions, we have relied upon the statements or certificates of officials and representatives of the Company and others. Based upon the foregoing, it is our opinion that: 1. The Company is a corporation incorporated under the general corporation laws of the State of Nevada and its status is active. 2. When (i) the Registration Statement has become effective under the Securities Act of 1933, as amended, and (ii) the Shares have been issued and sold as contemplated in the Registration Statement, such Shares will be legally issued, fully paid and non-assessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and the use of our name under "Legal Matters" in the Prospectus constituting a part of the Registration Statement. Very truly yours, KIPNIS TESCHER LIPPMAN VALINSKY & KAIN EX-10.2 6 EXHIBIT 10.2 Vendor Provides Credit Application Only; Vendor has No Documentation or Credit Evaluation Responsibility Forrest Financial Corporation VENDOR ACREEMENT This Vendor Agreement is entited into as of the 20th day of Nov., 1996 by and between Forrest Financial Corporation ("FFC") and Tasty Fries, Inc. ("Vendor") and sets forth the terms and conditions which will apply to any leases, installment sale contracts or other chattel paper that FFC may elect to purchase from Vendor or to otherwise fund. 1. DEFINITIONS. The following terms, wherever used in this Agreement, have the meanings ascribed to them in this section: (a) "Advance Payments" shall mean any payment made to Vendor subsequent to execution and delivery of the Contract but prior to written confirmation from Lessee of Delivery and Acceptance of Collateral. (b) "Contract" means either (i) a non-cancelable full pay-out lease or rental agreement arising out of a lease or rental of Equipment or (ii) an installment sale contract or other chattel paper arising out of a sale of equipment. (c) "Equipment" means any tangible or intangible personal property sold or leased by Vendor under a Contract, together with all additions, replacements. substitutions, parts, repairs, accessories, accessions or attachments thereto. ("Equipment" as used herein shall include all financed property, including but not limited to, Software (as defined herein) and other intangible property.) (d) "Lessee" means that party (as well as guarantor if any) who is obligated to pay under a Contract. (e) "Lessee Default" means: (i) failure of a Lessee under any Contract to make a Payment within ninety (90) days of the due date of that Payment; (ii) failure of any Lessee to perform any of its material obligations under any Contract; (iii) insolvency of any Lessee, inability of any Lessee to pay its debts as they mature, the making by any Lessee of an assignment for the benefit of creditors, or institution of any proceeding by or against any Lessee alleging that the Lessee is insolvent or unable to pay its debts as they mature. (f) "Obligor Guaranty" means any guaranty given by any person or entity guaranteeing the payment and/or performance of a Contract purchased by FFC. (g) "Payment" means any payment, whether or not earned by performance, receivable by FFC on account of a Contract funded by FFC. 2. DOCUMENTATLON. Vendor may submit to FFC a Credit Application for a prospective Contract. If FFC for any reason declines to proceed, it shall so notify Vendor as soon as is practicable. If FFC approves the transaction, it shall provide a completed Contract and completed supporting documents necessary to fulfill the transaction. Said Contract and Documents shall be forwarded to the Vendor or Lessee as the parties from time to time determine. 3. REPRESENTATION AND WARRANTIES. Vendor represents and warrants that (each representation and warranty shall be considered as having been made concurrently with each sale of a Contract to FFC as an inducement to purchase the Contract); (a) Vendor is a corporation duly organized, validly existing and in good standing under the laws of the state or province of its incorporation, duly qualified and in good standing as a domestic or foreign corporation authorized to do business in each jurisdiction where such qualification is necessary. (b) Vendor is duly authorized to execute and deliver this Agreement. (c) During the term of any Contract, Vendor agrees that it may enhance, but will not seek or attempt to displace, or displace Lessee's Equipment or any other product. 4. ELIGIBILITY REQUIREMENTS. In order for a Contract to be an Eligible Contract, all of the following must be true and correct: (a) The Contract arises from a bona fide lease, rental or sale of the Equipment described in the Contract; the Equipment is in all respects in accord with the requirements of the Contract and has been delivered to and unqualifiedly accepted by the lessee or vendee thereunder; none of the Equipment is or will be a fixture under the laws of any jurisdiction where the Equipment is or may be located; (b) The Equipment subject to the proposed lease is in compliance with all applicable laws and regulations. The Equipment which is the subject of the Lease are not subject to any lien, claim or security interest except the interest of the Lessee or Vendee of the Equipment and a lien on the Equipment in FFC's favor; and the Contract is one which FFC is and will continue to be authorized by law to purchase and hold; (c) At the time of FFC's funding of the Contract, Vendor had good title to the related Equipment, subject only to the interest of the Lessee; (d) There exists no setoffs, counterclaims or defenses on the part of any Lessee under the Contract or any Lessee Guaranty which may be raised against FFC; 5. COVENANTS. Until the termination of this Agreement and for as long as any Contract purchased hereunder is unpaid, Vendor agrees that it will notify FFC promptly upon Vendor's learning of (i) any change in the name of the vendee or lessee under any Contract entered into by FFC; (ii) any adverse credit information which Vendor may acquire or have knowledge of with respect to any Lessee of any Contract funded by FFC; (iii) any and all litigation or other matters or events concerning Vendor or any Obligor which might reasonably be construed to affect adversely FFC's interest in a Contract, Payments under the Contract or related Equipment or Software or any of FFC's rights under this Agreement. Notwithstanding anything to the contrary, Forrest shall be entitled to a right of first refusal ("ROF") during the term of this Vender Agreement and for one year thereafter in the event of termination under paragraph 7. Accordingly, if within that tune. Vendor secures alternative lease service, or elects to provide an alternative lease service ("ALS"), then Forrest shall have 45 days to match the written verified terms of the ALS. FFC shall remit funds due to the vendor under the Contract within three business day upon receipt of all properly executed Contract and lease documents, and upon oral confirmation of delivery and acceptance by the lessee/licensee. "Acknowledgment by the Lessee of delivery and acceptance of Vendor's product" shall be defined as the written execution by an authorized and designated officer of Lessee, at the designated portion of Forrest's Lease, confirming delivery and acceptance of the Vendor's product and shall be referred to as "Acknowledgment". In the event Forrest makes an "Advance Payment" to Vendor under terms outlined in and Advance Payment Rider ("APR"), for each Contract, and the written confirmation from Lessee of Delivery and Acceptance is not received by Forrest within sixty (60) days ofthe payment (or as otherwise stated in the APR), then upon rcquest by Forrest, all Payments therefore made by Forrest to Vendor shall immediately become due and owing from the Vendor, including interest on the daily outstanding balance at an annualized rate equal to the Prime Rate plus 2%. In the event of a dispute, the parties stipulate that venue and jurisdiction shall be fixed in DuPage County, Illinois. 6. COLLECTIONS. If, Vendor receives a Payment on account of a Contract funded by FFC, Vendor agrees to hold the amount in trust for FFC and immediately forward the Payment to FFC, Vendor hereby authorizes FFC to endorse, in writing or by stamp, in Vendor's name or otherwise any and all checks, drafts, notes, bills of exchange and orders, howsoever received by FFC, representing any Payment under any Contract funded by FFC. 7. AGREEMENT PERIOD/TERMINATION. This Agreement shall continue in effect for three (3) consecutive years commencing upon the execution date as shown on the first page hereof, after which the Agreement shall automatically renew for three (3) year periods. This Agreement may be terminated by either party at any time upon thirty (30) days' written notice to the other, provided, however, that all of the rights and obligations of the parties, including Vendor's warranties and representations, applicable to Contracts funded by FFC prior to such termination shall survive such termination. IN WITNESS WHEREOF, FFC and Vendor have executed this Agreement as of the date set forth on the first page hereof. TASTY FRIES, INC. FORREST FlNANCIAL ("Vendor") CORPORATION ("FFC") By:/S/ EDWARD C. KELLY By:/S/ ------------------------------ --------------------------- Title:PRESIDENT Title:PRESIDENT --------------------------- ------------------------ Address: 650 Sentry Parkway, Address: One Forrest Financial Place Suite One 2009 Warrenville Road Blue Bell, PA 19422 Lisle, IL 60532-0810 Term Sheet Addendum to Vendor Agreement The following amends and is part of the Vendor Agreement between Tasty Fries, Inc. ("Vendor") and Forrest Financial Corporation ("FFC"). PROJECTIONS: Vendor's projections are that it will generate fifteen million dollars ($15 million) of funding requirements under its program for the lease of equipment. FUNDING: Funding by FFC to Vendor shall be subject to FFC's credit standards and shall be predicated on a cost per unit from Vendor of no more than $15,000. The monthly rate factor to be charged customer is as follows: 36 months .036555 48 months .029930 60 months .026060 Plus applicable taxes, if any. MARKET CONDlTIONS: The parties recognize that market conditions, including the prevailing interest rates, may require either party to amend the forecasted pricing herein. In those instances where conditions require pricing modification, each party shall notify the other in writing, and shall reasonably cooperate in amending the pricing set forth herein. Failure to agree to any modifications shall cause this agreement to terminate. MISCELLANEOUS: The construction of Addendum shall govern and control over the Vendor Agreement where and if there is a conflict between the documents. AGREED: TASTY FRIES, INC. FORREST FINANCIAL CORPORATION CORPORATION ("FFC") By: /S/EDWARD C. KELLY By: /S/PRESIDENT ------------------------ ------------------------ Its: PRESIDENT Its: PRESIDENT ----------------------- ------------------------ EX-10.3 7 EXHIBIT 10.3 =============================================================================== MANUFACTURING AGREEMENT =============================================================================== THIS AGREEMENT, made this 22 day of August, 1996, by and between S & H ELECTRONICS, INC, a Pennsylvania Corporation having its principal place of business at 13 North Linden Street, P.O. Box 86, Robesonia, PA 19551, (hereinafter referred to as "S&H") AND TASTY FRIES, INC. a Pennsylvania Corporation having its principal place of business at 650 Sentry Parkway, Suite One, Blue Bell, PA, 19422, (hereinafter referred to as "Tasty Fries"). CONSIDERATION: In consideration of the mutual promises contained herein and INTENDING TO LEGALLY BOUND the parties hereto hereby agree as follows: 1. BACKGROUND OF THIS AGREEMENT. Tasty Fries has developed and is the owner of certain patents, registered trademarks, manufacturing trade secrets, technical know how and engineering designs relating to the manufacture of a certain type of french fry vending machine ("The Product"), more specifically set forth on Exhibit "A" which is attached hereto and incorporated herein. Included in Exhibit "A" is the design of machinery that S & H will manufacture, and the engineering drawings, patents, trademarks, specifications, instructions and other documentary descriptive matter identified in Exhibit "A". S & H desires to obtain the right to use such information contained in the documents identified in Exhibit "A" and to manufacture at its principal place of business the vending machine product described therein. 2. PERMISSION. Tasty Fries does hereby grant to S & H the right to use all of the information provided to it by Tasty Fries and the license to manufacture the product at it's manufacturing location in Robesonia, Pennsylvania. This right to manufacture shall be for the initial quantity of 7,500 product units. 3. PRODUCT. S & H shall manufacture for Tasty Fries a certain French Fry vending machine as more particularly described in Exhibit "A". 4. FEES. After careful consideration, S & H has estimated that each vending machine product will require 40 man hours to assemble. S & H will charge Tasty Fries at a rate between $32.00 and $35.00 per hour per machine. Each product vending machine will be invoiced to Tasty Fries at a price not to exceed $1,400.00 for the first 7,500 machines and if built at $32.00 per hour then at the price of $1,280.00. These figures include internal sub assembly, total assembly, final testing and preparation for shipment. The parties hereto agree that this is a fair and reasonable estimated cost and that this estimated cost may be adjusted, within the perimeter set forth above, based upon the actual time required to manufacture a single vending machine product by further mutual agreement of the parties. 5. SCHEDULE: The parties agree that the schedule for production of the Tasty Fries vending machine product will be as follows: First month of production.......................100 units Second month of production......................200 units Third month of production.......................300 units Fourth month of production......................500 units Fifth month of production.......................800 units After the fifth month S & H will manufacture 800 units per month until the total requirement of 7,500 units have been manufactured. It is agreed between the parties that the date for first month of production will be set between the parties at a mutual agreeable date and time. After S & H has performed this Agreement to Tasty Fries' satisfaction, in accordance with established specifications as attached hereto, Tasty Fries will offer S & H additional purchase orders for the manufacture of 12,000 Tasty Fries vending machine product units annually. basis in accordance with the terms and conditions contained herein. 6. RESPONSIBILITY OF PARTIES: Tasty Fries shall supply all materials to S & H from suppliers of Tasty Fries choice. Said materials shall be purchased with Tasty Fries purchase orders and shipped directly to S & H without charge to S & H. S & H shall be responsible for inspecting and verifying the quantity, count and quality of all incoming parts and shall inform Tasty Fries within five (5) business days of any deficiency in the quantity, count or quality of any incoming parts. S & H shall be responsible for all manufacturing functions however shall not be responsible for purchasing, ordering and delivering the specified component parts. 7. OFFICES: S & H agrees to provide Tasty Fries with sufficient office space for a source inspector who will inspect the manufacturing process for efficiency and quality. The source inspector will have the authority to review any and all source documents, procedures or techniques employed by S & H in the manufacturing of the Tasty Fries french fry vending machines product. The primary function of the source inspector is to inspect the product for quality and to assure that each unit meets the standards required by Tasty Fries. Said standards will be developed by Tasty Fries and delivered in writing to S & H. 8. DELIVERY: S & H shall not be responsible for the delivery of the finished manufactured product to its final destination. Tasty Fries distributors shall be responsible for the delivery of the Tasty Fries french fry vending machine to its final destination including payment of all freight charges in accordance with the terms of the Tasty Fries Distribution agreements. 9. PAYMENT: Tasty Fries shall pay S & H invoices within thirty days of receipt. 10. ASSIGNMENT: This Agreement shall not be assignable by either party without the written consent of the other party. 11. SECTION HEADING: All section headings herein are inserted for convenience of reference only and shall not control, affect or modify the meaning or construction of any of the terms or provisions hereof. 12. NOTICES: All Notices required by this Agreement to be given to either party hereto shall be in writing and shall be personally served upon the duly authorized representative of such party listed below or shall be mailed, by registered or certified mail, return receipt requested, to the addresses shown below or such other addresses as are specified by similar Notice: Tasty Fries, Inc. 650 Sentry Parkway, Suite One Blue Bell, PA 19422 Attn: President S & H Electronics, Inc. 13 North Linden Street P.O. Box 86 Robesonia, Pa 19551 Attn: President A Notice shall be effective upon receipt. 13. GOVERNING LAW: This Agreement shall be governed in accordance with the Laws of the Commonwealth of Pennsylvania. 14. ENTIRE AGREEMENT: This instrument states the entire Agreement between the parties hereto with respect to the subject matter hereof, and may not be amended except by written instrument executed by the parties hereto. It is anticipated that in the course of initially manufacturing the products involved herein, an additional Agreement may be necessary for purposes of attending to or working out additional details. Those Agreements must be duly signed and executed by each party hereto. IN WITNESS WHEREOF, the parties hereto intending to be legally bound by the terms and conditions set forth above have executed this Agreement this of August, 1996 Tasty Fries, Inc.: (SEAL) Attest: By: /S/EDWARD C. KELLY /S/LEONARD J. KLARICH ----------------------------- ---------------------------- Edward C. Kelly Secretary President & C.E.O S & H Electronics, Inc.: (SEAL) Attest: By: /S/JEFFREY W. HAAG /S/JOHN HAAG ----------------------------- ---------------------------- Jeffrey Haag Secretary President EX-10.6 8 EXHIBIT 10.6 AGREEMENT This Agreement is between Tasty Fries, Incorporated, 650 Sentry Parkway, Suite One, Blue Bell, Pennsylvania 19422, and Whetstone Ventures Corporation, Inc., a Pennsylvania Corporation, located at 11 Waterfront Estates, Estates Drive, [E.W][ECK] Lancaster, Pennsylvania 17602 executed this April day of 30th, 1996. In consideration of the mutual covenants herein and intending to be legally bound hereby, the parties agree as follows: WHETSTONE VENTURES CORPORATION. INC. DUTIES Tasty Fries, Inc., hereby authorizes whetstone Ventures Corporation, Inc. on a non-exclusive basis to: a) sell shares of its common stock, b) promote the sale of Tasty Fries Inc. common stock, c) act as a market analyst d) assist in the promotion and good will of Tasty Fries, Inc. e) act as a consultant in business matters f) act as a consultant in the development of an investor base. Whetstone Ventures Corporation, Inc. will use its best efforts to represent, introduce and present the products, interests and goals of Tasty Fries, Inc. to the general public and investment community. Additionally, Whetstone Ventures Corporation, Inc. will promote Tasty Fries Inc., through any publications, seminars, conventions and media which would be mutually agreeable to both parties. TERM The initial term of this Agreement shall be for the time period required for Whetstone Ventures Corporation, Inc., to complete and comply with the terms of the Stock Purchase Agreement executed between Tasty Fries, Inc., and Whetstone Ventures Corporation, Inc., dated and executed on the 30th day of April, 1996 including the registration of all common stock contemplated by the aforesaid Stock Purchase Agreement. Thereafter, this Agreement shall be in effect for a period of five (5) years from the date of the registration of all stock contemplated by the aforementioned Stock Purchase Agreement. EQUITY COMPENSATION In consideration for the services to be provided by Whetstone Ventures Corporation, Inc., those contemplated by this Agreement and the aforementioned Stock Purchase Agreement, and if Whetstone Ventures Corporation, Inc., is successful in retaining investors to purchase Tasty Fries, Inc., restricted common stock and providing Tasty Fries, Inc. with working capital, Tasty Fries, Inc., agrees to pay Whetstone Ventures Corporation, Inc. equity compensation in the form of restricted shares of common stock. The number of shares to be received by Whetstone Ventures Corporation, Inc. shall be as follows: i) 5,000,000 shares of restricted pre reverse split common stock to be paid upon the registration of all common restricted stock contemplated by the Stock Purchase Agreement executed on the 30th day of April, 1996. ii) Thereafter, Whetstone Ventures Corporation, Inc. shall receive 750,000 shares of restricted common stock each year for a term of five (5) years. Such stock shall be subject to the pending reverse split contemplated by the Stock Purchase Agreement executed on the 30th day of April, 1996. (i.e.) 10 to 1 reverse split would result in Whetstone Ventures Corporation, Inc., receiving 75,000 shares of restricted common stock per year for a term of five (5) years. APPLICABLE LAW This Agreement is governed by and constructed under the laws of the Commonwealth of Pennsylvania. Any action brought by either party to enforce or interpret this Agreement or any part thereof shall be brought in an appropriate Federal Court. CONFIDENTIALITY In consideration of the execution of this Agreement, Whetstone Venture Corporation, Inc. agrees that, during the term of the Agreement and for a period of on year following its termination, they will abide by all of the following provisions: 1) For the purposes of this section of the Agreement, the term Confidential Information shall mean information about Tasty Fries, Inc.'s business, marketing, advertising, promotion, publicity, research, finances, accounting, trade secrets, business plans or the name of one or any group listing of actual or potential Tasty Fries, Inc., customers or any customer-specific information or that of Whetstone Ventures Corporation, Inc. which: a) has been disclosed or otherwise become known to Whetstone Venture Corporation, Inc. or Tasty Fries, Inc. as a result of providing consulting services to Tasty Fries, Inc. under this section of the Agreement; and b) is not otherwise information available to the public and c) is maintained as confidential by Tasty Fries, Inc. and/ or Whetstone Venture Corporation, Inc.. 2) Whetstone Venture Corporation, Inc. and Tasty Fries, Inc. shall not directly or indirectly divulge, furnish, use, publish or otherwise make accessible to any person or entity, any Confidential Information except in the performance of providing consulting and other services in accordance with the terms and conditions of this Agreement. Any confidential Information prepared by Whetstone Venture Corporation, Inc. or coming into Whetstone Venture Corporation, Inc.'s possession as a result of providing services, as required by this Agreement, are and shall remain Tasty Fries, Inc.'s Confidential Information, shall be protected as such by Whetstone Venture Corporation, Inc. and shall be returned to Tasty Fries, Inc. upon termination of this Agreement. Any Confidential Information prepared by Tasty Fries, Inc.. or coming into Tasty Fries, Inc.'s possession as a result of Whetstone Ventures Corporation, Inc. services are and shall remain Whetstone Venture Corporation, Inc.'s Confidential Information, shall be protected as such by Tasty Fries, Inc. and shall be returned to Whetstone Venture Corporation, Inc. upon termination of this Agreement. By signing this Agreement whetstone Venture Corporation, Inc. acknowledges complete understanding of said Agreement and will comply with the terms and conditions set forth in this Agreement. Whetstone Ventures Corporation, Inc. By: /S/L. ERIC WHETSTONE /S/IRENE T. KELLY ----------------------------- ---------------------------- L. Eric Whetstone [President] Witness Tasty Fries, Inc. By: /S/EDWARD C. KELLY /S/JAMES L. SPEILMAN ----------------------------- ---------------------------- Edward C. Kelly Witness EX-10.7 9 EXHIBIT 10.7 DISTRIBUTORSHIP AGREEMENT This Agreement made this 2nd day of May, 1995 by and BETWEEN: TASTY FRIES, INC. (hereinafter referred to as "TFRY") with principal executive offices at: 650 Sentry Parkway, Suite One, Blue Bell, Pennsylvania 19422 and TASTY FRIES, ISRAEL, LTD. (hereinafter referred to as "Distributor") with principal executive offices at: WITNESSETH: WHEREAS, TFRY is engaged in the development, production, distribution and sale of a fully automated french fry vending machine; and WHEREAS, TFRY has developed and adopted for its own use and for the use of its Distributors a unique system of TFRY product preparation and vending machine sale, consisting in part of the unique french fry vending machines ("TFRY French Fry Vending Machine" or "Machines"), distinctive advertising, signs, dehydrated potato pellets, food presentation and formula secret recipes (collectively the "Products"); and WHEREAS, in addition to valuable goodwill, TFRY owns the valuable trade name and design of TFRY in addition to various patents, trademarks, service marks, copyrights, tradenames, slogans, designs, insignia, emblems, symbols, package designs, logos and other proprietary identifying characteristics (collectively, the "TFRY Marks") used in relation to and in connection with the Products, and WHEREAS, DISTRIBUTOR wishes, upon the terms and conditions hereinafter set forth, to become a distributor of TFRY Products on an exclusive basis in the territories of Israel, Jordan and Egypt (the "Territory"), as more specifically set forth in Schedule A to this Agreement incorporated herein by this reference and made a part hereof ("Schedule A"); and WHEREAS, TFRY is willing to permit Distributor to use TFRY Marks as aforesaid, together with the retail sale of TFRY French Fry Vending Machines and TFRY Products upon the terms and conditions hereinafter set forth. _______ Initial NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, receipt of which is hereby acknowledged, TFRY and Distributor (collectively referred to herein as the "Parties") agree as follows: ARTICLE I DISTRIBUTORSHIP (a) Subject to the provisions of this Agreement and the performance of its covenants and obligations, TFRY hereby appoints Distributor as its exclusive distributor to distribute all TFRY Products and Machines (both of which may collectively be referred to herein as the "Products" unless the context or language otherwise requires), and to use the TFRY Marks in the retail sale thereof within the territorial boundaries set forth and more particularly described in Schedule "A" on the "Effective Date." The "Effective Date" is the ten (10) year period of the exclusive distributorship in the Territory which shall commence on the earlier of (i) the date on which TFRY demonstrates its capacity to ship Machines for use by consumers, other than a demonstrator Machine for use by the Distributor, or (ii) the date on which Distributor places its first order for a Machine or Machines. (b) A demonstration Machine (the "Demonstration Machine") shall be shipped to Distributor by TFRY within 30 days of the execution of this Agreement by TFRY and the Distributor. The trial period for such Demonstration Machine shall be three (3) months (the "Trial Period") from the date of delivery of the Demonstration Machine. The purchase price of such Demonstration Machine is $7,000 payable by Distributor to TFRY in U.S. cleared funds prior to shipment thereof or a lease price of $500 per month payable immediately following delivery of the Demonstration machine and on the first business day of each month thereafter until the earlier of (i) the return of the Demonstration Machine to TFRY in good working condition or (ii) the payment of $7,000. Freight, insurance, duty and related charges shall be borne solely by Distributor and shall be paid PRIOR to shipment. All prices referred to in this Agreement shall refer to U.S. Dollars only. (c) The Distributor may commence placing orders for Machines (other than the Demonstration Machine) and Products commencing in May, 1996. (d) The Parties specifically acknowledge and agree that the restriction of operation to the Territory identified herein is an essential and indispensable term of this Agreement. (e) The initial down payment for the Distributorship is $40,000, of which TFRY acknowledges that it has received $20,000. The balance of $20,000 is due and payable upon execution of this Agreement by the Parties. The balance of $160,000 for the Territory shall be payable in accordance with Schedule "A." _______ Initial ARTICLE II SPECIFIC TERRITORIAL RIGHTS (a) TFRY agrees to sell to the Distributor and the Distributor agrees to purchase and shall have the exclusive right in its Territory to sell the TFRY French Fry Vending Machine and Products to all users in the Territory. (b) In the event that Machines are sold by TFRY for use in the Distributor's Territory, the Distributor shall earn its full Distributors's profit. This provision is contingent upon Distributor's agreement by this Agreement to supply and service these Machines as required. (c) The Distributor shall receive its full profit if Machines are sold to clients in its Territory for installation in areas outside of its Territory, except that in the event Machines are sold into another Distributor's Territory, the Distributor profit shall be seventy (70%) percent to the originating Distributor and thirty (30%) percent to the Territorial Distributor. (d) TFRY and Distributor will continue good faith negotiations to allow for a three phase implementation in the Territory: 1) direct export of Machines and potato to the Distributor, as provided herein; 2) technology transfer (potato pellet dehydration) and fabrication of potato product in Territory; and 3) Machine parts exported to Distributor for assembly of same. (e) Distributor shall have the right to adapt operating procedures to the reasonable conditions prevailing in the Territory, subject to the prior written approval by TFRY, including, but not limited to, coin operation mechanisms, use of tokens instead of coins or paper currency, electrical current and different methods of handling materials and components. (f) Distributor shall have the right to assign the rights and delegate the duties herein to sub-distributors within the Territory subject to prior written approval of TFRY in it sole and absolute discretion. Distributor shall at all times be obligated to supervise the operations of all such sub-distributors and such sub-distributors shall be required to execute any and all documents which TFRY, in its sole and absolute discretion, deems necessary prior to approval being granted by TFRY. ARTICLE III OBLIGATIONS OF TFRY TFRY agrees to assist Distributor in distributing Products by way of retail sale in the following manner: (a) TFRY will conduct, at no charge, certain preliminary sales and maintenance training programs in its headquarters training school which Distributor and one key employee _______ Initial may attend. All costs and expenses incurred by Distributor in traveling to and/or attending the training program shall be borne by Distributor. (b) TFRY agrees to provide to Distributor, as and when it is available from time to time, information relating to the Products and additional types of products as may be authorized by TFRY from time to time for sale pursuant to this Agreement, and which, when authorized, will also constitute "Products" for all purposes herein, at such times and in such detail as TFRY shall, in its sole discretion, deem appropriate. (c) If TFRY, in its sole discretion, provides credit or financing to Distributor, TFRY may, in its sole discretion, take a security interest in all TFRY Products sold to Distributor, and Distributor shall take such actions and execute and deliver such documents as TFRY may request in order to perfect and protect such security interest. ARTICLE IV CONFIDENTIAL INFORMATION (a) The Parties hereto covenant and agree that any confidential information disclosed to the Distributor relating directly or indirectly to the Machines and their component parts, including but not limited to the ingredients, preparation or sale of any of the Products and any other information which is proprietary in nature and has been disclosed to Distributor in connection with this Agreement (collectively the "Confidential Information"), will remain the property of TFRY at all times and will, if disclosed in any tangible format, together with any and all originals, copies and duplications thereof in any manner made, be returned to TFRY upon demand and, in any event, immediately upon termination of this Agreement. (b) It is expressly understood and agreed by Distributor that the Confidential Information described above constitutes highly confidential trade secrets and Distributor agrees that neither it nor any of its employees, agents, representatives or affiliates will at any time reveal any of such Confidential Information being disclosed or produced. ARTICLE V STANDARDS OF OPERATION AND SUPERVISION BY TFRY (a) Distributor agrees to conduct its business in a manner consistent with the standards set forth in this Agreement. It is expressly understood that these standards may change from time to time, and are in addition to and not in substitution of any standards set forth in this Agreement. (b) In order to preserve the value and goodwill of TFRY and related goodwill of other TFRY Distributors and to promote the purpose of this Agreement, the Parties hereto agree as follows: _______ Initial (i) Distributor will use and distribute the Products as herein contemplated strictly in accordance with the terms of this Agreement. (ii) Unless earlier approved in writing by TFRY, Distributor will not develop, produce, sell, advertise for sale or give away any product which might reasonably compete with the Products and all food Products will be prepared in accordance with the specific formulas and/or utilizing the ingredients purchased from or specified by TFRY. It is expressly understood that the conditions and restrictions expressed herein are for the purposes of ensuring quality control, health and safety standards and uniformity of Products sold in conjunction with the TFRY Marks. (iii) TFRY may from time to time offer guidance to Distributor relative to retail prices for Products offered for retail sale that in the judgment of TFRY constitute good business practice. (iv) Distributor will use its best efforts ensure the compliance of its customers with the maintenance of suitable signs (the use of which signs shall be subject to prior written approval by TFRY) at, on or near the front of any premises within which its French Fry Vending Machines are located, describing the premises having Products available for retail sale. Any translation from the English language or deviation from TFRY approved designs contained in such sign shall require the prior written approval of TFRY. (v) Distributor shall be responsible for ensuring that all food Products sold by Distributor hereunder will be of the highest and safest quality, and the service relating to any such sale hereunder will strictly comply with the instructions and standards provided by TFRY in preparing the food Products, or with any other further written requirements of TFRY as they are communicated to Distributor from time to time. (vi) Distributor shall be responsible for ensuring that it will maintain all French Fry Vending Machines in conformity with the standards required by TFRY in connection with TFRY Marks and shall ensure that the operation of such Machines by its customers be conducted in a clean, orderly, legal and respectable manner of business including, without limitation, cleaning and sanitation of the French Fry Vending Machines, disposal of stale, spoiled or unmerchantable food Products, replacement of cooking oil at specified intervals, replacement or repair of display merchandise, replacement of outdated or obsolete Machines (including its component parts), equipment and signs. Distributor shall ensure that its customers comply with all applicable ordinances, health and safety regulations, laws and statutes governing the operation of such premises and the sale of Products, including all criminal and quasi-criminal laws and regulations. (vii) Distributor's exclusive remedy for any damage to or defect in any TFRY Product sold hereunder shall be limited to the repair or the replacement of the damaged article, as determined by TFRY in its sole discretion. In no event shall TFRY be liable for any _______ Initial incidental or consequential loss or damage, including but not limited to, loss of profits or any other economic loss suffered or incurred by Distributor as a result of or in connection with any defective or damaged Product sold hereunder. (viii) Except as provided hereby, TFRY warrants that title to all TFRY Products transferred hereunder will be free and clear of all liens, security interests or other claims, and that such Products shall comply with the terms and conditions of the limited warranty certificate included with each TFRY Product and issued to original purchasers by TFRY. (c) TFRY or TFRY supervisory personnel shall have the right to enter upon any premises in which Distributor conducts its business at any reasonable time for the purposes of examining, inspecting and checking perishable and non-perishable food supplies, Machines, and other equipment and conferring with Distributor's employees to determine whether the distribution of Products is being conducted in accordance with the aforesaid standards and in accordance with the terms of this Agreement. In the event any such inspection indicates a deficiency or unsatisfactory condition or conditions, Distributor shall, correct or repair the deficiency or unsatisfactory condition within forty-eight (48) hours or, commence the correction and/or repair of same to be completed in as expeditious manner as possible. In the event of the failure of Distributor to comply with the foregoing obligations to correct and repair, TFRY, in addition to any other remedies conferred in this Agreement, shall have the right to promptly make or cause to be made, such corrections or repairs. The expenses of such repairs, including but not limited to, board, lodging, wages and transportation of TFRY personnel, attorneys' fees and other reasonable expenses, shall be paid by the Distributor immediately upon billing by TFRY. Nothing in this paragraph shall in any way limit any other rights of TFRY hereunder. ARTICLE VI COMMENCEMENT OF BUSINESS (a) Distributor agrees to obtain, prior to commencement of its distribution business, pursuant to this Agreement, all licenses, approvals, inspections, permits or any other certification which may be required by any competent public authority for the lawful operation of its business and to keep the same in good standing during the term hereof. ARTICLE VII USE OF TFRY NAME, MARKS AND ADVERTISING (a) During the term of this Agreement, and any renewals hereof, Distributor shall advertise sale of the Products under the trade name of "Tasty Fries Hot French Fries" or other name approved in writing by TFRY, or one or more mutually agreed-upon non-English language substitutes within the Territory, and will diligently promote and make every reasonable effort to steadily increase sales of the Products by proper use of all advertising media. (b) No design, advertisement, sign or form of publicity, including form, color, number, location and size, shall be used by Distributor in connection with sale of the Products _______ Initial unless the same shall have been first submitted to TFRY and approved prior thereto in writing. Upon notification from TFRY, Distributor will promptly cause to be removed any objectionable advertising material and, if required, cause to be published any retraction in a form and manner consistent with that of the objectionable advertising materials. In the event said materials are not removed within seven (7) days after receipt of said notice, TFRY or its authorized agents, may at any time, enter upon Distributor's premises, or elsewhere and remove any objectionable advertising material and may keep or destroy such materials without paying therefore and without being guilty of trespass or other civil or criminal wrongdoing. (c) All printed materials, including, but not limited to, product carrying bags, product wrapping, cups, napkins, posters or other printed material used in connection with the distribution by retail sale of the Products shall bear TFRY Marks as suggested by TFRY, and such use will indicate that TFRY Marks are registered Marks. (d) Distributor shall act prudently and in conformity with all laws, regulations, ordinances, or other requirements which may affect the utilization of the Machine to ensure that the Marks are not jeopardized, diminished or damaged in any manner and Distributor agrees to indemnify and save harmless TFRY for any damage or expense occasioned directly or indirectly by Distributor's improper use of said TFRY Marks. (e) Any contractual arrangement of any kind for advertising under the trade name "Tasty Fries Hot French Fries" or other approved name, or utilizing the name "Tasty Fries", entered into by Distributor, shall expressly provide for termination upon no greater than then (10) days prior written notice. ARTICLE VIII TFRY MARKS (a) TFRY hereby grants to Distributor for the term of this Agreement the exclusive right and license to use the TFRY Marks within the Territory but only in connection with the distribution of TFRY Products which Distributor is permitted to sell hereunder and the extent and manner of use of the TFRY Marks shall (i) be subject to TFRY approval and (ii) the extent that such TFRY Marks can be used legally in the Territory. (b) Distributor shall be entitled to assign or sublicense its rights to use the TFRY Marks only with the prior written consent and approval of TFRY in its sole discretion. (c) Upon execution of this Agreement, Distributor shall cooperate with TFRY and shall do all things reasonably required in making whatever application, if any, as required by law in the Territory, to register the TFRY Marks and/or to register Distributor as a "Registered User" of the TFRY Marks, and Distributor shall sign any and all documents necessary for such purpose. _______ Initial (d) Distributor shall promptly notify TFRY in writing of any counterfeiting or infringement of the TFRY Marks which may come to Distributor's attention. Should any such infringement or alleged infringement occur: (i) The commencement, defense, and conduct of any such proceedings shall be initiated by Distributor. If requested by TFRY, Distributor will furnish all reasonable assistance to TFRY in such proceedings and agrees to share equally with TFRY in the costs of any such proceedings. (e) Distributor agrees not to use the words "TFRY" or any other work, design or device forming any part of any of the TFRY Marks: (i) During the term of this Agreement, otherwise than as herein authorized; or (ii) After termination of this Agreement, in any manner. ARTICLE IX UNIFORMITY OF PRODUCTS (a) Distributor agrees that all food Products offered for sale in the Machines shall be purchased directly from TFRY unless advised otherwise in writing by TFRY. However, paper goods, packaging, cooking oil and other supplies and materials utilized in connection with the food Products may be purchased by Distributor from any supplier in the Territory with the prior written approval of TFRY. (b) In order to establish uniformity of taste and quality of the Products, TFRY has developed and will continue to develop recipes and formulas of ingredients, which ingredients will be made available to Distributor. Such products will be purchased by Distributor at the prevailing prices from time to time, FOB Shipping Point as TFRY determines, and will be utilized by Distributor exclusively as specified by TFRY, unless such products are not supplied by TFRY but are pre-approved in writing by TFRY and TFRY is compensated for its loss of profit on such product. (c) Distributor agrees that it will not offer any food Products or utilize any equipment, signage, display cases or other items which may compete with the TFRY Products and which are not purchased from TFRY or any supplier that is not currently approved by TFRY except as may be set forth herein. ARTICLE X FEES AND FINANCIAL OBLIGATIONS (a) In consideration of the right to distribute Products granted herein, Distributor agrees to pay to TFRY the sum of $200,000.00 as consideration solely for the right to distribute Products (less $20,000 which has been previously paid and an additional $20,000 which shall be paid upon execution of this Agreement). These amounts specifically exclude payment for the _______ Initial Demonstration Machine as more specifically described in Article I(b) herein. Such fee shall be deemed fully earned and shall be non-refundable under any and all circumstances and subject to the fee payment terms set forth on Schedule "A." In addition, upon the written request of TFRY, at any time or from time to time, Distributor shall provide any and all information related to Distributor's creditworthiness to act as a Distributor which such creditworthiness shall be determined by TFRY in its sole and absolute discretion. In this regard, credit worthiness shall be determined by TFRY in accordance with but not solely by: (i) evidence provided by Distributor in writing of its ability to meet its financial obligations and commitments to TFRY, including, but not limited to, credit reports, audited or similarly prepared financial statements of Distributor (as is customary in Israel), certified by its accountants, (ii) bank and business references, and (iii) written statement(s) by Distributor as to any pending or threatened litigation and/or any judgment which could materially impair Distributor's ability to conduct its business and/or have a material adverse effect on its financial condition. (b) In the event that Distributor is unable to meet TFRY's criteria to establish creditworthiness, TFRY shall have the right to terminate Distributor as a distributor, upon 30 days prior written notice without any liability. (c) It is expressly agreed by and between the Parties that as consideration for the grant of distribution rights hereunder by TFRY to Distributor and as an express condition of such grant, Distributor shall purchase from TFRY a minimum number of French Fry Vending Machines upon the terms and conditions set forth on Schedule "A." (d) All payments shall be made in U.S. Dollars and in such manner as is specified from time to time by TFRY but may include, without limiting the generality of the foregoing, bank wire transfer, or certified check delivered to TFRY accounts at such place as TFRY may from time to time designate. (e) Payment terms for the Machines and Products shall be quoted F.O.B. from any shipping point that TFRY may determine. The exact terms of payment will be mutually agreed to by the Parties before each Machine and/or Product order is shipped. The Distributor shall pay the invoice according to terms set by TFRY. Distributor shall also pay any and all applicable sales, use, import duties, excise taxes, or any other taxes arising from the sale or transfer of TFRY Products. All shipments are at Distributor's risk from the time of TFRY conveyance to Distributor's shipper. Notwithstanding the forgoing, TFRY specifically reserves the right to act at any time in accordance with the provisions of the Uniform Commercial Code to protect its interests when necessary. Any claim of discrepancies in shipments made by Distributor shall be made in writing and sent to TFRY within ten (10) business days after receipt of the shipment. _______ Initial ARTICLE XI DISTRIBUTOR (a) Distributor acknowledges that the TFRY Products are unique and distinctive and have been developed by TFRY at great effort, time and expense; that Distributor has regular and continuing access to valuable and Confidential Information, training and trade secrets regarding the Products; and that Distributor recognizes his obligation to fully develop his territory for sales of the Products and accordingly agrees as follows: (i) During the term of this Agreement and any renewal thereof, Distributor shall not, in any capacity whatsoever, either directly or indirectly, individually or as a member of any business organization, except with the prior written consent of TFRY, engage in the sale of any Machines or Products therefore, other than with TFRY. (ii) During the term of this Agreement, or at any time subsequent thereto upon expiration or termination of this Agreement, divulge any aspect of the Products whether expressly stated to be confidential or otherwise to any person. (iii) Distributor shall at all times maintain an inventory of TFRY Products sufficient to satisfy the reasonably anticipated demands of customers located within the Territory. TFRY shall supply all of Distributor's reasonable requirements of TFRY Products for distribution in the Territory, subject to available supplies. TFRY shall not be liable for any delay in shipment arising from or caused by any fire, flood, war, riot, civil disturbance, labor dispute, act of God, material shortage, government regulation or action, or any other cause beyond TFRY's reasonable control. TFRY reserves the right to allocate its available supply of Products in such manner as it may, in its sole discretion, from time to time, determine. (iv) During the term of this Agreement and any renewal thereof, Distributor shall maintain a sufficient inventory of parts to properly maintain, repair, and service TFRY Machines and Products. Distributor shall only use parts which meet the standards of quality established by TFRY from time to time. (v) Distributor shall provide prompt and courteous service to all TFRY customers located within the Territory regardless of whether such customers purchased TFRY Products from Distributor. ARTICLE XII TRANSFER OF INTEREST (a) This Agreement shall enure to the benefit of the successors and assigns of TFRY and may be so assigned at any time in TFRY's sole and absolute discretion. (b) TFRY shall not unreasonably withhold its consent to any full transfer or assignment of this Agreement by Distributor, which is subject to the restrictions of this Article, _______ Initial provided, however, that TFRY shall not be required to give its consent unless, in addition to the requirements of Article V hereof, the following conditions are met prior to the date of the assignment: (i) For any such proposed full transfer or assignment: 1. Distributor shall not be in default under any provision of the terms of this Agreement or any other agreement ancillary to this Agreement, and shall have continuously distributed Products for a period of not less than twelve (12) consecutive months; 2. Distributor has executed a general release in a form prescribed by TFRY of any and all claims against TFRY; 3. The proposed assignee executes such other documents as TFRY may require in order to assume all of the obligations of this Agreement, to the same extent, and with the same effect, as previously assumed by Distributor, including but not limited to proof of credit worthiness to act as a Distributor, which such credit worthiness shall be determined by TFRY in its sole and absolute discretion. 4. A transfer fee has been paid to TFRY in an amount equal to five percent (5%) of the aggregate cash or cash value consideration paid by the assignee to Distributor (assignor) for the distribution rights, to defray its reasonable costs and expenses in connection with the transfer, including without limitation, the cost of legal and accounting fees, credit and investigation charges, evaluations, retraining and additional supervision. It is agreed that the original cost of the Territory will be deducted from this amount. (c) Upon the death or permanent incapacity of a Distributor the following shall apply: (i) TFRY shall have the right, within thirty (30) days of the date upon which TFRY is notified of such death or incapacity not to exceed thirty (30) days from such date (if consistent with applicable local laws) to purchase the interest or any part thereof for cash at the appraised value, such purchase to be completed within sixty (60) days. Such appraised value shall be determined by an independent appraiser selected by TFRY. (ii) If TFRY declines to elect to purchase the interest, within thirty (30) days of the date upon which TFRY is notified of such death or incapacity, the interest may be transferred within a further sixty (60) days by sale to a third party meeting TFRY's then current criteria for new distributors, provided that the requirements of paragraph (b) of this Article are met. If a transfer to an approved transferee cannot be effected within a further one hundred and twenty (120) days, this Agreement shall terminate automatically and TFRY shall have no obligations whatsoever to the Distributor, his successors, heirs, assigns or transferees. (iii) No sale or transfer of the interest shall be approved by TFRY unless the incapacitated Distributor or, in the case of the deceased Distributor, its personal representative _______ Initial has agreed to reimburse TFRY for the reasonable costs and expenses it has incurred or may incur in providing, at TFRY's option, one or more interim Distributors to manage the business until a transfer of the interest is effected, if TFRY determines, in its sole and absolute discretion, that such supervision is necessary or desirable. (d) TFRY's consent to a transfer of any interest subject to the restrictions of this Article XII shall not constitute a waiver by TFRY of the right to distribute Products granted herein, nor shall it be deemed a waiver of TFRY's right to demand exact compliance with any of the terms of this Agreement by the transferee or assignee. The document effecting the transfer or assignment of any interest subject to the restrictions of this Article XII shall specifically provide that Distributor's obligations hereunder shall continue in full force and effect notwithstanding any such disposition. (e) If Distributor has received and desires to accept any bona fide offer to purchase his or its distribution rights hereunder, Distributor or such person shall notify TFRY in writing of the purchase price and terms of such offer, and TFRY shall have the right and option, subject to any limitations of applicable local laws exercisable within thirty (30) days after receipt of such written notification, to send written notice to Distributor or such persons that TFRY or its designee intends to purchase Distributor's interest on the same terms and conditions offered by the third party. Any material change in the terms of an offer prior to closing shall result in a new notification as in the case of the initial offer. ARTICLE XIII DEFAULT (a) In addition to those events hereinbefore stated to be events of default, it is agreed that the rights granted to Distributor pursuant to this Agreement may be terminated immediately with notice upon the happening of any one or more of the following events: (i) If the Distributor fails to comply with any of the terms and conditions of this Agreement and such failure to comply continues for a period of thirty (30) days after written notice thereof has been given to the Distributor. (ii) If the Distributor fails to comply with any of the terms and conditions of any other agreements entered into pursuant to or collateral to this Agreement, which shall, for the purposes of this Article XIII, be deemed a part thereof. (iii) If the Distributor shall be adjudicated a bankrupt or become insolvent, or if a receiver or other person with like powers shall be appointed (whether temporary or permanent) to take charge of all or substantially all of the Distributor's assets, or if the Distributor shall make a general assignment for the benefit of creditors or a proposal under the Bankruptcy Act (or any similar or successor act), or commence any proceedings to wind-up, liquidate, or dissolve the Distributor's business. _______ Initial (iv) If any final judgement or judgments in excess of Twenty-five Thousand Dollars ($25,000.00) or any legal tax lien against the Distributor remains unsatisfied or unbonded of record in excess of thirty (30) days, or if the Distributor shall commit or suffer any default under any security instrument. (v) Other than amounts to be paid to TFRY wherein the provisions of subsections (i) and/or (ii) above respecting default shall apply, if the Distributor does not pay any other indebtedness incurred in connection with the operation of the business contemplated hereby through which the Products are maintained and sold and such indebtedness is not paid within seven (7) calendar days of notice from TFRY. (vi) If the Distributor fails for a period of more than ten (10) calendar days to continuously and actively operate its distributorship throughout the Territory in accordance with the terms of this Agreement as may be amended in accordance herewith. (vii) If the Distributor falsifies any statement or report furnished to TFRY or otherwise deliberately provides false information to TFRY; or if the Distributor is convicted of a felony or other crime or impairs the goodwill associated with TFRY Marks. (viii) If the Distributor does any act which constitutes an event of default hereunder for which notices of default have been previously served more than four times in any one calendar year during the term of this Agreement, notwithstanding that any of such events of default may have been cured. (ix) If the Distributor does not order and complete the purchase of the French Fry Vending Machines it is required to purchase pursuant to the terms of this Agreement including any and all schedules attached hereto and made a part hereof, in the manner and at the times therein specified. (x) If the Distributor does not complete the training course to be taken by the Distributor to the satisfaction of TFRY prior to distributing food Products to the public. (xi) If the Distributor fails to maintain the mandatory insurance coverage as set forth in Article XV herein. (b) Distributor agrees to pay all reasonable attorney's fees and costs as between an attorney and his own client, and reasonable attorney and/or accounting fees and court costs incurred by TFRY in the event of a violation by Distributor of this Agreement. (c) Distributor agrees that in the event of a default hereunder, it shall immediately cease using the name Tasty Fries, Israel, Ltd. throughout the Territory and any other geographic area in which such name is being used by Distributor at which time such name shall immediately revert back to TFRY. Distributor agrees to take any and all action and to execute any and all _______ Initial documents which may be required to facilitate the relinquishment and reversion of the name Tasty Fries, Israel, Ltd. to TFRY. (d) In case of a default or breach or a threatened default or breach of the terms of this Agreement by Distributor, TFRY shall, in addition to any other remedy it may have, and notwithstanding any other provision hereof, be entitled to an injunction restraining Distributor from committing or continuing to commit any breach of or default under this Agreement, without showing or proving any actual damage sustained by TFRY, which damage is hereby conclusively acknowledged. ARTICLE XIV RIGHTS AND OBLIGATIONS OF PARTIES ON TERMINATION OR EXPIRATION (a) Upon termination or expiration of this Agreement for any reason whatsoever, including the events of default set forth herein, Distributor will immediately discontinue use of all trade names, trademarks, signs, forms of advertising, printed material (collectively referred to herein as the "TFRY Marks") and all other indicia of operation as a TFRY Distributor from its operations. In addition, Distributor will discontinue use of the TFRY color scheme. If the Distributor shall fail or omit to make or cause to be made such discontinuance within seven (7) calendar days after termination or expiration of this Agreement, then TFRY, in addition to any other remedy it may have, shall have the right to enter upon premises and to make or cause to be made such removal of signs, trademarks, trade names and other indicia of operation subject to removal and such removal shall be conducted at the sole expense of Distributor (without being deemed guilty of trespass or any civil wrong), which expense the Distributor agrees to pay on demand. (b) TFRY shall retain all fees paid pursuant hereto. (c) Any and all obligations of TFRY to Distributor under this Agreement shall immediately cease and terminate. (d) In no event shall termination or expiration of this Agreement for any reason whatsoever affect Distributor's obligation to take or abstain from taking action in accordance with this Agreement. (e) It is understood by Distributor that rights in and to TFRY Marks and any part thereof or addition thereto and the use thereof shall be and remain the property of TFRY. Distributor shall confirm same in writing and shall further assign, transfer and convey to TFRY by such instrument in writing as may be requested, all additional rights which may be acquired, if any, by reason of the use of said name of Distributor. (f) TFRY shall have the option to purchase, at Distributor's cost less twenty-five (25%) percent, all or any portion of inventory of any kind bearing the TFRY Marks, including, _______ Initial but not limited to, French Fry Vending Machines, equipment, vehicles, and any other items Distributor may have in stock at the time of such termination or expiration. (g) Distributor shall cause immediate discontinuance of all advertising or other public display or publication of the words "Tasty Fries" or other approved language and, in the event that such action is not taken by Distributor as provided hereby, Distributor hereby irrevocably appoints TFRY as Distributor's attorney in-fact to carry out such acts at Distributor's sole expense. (h) Distributor will immediately pay any and all amounts owing to TFRY and its subsidiaries and affiliates. (i) Distributor shall not, in any capacity whatsoever, either directly or indirectly, individually or as a member of any business organization, engage in the preparation or sale of any TFRY or other approved TFRY Product, or have any employment or interest in a firm engaged in the preparation or sale of such Products within the Territory or within thirty (30) miles of any other Distributor's exclusive or non-exclusive territory for a period of three (3) years following such termination. Distributor acknowledges and agrees that this restriction upon subsequent activities is necessary in view of the Confidential Information and expertise Distributor will acquire pursuant to the terms of the Agreement and will cause TFRY irreparable and substantial damage in the event of breach of these provisions. The Distributor has the option to cancel this Agreement by giving six (6) months prior written notice. Notwithstanding such notice, no refund shall be given of any payments made by Distributor to TFRY. ARTICLE XV INSURANCE (a) Distributor agrees to place and keep in effect during the term of this Agreement, with an insurance company approved by TFRY, public liability insurance in an amount in U.S. dollars of no less than One Million Dollars ($1,000,000), in case of damage or injury to one person, no less than One Million Dollars ($1,000,000), in case of damage or injury to more than one person, property damage insurance of One Million Dollars ($1,000,000) in case of damage or injury to one person. Proof of the requisite insurance coverage shall be furnished to TFRY prior to the delivery of the first Machine. This insurance requirement may be amended by TFRY in its sole and absolute discretion based on the feasibility of obtaining such insurance in the Territory at reasonable rates. (b) Distributor shall secure and maintain workers' compensation and employer's liability insurance covering all of its employees or similar insurance as may be available in the Territory. (c) It is specifically agreed that the insurance coverage required by paragraph (c) be kept in effect and shall be subject to review by TFRY in order to ensure adequate insurance protection throughout the term of this Agreement. TFRY may, from time to time, and in its sole _______ Initial discretion, require Distributor upon thirty (30) days written notice, to obtain additional insurance beyond the requirements of paragraph (a). (d) All insurance shall be in amounts and with carriers acceptable to TFRY, and shall be evidenced by certificates of insurance showing TFRY as a named insured (or loss payee as the case may be) and providing that coverage shall not be terminated or canceled without thirty (30) days prior written notice to TFRY. ARTICLE XVI INDEMNIFICATION OF TFRY (a) Distributor agrees to protect, indemnify, and save TFRY, its affiliates, subsidiaries, partners, stockholders, directors, officers, agents (other than Distributor) and employees of its partners harmless from any and all loss, damage, liability, expenses, attorney's fees and costs incurred by any of them because of any action, matter, thing, or conduct of Distributor and/or Distributor's business or its agents, servants, employees, customers and guest in, on, or connected with the storage, transport, installation, sale or servicing, preparation, and cooking of Products. ARTICLE XVII APPEARANCE OF MACHINES (a) Distributor shall see to it that all Machines in the Distributor's Territory are in good repair, and shall refurbish, repair, and maintain each French Fry Vending Machine as necessary or as required by TFRY in order to ensure that at all times and in all instances, safe and reputable Products are provided to the public. ARTICLE XVIII RENEWAL OF AGREEMENT (a) Unless terminated as provided herein, Distributor shall have the option, pursuant to such procedures as may be required by TFRY at the expiration of the initial term of this Agreement, to renew the license granted hereunder at each ten (10) year expiration date as long as all contractual conditions of such new distributorship agreement are met in the sole and absolute discretion of TFRY, by executing TFRY's then current form of Distributorship Agreement provided that: (i) Distributor gives TFRY written notice of its election to renew not less than three (3) months nor more than nine (9) months prior to the expiration of the then current term and, Distributor executes a general release under seal, in a form prescribed by TFRY, of any and all claims against TFRY, its affiliates, stockholders, directors, officers and employees, and (ii) Distributor at the time of notice of election to renew and at the end of the then-current term is not in default of any of the terms or conditions of this Agreement or any _______ Initial other agreement between Distributor and TFRY or its affiliates, and has materially complied with the terms and conditions of all such agreements during the term of this Agreement, and (iii) All of Distributor's accrued monetary obligations to TFRY and its subsidiaries and affiliates have been satisfied prior to renewal, and timely met throughout the term of this Agreement. (b) Upon renewal of this Agreement, no additional distributorship fee will be due; however, it is specifically agreed that Distributor will, upon renewal, be charged by TFRY a sum which shall be equal to TFRY's estimated costs incurred in connection with such renewal plus an administrative fee equal to fifteen (15%) percent of such costs. ARTICLE XIX RELATIONSHIP OF PARTIES (a) The relationship between TFRY and Distributor is that of vendor and purchaser and Distributor is an independent contractor and shall not have authority to act for or to bind TFRY in any way or to in any way represent that TFRY is responsible for any act of Distributor. TFRY and Distributor are not and shall not be considered as joint venturers, partners, or agents of each other, or anything other than manufacturer and Distributor and neither shall have the power to bind or obligate the other than as set forth in this Agreement. Distributor shall bear sole responsibility for any statements or claims of Distributor regarding the Products which have not been authorized in advance and in writing by TFRY. Distributor shall indemnify TFRY and save TFRY harmless from and against any and all liability, loss, damages, costs or expenses which TFRY may incur in the event Distributor does not comply with the obligations specified in this Article XIX. (b) The Parties further agree that the relationship created by this Agreement is not a fiduciary, employer-employee, or franchisor-franchisee relationship. ARTICLE XX DISTRIBUTOR'S RESPONSIBILITY (a) Distributor acknowledges that his success in the distribution of Products contemplated to be undertaken by Distributor pursuant to this Agreement is speculative and depends primarily upon the ability of Distributor as an independent business organization. Distributor acknowledges that neither TFRY nor any other person has guaranteed or warranted that Distributor will succeed in the operation of this business venture. (b) Distributor further acknowledges that there have been no representations, promises, or guarantees of warranties of any kind made by TFRY or its agents or representatives to induce Distributor to execute this Agreement, except as specifically set forth in this Agreement and further, that Distributor has received all information which he has requested _______ Initial concerning the business operation of TFRY which, in the opinion of Distributor, is necessary to decide whether to enter into this Agreement. (c) Distributor further acknowledges that independent legal advice had been sought in the preparation of this Agreement. (d) Distributor further acknowledges that the Distributor warrants and represents that it is duly organized under the laws of the jurisdiction in which it will do business and the person executing this Agreement has the authority to do so. ARTICLE XXI NOTICES (a) All notices to TFRY required by the terms of this Agreement shall be sent by registered mail, addressed to TFRY at its office at: 650 Sentry Parkway, Suite One Blue Bell, PA 19422 (or such other address as TFRY shall designate in writing) or by telefax, telecopy or other electronic means of communication to such address. (b) All notices to Distributor required by the terms of this Agreement shall be personally delivered to or sent by registered mail, addressed to the Distributor at: or such other address as Distributor shall designate in writing) or by telefax, telecopy or other electronic means of communication to such address. (c) All notices to either party required by the terms of the Agreement shall be deemed to have been received: (i) in the case of hand delivery or telefax, telecopy or other electronic communication, upon actual receipt thereof and not the date of receipt of confirming mail); and (ii) in the case of notice sent by registered mail, ten (10) business days after the date of mailing. ARTICLE XXII INTERPRETATION AND EXECUTION OF AGREEMENT (a) This Agreement shall be construed and interpreted in accordance with the laws of the State of Pennsylvania. _______ Initial (b) This Agreement (inclusive of any and all schedules attached hereto and made a part hereof) contains the entire Agreement of the Parties and no representations, inducements, promises, or agreements, oral or otherwise, not embodied herein, were made by TFRY and none shall be of any force or effect. (c) Nothing in this Agreement shall bar or restrict TFRY's right to obtain injunctive relief under applicable law. (d) Distributor, by execution of this Agreement, submits itself and its officers, directors and/or principals to the jurisdiction of the state and federal courts of Montgomery County, Pennsylvania and waives any and all claims of lack of jurisdiction, whether in personam,in rem or other. ARTICLE XXIII SEVERABILITY AND CONSTRUCTION (a) Each section, part, term and provision of this Agreement, and any portion thereof shall be considered severable, and if, for any reason, any portion of this Agreement is determined to be invalid, contrary to or in conflict with any applicable present or future law, rule, or regulation in a final unappealable ruling issued by any court, agency, or tribunal with valid jurisdiction in a proceeding to which TFRY is a party, that ruling shall not impair the operation of, or have any other effect upon, such other portions of this Agreement as may remain otherwise valid and which shall remain binding on the Parties and continue to be given full force and effect. ARTICLE XXIV WRITTEN APPROVALS AND WAIVERS (a) TFRY shall not be deemed to have waived or impaired any right, power or option reserved by this Agreement (including, without limitation, its right to demand Distributor's exact compliance with every term, condition, and covenant herein, or to declare any breach thereof a default and to terminate this license prior to the expiration of its term), by virtue of any custom or practice of the Parties at variance with the terms hereof, any failure by TFRY to demand strict compliance with this Agreement, any forbearance, delay, failure or omission by TFRY to exercise any right, power or option, whether of the same, similar or different nature, against Distributor or other Distributorships, or the acceptance by TFRY of any payments due from Distributor after any breach of this Agreement. ARTICLE XXV NON-PERFORMANCE DUE TO FORCE MAJEURE (a) If the performance of any of the obligations set out in this Agreement by any one of the Parties is interrupted or prejudiced by: _______ Initial (i) fire, explosion, collapse, strike, lockout, labor dispute, failure or lack of transport, fortuitous or accidental, as well as, floods, failure or lack of manpower or raw material; or (ii) war, revolution, civil war, public calamity; or (iii) any law, decree-law, regulation, government order or other Government act; or (iv) any other cause beyond the control of the parties, as determined by TFRY in its sole and absolute discretion. (b) The Party affected will be free of responsibility for not fulfilling its obligation to the extent of the impediment it has suffered, provided that the other Party is promptly notified of same in writing. AS WITNESS the hands and seals of the duly authorized representatives of the Parties hereto as of the day and year first above written. TASTY FRIES, INC. By:/S/ ------------------------------------ Edward Kelly, President DISTRIBUTOR: TASTY FRIES, ISRAEL, LTD. By:/S/ ------------------------------------ _______ Initial SCHEDULE A TERRITORY: Israel, Jordan and Egypt1 PRICE: $200,000.00 DOWN PAYMENT: $ 40,000.00 BALANCE $160,000.00 To maintain Distributorship, Distributor must purchase a minimum of one hundred (100) Machines per year for three (3) years with an option thereafter to purchase additional Machines during the remaining seven (7) years of the Agreement at the then current cost per Machine. This minimum purchase requirement begins on the Effective Date as defined in Article I(a) hereof. Any and all payments made to TFRY, Inc. are payable in U.S. Dollars only. Payments will be issued by bank wire or certified cashiers' checks only. Payment terms shall be in accordance with Article X(e) hereof. An additional Five Hundred ($500.00) Dollars will be added to the cost of each Machine sold into the Territory for the first three hundred (300) Machines. This will reduce the cost of the Territory accordingly. The balance of $10,000 shall thereafter be made by Distributor either (i) in one lump sum payment on the first business day of the month preceding the purchase of the last Machine or Machines, or (ii) by adding $500 to the cost of the next 20 Machines ordered if the option to purchase additional Machines is exercised. If less than 20 Machines are ordered, any balance shall be paid in cash by Distributor prior to shipment of such additional Machines. - -------- 1 Such Territory currently includes the Golan Heights, the Gaza Strip and the West Bank. If any one or more of such areas becomes one or more independent sovereign states during the term of this Agreement or any renewal thereof, TFRY will determine whether such independent sovereign state or states will be included as part of the Territory going-forward based upon the investment made by the Distributor in each of such areas during the term of the Agreement. _______ Initial DISTRIBUTORSHIP AGREEMENT This Agreement made this 19th day of October, 1994. BETWEEN: TASTY FRIES, INC. (hereinafter referred to as "TFRY") located at 11098 Biscayne Boulevard, Suite 403, Miami, Florida 33161 with principal executive offices at: 650 Sentry Parkway, Suite One, Blue Bell, Pennsylvania 19422 and MOYSES FERMAN REPRESENTACOES INTERNACIONAIS LTDA., a Brazilian limited company with principal offices at: Rua da Cevada, 93, Conj. 614 21011 Rio de Janeiro, RJ, Brazil (hereinafter referred to as "Distributor"): WITNESSETH: WHEREAS, TFRY owns the rights to manufacture, distribute and sell a fully automated french fry vending machine; WHEREAS, TFRY is the owner of a distinctive type of marketing, preparation and vending machine sale of TFRY french fry food products; and; WHEREAS, TFRY has developed and adopted for its own use and for the use of its Distributors a unique system of TFRY product preparation and vending machine sale, consisting in part of the unique french fry vending machines, distinctive advertising, signs, food presentation and formula secret recipes (collectively the "Products"); and WHEREAS, in addition to valuable goodwill, TFRY owns the valuable trade name and design of TFRY in addition to various patents, trademarks, service marks, copyrights, tradenames, slogans, designs, insignia, emblems, symbols, package designs, logos and other proprietary identifying characteristics (collectively, the "TFRY Marks") used in relation to and in connection with the Products, and WHEREAS, DISTRIBUTOR wishes, upon the terms and conditions hereinafter set forth, to enter into the business of distributing TFRY Products on an exclusive basis in the Territory of BRAZIL and to benefit from the expertise and experience of TFRY in its field; and WHEREAS, TFRY is willing to permit Distributor to use TFRY Marks as aforesaid, together with the retail sale of TFRY French Fry Vending Machine and its products upon the terms and conditions hereinafter set forth. NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants herein contained and promises herein expressed for other good and valuable consideration, receipt whereof is hereby acknowledged, do hereby agree as follows: ARTICLE I DISTRIBUTORSHIP AGREEMENT A. Subject to the provisions of this Agreement and the performance of its covenants and obligations, TFRY hereby grants Distributor an exclusive right and license to distribute all TFRY Products and to use the TFRY Marks in the retail sale thereof within the territorial boundaries set forth and more particularly described in Schedule "A" attached hereto and forming part of this Agreement (the "Territory") for a term of ten (10) years commencing on the "Effective Date". The "Effective Date" is defined as the date on which TFRY demonstrates its capacity to ship machines for use by consumers, other than demonstrator machines for use by the Distributor. The parties specifically acknowledge and agree that the restriction of operation to the Territory identified herein is an essential and indispensable term of this Agreement. DISTRIBUTORS'S SPECIFIC TERRITORIAL RIGHTS 1. The Distributor shall have the exclusive right in his Territory to sell the TFRY French Fry Vending Machine and TFRY's attendant Products to all users in the Territory. 2. In the event that TFRY machines are sold by the parent company for use in the Distributor's Territory, the Distributor shall earn its full Distributors's profit. This provision is contingent upon his consent to supply and service these machines. 3. The Distributor shall receive its full profit if machinery is sold to clients in his Territory for installation in areas outside of his Territory. Except that in the event the machinery is sold into another Distributor's Territory, the Distributor profit shall be seventy (70%) percent to the originating Distributor and thirty (30%) percent to the Territorial Distributor. 4. The Distributor in his exclusive Territory will receive thirty percent (30%) of the full Distributor's profit in such event that there are installed in his Territory TFRY machines resulting from any other type of sale other than directly by Distributor. The Distributor, in order to earn the Distributor's profit, is obligated to supply and service these machines. 5. TFRY and Distributor will continue good faith negotiations to allow for a three phase implementation in the Territory: 1) direct export of machines and potato to Brazil, as provided herein; 2) technology transfer (potato pellet dehydration) and fabrication of potato product in Brazil; and 3) machine parts export to Brazil for Brazilian assembly of same. 6. Distributor shall have the right to adapt operating procedures to the conditions prevailing in the Territory, subject to approval by TFRY, including, but not limited to, coin operation mechanisms, use of tokens instead of coins or paper currency, electrical current and different methods of handling materials and components. 7. Distributor shall have the right to assign the rights and delegate the duties herein to sub-distributors within the Territory. Distributor shall maintain at all times the duty to supervise the operations of all such sub-distributors. ARTICLE II OBLIGATIONS OF TFRY TFRY agrees to assist Distributor in distributing Products by way of retail sale in the following manner: A. TFRY will conduct, at no charge, certain sales and maintenance training programs in its headquarters training school which Distributor and one key employee may attend. All costs and expenses incurred by Distributor in traveling to or attending the training program shall be borne by Distributor. B. TFRY agrees to provide to Distributor, as it is available from time to time, exchange of information relating to the Products and additional types of products as may be authorized by TFRY from time to time for sale pursuant to this Agreement, and which, when authorized, will also constitute "Products" for all purposes herein, at such times and in such detail as TFRY shall deem appropriate. C. If TFRY provides credit or financing to Distributor, the TFRY may take a security interest in all TFRY products sold to Distributor, and Distributor shall take such actions and execute and deliver such documents as TFRY may request in order to perfect or protect such security interest. ARTICLE III CONFIDENTIAL INFORMATION A. The parties hereto covenant and agree that any Confidential Information disclosed to the Distributor relating directly or indirectly to the vending machines and their component parts of the ingredients, preparation or sale of any of the Products will remain the property of TFRY at all times and will, if disclosed in any tangible format, be returned to TFRY upon demand and, in any event, upon termination of this Agreement. B. It is expressly understood and agreed by Distributor that the confidential Information described above constitutes highly confidential trade secrets and Distributor agrees that neither he nor any of his employees will reveal any of such Confidential Information being revealed or reproduced. ARTICLE IV STANDARDS OF OPERATION AND SUPERVISION BY TFRY Distributor agrees to conduct its business in a manner consistent with the standards set forth in this Agreement. It is expressly understood that these standards may change from time to time, and are in addition to and not in substitution for any standards set forth in this Agreement. In order to preserve the value and goodwill of TFRY and related goodwill of other TFRY Distributors and to promote the purpose of this Agreement, the parties hereto agree as follows: 1. Distributor will use and distribute the Products as herein contemplated strictly in accordance with the terms of this Agreement. 2. Unless approved in writing by TFRY, Distributor will not develop, produce, sell, advertise for sale or give away any product which might reasonably compete with the Products and all food Products will be prepared in accordance with the specific formulas or utilizing the ingredients purchased from or specified by TFRY. It is expressly understood that the conditions and restrictions expressed herein are for the purposes of ensuring quality control, health and safety standards and uniformity of Products sold in conjunction with the TFRY Marks. 3. TFRY may from time to time of her guidance to Distributor relative to retail prices for Products offered for retail sale that in TFRY judgment constitute good business practice. 4. Distributor will use its best efforts to see to it that its customers maintain suitable signs (which signs shall be approved by TFRY) at, on or near the front of any premises within which its french fry vending machines are located, describing the premises having Products available for retail sale. Any translation from the English language or deviation from TFRY approved designs contained in such sign shall require the prior written approval of TFRY. 5. It is the Distributor's responsibility to ensure that all food products sold by Distributor hereunder will be of the highest and safest quality, and the service relating to any such sale hereunder will comply with the instructions and standards provided by TFRY in preparing the food Products, or with any other further written requirements of TFRY as they are communicated to Distributor from time to time. 6. It is the Distributor's responsibility to ensure that it will maintain all french fry vending machines by which its business is conducted in conformity with the high quality, style and cleanliness required of similar french fry vending machines now operated in connection with TFRY Marks and will be responsible that the operation of such machines by its customers be conducted in a clean, orderly, legal and respectable standard of business including. without limitation, cleaning and sanitation of the french fry vending machines, disposal of stale, spoiled or unmerchantable food Products, replacement of cooking oil at specified intervals, replacement or repair of display merchandise, replacement of outdated or obsolete machines (including its component parts), equipment and signs. Distributor shall see that its customers comply with all applicable ordinances, health and safety regulations, laws and statutes governing the operation of such premises and the sale of products, including all criminal and quasi-criminal laws and regulations. 7. Distributor's exclusive remedy for any damage to or defect in any TFRY Product sold hereunder shall be limited to the repair or the replacement of the damaged article, as determined by TFRY at its sole discretion. In no event shall TFRY be liable for any incidental or consequential loss or damage, including but, not limited to, loss of profits or any other economic loss, suffered or incurred by Distributor as a result of or in connection with any defective or damaged product sold hereunder. 8. TFRY warrants that title to all TFRY Products transferred hereunder will be free and clear of all liens, security interests or other claims, and that such products shall comply with the terms and conditions of the limited warranty certificate included with each TFRY Product and issued to original purchasers by TFRY. C. TFRY or TFRY supervisory personnel shall have the right to enter upon any premises in which Distributor conducts its business at any reasonable time for the purposes of examining, conferring with Distributor's employees, inspecting and checking perishable and nonperishable food supplies, vending machines, and other equipment and in determining whether the distribution of Product is being conducted in accordance with the aforesaid standards and within the terms of this Agreement. In the event any such inspection indicates a deficiency or unsatisfactory condition or conditions, Distributor shall, within forty-eight (48) hours and, if not capable of being corrected or repaired within such time, shall within such period of time commence such correction or repair and thereafter diligently pursue the same to completion. In the event of failure of Distributor to comply with the foregoing obligations to correct and repair, TFRY, in addition to any other remedies conferred in this Agreement, shall have the right to forthwith make or cause to be made, such corrections or repairs, the expenses thereof, including board, lodging, wages and transportation of TFRY personnel, attorneys' fees and other living expenses, shall be paid by the Distributor immediately upon billing by TFRY. Nothing in this paragraph shall in any way limit TFRY other rights hereunder. ARTICLE V COMMENCEMENT OF BUSINESS A. Distributor agrees to obtain, prior to commencement of its distribution business, pursuant to this Agreement, all licenses, approvals, inspections, permits or any other certification which may be required by any competent public authority for the lawful operation of its business and to keep the same in good standing during the term hereof. ARTICLE VI USE OF TFRY NAME, MARKS AND ADVERTISING A. During the term of this Agreement, and any renewals hereof, Distributor shall advertise sale of the Products under the trade name of "Tasty Fries Hot French Fries" or one or more mutually agreed-upon non-English language substitutes within the Territory, and will diligently promote and make every reasonable effort to steadily increase sales of the Products by proper use of all advertising media. B. No design, advertisement, sign or form of publicity, including form, color, number, location and size, shall be used by Distributor in connection with sale of the Products unless the same shall have been first submitted to TFRY and approved in writing. Upon notification from TFRY, Distributor will cause to be removed any objectionable advertising material and, if required, cause to be published any retraction in a form and manner consistent with that of the objectionable advertising materials. In the event said materials are not removed within seven (7) days after notice, TFRY or its authorized agents, may at any time, enter upon Distributor's premises, or elsewhere and remove any objectionable advertising material and may keep or destroy such materials without paying therefore and without being guilty of trespass or other civil or criminal wrong. C. All printed materials, including, but not limited to, product carrying bags, product wrapping, cups, napkins, posters or other printed material used in connection with the distribution by retail sale of the Products shall bear TFRY Marks as suggested by TFRY, and such use will indicate that TFRY Marks are registered Marks. D. Distributor shall act prudently and in conformity with all laws, regulations, ordinances, or other requirements which may affect the utilization of the TFRY to ensure that the Marks are not jeopardized, diminished or damaged in any manner and Distributor agrees to indemnity and save harmless TFRY for any damage or expense occasioned directly or indirectly by Distributor's improper use of said Marks. E. Any contractual arrangement of any kind for advertising under the trade name "Tasty Fries Hot French Fries" or utilizing the TFRY Name, entered into by Distributor shall expressly provide for termination with no greater than then (10) days written notice. ARTICLE VII TFRY MARKS A. TFRY hereby grants to Distributor for the term of this Agreement the exclusive right and license to use the TFRY Marks within the Territory but only in connection with the distribution of TFRY Products which Distributor is permitted to sell hereunder and the extent and manner of use of the TFRY Marks shall be subject to TFRY approval and to the extent that such Marks can be used legally in the Territory. B. Distributor shall be entitled to assign or sublicense his rights to use the TFRY Marks without the written consent and approval of TFRY. C. Upon execution of this Agreement, Distributor shall cooperate with TFRY and shall do all things reasonably required in making whatever application, if any, as required by law in the Territory, to register the TFRY Marks and/or to register Distributor as a "Registered User" of the TFRY Marks and Distributor shall sign any document necessary for the purpose. D. Distributor shall notify TFRY forthwith in writing of any counterfeiting or infringement of the TFRY Marks which may come to Distributor's attention. Should any such infringement or alleged infringement occur: 1. The commencement, defense, and conduct of any such proceedings shall be initiated by Distributor. If requested by TFRY, Distributor will furnish all reasonable assistance to TFRY in such proceedings and agrees to share equally with TFRY in the costs of any such proceedings. E. Distributor agrees not to use the words "TFRY" or any other work, design or device forming or forming any part of any of the TFRY Marks: 1. During the term of this Agreement, otherwise than as herein authorized; or 2. After termination of this Agreement, in any manner. ARTICLE VIII UNIFORMITY OF PRODUCTS A. The reputation and goodwill of TFRY products is based upon, and can be maintained and enhanced, only by the sale of consistently high quality Products to the satisfaction of customers who rely upon the uniformly high quality of such products. Distributor therefore agrees that all food Products offered for sale in the vending machines shall be, initially, purchased directly from TFRY. However, paper goods, packaging, cooking oil and other supplies and materials utilized in connection with the food products may be purchased by Distributor from any supplier in the Territory with TFRY approval. B. In order to establish uniformity of taste and quality of the Products, TFRY has developed and will continue to develop recipes and formulas of ingredients, which ingredients will be made available to Distributor. Such products will be purchased by Distributor at the prevailing prices from time to time, FOB Shipping Point as TFRY determines, and will be utilized by Distributor exclusively as specified by TFRY, unless products are not supplied by TFRY but are approved by TFRY and TFRY is compensated for its loss of profit on such product. C. Distributor agrees that he will not offer any food product or utilize any equipment, signage, display cases or other items which may compete with the Products and which are not purchased from TFRY or any supplier that is not currently approved by TFRY. ARTICLE IX FEES AND FINANCIAL OBLIGATIONS A. In consideration of the right to distribute Products granted herein, Distributor agrees upon execution of this Agreement, to pay to TFRY, the sum of TWO HUNDRED FIFTY THOUSAND ($250.000.00), as consideration solely for the right to distribute Products. Such right shall be acquired, in full, upon the Effective Date of this Agreement, whereupon such fee shall be fully earned and non-refundable under any circumstances whatsoever and subject to the fee payment in Schedule "A". B. It is expressly agreed b.;tween the parties that as consideration for the grant of distribution rights hereunder by TFRY to Distributor and as an express condition of such grant, that Distributor purchase from TFRY a minimum number of french fry vending machines upon the terms and conditions set forth on Schedule "A" attached hereto and forming a part of this Agreement. C. Unless otherwise specified herein, all amounts stated herein or payments to be made to TFRY under this Agreement shall be in U.S. Dollars. Such payments shall be made in such manner as is specified from time to time by TFRY but may include, but without limiting the generality of the foregoing, bank wire transfer, or certified check delivered to TFRY accounts at such place as TFRY may from time to time designate. D. During the term of this Agreement and any renewal thereof, Distributor agrees that all payments will be made in United States (U.S.) Dollars. TFRY products shall be quoted F.O.B. from any shipping point that TFRY may determine. Dealer shall pay the invoice according to terms set by TFRY. Distributor shall also pay any and all applicable sales, use, import duties, excise taxes, or any other taxes arising from the sale or transfer of TFRY Products. All shipments are at Distributors risk from the time of TFRY conveyance to Distributors shipper. Notwithstanding the forgoing, TFRY specifically reserves the right to act at any time in accordance with the provisions of the Uniform Commercial Code to protect its interests when necessary. Any claim of discrepancies in shipments made by Distributor shall be made in writing and sent to TFRY within ten (10) business days after receipt of the shipment. ARTICLE X DISTRIBUTOR A. Distributor acknowledges that the TFRY Products are unique and distinctive and have been developed by TFRY at great effort, time and expense; that Distributor has regular and continuing access to valuable and confidential information, training and trade secrets regarding the Products; and that Distributor recognizes his obligation to fully develop his territory for sales of the Products and accordingly agrees as follows: 1. During the term of this Agreement and any renewal thereof, Distributor shall not, in any capacity whatsoever, either directly or indirectly, individually or as a member of any business organization, except with the prior written consent of TFRY, engage in the sale of any french fries vending machine or supplies therefore, other than TFRY. 2. During the term of this Agreement, or upon expiration or termination of this Agreement, divulge any aspect of the Products whether expressly stated to be confidential or otherwise to any person. 3. Distributor shall at all times maintain an inventory of TFRY Products sufficient to satisfy the reasonably anticipated demands of customers located within the Territory. TFRY shall supply all of Distributors reasonable requirements of TFRY Products for distribution in the Territory, subject to available supplies. TFRY shall not be liable for any delay in shipment arising from or caused by any fire, flood, war, riot, civil disturbance, labor dispute, act of God, material shortage, government regulation or action, or any other cause beyond TFRY reasonable control. 4. During the term of this Agreement and any renewal thereof, Distributor shall maintain a sufficient inventory of parts to properly maintain, repair, and service TFRY Products. Distributor shall only use parts which meet the standards of quality established by TFRY from time to time. Distributor shall provide prompt and courteous service to all TFRY customers located within the Territory regardless of whether such customers purchased TFRY products from Distributor. ARTICLE XI TRANSFER OF INTEREST This Agreement shall enure to the benefit of the successors and assigns of TFRY and may be so assigned at any time. TFRY shall not unreasonably withhold its consent to any full transfer or assignment of this Agreement, which is subject to the restrictions of this Article, provided, however, that TFRY shall not be required to give its consent unless, in addition to the requirements of Article IV hereof, the following conditions are met prior to the date of the assignment: 1. For any such proposed full transfer or assignment: (a) Distributor shall not be in default under any provision of the terms of this Agreement or any other agreement ancillary to this Agreement, and shall have continuously distributed products for a period.of not less than twelve (12) months; (b) Distributor has executed a general release in a form prescribed by TFRY of any and all claims against TFRY; (c) The proposed assignee executes such other documents as TFRY may require in order to assume all of the obligations of this Agreement, to the same extent, and with the same effect, as previously assumed by distributor; (d) The proposed assignee executes such other documents as TFRY may require in order to assume all of the obligations of this Agreement, to the same extent, and with the same effect, as previously assumed by distributor; (e) A transfer fee has been paid to TFRY in an amount equal to five percent (5%) of the aggregate cash or cash valued consideration paid by the assignee to assignor for the distribution rights, to def ray its reasonable costs and expenses in connection with the transfer, including without limitation, the cost of legal and accounting fees, credit and investigation charges, evaluations, retraining and additional supervision. It is agreed that the original cost of the territory will be deducted. C. Upon the death or permanent incapacity of a Distributor the following shall apply: 1. TFRY shall have the right, within thirty (30) days of the date upon which TFRY is notified of such death or incapacity (if consistent with applicable local laws) to purchase the interest or any part thereof for cash at the appraised value, such purchase to be completed within sixty (60) days. 2. If TFRY declines to elect to purchase the interest, within thirty (30) days of the date upon which TFRY is notified of such death or incapacity, the interest may be transferred within a further sixty (60) days by sale to a third party meeting TFRY's then current criteria for new distributors, provided that the requirements of paragraph D of this Article are met. If a transfer to an approved transferee cannot be effected within a further one hundred and twenty (120) days, this Agreement shall terminate and automatically. 3. No sale or transfer of the interest shall be approved by TFRY unless the incapacitated Distributor or personal representative has agreed to reimburse TFRY for the reasonable costs and expenses it has incurred or may incur in providing fat TFRY option) one or more interim Distributors to manage the business until a transfer of the interest is effected, if TFRY determines, in its discretion, that such supervision is necessary or desirable. D. TFRY's consent to a transfer of any interest subject to the restrictions of this Article shall not constitute a waiver by TFRY of the right to distribute products granted herein, nor shall it be deemed a waiver of TFRY right to demand exact compliance with any of the terms of this Agreement by the assignee. The document effecting the transfer or assignment of any interest subject to the restrictions of this Article shall specifically provide that Distributor's obligations hereunder shall -continue in full -force and effect notwithstanding any such disposition. E. If Distributor has received and desires to accept any bona fide offer to purchase his or its distribution rights hereunder, Distributor or such person shall notify TFRY in writing of the purchase price and terms of such offer, and TFRY shall have the right and option subject to any limitations of applicable local laws exercisable within thirty (30) days after receipt of such written notification), to send written notice to Distributor or such persons that TFRY or its designee intends to purchase Distributor's interest on the same terms and conditions offered by the third party. Any material change in the terms of an offer prior to closing shall result in a new notification as in the case of the initial offer. ARTICLE XII DEFAULT A. In addition to those events herein before stated to be events of default, it is agreed that the rights granted to Distributor pursuant to this Agreement may be terminated forthwith with notice upon the happening of any one or more of the following events, except that TFRY must be in compliance with the terms and conditions of this distribution agreement: 1. If the Distributor fails to comply with any of the terms and conditions of this Distributorship Agreement and such failure to comply continues for a period of thirty (30) days after written notice thereof has been given to the Distributor. 2. If the Distributor fails to comply with any of the terms and conditions of any other agreements entered into pursuant to or collateral to this Agreement. 3. If the Distributor shall be adjudicated a bankrupt or become insolvent, or if a receiver or other person with like powers shall be appointed (whether temporary or permanent) to take charge of all or substantially all of the Distributor's assets, or if the Distributor shall make a general assignment for the benefit of creditors or a proposal under the Bankruptcy Act for any similar or successor Act), or commence any proceedings to wind-up, liquidate, or dissolve the distributor's business. 4. If any judgement or judgments in excess of ONE THOUSAND DOLLARS ($1,000.00) or any legal tax lien against the Distributor remains unsatisfied or unbonded of record in excess of thirty (30) days, or if the Distributor shall commit or suffer any default under any security instrument. 5. Other than amounts to be paid to TFRY wherein the provisions of subsections (a) and (b) above respecting default shall apply, if the Distributor does not pay any other indebtedness incurred in connection with the operation of the business through which the products are maintained and sold and such indebtedness is not paid within seven (7) days of notice from TFRY. 6. If the Distributor fails to continuously and actively operate its distributorship throughout the Territory. 7. If the Distributor falsifies any statement or report furnished to TFRY or otherwise deliberately provides false information to TFRY; or if the Distributor is convicted of a felony or other crime or impairs the goodwill associated with TFRY Marks. 8. If the Distributor commits acts of default for which notices of default have been served more than four times in any one calendar year during the term, notwithstanding that such defaults may have been cured. 9. If the Distributor does not order and complete the purchase of the french fry vending machines it is required to purchase pursuant to the terms of this Agreement in the manner and at the times therein specified. 10. If the Distributor does not complete the training course to be taken by the Distributor prior to distributing food product to the public to the satisfaction of TFRY. 11. Distributor will pay all attorney's fees as between an attorney and his own client, accounting fees and court costs incurred by TFRY in the event of a violation by Distributor of this agreement. 12. In case of a breach or a threatened breach of the terms of this Agreement by Distributor, TFRY shall, in addition to any other remedy it may have, and notwithstanding any other provision hereof, be entitled to an injunction restraining Distributor from committing or continuing to commit any breach of this Agreement, without showing or proving any actual damage sustained by TFRY, which damage is hereby conclusively acknowledged. ARTICLE XIII RIGHTS AND OBLIGATIONS OF PARTIES ON TERMINATION OF EXPIRATION A. Upon termination or expiration of this Agreement for any reason whatsoever, Distributor will immediately discontinue use of all trade names, trademarks, signs, forms of advertising, printed material and all other indicia of operation as an TFRY Distributor from its operations. In addition, Distributor will discontinue use of the TFRY color scheme. If the Distributor shall fail or omit to make or cause to be made such discontinuance within seven (7) days after termination or expiration of this Agreement, then TFRY, in addition to any other remedy it may have, shall have the right to enter upon premises and to make or cause to be made such removal of signs, trademarks, trade names and other indicia of operation subject to removal and such removal shall be conducted at the sole expense of Distributor (without being deemed guilty of trespass or any civil wrong) which expense the Distributor agrees to pay on demand. B. TFRY may retain all fees paid pursuant hereto. C. Any and all obligations of TFRY to Distributor under this Agreement shall immediately cease and terminate. D. In no event shall termination or expiration of this Agreement for any reason whatsoever affect Distributor's obligation to take or abstain from taking action in accordance with this Agreement. E. It is understood by Distributor that rights in and to TFRY Marks and any part thereof or addition thereto and the use thereof shall be and remain the property of TFRY and Distributor shall confirm same in writing and shall further assign, transfer and convey to TFRY by such instrument in writing as may be requested, all additional rights which may be acquired, if any, by reason of the use of said name of Distributor. F. TFRY shall have the option to purchase, at Distributor's cost less twenty-five (25) percent, all or any portion of inventory of any kind bearing the TFRY Marks, including, but not limited to, french fry vending machines, equipment, vehicles, and any other items Distributor may have in stock at the time of such termination or expiration. G. Distributor shall cause immediate discontinuance of all advertising or other public display or publication of the words "Tasty Fries" and, in the event that such action is not taken by Distributor, Distributor hereby constitutes irrevocably TFRY as Distributor's attorney to carry out such acts at Distributor's sole expense. H. Distributor will immediately pay any and all amounts owing to TFRY and its subsidiaries and affiliates. I. Distributor shall not, in any capacity whatsoever, either directly or indirectly, individually or as a member of any business organization, engage in the preparation or sale of any TFRY or other approved TFRY product, or have any employment or interest in a firm engaged in the preparation or sale of such products within the Territory or within thirty (30) miles of any other Distributor's exclusive or non-exclusive territory for a period of three (3) years following such termination. Distributor acknowledges and agrees that this restriction upon subsequent activities is necessary in view of the Confidential Information and expertise Distributor will acquire pursuant to the terms of the Agreement and will cause TFRY irreparable and-substantial damage in the event of breach of these provisions. The Distributor has the option to cancel this Agreement by giving notice of six (6) months without refund if payments for Distributorship already paid. ARTICLE XIV INSURANCE A. Distributor agrees to place and keep in effect during the life of this Agreement, with an insurance company approved by TFRY, public liability insurance in amounts no less than One Million Dollars ($1,000,000.00), in case of damage or injury to one person, no less than One Million Dollars ($1,000,000.00), in case of damage or injury to more than one person, property damage insurance of One Million Dollars ($1.000.000.00) in case of damage or injury to one person (Proof of insurance coverage will be furnished to TFRY prior to the delivery of the first machine). This insurance requirement may be altered based on the feasibility of obtaining such insurance in Brazil at reasonable rates. B. Distributor shall secure and maintain workers compensation and employer's liability insurance covering all of its employees. C. It is specifically agreed that insurance coverage required to be kept in effect by the terms of this paragraph shall be subject to review by TFRY in order to ensure adequate insurance protection throughout the term of this Agreement. TFRY may, from time to time, and in its sole discretion, require Distributor upon thirty (30) days written notice to obtain additional insurance beyond the aforementioned requirements of this paragraph. All insurance shall be in amounts and with carriers acceptable to TFRY, and shall be evidenced by certificates of insurance showing TFRY as a named insured and providing that coverage shall not be terminated or canceled without thirty (30) days prior written notice to TFRY. ARTICLE XV INDEMNIFICATION OF COMPANY Distributor agrees to protect, indemnify, and save TFRY, its affiliates, subsidiaries, partners, stockholders, directors, officers and employees of its partners harmless from any and all loss, damage, liability, expenses, attorney's fees and costs incurred by any of them because of any action, matter, thing, or conduct relating to Distributor and Distributor's business or its agents, servants, employees, customers and guest in, on, or connected with the storage, transport, installation, sale or servicing, preparation, and cooking of Products. ARTICLE XVI APPEARANCE OF MACHINES Distributor shall see to it that all machines in the Distributor's Territory are in good repair, and shall refurbish, tidy, and maintain each TFRY french fry vending machine as necessary or as required by TFRY in order to ensure that at all times a first class, safe and reputable Product is provided to the public. ARTICLE XVII RENEWAL OF AGREEMENT Unless terminated as herein otherwise provided, Distributor shall have the option, pursuant to such procedures as may be required by TFRY at the expiration of the initial term of this Agreement, to renew the license granted hereunder at each ten (10) year expiration date as long as all contractual conditions are met hereof by executing TFRY then-current form of Distributorship Agreement provided that: 1. Distributor gives TFRY written notice of its election to renew not less than three (3) months nor more than nine (9) months prior to the expiration of the then current term and, Distributor executes a general release under seal, in a form prescribed by TFRY, of any and all claims against TFRY, its affiliates, stockholders, directors, officers and employees, and 2. Distributor at the time of notice of election to renew and at the end of the then- current term is not in default of any of the terms or conditions of this Agreement or any other Agreement between Distributor and TFRY or its affiliates, and has substantially complied with the terms and conditions of all such agreements during the term of this Agreement, and 3. All of Distributor's accrued monetary obligations to TFRY and its subsidiaries and affiliates have been satisfied prior to renewal, and timely met throughout the term of this Agreement. Upon renewal of this Agreement, no additional distributorship fee will be due. However, it is specifically agreed that Distributor will, upon renewal, be charged by TFRY a sum which shall be equal to TFRY estimated costs incurred in connection with such renewal plus an administrative fee equal to fifteen (15%) percent of such costs. Furthermore, Distributor acknowledges the terms of the TFRY then current form of Distributorship Agreement. ARTICLE XVIII RELATIONSHIP OF PARTIES A. TFRY and Distributor are not and shall- not be considered as joint venturers, partners, or agents of each other, or anything other than Manufacturer and Distributor and neither shall have the power to bind or obligate the other as set forth in this Agreement. B. The parties further agree that their relationship created by this Agreement is not a Fiduciary relationship. ARTICLE XIX DISTRIBUTOR'S RESPONSIBILITY A. Distributor acknowledges that his success in the distribution of products contemplated to be undertaken by Distributor pursuant to this Agreement is speculative and depends primarily upon the ability of Distributor as an independent business organization. Distributor acknowledges that neither TFRY nor any other person has guaranteed or warranted that Distributor will succeed in the operation of this business venture. B. Distributor further acknowledges that there have been no representations, promises, or guarantees of warranties of any kind made by TFRY or its agents or representatives to induce Distributor to execute this Agreement, except as specifically set forth in this Agreement and further that Distributor has received all information which he has requested concerning the business operation of TFRY which, in the opinion of Distributor, is necessary to decide whether to enter into this Agreement. C. Distributor further acknowledges that independent legal advice had been sought in the preparation of this Agreement. D. Distributor further acknowledges that nothing contained within this Agreement shall be construed or interpreted as creating an employer/employee, agency, joint venture, or any other such relationship between the parties, and the only relationship created hereunder is that of independent contractor. Distributor shall not have the authority, and shall not represent itself as having the authority, to bind or to obligate TFRY in any manner. E. Distributor further acknowledges that the Distributor warrants and represents that it is duly organized under the laws of the jurisdiction in which it will do business and the person executing the agreement has the authority to execute this Agreement. ARTICLE XX NOTICES A. All notices to TFRY required by the terms of this Agreement shall be sent by registered mail, addressed to TFRY at its office at: 11098 Biscayne Boulevard Suite #403 Miami, Florida 33161 and 650 Sentry Parkway, Suite One Blue Bell, PA 19422 (or such other address as TFRY shall designate in writing) or by telefax, telecopy or other electronic means of communication to such address. B. All notices to Distributor required by the terms of this Agreement shall be personally delivered to or sent by registered mail, addressed to the Distributor at: Rua da Cevada, 93, Conj. 614 21011 Rio de Janeiro, RJ, Brazil and Garry Nelson, attorney at law 801 Brickell Avenue, 9th Floor Miami, Florida 33131 for such other address as Distributor shall designate in writing) or by telefax, telecopy or other electronic means of communication to such address. C. All notices to either party required by the terms of the Agreement shall be deemed to have been received: (i) in the case of hand delivery or telefax, telecopy or other electronic communication, upon actual receipt thereof and not the date of receipt of confirming mail); and (ii) in the case of notice sent by registered mail, ten (10) business days after the date of mailing. ARTICLE XXI INTERPRETATION AND EXECUTION OF AGREEMENT A. This Agreement shall be construed and interpreted in accordance with the laws of the State of Pennsylvania. B. This instrument contains the entire Agreement of the parties and no representations, inducements, promises, or agreements, oral or otherwise, not embodied herein, were made by TFRY and none shall be of any force or effect. C. Nothing in this Agreement shall bar or restrict TFRY right to obtain injunctive relief under applicable law. ARTICLE XXII SEVERABILITY AND CONSTRUCTION Each section, part, term and provision of this Agreement, and any portion thereof shall be considered severable, and if, for any reason, any portion of this Agreement is determined to be invalid, contrary to or in conflict with any applicable present or future law, rule, or regulation in a final unappealable ruling issued by any court, agency, or tribunal with valid jurisdiction in a proceeding to which TFRY is a party, that ruling shall not impair the operation of, or have any other effect upon, such other portions of this Agreement as may remain otherwise intelligible fall of which shall remain binding on the parties and continue to be given full force and agreement as of the date upon which the ruling becomes final). ARTICLE XXIII WRITTEN APPROVALS AND WAIVERS A. TFRY shall not be deemed to have waived or impaired any right, power or option reserved by this Agreement (including, without limitation, its right to demand Distributor's exact compliance with every term, condition, and covenant herein, or to declare any breach thereof a default and to terminate this license prior to the expiration of its term), by virtue of any custom or practice of the parties at variance with the terms hereof, any failure by TFRY to demand strict compliance with this Agreement, any forbearance, delay, failure or omission by TFRY to exercise any right, power or option, whether of the same, similar or different nature, against Distributor or other Distributorships, or the acceptance by TFRY of any payments due from Distributor after any breach of this Agreement. ARTICLE XXIV NON-PERFORMANCE DUE TO FORCE MAJEURE If the performance of any of the obligations set out in this Agreement by any one of the parties is interrupted or prejudiced by: i fire, explosion, collapse, strike, lockout, labor dispute, failure or lack of transport, fortuitous or accidental, as well as, floods, failure or lack of manpower or raw material; or ii war, revolution, civil war, public calamity; or iii any law, decree-law, regulation, Government order or other Government act; or iv any other cause beyond the control of the parties, the party affected will be free of responsibility for not fulfilling its obligation to the extent of the impediment it has suffered, provided that the other party is promptly notified. AS WITNESS the hands and seats of the duly authorized representatives of the parties hereto as of the day and year first above written. TASTY FRIES, INC. By: /S/ ----------------------------- Gary J. Arzt Chairman of the Board By:/S/ ----------------------------- Edward Kelly, President MOYSES FERMAN REPRESENTACOES INTERNACIONAIS LTDA. By:/S/ ----------------------------- Moyses Ferman Managing Quotaholder SCHEDULE A TERRITORY: Brazil PRICE: $250,000.00 DOWN PAYMENT: $100,000.00 BALANCE $150,000.00 To maintain Distributorship, Distributor must sell a minimum of two hundred fifty (250) machines per year. This minimum begins on the Effective Date. Any and all payments made to TFRY, Inc. are payable in U.S. Dollars only. Payments will be issued by bank wire or certified cashiers' checks only. An additional Five Hundred ($500.00) Dollars will be added to the cost of each machine sold into the Territory for the first three hundred (300) machines. This will reduce the cost of the Territory accordingly. DISTRIBUTORSHIP AGREEMENT This Agreememt made this 4th day of April, 1995 BETWEEN: TASTY FRIES, INC. 650 Sentry Parkway, Suite One Blue Bell, PA, U.S.A. 19422 (hereinafter referred to as "TFI") AND : CANADIAN TASTY FRIES, INC. #8 West Dry Creek Circle, Suite #110 Littleton, CO, U.S.A. 80120 (hereinafter referred to as "Distributor") WITNESSETH: WHEREAS, TFI owns rights to manufacture, distribute and sell a fully automated french fry vending machine; WHEREAS, TFI is the owner of a distinctive type of marketing, preparation and vending machine sale of TFI french fry food products; and; WHEREAS, TFI has developed and adopted for its own use and for the use of its Distributors a unique system of TFI product preparation and vending machine sale, consisting in part of the unique french fry vending machines, distinctive advertising, signs, food presentation and formula secret recipes (collectively the "Products"); and WHEREAS, in addition to valuable goodwill, TFI owns the valuable trade name and design of TFI in addition to various patents, trademarks, service marks, copyrights, tradenames, slogans, designs, insignia, emblems, symbols, package designs, logos and other proprietary characteristics (collectively, the "TFI Marks") used in relation to and in connection with the Products; and WHEREAS, Distributor wishes, upon the terms and conditions hereinafter set forth, to enter into the business of distributing TFI Products on an exclusive basis in the Territory herein defined and more particularly described in Schedule "A" attached hereto and forming part ofthis Agreement (the "Territory") and to benefit from the expertise of TFI in its field; and WHEREAS, TFI is willing to permit Distributor to use TFI Marks as aforesaid together with the retail sale of TFI French Fry Vending Machine and it products upon the terms and conditions hereinafter set forth; and WHEREAS, TFT is willing to permit Distributor to register the TFI Marks to secure their exclusive use in that Territory. NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants herein contained and promises herein expressed for other good and valuable consideration, receipt whereofis hereby acknowledged, do hereby agree as follows: ARTICLE 1 DISTRIBUTORSHIP AGREEMENT A. Subject to the provisions of this Agreement and the performance of its covenants and obligations, TFI hereby grants Distributor an exclusive right and license to distribute all present and future:TFI Products and to use the TFI Marks in the retail sale thereof within the territorial boundaries set forth as described in Schedule "A" attached hereto (the "Territory") for a term of ten (10) years. The parties specifically acknowledge and agree that the restriction of operation to the Territory identified herein is an essential and indispensable term of this Agreement. DISTRIBUTOR'S SPECIFIC TERRITORIAL RIGHTS 1. The Distributor shall have the exclusive right in its Territory to sell the TFI French Fry Vending Machine and TFI attendant Products to all users in the Territory. 2. The Distributor shall have the right to subdivide its Territory as Distributor in its sole discretion sees ftt and to grant additional distributorships for these subdivided areas on similar terms as contained in this Agreement and all compensation for said additional distributorships shall be for the benefit of Distributor without any fee, royalty or deduction to be paid to TFI. ARTICLE II OBLIGATIONS OF TFI TFI agrees to assist Distributor in distributing Products by way of retail sale in the following manner: A. TFI will conduct, at no charge, certain sales and maintenance training programs in its headquarters training school which Distributor and one key employee may attend and up to two individuals from each additional distributorship granted by Distributor in its Territory may attend. B. TFI agrees to provide to Distributor, as it is available from time to time, exchange of information relating to the Products and additional types of products as may be authorized by TFI from time to time for sale pursuant to this Agreement, and which, when authorized, will also constitute "Products" for all purposes herein, at such times and in such detail as TFI shall deem appropriate. C. TFI will take all steps necessary to ensure the Products meet the standards of the Territory for import and resale therein and if necessary will license the Products in the Territory for that purpose. ARTICLE III CONFIDENTIAL INFORMATION A. The parties hereto covenant and agree that any Confidential Information disclosed to the Distributor relating directly or indirectly to the vending machines and their component parts of the ingredients, preparation or sale of any of the Products will remain the property of TFI at all times and will, if disclosed in any tangible format, be returned to TFI upon demand and, in any event, upon termination ofthis Agreement. B. It is expressly understood and agreed by Distributor that the Confidential Information described above constitutes highly confidential trade secrets and Distributor agrees that neither he nor any of his employees will reveal or reproduce any of such Conftdential Information except as is necessary to describe the operations to employees and staff and additional distributors within the Territory so they can safely use the vending machines and Products. Such employees, staff and additional Distributors shall be required to execute appropriate confidentiality agreements. ARTICLE IV STANDARDS OF OPERATION AND SUPERVISION BY TFI A. Distributor agrees to conduct its business in a manner consistent with the standards set forth in this Agreement. It is understood that these standards may change from time to time, and are in addition to and not in substitution for any standard as set forth in this Agreement. B. In order to preserve the value and goodwill of TFI and related goodwill of other TFI Distributors and to promote the purpose ofthis Agreement, the parties hereto agree as follows: 1. Distributor will use and distribute the Products as herein contemplated strictly in accordance with the terms of this Agreement. 2. Unless approved in writing by TFI, Distributor will not develop, produce, sell, advertise for sale or give away any products under the TFI Marks which might reasonably compete with the Products and all food Products will be prepared in accordance with the specific formulas or utilizing the ingredients purchased from or specified by TFI. 3. TFI may from time to time offer guidance to Distributor relative to retail prices for Products offered for retail sale that in TFI's judgment constitute good business practice. 4. Distributor will use its best efforts to see it that its customers maintain suitable signs (which signs shall be approved by TFI), at, on or near the front of any premises within which its french fry vending machines are located, describing the premises having Products available for retail sale. Any translation from the English language or deviation from TFI approved designs contained in such sign shall required the prior written approval of TFI. 5. It is the Distributor's responsibility to ensure that all food products sold by Distributor hereunder will be of the highest and safest quality, and the service relating to any such sale hereunder \iill comply with the instructions and standards provided by TFI in preparing the food Products, or with any other further written requirements of TFI as they are communicated to Distributor from time to time. 6. It is the Distributor's responsibility to ensure that it will maintain all french fry Vending machines by which its business is conducted in conformity with the high duality, style and cleanliness required of similar french fry vending machines now operated in connection with the TFI Marks, component parts, equipment and signs. Distributor shall see that its customers comply with all applicable ordinances, health and safety regulations, laws and statutes governing the operation of such premises and the sale of products, including all criminal and quasi-criminal laws and regulations. C. TFI or TFI's supervisory personnel shall have the right to enter upon any premises in which Distributor conducts its business at any reasonable time for the purposes of examining, conferring with Distributor's employees, inspecting and checking perishable and non-perishable food supplies, vending machines, and other equipment and in determining whether the distribution of Product is being conducted in accordance with the aforesaid standards and within the terms of this Agreement. ARTICLE V COMMENCEMENT OF BUSINESS A. Distributor agrees to obtain, prior to commencement ofits distribution business, pursuant to this Agreement, all licenses, approvals, inspections, permits or any other certification which may be required by any competent public authority for the lawful operation of its business and to keep the same in good standing during the term hereof. ARTICLE VI USE OF TFI NAME, MARKS AND ADVERTISING A. During the term of this Agreement, and any renewals hereof, Distributor shall advertise sale of the Products under the trade name "Tasty Fries" and will diligently promote and make 0137\95-1005 every reasonable effort to steadily increase sale of the Products by proper use of all advertising media. B. No design, advertisement, sign or form of publicity, including form, color, number, location and size, shall be used by Distributor in connection with sale ofthe Products unless the same shall have been first submitted to TFI and approved in writing. C. All printed materials, including, but not limited to, Product carrying bags, product wrapping, cups, napkins, posters or other printed material used in connection with the distribution by retail sale ofthe Products shall bear TFI Marks as suggested by TFI, and such use will indicate that TFI Marks are registered Marks. D. Distributor shall act prudently and in conformity with all laws, regulations, ordinances, or other requirements which may affect the utilization ofthe TFT Marks to ensure that the Marks are not jeopardized, diminished or damaged in any manner and Distributor agrees to indemnify and save harmless TFI for any damage or expense occasioned directly or indirectly by Distributor's improper use of said Marks. E. Any contractual arrangement of any kind for advertising under the trade name "Tasty Fries" or utilizing the TFI Marks, entered into by Distributor shall expressly provide for termination with no greater than ten (10) days written notice. ARTICLE VII TFI MARKS A. TFI hereby grants to Distributor for the term of this Agreement the exclusive right to register the TFI Marks for use by the Distributor in the Territory but only in connection with the distribution of TFI Products which Distributor is permitted to sell hereunder, and the extent and manner ofuse ofthe TFI Marks shall be subject to TFI approval. The cost of such registration to be born by the Distributor. B. TFI hereby agrees to provide all necessary consents and original artwork for the TFI Marks to assist the Distributor in the registration thereof in the Territory. C. Upon registration of the TFI Marks by Distributor, Distributor shall be responsible for pursuing any counterfeiting or infringement of the TFI Marks which may come to Distributor's attention. ARTICLE VIII UNIFORMITY OF PRODUCTS A. Distributor agrees that all food Products offered for sale in the vending machines and paper goods, supplies and other materials utilized in connection with the food products shall be purchased directly from TFI or suppliers specified by TFI. B. In order to establish uniformity of taste and quality of the Products, TFI has developed and will continue to develop recipes and formulas of ingredients, which ingredients will be made available to Distributor. Such Products will be purchased by Distributor at the prevailing prices from time to time, and will be utilized by Distributor exclusively as specified by TFI. TFI may from time to time agree with Distributor on an alternate supplier of Products, in which case, TFI shall be entitled to a reasonable royalty on any Products so produced to compensate TFI for loss of profit. C. Distributor agrees that he will not offer any food product or utilize any paper goods, supplier or other materials, or any equipment, signage, display cases or other items under the TFI Marks which may compete with the Products and which are not purchased from TFI or any supplier that is not currently approved by TFI. D. Should at any time TFI be unable to supply the Products to Distributor as contemplated in this Agreement and as required by Distributor to conduct its business, Distributor shall be entitled with the consent of TFI, such consent not to be unreasonably withheld, to arrange for its own alternate supply of the Products, in which case, TFI shall be entitled to a reasonably royalty on any Products so produced to compensate it for loss of protit. ARTICLE IX FEES AND FINANCIAL OBLIGATIONS A. In consideration of the right to distribute Products granted herein, and subject to TFI satisfying the requirements of Article II C. herein concerning acceptability of the Products for import and resale in the Territory and further subject to the Distributor being able to register the TFI Marks for exclusive use in the territory, Distributor shall purchase from TFI, and TFI supply to Distributor, a minimum number of french fry vending machines upon the terms and conditions set forth on Schedule "B" attached hereto and forming a part ofthis Agreement. B. Unless otherwise specified herein, all amounts stated herein or payments to be made to TFI under this Agreement shall be in U.S. Dollars. ARTICLE X DISTRIBUTOR A. Distributor acknowledges that the TFI Products are unique and distinctive and have been developed by TFI at great effort, time and expense; that Distributor has regular and continuing access to valuable and confidential information, training and trade secrets regarding the Products; and that Distributor recognizes his obligation to fully develop its Territory for sales of the Products and accordingly agrees as follows: 1. During the term of this Agreement and any renewal thereof, Distributor shall not, in any capacity whatsoever, either directly or indirectly, individually or as a member of any business organization, except with the prior written consent of TFI, engage in the sale of any french fries vending machine or supplies therefore, other than TFI's. 2. During the terms of this Agreement, or upon expiration or termination of this Agreement, divulge any aspect of the Products whether expressly stated to be confidential or otherwise to any person. ARTICLE XI TRANSFER OF WHOLE INTEREST A. This Agreement shall enure to the benefit of the successors of TFI and may be so assigned at any time. B. For purposes of clarity, the provisions of this Article XI apply solely to the transfer by Distributor or its personal representatives of the whole of the Distributor's interest in this Agreement and shall have no application to the granting of additional distributorships by Distributor for subdivided areas within its Territory, as previously described in Article II paragraph 2. C. TFI shall not unreasonably withhold its consent to any transfer or assignment which is subject to the restrictions ofthis Article, provided, however, that TFI shall not be required to give its consent unless, in addition to the requirements of Article IV hereof, the following conditions are met prior to the effective date ofthe assignment: 1. For all proposed transfers or assignments: (a) Distributor shall not be in default under any provision of the terms of this Agreement or any other agreement ancillary to this Agreement, and shall have continuously distributed products for a period of not less than three (3) months; (b) Distributor has executed a general release in a form prescribed by TFI of any and all claims against TFI; (c) The proposed assignee executes such other documents as TFI may require in order to assume all of the obligations of this Agreement, to the same extent, and with the same effect, as previously assumed by Distributor; (d) A transfer fee has bee paid to TFI in an amount equal to five percent (5%) of the aggregate cash or cash valued consideration paid by the assignee to assignor for the distribution rights, to defray its reasonable costs and expenses in connection with the transfer, including without limitation, the cost of legals and accounting fees, credit and investigation charges, evaluations, retraining and additional supervision. It is agreed that the original cost ofthe Territory will be deducted. D. Upon the death or permanent incapacity of a Distributor the following shall apply: 1. TFI shall have the right, within thirty (30) days of the date upon which TFI is notified of such death or incapacity (if consistent with applicable local laws) to purchase the interest or any part thereof for cash at the appraised value, such purchase to be completed within sixty (60) days. 2. If TFI declines to elect to purchase the interest, within thirty (30) days of the date upon which TFI is notified of such death or incapacity, the interest may be transferred within a further sixty (60) days by sale to a third party meeting TFI's then current criteria for new distributors, provided that the requirements of paragraph D of this Article are met. If a transfer to an approved transferee cannot be effected within a further one hundred and twenty (120) days, this Agreement shall terminate automatically. 3. No sale or transfer of the interest shall be approved by TFI unless the incapacitated Distributor or personal representative has agreed to reimburse TFI for the reasonable costs and expenses it has incurred or may incur in providing (at TFI's option) one or more interim Distributors to manage the business until a transfer of the interest is effected, if TFI determines, in its discretion, that such supervision is necessary or desirable. E. TFI's consent to a transfer of any interest subject to the restrictions of this Article shall not constitute a waiver by TFI of the right to distribute Products granted herein, nor shall it be deemed a waiver of TFI's right to demand exact compliance with any of the terms of this Agreement by the assignee. The document effecting the transfer or assignment of any interest subject to the restrictions of this Article shall specifically provide that Distributor's obligations hereunder shall continue in full force and effect notwithstanding any such disposition. F. If Distributor has received and desires to accept any bona fide offer to purchase his or its distribution rights hereunder, Distributor or such person shall notifl TFI in writing ofthe purchase price and terms of such offer, and TFI shall have the right and option (subject to any limitations of applicable local laws exercisable within thirty (30) days after receipt of such written notification), to send written notice to Distributor or such persons that TFI or its assignee intend to purchase Distributor' s interest on the same terms and conditions offered by the third party. Any material change in the terms of any offer prior to closing shall result in a new notification as in the case of the initial offer. TFI's failure to exercise the option afforded by this paragraph F of this Article shall not constitute a waiver of any other provision of this Agreement, including any of the requirements of this Article with respect to the proposed transfer. G. Provided always that TFT's consent shall be required, not to be unreasonably withheld, and no fee shall be chargeable in respect of a transfer to: (a) a subsidiary or affiliate; (b) a corporate successor resulting from merger, amalgamation, consolidation or other corporate re-organization. ARTICLE XII DEFAULT A. In addition to those events hereinbefore stated to be events of default, it is agreed that the rights granted to Distributor to this Agreement may be terminated forthwith with notice upon the happening of any one or more of the following events, except that TFI must be in compliance with the terms and conditions ofthis Distribution Agreement: 1. If the Distributor fails to comply with any of the terms and conditions of this Distributorship Agreement and such failure to comply continues for a period of thirty (30) days after written notice thereof has been given to the Distributor. 2. If the Distributor fails to comply with any of the terms and condition of any other agreements entered into pursuant to or collateral to this agreement and such failure to comply continues for a period of thirty (30) days after written notice thereof has been given to the Distributor. 3. If the Distributor shall be adjudicated a bankrupt or become insolvent, or if a receiver or other person with like powers shall be appointed (whether temporary or permanent) to take charge of all or substantially all of the Distributor's assets, or if the Distributor shall make a general assignment for the benefit of creditors or a proposal under the Bankruptcy Act (or any similar or successor Act), or commence any proceedings to wind-up, liquidate, or dissolve the Distributor's business. 4. If the Distributor knowingly falsifies any statement or report furnished to TFI or otherwise deliberately provides false information to TFI; or if the Distributor is convinced of a felony or other crime or impairs the goodwill associated with the TFI Marks. 5. If the Distributor does not order and complete the purchase of the french fry Vending machines it is required to purchase pursuant to the terms of this Agreement in the manner and at the time therein specified or pay the cash payment required in lieu thereof as set out in Schedule B hereto. 6. Distributor will pay all attorney's fees as between an attorney and his own client, accounting fees and court fees incurred by TFI in the event of a violation by Distributor of this Agreement. 7. In case of a breach of the terms of this Agreement by Distributor, TFI shall, in addition to any other remedy it may have, and notwithstanding any other provision hereof, be entitled to an injunction restraining Distributor from committing or continuing to commit any breach of this Agreement, without showing or providing any actual damaged sustained by TFI, which damage is hereby conclusively acknowledged. 8. If the Distributor fails to continuously and actively operate its distributorship throughout the Territory. ARTICLE XIII RIGHTS AND OBLIGATIONS OF PARTIES ON TERMINATION OR EXPIRATION A. Upon termination or expiration of this Agreement for any reason whatsoever, Distributor will immediately discontinue use of all trade names, trade marks, signs, forms of advertising, printed material and all other indicia of operation as a TFI Distributor from it operations. B. TFI may retain all fees paid pursuant hereto. C. Any and all obligations of TFI to Distributor under this Agreement shall immediately cease and terminate. D. In no event shall termination or expiration of this Agreement for any reason whatsoever affect Distributor's obligation to take or abstain from taking action in accordance with this Agreement . E. It is understood by Distributor that rights in and to the TFI Marks and any part thereof or addition thereto and the use thereof shall be and remain the property of TFI and Distributor shall further assign, transfer and convey to TFI all additional rights which may be acquired, if any, by reason of the use of said name of Distributor. As Distributor has registered the TFI Marks at Distributor's own expense in the Territory, if requested to assign the rights to the mark to TFI during the term and under the conditions set forth in this Agreement, TFI will compensate Distributor for all its costs of registration, protection, defense and maintenance of the TFI Marks in the Territory. F. TFI shall have the option to purchase, at Distributor's cost less twenty-five (25) percent. all or any portion of inventory of any kind bearing the TFI Marks, including, but not limited to, french fry vending machines, equipment, vehicles, and any other items Distributor may have in stock at the time of such termination or expiration. G. Distributor shall cause immediate discontinuance of all advertising or other public display or publication of the words "Tasty Fries" and, in the event that such action is not taken by Distributor and after a period of six (6) months has elapsed, Distributor hereby constitutes irrevocably TFI as Distributor's attorney to carry out such acts at Distributor' s sole expense. H. Distributor will immediately pay any and all amounts owing to TFI and its subsidiaries and affiliates. I. Distributor shall not, in any capacity whatsoever, either directly or indirectly. individually or as a member of any business organization, engage in the preparation or sale of any TFI or other approved TFI Product, or have any employment or interest in a firm engaged in the preparation or sale of such products within the Territory or within thirty (30) miles of any other Distributor's exclusive or nonexclusive territory for a period of three (3) years following such termination. Distributor acknowledges and agrees that this restriction upon subsequent activities is necessary in view of the Confidential Information and expertise Distributor will acquire pursuant to the terms of the Agreement and will cause TFI irreparable and substantial damage in the event of breach of these provisions. ARTICLE XIV INSURANCE A. Distributor agrees to place and keep in effect during the life of this Agreement with an insurance company approved by TFI, public liability in amounts no less than One Million Dollars ($1.000.000.00) U. S., in case of damage or injury to one person, no less than One Million Dollars ($1.000,000.00) U.S., in case if damaged or injury to more than one person, property damage insurance of One Million Dollars ($1,000.000.00) U.S. in case of damage or injury to one person (proof of insurance coverage shall be furnished to TFI prior to the delivery of the first machine). B. It is specifically agreed that insurance coverage required to be kept in effect by the terms of this paragraph shall be subject to review by TFI in order to ensure adequate insurance protection throughout the term of this Agreement. TFI may, from time to time, and in its sole discretion, require Distributor upon thirty (30) days notice to obtain reasonable amounts of additional insurance beyond the aforementioned requirements of this paragraph. ARTICLE XV INDEMNIFICATION OF COMPANY A. Distributor agrees to protect, indemnify, and save TFI, its affiliates, subsidiaries, partners, stockholders, directors, officers and employees of its partners harmless from any and all loss, damages, liability, expenses, attorney's fees and costs incurred by any of them because of any action, matter, thing, or conduct relating to Distributor and Distributor's business or its agents, servants, employees, customers and guests in, on, or connected with the preparation, cooking and sale ofProducts. B. TFI agrees to protect, indemnify and save Distributor its stockholders, directors, officers and employees harmless from any and all loss, damage, liability expenses, attorney's fees and costs incurred by any of them as a result of any defect in the design, construction or operation of any of the french fry vending machines supplied by TFI or as a result of any defect in and of the other Products supplied by TFI. ARTICLE XVI APPEARANCE OF MACHINES Distributor shall see to it that all machines in the Distributor's Territory are in good repair, and shall refurbish, tidy, and maintain each TFI french fry vending machine as necessary or as required by TFI in order to ensure that at all times a first class, safe and reputable Product is provided to the public. ARTICLE XVII RENEWAL OF AGREEMENT Unless terminated as herein otherwise provided, Distributor shall have the option, pursuant to such procedures as may be required by TFI at the expiration of the initial term of this Agreement, to renew the license granted hereunder at each ten (10) year expiration date as long as all contractual conditions are met hereof by executing TFI's then-current form of Distributorship Agreement provided that: 1. Distributor gives TFI written notice of its election to renew no less than three (3) months nor more than nine (9) months prior to the expiration of the then current term and, Distributor executes a general release under seal, in a form prescribed by TFI, of any and all claims against TFI, its affiliates, stockholders, directors, officers and employees; and 2. Distributor at the time of notice of election to renew and at the end of the then current term is not in default of any of the terms or conditions of this Agreement or any other Agreement between Distributor and TFI or its affiliates, and has substantially complied with the terms and conditions of all such agreements during the term of this Agreement; and 3. All of the Distributor's accrued monetary obligations to TFI and its subsidiaries and affiliates have been satisfied prior to renewal, and timely met throughout the terms of this Agreement. Upon renewal of this Agreement, no additional distributorship fee will be due. However, it is specifically agreed that Distributor will, upon renewal, be charged by TFI a sum which shall be equal to TFI's estimated costs incurred in connection with such renewal plus an administrative fee equal to fifteen (15%) percent of such costs. Furthermore, Distributor acknowledges the terms of the TFI's then current form of Distributorship Agreement . ARTICLE XVIII RELATIONSHIP OF PARTIES A. TFI and Distributor are not and shall not be considered as joint venturers, partners, or agents of each other, or anything other than Manufacturer and Distributor and neither shall have the power to bind or obligate the other than as set forth in this Agreement. B. The parties further agree that their relationship created by this Agreement is not a fiduciary relationship . ARTICLE XIX DISTRIBUTOR' SRESPONSIBILITY A. Distributor acknowledges that his success in the distribution of products contemplated to be undertaken by Distributor pursuant to this Agreement is speculative and depends primarily upon the ability of Distributor as an independent business organization. Distributor acknowledges that neither TFI nor any other person has guaranteed or warranted that Distributor will succeed in the operation of this business venture. B. Distributor further acknowledges that there have been no representations, promises, or guarantees or warranties of any kind made by TFI or its agents or representatives to induce Distributor to execute this Agreement, except as specifically set forth in this Agreement and further that Distributor has received all information which he has requested concerning the business operation of TFI which, in the opinion of Distributor, is necessary to decide whether to enter into this Agreement. ARTICLE XX NOTICES A. All notices to TFI required by the terms of this Agreement shall be sent to TFI at its office at: TASTY FRIES, INC. 650 Sentry Parkway, Suite One Blue Bell, PA, U.S.A. 19422 (or such other address as TFI shall designate in writing) or by telefax, telecopy, or other electronic means of communication to such address. B. All notices to Distributor required by the terms of this Agreement shall be sent to Distributor at its office at: CANADIAN TASTY FRIES, INC. #8 West Dry Creek Circle, Suite #110 Littleton, CO, U.S.A. 80120 (or such other address as Distributor shall designate in writing) or by telefax, telecopy, or other electronic means of communication to such address. C. All notices to either party required by the terms of the Agreement shall be deemed to have been received: (i) in the case of hand delivery or telefax, telecopy or other electronic communication, upon actual receipt thereof(and not the date of receipt of confirming mail); and (ii) in the case of notice sent by registered mail, ten (10) business days after the date of mailing. ARTICLE XXI INTERPRETATION AND EXECUTION OF AGREEMENT A. This Agreement shall be construed and interpreted in accordance with the laws of the State of Florida. B. This instrument contains the entire Agreement of the parties and no representation, inducements, promises, or agreement, oral or otherwise, not embodied herein, were made by TFI and none shall be of any force or effect., C. Nothing in this Agreement shall bar or restrict TFI's right to obtain injunctive relief under applicable law. ARTICLE XXII SEVERABILITY AND CONSTRUCTION A. Each section, part, term and provision of this Agreement, and any portion thereof shall be considered severable, and if for any reason, any portion of this Agreement is determined to be invalid to or in conflict with any applicable present or future law, rule, or regulation in a final unappealable ruling issued by any court, agency, or tribunal with valid jurisdiction in a proceeding to which TFI is a party, that ruling shall not impair the operation of, or have any other affect upon, such other portions of this Agreement as may remain otherwise intelligible (all of which shall remain binding on the parties and continue to be given full force and agreement as of the date upon which the ruling becomes final). ARTICLE XXIII WRITTEN APPROVALS AND WAIVERS A. TFI shall not be deemed to have waived or impaired any right, power or option reserved by this Agreement (including, without limitation, its rights to demand Distributor's exact compliance with every term, condition, and convenant herein, or to declare any breach thereof a default and to terminate this license prior to the expiration of its term), by virtue of any custom or practice of the parties at variance with the terms hereof, any failure by TFI to demand strict compliance with this Agreement, any forbearance, delay, failure or omission by TFI to exercise any right, power or option, whether of the same, similar or different nature, against Distributor or other Distributorships, or the acceptance by TFI of any payments due from Distributor after any breach of this Agreement. AS WITNESS the hands and seals of the duly authorized representatives of the parties hereto as of the day and year first above written. TASTY FRIES, INC. /S/ /S/ ---------------------------- ---------------------- Authorized Signatory Witness CANADIAN TASTY FRIES, INC. /S/ /S/ ---------------------------- ---------------------- Authorized Signatory Witness SCHEDULE"A" TO THE DISTRIBUTORSHIP AGREEMENT BETWEEN: TASTY FRIES, INC. AND: CANADIAN TASTY FRIES, INC. DESCRIPTION OF TERRITORY ARTICLE 1. For the purposes of this Distributorship Agreement (the "Agreement") the territorial boundaries to which this Agreement applied are the internationally recognized boundaries of the countries listed herein (referred to in this Agreement as the "Territory"). Denmark Finland France Greece Hungary Italy Nonvay Portugal Spain Sweden SCHEDULE "B" TO THE DISTRIBUTORSHIP AGREEMENT BETWEEN: TASTY FRIES, INC. AND: CANADIAN TASTY FRIES, TNC. FEE PAYMENT SCHEDULE ARTICLE IX The purchase price for the grant of distributorship made in this Agreement is $4,000,00000 U.S. to be paid as follows: A. On the acceptance and signing of this Agreement by TFI $ 1 75,000.00; B. (a) The balance of the purchase price shall be tied to the order and delivery of french fry vending machines (the "Machines") which Machines the Distributor shall be obliged to order in the quantity set out in Column TT below for each year specified in Column I below following the Start Date and shall make the associated payment against the purchase price set out in Column III below which payment is based on and paid at a rate of $500.00 per Machine delivered: COLUMN I COLUMN II COLUMN III -------- --------- ---------- YEAR MINIMUM NO OF MACHINES MINIMUM PAYMENT ---- ---------------------- --------------- 1 400 $ 200,000 2-9 800 $ 400,000 10 850 $ 425,000 (b) The Start Date shall be the first day of the month immediately following the first six month (180 day) period in which TFI delivers a minimum of ten (10) Machines suitable for distribution in Europe to Distributor. (c) In any year that Distributor does not order the minimum number of Machines set out in Column II above, Distributor shall make a cash payment to TFI on the last day of that year equal to the shortfall from the required payment set out in Column III above for that year. (d) If in any year Distributor orders the required minimum number of Machines but TFJ is unable or fails to deliver the minimum number of Machines to Distributor, then Distributor for that year shall only be obliged to make a payment equal to $500.00 times the number of Machines delivered to it. The balance of the payment for that year shall be made on the basis of $500.00 per Machine when TFI finally delivers the remainder of the minimum of Machines to Distributor. AMENDMENT TO DISTRIBUTION AGREEMENT BETWEEN TASTY FRIES, INC. AND CANADIAN TASTY FRIES, INC. DATED APRIL 5, 1995 WHEREAS, Tasty Fries, Inc. and Canadian Tasty Fries, Inc. desire to amend the Distributorship Agreement dated April 5, 1995 (the "Distributorship Agreement) to include additional European countries in the defined Territory; NOW, THEREFORE, the parties hereto for good and valuable consideration, receipt whereof is hereby acknowledged, do hereby agree to amend the Distributorship Agreement as follows: 1. Schedule "A to the Distributorship Agreement, attached thereto and made a part thereof, is amended as follows: SCHEDULE "A" TO THE DISTRIBUTORSHIP AGREEMENT BETWEEN: TASTY FRIES, INC. AND: CANADIAN TASTY FRIES, INC. DESCRIPTION OF TERRITORY ARTICLE 1. For the purposes of this Distributorship Agreement (the "Agreement") the territorial boundaries to which this Agreement applies are the internationally recognized boundaries of the countries listed herein (referred to in this Agreement as the "Territory"). Bulgaria Czechoslovakia Denmark Finland France Greece Hungary Italy Norway Poland Portugal Romania Spain Sweden Turkey 2. Schedule "B" to the Distributorship Agreement, attached thereto and made a part thereof, is amended to include a new paragraph B.(e) to read as follows: (e) TFI agrees to use its best efforts to maintain a 12% mark-up on all machines it delivers for distribution in Europe to Distributor. IN WITNESS WHEREOF, the undersigned have executed this Amendment on the date written above. TASTY FRIES, INC. By:/S/ ------------------------------ Edward C. Kelly, President CANADIAN TASTY FRIES, INC. By:/S/ ------------------------------ Ian Lambert, President DISTRIBUTORSHIP AGREEMENT (U.S.A.) This Agreement made this ____ day of ___________, 1995. BETWEEN : TASTY FRIES, INC. 650 Sentry Parkway, Suite One Blue Bell, PA, U.S.A. 19422 (hereinafter referred to as "TFI") AND : CANADIAN TASTY FRIES, INC. #8 West Dry Creek Circle, Suite #110 Littleton, CO, U.S.A. 80120 (hereinafter referred to as "Distributor") WITNESSETH: WHEREAS, TFI owns rights to manufacture, distribute and sell a fully automated french fry vending machine; WHEREAS, TFI is the owner of a distinctive type of marketing, preparation and vending machine sale of TFI french fry food products; and; WHEREAS, TFI has developed and adopted for its own use and for the use of its Distributors a unique system of TFI product preparation and vending machine sale, consisting in part of the unique french fry vending machines, distinctive advertising, signs, food presentation and formula secret recipes (collectively the "Products"); and WHEREAS, in addition to valuable goodwill, TFI owns the valuable trade name and design of TFI in addition to various patents, trademarks, service marks, copyrights, trade names, slogans, designs, insignia, emblems, symbols, package designs, logos and other proprietary characteristics (collectively, the "TFI Marks") used in relation to and in connection with the Products; and WHEREAS, Distributor wishes, upon the terms and conditions hereinafter set forth, to enter into the business of distributing TFI Products on an exclusive basis in the Territory herein defined and more particularly described in Schedule "A" attached hereto and forming part of this Agreement (the "Territory") and to bene~t from the expertise of TFI in its field; and WHEREAS, TFI is willing to permit Distributor to use TFI Marks as aforesaid together with the retail sale of TFI French Fry Vending Machine and it products upon the terms and conditions hereinafter set forth; and WHEREAS, TFI is willing to permit Distributor to register the TFI Marks to secure their exclusive use in that Territory. NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants herein contained and promises herein expressed for other good and valuable consideration, receipt whereof is hereby acknowledged, do hereby agree as follows: ARTICLE 1 DISTRIBUTORSHIP AGREEMENT A. Subject to the provisions of this Agreement and the performance of its covenants and obligations, TFI hereby grants Distributor an exclusive right and license to distribute all present and future TFI Products and to use the TFI Marks in the retail sale thereof within the territorial boundaries set forth as described in Schedule "A" attached hereto (the "Territory") for a term of ten (10) years. The parties specifically acknowledge and agree that the restriction of operation to the Territory identified herein is an essential and indispensable term of this Agreement. DISTRIBUTOR'S SPECIFIC TERRITORIAL RIGHTS 1. The Distributor shall have the exclusive right in its Territory to sell the TFI French Fry Vending Machine and TFI attendant Products to all users in the Territory. 2. The Distributor shall have the right to subdivide its Territory as Distributor in its sole discretion sees fit and to grant additional distributorships for these subdivided areas on similar terms as contained in this Agreement and all compensation for said additional distributorships shall be for the benefit of Distributor without any fee, royalty or deduction to be paid to TFI. 3. In the event that TFI machines are sold by the parent company for use in the Distributor's Territory, the Distributor shall earn its full Distributor's profit. This provision is contingent upon his consent to supply and service the machines. 4. The Distributor shall receive its full profit if machinery is sold to clients in his Territory in areas outside of his Territory. Except that in the event the machinery is sold into another Distributor's Territory, the Distributor profit shall be seventy (70%) percent of the originating Distributor and thirty (30%) percent of the Territorial Distributor. 5. The Distributor in his exclusive Territory will receive thirty (30%) percent of the full distributors profit in such event that there are installed in his Territory TFI machines resulting from international accounts having locations in various areas throughout North America. An international account is defined for the purposes of clarity as an international theater chain, an international retail chain or any entity that has locations in more than four states and the Territory. The Distributor in order to earn the national account Distributor's profit is obligated to supply and service these locations. ARTICLE II OBLIGATIONS OF TFI TFI agrees to assist Distributor in distributing Products by way of retail sale in the following manner: A. TFI will conduct, at no charge, certain sales and maintenance training programs in its headquarters training school which Distributor and one key employee may attend and up to two individuals from each additional distributorship granted by Distributor in its Territory may attend. B. TFI agrees to provide to Distributor, as it is available from time to time, exchange of information relating to the Products and additional types of products as may be authorized by TFI from time to time for sale pursuant to this Agreement, and which, when authorized, will also constitute "Products" for all purposes herein, at such times and in such detail as TFI shall deem appropriate. C. TFI will take all steps necessary to ensure the Products meet the standards of the Territory for import and resale therein and if necessary will license the Products in the Territory for that purpose. ARTICLE III CONFIDENTIAL INFORMATION A. The parties hereto covenant and agree that any Confidential Information disclosed to the Distributor relating directly or indirectly to the vending machines and their component parts of the ingredients, preparation or sale of any of the Products will remain the property of TFI at all times and will, if disclosed in any tangible format, be returned to TFI upon demand and, in any event, upon termination of this Agreement. B. It is expressly understood and agreed by Distributor that the Confidential Information described above constitutes highly confidential trade secrets and Distributor agrees that neither he nor any of his employees will reveal or reproduce any of such Confidential Information except as is necessary to describe the operations to employees and staff and additional distributors within the Territory so they can safely use the vending machines and Products. Such employees, staff and additional Distributors shall be required to execute appropriate confidentiality agreements. ARTICLE IV STANDARDS OF OPERATION AND SUPERVISION BY TFI A. Distributor agrees to conduct its business in a manner consistent with the standards set forth in this Agreement. It is understood that these standards may change from time to time, and are in addition to and not in substitution fora ny standard as set forth in this Agreement. B. In order to preserve the value and goodwill of TFI and related goodwill of other TFI Distributors and to promote the purpose of this Agreement, the parties hereto agree as follows: 1. Distributor will use and distribute the Products as herein contemplated strictly in accordance with the terms of this Agreement. 2. Unless approved in writing by TFI, Distributor will not develop, produce, sell, advertise for sale or give away any products under the TFI Marks which might reasonably compete with the Products and all food Products will be prepared in accordance with the specific formulas or utilizing the ingredients purchased from or specified by TFI. 3. TFI may from time to time offer guidance to Distributor relative to retail prices for Products offered for retail sale that in TFI's judgement constitute good business practice. 4. Distributor will use its best efforts to see it that its customers maintain suitable signs (which signs shall be approved by TFI), at, on or near the front of any premises within which its french fry vending machines are located, describing the premises having Products available for retail sale. Any translation from the English language or deviation from TFI approved designs contained in such sign shall required the prior written approval of TFI. 5. It is the Distributor's responsibility to ensure that all food products sold by Distributor hereunder will be of the highest and safest quality, and the service relating to any such sale hereunder will comply with the instructions and standards provided by TFI in preparing the food Products, or with any other further written requirements of TFI as they are communicated to Distributor from time to time. 6. It is the Distributor's responsibility to ensure that it will maintain all french fry vending machines by which its business is conducted in conformity with the high quality, style and cleanliness required of similar french fry vending machines now operated in connection with the TFI Marks, component parts, equipment and signs. Distributor shall see that its customers comply with all applicable ordinances, health and safety regulations, laws and statutes governing the operation of such premises and the sale of products, including all criminal and quasi-criminal laws and regulations. C. TFI or TFI's supervisory personnel shall have the right to enter upon any premises in which Distributor conducts its business at any reasonable time for the purposes of examining, conferring with Distributor's employees, inspecting and checking perishable and non-perishable food supplies, vending machines, and other equipment and in determining whether the distribution of Product is being conducted in accordance with the aforesaid standards and within the terms of this Agreement. ARTICLE V COMMENCEMENT OF BUSINESS A. Distributor agrees to obtain, prior to commencement of its distribution business, pursuant to this Agreement, all licenses, approvals, inspections, permits or any other certification which may be required by any competent public authority for the lawful operation of its business and to keep the same in good standing during the term hereof. ARTICLE VI USE OF TFI NAME, MARKS AND ADVERTISING A. During the term of this Agreement, and any renewals hereof, Distributor shall advertise sale of the Products under the trade name "Tasty Fries" and will diligently promote and make every reasonable effort to steadily increase sale of the Products by proper use of all advertising media. B. No design, advertisement, sign or form of publicity, including form, color, number, location and size, shall be used by Distributor in connection with sale of the Products unless the same shall have been first submitted to TFI and approved in writing. C. All printed materials, including, but not limited to, product carrying bags, product wrapping, cups, napkins, posters or other printed material used in connection with the distribution by retail sale of the Products shall bear TFI Marks as suggested by TFI, and such use will indicate that TFI Marks are registered Marks. D. Distributor shall act prudently and in conformity with all laws, regulations, ordinances, or other requirements which may affect the utilization of the TFI Marks to ensure that the Marks are not jeopardized, diminished or damaged in any manner and Distributor agrees to indemnify and save harmless TFI for any damage or expense occasioned directly or indirectly by Distributor's improper use of said Marks. E. Any contractual arrangement of any kind for advertising under the trade name "Tasty Fries" or utilizing the TFI Marks, entered into by Distributor shall expressly provide for termination with no greater than ten (10) days written notice. ARTICLE VII TFI MARKS A. TFI hereby grants to Distributor for the term of this Agreement the exclusive right to register the TFI Marks for use by the Distributor in the Territory but only in connection with the distribution of TFI Products which Distributor is permitted to sell hereunder, and the extent and manner of use of the TFI Marks shall be subject to TFI approval. The cost of such registration to be born by the Distributor. B. TFI hereby agrees to provide all necessary consents and original art work for the TFI Marks to assist the Distributor in the registration thereof in the Territory. C. Upon registration of the TFI Marks by Distributor, Distributor shall be responsible for pursuing any counterfeiting or infringement of the TFI Marks which may come to Distributor's attention. ARTICLE VIII UNIFORMITY OF PRODUCTS A. Distributor agrees that all food Products offered for sale in the vending machines and paper goods, supplies and other materials utilized in connection with the food products shall be purchased directly from TFI or suppliers specified by TFI. B. In order to establish uniformity of taste and quality of the Products, TFI has developed and will continue to develop recipes and formulas of ingredients, which ingredients will be made available to Distributor. Such Products will be purchased by Distributor at the prevailing prices from time to time, and will be utilized by Distributor exclusively as specified by TFI. TFI may from time to time agree with Distributor on an alternate supplier of Products, in which case, TFI shall be entitled to a reasonable royalty on any Products so produced to compensate TFI for loss of profit. C. Distributor agrees that he will not offer any food product or utilize any paper goods, supplier or other materials, or any equipment, signage, display cases or other items under the TFI Marks which may compete with the Products and which are not purchased from TFI or any supplier that is not currently approved by TFI. D. Should at any time TFI be unable to supply the Products to Distributor as contemplated in this Agreement and as required by Distributor to conduct its business, Distributor shall be entitled with the consent of TFI such consent not to be unreasonably withheld, to arrange for its own alternate supply of the Products, in which case, TFI shall be entitled to a reasonably royalty on any Products so produced to compensate it for loss of profit. ARTICLE IX FEES AND FINANCIAL OBLIGATIONS A. In consideration of the right to distribute Products granted herein, and subject to TFI satisfying the requirements of Article II C. herein concerning acceptability of the Products for import and resale in the Territory and further subject to the Distributor being able to register the TFI Marks for exclusive use in the territory, Distributor shall purchase from TFI, and TFI supply to Distributor, a minimum number of french fry vending machines upon the terms and conditions set forth on Schedule "B" attached hereto and forming a part of this Agreement. B. Unless otherwise specified herein, all amounts stated herein or payments to be made to TFI under this Agreement shall be in U. S. Dollars. ARTICLE X DISTRIBUTOR A. Distributor acknowledges that the TFI Products are unique and distinctive and have been developed by TFI at great effort, time and expense; that Distributor has regular and continuing access to valuable and confidential information, training and trade secrets regarding the Products; and that Distributor recognizes his obligation to fully develop its Territory for sales of the Products and accordingly agrees as follows: 1. During the term of this Agreement and any renewal thereof, Distributor shall not, in any capacity whatsoever, either directly or indirectly, individually or as a member of any business organization, except with the prior written consent of TFI, engage in the sale of any french fries vending machine or supplies therefore, other than TFI's. 2. During the terms of this Agreement, or upon expiration or termination of this Agreement, divulge any aspect of the Products whether expressly stated to be confidential or otherwise to any person. ARTICLE XI DISTRIBUTORS MARKUP A. TFI contracts for manufacturing of the machines based on competitive bids. TFI agrees use its best efforts to maintain no greater than a 12 % markup on all machines delivered for distribution in the Territory of the Distributor. Should TFI be required to charge more than 12% markup in order to maintain satisfactory operating margins, TFI agrees to notify Distributor no less than ninety (90) days prior to the increase in markup. ARTICLE XII TRANSFER OF WHOLE INTEREST A. This Agreement shall enure to the benefit of the successors of TFI and may be so assigned at any time. B. For purposes of clarity, the provisions of this Article XII apply solely to the transfer by Distributor or its personal representatives of the whole of the Distributor's interest in this Agreement and shall have no application to the granting of additional distributorships by Distributor for subdivided areas within its Territory, as previously described in Article II paragraph 2. C. TFI shall not unreasonably withhold its consent to any transfer or assignment which is subject to the restrictions of this Article, provided, however, that TFI shall not be required to give its consent unless, in addition to the requirements of Article IV hereof, the following conditions are met prior to the effective date of the assignment: 1. For all proposed transfers or assignments: (a) Distributor shall not be in default under any provision of the terms of this Agreement or any other agreement ancillary to this Agreement, and shall have continuously distributed products for a period of not less than three (3) months; (b) Distributor has executed a general release in a form prescribed by TFI of any and all claims against TFI; (c) The proposed assignee executes such other documents as TFI may require in order to assume all of the obligations of this Agreement, to the same extent, and with the same effect, as previously assumed by Distributor; (d) A transfer fee has bee paid to TFI in an amount equal to five percent (5%) of the aggregate cash or cash valued consideration paid by the assignee to assignor for the distribution rights, to defray its reasonable costs and expenses in connection with the transfer, including without limitation, the cost of legal and accounting fees, credit and investigation charges, evaluations, retraining and additional supervision. It is agreed that the original cost of the Territory will be deducted. D. Upon the death or permanent incapacity of a Distributor the following shall apply: 1. TFI shall have the right, within thirty (30) days of the date upon which TFI is notified of such death or incapacity (if consistent with applicable local laws) to purchase the interest or any part thereof for cash at the appraised value, such purchase to be completed within sixty (60) days. 2. If TFI declines to elect to purchase the interest, within thirty (30) days of the date upon which TFI is notified of such death or incapacity, the interest may be transferred within a further sixty (60) days by sale to a third party meeting TFI's then current criteria for new distributors, provided that the requirements of paragraph D of this Article are met. If a transfer to an approved transferee cannot be effected within a further one hundred and twenty (l20) days, this Agreement shall terminate automatically. 3. No sale or transfer of the interest shall be approved by TFI unless the incapacitated Distributor or personal representative has agreed to reimburse TFI for the reasonable costs and expenses it has incurred or may incur in providing (at TFI's option) one or more interim Distributors to manage the business until a transfer of the interest is effected, if TFI determines, in its discretion, that such supervision is necessary or desirable. E. TFI's consent to a transfer of any interest subject to the restrictions of this Article shall not constitute a waiver by TFI of the right to distribute Products granted herein, nor shall it be deemed a waiver of TFI's right to demand exact compliance with any of the terms of this Agreement by the assignee. The document effecting the transfer or assignment of any interest subject to the restrictions of this Article shall specifically provide that Distributor's obligations hereunder shall continue in full force and effect notwithstanding any such disposition. F. If Distributor has received and desires to accept any bona fide offer to purchase his or its distribution rights hereunder, Distributor or such person shall notify TFI in writing of the purchase price and terms of such offer, and TFI shall have the right and option (subject to any limitations of applicable local laws exercisable within thirty (30) days after receipt of such written notification), to send written notice to Distributor or such persons that TFI or its assignee intend to purchase Distributor' s interest on the same terms and conditions offered by the third party. Any material change in the terms of any offer prior to closing shall result in a new notification as in the case of the initial offer. TFI's failure to exercise the option afforded by this paragraph F of this Article shall not constitute a waiver of any other provision of this Agreement, including any of the requirements of this Article with respect to the proposed transfer. G. Provided always that TFI's consent shall be required, not to be unreasonably withheld, and no fee shall be chargeable in respect of a transfer to: (a) a subsidiary or affiliate; (b) a corporate successor resulting from merger, amalgamation, consolidation or other corporate re-organization. ARTICLE XIII DEFAULT A. In addition to those events hereinbefore stated to be events of default, it is agreed that the rights granted to Distributor to this Agreement may be terminated forthwith with notice upon the happening of any one or more of the following events, except that TFI must be in compliance with the terms and conditions of this Distribution Agreement: 1. If the Distributor fails to comply with any of the terms and conditions of this Distributorship Agreement and such failure to comply continues for a period of thirty (30) days after written notice thereof has been given to the Distributor. 2. If the Distributor fails to comply with any of the terms and condition of any other agreements entered into pursuant to or collateral to this agreement and such failure to comply continues for a period of thirty (30) days after written notice thereof has been given to the Distributor. 3. If the Distributor shall be adjudicated a bankrupt or become insolvent, or if a receiver or other person with like powers shall be appointed (whether temporary or permanent) to take charge of all or substantially all of the Distributor's assets, or if the Distributor shall make a general assignment for the benefit of creditors or a proposal under the Bankruptcy Act (or any similar or successor Act), or commence any proceedings to wind-up, liquidate, or dissolve the Distributor's business. 4. If the Distributor knowingly falsifies any statement or report furnished to TFI or otherwise deliberately provides false information to TFI; or if the Distributor is convinced of a felony or other crime or impairs the goodwill associated with the TFI Marks. 5. If the Distributor does not order and complete the purchase of the french fry vending machines it is required to purchase pursuant to the terms of this Agreement in the manner and at the time therein specified or pay the cash payment required in lieu thereof as set out in Schedule B hereto. 6. Distributor will pay all attorney's fees as between an attorney and his own client, accounting fees and court fees incurred by TFI in the event of a violation by Distributor of this Agreement. 7. In case of a breach of the terms of this Agreement by Distributor, TFI shall, in addition to any other remedy it may have, and notwithstanding any other provision hereof, be entitled to an injunction restraining Distributor from committing or continuing to commit any breach of this Agreement, without showing or providing any actual damaged sustained by TFI, which damage is hereby conclusively acknowledged. 8. If the Distributor fails to continuously and actively operate its distributorship throughout the Territory. ARTICLE XIV RIGHTS AND OBLIGATIONS OF PARTIES ON TERMINATION OR EXPIRATION A. Upon termination or expiration of this Agreement for any reason whatsoever, Distributor will immediately discontinue use of all trade names, trade marks, signs, forms of advertising, printed material and all other indicia of operation as a TFI Distributor from it operations. B. TFI may retain all fees paid pursuant hereto. C. Any and all obligations of TFI to Distributor under this Agreement shall immediately cease and terminate. D. In no event shall termination or expiration of this Agreement for any reason whatsoever affect Distributor's obligation to take or abstain from taking action in accordance with this Agreement . E. It is understood by Distributor that rights in and to the TFI Marks and any part thereof or addition thereto and the use thereof shall be and remain the property of TFI and Distributor shall further assign, transfer and convey to TFI all additional rights which may be acquired, if any, by reason of the use of said name of Distributor. As Distributor has registered the TFI Marks at Distributor's own expense in the Territory, if requested to assign the rights to the mark to TFI during the term and under the conditions set forth in this Agreement, TFI will compensate Distributor for all its costs of registration, protection, defense and maintenance of the TFI Marks in the Territory. F. TFI shall have the option to purchase, at Distributor's cost less twenty-five (25) percent, all or any portion of inventory of any kind bearing the TFI Marks, including, but not limited to, french fry vending machines, equipment, vehicles, and any other items Distributor may have in stock at the time of such termination or expiration. G. Distributor shall cause immediate discontinuance of all advertising or other public display or publication of the words "Tasty Fries" and, in the event that such action is not taken by Distributor and after a period of six (6) months has elapsed, Distributor hereby constitutes irrevocably TFI as Distributor's attorney to carry out such acts at Distributor's sole expense. H. Distributor will immediately pay any and all amounts owing to TFI and its subsidiaries and affiliates. I. Distributor shall not, in any capacity whatsoever, either directly or indirectly, individually or as a member of any business organization, engage in the preparation or sale of any TFI or other approved TFI Product, or have any employment or interest in a firm engaged in the preparation or sale of such products within the Territory or within thirty (30) miles of any other Distributor's exclusive or nonexclusive territory for a period of three (3) years following such termination. Distributor acknowledges and agrees that this restriction upon subsequent activities is necessary in view of the Confidential Information and expertise Distributor will acquire pursuant to the terms of the Agreement and will cause TFI irreparable and substantial damage in the event of breach of these provisions. ARTICLE XV INSURANCE A. Distributor agrees to place and keep in effect during the life of this Agreement with an insurance company approved by TFI, public liability in amounts no less than One Million Dollars ($1.000.000.00) U. S., in case of damage or injury to one person, no less than One Million Dollars ($1.000.000.00) U.S., in case if damaged or injury to more than one person, property damage insurance of One Million Dollars ($1.000,000.00) U.S. in case of damage or injury to one person (proof of insurance coverage shall be furnished to TFI prior to the delivery of the first machine). B. It is specifically agreed that insurance coverage required to be kept in effect by the terms of this paragraph shall be subject to review by TFI in order to ensure adequate insurance protection throughout the term of this Agreement. TFI may, from time to time, and in its sole discretion, require Distributor upon thirty (30) days notice to obtain reasonable amounts of additional insurance beyond the aforementioned requirements of this paragraph. ARTICLE XVI INDEMNIFICATION OF COMPANY A. Distributor agrees to protect, indemnify, and save TFI, its affiliates, subsidiaries, partners, stockholders, directors, officers and employees of its partners harmless from any and all loss, damages, liability, expenses, attorney's fees and costs incurred by any of them because of any action, matter, thing, or conduct relating to Distributor and Distributor's business or its agents, servants, employees, customers and guests in, on, or connected with the preparation, cooking and sale of Products. B. TFI agrees to protect, indemnify and save Distributor its stockholders, directors, officers and employees harmless from any and all loss, damage, liability expenses, attorney's fees and costs incurred by any of them as a result of any defect in the design, construction or operation of any of the french fry vending machines supplied by TFI or as a result of any defect in and of the other Products supplied by TFI. ARTICLE XVII APPEARANCE OF MACHINES Distributor shall see to it that all machines in the Distributor's Territory are in good repair and shall refurbish, tidy, and maintain each TFI french fry vending machine as necessary or as required by TFI in order to ensure that at all times a first class, safe and reputable Product is provided to the public. ARTICLE XVIII RENEWAL OF AGREEMENT Unless terminated as herein otherwise provided, Distributor shall have the option, pursuant to such procedures as may be required by TFI at the expiration of the initial term of this Agreement, to renew the license granted hereunder at each ten (10) year expiration date as long as all contractual conditions are met hereof by executing TFI's then-current form c Distributorship Agreement provided that: 1. Distributor gives TFI written notice of its election to renew no less than three (3) months nor more than nine (9) months prior to the expiration of the then current term and Distributor executes a general release under seal, in a form prescribed by TFI, of any and all claims against TFI, its affiliates, stockholders, directors, officers and employees; and 2. Distributor at the time of notice of election to renew and at the end of the then current term is not in default of any of the terms or conditions of this Agreement or any other Agreement between Distributor and TFI or its affiliates, and has substantially complied with the terms and conditions of all such agreements during the term of this Agreement; and 3. All of the Distributor's accrued monetary obligations to TFI and its subsidiaries and affiliates have been satisfied prior to renewal, and timely met throughout the terms of this Agreement. Upon renewal of this Agreement, no additional distributorship fee will be due. However, it is specifically agreed that Distributor will, upon renewal, be charged by TFI sum which shall be equal to TFI's estimated costs incurred in connection with such renewal plus an administrative fee equal to fifteen (15%) percent of such costs. Furthermore, Distributor acknowledges the terms of the TFI's then current form of Distributorship Agreement. XVIX RELATIONSHIP OF PARTIES A. TFI and Distributor are not and shall not be considered as joint venturers, partners, or agents of each other, or anything other than Manufacturer and Distributor and neither shall have the power to bind or obligate the other than as set forth in this Agreement. B. The parties further agree that their relationship created by this Agreement is not a fiduciary relationship. ARTICLE XX DISTRIBUTOR'S RESPONSIBILITY A. Distributor acknowledges that his success in the distribution of products contemplated to be undertaken by Distributor pursuant to this Agreement is speculative and depends primarily upon the ability of Distributor as an independent business organization. Distributor acknowledges that neither TFI nor any other person has guaranteed or warranted that Distributor will succeed in the operation of this business venture. B. Distributor further acknowledges that there have been no representations, promises, or guarantees or warranties of any kind made by TFI or its agents or representatives to induce Distributor to execute this Agreement, except as specifically set forth in this Agreement and further that Distributor has received all information which he has requested concerning the business operation of TFI which, in the opinion of Distributor, is necessary to decide whether to enter into this Agreement. ARTICLE XXI NOTICES A. All notices to TFI required by the terms of this Agreement shall be sent to TFI at its office at: TASTY FRIES, INC. 650 Sentry Parkway, Suite One Blue Bell, PA, U.S.A. 19422 (or such other address as TFI shall designate in writing) or by telefax, telecopy, or other electronic means of communication to such address. B. All notices to Distributor required by the terms of this Agreement shall be sent to Distributor at its office at: CANADIAN TASTY FRIES, lNC. #8 West Dry Creek Circle, Suite #110 Littleton, CO, U.S.A. 80120 (or such other address as Distributor shall designate in writing) or by telefax, telecopy, or other electronic means of communication to such address. C. All notices to either party required by the terms of the Agreement shall be deemed to have been received: (i) in the case of hand delivery or telefax, telecopy or other electronic communication, upon actual receipt thereof (and not the date of receipt of confirming mail); and (ii) in the case of notice sent by registered mail, ten (10) business days after the date of mailing. ARTICLE XXII INTERPRETATION AND EXECUTION OF AGREEMENT A. This Agreement shall be construed and interpreted in accordance with the laws of the State of Florida. B. This instrument contains the entire Agreement of the parties and no representation, inducements, promises, or agreement, oral or otherwise, not embodied herein, were made by TFI and none shall be of any force or effect., C. Nothing in this Agreement shall bar or restrict TFI's right to obtain injunctive relief under applicable law. ARTICLE XXIII SEVERABILITY AND CONSTRUCTION A. Each section, part, term and provision of this Agreement, and any portion thereof shall be considered severable, and if for any reason, any portion of this Agreement is determined to be invalid to or in conflict with any applicable present or future law, rule, or regulation in a final unappealable ruling issued by any court, agency, or tribunal with valid jurisdiction in a proceeding to which TFI is a party, that ruling shall not impair the operation of, or have any other affect upon, such other portions of this Agreement as may remain otherwise intelligible (all of which shall remain binding on the parties and continue to be given full force and agreement as of the date upon which the ruling becomes final). ARTICLE XXIV WRITTEN APPROVALS AND WAIVERS A. TFI shall not be deemed to have waived or impaired any right, power or option reserved by this Agreement (including, without limitation, its rights to demand Distributor's exact compliance with every term, condition, and covenant herein, or to declare any breach thereof a default and to terminate this license prior to the expiration of its term), by virtue of any custom or practice of the parties at variance with the terms hereof, any failure by TFI to demand strict compliance with this Agreement, any forbearance, delay, failure or omission by TFI to exercise any right, power or option, whether of the same, similar or different nature, against Distributor or other Distributorships, or the acceptance by TFI of any payments due from Distributor after any breach of this Agreement. AS WITNESS the hands and seals of the duly authorized representatives of the parties hereto as of the day and year first above written. TASTY FRIES, INC. CANADIAN TASTY FRIES, INC. ----------------------------- -------------------------- Authorized Signatory Witness SCHEDULE"A" TO THE DISTRIBUTORSHIP AGREEMENT BETWEEN: TASTY FRIES, INC. AND: CANADIAN TASTY FRIES, INC. DESCRIPTION OF TERRITORY ARTICLE 1. For the purposes of this Distributorship Agreement (the "Agreement") the territorial boundaries to which this Agreement applies are the internationally recognized boundaries of the states of the United States of America listed herein (referred to in this Agreement as the "Territory"). Alabama Alaska Georgia Illinois Indiana Kentucky Mississippi North Carolina Ohio South Carolina Tennessee West Virginia SCHEDULE "B" TO THE DISTRIBUTORSHIP AGREEMENT BETWEEN: TASTY FRIES, INC. AND: CANADIAN TASTY FRIES, INC. FEE PAYMENT SCHEDULE ARTICLE IX The purchase price for the grant of distributorship made in this Agreement is $1,000,000.00 U.S. to be paid as follows: A. On the acceptance and signing of this Agreement by TFI: $ Nil; B. (a) The balance of the purchase price shall be tied to the order and delivery of french fry vending machines (the "Machines") which Machines the Distributor shall be obliged to order in the quantity set out in Column II below for each year specified in Column I below following the Start Date and shall make the associated payment against the purchase price set out in Column III below which payment is based on and paid at a rate of $500.00 per annual minimum number of machines delivered: COLUMN I COLUMN II COLUMN III -------- --------- ---------- YEAR MINIMUM NO OF MACHINES MINIMUM PAYMENT ---- ---------------------- --------------- 1 100 $ 50,000 2-8 200 $ 100,000 9-10 250 $ 125,000 (b) The Start Date shall be the first day of the month immediately following the first six month (180 day) period in which TFI delivers a minimum of ten (10) Machines suitable for distribution in the United States to Distributor. (c) In any year that Distributor does not order the minimum number of Machines set out in Column II above, Distributor shall make a cash payment to TFI on the last day of that year equal to the shortfall from the required payment set out in Column III above for that year. (d) If in any year Distributor orders the required minimum number of Machines but TFI is unable or fails to deliver the minimum number of Machines to Distributor, then Distributor for that year shall only be obliged to make a payment equal to $500.00 times the number of Machines delivered to it. The balance of the payment for that year shall be made on the basis of $500.00 per Machine when TFI finally delivers the remainder of the minimum of Machines to Distributor. EX-23 10 EXHIBIT 23.0 SCHIFFMAN HUGHES BROWN 790 PENNLYN PIKE, SUITE 302 BLUE BELL, PENNSYLVANIA 19422 (215)646-2000; (215)646-1937 (FAX) ACCOUNTANTS' CONSENT To the Shareholders and Board of Directors of Tasty Fries, Inc. We consent to the use of our Independent Auditor's Report dated June 10, 1996 and accompanying financial statements of Tasty Fries, Inc. for the year ended January 31, 1996 and 1995. This Report will be included in the Form SB-2 which is to be filed with the Securities and Exchange Commission for Tasty Fries, Inc. SCHIFFMAN HUGHES BROWN Certified Public Accountants Blue Bell, Pennsylvania April 28, 1997 -----END PRIVACY-ENHANCED MESSAGE-----