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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
SUNHAWK.COM CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment of Filing Fee (Check the appropriate box):
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/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
Common Stock, no par value, of Sunhawk.com Corporation
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(2) Aggregate number of securities to which transaction
applies:
1,950,938
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(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):
$16.125 (the closing price of Sunhawk.com Common Stock on
June 30, 2000 as reported on the Nasdaq National Market)
In accordance with Rule 0-11(c), the fee was calculated to be
one-fiftieth of one percent of the value of the securities
transferred to the security holders in the transaction.
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(4) Proposed maximum aggregate value of transaction:
$31,458,875
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(5) Total fee paid:
$20,970
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/ / Fee paid previously with preliminary materials:
$0
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/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
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SUNHAWK.COM CORPORATION, 2000
Dear Stockholder:
I am pleased to forward to you the enclosed proxy statement for the Special
Meeting of Stockholders of Sunhawk.com Corporation ("Sunhawk.com") to be held on
Wednesday, September 27, 2000, at 10:00 a.m., Pacific Time, at the Sheraton
Seattle Hotel & Towers, 1400 Sixth Avenue, Seattle, WA 98101, to consider and
act upon the proposals set forth in the enclosed Notice of Special Meeting of
Stockholders. Please review and consider the enclosed materials carefully.
You will be asked to consider and vote on a proposal to approve (i) the
Share Exchange Agreement, as amended, dated August 1, 2000 and the Plan of Share
Exchange; (ii) an amendment to our Articles of Incorporation to create a new
class of common stock to be known as Class A Common Stock; and (iii) an increase
in the number of shares of Sunhawk.com Common Stock available for issuance under
Sunhawk.com's 1996 Stock Option Plan, (the "Plan") from 303,526 to 800,000.
Pursuant to the Share Exchange Agreement, as amended, all of the outstanding
shares of Copyright Control Services, Inc., ("CCS") will be purchased by
Sunhawk.com. In consideration for the shares, Sunhawk.com will transfer to
stockholders of CCS up to 1,950,938 shares of common stock of Sunhawk.com. Of
the common stock to be transferred, 825,000 shares will be delivered to the CCS
stockholders at closing, 100,000 shares of which shall be held by Sunhawk.com
pending a post-closing audit of CCS by an independent accounting firm. The
remaining 1,125,938 shares shall be Class A Common shares, which will have very
limited voting rights, and will be placed in escrow. These shares will be
released from escrow only if Sunhawk.com satisfies certain market capitalization
requirements.
Your board of directors has carefully considered the terms of the Share
Exchange Agreement, as amended, and has determined that its approval is in the
best interests of Sunhawk.com and Sunhawk.com's stockholders. The board of
directors strongly supports the acquisition of CCS' stock, the creation of the
Class A Common Stock, and increasing the number of shares available for the
Plan.
Very truly yours,
Marlin J. Eller,
Chairman and Chief Executive Officer
Proxy statement dated August 28, 2000 and first mailed to stockholders on
[ ], 2000.
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SUNHAWK.COM CORPORATION
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 27, 2000
------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Sunhawk.com
Corporation, a Washington corporation ("Sunhawk.com"), will be held at the
Sheraton Seattle Hotel & Towers, 1400 Sixth Avenue, Seattle, Washington 98101,
Wednesday, September 27, 2000, at 10:00 a.m., Pacific Time, for the following
purposes:
1. To vote on a proposal to approve the Share Exchange Agreement, as
amended, dated as of August 1, 2000, by and between Copyright Control
Services, Inc., a Delaware corporation ("CCS") and Sunhawk.com and Plan
of Share Exchange, pursuant to which CCS will exchange all of its issued
and outstanding common and preferred stock for 825,000 shares of
Sunhawk.com common stock and 1,125,938 shares of Sunhawk.com's Class A
Common Stock.
2. To vote on amending Sunhawk.com's Articles of Incorporation in order to
create a new class of common stock to be designated as Class A Common
Stock.
3. To vote on a proposal to increase the number of shares of Sunhawk.com
common stock authorized for issuance under its 1996 Stock Option Plan
from 303,526 to 800,000.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
Only stockholders of record on August 15, 2000, are entitled to notice of
and to vote at the meeting or any adjournments or postponements thereof. More
detailed information concerning each proposal is set forth in the accompanying
proxy statement and the appendix thereto.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL TO
APPROVE (i) THE SHARE EXCHANGE AGREEMENT, AS AMENDED, (ii) THE AMENDMENT TO THE
ARTICLES OF INCORPORATION IN ORDER TO CREATE A NEW CLASS OF COMMON STOCK, AND
(iii) INCREASING THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE
UNDER SUNHAWK.COM'S 1996 STOCK OPTION PLAN.
By Order of the Board of Directors
David M. Otto, Secretary
August 28, 2000
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. YOU MAY REVOKE YOUR PROXY BY (i) DULY EXECUTING A LATER-DATED PROXY
RELATING TO THE SAME SHARES AND DELIVERING IT TO THE SECRETARY OF SUNHAWK.COM
CORPORATION PRIOR TO THE TAKING OF THE VOTE AT THE SPECIAL MEETING; (ii) FILING
A WRITTEN NOTICE OF REVOCATION WITH THE SECRETARY OF SUNHAWK.COM CORPORATION
PRIOR TO THE TAKING OF THE VOTE AT THE SPECIAL MEETING; OR (iii) ATTENDING THE
SPECIAL MEETING AND VOTING YOUR SHARES IN PERSON.
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE.
<PAGE>
TABLE OF CONTENTS
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TABLE OF CONTENTS........................................... 4
QUESTIONS AND ANSWERS....................................... 8
Q. WHAT AM I VOTING ON?................................... 8
Q: WHY ARE THE COMPANIES PROPOSING THE SHARE EXCHANGE?.... 8
Q. WHEN DO YOU EXPECT TO COMPLETE THE SHARE EXCHANGE?..... 8
Q: WHAT WILL BE THE EFFECT OF THE SHARE EXCHANGE ON THE
STOCKHOLDERS OF SUNHAWK.COM AND CCS?................... 8
Q. HOW DO I VOTE?......................................... 8
Q: WHAT DO CCS STOCKHOLDERS RECEIVE IN THE SHARE
EXCHANGE?............................................... 8
Q: DOES THE BOARD OF DIRECTORS OF SUNHAWK.COM RECOMMEND
VOTING IN FAVOR OF THE SHARE EXCHANGE?................. 9
Q: WILL I BE TAXED ON THE SHARE EXCHANGE? (SEE PAGE 40)... 9
Q: ARE THE SUNHAWK.COM STOCKHOLDERS ENTITLED TO
DISSENTERS' OR APPRAISAL RIGHTS? (SEE PAGE 41)......... 9
Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER
TO VOTE FOR THE SHARE EXCHANGE?........................ 9
Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED
PROXY CARD?............................................. 9
Q. WHAT DO I NEED TO DO NOW?.............................. 9
Q. WHO CAN HELP ANSWER MY QUESTIONS?...................... 9
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER,
WILL MY BROKER VOTE MY SHARES?......................... 9
Q. CAN I VOTE MY SHARES IN PERSON?........................ 10
Q. HOW WILL MY SHARES BE VOTED IF I RETURN A BLANK PROXY
CARD?................................................... 10
Q. WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL
MEETING?................................................ 10
SUMMARY TERM SHEET.......................................... 11
FORWARD-LOOKING STATEMENTS................................ 11
SUMMARY OF THE SHARE EXCHANGE............................... 11
CONDITIONS TO COMPLETION OF THE SHARE EXCHANGE............ 12
VOTE REQUIRED FOR APPROVAL................................ 12
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMBINED COMPANY
FOLLOWING THE SHARE EXCHANGE............................ 12
SUNHAWK.COM CORPORATION ("Sunhawk.com")................... 12
COPYRIGHT CONTROL SERVICES, INC. ("CCS").................. 12
TIME AND LOCATION OF SUNHAWK.COM SPECIAL MEETING.......... 13
PROPOSALS................................................. 13
VOTING AND REVOCATION OF PROXIES.......................... 13
RECOMMENDATION OF THE BOARD OF DIRECTORS.................. 13
SHARE EXCHANGE............................................ 14
NO SOLICITATION........................................... 14
TERMINATION............................................... 14
INTEREST OF CERTAIN PERSONS............................... 14
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE SHARE
EXCHANGE................................................ 15
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ACCOUNTING TREATMENT OF THE SHARE EXCHANGE................ 15
RISK FACTORS................................................ 16
FAILURE TO COMPLETE THE SHARE EXCHANGE COULD NEGATIVELY
IMPACT THE MARKET PRICE OF SUNHAWK.COM COMMON STOCK..... 16
CCS HAS A LIMITED OPERATING HISTORY....................... 16
CCS DEPENDS UPON INTELLECTUAL PROPERTY RIGHTS AND RISKS
HAVING ITS RIGHTS INFRINGED UPON........................ 16
IF CCS FAILS TO CAPTURE SUFFICIENT LEVELS OF REPEAT
CUSTOMERS, BUSINESS AND NET REVENUES WILL BE ADVERSELY
AFFECTED................................................ 16
CCS MAY FAIL TO ADEQUATELY PREDICT TECHNOLOGY TRENDS...... 17
IN THE FUTURE CCS MAY FACE POTENTIAL CLAIMS FOR LIABILITY
OR ADVERSE PUBLICITY.................................... 17
THE INTRODUCTIONS PROPOSED TO BE MADE BY @VISORY MAY NOT
LEAD TO SIGNIFICANTLY INCREASED BUSINESS................ 17
CCS'S SELECTED FINANCIAL DATA............................... 18
UNAUDITED PRO FORMA FINANCIAL DATA.......................... 27
COMPARATIVE PER SHARE DATA.................................. 34
MARKET PRICE AND DIVIDEND INFORMATION..................... 34
RECENT SHARE PRICE........................................ 35
DIVIDENDS................................................. 35
THE SPECIAL MEETING......................................... 36
GENERAL................................................... 36
RECORD DATE AND QUORUM REQUIREMENTS....................... 36
VOTE REQUIRED............................................. 36
VOTING AND REVOCATION OF PROXIES.......................... 37
SOLICITATION OF PROXIES................................... 37
EXPENSES OF PROXY SOLICITATION............................ 37
THE SHARE EXCHANGE.......................................... 38
BACKGROUND OF THE SHARE EXCHANGE.......................... 38
SUNHAWK.COM'S REASON FOR THE SHARE EXCHANGE............... 39
CCS'S REASON FOR THE SHARE EXCHANGE....................... 39
RECOMMENDATION OF THE BOARD OF DIRECTORS.................. 39
INTERESTS OF SUNHAWK.COM DIRECTORS, OFFICERS, AND
SIGNIFICANT STOCKHOLDERS IN THE SHARE EXCHANGE.......... 40
COMPLETION AND EFFECTIVENESS OF THE SHARE EXCHANGE........ 40
STRUCTURE OF SHARE EXCHANGE AND CONVERSION OF CCS
SHARES.................................................. 40
NO DIVIDENDS.............................................. 40
MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS.......................................... 40
ACCOUNTING TREATMENT FOR THE SHARE EXCHANGE............... 41
CERTAIN SECURITIES LAWS CONSIDERATIONS.................... 41
DISSENTER'S RIGHTS........................................ 41
THE SHARE EXCHANGE AGREEMENT, AS AMENDED.................... 41
SHARE EXCHANGE............................................ 41
EXCHANGE RATIO/ESCROW..................................... 41
CLASS A COMMON SHARES..................................... 42
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OPTIONS AND WARRANTS...................................... 42
HOLDBACK.................................................. 42
SUNHAWK.COM REPRESENTATIONS AND WARRANTIES................ 43
REPRESENTATIONS AND WARRANTIES OF CERTAIN CCS
STOCKHOLDERS............................................ 43
COVENANTS OF THE PARTIES.................................. 44
TERMINATION............................................... 45
INTEREST OF CERTAIN PERSONS................................. 46
CLASS A COMMON STOCK........................................ 46
TITLE AND AMOUNT TO BE AUTHORIZED AND ISSUED.............. 46
DIVIDEND.................................................. 46
VOTING.................................................... 47
CONVERSION................................................ 47
LIQUIDATION............................................... 47
OTHER MATERIAL RIGHTS OR RESTRICTIONS..................... 47
AGREEMENTS RELATED TO THE SHARE EXCHANGE.................... 47
AMENDMENT NO. 1 TO THE SHARE EXCHANGE AGREEMENT........... 47
LETTER OF INTENT.......................................... 47
AMENDMENT NO. 1 TO THE LETTER OF INTENT................... 48
SERVICES AGREEMENT (Amendment No. 1 to Consulting
Agreement).............................................. 48
ESCROW AGREEMENTS......................................... 48
REGISTRATION RIGHTS AGREEMENT............................. 49
ADVISORY AGREEMENT........................................ 50
EMPLOYMENT AGREEMENTS..................................... 50
SUNHAWK.COM BUSINESS........................................ 50
SECURITY OWNERSHIP OF BENEFICIAL OWNERSHIP AND
MANAGEMENT.............................................. 50
COMPENSATION EXECUTIVE OFFICERS........................... 51
CCS BUSINESS................................................ 52
CCS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION...................... 52
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,
2000 COMPARED TO THE SIX MONTH ENDED JUNE 30, 1999...... 52
REVENUE................................................... 52
COST OF REVENUE........................................... 53
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.............. 53
OTHER INCOME/(EXPENSE).................................... 53
LIQUIDITY AND CAPITAL RESOURCES........................... 53
CCS MANAGEMENT............................................ 53
CCS PRINCIPAL STOCKHOLDERS................................ 55
CCS TRANSACTIONS WITH RELATED PARTIES..................... 54
INCREASE OF COMMON STOCK AUTHORIZED FOR ISSUANCE UNDER 1996
STOCK OPTION PLAN......................................... 54
SUMMARY................................................... 54
RECOMMENDATION OF BOARD OF DIRECTORS...................... 54
LEGAL MATTERS............................................... 54
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STOCKHOLDER PROPOSALS....................................... 55
WHERE YOU CAN FIND MORE INFORMATION......................... 55
ANNEX A..................................................... 57
ANNEX B..................................................... 63
ANNEX C..................................................... 68
ANNEX D..................................................... 134
ANNEX E..................................................... 137
ANNEX F..................................................... 143
ANNEX G..................................................... 146
ANNEX H..................................................... 150
ANNEX I..................................................... 152
ANNEX J..................................................... 159
FORM OF PROXY...............................................
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<PAGE>
QUESTIONS AND ANSWERS
Q. WHAT AM I VOTING ON?
A. At the meeting, you will consider and vote on a proposal to approve the Share
Exchange Agreement, as amended, by and between Sunhawk.com, and CCS and the
Plan of Share Exchange, pursuant to which Sunhawk.com shall exchange 825,000
shares of its common stock and 1,125,938 and its Class A Common Stock for
all of the outstanding shares of CCS from the CCS stockholders. As a result
of the share exchange, CCS shall survive the transaction as a wholly-owned
subsidiary of Sunhawk.com. In connection with the share exchange, the
proposal will also approve the creation of a new class of common stock with
limited rights. This class of common stock, to be called Class A Common
Stock, shall have 1/20 of a vote per share compared to one (1) vote per
share for our common stock. Further, the Class A Common Stock shall either
convert into Common Stock or be cancelled, dependent upon whether or not
certain conditions set forth in the Escrow Agreements to be entered into
between Sunhawk.com, on the one hand, and the CCS stockholders and the
@Visory Group, on the other hand, are satisfied. The Class A Common Stock
will also have dividend rights and registration rights.
Q: WHY ARE THE COMPANIES PROPOSING THE SHARE EXCHANGE? (SEE PAGE 39)
A: Sunhawk.com and CCS are proposing the share exchange because we believe the
resulting combination will create a stronger, more competitive company
capable of achieving greater financial strength, operational efficiencies,
earnings power and growth potential than either company would have on its
own.
We also believe the complementary geographical presence (in London and
Seattle) of the two companies will provide an opportunity to accelerate the
revenue growth of the combined company and extend its position in the
digital rights management, rights tracking and anti-piracy marketplace.
Q. WHEN DO YOU EXPECT TO COMPLETE THE SHARE EXCHANGE? (SEE PAGE 40)
A. We are working toward completing the share exchange as quickly as possible.
We must complete the share exchange before September 30, 2000, or either
party may terminate the transaction.
Q: WHAT WILL BE THE EFFECT OF THE SHARE EXCHANGE ON THE STOCKHOLDERS OF
SUNHAWK.COM AND CCS? (SEE PAGE 40)
A: Upon consummation of the share exchange, CCS will become a wholly-owned
subsidiary of Sunhawk.com. After the share exchange, Sunhawk.com shall own
100% of CCS's stock and, prior to certain events described in the escrow
agreements being satisfied, the former stockholders of CCS will own
approximately twenty percent (20%) of Sunhawk.com.
Q. HOW DO I VOTE?
A. Complete and sign the enclosed proxy card and return it in the enclosed
return envelope. You can also vote in person at the special meeting. We urge
you to read this entire document carefully before voting.
Q: WHAT DO CCS STOCKHOLDERS RECEIVE IN THE SHARE EXCHANGE?
(SEE PAGE 40)
A: When the share exchange is completed, holders of CCS stock will receive, in
total, no more than 1,930,938 shares of Sunhawk.com common stock and
Class A Common Stock in exchange for all of the outstanding shares of CCS
stock. The Share Exchange Agreement, as amended, requires that CCS convert
all outstanding options and warrants not assumed by Sunhawk.com prior to the
consummation of the transaction.
8
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Q: DOES THE BOARD OF DIRECTORS OF SUNHAWK.COM RECOMMEND VOTING IN FAVOR OF THE
SHARE EXCHANGE? (SEE PAGE 39)
A: Yes. After careful consideration, Sunhawk.com's board of directors
unanimously recommends that its stockholders vote in favor of the Share
Exchange Agreement, as amended, and the proposed Plan of Share Exchange.
Q: WILL I BE TAXED ON THE SHARE EXCHANGE? (SEE PAGE 40)
A: Sunhawk.com stockholders will not recognize gain or loss for United States
federal income tax purposes as a result of the share exchange. All
stockholders are urged to consult their own tax advisor to determine their
particular tax consequences.
Q: ARE THE SUNHAWK.COM STOCKHOLDERS ENTITLED TO DISSENTERS' OR APPRAISAL
RIGHTS? (SEE PAGE 41)
A: No.
Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE SHARE
EXCHANGE?
A: Yes. In evaluating the merger, you should carefully consider the factors
discussed in the section entitled "Risk Factors" on page 16.
Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD? (SEE
PAGE 37)
A. Yes, you may change your vote by:
- filing a written notice of revocation with Sunhawk.com's Secretary before
the taking of the vote at the special meeting;
- signing another proxy card and delivering it to Sunhawk.com's Secretary
before the taking of the vote at the special meeting; or
- attending the special meeting and voting in person.
Please be advised, however, that simply attending the special meeting will
not revoke your proxy.
Q. WHAT DO I NEED TO DO NOW?
A. Mail your completed and signed proxy card in the enclosed return envelope as
soon as possible, so that your vote concerning approval of the share
exchange can be counted.
Q. WHO CAN HELP ANSWER MY QUESTIONS? (SEE PAGE 55)
A. If you would like additional copies of this document, or have questions about
the purchase, you should contact:
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Sunhawk.com Corporation
223 Taylor Ave N, Suite 200
Seattle, WA 98109
(206) 728-6063
Attn: Cherie Jones, Executive Assistant
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Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES? (SEE PAGE 36)
A. No, unless you provide instructions to your broker on how to vote. You should
follow the directions provided by your broker regarding how to instruct your
broker to vote your shares.
9
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Q. CAN I VOTE MY SHARES IN PERSON? (SEE PAGE 13)
A. Yes. You may attend the special meeting and vote your shares in person,
rather than signing and mailing your proxy card.
Q. HOW WILL MY SHARES BE VOTED IF I RETURN A BLANK PROXY CARD? (SEE PAGE 37)
A. If you sign and return your proxy card and do not indicate how you want to
vote, your shares will be voted in favor of the proposal to approve the
Share Exchange Agreement, as amended, and Plan of Share Exchange.
Q. WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING? (SEE PAGE 13)
A. Except for the three proposals described herein, Sunhawk.com does not
anticipate that any other matters will be proposed to the stockholders.
NOTE: We have not authorized anyone to give any information or make any
representation about the Share Exchange Agreement, as amended, that is
different from, or in addition to, that contained in this proxy statement
or in any of the materials that we have incorporated into this document.
Therefore, if anyone does give you information of this sort, you should
not rely on it. This document is dated August 28, 2000. You should not
assume that the information contained in this document is accurate as of
any other date unless the information specifically indicates that another
date applies.
10
<PAGE>
SUMMARY TERM SHEET
This proxy statement pertains to the share exchange between CCS and
Sunhawk.com, which shall result in (i) CCS becoming a wholly-owned subsidiary of
Sunhawk.com, (ii) the creation of a new class of common stock designated
Class A Common Stock, and (iii) an increase in the authorized number of shares
available for issuance under Sunhawk.com's 1996 Stock Option Plan. This proxy
statement is being sent to the holders of Sunhawk.com common stock. This summary
may not contain all of the information that is important to you. You should read
carefully this entire proxy statement and the documents incorporated by
reference, including the Share Exchange Agreement, as amended, and other
documents attached to this proxy statement and the other documents referenced in
it for a more complete understanding of the share exchange before voting. In
particular, you should read the Share Exchange Agreement, as amended, (and the
exhibits thereto), which is attached hereto as Annex C.
FORWARD-LOOKING STATEMENTS
This proxy statement contains or incorporates by reference certain
forward-looking statements (as such term is defined in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934)
and information relating to Sunhawk.com and CCS that are based on the beliefs of
the management of Sunhawk.com and CCS as well as assumptions made by and
information currently available to the management of Sunhawk.com and CCS. In
addition, when used in this document or in material incorporated by reference,
the words "likely," "will," "suggests," "may," "would," "could," "anticipate,"
"believe," "estimate," "expect," "intend," "plan," "predict" and similar
expressions and their variants, as they relate to Sunhawk.com or CCS or the
management of either company, may identify forward-looking statements. Such
statements reflect the judgment of Sunhawk.com or CCS management as of the date
of this proxy statement with respect to future events, the outcome of which is
subject to certain risks, including the risk factors set forth herein, which may
have a significant impact on the business, operating results or financial
conditions of Sunhawk.com, CCS or the combined company. Stockholders are
cautioned that these forward-looking statements are inherently uncertain. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results or outcomes may vary materially from
those described herein. Neither Sunhawk.com nor CCS undertake any obligation to
update forward-looking statements.
SUMMARY OF THE SHARE EXCHANGE
In the share exchange, Sunhawk.com shall acquire all outstanding shares of
CCS from the CCS stockholders. CCS will survive the share exchange as a
wholly-owned subsidiary of Sunhawk.com. CCS stockholders may receive up to a
total of 1,950,938 shares of Sunhawk.com common stock. However, of those
Sunhawk.com shares, 825,000 shares will be delivered to the CCS stockholders,
less 100,000 shares, which shall be held by Sunhawk.com pending a post-closing
audit of CCS by an independent accounting firm. The remaining 1,125,938 shares
shall be Class A common shares, which shall be placed in escrow and shall be
released from escrow only upon the achievement by Sunhawk.com of certain market
capitalization criteria within the next 12 to 24 months. No fractional shares
will be issued in connection with the issuance of either the 825,000 shares of
common stock or the 1,125,938 shares of Class A common stock. If the market
capitalization criteria are not satisfied, the Class A shares shall be returned
to Sunhawk.com in accordance with the timing deadlines associated with the
satisfaction of such market capitalization criteria. In addition to the
foregoing, Sunhawk.com has agreed to issue to various officers and managers of
Sunhawk.com, managers of CCS and @Visory, up to 2,388,083 shares of common stock
in the form of options and/or warrants, some of which shall vest upon
consummation of the share exchange and others shall vest in accordance with
Sunhawk.com satisfying the market capitalization criteria referenced above.
The Share Exchange Agreement, as amended, is attached to this proxy
statement as Annex C. You are encouraged to read it carefully.
11
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CONDITIONS TO COMPLETION OF THE SHARE EXCHANGE
Sunhawk.com's and CCS's respective obligations to complete the share
exchange are subject to the satisfaction or waiver of closing conditions.
If either Sunhawk.com or CCS waives any conditions, Sunhawk.com will
consider the facts and circumstances at that time and make a determination
whether a second solicitation of proxies from Sunhawk.com's stockholders is
appropriate.
VOTE REQUIRED FOR APPROVAL
The holders of a majority of the outstanding shares of Sunhawk.com common
stock must approve the Share Exchange Agreement, as amended, and the Plan of
Share Exchange. Sunhawk.com stockholders holding approximately one third (33%)
of the outstanding common shares as of the record date have agreed to vote all
their shares in favor of the Share Exchange Agreement, as amended, and the Plan
of Share Exchange.
All the stockholders of CCS common stock and preferred stock have agreed to
exchange all their holdings in CCS for shares of Sunhawk.com common stock and
Class A Common Stock.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMBINED COMPANY FOLLOWING THE SHARE
EXCHANGE
Following the Share Exchange, the board of directors of Sunhawk.com will
consist of the then current members of Sunhawk.com's board of directors, and
Paul Bandrowski, David Powell and a third nominee of CCS, subject to Sunhawk.com
approval. Paul Bandrowski will also be appointed as vice-chairman of the board
of directors.
Following the share exchange, Marlin Eller, the current President and Chief
Executive Officer of Sunhawk.com, will continue to be President and Chief
Executive Officer of the combined company. David Powell and Julian Searle shall
serve, respectively, as Vice-President and Chief Technology Officer of CCS, a
wholly-owned subsidiary of Sunhawk.com.
SUNHAWK.COM CORPORATION ("SUNHAWK.COM")
Sunhawk.com Corporation is an Internet-based digital rights management
("DRM") and publishing company. Sunhawk.com Corporation provides DRM technology,
digital conversion and enhancement of content, and a digital distribution
infrastructure for the secure delivery of digital products over the Internet.
Sunhawk.com Corporation
223 Taylor Ave N, Suite 200
Seattle, Washington 98109
(206) 728-6063
COPYRIGHT CONTROL SERVICES, INC. ("CCS")
Copyright Control Services, Inc., offers custom tailored services to
businesses that are losing revenue or value from copyright infringement on the
Internet.
12
<PAGE>
COPYRIGHT CONTROL SERVICES, INC.
6 HAMPTON HILL BUSINESS PARK
219-221 HIGH STREET
HAMPTON HILL, YW12 INP
UNITED KINGDOM
44 181 977 1001
TIME AND LOCATION OF SUNHAWK.COM SPECIAL MEETING
The special meeting will be held at The Sheraton Seattle Hotel & Towers,
located at 1400 Sixth Avenue, Seattle, WA 98101 on Wednesday, September 27,
2000, at 10:00 a.m., Pacific Time.
PROPOSALS
At the meeting you will consider and vote upon:
- a proposal to approve the Share Exchange Agreement, as amended, by and
among Sunhawk.com and CCS shareholders and Plan of Share Exchange;
- a proposal to amend Sunhawk.com's Articles of Incorporation to provide for
the creation of a new class of common stock to be called Class A Common
Stock, which will have limited voting rights and which shall either
convert into common stock or be retired within 12 to 24 months after
consummation of the Share Exchange;
- a proposal to increase the number of shares of common stock authorized for
issuance under the 1996 Stock Option Plan from 303,526 to 800,000; and
- any other business properly brought before the stockholders
See "The Special Meeting--General."
VOTING AND REVOCATION OF PROXIES
You can vote at the special meeting if you owned common shares at the close
of business on August 15, 2000. You will be entitled to cast one vote for each
share you owned at that time. See "The Special Meeting--Record Date and Voting."
The share exchange proposal requires the affirmative vote of a majority of the
votes cast at the special meeting. You can vote your shares by attending the
special meeting and voting in person, or by marking the enclosed proxy card with
your vote, signing it and returning it in the enclosed return envelope. You can
revoke your proxy as late as the date of the special meeting by taking the
actions described under the caption "The Special Meeting--Voting and Revocation
of Proxies." Simply attending the meeting will not revoke your proxy. Your vote
is very important. Please sign, date and return the proxy card as soon as
possible.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The board of directors recommends that you vote:
FOR the proposal approving the Share Exchange Agreement, as amended and Plan
of Share Exchange;
FOR the proposal revising the Articles of Incorporation to create a new
class of common stock to be called Class A Common Stock; and
FOR the proposal approving an increase in the number of shares authorized
for issuance under the 1996 Stock Option Plan from 303,526 to 800,000
13
<PAGE>
The reasons for the board's recommendation FOR consummating the share
exchange and creating the Class A Common Stock are set forth on page 54.
The board of directors of Sunhawk.com has also unanimously determined that
increasing the number of shares of common stock available for issuance under its
1996 Stock Option Plan, from 303,526 to 800,000, is in the best interest of
Sunhawk.com and its stockholders. Accordingly, the Sunhawk.com board of
directors recommends that Sunhawk.com stockholders vote FOR the proposal to
increase the shares of common stock authorized for issuance under the 1996 Stock
Option Plan.
SHARE EXCHANGE
Under the terms of the Share Exchange Agreement, as amended, Sunhawk.com
will purchase all of the outstanding shares of CCS from the current CCS
stockholders. This action will cause all of the assets and liabilities of CCS to
become those of Sunhawk.com. CCS shall survive the transaction as a wholly-
owned subsidiary of Sunhawk.com. In consideration for the transfer of the CCS
shares to Sunhawk.com, Sunhawk.com will issue 1,950,938 shares of Sunhawk.com
common stock and Class A Common Stock to CCS as set forth in the Share Exchange
Agreement, as amended. Please see the section marked "Share Exchange Agreement"
and the Share Exchange Agreement attached hereto as Annex C.
NO SOLICITATION
CCS has agreed to neither solicit an acquisition proposal from any third
party nor to take part in any discussions regarding an unsolicited acquisition
proposal. If the share exchange is not consummated because of a violation of the
"No Solicitation" portion of the Share Exchange Agreement, as amended, CCS has
agreed to pay Sunhawk.com $2.5 million in liquidated damages. Please see the
section marked "Share Exchange Agreement," and the Share Exchange Agreement
attached hereto as Annex C.
TERMINATION
In certain circumstances, the Share Exchange Agreement, as amended, may be
terminated by either or both of the parties. In certain circumstances, the
termination of the agreement could result in a payment of $2.5 million to
Sunhawk.com. See the section marked "Share Exchange Agreement," and the Share
Exchange Agreement attached hereto as Annex C.
INTEREST OF CERTAIN PERSONS
Immediately after the closing of the share exchange transaction David Powell
and Julian Searle shall serve, respectively, as Vice President and Chief
Technology Officer of CCS, a wholly-owned subsidiary of Sunhawk.com. Paul
Bandrowski, David Powell and a nominee to be approved by Sunhawk.com shall be
nominated to fill vacancies on Sunhawk.com's board of directors. Mr. Bandrowski
shall also serve as Vice-Chairman of the Board of Directors of Sunhawk.com.
In addition, Marlin Eller, David Powell and Julian Searle shall be entitled
to receive additional options for shares of Sunhawk.com's common stock should
Sunhawk.com achieve certain market capitalization goals within two years
following the consummation of the Share Exchange Agreement. The amount
14
<PAGE>
of options and the terms and conditions upon which these options shall vest are
described in the table below:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS TO BE ISSUED
UPON SUNHAWK.COM REACHING A MARKET CAPITALIZATION OF
UPON ---------------------------------------------------------
CONSUMMATION $100,000,000 $125,000,000 $150,000,000
OF THE SHARE WITHIN 12 MOS. OF WITHIN 18 MOS. OF WITHIN 24 MOS. OF
INDIVIDUAL EXCHANGE CONSUMMATION CONSUMMATION CONSUMMATION
---------- ------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Marlin Eller..................... 283,333 283,333 283,333 0
David Powell..................... 0 283,333 283,333 283,333
Julian Searle.................... 0 50,000 50,000 50,000
</TABLE>
If, Sunhawk.com fails to achieve the market capitalization goals described
in the time frames set forth above, the options will expire.
Please see the sections marked "Share Exchange Agreement" and "Escrow
Agreement." The Share Exchange Agreement, as amended, and the Escrow Agreement,
are respectively, attached hereto as Annex C.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE SHARE EXCHANGE
We have structured the share exchange so that, in general, neither
Sunhawk.com nor Sunhawk.com's stockholders will have any United States federal
income tax consequence.
ACCOUNTING TREATMENT OF THE SHARE EXCHANGE
Sunhawk.com intends to account for the share exchange as a "purchase" for
financial accounting purposes, in accordance with United States generally
accepted accounting principles. As a result, a significant amount of goodwill is
expected to be created, which will be amortized as an expense over 20 years.
15
<PAGE>
RISK FACTORS
The Share Exchange involves a high degree of risk. By voting in favor of the
Share Exchange, current Sunhawk.com stockholders will face dilution of their
ownership interest in Sunhawk.com. In addition to the other information
contained in this proxy statement, you should carefully consider all of the
following risk factors relating to the proposed share exchange.
FAILURE TO COMPLETE THE SHARE EXCHANGE COULD NEGATIVELY IMPACT THE MARKET PRICE
OF SUNHAWK.COM COMMON STOCK.
If the share exchange is not completed for any reason, Sunhawk.com will be
subject to a number of material risks, including:
- the market price of Sunhawk.com common stock may decline to the extent
that the current market price reflects a market assumption that the share
exchange will be completed;
- costs related to the share exchange, such as legal and accounting fees,
must be paid even if the share exchange is not completed;
- benefits that the companies expect to realize from the share exchange,
such as the potentially enhanced financial and competitive position of the
combined company, would not be realized; and
- the diversion of management attention from day-to-day business, and the
potential to disrupt employees and relationships with customers and
suppliers during the period before consummation of the share exchange, may
affect the financial and market position of Sunhawk.com.
CCS HAS A LIMITED OPERATING HISTORY
CCS was incorporated in August, 1999. The operations of CCS are in its
subsidiary, Chinerose Limited, which was incorporated in the United Kingdom in
June 1998. Accordingly, CCS has a limited operating history upon which you can
evaluate its business and prospects, which makes it difficult to forecast our
future operating results. You must consider our business in light of the risks,
uncertainties and problems frequently encountered by companies with limited
operating histories.
CCS DEPENDS UPON INTELLECTUAL PROPERTY RIGHTS AND RISKS HAVING ITS RIGHTS
INFRINGED UPON
CCS considers patents, trademarks, trade secrets and similar intellectual
property to be a valuable part of its business. To protect its intellectual
property rights, CCS relies, and will rely upon the issuance of any patents,
copyright, trademark, patent and trade secret laws, as well as confidentiality
agreements with employees and consultants. There can be no assurance that our
use of these contracts and CCS's intellectual property rights will not infringe
upon the rights of others. It is possible that others will develop and patent
technologies that are similar or superior to CCS's. There can be no assurance
that third parties will not claim infringement by CCS with respect to others'
current or future intellectual property rights or trade secrets. It is also
possible that third parties will obtain and use CCS's technology without
authorization.
IF CCS FAILS TO CAPTURE SUFFICIENT LEVELS OF REPEAT CUSTOMERS, BUSINESS AND NET
REVENUES WILL BE ADVERSELY AFFECTED
Currently CCS has contracts for copyright control services with a certain
number of customers. If the CCS customers should fail to renew their contracts
with CCS or should CCS fail to capture a sufficient number of new customers,
both CCS and Sunhawk.com could suffer losses.
16
<PAGE>
CCS MAY FAIL TO ADEQUATELY PREDICT TECHNOLOGY TRENDS
We believe that digital rights management is an extremely important and
growing area of business on the internet. We believe that CCS and Sunhawk.com
will be able to provide a strong solution in the form of its services and
product being able to minimize the business losses caused by pirating. However,
the use of the internet could change or alternative processes for controlling
pirating could come to market, thereby rendering the Sunhawk.com and CCS
services and contemplated anti-piracy products obsolete. If Sunhawk.com or CCS
fails to accurately predict these types of technology trends or any other
numerous number of technology trends that could effect Sunhawk.com's and CCS's
business, Sunhawk.com and CCS could be exposed to substantial risk and losses.
IN THE FUTURE CCS MAY FACE POTENTIAL CLAIMS FOR LIABILITY OR ADVERSE PUBLICITY
Due to the nature of CCS's business, CCS expects that from time to time
litigation will be commenced against it. However, although CCS expects to
triumph in the majority of actions against it, it is impossible to predict the
nature, extent or outcome of any action against it. In addition, even if CCS is
in the right, there is no guarantee that CCS or Sunhawk.com will have sufficient
liquid capital to pay the fees and costs associated with drawn-out complex
litigation.
THE INTRODUCTIONS PROPOSED TO BE MADE BY @VISORY MAY NOT LEAD TO SIGNIFICANTLY
INCREASED BUSINESS
Part of the resulting benefit to Sunhawk.com from the share exchange
transaction proposed in this proxy statement is expected to come from a
strategic alliance with @Visory. Through this strategic alliance, Sunhawk.com
hopes to gain access to numerous contacts and customers in both (i) the area of
digital rights management and rights tracking, and (ii) financing and
investment. However, there are no guarantees that any introduction made by
@Visory will lead to any fruitful business relationships. If Sunhawk.com and CCS
fail to generate new customers, strategic alliances, and investment
relationships in the short term, Sunhawk.com's business could be dramatically
hurt and Sunhawk.com could suffer severe losses.
17
<PAGE>
CCS' SELECTED FINANCIAL DATA
COPYRIGHT CONTROL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
2000
---------
<S> <C>
ASSETS
Current assets:
Accounts receivable....................................... $ 13,045
Prepaid expense........................................... 4,562
Other assets.............................................. 2,520
---------
Total current assets.................................. 20,127
---------
Property and equipment, net................................. 53,371
Other assets:
Deposits.................................................. 12,042
---------
Total other assets.................................... 12,042
---------
Total assets.......................................... $ 85,540
=========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses..................... 250,578
Notes payable to related parties.......................... 185,368
Accrued interest on related parties....................... 4,493
Notes payable to shareholder.............................. 210,953
Accrued interest on note payable to shareholder........... 4,921
---------
Total current liabilities............................. 656,313
---------
Long-term debt.............................................. 11,293
Shareholders' equity (deficit):
Common stock, par value of $0.0001
Authorized shares--10,000,000
Outstanding shares--3,197,754 at June 30, 2000.......... 20,946
Additional paid in capital................................ 67,904
Accumulated deficit....................................... (703,485)
Other comprehensive gain.................................. 32,569
---------
Total shareholders' equity (deficit).................. (582,066)
---------
Total liabilities and shareholders' equity
(deficit)........................................... $ 85,540
=========
</TABLE>
See accompanying notes to unaudited financial statements.
18
<PAGE>
COPYRIGHT CONTROL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
Revenue..................................................... $ 123,385 $ 59,245
Cost of revenue............................................. 144,163 --
--------- ---------
Gross profit (loss)......................................... (20,778) 59,245
--------- ---------
Selling, general and administrative......................... (232,095) 199,596
--------- ---------
Loss from operations........................................ (252,873) (140,351)
Other income (expense)...................................... (8,766) (345)
--------- ---------
Net loss.................................................... $(261,639) $(140,696)
Foreign currency translation adjustment..................... (30,472) --
--------- ---------
Comprehensive loss.......................................... $(292,111) $(140,696)
========= =========
Net loss per share:
Basic and diluted......................................... $ (0.11) $ (85.58)
========= =========
Weighted average common shares for net loss per share
computations:
Basic and diluted......................................... 2,679,977 1,644
========= =========
</TABLE>
See accompanying notes to unaudited financial statements.
19
<PAGE>
COPYRIGHT CONTROL SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(261,639) $(140,696)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 5,217 7,576
Accrued interest on notes payable to related parties and
shareholder............................................. 6,052 --
Accrued interest on long-term debt........................ (4,974) --
Changes in operating assets and liabilities:
(Increase) Decrease in accounts receivable.............. (6,154) 13,287
(Increase) Decrease in prepaid expense.................. 296 (1,972)
(Increase) Decrease in other assets..................... (808) 712
Increase in accounts payable and accrued expenses....... 268,692 63,883
--------- ---------
Net cash provided by (used in) operating activities......... 6,682 (57,210)
--------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment......................... (9,991) (293)
--------- ---------
Net cash used in investing activities....................... (9,991) (293)
--------- ---------
FINANCING ACTIVITIES
Payment on notes payable to shareholders.................... (194,831) --
Proceeds from notes payable issued to related parties....... 122,544 7,903
Payment on long-term debt................................... -- (5,415)
Issuance of common stock.................................... 45,124 39,507
--------- ---------
Net cash provided by (used in) financing activities......... (27,163) 41,995
--------- ---------
Effect of Foreign currency rate fluctuations on cash........ 30,472 8,391
--------- ---------
Net decrease in cash........................................ -- (7,117)
Cash at beginning of period................................. -- 7,117
--------- ---------
Cash at end of period....................................... $ -- --
========= =========
</TABLE>
See accompanying notes to unaudited financial statements.
20
<PAGE>
COPYRIGHT CONTROL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND LIQUIDITY
BUSINESS AND ORGANIZATION
Copyright Control Services, Inc. (CCS) was incorporated in the state of
Delaware on August 27, 1999. On October 4, 1999 CCS exchanged one share of its
common stock for 2.775 shares of common stock in Chinerose Limited t/a/
Copyright Control Services (Chinerose), a private company with limited liability
registered in England, whereupon Chinerose became a wholly-owned subsidiary of
CCS. CCS contracts with companies owning intellectual digital content to provide
security services and protection solutions.
LIQUIDITY
At June 30, 2000, CCS had no cash available to fund operations. For the six
months ended June 30, 2000, CCS recorded a net loss of $261,639, and had an
accumulated deficit of $703,485. These factors raise substantial doubt about
CCS' ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
On July 3, 2000 CCS received additional equity financing of $903,050, net of
financing costs. Management believes this amount will be sufficient to operate
CCS until the closing of the Shares Exchange Agreement with Sunhawk.com.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the related assets, which range from three to seven years.
ACCOUNTING FOR FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
CCS' balance sheet accounts are translated into U.S. dollars at the rate of
exchange in effect at the balance sheet dates. The resulting translation
adjustment is recorded as a separate component of shareholders' equity.
Revenues, costs and expenses of CCS are translated into U.S. dollars at the
average rate of exchange in effect during each reporting period. All other
foreign transaction gains and losses are included in the results of operations.
REVENUE RECOGNITION
Revenue from contracts is recorded when services have been provided.
INCOME TAXES
Provision is made at current rates for taxation deferred in respect of all
material timing differences except to the ext that, in the opinion of the
directors, there is reasonable probability that the liability will not arise in
the foreseeable future.
21
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COPYRIGHT CONTROL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
NET LOSS PER SHARE
Basic and diluted net loss per share is computed based on the
weighted-average number of common shares outstanding during each period.
USE OF ESTIMATES
These financial statements have been prepared in conformity with generally
accepted accounting principles, which require management to make estimates and
assumptions that impact amounts reported in the financial statements and
accompanying notes. Actual results could differ from those amounts reported and
disclosed herein.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
2000
--------
<S> <C>
Computers and software...................................... $ 36,974
Vehicles.................................................... 26,646
Furniture and fixtures...................................... 6,164
Other....................................................... 2,994
--------
72,778
Less accumulated depreciation............................... (19,407)
--------
$ 53,371
========
</TABLE>
4. NOTES PAYABLE TO SHAREHOLDER
On July 28, 1999, CCS entered into a subordinated note with a shareholder in
the amount of $20,000. The note is due on July 28, 2001, and bears interest at a
rate of 8.5%, payable quarterly.
Additionally, on August 28, 1999, CCS entered into two subordinated notes
with a shareholder, in the amount of $116,910 and $73,738, both with due dates
of August 28, 2001. Interest on the notes is 2% and is payable upon maturity.
Interest expense for the six month period ended June 30, 2000 was $1,917, and
accrued interest at June 30, 2000 was $3,252. As of June 30, 2000, the
outstanding amount due to shareholder was $187,694. The remaining principle and
accrued interest were paid in full in July 2000.
5. NOTES PAYABLE TO RELATED PARTY
On August 28, 1999, CCS entered into a subordinated note with a related
party in the amount of $12,824 with a due date of August 28, 2001. Interest on
the note is 2% and is payable upon maturity. Interest expense for the six month
period ended June 30, 2000 was $129, and accrued interest at June 30, 2000 was
$219. In July 2000 the note and accrued interest was converted into equity for
12,465 shares of CCS Series A preferred.
22
<PAGE>
COPYRIGHT CONTROL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE TO RELATED PARTY (CONTINUED)
On March 8, 2000, CCS entered into a 2% senior secured note with a related
party in the amount of $10,000 with a due date of June 8, 2000. Interest on the
note is 2% and payable upon maturity. Currently, the terms of the note are being
renegotiated. Interest expense for the six month period ended June 30, 2000 was
$63, and accrued interest at June 30, 2000 was $63.
On November 11, 1999, CCS entered into a convertible note with a related
party in the amount of $50,000 with a due date of May 1, 2000. Interest on the
note is 8% and payable upon maturity. Currently, the terms of the note are being
renegotiated. Interest expense for the six month period ended June 30, 2000, was
$2,011, and accrued interest at June 30, 2000, was $2,689.
6. SHAREHOLDERS' EQUITY
On June 23, 2000, CCS' Board of Director's approved a transaction to give
2,662 shares for every 1 share of outstanding common stock thereby giving effect
to a 2,662-to-1 stock split.
7. COMMON STOCK WARRANTS
As of July 30, 2000, there were warrants issued and outstanding to purchase
1,131,350 shares of CCS's common stock with exercise expiration dates ranging
from March 2010 to April 2010. All warrants are fully exercisable at prices
ranging from $0.02 to $0.38 per share. The fair value of the warrants is
$102,947 at June 30, 2000, and is being amortized over five years. The fair
value was determined using the Black-Scholes method of valuation. the
amortization was $5,352 for the six-months ended June 30, 2000. As of June 30,
2000, none of warrants have vested.
8. STOCK OPTIONS
STOCK OPTION PLAN
Under the terms of CCS' 1999 Stock Option Plan, CCS was authorized to issue
2,396,192 (900,000 pre-split) shares of common stock through incentive and
nonstatutory stock options to any former, current, or future employees,
officers, directors, agents or consultants, including members of technical
advisory boards, and any independent contractors of CCS. Generally, stock
compensation, if any, is measured as the difference between the exercise price
of a stock option and the fair market value of CCS' stock at the date of grant,
which is then amortized over the related service period. Options are granted
with exercise prices equal to the fair market value of the common stock on the
date of the grant, as determined by CCS. Options vest over a five-year period
and expire ten years from the date of grant.
23
<PAGE>
COPYRIGHT CONTROL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS (CONTINUED)
A summary of the status of CCS' stock option plan is presented below:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Balance at June 30, 1999.............................. -- --
Options granted, at estimated fair value............ 186,529 $0.09
------- -----
Balance at December 31, 1999.......................... 186,529 $0.09
Options granted, at estimated fair value............ -- --
------- -----
Balance at June 30, 2000.............................. 186,529 $0.09
======= =====
</TABLE>
At June 30, 2000 options to acquire 2,209,663 shares of common stock were
available for future grant.
The following table summarizes information about stock options outstanding
at June 30, 2000:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------------------------------------------
WEIGHTED-AVERAGE
REMAINING
NUMBER OF WEIGHTED-AVERAGE CONTRACTED LIFE
EXERCISE PRICE SHARES EXERCISE PRICE (YEARS)
-------------- --------- ---------------- ----------------
<S> <C> <C> <C>
$0.09 186,529 $0.09 9.43
-------
186,529
=======
</TABLE>
As of June 30, 2000, in connection with the stock option plan, 2,209,663
shares of common stock were available for future issuance. At June 30, 2000, 0
options were exercisable.
CCS applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plan. Accordingly, no
compensation cost has been recognized for its stock options issued to employees
in the accompanying financial statements because the fair value of the
underlying common stock equals the exercise price of the stock options granted.
Had the stock compensation expense for CCS' stock option plan been determined
based on the fair value at the grant dates for options granted in 2000 and 1999,
consistent with the fair value method of Statement of Financial Accounting
Standards No. 123, CCS' net loss for the six months ended June 30, 2000, and
1999 would have been increased to the following pro forma amount:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Net loss:
As reported.............................................. $292,111 $140,696
Pro forma................................................ $291,276 $140,696
Net loss per share, basic and diluted:
As reported.............................................. $ 0.11 $ 85.58
Pro forma................................................ 0.11 85.58
</TABLE>
24
<PAGE>
COPYRIGHT CONTROL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS (CONTINUED)
The fair value of each option grant was estimated on the date of grant using
the Minimum Value Option Pricing model using the following weighted-average
assumptions: risk-free interest rate of 5.72%, expected life of five years; and
dividend yield of 0%. There were no outstanding options at June 30, 1999
9. COMMITMENTS
Sunhawk.com leases office space under operating lease agreements expiring in
2008. Future minimum lease payments under noncancelable operating leases at
June 30, 2000 are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 10,200
2001........................................................ 20,500
2002........................................................ 20,500
2003........................................................ 20,500
2004........................................................ 20,500
2005........................................................ 20,500
2006........................................................ 20,500
2007........................................................ 20,500
2008........................................................ 20,500
--------
Total minimum lease payments................................ $174,200
========
</TABLE>
Total rent expense paid during the six months ended June 30, 2000 and 1999
amounted to $19,318 and $18,943, respectively.
10. FEDERAL INCOME TAXES
Effective August 27, 1999 CCS became subject to U.S. federal corporate
income taxes and began to account for income taxes in accordance with Statement
of Financial Accounting Standard No. 109 "Accounting for Income Taxes." There
was no income tax provision in 2000 due to the net loss.
A reconciliation of the income tax provision is as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
2000 1999
--------- --------
<S> <C> <C>
Income tax benefit based on federal statutory rate of
34%.................................................. $ (88,957) (47,837)
Unrealized net operating loss benefits................. 150,228 30,884
Other.................................................. (24,962) 16,953
--------- --------
Income tax provision................................. $ 36,309 0
========= ========
</TABLE>
25
<PAGE>
COPYRIGHT CONTROL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. FEDERAL INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
Sunhawk.com's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
JUNE 30,
2000
---------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 150,228
Accrued interest.......................................... 1,528
---------
Total deferred tax assets................................... 151,756
Valuation allowance for deferred tax assets............... (150,205)
---------
Total deferred tax asset less valuation allowance........... 1,551
---------
Deferred tax liabilities:
Prepaid expense........................................... (1,551)
---------
Total deferred tax liability................................ (1,551)
---------
Net deferred tax asset...................................... $ 0
=========
</TABLE>
At June 30, 2000, Sunhawk.com had net operating loss carryforwards (NOLs) of
approximately $703,500, which have no expiration date.
11. SUBSEQUENT EVENTS
On July 3, 2000, CCS received $903,050, net of financing costs, of equity
financing from Copyright Ventures LLC in exchange for 1,112,500 shares of CCS
Series A preferred shares.
On July 20, 2000, CCS issued warrants to purchase 3,400,000 shares of CCS
Common Stock at a price of $0.05 per share.
26
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OVERVIEW
On August 1, 2000, Sunhawk.com entered into an agreement to acquire
Copyright Control Services, Inc. (CCS) in a transaction to be accounted for
under the purchase method of accounting. The terms of the Share Exchange
agreement require Sunhawk.com to issue that number of Sunhawk.com common stock
determined by mutual agreement of the CCS shareholders prior to closing for each
of the shares of CCS' common stock issued and outstanding as of the effective
time of the agreement.
The accompanying unaudited pro forma combined condensed consolidated balance
sheet assumes that the merger took place as of June 30, 2000. The unaudited pro
forma combined condensed consolidated balance sheet combines the unaudited
balance sheet of Sunhawk.com as of June 30, 2000, and the unaudited consolidated
balance sheet of CCS as of June 30, 2000.
The accompanying unaudited pro forma combined condensed consolidated
statements of operations present (i) the results of operations of Sunhawk.com
for the year ended September 30, 1999, combined with the consolidated statement
of operations of CCS for the four month period ended December 31, 1999, and
(ii) the unaudited results of operations for Sunhawk.com for the six-month
period ended June 30, 2000, combined with the unaudited consolidated results of
operations for CCS for the six-month period ended June 30, 2000. The unaudited
pro forma combined condensed consolidated statements of operations give effect
to the merger as if it had occurred as of January 1, 2000.
The unaudited pro forma combined condensed consolidated balance sheet and
combined condensed consolidated statements of operations are not necessarily
indicative of the financial position and operating results that would have been
achieved had the transaction been in effect as of the dates indicated and should
not be construed as being a representation of financial position or future
operating results of the combined companies.
The unaudited pro forma combined condensed consolidated financial
information should be read in conjunction with the audited financial statements
and related notes of Sunhawk.com, which are incorporated by reference.
27
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL
JUNE 30, 2000 PRO FORMA
------------------------- ------------------------------
SUNHAWK.COM CCS ADJUSTMENTS COMBINED
------------- --------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
Curent Assets:
Cash and cash equivalents............ $ 6,494,141 $ -- $ -- $ 6,494,141
Accounts receivable.................. 6,147 13,045 -- 19,192
Prepaid Expenses..................... 249,227 4,562 253,789
Short-term Investments............... 4,023,086 -- -- 4,023,086
Other................................ 3,250 2,520 -- 5,770
----------- --------- ----------- -----------
Total Current Assets............... 10,775,851 20,127 10,795,978
----------- --------- ----------- -----------
Property and equipment, net............ 849,828 53,371 -- 903,199
Digital sheet music masters, net....... 527,991 -- -- 527,991
Patent and trademarks, net............. 122,151 -- -- 122,151
Music catalog distribution Rights,
net.................................. 1,130,673 -- -- 1,130,673
Long-term prepaid...................... 1,663,122 -- -- 1,663,122
Deposits............................... 27,584 12,042 -- 39,626
Goodwill............................... -- -- 30,409,102 A,G 30,409,102
Other Intangible Assets................ -- -- 208,333 A,G 208,333
----------- --------- ----------- -----------
Total.............................. $15,097,200 $ 85,540 $30,617,435 $45,800,175
=========== ========= =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Line of credit....................... 603,492 -- -- 603,492
Accounts payable and accrued
expenses........................... 731,836 250,578 200,000 B 1,182,414
Notes payable to related party....... 5,782 185,368 -- 191,150
Accrued interest on notes payable to
related parties.................... -- 4,493 -- 4,493
Notes payable to shareholder......... 290,000 210,953 -- 500,953
Accrued interest on notes payable to
shareholder........................ 7,385 4,291 -- 12,306
----------- --------- ----------- -----------
Total Current Liabilities.......... 1,638,495 656,313 200,000 2,494,808
----------- --------- ----------- -----------
Note payable to related party.......... 1,000,000 -- -- 1,000,000
Other Long-term Liabilities............ -- 11,293 -- 11,293
----------- --------- ----------- -----------
Total Liabilities.................... 2,638,495 667,606 -- 3,506,101
----------- --------- ----------- -----------
Shareholders' Equity:
Common stock......................... 19,322,534 20,946 30,655,863 A,B, 49,999,343
C,D,F
Additional paid in capital........... -- 67,904 (67,904)D --
Accumulated deficit.................. (6,863,829) (703,485) (137,955)D,G (7,705,269)
Other comprehensive gain (loss)...... -- 32,569 (32,569)D --
----------- --------- ----------- -----------
Total Shareholders' Equity......... 12,548,705 582,066 30,417,435 42,294,074
----------- --------- ----------- -----------
Total.............................. $15,097,200 $ 85,540 $30,617,435 $45,800,175
=========== ========= =========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial
Statements.
28
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SUNHAWK.COM CCS
FISCAL YEAR FOUR MONTHS
ENDED ENDED PRO FORMA
SEPTEMBER 30, 1999 DECEMBER 31, 1999 ---------------------------
ACTUAL ACTUAL ADJUSTMENTS COMBINED
------------------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Sales.............................. $ 100,575 $ 42,621 $ -- $ 143,196
Cost of Goods Sold................. 171,725 23,526 (23,526)E 171,725
----------- --------- -------- -----------
Gross Loss......................... (71,150) 19,095 23,526 E (28,529)
----------- --------- -------- -----------
Selling, general and Administrative
Expense.......................... 2,660,933 133,933 23,526 2,818,392
----------- --------- -------- -----------
Loss from Operations............... (2,732,083) (114,838) -- (2,846,921)
Interest Income.................... 13,140 60 -- 13,200
Interest Expense................... (115,394) (1,201) -- (116,595)
----------- --------- -------- -----------
Net Loss........................... (2,834,337) (115,979) -- (2,950,316)
----------- --------- -------- -----------
Foreign currency
Translation Adjustment........... -- 2,097 -- 2,097
----------- --------- -------- -----------
Comprehensive Loss................. $(2,834,337) $(113,882) $ -- $(2,948,219)
=========== ========= ======== ===========
Basic and Diluted Net Loss Per
Share............................ $ (2.46) $ (0.07) $ $ (0.88)
=========== ========= ======== ===========
Weighted Average Shares
Outstanding--Basic............... 1,154,214 1,698,586 497,518 3,350,318
=========== ========= ======== ===========
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial
Statements.
29
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SUNHAWK.COM CCS
SIX MONTHS SIX MONTHS
ENDED ENDED PRO FORMA
JUNE 30, 2000 JUNE 30, 2000 -----------------------------
ACTUAL ACTUAL ADJUSTMENTS COMBINED
-------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Sales................................ $ 112,719 $ 123,385 $ -- $ 236,104
Cost of Goods Sold................... 194,855 144,163 (144,163)E 194,855
----------- --------- ----------- -----------
Gross Loss........................... (82,136) (20,778) (144,163) 41,249
----------- --------- ----------- -----------
Selling, general and Administrative
Expense............................ 4,093,301 (232,095) 985,603 E,F 5,078,904
----------- --------- ----------- -----------
Loss from Operations................. (4,175,437) (252,873) (841,440) (5,037,655)
Interest Income...................... 237,718 -- -- 237,718
Interest Expense..................... (432,452) (7,124) -- (437,228)
Other Expense........................ -- (1,642) -- (1,642)
----------- --------- ----------- -----------
Net Loss............................. $(4,370,171) $(261,639) (841,440) (5,238,807)
----------- --------- ----------- -----------
Foreign currency Translation
Adjustment......................... -- (30,472) -- (30,472)
----------- --------- ----------- -----------
Comprehensive Loss................... $(4,370,171) $(292,111) $ (841,440) $(5,269,279)
=========== ========= =========== ===========
Basic and Diluted Net Loss Per
Share.............................. $ (1.99) $ (0.11) $ (1.06)
=========== ========= ===========
Weighted Average Shares Outstanding--
Basic.............................. 2,198,505 2,679,977 81,836 4,960,318
=========== ========= =========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial
Statements.
30
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRO FORMA PRESENTATION
On August 1, 2000, Sunhawk.com and CCS entered into a definitive shares
exchange agreement that provides for the acquisition of CCS by Sunhawk.com.
Under the terms of the agreement, Sunhawk.com will issue 1.9 million shares of
Sunhawk.com common stock to CCS stockholders under the terms of the Share
Exchange as of the date of the closing of the shares exchange agreement.
The unaudited pro forma combined condensed consolidated financial statements
give effect to the proposed merger of Sunhawk.com and CCS using the purchase
method of accounting. Under this method, the aggregate purchase price is
allocated to assets acquired and liabilities assumed based on their estimated
fair values. The pro forma adjustments are preliminary and are based on
management's estimates of the value of the tangible and intangible assets
acquired and liabilities assumed. The allocation of the purchase price to the
respective assets and liabilities acquired is preliminary and subject to the
completion of a study to allocate the purchase price and finalize appropriate
accruals. This allocation should be completed soon after the consummation of the
transaction. Accordingly, the information presented herein may differ from the
final purchase price allocation; however, the allocations are not expected to
differ materially from the preliminary amounts.
The unaudited pro forma combined condensed consolidated balance sheet
assumes that the merger took place as of June 30, 2000. The unaudited pro forma
combined condensed consolidated balance sheet combines the unaudited balance
sheet of Sunhawk.com as of June 30, 2000, and the unaudited consolidated balance
sheet of CCS as of June 30, 2000.
The unaudited pro forma combined condensed consolidated statements of
operations present the results of operations of Sunhawk.com for: (i) the year
ended September 30, 1999, combined with the consolidated statement of operations
of CCS for the four month period ended December 31, 1999, and: (ii) the
unaudited results of operations for Sunhawk.com for the six month period ended
June 30, 2000, combined with the unaudited consolidated results of operations
for CCS for the six month period ended June 30, 2000. The unaudited pro forma
combined condensed consolidated statements of operations give effect to the
merger as if it had occurred as of January 1, 2000.
The total purchase price of the CCS merger is estimated as follows:
<TABLE>
<S> <C>
Value of common shares issued............................... $31,458,875
Estimated transaction costs and expenses.................... 200,000
-----------
Total consideration....................................... $31,658,875
===========
</TABLE>
The purchase price allocation, which is preliminary and therefore subject to
change based on Sunhawk.com's final analysis, is as follows:
<TABLE>
<S> <C>
Tangible assets............................................. $ 85,540
Intangible assets acquired:
Goodwill.................................................... 31,990,941
Intellectual property....................................... 200,000
Workforce-in-place.......................................... 50,000
Long-term debt.............................................. (11,293)
Other liabilities........................................... (656,313)
-----------
Total purchase price...................................... $31,658,875
===========
</TABLE>
31
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRO FORMA PRESENTATION (CONTINUED)
CCS's tangible and specific intangible assets will be identified and valued.
The related amortization of the identifiable intangible assets is reflected as a
pro forma adjustment to the unaudited pro forma condensed combined consolidated
statements of operations. The identifiable intangible assets include existing
intellectual property and workforce-in-place.
The majority of acquired intellectual property relates to the anti-piracy
tracking processes. The acquired workforce in place consists of technology,
marketing, tracing operatives, and general and administrative personnel.
2. PRO FORMA ADJUSTMENTS
Sunhawk.com's unaudited pro forma combined condensed consolidated financial
statements give effect to the allocation of the total purchase price to the
assets and liabilities of CCS, based on their respective fair market values and
to the amortization of the fair value over the respective useful lives. The
following pro forma adjustments have been made to the unaudited pro forma
combined condensed consolidated financial statements:
(A) To record the estimated fair value on intangible assets resulting from
the merger including:
<TABLE>
<S> <C>
Goodwill.................................................... $31,208,875
Intellectual property....................................... 200,000
Workforce-in-place.......................................... 50,000
-----------
Total..................................................... $31,458,875
===========
</TABLE>
(B) To record an estimated liability for Sunhawk.com's merger related
transaction costs and costs for renegotiating or terminating vehicle, marketing
and equipment agreements.
(C) To record the anticipated value of approximately 1,950,938 shares of
Sunhawk.com's common stock valued at $31,458,875 offset by stock issuance costs
incurred by Sunhawk.com.
(D) To eliminate the historical common stock amount and additional
paid-in-capital of CCS and to eliminate the historical accumulated deficit and
accumulated other comprehensive loss of CCS.
(E) To reclassify amounts to conform to the Sunhawk.com financial statement
presentation for similar amounts.
(F) To record the amortization of goodwill and other identified intangible
assets related to the merger as if the transaction had occurred on January 1,
2000. Goodwill is amortized over twenty years and other intangibles are
amortized over 36 months.
<TABLE>
<S> <C>
Goodwill.................................................... $ 799,774
Intellectual property....................................... 33,333
Workforce-in-place.......................................... 8,333
----------
Total..................................................... $ 841,440
==========
</TABLE>
3. NEW ACCOUNTING PRONOUNCEMENTS
In December 1999 the Securities and Exchange Commission (SEC) released Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, which
summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. Based on
32
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
these guidelines, revenue should not be recognized until it is realized or
realizable and earned. Sunhawk.com and CCS will adopt this statement in the
first fiscal quarter of its fiscal year ended September 30, 2001. Management
does not expect any material impact as a result of adopting the guidelines of
this standard.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation (FIN 44), that clarifies guidance for certain issues related to the
application of APB Opinion No. 25, Accounting for Stock Issued to Employees (APB
25). The new guidance under FIN 44 would not have impacted Sunhawk.com's
historical accounting for equity instruments and neither company believes that
FIN 44 will have an impact on accounting for future equity instruments.
33
<PAGE>
COMPARATIVE PER SHARE DATA
The following table reflects (a) the historical net loss and book value per
share of Sunhawk.com common stock and the historical net loss and book value per
share of CCS common stock in comparison with the unaudited pro forma net loss
and book value per share after giving effect to Sunhawk.com's proposed merger
with CCS, and (b) the equivalent historical net loss and book value per share
attributable to 1.07605 shares of Sunhawk.com common stock which will be
received for each share of CCS common stock.
The historical book value per share is computed by dividing stockholders'
equity as of June 30, 2000 by the actual common stock outstanding. The pro forma
per share loss from continuing operations is computed by dividing the pro forma
loss from continuing operations by the pro forma weighted average number of
shares outstanding, assuming Sunhawk.com had merged with CCS at the beginning of
the earliest period presented. The pro forma combined book value per share is
computed by dividing total pro forma stockholders' equity by the pro forma
number of common shares outstanding at June 30, 2000, assuming the merger had
occurred on that date. The Sunhawk.com equivalent pro forma combined per share
amounts are calculated by multiplying the Sunhawk.com pro forma combined per
share amounts by the exchange ratio of 1.07605.
The following information should be read in conjunction with the separate
audited historical financial statements and related notes of Sunhawk.com and
CCS, the unaudited pro forma condensed combined consolidated financial
information and related notes of Sunhawk.com and the selected historical and
selected unaudited pro forma financial data included elsewhere in this joint
proxy statement/prospectus. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the merger of CCS had
been consummated as of the beginning of the earliest period presented, nor is it
necessarily indicative of the future operating results or financial position of
the combined company.
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTHS ENDED
SEPTEMBER 30, 1999 JUNE 30, 2000
------------------- ----------------
<S> <C> <C>
HISTORICAL SUNHAWK.COM:
Basic and diluted net loss per share...................... $ (2.46) $(1.43)
Book value per share at the end of the period............. $ 1.25 $ 4.14
<CAPTION>
FOUR MONTH PERIOD SIX-MONTHS ENDED
DECEMBER 31, 1999 JUNE 30, 2000
------------------- ----------------
<S> <C> <C>
HISTORICAL CCS:
Basic and diluted net loss per share...................... $ (0.07) $(0.11)
Book value per share at the end of the period............. $(111.19) $(0.18)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
----------------
<S> <C> <C>
SUNHAWK.COM AND CCS PRO FORMA COMBINED:
Pro forma net loss per Sunhawk.com share--basic and
diluted................................................. $(1.06)
Pro forma book value per Sunhawk.com share at the end of
the period.............................................. $ 8.53
</TABLE>
MARKET PRICE AND DIVIDEND INFORMATION
Sunhawk.com common stock has been traded on the Nasdaq National Market under
the symbol "SNHK" since February 15, 2000, the date of Sunhawk.com's initial
public offering. Prior to such date, there was no established public trading
market for Sunhawk.com's capital stock. The following table sets
34
<PAGE>
forth for the periods indicated the quarterly high and low sale prices per share
of Sunhawk.com common stock and CCS common stock as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
SUNHAWK.COM
-------------------
HIGH LOW
-------- --------
<S> <C> <C>
Period ended March 31, 2000 28 1/2 16
Quarter ended June 30, 2000................................. 20 9 5/8
</TABLE>
RECENT SHARE PRICE
The table below presents the per share closing prices of Sunhawk.com common
stock on the Nasdaq National Market and the pro forma equivalent market value of
Sunhawk.com common stock to be issued for CCS common stock in the acquisition as
of the dates specified. June 30, 2000 was the last trading date before
announcement of the acquisition. August 25, 2000 was the latest practicable
trading day before the printing of this joint proxy statement/prospectus..
SUNHAWK.COM
<TABLE>
<CAPTION>
SUNHAWK.COM
COMMON STOCK
------------
<S> <C>
June 30, 2000............................................... $16 1/8
August 25, 2000............................................. $13 1/2
</TABLE>
Sunhawk.com stockholders are advised to obtain current market quotations for
Sunhawk.com common stock. No assurance can be given as to the market prices of
Sunhawk.com common stock or as to the market price of Sunhawk.com common stock
at any time after merger. In the event the market price of Sunhawk.com common
stock decreases or increases prior to the consummation of the acquisition, the
value of the Sunhawk.com common stock to be exchanged in the acquisition for CCS
common stock would correspondingly decrease or increase.
DIVIDENDS
Neither Sunhawk.com nor CCS has ever declared or paid cash dividends on its
capital stock. Pursuant to the acquisition agreement, both Sunhawk.com and CCS
has agreed not to pay cash dividends pending the consummation of merger, without
the written consent of the other. If the acquisition is not consummated, the
Sunhawk.com board anticipates that it would continue its policy of retaining any
and all earnings to finance the expansion of its business. Sunhawk.com expects
to retain any and all earnings for use in the operation and expansion of its
business and does not anticipate paying any cash dividends before or after the
acquisition.
35
<PAGE>
THE SPECIAL MEETING
GENERAL
This proxy statement is being furnished to stockholders as part of the
solicitation of proxies by the board of directors for use at the special meeting
of stockholders of Sunhawk.com to be held on Wednesday, September 27, 2000, at
the Sheraton Seattle Hotel & Towers, 1400 Sixth Avenue, Seattle, WA 98101,
commencing at 10:00 a.m., Pacific Time, and at any adjournment or postponement
thereof.
At the special meeting, stockholders will consider and vote:
- on a proposal to approve the Share Exchange Agreement, as amended, by and
among Sunhawk.com and CCS;
- on a proposal to approve the creation and issuance of 1,125,938 shares of
a new class of stock to be called "Class A Common Stock"; and
- on a proposal to increase the number of shares of Sunhawk.com common stock
available for issuance under its 1996 Stock Option Plan from 303,526 to
800,000.
- to transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
Each copy of this proxy statement is accompanied by a proxy card for use at
the special meeting. The board of directors recommends that you vote FOR each of
the above proposals.
RECORD DATE AND QUORUM REQUIREMENTS
Sunhawk.com has fixed August 15, 2000 as the record date for the
determination of stockholders entitled to notice of and to vote at the special
meeting. Accordingly, only stockholders of record at the close of business on
August 15, 2000, will be entitled to notice of and to vote at the special
meeting. Each share is entitled to one vote, which may be cast either in person
or by properly executed proxy, at the special meeting. As of August 15, 2000,
there were 3,010,865 common shares outstanding.
In order for the meeting to be considered a valid meeting of the
stockholders, a quorum must exist. For a quorum to exist, shares representing a
minimum of 1,505,433 outstanding shares of common stock must attend the meeting
either in person or by proxy.
VOTE REQUIRED
The affirmative vote of a majority of the votes cast at the special meeting
is required to approve the proposal.
Shares represented in person or by proxy will be counted for the purpose of
determining whether a quorum is present at the special meeting. Shares held by
stockholders who abstain from voting will be treated as shares that are present
and entitled to vote at the special meeting for the purpose of determining
whether a quorum exists, but will not be counted as votes cast on the proposal.
Brokers who hold shares in nominee or "street name" for customers who are the
beneficial owners of those shares are prohibited from giving a proxy to vote
shares held for those customers with respect to the matters to be voted upon at
the special meeting unless they receive specific instructions from those
customers. Shares represented by proxies returned by a broker holding those
shares in "street name" will be counted for the purpose of determining whether a
quorum exists, even if those shares are not voted in matters when discretionary
voting by the broker is not allowed. These shares are known as broker non-votes.
36
<PAGE>
VOTING AND REVOCATION OF PROXIES
If the enclosed proxy is executed and returned to Sunhawk.com, the persons
named in it will vote the common shares represented by that proxy at the special
meeting. When a choice has been specified in the proxy, the common shares
represented thereby will be voted in accordance with that specification at the
special meeting. If no specification is made, those shares will be voted at the
special meeting FOR the approval of the share exchange, creation of the class A
common stock and an increase in the number of common shares authorized for
issuance under Sunhawk.com's 1996 Stock Option Plan.
If any other matters are properly presented for consideration at the special
meeting, including, among other things, a motion to adjourn the meeting to
another time or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed proxy and
acting thereunder will have discretion to vote on those matters in accordance
with their best judgment (unless authorization to use that discretion is
withheld). Sunhawk.com is not aware of any matters expected to be presented at
the meeting other than as described in the Notice of Special Meeting of
Stockholders.
Execution of the enclosed proxy will not affect your right to attend the
special meeting or to vote in person. However, your presence at the special
meeting alone, without further action, will not revoke your proxy. You may
revoke your proxy by:
- filing a written notice of revocation bearing a later date than the proxy
with the Secretary of Sunhawk.com before the taking of the vote at the
special meeting;
- duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of Sunhawk.com before the taking of the
vote at the special meeting; or
- attending the special meeting and voting your shares in person.
In order to vote in person at the special meeting, you must attend the
meeting and cast your votes in accordance with the voting procedures established
for the meeting. Any written notice of revocation or subsequent proxy should be
sent so as to be delivered at or before the taking of the vote at the special
meeting to Sunhawk.com Corporation, 223 Taylor Ave N, Suite 200, Seattle,
Washington 98109, Attention: David M. Otto, Secretary.
SOLICITATION OF PROXIES
This solicitation of proxies is made by and on behalf of the board of
directors. All expenses of the solicitation of proxies for the special meeting
will be borne by Sunhawk.com. In addition to the solicitation of proxies by
mail, Sunhawk.com will request banks, brokers and other record holders to send
proxies and proxy materials to the beneficial owners of common shares and secure
their voting instructions, if necessary. In addition, proxies may be solicited
by directors, officers and employees of Sunhawk.com in person or by telephone,
facsimile, telegram or other means of communication. These persons will receive
no additional compensation for solicitation of proxies, but may be reimbursed
for reasonable out-of-pocket expenses incurred in connection with any
solicitation.
EXPENSES OF PROXY SOLICITATION
Sunhawk.com will be using The Merrill Corporation in connection with this
proxy solicitation. The fee for services will equal approximately $40,000, plus
any costs associated with these services. Sunhawk.com will pay the expenses of
soliciting proxies to be voted at the meeting. Following the original mailing of
the proxies and other soliciting materials, Sunhawk.com will request brokers,
custodians, nominees and other record holders of Sunhawk.com common stock to
forward copies of the proxy and other soliciting materials to persons for who
they hold shares of Sunhawk.com common stock and to request authority for the
exercise of proxies. In such cases, upon the request of the record holders,
Sunhawk.com will reimburse such holders for their reasonable expenses.
37
<PAGE>
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE POSTAGE-PAID
ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. YOU MAY REVOKE
YOUR PROXY AT ANY TIME BEFORE IT IS VOTED.
THE SHARE EXCHANGE
BACKGROUND OF THE SHARE EXCHANGE
In early April, 2000, Sunhawk.com and CCS entered into discussions regarding
the possibility of Sunhawk.com acquiring CCS. After some consideration regarding
the synergies that could be generated by an acquisition and having agreed in
principle to the terms of an acquisition, Sunhawk.com's board of directors
agreed that Sunhawk.com should enter into a non-binding letter of intent with
CCS, which it did on April 14, 2000.
Sunhawk.com proceeded to perform due diligence on CCS and during the week of
May 21, 2000 to May 27, 2000, sent a team of Sunhawk.com representatives,
including Sunhawk.com's CFO, Tricia Parks-Holbrook, to London to investigate
CCS, and its books and records.
On or about May 15th, 2000, CCS informed Sunhawk.com that certain principals
of @Visory had showed an interest in working with CCS, supplying CCS with
certain business and financial assistance, thereby increasing CCS's value. As a
result, Sunhawk.com and CCS entered into further negotiations which resulted in
an agreement that provided additional consideration to CCS and the @Visory
Group. The parties memorialized this agreement by drafting Amendment #1 to the
Letter of Intent, dated June 13th, 2000. This agreement was likewise approved by
Sunhawk.com's board of directors prior to its execution.
On May 31, 2000, the findings of the due diligence trip were presented to
the board of directors. At this time, the board also reviewed certain of the
proposed terms that were to be incorporated into Amendment No. 1 to the Letter
of Intent and engaged in various discussions with Mr. Paul Bandrowski and
Mr. Duncan Shaw of the @Visory Group and analyzed the anticipated benefits to be
derived from the involvement of Bandrowski and Shaw in connection with the
acquisition of CCS.
Sunhawk.com continued to perform its due diligence upon CCS and commenced
drafting an asset purchase agreement, which was first circulated on July 2nd,
2000.
Negotiations in connection with the asset purchase agreement and further due
diligence continued.
On or about July 15th, 2000, CCS informed Sunhawk.com that, due to the
structure of the acquisition, there were considerable negative tax consequences
for the stockholders of CCS. CCS requested that the asset purchase agreement be
redrafted as a Share Exchange Agreement, which would have substantially fewer
negative tax consequences for the CCS stockholders.
Upon consideration of the relatively few potential disadvantages to
Sunhawk.com to change the form of the transaction to a share exchange,
Sunhawk.com agreed.
On or about July 20th, 2000, CCS delivered to Sunhawk.com a draft of a Share
Exchange Agreement, as amended.
After considerable negotiation and revision between and by representatives
of Sunhawk.com and CCS, the terms of the Share Exchange Agreement were
finalized.
On August 1st, 2000, the Share Exchange Agreement, was signed by Marlin
Eller, CEO of Sunhawk.com and the stockholders of CCS.
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<PAGE>
On August 1st, 2000, Sunhawk.com's board of directors ratified the Share
Exchange Agreement, as amended, and made a recommendation to Sunhawk.com's
stockholders that they approve the Share Exchange Agreement, as amended.
SUNHAWK.COM'S REASON FOR THE SHARE EXCHANGE
Sunhawk.com believes that there is a very large market for the service of
identifying and shutting down the Internet sites distributing pirated content,
and that there are strong operational and strategic synergies between CCS and
Sunhawk.com with respect to digital rights management. The synergies come from
both companies sharing the same target market, providing technology for the
management of digital assets, and combining their efforts to create a compelling
digital rights management service and/or technology product for anti-piracy
tracking.
Sunhawk.com believes the opportunity CCS presents to Sunhawk.com will enable
Sunhawk.com to provide a rights tracking service to content owners that may lead
to a software product to provide this to content owners or other users. Such a
tracking product would come through Sunhawk.com's technical ability to develop
this service into a software product.
In addition, Sunhawk.com believes that Bandrowski and Shaw of The @Visory
Group will play an important role as advisors to the combination, including
(i) making introductions to content owners and other strategic partners,
(ii) assisting Sunhawk.com to establish its core competencies and business
strategies, (iii) addressing Sunhawk.com's strategy with certain analysts and
other parties with a view toward helping Sunhawk.com increase its market
presence, (iv) assisting Sunhawk.com with its goal of market capitalization
targets and introducing Sunhawk.com, upon completion of the combined company's
business plan, to potential sources of financing, including securing private
financing, prior to Sunhawk.com seeking a secondary offering. Sunhawk.com
believe these services will greatly benefit Sunhawk.com and Sunhawk.com's
shareholders.
Sunhawk.com also believes that the share exchange with CCS will greatly help
Sunhawk.com reach its strategic growth plan and achieve its market
capitalization goals. Sunhawk.com also believes that the Sunhawk.com
shareholders will benefit from the integration of The @Visory group into
Sunhawk.com as strategic advisors. In this regard, Sunhawk.com believes that the
combined company business opportunities and strong focus on the business
strategy can help to accelerate the growth of Sunhawk.com such that Sunhawk.com
to reach a market capitalization of $100,000,000 within 12 months of the closing
of the transaction.
CCS'S REASON FOR THE SHARE EXCHANGE
CCS believes that the share exchange with Sunhawk.com will help CCS
implement its strategic growth plan. The service solution CCS provides to track
down sites distributing pirated copyright content and working to have them shut
down will enable both Sunhawk.com and CCS to lends itself to initiating a new
direction in anti-piracy and digital rights management technology. The
complement of technologies of the two companies will help them to provide the
complete solution for digital content owners. The addition of the @Visory group
as consultant to the combined companies will help to facilitate introductions
into CCS and Sunhawk.com's key target markets, making it possible to widen the
distribution of both CCS and Sunhawk.com's products.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The board of directors of Sunhawk.com has unanimously determined that the
terms of the Share Exchange Agreement, as amended, and the Plan of Share
Exchange, are in the best interests of Sunhawk.com and the Sunhawk.com
stockholders. Accordingly, the Sunhawk.com board of directors recommends that
Sunhawk.com stockholders vote FOR the proposal to approve the Share Exchange
Agreement, as amended, the Share Exchange, FOR the creation of a new class of
stock to be named
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<PAGE>
"CLASS A COMMON STOCK" and FOR an increase in the number of shares of common
stock authorized for issuance under Shareholder's 1996 Stock Option Plan.
INTERESTS OF SUNHAWK.COM DIRECTORS, OFFICERS, AND SIGNIFICANT STOCKHOLDERS IN
THE SHARE EXCHANGE.
In connection with consummation of the share exchange, Marlin Eller shall be
entitled to receive options amounting to 850,000 shares of Sunhawk.com's common
stock, 283,333 of which shall vest immediately. The remainder, 566,666, will
only vest in the event Sunhawk.com achieves certain market capitalization goals
within the next eighteen months. Please see the sections marked "Amendment
No. 1 to the Letter of Intent". The Amendment No. 1 to the Letter of Intent
attached hereto as Annex B.
COMPLETION AND EFFECTIVENESS OF THE SHARE EXCHANGE
The share exchange will be completed when all of the conditions to
completion of the share exchange are satisfied or waived, including approval and
adoption of the Share Exchange Agreement, as amended, the Plan of Share
Exchange, and the creation of Sunhawk.com Class A Common Stock by the
stockholders of Sunhawk.com and, as the case may be, the shareholders of CCS.
The share exchange will become effective upon the filing of the Form of Articles
of Exchange, attached hereto as Annex J, with the Secretary of State of the
State of Washington.
STRUCTURE OF SHARE EXCHANGE AND CONVERSION OF CCS SHARES
Pursuant to the Share Exchange Agreement, as amended, Sunhawk.com shall
exchange 825,000 shares of common stock and 1,125,938 shares of Class A Common
Stock with the CCS stockholders, which will result in CCS becoming a
wholly-owned subsidiary of Sunhawk.com.
At the effective time of the share exchange, each outstanding share of CCS
stock will be converted into the right to receive Sunhawk.com common stock and
Sunhawk.com Class A Common Stock.
NO DIVIDENDS
CCS stockholders are not entitled to receive any dividends or other
distributions on Sunhawk.com common stock until the share exchange is completed.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The discussion below does not purport to deal with all aspects of United
States federal income taxation that may affect particular stockholders in light
of their individual circumstances, and is not intended for stockholders subject
to special treatment under federal income tax law. Stockholders subject to
special treatment include, but are not limited to, insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
persons, stockholders who are subject to the alternative minimum tax provisions
of the Internal Revenue Code, stockholders who hold their stock as part of a
hedge, appreciated financial position, straddle or conversion transaction,
stockholders who do not (or who will not at the time of the share exchange) hold
their stock as capital assets and stockholders who have acquired their stock
upon the exercise of employee options or otherwise as compensation. In addition,
the discussion below does not consider the effect of any applicable state, local
or foreign tax laws and further does not consider any tax consequences of
transactions effectuated by stockholders subsequent to, or concurrently with,
the share exchange.
The parties intend that the share exchange qualify as a reorganization under
section 501(a) of the internal revenue code and have attempted to structure the
transaction in a fashion that will satisfy internal revenue code requirements in
connection with reorganizations.
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<PAGE>
ACCOUNTING TREATMENT FOR THE SHARE EXCHANGE
Sunhawk.com intends to account for the share exchange as a "purchase" for
financial reporting and accounting purposes, under generally accepted accounting
principles. As a result, a significant amount of goodwill is expected to be
created, which will be amortized as an expense over 20 years.
CERTAIN SECURITIES LAWS CONSIDERATIONS
The Sunhawk.com shares to be exchanged under the terms of the Share Exchange
Agreement, as amended, will be unregistered shares subject to the terms and
conditions of certain Lock-In and Lock-Up letter agreements. After the
expiration or elimination of the terms and conditions of these Lock-Up and/or
Lock-In letter agreements, the Sunhawk.com shares distributed to certain of the
CCS stockholders shall be eligible for sale, provided such shares have been
either (i) held for a sufficient period of time such that any sale satisfies the
requirements of Rule 144 under the Securities Act of 1933 or (ii) registered in
accordance with the terms of the registration rights agreement to be entered
into between Sunhawk.com and the CCS shareholders.
DISSENTER'S RIGHTS
Under section 23B.13 of the Revised Code of Washington, stockholders of a
Washington corporation are entitled to dissenter's rights under certain
circumstances. In the case at hand, because Sunhawk.com is not the corporation
whose shares will be acquired, the Sunhawk.com stockholders have no dissenter's
rights.
THE SHARE EXCHANGE AGREEMENT, AS AMENDED
This section is intended to summarize the terms and conditions of the Share
Exchange Agreement, as amended. However, this section may not contain all the
information that is important to you. The Share Exchange Agreement, as amended,
is attached to this proxy statement as Annex C, and Sunhawk.com recommends that
you read it carefully.
SHARE EXCHANGE
At the effective time of the share exchange each outstanding share of CCS,
preferred and common stock, shall automatically be exchanged for a number of
shares of Sunhawk.com common stock and Class A Common Stock.
EXCHANGE RATIO/ESCROW
The ratio for the share exchange shall be such that all outstanding shares
of CCS Common and Preferred Stock will be exchanged for a total of 1,950,938
shares of Sunhawk.com common stock and Class A Common Stock. No fractional
shares will be issued in connection with the issuance of either the pro rata
distribution of the 825,000 shares of common stock or the 1,125,938 shares of
the Class A Common Stock.
At closing, the CCS stockholders shall receive 825,000 of the total
1,950,938 shares. The balance of 1,125,938 shares shall be Class A Common Stock
and shall be placed in escrow at closing. The shares that are held in escrow
shall not be released until certain milestones as described in the Services
Agreement have been met. If the milestones are met on or before the expiration
of specific deadlines, the Class A Common Shares shall be released to the CCS
stockholders. If the milestones described in the Services
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<PAGE>
Agreement are not reached prior to the expiration of the specific deadlines, the
Class A Common Shares will be returned to Sunhawk.com and retired.
<TABLE>
<CAPTION>
COMMON STOCK TO BE ISSUED UPON SUNHAWK.COM REACHING A
COMMON STOCK TO MARKET CAPITALIZATION OF
BE ISSUED UPON ---------------------------------------------------------
CONSUMMATION OF $100,000,000 $125,000,000 $150,000,000
THE SHARE WITHIN 12 MOS. OF WITHIN 18 MOS. OF WITHIN 24 MOS. OF
EXCHANGE CONSUMMATION CONSUMMATION CONSUMMATION
--------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
CCS Shareholders............... 750,000 250,000 250,000 250,000
@Visory...................... 75,000 124,060 124,059 127,819
------- ------- ------- ---------
374,060 374,059 377,819
------- ------- ---------
Totals..................... 825,000 1,125,938
======= =========
</TABLE>
CLASS A COMMON SHARES
In accordance with the above, Sunhawk.com shall place 1,125,938 shares of
Class A Common Shares in escrow. This class of shares currently does not exist
and the Sunhawk.com stockholders must approve the amendment of the Articles of
Incorporation to create them. The Class A Common Shares shall have the following
characteristics:
1. the Class A Common Shares shall have all the characteristics of common
stock, except that
a. the shares shall have 1/20th the vote of common stock;
b. the Class A Common Shares shall be convertible into common stock upon
their release from escrow; and
c. the Class A Common Shares shall, if not released from escrow and
converted into Sunhawk.com common stock in accordance with the
timeframes set forth in the escrow agreements, be returned to
Sunhawk.com and retired.
OPTIONS AND WARRANTS
The Share Exchange Agreement, as amended, provides that Sunhawk.com has the
option to adopt and assume the CCS 1999 Stock Option Plan. If Sunhawk.com adopts
and assumes the plan, the options therein shall convert into options to purchase
Sunhawk.com shares in accordance with the exchange ratio described above and
shall continue to vest in accordance with the schedule set forth in the CCS 1999
Stock Option Plan. If Sunhawk.com does not elect to adopt and assume the CCS
1999 Stock Option Plan, all options in that plan shall vest immediately prior to
closing.
HOLDBACK
In order to protect Sunhawk.com and the Sunhawk.com stockholders from CCS
liabilities in excess of those disclosed in the Share Exchange Agreement, as
amended, the Share Exchange Agreement, as amended, calls for a holdback of
100,000 of the 825,000 Sunhawk.com common stock shares to be delivered to the
CCS stockholders on the effective date. The 100,000 shares will be held in
escrow while Ernst & Young performs a post-closing audit of the CCS books and
records. Any liabilities found by Ernst & Young that were not disclosed prior to
the closing will be paid out of the "holdback" shares. The number of shares that
will be used to offset the excess liabilities will equal the quotient, rounded
up to the nearest whole number, derived from dividing the excess liabilities by
the price per share of Sunhawk.com's common stock at the closing of the share
exchange. If Ernst & Young does not find any excess liabilities within 120 days
of the closing, the "holdback" shares shall be delivered to the CCS
stockholders.
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<PAGE>
SUNHAWK.COM REPRESENTATIONS AND WARRANTIES
Sunhawk.com made several representations and warranties in the Share
Exchange Agreement, as amended, regarding aspects of its business. Sunhawk.com's
representations and warranties include representations as to:
- Organization;
- Authorization;
- Noncontravention;
- Limited Representations and Warranties;
- Disclosure;
- Capitalization;
- SEC Reports and Financial Statements;
- Undisclosed Liabilities;
- Legal Proceedings, Claims, etc.; and
- Tax Treatment
REPRESENTATIONS AND WARRANTIES OF CERTAIN CCS STOCKHOLDERS
Certain stockholders familiar with the business of CCS made representations
and warranties in the Share Exchange Agreement, as amended, regarding aspects of
CCS's business. Those certain stockholders include David Powell, Julian Searle,
and Phillip Bloom, who made representations and warranties as to:
- Organization;
- Authorization;
- Capitalization;
- Subsidiaries;
- Ownership of the CCS shares;
- Noncontravention;
- Financial Statements and Condition;
- Absence of Material Change;
- Litigation;
- Taxes and Tax Returns;
- Employees;
- Compliance with Applicable Law;
- Contracts and Agreements;
- Affiliate Transactions;
- Limited Representations and Warranties;
- Disclosure;
- Title to Property and Environmental Matters;
- Personal Property;
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<PAGE>
- Intellectual Property;
- Insurance;
- Powers of Attorney;
- Bank Accounts;
- Customers and Suppliers; and
- Product Claims
COVENANTS OF THE PARTIES
CCS has agreed that, until such time as the share exchange is complete, it
will conduct its business, and the business of any subsidiaries, in the ordinary
course and will engage in transactions only in the ordinary course consistent
with past practice.
CCS and its subsidiary will use their best efforts to preserve the business
organization, keep the present services of its employees and preserve the
goodwill of its customers.
In addition, CCS has agreed that without the written permission of
Sunhawk.com, neither it nor its subsidiary will take certain actions in relation
to the following:
- The employment arrangement of employees, officers, and directors;
- Capital expenditures;
- Pricing polices and material business and customer policies;
- Obligations of others;
- Acquisition of assets;
- Disposal of assets;
- Long term contracts;
- Other contracts;
- Material transactions or obligations;
- Benefit plans;
- Hiring; and
- Real property.
NO SOLICITATION.
CCS has also agreed that from the date of signing of the Share Exchange
Agreement, as amended, until closing, it will not engage in, encourage, or
solicit any share exchange, or other change of control transaction. If the
agreement is terminated due to an uncured breach of this portion of the
agreement, CCS has agreed to pay to Sunhawk.com $2.5 million.
OTHER COVENANTS.
CCS and Sunhawk.com have both agreed to certain provisions regarding
reasonable access to records and the confidentiality thereof, as well as to
provisions regarding cooperation in connection with regulatory matters and
further assurances and public announcements.
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<PAGE>
APPOINTMENTS.
Sunhawk.com has agreed that following the share exchange, the board of
directors of Sunhawk.com will consist of the then current members of
Sunhawk.com's board of directors, and Paul Bandrowski, David Powell and a third
nominee of CCS, to be approved by Sunhawk.com. Paul Bandrowski will also be
appointed as vice-chairman of the board of directors.
Following the share exchange, Marlin Eller, the current Chairman of the
Board of Directors, Chief Executive Officer and President of Sunhawk.com, will
continue to be Chairman of the Board of Directors, Chief Executive Officer and
President of the combined company. Sunhawk.com has agreed that David Powell and
Julian Searle shall serve, respectively as Vice President and Chief Technology
Officer of the CCS, a wholly-owned subsidiary of Sunhawk.com and will enter into
employment agreements with each of them.
RESTRICTIONS ON TRANSFER.
David Powell, Julian Searle, and Phillip J. Bloom have agreed to hold their
shares personally and to not transfer their shares for a period of 12 months
after closing or until such time as Marlin Eller transfers any of his
Sunhawk.com shares. Further, the registration, transfer and sale rights of
Powell's, Searle's, Bloom's and the @Visory Group's shares shall be the same as
those of Marlin Eller. In relation thereto, Sunhawk.com has agreed to take all
necessary actions to expedite the free transfer thereof.
TERMINATION
The parties have agreed that the Share Exchange Agreement, as amended, shall
terminate upon the occurrence of certain events, as follows:
- Upon the mutual written consent of both parties;
- By Sunhawk.com should its common stock, prior to closing, exceed $26.00
per share;
- By CCS should Sunhawk.com's common stock, prior to closing, be less than
$6.50 per share;
- By either party if certain covenants of the other party have not been
satisfied or waived within prescribed time limits;
- By either party should the other party's representations and warranties be
in breach and not timely cured; or
- By either party should the closing have not occurred prior to
September 30, 2000.
- In addition to the foregoing, the Share Exchange Agreement, as amended,
may be terminated by Sunhawk.com in accordance with CCS's No Solicitation
covenant, see above.
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<PAGE>
INTEREST OF CERTAIN PERSONS
In making your decision regarding the Share Exchange Agreement, as amended,
you should be aware of the circumstances surrounding certain interested persons.
Immediately after the closing of the transaction, David Powell and Julian
Searle shall serve, respectively as Vice President and Chief Technology Officer
of CCS a wholly-owned subsidiary of Sunhawk.com. Paul Bandrowski shall be
nominated to fill a vacancy on and shall serve as Vice-Chairman of the Board of
Directors of Sunhawk.com. David Powell shall also fill a vacancy on the Board of
Directors.
In addition to the foregoing, Marlin Eller, Sunhawk.com key management,
David Powell, Julian Searle, and other CCS key management shall be entitled to
options to purchase Sunhawk.com common stock upon the consummation of the Share
Exchange Agreement, as amended, and the achievement by Sunhawk.com of certain
market capitalization goals as set forth in the table below.
<TABLE>
<CAPTION>
NUMBER OF OPTIONS ENTITLED TO
------------------------------------------------------------------------
UPON SUNHAWK.COM REACHING A MARKET CAPITALIZATION OF
UPON ---------------------------------------------------------
CONSUMMATION $100,000,000 $125,000,000 $150,000,000
OF THE SHARE WITHIN 12 MOS. OF WITHIN 18 MOS. OF WITHIN 24 MOS. OF
INDIVIDUAL EXCHANGE CONSUMMATION CONSUMMATION CONSUMMATION
---------- ------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Marlin Eller(1).................. 283,333 283,333 283,333 0
Sunhawk.com Key Management(2).... 0 50,000 50,000 50,000
David Powell..................... 0 283,333 283,333 283,333
Julian Searle.................... 0 50,000 50,000 50,000
CCS Key Management(3)............ 0 50,000 50,000 50,000
</TABLE>
------------------------
(1) Marlin Eller is the CEO, President and Chairman of the Board of Directors of
Sunhawk.com Corporation.
(2) Sunhawk.com key management is an undefined term which is intended to allow
Sunhawk.com management, at the time of distribution, the flexibility to
determine the recipients and the quantity of options each recipient shall
receive.
(3) CCS Key Management is also an undefined term which is intended to allow
Sunhawk.com management, at the time of distribution, the flexibility to
determine the recipients and the quantity of options each recipient shall
receive.
For more information on distributions related to Sunhawk.com's market
capitalization, please see the section entitled Escrow Agreements.
CLASS A COMMON STOCK
TITLE AND AMOUNT TO BE AUTHORIZED AND ISSUED
In conjunction with the approval of the Share Exchange Agreement, as
amended, the stockholders have been asked to approve the amendment of
Sunhawk.com's Articles of Incorporation to create a new class of common stock to
be used in the share exchange. The name of the new class of stock shall be
Class A Common Stock. The amount authorized shall be 1,125,938.
DIVIDEND
To the extent that the owners of Sunhawk.com common stock have a right to
receive dividends, the owners of Sunhawk.com Class A Common Stock shall have a
right to receive dividends.
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<PAGE>
VOTING
One share of Class A Common Stock shall have 1/20th the voting rights of one
share of Sunhawk.com common stock.
CONVERSION
Each share of Class A Common Stock shall automatically convert into one
share of Sunhawk.com common stock upon release of the Class A Common Stock from
escrow as described in the Escrow Agreement, attached hereto as Annex C.
LIQUIDATION
Each share of Class A Common Stock shall have the same liquidation rights as
one share of Sunhawk.com common stock.
OTHER MATERIAL RIGHTS OR RESTRICTIONS
Each share of Class A Common Stock not released from escrow and converted
into Sunhawk.com common stock in accordance with the time frames and conditions
set forth in the Escrow Agreement, shall automatically be returned to
Sunhawk.com Corporation and retired. Class A Common Stock shall cease to exist
upon the expiration of the second anniversary of the effective date of the share
exchange.
AGREEMENTS RELATED TO THE SHARE EXCHANGE
AMENDMENT NO. 1 TO THE SHARE EXCHANGE AGREEMENT
This amendment, executed August 16th, 2000, corrects a technical
inconsistency between the Share Exchange Agreement and Sunhawk.com's Bylaws.
Under the Share Exchange Agreement, an affirmative vote of at least two-thirds
of the holders of each class of Sunhawk.com common stock entitled to vote is
needed to approve the Share Exchange Agreement. However, in accordance with
Sunhawk.com's Bylaws, only a majority vote is actually needed.
LETTER OF INTENT
On April 14th, 2000, Sunhawk.com and CCS entered into a letter of intent
under which the principles and basic terms of an acquisition of all CCS assets
by Sunhawk.com were described. The transaction contemplated in the letter of
intent is outlined below. In addition to reading the outline of the key terms
below, please read the Letter of Intent attached hereto as Annex A.
CCS would sell to Sunhawk.com all of its assets. As consideration for the
sale of all of CCS's assets to Sunhawk.com, Sunhawk.com agreed to the following:
1. To enter into three year employment agreements with Powell and Searle.
2. To issue to the CCS shareholders a total of 400,000 shares of Sunhawk.com
common stock; provided, however, that the shares to be distributed to Powell
and Searle would vest ratably over the three year term of their respective
employment agreements.
3. To issue to Powell and Searle warrants to acquire a combined total of
600,000 additional shares which would vest in tranches of 200,000 shares
over three years. The strike price of each tranche would increase annually.
The goal of this provision was to create performance based criteria for the
vesting of the warrant shares. If the price per share of Sunhawk.com's
common stock was not equal to or in excess of the strike price, the shares
underlying the warrants would not vest and would revert to Sunhawk.com as
treasury stock.
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4. To appoint Powell and Searle, respectively, as Vice President and Chief
Technology Officer of the CCS division of Sunhawk.com, to be located in
London, England.
AMENDMENT #1 TO THE LETTER OF INTENT
Primarily in response to the signing of a Consulting Agreement between CCS
and The @Visory Group, the Letter of Intent was revised by amendment #1 to the
Letter of Intent. Sunhawk.com, CCS and The @Visory Group were all parties to
Amendment #1 to the Letter of Intent, which has an effective date of June 1,
2000. This amendment significantly changed the original agreement between
Sunhawk.com and CCS. The essential changes to the letter of intent were in the
compensation to be paid by Sunhawk.com to CCS. Under the amendment, Sunhawk.com
is to pay the CCS Shareholders and The @Visory Group up to 1,950,938 shares of
common stock and Class A Common Stock. In addition, the number of shares to be
paid upon Sunhawk.com achieving certain market capitalization criteria was
revised to reflect the following:
<TABLE>
<CAPTION>
NUMBER OF SHARES AND/OR OPTIONS TO BE ISSUED
------------------------------------------------------------------------
UPON SUNHAWK.COM REACHING A MARKET CAPITALIZATION OF
UPON ---------------------------------------------------------
CONSUMMATION $100,000,000 $125,000,000 $150,000,000
OF THE SHARE WITHIN 12 MOS. OF WITHIN 18 MOS. OF WITHIN 24 MOS. OF
ENTITY EXCHANGE CONSUMMATION CONSUMMATION CONSUMMATION
------ ------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Marlin Eller..................... 283,333 283,333 283,333 0
Sunhawk.com Key Management....... 0 50,000 50,000 50,000
David Powell..................... 0 283,333 283,333 283,333
Julian Searle.................... 0 50,000 50,000 50,000
CCS Key Management............... 0 50,000 50,000 50,000
@Visory.......................... 75,000 124,060 124,059 127,819
CCS.............................. 750,000 225,000 225,000 225,000
@Visory Bonus.................... 0 0 0 225,321
</TABLE>
SERVICES AGREEMENT (AMENDMENT NO. 1 TO CONSULTING AGREEMENT)
In relation to the share exchange, CCS and The @Visory Group have agreed to
enter into an agreement entitled Amendment No. 1 to Consulting Agreement (the
"Amendment"). The Amendment modifies an existing agreement entered into by and
between CCS and @Visory, dated on or about May 6th, 2000 (the "Consulting
Agreement"). Under the terms of the Consulting Agreement, as revised by the
Amendment, The @Visory Group agrees to provide CCS with certain consulting
services. These services shall be for a term of approximately two (2) years and
include services relating to the following areas:
- business development assistance;
- product planning, market development, marketing and public relations
planning;
- strategic partners and other alliance candidates;
- prospective customers;
ESCROW AGREEMENTS
In connection with the Share Exchange Agreement, as amended, the Consulting
Agreement and the Amendment, the parties have entered into two escrow agreements
that control the release of the 1,125,938 shares of the Series A Common Stock.
The first escrow agreement was entered into between Sunhawk.com and the CCS
stockholders, not including The @Visory Group (the "CCS Escrow Agreement"), and
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<PAGE>
controls the release of 750,000 shares of Series A Common upon the achievement
by Sunhawk.com of certain market capitalization goals. The second escrow
agreement was entered into between Sunhawk.com and The @Visory Group (the
"@Visory Escrow Agreement"), and controls the release from escrow of 375,938
shares of Series A Common stock upon the achievement by Sunhawk.com of certain
market capitalization goals. In order for the market capitalization goals to be
deemed achieved, the average daily sales price for one share of Sunhawk.com's
common stock multiplied by the number of shares of common stock outstanding must
equal the target market capitalization goal for a consecutive 30 business day
period at any time prior to the correlating Deadline Date below.
CCS ESCROW AGREEMENT
- Should Sunhawk.com reach a market capitalization of $100,000,000 (as
defined in the escrow agreement) within 12 months from the date of the
agreement ("Deadline Date"), then 250,000 shares of Class A Common Stock
shall be released from escrow;
- Should Sunhawk.com reach a market capitalization of $125,000,000 (as
defined in the escrow agreement) within 18 months from the date of the
agreement ("Deadline Date"), then 250,000 shares of Class A Common Stock
shall be released from escrow;
- Should Sunhawk.com reach a market capitalization of $150,000,000 (as
defined in the escrow agreement) within 24 months from the date of the
agreement ("Deadline Date"), then 250,000 shares of Class A Common Stock
shall be released from escrow.
@VISORY ESCROW AGREEMENT
- Should Sunhawk.com reach a market capitalization of $100,000,000 (as
defined in the escrow agreement) within 12 months from the closing date of
the agreement ("Deadline Date"), then 124,060 shares of Class A Common
Stock shall be released from escrow;
- Should Sunhawk.com reach a market capitalization of $125,000,000 (as
defined in the escrow agreement) within 18 months from the date of the
agreement ("Deadline Date"), then 124,059 shares of Class A Common Stock
shall be released from escrow;
- Should Sunhawk.com reach a market capitalization of $150,000,000 (as
defined in the escrow agreement) within 24 months from the closing date of
the agreement ("Deadline Date"), then 127,819 shares of Class A Common
Stock shall be released from escrow.
REGISTRATION RIGHTS AGREEMENT
In connection with the Share Exchange Agreement, as amended, Sunhawk.com has
granted to the CCS shareholders, subject to specific limitations placed on
Powell, Searle and Bloom, and The @Visory Group, (each a "Holder") registration
rights with respect to the shares of Sunhawk.com Common Stock and Class A Common
Stock converted into common stock acquired in the share exchange. The
registration rights agreement entered into between Sunhawk.com and the Holders
is attached to this proxy statement as Annex C, and you are urged to read it in
its entirety. The following is a summary of the registration rights granted to
the Holders:
In the event that Sunhawk.com proposes to register any of its securities for
cash, Sunhawk.com shall give notice of said proposition to the Holders and make
commercially reasonable efforts to register so many of the securities as the
Holder wishes to have registered. If the notice given to the Holder results from
Sunhawk.com's intent to perform an underwritten equity offering, then the
Holders shall have their securities registered upon the same terms as other
shares of common stock being sold through the
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underwritten effort. If Sunhawk.com for any reason decides to abandon its
registration efforts, Sunhawk.com will have no obligation to register the
Holders' securities under the Registration Rights Agreement.
ADVISORY AGREEMENT
In connection with the share exchange, Sunhawk.com has entered into an
amendment to the advisory agreement with Joseph Gunnar and Co., LLC, ("Gunnar")
whereby Gunnar agrees to provide basic advisory services related corporate
finance and other financial service matters. The advisory agreement, dated
February 18, 2000, calls for Sunhawk.com to pay Gunnar $4,000 per month, over an
eighteen (18) month period, for a total of $72,000. In addition, Sunhawk.com
agrees to pay Gunnar a fee if Gunnar makes an introduction which effectively
results in a Covered Transaction or if Gunnar acts as a manager in a Covered
Transaction. A "Covered Transaction" is any acquisition of more than 20% of any
company, any sale of more than 20% of Sunhawk.com, or any merger, joint venture,
or other business combination to which Sunhawk.com is a party. The fee to be
paid Gunnar in connection with the foregoing will be 5% of the total
consideration paid in the particular Covered Transaction. The fee is capped at
$750,000 (the maximum fee amount was agreed to in Exhibit A to the advisory
agreement).
EMPLOYMENT AGREEMENTS
Sunhawk.com has agreed to enter into employment agreements with both David
Powell and Julian Searle. David Powell will become the Vice President and Julian
Searle will become Chief Technology Officer of CCS, a wholly owned subsidiary of
Sunhawk.com. The parties to the Share Exchange Agreement, as amended, have
agreed to negotiate the employment agreements prior to the closing of the share
exchange.
SUNHAWK.COM BUSINESS
SECURITY OWNERSHIP OF BENEFICIAL OWNERSHIP AND MANAGEMENT
The following table sets forth the name, address (address is provided for
persons listed as beneficial owners of 5% or more of the outstanding Sunhawk.com
Common Stock), number of shares and percent of the outstanding Sunhawk.com.
Common Stock beneficially owned as of June 30, 2000 (except where a different
date is indicated below) by each person known to the Board of Directors of
Sunhawk.com to be
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the beneficial owner of 5% or more of the outstanding shares of Sunhawk.com
Common Stock, each Director, each Named Officer, and all current Directors and
Executive Officers as a group.
<TABLE>
<CAPTION>
BENEFICIALLY OWNED
SHARES
------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
------------------------------------ --------- --------
<S> <C> <C>
Eller and McConney 1995 Family Living Trust............... 1,024,284 32.3%
c/o Sunhawk.com Corporation
223 Taylor Avenue North, Suite 20
Seattle, Washington 98109
Marlin Eller.............................................. 1,024,284 32.3%
Mary E. McConney, Ph.D.................................... 1,024,284 32.3%
Brent R. Mills(1)......................................... 266,658 8.4%
809 Lake Washington Blvd. South
Seattle, Washington 98144
Judy E. McOstrich(2)...................................... 266,658 8.4%
809 Lake Washington Blvd. South
Seattle, Washington 98144
Warner Bros. Publications U.S. Inc........................ 99,073 3.1%
15800 N.W. 48th Avenue
P.O. Box 4340
Miami, Florida 33014
Fred Anton(3)............................................. 101,573 3.2%
Patricia Tangora(7)....................................... 2,700 *
Luis F. Talavera(4)....................................... 2,500 *
Osmond J. Kilkenny(6)..................................... 122,500 3.9%
Pam Edstrom(4)............................................ 2,500 *
Jill Ohara................................................ 1,500 *
David M. Otto(5).......................................... 27,500 *
Tricia Parks-Holbrook..................................... 100 *
All directors and executive officers as a group (10
persons).................................................. 1,169,142 38.3%
</TABLE>
------------------------
* Less than 1%
(1) Includes 36,780 shares of common stock held by Mr. Mills' spouse, Judy E.
McOstrich.
(2) Includes 229,878 shares of common stock held by Ms. McOstrich's spouse,
Brent R. Mills.
(3) Includes 99,073 shares of our common stock owned by Warner Bros.
Publications U.S. Inc., of which Mr. Anton is president and chief operating
officer. Mr. Anton disclaims beneficial ownership of these shares. Includes
warrants of 2,500 to purchase shares of common stock that are exercisable as
a director of Sunhawk.com.
(4) Represents warrants to purchase shares of common stock that are currently
exercisable.
(5) Includes warrants to purchase 27,500 shares of common stock that are
currently exercisable.
(6) Includes warrants to purchase 42,500 shares of common stock that are
currently exercisable.
(7) Includes warrants to purchase 2,500 shares of common stock that are
currently exercisable.
COMPENSATION EXECUTIVE OFFICERS
During the fiscal year ended September 30, 1999, Mr. Eller, Sunhawk.com's
Chief Executive officer was not paid a salary. Brent Mills, our former chief
executive officer, received a salary of $55,000 during
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the fiscal year ended September 30, 1998, and a salary of $23,163 during the
fiscal year ended September 30, 1999, prior to the termination of his employment
with us in March 1999. None of our other executive officers received total
annual salary and bonus during the fiscal year ended September 30, 1999, in
excess of $100,000. Effective October 1, 1999, Mr. Eller entered into an
employment agreement with Sunhawk.com with an initial three-year term. This
employment agreement entitles Mr. Eller to an annual salary of $95,000 for the
first year, which will be increased by 10% during each of the two subsequent
years. Mr. Eller is also entitled to receive options under our 1996 Stock Option
Plan to purchase 30,000 shares of our common stock vesting over five years at an
exercise price equal to the initial public offering price and an annual bonus to
be determined by our compensation committee on an annual basis. The salary paid
to Mr. Eller for the six-month period ended June 30, 2000 was $69,788.
CCS BUSINESS
CCS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Copyright Control Services, Inc. (CCS) was incorporated in August 1999. In
October 1999 CCS entered into a shares exchange agreement with Chinerose
Limited, whereby CCS exchanged 2.775 shares of its common stock for each share
of Chinerose Limited. Chinerose Limited, a United Kingdom limited liability
company was incorporated in June, 1998 and began services for a fee of providing
security services and intellectual property protections solutions for software
companies.
Revenue is primarily derived from contracts with companies owning
intellectual digital content, such as software, to provide security services and
protection solutions.
Cost of revenue consists principally of the costs associated with tracking
and tracing personnel salary costs of the services and solutions.
Selling expenses consist primarily of expenditures incurred in connection
with, attending trade shows and meeting with prospective customers. General and
administrative expenses consist primarily of insurance premiums, rent, telephone
costs, travel expenses for general business, legal and professional fees, staff
salaries, and other related expenses for general corporate functions.
To date we have incurred and expect to continue to incur substantial costs
in order to:
- further develop and extend the application of our intellectual property
tracking system;
- further develop our operational infrastructure;
- increase the size of our staff;
- expand our sales, marketing and business development efforts; and
- upgrade our software and hardware.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1999
REVENUE
Revenue for the six months ended June 30, 2000 was $123,385 compared to
$59,245 for the six months ended June 30, 1999. This increase in revenue
resulted from Sunhawk.com's improvement in technical ability to provide services
and solutions to additional clients and markets.
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COST OF REVENUE
Cost of revenue for the six months ended June 30, 2000 was $144,163 compared
to $0.00 for the six months ended June 30, 1999. The increase in cost of revenue
was primarily due to the increase in tracking and tracing personnel salary
expense associated with additional client contracts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling expenses for the six months ended June 30, 2000, were $42,039
compared to selling expenses of $5,677 for the six months ended June 30, 1999.
There were no advertising costs for either period. Selling expenses for both
periods consisted primarily of expenditures incurred in connection with,
attending trade shows and meetings with prospective clients. General and
administrative expenses for the six months ended June 30, 2000 were $190,056
compared to $193,919 for the six months ended June 30, 1999. The increase was
primarily due to the professional fees, and hiring additional administrative
personnel.
OTHER INCOME/(EXPENSE)
Other income/(expense) for the six months ended June 30, 2000 and 1999 was
($4,776) and ($361), respectively. The increase in other expense primarily
relates to interest expense recognized on the notes to shareholder and related
party.
LIQUIDITY AND CAPITAL RESOURCES
CCS has financed its operations since inception primarily with funds
received from the sale of equity to key management personnel. Additionally, on
July 3, 2000, CCS issued 1,112,500 shares to a third party. The sale generated
approximately $900,000 in net proceeds. As of June 30, 2000, CCS had negative
working capital of $523,851.
Net cash provided by operating activities totaled $6,682 for the six months
ended June 30, 2000 compared with net cash used in operating activities of
$57,210 for the six months ended June 30, 1999. The increase in net cash
provided by operating activities for the six months ended June 30, 2000, as
compared to the prior year, was primarily attributable to increases in accounts
payble related to running the operations of the company.
Net cash used in investing activities was $9,991 for the six months ended
June 30, 2000 compared to $293 for the six months ended June 30, 1999. The
increase in cash used in investing as compared to the prior year, was primarily
due to more acquisitions of computer equipment.
Net cash used in financing activities was $27,163 for the six months ended
June 30, 2000 compared to $41,915 for the six-months ended June 30, 1999. The
increase in net cash for financing activities as compared to prior year, was
primarily due to payments on loans from shareholder and proceeds received from
the issuance of common stock.
CCS MANAGEMENT
Dave Powell is a co-founder of CCS and its general manager since inception.
Powell was the Studio Manager and Chief Engineer of Konk Studios from 1984-1988
in London, England, mixing consoles and both digital and analogue multi-track
recorders. He was an independent Record Producer/Engineer in London from
1988-1989 working with recording artists such as Depeche Mode, Erasure and
Michael Jackson. Powell became the Regional Sales Manager for Solid State
Logic Inc. (SSL) of New York, New York and was recruited to sell ScreenSound,
Solid State Logic's first venture into the digital audio post-production arena,
working there from 1989-1991. In 1991 he was relocated to SSL's headquarters in
Oxford, to become head of sales worldwide, excluding the US and Japan. Working
there until 1994, Powell moved onto Euphonix, Inc., as its European Operations
Director from 1994-1996, whereupon he moved to Harrison by GLW Inc. in Nashville
TN to become its Sales Director to develop a sales management
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infrastructure within Sunhawk.com. GLW is the leading manufacturer of large
format audio mixing systems to the world's Feature Film Industry.
Phillip Jeffrey (Jeff) Bloom is a co-founder of CCS and has been its
marketing director since 1998. From 1994 to 1998, Bloom was the managing
director and founder of Synchro Arts Limited, developing, manufacturing and
marketing software products for the professional audio industry. Bloom was
founding Director of Digital Audio Research (DAR), a leading manufacturer of the
professional digital audio equipment, and was its marketing director from 1989
to 1994. DAR was sold to Carlton Communications PLC in 1990. While there, Bloom
finalized the development of the WordFit algorithm (for automatic dialogue
synchronization) at the Polytechnic of Central London and he was integral in
promoting and selling WordFit systems to Universal and Warner Brothers Studios.
Bloom was the Research Officer for the Division of Engineering with The
University of Westminster (formerly the Polytechnic of Central London, UK) from
1981-1984 and was a research fellow there from 1977 to 1981. He has a Ph.D. in
Psychoacoustics from the University College, Cardiff, 1977 and B.S. in Physics,
Case Western Reserve University, 1970, with honors. Bloom has written for over
30 technical publications and presentations and has an extensive background in
science, music, and the entertainment industry.
Julian Searle is the Technical Director for CCS. From 1993 to 1995 Julian
Searle worked for Motorola LMPS as a network engineer as the sole IT/LAN support
for several of their offices in the United Kingdom, Majorca, Bahrain, Turkey and
Saudi Arabia. From 1995-1997 he served as the senior IT/LAN support for Motorola
LMPS offices in Europe, Africa, and the Middle East. Searle was Intranet
Applications Systems Developer from 1997-1998 for Motorola LMPS developing
applications for the business community using web browsers. He also developed a
set of tools to check systems within a subnet and then extracting information.
Searle has a BSc in computing and Informatics from the University of Plymouth,
and a B/TEC National Diploma in Computer Studies from Bournemouth College of
Further Education, Distinction, 1989.
CCS PRINCIPAL STOCKHOLDERS
See Annex C
INCREASE OF COMMON STOCK AUTHORIZED FOR
ISSUANCE UNDER 1996 STOCK OPTION PLAN
SUMMARY
The Sunhawk.com Board of Directors requests that the Sunhawk.com
Shareholders consider and approve an increase in the number of shares authorized
for issuance under the 1996 Stock Option Plan. Currently the plan allows for the
issuance of up to 303,526 shares of Sunhawk.com common stock. Sunhawk.com has
granted 303,526 the authorized shares as of 6/30/00. Therefore in order to
continue with the practice of issuing stock options and warrants as incentives
and in lieu of payment under the 1996 Stock Option Plan, the number of shares
authorized for issuance must be increased.
RECOMMENDATION OF BOARD OF DIRECTORS
The board of directors of Sunhawk.com has also unanimously determined that
increasing the number of shares of common stock available for issuance under its
1996 Stock Option Plan from 303,526 to 800,000 is in the best interest of
Sunhawk.com and its Sunhawk.com stockholders. Accordingly, the Sunhawk.com board
of directors recommends that Sunhawk.com stockholders vote FOR the proposal to
increase the shares of common stock authorized for issuance under the 1996 Stock
Option Plan.
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LEGAL MATTERS
Sunhawk.com was represented by The Otto Law Group, PLLC, Seattle, Washington
in connection with the share exchange. Perkins Coie, Seattle, Washington
represented CCS in connection with the share exchange.
STOCKHOLDER PROPOSALS
Stockholders of Sunhawk.com may submit proper proposals for inclusion in
Sunhawk.com's proxy statement and for consideration at the next annual meeting
of its stockholders by submitting their proposals in writing to the Secretary of
Sunhawk.com in a timely manner. In order to be included in Sunhawk.com's proxy
materials for the annual meeting of stockholders to be held in the year 2001,
stockholder proposals must be received by the Secretary of Sunhawk.com no later
than November 16th, 2000, and must otherwise comply with the requirements of
Rule 14a-8 of the Securities Exchange Act of 1934, as amended.
WHERE YOU CAN FIND MORE INFORMATION
The SEC allows Sunhawk.com to "incorporate by reference" information into
its proxy statement, which means that Sunhawk.com can disclose important
information by referring you to another document filed separately with the SEC.
The following documents are incorporated by reference in this proxy statement
and are deemed to be a part hereof:
(1) Sunhawk.com's Annual Report in its prospectus filed under the General
Rules and Regulations promulgated under the Securities Act of 1933,
rule 424(b) for the fiscal year ended September 30, 1999;
(2) Sunhawk.com's Quarterly Reports on Form 10-QSB for the quarters ended
March 31, 2000 and June 30, 2000.
Any statement contained in a document incorporated by reference shall be
deemed to be modified or superseded for all purposes to the extent that a
statement contained in this proxy statement modifies or replaces such statement.
Sunhawk.com also incorporates by reference the information contained in all
other documents Sunhawk.com files with the SEC pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this proxy statement
and before the special meeting. The information contained in any such document
will be considered part of this proxy statement from the date the document is
filed and will supplement or amend the information contained in this proxy
statement.
Sunhawk.com undertakes to provide by first class mail, without charge and
within one business day after receipt of any request, to any person to whom a
copy of this proxy statement has been delivered, a copy of any or all of the
documents referred to above that have been incorporated by reference in this
proxy statement, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference therein). Sunhawk.com's Annual Report in
its prospectus filed under the General Rules and Regulations promulgated under
the Securities Act of 1933, rule 424(b) for the fiscal year ended September 30,
1999, is accompanied by a list briefly describing all the exhibits not contained
therein. Sunhawk.com will furnish any exhibit upon the payment of a specified
reasonable fee, which fee will be limited to Sunhawk.com's reasonable expenses
in furnishing such exhibit. Requests for such copies should be directed to
Sunhawk.com Corporation, 223 Taylor Avenue North, Seattle, Washington 98109;
telephone number (206) 728-6303, attention: Cherie Jones, Executive Assistant.
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Sunhawk.com files reports, proxy statements and other information with the
SEC. Copies of its reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the SEC:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
The National Judiciary Plaza Citicorp Center Seven World Trade
Association of Room 1024 500 West Madison Center
Securities Dealers 450 Fifth Street 13th Floor
1735 K Street, N.W. Street, N.W. Suite 1400 New York, New York
Washington, D.C. Washington, D.C. Chicago, 10048
20006 20549 Illinois 60661
</TABLE>
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC
maintains a website that contains reports, proxy statements and other
information regarding each of us. The address of the SEC website is
http://www.sec.gov.
You should rely only on the information contained in this proxy statement to
vote on the Share Exchange Agreement, as amended, and the share exchange.
Sunhawk.com and CCS have not authorized anyone to provide you with information
that is different from what is contained in this proxy statement. This proxy
statement is dated August 28, 2000. You should not assume that the information
contained in this proxy statement is accurate as of any date other than
August 28, 2000, and neither the mailing of the proxy statement to Sunhawk.com
stockholders nor the issuance of any common stock in the share exchange shall
create any implication to the contrary.
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO PURCHASE, THE COMMON STOCK OF EITHER PARTY OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS
UNLAWFUL TO MAKE THE OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN
THAT JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS
NOR ANY DISTRIBUTION OF SECURITIES MEANS, UNDER ANY CIRCUMSTANCES, THAT THERE
HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH IN THIS DOCUMENT OR IN ITS
AFFAIRS SINCE THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS. THE INFORMATION
CONTAINED IN THIS DOCUMENT WITH RESPECT TO CCS AND ITS SUBSIDIARIES WAS PROVIDED
BY CCS. THE INFORMATION CONTAINED IN THIS DOCUMENT WITH RESPECT TO SUNHAWK.COM
WAS PROVIDED BY SUNHAWK.COM.
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ANNEX A
LETTER OF INTENT
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SUNHAWK.COM CORPORATION
Copyright Control Services, Inc.
Mr. David Powell, Managing Director
6 Hampton Hill Business Park
219-221 High Street
Hampton Hill, TW12 INP
United Kingdom
Re: Letter of Intent
Dear David:
This Letter of Intent dated this 14th day of April, 2000, (the "Effective
Date") will confirm the serious intent of Sunhawk.com Corporation, a Washington
corporation ("Buyer") to acquire all of the assets from, and assume certain of
the liabilities of, Copyright Control Services, Inc., a Delaware corporation
("Seller") (the "Transaction"). Buyer and Seller may be referred to herein
individually as the "Company", and collectively as the "Companies". This letter
also confirms Seller's serious intent to sell all of its assets to Buyer.
In connection with the consummation of the Transaction contemplated by this
Letter of Intent, Buyer shall purchase at closing all of Seller's assets, and
assume certain identified liabilities of Seller, for the following
consideration:
1. THE ACQUISITION.
1.1 Seller's shareholders shall receive Four Hundred Thousand (400,000)
shares of Buyer's Common Stock (the "Shares"). The Shares shall
(i) not have registration rights, (ii) be subject to certain "lock-up"
provisions and (iii) with respect to those Shares held by Mr. David
Powell and Mr. Julian Searle (collectively the "Executives"), vest
ratably over the three (3) year term of their respective employment
agreements.
1.2 In the event the closing price of Buyer's Common Stock on the NASDAQ
Small Capitalization Market equals or exceeds $26.00 per share at any
time on or prior to the closing, then Buyer may terminate this
Transaction without liability to Seller or any of its officers,
directors, shareholders, agents, or any other party associated with the
preparation, negotiation and contemplated closing of the Transaction.
Conversely, in the event the closing price of Buyer's Common Stock on
the NASDAQ Small Capitalization Market equals or is less than $6.50 per
share at any time on or prior to the closing, then Seller may terminate
this Transaction without liability to the Buyer or any of its officers,
directors, shareholders, agents, or any other party associated with the
preparation, negotiation and contemplated closing of the Transaction.
1.3 The Executives, and such other parties as the Executives and Buyer
mutually agree, shall receive a warrant to acquire an additional six
hundred thousand (600,000) shares of Buyer's Common Stock (the
"Warrant"). The shares underlying the Warrant shall vest, two hundred
thousand (200,000) shares annually, over a three (3) year period,
twelve (12) months in arrears, subject to the satisfaction of certain
performance criteria, which criteria shall be agreed upon by Buyer and
Seller. The "strike" price of each two hundred thousand (200,000) share
"tranche" shall be as follows:
$24.00 per share -- Year One
$30.00 per share -- Year Two
$36.00 per share -- Year Three
In the event the performance criteria is not satisfied for either year
one, two or three, then (i) the shares underlying the Warrant for that
year shall not vest, (ii) the two hundred thousand (200,000) shares
underlying that portion of the Warrant shall revert to treasury stock
and any
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right to such shares shall be forfeited by either the Executives and/or
their assigns and (iii) the "strike" price for the shares underlying
the succeeding "tranche" shall be adjusted in accordance with the
above.
1.4 Buyer shall enter into a three (3) year employment agreement with each
of the Executives. Each employment agreement will include appropriate
stock option grants on terms to be mutually agreed upon.
2. POST-CLOSING MATTERS.
Immediately after the closing of the Transaction the following appointments
shall be made:
David Powell shall serve as President of the Copyright Control Services
Division of Buyer to be located in London, England and Julian Searle
shall serve as Chief Technology Officer of the Copyright Control
Services Division also located in London, England.
3. CONDITIONS TO CLOSING OF TRANSACTION.
Buyer and Seller understand and agree that consummation of the
above-described Transaction is subject to the following:
3.1 The approval of the transaction by the Board of Directors and
Shareholders of Buyer and Seller;
3.2 The ownership by Buyer at closing of the assets of Seller, which shall
be free and clear of any and all liens and/or encumbrances, except as
otherwise agreed to between Buyer and Seller;
3.3 The preparation, negotiation, execution and delivery of an Asset
Purchase Agreement satisfactory to Buyer and Seller, which shall
contain all representations, conditions, covenants and agreements
customary for a transaction of this nature described herein and shall
provide for obtaining all requisite corporate and other consents and
approvals;
3.4 The satisfactory completion of a review and investigation by Buyer and
Seller, their counsel and agents, of the business, assets, financial
condition and prospects of Buyer and Seller; and
3.5 The form of the transaction and the documentation and agreements
entered into in connection with the transaction contemplated herein
being in form and substance satisfactory to Buyer and Seller (the
"Definitive Agreements").
4. DEADLINES.
If the Definitive Agreements have not been executed and delivered by 5:00
p.m. Pacific Standard time on June 1, 2000, despite the parties good faith
negotiation towards that end ("Drop Dead Negotiation Date"), then the obligation
of the parties to go forward with negotiations shall terminate unless extended
in writing by mutual agreement. In addition, the Definitive Agreements will
provide that, unless extended in writing by mutual agreement, they shall
terminate and be of no further force or effect if the Transaction is not
consummated by 5:00 p.m. Pacific Standard time on June 1, 2000 ("Drop Dead
Consummation Date").
5. MAINTENANCE OF STATUS QUO.
Seller agrees, for a period ending with the Drop Dead Negotiation Date (or
if Definitive Agreements are executed, ending with the Drop Dead Consummation
Date) that, unless otherwise consented to in writing by Buyer, it shall:
5.1 carry on its business in substantially the same manner as heretofore
and not introduce any material new method of management, operation or
accounting;
5.2 maintain its properties, facilities and equipment and other assets in
as good working order and condition as at present, ordinary wear and
tear excepted;
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5.3 perform all its material obligations under debt and lease instruments
and other agreements relating to or affecting its assets, properties,
equipment and rights;
5.4 maintain present debt and lease instruments and not enter into new or
amended debt or lease instruments, except in the ordinary course of
business, but subject further to the limitations contained in section
6.4 hereof;
5.5 keep in full force and effect present insurance policies or other
comparable insurance coverage;
5.6 use its best efforts to maintain and preserve its business organization
intact, retain its present employees and maintain its ongoing
relationship with suppliers, customers and others having business
relations with it;
5.7 not effect any change in the capital structure of the organization,
including, but not limited to, the issuance of any option, warrant,
call, conversion right or commitment of any kind with respect to its
capital stock or the purchase or other reacquisition of any outstanding
shares of treasury stock with the exception of converting certain
outstanding senior convertible note instruments into equity;
5.8 maintain present salaries and commission levels for all officers,
directors, employees and agents;
5.9 prohibit expenditures outside the normal course of business;
5.10 maintain compliance with all permits, laws, rules and regulations,
consent orders, etc.
5.11 not declare any dividends nor pay out bonuses other than normal merit
bonuses to employees, fees, extraordinary commissions or any other
unusual distributions to the stockholders, directors, management or
other personnel.
6. NO SHOP.
Seller agrees, for a period ending with the Drop Dead Negotiation Date (or
if Definitive Agreements are executed ending with the Drop Dead Consummation
Date) that, unless required under the Definitive Agreements or otherwise
consented to in writing by Buyer, it shall not:
6.1 issue any equity securities to any party other than the other Company,
except pursuant to an existing employee benefit plan or upon exercise
of warrants or options outstanding on the date hereof or conversion of
convertible securities outstanding on the date hereof;
6.2 merge with or into any other entity other than Buyer;
6.3 sell any material assets or a substantial amount of its assets to any
person or entity other than Buyer;
6.4 incur any indebtedness in excess of U.S. $10,000 to any person or
entity other than Buyer, without written approval by Buyer;
6.5 submit any proposal to its shareholders which, if approved, would
result in a sale or agreement to sell any equity interest in it in
excess of 1% to any person or entity other than Buyer other than in the
ordinary course of business or pursuant to agreements existing on the
date hereof without written approval by Buyer; or
6.6 submit for consideration by its Board of Directors any proposal
involving, or enter into negotiations with, any party other than Buyer
with respect to any transaction in 6.1 through 6.5 above.
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7. CONFIDENTIALITY.
Buyer and Seller will hold and cause its respective employees, agents and
advisors to hold in confidence all documents and information concerning the
other Company, as the case may be, which have been or will be furnished in
connection with the Transaction contemplated hereby. Whether or not the
Transaction is consummated, such confidential treatment will be maintained for a
period of not less than three (3) years from the Effective Date, except to the
extent such information (a) was previously known to the receiving party prior to
disclosure by the disclosing party, (b) is in the public domain through no fault
of the receiving party, (c) is lawfully acquired by the receiving party from a
third party under no obligation of confidence to the disclosing party, or
(d) is required by law to be disclosed. Such documents and information will not
be used for either the benefit of the receiving party or the detriment of the
disclosing party otherwise in any manner, and all documents, materials and other
written information provided by the disclosing party to the receiving party,
including all copies and extracts thereof, will be returned to the disclosing
party promptly upon written request.
8. PUBLICITY/REGULATORY REPORTS.
All regulatory reports, permit applications and filings, and all press
releases, announcements or other publicity pertaining the Transaction will be in
mutually agreeable form, subject to any applicable regulatory requirements.
9. GOVERNING LAW.
This Letter of Intent shall be governed by and construed in accordance with
the laws of the State of Washington, without giving effect to any requirements
thereof which might otherwise cause the application of the law of another
jurisdiction.
10. NO BINDING OBLIGATION.
Except as otherwise provided herein, this Letter of Intent is intended to
serve only as a mutual expression of the intentions of the parties, and the
parties shall not be legally obligated with respect to the contemplated
Transaction unless and until formal Definitive Agreements in mutually
satisfactory form are agreed upon, approved by the respective Board of Directors
(and, if necessary, shareholders) of the Companies, and executed and delivered
by the Companies, whereupon the provisions of the Definitive Agreements will
supercede this Letter of Intent.
11. COUNTERPARTS.
This Letter of Intent may be signed in two or more counterparts, each of
which shall constitute an original, and all of which together shall constitute
one and the same agreement.
Please indicate your acceptance of this Letter of Intent by signing the
signature page of this letter and returning it to us at our Seattle office by
hand, courier service or facsimile prior to 5:00 p.m. Pacific Standard time on
April 14, 2000. This offer will expire if not accepted by you before then. If
you accept this offer, we will distribute fully executed original counterparts
of this letter to each accepting party.
Sincerely,
Sunhawk.com Corporation
/S/ MARLIN J. ELLER
--------------------------------------
Marlin J. Eller
CEO and President
61
<PAGE>
Accepted and agreed this 14th day of April, 2000.
Copyright Control Services, Inc.
<TABLE>
<S> <C> <C>
/s/ DAVE POWELL
------------------------------------------------
Dave Powell
-----------------------------------------
Name:
Chief Executive Officer
-----------------------------------------
Title:
</TABLE>
62
<PAGE>
ANNEX B
AMENDMENT NO. 1 TO THE LETTER OF INTENT
63
<PAGE>
SUNHAWK.COM CORPORATION
Copyright Control Services, Inc.
Mr. David Powell, Chief Executive Officer
6 Hampton Hill Business Park
219-221 High Street
Hampton Hill, TW12 INP
United Kingdom
Fax: 44-181-977-7766
@Visory
Mr. Paul Bandrowski
Mr. Duncan Shaw
1150 Underhill Road
East Aurora, NY 14052
Fax: (716) 652-7161
Re: Amendment #1 to the Letter of Intent
Dear David and Paul:
This Amendment #1 to the Letter of Intent (the "Amendment") is dated this
13th day of June, 2000, and amends and otherwise revises that certain Letter of
Intent dated the 14th of April, 2000, by and between Sunhawk.com Corporation
(the "Buyer") and Copyright Control Services (the "Seller"). Unless otherwise
indicated, Mr. Paul Bandrowski and the @Visory group shall be subject to the
restrictions and obligations set forth in the Letter of Intent and this
amendment as if they were the Sellers. All capitalized terms not defined in this
Amendment shall have the meaning set forth in the Letter of Intent.
In connection with the consummation of the Transaction contemplated by the
Letter of Intent, Buyer and Seller agree to amend the Letter of Intent as
follows:
1. THE ACQUISITION. Sections 1.1 and 1.3 of the Letter of Intent shall be
deleted in their entirety and substituted, therefor shall be the following:
1.1 Seller's shareholders, which for purposes of this Amendment shall
include Mr. Paul Bandrowski and the @Visory group, shall receive total
consideration of one million, nine hundred fifty thousand, nine hundred
thirty eight (1,950,938) shares of Buyer's Common Stock (the "Shares"),
subject to the following: upon closing of the Transaction, (i) eight hundred
twenty five thousand (825,000) shares (the "Issued Shares") shall be issued
to Seller and the @Visory group in accordance with the terms set forth on
EXHIBIT A (ii), one million, one hundred twenty five thousand, nine hundred
thirty eight (1,125,938) shares (the "Escrowed Shares") shall be held in
escrow by Buyer pending the satisfaction by Buyer, with the assistance and
direction of Seller and the @Visory group, of the market capitalization
thresholds within the time periods set forth in the attached EXHIBIT A. The
Issued Shares and the Escrowed Shares shall (i) not have registration rights
and (ii) be subject to certain "lock-up" provisions and otherwise be subject
to the same restrictions as those shares of Common Stock held by Buyer's
principal shareholder, President and CEO, Marlin Eller. With respect to the
Escrowed Shares, Buyer, Seller, Mr. Bandrowski and @Visory, for and on
behalf of any recipients of the Escrowed Shares, agree to enter into a two
(2) year escrow agreement (the "Escrow Agreement") governing the release of
the Escrowed Shares. Further, Mr. Bandrowski and certain other individuals
working for or on behalf of @Visory, to be identified by Mr. Bandrowski,
will initiate and otherwise lead various business development efforts on
behalf of Buyer. In connection with the various business development efforts
to be initiated by Mr. Bandrowski and the other members/principals of the
@Visory group, Mr. Bandrowski and other members/principals of @Visory, will
enter into a two (2) year services agreement reflective of their proposed
business development efforts and that these efforts will result
64
<PAGE>
in Buyer achieving market capitalization thresholds (which shall be
sustained for a minimum of thirty (30) business days), in the dollar amounts
and within the corresponding time periods set forth in EXHIBIT A. In the
event the market capitalization thresholds are achieved within the
corresponding time periods set forth in EXHIBIT A, (i) Sunhawk.com shall
release from the Escrow Agreement the corresponding number of shares of its
Common Stock as set forth in EXHIBIT A and (ii) the management stock options
(the "Key Management Market Capitalization Performance Option Plan") issued
upon Closing shall vest in accordance with EXHIBIT A. In the event any one
or all of the market capitalization thresholds are NOT achieved within the
corresponding time periods, then the Escrowed Shares corresponding with the
satisfaction of the particular market capitalization thresholds shall be
retired, returned to the Buyer and treated as treasury shares.
2. POST-CLOSING MATTERS. Section 2 shall be deleted in its entirety and
substituted, therefor shall be the following:
Immediately after the closing of the Transaction the following
appointments shall be made:
David Powell and Julian Searle (collectively, the "Executives") shall
serve, respectively, as President of the Copyright Control Services
Division of Buyer, to be located in London, England, and as Chief
Technology Officer of the Copyright Control Services Division, also
located in London, England. Mr. Paul Bandrowski shall be nominated to
fill a vacancy on the Board of Directors of Buyer located in Seattle,
Washington, United States of America and shall serve as Vice-Chairman of
the Board of Directors of Buyer. Additionally, David Powell and a nominee
of Seller, to be acceptable to Buyer, shall be nominated to Buyer's Board
of Directors.
3. DEADLINES. Section 4 shall be deleted in its entirety and substituted,
therefor shall be the following:
If the Definitive Agreements have not been executed and delivered by 5:00
p.m. Pacific Standard time on July 31, 2000, despite the parties good
faith negotiation towards that end ("Drop Dead Negotiation Date"), then
the obligation of the parties to go forward with negotiations shall
terminate unless extended in writing by mutual agreement. In addition,
the Definitive Agreements will provide that, unless extended in writing
by mutual agreement, they shall terminate and be of no further force or
effect if the Transaction is not consummated by 5:00 p.m. Pacific
Standard time on July 31, 2000 ("Drop Dead Consummation Date").
This Amendment may be signed in two or more counterparts, each of which
shall constitute an original and, together with the Letter of Intent, shall
constitute one and the same agreement.
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<PAGE>
Please indicate your acceptance of this Amendment by signing the signature
page of this letter and returning it to us at our Seattle office by hand,
courier service or facsimile prior to 5:00 p.m. Pacific Standard time on
June 1, 2000.
<TABLE>
<S> <C>
Sincerely,
SUNHAWK.COM CORPORATION
/s/ MARLIN J. ELLER
------------------------------------------------
Marlin J. Eller
CEO AND PRESIDENT
</TABLE>
Accepted and agreed this 1st day of June, 2000.
<TABLE>
<S> <C> <C>
COPYRIGHT CONTROL SERVICES, INC.
/s/ DAVE POWELL
------------------------------------------------
Dave Powell
-----------------------------------------
Name:
CEO
-----------------------------------------
Title:
@VISORY
/s/ PAUL J. BANDROWSKI
------------------------------------------------
Paul J. Bandrowski
-----------------------------------------
Name:
Chairman
-----------------------------------------
Title:
</TABLE>
66
<PAGE>
EXHIBIT A TO AMENDMENT NO. 1 TO LETTER OF INTENT
<TABLE>
<CAPTION>
% OF % OF % OF
SUNHAWK.COM SUNHAWK.COM SUNHAWK.COM
AT MERGER OWNED 12 MONTHS OWNED 18 MONTHS OWNED 24 MONTHS
----------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Market Cap
Performance Goal... 60,375,000 100,000,000 125,000,000 150,000,000
SUNHAWK.COM
Outstanding
shares........... 3,010,865 78.5% 3,010,865 71.5% 3,010,865 65.7% 3,010,865
CCS
Cumulative shares
paid out......... 750,000 19.5% 1,000,000 23.8% 1,250,000 27.3% 1,500,000
ESCROWED SHARES.... 750,000 500,000 250,000 --
----------- ------------ ------------ ------------
Total Shares..... 1,500,000 1,500,000 1,500,000 1,500,000
----------- ------------ ------------ ------------
@VISORY
Cumulative shares
paid out......... 75,000 2.0% 199,060 4.7% 323,119 7.0% 450,938
ESCROWED SHARES.... 375,938 251,878 127,189 --
----------- ------------ ------------ ------------
Total Shares..... 450,938 450,938 450,938 450,938
----------- ------------ ------------ ------------
Total shares issued &
outstanding........ 3,835,865 100.0% 4,209,925 100.0% 4,583,984 100.0% 4,961,803
=========== ============ ============ ============
SHARES ISSUED &
OUTSTANDING
SUNHAWK.COM........ 3,010,865 68.1% 3,010,865 54.6% 3,010,865 45.6% 3,010,865
CCS................ 750,000 17.0% 1,000,000 18.1% 1,250,000 18.9% 1,500,000
@VISORY............ 75,000 1.7% 199,060 3.8% 323,119 4.9% 450,938
----------- ------------ ------------ ------------
TOTAL 3,835,865 4,209,925 4,583,984 4,961,803
PER SHARE MARKET
PRICE GOAL $ 15.74 $ 23.75 $ 27.27 $ 30.23
----------- ------------ ------------ ------------
MARKET CAPITAL
PERFORMANCE GOAL 60,375,000 100,000,000 125,000,000 150,000,000
=========== ============ ============ ============
KEY MANAGEMENT MARKET CAPITAL PERFORMANCE OPTIONS
----------------------------------------------------------------------------------------------------------------------------
CUMULATIVE OPTIONS
ISSUED
M. Eller............. 283,333 6.4% 566,666 10.3% 850,000 12.9% 850,000
Sunhawk.com Key
Management......... 50,000 0.9% 100,000 1.5% 150,000
D. Powell............ 283,333 5.1% 566,666 8.6% 850,000
J. Searle............ 50,000 0.9% 100,000 1.5% 150,000
CCS Key Management... 50,000 0.9% 100,000 1.5% 150,000
@Visory Bonus........ 225,321
Joseph Gunnar, LLC
outstanding........ 300,000 6.8% 300,000 5.4% 300,000 4.5% 300,000
----------- ------------ ------------ ------------
Fully diluted shares 4,419,198 100.0% 5,509,924 100.0% 6,600,650 100.0% 7,637,124
=========== ============ ============ ============
Corresponding market
price per share.... $ 13.66 $ 18.15 $ 18.94 $ 19.64
=========== ============ ============ ============
TOTAL OWNERSHIP WITH
OPTIONS INCLUDES
Sunhawk.com &
M. Eller......... 3,294,198 74.5% 3,627,531 65.8% 3,960,865 60.0% 4,010,865
CCS & D. Powell &
J. Searle........ 750,000 17.0% 1,383,333 25.1% 2,016,666 30.6% 2,650,000
Gunnar Warrants.... 300,000 6.8% 300,000 5.4% 300,000 4.5% 300,000
@Visory............ 75,000 1.7% 199,060 3.6% 323,119 4.9% 676,259
----------- ------------ ------------ ------------
4,419,198 100.0% 5,509,924 100.0% 6,600,650 100.0% 7,637,124
=========== ============ ============ ============
<CAPTION>
% OF
SUNHAWK.COM
OWNED TOTAL
------------ ----------
<S> <C> <C>
Market Cap
Performance Goal...
SUNHAWK.COM
Outstanding
shares........... 60.7% 3,010,865
CCS
Cumulative shares
paid out......... 30.2% 1,500,000
ESCROWED SHARES....
Total Shares.....
@VISORY
Cumulative shares
paid out......... 9.1% 470,000
ESCROWED SHARES....
Total Shares.....
Total shares issued &
outstanding........ 100.0% 4,961,803
==========
SHARES ISSUED &
OUTSTANDING
SUNHAWK.COM........ 39.4% 3,010,865
CCS................ 19.6% 1,500,000
@VISORY............ 5.9% 470,000
TOTAL
PER SHARE MARKET
PRICE GOAL
MARKET CAPITAL
PERFORMANCE GOAL
KEY MANAGEMENT MARKET
CAPITAL PERFORMANCE
OPTIONS
--------------------- -------------------------
CUMULATIVE OPTIONS
ISSUED
M. Eller............. 11.1% 850,000
Sunhawk.com Key
Management......... 2.0% 150,000
D. Powell............ 11.1% 850,000
J. Searle............ 2.0% 150,000
CCS Key Management... 2.0% 150,000
@Visory Bonus........ 3.0% 238,083
Joseph Gunnar, LLC
outstanding........ 3.9% 300,000
Fully diluted shares 100.0%
Corresponding market
price per share....
TOTAL OWNERSHIP WITH
OPTIONS INCLUDES
Sunhawk.com &
M. Eller......... 52.4%
CCS & D. Powell &
J. Searle........ 34.6%
Gunnar Warrants.... 3.9%
@Visory............ 9.0%
100.0%
</TABLE>
67
<PAGE>
ANNEX C
SHARE EXCHANGE AGREEMENT
68
<PAGE>
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement ("Agreement") is entered into as of August 1,
2000, by Copyright Control Services, Inc., a Delaware corporation ("CCS"), the
shareholders of CCS listed on the attached SCHEDULE A (individually, a "CCS
Shareholder" and collectively, the "CCS Shareholders") and Sunhawk.com
Corporation, a Washington corporation ("Sunhawk.com").
RECITALS
A. Sunhawk.com wishes to acquire from the CCS Shareholders, on the terms and
conditions set forth in this Agreement, all of the issued and outstanding shares
of CCS.
B. Together, the CCS Shareholders are the owners of 8,616,366 shares of
common stock and 1,252,884 shares of preferred stock of CCS as shown on
SCHEDULE A (the "CCS Shares"), which CCS Shares represent all issued and
outstanding capital stock of CCS.
C. The CCS Shareholders desire to exchange the CCS Shares for a total of
1,950,938 shares of the common stock of Sunhawk.com (the "Sunhawk.com Shares")
so as to accomplish and effect a share exchange under the Business Corporation
Act of the State of Washington.
D. It is the intent of the parties that the share exchange qualify as a
corporate reorganization under Section 368(a)(1)(B) of the Internal Revenue Code
of 1986, as amended, (the "Code") and applicable British law.
Accordingly, the parties agree as follows:
1. SHARE EXCHANGE; ESCROW.
1.1 EXCHANGE OF CCS SHARES. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined below), the CCS Shares owned by
each CCS Shareholder shown on SCHEDULE A shall automatically be exchanged for
the right to receive that number of the Sunhawk.com Shares determined by
application of the Exchange Ratio described in Section 1.3 (the "Share
Exchange"). At the Effective Time and upon the effectiveness of the Share
Exchange, Sunhawk.com shall be deemed to the holder of record of all the CCS
Shares, and CCS shall continue to be governed by the laws of the State of
Delaware.
1.2 ARTICLES OF SHARE EXCHANGE. The Share Exchange shall be effectuated at
the Effective Time pursuant to Articles of Share Exchange ("Articles of Share
Exchange") filed in accordance with applicable provisions of the Washington
Business Corporation Act. The Articles of Share Exchange shall be filed with the
Washington Secretary of State together with any other filings or recordings
required by Washington law in connection with the Share Exchange as soon as
practicable after the Closing (as defined below). The term "Effective Time" as
used in this Agreement means the time at which the Share Exchange becomes
effective under the laws of the State of Washington.
1.3 EXCHANGE RATIO. At the Effective Time, each of the CCS Shares issued
and outstanding immediately prior to the Effective Time shall, by virtue of the
Share Exchange and without any action on the part of the CCS Shareholders,
automatically be exchanged for that number of Sunhawk.com Shares determined by
mutual agreement of the CCS Shareholders prior to Closing (the "Exchange
Ratio"). Each certificate evidencing ownership of the CCS Shares outstanding
immediately prior to the Effective Time shall, immediately after the Effective
Time, be exchanged for a certificate or certificates evidencing ownership of the
applicable number of the Sunhawk.com Shares. At the Closing, 825,000 shares of
the common stock of Sunhawk.com (the "Closing Shares") identical to the
currently issued and outstanding shares of Sunhawk.com common stock (the "Common
Stock") shall be delivered to the CCS Shareholders. The balance of 1,125,938
Sunhawk.com Shares shall be Class A Common Stock (the "Class A Common Shares" or
the "Escrowed Shares"), which shall be identical to the Common Stock except that
(i) the
69
<PAGE>
voting rights associated with the Class A Common Shares shall equal 0.05 votes
per share, and (ii) the Class A Common Shares shall be convertible into shares
of the Common Stock, on a share for share basis, upon their release from escrow
in accordance with the terms and conditions of the contingent share escrow
agreements in the forms attached as SCHEDULES 1.3.1 and 1.3.2 (the "Contingent
Share Escrow Agreements").
1.4 OPTIONS AND WARRANTS. At its option, exercised in writing prior to the
Closing, Sunhawk.com may elect to adopt and assume the CCS 1999 Stock Option
Plan and any of the outstanding options to purchase the common stock of CCS
shown on SCHEDULE 4.3 (the "CCS Options"), converted at the Exchange Ratio into
options to purchase shares of Common Stock, in which event such options shall
continue in effect after the Closing in accordance with their original vesting
schedules. In the event such option is not exercised by Sunhawk.com as to any or
all of the CCS Options, any CCS Options not so assumed and converted, and all
warrants listed on SCHEDULE 4.3, shall vest immediately prior to Closing as set
forth in the applicable option and warrant agreements.
1.5 HOLDBACK. Sunhawk.com shall retain 100,000 of the Closing Shares (the
"Holdback Shares") until the earlier of 120 days from the Closing Date or
completion of a CCS audit (either, the "Disposal Date") performed by Ernst and
Young (the "Post-Closing Audit"). On the Disposal Date, Holdback Shares with an
aggregate fair market value, as of the Disposal Date, equal to any Excess
Liabilities identified in the Post-Closing Audit shall be released to
Sunhawk.com. "Excess Liabilities" shall mean the amount by which the liabilities
identified in the Post-Closing Audit exceeds the liabilities identified in the
attached SCHEDULE 1.5, which schedule shall be updated by CCS as of the Closing
and delivered to Sunhawk.com at Closing. The Warranting Shareholders shall be
jointly and severally liable for any Excess Liabilities remaining after release
of all of the Holdback Shares to Sunhawk.com. Any of the Holdback Shares
remaining after the Disposal Date shall be retained by Sunhawk.com for an
additional 60 days. To the extent that Sunhawk.com identifies a breach of the
representations and warranties set forth in Section 4 during the period
beginning on the Closing Date and ending 180 days thereafter (the "Holdback
Period"), Sunhawk.com shall provide written notice of such breach to the CCS
Shareholders, which notice shall include a description of the breach and the
dollar amount of damages sustained by Sunhawk.com as a result of such breach (a
"Breach Notice"). If the CCS Shareholders do not dispute a Breach Notice in a
writing delivered to Sunhawk.com within 30 days after their receipt of a Breach
Notice, Holdback Shares with an aggregate fair market value, as of the date of
the Breach Notice, equal to the amount of damages claimed in the Breach Notice
shall be released to Sunhawk.com. If any CCS Shareholder disputes a Breach
Notice, the dispute shall be submitted to arbitration in accordance with
Section 9.14 of this Agreement. Any Holdback Shares remaining upon expiration of
the Holdback Period shall be released to the CCS Shareholders in proportion to
their interests in the Sunhawk.com Shares, except for that number of Holdback
Shares sufficient to satisfy claims made in any Breach Notice delivered to the
CCS Shareholders prior to the expiration of the Holdback Period.
2. CLOSING AND CLOSING DOCUMENTS.
2.1 DATE, TIME AND PLACE OF CLOSING. The Share Exchange contemplated by
this Agreement shall take place at a closing (the "Closing") to be held at the
offices of The Otto Law Group, PLLC, 999 Third Avenue, Suite 3210, Seattle,
Washington 98104, on a date and at a time convenient to the parties. The date on
which the Closing occurs is referred to in this Agreement as the "Closing Date."
2.2 CCS SHAREHOLDERS CLOSING DOCUMENTS. At the Closing, the CCS
Shareholders shall deliver or cause to be delivered to or at the direction of
Sunhawk.com the following documents (collectively, the "CCS Shareholders Closing
Documents"):
2.2.1 CCS SHARE CERTIFICATES. Certificates, executed in blank by the
CCS Shareholders, or accompanied by assignments separate from certificate
executed by the CCS Shareholders, representing all of the CCS Shares;
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<PAGE>
2.2.2 ESCROW STOCK POWERS. Stock powers in favor of Sunhawk.com
executed by the CCS Shareholders and representing all of the Escrowed
Shares;
2.2.3 CONTINGENT SHARE ESCROW AGREEMENTS. The Contingent Share Escrow
Agreements, executed by (a) all of the CCS Shareholders except @Visory, LLC,
and (b) @Visory, LLC;
2.2.4 REGISTRATION RIGHTS AGREEMENT. A Registration Rights Agreement
giving the CCS Shareholders "piggyback" registration rights with regard to
their Sunhawk.com Shares in the form attached as SCHEDULE 2.2.4 (the
"Registration Rights Agreement"), executed by all CCS Shareholders except
the CCS Management Holders described in Section 5.9;
2.2.5 SERVICES AGREEMENT. A Services Agreement in a form mutually
acceptable to Sunhawk.com and @Visory LLC (the "Services Agreement"),
executed by @Visory, LLC;
2.2.6 EMPLOYMENT AGREEMENTS. Employment Agreements in a form mutually
acceptable to Sunhawk.com and each of David Powell and Julian Searle and
executed by David Powell and Julian Searle, respectively (the "Employment
Agreements");
2.2.7 TERMINATION OF EXISTING AGREEMENTS. Terminations of the existing
employment and consulting agreements listed on SCHEDULE 2.2.7, executed by
David Powell, Julian Searle, @Visory LLC and CCS;
2.2.8 GOOD STANDING CERTIFICATES. (a) A certificate issued by the
Delaware Secretary of State indicating that CCS is qualified and in good
standing within such jurisdiction and (b) a certificate issued by the
Companies House Registries indicating that Chinerose (identified in
Section 4.4) is in good standing within such jurisdiction; and
2.2.9 OTHER DOCUMENTS AND INSTRUMENTS. Such other documents and
instruments as Sunhawk.com's counsel may deem to be necessary or advisable
to effect the transactions contemplated by this Agreement.
2.3 SUNHAWK.COM CLOSING DOCUMENTS. At the Closing, Sunhawk.com shall
deliver or cause to be delivered to the CCS Shareholders the following documents
(collectively, the "Sunhawk.com Closing Documents"):
2.3.1 ARTICLES OF SHARE EXCHANGE. The Articles of Share Exchange,
executed by Sunhawk.com;
2.3.2 SUNHAWK.COM SHARE CERTIFICATES. One or more stock certificates
in the name of each of the CCS Shareholders representing such CCS
Shareholder's ownership of the Sunhawk.com Shares;
2.3.3 CONTINGENT SHARE ESCROW AGREEMENTS. The Contingent Share Escrow
Agreements, executed by Sunhawk.com;
2.3.4 REGISTRATION RIGHTS AGREEMENT. The Registration Rights
Agreement, executed by Sunhawk.com;
2.3.5 SERVICES AGREEMENT. The Services Agreement, executed by
Sunhawk.com;
2.3.6 EMPLOYMENT AGREEMENTS. The Employment Agreements, executed by
Sunhawk.com;
2.3.7 GOOD STANDING CERTIFICATE. A certificate issued by the
Washington Secretary of State indicating that Sunhawk.com is qualified and
in good standing within such jurisdiction;
2.3.8 SUNHAWK.COM OFFICER'S CERTIFICATE. A certificate dated as of the
Closing Date executed by a duly authorized officer of Sunhawk.com certifying
that all necessary actions have been taken by Sunhawk.com's shareholders and
directors to authorize the transactions contemplated by this Agreement and
that all representations and warranties made by Sunhawk.com in this
Agreement are complete and correct in all material respects as of the
Closing Date as if made on the Closing Date; and
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2.3.9 OTHER DOCUMENTS AND INSTRUMENTS. Such other documents and
instruments as CCS's counsel may deem to be necessary or advisable to effect
the transactions contemplated by this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF SUNHAWK.COM
Sunhawk.com represents and warrants to each of the CCS Shareholders that the
statements contained in this Section 3 are correct and complete as of the date
of this Agreement.
3.1 ORGANIZATION OF SUNHAWK.COM. Sunhawk.com is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Washington. Sunhawk.com has all the requisite power and authority to own, lease
and operate all of its properties and assets and to carry on its business as
currently conducted and as proposed to be conducted. Sunhawk.com is duly
licensed or qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it makes such
licensing or qualification necessary and where the failure to be so qualified
would, individually or in the aggregate, have a Material Adverse Effect upon it.
As used in this Agreement, the term "Material Adverse Effect" with respect to
any party, shall mean any change or effect that is reasonably likely to be
materially adverse to the business, operations, properties, condition (financial
or otherwise), assets or liabilities of such party and such party's subsidiaries
taken as a whole.
3.2 AUTHORIZATION. Subject to the approval of its shareholders,
Sunhawk.com has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and the Sunhawk.com Closing
Documents and to perform its obligations hereunder and thereunder. This
Agreement constitutes, and the Sunhawk.com Closing Documents will constitute,
valid and legally binding obligations of Sunhawk.com, enforceable in accordance
with their respective terms and conditions.
3.3 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement or the Sunhawk.com Closing Documents, nor the consummation of the
transactions contemplated hereby or thereby by Sunhawk.com, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which Sunhawk.com is subject or any provision of its articles of
incorporation or bylaws, or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other arrangement
to which Sunhawk.com is a party or by which it is bound or to which any of its
assets is subject. Sunhawk.com does not need to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order for the parties to consummate the transactions
contemplated by this Agreement.
3.4 LIMITED REPRESENTATIONS AND WARRANTIES. Except for the representations
and warranties of the Warranting Shareholders expressly set forth in Section 4,
below, Sunhawk.com has not relied upon any representation and warranty made by
CCS or the CCS Shareholders in making its determination to enter into this
Agreement and consummate the transactions contemplated by this Agreement.
3.5 DISCLOSURE. The representations and warranties contained in this
Section 3 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 3 not misleading.
3.6 CAPITALIZATION. The authorized capital stock of Sunhawk.com consists
of 30,000,000 shares of no par value common stock, of which 3,010,865 shares are
issued and outstanding, and 10,000,000 shares of no par value preferred stock,
none of which is issued and outstanding. All issued and outstanding shares have
been duly authorized and validly issued, and are fully paid and nonassessable.
All of the outstanding shares of Common Stock (and options to purchase Common
Stock) and other outstanding securities of Sunhawk.com have been, and the
Sunhawk.com Shares will be, duly and validly issued in compliance with federal
and state securities laws. Except for this Agreement and as contemplated by this
Agreement and as
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shown on SCHEDULE 3.6, there are no outstanding or authorized subscriptions,
options, warrants, plans or, other agreements or rights of any kind to purchase
or otherwise receive or be issued, or securities or obligations of any kind
convertible into, any shares of capital stock or other securities of
Sunhawk.com, and there are no dividends which have accrued or been declared but
are unpaid on the capital stock of Sunhawk.com. There are no outstanding or
authorized stock appreciation, phantom stock or similar rights with respect to
Sunhawk.com. Sunhawk.com does not own, directly or indirectly, any capital stock
or other equity interest in any corporation, partnership or other entity. The
Closing Shares are duly authorized and, when issued in accordance with the terms
and conditions of this Agreement, shall be validly issued, fully paid and
nonassessable. Prior to the Closing, the Escrowed Shares will be duly authorized
and, when issued in accordance with this Agreement, shall be validly issued,
fully paid and nonassessable. Except as contemplated by this Agreement and the
Contingent Share Escrow Agreements, the Sunhawk.com Shares are not subject to
any preemptive rights or other similar restrictions.
3.7 SEC REPORTS AND FINANCIAL STATEMENTS. Sunhawk.com has filed with the
SEC, and has heretofore made available to the CCS Shareholders, complete and
correct copies of all forms, reports, schedules, statements and other documents
required to be filed by Sunhawk.com under the Securities Act of 1933, as amended
(the "Securities Act"), and the Exchange Act (as such documents have been
amended or supplemented since the time of their filing, collectively, the "SEC
Reports"). As of their respective dates, the SEC Reports (including without
limitation, any financial statements or schedules included therein) (a) did not
contain any untrue statement of a material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading, and (b) complied in
all material respects with the applicable requirements of the Securities Act and
Exchange Act (as the case may be) and all applicable rules and regulations of
the SEC promulgated thereunder. Each of the financial statements included in the
SEC Reports has been prepared from, and is in accordance with, the books and
records of Sunhawk.com, complies with all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, has been prepared in accordance with U.S. generally
accepted accounting principles ("U.S. GAAP") applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and fairly presents in all material respects the consolidated results of
operations and cash flows (and changes in financial position, if any) of
Sunhawk.com, as at the date(s) thereof or for the period(s) presented therein.
3.8 NO UNDISCLOSED LIABILITIES. Except as described in the SEC Reports,
Sunhawk.com has no debts, liabilities or obligations of any kind, whether
accrued, absolute, contingent or other, whether due or to become due, except as
incurred in the ordinary course of business, that could have a Material Adverse
Effect on Sunhawk.com.
3.9 LEGAL PROCEEDINGS, CLAIMS, ETC. There is no legal, administrative,
arbitration or other action or proceeding pending against Sunhawk.com or any of
its directors, officers, or employees. Sunhawk.com has not been informed of any
violation or default under any laws, ordinances, regulations, judgments,
injunctions, orders or decrees of any governmental authority. Except as set
forth in the SEC Reports, Sunhawk.com is not subject to any judgment, order,
injunction or decree of any court, arbitral authority or governmental authority
that could have a Material Adverse Effect on Sunhawk.com.
3.10 TAX TREATMENT. As of the date of this Agreement, Sunhawk.com has no
reason to believe that the Share Exchange will not qualify as a "reorganization"
within the meaning of Section 368(a) of the Code.
4. REPRESENTATIONS AND WARRANTIES OF WARRANTING SHAREHOLDERS.
David Powell, Julian Searle and Phillip J. Bloom (each a "Warranting
Shareholder" and together the "Warranting Shareholders"), jointly and severally
represent and warrant to Sunhawk.com that the statements contained in this
Section 4 are correct and complete as of the date of this Agreement.
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4.1 ORGANIZATION.
4.1.1 CCS is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware. CCS has all the
requisite power and authority to own, lease and operate all of its
properties and assets and to carry on its business as currently conducted
and as proposed to be conducted. CCS is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the nature of
the business conducted by it makes such licensing or qualification necessary
and where the failure to be so qualified would, individually or in the
aggregate, have a Material Adverse Effect upon it.
4.1.2 Chinerose (identified in Section 4.4) is a corporation duly
organized, validly existing, and in good standing under the laws of the
United Kingdom. Chinerose has all the requisite power and authority to own,
lease and operate all of its properties and assets and to carry on its
business as currently conducted and as proposed to be conducted. Chinerose
is duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it makes such
licensing or qualification necessary and where the failure to be so
qualified would, individually or in the aggregate, have a Material Adverse
Effect upon it.
4.2 AUTHORIZATION OF TRANSACTION. All CCS Shareholders have full power and
authority to execute and deliver this Agreement and the CCS Shareholders Closing
Documents to which any CCS Shareholder is a party and to perform the CCS
Shareholders' obligations hereunder and thereunder. This Agreement constitutes,
and the CCS Shareholders Closing Documents will constitute, the valid and
legally binding obligation of the CCS Shareholders, enforceable in accordance
with their respective terms and conditions. Each CCS Shareholder severally makes
the representations and warranties set forth in this Section 4.2 to Sunhawk.com.
4.3 CAPITALIZATION. The authorized capital stock of CCS consists of
14,000,000 shares of common stock, of which 8,616,366 shares are issued and
outstanding, and 1,300,000 shares of preferred stock, of which 1,252,884 shares
are issued and outstanding. All issued and outstanding shares of CCS stock have
been duly authorized and validly issued, and are fully paid and nonassessable.
All of the outstanding shares of common stock (and options to purchase common
stock) and other outstanding securities of CCS have been duly and validly issued
in compliance with federal and state securities laws. Except as set forth in
SCHEDULE 4.3, there are no outstanding or authorized subscriptions, options,
warrants, plans or, except for this Agreement and as contemplated by this
Agreement, other agreements or rights of any kind to purchase or otherwise
receive or be issued, or securities or obligations of any kind convertible into,
any shares of capital stock or other securities of CCS, and there are no
dividends which have accrued or been declared but are unpaid on the capital
stock of CCS. There are no outstanding or authorized stock appreciation, phantom
stock or similar rights with respect to CCS. The CCS Shares are duly
authorized and validly issued, fully paid and nonassessable. The CCS Shares are
not subject to any preemptive rights or other similar restrictions.
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4.4 SUBSIDIARIES. Except for its wholly-owned subsidiary,
Chinerose, Ltd., a United Kingdom corporation ("Chinerose") and for the joint
venture described on SCHEDULE 4.4, CCS does not own, directly or indirectly, any
capital stock or other equity interest in any corporation, partnership or other
entity.
4.5 OWNERSHIP OF CCS SHARES. Each of the CCS Shareholders owns and holds
of record that number of CCS Shares shown on SCHEDULE A. Each CCS Shareholder
has good title to such CCS Shareholder's CCS Shares, free and clear of all
claims, charges, liens and other encumbrances. Except as set forth on
SCHEDULE 4.5, each CCS Shareholder has full power over such CCS Shareholder's
CCS Shares, subject to no proxy, shareholders' or voting agreement.
4.6 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement or the CCS Shareholders Closing Documents, nor the consummation of the
transactions contemplated hereby or thereby, by CCS or such CCS Shareholder will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which CCS or such CCS Shareholder is subject,
or (ii) conflict with, result in a breach of, constitute a default under, result
in the acceleration of, create in any party the right to accelerate, terminate
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which CCS or such CCS Shareholder
is a party or by which CCS or such CCS Shareholder is bound or to which CCS or
any of such CCS Shareholder's assets is subject. Neither CCS nor such CCS
Shareholder needs to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the parties to consummate the transactions contemplated by this
Agreement.
4.7 FINANCIAL STATEMENTS AND FINANCIAL CONDITION. Attached as
SCHEDULE 4.7 are the following financial statements: (a) for CCS (i) its
unaudited consolidated balance sheet as of July 24, 2000, and the related
unaudited consolidated statements of income and retained earnings and of cash
flows, and (ii) its unaudited consolidated balance sheet as of December 31, 1999
and the related unaudited consolidated statements of income and retained
earnings and of cash flows for the period ended December 31, 1999, and (b) for
Chinerose the audited financial statements of Chinerose for the period ended
August 31, 1999 (collectively, the "Financial Statements"). The Financial
Statements, including any related notes and schedules, have been prepared in
accordance with U.S. GAAP consistently applied, are based on the books, records
and work papers of CCS or Chinerose, as the case may be, and present fairly the
financial position of CCS and Chinerose as of the dates of such statements and
the results of operations for the periods covered by such statements, subject to
normal year-end adjustments and the absence of footnotes.
4.8 ABSENCE OF MATERIAL CHANGE. Since July 24, 2000, there has been no
change in the business, operations, financial condition or liabilities of CCS or
Chinerose that would result in a Material Adverse Effect on CCS or Chinerose.
4.9 LITIGATION. There are no actions, suits, claims, inquiries,
proceedings or investigations before any court, tribunal, commission, bureau,
regulatory, administrative or governmental agency, arbitrator, body or authority
pending or, to the knowledge of such Warranting Shareholder, threatened against
CCS or Chinerose which would reasonably be expected to result in any
liabilities, including defense costs, in excess of $50,000 U.S. in the
aggregate. Neither CCS or Chinerose is the named subject of any order, judgment
or decree and is not in default with respect to any such order, judgment or
decree.
4.10 TAXES AND TAX RETURNS. Except as shown on SCHEDULE 4.10, CCS and
Chinerose have timely and correctly filed tax returns and reports (collectively,
"Returns") required by applicable law to be filed (including, without
limitation, estimated tax returns, income tax returns, excise tax returns, sales
tax returns, use tax returns, property tax returns, franchise tax returns,
information returns and withholding, employment and payroll tax returns) and all
such returns were (at the time they were filed) correct in all material
respects, and have paid all taxes, levies, license and registration fees,
charges or withholdings of any nature whatsoever reflected on such Returns to be
owed and which have become due and payable
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except for any that is being contested in good faith. The unpaid U.S. Federal
income taxes, interest and penalties of CCS do not exceed $50,000 U.S. in the
aggregate.
4.11 EMPLOYEES. SCHEDULE 4.11 is a list of all salaried persons employed
by CCS and Chinerose and a description of their salaries and deferred
compensation.
4.11.1 Except as set forth on SCHEDULE 4.11, no officer or employee of
CCS or Chinerose is receiving aggregate remuneration (bonus, salary,
deferred compensation and commissions) at a rate, which if annualized, would
exceed $75,000 U.S. in the year 2000.
4.11.2 Except as set forth on SCHEDULE 4.11.2, neither CCS nor
Chinerose is a party to, or bound by, any contract, arrangement or
understanding (whether written or oral) with respect to the employment or
compensation of any officers, employees or consultants and except as
provided in this Agreement, consummation of the transactions contemplated by
this Agreement will not result in any payment (whether of severance pay or
otherwise) becoming due from CCS or Chinerose to any officer or employee
thereof. CCS has previously delivered or made available to Sunhawk.com true
and complete copies of all written employment, consulting and deferred
compensation agreements to which CCS or Chinerose is a party.
4.11.3 There are not, and have not been at any time in the past three
years, any actions, suits, claims or proceedings before any court tribunal,
commission, bureau, regulatory, administrative or governmental agency,
arbitrator, body or authority pending or, to such Warranting Shareholder's
knowledge, threatened, by any employees, former employees or other persons
relating to the employment practices or activities of CCS or Chinerose
(except for actions which have subsequently been resolved). Neither CCS nor
Chinerose is a party to any collective bargaining agreement, and no union
organization efforts with respect to CCS or Chinerose are pending or, to
such Warranting Shareholder's knowledge, threatened nor have any occurred
during the last three years.
4.11.4 CCS has made available to Sunhawk.com true and complete copies
of all personnel codes, practices, procedures, policies, manuals,
affirmative action programs and similar materials of CCS and Chinerose.
4.12 COMPLIANCE WITH APPLICABLE LAW.
4.12.1 CCS and Chinerose hold all licenses, certificates, franchises,
permits and other governmental authorizations ("Permits") necessary for the
lawful conduct of their businesses and such Permits are in full force and
effect, and CCS and Chinerose are in all material respects complying
therewith, except where the failure to possess or comply with such Permits
would not have, in the aggregate, a Material Adverse Effect on CCS or
Chinerose.
4.12.2 CCS and Chinerose are and for the past three years have been in
compliance with all foreign, federal, state and local laws, statutes,
ordinances, rules, regulations and orders applicable to the operation,
conduct or ownership of their businesses or properties except for any
noncompliance which is not reasonably likely to have, in the aggregate, a
Material Adverse Effect on CCS or Chinerose.
4.13 CONTRACTS AND AGREEMENTS. Except as disclosed on SCHEDULE 4.13,
(i) neither CCS nor Chinerose is a party to or bound by any commitment,
contract, agreement or other instrument which involves or could involve
aggregate future payments by CCS or Chinerose of more than $25,000 U.S.,
(ii) neither CCS or Chinerose is a party to or bound by any commitment,
contract, agreement or other instrument which is material to the business,
operations, properties, assets or financial condition of CCS or Chinerose, and
(iii) no commitment, contract, agreement or other instrument, other than charter
documents, to which CCS or Chinerose is a party or by which CCS or Chinerose is
bound, limits the freedom of CCS or Chinerose to compete in any line of business
or with any person. The commitments, contracts, agreements or other instruments
listed on SCHEDULE 4.13 (the "Material Contracts") are valid and binding
obligations
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and neither CCS nor Chinerose is in default therewith, except as listed on
SCHEDULE 4.13 and except where any such defaults are not reasonably likely to
have in the aggregate a Material Adverse Effect on CCS or Chinerose.
4.14 AFFILIATE TRANSACTIONS.
4.14.1 Except as disclosed on SCHEDULE 4.14, and except as specifically
contemplated by this Agreement, neither CCS nor Chinerose has engaged in,
and is not currently obligated to engage in (whether in writing or orally),
any transaction with any Affiliated Person (as defined below) involving
aggregate payments by or to CCS or Chinerose of $25,000 U.S. or more.
4.14.2 For purposes of this Section 4.14, "Affiliated Person" means:
(a) a director, executive officer or Controlling Person (as defined
below) of CCS or Chinerose;
(b) a spouse of a director, executive officer or Controlling Person
of CCS or Chinerose;
(c) a member of the immediate family of a director, executive
officer, or Controlling Person of CCS or Chinerose who has the same home
as such person;
(d) any corporation or organization (other than CCS or Chinerose) of
which a director, executive officer or Controlling Person of CCS or
Chinerose is a chief executive officer, chief financial officer, or a
person performing similar functions or is a Controlling Person of such
other corporation or organization;
(e) any trust or estate in which a director, executive officer, or
Controlling Person of CCS or Chinerose or the spouse of such person has a
substantial beneficial interest or as to which such person or his spouse
serves as trustee or in a similar fiduciary capacity; and
(f) for purposes of this Section 4.14, "Controlling Person" means any
person or entity which, either directly or indirectly, or acting in
concert with one or more other persons or entities owns, controls or
holds with power to vote, or holds proxies representing ten percent or
more of the outstanding common stock or equity securities.
4.15 LIMITED REPRESENTATIONS AND WARRANTIES. Except for the
representations and warranties of the Sunhawk.com expressly set forth in
Section 3, neither CCS nor the CCS Shareholders has relied upon any
representation and warranty made by or on behalf of Sunhawk.com in making its
determination to enter into this Agreement and consummate the transactions
contemplated by this Agreement.
4.16 DISCLOSURE. No representation or warranty made by a CCS Shareholder
contained in this Agreement, and no statement contained in the Schedules
delivered by CCS and the CCS Shareholders hereunder, contains any untrue
statement of a material fact or omits any material fact necessary in order to
make a statement herein or therein, in light of the circumstances under which it
is made, not misleading.
4.17 TITLE TO PROPERTY.
4.17.1 REAL PROPERTY. SCHEDULE 4.17.1 is a true and complete
description of all interests in real property (other than real property
security interests received in the ordinary course of business), whether
owned, leased or otherwise claimed, including a list of all leases of real
property, in which CCS or Chinerose has or claims an interest and any
guarantees of any such leases by CCS or Chinerose. True and complete copies
of such leases have previously been delivered or made available to
Sunhawk.com, together with all amendments, modifications, agreements or
other writings related thereto. Each such lease is legal, valid and binding
as between CCS or Chinerose and the other party or parties thereto, and the
occupant is a tenant or possessor in good standing thereunder, free of any
default or breach whatsoever and quietly enjoys the premises provided for
therein. CCS or Chinerose has good, valid and marketable title to all real
property owned by it, free and clear of all mortgages,
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liens, pledges, charges or encumbrances of any nature whatsoever, except
liens for current taxes not yet due and payable, and such encumbrances and
imperfections of title, if any, as do not materially detract from the value
of the properties and do not materially interfere with the present or
proposed use of such properties or otherwise materially impair such
operations. All real property and fixtures material to the business,
operations or financial condition of CCS and Chinerose are in substantially
good condition and repair.
4.17.2 ENVIRONMENTAL MATTERS. The real property owned or leased by CCS
or Chinerose is not in a condition that may give rise to financial liability
under any environmental laws applicable to CCS, Chinerose or such property.
4.18 PERSONAL PROPERTY. SCHEDULE 4.18 is a true and complete list of
(i) each item of machinery, equipment, or furniture, including without
limitation computers and vehicles, of CCS and Chinerose and (ii) each lease or
other agreement under which any such item of personal property is leased,
rented, held or operated where the current fair market value of such item is
more than $1,000 U.S. CCS and Chinerose have good, valid and marketable title to
all personal property owned by them, free and clear of all liens, pledges,
charges or encumbrances o any nature whatsoever.
4.19 INTELLECTUAL PROPERTY. SCHEDULE 4.19 is a true and complete list of:
4.19.1 All patents, patent applications, trademarks, trademark
registrations, applications for trademark registration, trade names, service
marks, registered Internet domain names, and other intangible property
currently used, owned, or registered for use by CCS or Chinerose where the
current fair market value of such item is more than $1,000 U.S.; and
4.19.2 All license and other agreements with respect to any of the
foregoing as to which CCS or Chinerose is licensor or licensee.
4.19.3 There are no pending or, to such Warranting Shareholder's
knowledge, threatened, claims against CCS or Chinerose by any person as to
any of the items, or their use, listed in SCHEDULE 4.19 or claims of
infringement by CCS or Chinerose on the rights of any person and no valid
basis exists for any such claims.
4.20 INSURANCE. SCHEDULE 4.20 is a true and complete list and a brief
description (including name of insurer, agent, coverage and expiration date) of
all insurance policies in force with respect to the business and assets of CCS
and Chinerose. CCS and Chinerose are in compliance with all of the material
provisions of their insurance policies and are not in default under any of the
terms thereof. Each such policy is outstanding and in full force and effect and
CCS or Chinerose is the sole beneficiary of such policies. All premiums and
other payments due under any such policy have been paid or arrangements for
payment are being made. CCS has previously delivered to, or made available for
inspection by Sunhawk.com, each insurance policy to which CCS or Chinerose is a
party (other than insurance policies under which CCS or Chinerose is named as a
loss payee or additional insured as a result of its position as a secured
lender).
4.21 POWERS OF ATTORNEY. Neither CCS nor Chinerose has any powers of
attorney outstanding other than those in the ordinary course of business with
respect to routine matters.
4.22 BANK ACCOUNTS. SCHEDULE 4.22 is a true and complete list of all bank
accounts, safe deposit boxes and lock boxes of CCS and Chinerose, including,
with respect to each such account and lock box: (a) identification of all
authorized signatories; (b) identification of the business purpose of such
account or lock box, including identification of any accounts or lock boxes
representing escrow funds or otherwise subject to restriction; and
(c) identification of the amount on deposit on the date indicated.
4.23 CUSTOMERS/SUPPLIERS. SCHEDULE 4.23 is a true and complete list of:
4.23.1 Chinerose's ten largest customers in terms of sales during 1998
and 1999, showing the approximate total sales by Chinerose to each such
customer during each of such years; and
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4.23.2 The ten largest suppliers of Chinerose in terms of purchases
during 1998 and 1999, showing the approximate total purchase by Chinerose
from each such supplier during each of such years.
4.24 PRODUCT CLAIMS. No product or service liability claim is pending
against CCS or Chinerose or against any other party with respect to the products
or services of CCS or Chinerose.
5. COVENANTS OF THE PARTIES.
5.1 CONDUCT OF THE BUSINESS OF CCS AND CHINEROSE. During the period from
the date of this Agreement to the Closing Date, CCS will conduct, and will cause
Chinerose to conduct, its business and engage in transactions only in the
ordinary course consistent with past practice. During such period, CCS will use
and will cause Chinerose to use its best efforts to (a) preserve its business
organization intact, (b) keep available the present services of its employees,
and (c) preserve the goodwill of its customers and others with whom business
relationships exist. In addition, without limiting the generality of the
foregoing, CCS agrees that from the date of this Agreement to the Closing Date,
except as otherwise consented to or approved by Sunhawk.com in writing (which
consent or approval shall not be unreasonably withheld, delayed or conditioned)
or as permitted or required by this Agreement or as required by law, CCS will
not and will cause Chinerose not to:
5.1.1 grant any severance or termination pay to or enter into or amend
any employment agreement with, or increase the amount of payments or fees
to, any of its employees, officers or directors other than salary increases
to employees consistent with past increases;
5.1.2 make any capital expenditures in excess of (i) $10,000 U.S. (per
project or related series of projects) or (ii) $75,000 U.S. in the
aggregate, other than pursuant to binding commitments existing on the date
of this Agreement and expenditures necessary to maintain existing assets in
good repair;
5.1.3 change in any material manner pricing policies or any other
material business or customer policies;
5.1.4 guarantee the obligations of any other person except in the
ordinary course of business consistent with past practice;
5.1.5 acquire assets other than those necessary in the conduct of its
business in the ordinary course;
5.1.6 sell, transfer, assign, encumber or otherwise dispose of assets
with a value in excess of $50,000 U.S.;
5.1.7 enter into or amend or terminate any long term (one year or more)
contract (including real property leases) except in the ordinary course of
business consistent with past practice;
5.1.8 enter into or amend any contract that calls for the payment by
CCS or Chinerose of $75,000 U.S. or more after the date of this Agreement or
for a term exceeding two years that cannot be terminated on not more than
30 days' notice without cause and without payment or loss of any material
amount as a penalty, bonus, premium or other compensation for termination;
5.1.9 engage or participate in any material transaction or incur or
sustain any material obligation otherwise than in the ordinary course of
business consistent with past practice, except the Amendment to the
Consulting Agreement with @Visory LLC described on Schedule 4.13;
5.1.10 contribute to any benefit plans except in such amounts and at
such times as consistent with past practice;
5.1.11 increase the number of full-time equivalent employees other than
in the ordinary course of business consistent with past practice;
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5.1.12 acquire any real property except after having followed
reasonable procedures with respect to the investigation of potential
environmental problems, which procedures have been approved in writing by
Sunhawk.com (which approval shall not be unreasonably withheld, delayed or
conditioned); or
5.1.13 agree to do any of the foregoing.
5.2 NO SOLICITATION AND LIQUIDATED DAMAGES. During the period beginning on
the date of this Agreement and ending on the Closing Date, neither CCS nor any
of its directors, officers, shareholders, representatives, agents or other
persons controlled by any of them, shall, directly or indirectly encourage or
solicit, or hold discussions or negotiations with, or provide any information
to, any persons, entity or group other than Sunhawk.com concerning any merger,
sale of substantial assets not in the ordinary course of business, sale of
shares of capital stock or similar transactions involving CCS. CCS will promptly
communicate to Sunhawk.com the identity of any interested or inquiring party,
all relevant information surrounding the interest or inquiry, as well as the
terms of any proposal that it may receive in respect of any such transaction. If
this Agreement is terminated by Sunhawk.com due to uncured breach of this
Section 5.2, then Sunhawk.com shall be entitled to $2,500,000 U.S. from CCS as
liquidated damages. Such liquidated damages shall constitute full payment and
the exclusive remedy for any damages suffered by Sunhawk.com by reason of such
breach and the terms of this Agreement. Sunhawk.com, CCS and the CCS
Shareholders agree that actual damages would be difficult to ascertain and that
$2,500,000 U.S. is a fair and equitable amount to reimburse Sunhawk.com for such
damages and the termination of this Agreement.
5.3 ACCESS TO PROPERTIES AND RECORDS; CONFIDENTIALITY.
5.3.1 CCS shall permit Sunhawk.com and its representatives reasonable
access to its properties and shall disclose and make available to
Sunhawk.com all books, papers and records relating to the assets, stock,
ownership, properties, obligations, operations and liabilities of CCS and
Chinerose, including but not limited to, all books of account (including the
general ledger), tax records, minute books of directors and stockholders
meetings, organizational documents, bylaws, material contracts and
agreements, filings with any regulatory authority, accountants work papers,
litigation files, plans affecting employees, and any other business
activities or prospects in which Sunhawk.com may have a reasonable interest,
in each case during normal business hours and upon reasonable notice. CCS
shall not be required to provide access to or disclose information where
such access or disclosure would jeopardize the attorney-client privilege or
would contravene any law, rule, regulation, order, judgment, decree or
binding agreement entered into prior to the date of this Agreement. The
parties will use all reasonable efforts to make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply.
5.3.2 All information furnished by CCS to Sunhawk.com or the
representatives or affiliates of Sunhawk.com pursuant to, or in any
negotiation in connection with, this Agreement shall be treated as the sole
property of CCS until consummation of the Share Exchange and if the Share
Exchange shall not occur Sunhawk.com and its affiliates, agents and advisors
shall upon written request return to CCS all documents or other materials
containing, reflecting, referring to such information, and shall keep
confidential all such information and shall not disclose or use such
information for competitive purposes. The obligation to keep such
information confidential shall not apply to (i) any information which
(w) Sunhawk.com can establish by evidence was already in its possession
(subject to no obligation of confidentiality) prior to the disclosure
thereof by CCS; (x) was then generally known to the public; (y) becomes
known to the public other than as a result of actions by Sunhawk.com or by
the directors, officers, employees, agents or representatives of
Sunhawk.com; or (z) was disclosed to Sunhawk.com, or to the directors,
officers, employees or representatives of Sunhawk.com, solely by a third
party not bound by any obligation of confidentiality; or (ii) disclosure in
accordance with the
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federal securities laws, a federal banking laws, or pursuant to an order of
a court or agency of competent jurisdiction.
5.4 REGULATORY MATTERS.
5.4.1 The parties will cooperate with each other and use all reasonable
efforts to prepare all necessary documentation, to effect all necessary
filings and to obtain all necessary permits, consents, approvals, and
authorizations of all third parties and governmental bodies necessary to
consummate the transactions contemplated by this Agreement including,
without limitation, those that may be required from the SEC, other
regulatory authorities, or Sunhawk.com's shareholders. CCS and Sunhawk.com
shall each have the right to review reasonably in advance all information
relating to CCS or Sunhawk.com, as the case may be, and any of their
respective subsidiaries, together with any other information reasonably
requested, which appears in any filing made with or written material
submitted to any governmental body in connection with the transactions
contemplated by this Agreement. Sunhawk.com shall bear all expenses
associated with SEC filings.
5.4.2 CCS and Sunhawk.com will promptly furnish each other with copies
of written communications received by CCS or Sunhawk.com or any of their
respective subsidiaries from, or delivered by any of the foregoing to, any
governmental body in respect of the transactions contemplated by this
Agreement.
5.5 FURTHER ASSURANCES. Subject to the terms and conditions of this
Agreement, each of the parties agrees to use all commercially reasonable efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
5.6 PUBLIC ANNOUNCEMENTS. No party will issue or distribute any
information to its shareholders or employees, any news releases or any other
public information disclosures with respect to this Agreement or any of the
transactions contemplated by this Agreement without the consent of the other
parties or their designated representative, except as may be otherwise required
by law.
5.7 POST-CLOSING APPOINTMENTS. As soon as reasonable after the Closing,
the Sunhawk.com Board of Directors shall take all actions necessary to nominate,
vote, appoint or elect Paul Bandrowski, David Powell and a nominee of the CCS
Shareholders acceptable to Sunhawk.com to the Board of Directors of Sunhawk.com;
and Paul Bandrowski shall be appointed or elected to serve as Vice Chairman of
the Board of Directors of Sunhawk.com.
5.8 RESTRICTIONS ON TRANSFER. David Powell, Julian Searle and Phillip J.
Bloom shall each hold their respective shares of the Closing Shares and any
Escrowed Shares released to them under an Escrow Agreement personally and shall
not transfer such Sunhawk.com Shares for a period equal to the earlier of
(i) 12 months after Closing, or (ii) the date on which Marlin Eller transfers
any of his Sunhawk.com stock. Notwithstanding the foregoing, David Powell and
Julian Searle may transfer any of their Sunhawk.com Shares free of the
restrictions set forth in this Section 5.8 in order to comply with their
guaranty obligations to the holders of CCS' Series A Preferred Stock.
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<PAGE>
5.9 REGISTRATION, TRANSFER AND SALE RESTRICTIONS. All necessary actions
practicable shall be timely taken to freely register and transfer the Common
Stock, and issuable Common Stock held by Sunhawk.com management, including,
Marlin Eller and Brent Mills, and the CCS Management Holders. Until such time as
any registration, transfer, or sale rights are received by Marlin Eller, the
registration, transfer and sale rights of the CCS Management Holders as to their
Sunhawk.com Shares shall be the same as those of Marlin Eller. CCS Management
Holders acknowledge that the receipt of any such registration, transfer, and
sale rights does not exempt them from the applicable regulations of Rule 144. As
used in this Section 5.9, "CCS Management Holders" shall mean @Visory LLC and
its affiliates, including Paul Bandrowski and Duncan Shaw, David Powell, Julian
Searle and Phillip J. Bloom.
6. CONDITIONS PRECEDENT TO CCS SHAREHOLDERS' OBLIGATIONS.
The obligations of the CCS Shareholders to consummate the transactions
contemplated by this Agreement are subject to satisfaction of the following
conditions at or before the Closing Date and may be waived only in writing by
the CCS Shareholders:
6.1 SUNHAWK.COM COVENANTS, REPRESENTATIONS AND WARRANTIES. All the
covenants, terms and conditions of this Agreement to be complied with or
performed by Sunhawk.com at or before the Closing Date shall have been complied
with and performed in all respects. The representations and warranties made by
Sunhawk.com in this Agreement shall be complete and correct at and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made at and as of the Closing Date.
6.2 SUNHAWK.COM'S DELIVERY OF DOCUMENTS. Sunhawk.com shall have duly
executed and delivered, or caused to be executed and delivered, to or at the
direction of the CCS Shareholders, this Agreement and the Sunhawk.com Closing
Documents.
6.3 SUNHAWK.COM SHAREHOLDER APPROVAL. This Agreement shall have been
approved and adopted by the affirmative votes of the holders of at least two
thirds of each class of Sunhawk.com's outstanding capital stock.
6.4 OTHER APPROVALS. All authorizations, consents, orders or approvals of
any United Kingdom or United States federal or state governmental agency
necessary for the consummation of the Share Exchange or the transactions
contemplated by this Agreement (other than such actions, approvals or filings
which, pursuant to the terms of this Agreement, are to take place on or after
the Closing) shall have been filed, occurred or been obtained.
6.5 NO LITIGATION. No administrative investigation, action, suit or
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement shall be pending or threatened.
6.6 EVALUATION OF JOINT VENTURE AGREEMENT. Prior to the Closing, CCS and
Sunhawk.com will review and evaluate the agreement described in item 2 of
SCHEDULE 4.13 (the "Joint Venture Agreement") and will reach a mutually
agreeable decision to continue or terminate the Joint Venture Agreement.
6.7 CREATION OF CLASS A COMMON SHARES. Sunhawk.com shall have taken all
action necessary to authorize and issue the Class A Common Shares.
7. CONDITIONS PRECEDENT TO SUNHAWK.COM'S OBLIGATIONS.
The obligations of Sunhawk.com to consummate the transactions contemplated
by this Agreement are subject to satisfaction of the following conditions at or
before the Closing Date and may be waived only in writing by Sunhawk.com:
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7.1 CCS SHAREHOLDERS' COVENANTS, REPRESENTATIONS AND WARRANTIES. All the
covenants, terms and conditions of this Agreement to be complied with or
performed by CCS or the CCS Shareholders on or before the Closing Date shall
have been complied with and performed in all respects. The representations and
warranties made by the Warranting Shareholders in this Agreement shall be
complete and correct at and as of the Closing Date with the same force and
effect as though such representations and warranties had been made at and as of
the Closing Date.
7.2 CCS SHAREHOLDERS' DELIVERY OF DOCUMENTS. The CCS Shareholders shall
have duly executed and delivered, or caused to be executed and delivered, to
Sunhawk.com or at its direction this Agreement and the CCS Shareholders Closing
Documents.
7.3 OTHER APPROVALS. All authorizations, consents, orders or approvals of
any United Kingdom or United States federal or state governmental agency
necessary for the consummation of the Share Exchange or the transactions
contemplated by this Agreement (other than such actions, approvals or filings
which, pursuant to the terms of this Agreement, are to take place on or after
the Closing) shall have been filed, occurred or been obtained.
7.4 SUNHAWK.COM SHAREHOLDER APPROVAL. This Agreement shall have been
approved and adopted by the affirmative votes of the holders of at least two
thirds of each class of Sunhawk.com's outstanding capital stock.
7.5 NO LITIGATION. No administrative investigation, action, suit or
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement shall be pending or threatened.
7.6 EXECUTION OF AGREEMENT. Each CCS Shareholder that owns Series A
Preferred Stock shall have executed this Agreement.
7.7 EVALUATION OF JOINT VENTURE AGREEMENT. Prior to the Closing, CCS and
Sunhawk.com will review and evaluate the Joint Venture Agreement and will reach
a mutually agreeable decision to continue or terminate the Joint Venture
Agreement.
7.8 CUSTOMER CONTRACTS. All the other parties to the contracts listed at
Item 7 on SCHEDULE 4.13 shall have agreed not to exercise their options to
terminate such contracts following the consummation of the Share Exchange.
8. TERMINATION.
8.1 TERMINATION OF AGREEMENT. This Agreement shall terminate as follows:
(a) at any time prior to the Effective Time by the mutual written
agreement of all parties;
(b) by Sunhawk.com in the event the closing price of the Common Stock on
the NASDAQ Small Capitalization Market equals or exceeds $26.00 U.S. per
share at any time prior to the Closing Date;
(c) by CCS on behalf of itself and the CCS Shareholders in the event the
closing price of the Common Stock on the NASDAQ Small Capitalization Market
equals or is less than $6.50 U.S. per share at any time prior to the Closing
Date;
(d) by (i) the CCS Shareholders if the conditions set forth in
Section 6 have not been satisfied or waived by the Upset Date (defined
below); or (ii) Sunhawk.com if the conditions set forth in Section 7 have
not been satisfied or waived by the Upset Date (defined below);
(e) by Sunhawk.com, in the event of a breach of any of the
representations or warranties made by the Warranting Shareholders, or
covenants made by the CCS Shareholders, in this Agreement that has not been
cured within 30 days after notice of such breach as delivered to CCS and the
CCS Shareholders by Sunhawk.com;
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(f) by CCS and the CCS Shareholders in the event of any of the
representations or warranties made by Sunhawk.com in this Agreement that has
not been cured within 30 days after notice of such breach as delivered to
Sunhawk.com by CCS and/or the CCS Shareholders; or
(g) by either the CCS Shareholders or Sunhawk.com if the Closing shall
have not occurred by September 30, 2000 (the "Upset Date") provided,
however, that the right to terminate this Agreement pursuant to this clause
shall not be available to any party whose failure to fulfill any obligation
of this Agreement has been the cause of, or resulted in, the failure of the
closing to have been effected on or prior to such date.
9. MISCELLANEOUS.
9.1 TAX TREATMENT BY THE PARTIES. Unless otherwise required by law, the
parties shall treat the Share Exchange as a reorganization under Section 368 of
the Code and applicable British law for all tax reporting purposes; furthermore,
the parties shall not take, and have not taken, any action that is inconsistent
with reorganization treatment under Section 368 of the Code or applicable
British law.
9.2 NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person or entity other than the parties and their
respective successors and assigns.
9.3 SUCCESSORS AND ASSIGNS. No party may assign either this Agreement or
any of its rights, interests, or obligations under this Agreement without the
prior written consent of all other parties. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties and
their respective permitted successors and assigns.
9.4 NOTICES. All notices, requests, demands, claims, consents and other
communications required or permitted under this Agreement shall be in writing.
Any notice, request, demand, claim, communication or consent under this
Agreement shall be deemed duly given if (and shall be effective two business
days after) it is sent by certified mail, return receipt requested, postage
prepaid, and addressed to the intended recipient as set forth below:
<TABLE>
<S> <C>
If to Sunhawk.com: Sunhawk.com Corporation
223 Taylor Avenue N.
Suite 200
Seattle, WA 98109-5017
With a copy (which shall not The Otto Law Group
constitute notice) to: 999 Third Avenue, Suite 3210
Seattle, WA 98105
Attention: David M. Otto
If to CCS: Copyright Control Services, Inc.
6 Hampton Hill Business Park
219-221 High Street
Hampton Hill, TW12 1NP
Great Britain
With a copy (which shall not Perkins Coie
constitute notice) to: 1201 Third Avenue, Suite 4800
Seattle, WA 98101
Attention: David McShea
Gail P. Runnfeldt
If to the CCS Shareholders: as set forth on SCHEDULE A
</TABLE>
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9.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Washington without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Washington or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Washington.
9.6 AMENDMENTS AND WAIVERS.
9.6.1 Subject to subsection 9.5.2, this Agreement may be amended or
waived only in writing signed by the party against which enforcement of the
amendment or waiver is sought.
9.6.2 For the purposes of this Section 9.5, each of the CCS
Shareholders appoints David Powell and Seth Elliott, or either of them
acting alone, as such CCS Shareholder's attorney for the purpose of
executing amendments of or waivers related to this Agreement on behalf of
such CCS Shareholder, including any consents under Section 9.3.
9.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in Sections 3 and 4 of this Agreement shall survive the
Closing and continue in full force and effect for a period of two years after
the Closing.
9.8 SEVERABILITY. Any term or provision of this Agreement that is found to
be invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of its remaining terms and provisions or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
9.9 HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.10 CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
9.11 INCORPORATION OF SCHEDULES. The Schedules referred to in and/or
attached to this Agreement are incorporated in this Agreement by this reference.
9.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same document. This Agreement may be
executed by facsimile.
9.13 ENTIRE AGREEMENT. This Agreement (including the Schedules referred to
in and/or attached to this Agreement) constitutes the entire agreement among the
parties and supersedes any prior understandings, agreements, or representations
by or among the parties, written or oral (including but not limited to that
certain letter of intent dated April 14, 2000, amended by Amendment #1 dated
June 13, 2000) to the extent they relate in any way to the subject matter of
this Agreement.
9.14 ARBITRATION. Any controversies or claims arising out of or relating
to this Agreement shall be fully and finally settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "AAA Rules"), conducted by a single arbitrator either mutually
agreed upon by Sunhawk.com and the CCS Shareholders disputing the Breach Notice
or chosen in accordance with the AAA Rules, except that the parties shall have
any right to discovery as would be permitted by the Federal Rules of Civil
Procedure for a period of 90 days following the commencement of such
arbitration, and the arbitrator shall resolve any dispute which arises in
connection with such discovery. The prevailing party or parties shall be
entitled to costs, expenses and attorneys' fees from the
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non-prevailing party or parties, and judgment upon the award rendered by the
arbitrator may be entered in any court of competent jurisdiction.
<TABLE>
<S> <C>
CCS:
COPYRIGHT CONTROL SERVICES, INC.
By: /s/ DAVID POWELL
--------------------------------------------
Name: David Powell
Title: CEO
CCS SHAREHOLDERS:
/s/ DAVID POWELL
---------------------------------------------
David Powell
/s/ JULIAN SEARLE
---------------------------------------------
Julian Searle
/s/ PHILLIP J. BLOOM
---------------------------------------------
Phillip J. Bloom
ACTIVE RIGHTS MANAGEMENT
By: /s/ [ILLEGIBLE]
-----------------------------------------
Its: [Illegible]
-----------------------------------------
/s/ IGOR SAULSKY
---------------------------------------------
Igor Saulsky
TWB INVESTMENT PARTNERSHIP
By: /s/ ROBERT E. GILES
-----------------------------------------
Its: General Partner
-----------------------------------------
</TABLE>
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<TABLE>
<S> <C>
@VISORY LLC
By: /s/ [ILLEGIBLE]
-----------------------------------------
Its: Manager
-----------------------------------------
COPYRIGHT VENTURES, LLC
Except for Section 9.6.2: By GRG, LLC, its Manager
By: /s/ [ILLEGIBLE]
-----------------------------------------
Its: Attorney-In-Fact
-----------------------------------------
SRS VENTURES LLC
By: /s/ [ILLEGIBLE]
-----------------------------------------
Its: S. Shaer, Member Manager
-----------------------------------------
INTERACTIVE HOLDINGS, LLC
By: /s/ [ILLEGIBLE]
-----------------------------------------
Its: Steven J. [Illegible], Member Manager
-----------------------------------------
CHELSEA VENTURES LLC
By: /s/ [ILLEGIBLE]
-----------------------------------------
Its: Managing Partner
-----------------------------------------
/s/ MAURICE POWELL
---------------------------------------------
MAURICE POWELL
SUNHAWK.COM:
SUNHAWK.COM CORPORATION
By: /s/ MARLIN J. ELLER
-----------------------------------------
Name: Marlin Eller
Title: CEO
</TABLE>
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SHARE EXCHANGE AGREEMENT
SCHEDULES
SCHEDULE A
<TABLE>
<CAPTION>
NAME AND ADDRESS OF CCS SHAREHOLDER NUMBER OF CCS SHARES OWNED
----------------------------------- ---------------------------
SERIES A
COMMON PREFERRED
--------- ---------
<S> <C> <C>
David Powell................................................ 5,857,358
45 Old Church Lane
Stanmore, Middlesex
UK HA7 2RG
Phillip J. Bloom............................................ 346,949
13 Links Road
Epsom
Surrey
UK KT17 3PP
Julian Searle............................................... 399,365
3 Swaledale Gardens
Ancells Farm
Fleet
Hampshire
UK GU13 8TE
Active Rights Management.................................... 798,731
396-398, City Rd
London
UK EC1V 2QA
Igor Saulsky................................................ 491,404
82 Sutton Road
Califon N.J. 07830
USA
TWB Investments............................................. 211,909
1201 Third Avenue, 40th Floor
Seattle, WA 98101
USA
SRS Ventures LLC............................................ 10,650 50,063
244 Madison Avenue, Suite 264
New York, NY 10016
USA
@Visory, LLC................................................ 500,000
1150 Underhill Road
East Aurora, NY 14052
USA
</TABLE>
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<TABLE>
<CAPTION>
NAME AND ADDRESS OF CCS SHAREHOLDER NUMBER OF CCS SHARES OWNED
----------------------------------- ---------------------------
SERIES A
COMMON PREFERRED
--------- ---------
<S> <C> <C>
Copyright Ventures, LLC..................................... 1,112,500
C/O Gordon Gross
Gross Shuman Brizdle & Gilfillian PC
465 Main Street, Suite 600
Buffalo, NY 14203-1787
USA
Interactive Holdings, LLC................................... 52,689
C/O Steve Shaer
390 5th Avenue 2nd Floor
New York, NY 10018
USA
Chelsea Ventures LLC........................................ 25,167
C/O Richard Bascetta
132 Crosby Street
New York, NY 10012
Maurice Powell.............................................. 12,465
45 Old Church Lane
Stanmore, Middlesex
UK HA7 2RG
--------- ---------
Total....................................................... 8,616,366 1,252,884
</TABLE>
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SCHEDULE 1.3.1
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CONTINGENT SHARE ESCROW AGREEMENT
This Contingent Share Escrow Agreement (this "Agreement") is entered into as
of , 2000 by and among Sunhawk.com Corporation, a Washington
corporation ("Sunhawk.com"), and certain former shareholders of Copyright
Control Services, Inc., a Delaware corporation ("CCS") whose names are set forth
on SCHEDULE A attached to this Agreement (together, the "Sellers" and
individually, a "Seller").
RECITALS
A. Sunhawk.com, CCS, the Sellers and @Visory LLC ("@Visory") are parties to
a Share Exchange Agreement dated August 1, 2000, (the "Share Exchange
Agreement") pursuant to which Sunhawk.com will acquire CCS through a share
exchange with the Sellers and @Visory (the "Share Exchange") in which shares of
Sunhawk.com's common stock (the "Sunhawk.com Shares") will be issued to the
Sellers and @Visory in exchange for all of the issued and outstanding capital
stock of CCS as set forth in the Share Exchange Agreement.
B. To induce Sunhawk.com to effect the Share Exchange, the Sellers and
@Visory have agreed that certain of the Sunhawk.com Shares will be pledged to
and held by Sunhawk.com in escrow pending the satisfaction or waiver of certain
contingencies, as set forth in (i) this Agreement, and (ii) a Contingent Share
Escrow Agreement entered into of even date with this Agreement between
Sunhawk.com and @Visory.
AGREEMENT
In consideration of the foregoing premises and the mutual and dependent
promises set forth in this Agreement, the parties agree as follows:
1. ESCROW
The Escrowed Shares to be issued to the Sellers, I.E., 750,000 Class A
Common Shares (together with any stock dividends accrued or made thereon, and
any other securities or property which may be issued in exchange for such shares
in any merger, reorganization, share exchange, sale of all or substantially all
assets or stock, or similar transaction, the "Shares") are hereby pledged by the
Sellers to, and shall be held by, Sunhawk.com in escrow pursuant to this
Agreement. The Sellers shall deliver to Sunhawk.com at the time this Agreement
is executed and delivered appropriate stock powers endorsed in blank and such
other documentation as Sunhawk.com may prescribe to carry out the purposes of
this Agreement.
2. RELEASE OF SHARES
Sunhawk.com shall hold the Shares in accordance with this Agreement and
shall transfer the Shares only as set forth in this Section 2:
2.1 Certain terms are defined in the text of this Agreement and/or the
Share Exchange Agreement. In addition, the following terms used in this
Agreement shall have the meanings set forth below:
(a) "DEADLINE DATE" shall mean any of the following:
(i) "FIRST DEADLINE DATE" shall mean [12 months after date of
Agreement] , 2001.
(ii) "SECOND DEADLINE DATE" shall mean [18 months after date of
Agreement] , 2002.
(iii) "THIRD DEADLINE DATE" shall mean [24 months after date of
Agreement] , 2002.
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(b) "MARKET CAPITALIZATION" shall mean (i) the average daily sale
price for one share of Sunhawk.com's common stock ("Common Stock") during
the applicable Measurement Period, multiplied by (ii) the average number
of shares (including the Shares only once they have been released
pursuant to Section 2) of Common Stock issued and outstanding during the
applicable Measurement Period.
(c) "MEASUREMENT PERIOD" shall mean any consecutive 30 business day
period preceding a Deadline Date.
(d) "PERCENTAGE INTEREST" shall mean the percentage for each Seller
set forth on SCHEDULE A.
2.2 If Sunhawk.com's Market Capitalization is at least One Hundred
Million U.S. Dollars ($100,000,000) at any time prior to the First Deadline
Date (the "First Threshold"), 250,000 of the Shares (the "First Tranche
Shares") shall be released to the Sellers, pro rata in accordance with their
respective Percentage Interests, immediately after the date the First
Threshold is met. If Sunhawk.com's Market Capitalization does not meet the
First Threshold prior to the First Deadline Date, the First Tranche Shares
shall be released from this Agreement, cancelled and returned to Sunhawk.com
as authorized and unissued Common Stock immediately after the First Deadline
Date.
2.3 If Sunhawk.com's Market Capitalization is at least One Hundred
Twenty-Five Million U.S. Dollars ($125,000,000) at any time prior to the
Second Deadline Date (the "Second Threshold"), 250,000 of the Shares (the
"Second Tranche Shares") shall be released to the Sellers, pro rata in
accordance with their respective Percentage Interests, immediately after the
date the Second Threshold is met. If Sunhawk.com's Market Capitalization
does not meet the Second Threshold prior to the Second Deadline Date, the
Second Tranche Shares shall be released from this Agreement, cancelled and
returned to Sunhawk.com as authorized and unissued Common Stock immediately
after the Second Deadline Date.
2.4 If Sunhawk.com's Market Capitalization is at least One Hundred Fifty
Million U.S. Dollars ($150,000,000) at any time prior to the Third Deadline
Date (the "Third Threshold"), all remaining Shares (the "Remaining Shares")
shall be released to the Sellers, pro rata in accordance with their
respective Percentage Interests, immediately after the date the Third
Threshold is met. If Sunhawk.com's Market Capitalization does not meet the
Third Threshold prior to the Third Deadline Date, the Remaining Shares shall
be released from this Agreement, cancelled and returned to Sunhawk.com as
authorized and unissued Common Stock immediately after the Third Deadline
Date.
3. VOTING
The Shares shall be held of record by the Sellers, who shall have full right
to vote the Shares on all matters coming before the shareholders of Sunhawk.com
as if the Shares were not subject to this Agreement.
4. NOTICES
All notices, requests, demands, claims, consents and other communications
required or permitted under this Agreement shall be in writing. Any notice,
request, demand, claim, communication or consent under this Agreement shall be
deemed duly given if (and shall be effective two business days after) it is sent
by certified mail, return receipt requested, postage prepaid, and addressed to
the intended recipient as set forth below:
<TABLE>
<S> <C>
If to Sunhawk.com: Sunhawk.com Corporation
223 Taylor Avenue N.
Suite 200
Seattle, WA 98109-5017
</TABLE>
92
<PAGE>
<TABLE>
<S> <C>
With a copy (which shall The Otto Law Group
not constitute notice) to: 999 Third Avenue, Suite 3210
Seattle, WA 98105
Attention: David M. Otto
If to the Sellers: as set forth on SCHEDULE A
</TABLE>
5. ENTIRE AGREEMENT; HEADINGS
This Agreement, together with the Share Exchange Agreement, contains the
entire understanding and agreement of the parties with respect to the
transactions contemplated by this Agreement and supersedes and may not be
supplemented or varied by any prior oral or written understandings or
agreements. The headings in this Agreement are inserted for convenience of
reference only and shall not be a part of or control or affect the meaning of
this Agreement.
6. ASSIGNS AND ASSIGNMENT
This Agreement shall extend to, inure to the benefit of and be binding upon
all of the parties and their respective permitted successors and assigns;
provided, however, that this Agreement may not be assigned or transferred, in
whole or in part, by Sunhawk.com except with the prior written consents of all
of the Sellers.
7. DIVIDEND INCOME
Each Seller hereby acknowledges that, for federal and state income tax
purposes, any cash dividends earned or other distributions made with respect to
the Shares during the term of this Agreement shall be income of and attributed
to the Sellers and paid to the Sellers as earned, regardless of the ultimate
disposition of the Shares to which they are attributable.
8. AMENDMENT AND WAIVER
This Agreement may be amended, modified, supplemented or altered only by a
writing duly executed by Sunhawk.com and, on behalf of all the Sellers, by
Sellers holding a majority in interest of the Shares (a "Majority"). No failure
or delay by a party in exercising any right, power or privilege under this
Agreement shall operate as a waiver, and no single or partial exercise shall
preclude any right of further exercise or the exercise of any other right, power
or privilege. No waiver of any right, power or privilege under this Agreement
shall be effective unless set forth in writing, executed by the party against
whom the waiver is sought to be enforced.
9. SEVERABILITY
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated by this Agreement is not affected in any manner adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
transactions contemplated by this Agreement be consummated as originally
contemplated to the fullest extent possible.
93
<PAGE>
10. GOVERNING LAW
This Agreement shall be governed by and construed and enforced in accordance
with the laws of the State of Washington, as applied to contracts executed and
to be fully performed in Washington.
11. COUNTERPARTS
This Agreement may be executed by the parties individually or in any
combination, in one or more counterparts, each of which shall be an original and
all of which shall together constitute one and the same agreement.
12. ARBITRATION
Any controversies or claims arising out of or relating to this Agreement
shall be fully and finally settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the "AAA
Rules"), conducted by a single arbitrator either mutually agreed upon by
Sunhawk.com and Sellers holding a Majority or chosen in accordance with the AAA
Rules, except that the parties shall have any right to discovery as would be
permitted by the Federal Rules of Civil Procedure for a period of 90 days
following the commencement of such arbitration, and the arbitrator shall resolve
any dispute which arises in connection with such discovery. The prevailing party
or parties shall be entitled to costs, expenses and attorneys' fees from the
non-prevailing party or parties, and judgment upon the award rendered by the
arbitrator may be entered in any court of competent jurisdiction.
13. NO RIGHT TO OFFSET.
Sunhawk.com shall have no right to offset and claim any of the Escrowed
Shares to satisfy claims made by Sunhawk.com for breach of any of the
representations, warranties or covenants under the Share Exchange Agreement or
any other agreements entered into in connection with the Share Exchange.
[signature pages follow]
94
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
<TABLE>
<S> <C> <C>
SELLERS:
---------------------------------------------
DAVID POWELL
---------------------------------------------
JULIAN SEARLE
---------------------------------------------
PHILLIP J. BLOOM
ACTIVE RIGHTS MANAGEMENT
BY:
-----------------------------------------
ITS:
-----------------------------------------
---------------------------------------------
IGOR SAULSKY
TWB INVESTMENTS
BY:
-----------------------------------------
ITS:
-----------------------------------------
COPYRIGHT VENTURES, LLC
BY:
-----------------------------------------
ITS:
-----------------------------------------
</TABLE>
95
<PAGE>
<TABLE>
<S> <C> <C>
SUNHAWK.COM:
SUNHAWK.COM CORPORATION
BY:
-----------------------------------------
ITS:
-----------------------------------------
SRS VENTURES LLC
BY:
-----------------------------------------
ITS:
-----------------------------------------
INTERACTIVE HOLDINGS, LLC
BY:
-----------------------------------------
ITS:
-----------------------------------------
CHELSEA VENTURES LLC
BY:
-----------------------------------------
ITS:
-----------------------------------------
---------------------------------------------
MAURICE POWELL
---------------------------------------------
[OPTIONHOLDERS AND WARRANT HOLDERS WHO ACQUIRE
SUNHAWK.COM SHARES AT CLOSING]
</TABLE>
96
<PAGE>
SCHEDULE A
SELLERS
<TABLE>
<CAPTION>
SELLER NAME, ADDRESS AND
TAXPAYER I.D. NO. PERCENTAGE INTEREST
-------------------------------------------------------- ------------------------------------------
<S> <C>
David Powell............................................ %
45 Old Church Lane
Stanmore, Middlesex
U.K. HA7 2RG
Tax I.D. #: N/A
Julian Searle........................................... %
3 Swaledale Gardens
Ancells Farm Fleet
Hampshire, U.K. GU13 8TE
Tax I.D. #: N/A
Phillip J. Bloom........................................ %
13 Links Road, Epsom
Surrey, U.K. KT17 3PP
Tax I.D. #: N/A
Active Rights Management................................ %
396-398, City Road
London, U.K. EC1V 2QA
Tax I.D. #: N/A
Igor Saulsky............................................ %
82 Sutton Road
Califon, NJ 07830
Tax I.D. #: N/A
TWB Investments......................................... %
1201 Third Avenue, Suite 4800
Seattle, WA 98101-3099
Tax I.D. #:
SRS Ventures, LLC....................................... %
244 Madison Ave., Suite 264
New York, NY 10016
Tax I.D. #: N/A
Copyright Ventures, LLC................................. %
c/o Gordon Gross
Gross Shuman Brizdle & Gilfillian PC
465 Main Street, Suite 600
Buffalo, NY 14203-1787
Tax I.D. #: N/A
Interactive Holdings, LLC............................... %
c/o Steve Shaer
300 Fifth Avenue, Second Floor
New York, NY 10018
Tax I.D. #: N/A
</TABLE>
97
<PAGE>
<TABLE>
<CAPTION>
SELLER NAME, ADDRESS AND
TAXPAYER I.D. NO. PERCENTAGE INTEREST
-------------------------------------------------------- ------------------------------------------
<S> <C>
Chelsea Ventures LLC.................................... %
c/o Richard Bascetta
132 Crasby Street
New York, NY 10012
Tax I.D. #: N/A
Maurice Powell.......................................... %
45 Old Church Lane
Stanmore, Middlesex
U.K. HA7 2RG
Tax I.D. #: N/A
[Option and Warrant Holders]
</TABLE>
98
<PAGE>
SCHEDULE 1.3.2
99
<PAGE>
CONTINGENT SHARE ESCROW AGREEMENT
This Contingent Share Escrow Agreement (this "Agreement") is entered into as
of , 2000 by and between Sunhawk.com Corporation, a Washington
corporation ("Sunhawk.com"), and @Visory, LLC ("@Visory"), a former shareholder
of Copyright Control Services, Inc., a Delaware corporation ("CCS").
RECITALS
A. Sunhawk.com, CCS, @Visory and certain other persons and entities (the
"Sellers") are parties to a Share Exchange Agreement dated August 1, 2000, (the
"Share Exchange Agreement") pursuant to which Sunhawk.com will acquire CCS
through a share exchange with @Visory and the Sellers (the "Share Exchange") in
which shares of Sunhawk.com's common stock (the "Sunhawk.com Shares") will be
issued to @Visory and the Sellers in exchange for all of the issued and
outstanding capital stock of CCS as set forth in the Share Exchange Agreement.
B. To induce Sunhawk.com to effect the Share Exchange, @Visory and the
Sellers have agreed that certain of the Sunhawk.com Shares will be pledged to
and held by Sunhawk.com in escrow pending the satisfaction or waiver of certain
contingencies, as set forth in (i) this Agreement, and (ii) a Contingent Share
Escrow Agreement entered into of even date with this Agreement between
Sunhawk.com and the Sellers.
AGREEMENT
In consideration of the foregoing premises and the mutual and dependent
promises set forth in this Agreement, the parties agree as follows:
1. ESCROW
The Escrowed Shares to be issued to @Visory, I.E., 375,938 Class A Common
Shares (together with any stock dividends accrued or made thereon, and any other
securities or property which may be issued in exchange for such shares in any
merger, reorganization, share exchange, sale of all or substantially all assets
or stock, or similar transaction, the "Shares") are hereby pledged by @Visory
to, and shall be held by, Sunhawk.com in escrow pursuant to this Agreement.
@Visory shall deliver to Sunhawk.com at the time this Agreement is executed and
delivered appropriate stock powers endorsed in blank and such other
documentation as Sunhawk.com may prescribe to carry out the purposes of this
Agreement.
2. RELEASE OF SHARES
Sunhawk.com shall hold the Shares in accordance with this Agreement and
shall transfer the Shares only as set forth in this Section 2:
2.1 Certain terms are defined in the text of this Agreement and/or the
Share Exchange Agreement. In addition, the following terms used in this
Agreement shall have the meanings set forth below:
(a) "DEADLINE DATE" shall mean any of the following:
(i) "FIRST DEADLINE DATE" shall mean [12 months after date of
Agreement] , 2001.
(ii) "SECOND DEADLINE DATE" shall mean [18 months after date of
Agreement] , 2002.
100
<PAGE>
(iii) "THIRD DEADLINE DATE" shall mean [24 months after date of
Agreement] , 2002.
(b) "MARKET CAPITALIZATION" shall mean (i) the average daily sale
price for one share of Sunhawk.com's common stock ("Common Stock") during
the applicable Measurement Period, multiplied by (ii) the average number
of shares (including the Shares only once they have been released
pursuant to Section 2) of Common Stock issued and outstanding during the
applicable Measurement Period.
(c) "MEASUREMENT PERIOD" shall mean any consecutive 30 business day
period preceding a Deadline Date.
2.2 If Sunhawk.com's Market Capitalization is at least One Hundred
Million U.S. Dollars ($100,000,000) at any time prior to the First Deadline
Date (the "First Threshold"), 124,060 of the Shares (the "First Tranche
Shares") shall be released to @Visory immediately after the date the First
Threshold is met. If Sunhawk.com's Market Capitalization does not meet the
First Threshold prior to the First Deadline Date, the First Tranche Shares
shall be released from this Agreement, cancelled and returned to Sunhawk.com
as authorized and unissued Common Stock immediately after the First Deadline
Date.
2.3 If Sunhawk.com's Market Capitalization is at least One Hundred
Twenty-Five Million U.S. Dollars ($125,000,000) at any time prior to the
Second Deadline Date (the "Second Threshold"), 124,059 of the Shares (the
"Second Tranche Shares") shall be released to @Visory immediately after the
date the Second Threshold is met. If Sunhawk.com's Market Capitalization
does not meet the Second Threshold prior to the Second Deadline Date, the
Second Tranche Shares shall be released from this Agreement, cancelled and
returned to Sunhawk.com as authorized and unissued Common Stock immediately
after the Second Deadline Date.
2.4 If Sunhawk.com's Market Capitalization is at least One Hundred Fifty
Million U.S. Dollars ($150,000,000) at any time prior to the Third Deadline
Date (the "Third Threshold"), all remaining Shares (the "Remaining Shares")
shall be released to @Visory immediately after the date the Third Threshold
is met. If Sunhawk.com's Market Capitalization does not meet the Third
Threshold prior to the Third Deadline Date, the Remaining Shares shall be
released from this Agreement, cancelled and returned to Sunhawk.com as
authorized and unissued Common Stock immediately after the Third Deadline
Date.
3. VOTING
The Shares shall be held of record by @Visory, which shall have full right
to vote the Shares on all matters coming before the shareholders of Sunhawk.com
as if the Shares were not subject to this Agreement.
4. NOTICES
All notices, requests, demands, claims, consents and other communications
required or permitted under this Agreement shall be in writing. Any notice,
request, demand, claim, communication or consent under this Agreement shall be
deemed duly given if (and shall be effective two business days after) it is sent
by certified mail, return receipt requested, postage prepaid, and addressed to
the intended recipient as set forth below:
<TABLE>
<S> <C>
If to Sunhawk.com: Sunhawk.com Corporation
223 Taylor Avenue N.
Suite 200
Seattle, WA 98109-5017
</TABLE>
101
<PAGE>
<TABLE>
<S> <C>
With a copy (which shall not The Otto Law Group
constitute notice) to: 999 Third Avenue, Suite 3210
Seattle, WA 98105
Attention: David M. Otto
If to @Visory: 1150 Underhill Road
East Aurora, NY 14052
</TABLE>
5. ENTIRE AGREEMENT; HEADINGS
This Agreement, together with the Share Exchange Agreement, contains the
entire understanding and agreement of the parties with respect to the
transactions contemplated by this Agreement and supersedes and may not be
supplemented or varied by any prior oral or written understandings or
agreements. The headings in this Agreement are inserted for convenience of
reference only and shall not be a part of or control or affect the meaning of
this Agreement.
6. ASSIGNS AND ASSIGNMENT
This Agreement shall extend to, inure to the benefit of and be binding upon
all of the parties and their respective permitted successors and assigns;
PROVIDED, HOWEVER, that this Agreement may not be assigned or transferred, in
whole or in part, by Sunhawk.com except with the prior written consent of
@Visory.
7. DIVIDEND INCOME
@Visory hereby acknowledges that, for federal and state income tax purposes,
any cash dividends earned or other distributions made with respect to the Shares
during the term of this Agreement shall be income of and attributed to @Visory
and paid to @Visory as earned, regardless of the ultimate disposition of the
Shares to which they are attributable.
8. AMENDMENT AND WAIVER
This Agreement may be amended, modified, supplemented or altered only by a
writing duly executed by Sunhawk.com and @Visory. No failure or delay by a party
in exercising any right, power or privilege under this Agreement shall operate
as a waiver, and no single or partial exercise shall preclude any right of
further exercise or the exercise of any other right, power or privilege. No
waiver of any right, power or privilege under this Agreement shall be effective
unless set forth in writing, executed by the party against whom the waiver is
sought to be enforced.
9. SEVERABILITY
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated by this Agreement is not affected in any manner adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
transactions contemplated by this Agreement be consummated as originally
contemplated to the fullest extent possible.
10. GOVERNING LAW
This Agreement shall be governed by and construed and enforced in accordance
with the laws of the State of Washington, as applied to contracts executed and
to be fully performed in Washington.
102
<PAGE>
11. COUNTERPARTS
This Agreement may be executed by the parties individually or in any
combination, in one or more counterparts, each of which shall be an original and
all of which shall together constitute one and the same agreement.
12. ARBITRATION
Any controversies or claims arising out of or relating to this Agreement
shall be fully and finally settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the "AAA
Rules"), conducted by a single arbitrator either mutually agreed upon by
Sunhawk.com and @Visory or chosen in accordance with the AAA Rules, except that
the parties shall have any right to discovery as would be permitted by the
Federal Rules of Civil Procedure for a period of 90 days following the
commencement of such arbitration, and the arbitrator shall resolve any dispute
which arises in connection with such discovery. The prevailing party or parties
shall be entitled to costs, expenses and attorneys' fees from the non-prevailing
party or parties, and judgment upon the award rendered by the arbitrator may be
entered in any court of competent jurisdiction.
13. NO RIGHT TO OFFSET.
Sunhawk.com shall have no right to offset and claim any of the Escrowed
Shares to satisfy claims made by Sunhawk.com for breach of any of the
representations, warranties or covenants under the Share Exchange Agreement or
any other agreements entered into in connection with the Share Exchange.
[signature pages follow]
103
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
<TABLE>
<S> <C> <C>
@VISORY LLC
By:
------------------------------------------
Its:
------------------------------------------
SUNHAWK.COM:
SUNHAWK.COM CORPORATION
By:
------------------------------------------
Its:
------------------------------------------
</TABLE>
104
<PAGE>
SCHEDULE 1.5--HOLDBACK
105
<PAGE>
COPYRIGHT CONTROL SERVICES
UNPAID BILLS DETAIL UKL STERLING
AS OF AUGUST 1, 2000
<TABLE>
<CAPTION>
TYPE DATE NUM DUE DATE AGEING OPEN BALANCE
----------------------------------------- ---------- -------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
B.T. BUSINESS DIVISION
Bill 20/10/1999 20/10/1999 286 0.80
--------
Total B.T. Business Division 0.80
BT MULTIMEDIA
Bill 19/07/2000 19/07/2000 13 1,614.97
--------
Total BT Multimedia 1,614.97
CAROLYN GATE (EXPENSES)
Bill 31/07/2000 20/08/2000 45.50
--------
Total Carolyn Gate (Expenses) 45.50
DAEDALUS EXPENSES PLACEHOLDER
Bill 03/07/2000 20/08/2000 2,000.00
--------
Total Daedalus Expenses Placeholder 2,000.00
DAVID POWELL (EXPENSES)
Credit 12/07/2000 (28.25)
Bill 03/07/2000 02/08/2000 93.79
Bill 22/07/2000 21/08/2000 13.80
--------
Total David Fowell (Expenses) 79.34
FEDEX
Bill 21/07/2000 05/08/2000 71.40
--------
Total FedEx 71.40
JEFF BLOOM (EXPENSES)
General Journal 01/07/2000 Adjus... 100.00
Bill 11/11/1999 11/11/1999 264 1.60
Bill 28/01/2000 28/01/2000 186 16.60
Bill 28/01/2000 28/01/2000 186 17.50
Bill 28/02/2000 28/02/2000 155 146.20
Bill 01/05/2000 01/05/2000 92 17.35
Bill 01/05/2000 01/05/2000 92 4.12
Bill 26/05/2000 26/05/2000 67 17.35
--------
Total Jeff Bloom (Expenses) 320.72
JULIAN SEARLE (EXPENSES)
Bill 18/10/1999 18/10/1999 288 2.11
Bill 29/11/1999 29/11/1999 246 4.50
Bill 20/04/2000 20/04/2000 103 76.47
Bill 01/05/2000 01/05/2000 92 10.70
--------
Total Julian Searle (Expenses) 93.78
KANE RUSSELL COLEMAN
Bill 14/04/2000 04/05/2000 89 608.41
Bill 17/05/2000 1983 06/06/2000 58 441.74
Bill 13/06/2000 1983 03/07/2000 29 1,070.92
Bill 18/07/2000 07/08/2000 76.55
--------
Total Kane Russell Coleman 2,197.62
</TABLE>
106
<PAGE>
COPYRIGHT CONTROL SERVICES
UNPAID BILLS DETAIL UKL STERLING (CONTINUED)
AS OF AUGUST 1, 2000
<TABLE>
<CAPTION>
TYPE DATE NUM DUE DATE AGEING OPEN BALANCE
----------------------------------------- ---------- -------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
LONDON BOROUGH OF RICHMOND UPON THAMES
Bill 18/07/2000 07/08/2000 525.00
--------
Total London Borough of Richmond upon
Thames 525.00
MISC. UK VENDORS
Bill Prm-Cheque 30/10/1998 100039 (0.20)
Bill 28/03/2000 8095 17/04/2000 106 59.00
Bill 15/07/2000 04/08/2000 140.00
--------
Total Misc. UK Vendors 198.80
PERKINS COIE LLP
Bill 07/07/2000 06/08/2000 248.63
--------
Total Perkins Coie LLP 248.63
STERLING
Bill 04/07/2000 67598 03/08/2000 45.83
Bill 18/07/2000 67897 17/08/2000 191.89
--------
Total Sterling 237.72
VIKING DIRECT LIMITED
Bill 29/06/2000 391101 29/07/2000 3 52.80
Bill 26/07/2000 484089 25/08/2000 45.18
Bill 28/07/2000 495504 27/08/2000 49.28
--------
Total Viking Direct Limited 147.26
--------
TOTAL 7,781.54
========
</TABLE>
107
<PAGE>
SCHEDULE 2.2.4
108
<PAGE>
SUNHAWK.COM CORPORATION
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is entered into as of
, 2000, by and among Sunhawk.com Corporation, a Washington corporation
(the "COMPANY"), and the parties listed on SCHEDULE A hereto (the "CCS
SHAREHOLDERS").
RECITAL
The Company and the CCS Shareholders are entering into a Share Exchange
Agreement of even date herewith (the "Share Exchange Agreement"). The execution
of this Agreement by the parties is a condition to the obligation of each CCS
Shareholder Pursuant to the Share Exchange Agreement.
AGREEMENT
1. DEFINITIONS
For purposes of this Agreement, the following terms have the following
meanings:
(a) "HOLDER" means any person owning or having the right to acquire
Registrable Securities who is a party to this Agreement as of the date
hereof or who may be added as a party pursuant to the terms of this
Agreement, and any assignee thereof;
(b) "REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement or similar
document in compliance with the Securities Act of 1933, as amended (the
"ACT"), and the declaration or order of effectiveness of such registration
statement or document;
(c) "REGISTRABLE SECURITIES" means (i) the Common Stock of the Company
issuable or issued pursuant to the Share Exchange Agreement and (ii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of such Common Stock, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which its rights
under this Agreement are not assigned; and
(d) "REGISTRABLE SECURITIES THEN OUTSTANDING" means the number of shares
of Common Stock outstanding which are, and the number of shares of Common
Stock issuable pursuant to then exercisable or convertible securities which
are, Registrable Securities.
(e) "SEC" means the Securities and Exchange Commission.
2. COMPANY REGISTRATION
If the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Holders)
any of its stock or other securities under the Act in connection with the public
offering of such securities solely for cash (other than a registration relating
solely to the sale of securities to participants in a Company stock plan, or a
registration on any form that does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of Registrable Securities), the Company shall, at each such
time, promptly give each Holder written notice of such registration. Upon the
written request of each such Holder given within 20 days after receipt of such
notice by the Company, the Company shall use commercially reasonable efforts to
cause to be registered under the Act all of the Registrable Securities that each
such Holder has requested to be registered. In the event that the Company
decides for any reason not to complete the registration of shares of Common
Stock other than Registrable Securities, the Company shall have no obligation
under this Section to continue with the registration of Registrable Securities.
Any request pursuant to this Section 2 to register Registrable Securities as
part of an underwritten public offering of
109
<PAGE>
Common Stock shall specify that such Registrable Securities are to be included
in the underwriting on the same terms and conditions as the shares of Common
Stock otherwise being sold through underwriters under such registration.
3. OBLIGATIONS OF THE COMPANY
Whenever required under this Agreement to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the SEC a registration statement with respect
to such Registrable Securities and use its commercially reasonable efforts
to cause such registration statement to become effective and keep such
registration statement effective for up to 90 days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
the Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Act, and
such other documents as they may reasonably request to facilitate the
disposition of all securities covered by such registration statement.
(d) Use commercially reasonable efforts to register and qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required to
qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such registration shall also enter into and perform
its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement, during the time when a prospectus is required to be
delivered under the Act, of the happening of any event as a result of which
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) At the request of any Holder selling Registrable Securities in such
registration, furnish on the date that such Registrable Securities are
delivered to the underwriters for sale in connection such registration
(i) an opinion, dated such date, of legal counsel representing the Company
for the purposes of such registration, in form and substance as is
customarily given by Company counsel to underwriters in an underwritten
public offering, addressed to the underwriters and (ii) a letter, dated such
date, from the independent certified public accountants of the Company, in
form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to
the underwriters.
(h) List the Registrable Securities being registered on any national
securities exchange on which a class of the Company's equity securities is
listed or qualify the Registrable Securities being registered for inclusion
on Nasdaq if the Company does not have a class of equity securities listed
on a national securities exchange.
(i) Provide a transfer agent and registrar for the securities being
registered and a CUSIP number, not later than the effective date of the
registration statement.
110
<PAGE>
4. FURNISH INFORMATION
It shall be a condition precedent to the obligations of the Company to take
any action pursuant to this Agreement that the selling Holders shall furnish to
the Company such information regarding themselves, the Registrable Securities
held by them and the intended method of disposition of such securities as shall
be reasonably required to effect the registration of their Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request.
5. EXPENSES OF REGISTRATION
In connection with any registration pursuant to this Agreement, the Company
shall be responsible for the payment of all reasonable expenses of the
registration, with the exception of (a) underwriting discounts and commissions,
which shall be paid by the Company, the Holders and any other selling holders of
the Company's securities in proportion to the aggregate value of the securities
offered for sale by each of them, and (b) the fees and expenses of more than one
law firm acting as counsel to the selling Holders selected by a majority in
interest of the selling Holders, which additional counsel, if any, shall be paid
by the Holder or Holders that engage such counsel. The expenses to be paid by
the Company shall include, without limitation, all registration, filing and
qualification fees, printing and accounting fees, the fees and disbursements of
counsel for the Company and the fees and disbursements of one counsel for the
selling Holders.
6. INDEMNIFICATION
In the event any Registrable Securities are included in a registration
statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Act or the Securities Exchange Act of 1934, as
amended (the "1934 ACT"), against any actual expenses (including legal fees
and costs), losses, claims, damages (including settlement amounts) or
liabilities (joint or several) (collectively, "LOSSES") to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such Losses arise out of or are based upon any of the following
statements, omissions or violations (collectively, a "VIOLATION"): (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein, or any amendments or supplements thereto,
untrue in light of the circumstances under which they were made, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or (iii) any
violation or alleged violation by the Company of the Act, the 1934 Act, any
state securities law or any rule or regulation promulgated under the Act,
the 1934 Act or any state securities law. the Company will reimburse (as
incurred) each such Holder, underwriter or controlling person for any Losses
reasonably incurred by them in connection with investigating or defending
any Violations; provided, however, that the indemnity agreement contained in
this Section 6(a) shall not apply to amounts paid in settlement of any
claims for Violations if such settlement is made without the consent of the
Company, which consent shall not be unreasonably withheld, nor shall the
Company be liable in any such case for any Losses that arise out of or are
based upon a Violation that occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by, or on behalf of, any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company and its officers, directors, agents and
employees, each underwriter and each other Holder selling securities in such
registration statement, and any person who controls any of the foregoing
within the meaning of the Act or the 1934 Act, against any Losses to which
the Company or such
111
<PAGE>
officer, director, agent, employee, or underwriter or other selling Holder
or controlling person may become subject under the Act, the 1934 Act or
other federal or state law, insofar as such Losses arise out of or are based
upon any Violation that occurs in reliance upon and in conformity with
written information furnished by, or on behalf of, such Holder expressly for
use in connection with such registration; and each such Holder will
reimburse (as incurred) any Losses reasonably incurred by the Company or its
officers, directors, agents, employees, or underwriters or other selling
Holders or controlling persons in connection with investigating or defending
any Violations; provided, however, that (i) the indemnity agreement
contained in this Section 6(b) shall not apply to amounts paid in settlement
of any claims for Violations if such settlement is made without the consent
of the Holder, which consent shall not be unreasonably withheld and
(ii) the obligations of such Holders shall be limited to an amount equal to
the net proceeds to each such Holder of Registrable Securities sold as
contemplated herein.
(c) Promptly after receipt of notice of the commencement of any action
(including any governmental action), an indemnified party will, if a claim
is to be made against any indemnifying party under this Section 6, deliver
to the indemnifying party a written notice of the commencement, and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly notified, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests
between such indemnified party and any other party represented by such
counsel in the proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable period of time after notice of the
commencement of any such action shall relieve such indemnifying party of any
liability to the indemnified party under this Section 6 to the extent such
failure is prejudicial to its ability to defend such action, but the
omission to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 6.
(d) If the indemnification provided for in this Section 6 is held by a
court of competent jurisdiction to be unavailable to an indemnified party
with respect to any Losses, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such Losses in such
proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other
in connection with the Violations that resulted in such Losses as well as
any other relevant equitable considerations; provided, that, in no event
shall any contribution by a Holder under this Section 6(d) exceed the net
proceeds to each such Holder, except in the case of willful fraud by such
Holder. The relative fault of the indemnifying party and of the indemnified
party shall be determined by reference to, among other things, whether the
Violation resulting in such Losses relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information, and opportunity to correct or
prevent such Violation.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this Section 6
shall survive the completion of any offering of Registrable Securities and
the termination of Registration Rights pursuant to Section 10.
112
<PAGE>
7. REPORTS UNDER THE ACT
With a view to making available to the Holders the benefits of SEC Rule 144
promulgated under the Act and any other rule or regulation of the SEC that may
at any time permit a Holder to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company
agrees to use commercially reasonable efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after 90 days from the
effective date of the first registration statement filed by the Company for
the offering of its securities to the general public;
(b) Take such action, including the voluntary registration of its Common
Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities,
such action to be taken as soon as practicable after the end of the fiscal
year in which the first registration statement filed by the Company for the
offering of its securities to the general public is declared effective;
(c) File with the SEC in a timely manner all reports and other documents
required of the Company under the Act and the 1934 Act; and
(d) Furnish to any Holder, so long as the Holder owns any Registrable
Securities, promptly upon request (i) a written statement by the Company
that it has complied with the reporting requirements of the 1934 Act (at any
time after 90 days from the date on which it becomes subject to such
reporting requirements), or that it qualifies as a registrant whose
securities may be resold pursuant to Form S-3 (at any time after it so
qualifies), (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested in availing any
Holder of any rule or regulation of the SEC that permits the selling of any
such securities without registration or pursuant to such Form S-3.
8. ASSIGNMENT OF REGISTRATION RIGHTS
The rights to cause the Company to register Registrable Securities pursuant
to this Agreement may be assigned by a Holder to a transferee or assignee of
such securities who shall, upon such transfer or assignment, be deemed a
"Holder" under this Agreement; provided that the Company is, within a reasonable
period of time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned.
9. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS
From and after the date of this Agreement, the Company shall not, without
the prior written consent of the Holders of a majority of the Registrable
Securities then outstanding, enter into any agreement with any holder or
prospective holder of any securities of the Company that would allow such holder
or prospective holder to include such securities in any registration filed under
Section 2, unless under the terms of such agreement such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of its securities will not reduce the amount of the
Registrable Securities of the Holders which is included.
10. TERMINATION OF REGISTRATION RIGHTS
The registration rights granted under Section 2 of this Agreement shall
terminate as to all Holders on the earlier of the tenth anniversary of the date
of this Agreement or the fifth anniversary of the closing of the Company's next
public offering in which the aggregate proceeds to the Company before deducting
underwriting commissions and expenses are at least $20,000,000 and the per share
price at which the Common Stock is offered to the public is at least $15 (the
"FIFTH ANNIVERSARY"); provided, however, such
113
<PAGE>
termination shall be postponed until the later of (i) that number of days
following such Fifth Anniversary equal to the number of days, if any, between
the date of such next public offering and the Fifth Anniversary that the Common
Stock of the Company is not traded on a national stock exchange or the Nasdaq
National Market (or any successor organization) and (ii) if as of the Fifth
Anniversary, the Company is not so traded, then, one year following such date as
the Company first resumes trading on a national stock exchange or the Nasdaq
National Market (or any successor organization).
11. MISCELLANEOUS
11.1 NOTICES
Any notice required or permitted under this Agreement shall be given in
writing and shall be deemed effectively given (a) upon personal delivery to the
party to be notified, (b) upon confirmation of receipt by fax by the party to be
notified, (c) one business day after deposit with a reputable overnight courier,
prepaid for overnight delivery and addressed as set forth in (d), or (d) three
days after deposit with the United States Post Office, postage prepaid,
registered or certified with return receipt requested and addressed to the party
to be notified at the address indicated for such party on the signature page, or
at such other address as such party may designate by 10 days' advance written
notice to the other parties given in the foregoing manner.
11.2 AMENDMENTS AND WAIVERS
Any term of this Agreement may be amended and the observance of any term may
be waived (either generally or in a particular instance and either retroactively
or prospectively) only with the written consent of the Company and the holders
of a majority of the Registrable Securities then outstanding. Additional Holders
may be added to this Agreement with such consent by amending SCHEDULE A and
adding a signature page executed by such additional Holder.
11.3 GOVERNING LAW; JURISDICTION; VENUE
This Agreement shall be governed by and construed under the laws of the
state of Washington without regard to principles of conflict of laws. The
parties irrevocably consent to the jurisdiction and venue of the state and
federal courts located in King County, Washington in connection with any action
relating to this Agreement.
11.4 SUCCESSORS AND ASSIGNS
The terms and conditions of this Agreement shall inure to the benefit of and
be binding on the respective successors and assigns of the parties as provided
herein.
11.5 SEVERABILITY
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement, and
the balance of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
11.6 ENTIRE AGREEMENT; COUNTERPARTS
This Agreement constitutes the entire agreement between the parties about
its subject and supersedes all prior agreements. This Agreement may be executed
in two or more counterparts, which together shall constitute one instrument.
[Signature page follows]
114
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
<TABLE>
<S> <C> <C> <C>
SUNHAWK.COM CORPORATION by:
By:
-----------------------------------------
Its:
-------------------------------------
Address:
-------------------------------------
-------------------------------------
Fax:
-------------------------------------
Phone:
-----------------------------------
HOLDER:
By:
-----------------------------------------
Its:
-------------------------------------
Address:
-------------------------------------
-------------------------------------
Fax:
-------------------------------------
Phone:
-----------------------------------
</TABLE>
115
<PAGE>
SCHEDULE A TO REGISTRATION RIGHTS AGREEMENT
<TABLE>
<CAPTION>
HOLDER NAME NUMBER OF SHARES
------------------------------------------------------------ ----------------
<S> <C>
</TABLE>
117
<PAGE>
<TABLE>
<CAPTION>
HOLDER NAME NUMBER OF SHARES
------------------------------------------------------------ ----------------
<S> <C>
</TABLE>
SCHEDULE 3.6--SUNHAWK.COM CAPITALIZATION
<TABLE>
<CAPTION>
EMPLOYEE OPTIONS GRANT DATE GRANT PRICE # OF OPTIONS VESTING EXPIRY
---------------- ---------- ----------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
00000112............................ 05/15/2000 14.630000 1,000 5YR25% 05/15/2000
00000027............................ 07/15/1998 22.650000 119 5YR25% 07/15/1998
00000064............................ 02/15/2000 12.000000 1,400 5YR25% 02/15/2000
00000042............................ 02/15/2000 12.000000 600 5YR25% 02/15/2000
00000031............................ 07/15/1998 22.650000 298 5YR25% 07/15/1998
00000075............................ 02/15/2000 12.000000 1,500 5YR25% 02/15/2000
00000076............................ 02/15/2000 12.000000 200 5YR25% 02/15/2000
00000089............................ 02/15/2000 12.000000 200 5YR25% 02/15/2000
00000140............................ 02/15/2000 12.000000 200 5YR25% 02/15/2000
00000133............................ 04/28/2000 13.130000 200 5YR25% 04/28/2000
00000111............................ 05/01/2000 15.000000 200 5YR25% 05/01/2000
00000077............................ 02/15/2000 12.000000 750 5YR25% 02/15/2000
00000049............................ 02/15/2000 12.000000 1,500 5YR25% 02/15/2000
00000043............................ 02/15/2000 12.000000 200 5YR25% 02/15/2000
00000073............................ 02/15/2000 12.000000 200 5YR25% 02/15/2000
00000035............................ 07/15/1998 22.650000 240 5YR15% 07/15/1998
00000080............................ 02/15/2000 12.000000 200 5YR25% 02/15/2000
00000051............................ 02/15/2000 12.000000 600 5YR25% 02/15/2000
00000012............................ 09/10/1997 11.330000 238 5YR25% 09/10/1997
00000114............................ 05/17/2000 14.500000 1,000 5YR25% 05/17/2000
00000086............................ 02/15/2000 12.000000 200 5YR25% 02/15/2000
00000126............................ 06/20/2000 16.250000 200 5YR25% 06/20/2000
00000005............................ 10/11/1996 0.420000 2,384 5YR25% 10/11/1996
00000007............................ 09/10/1997 11.330000 4,768 5YR25% 09/10/1997
00000018............................ 07/15/1998 11.330000 7,151 5YR25% 07/15/1998
00000121............................ 04/28/2000 13.130000 200 5YR25% 04/28/2000
00000113............................ 05/17/2000 14.630000 5,000 5YR25% 05/17/2000
00000066............................ 02/15/2000 12.000000 500 5YR25% 02/15/2000
00000019............................ 07/15/1998 22.650000 179 5YR25% 07/15/1998
00000052............................ 02/15/2000 12.000000 1,500 5YR25% 02/15/2000
00000072............................ 02/15/2000 12.000000 500 5YR25% 02/15/2000
00000048............................ 02/15/2000 12.000000 1,000 5YR25% 02/15/2000
00000124............................ 04/28/2000 13.130000 500 5YR25% 04/28/2000
00000011............................ 09/10/1997 11.330000 238 5YR25% 09/10/1997
00000034............................ 07/15/1998 22.650000 119 5YR25% 07/15/1998
00000091............................ 02/15/2000 12.000000 1,400 5YR25% 02/15/2000
00000041............................ 02/15/2000 12.000000 300 5YR25% 02/15/2000
00000003............................ 10/11/1996 0.420000 2,384 5YR25% 10/11/1996
00000014............................ 09/10/1997 11.330000 477 5YR25% 09/10/1997
00000032............................ 07/15/1998 22.650000 596 5YR25% 07/15/1998
00000078............................ 02/15/2000 12.000000 8,000 5YR25% 02/15/2000
00000108............................ 04/28/2000 13.130000 15,000 3YR25% 04/28/2000
00000061............................ 02/15/2000 12.000000 2,000 5YR25% 02/15/2000
00000107............................ 04/28/2000 13.130000 8,000 5YR25% 04/28/2000
00000125............................ 06/12/2000 16.500000 500 5YR25% 06/12/2000
00000008............................ 09/10/1997 11.330000 238 5YR25% 09/10/1997
00000021............................ 07/15/1998 22.650000 59 5YR25% 07/15/1998
</TABLE>
118
<PAGE>
<TABLE>
<CAPTION>
EMPLOYEE OPTIONS GRANT DATE GRANT PRICE # OF OPTIONS VESTING EXPIRY
---------------- ---------- ----------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
00000055............................ 02/15/2000 12.000000 200 5YR25% 02/15/2000
00000082............................ 02/15/2000 12.000000 1,500 5YR25% 02/15/2000
00000131............................ 04/28/2000 13.130000 300 5YR25% 04/28/2000
00000010............................ 09/10/1997 11.330000 238 5YR25% 09/10/1997
00000026............................ 07/15/1998 22.650000 59 5YR25% 07/15/1998
00000063............................ 02/15/2000 12.000000 1,000 5YR25% 02/15/2000
00000087............................ 02/15/2000 12.000000 1,000 5YR25% 02/15/2000
00000068............................ 02/15/2000 12.000000 50 5YR25% 02/15/2000
00000020............................ 07/15/1998 22.650000 59 5YR25% 07/15/1998
00000054............................ 02/15/2000 12.000000 300 5YR25% 02/15/2000
00000023............................ 07/15/1998 22.650000 357 5YR25% 07/15/1998
00000059............................ 02/15/2000 12.000000 1,400 5YR25% 02/15/2000
00000083............................ 02/15/2000 12.000000 1,500 5YR25% 02/15/2000
00000047............................ 02/15/2000 12.000000 500 5YR25% 02/15/2000
00000033............................ 07/15/1998 22.650000 59 5YR25% 07/15/1998
00000090............................ 02/15/2000 12.000000 900 5YR25% 02/15/2000
00000132............................ 06/16/2000 17.000000 500 5YR25% 06/16/2000
00000079............................ 02/15/2000 12.000000 500 5YR25% 02/15/2000
00000127............................ 06/20/2000 16.250000 200 5YR25% 06/20/2000
00000136............................ 04/28/2000 13.130000 200 5YR25% 04/28/2000
00000006............................ 09/10/1997 11.330000 238 5YR25% 09/10/1997
00000017............................ 07/15/1998 22.650000 119 5YR25% 07/15/1998
00000044............................ 02/15/2000 12.000000 1,400 5YR25% 02/15/2000
00000030............................ 07/15/1998 22.650000 59 5YR25% 07/15/1998
00000070............................ 02/15/2000 12.000000 1,400 5YR25% 02/15/2000
00000115............................ 05/17/2000 17.250000 250 5YR25% 05/17/2000
00000109............................ 04/17/2000 11.250000 50,000 5YR25% 04/17/2000
00000022............................ 07/15/1998 22.650000 59 5YR25% 07/15/1998
00000056............................ 02/15/2000 12.000000 800 5YR25% 02/15/2000
00000129............................ 04/28/2000 15.130000 1,000 5YR25% 04/28/2000
00000094............................ 02/15/2000 12.000000 200 5YR25% 02/15/2000
00000092............................ 02/15/2000 12.000000 200 5YR25% 02/15/2000
00000110............................ 04/17/2000 11.250000 1,000 5YR25% 04/17/2000
00000004............................ 10/11/1996 0.420000 1,431 5YR25% 10/11/1996
00000013............................ 09/10/1997 11.330000 1,431 5YR25% 09/10/1997
00000039............................ 02/13/1998 11.330000 1,860 5YR25% 02/13/1998
00000081............................ 02/15/2000 12.000000 500 5YR25% 02/15/2000
00000088............................ 02/15/2000 12.000000 500 5YR25% 02/15/2000
00000084............................ 02/15/2000 12.000000 200 5YR25% 02/15/2000
00000123............................ 04/28/2000 13.130000 100 5YR25% 04/28/2000
00000122............................ 05/10/2000 14.500000 300 5YR25% 05/10/2000
00000036............................ 07/15/1998 22.650000 119 5YR25% 07/15/1998
00000069............................ 02/15/2000 12.000000 14,500 5YR25% 02/15/2000
00000105............................ 04/28/2000 13.130000 25,000 5YR25% 04/28/2000
00000062............................ 02/15/2000 12.000000 600 5YR25% 02/15/2000
00000050............................ 02/15/2000 12.000000 200 5YR25% 02/15/2000
00000037............................ 07/15/1998 22.650000 3,218 5YR25% 07/15/1998
00000128............................ 04/28/2000 13.130000 1,000 5YR25% 04/28/2000
00000024............................ 07/15/1998 22.650000 119 5YR25% 07/15/1998
00000002............................ 10/11/1996 0.420000 4,768 5YR25% 10/11/1996
</TABLE>
119
<PAGE>
<TABLE>
<CAPTION>
EMPLOYEE OPTIONS GRANT DATE GRANT PRICE # OF OPTIONS VESTING EXPIRY
---------------- ---------- ----------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
00000009............................ 09/10/1997 11.330000 477 5YR25% 09/10/1997
00000025............................ 07/15/1998 22.650000 119 5YR25% 07/15/1998
00000060............................ 02/15/2000 12.000000 19,000 5YR25% 02/15/2000
00000106............................ 04/28/2000 13.130000 20,000 5YR25% 04/28/2000
00000130............................ 04/28/2000 13.130000 200 5YR25% 04/28/2000
00000038............................ 02/13/1998 11.330000 2,860 5YR25% 02/13/1998
00000029............................ 07/15/1998 22.650000 119 5YR25% 07/15/1998
00000067............................ 02/15/2000 12.000000 18,000 5YR25% 02/15/2000
00000104............................ 04/28/2000 13.130000 20,000 5YR25% 04/28/2000
00000093............................ 02/15/2000 12.000000 500 5YR25% 02/15/2000
00000135............................ 02/15/2000 12.000000 30,000 5YR25% 02/15/2000
00000053............................ 02/15/2000 12.000000 300 5YR25% 02/15/2000
00000058............................ 02/15/2000 12.000000 500 5YR25% 02/15/2000
00000028............................ 07/15/1998 22.650000 119 5YR25% 07/15/1998
00000065............................ 02/15/2000 12.000000 1,000 5YR25% 02/15/2000
00000071............................ 02/15/2000 12.000000 1,000 3YR25% 02/15/2000
-------
Total 311,825
=======
</TABLE>
<TABLE>
<CAPTION>
WARRANTS
--------
<S> <C> <C> <C> <C> <C> <C>
Scott Svenson.......... 00000102 02/15/2000 12.000000 105,000 Earn/Warrant 02/15/2000
David Otto............. 00000119 02/15/2000 12.000000 27,500 100% at Grant 02/15/2000
Luis Talavera.......... 00000095 02/15/2000 12.000000 2,500 100% at Grant 02/15/2000
Pam Edstrom............ 00000096 02/15/2000 12.000000 2,500 100% at Grant 02/15/2000
Pat Tangora............ 00000097 03/22/2000 18.250000 2,500 100% at Grant 03/22/2000
Ossie Kilkenny......... 00000098 02/15/2000 12.000000 120,000 Earn/Warrant 02/15/2000
Fred Anton............. 00000138 02/15/2000 12.000000 2,500 100% at Grant 02/15/2000
Bridge Financing
Lenders (available as
part of the
registration
statement)........... 00000117 02/15/2000 12.000000 41,680 100% at Grant 02/15/2000
Jos. Gunnar............ 00000120 02/15/2000 17.400000 140,000 100% at Grant 02/15/2000
-------
Total 444,180
=======
Activate! Marketing.... 00000118 02/15/2000 12.000000 833 100% at Grant 02/15/2000
</TABLE>
120
<PAGE>
SCHEDULE 4.3--CAPITALIZATION
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO
NAME OF OPTION/WARRANT HOLDER TYPE OF OPTION/WARRANT HELD OPTION/WARRANT
----------------------------- ------------------------------------ ----------------
<S> <C> <C>
Tim Saunders........................ Option to purchase common stock 73,429
Chelsea Ventures LLC*............... Warrant for Common Stock 66,561
Steve Shaer......................... Option to purchase common stock 66,561
Daedalus Ventures................... Warrant for Common Stock 53,249
SRS Ventures LLC.................... Warrant for Common Stock 53,249
Daedalus Ventures, Inc.............. Warrant for Common Stock 319,492
Seth Elliot......................... Warrant for Common Stock 319,492
Brad Van Siclen..................... Warrant for Common Stock 319,492
@Visory LLC......................... Warrant for Common Stock 3,370,762
Carolyn Gale........................ Option to purchase common stock 20,000
Kelvin Edney........................ Option to purchase common stock 20,000
Paul Nicklin........................ Option to purchase common stock 20,000
Keir Ritchie........................ Option to purchase common stock 20,000
Steve O'Neill....................... Option to purchase common stock 20,000
Ben Lister.......................... Option to purchase common stock 20,000
---------
Total............................. 4,762,107
=========
</TABLE>
------------------------
* CCS is currently attempting to locate a written copy of this warrant and has
not provided a written copy of such warrant to its counsel, Perkins Coie.
121
<PAGE>
SCHEDULE 4.4--SUBSIDIARIES
Joint Venture Agreement with Active Rights Management Limited, and SIS
Limited to form Projector Limited, a UK company, dated September 7, 1999. The
joint venture vehicle has been incorporated and operates under the name
NetResults Limited.
SCHEDULE 4.5--OWNERSHIP OF CCS SHARES
David Powell holds a proxy to vote shares of CCS owned by Phillip J. Bloom.
122
<PAGE>
SCHEDULE 4.7--FINANCIAL STATEMENTS AND FINANCIAL CONDITION
123
<PAGE>
COPYRIGHT CONTROL SERVICES
PROFIT & LOSS
(UKL)
<TABLE>
<CAPTION>
JAN1 - JUL24, '00
-----------------
<S> <C>
Ordinary Income/Expense
Income
Settlements........................................... 628.41
Services
Anti Piracy......................................... 54,796.68
Training Course..................................... 3,500.00
IFPI................................................ 36,712.34
-----------
Total Services........................................ 95,009.02
-----------
Total Income............................................ 95,637.43
Expense
VC fund raising....................................... 2,259.64
Payroll Expenses
Interest............................................ 1,281.78
NIC-Employers....................................... 10,200.52
Employees........................................... 42,940.38
Directors........................................... 60,000.00
Payroll Expenses--Other............................. 0.00
-----------
Total Payroll Expenses................................ 114,422.68
Currency Exchange Adjustments......................... 1,046.22
Bank Interest......................................... 479.19
Bank Service Charges.................................. 1,053.11
Carriage charges
FedEx............................................... 404.70
Carriage charges--Other............................. 251.48
-----------
Total Carriage charges................................ 656.18
Contract Staff........................................ 981.18
Consultant............................................ 165,087.72
Insurance
Building insurance.................................. 294.46
Sickness and accident insurance..................... 702.31
Insurance--Other.................................... 70.00
-----------
Total Insurance....................................... 1,066.77
Interest Expense...................................... (60.74)
Legal Fees
Corporate........................................... 51,847.27
Investigations and prosecutions..................... 13,136.75
Legal Fees--Other................................... 1,150.90
-----------
Total Legal Fees...................................... 66,134.92
</TABLE>
124
<PAGE>
COPYRIGHT CONTROL SERVICES
PROFIT & LOSS (CONTINUED)
(UKL)
<TABLE>
<CAPTION>
JAN1 - JUL24, '00
-----------------
<S> <C>
Marketing & Sales
Company Business Mileage............................ 41.30
Design.............................................. 500.00
Exhibitions
Trav & Sub........................................ 4,292.25
-----------
Total Exhibitions................................... 4,292.25
Travel & Ent
Currency Exchange Fee............................. 55.03
Entertainment..................................... 151.00
Meals............................................. 1,187.52
Travel............................................ 26,928.72
Travel & Ent.--Other.............................. 2,853.46
-----------
Total Travel & Ent.................................. 31,175.73
Supplies............................................ 287.64
-----------
Total Marketing & Sales............................... 36,296.92
Miscellaneous......................................... 91.35
Office Supplies
Stationery.......................................... 355.93
Computer consumables................................ 1,322.43
Office Supplies--Other.............................. 1,055.43
-----------
Total Office Supplies................................. 2,733.79
Motor Expense
Petrol.............................................. 60.65
Repairs & Parts..................................... 432.38
HP Credit Charges................................... 531.37
Car Insurance....................................... 183.82
-----------
Total Motor Expense................................... 1,208.22
Postage and Delivery.................................. 253.15
Premises Costs
Service Charge...................................... 607.50
Rates............................................... 2,098.30
Rent................................................ 10,125.00
-----------
Total Premises Costs.................................. 12,830.80
Printing and Reproduction............................. 584.19
Professional Fees
Consultant (US)..................................... 20,000.00
Accounting.......................................... 2,900.00
Professional Fees--Other............................ 0.00
-----------
Total Professional Fees............................... 22,900.00
</TABLE>
125
<PAGE>
COPYRIGHT CONTROL SERVICES
PROFIT & LOSS (CONTINUED)
(UKL)
<TABLE>
<CAPTION>
JAN1 - JUL24, '00
-----------------
<S> <C>
Recruiting............................................ 3,081.43
Repairs
Building Repairs.................................... 110.00
-----------
Total Repairs......................................... 110.00
Software Expense...................................... 236.18
Staff Consumables..................................... 244.61
Staff Entertainment................................... 60.60
Taxes
Stamp duty.......................................... 205.00
-----------
Total Taxes........................................... 205.00
US Francishe Tax...................................... (10,921.47)
Telecome
Paging Service...................................... 119.70
On-Line Service..................................... 3,934.93
Fax................................................. 191.96
Mobile Tel.......................................... 241.50
Network Services.................................... 1,614.97
Security Line....................................... 76.38
Telephone........................................... 1,854.75
-----------
Total Telecoms........................................ 8,034.19
Uncategorised Expenses................................ 0.00
Utilities
Water
Sewerage.......................................... 26.80
Water--Other...................................... 41.32
-----------
Total Water......................................... 68.12
-----------
Total Utilities....................................... 68.12
-----------
Total Expense........................................... 431,143.95
-----------
Net Ordinary Income....................................... (335,506.52)
-----------
Net Income.................................................. (335,506.52)
===========
</TABLE>
126
<PAGE>
COPYRIGHT CONTROL SERVICES
BALANCE SHEET
(UKL)
<TABLE>
<CAPTION>
JULY 24, '00
-------------
<S> <C>
ASSETS
Current Assets
Current/Savings
HSBC Current W/C........................................ 63,720.86
Midland Current a/c..................................... 157.37
Midland CCS US$......................................... 159,071.33
Midland DP US$.......................................... 5,324.13
NatWest US $ Acct (D Powell)............................ 4.60
Petty Cash Box.......................................... 116.18
Petty Cash.............................................. 1,194.69
Petty Cash US$.......................................... 1,361.23
Petty Cash--French Francs............................... 264.45
Petty Cash--German Marks................................ 130.09
-----------
Total Current/Savings..................................... 231,344.93
Accounts Receivable
Accounts Receivable..................................... 26,537.19
-----------
Total Accounts Receivable................................. 26,537.19
Other Current Assets
Retainers at Law Firms.................................. 3,005.00
Employee Advances
DPowell Advances...................................... (28.25)
Employee Advances--Other.............................. 254.25
-----------
Total Employee Advances................................. 226.00
-----------
Total Other Current Assets................................ 3,231.00
-----------
Total Current Assets........................................ 261,113.12
Fixed Assets
Car....................................................... 17,250.00
Computer Equipment & SWare
Original Cost........................................... 35,593.09
Computer Equipment & SWare--Other....................... 1,571.86
-----------
Total Computer Equipment & SWare.......................... 37,164.95
Furniture
Original Cost........................................... 5,564.40
-----------
Total Furniture........................................... 5,564.40
Office Equipment
Original Cost........................................... 2,142.45
-----------
Total Office Equipment.................................... 2,142.45
Office fixtures & fittings
Original Cost........................................... 932.87
-----------
Total Office fixtures & fittings.......................... 932.87
-----------
Total Fixed Assets.......................................... 63,054.67
Other Assets
Lease Deposit............................................. 7,931.25
-----------
Total Other Assets.......................................... 7,931.25
-----------
TOTAL ASSETS................................................ 332,099.04
-----------
</TABLE>
127
<PAGE>
COPYRIGHT CONTROL SERVICES
BALANCE SHEET (CONTINUED)
(UKL)
<TABLE>
<CAPTION>
JULY 24, '00
-------------
<S> <C>
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable
Accounts Payable...................................... 8,642.94
-----------
Total Accounts Payable.................................. 8,642.94
Credit Cards
CCS Midland Mastercard................................ 11,004.21
-----------
Total Credit Cards...................................... 11,004.21
Other Current Liabilities
Loans to CCS
D. Powell--Loan
Total D. Powell--Loan............................... (25,002.79)
-----------
Total Loans to CCS.................................... (25,002.79)
Inland Revenue Liabilities.......................... 23,237.43(1)
VAT Control......................................... (1,073.83)
-----------
Total Other Current Liabilities....................... (2,839.19)
-----------
Total Current Liabilities............................... 15,678.38
Long Term Liabilities
HP Car Loan Payable................................... 7,000.00
Total Long Term Liabilities............................. 7,000.00
-----------
Total Liabilities........................................... 20,968.77
Equity
Shareholders' Equity
Share Purchases (Converted Notes)....................... 63,018.10(2)
Share Purchase--Igor Saulsky............................ 40,666.15
Share Purchase--ARM..................................... 24,709.71
Share Purchase--J. Bloom................................ 3,086.42
Share Purchase--M. Powell............................... 8,000.00
-----------
Total Shareholders' Equity................................ 139,480.38
CCS Inc Series A Financing transfer to Chinerose.......... 755,111.50(3)
Opening Bal Equity........................................ 0.00
Retained Earnings......................................... (184,319.91)
Net Income................................................ 399,141.70
Total Equity................................................ 311,130.27
-----------
TOTAL LIABILITIES & EQUITY.................................. 332,099.04
-----------
</TABLE>
--------------------------
(1) Awaiting adjustment from accountants
(2) SRS Ventures and Richard Bascetta
(3) Copyright Ventures, SRS Ventures, Steve Shaer, Premier Restoration, Chelsea
Ventures
128
<PAGE>
SCHEDULE 4.10--TAXES AND TAX RETURNS
CCS has not filed its United States Federal Tax Return or paid the
associated taxes.
SCHEDULE 4.11--EMPLOYEES; SALARIES; DEFERRED COMPENSATION
<TABLE>
<CAPTION>
ALL AMOUNTS IN UK L
-------------------
<S> <C>
David Powell*--CEO.......................................... L50,000
Julian Searle*--CTO......................................... L40,000
Phillip J. Bloom--Marketing................................. L30,000
Carolyn Gale--Admin Manager................................. L26,000
Steven O'Neill--Network Manager............................. L24,000
Tim Saunders--Tracking Team Manager......................... L19,000
Kelvin Edney--Tracking operative............................ L16,000
Ben Lister--Tracking operative.............................. L16,000
Paul Nicklin--Tracking operative............................ L16,000
Keir Ritchie--Tracking operative............................ L16,000
</TABLE>
SCHEDULE 4.11.2--CONSUMMATION OF AGREEMENT RESULTING IN PAYMENTS COMING DUE TO
ANY PERSON OR ENTITY
Options granted pursuant to the CCS Stock Option Plan fully vest upon a
change of control if not assumed by the successor corporation. Certain options
granted pursuant to the company stock option plan will vest 50% upon a Change of
Control transaction if the employee is terminated by the company or its
successor without Cause.
SCHEDULE 4.13 CONTRACTS AND AGREEMENTS
1. Membership agreement for Digidesign, a Division of Avid Technologies, Inc.,
membership in CCS, dated October 30, 1998.
2. Joint Venture Agreement with Active Rights Management Limited, and SIS
Limited to form Projector Limited, a UK company, dated September 7, 1999.
The joint venture vehicle has been incorporated and operates under the name
Net Results Limited.
3. Lease Agreement between Chinerose Limited, a wholly-owned subsidiary of
Copyright Control Services, Inc., and M.M.C. Investments Limited, for
property located at Unit 6 Hampton Hill Business Park, Hampton Hill,
Middlesex, dated September 4, 1998.
4. United Kingdom bank line of credit with HSBC plc (formerly Midland Bank)
5. Consulting Agreement with @Visory LLC dated May of 2000, as amended,
July 28, 2000.
6. Advising Agreement with Daedalus Ventures, Inc. dated February 23, 2000, as
amended.
7. The following customer contracts are terminable at the option of the
customer upon change of control of CCS:
Antares Audio Technologies, dated 11/1/98
Arboretum Systems, dated 1/1/98
Berkley Integrated Audio Software, Inc., dated
12/1/98
Bit Headz, Inc., dated 8/1/99
129
<PAGE>
Cycling '74, dated 11/1/99
Duy Research, dated 11/1/98
Emagic Soft and Hardware GmbH, dated 1/2/99
INA-GRM, dated 5/1/99
International Federation of Photographic Design,
dated 11/8/99
Line 6, Inc., dated 4/28/99
Minnetonka Audio Software, Inc., dated 3/1/99
Native Instruments, dated 2/15/99
Nemesys Music Technology, Inc., dated 2/26/99
Seer Systems, dated 7/15/99
Sonic Foundry, Inc. dated 2/23/98
Steinberg Soft und Hardware GmbH, dated 12/3/98
TC Works Soft & Hardware GmbH, dated 10/6/98
Wave Mechanics, Inc. dated 12/1/98
KS Waves Ltd., undated
SCHEDULE 4.14--AFFILIATED TRANSACTIONS
Advising Agreement with Daedalus Ventures, Inc. to provide services to CCS
dated February 23, 2000, as amended. Daedalus Ventures, Inc. is co-owned and
controlled by one of CCS's directors, Seth Elliot.
SCHEDULE 4.17.1--REAL PROPERTY
Lease Agreement between Chinerose Limited, a wholly-owned subsidiary of
Copyright Control Services, Inc., and M.M.C. Investments Limited, for property
located at Unit 6 Hampton Hill Business Park, Hampton Hill, Middlesex, dated
September 4, 1998.
130
<PAGE>
SCHEDULE 4.18--PERSONAL PROPERTY
<TABLE>
<CAPTION>
DESCRIPTION
-----------
<S> <C>
Auto Lease: AUDI 100 S4 TURBO AVANT
BackOffice, UPS, Seagate Backup, cables
Technomatic--PC--Toshiba+monitor
Laser Printer
MS BackOffice Small Business Server
36GB Disk
Ikea--Desks etc.
Dell PIII 660 Desktop
Dell PII 450 Desktop
Dell PII 450 Desktop
Dell PIII 733 Desktop
Dell PIII 600 Desktop
Dell PIII 660 Desktop
Dell PIII 660 Desktop
Toshiba PII 300 Desktop
Gateway PII 450 Desktop
Dell PIII 660 Desktop
Dell PIII 660 Desktop
Dell PIII 660 Desktop
Sony Vaio PIII 660 Notebook
Tiny Celeron 400 Desktop
Telephone System
</TABLE>
SECHDULE 4.19--INTELLECTUAL PROPERTY
The Company has not made any application for the registration of any
Patents, Trademarks or Copyrights. Chinerose Limited uses the trading name
'Copyright Control Services'
Chinerose Limited has the following domain names registered:
www.copyrightcontrol.com
www.hackncrack.com
SCHEDULE 4.20--INSURANCE
Insurer Norwich Union
UK General Insurance
131
<PAGE>
Policy #040FP1203252
Covers risk of loss or damage including fire, explosion, theft or hold-up,
malicious damage, water damage and any other accidental damage not specifically
included
Expiration date August 31, 2000
SCHEDULE 4.22--BANK ACCOUNTS, SAFE DEPOSIT BOXES, AND LOCK BOXES
<TABLE>
<CAPTION>
AUTHORIZED AMOUNT ON DEPOSIT,
LIST OF ACCOUNTS SIGNATORIES BUSINESS PURPOSE AS OF JULY 25, 2000
---------------- ------------ ------------------------ --------------------
<S> <C> <C> <C>
HSBC Bank Waltham Cross,
Chinerose Limited L Sterling
account #411 81742..................... David Powell General Account L44,825.13
HSBC Bank Waltham Cross,
Chinerose Limited US$
Account #3909 4481..................... David Powell General Account $288,108.00
HSBC plc
US account #39049334................... David Powell held as security for $ 21,304.31
Company credit card
</TABLE>
SCHEDULE 4.23--CUSTOMERS/SUPPLIERS
<TABLE>
<S> <C> <C>
TEN LARGEST SALES:
-----------------------------------------------------------
AUGUST - DECEMBER 1998 L STERLING
----------------------------------------------------------- ------------------
Digidesign Inc........................................... L12,102.00
K.S. Waves Ltd........................................... L10,909.00
Steinberg GmbH........................................... L5,970.15
Emagic GmbH.............................................. L2,170.83
TC Works................................................. L2,155.21
Arboretum Inc............................................ L1,812.82
Antares Audio Inc........................................ L909.09
Syntrillium Inc.......................................... L600.61
BIAS Inc................................................. L598.80
Focusrite Ltd............................................ L500.00
JANUARY - DECEMBER 1999
-----------------------------------------------------------
Digidesign Inc........................................... L24,430.85
IFPI Secretariat......................................... L15,936.17
Steinberg GmbH........................................... L12,403.88
Syntrillium Inc.......................................... L7,358.80
Sonic Foundry Inc........................................ L7,049.01
</TABLE>
132
<PAGE>
<TABLE>
<S> <C> <C>
Emagic GmbH.............................................. L4,101.76
Antares Inc.............................................. L3,717.64
ARM...................................................... L3,000.00
Nemesys Inc.............................................. L2,447.41
BIAS Inc................................................. L2,442.78
10 LARGEST SUPPLIERS AND PURCHASES DURING 1998 AND 1999
----------------------------------------------------------------------------------------------------------
AUGUST - DECEMBER 1998 L STERLING
----------------------------------------------------------- ------------------
MMC Investments.......................................... L5,572.83 Lease of building
Alan Morris & Co......................................... L2,896.17 consultants
BT Multimedia............................................ L1,758.76 Internet Leased Lines
Flightbookers............................................ L1,405.00 Travel
RSG Development.......................................... L1,350.00 Building Lease
associated charges
ADT Fire & Security...................................... L1,321.00 Company Fire cover
Beeline Insurance........................................ L1,243.00 Company Insurance
BT Business.............................................. L812.49 Phone/fax lines
Pure Ideas Ltd........................................... L430.00 Furniture
Viking Direct............................................ L391.09 Stationery
JANUARY - DECEMBER 1999 L STERLING
----------------------------------------------------------- ------------------
Perkins Coie............................................. L45,410.99 USA Lawyers
MMC Investments.......................................... L10,426.39 Lease of Building
London Borough of Richmond............................... L7,686.48 Rates
KPMG..................................................... L5,234.72 Tax consultants
Kane Russell Coleman..................................... L5,234.72 USA Lawyers
BT Multimedia............................................ L4,851.00 Internet line
Abrahams Dresden......................................... L4,850.00 UK Lawyers
Townleys................................................. L4,700.33 UK Lawyers
BT Business.............................................. L3,188.55 Phone/fax lines
Beeline Insurance........................................ L1,079.33 Company Insurance
</TABLE>
133
<PAGE>
ANNEX D
FORM OF AMENDMENT NO. 1 TO THE SHARE EXCHANGE AGREEMENT
134
<PAGE>
AMENDMENT NO. 1 TO THE
SHARE EXCHANGE AGREEMENT
THIS AMENDMENT NO. 1 (this "AMENDMENT") to the SHARE EXCHANGE AGREEMENT
dated as of August 1, 2000 (the "AGREEMENT")), among Sunhawk.com Corporation, a
Washington corporation ("SUNHAWK.COM"), Copyright Control Services, Inc., a
Delaware corporation ("CCS") and the shareholders of CCS as listed on
Schedule A of the Agreement (the "CCS Shareholders"), is made this 16th day of
August, 2000 by and among Sunhawk.com, CCS and the CCS Shareholders
(collectively, the "PARTIES"). Capitalized terms used herein and not otherwise
defined are used as defined in the Agreement.
RECITALS
WHEREAS, the Parties desire to amend the Agreement as provided herein.
NOW THEREFORE in consideration of these promises and of the mutual
agreements, representations, warranties and covenants herein contained, the
Parties do hereby agree as follows:
1. AMENDMENT TO SECTION 6.3 OF THE AGREEMENT.
Section 6.3 is hereby deleted in its entirety and replaced with the
following:
"6.3 SUNHAWK.COM SHAREHOLDER APPROVAL. This Agreement shall have been
approved and adopted by the affirmative votes of the holders of at least
a majority of each class of Sunhawk.com's outstanding capital stock."
2. POWER OF ATTORNEY.
This Amendment shall be executed by David Powell on behalf of the CCS
Shareholders pursuant to Section 9.6 of the Agreement, with the exception of
Copyright Ventures, LLC.
3. EFFECT ON THE AGREEMENT.
Except as specifically set forth herein, the Agreement shall not be amended
but shall remain in full force and effect, subject to the terms thereof.
4. COUNTERPARTS.
This Amendment may be executed in counterparts, each of which shall be
deemed an original but all of which together will constitute one and the same
instrument.
5. HEADINGS.
The section headings contained in this Amendment are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Amendment.
6. GOVERNING LAW.
This Amendment shall be governed by and construed in accordance with the
domestic laws of the State of Washington without giving effect to any choice or
conflict of law provision or rule (whether of the State of Washington or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Washington.
135
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be
executed on the date first above written.
SUNHAWK.COM CORPORATION
By:
-------------------------------------------------------------------------------
Name:
----------------------------------------------------------------------------
Title:
-----------------------------------------------------------------------------
COPYRIGHT CONTROL SERVICES, INC.
By:
-------------------------------------------------------------------------------
Name:
----------------------------------------------------------------------------
Title:
-----------------------------------------------------------------------------
CCS SHAREHOLDERS
By:
-------------------------------------------------------------------------------
David Powell
COPYRIGHT VENTURES, LLC
By:
-------------------------------------------------------------------------------
Name:
----------------------------------------------------------------------------
Title:
-----------------------------------------------------------------------------
136
<PAGE>
ANNEX E
CONSULTING AGREEMENT BETWEEN COPYRIGHT CONTROL SERVICES, INC. AND @VISORY, LLC
137
<PAGE>
CONSULTING AGREEMENT
AGREEMENT, made as of this ____________________ day of May, 2000, between
COPYRIGHT CONTROL SERVICES, INC., a Delaware corporation with offices at 6
Hampton Hill Business Park, 219-221 High Street, Hampton Hill, TW12 1NP, UK (the
"Company") and @VISORY, LLC with offices at 1150 Underhill Road, East Aurora,
New York 14052 (the "Consultant").
WITNESSETH:
WHEREAS, the Company desires to retain the services of the Consultant and
the Consultant desires to provide services to the Company upon the terms and
conditions provided herein.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the parties agree as follows:
1. CONSULTING SERVICES. The Consultant agrees to provide consulting
services to the Company during the term of this Agreement, upon such terms and
to the extent the parties agree from time to time. The nature of services to be
provided may include:
(a) Review and advice concerning the technical design of existing and
planned products or services;
(b) Business development assistance including terms of deals and
suggestions during negotiations;
(c) Sales assistance through the development of business models and
sales strategy;
(d) Advice regarding financing, review of proposed term sheets,
capitalization planning and, where appropriate, participation in
negotiations with prospective investors;
(e) Strategic consulting regarding high level product planning, market
development, marketing and public relations planning;
(f) Consulting on corporate structure, employee stock option structure,
warrant arrangements and intellectual property planning;
(g) Introductions to strategic partners and other alliance candidates;
(h) Introductions to prospective customers for the Company's products or
services;
(i) Introductions to sources of financing and capital, including
"angels", venture capital firms, and investment bankers, as appropriate to
the stage of the Company; and
(j) Participation and attendance at meetings with the Company's Board of
Directors, Management, customers, strategic partners and financing allies,
as requested by the Company.
2. TERM. The term of this Agreement shall commence as of the date hereof
and shall continue until April 30, 2002, unless sooner terminated as provided
herein.
3. EXTENT OF SERVICES. The Consultant agrees to provide such services
through Paul Bandrowski, or such other persons as may be reasonably agreeable to
the Company. The Company understands that the nature of the services to be
provided are part time and that the Consultant will be engaged in other business
and consulting activities during the term of this Agreement.
4. TERMINATION. Unless the Agreement is extended by mutual written
agreement of the parties, this Agreement shall terminate upon the first to occur
of the following events:
(a) The Consultant may terminate this Agreement at any time upon twenty
(20) days written notice to the Company;
138
<PAGE>
(b) The Company may terminate this Agreement upon twenty (20) days
written notice to the Consultant, upon the approval of two-thirds of the
Board of Directors of the Company;
(c) March 31, 2002.
Provided, that such termination shall not affect the Company's obligations,
or the Consultant's rights, arising prior to such termination.
5. COMPENSATION.
(a) On the date hereof, in consideration of the execution of this Agreement,
the Consultant shall receive shares of Common Stock of the Company representing
5% (the "@Visory Portion") of the fully diluted shares of all of the capital
stock of the Company outstanding as of the date of this Agreement (the "Capital
Stock").
"Fully Diluted" shall mean the total number of shares of Common Stock of the
Company which would be issued and outstanding assuming full exercise of all
outstanding warrants, options or rights, full conversion of all convertible
securities or debt, full issuance of all shares of Common Stock reserved for
issuance under any stock option plan and the issuance of all shares or
securities pursuant to any agreement, commitment or understanding.
The Company shall use diligent best efforts to cause the appropriate
officers of the Company to record such ownership on the books and records of the
Company, and to issue to the Consultant appropriate certificates evidencing its
ownership of such stock.
(b) If at any time prior to the 61st day ("Review Period") following the
joint execution of this Agreement the Company gives notice of termination to the
Consultant, the Consultant shall immediately surrender to the Company 60% of the
@Visory Portion (i.e., 3% of the 5% issued to the Consultant).
(c) If at any time the Company should determine to register under the
Securities Act of 1933, as amended, or any successor Federal statute, and the
rules and regulations of the Securities and Exchange Commission thereunder, any
of its securities, other than on Form S-8 or Form S-4 or their then equivalents
relating to shares to be issued solely (i) in connection with acquisition of any
entity or business, (ii) upon the exercise of stock options or pursuant to
employee benefit plans, it shall send to the holder of the shares written notice
of such determination and, if within 15 days after receipt of such notice, such
holder shall so request in writing, the Company shall use its best efforts to
include in such registration statement all or part of the shares such holder
requests to be registered therein except that, if, in connection with any
offering involving an underwriting of Common Stock to be issued by the Company,
the managing underwriter in good faith shall impose a limitation on the number
of shares of such Common Stock which may be included in any such registration
statement because, in its written opinion the inclusion of such shares would
adversely affect the marketing of the securities to be sold by the Company
therein, the Company shall then be obligated to include in such registration
statement only such limited portion (which may be none) of the shares with
respect to which the holder has requested inclusion therein. In the event that
there are other holders of Common Stock who have been granted similar piggyback
rights, then the Company shall include in such registration statement the pro
rata share of each such holder of registerable securities (based on the number
of registerable securities each such holder proposed to include in the
registration statement). In such connection with such registration statement,
the Company and the Consultant shall each execute customary indemnification
agreements in favor of the other for the information contained in such
registration statement provided by each. The obligations of the Company under
this subparagraph shall survive the termination of this Agreement.
(d) If, prior to the time of an initial public offering of its securities
registered under the Securities Act of 1933, as amended, the Company proposes to
issue Equity Securities of any kind (the term "Equity Securities" shall include
for these purposes any warrants, options or other rights to acquire equity
securities and debt securities convertible into Equity Securities) of the
Company (other than (X) pursuant
139
<PAGE>
to the acquisition of another corporation by the Company by merger, purchase of
substantially all the assets or other form of reorganization, (Y) pursuant to an
employee stock option plan, stock bonus plan, stock purchase plan or other
management equity program or (Z) to vendors, customers and consultants to the
Company), then the Company shall:
(i) Give written notice to the Consultant setting forth in reasonable
detail (A) the designation and all of the terms and provisions of the
securities proposed to be issued (the "Proposed Securities"), including,
where applicable, the voting powers, preferences and relative participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof and interest rate and maturity; (B) the price and other
terms of the proposed sale of such securities; (C) the amount of such
securities proposed to be issued; and (D) such other information as the
Consultant may reasonably request in order to evaluate the proposed
issuance; and
(ii) Offer to issue to the Consultant, on the same price and other terms
as set forth in (i) above, a proportion of the Proposed Securities equal to
a percentage determined by dividing (X) the number of share of Common Stock
held by the Consultant and issuable to the Consultant, assuming conversion
in full of any convertible securities then held by the Consultant, by
(Y) the total number of shares of Common Stock then outstanding, including
for purposes of this calculation all shares of Common Stock issuable upon
conversion in full of any then outstanding convertible securities.
The Consultant must exercise its purchase rights hereunder within
15 business days after receipt of such notice from the Company. To the extent
that the Company offers two or more securities and units, Consultant much
purchase such units as a whole and will not be given the opportunity to purchase
only one of the securities making up such unit.
Upon the expiration of the offering, described above, the Company will be
free to sell such Proposed Securities that the Consultant has not elected to
purchase during the 60 days following such expiration on terms and conditions no
more favorable to the purchasers thereof then those offered to the Consultant.
Any Proposed Securities offered or sold by the Company after such 60 day period
must be reoffered to the Consultant pursuant to this Paragraph (e).
The election by the Consultant not to exercise its subscription rights under
this Paragraph in any one instance shall not affect its right (other than in
respect of a reduction in its percentage holdings) as to any subsequent proposed
issuance. The provisions of this Paragraph shall survive the termination of this
Agreement.
6. EXPENSES. The Company shall pay or reimburse the Consultant for all
reasonable travel, business and miscellaneous expenses incurred by the
Consultant in performing its duties under this Agreement.
7. CONFIDENTIAL INFORMATION.
(a) CONFIDENTIALITY. Except as required in the performance of his
duties to the Company, the Consultant shall treat as confidential and shall
not, directly or indirectly, use, disseminate, disclose, publish or
otherwise make available any Confidential Information (as hereafter defined)
or any portion thereof. Any employees, members, managers, officers,
representatives, agents or advisors to the Consultant ("Advisors") which
will be granted access to the Confidential Information of the Company will
each be required to sign a copy of this Agreement or will otherwise have
agreed to be bound by the provisions of this Paragraph 8. Furthermore, the
Consultant and Advisors shall not directly or indirectly use, disseminate,
disclose, publish or otherwise make available any Confidential Information
for a period of 3 years from the Termination of this Agreement.
(b) RETURN OF CONFIDENTIAL INFORMATION. Upon termination of this
Agreement, all documents, records, notebooks, computer files, tapes and
diskettes and similar repositories containing Confidential Information,
including copies thereof, then in the Consultant's possession, whether
prepared by it
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or others, shall be promptly destroyed by the Consultant or returned to the
Company. If at any time after the termination of this Agreement, the
Consultant determines that it has any Confidential Information in its
possession or control, he shall immediately destroy or return the same to
the Company, including all copies and portions thereof.
(c) DEFINITION. "Confidential Information" means any and all
information relating to the Company's products, customers, pricing and
financing and labeled or marked "confidential" disclosed or made available
to the Consultant and which is known by Consultant as a direct or indirect
consequence of or through its relationship with the Company and not
generally known in the industry in which the Company is or may become
engaged. Confidential Information shall not include any information which
was known by the Consultant prior to receipt of such information by it from
the Company or which thereafter is published or becomes generally available
in the industry through no act or failure on the part of the Consultant.
8. REMEDIES. The parties acknowledge that the remedies at law for the
breach of the agreements and covenants set forth in Paragraph 7 are inadequate
and that the Company shall be entitled to preliminary and permanent injunctive
relief to the fullest extent available under applicable law enjoining the
Consultant from engaging in any conduct constituting a breach of the agreements
and covenants contained in Paragraph 7. In the event of any such breach or
alleged breach, and with respect to any preliminary injunction issued, the
Company shall be required to post only the minimum bond or security permitted
under applicable law. Such remedies shall be in addition to, and not in
substitution of, any other remedies which the Company may have at law or in
equity in the event of a breach or threatened breach of any of the foregoing
agreements or covenants by the Consultant.
9. STATUS. Except as otherwise may be agreed, the Consultant shall at all
times be an independent contractor, rather than a co-venturer, agent, employee
or representative of the Company.
10. NOTICES. Any notice required or desired to be given under this
Agreement shall be in writing and shall be deemed given when personally
delivered or sent by certified or registered mail to the following addresses, or
such other address as to which one party may have notified the other in such
manner:
TO THE CONSULTANT:
@Visory, LLC
1150 Underhill Road
East Aurora, New York 14052
Attn: Paul Bandrowski, Manager
TO THE COMPANY:
Copyright Control Services, Inc.
6 Hampton Hill Business Park
219-221 High Street
Hampton Hill
TW12 1NP, UK
Attn: ________________________
11. APPLICABLE LAW. The validity, interpretation and performance of this
Agreement shall be controlled by and construed under the laws of the State of
New York.
12. SEVERABILITY. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provisions of this Agreement.
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13. WAIVER OF BREACH. The waiver by either party of a breach of any
provision of this Agreement by the other shall not operate or be construed as a
waiver of any subsequent breach by such party. No waiver shall be valid unless
in writing and signed by an authorized officer of the Company or the Consultant.
14. BINDING EFFECT. This Agreement shall be binding upon the parties and
their respective personal representatives, successors and assigns.
15. ENTIRE AGREEMENT. This Agreement contains the entire understanding of
the parties with respect to its subject matter. It may not be changed orally but
only by an agreement in writing signed by the party against whom enforcement of
any waiver, change, modification, extension, or discharge is sought.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
<TABLE>
<S> <C> <C>
COPYRIGHT CONTROL SERVICES, INC.
BY: /S/ DAVE POWELL
-----------------------------------------
DAVE POWELL, CEO
@VISORY, LLC
BY: /S/ PAUL BANDROWSKI
-----------------------------------------
PAUL BANDROWSKI, MANAGER
</TABLE>
142
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ANNEX F
AMENDMENT NO. 1 TO CONSULTING AGREEMENT
143
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AMENDMENT NO. 1 TO CONSULTING AGREEMENT
The undersigned parties to that certain Consulting Agreement dated on or
about May 6, 2000 (the "Agreement"), agree to amend the Agreement as set forth
in this Amendment No. 1 to Consulting Agreement (the "Amendment").
1. AMENDMENTS TO AGREEMENT.
1.1 NO RIGHT IN CONSULTANT TO TERMINATE. Section 4(a) is deleted in
its entirety.
1.2 ADDITIONAL COMPENSATION. As consideration for the deletion of the
Consultant's right to terminate the Agreement as set forth in Section 1.1 of
this Amendment, the Consultant shall receive as additional compensation a
warrant in the form attached as EXHIBIT A (the "Warrant") to purchase an
additional 3,370,762 shares of the common stock of Sunhawk.com (the
"Additional Shares") at the per share price of $.25. The Warrant and, if
exercised, any Additional Shares purchased pursuant to the Warrant, are in
addition to the @Visory Portion described in the Agreement.
1.3 RIGHT TO REPURCHASE WARRANT AND ADDITIONAL SHARES. Sunhawk.com
shall have the right (the "Repurchase Right"), but no obligation, to
repurchase from the Consultant (and/or its transferees) the Warrant and, if
the Warrant is exercised, any Additional Shares purchased pursuant to the
Warrant, for a repurchase price equal to $.01 per (a) share subject to the
Warrant, or (b) Additional Share (the "Repurchase Price"). The Repurchase
Right shall be exercised as follows:
1.3.1 The Repurchase Price shall be payable in cash or other
immediately available U.S. funds.
1.3.2 Sunhawk.com shall exercise the Repurchase Right, at its
option, by delivering written notice (the "Repurchase Notice") to the
holder(s) of the Warrant and/or any Additional Shares (the "Holder"). The
Repurchase Notice shall specify a date (not later than 30 days after the
date of the Repurchase Notice) and place for the closing of the
repurchase transaction. Sunhawk.com shall be entitled to receive
customary representations and warranties from the Holder (including
representations and warranties regarding title held free and clear of all
encumbrances).
1.3.3 Unless sooner exercised, Sunhawk.com's Repurchase Right shall
expire and terminate automatically upon the effective date of any
transaction or series of transactions which results (a) in the sale of
all or substantially all of Sunhawk.com's assets, or (b) in persons or
entities which were not, immediately prior to such transactions or series
of transactions, the beneficial owners of at least 50% of the voting
power of Sunhawk.com owning, directly or indirectly, beneficial ownership
of more than 50% of such voting power (if Sunhawk.com is the survivor of
such transactions(s)) or more than 50% of the voting power of the
surviving entity (if Sunhawk.com is not the survivor of such
transaction(s)).
2. DEFINED TERMS.
Terms that appear in this Amendment with their initial letters capitalized
and are not otherwise defined shall have the meanings assigned them in the
Agreement unless the context expressly requires otherwise.
3. NO OTHER AMENDMENTS.
Except as expressly set forth in this Amendment, the terms and conditions of
the Agreement remain in full force and effect.
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4. COUNTERPARTS.
This Amendment may be executed in counterparts, each of which shall
constitute an original document, and both of which together shall constitute the
same document.
5. DATE OF AMENDMENT.
This Amendment shall be dated and effective as of , 2000.
<TABLE>
<S> <C> <C>
COMPANY:
COPYRIGHT CONTROL SERVICES, INC.
By:
-----------------------------------------------
David Powell, Chief Executive Officer
CONSULTANT:
@VISORY, LLC
By:
-----------------------------------------------
Paul Bandrowski, Manager
</TABLE>
145
<PAGE>
ANNEX G
JOSEPH GUNNAR, LLC ADVISORY AGREEMENT
146
<PAGE>
ADVISORY AGREEMENT
Agreement made and entered into as of the 18th day of February, 2000, by and
between SUNHAWK.COM CORPORATION, a Washington corporation having offices at 223
Taylor Avenue No., Suite 200, Seattle, WA 98109-5017 (the "Company"), and JOSEPH
GUNNAR & CO., LLC, a New York limited liability company, having offices at 30
Broad Street, 12th Floor, New York, NY 10004 (the "Advisor").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the Advisor and the Advisor desires
to be retained by the Company, all pursuant to the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein contained, it is agreed as follows:
1. RETENTION. The Company hereby retains the Advisor to perform basic
advisory services related to corporate finance and other financial service
matters, and the Advisor hereby accepts such retention. In this regard, Advisor
shall devote such business time and attention to matters on which the Company
shall request its services, subject to the direction of the Chief Executive
Officer or Chairman of the Board of the Company, as shall be determined
reasonable by the Advisor. Additionally, the Advisor stands ready to identify
and facilitate one or more corporate transactions on behalf of the Company.
2. TERM. The Advisor's retention hereunder shall be for a term of
18 months commencing on the date first above written (the "Term").
3. COMPENSATION.
(a) The Advisor shall be compensated for its basic advisory services in
the amount of $4,000 per month, a total of $72,000, payment of which is
acknowledged (see also Section 4).
(b) The Company shall, to the extent approved in advance by the
Company, pay such reasonable expenses as shall be incurred by the officers
and employees of the Advisor in connection with the discharge of their
duties hereunder, including travel and entertainment, but not including
expenses relating to Advisor's office operations; such payment shall be made
upon presentation by the Advisor of the details of, and vouchers for, such
expenses.
4. CORPORATE TRANSACTIONS.
(a) The Company has agreed that the Advisor may act as a finder and/or
financial consultant for the Company in various transactions in which the
Company may be involved. The Company hereby agrees that in the event that
the Advisor or a disclosed agent, representative or other designee of the
Advisor shall first introduce to the Company another party or entity, and
that as a result of such introduction, any of the following transactions are
consummated with such other party or entity (a "Covered Transaction"), or if
such introduction was by some other means, but Advisor manages the Covered
Transaction consummated between the Company and such party at the request of
the Company, then the Company shall pay the Advisor a fee of 5% of the Total
Consideration paid in such Covered Transaction: (i) any acquisition of more
than 20% of the stock or assets of any company; (ii) any sale of more than
20% of the stock or assets of the Company; (iii) any merger, joint venture
or other business combination to which the Company is a party.
(b) For purposes of this Agreement, "Total Consideration" shall mean
the total value of all cash, securities, or other property paid at the
closing of a Covered Transaction (or to be paid thereafter) either to the
Company or its shareholders or by the Company or its shareholders with
respect to such covered Transaction, including, without limitation,
consideration paid in respect of (i) the assets of the acquired company,
(ii) the capital stock of the acquired company (and any securities
convertible into options, warrants or other rights to acquire such capital
stock) and (iii) the
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assumption, directly or indirectly (by operation of law or otherwise), of
any long-term liabilities of the acquired company or repayment of
indebtedness, including without limitation, indebtedness secured by the
assets of the acquired company. In the event a Covered Transaction is
consummated in one or more steps, including without limitation, any
additional consideration paid or to be paid in any subsequent step as set
forth above, such additional consideration shall be included in the
definition of "Total Consideration." Any payments due to the Advisor will be
made at the time of the closing, except as otherwise provided herein.
(c) If all or a portion of the Total Consideration paid in the Covered
Transaction is other than cash or negotiable securities then the value of
such non-cash consideration shall be the fair market value thereof on the
date the Covered Transaction is consummated as mutually agreed upon in faith
by the Company and the Advisor. If such non-cash consideration consists of
common stock, options, warrants or rights for which a public trading market
existed prior to consummation of the Covered Transaction, then the value of
such securities shall be determined by the closing or last sales price
thereof on the date of the consummation of the Covered Transaction;
provided, however, that if such non-cash consideration consists of
newly-issued, publicly traded common stock, options, warrants or rights for
which no public trading market existed prior to the consummation of the
Covered Transaction, then the value thereof shall be the average of the
closing prices for the 20 trading days subsequent to the fifth trading day
after the consummation of the Covered Transaction. In such event, the fee
payable to the Advisor pursuant to this Agreement shall be paid on the fifth
trading day subsequent to consummation of the Covered Transaction. If no
public market exists for the common stock, options, warrants or rights
issued in the Covered Transaction, then the value of such securities shall
be as mutually agreed upon in good faith by the Company's Board of Directors
and the Advisor. If such non-cash consideration consists of preferred stock
or debt securities (regardless of whether a public trading market existed
for such preferred stock or debt securities prior to the consummation of the
Sale Transaction or exists thereafter), the value thereof shall be the fair
market value of such non-cash consideration. Any amounts payable to or by
the Company, or any affiliate of the Company or any shareholder of the
Company in connection with a non-competition agreement or any employment,
consulting, licensing, supply or other agreement entered into as part of a
Covered Transaction, to the extent that such amounts payable are greater
than what would customarily be paid on an arms-length basis to an employee,
consultant, licensee or supplier, shall be deemed to be part of the Total
Consideration.
(d) If all or a portion of the Total Consideration payable in
connection with a Covered Transaction includes future payments, then the
Company shall pay the Advisor any additional cash fee, determined in
accordance with this Agreement, when, and if such payments are paid.
(e) In the event that for any reason the Company shall fail to pay to
the Advisor all or any portion of the fees payable hereunder when due,
interest shall accrue and be payable on the unpaid cash balance due
hereunder from the date when first due through and including the date when
actually collected by the Advisor, at a rate equal to four percent above the
prime rate of Citibank, N.A., in New York, New York, computed on a daily
basis and adjusted as announced from time to time.
(f) The provisions of this Section 4 shall be effective on the date
hereof and shall expire simultaneously with the expiration of the Term of
this Agreement. Notwithstanding anything herein to the contrary, if the
Company shall, within 180 days immediately following the expiration of the
Term of this Agreement, conclude a Covered Transaction with any party
introduced to the Company by the Advisor or its agent, representative or
other designee prior to such expiration, the Company shall also pay the
Advisor the fee determined above.
5. LIABILITY AND INDEMNIFICATION.
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(a) Advisor shall not be subject to liability to the Company or to any
officer, director, employee, shareholder or creditor of the Company by
virtue of any act or omission in the course of or connected with the
rendering or providing of consulting services hereunder, except for acts of
bad faith or gross negligence by the Advisor.
(b) The Company hereby agrees to defend, indemnify and hold harmless
the Advisor from and against any and all costs, expenses, and liabilities
(including reasonable attorney's fees) which may in any way result from
services rendered by the Advisor pursuant to or in connection with this
Agreement, except for acts of bad faith or gross negligence by the Advisor.
6. NOTICES. Any notices hereunder shall be sent to the Company and the
Advisor at their respective addresses above set forth. Any notice shall be given
by registered or certified mail, postage prepaid, and shall be deemed to have
been given when deposited in the United States mail. Any party may designate any
other address to which notice shall be given, by giving written notice to the
other of such change of address in the manner herein provided.
7. GOVERNING LAW. This Agreement has been made in the State of New York
and shall be construed and governed in accordance with the laws thereof.
8. ENTIRE AGREEMENT. This Agreement contains the entire agreement between
the parties, may not be altered or modified, except in writing and signed by the
party to be charged thereby and supersedes any and all previous agreements
between the parties.
9. BINDING EFFECT. This Agreement shall be binding upon the parties hereto
and their respective heirs, administrators, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
<TABLE>
<S> <C> <C>
SUNHAWK.COM CORPORATION
By:
-------------------------------------------------
Marlin Eller, Chief Executive Officer
JOSEPH GUNNAR & CO., LLC
By:
-------------------------------------------------
Joseph A. Alagna, Jr., A Member
</TABLE>
149
<PAGE>
ANNEX H
AMENDMENT NO. 1 TO ADVISORY AGREEMENT
150
<PAGE>
AMENDMENT TO ADVISORY AGREEMENT
The Advisory Agreement between Joseph Gunnar & Co., LLC and Sunhawk.com
Corporation dated February 18, 2000, is amended to reflect that notwithstanding
fees otherwise due Joseph Gunnar & Co LLC, with respect to the business
combination between Sunhawk.com Corporation and Copyright Control Services, such
fee shall be no more than $750,000.00 payable subject to and at the closing of
such transaction.
<TABLE>
<S> <C>
SUNHAWK.COM JOSEPH GUNNAR & CO
By: By:
---------------------------------- -------------------------------------
Marlin Eller, CEO Stephan A. Stein
Dated: May 25, 2000 Dated: May 25, 2000
</TABLE>
151
<PAGE>
ANNEX I
PLAN OF EXCHANGE
152
<PAGE>
PLAN OF SHARE EXCHANGE
This Plan of Exchange is submitted in accordance with RCW 23B.11.020, and
summarizes the terms and conditions of the Share Exchange and the Share Exchange
Agreement, as amended and executed by and among the shareholders of Copyright
Control Services, Inc., a Delaware Corporation ("CCS"), and Sunhawk.com
Corporation, a Washington corporation ("Sunhawk"). This Plan of Share Exchange,
however, may not contain all the information that is important to you. The Share
Exchange Agreement, as amended, is attached to the proxy statement dated
August 25, 2000, as Annex A, and Sunhawk recommends that you read it carefully.
The Share Exchange Agreement and this Plan of Exchange have been reviewed by
Sunhawk's board of directors, and the board of directors unanimously recommends
that the shareholders approve this Plan of Exchange.
SHARE EXCHANGE
At the effective time of the share exchange, each share of CCS common stock
and preferred stock shall automatically be exchanged for a certain number of
shares of Sunhawk.com common stock and Class A Common Stock.
EXCHANGE RATIO/ESCROW
The ratio for the share exchange shall be such that all shares of CCS common
stock and preferred stock will be exchanged for a total of 1,950,938 shares of
Sunhawk common stock.
At closing all the CCS stockholders shall receive, on a pro rata basis,
825,000 of the total 1,950,938 shares to be exchanged. The balance, 1,125,938
shares of Class A Common Stock, shall be placed in escrow at closing. No
fractional shares will be issued in connection with the pro rata distribution of
the shares of common stock or Class A Common Stock to be issued at closing. The
shares that are held in escrow shall not be released until certain milestones,
as described in the Services Agreement and set forth on EXHIBIT A, have been
reached. If the milestones are reached on or before the expiration of specific
deadlines, that number of Class A Common Shares associated with the satisfaction
of the milestone set forth on EXHIBIT A shall be released to the CCS
stockholders on a pro rata basis. If the milestones described in the Services
Agreement are not reached prior to the expiration of the specific deadlines, the
Class A Common Shares associated with the satisfaction of the milestone set
forth on EXHIBIT A shall be returned to Sunhawk and retired as treasury stock.
CLASS A COMMON SHARES
In accordance with the above, Sunhawk shall place 1,125,938 shares of
Class A Common Shares in escrow. This class of shares currently does not exist
and the Sunhawk stockholders must approve the amendment to the Articles of
Incorporation to create them. The Class A Common Shares shall have all the
characteristics of common stock, except that:
a) the shares shall have 1/20 the vote of common stock;
b) the Class A Common Shares shall be convertible into common stock upon
their release from escrow; and
c) the Class A Common Shares shall, if not released from escrow and
converted into Sunhawk common stock in accordance with the timeframes set
forth in the escrow agreements, be returned to Sunhawk and retired as
treasury stock.
OPTIONS AND WARRANTS
The Share Exchange Agreement, as amended, provides that Sunhawk has the
option to adopt and assume the CCS 1999 Stock Option Plan. If Sunhawk adopts and
assumes the plan, the options therein
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shall convert into options to purchase Sunhawk shares in accordance with
exchange ratio described above and shall continue to vest in accordance with the
schedule set forth in the CCS 1999 Stock Option Plan. If Sunhawk does not elect
to adopt and assume the CCS 1999 Stock Option Plan, all options in that plan
shall vest immediately prior to closing.
HOLDBACK
In order to protect Sunhawk and the Sunhawk stockholders from CCS
liabilities in excess of those disclosed in the Share Exchange Agreement as
amended, the Share Exchange Agreement, as amended, calls for a holdback of
100,000 of the 825,000 Sunhawk common stock shares to be delivered to the CCS
stockholders on the effective date. The 100,000 shares will be held in escrow
while Ernst & Young performs a post-closing audit of the CCS books and records.
Any liabilities found by Ernst & Young that were not disclosed prior to the
closing will be paid out of the shares being held back. The number of shares
that will be used to offset the excess liabilities will be that whole number of
shares which product, when multiplied by the price per share at closing, equals
or exceeds the excess liabilities. If Ernst & Young does not find any excess
liabilities within 120 days of the closing, the shares subject shall be
delivered to the CCS stockholders.
SUNHAWK REPRESENTATIONS AND WARRANTIES
Sunhawk made several representations and warranties in the Share Exchange
Agreement, as amended, regarding aspects of its business. Sunhawk's
representations and warranties include representations as to:
- Organization
- Authorization
- Noncontravention
- Limited Representations and Warranties
- Disclosure
- Capitalization
- SEC Reports and Financial Statements
- Undisclosed Liabilities
- Legal Proceedings, Claims, etc.
- Tax Treatment
REPRESENTATIONS AND WARRANTIES OF CERTAIN CCS STOCKHOLDERS
Certain stockholders familiar with the business of CCS made personal
representations and warranties in the Share Exchange Agreement, as amended,
regarding aspects of CCS's business. Those certain stockholders include David
Powell, Julian Searle, and Phillip Bloom, who made representations and
warranties as to:
- Organization
- Authorization
- Capitalization
- Subsidiaries
- Ownership of the CCS shares
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- Noncontravention
- Financial Statements and Condition
- Absence of Material Change
- Litigation
- Taxes and Tax Returns
- Employees
- Compliance with Applicable Law
- Contracts and Agreements
- Affiliate Transactions
- Limited Representations and Warranties
- Disclosure
- Title to Property and Environmental Matters
- Personal Property
- Intellectual Property
- Insurance
- Powers of Attorney
- Bank Accounts
- Customers and Suppliers
- Product Claims
COVENANTS OF THE PARTIES
CCS has agreed that, until such time as the share exchange is complete, it
will conduct its business, and the business of any subsidiaries, and engage in
transactions, only in the ordinary course consistent with past practice.
CCS and its subsidiary will use their best efforts to preserve the business
organization keep the present services of its employees and preserve the
goodwill of its customers.
In addition, CCS has agreed that without the written permission of Sunhawk,
neither it nor its subsidiary will take certain actions in relation to the
following:
- The employment arrangement of employees, officers, and directors
- Capital expenditures
- Pricing polices and material business and customer policies
- Obligations of others
- Acquisition of assets
- Disposal of assets
- Long term contracts
- Other contracts
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- Material transactions or obligations
- Benefit plans
- Hiring
- Real property
NO SOLICITATION.
CCS has also agreed that from the date of signing of the Share Exchange
Agreement, as amended, until closing, it will not engage in, encourage, or
solicit any share exchange, or other change of control transaction. If the
agreement is terminated due to an uncured breach of this portion of the
agreement, CCS has agreed to pay to Sunhawk $2.5 million.
OTHER COVENANTS.
CCS and Sunhawk have both agreed to certain provisions regarding reasonable
access to records and the confidentiality thereof, as well as to provisions
regarding cooperation in connection with regulatory matters and further
assurances and public announcements.
APPOINTMENTS.
Sunhawk has agreed that following the share exchange, the board of directors
of Sunhawk will consist of the then current members of Sunhawk's board of
directors, and Paul Bandrowski, David Powell and a third nominee of CCS. Paul
Bandrowski will also be appointed as vice-chairman of the board of directors.
Following the share exchange, Marlin Eller, the current Chairman, Chief
Executive Officer and President of Sunhawk, will continue to be Chairman, Chief
Executive Officer and President of the combined company. Sunhawk has agreed that
David Powell and Julian Searle shall serve, respectively as President and Chief
Technology Officer of CCS, a wholly-owned subsidiary Division of Sunkawk.com and
will enter into employment agreements with each of them.
RESTRICTIONS ON TRANSFER.
David Powell, Julian Searle, and Phillip J. Bloom have agreed to hold their
shares personally and to not transfer their shares for a period of 12 months
after closing or until such time as Marlin Eller transfers any of his Sunhawk
shares, and that the registration, transfer and sale rights of Powell's,
Searle's, Bloom's and the @Visory Group's shares shall be the same as those of
Marlin Eller. In relation thereto, Sunhawk has agreed to take all necessary
actions to expedite the free transfer thereof.
TERMINATION
The parties have agreed that the Share Exchange Agreement, as amended, shall
terminate upon the occurrence of certain events, as follows:
- Upon the mutual written consent of both parties;
- By Sunhawk should its Nasdaq market capitalization, prior to closing,
exceed $26.00 per share;
- By CCS should Sunhawk's Nasdaq market capitalization, prior to closing, be
less than $6.50 per share;
- By either party if certain covenants of the other party have not been
satisfied or waived within prescribed time limits;
- By either party should the other party's representations and warranties be
in breach and not timely cured; or
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- By either party should the closing have not occurred prior to
September 30, 2000.
- In addition to the foregoing, the Share Exchange Agreement, as amended,
may be terminated by Sunhawk in accordance with CCS's No Solicitation
covenant, as set forth above.
157
<PAGE>
EXHIBIT A
TO THE
PLAN OF SHARE EXCHANGE
<TABLE>
<CAPTION>
CLASS A COMMON STOCK TO BE ISSUED UPON
COMMON SUNHAWK REACHING A MARKET CAPITALIZATION OF
STOCK TO BE ---------------------------------------------
ISSUED UPON $100,000,000 $125,000,000 $150,000,000
CONSUMMATION WITHIN 18 WITHIN 24 WITHIN 36
OF THE SHARE MOS. OF MOS. OF MOS. OF
EXCHANGE CONSUMMATION CONSUMMATION CONSUMMATION
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
CCS Shareholders........................ 750,000 250,000 250,000 250,000
@Visory................................. 75,000 124,060 124,059 127,819
------- ------- ------- ---------
374,060 374,059 377,819
Totals................................ 825,000 1,125,938
</TABLE>
158
<PAGE>
ANNEX J
FORM OF ARTICLES OF EXCHANGE
159
<PAGE>
FORM OF ARTICLES OF SHARE EXCHANGE OF
COPYRIGHT CONTROL SERVICES, INC.
INTO
SUNHAWK.COM CORPORATION
Pursuant to RCW 23B.11.050, the corporations described herein, desiring to
effect a share exchange set forth the following facts:
ARTICLE I
The name of the corporation surviving the share exchange is:
SUNHAWK.COM CORPORATION
The name of the surviving corporation has not been changed as a result of
the share exchange.
ARTICLE II
The surviving corporation is a domestic corporation, incorporated in this
state on: August 20, 1992.
ARTICLE III
The name of the nonsurviving corporation is: Copyright Control
Services, Inc.
The state of domicile of the nonsurviving corporation is: Delaware
The date of incorporation of the nonsurviving corporation is: [ ]
ARTICLE IV
The Plan of Share Exchange, containing the information required by RCW
23B.11.040, is set forth in Exhibit A, which is attached hereto and made a part
hereof.
ARTICLE V
The manner of adoption and vote of the surviving corporation was as follows:
Duly approved by shareholder action.
The total number of undisputed votes cast for the plan: [ ]
The number of votes cast for the plan was sufficient for approval.
ARTICLE VI
The manner of adoption and vote of the nonsurviving corporation was as
follows:
Duly approved by shareholder action.
The total number of undisputed votes cast for the plan: [ ]
The number of votes cast for the plan was sufficient for approval.
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ARTICLE VII
These Articles of Share Exchange will be effective upon filing.
Date:
-------------------------------------------
DAVID M. OTTO, SECRETARY
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EXHIBIT A
TO THE
ARTICLES OF SHARE EXCHANGE
PLAN OF SHARE EXCHANGE
This Plan of Exchange is submitted in accordance with RCW 23B.11.020, and
summarizes the terms and conditions of the Share Exchange and the Share Exchange
Agreement, as amended and executed by and among the shareholders of Copyright
Control Services, Inc., a Delaware Corporation ("CCS"), and Sunhawk.com
Corporation, a Washington corporation ("Sunhawk"). This Plan of Share Exchange,
however, may not contain all the information that is important to you. The Share
Exchange Agreement, as amended, is attached to the proxy statement dated
August 25, 2000, as Annex A, and Sunhawk recommends that you read it carefully.
The Share Exchange Agreement and this Plan of Exchange have been reviewed by
Sunhawk's board of directors, and the board of directors unanimously recommends
that the shareholders approve this Plan of Exchange.
SHARE EXCHANGE
At the effective time of the share exchange, each share of CCS common stock
and preferred stock shall automatically be exchanged for a certain number of
shares of Sunhawk.com common stock and Class A Common Stock.
EXCHANGE RATIO/ESCROW
The ratio for the share exchange shall be such that all shares of CCS common
stock and preferred stock will be exchanged for a total of 1,950,938 shares of
Sunhawk common stock.
At closing all the CCS stockholders shall receive, on a pro rata basis,
825,000 of the total 1,950,938 shares to be exchanged. The balance, 1,125,938
shares of Class A Common Stock, shall be placed in escrow at closing. No
fractional shares will be issued in connection with the pro rata distribution of
the shares of common stock or Class A Common Stock to be issued at closing. The
shares that are held in escrow shall not be released until certain milestones,
as described in the Services Agreement and set forth on EXHIBIT A, have been
reached. If the milestones are reached on or before the expiration of specific
deadlines, that number of Class A Common Shares associated with the satisfaction
of the milestone set forth on EXHIBIT A shall be released to the CCS
stockholders on a pro rata basis. If the milestones described in the Services
Agreement are not reached prior to the expiration of the specific deadlines, the
Class A Common Shares associated with the satisfaction of the milestone set
forth on EXHIBIT A shall be returned to Sunhawk and retired as treasury stock.
CLASS A COMMON SHARES
In accordance with the above, Sunhawk shall place 1,125,938 shares of
Class A Common Shares in escrow. This class of shares currently does not exist
and the Sunhawk stockholders must approve the amendment to the Articles of
Incorporation to create them. The Class A Common Shares shall have all the
characteristics of common stock, except that:
1. the shares shall have 1/20 the vote of common stock;
2. the Class A Common Shares shall be convertible into common stock upon
their release from escrow; and
3. the Class A Common Shares shall, if not released from escrow and
converted into Sunhawk common stock in accordance with the timeframes set
forth in the escrow agreements, be returned to Sunhawk and retired as
treasury stock.
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OPTIONS AND WARRANTS
The Share Exchange Agreement, as amended, provides that Sunhawk has the
option to adopt and assume the CCS 1999 Stock Option Plan. If Sunhawk adopts and
assumes the plan, the options therein shall convert into options to purchase
Sunhawk shares in accordance with exchange ratio described above and shall
continue to vest in accordance with the schedule set forth in the CCS 1999 Stock
Option Plan. If Sunhawk does not elect to adopt and assume the CCS 1999 Stock
Option Plan, all options in that plan shall vest immediately prior to closing.
HOLDBACK
In order to protect Sunhawk and the Sunhawk stockholders from CCS
liabilities in excess of those disclosed in the Share Exchange Agreement as
amended, the Share Exchange Agreement, as amended, calls for a holdback of
100,000 of the 825,000 Sunhawk common stock shares to be delivered to the CCS
stockholders on the effective date. The 100,000 shares will be held in escrow
while Ernst & Young performs a post-closing audit of the CCS books and records.
Any liabilities found by Ernst & Young that were not disclosed prior to the
closing will be paid out of the shares being held back. The number of shares
that will be used to offset the excess liabilities will be that whole number of
shares which product, when multiplied by the price per share at closing, equals
or exceeds the excess liabilities. If Ernst & Young does not find any excess
liabilities within 120 days of the closing, the shares subject shall be
delivered to the CCS stockholders.
SUNHAWK REPRESENTATIONS AND WARRANTIES
Sunhawk made several representations and warranties in the Share Exchange
Agreement, as amended, regarding aspects of its business. Sunhawk's
representations and warranties include representations as to:
- Organization
- Authorization
- Noncontravention
- Limited Representations and Warranties
- Disclosure
- Capitalization
- SEC Reports and Financial Statements
- Undisclosed Liabilities
- Legal Proceedings, Claims, etc.
- Tax Treatment
REPRESENTATIONS AND WARRANTIES OF CERTAIN CCS STOCKHOLDERS
Certain stockholders familiar with the business of CCS made personal
representations and warranties in the Share Exchange Agreement, as amended,
regarding aspects of CCS's business. Those certain stockholders include David
Powell, Julian Searle, and Phillip Bloom, who made representations and
warranties as to:
- Organization
- Authorization
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- Capitalization
- Subsidiaries
- Ownership of the CCS shares
- Noncontravention
- Financial Statements and Condition
- Absence of Material Change
- Litigation
- Taxes and Tax Returns
- Employees
- Compliance with Applicable Law
- Contracts and Agreements
- Affiliate Transactions
- Limited Representations and Warranties
- Disclosure
- Title to Property and Environmental Matters
- Personal Property
- Intellectual Property
- Insurance
- Powers of Attorney
- Bank Accounts
- Customers and Suppliers
- Product Claims
COVENANTS OF THE PARTIES
CCS has agreed that, until such time as the share exchange is complete, it
will conduct its business, and the business of any subsidiaries, and engage in
transactions, only in the ordinary course consistent with past practice.
CCS and its subsidiary will use their best efforts to preserve the business
organization keep the present services of its employees and preserve the
goodwill of its customers.
In addition, CCS has agreed that without the written permission of Sunhawk,
neither it nor its subsidiary will take certain actions in relation to the
following:
- The employment arrangement of employees, officers, and directors
- Capital expenditures
- Pricing polices and material business and customer policies
- Obligations of others
- Acquisition of assets
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- Disposal of assets
- Long term contracts
- Other contracts
- Material transactions or obligations
- Benefit plans
- Hiring
- Real property
NO SOLICITATION.
CCS has also agreed that from the date of signing of the Share Exchange
Agreement, as amended, until closing, it will not engage in, encourage, or
solicit any share exchange, or other change of control transaction. If the
agreement is terminated due to an uncured breach of this portion of the
agreement, CCS has agreed to pay to Sunhawk $2.5 million.
OTHER COVENANTS.
CCS and Sunhawk have both agreed to certain provisions regarding reasonable
access to records and the confidentiality thereof, as well as to provisions
regarding cooperation in connection with regulatory matters and further
assurances and public announcements.
APPOINTMENTS.
Sunhawk has agreed that following the share exchange, the board of directors
of Sunhawk will consist of the then current members of Sunhawk's board of
directors, and Paul Bandrowski, David Powell and a third nominee of CCS. Paul
Bandrowski will also be appointed as vice-chairman of the board of directors.
Following the share exchange, Marlin Eller, the current Chairman, Chief
Executive Officer and President of Sunhawk, will continue to be Chairman, Chief
Executive Officer and President of the combined company. Sunhawk has agreed that
David Powell and Julian Searle shall serve, respectively as President and Chief
Technology Officer of CCS, a wholly-owned subsidiary Division of Sunkawk.com and
will enter into employment agreements with each of them.
RESTRICTIONS ON TRANSFER.
David Powell, Julian Searle, and Phillip J. Bloom have agreed to hold their
shares personally and to not transfer their shares for a period of 12 months
after closing or until such time as Marlin Eller transfers any of his Sunhawk
shares, and that the registration, transfer and sale rights of Powell's,
Searle's, Bloom's and the @Visory Group's shares shall be the same as those of
Marlin Eller. In relation thereto, Sunhawk has agreed to take all necessary
actions to expedite the free transfer thereof.
TERMINATION
The parties have agreed that the Share Exchange Agreement, as amended, shall
terminate upon the occurrence of certain events, as follows:
- Upon the mutual written consent of both parties;
- By Sunhawk should its Nasdaq market capitalization, prior to closing,
exceed $26.00 per share;
- By CCS should Sunhawk's Nasdaq market capitalization, prior to closing, be
less than $6.50 per share;
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- By either party if certain covenants of the other party have not been
satisfied or waived within prescribed time limits;
- By either party should the other party's representations and warranties be
in breach and not timely cured; or
- By either party should the closing have not occurred prior to
September 30, 2000.
- In addition to the foregoing, the Share Exchange Agreement, as amended,
may be terminated by Sunhawk in accordance with CCS's No Solicitation
covenant, as set forth above.
166
<PAGE>
EXHIBIT A
TO THE
PLAN OF SHARE EXCHANGE
<TABLE>
<CAPTION>
CLASS A COMMON STOCK TO BE ISSUED UPON
COMMON SUNHAWK REACHING A MARKET CAPITALIZATION OF
STOCK TO BE ---------------------------------------------
ISSUED UPON $100,000,000 $125,000,000 $150,000,000
CONSUMMATION WITHIN WITHIN WITHIN
OF THE SHARE 18 MOS. OF 24 MOS. OF 36 MOS. OF
EXCHANGE CONSUMMATION CONSUMMATION CONSUMMATION
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
CCS Shareholders........................ 750,000 250,000 250,000 250,000
@Visory................................. 75,000 124,060 124,059 127,819
------- ------- ------- ---------
374,060 374,059 377,819
Totals.................................. 825,000 1,125,938
</TABLE>
167
<PAGE>
--------------------------------------------------------------------------------
PROXY
SUNHAWK.COM CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Marlin Eller and Tricia
Parks-Holbrook jointly and severally, proxies, with full power of
substitution, to vote all shares of Common Stock of Sunhawk.com Corporation,
a Washington corporation, which the undersigned is entitled to vote at the
Special Meeting of Stockholders to be held at the Sheraton Seattle Hotel &
Towers, 1400 Sixth Avenue, Seattle, Washington, on Wednesday, September 27,
2000, at 10:00 a.m., local time, or any adjournment thereof. The proxies are
being directed to vote as specified below or, if no specification is made,
FOR the proposed share exchange of all CCS shares for up to 1,950,938 shares
of Sunhawk.com common stock, 1,125,938 shares of which shall be designated
Class A common stock, FOR the proposed amendment to Sunhawk.com's Articles of
Incorporation creating a new class of stock to be designated Class A Common
Stock, as contemplated by the Share Exchange Agreement, as amended, dated as
of August 1, 2000 between Sunhawk.com and CCS and FOR the proposed increase
from 303,526 to 800,000 in the number of shares available for issuance under
Sunhawk.com's 1996 Stock Option Plan, and in accordance with their
discretion on such other matters that may properly come before the meeting.
The directors recommend a FOR vote on the above items.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
--------------------------------------------------------------------------------
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<PAGE>
<TABLE>
<S><C>
------------------------------------------------------------------------------------------------------------------------------------
/X/ Please mark
your vote as
indicated in
this example.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" EACH OF THE PROPOSALS LISTED BELOW.
FOR AGAINST ABSTAIN
1. Proposal on the share exchange / / / / / /
and Plan of Share Exchange
between Sunhawk.com Corporation
and Copyright Control Services,
Inc., whereby Copyright Control
Services, Inc. shall become a
wholly-owned subsidiary of
Sunhawk.com;
FOR AGAINST ABSTAIN
2. Proposal amending the / / / / / /
Sunhawk.com Articles of
Incorporation to create a
new class of common stock to
be designated Class A Common
Stock; and
FOR AGAINST ABSTAIN
3. Proposal increasing the number / / / / / /
of shares available for issuance
under Sunhawk.com's 1996 Stock
Option Plan:
YES NO
___________________________________________ I plan to attend the Special Meeting: / / / /
_________________________________________________ _______________________________________________ Date __________________ 2000
Signature (title, if any) Signature, if held jointly
(Signature(s) must be exactly as name(s) appear on this Proxy. If signing as attorney, executor, administrator, trustee or guardian,
please give full title as such, and, if signing for a corporation, please give your title. When shares are in the names of more than
one person, each should sign this Proxy.)
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</TABLE>
