<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CAFE ODYSSEY, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
N/A
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
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(4) Date filed:
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<PAGE> 2
[CAFE ODYSSEY LOGO]
4801 WEST 81ST STREET, SUITE 112
BLOOMINGTON, MINNESOTA 55437
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 19, 1999
TO THE SHAREHOLDERS OF CAFE ODYSSEY, INC.:
Please take notice that the Annual Meeting of Shareholders (the "Annual
Meeting") of Cafe Odyssey, Inc. (the "Company") will be held, pursuant to due
call by the Board of Directors of the Company, at the Minneapolis Marriott City
Center, 30 South 7th Street, Minneapolis, Minnesota 55402, on Thursday, August
19, 1999, at 6:00 p.m., or at any adjournment or postponement thereof, for the
following purposes:
1. To elect five directors;
2. To consider and vote upon the adoption of the Agreement and Plan of
Merger, dated as of June 1, 1999 (the "Merger Agreement"), by and among
the Company, Stephen D. King, popmail.com, inc., a Delaware corporation
("Popmail"), each of the holders of common stock of Popmail as of June
1, 1999, and Cafe Odyssey Acquisition Subsidiary, Inc., a Delaware
corporation and wholly-owned subsidiary of the Company ("Merger Sub"),
pursuant to which, among other things, (a) Popmail will be merged with
and into Merger Sub (the "Merger"), and (b) each outstanding share of
Popmail common stock will be converted into the right to receive (i) one
share of the Company's newly authorized Series B Convertible Preferred
Stock, and (ii) their pro rata share of a warrant to purchase the
Company's common stock providing the economic equivalent of certain
options, warrants and other securities exchangeable for, or convertible
into, the Company's common stock, which options, warrants, or other
securities were outstanding on May 3, 1999;
3. To consider and vote upon an amendment to the Company's Articles of
Incorporation to change the name of the Company, contingent upon
consummation of the Merger, to PopMail.com, inc.; and
4. To transact any other business as may properly come before the meeting
or any adjournments thereof.
The terms of the Merger Agreement are described in detail in the
accompanying Proxy Statement and the appendix thereto, which form a part of this
Notice. A copy of the Merger Agreement is attached as Appendix A to the Proxy
Statement. To ensure that your vote will be counted, please complete, date and
sign the enclosed proxy card and return it promptly in the enclosed postage-paid
envelope, whether or not you plan to attend the Annual Meeting. You may revoke
your proxy in the manner described in the accompanying Proxy Statement at any
time before it is voted at the Annual Meeting.
Pursuant to due action of the Board of Directors, shareholders of record on
June 25, 1999 (the "Record Date") will be entitled to vote at the meeting or any
adjournments thereof. Adoption of each proposal requires the affirmative vote of
the holders of a majority of the shares of the Company's common stock present in
person or represented by proxy at the Annual Meeting, except that approval of
the Merger requires the affirmative vote of the holders of a majority of the
shares of the Company's common stock outstanding on the Record Date for the
Annual Meeting.
A PROXY FOR THE MEETING IS ENCLOSED HEREWITH. YOU ARE REQUESTED TO FILL IN
AND SIGN THE PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS, AND MAIL IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
/s/ Mark D. Dacko
Mark D. Dacko
Secretary
July 16, 1999
<PAGE> 3
[CAFE ODYSSEY LOGO]
4801 WEST 81ST STREET, SUITE 112
BLOOMINGTON, MINNESOTA 55437
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
AUGUST 19, 1999
VOTING AND REVOCATION OF PROXY
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Cafe Odyssey, Inc. (as periodically
referred to herein as "Cafe Odyssey", the "Company" and "Buyer") to be used at
the Annual Meeting of Shareholders of the Company to be held on Thursday, August
19, 1999, at 6:00 p.m. at the Minneapolis Marriott City Center, 30 South 7th
Street, Minneapolis, Minnesota 55402, for the purposes set forth in the
accompanying notice of meeting.
The approximate date on which this Proxy Statement and the accompanying
proxy were first sent or given to shareholders was July 16, 1999. Each
shareholder who signs and returns a proxy in the form enclosed with this Proxy
Statement may revoke the same at any time prior to its use by giving notice of
such revocation to the Company in writing, in open meeting or by executing and
delivering a new proxy to the Secretary of the Company. Unless so revoked, the
shares represented by each proxy will be voted at the meeting and at any
adjournments thereof. Presence at the meeting of a shareholder who has signed a
proxy does not alone revoke that proxy. Only shareholders of record at the close
of business on June 25, 1999 (the "Record Date") will be entitled to vote at the
meeting or any adjournments thereof.
AVAILABLE INFORMATION
Cafe Odyssey, Inc. is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Copies of such reports,
proxy statements and other information filed by Cafe Odyssey, Inc. can be
inspected and copied at the public reference facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional
Offices located at Citicorp Center, 500 West Madison, 14th Floor, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of such documents also may be obtained, at prescribed rates, from
the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
DC 20549. The SEC also maintains a website (http://www.sec.gov) that contains
reports, proxy statements and other information regarding companies such as Cafe
Odyssey, Inc. that file electronically with the SEC. This Proxy Statement was
filed electronically with the SEC.
<PAGE> 4
FORWARD-LOOKING STATEMENTS
This proxy statement includes forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange
Act. All statements regarding popmail.com, inc., Cafe Odyssey, Inc. or the
combined company's expected future financial position, business strategy,
projected costs and plans, and objectives of management for future operations
are forward-looking statements. Although popmail.com, inc. and Cafe Odyssey,
Inc. believe that their respective expectations reflected in such forward-
looking statements are based on reasonable assumptions, no assurance can be
given that such expectations will prove to have been correct. Important factors
that could cause actual results to differ materially from the expectations
reflected in the forward-looking statements herein include, among others, the
factors set forth under the caption "risk factors," general economic and
business and market conditions, changes in federal laws, increased competitive
pressure in the combined company's industry, costs or difficulties relating to
the integration of the businesses of popmail.com, inc. and Cafe Odyssey, Inc.
and the ability of popmail.com, inc. and Cafe Odyssey, Inc. to achieve the goals
described under the caption "The Merger."
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained elsewhere in this Proxy
Statement and the appendix hereto. Cafe Odyssey shareholders are urged to read
this Proxy Statement and the appendix hereto carefully and in their entirety.
Unless otherwise indicated, references to the number of shares of Cafe Odyssey
Series B Convertible Preferred Stock to be issued in connection with the Merger
describe in this Proxy Statement are based upon (i) the number of shares of Cafe
Odyssey common stock outstanding on the Record Date and (ii) the number of
shares of popmail.com, inc. common stock outstanding on the Record Date.
THE COMPANIES
Cafe Odyssey, Inc. Cafe Odyssey is a Minnesota corporation headquartered
in Minneapolis, Minnesota. Cafe Odyssey currently develops, owns and operates
restaurants with multiple themed dining rooms and a corresponding retail
component designed to appeal to the upscale casual dining market. Cafe Odyssey
has a restaurant at the Mall of America in Bloomington, Minnesota, a suburb of
Minneapolis, which opened in June 1998, and a second restaurant in the Denver
Entertainment and Fashion Pavilions, an urban retail/entertainment complex in
Denver, Colorado which opened on March 15, 1999. Cafe Odyssey's first
restaurant, in the Kenwood Shopping Center in Cincinnati, Ohio which operates
under the name "Hotel Discovery," opened in December 1996. Cafe Odyssey began
its operations as Hotel Mexico, Inc., which was incorporated in Ohio in January
1994. Cafe Odyssey's executive offices are located at 4801 West 81st Street,
Suite 112, Bloomington, Minnesota 55437 and its telephone number is (612)
837-9917.
Cafe Odyssey Acquisition Subsidiary, Inc. Cafe Odyssey Acquisition
Subsidiary, Inc. ("Merger Sub") is a wholly-owned subsidiary of Cafe Odyssey,
formed by Cafe Odyssey to effect the Merger with Popmail. Merger Sub has had no
prior business.
popmail.com, inc. popmail.com, inc. ("Popmail") was founded in December
1997, and develops media and targeted marketing opportunities for radio
stations. Popmail is a Delaware corporation, operating as an S- Corporation,
with its principal offices located at 1333 Corporate Drive, Suite 350 in Irving,
Texas. Popmail develops and deploys email-messaging systems that carry the brand
and markings of its radio station customers, along with private label products
that also bear the brand and markings of these customers. Popmail began
marketing its initial email service to the radio industry in October 1998, and
has secured agreements with approximately 500 stations with over 160 operational
email-messaging systems.
THE ANNUAL MEETING
Date, Time and Place of Annual Meeting. The Annual Meeting will be held on
Thursday, August 19, 1999, at 6:00 p.m. local time, at the Minneapolis Marriott
City Center, 30 South 7(th) Street, Minneapolis, Minnesota 55402.
Purpose of Annual Meeting. At the Annual Meeting, the holders of shares of
Cafe Odyssey common stock will consider and vote upon:
(i) the election of the Board of Directors of Cafe Odyssey;
(ii) the adoption of the Merger Agreement and the transactions contemplated
thereby;
(iii) an amendment to Cafe Odyssey's Articles of Incorporation to change
the name of the Company, contingent upon consummation of the Merger,
to PopMail.com, inc.; and
(iv) any other business as may properly come before the meeting or any
adjournments thereof (collectively, each of (i), (ii), and (iii) are
referred to herein as the "Proposals.").
Record Date. The Board of Directors of Cafe Odyssey has fixed the close of
business on June 25, 1999 as the record date for the determination of holders of
Cafe Odyssey common stock entitled to notice of and to
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vote at the Cafe Odyssey Annual Meeting (the "Record Date"). On the Record Date,
there were 8,379,101 shares of Cafe Odyssey common stock outstanding, each
entitled to one vote.
Required Vote; Revocation of Proxies. Each Proposal must be adopted by the
affirmative vote of the holders of a majority of the outstanding shares of Cafe
Odyssey common stock entitled to vote and represented at the Annual Meeting
except that approval of the Merger requires the affirmative vote of the holders
of a majority of the shares of the Company's common stock outstanding on the
Record Date.
Shares of Cafe Odyssey stock represented by a proxy properly signed and
received at or prior to the Annual Meeting, unless subsequently revoked, will be
voted in accordance with the instructions thereon. IF A PROXY IS SIGNED AND
RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS, SHARES OF CAFE ODYSSEY
STOCK REPRESENTED BY THE PROXY WILL BE VOTED FOR THE PROPOSALS AND TRANSACTIONS
CONTEMPLATED THEREBY.
Abstentions may be specified on all Cafe Odyssey proposals. Shares of Cafe
Odyssey represented at the Annual Meeting for which proxies have been received,
but with respect to which holders of shares have abstained on any matter, will
be treated as present at the Annual Meeting for purposes of determining the
presence or absence of a quorum for the transaction of all business.
For voting purposes at the Annual Meeting, only shares affirmatively voted
in favor of a Proposal (including properly executed proxies not containing
voting instructions) will be counted as favorable votes for such proposal. The
failure to submit a proxy (or to vote in person) or the abstention from voting
will have the same effect as a vote against the Merger. Cafe Odyssey proxy
holders may, in their discretion, vote shares to adjourn the Annual Meeting to
solicit additional proxies in favor of such Proposals. However, shares of Cafe
Odyssey stock with respect to which a proxy is signed and returned indicating a
vote against any Proposal will not be so voted to adjourn.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it by at any time before the proxy is voted by the filing of an
instrument revoking it or of a duly executed proxy bearing a later date with the
Secretary of Cafe Odyssey, prior to or at the Annual Meeting, or by voting in
person at the Annual Meeting. All written notices of revocation and other
communications with respect to revocation of Cafe Odyssey proxies should be
addressed to Cafe Odyssey at its principal executive offices. Attendance at the
Annual Meeting will not in and of itself constitute a revocation of a proxy.
The Cafe Odyssey Board of Directors is not currently aware of any business
to be acted upon at the Annual Meeting other than as described herein. If
however, other matters are properly brought before the Annual Meeting, the
persons appointed as proxies will have discretion to vote or act thereon
according to their best judgment subject to applicable SEC rules.
THE MERGER
Effect of the Merger. If approved by the Cafe Odyssey shareholders, and
provided certain other conditions to the consummation of the Merger are
satisfied, upon the terms and subject to the conditions of the Merger Agreement,
Popmail will be merged with and into Merger Sub at the Effective Time. Merger
Sub will be the surviving corporation in the Merger, and will continue to be a
wholly-owned subsidiary of Cafe Odyssey. The Merger has already been approved by
the stockholders of Popmail.
Conversion of Popmail Common Shares. Upon satisfaction of the conditions
referenced below under the caption "Conditions to the Merger" (the "Effective
Time"), each outstanding share of Popmail common stock, par value $.01 per share
(the "Popmail Common Shares"), will be automatically converted into the right to
receive (i) one (1) share of the Cafe Odyssey Series B Convertible Preferred
Stock (collectively the "Cafe Odyssey Preferred Shares"), and (ii) a fraction of
a warrant (the "Buyer Warrant") to purchase Cafe Odyssey common stock, par value
$.01 per share (the "Cafe Odyssey Common Shares"), providing the economic
equivalent of certain options, warrants and other securities exchangeable for,
or convertible into, Cafe Odyssey Common Shares, which options, warrants, or
other securities were outstanding an May 3, 1999, such fraction having a
numerator equal to one (1) and a denominator equal to the total number of
Popmail Common Shares outstanding at the Effective Time. Cafe Odyssey will also
be obligated, at the Effective
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Time, to issue as additional Merger consideration one (1) Cafe Odyssey Preferred
Share for each Popmail Common Share issued by Popmail after June 22, 1999, but
prior to the Effective Time.
Other Payments; LegacyMaker Indebtedness. Pursuant to the terms of the
Merger Agreement, Cafe Odyssey paid $150,000 to Popmail on June 4, 1999. In the
event the Merger fails to occur for any reason, Cafe Odyssey is not entitled to
a refund of this payment. After the Effective Time, Merger Sub, as the surviving
corporation to the Merger, will repay Popmail's entire secured indebtedness to
LegacyMaker, Inc., a Delaware corporation ("LegacyMaker") and an affiliate of
Popmail (the "LegacyMaker Note"). The outstanding principal amount of the
LegacyMaker Note as of July 13, 1999 was approximately $5,000,000.
Conditions to the Merger. The Effective Time shall occur only upon the
satisfaction by Cafe Odyssey of all of the following conditions: (i) Cafe
Odyssey shall have paid into an escrow account an amount necessary to pay all of
the LegacyMaker Note, (ii) the sale price of a Cafe Odyssey Common Share at the
close of business on the last business day preceding the Effective Time shall be
at least $2.50 as quoted on Nasdaq, (iii) the Merger shall have been approved by
the Cafe Odyssey shareholders, and (iv) Cafe Odyssey shall have paid in full any
Liquidated Damages and Extension Payments then payable pursuant to the Merger
Agreement, as described below.
Liquidated Damages; Extension Payments. If Cafe Odyssey fails to satisfy
all of the "Conditions to the Merger" by August 30, 1999 (the "Expiration
Date"), the Merger Agreement will terminate and Cafe Odyssey must pay $100,000
to Popmail as liquidated damages (the "Liquidated Damages"). Cafe Odyssey may,
at its option, extend the Expiration Date for up to three consecutive 30-day
periods (each an "Extension Period"), the first Extension Period to commence on
the day immediately following the Expiration Date, and the second and third
Extension Periods to commence upon the expiration of the preceding Extension
Period. Cafe Odyssey's right to extend the Expiration Date is exercisable by
paying $100,000 in cash to LegacyMaker, Inc. no later than the first day of each
such Extension Period. Such extension of the Expiration Date does not relieve
Cafe Odyssey of its obligation to pay the Liquidated Damages, and Cafe Odyssey
must have made such payment in order to exercise its right to extend the
Expiration Date.
Recommendations of the Board of Directors of Cafe Odyssey, Inc. The Cafe
Odyssey Board of Directors has unanimously determined that the Merger is in the
best interests of Cafe Odyssey and its shareholders, approved the Merger
Agreement and the Merger and the issuance of the Cafe Odyssey Preferred Shares
and the Buyer Warrant and recommends that the Cafe Odyssey shareholders vote for
each of the Proposals.
Interests of Certain Persons in the Merger.
Certain members of the Board of Directors and management of Cafe Odyssey
and Popmail have interests in the Merger (described below and under the Captions
"The Merger -- Interests of Certain Persons in the Merger") that are different
from and in addition to the interests generally of shareholders of Cafe Odyssey.
Cafe Odyssey's Board of Directors was aware of these interests and considered
them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby.
Employment and Consulting Agreements. At the Effective Time, Stephen D.
King, the Chairman and Chief Executive Officer of Cafe Odyssey and its principal
shareholder, will have an employment agreement providing that he will be Chief
Executive Officer of Cafe Odyssey following the Merger. Cafe Odyssey will agree
to use its best efforts to nominate and recommend to shareholders that Mr. King
be elected to the Board of Directors for as long as Mr. King is either a
guarantor of any Cafe Odyssey debt or is owed any debt by Cafe Odyssey. Mr.
King's employment agreement is described below in greater detail.
At the Effective Time, James L. Anderson, the Chairman, President and a
director and stockholder of Popmail, will have a consulting agreement with Cafe
Odyssey pursuant to which he shall be paid an hourly rate of $200 for providing
consulting services to Cafe Odyssey. Cafe Odyssey will agree to use its best
efforts to nominate and recommend to shareholders that Mr. Anderson be elected
to the Board of Directors throughout the term of the agreement, and so long as
Anderson is a member of the Board, Cafe Odyssey agrees to elect Anderson as
Chairman. The agreement will have an initial five-year term with one-year
renewal terms, and may be terminated for a variety of reasons, including
voluntary termination by Mr. Anderson. The agreement
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will provide that Mr. Anderson will not compete with Cafe Odyssey for one year
if he resigns or is terminated for cause.
Registration Rights. Cafe Odyssey has agreed in the Merger Agreement to
register the resale of the Cafe Odyssey Common Shares issuable upon conversion
by the Popmail stockholders of the Cafe Odyssey Preferred Shares to be issued to
them pursuant to the Merger. Such registration must occur as soon as practicable
after the Effective Time, and Cafe Odyssey will bear all expenses and fees
incurred in connection with such registration.
Indemnification. Cafe Odyssey has agreed to indemnify Popmail and each of
its officers, directors and stockholders for any losses resulting from any
breaches of representations or warranties made by Cafe Odyssey or Merger Sub in
the Merger Agreement and Cafe Odyssey's operation of the surviving corporation
following the Effective Time.
Certain Other Agreements.
Escrow Agreement. On June 22, 1999, the following property was placed into
escrow pursuant to the terms of the Merger Agreement and Escrow Agreement dated
June 22, 1999 by and among Cafe Odyssey, Popmail, the Popmail stockholders,
Merger Sub and the Escrow Agent: (i) a Certificate of Merger executed by Cafe
Odyssey, Popmail and Merger Sub, (ii) certificates representing a total of 2,024
shares of Cafe Odyssey Preferred Shares in the names of the Popmail stockholder,
(iii) the Buyer Warrant, and (iv) the shares of common stock of Popmail held by
each Popmail stockholder, together with stock powers executed in blank, a Letter
of Transmittal executed by each Popmail stockholder, and a Subscription
Agreement executed by each Popmail stockholder. Before the Effective Time,
either Cafe Odyssey or Merger Sub must place sufficient funds in the escrow
account to repay the LegacyMaker Note in full.
At the Effective Time, the Escrow Agent will (i) release the escrowed Cafe
Odyssey Preferred Shares and the Buyer Warrant to the Popmail stockholders, (ii)
release the Popmail Common Shares (which will be deemed canceled at the
Effective Time), the Subscription Agreements, the Letters of Transmittal and the
executed stock powers to Cafe Odyssey, (iii) file the executed Certificate of
Merger with the Secretary of State of Delaware, and (iv) deliver cash to
LegacyMaker for repayment of the LegacyMaker Note.
King Indemnification Agreement. Stephen D. King executed an
Indemnification Agreement to become effective as of the Effective Time of the
Merger, in which he agreed to indemnify Popmail and each of its officers,
directors, employees, affiliates and stockholders for any losses resulting from
any claim brought by a shareholder of Cafe Odyssey relating to the negotiation,
approval or consummation of the Merger Agreement.
LegacyMaker Indemnification Agreement. LegacyMaker executed an
Indemnification Agreement to become effective as of the Effective Time of the
Merger, in which it agreed to indemnify Cafe Odyssey and each of its officers,
directors, employees, affiliates and shareholders for any losses resulting from
any breaches of representations or warranties made by Popmail in the Merger
Agreement or from any claim brought by a stockholder of Popmail relating to the
negotiation, approval or consummation of the Merger Agreement.
Risk Factors
The matters set forth under the caption "Risk Factors" should be carefully
considered by Cafe Odyssey shareholders in deciding whether to approve the
Proposals.
Absence of Dissenters' Rights
Cafe Odyssey is governed under the laws of the State of Minnesota, and,
accordingly, is governed by the provisions of the Minnesota Business Corporation
Act (the "MBCA"). Pursuant to the relevant sections of the MBCA, the
shareholders of Cafe Odyssey are not entitled to dissent from and exercise
appraisal rights in connection with the Merger.
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Accounting Treatment
The Merger will be accounted for under the purchase method of accounting
under the generally accepted accounting principles ("GAAP"), with Cafe Odyssey
treated as the acquiror. See "Pro Forma Unaudited Financial Statements."
Market Price Data
Since November 3, 1997, the Common Stock of Cafe Odyssey has been traded in
the over-the-counter market and quoted on the Nasdaq SmallCap Market under the
symbol "HOTD". On May 21, 1998, Cafe Odyssey changed its corporate name from
Hotel Discovery, Inc. to Cafe Odyssey, Inc. In conjunction with this change,
effective May 24, 1998, Cafe Odyssey's symbol for its Common Stock was changed
from "HOTD" to "CODY". The following table sets forth the high and low bid
prices of Cafe Odyssey Common Stock for the periods indicated.
<TABLE>
<CAPTION>
CAFE ODYSSEY
COMMON STOCK
--------------
HIGH LOW
----- -----
<S> <C> <C>
Calendar Year 1997
Fourth Quarter............................................ $4.00 $2.00
Calendar Year 1998
First Quarter............................................. $3.75 $1.88
Second Quarter............................................ $5.38 $2.25
Third Quarter............................................. $3.63 $1.00
Fourth Quarter............................................ $1.13 $0.50
Calendar Year 1999
First Quarter............................................. $1.03 $0.63
Second Quarter............................................ $3.75 $3.16
Third Quarter (through July 14, 1999)..................... $2.94 $4.41
</TABLE>
Cafe Odyssey has never declared or paid any cash dividends or distributions
on its Common Stock. Cafe Odyssey does not intend to pay any cash dividends on
its Common Stock in the foreseeable future, as the current policy of Cafe
Odyssey's Board of Directors is to retain all earnings, if any, to support
operations and finance expansion. Future declarations and payments of dividends,
if any, will be determined in light of then current conditions, including Cafe
Odyssey's earnings, operations, capital requirements, financial condition,
restrictions in financing arrangements and other factors deemed relevant by the
Board of Directors.
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RISK FACTORS
The following risk factors should be carefully considered by Cafe Odyssey
shareholders in deciding whether to approve the issuance of Cafe Odyssey
Preferred Shares in connection with the Merger, and the approval of the Merger:
WE HAVE INCURRED LOSSES TO DATE AND IF OUR RESTAURANT SALES DO NOT IMPROVE, WE
WILL NEED ADDITIONAL FINANCING IN ORDER TO CONTINUE OPERATIONS.
We incurred net losses of approximately $6.7 million in 1998 and $4.0
million in 1997 and had a working capital deficit of approximately $6.7 million
as of April 4, 1999. Our ability to continue our present operations and
successfully implement our expansion plans is contingent upon our ability to
increase our revenues which are presently limited to income from our three
existing restaurants. Without additional financing, cash generated from our
current operations may not be adequate to fund operations and make mortgage
payments in 1999. There can be no assurances that additional financing to fund
current operations and expansion will be available on terms acceptable or
favorable to us.
POPMAIL REPRESENTS A NEW BUSINESS VENTURE IN WHICH WE HAVE NO EXPERIENCE.
If acquired, Popmail's email business would represent a significant change
in our business operations from the restaurant business. We and our present
management also have no experience with the business of providing email
services.
THERE IS SIGNIFICANT POTENTIAL FOR DILUTION OF INVESTORS' INTERESTS DUE TO THE
POPMAIL ACQUISITION AND THE CONVERSION OF CAFE ODYSSEY PREFERRED SHARES INTO
SHARES OF THE COMPANY'S COMMON STOCK.
If the acquisition of Popmail is completed, the Company's current
shareholders would experience significant ownership dilution of approximately
50%. Furthermore, this acquisition could require additional financing which
could dilute shareholdings further.
In May 1999, we separately issued to an investor 2,000 shares of Series A
8% Convertible Preferred Stock (collectively the "Series A Preferred Shares")
which are convertible into shares of common stock at a conversion price of 65%
of the market price of our common stock and a warrant to acquire 300,000 shares
of common stock at an exercise price of $3.00 per share (the "Series A
Warrant"). Although there are limits to the number of shares of common stock
that can be issued upon conversion, a decline in the stock price of common stock
could result in considerable dilution to investors if the holder of Series A
Preferred Shares converts. As of July 13, 1999, 434,458 shares of common stock
have been issued upon the conversion of 850 Series A Preferred Shares.
Currently, we estimate that up to 930,316 additional shares of common stock may
be issued in connection with the conversion of Series A Preferred Shares and
payment of dividends.
In July 1999, we also issued 2,000 shares of Series C 8% Convertible
Preferred Stock (collectively the "Series C Preferred Shares") which are also
convertible into shares of common stock at a conversion price of 65% of the
market price of our common stock and a warrant to acquire 300,000 shares of
common stock at an exercise price of $3.00 per share (the "Series C Warrant").
As with the Series A Preferred Shares, a decline in the stock price of common
stock could result in considerable dilution to investors if the holder of the
Series C Preferred Shares converts. Currently, we estimate that up to 1,453,818
shares of common stock may be issued in connection with the conversion of Series
C Preferred Shares and payments of dividends.
Additionally, at the Effective Time, Cafe Odyssey is required to issue
LegacyMaker securities with substantially identical material terms as any
options, warrants or other securities exchangeable for or convertible into
Common Stock that are issued by Cafe Odyssey after May 3, 1999, upon payment by
LegacyMaker of the same consideration paid by the purchaser of any such options,
warrants or other securities, the effect of which, if issued and exercised,
would be additional ownership dilution.
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THERE IS A RISK THAT DUE TO THE LIMITATIONS PLACED ON THE CONVERSION OF THE
SERIES A PREFERRED SHARES AND THE SERIES C PREFERRED SHARES, THE INVESTOR MAY
REQUIRE US TO REDEEM SUCH SHARES FOR CASH.
The total number of shares of common stock issuable (1) upon conversion of
the Series A Preferred Shares, (2) as a dividend on the Series A Preferred
Shares and (3) upon exercise of the Series A Warrant issued to the purchaser of
the Series A Preferred Shares cannot exceed 20% of our common stock outstanding
on May 14, 1999. The total number of shares of common stock issuable (1) upon
conversion of the Series C Preferred Shares, (2) as a dividend on the Series C
Preferred Shares and (3) upon exercise of the Series C Warrant issued to the
purchaser of the Series C Preferred Shares cannot exceed 20% of our common stock
outstanding on July 13, 1999. In the event a holder of the Series A Preferred
Shares or the Series C Preferred Shares is unable to convert such shares into
common stock because these limitations have been reached, we would be required
to redeem such Series A Preferred Shares or Series C Preferred Shares in cash at
135% of the amount paid for such shares plus any accrued and unpaid dividends.
It is possible that in such case we may not posses sufficient cash or cash
equivalents necessary to redeem the Series A Preferred Shares or the Series C
Preferred Shares in cash.
IF WE ARE BE UNABLE TO RAISE FUNDS SUFFICIENT TO REPAY POPMAIL'S INDEBTEDNESS TO
LEGACYMAKER, INC., THE CONTEMPLATED MERGER WITH POPMAIL WILL NOT BECOME
EFFECTIVE.
The effectiveness of our merger with Popmail is contingent upon, among
other things, our repaying the principal amount of Popmail's indebtedness to
LegacyMaker, Inc., which as of July 13, 1999, was approximately $5,000,000. We
cannot assure that we will be able to raise funds sufficient to repay such
amounts in a timely manner or even at all. If for any reason (including our
inability to repay the LegacyMaker indebtedness) the merger fails to become
effective by August 30, 1999, the Merger Agreement will automatically expire and
we will be required to make a non-refundable $100,000 payment to Popmail.
Although we may extend the expiration date of the Merger Agreement for up to
three consecutive 30-day periods, we must pay Popmail $100,000 for each such
extension. In order to raise the funds necessary to repay the LegacyMaker
indebtedness, we may need to obtain financing through an additional offering of
our equity securities or by incurring indebtedness. In obtaining such financing,
future investors may seek and obtain, and we may be required to offer,
investment terms which are substantially better than those granted to existing
shareholders. The issuance of securities on such terms would dilute the
interests of existing shareholders.
INCREASED COMPETITION RESULTING FROM AN INCREASE IN THE NUMBER OF FREE EMAIL
PROVIDERS THAT TARGETS THE RADIO INDUSTRY MAY HAVE AN ADVERSE EFFECT ON
POPMAIL'S FUTURE BUSINESS OPERATIONS.
Currently there are hundreds of free email providers, but Popmail
management believes that it is currently the only email provider that solely
targets the radio industry. To the extent Popmail is successful within the radio
industry, we anticipate others will attempt to compete in the radio segment.
Increased competition due to a greater number of free email providers targeting
the radio industry may have an adverse affect on Popmail's future business
operations.
IN LIGHT OF THE CONSOLIDATION OF THE RADIO INDUSTRY, THE LOSS OF ANY SIGNIFICANT
AFFILIATE CONTRACTS WOULD NEGATIVELY IMPACT POPMAIL'S OPERATIONS.
The last few years have brought substantial concentration of power among a
few players in the radio industry. Consequently, significant portions of the
industry are controlled by a relatively few organizations. Popmail already has
affiliation contracts in place with 2 of the 5 largest organizations and is in
negotiations with the remaining players. In light of such consolidation,
however, the loss of any of these significant affiliation contracts or the
inability of Popmail to enter into contracts with other radio industry entities
would negatively impact Popmail's operations.
DUE TO ITS LIMITED OPERATING HISTORY, POPMAIL FACES ADDITIONAL RISKS AS A
DEVELOPMENT STAGE COMPANY.
Popmail was founded in December, 1997, and is considered a development
stage company which, to date, has not generated profits. Thus, Popmail has a
limited operating history upon which an evaluation of its
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prospects can be made. Such prospects must be considered in light of the risks,
expenses and difficulties frequently encountered in establishing a new business
in the evolving Internet industry, which is characterized by an increasing
number of entrants and intense competition.
DUE TO OUR LIMITED OPERATING HISTORY, YOU MAY FIND IT DIFFICULT TO ASSESS OUR
ABILITY TO OPERATE PROFITABLY.
We have only been operating our Kenwood restaurant since December 1996, our
Mall of America restaurant since June 1998, and our Denver restaurant since
March 1999. Therefore, in addition to the other risks included in this proxy
statement, we face the added risks, expenses and difficulties related to
developing and operating a new business enterprise. Given our lack of
significant operating history, investors may have difficulty assessing the many
factors which will determine our ability to generate future profits.
OUR OPERATIONS, PROPOSED ACQUISITION OF POPMAIL, OR CONTEMPLATED EXPANSION MAY
PROVE UNSUCCESSFUL, EITHER OF WHICH COULD RESULT IN CONTINUED UNPROFITABILITY
AND CAUSE OUR STOCK PRICE TO FALL.
To date, we have not generated a profit. Due to a variety of factors, many
of which are discussed in this proxy statement, we may never generate
significant revenues or operate profitably. In fact, our management anticipates
that net losses will continue for the foreseeable future. Even if we succeed in
expanding our operations as contemplated, we cannot assure a successful
transition to higher volume operations or to a successful incorporation of the
Popmail business. We may be unable to control our expenses, attract necessary
additional personnel, or procure the capital required to maintain expanded
operations. If our expansion is ultimately unsuccessful, the results of our
operations will suffer accordingly, and the market price of our stock may fall.
POOR OPERATING RESULTS AT ANY OF OUR RESTAURANTS OR A DELAY IN THE PLANNED
OPENING OF NEW RESTAURANTS COULD ADVERSELY AFFECT OUR PROFITABILITY AS A WHOLE.
We currently operate only three restaurants. Accordingly, poor operating
results at any one restaurant would materially affect the profitability and cash
flow of our operations as a whole. Even if Cafe Odyssey were to expand its
restaurant business the significant financial investment associated with opening
our restaurants may create substantial fluctuations in our operating results.
Due to the significance of such investments, the risk we face in opening any one
of our restaurants is much larger than that associated with most other
restaurant companies' venues. Consequently, a delay in any planned restaurant
opening could materially affect the profitability and cash flow of our
operations as a whole.
DUE TO THE POTENTIAL ACQUIRED NEW BUSINESS VENTURE, RESOURCES AND ATTENTION
COULD BE DIVERTED FROM THE OPERATION OF OUR RESTAURANT BUSINESS.
As our management and executive officers focus their attention on matters
concerning the acquisition of Popmail, their resources and attention could be
diverted from the operations of the restaurant business. While we believe that
our executive officers and managers will be able to complete the merger and
attend to our existing business, it is possible that their primary focus of
attention may be drawn away from the operation of the restaurant business and
business operations may suffer.
WE ARE DEPENDENT ON THE ONGOING SERVICES OF CERTAIN OF OUR EXECUTIVES, THE LOSS
OF WHICH COULD HAVE A DETRIMENTAL EFFECT ON OUR PROFITABILITY AND THE MARKET
PRICE OF OUR STOCK.
Our plan of restaurant business development and our day-to-day restaurant
operations rely heavily on the experience of Stephen D. King, our Chairman of
the Board and Chief Executive Officer, and Ronald K. Fuller, our President and
Chief Operating Officer. Each of these executives has significant experience in
managing and guiding the business affairs of companies that operate
multi-location restaurants. The loss of either or both of them could adversely
affect the success of our restaurant operations and strategic plans and,
consequently, have a detrimental effect on the market price of our stock.
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WE MAY BE UNABLE TO HIRE QUALIFIED EMPLOYEES TO HELP IMPLEMENT AND MANAGE OUR
EXPANSION PLANS, WHICH INABILITY COULD BE DETRIMENTAL TO THE VALUE OF YOUR
INVESTMENT.
Our success will depend in large part upon our ability to supplement our
existing management team. While both Messrs. King and Fuller have significant
restaurant and multi-location restaurant management experience, we will need to
hire additional corporate level and management employees to help implement and
operate our expansion plans. Any inability or delay in obtaining additional key
employees could have a material adverse effect on our expansion plans and,
consequently, the market value of our stock.
OUR ABILITY, OR INABILITY, TO RESPOND TO VARIOUS COMPETITIVE FACTORS MAY AFFECT
THE MARKET PRICE OF OUR COMMON STOCK.
The restaurant industry is highly competitive and is affected by changes in
consumer preferences, as well as by national, regional and local economic
conditions, and demographic trends. Discretionary spending priorities, traffic
patterns, tourist travel, weather conditions, employee availability and the
type, number and location of competing restaurants, among other factors, will
also directly affect the performance of our restaurants. Changes in any of these
factors in the markets where we currently operate our restaurants could
adversely affect the results of our operations. Furthermore, the restaurant
industry in general is highly competitive based on the type, quality and
selection of the food offered, price, service, location and other factors and,
as a result, has a high failure rate. The themed restaurant industry is
particularly dependent on tourism and has seen the emergence of a number of new
competitors. We compete with numerous well-established competitors, including
national, regional and local restaurant chains, many of which have greater
financial, marketing, personnel and other resources and longer operating
histories than us. As a result, we may be unable to respond to the various
competitive factors affecting the restaurant industry.
WE HAVE ENTERED INTO NON-CANCELABLE LEASES UNDER WHICH WE ARE OBLIGATED TO MAKE
PAYMENTS FOR TERMS OF 12 TO 15 YEARS.
We have entered into long-term leases relating to the Kenwood, Mall of
America and Denver restaurants. These leases are non-cancelable by us (except in
limited circumstances) and range in term from 12 to 15 years. We will likely be
required to enter into similar long-term, non-cancelable leases for any future
restaurants we develop. If we decide to close any of our existing restaurants or
any other future restaurant, we may nonetheless be committed to perform our
obligations under the applicable lease, which would include, among other things,
payment of the applicable base rent for the balance of the respective lease
term. Such continued obligations increase our chances of closing a restaurant
without receiving an adequate return on our investment.
UNPREDICTABLE RISKS ASSOCIATED WITH THE CONSTRUCTION OF ADDITIONAL RESTAURANTS
COULD RESULT IN DELAYS AND COST OVERRUNS IN THE CONTEMPLATED EXPANSION OF OUR
OPERATIONS.
As with all construction projects, we face many risks related to the
opening of additional restaurants, any of which could result in delays and cost
overruns which would negatively impact the success of any restaurant openings.
Such risks may include:
- shortages of materials or skilled labor;
- unforeseen environmental, engineering or geological problems;
- work stoppages;
- floods;
- difficulties with regulatory agencies; and
- unanticipated cost increases.
IN ORDER TO FINANCE THE FUTURE DEVELOPMENT OF ADDITIONAL RESTAURANTS WE MAY BE
REQUIRED TO RAISE ADDITIONAL FUNDS BY ISSUING SECURITIES ON TERMS WHICH WOULD
DILUTE YOUR INTERESTS IN CAFE ODYSSEY.
The cost of developing our restaurants has ranged from $4.5 to $5.1 million
per unit. We may be unable to develop future restaurants at similar costs. In
order to fund our future restaurant development, and the
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development of the Popmail business, we may need to obtain financing through an
additional offering of our equity securities or by incurring indebtedness. If we
do need additional funds to develop restaurants, such funds may not be available
on terms acceptable to us or our shareholders. Furthermore, future investors may
seek and obtain, and we may be required to offer, investment terms which are
substantially better than those granted to existing investors. The issuance of
securities on such terms would dilute the interests of existing shareholders.
AMONG OTHER ECONOMIC FACTORS OVER WHICH WE HAVE NO CONTROL, THE SUCCESS OF OUR
RESTAURANTS WILL DEPEND ON CONSUMER PREFERENCES AND THE PREVAILING LEVEL OF
DISCRETIONARY CONSUMER SPENDING.
Our success, and consequently any investment in our common stock, depends
to a significant degree on a number of economic conditions over which we have no
control, including:
- discretionary consumer spending
- the overall success of the malls, themed entertainment centers and other
venues where our restaurants are or will be located
- economic conditions affecting disposable consumer income
- the continued popularity of restaurants in general and the Cafe Odyssey
concept in particular
Furthermore, most themed restaurants are especially susceptible to shifts
in consumer preferences because they open at or near capacity and frequently
respond to such shifts by experiencing a decline in revenue growth or of actual
revenues. An adverse change in any or all of these conditions would have a
negative effect on our operations and the market value of our common stock.
OUR PRINCIPAL EXECUTIVE OFFICER CONTROLS A SUBSTANTIAL AMOUNT OF OUR COMMON
STOCK AND MAY INFLUENCE OUR AFFAIRS.
As of the Record Date, Stephen D. King, our Chairman of the Board and Chief
Executive Officer, controlled approximately 17.1% of our outstanding common
stock. Accordingly, Mr. King has the ability to substantially influence the
election of members of the Board of Directors and influence significantly the
approval of corporate transactions and other matters requiring shareholder
approval. Unless and until Mr. King substantially decreases his percentage
ownership in our common stock, he will continue to have significant influence
over our affairs. If the Popmail acquisition is consummated, the existing
stockholders of Popmail would collectively have the ability to control our
affairs.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION WHICH COULD NEGATIVELY IMPACT
OUR BUSINESS.
The restaurant industry, and to a lesser extent, the retail merchandising
industry, are subject to numerous federal, state, and local government
regulations, including those relating to:
- the preparation and sale of food
- building and zoning requirements
- environmental protections
- minimum wage requirements
- overtime
- working and safety conditions
- the sale of alcoholic beverages
- sanitation
- relationships with employees
- unemployment
- workers compensation
- citizenship requirements
Any change in the current status of such regulations, including an increase
in employee benefits costs, workers' compensation insurance rates, or other
costs associated with employees, could substantially increase our compliance and
labor costs. Because we pay many of our restaurant-level personnel rates based
on either the federal or the state minimum wage, increases in the minimum wage
would lead to increased labor costs. In addition, our operating results would be
adversely affected in the event we fail to maintain our food and liquor
licenses. Furthermore, restaurant operating costs are affected by increases in
unemployment tax rates, sales taxes and similar costs over which we have no
control.
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We may also be subject in certain states to "dram-shop" statutes, which
provide a person injured by an intoxicated person the right to recover damages
from an establishment that wrongfully served alcoholic beverages to the
intoxicated person.
THERE IS A RISK THAT THE VALUE OF OUR TRADEMARKS AND OTHER PROPRIETARY RIGHTS
COULD BE DIMINISHED BY IMPROPER USE BY OTHERS.
We believe that our trademarks and other proprietary rights are important
to our success and our competitive position. Accordingly, we have filed
trademark applications with the United States Patent and Trademark Office to
register both the "Hotel Discovery" and the "Cafe Odyssey" marks and designs.
However, the actions we have taken to establish and protect our trademarks and
other proprietary rights may be inadequate to prevent others from imitating our
products or claiming violations of their trademarks and proprietary rights by
us. For instance, we may not be granted trademark registration for any or all of
the proposed uses in our applications. Even if our marks are granted
registration, we may still be unable to protect such marks against prior users
in areas where we conduct or will conduct operations. We may also be unable to
prevent competitors from using the same or similar marks, concepts or
appearance.
WE MAY NOT PAY DIVIDENDS ON OUR COMMON STOCK, IN WHICH EVENT YOUR ONLY RETURN ON
INVESTMENT, IF ANY, WILL OCCUR ON THE SALE OF OUR STOCK.
To date, we have not paid any cash dividends on our common stock, and we do
not intend to do so in the foreseeable future. Rather, we intend to use any
future earnings to fund our operations and the growth of our business.
Accordingly, the only return on an investment in our common stock will occur
upon its sale.
PURSUANT TO ITS AUTHORITY TO DESIGNATE AND ISSUE SHARES OF OUR STOCK AS IT DEEMS
APPROPRIATE, OUR BOARD OF DIRECTORS MAY ASSIGN RIGHTS AND PRIVILEGES TO
CURRENTLY UNDESIGNATED SHARES WHICH COULD ADVERSELY AFFECT YOUR RIGHTS AS A
COMMON SHAREHOLDER.
Our authorized capital consists of 100,000,000 shares of capital stock. Our
Board of Directors, without any action by the shareholders, may designate and
issue shares in such classes or series (including classes or series or preferred
stock) as it deems appropriate and establish the rights, preferences and
privileges of such shares, including dividends, liquidation and voting rights.
As of July 13, 1999, we had 8,813,159 shares of common stock, 1,150 shares of
Series A 8% Convertible Preferred Stock and 2,000 shares of Series C 8%
Convertible Preferred Stock outstanding.
The rights of holders of preferred stock and other classes of common stock
that may be issued could be superior to the rights granted to holders of the
Units issued in our initial public offering. Our Board's ability to designate
and issue such undesignated shares could impede or deter an unsolicited tender
offer or takeover proposal. Further, the issuance of additional shares having
preferential rights could adversely affect the voting power and other rights of
holders of common stock.
MINNESOTA LAW MAY INHIBIT OR DISCOURAGE TAKEOVERS, WHICH COULD REDUCE THE MARKET
VALUE OF OUR STOCK.
Being a corporation organized under Minnesota law, we are subject to
certain Minnesota statutes which regulate business combinations and restrict the
voting rights of certain persons acquiring shares of our stock. By impeding a
merger, consolidation, takeover or other business combination involving Cafe
Odyssey or discouraging a potential acquirer from making a tender offer or
otherwise attempting to obtain control of the Company, these regulations could
adversely affect the market value of our stock.
OUR COMMON STOCK COULD BE DELISTED FROM THE NASDAQ SMALLCAP MARKET, WHICH
DELISTING COULD HINDER YOUR ABILITY TO OBTAIN ACCURATE QUOTATIONS AS TO THE
PRICE OF OUR COMMON STOCK, OR DISPOSE OF OUR COMMON STOCK IN THE SECONDARY
MARKET.
Although our common stock is currently listed on the Nasdaq SmallCap
Market, we cannot guarantee that an active public market for our common stock
will continue to exist. During most of December 1998 and through April 27, 1999,
our common stock failed to maintain the minimum bid price criteria of $1.00 per
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share as is required in order to trade on the Nasdaq SmallCap Market.
Accordingly, our securities may be delisted from the Nasdaq SmallCap Market.
Additional factors giving rise to such delisting could include, but might not be
limited to (1) a reduction of our net tangible assets to below $2,000,000, (2) a
reduction to one active market maker, or (3) a reduction in the market value of
the public float in our securities to less than $1,000,000.
In the event our securities are delisted from the Nasdaq SmallCap Market,
trading, if any, in our common stock would thereafter be conducted in the
over-the-counter markets in the so-called "pink sheets" or the National
Association of Securities Dealer's "Electronic Bulletin Board." Consequently,
the liquidity of our common stock would likely be impaired, not only in the
number of shares which could be bought and sold, but also through delays in the
timing of the transactions, reduction in the coverage of Cafe Odyssey by
security analysts and the news media, and lower prices for our securities than
might otherwise prevail. In addition, our common stock would become subject to
certain rules of the Securities and Exchange Commission relating to "penny
stocks." These rules require broker-dealers to make special suitability
determinations for purchasers other than established customers and certain
institutional investors and to receive the purchasers' prior written consent for
a purchase transaction prior to sale. Consequently, these "penny stock rules"
may adversely affect the ability of broker-dealers to sell our common stock and
may adversely affect your ability to sell shares of our common stock in the
secondary market.
THE LIMITATIONS ON DIRECTOR LIABILITY CONTAINED IN OUR ARTICLES OF INCORPORATION
AND BYLAWS MAY DISCOURAGE SUITS AGAINST DIRECTORS FOR BREACH OF FIDUCIARY DUTY.
As permitted by Minnesota law, our Amended and Restated Articles of
Incorporation provide that members of our Board of Directors are not personally
liable to you or the Company for monetary damages resulting from a breach of
their fiduciary duties. These limitations on director liability may discourage
shareholders from suing directors for breach of fiduciary duty and may reduce
the likelihood of derivative litigation brought against a director by
shareholders on the Company's behalf. Furthermore, our Bylaws provide for
mandatory indemnification of directors and officers to the fullest extent
permitted by Minnesota law. All of these provisions limit the extent to which
the threat of legal action against our directors for any breach of their
fiduciary duties will prevent such breach from occurring in the first instance.
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THE ANNUAL MEETING
DATE, TIME AND PLACE OF ANNUAL MEETING
The Annual Meeting will be held on Thursday, August 19, 1999, at 6:00 p.m.
local time, at the Minneapolis Marriott City Center, 30 South 7th Street,
Minneapolis, Minnesota 55402.
PURPOSE OF ANNUAL MEETING
At the Annual Meeting, the holders of shares of Cafe Odyssey common stock
will consider and vote upon proposals to : (i) elect five directors; (ii)
approve the Merger Agreement; (iii) amend the Company's Articles of
Incorporation to change the name of the Company, contingent upon consummation of
the Merger, to PopMail.com, inc.; and (iv) transact any other business as may
properly come before the meeting or any adjournments thereof (collectively, each
of (i), (ii) and (iii) are referred to herein as the "Proposals.").
RECORD DATE
The Board of Directors of Cafe Odyssey has fixed the close of business on
June 25, 1999 as the record date (the "Record Date") for the determination of
holders of Cafe Odyssey common stock entitled to notice of and to vote at the
Cafe Odyssey Annual Meeting. On the Record Date, there were 8,379,101 shares of
Cafe Odyssey common stock outstanding, each entitled to one vote.
REQUIRED VOTE; QUORUM; REVOCATION OF PROXIES
Required Vote; Revocation of Proxies. Each Proposal must be adopted by the
affirmative vote of the holders of a majority of the outstanding shares of Cafe
Odyssey common stock present in person or represented by proxy at the Annual
Meeting, except that approval of the Merger requires the affirmative vote of the
holders of a majority of the Company's Common Stock outstanding on the Record
Date.
Shares of Cafe Odyssey stock represented by a proxy properly signed and
received at or prior to the Annual Meeting, unless subsequently revoked, will be
voted in accordance with the instructions thereon. IF A PROXY IS SIGNED AND
RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS, SHARES OF CAFE ODYSSEY
STOCK REPRESENTED BY THE PROXY WILL BE VOTED FOR THE PROPOSALS AND TRANSACTIONS
CONTEMPLATED THEREBY.
Abstentions may be specified on all Cafe Odyssey proposals. Shares of Cafe
Odyssey represented at the Annual Meeting for which proxies have been received,
but with respect to which holders of shares have abstained on any matter, will
be treated as a present at the Annual Meeting for purposes of determining the
presence or absence of a quorum for the transaction of all business.
For voting purposes at the Annual Meeting, only shares affirmatively voted
in favor of a Proposal (including properly executed proxies not containing
voting instructions) will be counted as favorable votes for such Proposal. The
failure to submit a proxy (or to vote in person) or the abstention from voting
will have the same effect as a vote against the Merger. Cafe Odyssey proxy
holders may, in their discretion, vote shares to adjourn the Annual Meeting to
solicit additional proxies in favor of such Proposals. However, shares of Cafe
Odyssey stock with respect to which a proxy is signed and returned indicating a
vote against any Proposal will not be so voted to adjourn.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it by at any time before the proxy is voted by the filing of an
instrument revoking it or of a duly executed proxy bearing a later date with the
Secretary of Cafe Odyssey, prior to or at the Annual Meeting, or by voting in
person at the Annual Meeting. All written notices of revocation and other
communications with respect to revocation of Cafe Odyssey proxies should be
addressed to Cafe Odyssey at its principal executive offices. Attendance at the
Annual Meeting will not in and of itself constitute a revocation of a proxy.
The Cafe Odyssey Board of Directors is not currently aware of any business
to be acted upon at the Annual Meeting other than as described herein. If
however, other matters are properly brought before the
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Annual Meeting, the persons appointed as proxies will have discretion to vote or
act thereon according to their best judgment subject to applicable Securities
and Exchange Commission rules.
SOLICITATION OF PROXIES AND EXPENSES
Pursuant to the Merger Agreement, the Company will bear all costs and
expenses incurred in connection with the printing and mailing of this Proxy
Statement, and will bear the cost of soliciting proxies for the Annual Meeting.
Cafe Odyssey also will reimburse brokerage houses and other custodians, nominees
and fiduciaries for their reasonable expenses in forwarding the soliciting
material to beneficial owners of stock. Proxies are being solicited primarily by
mail, but officers and directors of the Company may also solicit proxies
personally, by telephone or by special letter. Cafe Odyssey will also use the
services of Robert Carlson Shareholder Services to aid in the solicitation of
proxies at an anticipated fee of approximately $7,500, plus reasonable
out-of-pocket expenses.
THE BOARD OF DIRECTORS OF CAFE ODYSSEY HAS DETERMINED THE MERGER TO BE IN
THE BEST INTERESTS OF CAFE ODYSSEY AND ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD
OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER AND
RECOMMENDS THAT ALL CAFE ODYSSEY SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND THE ISSUANCE OF
PREFERRED SHARES IN CONNECTION WITH THE MERGER. THE BOARD OF DIRECTORS ALSO
UNANIMOUSLY RECOMMENDS THAT ALL CAFE ODYSSEY SHAREHOLDERS VOTE "FOR" THE OTHER
PROPOSALS SUBMITTED TO STOCKHOLDERS AT THE CAFE ODYSSEY ANNUAL MEETING.
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THE MERGER
GENERAL
If approved by the Cafe Odyssey shareholders, upon the terms and subject to
the conditions of the Merger Agreement, Popmail will be merged with and into
Merger Sub at the Effective Time. Merger Sub will be the surviving corporation
in the Merger, and will continue to be a wholly-owned subsidiary of Cafe
Odyssey. The Merger has already been approved by the stockholders of Popmail.
Pursuant to the terms of the Merger Agreement and the Escrow Agreement,
dated June 22, 1999, by and among Cafe Odyssey, Popmail, the Popmail
stockholders and the Escrow Agent, the following property was placed in an
escrow account on June 22, 1999 (the "Closing Date"): (i) a Certificate of
Merger properly executed by Cafe Odyssey, Popmail and Merger Sub, (ii)
certificates representing an aggregate of 2,024 shares of Cafe Odyssey Preferred
Shares in the names of the Popmail stockholders, (iii) the Buyer Warrant, and
(iv) the shares of common stock of Popmail held by the Popmail stockholders,
together with stock powers executed in blank, Letters of Transmittal executed by
each of the Popmail stockholders, and Subscription Agreements executed by each
of the Popmail stockholders.
Upon satisfaction of the conditions referenced below under the caption
"Conditions to the Merger" (such time, if occurring, as the "Effective Time"),
each outstanding share of Popmail common stock, par value $.01 per share (the
"Popmail Common Shares"), will be automatically converted into the right to
receive (i) one (1) share of the Cafe Odyssey Series B Convertible Preferred
Stock (the "Cafe Odyssey Preferred Shares"), and (ii) a fraction of a warrant
(the "Buyer Warrant") to purchase Cafe Odyssey common stock, par value $.01 per
share (the "Cafe Odyssey Common Shares"), providing the economic equivalent of
all options, warrants and other securities exchangeable for, or convertible
into, Cafe Odyssey Common Shares (with the exception of Cafe Odyssey's
Redeemable Class A Warrants), which options, warrants, or other securities were
outstanding on May 3, 1999, such fraction having a numerator equal to one (1)
and a denominator equal to the total number of Popmail Common Shares outstanding
at the Effective Time.
At the Effective Time, the Escrow Agent will (i) release the escrowed Cafe
Odyssey Preferred Shares and the Buyer Warrant to the Popmail stockholders, (ii)
release the Popmail Common Shares (which will be deemed canceled at the
Effective Time), the Subscription Agreements, the Letter of Transmittal and the
executed stock powers to Cafe Odyssey, and (iii) file the executed Certificate
of Merger with the Secretary of State of Delaware. Cafe Odyssey will also be
obligated, at the Effective Time, to issue as additional Merger consideration
one (1) Cafe Odyssey Preferred Share for each Popmail Common Share issued by
Popmail after the Closing Date but prior to the Effective Time.
After the Effective Time, Merger Sub, as the surviving corporation to the
Merger, will repay Popmail's entire secured indebtedness to LegacyMaker, Inc.
(the "LegacyMaker Note"). The outstanding principal amount of the LegacyMaker
Note as of July 13, 1999 was approximately $5,000,000. Pursuant to the terms of
the Merger Agreement, Cafe Odyssey must place cash in an amount equal to amount
of the LegacyMaker Note into the escrow account prior to the Effective Time.
Pursuant to the terms of the Merger Agreement, Cafe Odyssey paid $150,000
to Popmail on June 4, 1999. In the event the Merger fails to occur for any
reason, Cafe Odyssey is not entitled to a refund of this payment.
BACKGROUND
Stephen D. King, the Chairman of the Board and Chief Executive Officer of
Cafe Odyssey, and Marcos A. Rodriguez, an individual closely involved with the
founding of Popmail, have known each other personally and professionally for
approximately three years. In May 1998, Messrs. King and Rodriguez made a joint
presentation at a function sponsored by a professional organization in which
they both are members. In early April 1999, King and Rodriguez first discussed
the possibility of a business combination between Cafe Odyssey and Popmail.
During the discussions King and Rodriguez considered the relative strengths and
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weaknesses of the companies and the industries in which each company operates.
King and Rodriguez agreed to meet again and continue their discussions.
King and Rodriguez both attended a conference in New York during the week
of April 23 through April 26, 1999. At the conference, King and Rodriguez
discussed in greater detail a possible merger transaction involving Cafe Odyssey
and Popmail.
At a special meeting of the Board of Directors of Cafe Odyssey on April 26,
1999, Cafe Odyssey's executive management discussed with the Cafe Odyssey Board
an overview of the business of Popmail and the strategic rationale for a
business combination as well as the nature of discussions between the two
companies to date. During the meeting, the Cafe Odyssey Board considered the
benefits and risks of the proposed transaction for Cafe Odyssey and its
stockholders. Following such discussions, the Cafe Odyssey Board authorized
management to continue to pursue a business combination with Popmail.
On May 3, 1999, Cafe Odyssey and Popmail executed a non-binding Letter of
Intent for the proposed Merger. From May 3 through May 31, 1999, King,
Rodriguez, and the management and outside legal counsel of Cafe Odyssey and
Popmail negotiated the terms of a draft Merger Agreement and various other
issues relating to the proposed Merger, including the structure of the
transaction and tax and accounting issues.
On May 31, 1999 at a special meeting of the Cafe Odyssey Board, King and
outside legal counsel updated the Cafe Odyssey Board on matters related to the
proposed merger with Popmail. Executive management discussed the financial
aspects of the proposed transaction, the business of Popmail, strategic
implications that the proposed merger would have on the business of Cafe Odyssey
and certain other matters. Outside counsel for Cafe Odyssey then discussed the
terms and conditions of the draft Merger Agreement, the status of the due
diligence review of and the negotiations with Popmail, fiduciary duties of the
Cafe Odyssey Board in connection with the proposed Merger and certain other
legal matters. Cafe Odyssey executive management then discussed the proposed
management structure of the combined entity following the merger. During the
meeting, the Cafe Odyssey Board considered the benefits and risks of the
proposed transaction for Cafe Odyssey and its stockholders. After extensive
discussion, the Cafe Odyssey Board unanimously determined that the merger is in
the best interests of the shareholders of Cafe Odyssey, approved the merger
Agreement and unanimously resolved to recommend that shareholders of Cafe
Odyssey vote to adopt the Merger Agreement.
The Merger Agreement was signed by both Cafe Odyssey and Popmail on June 1,
1999, and the transaction was announced in a Cafe Odyssey press release on June
3, 1999. On June 22, the Merger closed into escrow as contemplated by, and
pursuant to the terms of, the Merger Agreement.
CONDITIONS TO THE MERGER
The Effective Time shall occur only upon the satisfaction by Cafe Odyssey
of all of the following conditions: (i) Cafe Odyssey shall have paid into the
Escrow Account an amount necessary to pay all of the LegacyMaker Note,
approximately $5 million as of July 13, 1999, (ii) the sale price of a Cafe
Odyssey Common Share at the close of business on the last business preceding the
Effective Time shall be at least $2.50 as quoted on Nasdaq, (iii) the Merger
shall have been approved by the Cafe Odyssey shareholders, and (iv) Cafe Odyssey
shall have paid in full any Liquidated Damages and Extension Payments then
payable pursuant to the Merger Agreement, as described below.
If Cafe Odyssey fails to satisfy all of the "Conditions to the Merger" by
August 30, 1999 (the "Expiration Date"), the Merger Agreement will terminate and
Cafe Odyssey must pay $100,000 to Popmail as liquidated damages (the "Liquidated
Damages"). Cafe Odyssey may, at its option, extend the Expiration Date for up to
three consecutive 30-day periods (each an "Extension Period"), the first
Extension Period to commence on the day immediately following the Expiration
Date, and the second and third Extension Periods to commence upon the expiration
of the preceding Extension Period. Cafe Odyssey's right to extend the Expiration
Date is exercisable by paying $100,000 in cash to LegacyMaker no later than the
first day of each such Extension Period. Such extension of the Expiration Date
does not relieve Cafe Odyssey of its obligation to pay the
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Liquidated Damages, and Cafe Odyssey must have made such payment in order to
exercise its right to extend the Expiration Date.
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS; REASONS FOR THE MERGER
Cafe Odyssey's Board of Directors has unanimously determined that the
Merger and the other transactions contemplated by the Merger Agreement are fair
to, and in the best interests of, Cafe Odyssey and its shareholders.
Accordingly, Cafe Odyssey's Board of Directors unanimously approved the Merger
Agreement and the transactions contemplated thereby at a meeting on May 31,
1999, and recommends that Cafe Odyssey's shareholders vote "for" adoption of the
Merger Agreement and the issuance of the Cafe Odyssey Preferred Shares in
connection therewith.
In evaluating a business combination with Popmail and the transactions
contemplated thereby, the Cafe Odyssey Board of Directors has considered, among
other things, (i) information relating to business assets, management,
competitive position and prospects of Cafe Odyssey and Popmail, including the
prospects of Cafe Odyssey if it were to continue as an independent company in
the restaurant industry; (ii) the market price of the Cafe Odyssey Common Shares
recently and during the past few years; (iii) the potential impact on the market
price for the Cafe Odyssey Common Shares as a result of the Merger; (iv) the
going-concern value of Cafe Odyssey; and (v) the terms of the Merger Agreement.
The Cafe Odyssey Board of Directors approved the proposed transaction
primarily because of the short-term and long-term value which it believes would
be provided to Cafe Odyssey shareholders by the transaction, based upon the
information reviewed. The Cafe Odyssey Board believes that the transaction would
create short-term value in light of the public valuations placed upon companies
operating in the Internet marketplace as opposed to the theme restaurant market
segment. The Cafe Odyssey Board believes that the transaction would create
long-term value to its shareholders as a result of refocusing the Company's
strategic alternative to become an active participant in the Internet
marketplace as a provider of free, affinity sponsored email, in light of the
related advertising revenue that can be generated by companies with a strong
Internet presence.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the Board of Directors and management of Cafe Odyssey
and Popmail have interests in the Merger that are different from the interests
generally of shareholders of Cafe Odyssey. Such interests relate to or arise
from, among other things, the terms of the Merger Agreement providing for (i)
the officers and the board of directors of the Merger Sub after the Effective
Time to consist of certain officers and members of the Board of Directors of
Cafe Odyssey, (ii) certain employment agreements for executives of Cafe Odyssey
and Popmail, and (iii) the indemnification of existing officers and directors of
Popmail. Such additional interests are described below.
Board Designations; Directors. As described below, the employment or
consulting agreements, as applicable, to be entered into between Cafe Odyssey
and each of Stephen D. King and James L. Anderson, provide that Cafe Odyssey
will nominate and recommend to its shareholders that each such individual be
elected to the Cafe Odyssey Board of Directors throughout such terms as are
provided for in their respective agreements.
Employment Agreements.
Stephen D. King, the Chairman and Chief Executive Officer of Cafe Odyssey
and its principal shareholder, will have an employment agreement providing that
he will be Chief Executive Officer of the Company following the Merger. Cafe
Odyssey will agree to use its best efforts to nominate and recommend to
shareholders that Mr. King be elected to the Board of Directors for as long as
Mr. King is either a guarantor of any Cafe Odyssey debt or is owed any debt by
Cafe Odyssey. The employment agreement will provide for an annual base salary of
$200,000, a bonus of up to 25% of base salary and will have an initial term of
two years, with one-year renewal terms. The base salary may be adjusted annually
as determined by the Cafe Odyssey's Board of Directors. The employment agreement
will be subject to early termination for a variety of reasons,
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including voluntary termination by Mr. King. Such agreement also provides that
Mr. King will receive two years' base salary and bonus as severance if
terminated by Cafe Odyssey for a reason other than "cause," or if Mr. King
terminates his employment for "good reason," both terms as defined therein. The
employment agreement will provide that Mr. King will not compete with Cafe
Odyssey for one year if he resigns or is terminated for cause.
At the Effective Time, James L. Anderson, the Chairman, President and a
director and stockholder of Popmail, will have a consulting agreement with Cafe
Odyssey pursuant to which he shall be paid an hourly rate of $200 for providing
consulting services to Cafe Odyssey. Cafe Odyssey will agree to use its best
efforts to nominate and recommend to shareholders that Mr. Anderson be elected
to the Board of Directors throughout the term of the agreement, and so long as
Anderson is a member of the Board, Cafe Odyssey agrees to elect Anderson as
Chairman. The agreement will have an initial five-year term with one-year
renewal terms, and may be terminated for a variety of reasons, including
voluntary termination by Mr. Anderson. The agreement will provide that Mr.
Anderson will not compete with Cafe Odyssey for one year if he resigns or is
terminated for cause.
Indemnification. All rights to indemnification and exculpation existing in
favor of the present or former directors, officers, employees, fiduciaries, and
agents of Popmail as provided in Popmail's charter or bylaws as in effect as of
June 1, 1999, with respect to matters occurring prior to the Effective Time
shall survive the Merger and shall continue in full force and effect for a
period of not less than the applicable statute of limitations.
NO APPRAISAL RIGHTS
Cafe Odyssey is governed under the laws of the State of Minnesota, and,
accordingly, is governed by the provisions of the Minnesota Business Corporation
Act (the "MBCA"). Pursuant to the relevant sections of the MBCA, the
shareholders of Cafe Odyssey are not entitled to dissent from and exercise
appraisal rights in connection with the Merger.
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting
under the generally accepted accounting principles ("GAAP"), with Cafe Odyssey
treated as the acquiror.
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, which is attached as Appendix A to this Proxy Statement and is
incorporated herein by reference. Such summary is qualified in its entirety by
reference to the Merger Agreement.
TERMS OF THE MERGER
The Merger Agreement provides that following the approval of the Merger
Agreement and the Merger by the shareholders of Cafe Odyssey and the
satisfaction or waiver of the other conditions to the Merger, Popmail shall be
merged with and into Merger Sub, the separate existence of Popmail shall cease
(except as may be continued by operation of law) and Merger Sub shall continue
as the surviving corporation (the "Surviving Corporation"). The Certificate of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time and as amended in accordance with clause (iv) below, shall be the
Certificate of Incorporation of the Surviving Corporation (ii) the Bylaws of the
Surviving Corporation shall be the Bylaws of Merger Sub as in effect immediately
prior to the Effective Time; and (iii) the directors and officers of Merger Sub
shall become the directors and officers of the Surviving Corporation at and as
of the Effective Time.
EFFECTIVE TIME
The Merger Agreement provides that as soon as practicable after each of the
conditions to the effectiveness of the Merger set forth in the Merger Agreement
have been satisfied or waived, Popmail and
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Merger Sub will file articles of merger with the Secretary of State of the State
of Delaware, (the "Certificate of Merger"). The Merger shall become effective at
the time the Certificate of Merger is filed with the Secretary of State of the
State of Delaware (the "Effective Time").
CONVERSION OF COMMON SHARES
At the Effective Time, each Popmail Common Share, shall be converted into
the right to receive from Cafe Odyssey each of (A) one (1) Cafe Odyssey
Preferred Share and (B) a fraction of the Buyer Warrant having a numerator equal
to 1 (one) and a denominator equal to the total number of Popmail Common Shares
outstanding at the Effective Time. (The sum of (A) and (B) are be referred to
herein as the "Merger Consideration.")
At and as of the Effective Time, the holders of certificates representing
Popmail Common Shares at the Effective Time (collectively, the "Popmail
Stockholders") shall cease to have any rights as stockholders of Popmail, except
such rights, if any, as they may have pursuant to Delaware law. Until
certificates representing Popmail Common Shares are surrendered for exchange,
each such certificate shall, after the Effective Time, represent for all
purposes only the right to receive the Merger Consideration.
On June 22, 1999, (the "Closing Date"), the Board of Directors of Cafe
Odyssey filed a Certificate of Designation for the Cafe Odyssey Preferred Shares
with the Secretary of State of the State of Minnesota setting forth the powers,
preferences, rights, qualifications, limitations and restrictions of the Cafe
Odyssey Preferred Shares, and reserved for issuance a sufficient number of Cafe
Odyssey Preferred Shares for the purpose of issuing such shares to Popmail
Stockholders and a sufficient number of Cafe Odyssey Common Shares for the
purpose of issuing such shares upon conversion of the Cafe Odyssey Preferred
Shares. Such Certificate of Designation provides that the Cafe Odyssey Preferred
Shares are convertible, in the aggregate, into a number of Cafe Odyssey Common
Shares at a rate per Cafe Odyssey Preferred Share equal to (i) the number of
Cafe Odyssey Common Shares outstanding immediately prior to the Effective Time
(excluding shares issued upon an exercise or conversion of the Series A
Preferred Shares and the Class A warrants, which are exchangeable for Common
Stock and which are exercised after May 3, 1999, but prior to the Effective
Time), divided by (ii) 2,024.
If, between the date of the Merger Agreement and the Effective Time, the
outstanding number of Cafe Odyssey Preferred Shares or Cafe Odyssey Common
Shares changes into a different number of shares or a different class by reason
of any reclassification, recapitalization, split-up, combination, exchange of
shares or stock dividend, the Merger Consideration shall be appropriately
adjusted.
EXCHANGE OF POPMAIL COMMON SHARES
After the Effective Time, each Popmail Stockholder shall be entitled, upon
surrender of a certificate or certificates which immediately prior to the
Effective Time represented outstanding Popmail Common Shares (the
"Certificates") to receive the Merger Consideration from Cafe Odyssey through
such reasonable procedures as Cafe Odyssey may adopt.
At the Closing on June 22, 1999 (as defined below), each Popmail
stockholder deposited with the Escrow Agent (as defined below) each Certificate
for outstanding Popmail Common Shares, and Cafe Odyssey delivered to the Escrow
Agent 2,024 Cafe Odyssey Preferred Shares
All Merger Consideration issued upon the surrender for exchange of Popmail
Common Shares shall be deemed to have been issued in full satisfaction of all
rights pertaining to such Popmail Common Shares.
CLOSING INTO ESCROW; THE ESCROW ACCOUNT
On June 22, 1999 (the "Closing Date"), a closing (the "Closing,") into
escrow occurred and the following property was placed in an escrow account (the
"Escrow Account") (i) the executed Certificate of Merger; (ii) certificates
representing each Popmail Stockholder's pro rata portion of the aggregate number
of Cafe Odyssey Preferred Shares issuable; (iii) the Buyer Warrant; and (iv)
Popmail Common Shares held by
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Popmail Stockholders, together with stock powers executed in blank, executed
Letters of Transmittal and executed Subscription Agreements.
Prior to the Effective Time, the Cafe Odyssey Preferred Shares shall not be
deemed to be issued and outstanding, but shall be held in escrow pending the
Effective Time. At the Effective Time, each Popmail Stockholder shall become a
shareholder of Cafe Odyssey with respect to such Popmail Stockholder's pro rata
portion of the Cafe Odyssey Preferred Shares and shall have all of the rights of
a shareholder with respect to all such Shares, including the right to vote such
Cafe Odyssey Preferred Shares and to receive all dividends and other
distributions paid with respect thereto; provided, however, that until the
Effective Time, neither any Popmail Stockholder, Cafe Odyssey, nor any other
person may sell, transfer, pledge, hypothecate or otherwise encumber any
escrowed Cafe Odyssey Preferred Shares, Popmail Common Shares or any other
escrowed security. At the Effective Time, Popmail Common Shares then outstanding
shall be deemed canceled.
Upon satisfaction of all of the following: (i) Cafe Odyssey's payment into
the Escrow Account of an amount of money (the "LegacyMaker Funds") necessary to
pay the LegacyMaker Note; (ii) the sale price of a Cafe Odyssey Common Share at
the close of business on the last business day preceding the Effective Time
shall then be at least $2.50 as quoted on Nasdaq; (iii) Cafe Odyssey's
shareholders shall have approved the Merger; and (iv) if applicable, Cafe
Odyssey shall have paid in full the Liquidated Damages and any Extension
Payments then payable pursuant to the Merger Agreement; then all of the escrowed
Cafe Odyssey Preferred Shares and the Buyer Warrant will be released to the
Popmail stockholders, all of the Popmail Common Shares, Subscription Agreements,
Letters of Transmittal and executed stock powers will be released to Cafe
Odyssey, the Escrow Agent will file, or cause to be filed, the executed
Certificate of Merger with the Secretary of State of the State of Delaware, and
Cafe Odyssey will issue as additional Merger Consideration one (1) Cafe Odyssey
Preferred Share for each Popmail Common Share issued by Popmail after the
Closing but prior to the Effective Time to the holder of record of each such
Cafe Odyssey Common Share as of the Effective Time.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties
relating to, among other things: (a) the incorporation and corporate power of
Cafe Odyssey, Merger Sub and Popmail, (b) the valid execution and delivery; and
the binding nature of the Merger Agreement with respect to Cafe Odyssey, Merger
Sub and Popmail, (c) the absence of certain conflicts with, violation of or
defaults under, the organization documents and certain other documents of Cafe
Odyssey or Popmail; (d) Cafe Odyssey's satisfaction with its access to
information necessary to assess the value of Popmail and its strategic fit with
Cafe Odyssey, (e) the absence of any requirement on the part of Popmail, Merger
Sub or Cafe Odyssey to submit any notices or other filings with any governmental
authority in connection with the consummation of the transactions contemplated
by the Merger Agreement; (f) the capital structure of Popmail and Cafe Odyssey
(g) the absence of ownership of any stock, or other ownership interest issued by
any other corporation by Cafe Odyssey or Popmail, (h) the accuracy of the
financial statements of Cafe Odyssey and Popmail, (i) the absence of undisclosed
material liabilities of Cafe Odyssey or Popmail, (j) the absence of material
adverse changes, since December 31, 1998, in, the assets, financial condition,
operating results, customer, employee or supplier relations, business condition
or prospects of Popmail or Cafe Odyssey, (k) certain matters with respect to the
legal title to certain properties owned by Cafe Odyssey or Popmail, (l) the
timely and accurate filing of tax returns by Popmail and Cafe Odyssey, (m) the
validity and existence of certain material contracts of Popmail and Cafe
Odyssey, (n) the existence and validity of certain intellectual property rights
of Popmail and Cafe Odyssey, (o) the absence of certain pending or threatened
litigation involving Cafe Odyssey or Popmail, (p) the status of certain
employees and related employee matters at Cafe Odyssey and Popmail, (q) certain
employee benefit plan matters applicable to Cafe Odyssey or Popmail, (r) the
status of and validity of certain insurance policies of Cafe Odyssey and
Popmail, (s) the existence or nonexistence of certain transactions with
affiliates of Cafe Odyssey or Popmail, (t) Cafe Odyssey's and Popmail's
respective compliance with laws, regulations and other requirements which
materially affect the business of Cafe Odyssey or Popmail and the possession of
requisite licenses, permits and certificates, for the conduct of Cafe Odyssey's
and Popmail's business, (u) the expected tax free status of the Merger, (v) the
nonexistence of brokers, finders or financial advisors who might claim a
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right to payment for services rendered in connection with the Merger, (w) the
validity of the Cafe Odyssey Preferred Shares, Common Shares and the Buyer
Warrant to be issued in the Merger and (x) that Cafe Odyssey has retained an
investor relations firm with substantial Internet experience.
CERTAIN COVENANTS
The Merger Agreement also contains various customary covenants, including
covenants of each of Cafe Odyssey and Popmail that, during the period of June 1,
1999, until the Effective Time, unless otherwise consented to in writing by the
other party, it shall: (i) conduct its business in the ordinary course, on an
arm's-length basis and in accordance in all material respects with all
applicable laws, rules and regulations and past custom and practice; (ii) not
issue or sell any additional shares of its capital stock, except, in the case of
Popmail, as consideration for acquisitions by Popmail prior to the Effective
Time, or with Cafe Odyssey's consent; (iii) not, directly or indirectly, do or
permit to occur any of the following: (a) issue or sell any options, warrants,
conversion privileges or rights of any kind to acquire any shares of any of its
capital stock; (b) sell, pledge, dispose of or encumber any of its assets,
except in the ordinary course of business; (c) amend or propose to amend its
Certificate or Articles of Incorporation or Bylaws; (d) split, combine or
reclassify any outstanding common shares, or declare, set aside or pay any
dividend or other distribution payable in cash, stock, property or otherwise
with respect to Popmail Common Shares; (e) redeem, purchase or acquire or offer
to acquire any Common Shares or other securities; (f) incur any indebtedness for
borrowed money or issue any debt securities except, in the case of Popmail, the
borrowing of working capital from LegacyMaker in amounts not to exceed $99,000
per month; or (g) enter into or propose to enter into, or modify or propose to
modify, any agreement, arrangement or understanding with respect to any of the
foregoing matters; (iv) not, directly or indirectly, (a) enter into or modify
any employment, severance or similar agreements or arrangements with, or grant
any bonuses, salary increases (except for increases in the ordinary course of
business, consistent with past practice), severance or termination pay to, any
officers or directors or consultants; or (b) in the case of employees, officers
or consultants, take any action with respect to the grant of any bonuses, salary
increases (except for increases in the ordinary course of business, consistent
with past practice), severance or termination pay or with respect to any
increase of benefits payable in effect on the date hereof; (v) not adopt or
amend any bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation, employment or other employee benefit plan,
trust, fund or group arrangement for the benefit or welfare of any employees or
any bonus, profit sharing, compensation, stock option, pension, retirement,
deferred compensation, employment or other employee benefit plan, agreement,
trust, fund or arrangements for the benefit or welfare of any director; (vi) not
cancel or terminate its current insurance policies or cause any of the coverage
thereunder to lapse, unless simultaneously with such termination, cancellation
or lapse, replacement policies providing coverage equal to or greater than the
coverage under the canceled, terminated or lapsed policies for substantially
similar premiums are in full force and effect; (vii) (a) use its best efforts to
preserve intact its business organization and goodwill, keep available the
services of its officers and employees as a group and maintain satisfactory
relationships with suppliers, distributors, customers and others having business
relationships with it; (b) not intentionally take any action which would render,
or which reasonably may be expected to render, any representation or warranty
made by it in the Merger Agreement untrue at the Closing; (c) notify the other
party of any governmental or third party complaints, investigations or hearings
(or communications indicating that the same may be contemplated) if such
complaint, investigation or hearing would be material, individually or in the
aggregate, to the business, prospects, operations or financial condition of such
party or its ability to consummate the transactions contemplated by the Merger
Agreement; and (d) promptly notify the other party in writing if it shall
discover that any representation or warranty made in the Merger Agreement was
when made, or has subsequently become, untrue in any respect; (viii) (a) file
any tax returns, elections or information statements with respect to any
liabilities for Taxes or other matters relating to Taxes which pursuant to
applicable law must be filed prior to the Effective Time; (b) promptly upon
filing provide copies of any such tax returns, elections or information
statements to the other party; (c) make any such tax elections only upon prior
consultation with and consent of the other party; and (d) not amend any tax
return except after prior consultation with and the consent of the other party;
and (ix) Popmail shall not permit the amount of principal owing under the
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LegacyMaker Note to increase by more than $99,000 per month or the interest rate
charged on any such increase to exceed 8% per annum.
Popmail also agreed with Cafe Odyssey that it shall not, directly or
indirectly, through any officer, director, agent or otherwise, solicit, initiate
or encourage submission of any proposal or offer from any person or entity
(including any of its or their officers or employees) relating to any
liquidation, dissolution, recapitalization, merger, consolidation or acquisition
or purchase of all or a material portion of the assets of, or any equity
interest in, Popmail or other similar transaction or business combination
involving Popmail, or participate in any negotiations regarding, or furnish to
any other person any information with respect to, or otherwise cooperate in any
way with, or assist or participate in, facilitate or encourage, any effort or
attempt by any other person or entity to do or seek any of the foregoing.
Popmail agreed to promptly notify Cafe Odyssey if any such proposal or offer, or
any inquiry from or contact with any person with respect thereto, is made and
promptly provide Cafe Odyssey with such information regarding such proposal,
offer, inquiry or contact as Cafe Odyssey may request. Notwithstanding the
foregoing, nothing contained in the Merger Agreement restricts the ability of
Popmail to enter into any acquisition transaction otherwise permitted by the
Merger Agreement (including, without limitation, a merger) in which Popmail is
the acquiring party or surviving corporation.
Cafe Odyssey also agreed with Popmail: (i) to take all reasonable steps to
raise the funds necessary to permit the Surviving Corporation to pay off the
LegacyMaker Note and all outstanding indebtedness of Popmail (ii) that not later
than the Effective Time, it will pay, or cause or be paid, any amounts due to
LegacyMaker under the LegacyMaker Note; (iii) to take all reasonable steps
necessary to maintain Nasdaq listing of the Cafe Odyssey Common Shares on the
Nasdaq SmallCap Market; (iv) to use its best efforts to publicize the Merger and
promote its Internet-related business strategy; (v) to file a registration
statement on Form S-3 (the "Registration Statement") to register the resale of
the Cafe Odyssey Common Shares issuable upon conversion of the Cafe Odyssey
Preferred Shares under the Securities Act of 1933 and the blue sky laws of such
states as are reasonably selected by Popmail Stockholders, to use its best
efforts to have the Registration Statement declared effective by the Securities
and Exchange Commission and any such state as soon as practicable and to keep
the Registration Statement effective and current until the earlier to occur of
(a) the date all such Cafe Odyssey Common Shares are sold or (b) the date all
such Cafe Odyssey Common Shares may be sold under Rule 144 under the Securities
Act, and in connection with such registration, to bear all expenses and fees
incurred in connection with the preparation, filing, and amendment of the
Registration Statement with the Commission and any state reasonably selected by
Popmail Stockholders; (vi) to take no action that would jeopardize the
characterization of the merger as a reorganization within the meaning of Section
368 of the Code; (vii) to provide those employees of Popmail covered by the
benefit plans of Popmail with the same benefits in respect of future service
that accrue in respect of future services to the employees of the Cafe Odyssey
who are employed in comparable positions, and to credit such employees for their
service with Popmail for purposes of eligibility, benefit entitlement and
vesting in the benefit plans provided by Cafe Odyssey and if permitted under
Cafe Odyssey's benefit plans, those employees' benefits under Cafe Odyssey's
medical plans shall not be subject to exclusions for any pre-existing
conditions, and credit shall be received for any deductibles or out-of-pocket
amounts previously paid during the current plan year; (viii) to continue in full
force and effect for a period of not less than the applicable statute of
limitations all rights to indemnification and exculpation existing in favor of
the present or former directors, officers, employees, fiduciaries, and agents of
Popmail as provided in Popmail's charter or bylaws; and (ix) to cause Merger Sub
to comply with all its obligations under the Merger Agreement and, subject to
the terms and conditions thereof, to consummate the Merger.
CONDITIONS
The obligation of Cafe Odyssey to consummate the Merger is subject to the
satisfaction or waiver of certain conditions on or before the Closing Date, all
of which have been satisfied or waived, including that: (a) the representations
and warranties of Popmail were true and correct at and as of the Closing Date as
though then made and as though the Closing Date had been substituted for the
date of the Merger Agreement; (b) Popmail shall have performed in all material
respects all of the covenants and agreements
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required to be performed and complied with by it under the Merger Agreement
prior to the Closing;(c) each Popmail Stockholder entitled to vote on the matter
shall have approved the transactions; (d) Popmail shall have obtained, or caused
to be obtained, each consent and approval necessary in order that the
transactions contemplated by the Merger Agreement not constitute a breach or
violation of, or result in a right of termination or acceleration of, or
creation of any encumbrance on any of Popmail's assets pursuant to the
provisions of, any agreement, arrangement or undertaking of or affecting Popmail
or any license, franchise or permit of or affecting Popmail, except where any
failure to do so could not reasonably be expected to have a material adverse
effect on Popmail;(e) all material governmental filings, authorizations and
approvals that are required for the consummation of the transactions
contemplated by the Merger Agreement will have been duly made and obtained; (f)
there shall not be certain threatened, instituted or pending any action or
proceeding, before any court or governmental authority or agency, (g) there
shall not be any action taken, or any statute, rule, regulation, judgment, order
or injunction enacted, entered, enforced, promulgated, issued or deemed
applicable to the transactions contemplated by the Merger Agreement by any
federal or state court, government or governmental authority or agency, which
would reasonably be expected to result, directly or indirectly, in any of the
consequences referred to immediately above; (h) each Popmail Stockholder shall
have signed a lock-up agreement preventing it, him or her from selling any Cafe
Odyssey Common Shares or securities convertible into or exercisable for Cafe
Odyssey Common Shares between June 1, 1999 and the Effective Time and preventing
him thereafter from selling more than 25% in the aggregate of the Cafe Odyssey
Preferred Shares received by it, him or her as a part of the Merger
Consideration, or more than 25% in the aggregate of the Cafe Odyssey Common
Shares issuable upon conversion of such Cafe Odyssey Preferred Shares, for one
year after the Effective Time and providing further that any Cafe Odyssey Common
Shares sold by any such person shall be shares that are obtained by such person
after the Effective Time upon the exercise of options or warrants of Popmail;
(i) the Cafe Odyssey shall have received from counsel for Popmail a written
legal opinion; (j) the Cafe Odyssey shall have received the agreement of
LegacyMaker to indemnify and hold Cafe Odyssey harmless from and against any and
all losses or liabilities from and after the Effective Time through the
expiration of any relevant statute of limitations and related to or arising out
of any breach by Popmail of its representations, warranties or covenants, to be
executed and delivered into escrow at Closing by LegacyMaker (the "LegacyMaker
Indemnification Agreement"); (k) On the Closing Date, Popmail shall have
delivered to Cafe Odyssey certain customary closing documents.
The obligation of Popmail to consummate the Merger is subject to the
satisfaction or waiver of certain conditions on or before the Closing Date, all
of which have been satisfied or waived, including that: (a) the representations
and warranties of Cafe Odyssey are true and correct at and as of the Closing
Date as though then made and as though the Closing Date had been substituted for
the date of the Merger Agreement throughout such representations and warranties;
(b) Cafe Odyssey shall have performed in all material respects all the covenants
and agreements required to be performed and complied with by it under the Merger
Agreement prior to the Closing; (c) Popmail shall have obtained the approval of
its Board of Directors and the unanimous approval of its stockholders of the
transactions contemplated by the Merger Agreement; (d) all material governmental
filings, authorizations and approvals that are required for the consummation of
the transactions contemplated hereby will have been duly made and obtained; (e)
There shall not be certain threatened, instituted or pending any action or
proceeding, before any court or governmental authority or agency; (g) there
shall have been no damage, destruction or loss of or to any property or
properties owned or used by Cafe Odyssey, whether or not covered by insurance,
which, in the aggregate, has, or would be reasonably likely to have, a material
adverse effect on Cafe Odyssey; (h) each of Stephen D. King ("King"), Ronald K.
Fuller and Jerry L. Ruyan shall have signed a lock-up agreement preventing him
from selling any Cafe Odyssey Common Shares or securities convertible into or
exercisable for Cafe Odyssey Common Shares between June 1, 1999, and the
Effective Time and preventing him thereafter from selling more than 25% in the
aggregate on a fully diluted basis of his Cafe Odyssey Common Shares for one
year after June 1, 1999, and providing further that any Cafe Odyssey Common
Shares sold by any such person during such one-year period shall be shares that
are obtained by such person after the Effective Time upon the exercise of
options or warrants of Cafe Odyssey; (i) Popmail shall have received the
individual agreement of King to indemnify and hold Popmail harmless from and
against any and all losses or liabilities from and after the Effective Time
through the expiration of any relevant statute of limitations and related to or
arising out of any breach by Cafe
25
<PAGE> 28
Odyssey of its representations, warranties or covenants, and such other matters
agreed upon by Popmail and King; (j) Messrs. King, Fuller and Ruyan shall have
executed and delivered an irrevocable voting proxy, in favor of such person as
the Attorney-in-Fact (defined below) shall designate, with respect to all of
their respective Cafe Odyssey Common Shares; (k) King shall have executed and
delivered an Employment and Non-competition Agreement with Cafe Odyssey and
James L. Anderson shall have entered into a Consulting Agreement with Cafe
Odyssey; (l) Popmail shall have received from counsel for Cafe Odyssey a written
opinion, dated as of the Closing Date, addressed to Popmail; (m) the Popmail
Stockholders shall have received, at Cafe Odyssey's expense, from Thompson &
Knight, P.C., a written opinion, dated as of the Closing Date, addressed to
Popmail and the Popmail Stockholders as to certain federal income tax
consequences of the Merger; and (n) Cafe Odyssey will have delivered to Popmail
certain customary closing documents;.
TERMINATION AND REMEDIES
The Merger Agreement may be terminated by Cafe Odyssey if, between the
Closing Date and the Effective Time, Popmail (without the prior approval of Cafe
Odyssey) acquires another company or Popmail Stockholders exchange Popmail
Common Shares for securities of another entity and Cafe Odyssey, acting in good
faith, does not approve of such acquisition or exchange.
Except as otherwise provided in the Merger Agreement, the Merger Agreement
will automatically terminate if the Effective Time has not occurred on or before
August 30, 1999 (the "Expiration Date"), subject to Cafe Odyssey's right to
extend the Expiration Date. If the Effective Time has not occurred by the
initial Expiration Date, the Cafe Odyssey shall on the day immediately following
the Expiration Date pay to LegacyMaker liquidated damages of $100,000 cash (the
"Liquidated Damages"). The Liquidated Damages shall be paid regardless of
whether Cafe Odyssey extends the Expiration Date. Cafe Odyssey shall have the
option to extend the Expiration Date for up to three consecutive 30-day periods
(each an "Extension Period"), the first to commence on the day immediately
following the initial Expiration Date and second and third Extension Periods to
commence upon the expiration of the preceding Extension Period. During any
Extension Period the Merger Agreement shall remain in effect. Cafe Odyssey's
right to extend the Expiration Date is exercisable by Cafe Odyssey by payment to
LegacyMaker of $100,000 in cash no later than the first day of each such
Extension Period (each, an "Extension Payment"). The Extension Payment(s) shall
be in addition to, and not in lieu of, the payment of the Liquidated Damages.
Popmail may terminate the Merger Agreement at any time prior to the Effective
Time (including during any Extension Period) if Cafe Odyssey loses the Nasdaq
SmallCap listing of the Cafe Odyssey Common Shares. In the event of such
termination, the Liquidated Damages shall immediately become due and payable to
LegacyMaker if not previously paid. Furthermore, any Extension Payment
previously paid to LegacyMaker shall be retained by LegacyMaker as additional
liquidated damages and not as a penalty.
Popmail may terminate the Merger Agreement if the Cafe Odyssey Common
Shares are delisted from the Nasdaq SmallCap Market.
In the event of termination of the Merger Agreement by either Cafe Odyssey
or Popmail, the Merger Agreement shall become void and, except as provided in
the Merger Agreement, there shall be no liability on the part of either Cafe
Odyssey or Popmail or their respective shareholders and stockholders, officers,
or directors except with respect to willful breaches of the Merger Agreement
prior to the time of such termination.
ADDITIONAL AGREEMENTS
The Letters of Transmittal provide for the appointment by each Popmail
Stockholder of James L. Anderson as his, her or its agent and attorney-in-fact
(the "Attorney-in-Fact"), to take all action required or permitted under the
Escrow Agreement with respect to the interests and rights of such Popmail
Stockholder. Cafe Odyssey may, for all purposes of the Merger Agreement, assume
and treat every notice or other action directed to or performed by the
Attorney-in-Fact as if such notice or other action has been directed to or
performed by each Popmail Stockholder.
26
<PAGE> 29
As of the Effective Time, the size of the Cafe Odyssey board of directors
will be increased by one, and such board will elect James L. Anderson as a
member of the board, and as Chairman of the Board, and it shall re-appoint King
as the Chief Executive Officer of Cafe Odyssey.
If Cafe Odyssey issues any options, warrants or other securities
exchangeable for, or convertible into, Cafe Odyssey Common Shares after May 3,
1999 and prior to the Effective Time, then upon payment by LegacyMaker to Cafe
Odyssey of the same consideration paid to Cafe Odyssey by the recipient(s) of
such options, warrants or other securities, Cafe Odyssey agrees to issue at the
Effective Time securities, with substantially identical material terms and in
the same aggregate amount to LegacyMaker.
Within three business days after the execution of the Merger Agreement,
Cafe Odyssey paid to Popmail $150,000 in cash. In the event that the Merger is
not consummated, for whatever reason, then this payment shall be retained by
Popmail as compensation to Popmail for the expenditures made by it in
anticipation of combining its operations with the operations of Cafe Odyssey.
This payment shall not reduce or offset the Liquidated Damages or Extension
Payments (if payable) otherwise due to LegacyMaker under the Merger Agreement.
If the Merger is consummated, then this amount shall be retained by the
Surviving Corporation and shall be deemed to be a capital contribution by Cafe
Odyssey to the Surviving Corporation.
SURVIVAL; INDEMNIFICATION
The Merger Agreement and the King and LegacyMaker Agreements provide for
certain rights of indemnification available to either Cafe Odyssey or Popmail
and their respective officers, directors and shareholders as a result of (i) any
and all losses, damages or deficiencies (whether as a result of a direct claim
or a third party claim) resulting from any and all breaches of representations,
warranties, covenants or other terms of the Merger Agreement or in any
certification, list, document or exhibit delivered under or in connection with
the Merger Agreement or the transactions contemplated therein; (ii) all costs,
damages, liabilities, obligations and reasonable expenses incurred by Popmail
and related to or arising out of Cafe Odyssey's operation of the Surviving
Corporation on or after the Effective Time; and (iii) all costs and expenses
incident to any and all actions, suits, proceedings, claims, demands,
assessments or judgments in respect of clauses (i) and (ii) above, regardless of
the merit thereof, including reasonable legal and accounting fees and expenses.
Notwithstanding any investigation made by or on behalf of any of the
parties to the Merger Agreement, and notwithstanding the participation of such
party in the Closing, the representations and warranties contained in the Merger
Agreement shall survive the Closing for a period of two (2) years following the
Closing Date, except with respect to claims specifically raised by the aggrieved
party or parties in one or more written notices given to the allegedly offending
party or parties prior to the second anniversary of the Closing Date, and such
claims may continue to be asserted by the aggrieved party or parties after that
date, provided that claims based upon any alleged breach of certain
representations may be brought at any time on or prior to the expiration of any
relevant statute of limitations governing the underlying claim.
Neither LegacyMaker on the one hand, nor Cafe Odyssey or King on the other
hand, shall have any indemnification obligation under the Merger Agreement, the
LegacyMaker Indemnification Agreement or the King Indemnification Agreement, as
the case may be, unless and until the aggregate amount of all losses, damages,
costs, expenses and deficiencies incurred by the aggrieved party or like
situated parties reaches $100,000 (the "Threshold Amount"), at which time the
offending party or parties shall be liable in full for all losses, damages,
costs, expenses and deficiencies in excess of the Threshold Amount.
MISCELLANEOUS
Except as otherwise expressly provided for in the Merger Agreement, each of
Popmail and Cafe Odyssey will pay all of its own expenses (including attorneys'
and accountants' fees) in connection with the negotiation of the Merger
Agreement, the performance of their respective obligations hereunder and the
consummation of the transactions contemplated by the Merger Agreement (whether
consummated or not).
27
<PAGE> 30
The Merger Agreement may not be amended or waived except in a writing
executed by the party against which such amendment or waiver is sought to be
enforced.
The Merger Agreement and all of the provisions thereof will be binding upon
and inure to the benefit of the parties thereto and their respective successors
and permitted assigns, except that neither the Merger Agreement nor any of the
rights, interests or obligations hereunder may be assigned by either party
hereto without the prior written consent of the other party hereto, except that
Cafe Odyssey may assign any and all rights it has under the Merger Agreement or
any related agreement to a wholly owned subsidiary of Cafe Odyssey without the
consent of any other party.
OTHER AGREEMENTS
CERTAIN OTHER AGREEMENTS
Escrow Agreement. On June 22, 1999, the following property was placed in
an escrow account pursuant to the terms of the Merger Agreement and the Escrow
Agreement dated June 22, 1999 by and among Cafe Odyssey, Popmail, the Popmail
Stockholders, Merger Sub and the Escrow Agent: (i) a Certificate of Merger
executed by Cafe Odyssey, Popmail and Merger Sub, (ii) certificates representing
a total of 2,024 shares of Cafe Odyssey Preferred Shares in the names of the
Popmail Stockholders, (iii) the Buyer Warrant, and (iv) the shares of common
stock of Popmail held by the Popmail Stockholders, together with stock powers
executed in blank, a Letter of Transmittal executed by each of the Popmail
Stockholders, and a Subscription Agreement executed by each of the Popmail
Stockholders. Before the Effective Time, either Cafe Odyssey or Merger Sub must
place sufficient funds in the escrow account to repay the LegacyMaker Note in
full.
At the Effective Time, the Escrow Agent will (i) release the escrowed Cafe
Odyssey Preferred Shares and the Buyer Warrant to the Popmail Stockholders, (ii)
release the Popmail Common Shares (which will be deemed canceled at the
Effective Time), the Subscription Documents, the Letters of Transmittal and the
executed stock powers to Cafe Odyssey, (iii) file the executed Certificate of
Merger with the Secretary of State of Delaware, and (iv) deliver cash to
LegacyMaker for repayment of the LegacyMaker Note.
King Indemnification Agreement. Stephen D. King executed an
Indemnification Agreement, to become effective as of the Effective Time of the
Merger, in which he agreed to indemnify Popmail and each of its officers,
directors, employees, affiliates and stockholders for any and all losses
resulting from any claim brought by a shareholder of Cafe Odyssey relating to
the negotiation, approval or consummation of the Merger Agreement.
LegacyMaker Indemnification Agreement. LegacyMaker executed an
Indemnification Agreement, to become effective as of the Effective Time of the
Merger, in which it agreed to indemnify Cafe Odyssey and each of its officers,
directors, employees, affiliates and shareholders for any losses resulting from
any breaches of representations or warranties made by Popmail in the Merger
Agreement or from any claim brought by a stockholder of Popmail relating to the
negotiation, approval or consummation of the Merger Agreement. LegacyMaker also
agreed, for so long as any of such representations and warranties survive, that
it will not take any action for the purpose of avoiding, or which could
reasonably be expected to render it incapable of meeting, its obligations to
satisfy claims, if any, for indemnification.
28
<PAGE> 31
SELECTED FINANCIAL DATA
CAFE ODYSSEY
The balance sheets of Cafe Odyssey as of December 28, 1997 and January 3,
1999, and the statements of operations, cash flows and shareholders' equity for
the fiscal years ended January 3, 1999, and December 28, 1997, each of which is
set forth below, have been derived from the audited financial statements of Cafe
Odyssey. The balance sheet of Cafe Odyssey as of April 4, 1999, and the
statements of operations and of cash flows for the quarters ended April 4, 1999
and March 29, 1998, each of which is set forth below, have been derived from the
unaudited financial statements of Cafe Odyssey.
POPMAIL
The balance sheets of Popmail as of December 31, 1997 and 1998, and the
statements of operations, cash flows and shareholders' deficit for the fiscal
years ended December 31, 1997 and 1998, each of which is set forth below, have
been derived from the audited financial statements of Popmail. The balance sheet
of Popmail as of March 31, 1999, and the statements of operations and cash flows
for the quarters ended March 31, 1998 and March 31, 1999, each of which is set
forth below, have been derived from the unaudited financial statements of
Popmail.
29
<PAGE> 32
CAFE ODYSSEY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 28, 1997 JANUARY 3, 1999 APRIL 4, 1999
----------------- --------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........................... $ 9,222,174 $ 106,247 $ 657,750
Total current assets................................ $ 9,513,983 $ 719,953 $ 2,654,132
Total assets........................................ $14,840,051 $12,939,988 $18,533,029
LIABILITIES AND SHAREHOLDERS' EQUITY
Total current liabilities........................... $ 1,421,247 $ 4,590,011 $ 9,325,784
Long-term debt, less current portion................ $ 852,165 $ 755,878 $ 729,743
Total liabilities................................... $ 2,423,412 $ 7,101,741 $13,841,848
Total shareholders' equity.......................... $12,416,639 $ 5,838,247 $ 4,691,181
</TABLE>
CAFE ODYSSEY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED THIRTEEN WEEKS ENDED
----------------------------------- ------------------------------
DECEMBER 28, 1997 JANUARY 3, 1999 MARCH 29, 1998 APRIL 4, 1999
----------------- --------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales.............................. $ 3,546,695 $ 6,932,891 $ 804,319 $ 2,332,632
Total costs and expenses............... $ 7,436,895 $13,689,847 $ 1,895,311 $ 3,634,237
Loss from operations................... $(3,890,200) $(6,756,956) $(1,090,992) $(1,301,605)
NET LOSS............................... $(3,974,576) $(6,706,582) $(1,000,137) $(1,443,616)
Basic and diluted net loss per share... $ (0.76) $ (0.84) $ (0.13) $ (0.18)
</TABLE>
CAFE ODYSSEY, INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEARS ENDED THIRTEEN WEEKS ENDED
----------------------------------- ------------------------------
DECEMBER 29, 1997 JANUARY 3, 1999 MARCH 29, 1998 APRIL 4, 1999
----------------- --------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net loss............................... $(3,974,576) $(6,706,582) $(1,000,137) $(1,443,616)
Net cash provided by operating
activities........................... $(3,769,797) $(3,241,549) $(1,445,865) $ 1,217,260
Purchases of property and equipment,
net.................................. $(1,653,644) $(9,369,574) $(2,685,688) $(3,913,467)
Net cash provided by financing
activities........................... $11,938,054 $ 3,495,196 $ (217,355) $ 3,247,710
INCREASE(DECREASE) IN CASH AND CASH
EQUIVALENTS.......................... $ 6,514,613 $(9,115,927) $(4,348,908) $ 551,503
</TABLE>
CAFE ODYSSEY, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------------------------------------------------
ADDITIONAL COMMON STOCK ACCUMULATED
SHARES AMOUNT PAID-IN CAPITAL SUBSCRIBED DEFICIT TOTAL
--------- ------- --------------- ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE 12/29/96.............................. 3,945,000 $39,545 $ 5,013,126 $ -- $ (3,441,736) $ 1,610,844
Initial public offering, net of offering
costs....................................... 2,600,000 26,000 11,201,967 -- -- 11,227,967
Sale of common stock pursuant to private
placements.................................. 1,447,489 14,475 3,916,029 (690,000) -- 3,240,504
Issuance of shares in lieu of compensation.... 7,300 73 21,827 -- -- 21,900
Cash received on stock subscribed............. -- -- -- 290,000 -- 290,000
Net loss...................................... -- -- -- -- (3,974,576) (3,974,576)
BALANCE 12/28/97.............................. 8,000,189 80,002 20,152,949 (400,000) (7,416,312) 12,416,639
Issuance of warrants to guarantors............ -- -- 128,490 -- -- 128,490
Cancellation of share grant................... (100) (1) (299) -- -- (300)
Net Loss...................................... -- -- -- -- (6,706,582) (6,706,582)
BALANCE 1/3/99................................ 8,000,089 $80,001 $20,281,140 $(400,000) $(14,122,894) $ 5,838,247
</TABLE>
30
<PAGE> 33
POPMAIL.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998 MARCH 31, 1999
----------------- ----------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash............................................... -- $ 25,253 $ 66,680
Total current assets............................... $ 1,000 $ 49,184 $ 92,817
Total property and equipment, net.................. $ 346,142 $ 828,509 $ 781,663
Total other assets................................. $ 59,089 $ 42,134 $ 38,172
Total assets....................................... $ 406,231 $ 919,827 $ 912,652
LIABILITIES AND STOCKHOLDERS' EQUITY
Note Payable -- affiliate.......................... $ 554,087 $ 3,154,259 $ 4,062,360
Total current liabilities.......................... $ 554,087 $ 3,554,569 $ 4,146,313
Stockholders' equity (deficit)..................... $(147,856) $(2,634,742) $(3,233,661)
</TABLE>
POPMAIL.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
FROM
INCEPTION
1 MONTH THROUGH* 4 MONTHS
YEAR ENDED ENDED DECEMBER ENDED
DECEMBER 31, DECEMBER 31, 31, APRIL 30,
1998 1997 1998 1999
------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues....................................... $ 49,235 -- $ 49,235 $ 10,077
Total expense.................................. $ 2,331,809 $ 148,856 $ 2,480,665 $ 634,097
Operating loss................................. $(2,282,574) $(148,856) $(2,431,430) $ (624,020)
Net loss....................................... $(2,444,478) $(148,856) $(2,593,334) $(1,328,861)
</TABLE>
- ---------------
* Popmail was incorporated on December 2, 1997
POPMAIL.COM, INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED 1 MONTH ENDED INCEPTION THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net loss........................................ $(2,444,478) $(148,856) $(2,593,334)
Net cash used by operating activities........... $(1,961,346) $(207,171) $(2,168,517)
Purchases of property and equipment............. $ (613,573) $(346,916) $ (960,489)
Net cash provided by financing activities....... $ 2,600,172 $ 554,087 $ 3,154,259
Net increase in cash............................ $ 25,253 -- $ 25,253
</TABLE>
POPMAIL.COM, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM DECEMBER 2, 1997 (INCEPTION)
THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON A COMMON B ADDITIONAL
--------------- --------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------ ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE 12/2/97............................. -- -- -- $-- $ -- $ -- $ --
Stock Issue................................. 10 -- 990 10 990 -- 1,000
Net (loss).................................. (148,856) (148,856)
BALANCE 12/31/97............................ 10 -- 990 10 990 (148,856) (147,856)
Stock Issue................................. 1,000 10 990 1,000
Distribution................................ (43,408) (43,408)
Net (loss).................................. (2,444,478) (2,444,478)
BALANCE 12/31/98............................ 10 1,990 $20 $1,980 $(2,636,742) $(2,634,742)
</TABLE>
31
<PAGE> 34
PRO FORMA UNAUDITED FINANCIAL STATEMENTS
The following pro forma unaudited financial information consists of Pro
Forma Unaudited Statements of Operations of Cafe Odyssey for the year ended
January 3, 1999 and for the thirteen weeks ended April 4, 1999 and a Pro Forma
Unaudited Balance Sheet of Cafe Odyssey as of April 4, 1999. The Pro Forma
Unaudited Statements of Operations give effect to the Merger as if it had
occurred on December 29, 1997. The Pro Forma Unaudited Balance Sheet gives
effect to the Merger as if it had occurred on April 4, 1999.
The Pro Forma Unaudited Financial Statements give effect to certain
adjustments, including: (1) the issuance of 2,024 Cafe Odyssey Preferred Shares
which are convertible into 8,280,102 Cafe Odyssey Common Shares; (2) the
issuance of the Buyer Warrant; (3) and a step-up of net assets and resulted
goodwill created by the acquisition and related amortization expense.
CAFE ODYSSEY, INC.
PRO FORMA BALANCE SHEET AS OF APRIL 4, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
MERGER FOR THE
CAFE ODYSSEY POPMAIL.COM ADJUSTMENTS MERGER
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............... $ 657,750 $ 66,680 0(3) $ 724,430
0(3)
Landlord allowance receivable........... 962,500 962,500
Accounts receivable..................... 10,978 10,978
Inventories............................. 202,981 202,981
Other current assets.................... 830,901 15,159 846,060
Total current assets............. 2,654,132 92,817 0 2,746,949
PROPERTY AND EQUIPMENT, NET............... 15,354,847 781,663 16,136,510
OTHER ASSETS.............................. 524,050 38,172 562,222
GOODWILL.................................. 26,187,225(1) 29,420,886
3,233,661(2)
Total Assets..................... $ 18,533,029 $ 912,652 $ 29,420,886 $ 48,866,567
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short-term notes payable................ $ 1,324,007 $ 0 $ 1,324,007
Accounts payable........................ 3,916,273 82,558 3,998,831
Advances payable to principal
shareholder........................... 150,000 150,000
Convertible promissory notes payable.... 150,000 150,000
Note payable-Legacy Maker............... 0 4,062,360 0(3) 4,062,360
Current portion of long-term debt....... 3,000,000 0(3) 3,000,000
Accrued expenses........................ 785,507 1,395 786,902
Total current liabilities........ 9,325,787 4,146,313 0 13,472,100
DEFERRED RENT............................. 3,786,318 3,786,318
LONG-TERM DEBT, less current portion...... 729,743 729,743
Total liabilities................ 13,841,848 4,146,313 0 17,988,161
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Series A Preferred stock................ -- -- -- --
Series B Preferred stock................ -- -- 23,195,280(1) 23,195,280
Common stock............................ 82,801 20
(20)(2) 82,801
Additional paid-in capital.............. 20,574,890 1,980 2,991,945(1) 23,566,835
(1,980)(2)
Less: common stock subscribed........... (400,000) (400,000)
Accumulated deficit..................... (15,566,510) (3,235,661) 3,235,661 (15,566,510)
Total shareholders' equity
(deficit)...................... 4,691,181 (3,233,661) 29,420,886 30,878,406
$ 18,533,029 $ 912,652 $ 29,420,886 $ 48,866,567
</TABLE>
32
<PAGE> 35
NOTES TO PRO FORMA BALANCE SHEET
AS OF APRIL 4, 1999
(1) Reflects the issuance of additional Cafe Odyssey Preferred Shares and
warrant and transaction expenses to effect the Merger as follows:
<TABLE>
<CAPTION>
SERIES B
PREFERRED SHARES WARRANT TOTAL
---------------- ---------- -----------
<S> <C> <C> <C>
Cafe Odyssey Preferred Shares and
warrant to be issued..................... 2,024 4,825,717
Price per share............................ (a) $2.75 $ 0.62
--------------- ---------- -----------
Total............................ $ 22,770,280 $2,991,945 $25,762,225
Plus transaction expenses................ 425,000 0 425,000
--------------- ---------- -----------
Total............................ $ 23,145,280 $2,991,945 $26,187,225
=============== ========== ===========
</TABLE>
(a) The price per share is based on the closing price of the Cafe
Odyssey Common Stock on June 23, 1999. The conversion rate used to
convert the Cafe Odyssey Preferred Shares into Common Shares is
based on the price of an outstanding common share of Cafe Odyssey on
April 4, 1999.
(2) Reflects the elimination of the stockholders' deficit of Popmail. The
increase in goodwill is a result of cost exceeding the identifiable assets
acquired of Popmail. The final allocation of the purchase price will be
determined upon consummation of the Merger or shortly thereafter. The following
table represents the specific amounts included in stockholders' deficit for
Popmail that would be eliminated assuming the Merger is consummated:
<TABLE>
<CAPTION>
POPMAIL.COM
-----------
<S> <C>
Goodwill................................................. $3,233,661
Common stock............................................. 20
Additional paid-in capital............................... 1,980
----------
Accumulated deficit...................................... $3,235,661
</TABLE>
(3) The Company's intention is to repay the outstanding indebtedness to
LegacyMaker with debt proceeds. Since the ability to borrow funds is not
assured, no pro forma adjustment has been reflected for the transactions.
33
<PAGE> 36
CAFE ODYSSEY, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED APRIL 4, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CAFE POPMAIL.COM, MERGER FOR THE
ODYSSEY INC. ADJUSTMENTS MERGER
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net Sales.............................. $ 2,332,632 $ 10,077 $ 0 $ 2,342,709
----------- --------- ----------- -----------
Costs and Expenses:
Food, beverage and retail costs...... 606,587 606,587
Restaurant operating expenses........ 1,716,303 1,716,303
Depreciation and amortization........ 258,168 47,929 2,451,741(1) 2,757,838
Pre-opening expenses................. 572,932 572,932
Creative............................. 37,789 37,789
Sales................................ 168,604 168,604
Technical............................ 150,094 150,094
General, administrative and
development expenses.............. 480,247 128,479 608,726
----------- --------- ----------- -----------
Total costs and expenses..... 3,634,237 532,895 2,451,741 6,618,872
----------- --------- ----------- -----------
LOSS FROM OPERATIONS................... $(1,301,605) $(522,818) $(2,451,741) $(4,276,163)
INTEREST INCOME (EXPENSE), net......... (142,011) (76,101) (218,112)
----------- --------- ----------- -----------
NET LOSS............................... $(1,443,616) $(598,919) $(2,451,741) $(4,494,275)
=========== ========= =========== ===========
BASIC AND DILUTED NET LOSS PER SHARE... $ (0.18) -- -- $ (0.28)
=========== ========= =========== ===========
BASIC AND DILUTED WEIGHTED
AVERAGE OUTSTANDING
SHARES............................... 8,055,476 -- 8,280,102 16,335,578
=========== ========= =========== ===========
</TABLE>
34
<PAGE> 37
CAFE ODYSSEY, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 3, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CAFE POPMAIL.COM, FOR THE MERGER
ODYSSEY INC. MERGER ADJUSTMENTS
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net Sales/revenues................... $ 6,932,891 $ 49,235 $ 6,982,126
Costs and Expenses:
Food, beverage and retail costs.... 1,897,492 1,897,492
Restaurant operating expenses...... 5,038,104 5,038,104
Depreciation and amortization...... 940,186 10,747,148 9,806,962(1)
Pre-opening expenses............... 732,851 732,851
Loss on impairment of restaurant
related assets.................. 2,000,000 2,000,000
Selling, general, administrative
and development expenses........ 3,081,213 2,331,809 5,413,022
----------- ----------- ------------ -----------
Total costs and expenses... 13,689,846 2,331,809 25,828,617 9,806,962
----------- ----------- ------------ -----------
LOSS FROM OPERATIONS................. (6,756,955) (2,282,574) (18,846,491) (9,806,962)
----------- ----------- ------------ -----------
OTHER INCOME (EXPENSE):
Interest expense................... (130,625) (161,904) (292,529)
Interest income.................... 180,999 180,999
----------- ----------- ------------ -----------
Total other income
(expense)................ 50,374 (161,904) (111,530) 0
NET LOSS............................. $(6,706,581) $(2,444,478) $(18,958,021) $(9,806,962)
=========== =========== ============ ===========
BASIC AND DILUTED NET LOSS PER
SHARE.............................. $ (0.84) -- $ (1.16) --
=========== =========== ============ ===========
BASIC AND DILUTED WEIGHTED AVERAGE
OUTSTANDING SHARES................. 8,000,131 -- 16,280,233 8,280,102
=========== =========== ============ ===========
</TABLE>
CAFE ODYSSEY, INC. & POPMAIL.COM, INC. MERGER
NOTES TO PRO FORMA FINANCIAL STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JANUARY 3, 1999 AND THE THIRTEEN WEEKS ENDED APRIL 4, 1999
(1) The Unaudited Pro Forma Statements of Operations reflect amortization
of goodwill associated with the Merger of $29,420,886 amortized on a
straight-line basis over three years. The final allocation of the purchase price
will be determined upon consummation of the Merger or shortly thereafter.
35
<PAGE> 38
CURRENT BUSINESS OF CAFE ODYSSEY
GENERAL
Cafe Odyssey, Inc. ("Cafe Odyssey") currently develops, owns and operates
restaurants with multiple themed dining rooms designed to appeal to the upscale
casual dining market. Cafe Odyssey owns and operates two full service
restaurants, one in Cincinnati, Ohio (the "Kenwood Restaurant"), which operates
under the trade name "Hotel Discovery," and one in the Mall of America, located
in Bloomington, Minnesota, a suburb of Minneapolis (the "Mall of America
Restaurant"), which operates under the trade name "Cafe Odyssey." The Kenwood
Restaurant opened under the name "Hotel Mexico" on December 19, 1996. The Mall
of America Restaurant opened on June 8, 1998. Prior to the opening of the
Kenwood Restaurant, Cafe Odyssey was in the development stage.
On March 15, 1999, Cafe Odyssey opened its third restaurant at the Denver
Pavilions, located in the downtown district of Denver, Colorado (the "Denver
Pavilions Restaurant"). This restaurant, as with all future restaurants, will be
under the trade name Cafe Odyssey.
Cafe Odyssey began operations as Hotel Mexico, Inc. ("HMI"), which was
incorporated in Ohio in January 1994. The Kenwood Restaurant Limited
Partnership, an Ohio limited partnership (the "Kenwood Partnership") was formed
in June 1995 to own and operate the Kenwood Restaurant. HMI's operations and the
net assets of the Kenwood Partnership were combined in November 1996, and in
August 1997, HMI was reorganized as Hotel Discovery, Inc., a Minnesota
corporation. See "Reorganization."
On February 25, 1998, Cafe Odyssey changed the name of its restaurant
concept from Hotel Discovery to Cafe Odyssey. Cafe Odyssey believes that the new
name better reflects the concept's primary focus on award-winning food, served
in a unique environment of adventure, imagination, exploration and innovation.
In conjunction with this action, Cafe Odyssey's Board of Directors approved a
change in its corporate name from Hotel Discovery, Inc. to Cafe Odyssey, Inc.,
and on May 21, 1998, at the Annual Shareholders Meeting, approval was recorded.
The Kenwood Restaurant will retain the name "Hotel Discovery" because of its
established name.
CONCEPT
Cafe Odyssey's existing restaurants are positioned in the upscale casual
segment and differentiate themselves from the competition by offering it's
guests an enveloping experience that combines award winning food with
sophisticated, non-intrusive entertainment. While there are restaurants that
have a strong food base and others that focus on entertainment, Cafe Odyssey
feels that the "experiential dining" combination it offers is unique to the
industry.
Based on the concepts of travel, discovery and adventure, each restaurant
provides guests with a dining experience in multiple themed environments that
capture the romance, passion and nature of exotic locations throughout the world
utilizing state-of-the-art technology in sound, video, lighting, scenery and
decor. In the Kenwood Restaurant, these themes are embodied in the Safari Room,
the Artist Loft, the Observatory and the Mapping Room. The Mall of America
Restaurant and the Denver Pavilions Restaurant both contain three dining rooms
that replicate the environments of the lost City of Atlantis, the ancient Incan
ruins of Machu Picchu in the Andes and the sweeping plains of the Serengeti
desert in Tanzania, Africa.
The menu at each restaurant offers a broad range of cuisine from around the
world, including "cultural fusion" menu items such as Barcelona Spring Rolls and
Asian Tacos. Features include American, Asian, Jamaican, West Indian, Mexican
and European tastes and textures. Menu items are freshly made, using only the
highest quality fresh meats, produce, spices and other ingredients. The menu
mirrors the exploratory journey and adventure society themes of the restaurants.
Cafe Odyssey has created a new tag line for advertising and identification
purposes. It states the ongoing refinement of the Cafe Odyssey philosophy:
"Where in the world will you eat today?" This line was debuted at the Denver
Pavilions Restaurant.
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<PAGE> 39
Each restaurant also has a retail area located at the entrance. The retail
component of the Kenwood Restaurant and the Denver Pavilions Restaurant includes
a collection of adult and children's casual clothing, including T-shirts,
sweatshirts, shirts and caps, and a limited amount of other logo merchandise.
The Mall of America Restaurant displays a much larger selection of merchandise
centered around the four themes of imagination, invention, exploration and
adventure as expressed in the three dining rooms. Such merchandise is expected
to include educational toys and games, stationery, prints, telescopes, art
materials, jewelry, primitive musical instruments and other gift items.
EXPANSION STRATEGY
Management believes the Cafe Odyssey concept is ideally positioned toward
the large and fast growing "baby boomer" segment. Future expansion opportunities
for Cafe Odyssey will be targeted towards high traffic upscale malls and resort
areas, as well as urban retail and entertainment centers. The present size of a
Cafe Odyssey restaurant is between 15,000 and 18,000 square feet. This
necessitates locations in areas with significant tourist as well as local
traffic. Cafe Odyssey is currently investigating the economics for units in the
12,000 to 14,000 square foot range, to allow Cafe Odyssey more markets for
expansion. Cafe Odyssey is currently in the process of negotiating with
landlords for future sites, but there can be no assurance that Cafe Odyssey will
be able to enter into binding contracts for these or any additional sites.
RESTAURANT OPERATIONS
Cafe Odyssey strives to maintain quality operations through extensive
training of its employees and careful supervision of personnel. Cafe Odyssey has
developed, and expects to implement at each of its restaurants, a detailed
operations manual containing specifications relating to food and beverage
preparation, maintenance of premises and employee conduct. Each restaurant is
expected to have a director of operations with a staff of five to seven managers
and a staff accountant. Each director of operations reports directly to Cafe
Odyssey's vice president of operations.
Cafe Odyssey requires all kitchen and front-of-the-house managers to
complete an intensive six-week training program which includes two weeks of food
preparation training in the kitchen, as well as complete cross-training on all
other phases of the restaurant's operations. Cafe Odyssey's restaurant
management is then tested on Cafe Odyssey's philosophy, management strategy,
policies, procedures and operating standards. In addition, each prospective
guest service employee actually tastes, and is tested on, every food and
beverage item on the menu. Daily shift meetings are held prior to lunch and
dinner to re-educate the service staff on all menu items, to communicate daily
specials, to respond to feedback from comment cards and to reinforce service
standards.
MANAGEMENT AND FINANCIAL CONTROLS
Cafe Odyssey has implemented specific management control systems for
employee follow-up, customer satisfaction, and financial results. These controls
are described below.
Employee Follow-up: Shift schedules are posted weekly for each position. A
scheduled manager supervises every shift. Managers are responsible for executing
job functions and following a thorough and complete checklist for each category
of the restaurant's operations, including the appearance of the outside of the
restaurant, dining room, kitchen and rest rooms as well as dining room service
and food preparation. Regular one-on-one meetings are held with employees and
feedback as to their performance is given on a regular and consistent basis.
This feedback includes positive reinforcement as well as redirection when a
change in focus is needed. In addition, the restaurant's director of operations
holds a weekly circle luncheon for key employees from each position. The
President of Cafe Odyssey also holds a quarterly "town meeting" with selected
employees to ensure that strong communication continues between the corporate
office and each restaurant.
Customer Satisfaction: Management believes that continual guest feedback
on the key attributes of food quality, menu variety, service and ambiance is
crucial to Cafe Odyssey's success. Guest feedback is currently obtained by
weekly tabulation of comment cards that are distributed with every guest check,
an
37
<PAGE> 40
extensive mystery diner program and periodic market research and telephone
interviews. This constant feedback helps Cafe Odyssey's management monitor guest
response to all areas of operations and react accordingly. Checklists are also
used to ensure that guests receive a high level of service and food quality. In
addition, front-of-the-house management is required to interact with guests in
all peak meal periods.
Management's Incentives: Management's incentives include a bonus based
upon a percentage of either restaurant-level or corporate cash flow and/or
profitability as compared to an annual budget which is approved by senior
management. Through its pay-for-performance incentive systems, Cafe Odyssey
believes that it has essentially mirrored its compensation system to that of an
entrepreneurially owned and operated business.
Financial Controls: Financial controls are monitored through management
information systems that track sales, customer counts, food costs, payroll costs
and guest lists. All data is reviewed on a daily, weekly and monthly basis, both
in the restaurant and in the corporate office. Profit and loss statements are
prepared weekly by the restaurant controller and reconciled monthly with the
corporate office financial statements. Management believes its systems allow for
a prompt reaction to correct deviations and to capitalize on trends.
COMPETITION
The food service industry is intensely competitive with respect to food
quality, concept, location, service and price. In addition, there are many
well-established food service competitors with substantially greater financial
and other resources than Cafe Odyssey and with substantially longer operating
histories. Cafe Odyssey believes that it competes with other full-service
dine-in restaurants, take-out food service companies, fast-food restaurants,
delicatessens, cafeteria-style buffets and prepared food stores, as well as with
supermarkets and convenience stores. Competitors include national, regional and
local restaurants, purveyors of carry out food and convenience dining
establishments.
Competition in the food service business is often affected by changes in
consumer tastes, national, regional, and local economic and real estate
conditions, demographic trends, traffic patterns, the cost and availability of
labor, purchasing power, availability of product, and local competitive factors.
Cafe Odyssey attempts to manage or adapt to these factors, but it should be
recognized that some or all of these factors could cause Cafe Odyssey to be
adversely affected. Management is of the opinion that quality food which is
pleasingly presented is an absolute requirement within the upscale casual
segment of the industry.
GOVERNMENT REGULATIONS
Cafe Odyssey is subject to federal, state and local laws affecting the
operation of its restaurants, including zoning, health, sanitation and safety
regulation and alcoholic beverage licensing requirements. Each restaurant is
operated in accordance with standardized procedures designed to assure
compliance with all applicable codes and regulations. The suspension of a food
service or liquor license would cause an interruption of operations at the
affected restaurant. Cafe Odyssey believes that it is in compliance with all
licensing and other regulations.
Cafe Odyssey is subject to "dram shop" statutes in certain states,
including Minnesota and Ohio, which generally provide a person injured by an
intoxicated person the right to recover damages from the establishment or
establishments that served alcoholic beverages to the intoxicated person. Cafe
Odyssey has obtained liability insurance against such potential liability.
Cafe Odyssey is also subject to the Fair Labor Standards Act, which governs
minimum wages, overtime and working conditions. A significant portion of Cafe
Odyssey's restaurant employees are paid at rates relating to either the federal
or state minimum wage. Accordingly, an increase in the minimum wage would
directly increase each restaurant's labor cost.
Obtaining alcoholic beverage licenses from various jurisdictions will
require disclosure of certain detailed information about directors, officers and
greater than 10% shareholders of Cafe Odyssey's equity securities, and will
necessitate that such persons be approved by the appropriate liquor licensing
authority.
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<PAGE> 41
EMPLOYEES
As of January 3, 1999, Cafe Odyssey employed 234 persons, of whom 129
worked in full-time positions and 105 were part-time. The Denver Pavilions
Restaurant will employ approximately 250 full- and part-time personnel when
operating at full capacity. No current employee is covered by a collective
bargaining agreement, and Cafe Odyssey has never experienced an organized work
stoppage, strike or labor dispute. Cafe Odyssey considers relations with its
employees to be excellent.
REORGANIZATION
Cafe Odyssey's predecessor, Hotel Mexico, Inc. ("HMI"), was originally
incorporated in January 1994 as an Ohio corporation. The Kenwood Restaurant
Limited Partnership, an Ohio limited partnership (the "Kenwood Partnership"),
was formed in June 1995 for the purpose of owning and operating the Kenwood
Restaurant. The Kenwood Partnership was dissolved in October 1997. The general
partner of the Kenwood Partnership was Kenwood Restaurant, Inc., an Ohio
corporation (the "General Partner"). Mr. King was the sole director and officer
of the General Partner and controlled the General Partner until his resignation
in September 1997. The Kenwood Partnership had 22 limited partners as a result
of a private placement in October 1995.
HMI's operations and the net assets of the Kenwood Partnership were
combined on November 14, 1996. On that date, the Kenwood Partnership contributed
all of its net assets totaling $1,567,197 to a newly formed corporation in
exchange for shares of such corporation. HMI, with total net assets of $631,966,
then merged with and into the newly formed corporation, the name of which
remained Hotel Mexico, Inc. (hereafter "Hotel Mexico"). Upon consummation of the
merger, outstanding shares of HMI were converted into an aggregate of 1,350,000
shares of common stock of Hotel Mexico. In conjunction with the dissolution of
the Kenwood Partnership in October 1997, the shares of Hotel Mexico common stock
received by the Kenwood Partnership in the reorganization and other partnership
assets were distributed to the general and limited partners in accordance with
the Partnership Agreement.
On June 24, 1997, the Board of Directors of Hotel Mexico approved its
re-incorporation as a Minnesota corporation named Hotel Discovery, Inc.
Following approval of the transaction and of the name change by Hotel Mexico's
shareholders at a special meeting held on August 11, 1997, Hotel Mexico was
merged with and into Hotel Discovery, Inc., a newly formed Minnesota
corporation, on August 22, 1997. Hotel Discovery, Inc. has an authorized capital
stock of 100,000,000 undesignated shares, and each share of common stock of
Hotel Mexico was converted into one share of common stock of Hotel Discovery,
Inc.
PRINCIPAL PROPERTIES
The Kenwood Restaurant
Location. The Kenwood Restaurant is approximately 17,000 square feet in
size on three levels and is located at the northeast corner of the recently
refurbished Sycamore Plaza at Kenwood Shopping Center in Cincinnati, Ohio. The
Kenwood Restaurant opened on December 19, 1996. Cafe Odyssey leases the land
upon which the Kenwood Restaurant is constructed.
Description of Lease. The initial term of the lease is 15 years. In
addition, Cafe Odyssey has the option to extend the term of the lease for two
additional periods of five years each, exercisable not earlier than 12 months
nor later than six months prior to the expiration of the initial term or first
option period, as applicable.
The lease provides for the payment of both a monthly fixed minimum rent and
a percentage rent based on gross sales in excess of an escalating base amount.
The monthly fixed minimum rent is $12,833 for the first five years of the
initial lease term, $14,117 for the sixth through tenth years of the initial
lease term, $15,400 for the eleventh through fifteenth years of the initial
lease term, $16,683 during the first five-year option term and $17,967 during
the second five-year option term.
In addition to the fixed minimum rent, the lease provides for the payment
of a percentage rent equal to 4% of the gross sales from the restaurant in
excess of the following annual gross sales amounts: $3,850,000 for
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<PAGE> 42
the first five years of the initial lease term, $4,235,000 for the sixth through
tenth years of the initial lease term, $4,620,000 for the eleventh through
fifteenth years of the initial lease term, $5,005,000 for the first five-year
option term and $5,390,000 for the second five-year option term. No percentage
rent was paid in 1998. In addition to the fixed minimum rent and percentage
rent, Cafe Odyssey is required to pay its proportionate share of common area
maintenance costs: taxes, insurance, maintenance and operating costs.
The landlord agreed to reimburse Cafe Odyssey an amount up to $200,000 as a
construction allowance for the completion of the building and leasehold
improvements within 30 days of the opening of the Kenwood Restaurant. Cafe
Odyssey received this reimbursement during 1997. In addition, the landlord
agreed that it will not construct any permanent facility within a designated
"no-build" area, as defined. This "no-build" area allows for unimpaired
visibility of the Kenwood Restaurant from both Kenwood Road and Montgomery Road.
Financing. The total cost of the Kenwood Restaurant, including the cost of
the initial construction and additional features, was approximately $5.1
million, net of landlord contributions. Approximately $2,475,000 of this cost
was funded by the proceeds of a private placement in October 1995. Another
$1,425,000 was financed by a private placement which was concluded in June 1997,
$850,000 of which was spent on additional features. An additional $1,000,000 was
funded by a leasehold mortgage loan (the "Loan") which was incurred by the
Kenwood Restaurant Limited Partnership and subsequently assumed by Cafe Odyssey.
The Loan was collateralized with a leasehold mortgage and lien on the
assets of the restaurant and was personally guaranteed by Cafe Odyssey's
Chairman of the Board. The Loan was repaid in full in September 1998.
The Mall of America Restaurant
Location. The Mall of America Restaurant consists of approximately 17,800
square feet located on the third floor of the Mall of America in Bloomington,
Minnesota, a suburb of Minneapolis. This site is leased pursuant to a lease
agreement dated August 4, 1997. The Mall of America opened in August 1992 with
266 tenants and now holds approximately 520 stores, merchandise carts and
attractions, including four large anchor tenants (Macy's, Bloomingdale's, Sears
and Nordstrom). The mall encompasses 4.2 million square feet on four enclosed
floors, of which 2.5 million square feet are leasable, and employs 11,000 to
13,000 people, depending on the season. More than 93% of the leasable space is
under contract, up from 71% five years ago. The mall draws an estimated 40
million visitors per year. Tourists account for 35% to 37% of annual mall
traffic, but increases up to 50% in the summer months.
Description of Lease. The term of the lease is for 12 years, commencing on
June 1, 1998. The lease does not provide for renewal terms.
The lease provides for the payment of either a minimum annual rent or a
percentage rent based on gross sales. The minimum annual rent is $25 per square
foot, or $405,375 per year based on approximately 16,215 square feet of leased
area. The percentage rent is the amount by which 6% of gross sales exceeds
minimum rent. The terms of payment do not change over the course of the lease
term. The lease also provided for a waiver of the minimum annual rent only, for
the first year of the lease. An amount of $9,033 was recorded for percentage
rent expense in 1998. In addition to the fixed minimum rent and percentage rent,
Cafe Odyssey is required to pay its proportionate share of CAM costs: taxes,
insurance, maintenance and operating costs.
Financing. The total cost of the Mall of America Restaurant was
approximately $6.4 million. The landlord reimbursed Cafe Odyssey $1,621,500 in
tenant improvements bringing net cost to approximately $4.8 million.
The Denver Pavilions Restaurant
Location. The Denver Pavilions Restaurant consists of approximately 18,000
square feet located on the third floor of the Denver Pavilions in Denver,
Colorado. This site is leased pursuant to a lease agreement dated May 12, 1998.
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<PAGE> 43
Description of Lease. The term of the lease is for 15 years, commencing on
February 27, 1999. The lease also provides for three renewal terms.
The lease provides for the payment of either a minimum annual rent or a
percentage rent based on gross sales. The minimum annual rent increases
throughout the term of the lease from $450,000 per year in years one through
five to $568,800 in years 11 through 15. The percentage rent is the amount by
which 5% of gross sales exceeds minimum rent. The lease also provides for a
tenant allowance. In addition to the fixed minimum rent and percentage rent,
Cafe Odyssey is required to pay its proportionate share of common area
maintenance costs: taxes, insurance, maintenance and operating costs.
LEGAL PROCEEDINGS
Cafe Odyssey is involved in routine legal actions in the ordinary course of
its business. Although outcomes of any such legal actions cannot be predicted,
in the opinion of management there is no legal proceeding pending against or
involving Cafe Odyssey for which the outcome is likely to have a material
adverse effect upon the financial position or results of operations of Cafe
Odyssey.
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<PAGE> 44
DESCRIPTION OF POPMAIL BUSINESS
POPMAIL
Popmail, founded in December 1997, develops media and targeted marketing
opportunities for its radio station customers. Popmail is a Delaware
corporation, operating as an S-Corporation. Its principal offices are located at
1333 Corporate Drive, Suite 350, Irving, Texas. Popmail develops and deploys
email-messaging systems that carry the brand and markings of Popmail's radio
station customers along with private label products that also bear the brand and
markings of its radio station customers. Popmail's business model is similar to
the traditional broadcast network model but with significant differences.
Although the traditional broadcast network relies exclusively upon advertising
revenues, the Popmail Network(TM) is intended to generate revenue from both
advertisers, users and third parties. Popmail launched its initial email service
to the radio industry in October 1998, and has secured agreements with
approximately 500 stations with over 160 of these email-messaging systems
operational.
PRODUCTS AND SERVICES
Popmail markets itself to radio stations, site publishers and media outlets
as a service that increases repeat visits to websites. Popmail developed a
state-of-the-art email messaging system that allows website publishers to offer
free email to their visitors like the mega-sites (like Yahoo!, Excite and
Lycos); to receive sizable promotion opportunity for their sites by including
the web address inside every email sent by their constituent; and to capture
revenue from sponsorship and e-commerce opportunities. Radio stations also may
participate in our affinity-based consumer product sales program which may earn
the radio station site additional revenue based on sales of goods and service
attracted by their web site.
Popmail end-users enjoy free email service provided by a trusted
organization -- their favorite radio station. The email service allows users who
formerly shared an email address to enjoy the privacy of their own account.
Popmail also allows mobile professionals and students to use a single email
address to send and receive email from any computer connected to the
Internet -- without any complicated setup.
Advertisers can employ highly targetable ads via the web through the
banner, button and sponsorship opportunities available with the Popmail product.
Presently, Popmail is introducing Popmail(TM) advertising and sponsorship
opportunities to the marketplace and is receiving positive comments from the
professional online media buying community.
THE MARKET
Popmail defines its business as the marketing and sale of products and
services to and for radio stations using the Popmail email messaging system.
Popmail has three distinct types of customers, including (i) radio stations
that affix Popmail to their websites ("Radio Station Customers"), (ii) people
who send and receive email via Popmail, and (iii) advertisers and marketing
organizations wishing to reach the user community of individual Popmail systems
or aggregations of the Popmail user groups ("Advertisers").
Radio Station Market Segment. To the radio station market segment, Popmail
seeks to provide promotion and revenue programs using web-based email. Popmail's
potential market includes 11,704 radio stations in the United States, although
more than 50% of U.S. radio listeners may be reached from only 341(3%) of the
total number of radio stations. Popmail may need as many as 800 radio stations
under contract in order to obtain a dominant position in the market. Popmail's
marketing focus is on the top 800 radio stations in the United States as rated
by Arbitron, the standard of radio listening measurement.
User Market Segment. To the email end-user market segment Popmail provides
an easy-to-use email system that carries the brand and markings of a trusted
radio station. Providers in the web-based email market continue to see rapid
user growth even though the number of competitors continues to grow. The major
forces affecting this change will be the falling cost of computers, the
widespread consumer adoption of the Internet and corporate requirements to keep
private email off of business email systems.
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<PAGE> 45
Advertiser Market Segment. To the Advertiser market segment, Popmail
provides a highly targetable form of advertising and promotion. Every Popmail
user completes a questionnaire that provides rich targeting information for
advertising messages, as well as special offers for the purchase of products and
services. The online advertising segment is fast growing. eStats, which
maintains statistical information regarding Internet advertising, expects a
significant upswing in Internet advertising spending in the year 2001 because of
the increasing convergence of television and the Internet, resulting in a
"critical mass" of consumers getting online, coupled with the increase in
smaller businesses gravitating to the Internet, and increased confidence and
ability of advertisers to use the web as a unique marketing vehicle to reach
large numbers of consumers within targeted segments.
MARKETING
Popmail's marketing plan is based on the combined principles of radio
station affinity marketing and online marketing. Popmail's general strategy
entails:
- Building its distribution by entering into exclusive relationships with
its radio station customers;
- Expanding its email platform for email end-users;
- Expanding its email end-user base by helping radio stations promote
listener registrations and the continual usage of the email service; and
- Selling products and services to targeted groups of email end-users.
Affiliate Positioning. Popmail intends to position Popmail to potential
radio station customers as a critical component for revenue generation and
promotion of their radio stations. Popmail's management team enjoys over 120
combined years of radio industry experience. Also, because Popmail is the first
free email provider to aggressively seek to affiliate itself with this media
sector, it has already established brand recognition among major radio stations
from coast to coast.
User Positioning. Popmail intends to position Popmail to users as the
email messaging system provided by the radio station they appreciate. Popmail
limits its brand and markings to "Powered by Popmail" so that the user perceives
that the radio station is providing the service.
Advertiser Positioning. Popmail positions Popmail to advertisers as the
targetable marketing system, offering online promotions, targetable banners,
graphic banner creation, web info pages, email newsletters and other marketing
opportunities.
ADVERTISING AND PROMOTION
Popmail targets each customer type differently. Prospective radio station
customers learn of Popmail via industry trade shows, industry trade
publications, industry trade web sites, the Popmail Affiliate Tele-Selling
force, direct mail advertising and on the Popmail website at www.popmail.com.
Currently the vast majority of prospective radio station customers do not offer
email services via their websites because there are few aggressive competitors
to Popmail.
Prospective email end-user radio station customers learn of Popmail via
advertising and promotion campaigns provided by radio stations to their own
listeners, online advertising and promotion and public relations campaigns
initiated by both Popmail and its radio station customers.
Prospective advertising customers learn of the Popmail Network via the
popmail.com advertising sales force, an online promotion and media kit located
on the Popmail website, direct mail campaigns to key media buying organizations
and advertisements placed in marketing trade publications marketing web sites.
COMPETITION
Competition for Radio Station Customers. As a provider of free email,
Popmail competes with numerous other email providers many of which have more
capital than either Popmail or Cafe Odyssey. The principal competitors in the
private-label email service business are: CommTouch, WhoWhere, MailChek,
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<PAGE> 46
iName, and OnMedia. Of these providers, to the knowledge of Popmail management,
only MailChek and OnMedia have any radio station customers. Popmail views its
greatest competitive threat to its ability to establish relationships with radio
stations as the potential availability of software that may duplicate many of
the features in the Popmail email system.
Competition for Users. Internet Service Providers usually provide only one
email address per account. In households with more than one Internet user, many
people may share an account. Web-based email provides an alternative to the lack
of privacy users will experience with shared accounts. Although major players
(such as Microsoft's Hotmail) provide web-based email services, few provide
email addresses that align with the user's affinity. No significant competition
currently exists in the radio sector for affinity email provision. Popmail's
affinity-based model holds that users will have a stronger allegiance to a known
brand (such as the radio station that provides the bumper sticker on the back of
their car) than to a generic, non-branded entity (such as Hotmail).
In addition, Popmail uses the power of its radio station customers to
promote the service by using regular contests and promotions. Popmail management
believes that web-based email providers must spend sizable advertising budgets
to build a user base. Popmail seeks to leverage the pre-determined demographics
of radio audiences and the competitive desires of its radio station customers to
acquire a substantial user base with relatively little expense.
Competition for Advertisers. Web Advertising is somewhat concentrated
around the largest web publishers. Popmail believes its ability to target
advertising to specific users will allow for higher rates and revenues than
general interest web sites.
Popmail believes advertisers will enjoy Popmail's unique ability to target
specific email users with specific demographics. Non-stop radio promotions not
only build the number of new users, but also increase email users' frequency of
use, giving Popmail a large inventory of advertising impressions. Popmail's
direct sales force -- dedicated to local, national and vertical niche
advertising categories -- seeks to attract advertisers who require highly
defined audiences for advertising messages. Popmail believes that its ability to
segment and sell advertising impressions based upon geographic, household
income, professional status and other key consumer demographics will provide an
advantage over most other advertising media.
FEATURES OF POPMAIL
Much as the early days of affinity credit card programs, Popmail hopes to
enjoy a faster rate of adoption among the user community due to exclusive
contractual relationships with radio station affinity groups. Popmail also is
unique in providing a compensation system to radio station customers. By sharing
a portion of revenue with radio station customers, Popmail hopes to experience
very low customer turnover.
Popmail is advantaged by its ability to provide a private label email
messaging solution without lengthy and expensive production schedules. Popmail's
proprietary Terraform process allows its technicians to produce 150 custom email
messaging sites per month -- including all domain name registration, domain
assignment and the customized graphics for each email site. Popmail believes its
Terraform process provides a competitive advantage since Popmail is able to
quickly deliver email-messaging sites with very little incremental cost per
site.
Popmail believes that as a product, Popmail(TM) email has the following
benefits to users:
- It's free to the user;
- It allows users to incorporate the name of an organization for which they
have an affinity within their email address;
- It can provide the same household with multiple password protected email
accounts;
44
<PAGE> 47
- It supplies users with personal email accounts that can be accessed from
home, work, or any net-connected computer anywhere in the world; and
- Users can continue to access their Popmail(TM) email accounts when they
move, change jobs, change ISP's, or use multiple computers.
45
<PAGE> 48
MANAGEMENT OF CAFE ODYSSEY
The following table sets forth certain information with respect to current
Cafe Odyssey's executive officers and directors.
<TABLE>
<CAPTION>
NAME POSITIONS WITH THE CAFE ODYSSEY AGE DIRECTOR SINCE
- ---- ------------------------------- --- --------------
<S> <C> <C> <C>
Stephen D. King...................... Chairman of the Board and Chief 42 1994
Executive Officer
Ronald K. Fuller..................... President, Chief Operating Officer 54 1997
and Director
Michael L. Krienik................... Director 46 1997
Thomas W. Orr........................ Chief Financial Officer and Director 54 1997
Jerry L. Ruyan....................... Director 52 1998
</TABLE>
Stephen D. King is the Chairman of the Board of Cafe Odyssey and a managing
partner of BaryCenter Capital Management, a Cincinnati-based financial advisor
and investment firm. Mr. King has also served as Cafe Odyssey's Chief Executive
Officer from its inception until February 1998 and from April 2, 1999 to the
present and as Chief Financial Officer from October 31, 1998 to May, 1999. From
1982 to 1990, Mr. King served in various capacities, including Chief Executive
Officer, of Pizza Hut of Cincinnati, Inc., which operates 36 Pizza Hut
restaurants in the Cincinnati, Ohio area. Mr. King has also served in various
capacities with Long John Silver, Two Pesos and Skyline Chili franchise
operations. Mr. King also has extensive real estate and financing expertise and,
from 1991 to 1994, served as managing partner of a real estate development
partnership with properties valued at approximately $60 million.
Ronald K. Fuller joined Cafe Odyssey as President and Chief Operating
Officer in January 1997. He also served as Chief Executive Officer of Cafe
Odyssey from February through April 1, 1999. Mr. Fuller had served since 1993 as
President and Chief Executive Officer for Leeann Chin, Inc., Minneapolis,
Minnesota. From 1985 to 1993, Mr. Fuller held several executive positions with
General Mills, Inc. and General Mills Restaurants, Inc. in Minneapolis and
Orlando, Florida, including Vice President -- Operations, Executive Vice
President -- New Concept Development, and President/General Manager.
Thomas W. Orr became Chief Financial Officer of Cafe Odyssey in May, 1999,
and has been a director of Cafe Odyssey since September 1997. Prior to that time
and since 1995, he was a Senior Consultant since 1995 for the Delta Consulting
Group, Trumbull, Connecticut, specializing in business strategy, new business
development, marketing and sales. From 1994 to 1995, Mr. Orr was President of
the retail chicken group of ConAgra Broiler Company, with responsibility for
strategic direction, operations of five plants, sales, marketing, international
and commodity businesses. Mr. Orr had previously been associated with ConAgra
Broiler Company from 1991 to 1993 as Vice President of Sales and Vice President
of Marketing. From 1993 to 1994, Mr. Orr served as Senior Vice President for
Jennie-O Foods, Inc., a subsidiary of Hormel Foods, with responsibility for
strategy development, marketing and sales for the retail, food service and
commodity divisions.
Michael L. Krienik became a director of Cafe Odyssey in September 1997 and
is President of Krienik Advertising Inc., Cincinnati, Ohio, a full-service
advertising agency which he founded in 1981. Prior to founding his own
advertising agency, Mr. Krienik served in various merchandising/management roles
with Federated Department Stores from 1973 to 1977 and then served as the
National Advertising Manager for U.S. Shoe Corporation from 1977 to 1981.
Jerry L. Ruyan has been a director of Cafe Odyssey since October 1998. Mr.
Ruyan co-founded and has been a partner of Redwood Venture Group Ltd., a venture
capital Company based in Cincinnati, Ohio, since January 1996. Mr. Ruyan is a
director of Meridian Diagnostics, Inc., which develops diagnostic test products
for the global medical industry, which Cafe Odyssey he founded in 1977 and for
which he served as President and Chief Executive Officer from 1977 to January
1996. He is also a director of Frisch's Restaurants, Inc., which operates and
licenses family restaurants and hotels with restaurants, and a director of
Meritage Hospitality Group, Inc., a Wendy's restaurant franchisee based in Grand
Rapids, Michigan.
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<PAGE> 49
EXECUTIVE COMPENSATION
The following table sets forth the cash and noncash compensation for each
of the last three fiscal years awarded to or earned by each executive officer of
Cafe Odyssey whose salary and bonus during the year ended January 3, 1999
exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------
ANNUAL COMPENSATION AWARDS
--------------------------------- ------------------
OTHER ANNUAL COMMON STOCK
NAME AND PRINCIPAL SALARY BONUS COMPENSATION UNDERLYING OPTIONS
POSITION YEAR ($) ($) ($) (#)
- ------------------ ---- ------- ------ ------------ ------------------
<S> <C> <C> <C> <C> <C>
Stephen D. King(1)................. 1998 200,000 -- -- --
Chairman of the Board, and 1997 83,333 70,000 -- --
Chief Executive Officer 1996 -- -- -- --
Ronald K. Fuller................... 1998 200,000 90,000 35,000(2) 308,333(3)
President and Chief 1997 146,154 50,000 61,733(4) 308,333
Operating Officer 1996 -- -- -- --
Anne D. Huemme(5).................. 1998 125,000 -- 5,000(6) 33,333(3)
1997 -- -- -- 100,000
</TABLE>
- ---------------
(1) Mr. King assumed the title of Chief Financial Officer on October 30, 1998
and Chief Executive Officer on April 2, 1999.
(2) Includes $15,000 car allowance and $20,000 cafeteria plan benefits.
(3) Reflects options which were repriced. See "Ten-Year Option/SAR Repricings"
below.
(4) Includes $33,333 in consulting fees paid to Mr. Fuller before he became an
employee, $8,400 car allowance and $20,000 cafeteria plan benefits.
(5) Ms. Huemme relinquished the titles of Vice President -- Finance and Chief
Financial Officer on October 30, 1998 and her employment was terminated on
December 24, 1998.
(6) Car allowance.
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted to any of the executive officers named in the
Summary Compensation Table during the fiscal year ended January 3, 1999. An
option was granted to Anne Huemme to purchase 100,000 shares during fiscal 1997
at an exercise price of $3.00 per share. The market price of the shares was
$3.00 on the date of grant. This grant represented 15.8% of options granted to
employees during fiscal 1997. The option originally expired on January 15, 2007.
The options vest ratably on the first, second and third anniversaries of the
date of grant. Ms. Huemme relinquished the titles of Vice President -- Finance
and Chief Financial Officer on October 30, 1998 and her employment was
terminated on December 24, 1998. The portion of her option which vested on
January 5, 1999, to purchase 33,000 shares, was repriced to $.75 in December
1998.
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<PAGE> 50
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table summarizes information with respect to options held by
the persons named in the Summary Compensation Table, and the value of the
options held by such persons at the end of fiscal 1998. No options were
exercised by the executive officers named in the Summary Compensation Table
during fiscal 1998.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FY-END (#) FY-END ($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen D. King............................ 0 0 -- --
Ronald K. Fuller........................... 108,333 200,000 0 0
Anne D. Huemme............................. 0 100,000 0 0
</TABLE>
- ---------------
(1) The option exercise price in each case is $.75 and the last sale price of
the common stock on December 31, 1998 was $.656.
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES MARKET PRICE EXERCISE LENGTH OF
UNDERLYING OF STOCK AT PRICE AT NEW ORIGINAL OPTION
OPTIONS TIME OF TIME OF EXERCISE TERM REMAINING
REPRICED REPRICING REPRICING PRICE AT DATE OF
NAME DATE (#) ($) ($) ($) REPRICING
- ---- -------- ---------- ------------ --------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Stephen D. King...... -- -- -- -- -- --
Ronald K. Fuller..... 12/10/98 300,000 .75 3.00 .75 8 years
12/10/98 8,333 .75 3.00 .75 9 years
Anne D. Huemme....... 12/10/98 33,333 .75 3.00 .75 9 years
</TABLE>
The Compensation Committee of the Board of Directors decided to reprice the
options enumerated above in response to a decrease in the market price of Cafe
Odyssey's common stock to a level which, in the opinion of the Board, had the
effect of eliminating substantially all the incentive value of such options. The
Compensation Committee concluded that short-term financial performance
considerations should not unduly influence long-term compensation strategies.
The Board believes that stock options play an extremely important role in
attracting talented executives and motivating them to perform up to their full
potential, particularly where stock options are an important component of an
executive's compensation package. Accordingly, the Board determined that a
repricing of options to current market value was both necessary and consistent
with its strategy of providing executives with tangible long-term performance
incentives.
By the Compensation Committee
Thomas W. Orr
Michael L. Krienik
EMPLOYMENT AGREEMENTS
Ronald K. Fuller, President and Chief Operating Officer, has an employment
agreement which was renewed for another year on January 6, 1999. It is subject
to early termination for variety of reasons, including voluntary termination by
Mr. Fuller. Mr. Fuller's base salary was $200,000 for fiscal 1998 and will be
$200,000 for fiscal 1999. Such base salary may be adjusted annually as
determined by Cafe Odyssey's Board of Directors. Such agreement also provides
that Mr. Fuller will receive one year's severance if terminated by Cafe Odyssey
for a reason other than "cause," as defined therein. Mr. Fuller receives
medical, dental and
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<PAGE> 51
other customary benefits. The employment agreement provides that Mr. Fuller will
not compete with Cafe Odyssey for one year if he resigns or is terminated for
cause.
Mr. Fuller has an option agreement with Cafe Odyssey dated January 15, 1997
pursuant to which he was granted an option to purchase 300,000 shares of common
stock at an exercise price of $3.00 per share. The option agreement provides
that if Mr. Fuller is terminated without cause, all parts of the option
scheduled to vest thereafter shall immediately vest as of the date of
termination. Immediate vesting shall also occur in the event of (i) the sale in
one or more private transactions of 50% or more of Cafe Odyssey or (ii) a
majority of the members of the Board of Directors of Cafe Odyssey is replaced
within a period of less than six (6) months by directors not nominated and
approved by the Board. The option is currently unvested as to 200,000 shares.
Anne D. Huemme, who served as Vice President -- Finance and Chief Financial
Officer from January 5, 1998 through October 30, 1998, had a three-year
employment agreement which expired on January 5, 2001, subject to early
termination for a variety of reasons. Ms. Huemme's employment with Cafe Odyssey
has been terminated as of December 24, 1998. Ms. Huemme received a base salary
of $130,000 during her first year of employment. The agreement also provided
that Ms. Huemme would receive six months' severance if terminated by Cafe
Odyssey for a reason other than cause. The agreement provided that Ms. Huemme
would not compete with Cafe Odyssey for one year if she resigned or were
terminated for cause.
In addition to the options referred to above, Cafe Odyssey granted an
option to purchase 8,333 shares to Mr. Fuller and an option to purchase 100,000
shares to Ms. Huemme in fiscal 1997 pursuant to Cafe Odyssey's 1997 Stock Option
and Compensation Plan (the "1997 Plan"). The 1997 Plan provides that such
options will become immediately exercisable if any of the following events occur
unless otherwise determined by the Board and a majority of the Continuing
Directors (as defined below): (1) any person or group of persons becomes the
beneficial owner of 30% or more of any equity security of Cafe Odyssey entitled
to vote for the election of directors; (2) a majority of the members of the
Board is replaced within a period of less than two years by directors not
nominated and approved by the Board; or (3) the shareholders approve an
agreement to merge or consolidate with or into another corporation or an
agreement to sell or otherwise dispose of all or substantially all of Cafe
Odyssey's assets. "Continuing Directors" are directors: (a) who were in office
prior to the time any of (1), (2) or (3) above occurred or any person publicly
announced an intention to acquire 20% or more of any equity security of Cafe
Odyssey, (b) directors in office for a period of more than two years, or (c)
directors nominated and approved by the Continuing Directors.
Cafe Odyssey intends to retain other management employees or consultants
pursuant to employment or consulting agreements. Cafe Odyssey intends to offer
stock options to such employees or consultants.
DIRECTOR COMPENSATION
Non-management directors each receive a ten-year option to purchase 25,000
shares of common stock when they became members of the Board. One-third of each
option vests on each of the first, second and third anniversaries of the date of
grant. Members of the Board who are also employees of Cafe Odyssey receive no
options for their services as directors.
A ten-year option to purchase 25,000 shares at an exercise price of $1.438
was granted to Greg Mosher when he became a member of the Board on September 18,
1998. Mr. Mosher resigned from the Board on October 30, 1998. A ten-year option
to purchase 25,000 shares at an exercise price of $.75 was granted to Jerry
Ruyan when he became a member of the Board on October 30, 1998.
On May 22, 1998, ten-year options to purchase 5,000 shares were granted to
each of Thomas Orr and Michael Krienik in lieu of compensation for their service
on the Audit Committee, and ten-year options to purchase 5,000 shares were
granted to each of Mr. Orr and Martin O'Dowd for service on the Compensation
Committee. All of the options had exercise prices of $4.50 per share. On
December 10, 1998, the options were repriced to $.75 per share.
Messrs. Krienik, O'Dowd and Orr each received ten-year options to purchase
25,000 shares when they became members of the Board in 1997. The options granted
to Messrs. Orr and Krienik had an exercise price of $3.34 a share and the
options granted to Mr. O'Dowd had an exercise price of $3.75 a share. On
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<PAGE> 52
December 10, 1998, all of the options were repriced to $.75 per share. Mr.
O'Dowd resigned from the Board on February 15, 1999.
CERTAIN TRANSACTIONS
In September 1998, Cafe Odyssey entered into a $3,000,000 revolving line of
credit facility with The Provident Bank. This credit facility is secured by the
leasehold improvements of Cafe Odyssey's Hotel Discovery restaurant in
Cincinnati, Ohio (the "Kenwood Restaurant"). In addition, Stephen King, Jerry
Ruyan and Greg Mosher, directors of Cafe Odyssey (Mr. Mosher has since resigned
as a director), entered into a joint and several guaranty of the first
$1,000,000 of Cafe Odyssey's borrowings under this credit facility. In
consideration of these guarantees, Cafe Odyssey issued 40,000 five-year warrants
to each of these individuals at an exercise price of $0.75 per share in November
1998. Messrs. King and Ruyan also each severally guaranteed another $500,000,
and in January 1999, a stockholder of Cafe Odyssey severally guaranteed another
$1,000,000, of such borrowings. All three guarantors pledged certain collateral
to the bank in connection with the latter guarantees. In exchange for such
guarantees and pledges of collateral, Cafe Odyssey issued 200,000 five-year
warrants to each of Messrs. King and Ruyan in November 1998, and 400,000
five-year warrants to the other third party in January 1999, all at an exercise
price of $0.75 per share. The Board of Directors of Cafe Odyssey also authorized
the issuance of additional warrants and the payment of cash penalties to the
three guarantors if the borrowings are not repaid in full by September 30, 1999.
This credit facility provides for monthly payments of interest accrued on the
outstanding unpaid principal balance at a rate equal to the Prime Rate, or 7.75%
as of January 3, 1999. As of April 2, 1999, Cafe Odyssey has borrowed $3,000,000
under this credit facility.
Mr. King personally guaranteed a $1,000,000 leasehold mortgage term loan
from PNC Bank, Ohio to Cafe Odyssey which was used for the Kenwood Restaurant.
Principal and interest were due monthly through February 1999, the final
maturity of the loan. The loan was repaid in full in September 1998 with
proceeds from the line of credit facility with The Provident Bank discussed in
the preceding paragraph.
On March 10, 1999, Cafe Odyssey entered into a promissory note for $825,000
with BankWindsor. The note is an unsecured revolving line of credit facility
which requires interest payments only. The note is due March 10, 2000. The note
is secured by personal guarantees, including a guarantee by Stephen King of
$175,000 of the indebtedness, and Cafe Odyssey issued five-year warrants to
purchase a total of 500,000 shares at $.75 a share to the guarantors in
consideration of the guarantees. Of these warrants, Mr. King received a warrant
to purchase 87,500 shares.
In March 1999, The Provident Bank loaned $962,500 to Mr. King, which funds
were pledged by Mr. King to Cuningham Group Construction Services, LLC to secure
a portion of Cafe Odyssey's indebtedness to Cuningham in connection with the
construction of Cafe Odyssey's restaurant in Denver, Colorado. The loan bears
interest at Provident's prime rate and matures on June 30, 1999. Cafe Odyssey
guaranteed Mr. King's indebtedness to Provident and also pledged to Provident
its leasehold interest in the Denver restaurant and its right to receive the
$962,500 balance of the tenant improvement allowance from the landlord of the
Denver restaurant. The loan will be repaid in connection with the landlord's
release of the tenant improvement allowance. In consideration of his borrowing
such funds and pledging the cash collateral, Cafe Odyssey issued a five-year
warrant to Mr. King to purchase 150,000 shares of common stock at an exercise
price of $1.00 per share.
Mr. King provided essentially all of Cafe Odyssey's working capital in the
development stage. At January 3, 1999, the maximum and outstanding amount of
Cafe Odyssey's indebtedness to Mr. King was $100,000. On April 21, 1999, Mr.
King made a $200,000 unsecured loan to Cafe Odyssey which is due on demand. The
loan bears interest at an annual rate of 18%.
During 1998, Krienik Advertising, Inc., an Ohio corporation whose
President, Chief Executive Officer and sole shareholder is Michael Krienik, a
director of Cafe Odyssey, provided marketing and advertising services to Cafe
Odyssey. Fees paid for these services, including payments for subcontracted
media, printing, production and research services, were $741,077 during 1998.
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<PAGE> 53
VOTING SECURITIES AND
PRINCIPAL HOLDERS THEREOF
Cafe Odyssey has outstanding one class of voting securities, common stock,
$0.01 par value, of which 8,813,159 shares were outstanding as of the close of
business on July 13, 1999. Each share of common stock is entitled to one vote on
all matters put to a vote of shareholders.
The following table sets forth certain information regarding beneficial
ownership of Cafe Odyssey's common stock as of July 13, 1999, by (i) each person
known by Cafe Odyssey to be the beneficial owner of more than 5% of the
outstanding common stock, (ii) each director, (iii) each executive officer named
in the Summary Compensation Table, and (iv) all executive officers and directors
as a group. Unless otherwise indicated, each of the following persons has sole
voting and investment power with respect to the shares of common stock set forth
opposite their respective names.
<TABLE>
<CAPTION>
PRIOR TO THE MERGER FOLLOWING THE MERGER
------------------------ -------------------------
NAME OF BENEFICIAL OWNER(1) NUMBER % OF CLASS NUMBER % OF CLASS**
- --------------------------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Stephen D. King.............................. 1,543,243(2) 16.3% 1,543,243.(2) 8.7%
James L. Anderson............................ 0 0 598,785(3) 3.4%
Ronald K. Fuller............................. 287,211(4) 3.2% 287,211(4) 1.7%
Mark D. Dacko................................ 0 * 0 *
Thomas W. Orr................................ 78,332(5) * 78,332 *
Michael L. Krienik........................... 128,332(6) 1.4% 128,332(6) *
115 W. 9th Street
Cincinnati, OH 45202
Jerry L. Ruyan............................... 511,750(7) 5.6% 511,750(7) 2.9%
10260 Alliance Road, Suite 350
Cincinnati, OH 45242
The Shaar Fund, Ltd.......................... 3,408,192(8) 28.9% 3,408,192(8) 16.9%
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
The Marcos A. and Sonya...................... 0 * 8,707,842(9) 33.6%
Nance Rodriguez Children's Trust No. 2
c/o Trustee
1333 Corporate Drive, Suite 350
Irving, TX 75038
All executive officers and directors as a
group (six persons)........................ 2,548,868(10) 25.4% 3,147,653(11) 13.8%
</TABLE>
- ---------------
* Less than 1%.
** Assumes consummation of the Merger, issuance of Cafe Odyssey securities
pursuant to the terms of the Merger Agreement and conversion of all of
the Series B Convertible Preferred Stock issued in the Merger into Cafe
Odyssey common stock at an estimated conversion ratio equal to 4,139.9:1,
which ratio cannot be accurately determined until the Effective Time, and
is therefore subject to adjustment.
(1) Unless otherwise indicated, the address of each person is 4801 West 81st
Street, Suite 112, Bloomington, MN 55437.
(2) Includes 165,743 shares as to which Mr. King holds options to purchase
from various individuals which are currently exercisable and 477,500
shares issuable upon exercise of warrants which are currently exercisable.
(3) Assumes consummation of the Merger, issuance of Cafe Odyssey securities
pursuant to the terms of the Merger Agreement and conversion of all of the
Series B Convertible Preferred Stock issued in the Merger into Cafe
Odyssey common stock at an estimated conversion ratio equal to 4,139.9:1,
which ratio cannot be accurately determined until the Effective Time, and
is therefore subject to adjustment. Mr. Anderson holds an irrevocable
proxy to vote all of the Cafe Odyssey Common Shares to be held by
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<PAGE> 54
Popmail Stockholders upon consummation of the Merger. Mr. Anderson will
also hold an irrevocable proxy to vote all of the Cafe Odyssey Common
Shares to be held by Messrs. King, Ruyan, and Fuller pending the
consummation of the merger. Mr. Anderson disclaims beneficial interest in
all such shares. Also includes 184,798 shares issuable upon exercise of
options and warrants exercisable currently or within 60 days of the Record
Date.
(4) Includes 141,666 shares issuable upon exercise of options exercisable
currently or within 60 days of the Record Date. Also includes 1,000 shares
owned and 1,000 shares issuable upon exercise of warrants owned by Mr.
Fuller's wife, and 2,000 shares owned and 2,000 shares issuable upon
exercise of warrants owned by his children. Mr. Fuller disclaims
beneficial ownership of such shares.
(5) Includes 50,332 shares issuable upon exercise of options exercisable
currently or within 60 days of the Record Date.
(6) Represents shares issuable upon exercise of options exercisable currently
or within 60 days of the Record Date.
(7) Includes 276,000 shares issuable upon exercise of options and warrants
exercisable currently or within 60 days of the Record Date.
(8) Includes 600,000 shares issuable upon exercise of currently exercisable
warrants. Also includes a maximum of 920,316 shares of common stock (i)
issuable upon conversion of the Series A 8% Convertible Preferred Stock,
based upon the conversion factor and current market price of the common
stock; and (ii) issuable as payment of dividends, within 60 days. Also
includes (i) an estimate of the number of shares of common stock issuable
upon conversion of the Series C 8% Convertible Preferred Stock, based upon
the conversion factor and current market price of the common stock; and
(ii) the number of shares payable in dividends within 60 days.
Additionally, pursuant to the Merger Agreement, at the Effective Time
Legacymaker has the right to acquire convertible securities substantially
equivalent to the convertible securities held by The Shaar Fund, Ltd.
(9) Assumes consummation of the Merger, issuance of Cafe Odyssey securities
pursuant to the terms of the Merger Agreement and conversion of all of the
Series B Convertible Preferred Stock issued in the Merger into Cafe
Odyssey common stock at an estimated conversion ratio equal to 4,139.9;1,
which ratio cannot be accurately determined until the Effective Time, and
is therefore subject to adjustment. Also includes 2,706,292 shares
issuable upon exercise of options and warrants exercisable currently or
within 60 days of the Record Date.
(10) Includes 1,242,573 shares issuable upon exercise of options and warrants
exercisable currently or within 60 days of the Record Date.
(11) Assumes conversion of all of the Series B Convertible Preferred Stock into
common stock at an estimated conversion ratio equal to 4,139.9:1, which
ratio cannot be accurately determined until the Effective Time, and is
therefore subject to adjustment. Also includes 1,427,371 shares issuable
upon exercise of options and warrants exercisable currently or within 60
days of the Record Date.
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DESCRIPTION OF CAPITAL STOCK
CAPITAL STOCK
Cafe Odyssey's authorized capital consists of 100,000,000 shares of capital
stock, of which 99,993,000 shares consist of undesignated Common Stock, $.01 par
value per share, 2,000 shares have been designated as Series A 8% Convertible
Preferred Stock (the "Series A Shares"), $.01 par value per share, and 5,000
shares have been designated as Series B Convertible Preferred Stock, $.01 par
value per share (the "Series B Shares"). Cafe Odyssey's Board of Directors,
without any action by the shareholders, may designate and issue shares in such
classes or series (including classes or series or preferred stock) as it deems
appropriate and establish the rights, preferences and privileges of such shares,
including par values, dividends, liquidation and voting rights. As of the Record
Date, there were 8,379,101 shares of Common Stock and 2,000 shares of Series A
8% Convertible Preferred Stock issued and outstanding. Pursuant to the Merger,
Cafe Odyssey will issue 2,024 Series B Shares, as adjusted pursuant to the terms
of the Merger Agreement.
COMMON STOCK
Each share of Common Stock is entitled to one vote for all purposes and
cumulative voting is not permitted in the election of directors. Significant
corporate transactions, such as amendments to the articles of incorporation,
mergers, sales of assets and dissolution or liquidation, require approval by the
affirmative vote of the majority of the outstanding shares of Common Stock.
Other matters to be voted upon by the holders of Common Stock normally require
the affirmative vote of a majority of the shares present at the particular
stockholders' meeting. There are no preemptive, subscription, conversion or
redemption rights pertaining to the Common Stock. The absence of preemptive
rights could result in a dilution of the interest of existing shareholders
should additional shares of Common Stock be issued. Holders of the Common Stock
are entitled to receive such dividends as may be declared by the Board of
Directors out of assets legally available therefor, and to share ratably in the
assets of Cafe Odyssey available upon liquidation.
The rights of holders of the shares of Common Stock may currently be, and
may in the future become, subject to prior and superior rights and preferences
in the event that the Board of Directors establishes one or more additional
classes of Common Stock or one or more series of Preferred Stock. With the
exception of the Series B Shares to be issued in connection with the Merger, the
Board of Directors has no present plan to establish any such class or series.
SERIES A 8% CONVERTIBLE PREFERRED STOCK
Voting. No holder of Series A has any voting power, except as otherwise
provided by the MBCA. Notwithstanding the foregoing, Cafe Odyssey may not amend
the rights, preferences, or privileges of the Series A Shares, create a new
class or series of capital stock having a liquidation preference over the Series
A Shares, or increase the authorized number of Series A Shares without obtaining
the prior approval of the holders of a majority of the then outstanding Series A
Shares. To the extent that a vote of the holders of the Series A Shares is
required under the MBCA, an affirmative vote of the holders of a majority of the
then outstanding Series A Shares constitutes approval of the matter upon which
the vote is being taken.
Conversion. The Series A Shares may be converted, in whole or in part, at
any time into shares of Common Stock at a conversion price per share equal to
65% of the market price, subject to adjustment (the "Series A Conversion
Price"). Upon such conversion, Cafe Odyssey may elect to pay all accrued and
unpaid dividends in cash or Common Stock. The number of shares of Common Stock
due upon conversion of Series A Shares is the number of Series A Shares
converted, multiplied by the stated value per shares of $1,000, and divided by
the Series A Conversion Price. Cafe Odyssey will pay cash in lieu of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of Series A Shares.
Cafe Odyssey may redeem the Series A Shares, in cash, at 135% of their
stated value, together with all accrued and unpaid dividends thereon to date. On
May 14, 2004, Cafe Odyssey must convert all Series A Shares still outstanding at
the Conversion Price.
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To the extent that the conversion of any Series A Shares would result in
the holder of such shares becoming a beneficial owner of more than 5% of the
then outstanding shares of Common Stock, such holder does not have the right and
Cafe Odyssey does not have the obligation to convert such Series A Shares. In
addition, Cafe Odyssey may not, without shareholder approval, issue shares of
Common Stock as a dividend or upon conversion of Series A Shares if such
issuance, when added to the number of shares of Common Stock previously issued
as a dividend or upon conversion of the Series A Shares or upon the exercise of
certain warrants issued pursuant to the Securities Purchase Agreement, dated May
14, 1999, between Cafe Odyssey and The Shaar Fund, would equal or exceed 20% of
the number of shares of Common Stock outstanding on May 14, 1999 (the "Maximum
Issuance Amount"). In such event, Cafe Odyssey will convert the Series A Shares
not in excess of the Maximum Issuance Amount and redeem the remaining Series A
Shares in cash at a price equal to 125% of their stated value.
Dividends. Dividends on the Series A Shares accrue at the annual rate of
8%, are cumulative and, at the option of Cafe Odyssey, are payable in cash or
through the issuance of Common Stock. All cumulative dividends on the Series A
Shares must be paid before any dividends may be paid on the Common Stock or any
Common Stock may be redeemed, purchased, or otherwise acquired by Cafe Odyssey
for any consideration. Unless full cumulative dividends on the Series A Shares
have been paid, no dividends shall be paid on any class or series of capital
stock ranking on parity with the Series A Shares ("Pari Passu Securities"). If
dividends on the Series A Shares are not paid in full, all dividends declared on
the Series A Shares and Pari Passu Securities shall be declared ratably in
proportion to the respective amounts of dividends accumulated and unpaid on the
Series A Shares and the Pari Passu Securities.
If Cafe Odyssey pays a stock dividend on the Common Shares, the Board of
Directors must pay as stock dividend to the each holder of Series A Shares then
outstanding that number of Common Shares that such holder of Series A Shares
would have received had such holder converted all of its then outstanding Series
A Shares and exercised the Series A Warrant in full immediately prior to the
stock dividend.
Liquidation Preference. The Series A Shares have a liquidation preference
per share equal to the 130% of the stated value of $1,000 per share plus
accumulated and unpaid dividends (the "Series A Liquidation Value"). If assets
or funds available for distribution are insufficient to pay all of the Series A
Liquidation Value, then the entire assets and funds of Cafe Odyssey shall be
distributed ratably among the holders of Series A Shares and any Pari Passu
Securities in the proportion that the liquidation preference payable on each
such share bears to the aggregate liquidation preference payable on all such
shares.
Upon a sale or disposition of all of the assets of Cafe Odyssey, the
disposition of 50% or more of the voting power of Cafe Odyssey (excluding the
Merger), or a merger transaction in which Cafe Odyssey is not the surviving
corporation, each holder of Series A Shares may (i) require Cafe Odyssey to
distribute to such holder an amount equal to 120% of the Series A Liquidation
Value if at least half of the holders of Series A Shares so elect, or (ii)
require Cafe Odyssey to pay to such holder all accrued and unpaid dividends.
SERIES B CONVERTIBLE PREFERRED STOCK
Voting. Each Series B Share entitles the holder of record to one vote on
all matters submitted to the holders of the Common Stock for each share of
Common Stock into which such Series B Share would be converted if converted on
the date of such vote. In addition, Cafe Odyssey may not alter, change, or amend
the preferences or rights of the Series B Shares without first obtaining the
approval of the holders of at least a majority of the then outstanding. Series B
Shares.
Conversion. The Series B Shares may be converted, in whole or in part, at
any time into shares of Common Stock at a rate per Series B Share equal to (i)
the number of shares of Common Stock outstanding immediately prior to the
Effective Time (excluding shares issued upon an exercise or conversion of the
Series A Preferred Shares and the Class A warrants which are exchangeable for
Common Stock and which are exercised after May 3, 1999, but prior to the
Effective Time, divided by (ii) 2,024 (the "Series B Conversion Ratio"). The
Series B Conversion Ratio will be adjusted appropriately upon the occurrence of
a consolidation merger, or exchange, or in the event of a stock split, a stock
dividend, or a recapitalization. Cafe
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Odyssey will pay cash in lieu of any fractional shares of Common Stock which
would otherwise be issuable upon conversion of the Series B Shares.
Dividends. If Cafe Odyssey pays any dividends on its Common Stock or other
capital stock, other than dividends payable solely in shares of Common Stock,
Cafe Odyssey shall at the same time pay to the holders of the Series B Shares
the dividends which would have been paid with respect to the Common Stock
issuable upon conversion of the Series B Shares had all of the outstanding
Series B Shares been converted immediately prior to the record date for such
dividend.
Liquidation Preference. The Series B Shares have a per share liquidation
preference equal to the quotient of (a) $20,000,000 divided by (b) the number of
Series B Shares originally outstanding (the "Series B Liquidation Value"). If
the assets of Cafe Odyssey are insufficient to pay all of the Series B
Liquidation Value, the holders of such Series B Shares shall share pro rata in
any such distribution in proportion to the full amounts to which they would
otherwise be respectively entitled. Following such payment to the holders of the
Series B Shares, the holders of Common Stock and Series B Shares shall then
share ratably in all the assets of Cafe Odyssey thereafter remaining. For
purposes of this joint distribution of assets to the holders of Common Stock and
the holders of Series B Shares, each holder of Series B Shares should be
regarded as owning that number of shares of Common Stock into which such Series
B Shares would then be convertible.
SERIES C 8% CONVERTIBLE PREFERRED STOCK
Voting. No holder of Series C shares has any voting power, except as
otherwise provided by the MBCA. Notwithstanding the foregoing, Cafe Odyssey may
not amend the rights, preferences, or privileges of the Series C Shares, create
a new class or series of capital stock having a liquidation preference over the
Series C Shares, or increase the authorized number of Series C Shares without
obtaining the prior approval of the holders of a majority of the then
outstanding Series C Shares. To the extent that a vote of the holders of the
Series C Shares is required under the MBCA, an affirmative vote of the holders
of a majority of the then outstanding Series C Shares constitutes approval of
the matter upon which the vote is being taken.
Conversion. The Series C Shares may be converted, in whole or in part, at
any time into shares of Common Stock at a conversion price per share equal to
65% of the market price, subject to adjustment (the "Series C Conversion
Price"). Upon such conversion, Cafe Odyssey may elect to pay all accrued and
unpaid dividends in cash or Common Stock. The number of shares of Common Stock
due upon conversion of Series C Shares is the number of Series C Shares
converted, multiplied by the stated value per shares of $1,000, and divided by
the Series C Conversion Price. Cafe Odyssey will pay cash in lieu of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of Series C Shares.
Cafe Odyssey may redeem the Series C Shares, in cash, at 135% of their
stated value, together with all accrued and unpaid dividends thereon to date. On
July 13, 2004, Cafe Odyssey must convert all Series C Shares still outstanding
at the Conversion Price.
To the extent that the conversion of any Series C Shares would result in
the holder of such shares becoming a beneficial owner of more than 5% of the
then outstanding shares of Common Stock, such holder does not have the right and
Cafe Odyssey does not have the obligation to convert such Series C Shares. In
addition, Cafe Odyssey may not, without shareholder approval, issue shares of
Common Stock as a dividend or upon conversion of Series C Shares if such
issuance, when added to the number of shares of Common Stock previously issued
as a dividend or upon conversion of the Series C Shares or upon the exercise of
certain warrants issued pursuant to the Securities Purchase Agreement, dated
July 13, 1999, between Cafe Odyssey and The Shaar Fund, would equal or exceed
20% of the number of shares of Common Stock outstanding on July 13, 1999 (the
"Maximum Series C Issuance Amount"). In such event, Cafe Odyssey will convert
the Series C Shares not in excess of the Maximum Series C Issuance Amount and
redeem the remaining Series C Shares in cash at a price equal to 125% of their
stated value.
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Dividends. Dividends on the Series C Shares accrue at the annual rate of
8%, are cumulative and, at the option of Cafe Odyssey, are payable in cash or
through the issuance of Common Stock. All cumulative dividends on the Series C
Shares must be paid before any dividends may be paid on the Common Stock or any
Common Stock may be redeemed, purchased, or otherwise acquired by Cafe Odyssey
for any consideration. Unless full cumulative dividends on the Series C Shares
have been paid, no dividends shall be paid on any class or series of capital
stock ranking on parity with the Series C Shares ("Pari Passu Series C
Securities"). If dividends on the Series C Shares are not paid in full, all
dividends declared on the Series C Shares and Pari Passu Series C Securities
shall be declared ratably in proportion to the respective amounts of dividends
accumulated and unpaid on the Series C Shares and the Pari Passu Series C
Securities.
If Cafe Odyssey pays a stock dividend on the Common Shares, the Board of
Directors must pay as stock dividend to the each holder of Series C Shares then
outstanding that number of Common Shares that such holder of Series C Shares
would have received had such holder converted all of its then outstanding Series
C Shares and exercised the Series C Warrant in full immediately prior to the
stock dividend.
Liquidation Preference. The Series C Shares have a liquidation preference
per share equal to the 130% of the stated value of $1,000 per share plus
accumulated and unpaid dividends (the "Series C Liquidation Value"). If assets
or funds available for distribution are insufficient to pay all of the Series C
Liquidation Value, then the entire assets and funds of Cafe Odyssey shall be
distributed ratably among the holders of Series C Shares and any Pari Passu
Securities in the proportion that the liquidation preference payable on each
such share bears to the aggregate liquidation preference payable on all such
shares.
Upon a sale or disposition of all of the assets of Cafe Odyssey, the
disposition of 50% or more of the voting power of Cafe Odyssey (excluding the
Merger), or a merger transaction in which Cafe Odyssey is not the surviving
corporation, each holder of Series C Shares may (i) require Cafe Odyssey to
distribute to such holder an amount equal to 120% of the Series C Liquidation
Value if at least half of the holders of Series C Shares so elect, or (ii)
require Cafe Odyssey to pay to such holder all accrued and unpaid dividends.
ELECTION OF CAFE ODYSSEY BOARD OF DIRECTORS
At the Annual Meeting, five directors are to be elected to hold office
until the next Annual Meeting of Shareholders, or until his successor is elected
and qualified.
Stephen D. King
Ronald K. Fuller
Michael L. Krienik
Thomas W. Orr
Jerry L. Ruyan
All of the nominees have served as directors since the last Annual Meeting.
The names and ages of the nominees, and their principal occupations and tenure
as directors, as previously set forth in the Proxy Statement, are based upon
information furnished to Cafe Odyssey by such nominees. All of the persons
listed below have consented to serve as a director, if elected.
INFORMATION CONCERNING DIRECTORS
The Board of Directors held five meetings during 1998 and took action by
written action in lieu of a meeting 17 times.
On September 25, 1997, the Board constituted an Audit Committee and
appointed Michael Krienik and Thomas Orr as members of that committee. The Audit
Committee reviews the financial affairs of Cafe Odyssey and the annual financial
statements relating to the internal and external audit of Cafe Odyssey's books
and accounts. The Audit Committee met once in 1998.
On February 25, 1998, the Board constituted a Compensation Committee and
appointed Mr. Orr and Martin O'Dowd as members. The Compensation Committee
approves offers of employment and merit pay increases to all employees whose
annual base salaries exceed $50,000, administer stock-based compensation
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plans, approve incentive compensation plans and performance targets identified
in those plans, review and make recommendations with respect to Cafe Odyssey's
remuneration policies and approve compensation for Board and committee service
by outside directors. Mr. O'Dowd resigned from the Board on February 15, 1999.
On March 12, 1999, the Board appointed Michael Krienik to serve on the
Compensation Committee. The Compensation Committee met once in 1998.
AMENDMENT TO THE ARTICLES OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY TO
POPMAIL.COM, INC.
Subsequent to its execution of the Merger Agreement, Cafe Odyssey began
negotiating with two other internet-related entities. Shareholders are not being
asked to vote on either of these transactions; however, in light of the recent
change in Cafe Odyssey's strategic focus, the Board of Directors believes that
it will be in the best interest of Cafe Odyssey to amend its Articles of
Incorporation and change its name from Cafe Odyssey, Inc. to PopMail.com, inc.
The Board believes that this new name will better reflect the expanding nature
of Cafe Odyssey's business, which, as a result of the above-referenced
transactions, will combine Cafe Odyssey's previous focus on serving
award-winning food in a unique environment of adventure, imagination,
exploration and innovation with the provision of email services,
permission-based email marketing, and branded web-based email in the fields of
radio, television, newspaper and sports/entertainment.
In conjunction with this action, Cafe Odyssey's Board of Directors approved
a change in its corporate name from Cafe Odyssey, Inc. to PopMail.com, inc.,
subject to and contingent upon (i) shareholder approval and (ii) the
effectiveness of the Merger as contemplated by the Merger Agreement previously
discussed in detail in this Proxy Statement.
The Board of Directors is requesting approval by the shareholders of an
amendment to Article 1 of Cafe Odyssey's Articles of Incorporation changing the
name of Cafe Odyssey from Cafe Odyssey, Inc. to PopMail.com, inc.
Approval of the resolution amending the Articles of Incorporation requires
the affirmative vote of the holders of a majority of the shares of the
outstanding Cafe Odyssey common stock represented in person or by proxy and
entitled to vote at the Annual Meeting.
Shares of Cafe Odyssey stock represented by a proxy properly signed and
received at or prior to the Annual Meeting, unless subsequently revoked, will be
voted in accordance with the instructions thereon. If a proxy is signed and
returned without indicating any voting instructions, shares of Cafe Odyssey
stock represented by the proxy will be voted for the Proposal and the
transactions contemplated thereby.
For voting purposes at the Annual Meeting, only shares affirmatively voted
in favor of amending Cafe Odyssey's Articles of Incorporation to change the name
of Cafe Odyssey from Cafe Odyssey, Inc. to PopMail.com, inc. (including properly
executed proxies not containing voting instructions) will be counted as
favorable votes for such proposal. The failure to submit a proxy (or to vote in
person) or the abstention from voting will have the same effect as a vote
against such proposal.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE AMENDMENT
AND RECOMMENDS A VOTE FOR THIS PROPOSAL.
OTHER MATTERS
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP acted as Cafe Odyssey's independent public accountants
during the fiscal years ended December 31, 1995 and December 29, 1996. On
February 4, 1998, Cafe Odyssey dismissed Ernst & Young LLP as its independent
accountants and engaged Arthur Andersen LLP as Cafe Odyssey's independent public
accountants to audit Cafe Odyssey's financial statements for the fiscal year
ended
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December 28, 1997. The Audit Committee of Cafe Odyssey's Board of Directors
participated in and approved the decision to change independent accountants.
The reports of Ernst & Young LLP on Cafe Odyssey's financial statements for
the most recent two fiscal years for which that firm audited such financial
statements, the most recent of which was the fiscal year ended December 29,
1996, contained no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
During the 1995 and 1996 fiscal years and the subsequent period preceding the
dismissal of that firm, there were no disagreements with Ernst & Young LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of Ernst & Young LLP would have caused them to make
reference thereto in their report on the financial statements for such years.
During the 1995 and 1996 fiscal years and the subsequent period preceding the
dismissal of that firm, there were no reportable events.
During Cafe Odyssey's two most recent fiscal years prior to engaging Arthur
Andersen LLP, Cafe Odyssey did not consult with Arthur Andersen LLP on any item
regarding (1) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on Cafe Odyssey's financial statements, or (2) the subject
matter of a disagreement or reportable event with the former independent
accountants.
The report of Arthur Andersen LLP on Cafe Odyssey's financial statements as
of and for the years ended January 3, 1999 and December 28, 1997 included the
statement that such financial statements had been prepared assuming that Cafe
Odyssey will continue as a going concern, but that Cafe Odyssey's recurring
losses from operations and net working capital deficit raised substantial doubt
about Cafe Odyssey's ability to continue as a going concern. The report
continued that the financial statements as presented do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
Cafe Odyssey be unable to continue as a going concern.
A representative of Arthur Andersen LLP is expected to attend this year's
Annual Meeting of Shareholders and will be available to respond to appropriate
questions from shareholders.
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires Cafe
Odyssey's officers and directors, and persons who own more than 10% of a
registered class of Cafe Odyssey's equity securities, to file reports of
ownership and changes in ownership of such securities with the Securities and
Exchange Commission and Nasdaq. Officers, directors and greater than ten per
cent shareholders are required by SEC regulations to furnish the Cafe Odyssey
with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to Cafe
Odyssey, or written representations that no Forms 5 were required, Cafe Odyssey
believes that during the year ended January 3, 1999 all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten per cent
beneficial owners were complied with.
PROPOSALS OF SHAREHOLDERS
Any shareholder who desires to submit a proposal for action by the
shareholders at the next annual meeting must submit such proposal in writing to
Stephen D. King, Chairman, Cafe Odyssey, Inc., 4801 West 81st Street, Suite 112,
Bloomington, Minnesota 55437 by February 3, 2000. Due to the complexity of the
respective rights of the shareholders and the Cafe Odyssey in this area, any
shareholder desiring to propose such an action is advised to consult with his or
her legal counsel with respect to such rights. It is suggested that any such
proposal be submitted by certified mail, return receipt requested.
On May 21, 1998, the SEC adopted an amendment to Rule 14a-4, as promulgated
under the Securities and Exchange Act of 1934. The amendment to 14a-4(c)(1)
governs Cafe Odyssey's use of its discretionary proxy voting authority with
respect to a shareholder proposal which the stockholder has not sought to
include in Cafe Odyssey's proxy statement. The new amendment provides that if a
proponent of a proposal fails to
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notify Cafe Odyssey at least 45 days before the date of mailing of the prior
year's proxy statement, then the management proxies will be allowed to use their
discretionary voting authority when the proposal is raised at the meeting,
without any discussion of the matter in the proxy statement.
With respect to Cafe Odyssey's 2000 Annual Meeting of Shareholders, if Cafe
Odyssey is not provided notice of a stockholder proposal which the stockholder
has not previously sought to include in Cafe Odyssey's proxy statement by March
17, 2000, the management proxies will be allowed to use their discretionary
authority as outlined above.
The Board of Directors does not intend to present to the meeting any other
matter not referred to above and does not presently know of any matters that may
be presented to the meeting by others. However, if other matters come before the
meeting, it is the intent of the persons named in the enclosed proxy to vote the
proxy in accordance with their best judgment.
By Order of the Board of Directors
/s/ Mark D. Dacko
Mark D. Dacko
Secretary
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF
JUNE 1, 1999
AMONG
CAFE ODYSSEY, INC.,
STEPHEN D. KING,
POPMAIL.COM, INC.,
ALL OF THE HOLDERS OF COMMON STOCK OF POPMAIL.COM, INC.
AND
CAFE ODYSSEY ACQUISITION SUBSIDIARY, INC.
<PAGE> 63
TABLE OF CONTENTS
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ARTICLE I
THE MERGER AND RELATED MATTERS.......................................... 2
1.01 The Merger.................................................. 2
1.02 Effective Time of the Merger................................ 2
1.03 Conversion of Common Shares................................. 3
1.04 Exchange of Company Common Shares........................... 3
1.05 Closing into Escrow; the Escrow Account..................... 4
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................... 5
2.01 Limitation on Representations and Warranties................ 5
2.02 Incorporation and Corporate Power........................... 6
2.03 Execution and Delivery; Valid and Binding Agreements........ 6
2.04 No Breach................................................... 6
2.05 Value of the Company........................................ 6
2.06 Governmental Authorities; Consents.......................... 7
2.07 Capital Stock............................................... 7
2.08 Subsidiaries................................................ 7
2.09 Financial Statements........................................ 7
2.10 Absence of Undisclosed Liabilities.......................... 7
2.11 No Material Adverse Changes................................. 8
2.12 Title to Property........................................... 8
2.13 Tax Matters................................................. 8
2.14 Contracts and Commitments................................... 9
2.15 Intellectual Property Rights................................ 10
2.16 Litigation.................................................. 10
2.17 Employees................................................... 10
2.18 Employee Benefit Plans...................................... 10
2.19 Insurance................................................... 11
2.20 Affiliate Transactions...................................... 11
2.21 Compliance with Laws; Permits............................... 12
2.22 Tax-Free Reorganization Matters............................. 12
2.23 Brokerage................................................... 12
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUBSIDIARY........... 12
3.01 Incorporation and Corporate Power........................... 12
3.02 Execution, Delivery; Valid and Binding Agreement............ 13
3.03 No Breach................................................... 13
3.04 Value of the Company........................................ 13
3.05 Governmental Authorities; Consents.......................... 13
3.06 Capital Stock............................................... 13
3.07 Financial Statements........................................ 13
3.08 Absence of Undisclosed Liabilities.......................... 14
3.09 No Material Adverse Changes................................. 14
3.10 Tax Matters................................................. 14
3.11 Litigation.................................................. 15
3.12 Employees................................................... 15
3.13 Employee Benefit Plans...................................... 15
3.14 Compliance with Laws; Permits............................... 16
3.15 SEC Filings................................................. 16
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3.16 Brokerage................................................... 17
3.17 Validity of Buyer Preferred and Common Shares and Buyer 17
Warrant.....................................................
3.18 Tax-Free Reorganization Matters............................. 17
3.19 Investor Relations Firm..................................... 18
ARTICLE 4
COVENANTS OF THE COMPANY................................................ 18
4.01 Conduct of the Business..................................... 18
4.02 Access to Books and Records................................. 19
4.03 Regulatory Filings.......................................... 19
4.04 Conditions.................................................. 19
4.05 No Negotiations, etc........................................ 19
ARTICLE 5
COVENANTS OF BUYER...................................................... 20
5.01 Conduct of the Business..................................... 20
5.02 Regulatory Filings.......................................... 21
5.03 Conditions.................................................. 21
5.04 Repayment of Indebtedness................................... 21
5.05 Nasdaq Listing.............................................. 21
5.06 Publicizing Merger.......................................... 21
5.07 Registration of Buyer Common Shares......................... 21
5.08 Tax-Free Reorganization..................................... 22
5.09 Employee and Employee Benefit Plan Matters.................. 22
5.10 Indemnification............................................. 22
5.11 Performance by Merger Subsidiary............................ 22
ARTICLE 6
CONDITIONS TO CLOSING................................................... 22
6.01 Conditions to Buyer's Obligations........................... 22
6.02 Conditions to the Company's Obligations..................... 24
ARTICLE 7
TERMINATION AND REMEDIES................................................ 26
7.01 Termination................................................. 26
7.02 Effect of Termination....................................... 26
7.03 Arbitration................................................. 27
7.04 Remedies.................................................... 27
7.05 Litigation Expense.......................................... 27
ARTICLE 8
ADDITIONAL AGREEMENTS................................................... 27
8.01 Powers of Attorney.......................................... 27
8.02 Officers of Surviving Corporation........................... 27
8.03 Options, etc. Issued by Buyer after May 3, 1999............. 27
8.04 The Company's Corporate Books............................... 27
8.05 Securities and Blue Sky Laws................................ 27
8.06 Tax Matters................................................. 28
8.07 Advance to the Company...................................... 28
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ARTICLE 9
SURVIVAL; INDEMNIFICATION............................................... 28
9.01 Survival of Representations and Warranties.................. 28
9.02 Indemnification of Company Indemnitees...................... 28
9.03 Procedure for Indemnification of the Company Indemnitees.... 28
9.04 Indemnification Threshold................................... 29
9.05 Adjustment for Taxes and Insurance.......................... 29
ARTICLE 10
MISCELLANEOUS........................................................... 29
10.01 Press Releases and Announcements............................ 29
10.02 Expenses.................................................... 29
10.03 Further Assurances.......................................... 29
10.04 Amendment and Waiver........................................ 29
10.05 Notices..................................................... 29
10.06 Assignment.................................................. 30
10.07 Severability................................................ 30
10.08 Complete Agreement.......................................... 30
10.09 Counterparts................................................ 30
10.10 Governing Law............................................... 30
</TABLE>
EXHIBITS INTENTIONALLY OMITTED
iv
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of June 1, 1999 among Cafe Odyssey,
Inc., a Minnesota corporation ("BUYER"), Stephen D. King ("King"), popmail.com,
inc., a Delaware corporation (the "COMPANY"), each of the holders of common
stock of the Company on the date hereof and Cafe Odyssey Acquisition Subsidiary,
Inc., a Delaware corporation and a wholly-owned subsidiary of Buyer ("MERGER
SUBSIDIARY").
A. The respective Boards of Directors of Buyer, the Company and Merger
Subsidiary have approved the acquisition of the Company pursuant to the terms of
this Agreement.
B. The respective Boards of Directors of Merger Subsidiary and the Company
have each duly approved the merger of Merger Subsidiary and the Company (the
"MERGER") in accordance with the Delaware General Corporation Law upon the terms
and subject to the conditions set forth below.
C. The Board of Directors of Buyer has determined to recommend to the
shareholders of Buyer that it is advisable and in the best interests of Buyer
and its shareholders to approve the Merger.
D. The parties hereto desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger.
E. The parties intend that the Merger shall be treated for United States
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986 (the "CODE") and that this
Agreement, as it relates to the Merger, shall constitute a "plan of
reorganization" within the meaning of Treasury Regulation ss. 1.368-3.
F. Each of the Company Shareholders (defined below) on the date hereof
approves of this Agreement and the Merger.
ARTICLE I
THE MERGER AND RELATED MATTERS
Accordingly, and in consideration of the representations, warranties,
agreements and conditions herein contained, the parties hereto agree as follows:
1.01 The Merger.
(a) Subject to the terms and conditions of this Agreement, at the
Effective Time (as hereinafter defined), the Company shall be merged with
and into Merger Subsidiary, the separate existence of the Company shall
cease (except as may be continued by operation of law) and Merger
Subsidiary shall continue as the surviving corporation (the "SURVIVING
CORPORATION").
(b) From and after the Effective Time, (i) the Certificate of
Incorporation of Merger Subsidiary, as in effect immediately prior to the
Effective Time and as amended in accordance with clause (iv) below, shall
be the Certificate of Incorporation of the Surviving Corporation (ii) the
Bylaws of the Surviving Corporation shall be the Bylaws of Merger
Subsidiary as in effect immediately prior to the Effective Time; (iii) the
directors and officers of Merger Subsidiary shall become the directors and
officers of the Surviving Corporation at and as of the Effective Time
(retaining their respective positions and terms of office); and (iv) the
Certificate of Incorporation of Merger Subsidiary shall be amended as of
the Effective Time so that the name of the Surviving Corporation shall be
the name of the Company immediately prior to the Effective Time.
1.02 Effective Time of the Merger. As soon as practicable after each of the
conditions set forth in Section 1.06(c) and Article 6 hereof (other than the
condition that articles of merger be filed and become effective) have been
satisfied or waived, the Company and Merger Subsidiary will file, or cause to be
filed, articles of merger with the Secretary of State of the State of Delaware,
which articles of merger shall be in the form required by and executed in
accordance with the applicable provisions of Delaware law (the "CERTIFICATE
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OF MERGER"). The Merger shall become effective at the time the Certificate of
Merger is filed with the Secretary of State of the State of Delaware (the
"EFFECTIVE TIME").
1.03 Conversion of Common Shares.
(a) At the Effective Time, each share of common stock of the Company,
par value $.01 per share (a "COMPANY COMMON SHARE"), issued and outstanding
immediately prior thereto shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into the right to
receive from Buyer each of
(i) one (1) share of Buyer's Series B Convertible Preferred Stock
(the "BUYER PREFERRED SHARES"), and
(ii) a fraction of a warrant in a form mutually acceptable to Buyer
and the Company Shareholders (the "BUYER WARRANT") to purchase Buyer's
common stock, par value $.01 per share ("BUYER COMMON SHARES"),
providing the economic equivalent of all options, warrants and other
securities exchangeable for, or convertible into, Buyer Common Shares,
which options, warrants or other securities are outstanding on May 3,
1999 (excluding Buyer's Redeemable Class A Warrants), such fraction
having a numerator equal to 1 (one) and a denominator equal to the total
number of Company Common Shares outstanding at the Effective Time.
The sum of (i) and (ii) may be referred to herein as the "MERGER CONSIDERATION."
(b) At and as of the Effective Time, the holders of certificates
representing Company Common Shares at the Effective Time (collectively, the
"COMPANY SHAREHOLDERS") shall cease to have any rights as shareholders of
the Company, except such rights, if any, as they may have pursuant to
Delaware law. Except as provided above, until certificates representing
Company Common Shares are surrendered for exchange, each such certificate
shall, after the Effective Time, represent for all purposes only the right
to receive the Merger Consideration, as provided above.
(c) On the Closing Date (as defined in Section 1.05), the Board of
Directors of Buyer shall file a Certificate of Designation for the Buyer
Preferred Shares with the Secretary of State of the State of Delaware
setting forth the powers, preferences, rights, qualifications, limitations
and restrictions of the Buyer Preferred Shares in the form set forth as
EXHIBIT A, and shall reserve for issuance a sufficient number of shares of
Buyer Preferred Shares for the purpose of issuing such shares to the
Company Shareholders in accordance herewith and a sufficient number of
Buyer Common Shares for the purpose of issuing such shares upon conversion
of the Buyer Preferred Shares. Such Certificate of Designation shall
provide that the Buyer Preferred Shares are convertible, in the aggregate,
into a number of Buyer Common Shares determined by the following formula:
<TABLE>
<CAPTION>
NUMBER OF BUYER PREFERRED SHARES OUTSTANDING NUMBER OF BUYER COMMON SHARES OUTSTANDING
IMMEDIATELY AFTER THE EFFECTIVE TIME IMMEDIATELY AFTER THE EFFECTIVE TIME
- -------------------------------------------- X -----------------------------------------
<S> <C>
2,024
</TABLE>
(d) If, between the date of this Agreement and the Effective Time, the
outstanding number of Buyer Preferred Shares or Buyer Common Shares shall
have been changed into a different number of shares or a different class by
reason of any reclassification, recapitalization, split-up, combination,
exchange of shares or stock dividend, the Merger Consideration shall be
appropriately adjusted.
1.04 Exchange of Company Common Shares.
(a) After the Effective Time, each Company Shareholder shall be
entitled, upon surrender of a certificate or certificates which immediately
prior to the Effective Time represented outstanding Company Common Shares
(the "CERTIFICATES"), along with a fully executed Subscription Agreement
and Letter of Investment Intent in the form of EXHIBIT B (the "SUBSCRIPTION
DOCUMENTS"), to receive the Merger Consideration from Buyer through such
reasonable procedures as Buyer may adopt.
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<PAGE> 68
(b) At the Closing, each Company Shareholder shall deposit with the
Escrow Agent (as defined below) in accordance with Section 1.05 each
Certificate for outstanding Company Common Shares, together with the
Subscription Documents and a letter of transmittal ("LETTER OF
TRANSMITTAL") (which shall specify that delivery of the Certificates shall
be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to Buyer, and shall also authorize
and instruct Buyer to deliver to the Escrow Agent that number of Buyer
Preferred Shares to which the holder thereof would otherwise be entitled
pursuant to Section 1.03 for deposit into the Escrow Account pursuant to
Section 1.05), duly completed and validly executed in accordance with the
instructions thereto. Upon deposit of the Certificate with the Escrow
Agent, together with the Subscription Documents and the Letter of
Transmittal, duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor a pro rata portion of the Merger
Consideration to be deposited with the Escrow Agent, including a
certificate representing that number of Buyer Preferred Shares into which
the Company Common Shares represented by the Certificate so surrendered
shall be converted by the Merger.
(c) All Merger Consideration issued upon the surrender for exchange of
Company Common Shares in accordance with the above terms and conditions
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such Company Common Shares.
(d) In the event any Certificates shall have been lost, stolen or
destroyed, Buyer shall deliver to the Escrow Agent to be held in escrow in
accordance with Section 1.05 in exchange for such lost, stolen or destroyed
Certificate, upon the making of an affidavit of that fact by the holder
thereof, Buyer Preferred Shares; provided, however, that Buyer may, in its
discretion and as a condition precedent to the issuance of any Buyer
Preferred Shares, require the owner of such lost, stolen or destroyed
Certificate to deliver a bond in such reasonable sum as it may direct as
indemnity against any claim that may be made against Buyer, Merger
Subsidiary, the Company, or any other party with respect to the Certificate
alleged to have been lost, stolen or destroyed.
(e) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of Company Common Shares which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates representing such shares are presented to the
Surviving Corporation, they shall be canceled and exchanged for Merger
Consideration as provided in Section 1.03.
1.05 Closing into Escrow; the Escrow Account.
(a) On or before the later to occur of (i) 5:00 p.m. on June 17, 1999
and (ii) 5:00 p.m. on the fifth day after the date on which the Company
delivers to Buyer the Company's Annual Financial Statements (as defined
below), a closing into escrow of the transactions contemplated by this
Agreement (the "CLOSING," and the date upon which the Closing shall occur,
the "CLOSING DATE") shall occur and the following property shall be placed
in an escrow account (the "ESCROW ACCOUNT") pursuant to the terms of an
escrow agreement to be entered into by and among Buyer, the Company, the
Attorney-in-Fact, on behalf of the Company Shareholders, and the escrow
agent (the "ESCROW AGENT"), to be mutually acceptable to the Escrow Agent,
the Attorney-in-Fact, the Company and Buyer, in form and substance
substantially as set forth in EXHIBIT C (the "ESCROW AGREEMENT"):
(i) by Buyer, the Company and Merger Subsidiary, the executed
Certificate of Merger;
(ii) by Buyer, certificates representing each Company
Shareholder's pro rata portion of the aggregate number of Buyer
Preferred Shares issuable pursuant to Section 1.03(a)(i) based on the
number of Company Common Shares outstanding on the Closing Date;
(iii) by Buyer, the Buyer Warrant; and
(iv) by the Company Shareholders, the Company Common Shares held
by the Company Shareholders, together with stock powers executed in
blank, an executed Letter of Transmittal and executed Subscription
Documents.
(b) Prior to the Effective Time, the Buyer Preferred Shares shall not
be deemed to be issued and outstanding, but shall be held in escrow pending
the Effective Time. At the Effective Time, each
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<PAGE> 69
Company Shareholder shall become a shareholder of Buyer with respect to
such Company Shareholder's pro rata portion of the Buyer Preferred Shares
and shall have all of the rights of a shareholder with respect to all such
Shares, including the right to vote such Buyer Preferred Shares and to
receive all dividends and other distributions paid with respect thereto;
provided, however, that until the Effective Time, neither any Company
Shareholder, Buyer nor any other person may sell, transfer, pledge,
hypothecate or otherwise encumber any escrowed Buyer Preferred Shares,
Company Common Shares or any other escrowed security. At the Effective
Time, the Company Common Shares then outstanding shall be deemed canceled.
(c) Upon satisfaction of all of the following:
(i) Buyer shall have paid into the Escrow Account an amount (the
"LEGACYMAKER FUNDS") necessary to pay all of the Company's secured
indebtedness to LegacyMaker, Inc. (the "LEGACYMAKER NOTE");
(ii) The sale price of a Buyer Common Share at the close of
business on the last business day preceding the Effective Time shall
then be at least $2.50 as quoted on Nasdaq;
(iii) Buyer's shareholders shall have approved the Merger; and
(iv) If applicable, Buyer shall have paid in full the Liquidated
Damages and any Extension Payments then payable pursuant to Section
7.01(b);
then all of the escrowed Buyer Preferred Shares and the Buyer Warrant will be
released to the Company Shareholders, all of the Company Common Shares,
Subscription Documents, Letters of Transmittal and executed stock powers will be
released to Buyer, the Escrow Agent will file, or cause to be filed, the
executed Certificate of Merger with the Secretary of State of the State of
Delaware, and Buyer will issue as additional Merger Consideration one (1) Buyer
Preferred Share for each Company Common Share issued by the Company (and not in
contravention of Section 4.01(b)) after the Closing but prior to the Effective
Time to the holder of record of each such Company Common share as of the
Effective Time.
(d) Upon any surrender and exchange of Certificates, there shall be
paid to the holders of the Certificates issued in exchange therefor the
amount, without interest thereon, of dividends and other distributions, if
any, that theretofore were declared and became payable after the Effective
Time with respect to the number of whole shares of Buyer Preferred Shares
issued to such holder.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer that, except as set forth in
the Company Disclosure Schedule attached hereto as EXHIBIT D (the "COMPANY
DISCLOSURE SCHEDULE") (which Company Disclosure Schedule sets forth the
exceptions to the representations and warranties contained in this Article 2
under captions referencing the Sections to which such exceptions apply):
2.01 Limitation on Representations and Warranties.
(a) Except as and to the extent expressly set forth in this Article 2,
the Company makes no other representations or warranties, either express or
implied, and disclaims all liability and responsibility for any
representation, warranty, statement or information made or communicated
(orally or in writing) to Buyer or any of its affiliates, employees,
agents, consultants or representatives (including, without limitation, any
opinion, information, projection or advice that may have been provided to
Buyer by any officer, director, employee, agent, consultant or
representative of the Company or any affiliate thereof, or by any other
agent, consultant or representative of the Company).
(b) Notwithstanding anything to the contrary contained herein, to the
extent that any of the representations and warranties contained in this
Article 2 concern assets or properties that are operated by persons other
than the Company, such representations and warranties are limited to the
best knowledge
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<PAGE> 70
of the Company, without any further investigation. All of such assets and
properties are disclosed on the Company Disclosure Schedule.
(c) Without limiting the generality of the foregoing, the Company
makes no representation or warranty, either express or implied, as to the
design, function, value or marketability of the Company's assets or
properties or the probable success or profitability of the business of the
Company.
(d) "To the knowledge" or "to the best knowledge" of the Company (or
similar references to the Company's knowledge) means that the only
information to be attributed to the Company is information actually known
to Marcos A. Rodriguez or James L. Anderson. Unless otherwise specifically
provided in this Agreement, no such person is represented to have
undertaken a separate investigation in connection with the transactions
contemplated hereby to determine the existence of absence of facts in any
statement qualified by "knowledge."
2.02 Incorporation and Corporate Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has the corporate power and authority and all authorizations,
licenses, permits and certifications necessary to own and operate its properties
and to carry on its business as now conducted and presently proposed to be
conducted. The copies of the Company's Certificate of Incorporation and Bylaws
which have been furnished by the Company to Buyer prior to the date hereof
reflect all amendments made thereto and are correct and complete as of the date
hereof. The Company is qualified to do business as a foreign corporation in
Texas, which is the only state in which the nature of its business or its
ownership of property requires it to be so qualified except for those
jurisdictions in which the failure to be so qualified would not, individually or
in the aggregate, have a material adverse effect on the Company's business,
prospects or results of operations (a "MATERIAL ADVERSE EFFECT").
2.03 Execution and Delivery; Valid and Binding Agreements. The execution,
delivery and performance of this Agreement by the Company and the consummation
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action and no other corporate proceedings on its part
are necessary to authorize the execution, delivery and performance of this
Agreement. This Agreement has been and the other agreements to be executed
pursuant hereto will be at Closing and at the Effective Time duly executed and
delivered by the Company and constitute (or at Closing and at the Effective Time
will constitute) the valid and binding obligations of the Company, enforceable
in accordance with their respective terms. Each Attorney-in-Fact will have at
the Closing the absolute and unrestricted right, power and authority to carry
out the terms of this Agreement and the transactions contemplated hereby on
behalf of each Company Shareholder on whose behalf it has been authorized to
act, including on behalf of persons or entities who become Company Shareholders
after the date hereof or after the Closing Date.
2.04 No Breach. The execution, delivery and performance of this Agreement
and each of the other agreements attached as exhibits hereto (collectively, the
"RELATED AGREEMENTS") to be executed by the Company in connection herewith and
the consummation by the Company of the transactions contemplated hereby do not
(i) conflict with or result in a violation of any provision of the charter or
bylaws of the Company, (ii) constitute a default under, or give rise to any
right of termination, cancellation, or acceleration under any material bond,
debenture, note, mortgage, indenture, lease, contract, agreement, or other
instrument or obligation to which the Company is a party or by which the Company
or any of its properties may be bound, (iii) result in the creation or
imposition of any lien, security interest, charge or encumbrance upon the
properties of the Company, or (iv) violate any applicable law binding upon the
Company except, in the case of clauses (ii), (iii), and (iv) above, for any such
conflicts, violations, defaults, terminations, cancellations, accelerations or
encumbrances which would not, individually or in the aggregate, have a Material
Adverse Effect.
2.05 Value of the Company. Buyer acknowledges that it has had access to
adequate information to assess the value of the Company and its strategic fit
with Buyer. Buyer and Merger Subsidiary expressly waive any and all claims
against the Company or its directors, officers or shareholders relating to the
valuation of the Company or its assets or any representations as to such value
made by the Company or any of its directors, officers or shareholders with
respect to such valuation.
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<PAGE> 71
2.06 Governmental Authorities; Consents. The Company is not required to
submit any notice, report or other filing with any governmental authority in
connection with the execution or delivery by it of this Agreement or the
consummation of the transactions contemplated hereby. No consent, approval or
authorization of any governmental or regulatory authority or any other party or
person is required to be obtained by the Company in connection with its
execution, delivery and performance of this Agreement or the transactions
contemplated hereby, except for such consents, approvals and authorizations
which, if not obtained, would not have a Material Adverse Effect.
2.07 Capital Stock. The authorized capital stock of the Company consists of
1,000,000 shares of common stock, par value $.01 per share, consisting of 1,000
shares of Class A Common Stock ("CLASS A COMMON") and 999,000 shares of Class B
Common Stock ("CLASS B COMMON"), of which, as of the date hereof, 10 shares of
Class A Common and 2,014 shares of Class B Common (collectively, the "COMPANY
COMMON SHARES") are issued and outstanding, all of which are owned beneficially
and of record by the Company Shareholders, free and clear of any security
interests, claims, liens, pledges, options, encumbrances, charges, agreements,
voting trusts, proxies or other arrangements, restrictions or other legal or
equitable limitations of any kind, other than liens or encumbrances in favor of
LegacyMaker, Inc. ("LEGACYMAKER"), which liens or encumbrances will be released
upon payment in full of the LegacyMaker Note. All of the Company Common Shares
have been duly authorized and are validly issued, fully paid and nonassessable.
The Company has no other equity securities or securities containing any equity
features authorized, issued or outstanding. There are no agreements or other
rights or arrangements existing which provide for the sale or issuance of
capital stock by the Company and there are no rights, subscriptions, warrants,
options, conversion rights or agreements of any kind outstanding to purchase or
otherwise acquire from the Company any shares of capital stock or other
securities of the Company of any kind. There are no agreements or other
obligations (contingent or otherwise) which may require the Company to
repurchase or otherwise acquire any shares of its capital stock.
2.08 Subsidiaries. The Company does not own any stock, partnership
interest, joint venture interest or any other security or ownership interest
issued by any other corporation, organization or entity. The Company may form
subsidiaries in order to conduct acquisitions in accordance with Section 4.05.
2.09 Financial Statements. The Company shall deliver to Buyer copies of (a)
the unaudited balance sheet, as of April 30, 1999, of the Company (the
"COMPANY'S INTERIM BALANCE SHEET") and the unaudited statement of operations of
the Company for the four-month period ended April 30, 1999 (such statement and
the Company's Interim Balance Sheet being herein referred to as the "COMPANY'S
INTERIM FINANCIAL STATEMENTS") within five (5) days after the date hereof and
(b) the audited balance sheets, as of December 31, 1998 and December 31, 1997,
of the Company and the audited statement of operations of the Company for each
of the years ended December 31, 1998 and December 31, 1997 (collectively, the
"COMPANY'S ANNUAL FINANCIAL STATEMENTS") within 45 days after the date hereof.
The Company's Interim Financial Statements and the Company's Annual Financial
Statements are true and correct in all material respects, are based upon the
information contained in the books and records of the Company and fairly present
in all material respects the financial condition of the Company as of the dates
thereof and results of operations, shareholders' equity and cash flows for the
periods referred to therein. The Company's Annual Financial Statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied throughout the periods indicated. The Company's Interim
Financial Statements have been prepared in accordance with generally accepted
accounting principles applicable to unaudited interim financial statements (and
thus may not contain all notes which are required to be prepared in accordance
with generally accepted accounting principles) consistent with the Company's
Annual Financial Statements and reflect all adjustments necessary to fairly
present the financial position, results of operations and cash flows for the
interim period(s) presented.
2.10 Absence of Undisclosed Liabilities. Except as reflected in the
Company's Interim Balance Sheet, the Company has no material liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise, whether due
or to become due, whether known or unknown, and regardless of when asserted)
arising out of transactions or events heretofore entered into, or any action or
inaction, or any state of facts existing, with respect to or based upon
transactions or events heretofore occurring, except liabilities which have
arisen after
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<PAGE> 72
the date of the Company's Interim Balance Sheet in the ordinary course of
business (none of which is a material uninsured liability for breach of
contract, breach of warranty, tort, infringement, claim or lawsuit) and other
liabilities which, in the aggregate, are not material to the Company.
2.11 No Material Adverse Changes. Since December 31, 1998, there has not
been any material adverse change in, or any event or condition that might
reasonably be expected to result in any material adverse change in, the assets,
financial condition, operating results, customer, employee or supplier
relations, business condition or prospects of the Company.
2.12 Title to Property.
(a) The Company does not own any real property and is not a party to
any lease of real property.
(b) The Company owns good and marketable title to each of the material
tangible properties and tangible assets reflected on the Company's Interim
Balance Sheet or acquired since the date thereof, free and clear of all
liens and encumbrances, except for (i) liens for current taxes not yet due
and payable, (ii) liens imposed by law and incurred in the ordinary course
of business for obligations not yet due to carriers, warehousemen, laborers
and materialmen, (iii) liens securing the LegacyMaker Note, which liens
will be released upon payment in full of such Note, and (iv) liens which
individually or in the aggregate would not have a Material Adverse Effect.
(c) All of the material equipment and other material tangible assets
necessary for the conduct of the Company's business are in good condition
and repair, ordinary wear and tear excepted, and are usable in the ordinary
course of business. There are no defects in such assets or other conditions
relating thereto which, in the aggregate, materially adversely affect the
operation or value of such assets. The Company owns, or leases under valid
leases, all equipment and other tangible assets necessary for the conduct
of its business as currently conducted.
2.13 Tax Matters. Except as set forth on the Company Disclosure
Schedule:
(a) Each of the Company and any affiliated, combined or unitary group
of which the Company is or was a member for purposes of any Taxes (as
defined below) has timely filed, been included in or sent, and will, prior
to the Closing, timely file, be included in or send all returns,
declarations and reports and information returns and statements required to
be filed or sent by or relating to any of them prior to the Closing
relating to any Taxes with respect to any income, properties or operations
of the Company prior to the Effective Time (collectively, the "RETURNS");
(b) as of the time of filing, the Returns:
(i) correctly reflected (and, as to any Returns not filed as of
the date hereof, will correctly reflect) in all material respects the
facts regarding the income, business, assets, operations, activities and
status of the Company and any other information required to be shown
therein;
(ii) constitute (and, as to any Returns not filed as of the date
hereof, will constitute) complete and accurate representations of the
Tax liabilities for the periods covered; and
(iii) accurately set forth all items (to the extent required to be
included or reflected in the Returns) relevant to future Tax
liabilities, including the Tax bases of properties and assets;
(c) the Company has timely paid all Taxes that have been shown as due
and payable on the Returns that have been filed;
(d) the Company has established a reserve (in accordance with
generally accepted principles) on the Company's Interim Balance Sheet for
any Taxes that relate to past periods but are not yet due; and will
establish such a reserve for all other Taxes payable for any periods that
end before the Closing for which no Returns have yet been filed and for any
periods that begin before the Closing and end after the Closing to the
extent such Taxes are attributable to the portion of any such period ending
at the Closing;
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<PAGE> 73
(e) the charges, accruals and reserves for Taxes reflected on the
Company's Interim Balance Sheet are adequate to cover the Tax liabilities
accruing or payable by the Company in respect of periods prior to the date
hereof;
(f) the Company is not delinquent in the payment of any Taxes and has
not requested any extension of time within which to file or send any
Return, which Return has not since been filed or sent;
(g) to the Company's knowledge, no deficiency for any Taxes has been
proposed, asserted or assessed against the Company (or any member of any
affiliated or combined group of which the Company is or has been a member
for which the Company could be liable for Taxes);
(h) the Company has not granted any extension of the limitation period
applicable to any Tax claims and the Company has not waived any such
limitation period;
(i) the Company is not and has not been a party to any tax sharing
agreement with any corporation which, as of the Closing, is not a member of
the affiliated group of which the Company is a member;
(j) the Company has not made any election under Section 341(f) of the
Code;
(k) no Tax is required to be withheld pursuant to Section 1445 of the
Code as a result of the transactions contemplated in this Agreement;
(l) neither the Company nor any affiliate is a party to any agreement,
contract plan or arrangement that has resulted or would result, separately
or in the aggregate, in the payment of any "excess parachute payments"
within the meaning of Section 280G of the Code and the consummation of the
transactions contemplated by this Agreement will not be a factor causing
payments to be made by the Company that are not deductible (in whole or in
part) under Section 280G of the Code;
(m) to the Company's knowledge, no examinations of the Returns of the
Company is currently in progress or, to the best knowledge of the Company,
threatened and no deficiencies have been asserted or assessed against
either the Company as a result of any audit by the Internal Revenue Service
or any other taxing authority and no such deficiency has been proposed or
threatened;
(n) there are no liens for Taxes (other than for current Taxes not yet
due and payable) upon the assets of the Company; and
(o) the Company is treated as an S corporation for federal income tax
purposes.
"TAX" (and with the corresponding meaning "Taxes" and "Taxable") shall include
(i) any net income, gross income, gross receipts, sales, use, ad valorem,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property or windfall profit tax, custom
duty or other tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest and any penalty, addition to tax or
additional amount imposed by any taxing authority (domestic or foreign) and (ii)
any liability for the payment of any amount of the type described in clause (i)
as a result of being a member of an affiliated or combined group.
2.14 Contracts and Commitments.
(a) The Company is not a party to any: (i) collective bargaining
agreements or contracts with any labor union; (ii) bonus, pension, profit
sharing, retirement or other form of deferred compensation plans; (iii)
hospitalization insurance or other welfare benefit plan or practice,
whether formal or informal; or (iv) stock purchase or stock option plans.
(b) The Company Disclosure Schedule lists all material contracts
(within the meaning of paragraph (b)(10) of Item 601 of Regulation S-K,
applied as if the Company were the "registrant" as used therein), oral or
written, to which the Company is a party.
(c) The Company has performed all material obligations required to be
performed by it in connection with the contracts or commitments required to
be disclosed in the Company Disclosure Schedule and is not in receipt of
any claim of default under any contract or commitment required to be
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disclosed under such caption and the Company has no present expectation or
intention of not fully performing any material obligation pursuant to any
contract or commitment required to be disclosed under such caption; and the
Company has no knowledge of any breach or anticipated breach by any other
party to any contract or commitment required to be disclosed under such
caption.
(d) Prior to the date of this Agreement, Buyer has been provided
access to each written contract or commitment, and a written description of
each oral contract or commitment, referred to in the Company Disclosure
Schedule, together with all amendments, waivers or other changes thereto.
2.15 Intellectual Property Rights. The Company Disclosure Schedule
describes all material rights in patents, patent applications, trademarks,
service marks, trade names, corporate names, copyrights, trade secrets, know-how
or other intellectual property rights owned by, licensed to or otherwise
controlled by the Company or used in, developed for use in or necessary to the
conduct of the Company's business as now conducted. The Company owns and
possesses all right, title and interest, or holds a valid license, in and to the
rights set forth under such caption. The Company Disclosure Schedule describes
all intellectual property rights which have been licensed to third parties and
those intellectual property rights which are licensed from third parties. The
Company has not received any notice of, nor are there any facts known to it
which indicate a likelihood of, any infringement or misappropriation by, or
conflict from, any third party with respect to the material intellectual
property rights which are listed; no claim by any third party contesting the
validity of any intellectual property rights listed in the Company Disclosure
Schedule has been made, is currently outstanding or, to the best knowledge of
the Company, is threatened; the Company has not received any notice of any
infringement, misappropriation or violation by the Company of any intellectual
property rights of any third parties and to its knowledge the Company has not
infringed, misappropriated or otherwise violated any such intellectual property
rights; and to the knowledge of the Company no infringement, illicit copying,
misappropriation or violation has occurred or will occur with respect to
products currently being sold by the Company or with respect to the conduct of
the Company's business as now conducted.
2.16 Litigation. There are no actions, suits, proceedings, orders or
investigations pending or, to the best knowledge of the Company, threatened
against the Company, at law or in equity, or before or by any federal, state or
municipal court or other governmental department, commission, board, bureau,
agency or instrumentality.
2.17 Employees. (a) No executive employee of the Company and, to the best
knowledge of the Company, no group of the Company's employees has any plans to
terminate his, her or its employment; (b) the Company has complied in all
material respects with all laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other taxes; (c) the Company
has no material labor relations problem pending and its labor relations are
satisfactory; (d) there are no workers' compensation claims pending against the
Company nor is the Company aware of any facts that would give rise to such a
claim; (e) to the Company's knowledge, no employee of the Company is subject to
any secrecy or noncompetition agreement or any other agreement or restriction of
any kind that would impede in any way the ability of such employee to carry out
fully all activities of such employee in furtherance of the business of the
Company or, after the Effective Time, the Surviving Corporation; (f) no employee
or former employee of the Company has any claim with respect to any intellectual
property rights of the Company set forth in the Company Disclosure Schedule; and
(g) the Company has furnished to Buyer copies of all noncompetition agreements
between the Company and any of its directors or employees.
2.18 Employee Benefit Plans.
(a) There are no employee welfare benefit plans or employee pension
benefit plans within the meaning of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") maintained or contributed to by the
Company (collectively, "PLANS"), and no trust funds are so maintained in
connection with any employee welfare benefit plan.
(b) The Company does not now maintain or contribute to, nor has the
Company at any time maintained or contributed to, any employee benefit plan
which is subject to Title IV of ERISA.
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(c) The Company has not engaged in, nor entered into any arrangement
pursuant to which any person or entity is contractually bound to enter
into, any transaction which could result in imposition upon either the
Company or Buyer of any excise tax under Sections 4971 through 4980B,
inclusive, and Section 5000 of the Code or civil liability under Section
502(i) or 502(l) of ERISA or otherwise incurred a liability for any excise
tax, other than excise taxes which have heretofore been paid or have been
accrued on the Company's Interim Balance Sheet.
(d) The Company is not and has never been a member of a controlled
group of corporations, an unincorporated trade or business under common
control, or a member of an affiliated service group (as such terms are
defined in Sections 414(b), 414(c) and 414(m) of the Code), involving any
other entity.
(e) The Company does not maintain any employee benefit plan providing
benefits to former employees or directors, other than health coverage
mandated by applicable law.
(f) The Company has complied in all respects with the "COBRA"
requirements of Section 4980B of the Code.
2.19 Insurance. The Company Disclosure Schedule lists and briefly describes
(i) each insurance policy maintained by the Company with respect to the
Company's properties, assets and operations, (ii) sets forth the date of
expiration of each such insurance policy and (iii) briefly summarizes all
material claims currently outstanding under each such policy. All of such
insurance policies are in full force and effect. The Company is not in default
with respect to its obligations under any of such insurance policies. To the
best knowledge of the Company, there has been no threatened termination of, or
premium increase whether retrospective or prospective with respect to any of
such policies.
2.20 Affiliate Transactions. Other than pursuant to this Agreement or as
disclosed on the Company Disclosure Schedule, no officer, director or employee
of the Company or any member of the immediate family of any such officer,
director or employee, or any entity in which any of such persons owns any
beneficial interest (other than any publicly-held corporation whose stock is
traded on a national securities exchange or in the over-the-counter market and
less than one percent of the stock of which is beneficially owned by any of such
persons) (collectively "Insiders"), has any agreement with the Company (other
than normal employment arrangements) or any interest in any property, real,
personal or mixed, tangible or intangible, used in or pertaining to the business
of the Company (other than ownership of capital stock of the Company). To the
Company's knowledge, none of the Insiders has any direct or indirect material
interest in any competitor, supplier or customer of the Company or in any
person, firm or entity from whom or to whom the Company leases any material
property. For purposes of this Section, the members of the immediate family of
an officer, director or employee shall consist of the spouse, parents, children,
siblings, mothers- and fathers-in-law, sons-and daughters-in-law, and brothers-
and sisters-in-law of such officer, director or employee.
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2.21 Compliance with Laws; Permits.
(a) The Company and, to the Company's knowledge, its officers,
directors, agents and employees, have complied in all material respects
with all applicable laws, regulations and other requirements which
materially affect the business of the Company and to which the Company may
be subject, and no claims have been filed against the Company alleging a
violation of any such laws, regulations or other requirements. The Company
has no knowledge of any such action. The Company is not relying on any
exemption from or deferral of any such applicable law, regulation or other
requirement that would not be available to the Surviving Corporation after
the Effective Time.
(b) The Company has, in full force and effect, all material licenses,
permits and certificates, from federal, state and local authorities
(including, without limitation, federal and state agencies regulating
occupational health and safety) necessary to conduct its business and own
and operate its properties (collectively, the "PERMITS"), except for
Permits that the absence of which has not and will not have a Material
Adverse Effect. A true, correct and complete list of all the Permits
maintained by the Company is set forth in the Company Disclosure Schedule.
The Company has conducted its business in all material respects in
compliance with all material terms and conditions of the Permits.
2.22 Tax-Free Reorganization Matters.
(a) Following the Merger, Surviving Corporation will hold at least 90
per cent of the fair market value of the Company's net assets and at least
70 percent of the fair market value of the Company's gross assets held
immediately prior to the Merger. For purposes of this representation,
amounts paid by the Company or Merger Subsidiary to Company Shareholders
who receive cash or other property, amounts used by the Company or Merger
Subsidiary to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by the Company
will be included as assets of the Company or Merger Subsidiary,
respectively, immediately prior to the Merger.
(b) Following the Merger, Surviving Corporation will continue the
Company's historic business or use a significant portion of its historic
business assets in a business.
(c) There is no intercorporate indebtedness existing between Buyer and
the Company or between Merger Subsidiary and the Company that was issued,
acquired or will be settled at a discount.
(d) Buyer is paying no consideration for outstanding stock of the
Company other than the Merger Consideration. Buyer will acquire at least
50% of the Company's outstanding stock solely in exchange for voting stock
of Buyer. For purposes of the preceding sentence, shares of Company Common
Stock exchanged for cash or other property originating with Buyer will be
treated as outstanding stock of the Company.
2.23 Brokerage. No third party shall be entitled to receive any brokerage
commissions, finder's fees, fees for financial advisory services or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of the Company
Shareholders or the Company.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUBSIDIARY
Buyer and Merger Subsidiary hereby represent and warrant to the Company
that, except as set forth in the Buyer Disclosure Schedule attached hereto as
EXHIBIT E (the "BUYER DISCLOSURE SCHEDULE") (which Buyer Disclosure Schedule
sets forth the exceptions to the representations and warranties contained in
this Article 3 under captions referencing the Sections to which such exceptions
apply):
3.01 Incorporation and Corporate Power. Each of Buyer and Merger Subsidiary
is a corporation duly incorporated, validly existing and in good standing under
the laws of the state of its incorporation and has the corporate power and
authority and all authorizations, licenses, permits and certifications necessary
to own and operate its properties and to carry on its business as now conducted
and presently proposed to be conducted.
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The copies of the Articles or Certificate of Incorporation and Bylaws of each of
Buyer and Merger Subsidiary which have been furnished to the Company prior to
the date hereof reflect all amendments made thereto and are correct and complete
as of the date hereof. Buyer is qualified to do business as a foreign
corporation in Ohio and Colorado, which are the only states in which the nature
of its business or its ownership of property requires it to be so qualified
except for those jurisdictions in which the failure to be so qualified would
not, individually or in the aggregate, have a material adverse effect on Buyer's
business, prospects or results of operations.
3.02 Execution, Delivery; Valid and Binding Agreement. The execution,
delivery and performance of this Agreement by each of Merger Subsidiary and
Buyer and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all requisite corporate action, and no other
corporate proceedings are necessary to authorize the execution, delivery or
performance of this Agreement. This Agreement has been, and each of the Related
Agreements to be executed by the Company or Merger Subsidiary at Closing will
be, duly executed and delivered by each of Merger Subsidiary and Buyer and
constitute the valid and binding obligation of each, enforceable in accordance
with their respective terms.
3.03 No Breach. The execution, delivery and performance of this Agreement
by each of Merger Subsidiary and Buyer and the consummation by them of the
transactions contemplated hereby do not (i) conflict with or result in a
violation of any provision of the charter or bylaws of either Merger Subsidiary
or Buyer, (ii) constitute a default under, or give rise to any right of
termination, cancellation, or acceleration under any material bond, debenture,
note, mortgage, indenture, lease, contract, agreement, or other instrument or
obligation to which Merger Subsidiary or Buyer is a party or by which either of
them or any of their properties may be bound, (iii) result in the creation or
imposition of any lien, security interest, charge or encumbrance upon the
properties of Merger Subsidiary or Buyer, or (iv) violate any applicable law
binding upon Merger Subsidiary or Buyer except, in the case of clauses (ii),
(iii), and (iv) above, for any such conflicts, violations, defaults,
terminations, cancellations, accelerations or encumbrances which would not,
individually or in the aggregate, have a Material Adverse Effect.
3.04 Value of the Company. Buyer acknowledges that it has had access to
adequate information to assess the value of the Company and its strategic fit
with Buyer. Buyer expressly waives any and all claims against the Company or its
directors, officers or shareholders relating to the valuation of the Company or
its assets or any representations as to such value that may be deemed to have
been made by the Company or any of its directors, officers or shareholders with
respect to such valuation.
3.05 Governmental Authorities; Consents. Other than with respect to any
Buyer or Merger Subsidiary securities law reporting obligation, neither Merger
Subsidiary nor Buyer is required to submit any notice, report or other filing
with any governmental authority in connection with their respective execution or
delivery of this Agreement or the consummation of the transactions contemplated
hereby, and no consent, approval or authorization of any governmental or
regulatory authority or any other party or person, other than Buyer's
shareholders, is required to be obtained by either Merger Subsidiary or Buyer in
connection with their respective execution, delivery and performance of this
Agreement or the transactions contemplated hereby and except for such consents,
approvals and authorizations which, if not obtained, would not have a Material
Adverse Effect.
3.06 Capital Stock. The authorized capital stock of Buyer consists of
100,000,000 shares of undesignated capital stock, of which 2,000 shares have
been designated as Series A 8% Convertible Preferred Stock. As of May 25, 1999,
8,313,435 Buyer Common Shares and 2,000 shares of Series A 8% Convertible
Preferred Stock were issued and outstanding. Buyer has not designated any other
class or series of preferred stock. All of the Buyer Common Shares and shares of
Series A 8% Convertible Preferred Stock have been duly authorized and are
validly issued, fully paid and nonassessable. The Buyer Disclosure Schedule
lists all warrants, options, conversion rights and agreements to purchase or
otherwise acquire from Buyer any shares of capital stock or other securities of
Buyer outstanding on May 3, 1999 and on the Closing Date. All of the outstanding
shares of capital stock of Merger Subsidiary are owned directly by Buyer.
3.07 Financial Statements. Within five days after the date hereof, Buyer
shall deliver to the Company copies of its unaudited balance sheet, as of April
30, 1999 and its unaudited statement of operations for the
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four-month period ended April 30, 1999 ("BUYER'S INTERIM FINANCIAL STATEMENTS").
Buyer's Interim Financial Statements and its balance sheet as of January 3, 1999
and statement of operations for the year ended January 3, 1999 ("BUYER'S 1998
FINANCIAL STATEMENTS"), as well as the other audited financial statements and
unaudited interim financial statements of Buyer included in Buyer's filings with
the Securities and Exchange Commission are true and correct, are based upon the
information contained in the books and records of Buyer and fairly present the
financial condition of Buyer as of the dates thereof and results of operations,
shareholders' equity and cash flows for the periods referred to therein. Buyer's
1998 Financial Statements have been prepared in accordance with generally
accepted accounting principles, consistently applied throughout the periods
indicated. Buyer's Interim Financial Statements have been prepared in accordance
with generally accepted accounting principles applicable to unaudited interim
financial statements (and thus may not contain all notes which are required to
be prepared in accordance with generally accepted accounting principles)
consistent with Buyer's 1998 Financial Statements and reflect all adjustments
necessary to fairly present the financial position, results of operations and
cash flows for the interim period(s) presented.
3.08 Absence of Undisclosed Liabilities. Except as disclosed in its balance
sheet for the fiscal year ended January 3, 1999, Buyer has no material
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise,
whether due or to become due, whether known or unknown, and regardless of when
asserted) arising out of transactions or events heretofore entered into, or any
action or inaction, or any state of facts existing, with respect to or based
upon transactions or events heretofore occurring, except liabilities which have
arisen after January 3, 1999 in the ordinary course of business (none of which
is a material uninsured liability for breach of contract, breach of warranty,
tort, infringement, claim or lawsuit) and other liabilities which, in the
aggregate, are not material to Buyer.
3.09 No Material Adverse Changes. Since January 3, 1999, there has not been
any material adverse change in, or any event or condition that might reasonably
be expected to result in any material adverse change in, the assets, financial
condition, operating results, customer, employee or supplier relations, business
condition or prospects of Buyer.
3.10 Tax Matters. Except as set forth on the Buyer Disclosure Schedule:
(a) Each of Buyer and any affiliated, combined or unitary group of
which Buyer is or was a member for purposes of any Taxes has timely filed,
been included in or sent, and will, prior to the Closing, timely file, be
included in or send all Returns required to be filed or sent by or relating
to any of them prior to the Closing relating to any Taxes with respect to
any income, properties or operations of Buyer prior to the Effective Time;
(b) as of the time of filing, the Returns:
(i) correctly reflected (and, as to any Returns not filed as of
the date hereof, will correctly reflect) in all material respects the
facts regarding the income, business, assets, operations, activities and
status of Buyer and any other information required to be shown therein;
(ii) constitute (and, as to any Returns not filed as of the date
hereof, will constitute) complete and accurate representations of the
Tax liabilities for the periods covered; and
(iii) accurately set forth all items (to the extent required to be
included or reflected in the Returns) relevant to future Tax
liabilities, including the Tax bases of properties and assets;
(c) Buyer has timely paid all Taxes that have been shown as due and
payable on the Returns that have been filed;
(d) Buyer has established a reserve (in accordance with generally
accepted principles) on Buyer's Interim Financial Statements for any Taxes
that relate to past periods but are not yet due; and will establish such a
reserve for all other Taxes payable for any periods that end before the
Closing for which no Returns have yet been filed and for any periods that
begin before the Closing and end after the Closing to the extent such Taxes
are attributable to the portion of any such period ending at the Closing;
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(e) the charges, accruals and reserves for Taxes reflected on Buyer's
Interim Financial Statements are adequate to cover the Tax liabilities
accruing or payable by Buyer in respect of periods prior to the date
hereof;
(f) Buyer is not delinquent in the payment of any Taxes and has not
requested any extension of time within which to file or send any Return,
which Return has not since been filed or sent;
(g) to Buyer's knowledge, no deficiency for any Taxes has been
proposed, asserted or assessed against Buyer (or any member of any
affiliated or combined group of which Buyer is or has been a member for
which Buyer could be liable for Taxes);
(h) Buyer has not granted any extension of the limitation period
applicable to any Tax claims and Buyer has not waived any such limitation
period;
(i) Buyer is not and has not been a party to any tax sharing agreement
with any corporation which, as of Buyer, is not a member of the affiliated
group of which Buyer is a member;
(j) Buyer has not made any election under Section 341(f) or Section
1362(a) of the Code;
(k) no Tax is required to be withheld pursuant to Section 1445 of the
Code as a result of the transactions contemplated in this Agreement;
(l) neither Buyer nor any affiliate is a party to any agreement,
contract plan or arrangement that has resulted or would result, separately
or in the aggregate, in the payment of any "excess parachute payments"
within the meaning of Section 280G of the Code and the consummation of the
transactions contemplated by this Agreement will not be a factor causing
payments to be made by Buyer that are not deductible (in whole or in part)
under Section 280G of the Code;
(m) to Buyer's knowledge, no examinations of the Returns of Buyer is
currently in progress or, to the best knowledge of Buyer, threatened and no
deficiencies have been asserted or assessed against either Buyer as a
result of any audit by the Internal Revenue Service or any other taxing
authority and no such deficiency has been proposed or threatened; and
(n) there are no liens for Taxes (other than for current Taxes not yet
due and payable) upon the assets of Buyer.
3.11 Litigation. There are no actions, suits, proceedings, orders or
investigations pending or, to the best knowledge of Buyer, threatened against
Buyer, at law or in equity, or before or by any federal, state or municipal
court or other governmental department, commission, board, bureau, agency or
instrumentality.
3.12 Employees. (a) No executive employee of Buyer and, to the best
knowledge of Buyer, no group of Buyer's employees has any plans to terminate
his, her or its employment; (b) Buyer has complied in all material respects with
all laws relating to the employment of labor, including provisions thereof
relating to wages, hours, equal opportunity, collective bargaining and the
payment of social security and other taxes; (c) Buyer has no material labor
relations problem pending and its labor relations are satisfactory; (d) there
are no workers' compensation claims pending against Buyer nor is Buyer aware of
any facts that would give rise to such a claim; and (e) no employee of Buyer is
subject to any secrecy or noncompetition agreement or any other agreement or
restriction of any kind that would impede in any way the ability of such
employee to carry out fully all activities of such employee in furtherance of
the business of Buyer.
3.13 Employee Benefit Plans.
(a) Buyer has listed all Plans on the Buyer Disclosure Schedule, and
no trust funds are so maintained in connection with any employee welfare
benefit plan. Buyer has delivered or made available to the Company a true,
correct and complete copy of each of the Plans identified on such list. As
to each of such Plans that is funded, Buyer has delivered or made available
to the Company a true, correct and complete copy of the most recent annual
financial report with respect to such Plan, and any subsequent interim
report. There have been no adverse changes in the financial status of any
such Plans since the date of the most recent report provided with respect
thereto.
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(b) Buyer has also specifically identified on the Buyer Disclosure
Schedule each of the Plans that is represented to be a qualified plan under
Section 401(a) of the Code. With respect to each of the Plans so
identified, the following are true: (i) the plan, in form and operation,
currently satisfies, and for all years subsequent to the establishment of,
such plan has satisfied, the qualification requirements of Section 401(a)
or 403(a) of the Code, as applicable; and (ii) except as identified on the
Buyer Disclosure Schedule, the IRS has issued a favorable letter of
determination with respect to the Plan as amended to date, and all
amendments required by the Code as a condition of retention of such
qualified status as of the date hereof have been or will be adopted within
time limits required to maintain such status. Each of such Plans is and has
been operating in compliance with all amendments required by the Tax Reform
Act of 1986 and subsequent legislation and regulations.
(c) Buyer and each subsidiary does not now maintain or contribute to,
nor, except as set forth on the Buyer Disclosure Schedule, has Buyer or any
subsidiary at any time maintained or contributed to, any employee benefit
plan which is subject to Title IV of ERISA. Except as set forth in the
Buyer Disclosure Schedule, all contributions payable to any of the Plans
for any plan year ending prior to the date hereof have been paid in full on
a timely basis and no accumulated funding deficiency (as defined in Section
302(a)(2) of ERISA) has been incurred.
(d) Buyer has not engaged in, nor entered into any arrangement
pursuant to which any person or entity is contractually bound to enter
into, any transaction which could result in imposition upon either the
Company or Buyer of any excise tax under Sections 4971 through 4980B,
inclusive, and Section 5000 of the Code or civil liability under Section
502(i) or 502(l) of ERISA or otherwise incurred a liability for any excise
tax, other than excise taxes which have heretofore been paid or have been
accrued on the Buyer's Interim Financial Statements.
(e) Buyer and each subsidiary has (i) filed or caused to be filed on a
timely basis each and every return, report, statement, notice, declaration
and other document required to be filed with any governmental agency
(including, without limitation, the IRS, the Department of Labor, the
Pension Benefit Guaranty Corporation and the SEC) with respect to each of
the Plans; (ii) timely complied with all applicable participant disclosure
requirements of ERISA; and (iii) has maintained in full force and effect
any bond required under ERISA in connection with such Plans.
(f) Buyer is not and has never been a member of a controlled group of
corporations, an unincorporated trade or business under common control, or
a member of an affiliated service group (as such terms are defined in
Sections 414(b), 414(c) and 414(m) of the Code), involving any other
entity.
(g) Buyer does not maintain any employee benefit plan providing
benefits to former employees or directors, other than health coverage
mandated by applicable law.
(h) Buyer has complied in all respects with the "COBRA" requirements
of Section 4980B of the Code.
3.14 Compliance with Laws; Permits.
(a) Buyer and its officers, directors, agents and employees have
complied in all material respects with all applicable laws, regulations and
other requirements which materially affect the business of Buyer and to
which Buyer may be subject, and no claims have been filed against Buyer
alleging a violation of any such laws, regulations or other requirements.
Buyer has no knowledge of any such action.
(b) Buyer has, in full force and effect, all Permits necessary to
conduct its business and own and operate its properties. A true, correct
and complete list of all the Permits is set forth in the Buyer Disclosure
Schedule. Buyer has conducted its business in all material respects in
compliance with all material terms and conditions of the Permits.
3.15 SEC Filings. Buyer is current with respect to reports required to be
filed under the Securities Exchange Act of 1934. None of Buyer's filings with
the Securities and Exchange Commission, at the time of their filing, contained
any untrue statement of a material fact regarding the Company or its business or
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omitted to state any material fact necessary to make the statements contained
herein or therein, in light of the circumstances in which they were made, not
misleading.
3.16 Brokerage. No third party shall be entitled to receive any brokerage
commissions, finder's fees, fees for financial advisory services or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of Buyer or Merger
Subsidiary.
3.17 Validity of Buyer Preferred and Common Shares and Buyer Warrant. The
Buyer Preferred Shares to be issued to the Company Shareholders pursuant to
Section 1.03, and the Buyer Common Shares to be issued upon conversion of the
Buyer Preferred Shares, have been duly authorized and, upon issuance, delivery
and payment therefor, will be validly issued, fully paid and nonassessable. The
Buyer Warrant to be issued to be Company Shareholders pursuant to Section
1.03(a)(ii) and the warrant, if any, to be issued to LegacyMaker pursuant to
Section 8.03 (the "LEGACYMAKER WARRANT") have been duly authorized and, upon
issuance, delivery and payment therefor, will be validly issued, fully paid and
nonassessable and will constitute valid and legally binding obligations of Buyer
enforceable against Buyer in accordance with their terms. The Buyer Common
Shares to be issued upon exercise of all such warrants have been duly authorized
and, upon issuance, delivery and payment therefor, will be validly issued,
enforceable, fully paid and nonassessable.
3.18 Tax-Free Reorganization Matters.
(a) Immediately prior to the Merger, Buyer will be in control of
Merger Subsidiary within the meaning of Section 368(c) of the Code.
(b) Buyer does not own, nor has it owned during the past five years,
any shares of stock of the Company.
(c) Immediately following the Merger, Surviving Corporation will hold
at least 90 per cent of the fair market value of Merger Subsidiary's net
assets, at and least 70 per cent of the fair market value of Merger
Subsidiary's gross assets, held immediately prior to the Merger. For
purposes of this representation, amounts paid by the Company or Merger
Subsidiary to Company Shareholders who receive cash or other property,
amounts used by the Company or Merger Subsidiary to pay reorganization
expenses, and all redemptions and distributions (except for regular, normal
dividends) made by the Company will be assumed to be included as assets of
the Company or Merger Subsidiary, respectively, immediately prior to the
merger.
(d) Following the Merger, Surviving Corporation will continue the
Company's historic business or use a significant portion of its historic
business assets in a business.
(e) Buyer has no plan or intention to cause Surviving Corporation to
issue after the Effective Time additional shares of Surviving Corporation's
stock that would result in Buyer losing control of surviving Corporation
within the meaning of Section 368(c) of the Code or any warrants, options,
convertible securities, or any other type of right pursuant to which any
person could acquire stock in Surviving Corporation that, if exercise or
converted, would affect Buyer's acquisition or retention of control of
Surviving corporation, as defined in Section 368(c) of the Code.
(f) Neither Buyer nor any of its affiliates has any plan or intention
to reacquire, directly or indirectly, any of the Buyer Preferred Shares
issued pursuant to the Merger.
(g) Buyer has no plan or intention to liquidate Surviving Corporation,
to merge Surviving Corporation with or into another corporation, to sell or
otherwise dispose of Surviving Corporation Stock or to cause Surviving
Corporation to sell or otherwise dispose of its assets, except for
dispositions made in the ordinary course of business or transfers described
in Section 368(a)(2)(C) of the Code.
(h) There is no intercorporate indebtedness existing between Buyer and
the Company or between Merger Subsidiary and the Company that was issued,
acquired or will be settled at a discount.
(i) Buyer and Merger Subsidiary have taken no action that would
jeopardize the characterization of the Merger as a reorganization within
the meaning of Section 368 of the Code.
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(j) Buyer is paying no consideration for outstanding stock of the
Company other than the Merger Consideration. Buyer will acquire at least
50% of the Company's outstanding stock solely in exchange for voting stock
of Buyer. For purposes of the preceding sentence, shares of Company Common
Stock exchanged for cash or other property originating with Buyer will be
treated as outstanding stock of the Company.
(k) No capital stock of Merger Subsidiary will be issued in the
Merger.
3.19 Investor Relations Firm. Buyer has retained an investor relations firm
with substantial Internet experience.
ARTICLE 4
COVENANTS OF THE COMPANY
4.01 Conduct of the Business. The Company covenants and agrees that, from
the date hereof until the Effective Time, unless otherwise consented to by Buyer
in writing:
(a) The business of the Company shall be conducted only in, and the
Company shall not take any action except in, the ordinary course of its
business, on an arm's-length basis and in accordance in all material
respects with all applicable laws, rules and regulations and the Company's
past custom and practice;
(b) The Company shall not issue or sell any additional shares of its
capital stock, except (i) as consideration for acquisitions by the Company
prior to the Effective Time, or (ii) with Buyer's consent.
(c) The Company shall not, directly or indirectly, do or permit to
occur any of the following: (i) issue or sell any options, warrants,
conversion privileges or rights of any kind to acquire any shares of, any
of its capital stock; (ii) sell, pledge, dispose of or encumber any of its
assets, except in the ordinary course of business; (iii) amend or propose
to amend its Certificate of Incorporation or Bylaws; (iv) split, combine or
reclassify any outstanding Company Common Shares, or declare, set aside or
pay any dividend or other distribution payable in cash, stock, property or
otherwise with respect to Company Common Shares; (v) redeem, purchase or
acquire or offer to acquire any Company Common Shares or other securities
of the Company; (vi) incur any indebtedness for borrowed money or issue any
debt securities except the borrowing of working capital from LegacyMaker in
amounts not to exceed $99,000 per month; or (vii) enter into or propose to
enter into, or modify or propose to modify, any agreement, arrangement or
understanding with respect to any of the matters set forth in this Section
4.01(c);
(d) The Company shall not, directly or indirectly, (i) enter into or
modify any employment, severance or similar agreements or arrangements
with, or grant any bonuses, salary increases (except for increases in the
ordinary course of business, consistent with past practice), severance or
termination pay to, any officers or directors or consultants; or (ii) in
the case of employees, officers or consultants, take any action with
respect to the grant of any bonuses, salary increases (except for increases
in the ordinary course of business, consistent with past practice),
severance or termination pay or with respect to any increase of benefits
payable in effect on the date hereof;
(e) The Company shall not adopt or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, trust, fund or group arrangement
for the benefit or welfare of any employees or any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or
arrangements for the benefit or welfare of any director;
(f) The Company shall not cancel or terminate its current insurance
policies or cause any of the coverage thereunder to lapse, unless
simultaneously with such termination, cancellation or lapse, replacement
policies providing coverage equal to or greater than the coverage under the
canceled, terminated or lapsed policies for substantially similar premiums
are in full force and effect;
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(g) The Company shall (i) use its best efforts to preserve intact its
business organization and goodwill, keep available the services of its
officers and employees as a group and maintain satisfactory relationships
with suppliers, distributors, customers and others having business
relationships with the Company; (ii) not intentionally take any action
which would render, or which reasonably may be expected to render, any
representation or warranty made by it in this Agreement untrue at the
Closing; (iii) notify Buyer of any governmental or third party complaints,
investigations or hearings (or communications indicating that the same may
be contemplated) if such complaint, investigation or hearing would be
material, individually or in the aggregate, to the business, prospects,
operations or financial condition of the Company or to the Company's or
Buyer's ability to consummate the transactions contemplated by this
Agreement; and (iv) promptly notify Buyer in writing if the Company shall
discover that any representation or warranty made in this Agreement was
when made, or has subsequently become, untrue in any respect;
(h) The Company shall (i) file any Returns, elections or information
statements with respect to any liabilities for Taxes of the Company or
other matters relating to Taxes of the Company which pursuant to applicable
law must be filed prior to the Effective Time; (ii) promptly upon filing
provide copies of any such Returns, elections or information statements to
Buyer; (iii) make any such Tax elections with respect to Taxes taken by or
affecting the Company only upon prior consultation with and consent of
Buyer; and (iv) not amend any Return except after prior consultation with
and the consent of Buyer; and
(i) The Company shall not permit (i) the amount of principal owing
under the LegacyMaker Note to increase by more than $99,000 per month or
(ii) the interest rate charged on any such increase to exceed 8% per annum.
4.02 Access to Books and Records. Between the date hereof and the Closing
Date, Buyer and its authorized representatives shall have full access at all
reasonable times and upon reasonable notice to the offices, properties, books,
records, officers, employees and other items of the Company, and the work papers
of Barry Morgan & Company, P.C., the Company's independent accountants, relating
to work done by Barry Morgan & Company, P.C. with respect to the Company for
each of the fiscal years ended December 31, 1998 and 1997, and otherwise provide
such assistance as is reasonably requested by Buyer in order that Buyer may have
a full opportunity to make such investigation and evaluation as it shall
reasonably desire to make of the business and affairs of the Company; provided,
that the Company shall have the right to have a representative present at all
times during any such access, and Buyer and Merger Subsidiary shall hold in
confidence all non-public information regarding the Company.
4.03 Regulatory Filings. As promptly as practicable after the execution of
this Agreement, the Company shall make or cause to be made all filings and
submissions under any laws or regulations applicable to the Company for the
consummation of the transactions contemplated herein. The Company will
coordinate and cooperate with Buyer in exchanging such information, will not
make any such filing without providing to Buyer a final copy thereof at least
two full business days in advance of the proposed filing and will provide such
reasonable assistance as Buyer may request in connection with all of the
foregoing.
4.04 Conditions. The Company shall take all commercially reasonable actions
necessary or desirable to cause the conditions set forth in Section 6.01 to be
satisfied and to consummate the transactions contemplated herein.
4.05 No Negotiations, etc. Subject to the last sentence of this Section
4.05, the Company shall not, directly or indirectly, through any officer,
director, agent or otherwise, solicit, initiate or encourage submission of any
proposal or offer from any person or entity (including any of its or their
officers or employees) relating to any liquidation, dissolution,
recapitalization, merger, consolidation or acquisition or purchase of all or a
material portion of the assets of, or any equity interest in, the Company or
other similar transaction or business combination involving the Company, or
participate in any negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person or entity to do or seek any of the foregoing. The Company shall promptly
notify Buyer if any such proposal or offer, or any inquiry from or contact with
any person with respect thereto, is made and shall promptly provide Buyer with
such information regarding
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<PAGE> 84
such proposal, offer, inquiry or contact as Buyer may request. Notwithstanding
the foregoing, nothing contained herein shall restrict the ability of the
Company to enter into any acquisition transaction otherwise permitted by this
Agreement (including, without limitation, a merger) in which the Company is the
acquiring party or surviving corporation.
ARTICLE 5
COVENANTS OF BUYER
Buyer covenants and agrees with the Company as follows:
5.01 Conduct of the Business. Buyer covenants and agrees that, from the
date hereof until the Effective Time, unless otherwise consented to by the
Company in writing:
(a) The business of Buyer shall be conducted only in, and Buyer shall
not take any action except in, the ordinary course of its business, on an
arm's-length basis and in accordance in all material respects with all
applicable laws, rules and regulations and Buyer's past custom and
practice;
(b) Buyer shall not issue or sell any additional shares of its capital
stock without the Company's consent, except pursuant to the exercise of
options or warrants or the conversion or exchange of securities convertible
into or exchangeable for capital stock, which options, warrants or other
securities are outstanding on the date hereof, all of which options,
warrants or convertible securities shall have been disclosed on the Buyer
Disclosure Schedule.
(c) Buyer shall not, directly or indirectly, do or permit to occur any
of the following: (i) sell, pledge, dispose of or encumber any of its
assets, except in the ordinary course of business; (ii) amend or propose to
amend its Articles of Incorporation or Bylaws; (iii) split, combine or
reclassify any outstanding Buyer Common Shares, or declare, set aside or
pay any dividend or other distribution payable in cash, stock, property or
otherwise with respect to Buyer Common Shares; (iv) redeem, purchase or
acquire or offer to acquire any Buyer Common Shares or other securities of
Buyer; (v) acquire (by merger, exchange, consolidation, acquisition of
stock or assets or otherwise) any corporation, partnership, joint venture
or other business organization or division or material assets thereof; (vi)
incur any indebtedness for borrowed money or issue any debt securities
except the borrowing of working capital in the ordinary course of business
and consistent with past practice; or (vii) enter into or propose to enter
into, or modify or propose to modify, any agreement, arrangement or
understanding with respect to any of the matters set forth in this Section
5.01(c);
(d) Buyer shall not, directly or indirectly, (i) enter into or modify
any employment, severance or similar agreements or arrangements with, or
grant any bonuses, salary increases (except for increases in the ordinary
course of business, consistent with past practice), severance or
termination pay to, any officers, directors or consultants; or (ii) in the
case of employees, officers or consultants, take any action with respect to
the grant of any bonuses, salary increases (except for increases in the
ordinary course of business, consistent with past practice), severance or
termination pay or with respect to any increase of benefits payable in
effect on the date hereof;
(e) Buyer shall not adopt or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, trust, fund or group arrangement
for the benefit or welfare of any employees or any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or
arrangements for the benefit or welfare of any director;
(f) Buyer shall not cancel or terminate its current insurance policies
or cause any of the coverage thereunder to lapse, unless simultaneously
with such termination, cancellation or lapse, replacement policies
providing coverage equal to or greater than the coverage under the
canceled, terminated or lapsed policies for substantially similar premiums
are in full force and effect;
(g) Buyer shall (i) use its best efforts to preserve intact its
business organization and goodwill, keep available the services of its
officers and employees as a group and maintain satisfactory relationships
with
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<PAGE> 85
suppliers, distributors, customers and others having business relationships
with Buyer; (ii) not intentionally take any action which would render, or
which reasonably may be expected to render, any representation or warranty
made by it in this Agreement untrue at the Closing; (iii) notify the
Company of any governmental or third party complaints, investigations or
hearings (or communications indicating that the same may be contemplated)
if such complaint, investigation or hearing would be material, individually
or in the aggregate, to the business, prospects, operations or financial
condition of Buyer or to Buyer's or the Company's ability to consummate the
transactions contemplated by this Agreement; and (v) promptly notify the
Company in writing if Buyer shall discover that any representation or
warranty made in this Agreement was when made, or has subsequently become,
untrue in any respect;
(h) Buyer shall (i) file any Returns, elections or information
statements with respect to any liabilities for Taxes of Buyer or other
matters relating to Taxes of Buyer which pursuant to applicable law must be
filed prior to the Closing Date; (ii) promptly upon filing provide copies
of any such Returns, elections or information statements to the Company;
(iii) make any such Tax elections with respect to Taxes taken by or
affecting Buyer only upon prior consultation with and consent of the
Company; and (iv) not amend any Return, except after prior consultation
with and the consent of the Company.
5.02 Regulatory Filings. As promptly as practicable after the execution of
the Agreement, Buyer shall make or cause to be made all filings and submissions
under any laws or regulations applicable to Buyer for the consummation of the
transactions contemplated herein, including the filing of proxy materials with
the Securities and Exchange Commission for shareholder approval of the
transactions contemplated hereby. Buyer will coordinate and cooperate with the
Company in exchanging such information, will not make any such filing without
providing the Company with a final copy thereof at least two full business days
in advance of the proposed filing and will provide such reasonable assistance as
the Company may request in connection with all of the foregoing.
5.03 Conditions. Buyer shall take all commercially reasonable actions
necessary or desirable to cause the conditions set forth in Sections 1.05(c) and
6.02 to be satisfied and to consummate the transactions contemplated herein as
soon as reasonably possible after the satisfaction thereof (but in any event
within three business days of such date).
5.04 Repayment of Indebtedness. Buyer will take all reasonable steps to
raise the funds necessary to permit the Surviving Corporation to pay off the
LegacyMaker Note and all outstanding indebtedness of the Company. Merger
Subsidiary and Buyer agree that not later than the Effective Time, they will
pay, or cause or be paid, any amounts due to LegacyMaker under the LegacyMaker
Note.
5.05 Nasdaq Listing. Following the date hereof, Buyer will take all
reasonable steps necessary to maintain Nasdaq listing of the Buyer Common Shares
on the Nasdaq SmallCap Market.
5.06 Publicizing Merger. At the Effective Time, Buyer shall use its best
efforts to publicize the Merger and promote its Internet-related business
strategy.
5.07 Registration of Buyer Common Shares. As soon as practicable after the
Effective Time, Buyer agrees to file a registration statement on Form S-3 (the
"REGISTRATION STATEMENT") to register the resale of the Buyer Common Shares
issuable upon conversion of the Buyer Preferred Shares under the Securities Act
of 1933 and the blue sky laws of such states as are reasonably selected by the
Company Shareholders. Buyer shall use its best efforts to have the Registration
Statement declared effective by the Securities and Exchange Commission and any
such state as soon as practicable. Buyer shall keep the Registration Statement
effective and current until the earlier to occur of (i) the date all such Buyer
Common Shares are sold or (ii) the date all such Buyer Common Shares may be sold
under Rule 144 under the Securities Act. Except as set forth in the following
sentence, Buyer shall bear all expenses and fees incurred in connection with the
preparation, filing, and amendment of the Registration Statement with the
Commission and any state reasonably selected by the Company Shareholders. The
Company Shareholders shall pay all fees, disbursements and expenses of any
counsel or expert retained by the Company Shareholders and all underwriting
discounts and commissions and any transfer or other taxes relating to the Buyer
Common Shares included in the Registration Statement.
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5.08 Tax-Free Reorganization. Buyer shall take no action that would
jeopardize the characterization of the merger as a reorganization within the
meaning of Section 368 of the Code. Buyer will not liquidate the Surviving
Corporation, merge the Surviving Corporation with or into another corporation,
sell or otherwise dispose of the stock of the Surviving Corporation or cause the
Surviving Corporation to sell or otherwise dispose of its assets, except for
dispositions made in the ordinary course of business or transfers described in
Section 368(a)(2)(C) of the Code, without first obtaining a legal opinion that
the taking of such action will not prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code. Notwithstanding
any other provision in this Agreement, the covenants in this Section shall
survive without limitation.
5.09 Employee and Employee Benefit Plan Matters.
(a) After the Effective Time, Buyer shall provide those employees of
the Company covered by the benefit plans of the Company with the same
benefits in respect of future service that accrue in respect of future
services to the employees of Buyer who are employed in comparable
positions. Buyer and the Company further agree that any present employees
of the Company shall be credited for their service with the Company for
purposes of eligibility, benefit entitlement and vesting in the benefit
plans provided by Buyer. If permitted under Buyer's benefit plans, those
employees' benefits under Buyer's medical plans shall not be subject to
exclusions for any pre-existing conditions, and credit shall be received
for any deductibles or out-of-pocket amounts previously paid during the
current plan year.
(b) The provisions of this Section are intended to be for the benefit
of, and shall be enforceable by, the parties hereto and each employee of
the Company covered by benefit plans of the Company.
5.10 Indemnification. All rights to indemnification and exculpation
existing in favor of the present or former directors, officers, employees,
fiduciaries, and agents of the Company as provided in the Company's charter or
bylaws as in effect as of the date hereof with respect to matters occurring
prior to the Effective Time shall survive the Merger and shall continue in full
force and effect for a period of not less than the applicable statute of
limitations.
5.11 Performance by Merger Subsidiary. Buyer shall cause Merger Subsidiary
to comply with all its obligations hereunder and, subject to the terms and
conditions hereof, to consummate the Merger.
ARTICLE 6
CONDITIONS TO CLOSING
6.01 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions on or before the Closing Date:
(a) The representations and warranties set forth in Article 2 shall be
true and correct at and as of the Closing Date as though then made and as
though the Closing Date had been substituted for the date of this Agreement
throughout such representations and warranties (without taking into account
any disclosures by the Company of discoveries, events or occurrences
arising on or after the date hereof), except that any such representation
or warranty made as of a specified date (other than the date hereof) shall
only need to have been true on and as of such date;
(b) The Company shall have performed in all material respects all of
the covenants and agreements required to be performed and complied with by
it under this Agreement prior to the Closing;
(c) Each Company Shareholder entitled to vote on the matter shall have
approved the transactions contemplated hereby;
(d) The Company shall have obtained, or caused to be obtained, each
consent and approval necessary in order that the transactions contemplated
herein not constitute a breach or violation of, or result in a right of
termination or acceleration of, or creation of any encumbrance on any of
the Company's assets pursuant to the provisions of, any agreement,
arrangement or undertaking of or
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<PAGE> 87
affecting the Company or any license, franchise or permit of or affecting
the Company, except where any failure to do so could not reasonably be
expected to have a Material Adverse Effect;
(e) All material governmental filings, authorizations and approvals
that are required for the consummation of the transactions contemplated
hereby will have been duly made and obtained;
(f) There shall not be threatened, instituted or pending any action or
proceeding, before any court or governmental authority or agency, (i)
challenging or seeking to make illegal, or to delay or otherwise directly
or indirectly restrain or prohibit, the consummation of the transactions
contemplated hereby or seeking to obtain material damages in connection
with such transactions, (ii) seeking to prohibit direct or indirect
ownership or operation by Buyer of all or a material portion of the
business or assets of the Company, or to compel Buyer or any of its
subsidiaries or the Company to dispose of or to hold separately all or a
material portion of the business or assets of Buyer and its subsidiaries or
of the Company, as a result of the transactions contemplated hereby; (iii)
seeking to invalidate or render unenforceable any material provision of
this Agreement or any of the Related Agreements, or (iv) otherwise relating
to and materially adversely affecting the transactions contemplated hereby;
(g) There shall not be any action taken, or any statute, rule,
regulation, judgment, order or injunction enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated
hereby by any federal or state court, government or governmental authority
or agency, which would reasonably be expected to result, directly or
indirectly, in any of the consequences referred to in Section 6.01(f);
(h) Each of the Company Shareholders shall have signed a lock-up
agreement preventing it, him or her from selling any Buyer Common Shares or
securities convertible into or exercisable for Buyer Common Shares between
the date hereof and the Effective Time and preventing him thereafter from
selling more than 25% in the aggregate of the Buyer Preferred Shares
received by it, him or her as a part of the Merger Consideration, or more
than 25% in the aggregate of the Buyer Common Shares issuable upon
conversion of such Buyer Preferred Shares, for one year after the Effective
Time and providing further that any Buyer Common Shares sold by any such
person shall be shares that are obtained by such person after the Effective
Time upon the exercise of options or warrants of the Company.
(i) Buyer shall have received from counsel for the Company a written
opinion, dated as of the Closing Date, addressed to Buyer and in form and
substance substantially as set forth in EXHIBIT F;
(j) Buyer shall have received the agreement of LegacyMaker to
indemnify and hold Buyer harmless from and against any and all losses or
liabilities from and after the Effective Time through the expiration of any
relevant statute of limitations and related to or arising out of any breach
by the Company of its representations, warranties or covenants, as the same
shall be evidenced in an indemnification agreement, in form and substance
substantially as set forth in EXHIBIT G, to be executed and delivered into
escrow at Closing by LegacyMaker (the "LEGACYMAKER INDEMNIFICATION
AGREEMENT");
(k) On the Closing Date, the Company shall have delivered to Buyer all
of the following:
(i) A certificate of the President of the Company, dated the
Closing Date, stating that the conditions precedent set forth in
subsections (a) and (b) above have been satisfied;
(ii) copies of the third party and governmental consents and
approvals referred to in subsections (d) and (e) above;
(iii) a copy of the Certificate of Incorporation of the Company,
certified by the Secretary of State of the State of Delaware, and a
Certificate of Good Standing from the Secretary of State of the State of
Delaware evidencing the good standing of the Company in such state;
(iv) a copy of the Bylaws of the Company, along with a certificate
executed on behalf of the Company by its corporate secretary certifying
to Buyer that such copy is a true, correct and complete
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<PAGE> 88
copy of such bylaws and that such bylaws were duly adopted and have not
been amended or rescinded;
(v) an executed copy of each of the Related Agreements;
(vi) a copy of the text of the resolutions adopted by the Board
of Directors and Company Shareholders entitled to vote on the matter
authorizing the execution, delivery and performance of this Agreement
and the consummation of all of the transactions contemplated by this
Agreement, along with a certificate executed on behalf of the Company by
its corporate secretary certifying to Buyer that such copies are true,
correct and complete copies of such resolutions and that such
resolutions were duly adopted and have not been amended or rescinded;
(vii) an incumbency certificate executed on behalf of the Company
by its corporate secretary certifying the signature and office of each
officer executing this Agreement; and
(viii) such other certificates, documents and instruments as Buyer
reasonably requests related to the transactions contemplated hereby.
6.02 Conditions to the Company's Obligations. The obligations of the
Company to consummate the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions on or before the Closing
Date:
(a) The representations and warranties set forth in Article 3 hereof
will be true and correct at and as of the Closing Date as though then made
and as though the Closing Date had been substituted for the date of this
Agreement throughout such representations and warranties;
(b) Buyer shall have performed in all material respects all the
covenants and agreements required to be performed and complied with by it
under this Agreement prior to the Closing;
(c) The Company shall have obtained the approval of its Board of
Directors and the unanimous approval of its shareholders of the
transactions contemplated hereby;
(d) All material governmental filings, authorizations and approvals
that are required for the consummation of the transactions contemplated
hereby will have been duly made and obtained;
(e) There shall not be threatened, instituted or pending any action or
proceeding, before any court or governmental authority or agency, (i)
challenging or seeking to make illegal, or to delay or otherwise directly
or indirectly restrain or prohibit, the consummation of the transactions
contemplated hereby or seeking to obtain material damages in connection
with such transactions, (ii) seeking to invalidate or render unenforceable
any material provision of this Agreement or any of the Related Agreements,
or (iii) otherwise relating to and materially adversely affecting the
transactions contemplated hereby;
(f) There shall not be any action taken, or any statute, rule,
regulation, judgment, order or injunction, enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated
hereby by any federal or state court, government or governmental authority
or agency, which would reasonably be expected to result, directly or
indirectly, in any of the consequences referred to in Section 6.02(d)
hereof;
(g) There shall have been no damage, destruction or loss of or to any
property or properties owned or used by Buyer, whether or not covered by
insurance, which, in the aggregate, has, or would be reasonably likely to
have, a material adverse effect on Buyer;
(h) Each of King, Ronald K. Fuller and Jerry L. Ruyan shall have
signed a lock-up agreement preventing him from selling any Buyer Common
Shares or securities convertible into or exercisable for Buyer Common
Shares between the date hereof and the Effective Time and preventing him
thereafter from selling more than 25% in the aggregate on a fully diluted
basis of his Buyer Common Shares for one year after the date hereof and
providing further that any Buyer Common Shares sold by any such person
during such one-year period shall be shares that are obtained by such
person after the Effective Time upon the exercise of options or warrants of
the Company;
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<PAGE> 89
(i) The Company shall have received the individual agreement of King
to indemnify and hold the Company harmless from and against any and all
losses or liabilities from and after the Effective Time through the
expiration of any relevant statute of limitations and related to or arising
out of any breach by Buyer of its representations, warranties or covenants,
and such other matters agreed upon by the Company and King, as the same
shall be evidenced in an indemnification agreement, in form and substance
substantially as set forth in EXHIBIT H, to be delivered at Closing by King
and to be executed by him in his individual capacity (the "KING
INDEMNIFICATION AGREEMENT");
(j) Messrs. King, Fuller and Ruyan shall have executed and delivered
an irrevocable voting proxy, in favor of such person as the
Attorney-in-Fact (defined in Section 8.01) shall designate, with respect to
all of their respective Buyer Common Shares;
(k) King shall have executed and delivered an Employment and
Non-competition Agreement with Buyer substantially in the form attached
hereto as EXHIBIT I, and James L. Anderson shall have entered into a
Consulting Agreement with Buyer substantially in the form attached hereto
as EXHIBIT J;
(l) The Company shall have received from counsel for Buyer a written
opinion, dated as of the Closing Date, addressed to the Company, in form
and substance substantially as set forth in EXHIBIT K;
(m) The Company and the Company Shareholders shall have received, at
Buyer's expense, from Thompson & Knight, P.C., a written opinion, dated as
of the Closing Date, addressed to the Company and the Company Shareholders,
in form and substance reasonably acceptable to the Company to the effect
that (i) the Merger will be treated for U.S. federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code, (ii) the
Company, Merger Subsidiary and Buyer will each be a party to that
reorganization within the meaning of Section 368(b) of the Code and (iii)
the Company Shareholders shall not recognize any gain or loss for U.S.
federal income tax purposes upon receipt of the Merger Consideration; and
(n) On the Closing Date, Buyer will have delivered to the Company all
of the following:
(i) a certificate of appropriate officer(s) of Buyer, dated the
Closing Date, stating that the conditions precedent set forth in
subsections (a) and (b) above have been satisfied;
(ii) an executed copy of each of the Related Agreements;
(iii) a copy of each of (x) the text of the resolutions adopted by
the Board of Directors of Buyer and Merger Subsidiary authorizing the
execution, delivery and performance of this Agreement and the
consummation of all of the transactions contemplated by this Agreement,
(y) the charter and bylaws of each of Buyer and Merger Subsidiary, along
with certificates executed on behalf of each of them by their respective
corporate secretaries certifying to the Company that such copies are
true, correct and complete copies of such resolutions, charter and
bylaws, respectively, and that such resolutions, charter and bylaws were
duly adopted and have not been amended or rescinded;
(iv) Certificates of Existence and Good Standing for each of Buyer
and Merger Subsidiary issued by the Secretary of State of each of their
respective states of incorporation evidencing the good standing of such
corporation in such state;
(v) incumbency certificates executed on behalf of Buyer and
Merger Subsidiary by their respective corporate secretaries certifying
the signature and office of each officer executing this Agreement or any
of the Related Agreements; and
(vi) such other certificates, documents and instruments as the
Company reasonably requests related to the transactions contemplated
hereby.
25
<PAGE> 90
ARTICLE 7
TERMINATION AND REMEDIES
7.01 Termination.
(a) This Agreement may be terminated at any time prior to the Closing:
(i) by the mutual consent of Buyer and the Company;
(ii) by either Buyer or the Company if there has been a material
misrepresentation, breach of warranty or breach of covenant on the part
of the other in the representations, warranties and covenants set forth
in this Agreement;
(iii) by Buyer or the Company if Closing does not occur by the
later to occur of (A) 5:00 p.m., Central Time, on June 17, 1999 and (B)
5:00 p.m., Central Time, on the fifth day after the date on which the
Company delivers to Buyer the Company's Annual Financial Statements;
provided that (i) neither party will be entitled to terminate this
Agreement pursuant to this Section 7.01(a)(iii) if its willful breach of
this Agreement has prevented the consummation of the Closing by such
date;
(iv) by either party if, after the date hereof, there shall have
been a material adverse change in the assets, financial condition,
operating results, customer, employee or supplier relations, business
condition or prospects of the other party; and
(v) by Buyer if, between the Closing Date and the Effective Time,
the Company (without the prior approval of Buyer) acquires another
company or Company Shareholders exchange Company Common Shares for
securities of another entity and Buyer, acting in good faith, does not
approve of such acquisition or exchange.
(b) (i) Except as otherwise provided in this Section 7.01(b), this
Agreement will automatically terminate if the Effective Time has not
occurred on or before August 30, 1999 (the "Expiration Date"), subject to
Buyer's right to extend the Expiration Date pursuant to subparagraph (iii)
below.
(ii) If the Effective Time has not occurred by the initial
Expiration Date, Buyer shall on the day immediately following the
Expiration Date pay to LegacyMaker liquidated damages of $100,000 cash
(the "Liquidated Damages"). The Liquidated Damages shall be paid
regardless of whether Buyer extends the Expiration Date pursuant to
subparagraph (iii) below.
(iii) Buyer shall have the option to extend the Expiration Date for
up to three consecutive 30-day periods (each an "Extension Period"), the
first to commence on the day immediately following the initial
Expiration Date and second and third Extension Periods to commence upon
the expiration of the preceding Extension Period. Notwithstanding
subparagraph (i) above, during any Extension Period this Agreement shall
remain in effect. Buyer's right to extend the Expiration Date is
exercisable by Buyer by payment to LegacyMaker of $100,000 in cash no
later than the first day of each such Extension Period (each, an
"Extension Payment"). The Extension Payment(s) shall be in addition to,
and not in lieu of, the payment of the Liquidated Damages.
(iv) The Company may terminate this Agreement at any time prior to
the Effective Time (including during any Extension Period) if Buyer
loses the Nasdaq SmallCap listing of the Buyer Common Shares. In the
event of such termination, the Liquidated Damages shall immediately
become due and payable to LegacyMaker if not previously paid.
Furthermore, any Extension Payment previously paid to LegacyMaker shall
be retained by LegacyMaker as additional liquidated damages and not as a
penalty.
7.02 Effect of Termination. In the event of termination of this Agreement
by either Buyer or the Company as provided in Section 7.01, this Agreement shall
become void and, except as provided in Section 7.01(f), there shall be no
liability on the part of either Buyer or the Company or their respective
shareholders, officers, or directors except that Section 9.01 shall survive
indefinitely and except with respect to willful breaches of this Agreement prior
to the time of such termination.
26
<PAGE> 91
7.03 Arbitration. Any dispute among Merger Subsidiary, Buyer and the
Company under this Agreement shall be resolved by arbitration by an arbitrator
selected under the rules of the American Arbitration Association (located in
Dallas, Texas) and the arbitration shall be conducted in that same location
under the rules of said Association. Merger Subsidiary, Buyer and the Company
shall each be entitled to present evidence and argument to the arbitrator. The
arbitrator shall have the right only to interpret and apply the provisions of
this Agreement and may not change any of its provisions. The arbitrator shall
permit reasonable pre-hearing discovery of facts, to the extent necessary to
establish a claim or a defense to a claim, subject to supervision by the
arbitrator. The determination of the arbitrator shall be conclusive and binding
upon the parties and judgment upon the same may be entered in any court having
jurisdiction thereof. The arbitrator shall give written notice to the parties
stating his determination, and shall furnish to each party a signed copy of such
determination.
7.04 Remedies. It is understood that, in the event of any party's breach of
its respective agreements as herein provided or any party's failure to perform
the covenants set forth in this Agreement or any of the Related Agreements
required to be performed by it, the measure of damages at law to the affected
party will be difficult to ascertain and the remedy at law may be inadequate.
Accordingly, it is specifically agreed that either Merger Subsidiary, Buyer or
the Company, as the case may be, shall be entitled to the remedy of specific
performance to enforce the terms and conditions of this Agreement.
7.05 Litigation Expense. In the event any party hereto is made or shall
become a party to any litigation (including arbitration) commenced by or against
the other involving the enforcement of any of the rights or remedies of such
party, or arising on account of a default of the other party in its performance
of any of the other party's obligations hereunder, then each party shall pay and
be solely responsible for any and all costs incurred by it in connection with
such litigation, including the costs, fees and expenses of any and all
attorneys' fees.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.01 Powers of Attorney. The Letter of Transmittal provides for the
appointment by each Company Shareholder (including those who become Company
Shareholders after the date hereof) of James L. Anderson as his, her or its
agent and attorney-in-fact (the "ATTORNEY-IN-FACT"), to take all action required
or permitted under the Escrow Agreement or herein with respect to the interests
and rights of such Company Shareholder. Buyer may, for all purposes of this
Agreement, assume and treat every notice or other action directed to or
performed by the Attorney-in-Fact as if such notice or other action has been
directed to or performed by each Company Shareholder.
8.02 Officers of Surviving Corporation. As of the Effective Time, James L.
Anderson shall be elected the Chairman of the Board, and King the Chief
Executive Officer, of Buyer.
8.03 Options, etc. Issued by Buyer after May 3, 1999. If Buyer issues any
options, warrants or other securities exchangeable for, or convertible into,
Buyer Common Shares after May 3, 1999 and prior to the Effective Time, then upon
payment by LegacyMaker to Buyer of the same consideration paid to Buyer by the
recipient(s) of such options, warrants or other securities, Buyer agrees to
issue at the Effective Time securities, with substantially identical material
terms and in the same aggregate amount to LegacyMaker.
8.04 The Company's Corporate Books. At the Effective Time, the Company
shall deliver to Buyer the Company's minute books, stock transfer records,
corporate seal and other materials related to the Company's corporate
administration.
8.05 Securities and Blue Sky Laws. Buyer shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of Buyer Preferred Shares hereunder and
Buyer Common Shares upon conversion of the Buyer Preferred Shares.
27
<PAGE> 92
8.06 Tax Matters.
(a) Buyer and the Company and each Company Shareholder (by virtue of
the approval of this Agreement by the requisite vote of the Company
Shareholders) shall, and the Company shall cause each person or entity who
becomes a Company Shareholder after the date hereof to, cooperate fully, as
and to the extent reasonably requested by the other party, in connection
with the filing of Tax Returns and any audit, litigation or other
proceedings with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or
other proceeding and making employees available on a mutually convenient
basis to provide additional information and explanation of any material
provided hereunder.
(b) For federal income tax purposes, the parties agree to take all
actions necessary to allocate each item of income, gain, loss, deduction
and credit of the Company for the calendar year 1999 based on an interim
closing of the books as of the Effective Time. Buyer agrees to cooperate
with the Company Shareholders and make available to them all information
and documents necessary for the preparation of the Form 1120-S with respect
to the Company for the period ending on the Effective Time.
8.07 Advance to the Company. Within three business days after the date
hereof, Buyer shall pay to the Company $150,000 in cash. In the event that the
Merger is not consummated, for whatever reason, then this payment shall be
retained by the Company as compensation to the Company for the expenditures made
by it in anticipation of combining its operations with the operations of Buyer.
This payment shall not reduce or offset the Liquidated Damages or Extension
Payments (if payable) otherwise due to LegacyMaker hereunder. If the Merger is
consummated, then this amount shall be retained by the Surviving Corporation and
shall be deemed to be a capital contribution by Buyer to the Surviving
Corporation.
ARTICLE 9
SURVIVAL; INDEMNIFICATION
9.01 Survival of Representations and Warranties. Notwithstanding any
investigation made by or on behalf of any of the parties hereto or the results
of any such investigation and notwithstanding the participation of such party in
the Closing, the representations and warranties contained in Article 2 and
Article 3 shall survive the Closing for a period of two (2) years following the
Closing Date, except with respect to claims specifically raised by the aggrieved
party or parties in one or more written notices given to the allegedly offending
party or parties prior to the second anniversary of the Closing Date, and such
claims may continue to be asserted by the aggrieved party or parties after that
date, provided that claims based upon any alleged breach of a representation or
warranty contained in any of Sections 2.13, 2.22, 3.10 or 3.18 may be brought at
any time on or prior to the expiration of any relevant statute of limitations
governing the underlying claim.
9.02 Indemnification of Company Indemnitees. Buyer hereby agrees to defend,
indemnify and hold the Company and its directors and officers and each Company
Shareholder (the "COMPANY INDEMNITEES") harmless from, against and in respect
of: (i) any and all losses, damages or deficiencies (whether as a result of a
direct claim by the Company Indemnitees against Buyer, a third party claim
against the Company Indemnitees or otherwise) resulting from any and all
breaches of representations, warranties, covenants or other terms of this
Agreement by Buyer or Merger Subsidiary made or contained in this Agreement or
in any certification, list, document or exhibit delivered by Buyer under or in
connection with this Agreement or the transactions contemplated herein; (ii) all
costs, damages, liabilities, obligations and reasonable expenses related to or
arising out of Buyer's operation of the Surviving Corporation on or after the
Effective Time; and (iii) all costs and expenses incident to any and all
actions, suits, proceedings, claims, demands, assessments or judgments in
respect of sections (i) and (ii) of this Section, regardless of the merit
thereof, including the Company Indemnitees' reasonable legal and accounting fees
and expenses (whether incident to the foregoing or to the Company Indemnitees'
enforcement of said rights of defense and indemnity).
9.03 Procedure for Indemnification of the Company Indemnitees. If any such
action, suit or proceeding shall be commenced against the Company Indemnitees or
any such claim, demand or assessment be asserted against the Company Indemnitees
in respect of which any of the Company Indemnitees proposes to demand
28
<PAGE> 93
defense and indemnification, Buyer shall be notified to that effect with
reasonable promptness and shall thereafter have the right, but not the
obligation, to assume the entire control of the defense, compromise or
settlement thereof, including, at its own expense, employment of counsel
satisfactory to the Company Indemnitees and, in connection therewith, each of
the Company Indemnitees shall cooperate fully to make available to Buyer all
pertinent information under its control. If Buyer does not promptly notify the
Company Indemnitees that Buyer will assume the entire control of such defense,
Buyer shall thereafter reimburse each of the Company Indemnitees for all of its
reasonable expenses (as described herein) for such defense, as and when they are
incurred.
9.04 Indemnification Threshold. Neither LegacyMaker on the one hand, nor
Buyer or King on the other hand, shall have any indemnification obligation under
this Agreement, the LegacyMaker Indemnification Agreement or the King
Indemnification Agreement, as the case may be, unless and until the aggregate
amount of all losses, damages, costs, expenses and deficiencies incurred by the
aggrieved party or like situated parties reaches $100,000 (the "THRESHOLD
AMOUNT"), at which time the offending party or parties shall be liable in full
for all losses, damages, costs, expenses and deficiencies in excess of the
Threshold Amount.
9.05 Adjustment for Taxes and Insurance. The amount of any liabilities for
which an indemnitor may be liable under this Article 9, the LegacyMaker
Indemnification Agreement or the King Indemnification Agreement shall be
calculated net of any Tax Benefit inuring to the indemnitee on account of such
liabilities. "Tax Benefit" shall mean any refund of Taxes paid or reduction in
the amount of Taxes which would otherwise be paid currently or in the future, in
each case computed assuming that income taxes are paid at the highest United
States federal marginal rate applicable to the indemnitee. The indemnitee will
not be entitled to any recovery from the indemnitor for any liabilities to the
extent of the amount of insurance proceeds actually paid to the indemnitee with
respect to such liabilities.
ARTICLE 10
MISCELLANEOUS
10.01 Press Releases and Announcements. Prior to the Effective Time, no
party hereto shall issue any press release (or make any other public
announcement) related to this Agreement or the transactions contemplated hereby
or make any announcement to the employees, customers or suppliers of the Company
or Buyer without prior written approval of the other party, except as may be
necessary, in the opinion of counsel to the party seeking to make disclosure, to
comply with applicable law. If any such press release or public announcement is
so required, the party making such disclosure shall consult with the other party
prior to making such disclosure, and the parties shall use all reasonable
efforts, acting in good faith, to agree upon a text for such disclosure which is
satisfactory to both parties.
10.02 Expenses. Except as otherwise expressly provided for herein, each of
the Company and Buyer will pay all of its own expenses (including attorneys' and
accountants' fees) in connection with the negotiation of this Agreement, the
performance of their respective obligations hereunder and the consummation of
the transactions contemplated by this Agreement (whether consummated or not).
10.03 Further Assurances. Each party agrees that, on and after the
Effective Time, it shall take all appropriate action and execute any documents,
instruments or conveyances of any kind which may be reasonably necessary or
advisable to carry out any of the provisions hereof.
10.04 Amendment and Waiver. This Agreement may not be amended or waived
except in a writing executed by the party against which such amendment or waiver
is sought to be enforced. No course of dealing between or among any persons
having any interest in this Agreement will be deemed effective to modify or
amend any part of this Agreement or any rights or obligations of any person
under or by reason of this Agreement.
10.05 Notices. All notices, demands and other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when personally delivered or
mailed by first class mail, return receipt requested, or when receipt is
acknowledged, if sent by facsimile, telecopy, e-mail or other electronic
transmission device. Notices, demands and communica-
29
<PAGE> 94
tions to Buyer and the Company will, unless another address is specified in
writing, be sent to the address indicated below:
<TABLE>
<CAPTION>
NOTICES TO BUYER: WITH A COPY TO:
----------------- ---------------
<S> <C>
Cafe Odyssey, Inc. Maslon Edelman Borman & Brand, LLP
4801 West 81st Street, Suite 112 90 South Seventh Street
Bloomington, MN 55437 Minneapolis, MN 55402
Attention: Stephen D. King Attention: William M. Mower, Esq.
E-mail: [email protected] E-mail: [email protected]
Fax: (612) 837-9916 Fax: (612) 672-8397
Notices to the Company: with a copy to:
Thompson & Knight, a Professional
popmail.com, inc. Corporation
1333 Corporate Drive, Suite 350 1700 Pacific Avenue, Suite 3300
Irving, TX 75038 Dallas, TX 75201
Attention: Toni Bryan, Business Manager Attention: David L. Emmons, Esq.
E-mail: [email protected] E-mail: [email protected]
Fax: (972) 550-5517 Fax: (214) 969-1751
Notice to the Company Shareholders: with a copy to:
Thompson & Knight, a Professional
James L. Anderson, Attorney-in-Fact Corporation
1333 Corporate Drive, Suite 350 1700 Pacific Avenue, Suite 3300
Irving, TX 75038 Dallas, TX 75201
E-mail: [email protected] Attention: David L. Emmons, Esq.
Fax: (972) 550-5517 E-mail: [email protected]
Fax: (214) 969-1751
</TABLE>
10.06 Assignment. This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, except that neither this Agreement nor any of
the rights, interests or obligations hereunder may be assigned by either party
hereto without the prior written consent of the other party hereto, except that
Buyer may assign any and all rights it has under this Agreement or any Related
Agreement to a wholly owned subsidiary of Buyer without the consent of any other
party.
10.07 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
10.08 Complete Agreement. This Agreement and the Related Agreements and
other exhibits hereto, the Disclosure Schedules and the other documents referred
to herein contain the complete agreement between the parties and supersede any
prior understandings, agreements or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any way.
10.09 Counterparts. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
instrument.
10.10 Governing Law. The internal law, without regard to conflicts of laws
principles, of the State of Delaware will govern all questions concerning the
construction, validity and interpretation of this Agreement and the performance
of the obligations imposed by this Agreement.
30
<PAGE> 95
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"BUYER"
CAFE ODYSSEY, INC.
By: /s/ STEPHEN D. KING
------------------------------------
Stephen D. King
Chairman of the Board and Chief
Executive Officer
"MERGER SUBSIDIARY"
CAFE ODYSSEY ACQUISITION
SUBSIDIARY, INC.
By: /s/ STEPHEN D. KING
------------------------------------
Stephen D. King
President
/s/ STEPHEN D. KING
------------------------------------
Stephen D. King
THE "COMPANY"
POPMAIL.COM, INC.
By: /s/ JAMES L. ANDERSON
------------------------------------
James L. Anderson
Chairman, Chief Executive Officer
and President
THE "COMPANY SHAREHOLDERS"
THE SONYA NANCE TRUST
By: /s/ JAMES L. ANDERSON
------------------------------------
James L. Anderson, Trustee
31
<PAGE> 96
THE MARCOS A. AND SONYA NANCE
RODRIGUEZ CHILDREN'S TRUST NO. 2
By: /s/ JAMES L. ANDERSON
------------------------------------
James L. Anderson, Trustee
/s/ TRAVIS REESE
--------------------------------------
Travis Reese
/s/ PAUL MARTIN
--------------------------------------
Paul Martin
/s/ JAMES L. ANDERSON
--------------------------------------
James L. Anderson
/s/ TONI BRYAN
--------------------------------------
Toni Bryan
/s/ JAMES A. GAMMON
--------------------------------------
James A. Gammon
/s/ JEFF CRABTREE
--------------------------------------
Jeff Crabtree
/s/ BRUCE CAMPBELL
--------------------------------------
Bruce Campbell
/s/ KELEIGH AHMAN
--------------------------------------
Keleigh Ahman
/s/ RANDY ISBELL
--------------------------------------
Randy Isbell
32
<PAGE> 97
CAFE ODYSSEY, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS -- AUGUST 19, 1999
The undersigned, a shareholder of Cafe Odyssey, Inc., hereby
appoints Stephen D. King and Ronald K. Fuller, and each of them, as
proxies, with full power of substitution, to vote on behalf of the
undersigned the number of shares which the undersigned is then entitled
to vote, at the Annual Meeting of Shareholders of Cafe Odyssey, Inc. to
be held at the Minneapolis Marriott City Center, 30 South 7th Street,
Minneapolis, Minnesota 55402, at 6:00 p.m. on Thursday, August 19, 1999,
and at any and all adjournments thereof, with all the powers which the
undersigned would possess if personally present, upon:
<TABLE>
<S> <C> <C>
(1) Adoption of Merger Agreement:
[ ] FOR adoption of Merger Agreement [ ] AGAINST adoption of Merger Agreement
(2) Election of Directors:
[ ] FOR all nominees (except as marked to the contrary [ ] WITHHOLD AUTHORITY to vote for all nominees listed
below) below
</TABLE>
RONALD K. FULLER STEPHEN D. KING MICHAEL L. KRIENIK THOMAS W. ORR JERRY
L. RUYAN
<TABLE>
<S> <C> <C>
(3) Amendment of Articles of Incorporation changing the Name of Cafe Odyssey:
[ ] FOR amending the Articles of Incorporation [ ] AGAINST amending the Articles of Incorporation
changing the name of Cafe Odyssey to PopMail.com, inc. changing the name of Cafe Odyssey to PopMail.com, inc.
</TABLE>
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below:
--------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL PROPOSALS.
(Continued, and to be COMPLETED AND SIGNED, on the reverse side)
<PAGE> 98
(Continued from other side)
The undersigned hereby revokes all previous proxies relating to the
shares covered hereby and acknowledges receipt of the Notice and Proxy
Statement relating to the Annual Meeting of Shareholders.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. When
properly executed, this proxy will be voted on the proposals set forth
herein as directed by the shareholder, but if no direction is made in
the space provided, this proxy will be voted FOR each proposal.
Dated , 1999
---------------------------
---------------------------
---------------------------
(SHAREHOLDER MUST SIGN
EXACTLY AS THE NAME APPEARS
AT LEFT. WHEN SIGNED AS A
CORPORATE OFFICER,
EXECUTOR, ADMINISTRATOR,
TRUSTEE, GUARDIAN, ETC.,
PLEASE GIVE FULL TITLE AS
SUCH. BOTH JOINT TENANTS
MUST SIGN.)
