<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MotherNature.com, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
not applicable
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
not applicable
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
not applicable
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$15,800,000
-------------------------------------------------------------------------
(5) Total fee paid:
$3,160
-------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
not applicable
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
not applicable
-------------------------------------------------------------------------
(3) Filing Party:
not applicable
-------------------------------------------------------------------------
(4) Date Filed:
not applicable
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<PAGE>
MOTHERNATURE.COM, INC.
One Concord Farms
490 Virginia Road
Concord, MA 01742
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be held on November 30, 2000
TO THE STOCKHOLDERS OF
MOTHERNATURE.COM, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
MotherNature.com, Inc., a Delaware corporation (the "Company" or
"MotherNature"), will be held on Thursday, November 30, 2000, at 9:30 a.m.
Boston time, at the offices of Testa, Hurwitz & Thibeault, LLP, 125 High
Street, Boston, Massachusetts 02110, to consider and vote upon the following
proposals:
1. To approve the Plan of Complete Liquidation and Dissolution of the
Company, substantially in the form of Exhibit A attached to the
accompanying Proxy Statement.
2. To transact such other business as may properly come before the
meeting and any adjournments thereof.
Only stockholders of record at the close of business on October 30, 2000,
the record date fixed by the Board of Directors, are entitled to notice of and
to vote at the meeting and any adjournment thereof.
By Order of the Board of Directors,
/s/ Michael L. Bayer
Michael L. Bayer
Chief Financial Officer, Treasurer
and Secretary
Concord, Massachusetts
November 8, 2000
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED
ENVELOPE, OR OTHERWISE PROVIDE YOUR PROXY BY TELEPHONE OR THE INTERNET.
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE PROPOSAL
Q: WHAT WILL BE VOTED ON AT THE SPECIAL MEETING?
A: The proposal to be voted on at the Special Meeting is whether to approve a
Plan of Complete Liquidation and Dissolution attached as Exhibit A (the
"Plan").
Q: WHAT WILL HAPPEN IF THE PLAN IS APPROVED?
A: If the Plan is approved, we will liquidate our remaining assets, satisfy
our remaining obligations and make distributions to our stockholders of
available liquidation proceeds.
Q: WHEN WILL THE STOCKHOLDERS RECEIVE ANY PAYMENT FROM THE LIQUIDATION OF THE
COMPANY?
A: We anticipate that an initial distribution of liquidation proceeds will be
made to the stockholders on or around December 28, 2000. Thereafter, as we
liquidate our remaining assets and properties we will distribute available
liquidation proceeds to stockholders as the Board of Directors deems
appropriate. We anticipate that the majority of the remaining liquidation
proceeds will be distributed over a period of 3 years.
Q: WHAT IS THE AMOUNT OF THE PAYMENT THAT STOCKHOLDERS WILL RECEIVE FROM THE
LIQUIDATION OF THE COMPANY?
A: Because of the uncertainties as to the precise net realizable value of our
assets and the ultimate settlement amount of our liabilities, it is
impossible to predict with certainty the aggregate net values which will
ultimately be distributed to our stockholders. However, based upon
information presently available to us, we believe our stockholders could,
over time, receive proceeds from a liquidation of approximately $1.00 per
common share with the initial distribution of liquidation proceeds
approximating $0.85 per common share.
Q: WHAT DO THE COMPANY STOCKHOLDERS NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
Proxy Statement, each MotherNature stockholder should complete and sign his
or her proxy and return it in the enclosed return envelope as soon as
possible so that his or her shares may be represented at the meeting. A
majority of shares entitled to vote must be represented at the meeting to
enable MotherNature to conduct business at the meeting.
Q: CAN THE COMPANY STOCKHOLDERS CHANGE THEIR VOTE AFTER THEY HAVE MAILED THEIR
SIGNED PROXIES?
A: Yes. A stockholder can change his or her vote any time before proxies are
voted at the meeting. Each stockholder can change his or her vote in one of
three ways. First, a stockholder can send a written notice to our
Secretary, Michael Bayer, at our executive offices, stating that he or she
would like to revoke his or her proxy. Second, a stockholder can complete
and submit a new proxy. If a stockholder chooses either of these two
methods, he or she must submit the notice of revocation or the new proxy to
the Company. Third, a stockholder can attend the meeting and vote in
person.
Q: IF THE COMPANY SHARES ARE HELD IN "STREET NAME" BY A STOCKHOLDER'S BROKER,
WILL THE BROKER VOTE THESE SHARES ON BEHALF OF THE STOCKHOLDER?
A: A broker will vote Company shares only if the holder of these shares
provides the broker with instructions on how to vote. Stockholders should
follow the directions provided by their brokers regarding how to instruct
brokers to vote the shares.
<PAGE>
Q: CAN I STILL SELL MY SHARES OF COMPANY COMMON STOCK?
A: If the Plan is approved by the stockholders, it is likely that we will not
be able to maintain compliance with Nasdaq's listing requirements or that
Nasdaq will take action to delist our securities from their National Market
System. If our Common Stock is delisted from Nasdaq, trading, if any, would
thereafter be conducted on the over-the-counter market in the so-called
"pink sheets" or on the "Electronic Bulletin Board" of the National
Association of Securities Dealers, Inc. Consequently, stockholders may find
it more difficult to dispose of, or to obtain accurate quotations as to the
price of the Common Stock. In addition, it is likely that we will close our
stock transfer books and restrict transfers of our Common Stock after
filing the Certificate of Dissolution with the State of Delaware.
Q: WHO CAN HELP ANSWER QUESTIONS?
A: If you have any additional questions about the proposed Plan or if you need
additional copies of this Proxy Statement or any public filings referred to
in this Proxy Statement, you should contact: Michael Bayer, Chief Financial
Officer at (978) 929-2000. Our public filings can also be accessed at the
SEC's web site at www.sec.gov.
<PAGE>
MOTHERNATURE.COM, INC.
One Concord Farms
490 Virginia Road
Concord, MA 01742
----------------
PROXY STATEMENT
----------------
For the Special Meeting of Stockholders to be held on
November 30, 2000
Proxies in the form enclosed with this Proxy Statement are solicited by the
Board of Directors of MotherNature.com, Inc. (the "Company" or "MotherNature")
for use at the Special Meeting of Stockholders of the Company to be held on
Thursday, November 30, 2000 at 9:30 a.m. Boston time, at the offices of Testa,
Hurwitz & Thibeault, LLP, 125 High Street, Boston, Massachusetts 02110, and
any adjournments thereof (the "Special Meeting").
Only stockholders of record as of October 30, 2000 (the "Record Date") will
be entitled to vote at the Special Meeting. As of that date, there were
15,151,330 shares of Common Stock, par value $.01 per share, of the Company
("Common Stock") issued and outstanding. Each share of Common Stock
outstanding as of the Record Date will be entitled to one vote and
stockholders may vote in person or by proxy. Execution of a proxy will not in
any way affect a stockholder's right to attend the Special Meeting and vote in
person. Any stockholder giving a proxy has the right to revoke it by written
notice to the Secretary of the Company at any time before it is exercised, or
by voting in person at the Special Meeting. If a stockholder is not attending
the Special Meeting, any proxy or notice should be returned in time for
receipt no later than the close of business on the day preceding the Special
Meeting.
The representation in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote at the Special Meeting is
necessary to establish a quorum for the transaction of business. The matter
being submitted to stockholders requires the affirmative vote of a majority of
the issued and outstanding shares entitled to vote at the Special Meeting. An
automated system administered by the Company's transfer agent tabulates the
votes. Abstentions are included in the number of shares present or represented
and voting on the proposal, and, therefore, will have the effect of a negative
vote.
At the Special Meeting, a proposal to approve a plan of complete liquidation
and dissolution of the Company will be subject to the vote of stockholders.
The Board of Directors of the Company knows of no other matters to be
presented at the Special Meeting. If any other matter should be presented at
the Special Meeting upon which a vote may be properly taken, shares
represented by all proxies received by the Board of Directors will be voted
with respect thereto in accordance with the judgment of the persons named as
attorneys in the proxies.
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that
they do not have discretionary authority to vote such shares as to a
particular matter, will not be voted in favor of such matter, and will also
not be counted as votes cast or shares voting on such matter. Accordingly,
abstentions and "broker non-votes" will have the effect of a vote against the
proposal to approve the plan of complete liquidation and dissolution and any
other matter requiring the affirmative vote of a certain percentage of shares
outstanding.
<PAGE>
SECURITIES OWNERSHIP OF
MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of October 19, 2000, certain information
regarding the beneficial ownership of the Company's Common Stock by: (i) each
person who, to the knowledge of the Company, owned beneficially more than 5%
of the shares of Common Stock of the Company outstanding at such date, (ii)
each Director of the Company, (iii) each Named Executive Officer (as defined
in the Securities Act of 1933) and (iv) all current directors and executive
officers as a group:
<TABLE>
<CAPTION>
Number of Percentage
Shares of Shares
Beneficially of Common
Name and Address of Beneficial Owner Owned(1) Stock(2)
------------------------------------ ------------ ----------
<S> <C> <C>
Michael I. Barach(3).................................... 412,018 2.7%
President and Director
c/o MotherNature.com, Inc.
One Concord Farms
490 Virginia Road
Concord, MA 01742
Michael L. Bayer(4)..................................... 212,040 1.4%
Chief Financial Officer, Treasurer and Secretary
c/o MotherNature.com, Inc.
One Concord Farms
490 Virginia Road
Concord, MA 01742
Donald J. Pettini(5).................................... 167,226 1.1%
Chief Technology Officer
c/o MotherNature.com, Inc.
One Concord Farms
490 Virginia Road
Concord, MA 01742
Sharon L. Rice(6)....................................... -- *
Former Vice President of Brand Marketing
c/o MotherNature.com, Inc.
One Concord Farms
490 Virginia Road
Concord, MA 01742
Jeffrey A. Steinberg(7)................................. 55,143 *
Former Chief Marketing Officer
c/o MotherNature.com, Inc.
One Concord Farms
490 Virginia Road
Concord, MA 01742
John G. Berylson(8)..................................... 678,589 4.5%
Director
c/o GCC Investments, Inc.
1300 Boylston Street
Chestnut Hill, MA 02467
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Number of Percentage
Shares of Shares
Beneficially of Common
Name and Address of Beneficial Owner Owned(1) Stock(2)
------------------------------------ ------------ ----------
<S> <C> <C>
Keith M. Kerman(9)..................................... 1,245,319 8.2%
Director
c/o Morgenthaler Venture Partners
Teminal Tower
50 Public Square, Suite 2700
Cleveland, OH 44113
Brent R. Knudsen(10)................................... 3,000 *
Director
c/o North Castle Partners
60 Arch Street
Greenwich, CT 06830
Marc D. Poirier(11).................................... 1,245,319 8.2%
Director
c/o CMG@Ventures II, LLC
100 Brickstone Square
Andover, MA 01810
CMG@Ventures II, LLC(12)............................... 1,245,319 8.2%
c/o CMGI, Inc.
100 Brickstone Square
Andover, MA 01810
Morgenthaler Venture Partners(13)...................... 1,245,319 8.2%
50 Public Square, Suite 2700
Cleveland, OH 44113
Bessemer Venture Entities(14).......................... 1,245,321 8.2%
83 Walnut Street
Wellesley, MA 02481
Rodale Inc.(15)........................................ 974,044 6.4%
33 East Minor Street
Emmaus, PA 18098
All current executive officers and directors as a 4,018,654 25.3%
group.................................................
(7 persons)(16)
</TABLE>
--------
* Indicates less than 1%
(1) Except as indicated in footnotes to this table, the persons named in this
table have sole voting and investment power with respect to all shares of
Common Stock owned based upon information provided to the Company by the
directors, executive officers and principal stockholders of the Company.
(2) The number of shares of Common Stock deemed outstanding for this
calculation includes (i) 15,151,330 shares of Common Stock outstanding as
of October 19, 2000 and (ii) with respect to each individual or entity,
as applicable, stock options and warrants to purchase shares of Common
Stock which are currently exercisable or will become exercisable within
60 days of October 19, 2000 by the individual or entity in question,
including options which will become exercisable due to the Board of
Directors' action to accelerate the vesting of all outstanding stock
options in connection with the Plan. See "Possible Effects of the
Approval of the Plan Upon Directors and Officers."
(3) Includes 8,645 shares issuable upon exercise of a warrant held by Mr.
Barach and 326,409 shares deemed to be beneficially owned by Mr. Barach
pursuant to options exercisable within 60 days of October 19,
3
<PAGE>
2000, including options which will become exercisable due to the Board of
Directors' action to accelerate the vesting of all outstanding stock
options in connection with the Plan. See "Possible Effects of the Approval
of the Plan Upon Directors and Officers."
(4) Includes 1,000 shares held by Mr. Bayer as custodian for each of his two
sons under the Uniform Gifts to Minors Act and 194,858 shares deemed to
be beneficially owned by Mr. Bayer pursuant to options exercisable within
60 days of October 19, 2000, including options which will become
exercisable due to the Board of Directors' action to accelerate the
vesting of all outstanding stock options in connection with the Plan. See
"Possible Effects of the Approval of the Plan Upon Directors and
Officers."
(5) Includes 138,165 shares deemed to be beneficially owned by Mr. Pettini
pursuant to options exercisable within 60 days of October 19, 2000,
including options which will become exercisable due to the Board of
Directors action to accelerate the vesting of all outstanding stock
options in connection with the Plan. See "Possible Effects of the
Approval of the Plan Upon Directors and Officers."
(6) Effective as of April 1, 2000, Ms. Rice resigned from the position of
Vice President, Brand Marketing and terminated her employment with the
Company. All options held by Ms. Rice were terminated as of July 1, 2000.
(7) Includes 55,143 shares deemed to be beneficially owned by Mr. Steinberg
pursuant to options exercisable within 60 days of October 19, 2000,
including options which will become exercisable due to the Board of
Directors' action to accelerate the vesting of all outstanding stock
options in connection with the Plan. Effective as of August 11, 2000, Mr.
Steinberg resigned from the position of Chief Marketing Officer and
terminated his employment with the Company. All options held by Mr.
Steinberg will be terminated as of November 11, 2000.
(8) Includes 678,589 shares held by Chestnut Hill Nature, LLC, a wholly-owned
subsidiary of GCC Investments, LLC. Mr. Berylson is President of GCC
Investments, LLC and may be deemed to share voting and investment power
with respect to all shares held by Chestnut Hill Nature LLC. Mr. Berylson
disclaims beneficial ownership of such shares.
(9) Includes 1,236,674 shares held by Morgenthaler Venture Partners IV, L.P.
and 8,645 shares issuable upon exercise of a warrant held by Morgenthaler
Venture Partners IV, L.P. Mr. Kerman is a General Partner of Morgenthaler
Management Partners IV, L.P., which is the General Partner of
Morgenthaler Venture Partners IV, L.P., and may be deemed to share voting
and investment power with respect to all shares held by Morgenthaler
Venture Partners IV, L.P. Mr. Kerman disclaims beneficial ownership of
such shares.
(10) Does not include 712,423 shares held by North Castle Partners II, L.P.,
17,572 shares held by NCP Co-Investment Fund, L.P., and 20,564 shares
held by NCP-MNC, L.P. Mr. Knudsen is a limited partner of NCP GP II,
L.P., which is the General Partner of North Castle Partners II, L.P., and
Mr. Knudsen is a Managing Director of North Castle GP II, LLC, which
serves as the general partner of NCP GP II, L.P., as well as NCP-MNC,
L.P. Mr. Knudsen is also a Managing Director of NCP Co-Investment G.P.,
LLC, which is the general partner of NCP Co-Investment Fund, L.P. Mr.
Knudson does not share voting and investment power with respect to the
shares held by North Castle Partners II, L.P., NCP Co-Investment Fund,
L.P. and NCP-MNC, L.P.
(11) Includes 1,236,674 shares held by CMG@Ventures II, LLC and 8,645 shares
issuable upon exercise of a warrant held by CMG@Ventures II, LLC. Mr.
Poirier is a General Partner of CMG@Ventures III, L.P, which is an
affiliate of CMG@Ventures II, LLC. Mr. Poirier may be deemed to share
voting and investment power with respect to all shares held by
CMG@Ventures II, LLC. Mr. Poirier disclaims beneficial ownership of such
shares.
(12) Includes 8,645 shares issuable upon exercise of a warrant held by
CMG@Ventures II, LLC.
(13) As reported on a Schedule 13G filed with the Securities and Exchange
Commission on February 11, 2000 reflecting beneficial ownership of the
Company's Common Stock as of December 31, 1999. According to the Schedule
13G, Morgenthaler Venture Partners IV, L.P. shares voting and investment
power with respect to 1,245,319 shares of common stock of the Company.
(14) Includes shares held by Bessemer Venture Partners IV L.P., Bessec
Ventures IV L.P., Bessemer Venture Investors L.P. and their respective
partners. Includes 4,323 shares issuable upon exercise of a warrant held
by Bessemer Venture Partners IV L.P. and 4,322 shares issuable upon
exercise of a warrant held by Bessec Ventures IV L.P.
4
<PAGE>
(15) As reported on a Schedule 13G filed with the Securities and Exchange
Commission on February 9, 2000 reflecting beneficial ownership of the
Company's Common Stock as of December 31, 1999. According to the Schedule
13G, Rodale Inc. has sole voting and investment power with respect to
974,044 shares of Common Stock of the Company.
(16) Includes 714,575 options and 25,935 warrants that may be exercised within
60 days of October 19, 2000, including options which will become
exercisable due to the Board of Directors' action to accelerate the
vesting of all outstanding stock options in connection with the Plan. See
"Possible Effects of the Approval of the Plan Upon Directors and
Officers."
PROPOSAL 1--APPROVAL OF PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
General
Our Board of Directors is proposing the Plan of Complete Liquidation and
Dissolution (the "Plan") for approval by our stockholders at the Special
Meeting. The Plan was adopted by the Board of Directors, subject to
stockholder approval, on October 20, 2000. A copy of the Plan is attached as
Exhibit A to this Proxy Statement. Certain material features of the Plan are
summarized below. STOCKHOLDERS SHOULD READ THE PLAN IN ITS ENTIRETY.
Our Board of Directors adopted resolutions dated October 20, 2000 which
authorized, subject to the stockholders' approval, the orderly liquidation of
the Company's assets pursuant to the Plan. The Plan provides that, if the
requisite stockholder approval is received (such time of approval deemed the
"Effective Date"), our officers and directors will initiate the complete
liquidation and subsequent dissolution of the Company. After the Effective
Date, we will not engage in any business activities except for the purpose of
preserving the value of our assets, prosecuting and defending lawsuits by or
against us or our subsidiaries, adjusting and winding up our business and
affairs, selling and liquidating our properties and assets, including our
intellectual property and other intangible assets, paying our creditors and
making distributions to stockholders, in accordance with the Plan. In
addition, after the Effective Date, we will file a Certificate of Dissolution
with the Secretary of State of the State of Delaware.
Our Board of Directors may, at any time, transfer to a liquidating trust our
remaining assets to complete the liquidation and distribution of our assets to
our stockholders pursuant to the Plan. The liquidation trust would then
succeed to all of the assets, liabilities and obligations of the Company. Our
Board of Directors may appoint one or more of its members or an officer of the
Company to act as trustee or trustees of such liquidating trust. If, however,
all of our assets are not distributed within three years after the date our
Certificate of Dissolution is filed with the State of Delaware, we will
transfer our remaining assets to a liquidating trust. Your approval of the
Plan will also constitute your approval of any appointment and compensation of
such trustees.
During the liquidation of our assets, we may pay to our officers, directors,
employees, and agents, or any of them, compensation for services rendered in
connection with the implementation of the Plan. Your approval of the Plan will
constitute your approval of the payment of any such compensation.
The following resolution will be offered at the Special Meeting:
"RESOLVED, THAT THE PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION RECOMMENDED
BY THE BOARD OF DIRECTORS BE AUTHORIZED AND APPROVED."
Background and Reasons for the Plan
Company Background
We are an online retail store and information site for vitamins,
supplements, minerals and other natural and healthy living products. By
offering approximately 18,400 products on our site, we provide one-stop
shopping for customers, 24 hours a day, seven days a week. Our online store,
www.MotherNature.com, offers educational and authoritative information, broad
product selection, a high level of customer services, competitive pricing and
easy-to-use navigation and search capabilities.
5
<PAGE>
We were incorporated in the Commonwealth of Pennsylvania in December 1995 as
Mother Nature's General Store, Inc. Our founders worked for approximately
three years to establish distribution channels and an online presence as a
retailer of vitamins, supplements, minerals and other natural and healthy
living products. During that time, we developed and managed our own Web site,
built relationships with many vendors in the vitamins, supplements, minerals
and natural and healthy living products industries, established our private
label line and opened our first distribution and customer service center in
Southampton, Pennsylvania. In early 1998, our founders sought to secure
additional financing to expand our business, promote our brand, invest in
infrastructure and technology improvements, and recruit a seasoned management
team to develop and execute on our business model. These efforts resulted in
the completion of our first round of venture capital financing in June 1998.
At that time we reincorporated in the State of Delaware, changed our name to
MotherNature.com, Inc. and began to recruit our current management team.
Shortly after our new management team joined us, we launched our first major
online banner campaigns, including banner and button purchases on major
portals and shopping areas. In late 1998, we redesigned and launched our new
Web site, which included an improved user interface, a more flexible, fully-
featured database structure and enhanced integration of content and
merchandise. We continued to focus on building our organization, developing
our technology infrastructure, further developing and upgrading our Web site,
increasing customer traffic and sales, expanding our product assortment,
promoting our brand and enhancing our fulfillment and customer service
operations. In early 1999, we invested in an aggressive, offline advertising
campaign, supplemented by online advertising, business incentive programs,
direct marketing and public relations, which successfully established brand
recognition for MotherNature.com.
As a result of these efforts our annual revenues increased from
approximately $475,000 in 1998 to approximately $5.76 million in 1999. In
addition, revenues for the first nine months of 2000 were approximately $10.5
million. In order to manage the increase in our site traffic and revenues, we
expanded and upgraded our site, order fulfillment operations and
organizational infrastructure. This expansion included enhancing the features
and functions on our site, adding server and database capacity, building our
internally developed order fulfillment and logistics system, and moving our
order fulfillment center to a 25,000 square foot facility in Springfield,
Massachusetts.
In order to finance this rapid growth, we raised a total of $61.2 million in
venture capital financing between June 1998 and May 1999 from leading firms,
such as CMG@Ventures, Bessemer Venture Partners and North Castle Partners. In
December 1999, we completed a public offering of 4,100,000 shares of our
Common Stock, and raised approximately $53 million to further finance our
activities.
Despite the growth in revenues, the Company has continued to incur
significant net losses. During 1999, we incurred a net loss of approximately
$54.2 million, and for the first nine months of 2000, the net loss was
approximately $32.1 million. The Company has never achieved profitability and
management believes that the Company can expect to incur operating losses for
the foreseeable future.
Review of Alternatives
In light of this situation and the declining value of comparably traded
public companies, commencing in late January 2000, the Company reviewed its
operations and business, and began to consider various strategic options and
partnership opportunities. To this end, we retained an investment banking
firm, Bear Stearns & Co., Inc. ("Bear"), to assist in connection with
potential acquisition and merger opportunities, as well as to examine other
financing alternatives.
Since February 2000, Bear has conducted an aggressive, but unsuccessful
campaign to find a buyer of the Company as a going concern. To date, Bear has
contacted over 40 potential strategic partners, and our management has
reviewed 15 of these opportunities in depth. This review included extensive
legal and financial due diligence, meetings with management of the potential
partners, and analysis by Bear of the opportunities presented. Representatives
of eight of those companies made detailed presentations to our Board of
Directors.
6
<PAGE>
While we have received several acquisition proposals, the Board of Directors
has not been able to accept any transactions as being in the best interests of
the Company's stockholders. Most recently, the credible offers received by the
Company have provided for aggregate consideration payable to stockholders in
amounts valued at less than our net asset value. Certain proposals would have
required our stockholders to retain securities of potential acquirors whose
future financial prospects were, themselves, uncertain and/or for which
liquidity options were limited. (We also received several proposals from
entities that were interested in pursuing a so-called "back-door IPO," under
which the proposing company would have been merged into MotherNature, in
return for the issuance to the stockholders of that business of new shares
that would have constituted a substantial majority of our total shares
outstanding. After consideration of the business and financial opportunities
presented, the Board of Directors decided not to pursue such proposals.)
Further, there were no acquisition proposals presented to the Board of
Directors which management, after investigation, believed could be consummated
and with respect to which Bear indicated that it could provide an opinion that
the transaction would be fair to stockholders from a financial point of view.
As factors contributing to the lack of an acceptable buyer for the Company,
Bear cited to the Board of Directors the generally unfavorable market
conditions for technology stocks, and, in particular, the steep decline in
valuations for electronic commerce retailers. Many of our competitors have
suffered steep declines in their stock prices; many Internet retailers, like
the Company, are trading at values below their net asset values; and, unable
to attract additional financing, some have already gone out of business. These
depressed market valuations have also limited the utilization of stock by
companies in our market sector as a "currency" for acquisitions and
consolidation. Although the attractiveness of the Company as an acquisition
target might be improved if and when the financial performance and market
perception of electronic commerce retailers improve, Bear noted that the
likelihood and timing of both events were difficult to predict. It also noted
that, in the meantime, the Company was experiencing (and is expected to
continue to experience) negative cash flows that would only further erode
shareholder value.
During the same period of time as Bear was investigating partnering and
acquisition opportunities, we were also focusing on measures to achieve long-
term sustained profitability for the Company. Commencing in January 2000, the
Company began limiting its spending on advertising and promotions in order to
focus on highly targeted marketing efforts; and, over the past nine months,
the Company was able to lower its average customer acquisition costs, increase
its average transaction size, and improve its gross margins on sales. However,
despite these efforts and improvements, management has not seen evidence of
increased customer retention--that is, the rate of customers who will continue
to purchase products from the MotherNature site--which would provide a firm
indication of long-term financial viability for our current business.
In addition, in another effort to sustain our core business, we have pursued
the development of a commercial services business. This initiative was focused
on the creation and marketing of a web-hosting service for natural products
retailers. Participating retailers would be provided with the ability to
customize a homepage to include their own logo, feature their natural products
philosophy, promote in-store events and specials, and highlight particular
departments. In September 2000, the Company announced a partnership
arrangement with a leading distributor of natural products to promote our
products to the distributor's retail store customers. Though we believe that
our product offering is excellent and that the distributor is a valuable
partner and that the commercial services business itself could be profitable,
based upon an analysis of the initial results of the partnership arrangement
and a review of business prospects, the Board of Directors does not believe
that the commercial services business will provide the necessary or sufficient
support for the Company as a whole to maintain an ongoing profitable business.
Conclusion of the Board of Directors
On October 20, 2000, our Board of Directors unanimously adopted the Plan. In
arriving at this conclusion, the Board considered a number of factors,
including alternatives to the proposal and the future prospects of the
Company, as well as the oral advice of Bear. The Board of Directors concluded
that the Plan was in the best interests of the Company and our stockholders.
In addition, the Board believes that distribution of our assets in
7
<PAGE>
liquidation could produce more value to our stockholders than if they held
their shares of Common Stock because as of the date of this Proxy Statement
the market value of our assets exceeds, and for some time has exceeded, the
market value of our outstanding capital stock.
Prior to and at the meeting of the Board of Directors on October 20, 2000,
the Board received comparisons of the Company's net asset value to the prices
at which our Common Stock was trading at different points in time and analyzed
the results of management's investigation of various acquisition, investment
and strategic partnering opportunities. The Board of Directors had been kept
informed continuously of our business, affairs and financial condition, and
since January 2000 has convened at 34 separate meetings to consider these
issues. The Board has been apprised by Bear of the market values of comparable
companies and the lack of prospects for MotherNature to be financed as a going
concern. Accordingly, the Board of Directors determined that it would not be
advisable to continue to operate the Company on an independent basis
indefinitely if the potential for growth and availability of financing were so
limited. Further, after significant effort, we had not been successful in
identifying a buyer or strategic alliance partner acceptable to the Company.
Instead the Board of Directors determined to return the cash to the
stockholders to allow each stockholder to make his or its own investment
decisions. Based on this information, the Board of Directors believed that
distribution to the stockholders of the Company's net assets would return the
greatest value to our stockholders as compared to other alternatives; and that
liquidation would prevent further erosion of stockholders' equity through
continuing net losses and market declines. There can be no assurance that the
liquidation value per share of Common Stock in the hands of the stockholders
will equal or exceed the price or prices at which the Common Stock has
recently traded or may trade in the future. HOWEVER, THE BOARD OF DIRECTORS
BELIEVES THAT IT IS IN THE BEST INTERESTS OF THE COMPANY AND OUR STOCKHOLDERS
TO DISTRIBUTE TO THE STOCKHOLDERS THE COMPANY'S NET ASSETS PURSUANT TO THE
PLAN. If the Plan is not approved by the stockholders, the Board of Directors
will explore the alternatives then available for the future of MotherNature.
Factors to be Considered by Stockholders in Deciding Whether to Approve the
Plan
There are many factors that the Company's stockholders should consider when
deciding whether to vote to approve the Plan. Such factors include those set
forth in the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 2000, as well as those factors set forth below.
Risks Associated with Forward Looking Statements
This Proxy Statement contains certain forward looking statements, including
statements contained under the heading "Liquidation Analysis and Estimates"
below and other statements concerning the value of the Company's net assets,
the liquidation value per share of Common Stock as compared to its market
price absent the proposed liquidation, and the likelihood of stockholder value
resulting from sale of certain of its significant assets, including its
customer list. The methods used by the Board of Directors and management in
estimating the value of the Company's assets do not result in an exact
determination of value nor are they intended to indicate definitively the
amount a stockholder will receive in liquidation. For example, the value of
the Company's customer list will depend on how the list is packaged with other
Company assets as well as the number of customers who "opt in" or permit the
Company to transfer their private information. Our other assets, including our
web site, trademark and Internet "domain name" will be difficult for the
Company to convert into cash, and we can make no assurance that it will
receive any material amounts in respect of such assets. No assurance can be
given that the amount to be received in liquidation will equal or exceed the
price or prices at which the Common Stock has recently traded or may trade in
the future. Stockholders who disagree with the Board of Directors'
determination that the adoption of the Plan is in the best interests of the
Company and its stockholders should vote "against" approval of the Plan.
8
<PAGE>
Risk of Stockholder Liability to Creditors of the Company
If the Plan is approved by the stockholders, a Certificate of Dissolution
will be filed with the State of Delaware dissolving the Company. Pursuant to
the Delaware General Corporation Law (the "DGCL"), the Company will continue
to exist for three years after the dissolution becomes effective or for such
longer period as the Delaware Court of Chancery shall direct, for the purpose
of prosecuting and defending suits against it and enabling the company
gradually to close its business, to dispose of its property, to discharge its
liabilities and to distribute to its stockholders any remaining assets. Under
the DGCL, in the event the Company fails to create an adequate contingency
reserve for payment of its expenses and liabilities during this three-year
period, each stockholder could be held liable for payment to the Company's
creditors of such stockholder's pro rata share of amounts owed to creditors in
excess of the contingency reserve. The liability of any stockholder would be
limited to the amounts previously received by such stockholder from the
Company (and from any liquidating trust or trusts). Accordingly, in such event
a stockholder could be required to return all distributions previously made to
such stockholder. In such event, a stockholder could receive nothing from the
Company under the Plan. Moreover, in the event a stockholder has paid taxes on
amounts previously received, a repayment of all or a portion of such amount
could result in a stockholder incurring a net tax cost if the stockholder's
repayment of an amount previously distributed does not cause a commensurate
reduction in taxes payable. There can be no assurance that the contingency
reserve established by the Company will be adequate to cover any expenses and
liabilities. However, after a review of its assets and liabilities, the
Company believes that the reserves will be adequate and that a return of
amounts previously distributed will not be required. See "Contingent
Liabilities; Contingency Reserve; Liquidating Trust."
Personnel Risks
The success of the Plan depends in large part upon the Company's ability to
retain the services of certain of its current personnel or to attract
qualified replacements for them. The retention and attraction of qualified
personnel is particularly difficult under the Company's current circumstances.
Restrictions on Transfer of Shares; Closing of Stock Transfer Books
The Company intends to close its stock transfer books and discontinue
recording transfers of Common Stock at the close of business on the record
date fixed by the Board for filing the Certificate of Dissolution (the "Final
Record Date"). Thereafter, certificates representing the Common Stock shall
not be assignable or transferable on the books of the Company except by will,
intestate succession or operation of law. The proportionate interests of all
of the stockholders of the Company shall be fixed on the basis of their
respective stock holdings at the close of business on the Final Record Date,
and, after the Final Record Date, any distributions made by the Company shall
be made solely to the stockholders of record at the close of business on the
Final Record Date, except as may be necessary to reflect subsequent transfers
recorded on the books of the Company as a result of any assignments by will,
intestate succession or operation of law.
Risk of Delisting of the Company's Common Stock
The Company has received a delisting notice from the Nasdaq Stock Market due
to its low trading price per share. The delisting is scheduled to become
effective on November 20, 2000. The Company expects that it will be unable to
satisfy the requirements for continued listing of its Common Stock on the
Nasdaq National Market. Moreover, rules of the Nasdaq Stock Market require
that companies listed on the Nasdaq National Market continue to have an
operating business. If the Company completes its plans to conclude its
business activities, it will no longer have an operating business. In
addition, as the Company distributes cash to its stockholders, certain other
listing criteria may not be met. If Nasdaq delists the Company's Common Stock
from the Nasdaq National Market, the ability of stockholders to buy and sell
shares may be materially impaired.
9
<PAGE>
Conflicts of Interest
Members of the Board of Directors may be deemed to have a potential conflict
of interest in recommending approval of the Plan. See "Approval of Plan of
Complete Liquidation and Dissolution--Possible Effects of the Approval of the
Plan Upon Directors and Officers."
Certain Information Regarding the Price of the Company's Common Stock
The high and low sale prices of a share of Common Stock on October 19, 2000
(the date preceding the date the Plan was adopted by the Board) were $.63 and
$.47, respectively.
Possible Effects of the Approval of the Plan Upon Directors and Officers
The approval of the Plan by the stockholders may have certain effects upon
the Company's officers and directors, including those set forth below:
All of the Company's current executive officers and directors (or firms
represented by such directors) hold shares of Common Stock or warrants or
options to acquire shares of Common Stock. The non-employee directors (or
firms represented by such directors) who voted in favor of the Plan
beneficially own an aggregate of 3,905,766 shares of Common Stock.
On October 20, 2000, the Board of Directors unanimously resolved to
accelerate the vesting provisions of all outstanding stock options in
conjunction with the approval of the Plan. In taking this action, the Board
believed that it was in the best interests of the shareholders to provide
employee-optionholders with additional incentives to maximize the value of
their shareholdings as part of the liquidation of the Company. To the extent
not exercised, all outstanding options granted under the Company's 1998 Stock
Plan will terminate immediately prior to the Effective Date.
Other than as set forth below, it is not currently anticipated that
liquidation of the Company will result in any material increase in value to
any directors who participated in the vote to adopt the Plan in respect of
their shares, options or warrants.
No current officers or directors of the Company are parties to agreements
with the Company providing for compensation for a fixed term or for severance
upon termination, other than Michael I. Barach, currently President and
Director of the Company, Michael L. Bayer, currently Chief Financial Officer,
Treasurer and Secretary of the Company and Donald J. Pettini, the current
Chief Technology Officer. Under Mr. Barach's employment agreement (executed in
September 1999), upon the termination of his employment, he will be entitled
to receive severance of 12 months of current base salary ($250,000) paid bi-
weekly, 12 months of acceleration of the vesting of all outstanding stock
options, and payment of 12 months of health benefits. Under a severance
agreement with Mr. Bayer, upon the termination of his employment, he will be
entitled to a one-time severance payment of 12 months of current base salary
($185,000) and continuation of health benefits for a period of 12 months (or
such shorter period if Mr. Bayer obtains other employment). In addition, the
Company shall provide Mr. Bayer with a bonus of up to approximately $202,000
to utilize in connection with the exercise of options to purchase up to
100,456 shares of Common Stock. Last, on May 2, 2000 we loaned $125,000 to Mr.
Pettini, which loan was scheduled to be forgiven ratably over a two-year
period, beginning in January 2001, so long as Mr. Pettini remained as an
employee. Effective upon stockholder approval of the Plan, the Board has
determined to accelerate the forgiveness of the entire loan. In addition, Mr.
Pettini is entitled to a severance payment of $50,000.
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<PAGE>
The table set forth below sets forth information relating to the stock
options held by Messrs. Barach, Bayer and Pettini, as well as the impact of
the acceleration of vesting in connection with the Plan.
<TABLE>
<CAPTION>
Acceleration
Total Due to "In the
Options Vested Employment Additional Money"
Outstanding Options(1) Agreements Acceleration(2) Options(3)
----------- ---------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C>
Michael Barach.. 326,409 227,812 56,709 41,888 326,409
Michael Bayer... 194,858 73,802 0 121,056 144,611
Donald Pettini.. 138,165 54,347 0 83,818 78,671
</TABLE>
--------
1. As of October 19, 2000.
2. Represents number of additional shares "vested" due to action of Board of
Directors.
3. Aggregate number of options exercisable at prices below the estimated net
proceeds available for distribution per share of $1.00. The average
exercise prices of stock options held by Messrs. Barach, Bayer and Pettini
are $0.40, $1.14, and $1.28, respectively.
The Board of Directors may confer other benefits or bonuses to employees and
officers of the Company, including officers who are also directors, in
recognition of their services to the Company based on the performance of such
employees and officers, including performance during the Company's liquidation
process.
The Plan was adopted by the unanimous vote of disinterested directors. It is
not currently anticipated that the liquidation of the Company will result in
any material increase in value of the shares, options or warrants held by any
directors who participated in the vote on the Plan (other than the additional
acceleration of options held by Mr. Barach).
Principal Provisions of the Plan
The Company will distribute pro rata to its stockholders, in cash or in-
kind, or sell or otherwise dispose of, all its property and assets. The
liquidation is expected to commence as soon as practicable after approval of
the Plan by the stockholders and to be concluded prior to the third
anniversary thereof by a final liquidating distribution either directly to the
stockholders or to one or more liquidating trusts. Any sales of the Company's
assets will be made in private or public transactions and on such terms as are
approved by the Board of Directors. It is not anticipated that any further
votes of the Company's stockholders will be solicited with respect to the
approval of the specific terms of any particular sales of assets approved by
the Board of Directors. See "Sales of the Company's Assets."
Subject to the payment or the provision for payment of the Company's
indebtedness and other obligations, the Company's cash on hand, together with
the cash proceeds of any sales of the Company's other assets, will be
distributed from time to time pro rata to the holders of the Common Stock. The
Company intends to establish a reasonable reserve (a "Contingency Reserve") in
an amount determined by the Board of Directors to be sufficient to satisfy the
liabilities, expenses and obligations of the Company not otherwise paid,
provided for or discharged. The net balance, if any, of any such Contingency
Reserve remaining after payment, provision or discharge of all such
liabilities, expenses and obligations will also be distributed to the
Company's stockholders pro rata. No assurances can be given that available
cash and amounts received from the sale of assets will be adequate to provide
for the Company's obligations, liabilities, expenses and claims and to make
cash distributions to stockholders. The Company currently has no plans to
repurchase shares of Common Stock from its stockholders. However, if the
Company were to repurchase shares of Common Stock from its stockholders, such
repurchases would be open market purchases and would decrease amounts
distributable to other stockholders if the Company were to pay amounts in
excess of the per share values distributable in respect of the shares
purchased and would increase amounts distributable to other stockholders if
the Company were to pay amounts less than the per share values distributable
in respect of such shares. See "Liquidating Distributions; Nature; Amount;
Timing" and "Contingent Liabilities; Contingency Reserve; Liquidating Trust"
below.
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<PAGE>
If deemed necessary by the Board of Directors for any reason, the Company
may, from time to time, transfer any of its unsold assets to one or more
trusts established for the benefit of the stockholders of the Company, which
property would thereafter be sold or distributed on terms approved by its
trustees. If all of the Company's assets (other than the Contingency Reserve)
are not sold or distributed prior to the third anniversary of the
effectiveness of the dissolution of the Company, the Company will transfer in
final distribution such remaining assets to a trust. The Board of Directors
may also elect in its discretion to transfer the Contingency Reserve, if any,
to such a trust. Any of such trusts are referred to in this Proxy Statement as
"liquidating trusts." Notwithstanding the foregoing, to the extent that a
distribution or transfer of any asset cannot be effected without the consent
of a governmental authority, no such distribution or transfer shall be
effected without such consent. In the event of a transfer of assets to a
liquidating trust, the Company would distribute, pro rata to the holders of
its Common Stock, beneficial interests in any such liquidating trust or
trusts. It is anticipated that the interests in any such trusts will not be
transferable; therefore, although the recipients of the interests would be
treated for tax purposes as having received their pro rata share of property
transferred to the liquidating trust or trusts and will thereafter take into
account for tax purposes their allocable portion of any income, gain or loss
realized by such liquidating trust or trusts, the recipients of the interests
will not realize the value thereof unless and until such liquidating trust or
trusts distributes cash or other assets to them. The Plan authorizes the Board
of Directors to appoint one or more individuals or entities to act as trustee
or trustees of the liquidating trust or trusts and to cause the Company to
enter into a liquidating trust agreement or agreements with such trustee or
trustees on such terms and conditions as may be approved by the Board of
Directors. Approval of the Plan also will constitute the approval by the
Company's stockholders of any such appointment and any liquidating trust
agreement or agreements. For further information relating to liquidating
trusts, the appointment of trustees and the liquidating trust agreements,
reference is made to "Contingent Liabilities; Contingent Reserve; Liquidating
Trusts."
The Company will close its stock transfer books and discontinue recording
transfers of shares of Common Stock on the earliest to occur of (i) the close
of business on the record date fixed by the Board of Directors for the final
liquidating distribution, (ii) the close of business on the date on which the
remaining assets of the Company are transferred to a liquidating trust or
(iii) the Final Record Date, and, thereafter, certificates representing shares
of Common Stock will not be assignable or transferable on the books of the
Company except by will, intestate succession or operation of law. After the
Final Record Date, the Company will not issue any new stock certificates,
other than replacement certificates. Any person holding options, warrants or
other rights to purchase Common Stock must exercise such instruments or rights
prior to the Final Record Date. See "Listing and Trading of the Common Stock
and Interests in the Liquidating Trust or Trusts" and "Final Record Date"
below.
Following approval of the Plan by the stockholders, a Certificate of
Dissolution will be filed with the State of Delaware dissolving the Company.
See "Liquidation Analysis and Estimates" below. The dissolution of the Company
will become effective, in accordance with the DGCL, upon proper filing of the
Certificate of Dissolution with the Secretary of State or upon such later date
as may be specified in the Certificate of Dissolution. Pursuant to the DGCL,
the Company will continue to exist for three years after the dissolution
becomes effective or for such longer period as the Delaware Court of Chancery
shall direct, for the purpose of prosecuting and defending suits, whether
civil, criminal or administrative, by or against it, and enabling the Company
gradually to settle and close its business, to dispose of and convey its
property, to discharge its liabilities and to distribute to its stockholders
any remaining assets, but not for the purpose of continuing the business for
which the Company was organized.
Abandonment; Amendment
Under the Plan, the Board of Directors may modify, amend or abandon the
Plan, notwithstanding stockholder approval, to the extent permitted by the
DGCL. The Company will not amend or modify the Plan
12
<PAGE>
under circumstances that would require additional stockholder solicitations
under the DGCL or the federal securities laws without complying with the DGCL
and the federal securities laws.
Liquidating Distributions; Nature; Amount; Timing
Although the Board of Directors has not established a firm timetable for
distributions to stockholders if the Plan is approved by the stockholders, the
Board of Directors intends, subject to contingencies inherent in winding up
the Company's business, to make such distributions as promptly as practicable.
The liquidation is expected to be concluded prior to the third anniversary of
the filing of the Certificate of Dissolution in Delaware by a final
liquidating distribution either directly to the stockholders or to a
liquidating trust. As promptly as practicable after the approval of the Plan
by the stockholders, the Company currently intends to distribute approximately
$1.00 per share (based on 15,151,330 shares of Common Stock outstanding as of
October 19, 2000 and the anticipated exercise of 649,246 options and warrants
outstanding at such date with exercise prices below $1.00 per share). The
proportionate interests of all of the stockholders of the Company shall be
fixed on the basis of their respective stock holdings at the close of business
on the Final Record Date, and after such date, any distributions made by the
Company shall be made solely to stockholders of record on the close of
business on the Final Record Date, except to reflect permitted transfers. The
Board of Directors is, however, currently unable to predict the precise
nature, amount or timing of this distribution or any other distributions
pursuant to the Plan. The actual nature, amount and timing of all
distributions will be determined by the Board of Directors, in its sole
discretion, and will depend in part upon the Company's ability to convert its
remaining assets into cash.
The Company does not plan to satisfy all of its liabilities and obligations
prior to making distributions to its stockholders, but instead will reserve
assets deemed by management and the Board of Directors to be adequate to
provide for such liabilities and obligations. See "Contingent Liabilities;
Contingency Reserve; Liquidating Trust." Management and the Board of Directors
believe that the Company has sufficient cash to pay its current and accrued
obligations without the sale of any of its assets.
Uncertainties as to the precise net value of the Company's non-cash assets
and the ultimate amount of its liabilities make it impracticable to predict
the aggregate net value ultimately distributable to stockholders. Claims,
liabilities and expenses from operations (including operating costs, salaries,
income taxes, payroll and local taxes, legal and accounting fees and
miscellaneous office expenses), although currently declining, will continue to
be incurred following approval of the Plan. These expenses will reduce the
amount of assets available for ultimate distribution to stockholders, and,
while the Company does not believe that a precise estimate of those expenses
can currently be made, management and the Board of Directors believe that
available cash and amounts received on the sale of assets will be adequate to
provide for the Company's obligations, liabilities, expenses and claims
(including contingent liabilities) and to make cash distributions to
stockholders. However, no assurances can be given that available cash and
amounts received on the sale of assets will be adequate to provide for the
Company's obligations, liabilities, expenses and claims and to make cash
distributions to stockholders. If such available cash and amounts received on
the sale of assets are not adequate to provide for the Company's obligations,
liabilities, expenses and claims, distributions of cash and other assets to
the Company's stockholders will be reduced.
Factors to be Considered with Respect to Sale of the Company's Assets
The sale by the Company of an appreciated asset will result in the
recognition of taxable gain by the Company to the extent the fair market value
of such asset exceeds the Company's tax basis in such asset. The Company's
list of customers is a significant asset. Our privacy policy clearly states
that we will not transfer, sell or assign our customers' information without
consent. Given our privacy policy, we must seek and receive the consent of
each customer whose information we wish to transfer or sell to a third party.
We cannot predict the number or percentage of our customers who will permit us
to transfer or sell their information. In addition, our agreement with Rodale,
Inc., giving us access to Rodale's customers, its healthy living content and
certain of its books, is another significant asset, which value, if any, to
stockholders is uncertain.
13
<PAGE>
Sales of The Company's Assets
The Plan gives the Board of Directors the authority to sell all of the
assets of the Company. As of November 8, 2000, no sale of assets has been
effected pursuant to the Plan and no agreement to sell any of the assets of
the Company has been reached. However, agreements for the sale of assets may
be entered into prior to the Special Meeting and, if entered into, may be
contingent upon the approval of the Plan at the Special Meeting. Approval of
the Plan will constitute approval of any such agreements and sales. Sales of
the Company's assets will be made on such terms as are approved by the Board
of Directors and may be conducted by competitive bidding, public sales or
privately negotiated sales. Any sales will only be made after the Board of
Directors has determined that any such sale is in the best interests of the
stockholders. It is not anticipated that any further stockholder votes will be
solicited with respect to the approval of the specific terms of any particular
sales of assets approved by the Board of Directors. The Company does not
anticipate amending or supplementing the Proxy Statement to reflect any such
agreement or sale, unless required by applicable law. The prices at which the
Company will be able to sell its various assets will depend largely on factors
beyond the Company's control, including, without limitation, the condition of
financial markets, the availability of financing to prospective purchasers of
the assets, United States and foreign regulatory approvals, public market
perceptions, limitations on transferability of certain assets, and the number
of our customers who "opt in" or consent to the transfer of their information.
In addition, the Company may not obtain as high a price for a particular asset
as it might secure if the Company were not in liquidation.
Conduct of the Company Following Adoption of the Plan
Since the adoption of the Plan by the Board of Directors, the Board of
Directors and management have taken steps to reduce the Company's operations,
and, upon approval of the Plan by the stockholders, terminate such operations.
Management and any other continuing employees will receive compensation for
the duties then being performed as determined by the Board of Directors. The
Board of Directors has not established specific guidelines for determination
of the compensation to be paid to management and continuing employees of the
Company following approval of the Plan by the stockholders. Such compensation
will be determined by evaluation of all relevant factors, including, without
limitation, the efforts of such individuals in successfully implementing the
Plan and a review of compensation payable to individuals exercising similar
authority and bearing similar responsibilities.
Following approval of the Plan by the Company's stockholders, the Company's
activities will be limited to winding up its affairs, taking such action as
may be necessary to preserve the value of its assets and distributing its
assets in accordance with the Plan. The Company will seek to distribute or
liquidate all of its assets in such manner and upon such terms as the Board of
Directors determines to be in the best interests of the Company's
stockholders.
Following the approval of the Plan by the Company's stockholders, the
Company shall continue to indemnify its officers, directors, employees and
agents in accordance with its Restated Certificate of Incorporation, as
amended, and By-laws, including for actions taken in connection with the Plan
and the winding up of the affairs of the Company. The Company's obligation to
indemnify such persons may be satisfied out of the assets of any liquidating
trust. The Board of Directors and the trustees of any liquidating trust may
obtain and maintain such insurance as may be necessary to cover the Company's
indemnification obligations under the Plan.
Reporting Requirements
Whether or not the Plan is approved, we have an obligation to continue to
comply with the applicable reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), even though compliance with such
reporting requirements is economically burdensome. If the Plan is approved
and, in order to curtail expenses, we will, after filing our Certificate of
Dissolution, seek relief from the Securities & Exchange
14
<PAGE>
Commission ("SEC") from the reporting requirements under the Exchange Act. We
anticipate that, if such relief is granted, we would continue to file current
reports on Form 8-K to disclose material events relating to our liquidation
and dissolution along with any other reports that the SEC might require.
Contingent Liabilities; Contingency Reserve; Liquidating Trust
Under the DGCL, the Company is required, in connection with its dissolution,
to pay or provide for payment of all of its liabilities and obligations.
Following approval of the Plan by the Company's stockholders, the Company will
pay all expenses and fixed and other known liabilities, or set aside as a
Contingency Reserve cash and other assets which it believes to be adequate for
payment thereof. The Company is currently unable to estimate with precision
the amount of any Contingency Reserve which may be required, but any such
amount (in addition to any cash contributed to a liquidating trust, if one is
utilized) will be deducted before the determination of amounts available for
distribution to stockholders.
The actual amount of the Contingency Reserve will be based upon estimates
and opinions of management and the Board of Directors and derived from
consultations with outside experts and review of the Company's estimated
operating expenses and future estimated liabilities, including, without
limitation, anticipated compensation payments, estimated legal and accounting
fees, operating lease expenses, payroll and other taxes payable, miscellaneous
office expenses, expenses accrued in the Company's financial statements, and
reserves for litigation expenses. There can be no assurance that the
Contingency Reserve in fact will be sufficient. The Company has not made any
specific provision for an increase in the amount of the Contingency Reserve.
Subsequent to the establishment of the Contingency Reserve, the Company will
distribute to its stockholders any portions of the Contingency Reserve which
it deems no longer to be required. After the liabilities, expenses and
obligations for which the Contingency Reserve had been established have been
satisfied in full, the Company will distribute to its stockholders any
remaining portion of the Contingency Reserve.
If deemed necessary, appropriate or desirable by the Board of Directors for
any reason, the Company may, from time to time, transfer any of its unsold
assets to one or more liquidating trusts established for the benefit of the
stockholders of the Company, which property would thereafter be sold or
distributed on terms approved by its trustees. The Board of Directors and
management may determine to transfer assets to a liquidating trust in
circumstances where the nature of an asset is not susceptible to distribution
(for example, interests in intangibles) or where the Board of Directors
determines that it would not be in the best interests of the Company and its
stockholders for such assets to be distributed directly to the stockholders at
such time. If all of the Company's assets (other then the Contingency Reserve)
are not sold or distributed prior to the third anniversary of the
effectiveness of the dissolution the Company must transfer in final
distribution such remaining assets to a liquidating trust. The Board of
Directors may also elect in its discretion to transfer the Contingency
Reserve, if any, to such a liquidating trust. The purpose of a liquidating
trust would be to distribute such property or to sell such property on terms
satisfactory to the liquidating trustees, and distribute the proceeds of such
sale after paying those liabilities of the Company, if any, assumed by the
trust, to the Company's stockholders. Any liquidating trust acquiring all of
the unsold assets of the Company will assume all of the liabilities and
obligations of the Company and will be obligated to pay any expenses and
liabilities of the Company which remain unsatisfied. If the Contingency
Reserve transferred to the liquidating trust is exhausted, such expenses and
liabilities will be satisfied out of the liquidating trust's other unsold
assets.
The Plan authorizes the Board of Directors to appoint one or more
individuals or entities to act as trustee or trustees of the liquidating trust
or trusts and to cause the Company to enter into a liquidating trust agreement
or agreements with such trustee or trustees on such terms and conditions as
may be approved by the Board of Directors. It is anticipated that the Board of
Directors will select such trustee or trustees on the basis of the experience
of such individual or entity in administering and disposing of assets and
discharging liabilities of the kind to be held by the liquidating trust or
trusts and the ability of such individual or entity to serve the best
interests of the Company's stockholders. Approval of the Plan by the
stockholders will also constitute the approval by the Company's stockholders
of any such appointment and any liquidating trust agreement or agreements.
15
<PAGE>
The Company has no present plans to use a liquidating trust or trusts, but
the Board of Directors believes the flexibility provided by the Plan with
respect to the liquidating trusts to be advisable. The trust would be
evidenced by a trust agreement between the Company and the trustees. The
purpose of the trust would be to serve as a temporary repository for the trust
property prior to its disposition or distribution to the Company's
stockholders. The transfer to the trust and distribution of interests therein
to the Company's stockholders would enable the Company to divest itself of the
trust property and permit the Company's stockholders to enjoy the economic
benefits of ownership thereof. Pursuant to the trust agreement, the trust
property would be transferred to the trustees immediately prior to the
distribution of interests in the trust to the Company's stockholders, to be
held in trust for the benefit of the stockholder beneficiaries subject to the
terms of the trust agreement. It is anticipated that the interests would be
evidenced only by the records of the trust and there would be no certificates
or other tangible evidence of such interests and that no holder of Common
Stock would be required to pay any cash or other consideration for the
interests to be received in the distribution or to surrender or exchange
shares of Common Stock in order to receive the interests. It is further
anticipated that pursuant to the trust agreements (i) a majority of the
trustees would be required to be independent of the Company's management; (ii)
approval of a majority of the trustees would be required to take any action;
and (iii) the trust would be irrevocable and would terminate after, the
earliest of (x) the trust property having been fully distributed, or (y) a
majority in interest of the beneficiaries of the trust, or a majority of the
trustees, having approved of such termination, or (z) a specified number of
years having elapsed after the creation of the trust.
UNDER THE DGCL, IN THE EVENT THE COMPANY FAILS TO CREATE AN ADEQUATE
CONTINGENCY RESERVE FOR PAYMENT OF ITS EXPENSES AND LIABILITIES, OR SHOULD
SUCH CONTINGENCY RESERVE AND THE ASSETS HELD BY THE LIQUIDATING TRUST OR
TRUSTS BE EXCEEDED BY THE AMOUNT ULTIMATELY FOUND PAYABLE IN RESPECT OF
EXPENSES AND LIABILITIES, EACH STOCKHOLDER COULD BE HELD LIABLE FOR THE
PAYMENT TO CREDITORS OF SUCH STOCKHOLDER'S PRO RATA SHARE OF SUCH EXCESS,
LIMITED TO THE AMOUNTS THERETOFORE RECEIVED BY SUCH STOCKHOLDER FROM THE
COMPANY OR FROM THE LIQUIDATING TRUST OR TRUSTS.
If the Company were held by a court to have failed to make adequate
provision for its expenses and liabilities or if the amount ultimately
required to be paid in respect of such liabilities exceeded the amount
available from the Contingency Reserve and the assets of the liquidating trust
or trusts, a creditor of the Company could seek an injunction against the
making of distributions under the Plan on the ground that the amounts to be
distributed were needed to provide for the payment of the Company's expenses
and liabilities. Any such action could delay or substantially diminish the
cash distributions to be made to stockholders and/or interest holders under
the Plan.
Final Record Date
The Company intends to close its stock transfer books and discontinue
recording transfers of shares of Common Stock on the Final Record Date, and
thereafter certificates representing shares of Common Stock will not be
assignable or transferable on the books of the Company except by will,
intestate succession or operation of law. After the Final Record Date, the
Company will not issue any new stock certificates, other than replacement
certificates. It is anticipated that no further trading of the Company's
shares will occur on or after the Final Record Date. See "Listing and Trading
of the Common Stock and Interests in the Liquidating Trust or Trusts" below.
All liquidating distributions from the Company or a liquidating trust on or
after the Final Record Date will be made to stockholders according to their
holdings of Common Stock as of the Final Record Date. Subsequent to the Final
Record Date, the Company may at its election require stockholders to surrender
certificates representing their shares of the Common Stock in order to receive
subsequent distributions. Stockholders should not forward their stock
certificates before receiving instructions to do so. If surrender of stock
certificates should be required, all distributions otherwise payable by the
Company or the liquidating trust, if any, to stockholders who have not
surrendered their stock certificates may be held in trust for such
stockholders, without interest, until the surrender of their certificates
(subject to escheat pursuant to the laws
16
<PAGE>
relating to unclaimed property). If a stockholder's certificate evidencing the
Common Stock has been lost, stolen or destroyed, the stockholder may be
required to furnish the Company with satisfactory evidence of the loss, theft
or destruction thereof, together with a surety bond or other indemnity, as a
condition to the receipt of any distribution.
Listing and Trading of the Common Stock and Interests in the Liquidating Trust
or Trusts
The Company currently intends to close its stock transfer books on the Final
Record Date and to cease recording stock transfers and issuing stock
certificates (other than replacement certificates) at such time. Accordingly,
it is expected that trading in the shares will cease on and after such date.
The Common Stock is currently listed for trading on the Nasdaq Stock
Market's National Market. For continued listing, a company, among other
things, must meet certain minimum requirements with respect to net tangible
assets, market value of its securities held by non-affiliates, and minimum bid
prices per share. The Company's Common Stock has been trading below the
minimum bid price required for continued listing, and the Company cannot be
sure that the bid price will rise above the required minimum bid price. In
addition, a company must maintain an operating business. The Company had
previously received notice that its Common Stock would be delisted from the
Nasdaq National Market on November 20, 2000. The Company expects that, as a
result of the prior notification from Nasdaq, as well as the cessation of its
operations and the anticipated decrease in its assets resulting from
distributions to its stockholders, its Common Stock will be delisted from the
Nasdaq National Market not later than shortly after the approval of the Plan
of Liquidation by the stockholders. Trading, if any, in the Common Stock would
thereafter be conducted in the over-the-counter market in the so-called "pink
sheets" or the NASD's "Electronic Bulletin Board". As a consequence of such
delisting, an investor would likely find it more difficult to dispose of, or
to obtain quotations as to, the price of the Common Stock. Delisting of the
Common Stock may result in lower prices for the Common Stock than would
otherwise prevail. In any event, the Company will close its stock transfer
books upon the filing of the Certificate of Dissolution. Thereafter, the
stockholders will not be able to transfer their shares. It is anticipated that
the interests in a liquidating trust or trusts will not be transferable,
although no determination has yet been made. Such determination will be made
by the Board of Directors' and management prior to the transfer of unsold
assets to the liquidating trust and will be based on, among other things, the
Board of Directors, and management's estimate of the value of the assets being
transferred to the liquidating trust or trusts, tax matters and the impact of
compliance with applicable securities laws. Should the interests be
transferable, the Company plans to distribute an information statement with
respect to the liquidating trust or trusts at the time of the transfer of
assets and the liquidating trust or trusts may be required to comply with the
periodic reporting and proxy requirements of the Exchange Act. The costs of
compliance with such requirements would reduce the amount which otherwise
could be distributed to interest holders. Even if transferable, the interests
are not expected to be listed on a national securities exchange or quoted
through Nasdaq, and the extent of any trading market therein cannot be
predicted. Moreover, the interests may not be accepted by commercial lenders
as security for loans as readily as more conventional securities with
established trading markets.
As stockholders will be deemed to have received a liquidating distribution
equal to their pro rata share of the value of the net assets distributed to an
entity which is treated as a liquidating trust for tax purposes (see "Certain
Federal Income Tax Consequences--The Liquidating Trust or Trusts"), the
distribution of non-transferable interests could result in tax liability to
the interest holders without their being readily able to realize the value of
such interests to pay such taxes or otherwise.
Absence of Appraisal Rights
Under the DGCL, the stockholders of the Company are not entitled to
appraisal rights for their shares of Common Stock in connection with the
transactions contemplated by the Plan.
17
<PAGE>
Regulatory Approvals
No United States federal or state regulatory requirements must be complied
with or approvals obtained in connection with the liquidation.
United States Federal Income Tax Considerations
The following discussion is a general summary of the material United States
federal income tax consequences affecting the Company's stockholders that are
anticipated to result from the dissolution and liquidation of the Company.
This discussion does not purport to be a complete analysis of all the
potential tax effects. Moreover, the discussion does not address the tax
consequences that may be relevant to particular categories of investors
subject to special treatment under certain federal income tax laws (such as
dealers in securities, banks, insurance companies, tax-exempt organizations,
mutual funds, and foreign individuals and entities) and does not address any
tax consequences arising under the laws of any state, local or foreign
jurisdiction. The discussion is based upon the Internal Revenue Code of 1986,
as amended, Treasury Regulations, Internal Revenue Service ("IRS") rulings,
and judicial decisions now in effect, all of which are subject to change at
any time; any such changes may be applied retroactively. Distributions
pursuant to the Plan may occur at various times and in more than one tax year.
No assurance can be given that the tax treatment described herein will remain
unchanged at the time of such distributions.
The following discussion has no binding effect on the IRS or the courts and
assumes that the Company will liquidate in accordance with the Plan in all
material respects. No ruling has been requested from the IRS with respect to
the anticipated tax treatment of the Plan, and the Company will not seek an
opinion of counsel with respect to the anticipated tax treatment. If any of
the anticipated tax consequences described herein proves to be incorrect, the
result could be increased taxation at the corporate and/or stockholder level,
thus reducing the benefit to the stockholders and the Company from the
liquidation. Tax considerations applicable to particular stockholders may vary
with and be contingent on the stockholder's individual circumstances. This
discussion does not constitute legal advice to any stockholder.
Federal Income Taxation of the Company
After the approval of the Plan and until the liquidation is completed, the
Company will continue to be subject to federal income tax on its taxable
income, if any. The Company will recognize gain or loss on sales of its assets
pursuant to the Plan. Upon the distribution of any property, other than cash,
to stockholders pursuant to the Plan, the Company will recognize gain or loss
as if such property were sold to the stockholders at its fair market value,
unless certain exceptions to the recognition of loss apply.
Federal Income Taxation of the Stockholders
As a result of the liquidation of the Company, for federal income tax
purposes stockholders will recognize gain or loss equal to the difference
between (i) the sum of the amount of cash distributed to them and the fair
market value (at the time of distribution) of any property distributed to
them, and (ii) their tax basis for their shares of the Common Stock. A
stockholder's tax basis in his or her shares will depend upon various factors,
including the stockholder's cost and the amount and nature of any
distributions received with respect thereto.
A stockholder's gain or loss will be computed on a "per share" basis. The
Company expects to make more than one liquidating distribution; each of which
will be allocated proportionately to each share of stock owned by a
stockholder. The value of each liquidating distribution will be applied
against and reduce a stockholder's tax basis in his or her shares of stock.
Gain will be recognized as a result of a liquidating distribution to the
extent that the aggregate value of the distribution and prior liquidating
distributions received by a stockholder with respect to a share exceeds his or
her tax basis for that share. Any loss will generally be recognized only when
the final distribution from the Company has been received and then only if the
aggregate value of all liquidating distributions with respect to a share is
less than the stockholder's tax basis for that share. Gain or loss
18
<PAGE>
recognized by a stockholder will be capital gain or loss provided the shares
are held as capital assets. Gain resulting from distributions of cash or
assets from a corporation pursuant to a plan of liquidation is, therefore,
commonly capital gain rather than ordinary income. If it were to be determined
that distributions made pursuant to the Plan were not liquidating
distributions, the result could be treatment of distributions as dividends
taxable at ordinary income rates.
Upon any distribution of property, the stockholder's tax basis in such
property immediately after the distribution will be the fair market value of
such property at the time of distribution. The gain or loss realized upon the
stockholder's future sale of that property will be measured by the difference
between the stockholder's tax basis in the property at the time of such sale
and the proceeds of such sale.
After the close of its taxable year, the Company will provide stockholders
and the IRS with a statement of the amount of cash distributed to the
stockholders and its best estimate as to the value of any property distributed
to them during that year. There is no assurance that the IRS will not
challenge such valuation. As a result of such a challenge, the amount of gain
or loss recognized by stockholders might be changed. Distributions of property
other than cash to stockholders could result in tax liability to any given
stockholder exceeding the amount of cash received, requiring the stockholder
to meet the tax obligations from other sources or by selling all or a portion
of the assets received.
It is possible that the Company will have liabilities not fully covered by
its Contingency Reserve for which the stockholders will be liable up to the
extent of any liquidating distributions they have received. (See "Contingent
Liabilities; Contingency Reserve; Liquidating Trust"). Such a liability could
require a stockholder to satisfy a portion of such liability out of prior
liquidating distributions received from the Company and the liquidating trust
or trusts. Payments by stockholders in satisfaction of such liabilities would
commonly produce a capital loss, which, in the hands of individual
stockholders, could not be carried back to prior years to offset capital gains
realized from liquidating distributions in those years.
Liquidating Trusts
If the Company transfers assets to a liquidating trust or trusts, the
Company intends to structure such trust or trusts so that stockholders will be
treated for tax purposes as having received their pro rata share of the
property transferred to the liquidating trust or trusts, reduced by the amount
of known liabilities assumed by the liquidating trust or trusts or to which
the property transferred is subject. Assuming such treatment is achieved,
assets transferred to a liquidating trust will cause the stockholder to be
treated in the same manner for federal income tax purposes as if the
stockholder had received a distribution directly from the Company. The
liquidating trust or trusts themselves should not be subject to federal income
tax, assuming that they are treated as liquidating trusts for federal income
tax purposes. After formation of the liquidating trust or trusts, the
stockholders must take into account for federal income tax purposes their
allocable portion of any income, gain or loss recognized by the liquidating
trust or trusts. As a result of the transfer of property to the liquidating
trust or trusts and the ongoing operations of the liquidating trust or trusts,
stockholders should be aware that they may be subject to tax, whether or not
they have received any actual distributions from the liquidating trust or
trusts with which to pay such tax. There can be no assurance that the
liquidating trust or trusts described in the Plan will be treated as a
liquidating trust or trusts for federal income tax purposes.
Taxation of Non-United States Stockholders
Foreign corporations or persons who are not citizens or residents of the
United States should consult their tax advisors with respect to the U.S. and
non-U.S. tax consequences of the Plan.
State and Local Tax
The Company may be subject to liability for state or local taxes with
respect to the sale of its assets. Stockholders may also be subject to state
or local taxes, including with respect to liquidating distributions
19
<PAGE>
received by them or paid to a liquidating trust on their behalf, and with
respect to any income derived by a liquidating trust. Stockholders should
consult their tax advisors with respect to the state and local tax
consequences of the Plan.
THE FOREGOING SUMMARY OF UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS IS
INCLUDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE TO
ANY STOCKHOLDER. THE TAX CONSEQUENCES OF THE PLAN MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF THE STOCKHOLDER. THE COMPANY RECOMMENDS THAT EACH
STOCKHOLDER CONSULT ITS OWN TAX ADVISOR REGARDING THE FEDERAL INCOME TAX
CONSEQUENCES OF THE PLAN AS WELL AS THE STATE, LOCAL, AND FOREIGN TAX
CONSEQUENCES.
LIQUIDATION ANALYSIS AND ESTIMATES
Management of the Company has estimated and projected the following
potentially realizable values for its assets, estimated liabilities and
estimated costs of liquidation after the Company ceases operations on or
around November 30, 2000. There can be no assurance, however, that the Company
will be able to dispose of any of the assets below for or within the indicated
values for any of its assets, and the Company has not sought independent
appraisals for any of the assets.
<TABLE>
<CAPTION>
(in
thousands)
----------
<S> <C>
ESTIMATED VALUES OF ASSETS OF THE COMPANY
Cash and cash equivalents........................................ $21,500
Accounts receivable(a)........................................... 100
Inventories(b)................................................... 200
Property, plant, and equipment(c)................................ 400
Intangible assets(d)............................................. --
Intellectual property(e)......................................... --
-------
Total assets(f).................................................. $22,200
ESTIMATED LIABILITIES OF THE COMPANY
Amounts payable to vendors....................................... $ 700
Accrued expenses, including payroll and other employee expenses.. 2,100
Severance costs.................................................. 1,300
Amounts payable under operating leases........................... 500
Amounts payable under capital leases............................. 200
Other liabilities................................................ 600
-------
Total estimated liabilities...................................... $ 5,400
ESTIMATED OPERATING COSTS DURING LIQUIDATION
Payroll and benefits for liquidation personnel................... $ 400
Insurance, utilities and facility costs.......................... 200
Legal, audit and other professional fees......................... 400
-------
Total estimated operating costs.................................. $ 1,000
ESTIMATED NET PROCEEDS AVAILABLE FOR DISTRIBUTION TO SHAREHOLDERS.. $15,800
ESTIMATED NET PROCEEDS AVAILABLE FOR DISTRIBUTION PER OUTSTANDING
COMMON SHARE(g).................................................... $ 1.00
</TABLE>
--------
NOTES:
(a) Accounts receivable represent amounts collectible under merchant card
agreements.
20
<PAGE>
(b) Inventories remaining at the Effective Date will be subject to sale at
distressed values, if at all.
(c) Property, plant, and equipment consists primarily of computer and office
equipment; leasehold improvements; and software licenses. The
transferability of software licenses after the adoption of the Plan is
likely to be limited or disallowed under those license agreements.
(d) Intangible assets consist exclusively of the book value of certain
content, advertising, and other rights the Company has received pursuant
to a license agreement from Rodale. The transferability of these rights
are limited pursuant to the term of the license agreement, and,
accordingly no value has been assigned in these calculations.
(e) The Company's intellectual property, including the url
www.mothernature.com, the software code which makes up the Company's web
site, the content wholly developed by or licensed by the Company, and the
Company's customer list, may be sold to one or more interested parties.
The Company's technology is largely proprietary, and there are strict
limits as to the disposition of the Company's customer list with respect
to the Company's obligations to its customers under its stated privacy
policy. Given these factors, there can be no assurance that the Company
will realize any proceeds from a sale; as such, no amounts have been
included in the Estimated Proceeds calculations.
(f) The Company is actively attempting to sell its intangible assets and
intellectual property. For each $158,000 in proceeds received from such
sales, the amounts available for distribution to stockholders will
increase by approximately $.01 per share.
(g) Based upon 15,151,330 shares of Common Stock outstanding, and 649,246
shares of Common Stock expected to be issued upon the exercise of
outstanding warrants and options.
THE METHODS USED BY THE BOARD OF DIRECTORS AND MANAGEMENT IN ESTIMATING THE
VALUES OF THE COMPANY'S ASSETS ARE INEXACT AND MAY NOT APPROXIMATE VALUES
ACTUALLY REALIZED. THE BOARD OF DIRECTORS' ASSESSMENT ASSUMES THAT THE
ESTIMATES OF THE COMPANY'S LIABILITIES AND OPERATING COSTS ARE ACCURATE, BUT
THOSE ESTIMATES ARE SUBJECT TO NUMEROUS UNCERTAINTIES BEYOND THE COMPANY'S
CONTROL AND ALSO DO NOT REFLECT ANY CONTINGENT LIABILITIES THAT MAY
MATERIALIZE. FOR ALL THESE REASONS, THERE CAN BE NO ASSURANCE THAT THE ACTUAL
NET PROCEEDS DISTRIBUTED TO SHAREHOLDERS IN LIQUIDATION MAY NOT BE
SIGNIFICANTLY LESS THAN THE ESTIMATED AMOUNT SHOWN. MOREOVER, NO ASSURANCE CAN
BE GIVEN THAT ANY AMOUNTS TO BE RECEIVED BY THE COMPANY'S STOCKHOLDERS IN
LIQUIDATION WILL EQUAL OR EXCEED THE PRICE OR PRICES AT WHICH THE COMMON STOCK
HAS RECENTLY TRADED OR MAY TRADE IN THE FUTURE.
Vote Required and Board Recommendation
The approval of the Plan of Liquidation requires the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock. Members of
the Board of Directors and the executive officers of the Company who hold (or
are deemed to hold) an aggregate of 4,028,703 shares of Common Stock
(approximately 27% of the outstanding shares of Common Stock as of October 19,
2000) have indicated that they will vote in favor of the proposal.
THE BOARD BELIEVES THAT THE PLAN OF LIQUIDATION IS IN THE BEST INTERESTS OF
THE COMPANY'S STOCKHOLDERS AND RECOMMENDS A VOTE FOR THIS PROPOSAL. IT IS
INTENDED THAT SHARES REPRESENTED BY THE ENCLOSED FORM OF PROXY WILL BE VOTED
IN FAVOR OF THIS PROPOSAL UNLESS OTHERWISE SPECIFIED IN SUCH PROXY.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's 1999 Annual Report to Stockholders, which includes the full
text of the Company's Annual Report on Form 10-K, and Quarterly Report on Form
10-Q for the quarter ended September 30, 2000, are incorporated herein by
reference.
21
<PAGE>
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the date
of the Special Meeting or any adjournment or postponement thereof shall be
deemed to be incorporated by reference herein and made a part hereof from the
date of the filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Proxy Statement to the
extent that a statement contained herein or in any other document subsequently
filed with the Commission which also is deemed to be incorporated by reference
herein modified or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement.
The Company will provide without charge to each person to whom a copy of
this Proxy Statement is delivered, upon the written or oral request of such
person, a copy of any or all of the documents incorporated by reference herein
(not including the exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to MotherNature.com, Inc., One Concord Farms, 490
Virginia Road, Concord, MA 01742, Attention: Michael I. Barach, President.
OTHER MATTERS
The Board of Directors does not know of any other matters which may come
before the meeting. However, if any other matters are properly presented to
the meeting, it is the intention of the persons named in the accompanying
proxy to vote, or otherwise act, in accordance with their judgment on such
matters.
THE BOARD OF DIRECTORS ENCOURAGES STOCKHOLDERS TO ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. A PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION WILL BE
APPRECIATED. STOCKHOLDERS WHO ATTEND THIS MEETING MAY VOTE THEIR STOCK
PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
By Order of the Board of Directors,
Michael L. Bayer,
Chief Financial Officer, Treasurer
and Secretary
22
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
Exhibit Number
------- ------
<C> <S> <C>
Exhibit A Plan of Complete Liquidation and Dissolution................. A-1
</TABLE>
23
<PAGE>
EXHIBIT A
PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
OF
MOTHERNATURE.COM, INC.
This Plan of Complete Liquidation and Dissolution (the "Plan") is intended
to accomplish the complete liquidation and dissolution of MotherNature.com,
Inc., a Delaware corporation ( the "Company"), in accordance with the Delaware
General Corporation Law and Section 331 of the Internal Revenue Code of 1986,
as amended (the "Code"), as follows:
1. The Board of Directors of the Company (the "Board of Directors') has
adopted this Plan and called a meeting (the "Meeting") of the Company's
stockholders (the "Stockholders") to take action on the Plan. If
Stockholders holding a majority of the Company's outstanding common stock,
par value $.01 per share (the "Common Stock"), vote for the adoption of
this Plan at the Meeting, the Plan shall constitute the adopted Plan of the
Company as of the date of the Meeting, or such later date on which the
Stockholders may approve the Plan if the Meeting is adjourned to a later
date (the "Adoption Date").
2. After the Adoption Date, the Company shall not engage in any business
activities except to the extent necessary to preserve the value of its
assets, wind up its business affairs, and distribute its assets in
accordance with this Plan. No later than thirty (30) days following the
Adoption Date, the Company shall file Form 966 with the Internal Revenue
Service.
3. From and after the Adoption Date, the Company shall complete the
following corporate actions:
(a) The Company shall determine whether and when to (i) transfer the
Company's property and assets (other than cash, cash equivalents and
accounts receivable) to a liquidating trust (established pursuant to
Section 6 hereof), or (ii) collect, sell, exchange or otherwise dispose
of all of its property and assets in one or more transactions upon such
terms and conditions as the Board of Directors, in its absolute
discretion, deems expedient and in the best interests of the Company
and the Stockholders, without any further vote or action by the
Company's stockholders. The Company's assets and properties may be sold
in bulk to one buyer or a small number of buyers or on a piecemeal
basis to numerous buyers. The Company will not be required to obtain
appraisals or other third party opinions as to the value of its
properties and assets in connection with the liquidation. In connection
with such collection, sale, exchange and other disposition, the Company
shall collect or make provision for the collection of all accounts
receivable, debts and claims owing to the Company.
(b) The Company shall pay or, as determined by the Board of
Directors, make reasonable provision to pay, all claims and obligations
of the Company, including all contingent, conditional or unmatured
claims known to the Company and all claims which are known to the
Company but for which the identity of the claimant is unknown.
(c) The Company shall distribute pro rata to the Stockholders, all
available cash including the cash proceeds of any sale, exchange or
disposition, except such cash, property or assets as are required for
paying or making reasonable provision for the claims and obligations of
the Company. Such distribution may occur all at once or in a series of
distributions and shall be in cash or assets, in such amounts, and at
such time or times, as the Board of Directors or the Trustees (as
defined in Section 6 hereof), in their absolute discretion, may
determine. If and to the extent deemed necessary, appropriate or
desirable by the Board of Directors or the Trustees, in their absolute
discretion, the Company may establish and set aside a reasonable amount
of cash and/or property (the "Contingency Reserve") to satisfy claims
against the Company, including, without limitation, tax obligations,
and all expenses of the sale of the Company's property and assets, of
the collection and defense of the Company's property and assets, and
the liquidation and dissolution provided for in this Plan.
A-1
<PAGE>
4. The distributions to the Stockholders pursuant to Section 3, 6 and 7
hereof shall be in complete redemption and cancellation of all of the
outstanding Common Stock of the Company. As a condition to receipt of any
distribution to the Stockholders, the Board of Directors or the Trustees,
in their absolute discretion, may require the Stockholders to (i) surrender
their certificates evidencing the Common Stock to the Company or its agents
for recording of such distributions thereon or (ii) furnish the Company
with evidence satisfactory to the Board of Directors or the Trustees of the
loss, theft or destruction of their certificates evidencing the Common
Stock, together with such surety bond or other security or indemnity as may
be required by and satisfactory to the Board of Directors or the Trustees
("Satisfactory Evidence and Indemnity"). As a condition to receipt of any
final distribution to the Stockholders, the Board of Directors or the
Trustees, in their absolute discretion, may require the Stockholders to (i)
surrender their certificates evidencing the Common Stock to the Company or
its agent for cancellation or (ii) furnish the Company with Satisfactory
Evidence and Indemnity. The Company will finally close its stock transfer
books and discontinue recording transfers of Common Stock on the earliest
to occur of (i) the close of business on the record date fixed by the Board
of Directors for the final liquidating distribution, (ii) the close of
business on the date on which the remaining assets of the Company are
transferred to the Trust or (iii) the date on which the Company files its
Certificate of Dissolution under the Delaware General Corporation Law
(following any post-dissolution continuation period thereunder), and
thereafter certificates representing Common Stock will not be assingable or
transferable on the books of the Company except by will, intestate
succession, or operation of law.
5. If any distribution to a Stockholder cannot be made, whether because
the Stockholder cannot be located, has not surrendered its certificates
evidencing the Common Stock as required hereunder or for any other reason,
the distribution to which such Stockholder is entitled (unless transferred
to the Trust established pursuant to Section 6 hereof) shall be
transferred, at such time as the final liquidating distribution is made by
the Company, to the official of such state or other jurisdiction authorized
by applicable law to receive the proceeds of such distribution. The
proceeds of such distribution shall thereafter be held solely for the
benefit of and for ultimate distribution to such Stockholder as the sole
equitable owner thereof and shall be treated as abandoned property and
escheat to the applicable state or other jurisdiction in accordance with
applicable law. In no event shall the proceeds of any such distribution
revert to or become the property of the Company.
6. If deemed necessary, appropriate or desirable by the Board of
Directors, in its absolute discretion, in furtherance of the liquidation
and distribution of the Company's assets to the Stockholders, as a final
liquidating distribution or from time to time, the Company shall transfer
to one or more liquidating trustees, for the benefit of the Stockholders
(the "Trustees"), under a liquidating trust (the "Trust'), any assets of
the Company which are (i) not reasonably susceptible to distribution to the
Stockholders, including without limitation non-cash assets and assets held
on behalf of the Stockholders (a) who cannot be located or who do not
tender their certificates evidencing the Common Stock to the Company or its
agent as herein above required or (b) to whom distributions may not be made
based upon restrictions under contract or law, including, without
limitation, restrictions of the federal securities laws and regulations
promulgated thereunder, or (ii) held as the Contingency Reserve. The Board
of Directors is hereby authorized to appoint one or more individuals,
corporations, partnerships or other persons, or any combination thereof,
including, without limitation, any one or more officers, directors,
employees, agents or representatives of the Company, to act as the initial
Trustee or Trustees for the benefit of the Stockholders and to receive any
assets of the Company. Any Trustees appointed as provided in the preceding
sentence shall succeed to all right, title and interest of the Company of
any kind and character with respect to such transferred assets and, to the
extent of the assets so transferred and solely in their capacity as
Trustees, shall assume all of the liabilities and obligations of the
Company, including, without limitation, any unsatisfied claims and
unascertained or contingent liabilities. Further, any conveyance of assets
to the Trustees shall be deemed to be a distribution of property and assets
by the Company to the Stockholders for the purposes of Section 3 of this
Plan. Any such conveyance to the Trustees shall be in trust for the
Stockholders of the Company. The Company, subject to this Section and as
authorized by the Board of Directors, in its absolute discretion, may enter
into a liquidating trust agreement with the Trustees, on such terms and
conditions as the Board of Directors, in
A-2
<PAGE>
its absolute discretion, may deem necessary, appropriate or desirable.
Adoption of this Plan by a majority of the outstanding Common Stock shall
constitute the approval of the Stockholders of any such appointment, any
such liquidating trust agreement and any transfer of assets by the Company
to the Trust as their act and as a part hereof as if herein written.
7. Whether or not a Trust shall have been previously established pursuant
to Section 6, in the event it should not be feasible for the Company to
make the final distribution to the Stockholders of all assets and
properties of the Company prior to December 31, 2003 then, on or before
such date, the Company shall be required to establish a Trust and transfer
any remaining assets and properties (including, without limitation, any
uncollected claims, contingent assets and the Contingency Reserve) to the
Trustees as set forth in Section 6.
8. After the Adoption Date, the officers of the Company shall, at such
time as the Board of Directors, in its absolute discretion, deems
necessary, appropriate or desirable, obtain any certificates required from
the Delaware tax authorities and, upon obtaining such certificates, the
Company shall file with the Secretary of State of the State of Delaware a
certificate of dissolution (the "Certificate of Dissolution") in accordance
with the Delaware General Corporation Laws.
9. Adoption of this Plan by holders of a majority of the outstanding
Common Stock shall constitute the approval of the Stockholders of the sale,
exchange or other disposition in liquidation of all of the property and
assets of the Company, whether such sale, exchange or other disposition
occurs in one transaction or a series of transactions, and shall constitute
ratification of all contracts for sale, exchange or other disposition which
are conditioned on adoption of this Plan.
10. In connection with and for the purposes of implementing and assuring
completion of this Plan, the Company may, in the absolute discretion of the
Board of Directors, pay any brokerage, agency, professional and other fees
and expenses of persons rendering services to the Company in connection
with the collection, sale, exchange or other disposition of the Company's
property and assets and the implementation of this Plan.
11. In connection with and for the purpose of implementing and assuring
completion of this Plan, the Company may, in the absolute discretion of the
Board of Directors, pay the Company's officers, directors, employees,
agents and representatives, or any of them, compensation or additional
compensation above their regular compensation, in money or other property,
in recognition of the extraordinary efforts they, or any of them, will be
required to undertake, or actually undertake, in connection with the
implementation of this Plan. Adoption of this Plan by a majority of the
outstanding Common Stock shall constitute the approval of the Company's
stockholders of the payment of any such compensation.
12. The Company shall continue to indemnify its officers, directors,
employees, agents and representatives in accordance with its certificate of
incorporation, as amended, and by-laws and any contractual arrangements,
for the actions taken in connection with this Plan and the winding up of
the affairs of the Company. The Company's obligation to indemnify such
persons may also be satisfied out of the assets of the Trust. The Board of
Directors and the Trustees, in their absolute discretion, are authorized to
obtain and maintain insurance as may be necessary or appropriate to cover
the Company's obligation hereunder.
13. Notwithstanding authorization or consent to this Plan and the
transactions contemplated hereby by the Stockholders, the Board of
Directors may modify, amend or abandon this Plan and the transactions
contemplated hereby without further action by the Stockholders to the
extent permitted by the Delaware General Corporation Law.
14. The Board of Directors of the Company is hereby authorized, without
further action by the Stockholders, to do and perform or cause the officers
of the Company, subject to approval of the Board of Directors, to do and
perform, any and all acts, and to make, execute, deliver or adopt any and
all agreements, resolutions, conveyances, certificates and other documents
of every kind which are deemed necessary, appropriate or desirable, in the
absolute discretion of the Board of Directors, to implement this Plan and
the transaction contemplated hereby, including, without limiting the
foregoing, all filings or acts required by any state or federal law or
regulation to wind up its affairs.
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<PAGE>
APPENDIX 1
MOTHERNATURE.COM, INC.
Proxy for Special Meeting of Stockholders
November 30, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints MICHAEL I. BARACH and MICHAEL L.
BAYER, and each or both of them, proxies, with full power of substitution
to vote all shares of stock of MotherNature.com, Inc. (the "Company") which
the undersigned is entitled to vote at the Special Meeting of Stockholders
of the Company to be held on Thursday, November 30, 2000, at 9:30 a.m.
Boston time, at the offices of Testa, Hurwitz & Thibeault, LLP, 125 High
Street, Boston, Massachusetts, 02110, and at any adjournments thereof, upon
matters set forth in the Notice of Special Meeting of Stockholders and
Proxy Statement dated November 8, 2000, a copy of which has been received
by the undersigned.
-------
SEE
REVERSE
SIDE
-------
CONTINUED AND TO BE SIGNED AND DATED ON REVERSE SIDE
<PAGE>
[X] Please mark your vote as indicated in this example.
1. To approve the Plan of Complete Liquidation and Dissolution.
FOR AGAINST ABSTAIN
[_] [_] [_]
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED
ENVELOPE, OR OTHERWISE PROVIDE YOUR PROXY BY TELEPHONE OR THE INTERNET.
MARK HERE
FOR ADDRESS [_]
CHANGE AND
NOTE AT LEFT
(Please sign exactly as your name appears
hereon. If signing as attorney, executor,
trustee or guardian, please give your full
title as such. If stock is held jointly,
each owner should sign. Please read reverse
side before signing.)
Signature:__________________________________
Date________________________________________
Signature:__________________________________
Date________________________________________
<PAGE>
APPENDIX 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MotherNature.com, Inc.:
We have audited the accompanying balance sheets of MotherNature.com, Inc. (a
Delaware corporation) as of December 31, 1999 and 1998, and the related
statements of operations, shareholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1999. 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 MotherNature.com, Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with generally accepted accounting principles.
Boston, Massachusetts
February 11, 2000
<PAGE>
APPENDIX 3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the application of our
report dated February 11, 2000 in Mothernature.com, Inc.'s annual report to
shareholders incorporated by reference in this proxy statement to the heading
included herein and labeled 'Proposal 1 - Approval of Plan of Complete
Liquidation and Dissolution.' It should be noted that we have performed no audit
procedures subsequent to February 11, 2000, the date of our report. Furthermore,
we have not audited any financial statements of Mothernature.com, Inc as of any
date or for any period subsequent to December 31, 1999 (date of audited
financial statements included in annual report to shareholders).
/s/ Arthur Andersen LLP
------------------------------
Arthur Andersen LLP
Boston, Massachusetts
November 8, 2000
