SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10 - K
[X] ANNUAL REPORT PURSUANT TO SECTION l3 OR l5(d) OF
THE SECURITIES EXCHANGE ACT OF l934
For the fiscal year ended December 31, 1999 Commission file number 0-25942
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to ______.
SWWT, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1167603
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3492 W. 109th Circle, Westminster, Colorado 80030
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 460-8017
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
------------------- ------------------------------------
None Not Applicable
Securities registered pursuant to Section l2(g) of the Act:
Common Stock, par value $.001 per share
---------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act of
l934 during the preceding l2 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No --- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant on April 11, 2000, was approximately $6,091,254. On such date, the
last sale price of registrant's common stock was $4.875 per share.
Indicate number of shares outstanding of each of the registrant's classes
of common stock, as of April 11, 2000.
Class Outstanding on April 11, 2000
Common Stock, par value $.001 per share 3,122,254
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
PART I
Item 1. Business
General
SWWT, Inc., formerly known as SweetWater, Inc. (the "Company" or "SWWT"),
was incorporated in Colorado in March 1991 and re-incorporated in Delaware in
September 1993. The Company's principal office is located at 3492 W. 109th
Circle, Westminster, Colorado 80030 and its telephone number is 303/460-8017.
Prior to February 1998, the Company was engaged in the manufacture and sale
of portable water filtration and purification devices. On February 6, 1998, the
Company sold substantially all of its assets to Cascade Designs, Inc., a
Washington corporation ("Cascade"), pursuant to an Asset Purchase Agreement
dated as of October 21, 1997, for a purchase price of $1,633,425 in cash (the
"Sale"). As a result of the Sale, the Company's only significant asset is cash
and cash equivalents of approximately $1.2 million. The Company has no further
operating business, and has reduced its management and administrative staff to
one part-time employee. The Company plans to use its cash to pay ongoing general
and administrative expenses, which are anticipated to be minimal, and to pursue
potential business combination (a "Business Combination") transactions.
During 1999, the Company considered several possible Business Combinations
and conducted negotiations with one potential candidate. The Board of Directors
continuously explores opportunities to effect a Business Combination with a
privately-held business which the Board believes may have significant growth
potential. As the Company competes for desirable acquisition candidates with a
large number of entities with significantly greater financial resources and
technical expertise than the Company, the Company cannot be assured that it will
succeed in its efforts to conclude a Business Combination. If a Business
Combination is effected, the success of the Company will depend to a great
extent on the operations, financial condition, management and prospects of the
entity, if any, with which the Company may merge or which it may acquire. As the
Company has not consummated any transaction with a particular business entity,
the specific risks presented by such business cannot be described or assessed at
this time. Such business may involve an unproven product, technology or
marketing strategy, the ultimate success of which cannot be assured and such
business may be in competition with larger, more established firms over which it
will have no competitive advantage. The Company's new business opportunity may
be highly illiquid and could result in a total loss to the Company if the
opportunity is unsuccessful. Given the Company's limited resources, it is
expected that the Company will not be in a position to diversify this risk by
acquiring an interest in more than one business.
Depending on the size and nature of the entity, if any, which may be a
candidate for a potential Business Combination, the Company may utilize cash,
equity, debt or a combination thereof to increase the amount of capital
available for a Business Combination or to finance the operation of any acquired
business. Although the Company believes additional capital may be required, the
necessity for and the amount and nature of any future borrowings or other
financings by the Company will depend on numerous considerations including the
Company's capital requirements, its perceived ability to service such debt and
prevailing conditions in the financial markets and the general economy. No
assurance can be made that additional capital
2
<PAGE>
will be available on terms acceptable to the Company. If the Company issues
additional equity to raise capital or to acquire a new business, the percentage
ownership of the current shareholders could be significantly reduced and an
"ownership change" could occur for tax purposes. An "ownership change" could
adversely affect the Company's ability to use its net operating loss
carryforwards.
Although the Company is subject to regulation under the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended,
management believes the Company is not subject to regulation under the
Investment Company Act of 1940, as amended (the "Investment Company Act")
insofar as the Company is not engaged in the business of investing or trading in
securities. In the event the Company engages in business combinations which
result in the Company holding passive investment interests in a number of
entities or in the event the Company is unable to consummate a Business
Combination for a substantial period of time, the Company could be subject to
regulation under the Investment Company Act. In such event, the Company would be
required to register as an investment company, and could incur significant
registration and compliance costs and would be subject to extensive regulation.
Description of Prior Business
Prior to the Sale, the Company was engaged in manufacturing and
distributing portable water filtration and purification devices for outdoor use
(the "Outdoor Business"). Since its inception, the Company engaged primarily in
product development and incurred operating losses resulting in an accumulated
deficit of approximately $11.3 million as of December 31, 1999.
During 1997, the Company reduced its personnel, discontinued its research
and development efforts and initiated a cost containment program to reduce
general and administrative expenses, conserve its cash resources and enable the
Company to concentrate its resources on its Outdoor Business. In July 1997, the
Board reviewed the financial results for the quarter ended June 30, 1997, the
moderate growth rate in the market for the Company's outdoor product in the 1997
selling season, the increased competition within such market, the increased
market share of the Company's principal competitor, and the potential for the
Outdoor Business to generate sufficient revenue to enable the Company to achieve
profitability. The Board then authorized Dillon Read, together with members of
management, to contact entities which they believed may have an interest in
purchasing the Outdoor Business. As a result of such process, the Board approved
the Sale to Cascade which was approved by the shareholders and completed in
February 1998.
In May 1997, the Company entered into an agreement (the "Management
Agreement") with Eric M. Reynolds, Patrick E. Thomas and Jerry L. Cogdill, each
of whom was an executive officer of the Company (collectively, "Management"),
pursuant to which Management agreed to remain with the Company through January
31, 1998, in exchange for certain performance bonuses and a right of first
refusal to purchase the Outdoor Business which would become effective in the
event (i) certain performance targets were met and (ii) the Company elected to
sell such business within a specified period after December 31, 1997. As a
result of the Sale, the three members of Management, as a group, received an
aggregate bonus equal to $523,000. As the determination to sell the Outdoor
Business was made prior to December 31, 1997, the right of first refusal was not
available to Management under the terms of the Management Agreement.
3
<PAGE>
Recent Developments
On April 14, 2000, the Company and its wholly owned subsidiary, ENWC
Acquisition, Inc., a Delaware corporation ("ENWC"), entered into a merger
agreement (the "Merger Agreement") with E-Newco, Inc., a Delaware corporation
("E-Newco"), which is attached as an Exhibit 2.1 and is incorporated herein by
reference. Under the terms of the Merger Agreement, the Company will issue
757,772 shares of its convertible preferred stock, par value $0.001 per share
(the "Series B Preferred Stock"), to the stockholders of E-Newco in exchange for
their shares of E-Newco common stock. Under the terms of the Merger Agreement,
E-Newco will merge with ENWC (the "Merger") and will become a wholly owned
subsidiary of the Company. Under the terms of the certificate of designations of
the Series B Preferred Stock, which is attached as Exhibit 3.1 and is
incorporated herein by reference, the Series B Preferred Stock will
automatically convert into an aggregate of 75,777,162 shares of Common Stock
following the approval by the stockholders of the Company of the requisite
increase to the amount of authorized Common Stock and the receipt by the Company
of additional equity financing of at least $15.0 million. The holders of the
Series B Preferred Stock to be issued in connection with the Merger will vote
with the holders of the Common Stock on an as converted basis and will possess
approximately 95.5% of the voting power outstanding after the Merger. Upon
completion of these transactions, but without giving effect to the receipt of
the additional equity financing, the Company will have outstanding approximately
79,347,851 shares of Common Stock, on an as converted and fully diluted basis,
of which the current stockholders of E-Newco will own approximately 95.5%.
If the Company does not receive additional equity financing of at least
$15.0 million within 180 days of the consummation of the transactions
contemplated by the Merger Agreement, the holders of the Common Stock may elect
to cause the Company to redeem the outstanding shares of Series B Preferred
Stock at a redemption price equal to a pro-rata portion of the Company's cash
balance, if any, at the date of redemption.
The Company is expected to pay a one-time cash dividend to its pre-Merger
stockholders in an amount equal to the cash on the Company's balance sheet
immediately prior to the effective time of the Merger less expenses related to
the Merger and the settlement of certain claims made in connection with a prior
transaction. See "Item 3 - Legal Proceedings."
In connection with the transactions contemplated by the Merger Agreement,
three of the current directors of the Company will resign as members of the
board of directors of the Company, and Mr. Jon Diamond and two other designees
of E-Newco will become members of the board. In addition, Mr. Diamond will
become the President and Chief Executive Officer of the Company.
Following the completion of the transactions contemplated by the Merger
Agreement, the Company expects that its stockholders will act by written consent
to, among other things, change the name of the Company, increase the authorized
capital stock of the Company, make certain other modifications to the
certificate of incorporation and by-laws of the Company, and make changes to the
composition of the board of directors of the Company.
The transactions contemplated by the Merger Agreement are expected to close
prior to the end of April 2000 and will be subject to customary conditions.
There can be no
4
<PAGE>
assurance that the transactions contemplated by the Merger Agreement will
be consummated.
Employees
At December 31, 1999, the Company had one part-time employee.
Item 2. Properties
The Company's administrative offices are located at 3492 W. 109th Circle,
Westminster, Colorado 80030, in space supplied by the Company's Chief Executive
Officer at no cost to the Company.
Item 3. Legal Proceedings
On March 28, 2000, the Company received a communication making certain
claims with respect to a prior transaction. On April 13, 2000, the Company
entered into an agreement to settle such claims. Under the agreement, the
Company, without admitting liability, will make a one-time payment to the
claimant of $250,000, will reimburse related expenses of the claimant up to
$50,000 and will receive an unconditional release from the claimant. The
payments will be made prior to the closing of the Merger and are a condition
precedent to the consummation of the Merger.
In 1996, the Company received a communication from a patent holder, which
was a competitor of the Company, offering to license such patent to the Company
with respect to an accessory part of two of the Company's products. Although the
Company did not believe the competitor's patent would be upheld if judicially
tested, given the potential costs associated with patent claims, the Company
elected to redesign the accessory part in a manner which it believed should
avoid potential claims with respect to future products sold by the Company.
Although the Company notified the competitor of its actions and has not received
a response thereto, no assurance can be given that a claim for infringement will
not be made against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a stockholders' vote during the last
quarter of the fiscal year ended December 31, 1999.
5
<PAGE>
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters
Trading of the Company's Common Stock has been sporadic and in small
volumes since its initial public offering in January 1994. The Company cannot be
assured that an established public trading market will develop or be sustained.
The Common Stock has been trading in the over-the-counter market under the
symbol "SWWT" since May 14, 1997. The following table sets forth for the periods
indicated the range of high and low bid quotations for the Company's Common
Stock since January 1, 1998 as reported by dealers appearing as market makers on
the OTC Bulletin Board. These quotations represent inter-dealer prices, without
retail mark-up, mark-down or commissions and do not necessarily represent actual
transactions. The Company believes that the number of beneficial owners was at
least 300 as of April 11, 2000.
1999 HIGH LOW
Fourth Quarter 1.7500 0.7500
Third Quarter 1.8125 1.2813
Second Quarter 1.5625 0.2800
First Quarter 0.3125 0.2800
1998
Fourth Quarter 0.3400 0.3100
Third Quarter 0.7200 0.3400
Second Quarter 0.5000 0.5000
First Quarter 1.3700 0.5000
The Company has never paid a dividend and does not anticipate payment of
dividends in the foreseeable future unless in connection with the Merger.
6
<PAGE>
Item 6. Selected Financial Data
The selected financial data presented below for the years ended December
31, 1995 through December 31, 1999 are derived from the financial statements of
the Company. No dividends have been paid for any of the periods presented. The
financial data set forth below should be read in conjunction with the financial
information included elsewhere herein and "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales $ 0 $ 0 $ 0 $ 0 $ 0
Costs and Expenses:
General & Administrative 128 203 289 628 249
Sales & Marketing - - 56 267 -
Research & Development - - 237 908 -
Operating Income (Loss) (128) (203) (582) (1,803) (249)
Other Income, net 59 62 246 128 29
Net (Loss) from Continuing Operations (69) (141) (336) (1,675) (220)
Net (Loss) from Continuing $ (0.02) $(0.05) $(0.11) $(0.55) $(0.11)
Operations per Common
Share - Basic and Diluted
Weighted Average number of 3,122 3,122 3,094 3,065 1,949
Common shares outstanding (1)
December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ---------- ----------- ------------ ------------
Balance Sheet Data:
Working Capital $1,167 $ 1,236 $1,372 $ 2,178 $ 5,487
Total Assets 1,195 1,251 1,941 3,309 7,506
Long Term Debt - - - - 208
Total Liabilities 28 15 569 617 616
Accumulated earnings (deficit) (11,276) (11,207) (11,066) (9,742) (5,492)
Stockholders' equity 1,167 1,236 1,372 2,693 6,890
</TABLE>
(1) See Note 2 to financial statements for information with respect to the
calculation of share and per share data.
7
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion contains, in addition to historical information,
forward-looking statements. The forward-looking statements were prepared on the
basis of certain assumptions which relate, among other things, to the estimated
expenses of the Company. Even if the assumptions on which the projections are
based prove accurate and appropriate, the actual results of the Company's
operations in the future may vary widely from the forward-looking statements
including herein.
General
On February 6, 1998, the Company completed the sale of substantially all of
its assets to Cascade. The selected financial data for the years ended December
31, 1995 through December 31, 1998, have been restated under Accounting
Principles Board Opinion No. 30, as a result of the execution of the Asset
Purchase Agreement and shareholder approval obtained on February 5, 1998. The
following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Company's Financial Statements
and the Notes thereto included in this Form 10-K.
Results of Operations
1999 Compared to 1998 - Continuing Operations
Net loss from continuing operations decreased from a loss of $141,000 or
$0.05 per share, to a loss of $69,000 or $0.02 per share in 1998 and 1999,
respectively. The decreased loss was primarily due to reduced operating expenses
as a result of the sale of substantially all the assets of the Company and
reduction in the salary of the one part-time employee, which were partially
offset by increased legal expenses in connection with a potential Business
Combination.
1998 Compared to 1997 - Continuing Operations
Net loss from continuing operations decreased from a loss of $336,000 or
$0.11 per share, to a loss of $141,000 or $0.05 per share in 1997 and 1998,
respectively. The decreased loss was primarily due to reduced operating expenses
as a result of the sale of substantially all the assets of the Company.
1998 Compared to 1997 - Discontinued Operations
Net loss on discontinued operations decreased 100% from a loss of $849,000
or $0.27 per share in 1997 to zero in 1998 as a result of the disposal of
discontinued operations in February 1998 and the recognition of a 1998 loss on
disposal of discontinued operations of $157,000 in the year ended December 31,
1997.
8
<PAGE>
Liquidity and Capital Resources
Cash and cash equivalents and short term investments decreased by 1% from
$1,251,000 at December 31, 1998 to $1,192,000 at December 31, 1999, due to the
loss from continuing operations.
Since its inception, the Company has been engaged primarily in product
development and has incurred operating losses resulting in an accumulated
deficit of approximately $11.3 million as of December 31, 1999. Operating losses
increased in 1996 as a result of the Company's efforts to develop a water
filtration and purification device for the home use market. The Company
suspended its efforts to manufacture and market this product, reduced its
personnel and initiated a cost containment program designed to reduce general
and administrative costs, and conserve its cash reserves. In April 1997, the
Company sold the plans, designs and technology associated with the home use
product and realized net proceeds of approximately $210,000. In February 1998,
the Company sold the Outdoor Business, which represented substantially all of
its assets, to Cascade and realized proceeds of $1,633,425. Immediately after
the closing of the Sale and payment of related and retained liabilities, the
Company's assets were approximately $1.4 million.
The Company plans to use its cash to pay ongoing general and administrative
expenses, which are anticipated to be minimal, and to pursue potential Business
Combination transactions. Depending on the size and nature of the entity, if
any, which may be a candidate for a potential Business Combination, the Company
may utilize cash, equity, debt or a combination thereof to increase the amount
of capital available for a Business Combination or to finance the operation of
the acquired business. Although the Company believes additional capital may be
required, the necessity for and the amount and nature of any future borrowings
or other financings by the Company will depend on numerous considerations
including the Company's capital requirements, its perceived ability to service
such debt and prevailing conditions in the financial markets and the general
economy. No assurance can be made that additional capital will be available on
terms acceptable to the Company.
Item 7A. Qualitative and Quantitative Disclosures about Market Risk
The Company is not exposed to market risk related to changes in interest
rates. The Company does not use derivative financial instruments.
9
<PAGE>
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SWWT, Inc.:
We have audited the accompanying balance sheets of SWWT, INC. (formerly
SweetWater, Inc.) (a Delaware corporation) as of December 31, 1999 and 1998, and
the related statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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 SWWT, Inc. as of December 31,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
February 21, 2000, (except with respect to
the matters described in note 8,
as to which the date is April 14, 2000).
10
<PAGE>
SWWT INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1999 1998
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $1,191,670 $ 1,251,257
Prepaids and other current assets 3,000 -
--------- ---------
Total assets $1,194,670 $ 1,251,257
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 27,689 $ 15,424
------- ------
Total liabilities 27,689 15,424
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 8,000,000 shares authorized; 3,122,254 and
3,122,254 shares issued and outstanding at December 31, 1999 and 1998,
after deducting 71,734 and 71,734
shares held in treasury, respectively 3,122 3,122
Additional paid-in capital 12,440,186 12,440,186
Accumulated deficit (11,276,327) (11,207,475)
------------ ------------
Total stockholders' equity 1,166,981 1,235,833
------------ ------------
Total liabilities and stockholders' equity $ 1,194,670 $ 1,251,257
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
11
<PAGE>
SWWT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NET SALES
$ - $ - $ -
OPERATING EXPENSES:
Sales and marketing 55,910
Research and development 236,673
General and administrative 127,874 203,918 289,429
----------- ------------ ------------
Total operating expenses 127,874 203,918 582,012
----------- ------------ ------------
INCOME (LOSS) FROM OPERATIONS (127,874) (203,918) (582,012)
----------- ------------ ------------
OTHER INCOME (EXPENSE)
Gain on sale of technology and fixed assets - - 202,497
Interest income 59,022 62,464 46,870
Interest expense and other - - (3,536)
----------- ------------ ------------
59,022 62,464 245,831
----------- ------------ ------------
NET INCOME (LOSS) FROM CONTINUING (68,852) (141,454) (336,181)
OPERATIONS
(LOSS) FROM DISCONTINUED OPERATIONS - - (848,872)
(LOSS) FROM DISPOSAL OF DISCONTINUED
OPERATIONS, including provision of $50,000 for
operating losses during period prior to completion
of sale - - (156,997)
NET (LOSS) $ (68,852) $ (141,454) $ (1,342,050)
=========== ============ ============
INCOME (LOSS) PER COMMON SHARE-
BASIC AND DILUTED
(Loss) from continuing operations $ (.02) $ (0.05) $ (0.11)
(Loss) from discontinued operations - - (0.27)
(Loss) from disposal of discontinued - - (0.05)
operations
----------- ------------ ------------
Net (loss) $ (.02) $ (0.05) $ (0.43)
=========== ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 3,122,254 3,121,726 3,094,330
=========== ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
12
<PAGE>
SWWT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock Additional
------------------- Deferred Paid-in Accumulated
Shares Amount Compensation Capital Deficit Total
------ ------ ------------ ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1996 3,067,382 $3,068 $(12,366) $12,425,783 $ (9,723,971) $2,692,514
Common stock issued to 401(k) Plan 50,871 50 -- 21,594 -- 21,644
Treasury stock purchase from a stockholder, at
cost (2,335) (2) -- (138) -- (140)
Unearned balance of deferred compensation -- -- 12,366 (12,366) -- --
Net loss -- -- -- -- (1,342,050) (1,342,050)
-------- ----- ------ --------- ---------- ---------
BALANCES, December 31, 1997 3,115,918 3,116 -- 12,434,873 (11,066,021) 1,371,968
Common stock issued to 401(k) Plan 6,336 6 -- 5,313 -- 5,319
Net loss -- -- -- -- (141,454) (141,454)
-------- ----- ------ --------- ---------- ---------
BALANCES, December 31, 1998 3,122,254 3,122 -- 12,440,186 (11,207,475) 1,235,833
Net Loss -- -- -- -- (68,852) (68,852)
-------- ----- ------ --------- ---------- ---------
BALANCES, December 31, 1999 3,122,254 $3,122 $ -- $12,440,186 $(11,276,327) $1,166,981
========= ===== ======= ========== ============ =========
</TABLE>
The accompany notes to financial statements are an integral part of these
statements.
13
<PAGE>
SWWT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(68,852) $(141,454) $ (1,342,050)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization - - 174,783
Gain on sale of technology and fixed assets - - (202,497)
Issuance of treasury stock to 401(k) Plan - 5,319 21,644
Accrued loss for disposal of discontinued
operations - (156,997) 156,997
Changes in assets and liabilities-
Prepaids and other current assets (3,000) 2,476 48,812
Accounts payable and accrued liabilities 12,265 (231,040) (246,892)
Accrued salaries and employee benefits - (165,620) 72,638
Net change in operating assets of discontinued
operations - - 171,294
------- -------- ----------
Net cash used in operating activities (59,587) (687,316) (1,145,271)
------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets related to discontinued
operations - - (36,183)
Proceeds from sale of technology - - 229,074
Proceeds from sales of short-term investments - - 440,659
Proceeds from sale of assets, net of costs - 970,497 -
------- -------- ----------
Net cash provided by investing, activities $ - $ 970,497 $ 633,550
------- -------- ----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
14
<PAGE>
SWWT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-------------------------------------------------------
1999 1998 1997
------------- ----------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock $ - $ - $ (140)
------------- --------------- --------------
Net cash used in financing activities - - (140)
------------- --------------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (59,587) 283,181 (511,861)
CASH AND CASH EQUIVALENTS, beginning of period 1,251,257 968,076 1,479,937
-------------
--------------- --------------
CASH AND CASH EQUIVALENTS, end of period $1,191,670 $ 1,251,257 $ 968,076
============= =============== ==============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Cash paid for interest $ - $ - $ 3,536
=============
============== ==============
Unearned balance of deferred compensation plan $ $ $ 12,366
============= =============== =============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
15
SWWT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(1) BUSINESS, DISCONTINUED OPERATIONS AND CONTINUING OPERATIONS
-----------------------------------------------------------
Business
SWWT, Inc., formerly known as SweetWater, Inc. (the "Company"), specialized in
the development, marketing and sale of water filtration and purification devices
and technologies to address health concerns resulting from the microbiological
contamination of drinking water. The Company's products had been principally
marketed to outdoor supply retailers across the United States. A significant
portion of the Company's revenues were derived from sales to one national
outdoor supply retailer.
Since its inception, the Company had incurred significant operating losses and
cash flow deficits. Operating losses increased in 1996, as a result of the
Company's efforts to develop a water filtration and purification device for the
home use market. During 1996, the Company actively pursued the establishment of
a joint strategic alliance to manufacture and market the home use product;
however, the Company was not successful in locating an industry partner to
manufacture and market this potential product. Accordingly, the Company
suspended its efforts to manufacture and market this product, sold the plans,
designs and technology associated therewith in April 1997 and realized net
proceeds of approximately $210,000.
During 1997, the Company reduced its personnel, discontinued its research and
development efforts and initiated a cost containment program designed to reduce
general and administrative costs, conserve its cash reserves and enable the
Company to concentrate its resources on the manufacture and sale of its portable
water filtration and purification products (the "Outdoor Business").
Discontinued Operations
On October 21, 1997, the Company and Cascade Design, Inc. ("Cascade") executed
an Asset Purchase Agreement (the "Sale Agreement") pursuant to which the Company
agreed to sell substantially all the operations and operating assets of the
Company related to the manufacture and distribution of portable water filtration
and purification products for outdoor use, to Cascade (the "Sale Transaction"),
for cash. The Sale Transaction was approved by the shareholders of the Company
on February 5, 1998, and closing of the sale occurred on February 6, 1998. Upon
closing, the Company changed its name to SWWT, Inc.
16
<PAGE>
In May 1997, the Company and Eric M. Reynolds (President, Chief Executive
Officer and a director of the Company), Patrick E. Thomas (Vice President and
Chief Financial Officer of the Company), and Jerry L. Cogdill (Chief of
Operations for the Company) (collectively, "Management"), entered into an
agreement (the "Management Agreement") pursuant to which Management agreed to
remain with the Company through January 31, 1998, in exchange for certain
performance bonuses and a right of first refusal to purchase the Outdoor
Business under certain conditions. Since the Company entered into the Sale
Agreement, the right of first refusal did not occur. Management received a
bonus, based on the price paid by Cascade, of approximately $523,000, of which
approximately $114,000 was earned and accrued at December 31, 1997, and the
remainder is factored into the "accrued loss for disposal of discontinued
operations."
The Company had net sales for the year ended 1997 of approximately $1,638,000.
Continuing Operations
Immediately after closing the Sale Transaction and paying related and retained
liabilities, the Company's assets were limited to approximately $1.4 million in
cash and cash equivalents. The Company has no further operating business and its
management and administrative staff have been reduced to a minimum required to
maintain and to fulfill its reporting obligations. The Board of Directors is
exploring opportunities to effect an acquisition, whether by merger, exchange or
issuance of capital stock, acquisition of assets or other similar business
combination, with a privately-held business.
In the statements of operations for the year ended December 31, 1997, the
financial statement balances for sales and marketing and research and
development represent the operating expenses incurred to develop the home use
water purification technology which was sold in the second quarter of 1997.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The balance sheet as of December 31, 1999 and 1998, and the statements of
operations for the three years ending December 31, 1999, have been restated
under Accounting Principles Board Opinion No. 30 as a result of the execution of
the Sale Agreement and shareholder approval obtained on February 5, 1998.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all cash and
highly liquid investments with an original maturity of three months or less to
be cash equivalents. As of December 31, 1999 and 1998, the Company's cash and
cash equivalents consisted of demand deposits, and money market accounts in
banks and other financial institutions and governmental securities with
maturities less than 90 days, which approximated market value.
17
<PAGE>
Income Taxes
The Company accounts for income taxes according to the provisions of Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS No.
109). SFAS No. 109 requires recognition of deferred income tax assets and
liabilities for the expected future income tax consequences of temporary
differences between the financial reporting and tax bases of assets and
liabilities and carryforwards. Such deferred income tax assets and liabilities
are based on enacted tax laws. SFAS No. 109 requires recognition of deferred tax
assets for the expected future effects of all deductible temporary differences,
loss carryforwards and tax credit carryforwards. Deferred tax assets are then
reduced, if deemed necessary, by a valuation allowance for the amount of any tax
benefits which, more likely than not, based on current circumstances, are not
expected to be realized (Note 5).
Treasury Stock
Treasury stock purchases are accounted for at cost, and are reflected as a
reduction of common stock and additional paid-in capital in the accompanying
balance sheets.
Comprehensive Income
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No.
130 establishes standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements. For each
period presented there are no differences between Net Income (Loss) and
Comprehensive Income (Loss).
Basic and Diluted Loss per Common Share
Loss per common share and common equivalent share for each period presented is
computed using the sum of the weighted average number of shares of common stock
outstanding. Fully diluted shares that would result from the exercise of common
stock options would be anti-dilutive and thus are not presented.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
Such estimates and assumptions affect the reported amounts of assets and
liabilities as well as disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenue and
expense during the reporting period. Actual results could differ from those
estimates.
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(3) STOCKHOLDERS EQUITY
Private Placement Offering
In November 1995, the Company completed a private placement of its common stock.
In connection with the offering, 1,335,078 shares of common stock were sold at a
price of $4 per share, providing net proceeds to the Company of approximately
$5,267,100. This included the conversion of a $1,500,000 Convertible
Subordinated Promissory Note issued in September 1995 to an existing shareholder
of the Company and accrued interest of $15,308 at $4 per share of common stock.
Preferred Stock
The Company is authorized to issue 6,462,500 shares of $.001 par value,
preferred stock. Shares of preferred stock may be issued from time to time in
one or more series, with the rights and powers of each series set by the Board
of Directors.
(4) STOCK OPTIONS AND WARRANT
In February 1998, the Company granted to each member of the Board of Directors
an option entitling them to purchase 60,000 shares of Common Stock at an
exercise price of $1.3125 per share, which option is not exercisable until
February 5, 2000.
No stock options were granted during 1999 by the Company. In addition, no stock
options were exercised or canceled during 1999.
No stock options were exercised subsequent to year end.
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Number of Shares
-----------------
Officers Employees
and and Per Share
Directors Others Exercise Price
--------- ------- -------------
Balance, December 31, 1996 500,917 136,150 $ .47-$8.125
Granted 25,000 500 $ .50-$4.00
Exercised - - -
Canceled (42,667) (105,561) $ 47-$8.125
-------- -------- ------------
Balance, December 31, 1997 483,250 31,089 $ .50-$8.125
Granted 360,000 - $ 1.3125
Exercised - - -
Canceled (483,250) (31,089) $ .50-$8.125
-------- -------- ------------
Balance, December 31, 1998 360,000 - $ 1.3125
Granted - - -
Exercised - - -
Canceled - - -
Balance, December 31, 1999 360,000 - $ 1.3125
======== ======== ============
Exercisable at December 31, 1999 - - -
======== ======== ============
The Company accounts for its stock-based compensation plan and non-plan options
under APB No. 25, under which no compensation expense is recognized for options
granted with an exercise price equal to the fair value of the Company's common
stock on the date of grant. The Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS
No. 123") for disclosure purposes. For SFAS No. 123 purposes, the fair value of
each option grant and stock purchase right has been estimated as of the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions:
Year Ended December 31,
----------------------
1998 1997
---- ----
Risk-free interest rate 5.41% 5.36%
Dividend rate 0% 0%
Expected volatility 18.95% 116.26%
Expected Life 3.0 years 3.0 years
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Using these assumptions, the fair value of the stock options granted in 1998 and
1997 was approximately $0 or $0 per option and $9,401 or $0.37 per option,
respectively, which would be amortized as compensation expense over the vesting
period of the options. Had compensation cost been determined consistent with
SFAS No. 123, utilizing the assumptions detailed above, the Company's net loss
and earnings per share would have been reduced to the following pro forma
amounts (in thousands, except per share data).
Year Ended December 31,
---------------------------
1999 1998 1997
---- ---- ----
Net loss:
As reported $ (69) $ (141) $ (1,342)
Pro forma $ (69) $ (141) $ (1,607)
Net loss per common share:
As reported $(0.02) $ (0.05) $ (0.43)
Pro forma $(0.02) $ (0.05) $ (0.52)
In September 1995, the Company issued a warrant for the purchase of 88,435
shares of common stock in connection with the issuance of the $1,500,000
Convertible Promissory Note.
(5) INCOME TAXES
-----------
As of December 31, 1999 and 1998, the Company had net operating loss ("NOL")
carryforwards for tax purposes of approximately $9,800,000 and $9,700,000,
respectively. Based on an effective tax rate of 38%, the Company's related
deferred tax assets were approximately $3,700,000 and $3,700,000 as of December
31, 1999 and 1998, respectively. The NOL carryovers expire from the year 2006
through the year 2019. The NOL carryover provisions apply for 20 years to all
losses incurred in 1999 and subsequent years. The Tax Reform Act of 1986
contains provisions which may limit the net operating loss and credit carryovers
available to be used in any given year upon the occurrence of certain events,
including significant changes in ownership interests.
The Company has determined that approximately $3,700,000 and $3,700,000 of net
deferred tax assets as of December 31, 1999 and 1998, respectively, do not
satisfy the realization criteria set forth in SFAS No. 109. Recognition of these
benefits requires future taxable income, the attainment of which is uncertain.
Accordingly, a valuation allowance has been recorded to fully offset these net
deferred tax assets.
(6) 401(K) PROFIT SHARING PLAN AND TRUST
Pursuant to the Company's 401(k) Profit Sharing Plan and Trust (the "401(k)
Plan"), which was established effective January 1, 1995, the Company agreed to
contribute matching contributions in the form of Company common stock at the
rate of 50% of the first 8% of employee salary deferral. Under the 401(k) Plan,
the Company could also
21
<PAGE>
elect to make discretionary contributions. Employees vested in Company
contributions over six years of service with the Company. Forfeitures of the
unvested portion were allocated to the remaining employees in the plan
proportionately, based upon current year compensation. During 1998, and 1997, 0,
and 5,726 respectively, shares of common stock were issued to the 401(k) plan.
The plan was terminated in February 1998.
(7) COMMITMENTS AND CONTINGENCIES
The Company's present Corporate headquarters is 3492 West 109th Circle,
Westminster, Colorado 80030. No rental expense is presently being incurred by
the Company.
The Company retained all liabilities related to its operations prior to the
closing of the Sale Transaction, with the exception of product warranty
liabilities, which were assumed by Cascade. The liabilities retained by the
Company include, among others, product liabilities and any environmental
liabilities arising out of the Company's operations prior to the Sale or its
prior leases of facilities. The Company has product and general liability
insurance on an occurrence basis which provides up to $11 million in coverage
for occurrences up to the date of the Sale Transaction and $1 million for
occurrence after the date of the Sale Transaction. The Company has not incurred
any product liabilities since its inception.
(8) SUBSEQUENT EVENT
Merger With E-Newco, Inc.
On April 14, 2000, the Company and its newly-formed, wholly owned
subsidiary, ENWC Acquisition, Inc., a Delaware corporation ("ENWC"), entered
into a merger agreement (the "Merger Agreement") with E-Newco, Inc., a Delaware
corporation ("E-Newco"). The Merger Agreement provides for the Company to issue
757,772 shares of its newly designated Series B convertible preferred stock (the
'Series B Preferred Stock"), to the stockholders of E-Newco in exchange for
their shares of ENewco common stock. E-Newco will then merge with ENWC (the
"Merger") and become a wholly owned subsidiary of the Company. E-Newco is a
newly-formed holding company that will fund early-stage Internet properties and
acquire existing companies focused on media, music, entertainment, and consumer
applications. The terms of the Series B Preferred Stock provide for automatic
conversion into an aggregate of 75,777,162 shares of Common Stock following the
approval by the stockholders of the Company of the requisite increase to the
amount of authorized Common Stock and the receipt by the Company of additional
equity financing of at least $15.0 million. The holders of the Series B
Preferred Stock will vote with the holders of the Common Stock on an as
converted basis and will possess approximately 95.5% of the voting power
outstanding after the Merger. Upon completion of these transactions, but without
giving effect of the receipt of the additional equity financing, the Company
will have outstanding approximately 79,347,851 shares of Common Stock, on an as
converted and fully diluted basis, of which the current stockholders of E-Newco
will own approximately 95.5%.
If the Company does not receive additional equity financing of at least
$15.0 million within 180 days of the consummation of the transactions
contemplated by the Merger Agreement, the holders of the Common Stock may elect
to cause the Company to redeem the outstanding shares of Series B Preferred
Stock at a redemption price equal to a pro-rata portion of the Company's cash
balance, if any, at the date of redemption.
The Company is expected to pay a one-time cash dividend to its
pre-Merger stockholders in an amount equal to the cash on the Company' s balance
sheet immediately prior to the effective time of the Merger less expenses
related to the Merger and the settlement of certain claims as described below.
Claim and Settlement
On March 28, 2000, the Company received a communication making certain
claims with respect to a prior transaction. On April 13, 2000, the Company
entered into an agreement to settle such claims. Under the agreement, the
Company, without admitting liability, will make a one-time payment to the
claimant of $250,000, will reimburse related expenses of the claimant up to
$50,000 and will receive an unconditional release from the claimant. The
payments will be made prior to the closing of the Merger, and are a condition
precedent to the consummation of the Merger.
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<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no disagreements with the Company and its independent
accountants on any matter of accounting principles or practice or financial
statement disclosure during 1999 or 1998.
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<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information regarding the
directors and the executive officer of the Company:
Name Position With the Company Age Director Since
- ---- ------------------------- --- --------------
Peter W. Gilson Chairman of the Board 60 1993
Thomas Barnds Director 31 1998
Clarke H. Bailey Director 45 1998
Thomas A. Barron Director 48 1993
Blair W. Effron Director 37 1995
Randall A. Hack Director 52 1995
Patrick E. Thomas Chief Executive Officer 45 N/A
Peter W. Gilson has served as a director of the Company since June 1993 and
as Chairman of the Board since February 1998. Mr. Gilson served as President and
Chief Executive Officer of Physician Support Systems, Inc. a company
specializing in the management of physician and hospital practices, from 1991
through December 1997. From 1989 to the present, Mr. Gilson has also served as
Chief Executive Officer of the Warrington Group, Inc., a manufacturer of safety
products which was previously a division of The Timberland Company. From 1987 to
1988, he served as Chief Operating Officer of The Timberland Company, a
manufacturer of footwear and outdoor clothing. From 1978 to 1986, he served as
President of the Gortex Fabrics Division of W. L. Gore Associates. Mr. Gilson is
a director and Chairman of Swiss Army Brands, Inc. and a director of Glenayre
Technologies, Inc. and of New Hope Foundation.
Thomas C. Barnds has served as a director of the Company since February
1998. Since October 1998, Mr. Barnds has served as a Managing Director at Nassau
Capital L.L.C., which manages a $2 billion portfolio of investments in private
companies and assets on behalf of Princeton University's endowment. From August
1996 to October 1998, Mr. Barnds served as an Associate at Nassau Capital L.L.C.
Prior to joining Nassau Capital, Mr. Barnds was the manager of new business
development for McGaw, Inc., a healthcare company, and a financial analyst at
Alex. Brown & Sons, an investment banking firm. Mr. Barnds received a B.A. from
Princeton University in 1990 and an M.B.A. from Stanford University in 1996.
Clarke H. Bailey has served as a director of the Company since February
1998. Mr. Bailey has served as Chairman, Chief Executive Officer and a director
of National Fulfillment, Inc., a leading provider of literature fulfillment and
other marketing services, since January 1999. Since February 1995, Mr. Bailey
has served as Co-Chairman of the Board and a director of Hudson River Capital
LLC, a private equity firm specializing in middle market acquisitions,
recapitalizations and expansion capital investments. Mr. Bailey has served as
Chairman of Glenayre Technologies, Inc., a paging and messaging infrastructure
technology firm, since October 1, 1999 and served as Chief Executive Officer and
a director of Glenayre from December 1990 until March 1994 and as its Vice
Chairman of the Board from November 1992 to July 1996. Mr. Bailey also served as
Chairman, Chief Executive Officer and a director of Arcus Technology Services,
Inc., the leading national provider of secure off-site computer data storage and
related disaster recovery services as well as information technology staffing
solutions, from February 1995 until its merger with Iron Mountain Incorporated
in January 1998. Mr. Bailey is also a
24
<PAGE>
director of Swiss Army Brands, Inc., Iron Mountain Incorporated and Connectivity
Technologies, Inc.
Thomas A. Barron has served as a director of the Company since June 1993.
From November 1995 until February 1998, he served as Chairman of the Board of
the Company. Mr. Barron is an author and has been Chairman of Evergreen
Management Corp., a private investment firm, since January 1990. From November
1983 through November 1989, Mr. Barron was President, Chief Operating Officer
and a director of The Prospect Group, Inc., a publicly held New York based
holding company that conducted its major operations through subsidiaries and
affiliates engaged in the railroads and specialized consumer products
industries. Prior to that he served as a general partner of Sierra Ventures, a
venture capital limited partnership. Mr. Barron also serves as a director of
Swiss Army Brands, Inc. Mr. Barron, a Rhodes Scholar, has served as a Trustee of
Princeton University, and on national and regional boards of The Wilderness
Society and The Nature Conservancy.
Blair W. Effron has served as a director of the Company since November
1995. Mr. Effron joined Dillon Read & Co., Inc., a New York based investment
bank now known as SBC Warburg Dillon Read, in 1987 and currently serves as a
Managing Director. Since 1993, Mr. Effron has been head of the firm's consumer
products group, where he has responsibility for several clients including
Anheuser-Busch Companies, Inc., General Mills, Inc., H. J. Heinz Company, and
Playtex Products Inc. Mr. Effron also heads the Financial Sponsor Group. Mr.
Effron has been a founding investor in several consumer products related
enterprises including USA Detergents, Inc. and American Value Brands, Inc. a
processor and marketer of value brand food products for mass merchandisers. Mr.
Effron received a B.A. from Princeton University in 1984 and an M.B.A. from
Columbia University in 1987.
Randall A. Hack has served as a director of the Company since November
1995. Since January 1995, Mr. Hack has served as a senior managing director of
Nassau Capital L.L.C., an investment firm which he founded. Nassau Capital
manages a $2 billion portfolio of investments in private companies and real
estate assets on behalf of Princeton University's endowment. From 1990 to
January 1995, Mr. Hack served as President and Chief Executive Officer of the
Princeton University Investment Company, which has overall management
responsibility for Princeton's $5.5 billion endowment fund. From 1988 to 1990,
Mr. Hack was the President and Chief Executive Officer of Capstone Equities,
Inc. and, from 1979 to 1988, President and Chief Executive Officer of Matrix
Development Company, a commercial and industrial real estate development firm in
New Jersey, which he founded. Mr. Hack received a B.A. degree summa cum laude
from Princeton University in 1969 and an M.B.A. from Harvard University in 1972.
He serves as a Director of Crown Castle International Corporation and
Cornerstone Properties, Inc.
Patrick E. Thomas, CPA has served as President and Chief Executive Officer
of the Company since February 1998 and as Vice President and Chief Financial
Officer since November 1994. Mr. Thomas has served as President and Managing
Member of Total Beverage LLC, a private limited liability company specializing
in retail beverage sales, since April 1998. Mr. Thomas has served as Chief
Financial Officer and Chief Operating Officer of Draco Systems, Inc. since
February 1998. Mr. Thomas was Chief Financial Officer for Bird Medical
Technologies, Inc., a $50 million publicly traded medical products manufacturer
from 1990 to 1993. From 1993 to 1994 he held positions as Vice President of
Finance for Head Sports USA, Inc. a $50 million sporting goods manufacturer and
distributor, and then Chief Accounting Officer and Controller for Synergen,
Inc., a 600 employee publicly traded biotechnology pharmaceutical development
company. Mr. Thomas also served as Chief Financial Officer and Director for
LIFECARE
25
<PAGE>
International, Inc., a privately owned $20 million international medical
products manufacturer from 1984 to 1990. Mr. Thomas received his B.S. in
Accounting from University of Illinois in 1976. Mr. Thomas is a director of
Great Trango Holdings, Co., MT Ideas, LLC, and MacroSystems Digital Video, AG.
Directors of the Company are elected annually to serve until the next
annual meeting of shareholders or until their successors are duly elected.
Hudson River Capital LLC and Nassau Capital Partners L.P. each have the right to
nominate one person to serve on the Company's Board of Directors, and the
Company has agreed to use its best efforts to secure the election of each such
nominee to the Board of Directors. Clarke H. Bailey and Randall A. Hack were
nominated by Hudson River Capital LLC and Nassau Capital Partners, L.P.,
respectively, pursuant to such arrangements. The Company knows of no other
arrangements or understandings between a director or nominee and any other
person pursuant to which he has been selected as a director or nominee. There
are no family relationships between any of the directors or the executive
officer of the Company. The Company's only executive officer serves at the
discretion of the Board of Directors.
Item 11. Executive Compensation
The following table sets forth certain information regarding compensation
paid by the Company to its Chief Executive Officers for the years ended December
31, 1999, 1998 and 1997 and to the additional executive officers who received in
excess of $100,000 in compensation for 1999:
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
------------------------------------ -------------------- -------------------------
Other
Annual Restricted LTIP All other
Compen- Stock Options/ Payouts compensation
Name & Principal Position Year Salary ($) Bonus ($) sation ($) Award ($) SARs ($) ($) ($)(1)
- ------------------------- ---- ---------- --------- ---------- --------- -------- --- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PATRICK E. THOMAS 1999 $36,000 -0- -0- -0- -0- -0- -0-
Chief Executive Officer 1998 $116,924(2) $136,188(3) -0- -0- -0- -0- $1,053
since February 1998; Vice 1997 $85,000 $38,000(3) -0- -0- -0- -0- $3,400
President - Finance prior
thereto
</TABLE>
(1) Represents the Company's Contribution to the executive officer's
401(k) account.
(2) Amounts reported for 1998 salary include three months of severance
plus accrued vacation pay and $64,000, or $6,000 per month, paid to
Mr. Thomas in his capacity as President and Chief Executive Officer.
(3) Represents the balance of the performance bonus earned under the terms
of the Management Agreement. This bonus, together with the 1997
accrued bonus of $38,000, which was also paid under the terms of the
Management Agreement, was paid to the executive officer in February
1998.
Option/SAR Grants in Last Fiscal Year; Aggregated Option/SAR Exercises in Last
Fiscal Year and Fiscal Year-End Option/SAR Values
As of the end of the Company's 1999 fiscal year, there were no outstanding
stock options held by the Company's executive officer. No stock options were
held by, granted to, or exercised by, the executive officer in 1999.
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<PAGE>
SWWT, Inc. Profit Sharing Plan and Trust
Pursuant to the SweetWater, Inc. 401(k) Profit Sharing Plan and Trust (the
"401(k) Plan"), which was established effective January 1, 1995, the Company
contributed matching contributions in the form of Company common stock at the
rate of 50% of the first 8% of employee salary deferral. Under the 401(k) Plan,
the Company could also elect to make discretionary contributions. Employees
vested in Company contributions over six years of service with the Company.
Forfeitures of the unvested portion were allocated to the remaining employees in
the plan proportionately based upon current year compensation. The Company
terminated the 401(k) Plan in 1998.
Director's Compensation Fees
In 1999 and 1998, Directors of the Company did not receive fees for
attending board meetings or committee meetings. Directors were reimbursed for
their out-of-pocket expenses, including travel, incurred in the performance of
their duties as directors. As a result of the Sale to Cascade, all outstanding
stock options, including options issued to directors of the Company, expired on
February 6, 1998. In February 1998, the Board granted each of Messrs. Bailey,
Barnds, Barron, Effron, Gilson and Hack an option entitling them to purchase
60,000 shares of Common Stock at an exercise price of $1.3125 per share, which
option is fully vested and became exercisable on February 5, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following tables sets forth information regarding the beneficial
ownership of the Company's Common Stock as of April 11, 2000 by (i) each person
who is known by the Company to own beneficially more than 5% of the Company's
Common Stock, (ii) each director and the executive officer of the Company, and
(iii) all directors and the executive officer as a group. Except as otherwise
noted, the Company knows of no agreements among its shareholders which relate to
voting or investment power over its Common Stock.
27
<PAGE>
Beneficial Owner Shares Beneficially Owned(1)
--------------------------------
Number Percent
Directors:
Clarke H. Bailey 88,000 2.8%
Thomas Barnds 681,845(2) 21.4%
Thomas A. Barron 94,583 3.0%
Blair W. Effron 78,750 2.5%
Peter W. Gilson 67,792 2.1%
Randall A. Hack 695,799(3) 21.9%
Executive Officer 12,942 *
Executive officer & directors as a
group (includes 7 persons)
1,098,113 31.5%
Other 5% Shareholders:
Nassau Capital Partners L.P. 621,598 19.9%
22 Chambers Street
Princeton, NJ 08542
Equities Enterprises, Inc. 609,150(4) 19.5%
160 Madison Avenue
Third Floor
New York, New York 10016
Hudson River Capital LLC 420,536(5) 13.1%
667 Madison Avenue
Suite 2500
New York, NY 10021
Charles Elsener 197,500 6.3%
CH-6438
Ibach, Switzerland
* Less than 1%
(1) Unless otherwise indicated, the persons named in the table have sole voting
and investment power with respect to all shares shown as beneficially owned
by them, subject to community property laws where applicable. With respect
to information regarding 5% shareholders, the Company has relied on
information provided in publicly-filed documents and, in certain cases, on
supplementary information provided by the shareholder. The number of shares
listed for each director includes 60,000 shares issuable upon exercise of a
stock option granted to such director.
(2) Includes 621,598 shares held by Nassau Capital Partners L.P. and 247 shares
which represent Mr. Barnds' interest in shares directly or indirectly held
by NAS Partners I L.L.C., a limited liability company in which he is a
member. Mr. Barnds is an employee of Nassau Capital L.L.C., which serves as
the sole general partner of Nassau Capital Partners L.P. Mr. Barnds
disclaims beneficial ownership of shares held by Nassau Capital Partners
L.P.
(3) Includes 621,598 shares held by Nassau Capital Partners L.P. and 1,701
shares which represent Mr. Hack's interest in shares held directly or
indirectly by NAS Partners I L.L.C., a limited liability company in which
he is a member. Mr. Hack is one of four members of Nassau Capital L.L.C.
which serves as the sole general partner of Nassau Capital Partners, L.P.
Mr. Hack disclaims beneficial ownership of shares held by Nassau Capital
Partners L.P.
(4) Shares are held by Equities Holdings LLC, a wholly-owned subsidiary of
Equities Enterprises, Inc.
(5) Includes 79,591 shares issuable upon exercise of a common stock purchase
warrant.
28
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Item 13. Certain Relationships and Related Transactions
None.
29
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a) Documents filed as part of this Report:
---------------------------------------
Financial Statements and Financial Statement Schedules to be filed
hereunder are contained in Item 8.
All other financial statement schedules are omitted because they are
not required, are inapplicable or the information has been included
elsewhere in the financial statements or notes thereto.
b) Reports on Form 8-K:
--------------------
No reports on Form 8-K were filed in the fourth quarter of fiscal 1999.
c) Exhibits:
---------
Reference is made to the accompanying Index of Exhibits.
30
<PAGE>
PART V
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SWWT, Inc.
(Registrant)
/s/ Patrick E. Thomas
-------------------------------------
Patrick E. Thomas
President and Chief Executive Officer
Date: April 14, 2000
31
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/ Patrick E. Thomas April 14, 2000
- ------------------------------------
Patrick E. Thomas
Chief Executive Officer, President,
Chief Financial Officer
(Principal Financial Officer)
/s/ Clarke H. Bailey April 14, 2000
- ------------------------------------
Clarke H. Bailey
Director
/s/ Thomas Barnds April 14, 2000
- ------------------------------------
Thomas Barnds
Director
/s/ Thomas A. Barron April 14, 2000
- ------------------------------------
Thomas A. Barron
Director
/s/ Blair W. Effron April 14, 2000
- ------------------------------------
Blair W. Effron
Director
/s/ Peter Gilson April 14, 2000
- ------------------------------------
Peter Gilson
Chairman of the Board
Director
/s/ Randall A. Hack April 14, 2000
- ------------------------------------
Randall A. Hack
Director
32
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
No. Exhibit Document Exhibit No.
- --- ---------------- -----------
<S> <C> <C>
(2.1) Agreement and Plan of Merger dated as of April 14, 2000 among
E-Newco, Inc., a Delaware corporation, the Company, and ENWC
Acquisition, Inc., a Delaware corporation and wholly owned
subsidiary of the Company 2.1
(3) Articles of Incorporation and by-laws
(A) Certificate of Incorporation, as amended (6)
(B) By-laws (1)
(3.1) Certificate of Designations of Series B Preferred Stock, par value
$.001 per share 3.1
(4) Instruments defining the rights of security holders, including
indentures
(A) Excerpts from the Certificate of Incorporation, as amended (6)
(B) Excerpts from the By-laws (1)
(C) Specimen stock certificate (2)
(10) Material Contracts
(a) Form of Stock Purchase Agreement by and between the Company
and The Forschner Group, Inc. (now known as Swiss Army
Brands, Inc.) (1)
(b) Form of Stock Purchase Agreement by and between the Company
and certain purchasers of Series A Preferred Stock (1)
(c) 1993 Stock Option Plan, as amended (2,5)
(d) Note and Warrant Agreement dated September 26, 1995 (3)
(e) Common Stock Purchase Warrant issued to Forschner
Enterprises, Inc. (now known as Hudson River Capital LLC) (3)
(f) Subscription Agreement by and between the Company and Nassau
Capital Partners in connection with the 1995
private placement of shares of Common Stock (4)
(g) Form of Subscription Agreement executed by the Company and
certain investors in connection with the 1995 private
placement of shares of Common Stock (4)
(h) Form of Director's Stock Option Agreement
(i) Asset Purchase Agreement dated as of October 21, 1997 (the
"Asset Purchase Agreement") by and between SweetWater, Inc.,
a Delaware corporation, and Cascade Designs, Inc., a
Washington corporation ("Purchaser"). (A list of exhibits and
schedules to the Purchase Agreement is attached thereto. The
Registrant agrees to furnish to the Commission
supplementally, upon request, a copy of any such exhibits or
schedules not otherwise filed herewith.) (7)
(23) Consent of experts and counsel 23
(27) Financial Data Schedule 27
(99.1) News Release, dated April 14, 2000 99
</TABLE>
(1) These exhibits were filed as exhibits to the Company's Registration
Statement on Form S-1, Registration No. 33-71036, as filed on October
29, 1993, and are incorporated herein by reference.
(2) These exhibits were filed as exhibits to Amendment No. 1 to the
Company's Registration Statement on Form S-1, Registration No.
33-71036, as filed on December 13, 1993, and are incorporated herein
by reference.
(3) These exhibits were filed as exhibits to the Company's Form 8-K as
filed on October 2, 1995, and are incorporated herein by reference.
33
<PAGE>
(4) These exhibits were filed as exhibits to the Company's Form 10-K for
the year ended December 31, 1995, as filed in March 29, 1996, and are
incorporated herein by reference.
(5) Constitutes a "management contract or compensatory plan or
arrangement" required to be filed pursuant to Item 14 (c) of the Form
10-K.
(6) These exhibits were filed as exhibits to the Company's Form 10-K, as
filed on March 31, 1998, and are incorporated herein by reference.
(7) This exhibit was filed as an exhibit to the Company's Form 8-K as
filed on February 19,1998, and is incorporated herein by reference
34
EXECUTION COPY
================================================================================
AGREEMENT AND PLAN OF MERGER
among
E-NEWCO, INC.,
SWWT, INC.
and
ENWC ACQUISITION, INC.
Dated as of April 14, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
RECITALS
ARTICLE 1
THE MERGER
Section 1.1 The Merger...................................................2
Section 1.2 Closing......................................................2
Section 1.3 Effective Time...............................................2
Section 1.4 The Certificate of Incorporation.............................2
Section 1.5 The By-Laws..................................................2
Section 1.6 Directors of Surviving Corporation...........................2
Section 1.7 Officers of Surviving Corporation............................3
ARTICLE 2
EFFECT OF THE MERGER ON CAPITAL STOCK;
EXCHANGE OF CERTIFICATES
Section 2.1 Effect on Capital Stock......................................3
Section 2.2 Exchange of Company Shares...................................4
Section 2.3 Treatment of Company Stock Options and Company Restricted
Stock........................................................5
Section 2.4 Adjustments to Prevent Dilution..............................6
Section 2.5 Restricted Stock.............................................6
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization and Qualification; Subsidiaries.................7
Section 3.2 Certificate of Incorporation and By-Laws.....................7
Section 3.3 Capitalization...............................................7
Section 3.4 Authority....................................................8
Section 3.5 No Conflict..................................................9
Section 3.6 Governmental Required Filings and Consents...................9
Section 3.7 Tax Matters.................................................10
Section 3.8 Certain Agreements..........................................10
Section 3.9 No Defaults.................................................10
Section 3.10 Investment Company Act......................................10
Section 3.11 Brokers.....................................................10
i
<PAGE>
Page
----
Section 3.12 No Liabilities..............................................11
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND MERGER SUB
Section 4.1 Organization and Qualification; Subsidiaries................11
Section 4.2 Certificate of Incorporation and By-Laws....................12
Section 4.3 Capitalization..............................................12
Section 4.4 Authority...................................................13
Section 4.5 No Conflict.................................................13
Section 4.6 Governmental Required Filings and Consents..................14
Section 4.7 Permits; Compliance with Law................................14
Section 4.8 Securities Exchange Commission ("SEC") Filings; Financial
Statements..................................................15
Section 4.9 Absence of Certain Changes or Events........................15
Section 4.10 Employee Benefit Plans......................................16
Section 4.11 Tax Matters.................................................17
Section 4.12 No Defaults.................................................18
Section 4.13 Litigation..................................................18
Section 4.14 Environmental Matters.......................................18
Section 4.15 Intellectual Property.......................................20
Section 4.16 Taxes.......................................................20
Section 4.17 Real Property...............................................21
Section 4.18 Labor Matters...............................................21
Section 4.19 Investment Company Act......................................21
Section 4.20 Certain Agreements..........................................21
Section 4.21 Brokers.....................................................22
Section 4.22 Interim Operations of Merger Sub............................22
ARTICLE 5
COVENANTS
Section 5.1 Conduct of Business of the Company..........................22
Section 5.2 Conduct of Business of the Parent Pending the Merger........23
Section 5.3 Other Actions...............................................24
Section 5.4 Notification of Certain Matters.............................25
Section 5.5 Access to Information; Confidentiality......................25
Section 5.6 No Solicitation.............................................26
Section 5.7 Reasonable Best Efforts.....................................26
Section 5.8 Consents; Filings; Further Action...........................27
Section 5.9 Plan of Reorganization......................................28
ii
<PAGE>
Page
----
Section 5.10 Public Announcements........................................28
Section 5.11 Obligations of Merger Sub...................................28
Section 5.12 Expenses....................................................28
Section 5.13 Takeover Statutes...........................................29
Section 5.14 Board of Directors and Officers of the Parent...............29
Section 5.15 Parent Charter Amendment....................................29
Section 5.16 Indemnification; Insurance..................................29
ARTICLE 6
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger..30
Section 6.2 Conditions to Obligations of the Parent and Merger Sub......30
Section 6.3 Conditions to Obligation of the Company.....................31
ARTICLE 7
TERMINATION
Section 7.1 Termination.................................................32
Section 7.2 Effect of Termination.......................................33
Section 7.3 Amendment...................................................33
Section 7.4 Waiver......................................................33
ARTICLE 8
MISCELLANEOUS
Section 8.1 Certain Definitions.........................................33
Section 8.2 Survival of Representations, Warranties and Agreements......34
Section 8.3 Counterparts................................................34
Section 8.4 Governing Law and Venue; Waiver of Jury Trial...............34
Section 8.5 Notices.....................................................35
Section 8.6 Entire Agreement............................................36
Section 8.7 No Third Party Beneficiaries................................36
Section 8.8 Obligations of the Parent...................................36
Section 8.9 Severability................................................36
Section 8.10 Interpretation..............................................37
Section 8.11 Assignment..................................................37
Section 8.12 Specific Performance........................................37
iii
<PAGE>
EXHIBITS
Exhibit A Certificate of Designations for Parent Series B Preferred Stock
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of April 14,
2000, among E-Newco, Inc., a Delaware corporation (the "Company"), SWWT, Inc., a
Delaware corporation (the "Parent"), and ENWC Acquisition, Inc., a Delaware
corporation and a wholly owned subsidiary of the Parent ("Merger Sub").
RECITALS
WHEREAS, the respective boards of directors of each of the Parent, Merger
Sub and the Company have determined that it is advisable and in the best
interests of their respective stockholders to combine the respective businesses
of the Parent and the Company, and consequently have approved the merger of
Merger Sub with and into the Company (the "Merger") and approved and adopted the
Merger, in accordance with the General Corporation Law of the State of Delaware
(the "GCL") and upon the terms and subject to the conditions set forth in this
Agreement;
WHEREAS, Parent, as the sole stockholder of Merger Sub, has approved this
Agreement, the Merger and the transactions contemplated by this Agreement
pursuant to action taken by unanimous written consent in accordance with the
requirements of the GCL and the by-laws of Merger Sub;
WHEREAS, the stockholders of the Company have approved this Agreement, the
Merger and the transactions contemplated by this Agreement pursuant to action
taken by unanimous written consent in accordance with the requirements of the
GCL and the by-laws of the Company;
WHEREAS, it is intended that, for U.S. federal income tax purposes, the
Merger shall qualify as a transaction described in section 351 and/or a
reorganization under the provisions of section 368(a), in each case, of the
Internal Revenue Code of 1986, as amended (the "Code"), and the rules and
regulations promulgated under the Code and that this Agreement be, and is
hereby, adopted as a plan of reorganization for purposes of section 368 of the
Code;
WHEREAS, certain terms used in this Agreement which are not capitalized
have the meanings specified in Section 8.1; and
WHEREAS, the Company, the Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained in this
Agreement, the parties agree as follows:
<PAGE>
ARTICLE 1
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, at the Effective Time (as defined below), Merger Sub
shall be merged with and into the Company and the separate corporate existence
of Merger Sub shall cease. The Company shall be the surviving corporation in the
Merger (sometimes referred to as the "Surviving Corporation") and shall continue
to be governed by the laws of the State of Delaware, and the separate corporate
existence of the Company with all its rights, privileges, immunities, powers and
franchises shall continue unaffected by the Merger. The Merger shall have the
effects set forth in Section 259 of the GCL. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges, powers and franchises of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
Section 1.2 Closing. The closing of the Merger (the "Closing") shall take
place (a) at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times
Square, New York, New York at 10:00 a.m. on the business day on which the last
to be fulfilled or waived of the conditions set forth in Article 6 (other than
those conditions that by their nature are to be satisfied at the Closing, but
subject to the fulfillment or waiver of those conditions) shall be satisfied or
waived in accordance with this Agreement or (b) at such other place and time
and/or on such other date as the Company and the Parent may agree in writing
(the date of such Closing, the "Closing Date").
Section 1.3 Effective Time. As soon as practicable following the
satisfaction or, to the extent permitted hereunder, waiver of all of the
conditions set forth in Article 6, the parties will cause a Certificate of
Merger (the "Certificate of Merger") to be signed, acknowledged and delivered
for filing with the Secretary of State of the State of Delaware as provided in
Section 251 of the GCL. The Merger shall become effective at the time when a
Certificate of Merger has been duly filed with the Secretary of State of the
State of Delaware or such other time as shall be agreed upon by the parties and
set forth in the Certificate of Merger and in accordance with the GCL (the
"Effective Time").
Section 1.4 The Certificate of Incorporation. The certificate of
incorporation of the Company in effect immediately prior to the Effective Time
shall, from and after the Effective Time, be the certificate of incorporation of
the Surviving Corporation (the "Surviving Charter"), until duly amended as
provided in the Surviving Charter or by applicable law.
Section 1.5 The By-Laws. The by-laws of the Company in effect at the
Effective Time shall, from and after the Effective Time, be the by-laws of the
Surviving Corporation (the "Surviving By-Laws"), until duly amended as provided
in the Surviving By-Laws or by applicable law.
Section 1.6 Directors of Surviving Corporation. The directors of the
Company at the Effective Time shall, from and after the Effective Time, be the
directors
2
<PAGE>
of the Surviving Corporation until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the Surviving Charter and the Surviving By-Laws.
Section 1.7 Officers of Surviving Corporation. The officers of the Company
shall, from and after the Effective Time, be the officers of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Charter and the Surviving By-Laws.
ARTICLE 2
EFFECT OF THE MERGER ON CAPITAL STOCK;
EXCHANGE OF CERTIFICATES
Section 2.1 Effect on Capital Stock. At the Effective Time, as a result of
the Merger and without any action on the part of any of the parties hereto or
their respective stockholders:
(a) Merger Consideration. Each share (each a "Company Share" and
together the "Company Shares") of the common stock, par value $.01 per share, of
the Company (the "Company Common Stock") issued and outstanding immediately
prior to the Effective Time (other than Company Shares that are owned by the
Parent or Merger Sub or Company Shares that are owned by the Company and in each
case not held on behalf of third parties (collectively, "Excluded Company
Shares")) shall be converted into the right to receive and become exchangeable
for 757.772 (the "Exchange Ratio") shares of series B convertible preferred
stock, par value $.001 per share, of the Parent (the "Parent Series B Preferred
Stock"), the Certificate of Designations of which is attached hereto as Exhibit
A (the "Certificate of Designations"). Notwithstanding anything elsewhere herein
to the contrary, the aggregate number of shares of Parent Series B Preferred
Stock to be issued to each holder of Company Shares shall be rounded to the
nearest whole number of shares, rounding up from 0.5. Each share of Parent
Series B Preferred Stock shall be convertible into such number of shares (the
"Preferred Conversion Ratio") of common stock, par value $.001 per share, of
Parent (the "Parent Common Stock") as is determined in accordance with the terms
of the Certificate of Designations.
The Exchange Ratio shall be subject to adjustment as provided in Section
2.4. The shares of Parent Series B Preferred Stock issuable pursuant to this
Section 2.1(a) shall collectively be referred to as the "Merger Consideration."
At the Effective Time, all Company Shares shall no longer be outstanding, shall
be canceled and retired and shall cease to exist, and each Company Share (other
than Excluded Company Shares) shall thereafter represent only the right to
receive the Merger Consideration.
(b) Cancellation of Shares. Each Excluded Company Share issued and
outstanding immediately prior to the Effective Time shall no longer be
outstanding, shall be canceled and retired without payment of any consideration
therefor and shall cease to exist.
3
<PAGE>
(c) Merger Sub. At the Effective Time, each share of common stock, par
value $.01 per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into one validly issued, fully paid and
nonassessable share of common stock, par value $.01 per share, of the Surviving
Corporation, and the Surviving Corporation shall be a wholly owned subsidiary of
the Parent.
(d) Parent. At the Effective Time, all issued and outstanding shares of
Parent Common Stock shall remain outstanding and all Parent Stock Options and
Warrants (as defined below) shall remain in full force and effect in accordance
with the terms of the instruments governing such Parent Stock Options and
Warrants on the date hereof.
Section 2.2 Exchange of Company Shares.
(a) Exchange Procedures.
(i) At the Effective Time, upon surrender of a
certificate previously representing any Company Shares (each, a
"Certificate") to the Parent, together with a letter of
transmittal in form and substance reasonably satisfactory to the
Parent and such other customary documents as the Parent shall
reasonably request, the holder of such Certificate shall receive
from the Parent a certificate ("Parent Certificates") representing
that number of whole shares of Parent Series B Preferred Stock
which such holder has the right to receive pursuant to the
provisions of Section 2.1(a) hereof. Each such Parent Certificate
shall be registered in the name of the applicable holder of
Company Common Stock. Until exchanged as contemplated by this
Section 2.2, each Company Share shall be deemed at any time after
the Effective Time to represent only the right to receive upon
such exchange, Parent Certificates representing the number of
whole shares of Parent Series B Preferred Stock into which the
Company Shares have been converted.
(ii) All shares of Parent Series B Preferred Stock
issued upon the exchange of Company Shares in accordance with the
terms of this Article 2 shall be deemed to have been issued in
full satisfaction of all rights pertaining to the Company Common
Stock.
(b) No Further Transfers. After the Effective Time, the stock transfer
books of the Company shall be closed and there shall be no further registration
of transfers on the records of the Surviving Corporation of the Company Shares
that were outstanding immediately prior to the Effective Time.
(c) Fractional Shares. No Parent Certificates or scrip representing
fractional shares of Parent Series B Preferred Stock shall be issued upon the
conversion of the Company Shares, no dividend or distribution of Parent shall
relate to such fractional share interests, and such fractional share interests
will not entitle the owner thereof to vote or to any rights of a stockholder of
Parent.
(d) No Liability. None of Parent, the Company, Merger Sub, or the
Surviving Corporation shall be liable to any person in respect of any shares of
Parent Series B Preferred Stock (or dividends or distributions with respect
thereto), in
4
<PAGE>
each case delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
Section 2.3 Treatment of Company Stock Options and Company Restricted
Stock.
(a) The Parent and the Company shall take such reasonable actions as
are necessary to provide that at the Effective Time each outstanding Company
Stock Option (as defined in Section 3.3(a)) shall be assumed by the Parent and
adjusted in accordance with the terms thereof and this Agreement to be
exercisable to purchase shares of Parent Common Stock, as provided below.
Following the Effective Time, each Company Stock Option shall continue to have,
and shall be subject to, the same terms and conditions (including with respect
to vesting) set forth in the Company Option Plan (as defined in Section 3.3(a))
or any other agreement to which such Company Stock Option was subject
immediately prior to the Effective Time, as the case may be, except (i) each
such Company Stock Option shall be exercisable for that number of shares of
Parent Common Stock equal to the product of (x) the Preferred Conversion Ratio
and (y) the product of (1) the aggregate number of shares of Company Common
Stock for which such Company Stock Option was exercisable and (2) the Exchange
Ratio, rounded, in the case of any Company Stock Options, other than an
"incentive stock option" (within the meaning of section 422 of the Code), up,
and, in the case of any Company Stock Option that is an incentive stock option,
down, to the nearest whole share, if necessary, and (ii) the exercise price per
share of such Company Stock Option shall be equal to the aggregate exercise
price of such Company Stock Option immediately prior to the Effective Time
divided by the number of shares of Parent Common Stock for which such Company
Stock Option shall be exercisable as determined in accordance with the preceding
clause (i), rounded to the nearest cent, if necessary.
(b) Simultaneously with the Merger, each outstanding award (each, an
"Award") of shares of restricted stock of the Company ("Company Restricted
Stock") under any employee incentive or benefit plans, programs or arrangements
presently maintained by the Company which provide for grants of equity-based
awards or outstanding under any other agreement pursuant to which such Company
Restricted Stock was issued shall be amended or converted into a similar
instrument of Parent, in each case with such adjustments to the terms of such
Awards as are appropriate to preserve in all material respects the value
inherent in such Awards with no materially detrimental effects on the holders
thereof. The other terms of each Award, and the plans or agreements under which
they were issued, shall continue to apply in accordance with their terms,
including any provisions providing for acceleration of vesting. With respect to
any Company Restricted Stock awards as to which the restrictions shall have
lapsed on or prior to the Effective Time in accordance with the terms of the
applicable plans or award agreements, shares of such previously restricted stock
shall be converted in accordance with the provisions of Section 2.1(b).
(c) As soon as practicable following the Effective Time, the Parent
shall deliver to the holders of Company Stock Options and holders of shares of
Company Restricted Stock appropriate notices setting forth such holders' rights
after giving effect to the Merger and the provisions set forth above. At or
prior to the Effective Time, the Company shall make such amendments to the
Company Option Plan or such other plans or agreements to which the Company Stock
Options or shares of Company
5
<PAGE>
Restricted Stock were subject and take such other actions, if any, as shall be
necessary to permit the assumption and adjustment referred to in this Section
2.3.
(d) It is the intention of the parties that, to the extent that any
Company Stock Option constituted an incentive stock option immediately prior to
the Effective Time, such option continue to qualify as an incentive stock option
to the maximum extent permitted by section 422 of the Code, and that the
assumption of the Company Stock Options provided by this Section 2.3 satisfy the
conditions of section 424(a) of the Code. The Parent shall comply with the terms
of the Company Option Plan and take such reasonable actions as may be required
to maintain the qualification as an incentive stock option after the Effective
Time of any Company Stock Option that qualified as an incentive stock option
prior to the Effective Time.
(e) As soon as practicable following the adoption of the Parent Charter
Amendments (as defined below) as contemplated by Section 5.15 below, the Parent
shall take all corporate action necessary to reserve for issuance a sufficient
number of shares of Parent Common Stock for delivery upon exercise of Company
Stock Options at and after the Effective Time.
Section 2.4 Adjustments to Prevent Dilution. In the event that prior to the
Effective Time there is a change in the number of Company Shares or shares of
Parent Common Stock or Parent Series B Preferred Stock or securities or other
instruments convertible or exchangeable into or exercisable for Company Shares
or shares of Parent Common Stock or Parent Series B Preferred Stock issued and
outstanding including as a result of a distribution, redemption, repurchase,
reclassification, combination or exchange of shares, stock split (including a
reverse stock split), stock dividend or distribution or other similar
transaction, the Exchange Ratio shall be equitably adjusted to eliminate the
effects of that event.
Section 2.5 Restricted Stock. The shares of Parent Series B Preferred Stock
issued in connection with the Merger (and the shares of Parent Common Stock
issuable upon the conversion thereof) will not be registered under the
Securities Act (as defined below). Such shares may not be transferred or resold
thereafter except following registration under the Securities Act or in reliance
on an exemption from the registration requirements of the Securities Act
(including Rule 144 thereunder).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent and Merger Sub that,
except for inaccuracies in the representations and warranties resulting from
compliance with the provisions of this Agreement and performance of the
transactions contemplated hereby or inaccuracies resulting from actions or
omissions permitted by the terms of Section 5.1 hereof:
6
<PAGE>
Section 3.1 Organization and Qualification; Subsidiaries.
(a) The Company has been duly organized and is validly existing and in
good standing under the laws of the State of Delaware, and has the requisite
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted. The Company is duly qualified or licensed
to do business, and is in good standing, in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
business makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing that, individually
or in the aggregate, have not resulted and could not reasonably be expected to
result in a Material Adverse Effect on the Company. For purposes of this
Agreement, "Material Adverse Effect on the Company" means any change in or
effect on the business, assets, properties, results of operations, or condition
(financial or otherwise) of the Company that is or could reasonably be expected
to be materially adverse to the Company, or that could reasonably be expected to
materially impair the ability of the Company to perform its obligations under
this Agreement or consummate the Merger and the other transactions contemplated
hereby or thereby.
(b) Except as set forth in Section 3.1(b) of the Company Disclosure
Letter, the Company does not hold, and has not since its date of incorporation
held, any interest in any other person.
Section 3.2 Certificate of Incorporation and By-Laws. The copies of the
Company's certificate of incorporation and by-laws, each as amended through the
date of this Agreement (collectively, the "Company Charter Documents"), that
have previously been delivered to Parent are complete and correct copies of
those documents. The Company Charter Documents are in full force and effect. The
Company is not in violation of any of the provisions of the Company Charter
Documents.
Section 3.3 Capitalization.
(a) The authorized capital stock of the Company consists of (i) 1000
shares of Company Common Stock and (ii) 100 shares of Preferred Stock, par value
$.01 per share (the "Company Preferred Stock"). As of the date of this
Agreement, (i) 1,000 shares of Company Common Stock were issued and outstanding,
all of which were validly issued and are fully paid, nonassessable and not
subject to preemptive rights, and 110 of which represented shares of Company
Restricted Stock, (ii) no shares of Company Preferred Stock were issued or
outstanding, and (iii) (A) no shares of Company Common Stock were reserved for
issuance upon the exercise of outstanding stock options (the "Plan Options")
granted pursuant to any stock option or equity incentive plans of the Company
(the "Company Option Plan"), (B) no shares of Company Common Stock were reserved
for issuance pursuant to options available for grant under the Company Option
Plan, and (C) no shares of Company Common Stock were reserved for issuance upon
exercise of outstanding options listed in Section 3.3 of the Disclosure Letter
delivered to the Parent and Merger Sub by the Company at or prior to the
execution of this Agreement (the "Company Disclosure Letter") (the "Third Party
Options" and, together with the Plan Options, the "Company Stock Options").
Section 3.3(a) of the Company Disclosure Letter sets forth a complete and
correct list as of the date hereof of the holders of all shares of Company
Common Stock and the number of shares held by each such holder, and the holders
of all Company Stock Options, the number of shares subject to each such option
7
<PAGE>
and the exercise price thereof. Except as set forth above, as of the date
hereof, no shares of capital stock or other voting securities of the Company
were issued, reserved for issuance or outstanding. As of the date hereof, no
shares of Company Common Stock are represented in physical form by any
certificate or other similar instrument.
(b) Except as set forth in Section 3.3(b) of the Company Disclosure
Letter and except for outstanding Company Stock Options, there are no options,
warrants, conversion rights, stock appreciation rights, redemption rights,
repurchase rights, rights of first refusal or first offer, preemptive rights, or
other rights, agreements, arrangements or commitments of any character to which
the Company is a party or by which the Company is bound relating to the issued
or unissued capital stock of the Company or obligating the Company to issue or
sell any shares of capital stock of, or other equity interests in, the Company.
(c) All shares of Company Common Stock subject to issuance, upon
issuance prior to the Effective Time on the terms and conditions specified in
the instruments under which they are issuable, will be duly authorized, validly
issued, fully paid, nonassessable and will not be subject to preemptive rights.
Except as set forth in Section 3.3(c) of the Company Disclosure Letter, there
are no outstanding contractual obligations of the Company to repurchase, redeem
or otherwise acquire any shares of Company Common Stock or to effect the
registration of any shares of Company Common Stock or other Company securities
under the Securities Act. Except as set forth in Section 3.3(c) of the Company
Disclosure Letter there are no outstanding material contractual obligations of
the Company to provide funds to, or make any investment (in the form of a loan,
capital contribution or otherwise) in, any other person. Except as set forth in
Section 3.3(b) of the Company Disclosure Letter, there are no stockholder
agreements, voting trusts or other agreements or understandings to which the
Company is a party or to which it is bound relating to the voting or disposition
of any shares of capital stock of the Company.
Section 3.4 Authority.
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the Merger and the other transactions contemplated hereby to be
consummated by the Company. The execution and delivery of this Agreement and the
consummation by the Company of such transactions have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or to
consummate such transactions. This Agreement has been duly authorized and
validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by the other parties hereto, constitute
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with its respective terms, subject to bankruptcy,
insolvency, reorganization, moratorium or other laws now or hereafter in effect
relating to creditors' rights generally or to general principles of equity.
(b) The Board of Directors of the Company (i) has unanimously adopted
the plan of merger set forth in this Agreement and approved this Agreement and
the other transactions contemplated by this Agreement and (ii) has declared that
the Merger and this Agreement and the other transactions contemplated by
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this Agreement are advisable and recommended that the stockholders of the
Company adopt this Agreement. This Agreement has been adopted by the unanimous
written consent of the stockholders of the Company.
Section 3.5 No Conflict.
(a) The execution and delivery of this Agreement by the Company do not,
and the performance of this Agreement by the Company will not:
(i) conflict with or violate any provision of any
Company Charter Document;
(ii) assuming effectuation of all filings and
registrations with, termination or expiration of all applicable
waiting periods imposed by, and receipt of all consents,
approvals, authorizations and permits of all Governmental Entities
indicated as required in Section 3.6 below, and receipt of all
Company Required Consents (as defined below), conflict with or
violate any foreign or domestic law, statute, ordinance, rule,
regulation, order, judgment, injunction or decree ("Law")
applicable to the Company or by which any property or asset of the
Company is or may be bound or affected, except for such conflicts
or violations which, individually or in the aggregate, have not
resulted and could not reasonably be expected to result in a
Material Adverse Effect on the Company; or
(iii) except as set forth in Section 3.5(a)(iii) of
the Company Disclosure Letter, result in any violation or breach
of or constitute a default (or an event which with or without
notice or lapse of time or both would become a default) under, or
modification in a manner materially adverse to the Company of any
right or benefit under or give to others any right of termination,
amendment, acceleration, repayment or repurchase, increased
payments or cancellation of or result in the creation of a
security interest, lien, claim, pledge, option, right of first
refusal, limitation on voting rights, charge or other encumbrance
of any nature whatsoever (collectively, "Liens") on any property
or asset of the Company under any note, bond, mortgage, indenture,
contract, agreement, commitment, lease, license, permit, franchise
or other instrument or obligation (collectively, "Contracts") to
which the Company is a party or by which it or its assets or
properties is or may be bound or affected, except for such
breaches, defaults or other occurrences which, individually or in
the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on the Company.
(b) Section 3.5(b) of the Company Disclosure Letter sets forth a
correct and complete list of all Contracts to which the Company is a party or by
which it or its assets or properties is or may be bound or affected under which
consents or waivers are required prior to consummation of the transactions
contemplated by this Agreement (collectively, the "Company Required Consents").
Section 3.6 Governmental Required Filings and Consents. The execution and
delivery of this Agreement by the Company do not, and the performance of this
Agreement by the Company will not, require any material consent, approval,
authorization or permit of, or filing with or notification to, any domestic or
foreign
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national, federal, state, provincial or local governmental, regulatory or
administrative authority, agency, commission, court, tribunal or arbitral body
or self-regulated entity (each, a "Governmental Entity"), except (i) for those
consents or approvals set forth in Section 3.6 of the Company Disclosure Letter
(the "Company Governmental Consents"), (ii) for applicable requirements of the
Securities Exchange Act of 1934, as amended (together with the rules and
regulations promulgated thereunder, the "Exchange Act"), and the Securities Act
of 1933, as amended (together with the rules and regulations promulgated
thereunder, the "Securities Act"), (iii) for applicable requirements of state
securities or "blue sky" laws ("Blue Sky Laws"), and (iv) for the filing of the
Certificate of Merger as required by the GCL.
Section 3.7 Tax Matters. Neither the Company nor, to the knowledge of the
Company, any of its affiliates has taken or agreed to take any action, nor is
the Company aware of any agreement, plan or other circumstance that would
prevent the Merger from constituting a transaction described in section 351 of
the Code or qualifying as a reorganization under section 368(a) of the Code.
Section 3.8 Certain Agreements. Except as set forth in Section 3.8 of the
Company Disclosure Letter, neither the Company nor any of the Company
Subsidiaries is a party to any oral or written (i) agreement with any executive
officer, director or other employee of the Company the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving the Company of the nature contemplated by this
Agreement, or (ii) plan, including any stock option plan, stock appreciation
right plan, restricted stock plan or stock purchase plan, any of the benefits of
which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement.
Section 3.9 No Defaults. Except as listed or described in Section 3.9 of
the Company Disclosure Letter, there is no Contract to which the Company is a
party or by which it or its assets or properties is or may be bound or affected.
The Company is not in violation of or in default under (nor does there exist any
condition which with the passage of time or the giving of notice would cause
such a violation of or default under) any Contract in any material respect to
which the Company is a party or by which it or any of its properties or assets
is or may be bound or affected.
Section 3.10 Investment Company Act. The Company either (i) is not an
"investment company," or a company "controlled" by, or an "affiliated company"
with respect to, an "investment company," within the meaning of the Investment
Company Act of 1940, as amended (the "Investment Company Act") or (ii) satisfies
all conditions for an exemption from the Investment Company Act, and,
accordingly, the Company is not required to be registered under the Investment
Company Act.
Section 3.11 Brokers. Except as set forth in Section 3.11 of the Company
Disclosure Letter, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
the other transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company.
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Section 3.12 No Liabilities. Except as set forth in Section 3.12 of the
Company Disclosure Letter, as of the date hereof, the Company has not engaged in
any business or activity of any kind since the date of its incorporation, except
in connection with its incorporation, the initial equity financing of the
Company (the final terms of which are described in the documents set forth in
Section 3.12 of the Company Disclosure Letter), the negotiation of this
Agreement and the agreements contemplated by this Agreement, and the
consummation of the transactions contemplated hereby or thereby. Except as set
forth in Section 3.12 of the Company Disclosure Letter, as of the date hereof,
the Company has not entered into any agreement or arrangement with any person or
entity or incurred, directly or indirectly, any liabilities or obligations
(whether accrued, absolute, contingent, mature or unmatured, determined or
indeterminable, or otherwise), except (x) in connection with this Agreement and
the transactions contemplated hereby and the Company's incorporation and (y)
those liabilities related to its initial equity financing that were incurred
pursuant to the terms of the documents set forth in Section 3.12 of the Company
Disclosure Letter.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND MERGER SUB
Each of the Parent and Merger Sub represents and warrants to the Company
that, except for inaccuracies in the representations and warranties resulting
from compliance with the provisions of this Agreement and performance of the
transactions contemplated hereby or inaccuracies resulting from actions or
omissions permitted by Section 5.2:
Section 4.1 Organization and Qualification; Subsidiaries.
(a) Each of the Parent and Merger Sub has been duly organized and is
validly existing and in good standing under the laws of the State of Delaware,
and has the requisite power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted. Each of
the Parent and Merger Sub is duly qualified or licensed to do business, and is
in good standing, in each jurisdiction where the character of the properties
owned, leased or operated by it or the nature of its business makes such
qualification or licensing necessary, except for such failures to be so
qualified or licensed and in good standing that, individually or in the
aggregate, have not resulted and could not reasonably be expected to result in a
Material Adverse Effect on the Parent. For purposes of this Agreement, "Material
Adverse Effect on the Parent" means any change in or effect on the business,
assets, properties, results of operations or condition (financial or otherwise)
of the Parent or Merger Sub that is or could reasonably be expected to be
materially adverse to the Parent and Merger Sub, taken as a whole, or that could
reasonably be expected to materially impair the ability of each of the Parent or
Merger Sub to perform its obligations under this Agreement or to consummate
transactions contemplated hereby.
(b) Except as set forth in Section 4.1(b) of the Parent Disclosure
Letter, other than the Parent's interest in Merger Sub, neither the Parent nor
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Merger Sub holds, and has not since their respective dates of incorporation
held, any interest in any other person.
Section 4.2 Certificate of Incorporation and By-Laws. The copies of the
Parent's certificate of incorporation and by-laws, each as amended through the
date of this Agreement (collectively, the "Parent Charter Documents") that are
filed as exhibits to the Parent's annual report on Form 10-K for the year ended
December 31, 1998 are complete and correct copies of those documents. The Parent
has made available to the Company complete and correct copies of the certificate
of incorporation and by-laws of Merger Sub (collectively, the "Merger Sub
Charter Documents"). The Parent Charter Documents and the Merger Sub Charter
Documents are in full force and effect. Neither the Parent nor Merger Sub is in
violation of any of the provisions of its organizational documents.
Section 4.3 Capitalization.
(a) The authorized capital stock of the Parent consists of (i)
8,000,000 shares of Parent Common Stock, and (ii) 7,000,000 shares of Preferred
Stock, par value $.001 per share ("Parent Preferred Stock"), (x) 537,500 shares
of which have been designated Series A Preferred Stock, par value $.001 per
share, and (y) 1,000,000 shares of which have been designated Parent Series B
Preferred Stock. As of the date hereof, (A) 3,122,254 shares of Parent Common
Stock were issued and outstanding, all of which were validly issued and are
fully paid, nonassessable and not subject to preemptive rights, (B) no shares of
Parent Preferred Stock were outstanding, and (C) 698,435 shares of Parent Common
Stock were reserved for issuance upon exercise of outstanding stock options and
warrants to acquire shares of Parent Common Stock ("Parent Stock Options and
Warrants"). Section 4.3(a) of the Disclosure Letter delivered to the Company by
the Parent and Merger Sub at or prior to the execution of this agreement (the
"Parent Disclosure Letter") sets forth a complete and correct list as of the
date hereof of the holders of all Parent Stock Options and Warrants, the number
of shares subject to each such option or warrant, and the exercise price
thereof. Except as set forth above, as of the date hereof, no shares of capital
stock or other voting securities of the Parent were issued, reserved for
issuance or outstanding and, since such date, no shares of capital stock or
other voting securities or options in respect thereof have been issued.
(b) Except for outstanding Parent Stock Options and Warrants, there are
no options, warrants, conversion rights, stock appreciation rights, redemption
rights, repurchase rights, rights of first refusal or first offer, preemptive
rights, or other rights, agreements, arrangements or commitments of any
character to which the Parent or Merger Sub is a party or by which the Parent or
Merger Sub is bound relating to the issued or unissued capital stock of the
Parent or Merger Sub or obligating the Parent or Merger Sub to issue or sell any
shares of capital stock of, or other equity interests in, the Parent or Merger
Sub.
(c) All shares of Parent Series B Preferred Stock subject to issuance
pursuant to the terms of this Agreement, upon issuance at or following the
Effective Time on the terms and conditions specified in this Agreement, will be
duly authorized, validly issued, fully paid, nonassessable and will not be
subject to preemptive rights. Except as set forth in Section 4.3(c) of the
Parent Disclosure Letter, there are no
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outstanding contractual obligations of the Parent or Merger Sub to repurchase,
redeem or otherwise acquire any shares of Parent Common Stock or any capital
stock of Merger Sub or to effect the registration of any shares of Parent Common
Stock or other Parent securities under the Securities Act. Except as set forth
in Section 4.3(c) of the Parent Disclosure Letter, there are no material
outstanding contractual obligations of the Parent or Merger Sub to provide funds
to, or make any investment (in the form of a loan, capital contribution or
otherwise) in, any other person. Except as set forth in Section 4.3(c) of the
Parent Disclosure Letter, there are no stockholder agreements, voting trusts or
other agreements or understandings to which the Parent is a party or to which it
is bound relating to the voting or disposition of any shares of capital stock of
the Parent.
(d) The authorized capital stock of Merger Sub consists of 100 shares
of common stock, par value $.01 per share ("Sub Common Stock"). All of the
issued and outstanding shares of Sub Common Stock are (A) owned by the Parent,
free and clear of all Liens, and (B) duly authorized, validly issued, fully paid
and nonassessable.
Section 4.4 Authority. (a) Each of the Parent and Merger Sub has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby to be consummated by it. The execution and delivery of this
Agreement by each of the Parent and Merger Sub and the consummation by each of
the Parent and Merger Sub of such transactions have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
on the part of the Parent or Merger Sub are necessary to authorize this
Agreement or to consummate such transactions. This Agreement has been duly
authorized and validly executed and delivered by each of the Parent and Merger
Sub and, assuming the due authorization, execution and delivery by the other
parties hereto, constitutes the legal, valid and binding obligation of each of
the Parent and Merger Sub, enforceable against each of the Parent and Merger Sub
in accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium or other laws now or hereafter in effect relating to creditors'
rights generally or to general principles of equity.
(b) Each of the Board of Directors of the Parent and Merger Sub (i) has
adopted the plan of merger set forth in this Agreement and approved
this Agreement and the other transactions contemplated by this Agreement
(including the issuance of the shares of Parent Series B Preferred Stock in
connection with the Merger) and (ii) has declared that the Merger and this
Agreement and the other transactions contemplated by this Agreement are
advisable and, in the case of Merger Sub, recommended that the stockholders of
Merger Sub adopt this Agreement. This Agreement has been adopted by the
unanimous written consent of the Parent as the sole stockholder of Merger Sub.
Section 4.5 No Conflict. (a) The execution and delivery of this Agreement
by the Parent and Merger Sub do not, and the performance of this Agreement by
each of the Parent and Merger Sub will not:
(i) conflict with or violate any provision of any
Parent Charter Document or any Merger Sub Charter Document;
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(ii) assuming effectuation of all filings and
registrations with, termination or expiration of all applicable
waiting periods imposed by, and receipt of all consents,
approvals, authorizations and permits of all Governmental Entities
indicated as required in Section 4.6 below, and receipt of all
consents required under any Contracts, conflict with or violate
any material foreign or domestic Law applicable to the Parent or
Merger Sub or by which any property or asset of the Parent or
Merger Sub is or may be bound or affected, except for such
conflicts or violations which, individually or in the aggregate,
have not resulted and could not reasonably be expected to result
in a Material Adverse Effect on the Parent; or
(iii) except as set forth in Section 4.5(b) of the
Parent Disclosure Letter, result in any violation or breach of or
constitute a default (or an event which with or without notice or
lapse of time or both would become a default) under, or
modification in a manner materially adverse to the Parent and
Merger Sub of any right or benefit under or give to others any
right of termination, amendment, acceleration, repayment or
repurchase, increased payments or cancellation of, or result in
the creation of a lien or other encumbrance on any property or
asset of the Parent or Merger Sub under, any Contract to which the
Parent or Merger Sub is a party or by which either of them or
their assets or properties is or may be bound or affected, except
for any such breaches, defaults or other occurrences which,
individually or in the aggregate, have not resulted and could not
reasonably be expected to result in a Material Adverse Effect on
the Parent.
(b) Section 4.5(b) of the Parent Disclosure Letter sets forth a correct
and complete list of all Contracts to which either Parent or Merger Sub is a
party or by which it or its assets or properties is or may be bound or affected
under which consents or waivers are required prior to consummation of the
transactions contemplated by this Agreement.
Section 4.6 Governmental Required Filings and Consents. The execution and
delivery of this Agreement by the Parent and Merger Sub do not, and the
performance of this Agreement by the Parent and Merger Sub will not, require any
material consent, approval, authorization or permit of, or filing with or
notification to, any Government Entity except for (i) those consents or
approvals set forth in Section 4.6 of the Parent Disclosure Letter (the "Parent
Governmental Consents"), (ii) applicable requirements of the Exchange Act and
the Securities Act, (iii) applicable requirements of Blue Sky Laws, and (iii)
the filing of the Certificate of Merger as required by the GCL.
Section 4.7 Permits; Compliance with Law. Except as set forth in Section
4.7 of the Parent Disclosure Letter, the Parent is in possession of all material
franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any Governmental
Entity necessary for the Parent to own, lease and operate its properties or to
carry on its business as it is now being conducted (collectively, the "Parent
Permits"), and, as of the date of this Agreement, no suspension or cancellation
of any of the Parent Permits is pending or, to the knowledge of the Parent,
threatened. The Parent is not in conflict with or in default or violation in any
material respect of (i) any Law applicable to the Parent or by which any
property or asset of the Parent is or may be bound or affected or (ii) any
Parent Permits.
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Section 4.8 Securities Exchange Commission ("SEC") Filings; Financial
Statements.
(a) The Parent has filed all forms, reports, registration statements
and other documents (including all exhibits, annexes, supplements and amendments
to such documents) required to be filed by it under the Exchange Act and the
Securities Act since January 1, 1997 through the date of this Agreement
(collectively, including any such documents filed subsequent to the date of this
Agreement, the "Parent SEC Reports"). The Parent SEC Reports, including any
financial statements or schedules included or incorporated by reference, (i)
complied at the time they were filed in all material respects with the
requirements of the Exchange Act or the Securities Act or both, as the case may
be, applicable to those Parent SEC Reports and (ii) did not at the time they
were filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated or necessary in order to make the statements
made in those Parent SEC reports, in the light of the circumstances under which
they were made, not misleading.
(b) Each of the financial statements included in or incorporated by
reference into the Parent SEC Reports (including the related notes and
schedules) complied at the time they were filed as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of the
unaudited interim financial statements, as permitted by Form 10-Q of the SEC)
and fairly present in all material respects (subject, in the case of the
unaudited interim financial statements, to normal, year-end audit adjustments)
the financial position of the Company as at the dates thereof and the results of
their operations and cash flows for the periods then ended.
(c) Except as and to the extent set forth on the balance sheet of the
Parent as of December 31, 1999, including the related notes, or as set forth in
Section 4.8(c) of the Parent Disclosure Letter the Parent has no debts,
liabilities or obligations of any nature (whether accrued, absolute, contingent,
mature or unmatured, determined or indeterminable, or otherwise), except (x) in
connection with this Agreement and the transactions contemplated hereby and the
Parent's incorporation and (y) those liabilities related to its equity
financings that were incurred pursuant to the terms of the documents set forth
in Section 4.3(b) of the Parent Disclosure Letter.
Section 4.9 Absence of Certain Changes or Events. Except as set forth in
any Parent SEC Report filed prior to the date hereof, since December 31, 1999,
the Parent has conducted their businesses in the ordinary course and in a manner
consistent with past practice and, since such date, there has not been:
(a) any Material Adverse Effect on the Parent;
(b) any material damage, destruction or other casualty loss with
respect to any asset or property owned, leased or otherwise used by the Parent,
whether or not covered by insurance;
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(c) any material change by the Parent in its accounting methods,
principles or practices except as required by GAAP or by applicable Law;
(d) any declaration, setting aside or payment of any dividend or
distribution in respect of Parent Common Stock or any redemption, purchase or
other acquisition of any of the Parent's securities;
(e) any increase in the compensation or benefits or establishment of
any bonus, insurance, severance, deferred compensation, pension, retirement,
profit sharing, stock option (including, the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards), stock
purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any executive officers or directors
of the Parent;
(f) (i) any incurrence or assumption by the Parent of any indebtedness
for borrowed money or (ii) any guarantee, endorsement or other incurrence or
assumption material liability (whether directly, contingently or otherwise) by
the Parent for the obligations of any other person;
(g) any creation or assumption by the Parent of any Lien on any asset
of the Parent;
(h) any making of any loan, advance or capital contribution to or
investment in any person by the Parent; or
(i) (i) any Contract entered into by the Parent relating to any
acquisition or disposition of any assets or business, or (ii) any modification,
amendment, assignment or termination of or relinquishment by the Parent of any
rights under any other Contract (including any insurance policy naming it as a
beneficiary or a loss payable payee), other than transactions, commitments,
contracts or agreements contemplated by this Agreement.
Section 4.10 Employee Benefit Plans.
(a) Except as set forth in Section 4.10(a) of the Parent Disclosure
Letter: (A) each pension, retirement, savings, disability, medical, dental,
health, life, death benefit, group insurance, profit sharing, deferred
compensation, stock option, bonus, incentive, severance pay, or other employee
benefit plan, trust, arrangement, contract, commitment, agreement or policy
(collectively, "Benefit Plans") of the Parent has been administered and is in
compliance in all material respects with the terms of such plan and all
applicable laws, rules and regulations, (B) no "reportable event" (as such term
is used in section 4043 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) (other than those events for which the 30 day notice has
been waived pursuant to the regulations), "prohibited transaction" (as such term
is used in section 406 of ERISA or section 4975 of the Code) or "accumulated
funding deficiency" (as such term is used in section 412 or 4971 of the Code)
has heretofore occurred with respect to any Benefit Plan of the Parent or any
Benefit Plan of its affiliates and any trade or business which is or within the
past five years has been under common control or which is or within the past
five years has been treated as a single employer with any of them under section
414(b), (c), (m) or (o) of the Code ("ERISA Affiliate")
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and (C) the Benefit Plans of the Parent intended to qualify under section 401 of
the Code are so qualified and the trusts maintained pursuant thereto are exempt
from federal income taxation under section 501 of the Code, and nothing has
occurred with respect to the operation of the Benefit Plans of the Parent which
could cause the loss of such qualification or exemption or the imposition of any
liability, penalty or tax under ERISA or the Code and each Benefit Plan of the
Parent intended to qualify under Section 401(a) of the Code has received a
favorable determination from the Internal Revenue Service (the "IRS") regarding
its qualified status and no notice has been received from the IRS with respect
to the revocation of such qualification.
(b) There is no litigation or administrative or other proceeding
involving any Benefit Plan of the Parent nor has the Parent received notice that
any such proceeding is threatened. The Parent has not incurred, and, to the
Parent's knowledge, is not reasonably likely to incur any withdrawal liability
with respect to any "multiemployer plan" (within the meaning of section 3(37) of
ERISA). The termination of, or withdrawal from, any Benefit Plan of the Parent
or multiemployer plan to which the Parent contributes, on or prior to the
Effective Time, will not subject the Parent to any liability under Title IV of
ERISA.
(c) True, correct and complete copies of the following documents, with
respect to each of the Benefit Plans of the Parent, have been made available or
delivered to the Company by Parent, in each case to the extent applicable: (i)
any plans, all amendments thereto and related trust documents, and amendments
thereto; (ii) the most recent Forms 5500 and all schedules thereto and the most
recent actuarial report, if any; (iii) the most recent IRS determination letter;
(iv) summary plans descriptions; (v) written communications to employees
relating to the Benefit Plans of the Parent; and (vi) written descriptions of
all non-written agreements relating to the Benefit Plans of the Parent.
(d) None of the Benefit Plans of the Parent provide for post-
employment life or health insurance, benefits or coverage for any participant or
any beneficiary of a participant, except as may be required under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") and
at the expense of the participant or the participant's beneficiary. Each of the
Parent and any ERISA Affiliate which maintains a "group health plan" within the
meaning section 5000(b)(1) of the Code has complied in all material respects
with the notice and continuation requirements of section 4980B of the Code,
COBRA, Part 6 of Subtitle B of Title I of ERISA and the regulations thereunder.
(e) There is no contract, plan or arrangement (written or otherwise)
covering any employee or former employee of the Parent that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to the terms of section 280G of the Code and the Parent has
not made any payment that would not be deductible pursuant to the terms of
section 162(m) of the Code.
Section 4.11 Tax Matters. Neither the Parent nor Merger Sub, nor to the
knowledge of the Parent, any of Parent's affiliates has taken or agreed to take
any action, nor is the Parent aware of any agreement, plan or other
circumstance, that would
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prevent the Merger from constituting a transaction described in section 351 of
the Code or qualifying as a reorganization under section 368(a) of the Code.
Section 4.12 No Defaults. Except as listed or described in Section 4.12 of
the Parent Disclosure Letter, there is no Contract to which the Parent is a
party or by which it or its assets or properties is or may be bound or affected.
The Parent is not in violation of or in default under (nor does there exist any
condition which with the passage of time or the giving of notice would cause
such a violation of or default under) any Contract in any material respect to
which it is a party or by which it or any of its properties or assets is or may
be bound or affected.
Section 4.13 Litigation. Except as set forth in Section 4.13 of the Parent
Disclosure Letter, there is no suit, claim, action, or proceeding (collectively,
"Claims") pending or, to the knowledge of the Parent, threatened against the
Parent before any Governmental Entity nor to the Parent's knowledge are there
any investigations or reviews by any Governmental Entity pending or, threatened
against, relating to or affecting the Parent. The Parent is not subject to any
outstanding order, writ, injunction or decree of any court of Governmental
Entity.
Section 4.14 Environmental Matters. Except as set forth in Section 4.14 of
the Parent Disclosure Letter:
(a) The Parent is not and has not been in violation in any material
respect of any applicable Safety and Environmental Law;
(b) To the Parent's knowledge, the Parent has all Permits required
pursuant to Safety and Environmental Laws that are material to the conduct of
the business of the Parent, all such Permits are in full force and effect, no
action or proceeding to revoke, limit or modify any of such Permits is pending,
and the Parent is in compliance in all material respects with all terms and
conditions thereof;
(c) The Parent has not received any Environmental Claim;
(d) To the Parent's knowledge, there is not now and has not been at any
time in the past a Release or threatened Release of Hazardous Substances into
the Environment for which the Parent is directly or indirectly responsible; and
(e) To the Parent's knowledge, there is not now and has not been at any
time in the past at, on or in any of the real properties owned, leased or
operated by the Parent, and, to the Parent's knowledge, was not at, on or in any
real property previously owned, leased or operated by the Parent or any
predecessor: (i) any generation, use, handling, Release, treatment, recycling,
storage or disposal of any Hazardous Substances, (ii) any underground storage
tank, surface impoundment, lagoon or other containment facility (past or
present) for the temporary or permanent storage, treatment or disposal of
Hazardous Substances, (iii) any asbestos-containing material in a condition
requiring abatement, (iv) any Release or threatened Release, or any visible
signs of Releases or threatened Releases, of a Hazardous Substance to the
Environment in form or quantity requiring remedial action under Safety and
Environmental Laws, or (v) any Hazardous Substances present at such property,
excepting such quantities as are handled in all material respects in accordance
with all applicable manufacturer's
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instructions and Safety and Environmental Laws and in proper storage containers,
and as are necessary for the operations of the Parent.
For purposes of this Agreement, the following terms have the following
meanings:
(a) "Environment" means navigable waters, waters of the contiguous
zone, ocean waters, natural resources, surface waters, ground water, drinking
water supply, land surface, subsurface strata, ambient air, both inside and
outside of buildings and structures, man-made buildings and structures, and
plant and animal life on earth.
(b) "Environmental Claims" means any written notification, whether
direct or indirect, pursuant to Safety and Environmental Laws or principles of
common law relating to pollution, protection of the Environment or health and
safety, that any of the current or past operations of the Parent have or may
have violated any such Safety and Environmental Law or principles of common law.
(c) "Hazardous Substance" means any toxic waste, pollutant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial substance
or waste, petroleum or petroleum-derived substance or waste, radioactive
substance or waste, or any constituent of any such substance or waste, or any
other substance regulated under or defined by any Safety and Environmental Law.
(d) "Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
or through the indoor or outdoor Environment or into, through or out of any
property, including the movement of Hazardous Substances through or in the air,
soil, surface water, ground water or property.
(e) "Safety and Environmental Laws" means all federal, state and local
laws and orders relating to pollution, protection of the Environment, public or
worker health and safety, or the emission, discharge, release or threatened
release of pollutants, contaminants or industrial, toxic or hazardous substances
or wastes into the Environment or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or industrial, toxic or hazardous
substances or wastes, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et
seq., the Resource Conservation and Recovery Act, 42 U.S.C.ss. 6901 et seq., the
Toxic Substances Control Act, 15 U.S.C.ss. 2601 et seq., the Federal Water
Pollution Control Act, 33 U.S.C.ss. 1251 et seq., the Clean Air Act, 42
U.S.C.ss. 7401 et seq., the Federal Insecticide, Fungicide and Rodenticide Act,
7 U.S.C.ss. 121 et seq., the Occupational Safety and Health Act, 29 U.S.C.ss.
651 et seq., the Asbestos Hazard Emergency Response Act, 15 U.S.C.ss. 2601 et
seq., the Safe Drinking Water Act, 42 U.S.C.ss. 300f et seq., the Oil Pollution
Act of 1990 and analogous state acts.
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Section 4.15 Intellectual Property.
(a) Except as set forth in Section 4.15(a) of the Parent Disclosure
Letter, the Parent does not own or license any Intellectual Property material to
its business and operations. For purposes of this Agreement, "Intellectual
Property" means all of the following as they exist in all jurisdictions
throughout the world, in each case, to the extent owned by, licensed to, or
otherwise used by the Parent: (A) patents, patent applications, and other patent
rights (including any divisions, continuations, continuations-in-part,
substitutions, or reissues thereof, whether or not patents are issued on any
such applications and whether or not any such applications are modified,
withdrawn, or resubmitted); (B) trademarks, service marks, trade dress, trade
names, brand names, Internet domain names, designs, logos, or corporate names,
whether registered or unregistered, and all registrations and applications for
registration thereof; (C) copyrights, including all renewals and extensions,
copyright registrations and applications for registration, and non-registered
copyrights; (D) trade secrets, concepts, ideas, designs, research, processes,
procedures, techniques, methods, know-how, data, mask works, discoveries,
inventions, modifications, extensions, improvements, and other proprietary
rights (whether or not patentable or subject to copyright, mask work, or trade
secret protection); and (E) computer software programs, including all source
code, object code, and documentation related thereto.
(b) Except as set forth in Section 4.15(b) of the Parent Disclosure
Letter, the Parent has not been, during the five years preceding the date of
this Agreement, a party to any Claim, nor, to the knowledge of the Parent, is
any Claim threatened, that challenges the validity, enforceability, ownership,
or right to use, sell, or license any Intellectual Property material to its
business and operations.
(c) The Parent is not in violation in any material respect of any
agreement relating to any Intellectual Property.
Section 4.16 Taxes. (a) Except as set forth in Section 4.16 of the Parent
Disclosure Letter, (i) the Parent has timely filed (after giving effect to any
extensions of the time to file which were obtained) prior to the date of this
Agreement, and will file prior to the Effective Time, all tax returns required
to be filed prior to the date of this Agreement and/or required to be filed
prior to the Effective Time by it, and has paid, or has or will set up an
adequate reserve for the payment of, all federal, state, local, foreign and
other taxes, together with interest and penalties thereon ("Taxes") required to
be paid prior to the date of the Agreement or the Effective Time, as the case
may be, and no reserve for Taxes payable by the Parent accrued through the date
of such financial statements was required, in accordance with GAAP, to be
reflected in the most recent financial statements contained in the Parent SEC
Reports and (ii) no deficiencies for any Taxes have been proposed, asserted or
assessed against the Parent other than those which are being contested in good
faith and by proper proceedings by the Parent.
(b) The federal income tax returns of the Parent and any affiliated,
consolidated, combined or unitary group that includes the Parent have not to
date been examined by the IRS.
(c) None of the Parent or, to the Parent's knowledge, any affiliated,
consolidated, combined or unitary group of which the Parent is now or ever
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was a member, has filed or entered into any election, consent or extension
agreement that extends any applicable statute of limitations or the time within
which a tax return must be filed which such statute of limitations has not
expired or tax return has not been timely filed.
(d) (i) None of the Parent or, to the Parent's knowledge, any group of
which the Parent is now or ever was a member, is a party to any action or
proceeding pending or, to the Parent's knowledge, threatened by any governmental
authority for assessment or collection of Taxes, (ii) no unresolved claim for
assessment or collection of Taxes has, to the Parent's knowledge, been asserted,
and (iii) no audit or investigation of the Parent by any governmental authority
is pending or, to the Parent's knowledge, threatened.
Section 4.17 Real Property. The Parent does not own any fee interest in
real estate. The Parent is not a party to, nor is it or its assets or properties
bound or affected by, any lease, sublease or other agreement under which the
Parent occupies or has the right to use or occupy now or in the future any real
property.
Section 4.18 Labor Matters. The Parent is not the subject of any suit,
action or proceeding which is pending or, to the knowledge of the Parent,
threatened, asserting that the Parent has committed an unfair labor practice
(within the meaning of the National Labor Relations Act or applicable state
statues) or seeking to compel the Parent to bargain with any labor organization
as to wages and conditions of employment, in any such case, that is reasonably
expected to result in a material liability of the Parent. Section 4.18 of the
Parent Disclosure Letter sets forth a list of all employment agreements
currently in effect. The Company has heretofore made available to Parent true
and complete copies of the employment agreements listed on Section 4.18 of the
Parent Disclosure Letter, together with all amendments, modifications,
supplements and side letters affecting the duties, rights and obligations of any
party thereunder.
Section 4.19 Investment Company Act. The Parent either (i) is not an
"investment company," or a company "controlled" by, or an "affiliated company"
with respect to, an "investment company," within the meaning of the Investment
Company Act or (ii) satisfies all conditions for an exemption from the
Investment Company Act, and, accordingly, the Parent is not required to be
registered under the Investment Company Act.
Section 4.20 Certain Agreements. Except as set forth in Section 4.20 of the
Parent Disclosure Letter, the Parent is not a party to any oral or written (i)
agreement with any executive officer, director or other employee of the Parent
the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving the Parent of the nature
contemplated by this Agreement, or (ii) plan, including any stock option plan,
stock appreciation right plan, restricted stock plan or stock purchase plan, any
of the benefits of which will be increased, or the vesting of the benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement.
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Section 4.21 Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the Merger
or the other transactions contemplated hereby based upon arrangements made by or
on behalf of the Parent or Merger Sub.
Section 4.22 Interim Operations of Merger Sub. Merger Sub was formed solely
for the purpose of engaging in the transactions contemplated by this Agreement
and has not engaged in and will not engage in any business activities or
conducted any operations other than in connection with the transactions
contemplated by this Agreement.
ARTICLE 5
COVENANTS
Section 5.1 Conduct of Business of the Company. Except as contemplated by
this Agreement or disclosed in Section 5.1 of the Company Disclosure Letter or
with the prior written consent of the Parent, during the period from the date of
this Agreement to the Effective Time, the Company will conduct its operations
and business in the ordinary course of business. Without limiting the generality
of the foregoing, and except as otherwise contemplated by this Agreement or
disclosed in Section 5.1 of the Company Disclosure Letter, prior to the
Effective Time, the Company will not, without the prior written consent of the
Parent (which consent will not be unreasonably withheld, conditioned or
delayed):
(a) except to the extent required by law, adopt any amendment to the
Company Charter Documents;
(b) issue, reissue or sell, or authorize the issuance, reissuance or
sale of (i) additional shares of capital stock of any class, or securities
convertible or exchangeable into capital stock of any class, or any rights,
warrants or options to acquire any convertible or exchangeable securities or
capital stock, other than the issue of Company Shares, in accordance with the
terms of the instruments governing such issuance, pursuant to the exercise of
Company Stock Options outstanding on the date hereof or granted after the date
hereof in accordance with the terms of this Agreement, and other than issuances
of options to acquire shares of Company Common Stock or other equity grants or
awards (including, without limitation, awards of Company Restricted Stock) to
existing, new or prospective employees, officers, directors, consultants or
others providing services to the Company, or (ii) any other securities in
respect of, in lieu of, or in substitution for, Company Shares outstanding on
the date hereof;
(c) declare, set aside or pay any dividend or other distribution
(whether in cash, securities or property or any combination thereof) in respect
of any class or series of its capital stock;
(d) split, combine, subdivide, reclassify or redeem, purchase or
otherwise acquire, or propose to redeem or purchase or otherwise acquire, any
shares of its capital stock, or any of its other securities;
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(e) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of the Company (other than the Merger);
(f) (i) incur, assume or prepay any indebtedness or incur or assume any
short-term indebtedness (including, in either case, by issuance of debt
securities), or (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other person; or
(g) authorize or enter into any formal or informal written or other
agreement or otherwise make any commitment to do any of the foregoing.
Section 5.2 Conduct of Business of the Parent Pending the Merger. Except as
contemplated by this Agreement or disclosed in Section 5.2 of the Parent
Disclosure Letter or with the prior written consent of the Company, during the
period from the date of this Agreement to the Effective Time, the Parent will
conduct its operations and business in the ordinary course of business. Without
limiting the generality of the foregoing, and except as otherwise contemplated
by this Agreement or disclosed in Section 5.2 of the Parent Disclosure Letter,
prior to the Effective Time, the Parent will not, without the prior written
consent of the Company (which consent will not be unreasonably withheld,
conditioned or delayed):
(a) except to the extent required by law, adopt any amendment to the
Parent Charter Documents or the Merger Sub Charter Documents;
(b) issue, reissue or sell, or authorize the issuance, reissuance or
sale of (i) additional shares of capital stock of any class, or securities
convertible or exchangeable into capital stock of any class, or any rights,
warrants or options to acquire any convertible or exchangeable securities or
capital stock, other than the issue of shares of Parent Common Stock, in
accordance with the terms of the instruments governing such issuance on the date
hereof, pursuant to the exercise of Parent Stock Options and Warrants
outstanding on the date hereof, or (ii) any other securities in respect of, in
lieu of, or in substitution for, shares of capital stock of Parent outstanding
on the date hereof;
(c) declare, set aside or pay any dividend or other distribution
(whether in cash, securities or property or any combination thereof) in respect
of any class or series of its capital stock, other than the declaration before
the Effective Time of a cash dividend on the Parent Common Stock in an aggregate
amount not to exceed the cash and cash equivalents balance of the Parent at the
Effective Time (provided that adequate cash is reserved for the satisfaction of
the obligations of the Parent under Sections 6.3(c) and (e) below);
(d) split, combine, subdivide, reclassify or redeem, purchase or
otherwise acquire, or propose to redeem or purchase or otherwise acquire, any
shares of its capital stock, or any of its other securities;
(e) increase the compensation or fringe benefits payable or to become
payable to its directors, officers or employees, or pay any benefit not required
by any existing plan or arrangement (including the granting of stock options,
stock appreciation rights, shares of restricted stock or performance units) or
grant any severance
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or termination pay to (except pursuant to existing agreements, plans or
policies), or enter into any employment or severance agreement with, any
director, officer or other employee of the Parent or establish, adopt, enter
into, or amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, savings,
welfare, deferred compensation, employment, termination, severance or other
employee benefit plan, agreement, trust, fund, policy or arrangement for the
benefit or welfare of any directors, officers or current or former employees,
except in each case to the extent required by applicable Law;
(f) acquire, sell, lease, license, transfer, mortgage, pledge,
encumber, grant or dispose of (whether by merger, consolidation, purchase, sale
or otherwise) any property or assets, or enter into any material commitment or
transaction;
(g) (i) incur, assume or prepay any indebtedness or incur or assume any
short-term indebtedness (including, in either case, by issuance of debt
securities), (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other person, or (iii) make any loans, advances or capital contributions to,
or investments in, any other person;
(h) terminate, cancel or request any change in, or agree to any change
in any Contract, or enter into any Contract, or enter into any joint venture
agreement, partnership agreement or similar arrangement, or make or authorize
any capital expenditure;
(i) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of the Parent or Merger Sub (other than the Merger);
(j) enter into any agreement or arrangement that materially limits or
otherwise materially restricts the Parent or any successor thereto, or that
would, after the Effective Time, limit or restrict the Surviving Corporation and
its affiliates (including Parent) or any successor thereto, from engaging or
competing in any line of business or in any geographic area;
(k) take any action with respect to accounting policies or procedures,
other than as required pursuant to applicable Law or GAAP;
(l) waive, release, assign, settle or compromise any rights, claims or
litigation;
(m) make any Tax election (unless required by applicable Law) or settle
or compromise any federal, state, local or foreign Tax liability; or
(n) authorize or enter into any formal or informal written or other
agreement or otherwise make any commitment to do any of the foregoing.
Section 5.3 Other Actions. During the period from the date hereof to the
Effective Time, the Company and the Parent shall not, and Parent shall not
permit Merger Sub to, voluntarily take any action that would, or that could
reasonably be
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expected to, result in any of the conditions to the Merger set forth in Article
6 hereof not being satisfied.
Section 5.4 Notification of Certain Matters. The Parent and the Company
shall promptly notify each other of (a) the occurrence or non-occurrence of any
fact or event which could reasonably be expected (i) to cause any representation
or warranty contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date hereof to the Effective Time, (ii) to
cause any material covenant, condition or agreement hereunder not to be complied
with or satisfied in all material respects or (iii) to result in, in the case of
Parent, a Material Adverse Effect on the Parent; and, in the case of the
Company, a Material Adverse Effect on the Company, (b) any failure of the
Company or the Parent, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder in any material respect; provided, however, that no such notification
shall affect the representations or warranties of any party or the conditions to
the obligations of any party hereunder, (c) any notice or other material
communications from any Governmental Entity in connection with the transactions
contemplated by this Agreement and (d) the commencement of any suit, action or
proceeding that seeks to prevent or seek damages in respect of, or otherwise
relates to, the consummation of the transactions contemplated by this Agreement.
Section 5.5 Access to Information; Confidentiality.
(a) Except as required under applicable Law or the regulations or
requirements of any securities exchange or quotation service or other self
regulatory organization with whose rules the parties are required to comply,
from the date of this Agreement to the Effective Time, the Parent and the
Company shall: (i) provide to the other (and its officers, directors, employees,
accountants, consultants, legal counsel, financial advisors, investment bankers,
agents and other representatives (collectively, "Representatives")) access at
reasonable times upon prior notice to the officers, employees, agents,
properties, offices and other facilities of the other and to the books and
records thereof; and (ii) furnish promptly such information concerning the
business, properties, Contracts, assets, liabilities, personnel and other
aspects of the other party as the other party or its Representatives may
reasonably request. No investigation conducted under this Section 5.5 shall
affect or be deemed to modify any representation or warranty made in this
Agreement.
(b) Each of the parties hereby agrees that any and all information
heretofore and hereafter furnished by the parties and their respective
affiliates to the other party is to be used by such party and its
Representatives solely for the purposes of evaluating the transactions
contemplated by this Agreement and agrees that such information will be kept
confidential by it and agrees, and to cause each of its Representatives to
agree, not to use such information for any other purposes and not to disclose
any such information except: (i) to the extent such information is already in
such party's possession prior to it being so furnished or becomes publicly
available other than as a result of disclosure by such party or one of its
Representatives, or (ii) as may be required by applicable law, regulation or
legal process; provided, that, except in the case of the filings contemplated by
Section 5.10 below, any party subject to such a requirement shall promptly
notify the relevant party of the existence of such requirement and cooperate
with such party in resisting or narrowing such requirement.
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Section 5.6 No Solicitation.
(a) From the date hereof until the termination hereof and except as
expressly permitted by the following provisions of this Section 5.6, the Parent
will not, nor will it authorize or permit any officer, director or employee of
the Parent and each investment banker, attorney, accountant or other advisor or
representative of, the Parent to, directly or indirectly, (i) solicit, initiate
or encourage the submission of any Acquisition Proposal (as hereinafter defined)
or (ii) participate in any discussions or negotiations regarding, or furnish to
any person any information with respect to, or take any other action to
facilitate, an Acquisition Proposal or any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, an
Acquisition Proposal.
(b) The Parent shall notify the Company orally and in writing of any
Acquisition Proposal (including, without limitation, the material terms and
conditions thereof and the identity of the person making it) or any inquiries
indicating that any person is considering making or wishes to make an
Acquisition Proposal, as promptly as practicable (but in no case later than 24
hours) after its receipt thereof, and shall provide the Company with a copy of
any written Acquisition Proposal or amendments or supplements thereto, and shall
thereafter inform the Company on a prompt basis of (x) the status of any
discussions or negotiations with any such third party, and any material changes
to the terms and conditions of such Acquisition Proposal, and shall promptly
give the Company a copy of any information delivered to such person which has
not previously been reviewed by the Company and (y) any request by any person
for nonpublic information relating to its properties, books or records.
(c) Immediately after the execution and delivery of this Agreement, the
Parent will, and will cause its affiliates, and their respective officers,
directors, employees, investment bankers, attorneys, accountants and other
agents to, cease and terminate any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any possible
Acquisition Proposal. The Parent agrees that it will take the necessary steps to
promptly inform the individuals or entities referred to in the first sentence of
Section 5.6(a) of the obligations undertaken in this Section 5.6.
(d) For purposes of this Agreement, "Acquisition Proposal" means an
inquiry, offer or proposal regarding any of the following (other than the
transactions contemplated by this Agreement) involving the Parent: (i) any
merger, consolidation, share exchange, recapitalization, business combination or
other similar transaction; (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of all or substantially all the assets of the
Parent, in a single transaction or series of related transactions; (iii) any
tender offer or exchange offer for fifteen percent (15%) or more of the
outstanding shares of Parent Common Stock or the filing of a registration
statement under the Securities Act in connection therewith; or (iv) any public
announcement of a proposal or plan to do any of the foregoing or any agreement
to engage in any of the foregoing.
Section 5.7 Reasonable Best Efforts. Subject to the terms and conditions
provided in this Agreement and to applicable legal requirements, each of the
parties hereto agrees to use its reasonable best efforts to take, or cause to be
taken, all
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action, and to do, or cause to be done, and to assist and cooperate with the
other parties hereto in doing, as promptly as practicable, all things necessary,
proper or advisable under applicable laws and regulations to ensure that the
conditions set forth in Article 6 are satisfied and to consummate and make
effective the transactions contemplated by this Agreement. Notwithstanding the
foregoing, references in this Agreement to the obligations of the parties to use
their "reasonable best efforts" shall not include a requirement that any party
incur any material expense other than expenses in connection with matters
expressly contemplated by this Agreement and reasonable and customary expenses
incurred in connection with transactions of the nature expressly contemplated by
this Agreement. If at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, including
the execution of additional instruments, the proper officers and directors of
each party to this Agreement shall take all such necessary action.
Section 5.8 Consents; Filings; Further Action.
(a) Upon the terms and subject to the conditions hereof, each of the
parties hereto shall use its reasonable best efforts to (i) take, or cause to be
taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable under applicable Law or otherwise to consummate
and make effective the Merger and the other transactions contemplated hereby,
(ii) obtain from Governmental Entities any Company Governmental Consents and
Parent Governmental Consents and any other consents, licenses, permits, waivers,
approvals, authorizations or orders required to be obtained or made by the
Parent, Merger Sub or the Company in connection with the authorization,
execution and delivery of this Agreement and the consummation of the Merger and
the other transactions contemplated hereby, (iii) make all necessary filings,
and thereafter make any other submissions either required or reasonably deemed
appropriate by each of the parties, with respect to this Agreement and the
Merger and the other transactions contemplated hereby required under (A) the
Securities Act, the Exchange Act and any other applicable federal or state
securities laws, (B) any applicable antitrust, anti-monopoly or similar Laws,
(C) the GCL, (D) any other applicable Law, and (E) the rules and regulations of
National Association of Securities Dealers, Inc. The parties hereto shall
cooperate and consult with each other in connection with the making of all such
filings, including by providing copies of all such documents to the nonfiling
party and its advisors prior to filing. No party to this Agreement shall consent
to any voluntary extension of any statutory deadline or waiting period or to any
voluntary delay of the consummation of the Merger and the other transactions
contemplated hereby at the behest of any Governmental Entity without the consent
and agreement of the other parties to this Agreement, which consent shall not be
unreasonably withheld or delayed.
(b) Without limiting the generality of Section 5.8(a), each party
hereto shall promptly inform the others of any material communication from any
domestic or foreign government or governmental or multinational authority
regarding any of the transactions contemplated by this Agreement. If any party
or any affiliate thereof receives a request for additional information or
documentary material from any such government or authority with respect to the
transactions contemplated by this Agreement, then such party will endeavor in
good faith to make, or cause to be made, as soon as reasonably practicable and
after consultation with the other party, an appropriate response in compliance
with such request.
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Section 5.9 Plan of Reorganization. This Agreement is intended to
constitute a "plan of reorganization" within the meaning of Section 1.368-2(g)
of the income tax regulations promulgated under the Code. From and after the
date of this Agreement and until the Effective Time, each party hereto shall use
its reasonable best efforts to cause the Merger to qualify, and will not,
without the prior written consent of the parties hereto, knowingly take any
actions or cause any actions to be taken, or knowingly fail to take any action
or fail to cause any action to be taken, which could prevent the Merger from
qualifying, as a transaction described in section 351 or as a reorganization
under the provisions of section 368(a) of the Code. Following the Effective
Time, and consistent with any such consent, none of the Surviving Corporation,
the Parent or any of their affiliates shall knowingly take any action or cause
any action to be taken, or knowingly fail to take any action or fail to cause
any action to be taken, which would cause the Merger to fail to so qualify as a
transaction described in section 351 or as a reorganization under section 368(a)
of the Code. The Merger is intended to constitute a "reverse acquisition" within
the meaning of Section 1.1502-75(d)(3) of the income tax regulations promulgated
under the Code. The Parent and the Company shall elect to file a consolidated
return pursuant to Section 1502 of the Code for the first taxable year ending
after the Merger and the taxable year of the Parent shall close as a result of
the Merger.
Section 5.10 Public Announcements. The initial press release concerning the
Merger shall be a joint press release and, thereafter, the Parent and the
Company shall consult with each other before issuing or making, and provide each
other the opportunity to review, comment upon and concur with, any press
release, filing or other public statements with respect to this Agreement or any
of the transactions contemplated hereby and shall not issue or make any such
press release or make any such filing or public statement prior to such
consultation, except to the extent required by applicable Law or the
requirements of any securities exchange or quotation service or other self
regulatory organization with whose rules the parties are required to comply, in
which case the issuing party shall use its reasonable best efforts to consult
with the other parties before issuing any such release or making any such filing
or public statement.
Section 5.11 Obligations of Merger Sub. The Parent shall take all actions
necessary to cause Merger Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and subject to the conditions set
forth in this Agreement.
Section 5.12 Expenses. Subject to Section 6.3(c) below, whether or not the
Merger is consummated, all Expenses incurred in connection with this Agreement
and the Merger and the other transactions contemplated hereby shall be paid by
the party incurring such Expense; provided, however, that if the Merger is
consummated, the Expenses incurred by the Company in connection with this
Agreement and the Merger shall be paid by the Parent following the Effective
Time; and provided, further, that any such Expenses of the Company shall not be
paid from the cash and cash equivalents of the Parent available for the
declaration or payment of any dividends pursuant to Section 5.2(c) above . For
purposes of this Agreement, "Expenses" consist of all out-of-pocket expenses
(including, all fees and expenses of counsel, accountants, investment bankers,
experts and consultants to a party hereto and its affiliates) incurred by a
party or on its behalf in connection with or related to the authorization,
preparation, negotiation,
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execution and performance of this Agreement and all other matters related to the
closing of the transactions contemplated hereby.
Section 5.13 Takeover Statutes. If any "fair price," "moratorium," "control
share acquisition" or other similar state or federal anti-takeover statute or
regulation is or may become applicable to the Merger or the other transactions
contemplated hereby, each of the Parent, Merger Sub and the Company and its
board of directors shall grant such approvals and take such actions as are
necessary so that such transactions may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise act to
eliminate or minimize the effects of such statute or regulation on such
transactions.
Section 5.14 Board of Directors and Officers of the Parent. The Parent
agrees that concurrently with the Effective Time, the Parent shall take such
action as may be necessary to (i) ensure that the Board of Directors of the
Parent shall consist of seven members, and (ii) enable Messrs. Jon V. Diamond
and two other persons designated by the Company to be appointed to the Board of
Directors of the Parent. In addition, the Parent shall take such action as may
be necessary to ensure that concurrently with the Effective Time, (1) all of the
officers of the Parent shall resign as of the Effective Time, and (2) Mr. Jon V.
Diamond shall be appointed as the President, Chief Executive Officer and
Secretary of the Parent. The parties further agree that Mr. Peter Gilson shall
remain a member of the Board of Directors of the Parent until such time as one
or more related rounds of financing are completed after the Effective Time in
connection with which a minimum of $15.0 million of cash is received by the
Parent in connection with the issuance of equity securities (or other securities
convertible into, or exercisable or exchangeable for, equity securities) of the
Parent, at which time Mr. Peter Gilson agrees that he will resign from the Board
of Directors.
Section 5.15 Parent Charter Amendment. Promptly following the Effective
Time, the Parent shall take such action as is necessary, subject to receipt of
the requisite approval of its stockholders, to amend its Certificate of
Incorporation in order, among other things, to increase the number of authorized
shares of Parent Common Stock to allow the conversion of all of the issued
Parent Series B Preferred Stock and exercise of all of the Company Stock Options
(the "Parent Charter Amendments").
Section 5.16 Indemnification; Insurance.
(a) The Parent agrees that all rights (the "Rights") to exculpation and
indemnification (including for advancement of expenses) for acts or omissions
occurring prior to the Effective Time now existing in favor of the current or
former directors or officers of the Parent (the "Indemnified Parties") as
provided in its charter or bylaws or in any agreement shall survive the Merger
and shall continue in full force and effect in accordance with their terms (or
shall be replaced by similar provisions with terms that are substantially
similar to, or better than, the Rights). From and after the Effective Time, the
Parent shall indemnify the Indemnified Parties to the extent such Indemnified
Parties are entitled to indemnification pursuant to the preceding sentence.
(b) For three years from the Effective Time (the "Insurance Period"),
the Parent shall maintain in effect the Parent's current directors' and
officers' liability insurance policy (the "Policy"), covering those persons who
are covered by the Policy (a copy of which
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has been heretofore delivered to the Company); provided, however, that in no
event shall the Parent be required to expend in any one year an amount in excess
of 100% of the annual premiums paid by the Parent under the Policy for the
fiscal year ended December 31, 1999, and, provided, further, that if the annual
premiums of such insurance coverage exceed such amount, the Parent shall be
obligated to obtain a policy with the greatest coverage available for a cost not
exceeding such amount; and, provided, further, that the Parent may meet its
obligations under this paragraph by covering the individuals referenced above
under any of the Parent's or one of its subsidiaries' insurance policy or
policies (a "Substitute Policy") provided that the terms are substantially
similar to, or better than, those of the Policy. The Parent shall use its
reasonable best efforts to cause the insurer under the Policy or the Substitute
Policy, as applicable, to agree to give advance notice to the individuals
referenced above upon any termination or lapse of the coverage thereunder during
the Insurance Period.
ARTICLE 6
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver at or prior to the Closing Date of each of the following
conditions:
(a) Governmental Consents. Other than the filing provided for in
Section 1.3, all material notices, reports and other filings required to be made
prior to the Effective Time by the Company or the Parent with, and all material
consents, registrations, approvals, permits and authorizations required to be
obtained prior to the Effective Time by, the Company or the Parent from, any
Governmental Entity in connection with the execution and delivery of this
Agreement and the consummation of the Merger and the other transactions
contemplated hereby (including, without limitation, all Company Governmental
Consents and Parent Governmental Consents) shall have been made or obtained (as
the case may be) upon terms and conditions that could not reasonably be expected
to result in Material Adverse Effect on the Parent or a Material Adverse Effect
on the Company; provided, that each of the parties shall have used its
reasonable best efforts to so make or obtain.
(b) Orders, Injunctions. No Law, order, injunction or decree that
prohibits, restrains, enjoins or otherwise prohibits (whether temporarily,
preliminarily or permanently) consummation of the Merger shall have been
enacted, issued, promulgated, enforced or entered by any court or Governmental
Entity of competent jurisdiction and there shall not be pending or threatened
any suit, action or proceeding by or before any Governmental Entity which (1)
seeks to restrain, enjoin or otherwise prohibit (whether temporarily,
preliminarily or permanently) consummation of, or to obtain damages or other
relief in connection with, the Merger or (2) might materially and adversely
affect the business, properties, condition, financial or otherwise, or results
of operations of the Parent or the Company; provided, that each of the parties
shall have used its reasonable best efforts to prevent any such enactment,
issuance, promulgation, enforcement or entry and to appeal as promptly as
practicable any such Law, order injunction or decree.
Section 6.2 Conditions to Obligations of the Parent and Merger Sub. The
obligations of each of the Parent and Merger Sub to effect the Merger and
consummate the other transactions contemplated hereby to be consummated on the
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Closing Date are also subject to the satisfaction or waiver by the Parent at or
prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company set forth in this Agreement that are qualified as to materiality
shall be true and correct, and the representations and warranties of the Company
set forth in this Agreement that are not so qualified shall be true and correct
in all material respects, in each case as of the date of this Agreement and as
of the Closing Date, as though made on and as of the Closing Date, except to the
extent the representation or warranty is expressly limited by its terms to
another date, and the Parent shall have received a certificate (which
certificate may be qualified by knowledge to the same extent as the
representations and warranties of the Company contained in this Agreement are so
qualified) signed on behalf of the Company by an executive officer of the
Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed or complied with in all material respects all obligations required to
be performed by it under this Agreement at or prior to the Closing Date, and the
Parent shall have received a certificate signed on behalf of the Company by an
executive officer of the Company to such effect.
Section 6.3 Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger and consummate the other transactions contemplated
hereby to be consummated on the Closing Date is also subject to the satisfaction
or waiver by the Company at or prior to the Effective Time of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of each of the Parent and Merger Sub set forth in this Agreement that are
qualified as to materiality shall be true and correct, and the representations
and warranties of the Parent and Merger Sub set forth in this Agreement that are
not so qualified shall be true and correct in all material respects, in each
case as of the date of this Agreement and as of the Closing Date, as though made
on and as of the Closing Date, except to the extent the representation or
warranty is expressly limited by its terms to another date, and the Company
shall have received a certificate (which certificate may be qualified by
knowledge to the same extent as the representations and warranties of each of
the Parent and Merger Sub contained in this Agreement are so qualified) signed
on behalf of each of the Parent and Merger Sub by an executive officer of the
Parent to such effect.
(b) Performance of Obligations of the Parent and Merger Sub. Each of
the Parent and Merger Sub shall have performed or complied with in all material
respects all obligations required to be performed by it under this Agreement at
or prior to the Closing Date, and the Company shall have received a certificate
signed on behalf of the Parent and Merger Sub by an executive officer of the
Parent to such effect.
(c) Payment of Expenses. All Expenses incurred by the Parent and Merger
Sub in connection with this Agreement and the Merger and in connection with the
matter referred to in Section 6.3(e) below shall have been paid or otherwise
satisfied in full prior to the Closing Date, and evidence of the foregoing, in
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form and substance reasonably satisfactory to the Company, shall have been
delivered to the Company.
(d) Termination of Agreements. Each of the agreements set forth on
Section 6.3(d) of the Parent Disclosure Letter shall have been terminated by the
parties thereto on or prior to the Closing Date, and evidence of the foregoing,
in form and substance reasonably satisfactory to the Company, shall have been
delivered to the Company.
(e) Certain Agreement. That certain agreement, dated as of April 14,
2000, between the Parent and Cascade Designs, Inc., shall be in full force and
effect in accordance with its terms as in effect on the date hereof, and all
amounts due thereunder shall have been paid in full prior to the Closing Date.
ARTICLE 7
TERMINATION
Section 7.1 Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, notwithstanding any
requisite approval and adoption of this Agreement, as follows:
(a) by mutual written consent of the Parent and the Company duly
authorized by their respective boards of directors;
(b) by either the Parent or the Company, if the Effective Time shall
not have occurred on or before May 15, 2000; provided, however, that the right
to terminate this Agreement under this Section 7.1(b) shall not be available to
the party whose failure to fulfill any obligation under this Agreement shall
have been the cause of, or resulted in, the failure of the Effective Time to
occur on or before such date;
(c) by either the Parent or the Company, if any order injunction or
decree preventing the consummation of the Merger shall have been entered by any
court of competent jurisdiction or Governmental Entity and shall have become
final and nonappealable;
(d) by the Parent, upon a breach of any material representation,
warranty, covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall have become
untrue, in either case such that the conditions set forth in either of Section
6.2(a) or 6.2(b) would not be satisfied (a "Terminating Company Breach");
provided, however, that, if such Terminating Company Breach is curable by the
Company through the exercise of its reasonable best efforts prior to May 15,
2000 and for so long as the Company continues to exercise such reasonable best
efforts, the Parent may not terminate this Agreement under this Section 7.1(d)
if such Terminating Company Breach has been cured prior to May 15, 2000;
(e) by the Company, upon breach of any material representation,
warranty, covenant or agreement on the part of the Parent set forth in this
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Agreement, or if any representation or warranty of the Parent shall have become
untrue, in either case such that the conditions set forth in either of Section
6.3(a) or 6.3(b) would not be satisfied (a "Terminating Parent Breach");
provided, however, that, if such Terminating Parent Breach is curable by the
Parent through its reasonable best efforts prior to May 15, 2000 and for so long
as the Parent continues to exercise such reasonable best efforts, the Company
may not terminate this Agreement under this Section 7.1(e) if such Terminating
Parent Breach has been cured prior to May 15, 2000.
Section 7.2 Effect of Termination. Except as provided in Section 8.2, in
the event of termination of this Agreement pursuant to Section 7.1, this
Agreement shall be of no further force and effect, there shall be no liability
under this Agreement on the part of the Parent, Merger Sub or the Company or any
of their respective Representatives, and all rights and obligations of each
party hereto shall cease; provided, however, that nothing in this Agreement
shall relieve any party from liability for the wilful and material breach of any
of its representations and warranties or any of its covenants or agreements set
forth in this Agreement.
Section 7.3 Amendment. This Agreement may be amended by the agreement of
each of the parties hereto by action taken by or on behalf of their respective
boards of directors at any time prior to the Effective Time. This Agreement may
not be amended except by an instrument in writing signed by each of the parties
hereto.
Section 7.4 Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any obligation or other
act of any other party hereto, (b) waive any inaccuracy in the representations
and warranties contained in this Agreement or in any document delivered pursuant
hereto, and (c) waive compliance by the other party with any agreement or
condition contained in this Agreement. Any waiver of a condition set forth in
Section 6.1, or any determination that such a condition has been satisfied, will
be effective only if made in writing by each of the Company and the Parent and,
unless otherwise specified in such writing, shall thereafter operate as a waiver
(or satisfaction) of such conditions for any and all purposes of this Agreement.
Any such extension or waiver shall be valid if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
ARTICLE 8
MISCELLANEOUS
Section 8.1 Certain Definitions. For purposes of this Agreement:
(a) The term "affiliate," as applied to any person, means any other
person directly or indirectly controlling, controlled by, or under common
control with, that person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that person, whether through the
ownership of voting securities, by contract or otherwise.
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(b) The term "business day" means any day, other than Saturday, Sunday
or a federal holiday.
(c) The term "including" means, unless the context clearly requires
otherwise, including but not limited to the things or matters named or listed
after that term.
(d) The term "person" shall include individuals, corporations, limited
and general partnerships, trusts, limited liability companies, associations,
joint ventures, Governmental Entities and other entities and groups (which term
shall include a "group" as such term is defined in Section 13(d)(3) of the
Exchange Act).
(e) The term "subsidiary" or "subsidiaries" means, with respect to any
person, any entity of which or such person (either alone or through or together
with any other subsidiary), owns, directly or indirectly, stock or other equity
interests the holders of which are generally entitled to more than 50% of the
vote for the election of the board of directors or other governing body of such
corporation or other legal entity.
Section 8.2 Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement and in any
instrument delivered under this Agreement shall terminate at the Effective Time
or upon the termination of this Agreement under Section 7.1, as the case may be,
except that the agreements set forth in Articles 1 and 2 and Sections 5.7 (last
sentence), 5.9, 5.12, 5.14, 5.15 and 5.16 and this Article 8 shall survive the
Effective Time, and those set forth in Sections 5.5(b), 5.11 (solely as such
section relates to the agreements set forth in Sections 5.5(b), 5.12, and 7.2
and this Article 8), 5.12 and 7.2 and this Article 8 shall survive termination
of this Agreement. Each party agrees that, except for the representations and
warranties contained in this Agreement, the Company Disclosure Letter and the
Parent Disclosure Letter, no party to this Agreement has made any other
representations and warranties, and each party disclaims any other
representations and warranties, made by itself or any of its officers,
directors, employees, agents, financial and legal advisors or other
Representatives with respect to the execution and delivery of this Agreement or
the transactions contemplated by this Agreement, or with respect to its business
or otherwise, notwithstanding the delivery or disclosure to any other party or
any party's representatives of any documentation or other information with
respect to any one or more of the foregoing.
Section 8.3 Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
Section 8.4 GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS
SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW
OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES. Each
of the parties irrevocably submits to the jurisdiction of the courts of the
State of
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Delaware solely in respect of the interpretation and enforcement of the
provisions of this Agreement and of the documents referred to in this Agreement,
and in respect of the transactions contemplated by this Agreement and by those
documents, and hereby waives, and agrees not to assert, as a defense in any
action, suit or proceeding for the interpretation or enforcement of this
Agreement or of any such document, that it is not subject to this Agreement or
that such action, suit or proceeding may not be brought or is not maintainable
in said courts or that the venue thereof may not be appropriate or that this
Agreement or any such document may not be enforced in or by such courts, and
each of the parties hereto irrevocably agrees that all claims with respect to
such action or proceeding shall be heard and determined in such a court. Each of
the parties hereby consents to and grants any such court jurisdiction over the
person of such party and over the subject matter of such dispute and agrees that
mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 8.5 or in such other manner as may
be permitted by law, shall be valid and sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDI TIONALLY
WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 8.4.
Section 8.5 Notices. Any notice, request, instruction or other document to
be given hereunder by any party to the others shall be in writing and delivered
personally, sent by reputable overnight courier, sent by registered or certified
mail, postage prepaid, or by facsimile:
if to the Parent or Merger Sub:
SWWT, Inc.
3492 W. 109th Circle
Westminster, CO 80030
Attention: Patrick Thomas
Fax: (303) 438-0201
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with a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, NY 10022
Attention: Marie Censoplano, Esq.
Fax: (212) 319-4090
if to the Company:
E-Newco, Inc.
c/o Oscar Capital Management, LLC
900 Third Avenue, 2nd Floor
New York, NY 10022
Attention: Jon V. Diamond
Fax: (212) 750-0551
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
Attention: Mark C. Smith, Esq.
Fax: (212) 735-2000
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
Section 8.6 Entire Agreement. This Agreement (including any exhibits and
annexes to this Agreement), the Company Disclosure Letter and the Parent
Disclosure Letter constitute the entire agreement and supersede all other prior
agreements, understandings, representations and warranties, both written and
oral, among the parties, with respect to the subject matter of this Agreement.
Section 8.7 No Third Party Beneficiaries. This Agreement is not intended to
confer upon any person other than the parties to this Agreement any rights or
remedies under this Agreement.
Section 8.8 Obligations of the Parent. Whenever this Agreement requires
Merger Sub to take any action, that requirement shall be deemed to include an
undertaking on the part of the Parent to cause Merger Sub to take that action.
Section 8.9 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions of this Agreement.
If any provision of this Agreement, or the application of that provision to any
person or any circumstance, is invalid or unenforceable, (a) a suitable and
equitable provision shall be substituted for that provision in order to carry
out, so far as may be valid and enforceable, the intent and purpose of the
invalid or unenforceable provision and (b) the remainder of this Agreement and
the application of the provision to other persons or circumstances shall
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not be affected by such invalidity or unenforceability, nor shall such
invalidity or unenforceability affect the validity or enforceability of the
provision, or the application of that provision, in any other jurisdiction.
Section 8.10 Interpretation. The table of contents and headings in this
Agreement are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions of this Agreement. Where a reference in this Agreement is made to a
section, exhibit or annex, that reference shall be to a section of or exhibit or
annex to this Agreement unless otherwise indicated.
Section 8.11 Assignment. This Agreement shall not be assignable by
operation of law or otherwise.
Section 8.12 Specific Performance. The parties to this Agreement agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise reached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any court of
the United States or any state having jurisdiction, this being in addition to
any other remedy to which they are entitled at law or in equity.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties to this Agreement as of the date
first written above.
E-NEWCO, INC.
By: /s/ Jon V. Diamond
-------------------------------------
Name: Jon V. Diamond
Title: President
SWWT, INC.
By: /s/ Patrick E. Thomas
-------------------------------------
Name: Patrick E. Thomas
Title: President and Chief Executive Officer
ENWC ACQUISITION, INC.
By: /s/ Peter Gilson
-------------------------------------
Name: Peter Gilson
Title: President
As to the last sentence of Section 5.14 only:
/s/ Peter Gilson
- -----------------------------------
PETER GILSON
CERTIFICATE OF DESIGNATIONS
OF
SERIES B PREFERRED STOCK
OF
SWWT, INC.
Pursuant to Section 151 of
the Delaware General Corporation Law
SWWT, Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation"), hereby certifies as follows:
That, pursuant to the authority vested in the Board of Directors of the
Corporation by Article FOURTH of the Certificate of Incorporation of the
Corporation, as amended, and pursuant to the provisions of Section 151 of the
Delaware General Corporation Law, the Board of Directors of the Corporation, at
a meeting duly convened on April 14, 2000 duly adopted the following resolution:
RESOLVED that, pursuant to the authority vested in the Board of
Directors of the Corporation by Article FOURTH of the Corporation's Certificate
of Incorporation, as amended, of the Preferred Stock, par value $.001 per share,
of the Corporation ("Preferred Stock"), there shall be designated a series of
1,000,000 shares which shall be issued in and constitute a single series to be
known as "Series B Preferred Stock" (hereinafter called the "Series B Preferred
Stock"). The shares of Series B Preferred Stock shall have the voting powers,
designations, preferences and other special rights, and qualifications,
limitations and restrictions thereof set forth below:
I. VOTING RIGHTS AND PREEMPTIVE RIGHTS
(a) Except as otherwise provided by law, the holders of the Series B
Preferred Stock shall be entitled to vote at or participate in any meeting of
stockholders, and to participate in any action proposed to be taken by written
consent, in each case with the holders of the common stock, par value $.001 of
the Corporation (the "Common Stock") and with the holders of any other series of
convertible Preferred Stock having the right to vote on an as converted basis,
voting or acting together as one class on an as converted basis, and to receive
notice of any such meeting or any such proposed action in the same manner as
notice is provided to holders of the Common Stock.
<PAGE>
(b) The holders of the Series B Preferred Stock shall have no
preemptive rights or other subscription rights.
II. LIQUIDATION
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, before any
distribution of the assets of the Corporation (whether capital or surplus) shall
be made to or set apart for the holders of the Common Stock or any other stock
of the Corporation having rights or preferences as to assets junior to the
rights and preferences of the Series B Preferred Stock, the holders of the
Series B Preferred Stock shall be entitled to the payment in cash of $.01 per
share.
(b) If, upon any such liquidation, dissolution or winding up, the
assets of the Corporation distributable among the holders of the Series B
Preferred Stock shall be insufficient to pay to them in full the preferential
amounts specified above, then such assets, or the proceeds thereof, shall be
distributed among the holders of the Series B Preferred Stock ratably in
proportion to the amounts which would be payable to them respectively, if such
preferential amounts were paid to them in full.
(c) In addition to the amount set forth in paragraph (a) of this
Section II the holders of the Series B Preferred Stock shall also be entitled to
such amount per share of the Series B Preferred Stock as would have been payable
had each share been converted to Common Stock immediately prior to such
liquidation, dissolution or winding up of the Company.
III. CONVERSION
The holders of the Series B Preferred Stock shall have the following
conversion rights (the "Conversion Rights"):
(a) CONVERSION. Each share of Series B Preferred shall be automatically
converted on the next business day (the "Conversion Date") following the later
of (x) the date of filing of a certificate of amendment to the Corporation's
Certificate of Incorporation that increases the number of authorized shares of
Common Stock to a number sufficient to permit the conversion of all of the then
outstanding shares of Series B Preferred Stock into shares of Common Stock and
(y) the date on which the Equity Financing (as defined below) is completed. Upon
the occurrence of the later of such events, each share of Series B Preferred
Stock shall be converted into that number of fully paid and non-assessable
shares of the Common Stock determined by dividing (x) 75,777,162 (the "Total
Common Stock") (such number being intended to have equaled 21.222 multiplied by
the number of shares of outstanding Common Stock of the
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Corporation, on a fully diluted basis, immediately prior to the Effective Time
(as defined in the Agreement and Plan of Merger, dated as of April 14, 2000,
among the Corporation, E-Newco, Inc. and ENWC Acquisition, Inc.); it being
understood that such number reflecting the Total Common Stock shall be adjusted
on the Conversion Date to the extent necessary to ensure it so reflects such
product) by (y) the aggregate number of shares of Series B Preferred Stock
outstanding on the Conversion Date (such quotient, the "Conversion Ratio"). The
Conversion Ratio shall be subject from time to time to adjustment as herein set
forth. "Equity Financing" shall mean one or more related rounds of financing
completed after the Effective Time in connection with which a minimum of $15.0
million of cash is received by the Corporation in connection with the issuance
of equity securities (or other securities convertible into, or exercisable or
exchangeable for, equity securities) of the Corporation.
(b) EXCHANGE OF CERTIFICATE. Upon surrender of any certificate or
certificates representing Series B Preferred Stock, thereupon the Corporation
shall promptly issue and deliver at such office to such holder of Series B
Preferred Stock a certificate or certificates for the number of shares of the
Common Stock to which he shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Series B Preferred Stock to be
converted, and the person or persons entitled to receive the shares of the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of the Common Stock on such date.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Corporation
shall, at any time or from time to time after the date of issuance of the Series
B Preferred Stock, effect a subdivision of the outstanding Common Stock, the
number of shares representing the Total Common Stock immediately before that
subdivision shall be proportionately increased, and conversely if the
Corporation shall at any time or from time to time after the date of issuance of
the Series B Preferred Stock combine the outstanding shares of the Common Stock,
the number of shares representing the Total Common Stock immediately before the
combination shall be proportionately decreased. Any adjustment under this
subparagraph (c) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(d) COMMON STOCK DIVIDENDS. In the event the Corporation at any time,
or from time to time after the date of issuance of the Series B Preferred Stock,
shall make or issue, or fix a record date for the determination of stockholders
entitled to receive, a dividend or other distribution payable in additional
shares of the Common Stock, then and in each such event, the Conversion Ratio
then in effect shall be adjusted as of the time of such issuance or, in the
event such a record date shall have been fixed, as of the close of business on
such record date, by increasing the number of shares representing the Total
Common Stock by an amount equal to the number of shares of Common Stock that
would have been issuable in payment of such dividend or
3
<PAGE>
distribution had all of the shares of Series B Preferred Stock been converted
into Common Stock immediately prior to such issuance or record date, as
applicable; provided, however, if such record date shall have been fixed and
such dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, the Conversion Ratio shall be recomputed accordingly as of
the close of business on such record date and thereafter the Conversion Ratio
shall be adjusted pursuant to this subparagraph (d) as of the time of actual
payment of such dividends or distributions.
(e) OTHER DIVIDENDS. In the event the Corporation at any time or from
time to time after the date of issuance of the Series B Preferred Stock shall
make or issue, or fix a record date for the determination of stockholders
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of the Common Stock, then and in each such
event provision shall be made so that the holders of Series B Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of the
Common Stock receivable thereupon, the amount of securities of the Company which
they would have received had their Series B Preferred Stock been converted into
the Common Stock on the date of such event and had they thereafter, during the
term from the date of such event to and including the date of conversion,
retained such securities receivable by them as aforesaid during such period,
giving application to all adjustments called for during such period under this
Section III with respect to the rights of the holders of the Series B Preferred
Stock.
(f) REORGANIZATIONS, ETC. If the Common Stock issuable upon the
conversion of the Series B Preferred Stock shall be changed into the same or
different number of shares of any class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a subdivision or
combination of shares, stock dividend, reorganization, merger, consolidation or
sale of assets, provided for elsewhere in this Section III), then and in each
such event the holder of each share of Series B Preferred Stock shall have the
right thereafter to convert such share into the kind and amount of shares of
stock and other securities and property receivable upon such reorganization,
reclassification or other exchange, by holders of the number of shares of the
Common Stock into which such share of Series B Preferred Stock might have been
converted immediately prior to such reorganization, reclassification or change,
all subject to further adjustment as provided herein.
(g) OTHER REORGANIZATIONS. If at any time or from time to time there
shall be a capital reorganization of the Common Stock (other than a subdivision,
combination, reclassification or exchange of shares provided for elsewhere in
this Section III) or merger or consolidation of the Corporation with or into
another corporation, or the sale of all or substantially all of the Company's
properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the holders of the Series B Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series B Preferred Stock, the number of shares of
stock or
4
<PAGE>
other securities or property of the Corporation, or of the successor corporation
resulting from such merger or consolidation, to which a holder of that number of
shares of Common Stock deliverable upon conversion of the Series B Preferred
Stock would have been entitled on such capital reorganization, merger,
consolidation, or sale. In any such case, appropriate adjustment shall be made
in the application of the provisions of this Section III with respect to the
rights of the holders of the Series B Preferred Stock after the reorganization,
merger, consolidation or sale to the end that the provisions of this Section III
(including adjustment of the Conversion Ratio then in effect and number of
shares issuable upon conversion of the Series B Preferred Stock) shall be
applicable after the event as nearly equivalent as may be practicable.
(h) EQUITABLE ADJUSTMENT. In case any event shall occur as to which the
provisions of the Section III are not strictly applicable but the failure to
make any adjustment would not fairly protect the rights represented by the
Series B Preferred Stock in accordance with the essential intent and principles
of this Section III, then, in each such case, the board of directors of the
Corporation shall in good faith, using reasonable methods, make or arrange for
an equitable adjustment to the number of shares of Common Stock and the
Conversion Ration, provided that such adjustment is acceptable to the holders of
the majority of shares of Series B Preferred Stock. The adjustments set forth in
this Section III shall similarly apply to any and all successive transactions or
events requiring any adjustments hereunder.
(i) COMPUTATION OF ADJUSTMENT. In each case of an adjustment of the
Conversion Ratio or the number of shares of the Common Stock or other securities
issuable upon conversion of the Series B Preferred Stock, the Corporation, at
its expense, shall compute such adjustment or readjustment in accordance with
the provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall send said certificate to each registered holder of the
Series B Preferred Stock at the holder's address as shown in the Corporation's
books. The certificate shall set forth such adjustment or readjustment, showing
in detail the facts upon which such adjustment is based.
(j) NOTICE OF CERTAIN EVENTS. In the event of (i) any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or (ii) any capital reorganization of the
Corporation, any reclassification or recapitalization of the capital stock of
the Corporation, any transfer of all or substantially all of the assets of the
Corporation to any other corporation or to any other entity or person, any
consolidation or merger involving the Corporation and any other corporation, or
any liquidation or winding up of the Corporation, the Corporation shall send to
each holder of Series B Preferred Stock, not more than 20 nor less than 10 days
prior to the date specified therein, a notice specifying (A) the date on which
any such record is to be taken for the purpose of such dividend or distribution,
(B) the date on which any such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or
5
<PAGE>
winding up is expected to become effective, and (C) the time, if any, that is to
be fixed, as to when the holders of record of the Common Stock (or other
securities, including the Series B Preferred Stock) shall be entitled to
exchange their shares of the Common Stock (or other securities) for securities
or other property deliverable upon such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up.
(k) NO FRACTIONAL SHARES. No fractional shares of the Common Stock
shall be issued upon conversion of the Series B Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to the product of such fraction multiplied by
the fair market value of one share of the Common Stock on the date of
conversion, as determined in good faith by the Board of Directors.
(l) AUTHORIZED COMMON STOCK. The Corporation shall take all actions
necessary to authorize, and at all times thereafter take all actions to reserve
and keep available out of its authorized but unissued shares of the Common Stock
solely for the purpose of effecting the conversion of the shares of the Series B
Preferred Stock, such number of its shares of the Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding shares of
the Series B Preferred Stock; and if at any time the number of authorized but
unissued shares of the Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of the Series B Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of the
Common Stock to such number of shares as shall be sufficient for such purpose.
(m) DELIVERY OF NOTICE. Any notice required by the provisions of this
Section III to be given to the holders of shares of the Series B Preferred Stock
shall be given by either hand-delivery, telecopy, overnight mail or certified or
registered mail, postage prepaid, and addressed to each holder of record at his
address appearing on the books of the Corporation and shall be deemed received,
if hand-delivered, upon delivery, if telecopied, upon confirmation of receipt,
and if mailed (whether by overnight, certified or registered mail), upon
receipt.
(n) NO AVOIDANCE. The Corporation shall not amend its Certificate of
Incorporation or participate in any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, for the purpose of avoiding or seeking to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in carrying out all such
action as may be reasonably necessary or appropriate in order to protect the
conversion rights of the holders of the Series B Preferred Stock against
dilution or other impairment.
6
<PAGE>
IV. SERIES B PREFERRED STOCK RESTRICTIONS ON CORPORATE ACTION
Without the consent of the holders of record of a majority of the
shares of Series B Preferred Stock at the time outstanding, given in writing or
by vote at any regular or special meeting of stockholders, the Corporation shall
not amend, alter or remove any of the provisions of the Corporation's
certificate of incorporation or authorize any reclassification of the Series B
Preferred Stock, in either case so as to affect adversely the preferences,
special rights or powers of the Series B Preferred Stock, either directly or
indirectly, or through a merger or consolidation with any corporation, or
authorize any shares of the Corporation ranking, either as to the payment of
dividends or upon liquidation, dissolution or winding up, prior to the Series B
Preferred Stock.
V. SERIES B PREFERRED STOCK DIVIDENDS
When and as dividends are declared on the Common Stock, the holders of
the Series B Preferred Stock shall be entitled to share in such dividends with
the holders of the Common Stock together as one class on an as converted basis.
VI. SERIES B PREFERRED STOCK PAYMENTS
All payments with respect to the Series B Preferred Stock shall be sent
to the holders thereof at their respective addresses, as the same shall appear
on the books of the Corporation.
VII. OPTIONAL REDEMPTION OF SERIES B PREFERRED STOCK
Unless restricted by applicable law, all of the shares of Series B
Preferred Stock will be subject to redemption at the option of the Corporation,
in whole, but not in part, at a redemption price per share equal to the Pro Rata
Cash Balance Per Share (as defined below), in cash out of legally available
funds, if the Equity Financing is not completed on or prior to 180 days after
the Effective Time (the "Deadline Date"). The election to exercise the optional
redemption right under this Section VII shall be made by means of a class vote
of the holders of the Common Stock of the Corporation (without participation by
holders of the Series B Preferred Stock on an as-converted basis or otherwise)
taken within 20 days of the Deadline Date. In the event the Corporation duly
elects to redeem the Series B Preferred Stock pursuant to the terms of this
Section VII, notice of such redemption shall be given by first class mail,
postage paid, mailed to each holder of record of the shares of Series B
Preferred Stock at such holder's address as the same appears on the stock
register of the Corporation; provided, however, that no failure to give such
notice nor any defect therein shall affect the validity of the proceeding for
the redemption of any shares of Series B Preferred Stock to be redeemed, except
as to the holder to whom the Corporation has failed to give said notice or
except as to the holder
7
<PAGE>
whose notice was defective. Each such notice shall state: (i) the redemption
date (which shall be not less than 10 nor more than 30 days after the date of
mailing of the notice and no more than 50 days after the Deadline Date); (ii)
the redemption price; and (iii) the place or places where certificates for such
shares are to be surrendered for payment for the redemption price. Notice having
been mailed as aforesaid, from and after the redemption date (unless default
shall be made by the Corporation in providing money on the redemption date for
the payment of the redemption price of the shares of Series B Preferred Stock
called for redemption), the shares of Series B Preferred Stock shall no longer
be deemed to be outstanding and shall have the status of authorized but unissued
shares of Series B Preferred Stock and all rights of the holders thereof as
stockholders of the Corporation (except the right to receive from the
Corporation the redemption price) shall cease. Upon surrender in accordance with
said notice of the certificates for any shares so redeemed (properly endorsed or
assigned for transfer, if the Board of Directors of the Corporation shall so
require and the notice shall so state), such shares shall be redeemed by the
Corporation at the redemption price. "Pro Rata Cash Balance Per Share" shall
mean the greater of (1) $0.00 per share and (2) the quotient obtained by
dividing (x) the cash and cash equivalents balance held by the Corporation on
the Deadline Date as certified in good faith by the Board of Directors of the
Corporation, by (y) the number of shares of Series B Preferred Stock outstanding
on the Deadline Date.
VIII. AMENDMENTS TO SERIES B PREFERRED STOCK
The Corporation shall not, without a class vote of the holders of the
Common Stock of the Corporation (without participation by holders of the Series
B Preferred Stock on an as-converted basis or otherwise) amend, alter or repeal
any provision of this Certificate of Designations (including, without
limitation, Section VII hereof) so as to adversely affect the relative rights,
preferences, qualifications, limitations or restrictions of the Common Stock as
compared to those of the Series B Preferred Stock.
8
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations has been executed
by the Corporation by its President, Patrick E. Thomas, this 14th day of April,
2000.
SWWT, INC.
By: /s/Patrick E. Thomas
---------------------------
Name: Patrick E. Thomas
Title: President
9
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report included in this Form 10-K, into the Company's
previously filed Registration Statement on Form S-8, File No. 33-33704, and to
all references to our Firm included in this Form 10-K.
Denver, Colorado, ARTHUR ANDERSEN LLP
April 13, 2000.
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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<SECURITIES> 0
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<SALES> 0
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<CGS> 0
<TOTAL-COSTS> 127,874
<OTHER-EXPENSES> (59,022)
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SWWT, Inc. to form an Internet-focused holding company to acquire
properties in media, music, entertainment, and consumer applications.
SWWT, Inc. (SWWT: OTCBB) has entered into a merger agreement with E-Newco Inc.,
a company founded by Jon Diamond, to form an Internet holding company that will
fund early-stage Internet properties and acquire existing companies focused on
media, music, entertainment, and consumer applications.
The company will pursue a strategy of building a community of Internet companies
in various related fields. The company will provide operational, infrastructure,
and capital support, access to strategic partnerships, and brand expertise to a
family of Internet companies. The company will be renamed at a later date.
Under the merger agreement, SWWT will issue 757,772 shares of its convertible
preferred stock to the stockholders of E-Newco in exchange for their shares of
E-Newco common stock and E-Newco will become a wholly owned subsidiary of SWWT.
The convertible preferred stock of SWWT will automatically convert into an
aggregate of 75,777,162 shares of common stock of SWWT following the approval by
the stockholders of SWWT of the requisite increase to the amount of authorized
common stock of the company and the receipt by SWWT of additional equity
financing of at least $15.0 million. The holders of the convertible preferred
stock of SWWT to be issued in the merger will vote with the holders of the
common stock of SWWT on an as converted basis and will possess approximately
95.5% of the voting power outstanding after the closing. Upon completion of
these transactions but without giving effect to the receipt of the additional
equity financing, SWWT will have outstanding approximately 79.3 million shares
of common stock, on an as converted and fully diluted basis, of which the
current stockholders of E-Newco will own approximately 95.5%.
If SWWT does not receive additional equity financing of at least $15.0 million
within 180 days of the consummation of the transactions contemplated by the
merger agreement, the holders of the common stock of SWWT may elect to cause the
company to redeem the outstanding shares of convertible preferred stock at a
redemption price equal to a pro-rata portion of SWWT's cash balance, if any, at
the date of redemption.
In addition, SWWT has declared a one-time cash dividend to its pre-merger
stockholders in an amount equal to the cash on SWWT's balance sheet at the time
of such dividend, less expenses related to these transactions and the settlement
of certain outstanding claims. The payment of the dividend is conditioned on the
closing of the transactions contemplated by the merger agreement.
In connection with the transactions contemplated by the merger agreement, three
of the current directors of SWWT will resign as members of the board of
directors of SWWT, and Mr. Diamond and two other designees of E-Newco will
become members of the board. In addition, Mr. Diamond will become the Chairman
and Chief Executive Officer of SWWT.
Following completion of the transactions contemplated by the merger agreement,
SWWT expects that its stockholders will act by written consent to, among other
things, change the name of SWWT, increase the authorized capital stock of SWWT,
make certain other modifications to the certificate of incorporation and by-laws
of SWWT, and make changes to the composition of the board of directors of SWWT.
Consummation of the transactions contemplated by the merger agreement is subject
to customary conditions.
# # #
Statements in this press release, other than statements of historical
information, are forward-looking statements that are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that forward-looking statements are inherently
uncertain. Actual performance and results may differ materially from the
projected or suggested herein due to certain risks and uncertainties including,
without limitation, the risks associated with the ability to consummate the
transactions set forth above, management of growth, and competition, as well as
operating risks. Those and other risks are described in SWWT's filings with the
Securities and Exchange Commission (the "SEC") made over the last 12 months,
copies of which are available from the SEC or may be obtained upon request from
SWWT.
