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AMENDMENT NO. 1
TO
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:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/X/ 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:
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(4) Date Filed:
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[LOGO]
Dear Stockholder:
I am pleased to forward to you the enclosed Amendment No. 1 to the proxy
statement for the Special Meeting of Stockholders of Sunhawk.com Corporation
("Sunhawk.com") to be held on Wednesday, October 25, 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 that the Board of Directors
is authorized to issue 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 provide shares or
warrants to acquire, or otherwise transfer, to shareholders of CCS up to
1,950,938 shares of common stock and Class A common stock of Sunhawk.com. Of the
common stock to be transferred, 750,000 shares and a warrant, to acquire 75,000
common shares of Sunhawk.com common stock with a purchase price of $.0001 per
share with an exercise period of five years will be delivered to the CCS
shareholders at closing, 100,000 shares of which shall be held by Sunhawk.com
pending a post-closing audit of CCS by an independent auditing firm. The
remaining 1,125,938 shares and warrants shall be provided as 750,000 shares of
Class A Common shares, which will have very limited voting rights, and will be
placed in escrow and a warrant to acquire 375,938 shares of common stock. The
Class A Common shares will be released from escrow only if Sunhawk.com satisfies
certain market capitalization requirements. Likewise, the 375,938 shares of
common stock underlying the warrants may only be acquired if the market
capitalization requirements are satisfied. Additionally, Sunhawk.com may assume
all outstanding employee options in the CCS 1999 stock option plan.
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,
[LOGO]
Marlin J. Eller,
Chairman and Chief Executive Officer
Amendment No. 1 to the Proxy statement dated October 13, 2000 and first
mailed to stockholders on October 13, 2000.
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SUNHAWK.COM CORPORATION
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 25, 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, October 25, 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 (750,000 shares of which will be issued at
closing and 75,000 of which shall be issued pursuant to a warrant),
750,000 shares of Sunhawk.com's Class A Common Stock and a warrant to
acquire 375,938 shares of Sunhawk.com 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 EMPLOYEE STOCK OPTION PLAN.
By Order of the Board of Directors
[LOGO]
David M. Otto, Secretary
October 13, 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.
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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 SHAREHOLDERS OF CCS?... 8
Q. HOW DO I VOTE?......................................... 8
Q: WHAT DO CCS SHAREHOLDERS 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?................. 9
Q: ARE THE SUNHAWK.COM STOCKHOLDERS ENTITLED TO
DISSENTERS' OR APPRAISAL RIGHTS?....................... 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").................. 13
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 AND CHINEROSE UNAUDITED FINANCIAL STATEMENTS............ 18
UNAUDITED PRO FORMA FINANCIAL DATA.......................... 28
COMPARATIVE PER SHARE DATA.................................. 36
MARKET PRICE AND DIVIDEND INFORMATION..................... 37
RECENT SHARE PRICE........................................ 37
DIVIDENDS................................................. 37
THE SPECIAL MEETING......................................... 38
GENERAL................................................... 38
RECORD DATE AND QUORUM REQUIREMENTS....................... 38
VOTE REQUIRED............................................. 38
VOTING AND REVOCATION OF PROXIES.......................... 39
SOLICITATION OF PROXIES................................... 39
EXPENSES OF PROXY SOLICITATION............................ 39
THE SHARE EXCHANGE.......................................... 40
BACKGROUND OF THE SHARE EXCHANGE.......................... 40
SUNHAWK.COM'S REASON FOR THE SHARE EXCHANGE............... 41
CCS'S REASON FOR THE SHARE EXCHANGE....................... 41
RECOMMENDATION OF THE BOARD OF DIRECTORS.................. 41
INTERESTS OF SUNHAWK.COM DIRECTORS, OFFICERS, AND
SIGNIFICANT STOCKHOLDERS IN THE SHARE EXCHANGE.......... 42
COMPLETION AND EFFECTIVENESS OF THE SHARE EXCHANGE........ 42
STRUCTURE OF SHARE EXCHANGE AND CONVERSION OF CCS
SHARES.................................................. 42
NO DIVIDENDS.............................................. 42
MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS.......................................... 42
ACCOUNTING TREATMENT FOR THE SHARE EXCHANGE............... 43
CERTAIN SECURITIES LAWS CONSIDERATIONS.................... 43
DISSENTER'S RIGHTS........................................ 43
THE SHARE EXCHANGE AGREEMENT, AS AMENDED.................... 43
SHARE EXCHANGE............................................ 43
EXCHANGE RATIO/ESCROW..................................... 43
CLASS A COMMON SHARES..................................... 44
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EMPLOYEE OPTIONS.......................................... 44
HOLDBACK.................................................. 45
SUNHAWK.COM REPRESENTATIONS AND WARRANTIES................ 45
REPRESENTATIONS AND WARRANTIES OF CERTAIN CCS
SHAREHOLDERS............................................ 45
COVENANTS OF THE PARTIES.................................. 46
TERMINATION............................................... 47
INTEREST OF CERTAIN PERSONS................................. 48
CLASS A COMMON STOCK........................................ 48
TITLE AND AMOUNT TO BE AUTHORIZED AND ISSUED.............. 48
DIVIDEND.................................................. 49
VOTING.................................................... 49
CONVERSION................................................ 49
LIQUIDATION............................................... 49
OTHER MATERIAL RIGHTS OR RESTRICTIONS..................... 49
AGREEMENTS RELATED TO THE SHARE EXCHANGE.................... 49
AMENDMENT NO. 1 TO THE SHARE EXCHANGE AGREEMENT........... 49
LETTER OF INTENT.......................................... 49
AMENDMENT NO. 1 TO THE LETTER OF INTENT................... 50
SERVICES AGREEMENT (Amendment No. 1 to Consulting
Agreement).............................................. 50
ESCROW AGREEMENT AND WARRANT AGREEMENT.................... 51
REGISTRATION RIGHTS AGREEMENT............................. 51
ADVISORY AGREEMENT........................................ 52
EMPLOYMENT AGREEMENTS..................................... 52
SUNHAWK.COM BUSINESS........................................ 52
SECURITY OWNERSHIP OF BENEFICIAL OWNERSHIP AND
MANAGEMENT.............................................. 52
COMPENSATION EXECUTIVE OFFICERS........................... 53
CCS BUSINESS................................................ 54
CCS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION...................... 54
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,
2000 COMPARED TO THE SIX MONTH ENDED JUNE 30, 1999...... 54
REVENUE................................................... 54
COST OF REVENUE........................................... 55
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.............. 55
OTHER INCOME/(EXPENSE).................................... 55
LIQUIDITY AND CAPITAL RESOURCES........................... 55
CCS MANAGEMENT............................................ 55
CCS PRINCIPAL SHAREHOLDERS................................ 56
INCREASE OF COMMON STOCK AUTHORIZED FOR ISSUANCE UNDER 1996
EMPLOYEE STOCK OPTION PLAN................................ 56
SUMMARY................................................... 56
RECOMMENDATION OF BOARD OF DIRECTORS...................... 56
LEGAL MATTERS............................................... 57
STOCKHOLDER PROPOSALS....................................... 57
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WHERE YOU CAN FIND MORE INFORMATION......................... 57
ANNEX A LETTER OF INTENT.................................... 59
ANNEX B AMENDMENT NO. 1 TO THE LETTER OF INTENT............. 65
ANNEX C SHARE EXCHANGE AGREEMENT............................ 70
ANNEX D AMENDMENT NO. 1 TO THE SHARE EXCHANGE AGREEMENT..... 136
ANNEX E AMENDMENT NO. 2 TO THE SHARE EXCHANGE AGREEMENT..... 139
ANNEX F CONSULTING AGREEMENT BETWEEN COPYRIGHT CONTROL
SERVICES, INC. AND @VISORY, LLC........................... 142
ANNEX G AMENDMENT NO. 1 TO CONSULTING AGREEMENT............. 148
ANNEX H CONSULTING AGREEMENT BETWEEN SUNHAWK.COM CORPORATION
AND @VISORY, LLC.......................................... 151
ANNEX I JOSEPH GUNNAR, LLC ADVISORY AGREEMENT............... 157
ANNEX J AMENDMENT NO. 1 TO ADVISORY AGREEMENT............... 161
ANNEX K PLAN OF EXCHANGE.................................... 163
ANNEX L FORM OF ARTICLES OF EXCHANGE........................ 170
ANNEX M FORM OF @VISORY WARRANT............................. 178
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QUESTIONS AND ANSWERS
Q. WHAT AM I VOTING ON? (SEE PAGE 38)
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 (750,000 of which shall be issued at closing and
75,000 of which shall be issued pursuant to a warrant) and 750,000 of its
Class A Common Stock and a warrant to acquire 375,938 shares of Sunhawk.com
common stock for all of the outstanding shares of CCS from the CCS
shareholders. 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 Agreement to be
entered into between Sunhawk.com, and the CCS shareholders and, with respect
to the warrant to be entered into between Sunhawk.com and @Visory, 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 41)
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?
A. We are working toward completing the share exchange as quickly as possible.
We must complete the share exchange before October 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 SHAREHOLDERS OF 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 shareholders 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 SHAREHOLDERS RECEIVE IN THE SHARE EXCHANGE?
(SEE PAGE 42)
A: When the share exchange is completed, holders of CCS stock will receive, in
total, no more than 1,950,938 shares of Sunhawk.com common stock, or right
to receive shares of Sunhawk.com common stock, and Class A Common Stock in
exchange for all of the outstanding shares of CCS
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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.
Q: DOES THE BOARD OF DIRECTORS OF SUNHAWK.COM RECOMMEND VOTING IN FAVOR OF THE
SHARE EXCHANGE? (SEE PAGE 40)
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 42)
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?
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 39)
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 57)
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)
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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.
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 38)
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 October 13, 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.
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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 shareholders. CCS will survive the share exchange as a
wholly-owned subsidiary of Sunhawk.com. CCS shareholders may receive up to a
total of 1,950,938 shares of Sunhawk.com common stock. Of those Sunhawk.com
shares, upon closing 750,000 common shares will be delivered to the CCS
shareholders, less 100,000 shares, which shall be held by Sunhawk.com pending a
post-closing audit of CCS by an independent auditing firm. @Visory will receive
a warrant to acquire 75,000 common shares with a purchase price of $.0001 per
share and with an exercise period of five years. Also, upon closing, 750,000
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, and 375,938
shares with a purchase price of $.0001 per share and an exercise period of five
years, shall be subject to a warrant issued to @Visory and subject to the same
market capitalization criteria. No fractional shares will be issued in
connection with the issuance of either the closing shares of common stock or the
shares of Class A common stock. If the market capitalization criteria are not
satisfied, both the Class A shares and the warrant to acquire common shares
shall be returned to Sunhawk.com or otherwise expire in accordance with the
timing deadlines associated with the satisfaction of such market capitalization
criteria. In addition to the foregoing, Sunhawk.com has committed to issue to
various officers and managers of Sunhawk.com, managers of CCS and @Visory,
11
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up to 2,375,321 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 of
which 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.
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 shareholders 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 or warrants to purchase Sunhawk.com 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
12
<PAGE>
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.
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, October 25, 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
13
<PAGE>
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
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 authorized 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
shareholders. 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 up to 1,950,938 shares of Sunhawk.com
common stock, Class A common stock or warrants to purchase common stock at a per
share price of $.0001 with an exercise period of five years to CCS shareholders
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. Additionally, Sunhawk.com may assume all outstanding employee
options in the CCS 1999 stock option plan.
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.
14
<PAGE>
The amount of options and the terms and conditions upon which these options
shall be issued 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>
The purchase or "strike" price for the 283,333 options to be issued to
Mr. Eller upon consummation of the share exchange will be the market price on
the date of consummation of the share exchange and the purchase "strike" price
for all of the remaining options shall be the market price of Sunhawk.com's
common stock at the time the market capitalization goals are satisfied and shall
vest and be exerciseable in accordance with the terms of the Sunhawk.com 1996
Stock Option Plan. If, Sunhawk.com fails to achieve the market capitalization
goals described in the time frames set forth above, the options will cancel.
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 purchased
intangibles are expected to be created, which will be amortized over a yet to be
determined period (See Unaudited Pro Forma Combined Condensed Financial
Statements at page 28).
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
prevail in 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>
COPYRIGHT CONTROL SERVICES, INC.
AND
CHINEROSE LIMITED DOING BUSINESS AS COPYRIGHT CONTROL SERVICES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
COPYRIGHT
CONTROL CHINEROSE
SERVICES, INC. LIMITED
JUNE 30, AUGUST 31,
2000 1999
-------------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ -- 587
Accounts receivable....................................... 13,092 27,604
Prepaid expense........................................... 4,562 3,030
Other assets.............................................. 2,520 --
--------- ---------
Total current assets.................................. 20,174 31,221
--------- ---------
Property and equipment, net................................. 57,060 62,915
Other assets:
Deposits.................................................. 12,042 --
--------- ---------
Total other assets.................................... 12,042 --
--------- ---------
Total assets.......................................... $ 89,276 $ 94,136
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses..................... 253,548 94,350
Notes payable to related parties.......................... 147,700 12,700
Accrued interest on related parties....................... 3,468 --
Notes payable to shareholder.............................. 260,953 235,953
Accrued interest on note payable to shareholder........... 5,856 --
--------- ---------
Total current liabilities............................. 671,525 343,003
--------- ---------
Shareholders' equity (deficit):
Common stock, par value of $0.0001
Authorized shares--10,000,000
Outstanding shares--8,065,285 and 1,000,000 at June 30,
2000 and August 31, 1999, respectively................ 15,183 16,030
Additional paid in capital................................ 311,620 24,180
Accumulated deficit....................................... (948,500) (294,906)
Foreign currency exchange translation adjustment.......... 39,448 5,829
--------- ---------
Total shareholders' equity (deficit).................. (582,249) (248,867)
--------- ---------
Total liabilities and shareholders' equity
(deficit)........................................... $ 89,276 $ 94,136
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
18
<PAGE>
COPYRIGHT CONTROL SERVICES, INC.
AND
CHINEROSE LIMITED DOING BUSINESS AS COPYRIGHT CONTROL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
COPYRIGHT CONTROL SERVICES, INC. CHINEROSE
---------------------------------------------------- LIMITED
FOUR MONTHS ---------------
ENDED JUNE 17, 1998
TEN MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, (INCEPTION) TO
JUNE 30, 2000 JUNE 30, 2000 1999 AUGUST 31, 1999
---------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenue....................... $ 167,575 $ 123,385 $ 44,190 $ 150,470
Cost of revenue............... 168,555 144,163 24,392 53,552
--------- --------- --------- ---------
Gross profit (loss)........... (980) (20,778) 19,798 96,918
Selling, general and
administrative.............. 640,816 501,813 139,003 390,837
--------- --------- --------- ---------
Loss from operations.......... (641,796) (522,591) (119,205) (293,919)
Other income (expense), net... (11,798) (10,757) (1,041) (987)
--------- --------- --------- ---------
Net loss...................... (653,594) (533,348) (120,246) (294,906)
Foreign currency exchange
translation adjustment...... 33,619 34,899 (1,280) 5,829
--------- --------- --------- ---------
Comprehensive loss............ $(619,975) $(498,449) $(121,526) $(289,077)
========= ========= ========= =========
Net loss per share:
Basic and diluted........... $ (0.08) $ (0.07) $ (0.02) $ (1.75)
========= ========= ========= =========
Weighted average common shares
for net loss per share
computations:
Basic and diluted........... 7,705,194 7,919,634 7,387,050 168,529
========= ========= ========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
19
<PAGE>
COPYRIGHT CONTROL SERVICES, INC.
AND
CHINEROSE LIMITED DOING BUSINESS AS COPYRIGHT CONTROL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
COPYRIGHT CHINEROSE
CONTROL LIMITED
SERVICES, INC. JUNE 17, 1998
TEN MONTHS ENDED (INCEPTION) TO
JUNE 30, 2000 AUGUST 31, 1999
---------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(653,594) $(294,906)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 12,011 19,021
Accrued interest on notes payable to related parties and
shareholder............................................. 9,324 --
Consulting expense related to issuance of warrants and
stock................................................... 265,058 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable.............. 14,512 (27,604)
Increase in prepaid expense............................. (1,532) (3,030)
Increase in other assets................................ (14,562) --
Increase in accounts payable and accrued expenses....... 159,198 66,217
--------- ---------
Net cash used in operating activities....................... (209,585) (240,302)
--------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment......................... (6,156) (53,803)
--------- ---------
Net cash provided by investing activities................... (6,156) (53,803)
--------- ---------
FINANCING ACTIVITIES
Proceeds on notes payable to shareholders................... 25,000 235,953
Proceeds from notes payable issued to related parties....... 135,000 12,700
Issuance of common stock.................................... 21,535 40,210
--------- ---------
Net cash provided by financing activities................... 181,535 288,863
--------- ---------
Foreign currency exchange translation....................... 33,619 5,829
Net increase (decrease) in cash............................. (587) 587
Cash at beginning of period................................. 587 --
--------- ---------
Cash at end of period....................................... $ -- $ 587
========= =========
Supplemental disclosure of non-cash investing and financing
activities:
Acquisition of vehicle with debt........................ $ -- $ 28,133
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
20
<PAGE>
COPYRIGHT CONTROL SERVICES, INC.
AND CHINEROSE LIMITED DOING BUSINESS AS
COPYRIGHT CONTROL SERVICES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND LIQUIDITY
BUSINESS AND ORGANIZATION
Chinerose Limited (Chinerose) was incorporated on June 17, 1998 and is a
private company with limited liability registered in England who does business
under the name Copyright Control Services. Chinerose, doing business as
Copyright Control Services, contracts with companies owning intellectual digital
content to provide security services and protection solutions. On August 27,
1999 Copyright Control Services, Inc. (CCS) was incorporated in the state of
Delaware. On October 4, 1999 CCS exchanged 2,775,000 shares of its common stock
for 1,000,000 shares of common stock in Chinerose, whereupon Chinerose Limited
doing business as Copyright Control Services became a wholly-owned subsidiary of
CCS and continues to provide the same services. This is a recapitalization of
companies under common control as the percentage share ownership of each
shareholder in CCS is identical to their percentage share ownership in Chinerose
just prior to the share exchange mentioned above. Accordingly, the historical
bases of Chinerose have been carried forward to CCS.
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 $533,348, and had an
accumulated deficit of $948,500. 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 approximately
$900,000, 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 Corporation (Sunhawk). If the Shares Exchange Agreement with
Sunhawk does not close, management will seek alternative financing.
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
The functional currency is the pound sterling, which is the local currency.
The balance sheet accounts are translated into U.S. dollars at the rate of
exchange in effect at the balance sheet dates. Revenues, costs and expenses are
translated into U.S. dollars at the average rate of exchange in effect during
each reporting period. The resulting translation adjustment is recorded as a
separate component of shareholders' equity. All foreign currency transaction
gains and losses are included in the results of operations.
21
<PAGE>
COPYRIGHT CONTROL SERVICES, INC.
AND CHINEROSE LIMITED DOING BUSINESS AS
COPYRIGHT CONTROL SERVICES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue from contracts is recorded as services are provided.
INCOME TAXES
The liability method is used to account for income taxes . Under the
liability method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and liabilities
that are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to be recovered. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amounts
expected to be realized.
STOCK-BASED COMPENSATION
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, defines a fair value
of accounting for issuance of stock options and other equity investments. Under
the fair value method, compensation cost is measured at the grant date based on
the fair value of the award and is recognized over the service period, which is
usually the vesting period. Pursuant to SFAS No. 123, companies are encouraged,
but not required, to adopt the fair value method of accounting for employee
stock-based transactions. The Company as permitted continues to account for such
transactions under Accounting Principles Board (APB) Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES, and discloses in a note to the financial
statements pro forma net income amounts as if the Company had applied the new
method of accounting.
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 United
States 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.
The accompanying unaudited consolidated interim financial statements do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation have been included. Operating results for the
four month period ended December 31, 1999, the six month period ended June 30,
2000 and the ten month period ended June 30, 2000 is not necessarily indicative
of the results that may be expected for the comparable periods in 2000 and 2001.
22
<PAGE>
COPYRIGHT CONTROL SERVICES, INC.
AND CHINEROSE LIMITED DOING BUSINESS AS
COPYRIGHT CONTROL SERVICES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30, AUGUST 31,
2000 1999
-------- ----------
<S> <C> <C>
Computers and software.................................. $ 46,697 40,541
Vehicles................................................ 28,133 28,133
Furniture and fixtures.................................. 10,506 10,506
Other................................................... 2,756 2,756
-------- --------
88,092 81,936
Less accumulated depreciation........................... (31,032) (19,021)
-------- --------
$ 57,060 $ 62,915
======== ========
</TABLE>
4. NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties as of June 30, 2000 and August 31, 1999
were as follow:
<TABLE>
<CAPTION>
JUNE 30, AUGUST 31,
2000 1999
--------- -----------
<S> <C> <C>
2% Senior Subordinated Secured note to related party, dated
August 1999, converted to Series A Preferred Stock in
July 2000 $ 12,700 $ 12,700
8% Convertible note to related party, dated May 1, 2000
converted to Series A Preferred Stock in July 2000 $ 40,000 --
8% Convertible note to related party, dated May 2000
converted to Series A Preferred Stock in July 2000 $ 75,000 --
8% Convertible note to related party, dated May 2000
converted to Series A Preferred Stock in July 2000 $ 20,000 --
-------- --------
$147,700 $ 12,700
======== ========
</TABLE>
Interest expense was $3,468 and $0 for the ten month period ended June 30,
2000 and for the period from June 17, 1998 (Inception) to August 31, 1999,
respectively.
23
<PAGE>
COPYRIGHT CONTROL SERVICES, INC.
AND CHINEROSE LIMITED DOING BUSINESS AS
COPYRIGHT CONTROL SERVICES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. NOTES PAYABLE TO SHAREHOLDER
Notes payable to shareholder as of June 30, 2000 and August 31, 1999 were as
follow:
<TABLE>
<CAPTION>
JUNE 30, AUGUST 31,
2000 1999
--------- -----------
<S> <C> <C>
8.5% Subordinated Secured note to shareholder, due July 28,
2001, interest payable quarterly $ 25,000 $ -
2% Subordinated Secured note to shareholder, due August 28,
2001, with interest payable upon maturity 116,910 116,910
2% Subordinated Secured note to shareholder, due August 28,
2001, with interest payable upon maturity 119,043 119,043
-------- --------
$260,953 $235,953
======== ========
</TABLE>
Interest expense was $5,833 and $0 for the ten month period ended June 30,
2000 and for the period of June 17, 1998 (Inception) to August 31, 1999,
respectively.
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. The CCS financial statements have been adjusted
retroactively for the effects of the stock split.
7. COMMON STOCK WARRANTS AND OPTIONS TO NON-EMPLOYEES
As of June 30, 2000, there were warrants and options issued and outstanding
to non-employees to purchase 4,568,662 shares of CCS's common stock for various
services. These warrants and options have exercise expiration dates ranging from
March 2010 to April 2010. All warrants and options are fully exercisable at
prices ranging from $0.02 to $0.38 per share. The fair value of the 1,197,900
warrants and options is $107,054 at June 30, 2000, and the related expense is
being amortized over five years. The fair value was determined using the
Black-Scholes method of valuation. The amortization was $5,557 for the
ten-months ended June 30, 2000. As of June 30, 2000, none of the warrants and
options have vested. The fair value of 3,370,762 warrants was $2,887,376 at
June 30, 2000 of which $240,614 was amortized as consulting expense during the
six months and ten months ended June 30, 2000. The 3,370,762 warrants are
subject to repurchase rights. The warrants and options will continue to be
remeasured through the vesting date or the dates the repurchase rights have
elapsed, respectively.
8. STOCK OPTIONS
STOCK OPTION PLAN
Under the terms of CCS' 1999 Stock Option Plan, CCS was authorized to issue
2,395,800 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
24
<PAGE>
COPYRIGHT CONTROL SERVICES, INC.
AND CHINEROSE LIMITED DOING BUSINESS AS
COPYRIGHT CONTROL SERVICES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. STOCK OPTIONS (CONTINUED)
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.
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 September 1, 1999.......................... -- --
Options granted..................................... 53,429 $0.09
------ -----
Balance at June 30, 2000.............................. 53,429 $0.09
====== =====
</TABLE>
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>
$0.15 53,429 $0.15 9.43
</TABLE>
As of June 30, 2000, in connection with the stock option plan, 2,342,371
shares of common stock were available for future issuance. At June 30, 2000, no
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,
consistent with the fair value method of Statement of Financial Accounting
25
<PAGE>
COPYRIGHT CONTROL SERVICES, INC.
AND CHINEROSE LIMITED DOING BUSINESS AS
COPYRIGHT CONTROL SERVICES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. STOCK OPTIONS (CONTINUED)
Standards No. 123, CCS' net loss for the ten months ended June 30, 2000 would
have been increased to the following pro forma amount:
<TABLE>
<CAPTION>
JUNE 30,
2000
-----------
<S> <C>
Net loss:
As reported............................................... $(653,594)
Pro forma................................................. $(653,891)
Net loss per share, basic and diluted:
As reported............................................... $ (0.08)
Pro forma................................................. $ (0.08)
</TABLE>
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 August 31, 1999.
9. COMMITMENTS
CCS 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 ten months ended June 30, 2000 and for
the period from June 17, 1998 (Inception) to August 31, 1999 was $22,537 and
$19,777, respectively.
10. FEDERAL INCOME TAXES
Since inception August 27, 1999, CCS has been subject to U.S. federal
corporate income taxes accounts 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.
26
<PAGE>
COPYRIGHT CONTROL SERVICES, INC.
AND CHINEROSE LIMITED DOING BUSINESS AS
COPYRIGHT CONTROL SERVICES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
10. FEDERAL INCOME TAXES (CONTINUED)
The change in the valuation allowance for the periods ended June 30, 2000
and August 31, 1999 was an increase of approximately $224,781 and $99,238,
respectively, resulted primarily from net operating losses being generated
during the periods. The difference between the benefit for income taxes and the
amount which results from applying the federal statutory rate of 34% is
primarily due to the increase in the valuation allowance, resulting in no tax
benefit reported in any of those periods.
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
CCS deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
JUNE 30, AUGUST 31,
2000 1999
--------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................... $ 322,490 $ 100,268
Accrued interest.................................... 3,170 --
--------- ---------
Total deferred tax assets............................. 325,660 100,268
Valuation allowance for deferred tax assets......... (324,109) (99,238)
--------- ---------
Total deferred tax assets less valuation allowance.... 1,551 1,030
--------- ---------
Deferred tax liabilities:
Prepaid expense..................................... (1,551) (1,030)
--------- ---------
Total deferred tax liability.......................... (1,551) (1,030)
--------- ---------
Net deferred tax asset................................ $ 0 $ 0
========= =========
</TABLE>
At June 30, 2000, CCS had net operating loss carryforwards (NOLs) of
approximately $948,500, which have no expiration date.
11. CONSULTING AGREEMENTS
In May 2000, CCS entered into a consulting agreement with The @Advisory
Group (@Visory) to provide advisory services for a two year period in exchange
for 500,000 shares of CCS common stock and 3,370,762 of warrants to purchase
common stock.
At June 30, 2000, CCS has recognized consulting expense relating to the
500,000 common shares to be issued of $24,444 and $240,614 relating to the
3,370,762 warrants. At June 30, 2000, CCS had not yet issued the shares to
@Visory and has a commitment to do so as of May 2000, the date of the original
consulting agreement. The shares were issued in July 2000.
12. SUBSEQUENT EVENTS
On July 3, 2000, CCS received $903,050, net of financing costs, from
Copyright Ventures LLC in exchange for 1,112,500 shares of CCS Series A
preferred shares.
27
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED 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 "Transaction"). The terms of the
Share Exchange agreement require Sunhawk.com to issue 750,000 shares of common
and 750,000 shares of Class A common stock and warrants to purchase 450,938
shares of common stock at a per share price of $0.0001 with an exercise period
of five years. Prior to closing, such shares and warrants shall be exchanged for
all shares of CCS stock issued and outstanding as of the effective time of the
agreement. Additionally, Sunhawk.com may assume all outstanding employee options
in the CCS 1999 stock option plan.
The accompanying unaudited pro forma combined condensed balance sheet
assumes that the acquisition took place as of June 30, 2000. The unaudited pro
forma combined condensed balance sheet combines the unaudited balance sheet of
Sunhawk.com as of June 30, 2000, and the unaudited condensed consolidated
balance sheet of CCS as of June 30, 2000.
The accompanying unaudited pro forma combined condensed statements of
operations present (i) the results of operations of Sunhawk.com for the year
ended September 30, 1999, combined with the unaudited condensed consolidated
statement of operations of Chinerose doing business as Copyright Control
Services for the period June 17, 1998 (Inception) to August 31, 1999, and
(ii) the unaudited results of operations for Sunhawk.com for the nine-month
period ended June 30, 2000, combined with the unaudited condensed consolidated
results of operations for CCS for the ten-month period ended June 30, 2000. The
periods used are the only reasonably comparable periods that are readily and
practicably available. The unaudited pro forma combined condensed statements of
operations give effect to the share exchange as if it had occurred as of
October 1, 1998 (the beginning of fiscal 1999).
At the transaction closing Sunhawk.com will issue 750,000 shares of common
and 750,000 shares of Class A common stock and warrants to purchase 450,938
shares of common stock at a price per share of $0.0001. Of the 1,500,000 shares
of stock, 750,000 common shares will be issued to the CCS shareholders and of
the 450,938 warrants to purchase stock, 75,000 warrants for common shares will
be issued to the @Visory Group with 100,000 shares of common stock issued to the
CCS shareholders subject to a holdback subject to the completion of a post
closing balance sheet audit. The remaining 750,000 shares of stock will be
issued as Class A common stock and the remaining 375,938 warrants will be issued
to purchase common stock. Such shares of stock and warrants will be placed in
escrow and be subject to release to the CCS shareholders and the @Visory Group,
respectively, or reversion to Sunhawk.com dependent on the achievement of
defined "market capitalization" thresholds. For accounting purposes, and
therefore as reflected in the pro formas, the 750,000 common shares, the 75,000
warrants to purchase common stock and the possible assumption of 193,429 CCS
employee stock options are included currently in the consideration for the
acquisition. The remaining 750,000 Class A common shares and the remaining
375,938 warrants to purchase common shares will not be accounted for until the
market capitalization thresholds are achieved. Accordingly such shares are not
reflected in the pro formas (see Note 4 to the pro formas for further
consideration).
For purposes of the pro formas Sunhawk.com has estimated the purchase price
and made a preliminary allocation of such purchase price, a substantial portion
of which is preliminarily captioned as "various purchased intangibles". The
specific identification of the various assets purchased and liabilities assumed
and the amount of the purchase price allocated to each asset and liability will
be known after Sunhawk.com completes a final purchase price allocation analysis
that would include various appraisal analyses. Sunhawk.com anticipates that a
significant portion of the amount currently captioned in the pro formas as
various purchased intangibles will ultimately become goodwill. The amortization
period for the various purchased intangibles, including goodwill, has not yet
been
28
<PAGE>
determined. For purposes of these pro formas, Sunhawk.com has assumed a
five-year weighted average amortization period for the amount identified as
various purchased intangibles; however such period could ultimately be
different.
The unaudited pro forma combined condensed balance sheet and unaudited
combined condensed 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 financial information should be
read in conjunction with the audited financial statements and related notes of
Sunhawk.com, which are incorporated herein by reference.
29
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED
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 13,092 -- 19,239
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 20,174 10,796,025
----------- --------- ----------- -----------
Property and equipment, net............ 849,828 57,060 -- 906,888
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
Various Purchased Intangibles.......... -- -- 13,232,249 A 13,232,249
----------- --------- ----------- -----------
Total.............................. $15,097,200 $ 89,276 $13,232,249 $28,418,725
=========== ========= =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Line of credit....................... 603,492 -- -- 603,492
Accounts payable and accrued
expenses........................... 731,836 253,548 1,100,000 C 2,085,384
Notes payable to related party....... 5,782 147,700 -- 153,482
Accrued interest on notes payable to
related parties.................... -- 3,468 -- 3,468
Notes payable to shareholder......... 290,000 260,953 -- 550,953
Accrued interest on notes payable to
shareholder........................ 7,385 5,856 -- 13,241
----------- --------- ----------- -----------
Total Current Liabilities.......... 1,638,495 671,525 1,100,000 3,410,020
----------- --------- ----------- -----------
Note payable to related party.......... 1,000,000 -- -- 1,000,000
----------- --------- ----------- -----------
Total Liabilities.................... 2,638,495 671,525 1,100,000 4,410,020
----------- --------- ----------- -----------
Shareholders' Equity:
Common stock......................... 19,322,534 15,183 12,059,217 B,D,G 31,396,934
Additional paid in capital........... -- 311,620 (311,620)G --
Deferred compensation................ -- -- (524,400)D (524,400)
Accumulated deficit.................. (6,863,829) (948,500) 948,500 G (6,863,829)
Foreign currency exchange translation
adjustment......................... -- 39,448 (39,448)G --
----------- --------- ----------- -----------
Total Shareholders' Equity......... 12,458,705 (582,249) 12,132,249 24,008,705
----------- --------- ----------- -----------
Total.............................. $15,097,200 $ 89,276 $13,232,249 $28,418,725
=========== ========= =========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
30
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SUNHAWK.COM CHINEROSE LTD.
FISCAL YEAR JUNE 17, 1998
ENDED (INCEPTION) TO PRO FORMA (UNAUDITED)
SEPTEMBER 30, 1999 AUGUST 31, 1999 -------------------------------
ACTUAL ACTUAL ADJUSTMENTS COMBINED
------------------- ---------------- ----------- -----------
(AUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Sales........................... $ 100,575 $ 150,470 $ -- $ 251,045
Cost of Goods Sold.............. 171,725 53,552 -- 225,277
----------- ---------- ----------- -----------
Gross Loss...................... (71,150) 96,918 -- 25,768
----------- ---------- ----------- -----------
Selling, general and
Administrative Expense........ 2,660,933 390,837 2,751,280 E,F 5,803,050
----------- ---------- ----------- -----------
Loss from Operations............ (2,732,083) (293,919) (2,751,280) (5,777,282)
Other income (expense), net..... (102,254) (987) -- (103,241)
----------- ---------- ----------- -----------
Net Loss........................ (2,834,337) (294,906) (2,751,280) (5,880,523)
----------- ---------- ----------- -----------
Foreign currency exchange
translation adjustment........ -- 5,829 -- 5,829
Comprehensive loss.............. $(2,834,337) $ (289,077) $(2,751,280) $(5,874,694)
=========== ========== =========== ===========
Net Loss Per Share:
Basic and Diluted............. $ (2.46) $ (1.75) $ (3.09)
=========== ========== ===========
Weighted average common shares
for net loss per share
computations:
Basic and diluted 1,154,214 168,529 1,904,214
=========== ========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
31
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SUNHAWK.COM CCS
NINE MONTHS TEN MONTHS
ENDED ENDED PRO FORMA
JUNE 30, 2000 JUNE 30, 2000 -------------------------------
ACTUAL ACTUAL ADJUSTMENTS COMBINED
-------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Sales.............................. $ 152,275 $ 167,575 $ -- $ 319,850
Cost of goods sold................. 275,276 168,555 -- 443,831
----------- ---------- ----------- -----------
Gross Loss......................... (123,001) (980) -- (123,981)
----------- ---------- ----------- -----------
Selling, general and administrative
Expense.......................... 4,930,095 640,816 2,063,460 E,F 7,634,371
----------- ---------- ----------- -----------
Loss from operations............... (5,053,096) (641,796) (2,063,460) (7,758,352)
Other income (expense), net........ (211,024) (11,798) -- (222,822)
----------- ---------- ----------- -----------
Net loss........................... (5,264,120) (653,594) (2,063,460) (7,981,174)
----------- ---------- ----------- -----------
Foreign currency exchange
translation adjustment........... -- 33,619 -- 33,619
----------- ---------- ----------- -----------
Comprehensive loss................. $(5,264,120) $ (619,975) $(2,063,460) $(7,947,555)
=========== ========== =========== ===========
Net loss per share:
Basic and diluted $ (2.39) $ (0.08) $ (2.71)
=========== ========== ===========
Weighted average common shares for
net loss per share computations:
Basic and diluted................ 2,198,505 7,705,194 2,948,505
=========== ========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
32
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
1. BASIS OF PRO FORMA PRESENTATION
On August 1, 2000, Sunhawk.com and CCS entered into a definitive share
exchange agreement that provides for the acquisition of CCS by Sunhawk.com.
Under the terms of the agreement, Sunhawk.com will issue 750,000 shares of
common stock and 750,000 shares of Class A common stock, and 450,938 warrants
for common stock at a price per share of $0.0001 exercisable for five years
until 2005 and may assume employee stock options at the same ratio (to be
determined at the closing date) of the share exchange of CCS employee stock
options. Of the 1,500,000 shares of stock, 750,000 common shares will be issued
to the CCS shareholders and of the 450,938 warrants 75,000 will be issued to the
@Visory Group with 100,000 of the shares issued to the CCS shareholders subject
to a holdback escrow for the completion of a post closing balance sheet audit.
The remaining 750,000 shares of Class A common stock and warrants to purchase
375,938 shares of common stock will be placed in escrow and be subject to
release to the CCS shareholders and @Visory Group, respectively, or reversion to
Sunhawk.com dependent on the achievement of defined "market capitalization"
thresholds. For accounting purposes, and therefore as reflected in the pro
formas, the 750,000 shares of common stock and 75,000 warrants to purchase
common stock as well as the possible assumption of 193,429 employee options to
purchase common stock are included currently in the consideration for the
acquisition. The remaining 750,000 shares of Class A common stock and the
remaining 375,938 warrants for common stock will not be accounted for until the
market capitalization thresholds are achieved. Accordingly such shares are not
reflected in the pro formas (see Note 4 for further consideration).
The unaudited pro forma combined condensed 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.
For purposes of the pro formas Sunhawk.com has determined the estimated purchase
price and made a preliminary allocation of such purchase price, a substantial
portion of which is captioned as various purchased intangibles. The specific
identification of the various assets purchased and liabilities assumed and the
amount of the purchase price allocated to each asset and liability will only be
known after Sunhawk.com completes a final purchase price allocation analysis
that would include various appraisal analyses. Sunhawk.com anticipates that a
significant portion of the amount currently captioned in the pro formas as
various purchased intangibles will ultimately become goodwill. The amortization
period for the various purchased intangibles, including goodwill, has likewise
not been determined. For purposes of these pro formas, Sunhawk.com has assumed a
five-year weighted average amortization period for the amount identified as
various purchased intangibles; however such period could ultimately be
different.
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 statements of operations give effect to the merger as if it
had occurred as of October 1, 1998.
33
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
2. DETERMINATION OF ESTIMATED PURCHASE PRICE
That portion of the ultimate purchase price that is to be accounted for
currently is estimated as follows (see also Note 4 below):
<TABLE>
<S> <C>
Common shares/warrants issued............................... 825,000
Per share/warrant value..................................... $ 14.00
------------
Aggregate value ascribed to the share/warrant consideration
to be currently accounted for............................. $ 11,550,000
Additional consideration arising from the fair value of
Sunhawk options being issued in connection with the
assumption of options outstanding under the CCS 1999
Employee Stock Option Plan................................ 524,400
Estimated investment banker transaction fee................. 650,000
Estimated legal and accounting fees and other direct,
incremental expenses...................................... 450,000
------------
Total consideration....................................... $ 13,174,400
============
</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............................................. $ 89,276
Various purchased intangibles............................... 13,232,249
Other liabilities........................................... (671,525)
Deferred compensation (contra equity)....................... 524,400
-----------
Total purchase price...................................... $13,174,400
===========
</TABLE>
3. PRO FORMA ADJUSTMENTS
The following pro forma adjustments have been made to the unaudited pro
forma combined condensed financial statements:
(A) To record the difference ($13,232,249) between the preliminary purchase
price allocation and the fair value of identified intangible assets acquired
and liabilities assumed from CCS;
(B) To record the issuance of 750,000 shares of Sunhawk.com common stock and
75,000 warrants to purchase Sunhawk.com common stock of $11,550,000;
(C) To record an estimated liability of $1,100,000 for Sunhawk.com's merger
related transaction costs.
(D) To record the intrinsic value of the Sunhawk.com options which may be issued
in connection with the possible assumption of 193,429 employee stock options
outstanding under the CCS 1999 Stock Option plan as deferred compensation of
$524,400. The actual amount of deferred compensation that will be recorded
is dependent upon the actual number of CCS employee stock options that may
be assumed;
(E) To record the amortization for various purchased intangibles over an
estimated useful life of five years. For the year ended September 30,
1999--$2,646,400, and for the nine month period ended June 30,
2000--$1,984,800;
34
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
3. PRO FORMA ADJUSTMENTS (CONTINUED)
(F) To record the amortization of the deferred compensation related to CCS
employee stock options over the estimated vesting period of five years. For
the year ended September 30, 1999--$104,880 and for the ten month period
ended June 30, 2000--$78,660;
(G) To eliminate the historical common stock $(15,183), additional paid in
capital $(311,620), accumulated deficit $(948,500) and foreign currency
translation adjustment $(39,448).
If goodwill were to be amortized over a period of 2, 5, or 10 years, the
annual amortization would be $6,616,100, $2,646,400, or $1,323,200,
respectively.
4. POTENTIAL FOR ADDITIONAL PURCHASE PRICE RELATED TO CONTINGENT CONSIDERATION
As indicated in Note 1 certain additional Sunhawk.com securities that are
escrowed subject to "market capitalization" thresholds have not been currently
accounted for in the pro formas. As the thresholds are not achieved without
substantial increases in market capitalization, the value of such securities may
be significantly higher than the $14 used to value the initial consideration if
the thresholds are met and the shares released. Such securities, if and when
released to CCS shareholders or @Visory Group as result of achieving the
respective "market capitalization" thresholds, will be recorded at their fair
value as additional purchase consideration and to be allocated to additional
various purchased intangibles or compensation for services. Such additional
various intangibles will then require amortization to expense in future periods.
5. CONSULTING AGREEMENT AND OPTION AGREEMENTS
At the time the share exchange closes, Sunhawk.com will enter into a
consulting arrangement with @Visory and will issue warrants to purchase 225,321
common shares at the fair market value of the underlying shares on the date
certain market capitalization thresholds are met. These warrants will be valued
at fair value at the date the thresholds are achieved and charged to operations
as consulting fees. In addition Sunhawk has agreed to grant the following
options to purchase common stock (1) to Martin Eller--850,000 options (2) to
David Powell 850,000 options (3) to Julian Searle 150,000 options (4) to Sunhawk
Key management and the 150,000 (5) to CCS Key management--150,000 options. Of
the options granted to Martin Eller 283,333 will be granted at fair market value
upon consummation of the share exchange. The remaining options will be granted
at the fair market value on the date certain market capitalization thresholds
are met. These grants will be accounted for in accordance with APB 25,
Accounting for Stock Issued to Employees. Accordingly no compensation will be
recognized because the fair value of the underlying common stock will equal the
exercise price of the stock options granted.
6. NEW ACCOUNTING PRONOUNCEMENTS
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.
35
<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 share
exchange with CCS, and (b) the equivalent historical net loss and book value per
share attributable to the 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 shareholders'
equity as of September 30, 1999 and June 30, 2000 by the actual common stock
outstanding on each of those dates respectively. The pro forma combined book
value per share is computed by dividing total pro forma shareholders' equity by
the pro forma number of common shares outstanding at June 30, 2000, assuming the
share exchange had occurred on that date.
The pro forma per share loss is computed by dividing the pro forma loss by
the pro forma weighted average number of shares outstanding, assuming the share
exchange with CCS had occurred at the beginning of the earliest period
presented.
The following information should be read in conjunction with the separate
audited historical financial statements and related notes of Sunhawk.com and the
unaudited pro forma condensed combined consolidated financial information and
related notes of CCS and the 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
share exchange with 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>
NINE-MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, 1999 JUNE 30, 2000
------------------- --------------
<S> <C> <C>
HISTORICAL SUNHAWK.COM:
Basic and diluted net loss per weighted average share..... $(2.46) $(2.39)
Book value per share at the end of the period............. $ 1.25 $ 4.14
<CAPTION>
JUNE 17, 1998
(INCEPTION) TO TEN-MONTHS ENDED
AUGUST 31, 1999 JUNE 30, 2000
------------------- ----------------
<S> <C> <C>
HISTORICAL CCS:
Basic and diluted net loss per weighted average share..... $(1.75) $(0.08)
Book deficit per share at the end of the period........... $(0.25) $(0.07)
</TABLE>
<TABLE>
<CAPTION>
JUNE 17, 1998
(INCEPTION) TO NINE AND TEN
AUGUST 31, 1999 MONTHS
AND YEAR ENDED ENDED
SEPTEMBER 30, 1999 JUNE 30, 2000
------------------ --------------
<S> <C> <C>
SUNHAWK.COM AND CCS PRO FORMA COMBINED:
Pro forma net loss per Sunhawk.com weighted average
share--basic and diluted................................ $(3.09) $(2.71)
Pro forma book value per Sunhawk.com share at the end of
the period.............................................. $ -- $ 5.86
</TABLE>
36
<PAGE>
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 forth for the
periods indicated the quarterly high and low sale prices per share of
Sunhawk.com 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. June 30, 2000 was the last trading date
before announcement of the acquisition. October 5, 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
October 5, 2000............................................. $13 3/8
</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 share exchange. 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 share exchange,
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.
37
<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, October 25, 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
authorized 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.
38
<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 (i) approval of the share exchange, (ii) creation of the
class A common stock and (iii) 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 $110,000, 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
39
<PAGE>
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.
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, 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 shareholders 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 shareholders.
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 shareholders of CCS.
40
<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 combined companies,
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' 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 is to
track down sites distributing pirated copyright content and working to have them
shut down. The combination of Sunhawk.com and CCS 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
41
<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, Sunhawk.com has
committed to providing to Marlin Eller options amounting to 850,000 shares of
Sunhawk.com's common stock, 283,333 of which shall vest on consummation of the
share exchange and be exerciseable in accordance with the terms of the
Sunhawk.com 1996 Stock Option Plan. The remainder, 566,667, will only vest in
the event Sunhawk.com achieves certain market capitalization goals within the
next eighteen months. The purchase or "strike" price for the initial 283,333
options will be the market price on the date of consumption of the share
exchange and the purchase "strike" price for all of the remaining options shall
be the market price of Sunhawk.com's common stock at the time the market
capitalization goals are satisfied. These options will be accounted for under
Accounting Principles Board Opinion No. 25. Accordingly, no compensation cost
will be recorded for options issued as the fair value of the underlying common
stock will equal the exercise price of the shares granted. 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 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 L, 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 750,000 shares of common stock, 750,000 shares of Class A common stock,
450,938 warrants to purchase Sunhawk.com common stock with the CCS shareholders,
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,
Sunhawk.com Class A Common Stock, or warrants to purchase Sunhawk.com stock.
NO DIVIDENDS
CCS shareholders 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 shareholders in light
of their individual circumstances, and is not intended for stockholders subject
to special treatment under federal income tax law. Shareholders 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
42
<PAGE>
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.
ACCOUNTING TREATMENT FOR 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 purchased
intangibles are expected to be created, which will be amortized over a yet to be
determined period (See Unaudited Pro Forma Combined Condensed Financial
Statements at page 28-35).
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 shareholders 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, Class A Common Stock and warrants to
purchase common stock at a price per share of $0.0001 exercisable for a five
year period through 2005.
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,
43
<PAGE>
Class A Common Stock and warrants to purchase common stock. No fractional shares
or warrants will be issued in connection with the issuance of either the pro
rata distribution of the 750,000 shares of common stock, the 750,000 shares of
the Class A Common Stock or the 450,938 warrants.
At closing, the CCS shareholders shall receive 750,000 shares of common
stock of the total 1,500,000 shares of stock and 75,000 of the 450,938 warrants
to purchase common stock. The balance of 750,000 shares shall be Class A Common
Stock and 375,938 warrants to purchase common stock at a price of $0.0001 per
share exercisable for a five year period through 2005. Of the shares to be
issued, 100,000 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 and/or warrants to
purchase common stock at a price of $0.0001 per share shall be released to the
CCS shareholders. If the milestones described in the Services 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 and the warrants to purchase
common stock at a price of $0.0001 per share will expire.
<TABLE>
<CAPTION>
COMMON STOCK CLASS A COMMON STOCK (OR WARRANTS
(OR WARRANTS TO TO ACQUIRE COMMON STOCK) TO BE ISSUED UPON
ACQUIRE COMMON STOCK) SUNHAWK.COM REACHING A MARKET CAPITALIZATION OF
TO 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 (common
stock)................... 750,000 250,000 250,000 250,000
@Visory (warrants)......... 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 750,000 shares of
Class A Common Shares in escrow. The Class A common stock shares currently do
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:
The Class A Common Shares shall have all the characteristics of common
stock, except that
1. the shares shall have 1/20th 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 have the same divided rights as the common
shares.
4. 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.
EMPLOYEE OPTIONS
The Share Exchange Agreement, as amended, provides that Sunhawk.com has the
option to adopt and assume the CCS 1999 stock option plan, whereby the CCS
options may be converted into options to purchase Sunhawk.com shares. If assumed
and converted, such options would vest in accordance with the schedule set forth
in the Sunhawk.com 1996 Employee Stock Option Plan.
44
<PAGE>
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 750,000 Sunhawk.com common stock shares to be delivered to the
CCS shareholders on the effective date. The 100,000 shares will be held in
escrow during which time a post-closing audit of the CCS books and records will
be performed. Any liabilities found during the audit 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 no excess liabilities are found within
120 days of the closing, the "holdback" shares shall be delivered to the CCS
shareholders.
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 SHAREHOLDERS
Certain shareholders 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 shareholders 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;
45
<PAGE>
- 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; 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.
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<PAGE>
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.
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 October ,
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
receive 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. Further,
the purchase or "strike" price for the initial 283,333 options will be the
market price on the date of the consummation of the share exchange and the
purchase "strike" price for all of the remaining options shall be the market
price of Sunhawk.com's common stock at the time the market capitalization goals
are satisfied. The options shall vest and exercise in accordance with the terms
of the Sunhawk.com 1996 Stock Option Plan.
<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.
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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.
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
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<PAGE>
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.
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
consideration to be provided by Sunhawk.com to CCS. Under the amendment,
Sunhawk.com is to provide 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 provided upon Sunhawk.com achieving certain market
capitalization criteria was revised to reflect the following:
<TABLE>
<CAPTION>
NUMBER OF SHARES (OR WARRANTS TO ACQUIRE COMMON STOCK)
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 (options)........... 283,333 283,333 283,334 0
Sunhawk.com Key Management
(options)...................... 0 50,000 50,000 50,000
David Powell (options)........... 0 283,333 283,333 283,334
Julian Searle (options).......... 0 50,000 50,000 50,000
CCS Key Management (options)..... 0 50,000 50,000 50,000
@Visory (warrants)............... 75,000 124,060 124,059 127,819
CCS (common stock)............... 750,000 250,000 250,000 250,000
@Visory Consulting Agreement
(warrants)..................... 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;
50
<PAGE>
ESCROW AGREEMENT AND WARRANT AGREEMENT
In connection with the Share Exchange Agreement, as amended, the Consulting
Agreement and the Amendment, Sunhawk.com and CCS shareholders have entered into
an escrow agreement, and Sunhawk.com and @Visory have entered into a warrant
escrow agreement, that controls the release of the 750,000 shares of the
Series A Common Stock and 375,938 warrants to purchase shares of Sunhawk.com
common stock, respectively. The escrow agreement was entered into between
Sunhawk.com and the CCS shareholders, not including The @Visory Group (the "CCS
Escrow Agreement"), and controls the release of 750,000 shares of Series A
Common upon the achievement by Sunhawk.com of certain market capitalization
goals. The warrant escrow agreement was entered into between Sunhawk.com and The
@Visory Group (the "@Visory Escrow Agreement"), and controls the right to
acquire 375,938 shares of Sunhawk.com 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 WARRANT AGREEMENT
- Should Sunhawk.com reach a market capitalization of $100,000,000 (as
defined in the warrant agreement) within 12 months from the closing date
of the agreement ("Deadline Date"), then @Visory will have the right to
acquire 124,060 shares, at $.0001 per share, of Common Stock;
- Should Sunhawk.com reach a market capitalization of $125,000,000 (as
defined in the warrant agreement) within 18 months from the date of the
agreement ("Deadline Date"), then @Visory will have the right to acquire
124,059 shares, at $.0001 per share, of Common Stock;
- Should Sunhawk.com reach a market capitalization of $150,000,000 (as
defined in the warrant agreement) within 24 months from the closing date
of the agreement ("Deadline Date"), then @Visory will have the right to
acquire 127,819 shares of Common Stock.
In the event the market capitalization goals are not reached within the
applicable time period, then the Class A shares subject to escrow shall be
returned to Sunhawk.com and retired and the warrants to acquire the applicable
amount of Sunhawk.com common stock shall expire.
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
51
<PAGE>
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 and is included in 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 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 the beneficial owner of 5% or more of the outstanding shares
of Sunhawk.com
52
<PAGE>
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
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<PAGE>
during 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 has received 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 nine-month period ended June 30, 2000 was $69,788.
CCS BUSINESS
CCS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Chinerose Limited (Chinerose) was incorporated on June 17, 1998 and is a
private company with limited liability registered in England which does business
under the name Copyright Control Services. Chinerose, doing business as
Copyright Control Services, contracts with companies owning intellectual
property. 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 and continues to provide security services and
intellectual property protections solutions for companies with intellectual
property.
Revenue is primarily derived from contracts with companies owning
intellectual digital property, 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 TEN MONTH PERIOD ENDED JUNE 30, 2000 COMPARED TO
THE PERIOD FROM JUNE 17, 1998 (INCEPTION) TO AUGUST 31, 1999.
REVENUE
Revenue for the ten month period ended June 30, 2000 was $167,575 compared
to $150,470 for the period from June 17, 1998 (Inception) to August 31, 1999.
This increase in revenue resulted from CCS' improvement in technical ability to
provide services and solutions to additional clients and markets.
54
<PAGE>
COST OF REVENUE
Cost of revenue for the ten month period ended June 30, 2000 was $168,555
compared to $53,552 for the period from June 17, 1998 (Inception) to August 31,
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 ten month period ended June 30, 2000, were $29,263
compared to selling expenses of $15,029 for the period from June 17, 1998
(Inception) to August 31, 1999. There were no advertising costs for either
period. Selling expenses for both periods consisted primarily of expenditures
incurred in connection with travel for client related purposes. General and
administrative expenses for the ten month period ended June 30, 2000 were
$439,069 compared to $375,808 for the period from June 17, 1998 (Inception) to
August 31, 1999. The decrease is due to a shorter period of time from 1999 to
2000 and any comparative increase would be due to an increase in administrative
and operating personnel and general operating expenses.
OTHER INCOME/(EXPENSE)
Other income/(expense) for the ten month period ended June 30, 2000 was
$(11,798). Other income/ (expense) for the period from June 17, 1998 to
August 31, 1999 was $(987). The increase primarily relates to interest expense
recognized on the notes to shareholder and related parties.
LIQUIDITY AND CAPITAL RESOURCES
CCS has financed its operations since inception primarily with funds
received from the sale of equity to key management personnel. As of June 30,
2000, CCS had negative working capital of $651,351. On July 3, 2000, CCS issued
1,112,500 shares to a third party. The sale generated approximately $900,000 in
net proceeds.
Net cash used in operating activities totaled $209,585 for the ten month
period ended June 30, 2000 compared with net cash used in operating activities
of $240,302 for the period from June 17, 1998 (Inception) to August 31, 1999.
The decrease in net cash used in operating activities for the ten month period
ended June 30, 2000, as compared to the prior period, was primarily attributable
to a shorter period of time.
Net cash used in investing activities was $6,156 for the ten month period
ended June 30, 2000 compared to $53,803 for the period from June 17, 1998 to
August 31, 1999. The decrease in cash used in investing as compared to the prior
period, was primarily due to the acquisition for computer equipment for the
startup period.
Net cash provided by financing activities was $181,535 for the ten month
period ended June 30, 2000 compared to $288,863 for the period from June 17,
1998 (Inception) to August 31, 1999. The decrease in net cash for financing
activities as compared to prior period, was primarily due to cash received from
shareholders for startup financing.
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
55
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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 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 SHAREHOLDERS
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 Employee 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 June 30, 2000.
Therefore in order to continue with the practice of issuing stock options and
warrants as incentives and in lieu of payment under the 1996 Employee 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 Employee Stock Option Plan from 303,526 to 800,000 is in the best interest
of Sunhawk.com and its Sunhawk.com stockholders.
56
<PAGE>
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.
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.
57
<PAGE>
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 September 7, 2000. You should not assume that the information
contained in this proxy statement is accurate as of any date other than
September 7, 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.
58
<PAGE>
ANNEX A
LETTER OF INTENT
59
<PAGE>
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
60
<PAGE>
thousand (200,000) shares underlying that portion of the Warrant shall
revert to treasury stock and any 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;
61
<PAGE>
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;
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.
62
<PAGE>
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
63
<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>
64
<PAGE>
ANNEX B
AMENDMENT NO. 1 TO THE LETTER OF INTENT
65
<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
66
<PAGE>
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 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>
68
<PAGE>
EXHIBIT A TO AMENDMENT NO. 1 TO LETTER OF INTENT
"WORKING DOCUMENT"
<TABLE>
<CAPTION>
% OF % OF % OF
SUNHAWK.COM SUNHAWK.COM SUNHAWK.COM
AT MERGER OWNED 12 MONTHS OWNED 18 MONTHS OWNED
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Market Cap Performance Goal... 60,375,000 100,000,000 125,000,000
SUNHAWK.COM
Outstanding shares.......... 3,010,865 78.5% 3,010,865 71.5% 3,010,865 65.7%
CCS
Cumulative warrants
vested.................... 750,000 19.5% 1,000,000 23.8% 1,250,000 27.3%
UNVESTED WARRANTS........... 750,000 500,000 250,000
----------- ------------ ------------
Total Shares.............. 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%
ESCROWED SHARES............. 375,938 251,878 127,189
----------- ------------ ------------
Total Shares.............. 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%
=========== ============ ============
SHARES ISSUED & OUTSTANDING
SUNHAWK.COM................. 3,010,865 70.7% 3,010,865 56.3% 3,010,865 46.7%
CCS......................... 750,000 17.6% 1,000,000 18.7% 1,250,000 19.4%
@VISORY..................... 75,000 1.8% 199,060 3.7% 323,119 5.0%
----------- ------------ ------------
TOTAL 3,835,865 4,209,925 4,583,984
PER SHARE MARKET PRICE GOAL $ 15.74 $ 23.75 $ 27.27
----------- ------------ ------------
MARKET CAPITAL PERFORMANCE
GOAL 60,375,000 100,000,000 125,000,000
=========== ============ ============
KEY MANAGEMENT MARKET CAPITAL PERFORMANCE OPTIONS
----------------------------------------------------------------------------------------------------------------------
CUMULATIVE OPTIONS ISSUED
M. Eller...................... 283,333 6.6% 566,667 10.6% 850,000 13.2%
Sunhawk.com Key Management.... 50,000 0.9% 100,000 1.6%
D. Powell..................... 283,333 5.3% 566,667 8.8%
J. Searle..................... 50,000 0.9% 100,000 1.6%
CCS Key Management............ 50,000 0.9% 100,000 1.6%
@Visory Consulting Agreement..
Joseph Gunnar, LLC
outstanding................. 140,000 3.3% 140,000 2.7% 140,000 2.1%
----------- ------------ ------------
Fully diluted shares 4,259,198 100.0% 5,349,925 100.0% 6,440,651 100.0%
=========== ============ ============
Corresponding market price per
share....................... $ 13.66 $ 18.15 $ 18.94
=========== ============ ============
TOTAL OWNERSHIP WITH OPTIONS
INCLUDES
Sunhawk.com & M. Eller...... 3,294,198 77.3% 3,627,532 67.8% 3,960,865 61.5%
CCS & D. Powell & J.
Searle.................... 750,000 17.6% 1,383,333 25.9% 2,016,667 31.3%
Gunnar Warrants............. 140,000 3.3% 140,000 2.6% 140,000 2.2%
@Visory..................... 75,000 1.8% 199,060 3.7% 323,119 5.0%
----------- ------------ ------------
4,259,198 100.0% 5,349,925 100.0% 6,440,651 100.0%
=========== ============ ============
<CAPTION>
% OF
SUNHAWK.COM
24 MONTHS OWNED
------------ ------------
<S> <C> <C>
Market Cap Performance Goal... 150,000,000
SUNHAWK.COM
Outstanding shares.......... 3,010,865 60.7%
CCS
Cumulative warrants
vested.................... 1,500,000 30.2%
UNVESTED WARRANTS........... --
------------
Total Shares.............. 1,500,000
------------
@VISORY
Cumulative shares paid
out....................... 450,938 9.1%
ESCROWED SHARES............. --
------------
Total Shares.............. 450,938
------------
Total shares issued &
outstanding................. 4,961,803 100.0%
============
SHARES ISSUED & OUTSTANDING
SUNHAWK.COM................. 3,010,865 40.3%
CCS......................... 1,500,000 20.0%
@VISORY..................... 450,938 6.0%
------------
TOTAL 4,961,803
PER SHARE MARKET PRICE GOAL $ 30.23
------------
MARKET CAPITAL PERFORMANCE
GOAL 150,000,000
============
KEY MANAGEMENT MARKET
CAPITAL PERFORMANCE OPTIONS
------------------------------ ---------------------------
CUMULATIVE OPTIONS ISSUED
M. Eller...................... 850,000 11.4%
Sunhawk.com Key Management.... 150,000 2.0%
D. Powell..................... 850,000 11.4%
J. Searle..................... 150,000 2.0%
CCS Key Management............ 150,000 2.0%
@Visory Consulting Agreement.. 225,321 3.0%
Joseph Gunnar, LLC
outstanding................. 140,000 1.9%
------------
Fully diluted shares 7,477,124 100.0%
============
Corresponding market price per
share....................... $ 19.64
============
TOTAL OWNERSHIP WITH OPTIONS
INCLUDES
Sunhawk.com & M. Eller...... 4,010,865 53.6%
CCS & D. Powell & J.
Searle.................... 2,650,000 35.5%
Gunnar Warrants............. 140,000 1.9%
@Visory..................... 676,259 9.0%
------------
7,477,124 100.0%
============
</TABLE>
69
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ANNEX C
SHARE EXCHANGE AGREEMENT
70
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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
71
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Stock except that (i) the 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 an
independent auditor to be determined by Sunhawk.com (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."
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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;
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;
73
<PAGE>
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
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.
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<PAGE>
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 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
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<PAGE>
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.
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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<PAGE>
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,
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charges or withholdings of any nature whatsoever reflected on such Returns to be
owed and which have become due and payable 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,
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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 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,
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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, 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
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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
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;
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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;
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
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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 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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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:
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
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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;
(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
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(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>
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.
86
<PAGE>
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
87
<PAGE>
the 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>
88
<PAGE>
<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 J. Eller
Title: CEO
</TABLE>
89
<PAGE>
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>
90
<PAGE>
<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>
91
<PAGE>
SCHEDULE 1.3.1
92
<PAGE>
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.
93
<PAGE>
(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.
94
<PAGE>
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 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
95
<PAGE>
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.
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]
96
<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>
97
<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>
98
<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>
99
<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>
100
<PAGE>
SCHEDULE 1.3.2
101
<PAGE>
CONTINGENT WARRANT ESCROW AGREEMENT
This Contingent Share Warrant 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 Warrant
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 warrants to be issued to @Visory, I.E., 375,938 warrants to
purchase Sunhawk.com common stock at $0.0001 per share 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.
(iii) "THIRD DEADLINE DATE" shall mean [24 months after date of
Agreement] , 2002.
102
<PAGE>
(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>
103
<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.
104
<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 @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]
105
<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>
106
<PAGE>
SCHEDULE 1.5--HOLDBACK
107
<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>
108
<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>
109
<PAGE>
SCHEDULE 2.2.4
110
<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
111
<PAGE>
of an underwritten public offering of 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.
112
<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.
113
<PAGE>
(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 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.
114
<PAGE>
(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.
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.
115
<PAGE>
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 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.
116
<PAGE>
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]
117
<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>
118
<PAGE>
SCHEDULE A TO REGISTRATION RIGHTS AGREEMENT
<TABLE>
<CAPTION>
HOLDER NAME NUMBER OF SHARES
------------------------------------------------------------ ----------------
<S> <C>
</TABLE>
119
<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>
120
<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>
121
<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>
122
<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.
123
<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.
124
<PAGE>
SCHEDULE 4.7--FINANCIAL STATEMENTS AND FINANCIAL CONDITION
125
<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>
126
<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>
127
<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>
128
<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>
129
<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
130
<PAGE>
SCHEDULE 4.10--TAXES AND TAX RETURNS
CCS has not filed its United States Federal Tax Return or paid the
associated taxes, if any.
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
131
<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.
132
<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
Policy #040FP1203252
133
<PAGE>
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
Emagic GmbH.............................................. L4,101.76
</TABLE>
134
<PAGE>
<TABLE>
<S> <C> <C>
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>
135
<PAGE>
ANNEX D
AMENDMENT NO. 1 TO THE SHARE EXCHANGE AGREEMENT
136
<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.
137
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be
executed on the date first above written.
CCS SHAREHOLDERS
By: /s/ DAVID POWELL
-------------------------------------------------------------------------------
David Powell, on behalf of all CCS
Shareholders other than Copyright
Ventures, LLC
COPYRIGHT CONTROL SERVICES, INC.
By:
-------------------------------------------------------------------------------
Name:
----------------------------------------------------------------------------
Title:
-----------------------------------------------------------------------------
COPYRIGHT VENTURES, LLC
By:
-------------------------------------------------------------------------------
Name:
----------------------------------------------------------------------------
Title:
-----------------------------------------------------------------------------
SUNHAWK.COM CORPORATION
By: /s/ MARLIN J. ELLER
----------------------------------------------------------------------------
Name: Marlin J. Eller
----------------------------------------------------------------------------
Title: CEO
-----------------------------------------------------------------------------
138
<PAGE>
ANNEX E
AMENDMENT NO. 2 TO SHARE EXCHANGE AGREEMENT
139
<PAGE>
AMENDMENT NO. 2
TO SHARE EXCHANGE AGREEMENT
The undersigned parties to that certain Share Exchange Agreement dated as of
August 1, 2000 (the "Agreement"), agree to amend the Agreement as set forth in
this Amendment No. 2 (the "Amendment").
1. AMENDMENT TO AGREEMENT.
The "Upset Date" defined in Section 8.1(g) of the Agreement shall be changed
from "September 30, 2000" to "October 30, 2000."
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 AMENDMENT.
Except as expressly set forth in this Amendment, the terms and conditions of
the Agreement remain in full force and effect.
4. COUNTERPARTS.
This Amendment may be executed in counterparts, each of which shall
constitute an original document, and all of which together shall constitute the
same document.
5. DATE OF AMENDMENT.
The Amendment shall be dated and effective as of September 29, 2000.
CCS:
COPYRIGHT CONTROL SERVICES, INC.
<TABLE>
<S> <C> <C>
By: /s/ DAVID POWELL
-----------------------------------------
David Powell, Chief Executive Officer
</TABLE>
140
<PAGE>
6. GOVERNING LAW.
This Amendment shall be governed 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.
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be
executed on the date first above written.
SUNHAWK.COM CORPORATION
By: /s/ MARLIN J. ELLER
-------------------------------------------------------------------------------
Name: Marlin J. Eller
----------------------------------------------------------------------------
Title: CEO
-----------------------------------------------------------------------------
COPYRIGHT CONTROL SERVICES, INC.
By: /s/ DAVID POWELL
-------------------------------------------------------------------------------
Name: David Powell
----------------------------------------------------------------------------
Title: CEO
-----------------------------------------------------------------------------
CCS SHAREHOLDERS
By: /s/ DAVID POWELL
-------------------------------------------------------------------------------
David Powell
COPYRIGHT VENTURES, LLC
By:
-------------------------------------------------------------------------------
Name:
----------------------------------------------------------------------------
Title:
-----------------------------------------------------------------------------
141
<PAGE>
ANNEX F
CONSULTING AGREEMENT BETWEEN COPYRIGHT CONTROL SERVICES, INC. AND @VISORY, LLC
142
<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;
143
<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
144
<PAGE>
"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 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.
145
<PAGE>
(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 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.
146
<PAGE>
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.
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>
147
<PAGE>
ANNEX G
AMENDMENT NO. 1 TO CONSULTING AGREEMENT
148
<PAGE>
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 the Company (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. The Company
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 The Company 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. The Company 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, the Company'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 the Company'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 the Company owning, directly or indirectly, beneficial ownership
of more than 50% of such voting power (if the Company is the survivor of
such transactions(s)) or more than 50% of the voting power of the
surviving entity (if the Company 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.
149
<PAGE>
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>
150
<PAGE>
ANNEX I
JOSEPH GUNNAR, LLC ADVISORY AGREEMENT
157
<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
158
<PAGE>
securities convertible into options, warrants or other rights to acquire
such capital stock) and (iii) the 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.
159
<PAGE>
5. LIABILITY AND INDEMNIFICATION.
(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 J. Eller, Chief Executive Officer
JOSEPH GUNNAR & CO., LLC
By:
-------------------------------------------------
Joseph A. Alagna, Jr., A Member
</TABLE>
160
<PAGE>
ANNEX J
AMENDMENT NO. 1 TO ADVISORY AGREEMENT
161
<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 J. Eller, CEO Stephan A. Stein
Dated: May 25, 2000 Dated: May 25, 2000
</TABLE>
162
<PAGE>
ANNEX K
PLAN OF EXCHANGE
163
<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 1,500,000 shares of
Sunhawk common stock and Class A common stock and 450,938 warrants to purchase
Sunhawk.com common stock at a price per share of $0.0001.
At closing all the CCS stockholders shall receive, on a pro rata basis,
750,000 common shares of the total 1,500,000 shares to be exchanged and 75,000
of the 450,938 warrants, subject to a holdback of 100,000 shares. The balance,
750,000 shares of Class A Common Stock and 375,938 warrants, 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 or
warrants to be issued at closing. The shares and warrants 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 and the warrants 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 and the warrants shall expire.
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.
164
<PAGE>
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, 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 a post-closing audit of CCS' books
and records is performed. Any liabilities found during the audit 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 no excess
liabilities are found 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
165
<PAGE>
- 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
- Disposal of assets
166
<PAGE>
- 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;
167
<PAGE>
- 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.
168
<PAGE>
EXHIBIT A
TO THE
PLAN OF SHARE EXCHANGE
<TABLE>
<CAPTION>
CLASS A COMMON STOCK (OR WARRANTS TO ACQUIRE
COMMON STOCK (OR COMMON STOCK) TO BE ISSUED UPON
WARRANTS TO ACQUIRE SUNHAWK REACHING A MARKET CAPITALIZATION OF
COMMON 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>
169
<PAGE>
ANNEX L
FORM OF ARTICLES OF EXCHANGE
170
<PAGE>
FORM OF ARTICLES OF SHARE EXCHANGE
OF
SUNHAWK.COM CORPORATION
AND
COPYRIGHT CONTROL SERVICES, INC.
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 acquiring corporation pursuant to the exchange is:
SUNHAWK.COM CORPORATION
The name of the acquiring corporation has not been changed as a result of
the share exchange.
ARTICLE II
The name of the acquired corporation is: Copyright Control Services, Inc.
The state of domicile of the acquired corporation is: Delaware
ARTICLE III
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 IV
The Plan of Share Exchange was duly approved by the stockholders of the
acquiring corporation on pursuant to RCW 23B.11.030.
ARTICLE V
The Plan of Share Exchange was duly approved by the stockholders of the
acquired corporation on [August 1, 2000], pursuant to RCW 23B.11.030.
ARTICLE VI
These Articles of Share Exchange will be effective upon filing.
Date:
-------------------------------------------
DAVID M. OTTO, SECRETARY
171
<PAGE>
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 1,500,000 shares of
Sunhawk common stock and 450,938 warrants to purchase Sunhawk.com common stock
at a price per share of $0.0001.
At closing all the CCS stockholders shall receive, on a pro rata basis,
750,000 of the total 1,500,000 shares to be exchanged and 75,000 of the 450,938
warrants subject to a holdback of 100,000 shares. The balance, 750,000 shares of
Class A Common Stock and 375,938 warrants, 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 or warrants to be issued
at closing. The shares and warrants 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 and warrants 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 and the warrants shall expire.
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
172
<PAGE>
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.
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, calls for a holdback of 100,000 of the 750,000 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 a post-closing audit of CCS' books
and records is performed. Any liabilities found 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 no excess liabilities are found 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
173
<PAGE>
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
- 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
174
<PAGE>
- 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
- 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.
175
<PAGE>
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
- 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.
176
<PAGE>
EXHIBIT A
TO THE
PLAN OF SHARE EXCHANGE
<TABLE>
<CAPTION>
COMMON STOCK CLASS A COMMON STOCK
(OR WARRANTS (OR WARRANTS TO ACQUIRE COMMON STOCK)
TO ACQUIRE 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>
177
<PAGE>
ANNEX M
FORM OF @VISORY WARRANT
178
<PAGE>
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Warrant Agreement") has been made and entered
into as of October , 2000, by and between SUNHAWK.COM CORPORATION, a
Washington corporation (the "Company"), and @VISORY, LLC, a Limited
Liability Company (the "Holder").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Holder warrants (the
"Warrants") to purchase up to an aggregate of four hundred fifty thousand nine
hundred thirty eight (450,938) shares of common stock, no par value per share,
of the Company (the "Common Stock"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement were issued on
October , 2000 by the Company to the Holder, or its designees, in connection
with the consummation of a Share Exchange Agreement dated August 1, 2000, as
amended, (the "Share Exchange") between the Company and Copyright Control
Services, Inc. a Delaware Corporation..
NOW, THEREFORE, in consideration of the premises hereto and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. GRANT. The Holder is hereby granted the right to purchase, at any time
from October , 2000, until 5:30 P.M., Pacific Standard time, on October ,
2005 (the "Expiration Date"), up to an aggregate of four hundred fifty thousand
nine hundred thirty eight (450,938) shares of Common Stock (the "Shares" or
"Warrant Securities") (subject to vesting as provided in Section 2 and subject
to adjustment as provided in Section 9 hereof) at the initial Exercise Price (as
hereinafter defined) (subject to the terms and conditions of this Agreement).
Except as set forth herein, the Shares issuable upon exercise of the Warrants
will be in all respects identical to the shares of Common Stock sold by the
Company to the public in the Company's initial public offering. Any Warrant that
is not exercised on or prior to the Expiration Date shall be void and all rights
hereunder shall cease.
2. VESTING. The Warrants shall vest in accordance with this Warrant
Agreement only as set forth in this Section 2:
2.1 Certain terms are defined in the text of this Warrant Agreement. In
addition, the following terms used in this Warrant Agreement shall have
the meanings set forth below:
(a) "CLOSING DATE" shall mean October , 2000 or such other date on
which the Share Exchange is closed or otherwise completed.
(b) "DEADLINE DATE" shall mean any of the following:
(i) "FIRST DEADLINE DATE" shall mean [12 months after date of
Warrant Agreement] , 2001.
(ii) "SECOND DEADLINE DATE" shall mean [18 months after date of
Warrant Agreement] , 2002.
(iii) "THIRD DEADLINE DATE" shall mean [24 months after date of
Warrant Agreement] , 2002.
(c) "MARKET CAPITALIZATION" shall mean (i) the average daily sale price
for one share of the Company'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.
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(d) "MEASUREMENT PERIOD" shall mean any consecutive 30 business day
period preceding a Deadline Date.
2.2 Simultaneously with the Closing Date of the Share Exchange, the Holder
shall have the right to acquire seventy-five thousand (75,000) Warrant
Securities.
2.3 If the Company'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"), then the Holder shall have a right to acquire
124,060 of the Warrants (the "First Tranche Warrants"), which right shall
vest immediately after the date the First Threshold is met. If the
Company's Market Capitalization does not meet the First Threshold prior
to the First Deadline Date, the Holder shall have no right to acquire the
First Tranche Warrants.
2.4 If the Company'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"), then the Holder shall have
a right to acquire 124,059 Warrant Securities (the "Second Tranche
Warrants") which right shall vest immediately after the date the Second
Threshold is met. If the Company's Market Capitalization does not meet
the Second Threshold prior to the Second Deadline Date, the Holder shall
have no right acquire the Second Tranche Warrants.
2.5 If the Company'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"), then the Holder shall have a right
to acquire 127,819 of the Warrant Securities (the "Remaining Warrants"),
which right shall vest immediately after the date the Third Threshold is
met. If the Company's Market Capitalization does not meet the Third
Threshold prior to the Third Deadline Date, the Holder shall have no
right to acquire the Remaining Warrants.
2.6 Notwithstanding the above, all unvested Shares shall immediately vest
upon a "change of control." A change of control shall mean a sale of all
or substantially all of the Company's assets, or any merger or
consolidation of the Company with or into another corporation, other than
a merger or consolidation in which the holders of more than 50% of the
shares of capital stock of the Company outstanding immediately prior to
such transaction continue to hold (either by the voting securities
remaining outstanding or by their being converted into voting securities
of the surviving entity) more than 50% of the total voting power
represented by the voting securities of the Company, or such surviving
entity, outstanding immediately after such transaction.
3. WARRANT CERTIFICATES. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions and other variations as
required or permitted by this Agreement.
4. EXERCISE OF WARRANT.
4.1. METHOD OF EXERCISE. The Warrants are exercisable at the Exercise Price
payable by certified or official bank check in New York Clearing House
funds. Upon surrender of a Warrant Certificate with a duly executed
Election to Purchase (in the form of Annex A to the Warrant Certificate),
together with payment at the Company's principal offices (presently
located at 223 Taylor Avenue North, Suite 200, Seattle, Washington 98109)
of the aggregate Exercise Price of the Warrants being exercised, Holder
shall be entitled to receive a certificate or certificates for the shares
of Common Stock so purchased. The purchase rights represented by each
Warrant Certificate are exercisable at the option of the Holder thereof,
in whole or in part (but not as to fractional shares of the Common Stock
underlying the Warrants). In the case of the purchase of less than all
the shares of Common Stock purchasable under any
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Warrant Certificate, the Company shall cancel said Warrant Certificate
upon the surrender thereof and shall execute and deliver a new Warrant
Certificate of like tenor for the balance of the Warrants exercisable
thereunder.
4.2. EXERCISE BY SURRENDER OF WARRANTS. In addition to the method of payment
set forth in Section 4.1 and in lieu of any cash payment required
thereunder, the Holder shall have the right, at any time, and from time
to time, to exercise the Warrants in full or in part by surrendering
Warrant Certificates representing a certain number of additional Warrants
as payment of the aggregate Exercise Price for the shares of Common Stock
being acquired upon exercise of the Warrants. The Warrants are
exercisable pursuant to this Section 4.2 by surrender of the Warrant
Certificate with a duly executed Election to Purchase (in the form of
Annex B to the Warrant Certificate) and surrender of a certain number of
Warrants in addition to those being exercised. The number of additional
Warrants to be surrendered in payment of the aggregate Exercise Price for
the Warrants being exercised shall be determined by multiplying the
number of Warrants to be exercised by the Exercise Price, and then
dividing the product thereof by an amount equal to the Market Price (as
defined below). Solely for the purposes of this Section 4.2, Market Price
shall be calculated either (i) on the date which the Election to Purchase
(in the form of Annex B to the Warrant Certificate) is deemed to have
been sent to the Company pursuant to Section 14 hereof ("Notice Date") or
(ii) as the average of the Market Prices for each of the five trading
days preceding the Notice Date, whichever of (i) or (ii) is greater.
4.3. DEFINITION OF MARKET PRICE. As used herein, the phrase "Market Price"
at any date shall be deemed to be the last reported sale price, or, in
case no such reported sale takes place on such day, the average of the
last reported bid prices for the last three trading days, in either case
as officially reported by the Nasdaq SmallCap Market or the principal
securities exchange on which the Common Stock is listed or admitted to
trading or by the Nasdaq National Market (collectively, "NASDAQ"), or, if
the Common Stock is not quoted by the Nasdaq SmallCap Market listed or
admitted to trading on any national securities exchange or quoted by
NASDAQ, the average closing bid price as furnished by the NASD or similar
organization, or if the Common Stock is not quoted on the Nasdaq SmallCap
Market, as determined in good faith by resolution of the Board of
Directors of the Company, based on the best information available to it.
5. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrants, the
issuance of certificates for the total number of whole shares of Common Stock
for which such Warrants were exercised shall be made promptly (and in any event
within five business days thereafter) without charge to the Holder thereof
including, without limitation, any stock transfer or similar tax which may be
payable with respect to the issuance thereof, and such certificates shall
(subject to the provisions of Sections 6 and 8 hereof) be issued in the name of,
or in such names as may be directed by, the Holder thereof; PROVIDED, HOWEVER,
that the Company shall not be required to pay any tax which may be payable with
respect to any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Holder, and the Company shall not
be required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
underlying the Warrants shall be executed on behalf of the Company by the manual
or facsimile signature of the then present Chairman of the Board of Directors or
President of the Company under its corporate seal reproduced thereon and by the
then present Treasurer or Secretary of the Company. Warrant Certificates shall
be dated the date of execution by the Company upon initial issuance, division,
exchange, substitution or transfer. Certificates representing the shares of
Common Stock issuable upon exercise of the Warrants
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shall be dated the date on which the Company receives the Election to Purchase,
Warrant Certificate and payment of the Exercise Price.
6. NO RESTRICTION ON TRANSFER OF WARRANTS. The Warrants may be sold,
transferred, assigned, hypothecated or otherwise disposed of, in whole or in
part, except that the Warrants may be transferred by operation of law as a
result of the death or divorce of any transferee to whom the Warrants may have
been transferred. Any assignment shall be effected by a duly executed assignment
in the form of Annex C to the Warrant Certificate.
7. EXERCISE PRICE.
7.1. INITIAL AND ADJUSTED EXERCISE PRICE. The initial exercise price of each
Warrant shall be $.0001 per share of Common Stock. The adjusted exercise
price shall be the price which shall result from time to time from any
and all adjustments of the initial exercise price in accordance with the
provisions of Section 9 hereof.
7.2. EXERCISE PRICE. The term "Exercise Price" herein shall mean the initial
exercise price or the adjusted exercise price, as the case may be.
8. REGISTRATION RIGHTS.
8.1. PIGGYBACK REGISTRATION. If, at any time commencing after October ,
2000 and expiring five years thereafter, the Company proposes to register
any of its securities under the Securities Act of 1933, as amended (the
"Securities Act") (other than pursuant to a Form S-4, Form S-8 or any
other successor form of limited purpose), it will give written notice by
registered mail at least 30 days prior to the filing of each such
registration statement, to the Warrants and Warrant Securities Holder of
its intention to do so. If the Warrants and Warrant Securities Holder
notifies the Company within 20 business days after receipt of any such
notice of its or their desire to include any of their respective Warrant
Securities in such proposed registration statement, the Company shall
afford such Holders of Warrants and Warrant Securities the opportunity to
have any such Warrant Securities registered under such registration
statement, PROVIDED, HOWEVER, that if the managing Holder advises the
Company in writing that the inclusion of all Warrant Securities that
Holders have proposed be included in such registration statement would
interfere with the successful marketing of the securities proposed to be
registered by the Company, then the securities to be included in such
registration statement shall be included in the following order:
(a) first, the securities proposed to be included in such registration by
the Company or, if such registration is for securities of specified
security holders of the Company, by such holders;
(b) second, the Warrant Securities held by the Holders requested to be
included in such registration; and
(c) third, all other holders of Common Stock entitled to be included in
such registration statement (PRO RATA among the holders requesting
such registration based upon the number of shares of Common Stock
requested by each such holder to be registered).
Notwithstanding the provisions of this Section 8.1, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 8.1 (irrespective of whether a written request for inclusion of any such
Warrant Securities shall have been made) to elect not to file any such proposed
registration statement or to withdraw the same after the filing but prior to the
effective date thereof.
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8.2. COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In connection
with any registration under Section 8.1 hereof, the Company covenants and
agrees as follows:
(a) In connection with the Company's intention to file a registration
statement, the Company shall use its best efforts to have any
registration statement declared effective at the earliest possible
time and shall furnish each Holder desiring to sell Warrant
Securities such number of prospectuses as shall reasonably be
requested
(b) The Company shall pay all costs, fees and expenses in connection with
all registration statements filed pursuant to Sections 8.1 hereof
(excluding fees and expenses of the Holder's and Holders' counsel and
accountants and any underwriting or selling commissions) including,
without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or
blue sky laws of such states as reasonably are requested by the
Holder(s), PROVIDED, THAT, the Company shall not be obligated to
qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action which would subject it to
general service of process or to taxation in any jurisdiction where
it is not then so subject.
(d) The Company shall furnish without charge to each Holder of Warrant
Securities, promptly after filing thereof with the Commission, at
least one copy of the registration statement filed pursuant to
Section 8.1 (a "Registration Statement") and each amendment thereto
or each amendment or supplement to the prospectus included therein
(the "Prospectus") including all financial statements and schedules,
documents incorporated by reference therein and if the Holder so
requests in writing, all exhibits thereto.
(e) The Company shall take such action as may be reasonably necessary so
that (i) the Registration Statement and any amendment thereto and any
Prospectus forming a part thereof and any supplement or amendment
thereto complies in all material respects with the Securities Act and
the rules and regulations thereunder, (ii) the Registration Statement
and any amendment thereto (in either case, other than with respect to
written information furnished to the Company by or on behalf of any
Holder specifically for inclusion therein) does not contain an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make any statement
therein not misleading and (iii) the Prospectus and any supplement
thereto (in either case, other than with respect to such information
from Holders), does not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
(f) The Company shall promptly advise the Holders of Warrant Securities
registered under the Registration Statement (which advice pursuant to
clauses (ii) - (iv) shall be accompanied by an instruction to suspend
the use of the Prospectus until the requisite changes have been made)
and, if requested by such persons, shall confirm such advice in
writing:
(i) when the Registration Statement and any amendment thereto has
been filed with the Commission and when the Registration
Statement or any post-effective amendment thereto has become
effective;
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(ii) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the
Prospectus or for additional information relating thereto;
(iii) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or of the
suspension by any state securities commission of the
qualification of the Warrant Securities for offering or sale in
any jurisdiction, or the initiation of any proceeding for any
of the preceding purposes; and
(iv) of the happening of any event that requires the making of any
changes in the Prospectus so that, as of such date, the
Prospectus does not contain an untrue statement of a material
fact and does not omit to state 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.
(g) If at any time the Commission shall issue any stop order suspending
the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an
order suspending the qualification or exemption from qualification of
the Warrant Securities under state securities or Blue Sky laws, the
Company shall use its reasonable best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time.
(h) The Company shall, during the period the Company is obligated to
maintain the effectiveness of a Registration Statement under
Section 8.2 hereof, deliver to each Holder of Warrant Securities
included under the Registration Statement, without charge, such
reasonable number of copies of the Prospectus (including each
preliminary prospectus) included in the Registration Statement and
any amendment or supplement thereto as such Holder may reasonably
request to facilitate the public sale or other disposition of the
Warrant Securities by the selling Holder.
(i) The Company shall cooperate with the Holders and the Holder(s), if
any, to facilitate the timely preparation and delivery of
certificates representing Warrant Securities to be sold under the
Registration Statement, free of any restrictive legends and in such
denominations and registered in such names as the Holders or the
Holder(s), if any, may reasonably request in connection with the
sales of Warrant Securities pursuant to the Registration Statement.
(j) Upon the occurrence of any event contemplated by
Section 8.2(f)(ii) - (f)(iv) hereof or any request by the Commission
for any amendments to the Registration Statement or for additional
information relating thereto or the happening of any event that
requires the making of any changes in the Registration Statement, the
Company shall file (and use its reasonable best efforts to have
declared effective as soon as possible) a post-effective amendment to
the Registration Statement or an amendment or supplement to the
Prospectus or file any other required document so that, as thereafter
delivered to the purchasers of Warrant Securities registered under
the Registration Statement, the Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein in light of the
circumstances under which they were made not misleading. Each Holder
of Warrant Securities registered under the Registration Statement
agrees by acquisition of such Warrant Securities that, upon receipt
of any notice from the Company of the existence of any fact of the
kind described in Section 8.2(f)(ii) - (f)(iv) hereof, such Holder
will forthwith discontinue disposition of Warrant Securities pursuant
to the Registration Statement until such Holder receives copies of
the supplemented or amended Prospectus contemplated by this
Section 8.2(j), or until such Holder is advised in writing by the
Company that the use of
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the Prospectus may be resumed, and such Holder has received copies of
any additional or supplemental filings which are incorporated by
reference in the Prospectus. If so directed by the Company, each
Holder will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in such Holder's
possession, of the Prospectus covering such Warrant Securities
current at the time of receipt of such notice.
(k) Nothing contained in this Agreement shall be construed as requiring
the Holders to exercise their Warrants prior to the initial filing of
any registration statement or the effectiveness thereof.
(l) The Company shall furnish to each Holder participating in the
offering and to each Holder, if any, a signed counterpart, addressed
to such Holder or Holder, of (i) an opinion of counsel to the
Company, dated the effective date of such Registration Statement
(and, if such registration includes an underwritten public offering,
an opinion dated the date of the closing under the underwriting
agreement), and (ii) if and to the extent permitted by Statement of
Auditing Standards No. 72, a "cold comfort" letter dated the
effective date of such Registration Statement (and, if such
registration includes an underwritten public offering, a letter dated
the date of the closing under the underwriting agreement) signed by
the independent public accountants who have issued a report on the
Company's financial statements included in such Registration
Statement, in each case covering substantially the same matters with
respect to such Registration Statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect
to events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to Holders in underwritten public
offerings of securities.
(m) The Company shall as soon as practicable after the effective date of
the Registration Statement, and in any event within 15 months
thereafter, make "generally available to its security holders"
(within the meaning of Rule 158 of the General Rules and Regulations
under the Securities Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Securities Act and
covering a period of at least 12 consecutive months beginning after
the effective date of the Registration Statement.
(n) The Company shall deliver promptly to each Holder participating in
the offering upon request, and to the managing Holders, if any,
copies of all correspondence between the Commission and the Company,
its counsel or accountants and all memoranda relating to discussions
with the Commission or its staff with respect to the Registration
Statement and shall permit each Holder and such Holders to do such
investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the Registration Statement
as it deems reasonably necessary to comply with applicable securities
laws or rules of the NASD. Such investigation shall include access to
books, records and properties and opportunities to discuss the
business of the Company with its officers and independent
accountants, all to such reasonable extent and at such reasonable
times and as often as any Holder or Holder shall reasonably request.
(o) In addition to Warrant Securities, upon the written request therefor
by any Holders, the Company shall include in the Registration
Statement any other securities of the Company held by such Holders as
of the date of filing of such Registration Statement, including,
without limitation, restricted shares of Common Stock, options,
warrants or securities convertible into shares of Common Stock and
shall not be requested by the Company to provide indemnification
except as provided in Section 8.2(q) hereof.
(p) For purposes of this Agreement, wherever a specified percent of
Holders is required to take action, such percentage shall be
calculated: (i) assuming the immediate exercise of
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all of the outstanding Warrants for Common Stock and (ii) excluding
the shares of Common Stock then issued or issuable pursuant to
Warrants that (x) are held by the Company, an affiliate or officer
thereof or any of their respective affiliates, members of their
family or persons acting as their nominees or in conjunction
therewith or (y) have been resold to the public pursuant to a
Registration Statement filed with the Commission under the Securities
Act.
9. ADJUSTMENTS.
9.1. ADJUSTMENTS OF NUMBER OF SHARES. The number of shares of Common Stock
that the holder of any Warrants shall be entitled to receive upon each
exercise thereof shall be determined by multiplying:
(a) the number of shares of Common Stock that would otherwise (but for
the provisions of this Section 9) be issuable upon such exercise, as
designated by the holder hereof pursuant to Section 5; by
(b) a fraction of which the numerator is $.0001 and the denominator is
the Exercise Price in effect on the date of such exercise;
PROVIDED, HOWEVER that no adjustment pursuant to this Section 9 shall
occur as a result of (i) shares of Common Stock issued upon the exercise
of other Warrants or (ii) shares of Common Stock issued upon the exercise
of outstanding options and warrants granted prior to the date hereof and
which are described in the Registration Statement (collectively, the
"Excluded Issuances").
9.2. ADJUSTMENT OF EXERCISE PRICE.
(a) Market Value Calculations. "Additional Shares of Common Stock" shall
mean all shares (including treasury shares) of Common Stock issued or
sold (or pursuant to Sections 9.3 or 9.4, deemed to be issued) by the
Company after the Effective Date, whether or not subsequently
reacquired or retired by the Company, other than shares of Common
Stock issued upon the exercise of the Warrants. "Business Day" shall
mean any day of the year which is not a Saturday, Sunday or a day on
which banks are required or authorized to close in the State of New
York. "Fair Market Value," with respect to shares of Common Stock
outstanding at any time shall be determined as follows:
(i) If a public market exists for the Common Stock, the Fair Market
Value of the Common Stock shall be (i) the closing price of the
Common Stock on the Business Day (as defined below) immediately
prior to such issuance on the principal national securities
exchange on which the Common Stock is at the time traded or, if
none, the Nasdaq Stock Market ("Nasdaq") or (ii) if there is not
such a sale on such day or if Common Stock is not at that time
traded on the Nasdaq or on a national securities exchange, the
average of the lowest closing bid and highest closing asked
prices on such day as reported by the National Association of
Securities Dealers (or any successor organization); or
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(ii) If a public market for the Common Stock does not exist, the
Fair Market Value of the Common Stock shall be determined in
good faith by the Board of Directors promptly after the
issuance of any Additional Shares of Common Stock or the
occurrence of any other event or the existence of any other
circumstance as a result of which the Fair Market Value of the
Common Stock would be required for any provision of this
agreement, and the Company shall promptly deliver to each
Holder a certificate of the Secretary of the Company setting
forth the amount of the Fair Market Value of the Common Stock
and certifying that the amount was determined by the Board of
Directors of the Company. If any Holder disagrees with the Fair
Market Value set forth in that certificate, such Holder may,
together with any other Holders who so disagree, engage an
independent investment bank or firm of independent public
accountants to act as appraiser, the expense of which shall be
borne by such Holder or Holders, to determine the Fair Market
Value of the Common Stock, and such Holder shall deliver such
appraisal to the Company within 30 days after the date of
delivery of the certificate referenced to above. Within five
days after delivery to the Company of such appraisal, the
appraiser engaged by the Holder and a person designated by the
Board (the expense of which shall be borne by the Company)
shall meet in order to resolve any questions or differences
with respect to the Fair Market Value of the Common Stock. If
such persons agree on a Fair Market Value of the Common Stock,
such Fair Market Value shall be the Fair Market Value. If no
such agreement is reached, the Fair Market Value shall be
determined within ten days after such meeting by an appraiser
who shall be selected by the appraiser engaged by the Holder
and the person designated by the Board (or, if they do not
agree on an appraiser within ten days, another independent
investment bank or firm of independent public accountants to
act as appraiser selected by the American Arbitration
Association), the expense of which shall be shared equally by
such Holder or Holders, on the one hand, and the Company, on
the other hand, and the determination of that third appraiser
shall be conclusive and binding on both the Company and the
Holder. In determining the Fair Market Value of any share of
Common Stock, all Warrants shall be treated as if they had been
exercised for the number of shares of Common Stock issuable
upon their exercise, and the Fair Market Value of any Warrants
shall be equal to the Fair Market Value of the Shares of Common
Stock issuable upon the exercise of such Warrants less the
exercise price of such Warrants.
9.3. TREATMENT OF STOCK DIVIDENDS, STOCK SPLITS, ETC. In case the Company at
any time or from time to time after the Effective Date shall fix a record
date for the determination of holders of any class of securities entitled
to receive any dividend or other distribution on any class of stock of
the Company payable in Common Stock, or shall otherwise effect any
subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock, then, and in each such case, Additional
Shares of Common Stock shall be deemed to be issued (a) in the case of
any such dividend or other distribution, immediately after the close of
business on such record date, or (b) in the case of any such subdivision,
at the close of business on the day immediately prior to the day upon
which such corporate action shall have become effective.
9.4. COMPUTATION OF CONSIDERATION. For the purposes of this Section 9:
(a) The consideration for any Additional Shares of Common Stock actually
issued or sold or for the issue, sale, grant or assumption of any
Options or Convertible Securities, irrespective of the accounting
treatment of such consideration, shall
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(i) insofar as it consists of cash, be computed as the amount of
cash actually received by the Company, after deducting any
expenses paid or incurred by the Company, or any commissions or
compensation paid or concessions or discounts allowed by the
Company to Holders, dealers or others performing similar
services in connection with any such issue or sale;
(ii) insofar as it consists of consideration (including securities
as defined in the Securities Act) other than cash, be computed
as the market value thereof at the time of any such issue,
sale, grant or assumption as determined in good faith by the
Board of Directors of the Company (which determination shall be
evidenced in a certificate delivered promptly to each Holder
and which determination shall be subject to the procedures for
disagreement as provided in item (b) of the definition of "Fair
Market Value" in Section 9.2(a)), after deducting any expenses
paid or incurred by the Company, or any commissions or
compensation paid or concessions or discounts allowed by the
Company to Holders, dealers or others performing similar
services in connection with any such issue or sale; and
(iii) insofar as Additional Shares of Common Stock are issued or
sold, Options or Convertible Securities are issued, sold,
granted or assumed together with other stock or securities or
other assets of the Company for a consideration that covers
both, be the proportion of such consideration (computed as
provided in clauses (i) and (ii) above) allocable to such
Additional Shares of Common Stock or Convertible Securities as
determined in good faith by the Board of Directors of the
Company (which determination shall be evidenced in a
certificate delivered promptly to each Holder and which
determination shall be subject to the procedures for
disagreement as provided in item (b) of the definition of "Fair
Market Value" in Section 9.2(a)).
(b) The following shall be deemed to be issued without consideration:
(i) all Additional Shares of Common Stock, Options or Convertible
Securities issued in payment of any dividend or other distribution on
any class of stock of the Company; and (ii) all Additional Shares of
Common Stock issued to effect a subdivision of the outstanding shares
of Common Stock into a greater number of shares of Common Stock
otherwise than by payment of a dividend in Common Stock. Additional
Shares of Common Stock, Options or Convertible Securities issued to
directors, management, employees and related parties shall be deemed
to be issued (i) without consideration if not issued for cash or
property and (ii) for less than either the Exercise Price or the Fair
Market Value to the extent that any cash or the fair value of
property, as determined in good faith by the Board of Directors,
received for such securities is less than either the Exercise Price
or the Fair Market Value of such securities.
9.5. ADJUSTMENTS FOR COMBINATIONS, ETC. In case the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Exercise
Price in effect immediately prior to such combination or consolidation
shall, concurrently with the effectiveness of such combination or
consolidation, be increased proportionately.
9.6. MERGER OR CONSOLIDATION. In the event of (i) any reclassification
(including, without limitation, a reclassification effected by means of
an exchange or tender offer by the Company or any Subsidiary) or change
of outstanding Common Stock (other than a change relating to par value,
or as a result of a subdivision or combination), (ii) any consolidation,
merger or combination of the Company with another corporation as a result
of which holders of Common Stock shall be entitled to receive securities
or other assets (including cash) with respect to or in exchange for
Common Stock or (iii) any sale or conveyance of the assets of
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the Company as, or substantially as, an entirety to any other corporation
as a result of which holders of Common Stock shall be entitled to receive
securities or other assets (including cash) with respect to or in
exchange for Common Stock, then the Company or the successor or
purchasing corporation, as the case may be, shall execute and deliver to
the Holder upon surrender of the Warrant Certificate held by such Holder
a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right
thereafter (until the expiration of such Warrant) to receive, upon full
exercise of such Warrant, the kind and amount of shares of stock and/or
other securities and/or property receivable upon such consolidation or
merger, by a holder of the number of shares of Common Stock for which
such Warrant might have been exercised immediately prior to such
reclassification, change, consolidation, merger, combination, sale or
conveyance. Such supplemental warrant agreement shall provide for
adjustments which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 9. The above provision of this
subsection shall similarly apply to successive events of the type
described in this Section 9.6.
9.7. DILUTION IN CASE OF OTHER SECURITIES. In case any Other Securities (as
defined below) shall be issued or sold, or shall become subject to issue
or sale upon the conversion or exchange of any Common Stock or Other
Securities of the Company (or any issuer of Other Securities or any other
person referred to in Section 9.), or shall become subject to
subscription, purchase or other acquisition pursuant to any Options
issued, sold, granted or assumed by the Company (or any such other issuer
or person) for a consideration that dilutes, in accordance with the
standards established in the other provisions of this Section 9 or
otherwise, the purchase rights granted by the Warrants, then, and in each
such case, the computations, adjustments and readjustments provided for
in this Section 9 with respect to the Exercise Price shall be made and
applied as nearly as possible in the manner so provided, to determine the
amount of Other Securities that the Holder of such Warrants shall be
entitled to receive upon the exercise of such Warrants, in order to
protect such Holder against such dilution of purchase rights. "Other
Securities" shall mean any stock (other than Common Stock) of the Company
or of any other person that the Holders of the Warrants at any time shall
be entitled to receive, or shall have received, upon the exercise of the
Warrants, in lieu of or in addition to Common Stock, or that at any time
shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to this
Section 9 or otherwise.
9.8. MINIMUM ADJUSTMENT OF EXERCISE PRICE. If the amount of any adjustment
of the Exercise Price required pursuant to this Section 9 would be less
than $0.01, such amount shall be carried forward, and adjustment with
respect thereto shall be made at the time of and together with any
subsequent adjustment that, together with such amount and any other
amount or amounts so carried forward, shall aggregate at least $0.01.
9.9. CERTIFICATE OF ADJUSTMENT. After each adjustment of the Exercise Price
or the amount of Warrant Securities purchasable upon exercise of Warrants
pursuant to this Section 9, the Company will promptly prepare a
certificate signed by the Chairman, President, Treasurer or Secretary of
the Company setting forth: (i) the Exercise Price, as so adjusted;
(ii) the amount of Warrant Securities purchasable upon exercise of each
Warrant after such adjustment; and (iii) a brief statement of the facts
accounting for such adjustment. The Company will promptly file such
certificate with its records and cause a brief summary thereof to be sent
by ordinary first class mail to each Holder at such Holder's last address
as it shall appear on the registry books of the Company.
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9.10. VALIDITY OF WARRANT CERTIFICATE. ]Notwithstanding any adjustments or
changes in the Exercise Price or the amount of Warrant Securities
purchasable upon exercise of Warrants, Warrant Certificates theretofore
and thereafter issued shall continue to express the Exercise Price per
share and the amount of Warrant Securities purchasable thereunder as of
the date such Warrant Certificates were originally issued; provided, the
Holders shall be entitled to exercise Warrants represented by such
Warrant Certificates after giving effect to each such adjustment and
change, and such Warrant Certificate shall be deemed to incorporate each
such adjustment and change as if new Warrant Certificates reflecting each
such adjustment and change had been issued to the Holders.
9.11. NO DILUTION OR IMPAIRMENT. The Company shall not, by amendment of its
certificate of incorporation or bylaws or through any consolidation,
merger, reorganization, transfer of assets, dissolution, issue, sale,
grant or assumption of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this
agreement or the Warrants, but will at all times, whether or not
requested to do so, in good faith assist in the carrying out of all such
terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holders of the Warrants
against dilution or other impairment. Without limiting the generality of
the foregoing, the Company take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully
paid and nonassessable Shares upon the exercise of all Warrants from time
to time outstanding.
10. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each Warrant
Certificate is exchangeable, without expense, upon the surrender thereof by the
Holder at the principal executive office of the Company, for a new Warrant
Certificate of like tenor and date representing in the aggregate the right to
purchase the same number of Warrant Securities in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of any Warrant Certificate, and, in case
of loss, theft or destruction, of indemnity or security reasonably satisfactory
to it, and reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of such Warrant Certificates, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor in lieu thereof.
11. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be required
to issue certificates representing fractions of shares of Common Stock upon the
exercise of the Warrants to purchase Common Stock, nor shall it be required to
issue scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights.
12. RESERVATION AND LISTING OF SECURITIES. The Company shall at all times
reserve and keep available out of its authorized capital stock, solely for the
purpose of issuance upon the exercise of the Warrants, such number of shares of
Common Stock or other securities, property or rights as shall be issuable upon
exercise thereof. The Company covenants and agrees that, upon exercise of the
Warrants and payment of the Exercise Price therefor, all shares of Common Stock
and other securities issued by the Company upon such exercise shall be duly and
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any security holder of the Company. As long as the Warrants shall be
outstanding, the Company shall use its reasonable best efforts to cause the
Common Stock issuable upon the exercise of the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock may then be listed and/or quoted by NASDAQ if the Common Stock issued to
the public is so quoted.
13. NOTICES TO HOLDERS. Nothing contained in this Agreement shall be
construed as conferring upon the Holders the right to receive dividends or to
vote or to consent or to receive notice as a
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stockholder with respect to any meetings of stockholders for the election of
directors or any other matter or as having any rights whatsoever as a
stockholder of the Company. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:
(a) the Company shall set a record date for the purpose of entitling
holders of shares of Common Stock to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained
earnings, as indicated by the accounting treatment of such dividend
or distribution on the books of the Company;
(b) the Company shall offer to all the holders of shares of Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other than
in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety
shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event to each Holder at least 15 days prior to the date fixed as a
record date or the date of closing the transfer books for the determination of
the stockholders entitled to such dividend, distribution or offer, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with any of the events
described in this Section 13.
14. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to a Holder, to the address of such Holder as shown on the books
of the Company; or
(b) If to the Company, to the address set forth in Section 4 hereof or to
such other address as the Company may designate by notice to the
Holders.
15. SUPPLEMENTS AND AMENDMENTS. The Company and the Holders may from time
to time supplement or amend this Agreement without the approval of any Holders
(other than the Holder) in order to cure any ambiguity, to correct or supplement
any provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Holder may deem necessary
or desirable and which the Company and the Holder deem shall not adversely
affect the interests of the Holders in any material respect.
16. SUCCESSORS. All the covenants and provisions of this Agreement shall
be binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
17. TERMINATION. This Agreement shall terminate at the close of business
on October , 2005.
18. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT AND EACH
WARRANT CERTIFICATES ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE
UNDER THE LAWS OF THE STATE OF WASHINGTON AND FOR ALL PURPOSES SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE WITHOUT GIVING EFFECT TO THE
RULES OF SAID STATE GOVERNING THE CONFLICT OF LAWS.
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The Company and the Holder hereby agree that any action, proceeding or claim
against it arising out of, or relating in any way to, this Agreement shall be
brought and enforced in the courts of the State of Washington or of the United
States of America for the Western District of Washington, and irrevocably
submits to such jurisdiction, which jurisdiction shall be exclusive. The Company
and the Holder hereby irrevocably waive any objection to such exclusive
jurisdiction or inconvenient forum and also hereby irrevocably waive any right
or claim to trial by jury in connection with any such action, proceeding or
claim. Any such process or summons to be served upon any of the Company and the
Holder (at the option of the party bringing such action, proceeding or claim)
may be served by transmitting a copy thereof, by registered or certified mail,
return receipt requested, postage prepaid, addressed to it at the address set
forth in Section 14 hereof. Such mailing shall be deemed personal service and
shall be legal and binding upon the party so served in any action, proceeding or
claim.
19. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof. Except as set forth in Section 15 hereof, this Agreement
may not be modified or amended except by a writing duly signed by the Company,
Holders of Warrants or Warrant Securities representing a majority of the shares
of Common Stock issuable or issued hereunder and the party against whom
enforcement of the modification or amendment is sought.
20. SEVERABILITY. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
21. CAPTIONS. The caption headings of the Sections of this Agreement are
for convenience of reference only, and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
22. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person, corporation or entity other than the Company
and the Holder of Warrants and/or Warrant Securities any legal or equitable
right, remedy or claim under this Agreement; and this Agreement shall be for the
sole and exclusive benefit of the Company and the Holder of Warrants and/or
Warrant Securities.
23. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original and such counterparts shall together constitute but one and the
same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
<TABLE>
<S> <C> <C>
SUNHAWK.COM CORPORATION
By: /s/ MARLIN J. ELLER
-----------------------------------------
Name: Marlin J. Eller
Title: Chief Executive Officer
Attest:
-------------------------------------------
Name:
Title:
@VISORY, LLC
By: -----------------------------------------
Name:
Title:
</TABLE>
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EXHIBIT A
FORM OF WARRANT CERTIFICATE
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., PACIFIC STANDARD TIME, , 2005
No. W- Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that @Visory, LLC, or registered assigns,
is the registered holder of Warrants to purchase initially, at any time
from October , 2000 until 5:30 p.m. Pacific Standard time on October , 2005
(the "Expiration Date"), up to fully paid and nonassessable shares
of Common Stock, no par value (the "Common Stock"), of Sunhawk.com Corporation,
a Washington corporation (the "Company"), at the initial exercise price, subject
to adjustment in certain events (the "Exercise Price"), of $.0001 per share upon
surrender of this Warrant Certificate and payment of the Exercise Price, at an
office or agency of the Company, but subject to the conditions set forth herein
and in the Holder's Warrant Agreement dated as of October , 2000 by and
between the Company and @Visory (the "Warrant Agreement"). Payment of the
Exercise Price, shall be made by certified or official bank check in New York
Clearing House funds payable to the order of the Company and by surrender of
this Warrant Certificate.
No Warrant may be exercised after 5:30 p.m., Pacific Standard Time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the amount the type and/or number of the Company's
securities issuable hereunder may, subject to certain conditions, be adjusted.
Subject to Section 9.4 of the Warrant Agreement, in such event, the Company
will, at the request of the holder, issue a new Warrant Certificate evidencing
the adjustment in the Exercise Price and the number and/or type of securities
issuable upon the exercise of the Warrants; PROVIDED, HOWEVER, that the failure
of the Company to issue such new Warrant Certificates shall not in any way
change, alter or otherwise impair the rights of the holder as set forth in the
Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this Warrant
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
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The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of ,2000
<TABLE>
<S> <C> <C>
SUNHAWK.COM CORPORATION
By: -----------------------------------------
Name:
[SEAL] Title:
Attest:
-------------------------------------------
Name:
Title:
</TABLE>
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ANNEX A
TO WARRANT CERTIFICATE
FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 4.1
The undersigned hereby irrevocably elects to exercise the right, represented
by this Warrant Certificate, to purchase shares of Common Stock and
herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of in
the amount of $ , all in accordance with the terms of Section 4 of
the Warrant Agreement dated as of , 2000 by and between Sunhawk.com
Corporation and the Holder. The undersigned requests that a certificate for such
securities be registered in the name of whose address is
and that such certificate be delivered to
whose address is .
<TABLE>
<S> <C> <C>
Dated: Signature ---------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate)
-------------------------------------------------
(Insert Social Security or Other Identifying Number
of Holder)
</TABLE>
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ANNEX B
TO WARRANT CERTIFICATE
FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 4.2
The undersigned hereby irrevocably elects to exercise the right, represented
by this Warrant Certificate, to purchase shares of Common Stock all
in accordance with the terms of Section 4.2 of the Warrant Agreement dated as of
October , 2000 by and between Sunhawk.com Corporation and the Holder. The
undersigned requests that a certificate for such securities be registered in the
name of whose address is and that such certificate be
delivered to whose address is .
<TABLE>
<S> <C> <C>
Dated: Signature ---------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate)
-------------------------------------------------
(Insert Social Security or Other Identifying Number
of Holder)
</TABLE>
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ANNEX C
TO WARRANT CERTIFICATE
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED hereby sells, assigns and transfers unto
________________________________________________________________________________
Please print name and address of transferee
the within Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint Attorney
to transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
<TABLE>
<S> <C> <C>
Dated: Signature ---------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate)
-------------------------------------------------
(Insert Social Security or Other Identifying Number
of Holder)
</TABLE>
198
