SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14c-5(d)(2))
[X] Definitive Information Statement
COOL ENTERTAINMENT, INC.
(Name of Registrant As Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rule 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
COMMON STOCK
2) Aggregate number of securities to which transaction applies:
4,444,500 SHARES
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):
$0.035 (average of the bid and asked prices as of 12/19/00)
4) Proposed maximum aggregate value of transaction: $155,557.50
5) Total fee paid: $31.11
[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:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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COOL ENTERTAINMENT, INC.
10900 N.E. 8TH STREET, SUITE 900, BELLEVUE, WASHINGTON 98004
(888) 603-8833
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 26, 2001
TO THE SHAREHOLDERS OF COOL ENTERTAINMENT, INC.
PLEASE TAKE NOTICE that a Special Meeting of Shareholders of Cool Entertainment,
Inc. ("Cool" or the "Company") will be held at The North Hill Inn, 7150 - 50th
Avenue, Red Deer, Alberta, Canada, on Friday, January 26, 2001, at 10:30 a.m.,
local time, or at any adjournments thereof, for the following purposes:
(1) to consider and vote upon an Agreement and Plan of Reincorporation and
Merger to change of domicile of the Company to Delaware, change the
name of the Company to E-Trend Networks, Inc., and effect a 1-for-100
reverse stock split of the issued and outstanding shares of the
Company's common stock (the "Reorganization");
(2) to consider and vote upon the Share Exchange Agreement, dated as of
December 22, 2000, by and among E-Trend Networks, Inc., the Company,
and E-Trend Networks, Inc. (a wholly-owned subsidiary of the Company
domiciled in the State of Delaware) ("Cool Delaware"), providing for
the acquisition of all of the issued and outstanding shares of E-Trend
Networks, Inc. by the Company (the "Acquisition");
(3) to consider and vote upon the adoption of a Stock Plan (the "Stock
Plan"); and
(4) to transact such other business as properly may come before the
meeting.
The board of directors has determined that the terms and conditions of the
Reorganization and Acquisition are fair to, and in the best interests of, the
Company's shareholders.
Only shareholders of record owning shares of the Corporation's no par value
common stock at the close of business on November 17, 2000, will be entitled to
vote at the meeting. The transfer books of the Company will not be closed.
By order of the Board of Directors:
William J. Hadcock, President
Bellevue, Washington
January 5, 2001
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COOL ENTERTAINMENT, INC.
INFORMATION STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 26, 2001
INTRODUCTION
This Information Statement will be first sent or given to holders of common
stock of Cool on or about January 5, 2001, in connection with a Special Meeting
of Shareholders to be held at The North Hill Inn, 7150 - 50th Avenue, Red Deer,
Alberta, Canada, on Friday, January 26, 2001, at 10:30 a.m., local time (the
"Special Meeting"). The purposes of the Special Meeting will be:
(1) to consider and vote upon an Agreement and Plan of Reincorporation and
Merger to change of domicile of the Company to Delaware, change the
name of the Company to E-Trend Networks, Inc., and effect a 1-for-100
reverse stock split of the issued and outstanding shares of the
Company's common stock (the "Reorganization");
(2) to consider and vote upon the Share Exchange Agreement, dated as of
December 22, 2000, by and among E-Trend Networks, Inc., the Company,
and E-Trend Networks, Inc. (a wholly-owned subsidiary of the Company
domiciled in the State of Delaware) ("Cool Delaware"), providing for
the acquisition of all of the issued and outstanding shares of E-Trend
Networks, Inc. by the Company (the "Acquisition");
(3) to consider and vote upon the adoption of a Stock Plan (the "Stock
Plan"); and
(4) to transact such other business as properly may come before the
meeting.
**WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND
US A PROXY.**
E-Trend Networks, Inc. ("E-Trend") is engaged in the business of operating
Internet retail websites offering a variety of home entertainment products
including movies (VHS and DVD formats), music, video games, PC gaming software,
and related entertainment products.
On December 22, 2000, the board of directors of Cool approved the terms of the
Acquisition pursuant to the Exchange Agreement. Those basic terms involve a
Reorganization of the Company, which includes a change of domicile to Delaware,
a name change to E-Trend Networks, Inc., and a 1-for-100 reverse stock split of
the outstanding shares of Cool common stock. The surviving entity, Cool
Delaware, will then issue4,444,500 shares of Cool Delaware common stock to the
shareholders of E-Trend. After such issuance, Cool Delaware will own E-Trend as
its wholly-owned subsidiary, the current shareholders of E-Trend will hold
approximately 92% of then outstanding shares of Cool Delaware common stock, and
the current shareholders of Cool will retain approximately 8% ownership of the
outstanding shares of Cool Delaware common stock. Currently, outstanding options
to purchase E-Trend common stock are
Cool Entertainment, Inc. Information Statement - Page 1
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to be assumed by Cool Delaware. In addition, a stock plan is being proposed for
adoption. Such Stock Plan will be used to attract and retain qualified employees
for E-Trend.
The Acquisition gives the shareholders of Cool the potential opportunity for
increased share value. This increase is anticipated because of the growth
potential that Cool management believes E-Trend has.
Effective December 22, 2000, Cool and E-Trend executed the definitive Exchange
Agreement. Cool anticipates that the Acquisition will be consummated on or about
February 2, 2001, subject to Cool and E-Trend obtaining the requisite
shareholder approval. The boards of directors of both companies have given their
approval of the Acquisition subject to the terms of the Exchange Agreement. The
Cool board of directors, which has the power to vote approximately 57.6% of the
outstanding shares of Cool common stock has given its approval and indicated its
intention to vote in favor of the Acquisition, and all related transactions,
subject to the terms of the Exchange Agreement. Final Closing of the transaction
will be publicly announced by Cool and updated information, if any, concerning
the transaction will be provided in a Form 8-K to be filed by Cool after
closing.
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TABLE OF CONTENTS
PAGE
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INTRODUCTION......................................................................................................1
SUMMARY TERM SHEET................................................................................................5
> TRANSACTION PARTIES......................................................................................5
> THE TRANSACTION..........................................................................................6
> DATE, TIME AND PLACE OF THE SPECIAL MEETING..............................................................6
> STOCKHOLDERS ENTITLED TO VOTE............................................................................6
> VOTE REQUIRED............................................................................................6
> PURPOSE AND REASON FOR THE SPECIAL MEETING...............................................................6
> RECOMMENDATION OF COOL BOARD OF DIRECTORS; REASONS FOR THE ACQUISITION; FAIRNESS.........................7
> INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION..........................................................7
> CLOSING AND CONDITIONS OF THE ACQUISITION................................................................7
> TERMINATION OF THE EXCHANGE AGREEMENT....................................................................8
> EFFECTS OF THE ACQUISITION...............................................................................8
> THE ACQUISITION CONSIDERATION............................................................................8
> FEDERAL INCOME TAX CONSEQUENCES..........................................................................8
> ACCOUNTING TREATMENT.....................................................................................9
> DISSENTERS' RIGHTS.......................................................................................9
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS........................................................9
THE SPECIAL MEETING..............................................................................................10
Cool Entertainment, Inc. Information Statement - Page 2
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TIME, PLACE AND DATE.............................................................................................10
PURPOSE OF THE MEETING...........................................................................................10
RECORD DATE AND VOTING AT THE SPECIAL MEETING....................................................................10
VOTES REQUIRED...................................................................................................11
PRINCIPAL SECURITY HOLDERS.......................................................................................11
THE ACQUISITION OF E-TREND NETWORKS, INC.........................................................................12
BACKGROUND OF THE OFFER AND THE ACQUISITION......................................................................12
RECOMMENDATION OF THE COOL BOARD OF DIRECTORS....................................................................13
REASONS FOR THE RECOMMENDATION OF THE COOL BOARD.................................................................13
ACCOUNTING TREATMENT.............................................................................................13
EXCHANGE AGREEMENT...............................................................................................13
REGULATORY APPROVALS.............................................................................................15
ACQUISITION CONSIDERATION........................................................................................16
CERTAIN CONSEQUENCES OF THE ACQUISITION..........................................................................16
MANAGEMENT OF COOL FOLLOWING ACQUISITION CLOSING.................................................................16
CHANGE IN CORPORATE OFFICES......................................................................................16
CHANGE IN SENIOR MANAGEMENT......................................................................................16
CHANGE IN BOARD OF DIRECTORS.....................................................................................17
BACKGROUND INFORMATION ON COOL...................................................................................19
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION..................................................................19
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................................................20
BACKGROUND INFORMATION ON E-TREND................................................................................22
GENERAL..........................................................................................................22
COMPETITION WITHIN THE RETAIL FILMED ENTERTAINMENT, MUSIC AND VIDEO GAME INDUSTRY................................23
MARKETING AND PROMOTION OF E-TREND'S ON-LINE FILMED ENTERTAINMENT, MUSIC AND VIDEO GAME SUPERSTORE...............26
ORDER FULFILLMENT AND CUSTOMER SERVICE...........................................................................27
TECHNOLOGY.......................................................................................................28
INTELLECTUAL PROPERTY............................................................................................29
EMPLOYEES........................................................................................................30
DESCRIPTION OF PROPERTY..........................................................................................30
LEGAL PROCEEDINGS................................................................................................30
SELECTED FINANCIAL DATA..........................................................................................31
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION........................................................31
BUSINESS RISKS AND MANAGEMENT....................................................................................33
OUTLOOK..........................................................................................................33
MANAGEMENT.......................................................................................................34
Cool Entertainment, Inc. Information Statement - Page 3
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PRO FORMA INFORMATION............................................................................................36
COMPARATIVE PER SHARE DATA.......................................................................................36
THE REORGANIZATION...............................................................................................36
VOTE REQUIRED; BOARD RECOMMENDATION..............................................................................37
DISSENTERS' RIGHTS...............................................................................................38
FEDERAL INCOME TAX CONSEQUENCES..................................................................................38
ACCOUNTING TREATMENT OF THE MERGER...............................................................................39
PRINCIPAL REASONS FOR THE REORGANIZATION.........................................................................39
ANTI-TAKEOVER IMPLICATIONS.......................................................................................40
SIGNIFANT DIFFERENCES BETWEEN THE COLORADO ARTICLES AND THE COLORADO BYLAWS AND THE DELAWARE CERTIFICATE
AND THE DELAWARE BYLAWS.........................................................................................41
SIGNIFICANT DIFFERENCES BETWEEN THE CBCA AND THE DGCL............................................................41
THE STOCK SPLIT..................................................................................................50
REASONS FOR THE PROPOSED REVERSE STOCK SPLIT.....................................................................50
EFFECTS OF APPROVAL OF THE REVERSE STOCK SPLIT...................................................................50
PROCEDURE FOR IMPLEMENTING THE REVERSE SPLIT.....................................................................51
ADOPTION OF STOCK OPTION PLAN....................................................................................51
ADMINISTRATION OF THE PLAN.......................................................................................52
STOCK OPTIONS....................................................................................................53
FEDERAL INCOME TAX CONSEQUENCES OF STOCK OPTIONS.................................................................54
VESTING OF OPTIONS...............................................................................................55
RESTRICTED STOCK AWARDS..........................................................................................55
FEDERAL INCOME TAX CONSEQUENCES OF AWARDS........................................................................56
VESTING OF AWARDS................................................................................................56
PROPOSALS OF SHAREHOLDERS FOR 2001 ANNUAL MEETING................................................................56
OTHER MATTERS....................................................................................................56
INCORPORATION BY REFERENCE.......................................................................................56
Appendix A: Exchange Agreement
Appendix B: Colorado Dissenters' Rights Statute
Appendix C: Cool Form 10-KSB for the fiscal year ended June 30, 2000
Appendix D: Cool Form 10-QSB for the quarter ended September 30, 2000
Appendix E: E-Trend audited financial statements for the year ended September 30, 2000
Appendix F: Cool Unaudited Pro Forma Consolidated Financial Information
Appendix G: Plan of Reincorporation and Merger
Appendix H: Certificate of Incorportion of Cool Delaware
Appendix I: Bylaws of Cool Delaware
Appendix J: 2001 Stock Plan
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Cool Entertainment, Inc. Information Statement - Page 4
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SUMMARY TERM SHEET
Throughout this information statement the term "Acquisition" means the
Acquisition between E-Trend Networks, Inc., a Nevada corporation ("E-Trend"),
and Cool Entertainment, Inc., a Colorado corporation ("Cool"), with E-Trend
being the acquired entity. The term "Exchange Agreement" means the Share
Exchange Agreement dated as of December 22, 2000, by and among E-Trend, Cool,
and Cool Delaware. A copy of the Exchange Agreement is attached as Appendix A to
this information statement. "Cool Delaware" refers to the wholly-owned
subsidiary to be incorporated in Delaware under the name "E-Trend Networks,
Inc." for the purpose of effecting the Reorganization.
This summary highlights selected information included in this information
statement. This summary may not contain all of the information that is important
to you. For a more complete understanding of the Acquisition and the other
information contained in this information statement, you should read this entire
information statement carefully, as well as the additional documents to which it
refers.
IN ADDITION TO CERTAIN OTHER MATTERS WHICH WILL BE VOTED ON, THE ACQUISITION IS
OF GREAT IMPORTANCE TO THE STOCKHOLDERS OF COOL BECAUSE, IF THE ACQUISITION AND
EXCHANGE OF SHARES IS CONSUMMATED, THE STOCKHOLDER'S EQUITY INVESTMENT IN COOL
WILL BE DILUTED FOR AN EQUITY INVESTMENT IN E-TREND. ACCORDINGLY, STOCKHOLDERS
ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION SUMMARIZED BELOW AND
PRESENTED ELSEWHERE IN THIS INFORMATION STATEMENT.
> TRANSACTION PARTIES
Cool is a publicly-traded company which offers a variety of
entertainment products on the Internet through its website,
WWW.COOLENTERTAINMENT.COM. The principal executive offices of Cool are
located at 10900 N.E. 8th Street, Suite 900, Bellevue, Washington
98004, where its telephone number is (888) 717-1049. See "Background
Information on Cool."
E-Trend is a privately-held company, which offers a variety of
entertainment products through its Internet websites, including music,
movies on DVD and VHS, video games, PC gaming software, and other
entertainment related products. E-Trend operates a number of websites,
including: www.moviesource.com, www.vhqmusic.com, www.vhqmovies.com,
www.vhqgames.com, and www.entertainme.com. The principal offices of
E-Trend are located at 5919 - 3rd Street, S.E., Calgary, Alberta,
Canada T2H 1K3, where its telephone number is (403) 252-7766. See
"Background Information on E-Trend."
Cool Entertainment, Inc. Information Statement - Page 5
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> THE TRANSACTION
Cool is to effect a Reorganization, whereby it will change its domicile
to Delaware, change its name to "E-Trend Networks, Inc., and effect a
1-for-100 reverse stock split of its outstanding shares of common
stock. The surviving entity, Cool Delaware, will then acquire E-Trend
through a stock exchange whereby the shareholders of E-Trend will
receive shares of Cool Delaware and E-Trend will become a wholly-owned
subsidiary of Cool Delaware. E-Trend shareholders, as a group, will end
up with 4,441,867 post-reverse split shares of Cool Delaware common
stock. Cool shareholders, after issuance of shares to E-Trend
shareholders, will hold approximately 8% of the Cool Delaware common
stock. In addition, outstanding stock options and warrants of E-Trend
will be assumed by Cool Delaware so that holders will be able to
purchase shares of Cool Delaware common stock on equivalent terms. See
"The Acquisition of E-Trend Networks, Inc."
> DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special meeting of Cool shareholders will be held on Friday,
January 26, 2001, at 10:30 a.m., local time, at The North Hill Inn,
7150 - 50th Avenue, Red Deer, Alberta, Canada (the "Special Meeting").
See "The Special Meeting - Time, Place and Date."
> STOCKHOLDERS ENTITLED TO VOTE
Only Cool stockholders of record as of the close of business on
November 17, 2000 (the "Record Date") are entitled to notice of and to
vote at the Special Meeting. See "The Special Meeting - Record Date and
Voting at the Special Meeting."
> VOTE REQUIRED
Under Colorado law, approval of the Reorganization and Acquisition
require the affirmative vote of the holders of a majority of the Cool
common stock outstanding and entitled to vote. Adoption of the Stock
Plan requires that the votes cast favoring adoption exceed those
opposing adoption. Cool anticipates that all current Cool directors and
officers will vote their shares of Cool common stock to approve the
Reorganization, Acquisition, and adoption of the Stock Plan. As of
November 17, 2000, the directors and officers of Cool beneficially
owned approximately 57.6% of the outstanding shares of Cool common
stock. See "Introduction" and "The Special Meeting - Votes Required."
> PURPOSE AND REASON FOR THE SPECIAL MEETING
This Information Statement is being furnished to the holders of
outstanding shares of Cool common stock in connection with the special
meeting to be held to authorize the Reorganization and Acquisition and
included transactions. You are asked to read
Cool Entertainment, Inc. Information Statement - Page 6
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carefully the information herein. WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
The shareholders of Cool are being asked to take the following actions:
(1) to consider and vote upon an Agreement and Plan of Reincorporation and
Merger to change of domicile of the Company to Delaware, change the
name of the Company to E-Trend Networks, Inc., and effect a 1-for-100
reverse stock split of the issued and outstanding shares of the
Company's common stock (the "Reorganization");
(2) to consider and vote upon the Exchange Agreement, providing for the
acquisition of all of the issued and outstanding shares of E-Trend
Networks, Inc. by the Company (the "Acquisition");
(3) to consider and vote upon the adoption of a Stock Plan; and
(4) to transact such other business as properly may come before the
meeting.
> RECOMMENDATION OF COOL BOARD OF DIRECTORS; REASONS FOR THE ACQUISITION;
FAIRNESS
The board of directors of Cool has duly approved and executed the
Exchange Agreement and recommends a vote in favor of it and the
Reorganization in the belief that the Acquisition is in the best
interest of Cool stockholders. Before giving this approval, the Cool
board reviewed a number of factors, including the terms of the Exchange
Agreement and information regarding the financial condition,
operations, and prospects of E-Trend. See "The Acquisition of E-Trend
Networks, Inc. - Recommendation of Board of Directors" and " - Reasons
for the Recommendation of the Cool Board."
> INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
The interests of certain members of the management of Cool could be
different than those of other Cool shareholders. Mr. Len Voth will
serve on the new board of directors under the terms of the Exchange
Agreement. Other officers and directors of Cool could be offered
employment with E-Trend after the closing. See "Interests of Certain
Persons in the Acquisition."
> CLOSING AND CONDITIONS OF THE ACQUISITION
The Acquisition shall become effective at such time as the Cool
shareholders and E-Trend shareholders approve the Acquisition and the
included transactions and the conditions precedent for closing the
Exchange Agreement have been either satisfied or waived. See Appendix A
and "The Acquisition of E-Trend Networks, Inc. - Exchange Agreement."
Cool Entertainment, Inc. Information Statement - Page 7
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> TERMINATION OF THE EXCHANGE AGREEMENT
The Exchange Agreement may be terminated by either Cool or E-Trend
prior to the Acquisition closing under certain circumstances. See "The
Acquisition of E-Trend Networks, Inc. - Exchange Agreement -
Termination" and Appendix A.
> EFFECTS OF THE ACQUISITION
Upon the closing, the Company will become domiciled in Delaware, the
corporate name of Cool will be changed to E-Trend Networks, Inc., the
Company will have effected a 1-for-100 reverse split on the issued and
outstanding shares of Cool common stock, and E-Trend will become a
wholly-owned subsidiary of Cool. All members of the current Cool board
of directors, other than Mr. Len Voth, will resign effective at the
Acquisition closing, and E-Trend will reconstitute the board of
directors as specified in the Exchange Agreement and in this
Information Statement. The corporate offices of Cool will be moved to
the offices of E-Trend, which are located in Calgary, Alberta. See "The
Acquisition of E-Trend Networks, Inc. - Certain Consequences of the
Acquisition" and "Management of Cool Following Acquisition Closing."
> THE ACQUISITION CONSIDERATION
Pursuant to the Exchange Agreement, E-Trend shareholders will receive
on a pro rata basis, determined by their percent ownership of the
outstanding common stock of E-Trend, 4,441,867 shares of Cool Delaware
common stock constituting approximately 92% of the post-Acquisition
outstanding shares of Cool Delaware common stock. The stock exchange
encompassed by the Exchange Agreement contemplates the issuance of
shares of Cool Delaware common stock in excess of the current number of
outstanding shares of common stock and will dilute current shareholders
of Cool common stock to approximately 8% ownership post-Acquisition. In
addition, outstanding stock options and warrants of E-Trend will be
assumed by Cool Delaware so that holders will be able to purchase
shares of Cool Delaware common stock on equivalent terms. See "The
Acquisition of E-Trend Networks, Inc. - Acquisition Consideration" and
Appendix A.
> FEDERAL INCOME TAX CONSEQUENCES
The Acquisition and the included transactions contemplated in
connection therewith have been structured with the intent that they be
tax-free to Cool, E-Trend, and the holders of E-Trend stock for US
federal income tax purposes. Assuming that the Acquisition constitutes
a tax-free reorganization for US federal income tax purposes, no gain
or loss will be recognized by Cool, current stockholders of Cool or
E-Trend in connection with the Acquisition and the included
transactions contemplated in connection therewith. This treatment may
not apply to particular categories of holders of E-Trend stock or
holders outside the United States. In addition, there may be relevant
foreign, state, local, or other tax consequences, none of which are
described above. E-Trend stockholders are urged to
Cool Entertainment, Inc. Information Statement - Page 8
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consult their tax advisors to determine the specific tax consequences
of the Acquisition, including the applicability and effect of foreign,
state, local, and other tax laws.
> ACCOUNTING TREATMENT
The Acquisition will be accounted for as a purchase of net monetary
assets of Cool by E-Trend. See "The Acquisition of E-Trend Networks,
Inc. - Accounting Treatment."
> DISSENTERS' RIGHTS
Any stockholder of Cool who does not vote in favor of the approval of
the Reorganization and who properly exercises his or her dissenters'
rights will be entitled to receive fair value of his or her Cool common
stock. In order to receive the fair value for their shares, dissenting
Cool shareholders must:
o Not vote in favor of the Reorganization;
o Deliver to Cool prior to a vote on the Reorganization a written
notice of their intent to demand fair value for their shares;
and
o Strictly follow the other requirements of Article 113 of the
Colorado Business Corporation Act, a copy of which is attached
hereto as Appendix B.
Any Cool shareholder who wishes to submit a notice of intent to demand
payment of the fair value of his or her Cool shares must deliver the
written notice to Cool Entertainment, Inc., 10900 N.E. 8th Street,
Suite 900, Bellevue, Washington 98004, Attention: Corporate Secretary,
prior to the vote on the Reorganization at the special. See "The
Reorganization - Dissenters' Rights."
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS
This information statement and the documents to which we refer you to in this
information statement contain forward-looking statements. In addition, from time
to time, we or our representatives may make forward-looking statements orally or
in writing. We base these forward-looking statements on our expectations and
projections about future events, which we derive from the information currently
available to us. Such forward-looking statements relate to future events or our
future performance, including:
o Our financial performance and projections; and
o Our business prospects and opportunities.
You can identify forward-looking statements by those that are not historical in
nature, particularly those that use terminology such as "may," "will," "should,"
"expects," "anticipates," "contemplates," "estimates," "believes," "plans,"
"projected," "predicts," "potential," or "continue" or the negative or these or
similar terms.
Cool Entertainment, Inc. Information Statement - Page 9
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Forward-looking statements are only predictions. The forward-looking events
discussed in this information statement, the documents to which we refer you and
other statements made from time to time by us or our representatives, may not
occur, and actual events and results may differ materially and are subject to
risks, uncertainties and assumptions about us. We are not obligated to update
publicly or revise any forward-looking statement, whether as a result of
uncertainties and assumptions, the forward-looking events discussed in this
information statement, the documents to which we refer you, and other statements
made from time to time by us or our representatives, might not occur.
THE SPECIAL MEETING
TIME, PLACE AND DATE
We are furnishing this information statement to Cool stockholders in connection
with a special meeting of stockholders of Cool to be held on January 26, 2001,
at 10:30 a.m., local time, at The North Hill Inn, 7150 - 50th Avenue, Red Deer,
Alberta, Canada, or any adjournment or postponement thereof, pursuant to the
enclosed Notice of Special Meeting of Stockholders.
PURPOSE OF THE MEETING
At the special meeting, holders of Cool common stock of record as of the close
of business on November 17, 2000 will be eligible:
(1) to consider and vote upon an Agreement and Plan of Reincorporation and
Merger to change of domicile of the Company to Delaware, change the
name of the Company to E-Trend Networks, Inc., and effect a 1-for-100
reverse stock split of the issued and outstanding shares of the
Company's common stock (the "Reorganization");
(2) to consider and vote upon the Exchange Agreement, providing for the
acquisition of all of the issued and outstanding shares of E-Trend
Networks, Inc. by the Company (the "Acquisition");
(3) to consider and vote upon the adoption of a Stock Plan (the "Stock
Plan"); and
(4) to transact such other business as properly may come before the
meeting.
RECORD DATE AND VOTING AT THE SPECIAL MEETING
The board of directors has fixed the close of business on November 17, 2000, as
the record date for the determination of the stockholders entitled to notice of,
and to vote at, the special meeting and any adjournments and postponements of
the special meeting. On that day, there were 37,752,401 shares of Cool common
stock outstanding, which shares were held by 200 stockholders of record. Holders
of Cool common stock are entitled to one vote per share.
Cool Entertainment, Inc. Information Statement - Page 10
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One-third of the issued and outstanding shares of Cool common stock on the
record date, represented in person or by proxy, will constitute a quorum for the
transaction of business at the special meeting. If a quorum is not present, the
special meeting may be adjourned from time to time, until a quorum is present.
Abstentions and broker non-votes are counted as present for purposes of
determining the presence of a quorum at the special meeting for the transaction
of business.
VOTES REQUIRED
Under Colorado law, approval of the Reorganization and Acquisition require the
affirmative vote of the holders of a majority of the Cool common stock
outstanding and entitled to vote. Adoption of the Stock Plan requires that the
votes cast favoring adoption exceed those opposing adoption. Cool anticipates
that all current Cool directors and officers will vote their shares of Cool
common stock to approve the Reorganization, Acquisition, and adoption of the
Stock Plan. As of November 17, 2000, the directors and officers of Cool
beneficially owned approximately 57.6% of the outstanding shares of Cool common
stock.
A failure to vote, abstention from voting, or a broker non-vote will have the
same legal effect as a vote cast against approval of any proposal.
Brokers, and in many cases nominees, will not have discretionary power to vote
on the proposals to be presented at the special meeting. Accordingly, beneficial
owners of shares must instruct their brokers or nominees how to vote their
shares at the special meeting.
PRINCIPAL SECURITY HOLDERS
The following table sets forth information, as November 17, 2000, with respect
to the beneficial ownership of Cool's common stock by each person known by Cool
to be the beneficial owner of more than five percent of the outstanding Common
stock and by directors and officers of Cool, both individually and as a group:
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SHARES OWNED BENE-
BENEFICIAL OWNERS FICIALLY AND OF RECORD PERCENT OF CLASS (1)<F1>
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Marc G. Belcourt 11,156,022 (2)<F2>(3)<F3> 29.3%
9139 Carver Crescent
North Delta, British Columbia
V4C 6N1 Canada
--------------------------------------------------------------------------------------------------------------------------
Leonard Wayne Voth 11,156,022 (2)<F2>(3)<F3> 29.3%
4422 Stone Crescent
West Vancouver, British Columbia
V7V 1B7 Canada
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
Cool Entertainment, Inc. Information Statement - Page 11
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
SHARES OWNED BENE-
BENEFICIAL OWNERS FICIALLY AND OF RECORD PERCENT OF CLASS (1)<F1>
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
William J. Hadcock 10,796,022 (2)<F2>(3)<F3> 28.4%
Apt 1301 - 238 Alvin Narod Mews
Vancouver, British Columbia
V6B 5Z3 Canada
--------------------------------------------------------------------------------------------------------------------------
Clement K.M.Lau 5,720,011 (2)<F2> 15.0%
5484 Rugby Avenue
Burnaby, British Columbia
V5E 2N1 Canada
--------------------------------------------------------------------------------------------------------------------------
Officers and directors as a group 22,268,044 (4)<F4> 57.6%
(3 persons)
--------------------------------------------------------------------------------------------------------------------------
<FN>
<F1>
(1) This table is based on 37,752,401 shares of common stock outstanding on
November 17, 2000. If a person listed on this table has the right to
obtain additional shares of common stock within sixty (60) days from
November 17, 2000, the additional shares are deemed to be outstanding
for the purpose of computing the percentage of class owned by such
person, but are not deemed to be outstanding for the purpose of
computing the percentage of any other person.
<F2>
(2) Includes shares issuable upon exercise of an option to purchase up to
300,000 shares.
<F3>
(3) Includes the 5,420,011 shares held of record by Clement Lau, to which
Messrs. Belcourt, Voth, and Hadcock share the right to vote.
<F4>
(4) Includes shares issuable upon exercise of an option to purchase up to
900,000 shares.
</FN>
</TABLE>
Messrs. Lau, Belcourt, Voth, and Hadcock may be deemed to be "parents"
of the Company within the meaning of the rules and regulations of the Securities
and Exchange Commission.
CHANGES IN CONTROL
No arrangements are known to Cool, including any pledge by any person of
securities of Cool, the operation of which may, at a subsequent date, result in
a change in control of Cool.
THE ACQUISITION OF E-TREND NETWORKS, INC.
BACKGROUND OF THE OFFER AND THE ACQUISITION
Management of E-Trend approached the management of Cool due to the fact that
while the companies were competitors, the management of E-Trend felt that based
on the current market place, a combination of the companies had merit at this
time.
Cool Entertainment, Inc. Information Statement - Page 12
<PAGE>
In November 2000, Cool and E-Trend completed negotiations. A letter of intent
was signed as of November 3, 2000 and the Exchange Agreement was signed
effective December 22, 2000. The Exchange Agreement is binding, subject to the
satisfaction of specified closing conditions.
RECOMMENDATION OF THE COOL BOARD OF DIRECTORS
On December 22, 2000, the board of directors of Cool unanimously approved and
adopted the Exchange Agreement to authorize the transactions contemplated
thereby, and determined that the Exchange Agreement and the transactions
included therein, the Reorganization and the Acquisition, are in the best
interest of Cool and Cool's shareholders. The Cool board recommends that Cool's
shareholders approve and adopt the Reorganization, the Acquisition, and the
Stock Plan.
REASONS FOR THE RECOMMENDATION OF THE COOL BOARD
In approving the Exchange Agreement and the transactions included therein, and
recommending that holders of shares of Cool common stock approve and adopt the
Reorganization, Acquisition, and Stock Plan, the Cool board considered a number
of factors, including, but not limited to, the following:
o The business of E-Trend;
o The management of E-Trend;
o The market position of E-Trend; and
o The financial condition of E-Trend.
The foregoing discussion of the information and factors considered and given
weight by the Cool board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Exchange
Agreement and the transactions included therein, the Cool board did not find it
practicable to, and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination. In addition,
individual members of the Cool board may have given different weights to
different factors.
ACCOUNTING TREATMENT
The Acquisition will be accounted for as a purchase of net monetary assets of
Cool by E-Trend in accordance with generally accepted accounting principles. The
Acquisition is a reverse purchase of the assets and liabilities of Cool by
E-Trend. The accounting treatment applied in the reverse acquisition differs
from the legal form of the transaction and the continuing legal entity is Cool.
EXCHANGE AGREEMENT
The following is a summary of the material provisions of the Exchange Agreement
by and between E-Trend and Cool. This summary does not purport to be complete
and is qualified in its entirety by reference to the definitive Exchange
Agreement, which is attached as Appendix A.
Cool Entertainment, Inc. Information Statement - Page 13
<PAGE>
EXCHANGE AND PURCHASE OF SHARES
On the terms and subject to the conditions set forth in the Agreement, at the
closing Cool Delaware shall assign, transfer, and deliver to E-Trend
shareholders, in their pro rata percentages based upon their percentage
ownership of E-Trend common stock pre-closing, 4,441,867 shares of Cool Delaware
common stock. Shares held by the pre-closing holders of Cool shall, following
the issuance of Cool Delaware common stock to E-Trend shareholders in connection
with the closing of the Acquisition, constitute approximately 8% of the then
issued and outstanding shares of Cool Delaware common stock post-closing. In
addition, outstanding stock options and warrants of E-Trend will be assumed by
Cool Delaware so that holders will be able to purchase shares of Cool Delaware
common stock on equivalent terms.
CLOSING
The "Closing" shall mean the consummation of the exchange of shares of Cool
Delaware common stock and shares of E-Trend common stock, as well as the
consummation of any other transactions which are included in the Exchange
Agreement and required to occur at or before Closing. Closing is anticipated to
occur no later than February 2, 2001.
REPRESENTATIONS AND WARRANTIES
The Agreement contains various customary representations and warranties of the
parties thereto, without limitation, representations (i) by Cool and E-Trend as
to their respective corporate status, capitalization, accuracy of financial
statements, the authorization and the enforceability of the Agreement against
each such party, absence of legal proceedings, the absence of certain changes or
events concerning their respective businesses since September 30, 2000, certain
tax matters, certain employee benefit and pension plan matters, quality of
assets, certain labor matters, insurance matters and the absence of material
adverse changes with respect to their material contracts, and (ii) by Cool as to
its compliance concerning SEC filings. The representations and warranties
contained in the Exchange Agreement will survive the Closing.
COVENANTS
The Exchange Agreement contains various customary covenants of the parties
thereto. A description of certain of these covenants follows:
o Preservation of Representations and Warranties. Until Closing, Cool
and E-Trend covenant to do or cause to be done all such acts and
things as may be required to ensure the continued material accuracy of
the representations and warranties made by each.
o Examination. Until Closing, each of Cool and E-Trend agrees to permit
the other to examine and inspect its respective books, records,
accounts, and files and to furnish to the other such information as
may be reasonably requested from time to time.
CONDITIONS PRECEDENT TO OBLIGATIONS OF COOL AND E-TREND TO CONSUMMATE THE
EXCHANGE AGREEMENT
The obligation of Cool and E-Trend to consummate the transactions as
contemplated by the Exchange Agreement are subject to the fulfillment and
satisfaction at Closing of, among other
Cool Entertainment, Inc. Information Statement - Page 14
<PAGE>
things, each of the following conditions precedent, any or all of which may be
waived in whole or in part at or prior to the Closing by the other party.
o Representations and Warranties. The representations and warranties of
each of the parties made in the Exchange Agreement shall be true and
correct in all material respects at the Closing.
o Covenants and Agreement. Each of Cool and E-Trend shall have performed
and complied with all obligations on its respective part to be
performed at or before the Closing.
o Approvals. The shareholders of Cool and E-Trend shall have approved
the Exchange Agreement.
o No Injunction or Prohibition. At the Closing time, no action or
proceeding at law or in equity shall be pending or threatened by any
person to enjoin or prohibit the acquisition by Cool of E-Trend shares
or the right of Cool to conduct its operations or to carry on its
business as it has been conducted or carried on in the past.
o Surrender of Stock Options. Len Voth, Marc Belcourt, and William
Hadcock shall have surrendered their options to purchase common stock
of Cool for cancellation.
o Certified Statement of Liabilities. E-Trend shall have received a
certified statement from Cool's auditors that Cool's liabilities,
excluding amounts owed to Fictional Media Ltd. and certain legal and
accounting expenses, do not exceed $75,000 and that there are no
material outstanding contingent and/or tax liabilities of Cool.
o Agreement to Resale Restrictions. Each of Len Voth, Marc Belcourt, and
William Hadcock shall have agreed not to sell his shares of Cool
common stock pursuant to Rule 144 for a period of one year from the
date of Closing.
o Fictional Media Ltd. shall have accepted a promissory note from Cool,
convertible into 25,000 restricted shares of Cool Delaware common
stock in full and complete payment of all amounts owed to Fictional
Media Ltd. by Cool.
o E-Trend shareholders holding no more than 10% of the issued and
outstanding E-Trend common stock shall have perfected appraisal rights
for their shares in accordance with Nevada law.
TERMINATION
The Agreement may be terminated and the exchange of stock contemplated hereby
may be abandoned at any time prior to the Closing, whether before or after
approval by the Cool shareholders: (i) by the mutual written consent of Cool and
E-Trend; or (ii) by E-Trend or Cool if (A) there has been a failure to comply
with a covenant or agreement under the Agreement by the other; (B) a
governmental or regulatory body has permanently enjoined or prohibited
consummation of the Acquisition; or (C) the Closing has not occurred by February
2, 2001.
REGULATORY APPROVALS
Except for the exemption from registration under applicable securities laws in
connection with the issuance of Cool common stock to the E-Trend shareholders,
Cool is not aware of any federal or state regulatory requirements to be complied
with in connection with the Acquisition.
Cool Entertainment, Inc. Information Statement - Page 15
<PAGE>
ACQUISITION CONSIDERATION
Pursuant to the Exchange Agreement, E-Trend shareholders will receive on a pro
rata basis, determined by their percent ownership of the outstanding common
stock of E-Trend, 4,441,867 shares of Cool Delaware common stock. The stock
exchange encompassed by the Exchange Agreement contemplates the issuance of
shares of Cool Delaware common stock in excess of the current number of
outstanding shares of common stock and will dilute current shareholders of Cool
common stock to approximately 8% ownership post-Acquisition. In addition,
outstanding stock options and warrants of E-Trend will be assumed by Cool
Delaware so that holders will be able to purchase shares of Cool Delaware common
stock on equivalent terms.
The authorized share capital of Cool consists of 100,000,000 shares of common
stock at no par value and 1,000,000 shares of preferred stock at no par value.
Immediately prior to Closing, Cool will have a total of 38,340,636 shares of
common stock issued and outstanding and no shares of preferred stock issued or
outstanding.
After effecting the Reorganization, the authorized share capital of Cool
Delaware will consist of 80,000,000 shares of common stock, $.0001 par value,
and 20,000,000 shares of preferred stock, $.0001 par value. A total of 383,406
shares of common stock will be issued and outstanding.
CERTAIN CONSEQUENCES OF THE ACQUISITION
Effective upon the Closing, Cool will take the steps necessary to file Articles
of Merger to effect the Reorganization. All of the current officers and
directors of Cool will resign their positions except for Len Voth who will
remain as a director, and members of E-Trend management will be appointed
officers and directors of Cool. The offices of E-Trend in Calgary, Alberta,
Canada will become the new corporate headquarters for Cool post-Closing.
MANAGEMENT OF COOL FOLLOWING ACQUISITION CLOSING
Following the Acquisition Closing, certain changes will be made in the
management of Cool. These changes include the following:
CHANGE IN CORPORATE OFFICES
The corporate offices of Cool will be transferred from 10900 N.E. 8th Street,
Suite 900, Bellevue, Washington 98004, to 5919 - 3rd Street, S.E., Calgary,
Alberta, Canada T2H 1K3.
CHANGE IN SENIOR MANAGEMENT
Upon Closing, all of the current Cool officers will resign and the following
persons shall be appointed:
Gregg C. Johnson - President and CEO
Caroline G. Armstrong - Executive Vice President
Cool Entertainment, Inc. Information Statement - Page 16
<PAGE>
Howard Bolinger - Chief Financial Officer
Michael McKelvie - Senior Vice President, Marketing
& Communications
Timothy J. Sebastian - Secretary and General Counsel
For information on these individuals, see "Background Information on E-Trend -
Management."
CHANGE IN BOARD OF DIRECTORS
Upon Closing, all members of the current board of directors except Mr. Len Voth
will resign. The other members of the new board of directors will consist of
Gregg Johnson, Trevor Hillman, Paul Miller, Donald Spear, Roy Grant, Martin
McDonough, and William Christie. For information on Len Voth, see Appendix C:
Cool's Form 10-KSB.
GREGG C. JOHNSON: Mr. Johnson has served as a director and President and Chief
Executive Officer of E-Trend since April 29, 1999. A graduate of Osgoode Hall
Law School of York University in Toronto, Canada, Mr. Johnson brings
international experience to E-Trend. In his law career, Mr. Johnson specialized
in the areas of international corporate finance, banking, and commercial and
securities law. Mr. Johnson was called to the Alberta bar in 1989, entering
private practice in Calgary, Alberta. He then moved to Japan and joined the
Japanese law firm Aoki, Christensen & Nomoto in 1989, and focused his practice
on corporate finance, concentrating on Japanese equities and the Eurobond
markets.
In 1991, Mr. Johnson joined the law office of Dr. Mujahid Al-Sawwaf in Jeddah,
Saudi Arabia, and focused his practice on international banking, joint venture,
construction, and commercial law matters. In 1993, he joined The Tracker
Corporation of Toronto, Ontario, a public company trading on the NASDAQ market
(TRKR), where he was primarily responsible for legal, financing and public
reporting matters.
Since August 1995, Mr. Johnson has provided investment banking services with
Summit Capital Corporation, and has been instrumental in securing seed capital
for several start-up ventures. He was a past director of a number of public
companies, including Merch Performance Inc. (CDNX: MRCH) and Sat-Tel Corporation
(CDNX: SAJ) and he currently is an officer of and holds directorships with
several public companies, including VHQ Entertainment Inc. (formerly Video
Headquarters Inc.) (CDNX: VHQ), Cervus Corporation (CDNX: CVC), IROC Systems
Corp. (CDNX: IRC), and Chinook Testing Inc. (CDNX: NDT).
TREVOR M. HILLMAN: Mr. Hillman has served as a director and an Executive Vice
President of E-Trend since July 22, 1999. Mr. Hillman was the Operations Manager
of Video View Ltd., a video rental business operating in Red Deer, Alberta,
Canada, from 1983 to 1994. Mr. Hillman then provided consulting services to
entertainment-based retail clients through TMH Holdings Ltd. from 1994 to 1997.
Since mid-1997, he has been the President of Integrated Retail Corp., a home
entertainment retailer, and in late 1997, became President, Chief Executive
Officer and Director of VHQ Entertainment Inc. (formerly Video Headquarters
Inc.) (CDNX: VHQ). Video Headquarters Inc. acquired Integrated Retail Corp. in
1998 and now operates 42 home
Cool Entertainment, Inc. Information Statement - Page 17
<PAGE>
entertainment retail stores in western Canada under the name VHQ Entertainment.
Mr. Hillman is also a director of a number of other public ompanies, including
IROC Systems Corp. (CDNX: IRC) and Chinook Testing Inc. (CDNX: NDT).
PAUL MILLER: Mr. Miller has served as a director of E-Trend since May 10, 2000.
After earning a Masters in Business Administration, Mr. Miller was hired by
Hills Bros. Coffee in 1964. Eleven years later, he became President and Chief
Executive Officer of that company, and eight years following that, together with
business partners, he purchased the company. In early 1985, Hills Bros. was
acquired by Nestle, and Mr. Miller became Chief Executive Officer of Nestle
Beverage Company. There, he was responsible for several national brands
including Nestea, MJB Coffee and Libby's Juicy Juice until his retirement from
Nestle in 1996. Today, Mr. Miller is an independent businessman.
DONALD SPEAR: Mr. Spear has served as a director of E-Trend since February 15,
2000. From November 1987 until April 1995 Mr. Spear served in various executive
management positions with PETsMART, Inc. including Vice President of Store
Operations and Senior Vice President of Strategic Planning and Business
Development. PETsMART is a leading retail supplier of products and services for
pets and their families. The company operates more than 580 pet superstores in
the United States and Canada, has a major pet supply catalog business, and is a
partner in a leading online provider of pet products and information
(WWW.PETSMART.COM). Since April 1995, Mr. Spear has served as the President &
Chief Operating Officer and a Director on the Board of Medical Management
International, Inc. (d.b.a. VetSmart Pet Hospitals and Health Centers). VetSmart
is the largest operator of full service veterinary hospitals with over 240
locations North America-wide.
ROY T. GRANT: Mr. Grant has served as a director of E-Trend since February 15,
2000. A finance professional, Mr. Grant brings to E-Trend Networks nearly 20
years experience directing and managing the financial affairs of high technology
and telecommunications companies. As Vice President and Chief Financial Officer
of Iridium Satellite Networks, Inc., Mr. Grant raised $5 billion of new
financing including $3 billion during the development stage of the company. He
took the company public through a $240 million IPO in June 1997. From 1992-96,
Mr. Grant served as Finance Director for Edison Mission Energy, the largest
independent power developer in the United States, and prior thereto, worked as
Director of Corporate Finance for Marriott Corporation and as Managing Director
of Banking for American Airlines. He holds a Bachelor of Science degree in
Administration and Management Science, Mathematics and Economics from Carnegie
Mellon University and a Master of Business Administration from the University of
Chicago. Mr. Grant also sits on the boards of Wayport, Inc., DATAFUSION, Inc.
and DBS Industries, Inc.
MARTIN MCDONOUGH: Mr. McDonough has served as a director of E-Trend since
February 15, 2000. Martin McDonough graduated from the United States Naval
Academy, Annapolis, Maryland with a Bachelor of Science degree and completed a
Masters Degree in Nuclear Engineering at the University of Virginia. He was a
career naval officer who commanded a nuclear powered fast attack submarine and
headed the Navy's Nuclear Propulsion Examining Board. Mr. McDonough also served
on the staff of the Admiral that commanded NATO forces
Cool Entertainment, Inc. Information Statement - Page 18
<PAGE>
in the Mediterranean Sea. After completing his Navy career Mr. McDonough worked
as a Reactor Engineer at a two-reactor site. He is currently working as a
maintenance manager at a number of sites for Nova Corporation, a large commodity
chemicals company in Alberta, Canada. An avid investor for the past twenty-five
years, Mr. McDonough has achieved financial success through value investing. His
lifelong leadership experience and reputation for building aggressive, winning,
organizations make him a valuable addition to E-Trend Networks Inc.
WILLIAM CHRISTIE: Mr. Christie has served as a director of E-Trend since June 8,
2000. Mr. Christie is currently a board member and chief operating officer of
icontact.com, which recently merged with Hey, Inc. Mr. Christie had been the
acting chief executive officer of Hey, Inc. Mr. Christie has spent most of
his career with the major retail companies Federated Department Stores, May
Company Department Stores and The Caldor Corporation. Mr. Christie's operational
experience in Information Technology includes all aspects of logistics,
distribution and warehousing systems, retail operations and sales, financial
controls, information systems and strategic planning systems. He has directed
Information Technology and Systems organizations supporting retail
merchandising, store operations and systems, logistics and distribution,
internet/intranet systems, and financial systems. Mr. Christie has also led the
general management responsibilities for merchandise planning and control, quick
response programs, competitive shopping/analysis and merchandising operations.
Mr. Christie operated his own consulting company in specializing in data
warehousing and internet/intranet applications before his appointment at
Hey, Inc.
BACKGROUND INFORMATION ON COOL
Information with respect to Cool, including audited financial statements for the
two-year period ended June 30, 2000, and its management can be obtained from the
Cool Annual Report on Form 10-KSB for the year ended June 30, 2000, attached as
Appendix C. Cool's unaudited quarterly financial statements are contained in its
Quarterly Report on Form 10-QSB, attached as Appendix D. These reports are
incorporated herein by reference.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
The interests of certain members of the management of Cool could be different
than those of other Cool shareholders. Mr. Len Voth will serve on the new board
of directors under the terms of the Exchange Agreement. Other officers and
directors of Cool could be offered employment with E-Trend after the closing.
As of November 30, 2000, Fictional Media Ltd., a private company owned and
controlled by Len Voth, Marc Belcourt, William Hadcock, and Clement Lau, the
officers and directors of Cool (with the exception of Mr. Lau) and the
controlling shareholders of Cool, sold its assets to E-Trend for CDN $102,500,
$35,000 of which was paid in cash and the remainder of which was paid with a
promissory note. The promissory note is to be assumed by Cool after the Closing
and converted into 15,000 shares of Cool Common Stock.
Cool Entertainment, Inc. Information Statement - Page 19
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of November 17, 2000
unless otherwise stated in the footnotes regarding shares of Cool common stock
that will be beneficially owned upon the Closing of the Acquisition under the
terms of the Exchange Agreement by (i) each person known by Cool to be the
beneficial owner of more than 5% of the outstanding Cool common stock on the
Record Date, (ii) each of the pre-Closing Cool officers and directors, (iii) all
pre-Closing Cool officers and directors as a group, (iv) each person known by
Cool to be the beneficial owner of more than 5% of outstanding pre-Closing
shares of E-Trend, (v) each of the proposed post-Closing Cool officers and
directors and beneficial holders of more than 5% of outstanding post-Closing
Cool common stock, and (vi) all post-Closing Cool officers and directors as a
group. Except as otherwise indicated, Cool believes, based on information
furnished by such owners, that the beneficial owners of the Cool common stock
listed below will have sole investment and voting power with respect to such
shares, subject to community property laws where applicable. The number of
shares shown in the table reflect the proposed 1-for-100 reverse stock split.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
AMOUNT OF OF AMOUNT OF OF
COMMON STOCK OUTSTANDING COMMON STOCK OUTSTANDING
BENEFICIALLY COMMON BENEFICIALLY COMMON
OWNED PRE- STOCK PRE- OWNED POST- STOCK POST-
NAME AND ADDRESS CLOSING CLOSING<F1> CLOSING CLOSING<F2>
<S> <C> <C> <C> <C>
Marc G. Belcourt
9139 Carver Crescent 111,560 (3)<F3>(4)<F4> 29.3% 54,360 (3)<F3>(4)<F4> 1.13%
North Delta, British Columbia
V4C 6N1 Canada
Leonard Wayne Voth
4422 Stone Crescent 111,560 (3)<F3>(4)<F4> 29.3% 54,360 (3)<F3>(4)<F4> 1.13%
West Vancouver, British Columbia
V7V 1B7 Canada
William J. Hadcock
Apt 1301 - 238 Alvin Narod Mews 107,960 (3)<F3>(4)<F4> 28.4% 50,760 (3)<F3>(4)<F4> 1.06%
Vancouver, British Columbia
V6B 5Z3 Canada
Clement K.M.Lau
5484 Rugby Avenue 57,200 (3)<F3> 15.0% 57,200 1.19%
Burnaby, British Columbia
V5E 2N1 Canada
Gregg Johnson -0- -- 250,000 5.18%
6201 - 46th Street Red Deer, Alberta
T6N 6Z1 Canada
Caroline Armstrong -0- -- -0- --
#210, 259 Midpark Way SE
Calgary, Alberta
T2X 1M2 Canada
Cool Entertainment, Inc. Information Statement - Page 20
<PAGE>
<CAPTION>
PERCENTAGE PERCENTAGE
AMOUNT OF OF AMOUNT OF OF
COMMON STOCK OUTSTANDING COMMON STOCK OUTSTANDING
BENEFICIALLY COMMON BENEFICIALLY COMMON
OWNED PRE- STOCK PRE- OWNED POST- STOCK POST-
NAME AND ADDRESS CLOSING CLOSING<F1> CLOSING CLOSING<F2>
<S> <C> <C> <C> <C>
Howard Bolinger -0- -- 16,667 0.34%
2506 - 21st Avenue SW
Calgary, Alberta
T3E 7H3 Canada
Timothy J. Sebastian -0- -- -0- --
6201 - 46th Street
Red Deer, Alberta
T6N 6Z1 Canada
Donald Spear -0- -- -0- --
3450 SW Cascade Terrace
West Linn, OR 97068
Roy T. Grant -0- -- -0- --
8701 Bluffstone #6207
Austin, TX 78759
Trevor M. Hillman -0- -- 250,000 5.18%
6201 - 46th Street
Red Deer, Alberta
T6N 6Z1 Canada
Paul Miller -0- -- 33,334 0.69%
P.O. Box 191027
San Francisco, CA 94119
William Christie -0- -- -0- --
55 Walls Drive, Suite 401
Fairfield, CT 06430-1869
Martin McDonough -0- -- 110,000 2.28%
35 - 38311 Rge Rd 270
Red Deer County, Alberta
T4E 1B5 Canada
VHQ Entertainment Inc. -0- -- 2,000,000 41.43%
6201 - 46th Avenue
Red Deer, Alberta
T6N 6Z1 Canada
Web Capital Ventures Inc. -0- -- 500,000 10.36%
1400 West Cypress Creek Road
Fort Lauderdale, FL 33309
All pre-Closing Cool officers and directors
as a group (3 persons)(5) <F5> 222,680(4)<F4> 57.6% 159,480 3.30%
All post-Closing Cool officers and directors
as a group (11 persons)(4)<F4> -0- -- 714,361 14.80%
--------------------
Cool Entertainment, Inc. Information Statement - Page 21
<PAGE>
<FN>
<F1>
(1) Based on 383,406 shares of common stock outstanding pre-Closing. If a
person listed on this table has the right to obtain additional shares of
common stock within sixty (60) days from November 17, 2000, the
additional shares are deemed to be outstanding for the purpose of
computing the percentage of class owned by such person, but are not
deemed to be outstanding for the purpose of computing the percentage of
any other person.
<F2>
(2) Based on 4,825,273 shares of common stock outstanding post-Closing. If a
person listed on this table has the right to obtain additional shares of
Common Stock within sixty (60) days from November 17, 2000, the
additional shares are deemed to be outstanding for the purpose of
computing the percentage of class owned by such person, but are not
deemed to be outstanding for the purpose of computing the percentage of
any other person.
<F3>
(3) Includes shares issuable upon exercise of an option to purchase up to
3,000 shares. Messrs. Belcourt, Voth, and Hadcock are to terminate these
options upon the Closing of the transaction.
<F4>
(4) Includes the 54,200 shares held of record by Clement Lau, to which
Messrs. Belcourt, Voth, and Hadcock share the right to vote. The proxy
given by Mr. Lau terminates upon the Closing of the transaction.
<F5>
(5) Includes shares issuable upon exercise of an option to purchase up to
9,000 shares. Messrs. Belcourt, Voth, and Hadcock are to terminate these
options upon the Closing of the transaction.
</FN>
</TABLE>
BACKGROUND INFORMATION ON E-TREND
Information with respect to E-Trend, including audited financial statements for
the year ended September 30, 2000, are attached as Appendix E, and incorporated
by reference.
GENERAL INFORMATION REGARDING E-TREND NETWORKS, INC.
Founded in April 1999 as a Nevada corporation by its parent company, VHQ
Entertainment Inc. (formerly Video Headquarters Inc.), a Canadian Venture
Exchange ("CDNX")-listed company ("VHQ"), E-Trend Networks, Inc. is a privately
owned company that develops and operates a number of Internet websites which
offers a variety of products including music, movies on DVD and VHS, video
games, PC gaming software, and other entertainment related products.
Essentially, E-Trend operates an online new and previously viewed filmed
entertainment, pre-recorded music and video game entertainment superstore.
Through its web sites, customers have the convenience of shopping 24 hours a
day, seven days a week. E-Trend's goal is to combine the advantages of online
commerce with superior customer focus in order to be the preferred online
retailer for filmed entertainment, music and video games. E-Trend has designed
its online storefronts, to offer a broad selection of products in each category,
informative content, easy-to-use navigation and search capabilities, a high
level of customer service, competitive pricing and personalized merchandising
and recommendations. E-Trend offers a virtual inventory that provides a
selection of products that is five to ten times that of a typical "brick and
mortar" retailer operating out of a traditional physical location.
E-Trend has three product-based web sites that target purchasers of its products
and one information-based web site that is an online entertainment magazine:
Cool Entertainment, Inc. Information Statement - Page 22
<PAGE>
o WWW.MOVIESOURCE.COM,, which currently offers approximately 40,000
filmed entertainment products, including feature films both in VHS
cassette and DVD format, and educational, health and fitness and
instructional videos and special interest videos;
o WWW.VHQMUSIC.COM, which offers a broad range of approximately 128,000
compact disc and cassette music selections, and music video products;
o WWWVHQGAMES.COM, which offers approximately 500 of the current
top-selling video game titles in popular video game and PC formats,
including Sony Play Station, Sony Play Station II, Nintendo 64, and
Sega Dreamcast, and focuses on video game enthusiasts; and
o WWW.ENTERTAINME.COM which is an on-line entertainment magazine that
functions as a portal to E-Trend's e-commerce sites.
E-Trend's business strategy is designed to promote the E-Trend brand name and
develop a leadership position in the on-line industry by (i) focusing on
retailing new and previously viewed filmed entertainment, music and video games,
(ii) providing an innovative and easy-to-use retail concept, (iii) acquiring
customers on an efficient basis, (iv) maximizing customer retention, (v)
enhancing its geographical distribution and order fulfillment capabilities and
(vi) expanding its customer base through multiple marketing channels.
COMPETITION WITHIN THE RETAIL FILMED ENTERTAINMENT, MUSIC AND VIDEO GAME
INDUSTRY
The online commerce market is new and rapidly evolving. E-Trend expects that its
online competition will further intensify. In addition, the broader retail
filmed entertainment, prerecorded music and video game industries are intensely
competitive. E-Trend's competitors include, among others:
o online retailers: Bigstar.com, DVD EXPRESS, CDnow.com, Buy.com,
Amazon.com, and Bid.com;
o publishers and wholesalers: including Columbia House, Good Times
Entertainment, Time Life Video and Sony;
o traditional retailers: including Blockbuster, Hollywood Entertainment,
Tower Records, Music World, Sam Goody, Sam the Record Man, and VHQ
Entertainment;
o mail order clubs;
o specialty retailers;
o electronic consumer stores; and
o mass merchandisers and department stores: including K-mart; Target;
Walmart; Sears; Costco.
Many of E-Trend's competitors have longer operating histories, larger customer
bases, greater brand recognition and significantly greater financial, marketing
and other resources than does E-Trend. To E-Trend's knowledge, DVD EXPRESS,
Bigstar.com, Amazon.com, Bid.com, CDnow.com and Buy.com are market leaders in
the online-filmed entertainment, prerecorded music and video game industries.
Some of E-Trend's competitors, like Bigstar.com, Hollywood Entertainment,
Blockbuster, VHQ Entertainment, Wal-Mart, Costco and Amazon.com, also may
Cool Entertainment, Inc. Information Statement - Page 23
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be able to secure merchandise from vendors on more favorable terms, devote
greater resources to marketing and promotional campaigns, adopt more aggressive
pricing or inventory availability policies and devote substantially more
resources to web site and systems development than E-Trend can. E-Trend believes
that the principal competitive factors in its market are:
o price;
o delivery and customer service;
o personalized services;
o ease of use, content quality and web site convenience;
o brand recognition; and
o selection.
E-Trend believes it can position its business to meet the challenges facing
on-line filmed entertainment, music and video game retailers because of the
following key strengths:
WIDE SELECTION AND LOWER COSTS
E-Trend currently offers approximately 40,000 filmed entertainment products,
over 128,000 music title, and approximately 500 games for sale. As a result of
its distribution strategy, it intends to carry only a limited physical inventory
of top-selling products. In contrast, traditional filmed entertainment retailers
must make significant investments in inventory, real estate and personnel for
each store location. The amount of space available in a physical store also
limits the number of titles and the amount of inventory that a traditional
retailer can carry in any one store. E-Trend believes it will be able to offer a
broader range and variety of products and that its distribution strategy will
allow it to offer lower prices on average by providing lower inventory handling
costs.
E-TREND'S DIRECT MARKETING
E-Trend has integrated and currently uses information software that will help it
increase sales through one-to-one-marketing with its customers. E-Trend licenses
software from Net Perceptions, which is designed to create personalized realtime
recommendations to its guests based upon pages an individual views on E-Trend's
web sites, demographic information, indicated preferences and purchasing habits.
This software technology is designed to analyze the individual wants, needs and
preferences of E-Trend's customers and dynamically personalize its offerings to
each customer based on that knowledge using one-to-one personalization. The
realtime recommendation technology predicts an individual's preferences and
makes specific recommendations accordingly. The technology does this by learning
about each individual's preferences through observing realtime behavior (such as
click-throughs), recalling past behavior (such as purchase histories), and
asking the individual to rate a number of relevant items. The technology then
pools this information with knowledge gained from a community of other online
users who share similar tastes and interests.
Because the collective preferences of this community are an excellent predictor
of how its members will like items they have not tried yet, the technology draws
upon this knowledge to
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make recommendations with high predictive accuracy. And, because it operates in
realtime, the technology learns more and gets smarter with every transaction.
E-Trend believes its marketing program may be adapted to promote other products
and services to online buyers, and that there may be an opportunity to enter
into cross marketing alliances with publishers, retailers and electronic
commerce web sites, but presently it has no specific plans to do so.
INTERACTIVE REALTIME CUSTOMER SERVICE
E-Trend has entered into a license agreement with Hey, Inc., to license
technology that allows it to initiate contact with its customers while they are
navigating through E-Trend's web sites. This technology is designed to allow
E-Trend to track guests as they move about the E-Trend web sites viewing pages
and selections and seeking information related to its products. E-Trend's
customer service representatives have the ability to proactively engage in an
interactive conversation or E-Trend's customer has the ability to click on an
icon to ask for assistance.
E-Trend has trained its customer service representatives to recognize guests
that may be having problems, that require assistance making purchase decisions,
or have a particular interest in certain products. The customer service
representatives can proactively engage these guests in a live, text-based
conversation to assist them in their purchase decisions. E-Trend's customer
service representatives will also be able to recommend certain titles and
products, cross-sell merchandise and suggest other areas in our web sites to
browse. E-Trend believes that this will provide it with a web presence that is
currently not used by other online retailers of filmed entertainment,
pre-recorded music and video games.
SPECIALIZED SOFTWARE
E-Trend believes that integrating content from many sources produces a superior
user experience, which in turn attracts more users to its web sites, lengthens
site visits and results in more purchases. A number of contracts have been
established with content providers which supply entertainment focused news and
gossip. Entertainme.com is the site that showcases such stories, features, and
profiles. From the Entertainme.com site, visitors can link to E-Trend commerce
sites to complete a purchase.
E-Trend licenses software from Hey, Inc., that allows its customer service
representatives to interact in real time with guests to its web sites. This
technology allows E-Trend's customer service representatives to answer
questions, suggest product selections and assist customers in making buying
decisions.
E-Trend also licenses marketing software from Net Perceptions Inc. that allows
it to develop personalized marketing communications targeted at individual
guests.
EXPERIENCED MANAGEMENT TEAM
E-Trend's executive management team has experience in the filmed entertainment
retail industry. It also has management with experience in managing electronic
commerce sites and web
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marketing campaigns. E-Trend believes that its management team will allow it to
compete effectively in the rapidly evolving e-commerce market.
MARKETING AND PROMOTION OF E-TREND'S ON-LINE FILMED ENTERTAINMENT, MUSIC AND
VIDEO GAME SUPERSTORE
E-Trend uses a variety of methods to attract users to its web sites. Tests
involving online advertising, referrals, price comparison services and
affiliates have proven most successful in driving visitors to the E-Trend sites.
While affiliates broaden the reach of the business beyond the entertainment
industry, the other online methods can be specifically targeted, reaching
qualified buyers and thus increasing the chances of a sale. E-Trend plans to
significantly increase its marketing efforts after it has fully tested its
e-commerce and fulfillment systems.
ONLINE AND OFFLINE ADVERTISING CAMPAIGNS
In moving ahead, E-Trend plans to continue its online marketing. These campaigns
are contemplated to use a variety of online marketing techniques, including:
o interactive realtime marketing using Hey, Inc., technologies that
suggest titles and encourage purchases at the point of purchase;
o click-through banners that bring consumers directly to its web sites;
o campaigns that collect the e-mail addresses of visitors who wish to
receive online promotions;
o affiliate promotion campaigns;
o coupons, contests and other sponsorships;
o inclusion of its search technology in relevant content areas of other
web sites; and
o special promotions at various times during the year, such as the
holiday season and the Academy Awards and Grammy Award seasons.
Generally, E-Trend uses online promotional techniques that only charge when a
customer buys from one of the e-commerce sites. This helps to control the
marketing budget and maximize the value of E-Trend's marketing expenditures.
Experience has proven that Internet-specific marketing and advertising is most
effective. However, E-Trend will contemplate the use of print, radio, outdoor
and television advertising as necessary to reach desired target markets.
E-Trend has licensed tracking software that allows it to monitor the success of
various marketing and promotional efforts. E-Trend cannot assure anyone that its
marketing efforts will be effective or that it will successfully develop
marketing campaigns that will allow it to penetrate the market as anticipated.
STRATEGIC MARKETING RELATIONSHIPS
E-Trend has entered into licensing agreements that are designed to enhance its
marketing program and communications capabilities including the following:
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o E-Trend has entered into a licensing agreement with Hey, Inc., under
which E-Trend agreed to pay Hey, Inc. 2.5% of all of its web
site revenues generated from the sale of film entertainment product
and video games, excluding revenues related to taxes, shipping,
handling, wrapping and product giveaways and incentive promotional
items from third parties in consideration of license to use the
Hey, Inc., interactive marketing software, which can be used by
E-Trend's customer service representatives to engage in interactive
keyboard to keyboard dialogue with visitors to the web site. E-Trend
also issued 50,000 shares to Hey, Inc., for an exclusive right to use
the software for the sale of film entertainment product and video
games marketing.
o E-Trend has entered into a licensing agreement with Net Perceptions,
Inc. under which E-Trend agreed to pay Net Perceptions, Inc. a yearly
licensing fee in consideration of license to use the real time
marketing information and tracking software of Net Perceptions, Inc.,
which can be used to design personalized marketing communications.
AFFILIATE PARTNER NETWORKS
E-Trend has designed an affiliate program that allows other web sites to link
directly to its sites through a customized storefront, specific product link, or
banner. When visitors follow a link to E-Trend's online superstore, the
affiliate typically receives a commission equal to seven percent of net sales.
In special cases, high volume or specialized affiliates may receive up to
fifteen percent of any resulting sales. Because there is no payment unless a
sale occurs, the program is designed to be an efficient means of acquiring new
customers.
B-2-B-2-C
E-Trend is currently testing software that will allow the seamless integration
of its proprietary ECS and catalogue system into a third party web site so as to
"entertainment e-commerce enable" such site. Traditionally if a web site wanted
e-commerce revenues they had to build the ECS system, rely on a third party, or
have an affiliate relationship with vendors such as E-Trend that divert their
customers away from the vendor's site in order to complete a sales transaction.
If successful, this software will allow a vendor to e-commerce enable its site
utilizing E-Trend's ECS System and catalogue to complete a transaction all the
while keeping the customer on the vendor's site.
ORDER FULFILLMENT AND CUSTOMER SERVICE
E-Trend's movie inventory is currently owned and held by outside vendors and
shipped directly from these vendors to its customers. E-Trend believes the
breadth of the inventory maintained by these vendors provides it with the
ability to maintain high order fill rates. Currently, E-Trend electronically
transmits orders to its outside vendors at least once daily. Orders are shipped
by these vendors using a Moviesource label and invoice, in most cases within a
day after an order is placed with E-Trend. A customer's credit card is charged
once an order is shipped. In some instances, including special product orders
that are not available from our normal distributors, backorders involving
lengthy delays or when E-Trend conducts contests or offer special promotions to
customers, E-Trend may ship products directly from its offices to customers.
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In 2001, E-Trend plans to begin inventorying top-selling movies. This will allow
E-Trend to take full advantage of bulk order discounts, as well as to insure a
ready supply of high demand items. At this time, there are no plans to stock
catalogue products.
E-trend has entered into a distribution agreement with Video One Canada Ltd.
("Video One"), a wholly owned subsidiary of Standard Broadcasting Corporation
Limited, related to the packaging and distribution of product ordered by its
customers. Video One is one of the largest distributors of pre-recorded home
video cassettes in Canada. Pursuant to this agreement, Video One is E-Trend's
exclusive agent for these activities in Canada and plays a vital role in the
back-end operations of its on-line superstore.
E-Trend also has fulfillment agreements with Baker & Taylor, Inc. and Rentrak
Corporation. Baker & Taylor offers direct fulfillment services to US customers,
while Rentrak provides fulfillment services in both Canada and the US for
previously viewed products. However, currently Video One is E-Trend's primary
fulfillment service provider.
E-Trend has recently entered into an agreement with SJS Group Ltd. for order
fulfillment related to its video game merchandise. As with top-selling movies,
starting in 2001 E-Trend plans to inventory new release video games early in
calendar 2001.
E-Trend utilizes electronic links with its wholesalers to process orders. This
reduces processing time and costs. Products are generally shipped by E-Trend's
wholesalers the same day they receive an order from it.
Early in calendar 2000, E-Trend purchased Langara Distribution Inc. ("Langara").
Langara has direct buying relationships with all the major music labels and
currently handles music supply and fulfillment for E-Trend and other Internet
retailers, as well as for a number of other traditional brick and mortar
companies' wholesale accounts. Langara will assume responsibility for E-Trend's
top-selling movie and game inventory in 2001. Langara is currently responsible
for all direct to consumer fulfillment of music product and will add video game
product in calendar 2001.
E-Trend cannot assure anyone that it will maintain its relationships with Video
One, Baker & Taylor or any other distributor capable of meeting its order
fulfillment requirements beyond the term of its existing strategic marketing
agreements.
TECHNOLOGY
E-Trend, through its consultants and technical staff, has developed technologies
and implemented systems to support distributed, reliable and scalable online
retailing in a secure and easy-to-use format. Using a combination of proprietary
solutions and commercially available, licensed technologies, E-Trend intends to
deploy systems for online content dissemination, online transaction processing,
customer service, market analysis and electronic data interchange.
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MULTIMEDIA AND USER DATABASE
E-Trend is currently in the process of redesigning its data model in order to
manage its vast database in the most efficient and scaleable manner. The
database house information on all of the music, movie, and game products listed
on the web site, as well as all of the customer information, sales history, and
recommendation strategies. Although E-Trend is currently using Microsoft SQL
Server 7 with satisfactory results, enterprise level database products are now
being assessed for maximum long-term scalability.
STORE ARCHITECTURE
E-Trend's hardware and software systems are based upon a distributed
transaction-processing model that allows applications to be distributed among
multiple parallel servers. Many of the software components, and the pages of its
web sites, are developed using a proprietary technology that extends HTML with
product, transaction, retail, and advanced programming constructs. This
technology results in the separation of the page look and feel from the
individual data elements and their associated database lookups thus reducing
software updates for web site changes and minimizing the engineering required to
maintain a growing amount of items and content.
INTERFACES
E-Trend is developing a series of customer, staff, affiliate, and supplier
interfaces that will allow for ease of information transfer and minimize
hands-on intervention. These interfaces are viewed as a critical part of
long-term scalability and growth.
FAULT TOLERANCE AND SCALABILITY
E-Trend's hardware servers, storage systems, Internet connections and networks
are designed to allow its online systems to operate continuously and enable it
to maintain a 24-hour-a-day, seven-day-a-week retail store. E-Trend runs its MS
Sequel Series databases and web servers on a series of IBM Netfinity Series
servers with fault tolerant characteristics including "hot-swappable"
components. E-Trend currently co-locates with UUNET, the world's largest
Internet service provider, and shares its backbone. This technology, combined
with the architecture of the systems, allows it to scale by adding new
components or servers while maintaining performance and cost effectiveness. Both
proprietary and commercially available tools are used to monitor and manage
these systems with minimal operator participation.
SECURITY
E-Trend employs a commercial firewall integrated into the architecture of its
system to keep its Internet connections secure. E-Trend uses SSL for secure
electronic transactions over the Internet and uses proprietary [EDI] interfaces
and private networks to ensure the security of customer order information and
credit card transactions shared with its vendors and credit card processor.
INTELLECTUAL PROPERTY
E-Trend uses technology it has developed, as well as technologies that are
licensed from third party developers. Some of E-Trend's software and systems
have been developed internally, and
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some of its software is developed on its behalf by outside consultants. In
connection with E-Trend's development of technologies, it has entered into the
following agreements:
E-Trend has entered into an agreement with Nextclick Ltd. ("Nextclick"), under
which the parties agreed that Nextclick would perform certain consulting
services related to the planning and execution of the web site, e-commerce and
community packages related to E-Trend's business. In consideration for such
services, E-Trend agreed to pay Nextclick a fee of 1% of gross sales generated
by, or initiated by, its web sites for a period of one year from the
commencement date of the web site launch, plus a retainer of $25,000, which has
been paid. E-Trend also issued 10,000 common shares of its stock to Nextclick.
The source code for E-Trend's software is protected both as a trade secret and
as copyrighted work. E-Trend enters into confidentiality and assignment
agreements with all its consultants and vendors with access to its proprietary
information.
E-Trend has or is in the process of applying for the registration of some of its
trademarks and service marks in the United States and Canada, including the
marks "E-Trend," "TheMovieSource.com," "VHQMusic.com," "VHQMovies.com,"
"VHQGames.com" and "Entertainme.com." E-Trend has no patents.
EMPLOYEES
As of December 15, 2000, E-Trend had 22 full time employees and contractors,
including 12 in technology positions, 2 in marketing, 2 in site development, 3
in customer service and 3 in administrative positions.
DESCRIPTION OF PROPERTY
E-Trend's principal executive offices are located at 5919-3rd St. S.E., Calgary,
Alberta, Canada, T2H 1K3 where it leases approximately 5,600 square feet of
space on a 60-month lease which is guaranteed by VHQ Entertainment Inc., a
majority shareholder of the Company. E-Trend also has executive offices in the
United States located at Suite 102P, 4344 Promenade Way, Marina Del Rey,
California, 90292, and a soon to be opened technology development center at 1400
West Cypress Creek Road, Fort Lauderdale, Florida, 33309.
LEGAL PROCEEDINGS
E-Trend is not currently involved in any material legal proceedings.
Cool Entertainment, Inc. Information Statement - Page 30
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<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data: SEPTEMBER 30, 2000 September 30, 1999
-------------------------------------------------------------------------------------------------------------------------
Current assets......................... $ 2,109,759 $ 687,069
Total assets........................... $ 3,015,660 $ 743,556
Current liabilities.................... $ 201,585 $ 17,820
Long-term liabilities.................. $ 0 $ 0
Stockholders' equity................... $ 2,814,075 $ 725,736
Working capital........................ $ 1,908,174 $ 669,249
-------------------------------------------------------------------------------------------------------------------------
April 29, 1999 (incorporation)
Income Statement Data: YEAR ENDED SEPTEMBER 30, 2000 to September 30, 1999
-------------------------------------------------------------------------------------------------------------------------
Revenues............................... $ 665,075 $ 0
(Loss) from operations................. $ (901,081) $ (59,564)
Net (loss)............................. $ (811,156) $ (55,339)
Comprehensive (loss)................... $ (740,846) $ (55,339)
Basic and diluted (loss) per share..... $ (0.10) $ (0.02)
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This Management's Discussion and Analysis (MD&A) focuses on key statistics from
the consolidated financial statements of E-Trend for the fiscal year ended
September 30, 2000 and pertains to known risks and uncertainties relating to its
businesses. This MD&A should not be considered all-inclusive, as it excludes
changes that may occur in general economic, political and environmental
conditions. This MD&A of the financial condition and results of operations for
the year ended September 30, 2000 should be read in conjunction with the
consolidated financial statements and related notes of E-Trend for the periods
indicated.
RESULTS OF OPERATION
REVENUES. E-Trend experienced a substantial increase in revenues for the year
ended September 30, 2000 compared to the same period in the previous fiscal
year. Revenues increased to $665,075, compared to the fiscal 1999 results of
$nil. The increase is primarily as a result of the acquisition of Langara
Distribution Inc. effective January 1, 2000, as well as the commercial launch of
the company's retail web sites in October 2000.
COST OF SALES. Cost of sales was $503,938 for the year ended September 30, 2000.
Management expects that such costs will continue to increase as E-Trend
increases its revenues through its planned growth.
OPERATING MARGINS. Operating margins of E-Trend were 24% of sales for the year
ended September 30, 2000.
OPERATING AND DEVELOPMENT. Operating and development costs were $436,764 for
year ended September 30, 2000, compared to no costs in the prior fiscal year.
These costs consist of leased computer equipment, computer and data content
services, and salaries of staff in the site development and technology groups.
Cool Entertainment, Inc. Information Statement - Page 31
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GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $435,745 for the year ended September 30, 2000 compared to $59,564
in same period in the previous fiscal year. Expenses rose in connection with
additional administrative personnel that were brought on to accommodate
E-Trend's growth, head office rent and utilities, professional fees and
telephone charges.
ADVERTISING. Advertising costs were $108,703 for year ended September 30, 2000,
compared to no costs in the prior fiscal year. These costs reflect test market
campaigns done in Calgary and Ottawa as well as online web-based advertising.
SALES AND MARKETING. Sales and marketing costs were $28,921 for year ended
September 30, 2000, compared to no costs in the prior fiscal year. These costs
consist of consulting fees and salaries paid staff in E-Trend's marketing group.
AMORTIZATION OF CAPITAL ASSETS. Amortization of capital assets was $31,756 for
year ended September 30, 2000, compared to no costs in the prior fiscal year.
The increase is due to amortization of computer hardware and software, furniture
and leasehold improvements.
AMORTIZATION OF GOODWILL. Amortization of goodwill was $20,329 for year ended
September 30, 2000, compared to no costs in the prior fiscal year. The
amortization relates to the goodwill allocated to the acquisition of Langara
Distribution Inc. effective January 1, 2000.
OTHER INCOME. Other income was $89,925 for year ended September 30, 2000,
compared to $4,225 in the prior fiscal year. The increase is due to interest
earned on excess cash invested in money market funds and funds advanced to a
major shareholder, VHQ Entertainment Inc., during the fiscal year.
NET LOSS. Net loss for the year increased to $811,156 for the year ended
September 30, 2000 compared to $55,339 for the period ended fiscal 1999. The
increase is due to increased expenses associated with development, maintenance
and marketing of E-Trend's e-commerce sites offset by income from E-Trend's
distribution subsidiary.
OTHER COMPREHENSIVE INCOME. The unrealized gain from the investment of $89,102
relates to the difference between the market value and cost of E-Trend's
investment in shares of VHQ Entertainment Inc. The foreign currency translation
of $18,792 adjustment relates to unrealized losses on the translation of the
financial statements to $U.S. for financial reporting purposes.
LIQUIDITY AND CAPITAL RESOURCES
FUNDS PROVIDED BY OPERATIONS. The operations of E-Trend provided a deficit of
$845,365 for the year ended September 30, 2000 versus $85,876 for the previous
fiscal period. The increase was due to additional expenses associated with
development, maintenance and marketing of E-Trend's e-commerce site.
Cool Entertainment, Inc. Information Statement - Page 32
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FUNDS PROVIDED FROM FINANCING. In the 12 months ended September 30, 2000,
E-Trend received net proceeds of $2,394,185 from the issuance of share capital.
E-Trend advanced $200,222 to its major shareholder VHQ Entertainment Inc. during
the fiscal year.
FUNDS USED FOR INVESTING. In the 12 months ended September 30, 2000, E-Trend
expended $195,967 on the purchase of capital assets, which included computer
hardware and software, leasehold improvements and office furniture.
LIQUIDITY. At September 30, 2000, E-Trend had positive working capital of
$1,908,174. This compares to September 30, 1999, when it had positive working
capital $669,249.
BUSINESS RISKS AND MANAGEMENT
The e-commerce sales and distribution of filmed entertainment, video games and
music is very competitive. E-Trend faces a number of competitors, including
larger e-commerce companies and music distributors. Competition exists on a
global basis, with main competitive factors being price, and service. Management
continually reviews its competitors and analyzes upcoming industry trends. There
can be no assurance, however, that E-Trend will be successful in addressing
competitive threats or adequately assessing future industry trends.
In order to gain efficiencies generated by economies of scale, E-Trend must
increase sales from its e-commerce sites. E-Trend must rely initially upon
working capital and possibly outside sources of capital to finance as current
cash flows may not be sufficient to fund the growth it anticipates. In the event
E-Trend is not successful in raising additional sources of capital, it may not
be able to achieve anticipated efficiencies, all of which could have a material
adverse impact on operations and profitability.
OUTLOOK
E-Trend looks toward fiscal 2001 with a positive outlook and it is confident
that it possesses the resources to take advantage of opportunities as they may
arise. Despite the demise of many Internet retailers, overall Internet sales
continue to increase as consumers adopt and embrace the Internet as a channel to
purchase goods. Along with the demise of many of E-Trend's competitors comes an
opportunity as its former competitors' customers remain and still seek to use
the Internet as the channel for their purchases. E-Trend will continue to seek
strategic acquisitions that complement its existing business and overall
corporate objectives, and look to consolidate many of the marginal Internet
entertainment retailers that remain. Additionally, E-Trend will continue to
pursue an aggressive sales growth strategy and evaluate opportunities to
diversify its operations and the revenues derived therefrom. E-Trend has also
resolved to implement key strategic initiatives in the new year, including: (i)
improving the data model and overall scalability of the ECS and catalogue
system, (ii) installation of additional server farms for distributive computing,
improved Internet access and redundancy, (iii) initiating new online target
marketing campaigns to acquire new customers, (iv) testing and implementation of
new software to enable seamless B2B2C applications, (v) obtaining additional
equity capital for expansion, and (vi) the addition of strategic alliances to
expand the breadth of entertainment
Cool Entertainment, Inc. Information Statement - Page 33
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related products sold on its websites. Management also has several initiatives
underway to enhance the efficiencies and to streamline the operations of its
businesses, including the establishment of a direct fulfillment center for most
of the products sold E-Trend. As E-Trend expands it will continue to benefit
from better supplier pricing and terms, as well as the advantages associated
with certain economies of scale. Revenues and website traffic continue to
improve and management believes this trend will continue into and beyond fiscal
2001. In following its mission, E-Trend will continue its efforts to make its
online stores a destination for shoppers and to provide its customers with the
world of entertainment at their fingertips.
MANAGEMENT
Officers and senior employees of E-Trend are:
GREGG C. JOHNSON, PRESIDENT AND CHIEF EXECUTIVE OFFICER
A graduate of Osgoode Hall Law School of York University in Toronto, Canada, Mr.
Johnson brings international experience to E-Trend. In his law career, he
specialized in the areas of international corporate finance, banking, and
commercial and securities law. Mr. Johnson was called to the Alberta bar in
1989, entering private practice in Calgary, Alberta. He then moved to Japan and
joined the Japanese law firm Aoki, Christensen & Nomoto in 1989, and focused his
practice on corporate finance, concentrating on Japanese equities and the
Eurobond markets.
In 1991, Mr. Johnson joined the law office of Dr. Mujahid Al-Sawwaf in Jeddah,
Saudi Arabia, and focused his practice on international banking, joint venture,
construction, and commercial law matters. In 1993, he joined The Tracker
Corporation of Toronto, Ontario, a public company trading on the NASDAQ market
(TRKR), where he was primarily responsible for legal, financing and public
reporting matters.
Since August 1995, Mr. Johnson has provided investment banking services with
Summit Capital Corporation, and has been instrumental in securing seed capital
for several start-up ventures. He was a past director of a number of public
companies, including Merch Performance Inc. (CDNX: MRCH) and Sat-Tel Corporation
(CDNX: SAJ) and he currently is an officer of and holds directorships with
several companies, including VHQ Entertainment Inc. (CDNX: VHQ), Cervus
Corporation (CDNX: CVC), IROC Systems Corp. (CDNX: IRC), and Chinook
Testing Inc. (CDNX: NDT).
CAROLINE G. ARMSTRONG, CHIEF OPERATING OFFICER AND EXECUTIVE VICE PRESIDENT
As an honors business graduate, Ms. Armstrong brings expertise to E-Trend,
specializing in the restructuring of technology-based businesses. As an
Administrator and Director of ECS Ltd. from 1989 to 1991, an Ontario-based
company, she focused on strategic realignment and ownership consolidation. From
1993 to 1997, Ms. Armstrong served as acting general manager of BMS Ltd., a
private company headquartered in Bermuda and engaged in the business of computer
consulting and sales.
Cool Entertainment, Inc. Information Statement - Page 34
<PAGE>
From August 1998 to December 1999, Ms. Armstrong served as Vice President of
Westech Industrial Ltd., a private company engaged in the business of industrial
manufacturing and sales. Ms. Armstrong's duties at Westech Industrial Ltd.
included finance, management relations, operations and strategic planning. In
the fall of 1999, Ms. Armstrong founded Infinite Possibilities, a
management-consulting firm where she currently holds the position of President
and Director.
HOWARD BOLINGER, CHIEF FINANCIAL OFFICER
Mr. Bolinger is Chief Financial Officer of E-Trend Networks' parent company, VHQ
Entertainment Inc. (CDNX: VHQ), and is also Chief Financial Officer and Director
of Cervus Corporation, a public company trading on the Canadian Venture Exchange
(CDNX: CVC). Mr. Bolinger received his Bachelor of Commerce degree from the
University of Calgary in 1994 and has been a Chartered Accountant since April
1997.
From April 1999 to January 2000, Mr. Bolinger was a senior financial analyst for
Berkley Petroleum Corp. (TSE: BKP). From October 1997 to May 1998, Mr. Bolinger
was a manager with Breakell & Company Chartered Accountants, and from 1994 to
1997 he was a senior accountant with KPMG. Since January 1998, Mr. Bolinger has
been president of Bolinger Capital Corp., a private company specializing in
corporate finance and consulting.
MICHAEL MCKELVIE, SENIOR VICE PRESIDENT, MARKETING & COMMUNICATIONS
Mr. McKelvie joined E-Trend from Blockbuster Canada & Universal Studios Home
Video in 1999. Mr. McKelvie helped pioneer the home video business in Canada and
has held senior level marketing, sales and communications positions in the
industry since it started in 1979. After serving as Director, Sales & Marketing
for Universal Studios Home Entertainment Canada for 13 years, he was the
founding partner of EMG Media Inc., where he created and launched
HOLLYWOOD@home(TM), Canada's a popular home video trade magazine. EMG also
created consumer promotions with such clients as Coca-Cola, Pepsi-Cola,
Spalding, Alliance Home Entertainment and Petro-Canada.
Most recently, Mr. McKelvie served as Senior Marketing and Communications
Manager for Blockbuster Canada Co., where he managed marketing television
campaigns and the creation and launch of WWW.BLOCKBUSTER.CA.
TIMOTHY J. SEBASTIAN, GENERAL COUNSEL AND SECRETARY
Mr. Sebastian was appointed General Counsel and Secretary of VHQ Entertainment
Inc. (CDNX: VHQ) and E-Trend effective October 1, 2000. Mr. Sebastian graduated
from the University of Alberta Law School in 1990. Mr. Sebastian articled, was
an associate and then a partner with, the law firm of Bryan & Company in
Edmonton and Calgary, Alberta, from 1990 until October 2000. During his law
career, Mr. Sebastian specialized in the areas of general corporate law,
corporate finance, securities and intellectual property. Mr. Sebastian is also
Cool Entertainment, Inc. Information Statement - Page 35
<PAGE>
General Counsel and Corporate Secretary for IROC Systems Corp. (CDNX: IRC) and
Corporate Secretary for Chinook Testing Inc. (CDNX: NDT).
PRO FORMA INFORMATION
Cool and E-Trend Unaudited Pro Forma Consolidated Financial Information is
attached hereto as Appendix F.
COMPARATIVE PER SHARE DATA
The following table presents historical data for Cool and E-Trend and pro forma
per share data giving effect to the Acquisition on the basis described in the
notes to the pro forma combined condensed financial statements included
elsewhere herein. The table should be read in conjunction with the historical
financial statements of Cool and E-Trend and the pro forma financial statements
included elsewhere herein. Historical per share information for Cool gives
effect to the proposed 1-for-100 reverse stock split inherent in the
Reorganization, since approval of the Reorganization is necessary to effect the
Acquisition. The "E-Trend Equivalent" data has been determined by multiplying
the "E-Trend Historical" data by 2, which is the number of shares of E-Trend
common stock to be exchanged for each share of Cool Delaware Common Stock
received by the E-Trend shareholders. See the Cool Unaudited Pro Forma
Consolidated Financial Information attached hereto as Appendix F.
<TABLE>
<CAPTION>
E-TREND
COOL COOL E-TREND E-TREND E-TREND EQUIVA-
HISTORI- HISTORI- HISTORI- EQUIVA- HISTORI- LENT
CAL YEAR CAL THREE CAL LENT CAL THREE THREE
ENDED MONTHS YEAR YEAR PRO MONTHS MONTHS PRO
JUNE 30, ENDED ENDED ENDED FORMA ENDED ENDED FORMA
2000 SEPT. 30, SEPT. 30, SEPT. 30, COM- SEPT. 30, SEPT. 30, COM-
2000 2000 2000 BINED 2000 2000 BINED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss $(52.42) $(0.42) $(0.10) $(0.20) $(2.91) $(0.06) $(0.12) $(0.09)
Cash -- -- --
Dividends -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
E-TREND EQUIVA-
COOL E-TREND LENT SEPT. 30, 2000 PRO FORMA
SEPT. 30, 2000 Sept. 30, 2000 COMBINED
<S> <C> <C> <C> <C>
Book value $ (0.22) $ 0.46 $ 0.93 $ 0.58
</TABLE>
THE REORGANIZATION
Shareholders of the Company are being asked to consider and vote to approve an
agreement and plan of reincorporation and merger (the "Reincorporation Plan")
pursuant to which the Company's state of incorporation would be changed from
Colorado to Delaware, the Company's name would be change to "E-Trend Networks,
Inc., and a 1-for-100 reverse split would be
Cool Entertainment, Inc. Information Statement - Page 36
<PAGE>
effected as to the issued and outstanding shares of the Company's common stock.
The Company would merge with and into E-Trend Networks, Inc. (the "Cool
Delaware"), a newly formed, wholly-owned Delaware subsidiary of the Company,
which would succeed by operation of law to the assets, liabilities, and
operations of the Company. Shareholders of Cool would receive 1 share of Cool
Delaware common stock for every 100 shares of Cool common stock currently owned
by them. Cool's shareholders will not be required to surrender their stock
certificates.
As discussed below, the principal reasons for the proposed change of domicile
are the greater certainty and flexibility of Delaware corporate law and the
substantial body of case law interpreting that law. Cool and E-Trend management
believe that their shareholders will benefit from the well-established
principles of corporate governance that Delaware law affords. The proposed
Certificate of Incorporation (the "Delaware Certificate") and Bylaws (the
"Delaware Bylaws") of Cool Delaware are substantially similar to Cool's Articles
of Incorporation (the "Colorado Articles") and Bylaws (the "Colorado Bylaws")
currently in effect for the Company, except that the Delaware Bylaws permit the
stockholders to act by less than unanimous written consent. The Colorado Bylaws
permit stockholder to act by a unanimous written consent only.
THE CHANGE OF DOMICILE IS NOT BEING PROPOSED IN ORDER TO PREVENT AN UNSOLICITED
TAKEOVER ATTEMPT AND THE BOARD IS NOT AWARE OF ANY PRESENT ATTEMPT BY ANY PERSON
TO ACQUIRE CONTROL OF THE COMPANY, OBTAIN REPRESENTATION ON THE BOARD OR TAKE
ANY ACTION THAT WOULD MATERIALLY AFFECT THE GOVERNANCE OF THE COMPANY.
If the Reorganization is approved, Cool will merge into Cool Delaware (the
"Merger"). Cool, as a separate corporate entity, will cease to exist and Cool
Delaware will continue to operate the business of Cool under its new name,
E-Trend Networks, Inc.
Pursuant to the Agreement and Plan of Reincorporation and Merger, in
substantially the form attached hereto as Appendix G (the "Reincorporation
Plan"), each 100 outstanding shares of Cool common stock will be automatically
converted into one share of Cool Delaware common stock, par value $.0001 per
share (the "Cool Delaware Common Stock"), upon the effective date of the Merger.
Holders of shares of Cool common stock will become stockholders of Cool Delaware
immediately upon the consummation of the Merger. The Cool common stock is
currently listed for trading on OTC Bulletin Board under the symbol "CULE" and,
after the Merger, Cool Delaware Common Stock will continue to be traded on OTC
Bulletin Board under a new trading symbol.
The discussion set forth below is qualified in its entirety by reference to the
Reincorporation Plan and to the Delaware Certificate and the Delaware Bylaws,
copies of which are attached to this Information Statement as Appendices G, H
and I, respectively.
VOTE REQUIRED; BOARD RECOMMENDATION
The affirmative vote of the holders of a majority of the outstanding shares of
Cool common stock entitled to vote at the Special Meeting is required to approve
the Reorganization. Abstentions
Cool Entertainment, Inc. Information Statement - Page 37
<PAGE>
and broker non-votes will have the effect of votes against the Reorganization. A
vote for the Reorganization will constitute approval of:
o the Reincorporation Plan;
o the Delaware Certificate, which will result in the change of the
Company's name to E-Trend Networks, Inc.;
o the Delaware Bylaws;
o an effective 1-for-100 reverse stock split; and
o all other aspects of the Reorganization.
AFTER CAREFUL CONSIDERATION, THE BOARD HAS DETERMINED THAT THE
REORGANIZATION IS ADVISABLE AND HAS DIRECTED THAT IT BE SUBMITTED TO THE
COMPANY'S SHAREHOLDERS FOR THEIR APPROVAL. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE IN FAVOR OF THE REORGANIZATION.
DISSENTERS' RIGHTS
The holders of Cool common stock may be entitled to assert dissenters' rights
and obtain payment of the fair value of their shares under Article 113 of the
Colorado Business Corporation Act (the "CBCA"), a copy of which is attached to
this Information Statement as Appendix B (the "Colorado Dissenters' Rights
Statute"), if the Merger is consummated. To exercise the right to dissent, (1) a
stockholder ("Dissenting Stockholder") must provide written notice to the
Company of his or her intent to demand payment for his or her Common Stock, (2)
the Dissenting Stockholder must not vote in favor of the Reincorporation and (3)
the Dissenting Stockholder must comply with the other provisions of the Colorado
Dissenters' Rights Statute. If the Merger is consummated, the Company will
provide written notice of the Merger to the Dissenting Stockholder along with an
explanation of the procedures for the Dissenting Stockholder to demand payment
of his or her Common Stock. If a Dissenting Stockholder is dissatisfied with the
payment or offer, the Dissenting Stockholder is entitled to follow the procedure
outlined in the Colorado Dissenters' Rights Statute. The foregoing discussion of
the law relating to dissenters' rights is not a complete statement of such
rights and is qualified in its entirety by reference to Appendix B.
THIS DISCUSSION AND APPENDIX B SHOULD BE REVIEWED CAREFULLY BY ANY
HOLDER OF THE COMMON STOCK WHO WISHES TO EXERCISE STATUTORY DISSENTERS' RIGHTS
OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO BECAUSE FAILURE TO STRICTLY COMPLY
WITH SUCH PROCEDURE WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is intended to be tax free under the Internal Revenue Code of
1986, as amended (the "Code"). Accordingly, no gain or loss will be recognized
by the holders of Cool
Cool Entertainment, Inc. Information Statement - Page 38
<PAGE>
common stock as a result of the Reorganization, and no gain or loss will be
recognized by Cool or Cool Delaware. Each former holder of Cool common stock
will have the same tax basis in Cool Delaware Common Stock received by such
holder pursuant to the Reorganization as such holder has in the Common Stock
held by such holder at the effective time of the Merger. Each shareholder's
holding period with respect to Cool Delaware Common Stock will include the
period during which such holder held the Cool common stock, so long as the
latter was held by such holder as a capital asset at the effective time of the
Merger. The Company has not obtained, and does not intend to obtain, a ruling
from the Internal Revenue Service with respect to the tax consequences of the
Reorganization.
The Company believes that no gain or loss should be recognized by the holders of
outstanding options to purchase shares of Cool common stock, so long as (1) such
options (a) were originally issued in connection with the performance of
services by the optionee and (b) lacked a readily ascertainable value (for
example, were not actively traded on an established market) when originally
granted and (2) the options to purchase Cool Delaware Common Stock into which
Cool's outstanding options will be converted in the Reorganization also lack a
readily ascertainable value when granted.
The foregoing is only a summary of certain federal income tax consequences.
Shareholders should consult their own tax advisers regarding the federal tax
consequences of the Reorganization as well as any consequences under the laws of
any other jurisdiction.
ACCOUNTING TREATMENT OF THE MERGER
Upon consummation of the Merger, all assets and liabilities of Cool will be
transferred to Cool Delaware at book value because the Reorganization will be
accounted for as a pooling-of-interests.
PRINCIPAL REASONS FOR THE REORGANIZATION
As the Company plans for the future, the E-Trend Board and management believe
that it is essential to be able to draw upon well-established principles of
corporate governance in making legal and business decisions. The prominence and
predictability of Delaware corporate law provide a reliable foundation on which
the Company's governance decisions can be based, and the Company believes that
shareholders will benefit from the responsiveness of Delaware corporate law to
their needs and to those of the corporation they own.
PROMINENCE, PREDICTABILITY AND FLEXIBILITY OF DELAWARE LAW
For many years Delaware has followed a policy of encouraging incorporation in
that state and, in furtherance of that policy, has been a leader in adopting,
construing and implementing comprehensive and flexible corporate laws responsive
to the legal and business needs of corporations organized under its laws. Many
corporations have chosen Delaware initially as a state of incorporation or have
subsequently changed their corporate domicile to Delaware in a manner similar to
that proposed by the Company. Because of Delaware's prominence as the state of
incorporation for many major corporations, both the legislature and courts in
Delaware have
Cool Entertainment, Inc. Information Statement - Page 39
<PAGE>
demonstrated an ability and a willingness to act quickly and effectively to meet
changing business needs. The Delaware courts have developed considerable
expertise in dealing with corporate issues, and a substantial body of case law
has developed construing Delaware law and establishing public policies with
respect to corporate legal affairs.
INCREASED ABILITY TO ATTRACT AND RETAIN QUALIFIED DIRECTORS
Both Colorado and Delaware law permit a corporation to include a provision in
its articles of incorporation or certificate of incorporation, as the case may
be, which reduces or limits the monetary liability of directors for breaches of
fiduciary duty in certain circumstances. The increasing frequency of claims and
litigation directed against directors and officers has greatly expanded the
risks facing directors and officers of corporations in exercising their
respective duties. The amount of time and money required to respond to such
claims and to defend such litigation could be substantial. It is the Company's
desire to reduce these risks to its directors and officers and to limit
situations in which monetary damages can be recovered against directors so that
the Company may continue to attract and retain qualified directors who otherwise
might be unwilling to serve because of the risks involved. The Company believes
that, in general, Delaware law provides greater protection to directors than
Colorado law and that Delaware case law regarding a corporation's ability to
limit director liability is more developed and provides more guidance than
Colorado law.
ANTI-TAKEOVER IMPLICATIONS
Delaware, like many other states, permits a corporation to adopt a number of
measures designed to reduce a corporation's vulnerability to unsolicited
takeover attempts through amendment of the corporate charter or bylaws or
otherwise. THE REORGANIZATION IS NOT BEING PROPOSED IN ORDER TO PREVENT SUCH A
CHANGE IN CONTROL AND THE BOARD OF DIRECTORS IS NOT AWARE OF ANY PRESENT ATTEMPT
TO ACQUIRE CONTROL OF THE COMPANY OR TO OBTAIN REPRESENTATION ON THE BOARD.
However, the Board believes that future unsolicited takeover attempts may be
unfair or disadvantageous to the Company or its shareholders because, among
other reasons:
o a non-negotiated takeover bid may be timed to take advantage of
temporarily depressed stock prices;
o a non-negotiated takeover bid may be designed to foreclose or minimize
the possibility of more favorable competing bids or alternative
transactions, and
o a non-negotiated bid may involve the acquisition of only a controlling
interest in the common stock, without affording all shareholders the
opportunity to receive the same economic benefits.
By contrast, in a transaction in which a potential acquirer must negotiate with
an independent board of directors, the board can and should take account of the
underlying and long-term values of the Company's business, assets, the
possibilities for alternative transactions on more favorable
Cool Entertainment, Inc. Information Statement - Page 40
<PAGE>
terms, anticipated favorable developments in the Company that are not yet
reflected in the price of the common stock and equality of treatment of all
shareholders.
Certain effects of the Reorganization may have the effect of deterring hostile
takeover attempts. For example, Section 203 of the Delaware General Corporation
Law (the "DGCL"), from which Cool Delaware does not intend to opt out, restricts
certain "business combinations" with "interested stockholders" for three years
following the date that a person becomes an interested stockholder, unless Cool
Delaware's Board approves the business combination. For a detailed discussion of
all of the changes which will be implemented as part of the Reorganization, see
"--Significant Differences Between the Colorado Articles and the Colorado Bylaws
and the Delaware Certificate and the Delaware Bylaw" and "--Significant
Differences Between the CBCA and the DGCL" below.
SIGNIFANT DIFFERENCES BETWEEN THE COLORADO ARTICLES AND THE COLORADO BYLAWS AND
THE DELAWARE CERTIFICATE AND THE DELAWARE BYLAWS
The Company is governed by the Colorado Articles and the Colorado Bylaws, which
have been adopted pursuant to the CBCA. Cool Delaware is governed by the
Delaware Certificate and the Delaware Bylaws, which have been adopted pursuant
to the DGCL. The material difference between these is that the Delaware Bylaws
permit the stockholders to act by less than unanimous written consent. The
Colorado Bylaws, in accordance with the CBCA, allow shareholders to act by
written consent in lieu of a shareholder meeting only if such consent is
unanimous. In contrast, the Delaware Bylaws, in accordance with the DGCL, permit
stockholders to take action by written consent in lieu of a meeting, so long as
the consent is signed by holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting of stockholders.
While the Company has no present intention to do so, the Cool Delaware could in
the future implement certain other changes by amendment of the Delaware
Certificate or the Delaware Bylaws. For a discussion of such changes, see
"--Significant Differences Between the CBCA and the DGCL."
SIGNIFICANT DIFFERENCES BETWEEN THE CBCA AND THE DGCL
The Company is organized as a corporation under the laws of the State of
Colorado and Cool Delaware is organized as a corporation under the laws of the
State of Delaware. As a Colorado corporation, the Company is subject to the
CBCA, a general corporation statute dealing with a wide variety of matters,
including election, tenure, duties and liabilities of directors and officers;
dividends and other distributions; meetings of shareholders; and extraordinary
actions, such as amendments to the articles of incorporation, mergers, sales of
all or substantially all of the assets and dissolution. As a Delaware
corporation, Cool Delaware is governed by the DGCL, a general corporation
statute covering generally the same matters as the CBCA.
Cool Entertainment, Inc. Information Statement - Page 41
<PAGE>
The CBCA and the DGCL differ in many respects. Although all the differences are
not set forth in this Information Statement, certain provisions, which may
materially affect the rights of the shareholders of the Company, are as follows:
CERTAIN BUSINESS COMBINATIONS
Section 203 of the DGCL regulates corporate takeovers. Section 203 prevents
certain Delaware corporations, including those whose securities are listed on
The Nasdaq SmallCap Market, from engaging, under certain circumstances, in a
"business combination" (which includes a merger or sale of more than 10% of the
corporation's assets) with any "interested stockholder" (a stockholder who owns
15% or more of the corporation's outstanding voting stock, as well as affiliates
and associates of any such persons) for three years following the date that such
stockholder became an "interested stockholder" unless:
o the transaction is approved by the board of directors prior to the
date the "interested stockholder" attained such status;
o upon consummation of the transaction that resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder"
owned at least 85% of the voting stock of the corporation outstanding
at the time the transactions commenced, excluding those shares owned
by:
o persons who are directors and also officers and
o employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer, or
o on or subsequent to such date the "business combination" is
approved by the board of directors and authorized at an annual or
special meeting of stockholders by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not
owned by the "interested stockholder."
A Delaware corporation may "opt out" of Section 203 with a provision in its
original certificate of incorporation expressly electing not to be governed by
Section 203. Cool Delaware does not intend to opt out of the provisions of
Section 203. The Company believes that Section 203 will encourage any potential
acquirer to negotiate with Cool Delaware's board of directors. Section 203 also
might have the effect of limiting the ability of a potential acquirer to make a
two-tiered bid for Cool Delaware in which all stockholders would not be treated
equally. Shareholders should note, however, that the application of Section 203
to Cool Delaware will give Cool Delaware's board the power to reject a proposed
business combination in certain circumstances, even though a potential acquirer
may be offering a substantial premium for Cool Delaware Common Stock over the
then-current market price. Section 203 would also discourage certain potential
acquirers who are unwilling to comply with its provisions. The CBCA does not
have legislation comparable to Section 203 of the DGCL.
INDEMNIFICATION
Both the CBCA and the DGCL have provisions respecting indemnification by a
corporation of its officers, directors, employees and other agents. The CBCA
permits indemnification of a
Cool Entertainment, Inc. Information Statement - Page 42
<PAGE>
person made party to a proceeding because the person is or was a director
against liability incurred in the proceeding if (i) the person conducted himself
or herself in good faith and (ii) the person reasonably believed, in the case of
conduct in an official capacity with the corporation, that his or her conduct
was in the corporation's best interests, and in all other cases, that his or her
conduct was at least not opposed to the corporation's best interests.
Additionally, in the case of any criminal proceeding, the person must have had
no reasonable cause to believe his or her conduct was unlawful. Notwithstanding
the foregoing, under the CBCA, a corporation may not indemnify a director in
connection with a derivative action in which the director was adjudged liable to
the corporation, or in connection with any other proceeding charging that the
director derived an improper personal benefit, and in which proceeding the
director was adjudged liable on the basis that he or she in fact derived such
improper personal benefit. Also, in a derivative action, indemnification is
expressly limited to the reasonable expenses incurred in connection with the
proceeding.
Under the DGCL, a corporation may indemnify a director against all liability
(including expenses) in an action other than a derivative action if the director
conducted himself or herself in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interest of the corporation
(without a distinction made, as in the CBCA, for actions taken in
"official capacity"), and with respect to criminal actions, he or she had no
reasonable cause to believe that his or her conduct was unlawful. In derivative
actions, as under the CBCA, indemnification is limited to reasonable expenses
actually incurred (and is subject to the same standard of conduct for
non-derivative actions), with the additional restriction that if the director is
adjudged liable to the corporation, the director is entitled to indemnification
of expenses notwithstanding such adverse adjudication only if the court
determines that such person is fairly and reasonably so entitled in view of all
the circumstances. By comparison, under the CBCA, if a corporation elects not to
indemnify a director against expenses incurred in connection with a derivative
action because the director was found not to have acted within the requisite
standard of conduct, a court may nevertheless award expenses if the court
determines the director is fairly and reasonably entitled to indemnification in
light of all of the circumstances. The Delaware Certificate provides that Cool
Delaware "shall" indemnify directors against all liability if the directors act
in the manner explained above.
Under both the CBCA and the DGCL, officers, employees and agents (as well as
fiduciaries, under the CBCA) may be indemnified to the same extent as directors.
In addition, under both the CBCA and the DGCL, a corporation must indemnify the
person made party to a proceeding because such person was a director or officer
of the corporation against expenses (including attorney's fees) where such
person is successful on the merits or otherwise in defense of such proceeding.
The Delaware Certificate provides that Cool Delaware "shall" indemnify officers
of Cool Delaware against all liability if such person acts in the manner
explained above. The Delaware Bylaws provide that Cool Delaware "may" indemnify
employees and agents of Cool Delaware against all liability to the extent
permitted by law. Though, under the CBCA, this mandatory indemnification may be
limited by the articles of incorporation, the Colorado Articles contain no such
limitation.
Cool Entertainment, Inc. Information Statement - Page 43
<PAGE>
Under the DGCL, the corporation may advance the expenses incurred by a director
or officer of the corporation in connection with proceedings prior to a final
adjudication if the director or officer executes an undertaking to repay such
amounts if it is ultimately determined that the director or officer is not
entitled to indemnification. The corporation may set other terms and conditions
for the advance of expenses on behalf of employees and agents. The Delaware
Certificate provides that Cool Delaware "shall" advance the expenses of
directors and officers who execute such an undertaking. Under the CBCA, in
addition to the undertaking referred to above (which must be an unlimited
general obligation of the director, but need not be secured), the director must
furnish a written affirmation of the director's good faith belief that he or she
has met the requisite standard of conduct heretofore described.
Under both the DGCL and the CBCA, a "determination" must be made, based on the
facts then known to those making the determination, that indemnification would
not be precluded under applicable law. The "determination" may be made by the
affirmative vote of a majority of the board of directors not party to the
subject proceeding, by independent legal counsel, or by the shareholders. The
CBCA allows for a determination by a committee where no quorum of non-party
directors can be reached; the DGCL does not require a quorum of non-party
directors, although it does permit the appointment of a committee of non-party
directors designated by the majority vote of such directors, although less than
a quorum. Under the CBCA, the determination is made by shareholders only if the
board directs, or cannot approve because of a lack of non-party directors; there
is no such limitation on stockholder approval under the DGCL. The
"determination" must be made in advance of indemnification and advancement of
expenses under the CBCA; however, no prior determination is required for the
advancement of expenses under the DGCL.
The DGCL and CBCA both authorize a corporation's purchase of insurance on behalf
of directors, officers, employees and agents, regardless of the corporation's
statutory authority to indemnify such person directly. The CBCA specifically
allows such insurance to be purchased from a company in which the corporation
has equity or other interests.
Under the DGCL, a corporation can indemnify officers, employees, fiduciaries and
agents (but not directors) to a greater extent than provided in the CBCA,
subject to public policy concerns, if such rights are set forth in the articles
of incorporation, bylaws, or board of director or stockholder resolution, or by
contract; the Company does not provide such greater indemnification. The CBCA
does not provide for extended indemnification of directors. By comparison, under
the DGCL, a director's rights to indemnification are not necessarily limited to
those set forth in the DGCL, and may be expanded by bylaw, agreement, common
law, or otherwise, though limitations could be imposed by a court on grounds of
public policy.
REMOVAL OF DIRECTORS
Under the CBCA, unless the articles of incorporation of a corporation provide
otherwise, any director or the entire board of directors may be removed, with or
without cause, with the approval of a majority of the outstanding shares
entitled to vote; however, if cumulative voting is in effect, no individual
director may be removed if the number of votes cast against such removal would
be sufficient to elect the director under cumulative voting, and any director
Cool Entertainment, Inc. Information Statement - Page 44
<PAGE>
elected by a voting group can only be removed by that voting group. Cumulative
voting is prohibited by the Colorado Articles. Under the DGCL, a director of a
corporation that does not have a classified board of directors or cumulative
voting may be removed with or without cause with the approval of a majority of
the outstanding shares entitled to vote at an election of directors, unless the
corporation's certificate of incorporation requires a higher vote. In the case
of a Delaware corporation having cumulative voting, if less than the entire
board is to be removed, a director may not be removed without cause if the
number of votes cast against such removal would be sufficient to elect the
director under cumulative voting. A director of a corporation with a classified
board of directors may be removed only for cause, unless the corporation's
certificate of incorporation otherwise provides.
LIMITATION OF LIABILITY
Both the CBCA and the DGCL permit, with certain exceptions, a corporation to
adopt a provision in its articles of incorporation or certificate of
incorporation, as the case may be, eliminating the liability of a director to
the corporation or its shareholders for monetary damages for breach of the
director's fiduciary duty.
The Colorado Articles eliminate the liability of the Board to the fullest extent
permissible under the CBCA. The CBCA does not permit the elimination of monetary
liability for breach of fiduciary duty as a director where such liability is
based on (i) breach of the director's duty of loyalty to the corporation or its
shareholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) unlawful
dividends or distributions, (iv) any transaction from which the director
directly or indirectly derived an improper personal benefit or (v) any act or
omission occurring before the provision eliminating liability became effective.
The Delaware Certificate eliminates the liability of Cool Delaware's Board or
its stockholders for monetary damages for breach of fiduciary duty as a director
to the fullest extent permissible under the DGCL, as such law exists currently
or as it may be amended in the future. These limitations are substantially
similar to the limitations imposed by the CBCA.
There is no pending or, to the Company's knowledge, threatened litigation to
which any of its directors or officers is a party in which the rights of the
Company or its shareholders would be affected if the Company already were
subject to the provisions of Delaware law rather than Colorado law.
REDUCTION OF CAPITAL
The DGCL provides that a corporation, by resolution of its board of directors,
may reduce its capital in a variety of specified methods, including: (i) by
reducing or eliminating the capital represented by shares of capital stock which
have been retired, (ii) by applying to an otherwise authorized purchase or
redemption of outstanding shares of its capital stock, some or all of the
capital represented by the shares being purchased or redeemed or any capital
that has not been allocated to any particular class of its capital stock, (iii)
by applying to an otherwise authorized conversion or exchange of outstanding
shares of its capital stock, some or all of the capital
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represented by the shares being converted or exchanged, or some or all of any
that has not been allocated to any particular class of its capital stock, or
both, to the extent that such capital in the aggregate exceeds the total
aggregate par value or the stated capital of any previously unissued shares
issuable upon such conversion or exchange or (iv) by transferring to surplus (a)
some or all of the capital not represented by any particular class of its
capital stock, (b) some or all of the capital represented by issued shares of
its par value capital stock, which capital is in excess of the aggregate par
value of such shares or (c) some of the capital represented by the issued shares
of its capital stock without par value. The reduction of capital may be
conducted without the approval of the corporation's stockholders, provided that
the assets remaining after the reduction are sufficient to pay any debts not
otherwise provided for. The CBCA contains no comparable provision.
DIVIDENDS AND REPURCHASE OF SHARES
The CBCA provides for, but does not require, the designation of par value or no
par value shares as it eliminated the statutory definitions of capital and
surplus. The designations of par value or no par value, capital and surplus are
retained under the DGCL.
Under the CBCA, a corporation may not make any distribution (including
dividends, or repurchases and redemptions of shares) if, after giving effect to
the distribution, (i) the corporation would not be able to pay its debts as they
become due in the usual course of business or (ii) the corporation's total
assets would be less than the sum of its total liabilities plus (unless the
articles of incorporation permit otherwise) the amount that would be needed, if
the corporation were to be dissolved at the time of distribution, to satisfy the
preferential liquidation rights of shareholders not receiving the distribution.
The DGCL permits a corporation to declare and pay dividends out of surplus or,
if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or for the preceding fiscal year as long as the amount
of capital of the corporation following the declaration and payment of the
dividend is not less than the aggregate amount of the capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, the DGCL generally provides that a
corporation may redeem or repurchases its shares only if the capital of the
corporation is not impaired and such redemption or repurchase would not impair
the capital of the corporation.
INSPECTION OF SHAREHOLDER LIST
The CBCA allows a shareholder who has been a shareholder of the corporation for
at least three months, or who owns at least five percent of all of the
outstanding shares of any class of shares, to inspect and copy shareholder lists
by no less than five days prior written demand to the corporation, provided that
the purpose of the inspection is reasonably related to the inspecting
shareholder's interest as a shareholder. The CBCA also entitles shareholders
(regardless of duration of shareholder status or ownership percentage) to
inspect lists of shareholders entitled to vote at a shareholders' meeting,
beginning from the earlier of ten days prior to the meeting for which the list
was prepared or two business days after notice of the meeting is given by the
corporation.
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The DGCL allows any stockholder to inspect the stockholder list for a purpose
reasonably related to such person's interest as a stockholder. Delaware law also
provides inspection rights as to a list of stockholders entitled to vote at a
meeting within a ten-day period preceding a stockholders' meeting for any
purpose germane to the meeting.
STOCKHOLDER VOTING
In general, under the CBCA and the DGCL a majority of the outstanding voting
shares of both acquiring and target corporations must approve any statutory
merger, except in certain circumstances substantially similar under both the
CBCA and the DGCL.
Also, under the CBCA and the DGCL a sale of all or substantially all of the
assets of a corporation must be approved by a majority of the outstanding voting
shares of the corporation transferring such assets.
With certain exceptions, the CBCA also requires that mergers, share exchanges,
certain sales of assets and similar transactions be approved by a majority vote
of each voting group of shares outstanding. In contrast, the DGCL generally does
not require separate class voting, except in certain transactions involving an
amendment to a corporation's certificate of incorporation that adversely affects
a specific class of shares. As a result, stockholder approval of such
transactions may be easier to obtain under the DGCL for companies, which have
more than one class of shares outstanding.
INTERESTED DIRECTOR TRANSACTIONS
Under both the CBCA and the DGCL, certain contracts or transactions in which one
or more of a corporation's directors has an interest are not void or voidable
because of such interest provided that certain conditions, such as obtaining the
required approval and fulfilling the requirements of good faith and full
disclosure, are met. With certain exceptions, the conditions are similar under
the CBCA and the DGCL. The most significant difference between the DGCL and the
CBCA is that under the CBCA, a corporation cannot rely on ratification or
authorization of a disinterested board of directors regarding a loan or guaranty
benefiting a director unless the shareholders have been given at least ten days
written notice. The Company is not aware of any plans of the Board to propose,
authorize, or ratify any such transaction for which notice would be required
under the CBCA, but not under the DGCL.
STOCKHOLDER DERIVATIVE SUITS
The CBCA provides that the corporation or the defendant in a derivative suit may
require the plaintiff shareholder to furnish a security bond if the shareholder
holds less than 5% of the outstanding shares of any class and such shares have a
market value of less than $25,000. The DGCL does not have a similar bonding
requirement.
DISSENTERS' OR APPRAISAL RIGHTS
Under both the CBCA and the DGCL, a stockholder of a corporation participating
in certain major corporate transactions may, under varying circumstances, be
entitled to dissenters' rights (under the CBCA) or appraisal rights (under the
DGCL) pursuant to which such stockholder may receive cash in the amount of the
fair value of his or her shares in lieu of the consideration he or
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she would otherwise receive in the transaction. These rights are available in
response to similar transactions under both the CBCA and the DGCL, except that
under the CBCA, dissenters' rights are also available to shareholders in the
event of (i) a share exchange to which the corporation is a party as the
corporation whose shares will be acquired (a transaction not specifically
authorized by the DGCL), (ii) a sale, lease, exchange or other disposition of
all or substantially all of the assets of a corporation or an entity which the
corporation controls if a vote of the shareholders is otherwise required and
(iii) a reverse stock split if the split reduces the number of shares owned by
the shareholder to a fraction of a share or to scrip and such fraction or scrip
is to be acquired for cash or voided pursuant to the statutory procedure
available under the CBCA.
In addition, there are differences in the timing of payments made to dissenting
shareholders, the ability of a court to award attorneys' fees, and the manner of
determining "fair value" which may make the CBCA more favorable from a
shareholder's point of view.
Under both the CBCA and the DGCL, shareholders (i) receive prior notice of their
rights to dissent, (ii) must deliver their notice of dissent prior to the
corporate action given rise to dissenter's rights, and (iii) will receive notice
from the corporation of the effectiveness of the corporate action within ten
days. Other procedural differences between the CBCA and DGCL may be viewed as
more or less favorable to a dissenting stockholder.
Under the DGCL, within 120 days after the effective date of the transaction
triggering appraisal rights, a dissenting stockholder, who has complied with the
requirements necessary to dissent from a corporate action under the DGCL, may
petition the Court of Chancery of the State of Delaware to determine the fair
value of the shares of all dissenting stockholders, after which the corporation
will be instructed to pay to the dissenting stockholder the fair value, as
determined by such court. The court costs may be allocated among the corporation
and dissenting stockholders, as the Court of Chancery deems equitable, and the
legal fees for dissenting stockholders who prosecute their claims may be spread
among the dissenting stockholders as a group. Finally, in determining "fair
value" the Delaware Court of Chancery is required to consider all relevant
factors, and to include interest, but is statutorily prohibited from including
"any element of value arising from the accomplishment or expectation" of the
transaction giving rise to appraisal rights.
In contrast, under the CBCA, a dissenting shareholder may make a demand no later
than 30 days following the notice from the corporation of the maturity of his or
her appraisal rights. Upon receipt of such demand (or the effective date of the
transaction, whichever is later), the corporation must pay each dissenter who
has properly followed the procedure set forth in the CBCA an amount which the
corporation estimates to be the fair value of the dissenter's shares, plus
interest. In addition, the corporation must also deliver, among other things,
financial statements, a statement of the estimate of fair value, and an
explanation of how interest was calculated. If the dissenting shareholder is
dissatisfied with this offer, such dissenting stockholder may then, within 30
days, keep the payment, but reject the corporation's calculation of fair value
and present a counter-offer. If the corporation does not agree with the
dissenting shareholder's counter-offer, the corporation is forced to commence an
appraisal proceeding. A court will then determine the fair value of the
dissenter's shares, taking into consideration all
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relevant factors. The court can also assess legal fees not only among the class
of dissenters as under the DGCL, but against the corporation if it is determined
that it is equitable to do so and that the corporation did not substantially
comply with the procedures set forth in the CBCA. Legal fees and expenses may
also be awarded to any party if the opposing party is found to have acted
arbitrarily, vexatiously or not in good faith. Unlike the DGCL, the CBCA does
not specifically prohibit the court from taking into effect any appreciation in
the fair value of the shares attributable to the "accomplishment or expectation"
of the transaction giving rise to dissenter's rights.
DISSOLUTION
Under the CBCA, dissolution may be authorized by the adoption of a plan of
dissolution by the board of directors, followed by the recommendation of the
proposal to the shareholders (unless because of a conflict of interest or other
circumstances the board determines it cannot make any recommendation), then
followed by the approval of shareholders entitled to vote thereon. The CBCA
provides for the approval by a majority of each voting group entitled to vote
thereon. The CBCA also provides for judicial dissolution of a corporation in an
action by a shareholder upon a showing that (i) the directors are deadlocked in
management, the shareholders are unable to break the deadlock, and irreparable
injury to the corporation is threatened or being suffered, or the business and
affairs of the corporation can no longer be conducted to the advantage of the
shareholders generally, because of the deadlock, (ii) the directors or those in
control of the corporation are acting or will act in a manner which is illegal,
oppressive, or fraudulent, (iii) the shareholders have been deadlocked over two
annual meetings in the election of directors or (iv) the corporate assets are
being misapplied or wasted. A Colorado corporation can also be dissolved
judicially upon other grounds in a proceeding by the attorney general, or in a
proceeding by creditors, as well as by the secretary of state.
Under the DGCL, unless a majority of the board of directors approves the
proposal to dissolve, the dissolution must be approved by the written consent of
all the stockholders entitled to vote thereon. Only if the dissolution is
initially approved by the board of directors may it be approved by a majority of
the outstanding shares of the corporation's stock entitled to vote. In the event
of such a board-initiated dissolution, the DGCL allows a Delaware corporation to
include in its certificate of incorporation a supermajority (greater than a
majority) voting requirement of the corporation's stockholders to approve a
dissolution of the corporation. The Delaware Certificate contains no such
supermajority voting requirement, however, and a majority of the outstanding
shares entitled to vote, voting at a meeting at which a quorum is present, would
be sufficient to approve a dissolution of Cool Delaware that had previously been
approved by a majority of Cool Delaware's Board. The DGCL provides for
dissolution by the Court of Chancery of the State of Delaware for abuse, misuse
or nonuse of its corporate powers, privileges or franchises.
STANDARD OF CONDUCT FOR DIRECTORS
Under Colorado law, the standards of conduct for the performance by directors of
their duties are governed by statute. Section 7-108-401 of the CBCA requires
that a director of a Colorado corporation perform his duties in "good faith,"
"with the care an ordinary prudent person in like position would exercise under
similar circumstances" and "in a manner he or she reasonably believes to be in
the best interests of the corporation."
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Under Delaware law, the standards of conduct for directors have developed
through written opinions of the Delaware courts in cases decided by them.
Generally, directors of Delaware corporations are subject to a duty of loyalty,
a duty of care and a duty to act in good faith. The duty of loyalty has been
said to require directors to refrain from self-dealing. According to the
Supreme Court of the State of Delaware, the duty of care requires "directors . .
. in managing the corporate affairs . . . to use that amount of care which
ordinarily careful and prudent men would use in similar circumstances." Case law
has established "gross negligence" as the standard for awarding money damages
for violation of the duty of care in the process of decision-making by directors
of Delaware corporations.
THE STOCK SPLIT
The Reorganization will effect a 1-for-100 reverse stock split whereby every 100
shares of Cool's currently outstanding shares of common stock will be exchanged
for one share of Cool Delaware Common Stock. There are presently 38,340,636
shares outstanding, and the Reorganization would reduce this number to
approximately 383,406 shares.
REASONS FOR THE PROPOSED REVERSE STOCK SPLIT
In addition to the reverse stock split being a condition precedent to the
consummation of the Acquisition of E-Trend, Cool management is proposing the
reverse stock split for the following reasons: management believes a reverse
stock split will (1) reduce the number of outstanding shares of common stock and
thereby make available shares of common stock with which to acquire assets into
Cool; and (2) help raise the trading price of Cool's common stock. In
discussions by the Cool's executive officers with members of the brokerage and
banking industries, Cool has been advised that the brokerage firms might be more
willing to evaluate Cool's securities as a possible investment opportunity for
their clients and may be more willing to act as a market maker in Cool's
securities if the price range for Cool's common stock were higher. Management
believes that additional interest by the investment community in Cool's stock,
of which there can be no assurance, is desirable.
Cool's management also believes that existing low trading prices of Cool's
common stock may have an adverse impact upon the current level of the trading
market for the common stock. In particular, brokerage firms often charge higher
commissions for transactions involving low-priced stocks than they would for the
same dollar amount of securities with a higher per share price. Some brokerage
firms will not recommend purchases of low-priced stocks to their clients or make
a market in such stock, which tendencies may adversely affect the liquidity for
current shareholders and Cool's ability to obtain additional equity financing.
EFFECTS OF APPROVAL OF THE REVERSE STOCK SPLIT
Theoretically, the market price of Cool's common stock should increase
approximately 100-fold following the proposed reverse stock split. It is hoped
that this will result in a price level which will overcome the reluctance,
policies, and practices of broker-dealers described above and
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increase interest in Cool's common stock by investors. Shareholders should note
that the effect of the reverse stock split upon the market price for Cool's
common stock cannot be accurately predicted. Further, there can be no assurance
that the per share market price of the post-split common stock will trade at a
price 100 times the price of the pre-split common stock or, if it does, that the
price can be maintained at that level for any period of time.
On December 19, 2000, the closing bid and asked prices of Cool's common stock
were $0.03 and $0.04 per share, respectively, as reported by the OTC Bulletin
Board. The foregoing quotation reflects inter-dealer prices, without retail
mark-up mark-down, or commission and may not represent actual transactions.
Cool's management, by implementing a reverse stock split, does not intend to
"take the company private" by decreasing the number of shareholders of Cool.
Based on the shareholders' list as of November 17, 2000, a 1-for-100 reverse
stock split would result in 106 of the 200 shareholders of record being
eliminated or closed out as a result of holding less than one share after the
reverse stock split. All but 17 of the 200 record shareholders as of November
17, 2000, have a number of shares not evenly divisible by 100. As disclosed
below, Cool will pay cash in lieu of issuing fractional shares resulting from
the reverse stock split.
PROCEDURE FOR IMPLEMENTING THE REVERSE SPLIT
If this proposal is adopted by the shareholders, 100 shares of pre-split common
stock of Cool will be exchanged for each share of Cool Delaware Common Stock.
Shares of Cool Delaware Common Stock may be obtained by surrendering
certificates representing shares of pre-split common stock to Cool's transfer
agent, Computershare Investor Services, (formerly American Securities Transfer,
Inc.), 12039 W. Alameda Parkway, Suite Z-2, Lakewood, Colorado 80228 (the
"Transfer Agent"). To determine the number of shares of Cool Delaware Common
Stock issuable to any record holder, the total number of shares represented by
all of the certificates issued in the name of that record holder held in each
account as set forth on the records of the Transfer Agent on the date upon which
the Merger split becomes effective will be divided by 100. Upon surrender to the
Transfer Agent of the share certificate(s) representing shares of pre-split
common stock and the applicable transfer fee, which presently is $20 per new
certificate issued payable by the holder, the holder will receive a share
certificate representing the appropriate number of shares of Cool Delaware
Common Stock. If the division described above results in a quotient which
contains a fraction, Cool will pay cash in lieu instead of issuing a fractional
share. Shareholders are not required to exchange their certificates of pre-split
common stock for Cool Delaware Common Stock.
ADOPTION OF STOCK PLAN
The Board is requesting that the shareholders of the Company adopt the 2001
Stock Plan (the "Plan") reserving an aggregate of 4,000,000 shares of Cool
Delaware Common Stock (the "Available Shares") for issuance pursuant to the
exercise of stock options ("Options") which may be granted to employees,
officers, and directors of the Company and consultants to the Company.
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Awards of restricted stock ("Awards") may also be made under the Plan. Shares
issued under this Plan are "restricted" in the sense that they are subject to
repurchase by the Company at cost during the vesting period.
The Plan is designed to (i) induce qualified persons to become employees,
officers, or directors of the Company; (ii) reward such persons for past
services to the Company; (iii) encourage such persons to remain in the employ of
the Company or associated with the Company; and (iv) provide additional
incentive for such persons to put forth maximum efforts for the success of
business of the Company. To the extent that management personnel may be eligible
to receive Options, which may be granted under the Plan, management has an
interest in obtaining approval of the Plan by the Company's shareholders.
Assuming the consummation of the acquisition of E-Trend, as of December 15,
2000, 33 persons would have been eligible to participate in the Plan.
ADMINISTRATION OF THE PLAN
The Plan will be administered by the Company's Board of Directors or any of its
committees appointed as permitted under the Plan (the "Administrator").
Transactions under the Plan are intended to comply with all applicable
provisions under the Securities Exchange Act of 1934, as amended (the "1934
Act"). In addition to determining who will be granted Options or Awards, the
Committee has the authority and discretion to determine when Options or Awards
will be granted and the number of Options or shares to be granted. The
Administrator may determine which Options may be intended to qualify ("Incentive
Stock Options") for special treatment under the Internal Revenue Code of 1986,
as amended from time to time (the "Code") or Non-Qualified Options
("Non-Qualified Stock Options") which are not intended to so qualify. See
"Federal Income Tax Consequences" below. The Administrator also may determine
the time or times when each Option becomes exercisable, the duration of the
exercise period for Options, the form or forms of the instruments evidencing
Options or Awards granted under the Plan, the purchase price of the shares
issued under the Plan, and the period or periods of time during which the
Company will have a right to repurchase the shares and the terms and conditions
of such repurchase. The Administrator may adopt, amend, and rescind such rules
and regulations as in its opinion may be advisable for the administration of the
Plan. The Administrator may amend the Plan without shareholder approval where
such approval is not required to satisfy any statutory or regulatory
requirements.
The Administrator also may construe the Plan and the provisions in the
instruments evidencing options granted under the Plan to employee and officer
participants and is empowered to make all other determinations deemed necessary
or advisable for the administration of the Plan. The Administrator may not
adversely affect the rights of any participant without the consent of such
participant. This Plan will remain in effect for a term of 10 years from the
earlier to occur of its adoption by the Board of Directors or its approval by
the shareholders, unless soon terminated by the Board of Directors.
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The Plan contains provisions for proportionate adjustment of the number of
shares for outstanding options and the option price per share in the event of
stock dividends, recapitalizations resulting in stock splits or combinations or
exchanges of shares.
Participants in the Plan may be selected by the Administrator from employees and
officers of the Company and its subsidiaries and consultants to the Company and
its subsidiaries. In determining the persons to whom options and Awards will be
granted and the number of shares to be covered by each option, the Administrator
will take into account the duties of the respective persons, their present and
potential contributions to the success of the Company, and such other factors as
the Administrator deems relevant to accomplish the purposes of the Plan.
STOCK OPTIONS
Only employees of the Company and its subsidiaries, as the term "employee" is
defined for the purposes of the Code will be entitled to receive Incentive Stock
Options. Incentive Stock Options granted under the Plan are intended to satisfy
all requirements for incentive stock options under Section 422 of the Code and
the Treasury Regulations thereunder.
Each option granted under the Plan will be evidenced by a written option
agreement between the Company and the optionee. The option price of any
Incentive Stock Option may be not less than 100% of the Fair Market Value per
share on the date of grant of the option; provided, however, that any Incentive
Stock Option granted under the Plan to a person owning more than ten percent of
the total combined voting power of the Common Stock will have an option price of
not less than 110% of the Fair Market Value per share on the date of grant of
the Incentive Stock Option. "Fair Market Value" per share as of a particular
date is defined in the Plan as the last sale price of the Company's Common Stock
as reported on a national securities exchange or on the NASDAQ System or, if
none, the average of the closing bid and asked prices of the Company's Common
Stock as reported by NASDAQ or, if such quotations are unavailable, the value
determined by the Administrator in its discretion in good faith.
The exercise period of options granted under the Plan may not exceed ten years
from the date of grant thereof. Incentive Stock Options granted to a person
owning more than ten percent of the total combined voting power of the Common
Stock of the Company will be for no more than five years. Except in the case of
options granted to disinterested directors, who comprise the Compensation
Administrator, the Administrator will have the authority to accelerate or extend
the exercisability of any outstanding option at such time and under such
circumstances as it, in its sole discretion, deems appropriate. However, no
exercise period may be extended to increase the term of the option beyond ten
years from the date of the grant.
To exercise an option, the optionee must pay the full exercise price in cash, in
shares of Common Stock having a Fair Market Value equal to the option price or
in property or in a combination of cash, shares, and property and, subject to
approval of the Administrator. The Administrator has the sole and absolute
discretion to determine whether or not property other than cash or Common Stock
may be used to purchase the shares of Common Stock thereunder and, if so, to
determine the value of the property received.
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An option may not be exercised unless the optionee then is an employee, officer,
or consultant of the Company or its subsidiaries, and unless the optionee has
remained continuously as an employee, officer, or consultant of the Company
since the date of grant of the option. If the optionee ceases to be an employee,
officer, or consultant of the Company or its subsidiaries other than by reason
of death, disability, or for cause, all options granted to such optionee, fully
vested to such optionee but not yet exercised, will terminate three months after
the date the optionee ceases to be an employee, officer or consultant of the
Company. All options which are not vested to an optionee, under the conditions
stated in this paragraph for which employment ceases, will immediately terminate
on the date the optionee ceases employment or association.
If an optionee dies while an employee, officer or consultant of the Company, or
if the optionee's employment, officer, or consultant status terminates by reason
of disability, all options theretofore granted to such optionee, whether or not
otherwise exercisable, unless earlier terminated in accordance with their terms,
may be exercised at any time within one year after the date of death or
disability of said optionee, by the optionee or by the optionee's estate or by a
person who acquired the right to exercise such options by bequest or inheritance
or otherwise by reason of the death or disability of the optionee.
Options granted under the Plan are not transferable other than by will or by the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act of 1974, or the rules thereunder. Options may be exercised, during
the lifetime of the optionee, only by the optionee and thereafter only by his
legal representative. An optionee has no rights as a shareholder with respect to
any shares covered by an option until the option has been exercised.
As a condition to the issuance of shares upon the exercise of an option, the
Company will require the optionee to pay to the Company the amount of the
Company's tax withholding liability required in connection with such exercise.
The Company, to the extent permitted or required by law, may deduct a sufficient
number of shares due to the optionee upon exercise of the option to allow the
Company to pay such withholding taxes. The Company is not obligated to advise
any optionee of the existence of any tax or the amount which the Company will be
so required to withhold.
FEDERAL INCOME TAX CONSEQUENCES OF STOCK OPTIONS
The federal income tax discussion set forth below is included for general
information only. Optionees are urged to consult their tax advisors to determine
the particular tax consequences applicable to them, including the application
and effect of foreign, state, and local income and other tax laws.
INCENTIVE STOCK OPTIONS
No income results to the holder of an Incentive Stock Option upon the grant
thereof or issuance of shares upon exercise thereof. The amount realized on the
sale or taxable exchange of the shares obtained through exercise of the Option
in excess of the option exercise price will be
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considered a capital gain, except that, if a sale, taxable exchange, or other
disposition occurs within one year after exercise of the Incentive Stock Option
or two years after the grant of the Incentive Stock Option (generally considered
to be a "disqualifying disposition"), the optionee will realize compensation,
for federal income tax purposes, on the amount by which the lesser of (i) the
fair market value on the date of exercise or (ii) the amount realized on the
sale of the shares, exceeds the exercise price. Any appreciation on the shares
between the exercise date and the disposition will be taxed to the optionee as
capital gain. The difference between the exercise price and the fair market
value of the shares acquired at the time of exercise is a tax preference item
for the purpose of calculating the alternative minimum tax on individuals under
the Code. This preference amount will not be included again in alternative
minimum taxable income in the year the taxpayer disposes of the stock.
NON-QUALIFIED STOCK OPTIONS
No compensation will be realized by the optionee of a Non-Qualified Stock Option
at the time it is granted. Upon the exercise of a Non-Qualified Stock Option, an
optionee will realize compensation for federal income tax purposes on the
difference between the exercise price and the fair market value of the shares
acquired at the time of exercise. If the optionee exercises a Non-Qualified
Stock Option by surrendering shares of the Company's Common Stock, the optionee
will not recognize income or gain at the time of exercise.
CONSEQUENCES TO THE COMPANY
The Company recognizes no deduction at the time of grant or exercise of an
Incentive Stock Option and recognizes no deduction at the time of grant of a
Non-Qualified Stock Option. The Company will recognize a deduction at the time
of exercise of a Non-Qualified Stock Option on the difference between the option
price and the fair market value of the shares on the date of grant. The Company
also will recognize a deduction to the extent the optionee recognizes income
upon a disqualifying disposition of shares underlying an Incentive Stock Option.
VESTING OF OPTIONS
Unless otherwise specified in an optionee's agreement, options granted under the
Plan will become vested with the optionee over the course of four years from
date of grant under the following schedule: 25% upon the first anniversary of
the option grant and the remaining 75% monthly over the following 36 months.
RESTRICTED STOCK AWARDS
Shares issued under the Plan will be evidenced by a written restricted stock
purchase agreement between the Company and the participant. Shares issued under
the Plan are transferable only if the transferee agrees to be bound by all of
the terms of the Plan, including the Company's right to repurchase the shares,
and only if such transfer is permissible under federal and state securities
laws. To facilitate the enforcement of the restrictions on transfer, the
Administrator may require the holder of the shares to deliver the certificate(s)
for such shares to be held in escrow during the period of restriction.
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FEDERAL INCOME TAX CONSEQUENCES OF AWARDS
The federal income tax discussion set forth below is included for general
information only. Participants are urged to consult their tax advisors to
determine the particular tax consequences applicable to them, including the
application and effect of foreign, state, and local income and other tax laws.
Section 83(a) of the Internal Revenue Code provides that the receipt of stock
subject to a substantial risk of forfeiture and which is nontransferable does
not result in taxable income until the restrictions lapse. At that time, the
employee recognizes compensation income (taxable at the rate applicable to
ordinary income) in the amount of the spread between the value of the stock and
the amount, if any, the employee paid for the stock. The Company must withhold
employment taxes on this income, and generally may deduct the amount the
employee includes in income as an ordinary business expense.
VESTING OF AWARDS
Unless otherwise specified in a participant's agreement, Awards of shares issued
under the Plan will become vested with the participant over the course of four
years from date of grant under the following schedule: 25% upon the first
anniversary of the grant and the remaining 75% monthly over the following 36
months.
PROPOSALS OF SHAREHOLDERS FOR 2001 ANNUAL MEETING
Proposals of shareholders intended to be presented at the 2001 Annual
Shareholders' meeting must be received by the corporate secretary, Cool
Entertainment, Inc., 5919 - 3rd Street, S.E., Calgary, Alberta, Canada T2H 1K3,
prior to June 30, 2001.
OTHER MATTERS
Management of Cool knows of no other matters to be acted upon at the Special
Meeting.
INCORPORATION BY REFERENCE
Cool's annual report for the fiscal year ended June 30, 2000 on Form 10-KSB is
incorporated by reference herein. A copy of this report is available, without
charge, upon written request to William Hadcock, Cool Entertainment, Inc., 10900
N.E. 8th Street, Suite 900, Bellevue, Washington 98004, and is annexed hereto as
Appendix C.
Cool Entertainment, Inc. Information Statement - Page 56
<PAGE>
<PAGE>
APPENDIX A
EXCHANGE AGREEMENT
<PAGE>
SHARE EXCHANGE AGREEMENT
by and among
COOL ENTERTAINMENT, INC., A COLORADO CORPORATION
and
E-TREND NETWORKS, INC., A TO-BE-FORMED DELAWARE CORPORATION
and
E-TREND NETWORKS, INC., A NEVADA CORPORATION
Dated as of December 22, 2000
<PAGE>
TABLE OF CONTENTS
PAGE
THE SHARE EXCHANGE.............................................................2
1.1 THE SHARE EXCHANGE...........................................2
1.2 NUMBER OF SHARES OF COOL COMMON STOCK........................2
1.3 CONVERSION OF E-TREND COMMON STOCK...........................2
1.4 E-TREND OPTIONS, WARRANTS, EQUITY RIGHTS AND E-TREND
STOCK PLAN...................................................2
1.5 EFFECTIVE TIME...............................................3
1.6 FRACTIONAL SHARES............................................3
1.7 RESERVATION OF SHARES........................................3
1.8 ADJUSTMENTS TO EXCHANGE RATIO................................3
1.9 DISSENTING SHARES............................................3
1.10 EXCHANGE OF CERTIFICATES.....................................4
1.11 NO FURTHER OWNERSHIP RIGHTS IN E-TREND COMMON STOCK..........4
1.12 LOST, STOLEN OR DESTROYED CERTIFICATES.......................4
1.13 EXEMPTION FROM REGISTRATION..................................4
1.14 REPORTING OF SHARE EXCHANGE..................................4
1.15 BOARD OF DIRECTORS OF SUNBURST...............................4
1.16 TAKING OF NECESSARY ACTION; FURTHER ACTION...................4
THE CLOSING....................................................................5
2.1 TIME AND PLACE OF CLOSING....................................5
2.2 OBLIGATIONS OF THE AMERICAN SHAREHOLDERS AT OR PRIOR
TO THE CLOSING...............................................5
2.3 OBLIGATIONS OF SUNBURST AT OR PRIOR TO THE CLOSING...........5
REPRESENTATIONS AND WARRANTIES OF THE AMERICAN SHAREHOLDERS....................6
3.1 ORGANIZATION AND QUALIFICATION...............................7
3.2 CAPITALIZATION...............................................7
3.3 SUBSIDIARIES AND AFFILIATES..................................7
3.4 OPTIONS OR OTHER RIGHTS......................................7
3.5 OWNERSHIP OF SHARES..........................................7
3.6 VALIDITY AND EXECUTION OF AGREEMENT..........................7
3.7 NO CONFLICT..................................................7
3.8 CONSENTS AND APPROVALS.......................................8
3.9 VIOLATION OF LAWS, PERMITS, ETC..............................8
3.10 BOOKS AND RECORDS............................................8
3.11 AMERICAN FINANCIAL STATEMENTS................................8
3.12 UNDISCLOSED LIABILITIES......................................9
3.13 TITLE TO PROPERTY; ENCUMBRANCES..............................9
3.14 TAXES........................................................9
3.15 LITIGATION..................................................10
3.16 CONTRACTS AND OTHER AGREEMENTS..............................10
3.17 ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE....................10
3.18 COMPENSATION ARRANGEMENTS; OFFICERS, DIRECTORS AND
EMPLOYEES...................................................11
3.19 ERISA.......................................................11
3.20 OPERATIONS..................................................11
<PAGE>
3.21 INTANGIBLE PROPERTY AND INTELLECTUAL PROPERTY...............13
3.22 EMPLOYEE RELATIONS..........................................13
3.23 INSURANCE...................................................13
3.24 LICENSES AND PERMITS........................................14
3.25 BROKERS.....................................................14
3.26 DISCLOSURE..................................................14
REPRESENTATIONS AND WARRANTIES OF SUNBURST....................................14
4.1 ORGANIZATION AND QUALIFICATION..............................14
4.2 CAPITALIZATION..............................................14
4.3 SUBSIDIARIES AND AFFILIATES.................................15
4.4 OPTIONS OR OTHER RIGHTS.....................................15
4.5 VALIDITY AND EXECUTION OF AGREEMENT.........................15
4.6 NO CONFLICT.................................................15
4.7 CONSENTS AND APPROVALS......................................15
4.8 VIOLATION OF LAWS, PERMITS, ETC.............................15
4.9 BOOKS AND RECORDS...........................................16
4.10 SUNBURST FINANCIAL STATEMENTS...............................16
4.11 UNDISCLOSED LIABILITIES.....................................16
4.12 TITLE TO PROPERTY; ENCUMBRANCES.............................17
4.13 TAXES.......................................................17
4.14 LITIGATION..................................................17
4.15 CONTRACTS AND OTHER AGREEMENTS..............................17
4.16 COMPENSATION ARRANGEMENTS; OFFICERS, DIRECTORS AND
EMPLOYEES...................................................18
4.17 ERISA.......................................................18
4.18 OPERATIONS..................................................18
4.19 INTANGIBLE PROPERTY AND INTELLECTUAL PROPERTY...............20
4.20 INSURANCE...................................................20
4.21 LICENSES AND PERMITS........................................20
4.22 BROKERS.....................................................20
4.23 APPROVAL OF SHARE EXCHANGE..................................21
4.24 SEC REPORTING STATUS........................................21
4.25 INVESTMENT COMPANY..........................................21
4.26 OTC BULLETIN BOARD STATUS...................................21
4.27 NEWLY ORGANIZED ENTITY......................................21
4.28 DISCLOSURE..................................................21
ACTIONS PRIOR TO CLOSING......................................................21
5.1 CORPORATE EXAMINATIONS AND INVESTIGATIONS...................21
5.2 CONDUCT OF BUSINESS.........................................22
5.3 PRESERVATION OF BUSINESS....................................22
5.4 ADVICE OF CHANGES...........................................23
5.5 OTC BULLETIN BOARD..........................................23
5.6 SEC REPORTS.................................................23
5.7 REORGANIZATION..............................................23
5.8 SHAREHOLDER APPROVALS.......................................23
<PAGE>
5.9 OTHER AGREEMENTS............................................23
CONDITIONS PRECEDENT TO CLOSING...............................................24
6.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SUNBURST
TO COMPLETE THE CLOSING.....................................24
6.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE AMERICAN
SHAREHOLDERS TO COMPLETE THE CLOSING........................25
POST-CLOSING COVENANTS........................................................27
7.1 FURTHER INFORMATION.........................................28
7.2 RECORD RETENTION............................................28
7.3 POST-CLOSING ASSISTANCE.....................................28
7.4 SEC REPORTING...............................................28
SURVIVAL; INDEMNIFICATION.....................................................29
8.1 SURVIVAL OF AGREEMENTS, REPRESENTATIONS AND WARRANTIES......29
TERMINATION OF AGREEMENT......................................................29
9.1 TERMINATION.................................................29
9.2 SURVIVAL AFTER TERMINATION..................................30
MISCELLANEOUS.................................................................30
10.1 EXPENSES....................................................30
10.2 FURTHER ASSURANCES..........................................30
10.3 NOTICES.....................................................30
10.4 MEDIATION...................................................31
10.5 ARBITRATION.................................................32
10.6 PUBLICITY...................................................32
10.7 ENTIRE AGREEMENT............................................32
10.8 WAIVERS AND AMENDMENTS......................................32
10.9 GOVERNING LAW...............................................32
10.10 BINDING EFFECT, NO ASSIGNMENT............................32
10.11 COUNTERPARTS.............................................33
10.12 EXHIBITS AND SCHEDULES...................................33
10.13 EFFECT OF DISCLOSURE ON SCHEDULES........................33
10.14 HEADINGS.................................................33
10.15 SEVERABILITY OF PROVISIONS...............................33
<PAGE>
THIS SHARE EXCHANGE AGREEMENT is entered into as of December 22, 2000, by and
among COOL ENTERTAINMENT, INC., a Colorado corporation ("COOL"), E-TREND
NETWORKS, INC., a Delaware corporation to be formed by Cool ("Cool Delaware"),
and E-TREND NETWORKS, INC., a Nevada corporation ("E-TREND").
RECITALS
A. The Boards of Directors of each of Cool and E-Trend have determined
that it is in the best interests of Cool and E-Trend (as applicable)
and their respective shareholders that Cool acquire E-Trend through a
statutory share exchange under the laws of Nevada (the "SHARE
EXCHANGE") and, in furtherance thereof, have approved the Share
Exchange, this Agreement and the transactions contemplated hereby.
B. Under the terms of this Agreement, Cool will effect a change in
domicile and a consolidation of its issued and outstanding share
capital on a 1 share for 100 share basis by merging with and into Cool
Delaware, a corporation to-be-formed by Cool for the purposes of the
reorganization (the "Reorganization"), immediately prior to the Share
Exchange;
C. Cool shareholders owning a majority of the issued and outstanding
shares of Cool Common Stock have approved the Reorganization, the Share
Exchange and the transactions contemplated under this Agreement;
D. Pursuant to the Share Exchange, among other things, and subject to the
terms and conditions of this Agreement, (i) all of the shares of
capital stock of E-Trend which are issued and outstanding immediately
prior to the Effective Time (as defined below) shall be converted into
the right to receive shares of common stock, $0.0001 par value per
share, of Cool Delaware ("COOL COMMON STOCK"), and (ii) all stock
options, warrants and other convertible instruments of E-Trend
issued/granted and outstanding immediately prior to the Effective Time
(collectively, the "E-TREND OPTIONS") will become exercisable for
shares of Cool Common Stock, on the terms and subject to the conditions
set forth herein.
E. Cool and E-Trend desire to make certain representations, warranties,
covenants and agreements in connection with the Share Exchange.
AGREEMENT
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements hereinafter set forth, in accordance with the provisions of
applicable law, the parties hereby agree as follows:
<PAGE>
ARTICLE 1
THE SHARE EXCHANGE
1.1 THE SHARE EXCHANGE. At the Effective Time and upon the terms and
subject to the conditions of this Agreement and the applicable
provisions of the Nevada General Corporation Law and all amendments and
additions thereto (the "Nevada Law") and the Delaware General
Corporation Law and all amendments and additions thereto (the "Delaware
Law"), by virtue of the Share Exchange and without any action on the
part of Cool, Cool Delaware or the holder of any shares of E-Trend
Common Stock or Company Options, the following shall occur:
1.2 NUMBER OF SHARES OF COOL COMMON STOCK. The stockholders of E-Trend
named on Schedule A attached to this Agreement (the "E-Trend
Shareholders") shall receive an aggregate of 4,441,867 shares of Cool
Common Stock on a pro rata basis based on their percentage
shareholdings in E-Trend at the Effective Date, immediately after Cool
shall have effected the Reorganization, and E-Trend shall become a
wholly-owned subsidiary of Cool.
1.3 CONVERSION OF E-TREND COMMON STOCK. Each share of E-Trend issued and
outstanding immediately prior to the Effective Time (other than any
Dissenting Shares, as such term is defined in SECTION 1.9) will be
automatically cancelled and extinguished and each share of E-Trend
Common Stock that is issued and outstanding immediately prior to the
Effective Time shall be converted automatically into the right to
receive one-half (1/2) of share of Cool Common Stock (the "EXCHANGE
RATIO"), rounded to the nearest whole share of Cool Common Stock.
1.4 E-TREND OPTIONS, WARRANTS, EQUITY RIGHTS AND E-TREND STOCK PLAN. Each
unexpired and unexercised E-Trend Option then outstanding, whether
vested or unvested, shall be, in connection with the Share Exchange,
assumed by Cool Delaware, together with the E-Trend 1999 Stock Option
Plan (the "E-TREND OPTION PLAN"). Each E-Trend Option so assumed by
Cool Delaware under this Agreement shall continue to have, and be
subject to, the same terms and conditions as were applicable to such
E-Trend Option immediately prior to the Effective Time (including, but
not limited to, any repurchase rights or vesting provisions), PROVIDED
that (A) such E-Trend Option shall be exercisable for that number of
whole shares of Cool Common Stock equal to the product of the number of
shares of E-Trend Common Stock that were issuable upon exercise of such
E-Trend Option immediately prior to the Effective Time multiplied by
the Exchange Ratio (rounded down to the nearest whole number of shares
of Cool Common Stock) and (B) the per share exercise price for the
shares of Cool Common Stock issuable upon exercise of such assumed
E-Trend Option, shall be equal to the quotient determined by dividing
the exercise price per share of Cool Common Stock at which such E-Trend
Option was exercisable immediately prior to the Effective Time by the
Exchange Ratio (rounded up to the nearest whole cent). It is the
intention of the parties that the E-Trend Options granted under the
E-Trend Option Plan be assumed by Cool Delaware under the E-Trend
Option Plan or at the discretion of the Board of Directors of Cool
Delaware, a comparable stock option plan adopted by Cool Delaware,
subject to
Share Exchange Agreement - Page 2
<PAGE>
applicable law and the terms of such option grants. Further, it is the
intent of the parties that the E-Trend Options granted under the
E-Trend Option Plan and assumed by Cool Delaware, shall qualify
following the Effective Time as incentive stock options as defined in
Section 422 of the Internal Revenue Code to the same extent the E-Trend
Options qualified as incentive stock options immediately prior to the
Effective Time and the provisions of this SECTION 1.4 shall be applied
consistent with this intent.
1.5 EFFECTIVE TIME. The Share Exchange will become effective upon the
proper filing of Articles of Share Exchange with the Secretary of State
of the State of Nevada, or such other jurisdictions as required (the
"EFFECTIVE TIME").
1.6 FRACTIONAL SHARES. No fraction of a share of Cool Common Stock will be
issued upon such exchange of shares of E-Trend Common Stock. Instead
amounts of shares will be rounded to the nearest whole number.
1.7 RESERVATION OF SHARES. Cool Delaware will reserve sufficient shares of
Cool Common Stock for issuance pursuant to SECTIONS 1.3 AND 1.4.
1.8 ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be equitably
adjusted to reflect fully the effect of any stock split, reverse split,
stock combination, stock dividend (including any dividend or
distribution of securities convertible into Cool Common Stock or
E-Trend Common Stock), reorganization, reclassification,
recapitalization or other like change with respect to Cool Common Stock
or E-Trend Common Stock, the effective date of which occurs after the
date hereof and prior to the Effective Time.
1.9 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of E-Trend Common Stock held by a holder who has
demanded and perfected appraisal rights for such shares in
accordance with the Nevada Law and who, as of the Effective
Time, has not effectively withdrawn or lost such appraisal or
dissenters' rights ("DISSENTING SHARES") shall not be converted
into or represent a right to receive Cool Common Stock pursuant
to SECTIONS 1.2 and 1.3, but the holder thereof shall only be
entitled to such rights as are granted by the Nevada Law.
(b) Notwithstanding the provisions of SECTION 1.9(A), if any holder
of shares of E-Trend Common Stock who demands appraisal of such
shares under the Nevada Law shall effectively withdraw or lose
(through failure to perfect or otherwise) the right to
appraisal, then, as of the later of (i) the Effective Time or
(ii) the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to
receive Cool Common Stock as provided in SECTIONS 1.2 and 1.3,
without interest thereon, in accordance with SECTIONS 1.2 and
1.3.
(c) E-Trend shall give Cool Delaware (i) prompt notice of its
receipt of any written demands for appraisal of any shares of
Cool Common Stock, withdrawals of such demands, and any other
instruments relating to the Share Exchange received by E-
Share Exchange Agreement - Page 3
<PAGE>
Trend and (ii) the opportunity to participate in all
negotiations and proceedings with respect to demands for
appraisal under the Nevada Law.
1.10 EXCHANGE OF CERTIFICATES. At Closing, or as soon as practicable
thereafter, Cool shall have its transfer agent issue a letter of
transmittal to each E-Trend Shareholder listed on SCHEDULE A hereto.
After having received a completed letter of transmittal and
certificates representing such E-Trend Shareholder's E-Trend Common
Stock, the transfer agent shall deliver certificates representing the
whole number of shares of Cool Common Stock into which such E-Trend
Shareholder's shares of E-Trend Common Stock shall have been exchanged
as set forth herein.
1.11 NO FURTHER OWNERSHIP RIGHTS IN E-TREND COMMON STOCK. All shares of
E-Trend Common Stock issued upon the surrender for exchange of shares
of E-Trend Common Stock in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights
pertaining to such shares of E-Trend Common Stock, and there shall be
no further registration of transfers on the records of the Company of
shares of E-Trend Common Stock which were outstanding immediately prior
to the Effective Time. If, after the Effective Time, certificates are
presented to the Cool Delaware for any reason, they shall be canceled
and exchanged as provided in this Article 1.
1.12 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any certificates
evidencing shares of E-Trend Common Stock shall have been lost, stolen
or destroyed, the transfer agent for Cool Delaware shall issue
certificates representing such shares of Cool Common Stock in exchange
for such lost, stolen or destroyed certificates, upon the making of an
affidavit of that fact by the holder thereof.
1.13 EXEMPTION FROM REGISTRATION. The shares of Cool Common Stock to be
issued pursuant to SECTIONS 1.2 and 1.3 in connection with the Share
Exchange will be issued in a transaction exempt from registration under
the Securities Act of 1933, as amended (including the rules and
regulations promulgated thereunder, the "SECURITIES ACT").
1.14 REPORTING OF SHARE EXCHANGE. For federal, state, and local income tax
return reporting purposes, all parties agree to treat the Share
Exchange as a nontaxable exchange under Section 368 of the Internal
Revenue Code.
1.15 BOARD OF DIRECTORS OF COOL. Simultaneously at Closing, the number of
directors of Cool shall be increased to eight. Except for Len Voth, all
of the existing officers and directors of Cool shall resign from their
positions and the following persons shall be appointed to fill the
vacancies: Gregg Johnson, Trevor Hillman, Paul Miller, Donald Spear,
Roy Grant, Martin McDonough, and William (Bill) Christie.
1.16 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any such further action is necessary or desirable to
carry out the purposes of this
Share Exchange Agreement - Page 4
<PAGE>
Agreement, the officers and directors of Cool Delaware are fully
authorized to take, and will use their reasonable efforts to take, all
such lawful and necessary action.
ARTICLE II
THE CLOSING
2.1 TIME AND PLACE OF CLOSING. The closing of the Share Exchange (the
"CLOSING") shall, unless otherwise agreed to in writing by the parties,
take place at the law offices of Dorsey & Whitney LLP, 1420 5th Avenue,
Seattle, Washington 98101, at 2:00 p.m., local time, on or prior to
February 2, 2001.
2.2 OBLIGATIONS OF E-TREND AND THE E-TREND SHAREHOLDERS AT OR PRIOR TO THE
CLOSING. At or prior to Closing, and subject to the satisfaction by
Cool of its obligations hereunder, E-Trend and the E-Trend Shareholders
shall deliver to Cool the following:
(a) A copy of the Articles of Incorporation of E-Trend certified as
of a date within ten days of the Closing by the Secretary of
State of the State of Nevada and certified by the corporate
secretary of E-Trend as to the absence of any amendments between
the date of certification by the Secretary of State and the
Closing;
(b) A certificate from the Secretary of State of the State of Nevada
as to the existence and good standing of E-Trend as of a date
within ten days of the Closing;
(c) A certificate of the corporate secretary of E-Trend attaching
thereto true and correct copies of the bylaws of E-Trend;
(d) The certificate of E-Trend referred to in SECTION 6.1 hereof;
(e) Such other documents as are required pursuant to this Agreement
or as may reasonably be requested from E-Trend by Cool or its
counsel;
(f) The certificates evidencing the shares of E-Trend Common Stock
owned by the E-Trend Shareholders, duly endorsed for transfer to
Cool; and
(g) A legal opinion in the form required pursuant to SECTION 6.1
hereof.
2.3 OBLIGATIONS OF COOL AT OR PRIOR TO THE CLOSING. At or prior to Closing,
and subject to the satisfaction by E-Trend of its obligations
hereunder, Cool and/or Cool Delaware shall deliver to E-Trend and the
E-Trend Shareholders the following:
(a) A copy of the Articles of Incorporation of Cool certified as of
a date within ten days of the Closing by the Secretary of State
of the State of Colorado and certified
Share Exchange Agreement - Page 5
<PAGE>
by the corporate secretary of Cool as to the absence of any
amendments between the date of certification by the Secretary of
State and the Closing;
(b) A certificate from the Secretary of State of the State of
Colorado as to the existence and good standing of Cool as of a
date within ten days of the Closing;
(c) A certificate of the corporate secretary of Cool attaching
thereto true and correct copies of the bylaws of Cool and the
corporate resolutions duly adopted by the board of directors of
Cool authorizing the consummation of the transactions
contemplated hereby;
(d) A copy of the Certificate of Incorporation of Cool Delaware,
certified as of a date within ten days of the Closing by the
Secretary of State of the State of Delaware and certified by the
corporate secretary of Cool Subsidiary as to the absence of any
amendments between the date of certification by the Secretary of
State and the Closing;
(e) A certificate from the Secretary of State of the State of
Delaware as to the existence and good standing of Cool Delaware
as of a date within ten days of the Closing;
(f) A certificate of the corporate secretary of Cool Delaware
attaching thereto true and correct copies of the bylaws of Cool
Delaware and the corporate resolutions duly adopted by the board
of directors of Cool Delaware authorizing the consummation of
the transactions contemplated hereby;
(g) The certificate of Cool referred to in SECTION 6.2 hereof;
(h) Such other documents as are required pursuant to this Agreement
or as may reasonably be requested from Cool by E-Trend or its
counsel;
(i) Certificates evidencing the Cool Common Stock to be issued to
the E-Trend Shareholders pursuant to ARTICLE I hereof; and
(j) A legal opinion in the form required pursuant to SECTION 6.2
hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF E-TREND
Except as expressly set forth and specifically identified by the section number
of this Agreement in the schedule delivered by E-Trend to Cool contemporaneously
with the execution of this Agreement (the "E-TREND DISCLOSURE SCHEDULE"),
E-Trend represents, warrants, and covenants to Cool as follows:
Share Exchange Agreement - Page 6
<PAGE>
3.1 ORGANIZATION AND QUALIFICATION. E-Trend is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Nevada and has all requisite corporate power and authority to
(a) own, lease and operate its properties and assets as they are now
owned, leased and operated and (b) carry on its business as currently
conducted and as proposed to be conducted. E-Trend is duly qualified or
licensed to do business in each jurisdiction in which the failure to be
so qualified or licensed could have a material adverse effect in the
business, operations, properties, assets, liabilities, prospects, or
condition (financial or otherwise) of E-Trend (hereinafter a "MATERIAL
EFFECT").
3.2 CAPITALIZATION. The issued and outstanding capital stock of E-Trend
consists of 8,853,734 shares of common stock. All of the issued and
outstanding shares of capital stock of E-Trend are validly issued,
fully paid, and nonassessable, and none of such shares has been issued
in violation of the preemptive rights of any person.
3.3 SUBSIDIARIES AND AFFILIATES. Except as set forth in SECTION 3.3 of the
E-Trend Disclosure Schedule, E-Trend does not own or hold, directly or
indirectly, any equity, debt, or other interest in any entity or
business or any option to acquire any such interest.
3.4 OPTIONS OR OTHER RIGHTS. Except as set forth in SECTION 3.4 of the
E-Trend Disclosure Schedule, no options, warrants, calls, commitments
or other rights to acquire, sell or issue shares of capital stock or
other equity interests of E-Trend, whether upon conversion of other
securities or otherwise, are issued or outstanding, and there is no
agreement or understanding with respect to the voting of such capital
stock or other equity interests.
3.5 OWNERSHIP OF SHARES. The shares of E-Trend Common Stock are owned of
record and beneficially by the E-Trend Shareholders as set forth on
Schedule A. To the knowledge of E-Trend, the E-Trend Shareholders
possess full authority and legal right to sell, transfer, and assign
the entire legal and beneficial ownership of the shares of E-Trend
common stock, free from all liens, claims, and encumbrances of any
kind.
3.6 VALIDITY AND EXECUTION OF AGREEMENT. E-Trend has the full legal right,
capacity and power required to enter into, execute and deliver this
Agreement and to carry out the transactions contemplated, subject to
approval of the shareholders of E-Trend and the terms set forth in this
Agreement. This Agreement has been duly executed and delivered by
E-Trend and constitutes the valid and binding obligation of E-Trend,
enforceable in accordance with its terms, subject to the qualification
that enforcement of the rights and remedies created hereby is subject
to (a) bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting the rights and remedies of
creditors and (b) general principles of equity (regardless of whether
such enforcement is considered in a proceeding in equity or at law).
3.7 NO CONFLICT. Except as set forth in SECTION 3.7 of the E-Trend
Disclosure Schedule and to the knowledge of E-Trend, none of the
execution, delivery, or performance of this Agreement does or will: (a)
result in any violation or be in conflict with or constitute a
Share Exchange Agreement - Page 7
<PAGE>
default under any term or provision of the Articles of Incorporation or
bylaws of E-Trend or any term or provision of any judgment, decree,
order, statute, injunction, rule, or regulation applicable to E-Trend
that would cause a Material Effect, or of any material note, bond,
mortgage, indenture, lease, license, franchise, agreement, or other
instrument or obligation to which E-Trend or is bound that would cause
a Material Effect; (b) result in the creation of any material option,
pledge, security interest, lien, charge, encumbrance, or restriction,
whether imposed by agreement, understanding, law or otherwise, except
those arising under applicable federal or state securities laws
(hereinafter an "ENCUMBRANCE") upon any of the properties or assets of
E-Trend pursuant to any such term or provision that would cause a
Material Effect; or (c) constitute a default under, terminate,
accelerate, amend or modify, or give any party the right to terminate,
accelerate, amend, modify, abandon, or refuse to perform or comply
with, any material contract, agreement, arrangement, commitment, or
plan to which E-Trend is a party, or by which E-Trend or any of its
properties or assets may be subject or bound that would cause a
Material Effect.
3.8 CONSENTS AND APPROVALS. No federal, state, or other regulatory
approvals are required to be obtained, nor any regulatory requirements
complied with, by E-Trend in connection with the Share Exchange.
3.9 VIOLATION OF LAWS, PERMITS, ETC.
(a) E-Trend is not in violation of any term or provision of its
Articles of Incorporation or bylaws, or of any material term or
provision of any judgment, decree, order, statute, law,
injunction, rule, ordinance, or governmental regulation that is
applicable to it and where the failure to comply with which
would have a Material Effect.
(b) E-Trend has maintained in full force and effect all
certificates, licenses, and permits material to the conduct of
its business, and has not received any notification that any
revocation or limitation thereof is threatened or pending.
3.10 BOOKS AND RECORDS. The books and records of E-Trend (including, without
limitation, the books of account, minute books, and stock record books)
are complete and correct in all material respects and have been
maintained in accordance with sound business practices. The minute
books of E-Trend are complete and current in all material respects and,
as applicable, accurately reflect all actions taken by the shareholders
and the board of directors of E-Trend since the date of inception of
E-Trend, and all signatures contained therein are the true signatures
of the persons whose signatures they purport to be.
3.11 E-TREND FINANCIAL STATEMENTS.. THE The audited balance sheet of E-Trend
as of September 30, 2000, and the related audited statements of income,
statements of cash flow and statements of shareholders equity for the
period then ended (the "E-TREND FINANCIAL STATEMENTS"), true and
complete copies of which have been delivered to Cool, present fairly,
in all material respects, the financial position of E-Trend as at such
dates and the results of
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<PAGE>
operations of E-Trend for the period then ended, in accordance with
generally accepted accounting principles ("GAAP") consistently applied
for the period covered thereby.
3.12 UNDISCLOSED LIABILITIES. To the knowledge of E-Trend, E-Trend does not
have any material direct or indirect indebtedness, liability, claim,
loss, damage, deficiency, obligation or responsibility, fixed or
unfixed, choate or inchoate, liquidated or unliquidated, secured or
unsecured, accrued, absolute, contingent or otherwise (all of the
foregoing being collectively referred to as "LIABILITIES" and
individually as a "LIABILITY"), of a kind required by GAAP to be set
forth on a financial statement that is not fully and adequately
reflected or reserved against on the E-Trend Financial Statements.
E-Trend does not have any Liabilities, whether or not of a kind
required by GAAP to be set forth on a financial statement, other than
(a) Liabilities incurred in the ordinary course of business since the
date of the latest balance sheet included in the E-Trend Financial
Statements that are consistent with past practice and are included in
the latest E-Trend Financial Statements, (b) Liabilities that are fully
reflected on or reserved against on the latest balance sheet included
in the E-Trend Financial Statements, or (c) as specifically disclosed
in the E-Trend Financial Statements.
3.13 TITLE TO PROPERTY; ENCUMBRANCES. E-Trend has good and indefeasible
title to and other legal right to use all properties and assets, real,
personal and mixed, tangible and intangible, reflected as owned on the
latest balance sheet included in the E-Trend Financial Statements or
acquired after the date of such balance sheet, except for properties
and assets disposed of in accordance with customary practice in the
business or disposed of for full and fair value since the date of such
balance sheet in the ordinary course of business consistent with past
practice and except for matters that would not have a Material Effect.
3.14 TAXES. All returns, reports, information returns, or other documents
(including any related or supporting information) filed or required to
be filed with any federal, state, local, or foreign governmental entity
or others authority in connection with the determination, assessment or
collection of any Tax (whether or not such Tax is imposed on E-Trend)
or the administration of any laws, regulations or administrative
requirements relating to any Tax (hereinafter "TAX RETURNS"), reports
and declarations of estimated tax or estimated tax deposit forms
required to be filed by E-Trend have been duly and timely filed;
E-Trend has paid all taxes, charges, fees, levies or other assessments
imposed by any federal, state, local or foreign taxing authority,
whether disputed or not, including, without limitation, income,
capital, estimated, excise, property, sales, transfer, withholding,
employment, payroll, and franchise taxes and such terms shall include
any interest, penalties or additions attributable to or imposed on or
with respect to such assessments and any expenses incurred in
connection with the settlement of any tax liability (hereinafter
"TAXES") which have become due whether pursuant to such returns or any
assessment received by it or otherwise, and has paid all installments
of estimated Taxes due; and all Taxes which E-Trend is required by law
to withhold or to collect have been duly withheld and collected, and
have been paid over to the proper court, tribunal, arbitrator or any
government or political subdivision thereof, whether federal, state,
county, local or foreign, or any agency, authority, official or
instrumentality of any such government or political subdivision
(hereinafter
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<PAGE>
"GOVERNMENTAL OR REGULATORY BODY"). There are no tax liens upon any of
the assets or properties of E-Trend except for any lien, pledge,
hypothecation, mortgage, security interest, claim, lease, charge,
option, right of first refusal, easement, servitude, transfer
restriction under any member or similar agreement, encumbrance or any
other restriction or limitation whatsoever, other than (i)
materialmen's, mechanics', repairmen's or other like liens arising in
the ordinary course of business for amounts either not yet due or being
contested in good faith and by appropriate proceedings so long as such
proceedings shall not involve any material danger of sale, forfeiture
or loss of any part of the assets and shall have been disclosed to Cool
hereunder, or (ii) any lien arising as a result of any act or omission
of Cool (hereinafter "LIENS") for Taxes not yet due. E-Trend is not a
party to any express tax settlement agreement, arrangement, policy or
guideline, formal or informal (a "SETTLEMENT AGREEMENT"), and E-Trend
does not have any obligation to make payments under any Settlement
Agreement.
3.15 LITIGATION.
(a) There is no action, proceeding, investigation, or inquiry
pending or, to the best of E-Trend's knowledge, threatened (i)
against or affecting any of E-Trend's assets or business that,
if determined adversely to E-Trend, would result in a Material
Effect or (ii) that questions this Agreement or any action
contemplated by this Agreement or in connection with the Share
Exchange.
(b) E-Trend has no knowledge of any state of facts or of the
occurrence or nonoccurrence of any event or group of related
events, that should reasonably cause E-Trend to determine that
there exists any basis for any material claim against E-Trend
for any of the matters described in paragraph (a) above.
3.16 CONTRACTS AND OTHER AGREEMENTS. E-Trend has made available to Cool
complete and correct copies of all material written agreements,
contracts, and commitments, together with all amendments thereto, and
accurate (in all material respects) descriptions of all material oral
agreements. Such agreements, contracts, and commitments are in full
force and effect, and, to the best of E-Trend's knowledge, all other
parties to such agreements, contracts, and commitments have performed
all obligations required to be performed by them to date thereunder in
all material respects and are not in default thereunder in any material
respect.
3.17 ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE. All accounts receivable
reflected on the balance sheet of E-Trend included in the E-Trend
Financial Statements, and all accounts receivable arising subsequent to
September 30, 2000, (a) have arisen from BONA FIDE sales transactions
in the ordinary course of business on ordinary trade terms and (b) have
been collected or are collectible in the ordinary course of business in
the aggregate recorded amounts thereof in accordance with their terms
without valid set-off or counterclaim. E-Trend has made payments on
accounts payable and other current obligations arising subsequent to
September 30, 2000, in accordance with past practice of the business of
E-Trend.
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<PAGE>
3.18 COMPENSATION ARRANGEMENTS; OFFICERS AND DIRECTORS. SECTION 3.18 to the
E-Trend Disclosure Schedule sets forth: (a) the names of all present
officers and directors of E-Trend and current annual salary, including
any promised, expected or customary bonus or such other amount, and (b)
the names and titles of all directors and officers of E-Trend. E-Trend
has not made a commitment or agreement (verbally or in writing) to
increase the compensation or to modify the conditions or terms of
employment of any person listed in SECTION 3.18 to the E-Trend
Disclosure Schedule. To the knowledge of E-Trend, none of such persons
has made a threat to E-Trend to terminate such person's relationship
with E-Trend.
3.19 ERISA. Except as set forth in SECTION 3.19 to the E-Trend Disclosure
Schedule, there are no employee benefit plans as defined in ERISA
("PLANS") maintained for the benefit of, or covering, any employee,
former employee, independent contractor or former independent
contractor of E-Trend, or their dependents or their beneficiaries, or
otherwise, now or heretofore contributed to by E-Trend, and no such
Plan is or has ever been subject to ERISA.
3.20 OPERATIONS. Except as expressly authorized by this Agreement, and
except as set forth in SECTION 3.20 to the E-Trend Disclosure Schedule,
since the date of the latest E-Trend Financial Statements, E-Trend has
not:
(a) amended its Articles of Incorporation or By-Laws or merged with
or into or consolidated with any other entity, or changed or
agreed to rearrange in any manner the character of the business
of E-Trend;
(b) issued, sold or purchased options or rights to subscribe to, or
entered into any contracts or commitments to issue, sell or
purchase, any shares of its capital stock or other equity
interests except in the ordinary course of business and
consistent with past practices;
(c) except for the issuance of the promissory note to Fictional
Media Ltd. in the amount of $45,000 US, issued any note, bond or
other debt security, created, incurred or assumed any
indebtedness for borrowed money other than in the ordinary
course of business in connection with trade payables, or
guaranteed any indebtedness for borrowed money or any
capitalized lease obligation;
(d) declared, set aside or paid any dividends or declared or made
any other distributions of any kind to the shareholders, or made
any direct or indirect redemption, retirement, purchase or other
acquisition of any shares of its capital stock or other equity
interests;
(e) knowingly waived any right of material value to the business of
E-Trend;
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<PAGE>
(f) made any change in its accounting methods or practices or made
any changes in depreciation or amortization policies or rates
adopted by it or made any material write-down of inventory or
material write-off as uncorrectable of accounts receivable;
(g) made any wage or salary increase or other compensation payable
or to become payable or bonus, or increase in any other direct
or indirect compensation, for or to any of its officers,
directors, employees, consultants, agents or other
representatives, or any accrual for or commitment or agreement
to make or pay the same, other than increases made in the
ordinary course consistent with past practice;
(h) entered into any transactions with any of its affiliates,
shareholders, officers, directors, employees, consultants,
agents or other representatives (other than employment
arrangements made in the ordinary course of business consistent
with past practice), or any affiliate of any shareholder,
officer, director, consultant, employee, agent or other
representative;
(i) made any payment or commitment to pay any severance or
termination pay to any person or any of its officers, directors,
employees, consultants, agents or other representatives, other
than payments or commitments to pay such persons or their
officers, directors, employees in the ordinary course of
business;
(j) except in the ordinary course of business, incurred or assumed
any debt, obligation or liability (whether absolute or
contingent and whether or not currently due and payable);
(k) except for the purchase of assets from Fictional Media for
$102,500 CDN and except for inventory or equipment acquired in
the ordinary course of business, made any acquisition of all or
any part of the assets, properties, capital stock or business of
any other person;
(l) except in the ordinary course of business, paid, directly or
indirectly, any of its Liabilities before the same became due in
accordance with their terms or otherwise than in the ordinary
course of business, except to obtain the benefit of discounts
available for early payment;
(m) except for the issuance of a promissory note to Fictional Media
Ltd. in the amount of $45,000 US and except in the ordinary
course of business, created, incurred or assumed any
indebtedness for borrowed money, or guaranteed any indebtedness
for borrowed money or any capitalized lease obligation, in each
case in excess of $50,000 individually or in the aggregate;
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<PAGE>
(n) except for the purchase of assets from Fictional Media Ltd. for
$102,500 CDN and except in the ordinary course of business, made
any capital expenditures or commitments for capital expenditures
in aggregate amount exceeding $50,000; or
(o) except in the ordinary course of business, terminated, failed to
renew, amended or entered into any contract or other agreement
of a type required to be disclosed pursuant to SECTION 3.16.
3.21 INTANGIBLE PROPERTY AND INTELLECTUAL PROPERTY. E-Trend possesses all of
the necessary licenses, trademarks, trade names, domain names, patents
(hereinafter "INTELLECTUAL PROPERTY RIGHTS") necessary to conduct its
business in the manner that is currently being conducted and
anticipates conducting in the future. All of such Intellectual Property
Rights are held in the name of E-Trend. To the knowledge of E-Trend,
none of the Intangible Property of E-Trend infringes upon the rights of
any other person in any material respect or, to the knowledge of
E-Trend, is so infringed upon by any other person or its property.
E-Trend has not received any notice of any claim of any other person
relating to any of the Intangible Property or any process or
confidential information of E-Trend and does not know of any basis for
any such charge or claim. Except for the Intangible Property, no other
material intellectual property or intangible property rights are
required for E-Trend to conduct the business of E-Trend in the ordinary
course consistent with past practice. Except as separately identified
in SECTION 3.21 of the E-Trend Disclosure Schedule, no approval or
consent of any person is needed so that the interest of E-Trend in the
Intangible Property shall continue to be in full force and effect and
enforceable by E-Trend following the transactions contemplated by this
Agreement.
3.22 EMPLOYEE RELATIONS. E-Trend is not a party any agreement with any labor
organization, collective bargaining or similar agreement with respect
to its employees. There are no material complaints, grievances or
arbitrations, employment-related litigation, administrative proceedings
or controversies either pending or, to the knowledge of E-Trend,
threatened, involving any employee, applicant for employment, or former
employee of E-Trend against E-Trend. During the past five years,
E-Trend has not suffered or sustained any labor dispute resulting in
any work stoppage and no such work stoppage is, to the knowledge of
E-Trend, threatened. To the knowledge of E-Trend, there are no attempts
presently being made to organize any employees employed by E-Trend.
3.23 INSURANCE. E-Trend has adequate policies of insurance for its
operations. E-Trend is not in default with respect to any material
provision contained in any policy or binder of insurance and has not
failed to give any notice or present any claim under any such policy or
binder in due and timely fashion. There are no outstanding unpaid
claims under any such policy or binder which have gone unpaid for more
than 45 days or as to which the carrier has disclaimed liability.
E-Trend has not received any notice of cancellation or non-renewal of
any such policy or binder. E-Trend has not received any notice from any
of its insurance carriers that any insurance premiums will be
materially increased in the
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<PAGE>
future or that any existing insurance coverage will not be available in
the future on substantially the same terms as now in effect.
3.24 LICENSES AND PERMITS. Except as set forth in SECTION 3.24 of the
E-Trend Disclosure Schedule, E-Trend has obtained all material
government permits, licenses, domain name and other registrations, and
other consents and authorizations (federal, state, local and foreign)
of any Governmental or Regulatory Body (collectively, "PERMITS") are
required to be obtained by E-Trend in connection with its properties or
the business of E-Trend. E-Trend has not received any notice of any
claim of revocation of any such Permit and has no knowledge of any
event which would be likely to give rise to such a claim.
3.25 BROKERS. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried out by E-Trend
directly with Cool without the intervention of any other person on
behalf of E-Trend in such manner as to give rise to any valid claim by
any person against E-Trend or Cool for a finder's fee, brokerage
commission or similar payment.
3.26 DISCLOSURE. To the knowledge of E-Trend, neither this Agreement, nor
any Schedule or Exhibit to this Agreement, contains an untrue statement
of a material fact or omits a material fact necessary to make the
statements contained herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COOL
Except as expressly set forth and specifically identified by the section number
of this Agreement in the schedule delivered by Cool to E-Trend contemporaneously
with the execution of this Agreement (the "COOL DISCLOSURE Schedule"), Cool
represents, warrants, and covenants to E-Trend as follows:
4.1 ORGANIZATION AND QUALIFICATION. Cool is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Colorado and has all requisite corporate power and authority to (a)
own, lease and operate its properties and assets as they are now owned,
leased and operated and (b) carry on its business as currently
conducted and as proposed to be conducted. Cool is duly qualified or
licensed to do business in each jurisdiction in which the failure to be
so qualified or licensed could have a Material Effect.
4.2 CAPITALIZATION. The issued and outstanding capital stock of Cool
immediately prior to the Reorganization and Closing will consist of
38,340,636 shares of common stock, no par value per share. All of the
issued and outstanding shares of capital stock of Cool are validly
issued, fully paid, and nonassessable, and none of such shares have
been issued in violation of the preemptive rights of any person. The
Cool Common Stock shall be validly issued, fully paid, and
nonassessable.
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<PAGE>
4.3 SUBSIDIARIES AND AFFILIATES. Except as set forth in SECTION 4.3 of the
Cool Disclosure Schedule, Cool does not own or hold, directly or
indirectly, any equity, debt, or other interest in any entity or
business or any option to acquire any such interest.
4.4 OPTIONS OR OTHER RIGHTS. Except as set forth in SECTION 4.4 of the Cool
Disclosure Schedule, no options, warrants, calls, commitments or other
rights to acquire, sell or issue shares of capital stock or other
equity interests of Cool whether upon conversion of other securities or
otherwise, are issued or outstanding except as set forth in the Cool
Disclosure Schedule, and there is no agreement or understanding with
respect to the voting of such capital stock or other equity interests.
4.5 VALIDITY AND EXECUTION OF AGREEMENT. Cool has the full legal right,
capacity, and power required to enter into, execute, and deliver this
Agreement and to carry out the transactions contemplated, subject to
approval of the shareholders of Cool and the terms set forth in this
Agreement. This Agreement has been duly and validly executed on behalf
of Cool and is a valid and binding obligation of Cool, enforceable in
accordance with its terms, subject to the qualification that
enforcement of the rights and remedies created hereby is subject to (a)
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the rights and remedies of creditors and
(b) general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at law).
4.6 NO CONFLICT. Except as set forth in SECTION 4.6 of the Cool Disclosure
Schedule and to the knowledge of Cool, none of the execution, delivery,
or performance of this Agreement does or will: (a) result in any
violation or be in conflict with or constitute a default under any term
or provision of the Articles of Incorporation or bylaws of Cool or any
term or provision of any judgment, decree, order, statute, injunction,
rule, or regulation applicable to Cool that would cause a Material
Effect, or of any material note, bond, mortgage, indenture, lease,
license, franchise, agreement, or other instrument or obligation to
which Cool is bound that would cause a Material Effect; (b) result in
the creation of any Encumbrance upon any of the properties or assets of
Cool pursuant to any such term or provision that would cause a Material
Effect; or (c) constitute a default under, terminate, accelerate, amend
or modify, or give any party the right to terminate, accelerate, amend,
modify, abandon, or refuse to perform or comply with, any material
contract, agreement, arrangement, commitment, or plan to which Cool is
a party, or by which Cool or any of its properties or assets may be
subject or bound that would cause a Material Effect.
4.7 CONSENTS AND APPROVALS. No federal, state, or other regulatory
approvals are required to be obtained, nor any regulatory requirements
complied with, by Cool in connection with the Share Exchange.
4.8 VIOLATION OF LAWS, PERMITS, ETC.
(a) Cool is not in violation of any term or provision of its
Articles of Incorporation or bylaws, or of any material term or
provision of any judgment, decree, order,
Share Exchange Agreement - Page 15
<PAGE>
statute, law, injunction, rule, ordinance, or governmental
regulation that is applicable to it and where the failure to
comply with which would have a Material Effect.
(b) Cool has maintained in full force and effect all certificates,
licenses, and permits material to the conduct of its business,
and has not received any notification that any revocation or
limitation thereof is threatened or pending.
4.9 BOOKS AND RECORDS. The books and records of Cool (including, without
limitation, the books of account, minute books, and stock record books)
are complete and correct in all material respects and have been
maintained in accordance with sound business practices. The minute
books of Cool are complete and current in all material respects and, as
applicable, accurately reflect all actions taken by the shareholders
and the board of directors of Cool since the date of inception of Cool,
and all signatures contained therein are the true signatures of the
persons whose signatures they purport to be.
4.10 COOL FINANCIAL STATEMENTS.
(a) The audited balance sheets of Cool as of June 30, 1999 and 2000,
and the related audited statements of income, statements of cash
flow and statements of shareholders equity for the years then
ended, true and complete copies of which have been delivered to
E-Trend, present fairly, in all material respects, the financial
position of Cool as at such dates and the results of operations
of Cool for the year then ended, in accordance with GAAP
consistently applied for the periods covered thereby.
(b) The unaudited balance sheet of Cool as of September 30, 2000 and
the related statements of income, statements of cash flow and
statements of shareholders equity for the three months then
ended, true and complete copies of which have heretofore been
delivered to E-Trend, present fairly, in all material respects,
the financial position of Cool as of such date and the results
of operations of Cool for the period then ended, in each case in
accordance with GAAP consistently applied for the three-month
period covered thereby.
(c) The financial statements referred to in paragraphs (a) and (b)
above are hereinafter referred to as the COOL FINANCIAL
STATEMENTS.
4.11 UNDISCLOSED LIABILITIES. To the knowledge of Cool, Cool does not have
any Liabilities of a kind required by GAAP to be set forth on a
financial statement that is not fully and adequately reflected or
reserved against on the Cool Financial Statements. Cool does not have
any Liabilities, whether or not of a kind required by GAAP to be set
forth on a financial statement, other than (a) Liabilities incurred in
the ordinary course of business since the date of the latest balance
sheet included in the Cool Financial Statements that are consistent
with past practice and are included in the latest Cool Financial
Statements, (b)
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<PAGE>
Liabilities that are fully reflected on or reserved against on the
latest balance sheet included in the Cool Financial Statements, or (c)
as specifically disclosed in the Cool Financial Statements.
4.12 TITLE TO PROPERTY; ENCUMBRANCES. Cool has good and indefeasible title
to and other legal right to use all properties and assets, real,
personal and mixed, tangible and intangible, reflected as owned on the
latest balance sheet included in the Cool Financial Statements or
acquired after the date of such balance sheet, except for properties
and assets disposed of in accordance with customary practice in the
business or disposed of for full and fair value since the date of such
balance sheet in the ordinary course of business consistent with past
practice and except for matters that would not have a Material Effect.
4.13 TAXES. All Tax Returns, reports and declarations of estimated tax or
estimated tax deposit forms required to be filed by Cool have been duly
and timely filed; Cool has paid all Taxes which have become due whether
pursuant to such returns or any assessment received by it or otherwise,
and has paid all installments of estimated Taxes due; and all Taxes
which Cool is required by law to withhold or to collect have been duly
withheld and collected, and have been paid over to the proper
Governmental or Regulatory Body. There are no tax liens upon any of the
assets or properties of Cool except for Liens for Taxes not yet due.
Cool is not a party to any Settlement Agreement, and Cool does not have
any obligation to make payments under any Settlement Agreement.
4.14 LITIGATION.
(a) There is no action, proceeding, investigation, or inquiry
pending or, to the best of Cool's knowledge, threatened (i)
against or affecting any of Cool's assets or business that, if
determined adversely to Cool, would result in a Material Effect
or (ii) that questions this Agreement or any action contemplated
by this Agreement or in connection with the Share Exchange.
(b) Cool has no knowledge of any state of facts or of the occurrence
or nonoccurrence of any event or group of related events, that
should reasonably cause Cool to determine that there exists any
basis for any material claim against Cool for any of the matters
described in paragraph (a) above.
4.15 CONTRACTS AND OTHER AGREEMENTS. SECTION 4.15 to the Cool Disclosure
Schedule contains a complete and correct list as of the date hereof of
all material agreements, contracts, and commitments (and all amendments
thereto), written or oral, to which Cool is a party or by which any of
its properties is bound. Cool has made available to E-Trend complete
and correct copies of all material written agreements, contracts, and
commitments, together with all amendments thereto, and accurate (in all
material respects) descriptions of all material oral agreements. Such
agreements, contracts, and commitments are in full force and effect,
and, to the best of Cool's knowledge, all other parties to such
agreements, contracts, and commitments have performed all obligations
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<PAGE>
required to be performed by them to date thereunder in all material
respects and are not in default thereunder in any material respect.
4.16 COMPENSATION ARRANGEMENTS; OFFICERS, DIRECTORS AND EMPLOYEES. Cool does
not pay any compensation to any of its officers and directors and has
no employees. Cool has not made a commitment or agreement (verbally or
in writing) to pay any compensation to such persons.
4.17 ERISA. There are no Plans maintained for the benefit of, or covering,
any employee, former employee, independent contractor or former
independent contractor of Cool or their dependents or their
beneficiaries, or otherwise, now or heretofore contributed to by Cool
and no such Plan is or has ever been subject to ERISA.
4.18 OPERATIONS. Except as expressly authorized by this Agreement, or except
as set forth in SECTION 4.18 to the Cool Disclosure Schedule, since the
date of the latest Cool Financial Statements, Cool has not:
(a) amended its Articles of Incorporation or By-Laws or merged with
or into or consolidated with any other entity, or changed or
agreed to rearrange in any manner the character of the business
of Cool;
(b) issued, sold or purchased options or rights to subscribe to, or
entered into any contracts or commitments to issue, sell or
purchase, any shares of its capital stock or other equity
interests;
(c) entered into, amended or terminated any (i) employment agreement
or collective bargaining agreement, (ii) adopted, entered into
or amended any arrangement which is, or would be, a Plan or
(iii) made any change in any actuarial methods or assumptions
used in funding any Plan or in the assumptions or factors used
in determining benefit equivalencies thereunder;
(d) issued any note, bond or other debt security, created, incurred
or assumed any indebtedness for borrowed money other than in the
ordinary course of business in connection with trade payables,
or guaranteed any indebtedness for borrowed money or any
capitalized lease obligation;
(e) declared, set aside or paid any dividends or declared or made
any other distributions of any kind to the shareholders, or made
any direct or indirect redemption, retirement, purchase or other
acquisition of any shares of its capital stock or other equity
interests;
(f) knowingly waived any right of material value to the business of
Cool;
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<PAGE>
(g) made any change in its accounting methods or practices or made
any changes in depreciation or amortization policies or rates
adopted by it or made any material write-down of inventory or
material write-off as uncorrectable of accounts receivable;
(h) made any wage or salary increase or other compensation payable
or to become payable or bonus, or increase in any other direct
or indirect compensation, for or to any of its officers,
directors, employees, consultants, agents or other
representatives, or any accrual for or commitment or agreement
to make or pay the same, other than increases made in the
ordinary course consistent with past practice;
(i) entered into any transactions with any of its affiliates,
shareholders, officers, directors, employees, consultants,
agents or other representatives (other than employment
arrangements made in the ordinary course of business consistent
with past practice), or any affiliate of any shareholder,
officer, director, consultant, employee, agent or other
representative;
(j) made any payment or commitment to pay any severance or
termination pay to any person or any of its officers, directors,
employees, consultants, agents or other representatives, other
than payments or commitments to pay such persons or their
officers, directors, employees in the ordinary course of
business;
(k) except in the ordinary course of business and subject to the
provisions of SECTION 5.2 hereof, (i) entered into any lease (as
lessor or lessee), (ii) sold, abandoned or made any other
disposition of any of its assets or properties other than in the
ordinary course of business consistent with past practice, (iii)
granted or suffered any Lien on any of its assets or properties
other than sales of inventory in the ordinary course of
business, or (iv) entered into or amended any material contract
or other agreement to which it is a party, or by or to which it
or its assets or properties are bound or subject, or pursuant to
which it agrees to indemnify any person or to refrain from
competing with any person, in each case or type required to be
disclosed pursuant to SECTION 4.15 hereof;
(l) except in the ordinary course of business, incurred or assumed
any debt, obligation or liability (whether absolute or
contingent and whether or not currently due and payable);
(m) except for inventory or equipment acquired in the ordinary
course of business, made any acquisition of all or any part of
the assets, properties, capital stock or business of any other
person;
(n) except in the ordinary course of business, paid, directly or
indirectly, any of its Liabilities before the same became due in
accordance with their terms or otherwise
Share Exchange Agreement - Page 19
<PAGE>
than in the ordinary course of business, except to obtain the
benefit of discounts available for early payment;
(o) except in the ordinary course of business, created, incurred or
assumed any indebtedness for borrowed money, or guaranteed any
indebtedness for borrowed money or any capitalized lease
obligation, in each case in excess of $5,000 individually or in
the aggregate;
(p) except in the ordinary course of business, made any capital
expenditures or commitments for capital expenditures in
aggregate amount exceeding $5,000; or
(q) except in the ordinary course of business and subject to the
provisions of SECTION 5.2 hereof, terminated, failed to renew,
amended or entered into any contract or other agreement of a
type required to be disclosed pursuant to SECTION 4.15.
4.19 INTANGIBLE PROPERTY AND INTELLECTUAL PROPERTY. Cool possesses all of
the necessary Intellectual Property Rights necessary to conduct its
business in the manner that is currently being conducted and
anticipates conducting in the future. All of such Intellectual Property
Rights are held in the name of Cool. To the knowledge of Cool, none of
the Intangible Property of Cool infringes upon the rights of any other
person in any material respect or, to the knowledge of Cool, is so
infringed upon by any other person or its property. Cool has not
received any notice of any claim of any other person relating to any of
the Intangible Property or any process or confidential information of
Cool and does not know of any basis for any such charge or claim.
Except for the Intangible Property, no other material intellectual
property or intangible property rights are required for Cool to conduct
the business of Cool in the ordinary course consistent with past
practice. Except as separately identified in SECTION 4.19 of the Cool
Disclosure Schedule, no approval or consent of any person is needed so
that the interest of Cool in the Intangible Property shall continue to
be in full force and effect and enforceable by Cool following the
transactions contemplated by this Agreement.
4.20 INSURANCE. Cool has not maintained any policies of insurance for its
operations
4.21 LICENSES AND PERMITS. Except as set forth in SECTION 4.21 of the Cool
Disclosure Schedule, no Permits are required to be obtained by Cool in
connection with its properties or the business of Cool. Cool has not
received any notice of any claim of revocation of any such Permit and
has no knowledge of any event which would be likely to give rise to
such a claim.
4.22 BROKERS. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried out by E-Trend
directly with Cool without the intervention of any other person on
behalf of Cool in such manner as to give rise to any valid claim by any
person against E-Trend or Cool for a finder's fee, brokerage commission
or similar payment.
Share Exchange Agreement - Page 20
<PAGE>
4.23 APPROVAL OF SHARE EXCHANGE. The board of directors of Cool has approved
the Share Exchange without reservation or qualification.
4.24 SEC REPORTING STATUS. Cool filed a registration statement under Section
12(g) of the Securities Exchange Act of 1934 (the "EXCHANGE ACT") which
was declared effective on February 9, 2000. Since that date, Cool has
filed with the Securities and Exchange Commission ("SEC") all reports
required to be filed pursuant to Section 13 of the Exchange Act. It has
not filed a certification on Form 15 pursuant to Rule 12h-3 of the
Exchange Act.
4.25 INVESTMENT COMPANY. Cool is not an investment company within the
meaning of Section 3 of the Investment Company Act.
4.26 OTC BULLETIN BOARD STATUS. The Cool Common Stock is approved for
trading on the OTC Bulletin Board under the symbol "CULE".
4.27 NEWLY ORGANIZED ENTITY. Cool Delaware will be organized in Delaware for
the purposes of the Reorganization. Cool Delaware shall have authorized
capital of 80,000,000 shares of common stock, $0.0001 par value, and
20,000,000 shares of preferred stock, $0.0001 par value. Cool Delaware
will not be a party to any other agreement except for this Agreement,
and will have no liabilities or obligations of any kind other than its
obligations under this Agreement and its obligations for Taxes that are
payable by virtue of its existence as a corporation.
4.28 DISCLOSURE. To the knowledge of Cool, neither this Agreement, nor any
Schedule or Exhibit to this Agreement, contains an untrue statement of
a material fact or omits a material fact necessary to make the
statements contained herein or therein not misleading.
ARTICLE V
ACTIONS PRIOR TO CLOSING
5.1 CORPORATE EXAMINATIONS AND INVESTIGATIONS. At or prior to the Closing
Date, each of Cool, Cool Delaware and E-Trend shall be entitled to make
such investigation of the assets, properties, business and operations
of the other and such examination of the books, records, Tax Returns,
financial condition and operations of the other as each may wish. Any
such investigation and examination shall be conducted at reasonable
times and under reasonable circumstances and Cool, Cool Delaware and
E-Trend shall cooperate fully therein. In order that each of Cool, Cool
Delaware and E-Trend may have full opportunity to make such a business,
accounting and legal review, examination or investigation as it may
wish of the business and affairs of the other, Cool, Cool Delaware or
E-Trend, as the case may be, shall furnish to the other during such
period all such information and copies of such documents concerning its
affairs as Cool, Cool Delaware or E-Trend may reasonably request and
cause its officers, employees, consultants, agents, accountants and
attorneys to cooperate fully and provide all material facts affecting
its financial condition
Share Exchange Agreement - Page 21
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and business operations. Until the Closing and if the Closing shall not
occur, thereafter, Cool, Cool Delaware, E-Trend, and its respective
affiliates shall keep confidential and shall not use in any manner
inconsistent with the transactions contemplated by this Agreement and
after termination of this Agreement, Cool, Cool Delaware, E-Trend, and
its respective affiliates shall not disclose, nor use for their own
benefit, any information or documents obtained from the other
concerning its assets, properties, business and operations, unless (a)
readily ascertainable from public or published information, or trade
sources, (b) received from a third party not under an obligation to
Cool, Cool Delaware or E-Trend, as the case may be, to keep such
information confidential or (c) required by any Law or Order. If this
transaction does not close for any reason, Cool, Cool Delaware,
E-Trend, and its respective affiliates shall return or destroy all such
confidential information and compilations thereof as is practicable,
and shall certify such destruction or return to Cool, Cool Delaware or
E-Trend, as the case may be.
5.2 CONDUCT AND PRESERVATION OF BUSINESS OF COOL. Due to the fact that Cool
shareholders owning a majority of the issued and outstanding shares of
Cool Common Stock have approved the Reorganization, the Share Exchange,
and the transactions contemplated under this Agreement, Cool and
E-Trend determined that E-Trend should take over operation of Cool's
website as of December 1, 2000. Accordingly, from the date hereof
through the Closing Date, Cool shall cause its corporate existence and
status as a reporting issuer with the SEC to be continued in the
ordinary course in the same manner as it has been conducted since it
inception. Cool shall advise E-Trend of all invoices it receives and
any expenditure it incurs after November 30, 2000. Cool covenants that,
except with the prior written consent of E-Trend, which consent shall
not be unreasonably withheld, Cool will not:
(a) Do any of the restricted acts set forth in SECTION 4.18 hereof,
or enter into any agreement of a nature set forth in SECTION
4.15 hereof; or
(b) Enter into any transaction other than in the ordinary course of
business.
5.3 CONDUCT AND PRESERVATION OF BUSINESS OF E-TREND. From the date hereof
through the Closing Date, E-Trend shall cause its business to be
conducted in the ordinary course and in the same manner as it has been
conducted since its inception. E-Trend covenants that, except with the
prior written consent of Cool, which consent shall not be unreasonably
withheld, E-Trend will not:
(a) Do any of the restricted acts set forth in SECTION 3.20 hereof,
or enter into any agreement of a nature set forth in SECTION
3.16 hereof; or
(b) Enter into any transaction other than in the ordinary course of
business.
Further, E-Trend shall use commercially reasonable efforts to (i)
preserve intact its business, assets, properties and organizations,
(ii) keep available the services of its present
Share Exchange Agreement - Page 22
<PAGE>
officers, employees, consultants and agents; and (iii) maintain its
present suppliers and customers and preserve its goodwill.
5.4 ADVICE OF CHANGES. E-Trend will promptly advise Cool in writing from
time to time prior to the Closing with respect to any matter hereafter
arising and known to them that, if existing or occurring at the date of
this Agreement, would have been required to be set forth or described
in the E-Trend Disclosure Schedule or would have resulted in any
representation of E-Trend in this Agreement being untrue. Cool will
promptly advise E-Trend in writing from time to time prior to the
Closing with respect to any matter hereafter arising and known to it
that, if existing or occurring at the date of this Agreement, would
have been required to be set forth or described in the Cool Disclosure
Schedule or would have resulted in any representation of Cool in this
Agreement being untrue in any material respect.
5.5 OTC BULLETIN BOARD. Cool will use its best efforts to maintain the
listing on the OTC Bulletin Board of the Cool Common Stock. Cool shall
take the necessary action to notify the OTC Bulletin Board and NASD
Regulation of the Reorganization in a timely manner.
5.6 SEC REPORTS. Cool shall file with the SEC all reports and other
documents that are required by the Exchange Act and the rules and
regulations promulgated thereunder to be filed in connection with this
transactions contemplated by this Agreement.
5.7 REORGANIZATION. Cool shall take all necessary actions to facilitate the
Reorganization, including incorporating Cool Delaware, obtaining a new
CUSIP number, arranging for the printing of new stock certificates, and
notifying the market in a timely manner.
5.8 SHAREHOLDER APPROVALS. Each of Cool and E-Trend shall, as expeditiously
as possible, take all actions necessary to obtain the approval of its
shareholders of the transactions contemplated by this Agreement as
required by the laws of Colorado or Nevada, as the case may be.
5.9 OTHER AGREEMENTS. E-Trend, Cool, and Cool Delaware agree to take, or
cause to be taken, all actions and to do, or cause to be done, all
things reasonably necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by
this Agreement, including, without limitation, the obtaining of all
necessary waivers, consents and approvals and the effecting of all
necessary registrations and filings, including, but not limited to,
submissions of information requested by Governmental or Regulatory
Bodies and any other persons required to be obtained by them for the
consummation of the closing and the continuance in full force and
effect of the permits, contracts and other agreements set forth on the
Schedules to this Agreement.
Share Exchange Agreement - Page 23
<PAGE>
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
6.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF COOL TO COMPLETE THE
CLOSING. The obligations of Cool to enter into and complete the Closing
are subject to the fulfillment of the following conditions, any one or
more of which may be waived by Cool:
(a) (i) All of the terms, covenants, and conditions of this
Agreement to be complied with or performed by E-Trend at or
before the Closing shall have been duly complied with and
performed in all material respects, (ii) the representations and
warranties of E-Trend set forth in Article III shall be true in
all material respects on and as of the Closing Date with the
same force and effect as if such representations and warranties
had been made on and as of the Closing, and (iii) Cool shall
have received a certificate to such effect from E-Trend,
specifically referencing SECTIONS 3.7 AND 3.8. E-Trend shall
provide a certificate from its transfer agent as to the
representations contained in SECTION 3.2.
(b) All consents, waivers, approvals, licenses, authorizations of,
or filings or declarations with third parties or Governmental or
Regulatory Bodies required to be obtained by E-Trend in order to
permit the transactions contemplated by this Agreement to be
consummated in accordance with agreements and court orders
applicable to E-Trend and applicable governmental laws, rules,
regulations and agreements shall have been obtained and any
waiting period thereunder shall have expired or been terminated,
and Cool shall have received a certificate from E-Trend to such
effect.
(c) All actions, proceedings, instruments, and documents in
connection with the consummation of the transactions
contemplated by this Agreement, including the forms of all
documents, legal matters, opinions, and procedures in connection
therewith, shall have been approved in form and substance by
counsel for Cool, which approval shall not be unreasonably
withheld.
(d) E-Trend shall have furnished such certificates to evidence
compliance with the conditions set forth in this Article, as may
be reasonably requested by Cool or its counsel.
(e) E-Trend shall not have suffered any Material Effect.
(f) No material information or data provided or made available to
Cool by or on behalf of E-Trend shall be incorrect in any
material respect.
(g) No investigation and no suit, action, or proceeding before any
court or any governmental or regulatory authority shall be
pending or threatened by any state or federal governmental or
regulatory authority, against E-Trend or any of its
Share Exchange Agreement - Page 24
<PAGE>
affiliates, associates, officers, or directors seeking to
restrain, prevent, or change in any material respect the
transactions contemplated hereby or seeking damages in
connection with such transactions that are material to E-Trend.
(h) Counsel to E-Trend shall have delivered to Cool on and as of the
Closing Date an opinion to Cool substantially as to the matters
set forth in SECTIONS 3.1 AND 3.6., all subject to customary
limitations reasonably acceptable to counsel to Cool.
(i) E-Trend shall have provided audited financial statements of
E-Trend covering the latest completed fiscal year in a form
suitable for filing with the SEC.
(j) All of the E-Trend Shareholders approving the Share Exchange
shall have acknowledged that the shares of Cool Common Stock are
restricted securities under the Securities Act and represent
that such E-Trend Shareholder (i) is acquiring the Cool Common
Stock for his own account without a view to distribution within
the meaning of the Securities Act; (ii) has received from Cool
its filings with the Securities and Exchange Commission and all
other information that he has deemed necessary to make an
informed investment decision with respect to an investment in
Cool in general and the Cool Common Stock in particular; (iii)
is financially able to bear the economic risks of an investment
in Cool; and (iv) has such knowledge and experience in financial
and business matters in general and with respect to investments
of a nature similar to the Cool Common Stock so as to be
capable, by reason of such knowledge and experience, of
evaluating the merits and risks of, and making an informed
business decision with regard to, the acquisition of the Cool
Common Stock. Such acknowledgment shall also indicate that each
E-Trend Shareholder understands and agrees that the certificates
evidencing the Cool Common Stock shall bear the usual
restrictive legend pertaining to Rule 144 under the Securities
Act and that the Cool Common Stock will not be transferable
except under an effective registration statement under the
Securities Act or in accordance with available exemptions from
registration under the Securities Act. Such acknowledgment shall
be substantially in the form attached hereto as EXHIBIT A.
(k) E-Trend shall have received the necessary approvals from at
least 90% of its shareholders to proceed with the transactions
contemplated herein.
6.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF E-TREND TO COMPLETE THE
CLOSING. The obligations of E-Trend to enter into and complete the
Closing are subject to the fulfillment on or prior to the Closing Date,
of the following conditions, any one or more of which may be waived by
E-Trend:
(a) (i) All of the terms, covenants, and conditions of this
Agreement to be complied with or performed by Cool and Cool
Delaware at or before the Closing shall have been duly complied
with and performed in all material respects, (ii) the
representations and warranties of Cool set forth in Article IV
shall be true in all
Share Exchange Agreement - Page 25
<PAGE>
material respects on and as of the Closing Date with the same
force and effect as if such representations and warranties had
been made on and as of the Closing, and (iii) E-Trend shall have
received a certificate to such effect from Cool and Cool
Delaware.
(b) All consents, waivers, approvals, licenses, authorizations of,
or filings or declarations with third parties or Governmental or
Regulatory Bodies required to be obtained by Cool and Cool
Delaware in order to permit the transactions contemplated by
this Agreement to be consummated in accordance with agreements
and court orders applicable to Cool and Cool Delaware and
applicable governmental laws, rules, regulations and agreements
shall have been obtained and any waiting period thereunder shall
have expired or been terminated, and E-Trend shall have received
a certificate from Cool and Cool Delaware to such effect.
(c) All actions, proceedings, instruments, and documents in
connection with the consummation of the transactions
contemplated by this Agreement, including the forms of all
documents, legal matters, opinions, and procedures in connection
therewith, shall have been approved in form and substance by
counsel for E-Trend, which approval shall not be unreasonably
withheld.
(d) Cool and Cool Delaware shall have furnished such certificates to
evidence compliance with the conditions set forth in this
Article, as may be reasonably requested by E-Trend or its
counsel.
(e) Neither Cool nor Cool Delaware shall have suffered any Material
Effect.
(f) No material information or data provided or made available to
E-Trend by or on behalf of Cool or Cool Delaware shall be
incorrect in any material respect.
(g) No investigation and no suit, action, or proceeding before any
court or any governmental or regulatory authority shall be
pending or threatened by any state or federal governmental or
regulatory authority, against Cool or Cool Delaware or any of
its affiliates, associates, officers, or directors seeking to
restrain, prevent, or change in any material respect the
transactions contemplated hereby or seeking damages in
connection with such transactions that are material to Cool.
(h) Counsel to Cool and Cool Delaware shall have delivered to
E-Trend on and as of the Closing Date an opinion to E-Trend
substantially as to the matters set forth in SECTIONS 4.1, 4.2,
4.3, 4.4, 4.5, 4.6., AND 4.7, all subject to customary
limitations reasonably acceptable to counsel to E-Trend.
(i) The Cool Common Stock shall be approved for listing on the OTC
Bulletin Board.
Share Exchange Agreement - Page 26
<PAGE>
(j) Cool shall satisfy (i) the filing requirements set forth in
Section 13 of the Exchange Act and (ii) the requirements of Rule
15c2-11 as promulgated by the SEC under the Exchange Act.
(k) Cool shall have changed its name to "E-Trend Networks, Inc."
(l) Cool shall have received the necessary approvals from its
shareholders to proceed with the transactions contemplated
herein, including a change of domicile to the State of Delaware
and a 1-for-100 reverse stock split.
(m) All option agreements and/or plans, warrants to purchase
securities, or other instruments convertible into securities of
Cool which have been issued or granted to each of Len Voth, Marc
Belcourt, and William Hadcock shall have been surrendered and/or
cancelled.
(n) E-Trend shall have received a certified statement from the
auditors of Cool certifying that as of November 30, 2000 that
the only liabilities of Cool are as set out in such certificate,
that the total amount of current and long-term debt of Cool,
excluding (a) amounts owed to Fictional Media Ltd. and (b) legal
and accounting expenses incurred in connection with the
transactions contemplated hereby since November 6, 2000, does
not exceed $75,000, and that to the best of such auditors'
knowledge, there are no material outstanding contingent and/or
tax liabilities of Cool other than as identified in such
certificate.
(o) Cool shall have received the necessary approvals from its
shareholders to adopt the form of stock option plan as set out
herein as EXHIBIT B.
(p) Each of Len Voth, Marc Belcourt, and William Hadcock shall have
entered into an agreement wherein each agrees not to sell his
shares of Cool pursuant to Rule 144 for a period of one year
from the date of Closing.
(q) Fictional Media Ltd. shall have accepted a promissory note from
Cool, convertible into 25,000 restricted shares of Cool Common
Stock, in full and complete payment of all amounts owed to
Fictional Media Ltd. by Cool.
(r) E-Trend Shareholders holding no more than 10% of the issued and
outstanding E-Trend common stock shall have perfected appraisal
rights for their shares in accordance with the Nevada Law.
ARTICLE VII
POST-CLOSING COVENANTS
The parties covenant to take the following actions after the Closing Date:
Share Exchange Agreement - Page 27
<PAGE>
7.1 FURTHER INFORMATION. Following the Closing, each party will afford to
the other party, its counsel and its accountants, during normal
business hours, reasonable access to the books, records and other data
of E-Trend or Cool, as the case may be, relating to the business of
E-Trend or Cool in their possession with respect to periods prior to
the Closing and the right to make copies and extracts therefrom, to the
extent that such access may be reasonably required by the requesting
party (a) to facilitate the investigation, litigation and final
disposition of any claims which may have been or may be made against
any party or its affiliates and (b) for any other reasonable business
purpose.
7.2 RECORD RETENTION. Each party agrees that for a period of not less than
five years following the Closing Date, such party shall not destroy or
otherwise dispose of any of the Books and Records of E-Trend or Cool
relating to the business of E-Trend or Cool in his or its possession
with respect to periods prior to the Closing Date. Each party shall
have the right to destroy all or part of such Books and Records after
the fifth anniversary of the Closing Date or, at an earlier time by
giving each other party hereto 30 days prior written notice of such
intended disposition and by offering to deliver to the other party or
parties, at the other party's or parties' expense, custody of such
Books and Records as such party may intend to destroy.
7.3 POST-CLOSING ASSISTANCE. E-Trend and Cool will provide each other with
such assistance as may reasonably be requested in connection with the
preparation of any Tax Return, any audit or other examination by any
taxing authority, or any judicial or administrative proceedings
relating to liability for Taxes, and each will retain and provide the
requesting party with any records or information that may be reasonably
relevant to such return, audit or examination, proceedings or
determination. The party requesting assistance shall reimburse the
other party for reasonable out-of-pocket expenses incurred in providing
such assistance. Any information obtained pursuant to this SECTION 7.3
or pursuant to any other Section hereof providing for the sharing of
information or the review of any Tax Return or other schedule relating
to Taxes shall be kept confidential by the parties hereto.
7.4 SEC REPORTING. With a view to making available the benefits of certain
rules and regulations of the SEC which may at any time permit the sale
of the Cool Common Stock to the public without registration, from and
after the Closing, the new management of Cool Delaware will:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at
all times;
(b) file with the SEC in a timely manner all reports and other
documents required of Cool under the Exchange Act; and
(c) continue a listing with a recognized securities manual for a
period of at least three years after the Closing.
Share Exchange Agreement - Page 28
<PAGE>
ARTICLE VIII
SURVIVAL
8.1 SURVIVAL OF AGREEMENTS, REPRESENTATIONS AND WARRANTIES. Notwithstanding
any investigation conducted or notice or knowledge obtained by or on
behalf of any party hereto, each agreement in this Agreement shall
survive the Closing without limitation as to time until fully performed
and each representation and warranty in this Agreement or in the
Exhibits, Schedules or certificates delivered pursuant to this
Agreement shall survive the Closing for a period of two years (other
than the representations and warranties contained in SECTION 3.5 which
shall survive the Closing without limitation as to time, and other than
the representations and warranties contained in SECTION 3.14, which
shall survive the Closing until the earlier of (i) three and one-half
years from the Closing Date and (ii) three years following the date on
which Cool files the Tax Return relating to the taxable period from
June 30, 2000 through the Closing Date). Notice must be given to the
party from whom indemnification is sought of any claim for
indemnification under Article VIII prior to the termination of the
relevant survival period.
ARTICLE IX
TERMINATION OF AGREEMENT
9.1 TERMINATION. This Agreement may be terminated at any time prior to the
Closing as follows:
(a) by mutual written consent of Cool and E-Trend;
(b) by Cool or E-Trend by written notice to the other party hereto,
if the Closing shall not have occurred on or prior to the close
of business on February 2, 2001 (unless such event has been
caused by a breach of this Agreement by the party seeking such
termination);
(c) by Cool or by E-Trend if a Governmental or Regulatory Body has
permanently enjoined or prohibited consummation of the Share
Exchange and such court or government action is final and
nonappealable;
(d) by Cool if E-Trend has failed to comply in any material respect
with any of its covenants or agreements under this Agreement
that are required to be complied with prior to the date of such
termination; or
(e) by E-Trend if Cool has failed to comply in any material respect
with any of its covenants or agreements under this Agreement
that are required to be complied with prior to the date of such
termination.
Should E-Trend terminate this Agreement for any reason other than a
default by Cool as described in SECTION 9.1(E) hereof, E-Trend shall be
liable for all damages caused by the
Share Exchange Agreement - Page 29
<PAGE>
failure to close. Similarly, if Cool should terminate this Agreement
for any reason other than a default by E-Trend as described in SECTION
9.1(D) hereof, Cool shall be liable for all damages caused by the
failure to close.
9.2 SURVIVAL AFTER TERMINATION. If this Agreement is terminated pursuant to
SECTION 9.1, (a) this Agreement shall become null and void and of no
further force and effect, except for the provisions of SECTION 5.1
relating to the obligation to keep confidential certain information and
(b) there shall be no liability on the part of E-Trend or Cool or their
respective affiliates.
ARTICLE X
MISCELLANEOUS
10.1 EXPENSES. E-Trend shall be responsible for the reasonable legal and
accounting fees in connection with the Share Exchange.
10.2 FURTHER ASSURANCES. At any time and from time to time after the Closing
Date at the request of Cool, and without further consideration, E-Trend
will execute and deliver such other instruments of sale, transfer,
conveyance, assignment and confirmation and take such other action as
Cool may reasonably deem necessary or desirable in order to transfer,
convey and assign the Shares to Cool and to assist Cool in exercising
all rights with respect thereto. The parties shall use their best
efforts to fulfill or obtain the fulfillment of the conditions to the
Closing, including, without limitation, the execution and delivery of
any document or other papers, the execution and delivery of which are
conditions precedent to the Closing.
10.3 NOTICES. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and
shall be given personally, sent by facsimile transmission or sent by
prepaid air courier or certified or express mail, postage prepaid. Any
such notice shall be deemed to have been given (a) when received, if
delivered in person, sent by facsimile transmission and confirmed in
writing within three (3) business days thereafter or sent by prepaid
air courier or (b) three (3) business days following the mailing
thereof, if mailed by certified first class mail, postage prepaid,
return receipt requested, in any such case as follows (or to such other
address or addresses as a party may have advised the other in the
manner provided in this SECTION 10.3):
If to E-Trend:
E-Trend Networks, Inc.
5919 - 3rd Street, S.E.
Calgary, Alberta T2H 1K3 Canada
Attention: Gregg Johnson, President
Share Exchange Agreement - Page 30
<PAGE>
with a copy to:
Dorsey & Whitney LLP
U.S. Bank Centre
1420 Fifth Avenue, Suite 400
Seattle, Washington 98101
Attention: Kenneth Sam, Esq.
If to Cool:
Cool Entertainment, Inc.
10900 N.E. 8th Street, Suite 900
Bellevue, Washington 98004
Attention: William Hadcock, President
with a copy to:
Dill Dill Carr Stonbraker & Hutchings, P.C.
455 Sherman Street, Suite 300
Denver, Colorado 80203
Attention: Fay M. Matsukage, Esq.
10.4 MEDIATION. The parties hereto encourage the prompt and equitable
settlement of all controversies or claims (a "DISPUTE") between or
among the parties and their affiliates including but not limited to
those arising out of or relating to this Agreement or the transactions
contemplated hereby. At any time, either party can give the other
written notice that it desires to settle a Dispute. Within 10 days of
delivery of such notice, the parties agree to cause their officers
having authority to resolve such differences to meet for two out of
four continuous days (the "NEGOTIATION PERIOD"), the parties agree to
submit their Dispute to a mediator to work with them to resolve their
differences. Such mediator shall be selected by mutual agreement of the
parties. The parties shall participate in the mediation proceeding in
good faith with the intention to settle. The mediation shall be
conducted pursuant to the rules generally used by the mediator in the
mediator's practice, which rules may be modified or amended with the
written consent of the parties. No later than three business days prior
to the mediation, each party shall deliver to the mediator all
information reasonably required for the mediator to understand the
Dispute and the issues presented. The mediation shall be determined
upon the first to occur of the following: (i) by the execution of a
settlement agreement resolving the Dispute by the parties; (ii) by a
written declaration of the mediator to the effect that further efforts
at mediation are no longer worthwhile; or (iii) after the completion of
two full days of mediation effect that mediation proceedings are
terminated. No party shall sue any other party hereto in connection
with any Dispute, except for enforcement of the negotiation and
mediation process set forth herein, and the arbitration provisions set
forth in SECTION 10.5 hereof shall not be applicable, in each case,
prior to termination of the Negotiation Period and of the mediation as
provided above.
Share Exchange Agreement - Page 31
<PAGE>
10.5 ARBITRATION. Any dispute, controversy, or claim arising out of,
relating to, or in connection with, this Agreement or the agreements or
transactions contemplated by this Agreement shall be finally settled by
binding arbitration. The arbitration shall be conducted and the
arbitrator chosen in accordance with the rule of the American
Arbitration Association in effect at the time of the arbitration,
except as they may be modified herein or by mutual agreement of Cool
and E-Trend. In connection with any such arbitration, each party shall
be afforded the opportunity to conduct discovery in accordance with the
Federal Rules of Civil Procedure.
(a) The seat of the arbitration shall be in Seattle, Washington.
E-Trend and Cool hereby irrevocably submits to the jurisdiction
of the arbitrator in Washington, and waives any defense in an
arbitration based upon any claim that such party is not subject
personally to the jurisdiction of such arbitrator, that such
arbitration is brought in an inconvenient format, or that such
venue is improper.
(b) The arbitral award shall be in writing and shall be final and
binding on each of the parties to this Agreement. The award may
include an award of costs, including reasonable attorneys' fees
and disbursements. Judgment upon the award may be entered by any
court having jurisdiction thereof or having jurisdiction over
the parties or their assets. E-Trend and Cool acknowledge and
agree that by agreeing to these arbitration provisions each of
the parties hereto is waiving any right that such party may have
to a jury trial with respect to the resolution of any dispute
under this Agreement or the agreements or transactions
contemplated hereby.
10.6 PUBLICITY. No publicity release or announcement concerning this
Agreement or the transactions contemplated hereby shall be made without
advance approval thereof by Cool and E-Trend except as may be required
by applicable law or the rules and regulations of the applicable
regulatory authorities.
10.7 ENTIRE AGREEMENT. This Agreement (including the Exhibits and Schedules)
and the agreements, certificates and other documents delivered pursuant
to this Agreement contain the entire agreement among the parties with
respect to the transactions described herein, and supersede all prior
agreements, written or oral, with respect thereto.
10.8 WAIVERS AND AMENDMENTS. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only
by a written instrument signed by the parties or, in the case of a
waiver, by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof
10.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to
principles of conflicts of law.
10.10 BINDING EFFECT, NO ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns. This
Share Exchange Agreement - Page 32
<PAGE>
Agreement is not assignable by any party hereto without the prior
written consent of the other parties hereto except by operation of law
and any other purported assignment shall be null and void.
10.11 COUNTERPARTS. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of
a number of copies hereof each signed by less than all, but together
signed by all of the parties hereto.
10.12 EXHIBITS AND SCHEDULES. The Exhibits and Schedules are a part of this
Agreement as if fully set forth herein. All references herein to
Sections, subsections, clauses, Exhibits and Schedules shall be deemed
references to such parts of this Agreement, unless the context shall
otherwise require.
10.13 EFFECT OF DISCLOSURE ON SCHEDULES. Any item disclosed on any Schedule
to this Agreement shall only be deemed to be disclosed in connection
with (a) the specific representation and warranty to which such
Schedule is expressly referenced, (b) any specific representation and
warranty which expressly cross-references such Schedule and (c) any
specific representation and warranty to which any other Schedule to
this Agreement is expressly referenced if such other Schedule expressly
cross-references such Schedule.
10.14 HEADINGS. The headings in this Agreement are for reference only, and
shall not affect the interpretation of this Agreement.
10.15 SEVERABILITY OF PROVISIONS. If any provision or any portion of any
provision of this Agreement or the application of such provision or any
portion thereof to any person or circumstance, shall be held invalid or
unenforceable, the remaining portion of such provision and the
remaining provisions of this Agreement, or the application of such
provision or portion of such provision as is held invalid or
unenforceable to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COOL:
COOL ENTERTAINMENT, INC.
By: /S/ WILLIAM HADCOCK
------------------------------------
Name: William Hadcock
Title: President
COOL DELAWARE:
E-TREND NETWORKS, INC.
(A TO-BE-FORMED DELAWARE CORPORATION)
BY COOL ENTERTAINMENT, INC.
By: /S/ WILLIAM HADCOCK
------------------------------------
Name: William Hadcock
Title: President
E-TREND:
E-TREND NETWORKS, INC.
By: /S/ GREGG JOHNSON
------------------------------------
Name: Gregg Johnson
Title: President
Share Exchange Agreement - Page 34
<PAGE>
APPENDIX B
COLORADO DISSENTERS' RIGHTS STATUTE
<PAGE>
COLORADO REVISED STATUTES
PART 1
RIGHT OF DISSENT -
PAYMENT FOR SHARES
7-113-101. Definitions.
7-113-102. Right to dissent.
7-113-103. Dissent by nominees and beneficial owners.
PART 2
PROCEDURE FOR EXERCISE
OF DISSENTERS' RIGHTS
7-113-201. Notice of dissenters' rights.
7-113-202. Notice of intent to demand payment.
7-113-203. Dissenters' notice.
7-113-204. Procedure to demand payment.
7-113-205. Uncertificated shares.
7-113-206. Payment.
7-113-207. Failure to take action.
7-113-208. Special provisions relating to shares acquired after announcement of
proposed corporate action.
7-113-209. Procedure if dissenter is dissatisfied with payment or offer.
PART 3
JUDICIAL APPRAISAL OF SHARES
7-113-301. Court action.
7-113-302. Court costs and counsel fees.
PART 1
RIGHT OF DISSENT -
PAYMENT FOR SHARES
7-113-101. Definitions. For purposes of this article:
(1) "Beneficial shareholder" means the beneficial owner of shares held in a
voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring domestic or foreign
corporation, by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from corporate
action under section 7-113-102 and who exercises that right at the time
and in the manner required by part 2 of this article.
(4) "Fair value", with respect to a dissenter's shares, means the value of the
shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action except to the extent that exclusion
would be inequitable.
<PAGE>
(5) "Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at the legal rate as
specified in section 5-12-101, C.R.S.
(6) "Record shareholder" means the person in whose name shares are registered
in the records of a corporation or the beneficial owner of shares that are
registered in the name of a nominee to the extent such owner is recognized
by the corporation as the shareholder as provided in section 7-107-204.
(7) "Shareholder" means either a record shareholder or a beneficial
shareholder.
7-113-102. Right to dissent.
(1) A shareholder, whether or not entitled to vote, is entitled to dissent and
obtain payment of the fair value of the shareholder's shares in the event
of any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party
if:
(I) Approval by the shareholders of that corporation is required
for the merger by section 7-111-103 or 7-111-104 or by the
articles of incorporation; or
(II) The corporation is a subsidiary that is merged with its parent
corporation under section 7-111-104;
(b) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of the corporation for
which a shareholder vote is required under section 7-112-102 (1);
and
(d) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of an entity controlled
by the corporation if the shareholders of the corporation were
entitled to vote upon the consent of the corporation to the
disposition pursuant to section 7-112-102 (2).
(1.3) A shareholder is not entitled to dissent and obtain payment, under
subsection (1) of this section, of the fair value of the shares of any
class or series of shares which either were listed on a national
securities exchange registered under the federal "Securities Exchange Act
of 1934", as amended, or on the national market system of the national
association of securities dealers automated quotation system, or were held
of record by more than two thousand shareholders, at the time of:
(a) The record date fixed under section 7-107-107 to determine the
shareholders entitled to receive notice of the shareholders' meeting
at which the corporate action is submitted to a vote;
<PAGE>
(b) The record date fixed under section 7-107-104 to determine
shareholders entitled to sign writings consenting to the corporate
action; or
(c) The effective date of the corporate action if the corporate action
is authorized other than by a vote of shareholders.
(1.8) The limit ation set forth in subsection (1.3) of this section shall not
apply if the shareholder will receive for the shareholder's shares,
pursuant to the corporate action, anything except:
(a) Shares of the corporation surviving the consummation of the plan of
merger or share exchange;
(b) Shares of any other corporation which at the effective date of the
plan of merger or share exchange either will be listed on a national
securities exchange registered under the federal "Securities
Exchange Act of 1934", as amended, or on the national market system
of the national association of securities dealers automated
quotation system, or will be held of record by more than two
thousand shareholders;
(c) Cash in lieu of fractional shares; or
(d) Any combination of the foregoing described shares or cash in lieu of
fractional shares.
(2) (Deleted by amendment, L. 96, p. 1321,ss.30, effective June 1, 1996.)
(2.5) A shareholder, whether or not entitled to vote, is entitled to dissent and
obtain payment of the fair value of the shareholder's shares in the event
of a reverse split that reduces the number of shares owned by the
shareholder to a fraction of a share or to scrip if the fractional share
or scrip so created is to be acquired for cash or the scrip is to be
voided under section 7-106-104.
(3) A shareholder is entitled to dissent and obtain payment of the fair value
of the shareholder's shares in the event of any corporate action to the
extent provided by the bylaws or a resolution of the board of directors.
(4) A shareholder entitled to dissent and obtain payment for the shareholder's
shares under this article may not challenge the corporate action creating
such entitlement unless the action is unlawful or fraudulent with respect
to the shareholder or the corporation.
7-113-103. Dissent by nominees and beneficial owners.
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the record shareholder's name only if the record
shareholder dissents with respect to all shares beneficially owned by any
one person and causes the corporation to receive written notice which
states such dissent and the name, address, and federal taxpayer
identification number, if any, of each person on whose behalf the record
shareholder asserts dissenters' rights. The rights of a record shareholder
under this subsection (1) are determined as if the shares as to which the
<PAGE>
record shareholder dissents and the other shares of the record shareholder
were registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to the shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive the
record shareholder's written consent to the dissent not later than
the time the beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder dissents with respect to all shares
beneficially owned by the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents with
respect to the shares held by any one or more beneficial shareholders,
each such beneficial shareholder must certify to the corporation that the
beneficial shareholder and the record shareholder or record shareholders
of all shares owned beneficially by the beneficial shareholder have
asserted, or will timely assert, dissenters' rights as to all such shares
as to which there is no limitation on the ability to exercise dissenters'
rights. Any such requirement shall be stated in the dissenters' notice
given pursuant to section 7-113-203.
PART 2
PROCEDURE FOR EXERCISE
OF DISSENTERS' RIGHTS
7-113-201. Notice of dissenters' rights.
(1) If a proposed corporate action creating dissenters' rights under section
7-113-102 is submitted to a vote at a shareholders' meeting, the notice of
the meeting shall be given to all shareholders, whether or not entitled to
vote. The notice shall state that shareholders are or may be entitled to
assert dissenters' rights under this article and shall be accompanied by a
copy of this article and the materials, if any, that, under articles 101
to 117 of this title, are required to be given to shareholders entitled to
vote on the proposed action at the meeting. Failure to give notice as
provided by this subsection (1) shall not affect any action taken at the
shareholders' meeting for which the notice was to have been given, but any
shareholder who was entitled to dissent but who was not given such notice
shall not be precluded from demanding payment for the shareholder's shares
under this article by reason of the shareholder's failure to comply with
the provisions of section 7-113-202 (1).
(2) If a proposed corporate action creating dissenters' rights under section
7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104, any written or oral solicitation of a shareholder to
execute a writing consenting to such action contemplated in section
7-107-104 shall be accompanied or preceded by a written notice stating
that shareholders are or may be entitled to assert dissenters' rights
under this article, by a copy of this article, and by the materials, if
any, that, under articles 101 to 117 of this title, would have been
required to be given to shareholders entitled to vote on the proposed
action if the proposed action were submitted to a vote at a shareholders'
meeting. Failure to give notice as provided by this subsection (2) shall
not affect
<PAGE>
any action taken pursuant to section 7-107-104 for which the notice was to
have been given, but any shareholder who was entitled to dissent but who
was not given such notice shall not be precluded from demanding payment
for the shareholder's shares under this article by reason of the
shareholder's failure to comply with the provisions of section 7-113-202
(2).
7-113-202. Notice of intent to demand payment.
(1) If a proposed corporate action creating dissenters' rights under section
7-113-102 is submitted to a vote at a shareholders' meeting and if notice
of dissenters' rights has been given to such shareholder in connection
with the action pursuant to section 7-113-201 (1), a shareholder who
wishes to assert dissenters' rights shall:
(a) Cause the corporation to receive, before the vote is taken, written
notice of the shareholder's intention to demand payment for the
shareholder's shares if the proposed corporate action is
effectuated; and
(b) Not vote the shares in favor of the proposed corporate action.
(2) If a proposed corporate action creating dissenters' rights under section
7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104 and if notice of dissenters' rights has been given to
such shareholder in connection with the action pursuant to section
7-113-201 (2), a shareholder who wishes to assert dissenters' rights shall
not execute a writing consenting to the proposed corporate action.
(3) A shareholder who does not satisfy the requirements of subsection (1) or
(2) of this section is not entitled to demand payment for the
shareholder's shares under this article.
7-113-203. Dissenters' notice.
(1) If a proposed corporate action creating dissenters' rights under section
7-113-102 is authorized, the corporation shall give a written dissenters'
notice to all shareholders who are entitled to demand payment for their
shares under this article.
(2) The dissenters' notice required by subsection (1) of this section shall be
given no later than ten days after the effective date of the corporate
action creating dissenters' rights under section 7-113-102 and shall:
(a) State that the corporate action was authorized and state the
effective date or proposed effective date of the corporate action;
(b) State an address at which the corporation will receive payment
demands and the address of a place where certificates for
certificated shares must be deposited;
(c) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
<PAGE>
(d) Supply a form for demanding payment, which form shall request a
dissenter to state an address to which payment is to be made;
(e) Set the date by which the corporation must receive the payment
demand and certificates for certificated shares, which date shall
not be less than thirty days after the date the notice required by
subsection (1) of this section is given;
(f) State the requirement contemplated in section 7-113-103 (3), if such
requirement is imposed; and
(g) Be accompanied by a copy of this article.
7-113-204. Procedure to demand payment.
(1) A shareholder who is given a dissenters' notice pursuant to section
7-113-203 and who wishes to assert dissenters' rights shall, in accordance
with the terms of the dissenters' notice:
(a) Cause the corporation to receive a payment demand, which may be the
payment demand form contemplated in section 7-113-203 (2) (d), duly
completed, or may be stated in another writing; and
(b) Deposit the shareholder's certificates for certificated shares.
(2) A shareholder who demands payment in accordance with subsection (1) of
this section retains all rights of a shareholder, except the right to
transfer the shares, until the effective date of the proposed corporate
action giving rise to the shareholder's exercise of dissenters' rights and
has only the right to receive payment for the shares after the effective
date of such corporate action.
(3) Except as provided in section 7-113-207 or 7-113-209 (1) (b), the demand
for payment and deposit of certificates are irrevocable.
(4) A shareholder who does not demand payment and deposit the shareholder's
share certificates as required by the date or dates set in the dissenters'
notice is not entitled to payment for the shares under this article.
7-113-205. Uncertificated shares.
(1) Upon receipt of a demand for payment under section 7-113-204 from a
shareholder holding uncertificated shares, and in lieu of the deposit of
certificates representing the shares, the corporation may restrict the
transfer thereof.
(2) In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
7-113-206. Payment.
(1) Except as provided in section 7-113-208, upon the effective date of the
corporate action creating dissenters' rights under section 7-113-102 or
upon receipt of a payment demand pursuant to section 7-113-204, whichever
<PAGE>
is later, the corporation shall pay each dissenter who complied with
section 7-113-204, at the address stated in the payment demand, or if no
such address is stated in the payment demand, at the address shown on the
corporation's current record of shareholders for the record shareholder
holding the dissenter's shares, the amount the corporation estimates to be
the fair value of the dissenter's shares, plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section shall be
accompanied by:
(a) The corporation's balance sheet as of the end of its most recent
fiscal year or, if that is not available, the corporation's balance
sheet as of the end of a fiscal year ending not more than sixteen
months before the date of payment, an income statement for that
year, and, if the corporation customarily provides such statements
to shareholders, a statement of changes in shareholders' equity for
that year and a statement of cash flow for that year, which balance
sheet and statements shall have been audited if the corporation
customarily provides audited financial statements to shareholders,
as well as the latest available financial statements, if any, for
the interim or full-year period, which financial statements need not
be audited;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under section
7-113-209; and
(e) A copy of this article.
7-113-207. Failure to take action.
(1) If the effective date of the corporate action creating dissenters' rights
under section 7-113-102 does not occur within sixty days after the date
set by the corporation by which the corporation must receive the payment
demand as provided in section 7-113-203, the corporation shall return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares.
(2) If the effective date of the corporate action creating dissenters' rights
under section 7-113-102 occurs more than sixty days after the date set by
the corporation by which the corporation must receive the payment demand
as provided in section 7-113-203, then the corporation shall send a new
dissenters' notice, as provided in section 7-113-203, and the provisions
of sections 7-113-204 to 7-113-209 shall again be applicable.
7-113-208. Special provisions relating to shares acquired after
announcement of proposed corporate action.
(1) The corporation may, in or with the dissenters' notice given pursuant to
section 7-113-203, state the date of the first announcement to news media
or to shareholders of the terms of the proposed corporate action creating
<PAGE>
dissenters' rights under section 7-113-102 and state that the dissenter
shall certify in writing, in or with the dissenter's payment demand under
section 7-113-204, whether or not the dissenter (or the person on whose
behalf dissenters' rights are asserted) acquired beneficial ownership of
the shares before that date. With respect to any dissenter who does not so
certify in writing, in or with the payment demand, that the dissenter or
the person on whose behalf the dissenter asserts dissenters' rights
acquired beneficial ownership of the shares before such date, the
corporation may, in lieu of making the payment provided in section
7-113-206, offer to make such payment if the dissenter agrees to accept it
in full satisfaction of the demand.
(2) An offer to make payment under subsection (1) of this section shall
include or be accompanied by the information required by section 7-113-206
(2).
7-113-209. Procedure if dissenter is dissatisfied with payment or offer.
(1) A dissenter may give notice to the corporation in writing of the
dissenter's estimate of the fair value of the dissenter's shares and of
the amount of interest due and may demand payment of such estimate, less
any payment made under section 7-113-206, or reject the corporation's
offer under section 7-113-208 and demand payment of the fair value of the
shares and interest due, if:
(a) The dissenter believes that the amount paid under section 7-113-206
or offered under section 7-113-208 is less than the fair value of
the shares or that the interest due was incorrectly calculated;
(b) The corporation fails to make payment under section 7-113-206 within
sixty days after the date set by the corporation by which the
corporation must receive the payment demand; or
(c) The corporation does not return the deposited certificates or
release the transfer restrictions imposed on uncertificated shares
as required by section 7-113-207 (1).
(2) A dissenter waives the right to demand payment under this section unless
the dissenter causes the corporation to receive the notice required by
subsection (1) of this section within thirty days after the corporation
made or offered payment for the dissenter's shares.
PART 3
JUDICIAL APPRAISAL OF SHARES
7-113-301. Court action.
(1) If a demand for payment under section 7-113-209 remains unresolved, the
corporation may, within sixty days after receiving the payment demand,
commence a proceeding and petition the court to determine the fair value
of the shares and accrued interest. If the corporation does not commence
the proceeding within the sixty-day period, it shall pay to each dissenter
whose demand remains unresolved the amount demanded.
<PAGE>
(2) The corporation shall commence the proceeding described in subsection (1)
of this section in the district court of the county in this state where
the corporation's principal office is located or, if the corporation has
no principal office in this state, in the district court of the county in
which its registered office is located. If the corporation is a foreign
corporation without a registered office, it shall commence the proceeding
in the county where the registered office of the domestic corporation
merged into, or whose shares were acquired by, the foreign corporation was
located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unresolved parties to the proceeding
commenced under subsection (2) of this section as in an action against
their shares, and all parties shall be served with a copy of the petition.
Service on each dissenter shall be by registered or certified mail, to the
address stated in such dissenter's payment demand, or if no such address
is stated in the payment demand, at the address shown on the corporation's
current record of shareholders for the record shareholder holding the
dissenter's shares, or as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and
recommend a decision on the question of fair value. The appraisers have
the powers described in the order appointing them, or in any amendment to
such order. The parties to the proceeding are entitled to the same
discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the proceeding commenced under subsection
(2) of this section is entitled to judgment for the amount, if any, by
which the court finds the fair value of the dissenter's shares, plus
interest, exceeds the amount paid by the corporation, or for the fair
value, plus interest, of the dissenter's shares for which the corporation
elected to withhold payment under section 7-113-208.
7-113-302. Court costs and counsel fees.
(1) The court in an appraisal proceeding commenced under section 7-113-301
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court
shall assess the costs against the corporation; except that the court may
assess costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under
section 7-113-209.
(2) The court may also assess the fees and expenses of counsel and experts for
the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any dissenters if the court
finds the corporation did not substantially comply with the
requirements of part 2 of this article; or
(b) Against either the corporation or one or more dissenters, in favor
of any other party, if the court finds that the party against whom
the fees and expenses are assessed acted arbitrarily, vexatiously,
<PAGE>
or not in good faith with respect to the rights provided by this
article.
(3) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation,
the court may award to said counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefitted.
<PAGE>
APPENDIX C
COOL FORM 10-KSB FOR THE FISCAL YEAR ENDED JUNE 30, 2000
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-28879
COOL ENTERTAINMENT, INC.
(Name of small business issuer in its charter)
COLORADO APPLIED FOR
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10900 N.E. 8TH STREET, SUITE 900, BELLEVUE, WASHINGTON 98004
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (888) 603-8833
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, NO PAR VALUE
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $3,178
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: $2,211,888 AS OF SEPTEMBER 19, 2000
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 37,752,401 AS OF SEPTEMBER 19, 2000
Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [X]
Exhibit index on page 12 Page 1 of 29 pages
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Cool Entertainment, Inc. (the "Company") was incorporated in the State
of Colorado on June 17, 1996, under the name Minas Novas Gold Corp., to engage
in mining operations. From inception to January 1999, the Company obtained
options to acquire various mining properties. On January 29, 1999, the Board of
Directors elected to abandon all mining operations and proceed to acquire 100%
of the issued and outstanding capital stock of Cool Entertainment, Inc., a
Washington corporation ("Cool Washington"), in exchange solely for 65% of the
Company's then outstanding Common Stock (the "Share Exchange"). The acquisition
of Cool Washington was completed March 1, 1999, and effective February 22, 1999,
the Company changed its name to Cool Entertainment, Inc.
Under the terms of the Share Exchange, 75% of the shares issued to the
four shareholders of Cool Washington (the "Vendors") were initially held in
escrow with Pacific Corporate Trust Company of Vancouver, British Columbia, as
the escrow agent. Chelsea Pacific Financial Corp., of Vancouver, British
Columbia firm, was given a right of first refusal to arrange for all financing
for the Company through March 1, 2000, and had agreed to use its best efforts to
arrange financing for the Company as follows: $500,000 by July 1, 1999; $500,000
by September 1, 1999; $500,000 by December 1, 1999; and $500,000 by March 1,
2000.
Escrowed shares were to be released upon reaching the various financing
milestones and upon Cool Washington certifying that it had fully developed the
website with the following features: on-line magazines, on-line chat rooms,
email services, and on-line games. As of April 7, 2000, all of the shares had
been released from escrow.
BUSINESS
Since February 2000, the Company has offered a variety of entertainment
products on the Internet through its website, WWW.COOLENTERTAINMENT.COM.
Customers can make purchases through their personal computers. The Company ships
to customers in the United States and Canada via the U.S. Parcel Service,
Federal Express, and UPS International Express Services, depending upon the
customer's wishes. The Company has entered into distribution agreements with
distributors in the music, film, video game, and literary segments of the
entertainment industry in order to offer the latest and most widely advertised
entertainment products available. In addition, the Company offers value-added
services such as celebrity interviews, book reviews, online chat rooms, online
games, and free e-mail accounts on its website to attract users to the website.
The Company also offers digital downloading and advertising as an
additional revenue sources. Digital downloading refers to the digital delivery
of music over the Internet. Customers have the option of downloading songs in
the formats of MP3 and Liquid Audio.
CONTENT PROVIDERS. The Company obtains the content for its web site
from various third party providers pursuant to license agreements. Currently,
the Company has agreements with Muze Inc. and Screaming Media Inc. which allows
the Company to use, on a non-exclusive basis, data and editorial content about
music, books, and videos; news about film, music, games, and entertainment;
horoscopes; and other features. Management believes that providing this type of
information on the Company's web site attracts more user traffic and promotes
the sales of products to customers.
ORDER FULFILLMENT. Currently, the Company has fulfillment agreements
with iFiLL, a division of Valley Media, Inc., and with MSI Music Inc. The
Company is responsible for all marketing and merchandising efforts, collecting
orders, and sending the orders to i.FiLL or MSI Music, as the case may be.
i.FiLL and MSI Music are responsible for picking, packing, and shipping the
orders directly to the Company's customers. i.FiLL is the exclusive supplier of
product and order fulfillment services for the Company within the United States
and Canada for domestic products. However, the Company may use third parties as
sources for products not available through Valley Media if the Company has given
Valley Media 30 days' notice of its intention to do so and Valley Media fails to
make the specified product available by the end of that 30-day period. MSI Music
provides imported products not available through Valley Media.
2
<PAGE>
In addition to the cost of the products purchased, i.FiLL and MSI Music
charge the Company packing and handling fees on a per unit basis, shipping
costs, return fees, fees for optional services, and fees for credit card
processing. The initial term of the iFiLL agreement expires May 4, 2001, while
the initial term of the MSI agreement expires March 20, 2001. Both agreements
are renewable.
DIGITAL DOWNLOADING. The Company has an agreement with amplified.com,
which has developed an Internet service that allows customers to order music
selected by them on a song-by-song basis and to have that music delivered either
via direct digital transmission (a download) or via the creation of custom
compilation discs (custom CDs). The Company pays a wholesale price to
amplified.com for the service.
ADVERTISING REVENUE. The Company has an exclusive agreement with Wise
Ads New Media, Inc. to provide the Company with assistance and expertise in
advertising, placement of banner ads, and sponsorships on its web site.
MARKETING
The Company's first objective will be to pursue the North American
market with a targeted sales and marketing effort. If a North American market
presence is established, the Company will pursue international markets.
Management believes that market for its products and services will be
individuals within the age range of 18 to 49. Because this market segment
contains a large number of entry-level income earners whose single purchases
will likely be of relatively small dollar value, the Company intends to position
its product line accordingly. The Company intends to offer the following
advantages over other forms of purchasing media product:
o ONE-STOP SHOPPING CONCEPT enabling the customer to purchase all
forms of product in a consistent format
o QUICK DELIVERY SERVICE by offering three-day delivery
o PRE-ORDERING SYSTEM enabling the customer to pre-order products and
have them delivered on the day of general release
o EASE OF PURCHASING enabling customers to search for and order
particular items in a few keystrokes
o COMPETITIVE PRICING
The Company plans to attract customers to its website through the
following methods:
o Targeted advertising and marketing throughout North America
o High visibility promotional campaigns
o Website offering high degree of functionality through a
comprehensive and current database, as well as interesting and
informative content
o Services which will bring new visitors to the website
o Business relationships and alliances with high profile advertisers
and merchandisers
o Special marketing involving reciprocal agreements with recording
artists
The Company plans to conduct significant advertising campaigns
throughout North America at the time the website is launched, as well as at
strategic times throughout the year, such as holidays. Advertising forms will be
focused through trade magazines, radio, television, and billboard type of
advertising targeted at the Company's key demographic groups.
The Company also plans to initiate a number of promotional offers in
conjunction with its website launch. The Company plans to advertise and sell a
number of items in order to attract heavy web traffic, stimulate the initial
demand for orders, and prompt customers who patronize competing retailers to try
the Company's website. The Company plans to use a discount pricing structure for
institutional clients in order to induce heavier volumes of purchase and to be
competitive with the large traditional retail outlets or distribution channels.
Management believes that it will need to demonstrate the following for
a customer's online shopping experience to be successful:
3
<PAGE>
o Consumers must be able to save time and money
o Consumers must be see a wide variety of selection of all media
categories in one place
o Consumers must be comfortable with security of their credit cards
There is no assurance that the Company will be able to attract a
sufficient number of users to its website or generate enough sales to be
profitable. The business of selling products on a retail basis on the Internet
is highly competitive. There are a large number of companies engaged in this
business. Given the Company's present size, it can be assumed that virtually all
of these other companies have greater financial and personnel resources than the
Company.
In addition, the Company faces risks pertaining to e-commerce security,
system capacity-related challenges, and growth management. As explained below in
Item 6. Management's Discussion and Analysis or Plan of Operation, the Company
has only a limited operating history, has generated losses since inception, and
requires a significant amount of funding to sustain operations through the
current fiscal year. There is also substantial doubt about the Company's ability
to continue as a going concern.
TRADEMARKS
The Company proposes to register its name and logo as a trademark in
the United States and Canada once it has adequate funds to do so.
COMPLIANCE WITH LAWS AND REGULATIONS
As of the date of this report, there are no laws directly affecting
commerce over the Internet, other than those generally pertaining to fraud and
fair trade. No governmental approval is required for any of the Company's
proposed products or services. There is no assurance that laws will not develop
concerning use of the Internet as a retail medium. The Company does not expect
that environmental laws will impact its activities.
EMPLOYEES
As of September 15, 2000, the Company had 6 full-time employees, 2 of
which were the Company's officers.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company does not own real property. Since the Company has
contracted with Cool Management Ltd. (now known as Fictional Media Inc.) in
Vancouver for the management of the Company, it is using the offices of
Fictional Media Inc. at Suite 303, 343 Railway Street, Vancouver, British
Columbia. The offices, approximately 2,700 square feet, are leased from the
third party. The Company does not invest in real estate.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
4
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is not traded on a registered securities
exchange, or on NASDAQ. The Company's Common Stock is quoted on the OTC Bulletin
Board, and was first listed on June 18, 1998 under the symbol "MNGD." Since
March 2, 1999, the stock has been trading under the symbol "CULE." The following
table sets forth the range of high and low bid quotations for each fiscal
quarter since the stock began trading. These quotations reflect inter-dealer
prices without retail mark-up, mark-down, or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FISCAL QUARTER ENDING HIGH BID LOW BID
June 30, 1998 $0.875 $0.625
September 30, 1998 $1.375 $0.250
December 31, 1998 $1.500 $1.000
March 31, 1999 $1.563 $0.290
June 30, 1999 $1.563 $0.813
September 30, 1999 $1.000 $0.438
December 31, 1999 $0.700 $0.230
March 31, 2000 $1.000 $0.290
June 30, 2000 $0.625 $0.180
</TABLE>
On September 19, 2000, the closing price for the common stock was
$0.12.
As of September 19, 2000, there were 197 record holders of the
Company's Common Stock. Since the Company's inception, no cash dividends have
been declared on the Company's Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The acquisition of Cool Washington on March 1, 1999 has been accounted
for as a reverse takeover with Cool Washington being the deemed acquiror for
accounting purposes. The transaction has been accounted for as the issuance of
shares by Cool Washington for the net assets of the Company. Accordingly, the
financial statements included with this registration statement reflect the
financial position, results of operations, and cash flows of Cool Washington
from the date of its incorporation on November 3, 1998, consolidated with those
of the Company from March 1, 1999.
RESULTS OF OPERATIONS
The Company is considered to be in the development stage since it has
generated only minimal revenues and is continuing to develop its business. The
Company has generated only $3,178 of revenues through June 30, 2000.
For the fiscal year ended June 30, 2000, the Company incurred a net
loss of $13,305,193. It generated revenue of $3,718, but incurred expenses of
$13,305,606. Approximately 95% of the expenses ($12,612,461) were for site
development and maintenance. Of this amount $12,345,500 was recognized as a
result of the release of 17,388,033 shares of Common Stock from escrow. The
amount of $12,345,500 is the difference between the market value of the Common
Stock on the date of release and the original cost of these shares. See Part I -
Item 1. Description of Business.
Other operating expenses increased substantially for the fiscal year
ended June 30, 2000, as compared to the previous fiscal year. This was due to
the Company being in operation for the full twelve months, as compared to only
four months during fiscal 1999; the Company registering under the Securities
Exchange Act of 1934 in January 2000; the Company becoming subject to the
reporting requirements of the Securities and Exchange Commission in
5
<PAGE>
February 2000; and the Company launching its website in February 2000.
Accordingly, the statement of operations for the year ended June 30, 2000
reflects a much higher level of activity.
Management fees for the 2000 fiscal year increased by $235,256 or 881%
over the 1999 amount. The increase was due primarily to the fact that management
fees were paid for only a few months during the 1999 period, as compared to
being paid for the entire twelve months in fiscal 2000. Professional fees for
fiscal 2000 increased by $243,125 or 616% over the 1999 amount. $151,480 of this
amount was for financial public relations and consulting services, paid in
shares of the Company's Common Stock. Travel, advertising and promotion
increased by $82,388 or 557% over the 1999 amount due to the Company's efforts
in fiscal 2000 to promote the new website. Office and administrative expenses
increased $33,126 or 629% over the 1999 amount due to the higher level of
activity.
From inception to June 30, 1999, the Company generated a net loss of
$117,297. Approximately 34% of the operating expenses were professional fees. Of
this amount, 59% or $23,367 were costs related to the acquisition of Cool
Washington. Of the remaining operating expenses, $29,878 was incurred for site
development and maintenance and $26,689 were management fees.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000 and 1999, the Company had a working capital deficiency
of $46,914 and a positive balance of $58,951, respectively. The decrease in
working capital is due primarily to the loss generated for the 2000 fiscal year.
Virtually all of the Company's liquidity has been provided through the
sale of its Common Stock. For the year ended June 30, 2000 and for the period
from November 3, 1998 to June 30, 1999, the Company received $651,226 and
$210,353, respectively in net proceeds from the issuance of its Common Stock.
Additional funding will be needed from sales of the Company's securities to keep
the Company in operation.
Current sales of product are not sufficient to sustain operations. The
Company needs substantial amounts of cash to fund a marketing program to attract
potential customers to its web site. As of this date, the Company has no sources
of funds for a marketing effort.
PLAN OF OPERATION
As of June 30, 2000, the Company did not have any cash. The Company is
dependent upon external sources of funds and there is no assurance that any such
funding will be available to the Company. The Company does not anticipate making
any expenditures for plant or equipment, or increasing the number of employees.
Due to the losses generated to date and the fact that operations have
been financed through the issuance of Common Stock, there is substantial doubt
about the Company's ability to continue as a going concern. As stated above, the
Company does not have sufficient working capital to sustain operations until the
end of its current fiscal year, which ends June 30, 2001. Additional debt or
equity financing will be required and may not be available or may not be
available on reasonable terms. The auditors' report on the consolidated
financial statements contains an explanatory paragraph that states that these
factors raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Management is currently assessing the future viability of the Company.
ITEM 7. FINANCIAL STATEMENTS.
See pages beginning with page F-1.
6
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
7
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AGE POSITIONS
Clement K.M. Lau 27 President, CEO and Director
William J. Hadcock 42 Vice President of Marketing and
Distribution and Director
Marc Belcourt 34 Vice President of Technology and
Director
Len Voth 52 Director
</TABLE>
The term of office of each director of the Company ends at the next
annual meeting of the Company's stockholders or when such director's successor
is elected and qualifies. No date for the next annual meeting of stockholders is
specified in the Company's bylaws or has been fixed by the Board of Directors.
The term of office of each officer of the Company ends at the next annual
meeting of the Company's Board of Directors, expected to take place immediately
after the next annual meeting of stockholders, or when such officer's successor
is elected and qualifies.
CLEMENT LAU, has been the President, CEO and a director since March
1999. He was the president and a partner in Tilde Multimedia Inc., Vancouver,
British Columbia, from March 1997 to March 1999, an Internet development company
that specialized in website and CD-ROM development. He attended Vancouver Film
School, receiving a certificate in multimedia program in 1997; and Columbia
Academy of Radio, Television & Recording Arts, receiving a certificate in film
and video production in 1996. From May 1994 to June 1995, he was the owner and
operator of a restaurant in Vancouver. As the operator, he managed all aspects
of the business: starting up operations, leasing, design, decorating,
advertising, public relations, personnel, entertainment, menu creation, and
inventory control
WILLIAM J. HADCOCK has been the Vice President of Marketing and
Distribution and a director since March 1999. He worked for Astral Home
Entertainment, a Canadian company which distributes software, CDs and DVDs, from
1990 to August 1999 as a district sales representative in Scarborough, Ontario
(1990-92), corporate account manager in Toronto, Ontario (1992-94), and branch
manager in Vancouver, British Columbia (1994-99). As the branch manager, he
supervised 21 employees and was responsible for key account management, studio
relations, budget implementation, and warehouse/showroom operations.
MARC BELCOURT has been the Vice President of Technology and a director
since March 1999. He was the lead programmer and production manager for CRM
Training Inc., a multimedia firm located in Vancouver, British Columbia,
specializing in interactive training software for the marine safety industry,
from May 1997 to August 1999. Mr. Belcourt has also provided website design,
development, and programming services as an independent contractor to other
companies. He attended the Vancouver Film School, receiving a certificate in
multimedia program in 1997. From February 1995 to May 1996, he was the owner and
operator of a convenience store in downtown Vancouver. Mr. Belcourt received a
bachelor's degree in fine arts from the University of Saskatchewan in 1994.
LEN VOTH has been a director since March 1999. Since February 1989, Mr.
Voth has worked for Westech Information Systems in Vancouver, British Columbia.
He has been a managing consultant since January 1996, providing consulting and
advisory services for technology selection, contract services, financial
services, marketing, and operations. He served as a marketing manager from
February 1989 to January 1996. Prior to his employment with Westech, he worked
as a computer programmer in Vancouver and Calgary, Alberta. Mr. Voth received a
bachelor's degree in mathematics in 1970 from the University of British Columbia
and a diploma in computer programming from McKay Technical Institute in 1968. He
is a member of the Canadian Information Processing Society and has professional
certification as a content development provider, Internet service provider, and
content service provider.
8
<PAGE>
Messrs. Lau, Belcourt, Voth, and Hadcock may be deemed to be "parents"
of the Company within the meaning of the rules and regulations of the Securities
and Exchange Commission.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During the fiscal year ended June 30, 2000, Messrs. Lau, Belcourt,
Voth, and Hadcock failed to file their reports on Form 3 (Initial Statement of
Beneficial Ownership of Securities) and Form 4 (Statement of Changes in
Beneficial Ownership) on a timely basis.
ITEM 10. EXECUTIVE COMPENSATION.
Cool Washington entered into a Management Agreement dated March 1,
1999, with Cool Management Inc. (now known as Fictional Media Inc.), a British
Columbia corporation. Pursuant to the terms of that Agreement, Cool Management
provided management services to Cool Washington which included management of
Cool Entertainment's business of Internet distribution of audio and visual
products, design and maintenance of the website, provision of operational and
strategic leadership to Cool Entertainment, keeping the directors informed about
major policy issues, reporting results of operating activities to the directors,
provision of recommendations for financial budgeting, and provision of advice to
the directors concerning possible acquisitions and divestitures by Cool
Entertainment. The Agreement has been terminated.
Cool Management in turn had entered into employment agreements with
Clement Lau, William Hadcock, and Marc Belcourt, and a consulting agreement with
Len Voth. Cool Entertainment was obligated to pay Cool Management a fee equal to
the amounts payable under these employment or consulting agreements plus 10% of
such amount. All of the employment and consulting agreements had the same term
as the Management Agreement described above. In addition, all of the employment
and consulting agreements provided for confidentiality of information and
contain a covenant not to compete for a period of one year after the termination
of employment. The initial terms of the employment and consulting agreements are
summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Employee/ Duties to be Performed Base Salary/
Consultant Consulting Fees
Clement Lau o Oversight of management of Company's business; $50,000 per year
o Provision of operational and strategic leadership to Company;
o Keeping the directors informed about major strategic issues;
o Monitoring and maintaining Company's relationship with
Chelsea Pacific
o Oversight and development of business alliances for the
Company; and
o Provision of advice to directors concerning possibility
and desirability of acquisitions and divestitures by the
Company
William Hadcock o Management and supervision of Company sales program; $50,000 per year
o Establishment and development of distribution links for
markets outside of North America
o Establishment, maintenance, and monitoring of
distribution links within North America
o Establishment and maintenance of Company's relations with
record companies and movie studios
o Management and supervision of efforts to sell
advertising on Company's website; and
o Management and supervision of Company's efforts to obtain
marketing and co-operative advertising funds from record
companies and movie studios
9
<PAGE>
<S> <C> <C>
Employee/ Duties to be Performed Base Salary/
Consultant Consulting Fees
Marc Belcourt o Development of website; $50,000 per year
o recruitment and supervision of technical and development
staff;
o Equipment procurement;
o Software procurement;
o Database development; and
o Project development and management
Len Voth o Consulting services as requested by the Company $25,000 per year
</TABLE>
In addition to their base salaries, Messrs. Lau, Hadcock, and Belcourt receive
employee benefits such as health, accident, life, and long-term disability
insurance coverage.
For the fiscal year ended June 30, 2000 and the period from November 3,
1998 to June 30 1999, the Company incurred cash compensation expense of $nil and
$56,567, respectively.
In the fall of 1999, the agreements were amended to decrease the
compensation to Cdn.$60,000 for Messrs. Lau, Hadcock, and Belcourt and Cdn.$30
per hour for Mr. Voth. As of September 1, 2000, Mr. Lau is no longer paid a
salary.
The following table sets forth information for all persons who have
served as the chief executive officer of the Company during the last three
fiscal years:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
OTHER
ANNUAL RESTRICT- SECURITIES
NAME AND COMPEN ED STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL SALARY BONUS SATION AWARD(S) OPTIONS/ PAYOUTS COMPEN-
POSITION YEAR ($) ($) ($) ($) SARs (#) ($) SATION ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Clement Lau, 2000 $38,850 -0- $2,535 -0- 300,000 -0- -0-
President and 1999 $17,000 -0- -0- -0- -0- -0- -0-
CEO (1)<F1> (2)<F2>
Leroy Halterman, 1999 -0- -0- -0- -0- -0- -0- -0-
President (3)<F3>
Reg Handford, 1999 -0- -0- -0- -0- -0- -0- -0-
President (4)<F4>
Wolfdietrich F. 1999 -0- -0- -0- -0- -0- -0- -0-
Bruehl, 1998
President (5)<F5>
Charles F. 1998 -0- -0- -0- -0- -0- -0- -0-
Stetler, (6)<F6>
President
----------------
<FN>
(1)<F1> Mr. Lau has been the President since March 1, 1999. The amount shown
reflects compensation paid through the Management Agreement described
above.
(2)<F2> The actual amounts paid for 2000 and 1999 were Cdn$57,500 and
Cdn$25,000, respectively, which are approximately US$38,850 and
US$17,000, respectively, depending upon the exchange rate in effect at
the time.
(3)<F3> Mr. Halterman was the President from September 25, 1998 to March 1,
1999.
(4)<F4> Mr. Handford was the President from August 14, 1998 to September 25,
1998.
10
<PAGE>
(5)<F5> Mr. Bruehl was the President from June 24, 1998 to August 13, 1998.
(6)<F6> Mr. Stetler was the President from inception to June 23, 1998.
</FN>
</TABLE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARs
UNDERLYING GRANTED TO
OPTIONS/SARs EMPLOYEES IN FISCAL EXERCISE OR BASE
NAME GRANTED (#) YEAR PRICE ($/SH) EXPIRATION DATE
<S> <C> <C> <C> <C>
Clement Lau 300,000 25% $0.625 02/04/03
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED IN-THE-
OPTIONS/SARs AT MONEY OPTIONS/
FY-END(#) SARs AT FY-END ($)
SHARES ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Clement Lau -0- -0- 300,000/0 0/0
</TABLE>
The Company does not pay monetary compensation to its directors, nor
does the Company compensate its directors for attendance at meetings. The
Company does reimburse the directors for reasonable expenses incurred during the
course of their performance.
On February 4, 2000, the Company granted options to each of Clement
Lau, Marc Belcourt, William Hadcock, and Len Voth to purchase 300,000 shares of
Common Stock at $0.625 per share through February 4, 2003. The options expire
three years from the grant date.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table provides certain information as to the officers and
directors individually and as a group, and the holders of more than 5% of the
Common Stock of the Company, as of September 19, 2000:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT AND NATURE OF PERCENT OF CLASS (1)<F1>
BENEFICIAL OWNERSHIP
<S> <C> <C>
Marc G. Belcourt 5,736,011 (2)<F2> 15.07%
9139 Carver Crescent
North Delta, British Columbia
V4C 6N1 Canada
Leonard Wayne Voth 5,736,011 (2)<F2> 15.07%
4422 Stone Crescent
West Vancouver, British Columbia
V7V 1B7 Canada
Clement K.M. Lau 5,720,011 (2)<F2> 15.03%
5484 Rugby Avenue
Burnaby, British Columbia
V5E 2N1 Canada
11
<PAGE>
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT AND NATURE OF PERCENT OF CLASS (1)<F1>
BENEFICIAL OWNERSHIP
<S> <C> <C>
William J. Hadcock 5,376,011 (2)<F2> 14.13%
Apt. 1301 -- 238 Alvin Narod Mews
Vancouver, British Columbia
V6B 5Z3 Canada
All officers and directors as 22,568,044 (3)<F3> 57.94%
a group (4 persons)
-------------------
<FN>
(1)<F1> This table is based on 37,752,401 shares of Common Stock outstanding on
September 19, 2000. If a person listed on this table has the right to
obtain additional shares of Common Stock within sixty (60) days from
September 19, 2000, the additional shares are deemed to be outstanding
for the purpose of computing the percentage of class owned by such
person, but are not deemed to be outstanding for the purpose of
computing the percentage of any other person.
(2)<F2> Includes shares issuable upon exercise of an option to purchase up to
300,000 shares.
(3)<F3> Includes shares issuable upon exercise of an option to purchase up to
1,200,000 shares.
</FN>
</TABLE>
Messrs. Lau, Belcourt, Voth, and Hadcock may be deemed to be "parents"
of the Company within the meaning of the rules and regulations of the Securities
and Exchange Commission.
CHANGES IN CONTROL
Other than the Escrow Agreement described in Item 1. Business, there
are no agreements known to management that may result in a change of control of
the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Mr. Lau may be deemed to be a "promoter" of the Company within the
meaning of the Rules and Regulations promulgated by the Securities and Exchange
Commission.
At June 30, 1999, $45,297 was reflected as a receivable on the balance
sheet. This amount had been advanced to Fictional Media Inc. (formerly Cool
Management) to fund development of the Company's website. This amount was later
billed to the Company in accordance with the Company's Management Agreement with
Fictional Media Inc. At June 30, 2000, $2,836 was due to Fictional Media Inc.
for services rendered under the Management Agreement. This payable is
non-interest bearing, unsecured, and due on demand.
In February 1999, Advantage Investment Holding Ltd., a shareholder,
advanced $15,000 to the Company to fund development of its website. At June 30,
1999, this amount was reflected on the balance sheet as a loan payable. This
amount was repaid through the issuance of 28,300 shares of Common Stock in
December 1999.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
REGULATION SEQUENTIAL
S-B NUMBER EXHIBIT PAGE NUMBER
<S> <C> <C>
2.1 Chelsea Pacific Financial Corp. Agreement dated February 25, 1999(1)<F1> N/A
3.1 Articles of Incorporation, as amended(1)<F1> N/A
3.2 Bylaws(1)<F1> N/A
12
<PAGE>
REGULATION SEQUENTIAL
S-B NUMBER EXHIBIT PAGE NUMBER
<S> <C> <C>
10.1 Management Agreement between Cool Entertainment, Inc., and Cool Management
Inc. dated March 1, 1999 (1)<F1> N/A
10.2 Employment Agreement between Cool Management Inc. and Marc G. Belcourt dated
March 1, 1999 (1)<F1> N/A
10.3 Consulting Agreement between Cool Management Inc. and Leonard Wayne Voth
dated March 1, 1999 (1)<F1> N/A
10.4 Employment Agreement between Cool Management Inc. and William J. Hadcock
dated March 1, 1999 (1)<F1> N/A
10.5 Employment Agreement between Cool Management Inc. and Clement K.M. Lau dated
March 1, 1999 (1)<F1> N/A
10.6 Escrow Agreement between Pacific Corporate Trust Company, Cool
Entertainment, Inc. (Washington), Chelsea Pacific Financial Corp.,
Entertainment, Inc. (Colorado), Clement kar Man Lau, William James Hadcock,
Leonard Wayne Voth, and Marc Gregory Belcourt dated March 1, 1999,
as amended (1)<F1> N/A
10.7 Form of Registration Rights Agreement between Cool Entertainment, Inc. and
each of Clement Kar Man Lau, William James Hadcock, Leonard Wayne Voth, and
Marc Gregory Belcourt dated March 1, 1999 (1)<F1> N/A
21 Subsidiaries of the registrant(1)<F1> N/A
27 Financial Data Schedule 30
-------------------
<FN>
(1)<F1> Incorporated by reference to the exhibits to the registrant's
registration statement on Form 10-SB, file number 0-28879.
</FN>
</TABLE>
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
13
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
COOL ENTERTAINMENT, INC.
Date: September 27, 2000 By:/s/ William J. Hadcock
--------------------------------------
William J. Hadcock, Vice President of
Marketing and Distribution
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C> <C> <C> <C> <C>
/S/ CLEMENT K.M. LAU
----------------------------------------- President, CEO and Director September 27, 2000
Clement K.M. Lau
/S/WILLIAM J. HADCOCK
----------------------------------------- Vice President of Marketing and September 27, 2000
William J. Hadcock Distribution and Director (Principal
Executive, Financial, and Accounting
Officer)
/S/MARC BELCOURT
----------------------------------------- Vice President of Technology and September 27, 2000
Marc Belcourt Director
/s/ LEN VOTH
----------------------------------------- Director September 27, 2000
</TABLE>
14
<PAGE>
Consolidated Financial Statements of
COOL ENTERTAINMENT INC.
(A Development Stage Enterprise)
(Expressed in U.S. Dollars)
Year ended June 30, 2000
Period from November 3, 1998 (inception) to June 30, 1999
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Cool Entertainment, Inc.
We have audited the consolidated balance sheets of Cool Entertainment Inc. (a
Development Stage Enterprise) as of June 30, 2000 and 1999 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended June 30, 2000, the period from November 3, 1998 (inception) to
June 30, 1999 and the cumulative period from November 3, 1998 (inception) to
June 30, 2000. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with accepted auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits 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, these consolidated financial statements present fairly, in all
material respects, the financial position of Cool Entertainment, Inc. as at June
30, 2000 and 1999 and the results of its operations and its cash flows for the
year ended June 30, 2000, the period from November 3, 1998 (inception) to June
30, 1999 and the cumulative period from November 3, 1998 (inception) to June 30,
2000 in conformity with accounting principles generally accepted in the United
States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has suffered losses from
operations and has negative cash flows from operations that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/S/KMPG, LLP
Chartered Accountants
Vancouver, Canada
September 15, 2000
F-2
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
June 30, 2000 and 1999
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
Assets ------------- -------------
Current assets:
Cash and cash equivalents $ - $ 89,058
Accounts receivable 84 -
------------- -------------
84 89,058
Receivable from related party (note 3) - 45,297
Property and equipment (note 4) 24,300 -
------------- -------------
$ 24,384 $ 134,355
============= =============
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities:
Bank indebtedness $ 157 $ -
Accounts payable and accrued liabilities 44,005 15,107
Payable to related party (note 3) 2,836 -
Loan payable (note 3) - 15,000
------------- -------------
46,998 30,107
Stockholders' equity (deficiency) (note 6):
Common stock, no par value, authorized 100,000,000 shares;
issued 37,619,401 shares at June 30, 2000 and
35,928,688 shares at June 30, 1999 13,320,355 217,158
Additional paid-in capital 79,521 4,387
Deficit accumulated during the development stage (13,422,490) (117,297)
------------- -------------
(22,614) 104,248
Subsequent events (note 9)
$ 24,384 $ 134,355
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Consolidated Statement of Operations
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Period from Period from
Year November 3, November 3,
ended 1998 (inception) 1998 (inception)
June 30, to June 30, to June 30,
2000 1999 2000
------------- ----------------- -----------------
<S> <C> <C> <C>
Operating income:
Sales $ 3,178 $ - $ 3,178
Cost of goods sold 2,765 - 2,765
------------- -------------- -------------
Gross profit 413 - 413
Operating expenses:
Site development and maintenance (note 7) 12,612,461 29,878 12,642,339
Management fees (note 3) 261,945 26,689 288,634
Professional fees (note 9) 282,572 39,447 322,019
Travel, advertising and promotion 97,168 14,780 111,948
Office and administrative 38,411 5,285 43,696
Depreciation 13,049 - 13,049
Organization costs - 1,218 1,218
------------- -------------- -------------
13,305,606 117,297 13,422,903
------------- -------------- -------------
Loss for the period $(13,305,193) $ (117,297) $(13,422,490)
============= ============== =============
Net loss per common share, basic and diluted $ (0.52) $ (0.01) $ (0.63)
============= ============== =============
Weighted average common shares outstanding,
basic and diluted 25,383,924 15,346,241 21,406,776
============= ============== =============
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Consolidated Statement of Stockholders' Equity
(Expressed in U.S. Dollars)
Year ended June 30, 2000
Period from November 3, 1998 (inception) to June 30, 1999
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during Total
COMMON STOCK paid-in Subscriptions development stockholders'
Shares Amount capital receivable stage equity
<S> <C> <C> <C> <C> <C> <C>
Balance, November 3, 1998
(Minas Novas Gold Corp.
common stock) 12,483,533 $ 180,958 $ - $ - $ - $ 180,958
Adjustment to comply with
reverse takeover accounting:
o elimination of Minas
Novas common stock - (180,958) - - - (180,958)
o Cool Washington
common stock - 400 - - - 400
Common stock issued to
purchase all issued and
outstanding shares of
Cool Washington, March 1,
1999 (note 2(a)) 23,184,044 11,192 - - - 11,192
Common stock issued for cash,
April 12, 1999 at $0.75 per
share, net of issuance costs
of $2,849 40,000 27,151 - - - 27,151
Common stock issued for cash,
April 23, 1999 at $0.90 per
share, net of issuance costs
of $2,736 121,111 106,264 - - - 106,264
Fully paid stock subscriptions
April 23, 1999, at $0.90 per
share, net of issuance costs
of $113 - - 4,387 - - 4,387
Common stock issued for cash,
May 28, 1999 at $0.75 per
share, net of issuance costs
of $2,849 100,000 72,151 - - - 72,151
Net loss - - - - (117,297) (117,297)
----------- ------------- ---------- --------- ------------- -------------
Balance, June 30, 1999 35,928,688 $ 217,158 $ 4,387 $ - $ (117,297) $ 104,248
=========== ============= ========== ========= ============= =============
</TABLE>
F-5
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Consolidated Statement of Stockholders' Equity, page 2
(Expressed in U.S. Dollars)
Year ended June 30, 2000
Period from November 3, 1998 (inception) to June 30, 1999
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during Total
COMMON STOCK paid-in Subscriptions development stockholders'
Shares Amount capital receivable stage equity
<S> <C> <C> <C> <C> <C> <C>
Fully paid stock subscriptions
July 20, 1999, at $0.65 per
share, net of issuance
costs of $nil - $ - $ 75,000 $ - $ - $ 75,000
Fully paid stock subscriptions
August 6, 1999, at $0.53 per
share, net of issuance
costs of $nil - - 55,985 - - 55,985
Unpaid stock subscriptions
August 6, 1999, at $0.53 per
share, net of issuance costs
of $nil - - 19,015 - - 19,015
Fully paid stock subscriptions
September 10, 1999, at $0.53
per share, net of issuance
costs of $nil - - 70,087 - - 70,087
Unpaid stock subscriptions
September 10, 1999, at $0.53 per
share, net of issuance costs
of $nil - - 5,079 - - 5,079
Common stock issued October 1,
1999 for fully paid stock
subscriptions at $0.53
per share, net of issuance costs
of $nil 105,625 55,985 (55,985) - - -
Common stock issued October 1,
1999 for fully paid stock
subscriptions at $0.53
per share, net of issuance costs
of $nil 35,875 19,015 (19,015) - - -
Common stock issued October 1,
1999 to satisfy loan at $0.53
per share 28,300 15,000 - - - 15,000
Common stock issued October 1,
1999 for fully paid stock
subscriptions at $0.65
per share, net of issuance costs
of $nil 115,375 75,000 (75,000) - - -
Common stock issued October 1,
1999 for fully paid stock
subscriptions at $0.90
per share, net of issuance costs
of $nil 5,000 4,387 (4,387) - - -
</TABLE>
F-6
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Consolidated Statement of Stockholders' Equity, page 3
(Expressed in U.S. Dollars)
Year ended June 30, 2000
Period from November 3, 1998 (inception) to June 30, 1999
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during Total
COMMON STOCK paid-in Subscriptions development stockholders'
Shares Amount capital receivable stage equity
<S> <C> <C> <C> <C> <C> <C>
Fully paid stock subscriptions
December 15, 1999, at $0.25
per share, net of issuance costs
of $nil - $ - $ 123,000 $ - $ - $ 123,000
Unpaid stock subscriptions
December 15, 1999, at $0.25
per share, net of issuance costs
of $nil - - 8,000 (8,000) - -
Common stock issued
January 3, 2000 for fully
paid stock subscriptions at
$0.53 per share, net of
issuance costs of $nil 141,500 75,000 (75,000) - - -
Common stock issued for cash,
January 13, 2000, at $0.61
per share, net of issuance
costs of $nil 46,722 28,500 - - - 28,500
Common stock issued January 3,
2000 for fully paid stock
subscriptions at $0.25, net
of issuance costs of $nil 524,000 131,000 (131,000) 7,000 - 7,000
Common stock issued for cash,
January 27, 2000 at $0.80
per share, net of issuance
costs of $nil 72,500 58,000 - - - 58,000
Common stock issued for cash,
February 1, 2000, at $0.80
per share, net of issuance
costs of $14,440 477,816 209,560 - - - 209,560
Warrants issued for services
(note 6) - - 12,000 - - 12,000
Site development (note 7) - 12,345,500 - - - 12,345,500
Common stock issued for
services March 3, 2000 138,000 86,250 - - - 86,250
Write-off of stock subscription
receivable - - (1,000) 1,000 - -
Common stock issued for
services (note 9) - - 68,355 - - 68,355
Net loss - - - - (13,305,193) (13,305,193)
----------- ------------- ---------- --------- ------------- -------------
Balance, June 30, 2000 37,619,401 $ 13,320,355 $ 79,521 $ - $(13,422,490) $ (22,614)
=========== ============= ========== ========= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Consolidated Statement of Cash Flows
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Period from Period from
November 3, November 3,
1998 1998
Year ended (inception) to (inception) to
June 30, 2000 June 30, 1999 June 30, 2000
<S> <C> <C> <C>
Cash flows from operating activities:
Loss for the year $(13,305,193) $(117,297) $(13,422,490)
Items not involving cash:
Depreciation 13,049 - 13,049
Amortization of organization costs - 1,218 1,218
Common stock issued for services 154,605 - 154,605
Warrants issued for financial services 12,000 - 12,000
Site development and maintenance 12,345,500 - 12,345,500
Changes in operating asset and liabilities:
Accounts receivable (84) - (84)
Payable to related party 2,836 - 2,836
Receivable from related party 45,297 (21,930) 23,367
Accounts payable and accrued liabilities 28,898 13,754 42,652
------------- ---------- -------------
Net cash used in operating activities (703,092) (124,255) (827,347)
Cash flows from investing activity:
Purchase of property and equipment (37,349) - (37,349)
Cash acquired on acquisition - 2,960 2,960
------------- ---------- -------------
Net cash provided by (used in) investing activity (37,349) 2,960 (34,389)
Cash flows from financing activities:
Net proceeds from issuances of and
subscriptions for common stock 651,226 210,353 861,579
Bank indebtedness 157 - 157
------------- ---------- -------------
Net cash provided by financing activities 651,383 210,353 861,736
------------- ---------- -------------
Increase (decrease) in cash and cash equivalents (89,058) 89,058 -
Cash and cash equivalents, beginning of period 89,058 - -
------------- ---------- -------------
Cash and cash equivalents, end of period $ - $ 89,058 $ -
============= ========== =============
Supplementary disclosure:
Non-cash transactions:
Stock issued to acquire Cool Entertainment,
Inc. (note 2(a)) $ - $ 8,232 $ 8,232
Stock issued to settle loan payable 15,000 - 15,000
Interest paid - - -
Taxes paid - - -
============= ========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
Year ended June 30, 2000
Period from November 3, 1998 (inception) to June 30, 1999
--------------------------------------------------------------------------------
1. GENERAL AND FUTURE OPERATIONS
Cool Entertainment Inc. (the "Company") was incorporated under the laws of
the State of Colorado on June 17, 1996, under the name of Minas Novas Gold
Corp. On February 15, 1999, the Company changed its name to Cool
Entertainment Inc. Prior to its acquisition of Cool Washington (note 2(a)),
the Company was a holding company with no substantive operations.
The Company is currently in the business of retailing entertainment related
products such as CDs, DVDs and videos through its website.
These consolidated financial statements have been prepared on a going
concern basis in accordance with United States generally accepted
accounting principles. The going concern basis of presentation assumes the
Company will continue in operation for the foreseeable future and will be
able to realize its assets and discharge its liabilities and commitments in
the normal course of business. Certain conditions, discussed below,
currently exist which raise substantial doubt upon the validity of this
assumption. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
The Company's future operations are dependent upon the market's acceptance
of its services and the Company's ability to secure strategic partnerships
There can be no assurance that the Company will be able to secure market
acceptance or strategic partnerships. As of June 30, 2000, the Company is
considered to be in the development stage as the Company has not generated
any significant revenues and is continuing to develop its business, and has
experienced negative cash flows from operations. Operations have primarily
been financed through the issuance of common stock. The Company does not
have sufficient working capital to sustain operations until the end of the
year ended June 30, 2001. Additional debt or equity financing will be
required and may not be available or may not be available on reasonable
terms. Subsequent to June 30, 2000 additional common shares were issued for
cash to finance the operations of the Company (note 9(a)). If sufficient
financing cannot be obtained, the Company may be required to reduce
operating activities.
2. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
On March 1, 1999, the Company issued 23,184,044 common shares for all
of the issued and outstanding shares of Cool Entertainment, Inc. ("Cool
Washington"), a company incorporated in the State of Washington on
November 3, 1998. The acquisition was accounted for as a
recapitalization of Cool Washington effectively representing an issue
of shares by Cool Washington for the net assets of the Company.
F-9
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
Year ended June 30, 2000
Period from November 3, 1998 (inception) to June 30, 1999
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(a) Basis of presentation (continued):
The net assets acquired as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 2,960
Other working capital, net 22,015
Organizational costs 1,217
Loan payable (15,000)
-------------
$ 11,192
=============
</TABLE>
Acquisition related costs of $23,367 were incurred on this
recapitalization and have been recorded in professional fees.
The historical financial statements reflect the financial position of
Cool Washington from the date of its incorporation on November 3, 1998,
consolidated with those of the Company from March 1, 1999.
(b) Basis of consolidation:
These consolidated financial statements have been prepared using
generally accepted accounting principles in the United States. The
financial statements include the accounts of the Company and its
wholly-owned subsidiary, Cool Washington. All significant intercompany
balances and transactions have been eliminated in the consolidated
financial statements.
(c) Use of estimates:
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the recorded amounts of assets
and liabilities and the disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and reported
revenues and expenses for the reporting period. Actual results may
significantly differ from those estimates.
(d) Property and equipment
Property and equipment is stated at cost and is depreciated using the
straight line method over their estimated useful lives determined to be
two years.
(e) Income taxes:
The Company follows the asset and liability method of accounting for
income taxes. Under this method, current taxes are recognized for the
estimated income taxes payable for the current period.
F-10
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
Year ended June 30, 2000
Period from November 3, 1998 (inception) to June 30, 1999
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(e) Income taxes (continued):
Deferred income taxes are provided based on the estimated future tax
effects of temporary differences between financial statement carrying
amounts of assets and liabilities and their respective tax basis as
well as the benefit of losses available to be carried forward to future
years for tax purposes.
Deferred tax assets and liabilities are measured using enacted tax
rates that are expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in operations in the period that includes
the substantive enactment date. A valuation allowance is recorded for
deferred tax assets when it is more likely than not that such deferred
tax assets will not be realized.
(f) Research and development:
Research and development costs are expensed when incurred. Equipment
used in research and development is capitalized only if it has an
alternative future use.
(g) Cash and cash equivalents:
Cash equivalents includes highly liquid debt investments with remaining
maturities at the date of purchase of three months or less.
(h) Net loss per share:
Basic loss per share is computed using the weighted average number of
common shares outstanding during the period. Diluted loss per share is
computed using the weighted average number of common and potentially
dilutive common stock outstanding during the period. As the Company has
a net loss in the period presented, basic and diluted net loss per
share are the same.
Excluded from the computation of diluted loss per share for the period
ended June 30, 1999 are 17,388,033 shares of common stock held in
escrow. The release of these escrowed shares is contingent upon the
Company's achievement of contractually specified financing and website
development milestones. These escrowed shares were released in 2000.
See note 7.
F-11
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
Year ended June 30, 2000
Period from November 3, 1998 (inception) to June 30, 1999
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(i) Stock based compensation:
The Company accounts for its stock-based compensation arrangement in
accordance with provisions of Acounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense under fixed plans would
be recorded on the date of grant only if the market value of the
underlying stock at the date of grant exceeded the exercise price. The
Company recognizes compensation expense for stock options, common stock
and other equity instruments issued to non-employees for services
received based upon the fair value of the services or equity
instruments issued, whichever is more reliably determined.
SFAS No. 123, Accounting for Stock Based Compensation, requires
entities that continue to apply the provisions of APB Opinion No. 25
for transactions with employees to provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants
made in 1995 and future years as if the fair-value-based method defined
in SFAS No. 123 had been applied to these transactions.
3. RELATED PARTY BALANCES AND TRANSACTIONS:
In March, 1999, the Company entered into a contract with a company,
Fictional Media Inc. (formerly known as Cool Management Inc.), which is
controlled by the stockholders of the Company, to provide management
services, site development and other professional services to the Company
at cost plus 10%. For the year ended June 30, 2000, the Company has
incurred $256,334 (1999 - $26,689) as management fees under this contract.
The Company incurred cash compensation expense of $56,567 during the period
from November 3, 1998 (inception) to June 30, 1999 (2000 - $Nil).
The payable to related party is non-interest bearing, unsecured and due on
demand. The balance relates to services rendered by Fictional Media Inc. to
the Company under the contract discussed above.
The receivable from related party at June 30, 1999 of $45,297 is
non-interest bearing, unsecured and due on demand. The funds were advanced
to Fictional Media Inc. to fund development of the Company's website. This
receivable was repaid to the Company during the year ended June 30, 2000.
The loan payable balance at June 30, 1999 of $15,000 arose from a
transaction between a shareholder and the Company. The loan is non-interest
bearing, unsecured and due on demand. This loan was settled during the year
ended June 30, 2000 through the issuance of shares.
F-12
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
Year ended June 30, 2000
Period from November 3, 1998 (inception) to June 30, 1999
--------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
Computer equipment $ 27,577 $ -
Computer software 9,772 -
------------- ------------
37,349 -
Less accumulated depreciation (13,049) -
------------- ------------
$ 24,300 $ -
============= ============
</TABLE>
5. DEFERRED TAX ASSETS AND LIABILITIES:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
Deferred tax asset:
Operating loss carryforward $ 335,920 $ 43,700
Valuation allowance (335,920) (43,700)
------------- ------------
$ - $ -
============= ============
</TABLE>
Management believes that it is not more likely than not that it will create
sufficient taxable income sufficient to realize its deferred tax assets. It
is reasonably possible these estimates could change due to future income
and the timing and manner of the reversal of deferred tax liabilities. Due
to its losses, the Company has no income tax expense.
The Company has operating loss carry forwards for income tax purposes at
June 30, 2000 of approximately $884,000 (1999 - $115,000). Operating losses
begin to expire in fiscal year 2012.
6. WARRANTS:
On February 4, 2000 the Company granted warrants to four directors of the
Company to purchase 1,200,000 common shares at $0.625 per share, being the
market price per common share at the date of the grant. These warrants
expire in three years from their grant date. The Company also elected to
grant on February 4, 2000, warrants to certain shareholders to purchase
1,200,000 common shares at $0.625 per share, being the market price per
common share at the date of the grant. These warrants were valued at
$12,000 and were recorded as a direct financing cost related to prior
equity financings in which these shareholders participated. These warrants
expire in three years from their grant date. All of the warrants are
exercisable immediately but are subject to a one year hold period.
In conjunction with the issue of 477,816 common shares in February 2000,
the Company issued 477,816 warrants to purchase 477,816 common shares at
$1.25 per share. These warrants are exercisable immediately and expire five
years from the issue date.
F-13
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
Year ended June 30, 2000
Period from November 3, 1998 (inception) to June 30, 1999
--------------------------------------------------------------------------------
7. SITE DEVELOPMENT AND MAINTENANCE:
Effective February 25, 2000, the Company reached certain performance
milestones relating to the development of the Company's website. As a
result, 17,388,033 common shares previously held in escrow were released.
Site development and maintenance expense of $12,345,500 has been
recognized, representing the difference between the market value of the
common shares on the date of their release and the original cost of these
common shares.
8. FINANCIAL INSTRUMENTS:
Fair value:
The carrying values of cash and cash equivalents, accounts receivable, bank
indebtedness and accounts payable and accrued liabilities approximate fair
value due to the short-term maturities of these instruments.
It is not practicable to determine the fair value of the loan payable, the
receivable from related party and the payable to related party due to their
related party nature and the absence of a secondary market for such
instruments.
9. SUBSEQUENT EVENTS:
(a) On July 24, 2000, 588,235 common shares were issued for cash
consideration of $0.17 per share to finance the operations of the
Company.
(b) On August 24, 2000, 133,000 common shares were issued to Charterbridge
Financial Group, Inc. as final compensation for its services from March
1, 2000 (initiation of agreement) to July 18, 2000 (termination of
agreement). Expenses of $68,355 relating to the services provided to
the Company for the year ended June 30, 2000 have been accrued for and
are included with professional fees expense.
F-14
<PAGE>
APPENDIX D
COOL FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 2000
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OF 15 OF THE EXCHANGE ACT
For the transition period from ________________ to __________________
Commission file number 0-28879
COOL ENTERTAINMENT INC.
(Exact name of small business issuer as specified in its charter)
COLORADO APPLIED FOR
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10900 N.E. 8TH STREET, SUITE 900, BELLEVUE, WASHINGTON 98004
(Address of principal executive offices)
(888) 603-8833
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since
last report)
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the last practicable date:
37,752,401 SHARES OF COMMON STOCK, NO PAR VALUE, AS OF
SEPTEMBER 30, 2000
Transitional Small Business Disclosure Format (check one); Yes No X
----- -----
<PAGE>
Interim Consolidated Financial Statements of
COOL ENTERTAINMENT, INC.
(A Development stage Enterprise)
(Expressed in U.S. Dollars)
September 30, 2000 (Unaudited)
2
<PAGE>
Cool Entertainment Inc.
(A Development Stage Enterprise)
Interim Consolidated Balance Sheet
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
------------------ -----------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ -
Accounts receivable 90 84
------------------ ---------------
90 84
Property and equipment, net 14,644 24,300
------------------ ---------------
$ 14,734 $ 24,384
================== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank indebtedness $ 1,030 $ 157
Accounts payable and accrued liabilities 43,626 44,005
Payable to related party 51,544 2,836
------------------ ---------------
Total current liabilities 96,200 46,998
Stockholders' equity:
Common stock, no par value, authorized 100,000,000 shares;
issued 37,752,401 (unaudited) shares at September 30, 2000
and 37,619,401 at June 30, 2000 13,388,710 13,320,355
Additional paid-in capital 111,166 79,521
Deficit accumulated during the development stage (13,581,342) (13,422,490)
------------------ ---------------
Total stockholders' deficiency (81,466) (22,614)
------------------ ---------------
Subsequent event (note 8)
$ 14,734 $ 24,384
================== ===============
</TABLE>
See accompanying notes to interim consolidated financial statements.
3
<PAGE>
Cool Entertainment Inc.
(A Development Stage Enterprise)
Interim Consolidated Statements of Operation
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Three Three Period from
months months November 3,
ended ended 1998 (inception)
September 30, September 30, to September 30,
2000 1999 2000
---------------- -------------- -----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Operating income:
Sales $ 340 $ - $ 3,518
Cost of goods sold 327 - 3,092
---------------- -------------- -----------------
Gross profit 13 - 426
Other income 79 - 79
---------------- -------------- -----------------
Total income 92 - 505
Operating expenses:
Site development and
maintenance (note 6) 27,174 22,784 12,669,513
Management fees 85,119 48,993 373,753
Professional fees 37,378 28,185 359,399
Travel, advertising and
promotion 7,911 27,669 119,859
Office and administrative (2,343) 11,967 41,351
Depreciation 3,705 2,275 16,754
Organization costs - - 1,218
---------------- -------------- -----------------
158,944 141,873 13,581,847
---------------- -------------- -----------------
Loss for the period (158,852) (141,873) (13,581,342)
================ ============== =================
Net loss per common share,
basic and diluted $ (0.00) $ (0.01) $ (0.58)
================ ============== =================
Weighted average common
shares outstanding,
basic and diluted 37,672,890 18,272,785 23,546,750
================ ============== =================
</TABLE>
See accompanying notes to interim consolidated financial statements.
4
<PAGE>
COOL ENTERTAINMENT INC.
(A Development Stage Enterprise)
Interim Consolidated Statement of Stockholders' Equity (Deficiency)
(Expressed in U.S. Dollars)
Period ended September 30, 2000 (unaudited)
Period from November 3, 1998 (inception) to September 30, 2000 (unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated Total
Common stock Additional During stockholders'
--------------------------- Paid-In Subscriptions Development equity
Shares Amount Capital Receivable Stage (deficiency)
---------- ------------ ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, NOVEMBER 3, 1998
(Minas Novas Gold Corp.
Common Stock) 12,483,533 $ 180,958 $ - $ - $ - $ 180,958
Adjustment to comply with
reverse takeover accounting:
o elimination of Minas
Novas common stock - (180,958) - - - (180,958)
o Cool Washington
common stock - 400 - - - 400
Common stock issued to
purchase all issued and
outstanding shares of
Cool Washington, March 1,
1999 (note 2(a)) 23,184,044 11,192 - - - 11,192
Common stock issued for cash,
April 12, 1999 at $0.75 per
share, net of issuance costs
of $2,849 40,000 27,151 - - - 27,151
Common stock issued for cash,
April 23, 1999 at $0.90 per
share, net of issuance costs
of $2,736 121,111 106,264 - - - 106,264
Fully paid stock subscriptions
April 23, 1999, at $0.90 per
share, net of issuance costs
of $113 - - 4,387 - - 4,387
Common stock issued for cash,
May 28, 1999 at $0.75 per
share, net of issuance costs
of $2,849 100,000 72,151 - - - 72,151
Net loss - - - - (117,297) (117,297)
---------- ------------ ---------- -------- ------------- -------------
Balance, June 30, 1999 35,928,688 $ 217,158 $ 4,387 $ - $ (117,297) $ 104,248
========== ============ ========== ======== ============= =============
</TABLE>
5
<PAGE>
COOL ENTERTAINMENT INC.
(A Development Stage Enterprise)
Interim Consolidated Statement of Stockholders' Equity (Deficiency), page 2
(Expressed in U.S. Dollars)
Period ended September 30, 2000 (unaudited)
Period from November 3, 1998 (inception) to September 30, 2000 (unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated Total
Common stock Additional During stockholders'
--------------------------- Paid-In Subscriptions Development equity
Shares Amount Capital Receivable Stage (deficiency)
---------- ------------ ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Fully paid stock subscriptions
July 20, 1999 at $0.65 per
share, net of issuance costs
of $nil - $ - $ 75,000 $ - $ - $ 75,000
Fully paid stock subscriptions
August 6, 1999, at $0.53 per
share, net of issuance costs
of $nil - - 55,985 - - 55,985
Unpaid stock subscriptions
August 6, 1999, at $0.53 per
share, net of issuance costs
of $nil - - 19,015 - - 19,015
Fully paid stock subscriptions
September 10, 1999, at $0.53 per
share, net of issuance costs
of $nil - - 70,087 - - 70,087
Unpaid stock subscriptions
September 10, 1999, at $0.53 per
share, net of issuance costs
of $nil - - 5,079 - - 5,079
Common stock issued October 1,
1999 for fully paid stock
subscriptions at
$0.53 per share, net of
issuance costs of $nil 105,625 55,985 (55,985) - - -
Common stock issued October 1,
1999 for fully paid stock
subscriptions at $0.53 per
share, net of
issuance costs of $nil 35,875 19,015 (19,015) - - -
Common stock issued October 1,
1999 to satisfy loan at
$0.53 per share 28,300 15,000 - - - 15,000
Common stock issued October 1,
1999 fully paid stock
subscriptions at $0.65 net
of issuance costs of $nil 115,375 75,000 (75,000) - - -
Common stock issued October 1,
1999 for fully paid stock
subscriptions at $0.90,
net of issuance costs of $nil 5,000 4,387 (4,387) - - -
</TABLE>
6
<PAGE>
COOL ENTERTAINMENT INC.
(A Development Stage Enterprise)
Interim Consolidated Statement of Stockholders' Equity (Deficiency), page 3
(Expressed in U.S. Dollars)
Period ended September 30, 2000 (unaudited)
Period from November 3, 1998 (inception) to September 30, 2000 (unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated Total
Common stock Additional During stockholders'
--------------------------- Paid-In Subscriptions Development equity
Shares Amount Capital Receivable Stage (deficiency)
---------- ------------ ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Fully paid stock subscriptions
December 15, 1999, at $0.25
per share, net of issuance
costs of $nil - $ - $ 123,000 $ - $ - $ 123,000
Unpaid stock subscriptions
December 15, 1999, at
$0.25 per share, net of
issuance costs
of $nil - - 8,000 (8,000) - -
Common stock issued January 3,
2000 for fully paid stock
subscriptions at
$0.53 per share, net of
issuance costs of $nil 141,500 75,000 (75,000) - - -
Common stock issued for cash,
January 13, 2000, at $0.61
per share, net of issuance
costs of $nil 46,722 28,500 - - - 28,500
Common stock issued January 3,
2000 for fully paid stock
subscriptions at $0.25, net
of issuance costs of $nil 524,000 131,000 (131,000) 7,000 - 7,000
Common stock issued for cash,
January 27, 2000 at $0.80
per share, net of issuance
costs of $nil 72,500 58,000 - - - 58,000
Common stock issued for cash,
February 1, 2000, at $0.80
per share, net of issuance
costs of $14,440 477,816 209,560 - - - 209,560
Warrants issued for services (note 5) - - 12,000 - - 12,000
Site development (note 6) - 12,345,500 - - - 12,345,500
Common stock issued for
services March 3, 2000 138,000 86,250 - - - 86,250
Write-off of stock subscription
receivable - - (1,000) 1,000 - -
Common stock issued for services - - 68,355 - - 68,355
Net loss - - - - (13,305,193) (13,305,193)
---------- ------------ ---------- -------- ------------- -------------
Balance, June 30, 2000 37,619,401 $ 13,320,355 $ 79,521 $ - $(13,422,490) $ (22,614)
Units issued (note 5) - - 100,000 - - 100,000
Common Stock issued for services 133,000 68,355 (68,355) - - -
Net loss - - - - (158,852) (158,852)
---------- ------------ ---------- -------- ------------- -------------
Balance, September 30, 2000
(unaudited) 37,752,401 $ 13,388,710 $ 111,166 $ - $(13,581,342) $ (81,466)
========== ============ ========== ======== ============= =============
</TABLE>
See accompanying notes to interim consolidated financial statements.
7
<PAGE>
--------------------------------------------------------------------------------
Cool Entertainment Inc.
(A Development Stage Enterprise)
Interim Consolidated Statement of Cash Flows
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Three Period from
Three months months November 3,
ended ended 1998 (inception)
September 30, September 30, to September 30,
2000 1999 2000
--------------- --------------- ----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Operations:
Loss for the period $ (158,852) $ (141,873) $ (13,581,342)
Items not involving cash:
Depreciation 3,705 2,275 16,754
Amortization of organization costs - - 1,218
Common stock issued for services - - 154,605
Warrants issued for financial services - - 12,000
Site development and maintenance - - 12,345,500
Changes in operating assets and liabilities:
Subscriptions receivable - (24,094) -
Accounts receivable (6) - (90)
Payable to related party 48,708 - 51,544
Receivable from related party - (9,549) 23,367
Accounts payable and accrued liabilities (379) 1,562 42,273
--------------- --------------- ----------------
Net cash used in operating activities (106,824) (171,679) (934,171)
--------------- --------------- ----------------
Cash flows from investing activities:
Purchase of property and equipment (722) (18,198) (38,071)
Disposition of property and equipment 6,673 - 6,673
Cash acquired on acquisition - - 2,960
--------------- --------------- ----------------
Net cash used in investing activities 5,951 (18,198) (28,438)
--------------- --------------- ----------------
Cash flows from financing activities:
Net proceeds from issuances of and
subscriptions for common stock and warrants 100,000 225,000 961,579
Bank indebtedness 873 - 1,030
--------------- --------------- ----------------
Net cash provided by financing activities 100,873 225,000 962,609
--------------- --------------- ----------------
Net increase in cash and cash equivalents
during the period - 35,123 -
Cash and cash equivalents at beginning of period - 89,058 -
--------------- --------------- ----------------
Cash and cash equivalents at end of period $ - $ 124,181 $ -
=============== =============== ================
Supplementary disclosure:
Non-cash transactions:
Stock issued to acquire Cool
Entertainment Inc. (note 2(a)) $ - $ - $ 8,232
Stock issued to satisfy loan payable - - 15,000
Interest paid - - -
Taxes paid - - -
=============== =============== ================
</TABLE>
See accompanying notes to interim consolidated financial statements.
8
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
Three months ended September 30, 2000 (unaudited)
Period from November 3, 1998 (inception) to September 30, 2000 (unaudited)
--------------------------------------------------------------------------------
1. GENERAL AND FUTURE OPERATIONS:
These interim consolidated financial statements have been prepared on a
going concern basis in accordance with United States generally accepted
accounting principles. The going concern basis of presentation assumes the
Company will continue in operation for the foreseeable future and will be
able to realize its assets and discharge its liabilities and commitments in
the normal course of business. Certain conditions, as discussed below,
currently exist which raise substantial doubt upon the validity of this
assumption. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Cool Entertainment, Inc. (the "Company") was incorporated under the laws of
the State of Colorado on June 17, 1996, under the name of Minas Novas Gold
Corp. On February 15, 1999, the Company changed its name to Cool
Entertainment, Inc. Prior to its acquisition of Cool Washington (note
2(a)), the Company was a holding company with no substantive operations.
The Company is currently in the business of retailing entertainment related
products such as CDs, DVDs and videos through its website.
The Company's future operations are dependent upon the market's acceptance
of its services and the Company's ability to secure strategic partnerships
There can be no assurance that the Company will be able to secure market
acceptance or strategic partnerships. As of September 30, 2000, the Company
is considered to be in the development stage as the Company has not
generated any significant revenues and is continuing to develop its
business, and has experienced negative cash flows from operations.
Operations have primarily been financed through the issuance of common
stock. The Company does not have sufficient working capital to sustain
operations until the end of the current fiscal year ended June 30, 2001.
Additional debt or equity financing will be required and may not be
available or may not be available on reasonable terms. During the three
month period ended September 30, 2000, units for common shares and warrants
were subscribed for cash proceeds to finance the operations of the Company
(note 5). If sufficient financing cannot be obtained, the Company may be
required to reduce operating activities.
9
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Notes to Interim Consolidated Financial Statements, page 2
(Expressed in U.S. Dollars)
Three months ended September 30, 2000 (unaudited)
Period from November 3, 1998 (inception) to September 30, 2000 (unaudited)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
On March 1, 1999, the Company issued 23,184,044 common shares for all
of the issued and outstanding shares of Cool Entertainment, Inc. ("Cool
Washington"), a company incorporated in the State of Washington on
November 3, 1998. The acquisition was accounted for as a
recapitalization of Cool Washington effectively representing an issue
of shares by Cool Washington for the net assets of the Company.
The net assets acquired as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 2,960
Other working capital, net 22,015
Organizational costs 1,217
Loan payable (15,000)
-------------
$ 11,192
=============
</TABLE>
Acquisition related costs of $23,367 were incurred on this
recapitalization and have been recorded in professional fees.
The historical financial statements reflect the financial position of
Cool Washington from the date of its incorporation on November 3, 1998,
consolidated with those of the Company from March 1, 1999.
(b) Basis of consolidation:
These consolidated financial statements have been prepared using
generally accepted accounting principles in the United States. The
financial statements include the accounts of the Company and its
wholly-owned subsidiary, Cool Washington. All significant intercompany
balances and transactions have been eliminated in the consolidated
financial statements.
(c) Use of estimates:
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the recorded amounts of assets
and liabilities and the disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and reported
revenues and expenses for the reporting period. Actual results may
significantly differ from those estimates.
10
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Notes to Interim Consolidated Financial Statements, page 3
(Expressed in U.S. Dollars)
Three months ended September 30, 2000 (unaudited)
Period from November 3, 1998 (inception) to September 30, 2000 (unaudited)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(d) Net loss per share:
Basic loss per share is computed using the weighted average number of
common shares outstanding during the period. Diluted loss per share is
computed using the weighted average number of common and potentially
dilutive common stock outstanding during the period. As the Company has
a net loss in the period presented, basic and diluted net loss per
share are the same.
Excluded from the computation of diluted loss per share for the period
ended September 30, 1999 are 17,388,033 shares of common stock held in
escrow. The release of these escrowed shares was contingent upon the
Company's achievement of contractually specified financing and website
development milestones. These escrowed shares were released in 2000.
See note 6.
3. RELATED PARTY BALANCES AND TRANSACTIONS:
In March, 1999, the Company entered into a contract with a company,
Fictional Media Inc. (formerly known as Cool Management Inc.), which is
controlled by the stockholders of the Company, to provide management
services, site development and other professional services to the Company
at cost plus 10%.
The Company incurred cash compensation expense of $nil during the period
ended September 30, 2000 (1999 - $nil).
The payable to related party is non-interest bearing, unsecured and due on
demand. The balance relates to services rendered by Fictional Media Inc. to
the Company under the contract discussed above.
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
------------- -------------
<S> <C> <C>
Computer equipment $ 19,145 $ 27,577
Computer software 10,493 9,772
------------- -------------
29,638 37,349
Less accumulated depreciation (14,994) (13,049)
------------- -------------
$ 14,644 $ 24,300
============= =============
</TABLE>
11
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Notes to Interim Consolidated Financial Statements, page 4
(Expressed in U.S. Dollars)
Three months ended September 30, 2000 (unaudited)
Period from November 3, 1998 (inception) to September 30, 2000 (unaudited)
--------------------------------------------------------------------------------
5. WARRANTS:
On February 4, 2000 the Company granted warrants to four directors of the
Company to purchase 1,200,000 common shares at $0.625 per share, being the
market price per common share at the date of the grant. These warrants
expire in three years from their grant date. The Company also elected to
grant on February 4, 2000, warrants to certain shareholders to purchase
1,200,000 common shares at $0.625 per share, being the market price per
common share at the date of the grant. These warrants were valued at
$12,000 and were recorded as a direct financing cost related to prior
equity financings in which these shareholders participated. These warrants
expire in three years from their grant date. All of the warrants are
exercisable immediately but are subject to a one year hold period.
In conjunction with the issue of 477,816 common shares in February 2000,
the Company issued 477,816 warrants to purchase 477,816 common shares at
$1.25 per share. These warrants are exercisable immediately and expire five
years from the issue date.
On July 24, 2000, the Company entered into a subscription agreement which
granted the issue of 588,235 units of securities for cash consideration of
$0.17 per unit. Each unit consisted of one share of common stock and one
common stock purchase warrant. Each warrant entitles the holder to purchase
one share of common stock at a price of $0.187 for a period of three years
from the date of issuance. At September 30, 2000, no common stock or
warrants had been issued under this agreement.
6. SITE DEVELOPMENT AND MAINTENANCE:
Effective February 25, 2000, the Company reached certain performance
milestones relating to the development of the Company's website. As a
result, 17,388,033 common shares previously held in escrow were released.
Site development and maintenance expense of $12,345,500 has been
recognized, representing the difference between the market value of the
common shares on the date of their release and the original cost of these
common shares.
7. FINANCIAL INSTRUMENTS:
Fair value:
The carrying values of cash and cash equivalents, accounts receivable, bank
indebtedness and accounts payable and accrued liabilities approximate fair
value due to the short-term maturities of these instruments.
It is not practicable to determine the fair value of the payable to related
party due to its related party nature and the absence of a secondary market
for such instruments.
12
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Notes to Interim Consolidated Financial Statements, page 5
(Expressed in U.S. Dollars)
Three months ended September 30, 2000 (unaudited)
Period from November 3, 1998 (inception) to September 30, 2000 (unaudited)
--------------------------------------------------------------------------------
8. SUBSEQUENT EVENTS:
On November 3, 2000, the Company entered into a letter of intent to acquire
E-Trend Networks, Inc., a private company based in Fort Lauderdale,
Florida, with offices in Marina Del Rey, California, and Calgary, Alberta.
E-Trend is engaged in a business similar to that of the Company's. The
letter of intent contemplates that the Company would acquire E-Trend as a
wholly-owned subsidiary in exchange for the issuance of shares of the
Company's common stock. The shareholders of E-Trend as a group would
acquire control over the Company. Completion of the transaction is subject
to a number of conditions, including the execution of a formal share
exchange agreement and approval of the directors and shareholders of both
companies.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The acquisition of Cool Entertainment Inc., a Washington corporation
("Cool Washington") on March 1, 1999 has been accounted for as a
recapitalization of Cool Washington. The transaction has been accounted for as a
capital transaction effectively representing the issuance of shares by Cool
Washington for the net assets of the Company.
RESULTS OF OPERATIONS
The Company is considered to be in the development stage since it has
not generated any significant revenues and is continuing to develop its
business. Revenues of only $3,518 have been generated since the Company's
inception. Revenues of $340 were generated during the quarter ended September
30, 2000.
The Company experienced a loss of $158,852 for the three months ended
September 30, 2000. For the three-month period, operating expenses consisted
primarily of the following: management fees of $85,119, professional fees of
$37,378, and site development and maintenance expenses of $27,174. In
comparison, the Company incurred a loss of $141,873 for the comparable period in
1999. No revenues were generated, since the Company's website was not launched
until January 2000. However, the Company incurred expenses of $141,873 primarily
for management fees of $48,993, professional fees of $28,185, travel,
advertising and promotion of $27,669, and site development and maintenance
expenses of $22,784.
For the period from inception (November 3, 1998) through September 30,
2000, the Company has incurred a net loss of $13,581,342. Site development and
maintenance expense of $12,345,500 was recognized during the quarter ended March
31, 2000, as a result of the release of 17,388,033 common shares from escrow.
Such shares had been held in escrow to insure the achievement of certain
performance milestones relating to the development of the Company's website. The
milestones were achieved in February, 2000, and the Company had to recognize the
difference between the market value of the 17,388,033 common shares on the date
of their release and their original cost.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000 and June 20, 2000, the Company had working
capital deficiencies of $96,110 and $46,914, respectively. Virtually all of the
Company's liquidity has been provided through the sale of its Common Stock. For
the period from November 3, 1998 to September 30, 2000, the Company has received
$961,579 in net proceeds from the issuance of its Common Stock. Additional
funding will be needed from sales of the Company's securities to keep the
Company in operation.
Current sales of product are not sufficient to sustain operations. The
Company needs substantial amounts of cash to fund a marketing program to attract
potential customers to its web site. As of this date, the Company has no sources
of funds for a marketing effort.
14
<PAGE>
PLAN OF OPERATION
As of September 30, 2000, the Company did not have any cash. The
Company is dependent upon external sources of funds and there is no assurance
that any such funding will be available to the Company. The Company does not
anticipate making any expenditures for plant or equipment, or increasing the
number of employees.
Due to the losses generated to date and the fact that operations have
been financed through the issuance of Common Stock, there is substantial doubt
about the Company's ability to continue as a going concern. As stated above, the
Company does not have sufficient working capital to sustain operations until the
end of its current fiscal year, which ends June 30, 2001. Additional debt or
equity financing will be required and may not be available or may not be
available on reasonable terms. The auditors' report on the consolidated
financial statements for the year ended June 30, 2000 contained an explanatory
paragraph that stated that these factors raised substantial doubt about the
Company's ability to continue as a going concern. Those financial statements did
not include any adjustments that might result from the outcome of this
uncertainty.
Management is currently assessing the future viability of the Company.
It is exploring business combination opportunities. On November 3, 2000, the
Company entered into a letter of intent to acquire E-Trend Networks, Inc., a
private company based in Fort Lauderdale, Florida, with offices in Marina Del
Rey, California, and Calgary, Alberta. E-Trend is engaged in a business similar
to that of the Company's. The letter of intent contemplates that the Company
would acquire E-Trend as a wholly-owned subsidiary in exchange for the issuance
of shares of the Company's common stock. The shareholders of E-Trend as a group
would acquire control over the Company. Completion of the transaction is subject
to a number of conditions, including the execution of a formal share exchange
agreement and approval of the directors and shareholders of both companies.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
In August 2000, the Company issued 133,000 shares to Charterbridge
Financial Group, Inc. as compensation for financial public relations
and investment banking services. These shares were valued at $0.51 per
share, the market value of the Common Stock at the time of issuance.
The Company relied upon the exemption from registration contained in
Section 4(2) of the Securities Act of 1933. No underwriters were used
and no underwriting commissions were paid.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS
<TABLE>
<CAPTION>
REGULATION CONSECUTIVE
S-B NUMBER EXHIBIT PAGE NUMBER
<S> <C> <C>
2.1 Chelsea Pacific Financial Corp. Agreement dated February 25, 1999 (1) N/A
3.1 Articles of Incorporation, as amended (1) N/A
3.2 Bylaws (1) N/A
10.1 Management Agreement between Cool Entertainment, Inc., and Cool N/A
Management Inc. dated March 1, 1999(1)
10.2 Employment Agreement between Cool Management Inc. and Marc G. N/A
Belcourt dated March 1, 1999 (1)
10.3 Consulting Agreement between Cool Management Inc. and Leonard Wayne N/A
Voth dated March 1, 1999 (1)
10.4 Employment Agreement between Cool Management Inc. and William J. N/A
Hadcock dated March 1, 1999 (1)
16
<PAGE>
REGULATION CONSECUTIVE
S-B NUMBER EXHIBIT PAGE NUMBER
10.5 Employment Agreement between Cool Management Inc. and Clement K.M. N/A
Lau dated March 1, 1999 (1)
10.6 Escrow Agreement between Pacific Corporate Trust Company, Cool N/A
Entertainment, Inc. (Washington), Chelsea Pacific Financial Corp., Cool
Entertainment, Inc. (Colorado), Clement Kar Man Lau, William James
Hadcock, Leonard Wayne Voth, and Marc Gregory Belcourt dated March 1,
1999, as amended (1)
10.7 Form of Registration Rights Agreement between Cool Entertainment, Inc. N/A
and each of Clement Kar Man Lau, William James Hadcock, Leonard
Wayne Voth, and Marc Gregory Belcourt dated March 1, 1999 (1)
10.8 Order Fulfillment Agreement with Valley Media, Inc. dated May 4, 1999 (1) N/A
10.9 License Agreement with Muze, Inc. dated May 1999 (1) N/A
27 Financial Data Schedule ___
</TABLE>
----------------------------
(1) Incorporated by reference to the exhibits filed with the Registration
Statement on Form 10-SB, File No. 0-28879
B) REPORTS ON FORM 8-K:
None.
17
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COOL ENTERTAINMENT INC.
(Registrant)
Date: November 16, 2000 By: /S/ WILLIAM J. HADCOCK
-----------------------------------------
William J. Hadcock, President (Principal
financial and accounting officer)
18
<PAGE>
APPENDIX E
E-TREND AUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2000
<PAGE>
Financial Statements
E-TREND NETWORKS, INC.
(formerly The Moviesource.com Corp.)
September 30, 2000
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
E-Trend Networks, Inc.
We have audited the accompanying consolidated balance sheets of E-Trend
Networks, Inc. and subsidiary (formerly The Moviesource.com Corp.) as at
September 30, 2000 and 1999 and the related statements of operations and
deficit, stockholders' equity and cash flows for the year ended September 30,
2000 and for the period from incorporation on April 29, 1999 to September 30,
1999. These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
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 audit provides a
reasonable basis for our opinion.
In our opinion, these consolidated financial statements referred to above
present fairly, in all material respects, the financial position of E-Trend
Networks, Inc. (and subsidiary) as at September 30, 2000 and the results of its
operations and its cash flows for the year ended September 30, 2000 and for the
period from incorporation on April 29, 1999 to September 30, 1999 in conformity
with accounting principles generally accepted in the United States.
Calgary, Canada /S/ ERNST & YOUNG LLP
November 21, 2000 Chartered Accountants
<PAGE>
E-TREND NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
As at September 30
<TABLE>
<CAPTION>
2000 1999
(U.S. $) (U.S. $)
---------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents [NOTE 6] 1,791,343 638,712
Accounts receivable 69,583 3,297
Due from related company [NOTE 9] 207,716 --
Inventory 40,344 --
Prepaid expenses 773 45,060
---------------------------
2,109,759 687,069
INVESTMENT [NOTE 4] 232,382 --
DUE FROM RELATED COMPANY [NOTE 9] 231,709 31,487
CAPITAL ASSETS [NOTE 5] 266,641 25,000
GOODWILL [NOTE 3] 175,169 --
---------------------------
3,015,660 743,556
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities 201,585 17,820
---------------------------
COMMITMENTS [NOTE 11]
STOCKHOLDERS' EQUITY
Authorized
25,000,000 preferred shares, par value $0.001
25,000,000 common shares, par value $0.001
Issued
Common shares [NOTE 7] 8,854 6,850
Additional paid in capital [NOTE 7] 3,601,406 774,225
Accumulated deficit (866,495) (55,339)
Unrealized gain from investment 89,102 --
Cumulative translation adjustment (18,792) --
---------------------------
2,814,075 725,736
---------------------------
3,015,660 743,556
===========================
</TABLE>
SEE ACCOMPANYING NOTES
On behalf of the Board:
Director Director
<PAGE>
E-TREND NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
<TABLE>
<CAPTION>
FOR THE TWELVE FOR THE PERIOD FROM
MONTHS ENDED INCORPORATION ON
SEPTEMBER 30, APRIL 29, 1999 TO
2000 SEPTEMBER 30, 1999
(U.S. $) (U.S. $)
--------------------------------------
<S> <C> <C>
REVENUE 665,075 --
COST OF SALES 503,938 --
--------------------------------------
161,137 --
--------------------------------------
EXPENSES
Operating and development 436,764 --
General and administrative 435,745 59,564
Advertising costs 108,703 --
Sales and marketing 28,921 --
Amortization of capital assets 31,756 --
Amortization of goodwill 20,329 --
--------------------------------------
1,062,218 59,564
--------------------------------------
LOSS BEFORE THE FOLLOWING (901,081) (59,564)
INTEREST INCOME 89,925 4,225
--------------------------------------
NET LOSS FOR THE PERIOD [NOTE 10] (811,156) (55,339)
--------------------------------------
OTHER COMPREHENSIVE INCOME
Unrealized gain from investment 89,102 --
Foreign currency translation adjustment (18,792) --
--------------------------------------
--------------------------------------
70,310 --
--------------------------------------
COMPREHENSIVE LOSS (740,846) (55,339)
======================================
DEFICIT, BEGINNING OF PERIOD (55,339) --
NET LOSS FOR THE PERIOD (811,156) (55,339)
--------------------------------------
DEFICIT, END OF PERIOD (866,495) (55,339)
======================================
BASIC AND DILUTED LOSS PER SHARE [NOTE 8] (0.10) (0.02)
======================================
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
E-TREND NETWORKS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
As at September 30, 2000
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------
PAID IN
NUMBER OF AMOUNT CAPITAL
SHARES (U.S. $) (U.S. $)
-------------------------------------------
<S> <C> <C> <C>
Issuance of common stock [NOTE 7] 6,850,000 6,850 774,225
-------------------------------------------
Balance, September 31, 1999 6,850,000 6,850 774,225
Issuance of common shares for cash [NOTE 7] 1,618,734 1,619 2,395,732
Issuance of common shares for services [NOTE 7] 85,000 85 84,915
Issuance of common shares on acquisition of subsidiary
[NOTES 3 AND 7] 200,000 200 199,800
Issuance of common shares for shares in investment
[NOTES 4 AND 7] 100,000 100 149,900
Share issue costs -- -- (3,166)
-------------------------------------------
Balance, September 30, 2000 8,853,734 8,854 3,601,406
===========================================
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
E-TREND NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE TWELVE FOR THE PERIOD FROM
MONTHS ENDED INCORPORATION ON
SEPTEMBER 30, APRIL 29, 1999 TO
2000 SEPTEMBER 30, 1999
(U.S. $) (U.S. $)
-----------------------------------------
<S> <C> <C>
CASH WAS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net loss for the period (811,156) (55,339)
Amortization 52,085 --
Add (deduct) following item:
Net change in non-cash working capital (86,294) (30,537)
-----------------------------------------
(845,365) (85,876)
-----------------------------------------
FINANCING ACTIVITIES
Proceeds from capital contributions 2,394,185 781,075
Due from related company (200,222) (31,487)
-----------------------------------------
2,193,963 749,588
-----------------------------------------
INVESTING ACTIVITY
Purchase of capital assets (195,967) (25,000)
-----------------------------------------
INCREASE IN CASH 1,152,631 638,712
CASH, BEGINNING OF PERIOD 638,712 --
-----------------------------------------
CASH, END OF PERIOD 1,791,343 638,712
=========================================
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
E-Trend Networks, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2000 (expressed in U.S. dollars)
1. BASIS OF PRESENTATION
The Corporation was incorporated as The Moviesource.com Corp. under the Business
Corporations Act (Nevada) on April 29, 1999. The Corporation changed its name
effective February 10, 2000 to E-Trend Networks, Inc. The Corporation is
committed to the business of e-commerce sales and distribution of filmed
entertainment, video games and music.
The consolidated financial statements include the accounts of the Corporation
and its wholly owned subsidiary, Langara Distribution Inc., an Alberta, Canada
corporation.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Corporation have been prepared in accordance
with accounting principles generally accepted in the United States. The
presentation of financial statements in conformity with United States generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
CASH EQUIVALENTS
The Corporation considers cash invested in money market funds with a maturity of
90 days or less, amounting to $1,812,301 (1999 - $617,328), to be cash
equivalents.
CAPITAL ASSETS
Capital assets are recorded at cost. Amortization is provided on the bases and
at rates designed to amortize the cost of assets over their estimated useful
lives. Amortization is recorded using the declining balance method at the
following annual rates:
Furniture and fixtures - 10%
Computer hardware - 30%
Computer software - 20%
Leasehold improvements Over term of lease
<PAGE>
E-Trend Networks, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2000 (expressed in U.S. dollars)
CONCENTRATION OF CREDIT RISK
The financial instruments of the Corporation that are exposed to concentration
of credit risk consist primarily of cash and short term deposits. The
Corporation's cash and cash equivalents are placed with high quality major
Canadian chartered banking institutions, limiting its exposure of credit risk.
GOODWILL
Goodwill is recorded at cost and is being amortized on a straight-line basis
over 10 years. The recoverability of goodwill is assessed periodically based on
management estimates of undiscounted future operating income from each of the
acquired businesses to which the goodwill relates.
FINANCIAL INSTRUMENTS
Financial instruments of the Corporation consist mainly of cash and cash
equivalents, accounts receivable, due from related company and accounts payable
and accrued liabilities. At September 30, 2000, there are no significant
differences between the carrying values of these amounts and their estimated
market values.
REVENUE RECOGNITION
Gross revenue from product sales is recognized as the product is delivered.
Sales returns are limited to 15% of the total sales to each unrelated customer
and are credited against future sales.
INCOME TAXES
Income taxes are computed using the liability method. Under the liability
method, deferred income tax assets and liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse.
Recognition of deferred tax assets is limited to amounts considered by
management to be more likely than not of realization in future periods.
INVESTMENT
Investment is publicly traded equity securities classified as available for sale
and are recorded at market. Unrealized gains and losses are reflected in other
comprehensive income.
ADVERTISING COSTS
Advertising costs are expensed as incurred.
<PAGE>
E-Trend Networks, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2000 (expressed in U.S. dollars)
STOCK BASED COMPENSATION
The Corporation applies the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for its stock option plans. Accordingly,
no compensation cost is recognized in the accounts as options are granted with
an exercise price that approximates the prevailing market price.
COMPUTATION OF LOSS PER SHARE
Basic loss per stock is computed by dividing the net loss attributable to common
stockholders by the weighted average number of common stock outstanding for that
period. Diluted loss per stock is computed giving effect to all dilutive
potential common stock that were outstanding during the period. Dilutive
potential common stock consist of incremental common stock issuable upon
exercise of convertible securities. At September 30, 2000, there were no
dilutive potential common stock and therefore the dilutive loss per stock is
equivalent to the basic loss per stock.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Corporation and its subsidiary is the Canadian
dollar. Accordingly, all assets and liabilities are translated at the year end
exchange rate and revenues and expenses are translated at average exchange
rates. Gains and losses arising from the translation of the financial statements
of the Corporation are recorded in a "Cumulative Translation Adjustment" account
in stockholders' equity.
Transactions denominated in foreign currencies are translated at the exchange
rate on the transaction date. Foreign currency denominated monetary assets and
liabilities are translated at the exchange rate in effect of the balance sheet
date. The resulting exchange gains and losses on these items are included in net
earnings.
<PAGE>
E-Trend Networks, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2000 (expressed in U.S. dollars)
3. ACQUISITION
The Corporation acquired all of the issued and outstanding shares of Langara
Distribution Inc. ("Langara") effective January 1, 2000 for consideration of
200,000 common shares valued at $1.00 per share and 200,000 share purchase
warrants exercisable at $2.00 per warrant from the date of issuance. The
ascribed value of this transaction was $200,000 and no value has been ascribed
to the warrants. This acquisition was accounted for by the purchase method
allocating all of the purchase price to goodwill. The operating results of
Langara are included in the consolidated statements of operations and deficit
from the date of acquisition. The pro-forma loss and pro-forma loss per share
for the year ended September 30, 1999 giving effect to the acquisition of
Langara as though it had occurred as at October 1, 1998 do not differ materially
from that recorded.
4. INVESTMENT
On January 21, 2000, the Corporation swapped 99,900 common shares of Video
Headquarters Inc., ("Video Headquarters") a publicly traded Canadian company,
for 100,000 shares of the Corporation at a value of $150,000.
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
-----------------------------------------
TRANSLATED UNREALIZED RECORDED
COST BASIS GAIN BASIS
$ $ $
-----------------------------------------
<S> <C> <C> <C>
Video Headquarters common shares 143,280 89,102 232,382
=========================================
</TABLE>
<PAGE>
E-Trend Networks, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2000 (expressed in U.S. dollars)
5. CAPITAL ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
----------------------------------------------------
ACCUMULATED NET BOOK VALUE
COST AMORTIZATION $
$ $
----------------------------------------------------
<S> <C> <C> <C>
Furniture and fixtures 8,196 404 7,792
Leasehold improvements 25,545 1,277 24,268
Computer hardware 31,718 4,468 27,250
Computer software 232,938 25,607 207,331
----------------------------------------------------
298,397 31,756 266,641
====================================================
SEPTEMBER 30, 1999
----------------------------------------------------
ACCUMULATED NET BOOK VALUE
COST AMORTIZATION $
$ $
----------------------------------------------------
Computer software 25,000 -- 25,000
====================================================
</TABLE>
6. LINE OF CREDIT
The Corporation has a line of credit with a limit of $150,000 which accrues
interest at prime plus 0.5% per annum. As at September 30, 2000, this line of
credit had an overdraft balance of $74,816.
7. SHARE CAPITAL
AUTHORIZED
25,000,000 common shares at $0.001 per value
25,000,000 preferred shares at $0.001 per value
COMMON STOCK ISSUED
As of September 30, 1999, 6,075,000 and 775,000 common shares had been issued at
$0.001 and $1.00 per share.
On October 1, 1999, 85,000 common shares were issued for services provided by
three consultants in relation to the development of the Corporation's website
for $1.00 per share.
On March 22, 2000, 1,618,734 common shares were issued for cash consideration at
prices of $1.00 and $1.50 per share.
<PAGE>
E-Trend Networks, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2000 (expressed in U.S. dollars)
On January 21, 2000, 100,000 common shares were issued at $1.50 in exchange for
common shares in Video Headquarters.
On January 1, 2000, 200,000 shares were issued to acquire Langara with an
ascribed value of $1.00 per share.
OPTIONS
The Company is authorized to grant employees, directors and officers options to
purchase up to 2,000,000 common shares. The following table details the options
outstanding at September 30, 2000:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
# $
---------------------------------------
<S> <C> <C>
Outstanding at September 30, 1999 -- --
Granted 1,438,000 1.99
---------------------------------------
Outstanding at September 30, 2000 1,438,000 1.99
=======================================
Exercisable at September 30, 2000 9,700 1.26
=======================================
</TABLE>
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions.
<TABLE>
<CAPTION>
2000
$
---------------
<S> <C>
Risk free interest rate 7.50%
Dividend yield 0%
Volatility factors of expected market price 100%
Weighted average expected life of the options 2 years
</TABLE>
<PAGE>
E-Trend Networks, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2000 (expressed in U.S. dollars)
The Black-Scholes options valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, the valuation model calculates the expected
stock price volatility based on highly subjective assumptions. Because the
Corporation's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Pro forma disclosures of loss and loss per common share are presented below as
if the Corporation had adopted the cost recognition requirements under FAS 123.
The compensation cost for the stock-based compensation was approximately
$1,048,300.
<TABLE>
<CAPTION>
2000
$
---------------
<S> <C> <C>
Loss As reported 811,156
Pro forma 1,859,456
Basic and diluted loss per common share As reported ($/share) (0.10)
Pro forma ($/share) (0.23)
</TABLE>
WARRANTS
On September 30, 2000, there were 200,000 common share purchase warrants issued
and outstanding. Each warrant entitles the holder to purchase one common share
of the Corporation for $2.00 per share expiring April 20, 2002.
8. LOSS PER SHARE
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
$ $
-------------------------------
<S> <C> <C>
Net loss 811,156 55,339
Weighted average number of common shares outstanding 7,946,310 2,857,943
-------------------------------
Loss per common share - basic and diluted (0.10) (0.02)
===============================
</TABLE>
9. RELATED PARTY TRANSACTIONS AND ECONOMIC DEPENDENCE
The due from related company of $231,709 represents an advance to the
Corporation's major shareholder, Video Headquarters. The advance bears interest
at 8% per annum, is unsecured and has no fixed terms of repayment. At September
30, 2000, the Corporation received interest income of $17,056 from Video
Headquarters.
<PAGE>
E-Trend Networks, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2000 (expressed in U.S. dollars)
The Corporation sold $608,305 of its products to Video Headquarters and at
September 30, 2000, owes the Corporation $207,716 in trade receivables. The
Corporation does not limit sales returns from Video Headquarters and receives
91.5% of its sales from Video Headquarters.
10. INCOME TAXES
The income tax benefit differs from the amount computed by applying the Canadian
federal statutory tax rates to the loss before income taxes for the following
reasons:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
$ $
-------------------------------
<S> <C> <C>
Income tax benefit at Canadian statutory rates (44.62%) (373,714) (24,692)
Increase (decrease) in taxes resulting from:
Change in deferred tax asset valuation allowance 373,714 24,692
-------------------------------
Income tax benefit -- --
===============================
</TABLE>
Future income taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The components of the
Corporation's future income tax assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
$ $
-------------------------------
<S> <C> <C>
Non-capital loss carryforwards 371,374 24,692
Undepreciated capital costs in excess of book value of capital
assets 17,961 --
-------------------------------
Net future tax assets 389,335 24,692
Valuation allowance (389,335) (24,692)
-------------------------------
-- --
===============================
</TABLE>
11. COMMITMENTS
The Corporation is committed to the following rental payments under various
equipment leases:
<TABLE>
<CAPTION>
$
-------------
<S> <C> <C> <C> <C> <C> <C>
2001 82,820
2002 53,958
2003 55,812
2004 21,404
2005 5,351
<PAGE>
E-Trend Networks, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 2000 (expressed in U.S. dollars)
-------------
219,345
=============
</TABLE>
12. SUBSEQUENT EVENT
On November 3, 2000, the Corporation entered into a letter of intent to be
acquired, by way of a share exchange and reorganization, by Cool Entertainment
Inc. The Corporation will be the successor company after conclusion of the
proposed transaction.
<PAGE>
APPENDIX F
COOL UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
<PAGE>
Pro Forma Consolidated Financial Statements of
COOL ENTERTAINMENT, INC.
Period ended September 30, 2000
(Unaudited)
<PAGE>
<TABLE>
COOL ENTERTAINMENT, INC.
Pro Forma Consolidated Balance Sheet
(Unaudited)
(Expressed in U.S. Dollars)
As at September 30, 2000
<CAPTION>
===============================================================================================================
Pro forma
adjustments
Cool and Cool
Entertainment, E-Trend eliminating Entertainment,
Inc. Networks, Inc. entries Inc.
---------------------------------------------------------------------------------------------------------------
(note 3 (a))
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ - $ 1,791,343 $ (23,000) 2(d) $ 1,768,343
Accounts receivable 90 69,583 - 69,673
Inventory - 40,344 - 40,344
Due from related company - 207,716 - 207,716
Prepaid expenses - 773 - 773
----------------------------------------------------------------------------------------------------------
90 2,109,759 (23,000) 2,086,849
Investment - 232,382 - 232,382
Due from related company - 231,709 - 231,709
Property and equipment 14,644 266,641 68,000 2(d) 349,285
Goodwill - 175,169 - 175,169
---------------------------------------------------------------------------------------------------------------
$ 14,734 $ 3,015,660 $ 45,000 $ 3,075,394
===============================================================================================================
Liabilities and Shareholders' Equity (Deficiency)
Current liabilities:
Bank indebtedness $ 1,030 $ - $ - $ 1,030
Accounts payable and
accrued liabilities 43,626 201,585 - 245,211
Payable to related party 51,544 - (51,544) 2(e) -
Promissory note - - 45,000 2(d) -
(45,000) 2(d) -
----------------------------------------------------------------------------------------------------------
96,200 201,585 (51,544) 246,241
Shareholders' equity (deficiency):
Common stock 13,388,710 8,854 (13,388,710) 2(b) 105,398
45,000 2(d)
51,544 2(e)
Additional paid-in capital 111,166 3,601,406 (111,166) 2(b) 3,601,406
Deficit (13,581,342) (866,495) (81,466) 2(b) (947,961)
13,581,342 2(b)
Cumulative translation adjustment - (18,792) - (18,792)
Unrealized gain from investment - 89,102 - 89,102
----------------------------------------------------------------------------------------------------------
(81,466) 2,814,075 96,544 2,829,153
---------------------------------------------------------------------------------------------------------------
$ 14,734 $ 3,015,660 $ 45,000 $ 3,075,394
===============================================================================================================
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE>
<TABLE>
COOL ENTERTAINMENT, INC.
Pro Forma Consolidated Statement of Operations and Deficit
(Unaudited)
(Expressed in U.S. Dollars)
Year ended June 30, 2000
<CAPTION>
===============================================================================================================
Cool E-Trend
Entertainment, Networks, Pro forma Pro forma
Inc. Inc. adjustments consolidated
---------------------------------------------------------------------------------------------------------------
(note 3(b))
<S> <C> <C> <C> <C>
Sales $ 3,178 $ 665,075 $ - $ 668,253
Cost of sales 2,765 503,938 - 506,703
---------------------------------------------------------------------------------------------------------------
413 161,137 - 161,550
Interest income - 89,925 - 89,925
Operating expenses:
Operating and development 12,612,461 436,764 - 13,049,225
Management fees 261,945 - - 261,945
General and administrative 418,151 435,745 - 853,896
Depreciation 13,049 31,756 16,000 60,805
Amortization of goodwill - 20,329 - 20,329
Advertising costs - 108,703 - 108,703
Sales and marketing - 28,921 - 28,921
------------------------------------------------------------------------------------------------------------
13,305,606 1,062,218 16,000 14,383,824
---------------------------------------------------------------------------------------------------------------
Net loss for the period $ (13,305,193) $ (811,156) $ (16,000) $ (14,132,349)
===============================================================================================================
Net loss per common share, basic $ (0.52) $ - - $ (2.98)
===============================================================================================================
Weighted average common shares
outstanding, basic 25,383,924 - - 4,735,706
===============================================================================================================
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE>
<TABLE>
COOL ENTERTAINMENT, INC.
Pro Forma Consolidated Statement of Operations and Deficit
(Unaudited)
(Expressed in U.S. Dollars)
Three months ended September 30, 2000
<CAPTION>
===============================================================================================================
Cool E-Trend
Entertainment, Networks, Pro forma Pro forma
Inc. Inc. adjustments consolidated
---------------------------------------------------------------------------------------------------------------
(note 3(b))
<S> <C> <C> <C> <C>
Sales $ 340 $ 259,637 $ - $ 259,977
Cost of sales 327 189,406 - 189,733
---------------------------------------------------------------------------------------------------------------
13 70,231 - 70,244
Interest and other income 79 47,151 - 47,230
Operating expenses:
Operating and development 27,174 155,156 - 182,330
Management fees 85,119 - - 85,119
General and administrative 42,946 149,951 - 192,897
Depreciation 3,705 5,000 3,000 11,705
Amortization of goodwill - 4,540 - 4,540
Advertising costs - 46,766 - 46,766
Sales and marketing - 16,835 - 16,835
---------------------------------------------------------------------------------------------------------------
158,944 378,248 3,000 540,192
---------------------------------------------------------------------------------------------------------------
Net loss for the period $ (158,852) $ (260,866) $ (3,000) $ (422,718)
===============================================================================================================
Net loss per common share, basic $ (0.00) $ - - $ (0.09)
===============================================================================================================
Weighted average common shares
outstanding, basic 37,672,890 - - 4,858,596
===============================================================================================================
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE>
COOL ENTERTAINMENT, INC.
Notes to Pro Forma Consolidated Financial Statements
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================
1. BASIS OF PRESENTATION:
The accompanying pro forma consolidated financial statements have been
compiled for purposes of inclusion in the information statement for the
special meeting of shareholders of Cool Entertainment, Inc. (the "Company")
to be held on January 26, 2001. The pro forma consolidated financial
statements give effect to the proposed arrangement between the Company and
E-Trend Networks, Inc. ("E-Trend") which will result in the exchange by the
shareholders of E-Trend of all of its issued and outstanding common shares
for 4,441,867 common shares of the Company. These pro forma consolidated
financial statements are not necessarily indicative of what the financial
position or results of operations would have been if the transactions
described below had been completed at the dates indicated or purport to be
indicative of the results that may be expected in the future.
The pro forma consolidated financial statements have been prepared from:
(a) the audited financial statements of the Company for the year ended June
30, 2000;
(b) the unaudited financial statements of the Company as at and for the
three months ended September 30, 2000;
(c) the audited financial statements of E-Trend as at and for the year
ended September 30, 2000;
(d) unaudited internal financial information of E-Trend for the three
months ended September 30, 2000; and
(e) the additional information set out in notes 2 and 3.
The consolidated financial statements should be read in conjunction with
the financial statements of the Company and E-Trend included elsewhere
herein.
2. PRO FORMA TRANSACTIONS:
The pro forma consolidated financial statements give effect to the
following transactions relating to the proposed arrangement between the
Company and E-Trend:
(a) a redomiciliation of the Company to Delaware followed by a 1 for 100
reverse stock split of Cool's outstanding common stock;
(b) issuance of 4,441,867 common shares of Cool to the shareholders of
E-Trend in exchange for all of the issued and outstanding common shares
of E-Trend; and
(c) at the closing date each unexpired and unexercised outstanding stock
option of E-Trend will be assumed by the Company. Each option assumed
shall be subject to the same terms and conditions as the existing
E-Trend options. As at September 30, 2000, E-Trend had 1,438,000
options outstanding at a weighted average exercise price of $1.99 per
option of which 9,700 were exercisable at a weighted average exercise
price of $1.26 per option.
<PAGE>
COOL ENTERTAINMENT, INC.
Notes to Pro Forma Consolidated Financial Statements, page 2
(Unaudited)
(Expressed in U.S. Dollars)
Period ended September 30, 2000
================================================================================
(d) the cash payment of $23,000 (Cdn $35,000) and the issuance of a
promissory note of $45,000 by E-Trend to Fictional Media Inc., a
company controlled by stockholders of Cool, is in exchange for property
and equipment, and the repayment of the note for consideration equal to
15,000 common shares of Cool upon completion of the proposed
arrangement.
(e) The repayment of the payable to related party, being Fictional Media
Inc., for consideration assumed to be equal to 25,000 common shares of
Cool upon completion of the proposed arrangement.
On completion of these transactions, the Company proposes to change its
name to E-Trend Networks, Inc.
3. PRO FORMA ASSUMPTIONS:
(a) Pro forma consolidated balance sheet:
The pro forma consolidated balance sheet gives effect to the
transactions described in note 2 as if they had occurred on September
30, 2000. As a result of the issuance of the Company's shares on the
arrangement, the former shareholders of E-Trend will gain control over
the Company. For accounting purposes, this business combination will be
accounted for by the purchase method as a reverse take-over
transactions with E-Trend identified as the acquiree and the Company
identified as the acquired business. For purposes of these pro forma
consolidated financial statements, the fair value of the net assets
acquired is equal to their book values. The excess of the value
assigned to the liabilities assumed over the assets acquired of $81,466
has been recognized as a capital transaction and charged directly to
deficit.
(b) Pro forma consolidated statements of operations:
The pro forma consolidated statements of operations give effect to the
transactions described in note 2 as if they had occurred at the
beginning of the periods presented. As the values assigned to the net
assets acquired equal their book values, no adjustments are required to
recognize impacts of the business combination. The pro forma
consolidated statements of operations include an adjustment for
depreciation of the acquired equipment described in note 2(c) as
follows:
Three months ended September 30, 2000 $ 3,000
Year ended June 30, 2000 16,000
<PAGE>
COOL ENTERTAINMENT, INC.
Notes to Pro Forma Consolidated Financial Statements, page 3
(Unaudited)
(Expressed in U.S. Dollars)
Period ended September 30, 2000
================================================================================
<TABLE>
4. SHARE CAPITAL:
<CAPTION>
==========================================================================================================
Number
of shares Amount
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Authorized:
100,000,000 Common shares, no par value
Issued:
Balance before transaction per Cool financial statements 37,752,401 $ 13,388,710
Reverse stock split 1 for 100 (37,374,877) -
------------------------------------------------------------------------------------------------------
377,524 13,388,710
Shares issued at fair value to purchase all issued
and outstanding shares of E-Trend 4,441,867 -
Adjustments of Cool share capital to comply with reverse take-over
accounting:
Elimination of Cool share capital - (13,388,710)
E-Trend share capital - 8,854
Issued on settlement of note payable 15,000 45,000
Issued on settlement of payable to related party 25,000 51,544
----------------------------------------------------------------------------------------------------------
Pro forma balance, September 30, 2000 4,859,391 $ 105,398
==========================================================================================================
</TABLE>
<PAGE>
APPENDIX G
PLAN OF REINCORPORATION AND MERGER
<PAGE>
AGREEMENT AND PLAN OF REINCORPORATION AND MERGER
This Agreement and Plan of Reorganization and Merger ("Reincorporation
Agreement") is made as of December ___, 2000, by and between COOL ENTERTAINMENT,
INC., a Colorado corporation ("Cool"), and E-TREND NETWORKS, INC., a Delaware
corporation ("Cool Delaware"), (collectively, the "Constituent Corporations").
The parties adopt the plan of merger encompassed by this Reincorporation
Agreement and agree that Cool shall merge into Cool Delaware on the following
terms and conditions:
1. REINCORPORATION; SURVIVING CORPORATION; AND EFFECTIVE TIME.
1.1 REINCORPORATION. As soon as practicable following the fulfillment (or
waiver, to the extent permitted) of conditions specified in this
Reincorporation Agreement, Cool shall be merged with and into Cool Delaware
(the "Reincorporation"), and Cool Delaware shall survive the
Reincorporation.
1.2 EFFECTIVE TIME. The Reincorporation shall be effective as of the latest of
the date and time when (i) Articles of Merger are duly filed with the
Secretary of State of the State of Colorado as provided by the Colorado
Business Corporation Act; (ii) Articles of Merger are duly filed with the
Secretary of State of the State of Delaware as provided in the Delaware
General Corporation Law; and (iii) February 2, 2000 ("Effective Time").
1.3 SURVIVING CORPORATION. At the Effective Time, Cool Delaware as the
surviving corporation ("Surviving Corporation"), shall continue its
corporate existence under the laws of the State of Delaware in the manner
and with the effect provided by the Delaware General Corporation Law, and
the separate existence of Cool shall be terminated and shall cease.
2. TREATMENT OF SECURITIES.
2.1 COMMON STOCK OF COOL AND COOL DELAWARE. At the Effective Time, by virtue of
the Reincorporation and without any further action on the part of the
Constituent Corporations or their shareholders, (i) each 100 shares of
common stock of Cool issued and outstanding immediately prior to the
Effective Time shall be changed and converted into one fully paid and
nonassessable share of the common stock of Cool Delaware; (ii) each option
to buy a share of common stock of Cool granted and outstanding immediately
prior to the Effective Time shall be changed and converted into an option
to buy one-hundredth of a share of common stock of Cool Delaware on the
same terms and conditions; and (iii) each share of common stock of Cool
Delaware issued and outstanding immediately prior to the Effective Time
shall be cancelled.
2.2 FRACTIONAL SHARES. Each holder of shares of Cool common stock who would
otherwise have been entitled to receive a fraction of a share of Cool
Delaware common stock (after taking into account all certificates delivered
by such holder) shall receive, in lieu thereof, cash in an amount equal to
such fractional part of a share of Cool Delaware common stock multiplied
Agreement and Plan of Reincorporation and Merger - Page 1
<PAGE>
by the market value of such common stock. The market value of one share of
Cool Delaware common stock on the Effective Date shall be the closing bid
price of Cool common stock as reported on the OTC Bulletin Board on the
last business day preceding the Effective Date, multiplied by 100. No such
holder shall be entitled to dividends, voting rights, or any other
shareholder right in respect of any fractional share.
2.3 STOCK CERTIFICATES. At and after the Effective Time, all of the outstanding
certificates that, prior to that time, represented shares of the common
stock of Cool shall be deemed for all purposes to evidence ownership of and
to represent shares of the same class and series of common stock of Cool
Delaware and shall be so registered on the books and records of Cool
Delaware or its transfer agent. The registered owner of any outstanding
stock certificate shall, until such certificate shall have been surrendered
for transfer or conversion or otherwise accounted for to Cool Delaware or
its transfer agent, have and be entitled to exercise any voting and other
rights with respect to and to receive any dividend and other distributions
upon, the shares of Cool Delaware evidenced by such outstanding certificate
as above provided. After the Effective Time, whenever certificates that
formerly represented shares of Cool are presented for exchange or
registration of transfer, the Surviving Corporation will cause to be issued
in respect thereof certificates representing the shares of Cool Delaware
into which the shares of Cool were converted.
3. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS.
3.1 CERTIFICATE OF INCORPORATION. At the Effective Time, the Certificate of
Incorporation of Cool Delaware then in effect shall be the articles of
incorporation of the Surviving Corporation until further amended or
repealed in the manner provided by law.
3.2 BYLAWS. At the Effective Time, the Bylaws of the Surviving Corporation then
in effect shall be the bylaws of the Surviving Corporation until further
amended in accordance with the provisions thereof and applicable law.
3.3 DIRECTORS. The director of Cool Delaware immediately preceding the
Effective Time shall be the director of the Surviving Corporation on and
after the Effective Time and shall serve until the expiration of their
terms and until their successors are elected and qualified.
3.4 OFFICERS. The officers of Cool Delaware immediately preceding the Effective
Time shall be the officers of the Surviving Corporation on and after the
Effective Time and shall serve at the pleasure of its Board of Directors.
4. MISCELLANEOUS.
4.1 AMENDMENT. This Reincorporation Agreement may be amended by the Boards of
Directors of the Constituent Corporations at any time prior to the filing
of this Reincorporation Agreement with the Colorado Secretary of State or
the Delaware Secretary of State, provided that an amendment made subsequent
to the adoption of the Reincorporation Agreement by the shareholders of
either Constituent Corporation, unless approved by such shareholders,
Agreement and Plan of Reincorporation and Merger - Page 2
<PAGE>
shall not (i) alter or change the amount or kind of shares to be received
upon conversion of the outstanding Common stock of Cool, or (ii) alter or
change any of the terms and conditions of the Reincorporation Agreement if
such alteration or change would adversely affect the holders of the
outstanding Common stock of Cool.
4.2 CONDITIONS TO REINCORPORATION. The obligation of the Constituent
Corporations to effect the transactions contemplated hereby is subject to
satisfaction of the following conditions (any or all of which may be waived
to the extent permitted by law in the sole discretion of the Boards of
Directors of the Constituent Corporations): (i) the Reincorporation shall
have been approved by the shareholders of Cool in accordance with the
Colorado Business Corporation Act; (ii) Cool, as sole shareholder of Cool
Delaware, shall have approved the Reincorporation in accordance with the
Delaware General Corporation Law; and (iii) the parties shall have made all
filings and received all approvals of any governmental or regulatory agency
of competent jurisdiction necessary in order to consummate the
Reincorporation, and each of such approvals shall be in full force and
effect.
4.3 ABANDONMENT OR DEFERRAL. At any time before the Effective Time, this
Reincorporation Agreement may be terminated and the Reincorporation may be
abandoned by the Board of Directors of either or both of the Constituent
Corporations, notwithstanding the approval of this Reincorporation
Agreement by the shareholders of Cool, or the consummation of the
Reincorporation may be deferred for a reasonable period of time if, in the
opinion of the Board of Directors of the Constituent Corporations, such
action would be in the best interests of such corporations. In the event of
termination of this Reincorporation Agreement, this Reincorporation
Agreement shall become void and of no effect and there shall be no
liability on the part of either Constituent Corporation or its Board of
Directors or shareholders with respect thereto.
IN WITNESS WHEREOF, this Reincorporation Agreement, having first been fully
approved by the Boards of Directors of Cool and Cool Delaware, is hereby
executed on behalf of each Constituent Corporation.
COOL ENTERTAINMENT, INC.
A Colorado corporation
By:
-------------------------------------
William Hadcock, President
E-TREND NETWORKS, INC.
A Delaware corporation
By:
-------------------------------------
William Hadcock, President
Agreement and Plan of Reincorporation and Merger - Page 3
<PAGE>
APPENDIX H
CERTIFICATE OF INCORPORATION OF COOL DELAWARE
<PAGE>
CERTIFICATE OF INCORPORATION
OF
E-TREND NETWORKS, INC.
ARTICLE I
NAME
The name of the Corporation is E-Trend Networks, Inc. (the "Corporation").
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The address of the registered office of the Corporation is National
Corporate Research, Ltd., 615 DuPont Highway, in the City of Dover, County of
Kent, State of Delaware 19901. The name of its registered agent at that address
is National Corporate Research, Ltd.
ARTICLE III
PURPOSE AND TERM
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware. The Corporation is to have perpetual existence.
ARTICLE IV
AUTHORIZED CAPITAL STOCK
(a) The total number of shares of stock which the Corporation shall
have authority to issue is 21,000,000 shares of capital stock, consisting of (i)
20,000,000 shares of common stock, par value $0.0001 per share (the "Common
Stock") and (ii) 1,000,000 shares of preferred stock, par value $0.0001 per
share (the "Preferred Stock").
(b) Common Stock. The powers, preferences and rights, and the
qualifications, limitations and restrictions, of each class of the Common Stock
are as follows:
(1) No Cumulative Voting. The holders of shares of Common Stock
shall not have cumulative voting rights.
Certificate of Incorporation
of
E-Trend Networks, Inc.
Page 1 of 5
<PAGE>
(2) Dividends; Stock Splits. Subject to the rights of the
holders of Preferred Stock, and subject to any other provisions of this
Certificate of Incorporation, as it may be amended from time to time, holders of
shares of Common Stock shall be entitled to receive such dividends and other
distributions in cash, stock or property of the Corporation when, as and if
declared thereon by the Board of Directors from time to time out of assets or
funds of the Corporation legally available therefor.
(3) Liquidation, Dissolution, Winding Up. In the event of any
liquidation, dissolution or winding up (either voluntary or involuntary) of the
Corporation, the holders of shares of Common Stock shall be entitled to receive
the assets and funds of the Corporation available for distribution after
payments to creditors and to the holders of any Preferred Stock of the
Corporation that may at the time be outstanding, in proportion to the number of
shares held by them, respectively.
(4) No Preemptive or Subscription Rights. No holder of shares of
Common Stock shall be entitled to preemptive or subscription rights.
(c) Preferred Stock. The Board of Directors is hereby expressly
authorized, subject to limitations prescribed by law, to provide for the
issuance of all or any shares of the Preferred Stock in one or more classes or
series, and to fix for each such class or series such voting powers, full or
limited, or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions adopted by the Board of Directors providing for the
issuance of such class or series.
ARTICLE V
BOARD OF DIRECTORS
(a) The business and affairs of the Corporation shall be managed by a
Board of Directors which shall exercise all the powers of the Corporation except
as otherwise provided in the Bylaws, this Certificate of Incorporation or by the
laws of the State of Delaware.
(b) The number of members of the Board of Directors shall be set in
accordance with the Corporation's Bylaws; however, the initial Board of
Directors shall consist of one member. The name and address of the person who
shall serve as the director until the first annual meeting of stockholders and
until his successor is duly elected and qualified are as follows:
Certificate of Incorporation
of
E-Trend Networks, Inc.
Page 2 of 5
<PAGE>
NAME ADDRESS
Leonard N. Voth 4422 Stone Crescent
West Vancouver, British Columbia
V7V 1B7 Canada
(c) Election of directors need not be by written ballot unless the
Bylaws so provide.
(d) Subject to the terms of any one or more classes or series of
Preferred Stock, any vacancy on the Board of Directors that results from an
increase in the number of directors may be filled by a majority of the Board of
Directors then in office, provided that a quorum is present, and any other
vacancy occurring on the Board of Directors may be filled by a majority of the
Board of Directors then in office, even if less than a quorum, or by a sole
remaining director. Any director of any class elected to fill a vacancy
resulting from an increase in the number of directors of such class shall hold
office for a term that shall coincide with the remaining term of that class. Any
director elected to fill a vacancy not resulting from an increase in the number
of directors shall have the same remaining term as that of his predecessor.
ARTICLE VI
LIMITATION OF LIABILITY
No director shall be personally liable to the Corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent such exemption from liability or limitation thereof is not
permitted under the General Corporation Law of the State of Delaware as the same
exists or may hereafter be amended. If the General Corporation Law of the State
of Delaware is amended hereafter to authorize the further elimination or
limitation of the liability of directors, then the liability of a director of
the Corporation shall be eliminated or limited to the fullest extent authorized
by the General Corporation Law of the State of Delaware, as so amended. Any
repeal or modification of this Article VI by the stockholders of the Corporation
shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification with respect to
acts or omissions occurring prior to such repeal or modification.
ARTICLE VII
INDEMNIFICATION
Certificate of Incorporation
of
E-Trend Networks, Inc.
Page 3 of 5
<PAGE>
The Corporation shall indemnify its directors and officers to the
fullest extent authorized or permitted by law, as now or hereafter in effect,
and such right to indemnification shall continue as to a person who has ceased
to be a director or officer of the Corporation and shall inure to the benefit of
his or her heirs, executors and personal and legal representatives; provided,
however, that, except for proceedings to enforce rights to indemnification, the
Corporation shall not be obligated to indemnify any director or officer (or his
or her heirs, executors or personal or legal representatives) in connection with
a proceeding (or part thereof) initiated by such person unless such proceeding
(or part thereof) was authorized or consented to by the Board of Directors. The
right to indemnification conferred by this Article VII shall include the right
to be paid by the Corporation the expenses incurred in defending or otherwise
participating in any proceeding in advance of its final disposition.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, provide rights to indemnification and to the advancement of
expenses to employees and agents of the Corporation similar to those conferred
in this Article VII to directors and officers of the Corporation.
The rights to indemnification and to the advance of expenses conferred
in this Article VII shall not be exclusive of any other right which any person
may have or hereafter acquire under this Certificate of Incorporation, the
Bylaws of the Corporation, any statute, agreement, vote of stockholders or
disinterested directors or otherwise.
Any repeal or modification of this Article VII by the stockholders of
the Corporation shall not adversely affect any rights to indemnification and to
the advancement of expenses of a director or officer of the Corporation existing
at the time of such repeal or modification with respect to any acts or omissions
occurring prior to such repeal or modification.
ARTICLE VIII
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred upon it by
the laws of the State of Delaware, the Board of Directors shall have the power
to adopt, amend, alter or repeal the Corporation's Bylaws. The affirmative vote
of at least a majority of the entire Board of Directors shall be required to
adopt, amend, alter or repeal the Corporation's Bylaws.
Certificate of Incorporation
of
E-Trend Networks, Inc.
Page 4 of 5
<PAGE>
ARTICLE IX
INCORPORATOR
The name and address of the incorporator is Fay M. Matsukage, Esq., c/o
Dill Dill Carr Stonbraker & Hutchings, P.C., 455 Sherman Street, Suite 300,
Denver, Colorado 80203.
I, The Undersigned, for the purpose of forming a corporation under the
laws of the State of Delaware, do make, file and record this Certificate, and do
certify that the facts stated herein are true, and I have accordingly hereunto
set my hand this 27th day of November, A.D. 2000.
/S/ FAY M. MATSUKAGE
------------------------------
Fay M. Matsuakge, Esq.
Incorporator
Certificate of Incorporation
of
E-Trend Networks, Inc.
Page 5 of 5
<PAGE>
APPENDIX I
BYLAWS OF COOL DELAWARE
<PAGE>
BYLAWS
OF
E-TREND NETWORKS, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLE I......................................................................1
CORPORATE OFFICES...........................................................1
1.1 REGISTERED OFFICE...................................................1
1.2 OTHER OFFICES.......................................................1
ARTICLE II.....................................................................1
MEETINGS OF STOCKHOLDERS....................................................1
2.1 PLACE OF MEETINGS...................................................1
2.2 ANNUAL MEETING......................................................1
2.3 SPECIAL MEETING.....................................................2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS....................................2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE........................2
2.6 QUORUM..............................................................2
2.7 ADJOURNED MEETING; NOTICE...........................................3
2.8 VOTING..............................................................3
2.9 WAIVER OF NOTICE....................................................3
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.............4
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.........4
2.12 PROXIES.............................................................5
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE...............................5
ARTICLE III....................................................................6
DIRECTORS...................................................................6
3.1 POWERS..............................................................6
3.2 NUMBER OF DIRECTORS.................................................6
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.............6
3.4 RESIGNATION AND VACANCIES...........................................6
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE............................7
3.6 FIRST MEETINGS......................................................7
3.7 REGULAR MEETINGS....................................................8
3.8 SPECIAL MEETINGS; NOTICE............................................8
3.9 QUORUM..............................................................8
3.10 WAIVER OF NOTICE....................................................9
3.11 ADJOURNED MEETING; NOTICE...........................................9
3.12 ACTION BY WRITTEN CONSENT WITHOUT A MEETING.........................9
3.13 FEES AND COMPENSATION OF DIRECTORS..................................9
3.14 APPROVAL OF LOANS TO OFFICERS.......................................9
3.15 REMOVAL OF DIRECTORS...............................................10
ARTICLE IV....................................................................10
COMMITTEES.................................................................10
4.1 COMMITTEES OF DIRECTORS............................................10
4.2 COMMITTEE MINUTES..................................................11
4.3 MEETINGS AND ACTION OF COMMITTEES..................................11
ARTICLE V.....................................................................11
OFFICERS...................................................................11
5.1 OFFICERS...........................................................11
5.2 ELECTION OF OFFICERS...............................................11
5.3 SUBORDINATE OFFICERS...............................................12
5.4 REMOVAL AND RESIGNATION OF OFFICERS................................12
5.5 VACANCIES IN OFFICES...............................................12
5.6 CHAIRMAN OF THE BOARD..............................................12
5.7 PRESIDENT..........................................................12
5.8 VICE PRESIDENT.....................................................13
5.9 SECRETARY..........................................................13
5.10 TREASURER..........................................................13
<PAGE>
5.11 ASSISTANT SECRETARY................................................14
5.12 ASSISTANT TREASURER................................................16
5.13 AUTHORITY AND DUTIES OF OFFICERS...................................14
ARTICLE VI....................................................................14
INDEMNITY..................................................................14
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS..........................14
6.2 INDEMNIFICATION OF OTHERS..........................................15
6.3 INSURANCE..........................................................15
ARTICLE VII...................................................................15
RECORDS AND REPORTS........................................................15
7.1 MAINTENANCE AND INSPECTION OF RECORDS..............................15
7.2 INSPECTION BY DIRECTORS............................................16
7.3 ANNUAL STATEMENT TO STOCKHOLDERS...................................16
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.....................16
ARTICLE VIII..................................................................17
GENERAL MATTERS............................................................17
8.1 CHECKS.............................................................17
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS...................17
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.............................17
8.4 SPECIAL DESIGNATION ON CERTIFICATES................................18
8.5 LOST CERTIFICATES..................................................18
8.6 CONSTRUCTION; DEFINITIONS..........................................18
8.7 DIVIDENDS..........................................................19
8.8 FISCAL YEAR........................................................19
8.9 SEAL...............................................................19
8.10 TRANSFER OF STOCK..................................................19
8.11 STOCK TRANSFER AGREEMENTS..........................................19
8.12 REGISTERED STOCKHOLDERS............................................20
ARTICLE IX....................................................................20
AMENDMENTS.................................................................20
ARTICLE X.....................................................................20
DISSOLUTION................................................................20
ARTICLE XI....................................................................21
CUSTODIAN..................................................................21
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES........................21
11.2 DUTIES OF CUSTODIAN................................................21
<PAGE>
BYLAWS
OF
E-TREND NETWORKS, INC.
--------------------------------------------------------------
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the Corporation in the State of Delaware shall be
located at 9 East Loockerman Street, Suite 214, Dover, Delaware 19901, and the
name of its registered agent at that address is National Corporate Research,
Ltd.
1.2 OTHER OFFICES
The Board of Directors may at any time establish other offices at any place or
places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of Stockholders shall be held at any place, within or outside the State
of Delaware, and such time as designated by the Board of Directors. In the
absence of any such designation, Stockholders' meetings shall be held at the
registered office of the Corporation.
2.2 ANNUAL MEETING
The annual meeting of Stockholders shall be held each year on a date and at a
time designated by the Board of Directors. In the absence of such designation,
the annual meeting of Stockholders shall be held on the first Tuesday of May in
each year at the Corporation's principal business office. However, if such day
falls on a legal holiday, then the meeting shall be held at the same time and
place on the next succeeding full business day. At the annual meeting, Directors
shall be elected and any other business may be transacted, whether stated in the
notice of meeting or not, except as otherwise expressly provided by statute or
the Certificate of Incorporation.
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2.3 SPECIAL MEETING
A special meeting of the Stockholders may be called at any time by the Board of
Directors, or by the Chairman of the Board, or by the President, or by one or
more Stockholders holding shares in the aggregate entitled to cast not less than
a majority of the votes at that meeting.
If a special meeting is called by any person or persons other than the Board of
Directors or the President or the Chairman of the Board, then the request shall
be in writing, specifying the time of such meeting and the general nature of the
business proposed to be transacted, and shall be delivered personally or sent by
registered mail or by telegraphic or other facsimile transmission to the
Chairman of the Board, the President, any Vice President or the Secretary of the
Corporation. The Officer receiving the request shall cause notice to be promptly
given to the Stockholders entitled to vote, in accordance with the provisions of
Sections 2.4 and 2.5 of these Bylaws, that a meeting will be held at the time
requested by the person or persons calling the meeting, so long as that time is
not less than thirty-five (35) nor more than sixty (60) days after the receipt
of the request. If the notice is not given within twenty (20) days after receipt
of the request, then the person or persons requesting the meeting may give the
notice. Nothing contained in this paragraph of this Section 2.3 shall be
construed as limiting, fixing or affecting the time when a meeting of
Stockholders called by action of the Board of Directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of Stockholders' meetings shall be in writing and shall be sent or
otherwise given in accordance with Section 2.5 of these Bylaws not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
Stockholder entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of Stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
Stockholder at his address as it appears on the records of the Corporation. An
affidavit of the Secretary or an assistant Secretary or of the transfer agent of
the Corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 QUORUM
The holders of a one-third of the stock issued and outstanding and entitled to
vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the Stockholders for the transaction of business,
except as otherwise provided by statute or by the Certificate of Incorporation.
If, however, such quorum is not present or represented at any meeting of the
Stockholders, then the Stockholders entitled to vote thereat, present in person
or
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represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these Bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each Stockholder of record entitled to vote at the meeting.
2.8 VOTING
The Stockholders entitled to vote at any meeting of Stockholders shall be
determined in accordance with the provisions of Section 2.11 of these Bylaws,
subject to the provisions of Sections 217 and 218 of the Delaware General
Corporation Law (relating to voting rights of fiduciaries, pledgors and joint
owners of stock and to voting trusts and other voting agreements).At all
meetings of Stockholders all matters, except as otherwise provided by statute,
shall be determined by the affirmative vote of the majority of shares present in
person or by proxy and entitled to vote on the subject matter. Voting at
meetings of Stockholders need not be by written ballot.
2.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the Delaware
General Corporation Law or of the Certificate of Incorporation or these Bylaws,
a written waiver thereof, signed by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Stockholders need be specified in any written waiver of notice unless so
required by the Certificate of Incorporation or these Bylaws.
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2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken at any annual or special meeting of
Stockholders may be taken without a meeting, without prior notice and without
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation by delivery to its registered office
in the State of Delaware, its principal place of business, or an Officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of Stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those Stockholders who have not
consented in writing. If the action which is consented to is such as would have
required the filing of a certificate under any section of the Delaware General
Corporation Law if such action had been voted on by Stockholders at a meeting
thereof, then the certificate filed under such section shall state, in lieu of
any statement required by such section concerning any vote of Stockholders, that
written notice and written consent have been given as provided in Section 228 of
the Delaware General Corporation Law.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the Corporation may determine the Stockholders entitled to notice
of or to vote at any meeting of Stockholders or any adjournment thereof, or
entitled to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the Board of Directors does not so fix a record date:
(i) The record date for determining Stockholders entitled to notice
of or to vote at a meeting of Stockholders shall be at the close
of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held.
(ii) The record date for determining Stockholders entitled to express
consent to corporate action in writing without a meeting, when
no prior action by the Board
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of Directors is necessary, shall be the day on which the first
written consent is expressed.
(iii) The record date for determining Stockholders for any other
purpose shall be at the close of business on the day on which
the Board of Directors adopts the resolution relating thereto.
A determination of Stockholders of record entitled to notice of or to vote at a
meeting of Stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
2.12 PROXIES
Each Stockholder entitled to vote at a meeting of Stockholders or to express
consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the Stockholder and filed with the Secretary of the Corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
Stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the Stockholder or the
Stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(e) of the Delaware General Corporation Law.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The Officer who has charge of the stock ledger of a Corporation shall prepare
and make, at least ten (10) days before every meeting of Stockholders, a
complete list of the Stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each Stockholder and the number
of shares registered in the name of each Stockholder. Such list shall be open to
the examination of any Stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any Stockholder who is present.
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ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the Delaware General Corporation Law and any
limitations in the Certificate of Incorporation or these Bylaws relating to
action required to be approved by the Stockholders or by the outstanding shares,
the business and affairs of the Corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the Board of Directors.
3.2 NUMBER OF DIRECTORS
The Board of Directors shall consist initially of one (1) Director, and
thereafter shall consist of such number as may be fixed from time to time by
resolution of the Board.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these Bylaws, Directors shall be elected at
each annual meeting of Stockholders to hold office until the next annual
meeting. Directors need not be Stockholders unless so required by the
Certificate of Incorporation or these Bylaws, wherein other qualifications for
Directors may be prescribed. Each Director, including a Director elected to fill
a vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
Elections of Directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any Director may resign at any time upon written notice to the Corporation. When
one or more Directors so resigns and the resignation is effective at a future
date, a majority of the Directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office as provided in this section in the
filling of other vacancies.
Unless otherwise provided in the Certificate of Incorporation or these Bylaws:
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(i) Vacancies and newly created Directorships resulting from any
increase in the authorized number of Directors may be filled by
a majority of the Directors then in office, although less than a
quorum, or by a sole remaining Director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more Directors by the
provisions of the Certificate of Incorporation, vacancies and
newly created Directorships of such class or classes or series
may be filled by a majority of the Directors elected by such
class or classes or series thereof then in office, or by a sole
remaining Director so elected.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no Directors in office, then any Officer or any
Stockholder or an executor, administrator, trustee or guardian of a Stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a Stockholder, may call a special meeting of Stockholders in accordance with
the provisions of the Certificate of Incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the Delaware General Corporation Law.
If, at the time of filling any vacancy or any newly created Directorship, the
Directors then in office constitute less than a majority of the whole Board (as
constituted immediately prior to any such increase), then the Court of Chancery
may, upon application of any Stockholder or Stockholders holding at least ten
(10) percent of the total number of the shares at the time outstanding having
the right to vote for such Directors, summarily order an election to be held to
fill any such vacancies or newly created Directorships, or to replace the
Directors chosen by the Directors then in office as aforesaid, which election
shall be governed by the provisions of Section 211 of the Delaware General
Corporation Law as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The Board of Directors of the Corporation may hold meetings, both regular and
special, either within or outside the State of Delaware.
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws,
members of the Board of Directors, or any Committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or any
Committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting.
3.6 FIRST MEETINGS
The first meeting of each newly elected Board of Directors shall be held at such
time and place as shall be fixed by the vote of the Stockholders at the annual
meeting and no notice of such meeting shall be necessary to the newly elected
Directors in order legally to constitute the
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meeting, provided a quorum shall be present. In the event of the failure of the
Stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the Stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the Directors.
3.7 REGULAR MEETINGS
Regular meetings of the Board of Directors may be held without notice at such
time and at such place as shall from time to time be determined by the Board.
3.8 SPECIAL MEETINGS; NOTICE
Special meetings of the Board of Directors for any purpose or purposes may be
called at any time by the Chairman of the Board, the President, any Vice
President, the Secretary or any two (2) Directors.
Notice of the time and place of special meetings shall be delivered personally
or by telephone to each Director or sent by first-class mail or telegram,
charges prepaid, addressed to each Director at that Director's address as it is
shown on the records of the Corporation. If the notice is mailed, it shall be
deposited in the United States mail at least four (4) days before the time of
the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the Director or to a person at the office of the Director
who the person giving the notice has reason to believe will promptly communicate
it to the Director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
Corporation.
3.9 QUORUM
At all meetings of the Board of Directors, a majority of the authorized number
of Directors shall constitute a quorum for the transaction of business and the
act of a majority of the Directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the Certificate of Incorporation. If a
quorum is not present at any meeting of the Board of Directors, then the
Directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
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3.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the Delaware
General Corporation Law or of the Certificate of Incorporation or these Bylaws,
a written waiver thereof, signed by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Directors, or members of a Committee of Directors, need be specified in any
written waiver of notice unless so required by the Certificate of Incorporation
or these Bylaws.
3.11 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the Board of Directors, then the
Directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
3.12 ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws,
any action required or permitted to be taken at any meeting of the Board of
Directors, or of any Committee thereof, may be taken without a meeting if all
members of the Board or Committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or Committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws,
the Board of Directors shall have the authority to fix the compensation of
Directors.
3.14 APPROVAL OF LOANS TO OFFICERS
The Corporation may lend money to, or guarantee any obligation of, or otherwise
assist any Officer or other employee of the Corporation or of its subsidiary,
including any Officer or employee who is a Director of the Corporation or its
subsidiary, whenever, in the judgment of the Directors, such loan, guaranty or
assistance may reasonably be expected to benefit the Corporation. The loan,
guaranty or other assistance may be with or without interest and may be
unsecured, or secured in such manner as the Board of Directors shall approve,
including, without limitation, a pledge of shares of stock of the Corporation.
Nothing in this section contained shall
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be deemed to deny, limit or restrict the powers of guaranty or warranty of the
Corporation at common law or under any statute.
3.15 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the Certificate of Incorporation or
by these Bylaws, any Director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of Directors.
No reduction of the authorized number of Directors shall have the effect of
removing any Director prior to the expiration of such Director's term of office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The Board of Directors may, by resolution passed by a majority of the whole
Board, designate one or more Committees, with each Committee to consist of one
or more of the Directors of the Corporation. The Board may designate one or more
Directors as alternate members of any Committee, who may replace any absent or
disqualified member at any meeting of the Committee. In the absence or
disqualification of a member of a Committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any such Committee, to the extent provided in the resolution of the
Board of Directors or in the Bylaws of the Corporation, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers that may require it; but no
such Committee shall have the power or authority to (i) amend the Certificate of
Incorporation (except that a Committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the Board of Directors as provided in Section 151(a) of the Delaware General
Corporation Law, fix any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation), (ii) adopt an agreement of merger or
consolidation under Sections 251 or 252 of the Delaware General Corporation Law,
(iii) recommend to the Stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, (iv) recommend to
the Stockholders a dissolution of the Corporation or a revocation of a
dissolution, or (v) amend the Bylaws of the Corporation; and, unless the Board
resolution establishing the Committee, the Bylaws or the Certificate of
Incorporation expressly so provide, no such Committee shall have the power or
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authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the Delaware
General Corporation Law.
4.2 COMMITTEE MINUTES
Each Committee shall keep regular minutes of its meetings and report the same to
the Board of Directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of Committees shall be governed by, and held and taken in
accordance with, the provisions of Article III of these Bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.7 (regular meetings),
Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10
(waiver of notice), Section 3.11 (adjournment and notice of adjournment), and
Section 3.12 (action without a meeting), with such changes in the context of
those Bylaws as are necessary to substitute the Committee and its members for
the Board of Directors and its members; provided, however, that the time of
regular meetings of Committees may also be called by resolution of the Board of
Directors and that notice of special meetings of Committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
Committee. The Board of Directors may adopt rules for the government of any
Committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The Officers of the Corporation shall be a President and a Secretary. The
Corporation may also have, at the discretion of the Board of Directors, a
Chairman of the Board, one or more Vice Presidents, one or more assistant Vice
Presidents, assistant secretaries, a Treasurer, assistant Treasurers, and any
such other Officers as may be appointed in accordance with the provisions of
Section 5.3 of these Bylaws. Any number of offices may be held by the same
person.
5.2 ELECTION OF OFFICERS
The Officers of the Corporation, except such Officers as may be appointed in
accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall be
chosen by the Board of Directors, subject to the rights, if any, of an Officer
under any contract of employment.
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5.3 SUBORDINATE OFFICERS
The Board of Directors may appoint, or empower the President to appoint, such
other Officers and agents as the business of the Corporation may require, each
of whom shall hold office for such period, have such authority, and perform such
duties as are provided in these Bylaws or as the Board of Directors may from
time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an Officer under any contract of employment,
any Officer may be removed, either with or without cause, by an affirmative vote
of the majority of the Board of Directors at any regular or special meeting of
the Board or, except in the case of an Officer chosen by the Board of Directors,
by any Officer upon whom such power of removal may be conferred by the Board of
Directors.
Any Officer may resign at any time by giving written notice to the Corporation.
Any resignation shall take effect at the date of the receipt of that notice or
at any later time specified in that notice; and, unless otherwise specified in
that notice, the acceptance of the resignation shall not be necessary to make it
effective. Any resignation is without prejudice to the rights, if any, of the
Corporation under any contract to which the Officer is a party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the Corporation shall be filled by the
Board of Directors.
5.6 CHAIRMAN OF THE BOARD
The Chairman of the Board, if such an Officer be elected, shall, if present,
preside at meetings of the Board of Directors and exercise and perform such
other powers and duties as may from time to time be assigned to him by the Board
of Directors or as may be prescribed by these Bylaws. If there is no President,
then the Chairman of the Board shall also be the chief executive Officer of the
Corporation and shall have the powers and duties prescribed in Section 5.7 of
these Bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the Board of
Directors to the Chairman of the Board, if there be such an Officer, the
President shall be the chief executive Officer of the Corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction, and control of the business and the Officers of the Corporation. He
shall preside at all meetings of the Stockholders and, in the absence or
nonexistence of a Chairman of the Board, at all meetings of the Board of
Directors. He shall have the general
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powers and duties of management usually vested in the office of President of a
Corporation and shall have such other powers and duties as may be prescribed by
the Board of Directors or these Bylaws.
5.8 VICE PRESIDENT
In the absence or disability of the President, the Vice Presidents, if any, in
order of their rank as fixed by the Board of Directors or, if not ranked, a Vice
President designated by the Board of Directors, shall perform all the duties of
the President and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the President. The Vice Presidents shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board of Directors, these Bylaws, the
President or the Chairman of the Board.
5.9 SECRETARY
The Secretary shall keep or cause to be kept, at the principal executive office
of the Corporation or such other place as the Board of Directors may direct, a
book of minutes of all meetings and actions of Directors, Committees of
Directors, and Stockholders. The minutes shall show the time and place of each
meeting, whether regular or special (and, if special, how authorized and the
notice given), the names of those present at Directors' meetings or Committee
meetings, the number of shares present or represented at Stockholders' meetings,
and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal executive office
of the Corporation or at the office of the Corporation's transfer agent or
registrar, as determined by resolution of the Board of Directors, a share
register, or a duplicate share register, showing the names of all Stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of the
Stockholders and of the Board of Directors required to be given by law or by
these Bylaws. He shall keep the seal of the Corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or by these Bylaws.
5.10 TREASURER
The Treasurer, if any, shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the properties
and business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any Director.
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The Treasurer, if any, shall deposit all money and other valuables in the name
and to the credit of the Corporation with such depositaries as may be designated
by the Board of Directors. He shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, shall render to the President and
Directors, whenever they request it, an account of all of his transactions as
Treasurer and of the financial condition of the Corporation, and shall have such
other powers and perform such other duties as may be prescribed by the Board of
Directors or these Bylaws.
5.11 ASSISTANT SECRETARY
The assistant Secretary, or, if there is more than one, the assistant
secretaries in the order determined by the Stockholders or Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the Secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the Secretary
and shall perform such other duties and have such other powers as the Board of
Directors or the Stockholders may from time to time prescribe.
5.12 ASSISTANT TREASURER
The assistant Treasurer, or, if there is more than one, the assistant
Treasurers, in the order determined by the Stockholders or Board of Directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the Treasurer or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the Treasurer
and shall perform such other duties and have such other powers as the Board of
Directors or the Stockholders may from time to time prescribe.
5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all Officers of the
Corporation shall respectively have such authority and perform such duties in
the management of the business of the Corporation as may be designated from time
to time by the Board of Directors or the Stockholders.
ARTICLE VI
INDEMNITY
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation shall, to the maximum extent and in the manner permitted by the
Delaware General Corporation Law, indemnify each of its Directors and Officers
against expenses (including attorneys' fees), judgments, fines, settlements, and
other amounts actually and reasonably incurred in connection with any
proceeding, arising by reason of the fact that such person is or was an agent of
the Corporation. For purposes of this Section 6.1, a "Director" or
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"Officer" of the Corporation includes any person (i) who is or was a Director or
Officer of the Corporation, (ii) who is or was serving at the request of the
Corporation as a Director or Officer of another Corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a Director or Officer of a
Corporation which was a predecessor Corporation of the Corporation or of another
enterprise at the request of such predecessor Corporation.
6.2 INDEMNIFICATION OF OTHERS
The Corporation shall have the power, to the extent and in the manner permitted
by the Delaware General Corporation Law, to indemnify each of its employees and
agents (other than Directors and Officers) against expenses (including
attorneys' fees), judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with any proceeding, arising by reason of the
fact that such person is or was an agent of the Corporation. For purposes of
this Section 6.2, an "employee" or "agent" of the Corporation (other than a
Director or Officer) includes any person (i) who is or was an employee or agent
of the Corporation, (ii) who is or was serving at the request of the Corporation
as an employee or agent of another Corporation, partnership, joint venture,
trust or other enterprise, or (iii) who was an employee or agent of a
Corporation which was a predecessor Corporation of the Corporation or of another
enterprise at the request of such predecessor Corporation.
6.3 INSURANCE
The Corporation may purchase and maintain insurance on behalf of any person who
is or was a Director, Officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a Director, Officer, employee
or agent of another Corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of the Delaware General Corporation Law.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The Corporation shall, either at its principal executive office or at such place
or places as designated by the Board of Directors, keep a record of its
Stockholders listing their names and addresses and the number and class of
shares held by each Stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
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Any Stockholder of record, in person or by attorney or other agent, shall, upon
written demand under oath stating the purpose thereof, have the right during the
usual hours for business to inspect for any proper purpose the Corporation's
stock ledger, a list of its Stockholders, and its other books and records and to
make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to such person's interest as a Stockholder. In every instance
where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the Stockholder. The demand under oath shall be directed to the
Corporation at its registered office in Delaware or at its principal place of
business.
The Officer who has charge of the stock ledger of a Corporation shall prepare
and make, at least ten (10) days before every meeting of Stockholders, a
complete list of the Stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each Stockholder and the number
of shares registered in the name of each Stockholder. Such list shall be open to
the examination of any Stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any Stockholder who is present.
7.2 INSPECTION BY DIRECTORS
Any Director shall have the right to examine the Corporation's stock ledger, a
list of its Stockholders, and its other books and records for a purpose
reasonably related to his position as a Director. The Court of Chancery is
hereby vested with the exclusive jurisdiction to determine whether a Director is
entitled to the inspection sought. The Court may summarily order the Corporation
to permit the Director to inspect any and all books and records, the stock
ledger, and the stock list and to make copies or extracts therefrom. The Court
may, in its discretion, prescribe any limitations or conditions with reference
to the inspection, or award such other and further relief as the Court may deem
just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The Board of Directors shall present at each annual meeting, and at any special
meeting of the Stockholders when called for by vote of the Stockholders, a full
and clear statement of the business and condition of the Corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The Chairman of the Board, the President, any Vice President, the Treasurer, the
Secretary or assistant Secretary of this Corporation, or any other person
authorized by the Board of Directors or the President or a Vice President, is
authorized to vote, represent, and exercise on behalf of
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this Corporation all rights incident to any and all shares of any other
Corporation or Corporations standing in the name of this Corporation. The
authority granted herein may be exercised either by such person directly or by
any other person authorized to do so by proxy or power of attorney duly executed
by such person having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the Board of Directors shall determine by resolution which
person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the Corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The Board of Directors, except as otherwise provided in these Bylaws, may
authorize any Officer or Officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an Officer, no Officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a Corporation shall be represented by certificates, provided that
the Board of Directors of the Corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
Corporation. Notwithstanding the adoption of such a resolution by the Board of
Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the Corporation by the chairman or vice-Chairman of
the Board of Directors, or the President or vice-President, and by the Treasurer
or an assistant Treasurer, or the Secretary or an assistant Secretary of such
Corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
Officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such Officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such Officer, transfer agent or
registrar at the date of issue.
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The Corporation may issue the whole or any part of its shares as partly paid and
subject to call for the remainder of the consideration to be paid therefor. Upon
the face or back of each stock certificate issued to represent any such partly
paid shares, upon the books and records of the Corporation in the case of
uncertificated partly paid shares, the total amount of the consideration to be
paid therefor and the amount paid thereon shall be stated. Upon the declaration
of any dividend on fully paid shares, the Corporation shall declare a dividend
upon partly paid shares of the same class, but only upon the basis of the
percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the Corporation is authorized to issue more than one class of stock or more
than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the Delaware General Corporation
Law, in lieu of the foregoing requirements there may be set forth on the face or
back of the certificate that the Corporation shall issue to represent such class
or series of stock a statement that the Corporation will furnish without charge
to each Stockholder who so requests the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares shall be
issued to replace a previously issued certificate unless the latter is
surrendered to the Corporation and cancelled at the same time. The Corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a Corporation and a natural
person.
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8.7 DIVIDENDS
The Directors of the Corporation, subject to any restrictions contained in the
Certificate of Incorporation, may declare and pay dividends upon the shares of
its capital stock pursuant to the Delaware General Corporation Law. Dividends
may be paid in cash, in property, or in shares of the Corporation's capital
stock.
The Directors of the Corporation may set apart out of any of the funds of the
Corporation available for dividends a reserve or reserves for any proper purpose
and may abolish any such reserve. Such purposes shall include but not be limited
to equalizing dividends, repairing or maintaining any property of the
Corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the Board of
Directors and may be changed by the Board of Directors.
8.9 SEAL
This Corporation may have a corporate seal, which may be adopted or altered at
the pleasure of the Board of Directors, and may use the same by causing it or a
facsimile thereof, to be impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the Corporation or the transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The Corporation shall have power to enter into and perform any agreement with
any number of Stockholders of any one or more classes of stock of the
Corporation to restrict the transfer of shares of stock of the Corporation of
any one or more classes owned by such Stockholders in any manner not prohibited
by the Delaware General Corporation Law.
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8.12 REGISTERED STOCKHOLDERS
The Corporation shall be entitled to recognize the exclusive right of a person
registered on its books as the owner of shares to receive dividends and to vote
as such owner, shall be entitled to hold liable for calls and assessments the
person registered on its books as the owner of shares, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of another person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Delaware.
ARTICLE IX
AMENDMENTS
The original or other Bylaws of the Corporation may be adopted, amended or
repealed by the Stockholders entitled to vote; provided, however, that the
Corporation may, in its Certificate of Incorporation, confer the power to adopt,
amend or repeal Bylaws upon the Directors. The fact that such power has been so
conferred upon the Directors shall not divest the Stockholders of the power, nor
limit their power to adopt, amend or repeal Bylaws.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the Board of Directors of
the Corporation that the Corporation should be dissolved, the Board, after the
adoption of a resolution to that effect by a majority of the whole Board at any
meeting called for that purpose, shall cause notice to be mailed to each
Stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of Stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed dissolution.
If a majority of the outstanding stock of the Corporation entitled to vote
thereon votes for the proposed dissolution, then a certificate stating that the
dissolution has been authorized in accordance with the provisions of Section 275
of the Delaware General Corporation Law and setting forth the names and
residences of the Directors and Officers shall be executed, acknowledged, and
filed and shall become effective in accordance with Section 103 of the Delaware
General Corporation Law. Upon such certificate's becoming effective in
accordance with Section 103 of the Delaware General Corporation Law, the
Corporation shall be dissolved.
Whenever all the Stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of Directors or Stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the Delaware
General Corporation Law. Upon such consent's becoming effective in accordance
with Section 103 of the Delaware General Corporation Law, the Corporation shall
be dissolved. If the consent is signed by an attorney, then the original power
of attorney or a photocopy thereof shall be attached to and filed with the
consent. The consent filed with the Secretary of State shall have attached to it
the affidavit of the Secretary or some other Officer of
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the Corporation stating that the consent has been signed by or on behalf of all
the Stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the Secretary or some other Officer
of the Corporation setting forth the names and residences of the Directors and
Officers of the Corporation.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any Stockholder, may appoint one or
more persons to be custodians and, if the Corporation is insolvent, to be
receivers, of and for the Corporation when:
(i) at any meeting held for the election of Directors the
Stockholders are so divided that they have failed to elect
successors to Directors whose terms have expired or would have
expired upon qualification of their successors; or
(ii) the business of the Corporation is suffering or is threatened
with irreparable injury because the Directors are so divided
respecting the management of the affairs of the Corporation
that the required vote for action by the Board of Directors
cannot be obtained and the Stockholders are unable to
terminate this division; or
(iii) the Corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate
or distribute its assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver appointed under
Section 291 of the Delaware General Corporation Law, but the authority of the
custodian shall be to continue the business of the Corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the Delaware General Corporation Law.
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APPENDIX J
2001 STOCK PLAN
<PAGE>
E-TREND NETWORKS, INC.
2001 STOCK PLAN
SECTION 1. PURPOSE
The purposes of this 2001 Stock Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to certain individuals providing services to the Company
and its Subsidiaries, and to promote the success of the Company's business and
thereby enhance long-term shareholder value. Options granted under the Plan may
be incentive stock options (as defined under Section 422 of the Code) or
nonqualified stock options, as determined by the Administrator at the time of
grant of an option and subject to the applicable provisions of the Code, and the
regulations promulgated thereunder. Awards of Restricted Stock may also be made
under this Plan.
SECTION 2. DEFINITIONS
As used herein, the following definitions shall apply:
2.1 "ADMINISTRATOR" means the Board or any of its Committees appointed
as permitted under this Plan.
2.2 "APPLICABLE LAWS" means the legal requirements relating to stock
option plans, if any, pursuant to U.S. state corporate laws, U.S. federal and
state securities laws, the Code and the rules of any applicable Stock Exchange.
2.3 "AWARD" means the grant of Restricted Stock or an Option to an
Employee or Consultant.
2.4 "AWARD AGREEMENT" means a written agreement between the Company and
a Participant relating to an Award under the Plan.
2.5 "BOARD" means the Board of Directors of the Company.
2.6 "CAUSE" means willful misconduct with respect to, or that is
harmful to, the Company or any of its affiliates including, without limitation,
dishonesty, fraud, unauthorized use or disclosure of confidential information or
trade secrets or other misconduct (including, without limitation, conviction for
a felony), in each case as reasonably determined by the Administrator.
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2.7 "CHANGE IN CONTROL" shall mean any of the following:
(a) the acquisition of securities of the Company representing
more than 50% of the combined voting power of the Company's then
outstanding securities by any person or group of persons, except a
Permitted Shareholder (as defined below), acting in concert. A
"Permitted Shareholder" means a holder, as of the date of this
Agreement, of voting capital stock of the Company;
(b) a consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant to
which shares of the Company's outstanding capital stock are converted
into cash, securities or other property, other than a consolidation or
merger of the Company in which the Company's shareholders immediately
prior to the consolidation or merger have the same proportionate
ownership of voting capital stock of the surviving corporation
immediately after the consolidation or merger;
(c) the sale, transfer or other disposition of all or
substantially all of the assets of the Company; or
(d) in the event that the shares of voting capital stock of the
Company are traded on an established securities market: a public
announcement that any person has acquired or has the right to acquire
beneficial ownership of securities of the Company representing more
than 50% of the combined voting power of the Company's then outstanding
securities, and for this purpose the terms "person" and "beneficial
ownership" shall have the meanings provided in Section 13(d) of the
Exchange Act or related rules promulgated by the Securities and
Exchange Commission; or the commencement of or public announcement of
an intention to make a tender offer or exchange offer for securities of
the Company representing more than 50% of the combined voting power of
the Company's then outstanding securities.
2.8 "CODE" means the Internal Revenue Code of 1986, as amended.
2.9 "COMMITTEE" means a committee of Directors designated by the Board to
administer the Plan. To the extent Rule 16b-3 and/or Code Section 162(m) apply
to the Company, the Committee shall be comprised of not less than such number of
Directors as shall be required to permit Awards granted under the Plan to
qualify under Rule 16b-3, and each member of the Committee shall be an "outside
director" within the meaning of Section 162(m) of the Code. The Company expects
to have the Plan administered in accordance with the requirements for the award
of "qualified performance-based compensation" within the meaning of Section
162(m) of the Code.
2.10 "COMMON STOCK" means the Common Stock of the Company.
2.11 "COMPANY" means E-TREND NETWORKS, INC., a DELAWARE corporation.
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2.12 "CONSULTANT" means any person, including an advisor or director, who is
engaged by the Company or any Parent or Subsidiary to render services.
2.13 "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means the absence
of any interruption or termination of service as an Employee or Consultant.
Continuous Status as an Employee or Consultant shall not be considered
interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any other
leave of absence approved by the Administrator, provided that such leave is for
a period of not more than ninety (90) days, unless re-employment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or (iv)
transfers between locations of the Company or between the Company, its
Subsidiaries or their respective successors. For purposes of this Plan, a change
in status from an Employee to a Consultant or from a Consultant to an Employee
will not constitute an interruption of Continuous Status as an Employee or
Consultant.
2.14 "DISABILITY" means permanent and total disability as defined in
Code section 22(e)(3).
2.15 "EMPLOYEE" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company, with the
status of employment determined based upon such minimum number of hours or
periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment of a director's fee by the
Company to a director shall not be sufficient to constitute "employment" of such
director by the Company.
2.16 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
2.17 "FAIR MARKET VALUE" means, as of any date, the fair market value
of Common Stock determined as follows:
(a) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation System ("Nasdaq"), its Fair Market Value shall be
the closing sales price for such stock (or the closing bid, if no sales
were reported), as quoted on such system or exchange, or the exchange
with the greatest volume of trading in Common Stock for the last market
trading day prior to the time of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems
reliable;
(b) If the Common Stock is quoted on the Nasdaq (but not
on the National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean between the high bid and low asked prices for
the Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable; or
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(c) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Administrator.
2.18 "GOOD REASON" means the occurrence of any of the following events
or conditions without the Participant's consent:
(a) a change in the Participant's status, title, position
or responsibilities (including reporting responsibilities) that, in the
Participant's reasonable judgment, represents a substantial reduction
in the status, title, position or responsibilities as in effect
immediately prior thereto;
(b) a significant reduction in the Participant's annual
base salary that is not part of a Company-wide reduction of salaries;
(c) the Company's requiring the Participant to be based
at any place outside a 50-mile radius of his or her place of employment
prior to a Change in Control, except for reasonably required travel on
the Company's business that is not materially greater than such travel
requirements prior to the Change in Control; or
(d) [the Company's failure to (i) continue in effect any
material compensation or benefit plan (or the substantial equivalent
thereof) in which the Participant was participating at the time of a
Change in Control, including, but not limited to, the Plan, or (ii)
provide the Participant with compensation and benefits at least equal
(in terms of benefit levels and/or reward opportunities) to those
provided for under each employee benefit plan, program and practice as
in effect immediately prior to the Change in Control (or as in effect
following the Change in Control, if greater).]
2.19 "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable Option Agreement.
2.20 "NONQUALIFIED STOCK OPTION" means an Option not intended to qualify as an
Incentive Stock Option, as designated in the applicable Option Agreement.
2.21 "OPTION" means a stock option granted pursuant to the Plan.
2.22 "OPTION AGREEMENT" means a written option agreement between the Company
and an Optionee.
2.23 "OPTIONED STOCK" means the Common Stock subject to an Option.
2.24 "OPTIONEE" means an Employee or Consultant who receives an Option.
2.25 "PARENT" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code, or any successor provision.
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2.26 "PARTICIPANT" means an Employee or Consultant designated to be
granted an Award under the Plan.
2.27 "PLAN" means this 2001 Stock Plan.
2.28 "REPORTING PERSON" means an officer, director, or greater than ten
percent (10%) shareholder of the Company within the meaning of Rule 16a-2 under
the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under
the Exchange Act.
2.29 "RESTRICTED STOCK" means Common Stock awarded to a Participant
under this Plan, subject to applicable restrictions.
2.30 "RESTRICTED STOCK AGREEMENT" means a written restricted stock
agreement between the Company and the Restricted Stock Holder.
2.31 "RESTRICTED STOCK AWARD" means the grant of Restricted Stock
pursuant to the Plan.
2.32 "RESTRICTED STOCK HOLDER" means a Participant who receives
Restricted Stock pursuant to the Plan.
2.33 "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act, as
the same may be amended from time to time, or any successor provision.
2.34 "SECURITIES ACT" means the Securities Act of 1933, as amended.
2.35 "SHARE" means a share of the Common Stock, as may be adjusted as
permitted under the Plan.
2.36 "STOCK EXCHANGE" means any stock exchange or consolidated stock
price reporting system on which prices for the Common Stock are quoted at any
given time.
2.37 "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
SECTION 3. STOCK SUBJECT TO THE PLAN
Subject to the provisions for adjustment under the terms of this Plan,
the maximum aggregate number of shares that may be optioned and sold under the
Plan is Four Million (4,000,000) shares of Common Stock. The shares may be
authorized, but unissued, or reacquired Common Stock. If an Award should expire
or become unexercisable for any reason without having been exercised in full,
the unpurchased Shares that were subject thereto shall, unless the Plan shall
have been terminated, become available for future grant under the Plan. In
addition, any shares of Common Stock which are retained by the Company upon
exercise of an Award in order to satisfy the exercise price for such Award or
any withholding taxes due with respect to
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such exercise shall be treated as not issued and shall continue to be available
under the Plan. Shares repurchased by the Company pursuant to any repurchase
right which the Company may have shall not be available for future grant under
the Plan. Notwithstanding the foregoing, the number of Shares available for
granting Incentive Stock Options under the Plan shall not exceed Four Million
(4,000,000), subject to adjustment as provided in the Plan and subject to the
provisions of Section 422 or 424 of the Code or any successor provision.
SECTION 4. ADMINISTRATION OF THE PLAN
4.1 POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan and, in
the case of a Committee, the specific duties delegated by the Board to such
Committee, and subject to the approval of any relevant authorities, including
the approval, if required, of any Stock Exchange, the Administrator shall have
the authority, in its discretion:
(a) to determine the Fair Market Value of the Common Stock,
in accordance with the provisions of the Plan;
(b) to select the Consultants and Employees to whom Awards may
from time to time be granted hereunder;
(c) to determine whether and to what extent Awards are granted
hereunder;
(d) to determine the number of shares of Common Stock to be
covered by each such Award granted hereunder;
(e) to approve forms of agreement for use under the Plan;
(f) to determine the number of shares of Restricted Stock to be
granted hereunder;
(g) to construe and interpret the terms of the Plan and Awards
granted under the Plan;
(h) to determine vesting schedules;
(i) to determine whether and under what circumstances an Award
may be settled in Common Stock or other consideration instead of cash;
and
(j) to make any other determination and take any other action
that the Administrator deems necessary or desirable for the
administration of the Plan.
4.2 EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations and
interpretations of the Administrator shall be final and binding on all
Participants.
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4.3 ADMINISTRATION PURSUANT TO SECTION 162(M). The Company expects to
have the Plan administered in accordance with the requirements for the award of
"qualified performance-based compensation" within the meaning of Section 162(m)
of the Code, as applicable.
SECTION 5. ELIGIBILITY FOR AWARDS
5.1 RECIPIENTS OF GRANTS. Restricted Stock and Nonqualified Stock
Options may be granted to Employees and Consultants. Incentive Stock Options may
be granted only to Employees. An Employee or Consultant who has been granted an
Award may, if he or she is otherwise eligible, be granted additional Awards.
5.2 TYPE OF AWARD. Each Award shall be designated in the Award Agreement as
either an Incentive Stock Option or a Nonqualified Stock Option, or as
Restricted Stock. If not so designated, the Award will be treated as a
Nonqualified Stock Option. Notwithstanding any such designations, to the extent
that the aggregate Fair Market Value of the Shares with respect to which Options
designated as Incentive Stock Options are exercisable for the first time by any
Optionee during any calendar year (under all plans of the Company or any Parent
or Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonqualified Stock Options. For purposes of this requirement, Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares subject to an Incentive Stock Option shall
be determined as of the date of the grant of such Option.
SECTION 6. AWARDS OF OPTIONS
6.1 TERM OF OPTION. The term of each Option shall be the term stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement. However, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
6.2 OPTION EXERCISE PRICE. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be such price as is determined
by the Administrator, except that (i) in the case of an Incentive Stock Option
that is granted to an Employee who, at the time of the grant of such Incentive
Stock Option, owns stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than one hundred ten
percent (110%) of the Fair Market Value per Share on the date of grant, and (ii)
in the case of an Incentive Stock Option
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that is granted to any other Employee, the per Share exercise price shall be no
less than one hundred percent (100%) of the Fair Market Value per Share on the
date of grant.
6.3 CONSIDERATION. The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (i) cash or check,
(ii) cancellation of indebtedness of the Company to Optionee, (iii) promissory
note (subject to approval by the Company), (iv) surrender of other Shares that
(A) have been owned by Optionee for more than six months on the date of
surrender or such other period as may be required to avoid a charge to the
Company's earnings, and (B) have a Fair Market Value on the date of surrender
equal to the aggregate exercise price of Shares to be purchased by Optionee as
to which such Option shall be exercised, (v) if there is a public market for the
Shares and they are registered under the Securities Act, delivery of a properly
executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, shall require to effect an exercise
of the Option and delivery to the Company of the sale or loan proceeds required
to pay the aggregate exercise price and any applicable income or employment
taxes, (vi) any combination of the foregoing methods of payment, or (vii) such
other consideration and method of payment for the issuance of Shares to the
extent permitted under Applicable Laws. In making its determination as to the
type of consideration to accept, the Administrator shall consider if acceptance
of such consideration may be reasonably expected to benefit the Company or
result in the recognition of compensation expense (or additional compensation
expense) for financial reporting purposes.
6.4 VESTING OF OPTIONS
(a) VESTING SCHEDULE. No Option will be exercisable until it has
vested. The Administrator will specify the vesting schedule for each
Option at the time of grant of the Option, prior to the provision of
services with respect to which such Option is granted; provided that if
no vesting schedule is specified at the time of grant, the Option shall
vest in full over the course of four years from date of grant as
follows: twenty five percent (25%) of the total number of Shares
granted under the Option shall vest after one (1) year of Continuous
Status as an Employee or Consultant; and the remaining seventy-five
percent (75%) of the Shares granted under the Option shall vest pro
rata monthly, on the same date of the month as the date of grant of the
option, over the following thirty-six (36) months of Continuous Status
as an Employee or Consultant. The Administrator may specify a vesting
schedule for all or any portion of an Option based on the achievement
of performance objectives with respect to the Company, a Parent or
Subsidiary, and/or Optionee, and as shall be permissible under the
terms of the Plan.
(b) ACCELERATION OF VESTING. The vesting of one or more
outstanding Options may be accelerated by the Administrator at such
times and in such amounts as it determines in its sole discretion. The
vesting of Options may also be accelerated in connection with a
corporate transaction, as described below.
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6.5 PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. An Option shall be
deemed to be exercised when written notice of such exercise has been given to
the Company in accordance with the terms of the Option by the person entitled to
exercise the Option and the Company has received full payment for the Shares
with respect to which the Option is exercised. An Option may not be exercised
for a fraction of a Share. Full payment may, as authorized by the Administrator,
consist of any consideration and method of payment as described above. Until the
issuance (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 9 of the Plan. Exercise of an Option in any manner shall result in a
decrease in the number of Shares that thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
6.6 EXERCISE AFTER TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP
(a) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. Except
as otherwise provided herein, in the event of termination of a
Participant's Continuous Status as an Employee or Consultant with the
Company, such Participant may exercise his or her Option to the extent
that Participant was entitled to exercise it at the date of such
termination, but only within three (3) months after the date of such
termination, or such other longer period of time as is determined by
the Administrator, provided that no Option which is exercised after
such three month period will be treated as an Incentive Stock Option,
and that in no event may an Option be exercised later than the
expiration date of the term of such Option as set forth in the Option
Agreement. To the extent that Participant was not entitled to exercise
the Option at the date of such termination, or if Participant does not
exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate. No termination shall be
deemed to occur and this paragraph shall not apply if (i) Participant
is a Consultant who becomes an Employee; or (ii) Participant is an
Employee who becomes a Consultant; or (iii) Participant transfers
employment among the company and its subsidiaries.
(b) DISABILITY OF PARTICIPANT. Notwithstanding the provisions
set forth above, in the event of termination of a Participant's
Continuous Status as an Employee or Consultant as a result of his or
her Disability, Participant may, but only within twelve (12) months
(or, with respect to a Nonqualified Stock Option, such other longer
period of time, if any, as is determined by the Administrator) after
the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement),
exercise the Option to the extent he or she is otherwise entitled to
exercise it at the date of such termination. To the extent that
Participant was not entitled to exercise the Option at the date of
termination, or if Participant does not exercise such
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Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(c) DEATH OF PARTICIPANT. In the event of the death of a
Participant during the period of Continuous Status as an Employee or
Consultant, or within thirty (30) days following the termination of
Participant's Continuous Status as an Employee or Consultant, the
Option may be exercised, at any time within twelve (12) months (or,
with respect to a Nonqualified Stock Option, such other longer period
of time, if any, as is determined by the Administrator) after the date
of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), by Participant's
estate or by a person who acquired the right to exercise the Option by
bequest or inheritance, but only to the extent Participant was entitled
to exercise the Option at the date of death or, if earlier, the date of
termination of the Continuous Status as an Employee or Consultant. To
the extent that Participant was not entitled to exercise the Option at
the date of death or termination, as the case may be, or if Participant
or the Participant's estate (or, as applicable, heirs, personal
representative, executor or administrator) does not exercise such
Option to the extent so entitled within the time specified herein, the
Option shall terminate.
6.7 RULE 16B-3. Options granted to Reporting Persons shall comply with Rule
16b-3 and shall contain such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption for Plan transactions.
6.8 BUYOUT PROVISIONS. The Administrator may at any time offer to buy out
for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to
Optionee at the time that such offer is made.
6.9 REPURCHASE RIGHTS. Prior to the Company's listing on a recognized Stock
Exchange, the Company may have the right, as detailed in the Award Agreement, to
repurchase any Shares issued in connection with an Award under this Plan upon
Participant's cessation of Continuous Status as an Employee or Consultant.
Furthermore, the Administrator shall have the discretion to authorize the
issuance of unvested Shares pursuant to the exercise of an Option. In the event
of termination of the Optionee's employment or services, all Shares issued upon
exercise of an Option which are unvested at the time of cessation of employment
or services shall be subject to repurchase at the exercise price paid for such
Shares. The terms and conditions upon which such repurchase right shall be
exercisable (including the period and procedure for exercise) shall be
established by the Administrator and set forth in the agreement evidencing such
right. All of the Company's outstanding repurchase rights under this Section are
assignable by the Company at any time and shall remain in full force and effect
in the event of a Change in Control; provided that if the vesting of Options is
accelerated as permitted under the Plan, the repurchase rights under this
Section shall terminate and all Shares subject to such terminated rights shall
immediately vest in full. The Administrator shall have the discretionary
authority, exercisable either before or after the Optionee's cessation of
employment or services, to cancel the Company's outstanding repurchase rights
with respect to one or more Shares purchased or
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purchasable by the Optionee under an Option and thereby accelerate the vesting
of such Shares in whole or in part at any time.
SECTION 7. RESTRICTED STOCK AWARDS
7.1 GRANT OF RESTRICTED STOCK AWARDS. Each Restricted Stock Award (i) shall
be for a number of Shares determined by the Administrator, and (ii) shall
require the Restricted Stock Holder to maintain Continuous Status as an Employee
or Consultant for a restricted period determined by the Administrator in order
for the restrictions related to such Shares to lapse. The restrictions and the
duration of the restricted period will be set forth in the Restricted Stock
Agreement. The restricted period need not be the same for all Shares subject to
the Restricted Stock Award. For vesting purposes, credit for service as an
Employee or Consultant prior to the actual grant of the Restricted Stock Award
may be given as part of the Restricted Stock Award.
7.2 CONSIDERATION FOR RESTRICTED STOCK AWARDS. Restricted Stock may be sold
or awarded under the Plan for such consideration as the Administrator may
determine, including (without limitation) cash, cash equivalents, full-recourse
promissory notes (subject to approval by the Plan Administrator), past services
and future services.
7.3 RIGHTS OF A RESTRICTED STOCK HOLDER. Except for such restrictions, and
subject to provisions under the Plan relating to adjustments to Awards,
conditions on issuance of shares, and termination of the Participant's
relationship with the Company, a Restricted Stock Holder shall have all the
rights of a shareholder, including but not limited to the right to receive all
cash dividends paid on such Restricted Stock and the right to vote such
Restricted Stock. Dividends paid in securities or other property or stock
received in connection with a stock split or other distribution with respect to
the Restricted Stock shall be subject to the same restrictions as the Restricted
Stock.
7.4 VESTING OF RESTRICTED STOCK. The restrictions imposed herein shall
lapse, and the Participant's rights in the Restricted Stock shall vest, in
accordance with the schedule provided in the Restricted Stock Agreement. If not
so specified in such Restricted Stock Agreement, the restrictions shall lapse
according to the following schedule: restrictions on 25% of the Shares shall
lapse after one year of Continuous Service as an Employee or Consultant; the
remaining 75% of Shares shall vest pro rata monthly on the last day of each
calendar month over the following 36 months of Continuous Service as an Employee
or Consultant. Upon the vesting of the Restricted Stock awarded under the Plan,
the Restricted Stock Holder shall be entitled to receive a certificate
representing the number of shares of Restricted Stock as to which restrictions
no longer apply, with the remaining shares of Restricted Stock subject to the
foregoing restrictions. The Restricted Stock Holder shall execute a new stock
power with respect to any remaining Shares which are restricted. The Restricted
Stock Holder shall be entitled to receive certificates for any Restricted Stock
as to which the Restricted Stock Holder's interest has become vested as provided
herein, and the Company shall issue the Restricted Stock Holder such
certificates.
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7.5 TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. If a Restricted
Stock Holder ceases to maintain his or her Continuous Status as an Employee or
Consultant for any reason (other than death or Disability), Restricted Stock
theretofore awarded to such Restricted Stock Holder and which at the time of
such termination of his or her Continuous Status as an Employee or Consultant is
subject to the restrictions imposed by this Section shall, upon such termination
of his or her Continuous Status as an Employee or Consultant, be forfeited and
returned to the Company and the Restricted Stock Holder shall have no further
claim to or interest in such Restricted Stock. If a Restricted Stock Holder
ceases to maintain his or her Continuous Status as an Employee or Consultant by
reason of death or Disability, such Restricted Stock awarded to such Restricted
Stock Holder which, at the time of such termination of his or her Continuous
Status as an Employee or Consultant, is subject to the restrictions imposed by
this Section, shall be free of restrictions and shall not be forfeited.
7.6 ISSUANCE OF RESTRICTED STOCK. The Administrator shall request of the
Company that each certificate in respect of Restricted Stock awarded under the
Plan be registered in the name of the Restricted Stock Holder. The Restricted
Stock Holder shall provide a stock power endorsed in blank to the Company and
any certificate representing the Restricted Stock shall bear the following (or a
similar) legend:
"The transferability of this certificate and the securities
represented hereby are subject to the terms and conditions (including
forfeiture) contained in the 2001 Stock Plan of E-TREND NETWORKS, INC.
Copies of such Plan are on file in the offices of E-TREND NETWORKS,
INC."
7.7 ADJUSTMENTS TO RESTRICTED STOCK AWARDS. The Administrator may, in
anticipation of a Change in Control, make such adjustments in the terms and
conditions of outstanding Restricted Stock, as the Administrator in its sole
discretion determines are equitably warranted under the circumstances, including
declaring that any Restricted Stock Award not vested shall become fully vested.
The Administrator in its discretion shall have the right to accelerate the time
at which the Restricted Stock shall become vested and may do so as to one or
more Restricted Stock Holders.
7.8 RESTRICTED STOCK AGREEMENT. At the time of a Restricted Stock Award,
the Participant shall enter into a Restricted Stock Agreement with the Company
agreeing to the terms and conditions of the Restricted Stock Award and such
other matters as the Company shall in its sole discretion determine.
7.9 RETURN OF UNVESTED RESTRICTED STOCK. Any Shares of Restricted Stock as
to which rights have not vested in accordance with this Plan and as to which a
Restricted Stock Holder no longer has any rights under this Plan shall be
returned to the Company which thereafter shall have all rights of ownership and
which may use such shares for further Awards under this Plan.
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SECTION 8. STOCK WITHHOLDING TO SATISFY
WITHHOLDING TAX OBLIGATIONS
8.1 WITHHOLDING TAX. At the discretion of the Administrator, Participants
may satisfy withholding obligations as provided in this paragraph. When a
Participant incurs tax liability in connection with an Award, which tax
liability is subject to tax withholding under applicable tax laws (including,
without limitation, income and payroll withholding taxes), and Participant is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, Participant may satisfy the withholding tax obligation by one or some
combination of the following methods: (a) by cash payment, (b) out of
Participant's current compensation, (c) if permitted by the Administrator, in
its discretion, by surrendering to the Company Shares that (i) have been owned
by Participant for more than six (6) months on the date of surrender or such
other period as may be required to avoid a charge to the Company's earnings, and
(ii) have a fair market value on the date of surrender equal to (or less than,
if other consideration is paid to the Company to satisfy the withholding
obligation) Participant's marginal tax rate times the ordinary income
recognized, plus an amount equal to the Participant's share of any applicable
payroll withholding taxes, or (d) if permitted by the Administrator, in its
discretion, by electing to have the Company withhold from the Shares to be
issued upon exercise of the Award, if any, that number of Shares having a Fair
Market Value equal to the amount required to be withheld. For this purpose, the
Fair Market Value of the Shares to be withheld shall be determined on the date
that the amount of tax to be withheld is to be determined (the "Tax Date"). In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company or result in the recognition of
compensation expense (or additional compensation expense) for financial
reporting purposes.
8.2 REPORTING PERSONS. Any surrender by a Reporting Person of previously
owned Shares to satisfy tax withholding obligations arising upon exercise of
this Award must comply with the applicable provisions of Rule 16b-3 and shall be
subject to such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
8.3 FORM OF ELECTION. All elections by a Participant to have Shares
withheld to satisfy tax withholding obligations shall be made in writing in a
form acceptable to the Administrator and shall be subject to the following
additional restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Award as to which the election is made;
(c) if Participant is a Reporting Person, the election must
comply with the applicable provisions of Rule 16b-3 and shall be
subject to such additional conditions or
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restrictions as may be required thereunder to qualify for the maximum
exemption from Section 16 of the Exchange Act with respect to Plan
transactions; and
(d) all elections shall be subject to the consent or disapproval
of the Administrator.
8.4 DEFERRAL OF TAX DATE. In the event the election to have Shares withheld
is made by a Participant and the Tax Date is deferred under Section 83 of the
Code because no election is filed under Section 83(b) of the Code, Participant
shall receive the full number of Shares with respect to which the Award is
exercised but such Participant shall be unconditionally obligated to tender back
to the Company the proper number of Shares on the Tax Date.
SECTION 9. ADJUSTMENTS UPON CHANGES
IN CAPITALIZATION; CORPORATE TRANSACTIONS
9.1 CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of Shares covered by each outstanding
Option, and the number of Shares that have been authorized for issuance under
the Plan but as to which no Awards have yet been granted or that have been
returned to the Plan upon cancellation or expiration of an Award, as well as the
price per Share covered by each such outstanding Award, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination, recapitalization or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Administrator, whose determination in that respect shall be
final, binding and conclusive. Except as expressly provided herein, no issuance
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to an Award.
9.2 DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or
liquidation of the Company, the Administrator shall notify Participants at least
fifteen (15) days prior to such proposed action. To the extent not previously
exercised, Awards will terminate immediately prior to the consummation of such
proposed action.
9.3 CHANGE IN CONTROL TRANSACTIONS. Except as otherwise provided in the
instrument that evidences the Option, in the event of any Change in Control,
each Option that is at the time outstanding shall automatically accelerate so
that each such Option shall, immediately prior to the specified effective date
for the Change in Control, become 100% vested. Notwithstanding the foregoing,
vesting of shares subject to such Option shall not so accelerate if and to the
extent that (i) in the opinion of the Company's accountants, it would render
unavailable "pooling of
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interest" accounting for a transaction that would otherwise qualify for such
accounting treatment; or (ii) such Option is, in connection with the Change in
Control, either to be assumed by the successor corporation or parent thereof or
to be replaced with a comparable award for the purchase of shares of the capital
stock of the successor corporation or its parent corporation. If the
Administrator determines that such an assumption or replacement will be made,
the Administrator shall give notice of such determination to the Participants
and of the provisions of such assumption or replacement, and any adjustments
made (i) to the number and kind of shares subject to the outstanding Awards (or
to the options in substitution therefore), (ii) to the exercise prices, and/or
(iii) to the terms and conditions of the stock options. Any such determination
shall be made in the sole discretion of the Administrator and shall be final,
conclusive and binding on all Participants. If such Award is assumed or replaced
in the Change in Control and is not otherwise accelerated at that time, vesting
of all of the unvested shares subject to such Award shall be accelerated in the
event the Participant's employment or services should subsequently terminate
within six months following such Change in Control, unless such employment or
services are terminated by the Company for Cause or by the Participant
voluntarily without Good Reason. All unexercised Awards shall terminate and
cease to remain outstanding immediately following the consummation of the Change
in Control, except to the extent assumed by the successor corporation or an
affiliate thereof.
9.4 CERTAIN DISTRIBUTIONS. In the event of any distribution to the
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.9.4
SECTION 10. GENERAL
10.1 NON-TRANSFERABILITY OF OPTIONS. Unless otherwise provided under the
Option Agreement, Options may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution, and may be exercised or purchased during the lifetime
of Optionee, only by Optionee.
10.2 TIME OF GRANTING OPTIONS. The date of grant of an Award shall, for all
purposes, be the date on which the Administrator makes the determination
granting such Award, or such later date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Award is so granted within a reasonable time after the date of such
grant.
10.3 CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any Stock Exchange. As a condition to the exercise of an Option,
the Company
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may require the person exercising such Option to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is required
by law.
10.4 AMENDMENT AND TERMINATION. The Board may at any time amend, alter,
suspend or discontinue the Plan, but no amendment, alteration, suspension or
discontinuation shall be made that would impair the rights of any Participant
under any grant theretofore made, unless mutually agreed otherwise, which
agreement must be in writing and signed by Participant and the Company. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 or
with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of any Stock Exchange), the Company shall obtain
shareholder approval of any Plan amendment in such a manner and to such a degree
as required.
10.5 RIGHTS OF FIRST REFUSAL. Until the date on which the initial
registration of the Common Stock under Section 12(b) or 12(g) of the Exchange
Act first becomes effective, the Company shall have the right of first refusal
with respect to any proposed sale or other disposition by a Participant of any
Shares issued pursuant to an Option or Restricted Stock Award granted under the
Plan. Such right of first refusal shall be exercisable in accordance with the
terms and conditions established by the Plan Administrator and set forth in the
agreement evidencing such right.
10.6 RESERVATION OF SHARES. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
10.7 INFORMATION TO OPTIONEES. At the time of issuance of any securities
under the Plan, the Company shall provide to Optionee a copy of the Plan and a
copy of any agreement(s) pursuant to which securities granted under the Plan are
issued.
10.8 EMPLOYMENT RELATIONSHIP. The Plan shall not confer upon any Participant
any right with respect to continuation of employment or consulting relationship
with the Company, nor shall it interfere in any way with such Participant's
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
10.9 TERM OF PLAN. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the shareholders of
the Company. It shall continue in effect for a term of ten (10) years unless
sooner terminated as permitted herein.
10.10 SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is
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<PAGE>
adopted. Such shareholder approval shall be obtained in the degree and manner
required under applicable state and federal law and the rules of any Stock
Exchange upon which the Common Stock is listed and in accordance with the
Company's bylaws. In the event such approval is not obtained in a timely manner,
no Option granted hereunder shall be treated as an Incentive Stock Option.
THIS PLAN WAS ADOPTED BY THE BOARD ON ____________________________.
THIS PLAN WAS APPROVED BY THE SHAREHOLDERS OF THE COMPANY ON _________________.
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