<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 4, 1999
REGISTRATION NO. 333-65963
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT 2 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EXPRESS CAPITAL CONCEPTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 6770 84-1107140
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
EXPRESS CAPITAL CONCEPTS, INC.
26 WEST DRY CREEK CIRCLE, SUITE 600
LITTLETON, COLORADO 80120
TELEPHONE: (303) 794-9450
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
EARNEST MATHIS, JR.
PRESIDENT, CHAIRMAN OF THE BOARD AND TREASURER
EXPRESS CAPITAL CONCEPTS, INC.
26 WEST DRY CREEK CIRCLE, SUITE 600
LITTLETON, COLORADO 80120
TELEPHONE: (303) 794-9450
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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AARON A. GRUNFELD, ESQ. H. WAYNE TAYLOR, ESQ.
RESCH POLSTER ALPERT MITCHELL SILBERBERG & KNUPP LLP
& BERGER LLP 11377 WEST OLYMPIC BOULEVARD
10390 SANTA MONICA BLVD., 4TH FLOOR LOS ANGELES, CALIFORNIA 90064
LOS ANGELES, CALIFORNIA 90025 TELEPHONE: (310) 312-3120
TELEPHONE: (310) 277-8300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As promptly as practicable after this Registration Statement becomes effective
and after the effective time of the proposed merger described in this
Registration Statement.
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------
Common stock, $.0001 par value.......... 22,966,368(1) (2) (2) $2,128.22(3)
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</TABLE>
(1) Represents an estimate of (i) a maximum of 15,213,220 shares of common stock
of Registrant which may be issued to holders of outstanding shares of common
stock of GreyStone Technology, Incorporated ("GreyStone") pursuant to the
merger described herein, (ii) 7,453,148 shares which may be issued upon
exercise of warrants of GreyStone outstanding at the time of such merger,
and (iii) 300,000 shares which may be issued upon exercise of stock options
issued to Mr. Allen Gelbard.
(2) The registration fee has been calculated pursuant to Rule 457(f)(2). As of
the filing of this Registration Statement, GreyStone had an accumulated
capital deficit. In addition, GreyStone's common stock has no par value.
Accordingly, the proposed maximum offering price has been calculated by
multiplying one-third ( 1/3) of an assumed par value for GreyStone's Common
Stock of ($1.00 per share) pursuant to Section 205 of the California General
Corporation Law by the maximum number of shares to be issued to the holders
of GreyStone common stock in the merger.
(3) The Registrant previously filed its Registration Statement for an aggregate
of 16,000,000 shares of common stock, for which an aggregate filing fee of
$1,676.08 was previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENTS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND ANY APPLICABLE STATE
SECURITIES COMMISSION BECOME EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 4, 1999
GREYSTONE TECHNOLOGY, INCORPORATED
PROXY STATEMENT FOR THE SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD ON , 1999
------------------------
EXPRESS CAPITAL CONCEPTS, INC.
PROSPECTUS
------------------------
A special meeting of the shareholders of GreyStone Technology,
Incorporated, will be held at 9:00 a.m. on , 1999. At the
meeting, GreyStone's shareholders will vote on a merger with Express Capital
Concepts, Inc. The common stock of Express Capital is quoted on the
Over-the-Counter Bulletin Board(R) under the symbol "EXCC." The market for EXCC
is thinly traded and often illiquid. If the merger takes place:
- GreyStone will become a wholly-owned subsidiary of Express Capital;
- Express Capital will not have any significant liabilities or assets;
- GreyStone's shareholders will receive one share of Express Capital's
common stock in exchange for each share of GreyStone's common stock they
owned before the merger;
- GreyStone's shareholders will own approximately 97% of Express Capital;
- GreyStone's officers and directors will become the officers and directors
of Express Capital; and
- Express Capital will change its name to "GreyStone Digital Technology,
Inc."
GreyStone's board of directors has unanimously approved the merger and
determined that it is fair to GreyStone and in its stockholders' best interests.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE MERGER. The
directors and officers of GreyStone, as a group, own a majority of the
outstanding shares, and they have said they intend to vote for the merger. Since
the shares they own are more than the minimum needed to approve the merger,
approval is assured. Under California law, holders of GreyStone common stock are
not entitled to dissenters' rights in connection with the merger.
Whether or not you plan to attend the special meeting, please take the time
to vote on the merger by completing and mailing the enclosed proxy card to us.
If your proxy card does not indicate how you wish to vote, your proxy will be
counted as a vote in favor of the merger.
The merger is a complex transaction with a number of risks and
uncertainties. This document includes detailed information about the merger. We
strongly urge you to read it in its entirety and consider it carefully,
especially the matters referred to under "Risk Factors."
Richard A. Smith
Chairman of the Board and Chief
Executive Officer
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state
securities regulators has approved or disapproved the merger or the
Express Capital common stock to be issued in the merger, determined that
this proxy statement/prospectus is truthful or complete, or determined the
fairness or merits of the merger. Any representation to the contrary is a
criminal offense. This proxy statement/prospectus is not an offer to sell
securities and it is not soliciting an offer to buy securities in any
jurisdiction where offers or sales are not permitted.
- --------------------------------------------------------------------------------
The date of this proxy statement/prospectus is , 1999,
and it is first being mailed to GreyStone shareholders on or about
, 1999.
<PAGE> 3
GREYSTONE TECHNOLOGY, INCORPORATED
4950 MURPHY CANYON ROAD
SAN DIEGO, CALIFORNIA 92123
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1999
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of GreyStone
Technology, Incorporated, a California corporation, will be held on
, 1999 at 9:00 a.m., California time, at GreyStone's executive
offices located at 4950 Murphy Canyon Road, San Diego, California 92123.
The special meeting is being called to consider and vote upon a proposal to
approve:
- the agreement and plan of merger and reorganization dated as of August
11, 1997, as amended as of October 1, 1998 among GreyStone, Express
Capital Concepts, Inc., a Delaware corporation, Express Capital
Acquisition Corp., a Delaware corporation and wholly owned subsidiary of
Express Capital formed solely for the purpose of this merger with
GreyStone, and Earnest Mathis, Jr., Express Capital's Chairman and
principal shareholder,
- the merger of GreyStone Technology, Inc. with and into Express Capital
Acquisition Corp., whereby GreyStone will cease to exist, Express Capital
Acquisition Corp. will remain a wholly owned subsidiary of Express
Capital, and Express Capital will be renamed GreyStone Digital
Technology, Inc., and
- the certificate of merger which will be filed with of the Secretaries of
State of the States of Delaware and California to effect the merger. As a
result of the merger, each outstanding share of GreyStone common stock
will be converted into the right to receive one share of Express Capital
common stock, resulting in a one-to-one exchange ratio. A copy of the
merger agreement and a copy of the certificate of merger are set forth in
their entirety as Annex A and Annex B, respectively, to this proxy
statement/prospectus, and
Immediately after the consummation of the merger, the former holders of
GreyStone common stock will hold in the aggregate 15,213,220 shares of Express
Capital common stock, or approximately 97% of the shares of Express Capital
common stock to be outstanding immediately after the consummation of the merger.
The board of directors has fixed the close of business on
, 1999 as the record date for the determination of
shareholders of GreyStone entitled to notice of and to vote on the merger
proposal. Only holders of record of GreyStone common stock on the record date
are entitled to notice of, and will be entitled to vote at the special meeting
or any adjournment or postponement of the meeting.
You can ensure that your shares are voted at the special meeting by signing
and dating the enclosed proxy and returning it in the envelope provided. Sending
in a signed proxy will not affect your right to attend the meeting and vote in
person. You may revoke your proxy at any time before it is voted by giving
written notice to GreyStone's Corporate Secretary at GreyStone's headquarters,
at 4950 Murphy Canyon Road, San Diego, California 92123.
THE BOARD OF DIRECTORS OF GREYSTONE HAS DETERMINED THAT THE MERGER IS FAIR
TO GREYSTONE AND IN THE BEST INTERESTS OF THE GREYSTONE SHAREHOLDERS. THE BOARD
OF DIRECTORS OF GREYSTONE HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
MERGER AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE MERGER AGREEMENT AND THE
MERGER.
BY ORDER OF THE BOARD OF DIRECTORS
Carolyn Harris,
Secretary
San Diego, California
, 1999
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
SUMMARY..................................................... 1
The Companies.......................................... 1
GreyStone's Reasons for the Merger..................... 1
The Special Meeting.................................... 1
The Merger Agreement................................... 3
MARKET PRICE DATA........................................... 5
SELECTED HISTORICAL FINANCIAL INFORMATION................... 6
GREYSTONE SELECTED HISTORICAL FINANCIAL INFORMATION......... 7
EXPRESS CAPITAL SELECTED HISTORICAL FINANCIAL INFORMATION... 8
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF
GREYSTONE AND EXPRESS CAPITAL............................. 9
UNAUDITED PRO FORMA COMBINED BALANCE SHEET.................. 10
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS........ 11
COMPARATIVE PER SHARE DATA.................................. 12
RISK FACTORS................................................ 13
GREYSTONE SPECIAL MEETING................................... 21
Date, time and place of special meeting................ 21
Purpose of the special meeting......................... 21
Record date; shares entitled to vote................... 21
Quorum; required vote.................................. 21
Voting of Proxies...................................... 21
Revocability of Proxies................................ 21
Solicitation of Proxies; Expenses...................... 22
Board Recommendation................................... 22
EXPRESS CAPITAL APPROVALS................................... 22
Approval of the Merger................................. 22
THE MERGER AND RELATED TRANSACTIONS......................... 23
General................................................ 23
Conversion of Shares................................... 23
Background of the merger............................... 24
Recommendations of the boards of directors and reasons
for the merger........................................ 26
The Merger Agreement................................... 26
Related Agreements and Interests of Certain Persons in
the Merger............................................ 28
Other Matters Related to the Merger.................... 29
</TABLE>
i
<PAGE> 5
<TABLE>
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PAGE
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<S> <C>
GREYSTONE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 33
Results of Operations.................................. 33
Liquidity and Capital Resources........................ 35
Year 2000 Compliance................................... 37
GREYSTONE BUSINESS.......................................... 39
Available information.................................. 39
GreyStone's Overview................................... 39
GreyStone's Business Strategy.......................... 42
Commercial Markets and Digital Entertainment
Business.............................................. 44
Digital Entertainment Markets.......................... 44
Government Market and Products......................... 48
Marketing and Sales.................................... 52
Strategic Technology Unit.............................. 52
Production............................................. 52
Competition............................................ 53
Patents and Proprietary Rights......................... 53
Employees.............................................. 54
Facilities............................................. 54
Legal Proceedings...................................... 54
GREYSTONE MANAGEMENT........................................ 55
Nominee Directors...................................... 56
Board Committees and Meetings.......................... 56
Directors' Compensation................................ 56
Executive Officer Compensation......................... 57
SUMMARY OF COMPENSATION TABLE............................... 57
Stock Option Grants And Exercises...................... 58
Aggregated Option Exercises in Last Fiscal Year........ 58
Employment Agreements.................................. 58
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 60
GREYSTONE PRINCIPAL SHAREHOLDERS............................ 62
EXPRESS CAPITAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 63
EXPRESS CAPITAL BUSINESS.................................... 63
General................................................ 63
Employees.............................................. 63
Properties............................................. 63
Legal Proceedings...................................... 64
Director And Executive Officer Of Express Capital;
Executive Compensation................................ 64
</TABLE>
ii
<PAGE> 6
<TABLE>
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PAGE
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<S> <C>
EXPRESS CAPITAL PRINCIPAL SHAREHOLDERS...................... 65
PROPOSED MANAGEMENT OF EXPRESS CAPITAL AND THE SURVIVING
CORPORATION AFTER THE MERGER.............................. 67
DESCRIPTION OF GREYSTONE CAPITAL STOCK...................... 68
Common Stock........................................... 68
1991 Stock Option Plan................................. 68
1994 Stock Option and Stock Bonus Plan................. 69
Non-Plan Options....................................... 69
Warrants............................................... 70
Registration Rights.................................... 70
DESCRIPTION OF EXPRESS CAPITAL STOCK........................ 71
Common Stock........................................... 71
Preferred Stock........................................ 71
Delaware Law and Certain Charter and Bylaw
Provisions............................................ 71
Warrants............................................... 72
COMPARISON OF RIGHTS OF GREYSTONE SHAREHOLDERS AND EXPRESS
CAPITAL STOCKHOLDERS...................................... 73
EXPERTS..................................................... 80
LEGAL MATTERS............................................... 80
WHERE YOU CAN FIND MORE INFORMATION......................... 80
INDEX TO FINANCIAL STATEMENTS............................... F-1
ANNEX A
First Amendment to Agreement and Plan of Merger and
Reorganization........................................ A-1
Agreement and Plan of Merger and Reorganization........ A-16
ANNEX B
Certificate of Merger of GreyStone Technology,
Incorporated into Express Capital
Acquisition Corp..................................... B-1
ANNEX C
Amended and Restated Certificate of Incorporation of
Express Capital Concepts, Inc......................... C-1
ANNEX D
Amended and Restated Bylaws of GreyStone Digital
Technology, Inc....................................... D-1
</TABLE>
iii
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why is GreyStone proposing the merger? How will I benefit?
A: In considering the merger, GreyStone's board noted that GreyStone has an
immediate need for capital and that the combination of GreyStone with
Express Capital could facilitate GreyStone's ability to raise money.
Additionally, because Express Capital is a company whose securities are
publicly traded, the merger may increase the visibility of GreyStone's
business, which could improve GreyStone's ability to develop and
commercialize its products. While the market for Express Capital common
stock has been thin, or illiquid with no trades on many days and frequently
none for several days, GreyStone's combination with Express Capital could
potentially give you the ability to sell your shares in the public market,
providing you with improved liquidity. To review the background and reasons
for the merger in greater detail, see page 24.
Q: What do I need to do now?
A: Please mail your signed proxy card in the enclosed envelope as soon as
possible, so that your shares may be represented at the special meeting. In
addition, you may attend the special meeting in person, rather than signing
and mailing your proxy card.
Q: What do I do if I want to change my vote?
A: Just send in a later-dated, signed proxy card before the special meeting or
attend the meeting in person and vote.
Q: Should I send in my GreyStone stock certificates now?
A: No. If the merger is completed, we will send you written instructions for
exchanging your share certificates.
Q: Please explain what I will receive in the merger.
A: If the merger is completed, you will receive one share of Express Capital
common stock for each share of GreyStone common stock that you own. Because
the shares issued to the former GreyStone shareholders will total
approximately 97% of the Express Capital shares after the merger, there will
be an approximately 3% dilution in your ownership interest.
Q: What are the federal income tax consequences of the merger?
A: The merger has been structured as a tax-free reorganization. The tax basis
in your GreyStone common stock will carryover and become the tax basis in
your new shares of Express Capital common stock.
Q: Does Express Capital pay dividends?
A: Like GreyStone, Express Capital has never paid any dividends.
Q: When do you expect the merger to be completed?
A: We are working toward completing the merger as quickly as possible. We hope
to complete the merger by , 1999.
Q: Whom should I call with questions?
A: If you have any questions about the merger, please call Richard Smith, Chief
Executive Officer, at GreyStone, at (619) 874-7000.
Q: Who is Express Capital?
A: Express Capital was formed in 1988 and had an initial public offering of its
common stock shortly afterwards. It was formed primarily to enter into a
business combination with a private company such as GreyStone. Express
Capital has no employees and no other business and on the date of the merger
Express Capital will have no significant assets. Since 1989, Express Capital
has not been required to file quarterly, annual or other reports with the
Securities and Exchange Commission.
iv
<PAGE> 8
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire document and the documents to which we have referred you. See "Where You
Can Find More Information" on page 80. We have included page references in
parentheses to direct you to a more complete description of the topics presented
in this summary. This Proxy Statement/Prospectus contains forward-looking
statements. These statements are always uncertain, and what actually happens at
a later date may be significantly different. Some of the factors that might
cause these differences are discussed in "Risk Factors" (see page 13).
In the merger, GreyStone will merge with and into Express Capital
Acquisition Corp., a subsidiary of Express Capital. Express Capital Acquisition
Corp. will be the surviving corporation in the merger and will continue as a
subsidiary of Express Capital.
The merger agreement is attached as Annex A to this document. We encourage
you to read the merger agreement, as it is the legal document that governs the
merger.
THE COMPANIES
Express Capital
26 West Dry Creek Circle, Suite 600
Littleton, Colorado 80120
(303) 794-9450
Express Capital was incorporated in Delaware in 1988. Express Capital was
organized for the primary purpose of acquiring one or more privately-held
companies through either a merger, asset acquisition or other business
combination. Express Capital does not now have nor has it ever had any
significant operations.
GreyStone Technology, Incorporated
4950 Murphy Canyon Road
San Diego, California 92123
(619) 874-7000
GreyStone was incorporated in California in 1988. GreyStone designs,
develops and markets real-time, interactive 3-D software and related products
and services. GreyStone mainly targets the defense and entertainment markets.
GREYSTONE'S REASONS FOR THE MERGER (SEE PAGE 26)
The GreyStone board has been considering ways to increase GreyStone's
visibility and improve the trading market for its stock. The board believes that
by merging with Express Capital, which is a publicly-traded corporation,
GreyStone will gain visability, which may make it easier for GreyStone to
further develop and commercialize its products. The board also believes that the
combination of GreyStone with Express Capital may facilitate GreyStone's ability
to raise money. While the market for Express Capital common stock has been thin,
or illiquid, with no trades on many days and frequently none for several days,
as a shareholder of a corporation which does have some public trading it may be
easier for you to sell your shares, giving you increased liquidity.
To review the reasons for the merger in greater detail, see page 26.
THE SPECIAL MEETING (SEE PAGE 21)
Date, Time and Place.
The special meeting will be held at 9:00 a.m., California Time, on
, 1999. At the special meeting, GreyStone shareholders will be asked
to approve the merger and the related merger agreement. The
1
<PAGE> 9
special meeting will be held at GreyStone's offices located at 4950 Murphy
Canyon Road, San Diego, California 92123.
Recommendation to GreyStone Shareholders.
The GreyStone board of directors believes that the merger is in your best
interests and unanimously recommends that you vote "for" approval of the merger.
Record Date; Shares Entitled to Vote.
You are entitled to vote at the special meeting if you owned shares of
GreyStone stock as of the close of business on , 1999, the record
date.
On the record date, there were shares of GreyStone stock entitled
to vote at the special meeting. GreyStone shareholders will have one vote for
each share of GreyStone stock they own on the record date.
Stockholder Vote Required to Approve the Merger.
The holders of a majority of the outstanding shares of GreyStone stock must
vote to approve the merger and the related merger agreement. A vote of Express
Capital stockholders is not required.
Share Ownership of Management and Certain Shareholders.
GreyStone directors and officers, as a group, owned a majority of GreyStone
stock outstanding on the record date. They have indicated that they intend to
vote that stock owned by them for approval of the merger and the related merger
agreement. Their vote alone will be sufficient to approve the merger.
WHAT GREYSTONE SHAREHOLDERS WILL RECEIVE IN THE MERGER (SEE PAGE 23)
If the merger is approved, GreyStone shareholders will have the right to
receive one share of Express Capital stock for each share of GreyStone stock
they own. GreyStone shareholders should not send in their stock certificates for
exchange until instructed to do so.
WHAT CURRENT EXPRESS CAPITAL STOCKHOLDERS WILL HOLD AFTER THE MERGER (SEE PAGE
23)
Express Capital stockholders will continue to own Express Capital shares
after the merger. However, before the merger Express Capital will cause a
1-for-41.66667 reverse stock split of its common stock. As an example, an
Express Capital stockholder who now owns 1,000 shares will own 24 shares at the
time of the merger. After the reverse stock split, the Express Capital
stockholders as a group will own a total of 480,000 shares of Express Capital
stock.
OWNERSHIP OF EXPRESS CAPITAL AFTER THE MERGER (SEE PAGE 23)
Express Capital will issue 15,213,220 shares of stock to GreyStone
shareholders in the merger. Based on that number, after the merger, GreyStone
shareholders will own approximately 97% of the outstanding Express Capital
stock. This information is based on the shares of GreyStone and Express Capital
stock outstanding on .
EFFECT ON OUTSTANDING OPTIONS AND WARRANTS (SEE PAGE 24)
If the merger takes place, all GreyStone options and warrants will be
converted into the right to purchase the same number of shares of Express
Capital stock. All of the other terms and conditions of the GreyStone options
and warrants will remain the same.
2
<PAGE> 10
THE MERGER AGREEMENT (SEE PAGE 26)
The merger agreement (Annex A) is attached at the back of this proxy
statement/prospectus. We encourage you to read the agreement as it is the legal
document that governs the merger.
Conditions to the Merger (See page 27).
The merger will be completed if certain conditions, including the
following, are met:
- the approval of GreyStone shareholders;
- the accuracy of the parties' statements contained in the merger
agreement;
- the receipt of necessary third-party consents to the merger;
- the absence of pending or threatened litigation that could adversely
affect the parties;
- the receipt of a legal opinion from Express Capital's counsel;
- the receipt of lock-up agreements from certain stockholders of Express
Capital;
- the receipt of continuity-of-interest certificates from the holders of 1%
or more of GreyStone's outstanding stock, which will facilitate favorable
tax treatment for the merger.
Termination of Merger Agreement (See page 28).
Under certain circumstances, the merger agreement may be terminated, before
or after the GreyStone shareholders have approved the merger. See "The Merger
and Related Transactions -- the Merger Agreement -- Termination" on page 28.
Indemnification by Mr. Mathis.
Mr. Mathis has agreed to reimburse the companies (Express Capital and
GreyStone's successor corporation) and the GreyStone shareholders if they are
damaged as a result of any inaccuracies by Mathis in the merger agreement. In
addition, Mr. Mathis has agreed to reimburse the companies if they are damaged
as a result of any omissions or misstatements in certain sections of this proxy
statement/prospectus that relate to Express Capital. See "The Merger and Related
Transactions -- Indemnification" on page 28, "The Merger and Related
Transactions -- Indemnification Agreement" on page 29, and "The Merger and
Related Transactions -- Additional Indemnity" on page 29.
Indemnification by Greystone.
Greystone has agreed to indemnify Mr. Mathis against any damages that arise
out of issuances of GreyStone stock prior to the merger. GreyStone also has
agreed that it will reimburse Mr. Mathis for any damages he suffers in
connection with any portion of the registration statement other than the
sections related entirely to Express Capital.
EXPENSES AND FEES (SEE PAGE 28)
GreyStone will bear its costs and expenses with respect to the merger
(including $2,500 of the costs of the pro forma financial statements included
herein). Express Capital will bear all of the expenses of its accountants,
$2,500 of the costs of preparing the pro forma financial statements included
herein, all its costs and expenses incurred prior to September 3, 1998, and
$35,000 of its other costs and expenses incurred after September 3, 1998 with
respect to the merger. GreyStone will bear all of the other costs and expenses
in excess of $35,000 incurred by Express Capital after September 3, 1998 with
respect to the merger.
RESALE OF MERGER SHARES (SEE PAGE 31)
The Express Capital shares issued in the merger will be registered under
the Securities Act. Registered shares can generally be re-sold in the public
market without restrictions. However, the Securities Act restricts sale of
shares by people who are closely enough related to a company to meet the
definition of an "affiliate". GreyStone's "affiliates" will be subject to
certain restrictions on the resale of the shares they receive in the
3
<PAGE> 11
merger. See "The Merger and Related Transactions -- Restrictions on Resale of
Express Capital Common Stock by GreyStone Shareholders on page 31.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGE 29)
Some members of GreyStone's management and the GreyStone board of directors
have certain interests in the merger that are in addition to the interests of
GreyStone shareholders generally. See "The Merger and Related
Transactions -- Related Agreements and Interests of Certain Persons in the
Merger."
GreyStone will issue warrants to Olympic Capital Group, Inc. in connection
with its financial and advisory services relating to introductions of Express
Capital Concepts to GreyStone. See "Merger and Related
Transactions -- Background of the Merger."
RESTRICTION ON SALES OF SHARES BY EXPRESS CAPITAL STOCKHOLDERS (SEE PAGE 28)
In connection with the merger, some stockholders of Express Capital have
agreed to restrictions on their sale or transfer of their Express Capital stock.
See "The Merger and Related Transactions -- Restrictions on Resale of Express
Capital Common Stock held by Express Capital Stockholders; Lock-up Agreements"
on page 28.
RISK FACTORS (SEE PAGE 13)
See the section titled "Risk Factors" beginning on page 13 for a discussion
of certain risk factors pertaining to the merger and the business of GreyStone
and Express Capital.
FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 29)
Tax matters are very complicated and the tax consequences of the merger to
you will depend on the facts of your own situation. You should consult your tax
advisors for a full understanding of the tax consequences of the merger to you.
GreyStone and Express Capital have structured the merger so that neither
GreyStone nor its shareholders should recognize gain or loss for federal income
tax purposes as a result of the merger. See "The Merger and Related
Transactions-Material Federal Income Tax Consequences" on page 29.
4
<PAGE> 12
MARKET PRICE DATA
Express Capital common stock is currently quoted and traded on the OTC-BB
under the symbol "EXCC." The following table sets forth the quarterly high and
low bid quotations on the OTC-BB for the common stock of Express Capital for the
periods indicated below. These quotations represent prices between dealers and
do not include retail mark-up, mark-down or commissions or necessarily represent
actual transactions. The market for Express Capital common stock is thin, or
illiquid, with no trades on many days and frequently none for several days, even
though prices may be quoted on those days.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1999 HIGH LOW
----------------------------- -------- --------
<S> <C> <C>
First Quarter............................................... $ 1.00 $ 0.188
Second Quarter.............................................. $ .625 $ .19
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 HIGH LOW
---------------------------- -------- --------
<S> <C> <C>
First Quarter ended December................................ $ 0.4375 $ 0.13
Second Quarter.............................................. $0.40625 $0.21875
Third Quarter............................................... $ 0.344 $ 0.25
Fourth Quarter.............................................. $ 0.563 $ 0.188
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 HIGH LOW
---------------------------- -------- --------
<S> <C> <C>
First Quarter............................................... * *
Second Quarter.............................................. * *
Third Quarter............................................... $ 1.00 $ 0.25
Fourth Quarter.............................................. $ 0.625 $0.15625
</TABLE>
- ---------------
* No market makers posted any bids for Express Capital Common Stock until July
15, 1997.
There is no public trading market for GreyStone Common Stock.
Following the merger, Express Capital expects that its common stock will
continue to be quoted and traded on the OTC-BB. Express Capital will, however,
seek to have its common stock quoted and traded on the OTC-BB under the symbol
"GSTN."
Because the market price of Express Capital is subject to fluctuation, the
market value of the shares of Express Capital common stock that holders of
GreyStone common stock will receive in the merger may increase or decrease prior
to the merger. Because the Exchange Ratio is fixed, however, the number of
shares of Express Capital common stock issuable in the merger will not be
affected by any changes in the market price of Express Capital common stock.
On August 8, 1997 (the last trading day prior to the public announcement of
the execution of the Merger Agreement), the high bid price for Express Capital
common stock on the OTC-BB was $0.06. On , 1999 (the last day before
the printing of this proxy statement/prospectus), such high bid price was
$ . HOLDERS OF GREYSTONE COMMON STOCK ARE URGED TO OBTAIN A CURRENT
MARKET QUOTATION FOR EXPRESS CAPITAL COMMON STOCK BEFORE VOTING ON THE MERGER
PROPOSAL. THE REVERSE STOCK SPLIT AND ITS EFFECT ON THE MARKET PRICE OF EXPRESS
CAPITAL COMMON STOCK SHOULD BE CAREFULLY CONSIDERED BEFORE THE MERGER. NO
ASSURANCE CAN BE GIVEN AS TO THE FUTURE PRICES OR MARKET FOR EXPRESS CAPITAL
COMMON STOCK.
Neither Express Capital nor GreyStone has ever paid any cash dividends with
respect to its shares of common stock and neither anticipates that dividends
will be declared in the foreseeable future. GreyStone expects that all available
cash will be utilized to further the growth of its business.
5
<PAGE> 13
SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected historical financial information of GreyStone and
Express Capital has been derived from their respective historical financial
statements, and should be read in conjunction with such financial statements and
the notes thereto, which are included in this proxy statement/prospectus.
GreyStone Selected Historical Financial Information. The selected
historical financial information set forth below with respect to GreyStone's
statements of operations for the years ended March 31, 1999, 1998 and 1997, and
with respect to GreyStone's balance sheet at March 31, 1999 and 1998, are
derived from the financial statements of GreyStone, which have been audited by
J.H. Cohn LLP, independent public accountants, included elsewhere in this proxy
statement/prospectus. The selected historical financial information set forth
below with respect to GreyStone's statement of operations for the year ended
March 31, 1996 and with respect to GreyStone's balance sheet data at March 31,
1997 and 1996 has been derived from the financial statements of GreyStone, which
have been audited by J.H. Cohn LLP, the full text of which is not included in
this proxy statement/prospectus. The selected historical financial information
set forth below with respect to GreyStone's statements of operations for the
years ended March 31, 1995 and 1994 and with respect to GreyStone's balance
sheets at March 31, 1995 and 1994 are derived from the financial statements
provided by GreyStone which are treated herein as unaudited, the full text of
which are not included in this proxy statement/prospectus.
Express Capital Selected Historical Financial Information. The selected
historical financial information set forth below with respect to Express
Capital's statements of operations for the years ended December 31, 1998, 1997
and 1996, and with respect to Express Capital's balance sheets at December 31,
1998 and 1997 has been derived from the consolidated financial statements
audited by Angell & Deering independent accountants, included elsewhere in this
proxy statement/prospectus. The selected historical financial information set
forth below of Express Capital as of December 31, 1996, 1995 and 1994 and for
the years ended December 31, 1995 and 1994 has been derived from the financial
statements audited by Angell & Deering, independent accountants, and are not
included elsewhere in this proxy statement/prospectus. The selected historical
financial information set forth below with respect to Express Capital's
statements of operations for the three months ended March 31, 1999 and 1998, and
with respect to its balance sheet at March 31, 1999 is derived from the
unaudited consolidated financial statements of Express Capital which are
included elsewhere in this proxy statement/prospectus. In the opinion of Express
Capital's management, the unaudited financial statements include all
adjustments, consisting of normal recurring accruals, that Express Capital
considers necessary for a fair presentation of the results of operations and
financial position for each of the periods presented. Operating results for
Express Capital for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999.
The financial statement information set forth should be read in conjunction
with, and is qualified in its entirety by reference to, the financial statements
and notes related thereto included elsewhere in this proxy statement/prospectus
and in the sections entitled: "EXPRESS CAPITAL MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "GREYSTONE
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
6
<PAGE> 14
GREYSTONE SELECTED HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ 2,105,517 $ 2,112,566 $ 2,336,371 $ 2,065,260 $ 498,285 $ 1,507,843
----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Cost of revenues.................. 1,274,177 1,181,728 1,621,166 1,404,976 565,088 1,175,555
Marketing and sales............... 853,190 662,503 720,213 663,373 3,232,430 911,105
Research and
development..................... 1,093,145 1,254,297 1,978,505 3,146,960 3,089,469 1,330,907
General and
administrative.................. 1,951,193 3,193,843 2,087,877 3,040,119 2,029,957 1,488,517
----------- ----------- ----------- ----------- ----------- -----------
Total expenses.............. 5,171,705 6,292,371 6,407,761 8,255,428 8,916,944 4,906,084
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations................ (3,066,188) (4,179,805) (4,071,390) (6,190,168) (8,418,659) (3,398,241)
Interest expense.................... 99,944 201,941 615,240 507,518 84,998 35,963
----------- ----------- ----------- ----------- ----------- -----------
Net loss............................ $(3,166,132) $(4,381,746) $(4,686,630) $(6,697,686) $(8,503,657) $(3,434,204)
=========== =========== =========== =========== =========== ===========
Basic net loss per share............ $ (0.22) $ (0.33) $ (0.41) $ (0.63) $ (0.81) $ (0.37)
Basic weighted average number of
shares
outstanding....................... 14,131,416 13,435,377 11,408,158 10,617,417 10,481,305 9,395,911
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........... $ 795,480 $ 5,083 $ 14,224 $ 6,276 $ 155,694 $ 2,290,150
Working capital (deficiency)........ (805,406) (1,826,674) (7,151,324) (7,151,834) (1,359,013) 2,322,670
Total assets........................ 1,276,922 915,156 1,336,505 1,791,115 2,147,117 4,554,930
Long-term debt, net of current
portion........................... -0- -0- -0- 1,207,965 2,375,242 4,163
Total stockholders' equity
(deficiency)...................... (524,441) (1,314,457) (6,199,575) (7,109,133) (2,238,765) 3,716,957
</TABLE>
7
<PAGE> 15
EXPRESS CAPITAL SELECTED HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------ -------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- ------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................. $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
-------- ------- ----------- ----------- ----------- ----------- -----------
Operating expenses...... 7,409 6,841 61,383 170,001 4,881 6,164 3,588
-------- ------- ----------- ----------- ----------- ----------- -----------
Loss from operations.... (7,409) (6,841) (61,383) (170,001) (4,881) (6,164) (3,588)
Other income
(expense)............. (3,412) (1,553) (8,707) 134,890 27,753 (5,653) (5,211)
Income (loss) before
cumulative effect of
change in accounting
principle............. (10,821) (8,394) (70,090) (35,111) 22,872 (11,217) (8,799)
Cumulative effect on
prior periods of
expensing organization
costs as incurred..... (887) -- -- -- -- -- --
-------- ------- ----------- ----------- ----------- ----------- -----------
Net income (loss)....... (11,708) (8,394) $ (70,090) $ (35,111) $ 22,872 $ (11,217) $ (8,799)
======== ======= =========== =========== =========== =========== ===========
Net income (loss) per
common share.......... $ (.02) $ (.02) $ (.15) $ (.07) $ .05 $ (.02) $ (.02)
======== ======= =========== =========== =========== =========== ===========
Shares used in net
income per share
computation........... 480,000 480,000 480,000 480,000 480,000 480,000 480,000
Dividends per share..... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF -----------------------------------------------------
MARCH 31, 1999 1998 1997 1996 1995 1994
-------------- --------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................ $ 883 $ 421 $ 325 $ 612 $ 332 $ 418
Working capital (deficiency)............. (167,953) (157,132) (87,288) (85,006) (73,916) (62,099)
Total assets............................. 883 1,308 1,458 34,574 15,091 418
Long-term debt, net of current portion... 0 0 0 0 0 0
Total stockholders' equity
(deficiency)........................... (167,953) (156,245) (86,155) (51,044) (73,916) (62,099)
</TABLE>
8
<PAGE> 16
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
OF GREYSTONE AND EXPRESS CAPITAL
The pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the operating results or financial position
that would have occurred if the merger had been consummated, nor is it
necessarily indicative of future operating results or financial position. The
unaudited pro forma combined financial statements have been derived from the
historical financial statements of GreyStone and Express Capital included herein
and give effect to the merger as a reverse acquisition and purchase of Express
Capital by GreyStone for accounting purposes. The unaudited combined balance
sheet gives effect to the merger as if it had occurred on March 31, 1999 using
the historical audited balance sheet of GreyStone and the historical unaudited
balance sheet of Express Capital as of that date. The unaudited pro forma
combined statements of operations give effect to the merger as if it had
occurred on April 1, 1998, and combine the audited historical results of
operations of GreyStone for the year ended March 31, 1999 and of Express Capital
(which does not conduct any commercial operations), for the year ended December
31, 1998. The pro forma adjustments are based on preliminary estimates,
available information and certain assumptions that management deems appropriate.
The pro forma financial information does not purport to represent what the
financial position or results of operations of the combined companies would
actually have been if such transactions in fact had occurred on these dates or
to project the financial position or results of operations of the combined
companies for any future period. The unaudited pro forma combined financial
statements should be read in conjunction with the historical financial
statements of GreyStone and Express Capital and the notes thereto included
elsewhere herein.
9
<PAGE> 17
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------
GREYSTONE EXPRESS CAPITAL ADJUSTMENTS COMBINED
------------ --------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 795,480 $ 883 $ 796,363
Accounts receivable, net of allowance for
doubtful accounts...................... 200,477 200,477
------------ --------- ------------ ------------
Total current assets.............. 995,957 883 996,840
Equipment and furniture, net of accumulated
depreciation.............................. 176,827 176,827
Other assets................................ 104,138 104,138
------------ --------- ------------ ------------
Total assets...................... $ 1,276,922 $ 883 $ 0 $ 1,277,805
============ ========= ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses..... $ 1,130,553 $ 47,018 $ (47,018)(2) $ 1,345,553
215,000(3)
Short-term notes payable.................. 402,000 402,000
Loans payable to officers................. 140,810 140,810
Notes payable to principal stockholders... 128,000 121,818 (121,818)(2) 128,000
------------ --------- ------------ ------------
Total liabilities................. 1,801,363 168,836 46,164 2,016,363
------------ --------- ------------ ------------
Stockholders' deficiency:
Preferred stock, Express Capital
pre-merger --
Common stock, pre-merger.................. 30,596,760 480 (30,597,240)(1)
Common stock, post-merger................. 15,102(1) 15,102
Additional paid-in capital................ 718,330 29,138 30,582,138(1) 31,085,871
168,836(2)
(215,000)(3)
(197,571)(4)
Receivable from sale of common stock...... (327,500) (327,500)
Accumulated deficit....................... (31,512,031) (197,571) 197,571(4) (31,512,031)
------------ --------- ------------ ------------
Total stockholders' deficiency.... (524,441) (167,953) (46,164) (738,558)
------------ --------- ------------ ------------
Total liabilities and
stockholders'
deficiency...................... $ 1,276,922 $ 883 $ 0 $ 1,277,805
============ ========= ============ ============
</TABLE>
- ---------------
(1) Upon assumed consummation of the merger at March 31, 1999, the par value of
the common stock of the surviving legal entity will change from $.0001 per
share to $.001 per share. Express Capital (the surviving legal entity) will
have a total of 15,101,937 shares outstanding. GreyStone's former
stockholders would be issued 14,621,937 shares based on a 1-for-1 exchange.
Express Capital's former stockholders would be issued 480,000 shares based
on a 1-for-41.66667 reverse split of the current 20,000,000 outstanding
shares. Since Express Capital has not conducted any commercial operations
from its inception and the former stockholders of GreyStone will own
approximately 97% of the outstanding voting stock of the combined companies
immediately after consummation of the merger, the merger will be accounted
for as a "reverse acquisition" whereby GreyStone will be deemed to be the
acquiring company for accounting purposes. The assets and liabilities of
GreyStone and Express Capital will continue to be recorded at their
historical carrying values, which approximate their fair market value as of
the date of the merger, pursuant to the purchase method of accounting.
(2) As of the effective date of the merger, all of the liabilities of Express
Capital shall have been paid or otherwise discharged.
(3) To adjust for the accrual of $215,000 of expenses associated with the
merger, e.g., legal, accounting and transfer agent fees.
(4) To eliminate the historical accumulated deficit of Express Capital, which
will be deemed to be the acquired company pursuant to the purchase method of
accounting.
10
<PAGE> 18
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
MOST RECENT FISCAL YEAR
<TABLE>
<CAPTION>
GREYSTONE EXPRESS CAPITAL PRO FORMA
YEAR ENDED YEAR ENDED ------------------------------
3/31/99 12/31/98 ADJUSTMENTS TOTAL
----------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues........................... $ 2,105,517 $ 2,105,517
----------- ----------- ------------- -----------
Expenses:
Cost of revenues................. 1,274,177 1,274,177
Marketing and sales.............. 853,190 853,190
Research and development......... 1,093,145 1,093,145
General and administrative....... 1,951,193 61,383 2,012,576
----------- ----------- ------------- -----------
Total expenses........... 5,171,705 61,383 5,233,088
----------- ----------- ------------- -----------
Loss from operations............... (3,066,188) (61,383) (3,127,571)
Interest expense................... (91,444) (91,444)
Interest expense on loans from
principal stockholders........... (8,500) (8,707) (17,207)
----------- ----------- ------------- -----------
Net loss........................... $(3,166,132) $ (70,090) $(3,236,222)
=========== =========== ============= ===========
Basic net loss per share........... $ (0.22) $ (0.15) $ -- $ (0.22)
=========== =========== ============= ===========
Basic weighted average number of
shares outstanding............... 14,131,416 480,000(1) 14,611,415
=========== =========== ============= ===========
</TABLE>
- ---------------
(1) To retroactively adjust for the assumed consummation of the merger and the
reduction of the 20,000,000 weighted average shares of Express Capital
common stock outstanding in each period to approximately 480,000 shares to
give effect to the 1-for-41.66667 reverse split.
11
<PAGE> 19
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Express
Capital and GreyStone and combined per share data on an unaudited pro forma
basis after giving effect to the merger as a purchase of Express Capital by
GreyStone assuming the merger had been effected during the periods presented.
This data should be read in conjunction with the selected financial data, the
unaudited pro forma combined financial information and the separate historical
financial statements of Express Capital and GreyStone, and notes thereto,
included elsewhere in this proxy statement/prospectus. The pro forma combined
financial data is not necessarily indicative of the operating results that would
have been achieved had the merger been consummated as of the beginning of the
periods indicated nor is such data necessarily indicative of future financial
condition or results of operations. For purposes of the comparative per share
data, Express Capital's financial data for the 12 months ended December 31, 1998
has been combined with GreyStone's financial data for the twelve months ended
March 31, 1999.
COMPARATIVE PER SHARE DATA
MOST RECENT PERIODS
<TABLE>
<CAPTION>
PRO FORMA COMBINED
GREYSTONE EXPRESS CAPITAL -------------------------
----------------- --------------------- AS OF MARCH 31, 1999;
AS OF AND FOR THE AS OF MARCH 31, 1999; YEARS ENDED
YEAR ENDED YEAR ENDED MARCH 31, 1999
MARCH 31, 1999 DECEMBER 31, 1998 (DECEMBER 31, 1998)
----------------- --------------------- -------------------------
<S> <C> <C> <C>
Stockholders' deficiency...................... $ (524,441) $(167,953) $ (738,558)
Number of shares at year (period) end......... 14,621,937 480,000 15,101,937
Book value per share.......................... $ (0.04) $ (0.35) $ (0.05)
Net loss for year (period).................... $(3,166,132) $ (70,090) $(3,236,222)
Basic weighted average number of shares
outstanding................................. 14,131,416 480,000 14,611,416
Basic net loss per share...................... $ (0.22) $ (0.15) $ (0.22)
</TABLE>
After giving retroactive effect to the reverse stock split of
1-for-41.66667, the 20,000,000 weighted average shares of Express Capital were
reduced to approximately 480,000 shares. The subsequent exchange ratio is
1-for-1 with GreyStone shares owning approximately 97% of the merged company.
12
<PAGE> 20
THE SECURITIES OF GREYSTONE AND EXPRESS CAPITAL ARE HIGHLY SPECULATIVE AND
ENTAIL A VERY HIGH DEGREE OF RISK.
The following risk factors should be considered carefully by the
shareholders of GreyStone in evaluating whether to approve the transactions
contemplated by the merger. These factors should be considered together with the
other information included in this proxy statement/prospectus.
This proxy statement/prospectus contains forward-looking statements that
involve risks and uncertainties. GreyStone's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences, include, but are not limited to, those discussed in the
following section and in "GreyStone Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "GreyStone Business."
RISK FACTORS
There are a number of risks associated with the merger and the on-going
business of the combined company after the merger. In addition to other
information included in this proxy statement/prospectus, you should carefully
consider the following risks in determining whether to vote to approve the
merger.
RISK FACTORS RELATED TO THE MERGER
THE MERGER WILL NOT BE COMPLETED IF GREYSTONE SHAREHOLDERS DO NOT APPROVE IT OR
IF OTHER CONDITIONS ARE NOT SATISFIED OR WAIVED.
The merger agreement contains a number of conditions that must be satisfied
in order for the merger to take place. These conditions include:
- the shareholders of GreyStone must approve the merger;
- the Securities and Exchange Commission must declare Express Capital's
registration statement effective;
- Express Capital stock must continue to be quoted on the OTC-BB; and
- GreyStone and its counsel must have satisfactorily completed their due
diligence review of Express Capital.
GreyStone is not obligated to complete the merger if the other conditions
are not satisfied. Please understand that there is no guarantee that the
conditions to the merger will be satisfied, or that the merger will occur in the
time frame contemplated, if at all.
GREYSTONE SHAREHOLDERS WILL INCUR AN APPROXIMATE 3% DILUTION AS A RESULT OF THE
MERGER.
The percentage ownership of GreyStone by its shareholders will be reduced
or diluted by about three percent (3%) as a result of the merger. GreyStone's
shareholders will receive one share of Express Capital common stock in the
merger for each share of GreyStone common stock they own before the merger.
Since Express Capital shareholders will retain 480,000 shares of Express Capital
common stock after the merger, the effect of the merger will be to reduce the
ownership interest of the GreyStone shareholders as a group from 100% to
approximately 97%.
THERE HAS BEEN LIMITED PUBLIC MARKET FOR EXPRESS CAPITAL STOCK, AND THE STOCK
PRICE IS LIKELY TO BE HIGHLY VOLATILE.
Express Capital common stock is quoted on the OTC-BB. Its total average
daily trading volume during the 30 day period preceding the date of this proxy
statement/prospectus was shares with an average daily total fair
market value of $ (based on the daily high bid price). Before July 15,
1997 (26 days before the announcement of the merger), no market makers quoted
bid prices for Express Capital common stock and there was no public market for
such shares. Since July 15, 1997 there have been no trades in Express Capital
common stock on many days, and frequently none for several days, even though
prices may be quoted on those days. There can be no assurance that the trading
volume or price for Express Capital common stock will increase as a result of
the merger.
13
<PAGE> 21
THE MARKET PRICE OF EXPRESS CAPITAL'S COMMON STOCK MAY BE SUBJECT TO SIGNIFICANT
FLUCTUATIONS.
Some factors which may cause fluctuation include:
- changes in the business, operations, financial results and prospects of
GreyStone;
- announcements of new products by competitors;
- general trends in the commercial software entertainment market;
- fluctuations in the stock market that are unrelated to the operating
performance of particular companies;
- market assessments of the likelihood that the merger will take place and
the timing of the merger;
- more shares of Express Capital stock being available for sale after the
merger;
- general market and economic conditions; and
- other factors, such as the exercise of warrants, options, or sale of new
common or preferred shares.
There can be no assurance as to the market price of Express Capital common
stock at the time of or after the merger.
IF EXPRESS CAPITAL STOCK IS DEEMED TO BE A "PENNY STOCK" FOLLOWING THE MERGER,
BROKER-DEALERS WILL NOT BE ABLE TO MAKE MARKETS WHICH WILL ADVERSELY AFFECT
LIQUIDITY AND EXPRESS CAPITAL STOCKHOLDERS MAY NOT BE ABLE TO READILY SELL
SHARES.
Express Capital common stock is a "penny stock," as defined in the Exchange
Act. Transactions in penny stocks by broker-dealers are regulated more heavily
than other transactions. These additional regulations could discourage some
broker-dealers from making a market in, and limit or prevent the development of
a more active market for, Express Capital common stock. Costs of transactions in
penny stocks may also be higher than the costs of transactions in other stocks.
BECAUSE 58% OF THE OUTSTANDING STOCK OF GREYSTONE IS BENEFICIALLY OWNED BY
DIRECTORS AND OFFICERS AS A GROUP, OTHER INVESTORS WILL HAVE LITTLE INFLUENCE
OVER MANAGEMENT DECISIONS.
As of June 30, 1999, directors and executive officers of GreyStone, as a
group, beneficially owned approximately 58% of the outstanding stock of
GreyStone (including shares underlying exercisable options and warrants to
purchase GreyStone stock). Richard A. Smith, GreyStone's founder owns directly
and with his spouse, approximately 45% of the outstanding stock. After the
merger, directors and executive officers will beneficially own approximately 57%
of Express Capital's outstanding stock. As a result, the current directors and
executive officers of GreyStone, if acting together, would be able to control
most matters requiring the approval of the stockholders of Express Capital. The
voting power of these stockholders can delay or prevent a change in control of
Express Capital. See "GreyStone Management -- GreyStone Principal Shareholders."
GREYSTONE'S BOARD OF DIRECTORS WILL HAVE BROAD DISCRETION IN ISSUING PREFERRED
STOCK, WHICH MAY HAVE AN ADVERSE EFFECT ON THE RIGHTS OF THE HOLDERS OF COMMON
STOCK.
After the merger, the board of directors of Express Capital will be
authorized to issue 3,000,000 shares of preferred stock without any vote or
action by the stockholders of Express Capital. The board of directors will have
the authority to issue preferred stock in one or more series and to fix the
rights, preferences, and restrictions thereof, including:
- Dividend rights and rates,
- Conversion rights,
- Voting rights,
- Terms of redemption,
- Redemption prices,
14
<PAGE> 22
- Liquidation preferences, and
- The number of shares constituting a series or the designation of such
series.
Express Capital and GreyStone believe the power to issue preferred stock
provides desirable flexibility in connection with possible acquisitions or other
corporate purposes. However, the issuance of preferred stock could have the
effect of delaying, deferring or preventing a change of control of Express
Capital without further actions by the stockholders. In addition, it may
adversely affect the market price of the common stock and the voting rights of
the holders of common stock. Express Capital has no current plans to issue any
shares of preferred stock.
GREYSTONE WILL HAVE A CLASSIFIED BOARD OF DIRECTORS WHICH MAY DISCOURAGE
TAKEOVERS.
After the merger the directors of Express Capital will be divided into
three classes serving staggered three-year terms. This classified board could
discourage proxy fights and other attempts to gain control of Express Capital.
RISKS RELATED TO GREYSTONE'S OPERATIONS
GREYSTONE'S REVENUES ARE PRINCIPALLY GENERATED FROM SALES AND SERVICES TO THE
U.S. GOVERNMENT AND ITS CONTRACTORS.
To date, substantially all of GreyStone's revenues have come from sales and
services to U.S. government agencies and contractors. GreyStone's contracts are
subject to funding limitations for the convenience of the government.
Cancellations or delays of government projects or activities will have a
significant impact on GreyStone's results of operations and financial condition.
Because GreyStone tends to work on only a few projects at any time,
cancellations or delays can affect GreyStone more adversely than larger
companies.
It is possible that the U.S. government may spend less money on
military-related technology in the future or that GreyStone in any event will
not be successful in attracting new government business in the future. While the
total amount of expenditures should remain in the billions of dollars and
GreyStone believes that an increasing proportion of these expenditures will be
budgeted to software and related technologies, there can be no assurance that
the purchases by the U.S. government or its contractors will remain at or above
current levels. Any inability by GreyStone to offset declines in government
business with sales to the commercial market or other governments would affect
GreyStone materially and adversely. See "GreyStone Business -- Government Market
and Products" and "GreyStone Management's Discussion and Analysis of Financial
Condition and Results of Operation."
GREYSTONE'S GOVERNMENT CONTRACTS CAN BE TERMINATED AT ANY TIME.
All government contracts and, in general, subcontracts under them may be
terminated at any time at the convenience of the United States Government.
Government contracts also may be canceled if the necessary funds are not
appropriated by Congress. Since Congress normally appropriates funds only one
fiscal year at a time, longer term government contracts are usually only partly
funded at any time. If any of GreyStone's government contracts or subcontracts
were to be terminated or canceled, GreyStone generally would only be entitled to
receive payment for work completed and allowable termination or cancellation
costs. Termination or cancellation of GreyStone's contracts or subcontracts
could have a material adverse effect on GreyStone.
GREYSTONE'S ENTERTAINMENT BUSINESS HAS GENERATED LIMITED REVENUES AND ITS VALUE
IS DIFFICULT TO EVALUATE.
In 1993, GreyStone decided to create commercial entertainment products
using technologies developed in connection with its government business. Before
March 31, 1997, GreyStone generated revenues of approximately $796,000 from its
entertainment products. Since that date, while developing and testing the new
products on lower cost computer platforms, GreyStone has had no material amount
of revenues from its entertainment products. GreyStone continues to invest in
its commercial entertainment products. No assurance can be given that these
products will be successful or that GreyStone will have material revenues from
these products over the next 12 months or at all.
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GREYSTONE'S CONTINUED INABILITY TO SUCCESSFULLY MARKET XS-G COULD ADVERSELY
AFFECT GREYSTONE'S BUSINESS AND RESULTS OF OPERATIONS.
GreyStone started marketing its current game, XS-G, during the first
calendar quarter of 1999. To date, GreyStone has not consummated any sales of
XS-G. GreyStone's continued inability to sell XS-G could have a material adverse
effect on its business and results of operations.
GREYSTONE MAY INCUR ADDITIONAL LOSSES AS IT CONTINUES TO MARKET AND DEVELOP ITS
ENTERTAINMENT PRODUCTS.
GreyStone has incurred losses in each fiscal year since 1993 when it
embarked on the development of entertainment products. These losses have been
primarily due to the lack of any significant entertainment revenues, substantial
research expenses and other costs incurred in the development and introduction
of its government and entertainment products. GreyStone has yet to generate
significant revenues from these products and there can be no assurance of
significant sales or any profits from of its entertainment products.
GREYSTONE'S EXCLUSIVE AGREEMENT WITH ONE COMPANY TO MARKET, PRODUCE AND
DISTRIBUTE ITS ENTERTAINMENT SOFTWARE COULD CONSTRAIN ITS ABILITY TO GENERATE
FUTURE REVENUES.
GreyStone has an exclusive license agreement with one company to market,
produce and distribute entertainment systems with GreyStone's current game,
XS-G, and to pay GreyStone a fee after the sale of each XS-G system. If this
party fails to market, produce and distribute the entertainment systems, or
properly pay GreyStone upon the sale of the product, there could be an adverse
effect on GreyStone's business and results of operations.
GREYSTONE IS LIKELY TO NEED ADDITIONAL CAPITAL IN THE FUTURE, WHICH MAY NOT BE
AVAILABLE ON ACCEPTABLE TERMS.
To finance its business plan and negative cash flow GreyStone has
continually needed to obtain debt and equity financing on a private basis and
satisfy creditors with stock rather than by payment of cash. Cash deficiencies
in the past have required GreyStone to defer payment of its then due obligations
and impeded its operations and development. Although GreyStone has been able to
fund operations by selling shares and borrowing, there is no assurance that it
can continue to do so.
GreyStone obtained approximately $2,425,000, $3,153,000, and $4,232,000 in
the fiscal years ended March 31, 1999, 1998 and 1997, respectively, from private
placements of common stock and eliminated approximately $7,192,000 of debt by
obtaining the creditors agreements to convert the debt into common stock. The
proceeds of the cash sales were used primarily to fund cash used in operating
activities in excess of revenues. Subsequent to March 31, 1999 and through the
date of this filing GreyStone obtained net proceeds of approximately $3,356,000
from the private placement sale of approximately 583,000 shares of common stock
at a price of $6 per share to existing shareholders and other accredited
investors. As a result, after paying certain debt and operational obligations
GreyStone's cash position increased from $795,000 on March 31, 1999 to
approximately $2,000,000 at June 30, 1999. On March 31, 1999, GreyStone's total
current assets were $995,957 and total liabilities were $1,801,363, which
resulted in a working capital deficiency of $805,406. By June 30, 1999 GreyStone
had a working capital surplus of approximately $1,500,000.
Since Express Capital will have no cash or other significant assets when
the merger is closed, the merger itself will not improve the immediate or
long-term financial position of GreyStone. No assurance can be given that
additional equity capital or borrowings will be available to GreyStone on
favorable terms, if at all. Nor is there any assurance that GreyStone's results
from operations will improve, or that its financial condition will continue to
improve.
GreyStone presently anticipates that its expenditures will continue to
exceed its revenues from its operations if there is not a significant
improvement in its revenues. If there are any significant delays in raising
additional capital or if its revenues do not increase substantially, then
GreyStone may face the risk of not having enough cash or other resources to
continue to operate its current business plan. Without increased revenues, or
the ability to raise additional capital, GreyStone could be compelled to curtail
or even cease operations. If this were to happen, GreyStone shareholders could
lose all or part of their investment.
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GREYSTONE'S QUARTERLY RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND MAY BE
BELOW THE EXPECTATIONS OF ANALYSTS AND INVESTORS.
GreyStone's quarterly revenues, operating results and cash flows vary. Factors
which cause this fluctuation include:
- the uncertainty in timing of the payments on government contracts;
- the reduction in size, delay in starting-time, interruption, or
termination of one or more significant projects or contracts during a
quarter;
- the delays in the research, development and introduction of new products;
and
- general economic conditions which may affect the ability of GreyStone to
sell its products to the government, government contractors and in the
entertainment markets.
The timing of payments on government contracts depends on government
project schedules. When a project does not start on time or proceeds slowly
GreyStone's financial condition and results of operations can be harmed. Because
a majority of GreyStone's operating expenses, including salaries, depreciation
and rent, are largely fixed before a quarter begins, GreyStone has only a
limited ability to protect itself from these delays. GreyStone believes that
quarterly revenues and operating results are likely to vary significantly in the
future and that period-to-period comparisons of its revenues and operating
results are not necessarily meaningful and should not be relied upon as
indications of future performance. See "GreyStone Management's Discussion and
Analysis of Financial Condition and Results of Operations."
GREYSTONE WILL NOT BE ABLE TO ACCURATELY PREDICT THE SUCCESS OF ITS FUTURE
OPERATIONS AND YOU SHOULD NOT RELY ON GREYSTONE'S FORWARD-LOOKING STATEMENTS.
Forward-looking statements have been made in "Questions and Answers About
The Merger", "Summary", "The Merger and Related Transactions -- Background of
the Merger", "The Merger and Related Transactions -- Recommendations of the
Boards of Directors and Reasons for the Merger" and elsewhere in this document.
Forward-looking statements are all those which are not about historical fact,
and include, but are not limited to, information concerning:
- business strategy, future operations and results of operations;
- the ability of GreyStone to continue its operations after the merger is
completed;
- the ability of GreyStone's shareholders to sell their shares in the
over-the-counter market;
- the ability of GreyStone to raise additional capital after the merger is
completed; and
- other statements which include "believes," "expects," "anticipates,"
"intends," "estimates" or similar expressions.
While these statements are based on GreyStone's current expectations, they
are subject to important risks and uncertainties and should not be relied on as
predictions of what will happen. Factors that may cause actual results to differ
from the statements which have been made include, but are not limited to, the
other risk factors discussed in this document. Forward-looking statements should
not be seen as representations that they will be realized, and Express Capital
is assuming no obligation to update them if they should become aware that the
statements may not be realized.
GREYSTONE DEPENDS ON KEY ENGINEERING, TECHNICAL, AND OTHER PERSONNEL SKILLED IN
GOVERNMENT CONTRACTING AND MAY HAVE DIFFICULTY RETAINING AND ATTRACTING THESE
SKILLED EMPLOYEES IN THE FUTURE.
GreyStone's future success depends to a significant extent on the continued
service of its senior management and other key employees. The loss of any of
these individuals could have a material adverse effect on GreyStone's business
and results of operations. GreyStone also believes that its future success will
depend, in large part, on its ability to attract and retain highly skilled
employees in a variety of disciplines. Competition for such employees within the
computer industry is intense, and there can be no assurance that
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GreyStone will be successful in attracting and retaining such personnel. See
"GreyStone Business -- Employees" and "GreyStone Management."
GREYSTONE MAY BE HELD LIABLE FOR A PRODUCT LIABILITY CLAIM.
Testing, producing, marketing and using GreyStone's products may entail a
risk of product liability. While GreyStone maintains product liability insurance
in amounts that it believes adequate, there can be no assurance that GreyStone
will be able to maintain such insurance at reasonable costs or in sufficient
amounts. An inability to maintain adequate insurance or to otherwise protect
GreyStone against potential product liability could prevent or inhibit the
commercialization of GreyStone's products. In addition a product liability claim
or recall could have a material adverse effect on GreyStone's business and
results of operations.
GREYSTONE COULD LOSE REVENUES AND INCUR LIABILITY IF ITS PRODUCTS ARE NOT YEAR
2000 COMPLIANT.
Many computer systems and software products are coded to use only the last
two digits to refer to a year. Therefore, these computer programs do not
properly recognize a year that begins with "20" instead of the familiar "19."
Within the next year, the date code fields will need to accept four digit
entries to distinguish 21st century dates from 20th century dates. If not
corrected, many computer applications could fail or create erroneous results.
Computer systems and software used by many companies will need to be upgraded to
comply with such year 2000 requirements.
GreyStone uses a significant number of computer software programs and
operating systems in connection with its products, services and internal
operations. The software and systems have been reviewed and are being updated
with a view towards year 2000 compliance. Although GreyStone believes that its
products are compliant, if all of GreyStone's customers or suppliers' computer
systems are not year 2000 compliant, problems that they experience could affect
GreyStone's research and development, financial, administrative and
communication operations. See "GreyStone Management's Discussion and Analysis of
Financial Conditions and Results of Operations -- Year 2000 Compliance."
RISKS RELATED TO THE DIGITAL TECHNOLOGY MARKET
GREYSTONE'S MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE AND ITS
PRODUCTS AND SERVICES COULD BECOME OBSOLETE OR FAIL TO GAIN MARKET ACCEPTANCE.
GreyStone's success will depend on its ability to develop and introduce
products which keep pace with the technological advances in a number of
different disciplines, and to respond to rapidly changing customer preferences
and tastes. GreyStone must also introduce new and innovative entertainment
products frequently to attract and maintain consumer interest. There is no
guarantee that GreyStone can give assurance that it will be successful in
developing or marketing products that incorporate technological advances, or
that adequately address changing customer preferences on a timely basis, if at
all. Furthermore, even if GreyStone is able to successfully develop and market
products that incorporate technological advances, there is no guarantee that
these products will gain customer acceptance.
GREYSTONE MAY EXPERIENCE DELAYS IN PRODUCT INTRODUCTION OR DEFECTS IN SOFTWARE
CODE WHICH COULD ADVERSELY AFFECT ITS BUSINESS AND RESULTS OF OPERATIONS.
GreyStone could experience delays in new product introductions. GreyStone's
new products could contain undetected or unresolved errors in the software code
base when they are first introduced or when newer versions of the earlier
products are released. Despite extensive testing, GreyStone may not detect all
software errors in its new products and product upgrades. Delays in product
introductions and undetected errors in software could result in an inability of
GreyStone products to gain market acceptance. GreyStone's inability to resolve
these issues could have a negative effect on business and operations.
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FUTURE GROWTH FOR GREYSTONE'S ENTERTAINMENT PRODUCTS DEPENDS ON THE UNCERTAIN
DEMAND FOR 3-D SOFTWARE.
The market for 3-D software applications is new and is changing rapidly.
GreyStone believes that growth of the market for 3-D software has been
restricted by the following:
- the high costs of the hardware components necessary for 3-D software;
- an insufficient understanding of the software design and development
process for engaging 3-D software; and
- competition from other forms of out-of-home entertainment.
Because GreyStone's future growth depends on, among other things, the
growth in demand for 3-D software, if the 3-D software market fails to develop
in a timely manner, or at all, GreyStone's results of operations may suffer. In
addition, there can be no assurance that, to the extent the 3-D software market
develops, GreyStone's products will be accepted by customers.
ENTERTAINMENT AND GOVERNMENT MARKETS ARE INTENSELY COMPETITIVE AND GREYSTONE MAY
NOT BE ABLE TO COMPETE SUCCESSFULLY.
Competition in the Entertainment Market
GreyStone's competitors range from small companies with limited resources
to large companies with greater financial, technical and marketing resources
than GreyStone. GreyStone believes that it competes against the following well
established companies, among others, in the interactive entertainment markets:
Disney, Atari, Electronic Arts, Inc., Lucas Arts Entertainment Company, Sony,
Sega, Nintendo, Atari, WMS Industries, Inc. ("Williams"), Midway Games, Inc.,
and Namco, Inc. GreyStone expects that the number of its competitors will
increase. GreyStone also believes that large entertainment and computer
companies are increasing their focus on the interactive 3-D software
entertainment market, which will further stimulate competition.
GreyStone plans to develop products for the in-home entertainment market,
which is a highly competitive market. Companies that have been in the market
longer, have greater financial resources and brand recognition as well as
greater consumer loyalty than GreyStone, are able to make larger investments in
research and development and engage in more extensive marketing and promotional
campaigns. These companies may also be able to carry larger inventories, adopt
more aggressive pricing policies, have more extensive channels of distribution,
and generally make better and more attractive offers to customers.
GreyStone believes that the following well established companies are some,
but not all, of its principal competitors in the in-home entertainment markets:
Acclaim Entertainment Inc., Broderbund Software, Inc., Eidos Interactive, Inc.,
Electronic Arts, Interplay Productions, Midway, Namco Limited, Nintendo, Sega,
Sony, and Williams.
Competition in the Government Market
GreyStone competes against established corporations that have substantially
greater resources than GreyStone. GreyStone has often worked closely with
several companies as a sub-contractor, but there can be no assurances that
GreyStone will be successful in maintaining or enhancing these relationships in
the future. GreyStone considers its principal competitors for government
products and services to include SAIC, Cubic Corporation, Logicon, TRW and
others. There can be no assurance that GreyStone will be able to compete with
these and other companies for future government contracts. Even if GreyStone is
awarded contracts, there can be no assurance that the contracts will be on terms
favorable to GreyStone.
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Factors Affecting Competition
GreyStone believes that competition will intensify in the future, and that
its ability to compete successfully depends on a number of factors, including
the following:
- GreyStone's market presence;
- the reliability and quality of its software products and the hardware on
which GreyStone's software products operate;
- the pricing and timing of services and products by GreyStone and its
competitors;
- GreyStone's ability to retain and attract qualified and experienced
engineering and other technical personnel,
- GreyStone's ability to react to changes in the market; and
- industry and economic trends.
While GreyStone believes that its products may compare favorably to those
offered by competitors, there can be no assurance that GreyStone's products will
gain market acceptance or that they will compete successfully. Moreover,
competitors might develop products or technologies that will have broader market
acceptance than GreyStone's or make GreyStone's products non-competitive for
other reasons. In addition, GreyStone believes that the game industry is
consolidating, which may lead to the creation of larger, better-financed
competitors. If GreyStone is not able to compete effectively with other 3-D
software vendors, GreyStone's business and results of operations will be harmed.
GREYSTONE DEPENDS LARGELY ON ITS INTELLECTUAL PROPERTY, FOR WHICH LEGAL
PROTECTION MAY NOT BE AVAILABLE NOR SUFFICIENT.
GreyStone relies on a combination of patent, trade secret, contract,
copyright and trademark law to protect its products and technology. As of March
31, 1999, GreyStone had one patent issued, one registered copyright and two
registered trademarks.
While GreyStone generally enters into confidentiality and/or license
agreements with its employees, customers and potential customers and limits
access and distribution of its products, documentation and other proprietary
information, there can be no assurance that these steps will be sufficient to
prevent the theft or independent third party development of its technology.
IF TECHNOLOGY OR INTELLECTUAL PROPERTY OF GREYSTONE INFRINGES ON THE
INTELLECTUAL PROPERTY OF OTHERS, GREYSTONE MAY INCUR LIABILITIES AND EXPENSE AND
MAY BE REQUIRED TO STOP USING THE INFRINGING TECHNOLOGY.
While GreyStone believes that its technology does not infringe upon the
intellectual property rights of other parties, there can be no assurance that
third parties will not assert infringement claims against GreyStone. If any such
claims are asserted and upheld, there could be a material adverse effect on
GreyStone's business and results of operations.
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GREYSTONE SPECIAL MEETING
DATE, TIME AND PLACE OF SPECIAL MEETING
The special meeting will be held at 9:00 a.m., California Time, on
, 1999 at GreyStone's principal executive offices located at 4950
Murphy Canyon Road, San Diego, California 92123.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, GreyStone shareholders will consider and vote upon
the merger proposal.
RECORD DATE; SHARES ENTITLED TO VOTE
The GreyStone board has fixed the close of business on , 1999
as the record date for the special meeting. Only holders of record of GreyStone
common stock as of the record date are entitled to notice of and to vote at the
special meeting. As of the close of business on the record date, there were
shares of GreyStone common stock issued and outstanding and held by
holders of record. Holders of GreyStone common stock are entitled to
one vote for each share of GreyStone common stock held of record at the close of
business on the record date.
QUORUM; REQUIRED VOTE
The presence, in person or represented by properly executed proxy, of the
holders of a majority of the outstanding shares of GreyStone common stock
entitled to vote at the special meeting is necessary to constitute a quorum for
the conduct of business at the special meeting. Abstentions will be counted as
shares present for purposes of determining the presence of a quorum but will not
be counted as votes cast for purposes of determining whether the merger proposal
has received sufficient votes for adoption and approval. Consequently,
abstentions will have the same effect as a vote AGAINST the adoption and
approval of the merger proposal.
Approval of the merger proposal will require the affirmative vote of the
holders of a majority of the shares of GreyStone common stock outstanding as of
the record date and entitled to vote on the merger proposal. As of the record
date, GreyStone's directors and executive officers and their respective
affiliates beneficially held a majority of the shares of GreyStone common stock
outstanding on the Record Date. Such persons have indicated that they intend to
vote all of their shares of GreyStone common stock FOR APPROVAL OF THE MERGER
PROPOSAL. Such vote will alone be sufficient to approve and adopt the merger
proposal.
VOTING OF PROXIES
The GreyStone proxy accompanying this proxy statement/prospectus is being
solicited on behalf of the GreyStone board for use in voting at the special
meeting. Shares of GreyStone common stock represented by properly executed
proxies, if such proxies are received in time and are not revoked prior to the
vote, will be voted in accordance with the instructions indicated on the
proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH PROXIES WILL BE VOTED FOR
ADOPTION OF THE MERGER PROPOSAL.
REVOCABILITY OF PROXIES
A GreyStone shareholder who has given a proxy may revoke it at any time
prior to its exercise at the special meeting by
(1) giving written notice by any means (including telefacsimile),
bearing a date later than the date of the proxy, stating that the proxy has
been revoked,
(2) properly submitting to GreyStone prior to the vote at the special
meeting, a duly executed proxy bearing a later date, or
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(3) attending the special meeting and voting in person (although
attendance at the special meeting will not, by itself, revoke a proxy).
All written notices of revocation and other communications with respect to
revocation of proxies should be delivered to GreyStone's executive offices at
4950 Murphy Canyon Road, San Diego, CA 92123, Attn: Corporate Secretary.
SOLICITATION OF PROXIES; EXPENSES
GreyStone will bear the entire cost of soliciting proxies for the special
meeting, including the cost of printing, assembly and mailing of this proxy
statement/prospectus, the proxy and any additional information furnished to its
shareholders. In addition to the solicitation of proxies by mail, GreyStone may
supplement such solicitation by telephone or personal contact by directors,
officers or other employees of GreyStone. No additional compensation will be
paid to such persons in connection with such solicitation.
BOARD RECOMMENDATION
THE GREYSTONE BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF
GREYSTONE AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
THE MERGER PROPOSAL.
EXPRESS CAPITAL APPROVALS
APPROVAL OF THE MERGER
On October 19,1998, Earnest Mathis, Jr., as the sole member of the boards
of directors of both Express Capital and Express Capital Sub, approved the
merger proposal. On July 27, 1999, Mr. Mathis approved the amended and restated
first amendment to the merger agreement. Express Capital, as the sole
stockholder of Express Capital Sub, approved the merger proposal on March 2,
1999. The stockholders of Express Capital are not entitled to vote on the merger
proposal.
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THE MERGER AND RELATED TRANSACTIONS
The following information describes certain information pertaining to the merger
proposal. This description does not purport to be complete and is subject to,
and qualified in its entirety by, reference to the annexes hereto, including the
merger agreement, a copy of which is set forth in Annex A to this proxy
statement/ prospectus and incorporated herein by reference. GreyStone
shareholders are urged to read the annexes in their entirety.
GENERAL
The merger will be consummated promptly after the approval by the GreyStone
shareholders of the merger proposal and upon the satisfaction or waiver of all
of the conditions to the consummation of the merger (the "closing date"). The
merger will become effective on the date and time a properly executed
certificate of merger is filed with the offices of the Secretaries of State of
the States of Delaware and California (the "effective time"). As of the
effective time, GreyStone will be merged with and into Express Capital Sub, with
the result that GreyStone will cease to exist and Express Capital Sub will be
the surviving corporation in the merger and remain a wholly-owned subsidiary of
Express Capital (the "surviving corporation").
Prior to consummation of the merger, Express Capital will:
(A) file an amended and restated certificate of incorporation (the "Express
Capital restated certificate") to, among other things,
- establish its authorized capital stock as 30,000,000 shares of
common stock and 3,000,000 shares of preferred stock,
- change its name to "GreyStone Digital Technology, Inc.,"
- effect a 1-for-41.66667 reverse split of its outstanding common
stock and
- adopt a classified board of directors,
(B) amend and restate its bylaws (the "Express Capital restated bylaws")
and
(C) elect, effective upon the effectiveness of the merger, a new board of
directors to consist of Richard A. Smith, Thomas D. Aldern and Jon M.
Reynolds.
In addition, in connection with the merger, Express Capital will become
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). A copy of the Express Capital restated certificate
and a copy of the Express Capital restated bylaws are set forth in their
entirety as Annex C and Annex D to this proxy statement/prospectus.
CONVERSION OF SHARES
At the effective time and without any action on the part of Express
Capital, Express Capital Sub or GreyStone, each share of GreyStone stock
outstanding immediately prior to the effective time shall be converted into the
right to receive one share of Express Capital stock. The total number of shares
of Express Capital stock to be issued to the GreyStone shareholders under the
merger agreement is hereinafter referred to as the "merger shares." As of the
record date, there were issued and outstanding shares of GreyStone
stock held by holders of record. An aggregate of shares of
Express Capital stock will be issued in the merger to the former holders of
GreyStone stock, representing approximately 97% of the total shares of Express
Capital stock to be outstanding immediately after the consummation of the merger
(calculated assuming the issuance of merger shares and based upon
480,000 shares of Express Capital stock assumed to be outstanding after giving
effect to the reverse split. Because the former holders of GreyStone stock will
become holders of Express Capital stock as a result of the merger, their rights
as stockholders will be governed by Delaware law and the Express Capital
restated certificate and Express Capital restated bylaws. See "Comparison of
Rights of GreyStone Shareholders and Express Capital Stockholders."
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None of the shares of Express Capital stock outstanding prior to the
consummation of the merger will be converted or otherwise modified in the merger
and all of such shares will continue to be outstanding capital stock of Express
Capital after the effective time.
Effect on outstanding GreyStone options and GreyStone warrants. At the
effective time, Express Capital will assume all options and warrants issued by
GreyStone outstanding immediately prior to the effective time. In accordance
with their terms, each such GreyStone option and warrant will become the right
to acquire, on the same terms and conditions as were applicable to such
GreyStone option or warrant outstanding as of the effective time, that number of
shares of Express Capital common stock to which the holder of such GreyStone
option or warrant would have been entitled to receive pursuant to the merger had
such GreyStone option or warrant been exercised in full prior to the effective
time. In addition, Express Capital shall offer to issue warrants to purchase
986,750 shares of Express Capital stock (the "Express Capital warrants") to
Chathams Rowe Venture Partners in exchange for certain warrants issued to
Chathams Rowe by GreyStone. These warrants owned by Chathams Rowe currently
allow it to purchase 986,750 shares of GreyStone. The Express Capital warrants
will contain substantially the same terms and conditions as the warrants for
which they are being exchanged. Following the merger, an aggregate of
shares of Express Capital stock will be issuable upon the exercise of GreyStone
options and warrants outstanding as of the record date.
Fractional Shares. As of the record date, there were no fractional shares
of GreyStone stock outstanding. Because each outstanding share of GreyStone
stock will be entitled to receive one share of Express Capital stock pursuant to
the terms of the merger agreement, there will be no fractional shares issued in
the merger.
BACKGROUND OF THE MERGER
Express Capital. As discussed under "Express Capital Business" elsewhere
herein, Express Capital was formed primarily to serve as a vehicle to effect a
business combination with a private company.
Prior to July 1997, Earnest Mathis, Jr., Express Capital's sole director
and executive officer, reviewed approximately 20 prospective companies with
which to conduct a business combination (each a "target business").
In evaluating a prospective target business, Express Capital looked
primarily for private companies of two different types:
(1) companies with a history of revenues and earnings that Express Capital
believed had the potential to grow and to be well-received in the
securities markets; and
(2) companies with technology that Express Capital believed had the
potential for commercial success and an enthusiastic reception in the
securities markets, and where the individuals involved seemed to have the
skills necessary to develop the company's technology and to raise the
capital that the company would need to grow.
In February 1995, Express Capital entered into a letter of intent to
acquire a target business, but that acquisition terminated in March 1996.
Contacts between the parties
On May 12, 1997, GreyStone engaged Olympic Capital Group, Inc. to serve as
an investment advisor for GreyStone.
In June 1997, John Lowy of Olympic Capital introduced Richard A. Smith,
GreyStone's Chairman and Chief Executive Officer, to Earnest Mathis, Jr. ,
Express Capital's Chairman and Chief Executive Officer. On June 19, 1997, Mr.
Mathis met with, among others, Mr. Smith to discuss generally the business and
affairs of GreyStone and a possible business combination involving Cancun
Acquisition, Inc., a company affiliated with Mr. Mathis. During the meeting, Mr.
Smith expressed GreyStone's desire to effect a business combination with a
publicly-traded company in order to enhance GreyStone's ability to raise
additional capital in the public markets.
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GreyStone will issue warrants to purchase 853,200 shares of GreyStone
Technology Inc. stock as consideration for financial and advisory services
rendered by Olympic Capital Group, Inc., Allen Gelbard, and Michael Pocaterra in
introducing GreyStone to Express Capital Concepts. These warrants will have an
exercise price of $4.95 per share (110% of the price at which stock was sold at
the time GreyStone and Olympic Capital entered into the services agreement),
will have a term of five years from the date the merger is completed and will be
immediately exercisable following the merger. The stock underlying these
warrants is being registered in the registration statement on Form S-4 filed by
Express Capital Concepts, Inc. relating to the merger, of which this proxy
statement/prospectus is a part.
On or about June 19, 1997, Mr. Mathis suggested to Mr. Smith that a
business combination between GreyStone and Express Capital would be more
consistent with GreyStone's objectives since Cancun was not publicly traded. On
or about July 3, 1997, Mr. Mathis contacted Mr. Smith inquiring as to whether
GreyStone would be interested in discussing a possible business combination with
Express Capital. Mr. Smith responded favorably to Mr. Mathis' inquiry, and in
response thereto, there were numerous telephone conversations between Messrs.
Mathis and Smith relating to various aspects of the potential merger, including
in-depth discussions concerning the type and amount of consideration to be
received in the merger. Since Express Capital was expected to have no assets and
no business, they agreed that the shares retained by the Express Capital
stockholders would equal approximately 3% of the total number of shares to be
outstanding after the merger. Once the parties concluded that GreyStone would
retain approximately 97% of the combined company, they agreed that Express
Capital would put into effect a 1-to-41.66667 reverse stock split before the
merger to adjust the number of shares held by its stockholders.
Following these discussions, representatives of Express Capital and
GreyStone negotiated a letter of intent outlining the basic structure, terms and
conditions of the merger. The letter of intent was discussed and approved by the
GreyStone board at a meeting held on July 10, 1997. The letter of intent was
executed on behalf of Express Capital and GreyStone on or about July 10, 1997.
After signing of the letter of intent, each of Express Capital and
GreyStone commenced due diligence investigations of the other and counsel to the
companies began drafting the merger agreement.
As part of the due diligence review, on July 22, 1997, Gary McAdam, a
co-founder of Express Capital, met with Mr. Smith at GreyStone's offices to
discuss generally the business and affairs of GreyStone and Express Capital. On
August 25, 1997, Thomas King, GreyStone's Chief Financial Officer met with Mr.
Mathis at Express Capital's offices to discuss generally the business and
affairs of Express Capital and to conduct other due diligence of Express
Capital.
During July and the first week of August 1997, Messrs. Mathis and Smith,
along with Express Capital's and GreyStone's respective counsel, held numerous
telephone conference calls to negotiate the final terms of the proposed merger
and an agreement and plan of merger and reorganization (the "agreement of
merger"). After having reached resolution on all principal open issues,
GreyStone convened a special meeting of its board of directors at which the
agreement of merger, the merger and the other transactions contemplated thereby
were discussed and reviewed. Thereafter, the board of directors of GreyStone
unanimously adopted and approved the agreement of merger, the merger and the
transactions contemplated thereby.
In August 1997, Earnest Mathis, as the sole director of Express Capital and
Express Capital, approved the agreement of merger, the merger and the
transactions contemplated thereby. In August 1997, the agreement of merger was
executed and delivered by each of the parties thereto.
Between August 1997 and September 1998, GreyStone attempted to raise
additional capital to cover the expenses associated with the proposed merger and
GreyStone's desire to have the common stock of Express Capital listed on the
Nasdaq SmallCap Market. In September 1998, after failing to raise any
significant amounts of additional capital, GreyStone nevertheless determined to
proceed with the merger.
In October 1998 and July 1999, the parties negotiated an amendment to the
agreement of merger to, among other things, restructure the merger so that the
surviving corporation in the merger would be Express Capital Sub as opposed to
GreyStone to maintain the tax-free nature of the transaction. See "-- The
Merger -- Material Federal Income Tax Consequences."
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Neither of the respective boards of directors of Express Capital or
GreyStone requested or received, or will receive, an opinion of an independent
investment banker as to whether the merger is fair, from a financial point of
view, to Express Capital and its stockholders, on the one hand, or GreyStone and
its shareholders, on the other hand.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS AND REASONS FOR THE MERGER
Express Capital's reasons for the merger. In considering the merger, the
Express Capital board took note of, among other things, the criteria for
evaluating a prospective target business set forth under "Background of the
Merger" above. After evaluating GreyStone in light of Express Capital's target
business criteria, the Express Capital board determined that the merger proposal
was fair to, and in the best interests of, Express Capital and the Express
Capital stockholders.
GreyStone's reasons for the merger. The GreyStone board believes that the
merger will enhance the combined company's ability to raise capital in the
private and public markets. In addition, GreyStone's board of directors believes
that Express Capital's status as a company whose securities are quoted on the
OTC-BB would increase the visibility of the surviving corporation's business,
which could be helpful in further developing and commercializing GreyStone's
(and consequently, the surviving corporation's) products. The board of directors
of GreyStone determined that the merger proposal was fair to, and in the best
interests of, GreyStone and the GreyStone shareholders. THE GREYSTONE BOARD
UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER PROPOSAL.
THE MERGER AGREEMENT
The following summary of the terms of the merger agreement is qualified in
its entirety by reference to the merger agreement, included as Annex A to this
proxy statement/Prospectus.
Representations
Under the merger agreement, GreyStone has made a number of representations,
including among others representations regarding its:
- due organization and good standing,
- authority to conduct its business in the manner in which it is currently
being conducted,
- capitalization, and
- authority to enter into and perform the merger agreement and the other
transactions contemplated thereby.
Under the merger agreement, Express Capital, Express Capital Sub and Mr.
Mathis, as a major stockholder of Express Capital, have also made a number of
representations, including representations regarding:
- due organization and good standing of Express Capital and Express Capital
Sub,
- authority to conduct Express Capital's and Express Capital Sub's
respective businesses in the manner in which they are currently being
conducted,
- capitalization,
- accuracy of certain information provided to GreyStone,
- valid existence and enforceability of certain contracts of Express
Capital and Express Capital Sub,
- accuracy and completeness of certain financial statements of Express
Capital,
- disclosure of all assets and liabilities of Express Capital,
- compliance with laws,
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- tax matters,
- related party transactions,
- litigation, and
- authority to enter into and perform the merger agreement and the other
transactions contemplated thereby.
Covenants
Under the merger agreement, Express Capital has covenanted to:
- provide GreyStone and its representatives with access to Express
Capital's books and records (including financial information),
- notify GreyStone of any event, condition, fact or circumstance that
occurs between the date of the merger agreement and the effective time
that causes or constitutes any inaccuracy in or breach of any
representation or covenant made by Express Capital, Express Capital Sub
and Mr. Mathis in the merger agreement,
- use best efforts to ensure that at the effective time, Express Capital's
common stock will be listed for trading on the OTC-BB, and
- to effect a reverse stock split, as described more fully in Section 4.3
of the merger agreement.
Each of GreyStone, Express Capital, Express Capital Sub and Mr. Mathis also
have covenanted in the merger agreement to:
- make all filings and give all notices required to be made, and use
commercially reasonable efforts to obtain all consents required to be
obtained, in connection with the merger and the transactions contemplated
thereby,
- consult with each other prior to issuing any press release or otherwise
making any public statements with respect to the merger,
- cooperate with one another in providing any information necessary to be
included in any disclosure document provided to the GreyStone
shareholders or filed with any regulatory authority.
In addition, GreyStone has covenanted to call and hold a special meeting of
its shareholders for the purpose of voting on the merger and the transactions
contemplated thereby.
Conditions to Closing
In addition to the requirement that the merger agreement, the merger and
the transactions contemplated thereby be approved by the GreyStone shareholders,
the obligations of the parties to consummate the merger are conditioned upon,
among other things, the:
- accuracy of the representations made by the other party in the merger
agreement and the other agreements or instruments delivered by the
parties as of the closing date
- performance by the other party of its covenants,
- absence of any governmental restraints or orders preventing the
consummation of the merger, and
- absence of any governmental or other litigation seeking to prevent the
merger or litigation the outcome of which could have a material adverse
effect on the parties.
GreyStone's obligation to consummate the merger is further conditioned
upon, among other things,
- the absence of any material adverse effect on Express Capital or Express
Capital Sub,
- the receipt from Mr. Mathis and each current and former officer of
Express Capital certain releases,
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- receipt of lock-up agreements from certain stockholders of Express
Capital,
- receipt of certain legal opinions from counsel to Express Capital,
- the effective listing of Express Capital's common stock on the OTC-BB,
- the satisfactory completion of due diligence of Express Capital and
Express Capital Sub by GreyStone and its counsel, and
- the effectiveness of a registration statement filed with the Commission
covering the issuance of the merger shares.
Termination. At any time prior to the effective date, the merger agreement
may be terminated, and the merger abandoned under certain circumstances,
including
- by mutual consent of Express Capital and GreyStone,
- by either party if any of the other party's representations and
warranties contained in the merger agreement shall be or shall have
become inaccurate, or if any of the other party's covenants contained in
the merger agreement shall have been breached;
- by either party if a court of competent jurisdiction or other
governmental body shall have issued a final and nonappealable order,
decree or ruling, or shall have taken any other action, having the effect
of permanently restraining, enjoining or otherwise prohibiting the
merger;
- by either party if the merger has not been consummated by September 30,
1999;
- by GreyStone if the special meeting shall have been held and the merger
agreement shall not have been adopted and approved at such meeting by the
required vote; or
- by GreyStone if GreyStone reasonably determines that the timely
satisfaction of any condition to its obligations to consummate the merger
has become impossible or unlikely.
Indemnification. Pursuant to the terms of the merger agreement, Mr. Mathis
has agreed to personally hold harmless and indemnify Express Capital, GreyStone
shareholders, the surviving corporation and each of their respective
representatives (collectively, the "indemnitees"), from and against any damages
which are directly or indirectly suffered or incurred by any of the indemnitees
or to which any of the indemnitees become subject and which arise, directly or
indirectly, from any inaccuracy in or breach of any representation made by
Express Capital, Express Capital Sub or Mr. Mathis in the merger agreement or in
any document provided to GreyStone in connection with the transactions
contemplated by the merger agreement.
Expenses And Fees. Under the terms of the merger agreement, GreyStone will
bear the legal and accounting costs and expenses incurred by it with respect to
the merger and the other transactions contemplated thereby (including $2,500 of
the costs of preparing the pro forma financial statements included herein), and
Express Capital will bear all of the costs and expenses of its accountants,
$2,500 of the costs of preparing the pro forma financial statements included
herein, all of the other costs and expenses incurred by it prior to September 3,
1998, and $35,000 of the other costs and expenses incurred by it after September
3, 1998. GreyStone will bear all of the costs and expenses in excess of $35,000
incurred by Express Capital subsequent to September 3, 1998 with respect to the
merger agreement and the transactions contemplated thereby.
Amendment; waiver. The merger agreement may be amended only by a written
instrument duly executed on behalf of Express Capital, Express Capital Sub,
GreyStone and Mr. Mathis.
RELATED AGREEMENTS AND INTERESTS OF CERTAIN PERSONS IN THE MERGER
Lock-Up Agreements
In connection with the merger, Messrs. Mathis and McAdam, stockholders of
Express Capital, have entered into lock-up agreements with Express Capital
whereby Messrs. Mathis and McAdam have agreed to certain restrictions on their
ability to sell or otherwise transfer shares of Express Capital stock following
the
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consummation of the merger. Messrs. Mathis and McAdam are each permitted to sell
or otherwise transfer, during each three-month period occurring subsequent to
the closing, only that number of shares of Express Capital common stock held by
such persons that is equal to no more than one percent (1%) of the total shares
of common stock of Express Capital outstanding as of the closing date. All
restrictions on the sale or transfer of Express Capital common stock by Messrs.
Mathis or McAdam imposed under the lock-up agreements will expire on the date
that is 180 days after the closing date. Notwithstanding the foregoing, the
restrictions on transfer will not apply to bona fide gifts or transfers to
family members of Messrs. Mathis or McAdam, provided the recipient of such
shares agrees to be bound by the terms of the stockholder lock-ups. Immediately
after the consummation of the merger, Messrs. Mathis and McAdam will, in the
aggregate, hold approximately 3% of the outstanding common stock of Express
Capital.
Indemnification Agreement
In connection with the merger, GreyStone has agreed to indemnify, defend
and hold harmless, Mr. Mathis and his representatives from damages arising out
of:
- the issuance by GreyStone of any securities of GreyStone prior to the
effective date,
- any claims for rescission, breach of a representation or warranty, fraud,
and breach of contract in connection with the issuance of any securities
of GreyStone prior to the effective date, and
- any liability imposed under federal or state securities laws in
connection with the issuance of any securities of GreyStone prior to the
effective date.
Interests of certain persons in the merger
Pursuant to the terms of the merger agreement, upon the consummation of the
merger, the current directors and executive officers of GreyStone will become
the directors and executive officers of the surviving corporation. In addition,
Express Capital will cause Messrs. Smith, Aldern and Reynolds, the current
directors of GreyStone, to be elected to serve as the three directors of Express
Capital, effective upon the consummation of the merger.
OTHER MATTERS RELATED TO THE MERGER
Additional indemnity
In connection with the merger, Earnest Mathis has agreed to indemnify
Express Capital, Greystone and their administrators, successors and assigns
against any damages arising out of certain sections of the registration
statement, of which this proxy statement/prospectus is a part. Similarly,
Greystone has agreed to indemnify Mr. Mathis and his heirs, administrators,
successors and assigns against any damages arising out of certain other sections
of the registration statement or any failure to deliver this proxy
statement/prospectus to any person.
Material federal income tax consequences
The following discussion summarizes the material federal income tax
consequences of the merger that are generally applicable to holders of GreyStone
common stock. This discussion is based on currently existing provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed
treasury regulations thereunder and current administrative rulings and court
decisions, all of which are subject to change. Any such change, which may or may
not be retroactive, could alter the tax consequences to the GreyStone
shareholders, as described herein.
GreyStone shareholders should be aware that this discussion does not deal
with all federal income tax considerations that may be relevant to particular
shareholders in light of their particular circumstances, such as shareholders
who are dealers in securities, banks or insurance companies, are subject to the
alternative minimum tax provisions of the Code, are foreign persons, are
tax-exempt entities, are taxpayers holding stock as part of a conversion,
straddle, hedge or other risk reduction transaction, or who acquired their
shares in
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connection with stock option or stock purchase plans or in other compensatory
transactions. In addition, the following discussion does not address the tax
consequences of the merger under foreign, state or local tax laws or the tax
consequences of transactions effectuated prior to, concurrently with or after
the merger (whether or not such transactions are in connection with the merger).
ACCORDINGLY, ALL SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE SPECIFIC CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER IN THEIR
PARTICULAR CIRCUMSTANCES.
Neither Express Capital nor GreyStone has requested, or will request, a
ruling from the Internal Revenue Service with regard to any of the federal
income tax consequences of the merger. It is the opinion of J.H. Cohn LLP,
independent public accountants to GreyStone that the merger will constitute a
reorganization pursuant to Section 368(a) of the Code. Their opinion is based on
certain assumptions, as well as representations received from GreyStone, Express
Capital, Express Capital Sub and certain shareholders of GreyStone and is
subject to the limitations discussed below. Of particular importance are the
assumptions and representations relating to the "continuity of interest"
requirement discussed below. Moreover, their opinion will not be binding on the
IRS nor preclude the IRS from adopting a contrary position. The tax description
set forth below has been reviewed by J. H. Cohn LLP and in their opinion, it is
correct in all material respects.
Subject to the limitations and qualifications referred to herein, and as a
result of the merger's qualifying as a reorganization, the following federal
income tax consequences would, under currently applicable law, result:
- No gain or loss will be recognized for federal income tax purposes by the
holders of GreyStone common stock upon the receipt of Express Capital
common stock solely in exchange for such GreyStone common stock in the
merger.
- The aggregate tax basis of the Express Capital common stock so received
by GreyStone shareholders in the merger will be the same as the aggregate
tax basis of the GreyStone common stock surrendered in exchange therefor.
- The holding period of the Express Capital common stock so received by
each GreyStone shareholder in the merger will include the period for
which the GreyStone common stock surrendered in exchange therefor was
considered to be held, provided that the GreyStone common stock so
surrendered is held as a capital asset at the effective time of the
merger.
- Neither Express Capital nor GreyStone will recognize gain solely as a
result of the merger.
Characterizing the merger as a reorganization is dependent on certain
requirements. One key requirement is that there is a "continuity of interest"
with respect to the merger shares. Because the merger agreement was entered into
before the effective date of recent treasury regulations that relax the
continuity of interest requirement, the merger must satisfy the more restrictive
requirements described below. In order for the continuity of interest
requirement to be met, shareholders of GreyStone must not, pursuant to a plan or
intent existing at or prior to the effective time of the merger, dispose of so
much of
(1) their GreyStone common stock in anticipation of the merger, plus
(2) the Express Capital common stock received in the merger (collectively,
the "planned dispositions") such that the GreyStone shareholders, as a group,
would no longer have a "significant equity interest" in the GreyStone business
being conducted by the surviving corporation after the merger.
GreyStone shareholders will generally be regarded as having a significant
equity interest as long as the Express Capital common stock received in the
merger (after taking into account planned dispositions), in the aggregate,
represents a "substantial portion" of the entire consideration received by the
GreyStone shareholders in the merger. This requirement is frequently referred to
as the "continuity of interest" requirement. If the continuity of interest
requirement is not satisfied, the merger would not be treated as a
reorganization. The law is unclear as to what constitutes a "significant equity
interest" or a "substantial portion." The IRS ruling guidelines require fifty
percent (50%) continuity (although such guidelines do not purport to represent
the
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applicable substantive law). Accordingly, certain GreyStone shareholders have
executed and delivered to GreyStone continuity of interest certificates. The
continuity of interest certificates obtained from then shareholders contemplate
that the fifty percent (50%) standard will be applied. No assurance, however,
can be made that the "continuity of interest" requirement will be satisfied, and
if that requirement is not satisfied, the merger will not be treated as a
reorganization.
A successful IRS challenge to the reorganization status of the merger would
result in significant tax consequences. For example,
(1) GreyStone would recognize a corporate level gain or loss on the deemed
sale of all of its assets equal to the difference between
(A) the sum of the fair market value, as of the effective time, of the
Express Capital common stock issued in the merger and the amount of the
liabilities of Greystone assumed by Express Capital in the merger and
(B) GreyStone's basis in such assets; and
(2) GreyStone shareholders would recognize gain or loss with respect to
each share of GreyStone common stock surrendered equal to the difference between
the shareholder's basis in such share and the fair market value, as of the
effective time, of the Express Capital common stock received in exchange
therefor. In such event, a shareholder's aggregate basis in the Express Capital
common stock so received would equal its fair market value and the shareholder's
holding period for such stock would begin the day after the merger is
consummated.
Even if the merger qualifies as a reorganization, a recipient of Express
Capital common stock would recognize income to the extent that, for example, any
such shares were determined to have been received in exchange for services, to
satisfy obligations or in consideration for anything other than the GreyStone
common stock surrendered. Generally, such income is taxable as ordinary income
upon receipt. In addition, to the extent that GreyStone shareholders were
treated as receiving (directly or indirectly) consideration other than Express
Capital common stock in exchange for such shareholder's common stock, gain or
loss would have to be recognized.
THIS DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES OF THE MERGER TO HOLDERS
OF GREYSTONE WARRANTS AND OPTIONS OR THE TAX CONSEQUENCES OF THE EXCHANGES OF
WARRANTS BY CHATHAMS ROWE. HOLDERS OF SUCH SECURITIES SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO SUCH TAX CONSEQUENCES.
Restrictions on resales of Express Capital common stock by GreyStone
shareholders
The merger shares to be issued to the GreyStone shareholders in the merger
will have been registered under the securities act pursuant to the registration
statement, thereby allowing such shares to be freely traded without restriction,
except that any merger shares received by GreyStone shareholders who are deemed
to be "affiliates" (as such term is defined under the securities act) of
GreyStone prior to the merger or Express Capital after the merger may be sold by
them only in transactions permitted by the resale provisions of Rule 145 under
the securities act with respect to affiliates of GreyStone or Rule 144 under the
securities act with respect to affiliates of Express Capital. Generally, under
Rule 145, for one year following the effective time, an affiliate (together with
certain related persons) would be entitled to sell shares of Express Capital
common stock acquired in connection with the merger only through unsolicited
"brokers' transactions" or in transactions directly with a "market maker," as
such terms are defined in Rule 145. Additionally, the number of shares to be
sold by an affiliate (together with certain related persons and persons acting
in concert) within any three-month period for purposes of Rule 145 may not
exceed the greater of 1% of the outstanding shares of Express Capital common
stock or the average weekly trading volume of such stock during the four
calendar weeks preceding such sale. Rule 145 would only remain available,
however, to affiliates if Express Capital remained current with its
informational filings under the exchange act. One year after the effective time,
an affiliate would be able to sell such Express Capital common stock without
such manner of sale or volume
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limitations provided that Express Capital was current with its Exchange Act
informational filings and such affiliate was not then an affiliate of Express
Capital. Two years after the effective time, an affiliate would be able to sell
such shares of Express Capital common stock without any restrictions so long as
such affiliate had not been an affiliate of Express Capital for at least three
months prior thereto.
Accounting treatment
For accounting purposes, the merger will be treated as a purchase of
Express Capital by GreyStone since the holders of GreyStone common stock will
hold and have voting power with respect to approximately 97% of the total issued
and outstanding voting capital stock of Express Capital immediately following
the merger. After the effective time, Express Capital will change the end of its
fiscal year to March 31 from December 31.
Change of Auditors
After the effective time Express Capital will change its auditor to J.H.
Cohn LLP, which is presently the auditor for GreyStone.
Regulatory Approvals
Neither Express Capital nor GreyStone is aware of any governmental
regulatory approvals required to be obtained with respect to the consummation of
the merger, except for the filing of the certificate of merger with the offices
of the Secretaries of State of the States of Delaware and California, the filing
with the commission of the registration statement on Form S-4 registering the
merger shares and this proxy statement/prospectus which constitutes a part
thereof, and compliance with all applicable state securities laws regarding the
offering and issuance of the merger shares.
Exchange Procedures
After the effective time, holders of certificates representing shares of
GreyStone common stock will have no rights with respect to the shares of
GreyStone common stock represented thereby other than the right to surrender
such certificates and receive in exchange therefor the shares of Express Capital
common stock to which such holders are entitled, as described above. After the
effective time, Express Capital will send all GreyStone shareholders of record a
letter of transmittal and instructions for surrendering their certificates.
Unless otherwise designated by a GreyStone shareholder on the transmittal
letter, certificates representing shares of Express Capital common stock issued
to GreyStone shareholders in connection with the merger will be issued and
delivered to the tendering GreyStone shareholder at the address on record with
GreyStone. In the event of a transfer of ownership of shares of GreyStone common
stock that are not registered in the transfer records of GreyStone, the merger
consideration may be issued to a transferee if such certificates are delivered
to Express Capital, accompanied by all documents required to evidence such
transfer and by evidence satisfactory to Express Capital that any applicable
stock transfer taxes have been paid. If any certificate shall have been lost,
stolen, mislaid or destroyed, upon receipt of
(1) an affidavit of that fact from the holder claiming such certificate to
be lost, mislaid or destroyed,
(2) such bond, security or indemnity as Express Capital may reasonably
require and
(3) any other documents necessary to evidence and effect the bona fide
exchange thereof, Express Capital shall issue to such holder the merger shares
into which the shares represented by such lost, stolen, mislaid or destroyed
certificate shall have been converted.
Any other provision of the merger agreement notwithstanding, neither
Express Capital, GreyStone, nor the surviving corporation shall be liable to a
holder of GreyStone common stock for any amounts paid or property delivered in
good faith to a public official pursuant to any applicable abandoned property
law.
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GREYSTONE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained herein, the following
contains forward-looking statements that involve risks and uncertainties.
GreyStone will be the accounting acquirer upon consummation of the Merger.
GreyStone's (and consequently, the surviving corporation's) actual results in
future periods could differ materially from those discussed here. Factors that
could cause or contribute to such differences, include, but are not limited to,
those discussed in "GreyStone Business" and "Risk Factors," as well as those
discussed elsewhere in this proxy statement/prospectus and any document
incorporated herein by reference. Also see GreyStone's financial statements
included herein.
GreyStone designs, develops and markets real-time, interactive, and
networked three dimensional, software. It develops and delivers its 3-D software
principally for defense (i.e., training and simulation) and entertainment
applications. GreyStone applies its skills and experience in using real-time
distributed and networked interactivity, 3-D graphics, artificial intelligence
and physics-based behavioral modeling to create software which enables
participants to interact realistically in a simulated environment. The same
skills can be applied to create interactive products for education,
"edutainment", medicine and transportation.
GreyStone's operations are divided into two business units utilizing
similar technology -- the government strategic business unit ("SBU") and the
commercial SBU. Since GreyStone commenced business in 1989 and until the fiscal
year ending March 31, 1993 it earned all of its revenues from work performed on
government contracts. During the fiscal year ending March 31, 1994, GreyStone's
commercial SBU began to apply its technical expertise and knowledge to the
development of products and services suited to commercial application and uses
in order for GreyStone to achieve greater size and growth. GreyStone has
suffered losses every year since 1993. As of March 31, 1999, GreyStone had an
accumulated deficit of $31,512,031. GreyStone's losses have resulted principally
from costs incurred in developing products and from general and administrative
expenses associated with operations. GreyStone expects to incur additional
losses as it develops its commercial SBU.
RESULTS OF OPERATIONS
MANAGEMENT REVIEW OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 1999 AND
1998
Revenues for the year ended March 31, 1999 were $2,105,517 as compared to
$2,112,566 for the year ended March 31, 1998. During both these time periods,
essentially all revenues were generated by the government strategic business
unit (SBU), except for $14,615 of commercial SBU revenue generated in the
current period. This commercial revenue was the result of work performed by
GreyStone for Intel, in support of the open architecture adaptation of the XS-G
game. Although the government SBU realized little growth during these periods,
in October 1998 and March 1999, GreyStone was awarded significant contracts for
follow on and new business tasks. These contracts allow GreyStone to report
directly to its end government customers instead of its previous role as a
subcontractor reporting to an intermediate prime contractor. It was during both
these reporting periods that GreyStone was developing and market testing its
latest entertainment product, XS-G. GreyStone expects to incur substantial
additional losses in the current fiscal year as it continues to market and
develop its entertainment products.
Accounts receivable on March 31, 1999 was $200,477, a decrease of $197,379
from the $397,856 reported at March 31, 1998. During the first calendar quarter
in 1998, GreyStone was awarded a new contract by the U.S. Navy. The initial
payments for the newly awarded contract were delayed due to program start up
difficulties on the part of the U.S. Navy, thereby causing an increase in the
accounts receivable balance at March 31, 1998. For the year ended March 31,
1999, the program start up difficulties had been resolved and the accounts
receivable balances had improved significantly. GreyStone did not change any
payment terms nor collection policies during either of the reporting periods.
Costs of revenues increased approximately 8% to $1,274,177 for the year
ended March 31, 1999, compared to the $1,181,728 for the previous year. During
the previous reporting period, GreyStone had generated sales from its RAGE
software product for which there was no costs of revenues, since the
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development of RAGE had been previously expensed as incurred in prior periods.
The components of costs that make up the cost of revenues may include burdened
labor, direct travel, other direct costs, direct material, subcontracts and
applicable SBU burden. These cost components can vary in amount and type from
period to period and are highly dependent on such factors as the nature of the
work performed, location and duration of the work performed, (company versus
customer site), personnel performing the work (company personnel versus
subcontractors) and who will provide any required equipment to perform the work
(company furnished versus government furnished equipment).
Marketing and sales expenses were $853,190 or 41% of revenues for the year
ended March 31, 1999 compared to $662,503 or 31% of revenues for 1998. The
increase in the government SBU reflects the expenses associated with seeking
additional contract awards. In general, marketing and sales expenses resulted
from bid and proposal activity as well as attendance at trade shows, company
product demonstrations and in-house marketing related activities. These types of
expenses vary from period to period and are highly dependent upon the extent and
manner in which the company focuses its efforts regarding potential future
opportunities during the reporting period.
Research and development expenses declined by 13% to $1,093,145 for the
year ended March 31, 1999, as compared to $1,254,297 for 1998. The decline of
research and development expenses was in the commercial SBU and reflects the
completion of development of the XS-G game and shift to field testing and
software fine tuning.
General and administrative expenses declined to $1,951,193 for the year
ended March 31, 1999, compared to $3,193,843, a reduction of $1,242,650 or 39%.
General and administrative reductions were achieved through a reduced number of
employees and lower depreciation costs. During 1999, the company incurred a
$315,667 non-cash compensation expense that was associated with the granting of
options and warrants. During the previous reporting period, a $321,885
compensation expense associated with the granting of options and warrants was
recognized as well as an $804,000 debt conversion expense.
Interest expense was $99,944 for the year ended March 31, 1999, compared to
$201,941 for 1998, a decline of $101,997 or 51% and reflects the paying down
and/or conversion of certain company indebtedness to equity during 1999 and
1998.
The net loss of $3,166,132 in 1999 decreased by $1,215,614 or 28% from the
$4,381,746 net loss reported in 1998. During the current period, revenues were
essentially flat, while total expenses decreased by $1,120,666 or 18% and
interest expense declined by $101,997 or 51%.
MANAGEMENT REVIEW OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 1998 AND
1997
Revenues for the year ended March 31, 1998 were $2,112,566 as compared to
$2,336,371 in 1997. During this period, sales in the government sector actually
increased by $178,617, while sales in the commercial SBU declined by $378,000.
The increase in government sales is primarily due to the addition of the U.S.
Navy's Joint Countermine Operational Simulation Program to GreyStone's revenue
base. As previously stated, sales in the commercial SBU declined during fiscal
1998. The market for entertainment systems which run on high-end image generator
computer systems, upon which GreyStone's earlier software products depended,
shifted in anticipation of the increased capabilities of the personal computer
and Intel's proposal for the personal computer to be the base platform for the
arcade market. As such, GreyStone has been developing a lower cost commercial
product to take advantage of these improvements in hardware and firmware and has
incorporated them in its latest product, XS-G.
Cost of revenues declined to $1,181,728 for the year ended March 31, 1998,
compared to $1,621,166 for the previous year. In the previous reporting period,
costs of revenues included production costs associated with the first three
Magball systems sold by GreyStone as well as costs of revenues associated with
the government SBU. In the current reporting period, all costs of revenue relate
solely to the government SBU. During the year ended March 31, 1998, GreyStone
generated sales from its RAGE software product for which there was no costs of
revenues since the development costs for RAGE had been previously expensed as
incurred in prior periods. These components can vary in amount from period to
period and are highly dependent on factors such
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as the nature of the work performed, location and duration of the work
performed, personnel performing the work (company personnel versus
subcontractors) and required equipment to perform the work (company furnished
versus government furnished).
Marketing and sales expenses were $662,503 or 31% of revenues for the year
ended March 31, 1998, compared to $720,213 or 31% of revenues for 1997. These
types of costs vary from period to period and are highly dependant upon the
extent and manner in which GreyStone focuses its efforts regarding potential
future opportunities during the reporting period. Research and development
expenses declined to $1,254,297 for the year ended March 31, 1998 as compared to
$1,978,505 for 1997. The decline of research and development expenses was in
both the government and commercial SBUs. In the government sector, the decline
was the result of the government SBU focusing its efforts on several bid and
proposal efforts and increasing contract work. Research and development costs in
the commercial SBU incurred higher costs in the previous reporting period as a
result of expenses incurred in developing the Andromeda platform and MagBall
game versus the costs incurred on developing the XS-G game in 1998.
General and administrative costs increased to $3,193,843 for the year ended
March 31, 1998 compared to $2,087,877 for 1997. During 1998, GreyStone also
incurred a $321,885 non-cash expense that was associated with the granting of
options and warrants as well as an $804,000 debt conversion expense.
Interest expense was $201,941 for the year ended March 31, 1998 compared to
$615,240 for 1997, a decline of $413,299 or 67% and reflects the conversion of
company debt to equity.
The net loss of $4,381,746 in 1998 decreased by $304,884 or 7% from the
$4,686,630 net loss reported in 1997. Although revenue declined by $223,805 or
10% during 1998, there was a drop in total operating expenses of $115,390 or 3%,
while interest expense declined by $413,299 or 67% from the previous year.
LIQUIDITY AND CAPITAL RESOURCES
History of Operating Losses
GreyStone has incurred losses in each fiscal year since 1993, and as of
March 31, 1999, GreyStone had an accumulated deficit of $31,512,031. To finance
its business plan and historic negative cash flow, GreyStone has continually
needed to obtain debt and equity financing on a private basis and to satisfy
creditors with stock rather than by payment in cash to enable it to develop its
commercial entertainment products. These losses have been primarily due to lack
of any significant entertainment revenues, substantial research and programs
expenses, and other costs incurred through the development and introduction of
GreyStone's entertainment products. Almost all of GreyStone's sales have been in
the government business area, which provides low profit margins from which
GreyStone has not been able to recover the costs of its research and development
programs for entertainment products. Although revenues are expected from the
sale of entertainment products GreyStone expects to incur additional substantial
losses in the current fiscal year as it continues to market and develop its
entertainment products. No assurance can be given that GreyStone will ever
derive material revenues from entertainment products or that sale of such
products will ever be profitable.
GreyStone's cash position increased in the fourth quarter ended March 31,
1999 as a result of sales of approximately 400,000 shares of common stock during
that quarter for approximately $2,400,000 in cash. As a result, after repaying
certain debt and certain operational obligations, GreyStone's cash position was
$795,480 on March 31, 1999. GreyStone's cash position increased to approximately
$2,000,000 by June 30, 1999 through the private placement of approximately
550,000 shares of common stock at a price of $6.00 per share. GreyStone has
operating loss carry-forwards at March 31, 1999 of approximately $29,600,000,
which could result in a reduction of future federal income taxes in the
approximate amount of $11,360,000 if fully utilized. In addition, GreyStone has
operating loss carry-forwards of approximately $12,900,000 available to reduce
future state taxable income, if any. However, the net deferred tax assets
arising from net operating loss carry-forwards will only benefit shareholders
when, and if, GreyStone returns to profitable operations. At March 31, 1999,
GreyStone had a working capital deficiency of $805,406 which improved to a
working capital surplus of approximately $1,500,000 on June 30, 1999.
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GreyStone believes it has adequate facility capacity in place to perform
the government programs, and hardware and software purchase requirements of
government programs are not expected to be material. Although GreyStone believes
that its government operation may be profitable over the next 12 months, there
is no assurance that GreyStone will become profitable in the near future.
GreyStone has yet to generate any significant revenue from its entertainment
products and cannot anticipate when it will be able to generate any significant
entertainment revenue in the future, if at all.
Since GreyStone was founded, management has focused on the goal of
developing and making available software products using common technology for
both the government and commercial markets. Since 1993, GreyStone has
consistently generated revenues from its government business. However, since
embarking on the development of its entertainment products GreyStone has
generated substantial net losses and negative cash flows from its operating
activities. GreyStone has not capitalized its development costs, but rather has
expensed them. GreyStone has had a continued need to obtain debt and equity
financing on a private basis to enable it to develop commercial entertainment
products. To date GreyStone has been able to raise cash necessary to continue
operations by selling shares, by borrowing, and by satisfying debt obligations
with stock rather than cash payments. During the period from April 1, 1999 to
date of this proxy statement/prospectus, GreyStone raised approximately
$3,356,000 from the sale of stock and private placements. In the fiscal year
that ended March 31, 1999 GreyStone raised approximately $2,425,000 from the
sale of stock in private placements and issued common stock upon the conversion
of approximately $1,000,000 of obligations that had been primarily
nonconvertible debt and other liabilities. GreyStone obtained approximately
$3,153,000 and $4,232,000 in the fiscal years ended March 31, 1998, and 1997,
respectively, from sales of common stock, and issued common stock upon the
conversion of approximately $4,829,000 and $1,364,000 of debt in such fiscal
years. The proceeds of the sales of stock were used primarily to fund cash used
in operating activities of approximately $2,446,000, $3,221,000, and $4,157,000
in the fiscal years ended March 31, 1999, 1998, and 1997, respectively.
Management anticipates that in the future it will need to continue to obtain
debt or equity financing and, if GreyStone is unable to generate significant
sales of its commercial entertainment products, then GreyStone faces the risk of
not having enough money or other resources to continue to operate its current
business plan. If this were to happen, then GreyStone could be forced to cease
development of commercial entertainment products entirely and focus its
resources on expanding its government business.
History of Outstanding Debts and Obligations
GreyStone has a history of not paying all its obligations as they became
due. However as a result of the sales of common stock and settlement of debt
obligations described above, as of July 26, 1999 GreyStone's obligations are
considered current. As of June 30, 1999, GreyStone's total current liabilities
were approximately $528,000, including $28,000 in current notes payable and
$500,000 in accounts payable and accrued expenses.
As of March 31, 1999, GreyStone's financial statements reflected total
current liabilities of $1,801,363. Of this amount, approximately $671,000
represented loans and notes payable, $1,026,000 constituted accounts payable and
accrued expenses and $105,000 reflected deferred unpaid salaries to a former
officer and the chief executive officer. A substantial portion of the loans and
notes had matured and although payable were extended by creditors on a month to
month basis. The oldest of these were two loans made to GreyStone in December
1994 in the amount of $50,000 each, for a period of six months, carrying 9%
interest per annum. Of the $1,026,000 of accounts payable and accrued expenses
at March 31, 1999, approximately $541,000 was not yet past due, and $485,000 was
overdue, including approximately $187,000 which exceeded 90 days. Of the
$105,000 in deferred unpaid salaries, approximately $45,000 relates to the
period ending March 31, 1998 and $60,000 is related to the period ended March
31, 1999.
Immediate Capital Requirement
Since Express Capital will have no cash or other significant assets when
the merger is closed, the merger itself will not improve the immediate or
long-term financial position of GreyStone. GreyStone presently anticipates that
its expenditures will continue to exceed its revenues from operations if there
is not a significant improvement in the revenues of its commercial SBU.
Accordingly, in order to continue its current business plan, GreyStone may need
to raise additional capital through the sale of stock, by borrowing and by
seeking to
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increase business revenues. No assurance can be given that additional equity
capital or borrowings will be available to GreyStone on favorable terms, if at
all. Nor is there any assurance that GreyStone's results from operations will
improve, or that its financial condition will continue to improve. If there are
any significant delays in raising additional capital or if its revenues do not
increase substantially, then GreyStone may face the risk of not having enough
cash or other resources to continue to operate its current business plan. This
could result in material delays in completion of products under development, the
introduction of new products or product upgrades, and could negatively impact
revenues and operations, potentially forcing GreyStone to cease development of
its commercial entertainment products entirely and focus its available resources
on expanding its government business. Without an improvement in revenues, or the
ability to raise additional capital, GreyStone could be compelled to curtail or
even cease operations. If this were to happen, GreyStone shareholders could lose
all or part of their investment.
YEAR 2000 COMPLIANCE
Many computer systems and software products are coded to use only the last
two digits to refer to a year. Therefore, these computer programs do not
properly recognize a year that begins with "20" instead of the familiar "19."
Within the next year, the date code fields will need to accept four digit
entries to distinguish 21st century dates from 20th century dates. If not
corrected, many computer applications could fail or create erroneous results.
Accordingly, computer systems and software used by many companies will need to
be upgraded to comply with such "year 2000" requirements.
GreyStone uses a significant number of computer software programs and
operating systems in connection with its products, services and internal
operations. Such software and systems are being reviewed and updated with a view
towards year 2000 compliance. Nevertheless, year 2000 problems could affect
GreyStone's research and development, financial, administrative and
communication operations.
GreyStone's State of Readiness
GreyStone has a systematic approach to solving the Y2K compliance issue. It
has replaced all desktop computers with Y2K compliant machines and have
identified those machines and components in the internal computer network which
must be replaced to achieve compliance. GreyStone has received manufacturer's
certifications of Y2K compliance for critical software and hardware components
which the company plans to retain. Furthermore, GreyStone's government and
commercial products have been tested (even though the commercial entertainment
products are not date dependent) using the government Y2K checklist and the
company believes that they meet the requirements.
The Costs to Address GreyStone's Year 2000 Issues
To date, in addition to labor overhead costs to evaluate its compliance
status and to begin implementing upgrades required to addressing year 2000
issues, GreyStone has spent approximately $2,500 for equipment upgrades. The
cost impact to complete the upgrade/replacement process is expected to be about
$65,000. This amount has been budgeted in GreyStone's overhead accounts and
GreyStone plans to complete the upgrades by October 1999.
External and internal costs specifically associated with modifying internal
software for year 2000 compliance will be expensed as incurred. To date, costs
have not been material and currently are not expected to be material in the
future. These costs do not include normal system upgrades and replacements, as
the systems being replaced will be close to their scheduled replacement dates.
The Risks of GreyStone's Year 2000 Issues
Although GreyStone believes that changes mandated by the year 2000 issue
will not have any material adverse effect on GreyStone's business, financial
condition and results of operations, no assurances can be given that all
problems will be foreseen and corrected, or that no material disruption of
GreyStone's business will occur.
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GreyStone's Contingency Plans
At this point, in light of the advanced readiness level resulting from the
internal evaluation, GreyStone does not have a formal contingency plan in place
in the event that GreyStone is not ready for the year 2000. GreyStone does not
have a formal contingency plan because it believes that the costs associated
with such a plan are not warranted due to GreyStone's readiness for the year
2000 and the fact that the changes mandated by the year 2000 issue will not have
a material adverse effect on GreyStone's business, financial condition or
results of operations.
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GREYSTONE BUSINESS
AVAILABLE INFORMATION
GreyStone is not and, until the effectiveness of the registration statement
(as defined below), Express Capital was not, subject to the reporting
requirements of the exchange act and the rules and regulations promulgated
thereunder, and, therefore, do not file reports, proxy statements or other
information with the commission. Under the rules and regulations of the
commission, the solicitation of proxies from the shareholders of GreyStone to
approve the merger constitutes an offering of Express Capital common stock to be
issued in connection with the merger. Express Capital has filed with the
commission a registration statement on Form S-4 under the securities act, with
respect to such offering (as amended from time to time, the "registration
statement"). This proxy statement/prospectus constitutes the prospectus of
Express Capital that is filed as part of the registration statement in
accordance with the rules and regulations of the commission. Copies of the
registration statement, including the exhibits to the registration statement and
other material that is not included herein, may be inspected, without charge, at
the Public Reference Section of the commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, DC 20549, and may be available at the
following Regional Offices of the commission: Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, New York, New York 10048. Copies of such materials may be obtained at
prescribed rates from the Public Reference Section of the commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549. Information on
the operation of the Public Reference Room may be obtained by calling the
commission at 1-800-SEC-0330. In addition, the commission maintains a site on
the World Wide Web at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the commission.
GREYSTONE'S OVERVIEW
GreyStone creates real-time, interactive, and networked 3-D software and
simulations which it markets principally to customers in the defense and
entertainment markets. GreyStone also provides its customers with supporting
engineering services. GreyStone applies its proprietary core technologies,
skills, and experience to create software that enables participants to interact
in real-time within a simulated digital environment.
GreyStone commenced business in San Diego in 1989 in order to provide the
United States military and certain contractors with software and engineering
services for applications in highly advanced military hardware (fighting
aircraft, missiles, ships, and vehicles) and training simulators. GreyStone's
defense customers have included the U.S. Navy, Army and Air Force, Lockheed
Martin, Logicon, Hughes Aircraft, and the Defense Advanced Research Projects
Agency (DARPA), and others. These customers use GreyStone's products and
services in aerial, mechanized, and naval combat, electronic warfare, mission
planning and support, training, battlefield command, control, communications,
computers, and intelligence ("C4I"), and unmanned aerial vehicles ("UAV").
In 1994, GreyStone initiated a long-term program to develop multi-player
real-time, interactive, and networked 3-D entertainment content ("Titles") which
run on high-end 3-D multimedia home-based personal computers ("PCs") and new
PC-based open arcade architecture amusement machines ("OA3Ms"). During the
summer of 1998, GreyStone test marketed its first PC entertainment Title, XS-G,
to sell to the OA3M entertainment market. GreyStone intends to license XS-G and
to create new Titles for play upon OA3Ms. GreyStone intends to further adapt
XS-G to play upon new digital home entertainment devices including affordable
powerful 3-D PCs.
As used in this prospectus, RAGE is a trademark of GreyStone and AML and
AML-90 are copyrights of GreyStone. GreyStone has applied for registration of
XS-G as a trademark.
Primary Markets for Products
GreyStone currently develops and markets software products targeted at two
growth markets: defense preparation and digital entertainment. For the defense
market, GreyStone develops software products for use
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in combat and training simulations and provides support services to help contain
the cost and increase the effectiveness of defense and defense preparation. For
the digital entertainment markets, GreyStone develops software products for use
in the PC open arcade and PC in-home based markets.
Defense Market: The U.S. government uses defense simulation technology for
training, command, and control in order to contain or reduce its budgeted
expenditures for defense while maintaining force readiness. The government
projects multi-billion dollar annual expenditures for software-based modeling
and simulation and for battlefield C4I while demanding more commercial
off-the-shelf ("COTS") products that are adaptable to specific requirements.
Defense Products: GreyStone's defense products are applied to some of the
world's most advanced military hardware and training simulators for aerial
combat, combat simulation, electronic warfare, mission planning and support,
battlefield C4I, and unmanned aerial vehicles (UAVs). Military personnel use
GreyStone's Real-time Advanced Graphics Environment COTS product, RAGE, to
realistically reproduce combat scenarios in a modern and dynamic theatre of
operations ("Battlespace"). The U.S. government uses RAGE in command centers at
locations throughout the world to visualize and distribute, in real-time,
information regarding battlefield situations and conditions. GreyStone's AML-90
COTS product is advanced flight simulation software used to train military
pilots for fighter aircraft combat. In addition GreyStone provides, on a
contract basis, sophisticated engineering and software development services to
the military and its contractors.
Entertainment Market: GreyStone has developed entertainment software that
uses the capability of Intel's most advanced microprocessors and PC
architecture. GreyStone intends to sell new content to a growing number of
out-of-home entertainment locations using powerful new PC based OA3Ms that can
improve industry economics. GreyStone recently test-marketed in several
different locations its first game, called XS-G, for play on new PC-based OA3Ms.
XS-G game is a fast paced combat racing system which integrates GreyStone's
simulation software and colorful and complex 3-D Graphics. The game system has
four aircraft, each with different dynamic characteristics and can link up to
four players in three race or combat courses for different skill levels.
GreyStone is pleased with XS-G's performance at the locations where distributors
have placed and tested the game. In November 1998, GreyStone signed an agreement
with LAZER-TRON to market and distribute its arcade game XS-G. Marketing of XS-G
commenced during the first calendar quarter of 1999, but no sales of XS-G have
been consummated to date. In May 1999, Sony selected XS-G to be featured in
their Metreon Entertainment Center in San Francisco. Although GreyStone intends
to continue its efforts in marketing and distributing XS-G, no assurance can be
given that XS-G will generate any material sales.
Entertainment Strategy
GreyStone intends to provide superior digital entertainment products for a
rapidly growing population of devices having advanced PC capabilities. GreyStone
expects that PC population to become an established and substantial global
market for GreyStone's software. GreyStone has developed software for use in
location-based entertainment centers and to be used for the home. The
entertainment centers targeted for GreyStone's content range from large
destination-based entertainment centers, such as theme and amusement parks, to
smaller sites, such as family, urban and location-based entertainment centers,
sports bars, and casinos. The multi-billion dollar digital entertainment market
includes both out-of-home and in-home software customers.
GreyStone intends to evaluate its out-of-home entertainment Titles for
possible adaptation to play upon new digital home entertainment devices. These
devices include affordable powerful 3-D PCs able to support sophisticated
real-time, networked 3-D software. The growing presence of these powerful new
PC-based devices has created the opportunity for GreyStone to exploit its
advanced knowledge and experience in creating real-time, interactive and
networked 3-D software gained from its history of developing defense
applications.
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Entertainment Products
GreyStone's digital entertainment content has featured new kinds of
interactive sports, high-energy, fast-paced, competitive "adrenaline"
experiences, and exploration-adventure type games. GreyStone's goal is to
develop software game products to satisfy a demand for exciting new forms of
attractions that promote social interaction, while appealing to both genders and
a broad range of age groups. GreyStone believes that developing its
entertainment software products for play in entertainment centers as well as for
the in-home entertainment market will generate broad consumer awareness and
enthusiasm for GreyStone's games and will stimulate demand for GreyStone's
software in both entertainment markets.
GreyStone is a founding member of Intel's Open Arcade Architecture Forum
("OAAF"), which Intel formed to create a PC reference platform for game arcades,
location-based entertainment, and high-end visual entertainment for the home. In
1998 the price of PCs capable of supporting GreyStone's sophisticated software
declined to a level that enabled GreyStone to provide high-quality entertainment
content at prices competitive with established PC-based entertainment products.
GreyStone test marketed its first PC-based game, XS-G, during the summer of 1998
with Dynamo Ltd., Sega Gameworks, and Betson Enterprises, one of the industry's
largest amusement machine distributors. The OA3Ms with XS-G were test marketed
at different types of locations in California, Texas and Nevada and the results
were considered by GreyStone to be competitive and positively indicative of
XS-G's potential for success in the arcade market.
Entertainment Product Development
GreyStone began to develop entertainment software products in 1993 as a
response to requests from companies who learned of GreyStone's simulations for
defense and asked GreyStone to build high-quality, real-time 3-D demonstrations
and promotions for commercial purposes. These simulations could only run, at
that time, on very costly and powerful graphics oriented workstations.
As promotions and creations for commercial clients and direct sales
GreyStone developed and demonstrated the following entertainment products:
For Chameleon Technologies' two-person theme park machine;
- "CHAMELEON 500" 1993 car racing experience debut at the 1993 Indianapolis
500 race
- "THUNDERBOLT" 1993 flying experience debut at Boston Museum of Technology
- "LABYRINTH RANGERS" 1993 fantasy experience debut at Disney Pleasure
Island for AT&T promotion
For Hiram Walker's Cutty Sark Scots Whisky;
- "VIRTUAL VOYAGE" 1994 sailing experience (received 1995 Interactive Media
and Marketing Award).
With Silicon Graphics;
- "THE PTERANODON" 1993 fantasy flying ride experience debut at 1993
SIGGRAPH Convention (nominated for 1994 Computer World/Smithsonian award
for Media, Arts and Entertainment).
For GreyStone
- "MAGBALL(R)" 1995 3-D multi-player sports game that combines ice hockey
and futuristic bumper cars. The CyberEdge Journal nominated MagBall as
"Virtual Reality Product of the Year". GreyStone sold MagBall Systems to
Disney World in Orlando, Florida, to Monte Carlo Resort and Casino in Las
Vegas, Nevada, and to the XS New York entertainment center located at
Times Square in New York City. Because the Intel architecture-based
platforms were not yet available, GreyStone used powerful and costly
graphics oriented computers to support the MagBall system.
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With STARBRIGHT;
- In 1996 GreyStone modified and provided the Pteranadon as a corporate
sponsor to STARBRIGHT, a non-profit foundation chaired by Steven
Spielberg and General Norman Schwartzkopf, supporting their Virtual
Reality Pain Management Program in conjunction with the Pediatric Pain
Program at UCLA Children's Hospital. The Pteranadon was exhibited at
Universal Studios during the opening of "Jurassic Park The Ride" in June
1996.
For Intel Corp.;
- "CANYON RUNNER" 1997 armed aircraft multi-player chase experience;
Pentium II supported demonstration at 1997 Computer Game Developers
Conference (the "developers conference"). At the developers conference,
Intel announced hardware specifications for coin-operated video games
based on the Pentium II, and used GreyStone's Canyon Runner to
demonstrate the capabilities of the Pentium II processor.
For GreyStone;
- "XS-G" 1999 networked, flying, racing, shooting game optimized to the
capabilities of Intel's new low cost PC-based standard arcade computer
configuration.
Following the developers conference, Intel asked GreyStone to demonstrate
its software in Intel's booth at the Electronic Entertainment Expo (the
"Entertainment Expo") in June 1997. At the Entertainment Expo GreyStone revealed
an early segment of XS-G, an interactive game that evolved from Canyon Runner.
GreyStone's proprietary simulation architecture, GreySim, drives XS-G. GreySim
permits GreyStone to develop software across a wide range of platforms for both
Commercial and Government business use. The GreySim foundation permits a broad
re-use of code and shortens development time, and thus, time to market. The use
of GreySim also ensures that software developed on top of the GreySim foundation
will operate seamlessly with a variety of computers and peripheral devices, and
readily take advantage of the increases in performance of newer equipment.
The latest Intel architecture-based platforms make it possible for
real-time 3-D entertainment content developers, like GreyStone, to create
affordable arcade titles that leverage the power and graphics capability of the
Pentium II while benefiting from the common hardware and software infrastructure
that reaches all the way to the in-home market. GreyStone believes that this
recent improvement in hardware performance enables a rapid transfer of high-end
arcade software onto the latest home computers and with the use of GreySim, will
reduce the time and cost of new content development for GreyStone.
Immediately following the Entertainment Expo, Intel initiated the OAAF to
encourage the development of hardware and software based on an open architecture
PC reference platform, for game arcades, location-based entertainment, and
high-end visual entertainment for the home. Among the stated objectives of the
OAAF are the promotion of market development in the areas of arcade,
location-based entertainment, and high-end home entertainment, thus enlarging
the customer bases in each of these areas; and the growth of market
opportunities for software and hardware vendors, system integrators, and
publishers through the exchange of ideas and matchmaking.
GREYSTONE'S BUSINESS STRATEGY
GreyStone's strategy is to grow revenues through the sale of its software
products in both of its major markets (government and digital entertainment)
using its proprietary technology (GreySim). GreyStone intends to further
leverage its software products and services to build revenues through the
development and expansion of its government contracts and through the
development and expansion of its digital entertainment products.
As a key part of its strategy, GreyStone believes that networked
interactive 3-D digital reality remains the fastest moving key technology trend
in both of these major markets. GreyStone believes that the companies
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that are going to be successful in these multi-billion dollar markets are those
that are able to employ new technologies quickly to create distinctive software
products. This belief is at the heart of GreyStone's business strategy for
serving the digital entertainment and defense markets with its products.
GreyStone's objective is to become a leading provider of real-time,
interactive and networked 3-D digital software products. Key elements of
GreyStone's strategy include:
Emphasize Real-time Interactivity, Real-time Simulation and Behavioral
Modeling in 3-D Digital Software Environments. GreyStone seeks to differentiate
its products through an innovative combination of interactivity, vivid 3-D
graphics and real-time, lifelike simulation technologies. The immersive impact
of the experience involves stimulating the user's sensory pathways at a high
level of fidelity. A key element of GreyStone's software expertise resides in
its ability to combine these aspects of 3-D digital media into software that
provides immersion and interactivity for the user while operating in real time.
Develop and Apply Core Technology Across Markets. GreyStone's expertise
lies in its ability to design reusable, modular 3-D digital software with broad
applicability across markets and to deploy this technology in a consistent
fashion. Through its research and development activities, GreyStone has
developed a technology base that is readily adaptable to a variety of
applications, enabling GreyStone to build products ranging from expert systems
for combat simulation to entertainment products. GreyStone believes that this
design philosophy, which is implemented through multi-disciplinary development
teams, will enable rapid product development and migration to other
complementary markets.
Shorten Time to Market for 3-D Digital Reality Experiences. GreyStone
believes that offering a portfolio of 3-D digital software experiences is
essential to success in the marketplace. Implementing the object-oriented nature
of its fundamental software products and practices, GreyStone believes it will
be able to significantly reduce the time necessary to develop new software
products. Further, each new development effort contributes to a growing core of
software tools and techniques which can be used on future projects.
Enhance Product Quality Through Interdisciplinary Balance. GreyStone
believes that it improves upon its software development concepts by applying
knowledge developed in the diverse areas of game theory, decision theory,
graphic design, sound processing and ergonomics. GreyStone's strategic
technology unit evaluates market information and emerging technologies that may
affect the commercial and defense markets and products. GreyStone believes that
a multi-disciplinary analysis and development approach will enable it to create
3-D digital software environments that establish a competitive standard in
immersive, interactive experiences.
Leverage the PC Pipeline. GreyStone's strategy heavily leverages the PC
product pipeline, which GreyStone believes will offer cross-market commonality
and global market potential. Over the last three years, the PC hardware and
software community, led by Intel and Microsoft, has embarked on a strategic
effort to enable real-time interactive 3-D graphics on the standard desktop
computer and to make that level of software experience generally available
across its user base. This technology was initially introduced through game
titles on PC's, but is quickly moving into Internet browsers, business
applications, and ultimately, into the graphical interface of the operating
system itself. From the beginning of this process, GreyStone believes it has
positioned itself to take advantage of this new technology and to develop
showcase software that clearly demonstrates the value of such technology to the
end user. As this cycle expands, the global user base for 3-D graphics software
will continue to grow, providing GreyStone with a common, standard hardware
platform for GreyStone's products.
Manage Technology Change; Influence the Technology Base. GreyStone operates
within a dynamic technology landscape. To manage the effects of this rapidly
evolving base, GreyStone continually analyses technological progress in multiple
areas to maintain an awareness and familiarity with the state-of-the-art.
GreyStone maintains a core group of experienced scientists and engineers who act
as a strategic technology unit responsible for providing timely analysis of
technology trends and for ensuring that corporate strategy is aligned with their
trends. GreyStone maintains a valued set of strategic technology partnerships
with various companies deemed to be highly influential in its areas of business.
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COMMERCIAL MARKETS AND DIGITAL ENTERTAINMENT BUSINESS
Digital Entertainment
Digital entertainment is created, stored, and can be distributed
electronically in a multimedia format complete with high-quality sound, rich 3-D
graphics and animation, and it can be further enhanced by multi-sensory
human-computer interfaces and artificial intelligence. These high-fidelity,
realistic experiences have found early success in the arcade markets and are
increasingly distributed on in-home CD-ROM and game console cartridges.
Leading-edge digital entertainment products can also be released online to
capitalize on the tremendous current interest in the Internet and the World Wide
Web, and in special narrow-band networks. In addition, digital entertainment
products have recently been released as broadcast television and cable
programming, home videos, and even full-length feature movies.
Digital entertainment combines the best elements of traditional,
mass-market, filmed entertainment, where creative artistry and engaging
plot-lines can be leveraged by use of special technology advances that enable
millions of consumers to interact with the content in a richer way. The market
for digital entertainment has evolved and grown dramatically with the increasing
proliferation and sophistication of personal computers (PCs) and game playing
consoles, and with the widespread use of the Internet. Sales trends of PCs to
home users have increased in recent years as a result of declining prices and
increased functionality of PCs. The number of multimedia PCs used in-homes
worldwide is expected to grow significantly, and many analysts have prepared
predictions about PC growth trends in 1999 and beyond. For example, near-term
estimates of continued PC growth in 1999 span from 15% to 25%.
GreyStone believes that the demand for digital entertainment will continue
to grow given the increasingly powerful multimedia capability of PCs, and the
growing popularity of the Internet. Despite the many technological advances that
have been made in producing, processing and delivering digital entertainment,
GreyStone believes that consumers will expect digital entertainment products to
have increasingly sophisticated features. These features include more realistic
graphics and special effects, user control of more complicated or subtle
character movements and real-time interactivity with other humans.
GreyStone believes that its proprietary technology, skill in applying
critical enabling technologies, and years of experience with complex real-time
military virtual environments will allow it to produce interactive 3-D digital
entertainment that will appeal to the growing expectations of consumers.
Utilizing its proprietary technology, GreySim, GreyStone has successfully
developed a long list of interactive experiences and virtual environments that
it believes represent significant technical enhancements over existing
simulation-based experiences. In addition, GreyStone has developed strong
strategic alliances and technology partnerships that GreyStone believes will
allow it to continue to expand its digital entertainment products into the home
PC-based software market.
DIGITAL ENTERTAINMENT MARKETS
The market for interactive digital entertainment consists principally of:
(1) the arcade market, or coin-op business, which includes out-of-home
entertainment centers ranging from large destination-based theme and
amusement parks, to smaller family focused centers, and location-based
sports bars, casinos, and specialty theme centers;
(2) the console game market, or consumer in-home video games, which
includes the 32 and 64-bit, and the emerging 128-bit machines, and with
sales dominated by companies such as Sega, Nintendo, and Sony; and
(3) the PC game market, or packaged PC/multimedia software, which is
heavily influenced by the increasing proliferation and sophistication of
personal computers, their declining prices and increased functionality.
In the 1970's, video games such as Pong and Atari home video games
introduced customers to interactive entertainment. Nintendo and Sega game
platforms quickly followed riding a crest of interest by consumers to
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influence the entertainment experience, albeit in a two dimensional environment.
During the same period, a number of advancements in personal computer technology
began to appear, resulting in a rapid evolution of its capabilities.
In the mid 1980's, home set-top devices were introduced which enabled the
patron of coin-operated video arcades to play video games at home. In the late
1980's, new and more powerful TV set-top devices were introduced by firms such
as Sega and Nintendo and, more recently, video games are available using CD-ROM
as well as cartridges for play at home.
By early 1990, rapidly declining prices of microprocessors and CD-ROM
drives, and the introduction of new PC components, such as 3-D graphics
accelerators, began to hasten the evolution of the PC platform, make multimedia
PCs more affordable, and increase their acceptance for use in homes. These
computers, generally configured with enhanced memory, high-speed processors,
high-resolution color monitors, sound boards, stereo speakers and high-capacity
CD-ROM drives, are able to deliver an engaging entertainment experience that
combines text, realistic sound, advanced graphics and animation. With the large
and growing base of multimedia PCs combined with 3-D capability, a significant
market opportunity has been created for companies that can provide compelling
3-D digital media content.
By the early 1990's, GreyStone's first products for the commercial
entertainment market have been 3-D digital media experiences designed for use at
the rapidly expanding population of entertainment centers. These centers range
from large destination-based entertainment centers, such as theme and amusement
parks, to smaller family, urban and location-based entertainment centers sports
bars, and casinos.
The past decade has shown dramatic growth in theme and amusement parks.
However, it is anticipated that further rapid development of large
destination-type amusement and theme parks will be limited due to market
saturation, space, environmental and legal restrictions. As a result, a trend
has begun towards establishing new, more accessible, metropolitan entertainment
centers in the United States, Europe and Asia. These new types of out-of-home
entertainment venues are often referred to as "destination-based entertainment
centers", "family entertainment centers", "urban entertainment centers" or
"location-based entertainment centers". The new centers emphasize family
entertainment and combine immersive, interactive entertainment with restaurants
and shopping in urban and suburban locations.
Significantly, numerous entertainment companies are developing
location-based entertainment centers that are smaller than the large destination
entertainment centers. The new centers are more accessible to customers to
encourage more frequent and repeat attendance. In order to attain higher growth
rates for their business, companies such as Sega, United Artists, Sony, Disney,
Namco, DreamWorks SKG, Blockbuster Entertainment, Time Warner, Paramount Parks,
Bass Leisure, Dave and Busters, Nickels & Dimes, and others have all announced
intentions to open multiple entertainment centers throughout North America, Asia
and Europe.
GreyStone also plans to adapt its digital entertainment software for play
on the next generation of in-home entertainment systems, and in particular PCs
with real-time 3-D digital media capabilities. The in-home entertainment market
is highly competitive. The number of companies able to develop real-time 3-D
digital reality, which is the core of GreyStone's technical strength, has a more
limited core group of competitors. GreyStone has adapted its digital
entertainment software for use on the current generation of 3-D multimedia
personal computers, and intends to develop "scaleable" content for the in-home
entertainment market to permit play of its software on a broad range of next
generation platforms.
The number of software developers who are able to create real-time,
interactive 3-D digital entertainment software is smaller than the number of
traditional 2-D developers, principally because of the high cost for development
of 3-D digital products in the past. As a result, there is a shortage of
software titles that use the full potential of the hardware platforms that are
capable of providing real-time 3-D graphics. This shortage has also created an
opportunity for software developers, such as GreyStone, who have many years of
experience developing real-time, 3-D simulations for customers with
high-fidelity applications.
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Entertainment Product Strategy
GreyStone believes that there is synergy between the out-of-home and
in-home markets that can be exploited to cross-promote products, to increase
revenues through ancillary merchandise sales, and to reduce costs. Some of the
key elements of GreyStone's commercial entertainment strategy include:
Widen Game Experiences; Build Brand Awareness. GreyStone believes that many
existing 3-D digital product offerings fail to capture and retain wide market
acceptance because they lack realism and fail to engender social interaction and
passive entertainment among non-participants. Similarly, ride films and 3-D
digital media adaptations of arcade games do not deliver high degrees of
interactivity. GreyStone intends to design 3-D digital software experiences that
foster repeat play and competition, and offer a diversity of experiences (from
sports to high-adrenaline experiences) and entertainment to spectators.
GreyStone in increasing its software expertise and its object-oriented software
architecture, plans to introduce a variety of new experiences that it believes
will attract repeat customers and establish GreyStone as a producer of quality
digital entertainment among consumers and operators alike.
Target Broad Markets; Emphasize Strategic Relationships. GreyStone expects
to expand its product offerings to both the out-of-home and in-home markets
through consistent application and adaptation of its core technologies and
creative concepts for each market. GreyStone intends to promote its products and
technology through strategic alliances with vendors, customers and
merchandisers. As 3-D digital software experiences are deployed, GreyStone
intends to cross-promote its products along with those of sponsors in the 3-D
digital experience and through merchandising. GreyStone will pursue strategic
alliances with companies that enjoy mass-market appeal, broad distribution
capabilities or other strengths, which will complement GreyStone's abilities.
Enhance Social Aspects of Digital Entertainment. GreyStone intends to
design digital entertainment experiences that foster social interaction. Unlike
many existing 3-D digital media or traditional arcade games, GreyStone's XS-G
product is designed to be played among groups of participants and encourage
multi-player and challenge play. GreyStone believes that this aspect of its
technology, combined with system features that enable spectator immersion, will
increase the attractiveness and utilization of its 3-D digital software
experiences.
Digital Entertainment Products
In 1994, utilizing its core technology base, GreyStone began to develop
commercially available 3-D digital entertainment experiences and research
platforms to take advantage of the rapidly growing market for 3-D digital
entertainment products. GreyStone's commercial content combined real-time
interactivity, real-time simulation and provides the participant with a
immersive 3-D digital entertainment experience. These early platforms integrated
one or more "seats" to provide players with multiple sensory inputs, including
visual displays, sound output devices and, in some cases, mechanical apparatus
to generate motion.
Entertainment Platforms
Starting in 1994, GreyStone designed and produced entertainment platforms
that could take full advantage of its unique digital reality experiences and
which would stimulate demand for GreyStone's Titles. GreyStone believes that
few, commercially available platforms exist that enable the complete integration
of all of the requisite technologies required to represent an immersive and
networked interactive experience and are capable of exhibiting multiple digital
entertainment Titles. Although GreyStone is not currently producing such
platforms, GreyStone may develop and market one or more of these platforms in an
OA3M configuration in the future.
Special Promotional Projects
GreyStone has been asked to engage in special projects with and for other
companies.
For example, the Pteranodon was exhibited simultaneously at the 1993 COMDEX
Computer Show in Las Vegas and the International Association of Amusement Parks
and Attractions ("IAAPA") show in Los
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Angeles. The demonstration allowed participants at COMDEX in Las Vegas to
compete in real-time with participants in Los Angeles at IAAPA by linking the
computers over a telephone line, demonstrating real-time distributed interactive
simulation technology, which enables complex real-time simulation from diverse
locations using standard communications, infrastructure and protocols. GreyStone
believes that this demonstration was the first interstate shared commercial
interactive real time 3-D digital reality experience.
GreyStone has received additional requests to perform special projects, and
will consider working on these projects if they accelerate or benefit
GreyStone's entry into its markets, provide funded opportunities for research
and development of core technology and skills, fund an extension of GreyStone's
software capabilities, or are otherwise deemed to be in the best interest of
GreyStone.
The PC Technology Strategy
GreyStone's technology strategy allowed GreyStone to anticipate the push
for real-time 3-D graphics on the PC platform, resulting in an invitation from
Intel to demonstrate the Canyon Runner game concept on the Pentium II processor
at the Computer Game Developers Conference (The "developers conference") in
April 1997. This provided GreyStone's entree to the Open Arcade Architecture
Forum ("OAAF") organized by Intel and added credibility to GreyStone's existing
strategy to introduce 3-D software titles to the arcade market on PC platforms
and eventually migrate those titles to the in-home market. By carefully
monitoring the evolution of 3-D graphics on the PC platform, GreyStone was able
to advance in the development of GreyStone's own 3-D simulation software
foundation (GreySim), while maintaining commonality with the evolving base of
Application Development Interfaces (APIs) from Microsoft. Ultimately, this has
allowed GreyStone to
(1) develop a diverse suite of real-time 3-D applications using a common
software development architecture that fosters reuse and sound software
development practices;
(2) capitalize on a growing base of software, hardware, and API support in
the broadest segment of the computer market; and
(3) maintain compatibility with a broad spectrum of improving 3-D graphics
hardware.
GreyStone believes that these factors combine to provide GreyStone with
reduced development costs and a wider market for its products.
Extended Product Strategy
GreyStone believes that its core set of technological capabilities and
skills can be further extended and applied to create interactive digital
software products for other markets, such as the Internet,
education/edutainment, health/medical, transportation, telecommunications, and
for enterprise-spanning applications in design, engineering, and manufacturing.
GreyStone has some experience in these areas, especially with respect to
(1) the simulation of customer's designs, engineering, and product
prototyping for the Intelligent Vehicle Highway System,
(2) the development of product concepts for the health/medical markets, and
(3) the production of advanced avionics in modern tactical jet aircraft.
GreyStone has years of experience in using engineering simulation for the
rapid-prototyping and refinement of advanced avionics technologies, including
"expert systems" that can be embedded in the advanced avionics of modern
tactical jet aircraft.
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GOVERNMENT MARKET AND PRODUCTS
Overview of Government Markets
GreyStone was founded to provide simulation and training products for the
defense industry. It has earned an excellent reputation for creating and
exploiting virtual environments for the warfighter. These virtual environments
employ real-time simulation, intelligent agent and advanced visualization
technologies that create a battlespace in which a commander and soldier alike
can assess, command and shape the dynamics of the battle as well as experiment
with various contingencies to test skill and judgment. Virtual environments are
often used to provide knowledge of the battlespace and new ways to exploit the
battlespace not available previously without deploying live troops and millions
of dollars of equipment. The U.S. government projects continued growth in the
multi-billion dollar annual budget for C4I.
In April 1995, the Department of Defense (DoD) reported to Congress that it
is in a transition period from a time when simulation is considered a supplement
to live training to a time when simulation will comprise a larger portion of
readiness training in the future. The DoD added that as new forms of simulation
prove effective, the U.S. government's expenditures in virtual and constructive
simulation could more than double over the next few years.
GreyStone believes that it is well positioned to grow its products and
services with the U.S. government and is benefiting from the basic shift in the
military procurement strategy to commercial-off-the-shelf technology and
systems. GreyStone has positioned its core software products and services, which
are focused on C4I and modeling and simulation, and which it believes to be high
growth segments of the overall military budget. Its primary software products,
especially RAGE, support operational systems, which provides a force multiplier
and has high operational priority with the military. Further, GreyStone believes
that RAGE sales also provide a lead for valuable engineering services
opportunities.
Government Market Strategy
In order to capitalize on what GreyStone perceives as a large and growing
opportunity in simulation, modelling and training GreyStone's strategy is to:
(1) focus on software products and services in the government-defined
growth areas of simulation, advanced visualization and artificial
intelligence;
(2) use a product-based approach for initial entry into traditionally
closed areas and take advantage of the government's mandated
commercial-off-the-shelf solutions instead of funded research and
development solutions;
(3) stay involved in the government's new or high technology initiatives
that have the potential for GreyStone-wide applications; and
(4) build revenues and obtain funded research and development through
engineering services for key government agencies and prime government
contractors.
To achieve this strategy, Greystone has focused on the following strategic
initiatives:
Offer Technology-driven Solutions. GreyStone's achievements in developing
immersive, interactive, and intelligent systems that operate in real-time
provide a robust and flexible set of capabilities and services that provide
customized solutions for a variety of projects within the defense industry.
GreyStone's government business aims to
(1) design and building simulations and 3-D digital reality environments
that can answer the needs of research and development laboratories
which require virtual environments to prototype systems before design
and specification,
(2) support command centers that require the decision aiding and "what-if"
aspects of the virtual world, and
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(3) enable the troops in the field to train in the operation of these
systems.
GreyStone has developed capabilities to facilitate distributed interactive
participation, texture mapping, advanced data acquisition, signal processing,
and visualization of non-visible phenomenon, which enhances the utility of
GreyStone's products and services.
Add Value Through Strategic Relationships. GreyStone has had, and maintains
subcontracts and close working relationships with several leading government
contractors, including Lockheed Martin, SAIC, and others. GreyStone has entered
into joint technology, development, sales and marketing agreements with
companies including, Technology Service Corporation and Virtual Prototypes Inc.,
to leverage mutually beneficial approaches and integrated solutions to the
modeling and simulation market place. GreyStone feels that such agreements
complement its products and further leverage its opportunities for engineering
services. Through these relationships, GreyStone believes it can participate in
larger multiple contracts for a variety of agencies and programs to which it
might not normally have access.
Gain Access to New Technologies. GreyStone believes that by targeting
contracts from government research laboratories and organizations, it will gain
access to new, emerging technologies funded by the government. Much of
GreyStone's current capabilities and technology base was achieved through this
initiative. This small but important segment of the government market is often
willing to fund high-risk technology initiatives. This access supports
GreyStone's strategy of applying its technology across GreyStone's business
areas and products. This is particularly true in promoting GreyStone's role in
optimizing commercial image generator technology. As the government customer
seeks lower cost platforms and workstations on which to host virtual
environments, they are funding continued development of the software products on
these new, more affordable hardware systems.
Develop Products for New Markets. GreyStone believes that many governments
and agencies worldwide desire advanced visualization and simulation technologies
such as those produced by GreyStone. In the past, the proprietary nature of many
hardware and software components made the procurement of such systems
uneconomical or impossible due to severe limitations on technology transfer.
Using commercially available image generators and exportable software and
firmware, GreyStone will be able to offer cost-effective 3-D digital reality
solutions targeted to smaller markets and customers.
Government Products and Services
From its beginning in 1989, GreyStone's government business has been built
on key technologies used to create virtual environments and the experience of
qualified individuals -- defense industry engineers as well as experienced
warfighters -- who understand the requirements and utility of virtual
environments for training and combat operations. GreyStone has modeling and
simulation professionals, advanced systems integrators, mission-planning
specialists, intelligent agent experts, software developers with defense
industry experience, and experienced former military personnel who continue to
provide the government customer with an alternative to deploying troops and
systems to the field.
Greystone has a legacy of software development and engineering services for
high-performance military systems that are immersive, interactive, and
intelligent and which function in real-time. GreyStone has been able to adapt
its military software products for application across several mission areas:
planning, advanced simulations, aerial combat, battlefield command and control,
and, most recently, in the arenas of intelligence, surveillance and
reconnaissance systems. These products have been created through the application
of advanced software techniques to create smart, artificial intelligence-based
systems that achieve varied levels of individual and autonomous behavioral
characteristics. A key element of GreyStone's government market strategy is
based upon the implementation of advanced behavioral modeling and graphics
technology.
GreyStone's government software products are sold subject to license
agreements which grant to the user a non-exclusive runtime executable license to
use the software on a single workstation for an unlimited period of time. The
software remains the sole and exclusive property of GreyStone, and other than
the license granted by the agreement, no proprietary right or copyright to the
software or the accompanying documentation is granted under the license.
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Commercial Off the Shelf Defense Products (COTS)
A principal product of GreyStone's government business base is a real-time,
object-oriented software product, called Real-time Advanced Graphics Environment
(RAGE). RAGE enables 3-D representations of dynamic virtual environments. RAGE
displays environments for system simulations, constructive and virtual mission
simulations, support systems and mission visualizations by generating a 3-D
environment and immersive graphical entities from dynamically-acquired data from
flight recorders, sensors or satellite imagery which are updated thousands of
times per second.
Management of GreyStone views the RAGE-generated environment as a
cost-effective solution to unmanned aerial vehicle (UAV) platform and payload
simulation, leveraging existing government products (platform flight models,
ground control stations, object models, terrain databases, etc.) and the RAGE
product. The virtual UAV is designed as a modular, flexible, "dial-a-collector"
system capable of simulating a variety of current and projected unmanned
platforms and associated sensors. RAGE has been used to provide the virtual
world for U.S. Army UAV operators during large, multi-force training exercises.
Since RAGE is the primary software running the real-time enhanced virtual
world simulation during the exercise, each site requires a RAGE license sale.
With each exercise, GreyStone is paid for other engineering services it
performs, such as modifications to RAGE, custom databases, and the creation of
unique interfaces required of each application, in addition to providing both
field and home-office services during the exercise. In its first 21 months of
availability, 18 RAGE licenses were sold to the U.S. military. The system has
been useful for UAV concept of employment and operational utility demonstrations
in over 30 large-scale live Joint and Army exercises and force modernization
Advance Warfighting Experiments.
Another product borne out of the air combat training experience of
GreyStone is the Adaptive Maneuvering Logic (AML). AML is an advanced synthetic
adversary control model that provides real-time, interactive air combat
engagements with a six degree-of-freedom air combat simulation for
one-versus-one and two-versus-two scenarios. These intelligent control systems
are sophisticated computer programs that pit one or two computer-controlled
aircraft against human pilots using advanced aerodynamic performance,
interactive, intelligent real-time behaviors, air combat and pilot expertise.
GreyStone's AML jet fighter weapons tactics simulation software was licensed to
Hughes training for use in the F/A-18 domed simulators for an unlimited period
of time.
Defense Engineering Services and Projects
GreyStone has provided engineering services to the military services and
their contractors including services to:
Lockheed Martin to support:
- DARPA's Pilot's Associate Program
- On board software to support the F-22 Advanced Tactical Fighter
- Joint Strike Fighter program technical trade studies
- F-22 Mission Support System
- F-22 Internal Research and Development
DARPA for the:
- Warbreaker Mission Planning Program
- Virtual Reality Device assessment and selection for carrier force
operations
- Battlefield Awareness Data Dissemination program
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Logicon for the:
- Design of mission planning and support module for the F-117A Stealth
Fighter
U.S. Air Force Armstrong Laboratory for:
- Advanced cockpit technology (visualization, intelligent systems, cockpit
controls, displays, simulators, weapon systems)
Department of Defense for the:
- Virtual Unmanned Aerial Vehicle Program
- Multiple Unified Simulation Environment project
- Virtual Airborne Reconnaissance -- Low
U.S. Army for the:
- Live Multiforce Training Exercises (more than thirty exercises)
- Live Joint and Army force modernization Advance Warfighting Experiments
Joint Strike Fighter Program Office:
- Joint Strike Fighter C4I Support Plan
U.S. Navy SPAWAR Systems Center -- San Diego
- Joint Countermine Operations
- Synthetic Theater of War Simulation
Defense Backlog
Within the past 12 months, Greystone has been awarded contracts for the
following programs:
MUSE VIRTUAL WORLD. In December 1998 the U.S. government awarded a
non-competitive contract to GreyStone, for engineering technical services to
support the interface, integration, test, demonstration and support of Joint
Technology Center/System Integration Laboratory customer hardware and software
systems/subsystems/components within the Multiple Unified Simulation Environment
and its virtual world subsystem as built with RAGE. The initial period of
performance is 15 months. The initial award consists of a small basic contract,
which upon the exercise of all options, has a ceiling price of $1.5 million
dollars.
VARL. In October 1998 GreyStone was awarded another non-competitive
contract for the Virtual Airborne Reconnaissance-Low (VARL) Program. This $1.3
million effort is follow-on to our Phase I prototype program and provides our
U.S. Army customer a VARL demonstration system at their Fort Belvior
headquarters and operational mission trainers for units deployed to South Korea
and other operational sites. Our synthetic natural environment simulation, using
the RAGE product as its core, provides high fidelity mission payload simulation
to the actual aircraft hardware/software systems.
BATTLEFIELD VISUALIZATION AND ADVANCED SIMULATION TECHNOLOGY. In March
1999, GreyStone was awarded a five-year delivery-order contract with a ceiling
of $15.1 million. GreyStone will provide modeling and simulation engineering
services to the U.S. Navy's Space and Naval Warfare Systems Center in San Diego.
GreyStone's core support to the Navy's Synthetic Forces Model provides other
government customers cost effective solutions for Joint Counter-Mine Warfare,
Battle Force training, Command and Control, and Joint Medical Tele-medicine
applications.
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MARKETING AND SALES
Commercial and Government Markets
GreyStone's marketing and sales activity in the commercial market to date
has consisted primarily of participation in trade shows, distribution of
marketing communications, market research and public relations activities
designed to showcase GreyStone's technology and capabilities. GreyStone intends
to promote its name, trademarks and products to create a recognizable brand of
quality in each of its markets and to coordinate advertising and promotional
opportunities to benefit itself and its licensees. GreyStone's marketing
activities are also designed to demonstrate the capabilities of GreyStone's
products, showing potential customers 3-D software environments that surpass
those offered by competitors in functionality, realism and interactivity.
GreyStone has entered into an exclusive license agreement with Laser-Tron to
market, produce and distribute entertainment systems with GreyStone's current
game, XS-G, and to pay GreyStone a fee after the sale of the product.
In the government market, marketing activities are conducted primarily
through interaction with key military acquisition offices and laboratories, as
well as with prime and subcontractors to the U.S. and other governments,
availing them of GreyStone's expertise in simulation and 3-D digital reality
software environments. GreyStone also participates in a number of trade shows
focused on the government markets.
STRATEGIC TECHNOLOGY UNIT
GreyStone's research and development efforts are coordinated by the
strategic technology unit, whose responsibility is to develop and demonstrate
advanced technologies for use in GreyStone's commercial and government products.
These research and development projects include the exploration of basic
technology alternatives, maturation of critical technology components, and the
execution of cooperative technology ventures. The strategic technology unit
directly impacts product improvement and reduction of costs through the
incorporation of advanced technology.
GreyStone's strategic technology unit is responsible for communication and
coordination among GreyStone's software and hardware engineering personnel. The
software engineering group includes engineers with significant design and
development experience in object-oriented software, systems and dynamics
modeling, real-time operating systems, network technology and protocols
(including distributed simulation), intelligent systems design, advanced
multi-sensory user interfaces, graphical design and databases, data acquisition
and signal processing, and embedded systems. Hardware engineering includes
engineers with significant experience in image generator design and
applications, computer architecture, network technologies, display technologies,
audio and video synchronization, computer buses, complex computer systems, user
interface design and integration and design manufacturing. The software and
hardware engineering personnel work together to develop and refine the tools
necessary for the development of GreyStone's products.
In addition to GreyStone-sponsored research and development, GreyStone
performs contract research and development for various government agencies and
contractors. As part of its product development strategy, GreyStone seeks to
identify commercial applications for new technologies developed under its
defense contracts and retains title as permitted to developments made pursuant
to government contracts. By coordinating its various technology research and
development efforts, GreyStone maximizes the growth and internal availability of
its strategic intellectual property and experience.
PRODUCTION
GreyStone's production strategy is based upon outsourcing of basic
component manufacturing and assembly and internal development of software.
Components procured from or built by third parties may be shipped to GreyStone's
headquarters, to be assembled and tested prior to shipment. GreyStone's
headquarters include approximately 5,000 square feet allocated to production of
GreyStone's products.
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COMPETITION
GreyStone experiences substantial competition in its government and
entertainment markets and believes its principal competition advantages to be
its reputation and experience in its selected market areas, creativity in
applying existing and GreyStone proprietary technology to new applications that
meet customer requirements, technical assistance to its customers and price.
GreyStone believes that it has a competitive advantage with its government
software product, RAGE, which has been identified by the government in several
sole source award announcements as a requirement for award performance. While
GreyStone believes that this competitive advantage may continue, for an unknown
period of time, there is no guarantee that the government will continue to
identify GreyStone's software as a continuing requirement for such awards.
GreyStone competes against established corporations in the government
market that have substantially greater financial and other resources than
GreyStone. In the past, GreyStone has worked closely with several companies as a
sub-contractor. No assurances can be given that GreyStone will be successful in
maintaining or enhancing these relationships in the future. GreyStone considers
the principal competitors for its government products and services to include
Science Applications International Corporation (SAIC), Cubic Corporation,
Logicon, TRW and others. There can be no assurance that GreyStone will be able
to compete with these and other companies for future government contracts or
that such contracts, upon successful award, will be on terms favorable to
GreyStone.
The markets for interactive 3-D software products are still emerging, and
GreyStone anticipates that the number of competitors will increase. Companies
having greater financial resources may be able to make greater investments in
research and development, engage in more extensive marketing campaigns, carry
large inventories, adopt more aggressive pricing policies and make more
attractive offers to customers. GreyStone also believes that large entertainment
and computer companies are increasing their focus on the interactive 3-D
software entertainment market, which will stimulate further competition.
GreyStone's competitors range from small companies with limited resources
to large companies with greater financial, technical and marketing resources.
GreyStone considers the principal competitors in the interactive entertainment
markets to include Broderbund Software, Inc., Electronic Arts, Inc., Interplay,
LucasArts Entertainment Company, Sony, Sega, Nintendo, Namco, and Williams.
GreyStone's future success in its government and commercial markets will
depend upon, among other things, its ability to withstand competition from
larger companies, to obtain and retain competent personnel to successfully
accomplish its obligations under its various contracts and agreements and to
productively extend its technological expertise to new applications. All of
these factors are subject to uncertainty. See "Risk Factors -- Competition."
PATENTS AND PROPRIETARY RIGHTS
GreyStone has sought to apply for patents, or other appropriate proprietary
or statutory protection, when it develops valuable new or improved technology.
As of June 30, 1999, GreyStone has one design patent as well as certain
trademarks and copyrights. The status of patents involves complex legal and
factual questions and the breadth of claims allowed is uncertain. There can be
no assurance that its patent will afford effective protection against
competitors with similar technology; nor can there be any assurance that patents
issued to GreyStone will not be infringed upon or designed around by others or
that others will not obtain patents that GreyStone would need to license or
design around. If the courts uphold existing or future patents containing broad
claims, the holders of such patents might be in a position to require companies
to obtain licenses. There can be no assurance those licenses that might be
required for GreyStone's products would be available on reasonable terms, if at
all.
In addition to patent and copyright law, GreyStone relies on trade secrets
and proprietary know-how, which it seeks to protect in part by confidentiality
agreements with its strategic partners, employees, consultants, vendors and
licensees. GreyStone's agreements prohibit unauthorized disclosure or reverse
engineering of GreyStone's systems. However, GreyStone expects that third
parties may attempt to reverse
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engineer its technology. There can be no assurance that GreyStone's
confidentiality agreements will not be breached or that GreyStone would have
adequate remedies for any breach. The law concerning reverse engineering by a
person or entity that has not signed a license agreement is currently uncertain.
As a result, GreyStone may not have an adequate remedy if a competitor
disassembles or reverse engineers products based on GreyStone's proprietary
technology even if trade secret or copyright law protects GreyStone's
technology.
GreyStone relies in part on copyright laws to prevent unauthorized
duplication or distribution of its software, written materials and audiovisual
works. Existing copyright laws afford only limited protection, particularly in
certain jurisdictions outside the United States where GreyStone may seek to
license its technology. See "Risk Factors -- Dependence on Proprietary
Technology."
EMPLOYEES
GreyStone had 35 full-time employees as of June 30, 1999. Twenty-three of
these employees are in research and product development related activities, one
in manufacturing and 11 in GreyStone's business sectors, finance and
administration. GreyStone is not a party to any collective bargaining agreement,
and GreyStone believes its relations with employees to be good.
FACILITIES
GreyStone leases approximately 27,600 square feet of office and research
and development space at 4950 Murphy Canyon Road, San Diego, California 92123.
This lease expires on December 14, 2003. GreyStone also has a small supporting
office in Washington, D.C., and seven employees working in government furnished
facilities. GreyStone believes its existing facilities are capable of supporting
GreyStone's operations for the foreseeable future.
LEGAL PROCEEDINGS
In October 1996 GreyStone entered into a stock purchase agreement with
Seawind USA providing for the purchase of $50,000,000 of Common Stock of
GreyStone at a purchase price of $5.46 per share. Seawind USA failed to purchase
any shares of GreyStone common stock and in November 1997 GreyStone filed a
complaint against Seawind USA, certain affiliates, and other parties associated
with the proposed stock purchase in the Superior Court of California, County of
San Diego. The complaint asserted various causes of action including fraud. In
January 1999 the court awarded judgment in favor of GreyStone and against
Seawind USA in an amount in excess of $12,000,000. A 90 day period for appeal
expired on May 9, 1999. GreyStone has not determined how much, if any, of the
award will be collectable.
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GREYSTONE MANAGEMENT
The directors and executive officers of GreyStone and their ages as of June
30, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard A. Smith 52 Chairman of the Board, President and Chief Executive
Officer
Jon M. Reynolds 58 Director
Thomas D. Aldern 45 Vice President, Government Systems and Director
Carl A. Beaudet 57 Vice President, Government Business Development
Bernard J. Crowe 60 Vice President, Commercial Systems and Products
Marshall Geller 47 Controller and Acting Chief Financial Officer
Carolyn Harris 42 Vice President, General Counsel and Secretary
</TABLE>
Richard A. Smith. Mr. Smith was a founder of GreyStone and has served as
its Chairman and Chief Executive Officer since its inception. Before founding
GreyStone, Mr. Smith was employed by Titan Systems, Inc., a high technology
systems engineering company in San Diego, California from 1985 to 1989. At
Titan, he was responsible for planning and direction of advanced programs for
the Combat Systems Group and was Deputy Operations Manager for Advanced
Avionics. From 1970 to 1985, Mr. Smith served in the Navy as a fighter pilot in
Vietnam, as an instructor and adversary pilot, and as a pilot with Continental
Airlines. In 1995, he retired as a Commander in the U.S. Naval Reserve. Mr.
Smith earned a B.S. degree from South East Missouri State University and a M.S.
degree from the University of Southern California.
Jon M. Reynolds. Mr. Reynolds has been a member of the board of directors
of GreyStone since February 1994 and served as GreyStone's President from April
1995 until January 1997. Mr. Reynolds was a Senior Vice President of Hoak,
Breedlove & Wesneski & Co., Inc., an investment banking firm in Dallas, Texas
from April 1998 until March 1999. Mr. Reynolds is also the president of The
Pointe-Force Company, a private Dallas-based merchant banking concern. From 1985
until 1992 Mr. Reynolds was a director of Sun Coast Plastics, Inc., a company
specializing in plastic molded closures and food service products, and from 1988
to 1992 Mr. Reynolds served as that company's Chairman and Chief Executive
Officer. From 1984 through 1988 Mr. Reynolds also served as president of Mayfair
Capital, a merchant banking company. In February 1983, Mr. Reynolds joined
Rauscher Pierce Refsnes in Dallas. From 1971 through 1982, Mr. Reynolds worked
in New York as an investment banker engaged in project and corporate finance at
Salomon Brothers and at CS First Boston. Mr. Reynolds is a certified public
accountant and holds an A.B. from Harvard College in economics. He received his
MBA from Rutgers University.
Thomas D. Aldern. Mr. Aldern has been GreyStone's Vice President,
Government Systems and a member of the board of directors since joining
GreyStone in 1989. From 1985 to 1989, Mr. Aldern supported projects for the
Naval Ocean Systems Center and ARPA and was active in classified defense
programs at Titan. From 1978 to 1985, Mr. Aldern was in the U.S. Navy as a F-14A
Radar Intercept Officer and involved in projects concerning battlespace
extension, aircraft tactics, and advanced sensor modeling. Mr. Aldern earned a
B.S. in Systems Engineering from the U.S. Naval Academy and has completed
numerous U.S. Navy Warfare courses such as Strike Leader Attack Training School,
Navy Fighter Weapons School (TOPGUN) and U.S. Navy Electronic Warfare School.
Carl A. Beaudet. Mr. Beaudet joined GreyStone in 1989 as its Vice
President, Government Business Development. He has been active in various areas
of GreyStone's business development, administration and operations. Before
joining GreyStone, Mr. Beaudet was a field office manager at Advanced
Technology, Inc., an engineering services company, as well as a technical
director for electronic warfare for that company's project activities at the
Pacific Missile Test Center from January 1988 to December 1989. Before January
1988, Mr. Beaudet worked for five years at the Military Electronics and Avionics
Division of TRW, Inc., a defense electronics and computer systems manufacturer,
in San Diego, California where he managed the Operations Analysis department in
support of a number of different programs and projects. Mr. Beaudet was a career
Naval Flight Officer with 20 years' experience. Mr. Beaudet received a B.S. in
Aeronautics and Astronautics from Purdue University and an M.S. in Aeronautical
Engineering from the Naval Postgraduate School.
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<PAGE> 63
Bernard J. Crowe. Mr. Crowe has been GreyStone's Vice President, Commercial
Systems since 1992. Prior to joining GreyStone, Mr. Crowe was Vice President at
Ball Corporation, Systems Engineering Division located in San Diego, California
from 1990 to 1992 where he managed that company's development of products for
military and commercial customers. From 1975 to 1990, Mr. Crowe was at TRACOR
Flight Systems, Inc., an aerospace company where he was Director of the
Simulation Product Department. In this capacity, he led over 20 engineers in
developing real-time simulation products. Mr. Crowe received a B.S. from London
University.
Marshall B. Geller. Mr. Geller is Chief Financial Officer. He joined
GreyStone in 1994 as Controller and served in that position until November 1998
when he assumed his current duties. Prior to joining GreyStone, from 1982 until
1994, Mr. Geller worked for General Dynamics -- Convair Division in San Diego in
the areas of financial planning, budgeting, overhead, and capital planning.
Prior to that, Mr. Geller worked for an accounting firm in New York City. Mr.
Geller received his B.A. and M.B.A. from Hofstra University in New York.
Carolyn A. Harris. Ms. Harris is Vice President, General Counsel and
Corporate Secretary. She joined GreyStone in 1995 as Contracts Director and
served as Assistant General Counsel and Assistant Secretary until 1998 when she
assumed her current duties. From 1979 to 1994 she worked for Rockwell
International Corporation's Rocketdyne Division in Los Angeles, California in
the areas of financial management, advanced programs and contracts. Ms. Harris
received her B.S. in Finance and Accounting from the University of Arizona, and
her J.D. from Southwestern University School of Law.
NOMINEE DIRECTORS
Upon completion of the merger, the following two individuals have agreed to
serve as outside directors:
Alan D. Stone. Mr. Stone, age 53, has served as President and Executive
Vice President at Sega Enterprises, Inc., a leading video game and multimedia
entertainment company, from October of 1991 through the present. During part of
this time he served as President of Sega Gameworks, an arcade and location-based
entertainment company. Prior to that, Mr. Stone served as Vice President, Sales
and Marketing, for Nintendo of America, Inc., a video game entertainment
company, that he co-founded in 1980. Mr. Stone received his BA from the
University of California, Berkeley, and his MBA in finance and economics at the
University of Washington, Seattle.
James W. Johnston. Mr. Johnston, age 53, is President and Chief Executive
Officer of StoneMarker Enterprises, Inc., a consulting and investment company.
He previously served as Vice Chairman of RJR Nabisco, Inc., a holding company,
from 1995 to 1996. From 1989 to 1996, he also served as Chairman of R.J.
Reynolds Tobacco Co., and was Chief Executive Officer of that company until
1995. Mr. Johnston was named a Director of RJR Nabisco Holdings Corp. in 1992
and Chairman of R.J. Reynolds Tobacco International Inc. in 1993. He retired
from R.J. Reynolds in July 1996. Mr. Johnston began his business career with
Ford Motor Co. In addition to Ford, he has held senior management positions at
various subsidiaries of Northwest Industries, Inc. and Citibank N.A. Mr.
Johnston serves on various boards, including the Sealy Corporation, AgriBioTech,
Inc., and various non-profit organizations.
BOARD COMMITTEES AND MEETINGS
The GreyStone board held eight meetings in its business year which ended on
March 31, 1998 and five meetings in the year which ended on March 31, 1999.
DIRECTORS' COMPENSATION
GreyStone's directors do not currently receive any cash compensation for
service on the board of directors or any committee thereof, but directors may be
reimbursed for certain expenses in connection with attendance at board and
committee meetings. The current directors also serve as officers and/or
consultants to GreyStone and do receive compensation for such services.
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EXECUTIVE OFFICER COMPENSATION
The following table shows for the fiscal years ended March 31, 1999, 1998
and 1997, certain information regarding compensation awarded or paid to, or
earned by, GreyStone's (i) Chief Executive Officer, (ii) and the three highest
compensated executive officers of GreyStone who earned more than $100,000 in the
fiscal year ended March 31, 1999 and who were executive officers of GreyStone as
of March 31, 1999 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
----------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS(#) COMPENSATION
- --------------------------- ------ -------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Smith............ 1999 $281,332(1) $18,000(2)
Chairman, President and 1998 $226,024(1) $ 9,750(2) 450,000(3) $2,600(4)
Chief Executive Officer 1997 $217,709 500,000(5) $4,540(4)
Carl A. Beaudet............. 1999 $117,119
Vice President, Government 1998 $105,000
Business Development 1997 $111,563 50,000(6)
Bernard J. Crowe............ 1999 $123,831
Vice President, Commercial 1998 $125,020
Business Unit 1997 $132,812 20,000(7)
</TABLE>
- ---------------
(1) For fiscal year 1999, amount includes $60,000 of salary that was deferred
and not paid until the quarter ending June 30, 1999. For fiscal year 1998,
amount includes $37,500 of salary that was deferred and not paid.
(2) Represents car allowance paid to Mr. Smith.
(3) During fiscal year 1998, options to purchase 200,000 shares of GreyStone
common stock at an exercise price of $4.95 per share which were originally
issued in fiscal year 1997 were cancelled and options to purchase 450,000
shares of GreyStone common stock at an exercise price of $4.95 per share
were issued to Mr. Smith.
(4) For fiscal year 1998, amount represents reimbursement of income tax services
expense for fiscal year 1998. For fiscal year 1997, amount represents
reimbursement of medical expenses and certain company car expenses incurred
by Mr. Smith.
(5) During fiscal year 1997, options to purchase 500,000 shares of GreyStone
common stock at an exercise price of $7.70 per share which were originally
issued to Mr. Smith in fiscal year 1995 were cancelled and options to
purchase 500,000 shares of GreyStone common stock at an exercise price of
$4.95 per share were issued to Mr. Smith.
(6) During fiscal year 1997, options to purchase 50,000 shares of GreyStone
common stock at an exercise price of $7.00 per share which were originally
issued to Mr. Beaudet in fiscal year 1995 were cancelled and options to
purchase 50,000 shares of GreyStone common stock at an exercise price of
$3.80 per share were issued to Mr. Beaudet.
(7) During fiscal year 1997, options to purchase 20,000 shares of GreyStone
common stock at an exercise price of $3.80 per share were issued to Mr.
Crowe.
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STOCK OPTION GRANTS AND EXERCISES
GreyStone grants options to its executive officers under its 1994 Stock
Option and Stock Award Plan and under its 1991 Stock Option Plan. No stock
options were granted to any named executive officers during the business year
which ended March 31, 1999. Richard A. Smith was the only executive officer of
Greystone who received options in fiscal year 1998. The following table shows,
for the fiscal year ended March 31, 1998, certain information regarding options
granted to Mr. Smith:
OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE --------------------------
NAME GRANTED(1) FISCAL YEAR(1) (S/SH) EXPIRATION DATE 5% 10%
---- ---------- -------------- ----------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Smith............ 450,000(2) 31.9% $4.95 200,000 @ 6/28/07 $1,400,862 $3,550,061
250,000 @ 8/16/07
</TABLE>
- ---------------
(1) Based on options to purchase 1,410,000 shares granted to employees during
fiscal year 1998.
(2) In fiscal year 1998, 200,000 of the 500,000 options issued to Mr. Smith in
1997 were cancelled and reissued. In addition, during fiscal year 1998,
non-statutory options to purchase 250,000 shares of GreyStone common stock
at an exercise price of $4.95 per share were issued to Mr. Smith under the
terms of his employment agreement.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
During the fiscal years 1998 and 1999, no Named Executive Officers
exercised any options.
EMPLOYMENT AGREEMENTS
Pursuant to an employment agreement between GreyStone and Richard A. Smith
entered into in August 16, 1997 (the "Smith Employment Agreement"), Mr. Smith
currently receives from GreyStone an annual base salary of not less than
$250,000 and bonuses and equity compensation as determined by the GreyStone
board of directors. The Smith Employment Agreement also provides that Mr. Smith
shall be entitled to a bonus of five percent (5%) of pre-tax earnings of
GreyStone, provided the pre-tax earnings exceed $500,000 after the bonus expense
is charged against earnings, with a cap that the annual bonus shall not exceed
five hundred percent (500%) of the annual base salary in the year of
determination. If Mr. Smith's employment is "Constructively Terminated" other
than for a "Change in Control" (as such terms are defined in the Smith
Employment Agreement"), then Mr. Smith is entitled to an amount equivalent to
his base salary for the thirty-six months immediately prior to the Constructive
Termination. If Mr. Smith's employment is Constructively Terminated pursuant to
a "Change in Control", other than for cause (as such terms are defined in the
Smith Employment Agreement), Mr. Smith will receive as severance (i) an amount
equal to 299% of his then current annual base salary plus 299% of the amount of
the greater of the bonus awarded to him in the prior calendar year or the
average of the annual bonuses received by him in respect of his employment
during the two year period preceding the year in which the change of control
occurred, and (ii) an amount in cash equal to the present value (calculated at a
discount rate of 10%) of the incremental retirement benefits that would have
been payable or available to Mr. Smith under any qualified plan, or under any
other supplemental retirement, life or medical plan or arrangement, regardless
of whether qualified, that is maintained by GreyStone and is based on the age
and service Mr. Smith would have attained or completed had he continued as an
employee of GreyStone for an additional two years. All of such payments are to
be made in one lump sum within 30 days of termination, except with respect to
item (ii) above which is to be paid within 10 days after the date of
Constructive Termination. If Mr. Smith's employment is terminated with cause or
if Mr. Smith resigns other than for "sufficient reason," Mr. Smith's
compensation and benefits will cease immediately and Mr. Smith will not be
entitled to severance benefits.
Pursuant to an employment agreement dated May 15, 1992 between GreyStone
and Bernard Crowe, GreyStone's Vice President, Commercial Systems Division, Mr.
Crowe receives a current annual base salary
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of $125,000. In addition, under the employment agreement, the GreyStone board
may, in its sole discretion, award such bonuses to Mr. Crowe as the GreyStone
board deems appropriate based on Mr. Crowe's performance. Either party may
terminate the agreement upon fourteen days written notice. In the event
GreyStone terminates the employment agreement with or without cause, GreyStone
shall only be obligated to pay to Mr. Crowe his annual base salary prorated to
the date of termination.
Pursuant to an employment agreement dated August 16, 1991 between GreyStone
and Carl Beaudet, GreyStone's Vice President, Government Business Development,
Mr. Beaudet receives a current annual base salary of $125,000. In addition,
under the employment agreement, the GreyStone board may, in its sole discretion,
award such bonuses to Mr. Beaudet as the GreyStone board deems appropriate based
on Mr. Beaudet's performance. Either party may terminate the agreement upon
fourteen days written notice. In the event GreyStone terminates the employment
agreement with or without cause, GreyStone shall only be obligated to pay to Mr.
Beaudet his annual base salary prorated to the date of termination.
Pursuant to an employment agreement dated August 16, 1991 between GreyStone
and Thomas Aldern, GreyStone's Vice President, Government Systems, Mr. Aldern
receives a current annual base salary of $110,000. In addition, under the
employment agreement, the GreyStone board may, in its sole discretion, award
such bonuses to Mr. Aldern as the GreyStone board deems appropriate based on Mr.
Aldern's performance. Either party may terminate the agreement upon fourteen
days written notice. In the event GreyStone terminates the employment agreement
with or without cause, GreyStone shall only be obligated to pay to Mr. Aldern
his annual base salary prorated to the date of termination.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In order to provide incentives for certain founders of GreyStone, GreyStone
sold shares to three persons in August 1991 in exchange for certain promissory
notes bearing interest at 8.2% per annum (the "Founders Notes"). The Founders
Notes are secured by these shares. All of the shares of common stock owned by
these Founders are subject to a stock restriction agreement dated August 16,
1991 among GreyStone, the Founders, GreyStone's chief executive officer Richard
A. Smith, and Mr. Smith's wife. The stock restriction agreement contains certain
prohibitions on transfer of any common stock owned by the individuals, a right
of first refusal in favor of GreyStone upon a proposed sale of the common stock
and a covenant not to compete by each individual upon a sale of such
individual's stock which is subject to the stock restriction agreement. In May
l992, GreyStone reacquired certain of these shares from the three individuals
and reduced the principal balances of the Founders Notes. The outstanding
principal balances and the number of shares of common stock securing the
Founders Notes as of June 30, 1999 were: Carl A. Beaudet -- $195,000/800,000
shares; Thomas D. Aldern -- $35,000/160,000 shares; and David C.
Vineyard -- $97,500/400,000 shares. The Founders Notes mature on the earlier of
(1) August 16, 2001,
(2) ninety (90) days after the termination of the Stock Restriction
Agreement,
(3) the dissolution, bankruptcy or insolvency of GreyStone or
(4) GreyStone's initial public offering of its securities.
In July and September 1993 GreyStone borrowed $100,000 and $50,000 from
Kenwood Capital Limited Partnership. Kenwood is affiliated with Jon M. Reynolds,
a director of GreyStone. GreyStone has repaid the loans in full, in cash and by
issuing 14,286 shares of GreyStone common stock at a price of $7.00 per share
On November 22, 1993, GreyStone issued warrants to The Pointe Force Company
to acquire the aggregate of 400,000 shares of common stock of GreyStone at an
exercise price of $10.00 per share. The Pointe Force warrants terminate on
November 22, 2003. As of the date of this prospectus, none of the Pointe Force
warrants had been exercised.
In March 1996, GreyStone and Pointe Force entered into a services agreement
which provides for Pointe Force, through its agent Jon Reynolds, who was at the
time an officer and director of GreyStone, to provide continuing general
financial and management advisory services to GreyStone, including the services
of Mr. Reynolds as the president and chief operating officer of GreyStone. In
the services agreement, GreyStone acknowledged that it owed Pointe Force for
services rendered through March 31, 1996 under a previous agreement in the
aggregate sum of $92,954.14 and that for the period commencing April 1, 1996
GreyStone would accrue compensation to Pointe Force in the amount of $10,000 per
month until the earlier of Mr. Reynolds' ceasing to perform services as
president and chief operating officer of GreyStone or thirty (30) days after
GreyStone's receipt of an infusion of debt or equity in an amount of not less
than $2 million (the "Capital Infusion"). The parties agreed that upon receiving
the Capital Infusion,
(1) GreyStone would pay as soon as reasonably practical to Pointe Force the
sum of $92,954.14 plus the sum of $10,000 per month from April 1, 1996
until 30 days after the Capital Infusion,
(2) Pointe Force and Reynolds would cease to be entitled to any further
compensation; and
(3) the parties would negotiate in good faith a compensation package for
Mr. Reynolds in accordance with the parties' understanding and
agreement on the future involvement of Mr. Reynolds with GreyStone.
The services agreement terminated upon his resignation as president and
chief operating officer of GreyStone effective as of January 1, 1997. In
addition to the Point Force warrants, on March 29, 1996, GreyStone granted Point
Force warrants to purchase 100,000 shares of common stock. Effective, January 1,
1997, all of these warrants were fully vested. Each of these warrants has a term
of ten years from date of issuance and as exercisable at $10 per share.
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Between December 1994 and December 1995, Richard A. Smith, GreyStone's
chief executive officer, borrowed in excess of $2,700,000 from various persons
and loaned those funds to GreyStone ("Smith Loans"). The notes which Mr. Smith
delivered to those individual lenders ("Creditor Notes") bear interest at the
rate of 9% per annum and contain a provision which enables the holders to
convert the amount owed into shares of GreyStone's common stock owned by Mr.
Smith at the rate of $4.50 per share, except that the loans from three creditors
for the aggregate amount of $147,500 bear interest at the rate of 18.0% per
annum and are convertible at the option of the holder on maturity into shares of
GreyStone's common stock owned by Mr. Smith at the rate of $7.14 per share. The
Smith Loans are evidenced by promissory notes issued by GreyStone in favor of
Richard Smith and have substantially the same terms as the Creditor Notes, with
the exception that the Smith Notes do not contain the right to convert the
principal amount of the loans into shares of GreyStone common stock. During
calendar year 1996, holders of Creditor Notes in the aggregate principal amount
of $385,880 plus unpaid accrued interest either converted their respective notes
into shares of GreyStone's common stock owned by Mr. Smith or were paid in full.
In March 1997, GreyStone expressed its desire to satisfy its obligation to repay
the Smith Notes by assuming the obligation of Mr. Smith to repay the Creditor
Notes, and agreed that if the creditors desired to convert their respective
Creditor Notes into shares of GreyStone's common stock, then GreyStone would
permit such conversion from the authorized shares of GreyStone, provided that
the creditors exercising their conversion rights concurred. As of March 31,
1999, creditors holding an aggregate of $2,597,399 in outstanding principal of
the Creditor Notes plus unpaid accrued interest were either paid in full or had
agreed to the assumption of the debt by GreyStone and the conversion of such
debt at $4.50 per share.
From time to time through March 31, 1997, GreyStone made cash advances to
Mr. Smith in the cumulative amount of $122,629. Since April 1, 1997, interest
has accrued at a rate of 9% per year. As of March 31, 1999, a total of $21,955
in interest had accrued for a total balance of $144,584.
In the quarter ended March 31, 1999, Mr. Smith elected to forego having
GreyStone repay its obligations to him evidenced by outstanding notes payable of
$216,485 and accrued interest of $16,877. In return, GreyStone agreed to forgive
advances to Mr. Smith of $122,629, plus accrued interest of $21,955. Mr. Smith
agreed to contribute the difference totaling $88,778 to GreyStone. This amount
has been included in additional paid in capital.
GreyStone has entered into employment agreements with five of its executive
officers (including Mr. Smith). The original terms of two of the employment
agreements have expired and such employment agreements continue on a
month-to-month basis until terminated by either party with written notice to the
other. The original term of Mr. Smith's employment agreement expires August 16,
2000. This employment agreement will continue for two years in the absence of
written notice to the contrary from the other party.
Beginning in 1989 and from time to time subsequently, GreyStone has
borrowed money or leased equipment under terms which required GreyStone's Chief
Executive Officer, Richard Smith, personally to guarantee GreyStone's repayment
performance. In January 1995, GreyStone leased internal computer network
equipment for a three year period, during which GreyStone was obligated to make
$57,886 in payments. The lease provided for GreyStone's payment obligations to
be guaranteed personally by Mr. Smith. The lease has been fully paid. In
February 1995, GreyStone leased a phone call processing system for a five year
period during which GreyStone was obligated to make payments of $75,517. The
lease provided for GreyStone's payment to be guaranteed personally by Mr. Smith.
The lease is current and 10 payments of $1,258.62 each remain. In December 1998,
GreyStone borrowed $200,000 from an individual for a period of five weeks. The
terms of the note provided for a personal collateralized guarantee by Mr. Smith.
The note was repaid by GreyStone before the maturity date.
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GREYSTONE PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of GreyStone's common stock as of June 30, 1999 by
(1) each GreyStone shareholder known by GreyStone to own beneficially more
than 5% of the common stock;
(2) each Named Executive Officer;
(3) each director, and
(4) all directors and officers as a group:
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF COMMON STOCK
NAME SHARES(1) OWNED(1)
---- --------- ------------
<S> <C> <C>
Richard A. Smith(2)................................ 7,186,752 45.0%
Carl A. Beaudet(3)................................. 895,000 5.9%
Thomas A. Aldern(4)................................ 855,000 5.6%
Jon M. Reynolds(5)................................. 519,286 3.3%
Bernard J. Crowe(6)................................ 257,000 1.7%
All directors and officers as a group(7)........... 9,887,938 58.1%
</TABLE>
- ---------------
(1) This table is based upon information derived from GreyStone's stock records.
Unless otherwise indicated in the footnotes to this table and subject to
community property laws where applicable, GreyStone believes that each of
the shareholders named in this table has sole or shared voting and
investment power with respect to the shares indicated as beneficially owned.
Applicable percentages are based upon 15,109,341 shares of common stock
outstanding as of June 30, 1999.
(2) Includes 3,200,000 shares of common stock held by Catherine Smith, the wife
of Richard Smith. Also includes options to purchase 866,666 shares of common
stock exercisable within 60 days of June 30, 1999.
(3) Includes 40,000 shares of common stock held by Linda Beaudet, the wife of
Carl Beaudet. Also includes options to purchase 55,000 shares of common
stock exercisable within 60 days of June 30, 1999.
(4) Includes options to purchase 55,000 shares of common stock exercisable
within 60 days of June 30, 1999.
(5) Includes warrants to purchase 500,000 shares of common stock exercisable
within 60 days of June 30, 1999.
(6) Includes options to purchase 257,000 shares of common stock exercisable
within 60 days of June 30, 1999.
(7) Includes options and warrants to purchase 1,908,566 shares of common stock
exercisable within 60 days of June 30, 1999.
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<PAGE> 70
EXPRESS CAPITAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In reviewing the following discussion, reference is made to Express
Capital's financial statements included elsewhere herein.
Since January 1, 1995, Express Capital has not had any operating revenues.
Express Capital's operating expenses and its other income (expense) have
varied significantly during its fiscal years ending December 31, 1996, 1997 and
1998 and for the three months ended March 31, 1998 and 1999. These variations
occurred primarily because Express Capital's ongoing efforts to find a business
combination involved different activities during the different periods. During
1995, Express Capital entered into a letter of intent for a business
combination, and incurred $14,736 of related expenses. When that letter of
intent was terminated during 1996, Express Capital was reimbursed for its 1995
expenses and was issued stock of the other party to the proposed business
combination. The stock was recorded as 1996 Other Income at $33,962, its value
when received.
Express Capital transferred the stock to its President and one of its
stockholders in 1997. At the time of transfer the stock had appreciated by
$139,619, and the appreciation was recorded as other income. The transfers
satisfied $16,981 of debt owed to each of the recipients and compensated each of
them in the amount of $69,809.50. The $139,619 total compensation was an
operating expense in 1997.
During 1997 and 1998, and for the three months ended March 31, 1999,
Express Capital incurred expenses in connection with the merger in the amounts
of $16,893, $48,681 and $1,200, respectively. These expenses were recorded as
operating expenses.
Express Capital does not have sufficient funds, assuming that a business
combination is not consummated, to operate. Express Capital has funded its
activities primarily by borrowing from its two largest shareholders. This debt
shall be forgiven in connection with the merger.
EXPRESS CAPITAL BUSINESS
GENERAL
Express Capital was formed on May 18, 1988 to serve as a vehicle to effect
a business combination with a target business. In July 1988 Express Capital
consummated its initial public offering of 500,000 shares of Express Capital
common stock at a price of $.10 per share.
Express Capital has been seeking to acquire a target business for several
years. In February 1995, it entered into a letter of intent to acquire a target
business but that acquisition was terminated in March 1996. On August 11, 1997,
Express Capital agreed to the merger with GreyStone. Express Capital anticipates
that at the date of the merger, it will have no substantial assets.
EMPLOYEES
As of June 30, 1999, Express Capital had no employees.
PROPERTIES
Express Capital's principal office is located in Littleton, Colorado where
it occupies space in the offices controlled by Mr. Earnest Mathis, Jr.,
President of Express Capital. Express Capital utilizes this space pursuant to an
oral agreement. Express Capital intends to occupy this space until it effects a
business combination. Express Capital does not owe or pay any rent on the space
and the oral agreement will be terminated without any liability to Express
Capital or GreyStone upon the consummation of the merger.
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<PAGE> 71
LEGAL PROCEEDINGS
At this time, there are no pending or threatened legal proceedings
involving Express Capital or any of its assets.
DIRECTOR AND EXECUTIVE OFFICER OF EXPRESS CAPITAL; EXECUTIVE COMPENSATION
The current sole director and officer of Express Capital is Mr. Earnest
Mathis, Jr., who shall resign as director and officer effective as of the
effective time of the merger. Mr. Mathis has served as the sole director and
officer of Express Capital since its inception. Mr. Mathis received $69,809.50
as compensation from Express Capital during 1997. During 1998 and through June
30, 1999, he received no compensation from Express Capital.
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<PAGE> 72
EXPRESS CAPITAL PRINCIPAL SHAREHOLDERS
The following table sets forth information as of June 30, 1999, based on
information obtained from the persons named below, with respect to the
beneficial ownership (as defined under the applicable rules of the Commission)
of shares of Express Capital common stock by each person known by Express
Capital to be the owner of more than 5% of the outstanding shares of Express
Capital common stock, and the sole director and executive officer:
<TABLE>
<CAPTION>
SHARES OF
SHARES OF EXPRESS PERCENT OF EXPRESS EXPRESS CAPITAL
CAPITAL COMMON CAPITAL STOCK COMMON STOCK
STOCK BENEFICIALLY OUTSTANDING PRIOR BENEFICIALLY OWNED
NAME OWNED(1)(2) TO THE MERGER AFTER THE MERGER(3)
---- ------------------ ------------------ -------------------
<S> <C> <C> <C>
Earnest Mathis, Jr.(4) ........... 9,342,000 46.71% 224,208
Gary J. McAdam(5)................. 9,310,000 46.55% 223,440
</TABLE>
- ---------------
(1) Earnest Mathis, Jr.'s address is in care of Express Capital. Gary J.
McAdam's address is 14 Red Tail Drive, Highlands Ranch, Colorado, 80126.
(2) Unless otherwise noted, Express Capital believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Express Capital common stock beneficially owned by them.
(3) Shares of Express Capital common stock beneficially owned after the merger
gives effect to a 1-for-41.66667 reverse split of Express Capital's common
stock to be effected in connection with the consummation of the merger.
(4) Includes: (i) 4,567,000 shares of common stock held by Mathis' Family
Partners, Ltd. and (ii) 4,775,000 Shares of common stock held by Inverness
Investments Profit Sharing Plan.
(5) Includes: (i) 2,147,500 shares of common stock held by GJM Trading Partners,
Ltd.; (ii) 2,387,500 Shares of common stock held by Growth Ventures, Inc.;
(iii) 2,387,500 Shares of common stock held by Growth Ventures, Inc. Pension
Plan and Trust; and (iv) 2,387,500 Shares of common stock held by Growth
Ventures, Inc. Profit Sharing Plan and Trust.
The following table sets forth pro forma information, giving effect to the
merger as if it had taken place on June 30, 1999, with respect to the beneficial
ownership (as defined under the applicable rules of the commission) of shares of
Express Capital common stock by each GreyStone shareholder known by GreyStone to
own beneficially more than 5% of the outstanding shares of GreyStone common
stock, and each director and officer of GreyStone:
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF COMMON STOCK
NAME SHARES(1) OWNED(1)
---- --------- ------------
<S> <C> <C>
Richard A. Smith(2)................................ 7,186,752 43.2%
Carl A. Beaudet(3)................................. 895,000 5.7%
Thomas A. Aldern(4)................................ 855,000 5.5%
Jon M. Reynolds(5)................................. 519,286 3.2%
Bernard J. Crowe(6)................................ 257,000 1.6%
Carolyn Harris(7).................................. 88,400 0.6%
Marshall Geller(8)................................. 86,500 0.6%
</TABLE>
- ---------------
(1) This table is based upon information derived from GreyStone's stock records.
Unless otherwise indicated in the footnotes to this table and subject to
community property laws where applicable, GreyStone believes that each of
the shareholders named in this table has sole or shared voting and
investment power with respect to the shares indicated as beneficially owned.
Applicable percentages are based upon 15,109,341 shares of GreyStone common
stock outstanding as of June 30, 1999 plus 480,000 shares which are held by
the Express Capital stockholders after the reverse split of Express
Capital's common stock, for a total of 15,589,341 shares.
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<PAGE> 73
(2) Includes 3,200,000 shares of common stock held by Catherine Smith, the wife
of Richard Smith. Also includes options to purchase 866,666 shares of common
stock exercisable within 60 days of June 30, 1999.
(3) Includes 40,000 shares of common stock held by Linda Beaudet, the wife of
Carl Beaudet. Also includes options to purchase 55,000 shares of common
stock exercisable within 60 days of June 30, 1999.
(4) Includes options to purchase 55,000 shares of common stock exercisable
within 60 days of June 30, 1999.
(5) Includes warrants to purchase 500,000 shares of common stock exercisable
within 60 days of June 30, 1999.
(6) Includes options to purchase 257,000 shares of common stock exercisable
within 60 days of June 30, 1999.
(7) Includes options to purchase 88,400 shares of common stock exercisable
within 60 days of June 30, 1999.
(8) Includes options to purchase 86,500 shares of common stock exercisable
within 60 days of June 30, 1999.
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<PAGE> 74
PROPOSED MANAGEMENT OF EXPRESS CAPITAL AND THE SURVIVING CORPORATION
AFTER THE MERGER
Pursuant to the terms of the merger agreement, the current directors and
executive officers of GreyStone will become the directors and executive officers
of the surviving corporation. Effective upon the consummation of the merger,
Messrs. Richard Smith, Thomas Aldern and Jon Reynolds, the current directors of
GreyStone, will be appointed as the directors of Express Capital. Mr. Smith will
be appointed as a Class I director and will serve an initial term of one year,
Mr. Aldern will be appointed as a Class II director and will serve an initial
term of two years and Mr. Reynolds will be appointed as a Class III director and
will serve an initial term of three years. Upon their first reelection after the
consummation of the merger, each Class I, II and III director is expected to
serve for a three-year term. Also, effective upon the consummation of the
merger, the following persons will serve as executive officers of Express
Capital in the positions indicated: Mr. Richard Smith, Chairman, President and
Chief Executive Officer; Mr. Thomas Aldern, Vice President, Government Systems;
Mr. Carl Beaudet, Vice President, Government Business Development; Mr. Bernard
Crowe, Vice President, Commercial Systems and Products; Mr. Marshall Geller,
Controller and Acting Chief Financial Officer and Ms. Carolyn Harris, Vice
President, General Counsel and Secretary. Upon completion of the merger, two
individuals (Alan Stone and James Johnston) have agreed to serve as outside
directors.
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<PAGE> 75
DESCRIPTION OF GREYSTONE CAPITAL STOCK
COMMON STOCK
The authorized capital stock of GreyStone consists of 50,000,000 shares of
common stock, no par value. No other class of capital stock has been authorized.
As of June 30, 1999 there were 15,109,341 shares of GreyStone's common stock
outstanding held of record by 703 shareholders. The holders of GreyStone's
common stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the shareholders. With respect to the election of
directors, a shareholder may cumulate his or her votes for any nominee if such
nominee's name has been placed in nomination prior to the commencement of the
voting and the shareholder gives notice at the meeting of his or her intent to
cumulate votes. If any shareholder gives notice, then all shareholders entitled
to vote may cumulate their votes by giving one candidate a number of votes equal
to the number of directors to be elected multiplied by the number of his or her
shares or by distributing such votes on the same principle among any number of
candidates such shareholder sees fit. Shares of common stock are entitled to
receive ratably such dividends as may be declared by the board of directors out
of funds legally available therefor. Holders of GreyStone's common stock have no
preemptive rights and no right to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of GreyStone's common stock are validly
issued, fully paid and nonassessable. Two shareholders have rights of first
refusal to purchase their pro rata share of any new securities which GreyStone
proposes to sell, and such shareholders have waived and terminated this right as
to any past, current and future offerings of any new securities by GreyStone.
1991 STOCK OPTION PLAN
GreyStone's 1991 Stock Option Plan (the "1991 plan") was adopted by the
Board of Directors in August 1991. A total of 500,000 shares of common stock
have been reserved for issuance under the 1991 plan. The board of directors, or
a Committee to whom the board has delegated authority, selects the employees,
officers and directors of, and consultants to, GreyStone to whom options are
granted (provided that incentive stock options may only be granted to employees
of GreyStone), interprets and adopts rules for the operation of the 1991 plan
and specifies other terms of such options. Options granted under the 1991 plan
generally become exercisable at a rate of twenty percent (20%) of the shares
subject to the option upon grant and twenty percent (20%) on each anniversary
date of the grant until the options are fully vested.
The maximum term of a stock option under the 1991 plan is ten (10) years.
If an optionee ceases to be an employee of GreyStone, the optionee may exercise
only those option shares vested as of the date of termination and must effect
such exercise within thirty (30) days of termination of service for any reason
other than death or disability and six (6) months after termination due to death
or disability. The exercise price of incentive stock options granted under the
1991 plan must be at least equal to 100% of the fair market value of the common
stock of GreyStone on the date of grant, provided, however that such exercise
price must be at least 110% of the fair market value of GreyStone's common stock
if the optionee owns stock possessing more than 10% of the voting power of
GreyStone's outstanding capital stock. The exercise price of non-qualified stock
options must be at least equal to 85% of the fair market value of GreyStone's
common stock on the date of grant. Payment of the exercise price may be made in
cash unless the board of directors exercises its discretion to accept other
types of consideration. The 1991 plan may be amended at any time by the board,
although certain amendments would require shareholder approval. The 1991 plan
will terminate in August 2001 unless earlier terminated by the board.
Of the 500,000 shares available for issuance under the 1991 plan as of
August 31, 1998, options to purchase 200,000 shares of common stock have been
issued to Richard Smith and are fully vested at an exercise price of $0.275 per
share after giving effect to a two for one stock split effected by GreyStone in
May 1992. These options expire August 13, 2001.
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<PAGE> 76
1994 STOCK OPTION AND STOCK BONUS PLAN
GreyStone's 1994 Stock Option and Stock Bonus Plan (the "1994 plan") was
adopted by the board of directors in February 1994 and amended in May 1994. A
total of 2,000,000 shares of common stock have been reserved for issuance under
the 1994 plan. In June 1999 the board of directors approved an increase in the
number of shares authorized to be issued under the 1994 plan subject to a
favorable vote by majority in interest of GreyStone's shareholders. As of June
30, 1999, incentive stock options to purchase 1,810,012 shares and non statutory
stock options to purchase 850,000 shares have been issued and are outstanding,
The exercise prices on the outstanding options issued pursuant to the 1994 plan
range from $3.80 per share to $6.80 per share.
The board of directors, or a committee to whom the board has delegated
authority, selects the employees, officers and directors of, and consultants to,
GreyStone to whom options are granted (provided that incentive stock options may
only be granted to employees of GreyStone), interprets and adopts rules for the
operation of the 1994 plan and specifies other terms of such options. Options
granted under the 1994 plan generally vest and become exercisable at a rate of
twenty percent (20%) of the shares subject to the option on December 31 at the
end of the first year and twenty percent (20%) on each successive December 31
until the options are fully vested.
The 1994 plan also provides GreyStone with the right to repurchase any
shares purchased by an optionee upon exercise of options within 90 days after
the termination of the optionee's relationship with GreyStone. If GreyStone
exercises its option to repurchase the option shares, the repurchase price will
be equal to the higher of the original price or the then fair market value of
the shares to be repurchased and GreyStone must repurchase all of the optionee's
option shares. GreyStone also has a right of first refusal with respect to the
sale of any option shares by an optionee for a period of 30 days after receiving
notice of the proposed transfer by the optionee. These transfer restrictions do
not apply to the transfer of option shares to certain related parties of an
option, and terminate entirely upon an initial public offering by GreyStone
raising at least $5,000,000.
The maximum term of a stock option under the 1994 plan is ten years. If an
optionee ceases to be an employee of GreyStone, the optionee may exercise only
those option shares vested as of the date of termination and must effect such
exercise within 30 days of termination of service for any reason other than
death or disability and twelve months after termination due to death or
disability. The exercise price of incentive stock options granted under the 1994
Plan must be at least equal to 100% of the fair market value of the common stock
of GreyStone on the date of grant, or 110% if the optionee owns stock possessing
more than 10% of the voting power of GreyStone's outstanding capital stock. The
exercise price of non-qualified stock options must be at least equal to 85% of
the fair market value of the common stock on the date of grant. Payment of the
exercise price may be made in cash unless the board of directors exercises its
discretion to accept other types of consideration.
The 1994 plan also provides for awards of common stock to employees
approved by the board of directors. As of June 30, 1998, stock awards were
granted to seven employees of GreyStone for a total of 3,935 shares pursuant to
the 1994 plan. There have been no stock awards since that date.
The 1994 plan may be amended at any time by the board, although certain
amendments would require shareholder approval. The 1994 plan will terminate in
July 2004 unless earlier terminated by the board.
NON-PLAN OPTIONS
In 1994, GreyStone granted to Mr. Richard Smith, GreyStone's Chairman and
Chief Executive Officer, an incentive stock option to purchase up to 500,000
shares of common stock at an exercise price of $7.70 per share. In 1997, the
board of directors cancelled the 500,000 incentive stock options and reissued
them at an exercise price of $4.95. Three months later, in order to release
incentive stock options to other employees under the plan, Mr. Smith agreed to
have 200,000 of his incentive stock options cancelled and reissued to him as
non-statutory stock options outside of the plan. The new options also carried a
$4.95 per share exercise price.
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<PAGE> 77
In 1992, GreyStone granted to Mr. Bernard Crowe, GreyStone's Vice
President, Commercial Systems, an incentive stock option under the 1991 plan to
purchase 20,000 shares of common stock at an exercise price of $1.00 per share.
In July 1993, the number of shares subject to the option was increased to
200,000 shares. In July 1994, this option to purchase 200,000 shares was
converted to a non-statutory option to purchase 200,000 shares of GreyStone
common stock at the same exercise price per share.
In addition, on July 10, 1997, the GreyStone board of directors authorized
the grant of non-qualified options to two consultants to purchase an aggregate
of 700,000 shares of common stock at an exercise price of $4.95 per share, and
on August 16, 1997, the GreyStone board of directors authorized the grant of a
non-qualified option to Mr. Smith to purchase 250,000 shares of common stock at
an exercise price of $4.95 per share ("Smith August Grant"). The grants to the
two consultants and the Smith August Grant are to take effect upon approval of
an increase in the aggregate number of options issuable by GreyStone, which is
subject to approval by a majority of GreyStone's shareholders and the California
Department of Corporation issuing a permit to increase the aggregate number of
options issuable by GreyStone.
During the fiscal year ended March 31, 1996 GreyStone granted to Joe
Russell, Vice President, Corporate Secretary and General Counsel, an option to
purchase 800,000 shares of common stock under the 1994 plan at an exercise price
of $3.80 per share (the "1994 plan grant"). The 1994 plan grant vested over a
five year period and expired in 2006. In July 1997 GreyStone and Joe Russell
agreed to cancel the 1994 plan grant and to reissue options to Joe Russell for
800,000 shares of common stock (the "new Russell options"). The new Russell
options provided for an expiration date ending 36 months from the date on which
Mr. Russell left the employ of GreyStone but in no event later than the
expiration date of the 1994 plan grant and only to the extent that any options
had then vested. Mr. Russell left the employ of GreyStone in July 1998. As of
that date Mr. Russell had vested the right to purchase 640,000 shares under the
new Russell options. These options expire in July 2001.
WARRANTS
As of June 30, 1999, GreyStone had issued and outstanding warrants to
acquire an aggregate of 1,819,174 shares of common stock at an exercise price of
$4.95 per share, 1,909,924 shares of common stock at an exercise price of $6.00
per share, 5,000 shares of common stock at an exercise price of $7.00 per share,
792,698 shares of common stock at an exercise price of $8.00 per share,
2,650,461 shares of common stock at an exercise price of $10.00 per share and
25,891 shares at an exercise price of $12.00 per share. As of June 30, 1999,
warrants to purchase 5,249,948 shares of common stock were immediately
exercisable. The holders of warrants to purchase an aggregate of 2,239,950
shares of common stock of GreyStone are entitled to certain registration rights
with respect to the underlying shares.
REGISTRATION RIGHTS
Pursuant to agreements between GreyStone and certain holders of GreyStone's
common stock, holders of shares of common stock issuable pursuant to the
exercise of certain of GreyStone's outstanding convertible notes and warrants
are entitled to certain rights with respect to the registration of such shares
under the securities act. If GreyStone proposes to register any of its
securities under the securities act, either for its own account or for the
account of other securityholders, such holders are entitled to notice of such
registration and are entitled to include, at GreyStone's expense, such shares
therein, provided, among other conditions, that the underwriters of any offering
have the right to limit the number of such shares included in the registration.
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<PAGE> 78
DESCRIPTION OF EXPRESS CAPITAL STOCK
The following description regarding Express Capital stock assumes the
adoption of the Express Capital restated certificate prior to the consummation
of the merger.
After giving effect to the adoption of the Express Capital restated
certificate, the authorized capital of Express Capital will consist of
30,000,000 shares of common stock, par value $.001 per share, and 3,000,000
shares of preferred stock, par value $.001 per share.
COMMON STOCK
After giving effect to the reverse stock split discussed herein,
approximately 480,000 shares of Express Capital common stock will be issued and
outstanding. Subject to such rights as may thereafter be established with
respect to Express Capital preferred stock, holders of Express Capital common
stock have one vote for each share held of record. All shares of Express Capital
common stock participate equally in such dividends as may be declared and, in
the event of dissolution, in the assets of Express Capital remaining after
payment of all debts and liabilities and after satisfaction of any rights which
may be established with respect to shares of Express Capital preferred stock.
Holders of Express Capital common stock have no pre-emptive or other rights to
subscribe for additional shares or conversion rights, and there are no
redemption or sinking fund provisions. The outstanding shares of Express Capital
common stock are, and the shares to be issued in the merger will be, fully paid
and non-assessable.
Corporate Stock Transfer, Inc. is the transfer agent and registrar for the
Express Capital common stock.
PREFERRED STOCK
The board of directors of Express Capital may issue Express Capital
preferred stock from time to time in one or more series, without any vote or
action by the Express Capital stockholders. The board of directors can fix the
number of shares, voting powers, designation, dividend rights, conversion
rights, terms of redemption, liquidation rights and other preferences, powers
and special or relative rights of each such series and the qualifications,
limitations and restrictions thereon, and increase or decrease the number of
shares of each such series (but not below the number of shares of such series
then outstanding). The issuance of Express Capital preferred stock, while
providing flexibility in connection with possible financings, acquisitions and
other corporate transactions, could, among other things, adversely affect the
rights of the holders of Express Capital common stock and, in certain
circumstances, make it more difficult for a third party to acquire, or
discourage a third party from acquiring, control over Express Capital. On the
date of this prospectus/proxy statement and on the date the merger takes place,
no shares of Express Capital preferred stock will be issued and outstanding, and
Express Capital has no plans to issue any such shares.
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Express Capital is a Delaware corporation and is subject to the provisions
of the DGCL, the Express Capital restated certificate and the restated bylaws
set forth in Annex D. Certain important provisions thereof are discussed in
"Comparison of Rights of GreyStone Shareholders and Express Capital
Stockholders." Such provisions include, without limitation, the provisions of
Section 203 of the DGCL, and provisions dealing with indemnification and
limitation of the monetary liability of directors of Express Capital, Express
Capital's classified board of directors, and limitations on the power of
stockholders of Express Capital to call special meetings, act by written
consent, nominate directors of Express Capital and introduce other business at
stockholders meetings. Such provisions could, among other things, have the
effect of delaying, deferring or preventing a change in control of Express
Capital.
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<PAGE> 79
WARRANTS
In connection with the merger, Express Capital will offer to exchange
warrants to purchase an aggregate of 986,750 shares of Express Capital common
stock for certain outstanding warrants to purchase an aggregate of 986,750
shares of GreyStone common stock. The Express Capital warrants bear exercise
prices as follows: warrants to purchase 405,000 shares of common stock at an
exercise price of $4.95 per share; warrants to purchase 38,250 shares of common
stock at $8.00 per share; and warrants to purchase 543,500 shares of common
stock at $10.00 per share. The Express Capital warrants shall contain terms and
conditions substantially identical to those contained in the warrants to
purchase GreyStone common stock being exchanged therefore. See "Description of
GreyStone Capital Stock."
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<PAGE> 80
COMPARISON OF RIGHTS OF GREYSTONE SHAREHOLDERS
AND EXPRESS CAPITAL STOCKHOLDERS
The rights of Express Capital stockholders are governed by Express
Capital's certificate of incorporation, its bylaws and the DGCL. The rights of
GreyStone shareholders are currently governed by GreyStone's articles of
incorporation, as amended, its bylaws and the CGCL. Prior to the effective time,
Express Capital will file the Express Capital restated certificate and will
adopt the Express Capital restated bylaws, copies of each of which are attached
to this proxy statement/prospectus as Annex C and Annex D, respectively. Upon
consummation of the merger, and issuance of the merger shares, the GreyStone
shareholders will be governed by the Express Capital restated certificate, the
Express Capital restated bylaws, the DGCL and, under certain circumstances and
in accordance with Section 2115 of the CGCL, various provisions of the CGCL.
The following is a summary of certain similarities and differences between
the rights of Express Capital stockholders and GreyStone shareholders under the
foregoing governing documents and applicable law, after giving effect to the
filing of the Express Capital restated certificate and Express Capital bylaws.
This summary does not purport to be a complete statement of such similarities
and differences. The identification of specific similarities and differences is
not meant to indicate that other equally or more significant similarities and
differences do not exist. Such similarities and differences can be examined in
full by reference to the DGCL, the CGCL and the respective corporate documents
of Express Capital and GreyStone.
Capital stock. Under the Express Capital restated certificate, the
authorized capital stock of Express Capital will consist of 30,000,000 shares of
Express Capital common stock, $.001 par value per share, and 3,000,000 shares of
preferred stock, $.001 par value per share, issuable in such series and with
such rights, powers and privileges as the Express Capital board shall determine.
As of June 30, 1999, and assuming the reverse split had then been effective, the
total shares of Express Capital common stock issued and outstanding was 480,000.
Express Capital currently has no shares of preferred stock outstanding. The
authorized capital stock of GreyStone consists of 50,000,000 shares of common
stock, no par value, of which 15,109,341 shares were issued and outstanding on
June 30, 1999. GreyStone has no shares of preferred stock authorized.
Amendment of Express Capital restated certificate and GreyStone
articles. The DGCL and the CGCL both provide that approval of a majority of the
outstanding stock entitled to vote thereon is required to amend a certificate of
incorporation or articles of incorporation, as applicable. The Express Capital
restated certificate provides, however, that an amendment of certain provisions
must be approved by the affirmative vote of at least sixty-six and two-thirds
percent (66 2/3%) of all of the outstanding stock entitled to vote thereon. On
the other hand, consistent with the CGCL, any provision of the GreyStone
articles may be amended by the affirmative vote of a majority of the shares
entitled to vote.
Amendment of bylaws. Under the DGCL, bylaws may be amended by stockholders
entitled to vote; however, a corporation may confer the power to amend bylaws
upon the board of directors. The fact that such power has been so conferred upon
the directors does not divest the stockholders of their power to amend the
bylaws. The Express Capital restated certificate provides that the Express
Capital bylaws may be amended by the affirmative vote of at least sixty-six and
two-thirds percent (66 2/3%) of the outstanding stock entitled to vote thereon
or by the Express Capital board. Under the CGCL and the GreyStone bylaws, the
GreyStone bylaws generally may be amended or repealed either by the majority
vote of the GreyStone board or by the holders of a majority in interest of the
outstanding shares of voting stock of GreyStone, except that a change in the
authorized number of directors may only be effected by a vote of the majority of
the outstanding stock entitled to vote thereon; however, an amendment reducing
the minimum number of directors to less than five cannot be adopted if votes
cast against its adoption are equal to or more than 16 2/3% of the outstanding
shares entitled to vote thereon.
Special meetings of stockholders and shareholders. Under the DGCL, a
special meeting of stockholders may be called by the board of directors or by
any other person authorized to do so in the certificate of
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incorporation or the bylaws. The Express Capital Restated Bylaws permit a
special meeting to be called for any purpose or purposes by
(1) the Chairman of Express Capital board,
(2) the Chief Executive Officer,
(3) a majority of the Express Capital board, or
(4) if Express Capital is then subject to Section 2115 of the CGCL, by
the holder or holders of five percent (5%) or more of the outstanding
shares of Express Capital.
Under the CGCL and the GreyStone bylaws, a special meeting of shareholders
may be called by
(1) the GreyStone board,
(2) the Chairman of the GreyStone board,
(3) GreyStone's President, or
(4) one or more shareholders holding at least ten percent (10%) of the
voting power of GreyStone.
Actions by written consent of stockholders or shareholders. Under the DGCL,
any action which may be taken at a meeting of stockholders may be taken without
a meeting and without prior notice if written consents setting forth the action
so taken are signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all stock entitled to vote thereon were present and voted.
Under the Express Capital restated certificate, an action may be taken by the
stockholders by written consent only prior to the time Express Capital's capital
stock is listed for trading on a national securities exchange or the Nasdaq
National Market. After such time, no action may be taken by the stockholders by
written consent.
Under the CGCL, shareholders may execute an action by written consent in
lieu of a shareholder meeting. The GreyStone bylaws provide that an action may
be taken by the stockholders by written consent signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting, subject to the
requirement that ten days advance notice of shareholder approval of certain
types of transactions and matters be given to all shareholders whose consents
were not solicited. The GreyStone bylaws provide further that directors may not
be elected by written consent except by unanimous written consent of all shares
entitled to vote for the election of directors; provided, however, that any
vacancy on the GreyStone board, other than a vacancy created by virtue of
removal, may be filled by written consent of a majority of the outstanding
shares entitled to vote for the election of directors.
Size of the board of directors. The DGCL provides that the board of
directors of a Delaware corporation shall consist of one or more members. The
number of directors may be fixed by, or in the manner provided in, the
corporation's bylaws unless the certificate of incorporation fixes the number of
directors. The Express Capital restated certificate requires that the number of
directors shall be fixed exclusively by one or more resolutions adopted by the
board of directors. Upon consummation of the merger, the Express Capital board
will consist of three directors.
The CGCL allows the number of persons constituting the board of directors
to be fixed by the bylaws or the articles of incorporation, or permits the
bylaws to provide that the number of directors may vary within a specified
range, the exact number to be determined by the board of directors. The CGCL
further provides that, in the case of a variable board, the maximum number of
directors may not exceed two times the minimum number minus one. The GreyStone
bylaws currently provide that the authorized number of directors shall be not
less than four nor more than seven, with the present number authorized at four.
Classification of board of directors. The DGCL permits, but does not
require, a classified board of directors, divided into as many as three classes
with staggered terms under which one-half or one-third of the directors are
elected for terms of two or three years, respectively. The Express Capital
restated certificate and the Express Capital restated bylaws provide for a
classified board of directors whereby the directors will be
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separated into three classes with members of each class serving for a three year
term; provided, however, that in the event Express Capital is subject to Section
2115 of the CGCL, then the Express Capital board will not be deemed to be a
classified board and all directors shall be elected at each annual meeting of
the stockholders.
The CGCL generally requires that directors be elected annually but does
permit a "classified" board of directors if the corporation is "listed." A
listed corporation is defined under the CGCL as one which is listed on the NYSE
or American Stock Exchange or with a class of securities designated as a
national market system security on and by the National Association Quotation
System (or any successor national market system). If eligible for the classes,
the CGCL permits corporations to provide for a board of directors divided into
as many as three classes by adopting an amendment to their articles of
incorporation or bylaws, which amendment must be approved by the shareholders.
Neither the GreyStone articles nor the GreyStone bylaws provide for a classified
board.
Cumulative voting. Under the DGCL, cumulative voting in the election of
directors is not available unless specifically provided for in the certificate
of incorporation. The Express Capital restated certificate provides that there
shall be no cumulative voting unless Express Capital is then subject to Section
2115 of the CGCL.
Under the CGCL, cumulative voting in the election of directors is mandatory
upon notice given by a shareholder at a shareholders' meeting at which directors
are to be elected that such shareholder intends to cumulate his votes. If any
one shareholder gives such a notice, all shareholders may cumulate their votes.
The CGCL permits a corporation, by amending its articles of incorporation or
bylaws, to eliminate cumulative voting when such company is "listed" (as defined
above in the section entitled "Classification of Board of Directors"). The
GreyStone bylaws permit any person entitled to vote at an election for directors
to cumulate the votes to which such person is entitled; provided, however, that
no shareholder shall be entitled to cumulate such shareholder's votes unless the
candidates for which such shareholder is voting have been placed in nomination
prior to the voting and a shareholder has given notice at the meeting, prior to
the vote, of an intention to cumulate votes.
Removal of directors. Under the DGCL, a director of a corporation with a
classified board of directors may be removed only for cause, unless the
certificate of incorporation otherwise provides. A director of a corporation
that does not have a classified board of directors or cumulative voting may be
removed with the approval of a majority of the outstanding shares entitled to
vote with or without cause. The Express Capital restated certificate provides
that if Express Capital is then subject to Section 2115 of the CGCL, any
director may be removed from office, at any time, without cause, by the
affirmative vote of the holders of a majority of the shares entitled to vote.
However, if Express Capital is not then subject to Section 2115 of the CGCL, a
director may be removed by the stockholders of Express Capital only for cause.
Under the CGCL, a director may be removed with or without cause by the
affirmative vote of a majority of the outstanding shares, provided that the
shares voted against removal would not be sufficient to elect the director by
cumulative voting. In addition, when, by the provisions of the articles of
incorporation, the holders of shares of a class or series, voting as a class or
series, are entitled to elect one or more directors, any director so elected may
be removed only by the applicable vote of holders of shares of that class or
series. The GreyStone bylaws are consistent with the CGCL with respect to the
removal of directors.
Filling vacancies in the board of directors. Under the DGCL, vacancies may
be filled by a majority of the directors then in office (even though less than a
quorum) unless otherwise provided in the certificate of incorporation or bylaws.
The DGCL further provides that if, at the time of filling any vacancy, the
directors then in office constitute less than a majority of the board (as
constituted immediately prior of any such increase), the Delaware Court of
Chancery may, upon application of any holder or holders of at least ten percent
of the total number of the outstanding stock having the right to vote for
directors, summarily order a special election be held to fill any such vacancy
or to replace directors chosen by the board to fill such vacancies. The Express
Capital restated bylaws provide that any vacancies on the Express Capital board
resulting from death, resignation, disqualification, removal or other causes and
any newly created directorships resulting from any increase in the number of
directors shall, unless the board of directors determines by
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resolution that any such vacancies or newly created directorships shall be
filled by the Express Capital stockholders, be filled by the affirmative vote of
the majority of the directors then in office, even though less than a quorum of
the board of directors.
Under the CGCL, any vacancy on the board of directors other than one
created by removal of a director may be filled by the board. If the number of
directors in office is less than a quorum, a vacancy may be filled by the
unanimous written consent of the directors then in office, by the affirmative
vote of a majority of the directors then in office or by a sole remaining
director. A vacancy created by removal of a director may be filled by the board
only if so authorized by a corporation's articles of incorporation or by a bylaw
approved by a corporation's shareholders. Furthermore, if, after the filling of
any vacancy by the directors of a corporation, the directors then in office who
have been elected by the corporation's shareholders constitute less than a
majority of the directors then in office, then: any holder of more than 5% of
the corporation's voting stock may call a special meeting of shareholders, or
the superior court of the appropriate county may order a special meeting of the
shareholders to elect the entire board of directors of the corporation. The
GreyStone bylaws provide that the shareholders may elect a director at any time
to fill any vacancy not filled by the directors. Any such election by written
consent, other than to fill a vacancy created by removal, requires the consent
of a majority of the outstanding shares entitled to vote. Any such election by
written consent to fill a vacancy created by removal requires the consent of all
of the outstanding shares entitled to vote.
Appraisal rights. Under both the CGCL and the DGCL, a shareholder of a
corporation participating in certain major corporate transactions may, under
varying circumstances, be entitled to appraisal (or dissenters') rights pursuant
to which such shareholder may receive cash in the amount of the fair market
value of his or her shares in lieu of the consideration he or she would
otherwise receive in the transaction. Under the DGCL, such rights are not
available
(a) with respect to the sale, lease or exchange of all or
substantially all of the assets of a corporation,
(b) with respect to a merger or consolidation by a corporation, the
shares of which are either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or are held
of record by more than 2,000 holders if such stockholders receive only
shares of the surviving corporation or shares of any other corporation
which are either listed on a national securities exchange or designated as
a national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of record by more
than 2,000 holders, plus cash in lieu of fractional shares, or
(c) to stockholders of a corporation surviving a merger if no vote of
the stockholders of the surviving corporation is required to approve the
merger because the merger agreement does not amend the existing certificate
of incorporation, each share of the surviving corporation outstanding prior
to the merger is an identical outstanding or treasury share after the
merger, and the number of shares to be issued in the merger does not exceed
20% of the shares of the surviving corporation outstanding immediately
prior to the merger and if certain other conditions are met.
The exclusions from dissenters' rights in mergers under the CGCL are
somewhat different from those under the DGCL. Shareholders of a California
corporation whose shares are listed on a national securities exchange or on the
list of OTC margin securities issued by the Board of Governors of the Federal
Reserve System generally do not have such appraisal rights unless the holders of
at least 5% of the class of outstanding shares claim the right; however, the 5%
minimum does not apply for shares in respect of which there are restrictions on
transfer imposed by the corporation or by law or regulation. Also, in any
reorganization in which the shareholders of one corporation own more than
five-sixths of the voting power of the surviving or acquiring corporation or
parent party, those shareholders are denied dissenters' rights of appraisal
under CGCL. It is for this reason that holders of GreyStone common stock will
not be entitled to appraisal or dissenters' rights in connection with the
merger.
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Limitation of liability of directors. The laws of both Delaware and
California permit corporations to adopt a provision in their certificate of
incorporation or articles of incorporation, respectively, eliminating, with
certain exceptions, the personal liability of a director to the corporation or
its shareholders for monetary damages for breach of the director's fiduciary
duty as a director. Under the DGCL, Express Capital may not eliminate or limit
director monetary liability for
(a) breaches of the director's duty of loyalty to the corporation or
its stockholders;
(b) acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law;
(c) unlawful dividends, stock repurchases or redemptions; or
(d) transactions from which the director received an improper personal
benefit.
Such limitation of liability provision also may not limit a director's
liability for violation of, or otherwise relieve directors from the necessity of
complying with federal or state securities laws, or affect the availability of
nonmonetary remedies such as injunctive relief or rescission. The Express
Capital restated certificate eliminates the liability of the Express Capital
board to the fullest extent permissible under the DGCL.
The CGCL does not permit the elimination of monetary liability where such
liability is based on:
(a) intentional misconduct or knowing and culpable violation of law;
(b) acts or omissions that a director believes to be contrary to the
best interests of the corporation or its shareholders, or that involve the
absence of good faith on the part of the director;
(c) receipt of any improper personal benefit;
(d) acts or omissions that show reckless disregard for the director's
duty to the corporation or its shareholders, where the director in the
ordinary course of performing a director's duties should have been aware of
a risk of serious injury to the corporation or its shareholders;
(e) acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
corporation and its shareholders;
(f) interested transactions between the corporation and a director, in
which a director has a material financial interest; or
(g) liability for improper distributions, loans or guarantees.
Stockholder and shareholder approval of certain business
combinations. Section 203 of the DGCL prohibits a corporation from engaging in a
"business combination" with an "interested stockholder" for three years
following the date that such person becomes an interested stockholder. With
certain exceptions, an interested stockholder is a person or entity who or which
owns 15% or more of the corporation's outstanding voting stock (including any
rights to acquire stock pursuant to an option, warrant, agreement, arrangement
or understanding, or upon the exercise of conversion or exchange rights, and
stock with respect to which the person has voting rights only), or is an
affiliate or associate of the corporation and was the owner of 15% or more of
such voting stock at any time within the previous three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers of the corporation or a subsidiary with or caused by
the interested stockholder; sales or other dispositions to the interested
stockholder (except proportionately with the corporation's other stockholders)
of assets of the corporation or a subsidiary equal to ten percent or more of the
aggregate market value of the corporation's consolidated assets or its
outstanding stock; the issuance or transfer by the corporation or a subsidiary
of stock of the corporation or such subsidiary to the interested stockholder
(except for certain transfers in a conversion or exchange or a pro rata
distribution or certain other transactions, none of which increase the
interested stockholder's proportionate ownership of any class or series of the
corporation's or such subsidiary's stock); or receipt by the interested
stockholder (except proportionately as a stockholder), directly or indirectly,
of any
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loans, advances, guarantees, pledges or other financial benefits provided by or
through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if:
(1) prior to the date at which such stockholder becomes an interested
stockholder the board of directors approves either the business combination
or the transaction which resulted in the person becoming an interested
shareholder;
(2) the interested stockholder owns 85% of the corporation's voting
stock upon consummation of the transaction which made him or her an
interested stockholder (excluding from the number of shares outstanding
those shares owned by directors who are also officers of the target
corporation and shares held by employee stock plans which do not permit
employees to decide confidentially whether to accept a tender or exchange
offer); or
(3) on or after the date such person becomes an interested
stockholder, the board approves the business combination and it is also
approved at a stockholder meeting by 66 2/3% of the voting stock not owned
by the interested stockholder.
Section 203 does not apply if the business combination is proposed prior to
the consummation or abandonment of and subsequent to the earlier of the public
announcement or a 20-day notice required under Section 203 of another proposed
transaction which
(1) constitutes certain (a) mergers or consolidations, (b) sales or
other transfers of assets having an aggregate market value equal to 50% or
more of the aggregate market value of all of the assets of the corporation
determined on a consolidated basis or the aggregate market value of all the
outstanding stock of the corporation, or (c) proposed tender or exchange
offer for 50% or more of the corporation's outstanding voting stock;
(2) is with or by a person who was either not an interested
stockholder during the last three years or who became an interested
stockholder with the approval of the corporation's board of directors; and
(3) is approved or not opposed by a majority of the board members
elected prior to any person becoming an interested stockholder during the
previous three years (or their chosen successors).
Under California law, there is no equivalent provision to Section 203 of
the DGCL. Under Section 1203 of the CGCL, certain business combinations with
certain interested shareholders are subject to specified conditions, including a
requirement that a fairness opinion must be obtained and delivered to the
corporation's shareholders. The CGCL requires that holders of a California
corporation's common stock receive nonredeemable common stock in a merger of the
corporation with the holder (or an affiliate of the holder) of more than 50% but
less than 90% of its common stock, unless all of the holders of its common stock
consent to the transaction.
Stockholder voting on mergers and similar transactions. The laws of both
California and Delaware generally require that a majority of the stockholders of
both acquiring and target corporations approve statutory mergers. The DGCL does
not require a stockholder vote of the surviving corporation in a merger (unless
the corporation provides otherwise in its certificate of incorporation) if
(a) the merger agreement does not amend the existing certificate of
incorporation,
(b) each share of stock of the surviving corporation outstanding
before the merger is an identical outstanding or treasury share after the
merger, and
(c) the number of shares to be issued by the surviving corporation in
the merger does not exceed 20% of the shares outstanding immediately prior
to the merger.
The CGCL contains a similar exception to its voting requirements for
reorganization where shareholders or the corporation itself, or both,
immediately prior to the reorganization will own immediately after the
reorganization equity securities equal to more than five-sixths of the voting
power (assuming the conversion of convertible equity securities) of the
surviving or acquiring corporation or its parent entity.
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The laws of both California and Delaware also generally require that a sale
of all or substantially all of the assets of a corporation be approved by a
majority of the voting shares of the corporation transferring such assets.
With certain exceptions, the CGCL also requires that mergers,
reorganizations, and similar transactions be approved by a majority vote of each
class of shares outstanding. In contrast, the DGCL generally does not require
class voting, except for amendments to the certificate of incorporation that
change the number of authorized shares or the par value of shares of a specific
class or that adversely affect such class of shares.
Loans to directors, officers and employees. The DGCL permits Express
Capital to make loans to, guarantee the obligations of, or otherwise assists its
officers or other employees when such action, in the judgment of the directors,
may reasonably be expected to benefit Express Capital. Under the CGCL, any loan
to or guaranty for the benefit of a director or officer, including pursuant to
an employee benefit plan, of the corporation requires approval of holders of a
majority of the outstanding shares of the corporation. However, the CGCL
provides that if GreyStone has 100 or more shareholders of record and has
adopted a bylaw allowing the GreyStone board to do so, the GreyStone board alone
may approve loans to or guaranties on behalf of an officer (whether or not such
officer is a director) or adopt an employee benefit plan authorizing such loans
or guarantees, by a vote sufficient without counting the vote of any interested
director or directors, if the GreyStone board determines that any such loan,
guaranty or plan may reasonably be expected to benefit the corporation.
Interested director transactions. Under the both the CGCL and the DGCL,
contracts or transactions between a corporation and one or more of its directors
or between a corporation and any other entity in which one or more of its
directors are directors or have a financial interest, are not void or voidable
because of such interest or because such director is present at a meeting of the
board which authorizes or approves the contract or transaction, provided that
certain conditions, such as obtaining the required approval and fulfilling the
requirements of good faith and full disclosure, are met. With certain
exceptions, the conditions are similar under the CGCL and the DGCL. Under the
CGCL and the DGCL, either the shareholders or the board of directors must
approve any such contract or transaction in good faith after full disclosure of
the material facts (and, in the case of board approval other than for a common
directorship, the CGCL requires that the contract or transaction must also be
"just and reasonable" to the corporation), or the contract or transaction must
have been "fair" (in Delaware) or, in the case of a common directorship (in
California), "just and reasonable" as to the corporation at the time it was
approved. The CGCL explicitly places the burden of proof of the just and
reasonable nature of the contract or transaction on the interested director.
Under the DGCL, if board approval is sought, the contract or transaction
must be approved by a majority of the disinterested directors (even though less
than a majority of a quorum). Under the CGCL, if shareholder approval is sought,
the interested director is not entitled to vote his or her shares at a
shareholder meeting with respect to any action regarding such contract or
transaction. If board approval is sought, the contract or transaction must be
approved by a majority vote of a quorum of the directors, without counting the
vote of any interested directors (except that interested directors may be
counted for purposes of establishing a quorum).
Stockholder derivative suit. Under the DGCL, a person may only bring a
derivative action on behalf of the corporation if the person was a stockholder
of the corporation at the time of the transaction in question or his or her
stock thereafter devolved upon him or her by operation of law. The CGCL provides
that a shareholder bringing a derivative action on behalf of a corporation need
not have been a shareholder at the time of the transaction in question, provided
that certain criteria are met. The CGCL also provides that the corporation or
the defendant in a derivative suit may, under certain circumstances, make a
motion to the court for an order requiring the plaintiff shareholder to furnish
a security bond. Delaware does not have a similar bonding requirement.
Dissolution. Under the DGCL, if the dissolution is initiated by the board
of directors it may be approved by the holders of a majority of the
corporation's shares. If the board of directors does not approve the proposal to
dissolve, it must be consented to in writing by all stockholders entitled to
vote thereon. Under the CGCL, shareholders holding fifty percent (50%) or more
of the total voting power may authorize a corporation's
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dissolution, with or without the approval of the corporation's board of
directors. The board may cause the corporation to dissolve if
(a) an order for relief under Chapter 7 of the Federal bankruptcy law
has been entered,
(b) no shares have been issued or
(c) the corporation has disposed of all of its assets and has not
conducted any business for a period of five years preceding the adopting of
a resolution to dissolve.
EXPERTS
The financial statements of GreyStone as of March 31, 1999 and 1998 and for
the years ended March 31, 1999, 1998 and 1997 have been included herein and in
the registration statement in reliance upon the report of J.H. Cohn LLP,
independent public accountants, given on the authority of said firm as experts
in auditing and accounting.
The consolidated financial statements of Express Capital as of December 31,
1998 and 1997 and for each of the three years in the period ended December 31,
1998 have been included herein and in the registration statement in reliance
upon the report of Angell & Deering, independent accountants, appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of said firm as experts in accounting and auditing.
Certain federal income tax matters related to the merger are being passed
upon by J. H. Cohn LLP.
Representatives of J.H. Cohn LLP will be present at the special meeting.
While such representatives have stated that they do not plan to make a statement
at such meeting, they will be available to respond to appropriate questions from
shareholders in attendance.
LEGAL MATTERS
The validity of the shares of Express Capital common stock being offered by
this proxy statement/ prospectus and certain federal income tax matters related
to the merger are being passed upon for Express Capital by Mitchell Silberberg &
Knupp LLP, Los Angeles, California.
WHERE YOU CAN FIND MORE INFORMATION
Neither Express Capital nor GreyStone is subject to the reporting
requirements of the exchange act and the rules and regulations promulgated
thereunder, and, therefore, does not file reports, proxy statements or other
information with the commission.
Under the rules and regulations of the commission, the solicitation of
proxies from the shareholders of GreyStone to approve the merger constitutes an
offering of Express Capital common stock to be issued in connection with the
merger. Accordingly, Express Capital has filed with the commission a
registration statement on Form S-4 under the securities act, with respect to
such offering. This proxy statement/ prospectus constitutes the prospectus of
Express Capital that is filed as part of the registration statement in
accordance with the rules and regulations of the Commission. Copies of the
registration statement, including the exhibits to the registration statement and
other material that is not included herein, may be inspected, without charge, at
the Public Reference Section of the commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, DC 20549, and may be available at the
following Regional Offices of the commission: Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, New York, New York 10048. Copies of such materials may be obtained at
prescribed rates from the Public Reference Section of the commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549. Information on
the operation of the Public Reference Room may be obtained by calling the
commission at 1-800-SEC-0330. In addition, the commission maintains a site on
the World Wide
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Web at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the commission.
GreyStone has supplied all information contained in this proxy
statement/prospectus relating to GreyStone, and Express Capital has supplied all
information in this proxy statement/prospectus relating to Express Capital.
You should rely only on the information contained in this proxy
statement/prospectus to vote on approval of the merger agreement and the merger
proposal. We have not authorized anyone to provide you with information that is
different from what is contained in this proxy statement/prospectus. This proxy
statement/ prospectus is dated , 1999. You should not assume
that the information contained in this proxy statement/prospectus is accurate as
of any date other than such date, and neither the mailing of this proxy
statement/prospectus to shareholders nor the issuance of Express Capital common
stock in the merger shall create any implication to the contrary.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
GREYSTONE TECHNOLOGY, INCORPORATED
Report of Independent Public Accountants.................... F-2
Balance Sheets as of March 31, 1999 and 1998................ F-3
Statements of Operations for the Years Ended March 31, 1999,
1998 and 1997............................................. F-4
Statements of Stockholders' Deficiency for the Years Ended
March 31, 1999, 1998 and 1997............................. F-5
Statements of Cash Flows for the Years Ended March 31, 1999,
1998 and 1997............................................. F-6
Notes to Financial Statements............................... F-7-17
EXPRESS CAPITAL CONCEPTS, INC. AND SUBSIDIARY
Independent Auditors' Report................................ F-18
Consolidated Balance Sheets as of March 31, 1999,
(unaudited) and December 31, 1998 and 1997................ F-19
Consolidated Statements of Operations for the three months
ended March 31, 1999 and 1998 (unaudited) and for the
years ended December 31, 1998, 1997 and 1996.............. F-20
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the three months ended March 31, 1999
(unaudited) and for the years ended December 31, 1998,
1997 and 1996............................................. F-21
Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 (unaudited) and for years
ended December 31, 1998, 1997 and 1996.................... F-22
Notes to Consolidated Financial Statements.................. F-23-28
</TABLE>
F-1
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
GreyStone Technology, Incorporated
We have audited the accompanying balance sheets of GREYSTONE TECHNOLOGY,
INCORPORATED as of March 31, 1999 and 1998, and the related statements of
operations, stockholders' deficiency and cash flows for each of the three years
in the period ended March 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 GreyStone Technology,
Incorporated as of March 31, 1999 and 1998, and its results of operations and
cash flows for each of the three years in the period ended March 31, 1999, in
conformity with generally accepted accounting principles.
/s/ J.H. COHN LLP
--------------------------------------
J.H. Cohn LLP
San Diego, California
May 16, 1999, except for Note 16,
as to which the date is July 22, 1999
F-2
<PAGE> 91
GREYSTONE TECHNOLOGY, INCORPORATED
BALANCE SHEETS
MARCH 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 795,480 $ 5,083
Accounts receivable, net of allowance for doubtful
accounts of $40,000 and $85,000...................... 200,477 397,856
------------ ------------
Total current assets.............................. 995,957 402,939
Equipment and furniture, net of accumulated depreciation of
$2,112,335 and $1,894,944................................. 176,827 391,553
Other assets................................................ 104,138 120,664
------------ ------------
Totals............................................ $ 1,276,922 $ 915,156
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses..................... $ 1,130,553 $ 1,301,676
Short-term notes payable.................................. 402,000 670,000
Convertible notes payable................................. 30,000
Loans payable to officers................................. 140,810
Notes payable to principal stockholder.................... 128,000 227,937
------------ ------------
Total liabilities................................. 1,801,363 2,229,613
------------ ------------
Commitments and contingencies
Stockholders' deficiency:
Common stock, no par value; 50,000,000 shares authorized;
14,621,937 and 14,068,883 shares issued and
outstanding............................................ 30,596,760 27,037,057
Additional paid-in capital................................ 718,330 321,885
Receivable from sale of common stock...................... (327,500) (327,500)
Accumulated deficit....................................... (31,512,031) (28,345,899)
------------ ------------
Total stockholders' deficiency.................... (524,441) (1,314,457)
------------ ------------
Totals............................................ $ 1,276,922 $ 915,156
============ ============
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 92
GREYSTONE TECHNOLOGY, INCORPORATED
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues............................................ $ 2,105,517 $ 2,112,566 $ 2,336,371
----------- ----------- -----------
Expenses:
Cost of revenues............................... 1,274,177 1,181,728 1,621,166
Marketing and sales............................ 853,190 662,503 720,213
Research and development....................... 1,093,145 1,254,297 1,978,505
General and administrative..................... 1,951,193 3,193,843 2,087,877
----------- ----------- -----------
Totals.................................... 5,171,705 6,292,371 6,407,761
----------- ----------- -----------
Loss from operations................................ (3,066,188) (4,179,805) (4,071,390)
Interest expense, including $8,500, $40,500 and
$222,400 on loans from principal stockholder...... 99,944 201,941 615,240
----------- ----------- -----------
Net loss............................................ $(3,166,132) $(4,381,746) $(4,686,630)
=========== =========== ===========
Basic net loss per share............................ $ (.22) $ (.33) $ (.41)
=========== =========== ===========
Basic weighted average number of shares
outstanding....................................... 14,131,416 13,435,377 11,408,158
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 93
GREYSTONE TECHNOLOGY, INCORPORATED
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ADDITIONAL RECEIVABLE
COMMON STOCK PAID FROM SALE
------------------------ IN OF COMMON ACCUMULATED
SHARES AMOUNT CAPITAL STOCK DEFICIT TOTAL
---------- ----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1996..................... 10,915,309 $12,495,890 $(327,500) $(19,277,523) $(7,109,133)
Common stock sold for cash, net of selling
costs of $371,241........................ 1,022,938 4,231,980 4,231,980
Common stock issued upon conversion of
convertible notes payable................ 31,034 139,654 139,654
Common stock issued to reduce balance of
notes payable to principal stockholder... 272,123 1,224,554 1,224,554
Net loss................................... (4,686,630) (4,686,630)
---------- ----------- -------- --------- ------------ -----------
Balance, March 31, 1997.................... 12,241,404 18,092,078 (327,500) (23,964,153) (6,199,575)
Common stock sold for cash, net of selling
costs of $588,355........................ 734,197 3,153,031 3,153,031
Common stock issued upon conversion of
convertible notes payable................ 712,556 4,010,500 4,010,500
Common stock issued to reduce balance of
notes payable to principal stockholder... 198,088 891,396 891,396
Common stock issued to pay for accrued
interest................................. 147,359 731,287 731,287
Common stock issued to pay for services.... 35,279 158,765 158,765
Warrants issued to purchase common stock... $ 65,629 65,629
Grant of compensatory stock options to
purchase common stock.................... 246,400 246,400
Stock options to purchase common stock
granted to non-employees................. 9,856 9,856
Net loss................................... (4,381,746) (4,381,746)
---------- ----------- -------- --------- ------------ -----------
Balance, March 31, 1998.................... 14,068,883 27,037,057 321,885 (327,500) (28,345,899) (1,314,457)
Common stock sold for cash................. 400,288 2,424,610 2,424,610
Common stock issued upon exercise of stock
options.................................. 3,000 11,400 11,400
Common stock issued upon conversion of
convertible notes payable................ 6,667 30,000 30,000
Common stock issued to pay short-term notes
payable.................................. 116,042 920,000 920,000
Common stock issued to reduce balance of
notes payable to principal stockholder... 5,557 25,000 25,000
Common stock issued to pay for accrued
interest................................. 4,625 23,693 23,693
Common stock issued to pay for services.... 16,875 125,000 125,000
Warrants issued to purchase common stock... 305,811 305,811
Stock options to purchase common stock
granted to non-employees................. 9,856 9,856
Effect of principal stockholder's debt
forgiveness.............................. 80,778 80,778
Net loss................................... (3,166,132) (3,166,132)
---------- ----------- -------- --------- ------------ -----------
Balance, March 31, 1999.................... 14,621,937 $30,596,760 $718,330 $(327,500) $(31,512,031) $ (524,441)
========== =========== ======== ========= ============ ===========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 94
GREYSTONE TECHNOLOGY, INCORPORATED
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net loss.................................................. $(3,166,132) $(4,381,746) $(4,686,630)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation............................................ 220,498 529,911 443,474
Provision for (recovery of) bad debts................... (45,000) 64,000
Write-off of deferred lease obligations upon lease
termination........................................... (140,906)
Compensation expense recorded upon issuance of warrants
and compensatory stock options........................ 315,667 321,885
Debt conversion expense................................. 804,000
Other................................................... 8,576
Changes in operating assets and liabilities:
Accounts receivable................................... 242,379 (291,324) 163,641
Other assets.......................................... 16,526 16,529 (100,251)
Accounts payable and accrued expenses................. (30,060) (292,947) 163,779
----------- ----------- -----------
Net cash used in operating activities.............. (2,446,122) (3,221,116) (4,156,893)
----------- ----------- -----------
Investing activities -- purchases of equipment and
furniture................................................. (5,772) (115,484) (44,306)
----------- ----------- -----------
Financing activities:
Repayment of line of credit borrowings.................... (200,000)
Proceeds from issuance of short-term notes payable........ 987,000 670,000
Proceeds from issuance of convertible notes payable....... 140,810 150,000
Repayments of convertible notes payable................... (107,500)
Repayments of short-term notes payable.................... (335,000)
Proceeds from (payments of) loans from principal
stockholder............................................. 13,471 (313,469) (85,356)
Payments of capital lease obligations..................... (74,603) (87,477)
Sales of common stock..................................... 2,424,610 3,153,031 4,231,980
Common stock issued upon exercise of stock options........ 11,400
----------- ----------- -----------
Net cash provided by financing activities.......... 3,242,291 3,127,459 4,209,147
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents........ 790,397 (209,141) 7,948
Cash and cash equivalents, beginning of year................ 5,083 214,224 206,276
----------- ----------- -----------
Cash and cash equivalents, end of year...................... $ 795,480 $ 5,083 $ 214,224
=========== =========== ===========
Supplemental disclosure of cash flow data:
Interest paid............................................. $ 76,314 $ 85,805 $ 269,775
=========== =========== ===========
Supplemental disclosure of noncash investing and financing
activities:
Common stock issued upon conversion of convertible notes
payable, net of debt conversion expense of $804,000 in
1998.................................................... $ 30,000 $ 3,206,500 $ 139,654
=========== =========== ===========
Common stock issued to pay for short-term notes payable... $ 920,000
===========
Common stock issued as payment for:
Notes payable to principal stockholder.................. $ 25,000 $ 891,396 $ 1,224,554
=========== =========== ===========
Accrued interest........................................ $ 23,693 $ 731,287
=========== ===========
Services................................................ $ 125,000 $ 158,765
=========== ===========
Additional paid-in capital contributed as a result of debt
forgiveness by principal stockholder.................... $ 80,778
===========
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE> 95
GREYSTONE TECHNOLOGY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of operations:
GreyStone Technology, Incorporated (the "Company") was incorporated in
California on April 5, 1988. The Company is organized into two principal
operating groups which operate as separate business segments. The Company
designs, develops and markets real-time, interactive, and networked three
dimensional, digital media content ("digital media"). The Company develops and
delivers its 3-D digital media content principally for entertainment and defense
(i.e., training and simulation) applications.
The Company's Government Systems Group began operations in 1989 and works
primarily as a subcontractor on contracts with prime defense contractors. The
Government Systems Group's engineers perform systems software engineering,
specializing in the application of advanced software techniques for developing
"smarter" systems that learn, reason and achieve some level of intelligence
(i.e., artificial intelligence). Substantially all of the Company's revenue from
its inception through March 31, 1999 have been derived from government
contracts.
The Company's Commercial Systems Group was established in 1993 to develop
products to be sold primarily for entertainment centers and home entertainment.
The Commercial Systems Group's engineers perform systems software engineering,
specializing in the custom development and application of entertainment software
for the coin-operated market. No significant revenue has been derived from the
Commercial Systems Group through March 31, 1999.
Cash and cash equivalents:
The Company considers all highly-liquid investments with maturities of
three months or less when acquired to be cash equivalents.
Equipment and furniture:
Equipment and furniture are stated at cost and are depreciated over their
estimated useful lives of five years using the straight-line method.
Impairment of long-lived assets:
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of ("SFAS 121"). Under SFAS 121, impairment
losses on long-lived assets, such as property and equipment and intangible
assets, are recognized when events or changes in circumstances indicate that the
undiscounted cash flows estimated to be generated by such assets are less than
their carrying value and, accordingly, all or a portion of such carrying value
may not be recoverable. Impairment losses are then measured by comparing the
fair value of assets to their carrying amounts.
Revenue recognition:
The revenues derived by the Government Systems Group are earned under a
variety of cost reimbursement and fixed-price contracts with the U.S.
Government, subcontracts with prime contractors and commercial contracts.
Contract revenues on fixed price long-term contracts are recorded using the
percentage of completion method, primarily based on contract costs incurred to
date, compared with total estimated costs at completion. Provisions for
estimated losses on contracts are recorded as such losses become known. Because
of the inherent uncertainties in estimating costs, it is at least reasonably
possible that the estimates used will change within the near term. Contract
revenues on cost reimbursement type contracts are recognized as the related
costs are incurred. Revenues on time and material contracts are recognized as
earned.
F-7
<PAGE> 96
GREYSTONE TECHNOLOGY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The Commercial Systems Group recognizes revenues when products are shipped.
Cost of revenues:
Cost of revenues consist of direct labor, fringe benefits, direct costs and
overhead. Overhead is allocated based on the amount of direct labor and fringe
benefits incurred on revenue projects.
Advertising:
The Company expenses the cost of advertising and promotions as incurred.
Advertising costs charged to operations were not material in 1999, 1998 and
1997.
Research and development:
Since the technological feasibility of the software products has not been
established, costs and expenses related to research and product development are
expensed as incurred.
Income taxes:
The Company accounts for income taxes pursuant to the asset and liability
method which requires deferred income tax assets and liabilities to be computed
annually for temporary differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted laws and rates applicable to the periods in which
the temporary differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized. The income tax provision or credit is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
Segment reporting:
Effective March 31, 1999, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS 131"). SFAS 131 establishes standards
for the way that public business enterprises report financial and descriptive
information about reportable operating segments in annual financial statements
and interim financial reports issued to stockholders. SFAS 131 supersedes SFAS
14, Financial Reporting for Segments of a Business Enterprise, but retains the
requirement to report information about major customers.
Earnings (loss) per share:
Effective March 31, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 128 Earnings per Share ("SFAS 128"), which
replaces the presentation of "primary" and "fully-diluted" earnings (loss) per
common share required under previously promulgated accounting standards with the
presentation of "basic" and "diluted" earnings (loss) per common share.
Basic earnings (loss) per common share is calculated by dividing net income
or loss by the weighted average number of common shares outstanding during the
period. The calculation of diluted earnings (loss) per common share is similar
to that of basic earnings (loss) per common share, except that the denominator
is increased to include the number of additional common shares that would have
been outstanding if all potentially dilutive common shares, principally those
issuable upon the exercise of stock options and warrants, were issued during the
period.
F-8
<PAGE> 97
GREYSTONE TECHNOLOGY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Since the Company had losses applicable to common stock in 1999, 1998 and
1997, the assumed effects of the exercise of outstanding stock options and
warrants were anti-dilutive and, accordingly, dilutive per share amounts have
not been presented in the accompanying statements of operations.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Reclassification:
Certain amounts in the accompanying 1998 and 1997 financial statements have
been reclassified to conform to the 1999 presentation.
NOTE 2 -- BASIS OF PRESENTATION:
As shown in the accompanying financial statements, the Company had a
working capital deficiency of $805,406 and a total stockholders' deficiency of
$524,441 at March 31, 1999; net losses of $3,166,132, $4,381,746 and $4,686,630
in 1999, 1998 and 1997, respectively; and an accumulated deficit from losses
since its inception of $31,512,031 at March 31, 1999. These matters raise
substantial doubt about the ability of the Company to continue as a going
concern.
Historically, the Company has funded its operations primarily through sales
of common stock to and borrowings from its principal stockholder and sales of
common stock and convertible notes payable to private investors pursuant to
private placement memorandums and exemptions from registration under the
Securities Act of 1933. The Company raised approximately $3,577,000, $3,823,000,
and $4,382,000 during 1999, 1998, and 1997 respectively, through borrowings from
its principal stockholder and private sales of common stock and convertible
notes payable. Management plans to obtain the funds needed to enable the Company
to continue as a going concern through the private placement of debt or equity
securities or through the consummation of a proposed merger (see Note 15).
However, management cannot provide any assurance that the Company will be
successful in consummating any private placement or the proposed merger.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern which contemplates continuity of
operations, realization of assets and satisfaction of liabilities in the
ordinary course of business. If the Company is unable to raise additional
capital, it may be required to liquidate assets or take actions which may not be
favorable to the Company in order to continue its operations. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
See Note 16 for subsequent events which help mitigate the going concern
issue.
NOTE 3 -- CONCENTRATION OF CREDIT RISK AND SALES TO MAJOR CUSTOMERS:
The Company maintains its cash balances on deposit with a financial
institution and in an unsecured money market account. At times, financial
institution balances exceed the Federal Deposit Insurance Corporation limitation
for coverage of $100,000 thereby exposing the Company to credit risk. The
Company reduces its exposure to credit risk by maintaining such deposits with a
high quality financial institution and investment company.
F-9
<PAGE> 98
GREYSTONE TECHNOLOGY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- CONCENTRATION OF CREDIT RISK AND SALES TO MAJOR CUSTOMERS: (CONTINUED)
Accounts receivable are financial instruments that also expose the Company
to a concentration of credit risk. The Company routinely assesses the financial
strength of its customers and maintains an allowance for doubtful accounts that
management believes will adequately provide for credit losses.
During 1999 sales to two customers represented 43% and 20% of total sales.
During 1998, sales to two customers represented 35% and 12% of total sales.
During 1997, sales to two customers represented 33% and 29% of total sales.
NOTE 4 -- EQUIPMENT AND FURNITURE, NET:
Equipment and furniture, net at March 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Computer and other equipment........................ $2,260,122 $2,257,457
Furniture........................................... 29,040 29,040
---------- ----------
2,289,162 2,286,497
Less accumulated depreciation....................... 2,112,335 1,894,944
---------- ----------
Totals.................................... $ 176,827 $ 391,553
========== ==========
</TABLE>
NOTE 5 -- LEASE COMMITMENT:
The Company has a noncancelable lease for its office space which expires in
2004 and is classified as an operating lease. Rent expense approximated $332,000
in 1999, 1998 and 1997.
At March 31, 1999, the future minimum lease payments under the operating
lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31, AMOUNT
----------- ----------
<S> <C>
2000................................................... $ 331,919
2001................................................... 331,919
2002................................................... 331,919
2003................................................... 331,919
2004................................................... 248,940
----------
Total.......................................... $1,576,616
==========
</TABLE>
NOTE 6 -- SHORT-TERM NOTES PAYABLE:
At March 31, 1999 and 1998, the Company had outstanding notes payable with
a principal balance of $402,000 and $670,000, respectively, that had initial
maturities of six months or less. At March 31, 1999, notes payable with a
principal balance of $350,000 had matured. These notes have been extended by the
debtors and are payable through September 30, 1999. The notes are unsecured and
bear interest at 9% or 10%.
During the year ended March 31, 1999, 116,042 shares of common stock were
issued to pay for $920,000 of short-term notes payable. The common shares were
issued at the fair value of the common stock at the date of settlement, which
varied from $6.00 to $8.00 per share.
NOTE 7 -- CONVERTIBLE NOTES PAYABLE:
Convertible notes payable at March 31, 1998 consisted of 9% unsecured notes
initially scheduled to mature from August 6, 1997 through September 28, 1997.
The notes were convertible at $4.50 per share and
F-10
<PAGE> 99
GREYSTONE TECHNOLOGY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- CONVERTIBLE NOTES PAYABLE: (CONTINUED)
in default at March 31, 1998 due to the expiration of their maturity dates.
During the year ended March 31, 1999, the convertible notes payable were
converted at $4.50 per share into 6,667 shares of common stock.
During the year ended March 31, 1998, convertible notes payable aggregating
$3,206,500 were converted at $4.50 per share into 712,556 shares of common
stock. $2,175,000 of these notes were originally convertible at $7.14 per share
with the balance convertible at $4.50 per share. In connection with the $7.14
per share convertible notes, the Company recorded debt conversion expense of
$804,000. In addition, the Company issued 87,084 shares of common stock at $4.50
per share to pay accrued interest on the notes of $391,877.
The accompanying 1998 financial statements have been restated to correct
for the previous omission of the $804,000 debt conversion expense. The effect of
the restatement was to increase net loss, accumulated deficit and common stock
by $804,000. Basic net loss per share increased by $.06.
During the year ended March 31, 1997, convertible notes payable aggregating
$139,654 were converted at $4.50 per share into 31,034 shares of common stock.
NOTE 8 -- INFORMATION ON INDUSTRY SEGMENTS:
The Company identifies its segments based on strategic business units that
are in turn based along market lines. These strategic business units offer
products and services to different markets in accordance with their customer
base and product usage. Accordingly, the Company's two business segments are
centered on the operations associated with the commercial and government
sectors. The Company's operations are centered in the United States. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance of
each segment based on profit or loss from operations before income taxes. The
Company has no significant intersegment sales or transfers.
<TABLE>
<CAPTION>
COMMON/
GOVERNMENT COMMERCIAL CORPORATE TOTAL
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1999
- ---------------------------------------
Revenue................................ $2,090,902 $ 14,615 $ 2,105,517
Net loss............................... (58,308) (1,056,687) $(2,051,137) (3,166,132)
Identifiable assets, net............... 260,203 25,715 991,004 1,276,922
Depreciation........................... 87,125 38,423 94,950 220,498
Research and development............... 232,653 860,492 1,093,145
Interest expense....................... 99,944 99,944
1998
- ---------------------------------------
Revenue................................ $2,111,966 $ 600 $ 2,112,566
Net income (loss)...................... 318,935 (1,304,897) $(3,395,784) (4,381,746)
Identifiable assets, net............... 526,746 60,783 327,627 915,156
Depreciation........................... 132,714 130,532 266,665 529,911
Research and development............... 120,902 1,133,395 1,254,297
Interest expense....................... 201,941 201,941
1997
- ---------------------------------------
Revenue................................ $1,933,349 $ 378,600 $ 24,422 $ 2,336,371
Net income (loss)...................... 62,262 (1,832,555) (2,916,337) (4,686,630)
Identifiable assets, net............... 304,972 100,927 930,606 1,336,505
Depreciation........................... 53,194 133,555 256,725 443,474
Research and development............... 287,360 1,691,145 1,978,505
Interest expense....................... 615,240 615,240
</TABLE>
F-11
<PAGE> 100
GREYSTONE TECHNOLOGY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- WARRANTS:
The Company has issued warrants in conjunction with the sale of convertible
notes payable, assisting the Company in acquiring capital, the extending of
loans, as an incentive to equity investors and as part of the consideration paid
to various consultants. All of the warrants issued were for services or actions
that had already been rendered at the date of issuance. In addition, the
consideration received for the issuance of the warrants was not considered to be
reliably measurable. Based on the provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
123") using the Black-Scholes option-pricing model and assuming a risk-free
interest rate of 6%, expected warrant lives of one to four years, expected
volatility of 5% and no dividends, the compensation expense relating to the
warrants issued was $305,811 and $65,629 in 1999 and 1998, respectively.
Compensation expense relating to the issuance of warrants was immaterial in
1997. Each warrant entitles the holder to purchase one share of common stock
upon exercise. The warrants expire at various dates from 2002 through 2008. The
following is a summary of warrant activity during 1999, 1998 and 1997:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
WARRANTS PRICE
--------- ------------
<S> <C> <C>
Outstanding at April 1, 1996....................... 1,409,185 $7 to $12
Granted.......................................... 39,510 $10
---------
Outstanding at March 31, 1997...................... 1,448,695 $7 to $12
Granted....................................... 1,621,494 $4.95 to $12
Cancelled..................................... (330,849) $4.95 to $12
---------
Outstanding at March 31, 1998...................... 2,739,340 $4.95 to $12
Granted....................................... 2,262,372 $6 to $10
Exercised..................................... (27,500) $8
Cancelled..................................... (484,264) $10
---------
Outstanding at March 31, 1999...................... 4,489,948 $4.95 to $12
=========
Warrants exercisable at March 31, 1999............. 4,389,948 $4.95 to $12
=========
Weighted average fair value of warrants granted
during the year ended March 31, 1999............. $.12
====
Weighted average fair value of warrants granted
during the year ended March 31, 1998............. $.07
====
</TABLE>
NOTE 10 -- INCOME TAXES:
The Company had net operating loss carryforwards at March 31, 1999 of
approximately $29,600,000 available to reduce future Federal taxable income and
approximately $12,900,000 available to reduce state taxable income, if any. The
net operating loss carryforwards expire between 2006 and 2013 for Federal tax
purposes and 2000 and 2004 for state tax purposes. The Company has net deferred
tax assets at March 31, 1999, 1998 and 1997 comprised of the following:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Deferred tax assets arising primarily from net
operating losses available for carryforward and
accrued vacation benefits........................... $11,360,000 $9,000,000 $9,000,000
Deferred tax liability arising from accelerated
depreciation........................................ (80,000)
Valuation allowance for deferred tax assets........... (11,360,000) (9,000,000) (8,920,000)
----------- ---------- ----------
Net deferred tax assets.......................... $ -- $ -- $ --
=========== ========== ==========
</TABLE>
F-12
<PAGE> 101
GREYSTONE TECHNOLOGY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- INCOME TAXES: (CONTINUED)
The Company has offset the net deferred tax assets by an equivalent
valuation allowance due to the uncertainties related to the extent and timing of
its future taxable income.
The expected Federal income benefit, computed based on the Company's
pre-tax losses in 1999, 1998 and 1997 and the statutory Federal income tax rate,
is reconciled to the actual tax provision reflected in the accompanying
financial statements as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
Expected tax benefit at statutory rates............... $1,124,000 $1,107,000 1,594,000
Decrease resulting from change in valuation
allowance........................................... (1,124,000) (1,107,000) (1,594,000)
---------- ---------- -----------
Totals........................................... $ -- $ -- $ --
========== ========== ===========
</TABLE>
NOTE 11 -- ISSUANCES OF COMMON STOCK:
The Company sold shares of common stock to private investors pursuant to
private placement memorandums and exemptions from registration under the
Securities Act of 1933.
During 1999, the Company sold 400,288 shares of common stock at $6.00 to
$8.00 per share resulting in proceeds of $2,424,610.
During 1998, the Company sold 734,197 shares at $4.50 to $8.00 per share
resulting in gross proceeds of $3,741,387. In connection with the 1998 sale of
common stock, the Company recorded $588,356 for selling expenses which resulted
in net proceeds to the Company of $3,153,031.
During 1997, the Company sold 1,022,938 shares at $4.50 per share resulting
in gross proceeds of $4,603,221. In connection with the sale of common stock,
the Company recorded $371,241 for selling expenses which resulted in net
proceeds to the Company of $4,231,980.
NOTE 12 -- STOCK OPTIONS:
The Company has two incentive stock option ("ISO") plans -- the "1991 Plan"
and the "1994 Plan". In addition, the Company issued nonqualified stock options
("NSOs") in 1994, 1997 and 1998. Information related to the plans and the other
options granted follows:
<TABLE>
<CAPTION>
OPTIONS
OUTSTANDING AT
OPTIONS MARCH 31,
YEAR TYPE AUTHORIZED 1999
---- ---- ---------- --------------
<S> <C> <C> <C>
1991...................................... ISO 500,000 200,000
1994...................................... NSO 200,000 200,000
1994...................................... ISO 2,000,000 791,050
1997...................................... NSO 640,000 640,000
1998...................................... NSO 850,000 850,000
---------
2,681,050
=========
</TABLE>
Generally, the plans specify that the options to purchase shares may be
granted at prices which approximate their fair market value at the date of
grant. At March 31, 1999, options to purchase 300,000 shares were available for
future grant under the 1991 Plan. The 1991 Plan will terminate on August 16,
2001.
In July 1997, the Company modified the 1994 grant to its then Vice
President, Corporate Development and General Counsel of incentive stock options
to purchase 800,000 shares of the Company stock to provide
F-13
<PAGE> 102
GREYSTONE TECHNOLOGY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- STOCK OPTIONS: (CONTINUED)
that in the event his employment was terminated for any reason, then he would
have a period of thirty-six months from the date of termination to exercise his
vested options. Accordingly, the 800,000 ISO options were cancelled and 800,000
of NSO options were issued. During the year ended March 31, 1999, 160,000 of
non-vested NSO options were cancelled due to his employment termination.
As of March 31, 1999, the Company had issued and outstanding options to
purchase 791,050 shares and options to purchase 1,205,950 shares were available
for future grant under the 1994 Plan. The 1994 Plan will terminate in July 2004
unless terminated as of an earlier date by the Board of Directors.
Options issued under the plans and the other options granted vest over a
five year period and are exercisable over a ten year period from the date of
grant.
The amount of compensation expense recognized for the year ended March 31,
1998 relating to the granting of NSO stock options under the provisions of APB
No. 25 was $246,400.
The amount of compensation expense recognized for the years ended March 31,
1999 and 1998 relating to the granting of stock options to non-employees based
on the fair value of the options at the grant date under the provisions of SFAS
123 and assuming a risk-free interest rate of 6%, expected option lives of 2.5
years, expected volatility of 5%, and no dividends was $9,856 in both years.
There was no compensation expense recognized in 1997.
In the opinion of management, if compensation cost for the stock options
granted to employees had been determined based on the fair value of the options
at the grant date under the provisions of SFAS 123 and assuming a risk-free
interest rate of 6%, expected option lives of one to four years, expected
volatility of 5% and no dividends, the Company's pro forma net loss and pro
forma basic net loss per share arising from such computations would have been
increased by approximately $429,000, $254,000, and $218,000 in 1999, 1998 and
1997, respectively.
Additional information regarding options outstanding under the Company's
stock option plans at March 31, 1999, 1998 and 1997 and changes in outstanding
options in 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- ------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE
OR PRICE EXERCISE OR PRICE EXERCISE OR PRICE EXERCISE
PER SHARE PRICE PER SHARE PRICE PER SHARE PRICE
---------------- -------- -------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year............................ 3,163,550 $3.95 2,461,853 $3.52 2,257,278 $4.47
Granted........................... 48,500 6.80 1,810,000 4.82 986,153 4.38
Exercised......................... (3,000) 3.80
Cancelled......................... (528,000) 3.93 (1,108,303) 4.55 (781,578) 7.35
-------------- -------------- -----------
Outstanding at end of year........ 2,681,050 3.85 3,163,550 3.95 2,461,853 3.52
============== ============== ===========
Price range at end of year........ $.275 to $6.80 $.275 to $4.95 $.275-$7.00
Exercisable at end of year........ 2,358,683 3.71 2,381,300 3.66 2,126,793 3.53
============== ============== ===========
Available for grant at end of
year............................ 1,508,950 1,186,450 238,147
============== ============== ===========
Weighted average fair value of
options granted during the
year............................ .79 .34 .83
</TABLE>
F-14
<PAGE> 103
GREYSTONE TECHNOLOGY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- STOCK OPTIONS: (CONTINUED)
The following table summarizes information about stock options outstanding
at March 31, 1999, all of which are at fixed prices:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING
NUMBER CONTRACTUAL NUMBER
EXERCISE OF OPTIONS LIFE OF OPTIONS OF OPTIONS
PRICE OUTSTANDING EXERCISABLE EXERCISABLE
- -------- ----------- ---------------- -----------
<S> <C> <C> <C>
$ .275 200,000 2.4 years 200,000
1.000 200,000 5.3 years 200,000
3.800 1,106,050 4.6 years 1,065,350
4.950 1,150,000 5.2 years 883,333
6.800 25,000 9.2 years 10,000
--------- ---------
2,681,050 2,358,683
========= =========
</TABLE>
NOTE 13 -- RELATED PARTY TRANSACTIONS AND BALANCES:
The Company had outstanding notes payable to its Principal Stockholder of
$128,000 and $227,937 at March 31, 1999 and 1998, respectively, which were
unsecured, nonconvertible and bore interest at 9%. Accrued interest of
approximately $43,000 and $35,000 at March 31, 1999 and 1998, respectively, is
included in accounts payable and accrued expenses in the accompanying balance
sheets. The notes mature on June 30, 1999.
The Principal Stockholder borrowed a portion of the funds used to make the
loans to the Company from a group of investors by issuing notes (the "Smith
Notes") with the same interest rates and due dates as the notes issued by the
Company to the Principal Stockholder. In addition, the Principal Stockholder
granted the holders of the Smith Notes the right to convert the principal
balance and accrued interest into shares of common stock that he owns at a
conversion rate of $4.50 per share.
During 1999, the Company reduced the principal balance of, and the accrued
interest on, the notes payable to the Principal Stockholder by $25,000 and
$7,625, respectively, by issuing 7,251 shares of common stock to certain holders
of the Smith Notes. The conversions of the principal balances during 1999 were
at $4.50 per share, as originally provided in the conversion terms of the debt.
During 1998, the Company reduced the principal balance of, and the accrued
interest on, the notes payable to the Principal Stockholder by $891,396 and
$339,410, respectively, by issuing 258,363 shares of common stock to certain
holders of the Smith Notes. $743,896 of the principal balance was converted at
$4.50 per share while $147,500 of the principal balance was converted at $7.14
per share, as originally provided in the conversion terms of the debt. The
accrued interest was settled by the issuance of common stock at the per share
fair value of the common stock at the date of settlement.
During 1997, the Company reduced the principal balance of, and accrued
interest on, the notes payable to the Principal Stockholder by $1,072,500 and
$152,054, respectively, by issuing 272,123 shares of common stock at $4.50 per
share to certain holders of the Smith Notes.
The holders of the Smith Notes concurrently agreed to reduce the principal
balance and the accrued interest owed by the Principal Stockholder by equivalent
amounts.
In addition, during the year ended March 31, 1999, the Principal
Stockholder forgave $80,778 of the debt by contributing the amounts to
additional paid-in capital.
F-15
<PAGE> 104
GREYSTONE TECHNOLOGY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 -- RELATED PARTY TRANSACTIONS AND BALANCES: (CONTINUED)
Loans payable to officers in the amount of $140,810 at March 31, 1999 are
unsecured, non-interest bearing and due upon demand.
The receivable from the sale of common stock of $327,500 that is reflected
as a reduction of stockholders' equity in the accompanying balance sheets at
March 31, 1999 and 1998 is evidenced by notes received as part of the
consideration for the sale of common stock in 1992 to three of the Company's
founding shareholders who were, and remain, employees of the Company, two of
whom are officers. The notes are secured by the shares of the Company's common
stock, mature in August 2001 (except under certain specified circumstances) and
bear interest at 8.2% which is payable at maturity.
In November 1993, the Company entered into an agreement with a financial
consultant (the "Consultant"), who is also a director of the Company, whereby
the Consultant agreed to provide advice regarding financial and strategic
planning and the negotiation of various business agreements and to review
certain business opportunities and general business decisions, as required by
the Company. In return, the Company agreed to pay the Consultant $10,000 per
month plus reasonable out-of-pocket costs until the Company successfully
completed a public offering or raise $15,000,000 in capital. The agreement was
terminated on December 31, 1996. Unpaid consulting fees of approximately $59,000
and $124,000, respectively, were included in accounts payable and accrued
expenses in the accompanying balance sheets.
NOTE 14 -- EMPLOYEE BENEFIT PLAN:
The Company maintains a defined contribution "Section 401(k)" retirement
plan which covers all full-time eligible employees. Employees may elect to
contribute a portion of their wages directly to the plan, up to the maximum
allowed by the Internal Revenue Code. The Company matches, on a discretionary
basis, up to 50% of each participant's annual contributions to the plan;
however, the Company's matching contribution may not exceed 8% of the
participant's annual compensation. The Company did not make any contributions in
1999, 1998 and 1997.
NOTE 15 -- PROPOSED BUSINESS COMBINATION:
On August 11, 1997, the Company entered into a definitive agreement whereby
the Company and Express Capital Concepts, Inc., a Delaware corporation ("Express
Capital"), would enter into a business combination pursuant to which the Company
would merge with a wholly-owned subsidiary of Express Capital (the "Merger").
Upon consummation of the Merger, the Company would be the surviving corporation
and a wholly-owned subsidiary of Express Capital. Pursuant to the terms of the
definitive agreement, the stockholders of the Company would receive shares of
common stock of Express Capital in exchange for their shares of common stock of
the Company and all of the Company's outstanding options and warrants would be
exchanged for equivalent options and warrants for the purchase of Express
Capital common stock.
The existing stockholders of the Company would own approximately 97% of the
outstanding common stock of Express Capital subsequent to the Merger. Express
Capital was formed for the sole purpose of acquiring one or more privately-held
companies and does not have any assets, liabilities or operations of any kind.
The common stock of Express Capital is traded on the OTC Electronic Bulletin
Board. Consummation of the merger is subject to various terms and conditions. If
consummated, the business combination will be accounted for as a "Reverse
Acquisition" whereby the Company will be deemed to be the acquiring company for
accounting purposes and the assets and liabilities of the Company will continue
to be recorded at their historical carrying values as of the date of the Merger
pursuant to the purchase method of accounting. The Merger had not been
consummated as of May 16, 1999.
F-16
<PAGE> 105
GREYSTONE TECHNOLOGY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 16 -- SUBSEQUENT EVENTS:
During the period from April 1, 1999 to July 22, 1999, the Company raised
approximately $3,100,000 net of selling expenses through the sale of
approximately 550,000 shares of common stock at $6.00 per share. A portion of
the proceeds was used to reduce accounts payable and accrued expenses by
approximately $600,000. Additionally, $402,000 of short-term notes payable and
$140,810 of loans payable to officers were paid in full. Of the $128,000 of
notes payable to the Principal Stockholder at March 31, 1999, $50,000 has been
paid and $70,000 is scheduled to be converted into common stock. During the same
period, warrants to purchase 2,713,200 shares of common stock at exercise prices
ranging from $4.95 to $10.00 per share were issued primarily for providing
assistance in raising money for the Company and in consideration for services
provided relating to the Merger.
* * *
F-17
<PAGE> 106
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Express Capital Concepts, Inc.
We have audited the accompanying consolidated balance sheets of Express
Capital Concepts, Inc. and Subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows for the years ended December 31, 1998, 1997 and 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Express
Capital Concepts, Inc. and Subsidiary as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years ended December
31, 1998, 1997 and 1996 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As shown in the
consolidated financial statements, the Company incurred a net loss of $70,090
during the year ended December 31, 1998, and, as of that date had a working
capital deficiency of $157,132 and stockholders' deficit of $156,245. As
discussed in Note 1 to the financial statements, the Company's significant
operating losses and working capital deficiency raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also discussed in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Angell & Deering
Certified Public Accountants
Denver, Colorado
February 22, 1999, except for the
second paragraph of Note 10 as
to which the date is July 22, 1999
F-18
<PAGE> 107
EXPRESS CAPITAL CONCEPTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------
1999 1998 1997
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents............................. $ 883 $ 421 $ 325
--------- --------- ---------
Total Current Assets............................... 883 421 325
--------- --------- ---------
Other Assets:
Organization costs, net of accumulated amortization of
$343 and $97, respectively......................... -- 887 1,133
--------- --------- ---------
Total Other Assets................................. -- 887 1,133
--------- --------- ---------
Total Assets....................................... $ 883 $ 1,308 $ 1,458
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable -- trade............................. $ 125 $ 2,254 $ 2,951
Notes payable -- stockholders......................... 121,818 111,818 49,888
Accrued interest -- stockholders...................... 46,893 43,481 34,774
--------- --------- ---------
Total Current Liabilities.......................... 168,836 157,553 87,613
--------- --------- ---------
Commitments and Contingencies........................... -- -- --
Stockholders' Equity (Deficit):
Preferred stock: $.001 par value, 3,000,000 shares
authorized, none issued or outstanding............. -- -- --
Common stock: $.001 par value, 30,000,000 shares
authorized, 480,000 shares issued and
outstanding........................................ 480 480 480
Additional paid in capital............................ 29,138 29,138 29,138
Accumulated deficit................................... (197,571) (185,863) (115,773)
--------- --------- ---------
Total Stockholders' Equity (Deficit)............... (167,953) (156,245) (86,155)
--------- --------- ---------
Total Liabilities and Stockholders' Equity
(Deficit)........................................ $ 883 $ 1,308 $ 1,458
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE> 108
EXPRESS CAPITAL CONCEPTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue..................................... $ -- $ -- $ -- $ -- $ --
Operating expenses.......................... 7,409 6,841 61,383 170,001 4,881
-------- -------- -------- -------- --------
Loss From Operations...................... (7,409) (6,841) (61,383) (170,001) (4,881)
-------- -------- -------- -------- --------
Other Income (Expense):
Gain on disposal of marketable
securities............................. -- -- -- 139,619 --
Other income.............................. -- -- -- -- 33,962
Interest expense -- stockholders.......... (3,412) (1,553) (8,707) (4,729) (6,209)
-------- -------- -------- -------- --------
Total Other Income (Expense)........... (3,412) (1,553) (8,707) 134,890 27,753
-------- -------- -------- -------- --------
Income (Loss) Before Cumulative Effect
of Change in Accounting Principle.... (10,821) (8,394) (70,090) (35,111) 22,872
Cumulative effect on prior periods of
expensing organization costs as
incurred.................................. (887) -- -- -- --
-------- -------- -------- -------- --------
Net Income (Loss)...................... $(11,708) $ (8,394) $(70,090) $(35,111) $ 22,872
======== ======== ======== ======== ========
Net Income (Loss) Per Basic and Diluted
Share of Common Stock:
Income (loss) before cumulative effect
of change in accounting principle.... $ (.02) $ (.02) $ (.15) $ (.07) $ .05
Cumulative effect on prior periods of
expensing organization costs as
incurred............................. -- -- -- -- --
-------- -------- -------- -------- --------
Net Income (Loss)...................... $ (.02) $ (.02) $ (.15) $ (.07) $ .05
======== ======== ======== ======== ========
Weighted Average Number of Basic and Diluted
Common Shares Outstanding................. 480,000 480,000 480,000 480,000 480,000
Proforma Amounts Assuming Change in
Accounting Principle is Retroactively
Applied (Unaudited):
Net income (loss) (Unaudited).......... $(10,821) $ (8,333) $(69,844) $(36,244) $ 22,872
Net income (loss) per Basic and Diluted
share of common stock (Unaudited).... $ (.02) $ (.02) $ (.15) $ (.08) $ .05
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE> 109
EXPRESS CAPITAL CONCEPTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
------- ------ ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995...................... 480,000 $480 $29,138 $(103,534)
Net income for the year........................... -- -- -- 22,872
------- ---- ------- ---------
Balance at December 31, 1996...................... 480,000 480 29,138 (80,662)
Net loss for the year............................. -- -- -- (35,111)
------- ---- ------- ---------
Balance at December 31, 1997...................... 480,000 480 29,138 (115,773)
Net loss for the year............................. -- -- -- (70,090)
------- ---- ------- ---------
Balance at December 31, 1998...................... 480,000 480 29,138 (185,863)
Net loss for the period (unaudited)............... -- -- -- (11,708)
------- ---- ------- ---------
Balance at March 31, 1999 (unaudited)............. 480,000 $480 $29,138 $(197,571)
======= ==== ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE> 110
EXPRESS CAPITAL CONCEPTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------ -------------------------------
1999 1998 1998 1997 1996
-------- ------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)......................... $(11,708) $(8,394) $(70,090) $ (35,111) $ 22,872
Adjustments to reconcile net income (loss)
to net cash (used) by operating
activities:
Amortization.............................. -- 61 246 97 --
Gain on disposal of marketable
securities............................. -- -- -- (139,619) --
Marketable securities distributed as
compensation to stockholders........... -- -- -- 139,619 --
Stock received as compensation............ -- -- -- -- (33,962)
Cumulative effect on prior periods of
expensing organization costs as
incurred............................... 887 -- -- -- --
Changes in assets and liabilities:
Decrease in accounts receivable........ -- -- -- -- 14,736
Decrease in prepaid expenses........... -- -- -- -- 23
Increase (decrease) in accounts
payable.............................. (2,129) 3,728 (697) 1,728 (13,848)
Increase in accrued interest........... 3,412 1,553 8,707 4,729 6,209
-------- ------- -------- --------- --------
Net Cash (Used) By Operating
Activities........................... (9,538) (3,052) (61,834) (28,557) (3,970)
-------- ------- -------- --------- --------
Cash Flows From Investing Activities:
Organization costs........................ -- -- -- (1,230) --
-------- ------- -------- --------- --------
Net Cash (Used) By Investing
Activities........................... -- -- -- (1,230) --
-------- ------- -------- --------- --------
Cash Flows From Financing Activities:
Proceeds from stockholder loans........... 10,000 3,000 61,930 29,500 4,250
-------- ------- -------- --------- --------
Net Cash Provided By Financing
Activities........................... 10,000 3,000 61,930 29,500 4,250
-------- ------- -------- --------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents..................... 462 (52) 96 (287) 280
Cash and Cash Equivalents at Beginning
of Period............................ 421 325 325 612 332
-------- ------- -------- --------- --------
Cash and Cash Equivalents at End of
Period............................... $ 883 $ 273 $ 421 $ 325 $ 612
======== ======= ======== ========= ========
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the period for:
Interest............................... $ -- $ -- $ -- $ -- $ --
Income taxes........................... -- -- -- -- --
Supplemental Disclosure of Noncash
Investing and Financing Activities:
Distribution of marketable securities for
repayment of notes payable to
stockholders........................... $ -- $ -- $ -- $ 33,962 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE> 111
EXPRESS CAPITAL CONCEPTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Express Capital Concepts, Inc. (the "Company") was organized on May 18,
1988 as a Delaware corporation. The Company intends to evaluate, structure and
complete a merger with, or acquisition of, prospects consisting of private
companies, partnerships or sole proprietorships. The Company may seek to acquire
a controlling interest in such entities in contemplation of later completing an
acquisition.
Unaudited Interim Financial Statements
The financial statements as of March 31, 1999 and for the three months
ended March 31, 1999 and 1998 are unaudited, however, in the opinion of
management of the Company, all adjustments (consisting solely of normal
recurring adjustments) necessary to a fair presentation of the financial
statements for the interim periods have been made.
Basis of Presentation
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amount and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern. The Company's continuation as a going concern is dependent upon
its ability to generate sufficient cash flow to meet its obligations on a timely
basis and to obtain additional financing as may be required.
The Company's continued existence is dependent upon its ability to secure
loans from its President and/or a principal stockholder. Future operating
expenses will be funded by these loans. The Company's ability to continue to
meet its obligations is dependent upon obtaining the above loans.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with a maturity of three months of less at the date of
purchase to be cash equivalents.
Investment in Corporation
The Company's investment in Hollis-Eden, Inc., a private company, was
accounted for utilizing the cost method of accounting (Note 2).
Organization Costs
Organization costs are being amortized using the straight-line method over
an estimated useful life of 5 years.
Long-Lived Assets
In accordance with Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", the Company reviews for
F-23
<PAGE> 112
EXPRESS CAPITAL CONCEPTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-Lived Assets (Continued)
the impairment of certain identifiable intangibles, whenever events or changes
in circumstances indicate that the carrying value of an asset may not be
recoverable. An impairment loss would be recognized when the estimated future
cash flows is less than the carrying amount of the asset. No impairment losses
have been identified by the Company.
Stock-Based Compensation
During the year ended December 31, 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation". The Company will continue to measure compensation expense for its
stock-based employee compensation plan using the intrinsic value method
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees".
Income Taxes
Deferred income taxes are provided for temporary differences between the
financial reporting and tax basis of assets and liabilities using enacted tax
laws and rates for the years when the differences are expected to reverse.
Net Income (Loss) Per Share of Common Stock
As of December 31, 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share", which specifies the
method of computation, presentation and disclosure for earnings per share. SFAS
No. 128 requires the presentation of two earnings per share amounts, basic and
diluted.
Basic earnings per share is calculated using the average number of common
shares outstanding. Diluted earnings per share is computed on the basis of the
average number of common shares outstanding plus the dilutive effect of
outstanding stock options using the "treasury stock" method.
Estimates
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles requires the Company's
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 amount of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Recently Issued Accounting Standard
In April 1998, Statement of Position 98-5, "Reporting on the costs of
Start-Up Activities" ("SOP 98-5") was issued and is effective for years
beginning after December 15, 1998. SOP 98-5 requires that the costs of start-up
activities, including organization costs, be expensed as incurred. The Company
will adopt SOP 98-5 on January 1, 1999. The adoption of SOP 98-5 will result in
the write off of the Company's organization costs, net of accumulated
amortization ($887 as of December 31, 1998) in the first quarter of 1999. The
initial application of SOP 98-5 will be reported as a cumulative effect of a
change in an accounting principle.
2. INVESTMENT
In February 1995, the Company entered into a letter of intent with
Hollis-Eden, Inc. ("Hollis-Eden"). Under the terms of the agreement the Company
was to acquire 100% of Hollis-Eden's outstanding voting
F-24
<PAGE> 113
EXPRESS CAPITAL CONCEPTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT (CONTINUED)
common stock. The acquisition was not consummated and the companies entered into
an agreement and release in March 1996.
Under the terms of the agreement and release both companies were released
from the terms of the letter of intent. Additionally, Hollis-Eden agreed to
reimburse Express for expenses Express incurred in connection with the
acquisition totalling $14,736. Also Hollis-Eden issued 15,094 shares of its
common stock to Express in 1996. The stock was valued at $2.25 per share based
on sales of Hollis Eden's common stock at the time of issuance.
On March 21, 1997, the Board of Directors approved the distribution of the
Company's Hollis-Eden investment to the Company's President and a stockholder to
repay notes payable to the two individuals. The Hollis-Eden common shares were
distributed equally to each individual reducing the notes payable to each party
by $16,981.
On March 26, 1997, Hollis-Eden consummated a stock exchange with Initial
Acquisition Corp. ("IAC"), a publicly traded Company. Under the terms of the
agreement the Hollis-Eden stockholders received IAC stock on a share for share
basis. Ultimately the above individuals received IAC common stock as repayment
for their notes. At the time of merger IAC's common stock was trading at $11.50
per share.
The difference between the debt repayment of $33,962 and the market value
of the investment of $173,581 resulted in compensation of $139,619 to the above
individuals.
3. NOTES PAYABLE -- STOCKHOLDERS
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
12% unsecured demand notes payable to entities controlled
by Mr. Gary McAdam, a stockholder of the Company........ $ 55,034 $24,219
12% unsecured demand notes payable to the Company's
President and to entities he controls................... 56,784 25,669
-------- -------
Total........................................... $111,818 $49,888
======== =======
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The Year 2000
The Company is currently working to resolve the potential impact of the
Year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. The Year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations or system failures. Costs of
addressing potential problems are expensed as incurred and are not expected to
have a material adverse impact on the Company's financial position, results of
operations or cash flows in future periods. However, if the Company or its
vendors are unable to resolve such processing issues in a timely manner, it
could result in a material financial risk. Accordingly, the Company plans to
devote the necessary resources to resolve all significant Year 2000 issues in a
timely manner. While the Company does not at this time anticipate significant
problems with suppliers, it will develop contingency plans, if required, with
these third parties due to the possibility of compliance issues.
5. PREFERRED STOCK
The authorized preferred stock of the Company consists of 3,000,000 shares,
$.001 par value. The preferred stock may be issued in series from time to time
with such designation, rights, preferences and
F-25
<PAGE> 114
EXPRESS CAPITAL CONCEPTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PREFERRED STOCK (CONTINUED)
limitations as the Board of Directors of the Company may determine by
resolution. The rights, preferences and limitations of separate series of
preferred stock may differ with respect to such matters as may be determined by
the Board of Directors, including without limitation, the rate of dividends,
method and nature of payment of dividends, terms of redemption, amounts payable
on liquidation, sinking fund provisions (if any), conversion rights (if any),
and voting rights. Unless the nature of a particular transaction and applicable
statutes require approval, the Board of Directors has the authority to issue
these shares without shareholder approval.
6. INCENTIVE STOCK OPTION PLAN
In May 1988, the Company's Board of Directors authorized an Incentive Stock
Option Plan and have reserved 240,000 shares of the Company's .001 par value
common stock for issuance to key employees. The Board of Directors is authorized
to determine the exercise price, time period, number of shares subject to the
option, and the identity of those persons receiving the options. No options have
been granted pursuant to the Plan and the Plan expired in May 1998.
7. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal.............................................. $ -- $ -- $ --
State................................................ -- -- --
---- ---- ----
Total........................................ -- -- --
---- ---- ----
Deferred:
Federal.............................................. -- -- --
State................................................ -- -- --
---- ---- ----
Total........................................ -- -- --
---- ---- ----
Total Provision For Income Taxes....................... $ -- $ -- $ --
==== ==== ====
</TABLE>
The provision (benefit) for income taxes reconciles to the amount computed
by applying the federal statutory rate to income before the provision (benefit)
for income taxes as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate................................... (34)% (34)% 34%
State income taxes, net of federal benefits.............. (3) (3) 3
Valuation allowance...................................... 37 37 (37)
--- --- ---
Total.......................................... --% --% --%
=== === ===
</TABLE>
The following is a reconciliation of the provision for income taxes to
income before provision for income taxes computed at the federal statutory rate
of 34%.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Income taxes at the federal statutory
rate...................................... $(23,831) $(11,938) $ 7,776
State income taxes, net of federal
benefits.................................. (2,313) (1,159) 755
Acquisition costs........................... 18,158 -- --
Valuation allowance......................... 7,986 13,097 (8,531)
-------- -------- -------
Total............................. $ -- $ -- $ --
======== ======== =======
</TABLE>
F-26
<PAGE> 115
EXPRESS CAPITAL CONCEPTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
Significant components of deferred income taxes as of December 31, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net operating loss carry forward....................... $ 15,800 $ 12,400
Acquisition costs...................................... 9,400 --
-------- --------
Total deferred tax asset............................... 25,200 12,400
Less valuation allowance............................... (25,200) (12,400)
-------- --------
Net Deferred Tax Asset................................. $ -- $ --
======== ========
</TABLE>
The Company has assessed its past earnings history and trends and
expiration dates of carryforwards and has determined that it is more likely than
not that no deferred tax assets will be realized. A valuation allowance of
$25,200 and $12,400 as of December 31, 1998 and 1997, respectively, is
maintained on deferred tax assets which the Company has not determined to be
more likely than not realizable at this time. The net change in the valuation
allowance for deferred tax assets was an increase of $12,800 and $7,150 for the
years ended December 31, 1998 and 1997 respectively. The Company will continue
to review this valuation on an annual basis and make adjustments as appropriate.
As of December 31, 1998 the Company had net operating loss carryforwards of
approximately $81,000. The net operating losses can be carried forward twenty
years to offset future taxable income. The net operating loss carryforwards
expire in the years 2008 through 2018.
8. RELATED PARTY TRANSACTIONS
Notes payable -- stockholders (Note 3).
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosures about Fair Value of Financial Instruments for the Company's
financial instruments are presented in the table below. These calculations are
subjective in nature and involve uncertainties and significant matters of
judgment and do not include income tax considerations. Therefore, the results
cannot be determined with precision and cannot be substantiated by comparison to
independent market values and may not be realized in actual sale or settlement
of the instruments. There may be inherent weaknesses in any calculation
technique, and changes in the underlying assumptions used could significantly
affect the results. The following table presents a summary of the Company's
financial instruments as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents.............. $ 421 $ 421 $ 325 $ 325
Financial Liabilities:
Notes payable.......................... 111,818 111,818 49,888 49,888
</TABLE>
The carrying amounts for cash and cash equivalents, accounts payable and
accrued expenses approximate fair value because of the short maturities of these
instruments. The fair value of the notes payable approximates fair value because
of the market rate of interest on the notes.
F-27
<PAGE> 116
EXPRESS CAPITAL CONCEPTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. PROPOSED ACQUISITION
The Company has entered into an Agreement and Plan of Merger and
Reorganization (the "Agreement") with Greystone Technology, Inc. ("Greystone").
Under the terms of the Agreement the Company will issue shares of its common
stock in exchange for all of the issued and outstanding stock of Greystone on a
share for share basis. Immediately after the exchange it is anticipated that the
ownership of the Company will be approximately 97% by existing Greystone
stockholders and approximately 3% by existing Express stockholders. Prior to the
closing the Company plans to effect a reverse stock split reducing its issued
and outstanding common shares to approximately 480,000. In addition, the Company
plans to amend and restate its Certificate of Incorporation reducing its
authorized common stock and preferred stock to 30,000,000 shares and 3,000,000
shares, respectively. The par value of the Company's common stock and preferred
stock will be increased from $.0001 per share to $.001 per share. Closing is
anticipated in 1999 after all conditions of the Agreement have been satisfied.
All share information and per share data have been retroactively restated
for all periods presented to reflect the reverse stock split which will occur on
the effective date of the merger with Greystone.
F-28
<PAGE> 117
ANNEX A
AMENDED AND RESTATED
FIRST AMENDMENT TO AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AMENDED AND RESTATED FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION (the "Amendment") is entered into as of October 1, 1998 by
and among EXPRESS CAPITAL CONCEPTS, INC., a Delaware corporation ("Parent"),
EXPRESS CAPITAL ACQUISITION CORP., a Delaware corporation and wholly-owned
subsidiary of Parent ("Merger Sub"), GREYSTONE TECHNOLOGY, INCORPORATED, a
California corporation (the "Company"), and EARNEST MATHIS, JR. ("Mathis").
Capitalized terms used but not defined herein shall have the meanings set forth
in that certain Agreement and Plan of Merger and Reorganization dated as of
August 11, 1997 by and among Parent, Merger Sub, the Company and Mathis (the
"Reorganization Agreement").
RECITALS
Whereas, Parent, Merger Sub, the Company and Mathis are parties to the
Reorganization Agreement;
Whereas, in accordance with Section 10.10 of the Reorganization Agreement,
the parties have previously entered into a First Amendment to Agreement and Plan
of Merger and Reorganization in order to amend the Reorganization Agreement
prior to the Effective Date of the Merger as set forth herein; and
Whereas, the parties desire to amend and restate such First Amendment to
Agreement and Plan of Merger and Reorganization in order to make certain
additional changes in the Reorganization Agreement prior to the Effective Date
of the Merger; and
Whereas, the Company and Mathis have also entered into an Indemnification
Agreement providing for the Company to indemnify Mathis against certain
liabilities in connection with the transactions contemplated by the
Reorganization Agreement.
AGREEMENT
Now, Therefore, in consideration of the foregoing premises and the mutual
promises and covenants set forth below, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the Parent, Merger
Sub, the Company and Mathis agree as follows:
1. Recital A of the Reorganization Agreement is amended and restated
in its entirety to read as follows:
A. Parent, Merger Sub and the Company intend to effect a merger of
the Company with and into Merger Sub (the "Merger") in accordance with
this Agreement, the Delaware General Corporation Law (the "DGCL") and
the California General Corporation Law (the "CGCL"). Upon consummation
of the Merger, the Company will cease to exist, and Merger Sub will
continue to be a wholly-owned subsidiary of Parent.
2. Recital B of the Reorganization Agreement is amended and restated
in its entirety to read as follows:
B. In connection with the Merger and prior to the Effective Date,
(i) an amended and restated certificate of incorporation of Parent will
be adopted in substantially the form of Exhibit B attached hereto (the
"Restated Certificate"), to, among other things, (A) establish the
authorized capital stock of Parent as 30,000,000 shares of Common Stock,
$.001 par value per, and 3,000,000 shares of "blank check" Preferred
Stock, $.001 par value per share, (B) change its name to "GreyStone
Digital Technology, Inc.," (C) effect a reverse split of its outstanding
Common Stock in a ratio of 1-for-41.66667 (the "Reverse Split") and, (D)
adopt a classified board of directors, (ii) amended and restated bylaws
of Parent will be adopted substantially in the form of Exhibit C
attached hereto
A-1
<PAGE> 118
(the "Restated Bylaws"), (iii) effective as of the Effective Date the
authorized number of directors of Parent will be fixed as three and the
directors will be changed to consist of Richard A. Smith, Thomas D.
Aldern and Jon M. Reynolds.
3. Section 1.1 of the Reorganization Agreement is amended in its
entirety to read as follows:
1.1 Merger of the Company into Merger Sub. Upon the terms and
subject to the conditions set forth in the Agreement, on the Effective
Date (as defined in Section 1.3), the Company shall be merged with and
into Merger Sub, and the separate existence of the Company shall cease.
Merger Sub will continue as the surviving corporation in the Merger (the
"Surviving Corporation").
4. The last two sentences of Section 1.3 of the Reorganization
Agreement are amended and restated to read as follows:
Contemporaneously with the Closing, a properly executed certificate
of merger conforming to the requirements of the DGCL (the "Agreement of
Merger") shall be filed with the Secretary of State of the State of
Delaware and a duplicate original thereof shall be filed with the
Secretary of State of the State of California. The Merger shall take
effect at the time the Agreement of Merger is filed with and accepted by
both such Secretaries of State (the "Effective Date").
5. Section 1.4 of the Reorganization Agreement is amended and restated
in its entirety to read as follows:
(a) the Certificate of Incorporation of the Surviving Corporation
shall be the Certificate of Incorporation of Merger Sub as in effect
immediately prior to the Effective Date;
(b) the Bylaws of the Surviving Corporation shall be the Bylaws of
Merger Sub as in effect immediately prior to the Effective Date; and
(c) the directors and officers of the Surviving Corporation
immediately after the Effective Date shall be the individuals identified
on Exhibit D.
6. To the extent necessary to avoid misrepresentation and breach of
warranty, each of the representations and warranties in Section 3 of the
Reorganization Agreement is amended to disclose that Merger Sub was not in
good standing in Delaware during a portion of 1998 because it failed to
file its annual report which was due in March 1998, and that taxes, a
penalty and interest in an aggregate amount of approximately $100 was paid
as a result of such
7. Section 1.5(a)(ii) of the Reorganization Agreement is amended and
restated in its entirety to read as follows:
(ii) each share of Common Stock, $.001 par value per share, of
Merger Sub outstanding immediately prior to the Effective Date shall
remain outstanding, and shall not be affected by the Merger.
8. Section 1.5(c) of the Reorganization Agreement shall be amended and
restated in its entirety to read as follows:
(c) On the Effective Date, all rights with respect to Company
Common Stock under Company Options, Chathams Rowe Warrants and Company
Warrants that are then outstanding shall, pursuant to the terms of such
Company Options, Chathams Rowe Warrants and Company Warrants be
converted into and become rights with respect to Parent Common Stock,
and Parent shall assume each Company Option, Chathams Rowe Warrant and
Company Warrant in accordance with the terms (as in effect as of the
date hereof) of the stock option plan, warrant or other agreement, as
the case may be, under which it was issued by which it is evidenced.
From and after the Effective Date, pursuant to the terms of each Company
Option, Chathams Rowe Warrant and Company Warrant, (i) each Company
Option, Chathams Rowe Warrant and Company Warrant assumed by Parent may
be exercised solely for shares of Parent Common Stock, (ii) the number
of shares of Parent Common Stock subject to each Company Option,
Chathams Rowe Warrant and Company Warrant
A-2
<PAGE> 119
shall be equal to the number of shares of Company Common Stock subject
to such Company Option, Chathams Rowe Warrant or Company Warrant
immediately prior to the Effective Date, and (iii) any restriction on
the exercise of any Company Option, Chathams Rowe Warrant or Company
Warrant shall continue in full force and effect and the term,
exercisability, vesting schedule and other provisions of such Company
Option, Chathams Rowe Warrant and Company Warrant shall otherwise remain
unchanged; provided, however, that each such Company Option, Chathams
Rowe Warrant and Company Warrant shall, in accordance with its terms, be
subject to further adjustment as appropriate to reflect any stock split,
stock dividend, subdivision, reclassification, reorganization, stock
split, reverse stock split or similar transaction subsequent to the
Effective Date. The Company shall take all actions that may be necessary
(under the stock option plan, warrant or other agreements pursuant to
which Company Options, Chathams Rowe Warrants or Company Warrants, as
applicable, are outstanding) to effectuate the provisions of this
Section 1.5(c) and to ensure that, from and after the Effective Date,
holders of Company Options, Chathams Rowe Warrants and Company Warrants
have no rights with respect thereto other than those specifically
provided herein.
9. Section 1.5(d) shall be added to the Reorganization Agreement and
shall read as follows:
Parent shall offer to the holders of all Chathams Rowe Warrants
that are outstanding on the Effective Date, the opportunity to exchange
such Chathams Rowe Warrants for warrants to purchase the same number of
shares of Parent Common Stock as such Chathams Rowe Warrants previously
entitled the holders thereof to purchase of Company Common Stock, at an
exercise price and for an exercise period, and upon the same terms and
conditions as was set forth in such Chathams Rowe Warrants. Upon
surrender of the warrant, certificates or agreements representing the
Chathams Rowe Warrants by the holders thereof and the delivery by Parent
of certificates or agreements representing warrants to purchase Parent
Common Stock, the certificates or agreements representing the Chathams
Rowe Warrants shall be canceled. The warrants to purchase Parent Common
Stock to be issued in exchange for the Chathams Rowe Warrants and the
shares of Parent Common Stock underlying such warrants shall be
registered for issuance by Parent on the Registration Statement on Form
S-4 to be filed by Parent covering the registration of the Merger
Shares.
10. Section 1.7(b) of the Reorganization Agreement shall be amended
and restated in its entirety as follows:
(b) Fractional Shares. No fractional shares of Parent Common Stock
shall be issued in connection with the Merger, and no certificate for
any such fractional shares shall be issued.
11. The second sentence of Section 3.2 of the Reorganization Agreement
is amended to read as follows:
Subsequent to the Reverse Split, the authorized capital stock of
Parent will consist of 30,000,000 shares of Common Stock, $.001 par
value per share, not more than 480,000 of which will be issued and
outstanding, and 3,000,000 shares of Preferred Stock, $.001 par value
per share, none of which will be outstanding.
12. The fifth sentence of Section 3.2 of the Reorganization Agreement
is amended and restated in its entirety to read as follows:
As of October 7, 1998, the Major Parent Stockholder beneficially
owned an aggregate of 9,250,000 shares of Parent Common Stock,
representing 46.25% of the outstanding capital stock of Parent, and Mr.
Gary McAdam beneficially owned an aggregate of 9,310,000 shares of
Parent Common Stock, representing 46.55% of the outstanding capital
stock of Parent (all prior to giving effect to the Reverse Split).
13. Section 3.5 is amended to change the reference in the first
sentence from Exhibit D to Exhibit E.
A-3
<PAGE> 120
14. Section 3.8 of the Reorganization Agreement is amended in its
entirety to read as follows:
3.8 No Operations. Except for Parent's forming seven subsidiaries
and spinning them off to its stockholders, the last of which spin offs
took place in 1991, neither Parent nor Merger Sub has, or in the past
has had, any operations of any kind. Except for Earnest Mathis, Jr.,
neither Parent nor Merger Sub has, nor in the past has had any
employees.
15. Section 3.12 of the Reorganization Agreement is amended and
restated in its entirety to read as follows:
3.12 Related Party Transactions. Except for the Reorganization
Agreement, as amended, and other agreements and instruments entered into
in connection therewith, (i) no Parent Related Party has any direct or
indirect interest (other than as a stockholder of Parent) in any asset
used in or otherwise relating to the business of Parent or Merger Sub,
or has any direct or indirect financial interest (other than as a
stockholder of Parent) in any Parent Contract, transaction or business
dealing involving Parent or Merger Sub, and (ii) Parent Related Party
has any claim or right (other than as a stockholder of Parent) against
Parent or Merger Sub that will not be released or contributed to the
capital of Parent on or prior to the Closing.
16. The second sentence of Section 3.14 of the Reorganization
Agreement is amended and restated in its entirety to read as follows:
Except as necessary to comply with the provisions of Section 4.3,
no vote of the stockholders of Parent is necessary to approve this
Agreement, the Merger or the transactions contemplated hereby.
17. Section 3.15(e) of the Reorganization Agreement is amended in its
entirety to read as follows:
(e) Except as may be necessary for compliance with applicable
securities laws, as may be necessary in connection with the transactions
provided for in Section 4.3, or as contemplated by Section 1.3 of this
Agreement, neither Parent nor Merger Sub is, or will be, required to
make any filing with or give any notice to, or obtain any Consent from,
any Person in connection with the execution and delivery of this
Agreement or the consummation of the Merger.
18. Section 4.3 of the Reorganization Agreement shall be amended and
restated in its entirety as follows:
4.3 Amendment to Parent Certificate of Incorporation and
Bylaws. During the Pre-Closing Period, (i) the Board of Directors of
Parent and the holders of at least a majority of the outstanding shares
of common stock of Parent shall have acted by written consent to approve
and adopt the Restated Certificate and the Restated Bylaws, and (ii)
Parent shall file the Restated Certificate with the office of the
Delaware Secretary of State. In addition, during the Pre-Closing Period,
Major Parent Stockholder shall have resigned as a director of Parent,
and the holders of at least a majority of the outstanding shares of
common stock of Parent shall have acted by written consent to amend the
bylaws of Parent to increase Parent's authorized number of directors
from 1 to 3, and to elect Messrs. Richard A. Smith, Jon M. Reynolds and
Thomas D. Aldern as the three directors of Parent, all to be effective
immediately after the Effective Date.
19. Section 6.1 of the Reorganization Agreement is amended in its
entirety to read as follows:
6.1 Accuracy of Representations. The representations and
warranties made by Parent, Merger Sub and the Major Parent Stockholder
in this Agreement and in each of the other agreements and instruments
delivered to the Company in connection with the transactions
contemplated by this Agreement (as such representations and warranties
have been amended by that certain First Amendment to Agreement and Plan
of Reorganization dated as of October 1, 1998 by and between Parent,
Merger Sub, the Company and Mathis) shall have been accurate in all
respects as of the date of such First Amendment and shall be accurate in
all respects as of the Closing Date.
A-4
<PAGE> 121
20. Section 6.7 of the Reorganization Agreement is amended and
restated in its entirety to read as follows:
6.7 Receipt of Documents from Shareholders. The Company shall have
received a completed and signed Continuity of Interest Certificate from
each holder of 1% or more of the outstanding shares of Company Common
Stock, each in a form reasonably acceptable to the Company.
21. Section 6.16 of the Reorganization Agreement is amended and
restated in its entirety to read as follows:
6.16 Amendment of Parent's Certificate of Incorporation and
Bylaws. The Restated Certificate shall have been filed with office of
the Delaware Secretary of State and such Restated Certificate shall be
in full force and effect, and (ii) the Restated Bylaws shall have been
adopted and such Restated Bylaws shall be in full force and effect.
22. Sections 6.20 and 6.21 shall be added to the Reorganization
Agreement and shall read as follows:
6.20 Election of New Directors. The authorized number of directors
of Parent shall have been increased to 3, Major Parent Stockholder shall
have resigned as a director of Parent, and Messrs. Richard A. Smith, Jon
M. Reynolds and Thomas D. Aldern shall have been elected as the three
directors of Parent, all effective upon the Effective Date, and Parent
shall have furnished to the Company certified copies of the Minutes,
evidencing the same.
6.21 Payment of Parent's Liabilities. As of the Effective Date,
all of the liabilities of Parent shall have been paid or otherwise
discharged.
23. Section 7.3 of the Reorganization Agreement is amended and
restated in its entirety to read as follows:
7.3 Compliance Certificate. The Company shall have delivered to
Parent a certificate signed by the President of the Company evidencing
compliance by the Company with the conditions set forth in Sections 7.1
and 7.2.
24. Section 8.1(d) of the Reorganization Agreement is amended and
restated in its entirety to read as follows:
(d) by either party if the Merger shall not have been consummated
by September 30, 1999.
25. The last sentence of Section 10.3 of the Reorganization Agreement
is amended to read as follows:
The Company shall also be liable and shall pay for all costs of
Parent, Merger Sub and Major Parent Stockholder (including, without
limitation, legal fees) incurred in connection with and prior to the
consummation of the Merger, except that Major Parent Stockholder shall
be liable and shall pay for (i) all such costs incurred prior to
September 3, 1998, (ii) all accounting fees of Angell & Deering, the
accountants for Parent and Merger Sub, incurred in connection with and
prior to the consummation of the Merger, (iii) $2,500 of fees of J.H.
Cohn LLP, the accountants for GreyStone, (iv) $25,000 of legal fees of
Parent and Merger Sub paid to Mitchell, Silberberg & Knupp LLP in
connection with the Merger, and (v) an additional $10,000 of such costs
incurred after September 3, 1998 in connection with the Merger. Major
Parent Stockholder has already paid certain of these costs and fees
prior to the execution of this Amendment.
26. Exhibit B of the Reorganization Agreement is amended and restated
into the form of Exhibit B to this Amendment.
27. Exhibit C of the Reorganization Agreement is amended and restated
in to the form of Exhibit C to this Amendment.
A-5
<PAGE> 122
28. Exhibit D of the Reorganization Agreement is amended into the form
of Exhibit D to this Amendment.
29. Exhibit E of the Reorganization Agreement is amended into the form
of Exhibit E to this Amendment.
30. Exhibit H of the Reorganization Agreement is amended into the form
of Exhibit H to this Amendment.
31. The address of the Company set forth in Section 10.4 of the
Agreement is hereby amended by replacing "Attention: Joe Russell" with
"Attention: Carolyn Harris."
32. The following definitions appearing in Exhibit A to the
Reorganization Agreement shall be amended and restated as follows:
Company Option. "Company Option" shall mean any option to purchase
capital stock of the Company held by any director, officer or employee
of, or consultant to, the Company.
Indemnitees. "Indemnitees" shall mean the following Persons: (a)
Parent, (b) the Company Shareholders, (c) the Surviving Corporation, (d)
the respective Representatives of the Persons referred to in clauses
"(a)", "(b)", and "(c)" above, and "(e)" the respective successors and
assigns of the Persons referred to in clauses "(a)", "(b)", "(c)", and
"(d)" above.
33. The following definitions shall be added to Exhibit A of the
Reorganization Agreement:
Chathams Rowe Warrants. "Chathams Rowe Warrants" shall mean all
warrants to purchase Common Stock of the Company held by Chathams Rowe
Venture Partners.
Company Warrants. "Company Warrants" shall mean all warrants, other
than the Chathams Rowe Warrants, to purchase Common Stock of the Company
which warrants are outstanding immediately prior to the Effective Date.
34. Since the execution and delivery of the Reorganization Agreement,
the parties have recognized that the California Corporations Code does not
provide for dissenter's rights in connection with the Merger. Accordingly,
Sections 1.8 and 6.9 are deleted from the Reorganization Agreement.
35. Section 5.5 shall be added to the Amended Reorganization Agreement
and shall read as follows:
5.5 Issuance of Securities. As of the Effective Date, the Company
will not have sold or issued any securities other than as described in
the Disclosure Document, except for (i) stock options granted, after the
date of the Disclosure Document, to employees pursuant to employee
benefit plans of the Company, and (ii) as may be required upon due
exercise, after the date of the Disclosure Document, of Company Options,
Company Warrants or Chathams Rowe Warrants.
36. This Amendment shall be deemed an amendment to the Agreement and
shall become effective when executed by Parent, Merger Sub, the Company and
Mathis. The Agreement, as amended by this Amendment, is ratified and
confirmed by the parties as of the date hereof, and shall continue in full
force and effect.
37. This Amendment shall be governed by and construed under the laws
of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
38. In the event any provision of this Amendment, or the application
of any such provision to any entity, person or set of circumstances, shall
be determined to be invalid, unlawful, void or unenforceable to any extent,
the remainder of this Amendment, and the application of such provision to
entities, person or circumstances other than those as to which it is
determined to be invalid, unlawful, void or unenforceable, shall not be
impaired or otherwise affected and shall continue to be valid and
enforceable to the fullest extent permitted by law.
A-6
<PAGE> 123
39. This Amendment may be amended or modified only by the written
mutual consent of the parties hereto.
40. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, and all of which taken together shall
constitute one and the same instrument.
[The remainder of this page intentionally left blank]
A-7
<PAGE> 124
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
to Agreement and Plan of Merger and Reorganization as of the date first set
forth above.
EXPRESS CAPITAL CONCEPTS, INC.,
a Delaware corporation
By:
---------------------------------------
Name:_________________________________
Title:________________________________
EXPRESS CAPITAL ACQUISITION CORP.,
a Delaware corporation
By:
---------------------------------------
Name:_________________________________
Title:________________________________
GREYSTONE TECHNOLOGY, INCORPORATED,
a California corporation
By:
---------------------------------------
Name:_________________________________
Title_________________________________
------------------------------------------
EARNEST MATHIS, JR.
A-8
<PAGE> 125
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit B -- Restated Certificate of Parent
Exhibit C -- Restated Bylaws of Parent
Exhibit D -- List of Directors and Officers of Surviving Corporation
Exhibit E -- Parent Contracts
Exhibit H -- Legal Opinion
</TABLE>
A-9
<PAGE> 126
EXHIBIT B
RESTATED CERTIFICATE OF PARENT
[Refer to Annex C of this Proxy Statement/Prospectus]
A-10
<PAGE> 127
EXHIBIT C
RESTATED BYLAWS OF PARENT
[Refer to Annex D of this Proxy Statement/Prospectus]
A-11
<PAGE> 128
EXHIBIT D
LIST OF DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Richard A. Smith................. Chairman of the Board, President and Chief Executive Officer
Jon M. Reynolds.................. Director
Thomas D. Aldern................. Director and Vice President, Government Systems
Carl A. Beaudet.................. Vice President, Government Business Development
Bernard J. Crowe................. Vice President, Commercial Systems and Products
Thomas L. King................... Vice President, Finance and Chief Financial Officer
Carolyn A. Harris................ Vice President, General Counsel and Secretary
</TABLE>
A-12
<PAGE> 129
EXHIBIT E
PARENT CONTRACTS
(1) Stock transfer Agreement between Corporate Stock Transfer and Express
Capital Concepts, Inc.
A-13
<PAGE> 130
EXHIBIT H
LEGAL OPINION
1. Each of Express Capital Concepts, Inc. ("Parent") and Express Capital
Acquisition Corp. ("Merger Sub") has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware.
2. Parent has the requisite corporate power to own, operate and lease its
property and assets and to conduct its business as it is currently being
conducted. To the best of counsel's knowledge, Parent is qualified as a foreign
corporation to do business and is in good standing in each jurisdiction in the
United States in which the ownership of its property or the conduct of its
business requires such qualification and where any statutory fines or penalties
or any corporate disability imposed for the failure to so qualify would
materially and adversely affect Parent, its assets, financial condition or
operations.
3. All corporate action on the part of Parent and Merger Sub and their
respective Boards of Directors and, with respect to Merger Sub, its sole
stockholder, necessary for the authorization, execution and delivery of the
Merger Agreement by Parent and Merger Sub and the performance of Parent's and
Merger Sub's obligations under the Merger Agreement has been taken. The Merger
Agreement has been duly and validly authorized, executed and delivered by Parent
and Merger Sub, and constitutes a valid and binding agreement of Parent and
Merger Sub enforceable against Parent and Merger Sub in accordance with its
terms, except as enforcement of the Merger Agreement may be limited by
applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or
other similar laws affecting creditors' rights, and except that the
enforceability of the Merger Agreement is subject to the effect of general
principles of equity, including, without limitation, concepts or materiality,
reasonableness, good faith and fair dealing and the possible unavailability of
specific performance or injunctive relief, regardless of whether considered in a
proceeding in equity or at law.
4. The authorized capital stock of Parent consists of (i) 30,000,000 shares
of Common Stock, $.001 par value, of which shares have been
issued and are outstanding as of the date hereof and (ii) 3,000,000 shares of
Preferred Stock, $.001 par value, none of which have been issued as of the date
hereof. The shares of Common Stock of Parent to be issued to the shareholders of
the Company pursuant to the Merger Agreement have been duly authorized and, upon
issuance and delivery against payment therefore in accordance with the terms of
the Merger Agreement, will be validly issued, fully paid and nonassessable. To
the best of counsel's knowledge, there are no options, warrants, conversion
privileges, preemptive rights, or other rights (or agreements for any such
rights) presently outstanding to acquire any authorized but unissued capital
stock of Parent, other than rights assumed in connection with the transactions
contemplated by the Merger Agreement. There are no voting agreements, co-sale
rights, rights of first refusal or other similar rights applicable to any of
Parent's outstanding capital stock under Parent's Certificate of Incorporation,
Bylaws or any material agreement known to counsel to which Parent is a party or
by which Parent or any of its assets may be bound.
5. The execution, delivery and performance by Parent of the Merger
Agreement and the consummation by Merger Sub of the Merger as contemplated
therein do not violate any provision of Parent's Certificate of Incorporation or
Bylaws, and will not constitute a material default or give rise to any right of
termination, cancellation or acceleration under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture or other evidence of
indebtedness of Parent or any material agreement or other material contract,
instrument or obligation to which Parent is a party or by which Parent or any of
its assets may be bound and which has been identified to us on an officer's
certificate from Parent as being material to Parent, and will not violate or
contravene (i) any governmental statute, rule or regulation which is known by
counsel to be applicable to Parent or (ii) any order, writ, judgment,
injunction, decree, determination or award which has been entered against Parent
and which is known by counsel to be applicable to Parent, the violation or
contravention of which would have a material adverse effect on the assets,
financial condition or the operations of Parent.
6. To the best of counsel's knowledge, there is no action, proceeding or
investigation pending or overtly threatened against Parent before any court or
administrative agency that questions the validity of the Merger
A-14
<PAGE> 131
Agreement or might result, either individually or in the aggregate, in any
material adverse change in the assets, financial conditions or operations of
Parent.
7. The Certificate of Merger has been duly authorized by Parent's and
Merger Sub's Board of Directors and by Merger Sub's sole stockholder and,
assuming appropriate approval by the Board of Directors and shareholders of the
Company and compliance by the Company with all requirements of applicable law
and the Merger Agreement necessary to effect the Merger, upon its filing with
and acceptance by the Secretary of State of the State of California and the
Secretary of State of the State of Delaware, the Merger will be effective.
A-15
<PAGE> 132
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
among:
EXPRESS CAPITAL CONCEPTS, INC.,
a Delaware corporation;
EXPRESS CAPITAL ACQUISITION CORP.,
a Delaware corporation;
GREYSTONE TECHNOLOGY, INCORPORATED,
a California corporation; and
EARNEST MATHIS, JR.
------------------------
Dated as of August 11, 1997
------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-16
<PAGE> 133
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1. DESCRIPTION OF TRANSACTION............................... A-20
1.1 Merger of Merger Sub into the Company....................... A-20
1.2 Effect of the Merger........................................ A-20
1.3 Closing; Effective Date..................................... A-20
Articles of Incorporation and Bylaws; Directors and
1.4 Officers.................................................... A-21
1.5 Conversion of Shares........................................ A-21
1.6 Closing of the Company's Transfer Books..................... A-22
1.7 Exchange of Certificates.................................... A-22
1.8 Dissenting Shares........................................... A-23
1.9 Tax Consequences............................................ A-23
1.10 Further Action.............................................. A-23
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............ A-23
2.1 Due Organization............................................ A-23
2.2 Articles of Incorporation and Bylaws........................ A-23
2.3 Capitalization.............................................. A-24
2.4 Financial Statements........................................ A-24
2.5 Authority; Binding Nature of Agreement...................... A-24
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT, MERGER SUB AND
MAJOR PARENT STOCKHOLDER................................. A-24
3.1 Due Organization, No Subsidiaries; Etc. .................... A-24
3.2 Capitalization, Etc. ....................................... A-24
3.3 Disclosure Document......................................... A-25
3.4 Charter Documents........................................... A-25
3.5 Contracts................................................... A-25
3.6 Parent Financial Statements................................. A-25
3.7 No Undisclosed Assets or Liabilities........................ A-26
3.8 No Operations............................................... A-26
3.9 Compliance with Legal Requirements.......................... A-26
3.10 Governmental Authorizations................................. A-26
3.11 Tax Matters................................................. A-26
3.12 Related Party Transactions.................................. A-26
3.13 Legal Proceedings; Orders................................... A-26
3.14 Authority; Binding Nature of Agreement...................... A-26
3.15 Non-Contravention; Consents and Notices..................... A-27
3.16 Full Disclosure............................................. A-27
</TABLE>
A-17
<PAGE> 134
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 4. CERTAIN COVENANTS OF PARENT.............................. A-27
4.1 Access and Investigation.................................... A-27
4.2 Notification................................................ A-28
4.3 Reverse Split; Amendment of Certificate of Incorporation.... A-28
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES...................... A-28
5.1 Filings and Consents........................................ A-28
5.2 Public Announcements........................................ A-28
5.3 Preparation and Filing of Disclosure Document............... A-28
5.4 Company Shareholders' Meeting............................... A-29
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY....... A-29
6.1 Accuracy of Representations................................. A-29
6.2 Performance of Covenants.................................... A-29
6.3 No Material Adverse Effect.................................. A-29
6.4 Compliance Certificate...................................... A-29
6.5 Shareholder Approval........................................ A-29
6.6 Execution and Delivery of Release........................... A-29
6.7 Receipt of Documents from Shareholders...................... A-29
6.8 Purchaser Representative Agreement.......................... A-30
6.9 Dissenter's Rights.......................................... A-30
6.10 Lock-up Agreements.......................................... A-30
6.11 Consents.................................................... A-30
6.12 Legal Opinion............................................... A-30
6.13 No Restraints............................................... A-30
6.14 No Governmental Litigation.................................. A-30
6.15 No Other Litigation......................................... A-30
6.16 Amendment of Parent's Certificate of Incorporation.......... A-30
6.17 OTC Electronic Bulletin Board Listing....................... A-30
6.18 Completion of Due Diligence................................. A-30
6.19 Effectiveness of Registration Statement..................... A-30
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT............ A-31
7.1 Accuracy of Representations................................. A-31
7.2 Performance of Covenants.................................... A-31
7.3 Compliance Certificate...................................... A-31
7.4 Shareholder Approval........................................ A-31
7.5 Consents.................................................... A-31
7.6 No Restraints............................................... A-31
7.7 No Governmental Litigation.................................. A-31
7.8 No Other Litigation......................................... A-31
</TABLE>
A-18
<PAGE> 135
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 8. TERMINATION.............................................. A-31
8.1 Termination................................................. A-31
8.2 Effect of Termination....................................... A-32
SECTION 9. INDEMNIFICATION.......................................... A-32
9.1 Survival of Representations................................. A-32
9.2 Indemnification by Major Parent Stockholder................. A-32
9.3 No Contribution............................................. A-32
9.4 Interest.................................................... A-32
9.5 Defense of Third Party Claims............................... A-33
SECTION 10. MISCELLANEOUS PROVISIONS................................ A-33
10.1 Further Assurances.......................................... A-33
10.2 Attorneys' Fees............................................. A-33
10.3 Transaction Costs........................................... A-33
10.4 Notices..................................................... A-33
10.5 Time of the Essence......................................... A-34
10.6 Governing Law; Venue........................................ A-34
10.7 Successors and Assigns...................................... A-35
10.8 Remedies Cumulative; Specific Performance................... A-35
10.9 Waiver...................................................... A-35
10.10 Amendments.................................................. A-35
10.11 Severability................................................ A-35
10.12 Entire Agreement............................................ A-35
10.13 Construction................................................ A-35
10.14 Counterparts................................................ A-35
</TABLE>
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A -- Certain Definitions
Exhibit B -- Form of Amended and Restated Articles of Incorporation of
Surviving Corporation
Exhibit C -- Directors and Officers of Surviving Corporation
Exhibit D -- Parent Contracts
Exhibit E -- Amended and Restated Certificate of Incorporation of Parent
Exhibit F -- Release
Exhibit G -- Lock-up Agreements
Exhibit H -- Opinion of Counsel to Parent
</TABLE>
A-19
<PAGE> 136
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement") is
made and entered into as of August 11, 1997, by and among EXPRESS CAPITAL
CONCEPTS, INC., a Delaware corporation ("Parent"), EXPRESS CAPITAL ACQUISITION
CORP., a Delaware corporation and a wholly owned subsidiary of Parent ("Merger
Sub"), GREYSTONE TECHNOLOGY, INCORPORATED, a California corporation (the
"Company"), and EARNEST MATHIS, JR. a stockholder of Parent (a "Major Parent
Stockholder"). Certain capitalized terms used in this Agreement are defined in
Exhibit A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of Merger
Sub into the Company (the "Merger") in accordance with this Agreement, the
Delaware General Corporation Law (the "DGCL") and the California General
Corporation Law (the "CGCL"). Upon consummation of the Merger, Merger Sub will
cease to exist, and the Company will become a wholly owned subsidiary of Parent.
B. In connection with the Merger and prior to the Effective Date, Parent
will effect a reverse split of its outstanding Common Stock in a ratio of
1-for-41.66667 and shall establish the authorized capital stock of Parent as
30,000,000 shares of Common Stock, $.001 par value per share, and 3,000,000
shares of "blank check" Preferred Stock, $.001 par value per share (the "Reverse
Split"). Unless otherwise provided herein, all references to Parent Common Stock
contained herein give effect to the Reverse Split.
C. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
D. This Agreement has been adopted and approved by the respective Boards of
Directors of Parent, Merger Sub and the Company, and by Parent, as the sole
stockholder of Merger Sub.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
SECTION 1. Description of Transaction
1.1 Merger of Merger Sub into the Company. Upon the terms and subject to
the conditions set forth in this Agreement, on the Effective Date (as defined in
Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation in the Merger (the "Surviving Corporation").
1.2 Effect of the Merger. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the CGCL and the DGCL.
1.3 Closing; Effective Date. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward LLP, 4365 Executive Drive, Suite 1100, San Diego, California
92121 at 10:00 a.m. (PST) on the second business day after all of the conditions
specified in Sections 6 and 7 have been satisfied or waived, or at such other
place, time and date as the parties may designate. The date on which the Closing
actually takes place shall be referred to herein as the "Closing Date."
Contemporaneously with the Closing, a properly executed agreement of merger
conforming to the requirements of the CGCL and the DGCL (the "Agreement of
Merger") shall be filed with the Secretary of State of the State of California
and a copy of such Agreement of Merger shall be filed with the Secretary of
State of the State of Delaware. The Merger shall take effect at the time the
Agreement of Merger is filed with and accepted by the Secretary of State of the
State of California (the "Effective Date").
A-20
<PAGE> 137
1.4 Articles of Incorporation and Bylaws; Directors and Officers. Unless
otherwise agreed to in writing by the Company and Parent prior to the Effective
Date:
(a) the Articles of Incorporation of the Surviving Corporation shall
be amended and restated as of the Effective Date to conform to Exhibit B;
(b) the Bylaws of the Surviving Corporation shall be the Bylaws of the
Company as in effect immediately prior to the Effective Date; and
(c) the directors and officers of the Surviving Corporation
immediately after the Effective Date shall be the individuals identified on
Exhibit C.
1.5 Conversion of Shares.
(a) Subject to Sections 1.5(b), 1.7(b) and 1.8, on the Effective Date, by
virtue of the Merger and without any further action on the part of Parent,
Merger Sub, the Company or the Company Shareholders:
(i) each share of Company Common Stock outstanding immediately prior
to the Effective Date shall be converted into the right to receive one (1)
share of Parent Common Stock (such number of shares of Parent Common Stock
being calculated after giving effect to the Reverse Split). The ratio of
shares of Parent Common Stock to be received for each share of Company
Common Stock is sometimes referred to herein as the "Exchange Ratio." The
shares of Parent Common Stock to be issued to the Company Shareholders
pursuant to the terms of this Agreement shall be referred to herein as the
"Merger Shares;" and
(ii) each share of Common Stock, $.001 par value per share, of Merger
Sub outstanding immediately prior to the Effective Date shall be converted
into one share of Common Stock of the Surviving Corporation.
(b) If, between the date of this Agreement and the Effective Date, the
shares of Company Common Stock or Parent Common Stock deemed outstanding are
changed into a different number or class of shares by reason of any stock
dividend, subdivision, reclassification, reorganization, stock split, reverse
stock split (other than the Reverse Split contemplated by this Agreement) or
similar transaction, the total number of Merger Shares shall be appropriately
adjusted, provided that any such adjustment shall in all events result in the
Company Shareholders immediately prior to the Effective Date receiving no less
than the pro rata percentage of Merger Shares that would have been received by
such shareholders prior to any such adjustment.
(c) On the Effective Date, all rights with respect to Company Common Stock
under Company Options that are then outstanding shall be converted into and
become rights with respect to Parent Common Stock, and Parent shall assume each
Company Option in accordance with the terms (as in effect as of the date hereof)
of the stock option plan or other agreement, as the case may be, under which it
was issued by which it is evidenced. From and after the Effective Date, (i) each
Company Option assumed by Parent may be exercised solely for shares of Parent
Common Stock, (ii) the number of shares of Parent Common Stock subject to each
Company Option shall be equal to the number of shares of Company Common Stock
subject to such Company Option immediately prior to the Effective Date
multiplied by the Exchange Ratio, rounding down to the nearest whole share (with
cash, less the applicable exercise price, being payable for any fraction of a
share), (iii) the per share exercise price under each such Company Option shall
be adjusted by dividing the per share exercise price under each such Company
Option by the Exchange Ratio and rounding up to the nearest cent and (iv) any
restriction on the exercise of any Company Option shall continue in full force
and effect and the term, exercisability, vesting schedule and other provisions
of such Company Option shall otherwise remain unchanged; provided, however, that
each such Company Option shall, in accordance with its terms, be subject to
further adjustment as appropriate to reflect any stock split, stock dividend,
subdivision, reclassification, reorganization, stock split, reverse stock split
or similar transaction subsequent to the Effective Date. The Company shall take
all actions that may be necessary (under the benefits plan or other agreements
pursuant to which Company Options are outstanding) to effectuate the provisions
of this Section 1.5(c) and to ensure that, from and after the Effective Date,
holders of Company Options have no rights with respect thereto other than those
specifically provided herein.
A-21
<PAGE> 138
1.6 Closing of the Company's Transfer Books. On the Effective Date, (a)
all certificates representing shares of Company Common Stock outstanding
immediately prior to the Effective Date shall automatically be canceled and
retired and shall cease to exist, and all holders of certificates representing
shares of Company Common Stock that were outstanding immediately prior to the
Effective Date shall cease to have any rights as shareholders of the Company,
and (b) the stock transfer books of the Company shall be closed with respect to
all shares of such Company Common Stock outstanding immediately prior to the
Effective Date.
No further transfer of any such shares of Company Common Stock shall be made on
such stock transfer books after the Effective Date. If, after the Effective
Date, a valid certificate previously representing any of such shares of Company
Common Stock (a "Company Stock Certificate") is presented to the Surviving
Corporation or Parent, such Company Stock Certificate shall be canceled and
shall be exchanged as provided in Section 1.7.
1.7 Exchange of Certificates.
(a) Exchange Procedures. On or as soon as practicable after the Effective
Date, Parent will send or cause to be sent to the holders of Company Stock
Certificates (i) a letter of transmittal in customary form and containing such
provisions as Parent may reasonably specify, and (ii) instructions for use in
effecting the surrender of Company Stock Certificates in exchange for
certificates representing Parent Common Stock. Subject to Section 1.7(b), upon
surrender of a Company Stock Certificate for exchange, together with a duly
executed letter of transmittal and such other documents as may be reasonably
required by Parent, (1) the holder of such Company Stock Certificate shall be
entitled to receive in exchange therefor a certificate representing the number
of shares of Parent Common Stock that such holder has the right to receive
pursuant to Section 1.5(a)(i), and (2) the Company Stock Certificate so
surrendered shall be canceled. Until surrendered as contemplated by this Section
1.7(a), each Company Stock Certificate shall be deemed, from and after the
Effective Date, to represent only the right to receive shares of Parent Common
Stock (and cash in lieu of any fractional share of Parent Common Stock as
contemplated by Section 1.7(b)). If any Company Stock Certificate shall have
been lost, stolen or destroyed, Parent may, in its discretion and as a condition
precedent to the issuance of any certificate representing Parent Common Stock,
require the owner of such lost, stolen or destroyed Company Stock Certificate to
provide an appropriate affidavit of loss and indemnity agreement against any
claim that may be made against Parent or the Surviving Corporation with respect
to such Company Stock Certificate.
(b) Fractional Shares. No fractional shares of Parent Common Stock shall be
issued in connection with the Merger, and no certificates for any such
fractional shares shall be issued. In lieu of such fractional shares, any holder
of Company Common Stock who would otherwise be entitled to receive a fraction of
a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock issuable to such holder) shall, upon surrender of such
holder's Company Stock Certificate(s), be paid in cash the dollar amount
(rounded to the nearest whole cent), without interest, determined by multiplying
such fraction by the average of the last bid and ask price of a share of Parent
Common Stock as reported on the OTC Electronic Bulletin Board on the day of
Closing (and if such day is not a trading day, then the last trading day
immediately preceding the Closing Date).
(c) Legends. In the event the Merger Shares are issued pursuant to a
registration statement filed under the Securities Act, no certificate
representing such shares will bear a restrictive legend with respect to the
Securities Act. In the event the Merger Shares are issued in reliance on the
exemption provided by Rule 506 of Regulation D of the Securities Act, then such
shares shall be characterized as "restricted securities" for purposes of Rule
144 under the Securities Act, and each certificate representing any of such
shares shall bear a legend identical or similar in effect to the following
legend (together with any other legend or legends required by applicable state
securities laws or otherwise):
(i) "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR IN COMPLIANCE WITH AN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS;" and .
A-22
<PAGE> 139
(ii) Any other legend required to be placed thereon by applicable blue
sky laws of any state.
(d) No Liability. None of Parent, Major Parent Stockholder or the Surviving
Corporation shall be liable to any holder or former holder of Company Common
Stock for any shares of Parent Common Stock (or dividends or distributions with
respect thereto), or for any cash amounts, delivered to any public official
pursuant to any applicable abandoned property, escheat or similar law.
1.8 Dissenting Shares.
(a) Notwithstanding anything to the contrary contained in this Agreement,
any shares of capital stock of the Company that, as of the Effective Date, are
or may become "dissenting shares" within the meaning of Section 1300(b) of the
CGCL shall not be converted into or represent the right to receive Parent Common
Stock in accordance with Section 1.5 (or cash in lieu of fractional shares in
accordance with Section 1.7(b)), and the holder or holders of such shares shall
be entitled only to such rights as may be granted to such holder or holders
under Chapter 13 of the CGCL; provided, however, that if the status of any such
shares as "dissenting shares" shall not be perfected, or if any such shares
shall lose their status as "dissenting shares," then, as of the later of the
Effective Date or the time of the failure to perfect such status, such shares
shall automatically be converted into and shall represent only the right to
receive (upon the surrender of the certificate or certificates representing such
shares) Parent Common Stock in accordance with Section 1.5 (and cash in lieu of
fractional shares in accordance with Section 1.7(b)).
(b) The Company shall give Parent (i) prompt notice of any written demand
received by the Company prior to the Effective Date to require the Company to
purchase shares of capital stock of the Company pursuant to Chapter 13 of the
CGCL and of any other demand, notice or instrument delivered to the Company
prior to the Effective Date pursuant to the CGCL, and (ii) the opportunity to
participate in all negotiations and proceedings with respect to any such demand,
notice or instrument. The Company will comply with the relevant provisions of
Chapter 13 of the CGCL.
1.9 Tax Consequences. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368(a) of
the Code.
1.10 Further Action. If, at any time after the Effective Date, any further
action is determined by Parent to be necessary to carry out the purposes of this
Agreement or to vest the Surviving Corporation or Parent with full right, title
and possession of and to all rights and property of Merger Sub and the Company,
the officers and directors of the Surviving Corporation and Parent shall be
fully authorized (in the name of Merger Sub, in the name of the Company and
otherwise) to take such action.
SECTION 2. Representations and Warranties of the Company
The Company represents and warrants that:
2.1 Due Organization. The Company is a corporation validly existing and in
good standing under the laws of the State of California and has the corporate
power and authority to: (i) conduct its business in the manner in which its
business is currently being conducted; and (ii) perform its obligations under
all material contracts by which it is bound. The Company is qualified to do
business as a foreign corporation, and is in good standing in all jurisdictions
in which it operates to the extent required by such jurisdiction and where the
failure to be so qualified would have a Material Adverse Effect on the Company
or on the ability of the Company to consummate the transactions contemplated
hereby. The Company does not have any direct or indirect subsidiaries.
2.2 Articles of Incorporation and Bylaws. The Company has delivered to
Parent copies of the Company's articles of incorporation and bylaws as currently
in effect, including all amendments thereto. The Company has made available to
Parent and its agents for review the records of the Company and the minutes of
the meetings and other proceedings of the Company's Board of Directors and
shareholders. The Merger and the transactions contemplated thereby were approved
by the Company's Board of Directors on August 7, 1997. Except for the minutes of
the meeting of the Board of Directors of the Company held on July 10, 1997,
there have been no formal meetings or other proceedings of the stockholders or
Board of Directors or any
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committee of the Board of Directors of the Company that are not fully reflected
in such minutes or other records. There has not been any violation of any of the
provisions of the Articles of Incorporation or bylaws of the Company and the
Company has not taken any action inconsistent with any resolutions adopted by
the stockholders, Board of Directors or any committees of the Board of Directors
of the Company. The books of account, stock records, minute books and other
records of the Company are accurate, up-to-date and complete in all material
respects and have been maintained in accordance with prudent business practices.
2.3 Capitalization. The authorized capital stock of the Company consists
of 50,000,000 shares of Company Common Stock, no par value, of which 12,241,404
shares were issued and outstanding as of March 31, 1997. All of the outstanding
shares of Company Common Stock have been duly authorized, validly issued and are
fully paid and nonassessable. As of March 31, 1997, there were outstanding
options to purchase 2,461,853 shares of Company Common Stock.
2.4 Financial Statements. The Company will deliver to Parent prior to the
Closing Date, the audited balance sheets of the Company as of March 31, 1997 and
1996, and the related audited statements of income, statements of shareholders'
equity and statements of cash flows of the Company for the years then ended,
together with the notes thereto, and the unaudited summary balance sheet of the
Company as of June 30, 1997 and the related unaudited summary statement of
income, summary statement of shareholders' equity and summary statement of
cashflow for the three-month period ended June 30, 1997.
2.5 Authority; Binding Nature of Agreement. The Company has the corporate
power and authority to enter into and to perform its obligations under this
Agreement and the execution, delivery and performance by the Company of this
Agreement and the other agreements and transactions contemplated hereby have
been duly authorized by all necessary action on the part of the Company and its
Board of Directors. This Agreement constitutes a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
except as enforcement thereof may be limited by (i) laws of general application
relating to bankruptcy, insolvency, moratorium, reorganization or other similar
laws, both state and federal, affecting the enforcement of creditors' rights or
remedies in general, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
SECTION 3.Representations and Warranties of Parent, Merger Sub and Major Parent
Stockholder
Parent, Merger Sub and the Major Parent Stockholder, jointly and severally,
represent and warrant that:
3.1 Due Organization, No Subsidiaries; Etc.
(a) Each of Parent and Merger Sub are corporations duly organized, validly
existing and in good standing under the laws of their respective jurisdictions
of incorporation, and each of them have the corporate power and authority: (i)
to conduct its business in the manner in which its business is currently being
conducted; and (ii) to perform its obligations under all Material Parent
Contracts by which it is bound. Each of Parent and Merger Sub 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 or Merger Sub
or on the ability of Parent or Merger Sub to consummate the transactions
contemplated hereby. Parent does not currently have any direct or indirect
subsidiaries other than Merger Sub, and has not had any direct or indirect
subsidiaries since 1991.
3.2 Capitalization, Etc. Prior to the Reverse Split, the authorized
capital stock of Parent consists of: (i) 500,000,000 shares of Common Stock,
$.0001 par value per share, 20,000,000 shares of which have been issued and are
outstanding; and (ii) 10,000,000 shares of Preferred Stock, $.0001 par value per
share, none of which are, or in the past have been, issued or outstanding.
Subsequent to the Reverse Split, the authorized capital stock of Parent will
consist of 30,000,000 shares of Common Stock, $.001 par value per share, 480,000
of which will be issued and outstanding and 3,000,000 shares of Preferred Stock,
$.001 par value per share, none of which will be outstanding. All of the
outstanding shares of capital stock of Parent and Merger Sub have been duly
authorized and validly issued, and are fully paid and nonassessable, and none of
such shares is subject to any repurchase option or restriction on transfer other
than restrictions imposed by federal or state securities laws. All outstanding
shares of capital stock of Parent and Merger Sub have been issued in
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compliance with all applicable federal and state securities laws and other
applicable Legal Requirements, and all requirements set forth in applicable
Parent Contracts. The Major Parent Stockholders own beneficially and of record,
in the aggregate, 19,500,000 shares of Parent Common Stock representing 97.5% of
the outstanding capital stock of Parent (prior to giving effect to the Reverse
Split). No holder of any shares of Parent Common Stock has any right to require
Parent to repurchase such shares of Common Stock from such holder. All of the
outstanding shares of capital stock of Merger Sub are owned beneficially and of
record by Parent, free and clear of any Encumbrances. There are no outstanding
subscriptions, options, calls, warrants or other rights (whether or not
currently exercisable) to acquire any shares of the capital stock or other
securities of Parent or Merger Sub. The Merger Shares, when issued by Parent to
the Company's Shareholders in accordance with the terms of this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable. There are no
voting agreements or preemptive or similar rights with respect to any of
Parent's capital stock. Neither Parent nor Merger Sub has declared, accrued, set
aside or paid or promised to declare, accrue, set aside or pay any dividend or
any other distribution in respect of any shares of capital stock nor has
repurchased, redeemed or otherwise reacquired any shares of capital stock or
other securities.
3.3 Disclosure Document. None of the information relating to Parent,
Merger Sub or Parent's officers and directors to be included in the registration
statement (or, in the event the Merger Shares are to be issued in reliance on an
exemption to the Securities Act, such other disclosure document as the Company
deems appropriate) to be prepared jointly by Parent and the Company and to be
sent to each Company Shareholder (the "Disclosure Document") will, at the time
the Disclosure Document is mailed to the Company Shareholders or at the time of
the Company Shareholders' Meeting, 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 the light of the
circumstances under which they are made, not misleading.
3.4 Charter Documents. Parent has delivered to the Company complete and
true copies of each of Parent's and Merger Sub's Certificates of Incorporation
and bylaws as currently in effect, and the minutes and other records of the
meetings and other proceedings (including any actions taken by written consent
or otherwise without a meeting) of the stockholders, Board of Directors and all
committees of the Board of Directors of Parent and Merger Sub. There have been
no formal meetings or other proceedings of the stockholders or Boards of
Directors or any committee of the Boards of Directors of either Parent or Merger
Sub that are not fully reflected in such minutes or other records. There has not
been any violation of any of the provisions of the Certificates of Incorporation
or bylaws of either Parent or Merger Sub and neither Parent nor Merger Sub have
taken any action that is inconsistent with any resolution adopted by the
stockholders, Boards of Directors or any committees of the Boards of Directors
of Parent or Merger Sub. The books of account, stock records, minute books and
other records of Parent and Merger Sub are accurate, up-to-date and complete in
all material respects and have been maintained in accordance with prudent
business practices.
3.5 Contracts. Exhibit D attached hereto identifies all contracts,
commitments, agreements (whether written or oral) and other instruments to which
Parent or Merger Sub or their respective assets are bound, is a party or which
create any obligation enforceable against Parent or Merger Sub (collectively,
the "Parent Contracts"). Parent has delivered to the Company accurate and
complete copies of all Parent Contracts, including all amendments thereto. Each
Parent Contract is valid and in full force and effect, and is enforceable by
Parent or Merger Sub, as the case may be, in accordance with its terms. Neither
Parent nor Merger Sub have violated or breached, or committed any default under,
any Parent Contract in any respect whatsoever. No event has occurred, and no
circumstance or condition exists, that (with or without notice or lapse of time)
will, or could reasonably be expected to, (A) result in a violation or breach of
any of the provisions of any Parent Contract, (B) give any Person the right to
declare a default or exercise any remedy under any Parent Contract, (C) give any
Person the right to accelerate the maturity or performance of any Parent
Contract, or (D) give any Person the right to cancel, terminate or modify any
Parent Contract. Neither Parent nor Merger Sub has received any notice or other
communication regarding any actual or possible violation or breach of, or
default under, any Parent Contract, or any actual or possible termination of any
Parent Contract. Neither Parent nor Merger Sub have waived any of its material
rights under any Parent Contract.
3.6 Parent Financial Statements. Parent has delivered to the Company the
audited balance sheets as of December 31, 1996 and 1995, and the related audited
income statements, statements of stockholders' equity
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and statements of cash flows of Parent for the years then ended, with the notes
thereto and the report and opinion of Angell & Deering relating thereto, and the
unaudited balance sheet of Parent as of June 30, 1997, and the related unaudited
income statement for the 6-month period ended June 30, 1997 (the audited and
unaudited financial statements shall be referred to herein as the "Parent
Financial Statements"). The Parent Financial Statements are accurate and
complete in all respects and present fairly the financial position of Parent as
of the respective dates thereof and the results of operations and cash flows of
Parent for the periods covered thereby. The Parent Financial Statements have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered.
3.7 No Undisclosed Assets or Liabilities. As of the Closing, except as set
forth in the Parent Financial Statements, Parent will have no assets or accrued,
contingent or other liabilities of any kind or nature, whether matured or
unmatured.
3.8 No Operations. Neither Parent nor Merger Sub has, or in the past has
had, any operations of any kind. Except for Earnest Mathis, Jr., neither Parent
nor Merger Sub has, nor in the past has had, any employees.
3.9 Compliance with Legal Requirements. Parent and Merger Sub are, and
have at all times been, in compliance with all applicable Legal Requirements.
Neither Parent nor Merger Sub has received any notice or other communication
from any Governmental Body regarding any actual or possible violation of, or
failure to comply with, any Legal Requirement.
3.10 Governmental Authorizations. Each of Parent and Merger Sub has all
Governmental Authorizations necessary to enable it to conduct its business in
the manner in which its business is currently being conducted. Parent and Merger
Sub are, and at all times have been, in compliance with the terms and
requirements of such Governmental Authorizations. Neither Parent nor Merger Sub
has received any notice or other communication from any Governmental Body
regarding (a) any actual or possible violation of or failure to comply with any
term or requirement of any Governmental Authorization, or (b) any actual or
possible revocation, withdrawal, suspension, cancellation, termination or
modification of any Governmental Authorization.
3.11 Tax Matters. All Tax Returns required to be filed by or on behalf of
Parent or Merger Sub with any Governmental Body on or before the Closing Date
have been or will be filed when due, and have been, or will be when filed,
accurately prepared in all respects. Parent and Merger Sub have within the time
(including any extensions of applicable due dates) and in the manner prescribed
by law, paid all Taxes that are due and payable. No claim or Legal Proceeding is
pending or has been threatened against or with respect to Parent or Merger Sub
in respect of any Tax. Neither Parent nor Merger Sub has any unsatisfied
liabilities for Taxes (including liabilities for interest, additions to tax and
penalties thereon and related expenses). There are no liens for Taxes upon any
of the assets of Parent or Merger Sub.
3.12 Related Party Transactions. No Parent Related Party has any direct or
indirect interest in any asset used in or otherwise relating to the business of
Parent or Merger Sub, or has any direct or indirect financial interest in any
Parent Contract, transaction or business dealing involving Parent or Merger Sub.
No Parent Related Party has any claim or right against Parent or Merger Sub.
3.13 Legal Proceedings; Orders. There is no pending Legal Proceeding and
no Person has threatened to commence any Legal Proceeding against Parent or
Merger Sub or that challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, the Merger or any of the
other transactions contemplated by this Agreement. No event has occurred, and no
claim, dispute or other condition or circumstance exists, that will, or that
could reasonably be expected to, give rise to or serve as a basis for the
commencement of any such Legal Proceeding. No Parent Related Party is subject to
any order, writ, injunction, judgment or decree that prohibits Parent Related
Party from engaging in or continuing any conduct, activity or practice relating
to Parent's or Merger Sub's business. There is no action, suit, proceeding or
investigation by Parent or Merger Sub currently pending or which Parent or
Merger Sub intends to initiate.
3.14 Authority; Binding Nature of Agreement. Parent and Merger Sub have
the full corporate power and authority to perform their respective obligations
under this Agreement; the execution, delivery and
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performance by Parent and Merger Sub of this Agreement have been duly authorized
by all necessary action on the part of Parent and Merger Sub and their
respective Boards of Directors, and the execution, delivery and performance of
this Agreement by Merger Sub have been duly authorized by all necessary action
on the part of Parent, as the sole stockholder of Merger Sub. No vote of the
stockholders of Parent is necessary to approve this Agreement, the Merger or the
transactions contemplated hereby. This Agreement constitutes the legal, valid
and binding obligation of Parent and Merger Sub, enforceable against them in
accordance with its terms, except as enforcement thereof may be limited by (i)
laws of general application relating to bankruptcy, insolvency moratorium,
reorganization or other similar laws, both state and federal, affecting the
enforcement of creditors' rights or remedies in general, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
3.15 Non-Contravention; Consents and Notices. Neither (1) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement, nor (2) the consummation of the Merger or any of
the other transactions contemplated by this Agreement, will directly or
indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of any of the
provisions of Parent's or Merger Sub's certificate of incorporation or
bylaws;
(b) with respect to Parent or Merger Sub, contravene, conflict with or
result in a violation of, or give any Governmental Body or other Person the
right to challenge any of the transactions contemplated by this Agreement
or to exercise any remedy or obtain any relief under, any Legal Requirement
or any order, writ, injunction, judgment or decree to which Parent or
Merger Sub is subject;
(c) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Parent Contract, or give
any Person the right to (i) declare a default or exercise any remedy under
any Parent Contract, (ii) accelerate the maturity or performance of any
Parent Contract, or (iii) cancel, terminate or modify any Parent Contract;
or
(d) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by Parent or
Merger Sub.
(e) Neither Parent nor Merger Sub is, or will be, required to make any
filing with or give any notice to, or obtain any Consent from, any Person
in connection with the execution and delivery of this Agreement or the
consummation of the Merger.
3.16 Full Disclosure.
(a) Neither this Agreement nor any other agreement, document or instrument
delivered to the Company in connection with the transactions contemplated by
this Agreement and the Merger (i) contains any representation, warranty or
information that is false or misleading with respect to any material fact, or
(ii) omits to state any material fact necessary in order to make the
representations, warranties and information contained and to be contained herein
and therein not false or misleading.
(b) The information supplied by Parent for inclusion in the Disclosure
Document will not, as of the date of the Disclosure Document or as of the date
of the Company Shareholders' Meeting, contain any statement that is inaccurate
or misleading with respect to any material fact, or (ii) omit to state any
material fact necessary in order to make such information not false or
misleading.
SECTION 4. Certain Covenants of Parent
4.1 Access and Investigation. During the Pre-Closing Period, Parent shall,
and shall cause its Representatives to: (a) provide the Company and the
Company's Representatives with reasonable access to Parent's books, records, tax
returns, work papers and other documents and information relating to Parent and
Merger Sub; and (b) provide the Company and the Company's Representatives with
such copies of the existing books, records, Tax Returns, work papers and other
documents and information relating to Parent and Merger Sub, and with such
additional financial and other data and information regarding Parent and Merger
Sub, as the Company or its Representatives may reasonably request.
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4.2 Notification.
(a) During the Pre-Closing Period, Parent shall promptly notify the
Company in writing of:
(i) the discovery by Parent of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by Parent, Merger Sub or Major Parent
Stockholder in this Agreement or in any document provided to the Company by
Parent, Merger Sub or Major Parent Stockholder;
(ii) any event, condition, fact or circumstance that occurs, arises or
exists after the date of this Agreement and that would cause or constitute
an inaccuracy in or breach of any representation or warranty made by
Parent, Merger Sub or any Major Parent Stockholder in this Agreement, if
(A) such representation or warranty had been made as of the time of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, or (B) such event, condition, fact or circumstance had
occurred, arisen or existed on or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of Parent, Merger Sub
or Major Parent Stockholder; and
(iv) any event, condition, fact or circumstance that would make the
timely satisfaction of any of the conditions set forth in Section 6
impossible or unlikely.
(b) Prior to the Effective Date, Parent shall use its best efforts to
ensure that, as of the Closing Date, Parent's Capital Stock will be listed for
trading on the OTC Electronic Bulletin Board and that, to the extent the Merger
Shares must be registered or listed with any regulatory body that regulates the
OTC Electronic Bulletin Board, such registration or listing has been completed.
4.3 Reverse Split; Amendment of Certificate of Incorporation. During the
Pre-Closing Period, Parent will (a) effect a reverse split of its outstanding
Common Stock in a ratio of 1-for-41.66667 and shall establish the authorized
capital stock of Parent as 30,000,000 shares of Common Stock, $.001 par value
per share, and 3,000,000 shares of "blank check" Preferred Stock, $.001 par
value per share, and (b) amend and restate its Certificate of Incorporation in
the form of Exhibit E.
SECTION 5. Additional Covenants of the Parties
5.1 Filings and Consents. As promptly as practicable after the execution
of this Agreement, each party to this Agreement (a) shall make all filings (if
any) and give all notices (if any) required to be made and given by such party
in connection with the Merger and the other transactions contemplated by this
Agreement, (b) shall use his or its commercially reasonable efforts to obtain
each Consent (if any) required to be obtained (pursuant to any applicable Legal
Requirement) by such party in connection with the Merger or any of the other
transactions contemplated by this Agreement and (c) with respect to Parent,
shall obtain all Consents required to be obtained under Parent Contracts in
connection with the Merger. Each party shall promptly deliver to the other party
a copy of each such filing made, each such notice given and each such Consent
obtained by such party during the Pre-Closing Period.
5.2 Public Announcements. The parties shall consult with each other before
issuing any press release or otherwise making any public statements with respect
to the Merger and the transactions contemplated thereby. Without limiting the
generality of the foregoing, neither party shall (and neither party shall permit
any of its Representatives to) issue any press release or make any public
statement regarding this Agreement or the Merger, or regarding any of the other
transactions contemplated by this Agreement, without the other party's prior
consent.
5.3 Preparation and Filing of Disclosure Document. In the event that the
Company deems it necessary or advisable that the issuance of the Merger Shares
be registered under the Securities Act, as promptly as practicable after the
date of this Agreement, Parent, the Major Parent Stockholder and the Company
shall prepare and cause to be filed with the SEC the appropriate Disclosure
Document contemplated by Section 3.3 and any other documents required to be
filed with the SEC in connection with the Merger. In this regard, each of
Parent, the Major Parent Stockholder and the Company shall provide each other
with any information
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regarding the other (including the other's management) that the Company deems
necessary and advisable to be included in the Disclosure Document. Each of
Parent, the Major Parent Stockholder and the Company shall use their best
efforts to cause the Disclosure Document to comply with the rules and
regulations promulgated by the SEC, to respond promptly to any comments of the
SEC or its staff and to have the Disclosure Document declared effective under
the Securities Act as promptly as practicable after such filing. Each of Parent
and the Company shall (i) notify the other promptly of the receipt of any
comments from the SEC or its staff and of any request by the SEC or its staff
for amendments or supplements to the Disclosure Document or for additional
information and (ii) shall supply the other with copies of all correspondence
with the SEC or its staff with respect to the Disclosure Document. Neither
Parent nor the Company shall file any amendment or supplement to the Disclosure
Document to which the other shall have reasonably objected. Whenever any event
occurs that should be set forth in an amendment or supplement to the Disclosure
Document, Parent or the Company, as the case may be, shall promptly inform the
other of such occurrence and shall cooperate in filing with the SEC or its
staff, and, if appropriate, mailing to stockholders of the Company, such
amendment or supplement.
5.4 Company Shareholders' Meeting. The Company shall, in accordance with
its articles of incorporation and bylaws and the applicable requirements of the
CGCL, call and hold a special meeting of its shareholders for the purposes of
permitting them to consider and to vote upon and approve this Agreement and the
Merger (the "Company Shareholders' Meeting"). In connection with the Company
Shareholders' Meeting, the Company shall cause a copy of the Disclosure Document
to be delivered to each Company Shareholder entitled to vote at the Company
Shareholders' Meeting.
SECTION 6. Conditions Precedent to Obligations of the Company
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing Date, of each of the following
conditions:
6.1 Accuracy of Representations. The representations and warranties made
by Parent, Merger Sub and the Major Parent Stockholder in this Agreement and in
each of the other agreements and instruments delivered to the Company in
connection with the transactions contemplated by this Agreement shall have been
accurate in all respects as of the date of this Agreement and shall be accurate
in all respects as of the Closing Date.
6.2 Performance of Covenants. Each covenant or obligation that Parent,
Merger Sub and/or the Major Parent Stockholder is required to comply with or to
perform at or prior to the Closing shall have been complied with and performed
in all respects.
6.3 No Material Adverse Effect. Since the date of this Agreement, there
shall have been no Material Adverse Effect on Parent or Merger Sub and there
shall not have occurred any change or development, or any combination of changes
or developments, that would reasonably be expected to have a Material Adverse
Effect on Parent or Merger Sub.
6.4 Compliance Certificate. The Major Parent Stockholder shall have
delivered to the Company a certificate evidencing compliance by Parent and/or
Merger Sub with the conditions set forth in Sections 6.1, 6.2 and 6.3.
6.5 Shareholder Approval. The terms of the Merger and this Agreement shall
have been adopted and approved by the Requisite Vote of the Company's
Shareholders.
6.6 Execution and Delivery of Release. On or prior to the Closing, the
Major Parent Stockholder and each current and former officer and director of
Parent shall execute and deliver to the Company a release in the form of Exhibit
F.
6.7 Receipt of Documents from Shareholders. The Company shall have
received from each Company Shareholder, a completed and signed (i) Investment
Representation Letter, and (ii) Continuity of Interest Certificate, each in a
form reasonably acceptable to the Company.
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6.8 Purchaser Representative Agreement. The Company shall have received
from each Company Shareholder that will receive any Merger Shares and who is not
an "accredited investor" within the meaning of Rule 506 of Regulation D of the
Securities Act (each a "NonAccredited Investor") a completed and signed
Purchaser Representative Agreement in a form reasonably satisfactory to the
Company. Each NonAccredited Investor may be a party to one and the same
Purchaser Representative Agreement. Notwithstanding the foregoing, satisfaction
of the conditions set forth in this Section 6.8 shall not be a condition
precedent to the Company's obligations hereunder if the Merger Shares are to be
issued pursuant to a registration statement filed under the Securities Act.
6.9 Dissenter's Rights. The holders of no more than one percent (1%) of
the outstanding shares of Company Common Stock entitled to vote on the Merger
shall have exercised or be entitled to exercise dissenter's rights in accordance
with Chapter 13 of the CGCL.
6.10 Lock-Up Agreements. On or prior to the Closing, the Major Parent
Stockholder and Gary J. McAdam shall have each executed and delivered to the
Company a lock-up agreement in the form of Exhibit G.
6.11 Consents. All Consents required to be obtained and all filings
required to have been made in connection with the Merger pursuant to Section 5.1
and the other transactions contemplated by this Agreement shall have been
obtained or made and shall be in full force and effect.
6.12 Legal Opinion. The Company shall have received a legal opinion of
counsel to Parent, dated as of the Closing Date, in the form of Exhibit H;
6.13 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
6.14 No Governmental Litigation. There shall not be pending or threatened
any Legal Proceeding in which a Governmental Authority is or is threatened to
become a party: (a) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the transactions contemplated thereby; (b)
relating to the Merger and seeking to obtain from Parent, Merger Sub or the
Company any damages that may be material to Parent, Merger Sub or the Company;
(c) seeking to prohibit or limit in any way Parent's ability to vote, receive
dividends with respect to or otherwise exercise ownership rights with respect to
the stock of the Surviving Corporation; or (d) which would affect adversely the
right of Parent or the Surviving Corporation to own the assets or operate the
business of the Company.
6.15 No Other Litigation. There shall not be pending any Legal Proceeding
in which there is a reasonable possibility of an outcome that would have a
Material Adverse Effect on Parent, Merger Sub or the Company: (a) challenging or
seeking to restrain or prohibit the consummation of the Merger or any of the
transactions contemplated thereby; (b) relating to the Merger and seeking to
obtain from Parent, Merger Sub or the Company any damages that may be material
to Parent, Merger Sub or the Company; (c) seeking to prohibit or limit in any
way Parent's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Surviving
Corporation; or (d) which would affect adversely the right of Parent or the
Surviving Corporation to own the assets or operate the business of the Company.
6.16 Amendment of Parent's Certificate of Incorporation. Parent shall have
amended and restated its Certificate of Incorporation in the form of Exhibit E.
6.17 OTC Electronic Bulletin Board Listing. The Parent Common Stock shall
be listed or quoted for trading on the OTC Electronic Bulletin Board and there
shall be no suspension of trading then in effect.
6.18 Completion of Due Diligence. The Company and Company's counsel shall
have completed its due diligence review of the Parent and Merger Sub to the
satisfaction of the Company and Company's counsel.
6.19 Effectiveness of Registration Statement. In the event the Merger
Shares are to be issued pursuant to a registration statement filed with the SEC,
such registration statement shall have become effective in
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accordance with the requirements of the Securities Act and no stop order shall
have been issued by the SEC with respect to the registration statement.
Notwithstanding the foregoing, satisfaction of the condition set forth in this
Section 6.19 shall not be a condition precedent to the Company's obligations
hereunder if the Merger Shares are to be issued pursuant to Rule 506 of the
Securities Act.
SECTION 7. Conditions Precedent to Obligations of Parent
7.1 Accuracy of Representations. The representations and warranties made
by the Company in this Agreement and in each of the other agreements and
instruments delivered to Parent in connection with the transactions contemplated
by this Agreement shall have been accurate in all material respects as of the
date of this Agreement and shall be accurate in all material respects as of the
Closing Date.
7.2 Performance of Covenants. Each covenant or obligation that the Company
is required to comply with or to perform at or prior to the Closing shall have
been complied with and performed in all respects.
7.3 Compliance Certificate. The Company shall have delivered to Parent a
certificate signed by the President of the Company evidencing compliance by the
Company with the conditions set forth in Sections 6.1 and 6.2.
7.4 Shareholder Approval. The terms of the Merger and this Agreement shall
have been adopted and approved by the Requisite Vote of the Company's
Shareholders.
7.5 Consents. All Consents required to be obtained and all filings
required to have been made in connection with the Merger pursuant to Section 5.1
and the other transactions contemplated by this Agreement shall have been
obtained or made and shall be in full force and effect.
7.6 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
7.7 No Governmental Litigation. There shall not be pending or threatened
any Legal Proceeding in which a Governmental Authority is or is threatened to
become a party: (a) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the transactions contemplated thereby; (b)
relating to the Merger and seeking to obtain from Parent, Merger Sub or the
Company any damages that may be material to Parent, Merger Sub or the Company;
(c) seeking to prohibit or limit in any way Parent's ability to vote, receive
dividends with respect to or otherwise exercise ownership rights with respect to
the stock of the Surviving Corporation; or (d) which would affect adversely the
right of Parent or the Surviving Corporation to own the assets or operate the
business of the Company.
7.8 No Other Litigation. There shall not be pending any Legal Proceeding
in which there is a reasonable possibility of an outcome that would have a
Material Adverse Effect on Parent, Merger Sub or the Company: (a) challenging or
seeking to restrain or prohibit the consummation of the Merger or any of the
transactions contemplated thereby; (b) relating to the Merger and seeking to
obtain from Parent, Merger Sub or the Company any damages that may be material
to Parent, Merger Sub or the Company; (c) seeking to prohibit or limit in any
way Parent's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Surviving
Corporation; or (d) which would affect adversely the right of Parent or the
Surviving Corporation to own the assets or operate the business of the Company.
SECTION 8. Termination
8.1 Termination. This Agreement may be terminated prior to the Effective
Date:
(a) by mutual written consent of Parent and the Company;
(b) by either party if any of the other party's representations and
warranties contained in this Agreement shall be or shall have become
inaccurate, or if any of the other party's covenants contained in this
Agreement shall have been breached;
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(c) either party if a court of competent jurisdiction or other
Governmental Body shall have issued a final and nonappealable order, decree
or ruling, or shall have taken any other action, having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger;
(d) by the Company if the Merger shall not have been consummated by
October 31, 1997;
(e) by the Company if the Company Shareholders' Meeting shall have
been held and this Agreement and the Merger shall not have been adopted and
approved at such meeting by the Requisite Vote; and
(f) by the Company if the Company reasonably determines that the
timely satisfaction of any condition set forth in Section 6 has become
impossible or unlikely.
8.2 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 8.1, this Agreement shall be of no further
force or effect; provided, however, that Section 9 shall survive the termination
of this Agreement and shall remain in full force and effect.
SECTION 9. Indemnification
9.1 Survival of Representations
(a) The representations and warranties made by the Parent, Merger Sub and
the Major Parent Stockholder (including the representations and warranties set
forth in Section 3 and the representations and warranties of Parent, Merger Sub
and the Major Parent Stockholder set forth in any other agreement or instrument
provided to the Company in connection with the transactions contemplated by this
Agreement) shall survive the Closing. All representations and warranties made by
the Company shall terminate and expire as of the Effective Date, and any
liability of the Company with respect to such representations and warranties
shall thereupon cease.
(b) The representations, warranties, covenants and obligations of the
Parent, Merger Sub and the Major Parent Stockholder, and the rights and remedies
that may be exercised by the Indemnitees, shall not be limited or otherwise
affected by or as a result of any information furnished to, or any investigation
made by or knowledge of, the Company or any of the Indemnitees or any of their
representatives.
9.2 Indemnification by Major Parent Stockholder. From and after the
Effective Date, the Major Parent Stockholder, shall hold harmless and indemnify
each of the Indemnitees from and against, and shall compensate and reimburse
each of the Indemnitees for, any Damages which are directly or indirectly
suffered or incurred by any of the Indemnitees or to which any of the
Indemnitees may otherwise become subject (regardless of whether or not such
Damages relate to any third-party claim) and which arise from or as a result of,
or are directly or indirectly connected with: (i) any inaccuracy in or breach of
any representation or warranty made by Parent, Merger Sub or the Major Parent
Stockholder in Section 3 or in any document provided to the Company in
connection with the transactions contemplated by this Agreement, (ii) any breach
of any covenant or obligation of Parent, Merger Sub or the Major Parent
Stockholder (including the covenants set forth in Sections 4 and 5); or (iii)
any Legal Proceeding relating to any inaccuracy or breach of the type referred
to in clause "(i)" or "(ii)" above (including any Legal Proceeding commenced by
an Indemnitee for the purpose of enforcing any of its rights under this Section
9).
9.3 No Contribution. Major Parent Stockholder waives, and acknowledges and
agrees that he shall not have and shall not exercise or assert (or attempt to
exercise or assert), any right of contribution, right of indemnity or other
right or remedy against Parent or the Surviving Corporation in connection with
any indemnification obligation or any other liability to which he may become
subject under or in connection with this Agreement.
9.4 Interest. If Major Parent Stockholder is required to hold harmless,
indemnify, compensate or reimburse any Indemnitee pursuant to this Section 9
with respect to any Damages, he shall also be liable to such Indemnitee for
interest on the amount of such Damages (for the period commencing as of the date
on which the Major Parent Stockholder first receives notice of a claim for
recovery by such Indemnitee and
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ending on the date on which the liability of the Major Parent Stockholder to
such Indemnitee is fully satisfied) at a floating rate equal to the rate of
interest publicly announced by Bank of America, N.T. & S.A. from time to time as
its prime, base or reference rate.
9.5 Defense of Third Party Claims. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against the
Surviving Corporation, against Parent or against any other Person) with respect
to which the Major Parent Stockholder may become obligated to hold harmless,
indemnify, compensate or reimburse any Indemnitee pursuant to this Section 9,
Parent shall have the right, at its election, to proceed with the defense of
such claim or Legal Proceeding on its own. If Parent so proceeds with the
defense of any such claim or Legal Proceeding:
(a) all reasonable expenses relating to the defense of such claim or
Legal Proceeding shall be borne and paid exclusively by the Major Parent
Stockholder;
(b) Major Parent Stockholder shall make available to Parent any
documents and materials in his possession or control that may be necessary
to the defense of such claim or Legal Proceeding; and
(c) Parent shall have the right to settle, adjust or compromise such
claim or Legal Proceeding with the consent of the Major Parent Stockholder;
provided, however, that such consent shall not be unreasonably withheld.
Parent shall give the Major Parent Stockholder prompt notice of the
commencement of any such Legal Proceeding against Parent or the Surviving
Corporation; provided, however, that any failure on the part of Parent to so
notify the Major Parent Stockholder shall not limit any of the obligations of
the Major Parent Stockholder under this Section 9.
SECTION 10. Miscellaneous Provisions
10.1 Further Assurances. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
10.2 Attorneys' Fees. If any action at law or suit in equity to enforce
this Agreement or the rights of any of the parties hereunder is brought against
any party hereto, the prevailing party shall be entitled to recover reasonable
attorneys' fees, costs and disbursements (in addition to any other relief to
which the prevailing party may be entitled).
10.3 Transaction Costs. The Company shall be liable and shall pay for all
costs of the Company (including legal and accounting fees) incurred in
connection with and prior to the consummation of the Merger. Major Parent
Stockholder shall be liable and shall pay for all costs of Parent and Merger Sub
(including legal and accounting fees) incurred in connection with and prior to
the consummation of the Merger.
10.4 Notices. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to Parent or Merger Sub:
Express Capital Concepts, Inc.
4 West Dry Creek Circle, Suite 140
Littleton, CO 80120
Attention: Earnest Mathis, Jr.
Facsimile: (303) 794-9457
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with a copy to (which shall not constitute notice):
Law Offices of Gary Agron
5445 DTC Parkway, Suite 520
Englewood, CO 80111
Attention: Gary Agron, Esq.
Facsimile: (303) 770-7257
if to Major Parent Stockholder:
Inverness Investments
26 West Dry Creek Circle, Suite 600
Littleton, CO 80120
Attention: Earnest Mathis, Jr.
if to the Company:
GreyStone Technology, Incorporated
4950 Murphy Canyon Road, Suite 140
San Diego, CA 92121
Attention: Joe Russell
Facsimile: (619) 874-7007
with a copy to (which shall not constitute notice):
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Attention: Eric J. Loumeau, Esq.
Facsimile: (619) 453-3555
All such notices and other communications shall be deemed to have been received
(a) in the case of personal delivery, on the date of such delivery, (b) in the
case of a telecopy, when the party receiving such telecopy shall have confirmed
receipt of the communication, (c) in the case of delivery by
nationally-recognized, overnight courier, on the business day following dispatch
and (d) in the case of mailing, on the fifth business day following such
mailing.
10.5 Time of the Essence. Time is of the essence of this Agreement.
10.6 Governing Law; Venue.
(a) This Agreement shall be construed in accordance with, and governed in
all respects by, the internal laws of the State of California (without giving
effect to principles of conflicts of laws).
(b) Any legal action or other legal proceeding relating to this Agreement
or the enforcement of any provision of this Agreement may be brought or
otherwise commenced in any state or federal court located in San Diego,
California. Each party to this Agreement:
(i) expressly and irrevocably consents and submits to the jurisdiction
of each state and federal court located in San Diego, California (and each
appellate court located in the State of California) in connection with any
such legal proceeding;
(ii) agrees that each state and federal court located in California
shall be deemed to be a convenient forum; and
(iii) agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in any state or federal
court located in California, any claim that such party is not subject
personally to the jurisdiction of such court, that such legal proceeding
has been brought in an inconvenient forum, that the venue of such
proceeding is improper or that this Agreement or the subject matter of this
Agreement may not be enforced in or by such court.
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(c) Nothing contained in Section 10.6(b) shall be deemed to limit or
otherwise affect the right of any Person entitled to indemnification hereunder
to commence any legal proceeding or otherwise proceed against the indemnifying
party in any other forum or jurisdiction.
10.7 Successors and Assigns. This Agreement shall be binding upon and
shall be enforceable by and inure solely to the benefit of, the parties hereto
and their permitted successors and assigns; provided, however, that this
Agreement may not be assigned by any party without the written consent of the
other parties, and any attempted assignment without such consent shall be void
and of no effect. None of the provisions of this Agreement are intended to
provide any rights or remedies to any Person other than the parties hereto and
their respective successors and assigns (if any).
10.8 Remedies Cumulative; Specific Performance. The rights and remedies of
the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant, obligation or other provision set
forth in this Agreement for the benefit of any other party to this Agreement,
such other party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or mandamus to
enforce the observance and performance of such covenant, obligation or other
provision, and (b) an injunction restraining such breach or threatened breach.
10.9 Waiver.
(a) No failure on the part of any Person to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any Person
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy.
(b) No Person shall be deemed to have waived any claim arising out of this
Agreement, or any power, right, privilege or remedy under this Agreement, unless
the waiver of such claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
10.10 Amendments. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
10.11 Severability. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
10.12 Entire Agreement. This Agreement, including the exhibits attached
hereto, set forth the entire understanding of the parties hereto relating to the
subject matter hereof and, supersede all prior and contemporaneous agreements
and understandings among or between any of the parties relating to the subject
matter hereof.
10.13 Construction. The parties hereto agree that any rule of construction
to the effect that ambiguities are to be resolved against the drafting party
shall not be applied in the construction or interpretation of this Agreement.
10.14 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one and the same instrument. The execution of
this Agreement may be evidenced by facsimile signatures.
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The parties hereto have caused this Agreement to be executed and delivered
as of August 11, 1997.
EXPRESS CAPITAL CONCEPTS, INC.
a Delaware corporation
By:
-----------------------------------
Name:
Title:
EXPRESS CAPITAL ACQUISITION CORP.,
a Delaware corporation
By:
-----------------------------------
Name:
Title:
GREYSTONE TECHNOLOGY, INCORPORATED,
a California corporation
By:
-----------------------------------
Name:
Title:
--------------------------------------
EARNEST MATHIS, JR.
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EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
Agreement. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached, as it may be amended from
time to time.
Agreement of Merger. "Agreement of Merger" shall have the meaning set forth
in Section 1.3.
CGCL. "CGCL" shall mean the California General Corporation Law.
Closing. "Closing" shall have the meaning set forth in Section 1.3.
Closing Date. "Closing Date" shall have the meaning set forth in Section
1.3.
Code. "Code" shall mean the Internal Revenue Code of 1968, as amended.
Company. "Company" shall mean GreyStone Technology, Incorporated, a
California corporation.
Company Common Stock. "Company Common Stock" shall mean all classes of
Company capital stock.
Company Option. "Company Option" shall mean any option to purchase capital
stock of the Company held by any director, officer or employee of, or consultant
to, the Company, warrants, convertible notes and any other instruments
convertible into shares of Common Stock of the Company.
Company Shareholders. "Company Shareholders" shall mean those holders of
Company Common Stock entitled to receive Merger Shares pursuant to Section 1.5.
Company Shareholders' Meeting. "Company Shareholders' Meeting" shall have
the meaning set forth in Section 5.4.
Company Stock Certificate. "Company Stock Certificate" shall have the
meaning set forth in Section 1.6.
Consent. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
Contract. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan, or legally binding commitment or undertaking of
any nature.
Damages. "Damages" shall include any loss, damage, injury, liability,
claim, demand, settlement, judgment, award, fine, penalty, Tax, fee (including
reasonable attorneys' fees), charge, cost (including costs of investigation) or
expense of any nature. Damages shall not include lost profits, lost savings, or
other indirect, special, incidental or consequential damages whether such
damages are based on tort, contract, or any other legal theory, and even if the
Indemnitee has been advised of the possibility of such damages.
DGCL. "DGCL" shall mean the Delaware General Corporation Law.
Effective Date. "Effective Date" shall have the meaning set forth in
Section 1.3.
Encumbrance. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
Entity. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company, limited liability company,
joint stock company, firm or other enterprise, association, organization or
entity.
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Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
Exchange Ratio. "Exchange Ratio" shall have the meaning set forth in
Section 1.5(b)(i).
Governmental Authorization. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
Governmental Body. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
Indemnitees. "Indemnitees" shall mean the following Persons: (a) Parent,
(b) the Company Shareholders, (c) the Surviving Corporation, (d) the respective
Representations of the Persons referred to in clauses "(a)", "(b)" and "(c)"
above, and (e) the respective successors and assigns of the Persons referred to
in clauses "(a)", "(b)", "(c)" and "(d)" above.
Legal Proceeding. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
Legal Requirement. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
Major Parent Stockholder. "Major Parent Stockholder" shall mean Earnest
Mathis, Jr.
Material Adverse Effect. A violation of a representation or warranty or any
other matter will be deemed to have a "Material Adverse Effect" on the Company
or Parent, as the case may be, if such violation or other matter (considered
together with all other matters that would constitute exceptions to such
representations and warranties set forth in the Agreement but for the presence
of "Material Adverse Effect" or other materiality qualifications, or any similar
qualifications, in such representations and warranties) would have a material
adverse effect on the business, condition, assets, liabilities, operations,
financial performance or prospects of the Company or Parent or Merger Sub, as
the case may be.
Merger Shares. "Merger Shares" shall have the meaning set forth in Section
1.5(a)(i).
Merger Sub. "Merger Sub" shall mean Express Capital Acquisition Corp., a
Delaware corporation.
NASD. "NASD" shall mean the National Association of Securities Dealers,
Inc.
Parent. "Parent" shall mean Express Capital Concepts, Inc., a Delaware
corporation.
Parent Contract. "Parent Contract" shall have the meaning set forth in
Section 3.5.
Parent Common Stock. "Parent Common Stock" shall mean Parent's Common
Stock, $.0001 par value per share.
Parent Related Party. "Parent Related Party" shall mean (i) each individual
who is, or who has at any time been, an officer or director of Parent or Merger
Sub or beneficial holder of more than 10% of the capital stock of Parent; (ii)
each individual who is a member of the immediate family of any of the
individuals referred to in clause "(i)" above; and (iii) any trust or other
Entity (other than Parent or Merger Sub) in which any one of the individuals
referred to in clauses "(i)" and "(ii)" above holds (or in which more than one
of such individuals collectively hold), beneficially or otherwise, a material
voting, proprietary or equity interest.)
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Person. "Person" shall mean any individual, Entity or Governmental Body.
Pre-Closing Period. "Pre-Closing Period" shall be the period between the
date of this Agreement and the Closing Date.
Disclosure Document. "Disclosure Document" shall have the meaning set forth
in Section 3.3.
Representatives. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
Requisite Vote. "Requisite Vote" shall mean the vote necessary to approve
the Merger pursuant to the CGCL.
Reverse Split. "Reverse Split" shall have the meaning set forth in Recital
B.
Securities Act. "Securities Act" shall mean the Securities Act of 1933, as
amended.
Surviving Corporation. "Surviving Corporation" shall have the meaning set
forth in Section 1.1.
Taxes. "Taxes" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
Tax Return. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
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EXHIBIT B
FORM OF AMENDED AND RESTATED ARTICLES OF INCORPORATION OF SURVIVING CORPORATION
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EXHIBIT C
DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
<TABLE>
<S> <C>
Richard A. Smith Chairman of the Board, President and Chief Executive Officer
Jon M. Reynolds Director
Thomas D. Aldern Director and Vice President, Government Systems
Thomas L. King Vice President, Finance and Chief Financial Officer
Joe E. Russell Vice President, Corporate Development, General Counsel and
Secretary
</TABLE>
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EXHIBIT D
PARENT CONTRACTS
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EXHIBIT E
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF PARENT
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EXHIBIT F
RELEASE
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GENERAL RELEASE
This GENERAL RELEASE (the "Release") is being executed and delivered as of
August 11, 1997 by ("Releasor"), to and in favor of Express Capital
Concepts, Inc., a Delaware corporation ("Parent") and GreyStone Technology,
Inc., a California corporation (the "Company").
RECITALS
WHEREAS, reference is made to that certain Agreement and Plan of Merger and
Reorganization dated August 11, 1997 (the "Merger Agreement") by and among
Parent, Express Capital Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Parent ("Merger Sub"), the Company, Releasor and Gary
J. McAdam, whereby Merger Sub will be merged with and into the Company (the
"Merger") and upon consummation of the Merger the Company will become a
wholly-owned subsidiary of Parent;
WHEREAS, Releasor is a stockholder of Parent and serves as Parent's [insert
officer position] and as a member of the Board of Directors of Parent; and
WHEREAS, under Section 6.6 of the Merger Agreement, the Company has
required as a condition to the consummation of the Merger and the other
transactions contemplated by the Merger Agreement, that the Releasor execute and
deliver this Release.
AGREEMENT
Releasor acknowledges that execution and delivery of this Release is a
condition to the Company's obligation to consummate the Merger and the
transactions contemplated by the Merger Agreement and that, in order to induce
the Company and Parent to consummate the transactions contemplated by the Merger
Agreement, Releasor hereby for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged and intending to be legally bound,
covenants and agrees as follows:
1. RELEASE. Releasor, for himself and for each of such Releasor's
Associated Parties (as defined in Section 2), hereby generally, irrevocably,
unconditionally and completely releases, acquits and forever discharges each of
the Releasees (as defined in Section 2) from, and hereby irrevocably,
unconditionally and completely waives and relinquishes, each of the Released
Claims (as defined in Section 2). Notwithstanding the foregoing, this Release
shall not be deemed to supersede or release the Company from its obligations
under that certain Indemnification Agreement dated August 11, 1997 between
Releasor and the Company.
2. DEFINITIONS.
(a) "Associated Party" when used herein with respect to Releasor, shall
mean and include: (i) Releasor's executors, administrators, heirs and estate;
(ii) Releasor's past, present and future assigns, agents and representatives;
(iii) each entity that Releasor has the power to bind (by such Releasor's acts
or signature) or over which such Releasor directly or indirectly exercises
control; and (iv) each entity of which such Releasor owns, directly or
indirectly, at least 50% of the outstanding equity, beneficial, proprietary,
ownership or voting interests.
(b) "Releasees" shall mean and include: (i) Parent, (ii) each of the direct
and indirect subsidiaries of Parent, (iii) the Company, (iv) the Surviving
Corporation (as defined in the Merger Agreement), and (v) the successors, and
past, present and future assigns, directors, officers, employees, agents,
attorneys and representatives of the respective entities identified or otherwise
referred to in clauses (i) through (iv) of this sentence, other than Releasors.
(c) "Claims" shall mean and include all past, present and future disputes,
claims, damages, controversies, demands, rights, obligations, liabilities,
actions and causes of action of every kind and nature, in equity or otherwise,
whether known, unknown, suspected, unsuspected, disclosed or undisclosed.
(d) "Released Claims" shall mean and include each and every Claim that
Releasor or any Associated Party of Releasor may have had in the past, may now
have or may have in the future against any of the
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Releasees, and that has arisen or arises directly or indirectly out of, or
relates directly or indirectly to, any circumstance, agreement, activity,
action, omission, event or matter occurring or existing on or prior to the date
of this Release (excluding only such Releasor's rights, if any, under the Merger
Agreement).
3. REPRESENTATIONS AND WARRANTIES. Releasor represents and warrants that:
(a) Releasor has not assigned, transferred, conveyed or otherwise
disposed of any Claim against any of the Releasees, or any direct or
indirect interest in any such Claim, in whole or in part;
(b) to the best of Releasor's knowledge, no other person or entity has
any interest in any of the Released Claims;
(c) no Associated Party of Releasor has had any Claim against any of
the Releasees;
(d) no Associated Party of Releasor will in the future have any Claim
against any Releasee that arises directly or indirectly from or relates
directly or indirectly to any circumstance, agreement, activity, action,
omission, event or matter occurring or existing on or before the date of
this Release;
(e) this Release has been duly and validly executed and delivered by
Releasor;
(f) this Release is a valid and binding obligation of Releasor and
Releasor's Associated Parties, and is enforceable against such Releasor and
each of such Releasor's Associated Parties in accordance with its terms;
(g) there is no action, suit, proceeding, dispute, litigation, claim,
complaint or investigation by or before any court, tribunal, governmental
body, governmental agency or arbitrator pending, or to the best knowledge
of Releasor, threatened against such Releasor or any of such Releasor's
Associated Parties that challenges or would challenge the execution and
delivery of this Release or the taking of any of the actions required to be
taken by such Releasor under this Release;
(h) neither the execution and delivery of this Release nor the
performance hereof will (i) result in any violation or breach of any
agreement or other instrument to which Releasor or any of such Releasor's
Associated Parties is bound, or (ii) result in a violation or any law,
rule, regulation, treaty, ruling, directive, order, arbitration award,
judgment or decree to which Releasor or any of Releasor's Associated
Parties is subject; and
(i) no authorization, instruction, consent or approval of any person
or entity is required to be obtained by Releasor or any of Releasor's
Associated Parties in connection with the execution and delivery of this
Release or the performance hereof.
(j) this release contains the entire agreement between the parties
with respect to the matters addressed herein and Releasor is not relying on
any representation or warranty of any party other than those contained
herein in the execution and delivery of this Release.
4. CIVIL CODE SECTION 1542. Releasor represents, warrants and agrees that
he has been fully advised by his attorney of the contents of Section 1542 of the
Civil Code of the State if California. Releasor expressly waives and
relinquishes all rights and benefits under that section and any similar law or
common law principle of similar effect of any state or territory of the United
States with respect to the claims released hereby. Section 1542 reads as
follows:
"A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially effected his
settlement with the debtor."
5. INDEMNIFICATION. Without in any way limiting any of the rights or
remedies otherwise available to any Releasee, Releasor shall indemnify, defend
and hold harmless each Releasee against and from any loss, damage, injury, harm,
detriment, lost opportunity, liability, exposure, claim, demand, settlement,
judgment, award, fine, penalty, tax, fee, charge or expense (including
attorneys' fees) that is directly or indirectly suffered or incurred at any time
by such Releasee, or to which such Releasee otherwise becomes subject at any
time, and that arises directly or indirectly out of or by virtue of, or relates
directly or indirectly to, (a) any failure on the part of Releasor to observe,
perform or abide by, or any other breach of, any restriction, covenant,
obligation, representation, warranty or other provision contained herein, (b)
the assertion or
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purported assertion of any of the Released Claims by Releasor or any of
Releasor's Associated Parties, or (c) any conduct or action of Releasor or
Parent occurring or taken prior to the date of this Release.
6. MISCELLANEOUS.
(a) This Release sets forth the entire understanding of the parties
relating to the subject matter hereof and supersedes all prior agreements and
understandings among or between Releasor and any Releasees relating to the
subject matter hereof.
(b) If any provision of this Release or any part of any such provision is
held under any circumstances to be invalid or unenforceable in any jurisdiction,
then (i) such provision or part thereof shall, with respect to such
circumstances and in such jurisdiction, be deemed amended to conform to
applicable laws so as to be valid and enforceable to the fullest possible
extent, (ii) the invalidity or unenforceability of such provision or part
thereof under such circumstances and in such jurisdictions shall not affect the
validity or enforceability of such provision or part thereof under any other
circumstances or in any other jurisdiction, and (iii) such invalidity or
unenforceability of such provision or part thereof shall not affect the validity
or enforceability of the remainder of such provision or the validity or
enforceability of any other provision of this Release. If any provision of this
Release or any part of such provision is held to be unenforceable against
Releasor, then the unenforceability of such provision or any part thereof
against Releasor shall not affect the enforceability thereof against any other
Releasor. Each provision of this Release is separable from every other provision
of this Release, and each part of each provision of this Release is separable
from every other part of such provision.
(c) This Release shall be construed in accordance with, and governed in all
respects by, the laws of the State of California (without giving effect to
principles of conflicts of laws).
(d) Any legal action or other legal proceeding relating to this Release or
the enforcement of any provision of this Release may be brought or otherwise
commenced by any Releasee in any state or federal court located in the State of
California. Releasor expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in the State of California
in connection with any such legal proceeding. Releasor agrees that each state
and federal court located in the State of California shall be deemed to be a
convenient forum. Releasor agrees not to assert (by way of motion, as a defense
or otherwise), in any such legal proceeding commenced in any state or federal
court located in the State of California, any claim that such Releasor is not
subject personally to the jurisdiction of such court, that such legal proceeding
has been brought in an inconvenient forum, that the venue of such proceeding is
improper or that this Release or the subject matter of this Release may not be
enforced in or by such court. Nothing contained in this Release shall be deemed
to limit or otherwise affect the right of any Releasee (1) to commence any legal
proceeding or to otherwise proceed against Releasor or any other person or
entity in any other forum or jurisdiction, or (2) to raise this Release as a
defense in any legal proceeding in any other forum or jurisdiction.
(e) Releasor shall execute and/or cause to be delivered to each Releasee
such instruments and other documents, and shall take such other actions, as such
Releasee may reasonably request for the purpose of carrying out or evidencing
any of the actions contemplated by this Release.
(f) This Release shall be interpreted and construed mutually in accordance
with the plain meaning of the language contained herein and shall not be
preemptively construed against the drafters.
(g) If any legal action or other legal proceeding relating to this Release
or the enforcement of any provision hereof is brought by Releasor or any
Releasee, the prevailing party shall be entitled to recover reasonable
attorneys' fees, costs and disbursements to the extent actually incurred (in
addition to any other relief to which the prevailing party may be entitled).
IN WITNESS WHEREOF, the undersigned has executed and delivered this Release
as of August 11, 1997.
--------------------------------------
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EXHIBIT G
LOCK-UP AGREEMENTS
A-48
<PAGE> 165
LOCK-UP AGREEMENT
THIS LOCK-UP AGREEMENT dated as of August 11, 1997 (the "Agreement") is
entered into by and between Express Capital Concepts, Inc., a Delaware
corporation ("Parent"), , a stockholder of Parent (the
"Stockholder") and GreyStone Technology, Inc., a California corporation (the
"Company"). Capitalized terms used and not otherwise defined herein shall have
the meanings given to such terms in the Merger Agreement (as defined below).
RECITALS
WHEREAS, reference is made to that certain Agreement and Plan of Merger and
Reorganization dated August 11, 1997 (the "Merger Agreement") among Parent,
Express Capital Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of Parent ("Merger Sub"), the Company and Stockholder;
WHEREAS, the Merger Agreement provides for, among other things, the merger
of Merger Sub with and into the Company (the "Merger") and the issuance of
shares of Common Stock of Parent to the shareholders of the Company;
WHEREAS, in connection with the Merger and the issuance of shares of Common
Stock of Parent to the shareholders of the Company, Parent and the Company
believe that it would be in the best interest of the respective stockholders and
shareholders of Parent and the Company to impose certain restrictions on the
Disposition (as defined below) of the shares of Common Stock of Parent held by
certain existing stockholders of Parent.
WHEREAS, as of the date hereof, Stockholder holds 9,550,000 shares of
Common Stock of Parent (all of such shares being referred to herein as the
"Parent Shares") and agrees that, subsequent to and contingent upon the
consummation of the Merger, the Parent Shares will be subject to certain
restrictions on Disposition (as defined below) as more fully set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto agree as follows:
1. RESTRICTIONS ON DISPOSITION. As an inducement to and in consideration of
the Parent's and the Company's agreement to enter into the Merger Agreement and
proceed with the Merger, and for other good and valuable consideration, receipt
of which is hereby acknowledged, Stockholder hereby agrees, except as permitted
in this Section 1 and in Section 2 below, not to, directly or indirectly, offer
to sell, contract to sell, transfer, assign, cause to be redeemed or otherwise
sell or dispose of any of the Parent Shares (collectively, a "Disposition").
Stockholder hereby agrees and consents to the entry of stop transfer
instructions with Parent's transfer agent against the transfer of the Parent
Shares except in compliance with this Agreement. Notwithstanding the foregoing,
Stockholder may pledge, hypothecate or otherwise grant a security interest in
all or a portion of the Parent Shares during the term of this Agreement;
provided, however, that any person or entity receiving such shares in pledge or
hypothecation or granted a security interest in such shares, shall be subject to
all of the restrictions on Disposition of such shares imposed by this Agreement
to the same extent as Stockholder.
2. PERMITTED DISPOSITIONS. During each three-month period occurring
subsequent to the Closing Date, Stockholder may effect one or more Dispositions
of that number of Parent Shares that, taken together with any other Dispositions
effected during such three-month period, does not exceed one percent (1%) of the
total number of shares of Common Stock of Parent outstanding as of the Closing
Date (after giving effect to the issuance by Parent of the Merger Shares). None
of the restrictions on Disposition contained herein shall apply to a bona fide
gift or gifts, or to transfers to family members of Stockholder, of the Parent
Shares, provided the donee, donees or transferees thereof agree to be bound by
the restrictions on Disposition contained in this Agreement.
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<PAGE> 166
3. EXPIRATION OF LOCK-UP. On the day that is 180 days after the Closing
Date, all restrictions on Disposition imposed hereunder shall expire and shall
not apply to any of the Parent Shares.
4. MISCELLANEOUS.
(a) Expiration of Agreement. This Agreement shall expire and be of no
further force or effect on the day immediately following the first anniversary
of the Closing Date.
(b) Governing Law. This Agreement shall be construed in accordance with,
and governed in all respects by, the laws of the State of California, without
giving effect to principles of conflicts of laws.
(c) Amendments. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day first set forth above.
--------------------------------------
EXPRESS CAPITAL CONCEPTS, INC.
By:
---------------------------------
Name:
---------------------------------
Title:
--------------------------------
GREYSTONE TECHNOLOGY, INC.
By:
---------------------------------
Name:
---------------------------------
Title:
--------------------------------
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EXHIBIT H
OPINION OF COUNSEL TO PARENT
A-51
<PAGE> 168
ANNEX B
CERTIFICATE OF MERGER
OF
GREYSTONE TECHNOLOGY, INCORPORATED INTO
EXPRESS CAPITAL ACQUISITION CORP.
(PURSUANT TO SECTION 252 OF THE
DELAWARE GENERAL CORPORATION LAW)
The undersigned corporation, organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, does hereby certify:
FIRST: That the name and state of incorporation of each of the constituent
corporations of the merger are as follows:
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
---- ----------------------
<S> <C>
GREYSTONE TECHNOLOGY, INCORPORATED California
EXPRESS CAPITAL ACQUISITION CORP Delaware
</TABLE>
SECOND: That an Agreement and Plan of Merger and Reorganization, dated as
of August 11, 1997 as amended on October 1, 1998, by and among EXPRESS CAPITAL
ACQUISITION CORP. and GREYSTONE TECHNOLOGY, INCORPORATED has been approved,
adopted, certified, executed, and acknowledged by each of the constituent
corporations in accordance with the requirements of Section 252(c) of the
General Corporation Law of the State of Delaware.
THIRD: That the name of the surviving corporation of the merger is Express
Capital Acquisition Corp.
FOURTH: That the surviving corporation of the merger is a Delaware
corporation.
FIFTH: That the Certificate of Incorporation of the surviving corporation
is the Certificate of Incorporation of Express Capital Acquisition Corp.
SIXTH: That the executed Agreement and Plan of Merger and Reorganization is
on file at the principal place of business of Express Capital Acquisition Corp.
located at 26 West Dry Creek Circle, Suite 600, Littleton, Colorado, 80120.
SEVENTH: That a copy of the Agreement and Plan of Merger and Reorganization
will be furnished by the surviving corporation, on request and without cost, to
any stockholder of any constituent corporation.
EIGHTH: That the authorized capital stock of GreyStone Technology,
Incorporated, a California corporation, is 50,000,000 shares of Common Stock, no
par value.
IN WITNESS WHEREOF, Express Capital Acquisition Corp. has caused this
Certificate of Merger to be signed by its President and Chief Executive Officer
on 1998.
EXPRESS CAPITAL ACQUISITION CORP.
By:
------------------------------------
Earnest Mathis, Jr.
President and Chief Executive
Officer
B-1
<PAGE> 169
ANNEX C
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EXPRESS CAPITAL CONCEPTS, INC.
Express Capital Concepts, Inc., a corporation incorporated in the State of
Delaware, hereby certifies as follows:
1. The original Certificate of Incorporation of this corporation was filed
in the office of the Secretary of State of the State of Delaware on May 18, 1988
under the name "Express Capital Concepts, Inc."
2. That the amendment and restatement of the Certificate of Incorporation
set forth in paragraph 3 hereof has been duly adopted in accordance with the
provisions of the Delaware General Corporation Law (the "DGCL") by the
affirmative vote of the holders of not less than a majority of the outstanding
capital stock of the corporation entitled to vote thereon by written consent of
the stockholders dated , 1998, following adoption by the Board of
Directors of a resolution setting forth and declaring the advisability of the
proposed amendment and restatement, all in accordance with Section 242 of the
DGCL.
3. That the Board of Directors of said corporation at a meeting duly
called, convened and held, duly adopted a resolution proposing and declaring
advisable the following restatement of the Certificate of Incorporation:
RESOLVED, that the Certificate of Incorporation of this corporation be
restated in its entirety as follows:
I.
The name of this corporation is GreyStone Digital Technology, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 229 South State Street, in the City of Dover, County of Kent, and
the name of the registered agent of the corporation in the State of Delaware at
such address is The Prentice-Hall Corporation System, Inc.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the DGCL.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is Thirty Three Million
(33,000,000) shares. Thirty Million (30,000,000) shares shall be Common Stock,
each having a par value of one-tenth of one cent ($.001). Three Million
(3,000,000) shares shall be Preferred Stock, each having a par value of
one-tenth of one cent ($.001).
Effective at the time of filing with the Secretary of State of the State of
Delaware of this Amended and Restated Certificate of Incorporation (the
"Effective Time"), each 41.66667 shares of the corporation's Common Stock, par
value $.0001 per share, then issued and outstanding shall, automatically and
without any action on the part of the respective holders thereof, be converted
into one (1) share of Common Stock, par value $.001 per share, of the
corporation. No fractional shares shall be issued and any fractional shares
shall be rounded up to the nearest whole share.
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B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the DGCL, to fix or alter from time
to time the designation, powers, preferences and rights and the qualifications,
limitations or restrictions of any wholly unissued series of Preferred Stock,
and to establish from time to time the number of shares constituting any such
series or any of them; and to increase or decrease the number of shares of any
series subsequent to the issuance of shares of that series, but not below the
number of shares of such series then outstanding. In case the number of shares
of any series shall be decreased in accordance with the foregoing sentence, the
shares constituting such decrease shall resume the status that they had prior to
the adoption of the resolution originally fixing the number of shares of such
series.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
1. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed exclusively
by one or more resolutions adopted by the Board of Directors.
2. BOARD OF DIRECTORS
a. Subject to the rights of the holders of any series of Preferred Stock to
elect additional directors under specified circumstances, and during such time
or times that the corporation is not subject to Section 2115(b) of the
California General Corporation Law (the "CGCL"), the directors shall be divided
into three classes designated as Class I, Class II and Class III, respectively.
Directors shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors. At the first annual meeting of
stockholders following the adoption of this Amended and Restated Certificate of
Incorporation (assuming the corporation is not subject to Section 2115(b) of the
CGCL), the term of office of the Class I directors shall expire and Class I
directors shall be elected for a full term of three years. At the second annual
meeting of stockholders following the adoption of this Amended and Restated
Certificate of Incorporation (assuming the corporation is not subject to Section
2115(b) of the CGCL), the term of office of the Class II directors shall expire
and Class II directors shall be elected for a full term of three years. At the
third annual meeting of stockholders following the adoption of this Amended and
Restated Certificate of Incorporation (assuming the corporation is not subject
to Section 2115(b) of the CGCL), the term of office of the Class III directors
shall expire and Class III directors shall be elected for a full term of three
years. At each succeeding annual meeting of stockholders (assuming the
corporation is not subject to sec. 2115(b) of the CGCL), directors shall be
elected for a full term of three years to succeed the directors of the class
whose terms expire at such annual meeting.
b. In the event that the corporation is subject to Section 2115(b) of the
CGCL at any time, or from time to time, Section A. 2. a. of this Article V shall
not apply and all directors shall be elected at each annual meeting of
stockholders to hold office until the next annual meeting.
c. No person entitled to vote at an election for directors may cumulate
votes to which such person is entitled, unless at the time of such election the
corporation is subject to Section 2115(b) of the CGCL. During such time or times
that the corporation is subject to Section 2115(b) of the CGCL, every
stockholder entitled to vote at an election for directors may cumulate such
stockholder's votes and give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of votes to which such
stockholder's shares are otherwise entitled, or distribute the stockholder's
votes on the same principle among as many candidates as such stockholder thinks
fit. No stockholder, however, shall be entitled to so
C-2
<PAGE> 171
cumulate such stockholder's votes unless (i) the names of such candidate or
candidates have been placed in nomination prior to the voting and (ii) the
stockholder has given notice at the meeting, prior to the voting, of such
stockholder's intention to cumulate such stockholder's votes. If any stockholder
has given proper notice to cumulate votes, all stockholders may cumulate their
votes for any candidates who have been properly placed in nomination. Under
cumulative voting, the candidates receiving the highest number of votes, up to
the number of directors to be elected, are elected.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. REMOVAL OF DIRECTORS
a. During such time or times that the corporation is subject to Section
2115(b) of the CGCL, the Board of Directors or any individual director may be
removed from office at any time without cause by the affirmative vote of the
holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.
b. At any time or times that the corporation is not subject to Section
2115(b) of the CGCL and subject to any limitations imposed by law, Section A. 3.
a. above shall no longer apply and removal shall be as provided in Section
141(k) of the DGCL.
B. BYLAW AMENDMENTS
Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be
altered or amended or new Bylaws adopted by the affirmative vote of at least
sixty-six and two-thirds percent (66 2/3%) of the voting power of all of the
then-outstanding shares of the voting stock of the corporation entitled to vote.
The Board of Directors shall also have the power to adopt, amend, or repeal
Bylaws.
2. The directors of the corporation need not be elected by written ballot
unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the corporation except
at an annual or special meeting of stockholders called in accordance with the
Bylaws or by written consent of stockholders in accordance with the Bylaws;
provided, however, that after the corporation's capital stock is listed for
trading on a national securities exchange, or the Nasdaq National Market no
action shall be taken by the stockholders by written consent.
At any time or times that the corporation is subject to Section 2115(b) of
the CGCL, stockholders holding more than five percent (5%) of the outstanding
shares of the corporation shall have the right to call a special meeting of
stockholders as set forth in Article V, B., 3 herein.
4. Advance notice of stockholder nominations for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. The liability of the directors for monetary damages shall be eliminated
to the fullest extent under applicable law.
B. This corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the CGCL) for breach of duty to the corporation and
its shareholders through bylaw provisions or through agreements with the agents,
or through shareholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL or Section 145 of
the Delaware General Corporation Law,
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<PAGE> 172
subject, at any time or times the corporation is subject to Section 2115(b) to
the limits on such excess indemnification set forth in Section 204 of the CGCL.
C. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, except as provided in
paragraph B. of this Article VII, and all rights conferred upon the stockholders
herein are granted subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting
power of all of the then-outstanding shares of the voting stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI
and VII.
IN WITNESS WHEREOF, Express Capital Concepts, Inc. has caused its corporate
seal to be hereunto affixed and this Amended and Restated Certificate of
Incorporation to be signed by Earnest Mathis, Jr., its President and Chief
Executive Officer on this day of , 1998.
--------------------------------------
Earnest Mathis, Jr.
President, Chief Executive Officer
and Secretary
C-4
<PAGE> 173
ANNEX D
BYLAWS
OF
GREYSTONE DIGITAL TECHNOLOGY, INC.,
(FORMERLY, "EXPRESS CAPITAL CONCEPTS, INC.")
A DELAWARE CORPORATION
<PAGE> 174
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
OFFICES..................................................... D-1
SECTION 1. Registered Office............................ D-1
SECTION 2. Other Offices................................ D-1
ARTICLE II
CORPORATE SEAL.............................................. D-1
SECTION 3. Corporate Seal............................... D-1
ARTICLE III
STOCKHOLDERS' MEETINGS...................................... D-1
SECTION 4. Place Of Meetings............................ D-1
SECTION 5. Annual Meetings.............................. D-1
SECTION 6. Special Meetings............................. D-2
SECTION 7. Notice Of Meetings........................... D-3
SECTION 8. Quorum....................................... D-3
SECTION 9. Adjournment And Notice Of Adjourned
Meetings..................................... D-4
SECTION 10. Voting Rights................................ D-4
SECTION 11. Joint Owners Of Stock........................ D-4
SECTION 12. List Of Stockholders......................... D-4
SECTION 13. Action Without Meeting....................... D-4
SECTION 14. Organization................................. D-4
ARTICLE IV
DIRECTORS................................................... D-5
SECTION 15. Number And Term Of Office.................... D-5
SECTION 16. Powers....................................... D-5
SECTION 17. Classes of Directors......................... D-5
SECTION 18. Vacancies.................................... D-6
SECTION 19. Resignation.................................. D-6
SECTION 20. Removal...................................... D-6
SECTION 21. Meetings..................................... D-7
SECTION 22. Quorum And Voting............................ D-7
SECTION 23. Action Without Meeting....................... D-8
SECTION 24. Fees And Compensation........................ D-8
SECTION 25. Committees................................... D-8
SECTION 26. Organization................................. D-9
ARTICLE V
OFFICERS.................................................... D-9
SECTION 27. Officers Designated.......................... D-9
SECTION 28. Tenure And Duties Of Officers................ D-9
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 29. Delegation Of Authority...................... D-10
SECTION 30. Resignations................................. D-10
SECTION 31. Removal...................................... D-10
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION.................................. D-10
SECTION 32. Execution Of Corporate Instruments........... D-10
SECTION 33. Voting Of Securities Owned By The
Corporation................................. D-11
ARTICLE VII
SHARES OF STOCK............................................. D-11
SECTION 34. Form And Execution Of Certificates........... D-11
SECTION 35. Lost Certificates............................ D-11
SECTION 36. Transfers.................................... D-11
SECTION 37. Fixing Record Dates.......................... D-12
SECTION 38. Registered Stockholders...................... D-12
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION......................... D-12
SECTION 39. Execution Of Other Securities................ D-12
ARTICLE IX
DIVIDENDS................................................... D-13
SECTION 40. Declaration Of Dividends..................... D-13
SECTION 41. Dividend Reserve............................. D-13
ARTICLE X
FISCAL YEAR................................................. D-13
SECTION 42. Fiscal Year.................................. D-13
ARTICLE XI
INDEMNIFICATION............................................. D-13
SECTION 43. Indemnification Of Directors, Employees And
Other Agents................................ D-13
ARTICLE XII
NOTICES..................................................... D-16
SECTION 44. Notices...................................... D-16
ARTICLE XIII
AMENDMENTS.................................................. D-17
SECTION 45. Amendments................................... D-17
ARTICLE XIV
LOANS TO OFFICERS........................................... D-17
SECTION 46. Loans To Officers............................ D-17
</TABLE>
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AMENDED AND RESTATED
BYLAWS
OF
GREYSTONE DIGITAL TECHNOLOGY, INC.
(FORMERLY "EXPRESS CAPITAL CONCEPTS, INC.")
A DELAWARE CORPORATION
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of the corporation in
the State of Delaware is 229 South State Street, in the City of Dover, County of
Kent, and the name of the registered agent of the corporation in the State of
Delaware at such address is the Prentice Hall Corporation System, Inc.
SECTION 2. Other Offices. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. Corporate Seal. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. Place Of Meetings. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. Annual Meetings.
(a) The annual meeting of the stockholders of the corporation, for the
purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be: (A) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (B) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (C) otherwise properly brought before
the meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual
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meeting or, in the event public announcement of the date of such annual meeting
is first made by the corporation fewer than seventy (70) days prior to the date
of such annual meeting, the close of business on the tenth (10th) day following
the day on which public announcement of the date of such meeting is first made
by the corporation. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting: (i)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (iii) the class and number of shares of the
corporation which are beneficially owned by the stockholder, (iv) any material
interest of the stockholder in such business and (v) any other information that
is required to be provided by the stockholder pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), in his
capacity as a proponent to a stockholder proposal. Notwithstanding the
foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholder's meeting,
stockholders must provide notice as required by the regulations promulgated
under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this paragraph (b). The chairman of the annual meeting
shall, if the facts warrant, determine and declare at the meeting that business
was not properly brought before the meeting and in accordance with the
provisions of this paragraph (b), and, if he should so determine, he shall so
declare at the meeting that any such business not properly brought before the
meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the procedures set
forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 5. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to Regulation 14A
under the 1934 Act (including without limitation such person's written consent
to being named in the proxy statement, if any, as a nominee and to serving as a
director if elected); and (ii) as to such stockholder giving notice, the
information required to be provided pursuant to paragraph (b) of this Section 5.
At the request of the Board of Directors, any person nominated by a stockholder
for election as a director shall furnish to the Secretary of the corporation
that information required to be set forth in the stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a director of the corporation unless nominated in accordance with
the procedures set forth in this paragraph (c). The chairman of the meeting
shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if he should so determine, he shall so declare at the meeting, and
the defective nomination shall be disregarded.
(d) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the 1934 Act.
SECTION 6. Special Meetings.
(a) Special meetings of the stockholders of the corporation may be called,
for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii)
the Chief Executive Officer, or (iii) the Board of Directors
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pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), and shall be held at such place, on such date, and at
such time as the Board of Directors, shall fix.
At any time or times that the corporation is subject to Section 2115(b) of
the California General Corporation Law ("CGCL"), stockholders holding five
percent (5%) or more of the outstanding shares shall have the right to call a
special meeting of stockholders as set forth in Section 18(c) herein.
(b) If a special meeting is properly called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
general nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of Section 7 of these Bylaws. If the notice is not given within sixty
(60) days after the receipt of the request, the person or persons properly
requesting the meeting may set the time and place of the meeting and give the
notice. Nothing contained in this paragraph (b) shall be construed as limiting,
fixing, or affecting the time when a meeting of stockholders called by action of
the Board of Directors may be held.
SECTION 7. Notice Of Meetings. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. Quorum. At all meetings of stockholders, except where otherwise
provided by statute or by the Certificate of Incorporation, or by these Bylaws,
the presence, in person or by proxy duly authorized, of the holders of a
majority of the outstanding shares of stock entitled to vote shall constitute a
quorum for the transaction of business. In the absence of a quorum, any meeting
of stockholders may be adjourned, from time to time, either by the chairman of
the meeting or by vote of the holders of a majority of the shares represented
thereat, but no other business shall be transacted at such meeting. The
stockholders present at a duly called or convened meeting, at which a quorum is
present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by statute, the Certificate of Incorporation or these Bylaws,
in all matters other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Except as otherwise provided by statute, the Certificate of Incorporation or
these Bylaws, directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by the statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes cast
by the holders of shares of such class or classes or series shall be the act of
such class or classes or series.
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SECTION 9. Adjournment And Notice Of Adjourned Meetings. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. Voting Rights. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
SECTION 11. Joint Owners Of Stock. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the Delaware General Corporation Law, Section 217(b). If
the instrument filed with the Secretary shows that any such tenancy is held in
unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. List Of Stockholders. The Secretary shall prepare and make, at
least ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
the meeting is to be held. The list shall be produced and kept at the time and
place of meeting during the whole time thereof and may be inspected by any
stockholder who is present.
SECTION 13. Action Without Meeting.
(a) No action shall be taken by the stockholders except at an annual or
special meeting of stockholders called in accordance with these Bylaws or by
written consent of stockholders in accordance with these Bylaws; provided,
however, that after the corporation's capital stock is listed for trading on a
national securities exchange or the Nasdaq National Market, no action shall be
taken by the stockholders by written consent.
SECTION 14. Organization.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary
directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to make
such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such
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rules and regulations of the Board of Directors, if any, the chairman of the
meeting shall have the right and authority to prescribe such rules, regulations
and procedures and to do all such acts as, in the judgment of such chairman, are
necessary, appropriate or convenient for the proper conduct of the meeting,
including, without limitation, establishing an agenda or order of business for
the meeting, rules and procedures for maintaining order at the meeting and the
safety of those present, limitations on participation in such meeting to
stockholders of record of the corporation and their duly authorized and
constituted proxies and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. Number And Term Of Office. The authorized number of directors
of the corporation shall be fixed in accordance with the Certificate of
Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. Powers. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
SECTION 17. Classes of Directors.
(a) Subject to the rights of the holders of any series of Preferred Stock
to elect additional directors under specified circumstances, and during such
time or times that the corporation is not subject to sec. 2115(b) of the CGCL,
the directors shall be divided into three classes designated as Class I, Class
II and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the date of adoption of
these Amended and Restated Bylaws (assuming the corporation is not subject to
sec. 2115(b) of the CGCL), the term of office of the Class I directors shall
expire and Class I directors shall be elected for a full term of three years. At
the second annual meeting of stockholders following the date of adoption of
these Amended and Restated Bylaws (assuming the corporation is not subject to
sec. 2115(b) of the CGCL), the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the date of adoption of
these Amended and Restated Bylaws (assuming the corporation is not subject to
sec. 2115(b) of the CGCL), the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders (assuming the corporation is
not subject to sec. 2115(b) of the CGCL), directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.
(b) In the event that the corporation is subject to sec. 2115(b) of the
CGCL at any time, or from time to time, Section 17(a) of these Bylaws shall not
apply and all directors shall be elected at each annual meeting of stockholders
to hold office until the next annual meeting.
(c) No person entitled to vote at an election for directors may cumulate
votes to which such person is entitled, unless, at the time of such election,
the corporation is subject to sec. 2115(b) of the CGCL. During such time or
times that the corporation is subject to sec. 2115(b) of the CGCL, every
stockholder entitled to vote at an election for directors may cumulate such
stockholder's votes and give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of votes to which such
stockholder's shares are otherwise entitled, or distribute the stockholder's
votes on the same principle among as many candidates as such stockholder thinks
fit. No stockholder, however, shall be entitled to so cumulate
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such stockholder's votes unless (i) the names of such candidate or candidates
have been placed in nomination prior to the voting and (ii) the stockholder has
given notice at the meeting, prior to the voting, of such stockholder's
intention to cumulate such stockholder's votes. If any stockholder has given
proper notice to cumulate votes, all stockholders may cumulate their votes for
any candidates who have been properly placed in nomination. Under cumulative
voting, the candidates receiving the highest number of votes, up to the number
of directors to be elected, are elected.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 18. Vacancies.
(a) Unless otherwise provided in the Certificate of Incorporation, any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other causes and any newly created directorships
resulting from any increase in the number of directors shall, unless the Board
of Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by stockholders, be filled only by the affirmative
vote of a majority of the directors then in office, even though less than a
quorum of the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
director for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified. A vacancy in the Board of
Directors shall be deemed to exist under this Bylaw in the case of the death,
removal or resignation of any director.
(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
Delaware General Corporation Law.
(c) At any time or times that the corporation is subject to Section 2115(b)
of the CGCL, if, after the filling of any vacancy, the directors then in office
who have been elected by stockholders shall constitute less than a majority of
the directors then in office, then
(1) Any holder or holders of an aggregate of five percent (5%) or more
of the total number of shares at the time outstanding having the right to
vote for those directors may call a special meeting of stockholders; or
(2) The Superior Court of the proper county shall, upon application of
such stockholder or stockholders, summarily order a special meeting of
stockholders, to be held to elect the entire board, all in accordance with
Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
SECTION 19. Resignation. Any director may resign at any time by delivering
his written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made, it shall
be deemed effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office for the unexpired portion of the term
of the Director whose place shall be vacated and until his successor shall have
been duly elected and qualified.
SECTION 20. Removal.
(a) During such time or times that the corporation is subject to Section
2115(b) of the CGCL, the Board of Directors or any individual director may be
removed from office at any time without cause by the
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affirmative vote of the holders of at least a majority of the outstanding shares
entitled to vote on such removal; provided, however, that unless the entire
Board is removed, no individual director may be removed when the votes cast
against such director's removal, or not consenting in writing to such removal,
would be sufficient to elect that director if voted cumulatively at an election
which the same total number of votes were cast (or, if such action is taken by
written consent, all shares entitled to vote were voted) and the entire number
of directors authorized at the time of such director's most recent election were
then being elected.
(b) Following any date on which the corporation is no longer subject to
Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section 20(a) above shall no longer apply and removal shall be as provided in
Section 141(k) of the Delaware General Corporation Law.
SECTION 21. Meetings.
(a) Annual Meetings. The annual meeting of the Board of Directors shall be
held immediately before or after the annual meeting of stockholders and at the
place where such meeting is held. No notice of an annual meeting of the Board of
Directors shall be necessary and such meeting shall be held for the purpose of
electing officers and transacting such other business as may lawfully come
before it.
(b) Regular Meetings. Unless otherwise restricted by the Certificate of
Incorporation, regular meetings of the Board of Directors may be held at any
time or date and at any place within or without the State of Delaware which has
been designated by the Board of Directors and publicized among all directors. No
formal notice shall be required for regular meetings of the Board of Directors.
(c) Special Meetings. Unless otherwise restricted by the Certificate of
Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the President or any two of the directors
(d) Telephone Meetings. Any member of the Board of Directors, or of any
committee thereof, may participate in a meeting by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
(e) Notice of Meetings. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
including a voice messaging system or other system or technology designed to
record and communicate messages, facsimile, telegraph or telex, or by electronic
mail or other electronic means, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) Waiver of Notice. The transaction of all business at any meeting of the
Board of Directors, or any committee thereof, however called or noticed, or
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting.
SECTION 22. Quorum And Voting.
(a) Unless the Certificate of Incorporation requires a greater number and
except with respect to indemnification questions arising under Section 43
hereof, for which a quorum shall be one-third of the exact number of directors
fixed from time to time in accordance with the Certificate of Incorporation, a
quorum of the Board of Directors shall consist of a majority of the exact number
of directors fixed from time to time by the Board of Directors in accordance
with the Certificate of Incorporation; provided, however, at any meeting whether
a quorum be present or otherwise, a majority of the directors present may
adjourn from time to time until the time fixed for the next regular meeting of
the Board of Directors, without notice other than by announcement at the
meeting.
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(b) At each meeting of the Board of Directors at which a quorum is present,
all questions and business shall be determined by the affirmative vote of a
majority of the directors present, unless a different vote be required by law,
the Certificate of Incorporation or these Bylaws.
SECTION 23. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. Fees And Compensation. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. Committees.
(a) Executive Committee. The Board of Directors may appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and provided in the
resolution of the Board of Directors shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to (i) approving or adopting, or recommending to
the stockholders, any action or matter expressly required by the Delaware
General Corporation Law to be submitted to stockholders for approval, or (ii)
adopting, amending or repealing any bylaw of the corporation.
(b) Other Committees. The Board of Directors may, from time to time,
appoint such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall any such committee have the powers denied to the Executive
Committee in these Bylaws.
(c) Term. Each member of a committee of the Board of Directors shall serve
a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to any requirements of any
outstanding series of preferred Stock and the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members of
a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d) Meetings. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the
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manner provided for the giving of written notice to members of the Board of
Directors of the time and place of special meetings of the Board of Directors.
Notice of any special meeting of any committee may be waived in writing at any
time before or after the meeting and will be waived by any director by
attendance thereat, except when the director attends such special meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. A majority of the authorized number of members of any such committee
shall constitute a quorum for the transaction of business, and the act of a
majority of those present at any meeting at which a quorum is present shall be
the act of such committee.
SECTION 26. Organization. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President (if a director), or if the President is absent, the most
senior Vice President (if a director), or, in the absence of any such person, a
chairman of the meeting chosen by a majority of the directors present, shall
preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
ARTICLE V
OFFICERS
SECTION 27. Officers Designated. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 28. Tenure And Duties Of Officers.
(a) General. All officers shall hold office at the pleasure of the Board of
Directors and until their successors shall have been duly elected and qualified,
unless sooner removed. Any officer elected or appointed by the Board of
Directors may be removed at any time by the Board of Directors. If the office of
any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors.
(b) Duties of Chairman of the Board of Directors. The Chairman of the Board
of Directors, when present, shall preside at all meetings of the stockholders
and the Board of Directors. The Chairman of the Board of Directors shall perform
other duties commonly incident to his office and shall also perform such other
duties and have such other powers, as the Board of Directors shall designate
from time to time. If there is no President, then the Chairman of the Board of
Directors shall also serve as the Chief Executive Officer of the corporation and
shall have the powers and duties prescribed in paragraph (c) of this Section 28.
(c) Duties of President. The President shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors, unless the Chairman
of the Board of Directors has been appointed and is present. Unless some other
officer has been elected Chief Executive Officer of the corporation, the
President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers, as the Board of
Directors shall designate from time to time.
(d) Duties of Vice Presidents. The Vice Presidents may assume and perform
the duties of the President in the absence or disability of the President or
whenever the office of President is vacant. The Vice Presidents shall perform
other duties commonly incident to their office and shall also perform such other
duties and have such other powers as the Board of Directors or the President
shall designate from time to time.
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(e) Duties of Secretary. The Secretary shall attend all meetings of the
stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) Duties of Chief Financial Officer. The Chief Financial Officer shall
keep or cause to be kept the books of account of the corporation in a thorough
and proper manner and shall render statements of the financial affairs of the
corporation in such form and as often as required by the Board of Directors or
the President. The Chief Financial Officer, subject to the order of the Board of
Directors, shall have the custody of all funds and securities of the
corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
SECTION 29. Delegation Of Authority. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
SECTION 30. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. Removal. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS
AND VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. Execution Of Corporate Instruments. The Board of Directors may,
in its discretion, determine the method and designate the signatory officer or
officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
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Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. Voting Of Securities Owned By The Corporation. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. Form And Execution Of Certificates. Certificates for the shares
of stock of the corporation shall be in such form as is consistent with the
Certificate of Incorporation and applicable law. Every holder of stock in the
corporation shall be entitled to have a certificate signed by or in the name of
the corporation by the Chairman of the Board of Directors, or the President or
any Vice President and by the Treasurer or Assistant Treasurer or the Secretary
or Assistant Secretary, certifying the number of shares owned by him in the
corporation. Any or all of the signatures on the certificate may be facsimiles.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue. Each certificate shall state upon the face or
back thereof, in full or in summary, all of the powers, designations,
preferences, and rights, and the limitations or restrictions of the shares
authorized to be issued or shall, except as otherwise required by law, set forth
on the face or back a statement that the corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights. Within a reasonable time after the issuance or
transfer of uncertificated stock, the corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to this section or otherwise required
by law or with respect to this section a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. Lost Certificates. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 36. Transfers.
(a) Transfers of record of shares of stock of the corporation shall be made
only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the Delaware General Corporation Law.
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SECTION 37. Fixing Record Dates.
(a) In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix, in advance, a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall, subject to
applicable law, not be more than sixty (60) nor less than ten (10) days before
the date of such meeting. If no record date is fixed by the Board of Directors,
the record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
(b) In order that the corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted, and which record date shall be not more than sixty (60) days prior
to such action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
SECTION 38. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. Execution Of Other Securities. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 34), may be signed by the Chairman of the Board of Directors, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary or
an Assistant Secretary, or the Chief Financial Officer or Treasurer or an
Assistant Treasurer; provided, however, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature, or
where permissible facsimile signature, of a trustee under an indenture pursuant
to which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an Assistant Treasurer of the corporation or
such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such officer before the bond, debenture
or other corporate security so signed or attested shall have been delivered,
such bond, debenture or other corporate security nevertheless may be adopted by
the corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased to
be such officer of the corporation.
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ARTICLE IX
DIVIDENDS
SECTION 40. Declaration Of Dividends. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation
and applicable law, if any, may be declared by the Board of Directors pursuant
to law at any regular or special meeting. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation and applicable law.
SECTION 41. Dividend Reserve. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. Indemnification Of Directors, Employees And Other Agents.
(a) Directors. The corporation shall indemnify its directors to the fullest
extent not prohibited by the Delaware General Corporation Law or any other
applicable law; provided, however, that the corporation may modify the extent of
such indemnification by individual contracts with its directors; and, provided,
further, that the corporation shall not be required to indemnify any director in
connection with any proceeding (or part thereof) initiated by such person unless
(i) such indemnification is expressly required to be made by law, (ii) the
proceeding was authorized by the Board of Directors of the corporation, (iii)
such indemnification is provided by the corporation, in its sole discretion,
pursuant to the powers vested in the corporation under the Delaware General
Corporation Law or any other applicable law or (iv) such indemnification is
required to be made under subsection (d).
(b) Employees and Other Agents. The corporation shall have power to
indemnify its employees and other agents as set forth in the Delaware General
Corporation Law or any other applicable law. The Board of Directors shall have
the power to delegate the determination of whether indemnification shall be
given to any such or other persons as the Board of Directors shall determine.
(c) Expenses. The corporation shall advance to any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director of the
corporation, or is or was serving at the request of the corporation as a
director or executive officer of another corporation, partnership, joint
venture, trust or other enterprise, prior to the final disposition of the
proceeding, promptly following request therefor, all expenses incurred by any
director in connection with such proceeding upon receipt of an undertaking by or
on behalf of such person to repay said amounts if it should be determined
ultimately that such person is not entitled to be indemnified under this Bylaw
or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
officer of the corporation (except by reason of the fact that such officer is or
was a director of the corporation in which event this paragraph shall not apply)
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, if a determination is reasonably and
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promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation.
(d) Enforcement. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors under this
Bylaw shall be deemed to be contractual rights and be effective to the same
extent and as if provided for in a contract between the corporation and the
director. Any right to indemnification or advances granted by this Bylaw to a
director shall be enforceable by or on behalf of the person holding such right
in any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within ninety (90) days of request therefor. The claimant in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. In connection with any claim for
indemnification, the corporation shall be entitled to raise as a defense to any
such action that the claimant has not met the standards of conduct that make it
permissible under the Delaware General Corporation Law or any other applicable
law for the corporation to indemnify the claimant for the amount claimed. In
connection with any claim by an officer of the corporation (except in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such executive officer is or was a
director of the corporation) for advances, the corporation shall be entitled to
raise a defense as to any such action clear and convincing evidence that such
person acted in bad faith or in a manner that such person did not believe to be
in or not opposed to the best interests of the corporation, or with respect to
any criminal action or proceeding that such person acted without reasonable
cause to believe that his conduct was lawful. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law or any other applicable law, nor an actual determination
by the corporation (including its Board of Directors, independent legal counsel
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
(e) Non-Exclusivity of Rights. The rights conferred on any person by this
Bylaw shall not be exclusive of any other right which such person may have or
hereafter acquire under any applicable statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law, or by any
other applicable law.
(f) Survival of Rights. The rights conferred on any person by this Bylaw
shall continue as to a person who has ceased to be a director, officer, employee
or other agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(g) Insurance. To the fullest extent permitted by the Delaware General
Corporation Law or any other applicable law, the corporation, upon approval by
the Board of Directors, may purchase insurance on behalf of any person required
or permitted to be indemnified pursuant to this Bylaw.
(h) Amendments. Any repeal or modification of this Bylaw shall only be
prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i) Saving Clause. If this Bylaw or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the corporation shall
nevertheless indemnify each director to the full extent not prohibited by any
applicable portion of this Bylaw that shall not have been invalidated, or by any
other applicable law. If this Section 43 shall be invalid due to the application
of the indemnification provisions of
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another jurisdiction, then the corporation shall indemnify each director to the
full extent under any other applicable law.
(j) Certain Definitions. For the purposes of this Bylaw, the following
definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony
in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and shall include,
without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of
any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority
to indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Bylaw with
respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had
continued.
(4) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer,
employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
(5) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and references to "serving
at the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries;
and a person who acted in good faith and in a manner he reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the
best interests of the corporation" as referred to in this Bylaw.
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ARTICLE XII
NOTICES
SECTION 44. Notices.
(a) Notice To Stockholders. Whenever, under any provisions of these Bylaws,
notice is required to be given to any stockholder, it shall be given in writing,
timely and duly deposited in the United States mail, postage prepaid, and
addressed to his last known post office address as shown by the stock record of
the corporation or its transfer agent.
(b) Notice To Directors. Any notice required to be given to any director
may be given by the method stated in subsection (a), or by overnight delivery
service, facsimile, telex or telegram, except that such notice other than one
which is delivered personally shall be sent to such address as such director
shall have filed in writing with the Secretary, or, in the absence of such
filing, to the last known post office address of such director.
(c) Affidavit Of Mailing. An affidavit of mailing, executed by a duly
authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) Time Notices Deemed Given. All notices given by mail or by overnight
delivery service, as above provided, shall be deemed to have been given as at
the time of mailing, and all notices given by facsimile, telex or telegram shall
be deemed to have been given as of the sending time recorded at time of
transmission.
(e) Methods of Notice. It shall not be necessary that the same method of
giving notice be employed in respect of all directors, but one permissible
method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others.
(f) Failure To Receive Notice. The period or limitation of time within
which any stockholder may exercise any option or right, or enjoy any privilege
or benefit, or be required to act, or within which any director may exercise any
power or right, or enjoy any privilege, pursuant to any notice sent him in the
manner above provided, shall not be affected or extended in any manner by the
failure of such stockholder or such director to receive such notice.
(g) Notice To Person With Whom Communication Is Unlawful. Whenever notice
is required to be given, under any provision of law or of the Certificate of
Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
(h) Notice To Person With Undeliverable Address. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall
D-16
<PAGE> 192
be reinstated. In the event that the action taken by the corporation is such as
to require the filing of a certificate under any provision of the Delaware
General Corporation Law, the certificate need not state that notice was not
given to persons to whom notice was not required to be given pursuant to this
paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. Amendments. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the
voting power of all of the then-outstanding shares of the voting stock of the
corporation entitled to vote. The Board of Directors shall also have the power
to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. Loans To Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
D-17
<PAGE> 193
DEALER PROSPECTUS DELIVERY OBLIGATION
Until , all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE> 194
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers, as well as other employees and
individuals, against expenses (including attorneys' fees), judgements, fines and
amounts paid in settlement in connection with specific actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than derivative actions) if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such actions, and the statute requires court approval
before there can be any indemnification where the person seeking indemnification
has been found liable to the corporation. The statute provides that it is not
exclusive of other indemnification that may be granted by a corporation's
bylaws, disinterested director vote, stockholder vote, agreement or otherwise.
Express Capital's amended and restated Certificate of Incorporation
provides that Express Capital is authorized to indemnify agents for breach of
duty to the corporation and its shareholders in excess of the indemnification
otherwise permitted by applicable law. Express Capital's amended Bylaws provide
that Express Capital will indemnify its directors and officers, and may
indemnify any of its employees and agents, to the fullest extent not prohibited
by applicable law. Express Capital's amended Bylaws further provide, among other
things, that Express Capital may modify the extent of such indemnification by
individual contracts with its directors and that, subject to certain exceptions.
Express Capital will not be required to indemnify any director in connection
with any proceeding (or part thereof) initiated by such director.
The Delaware General Corporation Law, permits a corporation to provide in
its certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability for (i) any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) payments of unlawful dividends or unlawful
stock repurchases or redemptions, or (iv) any transaction from which the
director derived an improper personal benefit.
Express Capital's amended and restated Certificate of Incorporation
provides that the liability of directors for monetary damages is eliminated to
the fullest extent under applicable law.
In connection with the merger, GreyStone has agreed to indemnify, defend
and hold harmless, Mr. Mathis and his representatives from damages arising out
of (i) the issuance by GreyStone of any securities of GreyStone prior to the
effective date of the merger, (ii) any claims for rescission, breach of a
representation or warranty, fraud, and breach of contract in connection with the
issuance of any securities of GreyStone prior to the effective date of the
merger, and (iii) any liability imposed under federal or state securities laws
in connection with the issuance of any securities of GreyStone prior to the
effective date of the merger. GreyStone has also agreed that it will reimburse
Mr. Mathis for any damages he suffers in connection with any portion of this
Registration Statement other than the sections related entirely to Express
Capital.
At present, there is no pending litigation or proceeding involving a
director, officer or key employee of Express Capital as to which indemnification
is being sought nor is Express Capital aware of any threatened litigation that
may result in claims for indemnification by any officer or director.
II-1
<PAGE> 195
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
2.1 Agreement and Plan of Merger and Reorganization by and among
Express Capital Concepts, Inc., Express Capital Acquisition
Corp., GreyStone Technology, Incorporated and Mr. Earnest
Mathis, Jr., dated as of August 11, 1997. See Annex A
attached hereto.
2.2 Amendment to Agreement and Plan of Merger and Reorganization
dated as of October 1, 1998 by and among Registrant, Express
Capital Acquisition Corp., GreyStone Technology,
Incorporated and Mr. Earnest Mathis, Jr. See Annex A
attached hereto.
2.3 Indemnification Agreement dated as of October 19, 1998 by
and between Mr. Earnest Mathis, Jr., Express Capital
Concepts, Inc. and GreyStone Technology, Incorporated.
*3.1 Certificate of Incorporation of the Registrant.
*3.2 Bylaws of the Registrant.
3.3 Amended and Restated Certificate of Incorporation of
Registrant, to be effective after consummation of the
proposed Merger. See Annex C attached hereto.
3.4 Amended and Restated Bylaws of the Registrant, to be
effective after consummation of the proposed Merger. See
Annex D attached hereto.
*4.1 Form of Common Stock Certificate of the Registrant.
*4.2 Form of warrant to be issued to Chathams Rowe Venture
Partners.
4.3 Form of Common Stock Certificate of the Registrant, to be
used after amendment restatement of Registrants Certificate
of Incorporation.
5.1 Legal Opinion of Mitchell Silberberg & Knupp LLP.
8.1 Tax Opinion of J.H. Cohn LLP.
23.1 Consent of Angell & Deering.
23.2 Consent of J.H. Cohn LLP.
23.3 Consent of Mitchell Silberberg & Knupp LLP (included in
Exhibit 5.1).
27.1 Financial Data Schedule of Registrant.
27.2 Financial Data Schedule of GreyStone.
99.1 GreyStone form of proxy card.
*99.2 Exchange Documentation with Chathams Rowe Venture Partners.
</TABLE>
- ---------------
* Previously filed.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE> 196
The undersigned Registrant hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request;
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective;
(3) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(4) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (3) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(5) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if. in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(6) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(7) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE> 197
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Littleton, State of
Colorado, on August 4. 1999.
EXPRESS CAPITAL CONCEPTS, INC.
By: /s/ EARNEST MATHIS
------------------------------------
President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ EARNEST MATHIS President, Secretary, Treasurer August 4, 1999
- ----------------------------------------------------- and Director
</TABLE>
II-4
<PAGE> 198
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
2.1 Agreement and Plan of Merger and Reorganization by and among
Express Capital Concepts, Inc., Express Capital Acquisition
Corp., GreyStone Technology, Incorporated and Mr. Earnest
Mathis, Jr., dated as of August 11, 1997. See Annex A
attached hereto.
2.2 Amendment to Agreement and Plan of Merger and Reorganization
dated as of October 1, 1998 by and among Registrant, Express
Capital Acquisition Corp., GreyStone Technology,
Incorporated and Mr. Earnest Mathis, Jr. See Annex A
attached hereto.
2.3 Indemnification Agreement dated as of October 19, 1998 by
and between Mr. Earnest Mathis, Jr., Express Capital
Concepts, Inc. and GreyStone Technology, Incorporated.
*3.1 Certificate of Incorporation of the Registrant.
*3.2 Bylaws of the Registrant.
3.3 Amended and Restated Certificate of Incorporation of
Registrant, to be effective after consummation of the
proposed Merger. See Annex C attached hereto.
3.4 Amended and Restated Bylaws of the Registrant, to be
effective after consummation of the proposed Merger. See
Annex D attached hereto.
*4.1 Form of Common Stock Certificate of the Registrant.
*4.2 Form of warrant to be issued to Chathams Rowe Venture
Partners.
4.3 Form of Common Stock Certificate of the Registrant, to be
used after amendment restatement of Registrants Certificate
of Incorporation.
5.1 Legal Opinion of Mitchell Silberberg & Knupp LLP.
8.1 Tax Opinion of J.H. Cohn LLP.
23.1 Consent of Angell & Deering
23.2 Consent of J.H. Cohn LLP.
23.3 Consent of Mitchell Silberberg & Knupp LLP (included in
Exhibit 5.1).
27.1 Financial data schedule of Registrant.
27.2 Financial data schedule of GreyStone.
99.1 GreyStone form of proxy card.
*99.2 Exchange documentation with Chathams Rowe Venture Partners.
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 2.3
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into as of the 19th day of
October, 1998, by and between Mr. Earnest Mathis, Jr. ("Mathis"), Express
Capital Concepts, Inc., a Delaware corporation ("Parent"), and GreyStone
Technology, Incorporated, a California corporation ("GreyStone"), with reference
to the following facts:
A. Pursuant to an Agreement and Plan of Merger and
Reorganization, dated as of August 11, 1997, among Mathis, GreyStone, Parent and
Express Capital Acquisition Corp., a Delaware corporation ("Merger Sub"), as
amended by a First Amendment to Agreement and Plan of Merger and Reorganization
of even date herewith (such Agreement and Plan of Merger and Reorganization, as
so amended, the "Merger Agreement"), GreyStone has agreed to merge with and into
Merger Sub in a transaction in which Merger Sub will be the surviving
corporation and will continue to be a wholly-owned subsidiary of Parent (the
"Merger"). In such transaction, the shareholders of GreyStone will receive
common stock, par value $.001 per share, of Parent (the "Parent Stock") exchange
for of the common stock, without par value, of GreyStone presently owned by
them.
B. The parties have agreed that the shares of Parent Stock to be
so issued will be registered under the Securities Act of 1933, as amended,
pursuant to a registration statement on Form S-4. Such registration statement is
being filed with the Securities and Exchange Commission (the "SEC"), and the
parties anticipate that one or more amendments to such registration statement
may be filed before such registration statement is declared effective by the
SEC. Such registration statement, together with each amendment thereto which may
be filed, any final prospectus contained therein and any amendment or supplement
to any thereof, are collectively referred to as the "Registration Statement".
C. The parties have agreed to indemnify each other in accordance
with the terms of this Agreement.
AGREEMENT
NOW, THEREFORE, for good and valid consideration, the receipt and
sufficiency of which is acknowledged, and intending to be legally bound, the
parties agree as follows:
1. INDEMNIFICATION BY GREYSTONE. GreyStone shall hold harmless
and indemnify Mathis and his heirs, administrators, successors and assigns from
and against, and shall compensate and reimburse each of them for, any and all
Damages which are directly or indirectly suffered or incurred by any of them or
to which any of them may otherwise become subject, insofar as such Damages arise
out of or are based on (a) any claim made with respect to, or Legal Proceeding
involving, any portion of the Registration Statement other than those
<PAGE> 2
sections listed on Exhibit A (the "Mathis Responsible Sections"), or (b) any
actual or alleged failure to deliver the Registration Statement or any
prospectus included therein to any person.
2. INDEMNIFICATION BY MATHIS. Mathis shall hold harmless and
indemnify Parent, GreyStone and their administrators, successors and assigns
from and against, and shall compensate and reimburse each of them for, any and
all Damages which are directly or indirectly suffered or incurred by any of them
or to which any of them may otherwise become subject, insofar as such Damages
arise out of or are based on any claim made with respect to, or Legal Proceeding
involving, any portion of the Mathis Responsible Sections of the Registration
Statement.
3. DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against
Mathis, GreyStone, Parent or any other Person) with respect to which GreyStone
or Mathis, as the case may be, may become obligated to hold harmless, indemnify,
compensate or reimburse any Person pursuant to this Agreement (the Person so
obligated, the "Indemnitor"), the Indemnitor shall have the obligation to defend
each indemnitee against such claim or Legal Proceeding. In connection with the
defense of any such claim or Legal Proceeding:
(a) all expenses relating to the defense of such claim or Legal
Proceeding shall be borne and paid for exclusively by the Indemnitor;
(b) Each indemnitee shall make available to the Indemnitor any
documents and materials in its possession or control that may be necessary to
the defense of such claim or Legal Proceeding;
(c) The Indemnitor shall have the right to settle, adjust or
compromise such claim or Legal Proceeding with the consent of each indemnitee
therein; provided, however, that any such settlement shall include an
unconditional and full release of each indemnitee therein and that such consent
to any settlement which does include such a release shall not unreasonably be
withheld; and
(d) if the Indemnitor, within 20 days after receipt of notice of a
claim or Legal Proceeding which it is obligated to defend hereunder, fails to
assume the defense of all indemnitees hereunder, the indemnitees shall have the
right to undertake the defense, compromise or settlement of such claim or Legal
Proceeding on behalf of and for the sole account and risk of the Indemnitor.
4. ARBITRATION. The parties agree that arbitration shall constitute
the exclusive remedy for the settlement of any dispute, controversy or claim
under, arising out of, in connection with or in relation to this Agreement or
the rights of the parties hereunder, including, without limitation, the
interpretation, coverage, performance, non-performance, breach validity or
enforceability of this Agreement and whether such dispute, controversy or claim
is arbitrable.
-2-
<PAGE> 3
The arbitration proceedings shall be accomplished in accordance with the
provisions hereof, as follows:
(a) The arbitration proceedings shall be conducted under the Commercial
Arbitration Rules of the American Arbitration Association in effect at the time
a demand for arbitration is made. To the extent that these is any conflict
between the rules of the American Arbitration Association and this arbitration
clause, this clause shall govern and determine the rights of the parties.
(b) The arbitration will take place in San Diego, California before a
single arbitrator.
(c) The decision of the arbitrator; including determination of the amount
of any Damages suffered, shall be exclusive, final, and binding on all parties,
their heirs, executors, administrators, successors, and assigns, as applicable.
(d) The costs of arbitration, including administrative fees, fees for a
record and transcript, and the arbitrator's fee, shall be borne equally by the
parties to the arbitration.
(e) Any party may require any arbitration hereunder to be an accelerated
arbitration by giving written demand for accelerated arbitration to the other
parties and the American Arbitration Association. No later than three business
days after its receipt of such demand such Association shall designate the
arbitrator to conduct the accelerated arbitration. Such arbitrator shall reach
a decision in the matter as promptly as possible and in any event shall attempt
to do so no later than 14 days after the arbitrator is designated as such by
such Association.
(f) The parties incorporate the provisions of California Code of Civil
Procedure, Section 1283.05, into this Agreement and make those provisions part
of and applicable to any proceedings arising under the terms of this Agreement.
Without limited the generality of this Section, if any claim or Legal
Proceeding arises out of, or is based upon, both the Mathis Responsible
Sections and a portion or portions of the Registration Statement other than the
Mathis Responsible Sections, the arbitrator will allocate between Mathis and
GreyStone responsibility for indemnification hereunder, and will determine the
procedures for defense hereunder, with respect to such claim or Legal
Proceeding based upon such criteria as the arbitrator may determine to be fair
and appropriate. Such criteria shall include, but not necessarily be limited
to, the relative importance to a reasonable investor of any omissions from or
misstatements in the portions of (i) the Registration Statement other than the
Mathis Responsible Sections, and (ii) the Mathis Responsible Sections, which
are involved in such claim or Legal Proceeding.
-3-
<PAGE> 4
5. DEFINITIONS. As used in this Agreement, (i) "Damages" shall
include any loss, damage, injury, liability, claim, demand, settlement,
judgment, award, fine, penalty, tax, fee (including reasonable attorneys'
fees), charge, cost (including costs of investigation) or expense of any nature,
and even if the indemnitee has been advised of the possibility of such damages;
however, "Damages" shall not include lost profits, lost savings, or other
indirect, special, incidental or consequential damages; (ii) "Legal
Proceeding" shall mean any action, suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding), hearing, inquiry, audit, examination or investigation commenced,
brought, conducted or heard by or before, or otherwise involving, any court or
other Governmental Body or any arbitrator or arbitration panel; (iii)
"Governmental Body" shall mean any: (a) nation, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other government; or (c)
governmental or quasi-governmental authority of any nature (including any
governmental division, department, agency, commission, instrumentality,
official, organization, unit, body or Entity and any court or other tribunal);
(iv) "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company, limited liability company,
joint stock company, firm or other enterprise, association, organization or
entity; and (v) "Person" shall mean any individual, Entity or Governmental Body.
6. JURISDICTION; VENUE; SERVICE OF PROCESS. Each of the parties
irrevocably submits to the jurisdiction of any California State or United
States Federal court sitting in San Diego, California in any action or
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby, and irrevocably agrees that any such action or proceeding
may be heard and determined only in such California State or Federal court. Each
of the parties irrevocably waives, to the fullest extent it may effectively do
so, the defense of an inconvenient forum to the maintenance of any such action
or proceeding. Each of the parties consents to the service of copies of the
summons and complaint and any other process which may be served in any such
action or proceeding by the mailing or delivering of a copy of such process to
such party at its address specified in or pursuant to Section 7. Each of the
parties agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.
7. NOTICES. All notices and other communications required or
permitted hereunder shall be in writing, shall be deemed duly given upon actual
receipt, and shall be delivered (a) in person, (b) by registered or certified
mail (air mail if addressed to an address outside of the country in which
mailed), postage prepaid, return receipt requested, (c) by a generally
recognized overnight courier service which provides written acknowledgment by
the addressee of receipt, or (d) by facsimile or other generally accepted means
of electronic transmission (provided that a copy of any notice delivered
pursuant to this clause (d) shall also be sent pursuant to clause (b)),
addressed as follows:
-4-
<PAGE> 5
(i) If to Mathis:
c/o Inverness Investments
26 West Dry Creek Circle, Suite 600
Littleton, Colorado 80120
Attn: Earnest Mathis, Jr.
Facsimile: (303) 794-9457
with a copy to:
Mitchell Silberberg & Knupp LLP
11377 Olympic Boulevard
Los Angeles, California 90064
Attn: Mark R. Moskowitz, Esq.
Facsimile: (310) 312-3798
(ii) If to GreyStone:
GreyStone Technology, Incorporated
4950 Murphy Canyon Road, Suite 140
San Diego, California 92123
Attn: Richard A. Smith
Facsimile: (619) 874-7007
with a copy to:
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, California 92121
Attn: Carl R. Sanchez, Esq.
Facsimile: (619) 453-3555
or to such other addresses as may be specified by like notice to the other
parties.
8. NO STRICT CONSTRUCTION. The language of this Agreement shall be
construed as a whole, according to its fair meaning and intent, and not
strictly for or against either party hereto, regardless of who drafted or was
principally responsible for drafting the Agreement or any specific term or
conditions hereof. This Agreement shall be deemed to have been drafted by all
parties hereto, and no party shall urge otherwise.
9. EXECUTION KNOWING AND VOLUNTARY. In executing this Agreement,
the undersigned acknowledge and represent that each: (a) has fully and
carefully read and considered this Agreement; (b) has been or has had the
opportunity to be fully apprized by his or its
-5-
<PAGE> 6
attorneys of the legal effect and meaning of this documents and all terms and
conditions hereof; (c) has had the opportunity to make whatever investigation or
inquiry he or it deemed necessary or appropriate in connection with the subject
matter of this Agreement; (d) has been afforded the opportunity to negotiate as
to any and all terms hereof; and (e) is executing this Agreement voluntarily,
free from any influence, coercion or duress of any kind.
10. ASSIGNMENTS. Neither this Agreement nor any rights, duties
or obligations hereunder may be assigned or delegated by any of the parties, in
whole or in part, whether voluntarily, by operation of law or otherwise. Any
attempted assignment or delegation in violation of this prohibition shall be
null and void. Subject to the foregoing, all of the terms and provisions hereof
shall be binding upon, and inure to the benefit of, the successors and assigns
of the parties. Nothing contained herein, express or implied, is intended to
confer on any person other than the parties or their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each
party and delivered to each party.
12. GOVERNING LAW. This Agreement and the legal relations among
the parties shall be governed by and construed in accordance with the laws of
the State of California applicable to contracts between California parties made
and performed in that State, without regard to conflict of laws principles.
13. SEVERABILITY. If any provision of this Agreement is too
broad to permit enforcement to its full extent, such provision shall
nevertheless be enforced to the maximum extent permitted by law, and each party
agrees that such provisions may be judicially modified accordingly in any
proceeding brought to enforce this Agreement. In the event that any portion of
this Agreement shall be held to be indefinite, invalid or otherwise entirely
unenforceable, the entire Agreement shall not fail on account thereof, and the
balance of the Agreement shall continue in full force and effect.
14. TIME OF THE ESSENCE. Time is of the essence of this
Agreement.
15. ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding of the parties hereto relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements and understandings among or
between any of the parties relating to the subject matter hereof.
16. EFFECT OF MERGER. From and after the Merger, by operation of
law all of the liabilities of GreyStone hereunder will become liabilities of
Merger Sub, and this Agreement shall continue in full force and effect.
-6-
<PAGE> 7
17. CONSTRUCTION OF MERGER AGREEMENT. Neither Section 9.3 of the
Merger Agreement, nor the Release in the form of Exhibit F to the Merger
Agreement which Mathis has executed and delivered pursuant thereto, is intended
to limit or restrict the rights of Mathis under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
/s/ EARNEST MATHIS, JR.
----------------------------------
EARNEST MATHIS, JR.
EXPRESS CAPITAL CONCEPTS, INC.
By: /s/ EARNEST MATHIS, JR.
------------------------------
Earnest Mathis, Jr.
Its: President
GREYSTONE TECHNOLOGY, INCORPORATED
By:
------------------------------
Richard A. Smith
Its: Chief Executive Officer
-7-
<PAGE> 8
17. CONSTRUCTION OF MERGER AGREEMENT. Neither Section 9.3 of the
Merger Agreement, nor the Release in the form of Exhibit F to the Merger
Agreement which Mathis has executed and delivered pursuant thereto, is intended
to limit or restrict the rights of Mathis under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
----------------------------------
EARNEST MATHIS, JR.
EXPRESS CAPITAL CONCEPTS, INC.
By:
------------------------------
Earnest Mathis, Jr.
Its: President
GREYSTONE TECHNOLOGY, INCORPORATED
By: /s/ RICHARD A. SMITH
------------------------------
Richard A. Smith
Its: Chief Executive Officer
-7-
<PAGE> 9
Exhibit A
1. Summary - The Companies - Express Capital Portion
2. Summary - Market Price Data - prices in table.
3. Selected Historical Financial Information - Express Capital Selected
Historical Financial Information.
4. Express Capital Approvals.
5. The Merger and Relate Transactions - Background of Merger - Express Capital.
6. The Merger and Related Transactions - Recommendations of the Board of
Directors and Reasons for the Merger - Express Capital's Reasons for the
Merger.
7. Express Capital Management's Discussion and Analysis of Financial Conditions
and Results of Operations.
8. Express Capital Business.
9. Express Capital Principal Shareholders.
10. Express Capital Concepts, Inc. and Subsidiary Consolidated Financial
Statements.
-8-
<PAGE> 1
Exhibit 4.3
GREYSTONE DIGITAL TECHNOLOGY, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
----------------
CUSIP 39806G 108
----------------
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIED THAT -SPECIMEN-
is the owner of
fully paid and nonassessable Common Shares, $.001 par value per share, of
GreyStone Digital Technology, Inc.
transferable on the books of the Corporation by the holder hereof in
person or by duly authorized attorney upon surrender of this certificate
properly endorsed. This Certificate and the shares represented hereby
are issued and shall be subject to all the provisions of the Certificate
of Incorporation, to all of which the holder by acceptance hereby
assents.
IN WITNESS WHEREOF, the Corporation has caused this certificate
to be signed in facsimile by its duly authorized officers and the
facsimile seal of the Corporation to be duly affixed hereto.
This Certificate is not valid unless duly countersigned by the
Transfer Agent and Registrar.
Date
/s/ /s/
Secretary President
[GreyStone Digital Technology, Inc.
Corporate Seal
Delaware]
No.
COUNTERSIGNED:
CORPORATE STOCK TRANSFER, INC.
1675 Broadway, Suite 1480
Denver, Colorado 80202
By
--------------------------------------------------------
Transfer Agent Authorized Signature
<PAGE> 2
GREYSTONE DIGITAL TECHNOLOGY, INC.
TRANSFER FEE $7.00 PER CERTIFICATE ISSUED
The corporation shall furnish, without charge, to each stockholder who
requests, a statement of the powers, designations, preferences, limitations and
relative rights of the shares of each class of stock or series thereof and the
variations in the relative rights and preferences between the shares of each
series, and the qualifications, limitations or restrictions of such preferences
or such rights and the authority of the board of directors to fix and determine
the relative rights and preferences of subsequent series.
________________________________________________________________________________
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ........Custodian........
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with right of
survivorship and not as tenants Act. ..................
in common (Estate)
Additional abbreviations may also be used though not in the above list.
________________________________________________________________________________
For Value Received, _____________________ hereby sell, assign and transfer unto
________________________________________________________________________________
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________
_______________________________________
(Please print or typewrite name and address of assignee)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
__________________________ Attorney to transfer the said stock on the books of
the within named Corporation with full power of substitution in the premises.
Dated ____________________________ X ______________________________________
________________________________________
SIGNATURE MUST BE GUARANTEED BY A NOTICE: The signature of this assignment
COMMERCIAL BANK OR TRUST COMPANY must correspond with the name as written
OR MEMBER FIRM OF ONE OF THE upon the face of the certificate in
FOLLOWING STOCK EXCHANGES: NEW YORK every particular, without alteration or
STOCK EXCHANGE, PACIFIC STOCK enlargement or any change whatever.
EXCHANGE, AMERICAN STOCK EXCHANGE,
MIDWEST STOCK EXCHANGE.
<PAGE> 1
EXHIBIT 5.1
[MITCHELL SILBERBERG & KNUPP LLP LETTERHEAD]
FILE NO. 31563-1
July, 30, 1999
Express Capital Concepts, Inc.
26 West Dry Creek Circle, Suite 600
Littleton, Colorado 80120
Re: Express Capital Concepts, Inc. Registration Statement on Form S-4
Gentlemen:
You have requested our opinion with respect to certain matters in
connection with the filing by Express Capital Concepts, Inc. (the "Company") of
a Registration Statement on Form S-4 (No. 333-65963) (the "Registration
Statement") with the Securities and Exchange Commission covering the offering
of up to 22,966,368 shares of the Company's Common Stock, $.001 par value per
share (the "Shares"), in connection with the merger (the "Merger") of GreyStone
Technology, Incorporated ("GreyStone") with and into Express Capital
Acquisition Corp. ("Acquisition Sub"), a wholly owned subsidiary of the
Company, whereupon Acquisition Sub will survive as a wholly owned subsidiary of
the Company.
In connection with this opinion, we have examined the Registration
Statement, as amended, and related Prospectus, the Company's Certificate of
Incorporation and Bylaws, the Amended and Restated Certificate of Incorporation
and the Bylaws proposed to be adopted by the Company prior to the effectiveness
of the Merger, as contemplated by the Registration Statement (the "Restated
Charter Documents"), and such other documents, corporate records and other
instruments as we deemed necessary as a basis for this opinion. We have assumed
the genuineness and authenticity of all documents submitted to us as originals,
the conformity to originals of all documents submitted to us as copies thereof
and the due execution and delivery of all documents where due execution and
delivery are a prerequisite to the effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, and assuming
the due and effective adoption of the Restated Charter Documents prior to the
effectiveness of the Merger, we are of the opinion that the Shares, when issued
in the Merger and in accordance with the terms thereof and with the Registration
Statement and related Prospectus, will be validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an Exhibit to said
Registration Statement and to use of our name therein and in the related
Prospectus. This opinion is to be used only in connection with the issuance of
the Shares while the Registration Statement is in effect.
Very truly yours,
/s/ Mitchell Silberberg & Knupp LLP
-------------------------------------
Mitchell Silberberg & Knupp LLP
<PAGE> 1
Exhibit 8.1 - Tax Opinion of J.H. Cohn LLP
[J.H. COHN LLP LETTERHEAD]
August 4, 1999
Board of Directors
GreyStone Technology, Inc.
4950 Murphy Canyon Road
San Diego, CA 92123
Dear Sirs:
You have requested our opinion concerning the Federal income tax consequences of
the proposed merger transaction involving GreyStone Technology, Inc., Express
Capital Concepts, Inc. and Express Capital Acquisition Corp. Our opinion is
based on the facts set forth in the July 1999 S-4 Amendment discussing the
proposed transaction which facts are summarized briefly below and the facts set
forth in GreyStone's July 22, 1999 tax representation letter.
Express Capital Concepts, Inc. ("Express") is a publicly traded corporation
formed in 1988 to engage in a merger transaction with a private company. It has
no business operations. GreyStone Technology, Inc. ("GreyStone") is in the
business of creating real-time, interactive and networked 3-D software and
simulations which it markets principally to the defense and entertainment
markets. GreyStone believes that its combination with Express, a publicly traded
company, will facilitate its ability to raise additional capital and increase
its visibility.
The proposed transaction is as follows. Express will engage in a 1-for-41.6667
reverse stock split with respect to its outstanding common stock. GreyStone will
be merged into Express Capital Acquisition Corp. ("Express Sub"), a wholly owned
subsidiary of Express formed to effectuate the merger. Express Sub would be the
surviving corporation in the merger. The shareholders of GreyStone will receive
shares of Express common stock that would constitute approximately 97 percent of
the outstanding common stock of Express. (Express will change its name to
GreyStone Digital Technology, Inc. However, to avoid confusion, this letter will
refer to the corporations by their original names.)
<PAGE> 2
Board of Directors 2 August 4, 1999
The proposed merger of GreyStone into Express Sub with the latter surviving the
merger and the shareholders of the former corporation receiving stock of
Express, the parent corporation of Express Sub, constitutes a forward subsidiary
merger within the meaning of section 368(a)(2)(D) of the Internal Revenue Code.
The requirements of section 368(a)(2)(D) are that substantially all the
properties of the acquired corporation (GreyStone) be acquired by the acquiring
corporation (Express Sub) in exchange for stock of a corporation controlling the
acquiring corporation (Express) and that had the acquired corporation merged
directly into the controlling corporation the transaction would have qualified
as a statutory merger under section 368(a)(1)(A). These requirements appear to
have been met in the instant case.
Express Sub will be acquiring all the assets of GreyStone solely in exchange for
Express stock. A plan of reorganization exists with a business propose
underlying the reorganization transaction. The requisite continuity of business
enterprise requirement as set forth in Reg. Section 1.368-1(d) will be present
as Express Sub will continue to carry on the historic business of GreyStone. The
one additional area of import, the continuity of interest requirement, is one
where the facts set forth in the prospectus may not be sufficient to determine
whether the requirement has been satisfied. Although the continuity of interest
rules have recently been substantially eased by Reg. Section 1.368-1(e), these
new regulations are not applicable to transactions occurring pursuant to a
written agreement which is binding on January 28, 1998 and at all times
thereafter. According to the prospectus the plan of merger was originally
adopted on August 11, 1997 (and amended October 1, 1998). The shareholder vote
has not yet taken place.
Under the new regulations, pre-merger sales of stock in the target corporation
and post-merger sales, even if pursuant to a pre-existing binding contract,
would generally be ignored for continuity of interest purposes so long as the
sale is not directly or indirectly to the issuing corporation or a party related
thereto. Under the rules in effect prior to the new regulations, continuity of
shareholder interest would not be present if shareholders of the target
corporation (GreyStone) disposed of sufficient target stock prior to the merger
and/or acquiring corporation stock following the merger such that the acquiring
corporation (Express) stock received by the target shareholders did not
represent, in the aggregate, a significant portion of the entire consideration
received by them. Although the precise percentage of the consideration which
must be in the form of stock is not established statutorily, the Internal
Revenue Service, for ruling purposes, requires that at least 50 percent of the
consideration be in the form of stock.
<PAGE> 3
Board of Directors 3 August 4, 1999
If the reorganization was not binding legally on January 28, 1998 and at all
times thereafter, so that new Reg. Section 1,368-1(e) applies, the continuity of
interest requirement should be satisfied. If the new regulation does not apply
then the continuity of interest requirement will be met unless shareholders of
GreyStone, pursuant to a plan or plans in effect at the time of the merger or
prior thereto dispose of enough GreyStone stock prior to the merger and/or
Express stock subsequent thereto such that an insufficient portion of the
consideration consists of Express stock. We have been informed that all
shareholders owning 1 percent or more of the GreyStone stock have provided
continuity of interest certificates indicating that they have no such plan or
intent and we have been provided with copies of such certificates. On the basis
of the forgoing documents and representations we have concluded that no such
plan exists. We have no actual knowledge of shareholder intent in this regard.
If the continuity of interest test were not met, the reorganization would not
constitute a tax-free reorganization. In such case, the GreyStone shareholders
would recognize gain or loss on the exchange and GreyStone would be treated for
tax purposes as having sold its assets for their fair market value in a taxable
transaction.
On the basis of the foregoing, it is our opinion that:
- the proposed transaction constitutes a tax-free reorganization for
Federal income tax purposes,
- the GreyStone shareholders will not recognize gain or loss on their
exchange of GreyStone common stock for Express common stock,
- their tax basis and holding period for their GreyStone stock will
carry over to their Express stock, and
- GreyStone, Express and Express Sub will not recognize gain or loss on
the transaction.
Pursuant to the merger, the holders of GreyStone options and warrants will be
entitled to receive stock of Express upon exercise of their options and
warrants. We have not been asked to render an opinion with respect to the tax
treatment of holders of GreyStone options and warrants and such taxpayers should
consult their own tax advisors.
Finally, we note that GreyStone has net operating loss carryovers. We were not
requested to and are not rendering an opinion concerning the availability of
such losses. The merger transaction, whereby the GreyStone shareholders receive
97 percent of Express, would not, in and of itself, give rise to a limitation of
GreyStone's losses under section 382 of the Code. As a review of the
availability of the loss carryovers was not requested of us, we have not
reviewed other ownership changes in GreyStone, if any, within the past three
years to determine whether any such limitation would be present.
<PAGE> 4
Board of Directors 4 August 4, 1999
In conclusion, we have reviewed the section entitled "The Merger and Related
Transactions - Other Matters Related to the Merger - Material Federal Income Tax
Consequences" in the Proxy Statement/Prospectus which is a part of the
registration statement on Form S-4 filed by Express with respect to the proposed
transaction. In our opinion, to the extent such section relates to statements
about federal income taxation, it is correct in all material respects.
We consent to the filing of this opinion as an exhibit to such registration
statement and to the use of our name in such section. In addition, Express is
authorized to rely on this opinion as if it were addressed to Express for
purposes of including such section in such registration statement.
Very truly yours,
/s/ EUGENE L. BERL
Eugene L. Berl
For J. H. COHN LLP
ELB:CH
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use, in Amendment No. 2 in this Registration Statement
on Form S-4, of our report dated February 22, 1999, except for the second
paragraph of Note 10 as to which the date is July 22, 1999, relating to the
consolidated financial statements of Express Capital Concepts, Inc. and
Subsidiary for the years ended December 31, 1998, 1997 and 1996 and the
reference to our firm under the caption "Selected Historical Financial
Information" and "Experts" in the Prospectus contained in said Registration
Statement.
/s/ ANGELL & DEERING
Angell & Deering
Certified Public Accountants
Denver, Colorado
August 2, 1999
<PAGE> 1
EXHIBIT 23.2
[J.H. COHN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the inclusion in the Prospectus of this Registration
Statement on amendment 2 to Form S-4, of our report dated May 16, 1999, except
for Note 16 as to which the date is July 22, 1999, relating to the financial
statements of GreyStone Technology, Incorporated ("GreyStone") as of March 31,
1999 and 1998 and for each of the three years in the period ended March 31,
1999. We also consent to the reference to our firm under the captions,
"Selected Historical Financial Information" and "Experts", in the Prospectus of
the Registration Statement.
/s/ J.H. COHN LLP
J.H. Cohn LLP
San Diego, California
August 3, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 883
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 883
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 883
<CURRENT-LIABILITIES> 168,836
<BONDS> 0
0
0
<COMMON> 480
<OTHER-SE> (168,433)
<TOTAL-LIABILITY-AND-EQUITY> 883
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 7,409
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,412
<INCOME-PRETAX> (10,821)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (887)
<NET-INCOME> (11,708)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1999
<PERIOD-END> MAR-31-1998 MAR-31-1999
<CASH> 5,083 795,480
<SECURITIES> 0 0
<RECEIVABLES> 482,856 240,477
<ALLOWANCES> 85,000 40,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 402,939 995,957
<PP&E> 2,286,497 2,289,162
<DEPRECIATION> 1,894,944 2,112,335
<TOTAL-ASSETS> 915,156 1,276,922
<CURRENT-LIABILITIES> 2,229,613 1,801,363
<BONDS> 0 0
0 0
0 0
<COMMON> 27,037,057 30,596,760
<OTHER-SE> (28,351,514) (31,121,201)
<TOTAL-LIABILITY-AND-EQUITY> 915,156 1,276,922
<SALES> 0 0
<TOTAL-REVENUES> 2,112,566 2,105,517
<CGS> 0 0
<TOTAL-COSTS> 1,181,728 1,274,177
<OTHER-EXPENSES> 5,046,643 3,942,528
<LOSS-PROVISION> 64,000 (45,000)
<INTEREST-EXPENSE> 201,941 99,944
<INCOME-PRETAX> (4,381,746) (3,166,132)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (4,381,746) (3,166,132)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,381,746) (3,166,132)
<EPS-BASIC> (.33) (.22)
<EPS-DILUTED> 0 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
GREYSTONE TECHNOLOGY, INCORPORATED
4950 Murphy Canyon Rd.
San Diego, California 92123
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE SPECIAL
MEETING OF STOCKHOLDERS, , 1999.
KNOW ALL MEN BY THESE PRESENTS that I, the undersigned stockholder of
GreyStone Technology, Incorporated, a California corporation (the "Company"), do
hereby nominate, constitute, and appoint Richard A. Smith, Thomas D. Aldern, Jon
Reynolds, or any of them, my true and lawful attorney(s) with full power of
substitution for me and in my name, place and stead, to vote all of the Common
Stock of the Company standing in my name on its books on 1999, at the
Special Meeting of its Stockholders to be held on 1999 at the offices
of GreyStone Technology, Incorporated, 4950 Murphy Canyon Rd., San Diego,
California 92123, at 9:00 a.m., local time, and at any and all postponements or
adjournments thereof.
(1) To consider and vote upon a proposal to approve and adopt the Agreement and
Plan of Merger dated as of August 11, 1997, as of on October 1, 1999 (the
"Merger Agreement"), among Express Capital Concepts, Inc., Express Capital
Acquisition Corp., GreyStone Technology, Incorporated, and Earnest Mathis,
Jr. This merger agreement provides for the merger of the Company with a
subsidiary of Express Capital Concepts, Inc. Holders of GreyStone Technology
common stock and options exercisable for GreyStone Technology common stock
will be entitled to receive shares of Express Capital Concepts common stock
and warrants exercisable for Express Capital Concepts common stock in
exchange for all of these GreyStone Technology securities.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(2) In their discretion, to transact any other business that may properly come
before the Special Meeting.
ALL SHARES WILL BE VOTED AS DIRECTED HEREIN AND, UNLESS OTHERWISE DIRECTED, WILL
BE VOTED "FOR" PROPOSAL 1 AND IN THE DISCRETION OF THE PERSON VOTING THE PROXY
WITH RESPECT TO ANY OTHER BUSINESS PROPERLY BROUGHT BEFORE THE MEETING.
<PAGE> 2
The undersigned acknowledges receipt of the Notice of Special Meeting and a
proxy statement/prospectus, and revokes all prior Proxies for said meeting. This
Proxy, when properly executed, will be voted in the manner directed herein by
the undersigned stockholder.
-------------------------
Signature
-------------------------
Signature if jointly held
DATED: ___________, 1999
Please sign exactly as
your name appears hereon.
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. Make
sure that the name on
your stock certificate(s)
is exactly as you
indicate above. Please
mark, sign, date and
return this Proxy Card
promptly using the
enclosed self-addressed,
postage prepaid envelope.
