SCHEDULE 14 C
INFORMATION STATEMENT PURSUANT TO SECTION 14 (C)
OF THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
[ ] Preliminary information statement
[X] Definitive information statement
Confidential, for use of the Commission only (as permitted by Rule 14c-5(d)(2))
THE AMERICAN SPORTS MACHINE, INC.
(NAME OF COMPANY AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies: Not
Applicable.
(2) Aggregate number of securities to which transaction applies: Not
Applicable.
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined): Not Applicable.
(4) Proposed maximum aggregate value of transaction: Not Applicable.
(5) Total fee paid: Not Applicable.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a) (2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: Not Applicable.
(2) Form, Schedule or Registration Statement No. : Not Applicable.
(3) Filing Party: Not Applicable.
(4) Date Filed: Not Applicable.
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THE AMERICAN SPORTS MACHINE, INC.
222 LAKEVIEW AVENUE, SUITE 160-146
WEST PALM BEACH, FLORIDA 33401
March 20, 2000
DEAR SHAREHOLDER:
Enclosed are materials relating to a reincorporation of The American Sports
Machine, Inc., a Florida corporation (the "Company"), in Delaware through a
merger of the Company into SoftQuad Software, Ltd., a newly formed wholly-owned
Delaware subsidiary of the Company ("SoftQuad") with SoftQuad surviving the
merger. The reincorporation is intended to be effected on April 10, 2000 and
will result in (i) the Company's name being changed to "SoftQuad Software,
Ltd.," (ii) your shares (if applicable) of common stock of the Company being
converted into the right to receive one share of common stock of SoftQuad for
each share of common stock of the Company owned by you as of the date of
reincorporation, (iii) your shares (if applicable) of preferred stock of the
Company being converted into the right to receive one share of preferred stock
(with equivalent attributes) of SoftQuad for each share of preferred stock of
the Company owned by you as of the date of reincorporation, (iv) your share (if
applicable) of special voting stock of the Company being converted into the
right to receive one share of special voting stock of SoftQuad for each share of
special voting stock, (v) the persons serving presently as officers and
directors of SoftQuad Software, Ltd. to serve in their respective capacities
after the reincorporation; and (vi) the Articles of Incorporation of the Company
being changed to (A) increase the par value of shares of common stock the
Company from $.0001 to $.001, (B) increase the number of shares of common stock
the Company is authorized to issue from 25,000,000 to 50,000,000, and (C)
changing the preferred stock the Company is authorized to issue from no par
value to $.001 per share.
The Board of Directors of the Company and shareholders owning approximately
70% of the outstanding common stock of the company as of March 9, 2000 carefully
considered reorganization of the Company and concluded the reincorporation to be
in the best interests of the Company and its shareholders.
The Company urges you to follow the instructions set forth in the enclosed
Information Statement under the section entitled "Reincorporation in Delaware --
How to Exchange Company Stock for SoftQuad Stock" if you elect to surrender the
Company Certificate(s) representing your shares for certificates representing
shares of stock of SoftQuad. If you wish to dissent from the reincorporation
and seek a judicial determination of the value of your shares, you may do so by
following the instructions in the Information Statement section entitled
"Reincorporation in Delaware -- Rights of Dissenting Shareholders."
Sincerely,
/s/James D. Brock, Jr.
-------------------------
James D. Brock, Jr., President
<PAGE>
[GRAPHIC OMITED]
THE AMERICAN SPORTS MACHINE, INC.
222 LAKEVIEW AVENUE, SUITE 160-146
WEST PALM BEACH, FLORIDA 33401
March 20, 2000
INFORMATION STATEMENT
This Information Statement is being furnished to holders of the common
stock, par value $.0001 per share (the "Company Common Stock"), the holders of
Class A Convertible Preferred Stock ("Company Class A Preferred Stock"), Class B
Convertible Preferred Stock ("Company Class B Preferred Stock") and Special
Voting Stock of The American Sports Machine, Inc., a Florida corporation (the
"Company"), to inform the holders that the board of directors of the Company
(the "Board of Directors") and the holders of shares representing a majority of
the Company Common Stock (the "Majority Holders") have authorized, by written
consent dated March 9, 2000, the reincorporation of the Company in Delaware (the
"Reincorporation") and the change of the Company's name to SoftQuad Software,
Ltd., all to be effected April 10, 2000 or as soon thereafter as possible (the
"Effective Date"). The Company Common Stock, Company Class A Preferred Stock,
Company Class B Preferred Stock and Company Special Voting Stock are hereinafter
collectively referred to as "Company Stock." The close of business on March 9,
2000 has been fixed by the Board of Directors as the record date for determining
the stockholders of the Company entitled to notice of the Reincorporation.
MANAGEMENT IS NOT ASKING FOR YOUR PROXY AND YOU ARE
---------------------------------------------------
REQUESTED NOT TO SEND US YOUR PROXY
The Reincorporation will be accomplished by a merger (the "Merger"), on the
Effective Date, of the Company into SoftQuad Software, Ltd., a newly formed
wholly-owned Delaware subsidiary of the Company ("SoftQuad"), pursuant to a Plan
and Agreement of Merger (the "Plan of Merger") between the Company and SoftQuad
dated March 9, 2000, with SoftQuad surviving the merger (upon the effectiveness
of the Merger, "New SoftQuad").
In the Merger (i) holders of Company Common Stock will receive one share of
common stock of SoftQuad, par value $.001, ("SoftQuad Common Stock") for each
share of Company Common Stock owned by each such holder as of the day preceding
the Effective Date of the Merger, (ii) the holder of Special Voting Stock of the
Company will receive one share of Special Voting Stock of SoftQuad, par value
$.001, for the share of Special Voting Stock of the Company owned by such holder
as of the day preceding the Effective Date of the Merger, (iii) holders of
Company Class A Convertible Preferred Stock will receive one share of Class A
Convertible Preferred Stock of SoftQuad, par value $.001, for each share of
Company Class A Convertible Preferred Stock owned by each such holder as of the
day preceding the Effective Date of the Merger, and (iv) holders of Company
Class B Convertible Preferred Stock will receive one share of Class B
Convertible Preferred Stock of SoftQuad, par value $.001, for each share of
Class B Convertible Preferred Stock of the Company owned by each such holder as
of the day preceding the Effective Date of the Merger. The Company Class A
Convertible Preferred Stock and Company Class B Convertible Preferred Stock are
collectively referred to as the "Company Preferred Stock," and the Class A
Convertible Preferred Stock and Class B Convertible Preferred Stock of SoftQuad
are collectively referred to as "SoftQuad Preferred Stock."
Attached as Exhibit F is a form letter of transmittal with instructions for
effecting the surrender of the certificate or certificates which immediately
prior to the Effective Date represented issued and outstanding shares of Company
Common Stock, Company Special Voting Stock or Company Preferred Stock ("Company
Certificates"), in exchange for certificates representing SoftQuad Common Stock,
SoftQuad Special Voting Stock or SoftQuad Preferred Stock ("SoftQuad
Certificates"), respectively. Upon surrender of a Company Certificate for
cancellation to SoftQuad together with a duly executed letter of transmittal,
the holder of such Company Certificate will be entitled to receive, as soon as
practicable after the Effective Date, in exchange therefor a SoftQuad
Certificate representing that number of shares of SoftQuad Common Stock,
SoftQuad Special Voting Stock or SoftQuad Preferred Stock into which the shares
of Company Common Stock, Company Special Voting Stock or Company Preferred Stock
theretofore represented by the Company Certificate so surrendered will have been
converted pursuant to the provisions of the Plan of Merger, and the Company
Certificate so surrendered will forthwith be canceled.
The Reincorporation will also result in (i) the Company being governed by
Delaware law, which may grant officers and directors greater protection from
personal liability than Florida law and provides anti-takeover protections that
may not be available under Florida law and (ii) the officers and directors of
SoftQuad, as constituted immediately prior to the Merger becoming the officers
and directors of New SoftQuad, which will result in the persons who are
currently directors of SoftQuad being on the board of directors of New SoftQuad
(the "New Board of Directors") and the officers of SoftQuad being the persons
who are currently officers of the Company. See "Reincorporation in
Delaware--Officers and Directors."
The purpose of this Information Statement is to inform holders of Company
Stock who have not given the Company their written Consent to the foregoing
corporate actions of such actions and their effects and, as required by Florida
law, to give any holder of Company Stock who so desires the right to dissent
from the Merger and Reincorporation and to receive the "fair value" of his
Company Stock in lieu of stock of New SoftQuad. See "Reincorporation in
Delaware--Rights of Dissenting Shareholders."
As of March 9, 2000, 7,336,703 shares of Company Common Stock, 1,473,405
shares of Company Class A Preferred Stock and 1,722,222 shares of Company Class
B Preferred Stock were issued and outstanding.
Attached as Exhibit D is a copy of the Company's Annual Report on Form
10-KSB for the year ending September 30, 1999 and Exhibit E is a copy of the
Company's Current Report on Form 8-K dated March 9, 2000.
REINCORPORATION IN DELAWARE
The following discussion summarizes certain aspects of the Reincorporation
of the Company in Delaware. This summary is not intended to be complete and is
subject to, and qualified in its entirety by reference to the Plan of Merger
between the Company and SoftQuad, a copy of which is attached hereto as Exhibit
A, and the Certificate of Incorporation of SoftQuad (the "Delaware
Certificate"), a copy of which is attached hereto as Exhibit B. Copies of the
Articles of Incorporation and the By-Laws of the Company (the "Florida Articles"
and the "Florida By-Laws," respectively) and the By-Laws of SoftQuad (the
"Delaware By-Laws") are available for inspection at the principal office of the
Company and copies will be sent to shareholders upon request.
PRINCIPAL REASONS FOR REINCORPORATION
The Board of Directors believes that the Reincorporation will give the
Company a greater measure of flexibility and simplicity in corporate governance
than is available under Florida law and will increase the marketability of the
Company's securities.
The State of Delaware is recognized for adopting comprehensive modern and
flexible corporate laws which are periodically revised to respond to the
changing legal and business needs of corporations. For this reason, many major
corporations have initially incorporated in Delaware or have changed their
corporate domiciles to Delaware in a manner similar to that proposed by the
Company. Consequently, the Delaware judiciary has become particularly familiar
with corporate law matters and a substantial body of court decisions has
developed construing Delaware law. Delaware corporate law, accordingly, has
been, and is likely to continue to be, interpreted in many significant judicial
decisions, a fact which may provide greater clarity and predictability with
respect to the Company's corporate legal affairs. For these reasons, the Board
of Directors believes that the Company's business and affairs can be conducted
to better advantage if the Company is able to operate under Delaware law. See
"Certain Significant Differences between the Corporation Laws of Delaware and
Florida."
PRINCIPAL FEATURES OF THE REINCORPORATION
The Reincorporation will be effected by the merger of the Company, a
Florida corporation, with and into, SoftQuad, a wholly-owned subsidiary of the
Company that was incorporated on March 9, 2000 under the General Corporation
Laws of the State of Delaware (the "Delaware GCL") for the sole purpose of
effecting the Reincorporation. The Reincorporation will become effective upon
the filing of the requisite merger documents in Delaware and Florida, which
filings will occur on the Effective Date or as soon as practicable thereafter.
Following the Merger, SoftQuad will be the surviving corporation and will
operate under the name "SoftQuad Software, Ltd."
On the Effective Date, (i) each outstanding share of Company Common Stock
shall be converted into one share of New SoftQuad common stock, $.001 par value,
("New SoftQuad Common Stock"), except for those shares of Company Common Stock
with respect to which the holders thereof duly exercise their dissenters' rights
under Florida law, (ii) each outstanding share of Company Class A Preferred
Stock shall be converted into one share of New SoftQuad Class A Convertible
Preferred Stock, $.001 par value, ("New SoftQuad Class A Preferred Stock"),
except for those shares of Company Class A Preferred Stock with respect to which
the holders thereof duly exercise their dissenters' rights under Florida law,
(iii) each outstanding share of Company Class B Preferred Stock shall be
converted into one share of New SoftQuad Class B Convertible Preferred Stock,
$.001 par value, ("New SoftQuad Class B Preferred Stock" and, together with the
New SoftQuad Class A Preferred Stock, "New SoftQuad Preferred Stock"), except
for those shares of Company Class B Preferred Stock with respect to which the
holders thereof duly exercise their dissenters' rights under Florida law, (iv)
the outstanding share of Company Special Voting Stock, $.0001 par value,
("Company Special Voting Stock") shall be converted into one share of New
SoftQuad Special Voting Stock, $.001 par value ("New SoftQuad Special Voting
Stock") unless the holder thereof duly exercises its dissenters' rights under
Florida law, (v) any fractional New SoftQuad Common Stock, Class A Preferred
Stock or Class B Preferred Stock interests to which a holder of Company Common
Stock, Class A Preferred Stock or Class B Preferred Stock would be entitled
will be canceled with the holder thereof being entitled to receive the next
highest number of whole shares of SoftQuad Common Stock, Class A Preferred Stock
or Class B Preferred Stock, and (vi) each outstanding share of SoftQuad Common
Stock held by the Company shall be retired and canceled and shall resume the
status of authorized and unissued SoftQuad Common Stock.
At the Effective Date, New SoftQuad will be governed by the Delaware
Certificate, the Delaware By-Laws and the Delaware GCL, which include a number
of provisions that are not present in, the Florida Articles, the Florida By-Laws
or the Florida Business Corporation Act (the "Florida BCA"). Accordingly, as
described below, a number of significant changes in shareholders' rights will be
effected in connection with the Reincorporation, some of which may be viewed as
limiting the rights of shareholders. In particular, the Delaware Certificate
includes a provision authorized by the Delaware GCL that would limit the
liability of directors to SoftQuad and its stockholders for breach of fiduciary
duties. The Delaware Certificate will provide directors and officers with
modern limited liability and indemnification rights authorized by the GCL of
Delaware. The Board of Directors believes that these provisions will enhance
its ability to attract and retain qualified directors and encourage them to
continue to make entrepreneurial decisions on behalf of SoftQuad. Accordingly,
implementation of these provisions has been included as part of the
Reincorporation. The Company believed that the Reincorporation will contribute
to the long-term quality and stability of the Company's governance. The Board
of Directors has concluded that the benefit to shareholders of improved
corporate governance from the Reincorporation outweighs any possible adverse
effects on shareholders of reducing the exposure of directors to liability and
broadening director indemnification rights.
Upon consummation of the Merger, the daily business operations of New
SoftQuad will continue as they are presently conducted by the Company, at the
SoftQuad's principal executive offices at 161 Eglinton Avenue East, Suite 400,
Toronto, Ontario, Canada M4P 1J5. The authorized capital stock of New SoftQuad
will consist of 50,000,000 shares of SoftQuad Common Stock, par value $.001 per
share, one share of Special Voting Stock, par value $.001, and 25,000,000 shares
of preferred stock, $.001 par value per share (the "Preferred Stock"). The
Preferred Stock will be issuable in series by action of the New Board of
Directors. The New Board of Directors will be authorized, without further
action by the stockholders, to fix the designations, powers, preferences and
other rights and the qualifications, limitations or restrictions of the unissued
Preferred Stock including shares of Preferred Stock having preferences and other
terms that might discourage takeover attempts by third parties.
The New Board of Directors will consist of those persons presently serving
on the board of directors of SoftQuad. The individuals who will serve as
executive officers of New SoftQuad are those who currently serve as executive
officers of SoftQuad. Such persons and their respective terms of office are set
forth below under the caption "Reincorporation in Delaware - Officers and
Directors."
Pursuant to the terms of the Plan of Merger, the Merger may be abandoned by
the Board of Directors of the Company and SoftQuad at any time prior to the
Effective Date. In addition, the Board of Directors of the Company may amend
the Plan of Merger at any time prior to the Effective Date provided that any
amendment made may not, without approval by the Majority Holders, alter or
change the amount or kind of SoftQuad Stock to be received in exchange for or on
conversion of all or any of the Company Stock, alter or change any term of the
Delaware Certificate or alter or change any of the terms and conditions of the
Plan of Merger if such alteration or change would adversely affect the holders
of Company Stock.
HOW TO EXCHANGE COMPANY CERTIFICATES FOR SOFTQUAD CERTIFICATES
Enclosed are (i) a form letter of transmittal and (ii) instructions for
effecting the surrender of the Company Certificates in exchange for New SoftQuad
Certificates. Upon surrender of a Company Certificate for cancellation to
SoftQuad, together with a duly executed letter of transmittal, the holder of
such Company Certificate shall, as soon as practicable following the Effective
Date, be entitled to receive in exchange therefor a SoftQuad Certificate
representing that number of shares of New SoftQuad into which the Company Stock
theretofore represented by the Company Certificate so surrendered have been
converted in the Merger and the Company Certificate so surrendered will be
canceled.
Because of the reincorporation in Delaware as a result of the Merger,
holders of Company Stock are not required to exchange their Company Certificates
for SoftQuad Certificates. Dividends and other distributions declared after the
Effective Date with respect to SoftQuad Stock and payable to holders of record
thereof after the Effective Date will be paid to the holder of any unsurrendered
Company Certificate with respect to the shares of SoftQuad Stock, which by
virtue of the Merger are represented thereby and such holder will be entitled to
exercise any right as a holder of New SoftQuad stock, until such holder has
surrendered the Company Certificate.
CAPITALIZATION
The authorized capital of the Company, prior to the Effective Date,
consisted of 25,000,000 shares of Company Common Stock, 25,000,000 shares of
Preferred Stock and one share of Special Voting Stock. The authorized capital
of SoftQuad, which will be the authorized capital of New SoftQuad, presently
consists of 50,000,000 shares of SoftQuad Common Stock, one share of Special
Voting Stock and 25,000,000 shares of Preferred Stock. After the Merger
(assuming no exercise of dissenters' rights and no issuances of additional
equity before the completion of the Merger), New SoftQuad will have outstanding
approximately 7,336,703 shares of New SoftQuad Common Stock, one share of
Special Voting Stock, 1,473,405 shares of New SoftQuad Class A Preferred Stock
and 1,722,222 shares of New SoftQuad Class B Preferred Stock. 3,195,627 shares
of Common Stock will be reserved for issuance upon conversion of the New
SoftQuad Class A and Class B Convertible Preferred Stock, 5,759,605 shares of
New SoftQuad Common Stock will be reserved for issuance in exchange for
Exchangeable Shares issued by SoftQuad Acquisition Corp., a wholly-owned
subsidiary of New SoftQuad, 3,435,670 shares of New SoftQuad Common Stock will
be reserved for issuance to shareholders of SoftQuad Software, Inc. pursuant to
acquisition agreements between the Company and those shareholders, and 6,233,867
shares of New SoftQuad Common Stock will be reserved for issuance pursuant to
options, warrants or other rights to acquire New SoftQuad Common Stock.
Accordingly, the New Board of Directors will have available approximately
24,038,528 shares of New SoftQuad Common Stock, and 21,804,373 shares of New
SoftQuad Preferred Stock which are authorized but presently unissued and
unreserved, and which will be available for issuance from time to time in
connection with, acquisitions of other companies and other corporate purposes.
The Reincorporation will not affect total stockholder equity or total
capitalization of the Company.
The New Board of Directors may in the future authorize, without further
stockholder approval, the issuance of such shares of SoftQuad Common Stock or
Preferred Stock to such persons and for such consideration upon such terms as
the New Board of Directors determines. Such issuance could result in a
significant dilution of the voting rights and, possibly, the stockholders'
equity of then existing stockholders.
There are no present plans, understandings or agreements, and the Company
is not engaged in any negotiations that will involve the issuance of the
Preferred Stock to be authorized. However, the New Board of Directors believes
it prudent to have shares of Preferred Stock available for such corporate
purposes as the New Board of Directors may from time to time deem necessary and
advisable including, without limitation, acquisitions, the raising of additional
capital and assurance of flexibility of action in the future.
It should be recognized that the issuance of additional authorized SoftQuad
Common Stock (or Preferred Stock, the terms and conditions of which including
voting and conversion rights, may be set at the discretion of the Board of
Directors) may have the effect of deterring or thwarting persons seeking to take
control of New SoftQuad through a tender offer, proxy fight or otherwise or to
bring about removal of incumbent management or a corporate transaction such as
merger. For example, the issuance of New SoftQuad Common Stock or New SoftQuad
Preferred Stock could be used to deter or prevent such a change of control
through dilution of stock ownership of persons seeking to take control or by
rendering a transaction proposed by such persons more difficult.
SIGNIFICANT CHANGES IN THE COMPANY'S CHARTER AND BY-LAWS TO BE IMPLEMENTED BY
THE REINCORPORATION
CHANGE OF CORPORATE NAME. The Reincorporation will effect a change in the
Company's name to "SoftQuad Software, Ltd." The Board of Directors believes
that this corporate name is in the best interests of the Company and its
shareholders and that the name continues to reflect the nature of the Company's
present intention to merge with an operating business.
LIMITATION OF LIABILITY. The Delaware Certificate contains a provision
limiting or eliminating, with certain exceptions, the liability of directors to
SoftQuad and its shareholders for monetary damages for breach of their fiduciary
duties. The Florida Articles contains no similar provision. The Board of
Directors believes that such provision will better enable New SoftQuad to
attract and retain as directors responsible individuals with the experience and
background required to direct New SoftQuad's business and affairs. It has
become increasingly difficult for corporations to obtain adequate liability
insurance to protect directors from personal losses resulting from suits or
other proceedings involving them by reason of their service as directors. Such
insurance is considered a standard condition of directors' engagement. However,
coverage under such insurance is no longer routinely offered by insurers and
many traditional insurance carriers have withdrawn from the market. To the
extent such insurance is available, the scope of coverage is often restricted,
the dollar limits of coverage are substantially reduced and the premiums have
risen dramatically.
At the same time directors have been subject to substantial monetary damage
awards in recent years. Traditionally, courts have not held directors to be
insurers against losses a corporation may suffer as a consequence of directors'
good faith exercise of business judgment, even if, in retrospect the directors'
decision was an unfortunate one. In the past, directors have had broad
discretion to make decisions on behalf of the corporation under the "business
judgment rule." The business judgment rule offers protection to directors who,
after reasonable investigation, adopt a course of action that they reasonably
and in good faith believe will benefit the corporation, but which ultimately
proves to be disadvantageous. Under those circumstances, courts have typically
been reluctant to subject directors' business judgments to further scrutiny.
Some recent court cases have, however, imposed significant personal liability on
directors for failure to exercise an informed business judgment with the result
that the potential exposure of directors to monetary damages has increased.
Consequently legal proceedings against directors relating to decisions made by
directors on behalf of corporations have significantly increased in number, cost
of defense and level of damages claimed. Whether or not such an action is
meritorious, the cost of defense can be well beyond the personal resources of a
director.
The Delaware General Assembly considered such developments a threat to the
quality and stability of the governance of Delaware corporations because of the
unwillingness of directors, in many instances, to serve without the protection
which insurance traditionally has provided and because of the deterrent effect
on entrepreneurial decision making by directors who do serve without the
protection of traditional insurance coverage. In response, in 1986 the Delaware
General Assembly adopted amendments to the Delaware GCL which permit a
corporation to include in its charter a provision to limit or eliminate, with
certain exceptions, the personal liability of directors to a corporation and its
shareholders for monetary damages for breach of their fiduciary duties. Similar
charter provisions limiting a director's liability are not permitted under
Florida law.
The Board of Directors believes that the limitation on directors' liability
permitted under Delaware law will assist New SoftQuad in attracting and
retaining qualified directors by limiting directors' exposure to liability. The
Reincorporation proposal will implement this limitation on liability of the
directors of New SoftQuad, inasmuch as the Delaware Certificate provides that to
the fullest extent that the Delaware GCL now or hereafter permits the limitation
or elimination of the liability of directors, no director will be liable to New
SoftQuad or its stockholders for monetary damages for breach of fiduciary duty.
Under such provision, New SoftQuad's directors will not be liable for monetary
damages for acts or omissions occurring on or after the Effective Date of the
Reincorporation, even if they should fail through negligence or gross
negligence, to satisfy their duty of care (which requires directors to exercise
informed business judgment in discharging their duties). The Delaware
Certificate would not limit or eliminate any liability of directors for acts or
omissions occurring prior to the Effective Date. As provided under Delaware
law, the Delaware Certificate cannot eliminate or limit the liability of
directors for breaches of their duty of loyalty to New SoftQuad; acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, paying a dividend or effecting a stock repurchase or
redemption which is illegal under the Delaware GCL, or transactions from which a
director derived an improper personal benefit. Further, the Delaware
Certificate would not affect the availability of equitable remedies, such as an
action to enjoin or rescind a transaction involving a breach of a director's
duty of care. The Delaware Certificate pertains to breaches of duty by
directors acting as directors and not to breaches of duty by directors acting as
officers (even if the individual in question is also a director). In addition,
the Delaware Certificate would not affect a director's liability to third
parties or under the federal securities laws.
The Delaware Certificate is worded to incorporate any future statutory
revisions limiting directors' liability. It provides, however, that no
amendment or repeal of its provision will apply to the liability of a director
for any acts or omissions occurring prior to such amendment or repeal, unless
such amendment has the affect of further limiting or eliminating such liability.
The Company has not received notice of any lawsuit or other proceeding to
which the Delaware Certificate might apply. In addition, the Delaware
Certificate is not being included in the Delaware Certificate in response to any
director's resignation or any notice of an intention to resign. Accordingly,
the Company is not aware of any existing circumstances to which the Delaware
Certificate might apply. The Board of Directors recognizes that the Delaware
Certificate may have the effect of reducing the likelihood of derivative
litigation against directors, and may discourage or deter stockholders from
instituting litigation against directors for breach of their duty of care, even
though such an action, if successful, might benefit New SoftQuad and its
shareholders. However, given the difficult environment and potential for
incurring liabilities currently facing directors of publicly held corporations,
the Board of Directors believes that the Delaware Certificate is in the best
interests of New SoftQuad and its stockholders, since it should enhance New
SoftQuad's ability to retain highly qualified directors and reduce a possible
deterrent to entrepreneurial decision making. In addition, the Board of
Directors believes that the Delaware Certificate may have a favorable impact
over the long term on the availability, cost, amount and scope of coverage of
directors' liability insurance, although there can be no assurance of such an
effect.
The Delaware Certificate may be viewed as limiting the rights of
stockholders, and the broad scope of the indemnification provisions could result
in increased expense to New SoftQuad. The Company believes, however, that these
provisions will provide a better balancing of the legal obligations of, and
protections for, directors and will contribute to the quality and stability of
New SoftQuad's governance. The Board of Directors has concluded that the
benefit to stockholders of improved corporate governance outweighs any possible
adverse effects on stockholders of reducing the exposure of directors to
liability and broadening indemnification rights. Because the Delaware
Certificate deals with the potential liability of directors, the members of the
Board of Directors may be deemed to have a personal interest in effecting the
Reincorporation.
INDEMNIFICATION. As part of the 1986 legislation permitting a corporation
to limit or eliminate the liability of directors, the Delaware General Assembly,
for the reasons noted under "Limitation of Liability" above, also amended the
provisions of the Delaware GCL governing indemnification to clarify and broaden
the indemnification rights which corporations may provide to their directors,
officers and other corporate agents. The Florida BCA also contains broad
indemnification provisions. The Delaware Certificate reflects the provisions of
Delaware law, as recently amended, and, as discussed below, provides broad
rights to indemnification.
In recent years, investigations, actions, suits and proceedings, including
actions, suits and proceedings by or in the right of a corporation to procure a
judgment in its favor (referred to together as "proceedings"), seeking to impose
liability on, or involving as witnesses, directors and officers of publicly-held
corporations have become increasingly common. Such proceedings are typically
very expensive, whatever their eventual outcome. In view of the costs and
uncertainties of litigation in general it is often prudent to settle proceedings
in which claims against a director or officer are made. Settlement amounts,
even if material to the corporation involved and minor compared to the enormous
amounts frequently claimed, often exceed the financial resources of most
individual defendants. Even in proceedings in which a director or officer is
not named as a defendant he may incur substantial expenses and attorneys' fees
if he is called as a witness or otherwise becomes involved in the proceeding.
Although the Company's directors and officers have not incurred any liability or
significant expense as a result of any proceeding to date the potential for
substantial loss does exist. As a result, an individual may conclude that the
potential exposure to the costs and risks of proceedings in which he may become
involved may exceed any benefit to him from serving as a director or officer of
a public corporation. This is particularly true for directors who are not also
officers of the corporation. The increasing difficulty and expense of obtaining
directors' and officers' liability insurance discussed above has compounded the
problem.
The broad scope of indemnification now available under Delaware law will
permit New SoftQuad to continue to offer its directors and officers greater
protection against these risks. The Board of Directors believes that such
protection is reasonable and desirable in order to enhance New SoftQuad's
ability to attract and retain qualified directors as well as to encourage
directors to continue to make good faith decisions on behalf of New SoftQuad
with regard to the best interests of New SoftQuad and its stockholders.
The Delaware Certificate is quite different from the Florida Articles and
requires indemnification of New SoftQuad's directors and officers to the fullest
extent permitted under applicable law as from time to time in effect, with
respect to expenses, liability or loss (including, without limitation,
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) actually and reasonably incurred by any person
in connection with any actual or threatened proceeding by reason of the fact
that such person is or was a director or officer of New SoftQuad or is or was
serving at the request of New SoftQuad as a director or officer of another
corporation or of a partnership, joint venture; trust, employee benefit plan or
other enterprise at the request of New SoftQuad. The right to indemnification
includes the right to receive payment of expenses in advance of the final
disposition of such proceeding; consistent with applicable law from time to time
in effect; provided, however, that if the Delaware GCL requires the payment of
such expenses in advance of the final disposition of a proceeding payment shall
be made only if such person undertakes to repay New SoftQuad if it is ultimately
determined that he or she was not entitled to indemnification. Directors and
officers would not be indemnified for lose, liability or expenses incurred in
connection with proceedings brought against such persons otherwise than in the
capacities in which they serve New SoftQuad. Under the Delaware Certificate New
SoftQuad may, although it has no present intention to do so, by action of the
New Board of Directors, provide the same indemnification to its employees,
agents, attorneys and representatives as it provides to its directors and
officers. The Delaware Certificate provides that such practices are not
exclusive of any other rights to which persons seeking indemnification may
otherwise be entitled under any agreement or otherwise.
The Delaware Certificate specifies that the right to indemnification is a
contract right. The Delaware Certificate also provides that a person seeking
indemnification from New SoftQuad may bring suit against New SoftQuad to recover
any and all amounts entitled to such person provided that such person has filed
a written claim with New SoftQuad has failed to pay such claim within thirty
days of receipt thereof. In addition, the Delaware certificate authorizes New
SoftQuad to purchase and maintain indemnity insurance, if it so chooses to guard
against future expense.
The Delaware Certificate provides for payment of all expenses incurred,
including those incurred to defend against a threatened proceeding.
Additionally, the Delaware Certificate provides that indemnification shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person. The Delaware also provide that to the extent any director or officer
who is, by reason of such a position, a witness in any proceeding, he or she
shall be indemnified for all reasonable expenses incurred in connection
therewith.
Under Delaware law, as with Florida law, rights to indemnification and
expenses need not be limited to those provided by statute. As a result, under
Delaware law and the Delaware Certificate, New SoftQuad will be permitted to
indemnity its directors and officers, within the limits established by law and
public policy, pursuant to an express contract, a by-law provision, a
stockholder vote or otherwise, any or all of which could provide indemnification
rights broader than those currently available under the Florida Articles or
expressly provided for under Florida or Delaware law.
Insofar as the Delaware Certificate provides indemnification to directors
or officers for liabilities arising under the Securities Act of 1933, it is the
position of the Securities and Exchange Commission that such indemnification
would be against public policy as expressed in such statute and, therefore,
unenforceable.
The Board of Directors recognizes that New SoftQuad may in the future be
obligated to incur substantial expense as a result of the indemnification rights
conferred under the Delaware Certificate, which are intended to be as broad as
possible under applicable law. Because directors of New SoftQuad may personally
benefit from the indemnification provisions of New SoftQuad, the members of the
Board of Directors may be deemed to have a personal interest in the effectuation
of the Reincorporation.
OFFICERS AND DIRECTORS
Upon the Effective Date the present officers and directors of SoftQuad and
the Company will continue to be the officers and directors of New SoftQuad.
This will result in the following persons holding the positions indicated below
in New SoftQuad until New SoftQuad's next annual meeting or until their
respective successors are elected and qualified:
Name Age Title
- -------------------------------- ---- --------------------------------------
Roberto Drassinower . . . . . 36 Director, President and Chief Executive
Officer
Pamela Geoga. . . . . . . . . 48 Vice President
David T. Adams. . . . . . . . 41 Chief Financial Officer and
Chief Operating Officer
Jonathan Sachs. . . . . . . . 46 Vice President, Sales & Marketing
Bruce Sharpe. . . . . . . . . 46 Director and Chief Technology Officer
Peter Sharpe. . . . . . . . . 48 Chief Scientist
Sheldon Inwentash . . . . . . 44 Director
Michael Mendelson . . . . . . 34 Director
MR. ROBERT DRASSINOWER has been President, Chief Executive Officer and a
Director of the SoftQuad (and SoftQuad Software, Inc., the Company's operating
subsidiary) since inception. Mr. Drassinower has guided the company's strategic
development and positioned SoftQuad as one of the hottest technology companies
in North America. Under his leadership, SoftQuad enhanced its reputation as a
leading developer of XML enabling technologies and commerce solutions for
e-business.
Prior to joining SoftQuad, Mr. Drassinower was President of Carolian Systems, a
UNIX network management company, where he was responsible for R&D, product
development, technical support, and a successful corporate sales team serving
Compaq, Pepsi and 3M. In 1995 Mr. Drassinower joined SoftQuad International,
Inc. (an unrelated corporation since renamed New Kid Co International, Inc.) as
VP of the Professional Services Division. Under his guidance, he doubled the
divisions revenue for three consecutive years and was responsible for securing
many blue chip accounts including AT&T, HP, Unisys, Bell South and Nortel.
MR. DAVID T. ADAMS has been Chief Financial Officer and Chief Operating Officer
of SoftQuad since its inception. Mr. Adams was co-founder and Vice Chairman of
TALPX Inc., a Chicago-based electronic commerce exchange serving the $50 billion
softwood lumber industry. Prior to co-founding TALPX Inc., Mr. Adams was Chief
Financial Officer, and Director of Finance at Alpa Lumber Inc., a Toronto based
company. He has also held the position of Chief Financial Officer, Vice
President of Finance and Administration at DDB Needham Group, one of the largest
advertising agencies in Canada and part of Omnicom Group Inc. In his early
career, Mr. Adams was Senior Management, Audit at Arthur Andersen & Co., and
prior to that, he served in the Toronto and London, England offices of Deloitte
Haskins & Sells.
MS. PAMELA GEOGA has been Vice President of SoftQuad since its inception. Ms.
Geoga has more than 25 years of experience working for IBM Corp. and its
subsidiary Lotus Development Corp. In her most recent position as Vice
President, North America for Lotus, Ms. Geoga was responsible for over US$600
million in revenue, closing over US$100 million in software contracts, and
managing a staff of over 800. Mr. Geoga was responsible for corporate,
government, channel, business and strategic partner sales. Under her direction,
the North American division evolved from a group of independent operating units,
into a fully integrated operation with dynamic, cross-organizational teams
focused on specific market segments. Mr. Geoga also introduced the Lotus
Solution Sales process, a process which became a standard for IBM senior
executives worldwide.
MR. JONATHAN SACHS has been Vice President, Sales and Marketing and a Director
of SoftQuad (and SoftQuad Software, inc., the Company's operating subsidiary)
since its inception. Mr. Sachs is responsible for developing the company's
product management and market strategy. Prior to joining SoftQuad, Mr. Sachs
served as National Sales and Marketing Manager for Microsoft Canada. Prior to
joining Microsoft, Mr. Sachs established a successful worldwide value-added
reseller network call Varnet Inc. He later co-founded Canada's first fully
integrated, full service marketing agency specializing in high tech, with blue
chip clients such as Microsoft and Apple.
MR. BRUCE SHARPE has been Chief Technology Officer and a Director of SoftQuad
since its inception. Mr. Sharpe held the position of Director of Research and
Development at Gravis Computer Technologies. Mr. Sharpe holds a Ph.D. in
Mathematics form the University of British Columbia.
MR. PETER SHARPE has been Chief Scientist and a Director of SoftQuad since its
inception. Mr. Sharpe is one of the key visionaries behind the creation of XML
and founding member of World Wide Web Consortium (W3C) and the W3C Technical
Working Group. A leading member of the world's Web technical community, he is
the head designer and lead programmer behind SoftQuad's record of
first-to-market products, including SGML Author/Editor, HoTMetal, PRO and
XmetaL.
SHELDON INWENTASH serves as Director. Mr. Inwentash is the founder and CEO
of Pinetree Capital Corp., a publicly traded venture capital company that
specializes in funding emerging growth companies with breakthrough technologies.
Mr. Inwentash serves as a director and/or strategic advisor for the companies
that have received funding from Pinetree. Investee companies are often
high-tech and biotechnology ventures such as: Visible Genetics Inc., Enghouse
Systems Limited and NSI Communications Inc. Mr. Inwentash is a Chartered
Accountant.
MICHAEL MENDELSON serves as Director. Mr. Mendelson is the founder and
Managing Partner of KBL Capital Partners Inc., a Toronto-based merchant bank
specializing in private equity financing, mergers and acquisitions for emerging
growth technology companies. Before his involvement with KBL, Mr. Mendelson was
the founder and CEO of Equitrade Capital Corp., a Latin American finance and
development company specializing in infrastructure development technology. Mr.
Mendelson has degrees in Finance and Accounting from the University of Texas,
Austin.
CERTAIN SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF FLORIDA AND
DELAWARE
Although it is impractical to compare all of the differences between the
corporation laws of Florida and Delaware the following is a summary of certain
significant differences between the provisions of Florida law applicable to the
Company and those of Delaware law which will be applicable to SoftQuad.
DIVIDENDS. A Florida corporation may not make distributions to
shareholders if, after giving it effect, in the judgment of the board of
directors: (a) the corporation would not be able to pay its debts as they become
due in the usual course of business; and (b) 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 the distribution, to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights
are superior to those receiving the distribution. In contrast, a Delaware
corporation may pay dividends either out of surplus or, if there is no surplus,
and except in very limited circumstances, out of net profits for the fiscal year
in which the dividend is declared or out of net profits for the preceding fiscal
year. In any event, New SoftQuad does not anticipate paying dividends in the
foreseeable future.
INTERESTED DIRECTOR TRANSACTIONS. Under both Florida and Delaware law,
certain contracts or transactions in which one or more of a corporation's
directors have an interest are not void or voidable because of such interest if
the contract or transaction is fair to the corporation when authorized or if it
is approved in good faith by the shareholders or by the directors who are not
interested therein after the material facts as to the contract or transaction
and the interest of any interested directors are disclosed. With certain
exceptions, Florida and Delaware law are the same in this area. Under Florida
law, if approval of the Board of Directors is to be relied upon for this
purpose, the contract or transaction may be approved by a majority vote of a
quorum of the directors without counting the vote of the interested director or
directors (except for purposes of establishing quorum). Under Delaware law, the
approval of the board of directors can be obtained for the contract or
transaction by the vote of a majority of the disinterested directors, even
though less than a majority of a quorum. Accordingly, it is possible that
certain transactions that the Board of Directors of the Company currently might
not be able to approve itself because of the number of interested directors
could be approved by a majority of the disinterested directors of New SoftQuad,
although less than a majority of a quorum. The Company is not aware of any
plans to propose any transaction involving directors of the Company which could
not be approved by the Board of Directors under Florida law but could be
approved by the New Board of Directors under Delaware law.
SPECIAL MEETINGS OF SHAREHOLDERS. Under Florida law, a special meeting of
shareholders may be called by the Board of Directors or by the holders of at
least 10% of the shares entitled to vote at the meeting or by such other persons
or groups as may be authorized in the articles of incorporation or the by-laws.
Under Delaware law, a special meeting may be called by the board of directors
and only such other persons as are authorized by the certificate of
incorporation or the by-laws. The Certificate of Incorporation of SoftQuad,
unlike the Company's By-Laws, provides that a special meeting of stockholders
may be called only by the board of directors or by a committee of the board of
directors which has been duly delegated such authority by the board of directors
and by no other person.
SEQUESTRATION OF SHARES. Delaware law provides that the shares of any
person in a Delaware corporation may be attached or "sequestered" for debts or
other demands. Such provision could be used to assert jurisdiction against a
non-resident holder of the Delaware corporation's shares, thereby compelling the
non-resident holder to appear in an action brought in a Delaware court. Florida
law has no comparable provision.
CERTAIN ACTIONS. Delaware law provides that stockholders have six years in
which to bring an action against directors responsible for the payment of an
unlawful dividend. Under Florida law, all directors voting for or assenting to
an unlawful distribution are jointly and severally liable to the corporation for
the excess of the amount of dividend over what could have been distributed
lawfully. Florida law requires that any action be commenced within two (2)
years after the date of the distribution. Florida law and Delaware law require
that the plaintiff held stock at the time when the transaction complained of
occurred. Under Florida law a successful shareholder has a statutory right to
expenses, including attorney's fee, if the court so directs. Under Delaware law
recovery of fees and expenses by a successful shareholder is governed by case
law.
TENDER OFFER AND BUSINESS COMBINATION STATUTES. Florida law regulates
tender offers and business combinations involving Florida corporations as well
as certain corporations incorporated outside Florida that conduct business in
Florida. The Florida law provides that any acquisition by a person, either
directly or indirectly, of ownership of, or the power to direct the voting of,
20% or more ("Control Shares") of the outstanding voting securities of a
corporation is a "Control Share Acquisition." A Control Share Acquisition must
be approved by a majority of each class of outstanding voting securities of such
corporation excluding the shares held or controlled by the person seeking
approval before the Control Shares may be voted. A special meeting of
shareholders must be held by the corporation to approve a Control Share
Acquisition within 50 days after a request for such meeting is submitted by the
person seeking to acquire control. If the Control Shares are accorded full
voting rights and the acquiring person has acquired Control Shares with a
majority or more of the voting power of the Corporation, all shareholders shall
have dissenter's rights as provided by applicable Florida law.
Florida law regulates mergers and other business combinations between a
corporation and a shareholder who owns more than 10% of the outstanding voting
shares of such corporation ("Interested Shareholder"). Specifically, any such
merger between a corporation and an Interested Shareholder must be approved by
the vote of the holders of two-thirds of the voting shares of such corporation
excluding the shares beneficially owned by such shareholder. The approval by
shareholders is not required, however, if (i) such merger or business
combination is approved by a majority of disinterested directors, (ii) such
Interested Shareholder is the beneficial owner of at least 90% of the
outstanding voting shares excluding the shares acquired directly from the
subject corporation in a transaction not approved by a majority of disinterested
directors, or (iii) the price paid to shareholders in connection with a merger
or a similar business combination meets the statutory test of "fairness."
Delaware law regulates hostile takeovers by providing that an "interested
stockholder," defined as a stockholder owning 15% or more of the corporation's
voting stock or an affiliate or associate thereof, may not engage in a "business
combination" transaction, defined to include a merger, consolidation or a
variety of self-dealing transactions with the corporation for a period of three
years from the date on which such stockholder became an "interested stockholder"
unless (a) prior to such date the corporation's board of directors approved
either the "business combination" transaction or the transaction in which the
stockholder became an "interested stockholder', (b) the stockholder, in a single
transaction in which he became an "interested stockholder," acquires at least
85% of the voting stock outstanding at the time the transaction commenced
(excluding shares owned by certain employee stock plans and persons who are
directors and also officers of the corporation) or (c) on or subsequent to such
date, the "business combination" transaction is approved by the corporation's
board of directors and authorized at an annual or special meeting of the
corporation's stockholders, by the affirmative vote of at least two-thirds of
the outstanding voting stock not owned by the "interested stockholder."
Thus, the effect of such provision of Delaware law is to prevent any
attempted hostile takeover of a Delaware corporation from being completed for
three years unless (a) at least 85% of the voting shares of the target are
acquired in a single transaction; (b) at least two-thirds of the voting shares
of the target, excluding the shares held by the bidder, vote in favor of the
acquisition; or (c) the corporation opts out of the statutory protection.
DISSENTERS' RIGHTS. Under Florida laws shareholders may dissent from, and
demand cash payment of the fair value of their shares in respect of, (i) a
merger or consolidation of the corporation, and (ii) a sale or exchange of all
or substantially all of a corporation's assets, including a sale in dissolution.
Under Delaware law, dissenters' rights are not available with respect to a
sale, lease, exchange or other disposition of all or substantially all of a
corporation's assets or any amendment of its charter, unless such corporation's
charter expressly provides for dissenters' rights in such instances. The
Delaware Certificate contains no such provision. Stockholders of a Florida
corporation have no dissenters' rights in the case of a merger or consolidation
if their shares are either listed on a national securities exchange or quoted on
the NASDAQ National Market System. Stockholders of a Delaware corporation have
no dissenters' rights in the case of a merger or consolidation if their shares
are either listed on a national securities exchange or held of record by more
than 2,000 stockholders or the corporation is the survivor of a merger that did
not require the stockholders to vote for its approval; provided, however, that
dissenters' rights will be available in such instances, if stockholders are
required under the merger or. consolidation to accept for their shares anything
other than shares of stock of the surviving corporation, shares of stock of a
corporation either listed on a national securities exchange or held of record by
more than 2,000 stockholders, cash, in lieu of fractional shares, or any
combination of the foregoing.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The Company believes that for federal income tax purposes no gain or loss
will be recognized by the Company, SoftQuad or the shareholders of the Company
who receive New SoftQuad for their Company Stock in connection with the
Reincorporation. The adjusted tax basis of each whole share of New SoftQuad
received by a shareholder of the Company as a result of the Reincorporation will
be the same as the shareholder's aggregate adjusted tax basis in the shares of
Company Stock converted into such shares of New SoftQuad. A shareholder who
holds Company Stock will include in his holding period for the New SoftQuad that
he receives as a result of the Reincorporation his holding period for the
Company Stock converted into such SoftQuad Common Stock.
The receipt of cash pursuant to the exercise of dissenters' rights, as the
fair value for shares of the Company Stock will be a taxable transaction for
federal income tax purposes to shareholders receiving such cash. A shareholder
who receives cash in lieu of fractional shares or in exercise of dissenters
rights will recognize gain of loss measured by the differences between the cash
so received and such shareholder's adjusted tax basis in the shares of the
Company Stock exchanged therefor. Such gain or loss will be treated as a
capital gain or loss if the shares of the Company Stock are capital assets in
the hands of such shareholders, and will be long-term capital gain or loss if
such shareholder has held shares for more than six months.
BECAUSE OF THE COMPLEXITY OF THE CAPITAL GAINS AND LOSS PROVISIONS OF THE
INTERNAL REVENUE CODE OF 1986 AND BECAUSE OF THE UNIQUENESS OF EACH INDIVIDUALS
CAPITAL GAIN OR LOSS SITUATION, SHAREHOLDERS CONTEMPLATING EXERCISING STATUTORY
APPRAISAL RIGHTS SHOULD CONSULT THEIR OWN TAX ADVISOR REGARDING THE FEDERAL
INCOME TAX CONSEQUENCES OF EXERCISING SUCH RIGHTS. STATE, LOCAL OR FOREIGN
INCOME TAX CONSEQUENCES TO SHAREHOLDERS MAY VARY FROM THE FEDERAL INCOME TAX
CONSEQUENCES DESCRIBED ABOVE, AND SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN
TAX ADVISOR AS TO THE CONSEQUENCES TO THEM OF THE REINCORPORATION UNDER ALL
APPLICABLE TAX LAWS.
RIGHTS OF DISSENTING SHAREHOLDERS
Shareholders who have not consented to the Reincorporation and who comply
with the dissenters' rights provisions of the Florida Business Corporation Act
will have the right to be paid in cash the fair value of their Company Stock.
Such fair value will be determined as of the close of business on March 9, 2000
the day before the Majority Holders approved the Reincorporation by written
consent excluding any appreciation or depreciation directly or indirectly
induced by the Reincorporation or the authorization of it.
In order to receive cash payment for his Company Stock, a dissenting
shareholder must comply with the procedures specified by Sections 607.1302 to
607.1320 of the Florida BCA, which are attached as Exhibit C to this information
Statement. Any shareholder considering exercising his dissenters' rights is
urged to review Sections 607.1302 and 607.1320 carefully. The following summary
of the principal provisions of Sections 607.1302 to 607.1320 is qualified in its
entirety by reference to the text thereof. Further, the following discussion is
subject to the possibility that the Company may abandon the Reincorporation if
the Board of directors determines that in light of the potential liability of
the Company that might result from the exercise of dissenters' rights, the
Reincorporation would be impracticable, undesirable or not in the best interests
of the Company's shareholders. If the Company abandons the Reincorporation, the
rights of dissenting shareholders would terminate and such dissenters would be
reinstated to all of their rights as shareholders.
Any shareholder who wishes to dissent from the Reincorporation and receive
a cash payment for his Company Stock, (a) must file with the Company, prior to
the Effective Date, a written objection to the Reincorporation demanding payment
for his Company Stock if the Reincorporation is consummated and setting forth
his name, address and the number of shares of Company Stock held by him and (b)
must not be one of the Majority Holders who consented to the Reincorporation.
FAILURE TO FILE THE REQUIRED NOTICE OR DEMAND PRIOR TO THE EFFECTIVE DATE
WILL NOT SATISFY THE NOTICE REQUIREMENTS OF SECTION 607.1320 AND WILL RESULT IN
THE FORFEITURE OF DISSENTERS RIGHTS.
COMMUNICATIONS WITH RESPECT TO DISSENTERS' RIGHTS SHOULD BE ADDRESSED TO
THE COMPANY AT 161 EGLINTON AVENUE EAST, SUITE 400, TORONTO, ONTARIO, CANADA M4P
1J5.
Upon filing a notice of election to dissent a dissenting shareholder will
cease to have any of the rights of a shareholder except the right to be paid the
fair value of his Company Stock pursuant to Section 607.1320. If a shareholder
loses his dissenters' rights, either by withdrawal of his demand, abandonment of
the Reincorporation by the Company or otherwise, he will not have the right to
receive a cash payment for his Company Stock and will be reinstated to all of
his rights as a shareholder as they existed at the time of the filing of his
demand.
AT THE TIME OF DEMANDING PAYMENT FOR HIS SHARES OF COMPANY STOCK, EACH
SHAREHOLDER DEMANDING PAYMENT SHALL SUBMIT THE CERTIFICATE OR CERTIFICATES
REPRESENTING HIS SHARES OF COMPANY STOCK FOR NOTATION THEREON THAT SUCH DEMAND
HAS BEEN MADE. FAILURE TO DO SO SHALL, AT THE OPTION OF THE COMPANY, TERMINATE
HIS DISSENTERS' RIGHTS UNLESS A COURT, FOR GOOD CAUSE, DETERMINES OTHERWISE.
Within 60 days after the Effective Date of the Reincorporation, New
SoftQuad, as successor to the Company, will give written notice thereof to each
dissenting shareholder who timely filed a demand and will make a written offer
to each such shareholder to pay for his Company Stock at a specified price
determined by the Company to be the fair value thereof. If, within 30 days
after the Reincorporation, SoftQuad and a dissenting shareholder agree upon the
price to be paid for his Company Stock; SoftQuad shall make such payment within
90 days following the effective date of the Reincorporation, upon surrender by
such shareholder to SoftQuad of the certificates representing his Company Stock.
Upon payment, the dissenting shareholder shall cease to have any interest in the
Company Stock.
If New SoftQuad and any dissenting shareholder fail to agree upon the price
to be paid for his Company Stock within the aforementioned 30-day period, then
within 30 days after receipt of written demand from any dissenting shareholder
given within 60 days after the date the Reincorporation is effected, New
SoftQuad shall, or at any time within such 60 day period New SoftQuad may, file
an action in any court of general civil jurisdiction in the county in Florida
where the registered office, of the Company is located, requesting that the fair
value of such Company Stock be found and determined. If New SoftQuad fails to
institute the proceeding within such 60-day period, any dissenting shareholder
may institute such proceeding. All dissenting shareholders, except those who
have agreed on the price to be paid for their Company Stock, are required to be
made parties to such a proceeding.
In any such proceeding, the court, at New SoftQuad's request, will
determine whether or not any particular dissenting shareholder is entitled to
receive payment for his/her Company Stock. If New SoftQuad does not request
such a determination or if the court finds that a dissenting shareholder is so
entitled, the court, directly or through an appraiser, will fix the value of the
Company Stock as of the day prior to the date the Majority Holders consented to
the Reincorporation, excluding any appreciation or depreciation directly or
indirectly induced by the Reincorporation or the proposal to authorize it. The
expenses of any such proceeding, as determined by the court, shall be assessed
against New SoftQuad, except that the court may apportion costs to any
dissenting shareholder whom it finds to have been acting arbitrarily,
vexatiously or otherwise not in good faith in refusing an offer by New SoftQuad.
THE PROVISIONS OF SECTIONS 607.1302 TO 607.1320 ARE TECHNICAL AND COMPLEX.
IT IS SUGGESTED THAT ANY SHAREHOLDER WHO DESIRES TO EXERCISE HIS RIGHT TO
DISSENT CONSULT HIS LEGAL COUNSEL, AS FAILURE TO COMPLY STRICTLY WITH SUCH
PROVISIONS MAY LEAD TO A LOSS OF DISSENTERS' RIGHTS.
MARKET FOR THE COMPANY COMMON STOCK
Shares of the Company Common Stock have been registered with the Securities
and Exchange Commission (the "Commission") and are included on the OTC Bulletin
Board price quotation for the Company's shares published by such service.
As of March 9, 2000, there were 55 holders of record of the Company's
common stock.
DIVIDEND POLICY
The Company has not declared or paid cash dividends or made distributions
in the past, and New SoftQuad does not anticipate that it will pay cash
dividends or make distributions in the foreseeable future. New SoftQuad
currently intends to retain and reinvest future earnings, if any, to finance its
operations.
MISCELLANEOUS
The Company requests brokers, custodians, nominees and fiduciaries to
forward this Information Statement to the beneficial owners of Company Stock and
the Company will reimburse such holders for their reasonable expenses in
connection therewith. Additional copies of this Information Statement may be
obtained at no charge from the Exchange Agent by writing to it at the following
address: Atlas Stock Transfer Corporation, 5899 South State Street, Salt Lake
City, Utah 84107.
<PAGE>
EXHIBITS INDEX
A. PLAN AND AGREEMENT OF MERGER
B. DELAWARE RESTATED CERTIFICATE OF INCORPORATION
C. FLORIDA STATUTES
D. ANNUAL REPORT ON FORM 10-K
E. CURRENT REPORT ON FORM 8-K
F. LETTER OF TRANSMITTAL
<PAGE>
EXHIBIT A
PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER (hereinafter referred to as this
"Agreement") dated as of March 9, 2000, is made and entered into by and between
The American Sports Machine, Inc., a Florida corporation ("Company") and
SoftQuad Software, Ltd., a Delaware corporation ("SoftQuad").
W-I-T-N-E-S-S-E-T-H:
WHEREAS, the Company is a corporation organized and existing under the laws
of the State of Florida; and
WHEREAS, SoftQuad is a wholly-owned subsidiary corporation of the Company,
having been incorporated on March 9, 2000; and
NOW THEREFORE, in consideration of the premises, the mutual covenants
herein contained and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree that the
Company shall be merged into SoftQuad (the "Merger") upon the terms and
conditions hereinafter set forth.
ARTICLE I
Merger
On April 10, 2000 as soon as practicable thereafter (the "Effective Date"),
the Company shall be merged into SoftQuad, the separate existence of the Company
shall cease and SoftQuad (following the Merger referred to as "New SoftQuad")
shall continue to exist under the name of "SoftQuad Software, Ltd.," by virtue
of, and shall be governed by, the laws of the State of Delaware. The address of
the registered office of New SoftQuad in the State of Delaware will be The
Corporation Trust Company, 1209 Orange Street, in the City of Wilmington, County
of Newcastle, State of Delaware.
ARTICLE II
Certificate of Incorporation of SoftQuad
The Certificate of Incorporation of New SoftQuad shall be the Certificate
of Incorporation of SoftQuad as in effect on the date hereof without change
unless and until amended in accordance with applicable law.
ARTICLE III
By-Laws of SoftQuad
The By-Laws of New SoftQuad shall be the By-Laws of SoftQuad as in effect
on the date hereof without change unless and until amended or repealed in
accordance with applicable law.
ARTICLE IV
Effect of Merger on Stock of Constituent Corporation
4.01 On the Effective Date, (i) each outstanding share of Company common
stock, $.0001 par value ("Company Common Stock") shall be converted into one
share of New SoftQuad common stock, $.001 par value, ("New SoftQuad Common
Stock"), except for those shares of Company Common Stock with respect to which
the holders thereof duly exercise their dissenters' rights under Florida law,
(ii) each outstanding share of Company Class A Convertible Preferred Stock, no
par value ("Company Class A Preferred Stock") shall be converted into one share
of New SoftQuad Class A Convertible Preferred Stock, $.001 par value, ("New
SoftQuad Class A Preferred Stock"), except for those shares of Company Class A
Preferred Stock with respect to which the holders thereof duly exercise their
dissenters' rights under Florida law, (iii) each outstanding share of Company
Class B Convertible Preferred Stock, no par value ("Company Class B Preferred
Stock") shall be converted into one share of New SoftQuad Class B Convertible
Preferred Stock, $.001 par value, ("New SoftQuad Class B Preferred Stock"),
except for those shares of Company Class B Preferred Stock with respect to which
the holders thereof duly exercise their dissenters' rights under Florida law,
(iv) the outstanding share of Company Special Voting Stock, $.0001 par value,
("Company Special Voting Stock") shall be converted into one share of New
SoftQuad Special Voting Stock, $.001 par value ("New SoftQuad Special Voting
Stock") unless the holder thereof duly exercises its dissenters' rights under
Florida law, (v) any fractional New SoftQuad Common Stock, Class A Preferred
Stock or Class B Preferred Stock interests to which a holder of Company Common
Stock, Class A Preferred Stock or Class B Preferred Stock would be entitled
will be canceled with the holder thereof being entitled to receive the next
highest number of whole shares of SoftQuad Common Stock, Class A Preferred Stock
or Class B Preferred Stock, and (vi) each outstanding share of SoftQuad Common
Stock held by the Company shall be retired and canceled and shall resume the
status of an authorized and unissued SoftQuad Common Stock.
4.02 All options and rights to acquire Company Common Stock under or
pursuant to any options, warrants or contractual rights which are outstanding on
the Effective Date of the Merger will automatically be converted into equivalent
options and rights to purchase that whole number of SoftQuad Common Stock into
which the number of Company Common Stock subject to such options or warrants
immediately prior to the Effective Date would have been converted in the merger
had such rights been exercised immediately prior thereto (with any fractional
New SoftQuad interests resulting from the exercise being rounded up to the next
highest whole number). The exercise price per share of options or warrants to
acquire New SoftQuad shall be the exercise price per share of options or
warrants to acquire Company Common Stock in effect prior to the Effective Date,
and the other terms shall also be equivalent . All plans or agreements of the
Company under which such options and rights are granted or issued shall be
continued and assumed by New SoftQuad unless and until amended or terminated in
accordance with their respective terms.
4.03 (a) Atlas Stock Transfer Corporation, 5899 South State Street, Salt
Lake City, Utah 84107-8103. Attention: Pam Gray, shall act as exchange agent in
the Merger.
(b) Prior to, or as soon as practicable, after the Effective Date, SoftQuad
(or New SoftQuad) shall mail to each person who was, at the time of mailing or
at the Effective Date, a holder of record of issued and outstanding Company
Common Stock, Company Class A Preferred Stock, Company Class B Preferred Stock
or Company Special Voting Stock (collectively, "Company Stock") (i) a form
letter of transmittal and (ii) instructions for effecting the surrender of the
certificate or certificates, which immediately prior the Effective Date
represented issued and outstanding shares of Company Stock ("Company
Certificates"), in exchange for certificates representing New SoftQuad Common
Stock, New SoftQuad Class A Preferred Stock, New SoftQuad Class B Preferred
Stock or New SoftQuad Special Voting Stock (collectively "New SoftQuad Stock").
Upon surrender of a Company Certificate for cancellation to SoftQuad, together
with a duly executed letter of transmittal, the holder of such Company
Certificate shall subject to paragraph (f) of this section 4.03 be entitled to
receive in exchange therefor a certificate representing that number of New
SoftQuad Stock into which the Company Stock theretofore represented by the
Company Certificate so surrendered shall have been converted pursuant to the
provisions of this Article IV, and the Company Certificate so surrendered shall
forthwith be canceled.
(c) No dividends or other distributions declared after the Effective Date
with respect to New SoftQuad and payable to holders of record thereof after the
Effective Date shall be paid to the holder of any unsurrendered Company
Certificate with respect to New SoftQuad Stock which by virtue of the Merger are
represented thereby, nor shall such holder be entitled to exercise any right as
a holder of New SoftQuad, until such holder shall surrender such Company
Certificate. Subject to the effect, if any, of applicable law, after the
subsequent surrender and exchange of a Company Certificate, the holder thereof
shall be entitled to receive any such dividends or other distributions, without
any interest thereon, which became payable prior to such surrender and exchange
with respect to New SoftQuad Stock represented by such Company Certificate.
(d) If any stock certificate representing New SoftQuad is to be issued in a
name other than that in which the Company Certificate surrendered with respect
thereto is registered, it shall be a condition of such issuance that the Company
Certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such issuance shall pay any
transfer or other taxes required by reason of the issuance to a person other
than the registered holder of the Company Certificate surrendered or shall
establish to the satisfaction of New SoftQuad that such tax has been paid or is
not applicable.
(e) After the Effective Date, there shall be no further registration of
transfers on the stock transfer books of the Company of the shares of Company
Stock, or of any other shares of stock of the Company, which were outstanding
immediately prior to the Effective Date. If after the Effective Date
certificates representing such shares are presented to New SoftQuad they shall
be canceled and, in the case of Company Certificates, exchanged for certificates
representing New SoftQuad Stock as provided in this Article IV.
ARTICLE V
Corporate Existence, SoftQuad and Liabilities of SoftQuad
5.01 On the Effective Date, the separate existence of the Company shall
cease. The Company shall be merged with and into SoftQuad in accordance with
the provisions of this Agreement. Thereafter, New SoftQuad shall possess all
the rights, privileges, powers and franchises as well of a public as of a
private nature, and shall be subject to all the restrictions, disabilities and
duties of each of the parties to this Agreement and all and singular; the
rights, privileges, powers and franchises of the Company and SoftQuad, and all
property, real, personal and mixed, and all debts due to each of them on
whatever account, shall be vested in New SoftQuad; and all property, rights,
privileges, powers and franchises, and all and every other interest shall be
thereafter the property of New SoftQuad, as they were of the respective
constituent entities, and the title to any real estate whether by deed or
otherwise vested in the Company and SoftQuad or either of them, shall not revert
to be in any way impaired by reason of the Merger; but all rights of creditors
and all liens upon any property of the parties hereto, shall be preserved
unimpaired, and all debts, liabilities and duties of the respective constituent
entities, shall thenceforth attach to New SoftQuad, and may be enforced against
it to the same extent as if said debts, liabilities and duties had been incurred
or contracted by it.
5.02 The Company agrees that it will execute and deliver, or cause to be
executed and delivered, all such deeds, assignments and other instruments, and
will take or cause to be taken such further or other action as SoftQuad may deem
necessary or desirable in order to vest in and confirm to New SoftQuad title to
and possession of all the property, rights, privileges, immunities, powers,
purposes and franchises, and all and every other interest, of the Company and
otherwise to carry out the intent and purposes of this Agreement.
ARTICLE VI
Officers and Directors of SoftQuad
6.01 Upon the Effective Date, the officers and directors of New SoftQuad
shall be officers and directors of SoftQuad in office at such date, and such
persons shall hold office in accordance with the By-Laws of SoftQuad or until
their respective successors shall have been appointed or elected.
6.02 If, upon the Effective Date, a vacancy shall exist in the Board of
Directors of SoftQuad, such vacancy shall be filled in the manner provided by
its By-Laws.
ARTICLE VII
Approval by Shareholders; Amendment; Effective Date
7.01 This Agreement and the Merger contemplated hereby are subject to
approval by the requisite vote of shareholders in accordance with applicable
Florida law. As promptly as practicable after approval of this Agreement by
shareholders in accordance with applicable law, duly authorized officers of the
respective parties shall make and execute Articles of Merger and a Certificate
of Merger and shall cause such documents to be filed with the Secretary of State
of Florida and the Secretary of State of Delaware, respectively, in accordance
with the laws of the States of Florida and Delaware. The Effective Date of the
Merger shall be the date on which the Merger becomes effective under the laws of
Florida or the date on which the Merger becomes effective under the laws of
Delaware, whichever occurs later.
7.02 The Board of Directors of the Company and SoftQuad may amend this
Agreement at any time prior to the Effective Date, provided that an amendment
made subsequent to the approval of the Merger by the shareholders of Company
shall not (1) alter or change the amount or kind of shares to be received in
exchange for or on conversion of all or any of the Company Stock (2) alter or
change any term of the Certificate of Incorporation of SoftQuad, or (3) alter or
change any of the terms and conditions of this Agreement if such alteration or
change would adversely affect the holders of Company Stock.
ARTICLE VIII
Termination of Merger
This Agreement may be terminated and the Merger abandoned at any time prior
to the filing of this Agreement with the Secretary of State of Florida and the
Secretary of State of Delaware, whether before or after shareholder approval of
this Agreement, by the consent of the Board of Directors of the Company and
SoftQuad.
ARTICLE IX
Miscellaneous
In order to facilitate the filing and recording of this Agreement, this
Agreement may be executed in counterparts, each of which when so executed shall
be deemed to be an original and all such counterparts shall together constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers, all as of the day and year first above
written.
THE AMERICAN SPORTS MACHINE, INC.
a Florida corporation
By: /s/James D. Brock, Jr.
--------------------------------
James D. Brock, Jr., President
SOFTQUAD SOFTWARE, LTD.
a Delaware corporation
By: /s/Roberto Drassinower
--------------------------------
Roberto Drassinower, President
<PAGE>
EXHIBIT B
RESTATED CERTIFICATE OF INCORPORATION
OF
SOFTQUAD SOFTWARE, LTD.
This Restated Certificate of Incorporation of SoftQuad Software, Ltd.,
originally incorporated in the State of Delaware on March 3, 2000, has been duly
adopted in accordance with the provisions of Sections 241 of the General
Corporation Law of the State of Delaware to read as follows:
ARTICLE I
NAME
The name of the Corporation is SoftQuad Software, Ltd.
ARTICLE II
DURATION
The Corporation is to have perpetual existence.
ARTICLE III
REGISTERED OFFICE AND AGENT
The address of its registered office in the State of Delaware is the
Corporation Trust Center at 1209 Orange Street, in the City of Wilmington,
County of New Castle, State of Delaware. The name of its registered agent at
such address is The Corporation Trust Company.
ARTICLE IV
PURPOSES
The purpose for which the Corporation is organized is to transact all
lawful business for which corporations may be incorporated pursuant to the laws
of the State of Delaware. The Corporation shall have all the powers of a
corporation organized under the General Corporation Law of the State of
Delaware.
ARTICLE V
CAPITAL STOCK
A. Number and Designation. The Corporation shall have authority to issue
-----------------------
seventy five million and one (75,000,001) shares of capital stock, of which 50
million shall be shares of common stock, par value $0.001 per share ("Common
Stock"), and one share shall be special voting stock, par value $0.001 per share
("Special Voting Stock") 25 million shall be shares of preferred stock, par
value $0.001 per share ("Preferred Stock"). The shares may be issued by the
Corporation from time to time as approved by the board of directors of the
Corporation without the approval of the stockholders except as otherwise
provided in this Article V or the rules of a national securities exchange if
applicable. The consideration for the issuance of the shares shall be paid to
or received by the Corporation in full before their issuance and shall not be
less than the par value per share. The consideration for the issuance of the
shares shall be cash, services rendered, personal property (tangible or
intangible), real property, leases of real property or any combination of the
foregoing. In the absence of actual fraud in the transaction, the judgment of
the board of directors as to the value of such consideration shall be
conclusive. Upon payment of such consideration such shares shall be deemed to
be fully paid and nonassessable. In the case of a stock dividend, the part of
the surplus of the Corporation which is transferred to stated capital upon the
issuance of shares as a stock dividend shall be deemed to be the consideration
for their issuance.
A description of the different classes and series (if any) of the
Corporation's capital stock, and a statement of the relative powers,
designations, preferences and rights of the shares of each class and series (if
any) of capital stock, and the qualifications, limitations or restrictions
thereof, are as follows:
B. Common Stock and Special Voting Stock. The holders of Common Stock and
--------------------------------------
the holders of Special Voting Stock shall have the respective rights and
preferences set forth in this Article V.
(1) Rights and Privileges. Except as provided in this Certificate, the
-----------------------
holders of the Common Stock and Special Voting Stock shall exclusively possess
all voting power. Except as otherwise provided in this Article V or as
otherwise required by applicable law, all shares of Common Stock and Special
Voting Stock will be identical and will entitle the holders thereof to the same
rights and privileges and shall rank equally, share ratably, and be identical in
all respects as to all matters.
(2) Voting Rights. Except as otherwise required by law: (i) the holders
--------------
of Common Stock will be entitled to one vote per share on all matters to be
voted on by the Corporation's shareholders; (ii) the holder of the share of
Special Voting Stock shall have a number of votes equal to the number of
Exchangeable Shares (the "Exchangeable Shares") of Softquad Acquisition Corp.,
an Ontario corporation, issued and outstanding from time to time which are not
owned by the Corporation or any of its direct or indirect subsidiaries. Except
as otherwise required by law or this Restated Certificate of Incorporation,
(iii) the holders of Common Stock and the Special Voting Stock shall vote
together as a single class in the election of directors and on all matters
submitted to a vote of stockholders of the Corporation; (iv) no holder of Common
Stock or Special Voting Stock shall have the right to cumulate votes in the
election of Directors of the Corporation or for any other purpose.
(3) Payment of Dividends. Whenever there shall have been paid, or
----------------------
declared and set aside for payment, to the holders of the outstanding shares of
any class or series of stock having preference over the Common Stock as to the
payment of dividends, the full amount of dividends and sinking fund or
retirement fund or other retirement payments, if any, to which such holders are
respectively entitled in preference to the Common Stock, then dividends may be
paid on the Common Stock, Special Voting Stock, and on any class or series of
stock entitled to participate therewith as to dividends, out of any assets
legally available for the payment of dividends, but only when and as declared by
the board of directors of the Corporation.
(4) Distributions in Liquidation. In the event of any liquidation,
------------------------------
dissolution or winding up of the Corporation, after there shall have been paid,
or declared and set aside for payment, to the holders of the outstanding shares
of any class having preference over the Common Stock in any such event, the full
preferential amounts to which they are respectively entitled, the holders of the
Common Stock Special Voting Stock and of any class or series of stock entitled
to participate therewith, in whole or in part, as to distribution of assets
shall be entitled, after payment or provision for payment of all debts and
liabilities of the Corporation, to participate ratably on a per share basis in
all distributions of the remaining assets of the Corporation available for
distribution, in cash or in kind, as though all shares of Common Stock and
Special Voting Stock were of a single class.
(5) Limitation on Stock Splits, Combinations or Reclassifications.
-------------------------------------------------------------------
(a) The Corporation shall not: (i) subdivide its outstanding Common
Stock by stock dividend or otherwise; or (ii) combine its outstanding Common
Stock into a smaller number of shares; or (iii) reclassify its outstanding
Common Stock (including any reclassification in connection with a merger,
consolidation or other business combination in which the Corporation is the
surviving corporation); unless at the same time the Corporation subdivides,
combines or reclassifies, as applicable, the shares of outstanding Special
Voting Stock on the same basis as the Corporation so subdivides, combines or
reclassifies the outstanding Common Stock.
(b) The Corporation shall not: (i) subdivide its outstanding Special
Voting Stock by stock dividend or otherwise; or (ii) combine its outstanding
Special Voting Stock into a smaller number shares; or (iii) reclassify its
outstanding Special Voting Stock (including any reclassification in connection
with a merger, consolidation or other business combination in which the
Corporation is the surviving corporation); unless at the same time the
Corporation subdivides, combines or reclassifies, as applicable, the shares of
outstanding Common Stock on the same basis as the Corporation so subdivides,
combines or reclassifies the outstanding Special Voting Stock.
C. Serial Preferred Stock. Except as provided in this Certificate, the
------------------------
board of directors of the Corporation is authorized, by resolution or
resolutions from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the powers, designations,
preferences and relative, participating, optional or other special rights of the
shares of each such series, and the qualifications, limitation or restrictions
thereof, including, but not limited to determination of any of the following:
(1) the distinctive serial designation and the number of shares
constituting such series;
(2) the rights in respect of dividends, if any, to be paid on the shares
of such series, whether dividends shall be cumulative and, if so, from which
date or dates, the payment or date or dates for dividends, and the participating
or other special rights, if any, with respect to dividends;
(3) the voting powers, full or limited, if any, of the shares of such
series;
(4) whether the shares of such series shall be redeemable and, if so, the
price or prices at which, and the terms and conditions upon which such shares
may be redeemed;
(5) the amount or amounts payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(6) whether the shares of such series shall be entitled to the benefits of
a sinking or retirement fund to be applied to the purchase or redemption of such
shares, and, if so entitled, the amount of such fund and the manner of its
application, including the price or prices at which such shares may be redeemed
or purchased through the application of such funds;
(7) whether the shares of such series shall be convertible into, or
exchangeable 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 and, if so
convertible or exchangeable, the conversion price or prices, or the rate or
rates of exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such conversion
or exchange;
(8) the subscription or purchase price and form of consideration for which
the shares of such series shall be issued; and
(9) whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial preferred
stock and whether such shares may be reissued as shares of the same or any other
series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative powers, preferences and rights as, and shall be identical in all
respects with, all the other shares of the Corporation of the same series,
except the times from which dividends on shares which may be issued from time to
time of any such series may begin to accrue.
D. Class A Convertible Preferred Stock.
---------------------------------------
Designation and Amount
The designation of this class of shares shall be "Class A
Convertible Preferred Stock" (the "Class A Preferred Stock"), $.001; the initial
stated value per share shall be $1.3574 (the "Initial Stated Value"); and the
number of shares constituting such class shall be 1,473,405. The number of
shares of the Class A Preferred Stock may be decreased from time to time by a
resolution or resolutions of the Board of Directors; provided, however, that
such number shall not be decreased below the aggregate number of shares of the
Class A Preferred Stock then outstanding.
Rank
(a) With respect to dividends, the Class A Preferred Stock
shall rank on a parity with the Corporation's Common Stock and Special Voting
Stock. With respect to dividends, all Equity Securities of the Corporation
(other than convertible debt securities) to which the Class A Preferred Stock
ranks junior, with respect to dividends, are collectively referred to herein as
the "Senior Dividend Securities."
(b) With respect to the distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the Class A Preferred Stock shall rank (i) on a parity with each
other class of preferred stock; and (ii) senior to the Common Stock and Special
Voting Stock, and, except as specified above, all other classes of capital stock
of the Corporation hereafter issued by the Corporation. With respect to the
distribution of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, all Equity Securities of the
Corporation to which the Class A Preferred Stock ranks senior, including the
Common Stock, are collectively referred to herein as "Junior Liquidation
Securities"; all Equity Securities of the Corporation (other than convertible
debt securities) to which the Class A Preferred Stock ranks on parity are
collectively referred to herein as "Parity Liquidation Securities."
(c) The Class A Preferred Stock shall be subject to the
creation of Junior Liquidation Securities, but no Parity Liquidation Securities
or Senior Dividend Securities shall be created except in accordance with the
terms hereof.
Dividends
Dividends on the Class A Preferred Stock shall be paid only when,
as and if declared by the Board of Directors from time to time out of funds then
legally available for the payment of dividends.
Liquidation Preference
(a) In the event of a liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the holders of then
outstanding shares of Class A Preferred Stock shall be entitled to receive out
of the assets of the Corporation, whether such assets are capital or surplus of
any nature, an amount per share equal to the Initial Stated Value thereof,
before any payment shall be made or any assets distributed to the holders of any
Junior Liquidation Securities (the "Initial Preferred Distribution"). After the
Initial Preferred Distribution has been made, the holders of Class A Preferred
Stock shall be entitled to share pro rata with the holders of Common Stock and
Special Voting Stock in the distribution of any remaining assets of the
Corporation on the basis of each whole outstanding share of the Class A
Preferred Stock receiving an amount equal to the Formula Number then in effect
times such distribution on each share of the Common Stock and Special Voting
Stock. The distributions on the Class A Preferred Stock pursuant to the
immediately preceding sentence of this paragraph (a) are hereinafter referred to
as "Participating Liquidation Distributions." No distribution on the Common
Stock or Special Voting Stock in respect of which a Participating Liquidation
Distribution is required shall be paid or set aside for payment on the Common
Stock or Special Voting Stock unless a Participating Liquidation Distribution in
respect of such distribution is concurrently paid.
(b) All the assets of the Corporation available for
distribution to stockholders shall be distributed ratably (in proportion to the
full distributable amounts to which holders of Class A Preferred Stock and
Parity Liquidation Securities, if any, are respectively entitled upon such
dissolution, liquidation or winding up) among the holders of the then
outstanding shares of Class A Preferred Stock and Parity Liquidation Securities,
if any, when such assets are not sufficient to pay in full the aggregate amounts
payable thereon.
(c) Neither a consolidation or merger of the Corporation with
or into any other Person or Persons, nor a sale, conveyance, lease, exchange or
transfer of all or part of the Corporation's assets for cash, securities or
other property to a Person or Persons shall be deemed to be a liquidation,
dissolution or winding up of the Corporation for purposes of this Section D, but
the holders of shares of Class A Preferred Stock shall nevertheless be entitled
from and after any such consolidation, merger or sale, conveyance, lease,
exchange or transfer of all or part of the Corporation's assets to the rights
provided by this Section D following any such transaction. Notice of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, stating the payment date or dates when, and the place or places
where, the amounts distributable to each holder of shares of Class A Preferred
Stock in such circumstances shall be payable, shall be given by first-class
mail, postage prepaid, mailed not less than 30 days prior to any payment date
stated therein, to holders of record as they appear on the stock record books of
the Corporation as of the date such notices are first mailed.
Voting Rights
(a) The holders of Class A Preferred Stock shall be entitled
to the number of votes per share of Class A Preferred Stock equal to the number
of shares of Common Stock for which such share of Class A Preferred Stock is
then convertible pursuant to this Section D at each meeting of stockholders of
the Corporation with respect to any and all matters presented to the
stockholders of the Corporation for their action and consideration.
(b) So long as any shares of the Class A Preferred Stock are
outstanding, (i) each share of Class A Preferred Stock shall entitle the holder
thereof to vote on all matters voted on by holders of Common Stock and Special
Voting Stock; and (ii) the shares of Class A Preferred Stock shall vote together
with shares of Common Stock and Special Voting Stock as a single class.
(c) The foregoing rights of holders of shares of Class A
Preferred Stock to take any actions as provided in this Section D may be
exercised at any annual meeting of stockholders or at a special meeting of
stockholders held for such purpose as hereinafter provided or at any adjournment
thereof, or by the written consent, delivered to the Secretary of the
Corporation, of the holders of the minimum number of shares required to take
such action, if action by written consent of stockholders of the Corporation is
then permitted.
(d) The Corporation shall not enter into any agreement or
issue any security that prohibits, conflicts or is inconsistent with, or would
be breached by, the Corporation's performance of its obligations hereunder.
Conversion
The holders of the Class A Preferred Stock shall have conversion
rights as follows:
(a) Each share of Class A Preferred Stock shall be
convertible at the direction of, and by notice to the Corporation from, the
holder thereof, at any time, at the office of the Corporation or any transfer
agent for such Class, into one (1) fully paid and nonassessable share of Common
Stock subject (x) to adjustment from time to time as provided below (as so
adjusted, the "conversion ratio") and (y) to limitations resulting from the
available number of shares of Common Stock which may be reserved for issuance
upon such conversion.
(b) If a holder of Class A Preferred Stock gives notice
(a "Conversion Notice") of conversion under paragraph (a) above, such holder
shall surrender with such Conversion Notice the duly endorsed certificate or
certificates for the Class A Preferred Stock being converted, at the office of
the Corporation or of any transfer agent for such Class, and shall state therein
the name or names in which the certificate or certificates for shares of Common
Stock are to be issued. The Corporation shall, as soon as practicable after the
surrender of a Class A Preferred Stock certificate or certificates pursuant to a
Conversion Notice, issue and deliver at such office to such holder, or to the
nominee or nominees of such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such Conversion Notice and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the recordholder or holders of such shares
of Common Stock as of such date. The issuance of certificates or shares of
Common Stock upon conversion of shares of Class A Preferred Stock shall be made
without charge for any issue, stamp or other similar tax in respect of such
issuance.
(c) No fractional shares shall be issued upon conversion
of any shares of Class A Preferred Stock and the number of shares of Common
Stock to be issued shall be rounded down to the nearest whole share, and the
holder of Class A Preferred Stock shall be paid in cash for any fractional
share.
(d) In case at any time or from time to time the
Corporation shall pay any dividend or make any other distribution to the holders
of its Common Stock or other class of securities, or shall offer for
subscription pro rata to the holders of its Common Stock or other class of
securities any additional shares of stock of any class or any other right, or
there shall be any capital reorganization or reclassification of the Common
Stock of the Corporation or consolidation or merger of the Corporation with or
into another corporation, or any sale or conveyance to another corporation of
the property of the Corporation as an entirety or substantially as an entirety,
or there shall be a voluntary or involuntary dissolution, liquidation or winding
up of the Corporation, then, in any one or more of said cases the Corporation
shall give at least 20 days' prior written notice (the time of mailing of such
notice shall be deemed to be the time of giving thereof) to the registered
holders of the Class A Preferred Stock at the addresses of each as shown on the
books of the Corporation maintained by the Transfer Agent thereof of the date on
which (i) the books of the Corporation shall close or a record shall be taken
for such stock dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, sale or conveyance,
dissolution, liquidation or winding up shall take place, as the case may be,
provided that in the case of any Transaction to which paragraph (h) applies the
Corporation shall give at least 30 days' prior written notice as aforesaid.
Such notice shall also specify the date as of which the holders of the Common
Stock of record shall participate in said dividend, distribution or subscription
rights or shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale or conveyance or participate in such dissolution,
liquidation or winding up, as the case may be. Failure to give such notice
shall not invalidate any action so taken.
(e) The Corporation shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of the shares of Class A Preferred
Stock, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Class A
Preferred Stock, and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of Class A Preferred Stock, then in addition to such other
remedies as shall be available to the holder of Class A Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes.
(f) Any notice required by the provisions of paragraph
(d) to be given the holders of shares of Class A Preferred Stock shall be deemed
given if sent by facsimile transmission, by telex, or if deposited in the United
States mail, postage prepaid, and addressed to each holder of record at his, her
or its address appearing on the books of the Corporation.
(g) The conversion ratio shall be subject to adjustment
from time to time as follows:
(i) In case the Corporation shall at any time or
from time to time after the Issue Date (A) pay a dividend or make a
distribution, on the outstanding shares of Common Stock in shares of Common
Stock, (B) subdivide the outstanding shares of Common Stock into a larger number
of shares of Common Stock, (C) combine the outstanding shares of Common Stock
into a smaller number of shares or (D) issue by reclassification of the shares
of Common Stock any shares of capital stock of the Corporation, then, and in
each such case, the conversion ratio in effect immediately prior to such event
or the record date therefor, whichever is earlier, shall be adjusted so that the
holder of any shares of Class A Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares of Common Stock or
other securities of the Corporation that such holder would have owned or have
been entitled to receive after the happening of any of the events described
above, had such shares of Class A Preferred Stock been surrendered for
conversion immediately prior to the happening of such event or the record date
therefor, whichever is earlier. An adjustment made pursuant to this clause (i)
shall become effective (x) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of any such subdivision, reclassification or
combination, at the close of business on the day upon which such corporate
action becomes effective.
(ii) In the case the Corporation shall, after the
Issue Date, issue shares of Common Stock at a price per share, or securities
convertible into or exchangeable for shares of Common Stock ("Convertible
Securities") having a "Conversion Price" (as defined below) less than the
Current Market Price (for a period of 15 consecutive Trading Days prior to such
date), then, and in each such case, the conversion ratio shall be adjusted so
that the holder of each share of Class A Preferred Stock shall be entitled to
receive, upon the conversion thereof, the number of shares of Common Stock
determined by multiplying (A) the applicable conversion ratio on the day
immediately prior to such date by (B) a fraction, the numerator of which shall
be the sum of (1) the number of shares of Common Stock outstanding on the date
on which such shares or Convertible Securities are issued and (2) the number of
additional shares of Common Stock issued, or into which the Convertible
Securities may convert, and the denominator of which shall be the sum of (x) the
number of shares of Common Stock outstanding on such date and (y) the number of
shares of Common Stock which the aggregate consideration receivable by the
Corporation for the total number of shares of Common Stock so issued, or the
number of shares of Common Stock which the aggregate of the Conversion Price of
such Convertible Securities so issued, would purchase at such Current Market
price on such date. An adjustment made pursuant to this clause (ii) shall be
made on the next Business Day following the date on which any such issuance is
made and shall be effective retroactively immediately after the close of
business on such date. For purposes of this clause (ii), the aggregate
consideration receivable by the Corporation in connection with the issuance of
any securities shall be deemed to be the sum of the aggregate offering price to
the public (before deduction of underwriting discounts or commissions and
expenses payable to third parties), and the "Conversion Price" of any
Convertible Securities is the total amount received or receivable by the
Corporation as consideration for the issue or sale of such Convertible
Securities (before deduction of underwriting discounts or commissions and
expenses payable to third parties) plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
conversion, exchange or exercise of any such Convertible Securities. Neither
(A) the issuance of any shares of Common Stock (whether treasury shares or newly
issued shares) pursuant to a dividend or distribution on, or subdivision,
combination or reclassification of, the outstanding shares of Common Stock
requiring an adjustment in the conversion ratio pursuant to clause (i) of this
Section D, or pursuant to any employee benefit plan or program of the
Corporation or pursuant to any option, warrant, right, or Convertible Security
outstanding as of the date hereof nor (B) the issuance of shares of Common Stock
pursuant thereto shall be deemed to constitute an issuance of Common Stock or
Convertible Securities by the Corporation to which this clause (ii) applies.
Upon expiration of any Convertible Securities that shall not have been exercised
or converted and for which an adjustment shall have been made pursuant to this
clause (ii), the Conversion Price computed upon the original issue thereof shall
upon such expiration be recomputed as if the only additional shares of Common
Stock issued were such shares of Common Stock (if any) actually issued upon
exercise of such Convertible Securities and the consideration received therefor
was the consideration actually received by the Corporation for the issue of such
Convertible Securities (whether or not exercised or converted) plus the
consideration actually received by the Corporation upon such exercise of
conversion.
(iii) In case the Corporation shall at any time or
from time to time after the Issue Date declare, order, pay or make a dividend or
other distribution (including, without limitation, any distribution of stock or
other securities or property or rights or warrants to subscribe for securities
of the Corporation or any of its Subsidiaries by way of dividend or spin-off),
on its Common Stock, other than dividends or distributions of shares of Common
Stock that are referred to in clause (i) of this paragraph (g), then, and in
each such case, the conversion ratio shall be adjusted so that the holder of
each share of Class A Preferred Stock shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock determined by
multiplying (1) the applicable conversion ratio on the day immediately prior to
the record date fixed for the determination of stockholders entitled to receive
such dividend or distribution by (2) a fraction, the numerator of which shall be
the then Current Market Price per share of Common Stock for the period of 20
Trading Days preceding such record date, and the denominator of which shall be
such Current Market Price per share of Common Stock for the period of 20 Trading
Days preceding such record date less the Fair Market Value (as defined in
Section (vii)) per share of Common Stock (as determined in good faith by the
Board of Directors of the Corporation, a certified resolution with respect to
which shall be mailed to each holder of shares of Class A Preferred Stock) of
such dividend or distribution; provided, however, that in the event of a
distribution of shares of capital stock of a Subsidiary of the Corporation (a
"Spin-Off") made to holders of shares of Common Stock, the numerator of such
fraction shall be the sum of the Current Market Price per share of Common Stock
for the period of 20 Trading Days preceding the 35th Trading Day after the
effective date of such Spin-Off and the Current Market Price of the number of
shares (or the fraction of a share) of capital stock of the Subsidiary which is
distributed in such Spin-Off in respect of one share of Common Stock for the
period of 20 Trading Days preceding such 35th Trading Day and the denominator of
which shall be the current market price per share of the Common Stock for the
period of 20 Trading Days proceeding such 35th Trading Day. An adjustment made
pursuant to this clause (iii) shall be made upon the opening of business on the
next Business Day following the date on which any such dividend or distribution
is made and shall be effective retroactively immediately after the close of
business on the record date fixed for the determination of stockholders entitled
to receive such dividend or distribution; provided, however, if the proviso to
the preceding sentence applies, then such adjustment shall be made and be
effective as of such 35th Trading Day after the effective date of such Spin-Off.
(iv) For purposes of this paragraph (g), the number
of shares of Common Stock at any time outstanding shall not include any shares
of Common Stock then owned or held by or for the account of the Corporation.
(v) Anything in this paragraph (g) to the contrary
notwithstanding, the Corporation shall not be required to give effect to any
adjustment in the conversion ratio unless and until the net effect of one or
more adjustments (each of which shall be carried forward), determined as above
provided, shall have resulted in a change of the conversion ratio by at least
one-hundredth of one share of Common Stock, and when the cumulative net effect
of more than one adjustment so determined shall be to change the conversion
ratio by at least one-hundredth of one share of Common Stock, such change in
conversion ratio shall thereupon be given effect.
(vi) The certificate of any firm of independent
public accountants of recognized standing selected by the Board of Directors of
the Corporation (which may be the firm of independent public accountants
regularly employed by the Corporation) shall be presumptively correct for any
computation made under this paragraph (g).
(vii) If the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend or other distribution, and shall thereafter and before the distribution
to stockholders thereof legally abandon its plan to pay or deliver such dividend
or distribution, then thereafter no adjustment in the number of shares of Common
Stock issuable upon exercise of the right of conversion granted by this
paragraph (g) or in the conversion ratio then in effect shall be required by
reason of the taking of such record.
(viii) There shall be no adjustment of the
conversion ratio in case of the issuance of any stock of the Corporation in a
merger, reorganization, acquisition or other similar transaction except as set
forth in paragraph (g)(i), G(ii) and H of this Section D.
(h) In case of any reorganization or reclassification of
outstanding shares of Common Stock (other than a reclassification covered by
paragraph (g)(i) of this Section D), or in case of any consolidation or merger
of the Corporation with or into another corporation, or in the case of any sale
or conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety (each of the foregoing being referred
to as a "Transaction"), each share of Class A Preferred Stock then outstanding
shall thereafter be convertible into, in lieu of the Common Stock issuable upon
such conversion prior to consummation of such Transaction, the kind and amount
of shares of stock and other securities and property receivable (including cash)
upon the consummation of such Transaction by a holder of that number of shares
of Common Stock into which one share of Class A Preferred Stock was convertible
immediately prior to such Transaction (including, on a pro rata basis, the cash,
securities or property received by holders of Common Stock in any tender or
exchange offer that is a step in such Transaction). In case securities or
property other than Common Stock shall be issuable or deliverable upon
conversion as aforesaid, then all reference in this paragraph (h) shall be
deemed to apply, so far as appropriate and as nearly as may be, to such other
securities or property.
(i) Upon any adjustment of the conversion ratio then in
effect and any increase or decrease in the number of shares of Common Stock
issuable upon the operation of the conversion set forth in this Section D, then,
and in each such case, the Corporation shall promptly deliver to the registered
holders of the Class A Preferred and Common Stock, a certificate signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Corporation setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the conversion ratio then in
effect following such adjustment and the increased or decreased number of shares
issuable upon the conversion set forth in this Section D.
E. Class B Convertible Preferred Stock
---------------------------------------
Designation and Amount
The designation of this class of shares shall be "Class B
Convertible Preferred Stock" (the "Class B Preferred Stock"), $.001; the initial
stated value per share shall be $2.903226 (the "Initial Stated Value"); and the
number of shares constituting such class shall be 1,722,222. The number of
shares of the Class B Preferred Stock may be decreased from time to time by a
resolution or resolutions of the Board of Directors; provided, however, that
such number shall not be decreased below the aggregate number of shares of the
Class B Preferred Stock then outstanding.
Rank
(a) With respect to dividends, the Class B Preferred Stock
shall rank on a parity with the Corporation's Common Stock and Special Voting
Stock. With respect to dividends, all Equity Securities of the Corporation
(other than convertible debt securities) to which the Class B Preferred Stock
ranks junior, with respect to dividends, are collectively referred to herein as
the "Senior Dividend Securities."
(b) With respect to the distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the Class B Preferred Stock shall rank (i) on a parity with each
other class of preferred stock; and (ii) senior to the Common Stock and Special
Voting Stock, and, except as specified above, all other classes of capital stock
of the Corporation hereafter issued by the Corporation. With respect to the
distribution of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, all Equity Securities of the
Corporation to which the Class B Preferred Stock ranks senior, including the
Common Stock, are collectively referred to herein as "Junior Liquidation
Securities"; all Equity Securities of the Corporation (other than convertible
debt securities) to which the Class B Preferred Stock ranks on parity are
collectively referred to herein as "Parity Liquidation Securities."
(c) The Class B Preferred Stock shall be subject to the
creation of Junior Liquidation Securities, but no Parity Liquidation Securities
or Senior Dividend Securities shall be created except in accordance with the
terms hereof.
Dividends
Dividends on the Class B Preferred Stock shall be paid only when,
as and if declared by the Board of Directors from time to time out of funds then
legally available for the payment of dividends.
Liquidation Preference
(a) In the event of a liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the holders of then
outstanding shares of Class B Preferred Stock shall be entitled to receive out
of the assets of the Corporation, whether such assets are capital or surplus of
any nature, an amount per share equal to the Initial Stated Value thereof,
before any payment shall be made or any assets distributed to the holders of any
Junior Liquidation Securities (the "Initial Preferred Distribution"). After the
Initial Preferred Distribution has been made, the holders of Class B Preferred
Stock shall be entitled to share pro rata with the holders of Common Stock and
Special Voting Stock in the distribution of any remaining assets of the
Corporation on the basis of each whole outstanding share of the Class B
Preferred Stock receiving an amount equal to the Formula Number then in effect
times such distribution on each share of the Common Stock and Special Voting
Stock. The distributions on the Class B Preferred Stock pursuant to the
immediately preceding sentence of this paragraph (a) are hereinafter referred to
as "Participating Liquidation Distributions." No distribution on the Common
Stock or Special Voting Stock in respect of which a Participating Liquidation
Distribution is required shall be paid or set aside for payment on the Common
Stock or Special Voting Stock unless a Participating Liquidation Distribution in
respect of such distribution is concurrently paid.
(b) All the assets of the Corporation available for
distribution to stockholders shall be distributed ratably (in proportion to the
full distributable amounts to which holders of Class B Preferred Stock and
Parity Liquidation Securities, if any, are respectively entitled upon such
dissolution, liquidation or winding up) among the holders of the then
outstanding shares of Class B Preferred Stock and Parity Liquidation Securities,
if any, when such assets are not sufficient to pay in full the aggregate amounts
payable thereon.
(c) Neither a consolidation or merger of the Corporation with
or into any other Person or Persons, nor a sale, conveyance, lease, exchange or
transfer of all or part of the Corporation's assets for cash, securities or
other property to a Person or Persons shall be deemed to be a liquidation,
dissolution or winding up of the Corporation for purposes of this Section D, but
the holders of shares of Class B Preferred Stock shall nevertheless be entitled
from and after any such consolidation, merger or sale, conveyance, lease,
exchange or transfer of all or part of the Corporation's assets to the rights
provided by this Section D following any such transaction. Notice of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, stating the payment date or dates when, and the place or places
where, the amounts distributable to each holder of shares of Class B Preferred
Stock in such circumstances shall be payable, shall be given by first-class
mail, postage prepaid, mailed not less than 30 days prior to any payment date
stated therein, to holders of record as they appear on the stock record books of
the Corporation as of the date such notices are first mailed.
Voting Rights
(a) The holders of Class B Preferred Stock shall be entitled
to the number of votes per share of Class B Preferred Stock equal to the number
of shares of Common Stock for which such share of Class B Preferred Stock is
then convertible pursuant to this Section D at each meeting of stockholders of
the Corporation with respect to any and all matters presented to the
stockholders of the Corporation for their action and consideration.
(b) So long as any shares of the Class B Preferred Stock are
outstanding, (i) each share of Class B Preferred Stock shall entitle the holder
thereof to vote on all matters voted on by holders of Common Stock and Special
Voting Stock; and (ii) the shares of Class B Preferred Stock shall vote together
with shares of Common Stock and Special Voting Stock as a single class.
(c) The foregoing rights of holders of shares of Class B
Preferred Stock to take any actions as provided in this Section E may be
exercised at any annual meeting of stockholders or at a special meeting of
stockholders held for such purpose as hereinafter provided or at any adjournment
thereof, or by the written consent, delivered to the Secretary of the
Corporation, of the holders of the minimum number of shares required to take
such action, if action by written consent of stockholders of the Corporation is
then permitted.
(d) The Corporation shall not enter into any agreement or
issue any security that prohibits, conflicts or is inconsistent with, or would
be breached by, the Corporation's performance of its obligations hereunder.
Conversion
The holders of the Class B Preferred Stock shall have conversion
rights as follows:
(a) Each share of Class B Preferred Stock shall be
convertible at the direction of, and by notice to the Corporation from, the
holder thereof, at any time, at the office of the Corporation or any transfer
agent for such Class, into one (1) fully paid and nonassessable share of Common
Stock subject (x) to adjustment from time to time as provided below (as so
adjusted, the "conversion ratio") and (y) to limitations resulting from the
available number of shares of Common Stock which may be reserved for issuance
upon such conversion.
(b) If a holder of Class B Preferred Stock gives notice
(a "Conversion Notice") of conversion under paragraph (a) above, such holder
shall surrender with such Conversion Notice the duly endorsed certificate or
certificates for the Class B Preferred Stock being converted, at the office of
the Corporation or of any transfer agent for such Class, and shall state therein
the name or names in which the certificate or certificates for shares of Common
Stock are to be issued. The Corporation shall, as soon as practicable after the
surrender of a Class B Preferred Stock certificate or certificates pursuant to a
Conversion Notice, issue and deliver at such office to such holder, or to the
nominee or nominees of such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such Conversion Notice and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the recordholder or holders of such shares
of Common Stock as of such date. The issuance of certificates or shares of
Common Stock upon conversion of shares of Class B Preferred Stock shall be made
without charge for any issue, stamp or other similar tax in respect of such
issuance.
(c) No fractional shares shall be issued upon conversion
of any shares of Class B Preferred Stock and the number of shares of Common
Stock to be issued shall be rounded down to the nearest whole share, and the
holder of Class B Preferred Stock shall be paid in cash for any fractional
share.
(d) In case at any time or from time to time the
Corporation shall pay any dividend or make any other distribution to the holders
of its Common Stock or other class of securities, or shall offer for
subscription pro rata to the holders of its Common Stock or other class of
securities any additional shares of stock of any class or any other right, or
there shall be any capital reorganization or reclassification of the Common
Stock of the Corporation or consolidation or merger of the Corporation with or
into another corporation, or any sale or conveyance to another corporation of
the property of the Corporation as an entirety or substantially as an entirety,
or there shall be a voluntary or involuntary dissolution, liquidation or winding
up of the Corporation, then, in any one or more of said cases the Corporation
shall give at least 20 days' prior written notice (the time of mailing of such
notice shall be deemed to be the time of giving thereof) to the registered
holders of the Class B Preferred Stock at the addresses of each as shown on the
books of the Corporation maintained by the Transfer Agent thereof of the date on
which (i) the books of the Corporation shall close or a record shall be taken
for such stock dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, sale or conveyance,
dissolution, liquidation or winding up shall take place, as the case may be,
provided that in the case of any Transaction to which paragraph (h) applies the
Corporation shall give at least 30 days' prior written notice as aforesaid.
Such notice shall also specify the date as of which the holders of the Common
Stock of record shall participate in said dividend, distribution or subscription
rights or shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale or conveyance or participate in such dissolution,
liquidation or winding up, as the case may be. Failure to give such notice
shall not invalidate any action so taken.
(e) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of the shares of Class B Preferred
Stock, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Class B
Preferred Stock, and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of Class B Preferred Stock, then in addition to such other
remedies as shall be available to the holder of Class B Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes.
(f) Any notice required by the provisions of paragraph
(d) to be given the holders of shares of Class B Preferred Stock shall be deemed
given if sent by facsimile transmission, by telex, or if deposited in the United
States mail, postage prepaid, and addressed to each holder of record at his, her
or its address appearing on the books of the Corporation.
(g) The conversion ratio shall be subject to adjustment
from time to time as follows:
(i) In case the Corporation shall at any time or from
time to time after the Issue Date (A) pay a dividend or make a distribution, on
the outstanding shares of Common Stock in shares of Common Stock, (B) subdivide
the outstanding shares of Common Stock into a larger number of shares of Common
Stock, (C) combine the outstanding shares of Common Stock into a smaller number
of shares or (D) issue by reclassification of the shares of Common Stock any
shares of capital stock of the Corporation, then, and in each such case, the
conversion ratio in effect immediately prior to such event or the record date
therefor, whichever is earlier, shall be adjusted so that the holder of any
shares of Class B Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock or other securities of
the Corporation that such holder would have owned or have been entitled to
receive after the happening of any of the events described above, had such
shares of Class B Preferred Stock been surrendered for conversion immediately
prior to the happening of such event or the record date therefor, whichever is
earlier. An adjustment made pursuant to this clause (i) shall become effective
(x) in the case of any such dividend or distribution, immediately after the
close of business on the record date for the determination of holders of shares
of Common Stock entitled to receive such dividend or distribution, or (y) in the
case of any such subdivision, reclassification or combination, at the close of
business on the day upon which such corporate action becomes effective.
(ii) In the case the Corporation shall, after the
Issue Date, issue shares of Common Stock at a price per share, or securities
convertible into or exchangeable for shares of Common Stock ("Convertible
Securities") having a "Conversion Price" (as defined below) less than the
Current Market Price (for a period of 15 consecutive Trading Days prior to such
date), then, and in each such case, the conversion ratio shall be adjusted so
that the holder of each share of Class B Preferred Stock shall be entitled to
receive, upon the conversion thereof, the number of shares of Common Stock
determined by multiplying (A) the applicable conversion ratio on the day
immediately prior to such date by (B) a fraction, the numerator of which shall
be the sum of (1) the number of shares of Common Stock outstanding on the date
on which such shares or Convertible Securities are issued and (2) the number of
additional shares of Common Stock issued, or into which the Convertible
Securities may convert, and the denominator of which shall be the sum of (x) the
number of shares of Common Stock outstanding on such date and (y) the number of
shares of Common Stock which the aggregate consideration receivable by the
Corporation for the total number of shares of Common Stock so issued, or the
number of shares of Common Stock which the aggregate of the Conversion Price of
such Convertible Securities so issued, would purchase at such Current Market
price on such date. An adjustment made pursuant to this clause (ii) shall be
made on the next Business Day following the date on which any such issuance is
made and shall be effective retroactively immediately after the close of
business on such date. For purposes of this clause (ii), the aggregate
consideration receivable by the Corporation in connection with the issuance of
any securities shall be deemed to be the sum of the aggregate offering price to
the public (before deduction of underwriting discounts or commissions and
expenses payable to third parties), and the "Conversion Price" of any
Convertible Securities is the total amount received or receivable by the
Corporation as consideration for the issue or sale of such Convertible
Securities (before deduction of underwriting discounts or commissions and
expenses payable to third parties) plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
conversion, exchange or exercise of any such Convertible Securities. Neither
(A) the issuance of any shares of Common Stock (whether treasury shares or newly
issued shares) pursuant to a dividend or distribution on, or subdivision,
combination or reclassification of, the outstanding shares of Common Stock
requiring an adjustment in the conversion ratio pursuant to clause (i) of this
Section E, or pursuant to any employee benefit plan or program of the
Corporation or pursuant to any option, warrant, right, or Convertible Security
outstanding as of the date hereof nor (B) the issuance of shares of Common Stock
pursuant thereto shall be deemed to constitute an issuance of Common Stock or
Convertible Securities by the Corporation to which this clause (ii) applies.
Upon expiration of any Convertible Securities that shall not have been exercised
or converted and for which an adjustment shall have been made pursuant to this
clause (ii), the Conversion Price computed upon the original issue thereof shall
upon such expiration be recomputed as if the only additional shares of Common
Stock issued were such shares of Common Stock (if any) actually issued upon
exercise of such Convertible Securities and the consideration received therefor
was the consideration actually received by the Corporation for the issue of such
Convertible Securities (whether or not exercised or converted) plus the
consideration actually received by the Corporation upon such exercise of
conversion.
(iii) In case the Corporation shall at any time or
from time to time after the Issue Date declare, order, pay or make a dividend or
other distribution (including, without limitation, any distribution of stock or
other securities or property or rights or warrants to subscribe for securities
of the Corporation or any of its Subsidiaries by way of dividend or spin-off),
on its Common Stock, other than dividends or distributions of shares of Common
Stock that are referred to in clause (i) of this paragraph (g), then, and in
each such case, the conversion ratio shall be adjusted so that the holder of
each share of Class B Preferred Stock shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock determined by
multiplying (1) the applicable conversion ratio on the day immediately prior to
the record date fixed for the determination of stockholders entitled to receive
such dividend or distribution by (2) a fraction, the numerator of which shall be
the then Current Market Price per share of Common Stock for the period of 20
Trading Days preceding such record date, and the denominator of which shall be
such Current Market Price per share of Common Stock for the period of 20 Trading
Days preceding such record date less the Fair Market Value (as defined in
Section (vii)) per share of Common Stock (as determined in good faith by the
Board of Directors of the Corporation, a certified resolution with respect to
which shall be mailed to each holder of shares of Class B Preferred Stock) of
such dividend or distribution; provided, however, that in the event of a
distribution of shares of capital stock of a Subsidiary of the Corporation (a
"Spin-Off") made to holders of shares of Common Stock, the numerator of such
fraction shall be the sum of the Current Market Price per share of Common Stock
for the period of 20 Trading Days preceding the 35th Trading Day after the
effective date of such Spin-Off and the Current Market Price of the number of
shares (or the fraction of a share) of capital stock of the Subsidiary which is
distributed in such Spin-Off in respect of one share of Common Stock for the
period of 20 Trading Days preceding such 35th Trading Day and the denominator of
which shall be the current market price per share of the Common Stock for the
period of 20 Trading Days proceeding such 35th Trading Day. An adjustment made
pursuant to this clause (iii) shall be made upon the opening of business on the
next Business Day following the date on which any such dividend or distribution
is made and shall be effective retroactively immediately after the close of
business on the record date fixed for the determination of stockholders entitled
to receive such dividend or distribution; provided, however, if the proviso to
the preceding sentence applies, then such adjustment shall be made and be
effective as of such 35th Trading Day after the effective date of such Spin-Off.
(iv) For purposes of this paragraph (g), the number of
shares of Common Stock at any time outstanding shall not include any shares of
Common Stock then owned or held by or for the account of the Corporation.
(v) Anything in this paragraph (g) to the contrary
notwithstanding, the Corporation shall not be required to give effect to any
adjustment in the conversion ratio unless and until the net effect of one or
more adjustments (each of which shall be carried forward), determined as above
provided, shall have resulted in a change of the conversion ratio by at least
one-hundredth of one share of Common Stock, and when the cumulative net effect
of more than one adjustment so determined shall be to change the conversion
ratio by at least one-hundredth of one share of Common Stock, such change in
conversion ratio shall thereupon be given effect.
(vi) The certificate of any firm of independent public
accountants of recognized standing selected by the Board of Directors of the
Corporation (which may be the firm of independent public accountants regularly
employed by the Corporation) shall be presumptively correct for any computation
made under this paragraph (g).
(vii) If the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend or other distribution, and shall thereafter and before the distribution
to stockholders thereof legally abandon its plan to pay or deliver such dividend
or distribution, then thereafter no adjustment in the number of shares of Common
Stock issuable upon exercise of the right of conversion granted by this
paragraph (g) or in the conversion ratio then in effect shall be required by
reason of the taking of such record.
(viii) There shall be no adjustment of the conversion
ratio in case of the issuance of any stock of the Corporation in a merger,
reorganization, acquisition or other similar transaction except as set forth in
paragraph (g)(i), (g)(ii) and (h) of this Section E.
(h) In case of any reorganization or reclassification of
outstanding shares of Common Stock (other than a reclassification covered by
paragraph (g)(i) of this Section E), or in case of any consolidation or merger
of the Corporation with or into another corporation, or in the case of any sale
or conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety (each of the foregoing being referred
to as a "Transaction"), each share of Class B Preferred Stock then outstanding
shall thereafter be convertible into, in lieu of the Common Stock issuable upon
such conversion prior to consummation of such Transaction, the kind and amount
of shares of stock and other securities and property receivable (including cash)
upon the consummation of such Transaction by a holder of that number of shares
of Common Stock into which one share of Class B Preferred Stock was convertible
immediately prior to such Transaction (including, on a pro rata basis, the cash,
securities or property received by holders of Common Stock in any tender or
exchange offer that is a step in such Transaction). In case securities or
property other than Common Stock shall be issuable or deliverable upon
conversion as aforesaid, then all reference in this paragraph (h) shall be
deemed to apply, so far as appropriate and as nearly as may be, to such other
securities or property.
(i) Upon any adjustment of the conversion ratio then in
effect and any increase or decrease in the number of shares of Common Stock
issuable upon the operation of the conversion set forth in this Section D, then,
and in each such case, the Corporation shall promptly deliver to the registered
holders of the Class B Preferred and Common Stock, a certificate signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Corporation setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the conversion ratio then in
effect following such adjustment and the increased or decreased number of shares
issuable upon the conversion set forth in this Section D.
F. Additional Definitions
-----------------------
For the purposes of this Restated Certificate of Incorporation, the
following terms shall have the meanings indicated:
"Business Day" means any day, other than a Saturday, Sunday or a
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Current Market Price," when used with reference to shares of
Common Stock or other securities on any date, shall mean the closing price per
share of Common Stock or such other securities on such date and, when used with
reference to shares of Common Stock or other securities for any period shall
mean the average of the daily closing prices per share of Common Stock or such
other securities for such period. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common Stock or such other securities are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Common Stock or such
other securities are listed or admitted to trading or, if the Common Stock is
not listed or admitted to trading on any national securities exchange, the last
quoted sale price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. National Market System or such other
securities are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Common Stock or such other securities selected by the Board of Directors
of the Corporation. If the Common Stock or such other securities are not
publicly held or so listed or publicly traded, "Current Market Price" shall mean
the Fair Market Value per share of Common Stock or of such other securities as
determined in good faith by the Board of Directors of the Corporation based on
an opinion of an independent investment banking firm with an established
national reputation as a valuer of securities, which opinion may be based on
such assumption as such firm shall deem to be necessary and appropriate.
"Equity Securities" of any Person means any and all common stock,
preferred stock and any other class of capital stock of, and any partnership or
limited liability company interests of such Person or any other similar
interests of any Person that is not a corporation, partnership or limited
liability company.
"Fair Market Value" shall mean the amount which a willing buyer
would pay a willing seller in an arm's-length transaction.
"Formula Number" shall mean one (1); provided, however, that if
the Corporation shall (i) declare or pay any dividend or make any distribution
on the Common Stock or Special Voting Stock, payable in shares of Common Stock
or Special Voting Stock; (ii) subdivide (by a stock split or otherwise) the
outstanding shares of Common Stock or Special Voting Stock into a larger number
of shares of Common Stock or Special Voting Stock; or (iii) combine (by a
reverse stock split or otherwise) the outstanding shares of Common Stock or
Special Voting Stock into a smaller number of shares of Common Stock or Special
Voting Stock, then in each such case the Formula Number in effect immediately
prior to such event shall be adjusted to a number determined by multiplying the
Formula Number then in effect by a fraction, the numerator of which is the
number of shares of Common Stock or Special Voting Stock outstanding immediately
after such event and the denominator of which is the number of shares of Common
Stock or Special Voting Stock that were outstanding immediately prior to such
event (and rounding the result to the nearest whole number); and provided
further, that, if the Corporation shall issue any shares of its capital stock in
a merger, reclassification, or change of the outstanding shares of Common Stock,
then in each such event the Formula Number shall be appropriately adjusted to
reflect such merger, reclassification, or change so that each share of Preferred
Stock continues to be the economic equivalent of a Formula Number of shares of
Common Stock and Special Voting Stock immediately prior to such merger,
reclassification, or change.
"Issue Date" shall mean the first date on which shares of Class A
Preferred Stock and Class B Preferred Stock respectively are issued.
"Person" means any individual, corporation, company, association,
partnership, joint venture, trust or unincorporated organization, or a
government or any agency or political subdivision thereof.
"Subsidiary" means, as to any Person, any other Person of which
more than 50% of the shares of the Voting Securities or other voting interests
are owned or controlled, or the ability to select or elect 50% or more of the
directors or similar managers is held, directly or indirectly, by such first
Person and one or more of its Subsidiaries.
"Trading Day" means a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to trading
is open for the transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange a Business Day.
"Voting Securities" means, (i) with respect to the Company, the
Equity Securities of the Company entitled to vote generally for the election of
directors of the Company, and (ii) with respect to any other Person, any
securities of or interests in such Person entitled to vote generally for the
election of directors or any similar managing person of such Person.
G. Miscellaneous
-------------
(a) Notices. Any notice referred to herein shall be in writing
and, unless first-class mail shall be specifically permitted for such notices
under the terms hereof, shall be deemed to have been given upon personal
delivery thereof, upon transmittal of such notice by telecopy (with confirmation
of receipt by telecopy or telex) or five days after transmittal by registered or
certified mail, postage prepaid, addressed as follows:
(i) if to the Corporation, to its office at 161 Eglinton Avenue
East, Suite 400, Toronto, Ontario, Canada M4P 1J5 (Attention: Secretary), or to
the transfer agent for the Class A and Class B Preferred Stock;
(ii) if to a holder of the Class A Preferred Stock or Class B
Preferred Stock, to such holder at the address of such holder as listed in the
stock record books of the Corporation (which may include the records of any
transfer agent for the Class A Preferred Stock or Class B Preferred Stock); or
(iii) to such other address as the Corporation or such holder,
as the case may be, shall have designated by notice similarly given.
(b) Reacquired Shares. Any shares of Class A Preferred Stock or
Class B Preferred Stock purchased or otherwise acquired by the Corporation,
directly or indirectly, in any manner whatsoever shall be retired and canceled
promptly after the acquisition thereof (and shall not be deemed to be
outstanding for any purpose) and, if necessary to provide for the lawful
purchase of such shares, the capital represented by such shares shall be reduced
in accordance with the General Corporation Law of Delaware. All such shares of
Class A Preferred Stock or Class B Preferred Stock shall upon their cancellation
and upon the filing of an appropriate certificate with the Secretary of State of
the State of Delaware, become authorized but unissued shares of Preferred Stock,
$.001 par value, of the Corporation and may be reissued as part of another class
of Preferred Stock, $.001 par value, of the Corporation subject to the
conditions or restrictions on issuance set forth herein.
(c) Enforcement. Any registered holder of shares of Class A
Preferred Stock or Class B Preferred Stock may proceed to protect and enforce
its rights and the rights of such holders by any available remedy by proceeding
at law or in equity to protect and enforce any such rights, whether for the
specific enforcement of any provision in this Restated Certificate of
Incorporation or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.
(d) Transfer Taxes. Except as otherwise agreed upon pursuant to
the terms of this Restated Certificate of Incorporation, the Corporation shall
pay any and all documentary, stamp or similar issue or transfer taxes and other
governmental charges that may be imposed under the laws of the United States of
America or any political subdivision or taxing authority thereof or therein in
respect of any issue or delivery of Common Stock on conversion of, or other
securities or property issued on account of, shares of Class A Preferred Stock
or Class B Preferred Stock pursuant hereto or certificates representing such
shares or securities. The Corporation shall not, however, be required to pay
any such tax or other charge that may be imposed in connection with any transfer
involved in the issue or transfer and delivery of any certificate for Common
Stock or other securities or property in a name other than that in which the
shares of Class A Preferred Stock or Class B Preferred Stock so exchanged, or on
account of which such securities were issued, were registered and no such issue
or delivery shall be made unless and until the Person requesting such issue has
paid to the Corporation the amount of any such tax or has established to the
satisfaction of the Corporation that such tax has been paid or is not payable.
(e) Transfer Agent. The Corporation may appoint, and from time to
time discharge and change, a transfer agent for the Class A Preferred Stock and
Class B Preferred Stock. Upon any such appointment or discharge of a transfer
agent, the Corporation shall send notice thereof by first-class mail, postage
prepaid, to each holder of record of shares of Class A Preferred Stock or Class
B Preferred Stock.
(f) Record Dates. In the event that the Class A Preferred Stock
or Class B Preferred Stock shall be registered under either the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended, the
Corporation shall establish appropriate record dates with respect to payments
and other actions to be made with respect to the Class A Preferred Stock and
Class B Preferred Stock.
ARTICLE VI
PREEMPTIVE RIGHTS
No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the Corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series, or any
unissued bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock or carrying any right to purchase
stock which may be issued pursuant to resolution of the board of directors of
the Corporation to such persons, firms, corporations or associations, whether or
not holders thereof.
ARTICLE VII
REPURCHASE OF SHARES
The Corporation may from time to time, pursuant to authorization by the
board of directors of the Corporation and without action by the stockholders,
purchase or otherwise acquire shares of any class, bonds, debentures, notes,
scrip, warrants, obligations, evidences or indebtedness, or other securities of
the Corporation in such manner, upon such terms, and in such amounts as the
board of directors shall determine; subject, however, to such limitations or
restrictions, if any, as are contained in the express terms of any class of
shares of the Corporation outstanding at the time of the purchase or acquisition
in question or as are imposed by law.
ARTICLE VIII
MEETINGS OF STOCKHOLDERS; CUMULATIVE VOTING
A. Cumulative Voting. There shall be no cumulative voting by stockholders
-----------------
of any class or series in the election of directors of the Corporation.
B. Place of Meetings. Meetings of stockholders may be held at such place
------------------
as the bylaws may provide.
ARTICLE IX
DIRECTORS
A. Number and Vacancies. The number of directors of the Corporation shall
--------------------
be such number, not less than one (exclusive of directors, if any, to be elected
by holders of preferred stock of the Corporation), as shall be provided from
time to time in a resolution adopted by the board of directors. Exclusive of
directors, if any, elected by holders of preferred stock, vacancies in the board
of directors of the Corporation, however caused, and newly created directorships
shall be filled by a vote of a majority of the directors then in office, whether
or not a quorum, and any director so chosen shall hold office for a term
expiring at the next annual meeting of stockholders or when the director's
successor is elected and qualified.
ARTICLE X
REMOVAL OF DIRECTORS
Notwithstanding any other provision of this Certificate or the bylaws of
the Corporation, any director or all the directors of a single class (but not
the entire board of directors) of the Corporation may be removed, at any time,
with or without cause by the affirmative vote or written consent of the holders
of a majority of the voting power of the outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class). Notwithstanding the foregoing,
whenever the holders of any one or more series of preferred stock of the
Corporation shall have the right, voting separately as a class, to elect one or
more directors of the Corporation, the preceding provisions of this Article X
shall not apply with respect to the director or directors elected by such
holders of preferred stock.
ARTICLE XI
INDEMNIFICATION
Any person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative (whether or not by or in the right of
the corporation) by reason of the fact that he is or was a director, officer,
incorporator, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, incorporator, employee,
partner, trustee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise (including an employee benefit plan), shall be
entitled to be indemnified by the corporation to the full extent then permitted
by law against expenses (including counsel fees and disbursements), judgments,
fines (including excise taxes assessed on a person with respect to an employee
benefit plan), and amounts paid in settlement incurred by him in connection with
such action, suit, or proceeding. Such right of indemnification shall inure
whether or not the claim asserted is based on matters which antedate the
adoption of this Article XV. Such right of indemnification shall continue as to
a person who has ceased to be a director, officer, incorporator, employee,
partner, trustee, or agent and shall inure to the benefit of the heirs and
personal representatives of such a person. The indemnification provided by this
Article XV shall not be deemed exclusive of any other rights which may be
provided now or in the future under any provision currently in effect or
hereafter adopted of the bylaws, by any agreement, by vote of stockholders, by
resolution of disinterested directors, by provisions of law, or otherwise.
ARTICLE XII
LIMITATIONS ON DIRECTORS' LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except: (A) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (B) for acts or omissions that are not
in good faith or that involve intentional misconduct or a knowing violation of
law, (C) under Section 174 of the General Corporation Law of the State of
Delaware, or (D) for any transaction from which the director derived any
improper personal benefit. If the General Corporation law of the State of
Delaware is amended after the date of filing of this Certificate to further
eliminate or limit the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended.
Any repeal or modification of the foregoing paragraph (b)y 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.
ARTICLE XIII
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by statute,
the board of directors of the Corporation is expressly authorized to adopt,
repeal, alter, amend and rescind the bylaws of the Corporation by a vote of a
majority of the board of directors. Notwithstanding any other provision of this
Certificate or the bylaws of the Corporation, and in addition to any affirmative
vote required by law (and notwithstanding the fact that some lesser percentage
may be specified by law), the bylaws shall be adopted, repealed, altered,
amended or rescinded by the stockholders of the Corporation by the vote or
written consent of the holders of a majority of the voting power of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class).
ARTICLE XVIII
AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
Subject to the provisions hereof, the Corporation reserves the right to
repeal, alter, amend or rescind any provision contained in this Certificate in
the manner now or hereafter prescribed by law, and all rights conferred on
stockholders herein are granted subject to this reservation.
I, THE UNDERSIGNED, being the original incorporator, do hereby certify that
the Corporation has not received any payment for any of its stock and that this
Restated Certificate of Incorporation has been duly adopted in accordance with
the provisions of Section 241 of the General Corporation Law of the State of
Delaware as of the 10th day of March, 2000.
/s/Danyel Owens
- ----------------
Danyel Owens
<PAGE>
C- EXHIBIT C
EXHIBIT C
FLORIDA STATUTES
<PAGE>
607.1301. DISSENTERS' RIGHTS; DEFINITIONS
The following definitions apply to ss. 607.1302 and 607.1320:
(1) "Corporation" means the issuer of the shares held by a
dissenting shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value" with respect to a dissenter's shares, means the
value of the shares as of the close of business on the day prior to the
shareholders' authorization date, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on which
the corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to s. 607.1104, the day prior to the date on which a copy of the
plan of merger was mailed to each shareholder of record of the subsidiary
corporation.
607.1302. RIGHT OF SHAREHOLDERS TO DISSENT
(1) Any shareholder of a corporation has the right to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its
parent under s. 507.1104, and the shareholders would have been entitled to vote
on action taken, except for the applicability of s. 607.1104;
(b) Consummation of a sale or exchange of all, or substantially
all, of the property of the corporation, other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange pursuant to s. 607.1202, including a sale in dissolution but not
including a sale pursuant to court order or a sale for cash pursuant to a plan
by which all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within 1 year after the date of sale;
(c) As provided in s. 607.0902(11), the approval of a
control-share acquisition;
(d) Consummation of a plan of share exchange to which the
corporation is a party as the corporation the shares of which will be acquired,
if the shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the
shareholder is entitled to vote on the amendment and if such amendment would
adversely affect such shareholder by:
1. Altering or abolishing any preemptive rights attached to
any of his shares;
2. Altering or abolishing the voting rights pertaining to any
of his shares, except as such rights may be affected by the voting rights of new
shares then being authorized of any existing or new class or series of shares;
3. Effecting an exchange, cancellation, or reclassification
of any of his shares, when such exchange, cancellation, or reclassification
would alter or abolish his voting rights or alter his percentage of equity in
the corporation, or effecting a reduction or cancellation of accrued dividends
or other arrearages in respect to such shares;
4. Reducing the stated redemption price of any of his
redeemable shares, altering or abolishing any provision relating to any sinking
fund for the redemption or purchase of any of his shares, or making any of his
shares subject to redemption when they are not otherwise redeemable;
5. Making noncumulative, in whole or in part, dividends of
any of his preferred shares which had theretofore been cumulative;
6. Reducing the stated dividend preference of any of his
preferred shares; or
7. Reducing any stated preferential amount payable on any of
his preferred shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of
incorporation provide that a voting or nonvoting shareholder is entitled to
dissent and obtain payment for his shares.
(2) A shareholder dissenting from any amendment specified in paragraph
(1)(e) has the right to dissent only as to those of his shares which are
adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares registered
in his name. In that event, his rights shall be determined as if the shares as
to which he has dissented and his other shares were registered in the names of
different shareholders.
(4) Unless the articles of incorporation otherwise provide, this
section does not apply with respect to a plan of merger or share exchange or a
proposed sale or exchange of property, to the holders of shares of any class or
series which, on the record date fixed to determine the shareholders entitled to
vote at the meeting of shareholders at which such action is to be acted upon or
to consent to any such action without a meeting, were either registered on a
national securities exchange or held of record by not fewer than 2,000
shareholders.
(5) A shareholder entitled to dissent and obtain payment for his shares
under this section may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
607.1320. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
(1)(a) If a proposed corporate action creating dissenters' rights under s.
607.1302 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights and be accompanied by a copy of ss. 607.1301, 607.1302, and 607.1320. A
shareholder who wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed action is
effectuated, and
2. Not vote his shares in favor of the proposed action. A proxy
or vote against the proposed action does not constitute such a notice of intent
to demand payment.
(b) If proposed corporate action creating dissenters' rights under s.
607.1302 is effectuated by written consent without a meeting, the corporation
shall deliver a copy of ss. 607.1301, 607.1302, and 607.1320 to each shareholder
simultaneously with any request for his written consent or, if such a request is
not made, within 10 days after the date the corporation received written
consents without a meeting from the requisite number of shareholders necessary
to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his shares pursuant to paragraph
(1)(a) or, in the case of action authorized by written consent, to each
shareholder, excepting any who voted for, or consented in Writing to, the
proposed action.
(3) Within 20 days after the giving of notice to him, any shareholder
who elects to dissent shall file with the corporation a notice of such election,
stating his name and address, the number, classes, and series of shares as to
which he dissents, and a demand for payment of the fair value of his shares.
Any shareholder failing to file such election to dissent within the period set
forth shall be bound by the terms of the proposed corporate action. Any
shareholder filing an election to dissent shall deposit his certificates for
certificated shares with the corporation simultaneously with the filing of the
election to dissent. The corporation may restrict the transfer of
uncertificated shares from the date the shareholder's election to dissent is
filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall not
be entitled to vote or to exercise any other rights of a shareholder. A notice
of election may be withdrawn in writing by the shareholder at any time before an
offer is made by the corporation, as provided in subsection (5), to pay for his
shares. After such offer, no such notice of election may be withdrawn unless
the corporation consents thereto. However, the right of such shareholder to be
paid the fair value of his shares shall cease, and he shall be reinstated to
have all his rights as a shareholder as of the filing of his notice of election,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
or any such dividend or distribution other than in cash has been completed, in
lieu thereof, at the election of the corporation, the fair value thereof in cash
as determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a
court has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such
shareholder is not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which
shareholders may file their notices of election to dissent, or within 10 days
after such corporate action is effected, whichever is later (but in no case
later than 90 days from the shareholders' authorization date), the corporation
shall make a written offer to each dissenting shareholder who has made demand as
provided in this section to pay an amount the corporation estimates to be the
fair value for such shares. If the corporate action has not been consummated
before the expiration of the 90-day period after the shareholders' authorization
date, the offer may be made conditional upon the consummation of such action.
Such notice and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more than
12 months prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the
12-month period ended on the date of such balance sheet or, if the corporation
was not in existence throughout such 12-month period. for the portion thereof
during which it was in existence.
(6) If within 30 days after the making of such offer any shareholder
accepts the same, payment for his shares shall be made within 90 days after the
making of such offer or the consummation of the proposed action, whichever is
later. Upon payment of the agreed value, the dissenting shareholder shall cease
to have any interest in such shares.
(7) If the corporation fails to make such offer within the period
specified therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of 30 days
thereafter, then the corporation, within 30 days after receipt of written demand
from any dissenting shareholder given within 60 days after the date on which
such corporate action was effected, shall, or at its election at any time within
such period of 60 days may, file an action in any court of competent
jurisdiction in the county in this state where the registered office of the
corporation is located requesting that the fair value of such shares be
determined. The court shall also determine whether each dissenting shareholder,
as to whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation fails to
institute the proceeding as herein provided, any dissenting shareholder may do
so in the name of the corporation. All dissenting shareholders (whether or not
residents of this state), other than shareholders who have agreed with the
corporation as to the value of their shares, shall be made parties to the
proceeding as an action against their shares. The corporation shall serve a
copy of the initial pleading in such proceeding upon each dissenting shareholder
who is a resident of this state in the manner provided by law for the service of
a summons and complaint and upon each nonresident dissenting shareholder either
by registered or certified mail and publication or in such other manner as is
permitted by law. The jurisdiction of the court is plenary and exclusive. All
shareholders who are proper parties to the proceeding are entitled to judgment
against the corporation for the amount of the fair value of their shares. The
court may, if it so elects, appoint one or more persons as appraisers to receive
evidence and recommend a decision on the question of fair value. The appraisers
shall have such power and authority as is specified in the order of their
appointment or an amendment thereof. The corporation shall pay each dissenting
shareholder the amount found to be due him within 10 days after final
determination of the proceedings. Upon payment of the judgment, the dissenting
shareholder shall cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court, include a fair
rate of interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined
by the court and shall be assessed against the corporation, but all or any part
of such costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding, to whom the corporation has made an offer to pay for the shares,
if the court finds that the action of such shareholders in failing to accept
such offer was arbitrary, vexatious, or not in good faith. Such expenses shall
include reasonable compensation for, and reasonable expenses of, the appraisers,
but shall exclude the fees and expenses of counsel for, and experts employed by,
any party. If the fair value of the shares, as determined, materially exceeds
the amount which the corporation offered to pay therefor or if no offer was
made, the court in its discretion may award to any shareholder who is a party to
the proceeding such sum as the court determines to be reasonable compensation to
any attorney or expert employed by the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor, as
provided in this section, may be held and disposed of by such corporation as in
the case of other treasury shares, except that, in the case of a merger, they
may be held and disposed of as the plan of merger otherwise provides. The
shares of the surviving corporation into which the shares of such dissenting
shareholders would have been converted had they assented to the merger shall
have the status of authorized but unissued shares of the surviving corporation.
<PAGE>
D - 13 EXHIBIT D
EXHIBIT D
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______________ to ________________
Commission file no. 0-26327
---------------
American Sports Machine, Inc.
--------------------------------------------
(Name of small business issuer in its charter)
Florida 65-0877744
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 Lakeview Avenue, Suite 160-146
West Palm Beach, FL
33401
- - --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (561) 832-5698
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
None
- ----------------------------- -------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.0001 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 there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B 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. [X]
State issuer's revenues for its most recent fiscal year. $0.00.
Of the 1,400,000 shares of voting stock of the registrant issued and
outstanding as of December 15, 1999, 900,000 shares are held by
non-affiliates. Because of the absence of an established trading market for
the voting stock, the registrant is unable to calculate the aggregate market
value of the voting stock held by non-affiliates as of a specified date within
the past 60 days.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business Development
The American Sports Machine, Inc. ("ASM") was organized on June 2, 1995,
under the laws of the State of Florida, having the stated purpose of engaging in
any lawful activities. ASM was formed with the contemplated purpose to build
recreational centers for small organized sports activities including basketball,
handball, racquetball, as well as video games and other computer board sports
activities. The business concept and plan was based upon information obtained
by the incorporator several years before while working for an unrelated company
with the same concept and business plan. The incorporator and sole shareholder
was unable to obtain the cooperation and assistance of workers and investors to
implement the proposed plan. The primary area of development was to be in
Florida, but was never brought to the development stage. After development of a
business plan and efforts to develop the business failed, all efforts were
abandoned in 1996. At that time ASM was unable to obtain the necessary
contracts, store locations, other facilities, and was unable to obtain the
necessary financing, therefore was unable to operate.
ASM never engaged in an active trade or business throughout the period from
June 1995 until just recently. The ASM charter was suspended (subject to
reinstatement) by the State of Florida in 1996 for inactivity and failure to pay
annual fees and costs. Its active status was reinstated on December 1, 1998,
upon payment of all past due fees and costs. On December 1, 1998, all of the
issued and outstanding shares of the common stock of ASM were acquired from
Joseph Ashley, its then sole shareholder. The shares were purchased from Mr.
Ashley on behalf of the investor group. Mr. Ashley distributed the shares
directly to each member of the investor group. The original incorporator and
shareholder agreed to exchange the 500,000 issued and outstanding shares held by
such shareholder to the new 25 member investor group in exchange for a
commitment by the new shareholder group to pay the cost of reactivating the
corporation, providing for its reinstatement, and bringing its books and records
up to date. The total of 500,000 shares was distributed 20,000 shares to each
of twenty-five (25) shareholders. In addition, ASM received gross proceeds in
the amount of $20,000 from the sale of a total of 400,000 shares of common
stock, $.0001 par value per share (the "Common Stock"), in an offering conducted
pursuant to Section 3(b) and 4(2) of the Securities Act of 1933, as amended (the
"Act"), and Rules 505 and 506 of Regulation D promulgated thereunder. This
offering was made in the State of Georgia and the State of Florida. ASM
undertook the offering of shares of Common Stock on December 1, 1998. Also on
December 1, 1998, ASM issued 500,000 shares of its Common Stock to Ms. Angela
Michelle Bartolotta, the President, Secretary and Treasurer of ASM in
consideration and in exchange for services valued at $25,000.00 in connection
with the re-organization of ASM. On March 12, 1999, Ms. Bartolotta resigned
her position due to personal conflicts and other personal reasons and tendered
her 500,000 shares of stock to ASM for cancellation. Such shares were in fact
canceled. The company issued 500,000 shares of its common stock to James Donald
Brock, Jr., in consideration and in exchange for services valued at $25,000.00
to complete the reorganization of ASM. James Donald Brock, Jr. was also elected
President, Secretary, Treasurer, and Director of ASM. (See "Recent Sales of
Unregistered Securities")
ASM then began to consider and investigate potential business opportunities.
ASM is considered a development stage company and, due to its status as a
"shell" corporation, its principal business purpose is to locate and consummate
a merger or acquisition with a private entity. Because of ASM's current status
of having limited assets and no recent operating history, in the event ASM does
successfully acquire or merge with an operating business opportunity, it is
likely that ASM's present shareholders will experience substantial dilution and
there will be a probable change in control of ASM.
On December 1, 1998, ASM also determined it should become active in
seeking potential operating businesses and business opportunities with the
intent to acquire or merge with such businesses.
Any target acquisition or merger candidate of ASM will become subject to
the same reporting requirements as ASM upon consummation of any such business
combination. Thus, in the event that ASM successfully completes an acquisition
or merger with another operating business, the resulting combined business must
provide audited financial statements for at least the two most recent fiscal
years, or in the event that the combined operating business has been in business
less than two years, audited financial statements will be required from the
period of inception of the target acquisition or merger candidate.
ASM's principal executive offices are located at 222 Lakeview Avenue, Suite
160-157, West Palm Beach, FL 33401 and its telephone number is (561) 832-5698.
Business of Issuer
ASM has no recent operating history and no representation is made, nor is
any intended, that ASM will be able to carry on future business activities
successfully. Further, there can be no assurance that ASM will have the ability
to acquire or merge with an operating business, business opportunity or property
that will be of material value to ASM.
Management plans to investigate, research and, if justified, potentially
acquire or merge with one or more businesses or business opportunities. ASM
currently has no commitment or arrangement, written or oral, to participate in
any business opportunity and management cannot predict the nature of any
potential business opportunity it may ultimately consider. Management will have
broad discretion in its search for and negotiations with any potential business
or business opportunity.
SOURCES OF BUSINESS OPPORTUNITIES
ASM intends to use various sources in its search for potential business
opportunities including its officer and director, consultants, special advisors,
securities broker-dealers, venture capitalists, member of the financial
community and others who may present management with unsolicited proposals.
Because of ASM's limited capital, it may not be able to retain on a fee basis
professional firms specializing in business acquisitions and reorganizations.
Rather, ASM will most likely have to rely on outside sources, not otherwise
associated with ASM, that will accept their compensation only after ASM has
finalized a successful acquisition or merger. ASM will rely upon the expertise
and contacts of such persons, will use notices in written publications and
personal contacts to find merger and acquisition candidates, the exact number of
such contacts dependent upon the skill and industriousness of the participants
and the conditions of the marketplace. None of the participants in the process
will have any past business relationship with management. To date, ASM has not
engaged nor entered into any definitive agreements nor understandings regarding
retention of any consultant to assist ASM in its search for business
opportunities, nor is management presently in a position to actively seek or
retain any prospective consultants for these purposes.
ASM does not intend to restrict its search to any specific kind of industry or
business. ASM may investigate and ultimately acquire a venture that is in its
preliminary or development stage, is already in operation, or in various stages
of its corporate existence and development. Management cannot predict at this
time the status or nature of any venture in which ASM may participate. A
potential venture might need additional capital or merely desire to have its
shares publicly traded. The most likely scenario for a possible business
arrangement would involve the acquisition of, or merger with, an operating
business that does not need additional capital, but which merely desires to
establish a public trading market for its shares. Management believes that ASM
could provide a potential public vehicle for a private entity interested in
becoming a publicly held corporation without the time and expense typically
associated with an initial public offering.
EVALUATION
Once ASM has identified a particular entity as a potential acquisition or
merger candidate, management will seek to determine whether acquisition or
merger is warranted or whether further investigation is necessary. Such
determination will generally be based on management's knowledge and experience,
(limited solely to working history - See "Item 5. Directors, Executive
Officers, etc.") or with the assistance of outside advisors and consultants
evaluating the preliminary information available to them. Management may elect
to engage outside independent consultants to perform preliminary analysis of
potential business opportunities. However, because of ASM's limited capital it
may not have the necessary funds for a complete and exhaustive investigation of
any particular opportunity. Management will not devote full time to finding a
merger candidate, will continue to engage in outside unrelated activities, and
anticipates devoting no more than an average of five (5) hours weekly to such
undertaking.
In evaluating such potential business opportunities, ASM will consider, to
the extent relevant to the specific opportunity, several factors including
potential benefits to ASM and its shareholders; working capital, financial
requirements and availability of additional financing; history of operation, if
any; nature of present and expected competition; quality and experience of
management; need for further research, development or exploration; potential for
growth and expansion; potential for profits; and other factors deemed relevant
to the specific opportunity.
Because ASM has not located or identified any specific business opportunity
as of the date hereof, there are certain unidentified risks that cannot be
adequately expressed prior to the identification of a specific business
opportunity. There can be no assurance following consummation of any
acquisition or merger that the business venture will develop into a going
concern or, if the business is already operating, that it will continue to
operate successfully. Many of the potential business opportunities available to
ASM may involve new and untested products, processes or market strategies which
may not ultimately prove successful.
FORM OF POTENTIAL ACQUISITION OR MERGER
Presently ASM cannot predict the manner in which it might participate in a
prospective business opportunity. Each separate potential opportunity will be
reviewed and, upon the basis of that review, a suitable legal structure or
method of participation will be chosen. The particular manner in which ASM
participates in a specific business opportunity will depend upon the nature of
that opportunity, the respective needs and desires of ASM and management of the
opportunity, and the relative negotiating strength of the parties involved.
Actual participation in a business venture may take the form of an asset
purchase, lease, joint venture, license, partnership, stock purchase,
reorganization, merger or consolidation. ASM may act directly or indirectly
through an interest in a partnership, corporation, or other form of
organization, however, ASM does not intend to participate in opportunities
through the purchase of minority stock positions.
Because of ASM's current status and recent inactive status for the prior
two (2) years, and its concomitant lack of assets and relevant operating
history, it is likely that any potential merger or acquisition with another
operating business will require substantial dilution to ASM's existing
shareholders interests. There will probably be a change in control of ASM, with
the incoming owners of the targeted merger or acquisition candidate taking over
control of ASM. Management has not established any guidelines as to the amount
of control it will offer to prospective business opportunity candidates, since
this issue will depend to a large degree on the economic strength and
desirability of each candidate, and the corresponding relative bargaining power
of the parties. However, management will endeavor to negotiate the best
possible terms for the benefit of ASM's shareholders as the case arises.
Management may actively negotiate or otherwise consent to the purchase of any
portion of their common stock as a condition to, or in connection with, a
proposed merger or acquisition. In such an event, existing shareholders may not
be afforded an opportunity to approve or consent to any particular stock buy-out
transaction. However the terms of the sale of shares held by present management
of ASM will be extended equally to all other current shareholders.
Management does not have any plans to borrow funds to compensate any
persons, consultants, or promoters in conjunction with its efforts to find and
acquire or merge with another business opportunity. Management does not have
any plans to borrow funds to pay compensation to any prospective business
opportunity, or shareholders, management, creditors, or other potential parties
to the acquisition or merger. In either case, it is unlikely that ASM would be
able to borrow significant funds for such purposes from any conventional lending
sources. In all probability, a public sale of ASM's securities would also be
unfeasible, and management does not contemplate any form of new public offering
at this time. In the event that ASM does need to raise capital, it would most
likely have to rely on the private sale of its securities. Such a private sale
would be limited to persons exempt under the Commission's Regulation D or other
rule, or provision for exemption, if any applies. However, no private sales are
contemplated by ASM's management at this time. If a private sale of ASM's
securities is deemed appropriate in the future, management will endeavor to
acquire funds on the best terms available to ASM. However, there can be no
assurance that the Company will be able to obtain funding when and if needed, or
that such funding, if available, can be obtained on terms reasonable or
acceptable to them. ASM does not anticipate using Regulation S promulgated
under the Securities Act of 1933 to raise any funds any time within the next
year, subject only to its potential applicability after consummation of a merger
or acquisition.
In the event of a successful acquisition or merger, a finder's fee, in the
form of cash or securities of ASM, may be paid to persons instrumental in
facilitating the transaction. ASM has not established any criteria or limits
for the determination of a finder's fee, although most likely an appropriate
finder's fee will be negotiated between the parties, including the potential
business opportunity candidate, based upon economic considerations and
reasonable value as estimated and mutually agreed upon at that time. A finder's
fee would only be payable upon completion of the proposed acquisition or merger
in the normal case, and management does not contemplate any other arrangement at
this time. Current management has not in the past used any particular
consultants, advisors or finders. Management has not actively undertaken a
search for, nor retention of, any finder's fee arrangement with any person. It
is possible that a potential merger or acquisition candidate would have its own
finder's fee arrangement, or other similar business brokerage or investment
banking arrangement, whereupon the terms may be governed by a pre-existing
contract; in such case, ASM may be limited in its ability to affect the terms of
compensation, but most likely the terms would be disclosed and subject to
approval pursuant to submission of the proposed transaction to a vote of ASM's
shareholders. Management cannot predict any other terms of a finder's fee
arrangement at this time. If such a fee arrangement was proposed, independent
management and directors would negotiate the best terms available to ASM so as
not to compromise the fiduciary duties of the representative in the proposed
transaction, and ASM would require that the proposed arrangement would be
submitted to the shareholders for prior ratification in an appropriate manner.
Management does not contemplate that ASM would acquire or merge with a
business entity in which any officer or director of ASM has an interest. Any
such related party transaction, however remote, would be submitted for approval
by an independent quorum of the Board of Directors and the proposed transaction
would be submitted to the shareholders for prior ratification in an appropriate
manner. ASM's management has not had any contact, discussions, or other
understandings regarding any particular business opportunity at this time,
regardless of any potential conflict of interest issues. Accordingly, the
potential conflict of interest is merely a remote theoretical possibility at
this time.
POSSIBLE BLANK CHECK COMPANY STATUS
While ASM may be deemed a "shell" company at this time, it does not
constitute a "blank check" company under pertinent securities law standards. A
"blank check"company under pertinent securities law standards is a company whose
business plan is to primarily pursue a merger or acquisition candidate (i.e. no
specific business plan), and which files a Registration Statement under the 1933
Act and at such time priced its shares at less than $5.00 per share while it
continued to have no specific business plan. Accordingly, ASM is not subject to
securities regulations imposed upon companies deemed to be "blank check
companies." If ASM were to file a registration statement under Securities Act
of 1933 and, at such time, priced its shares at less than $5.00 per share and
continued to have no specific business plan, it would then be classified as a
blank check company.
If in the future ASM were to become a blank check company, adverse
consequences could attach to ASM. Such consequences can include, but are not
limited to, time delays of the registration process, significant expenses to be
incurred in such an offering, loss of voting control to public shareholders and
the additional steps required to comply with various federal and state laws
enacted for the protection of investors, including so-called "lock-up"
agreements pending consummation of a merger or acquisition that would take it
out of blank check company status.
Many states (excluding Florida where ASM is incorporated) have statutes,
rules and regulations limiting the sale of securities of "blank check" companies
in their respective jurisdictions. Management does not intend to undertake any
efforts to cause a market to develop in the companies securities or to undertake
any offering of ASM's securities, either debt or equity, until such time as ASM
has successfully implemented its business plan described herein. In the event
ASM undertakes the filing of a registration statement under circumstances that
classifies it as a blank check company the provisions of Rule 419 and other
applicable provisions will be complied with.
RIGHTS OF SHAREHOLDERS
ASM amended its Articles of Incorporation on March 10, 1999, to expressly
provide that the Board of Directors is authorized to enter into on behalf of the
corporation and to bind the corporation without shareholder approval, any and
all acts approving the terms and conditions of a merger and/or a share exchange,
and shareholders affected thereby, shall not be entitled to dissenters rights
with respect thereto under any applicable statutory dissenters rights provision.
This provision expressly eliminates shareholder participation in the merger
and/or share exchange contemplated by ASM and expressly eliminates any
shareholders dissenters rights. ASM does not intend to provide its shareholders
with complete disclosure documentation including audited finance statements
concerning a target company and its business prior to any mergers or
acquisitions.
COMPETITION
Because ASM has not identified any potential acquisition or merger
candidate, it is unable to evaluate the type and extent of its likely
competition. ASM is aware that there are several other public companies with
only nominal assets that are also searching for operating businesses and other
business opportunities as potential acquisition or merger candidates. ASM will
be in direct competition with these other public companies in its search for
business opportunities and, due to ASM's limited funds, it may be difficult to
successfully compete with these other companies.
EMPLOYEES
As of the date hereof, ASM does not have any employees and has no plans for
retaining employees until such time as business warrants the expense, or until
ASM successfully acquires or merges with an operating business. The Company may
find it necessary to periodically hire part-time clerical help on an as-needed
basis.
INDUSTRY SEGMENTS
No information is presented regarding industry segments. ASM is presently
a development stage company seeking a potential acquisition of or merger with a
yet to be identified business opportunity. Reference is made to the statements
of income included herein in response to part F/S of this Form 10-SB for a
report of ASM's operating history for the past two fiscal years.
ITEM 2. DESCRIPTION OF PROPERTY
FACILITIES
ASM is currently using at no cost to ASM, as its principal place of
business offices of its current management, James Donald Brock, Jr., located in
Atlanta, Georgia. Although ASM has no written agreement and pays no rent for the
use of this facility, it is contemplated that at such future time as an
acquisition or merger transaction may be completed, ASM will secure commercial
office space from which it will conduct its business. Until such an acquisition
or merger, ASM lacks any basis for determining the kinds of office space or
other facilities necessary for its future business. ASM has no current plans to
secure such commercial office space. It is also possible that a merger or
acquisition candidate would have adequate existing facilities upon completion of
such a transaction, and ASM's principal offices may be transferred to such
existing facilities.
ITEM 3. LEGAL PROCEEDINGS
ASM is currently not a party to any pending legal proceedings and no such
action by, or to the best of its knowledge, against ASM has been threatened.
ASM was inactive from 1996 through the date of this Form 10-SB.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's shareholders, through
the solicitation of proxies or otherwise from the Company's inception to the
close of the 1999 fiscal year ended September 30, 1999, covered by this report.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Shares of ASM's common stock have previously been registered with the
Securities and Exchange Commission (the "Commission"). ASM intends to and has
made application to the NASD for ASM's shares to be quoted on the OTC Bulletin
Board. ASM's application to the NASD consists of current corporate information,
financial statements and other documents as required by Rule 15c211 of the
Securities Exchange Act of 1934, as amended. Inclusion on the OTC Bulletin
Board, when approved, permits price quotation for ASM's shares to be published
by such service.
ASM is not aware of any existing trading market for its common stock.
ASM's common stock has never traded in a public market. There are no plans,
proposals, arrangements or understandings with any person(s) with regard to the
development of a trading market in any of ASM's securities.
If and when ASM's common stock is traded in the over-the-counter market,
most likely the shares will be subject to the provisions of Section 15(g) and
Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), commonly referred to as the "penny stock" rule. Section 15(g) sets forth
certain requirements for transactions in penny stocks and Rule 15g9(d)(1)
incorporates the definition of penny stock as that used in Rule 3a51-1 of the
Exchange Act.
The Commission generally defines penny stock to be any equity security that
has a market price less than $5.00 per share, subject to certain exceptions.
Rule 3a51-1 provides that any equity security is considered to be a penny stock
unless that security is: registered and traded on a national securities exchange
meeting specified criteria set by the Commission; authorized for quotation on
The NASDAQ Stock Market; issued by a registered investment company; excluded
from the definition on the basis of price (at least $5.00 per share) or the
issuer's net tangible assets; or exempted from the definition by the Commission.
If ASM's shares are deemed to be a penny stock, trading in the shares will be
subject to additional sales practice requirements on broker-dealers who sell
penny stocks to persons other than established customers and accredited
investors, generally persons with assets in excess of $1,000,000 or annual
income exceeding $200,000, or $300,000 together with their spouse.
For transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of such securities and must have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
the monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker dealers to
trade and/or maintain a market in ASM's common stock and may affect the ability
of shareholders to sell their shares.
As of December 15, 1999, there were 26 holders of record of ASM's common
stock.
As of December 15, 1999, ASM has issued and outstanding One Million Four
Hundred Thousand [1,400,000] shares of common stock. Of this total, Five
Hundred Thousand [500,000] shares were originally issued in transactions more
than three (3) years ago. Such shares may be sold or otherwise transferred
without restriction pursuant to the terms of rule 144 ("Rule 144") of the
Securities Act of 1933, as amended (the "Act"), unless held by an affiliate.
------------
The remaining Nine Hundred Thousand [900,000] shares were issued subject to Rule
144 and may not be sold and/or transferred without further registration under
the Act or pursuant to an applicable exemption
DIVIDEND POLICY
ASM has not declared or paid cash dividends or made distributions in the
past, and ASM does not anticipate that it will pay cash dividends or make
distributions in the foreseeable future. ASM currently intends to retain and
reinvest future earnings, if any, to finance its operations.
PUBLIC QUOTATION OF STOCK
ASM has as of this date requested a broker-dealer, Public Securities, 300
North Argonne Road, Suite 202
Spokane, WA 99212, to act as a market maker for ASM's securities. ASM
anticipates that other market makers may be requested to participate at a later
date. ASM will not use consultants to obtain market makers. There have been no
preliminary discussions between ASM, or anyone acting on its behalf, and any
market maker regarding the future trading market for ASM.
TRANSFER AGENT
The Company selected Interwest Transfer Co. 1981 E. Murray Holladay Road,
Suite 100, Salt Lake City, Utah 84117 to serve as its transfer agent.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
ASM is considered a development stage company with limited assets or
capital, and with no operations or income since approximately 1996. The costs
and expenses associated with the preparation and filing of this registration
statement and other operations of ASM have been paid for by a shareholder,
specifically James Donald Brock, Jr. (see Item 4, Security Ownership of Certain
Beneficial Owners and Management James Donald Brock, Jr. is the controlling
shareholder). Mr. Brock has agreed to pay future costs associated with filing
future reports under Exchange Act of 1934 if ASM is unable to do so. It is
anticipated that ASM will require only nominal capital to maintain the corporate
viability of ASM and any additional needed funds will most likely be provided by
ASM's existing shareholders or its sole officer and director in the immediate
future. Current shareholders have not agreed upon the terms and conditions of
future financing and such undertaking will be subject to future negotiations,
except for the express commitment of Mr. Brock to fund required 34 Act filings.
Repayment of any such funding will also be subject to such negotiations. The
ability of ASM to continue as a going concern long term (beyond 12-24 months) is
contingent upon the successful completion of a business combination.
Since its inception, the Company has conducted minimal business operations
except for organizational and capital raising activities. The Company has not
realized any revenues since its inception due to the fact that its executive,
---
Mr. Brock has been primarily engaged in organizational and promotional
activities on behalf of the Company. As a result, from inception (June 2, 1995)
through September 30, 1999, the Company had $0.00 revenue. Total Company
operations and operating expenses as of September 30, 1999 were $42,289.00.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
At September 30, 1999, the Company had assets totaling $2,711.00 and an
accumulated deficit of $43,289.00 attributable to accrued legal expenses,
organization expenses and professional fees. Since the Company's inception, it
has received $46,000.00 in cash contributed as consideration for the issuance
of shares of Common Stock.
NET OPERATING LOSSES
The Company has net operating loss carry-forwards of $42,289.00 expiring in
2014. The company has a $8,400.00 deferred tax asset resulting from the loss
carry-forwards, for which it has established a 100% valuation allowance. The
Company may not be able to utilize such carry-forwardsas the Company has no
history of profitable operations.
In the opinion of management, inflation has not and will not have a
material effect on the operations of ASM until such time as ASM successfully
completes an acquisition or merger. At that time, management will evaluate the
possible effects of inflation on ASM as it relates to its business and
operations following a successful acquisition or merger.
Management plans may but do not currently provide for experts to secure a
successful acquisition or merger partner so that it will be able to continue as
a going concern. In the event such efforts are unsuccessful, contingent plans
have been arranged to provide that the current Director of ASM is to fund
required future filings under the 34 Act without reimbursement, and existing
shareholders have expressed an interest in additional funding if necessary to
continue ASM as a going concern.
PLAN OF OPERATION
During the next twelve months, ASM will actively seek out and investigate
possible business opportunities with the intent to acquire or merge with one or
more business ventures. In its search for business opportunities, management
will follow the procedures outlined in Item 1 above. Because the Company has
limited funds, it may be necessary for the sole officer and director to either
advance funds to ASM or to accrue expenses until such time as a successful
business consolidation can be made. ASM will not make it a condition that the
target company must repay funds advanced by its officers and directors.
Management intends to hold expenses to a minimum and to obtain services on a
contingency basis when possible. Further, ASM's directors will defer any
compensation until such time as an acquisition or merger can be accomplished and
will strive to have the business opportunity provide their remuneration.
However, if ASM engages outside advisors or consultants in its search for
business opportunities, it may be necessary for ASM to attempt to raise
additional funds. As of the date hereof, ASM has not made any arrangements or
definitive agreements to use outside advisors or consultants or to raise any
capital. In the event ASM does need to raise capital most likely the only
method available to ASM would be the private sale of its securities. Because of
the nature of ASM as a development stage company, it is unlikely that it could
make a public sale of securities or be able to borrow any significant sum from
either a commercial or private lender. There can be no assurance that ASM will
able to obtain additional funding when and if needed, or that such funding, if
available, can be obtained on terms acceptable to ASM.
ASM does not intend to use any employees, with the possible exception of
part-time clerical assistance on an as-needed basis. Outside advisors or
consultants will be used only if they can be obtained for minimal cost or on a
deferred payment basis. Management is convinced that it will be able to operate
in this manner and to continue its search for business opportunities during the
next twelve months.
YEAR 2000 COMPLIANCE
The Company is currently in the process of evaluating its information
Technology for Year 2000 compliance. The Company does not expect that the cost
to modify its information Technology infrastructure to be Year 2000 compliant
will be material to its financial condition or results of operations. The
Company does not anticipate any material disruption in its operations as a
result of any failure by the Company to be in compliance.
FORWARD-LOOKING STATEMENTS
This Form 10-KSB includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included or incorporated by reference in this
Form 10-KSB which address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including such things as
future capital expenditures (including the amount and nature thereof), business
strategy, expansion and growth of the Company's business and operations, and
other such matters are forward-looking statements. These statements are based
on certain assumptions and analyses made by the Company in light of its
experience and its perception of historical trends, current conditions and
expected future developments as well as other factors it believes are
appropriate in the circumstances. However, whether actual results or
developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties, general economic market and
business conditions; the business opportunities (or lack thereof) that may be
presented to and pursued by the Company; changes in laws or regulation; and
other factors, most of which are beyond the control of the Company.
Consequently, all of the forward-looking statements made in this Form 10-KSB are
qualified by these cautionary statements and there can be no assurance that the
actual results or developments anticipated by the Company will be realized or,
even if substantially realized, that they will have the expected consequence to
or effects on the Company or its business or operations. The Company assumes no
obligations to update any such forward-looking statements.
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements have been examined to the extent
indicated in their reports by Dorra, Shaw, & Dugan, independent certified
accountants, and have been prepared in accordance with generally accepted
accounting principles and pursuant to Regulation S-B as promulgated by the
Securities and Exchange Commission and are included herein, on Page F-1 hereof
in response to Part F/S of this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Because the Company has been generally inactive since its inception, it has
had no independent accountant until the retention in November 1998 of Dorra,
Shaw & Dugan, CPA's, 270 South County Road, Palm Beach, Florida 33480. There has
been no change in the Company's independent accountant during the period
commencing with the Company's retention of Dorra, Shaw & Dugan, CPA's, through
the date hereof.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
INDEPENDENT AUDITORS' REPORT F-1
- ------------------------------ ---
BALANCE SHEET F-2
- -------------- ---
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT F-3
- ---------------------------------------------------- ---
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY F-4
- ------------------------------------------------- ---
STATEMENT OF CASH FLOWS F-5
- -------------------------- ---
NOTES TO FINANCIAL STATEMENTS F-6
- -------------------------------- ---
<PAGE>
DORRA SHAW & DUGAN
Certified Public Accountants
----------------------------
INDEPENDENT AUDITORS' REPORT
AUDITORS' REPORT
To the Board of Directors and Stockholders
The American Sports Machine, Inc.
Palm Beach, Florida
We have audited the accompanying balance sheet of The American Sports Machine,
Inc. (a Florida corporation) and (a development stage company) as of May 31,
1999, and the related statements of operations, accumulated deficit, cash flows
and changes in stockholders' equity for the period October 1, 1998 to May 31,
1999 and June 2, 1995 (date of inception) to May 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The American Sports Machine,
Inc. as of May 31, 1999 and the results of its operations and its cash flows and
changes in stockholders' equity for the period from October 1, 1998 to May 31,
1999 and June 2, 1995 (date of inception) to May 31, 1999 in conformity with
generally accepted accounting principles.
Audited balance sheets for prior periods and the statements of operations, cash
flows and stockholders' equity for the two years ended September 30, 1998 as
required by item 310 of regulation S-B are not provided because the company was
dormant.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has incurred net losses since its inception. The Company's financial
position and operating results raise substantial doubt about its ability to
continue as a going concern. Management's plan regarding those matters also are
described in Note D. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
The June 30, 1999 financial statements were compiled by the company; and we did
not audit or review those financial statements and, accordingly, expressed no
opinion or other form of assurance on them.
/s/Dorra Shaw & Dugan
- ------------------------
Certified Public Accountants
June 4, 1999 and August 30, 1999
270 South County Road * Palm Beach, FL 33480
Telephone (561) 822-9955 * Fax (561) 822-9955
Website: dsd-cpa.com
F-1
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The director and executive officer of ASM and his respective age is as
follows:
Name Age Position
- ---- --- --------
James Donald Brock, Jr. 31 Director, President, Secretary
and Treasurer
All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. There are no
agreements with respect to the election of directors. ASM has not compensated
its directors for service on the Board of Directors or any committee thereof.
As of the date hereof, no director has accrued any expenses or compensation.
Officers are appointed annually by the Board of Directors and each executive
officer serves at the discretion of the Board of Directors. ASM does not have
any standing committees at this time.
No director, or officer, or promoter of ASM has, within the past five
years, filed any bankruptcy petition, been convicted in or been the subject of
any pending criminal proceedings, or is any such person the subject or any
order, judgment or decree involving the violation of any state or federal
securities laws.
The business experience of the person listed above during the past five
years is as follows:
Mr. James Donald Brock, Jr., 31 years of age, is an Arts and Science Degree
graduate of Santa Fe Community College and Emory University, Atlanta, Georgia.
Mr. Brock was a student in the education programs from 1993 to 1997. In 1997,
he received his B.S. Degree in Mathematics from Georgia State University,
Atlanta, Georgia. From 1992 to 1997, Mr. Brock was employed at Savage Pizza,
Atlanta, Georgia. In 1997-98, Mr. Brock served as a student-teacher at North
Atlanta High School, Atlanta, Georgia. In 1998, Mr. Brock was employed and
continues to be employed as a mathematics teacher at Decatur High School,
Decatur, Georgia.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
ASM's executive officers and directors and persons who own more than 10% of a
registered class of ASM's equity securities, to file with the Securities and
Exchange Commission (hereinafter referred to as the "commission") initial
statements of beneficial ownership, reports of changes in ownership and annual
reports concerning their ownership, of Common Stock and other equity securities
of ASM on Forms 3, 4, and 5, respectively. Executive officers, directors and
greater than 10% shareholders are required by Commission regulations to furnish
ASM with copies of all Section 16(a) reports they file. Mr. Brock comprises all
of ASM's executive officers, directors and greater than 10% beneficial owners of
its common Stock, and has complied with Section 16(a) filing requirements
applicable to them during ASM's most recent fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
ASM has not had a bonus, profit sharing, or deferred compensation plan for
the benefit of its employees, officers or directors. ASM has not paid any
salaries or other compensation to its officers, directors or employees for the
years ended 1997 and 1998, nor at any time during 1999. Further, ASM has not
entered into an employment agreement with any of its officers, directors or any
other persons and no such agreements are anticipated in the immediate future.
ASM's officer and director will forego any compensation until such time as an
acquisition or merger can be accomplished and the new business opportunity
provide any remuneration. As of the date hereof, no person has accrued any
---
compensation from ASM. No compensation will accrue in the interim period.
COMPENSATION OF DIRECTORS
The Company does not provide officers with pension, stock appreciation
rights, long-term incentive or other plans but has the intention of implementing
such plans in the future.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of December 15, 1999, with
-
respect to each person known by ASM to own beneficially more than 5% of ASM's
outstanding common stock, each director of ASM and all directors and officers of
ASM as a group.
Name of Address of Amount and Nature of Percent of
- --------------------- ----------------------- -----------
Beneficial Owner Beneficial Ownership Class
- ----------------- --------------------- -----
James Donald Brock, Jr. 500,000 35.7%
1933 Radar Rd Ne
Atlanta, GA 30345
All Executive Officers and Directors
as a Group (one person) 500,000 35.7%
_____________
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 1, 1998 the Company issued 500,000 shares of its Common Stock
to Ms. Angela M. Bartolotta, the sole officer and director of the Company in
consideration and in exchange for services valued at 25,000 in connection with
the reorganization of ASM. On March 12, 1999, Ms. Bartolotta resigned her
position due to personal conflicts and other personal reasons and tendered her
500,000 shares of stock to the company for cancellation such shares were in fact
canceled.
On March 2, 1999, ASM issued and sold 500,000 shares of the Common Stock to
Mr. Brock, the President, Secretary and Treasurer of ASM and record and
beneficial owner of approximately 35.7% of ASM's outstanding Common Stock, in
consideration and exchange therefore for services valued at $25,000 in
connection with the reorganization of ASM. Services rendered and to be
rendered by Mr. Brock include the restructuring of ASM, obtaining requisite
financial assistance, searching for merger and acquisition candidates, and a
commitment on the part of Mr. Brock to fund, if necessary, future filings of 34
Act requirements without reimbursement
In addition Mr. Brock has paid for the cost and expenses associated with
the filing of this Form 10-SB and other operations of ASM.
At the current time, ASM has no provision to issue any additional
securities to management, promoters or their respective affiliates or
associates. At such time as the Board of Directors adopts an employee stock
option or pension plan, any issuance would be in accordance with the terms
thereof and proper approval. Although ASM has a very large amount of authorized
but unissued Common Stock and Preferred Stock which may be issued without
further shareholder approval or notice, ASM intends to reserve such stock for
the Rule 506 offerings for acquisitions.
During ASM's last two fiscal years, there have not been any other
transactions between ASM and any officer, director, nominee for election as
director, or any shareholder owning greater than five percent (5%) of ASM's
outstanding shares, nor any member of the above referenced individuals'
immediate family.
James Donald Brock, Jr., may be deemed to be a "promoter" of ASM as that
term is defined under the Rules and Regulations promulgated under the Act.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The exhibits required to be filed herewith by Item 601 of Regulation S-B,
as described in the following index of exhibits, are incorporated herein by
reference, as follows:
Exhibit No. Exhibit Name
- ------------ --------------
3(i).1 Articles of Incorporation filed June 2, 1995 (1)
3(i).2 Articles of Amendment filed March 10, 1999 (1)
3(ii).1 By-laws (1)
27 Financial Data Schedule
(1) Incorporated herein by reference to the Registration Statement on
Form 10-SB of TECH Creations, Inc.(File No. 0-26901), filed with the U.S.
Securities and Exchange Commission.
(b) No Reports on Form 8-K were filed during the last quarter of the
fiscal year ended September 30, 1999, covered by this Annual Report on Form
10-KSB.
* Filed herein
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, there unto
duly authorized.
The American Sports Machine, Inc.
(Registrant)
Date: December _____, 1999 BY: /s/ James Donald Brock, Jr.
-------------------------------
James Donald Brock, Jr., President
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.
Date Signature Title
- ---- --------- -----
December _____, 1999 BY:/s/ JAMES DONALD BROCK JR. Director, President,
--------------------------
James Donald Brock, Jr. Secretary, Treasurer
<PAGE>
EXHIBIT E
CURRENT REPORT ON FORM 8-K
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D)
of the
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported) March 1, 2000
THE AMERICAN SPORTS MACHINE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
FLORIDA
(State or other jurisdiction of incorporation or organization)
<S> <C>
0-26327. . . . . . . . . 65-0877744
(Commission File Number) (IRS Employer Identification Number)
</TABLE>
222 LAKEVIEW AVENUE, SUITE 160-146
WEST PALM BEACH, FLORIDA 33401
(Address of principal executive offices)
(561) 832-5698
(Registrant's telephone number, including area code)
<PAGE>
- ------
ITEM 5. OTHER EVENTS
- -----------------------
On March 1, 2000 the Company executed an Plan and Agreement of Merger among
the Company and SoftQuad Software, Ltd., a Delaware corporation.
On March 1, 2000 the Company executed an Agreement and Plan of
Reorganization among the Company SoftQuad Software, Ltd., a Delaware corporation
and the Stockholders of SoftQuad Software, Ltd.
On March 1, 2000 the Company filed a Certificate of Merger of SoftQuad
Software, Ltd. into the Company with the Secretary of State of Delaware.
On March 1, 2000 the Company filed an Articles of Merger of SoftQuad
Software, Ltd. into the Company with the Secretary of State of Florida.
Under the terms of the Agreement and Plan of Reorganization, the Company's
was the surviving corporation.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
- ----------------------------------------------
Financial Statements
None
Exhibits
Exhibit A - Plan and Agreement of Merger
Exhibit B - Agreement and Plan of Reorganization
Exhibit C - Press Release
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE AMERICAN SPORTS MACHINE, INC.
By:
James D. Brock, Jr., President
Date: March ___, 2000
<PAGE>
EXHIBIT F
LETTER OF TRANSMITTAL
---------------------
TO ACCOMPANY CERTIFICATES REPRESENTING
SHARES OF STOCK OF
THE AMERICAN SPORTS MACHINE, INC.
(A FLORIDA CORPORATION)
CONVERTED INTO A RIGHT TO RECEIVE SHARES OF STOCK OF
SOFTQUAD SOFTWARE, LTD.
(A DELAWARE CORPORATION)
PURSUANT TO THE REINCORPORATION AND NAME CHANGE
OF THE AMERICAN SPORTS MACHINE, INC.
SURRENDER CERTIFICATES FOR SHARES OF STOCK
OF THE AMERICAN SPORTS MACHINE, INC. TO:
ATLAS STOCK TRANSFER CORPORATION
By Mail: By Hand:
- -------------------------- ---------------------------
5899 South State Street 5899 South State Street
Salt Lake City, Utah 84107 Salt Lake City, Utah 84107
Attention: Pam Gray Attention: Pam Gray
For information call:
(801) 266-7151
The instructions accompanying this Letter of Transmittal should be read
carefully before this Letter of Transmittal is completed. If Company
Certificates are registered in different names, a separate Letter of Transmittal
must be submitted for each different registered owner.
<TABLE>
<CAPTION>
DESCRIPTION OF COMPANY CERTIFICATES SURRENDERED
- ------------------------------------------------
Name(s) and Address(es) of Company Certificate(s) Enclosed
Registered Owner(s) (Attach additional
(Please fill in, if blank) list if necessary)
- ------------------------------------------------
<S> <C>
Total Number
Company. . . . . . . . . . . . . . . . . . of Shares
Certificate. . . . . . . . . . . . . . . . Represented by
Number(s). . . . . . . . . . . . . . . . . Company
Certificate(s)
Total Shares:____________________
</TABLE>
SIGNATURES MUST BE PROVIDED AND GUARANTEED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE>
Gentlemen:
The undersigned hereby surrenders the certificate(s) listed above (the
"Company Certificates") representing shares of common stock, Class A Convertible
Preferred Stock, Class B Convertible Preferred Stock or Special Voting Stock of
The American Sports Machine, Inc. (collectively the "Company Stock"), for
cancellation in exchange for one share of common stock, Class A Convertible
Preferred Stock, Class B Convertible Preferred Stock or Special Voting Stock
(collectively, "SoftQuad Stock"), of SoftQuad Software, Ltd. ("SoftQuad") at the
exchange ratio of one share of SoftQuad Stock for each share of Company Stock
surrendered hereby, pursuant to a merger of the Company into SoftQuad (the
"Merger") effective April 10, 2000 (the "Effective Date"). The terms and
conditions of the Merger are set forth in a Agreement and Plan of Merger dated
March 7, 2000 by and between the Company and SoftQuad (the "Plan of Merger"),
which Plan of Merger has been approved by a majority of the holders of the
Company Stock. The undersigned understands that the exchange of Company Stock
is subject to the terms and conditions set forth in the accompanying
Instruction. The undersigned hereby waives any right to demand appraisal of the
fair value of the Company Stock surrendered hereby.
The undersigned understands that a certificate representing SoftQuad Stock
will be sent by mail as soon as practicable following the receipt of the Company
Stock and this Letter of Transmittal or delivered by other reasonable procedure
requested by the undersigned and agreed to by SoftQuad.
Please issue and deliver the certificate representing the number of shares
of SoftQuad Stock to which the undersigned is entitled in exchange for the
Company Stock surrendered pursuant to this Letter of Transmittal to the
undersigned at the address specified under "Description of Company Certificates
Surrendered" above unless otherwise indicated under "Special Registration
Instructions" or "Special Delivery Instructions" below.
<PAGE>
F- EXHIBIT F
SPECIAL REGISTRATION
INSTRUCTIONS (See Instruction 2 below)
COMPLETE ONLY if the SoftQuad Certificates are to be registered in the name of,
and are to be sent to, a person OTHER than the name(s) of the registered
holder(s) appearing under "DESCRIPTION OF COMPANY CERTIFICATES SUBMITTED."
Issue and mail certificate to:
Name ______________________________
(Please Print)
Address ___________________________
___________________________________
(Include Zip Code)
___________________________________
(Signature)
___________________________________
(Tax Identification or Social
Security Number)
(See Substitute Form W-9)
SPECIAL DELIVERY INSTRUCTIONS
(See Instruction 2 below)
COMPLETE ONLY if the SoftQuad Certificates are to be issued in the name of the
undersigned, but are to be sent OTHER than to the address of the registered
holder(s) appearing under "DESCRIPTION OF COMPANY CERTIFICATES SUBMITTED" or, if
the box immediately to the left is filled in, OTHER THAN to the address
appearing therein.
Mail or deliver to:
Name _____________________________
(Please Print)
Address __________________________
__________________________________
(Include Zip Code)
__________________________________
(Tax Identification or Social
Security Number)
(See Substitute Form W-9)
<PAGE>
The undersigned hereby warrants to SoftQuad that the undersigned has full
power and authority to submit, sell, assign and transfer the Company
Certificates described above, free and clear of all liens, charges and
encumbrances and not subject to any adverse claim. The undersigned will, upon
request, execute any additional documents necessary or desirable to complete the
transfer of the Company Certificates.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and all obligations of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
<PAGE>
SIGN HERE AND, IF REQUIRED, HAVE SIGNATURES GUARANTEED (If Special
Registration Instructions are given, or if signature is by other than the
registered holder, signature(s) must be guaranteed. See Instruction 2.)
(Signature(s) of Shareholder(s)
Dated: ,2000
(Must be signed by the registered holder(s) exactly as name(s) appear(s) on the
Company Certificates or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, please set forth full title and see
Instructions 2 and 3)
Name(s):
(Please Type or Print)
Capacity (Full Title)
Address
(include Zip Code)
Area Code and Tel. No.
Tax Identification or
Social Security No.
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTION 2)
Authorized Signature
Name
(Please Type or Print)
Name of Firm
Address
(Include Zip Code)
Area Code and Tel. No.
Dated: , 2000
IMPORTANT: Failure to complete the Substitute Form W-9 on the back page of this
Letter of Transmittal may result in backup withholding of 31% of any cash
payments made pursuant to the Merger. Please review the Instructions and the
information provided under "Important Tax Information" in this Letter of
Transmittal.
<PAGE>
INSTRUCTIONS
1. DELIVERY OF LETTER OF TRANSMITTAL AND COMPANY CERTIFICATES. Company
Certificates, together with a signed and completed Letter of Transmittal and any
required supporting documents, should be sent or delivered to the Exchange Agent
at the address shown on the face of this Letter of Transmittal. If any of the
Company Certificates are registered in different names, it will be necessary to
complete, sign and submit as many separate Letters of Transmittal as there are
different registrations of Company Certificates. The method of delivery of this
Letter of Transmittal, the Company Certificates and all other required documents
is at the option and risk of the shareholder(s) and the delivery will be deemed
made only when actually received by the Exchange Agent. A Letter of
Transmittal, the Company Certificates and any other required documents must be
properly received by the Company, in form satisfactory to it, in order for the
delivery and surrender to be effective and the risk of loss of the Company
Certificates to pass to SoftQuad. If delivery is by mail, registered or
certified mail with return receipt requested, properly insured, is recommended.
2. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal must
be guaranteed by a member firm of a registered national securities exchange or
of the National Association of Securities Dealers, Inc. or by a commercial bank
or trust company having an office or correspondent in the United States (an
"Eligible Institution"), unless the Company Certificate(s) are surrendered (i)
by the registered holder of Company Stock who has not completed the box entitled
"Special Delivery Instructions" on this Letter of Transmittal or (ii) for the
account of an Eligible Institution.
3. SIGNATURES. If this Letter of Transmittal is signed by the registered
holder(s) of the Company Certificates, the signature(s) must correspond exactly
with the name(s) as written on the face of the Company Certificates without
alteration, enlargement or any change whatsoever.
If any Company Certificate is held of record by two or more joint owners,
all such owners must sign this Letter of Transmittal.
If this Letter of Transmittal or any Company Certificates or stock powers
are signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and submit evidence
satisfactory to SoftQuad of such person's authority so to act.
4. VALIDITY OF SURRENDER; IRREGULARITIES. All questions as to validity,
form and eligibility of any surrender of Company Certificates hereunder will be
determined by SoftQuad as the successor to the Company. SoftQuad reserves the
right to waive any irregularities or defects in the surrender of any Company
Certificates, and its interpretations of the terms and conditions of the
reclassification and of this Letter of Transmittal (including these
Instructions) with respect to such irregularities or defects shall be final and
binding on all parties. A surrender will not be deemed to have been made until
all irregularities have been cured or waived.
5. SPECIAL DELIVERY INSTRUCTIONS. Indicate the name and address of the
person(s) to which SoftQuad Certificates are to be issued or sent if different
from the name and address of the person(s) signing this Letter of Transmittal.
6. ADDITIONAL COPIES. Additional copies of this Letter of Transmittal and
of the Information Statement may be obtained from Pam Gray at Atlas Stock
Transfer Corporation located at: 5899 South State Street, Salt Lake City, Utah
84107.
7. INADEQUATE SPACE. If the space provided on this Letter of Transmittal
is inadequate, the Company Certificate numbers and numbers of Company Stock
should be listed on a separate signed schedule affixed hereto.
8. LETTER OF TRANSMITTAL REQUIRED; SURRENDER OF COMPANY CERTIFICATES; LOST
COMPANY CERTIFICATES. A shareholder will not receive any SoftQuad Stock unless
and until this Letter of Transmittal or a facsimile hereof, duly completed and
signed, is delivered to the Exchange Agent, together with the Company
Certificates representing such Company Stock and any required accompanying
evidences of authority in form satisfactory to the Exchange Agent. If the
Company Certificates have been lost or destroyed, such should be indicated on
the face of this Letter of Transmittal. In such event, the Exchange Agent will
forward additional documentation necessary to be completed in order to
effectively surrender such lost or destroyed Company Certificates.
9. SUBSTITUTE FORM W-9. Each shareholder is required to provide SoftQuad
with a correct Taxpayer Identification Number ("TIN") on Substitute Form W-9,
which is provided under "Important Tax Information" below, and to indicate that
he is not subject to backup withholding by checking the box in Part 2 of the
Substitute Form W-9. Failure to provide the information on the Substitute Form
W-9 may subject the shareholder to 31% federal income tax withholding on the
payment. The box in Part 3 of the Substitute Form W-9 may be checked if the
shareholder has not been issued a TIN and has applied for a number or intends to
apply for a number in the near future. If the box in Part 3 is checked and
SoftQuad is not provided with a TIN within 60 days, SoftQuad will, withhold 31%
of all payments of such cash thereafter until a TIN is provided to SoftQuad.
<PAGE>
IMPORTANT TAX INFORMATION
Under United States federal income tax law, a shareholder is required to
provide SoftQuad with his correct TIN on Substitute Form W-9 below. If such
shareholder is an individual, the TIN is his Social Security number. If
SoftQuad is not provided with the correct TIN, the shareholder may be subject to
a $50 penalty imposed by the Internal Revenue Service. In addition, payments
that are made to such shareholder may be subject to backup withholding.
Certain shareholders (including, among others, all corporations and certain
foreign individuals) are not subject to backup withholding and reporting
requirements and should indicate their exempt status on Substitute Form W-9.
If backup withholding applies, SoftQuad is required to withhold 31% of any
payments made to the shareholder. Backup withholding is not an additional tax.
Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a shareholder,
the shareholder is required to notify SoftQuad of his correct TIN by completing
the form below certifying that the TIN provided on the Substitute Form W-9 is
correct (or that such shareholder is awaiting a TIN) and that (1) the
shareholder has not been notified by the Internal Revenue Service that he is
subject to backup withholding as a result of failure to report all interest or
dividends or (2) the Internal Revenue Service has notified the shareholder that
he is no longer subject to backup withholding.
WHAT NUMBER TO GIVE SOFTQUAD
The shareholder is required to give SoftQuad the Social Security number or
employer identification number of the record owner of the Company Certificates.
If the Company Certificates are in more than one name or are not in the name of
the actual owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidelines on which
number to report.
PAYER'S NAME: SOFTQUAD SOFTWARE, LTD.
SUBSTITUTE FORM W-9 PART 1 PLEASE PROVIDE YOUR TIN IN THE SPACE BELOW
AND CERTIFY BY SIGNING AND DATING PART 3.
Social Security Number--------------------------
OR
Employer Identification Number--------------------
DEPARTMENT OF THE PART 2 Check the box if you are NOT subject to
TREASURY INTERNAL back up withholding under the provisions of
REVENUE SERVICE Section 3406(a)(1)(C) of the Internal Revenue Code
because (1) you have not been notified that you
are subject to backup withholding as a result of
failure to report all interest or dividends or (2)
the Internal Revenue Service has notified you that
you are no longer subject to backup withholding.
PAYERS REQUEST FOR PART 3 CERTIFICATION - Under penalties of perjury,
TAXPAYER IDENTIFICATION I certify that the information provided on this
NUMBER ("TIN") form is true, correct and complete.
Signature:----------------------------------------
Date:---------------------------------------------
Awaiting TIN? ----
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31%
OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE AMENDMENT. PLEASE REVIEW ENCLOSED
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE
FORM W-9 FOR ADDITIONAL DETAILS.
The word "or" was substituted by the division of statutory revision for the
word "of" to correct an apparent typographical error.
