<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Section 240.14a-12
ENTREPORT CORPORATION
(Name of Registrant as Specified in Its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
ENTREPORT CORPORATION
2790 BUSINESS PARK DRIVE, SUITE B
VISTA, CALIFORNIA 92083
December 21, 2000
Dear Shareholder:
You are cordially invited to attend a special meeting of the
shareholders of EntrePort Corporation to be held on Tuesday, January 23, 2001,
at 3:00 p.m., California time, at our offices at 2790 Business Park Drive, Suite
B, Vista, California 92083.
At this meeting, you will be asked to approve EntrePort's acquisition
of University.com, Inc., a Minnesota corporation, pursuant to an Agreement and
Plan of Merger, dated October 24, 2000, as amended on October 25, 2000, among
EntrePort, University Merger Corp., a Minnesota corporation and a wholly-owned
subsidiary of EntrePort, and University.com, Inc. The Agreement and Plan of
Merger provides for the issuance of 5,609,788 shares of EntrePort common stock
to the shareholders of University.com in exchange for all of University.com's
issued and outstanding common stock. After the merger, University.com will be a
wholly-owned subsidiary of EntrePort.
In addition, you will be asked to authorize the separate issuance of
EntrePort common stock, or securities convertible into common stock, in one or
more private placement transactions in which we may issue an aggregate number of
shares that equals or exceeds 20% of our common stock outstanding as of the date
of the special meeting and at a purchase price less than the greater of the book
value or market value of the common stock.
The board of directors of EntrePort has unanimously approved the merger
agreement and the private placement offering and believes that the terms and
conditions of the merger agreement and the proposed merger, and the potential
issuance of equity securities in a private placement offering, are advisable and
fair to and in the best interests of EntrePort's shareholders. THEREFORE, THE
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MERGER AGREEMENT AND
THE POTENTIAL ISSUANCE OF SECURITIES IN ONE OR MORE PRIVATE PLACEMENT
TRANSACTIONS.
The attached notice of meeting and proxy statement describe the merger,
the merger agreement and the potential private placement. We urge you to read
these materials carefully.
These transactions are important decisions for EntrePort and its
shareholders. Whether or not you plan to attend the special meeting, I urge you
to vote by completing, dating, signing and promptly returning the enclosed proxy
card to ensure that your shares will be voted at the meeting.
Sincerely,
/s/ David J. D'Arcangelo
---------------------------
David J. D'Arcangelo
CHAIRMAN OF THE BOARD
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION, PASSED UPON THE
FAIRNESS OR MERITS OF THIS TRANSACTION OR PASSED UPON THE ACCURACY OR ADEQUACY
OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
--------------------------------------------------------------------------------
This proxy statement and a form of proxy are being mailed to EntrePort
shareholders beginning on or about December 22, 2000.
<PAGE>
ENTREPORT CORPORATION
2790 BUSINESS PARK DRIVE, SUITE B
VISTA, CALIFORNIA 92083
---------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
---------------------------------------------------------------
A special meeting of the shareholders of EntrePort Corporation will be
held on Tuesday, January 23, 2001, at 3:00 p.m., California time, at our offices
at 2790 Business Park Drive, Suite B, Vista, California 92083, for the following
purposes:
1. To approve and adopt the Agreement and Plan of Merger, dated
October 24, 2000, as amended on October 25, 2000, among
EntrePort, University Merger Corp., a Minnesota corporation
and a wholly-owned subsidiary of EntrePort, and
University.com, Inc., a Minnesota corporation. The agreement
provides for the issuance of 5,609,788 shares of EntrePort
common stock in connection with EntrePort's acquisition of
University.com.
2. To authorize the issuance of EntrePort common stock or
securities convertible into common stock at any time prior to
December 31, 2001 in one or more private placement
transactions in which the aggregate number of shares issued
equals or exceeds 20% of the common stock outstanding as of
the date of the special meeting and at a purchase price less
than the greater of the book value or market value of the
common stock.
3. To transact such other business as may properly come before
the special meeting or any adjournment or postponement.
The board of directors has fixed the close of business on December 7,
2000 as the record date for determining the shareholders entitled to notice of
and to vote at the special meeting and any postponement or adjournment.
The merger agreement and the private placement must be approved by the
affirmative vote of the holders of a majority of the outstanding shares of
EntrePort common stock. ENTREPORT'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND THE PRIVATE PLACEMENT AND RECOMMENDS THAT ENTREPORT
SHAREHOLDER'S VOTE TO ADOPT THE MERGER AGREEMENT AND AUTHORIZE THE PRIVATE
PLACEMENT. A copy of the merger agreement is attached as Appendix A to the
accompanying proxy statement.
December 21, 2000 By order of the board of directors,
/s/ David J. D'Arcangelo
---------------------------
David J. D'Arcangelo
Chairman of the Board
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE MERGER.......................................1
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION..................4
SUMMARY......................................................................5
The Companies Involved in the Merger....................................5
Structure of the Transaction............................................5
Conditions to the Merger................................................5
Termination of the Merger Agreement.....................................6
Material Federal Income Tax Consequences................................6
Accounting Treatment of the Merger......................................6
INFORMATION CONCERNING THE SPECIAL MEETING...................................7
Date, Time and Place of the Special Meeting.............................7
Purpose of the Special Meeting..........................................7
Voting Rights...........................................................7
Vote Required...........................................................7
Voting Agreement........................................................7
Recommendation of the Board of Directors................................8
Solicitation, Revocation and Use of Proxies.............................8
SPECIAL FACTORS..............................................................9
Background of the Merger...............................................9
Recommendation of our Board of Directors..............................10
EntrePort's Reasons for the Merger....................................10
University.com's Reasons for the Merger...............................10
Regulatory Requirements...............................................11
THE MERGER AGREEMENT........................................................12
The Merger Structure and Consideration................................12
Time of Closing.......................................................12
Exchange of Shares....................................................12
Treatment of Stock Options and Warrants...............................12
Representations and Warranties........................................13
Covenants.............................................................15
Registration Rights...................................................15
Conditions to the Merger..............................................15
Termination of the Merger Agreement...................................16
Indemnification.......................................................17
THE PRIVATE PLACEMENT OFFERING..............................................18
COMMON STOCK MARKET PRICE AND DIVIDEND INFORMATION..........................19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............20
BUSINESS OF ENTREPORT.......................................................21
General...............................................................21
Acquisition of By Referral Only.......................................21
Our Market............................................................21
Our Solution..........................................................22
Our Strategy..........................................................22
Our Products and Services.............................................23
Marketing.............................................................24
Competition...........................................................25
Intellectual Property and Proprietary Rights..........................26
Technological Support.................................................26
Employees.............................................................27
Company Location and Facilities.......................................27
Litigation............................................................27
ENTREPORT'S PLAN OF OPERATION...............................................28
BUSINESS OF UNIVERSITY.COM..................................................29
General...............................................................29
Market................................................................29
Solution..............................................................29
Sales and Marketing...................................................29
Competition...........................................................29
Intellectual Property and Proprietary Rights..........................29
Employees.............................................................30
Properties............................................................30
Legal Proceedings.....................................................30
UNIVERSITY.COM'S PLAN OF OPERATION..........................................31
CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS..................................32
WHERE YOU CAN FIND MORE INFORMATION.........................................32
INDEX TO FINANCIAL STATEMENTS...............................................F-1
APPENDICES
Appendix A-- Agreement and Plan of Merger ..................................A-1
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QUESTIONS AND ANSWERS ABOUT THE MERGER
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Q: WHY AM I RECEIVING THESE MATERIALS?
A: We have entered into an agreement with University.com, Inc. to acquire
University.com by merging our newly-formed subsidiary into University.com
in exchange for all of the issued and outstanding capital stock of
University.com. Each of EntrePort's and University.com's respective boards
of directors has approved the merger and the merger agreement. To
accomplish the merger, we will be issuing in excess of 20% of our
outstanding common stock. In addition, we are asking for authority to issue
in excess of an additional 20% of our outstanding common stock in a
separate private placement offering. Under the rules of the American Stock
Exchange, current EntrePort shareholders must approve the issuance of these
additional shares. See pages 12 through 17.
Q: WILL I VOTE ON ENTREPORT'S ACQUISITION OF BY REFERRAL ONLY?
A: This proxy statement relates only to our proposed acquisition of
University.com and the proposed private placement. We have also entered
into a separate agreement to acquire By Referral Only, Inc. that does not
require the approval of our shareholders. For more information about our
proposed acquisition of By Referral Only, see page 21.
Q: WHO WILL OWN THE SURVIVING COMPANY AFTER THE MERGER?
A: As a result of the merger, EntrePort's wholly-owned subsidiary will be
merged with and into University.com, and University.com will continue as
the surviving company after the merger. After the merger, University.com
will be a privately-held company that will be a wholly-owned subsidiary of
EntrePort. See page 12.
Q: WHAT WILL HOLDERS OF UNIVERSITY.COM CAPITAL STOCK, OPTIONS AND WARRANTS
RECEIVE IN THE MERGER?
A: EntrePort will pay aggregate consideration of 5,609,788 shares of EntrePort
common stock to holders of outstanding University.com common stock. Each
University.com shareholder will receive a number of shares of EntrePort
stock based on his or her proportionate ownership of the outstanding shares
of University.com. Options and warrants to purchase University.com stock
will be converted into the right to receive, upon exercise of such options
and warrants, the amount of shares of EntrePort common stock that the
holders of such options and warrants would have received if such options
and warrants had been exercised immediately prior to the effective time of
the merger. Accordingly, options to purchase an aggregate of 1,793,500
shares of University.com common stock outstanding prior to the merger will
be converted into options to purchase an aggregate of 856,962 shares of
EntrePort common stock after the merger. Likewise, warrants to purchase
610,000 shares of University.com common stock outstanding before the merger
will be converted into warrants to purchase 291,468 shares of EntrePort
common stock after the merger. See page 12.
Q: HOW WILL THE MERGER AND THE PRIVATE PLACEMENT AFFECT MY OWNERSHIP OF
ENTREPORT?
A: You will have the same number of shares of EntrePort common stock that you
presently have, with substantially all of the rights you now hold. However,
your shares will represent a significantly smaller percentage of the total
shares of EntrePort that will be outstanding after all of the shares are
issued in the merger and any private placement, as compared to your current
percentage ownership in EntrePort. After the merger, however, EntrePort
will have more resources than it currently does, including a more
diversified revenue base, additional and different service capacity and
additional experienced management.
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Q: DOES THE BOARD OF DIRECTORS RECOMMEND THAT I VOTE FOR THE MERGER AGREEMENT?
A: Our board of directors has unanimously determined that the terms of the
proposed merger and the terms and provisions of the merger agreement are
advisable and are fair to and in the best interests of our shareholders. To
review the background and reasons for the merger in greater detail, see
pages 9 through 11 of this proxy statement.
Q: DOES THE BOARD OF DIRECTORS RECOMMEND THAT I VOTE FOR THE PRIVATE
PLACEMENT?
A. Our board of directors has unanimously determined that it is in the best
interests of EntrePort and its shareholders to raise additional capital in
a private placement of our equity securities and recommends that you vote
in favor of the private placement. If approved by the shareholders, the
board will determine the terms and conditions of the private placement at a
later date without further authorization by our shareholders. See page 18.
Q: WHEN DO YOU EXPECT THE MERGER AND THE PRIVATE PLACEMENT TO BE COMPLETED?
A: We are working to complete the merger as quickly as possible. We expect to
complete the merger (if it is approved by the shareholders) no later than
January 31, 2001. We expect to complete the private placement no later than
December 31, 2001.
Q. WILL I HAVE ANY APPRAISAL RIGHTS WITH RESPECT TO THE STOCK ISSUANCES IN THE
MERGER AND THE PRIVATE PLACEMENT?
A. No, EntrePort shareholders will not have any appraisal rights with respect
to the stock issuances in the merger or the private placement.
Q. WILL THE MERGER OR THE PRIVATE PLACEMENT HAVE ANY TAX EFFECT ON ENTREPORT
OR ON MY ENTREPORT SHARES?
A. Neither the merger nor the private placement will have any tax effect on
EntrePort or any current EntrePort shareholders.
Q. WHAT DO I NEED TO DO NOW?
A. After carefully reviewing this proxy statement, including the exhibits,
indicate on your proxy card how you want to vote, sign it and mail it in
the enclosed return envelope as soon as possible. If you sign and send in
your card and do not indicate how you want to vote, your proxy will be
counted as a vote in favor of the stock issuance and merger and any other
proposals at the special meeting.
Q: WHAT IS THE DATE, TIME AND PLACE OF THE MEETING?
A: The special meeting of shareholders will be held on Tuesday, January 23,
2001, at 3:00 p.m., California time, at our offices at 2790 Business Park
Drive, Suite B, Vista, California 92083.
Q: WHO IS ENTITLED TO VOTE AT THE SPECIAL MEETING?
A: Shareholders of EntrePort common stock as of the close of business on
December 7, 2000.
Q: HOW MANY SHARES NEED TO BE REPRESENTED AT THE MEETING?
A: The holders of one-third of the outstanding shares entitled to vote at the
special meeting (3,893,738 shares) must be present in person or represented
by proxy to constitute a quorum for the transaction of business. If you
vote by proxy card or in person at the special meeting, you will be
considered part of the quorum.
Q: HOW DO I VOTE?
A: You can vote by mail or in person at the special meeting.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Generally, your broker will not have the power to vote your shares. Your
broker will vote your shares only if you provide him or her with
instructions on how to vote. Any failure to instruct your broker on how to
vote in favor of the merger and the private placement will have the effect
of a vote "against" these proposals. You should follow the directions
provided by your broker on how to instruct your broker to vote your shares.
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<PAGE>
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: You may revoke it any time before the special meeting by:
o giving written notice of your revocation to our Secretary;
o filing a revoking instrument or a duly executed proxy bearing a later
date with the Secretary; or
o attending the special meeting and voting in person.
Q: HOW MANY VOTES ARE REQUIRED TO APPROVE THE MERGER PROPOSAL?
A: Approval of the merger proposal requires the affirmative vote of a majority
of the shares of our common stock outstanding as of December 7, 2000
(5,840,607 shares). A failure to vote or to provide your broker with
instructions on how to vote, or a vote to abstain will have the same effect
as a vote "against" the merger proposal.
All of the directors of EntrePort have agreed under a voting agreement to
vote their shares of EntrePort common stock to approve the merger proposal.
As a result of the voting agreements, approximately 34% of outstanding
EntrePort common stock will be voted in favor of the merger proposal.
Accordingly, in excess of an additional 16% of outstanding EntrePort common
stock must be voted in favor of the merger proposal for its approval.
Q: HOW MANY VOTES ARE REQUIRED TO APPROVE THE PRIVATE PLACEMENT?
A: Approval of the private placement proposal requires the affirmative vote of
a majority of the shares of our common stock outstanding as of December 7,
2000 (5,840,607 shares). A failure to vote or to provide your broker
with instructions on how to vote, or a vote to abstain will have the same
effect as a vote "against" the private placement proposal.
Q: WHAT HAPPENS IF I SELL MY ENTREPORT SHARES BEFORE THE SPECIAL MEETING?
A: The record date for the special meeting is earlier than the expected date
of the special meeting. If you transfer your EntrePort shares after the
record date but before the special meeting, you will retain your right to
vote at the special meeting.
Q: WHO SHOULD I CONTACT IF I HAVE ANY FURTHER QUESTIONS ABOUT THE PROPOSED
MERGER OR THE PRIVATE PLACEMENT?
A: If you have any questions, you may contact our General Counsel as follows:
Deborah Ries
General Counsel
2790 Business Park Drive, Suite B
Vista, California 92083
Telephone: (760) 597-4800
Facsimile: (760) 597-4817
E-mail: [email protected]
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CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
--------------------------------------------------------------------------------
This proxy statement and the documents to which we refer you and
incorporate into this proxy statement by reference contain forward-looking
statements. In addition, from time to time, we or our representatives may make
forward-looking statements orally or in writing. We base these forward-looking
statements on our expectations and projections about future events, which we
derive from the information currently available to us. Such forward-looking
statements relate to future events or our future performance.
You can identify forward-looking statements by those that are not
historical in nature, particularly those that use terminology such as "may,"
"will," "should," "expects," "anticipates," "contemplates," "estimates,"
"believes," "plans," "projected," "predicts," "potential" or "continue" or the
negative of these or similar terms. In evaluating these forward-looking
statements, you should consider various factors, including:
o our recent commencement of revenue producing operations and lack of
significant operating history;
o our present financial condition and the risks and the availability of
additional capital as and when required;
o the risks and uncertainties concerning the our ability to consummate
the acquisitions of University.com and By Referral Only;
o assuming we are able to consummate the acquisitions, the risks and
uncertainties concerning our ability to successfully integrate the
operations of University.com and By Referral Only;
o the risks and uncertainties concerning technological changes,
increased competition and general economic conditions.
These and other factors may cause our actual results to differ
materially from any forward-looking statement.
Forward-looking statements are only predictions. The forward-looking
events discussed in this proxy statement, the documents to which we refer you
and other statements made from time to time by us or our representatives, may
not occur, and actual events and results may differ materially and are subject
to risks, uncertainties and assumptions about us. We are not obligated to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise. For these statements, we claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
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SUMMARY OF THE MERGER
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THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION INCLUDED ELSEWHERE IN THIS PROXY
STATEMENT. BECAUSE THIS IS A SUMMARY, IT MAY NOT CONTAIN ALL OF THE INFORMATION
THAT IS IMPORTANT TO YOU. TO MORE FULLY UNDERSTAND THE MERGER AND FOR A MORE
COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD READ CAREFULLY
THIS ENTIRE DOCUMENT AND THE OTHER DOCUMENTS TO WHICH WE HAVE REFERRED YOU. THE
ACTUAL TERMS OF THE MERGER ARE CONTAINED IN THE MERGER AGREEMENT, A COPY OF
WHICH IS ATTACHED AS APPENDIX A TO THIS PROXY STATEMENT.
THE COMPANIES INVOLVED IN THE MERGER
ENTREPORT CORPORATION
2790 Business Park Drive, Suite B
Vista, California 92083
(760) 597-4800
EntrePort is a Florida corporation and is principally engaged in the business of
developing and operating web sites to provide training, information and services
to industry specific groups. EntrePort is a publicly traded corporation whose
common stock is listed on the American Stock Exchange.
UNIVERSITY MERGER CORP.
c/o EntrePort Corporation
2790 Business Park Drive, Suite B
Vista, California 92083
(760) 597-4800
University Merger Corp. is a wholly-owned subsidiary of EntrePort, which
EntrePort formed solely to merge with and into University.com. Since its
formation, University Merger Corp. has not engaged in any business, except
relating to the merger.
UNIVERSITY.COM, INC.
800 Washington Avenue N.
Suite 508
Minneapolis, Minnesota 55401
University.com is a Minnesota corporation and is principally engaged in the
business of developing, hosting, managing and providing support for internet
training and education portals.
STRUCTURE OF THE TRANSACTION (SEE PAGE 12)
If the merger agreement is approved, University Merger Corp. will merge with
and into University.com, with University.com being the surviving corporation. As
a result:
o University.com will be wholly-owned by EntrePort.
o The current shareholders of University.com will receive approximately
0.48 of a share of EntrePort common stock for each one share of
University.com common stock.
o All options and warrants to purchase University.com common stock will
be converted into the rights to purchase EntrePort common stock on
substantially the same terms after giving effect to the exchange
ratio.
CONDITIONS TO THE MERGER (SEE PAGE 15)
The obligations of EntrePort and University.com to complete the merger are
subject to certain conditions, including, but not limited to, the following:
o The merger must be approved by the shareholders of both EntrePort and
University.com.
o The representations and warranties made by the parties in the merger
agreement must be materially true as of the closing date.
o Each of the parties must have performed, in all material respects, the
obligations that the merger agreement requires them to perform on or
before the closing date.
o There must not be any material adverse change in University.com's
business, financial condition, prospects, assets or operations.
5
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TERMINATION OF THE MERGER AGREEMENT
(SEE PAGE 16)
The merger agreement may be terminated before the merger is completed, whether
before or after approval by the EntrePort shareholders, in certain specified
events.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The merger is intended to qualify as a tax-free reorganization for federal
income tax purposes under Section 368 of the Internal Revenue Code of 1986, as
amended. Because the outstanding shares of EntrePort common stock will remain
unchanged as a result of the merger, existing stockholders of EntrePort will not
recognize any gain or loss for federal income tax purposes.
ACCOUNTING TREATMENT OF THE MERGER
The merger will be accounted for as the acquisition of University.com by
EntrePort under the "purchase" method of accounting, which means that the
purchase price will be allocated to assets acquired and liabilities assumed
based on their estimated fair values at the time of the merger. Income of
EntrePort will not include income (or loss) of University.com prior to the
consummation of the merger.
6
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INFORMATION CONCERNING THE SPECIAL MEETING
--------------------------------------------------------------------------------
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special meeting of shareholders of EntrePort will be held on Tuesday,
January 23, 2001, at 3:00 p.m., California time, at our offices at 2790 Business
Park Drive, Suite B, Vista, California 92083.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, EntrePort shareholders will be asked to approve the
Agreement and Plan of Merger, dated October 24, 2000, as amended on October 25,
2000, among EntrePort, University Merger Corp., a wholly-owned subsidiary of
EntrePort, and University.com. The agreement provides for the issuance of up to
5,609,788 shares of EntrePort common stock to University.com shareholders.
In addition, you will be asked to authorize the separate issuance of EntrePort
common stock, or securities convertible into common stock, in one or more
private placement transactions in which we may issue an aggregate number of
shares that equals or exceeds 20% of our common stock outstanding as of the date
of the special meeting and at a purchase price less than the greater of the book
value or market value of the common stock.
You may be asked to consider other matters that may properly come before the
special meeting and any postponements or adjournments thereof. It is not
anticipated that any other matters will be brought before the special meeting.
If other matters should properly come before the special meeting, however, the
holders of proxies solicited hereby will vote on such matters in their
discretion, unless you withhold such authority.
VOTING RIGHTS
Our board of directors has set the close of business on December 7, 2000 as the
record date for determining shareholders entitled to vote at the special
meeting. Each holder of common stock is entitled to one vote for each share held
as of the record date.
The presence, in person or by proxy, of the holders of one-third of the
outstanding shares of our common stock entitled to vote at the special meeting
is necessary to constitute a quorum for the transaction of business at the
special meeting. Abstentions are counted for purposes of determining whether a
quorum exists at the special meeting. Proxies that reflect abstentions and
proxies that are not returned will have the same effect as a vote against
approval of the merger agreement and private placement, because the affirmative
vote of the holders of a majority of the outstanding shares of our common stock
is required to approve the merger agreement and private placement.
Brokers who hold shares in street name for customers have the authority to vote
on "routine" proposals when they have not received instructions from beneficial
owners; however, brokers are precluded from exercising their voting discretion
with respect to the approval of non-routine matters such as the merger proposal.
As a result, absent specific instructions from the beneficial owner of such
shares, brokers are not empowered to vote such shares with respect to the
approval of non-routine proposals (i.e., "broker non-votes"). Abstentions and
properly executed broker non-votes will be treated as shares that are present
and entitled to vote at the special meeting for purposes of determining whether
a quorum exists and will have the same effect as votes against approval of the
merger proposal.
VOTE REQUIRED
Assuming a quorum is present, approval by EntrePort's shareholders of the merger
proposal and the private placement will require the affirmative vote of a
majority of the outstanding shares of EntrePort common stock entitled to vote at
the special meeting (5,840,607 shares).
VOTING AGREEMENT
All of our directors have entered into an agreement to facilitate merger
pursuant to which they agreed, among other things, to vote all of their shares
of EntrePort common stock in favor of the merger agreement and against any
proposal that would impede, prevent or nullify the merger agreement.
As a result of the agreement to facilitate merger, approximately 34% of
EntrePort's outstanding common stock will be voted in favor of the merger
agreement. Accordingly, in excess of an additional 16% of outstanding EntrePort
common stock must be voted in favor of the merger proposal for its approval.
7
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RECOMMENDATION OF THE BOARD OF DIRECTORS
On October 17, 2000, our board of directors approved the merger agreement and
declared the merger advisable and in the best interests of EntrePort and its
shareholders. OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE MERGER
AND THE PRIVATE PLACEMENT.
SOLICITATION, REVOCATION AND USE OF PROXIES
We will pay the costs of soliciting proxies from our shareholders and the costs
of reporting and mailing this proxy statement, the enclosed proxy and any other
material furnished to our shareholders in connection with the special meeting.
In addition to the solicitation of proxies by mail, certain of our directors,
officers and employees may solicit proxies by telephone, telecopy and personal
contact, without separate compensation for such activities. Copies of
solicitation materials will be furnished to fiduciaries, custodians and
brokerage houses for forwarding to beneficial owners of common stock, and such
persons will be reimbursed for their reasonable out-of-pocket expenses.
You may revoke your proxy at any time before voting your proxy at the special
meeting. A proxy may be revoked prior to the vote at the special meeting by
submitting a written revocation to our Secretary at 2790 Business Park Drive,
Suite B, Vista California; Attention: Deborah Ries, or by submitting a new
proxy, in either case, dated after the date of the proxy that is being revoked.
All valid proxies will be voted at the meeting in accordance with the
instructions given. If no instructions are given, the shares represented by the
proxy will be voted at the special meeting for approval and adoption of the
merger agreement and in accordance with this proxy statement on any other
business that may properly come before the special meeting and any postponements
or adjournments thereof.
Our board of directors is not currently aware of any other business to be
brought before the special meeting. If, however, other matters are properly
brought before the special meeting or any adjournment or postponement of the
special meeting, the persons appointed as proxies will have discretionary
authority to vote the shares represented by duly executed proxies in accordance
with their discretion and judgment.
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SPECIAL FACTORS
--------------------------------------------------------------------------------
BACKGROUND OF THE MERGER
On August 1, 2000, David J. D'Arcangelo, our Chairman of the Board, placed a
telephone call to Bruce Peterson, President of University.com to determine
whether there was a mutual interest in exploring whether the two companies could
better serve their target industries by working together and combining their
businesses. The parties agreed to meet on August 8, 2000 in California.
On August 8 and 9, 2000, Mr. D'Arcangelo and William A. Shue, our Chief
Executive Officer and Chief Financial Officer, met with Mr. Peterson in Costa
Mesa, California, and had preliminary discussions regarding a possible interest
in merging University.com with EntrePort. Each of the representatives signed a
confidentiality agreement in order to permit the representatives to speak freely
about the businesses of each company. Discussions centered on the combined
business plans of the companies, long-term vision, and other strategic issues.
On August 14, 2000, Mr. D'Arcangelo, Mr. Shue and Mr. Peterson participated in a
telephone conference call to discuss the business points and proposed terms of
the potential acquisition and merger.
On August 16, 2000, a special meeting of our board of directors was held. Mr.
Shue and Mr. D'Arcangelo presented the substance of the discussions with Mr.
Peterson to the board members and responded to inquiries from the board members
regarding the potential acquisition. Mr. Shue reviewed the material terms of the
acquisition with the board members and discussed the benefits of integration in
furtherance of our business plans. Mr. D'Arcangelo explained the strategic
benefits of the acquisition and noted that the potential acquisition appeared to
fit well with the long-term vision of the company. The board unanimously
approved further efforts to secure a favorable acquisition, including the
execution of a letter of intent.
On August 21, 2000, Mr. Shue, on behalf of EntrePort, and Mr. Peterson, on
behalf of University.com, executed a non-binding, written letter of intent
outlining certain terms and conditions pursuant to which we would acquire
University.com. The letter of intent provided for an exclusive negotiating
period in order to permit the parties to conclude their respective due diligence
reviews and negotiate a definitive agreement.
On August 22, 2000, Mr. Shue and Mr. D'Arcangelo traveled to Minnesota to meet
with Mr. Peterson at the University.com offices, conduct a due diligence review
and meet with the management team of University.com and some of the members of
its board of directors.
On August 30 and 31, 2000, Mr. Peterson met with our management team and
conducted further due diligence review at our facilities in California. The
parties engaged in lengthy discussions concerning the integration of the two
companies, the long-term vision of the combined companies, the financial
performance of the companies, and potential terms of the acquisition.
On September 13 and 14, 2000, Mr. Peterson traveled to California to meet with
Mr. Shue, Mr. D'Arcangelo and other members of our management team in order to
conduct strategic planning sessions for the potential acquisition.
On September 28 and 29, and October 3, 2000, Mr. Peterson met with Mr. Shue and
Mr. D'Arcangelo in our California offices to continue with due diligence and
negotiate regarding the terms of the merger agreement.
On October 17, 2000, our board of directors unanimously approved the merger and
merger agreement, the formation of a wholly-owned subsidiary for purposes of the
merger and authorized the officers to execute the merger agreement, with such
changes or modifications as the officers deemed appropriate.
On October 24, 2000, the merger agreement was signed by University.com and
transmitted to us for signature.
We executed the merger agreement on October 25, 2000. Also, on October 25, 2000,
each of the parties executed a first amendment to the merger agreement regarding
the resolution of certain discussions concerning the working capital ratio of
University.com at closing of the transaction.
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RECOMMENDATION OF OUR BOARD OF DIRECTORS
EntrePort's board of directors has unanimously approved the merger agreement,
believes it to be fair to and in the best interests of EntrePort and its
shareholders, and recommends that EntrePort shareholders vote in favor of the
merger.
ENTREPORT'S REASONS FOR THE MERGER
In arriving at the determination that the merger is advisable and is fair to and
in the best interests of our shareholders, our board of directors considered a
number of factors, including without limitation, the following:
o the belief that the integration of University.com will create
long-term cost savings and operating efficiencies relating to the
technology content management expenses and sales, new product
development, marketing expenses and creating combined opportunities
for improved earnings for the combined company;
o the belief that University.com has a respected and capable management
team with a compatible approach to products and services and
shareholder value;
o the belief that the combined companies will be able to offer an
expanded product line to better serve its customers;
o the belief that the combined companies will be able to move into other
target industries more efficiently and ahead of current projections;
and
o the belief that the current business operations of University.com will
blend well with EntrePort's future expanded product offerings.
Our board of directors also discussed other factors in connection with the
merger. These included, among others:
o the potential difficulties inherent in integrating the University.com
operations into EntrePort given the maintenance of separate facilities
in different states;
o the acquisition of additional overhead expenses acquired from a
company with no historical revenue, such as University.com;
o the substantial time and effort of our management to implement the
merger, integrate the business of University.com into EntrePort, and
manage the increased staff in two locations;
o the risk that the anticipated benefits of the merger might not be
fully realized.
Our board of directors believes that the benefits and advantages of the merger
outweigh these factors.
The foregoing discussion addresses the material information and factors
considered by our board in its consideration of the merger, including factors
that support the merger as well as those that may weigh against it. In view of
the variety of factors and the amount of information considered, the board of
directors did not find it practicable to and did not specifically make
assessments of, quantify or otherwise assign relative weights to all of the
various factors and analyses considered in reaching its determination.
UNIVERSITY.COM'S REASONS FOR THE MERGER
The University.com board of directors believes that the terms of the merger
agreement and the transactions contemplated thereby are fair from a financial
point of view to, and are in the best interests of, University.com and its
shareholders. Accordingly, the University.com, Inc. board of directors has
unanimously approved and adopted the merger agreement and the transactions
contemplated thereby. The principal reasons for the transactions contemplated
thereby and its recommendation to the University.com shareholders are as
follows:
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o the University.com board of directors' belief that the integration of
University.com will create long-term cost savings and operating
efficiencies and will create combined opportunities for improved
earnings for the combined companies;
o the University.com board of directors' belief that EntrePort has a
respected and capable management team with a compatible approach to
products/services and shareholder value;
o the University.com board of directors' belief that the combined
companies will be able to offer an expanded product line to better
serve its customers;
o the University.com board of directors' belief that the combined
companies will be able to move into other target industries more
efficiently and ahead of current projections;
o the University.com board of directors' belief that the current
business operations of University.com will blend well with the future
expanded product offerings of the company.
The University.com board of directors also discussed other factors in connection
with the merger. These included, among others:
o the potential difficulties inherent in integrating the University.com
operations into EntrePort given the maintenance of separate facilities
in different states;
o the risk that if the merger with EntrePort is not consummated,
University.com may experience difficulties raising the necessary
capital to continue pursuing its business plan;
o the substantial time and effort of University.com management to
implement the merger, integrate the business of University.com into
EntrePort, and manage the increased staff in two locations;
o the risk that the anticipated benefits of the merger might not be
fully realized.
The University.com board of directors believes that the benefits and advantages
of the merger outweigh these factors.
The foregoing discussion of the information and factors considered by the
University.com board of directors is not intended to be exhaustive but is
believed to include all material factors considered by the University.com board
of directors. In reaching its determination to approve and adopt the merger
agreement, the board of directors did not assign any relative or specific
weights to the foregoing factors, and individual directors may have given
differing weights to different factors.
REGULATORY REQUIREMENTS
In connection with the merger, after the approval of the merger proposal by
EntrePort's and University.com's shareholders, University.com and University
Merger Corp. will be required to file articles of merger with the Secretary of
State of Minnesota in accordance with the Minnesota Business Corporation Act. In
addition, EntrePort must complying with federal and state securities laws in
connection with the issuance of EntrePort common stock pursuant to the merger.
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THE MERGER AGREEMENT
--------------------------------------------------------------------------------
On October 24, 2000, we entered into the merger agreement with University.com.
The following is a summary of the material provisions of the merger agreement.
Because it is a summary, it does not include all of the information that is
included in the merger agreement. The text of the merger agreement, which is
attached as Appendix A to this proxy statement, is incorporated into this
section by reference. We encourage you to read the merger agreement carefully in
its entirety.
THE MERGER STRUCTURE AND CONSIDERATION
Upon effectiveness of the merger, University Merger Corp., our wholly-owned
subsidiary, will be merged with and into University.com and University.com will
continue as the surviving corporation. As a result of the merger:
o University.com will be a wholly-owned subsidiary of EntrePort.
o The current shareholders of University.com will receive approximately
0.48 shares of EntrePort common stock for each share of University.com
common stock owned by them.
o All options and warrants to purchase University.com common stock will
be converted into the right to purchase EntrePort common stock on
substantially the same terms, after giving effect to the 0.48-for-1
exchange ratio discussed above.
In total, University.com has 11,740,484 shares outstanding that will be
converted into 5,609,788 EntrePort shares.
Twenty percent of the EntrePort common stock issuable to University.com
shareholders will be deposited into a third party escrow account for a period of
one year after the closing of the merger. If we have any claims for
indemnification during the one year period, we will be entitled to offset our
damages against the escrowed shares. After the one-year period, the shares
remaining in the escrow account, if any, will be delivered to the University.com
shareholders.
TIME OF CLOSING
If the merger is approved at the special meeting, we expect to close the merger
no later than January 31, 2001. The merger will become effective upon filing of
articles of merger with the Secretary of State of Minnesota.
EXCHANGE OF SHARES
At the closing, University.com shareholders will surrender their certificates
representing University.com common stock in exchange for newly-issued shares of
EntrePort common stock based on the exchange ratio and minus the twenty percent
portion that will be deposited into the escrow account.
The stock certificates that prior to the merger represented shares of
University.com will be cancelled after being surrendered and exchanged for
EntrePort common stock at the closing. The shares of University Merger Corp.,
all of which are owned by EntrePort, will be converted into shares of the
surviving corporation, University.com. As a result, University.com will be a
wholly-owned subsidiary of EntrePort after the merger.
TREATMENT OF STOCK OPTIONS AND WARRANTS
At the effective time of the merger, all outstanding options and warrants to
purchase University.com common stock will be converted into options and warrants
to purchase EntrePort common stock. The number of shares of EntrePort common
stock subject to each assumed option or warrant will be equal to the number of
shares of University.com common stock subject to the option or warrant prior to
the merger multiplied by the exchange ratio. The exercise price of each assumed
option or warrant will be equal to the exercise price prior to the merger
divided by the exchange ratio. All other terms of the assumed options and
warrants, such as the vesting schedule, termination and acceleration, will
remain unchanged.
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REPRESENTATIONS AND WARRANTIES
The merger agreement contains various customary representations and warranties
made by each party that are subject to certain qualifications and exceptions
contained in the merger agreement or disclosed in a disclosure schedule.
Subject to certain qualifications and exceptions, University.com has made
representations to us substantially to the effect that:
o University.com is properly organized and in good standing;
o University.com has the capitalization disclosed in the disclosure
schedule;
o University.com has the requisite corporate power and authority to
enter into the merger agreement;
o there are no conflicts with the execution, delivery or performance of
the merger agreement;
o no consent, approval, order or additional authorization is required in
connection with the execution, delivery or performance of the merger
agreement by University.com;
o University.com's financial statements are materially accurate and were
prepared in conformity with generally accepted accounting principles;
o University.com has disclosed to us all of its material liabilities;
o there have not been any material adverse changes in University.com's
assets or business since September 30, 2000;
o University.com has good and marketable title to assets and properties
that relate to or are necessary to conduct its business and operations
as currently conducted;
o University.com's inventories are useable in the ordinary course of
business and are transferable to EntrePort;
o University.com's accounts receivables are accurate and collectable and
it is not more than 60 days delinquent in its accounts payable;
o University.com owns or has the proper rights to use all intellectual
property used or necessary to conduct its business;
o there are no legal proceedings against University.com that would
interfere with the merger;
o University.com has properly filed its tax returns and paid its taxes;
o University.com's insurance policies are valid, binding and
enforceable;
o University.com has properly administered its employee benefit plans
and those plans will not give rise to any unknown liabilities;
o University.com has disclosed to us all material agreements to which it
is a party or by which any of its assets are bound;
o there are no material claims or complaints against University.com for
any unsatisfactory services;
o University.com has materially complied with all applicable labor and
employment laws, is not liable for any back-wages or severance pay and
is not aware of any key employee intending to leave the company;
o University.com has not experienced any material problems with its
customers within the past year;
o University.com has complied in all material respects with all
applicable laws;
o there are no environment or occupational safety or health problems
related to University.com that could subject us to any liability;
o University.com will not be required to pay any brokers' or finders'
fees in connection with the merger;
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o the information provided by University.com for this proxy statement is
not inaccurate or misleading and does not omit any fact that is
necessary to make the disclosure not misleading;
o University.com does not know of any facts or circumstances that could
cause the issuance of EntrePort common stock to University.com
shareholders in the merger to fail to be exempt from SEC registration
requirements;
o University.com has not engaged in certain corrupt business practices
within the past five years;
o University.com has made all of its books and records available to us;
o that information supplied to us about the general business of
University.com is accurate.
Subject to certain qualifications and exceptions, EntrePort and University
Merger Corp. have made representations to University.com substantially to the
effect that:
o EntrePort and University Merger Corp. are properly organized and in
good standing;
o EntrePort and University Merger Corp. have all requisite corporate
power and authority to enter into the merger agreement;
o there are no conflicts with the execution, delivery or performance of
the merger agreement;
o the capitalization of EntrePort and University Merger Corp. is as set
forth in the merger agreement;
o no consent, approval, order or additional authorization is required in
connection with the execution, delivery or performance of the merger
agreement by EntrePort and University Merger Corp;
o the EntrePort common stock to be issued in the merger will be duly
authorized, validly issued, fully paid and non-assessable;
o there have not been any undisclosed material adverse changes to
EntrePort's assets or business;
o EntrePort owns or has the proper rights to use all intellectual
property used or necessary to conduct our business;
o there are no legal proceedings against EntrePort that would interfere
with the merger;
o EntrePort has properly administered its employee benefit plans and
those plans will not give rise to any unknown liabilities;
o EntrePort has disclosed to University.com all material agreements to
which it is a party or by which any of its assets are bound;
o EntrePort has materially complied with all applicable labor and
employment laws, is not liable for any back-wages or severance pay and
is not aware of any key employee intending to leave the company;
o EntrePort will not be required to pay any brokers' or finders' fees in
connection with the merger;
o at the time of filing, all of EntrePort's SEC filings complied in all
material respect with applicable SEC rules and did not contain any
material untrue or misleading statements or omissions; and
o the information provided by EntrePort for this proxy statement is not
inaccurate or misleading and does not omit any fact that is necessary
to make the disclosure not misleading.
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COVENANTS
The merger agreement contains the following covenants of the parties:
o EntrePort will prepare and file this proxy statement with the SEC and
call a special meeting;
o University.com will conduct its business in the ordinary course and
consistent with past practices until the closing and will refrain from
taking certain actions without the consent of EntrePort;
o University.com will not solicit, initiate or entertain alternative
offers or transactions;
o University.com will allow EntrePort to have full access to its
facilities, properties, books and records;
o all parties agree that all information furnished to them in connection
with this merger will remain confidential;
o the parties will use their reasonable commercial efforts to promptly
obtain all consents, authorizations, approvals and waivers required in
connection with the merger;
o each party provides further assurances that it will reasonably
cooperate in order to carry out the intent of the merger agreement;
o University.com will provide additional, supplemental information as
necessary to correct or update its disclosure schedule;
o no public announcements will be made by any party without the other
parties' consent;
o one person designated by University.com will be appointed as a member
of EntrePort's board of directors;
o each party agrees to negotiate in good faith and use its commercially
reasonable efforts to obtain a mutually acceptable amendment with
respect to the loan agreement dated July 24, 2000; and
o each party will use commercially reasonable efforts to satisfy all the
conditions precedent applicable to them in order to consummate merger.
REGISTRATION RIGHTS
The merger agreement provides the shareholders of University.com with
"piggy-back" registration rights. In the event that we propose to register any
of our securities for sale in a public offering, the University.com shareholders
receiving EntrePort common stock in the merger will be entitled to include those
shares in the registration statement that we would file with the SEC. The
piggy-back registration rights terminate one-year after the closing date and are
subject to a cut-back if the underwriters determine that marketing factors
require a limitation in the number of securities to be included in the
underwriting.
CONDITIONS TO THE MERGER
The obligations of EntrePort and University Merger Corp. to consummate the
merger are subject to the satisfaction, or waiver by EntrePort of each of the
following conditions:
o the representations and warranties of University.com contained in the
merger agreement must have been accurate as of the date of the merger
agreement and must be accurate in all material respects as of the
closing;
o University.com must have performed and complied in all material
respects with all agreements, covenants, obligations and conditions
required by the merger agreement to be performed or complied with by
University.com on or prior to the closing;
o all actions required to be taken by University.com must be completed
and all consents and approval must have been obtained;
o the merger must be approved by University.com's board of directors and
shareholders;
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o the merger must be approved by EntrePort's shareholders at the special
meeting;
o University.com must have delivered an agreement executed by its
directors and officers of agreeing to vote their shares of
University.com common stock in favor the merger;
o University.com must deliver certain other agreements and documents at
or prior to the closing;
o no material adverse change will have occurred in the business,
financial condition, prospects, assets or operations of
University.com;
o no legal proceedings will be pending or threatened against
University.com that interfere with any of the transactions associated
with the merger;
o no law will have been enacted that prohibits, restricts or delays
consummation of the transactions contemplated in this merger;
o EntrePort will have received all appropriate certificates and other
documentation to its satisfaction.
The obligation of University.com and its shareholders to the effect the
transactions contemplated in the merger agreement will be subject to the
satisfaction at or prior to the closing of each of the following conditions:
o the representations and warranties of EntrePort contained in the
merger agreement must have been accurate as of the date of the merger
agreement and must be accurate in all material respects as of the
closing;
o EntrePort must have performed and complied in all material respects
with all agreements, covenants, obligations and conditions required by
the merger agreement to be performed or complied with by EntrePort
prior to or at the closing;
o all necessary corporate approval will have been obtained by
EntrePort's board of directors and shareholders;
o no legal proceedings will be pending or threatened against EntrePort
that interfere with any of the transactions associated with the
merger;
o EntrePort will have delivered an agreement executed by each of its
directors of agreeing to vote his shares of common stock in favor the
merger at the special meeting of EntrePort shareholders called for the
purpose of approving the merger;
o EntrePort and the escrow agent will have executed and delivered the
escrow agreement.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to the effective time:
o by written agreement of the parties;
o by any party if the merger is not consummated by January 31, 2001,
unless the party seeking termination has contributed to the failure of
the merger to occur by that date;
o by EntrePort prior to the closing if any of the conditions to its
obligations have not been met or waived by EntrePort prior to the
closing;
o by University.com prior to the closing if any of the conditions to its
obligations have not been met or waived by University.com prior to the
closing.
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If the merger agreement is terminated, it will cease to have any effect and all
obligations of the parties other than those relating to indemnification and
certain other matters will terminate, except that if the merger agreement is
terminated by a party because of a breach by another party or because one or
more of the conditions to the terminating party's obligations under the merger
agreement are not satisfied as a result of another party's failure to comply
with its obligations under the merger agreement or the inaccuracy of any
representation made in the merger agreement by another party, the terminating
party's right to pursue all legal remedies survives the termination unimpaired.
INDEMNIFICATION
For a period of one year after the merger, EntrePort and University Merger Corp.
agrees to indemnify the University.com shareholders from any loss or losses
incurred as a result of any untrue representation, breach of warranty, or
unfulfilled covenant by EntrePort or University Merger Corp. Likewise, for a
period of one year after the merger, Unversity.com and its shareholders agree to
indemnify EntrePort and University Merger Corp. and each of their respective
shareholders, officers, directors, employees and agents from any loss or losses
incurred as a result of any untrue representation, breach of warranty, or
unfulfilled covenant by University.com. The aggregate indemnification
obligations of University.com and the shareholders and the sole recourse of
EntrePort and University Merger Corp. for indemnification is limited to the
twenty percent of the stock consideration deposited into the escrow account at
the closing. The aggregate indemnification obligations of EntrePort and
University Merger Corp. will be limited to approximately $4.1 million.
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THE PRIVATE PLACEMENT OFFERING
--------------------------------------------------------------------------------
To pursue our business strategy to fund acquisitions and development of
other industry specific web portals we intend to raise between $10 million and
$20 million through the sale of our equity securities in one or more private
placement transactions. The terms of the securities to be authorized, including
dividend or interest rates, conversion prices, voting rights, redemption prices,
maturity dates and similar matters will be determined by our board of directors.
Under the rules of the American Stock Exchange, we are required to
obtain shareholder approval for the sale, issuance or potential issuance of our
common stock, or securities convertible into our common stock, if the number of
shares to be issued equals or exceeds 20% of the presently outstanding stock and
the purchase price is less than the greater of the book value or market value of
the stock. As of the date of this proxy statement, we have not determined the
nature, amount or price of the equity securities that we intend to issue and
sell, although we expect the amount of securities to exceed 20% of the number of
shares of our common stock currently outstanding. Accordingly, we are asking you
to authorize the private placement offering pursuant to this proxy solicitation
and we do not intend to seek further authorization by a vote of our shareholders
prior to the issuance of securities in the private placement.
You will suffer immediate and substantial dilution (or potential
dilution) as a result of the issuance of additional shares of our common stock
(or securities convertible into common stock) in the private placement offering.
Although the number of shares of our common stock that you presently own will
not decrease, your shares will represent a significantly smaller percentage of
the total shares of EntrePort that will be outstanding after the private
placement.
In addition, the sale of a large number of equity securities to a
single or a few investors could allow those investors, individually or as a
group, to influence to outcome of shareholder votes, including votes concerning
the election of directors, the adoption or amendment of provisions of our
articles of incorporation and bylaws and the approval of certain mergers or
other similar transactions, such as the sale of substantially all of our assets.
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COMMON STOCK MARKET PRICE AND
DIVIDEND INFORMATION
--------------------------------------------------------------------------------
Our common stock has traded on the American Stock Exchange under the
symbol "ENP" since June 16, 2000. Prior to that date, our common stock traded on
the OTC Bulletin Board under the symbol "ERTE." The following table shows the
high and low bid prices for our common stock since the inception of trading in
February 1999 through June 15, 2000 as reported by the OTC Bulletin Board and
the high and low sale prices since June 16, 2000 as reported by the American
Stock Exchange. We consider our stock to be "thinly traded" and any reported
sale prices may not be a true market-based valuation of our stock. Some of the
bid quotations from the OTC Bulletin Board set forth below may reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
1999 (OTC Bulletin Board) HIGH BID LOW BID
-------------------------------------------- --------------- -------------
First quarter (from February 16, 1999) $ 2.25 $ .06
Second quarter 5.25 1.00
Third quarter 7.75 1.75
Fourth quarter 6.94 1.75
2000 (OTC Bulletin Board)
-------------------------------------------- --------------- -------------
First quarter $ 10.38 $ 4.50
Second quarter (through June 15, 2000) 8.63 3.00
2000 (American Stock Exchange) HIGH SALE LOW SALE
-------------------------------------------- --------------- -------------
Second Quarter (from June 16, 2000) $ 4.25 $ 3.00
Third Quarter 4.94 2.75
On the record date for the special meeting, there were approximately
151 holders of record of our common stock.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
--------------------------------------------------------------------------------
The following table sets forth certain information regarding the
beneficial ownership of our common stock as of the date of this proxy statement
by:
o each person who is known to be the beneficial owner of more than five
percent (5%) of our issued and outstanding shares of common stock;
o each of our directors and executive officers; and
o all of our directors and executive officers as a group.
NUMBER OF SHARES
NAME AND ADDRESS BENEFICIALLY OWNED PERCENTAGE OWNED
--------------------------------------------------------------------------------
David J. D'Arcangelo 2,673,334 22.8%
William A. Shue 1,500,000 12.5%
Tony Acone 175,000 1.5%
Scott Lucas 170,000 1.5%
All officers and directors 4,518,334 37.0%
as a group
----------------------------
Beneficial ownership is determined in accordance with the rules and regulations
of the SEC. The number of shares and the percentage beneficially owned by each
individual listed above include the following shares that are subject to options
that are immediately exercisable or exercisable within 60 days from the date of
this prospectus:
o 50,000 shares subject to options held by Mr. D'Arcangelo;
o 300,000 shares subject to options held by Mr. Shue;
o 150,000 shares subject to options held by Mr. Acone; and
o 20,000 shares subject to options held by Mr. Lucas.
The number of shares and the percentage beneficially owned by all officers and
directors as a group includes a total of 520,000 shares subject to options that
are immediately exercisable or exercisable with 60 days from the date of this
prospectus. The address for each of the shareholders listed above is 2790
Business Park Drive, Suite B, Vista, California 92083.
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BUSINESS OF ENTREPORT
--------------------------------------------------------------------------------
GENERAL
We are engaged in the business of developing and operating web sites to
provide training, information and services to industry specific groups. In April
2000, we launched our first web site, www.iSucceed.com, which is dedicated to
the approximately 1,000,000 residential real estate agents located in the United
States and Canada. As of the date of this proxy statement, we have entered into
agreements with over 150 top real estate agents, speakers and trainers to
provide content and training on iSucceed.com at very low cost to us. Going
forward, we intend to launch similar web sites for professionals in other
industry segments.
Each of our web sites are intended to provide rich content to specific
industry groups, including a broad array of resources and services such as:
o both live and recorded training
o e-mail
o forum
o search engines
o on-line shopping
o chat rooms
Some resources and services such as e-mail, forums, search engines,
shopping and training will be common to all of our industry sites. However, each
site will also contain resources and services tailored to the needs and
interests of that site's specific industry group. By adopting this approach, we
believe that each site will be of more utility to its targeted users than the
majority of current sites which seek to attract the public at large.
We were incorporated in Florida in 1996, and began our current
internet-based business in 1999.
ACQUISITION OF BY REFERRAL ONLY
On October 25, 2000, we entered into a definitive agreement to acquire
By Referral Only, Inc., a California corporation based in Oceanside, California,
which provides coaching, teleclasses, seminars and business planning for the
real estate and mortgage industry.
The transaction is structured as a merger of By Referral Only with and
into a wholly-owned subsidiary of EntrePort that we formed specifically for the
purposes of the merger. As a result of the merger, By Referral Only will become
a wholly-owned subsidiary of EntrePort. Under the terms of the agreement, we
will issue 2.25 million shares of our common stock to the existing shareholders
of By Referral Only and pay them a total of $4,000,000 in cash in exchange for
all of the issued and outstanding shares of common stock of By Referral Only.
The closing of the transaction is subject to the satisfaction of customary
closing conditions, including our ability to raise at least $5 million through
the sale of our equity securities in a private offering. If we sell common stock
in the private offering for less than $3 per share, we will be required to issue
additional shares to the shareholders of By Referral Only in the merger. We
expect to close the acquisition of By Referral Only in January 2001. Our
acquisition of By Referral Only does not require shareholder approval, and you
are not being asked to vote upon that transaction pursuant to this proxy
statement.
OUR MARKET
Our market includes those groups of professionals, independent
contractors, sales people and others that are large and cohesive enough to
represent a community of business people with similar business goals and needs.
These groups include nationwide members of industry segments, such as the
approximately 1,000,000 real estate agents in North America, or the employees
and agents of large national and international sales organizations. All of these
industry segments currently spend significant amounts of money on training,
information and other goods and services intended to fulfill or further their
business needs and goals.
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Our business plan is based on management's collective experience that
the members of many industry segments are currently underserved in terms of
training and information relating to their industry and job functions. We
believe that the primary problem facing industry segments in need of training
and content is the ability to access the available training and content on a
timely and cost effective basis. Training and content has been traditionally
disseminated by way of live sessions and seminars and through the distribution
of books, audio and videotapes. However, these traditional methods typically
involve relatively high costs to the recipients and fail to ensure the
distribution of information on a timely basis.
Our internal research and analysis suggests that the members of many
industry segments are willing to pay for a service that can deliver meaningful
training and content on a timely and cost effective basis. We believe that the
need within these industry segments and organizations for timely and cost
effective training and content presents a significant market opportunity for
EntrePort. We also believe that the training and information provided on our web
sites will enhance the skills of the subscribers and increase their profit
potential.
OUR SOLUTION
Our business model is designed to take advantage of the unique
opportunities offered by the internet. The increasing use of the internet as a
commercial medium has been accompanied by a diversification in the type of
commerce that is conducted on the internet and a proliferation in the types of
products and services available on the internet. The internet has created a
dynamic and particularly attractive medium for business, empowering businesses
and consumers to distribute and gather more services and information than is
feasible with traditional commerce systems, to communicate and shop in ways that
can be more convenient for them and to interact with each other in many new
ways. As the internet has become more accessible and widely used for
transactions, it has emerged as a primary business channel alongside the
telephone, paper-based communication and face-to-face interaction.
We intend to address the need for business training and information
through the consolidation of proprietary training and content in web sites
within industry segments. The internet offers the opportunity to provide certain
targeted industry segments with training and information that is broader, more
current and more accessible than has previously been available, all at a lower
cost to the recipient. By consolidating content and presenting it in web sites,
we will be able to offer our customers current training and information that is
accessible by them 24 hours a day, seven days a week for a relatively low
monthly membership fee.
OUR STRATEGY
Our objective is to be the premier producer of web sites directed at
industry specific audiences. To this end, we intend to position ourselves as a
membership driven marketing model capable of generating multiple revenue streams
while, at the same time, generating product/services and members at no or little
cost to the company. In this respect, we believe that we have the ability to
offer a financial model unlike the majority of other e-commerce companies. We
launched our initial web site in April 2000, but as of the date of this proxy
statement we have not received significant revenues from operations. As a
result, there can be no assurance that our business model will be successful or
that we will be able to generate revenues as planned.
The key to our strategy is our proposed strategic alliances with
industry marketing experts. Many marketing experts derive their revenue from the
sale of proprietary marketing products, typically books, audio and videotapes.
Marketers, therefore, typically sponsor, at their expense, seminars and other
means of paid advertising for purposes of reaching their audience. We will offer
these marketers the opportunity to post content, either by way of text, audio or
video tape, and sponsor seminars at our sites at no cost to them. Additionally,
we will allow the marketers the opportunity to offer their proprietary products
for sale at our web store. At the end of each content posting or training
segment, the marketers' products will be showcased and members will be directed
to our web store where the products will be available for purchase. We do not
intend to warehouse the products but will take orders, process credit cards and
pass along the order to the respective provider for shipments. We intend to
charge the marketer a commission, exclusive of shipping and handling charges,
which we believe to be significantly higher than commissions typically received
by on-line distributors.
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To date, we have signed agreements with over 150 of the top real estate
agents, speakers and trainers in North America, each of whom have agreed to
provide us with commissions on all sales of their products through our web
store. In choosing real estate agents to provide content on our site, we target
agents who we believe to be highly successful. We believe that most of our
agents are among the nation's top 10% in terms of annual sales volume, and many
of our agents are among their firm's top ten overall producers. In selecting
speakers and trainers, we have targeted persons who are widely recognized as
experts in the industry, including, for example, Terri Murphy, who is the
Chairman of the National Association of Realtors' Business Technology Forum and
the author of two best selling real estate books, and John Tucillo, who is the
former Chief Economist for the National Association of Realtors and the author
of two best selling real estate books.
In addition to providing content, we believe that our industry
marketing experts will provide access to significant numbers of subscribers at
little or no cost to us. We expect that the marketing experts that post content
and sponsor or participate in seminars will bring to the site the same marketing
audience they have been selling to for years. Our primary marketing objective
will be to bring content to the public via live seminars thereby capitalizing on
each marketer's experience and ability to sign up a predictable amount of
members at the end of each seminar.
In summary, we believe that our business model offers the following
potential benefits and advantages:
o Access to leading edge content from recognized marketing
experts at no our little cost to us;
o Access to the clients and followers of the marketing experts,
thereby creating an immediate significant base of potential
paying subscribers at little or no cost to us;
o Allowing members and visitors to develop a relationship with
the marketing experts, thereby increasing loyalty, retention
and product sales; and
o Creation of a deep content library deliverable on demand to
members.
OUR PRODUCTS AND SERVICES
We intend to develop web sites that will offer general information,
communication tools, training and other goods and services to members of certain
industry specific internet communities. These web sites will be accessible by
the general public, however, only established subscribers or registered visitors
will be permitted to use our sites as the case may be.
Our web sites will be accessible by a minimum hardware configuration
consisting of a 486 personal computer with Windows `95 or greater, with 16
megabytes of RAM, 20 megabytes of free hard disk space, a 14,400 modem and an
internet connection. All services will be provided in a Windows-based menu
driven format with "point and click" interactivity. Persons who wish to use our
web sites will be able to subscribe over the internet by completing an
application available at the web site, opening an account and making a deposit
with us via credit card.
Our sites will provide rich content to specific industry groups. Each
site will offer a broad array of resources and services such as e-mail, forums,
search engines, and on-line shopping as well as both live and recorded training.
Some resources and services such as e-mail, forums, search engines, shopping and
training will be common to all sites. However, each site will also contain
resources and services tailored to the needs and interests of the particular
industry group for that site. By adopting this approach, we believe that each
site will be of more utility to its targeted users than are the majority of
current sites which seek to attract the public at large.
OUR REAL ESTATE SITE. Our first web site is located at www.iSucceed.com
and is aimed at real estate professionals in the United States and Canada.
According to the National Association of Realtors there are over 720,000
realtors in the United States alone. The U.S. Census Bureau estimates that in
1998, this industry employed 1,231,471 people and generated over $141 billion in
revenue.
We believe, based on our internal marketing analysis and discussions
with senior executives in the real estate industry, that the real estate
industry is looking to increase operating efficiencies and profits through the
deployment of computer/internet technologies, particularly in the area of sales
training. We will offer membership based on-line training for real estate
professionals.
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Our real estate site includes the following content:
o listing for profit
o profiting on "for sale by owners"
o target marketing systems
o pre-list packaging
o virtual home tours
o pricing strategies
o agent referrals
o zero cost programs
o customer service
o referrals to home buyers
o continuing education
We have entered into an exclusive agreement with Dearborn Financial
Publishing, Inc., who is a nationally recognized provider of continuing
education programs in the real estate industry. Under the terms of this
agreement, our members have access to Dearborn's online continuing real estate
education courses. By clicking on a link on the iSucceed.com web page, our
members will be taken to a page maintained by Dearborn but branded with the
iSucceed.com name. Dearborn has agreed that it will not grant any other party
the right to use its online real estate continuing education programs. In
consideration for the right to access its programs, we have agreed to pay
Dearborn the greater of $2.50 per iSucceed.com subscriber or a minimum fee which
gradually increases from $3,750 to $56,250 per month over the course of the next
three years. Our contract with Dearborn initially lasts for three years and is
automatically renewable for additional one year terms unless either party elects
not to renew the contract.
OUR FINANCIAL SERVICES SITE. Our next website will be aimed at the
insurance and securities professionals in the United States and Canada. We
estimate there are over 1,500,000 insurance agents and 750,000 registered
securities professionals.
Our primary product will be on-line corporate and performance-based
training delivered through our existing "just-in-time" platform combined with
the "Learning Service Provider" (LSP) platform that we plan to develop with
University.com. We will also offer continuing education accredited courses
targeted at the financial services industry. A primary focus will be corporate
training to the highly motivated self-employed, independent contractor and
partially commissioned employees who want to make more money and be more
successful. We have begun developing the financial services website and expect
to launch it in March 2001.
FUTURE SITE POSSIBILITIES. We intend to replicate our iSucceed.com site
for additional industry specific groups that are large and cohesive enough to
support an internet community. Some of the industry groups we are currently
considering are legal, accounting and healthcare, and we intend to examine other
groups in the future. As of the date of this proxy statement, however, we have
not commenced the development of any specific industry sites other than our real
estate and financial services site.
We are currently working with a team of marketing experts whose job is
to develop additional sites, including the development of a database of
programming ideas and the retention of recognized industry talent to provide
content and members. Our goal is to become the leading on-line, industry
specific site service.
MARKETING
As noted above, we intend to market our web sites primarily through
proposed strategic alliances with industry marketing experts. We also intend to
market our products and services through a combination of on-line and off-line
advertising, including traditional industry print, targeted direct mail,
telemarketing, such as telephone, fax and e-mail, and through the visibility
created by the seminars hosted or sponsored by us.
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To date, our marketing efforts have consisted of organizing, sponsoring
and promoting seminars in various locations throughout the United States and
Canada. These seminars feature one or two speakers who are known experts in the
real estate field and are generally attended by approximately 250 members of the
real estate industry. We promote the iSucceed.com site during the course of the
seminar and offer attendees the opportunity to subscribe to iSucceed.com on the
spot. We market these seminars through a combination of targeted direct mail,
fax and emails and by contacting real estate agents directly. As of the date of
this proxy statement, we have conducted approximately 50 such seminars, and we
expect to hold approximately 80 more within the next 12 months.
We have also entered into marketing alliances with Countrywide Home
Loans, Inc., one of the nation's largest providers of home mortgage loans, and
internet Pictures Corporation, a provider of virtual home tour services to the
real estate industry. Under our agreement with Countrywide, we will each provide
links on our web sites to the section of the other's web site that is dedicated
to real estate professionals. In addition, we and Countrywide will offer
discounted subscriptions and/or services to persons who link to one of our sites
from the other. Under our agreement with internet Pictures Corp., internet
Pictures Corp. will promote iSucceed.com to the agents and brokers who use its
virtual home tours services and will include iSucceed.com in certain of its
print and online advertising and marketing materials. In return, we have agreed
to include internet Pictures Corp. in certain of our advertising and marketing
materials, provide limited free trials to subscribers who are referred to us by
internet Pictures Corp., and provide internet Pictures Corp. with space at our
real estate seminars. In addition, we will each provide links to the other's
site on our respective web sites.
In the future, we intend to develop an in-house staff of sales and
marketing professionals to market and promote our products directly to large
corporations and industry groups in our target markets. We may also pursue
alternative distribution channels such as independent third party sales agents
and resellers who will promote and sell our sites in exchange for commissions.
By using a combination of direct sales techniques, in house sales and marketing
professionals and alternative distribution channels, we believe that we will be
able to more rapidly access markets and increase revenue-producing traffic on
our web sites.
COMPETITION
The market for members, visitors and internet advertising is new and
rapidly evolving, and competition for members, visitors and advertisers is
intense and is expected to increase significantly in the future. Barriers to
entry are relatively low. We believe that the principal competitive factors for
companies seeking to create communities on the internet are critical mass,
functionality, brand recognition, member affinity and loyalty, broad demographic
focus and open access to visitors
Direct competitors for our iSucceed.com web site include
University.com, which we are acquiring, and Learning.net, which offers online
real estate, legal and accounting training. Other companies with whom we will
compete, although indirectly, are companies who are primarily focused on
creating broader web-based communities such as GeoCities, Tripod/Lycos,
Angelfire, Xoom and theglobe.com. We will likely also face competition in the
future from web directories, search engines, software archives, content sites,
commercial on-line services, sites maintained by ISPs and other entities that
look to establish communities on the internet by developing their own or
purchasing one of our competitors. In addition, we could face competition in the
future from traditional media companies, a number of which, including Disney,
CBS and NBC, have recently made significant acquisitions of or investments in
internet companies. Further, there can be no assurance that our competitors and
potential competitors will not develop communities that are equal or superior to
or that achieve greater market acceptance than ours.
We also compete for visitors with many internet content providers and
internet service providers, including web directories, search engines, shareware
archives, content sites, commercial on-line services and sites maintained by
ISPs, as well as thousands of internet sites operated by individuals and
government and educational institutions. These competitors include free
information, search and content sites or services, such as CNET, CNN/Time
Warner, Excite, Infoseek, Lycos, Netscape, Microsoft and Yahoo!.
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In addition to online competitors, we face competition from as well as
traditional forms of media such as newspapers, magazines, radio and television,
for advertisers and advertising revenue. We believe that the principal
competitive factors in attracting advertisers include the amount of traffic on
our web site, brand recognition, customer service, the demographics of our
members and viewers, or ability to offer targeted audiences and the overall
cost-effectiveness of the advertising medium offered by us. We believe that the
number of internet companies relying on web-based advertising revenue will
increase greatly in the future. Accordingly, we will likely face increased
competition, resulting in increased pricing pressures on our advertising rates
which could in turn have a material adverse effect on our business, results of
operations and financial condition.
Virtually all of our existing and potential competitors, including web
directories and search engines and large traditional media companies, have
longer operating histories in the web market, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than us. Such competitors are able to undertake more extensive
marketing campaigns for their brands and services, adopt more aggressive
advertising pricing policies and make more attractive offers to potential
employees, distribution partners, commerce companies, advertisers and third
party content providers. There can be no assurance that internet content
providers and ISPs, including web directories, search engines, shareware
archives, sites that offer professional editorial content, commercial on-line
services and sites maintained by ISPs will not be perceived by advertisers as
having more desirable web sites for placement of advertisements. In addition,
many of our potential current advertising customers and strategic partners have
established collaborative relationships with certain of our competitors or
potential competitors, and other high-traffic web sites. Accordingly, there can
be no assurance that we will be able to develop and grow our memberships,
traffic levels and advertiser customer base. There can also be no assurance that
we will be able to compete successfully against our current or future
competitors or that competition will not have a material adverse effect on our
business, results of operations and financial condition.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We regard our technology as propriety and attempt to protect it by
relying on trademark, service mark, copyright and trade secret laws and
restrictions on disclosure and transferring title and other methods. We
currently have no patents or patents pending and do not anticipate that patents
will become a significant part of our intellectual property in the foreseeable
future. We generally enter into confidentiality or license agreements with our
employees and consultants, and generally control access to and distribution of
our documentation and other proprietary information. Despite these precautions,
it may be possible for a third party to copy or otherwise obtain and use our
proprietary information without authorization or to develop similar technology
independently. We intend to pursue the registration of our service marks in the
United States and internationally, and have applied for the registration in the
United States for the service mark "EntrePort." Effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which our services are distributed or made available through the
internet, and policing unauthorized use of our proprietary information will be
difficult.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in internet-related businesses are
uncertain and still evolving, and no assurance can be given as to the future
viability or value of any proprietary rights of ours or other companies within
this market. There can be no assurance that the steps taken by us will prevent
misappropriation or infringement of our proprietary information. Any such
infringement or misappropriation, should it occur, might have a material adverse
effect on our business results of operations and financial condition. In
addition, litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others. Such litigation might result in
substantial costs and diversion of resources and management attention and could
have a material adverse effect on our business, results of operations and
financial condition. Furthermore, there can be no assurance that our business
activities will not infringe upon the proprietary rights of others, or that
other parties will not assert infringement claims against us.
TECHNOLOGICAL SUPPORT
We currently have nine employees on our information technology
staff. Typically, we handle ongoing support and maintenance of our web sites
in-house, but we look to outside consultants from time to time for certain web
design and software development tasks.
We intend to provide a high level of customer support to our customer
base. We intend to provide technical and customer service support via our
corporate e-mail, 24 hours a day, seven days a week. In addition to the support
channel, we intend to provide for instant messaging and support chat rooms. To
assist in providing quality and responsive support, we intend to develop or
acquire software programs that record, acknowledge, route, queue, and generate
reports on e-mail.
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EMPLOYEES
As of the date of this proxy statement, we employ 41 people, of which
40 are full-time and 1 is part time, and we intend to employ an additional
eight people over the next 90 days. None of our employees are covered by an
ongoing collective bargaining agreement with us and we believe that our
relationship with our employees is good.
COMPANY LOCATION AND FACILITIES
Our executive offices are located in Vista, California and consist of
approximately 20,000 square feet of office space. We lease this space pursuant
to a three year lease expiring on July 1, 2003, at the rate of $13,512 per month
plus common costs.
LITIGATION
We are not a party to any material litigation.
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ENTREPORT'S PLAN OF OPERATION
--------------------------------------------------------------------------------
General
-------
We are engaged in developing web sites on the internet for purposes of
offering information, communication tools and training to members of certain
industry specific internet communities. We intend to generate revenue through:
o commissions earned on the sale of products and services at our
web store;
o membership fees charged to subscribers to our web sites;
o advertising income from third party advertisers at our web
sites; and
o percentage interests in the income derived by third parties
who provide seminars, training and speeches at our web sites.
Our business activities from inception through approximately April 2000
consisted of market analysis for potential web sites, including in-house beta
testing of several industry specific web sites for which we have received
approximately $23,000 in revenue through September 30, 2000. In addition, for
the nine month period ending September 30, 2000 we generated approximately
$80,000 in revenues from sponsorship fees in connection with the marketing
seminars we discuss below. In April 2000, we launched our initial web site
devoted to residential real estate agents located at www.isucceed.com, for which
we have generated approximately $83,000 for the nine month period ending
September 30, 2000. Since April 2000, our business activities have included:
o the marketing of our real estate site at www.iSucceed.com,
through the conduct of approximately 32 seminars to promote
the site as of the date of this proxy statement;
o the development of certain strategic relationships with third
parties for purposes of procuring content and marketing
support;
o continuing market analysis of additional web sites devoted to
other professional and industry groups; and
o expansion of our in-house technology capabilities.
We have financed our activities to date through sales of debt and
equity securities. From March through May 1999, we conducted a private placement
sale of convertible notes for gross proceeds of $695,000. The principal amount
of the notes were convertible into shares of common stock at rates of $2.00 to
$3.00 per share. In June 1999, all $695,000 in principal was converted into a
total of 267,500 shares of common stock. During the period from August to
January 2000, we conducted a private placement sale of 1,524,430 shares of
common stock at $2.00 per share for gross proceeds of $3,048,280. During
February and March 2000, we conducted a private placement sale of 3,525,000
shares of common stock at $2.00 per share for gross proceeds of $7,050,000,
which resulted in net proceeds of approximately $5,802,000 after deduction of
offering expenses.
Plan of Operation
-----------------
Over the next 12 months, we intend to continue the development and
marketing of our iSucceed.com web site and commence development of other
industry specific web sites. We also plan to devote significant efforts to
integrating our planned acquisitions of By Referral Only, Inc. and
University.com Inc.
As of September 30, 2000, we had working capital of $4,111,900, which
we believe will be sufficient to satisfy our estimated working capital
requirements through June 2001. If we are successful in increasing our revenues
as projected, we may be able to fund our operations for a longer period,
although we will need significant additional capital to expand our business by
developing or acquiring additional web portals for other industries. In order to
increase revenues, we plan to generate membership through our current and future
strategic relationships with third parties for marketing support, on-line and
off-line advertising, including traditional industry print, targeted direct mail
and telemarketing, and through the visibility created by our seminars. After the
acquisition of University.com, we also plan to generate membership through
University.com's corporate clients, although there can be no assurances that we
will be able to generate membership as planned. We believe that we will need
significant additional working capital during fiscal 2001 to fund acquisitions
and development of other industry specific web portals. We plan to raise $10
million to $20 million in 2001 through the sale of our securities to pursue our
growth strategy. There can be no assurance that we will be able to obtain
sufficient additional capital in a timely manner.
As of the date of this proxy statement, we have 41 employees, of which 40 are
full-time and 1 is part-time.
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BUSINESS OF UNIVERSITY.COM
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GENERAL
University.com, a development stage company, was incorporated on June
12, 1998 to develop, host and manage industry and corporate training portals
that provide continuing education and professional development training. In
September 1999, University.com launched its proprietary, internet-based learning
management system and has since developed an internet training portal for the
real estate industry, which is located at www.realestate.university.com. In
addition, University.com has developed private label internet training portals
for two of the largest real estate companies in North America, Coldwell Banker
(www.cbu.com) and Royal LePage (www.royallepage.university.com).
MARKET
Initially, University.com's focus has been on developing internet
training solutions for the real estate industry, although it believes that its
technology and business model can be applied in multiple industries as well as
academia. In addition to the real estate industry, University.com plans to
market its products and services to professionals and others in markets in which
continuing education is required to maintain professional certification and/or
licensure, such as insurance agents, accountants, lawyers, physicians and
brokers. University.com believes that market for continuing education and
professional development training in these markets has been inefficiently
served.
University.com believes that the primary problem facing industry
segments in need of training is the inability to access the available training
and content on a timely and cost effective basis. Training has been
traditionally provided through live sessions and seminars as well as books,
audio and video tapes. However, these traditional methods typically involve
relatively high costs to the recipients and fail to ensure the distribution of
timely information.
SOLUTION
University.com's goal is to offer customers high quality content
delivered over the internet and corporate intranets, as well as system hosting
and professional support services. Features of University.com's platform include
competency assessment, registration, enrollment, scheduling, content delivery,
centralized student tracking, e-commerce, collaboration and progress reporting.
University.com plans to provide industry relevant, high quality content
in off-the-shelf and customized formats. University.com's portals will be
developed and managed to offer many forms of collaboration opportunities to
facilitate and reinforce learning, including chat, instant messaging, threaded
discussion groups, polling and on-line mentoring.
COMPETITION
The online learning market is highly fragmented with no single player
accounting for a dominant market share. While University.com directly competes
with providers of on-line learning solutions in the vertical markets
University.com pursues, University.com also competes with providers of
traditional classroom continuing education and professional development
training, as well as internal training departments of potential customers.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
University.com regards its technology as proprietary and attempts to
protect it by relying on trademark, service mark, copyright and trade secret
laws and restrictions on disclosure and transferring title and other methods.
University.com currently has no patents or patents pending and does not
anticipate that patents will become a significant part of its intellectual
property in the foreseeable future.
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EMPLOYEES
As of November 15, 2000, University.com employed 22 people on a
full-time basis. None of University.com's employees are covered by an ongoing
collective bargaining agreement and University.com believes that its
relationship with its employees is good.
PROPERTIES
University.com's executive offices are located in Minneapolis,
Minnesota and consist of 11,000 square feet of office space. University.com
leases this space pursuant to two leases, the first of which expires on
September 30, 2004, with the second expiring on September 30, 2003.
University.com's monthly lease payment is $7,098. University.com believes its
current office space will adequately serve its business needs for the
foreseeable future.
LEGAL PROCEEDINGS
University.com is not a party to any material litigation.
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UNIVERSITY.COM'S PLAN OF OPERATION
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University.com is a development stage company that develops, hosts and
manages industry and corporate training portals that provide continuing
education and professional development training. University.com's activities
since its inception in June 1998 have consisted primarily of developing its
internet training portal for the real estate industry.
Over the next twelve months, University.com plans to generate revenue
by custom developing and licensing additional private-label internet training
sites for corporate customers in the real estate industry and to pursue similar
opportunities in other markets. University.com expects to realize revenues from
continuing customer use of its training courses on its established sites as well
as from providing site hosting and maintenance services.
University.com expects that its product development costs will continue
to increase over the next twelve months as it hires additional employees to
enhance its existing product offerings and to develop to products and services.
During 2000, University.com financed its activities primarily through
the sale of equity securities and a bank line of credit. University.com will pay
the outstanding balance under the line of credit prior to the closing of the
merger with EntrePort and the line of credit will not be available to
University.com or EntrePort after the merger. University.com is not expected to
be profitable within the next twelve months and will need to locate other
sources of capital to fund its operations.
31
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
--------------------------------------------------------------------------------
In July 1999, we dismissed Barry L. Friedman, Certified Public
Accountant, as our independent auditor and appointed Ernst & Young LLP as
independent auditors. Mr. Friedman had previously audited our financial
statements as of and for the fiscal years ended December 31, 1998, 1997 and
1996. The decision to change independent auditors was approved by our board of
directors. During the fiscal year ended December 31, 1998 and through July 1999,
there were no disagreements between us and Mr. Friedman on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures which disagreements if not resolved to the satisfaction of
Mr. Friedman would have caused him to make reference to the subject matter of
the disagreement in connection with his reports.
Except for the explanatory paragraph included in Mr. Friedman's report
on our financial statements for the 1998, 1997 and 1996 fiscal years, relating
to substantial doubt existing about our ability to continue as a going concern,
the audit reports of Mr. Friedman on our financial statements as of December 31,
1998, 1997 and 1996 did not contain an adverse opinion or a disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles.
WHERE YOU CAN FIND MORE INFORMATION
--------------------------------------------------------------------------------
We file annual, quarterly and current reports, proxy statements, and
other documents with the Securities and Exchange Commission under the Securities
Exchange Act of 1934. The Exchange Act file number for our SEC filings is 26941.
Our SEC filings made electronically through the SEC's EDGAR system are available
to the public at the SEC's website at http://www.sec.gov. You may also read and
copy any document we file with the SEC at the following SEC public reference
rooms:
Judiciary Plaza Citicorp Center 7 World Trade Center
450 Fifth Street, N.W. 500 West Madison Street Suite 1300
Washington, D.C. 20549 Chicago, Illinois 60621 New York, New York 10048
You may obtain information regarding the operation of the SEC's public
reference rooms by calling the SEC at 1-800-SEC-0330.
32
<PAGE>
You should rely only on the information contained in this proxy
statement or to which we have referred you to vote your shares at the special
meeting. We have not authorized anyone to provide you with information that is
different. This proxy statement is dated December 21, 2000. You should not
assume that the information contained in this proxy statement is accurate as of
any date other than that date, and the mailing of this proxy statement to
shareholders does not create a solicitation of a proxy in any jurisdiction
where, or to or from any person to whom, it is unlawful to make such proxy
solicitation in such jurisdiction.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ David J. D'Arcangelo
----------------------------------
David J. D'Arcangelo
CHAIRMAN OF THE BOARD
December 21, 2000
33
<PAGE>
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
ENTREPORT CORPORATION
<S> <C>
Report of Independent Auditors..............................................................................F-2
Balance Sheet as of December 31, 1999 and 1998..............................................................F-3
Statements of Operations for the years ended December 31, 1999 and 1998.....................................F-4
Statements of Changes in Stockholders' Equity for the years ended December 31, 1999
and December 31, 1998.....................................................................................F-5
Statements of Cash Flows for the years ended December 31, 1999 and 1998.....................................F-6
Notes to Financial Statements...............................................................................F-7
Condensed Balance Sheet as of September 30, 2000 (unaudited)...............................................F-19
Condensed Statements of Operations for the nine months ended September 30, 2000 and
September 30, 1999 (unaudited)...........................................................................F-20
Condensed Statements of Cash Flows for the nine months ended September 30, 2000 and
September 30, 1999 (unaudited)...........................................................................F-21
Notes to Unaudited Financial Statements....................................................................F-22
UNIVERSITY.COM, INC.
Independent Auditors' Report...............................................................................F-25
Audited Balance Sheets as of December 31, 1999 and 1998....................................................F-26
Audited Statements of Operations for the year ended December 31, 1999, the period from
June 12, 1998 (inception) through December 31, 1998 and the cumulative period from June 12, 1998
to December 31, 1999.....................................................................................F-27
Audited Statements of Stockholders' Equity for the year ended December 31, 1999, the period from
June 12, 1998 (inception) through December 31, 1998......................................................F-28
Audited Statements of Cash Flows for the year ended December 31, 1999,
the period from June 12, 1998 (inception) through December 31, 1998, and the cumulative period
from June 12, 1998 to December 31, 1999..................................................................F-29
Notes to Financial Statements..............................................................................F-30
Unaudited Balance Sheets as of September 30, 2000 and December 31, 1999....................................F-40
Unaudited Statements of Operations for the nine months ended September 30, 2000 and 1999...................F-40
Unaudited Statements of Cash Flows for the nine months ended September 30, 2000 and 1999...................F-41
Notes to Financial Statements..............................................................................F-42
BY REFERRAL ONLY, INC.
Report of Independent Auditors.............................................................................F-44
Balance Sheet as of September 30, 2000 and December 31, 1999...............................................F-45
Statements of Income for the year ended December 31, 1999 and for the
nine months ended September 30, 2000.....................................................................F-46
Statements Shareholder's Deficit at September 30, 2000 and December 31, 1999...............................F-47
Statements of Cash Flows for the year ended December 31, 1999 and for the
nine months ended September 30, 2000.....................................................................F-48
Notes to Audited Financial Statements......................................................................F-49
UNAUDITED PRO FORMA INFORMATION
Introductory Note to Pro Forma Combined Condensed Financial Statements......................................P-1
Unaudited Pro Forma Balance Sheet as of September 30, 2000..................................................P-2
Unaudited Pro Forma Statements of Income for the twelve months ended December 31, 1999
and nine months ended September 30, 2000..................................................................P-3
Notes to Pro Forma Financial Statements.....................................................................P-5
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
EntrePort Corporation
We have audited the accompanying balance sheets of EntrePort Corporation (a
development stage company) as of December 31, 1999 and 1998, and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
years ended December 31, 1999 and 1998, and for the period October 4, 1996
(inception) through December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of EntrePort Corporation (a
development stage company) at December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years ended December 31, 1999 and 1998,
and the period October 4, 1996 (inception) through December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
San Diego, California
March 21, 2000
F-2
<PAGE>
<TABLE>
EntrePort Corporation
(a development stage company)
Balance Sheets
<CAPTION>
DECEMBER 31,
1999 1998
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,458,139 $ -
Other current assets 205,397 -
-----------------------------
Total current assets 1,663,536 -
Investment in Sportsware Technologies, Inc. 399,500 -
Property and equipment at cost, net 97,317 -
Website development costs 181,381 -
Deferred offering costs 85,194 -
Other assets 6,690 -
-----------------------------
$2,433,618 $ -
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 194,268 $ -
Accrued liabilities 263,399 800
Note payable to officer 20,000 -
-----------------------------
Total current liabilities 477,667 800
Stockholders' equity (deficit):
Common stock, $.001 par value; 50,000,000 shares
authorized, 7,834,974 and 5,025,000 issued and outstanding
at December 31, 1999 and 1998, respectively 7,835 5,025
Additional paid-in capital 3,845,753 -
Deficit accumulated during the development stage (1,897,637) (5,825)
-----------------------------
Total stockholders' equity (deficit) 1,955,951 (800)
-----------------------------
$2,433,618 $ -
=============================
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
<TABLE>
EntrePort Corporation
(a development stage company)
Statements of Operations
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998
-------------------------------------
<S> <C> <C>
Revenues $ 11,911 $ -
Operating Expenses:
Research and development 97,579 -
Marketing, general and administrative 1,796,990 800
-------------------------------------
Total operating expenses 1,894,569 800
-------------------------------------
Loss from operations (1,882,658) (800)
Interest expense 9,154 -
-------------------------------------
Net loss $ (1,891,812) $ (800)
=====================================
Net loss per common share
(basic and diluted) $ (0.31) $ -
=====================================
Weighted average shares used in computing
net loss per common share
(basic and diluted) 6,068,605 5,025,000
=====================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
<TABLE>
EntrePort Corporation
(a development stage company)
Statements of Stockholders' Equity
For the years ended December 31, 1999 and 1998
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
COMMON STOCK ADDITIONAL DURING THE STOCKHOLDERS'
---------------------------------- PAID-IN DEVELOPMENT EQUITY
SHARES AMOUNT CAPITAL STAGE (DEFICIT)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 5,025,000 5,025 - (5,025) -
Net loss for the year ended December 31,
1998 - - - (800) (800)
------------------------------------------------------------------------------------
Balance at December 31, 1998 5,025,000 5,025 - (5,825) (800)
Common shares retired for no consideration (4,410,000) (4,410) 4,410 - -
Common shares issued for $1,600 of notes
receivable and $335,900 for services
rendered 5,400,000 5,400 332,100 - 337,500
Issuance of common stock upon conversion
of notes payable in June 1999 at $2.00
to $3.00 per share 267,500 268 694,732 - 695,000
Issuance of common stock for $2.00 per share
in August and December 1999 for
cash, net of issuance costs of $304,185 1,384,140 1,384 2,462,711 - 2,464,095
Issuance of common stock for services
rendered 168,334 168 336,500 - 336,668
Issuance of warrants for services rendered - - 15,300 - 15,300
Net loss for the year ended December 31,
1999 - - - (1,891,812) (1,891,812)
------------------------------------------------------------------------------------
Balance at December 31, 1999 7,834,974 $ 7,835 $3,845,753 $(1,897,637) $1,955,951
====================================================================================
</TABLE>
SEE ACCOMPANYING NOTES
F-5
<PAGE>
<TABLE>
EntrePort Corporation
(a development stage company)
Statements of Cash Flows
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998
---------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,891,812) $ (800)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 17,419 -
Issuance of common stock and warrants for services 421,200 -
rendered
Changes in operating assets and liabilities: - -
Other current assets (205,397) -
Accounts payable 194,268 -
Accrued liabilities and other 262,599 800
Other assets (6,690) -
---------------------------------
Net cash flows used in operating activities (1,208,413) -
INVESTING ACTIVITIES
Purchases of property and equipment (114,736) -
Investment in Sportsware Technologies, Inc. (399,500) -
Increases in website development costs (181,381) -
---------------------------------
Net cash flows used in investing activities (695,617) -
FINANCING ACTIVITIES
Proceeds from issuance of notes payable 1,010,000 -
Payments of notes payable (295,000) -
Issuance of common stock for cash, net 2,732,363 -
Increases in deferred offering costs (85,194) -
---------------------------------
Net cash flows provided by financing activities 3,362,169 -
---------------------------------
Increase in cash and cash equivalents 1,458,139 -
Cash and cash equivalents at beginning of period - -
---------------------------------
Cash and cash equivalents at end of period $ 1,458,139 $ -
=================================
SUPPLEMENTAL DISCLOSURE OF NON CASH
FINANCING ACTIVITIES
Conversion of notes payable to common stock $ (695,000) $ -
=================================
SUPPLEMENTAL INFORMATION
Interest paid $ 5,081 $ -
=================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
EntrePort Corporation ("the Company") was incorporated in Florida on October 4,
1996. The Company is in the initial stage of operations devoting substantially
all of its efforts to the market analysis for and development of Web portals on
the Internet for purposes of offering general information, communication tools
and training to members of certain targeted Internet communities. As of December
31, 1999, the Company has not completed the development of any of its proposed
Web portals or otherwise commenced significant revenue producing operations.
Accordingly, the Company is considered to be in the development stage.
The Company had no assets or operations from the time of its incorporation until
February 1999, at which time the Company hired its current Chairman of the Board
to develop the Company's Web business. At this time, the Company's founder
canceled, for no consideration, 4,410,000 shares of Common Stock and resigned
from the Company. The Company then issued 3,800,000 shares of Common Stock, as
consideration of marketing and business plans, consulting services and cash.
REVENUE RECOGNITION
The Company recognizes revenue on membership fees ratably over the period in
which the services are performed.
F-7
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all investments with an original maturity of three months
or less when purchased to be cash equivalents. Cash equivalents primarily
represent funds invested in money market funds where cost equals market value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and depreciated over the estimated
useful lives of the assets (generally three to five years) using the
straight-line method.
WEBSITE DEVELOPMENT COSTS
Website development costs are capitalized in accordance with an EITF consensus
on Issue 00-02 and amortized over the estimated useful lives of the Internet
website being developed (generally two years) using the straight-line method.
Amortization will begin upon the launch of the web site.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related interpretations
in accounting for its employee stock options because, as discussed in Note 6,
the alternative fair value accounting provided under Financial Accounting
Standards Board Statement of Financial Accounting Standards (SFAS) No. 123,
ACCOUNTING FOR STOCK BASED COMPENSATION, requires the use of option valuation
models that were not developed for use in valuing employee stock options.
Compensation charges for options granted to non-employees has been determined in
accordance with SFAS No. 123 and EITF 96-18 as the fair value of the
consideration received or the fair value of equity instruments issued, whichever
is more reliably measured. Charges for options granted to non-employees are
periodically remeasured as the underlying options vest.
The Company has disclosed the pro forma effect of using the fair value based
method to account for its employee stock-based compensation.
F-8
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
NET LOSS PER SHARE
The Company computes net loss per share following SFAS No. 128, EARNINGS PER
SHARE. SFAS 128 requires the presentation of basic and diluted income (loss) per
share amounts. Under the provisions of SFAS No. 128, basic net income (loss) per
share is computed by dividing the net income (loss) available to common
shareholders for the period by the weighted average number of common shares
outstanding during the period. Diluted net income (loss) per share is computed
by dividing the net income (loss) for the period by the weighted average number
of common and common equivalent shares outstanding during the period. Common
equivalent shares, composed of incremental common shares issuable upon the
exercise of stock options, are included in diluted net income (loss) per share
to the extent these shares are dilutive. Common equivalent shares are not
included in the computation of diluted net loss per share for the years ended
December 31, 1999 because the effect would be anti-dilutive.
F-9
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table sets forth the computation of basic and diluted loss per
share for the periods presented:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998
------------------------------------
<S> <C> <C>
Numerator:
Net loss $ (1,891,812) $ (800)
Denominator:
Weighted average shares outstanding for basic
earning per share 6,068,605 5,025,000
------------------------------------
Effects of dilutive securities:
Employee stock options - -
Warrants - -
------------------------------------
Dilutive potential common shares - -
Shares used in computing diluted net income per
common share 6,068,605 5,025,000
====================================
Loss per common share, basic $ (0.31) $ -
====================================
Loss per common share, diluted $ (0.31) $ -
====================================
</TABLE>
COMPREHENSIVE LOSS
Comprehensive loss for all periods presented is the same as net loss.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and disclosures made in
the accompanying notes to the financial statements. Actual results could differ
from those estimates.
F-10
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
2. SELECTED BALANCE SHEET DETAILS
DECEMBER 31,
1999 1998
-------------- --------------
Other current assets:
Due from investors $ 180,000 $ -
Prepaid expenses 21,731 -
Other current assets 3,666 -
-------------- --------------
$ 205,397 $ -
============== ==============
The amount due from investors was collected in January 2000.
Property and equipment:
Machinery and equipment $ 106,509 $ -
Furniture and fixtures 8,227 -
-------------- --------------
114,736 -
Less: accumulated depreciation (17,419) -
-------------- --------------
$ 97,317 $ -
============== ==============
Accrued liabilities:
Officer relocation costs $ 106,600 $ -
Lease termination costs 61,058 -
Accrued settlement 37,500 -
Other accrued liabilities 58,241 800
-------------- --------------
$ 263,399 $ 800
============== ==============
3. EQUITY INVESTMENT
During 1999, the Company acquired a 5% share of Sportsware Technologies, Inc.
("STI") for cash totaling $399,500. The Company accounts for its investment in
STI under the cost method. In conjunction with the purchase, the Company was
granted an option through December 1999 to purchase all of the remaining
outstanding shares of STI for cash and common stock. The option was not
exercised by the Company and expired in December 1999. The Company also granted
stock options to STI to purchase 500,000 shares of the Company's common stock
for $.10 per share, vesting and exercisable only in the event the Company
purchased the remaining 95% of STI stock. These options were canceled in
December 1999 upon expiration of the purchase option.
F-11
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
4. NOTES PAYABLE
Throughout 1999, the Company issued notes payable totaling $315,000 to several
outside parties and one of the Company's officers. The notes bore interest at
rates ranging from 6.0% to 10.0% per annum. Each note was paid off prior to
December 31, 1999 with the exception of one note. The outstanding note of
$20,000 bears a rate of 8.0% and matures in July 2000.
Throughout 1999, the Company conducted a private placement sale of convertible
notes for total proceeds of $695,000. The notes bore interest at the rate of
6.0% per annum. Principal was convertible into shares of the Company's common
stock at rates of $2.00 to $3.00 per share. During 1999, the principal amount of
all notes was converted into 267,500 shares of common stock.
5. LEASE COMMITMENTS
The Company leases its corporate headquarters facility under a noncancelable
operating lease expiring on March 31, 2002. The Company also leases an unrelated
property on a month to month basis. Rent expense for these leases was
approximately $45,000, $0 and $45,000 for the years ended December 31, 1999 and
1998, and for the period October 4, 1996 (inception) through December 31, 1999,
respectively.
Future minimum payments required under the operating lease as of December 31,
1999 are as follows:
OPERATING
LEASES
----------------
2000 $ 26,800
2001 33,400
2002 10,000
----------------
Total minimum lease payments $ 70,200
================
6. STOCKHOLDERS' EQUITY
COMMON STOCK
In February 1999, the Company retired 4,410,000 shares of the Company's stock
from the original founder of the Company, for no consideration. Additionally, in
March 1999 the Company issued 5,400,000 shares of common stock to various
initial investors and key employees for cash and services.
F-12
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
In September 1999, the Company sold 99,710 shares of common stock for cash
proceeds of $199,420 in a private placement. In June 1999, the Company issued
267,500 shares of common stock, as a result of the conversion of convertible
notes. In December 1999, the Company issued 1,284,430 shares in a private
placement for cash proceeds of $2,568,860. The Company incurred $38,185 in
offering costs, and issued 133,334 shares of common stock to a financial
consultant in connection with the private placement (valued at $266,668). These
costs have been charged as a reduction to additional paid-in capital.
In November 1999, the Company issued 25,000 shares of common stock in
consideration for the extension of two notes payable. In December 1999, the
Company also issued 10,000 shares of common stock for Website development
services rendered. The Company expensed the costs of these services.
COMMON STOCK WARRANTS
Periodically, the Company will issue warrants to outside consultants in lieu of
stock options. During the period October 4, 1996 (inception) through December
31, 1999, the Company issued 10,000 warrants at a $1.00 exercise price. The
warrants are exercisable at December 31, 1999 and expire in October 2002. During
the year ended December 31, 1999, the Company recognized $15,300 in compensation
expense for these services.
STOCK OPTIONS
In March 1999, the Company adopted the 1999 Stock Incentive Plan (the "Plan") to
grant options to purchase common stock to eligible officers, employees,
directors, consultants and other independent advisors who provide services to
the Company. The Board has authorized and reserved an aggregate of 4,000,000
shares of common stock for issuance under the Plan. Terms of the stock option
agreements, including vesting requirements, are determined by the Board of
Directors. Options under the Plan cannot exceed a ten year term. The exercise
price of options granted under the Plan is determined by the Board, but cannot
be less than 100% of the fair market value (85% for non-qualified options) of
the common stock on the date of grant.
F-13
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes activity under the stock option plan during the
year ended December 31, 1999:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-----------------------------------
Outstanding at December 31, 1998 - $ -
Granted 1,810,000 $ 1.69
Exercised - $ -
Canceled (500,000) $ 0.10
-----------------
Outstanding at December 31, 1999 1,310,000 $ 2.30
=================
All options outstanding at December 31, 1999 are non-qualified options. The
weighted average grant date fair value of options granted during the year
totaled $1.49.
A further summary of options outstanding and exercisable as of December 31, 1999
follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
EXERCISE EXERCISE AVERAGE AVERAGE AVERAGE
OPTIONS RANGE RANGE EXERCISE REMAINING OPTIONS EXERCISE
OUTSTANDING LOW HIGH PRICE LIFE (YEARS) EXERCISABLE PRICE
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
350,000 $1.00 $1.00 $1.00 4.3 350,000 $1.00
450,000 $2.00 $2.50 $2.22 3.8 75,000 $2.00
450,000 $3.00 $3.50 $3.11 4.3 - -
40,000 $4.00 $4.00 $4.00 2.9 - -
20,000 $5.00 $5.00 $5.00 2.8 20,000 $5.00
-----------------------------------------------------------------------------------------------------------
1,310,000 $1.00 $5.00 $2.30 4.0 445,000 $1.35
===========================================================================================================
</TABLE>
Adjusted pro forma information regarding net loss is required by SFAS No. 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using the Black-Scholes method with
the following weighted-average assumptions for 1999: risk-free interest rate of
6.5%, dividend yield of 0%, volatility factor of 100.0%, and an expected option
life of 3 years. Future pro forma results of operations under SFAS No. 123 may
be materially different from actual amounts reported. For purposes of adjusted
pro forma disclosures, the estimated fair value of the options are amortized to
expense over the vesting period.
F-14
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-15
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period of such options. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998
-----------------------------------
<S> <C> <C>
Pro forma net loss $ (1,984,329) $ (800)
Pro forma net loss per share, basic and diluted $ (0.33) $ -
</TABLE>
SHARES RESERVED FOR FUTURE ISSUANCE
The following shares of common stock are reserved for future issuance at
December 31, 1999:
SHARES
-----------------
Stock options:
Granted and outstanding 1,310,000
Reserved for future grants 2,690,000
Warrants 10,000
-----------------
Total Reserved 4,010,000
=================
7. INCOME TAXES
Significant components of the Company's deferred tax assets as of December 31,
1999 and 1998 are shown below. A valuation allowance of $776,000 has been
recognized at December 31, 1999 to offset the net deferred tax assets as
realization of such assets is uncertain.
F-16
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
----------------------------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $ 760,000 -
Research and development credits 11,000 -
Other, net 5,000 -
----------------------------------
Total net deferred tax assets 776,000 -
Valuation allowance for deferred tax asset (776,000) -
----------------------------------
Net deferred tax assets $ - -
==================================
</TABLE>
At December 31, 1999, the Company has federal and California net operating loss
carryforwards of approximately $1,865,000 and $1,869,000, respectively. The
federal and California tax loss carryforwards will begin to expire in 2019 and
2007, respectively, unless previously utilized. The Company also has federal and
California research credit carryforwards of approximately $8,700 and $4,800,
respectively, which will begin to expire in 2018 unless previously utilized.
F-17
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
Pursuant to Section 382 and 383 of the Internal Revenue Code, the annual use of
the Company's net operating loss and credit carryforwards may be limited if
cumulative changes in ownership of more than 50% occur during any three year
period. However, the Company does not believe such limitation will have a
material impact upon the utilization of these carryforwards.
8. LITIGATION
>From time to time the Company is involved in legal proceedings, claims and
litigation arising in the ordinary course of business. Management believes,
however, that the ultimate outcome of all pending litigation should not have a
material adverse effect on the Company's financial position or liquidity.
9. SUBSEQUENT EVENT
In March 2000, 3,537,500 shares of common stock were issued at $2.00 per share
to private investors for net proceeds of approximately $6.1 million. In
conjunction with the offering, warrants to purchase 353,750 shares of the
Company's common stock were issued to the placement agent. The exercise price is
$2.00 per share and the warrants expire in March 2005.
F-18
<PAGE>
EntrePort Corporation
Condensed Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
(UNAUDITED) (NOTE)
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,384,690 $ 1,458,139
Investments 399,500 399,500
Other current assets 28,372 205,397
------------------------------------
Total current assets 4,812,562 2,063,036
Property and equipment at cost, net 569,405 97,317
Website development costs, net 418,066 181,381
Other assets 440,179 91,884
------------------------------------
$ 6,240,212 $ 2,433,618
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 430,220 $ 194,268
Accrued liabilities 187,306 263,399
Current portion of lease payable 83,136 -
Note payable to officer - 20,000
------------------------------------
Total current liabilities 700,662 477,667
Long term portion of lease payable 89,737 -
Stockholders' equity:
Common stock, $.001 par value; 50,000,000 shares authorized,
11,681,113 and 7,834,974 issued and outstanding at
September 30, 2000 and December 31, 1999, respectively 11,681 7,835
Additional paid-in capital 10,516,587 3,845,753
Deferred compensation (37,899) -
Accumulated deficit (5,040,556) (1,897,637)
------------------------------------
Total stockholders' equity 5,449,813 1,955,951
------------------------------------
$ 6,240,212 $ 2,433,618
====================================
SEE ACCOMPANYING NOTES.
Note: The Balance Sheet at December 31, 1999 is derived from the audited financial statements at that date,
but does not include all of the disclosures required by generally accepted accounting principles.
</TABLE>
F-19
<PAGE>
EntrePort Corporation
Condensed Statements of Operations
(UNAUDITED)
================================================================================
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------------
2000 1999
------------------------------------
Revenues $ 173,947 $ 11,414
Costs and expenses:
Cost of revenues 961,308 -
Product development 419,754 88,512
Selling, general
and administrative 2,114,372 1,096,092
------------------------------------
Total costs and expenses 3,495,434 1,184,604
------------------------------------
Loss from operations (3,321,487) (1,173,190)
Interest income 178,568 -
------------------------------------
Net loss $ (3,142,919) $ (1,173,190)
====================================
Net loss per common share
(basic and diluted) $ (0.30) $ (0.20)
====================================
Weighted average shares used in
computing net loss per common
share (basic and diluted) 10,411,858 5,857,993
====================================
SEE ACCOMPANYING NOTES.
F-20
<PAGE>
EntrePort Corporation
Condensed Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (3,142,919) $ (1,173,190)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 178,020 9,123
Issuance of common stock options for services 136,801 -
Issuance of common stock and warrants for services 74,000 335,900
Changes in operating assets and liabilities 265,895 100,184
------------------------------------
Net cash flows used in operating activities (2,488,203) (727,983)
INVESTING ACTIVITIES
Purchases of property and equipment (369,690) (103,259)
Purchase of investment - (200,000)
Increases in website development costs (330,736) -
------------------------------------
Net cash flows used in investing activities (700,426) (303,259)
FINANCING ACTIVITIES
Re-payments on notes payable (33,494) -
Net proceeds form short-term notes - 215,000
Issuance of common stock for cash, net 6,148,674 899,820
------------------------------------
Net cash flows provided by financing activities 6,115,180 1,114,820
------------------------------------
Increase in cash and cash equivalents 2,926,551 83,578
Cash and cash equivalents at beginning of period 1,458,139 -
------------------------------------
Cash and cash equivalents at end of period $ 4,384,690 $ 83,578
====================================
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING ACTIVITIES
Capital lease obligations $ 186,367 $ -
====================================
Issuance of common shares for services $ 362,500 $ -
====================================
See accompanying notes.
F-21
</TABLE>
<PAGE>
EntrePort Corporation
Notes to Condensed Financial Statements
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB, and, in the opinion of
management, contain all adjustments, consisting of normal recurring adjustments
necessary to present fairly the financial position as of September 30, 2000 and
the results of operations for the nine month periods ended September 30, 2000
and 1999.
Certain information and footnote disclosures normally included in financial
statements have been omitted or condensed. These condensed financial statements
should be read in conjunction with the financial information included in the
Company's 1999 Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission. The results of operations for the period ended September
30, 2000 are not necessarily indicative of the results that may be attained for
the entire fiscal year. Certain prior period amounts have been reclassified to
conform to the current period presentation.
During the three months ended June 30, 2000, the Company emerged from the
development stage, as defined in Statement of Financial Standards ("SFAS") No.7.
Certain adjustments recorded in the December 31, 1999 financial statements
relate to the nine month period ended September 30, 1999. The Company has
restated the September 30, 1999 results of operations in the accompanying
financial statements to reflect these adjustments.
2. COMPREHENSIVE LOSS
Comprehensive loss for all periods presented is the same as net loss.
3. NET LOSS PER SHARE
The Company computes net loss per share following SFAS No. 128, EARNINGS PER
SHARE. SFAS 128 requires the presentation of basic and diluted income (loss) per
share amounts. Under the provisions of SFAS No. 128, basic net income (loss) per
share is computed by dividing the net income (loss) available to common
shareholders for the period by the weighted average number of common shares
outstanding during the period. Diluted net income (loss) per share is computed
by dividing the net income (loss) for the period by the weighted average number
of common and common equivalent shares outstanding during the period. Common
equivalent shares, composed of incremental common shares issuable upon the
exercise of stock options, are included in diluted net income (loss) per share
to the extent these shares are dilutive. Common equivalent shares are not
included in the computation of diluted net loss per share for the three and nine
month periods ended September 30, 2000 and 1999 because the effect would be
anti-dilutive.
F-22
<PAGE>
4. FINANCING AGREEMENT
The Company entered into an equipment financing lease agreement with
International Business Machines Corporation ("IBM") in May 2000. Principal
amount due at September 30, 2000 is $172,873. The term lease payable is due in
monthly principal and interest payments of $6,928 through May 2003. Borrowings
under the financing agreement are secured by specific equipment, with interest
payable at a rate of 18.7%.
5. COMMON STOCK
The Company raised approximately $3.0 million as a result of a private placement
offering during the period August 1999 to January 2000, for which the Company
incurred $87,700 in costs related to the offering and issued 50,850 shares of
common stock to various placement agents in connection with the private
placement (valued at $101,700). These costs have been charged as a reduction to
additional paid-in-capital. In January 2000, the Company issued 140,000 shares
of common stock at $2.00 to private investors for cash proceeds of $280,000.
In March 2000, the Company sold 3,525,000 shares of common stock at $2.00 per
share to private investors for cash proceeds of $7,050,000. The Company incurred
$1,248,019 in transaction costs related to the offering. In conjunction with the
offering, warrants to purchase 377,500 shares of the Company's common stock at a
price of $2.00 were issued to the placement agent. The warrants are fully
exercisable and expire in March 2005.
In January 2000, the Company issued 5,000 shares of common stock as
consideration for the extension of a note payable. In March 2000, the Company
issued 25,000 shares of common stock to an employee as a recruiting incentive.
The Company has expensed $60,000 related to these two transactions.
In September 2000, the Company issued 100,000 shares of common stock valued at
$362,500 for financial advisory services related to prospective acquisitions.
6. STOCK OPTION PLAN
During the nine month period ended September 30, 2000, the Company granted
553,500 stock options to employees, consultants and a board member with vesting
periods ranging from immediate to three years. The options are for the purchase
of common stock of the Company at prices ranging from $2.00 to $5.00 per share.
During the nine month period ended September 30, 2000, the Company recorded
compensation expense of $136,801 related to options outstanding to employees and
consultants. Options to purchase 630,000 shares of common stock of the Company
at prices ranging from $2.00 to $7.00 per share were cancelled during the nine
month period ended September 30, 2000. No options have been exercised during the
period.
F-23
<PAGE>
7. SALE TO METROSPLASH.COM
In March 2000, the Company sold to MetroSplash.com Inc. ("MetroSplash") its ERT1
website in exchange for 100,000 restricted common shares of MetroSplash. The
unlaunched ERT1 website was targeted to the African American professional.
During the third quarter, MetroSplash was sold to Lycos, Inc., a Delaware
Corporation, for $0.99 per share. Pending the completion of the sale, the
Company has not recorded a gain on the transaction for the period ending
September 30, 2000. The Company subsequently received a partial payment of
approximately $55,000 in October 2000 which will be recorded in the fourth
quarter.
8. SUBSEQUENT EVENTS
On October 24, 2000, the Company signed a definitive agreement to acquire
University.com, Inc. ("University.com") in a stock-for stock transaction.
Pursuant to the merger agreement, the Company will issue 5,609,788 shares of its
common stock to the shareholders of University.com in exchange for all the
issued and outstanding securities of University.com. The Company will also
assume certain warrants and options issued by University.com, which upon
assumption by the Company will require the Company to issue upon their exercise
up to 1,157,032 additional shares of common stock. It is planned that the merger
will be accounted for as a purchase transaction. The acquisition is subject to
certain closing conditions, including the approval by both the Company's and
University.com's stockholders, and is expected to close prior to January 31,
2001.
On October 25, 2000, the Company signed a definitive agreement to acquire By
Referral Only, Inc. ("By Referral Only") in a stock and cash merger transaction.
Pursuant to the merger agreement, the Company will pay the shareholders of By
Referral Only $4,000,000 cash and issue to them 2,250,000 shares of the
Company's common stock in exchange for all the issued and outstanding securities
of By Referral Only. By Referral Only has no outstanding stock options or
warrants. It is planned that the merger will be accounted for as a purchase
transaction. The acquisition is subject to certain closing conditions, including
the Company's receipt of an additional $5,000,000 of capital and the approval by
the Company's stockholders. The acquisition is expected to close prior to
January 31, 2001.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
University.com, Inc.:
We have audited the accompanying balance sheets of University.com, Inc. (a
development stage company) as of December 31, 1999 and 1998, and the related
statements of operations, stockholders' equity (deficit), and cash flows for the
year ended December 31, 1999, the period from June 12, 1998 (inception) to
December 31, 1998, and the cumulative period from June 12, 1998 (inception) to
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of University.com, Inc. (a
development stage company) as of December 31, 1999 and 1998, and the results of
its operations and its cash flows for the year ended December 31, 1999, the
period from June 12, 1998 (inception) to December 31, 1998, and the cumulative
period from June 12, 1998 (inception) to December 31, 1999, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that
University.com, Inc. will continue as a going concern. As discussed in note 3 to
the financial statements, University.com, Inc. has incurred net losses since
inception, and has total stockholders' equity and working capital deficiency
that raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
note 3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ KPMG LLP
Minneapolis, Minnesota
July 22, 2000, except as to
notes 9(b) and 9(c) which are
as of October 24, 2000 and
note 9(a) which is as of October
26, 2000
F-25
<PAGE>
UNIVERSITY.COM, INC.
(A Development Stage Company)
Balance Sheets
December 31, 1999 and 1998
ASSETS 1999 1998
------------ ------------
Current assets:
Cash and cash equivalents $ 136,966 111,903
Accounts receivable 1,000 --
Prepaid expenses and other current assets 38,450 --
------------ ------------
Total current assets 176,416 111,903
Property and equipment, net of accumulated 129,787 24,574
depreciation of $21,873 and $2,116,
respectively
Website development costs, net of accumulated
amortization of $13,192 and $0, respectively 111,935 116,327
Domain acquisition costs, net of accumulated
amortization of $132,500 397,500 --
Other assets 8,901 940
------------ ------------
$ 824,539 253,744
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 123,105 8,391
Accrued liabilities 76,048 125,630
Deferred revenue 82,500 --
Current maturities of notes payable (note 5) 100,000 --
------------ ------------
Total current liabilities 381,653 134,021
------------ ------------
Notes payable (note 5) 100,000 --
Commitments (note 7)
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized,
no shares outstanding -- --
Common stock, $.01 par value, 20,000,000 shares
authorized 10,430,605 and 7,482,575 shares
outstanding at 1999 and 1998 104,306 74,826
Additional paid-in capital 1,341,206 315,850
Notes receivable from stockholders (80,000) (160,000)
Deficit accumulated during development stage (1,022,626) (110,953)
------------ ------------
Total stockholders' equity 342,886 119,723
------------ ------------
$ 824,539 253,744
============ ============
See accompanying notes to the financial statements.
F-26
<PAGE>
UNIVERSITY.COM, INC.
(A Development Stage Company)
Statements of Operations
Year ended December 31, 1999, the period from June 12, 1998
(inception) to December 31, 1998 and the cumulative period from
June 12, 1998 (inception) to December 31, 1999
CUMULATIVE
FROM FROM
INCEPTION TO INCEPTION TO
DECEMBER 31, DECEMBER 31,
1999 1998 1999
------------ ------------ ------------
Revenues $ 7,400 -- 7,400
------------ ------------ ------------
Operating expenses:
Sales and marketing 108,913 -- 108,913
Product development 241,201 2,950 244,151
General and administrative 562,708 92,331 655,039
Stock-based compensation 6,586 16,426 23,012
------------ ------------ ------------
Total operating expenses 919,408 111,707 1,031,115
------------ ------------ ------------
Operating loss (912,008) (111,707) (1,023,715)
Interest income 335 754 1,089
------------ ------------ ------------
Net loss $ (911,673) (110,953) (1,022,626)
============ ============ ============
Basic and diluted net loss per share (0.10) (0.02) (0.12)
============ ============ ============
Weighted average shares used in
basic and diluted per share
calculation 9,384,693 6,702,096 8,428,988
============ ============ ============
See accompanying notes to the financial statements.
F-27
<PAGE>
<TABLE>
UNIVERSITY.COM, INC.
(A Development Stage Company)
Statements of Stockholders' Equity
Year ended December 31, 1999 and the period from June 12, 1998 to December 31, 1998
<CAPTION>
DEFICIT
NOTES ACCUMULATED
COMMON STOCK ADDITIONAL RECEIVABLE DURING TOTAL
------------------------- PAID-IN FROM DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS STAGE EQUITY
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sale of common stock in private offering 7,482,575 $ 74,826 299,424 (160,000) -- 214,250
Stock options issued to non-employees to
purchase services -- -- 16,426 -- -- 16,426
Net loss -- -- -- -- (110,953) (110,953)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 7,482,575 74,826 315,850 (160,000) (110,953) 119,723
Sale of common stock in private offering 1,923,030 19,230 690,770 -- -- 710,000
Common stock issued to purchase domain name 1,000,000 10,000 320,000 -- -- 330,000
Common stock issued to purchase assets 25,000 250 8,000 -- -- 8,250
Payments received on notes receivable -- -- -- 80,000 -- 80,000
Stock options issued to non-employees to
purchase services -- -- 6,586 -- -- 6,586
Net loss -- -- -- -- (911,673) (911,673)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 10,430,605 $ 104,306 1,341,206 (80,000) (1,022,626) 342,886
=========== =========== =========== =========== =========== ===========
See accompanying notes to financial statements.
</TABLE>
F-28
<PAGE>
<TABLE>
UNIVERSITY.COM, INC.
(A Development Stage Company)
Statements of Cash Flows
Year ended December 31, 1999, the period from June 12, 1998
(inception) to December 31, 1998 and the cumulative period from
June 12, 1998 (inception) to December 31, 1999
<CAPTION>
CUMULATIVE
FROM FROM
INCEPTION TO INCEPTION TO
DECEMBER 31, DECEMBER 31,
1999 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (911,673) (110,953) (1,022,626)
Reconciliation of net loss to net cash used
in operating activities:
Depreciation and amortization 165,449 2,116 167,565
Stock options issued to non-employees to
purchase services 6,586 16,426 23,012
Changes in assets and liabilities:
Accounts receivable (1,000) -- (1,000)
Prepaid expenses and other current assets (46,411) (940) (47,351)
Website development costs (8,800) (116,327) (125,127)
Accounts payable 114,714 8,391 123,105
Accrued liabilities (49,582) 125,630 76,048
Deferred revenue 82,500 -- 82,500
----------- ----------- -----------
Net cash used in operating activities (648,217) (75,657) (723,874)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of fixed assets (116,720) (26,690) (143,410)
----------- ----------- -----------
Net cash used in investing activities (116,720) (26,690) (143,410)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from sale of common stock 710,000 214,250 924,250
Proceeds from notes receivable 80,000 -- 80,000
----------- ----------- -----------
Net cash provided by
financing activities 790,000 214,250 1,004,250
----------- ----------- -----------
Net increase in cash and
cash equivalents 25,063 111,903 136,966
Cash and cash equivalents:
Beginning of period 111,903 -- --
----------- ----------- -----------
End of period $ 136,966 111,903 136,966
=========== =========== ===========
See accompanying notes to the financial statements.
</TABLE>
F-29
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1999 and 1998
(1) DESCRIPTION OF BUSINESS
University.com, Inc. (the Company) was incorporated on June 12, 1998 for
the purpose of developing eLearning portals for continuing education and
professional development. In September 1999, the Company launched its
proprietary, Internet-based learning management system called the
VIRTUAL UNIVERSITY. Using the VIRTUAL UNIVERSITY as the platform for its
eLearning solutions, the Company has developed an eLearning portal for
the Real Estate industry. At December 31, 1999, the Company was in the
development stage as its sales and marketing efforts have not yet
generated predictable or significant revenues.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(b) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with
original maturities of less than 90 days and are generally
invested in money market funds and certificates of deposit. The
Company maintains its cash in bank deposit accounts at various
financial institutions with high credit quality. The balances, at
times, may exceed federally insured limits.
(c) REVENUE RECOGNITION
Revenue derived from sales of the Company's learning management
system is recognized upon customer acceptance at the time of
installation. Revenue derived from sales of individual
Internet-based training titles are recognized at the time of sale.
Revenue derived from training titles that are packaged and sold on
a subscription basis are recognized on a straight-line basis over
the subscription term, which is generally one year. Revenue
derived from courseware development services is recognized on the
percentage of completion method over the life of each project,
which may range from three to nine months. The Company's use of
the percentage of completion method of revenue recognition
requires estimates of the degree of project completion. To the
extent these estimates prove to be inaccurate, the revenues and
gross profits, if any, reported during the periods where the
project is ongoing may not accurately reflect the final results of
the project. Provisions for any estimated losses on uncompleted
contracts are made in the period in which such losses are
determinable. Revenue is reported net of reimbursable expenses.
Finally, revenues derived from website hosting services are
recognized on a straight-line basis over the contract term for the
services. Payments received in advance of amounts earned are
recorded as deferred revenue.
(Continued)
F-30
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1999 and 1998
(d) PROPERTY AND EQUIPMENT
Fixed assets are stated at cost and are depreciated using the
straight-line method over estimated useful lives ranging from
three to seven years. Leasehold improvements are amortized over
the lease term using the straight-line method.
(e) INCOME TAXES
Income taxes are accounted for using the asset and liability
method. Deferred tax assets and liabilities are recognized for the
expected future tax consequence of temporary differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis.
(f) STOCK OPTION PLAN
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations, in accounting for its fixed plan stock options.
As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock
exceeded the exercise price. Statement of Financial Accounting
Standard No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS
No. 123), established accounting and disclosure requirements using
a fair value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has
elected to continue to apply the intrinsic value-based method of
accounting described above and has adopted the disclosure
requirements of SFAS No. 123.
(g) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
(h) PRODUCT DEVELOPMENT
Expenditures for software and courseware development are expensed
as incurred until the point that technological feasibility and
proven marketability of the product is established. There were no
software development costs capitalized from inception to December
31, 1999.
(Continued)
F-31
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1999 and 1998
(i) WEB SITE DEVELOPMENT COSTS
The Company capitalizes certain costs associated with the
development of its Web site. The Company accounts for these costs
under Emerging Issues Task Force (EITF) Issue No. 00-02,
ACCOUNTING FOR WEB SITE DEVELOPMENT COSTS. Under the provisions of
EITF 00-02, costs are capitalized for Web site costs incurred when
both the preliminary project stage is completed and management
deems the Web site will probably be completed and used to perform
the function intended. Capitalization of such costs ceases no
later than the point at which the Web site is substantially
complete and ready for its intended purpose. Web site development
costs are amortized using the straight-line method over a
three-year period.
(j) DOMAIN ACQUISITION COSTS
Domain acquisition costs are amortized using the straight-line
method over a three-year period.
(k) NET LOSS PER SHARE
Basic and diluted net loss per share is computed by dividing the
net loss by the weighted average number of common shares
outstanding during each period. Common share equivalents include
outstanding stock options and warrants. All common share
equivalents were excluded from the calculation because they were
anti-dilutive for all periods presented.
(l) NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standard No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (SFAS No. 133),
effective for the Company on January 1, 2001, establishes new
standards for recognizing all derivatives as either assets or
liabilities, and measuring those instruments at fair value.
Currently, the Company does anticipate that SFAS No. 133 will have
a material impact on the Company's financial position or results
of operations.
(3) GOING CONCERN AND MANAGEMENT'S PLAN
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities and commitments in
the normal course of business. Since inception, the Company has incurred
a cumulative net loss of $1,022,626 and cash used in operating
activities was $723,874 during that same period. As of December 31,
1999, the Company had a working capital deficiency of $205,237, and
total stockholders' equity of $342,886. Additional capital will be
necessary to enable the Company to continue its operations.
The Company has begun a private placement of its common stock to raise
capital. Management believes that the amount to be raised, in addition
to expected improvements in operating results, will be adequate to fund
the cash requirements of the Company beyond December 31, 2000. In
addition, see note 9 for line of credit established in 2000 and the
Agreement and Plan of Merger entered into with another company.
(Continued)
F-32
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1999 and 1998
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at:
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
Computers and equipment $ 113,473 26,690
Furniture 31,011 --
Leasehold improvements 7,176 --
---------- ----------
151,660 26,690
Less accumulated depreciation
and amortization (21,873) (2,116)
---------- ----------
$ 129,787 24,574
========== ==========
(5) NOTES PAYABLE
During March 1999, the Company acquired the rights to its Internet
domain name, University.com. As consideration, the Company agreed to
issue to the seller 1,000,000 shares of Common Stock and a note payable
(the Note) in the amount of $200,000. The Note is non-interest bearing
and is payable in installments of $100,000 on April 1, 2000 and 2001.
(6) INCOME TAXES
The Company has incurred significant net operating losses and has not
reflected any tax benefit of such net operating loss carryforwards in
the accompanying financial statements.
The income tax expense (benefit) differed from the amount computed by
applying the U.S. federal income tax rate of 34% to income before income
taxes as a result of the following:
1999 1998
-------- --------
Computed "expected" tax benefit 34.0 % 34.0 %
State income tax, net of federal benefit 6.0 6.0
Change in valuation allowance (40.0) (40.0)
-------- --------
-- % -- %
======== ========
(Continued)
F-33
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1999 and 1998
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets as of December 31, 1999 and 1998 is
presented below:
1999 1998
---------- ----------
Deferred tax assets:
Net operating loss carryforward $ 234,000 48,000
Start-up costs 214,000 37,000
Other (39,000) (40,000)
---------- ----------
Total gross deferred tax assets 409,000 45,000
Valuation allowance (409,000) (45,000)
---------- ----------
Net deferred tax assets $ -- --
========== ==========
In assessing the realization of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences
become deductible.
Based on the level of historical taxable income and projections of
future taxable income over the periods in which the deferred tax assets
are deductible, management does not believe that it is more likely than
not the Company will realize the benefits of these deductible
differences. Accordingly, the Company has provided a valuation allowance
against the gross deferred tax assets as of December 31, 1999.
As of December 31, 1999, the Company has reported U.S. net operating
loss carryforwards of approximately $584,000. The federal net operating
loss carryforwards begin to expire in the year 2018.
Federal tax laws impose significant restrictions on the utilization of
net operating loss carryforwards in the event of a change in ownership
of the Company, which constitutes an "ownership change" as defined by
the Internet Revenue Code, Section 382. The Company's net operating loss
carryforward may be subject to the above limitations.
(7) COMMITMENTS
LEASES
The Company leases office space and equipment under various operating
lease agreements, the last of which expires in September 2004.
(Continued)
F-34
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1999 and 1998
At December 31, 1999, future minimum lease payments under noncancelable
operating leases were as follows:
YEAR ENDING
DECEMBER 31,
--------------------
2000 $ 115,000
2001 168,000
2002 172,000
2003 151,000
-------------
Total future minimum lease payments $ 606,000
=============
Rent expense was approximately $34,565 and $1,880 for the years ended
December 31, 1999 and 1998, respectively.
(8) STOCKHOLDERS' EQUITY
(a) COMMON STOCK ISSUED
The holders of common stock are entitled to one vote for each
share on all matters submitted to a vote of stockholders. Holders
of common stock have no preemptive, subscription or conversion
rights and there are no redemption or sinking fund provisions
applicable thereto. The outstanding shares of common stock are
fully paid and nonassessable.
(b) STOCK OPTIONS
At December 31, 1999, the Company had 2,000,000 shares of common
stock reserved under its 1999 Stock Option Plan. The plan provides
for grants of incentive and nonqualified stock options to
officers, employees and independent contractors. Furthermore, the
Company may grant nonqualified options outside of this plan. These
stock options generally vest evenly over a three-year period and
are exercisable over periods up to ten years from date of grant.
The Board of Directors establishes all terms and conditions of
each grant. Stock options are granted at or above fair market
value as determined by the Board of Directors at each grant date.
(Continued)
F-35
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1999 and 1998
Option transactions under these plans are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
EXERCISE AVERAGE
OPTIONS PRICE EXERCISE PRICE
OUTSTANDING PER SHARE PER SHARE
------------ ------------ --------------
<S> <C> <C> <C>
Options outstanding at December 31, 1998 125,000 $0.33 0.33
Granted 792,500 0.66-1.00 0.79
Canceled --
------------
Options outstanding at December 31, 1999 917,500
============
Exercisable at December 31, 1999 208,500
============
</TABLE>
The table above includes 38,500 and 125,000 stock options issued to
non-employees to purchase services in 1999 and 1998, respectively. These options
have exercise prices ranging from $0.33 to $0.66 per share and expire within
three years from the date of grant. The Company recognized an expense of $6,586
and $16,426 in 1999 and 1998, respectively, based on the fair value of the stock
options using the Black Scholes model.
The Company adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. As
allowed by SFAS No. 123, the Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock option plans and, accordingly, does
not recognize compensation expense related thereto. If the Company had elected
to recognize compensation expense based on the fair value of the options granted
at grant date as prescribed by SFAS No. 123, the 1999 net loss would have been
increased to the pro forma amount indicated in the following table:
Net loss--as reported $ (911,673)
Net loss--pro forma (923,923)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
1999
---------
Expected dividend level 0%
Expected stock price volatility 0%
Risk-free interest rate 5.00%
Expected life of options 3 years
(Continued)
F-36
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1999 and 1998
(9) SUBSEQUENT EVENTS
(a) LINE OF CREDIT
In July 2000, the Company entered into a line of credit for up to
$1,000,000 from a bank (the Line). Amounts drawn from the Line
bear interest at 9.5%, with interest due monthly, and are payable
in full on January 24, 2001.
In connection with this financing, the Company issued warrants to
purchase a total of 500,000 shares of common stock. The warrants
were issued to one outside investor and one member of the
Company's Board of Directors (the Guarantors), who are
guaranteeing the Company's repayment of the Line. The estimated
fair value of the warrants of $629,147 was credited to additional
paid-in capital and will amortized over the anticipated
outstanding period of the Line, or six months, as interest
expense.
On October 26, 2000, the Company entered into an agreement with
the Guarantors, whereby the Guarantors agreed to pay the
outstanding principal and accrued interest on the Company's bank
credit line (the Payoff Amount) prior to the closing of the merger
transaction with EntrePort. In exchange, the Company has agreed to
issue to the Guarantors the number of shares of common stock of
the Company equal to the Payoff Amount divided by $0.50. The
Company anticipates that it will issue between 1,800,000 and
2,000,000 shares of its common stock to the Guarantors in
connection with this agreement. At the time of the payoff, the
Company will recognize an expense of between $1,872,000 to
$2,080,000 or a $1.04 per share as a result of the discount on the
common stock being granted to the Guarantors.
(b) AGREEMENT AND PLAN OF MERGER
On October 24, 2000, the Company signed a definitive agreement to
be acquired by EntrePort Corporation (EntrePort) in a
stock-for-stock transaction. Pursuant to the merger agreement, the
Company's shareholders will receive a total of 5,609,788 shares of
EntrePort common stock valued at $20,545,847 in exchange for all
the issued and outstanding shares of common stock on the closing
date of the merger. EntrePort will also assume certain warrants
and options issued by the Company, which upon assumption by
EntrePort will require EntrePort to issue upon their exercise up
to 1,148,430 additional shares of common stock. The acquisition is
subject to certain closing conditions, including the approval by
both the Company's and EntrePort's stockholders.
(Continued)
F-37
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1999 and 1998
(c) OTHER EQUITY TRANSACTIONS
In March 2000, the Company closed a private placement of its
common stock whereby 1,322,000 shares were sold at a price of
$1.00 per share. The net proceeds from the private placement were
used to develop additional internet training products, hire
personnel and for general working capital purposes.
On July 30, 2000, the Company entered into a three-year agreement
to license real estate training content from a third party. The
terms of the license agreement require the Company to issue
200,000 shares of common stock, a warrant to purchase 25,000
shares of common stock at an exercise price of $1.00 per share,
and cash consideration totaling $100,000, of which $50,000 was due
at contract signing and the remaining $50,000 due on December 31,
2000. The license agreement also provides for minimum annual sales
royalties of $50,000 for the years 2001 and 2002, to be payable on
or before December 31, 2001 and 2002, respectively.
In August 2000, the Company canceled 212,121 shares of previously
issued common stock relating to the cancellation of the unpaid
balance on notes receivable from stockholders that existed as of
December 31, 1999.
Following is a reconciliation of common stock outstanding from
December 31, 1999 to October 24, 2000:
Shares outstanding at December 31, 1999 10,430,605
Shares issued in connection with a private
placement 1,322,000
Shares issued to license real estate training
content 200,000
Shares canceled due to cancellation of notes
receivable (212,121)
-------------
Shares outstanding at October 24, 2000 11,740,484
=============
F-38
<PAGE>
<TABLE>
UNIVERSITY.COM, INC.
Balance Sheets
(Unaudited)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 45,316 136,966
Accounts receivable, net of allowance for doubtful
accounts of $6,200 and $0, respectively 34,453 1,000
Prepaid expenses and other current assets 10,023 38,450
Debt issue cost 419,430 --
------------ ------------
Total current assets 509,222 176,416
------------ ------------
Property and equipment, net of accumulated
depreciation of $72,160 and $21,873, respectively 203,235 129,787
Website development costs, net of accumulated
amortization of $44,674 and $13,192, respectively 80,454 111,935
Domain acquisition costs, net of accumulated
amortization of $265,000 and $132,500, respectively 265,000 397,500
Other assets 7,546 8,901
------------ ------------
$ 1,065,457 824,539
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 28,177 123,105
Accrued liabilities 109,228 76,048
Deferred revenue 14,805 82,500
Line of credit 359,020 --
Current maturities of notes payable 100,000 100,000
------------ ------------
Total current liabilities 611,230 381,653
------------ ------------
Notes payable -- 100,000
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized,
no shares outstanding -- --
Common stock, $.01 par value, 20,000,000 shares
authorized; 11,740,484 and 10,385,605 shares
outstanding 117,405 104,306
Additional paid-in capital 3,526,762 1,341,206
Notes receivable from stockholders -- (80,000)
Accumulated deficit (3,189,940) (1,022,626)
------------ ------------
Total stockholders' equity 454,227 342,886
------------ ------------
$ 1,065,457 824,539
============ ============
See accompanying notes to the financial statements.
</TABLE>
F-39
<PAGE>
UNIVERSITY.COM, INC.
Statements of Operations
(Unaudited)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------------------
2000 1999
------------- -------------
Revenues $ 223,423 7,000
------------- -------------
Operating expenses:
Cost of revenues 84,135 --
Sales and marketing 186,024 43,790
Product development 1,004,552 152,491
General and administrative 816,609 368,819
Stock-based compensation 86,051 4,939
------------- -------------
Total operating expenses 2,177,371 570,039
------------- -------------
Operating loss (1,953,948) (563,039)
Interest income (expense), net (211,768) 290
Loss on disposal of property and equipment (1,598) --
------------- -------------
Net loss $ (2,167,314) (562,749)
============= =============
Basic and diluted net loss per share (0.19) (0.06)
============= =============
Weighted average shares used in basic
and diluted per share calculation 11,477,890 9,034,367
============= =============
See accompanying notes to the financial statements.
F-40
<PAGE>
<TABLE>
UNIVERSITY.COM, INC.
Statements of Cash Flows
(Unaudited)
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,167,314) (562,750)
Reconciliation of net loss to net cash used by operating
activities:
Depreciation and amortization 214,353 106,382
Loss on disposal of property and equipment 1,598 --
Noncash interest expense related to warrants 209,716 --
Warrants and stock options issued to non-employees
to purchase services and training content 117,508 4,939
Common stock issued to acquire training content 200,000 --
Changes in assets and liabilities:
Accounts receivable (33,453) --
Prepaid expenses and other assets 29,782 (7,961)
Accounts payable (94,928) 129,849
Accrued liabilities 33,180 (24,736)
Deferred revenue (67,695) --
------------ ------------
Net cash used in operating activities (1,557,253) (354,277)
------------ ------------
Cash flows from investing activities:
Purchases of fixed assets (129,417) (77,901)
Proceeds from sale of property and equipment 4,000 --
------------ ------------
Net cash used in investing activities (125,417) (77,901)
------------ ------------
Cash flows from financing activities:
Proceeds from sale of common stock 1,322,000 360,000
Proceeds from bank line of credit 359,020 --
Repayment of notes payable (100,000) --
Proceeds from notes receivable 10,000 60,000
------------ ------------
Net cash provided by financing activities 1,591,020 420,000
------------ ------------
Net decrease in cash and cash equivalents (91,650) (12,178)
Cash and cash equivalents:
Beginning of period 136,966 111,903
------------ ------------
End of period $ 45,316 99,725
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest expense $ 2,081 --
============ ============
See accompanying notes to the financial statements.
</TABLE>
F-41
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
September 30, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and, in the opinion of management,
contain all adjustments, consisting of normal recurring adjustments necessary to
present fairly the financial position as of September 30, 2000 and the results
of operations for the nine month periods ended September 30, 2000 and 1999.
Certain information and footnote disclosures normally included in financial
statements have been omitted or condensed. These condensed financial statements
should be read in conjunction with the Company's audited financial statements
for the years ended December 31, 1999 and 1998. The results of operations for
the period ended September 30, 2000 are not necessarily indicative of the
results that may be attained for the entire fiscal year. Certain prior period
amounts have been reclassified to conform to the current period presentation.
2. NET LOSS PER SHARE
Basic and diluted net loss per share is computed by dividing the net loss by the
weighted average number of common shares outstanding during each period. Common
share equivalents include outstanding stock options and warrants. All common
share equivalents were excluded from the calculation because they were
anti-dilutive for all periods presented.
3. LINE OF CREDIT
In July 2000, the Company entered into a line of credit for up to $1,000,000
from a bank (the Line). Amounts drawn from the Line bear interest at 9.5%, with
interest due monthly, and are payable in full on January 24, 2001.
In connection with this financing, the Company issued warrants to purchase a
total of 500,000 shares of common stock. The warrants were issued to one outside
investor and one member of the Company's Board of Directors (the Guarantors),
who are guaranteeing the Company's repayment of the Line. The estimated fair
value of the warrants of $629,147 was credited to additional paid-in capital and
will amortized over the anticipated outstanding period of the Line, or six
months, as interest expense.
On October 26, 2000, the Company entered into an agreement with the Guarantors,
whereby the Guarantors agreed to pay the outstanding principal and accrued
interest on the Company's bank credit line (the Payoff Amount) prior to the
closing of the merger transaction with EntrePort. In exchange, the Company has
agreed to issue to the Guarantors the number of shares of common stock of the
Company equal to the Payoff Amount divided by $0.50. The Company anticipates
that it will issue between 1,800,000 and 2,000,000 shares of its common stock to
the Guarantors in connection with this agreement. At the time of the payoff, the
Company will recognize an expense of between $1,872,000 to $2,080,000 or a $1.04
per share as a result of the discount on the common stock being granted to the
Guarantors. On November 14, 2000 there was approximately $630,000 withdrawn from
the Line.
F-42
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
September 30, 2000
4. EQUITY TRANSACTIONS
In March 2000, the Company closed a private placement of its common stock
whereby 1,322,000 shares were sold at a price of $1.00 per share. The net
proceeds from the private placement were used to develop additional internet
training products, hire personnel and for general working capital purposes.
On July 30, 2000, the Company entered into a three-year agreement to license
real estate training content from a third party. The terms of the license
agreement require the Company to issue 200,000 shares of common stock, a warrant
to purchase 25,000 shares of common stock at an exercise price of $1.00 per
share and were valued at $31,457, and cash consideration totaling $100,000, of
which $50,000 was due at contract signing and the remaining $50,000 due on
December 31, 2000. The cost of the content was expensed to product development.
The license agreement also provides for minimum annual sales royalties of
$50,000 for the years 2001 and 2002, to be payable on or before December 31,
2001 and 2002, respectively.
In August 2000, the Company canceled 212,121 shares of previously issued common
stock relating to the cancellation of the unpaid balance on notes receivable
from stockholders that existed as of December 31, 1999.
5. STOCK OPTIONS
During the nine month period ended September 30, 2000, the Company granted
935,500 stock options to employees, consultants and a board member with vesting
periods ranging from immediate to three years. The options are for the purchase
of common stock of the Company at $1.00 per share. During the nine month period
ended September 30, 2000, the Company recorded compensation expense of $20,783
related 163,500 options issued to consultants. Options to purchase 16,500 shares
of common stock of the Company at prices ranging from $.66 to $1.00 per share
were cancelled during the nine-month period ended September 30, 2000. No options
have been exercised during the period.
6. WARRANTS
During the nine month period ended September 30, 2000, the Company granted
610,000 warrants to consultants, a board member and an outside investor with
vesting periods ranging from immediate to three years. The warrants are for the
purchase of common stock of the Company at $1.00 per share. During the nine
month period ended September 30, 2000, the Company recorded an expense of
$96,725 related to the warrants granted. No warrants have been exercised during
the period.
7. AGREEMENT AND PLAN OF MERGER
On October 24, 2000, the Company signed a definitive agreement to be acquired by
EntrePort Corporation (EntrePort) in a stock-for-stock transaction. Pursuant to
the merger agreement, the Company's shareholders will receive a total of
5,609,788 shares of EntrePort common stock valued at $20,545,847 in exchange for
all the issued and outstanding shares of common stock on the closing date of the
merger. EntrePort will also assume certain warrants and options issued by the
Company, which upon assumption by EntrePort will require EntrePort to issue upon
their exercise up to 1,148,430 additional shares of common stock. The
acquisition is subject to certain closing conditions, including the approval by
both the Company's and EntrePort's stockholders.
F-43
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
By Referral Only, Inc.
We have audited the accompanying balance sheets of By Referral Only, Inc. (the
"Company") as of September 30, 2000 and December 31, 1999 and the related
statements of income, shareholders' deficit and cash flows for the nine months
ended September 30, 2000 and the year ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of By Referral Only, Inc. at
September 30, 2000 and December 31, 1999, and the results of its operations and
its cash flows for the nine months ended September 30, 2000 and the year ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
/S/ Ernst & Young LLP
San Diego, California
November 20, 2000
F-44
<PAGE>
By Referral Only, Inc.
Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 322,025 $ 757,835
Accounts receivable, net of allowance for doubtful accounts of
$198,175 and $200,000 at September 30, 2000 and December 31,
1999, respectively 528,961 360,454
Advances to stockholders - 564,658
Other current assets 11,475 45,751
------------------------------------
Total current assets 862,461 1,728,698
Property and equipment, net 204,334 338,818
Other assets 6,337 4,337
------------------------------------
Total assets $ 1,073,132 $ 2,071,853
====================================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 414,378 $ 889,871
Accrued compensation 250,085 217,490
Unearned revenue 902,465 1,727,505
Current portion of notes payable 18,720 10,466
Current portion of capital leases 11,202 18,304
------------------------------------
Total current liabilities 1,596,850 2,863,636
Notes payable, net of current position 22,139 21,180
Capital Leases, net of current position - 6,499
Other Long term liabilities - 32,813
Shareholders' deficit:
Common Stock, no par value; 100,000 shares authorized; 1,500
shares issued and outstanding at September 30, 2000 and
December 31, 1999, respectively 10,100 10,100
Common stock issuable 500,000 500,000
Deferred stock compensation (400,000) (475,000)
Accumulated deficit (655,957) (887,375)
------------------------------------
Total shareholders' deficit (545,857) (852,275)
------------------------------------
Total liabilities and shareholders' deficit $ 1,073,132 $ 2,071,853
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-45
<PAGE>
By Referral Only, Inc.
Statements of Income
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------------------------------
Net revenues $ 8,221,361 $ 11,982,931
Cost of revenues 5,010,661 6,246,562
-------------------------------------
Gross profit 3,210,700 5,736,369
Selling, general and administrative 2,763,978 5,618,482
-------------------------------------
Income from operations 446,722 117,887
Interest income 17,722 28,140
Interest expense (8,543) (12,707)
-------------------------------------
Net income $ 455,901 $ 133,320
=====================================
SEE ACCOMPANYING NOTES.
F-46
<PAGE>
By Referral Only, Inc.
Statements of Shareholder's Deficit
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK DEFERRED STOCK ACCUMULATED TOTAL SHAREHOLDERS
SHARES AMOUNT ISSUABLE COMPENSATION DEFICIT DEFICIT
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 1,500 $ 10,100 $ - $ - $ (890,695) $ (880,595)
Issuance of stock purchase
agreement - - 500,000 (500,000) - -
Amortization of stock
compensation - - - 25,000 - 25,000
Shareholder distributions - - - - (130,000) (130,000)
Net income - - - - 133,320 133,320
------------------------------------------------------------------------------------------------
Balance at December 31, 1999 1,500 10,100 500,000 (475,000) (887,375) (852,275)
Amortization of stock
compensation - - - 75,000 - 75,000
Shareholder distributions - - - - (224,483) (224,483)
Net income - - - - 455,901 455,901
------------------------------------------------------------------------------------------------
Balance at September 30, 2000 1,500 $ 10,100 $ 500,000 $ (400,000) $ (655,957) $ (545,857)
================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-47
<PAGE>
By Referral Only, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ 455,901 $ 133,320
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 141,981 247,786
Stock-based compensation 75,000 25,000
Changes in operating assets and liabilities:
Accounts receivable (168,507) 770,146
Unearned revenue (825,040) (741,470)
Other current assets 34,276 3,637
Accounts payable and accrued expenses (508,306) 438,277
Accrued compensation 32,595 (30,638)
Other assets (2,000) 1,621
------------------------------------
Net cash (used in)/provided by operating activities (764,100) 847,679
INVESTING ACTIVITIES
Purchase of property and equipment (2,984) (167,053)
------------------------------------
Net cash used in investing activities (2,984) (167,053)
FINANCING ACTIVITIES
Distributions to shareholders - (130,000)
Decrease (increase) in distributions and advances to shareholders 357,017 (150,338)
Payments of notes and capital leases (25,743) (26,745)
------------------------------------
Net cash provided by/(used in) financing activities 331,274 (307,083)
------------------------------------
Net (decrease) increase in cash and cash equivalents (435,810) 373,543
Cash and cash equivalents at beginning or period 757,835 384,292
------------------------------------
Cash and cash equivalents at end of period $ 322,025 $ 757,835
====================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Taxes paid $ - $ 12,680
====================================
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITY
Property and equipment acquired through notes payable and
capital leases $ 21,355 $ 67,283
====================================
Property and equipment distributed to shareholders $ 16,842 $ -
====================================
Distribution of advances to shareholders $ 207,641 $ -
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-48
<PAGE>
By Referral Only, Inc.
Notes to Financial Statements
September 30, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
By Referral Only, Inc. (the "Company") is incorporated under the laws of the
State of California. The Company is a training institute, teaching realtors and
mortgage professionals how to build a referral-based business. Realtors and
mortgage lenders attend "Main Event" seminars nationwide. "Main Event",
attendees are given the opportunity to sign up for a minimum of one year in the
"Coaching Club", where continuing education is made available through quarterly
meetings, conference calls and other training materials and tools.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with a maturity of three
months or less from the date of purchase.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets (three to
five years), except leasehold improvements which are amortized over the lesser
of the estimated life of the asset or the remaining lease term.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts shown for cash and cash equivalents and accounts receivable
approximate their fair values based upon the relatively short-term maturities of
these instruments.
F-49
<PAGE>
By Referral Only, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
The Company has adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130
establishes standards for reporting comprehensive income and its components in
financial statements. Comprehensive income, as defined, includes all changes in
equity (net assets) during a period from non-owner sources. Net income (loss)
and other comprehensive income, including foreign currency translation
adjustments, and unrealized gains and losses on investments shall be reported,
net of their related tax effect, to arrive at comprehensive income (loss). To
date there have been no differences between the Company's net income and its
total comprehensive income for nine months ended September 30, 2000 and for the
year ended December 31, 1999.
REVENUE RECOGNITION
The Company's "Main Event" seminars range in length from two to three days.
Revenues from Main Events are recognized when the seminars are delivered.
Members in the Company's coaching club program generally sign up for a period of
one year. The revenue related to the coaching club are recognized on a pro rata
basis over the period the services are provided, generally one year. Unearned
revenues represent cash received in advance of the services being rendered.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
ADVERTISING COSTS
Advertisting costs are expensed as they occur. The costs for the nine months
ended September 30, 2000 and for the year ended December 31, 1999 were not
material.
F-50
<PAGE>
By Referral Only, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company is a S-Corporation for federal and state income tax purposes. Under
S-Corporation status, all taxable income and losses are passed through to the
shareholders for federal and state purposes.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements using
the intrinsic value method prescribed by Accounting Principles Board Opinion No.
25 ("APB 25"), ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and provides pro forma
disclosures of net loss as if the minimum value method had been applied in
measuring compensation expense in accordance with SFAS 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION. Under APB 25, compensation cost is recognized over the
vesting period based on the excess, if any, on the date of grant of the
estimated fair value of the Company's stock over the employee's exercise price.
When the exercise price of the employee stock awards is less than the fair value
of the underlying stock on the grant date, deferred stock compensation is
recognized and amortized to expense on a straight-line basis over the vesting
period of the individual award, which is generally five years. Stock-based
awards issued to non-employees are measured using fair value-based methods and
are expensed over the period services are provided.
RECENT ACCOUNTING PRONOUNCEMENTS
During December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
No. 101"), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements files with the Securities and
Exchange Commission. The Company was originally required to implement SAB No.
101 during the nine months ended September 30, 2000; however, in June 2000, the
Securities and Exchange Commission amended SAB No. 101 to delay the required
implementation date. As a result, the Company must now implement the related
guidelines in the quarter beginning October 1, 2000. The impact of SAB No. 101
it is not expected to have a material effect on the Company's operations.
F-51
<PAGE>
By Referral Only, Inc.
Notes to Financial Statements (continued)
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which will be
effective for the Company on January 1, 2001. SFAS No. 133 will require
recognition of all derivatives on the Company's balance sheet at fair value. The
Company believes the adoption of SFAS No. 133 will not have a material effect on
the financial statements.
2. ADVANCES TO STOCKHOLDERS
Advances are made to Stockholders to enable them to pay their estimated personal
income taxes on their proportionate share of the Company's taxable income. These
advances are due upon demand, bear interest at 6% per annum, and are unsecured.
The advances may be reclassified to shareholder distributions, as actual income
is determined. Net stockholder advances totaled $564,658 at December 31, 1999.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at:
SEPTEMBER 30, DECEMBER 31,
2000 1999
---------------------------------------
Vehicles $ 57,855 $ 197,639
Machinery and equipment 119,935 119,935
Furniture and fixtures 116,140 116,140
Computers and software 441,930 438,946
Leasehold Improvements 133,618 133,618
---------------------------------------
869,478 1,006,278
Accumulated depreciation 665,144 667,460
---------------------------------------
Total property and equipment $ 204,334 $ 338,818
=======================================
F-52
<PAGE>
By Referral Only, Inc.
Notes to Financial Statements (continued)
4. LEASE COMMITMENTS
The Company leases its facility under a noncancelable lease. Rent expense was
$60,892 and $77,874 for the nine months ended September 30, 2000 and for the
year ended December 31, 1999 respectively. At September 30, 2000 annual minimum
future payments under the Company's capital and operating leases are as follows:
CAPITAL OPERATING
Twelve months ending September 30, LEASES LEASES
------------ ------------
2001 $ 11,562 $ 61,213
2002 - 43,985
2003 - 12,789
------------ ------------
Total minimum lease payments $ 11,562 $ 117,987
Amount representing interest 360 ============
------------
Present value of minimum capital lease
obligations $ 11,202
============
The cost of equipment acquired under capital leases is included in property and
equipment, and amounted to $34,783 and accumulated amortization was $20,290 and
$11,594 as of September 30, 2000 and December 31, 1999 respectively.
F-53
<PAGE>
By Referral Only, Inc.
Notes to Financial Statements (continued)
5. FINANCING ARRANGEMENTS
The following summarizes the Company's long-term notes payable arrangements:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
Note payable to finance company, secured by vehicle,
payable in monthly installments of $601 including
interest at 0.9% per annum, due May 2003 $ 17,989 $ -
Note payable to finance company, secured by a vehicle,
payable in monthly installments of $960 including
interest at 3.9% per annum, due November 2002 22,870 31,646
------------ -----------
40,859 31,646
Less current portion 18,720 10,466
------------ -----------
$ 22,139 $ 21,180
============ ===========
</TABLE>
Annual principal maturities of the notes payable as of September 30, 2000 are a
follows:
2001 $ 18,720
2002 18,345
2003 3,794
------------
$ 40,859
============
F-54
<PAGE>
By Referral Only, Inc.
Notes to Financial Statements (continued)
6. COMMON STOCK
In October of 1999 the Company entered into a stock purchase and restricted
stock agreement with an employee to purchase 79 shares of the Company's stock.
The shares of the stock were not issued as of September 30, 2000. The stock
issuable under this agreement vests 20% per year over a five-year period. The
Company has the option to repurchase, at the original purchase price, unvested
shares in the event of termination of employment. The Company also has the
option to repurchase, at the fair value of such stock on the date of separation,
vested shares in the event of termination. The Common stock issuable under the
stock purchase agreement was offered below the estimated fair value, for
financial reporting purposes, of the stock at the time of the agreement. As a
result the Company has recorded deferred compensation in the amount $500,000
during the year ended December 31, 1999. The deferred compensation is being
amortized to expense on a straight-line basis. Such amortization totaled $75,000
and $25,000 for the nine-months ended September 30, 2000 and for the year ended
December 31, 1999 respectively.
7. EMPLOYEE SAVINGS PLAN
In January 2000 the Company established a qualified 401(k), employee saving and
profit sharing plan for the benefit of its employees. Substantially all
employees are eligible to participate in the plan. Under the plan, employees can
contribute and defer taxes on compensation contributed. The Company also matches
50% of the participant's contribution up to 9% of the participant's
compensation. The Company also has the option to make an additional profit
sharing contribution to the plan. For the nine months ended September 30, 2000
the Company contributed $42,337.
F-55
<PAGE>
By Referral Only, Inc.
Notes to Financial Statements (continued)
8. LITIGATION
The Company is involved in litigation filed against it in 1998 and 2000, which
is currently scheduled for arbitration in January 2001. The court actions and
the arbitration involve claims against BRO for copyright infringement, breach of
contracts, conspiracy, fraud, misappropriation, wrongful death, unjust
enrichment and tortuous interferences. The amounts claimed begin at $4 million
and also ask for reimbursement of attorney fees, actual and punitive damages for
some matters. Although the ultimate outcome of these matters is not presently
determinable, management believes that the resolution of all such pending
matters will not have a material adverse affect on the Company's financial
position or liquidity.
In January 2000 the Company entered into a settlement agreement related to a
copyright lawsuit filed against the Company. The agreement requires the Company
to pay $105,000, beginning in February 2000, two monthly installments of $15,000
and 16 monthly installments of $4,688 thereafter. The accrued settlement costs
of $46,875 and $105,000 are included in accrued expenses at September 30, 2000
and December 31, 1999 respectively.
9. SUBSEQUENT EVENTS
In October 2000 the Company signed a definitive agreement to be acquired by
EntrePort Corporation. Pursuant to the definitive agreement the Company
shareholders will exchange all of the issued and outstanding common stock for
$4,000,000 in cash and 2,250,000 shares of Entreport Corporation stock. The sale
is subject to certain closing conditions including EntrePort Corporation's
receipt of $5,000,000 of capital financing. The shareholders of the Company have
agreed to indemnify EntrePort against any adverse outcome from the arbitration
discussed above.
F-56
<PAGE>
ENTREPORT CORPORATION AND UNIVERSITY.COM, INC. AND BY REFERRAL ONLY, INC
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial information gives
effect to the proposed acquisition by EntrePort of University.com and By
Referral Only which will be accounted for under the purchase method of
accounting. The unaudited pro forma combined condensed balance sheet is based on
the individual historical balance sheets of EntrePort, University.com and By
Referral Only and has been prepared to reflect the acquisition by EntrePort of
University.com and By Referral Only as if the acquisitions had occurred as of
September 30, 2000. The unaudited pro forma combined condensed statement of
operations is based on the individual historical statements of operations of
EntrePort and University.com and By Referral Only and combines the results of
operations of EntrePort for the year ended December 31, 1999 and the nine-month
period ended September 30, 2000 with the results of operations for
University.com and By Referral Only as if the acquisitions had occurred as of
January 1, 1999.
The unaudited pro forma combined condensed financial information is presented
for illustrative purposes only and is not necessarily indicative of the
financial position or operating results that would have been achieved if the
acquisition had been completed as of the beginning of the period presented, nor
is it necessarily indicative of the future financial position or operating
results of EntrePort. The pro forma combined condensed financial information
does not give effect to any cost savings (other than those discussed in 2(c) to
the Unaudited Pro Forma Combined Condensed Financial information notes) or
restructuring and integration costs that may result from the integration of
EntrePort's and University.com's and By Referral Only's operations. The costs
related to restructuring and integration have not yet been determined.
The unaudited pro forma combined condensed financial information should be read
in conjunction with the audited financial statements and accompanying notes of
EntrePort and the audited financial statements and accompanying notes of
University.com and By Referral Only which are included elsewhere in the proxy
statement herein.
The unaudited condensed financial statements as of and for the nine months ended
September 30, 2000 have been prepared in accordance with generally accepted
accounting principles applicable to interim financial information and in the
opinion of EntrePort's and University.com's respective managements include all
adjustments necessary for a fair presentation of the interim financial
information for the period presented.
P-1
<PAGE>
EntrePort Corporation
Pro Forma Condensed Combined Balance Sheet
September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
EntrePort University By Referral
Corporation .com Inc. Only, Inc. Pro Forma
------------- ---------- ----------- --------------------------------
ASSETS Historical Adjustments Consolidated
-------------------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 4,384,690 $ 45,316 $ 322,025 $ 472,684 (B) $ 5,224,715
Accounts receivable -- 34,453 528,961 -- 563,414
Investments 399,500 -- -- -- 399,500
Debt issue costs -- 419,430 -- (419,430)(A) --
Other current assets 28,372 10,023 11,475 -- 49,870
------------- ----------- ----------- ------------ ------------
Total current assets 4,812,562 509,222 862,461 53,254 6,237,499
Property and equipment at cost, net 569,405 203,235 204,334 -- 976,974
Website development costs, net 418,066 80,454 -- -- 498,520
Domain acquisition costs, net -- 265,000 -- (265,000)(B) --
Acquired intangibles and goodwill, net -- -- -- 26,427,854 (B) 26,427,854
Other assets 440,179 7,546 6,337 (418,000)(B) 36,062
------------- ----------- ----------- ------------ ------------
$ 6,240,212 $1,065,457 $1,073,132 $25,798,108 $34,176,909
============= =========== =========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 430,220 $ 28,177 $ 414,378 -- $ 872,775
Accrued liabilities 187,306 109,228 280,007 -- 576,541
Deferred revenue -- 14,805 902,465 -- 917,270
Line of credit -- 359,020 -- (359,020)(A) --
Current portion of notes and leases payable 83,136 100,000 -- -- 183,136
------------- ----------- ----------- ------------ ------------
Total current liabilities 700,662 611,230 1,596,850 (359,020) 2,549,722
Long term portion of notes and leases payable 89,737 -- 22,139 -- 111,876
Deferred income tax liability -- -- -- 2,000,000 (C) 2,000,000
Stockholders' equity:
Preferred stock -- -- -- 1,860 (B) 1,860
Common stock 11,681 117,405 10,100 (119,645)(B) 19,541
Common stock issuable -- -- 500,000 (500,000) --
Additional paid-in capital 10,516,587 3,526,762 -- 20,890,389 (A),(B) 34,933,738
Deferred compensation (37,899) -- (400,000) 38,627 (B) (399,272)
Accumulated deficit (5,040,556) (3,189,940) (655,957) 3,845,897 (B) (5,040,556)
------------- ----------- ----------- ------------ ------------
Total stockholders' equity 5,449,813 454,227 (545,857) 24,157,128 29,515,311
------------- ----------- ----------- ------------ ------------
$ 6,240,212 $1,065,457 $1,073,132 $25,798,108 $34,176,909
============= =========== =========== ============ ============
</TABLE>
P-2
<PAGE>
EntrePort Corporation
Pro Forma Combined Condensed Statement of Operations
Year Ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
EntrePort University By Referral
Corporation .com Inc. Only, Inc. Pro Forma
-------------- ---------- ----------- ---------------------------------
Historical Adjustments Consolidated
-------------------------------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 11,911 $ 7,400 $11,982,931 $ -- $ 12,002,242
Costs and expenses:
Cost of revenues -- -- 6,246,562 6,246,562
Product development 97,579 241,201 -- -- 338,780
Selling, general and administrative 1,796,990 678,207 5,618,482 4,292,096 (C) 12,385,775
------------ ------------ ------------ ------------ ---------------
Total costs and expenses 1,894,569 919,408 11,865,044 4,292,096 18,971,117
Loss from operations (1,882,658) (912,008) 117,887 (4,292,096) (6,968,875)
Interest income (expense), net (9,154) 335 15,433 -- 6,614
------------ ------------ ------------ ------------ ---------------
Earnings (loss) before taxes (1,891,812) (911,673) 133,320 (4,292,096) (6,962,261)
Provision for income taxes -- -- -- 400,000 (D) 400,000
------------ ------------ ------------ ------------ ---------------
Net loss $(1,891,812) $ (911,673) $ 133,320 $(3,892,096) $ (6,562,261)
============ ============ ============ ============ ===============
Basic loss per share $ (0.31) $ (0.47)
Diluted loss per share (4) $ (0.31) $ (0.47)
Weighted average shares outstanding:
Basic 6,068,605 7,859,788 (E) 13,928,393
Diluted 6,068,605 7,859,788 (E) 13,928,393
</TABLE>
P-3
<PAGE>
EntrePort Corporation
Pro Forma Combined Condensed Statement of Operations
For The Nine Months Ended September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
EntrePort University By Referral
Corporation .com Inc. Only, Inc. Pro Forma
----------------------- ----------- --------------------------------
Historical Adjustments Consolidated
------------------------------------ ---------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 173,947 $ 223,423 $8,221,361 $ -- $ 8,618,731
Costs and expenses:
Cost of revenues 961,308 84,135 5,010,661 -- 6,056,104
Product development 419,754 1,004,552 -- -- 1,424,306
Selling, general and administrative 2,114,372 1,090,282 2,763,978 3,219,072 (C) 9,187,704
------------ ----------- ----------- ----------- ------------
Total costs and expenses 3,495,434 2,178,969 7,774,639 3,219,072 16,668,114
Loss from operations (3,321,487) (1,955,546) 446,722 (3,219,072) (8,049,383)
Interest income (expense), net 178,586 (211,768) 9,179 -- (24,003)
------------ ----------- ----------- ----------- ------------
Earnings (loss) before taxes (3,142,901) (2,167,314) 455,901 (3,219,072) (8,073,386)
Provision for income taxes -- -- -- 300,000 (D) 300,000
------------ ------------ ----------- ------------ ------------
Net income (loss) $(3,142,901) $(2,167,314) $ 455,901 $(2,919,072) $(7,773,386)
============ ============ =========== ============ ============
Basic loss per share $ (0.30) $ (0.43)
Diluted loss per share (4) $ (0.30) $ (0.43)
Weighted average shares outstanding:
Basic 10,411,858 7,859,788 (E) 18,271,646
Diluted 10,411,858 7,859,788 (E) 18,271,646
</TABLE>
P-4
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. PRO FORMA BASIS OF PRESENTATION AND ADJUSTMENTS
On October 24, 2000, the Company signed a definitive agreement to acquire
University.com, Inc. ("University.com") in a stock-for stock transaction.
Pursuant to the merger agreement, the Company will issue 5,609,788 shares of its
common stock to the shareholders of University.com in exchange for all the
issued and outstanding securities of University.com. The Company will also
assume certain warrants and options issued by University.com, which upon
assumption by the Company will require the Company to issue upon their exercise
up to 1,148,430 additional shares of common stock. The acquisition is subject to
certain closing conditions, including the approval by both the Company's and
University.com's stockholders, and the complete paydown of the existing line of
credit balance by the University.com stockholders, and is expected to close
prior to January 31, 2001.
On October 25, 2000, the Company signed a definitive agreement to acquire By
Referral Only, Inc. ("By Referral Only") in a stock and cash merger transaction.
Pursuant to the merger agreement, the Company will pay the shareholders of By
Referral Only $4,000,000 cash and issue to them 2,250,000 shares of the
Company's common stock in exchange for all the issued and outstanding securities
of By Referral Only. By Referral Only has no outstanding stock options or
warrants. The closing of the acquisition is subject to certain customary closing
conditions, including the Company's receipt of at least an additional $5,000,000
of capital at a purchase price of $3.00 per share. In the event the capital is
raised at a per share price of less than $3.00, the number of shares issuable to
shareholders of By Referral Only is subject to change. However, management
believes it will sell convertible preferred securities at a price greater than
$3.00. Accordingly, the pro forma combined condensed financials assume that only
2.25 million common shares will be issued to acquire By Referral Only. The
acquisition is expected to close prior to January 31, 2001.
The unaudited pro forma combined condensed financial information assumes the
acquisition by EntrePort of Unverisity.com and By Referral Only in transactions
to be accounted for under the purchase method. The unaudited pro forma combined
condensed balance sheet is based on the individual balance sheets of EntrePort
and University.com and By Referral Only and has been prepared to reflect the
acquisition by EntrePort of University.com and By Referral Only as if the
acquisition had occurred as of September 30, 2000. The unaudited pro forma
combined condensed statement of operations is based on the individual statements
of operations for University.com and By Referral Only and combines the results
of operations of EntrePort for the year ended December 31, 1999 and the nine
months ended September 30, 2000 with the results of operations of University.com
and By Referral Only as if the acquisition occurred as of January 1, 1999.
P-5
<PAGE>
The valuation of EntrePort common stock issued to University.com is based on its
weighted average closing prices three days prior and three days following the
announcement of the respective mergers. Since the acquisition of By Referral is
contingent on the sale of securities of at least $5 million, the common shares
to be issued to acquire By Referral Only will be valued when the contingency is
resolved. For purposes of the pro forma assumptions, the stock was valued at
$1.49 per share which approximates the current fair market value. Based on the
consideration issued in the transaction, and the related costs, the total
purchase price of University.com is approximately $16.5 million and By Referral
Only is approximately $7.8 million determined as follows (in thousands):
University.Com By Referral Only Total
-------------- ---------------- ------------
Common stock issued $16,074 $ 3,353 $ 19,427
Acquisition costs 450 450 900
Cash - 4,000 4,000
-------- -------- ---------
Total consideration $16,524 $ 7,803 $ 24,327
======== ======== =========
Of the total acquisition costs of $900,000, $418,000 was incurred through
September 30, 2000 and the remainder will be paid at the closing.
Although EntrePort has not conducted an independent valuation of the tangible
and intangible assets acquired in order to allocate the purchase price in
accordance with Accounting Principles Board Opinion No. 16, the purchase price
was allocated as follows based upon management's best estimate of the acquired
tangible and intangible assets (in thousands):
<TABLE>
<CAPTION>
University.Com By Referral Only Total
-------------- ---------------- ----------
<S> <C> <C> <C>
Current assets acquired $ 44 $ 862 $ 906
Property and equipment, and other assets 291 211 502
Goodwill 8,814 5,349 14,163
Intangible assets, primarily customer list 7,265 5,000 12,265
Liabilities assumed (251) (1,619) (1,870)
Deferred compensation 361 - 361
Deferred income taxes - (2,000) (2,000)
--------- --------- ---------
Total consideration $ 16,524 $ 7,803 $ 24,327
========= ========= =========
</TABLE>
The goodwill and acquired intangibles will be amortized over an estimated
weighted average life of five years. The amortization of the deferred
compensation will be amortized over the estimated average vesting period of 21
months.
P-6
<PAGE>
2. PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(A) To eliminate the bank line of credit assumed by the University.com
shareholders, net of the cash balance at September 30, 2000. To also eliminate
the related unamortized debt issue costs.
(B) To record the acquisition of University.com and By Referral Only by
EntrePort and to eliminate the investment in University.com and By Referral Only
by EntrePort. See footnote number 1 above for a description of the transaction.
(C) To record amortization of goodwill, acquired intangibles and deferred
compensation. Also, to record the effect of contractually agreed-upon salary
reductions that are expected to have an ongoing impact as follows (in
thousands):
1999 2000
---- ----
Amortization of intangibles $ 5,286 $ 3,964
Amortization of deferred compensation 206 155
Salary reductions (1,200) (900)
--------- ---------
$ 4,292 $ 3,219
========= =========
(D) To record the reversal of deferred income tax liability related to the
amortization of the intangibles at By Referral Only ($400,000 in 1999 and
$300,000 in 2000).
(E) The proforma combined basic and diluted weighted average shares outstanding
is calculated as follows:
1999 2000
---- ----
EntrePort historical average shares 6,068,605 10,411,858
Shares issued to University.com 5,609,788 5,609,788
Shares issued to By Referral Only 2,250,000 2,250,000
---------- ----------
13,928,393 18,271,646
========== ==========
P-7
<PAGE>
Appendix A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ENTREPORT CORPORATION
UNIVERSITY MERGER CORP.,
AND
UNIVERSITY.COM, INC.
OCTOBER 24, 2000
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT is dated as of October 24, 2000, by and among Entreport
Corporation, a Florida corporation ("PARENT"), University Merger Corp., a
Minnesota corporation and wholly-owned subsidiary of Parent ("MERGER
SUBSIDIARY"), and University.com, Inc., a Minnesota corporation (the "COMPANY").
WHEREAS, the Company is in the business of developing, hosting,
managing and providing support for online training and education portals (the
"BUSINESS"); and
WHEREAS, the Boards of Directors of Parent, Merger Subsidiary, and the
Company have approved the merger of Merger Subsidiary with and into the Company
(the "MERGER") upon the terms and subject to the conditions set forth herein;
and
WHEREAS, for federal income tax purposes, it is intended that the
Merger will qualify as a reorganization within the meaning of Section
368(a)(1)(A) and (a)(2)(E) of the Internal Revenue Code of 1986, as amended (the
"Code"); and
WHEREAS, the parties hereto desire to make certain representations,
warranties, and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties, covenants, and agreements contained herein,
the parties hereto agree as follows:
ARTICLE 1
THE MERGER; CONVERSION OF SHARES
1.1 THE MERGER. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.2 hereof), Merger Subsidiary will
be merged with and into the Company in accordance with the provisions of the
Minnesota Business Corporation Act (the "MBCA"), whereupon the separate
corporate existence of Merger Subsidiary will cease, and the Company will
continue as the surviving corporation (the "SURVIVING CORPORATION"). >From and
after the Effective Time, the Surviving Corporation will possess all the rights,
privileges, powers, and franchises and be subject to all the restrictions,
disabilities, and duties of the Company and Merger Subsidiary, all as more fully
described in the MBCA.
1.2 EFFECTIVE TIME. As soon as practicable after each of the conditions
set forth in Article 6 and Article 7 has been satisfied or waived, the Company
and Merger Subsidiary will file, or cause to be filed, with the Secretary of
State of the State of Minnesota Articles of Merger (including a plan of merger)
for the Merger, which Articles will be in the form required by and executed in
accordance with the applicable provisions of the MBCA. The Merger will become
effective at the time such filing is made or, if agreed to by Parent and the
Company, such later time or date set forth in the Articles of Merger (the
"EFFECTIVE TIME").
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1.3 CLOSING. Unless this Agreement has been terminated and the
transactions contemplated herein have been abandoned pursuant to Article 7
hereof the closing of the Merger (the "CLOSING"), will take place at a time and
on a date (the "CLOSING DATE") to be specified by the parties, which will be no
later than January 31, 2001; provided, however, that all of the conditions
provided for in Articles 6 and 7 hereof have been satisfied or waived by such
date. The Closing will be held at the offices of Oppenheimer Wolff & Donnelly
LLP, 500 Newport Center Drive, Suite 700, Newport Beach, California 92660, or
such other place as the parties may agree, at which time and place the documents
and instruments necessary or appropriate to effect the transactions contemplated
herein will be exchanged by the parties. Except as otherwise provided herein,
all actions taken at the Closing will be deemed to be taken simultaneously.
1.4 CONVERSION OF SHARES. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of any holder of any share of capital stock of the Company or Merger
Subsidiary:
(a) Each share of common stock of the Company, par value $.01
per share ("COMPANY COMMON STOCK"), issued and outstanding immediately
prior to the Effective Time (except for Dissenting Shares, as defined
in Section 1.5 hereof, and except for shares referred to in Section
1.4(b) hereof) will be converted into the right to receive that
fraction of a share of common stock of the Parent, par value $.001 per
share ("PARENT COMMON STOCK"), equal to 1.75 divided by the average
closing price per share of Parent Common Stock as reported on the
American Stock Exchange for the ten (10) consecutive trading days
immediately preceding and including October 18, 2000 (the "EXCHANGE
RATIO"); provided that the Exchange Ratio will not be less than 0.35 or
more than 0.5833 (except as provided pursuant to Section 1.4(e)). The
amount of Parent Common Stock into which each such share of Company
Common Stock is converted is referred to herein as the "MERGER
CONSIDERATION".
(b) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time that is then owned beneficially
or of record by Parent, Merger Subsidiary, or any direct or indirect
subsidiary of Parent or the Company will be canceled without payment of
any consideration therefor and without any conversion thereof.
(c) Each share of any other class of capital stock of the
Company (other than Company Common Stock) will be canceled without
payment of any consideration therefor and without any conversion
thereof.
(d) Each share of common stock of Merger Subsidiary, par value
$.01 per share ("MERGER SUBSIDIARY COMMON STOCK"), issued and
outstanding immediately prior to the Effective Time will be converted
into one share of the common stock of the Surviving Corporation, par
value $.01 per share ("SURVIVING CORPORATION COMMON STOCK").
(e) Notwithstanding the foregoing, if and to the extent that
Parent pays any Bank Indebtedness (as defined in Section 4.12), the
Merger Consideration otherwise payable at the Closing with respect to
each share of Company Common Stock will be reduced by a fraction, the
numerator of which is equal to the amount of the Bank Indebtedness
multiplied by 0.5, and the denominator of which is equal to the total
number of shares of Company Common Stock outstanding immediately prior
to the Effective Time.
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1.5 DISSENTING SHARES. Notwithstanding any provision of this Agreement
to the contrary, each outstanding share of Company Common Stock, the holder of
which has demanded and perfected such holder's right to dissent from the Merger
and to be paid the fair value of such shares in accordance with Sections
302A.471 and 302A.473 of the MBCA and, as of the Effective Time, has not
effectively withdrawn or lost such dissenters' rights ("DISSENTING SHARES"),
will not be converted into or represent a right to receive Parent Common Stock
into which shares of Company Common Stock are converted pursuant to Section 1.4
hereof, but the holder thereof will be entitled only to such rights as are
granted by the MBCA. Parent will cause the Company to make all payments to
holders of shares of Company Common Stock with respect to such demands in
accordance with the MBCA. The Company will give Parent (i) prompt written notice
of any notice of intent to demand fair value for any shares of Company Common
Stock, withdrawals of such notices, and any other instruments served pursuant to
the MBCA and received by the Company, and (ii) the opportunity to conduct
jointly all negotiations and proceedings with respect to demands for fair value
for shares of Company Common Stock under the MBCA. The Company will not, except
with the prior written consent of Parent or as otherwise required by law,
voluntarily make any payment with respect to any demands for fair value for
shares of Company Common Stock or settle or offer to settle any such demands.
1.6 RETAINED CONSIDERATION. Notwithstanding the Merger Consideration
that would otherwise be payable to the shareholders of the Company upon
consummation of the Merger, the Parent will be entitled to retain twenty percent
(20%) of the total number of shares of Parent Common Stock comprising the Merger
Consideration (the "RETAINED CONSIDERATION") to offset any claims made by the
Parent for indemnification pursuant to Article 8 hereof. The Retained
Consideration will be deposited into a third party escrow account pursuant to an
escrow agreement mutually acceptable to the parties. The Retained Consideration
will remain in the escrow account for a period one year after the Effective Time
(the "ESCROW PERIOD"). Any portion of the Retained Consideration that has not
been used to offset any such indemnification claims as of the expiration of the
Escrow Period will be distributed to the shareholders of the Company in
accordance with Section 1.7(b).
1.7 EXCHANGE OF COMPANY COMMON STOCK.
(a) At the Closing, the Company will arrange for each holder
of record (a "SHAREHOLDER") of a certificate or certificates that
immediately prior to the Effective Time represented outstanding shares
of Company Common Stock ("COMPANY CERTIFICATES") to deliver to the
Parent such holder's Company Certificates, together with appropriate
stock powers signed by such holders, in exchange for the number of
whole shares of Parent Common Stock into which such shares have been
converted as provided in Section 1.4(a) other than the portion
attributable to the Retained Consideration, and the Company
Certificate(s) so surrendered will be canceled.
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(b) After the expiration of the Escrow Period, each holder of
record of Company Certificates surrendered pursuant to Section 1.7(a)
will be entitled to receive, in addition to the Merger Consideration
received pursuant to Section 1.7(a), the proportion of the Retained
Consideration to which they otherwise would have been entitled pursuant
to Section 1.7(a), less any portion used to offset any indemnification
claims of the Parent.
(c) All shares of Parent Common Stock issued upon the
surrender for exchange of Company Common Stock in accordance with the
terms hereof (including any cash paid for fractional shares pursuant to
Section 1.7(e) hereof) will be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common
Stock.
(d) As of the Effective Time, the holders of Company
Certificates representing shares of Company Common Stock will cease to
have any rights as shareholders of the Company, except such rights, if
any, as they may have pursuant to the MBCA. Except as provided above,
until such Company Certificates are surrendered for exchange, each such
Company Certificate will, after the Effective Time, represent for all
purposes only the right to receive the number of whole shares of Parent
Common Stock into which the shares of Company Common Stock have been
converted pursuant to the Merger as provided in Section 1.4(a) hereof
(subject to the Parent's right of set-off against the Retained
Consideration) and the right to receive the cash value of any fraction
of a share of Parent Common Stock as provided in Section 1.6(d) hereof.
(e) No fractional shares of Parent Common Stock will be issued
upon the surrender for exchange of Company Certificates, no dividend or
other distribution of Parent will relate to any fractional share, and
such fractional share interests will not entitle the owner thereof to
vote or to any rights of a shareholder of Parent. All fractional shares
of Parent Common Stock to which a holder of Company Common Stock
immediately prior to the Effective Time would otherwise be entitled, at
the Effective Time, will be aggregated if and to the extent multiple
Company Certificates of such holder are submitted together to Parent.
If a fractional share results from such aggregation, then (in lieu of
such fractional share) Parent will pay to each holder of shares of
Company Common Stock who otherwise would be entitled to receive such
fractional share of Parent Common Stock an amount of cash (without
interest) equal to the value of such fraction of a share based on the
Exchange Ratio.
1.8 EXCHANGE OF MERGER SUBSIDIARY COMMON STOCK. From and after the
Effective Time, each outstanding certificate previously representing shares of
Merger Subsidiary Common Stock will be deemed for all purposes to evidence
ownership of and to represent the number of shares of Surviving Corporation
Common Stock into which such shares of Merger Subsidiary Common Stock have been
converted. Promptly after the Effective Time, the Surviving Corporation will
issue to Parent a stock certificate or certificates representing such shares of
Surviving Corporation Common Stock in exchange for the certificate or
certificates that formerly represented shares of Merger Subsidiary Common Stock,
which will be canceled.
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1.9 STOCK OPTIONS.
(a) Subject to Section 1.9(b), at the Effective Time, all
rights with respect to each option to purchase Company Common Stock (a
"COMPANY OPTION") then outstanding will be converted into and become
rights with respect to Parent Common Stock, and Parent will assume each
such Company Option (an "ASSUMED Option") in accordance with the
requirements of Section 424(a) of the Code (as in effect as of the date
of this Agreement) and the terms of the stock option plan under which
it was issued and the stock option agreement by which it is evidenced.
From and after the Effective Time, (i) each Assumed Option may be
exercised solely for shares of Parent Common Stock, (ii) the number of
shares of Parent Common Stock subject to each such Assumed Option will
be equal to the number of shares of Company Common Stock subject to the
Company Option immediately prior to the Effective Time multiplied by
the Exchange Ratio, rounding to the nearest whole share, (iii) the per
share exercise price under each Assumed Option will be adjusted by
dividing the per share exercise price under such Company Option by the
Exchange Ratio and rounding up to the nearest cent and (iv) any
restriction on the exercise of any such Company Option will continue in
full force and effect and the term, exercisability, vesting schedule
and other provisions of such Company Option will otherwise remain
unchanged; provided, however, that each Assumed Option will, in
accordance with its terms, be subject to further adjustment as
appropriate to reflect any stock split, stock dividend, reverse stock
split, reclassification, recapitalization or other similar transaction
subsequent to the Effective Time. It is the intention of the parties
that each Assumed Option will qualify, immediately after the Effective
Time, as incentive stock options under Section 422 of the Code to the
same extent those options qualified as such incentive stock options
immediately prior to the Effective Time. Within 20 business days after
the Effective Time, Parent will issue to each person who, immediately
after the Effective Time, was a holder of an Assumed Option a document
in form and substance reasonably satisfactory to the Company evidencing
the foregoing assumption of such Company Option by Parent.
(b) Notwithstanding anything to the contrary contained in this
Section 1.9, in lieu of assuming outstanding Company Options in
accordance with Section 1.9(a), Parent may, at its election, cause such
outstanding Company Options to be replaced by issuing substantially
equivalent replacement stock options in substitution therefor, which
replacement stock options will include equivalent terms relating to
acceleration, vesting and the effect of a change in control. Nothing in
this Section 1.9(b) will be construed to eliminate any vested right of
a holder of any Company Option.
1.10 CAPITALIZATION CHANGES. If, between the date of this Agreement and
the Effective Time, the outstanding shares of Parent Common Stock are changed
into a different number of shares or a different class by reason of any
reclassification, stock-split, combination, exchange of shares, stock dividend
or similar change in the capitalization of Parent, all per-share price amounts
and calculations set forth in this Agreement will be appropriately adjusted.
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1.11 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION. The
Articles of Incorporation of Merger Subsidiary, as in effect immediately prior
to the Effective Time, will be the Articles of Incorporation of the Surviving
Corporation until thereafter amended in accordance with applicable law;
provided, however, that upon the Effective Time, Article 1 of the Articles of
Incorporation of the Surviving Corporation will be amended to read in its
entirety as follows: "The name of the corporation will be University.com, Inc."
1.12 BYLAWS OF THE SURVIVING CORPORATION. The Bylaws of Merger
Subsidiary, as in effect immediately prior to the Effective Time, will be the
Bylaws of the Surviving Corporation until thereafter amended in accordance with
applicable law.
1.13 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The directors
and officers of Merger Subsidiary immediately prior to the Effective Time will
be the directors and officers, respectively, of the Surviving Corporation until
their respective successors are duly elected and qualified.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent as follows:
2.1 DISCLOSURE SCHEDULE. The disclosure schedule attached hereto as
EXHIBIT 2.1 (the "DISCLOSURE SCHEDULE") is divided into sections that correspond
to the sections of this Article 2. The Disclosure Schedule comprises a list of
all exceptions to the truth and accuracy of, and of all disclosures or
descriptions required by, the representations and warranties set forth in the
remaining sections of this Article 2.
2.2 CORPORATE ORGANIZATION, ETC. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota with the requisite corporate power and authority to carry on its
business as it is now being conducted and to own, operate and lease its
properties and assets, is duly qualified or licensed to do business as a foreign
corporation in good standing in every other jurisdiction in which the character
or location of the properties and assets owned, leased or operated by it or the
conduct of its business requires such qualification or licensing, except in such
jurisdictions in which the failure to be so qualified or licensed and in good
standing would not, individually or in the aggregate, have a Material Adverse
Effect (as defined below) on the Company. The Disclosure Schedule contains a
list of all jurisdictions in which the Company is qualified or licensed to do
business and includes complete and correct copies of the Company's articles of
incorporation and bylaws. The Company does not own or control any capital stock
of any corporation or any interest in any partnership, joint venture or other
entity.
2.3 CAPITALIZATION. The authorized capital stock of the Company is set
forth in the Disclosure Schedule. The number of shares of the capital stock of
the Company outstanding, as of the date of this Agreement and as set forth in
the Disclosure Schedule, represent all of the issued and outstanding capital
stock of the Company. All issued and outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid and nonassessable and
are without, and were not issued in violation of, preemptive rights. There are
no shares of capital stock or other equity securities of the Company outstanding
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or any securities convertible into or exchangeable for such shares, securities
or rights. Other than as set forth on the Disclosure Schedule and pursuant to
this Agreement, there is no subscription, option, warrant, call, right,
contract, agreement, commitment, understanding or arrangement to which the
Company is a party, or by which it is bound, with respect to the issuance, sale,
delivery or transfer of the capital stock of the Company, including any right of
conversion or exchange under any security or other instrument. The Company has
no subsidiaries.
2.4 AUTHORIZATION, ETC. The Company has all requisite corporate power
and authority to enter into, execute, deliver, and perform its obligations under
this Agreement. This Agreement has been duly and validly executed and delivered
by the Company and is the valid and binding legal obligation of the Company
enforceable against the Company in accordance with its terms, subject to
bankruptcy, moratorium, principles of equity and other limitations limiting the
rights of creditors generally.
2.5 NON-CONTRAVENTION. Except as set forth in the Disclosure Schedule,
neither the execution, delivery and performance of this Agreement, and each
other agreement to be entered into in connection with this Agreement, nor the
consummation of the transactions contemplated herein will:
(a) violate, contravene or be in conflict with any provision
of the articles of incorporation or bylaws of the Company;
(b) be in conflict with, or constitute a default, however
defined (or an event which, with the giving of due notice or lapse of
time, or both, would constitute such a default), under, or cause or
permit the acceleration of the maturity of, or give rise to any right
of termination, cancellation, imposition of fees or penalties under any
debt, note, bond, lease, mortgage, indenture, license, obligation,
contract, commitment, franchise, permit, instrument or other agreement
or obligation to which the Company is a party or by which the Company
or any of the Company's properties or assets is or may be bound;
(c) result in the creation or imposition of any pledge, lien,
security interest, restriction, option, claim or charge of any kind
whatsoever ("ENCUMBRANCES") upon any property or assets of the Company
under any debt, obligation, contract, agreement or commitment to which
the Company is a party or by which the Company or any of the Company's
assets or properties are bound; or
(d) materially violate any statute, treaty, law, judgment,
writ, injunction, decision, decree, order, regulation, ordinance or
other similar authoritative matters (referred to herein individually as
a "LAW" and collectively as "LAWS") of any foreign, federal, state or
local governmental or quasi-governmental, administrative, regulatory or
judicial court, department, commission, agency, board, bureau,
instrumentality or other authority (referred to herein individually as
an "AUTHORITY" and collectively as "AUTHORITIES").
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2.6 CONSENTS AND APPROVALS. Except as set forth in the Disclosure
Schedule, with respect to the Company, no consent, approval, order or
authorization of or from, or registration, notification, declaration or filing
with ("CONSENT") any individual or entity, including without limitation any
Authority, is required in connection with the execution, delivery or performance
of this Agreement by the Company or the consummation by the Company of the
transactions contemplated herein.
2.7 FINANCIAL STATEMENTS. The Disclosure Schedule contains a copy of
the balance sheet of the Company as of December 31, 1999, together with a copy
of the balance sheet of the Company as of September 30, 2000 (the "MOST RECENT
BALANCE SHEET") and statements of income and cash flows for the Company for the
twelve-month period ended December 31, 1999, together with a statement of income
for the nine months ended September 30, 2000 (the "MOST RECENT INCOME
STATEMENT") and the Company's balance sheets as of December 31, 1998 and
statements of income, cash flows and shareholders' equity for the period from
inception (June 12, 1998) to December 31, 1998 (collectively, the "FINANCIAL
STATEMENTS"). Except as disclosed therein or in the Disclosure Schedule, the
aforesaid Financial Statements: (i) are in accordance with the books and records
of the Company and have been prepared in conformity with GAAP consistently
applied for all periods (except as stated therein or in the notes thereto); and
(ii) are true, complete and accurate in all material respects and fairly present
the financial position of the Company as of the respective dates thereof, and
the income or loss, changes in shareholders' equity and changes in cash flows
(or financial position) for the periods then ended, except that the Most Recent
Balance Sheet and the Most Recent Income Statement do not contain all required
footnotes and are subject to normal year-end adjustments. The Company's balance
sheets as of December 31, 1998 and December 31, 1999, and statements of income
and cash flows for the respective twelve-month periods then ended, have been
audited in accordance with United States generally accepted auditing standards.
2.8 ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not have any
material liabilities, obligations or claims of any kind whatsoever, whether
secured or unsecured, accrued or unaccrued, fixed or contingent, matured or
unmatured, known or unknown, direct or indirect, contingent or otherwise and
whether due or to become due (referred to herein individually as a "LIABILITY"
and collectively as "LIABILITIES"), other than: (a) Liabilities that are fully
reflected or reserved for in the Most Recent Balance Sheet; (b) Liabilities that
are set forth on the Disclosure Schedule; (c) Liabilities incurred by the
Company in the ordinary course of business after the date of the Most Recent
Balance Sheet and consistent with past practice and in an amount not to exceed
$25,000 individually or in the aggregate (none of which results from, arises out
of, relates to, is in the nature of, or was caused by any breach of contract,
breach of warranty, tort, infringement or violation of Law) unless such amounts
are disclosed on the Disclosure Schedule; or (d) Liabilities for express
executory obligations to be performed after the Closing under the contracts
described in Section 2.19 of the Disclosure Schedule (other than any express
executory obligations that might arise due to any default or other failure of
performance by the Company prior to the Closing Date).
2.9 ABSENCE OF CERTAIN CHANGES. Except as set forth in the Disclosure
Schedule, since the date of the Most Recent Balance Sheet, the Company has owned
and operated its assets, properties and business in the ordinary course of
business and consistent with past practice. Without limiting the generality of
the foregoing, subject to the aforesaid exceptions:
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(a) the Company has not experienced any change that has had or
could reasonably be expected to have a Material Adverse Effect on the
Company;
(b) the Company has not suffered (i) any loss, damage,
destruction or other property or casualty (whether or not covered by
insurance) or (ii) any loss of officers, employees, dealers,
distributors, independent contractors, customers or suppliers, which
had or may reasonably be expected to result in a Material Adverse
Effect on the Company; and
(c) no event has taken place which if consummated following
the date hereof would constitute a violation of Section 4.2 hereof.
2.10 ASSETS. Except as set forth in the Disclosure Schedule, the
Company has good and marketable title to all of its assets and properties,
whether or not reflected in the Most Recent Balance Sheet or acquired after the
date thereof (except for properties sold or otherwise disposed of since the date
thereof in the ordinary course of business and consistent with past practices),
that relate to or are necessary for the Company to conduct its business and
operations as currently conducted, including, without limitation, all (i) of the
Company's training course software and content and all intellectual property
rights related to such software and content, (ii) furniture, fixtures, equipment
and other personal property, and (iii) books, records, brochures, pamphlets and
other marketing materials (collectively, the "ASSETS"), free and clear of any
mortgage, pledge, lien, security interest, conditional or installment sales
agreement, encumbrance, claim, easement, right of way, tenancy, covenant,
encroachment, restriction or charge of any kind or nature (whether or not of
record) (a "LIEN"), other than (i) liens securing specific Liabilities shown on
the Most Recent Balance Sheet with respect to which no breach, violation or
default exists; (ii) mechanics', carriers', workers' or other like liens arising
in the ordinary course of business; (iii) minor imperfections of title that do
not individually or in the aggregate, impair the continued use and operation of
the Assets to which they relate in the operation of the Company as currently
conducted; and (iv) liens for current taxes not yet due and payable or being
contested in good faith by appropriate proceedings ("PERMITTED LIENS"). The
Company has full right and power to, and at the Closing will, deliver to Parent
good and marketable title to all of the Assets, free and clear of any Lien,
other than Permitted Liens. Except as set forth on the Disclosure Schedule, the
equipment, vehicles and other personal property used by the Company (whether or
not reflected on the Most Recent Balance Sheet or acquired after the date
thereof) are in good operating condition and repair (normal wear and tear
excepted) and fit for the intended purposes thereof, and no material
maintenance, replacement or repair has been deferred or neglected.
2.11 INVENTORIES. Except as set forth in the Disclosure Schedule, the
inventories of the Company, whether reflected in the Most Recent Balance Sheet
or otherwise, (a) consist of a quality and quantity useable in the ordinary
course of business, and the present quantities of all inventory are reasonable
in the present circumstances of the business as currently conducted or as
proposed to be conducted and (b) are transferable to Parent.
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2.12 RECEIVABLES AND PAYABLES.
(a) Except as set forth on the Disclosure Schedule, all
accounts receivable of the Company represent sales in the ordinary
course of business and, to the Company's knowledge, are current and
collectible net of any reserves shown on the Most Recent Balance Sheet
and none of such receivables is subject to any Lien other than a
Permitted Lien.
(b) Except as set forth on the Disclosure Schedule, all
payables by the Company arose in bona fide transactions in the ordinary
course of business and no such payable is delinquent by more than sixty
(60) days beyond the due date in its payment.
2.13 INTELLECTUAL PROPERTY RIGHTS. The Company owns or has the
unrestricted right to use, and the Disclosure Schedule contains a detailed
listing of, all patents, patent applications, patent rights, registered and
unregistered trademarks, trademark applications, tradenames, service marks,
service mark applications, copyrights, internet domain names or URLs (including,
without limitation, UNIVERSITY.COM), computer programs and other computer
software, inventions, know-how, trade secrets, technology, proprietary
processes, trade dress, software and formulae (collectively, "INTELLECTUAL
PROPERTY RIGHTS") used in, or necessary for, the operation of its business as
currently conducted or proposed to be conducted. Except as set forth on the
Disclosure Schedule, the use of all Intellectual Property Rights necessary or
required for the conduct of the business of the Company as presently conducted
and as proposed to be conducted does not infringe or violate the Intellectual
Property Rights of any person or entity. Except as described on the Disclosure
Schedule: (a) the Company does not own or use any Intellectual Property Rights
pursuant to any written license agreement; (b) the Company has not granted any
person or entity any rights, pursuant to a written license agreement or
otherwise, to use the Intellectual Property Rights; and (c) the Company owns,
has unrestricted right to use and has sole and exclusive possession of and has
good and valid title to, all of the Intellectual Property Rights, free and clear
of all Liens and Encumbrances. All license agreements relating to Intellectual
Property Rights are binding and there is not, under any of such licenses, any
existing default or event of default (or event which with notice or lapse of
time, or both, would constitute a default, or would constitute a basis for a
claim on non-performance) on the part of the Company or, to the knowledge of the
Company, any other party thereto.
2.14 LITIGATION. Except as set forth in the Disclosure Schedule, there
is no legal, administrative, arbitration, or other proceeding, suit, claim or
action of any nature or investigation, review or audit of any kind, or any
judgment, decree, decision, injunction, writ or order pending, noticed,
scheduled, or, to the knowledge of the Company, threatened or contemplated by or
against or involving the Company, its assets, properties or business or its
directors, officers, agents or employees (but only in their capacity as such),
whether at law or in equity, before or by any person or entity or Authority, or
which questions or challenges the validity of this Agreement or any action taken
or to be taken by the parties hereto pursuant to this Agreement or in connection
with the transactions contemplated herein.
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2.15 TAX MATTERS. For purposes of this Agreement, the term "TAXES"
means all federal, state, local, foreign and other net income, gross income,
gross receipts, sales, use, ad valorem, transfer, franchise, profits, license,
lease, service, service use, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, real or personal property, windfall
profits, customs, duties or other taxes, fees, assessments, charges or levies of
any kind whatever, together with any interest and any penalties, additions to
tax or additional amounts with respect thereto, and the term "TAX" means any one
of the foregoing Taxes. In addition, the term "TAX RETURNS" means all returns,
declarations, reports, statements and other documents required to be filed with
any Authority in respect of Taxes, and the term "TAX RETURN" means any one of
the foregoing Tax Returns. Except as set forth in the Disclosure Schedule, the
Company hereby represents and warrants the following with respect to the
Company:
(a) FILING OF TAX RETURNS. There have been properly completed
and duly filed on a timely basis all Tax Returns required to be filed
on or prior to the date hereof by the Company with respect to Taxes
arising from the Company's operations. As of the time of filing, the
foregoing Tax Returns correctly reflected the facts regarding the
income, business, assets, operations, activities, status or other
matters of the Company or any other information required to be shown
thereon. Any Tax Returns filed after the date hereof, but on or before
the Closing Date, will conform with the provisions of this subsection
2.15(a).
(b) PAYMENT OF TAXES. With respect to all amounts in respect
of Taxes imposed upon the Company with respect to Taxes arising from
the Company's operations, or for which the Company is or could be
liable, whether to taxing authorities (as, for example, under Law) or
to other persons or entities (as, for example, under tax allocation
agreements), with respect to all taxable periods or portions of periods
ending on or before the Closing Date, all applicable Tax Laws and
agreements have been or will be fully complied with, and all such
amounts of Taxes required to be paid by the Company (whether or not
shown on any Tax Return) to taxing authorities or others on or before
the date hereof have been duly paid or will be paid on or before the
Closing Date or adequate provision has been made therefor in the Most
Recent Balance Sheet at Closing; the reserves for all such Taxes
reflected in the Most Recent Balance Sheet at Closing are, or will be,
adequate to offset any Taxes payable by the Company in any post-Closing
Date period for any pre-Closing Date Taxes, including without
limitation an appropriate accrual for all AD VALOREM Taxes including
real and personal property Taxes for assessment periods that include
the Closing Date.
(c) AUDITS AND EXTENSIONS. Neither the federal Tax Returns of
the Company nor any state or local Tax Returns of the Company have been
examined by the Internal Revenue Service or any similar state or local
authority and there are no pending examinations currently being made by
any authority nor has there been any written or oral notification to
the Company of any intention to make an examination of any Taxes by any
Authority. There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any Tax Return for any
period.
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(d) INDEPENDENT CONTRACTORS AND EMPLOYEES. For purposes of
computing Taxes and the filing of Tax Returns, the Company has not
failed to treat as "employees" any individual providing services to the
Company, as the case may be, who would be classified as an "employee"
under the applicable rules or regulations of any authority with respect
to such classification.
(e) WITHHOLDING. The Company has complied with all applicable
laws relating to the withholding of Taxes and the payment thereof
(including, without limitation, withholding of Taxes under Sections
1441 and 1442 of the Code, or similar provisions under any foreign
laws), and timely and properly withheld from individual employee wages
and paid over to the proper governmental entity all amounts required to
be so withheld and paid over under all applicable laws.
(f) TAX LIENS. There are no liens for Taxes upon any assets of
the Company, except liens for Taxes not yet due.
(g) ADDITIONAL TAXES. The Company does not expect the
assessment of any additional Taxes of the Company and is not aware of
any unresolved questions, claims or disputes concerning the liability
of the Company for Taxes that would exceed the estimated reserves
established on its books and records. The Company is not a party to any
Tax allocation or sharing agreement.
(h) EXTENSIONS. The Company has not requested any extension of
time within which to file any Tax Return, which Tax Return has not
since been filed.
(i) SECTION 481 ADJUSTMENTS. The Company is not required to
include in income any adjustment under Section 481(a) of the Code by
reason of a voluntary change in accounting method initiated by the
Company and the Company has no knowledge that the Internal Revenue
Service has proposed any such adjustment or change in accounting
method.
(j) DISCLOSURE OF TAX POSITIONS. All transactions that could
give rise to an understatement of federal income tax (within the
meaning of Section 6661 of the Code as it applied prior to repeal) or
an underpayment of tax (within the meaning of Section 6662 of the Code)
were reported in a manner for which there is substantial authority or
were adequately disclosed (or, with respect to Tax Returns filed on or
before the Closing Date, will be reported in such a manner or
adequately disclosed) on the Tax Returns required in accordance with
Sections 6661 (b)(2)(B) and 6662(d)(2)(B) of the Code.
(k) COLLAPSIBLE CORPORATION ELECTIONS. The Company has not
made an election under Section 341(f) of the Code for any taxable years
not yet closed for statute of limitation purposes.
(l) SECTION 1374. The Company has never been liable for any
Tax under Section 1374 of the Code (relating to "built-in gains"), has
not acquired the assets of a C corporation in a carryover basis
transaction and the Company is not aware of any facts that may result
in the Company being liable in the future for any Tax under Section
1374 of the Code.
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(m) SECTION 280G. The Company has not made any payments that
would be nondeductible under Section 280G of the Code, or does the
Company have any liability for any related excise tax imposed by Code
Section 4999.
(n) ACCRUAL BASIS. The Company is an accrual basis taxpayer
and it has recognized revenue, on or prior to the Closing Date, with
respect to all accounts receivable set forth in its balance sheet on
the day prior to the Closing Date.
2.16 INSURANCE. The Disclosure Schedule contains an accurate and
complete list of all policies of fire and other casualty, auto, liability,
general liability, theft, life, workers' compensation, health, directors and
officers, business interruption and other forms of insurance owned or held by
the Company, specifying the insurer, the policy number, the term of coverage, a
description of any retroactive premium adjustments or other loss-sharing
arrangements and, in the case of any "claims made" coverage, the same
information as to predecessor policies for the past three years. With respect to
each such insurance policy: (a) the policy is valid, binding, enforceable, and
in full force and effect; (b) neither the Company nor, to the knowledge of the
Company, any other party to the policy is in breach or default (including with
respect to the payment of premiums or the giving of notices), and no event has
occurred which, with notice or the lapse of time, would constitute such a breach
or default, or permit termination, modification, or acceleration, under the
policy; and (c) no party to the policy has repudiated any provision thereof. The
Disclosure Schedule also describes any self-insurance arrangements affecting the
Company.
2.17 EMPLOYEE BENEFIT PLANS. Except as set forth in the Disclosure
Schedule, there are no facts or circumstances which could, directly or
indirectly, subject Parent or any of its affiliates to any Liability of any
nature with respect to any employee pension, welfare, incentive, perquisite,
paid time off, severance or other employee benefit plan, policy, practice or
agreement sponsored, maintained or contributed to by the Company or any
affiliate, whether or not administered by the Company (collectively, "BENEFIT
PLANS"), to which the Company or any affiliate is a party or with respect to
which the Company or any affiliate could have any Liability. The Disclosure
Schedule contains a list of all Benefit Plans. Such Benefit Plans were
established and have been executed, managed and administered without exception
in accordance with all applicable requirements of the Code and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and of all other
applicable Laws.
2.18 BANK ACCOUNTS; POWERS OF ATTORNEY. The Disclosure Schedule sets
forth: (a) the names of all financial institutions, investment banking and
brokerage houses, and other similar institutions at which the Company maintains
accounts, deposits, safe deposit boxes of any nature, and the account numbers
and names of all persons authorized to draw thereon or make withdrawals
therefrom; (b) the terms and conditions thereof and any limitations or
restrictions as to use, withdrawal or otherwise; and (c) the names of all
persons or entities holding general or special powers of attorney from the
Company and a summary of the terms thereof.
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2.19 CONTRACTS AND COMMITMENTS; NO DEFAULT.
(a) Except as set forth in the Disclosure Schedule, the
Company is not a party to, nor are any of the Assets bound by, any
written or oral:
(i) employment, non-competition, consulting or
severance agreement, collective bargaining agreement, or
pension, profit-sharing, incentive compensation, deferred
compensation, stock purchase, stock option, stock appreciation
right, group insurance, severance pay or retirement plan or
agreement;
(ii) indenture, mortgage, note, installment
obligation, agreement or other instrument relating to the
borrowing of money by the Company;
(iii) contract, agreement, lease (real or personal
property) or arrangement that (A) is not terminable on less
than 30 days' notice without penalty, (B) is not over one year
in length of obligation of the Company, or (C) involves an
obligation of more than $5,000 over its term;
(iv) contract, agreement, commitment or license
relating to Intellectual Property Rights or contract,
agreement or commitment of any other type, whether or not
fully performed, not otherwise disclosed pursuant to this
Section 2.19;
(v) obligation or requirement to provide funds to or
make any investment (in the form of a loan, capital
contribution or otherwise) in any person or entity;
(vi) outstanding sales or purchase contracts,
commitments or proposals that will result in any material loss
upon completion or performance thereof after allowance for
direct distribution expenses, or bound by any outstanding
contracts, bids, sales or service proposals quoting prices
that are not reasonably expected to result in a normal profit;
or
(vii) contract, commitment, agreement or arrangement
with any "disqualified individual" (as defined in Section
280G(c) of the Code) which contains any severance or
termination pay liabilities which would result in a
disallowance of the deduction for any "excess parachute
payment" (as defined in Section 280G(b)(1) of the Code) under
Section 280G of the Code.
(b) True and complete copies (or summaries, in the case of
oral items) of all agreements disclosed pursuant to this Section 2.19
(the "COMPANY CONTRACTS") have been provided to Parent for review.
Except as set forth in the Disclosure Schedule, all of the Company
Contracts items are valid and enforceable by and against the Company in
accordance with their terms, and are in full force and effect. Except
as otherwise specified in the Disclosure Schedule, none of the Company
Contracts contains a provision requiring the consent of any party with
respect to the consummation of the transactions contemplated by this
Agreement. The Company is not in breach, violation or default, however
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defined, in the performance of any of its obligations under any of the
Company Contracts, and no facts and circumstances exist which, whether
with the giving of due notice, lapse of time, or both, would constitute
such breach, violation or default thereunder or thereof, and, to the
knowledge of the Company, no other parties thereto are in a breach,
violation or default, however defined, thereunder or thereof, and no
facts or circumstances exist which, whether with the giving of due
notice, lapse of time, or both, would constitute such a breach,
violation or default thereunder or thereof. None of the Company
Contracts is subject to renegotiation with any Authority.
2.20 ORDERS, COMMITMENTS AND RETURNS. All accepted and unfulfilled
orders for the sale of the Company's services were made in bona fide
transactions in the ordinary course of business. Except as set forth in the
Disclosure Schedule, there are no claims or complaints of a material nature
against the Company for any unsatisfactory services.
2.21 LABOR MATTERS. Except as set forth in the Disclosure Schedule: (a)
the Company is and has been in material compliance with all applicable Laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, including without limitation any such Laws
respecting employment discrimination and occupational safety and health
requirements, and has not and is not engaged in any unfair labor practice; (b)
no grievance or any arbitration proceeding arising out of or under collective
bargaining agreements is pending and no claims therefor exist or have been
threatened; (c) no collective bargaining agreement is binding and in force
against the Company or currently being negotiated by the Company; (d) the
Company has not experienced any significant labor difficulty; (e) the Company is
not delinquent in payments to any persons for any wages, salaries, commissions,
bonuses or other direct or indirect compensation for any services performed by
them or amounts required to be reimbursed to such persons, including without
limitation any amounts due under any Benefit Plans; (f') upon termination of the
employment of any person, neither the Company nor Parent will, by reason of
anything done prior to or as of the Closing Date, be liable to any of such
persons for so-called "severance pay" or any other payments; and (g) within the
twelve-month period prior to the date hereof there has not been any expression
of intention to the Company by any officer or key employee of any such entity to
terminate such employment.
2.22 CUSTOMERS. Except as set forth in the Disclosure Schedule, there
has not been in the twelve-month period prior to the date hereof any dispute
with any customer or user of the Company's products or services that could
reasonably be anticipated to have a Material Adverse Effect. The Company has not
received any formal or informal notice that any customer of the Company would
cease to continue doing business with Parent in the manner in which such
business has been conducted in the past. The Company has not received any formal
or informal notice that would cause the Company to believe that any customer
intends to terminate its relationship with the Company as a result of the
transactions contemplated by this Agreement.
2.23 COMPLIANCE WITH LAW; PERMITS AND OTHER OPERATING RIGHTS. Except as
set forth in the Disclosure Schedule, the Assets, properties, business and
operations of the Company are and have been in compliance in all respects with
all Laws applicable to the Company's assets, properties, business and
operations, except where the failure to comply would not have a Material Adverse
Effect. Except as set forth in the Disclosure Schedule, the Company does not
require the Consent of any Authority to permit it to operate in the manner in
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which its business is presently being operated. The Company possesses all
material permits, licenses and other authorizations from all Authorities
necessary to permit it to operate its business in the manner in which it
presently is conducted and the consummation of the transactions contemplated by
this Agreement will not prevent the Company from being able to continue to use
such permits and operating rights. Except as set forth in the Disclosure
Schedule, the Company is not restricted by agreement from carrying on its
business or any part thereof anywhere in the world or from competing in any line
of business with any person or entity. The Company has not received notice of
any violation of any such applicable Law, and is not in default with respect to
any order, writ, judgement, award, injunction or decree of any Authority.
2.24 ENVIRONMENTAL MATTERS. Except as set forth in the Disclosure
Schedule, the operation of the Business does not involve the handling,
manufacture, treatment, storage, use, generation, emission, release, discharge,
refining, dumping or disposal of any pollutant, contaminant, or toxic or
hazardous substance, material or waste (a "HAZARDOUS SUBSTANCE") (whether legal
or illegal, accidental or intentional, direct or indirect). To the knowledge of
the the Company, there are no facts or circumstances that could, directly or
indirectly, subject Parent, or any of its affiliates to any Liability of any
nature whatsoever arising out of or related to any pollution or threat to human
health or the environment or violation of any environmental or occupational
safety or health law that is related in any way to the Company or any affiliate
or any previous owner's or operator's management, use, control, ownership, or
operation of the Assets, any property, or the Business or any affiliate,
including without limitation any on-site or off-site activities involving any
Hazardous Substance, and that occurred, existed, arose out of conditions or
circumstances that occurred or existed, or was caused, in whole or in part, on
or before the date hereof.
2.25 BROKERS. Neither the Company nor, to the knowledge of the Company,
any of the its directors, officers or employees, has employed any broker,
finder, investment banker or financial advisor or incurred any liability for any
brokerage fee or commission, finder's fee or financial advisory fee, in
connection with the transactions contemplated hereby, nor is there any basis
known to the Company for any such fee or commission to be claimed by any person
or entity.
2.26 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by the Company for inclusion in the Proxy Statement (as defined in
Section 4.1 (a)) will, at the date the Proxy Statement is first mailed to the
Parent's shareholders or at the time of the Special Meeting (as defined in
Section 4.1 (b)), contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.
2.27 ISSUANCE OF PARENT COMMON STOCK. To the Company's knowledge, as of
the date of this Agreement and as of the Effective Time, no facts or
circumstances exist or will exist that could cause the issuance of Parent Common
Stock pursuant to the Merger to fail to meet the exemption from the registration
requirements of the Securities Act set forth in Rule 506 of Regulation D under
of the Securities Act.
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2.28 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Company nor any
director, officer, employee or agent of the Company, nor any other person acting
on its behalf, has, directly or indirectly, within the past five years given or
agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other person who is or may be in a position to help or
hinder the business of the Company (or assist the Company in connection with any
actual or proposed transaction) that: (a) might subject the Company or Parent to
any damage or penalty in any civil, criminal or governmental litigation
proceeding; (b) if not given in the past, might have had a Material Adverse
Effect on the assets, business or operations of the Company as reflected in the
financial statements described in Section 2.7; or (c) if not continued in the
future, might have a Material Adverse Effect on the Company's assets, business,
operations or prospects or that might subject the Company or Parent to suit or
penalty in any private or governmental litigation or proceeding.
2.29 BOOKS AND RECORDS. The books of account, minute books, stock
record books, and other material records of the Company, all of which have been
made available to Parent, are complete and correct in all material respects and
have been maintained in accordance with reasonable business practices. The
minute books of the Company contain accurate and complete records of all formal
meetings held of, and corporate action taken by, the shareholders, the Board of
Directors, and committees of the Board of Directors of the Company. At the
Closing, all of those books and records will be in the possession of the
Company.
2.30 BUSINESS GENERALLY; ACCURACY OF INFORMATION. No representation or
warranty made by the Company in this Agreement, the Disclosure Schedule, or in
any document, agreement or certificate furnished or to be furnished to Parent at
the Closing by or on behalf of the Company in connection with any of the
transactions contemplated by this Agreement contains or will contain any untrue
statement of material fact or omit or will omit to state any material fact
necessary in order to make the statements herein or therein not misleading in
light of the circumstances in which they are made, and all of the foregoing
completely and correctly present the information required or purported to be set
forth herein or therein. To the knowledge of the Company, there is no material
fact as of the date hereof that has not been disclosed in writing to Parent
related to the Company, its operations, properties, financial condition or
prospects, taken as a whole, that has, or could reasonably be expected to have,
a Material Adverse Effect on the Company. The representations and warranties
contained in this Article 2 or elsewhere in this Agreement or any document
delivered pursuant hereto will not be affected or deemed waived by reason of the
fact that Parent or its representatives knew or should have known that any such
representation or warranty is or might be inaccurate in any respect.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE PARENT
AND THE MERGER SUBSIDIARY
Parent and the Merger Subsidiary represent and warrant to the Company
as follows:
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3.1 PARENT DISCLOSURE SCHEDULE. The disclosure schedule of the Parent
attached hereto as EXHIBIT 3.1 (the "PARENT DISCLOSURE SCHEDULE") is divided
into sections that correspond to the sections of this Article 3. The Disclosure
Schedule comprises a list of all exceptions to the truth and accuracy of, and of
all disclosures or descriptions required by, the representations and warranties
set forth in the remaining sections of this Article 3.
3.2 CORPORATE ORGANIZATION, STANDING AND POWER. The Parent is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Florida. Merger Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota.
Each of Parent and Merger Subsidiary has all corporate power and authority to
own its properties and to carry on its business as now being conducted and is
duly qualified to do business and is in good standing in each jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect on
Parent and Merger Subsidiary.
3.3 AUTHORIZATION. Each of Parent and the Merger Subsidiary has all the
requisite corporate power and authority to enter into this Agreement and,
subject to the approval of the shareholders of the Parent in accordance with
applicable Law (the "PARENT SHAREHOLDER APPROVAL"), to carry out the
transactions contemplated herein. The Board of Directors of Parent and the
Merger Subsidiary, and Parent as the sole shareholder of the Merger Subsidiary
have taken all action required by law, their respective articles of
incorporation and bylaws or otherwise to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein. This Agreement is the valid and binding legal obligation of
Parent and the Merger Subsidiary enforceable against each of them in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or similar laws that affect creditors'
rights generally.
3.4 NON-CONTRAVENTION. Neither the execution, delivery and performance
of this Agreement nor the consummation of the transactions contemplated herein
will: (i) violate any provision of the articles of incorporation or bylaws of
Parent or the Merger Subsidiary; or (ii) except for such violations, conflicts,
defaults, accelerations, terminations, cancellations, impositions of fees or
penalties, mortgages, pledges, liens, security interests, encumbrances,
restrictions and charges which would not, individually or in the aggregate, have
a Material Adverse Effect on Parent, (A) violate, be in conflict with, or
constitute a default, however defined (or an event which, with the giving of due
notice or lapse of time, or both, would constitute such a default), under, or
cause or permit the acceleration of the maturity of, or give rise to, any right
of termination, cancellation, imposition of fees or penalties under, any debt,
note, bond, lease, mortgage, indenture, license, obligation, contract,
commitment, franchise, permit, instrument or other agreement or obligation to
which Parent or the Merger Subsidiary is a party or by which Parent or the
Merger Subsidiary or any of their respective properties or assets is or may be
bound (unless with respect to which defaults or other rights, requisite waivers
or consents will have been obtained at or prior to the Closing) or (B) result in
the creation or imposition of any mortgage, pledge, lien, security interest,
encumbrance, restriction, adverse claim or charge of any kind, upon any property
or assets of Parent or the Merger Subsidiary under any debt, obligation,
contract, agreement or commitment to which Parent or the Merger Subsidiary is a
party or by which Parent or the Merger Subsidiary or any of their respective
assets or properties is or may be bound; or (iii) violate any Law of any
Authority.
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3.5 CAPITALIZATION. The authorized capital stock of Parent consists of
50,000,000 shares of Parent Common Stock, of which there are 11,681,213 shares
of Parent Common Stock issued and outstanding as of the date of this Agreement.
The authorized capital stock of the Merger Subsidiary consists of 1,000 shares
of Merger Subsidiary Common Stock, all of which are issued and outstanding and
owned by Parent.
3.6 CONSENTS AND APPROVALS. Except for the Parent Shareholder Approval
and except as set forth in the Parent Disclosure Schedule, no Consent is
required by any person or entity, including without limitation any Authority, in
connection with the execution, delivery and performance by Parent of this
Agreement, or the consummation of the transactions contemplated herein, other
than any Consent which, if not made or obtained, will not, individually or in
the aggregate, have a Material Adverse Effect on the business of Parent.
3.7 VALID ISSUANCE. Upon obtaining the Parent Shareholder Approval, the
Parent Common Stock to be used in connection with the Merger will be duly
authorized and, when issued, delivered and paid for as provided in this
Agreement, will be validly issued, fully paid and non-assessable.
3.8 ABSENCE OF CERTAIN CHANGES. Except as set forth in the Parent SEC
Documents and except as set forth in the Parent Disclosure Schedule, the Company
has owned and operated its assets, properties and business in the ordinary
course of business and consistent with past practice. Without limiting the
generality of the foregoing, subject to the aforesaid exceptions:
(a) the Parent has not experienced any change that has had or
could reasonably be expected to have a Material Adverse Effect on the
Parent;
(b) the Parent has not suffered (i) any loss, damage,
destruction or other property or casualty (whether or not covered by
insurance) or (ii) any loss of officers, employees, dealers,
distributors, independent contractors, customers or suppliers, which
had or may reasonably be expected to result in a Material Adverse
Effect on the Parent.
3.9 INTELLECTUAL PROPERTY RIGHTS. Except as disclosed in the Parent SEC
Documents and except as set forth in the Parent Disclosure Schedule, the Parent
owns or has the unrestricted right to use all Intellectual Property Rights used
in, or necessary for, the operation of its business as currently conducted or
proposed to be conducted. Except as disclosed in the Parent SEC Documents or the
Parent Disclosure Schedule, the use of all Intellectual Property Rights
necessary or required for the conduct of the business of the Parent as presently
conducted and as proposed to be conducted does not infringe or violate the
Intellectual Property Rights of any person or entity. Except as disclosed in the
Parent SEC Documents or the Parent Disclosure Schedule: (a) the Parent does not
own or use any Intellectual Property Rights pursuant to any written license
agreement; (b) the Parent has not granted any person or entity any rights,
pursuant to a written license agreement or otherwise, to use the Intellectual
Property Rights; and (c) the Parent owns, has unrestricted right to use and has
sole and exclusive possession of and has good and valid title to, all of the
Intellectual Property Rights, free and clear of all Liens and Encumbrances. All
license agreements relating to Intellectual Property Rights are valid and
effective and there is not, under any of such licenses, any existing default or
event of default (or event which with notice or lapse of time, or both, would
constitute a default, or would constitute a basis for a claim on
non-performance) on the part of the Parent or, to the knowledge of the Parent,
any other party thereto.
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3.10 LITIGATION. Except as disclosed in the Parent SEC Documents, there
is no legal, administrative, arbitration, or other proceeding, suit, claim or
action of any nature or investigation, review or audit of any kind, or any
judgment, decree, decision, injunction, writ or order pending, noticed,
scheduled, or, to the knowledge of the Parent or the Merger Subsidiary,
threatened or contemplated by or against or involving the Parent, its assets,
properties or business or its directors, officers, agents or employees (but only
in their capacity as such), whether at law or in equity, before or by any person
or entity or Authority, or which questions or challenges the validity of this
Agreement or any action taken or to be taken by the parties hereto pursuant to
this Agreement or in connection with the transactions contemplated herein.
3.11 EMPLOYEE BENEFIT PLANS. There are no facts or circumstances which
could, directly or indirectly, subject the Parent or any of its affiliates to
any Liability of any nature with respect to any Benefit Plans to which the
Parent or any affiliate is a party or with respect to which the Parent or any
affiliate could have any Liability. The Parent's Benefit Plans were established
and have been executed, managed and administered without exception in accordance
with all applicable requirements of the Code, ERISA and of all other applicable
Laws.
3.12 CONTRACTS AND COMMITMENTS; NO DEFAULT. Except as set forth in the
Parent Disclosure Schedule, the Parent is not a party to, nor are any of its
Assets bound by, any material contract that is not disclosed in the Parent SEC
Documents and that is or will be required to be disclosed in the Parent SEC
Documents pursuant to Item 601(b)(10) of Regulation S-K. Except as disclosed in
the Parent SEC Documents, none of the Parent Contracts contains a provision
requiring the consent of any party with respect to the consummation of the
transactions contemplated by this Agreement. The Parent is not in breach,
violation or default, however defined, in the performance of any of its
obligations under any of the Parent Contracts, and no facts and circumstances
exist which, whether with the giving of due notice, lapse of time, or both,
would constitute such breach, violation or default thereunder or thereof, and,
to the knowledge of the Parent, no other parties thereto are in a breach,
violation or default, however defined, thereunder or thereof, and no facts or
circumstances exist which, whether with the giving of due notice, lapse of time,
or both, would constitute such a breach, violation or default thereunder or
thereof. None of the Parent Contracts is subject to renegotiation with any
Authority.
3.13 LABOR MATTERS. Except as disclosed in the Parent SEC Documents:
(a) the Parent is and has been in material compliance with all applicable Laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, including without limitation any such Laws
respecting employment discrimination and occupational safety and health
requirements, and has not and is not engaged in any unfair labor practice; (b)
no grievance or any arbitration proceeding arising out of or under collective
bargaining agreements is pending and no claims therefor exist or have been
threatened; (c) no collective bargaining agreement is binding and in force
against the Parent or currently being negotiated by the Parent; (d) the Parent
has not experienced any significant labor difficulty; (e) the Parent is not
delinquent in payments to any persons for any wages, salaries, commissions,
bonuses or other direct or indirect compensation for any services performed by
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them or amounts required to be reimbursed to such persons, including without
limitation any amounts due under any Benefit Plans; (f') upon termination of the
employment of any person, the Parent will not, by reason of anything done prior
to or as of the Closing Date, be liable to any of such persons for so-called
"severance pay" or any other payments; and (g) within the twelve-month period
prior to the date hereof there has not been any expression of intention to the
Parent by any officer or key employee of the Parent to terminate employment.
3.14 NO BROKER OR FINDER. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or any of the other transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent.
3.15 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has delivered or made available to the Company
accurate and complete copies (excluding copies of exhibits) of each
report, registration statement and definitive proxy statement filed by
Parent with the SEC since January 1, 1999 (collectively, with all
information incorporated by reference therein or deemed to be
incorporated by reference therein, the "PARENT SEC DOCUMENTS"). All
statements, reports, schedules, forms and other documents required to
have been filed by Parent with the SEC have been so filed on a timely
basis. As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the
date of such filing): (i) each of the Parent SEC Documents complied in
all material respects with the applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act") or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
(ii) none of the Parent SEC Documents contained any untrue statement of
a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading. Except as disclosed in the Parent SEC Documents filed prior
to the date hereof and except as set forth in the Parent Disclosure
Schedule, Parent has not incurred any liabilities that are of a nature
that would be required to be disclosed on a balance sheet of Parent or
the footnotes thereto prepared in conformity with GAAP other than (A)
liabilities incurred in the ordinary course of business and (B)
liabilities that in the aggregate would not reasonably be expected to
have a Material Adverse Effect on the Parent.
(b) The consolidated financial statements contained in the
Parent SEC Documents: (i) complied as to form in all material respects
with the published rules and regulations of the SEC applicable thereto;
(ii) were prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered (except as may be indicated in the
notes to such financial statements and, in the case of unaudited
statements, as permitted by Form 10-QSB of the SEC, and except that
unaudited financial statements may not contain footnotes and are
subject to normal and recurring year-end audit adjustments which will
not, individually or in the aggregate, be material in amount); and
(iii) fairly present, in all material respects, the consolidated
financial position of Parent and its consolidated subsidiaries as of
the respective dates thereof and the consolidated results of operations
of Parent and its consolidated subsidiaries for the periods covered
thereby. All adjustments considered necessary for a fair presentation
of the financial statements have been included.
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3.16 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by the Parent for inclusion in the Proxy Statement (as defined in
Section 4. l(a)) will, at the date the Proxy Statement is first mailed to the
Parent's shareholders or at the time of the Special Meeting (as defined in
Section 4.1 (b)), contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Proxy Statement will comply as to form in all material
respects will the requires of the Exchange Act and the rules and regulations
promulgated thereunder, except that no representation is made by the Parent or
the Merger Subsidiary with respect to statements made or incorporated by
reference therein based on information supplied by the Company for inclusion
therein.
ARTICLE 4
COVENANTS OF THE PARTIES
4.1 PREPARATION OF PROXY STATEMENT; SPECIAL MEETING.
(a) PROXY STATEMENT. Promptly following the date of this
Agreement, the Parent will prepare and file with the SEC, a proxy
statement relating to the Parent Shareholder Approval (the "PROXY
STATEMENT"). The Parent will use its reasonable best efforts to cause
the Proxy Statement to be mailed to the Parent's shareholders as
promptly as practicable after it has been filed with the SEC, unless
the SEC has elected to review and comment upon the proxy statement, in
which case the Parent will use its reasonable best efforts to cause the
proxy statement to be mailed to the Parent's shareholders as promptly
as practicable after the SEC has completed such review.
(b) SPECIAL MEETING. The Parent will, as promptly as
practicable following the date of this Agreement, duly call, give
notice of, convene and holder a special meeting of the shareholders of
the Parent for the purpose of authorizing and approving the Merger (the
"SPECIAL MEETING"). The Parent will, through its Board of Directors,
recommend to its shareholders approval of the Merger and such
recommendation will be included in the proxy statement. The Parent will
use reasonable efforts to hold the Special Meeting as soon as
practicable after the date hereof.
4.2 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by this
Agreement, during the period from the date of this Agreement to the Closing
Date, the Company will conduct its business and operations according to its
ordinary and usual course of business consistent with past practices with the
intent of preserving substantially intact its business organizations and
preserving its current relationships with customers, employees, suppliers and
other persons with which it has significant business relations. Without limiting
the generality of the foregoing, and, except as otherwise expressly provided in
this Agreement or as otherwise disclosed on the Disclosure Schedule, prior to
the Closing Date, without the prior written consent of Parent, the Company will
not:
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(a) amend its articles of incorporation or bylaws;
(b) issue, reissue, sell, deliver or pledge or authorize or
propose the issuance, reissuance, sale, delivery or pledge of shares of
capital stock of any class, or securities convertible into capital
stock of any class, or any rights, warrants or options to acquire any
convertible securities or capital stock;
(c) adjust, split, combine, subdivide, reclassify or redeem,
purchase or otherwise acquire, or propose to redeem or purchase or
otherwise acquire, any shares of its capital stock, or any of its other
securities;
(d) declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock, redeem or otherwise acquire
any shares of its capital stock or other securities, alter any term of
any of its outstanding securities;
(e) (i) except as required under any employment agreement,
increase in any manner the compensation of any of its directors,
officers or other employees; (ii) pay or agree to pay any pension,
retirement allowance or other employee benefit not required or
permitted by any existing plan, agreement or arrangement to any such
director, officer or employee, whether past or present; or (iii) except
in connection with any written arrangement approved by Parent, commit
itself to any additional pension, profit-sharing, bonus, incentive,
deferred compensation, stock purchase, stock option, stock appreciation
right, group insurance, severance pay, retirement or other employee
benefit plan, agreement or arrangement, or to any employment agreement
or consulting agreement (arising out of prior employment ) with or for
the benefit of any person, or, except to the extent required to comply
with applicable law, amend any of such plans or any of such agreements
in existence on the date of this Agreement;
(f) hire any additional personnel;
(g) incur, assume, suffer or become subject to, whether
directly or by way of guarantee or otherwise, any Liabilities which,
individually or in the aggregate, would have a Material Adverse Effect
on the Company;
(h) pay, discharge or satisfy' any Liabilities other than the
payment, discharge or satisfaction in the ordinary course of business
and consistent with past practice;
(i) sell, transfer, or otherwise dispose of any of its Assets
or license to other the use of any of its technology, other than in the
ordinary course of business and consistent with past practice;
(j) permit or allow any of its Assets to be subjected to any
Encumbrance, except for Permitted Liens;
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(k) write down the value of any inventory or write off as
uncollectible any receivables, except for immaterial write-downs and
write-offs in the ordinary course of business and consistent with past
practice;
(l) cancel any debts or waive any claims or rights, in each
case, of substantial value;
(m) dispose of or permit to lapse any Intellectual Property
Rights, or dispose of or disclose (except as necessary in the conduct
of its business) to any individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or, as
applicable, any other entity ("PERSON") other than representatives of
Parent, any Intellectual Property Rights not theretofore a matter of
public knowledge;
(n) make or enter into any commitment for capital expenditures
in excess of $10,000 in any one case;
(o) pay, lend or advance any amount to, or sell, transfer or
lease any properties or assets (real, personal or mixed, tangible or
intangible) to, or enter into any agreement or arrangement with, any of
its officers or directors or any affiliate or associate of any of its
officers or directors;
(p) terminate, enter into or amend in any material respect any
contract, agreement, lease, license or commitment identified in Section
2.19 of the Disclosure Schedule, or take any action or omit to take any
action which will cause a breach, violation or default (however
defined) under any such items, except in the ordinary course of
business and consistent with past practice;
(q) acquire any of the business or assets of any other person
or entity;
(r) permit any of its current insurance (or reinsurance)
policies to be cancelled or terminated or any of the coverage
thereunder to lapse, unless simultaneously with such termination,
cancellation or lapse, replacement policies providing coverage equal to
or greater than coverage remaining under those cancelled, terminated or
lapsed are in full force and effect;
(s) suffer any adverse change in its relationship with a
material customer, including the loss of any such customer or a
contract with such customer;
(t) enter into other material agreements, commitments or
contracts not in the ordinary course of business or in excess of
current requirements;
(u) settle or compromise any suit, claim or dispute or
threatened suit, claim or dispute;
(v) make any change in its accounting methods, principles or
practices except as required by GAAP; or
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(w) agree in writing or otherwise to take any of the foregoing
actions or any action which would make any representation or warranty
in this Agreement untrue or incorrect in any material respect.
4.3 NO COMPANY SOLICITATION OF ALTERNATE TRANSACTION. The Company, the
Company's directors, officers and employees, independent contractors,
consultants, counsel, accountants, investment advisors and other representatives
and agents will not, directly or indirectly, solicit, initiate or entertain
offers from, or participate in any way in negotiations with, provide any
nonpublic information to, enter into any agreement with, or in any manner
encourage, discuss, accept or consider any proposal of, any third party relating
to the acquisition of the Company, its assets or business, in whole or in part,
whether through a tender offer (including a self tender offer), exchange offer,
merger, consolidation, sale of substantial assets or of a significant amount of
assets, sale of securities, acquisition of the Company's securities,
liquidation, dissolution or similar transactions involving the Company or any
division of the Company (such proposals, announcements or transactions being
called herein "ACQUISITION PROPOSALS"). The Company will promptly inform Parent
of any inquiry (including the terms thereof and the identity of the third party
making such inquiry) that it may receive in respect of an Acquisition Proposal
and furnish to Parent a copy of any such written inquiry.
4.4 FULL ACCESS TO PARENT. Throughout the period prior to Closing, the
Company will afford to Parent and its directors, officers, employees, counsel,
accountants, investment advisors and other authorized representatives and
agents, reasonable access to the facilities, properties, books and records of
the Company in order that Parent may have full opportunity to make such
investigations as it will desire to make of the affairs of the Company. The
Company will furnish such additional financial and operating data and other
information as Parent will, from time to time, reasonably request, including
without limitation access to the working papers of its independent certified
public accountants; PROVIDED, HOWEVER, that any such investigation will not
affect or otherwise diminish or obviate in any respect any of the
representations and warranties of the Company herein.
4.5 CONFIDENTIALITY. Each of the parties hereto agrees that it will not
use, or permit the use of, any of the information relating to any other party
hereto furnished to it in connection with the transactions contemplated herein
("INFORMATION") in a manner or for a purpose detrimental to such other party or
otherwise than in connection with the transaction, and that they will not
disclose, divulge, provide or make accessible (collectively, "DISCLOSE"), or
permit the Disclosure of, any of the Information to any person or entity, other
than their respective directors, officers, employees, investment advisors,
accountants, counsel and other authorized representatives and agents, except as
may be required by judicial or administrative process or, in the opinion of such
party's counsel, by other requirements of Law; provided, however, that prior to
any Disclosure of any Information permitted hereunder, the disclosing party will
first obtain the recipients' undertaking to comply with the provisions of this
Section with respect to such information. The term "INFORMATION" as used herein
will not include any information relating to a party that the party disclosing
such information can show: (i) to have been in its possession prior to its
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receipt from another party hereto; (ii) to be now or to later become generally
available to the public through no fault of the disclosing party; (iii) to have
been available to the public at the time of its receipt by the disclosing party;
(iv) to have been received separately by the disclosing party in an unrestricted
manner from a person entitled to disclose such information; or (v) to have been
developed independently by the disclosing party without regard to any
information received in connection with this transaction. Each party hereto also
agrees to promptly return to the party from whom it originally received such
information all original and duplicate copies of written materials containing
Information should the transactions contemplated herein not occur. A party
hereto will be deemed to have satisfied its obligations to hold the Information
confidential if it exercises the same care as it takes with respect to its own
similar information.
4.6 FILINGS; CONSENTS; REMOVAL OF OBJECTIONS. Subject to the terms and
conditions herein provided, the parties hereto will use their best efforts to
take or cause to be taken all actions and do or cause to be done all things
necessary, proper or advisable under applicable Laws to consummate and make
effective, as soon as reasonably practicable, the transactions contemplated
hereby, including without limitation obtaining all Consents of any person or
entity, whether private or governmental, required in connection with the
consummation of the transactions contemplated herein. In furtherance, and not in
limitation of the foregoing, it is the intent of the parties to consummate the
transactions contemplated herein at the earliest practicable time, and they
respectively agree to exert commercially reasonable efforts to that end,
including without limitation: (i) the removal or satisfaction, if possible, of
any objections to the validity or legality of the transactions contemplated
herein; and (ii) the satisfaction of the conditions to consummation of the
transactions contemplated hereby.
4.7 FURTHER ASSURANCES; COOPERATION; NOTIFICATION.
(a) Each party hereto will, before, at and after Closing,
execute and deliver such instruments and take such other actions as the
other party or parties, as the case may be, may reasonably require in
order to carry out the intent of this Agreement. Without limiting the
generality of the foregoing, at any time after the Closing, at the
reasonable request of Parent and without further consideration, the
Company will execute and deliver such instruments of sale, transfer,
conveyance, assignment and confirmation and take such action as Parent
may reasonably deem necessary or desirable in order to more effectively
consummate the transactions contemplated hereby.
(b) The Company will cooperate with Parent to promptly develop
plans for the management of the business after the Closing, including
without limitation plans relating productivity, marketing, operations
and improvements, and the Company will further cooperate with Parent to
provide for the implementation of such plans as soon as practicable
after the Closing. Subject to applicable Law, the Company will confer
on a regular and reasonable basis with one or more representatives of
Parent to report on operational matters and the general status of
ongoing operations.
(c) At all times from the date hereof until the Closing, each
party will promptly notify the other in writing of the occurrence of
any event which it reasonably believes will or may result in a failure
by such party to satisfy the conditions specified in this Article 4.
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4.8 SUPPLEMENTS TO DISCLOSURE SCHEDULE. Prior to the Closing, the
Company will supplement or amend the Disclosure Schedule with respect to any
event or development which, if existing or occurring at or prior to the date of
this Agreement, would have been required to be set forth or described in the
Disclosure Schedule or which is necessary to correct any information in the
Disclosure Schedule or in any representation and warranty of the Company which
has been rendered inaccurate by reason of such event or development. For
purposes of determining the accuracy as of the date hereof of the
representations and warranties of the Company contained in Article 2 hereof in
order to determine the fulfillment of the conditions set forth herein, the
Disclosure Schedule will be deemed to exclude any information contained in any
supplement or amendment hereto delivered after the delivery of the Disclosure
Schedule.
4.9 PUBLIC ANNOUNCEMENTS. None of the parties hereto will make any
public announcement with respect to the transactions contemplated herein without
the prior written consent of the other parties, which consent will not be
unreasonably withheld or delayed; PROVIDED, HOWEVER, that any of the parties
hereto may at any time make any announcements that are required by applicable
Law so long as the party so required to make an announcement promptly upon
learning of such requirement notifies the other parties of such requirement and
discusses with the other parties in good faith the exact proposed wording of any
such announcement.
4.10 REGISTRATION RIGHTS.
(a) If the Parent at any time proposes to register any of its
securities under the Securities Act for sale to the public, whether for
its own account or for the account of other security holders or both
(except with respect to registration statements on Forms S-4, S-8 or
another form not available for registering the Parent Common Stock for
sale to the public), it will give written notice to each Shareholder of
its intention to do so and will give such notice not later than 20 days
prior to the filing of any such registration statement. Upon the
written request of any Shareholder, received by the Parent within 10
days after the giving of any such notice by the Parent, to register any
of the Parent Common Stock held by such Shareholder that was issued as
Merger Consideration ("REGISTRABLE SECURITIES"), the Parent will use
its best efforts to cause the Registrable Securities as to which
registration is so requested to be included in the securities to be
covered by the registration statement proposed to be filed by the
Parent, all to the extent requisite to permit the sale or other
disposition by such Shareholder (in accordance with its written
request) of the Registrable Securities so registered ("PIGGY-BACK
REGISTRATION RIGHTS"). The foregoing provisions notwithstanding, (i)
the Parent may withdraw any registration statement referred to herein
without thereby incurring any liability to the Shareholders; (ii) the
inclusion of shares of the Registrable Securities under such Piggy-Back
Registration Rights is subject to the cut-back provisions of sections
4.10(b) hereof; and (iii) the Piggy-Back Registration Rights will
terminate one year following the Closing Date. The registration rights
provided herein may not be assigned or transferred.
(b) If, in connection with a registration that involves an
underwriting, the representative(s) of the underwriters advises the
Parent in writing that marketing factors require a limitation on the
number of securities to be included in such underwriting, the amount of
Registrable Securities to be offered will be reduced (or eliminated
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entirely) to the extent necessary to reduce the total number of
Registrable Securities to be included in such offering to the amount
recommended by such representative(s) of the underwriters.
(c) If any registration pursuant to this Section 4.10 is
underwritten in whole or in part, the Parent will so advise the
Shareholders in writing. The right of any Shareholders to include the
Registrable Securities in any underwritten registration pursuant to
this Section 4.10 will be conditioned upon such Shareholder's
participation in such underwriting and the inclusion of such
Shareholder's shares in the underwriting. All Shareholders proposing to
distribute their shares of Registrable Securities through such
underwriting (together with the Parent and any other selling
shareholders) will enter into an underwriting agreement in customary
form with the underwriter or underwriters selected.
(d) In connection with each registration hereunder, each
Shareholders will furnish to the Parent in writing such information
with respect to such Shareholder and the proposed distribution by it as
reasonably will be necessary in order to assure compliance with the
Securities Act and other applicable federal and state securities laws.
In addition, each Shareholder agrees that, following the effective date
of a Piggy-Back Registration, for the period of time and to the extent
reasonably requested by the Parent or the representative(s) of any
underwriters, such Shareholder will not sell, offer to sell, contract
to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of any securities
of the Parent held by it, directly or indirectly, except securities
covered by the registration statement and transfers to donees who agree
to be similarly bound.
(e) All expenses incurred by the Parent in complying with this
Section 4.10, including without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for the
Parent and independent public accountants for the Parent, fees and
expenses, including counsel fees, incurred in connection with complying
with state securities or "blue sky" laws, fees of the National
Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars and costs of insurance are called
"REGISTRATION EXPENSES." All underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, are
called "SELLING EXPENSES." The Parent will pay all Registration
Expenses in connection with each registration statement relating to
such Piggy-Back Registration Rights, provided that the participating
sellers will pay the fees and expenses of their own counsel or
accountants. All Selling Expenses in connection with each registration
statement under this Section 4.10 will be borne by the participating
sellers with respect to the number of shares sold by each.
(f) Parent covenants that it will file the reports require to
be filed by it (if so required) under the Securities Act and the
Exchange Act and the Rules and Regulations adopted by the SEC
thereunder in a timely manner and, if at any time Parent is not
required to file such reports, it will, upon the request of any holder
of Registrable Securities, make publicly available other information so
long as necessary to permit sales pursuant to Rule 144 under the
Securities Act. Parent further covenants that it will take such further
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action as any holder of Registrable Securities may reasonably request,
all to the extent required from time to time to enable such holder to
sell Registrable Securities without registration under the Securities
Act pursuant to the exemptions provided by Rule 144 under the
Securities Act. Upon the request of any holder of Registrable
Securities, the Company will deliver to such holder a written statement
as to whether it has complied with such information requirements.
(g) Notwithstanding anything to the contrary set forth this
Agreement, the provisions of this Section 4.10(a) through (e) are not
applicable and will have no effect with respect to any shares of Parent
Common Stock owned or acquired by Bruce Peterson for so long as he is
employed by Parent or the Company.
4.11 BOARD SEAT. The Parent will take such actions as may be necessary
to cause one person designated by the Company and approved by the Parent to be
appointed as a member of the Parent's Board of Directors effective as of the
Effective Time.
4.12 LOAN AGREEMENT. Each party agrees to negotiate in good faith and
use its commercially reasonable efforts to obtain a mutually acceptable
amendment to that certain Commercial Loan and Security Agreement, dated July 24,
2000, between the Company and Crown Bank (the "LOAN AGREEMENT") providing for,
among other mutually acceptable terms, (i) a waiver by Crown Bank of any event
of default occurring as a result of the Merger, (ii) an extension of the term of
the Loan Agreement of at least twelve months and (iii) a continuation of the
personal guarantees of Ron Eibensteiner and Wayne Mills for the extended term of
the Loan Agreement. If the parties fail to reach an agreement with respect to
the Loan Agreement, then, concurrent with the Closing, Parent will pay all
indebtedness outstanding under the Loan Agreement as of the Closing Date (the
"BANK INDEBTEDNESS"), in which event the Merger Consideration otherwise payable
to the Shareholders upon consummation of the Merger will be reduced as provided
in Section 1.4(e).
4.13 SATISFACTION OF CONDITIONS PRECEDENT. Each party will use
commercially reasonable efforts to satisfy or cause to be satisfied all the
conditions precedent that are applicable to them, and to cause the transactions
contemplated by this Agreement to be consummated, and, without limiting the
generality of the foregoing, to obtain all material consents and authorizations
of third parties and to make filings with, and give all notices to, third
parties that may be necessary or reasonably required on its part in order to
effect the transactions contemplated hereby.
ARTICLE 5
CONDITIONS TO THE OBLIGATIONS OF THE PARENT
AND MERGER SUBSIDIARY
Notwithstanding any other provision of this Agreement to the contrary,
the obligation of Parent and Merger Subsidiary to effect the transactions
contemplated herein will be subject to the satisfaction at or prior to the
Closing, or waiver by Parent, of each of the following conditions:
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5.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of the Company contained in this Agreement, including without
limitation in the Disclosure Schedule initially delivered to Parent as Exhibit
2.1 (and not including any changes or additions delivered to Parent pursuant to
Section 4.8), will be true, complete and accurate in all material respects as of
the date when made and at and as of the Closing Date as though such
representations and warranties were made at and as of such time, except for
changes specifically permitted or contemplated by this Agreement, and except
insofar as the representations and warranties relate expressly and solely to a
particular date or period, in which case they will be true and correct at the
Closing with respect to such date or period.
5.2 PERFORMANCE. The Company will have performed and complied in all
material respects with all agreements, covenants, obligations and conditions
required by this Agreement to be performed or complied with by the Company on or
prior to the Closing.
5.3 REQUIRED APPROVALS AND CONSENTS.
(a) All action required by law and otherwise to be taken by
the shareholders of the Company to authorize the execution, delivery
and performance of this Agreement and the consummation of the
transactions contemplated hereby will have been duly and validly taken.
(b) All Consents of or from all Authorities required hereunder
to consummate the transactions contemplated herein, will have been
delivered, made or obtained, and Parent will have received copies
thereof.
(c) The Parent Shareholder Approval will have been obtained.
5.4 AGREEMENTS AND DOCUMENTS. Parent and Merger Subsidiary will have
received the following agreements and documents, each of which will be in full
force and effect:
(a) an employment agreement in the form of Exhibit 5.4(a)
executed by Bruce Peterson;
(b) confidentiality, non-competition and assignment of
inventions agreements in the form of Exhibit 5.4(b) executed by each
person reasonably required by the Parent;
(c) an agreement substantially in the form attached hereto as
Exhibit 5.4(c) executed by each of the directors and officers of the
Company agreeing to vote his or her shares of Company Common Stock in
favor of the Merger at the meeting of the shareholders of the Company
called for the purpose of approving the Merger;
(d) an agreement in a form and substance reasonably
satisfactory to Parent executed by the holders of at least eighty
percent (80%) of the aggregate number of shares underlying Company
Options that are incentive stock options agreeing to convert each such
Company Options into an options to purchase Parent Common Stock in the
manner described in Section 1.9 hereof without any acceleration of the
vesting of such Company Options as a result of the Merger;
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(e) a legal opinion from Dorsey & Whitney LLP, counsel to the
Company, dated the Closing Date, substantially in the form and
substance set forth as Exhibit 5.4(e) hereto;
(f) a certificate executed on behalf of the Company by its
Chief Executive Officer confirming that the conditions set forth in
Sections 5.1, 5.2, 5.3, 5.5, 5.6 and 5.7 have been duly satisfied;
(g) an investor representation letter in the form of Exhibit
5.4(g) executed by each holder of capital stock of the Company
immediately prior to the Effective Time; and
(h) the escrow agreement referred to in Section 1.6 executed
by the escrow agent and such person as may be duly appointed by the
Shareholders to act as agent and attorney-in-fact for the Shareholders
in connection with the transactions contemplated by this Agreement and
the escrow agreement.
5.5 ADVERSE CHANGES. No material adverse change will have occurred in
the business, financial condition, prospects, assets or operations of the
Company since September 30, 2000.
5.6 NO PROCEEDING OR LITIGATION. No suit, action, investigation,
inquiry or other proceeding by any Authority or other person or entity will have
been instituted or threatened which delays or questions the validity or legality
of the transactions contemplated hereby or which, if successfully asserted,
would, in the reasonable judgment of Parent, individually or in the aggregate,
otherwise have a Material Adverse Effect on the Company's business, financial
condition, prospects, assets or operations or prevent or delay the consummation
of the transactions contemplated by this Agreement.
5.7 LEGISLATION. No Law will have been enacted which prohibits,
restricts or delays the consummation of the transactions contemplated hereby or
any of the conditions to the consummation of such transaction.
5.8 APPROPRIATE DOCUMENTATION. The Parent will have received, in a form
and substance reasonably satisfactory to Parent, dated the Closing Date, all
certificates and other documents, instruments and writings to evidence the
fulfillment of the conditions set forth in this Article 5 as Parent may
reasonably request.
ARTICLE 6
CONDITIONS TO OBLIGATIONS OF THE COMPANY
AND THE SHAREHOLDERS
Notwithstanding anything in this Agreement to the contrary, the
obligation of the Company and the Shareholders to effect the transactions
contemplated herein will be subject to the satisfaction at or prior to the
Closing of each of the following conditions:
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6.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Parent contained in this Agreement will be true, complete and
accurate in all material respects as of the date when made and at and as of the
Closing, as though such representations and warranties were made at and as of
such time, except for changes permitted or contemplated in this Agreement, and
except insofar as the representations and warranties relate expressly and solely
to a particular date or period, in which case they will be true and correct at
the Closing with respect to such date or period.
6.2 PERFORMANCE. The Parent will have performed and complied in all
material respects with all agreements, covenants, obligations and conditions
required by this Agreement to be performed or complied with by Parent at or
prior to the Closing.
6.3 CORPORATE APPROVALS. All action required to be taken by
shareholders and the Board of Directors of Parent to authorize the execution,
delivery and performance of this Agreement by Parent and the consummation of the
transactions contemplated hereby will have been duly and validly taken.
6.4 NO PROCEEDING OR LITIGATION. No suit, action, investigation,
inquiry or other proceeding by any Authority or other person or entity will have
been instituted or threatened which delays or questions the validity or legality
of the transactions contemplated hereby or which, if successfully asserted,
would, in the reasonable judgement of the Company, individually or in the
aggregate, otherwise have a Material Adverse Effect on Parent's business,
financial condition, prospects, assets or operations or prevent or delay the
consummation of the transactions contemplated by this Agreement.
6.5 AGREEMENT TO FACILITATE MERGER. The Parent will have delivered an
agreement substantially in the form attached hereto as Exhibit 6.5 executed by
each of the directors of the Parent agreeing to vote his or her shares of Parent
Common Stock in favor of the Merger at the meeting of the shareholders of the
Parent called for the purpose of approving the Merger;
6.6 ESCROW AGREEMENT. The Parent and the escrow agent will have
executed and delivered the escrow agreement referred to in Section 1.6.
ARTICLE 7
TERMINATION AND ABANDONMENT
7.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated at
any time prior to the Closing by the written consent of the Company and Parent.
7.2 TERMINATION BY EITHER THE COMPANY OR PARENT. This Agreement may be
terminated by either the Company or Parent if the Closing is not consummated by
January 31, 2001 (provided that the right to terminate this Agreement under this
Section 7.2 will not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of or resulted in the failure
of the Closing to occur on or before such date).
7.3 TERMINATION BY PARENT. This Agreement may be terminated at any time
prior to the Closing by Parent if any of the conditions provided for in Article
5 have not been met or waived by Parent in writing prior to the Closing.
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7.4 TERMINATION BY THE COMPANY. This Agreement may be terminated prior
to the Closing by action of the Company if any of the conditions provided for in
Article 6 have not been met or waived by the Company in writing prior to the
Closing.
7.5 PROCEDURE AND EFFECT OF TERMINATION. In the event of termination of
this Agreement and abandonment of the transactions contemplated hereby by the
Company or Parent pursuant to this Article 7, written notice thereof will be
given to all other parties and this Agreement will terminate (except to the
extent provided in Section 8.1 hereof) and the transactions contemplated hereby
will be abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided herein:
(a) Each of the parties will, upon request, redeliver all
documents, work papers and other material of the other parties relating
to the transactions contemplated hereby, whether obtained before or
after the execution hereof, to the party furnishing the same;
(b) No party will have any liability for a breach of any
representation, warranty, agreement, covenant or the provision of this
Agreement, unless such breach was due to a willful or bad faith action
or omission of such party or any representative, agent, employee or
independent contractor thereof, and except for such representations,
warranties and covenants that will survive termination of this
Agreement pursuant to Section 8.1; and
(c) All filings, applications and other submissions made
pursuant to the terms of this Agreement will, to the extent
practicable, be withdrawn from the agency or other person to which
made.
ARTICLE 8
SURVIVAL AND INDEMNIFICATION
8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS;
INVESTIGATION. The representations, warranties and covenants of each of the
parties hereto will survive the Closing for a period of one (1) year thereafter.
The right to indemnification or any other remedy based on representations,
warranties, covenants and obligations in this Agreement will not be affected by
any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty, covenant
or obligation. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification or any
other remedy based on such representations, warranties, covenants, and
obligations.
8.2 INDEMNIFICATION BY THE COMPANY AND THE SHAREHOLDERS. The Company
and the Shareholders, jointly and severally, agree to indemnify Parent and the
Merger Subsidiary and each of their respective shareholders, officers,
directors, employees and agents (collectively, the "PARENT INDEMNITEES") from
and against any and all losses, liabilities, obligations, demands, judgments,
settlements, damages, or expenses (including, but not limited to, interest,
penalties, fees, and reasonable professional fees and expenses) and against all
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claims in respect thereof (including, without limitation, amounts paid 'in
settlement and costs of investigation) or diminution in value, whether or not
involving a third-party claim (referred to in this Article 8 collectively as
"LOSSES" or individually as a "LOSS") that any of the Parent Indemnitees may
incur, directly or indirectly, as a result from or in connection with: (i) any
untrue representation or breach of warranty by the Company in any part of this
Agreement; (ii) the breach of or nonfulfillment of any covenant, agreement or
undertaking of the Company in this Agreement, notice of which is given to the
Company on or prior to the relevant expiration date; (iii) any debt, liability
or obligation, direct or indirect, known or unknown, fixed contingent or
otherwise that relates to the Company and is based upon or arises from any act
or omission, transaction, circumstance, state of facts or other condition
occurring or existing on or before the Closing Date and not disclosed on the
Most Recent Balance Sheet or on the Disclosure Schedule, whether or not then
known, due or payable; (iv) any obligation for Taxes of the Company for any
period (or portion thereof) prior to the Closing Date. The Shareholders
acknowledge that if a representation or warranty that is qualified by
materiality (including a Material Adverse Effect) is breached after giving
effect to such materiality qualification then the Losses incurred by Parent
resulting from such breach will include all Losses resulting from a breach of
such representation or warranty and not solely the portion of such Losses in
excess of such materiality qualifier. The Shareholders further acknowledge that
upon the Closing, the Company will cease to have any indemnification obligations
pursuant to this Section 8.2 and that the Shareholders will bear such
obligations and will have no right of contribution from the Company with respect
to their indemnification obligations.
8.3 INDEMNIFICATION BY PARENT. Parent agrees to indemnify, defend and
hold the Shareholders harmless from and against any and all Loss or Losses that
any of the Shareholders may incur, directly or indirectly, as a result from or
in connection with: (i) any untrue representation of, or breach of warranty by,
Parent or the Merger Subsidiary in any part of this Agreement; (ii) any
nonfulfillment of any covenant, agreement or undertaking of Parent or the Merger
Subsidiary in any part of this Agreement, notice of which is given to Parent on
or prior to the relevant expiration date.
8.4 LIMITATIONS ON INDEMNIFICATION. The aggregate indemnification
obligations of the Company and the Shareholders and the sole recourse of the
Parent and the Merger Subsidiary for indemnification under this Article 8 will
be limited to the Retained Consideration. The aggregate indemnification
obligations of the Parent and the Merger Subsidiary under this Article 8 will be
limited to an amount equal to the number of shares of Parent Common Stock
comprising the Retained Consideration multiplied by the average closing price
per share of Parent Common Stock as reported on the American Stock Exchange for
the ten (10) consecutive days immediately preceding the date of this Agreement.
In addition, no party hereto will be entitled to indemnification under this
Article 8 unless such party has incurred Losses in excess of $50,000 in the
aggregate, in which case such Indemnified Party will be entitled to
indemnification for any and all Losses in accordance with this Article 8.
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8.5 CLAIMS FOR INDEMNIFICATION.
(a) GENERAL. The parties intend that all indemnification
claims be made as promptly as practicable by the party seeking
indemnification (the "INDEMNIFIED Party"). Whenever any claim arises
for indemnification hereunder the Indemnified Party will promptly
notify the party from whom indemnification is sought (the "INDEMNIFYING
PARTY") of the claim and, when known, the facts constituting the basis
for such claim. The failure to so notify the Indemnifying Party will
not relieve the Indemnifying Party of any liability that it may have to
the Indemnified Party except to the extent the Indemnifying Party
demonstrates that the defense of such action is prejudiced thereby. The
Parent will have the right to set-off any indemnification claims as
against amounts it owes, now or in the future, to the Shareholders,
including without limitation the Retained Consideration, pursuant to
the terms of this Agreement or any ancillary agreement, if any, entered
into between the parent and any shareholder of the Company.
(b) CLAIMS BY THIRD PARTIES. With respect to claims made by
third parties, the Indemnifying Party will be entitled to assume
control of the defense of such action or claim with counsel reasonably
satisfactory to the Indemnified Party; provided, however, that:
(i) the Indemnified Party will be entitled to
participate in the defense of such claim and to employ counsel
at its own expense to assist in the handling of such claim;
(ii) no Indemnifying Party will consent to (A) the
entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by
each claimant or plaintiff to each Indemnified Party of a
release from all liability in respect of such claim or (B) if,
pursuant to or as a result of such consent or settlement,
injunctive or other equitable relief would be imposed against
the Indemnified Party or such judgment or settlement could
materially interfere with the business, operations or assets
of the Indemnified Party; and
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(iii) if the Indemnifying Party does not assume
control of the defense of such claim in accordance with the
foregoing provisions within three days after receipt of notice
of the claim, the Indemnified Party will have the right to
defend such claim in such manner as it may deem appropriate at
the cost and expense of the Indemnifying Party, and the
Indemnifying Party will promptly reimburse the Indemnified
Party therefore in accordance with this Article 8, provided
that the Indemnified Party will not be entitled to consent to
the entry of any judgment or enter into any settlement of such
claim that does not include as an unconditional term thereof
the giving by each claimant or plaintiff to each Indemnifying
Party of a release from all liability in respect of such claim
without the prior written consent of the Indemnifying Party
if, pursuant to or as a result of such consent or settlement,
injunctive or other equitable relief would be imposed against
the Indemnifying Party or such judgment or settlement could
materially interfere with the business, operations or assets
of the Indemnifying Party.
(c) REMEDIES CUMULATIVE. The remedies provided herein will be
cumulative and will not preclude assertion by any party of any rights
or the seeking of any other remedies against any other party. The
Shareholders hereby agree that they will not make any claim for
indemnification against Parent or the Company by reason of the fact
that any such Shareholder was a director, officer, employee, or agent
of the Company or was serving at the request of any such entity as a
partner, trustee, director, officer, employee or agent of another
entity (whether such claim is for judgments, damages, penalties, fines,
costs, amounts paid in settlement, losses, expenses or otherwise and
whether such claim is pursuant to any statute, charter document, bylaw,
agreement, or otherwise) with respect to any action, suit, proceeding,
complaint, claim or demand brought by Parent against such Shareholders
(whether such action, suit, proceeding, complaint, claim or demand is
pursuant to this Agreement, applicable law, or otherwise).
8.6 TAX EFFECT AND INSURANCE. The liability of an Indemnifying Party
with respect to any indemnification claim will be reduced by the tax benefit
actually realized and any insurance proceeds actually received by the
Indemnified Party as a result of any Losses upon which such indemnification
claim is based, and will include any tax detriment actually suffered by the
Indemnified Party as a result of such Losses. The amount of any such tax benefit
or detriment will be determined by taking into account the effect, if any, and
to the extent determinable, of timing differences resulting from the
acceleration or deferral of items of gain or loss resulting from such Losses and
will otherwise be determined so that payment by the Indemnifying Party of the
indemnification claim, as adjusted to give effect to any such tax benefit or
detriment, will make the Indemnified Party as economically whole as is
reasonably practical with respect to the Losses upon which the indemnification
claim is based. Any dispute as to the amount of such tax benefit or detriment
will be resolved by arbitration as provided in Section 9.12 herein.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1 EXPENSES. The Parent and the Company (including the Shareholders)
will each bear their own costs and expenses relating to the transactions
contemplated hereby, including without limitation, fees and expenses of legal
counsel, accountants, investment bankers, brokers or finders, printers, copiers,
consultants or other representatives for the services used, hired or connected
with the transactions contemplated hereby.
9.2 AMENDMENT AND MODIFICATION. Subject to applicable Law, this
Agreement may be amended or modified by the parties hereto at any time with
respect to any of the terms contained herein; PROVIDED, HOWEVER, that all such
amendments and modifications must be in writing duly executed by all of the
parties hereto.
9.3 WAIVER OF COMPLIANCE; CONSENTS. Any failure of a party to comply
with any obligation, covenant, agreement or condition herein may be expressly
waived in writing by the party entitled hereby to such compliance, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition will not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. No single or partial exercise
of a right or remedy will preclude any other or further exercise thereof or of
any other right or remedy hereunder. Whenever this Agreement requires or permits
the consent by or on behalf of a party, such consent will be given in writing in
the same manner as for waivers of compliance.
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9.4 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement will
entitle any person or entity (other than a party hereto and his, her or its
respective successors and assigns permitted hereby) to any claim, cause of
action, remedy or right of any kind.
9.5 NOTICES. All notices, requests, demands and other communications
required or permitted hereunder will be made in writing and will be deemed to
have been duly given and effective: (i) on the date of delivery, if delivered
personally; (ii) on the earlier of the fourth (4th) day after mailing or the
date of the return receipt acknowledgement, if mailed, postage prepaid, by
certified or registered mail, return receipt requested; or (iii) on the date of
transmission, if sent by facsimile, telecopy, telegraph, telex or other similar
telegraphic communications equipment, or to such other person or address as the
Company will furnish to the other parties hereto in writing in accordance with
this subsection.
If to the Company or any Shareholder
prior to the Merger: With a copy to:
University.com, Inc. Dorsey & Whitney LLP
800 Washington Avenue N., Suite 508 220 South 6th Street
Minneapolis, Minnesota 55401 Minneapolis, Minnesota 55402
Attn: Bruce Peterson Attn: Kenneth L. Cutler
Fax: ( ) _________________ Fax: (612) 340-8738
or to such other person or address as either the Company or the Shareholders
will furnish to the other parties hereto in writing in accordance with this
subsection.
If to any Shareholder following the Merger, to the address set forth in
the Shareholder Representation Letter executed and delivered by such Shareholder
pursuant to Section 5.4(g) hereto.
If to the Parent: With a copy to:
Entreport Corporation Oppenheimer Wolff & Donnelly LLP
2790 Business Spark Drive, Suite B 500 Newport Center Drive, Suite 700
Vista, California 92083 Newport Beach, California 92660
Attn: Deborah Ries Attn: Daniel K. Donahue
Fax: (760) 597-4817 Fax: (949) 823-6040
or to such other person or address as Parent will furnish to the other parties
hereto in writing in accordance with this subsection.
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9.6 ASSIGNMENT. This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder will be assigned (whether
voluntarily, involuntarily, by operation of law or otherwise) by any of the
parties hereto without the prior written consent of the other parties.
9.7 GOVERNING LAW. This Agreement and the legal relations among the
parties hereto will be governed by and construed in accordance with the internal
substantive laws of the State of California (without regard to the laws of
conflict that might otherwise apply) as to all matters, including without
limitation matters of validity, construction, effect, performance and remedies.
9.8 COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
9.9 HEADINGS. The table of contents and the headings of the sections
and subsections of this Agreement are inserted for convenience only and will not
constitute a part hereof.
9.10 ENTIRE AGREEMENT. This Agreement, the Disclosure Schedule and the
exhibits and other writings referred to in this Agreement or in the Disclosure
Schedule or any such exhibit or other writing are part of this Agreement,
together they embody the entire agreement and understanding of the parties
hereto in respect of the transactions contemplated by this Agreement and
together they are referred to as this "Agreement" or the "Agreement." There are
no restrictions, promises, warranties, agreements, covenants or undertakings,
other than those expressly set forth or referred to in this Agreement. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to the transaction or transactions contemplated by this Agreement,
including, but not limited to, the letter of intent dated August 21, 2000.
Provisions of this Agreement will be interpreted to be valid and enforceable
under applicable Law to the extent that such interpretation does not materially
alter this Agreement; PROVIDED, HOWEVER, that if any such provision becomes
invalid or unenforceable under applicable Law such provision will be stricken to
the extent necessary and the remainder of such provisions and the remainder of
this Agreement will continue in full force and effect.
9.11 REMEDIES AND INJUNCTIVE RELIEF. It is expressly agreed among the
parties hereto that monetary damages would be inadequate to compensate a party
hereto for any breach by any other party of its covenants in Article 4 hereof.
Accordingly, the parties agree and acknowledge that any such violation or
threatened violation will cause irreparable injury to the other and that, in
addition to any other remedies which may be available, such party will be
entitled to injunctive relief against the threatened breach of Article 4 hereof
or the continuation of any such breach without the necessity of proving actual
damages and may seek to specifically enforce the terms thereof.
Notwithstanding anything contained in this Agreement to the contrary,
the Company and the Shareholders, on the one hand, and Parent and the Merger
Subsidiary, on the other hand, will only have the right to make a claim against
the other for damages (other than an indemnification claim pursuant to Article 8
herein) if the non-claiming party has willfully and materially breached any of
its representations, covenants or agreements set forth in this Agreement. For
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purposes of this provision, a party will be deemed to have willfully breached
any of its representations, covenants or agreements set forth in this Agreement
if such party has intentionally and knowingly taken, or intentionally and
knowingly failed to take, any action that causes a breach of any of its
covenants or agreements set forth in this Agreement. No party hereto will be
entitled to rescind this Agreement after the Closing.
9.12 DISPUTE RESOLUTION.
(a) MEDIATION. No party will commence an arbitration
proceeding pursuant to the provisions set forth below unless such party
will first give a written notice (a "DISPUTE NOTICE") to the other
parties setting forth the nature of the Dispute. The parties will
attempt in good faith to resolve the Dispute by mediation under the CPR
Institute for Dispute Resolution ("CPR") Model Mediation Procedure for
Business Disputes (the "CPR PROCEDURE") in effect at the time of the
Dispute. If the parties cannot agree on the selection of a mediator
within 20 days after receipt of the Dispute Notice, the mediator will
be selected in accordance with the CPR Procedure.
(b) ARBITRATION.
(i) If the Dispute has not been resolved by mediation
as provided in Section 9.12 within 20 days after receipt of
the Dispute Notice or such greater period as the parties may
agree upon in writing, or if a party fails to participate in a
mediation, then the Dispute will be determined by binding
arbitration in [Minneapolis, Minnesota]. The arbitration will
be conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association ("AAA") in
effect on the date on which the Dispute Notice is sent,
subject to any modifications contained in this Agreement. The
Dispute will be determined by one arbitrator, except that if
the Dispute involves an amount in excess of $100,000
(exclusive of interest and costs), three arbitrators will be
appointed. Persons eligible to serve as arbitrators will be
members of the AAA Large, Complex Case Panel or a CPR Panel of
Distinguished Neutrals, or persons who have professional
credentials similar to those persons listed on such AAA or CPR
panels. The arbitrator(s) will have the right to appoint an
independent expert (including an independent accounting firm)
and the costs and expenses of such expert, together with the
costs and expenses of the arbitrator(s), will be born one-half
by the Shareholders and one-half by Parent. The award will be
in writing and include the findings of fact and conclusions of
law upon which it is based.
(ii) The arbitration will be governed by the
substantive laws of the State of California, without regard to
conflicts-of-law rules, and by the arbitration law of the
Federal Arbitration Act (Title 9, U.S. Code). Judgment upon
the award rendered may be entered in any court having
jurisdiction.
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(iii) Except as otherwise required by law, the
parties and the arbitrator(s) agree to keep confidential and
not disclose to third parties any information or documents
obtained in connection with the arbitration process, including
the resolution of the Dispute. If a party fails to proceed
with arbitration as provided in this Agreement, or
unsuccessfully seeks to stay the arbitration, or fails to
comply with the arbitration award, or is unsuccessful in
vacating or modifying the award pursuant to a petition or
application for judicial review, the other party or parties,
as applicable, will be entitled to be awarded costs, including
reasonable attorneys' fees, paid or incurred in successfully
compelling such arbitration or defending against the attempt
to stay, vacate or modify such arbitration award and/or
successfully defending or enforcing the award.
9.13 DEFINITION OF MATERIAL ADVERSE EFFECT. "MATERIAL ADVERSE EFFECT"
with respect to the Company means a material adverse change in or effect on the
business, operations, financial condition, properties or liabilities of the
Company taken as a whole; provided, however, that a Material Adverse Effect will
not be deemed to include (i) changes as a result of the announcement of this
transaction, (ii) events or conditions arising from changes in general business
or economic conditions or (iii) changes in generally accepted accounting
principles. .
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ENTREPORT, INC. UNIVERSITY.COM, INC.
By: /S/ W. A. SHUE By: /S/ BRUCE PETERSON
--------------------------------- -----------------------------
Its: PRESIDENT
-----------------------------
SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER
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FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ENTREPORT CORPORATION,
UNIVERSITY MERGER CORP.,
AND
UNIVERSITY.COM, INC.
This First Amendment to Agreement and Plan of Merger by and among
EntrePort Corporation, University Merger Corp., and University.com, Inc. is
entered into this 25th day of October, 2000.
WHEREAS, University.com has signed that certain Agreement and Plan of
Merger by and among EntrePort Corporation, University Merger Corp., and
University.com dated October 18, 2000;
WHEREAS, EntrePort Corporation desires additional assurances as set
forth below in consideration for the execution of that certain Agreement and
Plan of Merger by and among EntrePort Corporation, University Merger Corp., and
University.com dated October 18, 2000;
NOW THEREFORE, the parties agree as follows:
1. The following provision is added to that certain Agreement and Plan
of Merger by and among EntrePort Corporation, University Merger Corp., and
University.com dated October 18, 2000, in Article 5, Conditions of Closing:
"5.9 WORKING CAPITAL. As of the Closing Date, the Company's Working
Capital shall be greater than or equal to $-0-. For purposes of this Agreement,
Working Capital is defined as current assets minus current liabilities under
generally accepted accounting principles, excluding the $100,000 liability due
under that certain "Domain Name Transfer Agreement" dated March 24, 1999,
between George L. Wilcox and Knowledgent Corporation."
2. In addition, the parties recognize that University.com may be
required to raise additional capital funds in order to satisfy the
above-referenced condition of closing and may be required to issue additional
shares. In such an event, the price per share payable to the Shareholders of
University.com under this Agreement shall be adjusted downward. In no event
shall the total consideration to be paid by EntrePort Corporation exceed the
consideration due and payable assuming that there are issued and outstanding
11,740,484 shares of University.com's common stock as provided in Disclosure
Schedule Section 2.3.
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<PAGE>
3. Section 4.12 of that certain Agreement and Plan of Merger by and
among EntrePort Corporation, University Merger Corp., and University.com dated
October 18, 2000 is deleted in its entirety.
IT IS SO AGREED:
ENTREPORT CORPORATION UNIVERSITY.COM, INC.
By: By:
--------------------------------- ---------------------------------
Its: Its:
-------------------------------- --------------------------------
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints David
J. D'Arcangelo and William A. Shue, and
each of them, as proxies, each with
full power to appoint his substitute,
and hereby authorizes each of them to
represent and to vote, as designated
below, all the shares of common stock
of EntrePort Corporation held of record
by the undersigned on December 7, 2000,
ENTREPORT CORPORATION at the Special Meeting of Shareholders
2790 BUSINESS PARK DRIVE, SUITE B to be held on January 23, 2001, or any
VISTA, CALIFORNIA 92083 adjournment, thereof.
PROXY
--------------------------------------------------------------------------------
1. To approve and adopt the Agreement and Plan of Merger, dated October
24, 2000, as amended on October 25, 2000 among EntrePort Corporation,
University Merger Corp., a Minnesota corporation and a wholly-owned
subsidiary of EntrePort Corporation, and University.com, Inc., a
Minnesota corporation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To authorize the issuance of EntrePort common stock or securities
convertible into common stock at any time prior to December 31, 2001 in
one or more private placement transactions in which the aggregate
number of shares issued equals or exceeds 20% of the common stock
outstanding as of the date of the special meeting and at a purchase
price less than the greater of the book value or market value of the
common stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To transact such other business as may properly come before the special
meeting or any adjournment or postponement.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1 AND FOR PROPOSAL 2 ABOVE. Please sign exactly as name
appears below. When shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. If a corporation, please sign in full corporate name by
President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
--------------------------------------------------------------------------------
Dated: ____________________________
___________________________________
Signature
___________________________________
Signature if held jointly
-----------------------------------
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED
STATES.
-----------------------------------
