<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): JUNE 18, 1999 (JUNE 15, 1999)
-----------------------------
ON2.COM INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Colorado 0-23171 84-1280679
- -------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
375 Greenwich Street New York, New York 10013
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 941-2400
--------------
Applied Capital Funding, Inc., 1177 West Hastings Street
Suite 2000 Vancouver, BC V6E 2K3
- -------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 1. Change in Control of Registrant.
On June 15, 1999, Applied Capital Acquisition Corp., a Delaware
corporation ("Merger-Sub"), a wholly-owned subsidiary of Applied Capital
Funding, Inc., a Colorado corporation (the "Company"), merged (the "Merger")
with and into The Duck Corporation, a Delaware corporation ("Duck"), pursuant
to an Agreement and Plan of Merger dated June 9, 1999 (the "Merger
Agreement"). Duck is a developer of broadband video compression technology.
Following the Merger, the business to be conducted by the Company will be the
business conducted by Duck prior to the Merger. In conjunction with the
Merger, the Company changed its name to "On2.com Inc."
Pursuant to the terms of the Merger Agreement, the Company issued
15,000,000 shares of its authorized but unissued common stock to the former
holders of Duck common stock based on a conversion ratio of .889334306 shares
of the Company's common stock for each share of Duck common stock issued and
outstanding as of the effective time of the Merger.. The shares issued to the
former Duck stockholders represents approximately 65% of the outstanding
common stock of the Company following the Merger.
In addition, all outstanding options and warrants to purchase Duck
common stock were converted into options and warrants to purchase common
stock of the Company. Duck Warrants to purchase an aggregate of 2,552,974
shares of Duck Common Stock at an exercise price of $3.917 and one warrant to
purchase 175,000 shares of Duck Common Stock at an exercise price of $2.79
were, giving effect to certain anti-dilutive provisions, converted into
warrants to purchase an aggregate of 3,343,211 shares of the Company's Common
Stock at an exercise price of $3.14. Duck employee stock options to purchase
an aggregate of 1,802,000 shares of duck Common Stock were converted into
options to purchase 1,602,580 shares of the Company's Common Stock as
follows: (i) 557,613 shares of Company Common Stock at an exercise price of
$.88 per share; (ii) 570,952 shares of Company Common Stock at an exercise
price of $1.12 per share; and (iii) 474,014 shares of Company Common Stock at
an exercise price of $2.25 per share. In conjunction with the Merger, the
Company granted 455,000 options to new employees, contingent upon their
acceptance of employment, at an exercise price of $1.50 per share.
Immediately prior to the Merger, The Travelers Insurance Company
("Travelers") held approximately 27% of Duck's voting equity securities on a
fully diluted basis. In connection with the Unit Offering described in item 5
below, Travelers purchased from the Company 400,000 Units for an aggregate
purchase price of $3,000,000. In addition, prior to the Merger Travelers
purchased 1,600,000 shares of common stock of the Company from existing
stockholders in privately negotiated transactions. Following consummation of
the Merger and after giving effect to the foregoing purchases, Travelers
holds approximately 20.4% of the outstanding common stock of the Company and
20.4% of the total outstanding voting stock of the Company. Prior to the
Merger, Jack L. Rivkin, Senior Vice President of The Travelers Investment
Group, was as a member of the board of directors of Duck.
<PAGE>
Pursuant to the terms of the Merger Agreement, Mr. Rivkin was appointed to
serve on the board of directors of the Company.
Item 2. Acquisition or Disposition of Assets.
See Item 1 above for a description of the Merger.
Item 5. Other Events.
In connection with the Merger, , the Company changed its name to
"On2.com Inc" and it also issued 2,000,000 preferred stock purchase units
(the "Units") pursuant to Rule 506 under the Securities Act of 1933, as
amended, for an aggregate purchase price of $15,000,000 (the "Unit
Offering"). Each Unit consists of one share of Series A Preferred Stock and a
warrant to purchase 1.114404 shares of Common Stock of the Company at an
exercise price of $3.14 per share.
Also in connection with the Merger, Peter Lee and Jeffrey L. Taylor
resigned as directors of the Company and David Silver, Dan Miller, Harry
Edelson and Jack Rivkin were appointed as directors to fill vacancies on the
Board of Directors, to serve in such capacity until the next annual meeting
of shareholders of the Company or until their earlier resignation or removal.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
Financial Statements
Audited financial statements of The Duck Corporation for
years ending 9/30/98 and 9/30/97.
Unaudited financial statements of The Duck Corporation for
interim 6-month periods ending 3/31/99 and 3/31/98
Pro Forma Consolidating Financial Statements of On2.com Inc.
for twelve months ended 12/31/98 and 12/31/97 and three
months ended 3/31/99.
EXHIBIT LIST.
2.1 Agreement and Plan of Merger1
2.2 List of Exhibits and Schedules
4.1 Articles of Incorporation of the Company (previously filed as
an exhibit to Form 10SB on 10/3/97).
- -------------------------
1. The Company undertakes to file supplementally a copy of any schedule to
the Agreement and Plan of Merger to the SEC upon request.
<PAGE>
4.2 Amendment to Articles of Incorporation of Company describing
rights and preferences of Series A Preferred Stock of the
Company
4.3 Second Amendment to Articles of Incorporation of Company
changing name to "On2.com Inc."
4.4 Form of Warrant to purchase shares of Company Common Stock
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
ON2.COM INC.
/s/ Barry Shereck
-----------------------------------
Name: Barry Shereck
Title: Chief Financial Officer
Dated: June 18, 1999
<PAGE>
FINANCIAL STATEMENTS OF THE DUCK CORPORATION
Financial Statements
The Duck Corporation
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
WITH REPORT OF INDEPENDENT AUDITORS
CONTENTS
Report of Independent Auditors
Balance Sheets
Statements of Operations
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
The Duck Corporation
We have audited the accompanying balance sheets of The Duck Corporation (the
"Company") as of September 30, 1998 and 1997, and the related statements of
operations, stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Duck Corporation at
September 30, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
December 20, 1998, except for Note 10,
as to which the date is June 9, 1999.
<PAGE>
The Duck Corporation
Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30
1998 1997
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,140,660 $ 5,083,644
Accounts receivable 110,687 525,135
Loans receivable from stockholders 288,681 219,763
Prepaid income taxes 2,903 21,902
Prepaid expenses and other current assets 9,683 20,934
------------------------------------
Total current assets 2,552,614 5,871,378
Fixed assets, net 371,853 281,036
Licensed software, net of accumulated amortization of $20,833 ($4,167 in
1997) 29,167 45,833
Patent costs, net of accumulated amortization of $112,353
($69,749 in 1997) 100,675 143,279
Other assets 116,078 6,000
------------- -----------
Total assets $ 3,170,387 $ 6,347,526
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 253,184 $ 416,373
------------------------------------
Total current liabilities 253,184 416,373
Commitments and contingency
Stockholders' equity:
Series A Redeemable Convertible preferred stock, $.001 par value;
2,600,000 shares authorized; 2,552,974 shares issued and outstanding,
liquidating preference of $2.7419 per share 2,553 2,553
Common stock, $.001 par value; 27,400,000 shares
authorized; 12,767,824 (12,764,824 in 1997) shares issued and
outstanding 12,768 12,765
Additional paid-in capital 7,155,692 7,153,355
Accumulated deficit (4,253,810) (1,237,520)
------------------------------------
Total stockholders' equity 2,917,203 5,931,153
------------------------------------
Total liabilities and stockholders' equity $ 3,170,387 $ 6,347,526
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
The Duck Corporation
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1998 1997
---------------------------------------
<S> <C> <C>
Revenues $ 1,448,288 $ 2,311,925
Operating expenses 4,456,732 3,157,111
---------------------------------------
Loss from operations (3,008,444) (845,186)
Other income (expense):
Interest expense (450) (60,660)
Interest income and other 94,604 117,684
---------------------------------------
94,154 57,024
---------------------------------------
Loss before provision for income taxes (2,914,290) (788,162)
Provision for income taxes 102,000 45,000
---------------------------------------
Net loss $ (3,016,290) $ (833,162)
=======================================
</TABLE>
SEE ACCOMPANYING NOTES.
The Duck Corporation
Statements of Stockholders' Equity
Years ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE ADDITIONAL TOTAL
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED TREASURY STOCK STOCKHOLDERS'
----------------- ------------------- --------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, - - 14,613,624 $14,614 $ 454,337 $ (225,331) 1,736,600 $(180,764) $ 62,856
1996
Net loss - - - - - (833,162) - - (833,162)
Issuance of Series A
Redeemable Convertible 2,552,974 $2,553 - - 6,715,906 - - - 6,718,459
preferred stock
Purchase and retirement - - (112,200) (112) (16,888) - - - (17,000)
common stock
Retirement of common - - (1,736,600) (1,737) - (179,027) (1,736,600) 180,764 -
stock held in treasury
----------------------------------------------------------------------------------------------------------
Balance at September 30, 2,552,974 2,553 12,764,824 12,765 7,153,355 (1,237,520) - - 5,931,153
1997
Net loss - - - - - (3,016,290) - - (3,016,290)
Issuance of common stock - - 3,000 3 2,337 - - - 2,340
----------------------------------------------------------------------------------------------------------
Balance at September 30, 2,552,974 $2,553 12,767,824 $12,768 $7,155,692 $(4,253,810) - $ - $2,917,203
1998
==========================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
The Duck Corporation
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1998 1997
---------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(3,016,290) $ (833,162)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 217,307 261,750
Deferred income taxes - (39,700)
Changes in operating assets and liabilities:
Accounts receivable 414,448 (400,373)
Prepaid income taxes 18,999 (14,802)
Prepaid expenses and other current assets 11,251 (13,279)
Other assets (100,000) 20,279
Accounts payable and accrued expenses (163,189) 320,611
------------- ------------
Net cash used in operating activities (2,617,474) (698,676)
INVESTING ACTIVITIES
Purchase of fixed assets (248,854) (190,716)
Loans to stockholders (68,918) (16,923)
Security deposits (10,078) -
------------- ------------
Net cash used in investing activities (327,850) (207,639)
FINANCING ACTIVITIES
Proceeds from notes payable to stockholders - 600,000
Repayment of notes payable to stockholders - (387,094)
Proceeds from sale of common stock 2,340 -
Proceeds from sale of Series A Redeemable Convertible
preferred stock - 5,415,019
Purchase and retirement of common stock - (17,000)
---------------------------
Net cash provided by financing activities 2,340 5,610,925
---------------------------
Net (decrease) increase in cash and cash equivalents (2,942,984) 4,704,610
Cash and cash equivalents at beginning of year 5,083,644 379,034
---------------------------
Cash and cash equivalents at end of year $ 2,140,660 $ 5,083,644
===========================
</TABLE>
<PAGE>
The Duck Corporation
Statements of Cash Flows (continued)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NONCASH INVESTING AND
FINANCING ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1998 1997
---------------------------
<S> <C> <C>
Cash paid during the year for:
Interest $ 277 $60,660
===========================
Taxes $110,700 $65,700
============================
</TABLE>
In conjunction with the 1997 sale of Series A Redeemable Convertible preferred
stock, $1,500,000 of notes payable to stockholders were converted to Series A
Redeemable Convertible preferred stock, and the related deferred financing costs
of $196,560 were charged to additional paid-in capital.
Included in accounts payable and accrued expenses at September 30, 1997 is
$18,186 for the acquisition of fixed assets and $50,000 for the acquisition of
licensed software.
SEE ACCOMPANYING NOTES.
<PAGE>
The Duck Corporation
Notes to Financial Statements
September 30, 1998
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
The Duck Corporation (the "Company") is a Delaware corporation formed on
March 2, 1992 with a mission to develop and commercialize a totally new video
compression technology called TrueMotion-Registered Trademark-. The Company's
operations to date have focused on delivering to the multimedia and game
development communities high performance video and audio compression and
cross platform playback capabilities. The Company offers solutions for video
capture and compression, as well as integration of TrueMotion-Registered
Trademark- into multimedia, game and communications applications and servers
running on all major platforms and distributed on CD-ROM, DVD-ROM or over a
network.
During 1998, the Company introduced a shrink-wrapped application to the
consumer market that enables those consumers who have a television tuner
installed on their personal computers to record television broadcasts
directly to a storage device on their computers.
In addition, during 1998, the Company commenced development of a new video
compression algorithm directed to the delivery of television quality video to
broadband internet users. The Company also commenced development of an
advertiser supported content website.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. At September 30, 1998
and 1997, the majority of the Company's cash is maintained in certificates of
deposit at a major financial institution.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FIXED ASSETS
Fixed assets are stated at cost. Depreciation on computer equipment and
furniture and fixtures is provided for by the straight-line method over the
estimated useful lives of the assets ranging from three to seven years.
Leasehold improvements are amortized over the term of the lease or the estimated
useful life of the improvement, whichever is shorter.
LICENSED SOFTWARE
Licensed software is stated at cost and is being amortized over a period of
three years using the straight-line method.
PATENT COSTS
Patent costs are being amortized over a period of five years using the
straight-line method.
SOFTWARE DEVELOPMENT COSTS
Costs for the internal development of new software products and substantial
enhancements to existing software products are expensed as incurred until
technological feasibility has been established, at which time any additional
costs will be capitalized. The Company completed its software development
concurrently with the establishment of technological feasibility and,
accordingly, no software development costs have been capitalized to date.
REVENUE RECOGNITION
The Company's revenues are comprised primarily of license fees received from
third parties. Such license fees are recognized based upon either a
percentage of the net revenues generated from the sales of products sold by
third party licensees or a percentage of the products manufactured by third
party licensees, depending upon the terms of the related contract.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For the years ended September 30, 1998 and 1997, approximately 81% and 50%,
respectively, of revenues were derived from one licensee. In addition,
another licensee accounted for approximately 37% of revenues for the year
ended September 30, 1997.
In October 1997, the AICPA issued SOP 97-2, SOFTWARE REVENUE RECOGNITION,
which changes the requirements for revenue recognition effective for fiscal
years beginning after December 15, 1998. Although this will effect
transactions that the Company will enter into beginning in fiscal year 1999,
the Company has not yet assessed the impact that the SOP will have on its
fiscal year 1999 financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
STOCK OPTIONS
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which required the Company to either adopt a fair
value-based method of expense recognition for all stock-based compensation
awards, or provide pro forma net income information as if the recognition and
measurement provisions of SFAS 123 had been adopted. The Company decided to
continue to account for its stock-based compensation awards following the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," which requires compensation expense to be
recognized only if the market price of the underlying stock exceeds the
exercise price of stock options on the date of grant. The effect of applying
the SFAS 123 fair value method to the Company's stock-based awards results in
a pro forma net loss that is not materially different from the amounts
reported for fiscal years 1998 and 1997.
<PAGE>
3. FIXED ASSETS
Fixed assets consisted of the following at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------------------------
<S> <C> <C>
Furniture and fixtures $ 60,236 $ 27,984
Computer equipment 682,046 596,742
Leasehold improvements 131,298 -
------------------------------------
873,580 624,726
Less accumulated depreciation 501,727 343,690
====================================
$ 371,853 $ 281,036
====================================
</TABLE>
4. NOTES PAYABLE TO STOCKHOLDERS
In November 1995, the Company entered into a credit agreement with a
lender/stockholder, wherein the Company could borrow up to $1,500,000 on a
noninterest bearing basis. The original maturity of the credit agreement was
June 1, 1997.
In connection with the credit agreement, the lender received a 6% interest in
the common stock of the Company, and purchased an additional 3% of the common
stock of the Company for approximately $67,000. In connection with the
issuance of the 6% of the Company's common stock to the lender, the Company
recorded deferred financing costs of $233,000, representing an interest
charge computed at the default rate of 11% per annum. These deferred
financing costs were being amortized on the straight-line basis over the
initial term of the debt.
On March 31, 1996, the credit agreement was amended wherein the maturity date
was extended to June 1, 1998, and a conversion feature was added so that in
the event the Company closed on a sale of equity securities by no later than
June 1, 1998 with gross proceeds of not less than $2,000,000, the lender
would convert the principal balance of the outstanding loans into issued
securities at the price per share paid by the investors purchasing such
securities.
<PAGE>
4. NOTES PAYABLE TO STOCKHOLDERS (CONTINUED)
In connection with this amendment, the lender received an additional 6% of
the Company's common stock, and the Company recorded additional deferred
financing costs of $156,000, representing an interest charge computed at the
default rate of 11% per annum. These deferred financing costs were being
amortized over the extended term of the debt.
In May 1997, the Company completed an equity transaction (See Note 5) and the
then outstanding balance of $1,500,000 under the credit agreement was
converted to Series A Redeemable Convertible preferred stock. In connection
therewith, the unamortized balance of the related deferred financing costs
was charged to additional paid-in capital.
In December 1994, the Company entered into a stock sale and promissory note
agreement with a stockholder. Under the terms of such agreement, the Company
agreed to repurchase 2,437,500 shares of its common stock from such
stockholder for $300,000 and pay an additional $200,000 to such stockholder
for past engineering and consulting services by issuing a promissory note.
During fiscal year 1997, the Company repaid the remaining balance of the
promissory note and retired the remaining treasury stock.
5. STOCKHOLDERS' EQUITY
RECAPITALIZATION
In May 1997, the Company approved a 10,000 for 1 stock split of the Company's
existing common stock and provided for a recapitalization of each share of
the existing common stock into 10,000 shares of new common stock with a $.001
par value per share. In addition, the Company authorized 2,600,000 shares of
Series A Redeemable Convertible preferred stock. The accompanying financial
statements give retroactive effect for this recapitalization.
PREFERRED STOCK
On May 22, 1997, the Company sold to three investors, including one existing
stockholder, 2,552,974 shares of Series A Redeemable Convertible preferred stock
("Preferred Stock"), par value $.001 per share and issued five year warrants to
purchase 2,552,974 shares of common stock at an exercise price of $3.917 per
share. In consideration for the sale and issuance of shares and warrants, the
Company received cash of $5,500,000 (before issuance costs of $84,981) and the
conversion of the then outstanding balance of $1,500,000 under the credit
agreement (see Note 4).
The Preferred Stock has the following rights and preferences, among others: (i)
cumulative dividends at a rate of 4% per annum (cumulative dividends in arrears
were approximately $381,000 at September 30, 1998); (ii) the right to convert
each share of Preferred
<PAGE>
Stock into one common share, subject to certain antidilution adjustments;
(iii) voting rights of one vote per share, and; (iv) redemption rights at the
option of the holders after April 30, 2004 at a rate of $2.7419 per share,
under certain conditions.
At September 30, 1998, the Company has reserved 6,908,000 shares of its common
stock for issuance in connection with the conversion of the Preferred Stock and
the exercise of warrants and stock options.
STOCK OPTIONS
During fiscal year 1997, the Company adopted a 1997 Stock Option Plan (the
"Plan") and reserved 905,000 shares of its common stock for issuance under the
Plan. During the year ended September 30, 1997, the Company granted options to
purchase 770,000 shares of common stock at an exercise price of $.78 per share
(representing fair market value) under the Plan. During the year ended September
30, 1998, the Company granted options to purchase 275,000 shares of its common
stock at an exercise price of $2.00 per share (representing fair market value)
under the Plan. Such options vest over a period of one to three years. During
fiscal year 1998, options to purchase 3,000 shares were exercised at $.78 per
share, 140,000 options at $.78 per share expired, and at September 30, 1998,
412,000 options were vested.
During fiscal year 1998, the Company adopted a 1998 Stock Option Plan (the "1998
Plan"), reserved 900,000 shares of common stock for issuance under the 1998
Plan, and granted options to purchase 228,000 shares of common stock at an
exercise price of $2.00 per share. At September 30, 1998, no 1998 Plan options
were vested.
<PAGE>
6. INCOME TAXES
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax basis of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
Components of the Company's net deferred tax assets and liabilities as of
September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------
<S> <C> <C>
Conversion of accrual to cash basis tax reporting $ 59,000 $ 86,000
Patent costs (45,000) (60,000)
Net operating loss carryforwards 1,710,000 450,000
----------------------------------
1,724,000 476,000
Less valuation allowance (1,724,000) (476,000)
----------------------------------
$ - $ -
==================================
</TABLE>
During the year ended September 30, 1997, the valuation allowance increased
by $476,000.
The provision for income taxes consists of the following for the years ended
September 30, 1998 and 1997:
<TABLE>
<CAPTION>
STATE AND
FEDERAL LOCAL FOREIGN TOTAL
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Current $ - $ 2,000 $ 100,000 $ 102,000
Deferred - - - -
---------------------------------------------------------------------
$ - $ 2,000 $ 100,000 $ 102,000
=====================================================================
1997
Current $ - $ 20,000 $ 64,700 $ 84,700
Deferred (19,800) (19,900) - (39,700)
---------------------------------------------------------------------
$ (19,800) $ 100 $ 64,700 $ 45,000
=====================================================================
</TABLE>
<PAGE>
6. INCOME TAXES (CONTINUED)
The Company incurred a 10% foreign tax on certain royalties paid to it pursuant
to a United States-Japanese tax treaty. The tax on these royalties is included
in the income tax provision.
For federal income tax purposes, the Company has net operating loss
carryforwards of approximately $3,800,000, of which approximately $244,000
expires in 2011, $856,000 in 2012 and $2,700,000 in 2018.
The effective income tax rate differs from the federal statutory rate primarily
due to state and local taxes, foreign taxes not currently deductible in the
United States, certain non-deductible expenses and the establishment of a full
valuation allowance for the net deferred tax assets.
7. RELATED PARTY TRANSACTIONS
At September 30, 1998 and 1997, the Company has a note receivable from an
officer and shareholder of $166,180. The note bears interest at 8.5% per annum.
8. COMMITMENTS AND CONTINGENCY
OPERATING LEASE
The Company leases office space under a noncancelable operating lease. During
fiscal years 1998 and 1997, the Company incurred approximately $231,000 and
$113,000, respectively, in rent expense. The aggregate minimum future lease
commitments at September 30, 1998 are as follows:
<TABLE>
<S> <C>
1999 182,000
2000 182,000
2001 137,000
----------------
$501,000
================
</TABLE>
LINE OF CREDIT
At September 30, 1998, the Company has a $500,000 line of credit from a bank
secured by a certificate of deposit. At September 30, 1998, the Company had no
outstanding borrowings under this line of credit. The line of credit was
discontinued subsequent to year end.
<PAGE>
8. COMMITMENTS AND CONTINGENCY (CONTINUED)
CONTINGENCY
The Company is a defendant in a lawsuit regarding an alleged breach of
contract that seeks damages in the millions of dollars. The Company has
denied the substantive allegations and has contested the case vigorously.
During fiscal year 1998, the court ruled that the plaintiff is entitled to
$60,000 based on the contract, plus interest. Accordingly, the Company
accrued $87,000 relating to this matter. However, the plaintiff intends to
appeal the ruling. An adverse result would have a material adverse effect on
the Company's results of operations, cash flows and financial condition.
9. RETIREMENT PLAN
The Company has a 401(k) retirement plan which provides for the elective
deferral by employees of a portion of their salary and for related employer
contributions subject to limitations of the Internal Revenue Code. Employer
contributions were approximately $20,500 and $10,600 in fiscal years 1998 and
1997, respectively.
10. SUBSEQUENT EVENTS
Effective June 9, 1999, the Company entered into an Agreement and Plan of
Merger, wherein it was acquired, in a stock transaction, by Applied Capital
Funding, Inc., a Colorado corporation ("Applied"). The Company became a
wholly-owned subsidiary of Applied.
Prior to the closing, Applied received approval from its shareholders to change
its name to On2.com Inc. Upon the closing of the transaction, the former holders
of the Company's capital stock received a majority of the outstanding common
stock of the On2.com Inc. The management of the Company also became the
management of On2.com, Inc.
Coincidental with the merger, On2.com, Inc. received $15,000,000 from the sale
of Convertible Non-voting preferred stock. The funds received from the sale of
convertible preferred stock are anticipated to provide the Company and On2.com
sufficient funding to complete the development of certain technology and to
launch the On2.com website, which will provide broadband video content over the
internet.
<PAGE>
10. SUBSEQUENT EVENTS (CONTINUED)
Effective June 9, 1999, the Company entered into a Separation and Release
Agreement with an officer and a shareholder. In connection with the agreement,
the Company agreed to, among other things, repurchase 340,000 shares of the
Company's common stock from the officer and shareholder at a price of $1.00 per
share. The consideration to be paid for such shares will be used to offset
certain notes and advances due from the officer and shareholder (See Note 7).
11. IMPACT OF YEAR 2000 (UNAUDITED)
The Company has completed an assessment of the impact of the Year 2000 on its
operations, and believes that its computer systems and products will function
properly with respect to dates in the Year 2000 and beyond. Therefore, the
Company does not believe that its operations will be affected due to the Year
2000.
<PAGE>
FINANCIAL STATEMENTS OF THE DUCK CORPORATION
Financial Statements (Unaudited)
The Duck Corporation
UNAUDITED INTERIM FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 1999 AND 1998
CONTENTS
Balance Sheet as of March 31, 1999
Statements of Operations for the six months ended March 31, 1997 and 1998
Statements of Cash Flows for the six months ended March 31, 1999 and 1998
Notes to Unaudited Interim Financial Statements
<PAGE>
The Duck Corporation
Balance Sheet
March 31, 1999
Unaudited
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets
Cash $265,956
Accounts receivable 8,921
Inventory 5,812
Loans receivable from stockholders 298,692
Prepaid income taxes 12,439
Prepaid expenses and other current assets 7,357
-----------------
Total current assets 599,176
-----------------
Fixed assets
Fixed assets, at cost 881,000
Accumulated depreciation (581,232)
-----------------
Fixed assets, net 299,768
Licensed software, net of accumulated amortization of $29,166 20,834
Patent costs, net of accumulated amortization of $133,655 79,373
Other assets 116,078
-----------------
Total assets $1,115,229
=================
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current Liabilities
Accounts payable and accrued expenses $167,168
-----------------
Total current liabilities 167,168
-----------------
Stockholders' Equity
Series A Redeemable Convertible Cumulative preferred stock; $.001
par value; 2,600,000 shares authorized; 2,552,974 shares issued and
outstanding. Liquidation preference $7,000,000 or $2.7419 per share.
Cumulative unpaid dividends $531,453 or $.21 per share. 2,553
Common stock, $.001 par value; 27,400,000 shares authorized;
12,767,624 shares issued and outstanding 12,768
Additional paid-in capital 7,156,692
Accumulated deficit (6,223,953)
-----------------
Total stockholders' equity 948,061
-----------------
Total liabilities & stockholders' equity $1,115,229
=================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
<PAGE>
The Duck Corporation
Statements of Operations
<TABLE>
<CAPTION>
Six Months Ended March 31,
1999 1998
Unaudited Unaudited
<S> <C> <C>
Revenue $28,619 $810,359
Operating expenses 2,029,466 2,145,179
----------------- -----------------
Loss from operations (2,000,847) (1,334,820)
----------------- -----------------
Other income (expense):
Interest income 32,157 100,240
Interest expense and other (815) (666)
----------------- -----------------
31,342 99,574
----------------- -----------------
Loss before provision for income taxes (1,969,506) (1,235,246)
Provision for income taxes 637 75,814
----------------- -----------------
Net loss ($1,970,143) ($1,311,060)
================= =================
Loss attributable to common shareholders:
Net loss ($1,970,143) ($1,311,060)
Less: undeclared and unpaid cumulative preferred dividends 146,485 140,827
----------------- -----------------
Loss attributable to common shareholders ($2,116,628) ($1,451,887)
================= =================
Basic and diluted loss per share ($0.17) ($0.11)
Weighted average shares outstanding - basic and diluted 12,767,624 12,764,624
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
<PAGE>
The Duck Corporation
Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended March 31,
1999 1998
Unaudited Unaudited
<S> <C> <C>
Operating Activities
Net Loss ($1,970,143) ($1,311,060)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and Amortization 109,142 95,813
Deferred income taxes
Changes in operating assets and liabilities:
Accounts receivable and accrued income 101,766 273,691
Inventory (5,812)
Prepaid income taxes (9,536) 19,000
Prepaid expenses and other current assets 2,326 2,677
Accounts payable and accrued expenses (86,016) (250,445)
----------------- -----------------
Net cash used in operating activites (1,858,273) (1,170,324)
----------------- -----------------
Investing activities
Purchase of fixed assets (7,420) (173,002)
Loans to stockholders (10,011) (109,154)
License advances & deposits 0 (115,740)
----------------- -----------------
Net cash used in investing activities (17,431) (397,896)
----------------- -----------------
Financing activities
Proceeds from issuance of warrant to purchase common stock 1,000 0
----------------- -----------------
Net cash provided by financing activities 1,000 0
----------------- -----------------
Net increase (decrease) in cash and cash equivalents (1,874,704) (1,568,220)
Cash at beginning of period 2,140,660 5,083,644
----------------- -----------------
Cash at end of period $265,956 $3,515,424
================= =================
Supplemental disclosure of cash flow information and noncash
investing and financing activities
<CAPTION>
Six Months Ended March 31,
Cash paid during the year for: 1999 1998
<S> <C> <C>
Interest $ 754 $ 0
Taxes $3,512 $78,550
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE DUCK CORPORATION
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 1999 AND 1998
NOTE 1-UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited financial information as of March 31, 1999 and for the six
month periods ended March 31, 1999 and 1998 were taken from the books and
records of the Company without audit. However, such information reflects
normal recurring adjustments, which in the opinion of management, are
necessary to fairly present the Balance Sheet, Statements of Operations
and Statements of Cash Flows for the interim periods presented. The
results of operations for the six months ended March 31, 1999 are not
necessarily indicative of the results expected for the year ending
September 30, 1999.
NOTE 2-SUBSEQUENT EVENTS
Effective June 9, 1999, the Company entered into an Agreement and Plan of
Merger, wherein it was acquired, in a stock transaction, by Applied
Capital Funding, Inc., a Colorado corporation ("Applied"). The Company
became a wholly owned subsidiary of Applied.
Prior to the closing, Applied received approval from its shareholders to
change its name to On2.com Inc. Upon the closing of the transaction, the
former holders of the Company's capital stock received a majority of the
outstanding common stock of On2.com Inc. The management of the Company
became the management of On2.com Inc.
Coincident with the merger, On2.com Inc. received $15,000,000 from the
sale of convertible non-voting preferred stock. The funds received from
the sale of convertible preferred stock are anticipated to provide the
Company and On2.com Inc. sufficient funding to complete the development
of certain technology and to launch the On2.com Website, which will
provide broadband video content over the Internet.
Effective June 9, 1999, the Company entered into a Separation and
Release Agreement with an officer and shareholder. In connection with
the agreement, the Company agreed to, among other things, repurchase
340,000 shares of the Company's common stock from the officer and
shareholder at a price of $1.00 per share. The consideration to be paid
for such shares will be used to offset certain notes and advances due
from the officer and shareholder.
<PAGE>
Proforma Conformed Consolidating Financial Statements
On2.com Inc.
TWELVE MONTHS ENDED DECEMBER 31, 1998 AND 1997
THREE MONTHS ENDED MARCH 31, 1999
CONTENTS
Proforma Conformed Combined Statement of Operations for twelve months ended
12/31/98
Proforma Conformed Combined Statement of Operations for Twelve Months Ended
December 31, 1997
Proforma Consolidating Balance Sheets as of March 31, 1999
Proforma Combined Statement of Operations for the Three Months Ended 3/31/99
Notes to Proforma Financial Statements
On2.com Inc.
Proforma Conformed Consolidated Financial Statements
Twelve Months Ended December 31, 1998 and 1997
Three Months Ended March 31, 1999
On June 15, 1999, Applied Capital Acquisition Corp., a Delaware corporation,
a wholly-owned subsidiary of Applied Capital Funding, Inc., a Colorado
corporation (the "Company"), merged with and into The Duck Corporation, a
Delaware corporation ("Duck"), pursuant to an Agreement and Plan of Merger
dated June 9, 1999 (the "Merger Agreement").
Coincident with the merger, On2.com Inc. issued 2,000,000 shares of Series A
Non-Voting Preferred Shares and warrants to purchase 2,228,808 common shares
for $15,000,000.
Following the merger, the business conducted by the Company is the business
conducted by Duck prior to the merger. In conjunction with the merger, the
Company changed its name to "On2.com Inc." Pursuant to the terms of the
Merger Agreement, the Company issued 15,000,000 shares of its authorized but
unissued common stock to the former holders of Duck common stock. Prior to
the merger, holders Series A preferred stock of The Duck Corporation
converted their preferred stock into the common stock of Duck in accordance
with their conversion privieldge. In addition, all outstanding options and
warrants to purchase Duck Common stock were converted into options and
warrants to purchase common stock of the Company. The common stock issued to
the former Duck stockholders represents approximately 65% of the outstanding
common stock of the Company following the merger.
F-7
<PAGE>
On2.com Inc.
Proforma Conformed Combined Statement of Operations
Twelve Months Ended December 31, 1998
Unaudited
<TABLE>
<CAPTION>
The Duck Applied Capital Proforma On2.com Inc.
Corporation Funding, Inc. Adjustments Note(s) Combined
<S> <C> <C> <C> <C> <C>
Revenue $903,999 $0 $903,999
Operating expenses 4,511,171 19,988 4,531,159
----------------- ------------------ ------------
Loss from operations (3,607,172) (19,988) (3,627,160)
----------------- ------------------ ------------
Other income (expense):
Interest income 151,911 0 151,911
Interest expense and other (1,204) 0 (1,204)
----------------- ------------------ ------------
150,707 0 150,707
----------------- ------------------ ------------
Loss before provision for income taxes (3,456,465) (19,988) (3,476,453)
Provision for income taxes 50,697 0 50,697
----------------- ------------------ ------------
Net loss ($3,507,162) ($19,988) ($3,527,150)
================= ================== =============
Proforma basic and diluted loss per share ($0.15)
Proforma weighted average shares outstanding - basic and diluted 23,000,000
</TABLE>
THE ACCOMPANYING NOTES TO PROFORMA FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS PROFORMA FINANCIAL STATEMENT
<PAGE>
On2.com Inc.
Proforma Conformed Combined Statement of Operations
Twelve Months Ended December 31, 1997
Unaudited
<TABLE>
<CAPTION>
The Duck Applied Capital Proforma Note(s) On2.com Inc.
Corporation Funding, Inc. Adjustments Combined
<S> <C> <C> <C> <C> <C>
Revenue $2,442,693 $425 $2,443,118
Operating expenses 3,730,106 8,876 3,738,982
------------- ------------ ------------
Income (loss) from operations (1,287,412) (8,451) (1,295,863)
------------- ------------ ------------
Other income (expense):
Interest income 163,920 163,920
Interest expense and other (53,421) (53,421)
------------- ------------ ------------
110,499 0 110,499
------------- ------------ ------------
Income (loss) before provision for income taxes (1,176,914) (8,451) (1,185,365)
Provision for income taxes 82,847 82,847
------------- ------------ ------------
Net income (loss) ($1,259,761) ($8,451) ($1,268,212)
============= ============ ============
Proforma basic and diluted loss per share ($0.06)
Proforma weighted average shares outstanding - basic and diluted 23,000,000
</TABLE>
THE ACCOMPANYING NOTES TO PROFORMA FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS PROFORMA FINANCIAL STATEMENT
<PAGE>
On2.com Inc.
Proforma Consolidating Balance Sheet
March 31, 1999
Unaudited
<TABLE>
<CAPTION>
The Duck Applied Capital Proforma On2.com Inc.
Corporation Funding, Inc. Adjustments Note(s) Proforma
<S> <C> <C> <C> <C> <C>
Current Assets
Cash & equivalents $265,956 $14,580,100 (2),(3) $14,846,055
Accounts receivable 8,921 8,921
Inventory 5,812 5,812
Loans receivable from stockholders 298,692 298,692
Prepaid income taxes 12,439 12,439
Prepaid expenses & other current assets 7,357 34,013 (3) 41,370
------------ --------------- ------------- -------------
Total current assets 599,176 14,614,113 15,213,289
------------ --------------- ------------- -------------
Property and equipment
Fixed assets, at cost 881,000 881,000
Accumulated depreciation (581,232) (581,232)
------------ --------------- ------------- -------------
Total property and equipment 299,768 299,768
------------ --------------- ------------- -------------
Other assets
Licensed software, net of accumulated amortization
of $29,166 20,834 20,834
Patent costs, net of amortization of $133,655 79,373 79,373
Other assets 116,078 116,078
------------ --------------- ------------- -------------
Total other assets 216,285 216,285
------------ --------------- ------------- -------------
Total assets $1,115,229 $0 $14,614,113 $15,729,342
============ =============== ============= =============
Current Liabilities
Accounts payable and accrued expenses $167,168 167,168
------------ --------------- ------------- -------------
Total current liabilities 167,168 167,168
------------ --------------- ------------- -------------
Stockholders Equity
Series A convertible preferred stock, no par value.
5,000,000 shares authorized. Issued and outstanding:
historical - 0 shares; proforma - 2,000,000 shares.
Liquidation preference: $15,000,000 or $7.50 per share. 15,000,000 (2),(3),(4) 15,000,000
Series A redeemable convertible preferred stock, $.001 par
value; 2,600,000 shares authorized; Issued and outstanding:
historical - 2,552,974 shares; proforma - 0 shares.
Liquidation preference $7,000,000 or $2.7419 per share.
Cumulative unpaid dividends $531,453 or $.21 per share. 2,553 (2,553) (2),(3),(4) 0
Common stock, no par value. Authorized: 50,000,000 shares.
Issued and outstanding: historical - 8,000,000 shares;
proforma - 23,000,000 ahares. 34,120 6,786,126 (2),(3),(4) 6,820,246
Common stock, $.001 par value; 27,400,000 shares
authorized; Issued and outstanding: historical -
12,767,624 shares; proforma - 1 share). 12,768 (12,768) (2),(3),(4) 0
Additional paid-in capital 7,156,692 (7,156,692) (2),(3),(4) 0
Accumulated deficit (6,223,953) (34,120) 0 (6,258,073)
------------ --------------- ------------- -------------
Total stockholders equity 948,061 0 14,614,113 15,562,174
------------ --------------- ------------- -------------
Total liabilities & stockholders equity $1,115,229 $0 $14,614,113 $15,729,342
============ =============== ============= =============
</TABLE>
THE ACCOMPANYING NOTES TO PROFORMA FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS PROFORMA FINANCIAL STATEMENT
<PAGE>
On2.com Inc.
Proforma Combined Statement of Operations
Three Months Ended March 31, 1999
Unaudited
<TABLE>
<CAPTION>
The Duck Applied Capital Proforma On2.com Inc.
Corporation Funding, Inc. Adjustments Note(s) Proforma
<S> <C> <C> <C> <C> <C>
Revenue $7,618 $0 $7,618
Operating expenses 1,006,802 0 1,006,802
---------------- ----------------- ------------
Loss from operations (999,184) 0 (999,184)
---------------- ----------------- ------------
Other income (expense):
Interest income 11,389 11,389
Interest expense and other (791) (791)
---------------- ----------------- ------------
10,598 10,598
---------------- ----------------- ------------
Loss before provision for income taxes (988,586) 0 (988,586)
Provision for income taxes 114 0 114
---------------- ----------------- ------------
Net loss ($988,700) $0 ($988,700)
================ ================= ============
Proforma basic and diluted loss per share ($0.04)
Proforma weighted average shares outstanding - basic and diluted 23,000,000
</TABLE>
THE ACCOMPANYING NOTES TO PROFORMA FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS PROFORMA FINANCIAL STATEMENT
<PAGE>
On2.com Inc.
Notes to Proforma Financial Statements
March 31, 1999
1. Conforming The Duck Corporation Financial Statements
The fiscal year of The Duck Corporation ends on September 30. The Fiscal year of
Applied Capital Funding, Inc. ends on December 31. The Statements of Operations
of The Duck Corporation have been conformed to the twelve months ended December
31 and combined with the Statements of Operations of Applied Capital Funding for
the same periods. The fiscal year end of the combined company will be December
31.
Revenue and net loss of The Duck Corporation for the three months ended December
31, 1996 of $435,000 and $65,000 respectively were excluded from the Proforma
Statement of Operations for the Year ended December 31, 1997.
Revenue and Net loss of The Duck Corporation for the three months ended December
31 1997 of $565,000 and $492,000 were included in the Statement of Operations
for the year ended December 31, 1997. Revenue and net loss of the Duck
Corporation for the three months ended December 31, 1998 of $21,000 and $982,000
were included in the Statement of Operation for the year ended December 31,
1998.
2. Issuance of Preferred Stock
Coincident with the merger of The Duck Corporation and Applied Capital Funding,
Inc., Applied Capital Funding, Inc. issued 2,000,000 shares of Series A
Preferred Stock in exchange for $15,000,000 cash. Investment related expenses of
$385,887 were paid at or prior to the closing and deducted from the cash
received and from the appropriate capital accounts. Certain expenses paid at
closing were prepayments and have been reflected as such in the Proforma Balance
Sheet.
3. Stockholders' Equity
Stockholders' equity of both The Duck Corporation and Applied Capital Funding,
Inc. and the adjustments made thereto upon merger and issuance of the preferred
stock are shown below:
<TABLE>
<S> <C>
The Duck Corporation, stockholders' equity $948,061
Applied capital Funding, Inc., stockholder's equity 0
-----------
Combined stockholders equity before issuance of Preferred Stock 948,061
Issuance of Series A Preferred Stock 15,000,000
-----------
Combined stockholders' equity before merger related expenses 15,948,061
Less investment related expenses, primarily legal and accounting 385,887
-----------
On2.com Inc. Proforma Stockholders' Equity $15,562,174
===========
</TABLE>
<PAGE>
4. Shares Outstanding
At December 31, 1998, Applied Capital Funding, Inc. had 15,112,000 common
shares, no par value, issued and outstanding. Subsequent to December 31, 1998,
the following transactions occurred in the capital accounts of Applied Capital
Funding, Inc.
<TABLE>
<CAPTION>
Common Preferred
Stock Stock
<S> <C> <C>
Common shares outstanding, December 31, 1998 15,112,000 0
Issuance of preferred shares in exchange for common (12,350,000) 150,000
----------------------------
Shares outstanding 2,762,000 150,000
Issuance of preferred shares in exchange for common (1,012,000) 10,000
----------------------------
Shares outstanding 1,750,000 160,000
Common stock split, two for one 3,500,000 160,000
Shares retired (300,000) (160,000)
----------------------------
Shares outstanding 3,200,000 0
Stock split, 2.5 for one 8,000,000 0
Issuance of shares in merger with The Duck Corporation 15,000,000 0
Issuance of 2,000,000 shares of Series A Preferred Stock
in exchange for $15,000,000 0 2,000,000
-----------------------------
Proforma shares outstanding March 31, 1999 23,000,000 2,000,000
=============================
</TABLE>
5. Subsequent Events
Effective June 9, 1999, the Company entered into a Separation and Release
Agreement with an officer and shareholder. In connection with the agreement, the
Company agreed to, among other things, repurchase 340,000 shares of the
Company's common stock from the officer and shareholder at a price of $1 per
share. The consideration to be paid for such shares will be used to offset
certain notes and advances due from the officer and shareholder. This
transaction was unrelated to the merger of The Duck Corporation and Applied
Capital Funding, Inc. and has been excluded from the proforma financial
statements presented herein.
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
APPLIED CAPITAL FUNDING, INC.,
APPLIED CAPITAL ACQUISITION CORP.,
AND
THE DUCK CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. THE MERGER 1
SECTION 1.01 THE MERGER 1
SECTION 1.02 EFFECTIVE TIME 1
SECTION 1.03 CLOSING 2
SECTION 1.04 CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION 2
II. STATUS AND CONVERSION OF SECURITIES; OTHER AGREEMENTS 2
SECTION 2.01 COMMON STOCK OF DUCK AND THE MERGER-SUB 2
(a) 2
(b) 2
SECTION 2.02 CAPITAL STOCK OF THE PARENT 2
SECTION 2.03 STOCK OPTION PLAN 3
SECTION 2.04 CAPITAL STRUCTURE OF THE PARENT 3
SECTION 2.06 REGISTRATION 4
SECTION 2.07 CONSULTING AGREEMENT 5
SECTION 2.08 BOARD OF DIRECTORS OF THE PARENT 5
III. REPRESENTATIONS AND WARRANTIES 5
SECTION 3.01 REPRESENTATIONS AND WARRANTIES OF DUCK 5
(a) ORGANIZATION AND QUALIFICATION 5
(b) ORGANIZATIONAL DOCUMENTS; CAPITAL STOCK 5
(c) AUTHORITY RELATIVE TO THIS AGREEMENT 6
(d) NON-CONTRAVENTION; APPROVALS AND CONSENTS 6
(e) 7
LEGAL PROCEEDINGS 7
(f) TECHNOLOGY AND INTELLECTUAL PROPERTY RIGHTS.(i) The 11
FINANCIAL STATEMENTS 11
(b) ABSENCE OF CERTAIN CHANGES OR EVENTS 11
(c) ABSENCE OF UNDISCLOSED LIABILITIES 11
(d) INFORMATION SUPPLIED 11
(e) COMPLIANCE WITH LAWS AND ORDERS 11
(f) COMPLIANCE WITH AGREEMENTS; CERTAIN AGREEMENTS 11
(g) BROKERS 12
(h) CONSENTS WITHOUT ANY CONDITION 12
SECTION 3.02 REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE MERGER-SUB 13
(a) ORGANIZATION AND QUALIFICATION 13
(b) ORGANIZATIONAL DOCUMENTS; CAPITAL STOCK 13
(c) AUTHORITY RELATIVE TO THIS AGREEMENT 14
<PAGE>
(d) NON-CONTRAVENTION; APPROVALS AND CONSENTS 14
(e) FINANCIAL STATEMENTS. The Parent has delivered to Duck true, correct, and
complete copies of the following: the audited balance sheets of the Parent (the 15
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS 15
(g) ABSENCE OF UNDISCLOSED LIABILITIES 15
(h) LEGAL PROCEEDINGS 16
(i) INFORMATION SUPPLIED 16
(j) COMPLIANCE WITH LAWS AND ORDERS 16
(k) COMPLIANCE WITH AGREEMENTS; CERTAIN AGREEMENTS 16
(l) EMPLOYEE BENEFIT PLANS 17
(m) PATENTS, TRADEMARKS, ET CETERA 17
(n) INSURANCE 17
(o) LABOR MATTERS 17
(p) TANGIBLE PROPERTY AND ASSETS 17
IVI COVENANTS 18
SECTION 4.01 COVENANTS OF THE PARENT AND THE MERGER-SUB 18
SECTION 4.02 COVENANTS OF DUCK 21
SECTION 4.03 DIRECTORS' AND OFFICERS' INSURANCE 22
SECTION 4.04 AMEX LISTING 22
V. CONDITIONS. 22
SECTION 5.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER 22
(ai STOCKHOLDER APPROVAL 23
(bi STATE SECURITIES LAWS 23
(ci NO INJUNCTIONS OR RESTRAINTS 23
(di CONSENTS AND APPROVALS 23
SECTION 5.02 CONDITIONS TO OBLIGATIONS OF THE PARENT AND THE MERGER-SUB 23
(ai REPRESENTATIONS AND WARRANTIES 23
(ci OTHER CLOSING DOCUMENTS 23
SECTION 5.03 CONDITIONS TO OBLIGATION OF DUCK TO EFFECT THE MERGER 24
(ai REPRESENTATIONS AND WARRANTIES 24
(bi PERFORMANCE OF OBLIGATIONS 24
(ci OTHER CLOSING DOCUMENTS 24
(di REVIEW OF PROCEEDINGS 24
(fi LEGAL ACTION 25
(hi CAPITAL 25
VI. TERMINATION 25
SECTION 6.01 TERMINATION 25
SECTION 6.02 EFFECT OF TERMINATION 26
VII. INDEMNIFICATION 26
<PAGE>
SECTION 7.01 INDEMNIFICATION BY THE PARENT 26
SECTION 7.02 INDEMNIFICATION BY DUCK 26
VIII. MISCELLANEOUS 27
SECTION 8.01 FURTHER ACTIONS 27
SECTION 8.02 AVAILABILITY OF EQUITABLE REMEDIES 27
SECTION 8.03 SURVIVAL 27
SECTION 8.04 MODIFICATION 27
SECTION 8.05 NOTICES 27
SECTION 8.06 WAIVER 28
SECTION 8.07 BINDING EFFECT 28
SECTION 8.08 NO THIRD-PARTY BENEFICIARIES 28
SECTION 8.09 SEVERABILITY 29
SECTION 8.10 MERGER; ASSIGNABILITY 29
SECTION 8.11 HEADINGS 29
SECTION 8.12 COUNTERPARTS; GOVERNING LAW; JURISDICTION 29
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
APPLIED CAPITAL FUNDING, INC.,
APPLIED CAPITAL ACQUISITION CORP.,
AND
THE DUCK CORPORATION
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), is dated
as of June 9, 1999, by and among APPLIED CAPITAL FUNDING, INC., a Colorado
corporation, whose address is 1177 West Hastings Street, Suite 2000, Vancouver,
British Columbia V6E 2K3 (the "Parent"), APPLIED CAPITAL ACQUISITION CORP., a
Delaware corporation and wholly-owned subsidiary of Parent, whose address is
1177 West Hastings Street, Suite 2000, Vancouver, British Columbia V6E 2K3 (the
"Merger-Sub") and THE DUCK CORPORATION, a Delaware corporation, whose address is
375 Greenwich Street, New York, New York 10013 ("Duck"). Duck shall be the
surviving corporation of the proposed merger between the Merger-Sub and Duck
and, in such capacity, Duck shall sometimes be referred to herein as the
"Surviving Corporation."
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the respective Board of Directors of the Parent, the
Merger-Sub and Duck have determined that it is advisable and in the best
interests of their respective equity owners to consummate the business
combination transaction provided for herein in which the Merger-Sub would merge
(the "Merger") with and into Duck; and
WHEREAS, Parent, the Merger-Sub and Duck desire to make
certain agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the mutual premises,
covenants, and agreements set forth in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
I. THE MERGER.
SECTION 1.01 THE MERGER.
At the Effective Time (as defined in Section 1.02), upon the
terms and subject to the conditions of this Agreement, the Merger-Sub shall be
merged with and into Duck in accordance with the Delaware General Corporation
Law (the "DGCL"). Duck shall be the surviving corporation in the Merger, and the
name of the Surviving Corporation shall be "The Duck Corporation." As a result
of the Merger, all outstanding shares of capital stock of Duck (the "Duck
Capital Stock"), and any options, warrants or other securities convertible into
Duck Capital Stock shall be converted in the manner provided in Article II.
SECTION 1.02 EFFECTIVE TIME.
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At the Closing (as defined in Section 1.03), a certificate
of merger (the "Certificate of Merger") shall be duly prepared by the Surviving
Corporation and delivered to the Secretary of State of Delaware for filing as
provided in the DGCL, on, or as soon as practicable after, the Closing Date (as
defined in Section 1.03). The Merger shall become effective as soon as the
Certificate of Merger has been filed with the Secretary of State of Delaware
(the date and time when such condition has been satisfied being referred to
herein as the "Effective Time").
SECTION 1.03 CLOSING.
The closing of the Merger (the "Closing") will take place at
the offices of Camhy Karlinsky & Stein LLP, 1740 Broadway, New York, New York
10019-4315 on or before July 15, 1999 (the "Closing Date"). At the Closing,
there shall be delivered to Duck and the Parent the certificates and other
documents and instruments required to be delivered under Article V. The Closing
will be effective as of the Effective Time.
SECTION 1.04 CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE
SURVIVING CORPORATION.
At the Effective Time, (i) the Certificate of Incorporation
of Duck in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation and (ii) the By-Laws
of Duck as in effect immediately prior to the Effective Time shall be the
By-Laws of the Surviving Corporation. The Certificate of Incorporation and
By-Laws of Duck as in effect as of the date hereof and to be in effect as of the
Effective Time are attached hereto as EXHIBITS 1.04-1 and 1.04-2, respectively.
SECTION 1.05 CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE
PARENT
The Certificate of Incorporation and By-Laws of the Parent
as in effect as of the date hereof and to be in effect as of the Effective Time
are attached hereto as EXHIBITS 1.05-1 and 1.05-2, respectively.
SECTION 1.06 EMPLOYMENT AGREEMENTS
At the closing, David Silver's employment agreement Daniel
Miller's employment agreement , and Barry Shereck's Employment Agreement shall
be assigned to the Parent.
II. STATUS AND CONVERSION OF SECURITIES; OTHER AGREEMENTS.
SECTION 2.01 COMMON STOCK OF DUCK AND THE MERGER-SUB.
(a) Each share of common stock, par value $.01 per
share, of the Merger-Sub outstanding immediately prior to the Closing shall
remain outstanding and shall, by virtue of the Merger and without any further
action on the part of the holders thereof, be converted into one (1) share of
common stock, par value $.001 per share, of the Surviving Corporation (the
"Surviving Corporation Common Stock"), so that at the Effective Time, the
Parent shall be the holder of all of the issued and outstanding shares of the
Surviving Corporation Common Stock.
(b) Each share of Duck Common Stock issued and
outstanding prior to the Closing shall be converted into .889334306 shares of
common stock, no par value, of the Parent (the "Parent Common Stock") for an
aggregate of fifteen million (15,000,000) shares of Parent Common Stock. As
of the Closing Date, the former holders of Duck Capital Stock (the "Former
Duck Stockholders") shall effectively own sixty percent (60%) of the
outstanding Parent Common Stock.
SECTION 2.02 CAPITAL STOCK OF THE PARENT.
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Immediately prior to the Effective Time, the Parent shall
have an aggregate of eight million (8,000,000) shares of Parent Common Stock
issued and outstanding and two million (2,000,000) shares of Series A preferred
stock, no par value, of the Parent (the "Series A Preferred Stock") issued and
outstanding. The Articles of Amendment to the Articles of Incorporation of the
Parent Designation of Powers, Preferences and Rights of Series A Preferred Stock
is attached hereto as EXHIBIT 2.02.
SECTION 2.03 STOCK OPTION PLAN.
The Parent's Stock Option Plan (the "Stock Option Plan") is
attached hereto as EXHIBIT 2.03, pursuant to which the Parent reserved for
issuance thereunder four million (4,000,000) shares of Parent Common Stock.
Within ten (10) days after the Closing, the Parent shall issue to certain
employees of the Parent stock options pursuant to the Stock Option Plan to
purchase an aggregate of three hundred and ninety-eight thousand and five
hundred (398,500) shares of Parent Common Stock, at exercise prices equal to the
fair market value of the Parent Common Stock on the date of grant.
SECTION 2.04 CAPITAL STRUCTURE OF THE PARENT.
(a) As of the Closing Date, and as of the Effective
Time, the Parent shall have either (i) cash on hand of not less than fifteen
million dollars ($15,000,000) or (ii) cash on hand of not less than fourteen
million dollars ($14,000,000) plus a promissory note, issued by Duck to Verus
Capital Corp. ("Verus"), in the amount of one million dollars ($1,000,000),
less fees and expenses of counsel, exchange listing fees, and premium
payments for directors & officer's insurance incurred in connection with the
transactions contemplated hereby, as set forth on SCHEDULE 2.04(a).
(b) As of the Effective Time, the Parent shall have
the following capital structure:
(i) AUTHORIZED SHARES.
A. Fifty million (50,000,000) shares
of Parent Common Stock.
B. Twenty million (20,000,000) shares
of blank check preferred stock ("Parent Preferred Stock").
(i) ISSUED AND OUTSTANDING SHARES.
A. Fifteen million (15,000,000) shares
of Parent Common Stock shall be issued to the Former Duck
Stockholders, nine hundred and ninety-seven thousand two
hundred and ninety (997,290) shares of which shall be issued
to Travelers in consideration for past and future services
rendered to Duck and the Parent.
B. Eight million (8,000,000) shares of
Parent Common Stock shall be held by the former controlling
stockholders of the Parent.
C. Two million (2,000,000) shares of
Series A Preferred Stock shall be held by the existing
stockholders of the Parent.
(iii) ISSUED AND OUTSTANDING OPTIONS AND WARRANTS.
A. Twenty-one (21) options of the
Parent (the "Parent Options") shall be issued to the former
holders of options of Duck (the "Duck Options") and shall
represent the rights to acquire (i) five hundred and
fifty-seven thousand six
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hundred and thirteen (557,613) shares of Parent Common
Stock at an exercise price of $.88 per share; (ii) five
hundred and seventy thousand nine hundred and fifty-two
(570,952) shares of Parent Common Stock at an exercise
price of $1.12 per share; and (iii) four hundred and
seventy-four thousand and fourteen (474,014) shares of
Parent Common Stock at an exercise price of $2.25 per
share. Issuance of the Parent Options shall automatically
cancel the Duck Options.
B. Four (4) warrants of the Parent
(the "Parent Warrants") shall be issued to the former holders
of warrants of Duck (the "Duck Warrants"), representing the
right to acquire an aggregate of three million three hundred
and forty-three thousand two hundred and eleven (3,343,211 )
shares of Parent Common Stock at an exercise price of $3.14
per share. Issuance of the Parent Warrants shall automatically
cancel the Duck Warrants. The Parent shall reserve the
aggregate number of shares of Parent Common Stock underlying
such warrants for fulfillment thereof in the event such
warrants are exercised. The form of the Parent Warrant is
attached hereto as EXHIBIT 2.04(b)(iii)(B).
C. Warrants have been issued to the
holders of the Series A Preferred Stock, representing the
right to acquire an aggregate of two million two hundred and
twenty-eight thousand eight hundred and eight (2,228,808)
shares of Parent Common Stock at an exercise price of $3.14
per share.
SECTION 2.05 EXCHANGE OF DUCK CAPITAL STOCK.
(a) The Parent shall authorize one or more
persons to act as a transfer and exchange agent hereunder (the "Exchange
Agent") pursuant to an agreement (the "Exchange Agent Agreement") in a form
to be agreed upon by the parties hereto. Promptly after the Closing, the
Parent shall deposit or cause to be deposited with the Exchange Agent the
certificates representing the shares of Parent Common Stock issuable to the
holders of Duck Capital Stock.
(b) As soon as reasonably practicable after
the Effective Time, the Exchange Agent shall mail to each holder of record of
a certificate or certificates that immediately prior to the Effective Time
represented outstanding shares of Duck Capital Stock (the "Duck
Certificates") a form letter of transmittal (which shall specify that
delivery shall be effective, and risk of loss and title to the Duck
Certificates shall pass, only upon delivery of the Duck Certificates to the
Exchange Agent) and instructions for such holder's use in effecting surrender
of the Duck Certificates in exchange for certificates representing shares of
Parent Common Stock.
(c) As of the Effective Time, each holder of a Duck
Certificate shall surrender the same at the principal offices of the Exchange
Agent, and shall be entitled to receive in exchange therefor a certificates of
the Parent reflecting the amount of Parent Common Stock to be received by such
holder.
SECTION 2.06 Registration
(a) Subject to the completion of an audit and
the preparation and delivery of audited financial statements, the Parent shall
file, within ninety (90) days after the Closing, a registration statement (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to (i) any Parent Common Stock underlying the Series A Preferred
Stock; (ii) any Parent Common Stock underlying the Parent Warrants and Parent
Options; and (iii) the shares
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of Parent Common held pursuant to Section 2.04(b) that are not currently free
trading; PROVIDED, HOWEVER, that for a period commencing as of the Closing
Date and terminating on the earlier of (i) March 15, 2000 or (ii) six (6)
months after the effective date of the Registration Statement, each of the
Former Duck Stockholders shall not sell more than one-third (1/3) of their
individual shares, pursuant to a Lock-Up Agreement (the "Lock-Up Agreement")
substantially in the form attached hereto as EXHIBIT 2.06(A).
(b) The Parent shall file a Form-S-8 with the SEC to
register all shares of the Parent Common Stock underlying options granted under
its stock option plan, within one hundred and twenty (120) days after the
Closing.
SECTION 2.07 CONSULTING AGREEMENT
Upon the Closing, the Parent shall enter into a consulting
agreement (the "Consulting Agreement") with Verus for a two (2) year term, which
shall provide that Verus shall receive twelve thousand five hundred dollars
($12,500) per month for consulting services it renders to the Parent. The form
of the Consulting Agreement is attached hereto as EXHIBIT 2.07.
SECTION 2.08 BOARD OF DIRECTORS OF THE PARENT.
The Board of Directors (the "Board") of the Parent shall
consist of six (6) persons: one (1) person selected by Travelers (which shall
initially be Jack Rivkin), one (1) person selected by Edelson Technology
Partners, two (2) persons selected by Verus, and two (2) persons selected by the
officers of the Parent.
III. REPRESENTATIONS AND WARRANTIES.
SECTION 3.01 REPRESENTATIONS AND WARRANTIES OF DUCK.
Duck represents and warrants to the Parent and the Merger-Sub
as follows:
(a) ORGANIZATION AND QUALIFICATION. Duck is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full power and authority to conduct its business as
and to the extent now conducted, and currently proposed to be conducted, and to
own, use and lease its assets and properties, except for such failures to have
such power and authority which, individually or in the aggregate, do not and are
not reasonably expected to have a Material Adverse Effect (as defined in this
Section 3.01(a)) on Duck. Duck is duly qualified, licensed or admitted to do
business and is in good standing in New York. As used in this Agreement, a
"Material Adverse Effect" shall mean a material adverse effect on the
businesses, properties, assets, liabilities, condition (financial or otherwise)
or results of operations of an entity (or group of entities taken as a whole).
Notwithstanding the foregoing, a Material Adverse Effect shall not include any
change in political or economic matters of general applicability. Duck does not
directly or indirectly own any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity.
(b) ORGANIZATIONAL DOCUMENTS; CAPITAL STOCK.
(i) Attached hereto as EXHIBIT 1.04-1 is a true
and complete copy of the Certificate of Incorporation of Duck as in
effect on the date hereof.
(ii) Duck has heretofore delivered a true and
complete table of all stockholders of Duck.
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(iii) Duck has heretofore delivered a true and
complete table of any outstanding or authorized Duck options, warrants,
calls, subscriptions, rights, agreements or other commitments of any
character (contingent or otherwise) obligating Duck to issue or sell
any Duck Common Stock of Duck Series A Preferred Stock.
(iv) Except as set forth on EXHIBIT 3.01(b)(iv),
there are no outstanding contractual obligations of Duck to repurchase,
redeem, or otherwise acquire any Duck Capital Stock.
(c) AUTHORITY RELATIVE TO THIS AGREEMENT. Duck has full
power and authority to enter into this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution,
delivery, and performance of this Agreement by Duck and the consummation by Duck
of the Merger and the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of Duck, and upon the approval of the
stockholders of Duck, no other proceedings on the part of Duck will be necessary
to authorize the execution, delivery, and performance of this Agreement by Duck
and the consummation by Duck of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Duck, and
constitutes the legal, valid, and binding obligation of Duck enforceable against
Duck in accordance with its terms, except as such enforceability may be limited
by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer or
similar laws affecting the enforcement of creditors' rights generally and
general principles of equity (whether considered in a proceeding at law or in
equity).
(d) NON-CONTRAVENTION; APPROVALS AND CONSENTS.
(i) The execution and delivery of this Agreement
by Duck does not, and the performance by Duck of its obligations
hereunder and the consummation of the transactions contemplated hereby
will not, conflict with, result in a violation or breach of, constitute
(with or without notice or lapse of time or both) a default under,
result in or give to any person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or result
in the creation or imposition of any lien, claim, mortgage,
encumbrance, pledge, security interest, equity, or charge of any kind
(any of the foregoing, a "Lien") upon any of the assets or properties
of Duck under any of the terms, conditions, or provisions of (x) the
Certificate of Incorporation of Duck, (y) any statute, law, rule,
regulation, or ordinance (collectively, "Laws"), or any judgment,
decree, order, writ, permit, or license (collectively, "Orders"), of
any court, tribunal, arbitrator, authority, agency, commission,
official, or other instrumentality of the United States, any foreign
country, or any domestic or foreign state, county, city, or other
political subdivision (a "Governmental or Regulatory Authority"),
applicable to Duck or any of its assets or properties, or (z) any note,
bond, mortgage, security agreement, indenture, license, franchise,
permit, concession, contract, lease (capital or operating) or other
instrument, obligation, or agreement of any kind (collectively,
"Contracts") to which Duck is a party or by which Duck or any of its
assets or properties is bound, excluding from the foregoing clauses (y)
and (z) conflicts, violations, breaches, defaults, terminations,
modifications, accelerations and creations, and impositions of Liens
which, individually or in the aggregate, could not be reasonably
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expected to have a Material Adverse Effect on Duck or on its ability to
consummate the transactions contemplated by this Agreement.
(ii) Except (x) for the filing of the Certificate
of Merger and other appropriate merger documents required by the DGCL
with the Secretary of State of Delaware and (y) as otherwise disclosed
in SCHEDULE 3.01(d)(ii) hereto, and (z) for the approval of
stockholders of Duck, no consent, approval, or action of, filing with,
or notice to any Governmental or Regulatory Authority or other public
or private third party is necessary or required under any of the terms,
conditions or provisions of any Law or Order of any Governmental or
Regulatory Authority or any Contract to which Duck is a party or by
which Duck or any of its assets or properties is bound for the
execution and delivery of this Agreement by Duck, the performance by
Duck of its obligations hereunder or the consummation of the
transactions contemplated hereby, except for such consents, approvals,
or actions of, filings with or notices to any Governmental or
Regulatory Authority or other public or private third party the failure
of which to make or obtain could not reasonably be expected to have a
Material Adverse Effect on Duck, the Surviving Corporation, or on
Duck's ability to consummate the transactions contemplated by this
Agreement.
(e) LEGAL PROCEEDINGS. There are no actions, suits,
arbitrations, or proceedings pending, nor to the knowledge of Duck, threatened
against, relating to or affecting, Duck or any of its assets and properties
which, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on Duck or on the ability of Duck to consummate the
transactions contemplated by this Agreement. Duck is not subject to any
judgment, decree, court order, or writ of any Governmental or Regulatory
Authority.
(f) TECHNOLOGY AND INTELLECTUAL PROPERTY RIGHTS.
(i) The "Duck Intellectual Property" consists of
the following:
all patents, trademarks, trade names,
service marks, mask works, domain names, copyrights and any
renewal rights, applications and registrations for any of
the foregoing, and all trade dress, supplier lists, trade
secrets, know-how, moral rights, computer software programs
or applications (in both source and object code form) owned
by Duck;
C all goodwill associated with
trademarks, trade names service marks and trade dress owned by
Duck;
D all software and firmware listings,
and updated software source code, and complete system build
software and instructions related to all software described
herein owned by Duck;
E all documents, records and files
relating to design, end user documentation, manufacturing,
quality control, sales, marketing or customer support for all
intellectual property described herein owned by Duck;
F all other tangible or intangible
proprietary information and materials owned by Duck; and
G all license and other rights in any
third party product, intellectual property, proprietary or
personal rights, documentation, or tangible or intangible
property, including without limitation the types of
intellectual property and
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tangible and intangible proprietary information described in
(A) through (E) above that are being, and/or have been, used,
or are currently under development for use, in the business of
Duck as it has been, is currently or is currently anticipated
to be (up to the Closing), conducted. Duck Intellectual
Property described in clauses (A) to (E) above is referred to
herein as "Duck Owned Intellectual Property" and Duck
Intellectual Property described in clause (F) above is
referred to herein as "Duck Licensed Intellectual Property."
Unless otherwise noted, all references to "Duck Intellectual
Property" shall refer to both Duck Owned Intellectual Property
and Duck Licensed Intellectual Property.
(ii) SCHEDULE 3.01(f) lists: (i) all patents,
registered copyrights, trademarks, service marks, trade dress,
any renewal rights for any of the foregoing, and any
applications and registrations for any of the foregoing, that
are included in the Duck Owned Intellectual Property; (ii) all
hardware products and tools, software products and tools, and
services that are currently published, offered, or under
development by Duck; (iii) all material licenses, sublicenses
and other agreements to which Duck is a party and pursuant to
which any other person is authorized to have access to or use
the Duck Owned Intellectual Property or exercise any other
right with regard thereto; and (iv) all Duck Licensed
Intellectual Property (other than license agreements for
standard "shrink wrapped, off the shelf," commercially
available, third party products used by Duck). The disclosures
described in (iii), (iv) and (v) hereof include the names and
dates of the relevant agreements, as well as the identities of
the parties thereto.
(iii) The Duck Intellectual Property consists
solely of items and rights that are either: (i) owned by Duck,
(ii) in the public domain, or (iii) rightfully used and
authorized for use by Duck and its successors pursuant to a
valid license or other agreement. Duck has all rights in the
Duck Intellectual Property reasonably necessary to carry out
Duck's current, and anticipated future (up to the Closing)
activities and has or had all rights in the Duck Intellectual
Property reasonably necessary to carry out Duck's former
activities, including without limitation, if necessary to
carry out such activities, rights to make, use, exclude others
from using, reproduce, modify, adapt, create derivative works
based on, translate, distribute (directly and indirectly),
transmit, display and perform publicly, license, rent, lease,
assign, and sell the Duck Intellectual Property in all
geographic locations and fields of use, and to sublicense any
or all such rights to third parties, including the right to
grant further sublicenses. All material software and firmware
listings that are part of the Duck Owned Intellectual Property
are adequately commented in accordance with current software
industry standards.
(iv) Duck is not, nor as a result of the
execution or delivery of this Agreement, or performance of
Duck's obligations hereunder, will Duck be, in violation of
any license, sublicense or other agreement relating to the
Duck Intellectual Property to which Duck is a party or
otherwise bound. Except pursuant to the terms of the
agreements listed in on SCHEDULE 3.01(f), Duck is not
obligated to
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provide any consideration (whether financial or
otherwise) to any third party, nor is any third party
otherwise entitled to any consideration, with respect to any
exercise of rights by Duck or its successors in the Duck
Intellectual Property.
(v) To the knowledge of Duck, the use,
reproduction, modification, distribution, licensing,
sublicensing, sale, or any other exercise of rights in any
Duck Owned Intellectual Property or any other authorized
exercise of rights in or to the Duck Owned Intellectual
Property by Duck or its licensees does not and will not
infringe any copyright, patent, trade secret, trademark,
service mark, trade name, firm name, logo, trade dress, moral
right, other intellectual property right, right of privacy,
right of publicity or right in personal or other data of any
person. Further, to the knowledge of Duck, the use,
reproduction, modification, distribution, licensing,
sublicensing, sale, or any other exercise of rights in any
Duck Licensed Intellectual Property or any other authorized
exercise of rights in or to the Duck Licensed Intellectual
Property by Duck or its licensees does not and will not
infringe any copyright, patent, trade secret, trademark,
service mark, trade name, firm name, logo, trade dress, moral
right, other intellectual property right, right of privacy,
right of publicity or right in personal or other data of any
person. Except as set forth on SCHEDULE 3.01(f), no claims (i)
challenging the validity, effectiveness, or ownership by Duck
of any of the Duck Owned Intellectual Property, or (ii) to the
effect that the use, reproduction, modification,
manufacturing, distribution, licensing, sublicensing, sale or
any other exercise of rights in any Duck Owned Intellectual
Property by Duck or its licensees infringes, or will infringe
on, any intellectual property or other proprietary or personal
right of any person, have been asserted or, to the knowledge
of Duck, are threatened by any person nor, to the knowledge of
Duck, are there any valid grounds for any bona fide claim of
any such kind. All granted or issued patents and mask works
and all registered trademarks listed on the Duck Disclosure
Schedule and all copyright registrations held by Duck are
valid, enforceable and subsisting. To the knowledge of Duck,
there is no material unauthorized use, infringement or
misappropriation of any of the Duck Owned Intellectual
Property by any third party, employee or former employee.
(vi) Except as set forth on SCHEDULE 3.01(f), no
parties other than Duck possess any current or contingent
rights to any source code that is part of the Duck Owned
Intellectual Property (including, without limitation, through
any escrow account).
(vii) SCHEDULE 3.01(f) lists all parties who have
created any material portion of, or otherwise have any rights
in or to, the Duck Owned Intellectual Property other than
employees of Duck whose work product was created by them
entirely within the scope of their employment by Duck and
constitutes works made for hire owned by Duck. Duck has
secured from all parties who have created any material portion
of, or otherwise have any rights in or to, the Duck Owned
Intellectual Property valid and enforceable written
assignments or licenses of any
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such work or other rights to Duck and has provided true and
complete copies of such assignments or licenses to Parent.
(viii) SCHEDULE 3.01(f) includes a true and
complete list of support and maintenance agreements relating
to Duck Owned Intellectual Property or to which Duck is a
party as to Duck Licensed Intellectual Property including the
identity of the parties and the respective dates of such
agreements and remedies for their breach.
(ix) Duck has obtained legally binding written
agreements from all employees and third parties with whom Duck
has shared confidential proprietary information (i) of Duck,
or (ii) received from others which Duck is obligated to treat
as confidential, which agreements require such employees and
third parties to keep such information confidential.
(x) Duck has obtained any and all necessary
consents from consumers with regard to Duck's collection and
dissemination of personal consumer information in accordance
with Duck's privacy policy as published on its website. Duck's
practices regarding the collection and use of consumer
personal information are in accordance with Duck's privacy
policy as published on its website.
(xi) To the knowledge of Duck, the Duck Owned
Intellectual Property is, and any products manufactured and
commercially released by Duck or currently under development,
are fully Year 2000 Compliant in all material respects and
will not cease to be fully Year 2000 Compliant in any material
respect at any time prior to, during or after the calendar
year 2000. To the best of Duck's knowledge, the Duck Licensed
Intellectual Property is fully Year 2000 Compliant in all
material respects and will not cease to be fully Year 2000
Compliant in any material respect at any time prior to, during
or after the calendar year 2000. SCHEDULE 3.01(f) sets forth
the tests, inquiries and other activities undertaken by Duck
up to Closing, with respect to the Year 2000 Compliant nature
of any and all Duck Licensed Intellectual Property. For the
purposes of this Agreement, "Year 2000 Compliant" means that
neither the performance nor the functionality of the
applicable Duck Intellectual Property or applicable product is
or will be materially affected by dates prior to, during or
after the calendar year 2000 and in particular (but without
limitation):
A such Duck Intellectual Property or
product accurately receives, provides and processes, and will
accurately receive, provide and process, date/time data
(including calculating, comparing and sequencing) from, into
and between the twentieth and twenty-first centuries including
calendar years 1999 and 2000;
B such Duck Intellectual Property or
product will not malfunction, cease to function, provide
invalid or incorrect results or cause any interruption in the
operation of the business of Duck as a result of any date/time
dat
C data-based functionality of such
Duck Intellectual Property or product behaves and will
continue to behave consistently for dates prior to, during and
after the year 2000;
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D in all interfaces and data storage
of such Duck Intellectual Property or product, the century in
any date is and will be specified either explicitly or by
unambiguous algorithms or inferencing rules; and
E the year 2000 is and will be
recognized as a leap year of such Duck Intellectual Property
or product.
(a) FINANCIAL STATEMENTS. Duck has delivered to the
Parent and the Merger-Sub a true, correct and complete copy of the unaudited
balance sheet of Duck as of May 31, 1999 (the "Duck Balance Sheet"). The Duck
Balance Sheet fairly presents the financial condition, assets, liabilities, and
stockholders' equity of Duck as of its date.
(b) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set
forth in SCHEDULE 3.01(H) hereto or as contemplated hereby, since May 31, 1999,
no change, event, or development or combination of changes or developments
(including any worsening of any condition currently existing) has occurred or is
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on Duck (without regard, however, to changes in conditions
generally applicable to the industry in which Duck is involved or general
economic conditions).
(c) ABSENCE OF UNDISCLOSED LIABILITIES. Except for
matters reflected or reserved against in the Duck Balance Sheet, Duck did not
have at such date and has not incurred since that date, any liabilities or
obligations (whether absolute, accrued, contingent, fixed or otherwise, or
whether due or to become due) of any nature, except liabilities or obligations
which were incurred in connection with this Agreement and the transactions
contemplated hereby, which were incurred in the ordinary course of business
consistent with past practice.
(d) INFORMATION SUPPLIED. Nothing in this Agreement or
any schedule, annex, certificate, document, or statement in writing which has
been supplied by or on behalf of Duck, in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact, or omits
any statement of a material fact required to be stated or necessary in order to
make the statements contained herein or therein not misleading. There is no fact
known to Duck which materially and adversely affects Duck or the Surviving
Corporation, which has not been set forth in this Agreement or in the schedules,
annexes, certificates, documents, or statements in writing furnished by Duck in
connection with the transactions contemplated by this Agreement.
(e) COMPLIANCE WITH LAWS AND ORDERS. Duck holds all
permits, licenses, variances, exemptions, orders, and approvals of all
Governmental and Regulatory Authorities necessary for the lawful conduct of its
business (the "Duck Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders, and approvals which, individually or in
the aggregate, do not and are not reasonably expected to have a Material Adverse
Effect on Duck. Duck is in compliance with the terms of the Duck Permits, except
failures so to comply which, individually or in the aggregate, do not have and
are not reasonably expected to have a Material Adverse Effect on Duck. Duck is
not in violation of, or in default under, any Law or Order of any Governmental
or Regulatory Authority, except for violations which, individually or in the
aggregate, do not and are not reasonably expected to have a Material Adverse
Effect on Duck.
(f) COMPLIANCE WITH AGREEMENTS; CERTAIN AGREEMENTS.
Neither Duck, nor to the knowledge of Duck, any other party thereto, is in
breach or violation of, or in default in the performance or observance of any
term or provision of, and no event has occurred which, with notice
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or lapse of time or both, is reasonably expected to result in a default
under, (x) the Certificate of Incorporation of Duck or (y) any material
Contract to which Duck is a party or by which Duck or any of its assets or
properties is bound, except in the case of clause (y) for breaches,
violations, and defaults which, individually or in the aggregate, do not and
are not reasonably expected to have a Material Adverse Effect on Duck.
(g) BROKERS. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried out by Duck and its
affiliates directly with the Parent and the Merger-Sub without the intervention
of any person on behalf of Duck and its affiliates in such manner as to give
rise to any valid claim by any person against Duck, the Parent, or the Surviving
Corporation for a finder's fee, brokerage commission, or similar payment, except
as specifically set forth in SCHEDULE 3.01(m).
(h) CONSENTS WITHOUT ANY CONDITION. Duck has not made any
agreement or reached any understanding not approved by the Parent and the
Merger-Sub as a condition for obtaining any consent, authorization, approval,
order, license, certificate, or permit required for the consummation of the
transactions contemplated by this Agreement.
(i) TAX MATTERS.
(i) Except as set forth in SCHEDULE 3.01(o),
Duck has filed all tax returns required to be filed by applicable law
prior to the Closing. All tax returns were (and, as to tax returns not
filed as of the date hereof, will be) true, complete, and correct and
filed on a timely basis. Duck (x) has paid all taxes due, or claimed or
asserted in writing by any taxing authority to be due, for the periods
covered by such tax returns or (y) has duly and fully provided reserves
(in accordance with GAAP) adequate to reflect all such taxes.
(ii) Duck has established (and until the Closing
will maintain) on its books and records reserves adequate to reflect
all material taxes not yet due and payable. Duck has made available to
the Parent and the Merger-Sub complete, and accurate copies of all work
papers associated with the calculation of Duck's tax reserves.
(iii) There are no tax liens upon the assets of
Duck.
(iv) Duck has not requested (and no request has
been made on its behalf) any extension of time within which to file any
material tax return.
(v) (A) No income tax returns have been examined
by any taxing authorities for any periods; and (B) no deficiency for
any material taxes has been suggested, proposed, asserted, or assessed
against Duck that has not been resolved and paid in full.
(vi) No audits or other administrative
proceedings or court proceedings are presently pending with regard to
any taxes or tax returns of Duck. Except as set forth on SCHEDULE
3.01(o), no written claim has been made by a taxing authority in a
jurisdiction where Duck does not file tax returns such that it is or
may be subject to taxation by that jurisdiction.
(vii) To the extent requested by the Parent and
the Merger-Sub, Duck has made available to the Parent and the
Merger-Sub (or, in the case of tax returns to be filed on or before the
Closing, will make available) complete and accurate copies of all tax
returns and associated work papers filed by or on behalf of Duck for
all taxable years ending on or prior to the Closing.
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(viii) No agreements relating to allocating or
sharing of any taxes have been entered into by Duck.
(ix) Duck has not entered into any transactions
that could give rise to an understatement of Federal Income Tax.
(x) Except as set forth on SCHEDULE 3.01(o),
none of Duck or any other person on behalf of Duck has agreed to or is
required to make any adjustments pursuant to Section 481(a) of the Code
or any similar provisions of state, local or foreign law by reason of a
change in accounting method initiated by Duck or has any application
pending with any taxing authority requesting permission for any change
in accounting methods that relate to the business or operations of
Duck, and Duck has no knowledge that the IRS has proposed any such
adjustment or change in accounting method.
(xi) Except as set forth on SCHEDULE 3.01(o),
Duck has not been, and is not now, a member of any consolidated,
combined, unitary or affiliated group of corporations for any tax
purposes.
SECTION 3.02 REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE
MERGER-SUB.
The Parent and the Merger-Sub represent and warrant to Duck as
follows:
(a) ORGANIZATION AND QUALIFICATION. The Parent and the
Merger-Sub are corporations duly organized, validly existing, and in good
standing under the laws of Colorado and Delaware, respectively, and have full
corporate power and authority to conduct their business as and to the extent now
conducted, and currently proposed to be conducted, and to own, use and lease
their assets and properties. Except for the Parent's ownership of the
Merger-Sub, neither the Parent nor the Merger-Sub directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture, or other business association or entity.
(b) ORGANIZATIONAL DOCUMENTS; CAPITAL STOCK.
(i) Attached hereto as EXHIBITS 3.02(a)-1 and
3.02(a)-2, respectively, are true and complete copies of the
Certificate of Incorporation and By-Laws of the Merger-Sub as in effect
on the date hereof. Attached hereto as EXHIBITS 1.05-1 and 1.05-2,
respectively, are true and complete copies of the Certificate of
Incorporation and By-Laws of the Parent as in effect on the date
hereof.
(ii) As of the Closing Date, the authorized
capital stock of the Parent will consist solely of fifty million
(50,000,000) shares of the Parent Common Stock and twenty million
(20,000,000) shares of the preferred stock, no par value, of the Parent
(the "Parent Preferred Stock"). As of the Closing Date, the authorized
capital stock of the Merger-Sub will consist solely of ten (10) shares
of the common stock, par value $.01 per share, of the Merger-Sub (the
"Merger-Sub Common Stock"). The shares of the Parent Common Stock
issuable to the Former Duck Stockholders pursuant to Article II hereof,
will be, when issued in accordance with this Agreement, duly
authorized, validly issued, fully paid, and nonassessable. The
outstanding shares of the Parent Common Stock are eligible for
quotation on the Over-the-Counter Bulletin Board (the "OTCBB").
(iii) Except as contemplated hereby, there are no
outstanding options, warrants, calls, subscriptions, rights, agreements
or other commitments of any character
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(contingent or otherwise) obligating the Parent or the Merger-Sub to
issue, sell, repurchase, redeem, or otherwise acquire any shares of
the Parent Common Stock or the Merger-Sub Common Stock, respectively.
(iv) There are no debt obligations of the Parent
or the Merger-Sub of any nature whatsoever, and as of the Closing Date,
neither the Parent nor the Merger-Sub will have any debt, liabilities,
obligations, or contingent obligations of any nature whatsoever, except
as set forth on SCHEDULE 2.04(a).
(c) AUTHORITY RELATIVE TO THIS AGREEMENT. The Parent and
the Merger-Sub have full corporate power and authority to enter into this
Agreement and to perform their respective obligations hereunder and to
consummate the transactions contemplated hereby. The execution, delivery, and
performance of this Agreement by the Parent and the Merger-Sub and the
consummation by the Parent and the Merger-Sub of the Merger and the transactions
contemplated hereby have been duly and validly approved by the respective Boards
of Directors of the Parent and the Merger-Sub and Parent as the sole stockholder
of the Merger-Sub, and no other corporate proceedings on the part of the Parent
or the Merger-Sub are necessary to authorize the execution, delivery, and
performance of this Agreement by the Parent and the Merger-Sub and the
consummation by the Parent and the Merger-Sub of the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by the
Parent and the Merger-Sub, and constitutes a legal, valid, and binding
obligation of the Parent and the Merger-Sub enforceable against the Parent and
the Merger-Sub in accordance with its terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer or similar laws affecting the enforcement of creditors' rights
generally and general principles of equity (whether considered in a proceeding
at law or in equity).
(d) NON-CONTRAVENTION; APPROVALS AND CONSENTS.
(i) The execution and delivery of this Agreement
by the Parent and the Merger-Sub does not, and the performance by the
Parent and the Merger-Sub of their obligations hereunder and the
consummation of the transactions contemplated hereby will not, conflict
with, result in a violation or breach of, constitute (with or without
notice or lapse of time or both) a default under, result in, or give to
any person any right of payment or reimbursement, termination,
cancellation, modification or acceleration of, or result in the
creation or imposition of any Lien on any of the respective assets or
properties of the Parent or the Merger-Sub under any of the terms,
conditions or provisions of (x) the Certificate of Incorporation or
By-Laws of the Parent, (y) any Laws or Orders of any Governmental or
Regulatory Authority applicable to the Parent or the Merger-Sub or any
of their respective assets or properties, or (z) any Contracts to which
either the Parent or the Merger-Sub is a party or by which either the
Parent or the Merger-Sub or any of their respective assets or
properties are bound, excluding from the foregoing clauses (y) and (z)
conflicts, violations, breaches, defaults, terminations, modifications,
accelerations, and creations and impositions of Liens, which
individually or in the aggregate, could not be reasonably expected to
have a Material Adverse Effect on the Parent or the Merger-Sub or on
their ability to consummate the transactions contemplated by this
Agreement.
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(ii) Except (x) for the filing of the Certificate
of Merger and other appropriate merger documents required by the DGCL
with the Secretary of State of Delaware and appropriate documents with
the relevant authorities of other states in which the Constituent
Entities are qualified to do business, and (y) as disclosed in SCHEDULE
3.02(d)(ii) hereto, no consent, approval, or action of, filing with or
notice to any Governmental or Regulatory Authority or other public or
private third party is necessary or required under any of the terms,
conditions or provisions of any Law or Order of any Governmental or
Regulatory Authority or any Contract to which the Parent or the
Merger-Sub is a party or by which the Parent or the Merger-Sub or any
of their respective assets or properties is bound for the execution and
delivery of this Agreement by the Parent and the Merger-Sub, the
performance by the Parent and the Merger-Sub of their respective
obligations hereunder or the consummation of the transactions
contemplated hereby, except for such consents, approvals or actions of,
filing with or notices to any Governmental or Regulatory Authority or
other public or private third party the failure of which to make or
obtain could not reasonably be expected to have a Material Adverse
Effect on the Parent, the Merger-Sub or the Surviving Corporation or on
the Parent's and the Merger-Sub's ability to consummate the
transactions contemplated by this Agreement.
(e) FINANCIAL STATEMENTS. The Parent has delivered to
Duck true, correct, and complete copies of the following: the audited balance
sheets of the Parent (the "Parent Balance Sheets") as of December 31, 1997 and
December 31, 1998; the audited statement of operations of the Parent (the
"Parent Operations Statement") for the years ending December 31, 1997 and
December 31, 1998; the audited statement of changes in stockholders' deficit of
the Parent (the "Parent Stockholders' Equity Statement") for the years ending
December 31, 1997 and December 31, 1998; and the audited statement of cash flows
of the Parent (the "Parent Cash Flow Statement") for the years ending December
31, 1997 and December 31, 1998 (together, the "Parent Financial Statements").
The Parent Financial Statements fairly present the financial condition, assets,
liabilities, stockholders equity and results of operations of the Parent for the
periods indicated. The Merger-Sub has delivered to Duck a true, correct and
complete copy of the Merger-Sub's unaudited balance sheet as of May 31, 1999.
Such unaudited balance sheet fairly presents the financial condition of the
Merger-Sub for the period indicated.
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set
forth in SCHEDULE 3.02(f) hereto or as contemplated hereby, since May 31, 1999,
no change, event, or development or combination of changes or developments
(including any worsening of any condition currently existing) has occurred or is
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Parent or the Merger-Sub (without regard, however, to
changes in conditions generally applicable to the industries in which the Parent
and the Merger-Sub are involved or general economic conditions).
(g) ABSENCE OF UNDISCLOSED LIABILITIES. Except for
matters reflected or reserved against in the Parent Balance Sheets included in
the Parent Financial Statements or the unaudited Balance Sheet of the
Merger-Sub, neither Parent nor the Merger-Sub had at such date and has not
incurred since that date, any liabilities or obligations (whether absolute,
accrued, contingent, fixed or otherwise, or whether due or to become due) of any
nature, except liabilities or obligations which
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were incurred in connection with this Agreement and the transactions
contemplated hereby or in the ordinary course of business consistent with
past practice.
(h) LEGAL PROCEEDINGS. Except as set forth in SCHEDULE
3.02(h), there are no actions, suits, arbitrations, or proceedings pending or to
the knowledge of the Parent or the Merger-Sub, threatened against, relating to
or affecting, nor to the knowledge of the Parent or the Merger-Sub, are there
any Governmental or Regulatory Authority investigations or audits pending or
threatened against, relating to or affecting, the Parent or the Merger-Sub or
any of their assets and properties which, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect on the Parent or
the Merger-Sub or on the ability of the Parent or the Merger-Sub to consummate
the transactions contemplated by this Agreement. Neither the Parent nor the
Merger-Sub is subject to any judgment, decree, court order, or writ of any
Governmental or Regulatory Authority.
(i) INFORMATION SUPPLIED. Nothing in this Agreement or
any schedule, annex, certificate, document, or statement in writing which has
been supplied by or on behalf of the Parent or the Merger-Sub, in connection
with the transactions contemplated hereby, contains any untrue statement of a
material fact, or omits any statement of a material fact required to be stated
or necessary in order to make the statements contained herein or therein not
misleading. There is no fact known to the Parent or the Merger-Sub which
materially and adversely affects the Parent or the Merger-Sub, which has not
been set forth in this Agreement or in the schedules, exhibits, annexes,
certificates, documents, or statements in writing furnished by the Parent or the
Merger-Sub in connection with the transactions contemplated by this Agreement.
(j) COMPLIANCE WITH LAWS AND ORDERS. The Parent and the
Merger-Sub hold all permits, licenses, variances, exemptions, orders, and
approvals of all Governmental and Regulatory Authorities necessary for the
lawful conduct of its business (the "Permits"), except for failures to hold such
permits, licenses, variances, exemptions, orders, and approvals which,
individually or in the aggregate, do not and are not reasonably expected to have
a Material Adverse Effect on the Parent or the Merger-Sub. The Parent and the
Merger-Sub are in compliance with the terms of the Permits, except failures so
to comply which, individually or in the aggregate, do not have and are not
reasonably expected to have a Material Adverse Effect on the Parent or the
Merger-Sub. The Parent and the Merger-Sub are not in violation of, or in default
under, any Law or Order of any Governmental or Regulatory Authority except for
violations which, individually or in the aggregate, do not and are not
reasonably expected to have a Material Adverse Effect on the Parent or the
Merger-Sub.
(k) COMPLIANCE WITH AGREEMENTS; CERTAIN AGREEMENTS.
Neither the Parent nor the Merger-Sub, nor to the knowledge of the Parent or the
Merger-Sub, any other party thereto, is in breach or violation of, or in default
in the performance or observance of any term or provision of and no event has
occurred which, with notice or lapse of time or both, is reasonably expected to
result in a default under, (x) the respective Certificates of Incorporation and
By-Laws of the Parent and the Merger-Sub or (y) any material Contract to which
the Parent or the Merger-Sub is a party or by which the Parent or the Merger-Sub
or any of their assets or properties is bound, except in the case of clause (y)
for breaches, violations, and defaults which, individually or in the aggregate,
do
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not and are not reasonably expected to have a Material Adverse Effect on the
Parent or the Merger-Sub.
(l) EMPLOYEE BENEFIT PLANS. Except as contemplated by the
Stock Option Plan, neither the Parent nor the Merger-Sub has or contributes to
any pension, profit-sharing, option, other incentive plan, or any other type of
employee benefit plan, or have any obligation to or customary arrangement with
employees for bonuses, incentive compensation, vacations, severance pay, sick
pay, sick leave, insurance, service award, relocation, disability, tuition
refund, or other benefits, whether oral or written.
(m) PATENTS, TRADEMARKS, ET CETERA. Neither the Parent
nor the Merger-Sub has Intellectual Property.
(n) INSURANCE. Neither the Parent nor the Merger-Sub has
an insurance policy.
(o) LABOR MATTERS. Except as contemplated under the Stock
Option Plan, and other than Peter Lee, Jeffrey Taylor and Ajmal Khan, who are
officers of the Parent as of the date hereof, neither the Parent nor the
Merger-Sub has any employees.
(p) TANGIBLE PROPERTY AND ASSETS. Except as set forth on
SCHEDULE 3.02(p), the Parent and the Merger-Sub have no facilities or assets.
(q) BROKERS. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried out by the Parent and
the Merger-Sub and their affiliates directly with Duck, without the intervention
of any person on behalf of the Parent or the Merger-Sub and their affiliates in
such manner as to give rise to any valid claim by any person against the Parent,
the Merger-Sub, Duck or the Surviving Corporation for a finder's fee, brokerage
commission or similar payment, except as specifically set forth in SCHEDULE
3.02(q).
(r) TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 3.02(R), neither the Parent nor the Merger-Sub is a party to any
material Contract with any of their affiliates or any director or officer for
the purchase, sale, lease or other disposition of property or services.
(s) TAX MATTERS.
(i) Except as set forth in SCHEDULE 3.02(s), the
Parent and the Merger-Sub have filed all tax returns required to be
filed by applicable law prior to the Closing. All tax returns were
(and, as to tax returns not filed as of the date hereof, will be) true,
complete, and correct and filed on a timely basis. The Parent and the
Merger-Sub (x) have paid all taxes due, or claimed or asserted in
writing by any taxing authority to be due, for the periods covered by
such tax returns or (y) have duly and fully provided reserves (in
accordance with GAAP) adequate to reflect all such taxes.
(ii) The Parent and the Merger-Sub have
established (and until the Closing will maintain) on their respective
books and records reserves adequate to reflect all material taxes not
yet due and payable. The Parent and the Merger-Sub have made available
to Duck complete, and accurate copies of all work papers associated
with the calculation of the Parent's and the Merger-Sub's respective
tax reserves.
(iii) There are no tax liens upon the assets of
the Parent or the Merger-Sub.
(iv) The Parent and the Merger-Sub have not
requested (and no request has been made on their behalf) any extension
of time within which to file any material tax return.
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(v) No income tax returns have been examined by
any taxing authorities for any periods; and no deficiency for any
material taxes has been suggested, proposed, asserted, or assessed
against the Parent or the Merger-Sub that has not been resolved and
paid in full.
(vi) No audits or other administrative
proceedings or court proceedings are presently pending with regard to
any taxes or tax returns of the Parent or the Merger-Sub . Except as
set forth on SCHEDULE 3.02(s), no written claim has been made by a
taxing authority in a jurisdiction where the Parent or the Merger-Sub
does not file tax returns such that it is or may be subject to taxation
by that jurisdiction.
(vii) To the extent requested by Duck, the Parent
and the Merger-Sub have made available to Duck (or, in the case of tax
returns to be filed on or before the Closing, will make available)
complete and accurate copies of all tax returns and associated work
papers filed by or on behalf of the Parent or the Merger-Sub for all
taxable years ending on or prior to the Closing.
(viii) No agreements relating to allocating or
sharing of any taxes have been entered into by the Parent or the
Merger-Sub.
(ix) Neither the Parent nor the Merger-Sub has
entered into any transactions that could give rise to an understatement
of Federal Income Tax.
(x) Except as set forth on SCHEDULE 3.02(s),
neither the Parent, the Merger-Sub nor any other person on behalf of
the Parent or the Merger-Sub has agreed to or is required to make any
adjustments pursuant to Section 481(a) of the Code or any similar
provision of state, local or foreign law by reason of a change in
accounting method initiated by the Parent or the Merger-Sub or has any
application pending with any taxing authority requesting permission for
any change in accounting methods that relate to the business or
operations of the Parent or the Merger-Sub, and neither the Parent nor
the Merger-Sub has knowledge that the IRS has proposed any such
adjustment or change in accounting method.
(xi) Except as set forth on SCHEDULE 3.02(s),
neither the Parent nor the Merger-Sub has been, or is now, a member of
any consolidated, combined, unitary or affiliated group of corporations
for any tax purposes.
(t) ACCURACY OF INFORMATION.
(i) The Parent has made with the SEC all filings
required by the Securities Exchange Act of 1934, as amended (all such
filings and any future filings made thereunder are collectively, the
"Exchange Act Filings"). None of the Exchange Act Filings contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Parent has not been required to make any filings under
the Securities Act of 1933.
IV COVENANTS.
SECTION 4.01 COVENANTS OF THE PARENT AND THE MERGER-SUB.
The Parent and the Merger-Sub covenant and agree as follows:
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(a) CERTIFICATE OF INCORPORATION AND BY-LAWS. As of the
Closing Date, the Certificate of Incorporation and By-Laws of the Merger-Sub
shall be substantially in the form of EXHIBITS 3.02(a)-1 and 3.02(a)-2,
respectively, and the Certificate of Incorporation and By-Laws of the Parent
shall be substantially in the form of EXHIBITS 1.05-1 and 1.05-2, respectively.
(b) SHARES AND OPTIONS. Except as contemplated hereby,
until the earlier of the Effective Time or the Termination of this Agreement
pursuant to Article VI (the "Release Time") without the prior written consent of
Duck, no share of capital stock of the Parent or the Merger-Sub or any option or
warrant for any such share, right to subscribe to or purchase any such share, or
security convertible into or exchangeable for any such share, shall be issued or
sold by the Parent or the Merger-Sub, nor shall the Parent or the Merger-Sub
enter into any agreement or commitment to effect any such issuance or sale.
(c) DIVIDENDS AND PURCHASES OF STOCK. Until the Release
Time, without the prior written consent of Duck, no cash or non-cash dividend,
or liquidating or other distribution or stock split shall be authorized,
declared, paid, or effected by the Parent or the Merger-Sub in connection with
their respective outstanding capital stock.
(d) BORROWING OF MONEY; WORKING CAPITAL. Until the
Release Time, neither the Parent nor the Merger-Sub shall incur indebtedness for
borrowed money. Until the Release Time, neither the Parent nor the Merger-Sub
shall guarantee the borrowing of money by any third party, enter into or modify
any capital or operating lease or enter into any material agreement, which in
any case would by their terms require the payment by the Parent or the
Merger-Sub of more than five thousand dollars ($5,000) by the Parent or the
Merger-Sub in any twelve (12) month period.
(e) ACCESS. Until the Release Time, the Parent and the
Merger-Sub will afford the directors, stockholders, counsel, agents, investment
bankers, accountants, and other representatives of Duck reasonable access to the
plants, properties, books, and records of the Parent and the Merger-Sub, will
permit them to make extracts from and copies of such books and records, and will
from time to time furnish Duck with such additional financial and operating data
and other information as to the financial condition, results of operations,
businesses, properties, assets, liabilities, or future prospects of the Parent
and the Merger-Sub as Duck from time to time may reasonably request.
(f) CONDUCT OF BUSINESS. Except as otherwise contemplated
or permitted hereby, until the Release Time, neither the Parent nor the
Merger-Sub shall take any action that would or is reasonably likely to result in
any of the representations or warranties of the Parent or the Merger-Sub set
forth in this Agreement being untrue at the Closing Date, or in any of the
conditions to the Merger set forth in Article V not being satisfied. Except as
otherwise contemplated or permitted hereby, until the Release Time, the Parent
or the Merger-Sub will conduct their affairs in all respects only in the
ordinary course.
(g) ADVICE OF CHANGES. Until the Release Time, the Parent
and the Merger-Sub will promptly advise Duck in a reasonably detailed written
notice of any fact or occurrence or any pending threatened occurrence of which
it obtains knowledge and which (if existing and known at the date of the
execution of this Agreement) would have been required to be set forth or
disclosed in or pursuant to this Agreement, which (if existing or known at any
time prior to or at the Effective Time) would make the performance by any party
of a covenant contained in this Agreement
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impossible or make such performance materially more difficult in the absence
of such fact or occurrence, or which (if existing or known at the time of the
Effective Time) would cause a condition to any party's obligations under this
Agreement not to be fully satisfied.
(h) PUBLIC STATEMENTS. Before either the Parent or the
Merger-Sub releases any information concerning this Agreement, the Merger, or
any other transactions contemplated by this Agreement which is intended for or
is reasonably expected to result in public dissemination thereof, the Parent and
the Merger-Sub shall cooperate with Duck, shall furnish drafts of all documents
or proposed oral statements to Duck for comments, and shall not release any such
information without the prior consent of Duck; PROVIDED, HOWEVER, that the
foregoing shall not be deemed to prevent the Parent or the Merger-Sub from
releasing any information or making any disclosure to the extent that the Parent
or the Merger-Sub reasonably determines that it is required to do so by law.
i OTHER PROPOSALS. Until the Release Time the Parent
shall not authorize or permit any officer, director, employee, counsel, agent,
investment banker, accountant, or other representative of the Parent, directly
or indirectly, to: (i) initiate contact with any person or entity in an effort
to solicit any Takeover Proposal (as such term is defined in this Section
4.01(i)); (ii) cooperate with, or furnish or cause to be furnished any
non-public information concerning the financial condition, results of
operations, businesses, properties, assets, liabilities, or future prospects of
the Parent to, any person or entity in connection with any Takeover Proposal;
(iii) negotiate with any person or entity with respect to any Takeover Proposal;
or (iv) enter into any agreement or understanding with the intent to effect a
Takeover Proposal; PROVIDED, HOWEVER, that the Parent shall be entitled to take
any action described in the foregoing clauses (ii)-(iv) if and to the extent
that the Board of Directors of the Parent determines in good faith, based on the
advice of their respective counsel, that the failure to take any such action
would violate their fiduciary duties to the stockholders of the Parent. The
Parent will immediately give written notice to Duck of the details of any
Takeover Proposal of which the Parent becomes aware. As used in Section 4.01(i),
"Takeover Proposal" shall mean any proposal, other than as contemplated by this
Agreement, for a merger, consolidation, reorganization, other business
combination, or recapitalization involving the Parent, for the acquisition of a
ten percent (10%) or greater interest in the equity or in any class or series of
capital stock of the Parent, for the acquisition of the right to cast ten
percent (10%) or more of the votes on any matter with respect to the Parent, or
for the acquisition of one of their divisions or of a substantial portion of any
of their respective assets, the effect of which may be to prohibit, restrict, or
delay the consummation of the Merger or any of the other transactions
contemplated by this Agreement, or impair the contemplated benefits to Duck of
the Merger or any of the other transactions contemplated by this Agreement.
j CONSENTS WITHOUT ANY CONDITION. Neither the Parent
nor the Merger-Sub shall make any agreement or reach any understanding, not
approved in writing by Duck, as a condition for obtaining any consent,
authorization, approval, order, license, certificate, or permit required for the
consummation of the transactions contemplated by this Agreement.
k SEC FILINGS. The Parent shall use reasonable efforts
to prepare and file in a timely manner any Exchange Act Filings required to be
made prior to or after the Closing Date. If at any time prior to the Closing
Date the Parent finds that any Exchange Act Filing contained an untrue statement
of a material fact or omitted to state any material fact required to be stated
therein
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or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, the Parent shall, upon becoming
aware of any such untrue statement or omission, promptly notify Duck.
SECTION 4.02 COVENANTS OF DUCK.
Duck covenants and agrees as follows:
a CONDUCT OF BUSINESS. Until the Release Time, Duck
shall not take any action that would or is reasonably likely to result in any of
the representations or warranties of Duck set forth in this Agreement being
untrue at the Closing Date or to any of the conditions to the Merger set forth
in Article V not being satisfied. Until the Release Time, Duck will use all
reasonable efforts to preserve the business operations of Duck intact, to keep
available the services of its present personnel, and to preserve the good will
of its suppliers, customers, and others having business relations with any of
them.
b ADVICE OF CHANGES. Until the Release Time, Duck will
promptly advise the Parent and the Merger-Sub in a reasonably detailed written
notice of any fact or occurrence or any pending threatened occurrence of which
it obtains knowledge and which (if existing or known at the date of the
execution of this Agreement) would have been required to be set forth or
disclosed in or pursuant to this Agreement, which (if existing and known at any
time prior to or at the Effective Time) would make the performance by any party
of a covenant contained in this Agreement impossible or make such performance
materially more difficult than in the absence of such fact or occurrence, or
which (if existing and known at the time of the Effective Time) would cause a
condition to any party's obligations under this Agreement not to be fully
satisfied.
c PUBLIC STATEMENTS. Before Duck releases any
information concerning this Agreement, the Merger, or any of the other
transactions contemplated by this Agreement which is intended for, or is
reasonably expected to, result in public dissemination thereof, Duck shall
cooperate with the Parent and the Merger-Sub, shall furnish drafts of all
documents or proposed oral statements to the Parent and the Merger-Sub for
comments, and shall not release any such information without the prior consent
of the Parent and the Merger-Sub; PROVIDED, HOWEVER, that the foregoing shall
not be deemed to prevent Duck from releasing any information or making any
disclosure to the extent Duck reasonably determines that it is required to do so
by law.
d OTHER PROPOSALS. Until the Release Time, Duck shall
not authorize or permit any officer, director, employee, counsel, agent,
investment banker, accountant, or other representative of Duck, directly or
indirectly, to (i) initiate contact with any person or entity in an effort to
solicit any Takeover Proposal (as such term is defined in this Section 4.02(d));
(ii) cooperate with, or furnish or cause to be furnished any non-public
information concerning the financial condition, results of operations,
businesses, properties, assets, liabilities, or future prospects of Duck to, any
person or entity in connection with any Takeover Proposal; (iii) negotiate with
any person or entity with respect to any Takeover Proposal; or (iv) enter into
any agreement or understanding with the intent to effect a Takeover Proposal;
PROVIDED, HOWEVER, that Duck shall be entitled to take any action described in
the foregoing clauses (ii)-(iv) if and to the extent that the Board of Directors
of Duck determines in good faith, based on the advice of their counsel, that the
failure to take any such action would violate their fiduciary duties to the
stockholders of Duck. Duck will immediately give written notice to the Parent of
the details of any Takeover Proposal of which Duck becomes
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aware. As used in Section 4.02(d), "Takeover Proposal" shall mean any
proposal, other than as contemplated by this Agreement, for a merger,
consolidation, reorganization, other business combination, or
recapitalization involving Duck, for the acquisition of a ten percent (10%)
or greater interest in the equity or in any class or series of capital stock
of Duck, for the acquisition of the right to cast ten percent (10%) or more
of the votes on any matter with respect to Duck, or for the acquisition of
one of their divisions or of a substantial portion of any of their respective
assets, the effect of which may be to prohibit, restrict, or delay the
consummation of the Merger or any of the other transactions contemplated by
this Agreement, or impair the contemplated benefits to the Parent of the
Merger or any of the other transactions contemplated by this Agreement.
e APPROVAL OF STOCKHOLDERS. Duck shall, through its
Board of Directors, duly call, give notice of, convene, and hold a meeting of
its stockholders for the purpose of voting on the ratification and approval of
this Merger Agreement, or obtain the consent of its stockholders, as soon as
reasonably practicable following the date hereof.
f TRANSFER TAXES. The Parent and the Merger-Sub shall
timely prepare and file any declaration or filing necessary to comply with any
transfer tax statutes that require any such filing before the Effective Time.
g LOCK-UP AGREEMENTS. Duck shall use its best efforts
to obtain an executed Lock-Up Agreement from each Former Duck Stockholder.
SECTION 4.03 DIRECTORS' AND OFFICERS' INSURANCE.
a The Parent shall at its expense, until the third
(3rd) anniversary of the Effective Time, cause to be maintained in effect, to
the extent available, policies of directors' and officers' liability insurance
in a face amount of not less than ten million dollars ($10,000,000).
b The provisions of this Section 4.03 are intended to
be for the benefit of, and shall be enforceable by, each party entitled to
insurance coverage under Section 4.03(a) above, and his or her heirs and legal
representatives, and shall be in addition to any other rights a Director or
Officer may have under the Certificate of Incorporation or By-Laws of the Parent
or under the Colorado Business Corporation Act or otherwise.
c In the event the Parent or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, in each such case, proper provision shall be made so that
the successors and assigns of the Parent, as the case may be, shall assume the
obligations set forth in this Section 4.03.
SECTION 4.04 AMEX LISTING.
The Parent shall use its best efforts to cause the shares of
the Parent Common Stock to be issued in the Merger in accordance with this
Agreement to be admitted for trading or authorized for quotation on the American
Stock Exchange ("AMEX"), subject to official notice of issuance, prior to the
Effective Time.
V. CONDITIONS.
SECTION 5.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER.
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The respective obligations of each party to effect the Merger
are subject to the fulfillment, at or prior to the Closing, of each of the
following conditions:
a STOCKHOLDER APPROVAL. This Agreement and the Merger
shall have been adopted by the requisite vote of the stockholders of Duck.
b STATE SECURITIES LAWS. The Parent shall have received
all state securities or "Blue Sky" permits and other authorizations necessary to
issue the Parent Common Stock pursuant to the Merger.
c NO INJUNCTIONS OR RESTRAINTS. No court of competent
jurisdiction or other competent Governmental or Regulatory Authority shall have
enacted, issued, promulgated, enforced, or entered any Law or Order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of making illegal or otherwise restricting, preventing, or prohibiting
consummation of the Merger or the other transactions contemplated by this
Agreement.
d CONSENTS AND APPROVALS. Other than the filings
provided for by Section 1.02, all consents, approvals and actions of, filings
with and notices to any Governmental or Regulatory Authority or any other public
or private third parties required of the Parent, the Merger-Sub or Duck to
consummate the Merger shall have been obtained, all in form and substance
reasonably satisfactory to the Parent, the Merger-Sub and Duck, and no such
consent, approval, or action shall contain any term or condition which could be
reasonably expected to result in a material diminution of the benefits of the
Merger to the stockholders of the Parent, the Merger-Sub and Duck.
SECTION 5.02 CONDITIONS TO OBLIGATIONS OF THE PARENT AND THE
MERGER-SUB.
The obligations of the Parent and the Merger-Sub to effect the
Merger is further subject to the fulfillment, at or prior to the Closing, of
each of the following additional conditions (all or any of which may be waived
in whole or in part by the Parent and the Merger-Sub and in their sole
discretion):
a REPRESENTATIONS AND WARRANTIES. The representations
and warranties made by Duck in this Agreement shall be true and correct in all
material respects as of the Closing Date as though made on and as of the Closing
Date or, in the case of representations and warranties made as of a specified
date earlier than the Closing Date, on and as of such earlier date, and Duck
shall have delivered to the Parent and Merger-Sub a certificate, dated the
Closing Date and executed on behalf of Duck by a duly authorized officer, to
such effect.
b PERFORMANCE OF OBLIGATIONS. Duck shall have performed
and complied with, in all material respects, each agreement, covenant and
obligation required by this Agreement to be so performed or complied with by
Duck at or prior to the Closing, and Duck shall have delivered to the Parent and
Merger-Sub a certificate dated the Closing Date and executed on behalf of Duck
by a duly authorized officer, to such effect.
c OTHER CLOSING DOCUMENTS. Duck shall have delivered to
the Parent and the Merger-Sub at or prior to the Closing Date such other
documents as the Parent and the Merger-Sub may reasonably request in order to
enable the Parent and the Merger-Sub to determine whether the conditions to
their obligations under this Agreement have been met and otherwise to carry out
the provisions of this Agreement.
d REVIEW OF PROCEEDINGS. All actions, proceedings,
instruments, and documents required by the Parent and the Merger-Sub to carry
out this Agreement or incidental
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thereto and all other related legal matters shall be subject to the
reasonable approval of Preston Gates & Ellis LLP, counsel to the Parent and
the Merger-Sub, and Duck shall have furnished such documents as such counsel
may have reasonably requested for the purpose of enabling it to pass upon
such matters.
e LEGAL OPINION. The Parent and the Merger-Sub shall
receive at the Closing Date an opinion of Camhy Karlinsky & Stein LLP (the "CKS
Opinion"), counsel for Duck, addressed to the Parent and the Merger-Sub, in
substantially the form attached hereto as EXHIBIT 5.02(e).
f LEGAL ACTION. There shall not have been instituted or
threatened any legal proceeding relating to, or seeking to prohibit, or
otherwise challenge the consummation of, the transactions contemplated by this
Agreement, or to obtain substantial damages with respect thereto.
g LOCK-UP AGREEMENTS. Each Former Duck Stockholder
shall have executed and delivered to the Parent a Lock-Up Agreement.
SECTION 5.03 CONDITIONS TO OBLIGATION OF DUCK TO EFFECT THE MERGER.
The obligation of Duck to effect the Merger is further subject
to the fulfillment, at or prior to the Closing, of each of the following
additional conditions (all or any of which may be waived in whole or in part by
Duck in its sole discretion):
a REPRESENTATIONS AND WARRANTIES. The representations
and warranties made by the Parent and the Merger-Sub in this Agreement shall be
true and correct in all material respects as of the Closing Date as though made
on and as of the Closing Date or, in the case of representations and warranties
made as of a specified date earlier than the Closing Date, on and as of such
earlier date, and the Parent and the Merger-Sub shall have delivered to Duck a
certificate, dated the Closing Date and executed on behalf of the Parent and the
Merger-Sub by a duly authorized officer, to such effect.
b PERFORMANCE OF OBLIGATIONS. The Parent and the
Merger-Sub shall have performed and complied with in all material respects, each
agreement, covenant, and obligation required by this Agreement to be so
performed or complied with by the Parent and the Merger-Sub at or prior to the
Closing, and the Parent and the Merger-Sub shall have delivered to Duck a
certificate, dated the Closing Date and executed on behalf of the Parent and the
Merger-Sub by a duly authorized officer, to such effect.
c OTHER CLOSING DOCUMENTS. The Parent and the
Merger-Sub shall have delivered to Duck at or prior to the Effective Time such
other documents as Duck may reasonably request in order to enable Duck to
determine whether the conditions to its obligations under this Agreement have
been met and otherwise to carry out the provisions of this Agreement.
d REVIEW OF PROCEEDINGS. All actions, proceedings,
instruments, and documents required by Duck to carry out this Agreement or
incidental thereto and all other related legal matters shall be subject to the
reasonable approval of Camhy Karlinsky & Stein LLP, counsel to Duck, and the
Parent and the Merger-Sub shall have furnished such documents as such counsel
may have reasonably requested for the purpose of enabling it to pass upon such
matters.
e LEGAL OPINION. Duck shall receive at the Closing Date
an opinion of Preston Gates & Ellis LLP (the "PGE Opinion"), counsel for the
Parent and the Merger-Sub, addressed to Duck, in substantially the form attached
hereto as EXHIBIT 5.03(E).
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f LEGAL ACTION. There shall not have been instituted or
threatened any legal proceeding relating to, or seeking to prohibit or otherwise
challenge the consummation of, the transactions contemplated by this Agreement,
or to obtain substantial damages with respect thereto.
g AMEX LISTING. The shares of the Parent Common Stock
issued shall be eligible for quotation on the OTCBB, and an application shall
have been made to list such shares on the AMEX.
h CAPITAL. The Parent and the Merger-Sub shall be in
strict compliance with Section 2.04.
VI. TERMINATION.
SECTION 6.01 TERMINATION.
This Agreement may be terminated, and the transactions
contemplated hereby may be abandoned at any time prior to the Effective Time,
whether prior to or after the Duck stockholders' approval:
a By mutual written agreement of the parties hereto
duly authorized by action taken by or on behalf of their respective Boards of
Directors.
b By either Duck, the Parent or the Merger-Sub upon
written notification to the other party, if: ii the Duck stockholders' approval
shall not be obtained by reason of the failure to obtain the requisite vote upon
a vote held at a meeting of such stockholders or pursuant to a written consent;
or
iii facts exist which render impossible the
satisfaction of one or more of the conditions set forth in Section 5.01
and such are not waived by the Parent, the Merger-Sub and Duck.
c By the Parent and the Merger-Sub upon written
notification to Duck, if:
iv there has been a material breach of any
representation, warranty, covenant, or agreement on the part of Duck
set forth in this Agreement which breach has not been cured within ten
(10) business days following receipt by Duck of notice of such breach
from the Parent or the Merger-Sub or assurance of such cure reasonably
satisfactory to the Parent or the Merger-Sub have not been given by or
on behalf of Duck within such ten (10) business day period; or
v facts exist which render impossible the
satisfaction of one or more of the conditions set forth in Section 5.02
and such are not waived by the Parent or the Merger-Sub; or
vi the Parent or its stockholders receive a
proposal or offer for any Takeover Proposal, other than pursuant to the
transactions contemplated by this Agreement, in connection with which
the Board of Directors of the Parent exercises any of its rights
specified in Section 4.01(i) and 4.01(j).
d By Duck upon written notification to the Parent or
the Merger-Sub, if:
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vii at any time after July 15, 1999 if the
Merger shall not have been consummated on or prior to such date and
such failure to consummate the Merger is not caused by a breach of
this Agreement by Duck; or
viii there has been a material breach of any
representation, warranty, covenant, or agreement on the part of the
Parent or the Merger-Sub set forth in this Agreement which breach has
not been cured with ten (10) business days following receipt by the
Parent or the Merger-Sub of notice of such breach from Duck or
assurance of such cure reasonably satisfactory to Duck shall not have
been given by or on behalf of the Parent or the Merger-Sub within such
ten (10) business day period; or
ix facts exist which render impossible the
satisfaction of one or more of the conditions set forth in Section 5.03
and such are not waived by Duck.
SECTION 6.02 EFFECT OF TERMINATION.
If this Agreement is validly terminated by the Parent, the
Merger-Sub or Duck pursuant to Section 6.01, this Agreement shall forthwith
become null and void and there shall be no liability or obligation on the part
of either the Parent, the Merger-Sub or Duck (or any of their respective
officers, directors, representatives, or affiliates), except that (i) the
provisions of this Section 6.02 will continue to apply following any such
termination, and (ii) nothing contained herein shall relieve the Parent, the
Merger-Sub or Duck from liability for wilful or intentional breach of their
respective obligations contained in this Agreement or for fraud.
VII. INDEMNIFICATION.
SECTION 7.01 INDEMNIFICATION BY THE PARENT.
a The Parent agrees to indemnify and hold harmless Duck
and its directors, officers, employees, counsel, and agents against and in
respect of any and all claims as and when incurred, arising out of or based upon
any breach or inaccuracy of any representation, warranty, covenant, or agreement
of the Parent or the Merger-Sub contained in this Agreement (including the
Exhibits and Schedules attached hereto) or any certificates delivered pursuant
to this Agreement.
b Each indemnified party (a "Duck Indemnitee") shall
give the Parent prompt notice of any claim asserted or threatened against such
Duck Indemnitee on the basis of which such Duck Indemnitee intends to seek
indemnification (but the obligations of the Parent shall not be conditioned upon
receipt of such notice, except to the extent that the Parent is actually
prejudiced by such failure to give notice). If the claim is a third party claim,
demand, action, or proceeding, the Parent promptly shall assume the defense of
any Duck Indemnitee, with counsel reasonably satisfactory to such Duck
Indemnitee, and the fees and expenses of such counsel shall be the sole cost and
expense of the Parent. Notwithstanding the foregoing, any Duck Indemnitee shall
be entitled, at his or its expense, to employ counsel separate from counsel for
the Parent and from any other party in such action, proceeding, or
investigation. No Duck Indemnitee may agree to a settlement of claim without the
prior written approval of the Parent which approval shall not be unreasonably
withheld. The Parent may not agree to a settlement of a claim involving anything
other than the payment of money without the prior written approval of the Duck
Indemnitee which shall not be unreasonably withheld.
SECTION 7.02 INDEMNIFICATION BY DUCK.
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a Duck agrees to indemnify and hold harmless the
Parent, Merger-Sub and each of their respective officers, directors, counsel,
and agents against and in respect of any and all claims as and when incurred,
arising out of or based upon any breach or inaccuracy of any representation,
warranty, covenant, or agreement of Duck contained in this Agreement (including
the Exhibits and Schedules attached hereto) or any certificates delivered
pursuant to this Agreement.
b Each indemnified party (an "Indemnitee") shall give
Duck prompt notice of any claim asserted or threatened against such Indemnitee
on the basis of which such Indemnitee intends to seek indemnification (but the
obligations of Duck shall not be conditioned upon receipt of such notice, except
to the extent that Duck is actually prejudiced by such failure to give notice).
If the claim is a third party claim, demand, action, or proceeding, Duck
promptly shall assume the defense of any Indemnitee, with counsel reasonably
satisfactory to such Indemnitee, and the fees and expenses of such counsel shall
be the sole cost and expense of Duck. Notwithstanding the foregoing, any
Indemnitee shall be entitled, at his or their expense, to employ counsel
separate from counsel for Duck and from any other party in such action,
proceeding, or investigation. No Indemnitee may agree to a settlement of claim
without the prior written approval of Duck which approval shall not be
unreasonably withheld. Duck may not agree to a settlement of a claim involving
anything other than the payment of money without the prior written approval of
the Indemnitee which shall not be unreasonably withheld.
VIII. MISCELLANEOUS.
SECTION 8.01 FURTHER ACTIONS.
Each party hereto will execute such further documents and
instruments and take such further actions as may reasonably be requested by the
other party to consummate the Merger, to vest the Surviving Corporation with
full title to all assets, properties, rights, approvals, immunities, and
franchises of either of the Constituent Entities or to effect the other purposes
of this Agreement.
SECTION 8.02 AVAILABILITY OF EQUITABLE REMEDIES.
Since a breach of the provisions of this Agreement could not
adequately be compensated by money damages, any party shall be entitled, either
before or after the Effective Time, in addition to any other right or remedy
available to it, to an injunction restraining such breach or threatened breach
and to specific performance of any such provision of this Agreement, and, in
either case, no bond or other security shall be required in connection
therewith, and the parties hereby consent to the issuance of such an injunction
and to the ordering of specific performance.
SECTION 8.03 SURVIVAL.
The representations, warranties, covenants, and agreements
contained in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Merger for a period of three (3) years after the
Effective Time.
SECTION 8.04 MODIFICATION.
This Agreement may be amended, supplemented, or modified by
action taken by or on behalf of the respective Boards of Directors of the
parties hereto at any time prior to the Effective Time. No such amendment,
supplement, or modification shall be effective unless set forth in a written
instrument duly executed by or on behalf of each party hereto.
SECTION 8.05 NOTICES.
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Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested or by Federal Express, express mail or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
which it is to be given at the address of such party set forth in the preamble
to this Agreement (or to such other address as the party shall have furnished in
writing in accordance with the provisions of this Section 8.05) with copies
(which copies shall not constitute notice) as follows:
If to the Parent or the Merger-Sub: 1177 West Hastings Street, Suite 2000
Vancouver, British Columbia V6E2K3
Attn: Ajmal Khan
With a copy to: Preston Gates & Ellis LLP
701 Fifth Avenue, Suite 5000
Seattle, Washington 98104-7078
Attn: Gary J. Kocher, Esq.
If to Duck: 375 Greenwich Street
New York, New York 10013
Attn: David Silver
With a copy to: Camhy Karlinsky & Stein LLP
1740 Broadway, 16th Floor
New York, New York 10019
Attn: Daniel I. DeWolf, Esq.
Any notice shall be addressed to the attention of the Chief Executive
Officer. Any notice or other communication given by certified mail shall be
deemed given three business days after certification thereof, except for a
notice changing a party's address which will be deemed given at the time of
receipt thereof. Any notice given by other means permitted by this Section 8.05
shall be deemed given at the time of receipt hereof.
SECTION 8.06 WAIVER.
Any waiver by any party of a breach of any term of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of that term or of any breach of any other term of this Agreement. The
failure of a party to insist upon strict adherence to any term of this Agreement
on one or more occasions will not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any
other term of this Agreement. Any waiver must be in writing and be authorized by
a resolution of the Board of Directors or by an officer of the waiving party.
SECTION 8.07 BINDING EFFECT.
The provisions of this Agreement shall be binding upon and
inure to the benefit of the Parent, the Merger-Sub, Verus, and Duck , and their
respective successors and assigns.
SECTION 8.08 NO THIRD-PARTY BENEFICIARIES.
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This Agreement does not create, and shall not be construed as
creating, any rights enforceable by any person not a party to this Agreement,
except as referred to in Sections 4.03, 7.01 and 7.02.
SECTION 8.09 SEVERABILITY.
If any provision of this Agreement is hereafter held to be
invalid, illegal, or unenforceable for any reason, such provision shall be
reformed to the maximum extent permitted so as to preserve the parties' original
intent, failing which, it shall be severed from this Agreement, with the balance
of this Agreement continuing in full force and effect. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable. If any provision is inapplicable to any
person or circumstance, it shall nevertheless remain applicable to all other
persons and circumstances.
SECTION 8.10 MERGER; ASSIGNABILITY.
This Agreement and the other agreements to be delivered
pursuant to this Agreement, and Exhibits attached hereto set forth the entire
understanding of the parties with respect to the subject matter hereof and
supersede all existing agreements concerning such subject matter. This Agreement
may not be assigned by any party without the prior written consent of each other
party to their Agreement.
SECTION 8.11 HEADINGS.
The headings in this Agreement are solely for convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement.
SECTION 8.12 COUNTERPARTS; GOVERNING LAW; JURISDICTION.
This Agreement may be executed in any number of counterparts
(and by facsimile), each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. It shall be governed by,
and construed in accordance with, the laws of the State of Delaware, without
giving effect to the rules governing the conflict of laws. Any action, suit, or
proceeding arising out of, based on, or in connection with this Agreement, the
Merger, or the other transactions contemplated hereby, or any document relating
hereto or delivered in connection with the transactions contemplated hereby, may
be brought only and exclusively in the Federal or State Courts located in the
State of New York; and each party covenants and agrees not to assert, by way of
motion, as a defense or otherwise, in any such action, suit or proceeding, any
claim that it is not subject personally to the jurisdiction of such court if it
has been duly served with process, that its property is exempt or immune from
attachment or execution, that the action, suit, or proceeding is brought in an
inconvenient forum, that the venue of the action, suit, or proceeding is
improper, or that this Agreement or the subject matter hereof may not be
enforced in or by such court.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, this Agreement has been executed by duly
authorized officers of each of the parties hereto as of the date first above
written.
THE DUCK CORPORATION
By: s/ Daniel Miller
-------------------------------
Name:
Title:
APPLIED CAPITAL FUNDING, INC.
By: s/ Ajmal Khan
-------------------------------
Name:
Title:
APPLIED CAPITAL ACQUISITION CORP.
By: s/ Peter Lee
-------------------------------
Name:
Title:
30
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EXHIBIT 2.2
LIST OF SCHEDULES AND EXHIBIT
TO MERGER AGREEMENT
SCHEDULES AND EXHIBITS FOR THE MERGER AGT.
<TABLE>
<S> <C>
Exhibit 1.04-1 Restated Certificate of Incorporation of Duck Corporation
Exhibit 1.04-2 By-Laws of The Duck Corporation
Exhibit 1.05-1 Articles of Incorporation of Applied Capital Funding, Inc.
Exhibit 1.05-2 By-Laws of Applied Capital Funding, Inc.
Exhibit 2.02 Articles of Amendment to the Articles of Incorporation of Applied
Capital Funding, Inc.
Exhibit 2.03 Applied Capital Funding, Inc. 1999 Incentive and Non-Qualified
Stock Option Plan
Schedule 2.04(a) Debt Obligations of Parent and Merger-Sub as of Closing Date
Exhibit 2.04(b)(iii)(B) Form of Warrant of Applied Capital Funding, Inc.
Exhibit 2.06(a) Applied Capital Funding, Inc. Lock-Up Agreement
Exhibit 2.07 Consulting Agreement
Schedule 3.01(b)(iv) Outstanding Obligations of Duck to Redeem and Repurchase Stock
Schedule 3.01(d)(ii) List of Consents Requires by Duck
Schedule 3.01(f) Duck Technology and Intellectual Property Rights
Schedule 3.01(h) Material Changes Affecting Duck
Schedule 3.01(m) Broker's Fees Owed by Duck
Schedule 3.01(o) Tax Matters unresolved by Duck Prior to the Merger
Exhibit 3.02(a)-1 Certificate of Incorporation of Applied Capital Acquisition Corp.
Exhibit 3.02(a)-2 By-Laws of Applied Capital Acquisition Corp.
Schedule 3.02(d)(ii) Third Party Consents of Parent and Merger-Sub
Schedule 3.02(f) Material Changes Affecting Parent and Merger-Sub
Schedule 3.02(h) Legal Proceedings Affecting Parent and Merger-Sub
Schedule 3.02(p) Facilities and Assets of Parent and Merger-Sub
Schedule 3.02(q) Broker Fees Owed by Parent and Merger-Sub
Schedule 3.02(r) Affiliate Transactions of Parent and Merger-Sub
Schedule 3.02(s) Unresolved Tax Matters of Parent and Merger-Sub
Exhibit 5.02(e) Camhy Karlinsky & Stein LLP Legal Opinion
Exhibit 5.03(e) Preston Gates & Ellis LLP Legal Opinion
</TABLE>
<PAGE>
EXHIBIT 4.2
AMENDMENT TO ARTICLES OF INCORPORATION
SERIES A PREFERRED STOCK
DESIGNATION OF RIGHTS AND PREFERENCES
ARTICLES OF AMENDMENT
TO THE
------
ARTICLES OF INCORPORATION
OF
APPLIED CAPITAL FUNDING, INC.
-------------------
DESIGNATION OF
POWERS, PREFERENCES AND RIGHTS OF
SERIES A PREFERRED STOCK
------------------------
NO PAR VALUE PER SHARE
-------------------
Pursuant to Section 7-106-102 of the Colorado Business
Corporation Act
-------------------
IT IS HEREBY CERTIFIED that:
1. The name of the company (hereinafter called the "Company") is
Applied Capital Funding, Inc., a corporation organized and existing under the
Colorado Business Corporation Act.
2. The Articles of Incorporation of the Company (the "Articles of
Incorporation") authorize the issuance of Five Million (5,000,000) shares of
preferred stock, no par value per share (the "Preferred Stock"), and expressly
vest in the Board of Directors of the Company the authority to issue any or all
of said shares in one (1) or more series and by resolution or resolutions to
establish the designation and number and to fix the relative rights and
preferences of each series to be issued.
<PAGE>
3. The Board of Directors of the Company, pursuant to the
authority expressly vested in it as aforesaid, and pursuant to the provisions of
Section 7-106-102 of the Colorado Business Corporation Act, has adopted the
resolution set forth below creating a Series A issue of Preferred Stock and
amending the Articles of Incorporation. Pursuant to 7-106-102, the approval of
the Company's shareholders was not required:
RESOLVED, that Two Million (2,000,000) shares of the Five Million
(5,000,000) authorized shares of Preferred Stock of the Company shall be
designated Series A Preferred Stock, no par value per share, and shall possess
the rights and preferences set forth below, which shall constitute a new Section
7 to Article V of the Articles of Incorporation:
Section 7. SERIES A PREFERRED STOCK.
(i) DESIGNATION AND AMOUNT. Two Million (2,000,000)
shares of the Five Million (5,000,000) authorized shares of Preferred Stock of
the Company are designated Series A Preferred Stock (the "Series A Preferred
Stock"). The Series A Preferred Stock shall be issued or offered at a purchase
price of seven dollars fifty cents ($7.50) per share (the "Original Issue
Price").
(ii) RANK. The Series A Preferred Stock shall rank: (i)
junior to any other class or series of capital stock of the Company hereafter
created specifically ranking by its terms senior to the Series A Preferred Stock
(the "Senior Securities"); (ii) prior to all of the Common Stock; (iii) prior to
any class or series of capital stock of the Company hereafter created not
specifically ranking by its terms senior to or on parity with any Series A
Preferred Stock of whatever subdivision (collectively, with the Common Stock,
the "Junior Securities"); and (iv) on parity with any class or series of capital
stock of the Company hereafter created specifically ranking by its terms on
parity with the Series A Preferred Stock ("Parity Securities") in each case as
to distribution of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (all such distributions being referred
to collectively as "Distributions").
(iii) LIQUIDATION PREFERENCE.
(A) In the event of any liquidation, dissolution
or winding up of the Company, either voluntary or involuntary, the Holders of
shares of Series A Preferred Stock shall be entitled to receive, immediately
after any distributions to Senior Securities required by the Company's Articles
of Incorporation, and prior in preference to any distribution to Junior
Securities but in parity with any distribution to Parity Securities, an amount
per share equal to the sum of the Original Issue Price. If upon the occurrence
of such event, and after payment in full of the preferential amounts with
respect to the Senior Securities, the assets and funds available to be
distributed among the Holders of the Series A Preferred Stock and Parity
Securities shall be insufficient to permit the payment to such Holders of the
full preferential amounts due to the Holders of the Series A Preferred Stock and
the Parity Securities, respectively, then the entire
<PAGE>
assets and funds of the Company legally available for distribution shall be
distributed among the Holders of the Series A Preferred Stock and the Parity
Securities, pro rata, based on the respective liquidation amounts to which
each such series of stock is entitled by the Company's Articles of
Incorporation and any certificate(s) of designation relating thereto.
(d) Upon the completion of the distribution
required by Section 7(iii)(A), if assets remain in the Company, they shall be
distributed to holders of Junior Securities in accordance with the Company's
Articles of Incorporation, including any duly adopted certificate(s) of
designation.
(C) At each Holder's option, a sale, conveyance
or disposition of all or substantially all the assets of the Company to a
private entity, the common stock of which is not publicly traded, shall be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 7(iii); PROVIDED, HOWEVER, that an event described in the prior clause
that the Holder does not elect to treat as a liquidation and a consolidation,
merger, acquisition, or other business combination of the Company with or into
any other company or companies shall not be treated as a liquidation,
dissolution or winding up within the meaning of this Subsection C, but instead
shall be treated pursuant to Subsection (iv)(D)(2) of this Section 7hereof (a
Holder who elects to have the transaction treated as a liquidation is herein
referred to as a "Liquidating Holder").
(D) Prior to the closing of a transaction
described in Section 7(iii)(C) which would constitute a liquidation event, the
Company shall either (i) make all cash distributions it is required to make to
the Liquidating Holders pursuant to the first sentence of Section 7(iii)(A),
(ii) set aside sufficient funds from which the cash distributions required to be
made to the Liquidating Holders can be made, or (iii) establish an escrow or
other similar arrangement with a third party pursuant to which the proceeds
payable to the Company from a sale of all or substantially all the assets of the
Company will be used to make the liquidating payments to the Liquidating Holders
immediately after the consummation of such sale. In the event that the Company
has not fully complied with any of the foregoing alternatives, the Company shall
either: (x) cause such closing to be postponed until such cash distributions
have been made, or (y) cancel such transaction, in which event the rights of the
Holders or other arrangements shall be the same as existing immediately prior to
such proposed transaction.
(iv) CONVERSION OF SERIES A PREFERRED STOCK. The record
Holders of the Series A Preferred Stock shall have conversion rights as follows:
(A) RIGHT TO CONVERT. Each record Holder of
Series A Preferred Stock shall be entitled at any time to convert whole shares
of Series A Preferred Stock for the Common Stock issuable upon conversion of the
Series A Preferred Stock, as follows: each outstanding share of Series A
Preferred Stock is convertible into one fully-paid and non-assessable share of
Common Stock, subject to adjustment as provided in Section 7(iv) hereof. The
number of shares
<PAGE>
of Common Stock issuable upon conversion of one (1) share of Series A
Preferred Stock is hereafter referred to as the "Conversion Rate."
(e) MECHANICS OF CONVERSION. In order to convert
Series A Preferred Stock into full shares of Common Stock, the Holder shall (i)
fax a copy of a fully executed notice of conversion ("Notice of Conversion") to
the Company at the office of the Company or to the Company's designated transfer
agent (the "Transfer Agent") for the Series A Preferred Stock, stating that the
Holder elects to convert, which notice shall specify the date of conversion, the
number of shares of Series A Preferred Stock to be converted, the Conversion
Rate and a calculation of the number of shares of Common Stock issuable upon
such conversion (together with a copy of the front page of each certificate to
be converted) and (ii) surrender to a common courier for either overnight or two
(2) day delivery to the office of the Company or the Transfer Agent, the
original certificates representing the Series A Preferred Stock being converted
(the "Preferred Stock Certificates"), duly endorsed for transfer; provided,
however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion, unless
either the Preferred Stock Certificates are delivered to the Company or the
Transfer Agent as provided above, or the Holder notifies the Company or its
Transfer Agent that such certificates have been lost, stolen or destroyed
(subject to the requirements of Subsection (iv)(B)(1) below).
(1) LOST OR STOLEN CERTIFICATES. Upon
receipt by the Company of evidence of the loss, theft, destruction or mutilation
of any Preferred Stock Certificates representing shares of Series A Preferred
Stock, and (in the case of loss, theft or destruction) of indemnity or security
reasonably satisfactory to the Company, and upon surrender and cancellation of
the Preferred Stock Certificates, if mutilated, the Company shall execute and
deliver new Preferred Stock Certificates of like tenor and date. However, the
Company shall not be obligated to re-issue such lost or stolen Preferred Stock
Certificates if Holder contemporaneously requests the Company to convert such
Series A Preferred Stock into Common Stock.
(2) DELIVERY OF COMMON STOCK UPON
CONVERSION. The Company no later than 6:00 p.m. (New York City time) on the
third (3rd) business day after receipt by the Company or its Transfer Agent of
all necessary documentation duly executed and in proper form required for
conversion, including the original Preferred Stock Certificates to be converted
(or after provision for security or indemnification in the case of lost, stolen
or destroyed certificates, if required), shall issue and surrender to a common
courier for either overnight or (if delivery is outside the United States) two
(2) day delivery to the Holder as shown on the stock records of the Company a
certificate for the number of shares of Common Stock to which the Holder shall
be entitled as aforesaid.
(3) DATE OF CONVERSION. The date on
which conversion occurs (the "Date of Conversion") shall be deemed to be the
date such Notice of Conversion is faxed to
<PAGE>
the Company or the Transfer Agent, as the case may be, provided that the
advance copy of the Notice of Conversion is faxed to the Company on or prior
to 6:00 p.m., New York City time, on the Date of Conversion. The original
Preferred Stock Certificates representing the shares of Series A Preferred
Stock to be converted shall be surrendered by depositing such certificates
with a common courier for either overnight or two (2) day delivery, as soon
as practicable following the Date of Conversion. The person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record Holder or Holders of such
shares of Common Stock on the Date of Conversion.
(f) ADJUSTMENT TO CONVERSION RATE.
(1) ADJUSTMENT TO THE CONVERSION RATE
DUE TO STOCK SPLIT, STOCK DIVIDEND OR OTHER SIMILAR EVENT. If, prior to the
conversion of all the Series A Preferred Stock, the number of outstanding shares
of Common Stock is increased by a stock split, stock dividend or other similar
event, the Conversion Rate shall be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a combination or
reclassification of shares, or other similar event, the Conversion Rate shall be
proportionately increased.
(2) ADJUSTMENT DUE TO CONSOLIDATION,
MERGER, EXCHANGE OF SHARES, RECAPITALIZATION, REORGANIZATION OR OTHER SIMILAR
EVENT. If, prior to the conversion of all the Series A Preferred Stock, there
shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event, as a result of which shares of Common
Stock of the Company shall be changed into the same or a different number of
shares of the same or another class or classes of stock or securities of the
Company or another entity or there is a sale of all or substantially all of the
Company's assets that is not deemed to be a liquidation pursuant to Section
7(iii)(C), then the Holders of Series A Preferred Stock thereafter shall have
the right to receive upon conversion of Series A Preferred Stock, upon the basis
and upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore issuable upon conversion, such stock,
securities and/or other assets which the Holder would have been entitled to
receive in such transaction had the Series A Preferred Stock been converted
immediately prior to such transaction, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the Holders
of the Series A Preferred Stock to the end that the provisions hereof
(including, without limitation, provisions for the adjustment of the Conversion
Rate and of the number of shares issuable upon conversion of the Series A
Preferred Stock) shall thereafter be applicable, as nearly as may be practicable
in relation to any securities thereafter deliverable upon the exercise hereof.
The Company shall not effect any transaction described in this Subsection
(iv)(D)(2) unless (a) it first gives thirty (30) calendar days prior notice of
such merger, consolidation, exchange of shares, recapitalization, reorganization
or other similar event (during which time the Holder shall be entitled to
convert its shares of Series A Preferred Stock into Common Stock to the extent
permitted hereby) and (b) the resulting successor or acquiring entity (if not
the Company) assumes by written instrument
<PAGE>
the obligation of the Company under these Articles of Incorporation,
including the obligation of this Subsection (iv)(D)(2).
(3) NO FRACTIONAL SHARES. If any
adjustment under this Section 7(iv)(D) would create a fractional share of Common
Stock or a right to acquire a fractional share of Common Stock, such fractional
share shall be disregarded and the number of shares of Common Stock issuable
upon conversion shall be the next higher number of shares of Series A Preferred
Stock.
(v) VOTING RIGHTS. The Holders of the Series A Preferred
Stock shall have no voting power whatsoever except to the extent otherwise
expressly provided by the Colorado Business Corporation Act, and no Holder of
Series A Preferred Stock shall vote or otherwise participate in any proceeding
in which actions shall be taken by the Company or the stockholders thereof or be
entitled to notification as to any meeting of the stockholders.
(vi) PROTECTIVE PROVISION. So long as shares of Series A
Preferred Stock are outstanding, the Company shall not without first obtaining
the approval (by vote or written consent, as provided by the Colorado Business
Corporation Act) of the Holders of at least a majority of the then-outstanding
shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or
privileges of the Series A Preferred Stock so as to affect adversely the Series
A Preferred Stock, including, but not limited to, the creation or authorization
of any Senior Securities.
(b) increase the size of the authorized number
of Series A Preferred Stock; or
(c) do any act or thing not authorized or
contemplated by these Articles of Incorporation which would result in taxation
of the Holders of shares of the Series A Preferred Stock under Section 305 of
the Internal Revenue Code of 1986, as amended (or any comparable provision of
the Internal Revenue Code as hereafter from time to time amended).
In the event Holders of a majority of the then-outstanding shares of
Series A Preferred Stock agree to allow the Company to alter or change the
rights, preferences or privileges of the shares of Series A Preferred Stock,
pursuant to Subsection (a) above, so as to affect adversely the Series A
Preferred Stock, then the Company will deliver notice of such approved
alteration or change to the Holders of the Series A Preferred Stock that did not
agree to such alteration or change (the "Dissenting Holders") and the Dissenting
Holders shall have the right for a period of thirty (30) days to convert
pursuant to the terms of these Articles of Incorporation as they exist prior to
such alteration or change or continue to hold their shares of Series A Preferred
Stock subject to the approved alteration or change of the rights, preferences or
privileges of the Series A Preferred Stock.
<PAGE>
(vii) STATUS OF CONVERTED STOCK. In the event any shares of
Series A Preferred Stock shall be converted pursuant to Section 7(iv) hereof,
the shares so converted shall be canceled, shall return to the status of
authorized but unissued preferred stock of no designated series, and shall not
be issuable by the Company as Series A Preferred Stock.
(viii) PREFERENCE RIGHTS. Nothing contained herein shall be
construed to prevent the Board of Directors of the Company from issuing one (1)
or more series of preferred stock with dividend and/or liquidation preferences
junior to the dividend and liquidation preferences of the Series A Preferred
Stock.
IN WITNESS WHEREOF, these Articles of Amendment have been duly adopted
by the Board of Directors and have been duly executed on behalf of the Company
by its Secretary this 10th day of June, 1999.
APPLIED CAPITAL FUNDING, INC.
By: /s/ Peter Lee
---------------------
Peter Lee
Secretary
<PAGE>
EXHIBIT 4.3
SECOND ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
APPLIED CAPITAL FUNDING, INC.
SECOND ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
APPLIED CAPITAL FUNDING, INC.
-------------------
Pursuant to Section 7-110-106 of the Colorado Business
Corporation Act
-------------------
IT IS HEREBY CERTIFIED that:
1. The name of the company (hereinafter called the "Company") is
Applied Capital Funding, Inc., a corporation organized and existing under the
Colorado Business Corporation Act.
2. The number of shares of the Corporation outstanding and
entitled to vote on an amendment to the Articles of Incorporation is 8,000,000;
and the following change and amendment has been consented to and approved by in
excess of fifty percent of the shareholders holding at least a majority of each
class of stock outstanding and entitled to vote thereon, which percentage is
sufficient under Colorado law and the Articles of Incorporation and Bylaws of
the Company to approve the matter.
3. The Board of Directors of the Company, pursuant to the
provisions of Section 7-110-106 of the Colorado Business Corporation Act, has
adopted the resolution set forth below amending the Articles of Incorporation.
RESOLVED, that Article 1 of the Articles of Incorporation is amended to
read in its entirety:
<PAGE>
ARTICLE I
NAME
The name of the Corporation is On2.com Inc.
IN WITNESS WHEREOF, these Articles of Amendment have been duly adopted
by the Board of Directors and have been duly executed on behalf of the Company
by its Secretary this 15th day of June, 1999.
APPLIED CAPITAL FUNDING, INC.
By: /s/ Peter Lee
------------------------------------
Peter Lee
Secretary
<PAGE>
EXHIBIT 4.4
FORM OF WARRANT TO PURCHASE SHARES
OF COMPANY COMMON STOCK
THIS WARRANT AND ANY SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), NOR UNDER ANY
STATE SECURITIES LAW AND SUCH SECURITIES MAY NOT BE PLEDGED, SOLD, ASSIGNED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH
RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES
LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR COUNSEL
TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE PLEDGED, SOLD,
ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE HEREOF
ARE RESTRICTED AS DESCRIBED HEREIN.
APPLIED CAPITAL FUNDING, INC.
WARRANT TO PURCHASE ___ SHARES OF COMMON STOCK,
NO PAR VALUE
No. ___ June 15, 1999
THIS CERTIFIES that, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, "Party" (the "Holder"), is
entitled to subscribe for and purchase from Applied Capital Funding, Inc., a
Colorado corporation (the "Company"), upon the terms and conditions set forth
herein, at any time or from time to time, during the period commencing on the
date of the closing (the "Closing Date") of the merger of Applied Capital
Acquisition Corp., a wholly-owned subsidiary of the Company (the "Merger-Sub")
into The Duck Corporation ("Duck"), pursuant to the terms of an Agreement and
Plan of Merger (the "Merger Agreement"), dated as of June 10, 1999, by and
between Duck, the Merger-Sub and the Company, and expiring at 5:00 p.m. on June
09, 2001 (the "Exercise Period"),
<PAGE>
"warrant_shares" shares of the Company's Common Stock, no par value per
share (the "Common Stock"), at an exercise price (the "Exercise Price") per
share equal to $3.14. As used herein, the term "this Warrant" shall mean and
include this Warrant and any Warrant or Warrants hereafter issued as a
consequence of the exercise or transfer of this Warrant in whole or in part.
As used herein, the term "Holder" shall include any transferee to whom this
Warrant has been transferred in accordance with the terms hereof.
The number of shares of Common Stock issuable upon exercise of this
Warrant (the "Warrant Shares") and the Exercise Price may be adjusted from time
to time as hereinafter set forth.
1. Subject to the provisions of Section 2, this Warrant may be
exercised during the Exercise Period, as to the whole or any lesser number of
whole Warrant Shares, by transmission by telecopy of the Election to Exercise,
followed within three (3) business days by the surrender of this Warrant (with
the Election to Exercise attached hereto duly executed) to the Company at its
office at 375 Greenwich Street, New York, New York 10013, or at such other place
as is designated in writing by the Company, together with a certified or bank
cashier's check payable to the order of the Company in an amount equal to the
product of the Exercise Price and the number of Warrant Shares for which this
Warrant is being exercised (the "Aggregate Exercise Price").
2. Upon each exercise of the Holder's rights to purchase Warrant
Shares, the Holder shall be deemed to be the holder of record of the Warrant
Shares issuable upon such exercise, notwithstanding that the transfer books of
the Company shall then be closed or certificates representing such Warrant
Shares shall not then have been actually delivered to the Holder. Within five
(5) business days after each such exercise of this Warrant and receipt by the
Company of this Warrant, the Election to Exercise and the Aggregate Exercise
Price, the Company shall issue and deliver to the Holder a certificate or
certificates for the Warrant Shares issuable upon such exercise, registered in
the name of the Holder or its designee. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the right of the Holder to purchase
the balance of the Warrant Shares (or portions thereof) subject to purchase
hereunder.
3. Any Warrants issued upon the transfer or exercise in part of
this Warrant shall be numbered and shall be registered in a Warrant register
(the "Warrant Register") as they are issued. The Company shall be entitled to
treat the registered holder of any Warrant on the Warrant Register as the owner
in fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such Warrant on the part of any other
person, and shall not be liable for any registration of transfer of Warrants
which are registered or to be registered in the name of a fiduciary or the
nominee of a fiduciary unless made with the actual knowledge of the general
counsel of the Company that a fiduciary or
<PAGE>
nominee is committing a breach of trust in requesting such registration of
transfer. In all cases of transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his
or its authority shall be produced. Upon any registration of transfer, the
Company shall deliver a new Warrant or Warrants to the person entitled
thereto. This Warrant may be exchanged, at the Warrant of the Holder thereof,
for another Warrant, or other Warrants of different denominations, of like
tenor and representing in the aggregate the right to purchase a like number
of Warrant Shares (or portions thereof), upon surrender to the Company or its
duly authorized agent. Notwithstanding anything contained herein to the
contrary, the Company shall have no obligation to cause Warrants to be
transferred on its books to any person if, in the opinion of counsel to the
Company, such transfer does not comply with the provisions of the Act and the
rules and regulations thereunder.
4. The Company, until the expiration or termination of this
Warrant, shall reserve and keep available out of its authorized and unissued
common stock, solely for the purpose of providing for the exercise of the rights
to purchase all Warrant Shares granted pursuant to this Warrant and all other
Common Stock Warrants, such number of shares of common stock as shall, from time
to time, be sufficient therefor. The Company covenants that all shares of
preferred stock issuable upon exercise of this Warrant, upon receipt by the
Company of the full Exercise Price therefor, shall be validly issued, fully
paid, nonassessable, and free of preemptive rights.
5. The issuance of any Warrant, Warrant Shares or other
securities upon the exercise of this Warrant, and the delivery of certificates
or other instruments representing such Warrant Shares or other securities,
except as otherwise required by law, shall be made without charge to the Holder
for any tax or other charge in respect of such issuance, other than applicable
transfer taxes. Notwithstanding anything contained herein, all applicable
transfer taxes shall be borne by the Holder.
6. Subject to the completion of an audit and the preparation and
delivery of audited financial statements, within ninety (90) days after the
Closing date, the Company shall file to register the shares of Common Stock
underlying the Warrants with the Securities and Exchange Commission (the "SEC").
In connection with the registration statement, the Company shall indemnify the
Holders against all losses, claims or damages resulting from any untrue or
allegedly untrue statement of material fact contained in the registration
statement, or any omission or alleged omission of a material fact required to be
stated in the registration statement to make the statements therein not
misleading; PROVIDED, HOWEVER, that such indemnification shall not extend to any
Holder to the extent any such claim for indemnification is based on information
furnished by such Holder to the Company in writing for use in connection with
the registration statement, which information contains any untrue or allegedly
untrue statement of material fact contained in the registration statement or any
omission or alleged omission of a material fact required to be stated in the
registration statement to make
<PAGE>
the statements therein not misleading. All expenses incurred in connection
with the preparation and filing of the registration statement fees shall be
paid by the Company.
7. Unless registered, the Warrant Shares issued upon exercise of
the Warrants shall be subject to a stop transfer order and the certificate or
certificates evidencing such Warrant Shares shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN NOT REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, NOR UNDER ANY STATE SECURITIES LAW. SUCH
SHARES MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR OTHERWISE TRANSFERRED
UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN
OPINION OF COUNSEL TO THE COMPANY OR COUNSEL TO THE HOLDER OF SUCH SECURITIES,
WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
SECURITIES MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS."
8. Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction, or mutilation of any Warrant (and upon surrender of
any Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses and, if reasonably requested, an indemnity reasonably
acceptable to the Company, the Company shall execute and deliver to the Holder
thereof a new Warrant of like date, tenor, and denomination.
9. The Holder of any Warrant shall not have, solely on account of
such status, any rights of a stockholder of the Company, either at law or in
equity, or to any notice of meetings of stockholders or of any other proceedings
of the Company, except as provided in this Warrant.
10. This Warrant shall be governed by and construed in accordance
with the laws of the State of Colorado, without giving effect to the rules
governing the conflicts of laws.
11. The parties hereby irrevocably consent to the jurisdiction of
the courts of the State of New York and of any federal court located in such
State in connection with any action or proceeding arising out of or relating to
this Warrant, any document or instrument delivered pursuant to, in connection
with, or simultaneously with this Warrant, or a breach of this Warrant.
Dated: ____________, 1999
APPLIED CAPITAL FUNDING, INC.
<PAGE>
By:
------------------------------
Name:
Title:
