SCHEDULE 14C
(RULE 14C-101)
INFORMATION STATEMENT PURSUANT TO SECTION 14 (C)
OF THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
[ ] Preliminary information statement
[X] Definitive information statement
[ ] Confidential, for use of the Commission only
(as permitted by Rule 14c-5(d)(2))
NEW SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies: Common Stock
(2) Aggregate number of securities to which transaction applies: 14,792,000
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
The filing fee is $2,789.77, as calculated pursuant to Rule 0-11(a)(4) and
(c)(1)(i) of the Securities Exchange Act of 1934, as amended. The fee is based
on the market value of an aggregate of 14,792,000 shares of common stock of the
Registrant to be issued to securityholders pursuant to the merger transactions
disclosed herein. Solely for purposes of this calculation, the market value of
the Registrant's common stock is estimated at $0.943 per share, constituting the
average of the bid and asked price for the Registrant's common stock for the
five (5) trading days prior to the date of filing ending Thursday, October 25,
2001, as reported on the Over-the Counter Bulletin Board.
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid: $2,789.77
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11 (a) (2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
INFORMATION STATEMENT
OF
NEW SYSTEMS, INC.
3040 E. COMMERCIAL BOULEVARD
FT. LAUDERDALE, FLORIDA 33308
(954) 772-2297
THIS INFORMATION STATEMENT IS BEING PROVIDED TO YOU BY
THE BOARD OF DIRECTORS OF NEW SYSTEMS, INC.
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
This Information Statement is being mailed or furnished to the
stockholders of New Systems, Inc., a Nevada corporation ("New Systems"), in
connection with the previous approval by unanimous written consent on August 21,
2001 of New Systems' Board of Directors of the corporate actions referred to
below and the subsequent adoption of such corporate actions by written consent
on October 3, 2001 of holders of a majority of the shares of common stock, par
value $0.001 per share (the "New Systems Common Stock"), of New Systems.
Accordingly, all necessary corporate approvals in connection with the matters
referred to herein have been obtained and this Information Statement is
furnished solely for the purpose of informing the stockholders of New Systems,
in the manner required under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), of these corporate actions before they take effect.
This Information Statement is first being mailed or furnished to the
stockholders of New Systems on or about November 9, 2001, and the transactions
described herein shall not become effective until at least 20 days thereafter.
ACTIONS BY BOARD OF DIRECTORS
AND CONSENTING STOCKHOLDERS
On August 21, 2001 the Board of Directors of New Systems unanimously
approved by written consent, a copy of which is attached hereto as Exhibit A, in
accordance with Section 78.315 of the Nevada Revised Statutes, as amended (the
"NRS"), the execution and consummation of an agreement and plan of merger (the
"Merger Agreement"), by and among New Systems, Tremor Entertainment Inc., a
California corporation ("Tremor"), and New Tremor Acquisition Corp., a
California corporation and wholly-owned subsidiary of New Systems
("Acquisition"). Pursuant to the Merger Agreement, Acquisition will be merged
with and into Tremor (the "Merger"). Tremor, as the surviving corporation in the
Merger will become a wholly-owned subsidiary of New Systems and continue to
operate its interactive video game development business. Immediately after the
consummation of the Merger, Tremor will amend its articles of incorporation to
change its corporate name to "Tremor Games Inc." Pursuant to the Merger
Agreement, New Systems will exchange and issue two thousand (2,000) shares of
New
Systems Common Stock for each issued and outstanding share of common stock,
without par value ("Tremor Common Stock"), of Tremor held by Tremor shareholders
immediately prior to the Merger. The Board of Directors also approved an
amendment to the articles of incorporation of New Systems (the "Articles of
Incorporation") to change New Systems' corporate name to "Tremor Entertainment
Inc." (the "Amendment"), to be effective immediately after the consummation of
the Merger upon the filing of the Amendment with the Secretary of State of the
State of Nevada. The Board of Directors approved the Merger Agreement, the
transactions contemplated by the Merger Agreement and the Amendment, subject to
the approval by the affirmative vote or written consent of stockholders holding
at least a majority of the voting power of New Systems Common Stock.
On or about October 3, 2001 New Systems received a written consent (the
"Written Consent"), in lieu of a meeting of the stockholders of New Systems, a
copy of which is attached hereto as Exhibit B, adopting resolutions to approve
the Merger Agreement and the transactions contemplated by the Merger Agreement
and to approve the Amendment. The Written Consent was signed by Ram Venture
Holdings Corp., a Florida corporation ("RAMVH") and KM Financial, Inc., an
Arizona corporation ("KM Financial"), as proxies for Tremor, the holder of
1,800,000 shares of New Systems Common Stock, representing approximately 53.7%
of the total issued and outstanding shares of New Systems Common Stock. This
vote satisfied the requirements of Section 92A.120 of the NRS, which states
that, in order for a plan of merger to be approved, stockholders holding at
least a majority of the voting power must vote in favor of approving the plan of
merger, and the requirements of Section 78.395 of the NRS, which states that, in
order for an amendment to the Articles of Incorporation to change the corporate
name to be approved, stockholders holding at least a majority of the voting
power must vote in favor of the amendment. Action by the written consent of
stockholders without a meeting is permitted by Section 78.320 of the NRS.
The Merger is described in "ACTION 1- APPROVAL OF THE AGREEMENT AND
PLAN OF MERGER". The description of the Merger set forth in this Information
Statement does not purport to be a complete description of the terms and
conditions of the Merger, and is qualified in its entirety by reference to the
full text of the Merger Agreement, a copy of which is attached hereto as Exhibit
C.
The reasons for, and general effect of, the Amendment to the Articles
of Incorporation is described in "ACTION 2-APPROVAL OF AN AMENDMENT TO ARTICLES
OF INCORPORATION OF NEW SYSTEMS TO CHANGE ITS CORPORATE NAME". A form of the
Amendment is attached hereto as Exhibit D.
The Board of Directors of New Systems know of no other matters other
than those described in this Information Statement which have been recently
approved or considered by the holders of a majority of the shares of New Systems
Common Stock.
-2-
SUMMARY TERM SHEET
o New Tremor Acquisition Corp., a wholly-owned subsidiary of New Systems,
Inc., will be merged with and into Tremor Entertainment Inc. As a result of
the merger the separate existence of New Tremor Acquisition Corp. will
cease, and Tremor Entertainment Inc., as the surviving corporation in the
merger will become a wholly-owned subsidiary of New Systems, Inc. and
continue to operate its interactive video game development business. (SEE
"TERMS OF TRANSACTION -THE MERGER")
o The following steps are required by, or contemplated by, the merger:
1. Shareholders of Tremor must (i) approve and adopt the agreement and
plan of merger, and (ii) approve a 1-for-6000 stock split of Tremor's
common stock, without par value. (SEE "TERMS OF TRANSACTION -THE
MERGER")
2. Upon approval of both the agreement and plan of merger and the reverse
stock split by the shareholders of Tremor, the agreement and plan of
merger must be filed with the Secretary of State of the State of
California in accordance with the California General Corporation Law,
or at such later time as is specified in the agreement and plan of
merger. The merger will be effective upon such filing. (SEE "TERMS OF
TRANSACTION -THE MERGER")
3. Those shareholders of Tremor who would otherwise be entitled to
receive fractional shares of Tremor's common stock as a result of the
reverse stock split, will receive cash in lieu of such fractional
shares. Those shareholders of Tremor remaining after giving effect to
the reverse stock split will be entitled to receive 2,000 shares of
common stock, par value $0.001 per share, of New Systems in exchange
for each share of common stock of Tremor owned by them immediately
prior to the merger. (SEE "TERMS OF TRANSACTION - CONVERSION OF
SHARES")
4. Immediately after the effective time of the merger, New Systems will
amend its articles of incorporation to change its name to "Tremor
Entertainment Inc." and Tremor, as the surviving corporation in the
merger and a wholly-owned subsidiary of New Systems, will amend its
articles of incorporation to change its name to "Tremor Games Inc."
(SEE "TERMS OF TRANSACTION - DIRECTORS AND OFFICERS; ARTICLES OF
INCORPORATION AND BYLAWS FOLLOWING THE MERGER")
o As of the effective time of the merger, all outstanding options, warrants
and other securities convertible into shares of Tremor common stock which
are outstanding immediately prior to the effective time of the merger,
whether vested or unvested, will be assumed by New Systems. At the
effective time of the merger, each such option, warrant and other
convertible securities will be deemed to constitute the same type of
security to acquire, on the same terms and conditions as were applicable
under such securities at the effective time of the merger, such number of
shares of New Systems common stock as is equal to the number of shares of
common stock of Tremor subject to the unexercised portion of such security
multiplied by 2,000 (the exchange ratio in the merger of the issued and
outstanding shares of
-3-
common stock of Tremor for shares of common stock of New Systems). The
exercise price per share of each assumed option, warrant and other
convertible securities will be equal to the exercise price of such
securities immediately prior the merger, divided by the exchange ratio, and
all of the other terms of such securities shall otherwise remain unchanged.
(SEE "TERMS OF TRANSACTION - TREATMENT OF STOCK OPTIONS).
o New Systems will be the sole owner of Tremor, and former shareholders of
Tremor will own, in the aggregate, approximately 90.5% of the issued and
outstanding shares of New Systems.
o Following the merger, the Board of Directors of New Systems will have three
(3) members consisting of Mr. Steven Oshinsky, who will serve as Chairman
of the Board of Directors, Mr. Karl Flowers and Mr. Martin Eric Weisberg.
Messrs. Flowers and Weisberg are presently directors of Tremor. In
addition, the existing executive officers of Tremor shall be the executive
officers of New Systems. (SEE "DIRECTORS, EXECUTIVE OFFICERS AND KEY
EMPLOYEES OF TREMOR")
-4-
GENERAL
New Systems will pay all costs associated with the distribution of this
Information Statement, including the costs of printing and mailing. New Systems
will reimburse brokerage firms and other custodians, nominees and fiduciaries
for reasonable expenses incurred by them in sending this Information Statement
to the beneficial owners of New Systems Common Stock.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
As of September 30, 2001, there were 3,353,000 shares of New Systems
Common Stock issued and outstanding. Each share of New Systems Common Stock is
entitled to one vote per share with respect to matters to be voted on by the
stockholders of New Systems. Those stockholders of New Systems entitled to vote
or consent to the actions to be taken by New Systems as set forth in this
Information Statement were determined by reference to New Systems stock
register, which sets forth the total number of shares of New Systems Common
Stock held by each holder of record of New Systems.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of September 30, 2001,
as to each person who is known by New Systems to be the beneficial owner (as
such term is defined in Rule 13d-3 of the Exchange Act) of more than 5% of the
issued and outstanding shares of New Systems Common Stock and as to the
beneficial ownership of each executive officer and director of New Systems and
all executive officers and directors of New Systems as a group of New Systems
Common Stock. Except where specifically noted, each person listed in the table
has sole voting and investment power with respect to the shares issued.
Shares of New Systems Common
Name and Address Stock
Of Beneficial Owner Beneficially Owned Percentage of Class
------------------- ------------------ -------------------
Tremor Entertainment Inc. 1,800,000 (1) 53.7%
2621 West Empire Avenue
Burbank, CA 91504
- ----------
(1) Tremor has granted a proxy to each of RAMVH and KM Financial to vote
1,500,000 shares and 300,000 shares, respectively, of New Systems Common
Stock previously sold by them to Tremor, in the name of Tremor, at any
meeting of stockholders of New Systems or in connection with any written
consent of the stockholders of New Systems in lieu of a meeting, which
proxy shall terminate upon the earlier of the effective time of the Merger
or the termination of the Merger Agreement.
-5-
Shares of New Systems Common
Name and Address Stock
Of Beneficial Owner Beneficially Owned Percentage of Class
------------------- ------------------ -------------------
RAM Venture Holdings Corp. 1,860,000 (2) 55.5%
3040 East Commercial Boulevard
Fort Lauderdale, FL 33308
KM Financial, Inc. 360,000 (3) 10.7%
6350 E. Thomas Road
Suite 240
Scottsdale, AZ 85251
Norman Becker 0 0%
c/o New Systems, Inc.
3040 E. Commercial Boulevard
Ft. Lauderdale, FL 33308
Frank R. Bauer 0 0%
c/o New Systems, Inc.
3040 E. Commercial Boulevard
Ft. Lauderdale, FL 33308
Diane Martini 0 0%
c/o New Systems, Inc.
3040 E. Commercial Boulevard
Ft. Lauderdale, FL 33308
Executive Officers and Directors as 0 0%
a Group (3 persons)
- ----------
(2) RAMVH has been granted a proxy by Tremor to vote 1,500,000 of these shares
and has sole voting power to vote these shares in the name of Tremor at any
meeting of stockholders of New Systems or in connection with any written
consent of the stockholders of New Systems in lieu of a meeting, which
proxy shall terminate upon the earlier of the effective time of the Merger
or the termination of the Merger Agreement.
(3) KM Financial has been granted a proxy by Tremor to vote 300,000 of these
shares and has sole voting power to vote these shares in the name of Tremor
at any meeting of stockholders of New Systems or in connection with any
written consent of the stockholders of New Systems in lieu of a meeting,
which proxy shall terminate upon the earlier of the effective time of the
Merger or the termination of the Merger Agreement.
CHANGES IN CONTROL
As reported in the Form 10-QSB for the quarter ended June 30, 2001
filed on August 14, 2001 by New Systems, on July 23, 2001, Tremor purchased an
aggregate of 1,800,000 shares of New Systems Common Stock from certain
stockholders of New Systems. Pursuant to the
-6-
Merger Agreement, immediately prior to the effective time of the Merger, the
1,800,000 shares of New Systems Common Stock held by Tremor will be cancelled.
Upon consummation of the Merger, former shareholders of Tremor will own
approximately 90.5% of the issued and outstanding shares of New Systems Common
Stock.
Upon consummation of the Merger, the directors of New Systems shall be
Mr. Steven Oshinsky, Mr. Karl Flowers and Mr. Martin Eric Weisberg. Mr. Steven
Oshinsky will serve as Chairman of the Board. Messrs. Flowers and Weisberg are
presently directors of Tremor. New Systems is required, no later than ten (10)
days prior to the consummation of the Merger, to prepare and file with the
Securities and Exchange Commission (the "SEC") the information statement
required by Rule 14f-1 promulgated under the Exchange Act, relating to the
change in the majority of directors of New Systems.
Upon consummation of the Merger, the existing officers of Tremor shall
become the officers of New Systems. The names, ages, current positions and
business experience of each individual who will become an officer of New Systems
is set forth below on page 40.
AUTHORIZATION OR ISSUANCE OF SECURITIES
OTHERWISE THAN FOR EXCHANGE
Pursuant to the Merger Agreement, 7,396 shares of Tremor Common Stock
issued and outstanding immediately prior to the Merger (after giving effect to a
1-for-6000 reverse stock split of Tremor Common Stock), will be exchanged and
converted into shares of New Systems Common Stock at a rate of one (1) share of
Tremor Common Stock for two thousand (2,000) shares of New Systems Common Stock
(the "Exchange Ratio"). Accordingly, upon consummation of the Merger, New
Systems shall issue to the shareholders of Tremor an aggregate of 14,792,000
shares of New Systems Common Stock, and after giving effect to the Merger,
existing stockholders of New Systems will own, in the aggregate, approximately
9.5% of the issued and outstanding shares of New Systems Common Stock and the
former shareholders of Tremor will own, in the aggregate, approximately 90.5% of
the issued and outstanding shares of New Systems Common Stock.
Except for the dilution in the percentage of stock owned by the current
stockholders of New Systems, the additional issuance of shares of New Systems
Common Stock will have no effect on the rights of the existing stockholders of
New Systems.
-7-
FINANCIAL AND OTHER INFORMATION
The following is certain financial information concerning Tremor, which
includes:
INDEPENDENT AUDITORS' REPORT 9
FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED MARCH 31, 2001 AND 2000
Balance Sheets as of March 31, 2001 and 2000 10
Statements of Operations for the fiscal years ended
March 31, 2001 and 2000 11
Statements of Stockholders' Equity (Deficit) for the
fiscal years ended March 31, 2001 and 2000 12
Statements of Cash Flows for the fiscal years ended
March 31, 2001 and 2000 13
SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES 14
NOTES TO FINANCIAL STATEMENTS 17
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
JUNE 30, 2001 AND 2000
Balance Sheets as of June 30, 2001 and 2000 26
Statements of Operations for the three months ended
June 30, 2001 and 2000 27
Statements of Cash Flows for the three months ended
June 30, 2001 and 2000 28
NOTES TO UNAUDITED FINANCIAL STATEMENTS 29
MANAGEMENT'S DISCUSSION AND ANALYSIS 31
-8-
INDEPENDENT AUDITORS' REPORT
To the Stockholders' and Board of Directors of
Tremor Entertainment, Inc.
Burbank, California
We have audited the accompanying balance sheets of Tremor Entertainment, Inc.
(the "Company") as of March 31, 2001 and 2000, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tremor Entertainment, Inc. as
of March 31, 2001 and 2000 and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has a net loss for the years ended March 31, 2001 and
2000 of $2,212,047 and $3,603,377, has used cash in operating activities of
$1,761,339 and $1,078,431 for the years ended March 31, 2001 and 2000, and at
March 31, 2001 has a negative working capital of $144,038. These and other
factors raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ BDO SEIDMAN, LLP
LOS ANGELES, CALIFORNIA
May 15, 2001
-9-
TREMOR ENTERTAINMENT, INC.
BALANCE SHEETS
===================================================================================================================
MARCH 31, 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 162,822 $ 4,490
Receivables 208,373 17,142
Prepaid expenses 972 26,500
- ---------------------------------------------------------------------------------------------------------------------
Total current assets 372,167 48,132
PROPERTY AND EQUIPMENT, net (Note 2) 107,115 120,961
DEFERRED FINANCING COST (Note 8) - 40,117
OTHER ASSETS 40,114 30,124
- ---------------------------------------------------------------------------------------------------------------------
Total assets $ 519,396 $ 239,334
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 48,243 $ 151,132
Accrued expenses 139,801 330,787
Deferred revenue 52,632 15,000
Billings in excess of cost and estimated earnings (Note 3) 275,529 -
Accrued estimated losses on projects (Note 3) - 104,200
Notes payable (Note 4) - 40,000
Notes payable current portion - related party (Note 4) - 17,877
- ---------------------------------------------------------------------------------------------------------------------
Total current liabilities 516,205 658,996
NOTES PAYABLE - RELATED PARTY, less current portion (Note 4) - 10,000
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 516,205 668,996
- ---------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (DEFICIT) (Notes 8 and 10)
Convertible Preferred Stock, $.10 par value; authorized 20,000,000 shares;
issued and outstanding 6,000,000 shares (liquidation preference $600,000) 600,000 -
Common stock, par value $0.01, 50,000,000 and 20,000,000 shares authorized at
March 31, 2001 and 2000; 14,667,033 and 13,030,004 shares issued and
outstanding at March 31, 2001 and 2000 146,670 130,300
Additional paid-in capital 5,222,359 3,193,829
Accumulated deficit (5,947,838 ) (3,735,791 )
- ---------------------------------------------------------------------------------------------------------------------
21,191 (411,662 )
Less: Treasury stock, 9,000 shares, at cost (18,000 ) (18,000 )
- ---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) 3,191 (429,662 )
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity (deficit) $ 519,396 $ 239,334
- ---------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS.
-10-
TREMOR ENTERTAINMENT, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
REVENUES $ 1,341,839 $ 502,205
COST OF REVENUES 1,345,428 691,800
- ---------------------------------------------------------------------------------------------------------------------
GROSS LOSS (3,589 ) (189,595 )
- ---------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Marketing 80,398 104,972
Research and development 284,409 453,118
General and administrative, including non-cash charge for
compensation of $618,900 in 2001 and $1,927,072 in 2000 1,810,530 2,492,604
- ---------------------------------------------------------------------------------------------------------------------
Total operating expenses 2,175,337 3,050,694
- ---------------------------------------------------------------------------------------------------------------------
OPERATING LOSS (2,178,926 ) (3,240,289 )
OTHER INCOME (EXPENSE)
Aborted acquisitions expense - (303,992 )
Interest expense (44,257 ) (60,051 )
Other income 11,136 955
- ---------------------------------------------------------------------------------------------------------------------
Total other expense (33,121 ) (363,088 )
- ---------------------------------------------------------------------------------------------------------------------
NET LOSS (2,212,047 ) (3,603,377 )
DIVIDENDS TO PREFERRED SHAREHOLDERS
Cash dividends (24,000 ) -
Deemed dividends (600,000 ) -
- ---------------------------------------------------------------------------------------------------------------------
NET LOSS ATTRIBUTED TO COMMON SHAREHOLDERS $ (2,836,047) $ (3,603,377 )
- ---------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS.
-11-
TREMOR ENTERTAINMENT, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED MARCH 31, 2001 AND 2000
Preferred Stock Common Stock Additional
----------------------- ------------------------- Paid-In Accumulated Treasury
Shares Amount Shares Amount Capital Deficit Stock Total
===================================================================================================================================
BALANCE, March 31, 1999 - $ - 10,657,483 $ 106,575 $ 73,825 $ (132,414)$ $ - $ 47,986
Common stock issued for cash - - 1,235,188 12,352 1,116,048 - - 1,128,400
Common stock issued for
compensation - - 1,137,333 11,373 1,795,224 - - 1,806,597
Warrants issued for financing - - - - 88,257 - - 88,257
Warrants issued for
compensation - - - - 120,475 - - 120,475
Acquisition of treasury stock - - - - - - (18,000) (18,000)
Net loss - - - - - (3,603,377) - (3,603,377)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, March 31, 2000 - - 13,030,004 130,300 3,193,829 (3,735,791) (18,000) (429,662)
Common stock issued for cash - - 1,523,196 15,232 1,434,768 - - 1,450,000
Common stock issued for
compensation - - 113,833 1,138 240,362 - - 241,500
Common stock options issued
for compensation - - - - 363,000 - - 363,000
Warrants issued for
compensation - - - - 14,400 - - 14,400
Preferred stock issued for
cash 6,000,000 600,000 - - - - - 600,000
Preferred stock cash
dividends - - - - (24,000) - - (24,000)
Preferred stock deemed
dividends - - - - (600,000) - - (600,000)
Preferred stock deemed
dividends - - - - 600,000 - - 600,000
Net loss - - - - - (2,212,047) - (2,212,047)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, March 31, 2001 6,000,000 $ 600,000 14,667,033 $ 146,670 $5,222,359 $(5,947,838) $(18,000) $ 3,191
===================================================================================================================================
SEE ACCOMPANYING SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS.
-12-
TREMOR ENTERTAINMENT, INC.
STATEMENTS OF CASH FLOWS
======================================================================================================================
INCREASE (DECREASE) IN CASH
YEARS ENDED MARCH 31, 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,212,047) $(3,603,377)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 52,298 22,824
Non-cash interest expense 40,117 48,139
Common stock issued for compensation 241,500 1,806,597
Common stock options issued for compensation 363,000 -
Warrants issued for compensation 14,400 120,475
Changes in operating assets and liabilities:
Receivables (191,231) (6,142)
Prepaid expenses 25,528 (26,500)
Other assets (9,990) (21,262)
Accounts payable (102,889) 150,602
Accrued expenses (190,986) 311,013
Deferred revenue 37,632 15,000
Billing in excess of cost and estimated earnings 275,529 -
Accrued estimated losses on projects (104,200) 104,200
- ---------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,761,339) (1,078,431)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (38,452) (104,250)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 1,450,000 1,128,400
Proceeds from issuance of preferred stock 600,000 -
Preferred stock cash dividend (24,000) -
Payment on notes payable (40,000) 40,000
(Payment on) proceeds from notes payable - related party (27,877) 14,583
Purchase of treasury stock - (18,000)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,958,123 1,164,983
- ---------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 158,332 (17,698)
CASH, beginning of year 4,490 22,188
- ---------------------------------------------------------------------------------------------------------------------
CASH, end of year $ 162,822 $ 4,490
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest paid $ 4,596 $ 10,440
Income taxes paid - 1,462
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Non cash items:
Issuance of warrants in connection with debt financing $ - $ 88,257
- ---------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS.
-13-
TREMOR ENTERTAINMENT, INC.
SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
================================================================================
BUSINESS Tremor Entertainment, Inc. ("Tremor" or the
"Company"), a California corporation, was
organized on August 12, 1998. The Company
designs and develops interactive entertainment
software for external publishers. Using its
design and development capabilities, the
Company creates branded product series for
existing and emerging hardware platforms.
Tremor sells its products to publishers
throughout North America. Sales are facilitated
by securing strategic relationships with movie
studios, licensing agents, and distributors.
The Company is subject to certain business
risks which could effect future operations and
financial performance. These risks include
changing computing environments, rapid
technological change, development of new
products, and competitive pricing.
RECLASSIFICATIONS Certain balances as of March 31, 2000 have been
reclassified in the accompanying consolidated
financial statements to conform with the
current year presentation. The
reclassifications had no effect on previously
reported net income or stockholders' equity.
PROPERTY AND Property and equipment are stated at cost.
EQUIPMENT Depreciation is computed using a straight-line
method over the estimated useful lives of
respective assets, ranging from three to five
years.
The Company reviews the carrying values of its
property and equipment for possible impairment
whenever events or changes in circumstances
indicate the carrying amount of the assets may
not be recoverable. Impairment losses are
charged to operations when recognized.
RESEARCH AND
DEVELOPMENT COSTS Expenses relating to research and development
activities are charged to expense when
incurred.
-14-
TREMOR ENTERTAINMENT, INC.
SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
================================================================================
REVENUE AND COST Revenues and costs from fixed-price software
RECOGNITION development contracts are recognized for each
contract on the percentage-of-completion
method, measured by the cost incurred to date,
to the total cost for the contract. Management
believes the use of the cost to cost method to
gauge completion is the best available measure
of completeness. Direct costs include, among
other things, direct labor and direct overhead.
General and administrative expenses are
accounted for as period costs and are,
therefore, not included in the
percentage-of-completion method of accounting
for software development contracts. Project
losses are provided in the period in which such
losses are determined, without reference to the
percentage-of-completion. As contracts can
extend over one or more accounting periods,
revisions in costs and earnings estimated
during the course of the work are reflected
during the accounting period in which the facts
that required such revisions become known.
Non-refundable advances received at the
inception of a project are deferred and
recognized ratably over the life of the
contract.
The Company accrues for estimated losses on
contracts when total estimated contract revenue
compared to total estimated contract cost at an
accounting reporting period indicate a loss.
The costs used in arriving at the accrued
estimated loss on a contract include all costs
of the type allocable to the contract including
change order and price redeterminations. The
provision for loss for the year ended March 31,
2000 is accounted for in the statement of
operations as an additional contract cost shown
as a component of the cost of revenues.
-15-
TREMOR ENTERTAINMENT, INC.
SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
================================================================================
INCOME TAXES The Company provides for income taxes in
accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). SFAS 109 requires a
company to use the asset and liability method
of accounting for income taxes.
Under the asset and liability method, deferred
income taxes are recognized for the tax
consequences of "temporary differences" by
applying enacted statutory tax rates applicable
to future years to differences between the
financial statement carrying amounts and the
tax bases of existing assets and liabilities
and result primarily from differences in
methods used to amortize production costs. A
valuation allowance is provided when management
cannot determine whether it is more likely than
not that the deferred tax asset will be
realized.
USE OF ESTIMATES The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities
at the date of the financial statements and the
reported amounts of revenues and expenses
during the year. Actual results could differ
from those estimates.
STOCK-BASED COMPENSATION The Company accounts for stock-based
compensation arrangements in accordance with
provisions of APB No. 25, "Accounting for Stock
Issued to Employees" and related
interpretations, and complies with the
disclosure provisions SFAS No. 123, "Accounting
for Stock-Based Compensation." Under APB No.
25, compensation cost is recognized based on
the difference, if any, on the date of grant
between the fair value of the Company's stock
and the amount an employee must pay to acquire
the stock.
-16-
TREMOR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. LIQUIDITY AND The Company incurred losses for the years ended
GOING CONCERN March 31, 2001 and 2000 of $2,212,047 and
$3,603,377 and has used cash in operating
activities of $1,761,339 and $1,078,431 for the
years ended March 31, 2001 and 2000.
Furthermore, at March 31, 2001 the Company has
negative working capital of $144,038 and
stockholders' equity of $3,191. The Company is
in its third year of implementing its business
plan and cannot be assured that the results of
operations will be sufficient to sustain its
operations. Accordingly, there is substantial
doubt regarding the Company's ability to
continue as a going concern. The Company is
pursuing additional capital to meet future
financial obligations, but may not be able to
do so. Should the Company not be able to raise
additional financing or implement its business
plan and generate sufficient cash flows from
operations, it may have to curtail operations.
The financial statements do not include any
adjustments that may be necessary if the
Company is unable to continue as a going
concern.
2. PROPERTY AND Property and equipment consist of the following:
EQUIPMENT
MARCH 31, 2001 2000
---------------------------------------------
Computer equipment $172,822 $134,891
Furniture and fixtures 13,307 12,786
---------------------------------------------
186,129 147,677
Accumulated depreciation (79,014) (26,716)
----------------------------------------------
$107,115 $120,961
----------------------------------------------
-17-
TREMOR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
3. CONTRACTS IN Billings in excess of costs and estimated
PROGRESS earnings on uncompleted contracts and accrued
estimated losses on projects, which result from
total estimated costs exceeding total estimated
revenue amounts on uncompleted contracts, are
as follows:
MARCH 31, 2001 2000
----------------------------------------------------------------
Cost incurred on uncompleted contracts $1,106,973 $ 449,383
Estimated earnings (loss) to date 39,866 (293,583)
----------------------------------------------------------------
1,146,839 155,800
Less: billings to date (1,422,368) (260,000)
----------------------------------------------------------------
Billings in excess of cost and estimated
earnings $(275,529) -
Accrued estimated losses on projects - $(104,200)
----------------------------------------------------------------
4. NOTES PAYABLE The Company had notes payable of $40,000 as of
March 31, 2000, payable upon demand, bearing
interest at approximately 8% per annum. The
Company also had related party notes payable of
$27,877 as of March 31, 2000. As of March 31,
2000, $17,877 of related party notes payable
are payable upon demand and $10,000 of related
party notes payable mature September 2001.
Related party notes payable bear interest
between 8% and 10% per annum. During 2001, the
Company repaid all notes payable.
5. INCOME TAXES As of March 31, 2001, the Company had unused
Federal and California net operating loss
carryforwards of approximately $3,650,000
available to offset against future taxable
income. The Federal unused net operating loss
carryforward expires in various amounts through
the year 2021. The California net operating
loss carryforward will expire in various
amounts through the year 2008.
Net deferred tax assets of approximately
$1,470,000 as of March 31, 2001, resulting
primarily from net operating losses, have been
offset by a valuation allowance since
management cannot determine whether it is more
likely than not such assets will be realized.
-18-
TREMOR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
6. COMMITMENTS COMMITMENTS
AND
CONTINGENCIES The Company leases office space and office
equipment under noncancelable operating
leases, which expire in 2004. The future
minimum rental payments under these
agreements at March 31, 2001 were as follows:
MARCH 31, Amount
-----------------------------------------
2002 $ 40,303
2003 35,008
2004 13,056
-----------------------------------------
Total rent expense was $64,365 and $31,334
for the years ended March 31, 2001 and 2000,
respectively.
CONTINGENCIES
The Company has legal proceedings incidental
to its normal business activities. In the
opinion of management, the outcome of the
proceedings will not have a material adverse
effect on the Company's financial position,
results of operations or cash flows.
7. STOCK OPTIONS During 2001, the Company's Board of Directors
AND WARRANTS approved a stock plan allowing for the grant
of stock and qualified and non-qualified
stock options to employees, directors and
consultants. The stock plan (the "2001 Plan")
authorizes granting of awards up to an
aggregate maximum of 8,000,000 shares of
common stock. A stock option award term is
not to exceed ten years from the date of
grant. As of March 31, 2001, no awards were
issued pursuant to the 2001 Plan.
-19-
TREMOR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
7. STOCK OPTIONS During 2000, the Company's Board of Directors
AND WARRANTS approved a non-qualified stock option plan for
(CONTINUED) its employees, officers and directors. The 2000
Plan (the " 2000 Plan") authorizes granting of
options to purchase up to an aggregate maximum
of 6,000,000 shares of common stock, as
amended, with an exercise price at least equal
to the fair value of the shares at the date of
grant. The vesting periods for the options are
from one to six years. The stock option term is
for a period of ten years from the date of
grant. As of March 31, 2001, 415,685 stock
options with per common share grant prices
ranging from $.10 to $3.00 had been issued
pursuant to the 2000 Plan. 82,400 of those
options with per common share grant prices
ranging from $2.00 to $3.00 were issued during
fiscal 2001. The 2000 Plan terminated March 31,
2001.
During September 2000, the Company issued
2,420,000 stock options to officers and
directors with an exercise price of $0.10 per
common share not pursuant to the 2000 Plan. The
option exercise price was less than the
estimated fair value of the Company's common
stock on the date of grant resulting in an
intrinsic value of $363,000. The intrinsic
value of the options was recorded as a non-cash
compensation expense.
During April 2000, in connection with an equity
transaction, the Company issued 333,333 units.
Each unit consisted of one share of Company's
common stock and one 5-year warrant to purchase
one share of Company's common stock at $3.00
per share. See Note 8.
During April 2000, the Company issued 21,000
warrants to purchase common stock of the
Company at $3.00 per common share in exchange
for services. The warrants expire in 2005.
In addition, the Company issued 90,000 warrants
to purchase common stock of the Company at $.10
per common share as part of a resignation
agreement. The warrants expire in 2002. The
warrant exercise price was less than the
estimated fair value of the Company's common
stock on the date of grant resulting in an
intrinsic value of $14,400. The intrinsic value
of the warrants was recorded as a non-cash
compensation expense.
-20-
TREMOR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
7. STOCK OPTIONS In June 1999, the Company issued 6,000 warrants
AND WARRANTS at $0.10 per common share to purchase common
(CONTINUED) stock of the Company to an employee not
pursuant to the 2000 stock option plan but with
terms substantially the same as the plan.
During 2000, the Company issued warrants to
purchase 238,875 shares of the Company's common
stock in exchange for services and in
connection with debt financing. The warrants
have exercise prices ranging from $.10 to $4.00
per common share and expire through 2005.
Included in the issued warrants are warrants
for the purchase of 100,000 shares at $.10 per
common share of the Company's common stock that
were issued in connection with debt financing.
These warrants had been recorded as deferred
financing costs on the balance sheet and were
to be amortized ratably over the life of the
related party debt as interest expense. During
2001, the Company cancelled the outstanding
warrant to purchase 100,000 shares of common
stock originally issued in connection with the
related party financing. See Note 8.
The following table summarizes the stock
options and warrants outstanding at March 31,
2001:
Weighted
Average
Shares Exercise Price
---------------------------------------------------------
Outstanding at March 31, 1999 - $ -
Granted 578,160 1.66
Cancelled (2,880) 2.00
----------------------------------------------------------
Outstanding at March 31, 2000 575,280 1.65
Granted 2,946,733 .51
Cancelled (248,070) 1.27
----------------------------------------------------------
Outstanding at March 31, 2001 3,273,943 $ .65
----------------------------------------------------------
-21-
TREMOR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
7. STOCK OPTIONS Information relating to stock options and
AND WARRANTS warrants at March 31, 2001 summarized by
(CONTINUED) exercise price is as follows:
Options and
Options and Warrants Outstanding Warrants Exercisable
------------------------------------ ---------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Exercise
Exercise Price Outstanding Life (Years) Price Number Price
---------------------------------------------------------------------------------
$0.10 2,566,000 4.4 $ 0.10 2,566,000 $ 0.10
2.00 304,735 4.1 2.00 185,734 2.00
3.00 354,333 4.1 3.00 354,333 3.00
4.00 48,875 1.9 4.00 48,875 4.00
---------------------------------------------------------------------------------
$0.10 - 4.00 3,273,943 3.8 $ .65 3,154,942 $ .60
---------------------------------------------------------------------------------
The Company applies APB Opinion No. 25 and
related interpretations in accounting for its
stock option plans. Accordingly, no
compensation cost has been recognized for its
stock option plans as all grants have been
made at or above fair value. Had compensation
cost for the Company's stock option plans
been determined consistent with FASB 123, the
Company's net loss would have been increased
to the pro forma amounts included below:
YEARS ENDED MARCH 31, 2001 2000
----------------------------------------------------------
Net loss, as reported $(1,834,647) $(3,603,377)
Net loss, pro forma (1,918,641) (3,750,412)
----------------------------------------------------------
The fair value of option grants is estimated
as of the date of grant utilizing the
Black-Scholes option-pricing model with the
following weighted average assumptions in
2001 and 2000: a discount rate of 6%,
volatility of 0%, an expected life of between
1 to 5 years with no expected dividend.
8. STOCKHOLDERS' In September 2000, the Company paid off a
EQUITY related party note in the amount of $10,000
and cancelled the outstanding warrant to
purchase 100,000 shares of common stock
originally issued in connection with the
financing.
-22-
TREMOR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
8. STOCKHOLDERS' In September 2000, the Company amended its
EQUITY articles of incorporation to allow for the
(CONTINUED) authorization to issue two classes of shares.
Common stock authorized to be issued is
50,000,000 shares and Series A Convertible
Preferred Stock authorized to be issued is
20,000,000 shares.
In April 2000, the Company entered into a
capital financing agreement with a new
strategic investor. Pursuant to this agreement,
the Company received $300,000 through the sale
of 500,000 shares of common stock.
Additionally in April 2000, the Company had a
private placement of $1,000,000 through the
sale of 333,333 units. Each unit consisted of
one share of the Company's common stock and one
5-year warrant to purchase one share of the
Company's common stock at $3.00 per share. In
connection with the private placement, the
Company issued 600,000 shares of its common
stock for services to the new strategic
investor.
Also in April 2000, the Company entered into
capital financing agreements with two
investors. Pursuant to these agreements, the
Company received $150,000 through the sale of
75,000 shares of common stock.
Also in April 2000, in connection with services
provided to the Company, the Company issued
110,500 shares of common stock of which 100,000
shares were valued at $2.00 per share and
10,500 shares were valued at $3.00 per share.
The fair value of these shares on the date of
issuance, $231,500, has been included in
general and administrative expense.
During the year ended March 31, 2000, the
Company sold an additional 976,088 shares of
common stock for $610,200, pursuant to private
placements.
-23-
TREMOR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
8. STOCKHOLDERS' In March 2000, the Company entered into a
EQUITY capital and consulting agreement with a
(CONTINUED) strategic investor. Under terms of this
agreement, the Company issued 333,333 shares to
the investor for interactive industry
consulting. The fair value of these shares on
the date of issuance, $200,000, has been
included in general and administrative expense.
In October 1999, the Company entered into an
agreement with a consultant to provide various
strategic consulting and financial relations
services. Pursuant to this agreement, the
Company will pay the consultant 2% to 10% of
any funds received through contacts initiated
by the consultant. In addition, the Company
issued the consultant 100,000 shares. The fair
value of these shares on the date of issuance,
$200,000, has been included in general and
administrative expense. This agreement provides
for the issuance of up to 233,333 additional
shares if specific funding targets are reached.
In June 1999, the Company issued 700,000 shares
to the partners of a media licensing and
consulting company in exchange for certain
consulting services, including access to media
licenses for interactive games. The fair value
of these shares on the date of issuance,
$1,400,000, has been included in general and
administrative expense.
From April 1999 through November 1999, the
Company raised $518,200 from the sale of
259,100 shares of its common stock pursuant to
a private placement under Rule 504 of
Regulation D of the Securities Act of 1933.
SERIES A CONVERTIBLE PREFERRED STOCK
In September 2000, the Company issued 6,000,000
shares of Series A Convertible Preferred Stock
for net proceeds of $600,000. Dividends on the
shares of the Series A Convertible Preferred
Stock are cumulative, are payable quarterly in
arrears at the rate of $0.002 per preferred
share. Each share of Series A Convertible
Preferred Stock carries a $.10 per share
liquidation preference.
-24-
TREMOR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
8. STOCKHOLDERS' Each share of the Series A Convertible
EQUITY Preferred Stock is convertible into five shares
(CONTINUED) of Common Stock of the Company, subject to
adjustment under certain conditions. The
conversion feature of the Series A Convertible
Preferred Stock resulted in a one time deemed
dividend of $600,000 due to the beneficial
nature of the conversion feature at the time of
issuance.
The Series A Convertible Preferred Stock is not
redeemable and is not entitled to the benefit
of any sinking fund.
9. MAJOR CUSTOMERS Approximately 85% and 11% of sales were made to
two customers in the year ended March 31, 2001.
Approximately 96% of receivables as of March
31, 2001 is due from the largest customer.
Approximately 57%, 20% and 18% of sales were
made to three customers in the year ended March
31, 2000.
10. SUBSEQUENT In June 2001, the Company initiated a private
EVENTS placement of up to 6,000,000 shares of the
(UNAUDITED) Company's common stock at $.25 per share for an
aggregate of $1,500,000. As of June 2001, no
common stock had been sold nor proceeds
received.
Also, the Company is in the process of amending
its articles of incorporation to increase the
common stock authorized to be issued to
100,000,000 shares.
-25-
TREMOR ENTERTAINMENT, INC.
BALANCE SHEETS
JUNE 30, 2001 2000
- ------------------------------------------------------------------------------------------------------
ASSETS (UNAUDITED)
CURRENT ASSETS
Cash $ 94,055 $ 125,992
Receivables 8,657 111,476
Prepaid expenses 4,906 18,462
Costs in Excess of Billing (Note 3) - 59,391
- ------------------------------------------------------------------------------------------------------
Total current assets 107,618 315,321
PROPERTY AND EQUIPMENT, NET 101,024 118,705
DEFERRED FINANCING COST - 16,045
OTHER ASSETS 42,595 63,698
- ------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 251,237 $ 513,769
- ------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts Payable $ 187,191 $ 44,385
Accrued expenses 141,535 16,830
Deferred revenue 36,842 107,500
Billing in excess of cost and estimated earnings (Note 3) 195,273 -
Accrued estimated losses on projects (Note 3) - 68,783
Notes payable current portion - related party - 3,067
- ------------------------------------------------------------------------------------------------------
Total current liabilities 560,841 240,565
Notes payable - related party, less current portion - 10,000
- ------------------------------------------------------------------------------------------------------
Total liabilities 560,841 250,565
- ------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY (DEFICIT)
Convertible Preferred Stock, $.10 par value: authorized 20,000,000
shares: issued and outstanding 6,000,000 shares (liquidation
preference $600,000) 600,000 -
Common stock, par value $0.01, 50,000,000 and 20,000,000 shares
authorized at June 30, 2001 and 2000: 14,667,033 shares
issued and outstanding at June 30, 2001 and 2000 146,670 146,670
Additional paid-in capital 5,210,359 4,868,959
Accumulated deficit (6,248,633) (4,734,425)
- ------------------------------------------------------------------------------------------------------
(291,604) 281,204
Less: Treasury stock, 9,000 shares, at cost (18,000) (18,000)
- ------------------------------------------------------------------------------------------------------
Total stockholder's equity (deficit) (309,604) 263,204
- ------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity ( deficit) $ 251,237 $ 513,769
- ------------------------------------------------------------------------------------------------------
-26-
TREMOR ENTERTAINMENT, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 2000
- --------------------------------------------------------------------------------------------------------
(UNAUDITED)
REVENUES $ 546,045 $ 86,891
COST OF REVENUES 546,024 137,845
- --------------------------------------------------------------------------------------------------------
GROSS INCOME (LOSS) 21 (50,954)
- --------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Marketing 3,605 28,868
Research and development 6,876 250,759
General and administrative 291,439 647,004
- --------------------------------------------------------------------------------------------------------
Total operating expenses 301,920 926,631
- --------------------------------------------------------------------------------------------------------
OPERATING LOSS (301,899) (977,585)
Other income (expense)
Interest expense (314) (26,543)
Other income 1,418 5,494
- --------------------------------------------------------------------------------------------------------
Total other income (Expense) 1,104 (21,049)
- --------------------------------------------------------------------------------------------------------
NET LOSS (300,795) (998,634)
Dividends to preferred shareholders
Cash dividends (12,000) -
- --------------------------------------------------------------------------------------------------------
Net loss attributed to common shareholders $ (312,795) $ (998,634)
- --------------------------------------------------------------------------------------------------------
-27-
TREMOR ENTERTAINMENT, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
Three months ended June 30, 2001 2000
----------------------------------
(UNAUDITED)
CASH FLOWS FROM OPERATIONS ACTIVITIES
Net loss $ (300,795) $ (998,634)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 15,594 12,251
Common stock issued for compensation - 241,500
Non-cash interest expense - 24,072
Changes in operating assets and liabilities:
Receivables 199,716 (94,333)
Prepaid expenses (3,934) 8,038
Costs in excess of billing - (59,391)
Other assets (2,483) (33,574)
Accounts payable 138,948 (106,747)
Accrued expenses 1,734 (313,957)
Deferred revenue (15,789) 92,500
Billing in excess of cost and estimated earnings (80,256) -
Accrued estimated losses on projects - (35,417)
----------------------------------
Net cash used in operating activities (47,265) (1,263,692)
----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (9,502) (9,996)
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock - 1,450,000
Preferred stock cash dividend (12,000) -
Payment on notes payable - (40,000)
(Payment on) proceeds from notes payable - related party - (14,810)
----------------------------------
Net cash provided by (used in) financing activities (12,000) 1,395,190
----------------------------------
NET INCREASE (DECREASE) IN CASH (68,767) 121,502
Cash, beginning of period 162,822 4,490
----------------------------------
Cash, end of period $ 94,055 $ 125,992
----------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION CASH PAID FOR:
Interest paid $ 314 $ 2,927
----------------------------------
-28-
TREMOR ENTERTAINMENT, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
================================================================================
1. BASIS OF
PRESENTATION In the opinion of management, the accompanying financial
statements reflect all adjustments consisting of normal
recurring accruals, necessary to present fairly the
financial position as of June 30, 2001 and 2000 and the
results of its operations for the three-month periods
ended June 30, 2001 and 2000. Although management
believes that the disclosures in these financial
statements are adequate to make the information
presented not misleading, certain information and
footnote disclosures normally included in financial
statements that have been prepared in accordance with
generally accepted accounting principles have been
condensed or omitted pursuant to the rules and
regulations of the Securities Exchange Commission.
The results of operations for the three-month period
ended June 30, 2001 are not necessarily indicative of
the results that may be expected for the full year
ending March 31, 2002. The accompanying financial
statements should be read in conjunction with the more
detailed financial statements for the year ended March
31, 2001, and the related footnotes thereto, filed with
the New Systems, Inc. Information Statement pursuant to
Section 14(c) of the Securities and Exchange Act of
1934.
2. LIQUIDITY AND The Company incurred losses for the three months ended
GOING CONCERN June 30, 2001 of $300,795 and has used cash in operating
activities of $47,265 for the three months ended June
30, 2001. Furthermore, at June 30, 2001 the Company had
negative working capital of $453,223 and stockholders'
deficit of $309,604. The Company is in its third year of
implementing its business plan and cannot be assured
that the results of operations will be sufficient to
sustain its operations. Accordingly, there is
substantial doubt regarding the Company's ability to
continue as a going concern. The Company is pursuing
additional capital to meet future financial obligations,
but may not be able to do so. Should the Company not be
able to raise additional financing or implement its
business plan and generate sufficient cash flows from
operations, it may have to curtail operations. The
financial statements do not include any adjustments that
may be necessary if the Company is unable to continue as
a going concern.
3. CONTRACTS IN Costs and estimated earnings in excess of billings and
PROGRESS billings in excess of costs and estimated earnings on
uncompleted contracts consist of the following:
JUNE 30, 2001 2000
-----------------------------------------------------------------
Cost incurred on uncompleted contracts $ 1,652,997 $ 622,645
Estimated earnings to date 39,888 (352,037)
-----------------------------------------------------------------
1,692,885 270,608
Less: billings to date (1,888,158) (280,000)
-----------------------------------------------------------------
$ (195,273) $ (9,392)
-----------------------------------------------------------------
Included in the accompanying balance sheets under the
following captions:
JUNE 30, 2001 2000
-----------------------------------------------------------------
Costs and estimated earnings in excess of
billings on uncompleted contracts - $ 59,391
Billings in excess of cost and estimated
earnings on uncompleted contracts (195,273) -
Accrued estimated losses on projects - (68,783)
-----------------------------------------------------------------
$ (195,273) $ (9,392)
-----------------------------------------------------------------
-29-
TREMOR ENTERTAINMENT, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
================================================================================
4 SUBSEQUENT In July 2001, the Company received loans from RAM
EVENTS Capital Management and Martin Eric Weisberg, each
related parties, for $50,000 each for short term
operating capital needs. The Company issued promissory
notes maturing on August 23, 2001 with interest payable
at 12% per annum. In addition to the promissory notes
each party received a warrant agreement for 150,000
shares of Tremor common stock at an exercise price of
$.10 per share resulting in an additional non-cash
interest expense of approximately $22,500.00 for each
promissory note.
In August 2001, the Company repaid the notes including
interest to both parties.
In September 2001, the Company received a loan in the
amount of $250,000 from RAM Venture Holdings Corp.,
a related party, for short term operating capital.
The Company issued a promissory note maturing on
November 6, 2001 with interest payable at 12% per annum.
In addition to the promissory note, RAM Venture Holdings
Corp. received a warrant agreement for 750,000 shares of
Tremor common stock at an exercise price of $.10 per
share resulting in additional non-cash expense of
approximately $112,500.00.
On September 30, 2001 the Company repaid $126,973
representing one half the principal amount of the note
plus interest.
On July 23, 2001, Tremor entered into a stock purchase
agreement (the "Stock Purchase Agreement") with RAMVH
and KM Financial. Pursuant to the terms and conditions
of the Stock Purchase Agreement, in contemplation of a
proposed merger, Tremor purchased from RAMVH and KM
Financial 1,500,000 shares and 300,000 shares,
respectively, of New Systems Common Stock (the
"Shares"). The purchase price for the Shares consisted
of (i) an aggregate of Five Thousand Dollars ($5,000),
$4,167 paid to RAMVH and $833 paid to KM Financial, at
the closing of the Stock Purchase Agreement; (ii)
deferred payments aggregating Two Hundred Fifty
Thousand Dollars ($250,000), due September 24, 2001
(subject to a 45-day grace period), without interest,
$208,333 to be delivered to RAMVH and $41,667 to be
delivered to KM Financial; and (iii) deferred
payments aggregating $250,000, due on December 24, 2001
(subject to a 22-day grace period), without interest,
$208,333 to be delivered to RAMVH and $41,667 to be
delivered to KM Financial.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING INFORMATION
All statements, other than historical facts, regarding the Company's
business strategy and plans of management for future operations are "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended and Section 21E of the Securities Exchange Act of 1934, as
amended. These statements, which include, but are not limited to, words such as
"expert," "anticipate," "plan," estimate," "project," "intend" and "scheduled"
are based on management's beliefs and assumptions, and on information currently
available to management. Forward-looking statements involve certain known and
unknown risks, uncertainties and other factors which may cause the Company's
actual results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by these
forward-looking statements. A wide variety of factors could cause or contribute
to such differences and could adversely impact revenues, profitability, cash
flows and capital needs. These factors include, among others, the Company's
ability to successfully implement its business plan; any uncertainties relating
to customer plans and commitments; the timely development and market acceptance
of the Company's products and technologies; possible product defects and product
liability, dependence on intellectual property rights, the highly competitive
environment in which the Company operates and other risks detailed from time to
time in the Company's periodic reports filed with the United States Securities
and Exchange Commission and other regulatory authorities.
OVERVIEW
The Company is a developer of interactive entertainment software for the
most popular video game consoles, including Sony PlayStation, Sega Dreamcast and
Microsoft's upcoming Xbox. The Company creates software that provides immersive
game experiences by combining advanced technology with engaging content, vivid
graphics and rich sounds.
The Company, which commenced operations in 1998, has developed a variety
of products, including Sega Swirl(R), Railroad Tycoon II for Dreamcast, Railroad
Tycoon II for PlayStation, and KISS: Psycho Circus for Dreamcast. The Company's
employees include industry veterans whose past credits include such breakaway
hits as StarCraft, WarCraft and Diablo.
The Company currently has an agreement with Microsoft under which the
Company is creating a major original product for Microsoft's Xbox. Xbox, which
is planned for release in November 2001, is intended to be the most
technologically powerful video game console on the market, and will represent
Microsoft's first foray into video game hardware. At this time, all of the
Company's development activities are being dedicated to the completion of the
game. The agreement with Microsoft provides for periodic payments to the Company
based upon the attainment of various development milestones, and provides for a
royalty based upon Microsoft's sales of the game. The periodic payments under
the agreement will aggregate approximately $3 million through delivery. At
present, the Company's agreement with Microsoft is the Company's only source of
operating revenue. The Company's product is presently scheduled to ship in early
fall of 2002 under the Microsoft label.
In addition to the Xbox game, Tremor and Microsoft have secured initial
agreements for comic book, novel, and feature film deals based on the game's
underlying intellectual property, which Microsoft owns. Tremor created and
developed this intellectual property and will receive 10% of Microsoft's net
revenues from ancillary products based upon such intellectual property.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THE THREE MONTHS
ENDED JUNE 30, 2000
Net revenues for the three months ended June 30, 2001 increased by
$459,154 to $546,045 from $86,891 in the comparable 2000 period. This increase
was driven by the revenue received from the development contract for a first
party game with Microsoft.
Cost of sales increased by $408,179 for the three months ended June 30,
2001 compared to the same period last year, from $137,845 to $546,024. The
increase in cost of sales was due to increased labor costs for work on the new
contract.
Marketing expenses decreased by $25,263 for the three months ended June
30, 2001 to $3,605 from $28,868 for the same period last year due to a shift
from in house marketing to sub-contracting for marketing services on as-needed
basis.
Research and development expenses decreased by $243,883 for the three
months ended June 30, 2001 from the same period last year from $250,759 to
$6,876. the decrease was due to all in-house talent working on contracted game
development.
General and administrative expenses decreased by $355,565 for the three
months ended June 30, 2001 compared to the same period last year from $647,004
to $291,439. The decrease is primarily due to lower non-cash adjustments
resulting from the absence of common stock issued in exchange for services for
the 3 month period ended June 30, 2001.
Operating losses for the three months ended June 30, 2001, was $301,899
compared to $977,585 in the same period last year. The decrease in operating
loss is primarily the result of decreased general and administrative expenses
and efficiencies in other areas of business operations together with the
increase in revenues.
Interest expense decreased to $314 for the three months ended June 30,
2001, from $26,543 for the three months ended June 30, 2000. This decrease in
interest expense was the result of lowered borrowing needs due to the Company's
increased cash flow from receivables.
Other income decreased by $4,076 for the three months ended June 30,
2001 as compared to the three months ended June 30, 2000 from $5,494 to $1,418.
The decrease was due to fewer cash reserves in interest bearing accounts.
As a result of the foregoing, net loss decreased by $697,839 for the
three months ended June 30, 2001, from $998,634 to $300,795 for the
corresponding period in 2000.
FISCAL YEARS ENDED MARCH 31, 2001 AND 2000
Net revenues for the fiscal year ended March 31, 2001 increased by
$839,634 to $1,341,839 from $502,205 for the same period last year. This
increase was driven by the Company's revenue received from a development
contract for a first party game with Microsoft.
Cost of sales increased by $653,628 for the fiscal year ended March 31,
2001 to $1,345,428 from $691,800 in the same period last year. The increase in
cost of sales represent increased labor costs for work on new contracts.
Marketing expenses decreased by $24,574 for the fiscal year ended March
31, 2001 to $80,398 from $104,972 for the same period last year. The decrease
is due to lower advertising and promotional expenses.
Research and development expenses decreased by $168,709 to $284,409 for
the fiscal year ended March 31, 2001 from $453,118 for the same period in 2000.
This decrease in research and development expense was a result of in-house
talent working on contracted game development.
General and administrative expenses for the fiscal year ended March 31,
2001 decreased by $682,074 to $1,810,530 from $2,492,604 for the same period in
2000. The decrease is due to lower non-cash adjustments resulting from a
reduction in the amount of common stock issued in exchange for services.
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Operating loss for the fiscal year ended March 31, 2001 was $2,178,926,
compared to $3,240,289 in fiscal 2000. This decrease in operating loss is
primarily the result of decreased general and administrative expenses as
discussed above and increased efficiencies in other areas of business operations
together with the increase in revenues.
The fiscal year ended March 31, 2000 included $303,992 of aborted
acquisition expense in connection with the Company's abandoned purchase of
Hyperbole Studios which was discontinued due to a limited market for its
products and services.
Interest expense decreased to $44,257 for the fiscal year ended March
31, 2001, from $60,051 for the fiscal year ended March 31, 2000. This decrease
in interest expense resulted from the Company's increased cash flow from
receivables that lowered its borrowing needs.
Other income increased to $11,136 for the fiscal year ended March 31,
2001 from $955 for the fiscal year ended March 31, 2000. The increase was due to
higher cash reserves in interest bearing accounts.
Net loss decreased to $2,212,047 for the fiscal year 2001 from a net
loss of $3,603,377 for fiscal year ended March 31, 2000 primarily due to
increased revenues from contract with Microsoft and lower operating expenses as
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased from $162,822 at
March 31, 2001 to $94,055 at June, 2001. This was in comparison to a $121,502
increase in cash flows for the three months ended June 30, 2000 from $4,490 at
March 31, 2000 to $125,992 at June 30, 2000. This decrease in cash for the
three months ended June 30, 2001 resulted from $47,265, $12,000 and $9,502 cash
utilized in operating activities, financing activities and investing activities,
respectively. The cash used in operating activities primarily was the result of
the Company's net loss and changes in accounts receivable, accrued expense and
accounts payable. The cash used in financing activities represent preferred
stock cash dividend. The cash used in investing activities is the result of
capital expenditures. As of September 30, 2001 the Company's cash and cash
equivalents were $150,380.
At June 30, 2001 the Company had negative working capital of $453,223
and stockholders' deficit of $309,604. The Company is in its third year of
implementing its business plan and cannot be assured that the results of
operations will be sufficient to sustain its operations. Accordingly, there is
substantial doubt regarding the Company's ability to continue as a going
concern. We may in the future be required to raise additional funds through
public or private financing, strategic relationships or other arrangements. We
cannot be certain that any such financing will be available on acceptable terms,
or at all, and our failure to raise capital when needed could seriously harm our
business. Additional equity financing may be dilutive to the holders of our
common stock, and debt financing, if available, may involve restrictive
covenants. Moreover, strategic relationships, if necessary to raise additional
funds, may require use to relinquish some technology rights or modify our
allocation of resources. Should the Company not be able to raise additional
financing or implement its business plan and generate sufficient cash flows from
operations, it may have to curtail operations. The financial statements do not
included any adjustments that may be necessary if the Company is unable to
continue as going concern.
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INTEREST OF CERTAIN PERSONS IN OR OPPOSITION TO
MATTERS TO BE ACTED UPON
Each stockholder should be aware that Norman Becker, Frank R. Bauer and
Diane Martini, each of whom is a director and an officer of New Systems and who
voted unanimously in favor of the actions set forth below, are each directors
and officers of RAMVH and have interests in the Merger that may present actual
or potential conflicts.
On July 23, 2001, Tremor entered into a stock purchase agreement (the
"Stock Purchase Agreement") with RAMVH and KM Financial. Pursuant to the terms
and conditions of the Stock Purchase Agreement, in contemplation of the Merger,
Tremor purchased from RAMVH and KM Financial 1,500,000 shares and 300,000
shares, respectively, of New Systems Common Stock (the "Shares"). The purchase
price for the Shares consisted of (i) an aggregate of Five Thousand Dollars
($5,000), $4,167 paid to RAMVH and $833 paid to KM Financial, at the closing of
the Stock Purchase Agreement; (ii) deferred payments aggregating Two Hundred
Fifty Thousand Dollars ($250,000), due September 24, 2001 (subject to a 45-day
grace period), without interest, $208,333 to be delivered to RAMVH and $41,667
to be delivered to KM Financial; and (iii) deferred payments aggregating
$250,000, due on December 24, 2001 (subject to a 22-day grace period), without
interest, $208,333 to be delivered to RAMVH and $41,667 to be delivered to KM
Financial. It is presently anticipated that the foregoing deferred payments of
$500,000 in the aggregate will be made from the proceeds of future equity
financings by Tremor and/or New Systems. The Shares were delivered to Tremor
subject to the grant of a proxy to RAMVH and KM Financial to vote the Shares
sold by them, in the name of Tremor, at any meeting of stockholders of New
Systems or in connection with any written consent of the stockholders of New
Systems in lieu of a meeting, which proxy shall terminate upon the earlier of
the effective time of the Merger or the termination of the Merger Agreement. By
written consent in lieu of a meeting, dated October 3, 2001, RAMVH and KM
Financial voted to approve the Merger in the name and on behalf of Tremor, in
its capacity as the holder of the majority of shares of New Systems Common
Stock. Pursuant to the terms of the Merger Agreement, immediately prior to the
effective time of the Merger, the 1,800,000 shares of New Systems Common Stock
owned by Tremor will be cancelled.
The Stock Purchase Agreement provides that if New Systems fails to
satisfy certain conditions precedent to the Merger set forth in the Merger
Agreement, including (a) the continued accuracy of the New Systems'
representations and warranties contained in the Merger Agreement, (b) the New
Systems' performance of, or compliance with, as the case may be, the covenants
and agreements to be performed by New Systems under the Merger Agreement, (c)
the absence of any order, decree or injunction that would prohibit New Systems
from consummating the Merger, (d) the absence of a "material adverse change"
with respect to New Systems and (e) compliance by New Systems with securities
law requirements relating to the distribution of an information statement to its
shareholders with respect to the Merger, Tremor will have the right to rescind
the purchase of the Shares.
-34-
The payment of the $500,000 deferred portion of the purchase price under
the Stock Purchase Agreement (the "Deferred Payment") is secured pursuant to the
terms of a non-recourse pledge agreement (the "Pledge Agreement") among RAMVH,
KM Financial and RAM Capital Management Trust, a Massachusetts Business Trust
("RAM Capital"). Under the Pledge Agreement, RAM Capital has agreed to secure
Tremor's obligations to pay the Deferred Payment by pledging to RAMVH 5,000,000
shares of common stock, par value $0.0001 per share, of RAMVH (the "Pledged
Securities") owned by RAM Capital, with RAMVH to accept and hold such pledge for
itself and as agent for KM Financial. Forty percent (40%) of the Pledged
Securities shall be returned to RAM Capital upon payment of the initial $250,000
portion of the Deferred Payment by Tremor and the entire balance of the Pledged
Securities shall be returned upon payment in full of the remaining Deferred
Payment.
RAM Capital owns 5,000,000 shares of common stock of RAMVH,
representing 33% of the issued and outstanding shares of RAMVH. After giving
effect to the sale by RAMVH to Tremor of 1,500,000 shares of New Systems Common
Stock pursuant to the Stock Purchase Agreement, RAMVH owns 360,000 shares of New
Systems Common Stock.
-35-
NOTICE TO STOCKHOLDERS OF ACTIONS
APPROVED BY CONSENTING STOCKHOLDERS
The following actions have been approved by the written consent of
holders of a majority of the issued and outstanding shares of New Systems Common
Stock:
ACTION 1
APPROVAL OF THE AGREEMENT AND PLAN OF MERGER
--------------------------------------------
CONTACT INFORMATION AND BUSINESS CONDUCTED
BY EACH PARTY TO THE MERGER
NEW SYSTEMS, INC.
New Systems, Inc. ("New Systems"), was incorporated under the laws of
Nevada on December 10, 1987, under the name "Municipal Systems, Inc." for the
purpose of acquiring all of the issued and outstanding capital stock of CSH
Corporation, a Utah corporation ("CSH"), that was then primarily engaged in the
development, manufacturing and marketing of specialized accounting software
programs principally for school district funding and secondary school activity
funding. By November 1991, CSH ceased operations and was dissolved.
Currently, New Systems is not engaged in any business operation other
than seeking to locate an existing business with which it could enter into a
merger or acquisition. New Systems, principal executive offices are located at
3040 E. Commercial Boulevard, Ft. Lauderdale, Florida 33308, and its telephone
number is (954) 772-2297.
NEW TREMOR ACQUISITION CORP.
New Tremor Acquisition Corp. ("Acquisition"), is a corporation that is
wholly-owned by New Systems that does not conduct any business activities and
has been formed solely to effect the Merger. Pursuant to the Merger Agreement,
Acquisition will be merged into Tremor, and Tremor as the surviving corporation
will be a wholly-owned subsidiary of New Systems and continue its interactive
video game development business (the "Surviving Corporation"). Acquisition's
principal executive offices are located at 3040 E. Commercial Boulevard, Ft.
Lauderdale, Florida 33308, and its telephone number is (954) 772-2297.
TREMOR ENTERTAINMENT INC.
Tremor Entertainment Inc. ("Tremor"), is a developer of interactive
entertainment software for the most popular video game consoles, including Sony
PlayStation, Sega Dreamcast and Microsoft's upcoming Xbox. Tremor creates
software that provides immersive game experiences by combining advanced
technology with engaging content, vivid graphics and rich sounds.
-36-
Tremor, which commenced operations in 1998, has developed a variety of
products, including SEGA SWIRL(R), RAILROAD TYCOON II for Dreamcast, RAILROAD
TYCOON II for PlayStation, and KISS: PSYCHO CIRCUS for Dreamcast. Tremor's
employees include industry veterans whose past credits include such games as
STARCRAFT, WARCRAFT and DIABLO.
Tremor currently has an agreement with Microsoft under which Tremor is
creating a major original product for Microsoft's Xbox. Xbox, which is planned
for release in November 2001, will represent Microsoft's first foray into video
game hardware. At this time, all of Tremor's development activities are being
dedicated to the completion of the game. The agreement with Microsoft provides
for periodic payments to Tremor based upon the attainment of various development
milestones, and provides for a royalty based upon Microsoft's sales of the game.
The periodic payments under the agreement will aggregate approximately $3
million through delivery. At present, Tremor's agreement with Microsoft is
Tremor's only source of operating revenue. Tremor's product is presently
scheduled to ship in early fall of 2002 under the Microsoft label.
In addition to the Xbox game, Tremor and Microsoft have secured initial
agreements for comic book, novel, and feature film deals based on the game's
underlying intellectual property, which Microsoft owns. Tremor created and
developed this intellectual property and will receive 10% of Microsoft's net
revenues from ancillary products based upon such intellectual property.
Tremor's business plan is to seek to leverage its creative reputation,
production discipline, proprietary technology, and business expertise to create
a stable of franchise titles capable of exploitation across several marketing
niches and/or gaming platforms. In addition, Tremor seeks to license the
characters and storylines of its current and future titles across various media
platforms other than video game consoles, such as toys, comic books, traditional
books and feature films. Tremor is in the process of implementing this strategy
in its current Microsoft contract, for which a series of initial licensing
agreements has already been secured.
Tremor's principal executive offices are located at 2621 West Empire
Avenue, Burbank CA 91504 and its telephone number is (818) 729-0020.
PRODUCT DEVELOPMENT
Tremor develops interactive entertainment software titles that provide
immersive game experiences by combining advanced technology with engaging
content, vivid graphics and rich sounds. Tremor depends upon the experience and
judgment of its core personnel to create its products. Tremor's employees
include industry veterans whose past credits include such titles as STARCRAFT,
WARCRAFT and DIABLO, in addition to the titles developed during Tremor's
existence.
Tremor's primary customers are publishers, for whom it creates the
products that publishers then bring to market.
Each of Tremor's employees is a specialist in one of the disciplines
necessary to create a game: character and story creation, game design, 3D
modeling, texture painting, character animation, environment creation, and the
complex web of programming that supports it all. In
-37-
addition, Tremor provides the production management and administrative functions
necessary to support and direct product development.
COMPETITION
Tremor competes for the funding, marketing and distribution resources
of publishers with a variety of development entities, some of which are the
internal development teams at such companies as Sony, Nintendo, Sega and
Microsoft, each of which is the largest developer and marketer of software for
its platforms. Sony and Nintendo currently dominate the industry and have the
financial resources to increase their own software development efforts.
In addition, Tremor competes with those domestic public and private
companies, international companies, large software companies and media companies
that have development capacity. Tremor's primary competitors are the
approximately 10-15 top tier developers capable of creating world-class original
games and the intellectual properties that support them. Among these developers
are Shiny, Blizzard, Naughty Dog, and Id. Many of these companies have far
greater financial, technical, personnel and other resources than Tremor does,
and many are able to spend more on the development of original titles. Tremor's
titles also compete with other forms of entertainment such as motion pictures,
television and audio and video cassettes featuring similar themes, on-line
computer programs and forms of entertainment which may be less expensive or
provide other advantages to consumers.
Retailers typically have limited shelf space and promotional resources,
and competition is intense among an increasing number of newly introduced
interactive entertainment software titles for adequate levels of shelf space and
promotional support. Accordingly, Tremor may not be able to achieve the levels
of support and shelf space that other titles receive. Prolonged price
competition may cause Tremor's projected royalty revenues to decrease
significantly.
The interactive game development industry has traditionally been
fiercely competitive as a result of low barriers to entry: in the past, anyone
with a computer could set up shop as a developer. While the industry remains
highly competitive, the increasing complexity and expense of console development
has dimmed the prospects of small under-funded developers. This gives an
advantage to established developers, such as Tremor, with proprietary
technology, track records of delivery, and the infrastructure and personnel
necessary to carry out sophisticated development.
MARKETING AND SALES
Since Tremor's primary customers are publishers - not end consumers -
the publishers essentially provide the sales function for Tremor 's products.
Tremor does not require its own dedicated sales force.
Tremor's marketing efforts are focused primarily on grass roots public
relations designed to burnish Tremor's "branding" and name recognition among
both publishers and end-users. Tremor accomplishes this through interviews with
the industry press, hiring announcements, and a careful organization of public
relations efforts between Tremor and its publisher.
-38-
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Tremor holds copyrights on certain of its products and technologies,
and has applied for trademark rights in Tremor's name and logo. Tremor does not
currently hold any patents.
Tremor regards its software as proprietary and relies primarily on a
combination of copyright, trademark and trade secret laws, employee and third
party nondisclosure agreements and other methods to protect its intellectual
property and proprietary rights. Tremor is aware that unauthorized copying
occurs within the computer software industry, and if a significantly greater
amount of unauthorized copying of Tremor's interactive entertainment software
products were to occur, Tremor's operating results could be materially adversely
affected. However, most unauthorized copying occurs with games created for
personal computers. Tremor's business is focused on the creation of games for
consoles, which have far more built-in anti-pirating controls than personal
computers. This limits Tremor's exposure to the adverse affects of unauthorized
copying.
Tremor relies on existing copyright laws and the obligations contained
within its agreements with third party publishers to prevent unauthorized
distribution of its software. Existing copyright laws afford only limited
protection. Policing unauthorized use of Tremor's products is difficult, and
software piracy can be expected to be a persistent problem, especially in
certain international markets. Further, the laws of certain countries in which
Tremor's products are or may be distributed either do not protect Tremor's
products and intellectual property rights to the same extent as the laws of the
U.S. or are weakly enforced. Legal protection of Tremor's rights may be
ineffective in such countries, and as Tremor leverages its software products
using emerging technologies, such as the Internet and on-line services, the
ability of Tremor to protect its intellectual property rights, and to avoid
infringing the intellectual property rights of others, becomes more difficult.
In addition, the intellectual property laws are less clear with respect to such
emerging technologies. There can be no assurance that existing intellectual
property laws will provide adequate protection to Tremor's products in
connection with such emerging technologies.
As the number of software products in the interactive entertainment
software industry increases and the features and content of these products
further overlap, interactive entertainment software developers may increasingly
become subject to infringement claims. Although Tremor makes reasonable efforts
to ensure that its products do not violate the intellectual property rights of
others, there can be no assurance that claims of infringement will not be made.
Any such claims, with or without merit, can be time consuming and expensive to
defend. There can be no assurance that existing or future infringement claims
against Tremor will not result in costly litigation or require Tremor to license
the intellectual property rights of third parties, either of which could have a
material adverse effect on Tremor's business, operating results and financial
condition.
EMPLOYEES
As of September 30, 2001, Tremor had 31 full-time employees (excluding
Messrs. Oshinsky and Flowers, who are not full-time employees), including 28 in
product development and three performing finance, general and administrative
duties. Tremor also retains
-39-
independent contractors to provide certain services, primarily in connection
with its product development activities. Tremor and its full-time employees are
not subject to any collective bargaining agreements and Tremor believes that its
relations with its employees are good.
FACILITIES
Tremor is located in Burbank, California, where it leases approximately
4,400 square feet of office space. This lease expires in August, 2003 and
provides Tremor with an option to extend the lease for five additional years.
Tremor believes that its facilities are adequate for its current needs. However,
any expansion of Tremor's operations beyond the current team will require
expanding existing space or moving to a new office space.
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF TREMOR
The following table sets forth Tremor's executive officers, key
employees and directors, with their ages as of September 30, 2001.
Name Age Position
- ---- --- --------
Steven Oshinsky 41 Chief Executive Officer
Roderick B. Barr 37 President - Games Division
Brennan Kelly 34 Chief Technical Officer
Karen Benson 43 Vice President of Finance
and Administration
Karl Flowers 51 Director
Martin Eric Weisberg 50 Director
STEVEN OSHINSKY
Mr. Oshinsky has served as President and Chief Executive Officer of Tremor
since January 2001. Mr. Oshinsky entered the financial services business in 1985
in New York as a financial futures broker focusing primarily on foreign
currency, U.S. treasuries and Standard & Poor's 500 futures. In 1993 he joined
the investment banking firm of Barber and Bronson in Ft. Lauderdale, Florida as
a Senior Account Executive, and in 1997, Mr. Oshinsky joined Thomas Green
Securities, Inc. in a similar capacity. In 1998, he founded RAM Capital
Management to provide equity financing to small public companies. The operations
of RAM Capital Management. are primarily carried out by Mr. Oshinsky as that
firm's General Manager. Mr. Oshinsky has been an Ambassador for the American
Committee of the Weizmann Institute of Science since 1995, assisting the
Committee with its fund raising activities.
RODERICK B. BARR
Mr. Barr serves as President of the Tremor's Games Division and
oversees business and product development of Tremor. He joined Tremor in 1999 as
its Creative Director, and produced RAILROAD TYCOON II and SEGA SWIRL(R). Prior
to joining Tremor, Mr. Barr was an independent producer who created, designed
and produced software titles for such publishers as Mindscape, Titus, and ASC.
He graduated Phi Beta Kappa from Princeton University in 1986.
-40-
BRENNAN KELLY
Mr. Kelly serves as Chief Technical Officer and manages the technological
direction of Tremor. He is one of the founders of Tremor and has been involved
as Technical Director and producer on RAILROAD TYCOON II PlayStation and KISS
Psycho Circus. Prior to joining Tremor in September 1998, Mr. Kelly was a Lead
Programmer with Gigawatt Studios from April 1997 to April 1998 and with Digital
Domain from November 1995 to April 1997. He is a graduate of U.C.L.A. (B.A.
1989).
KAREN BENSON
Ms. Benson is Tremor's Vice President of Finance and Administration.
She joined Tremor in December 1999 as Controller and was promoted to her current
position in August 2000. Ms. Benson was involved in crisis management consulting
from October 1996 to December 1999 and served as Vice President - Finance and
Administration of a Los Angeles, California-based land use planning and civil
engineering firm from May 1990 to December 1995. Ms. Benson served as Director
of Finance-Administration at venture capital funded start-ups in the temporary
professional industry from January 1986 to April 1990 and worked for the prior
four years as an executive assistant in the high tech industry. She graduated
from California State University Northridge in 1988 with a B.S. in accounting.
KARL FLOWERS
Mr. Flowers has served as a director of Tremor since August 2000. Mr.
Flowers joined Tremor as a consultant in October 1999. In 2000, he formed Flow
Capital Management, a private equity fund for which he serves as General
Manager. From 1995 to 1999, Mr. Flowers served as an independent business
consultant to private and public companies. From 1990 to 1995, Mr. Flowers
served as National Sales Coordinator of Nationwide Housing Group, a real estate
syndication firm. In April 1999, Mr. Flowers filed a Chapter 7 petition under
the federal bankruptcy laws. Mr. Flowers has over 21 years of experience in a
variety of capacities in the financial services industry, having worked with a
number of nationally recognized financial services firms including Shearson
Lehman, Prudential Bache and Smith Barney.
MARTIN ERIC WEISBERG
Mr. Weisberg has served as a director of Tremor since January, 2001. Mr.
Weisberg is a shareholder at the law firm Jenkens & Gilchrist Parker Chapin LLP,
which serves as general counsel to Tremor. Mr. Weisberg specializes in the areas
of securities, mergers and acquisitions, financing and international
transactions and has been in the private practice of law for 25 years. Mr.
Weisberg is a summa cum laude graduate of Union College (B.A. 1972) and received
his law degree from The Northwestern University School of Law (1975), where he
graduated summa cum laude, was Articles Editor of the Law Review and was elected
to the Order of the Coif. Mr. Weisberg also attended The London School of
Economics and Political Science.
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RISK FACTORS RELATING TO THE OWNERSHIP
OF NEW SYSTEMS COMMON STOCK
The ownership of shares of New Systems Common Stock involves a high
degree of risk. Upon consummation of the Merger, Tremor, as the Surviving
Corporation and as a wholly-owned subsidiary of New Systems will be the sole
source of revenue of New Systems.
EXTREMELY LIMITED OPERATIONS OF NEW SYSTEMS
New Systems does not presently engage in any business activities other
than seeking to locate an existing business with which to engage in a business
combination, and has insufficient capital to carry on business operations
independently.
POSSIBLE DILUTION
New Systems' Articles of Incorporation authorize the issuance of
250,000,000 shares of New Systems Common Stock. Any acquisition effected by New
Systems after consummation of the Merger may result in the issuance of
additional shares of New Systems Common Stock without stockholder approval and
may result in substantial dilution in the percentage of ownership of New Systems
stockholders. Moreover, New Systems Common Stock issued in any such acquisition
or merger transaction may be valued in a manner other than the then trading
value of the New Systems Common Stock, thus resulting in additional reduction in
the ownership percentage of New Systems' stockholders.
NO ASSURANCE OF PUBLIC MARKET
Although New Systems Common Stock is currently traded on the OTC Bulletin
Board, there can be no assurance that a trading market for New Systems'
securities will continue.
CONTROL BY STOCKHOLDER
Upon consummation of the Merger, Mr. Steven Oshinsky, who will serve as
Chairman of the Board of Directors, President and Chief Executive Officer of New
Systems, will control, directly or through entities controlled by him, 64.9% of
the voting power of New Systems through his beneficial ownership of 10,454,000
shares of New Systems Common Stock and warrants to acquire 260,000 shares of New
Systems Common Stock. As a result, Mr. Oshinsky will be able to amend the
Articles of Incorporation, effect a merger, sale of assets or other business
acquisition or disposition, and otherwise effectively control the outcome of
other matters that require stockholder approval.
DIVIDENDS
No dividend has been paid on the New Systems Common Stock since
inception and none is contemplated in the foreseeable future.
TREMOR HAS INCURRED NET LOSSES SINCE ITS INCEPTION, AND MAY NOT ACHIEVE OR
SUSTAIN ANNUAL PROFITABILITY
Tremor incurred net losses of approximately $132,400 for the period from
August 12, 1998 (inception) to March 31, 1999 and net losses of approximately
$3.6 million and $2.8 million for the fiscal years ended March 31, 2000 and
March 31, 2001, respectively. Tremor expects to continue to incur additional
operating losses for at least the next 18 months. Although Tremor has
experienced revenue growth in recent periods, its net losses have also
increased. In addition, Tremor can provide no assurance that it will be able to
sustain the growth in its revenue. If Tremor does achieve profitability, Tremor
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RISK FACTORS RELATING TO TREMOR
cannot be certain that it can sustain or increase profitability on a quarterly
or annual basis in the future or at all. In addition, if Tremor does not achieve
or sustain profitability in the future, it may be unable to continue its
operations. The report of Tremor's independent auditors contains an explanatory
paragraph indicating that there is substantial doubt as to Tremor's ability to
continue as a going concern if Tremor is not successful in raising additional
capital to meet its future financial obligations.
TREMOR WILL REQUIRE ADDITIONAL CAPITAL; TREMOR'S ABILITY TO RAISE CAPITAL IN THE
FUTURE MAY BE LIMITED AND ITS FAILURE TO RAISE CAPITAL WHEN NEEDED COULD PREVENT
IT FROM GROWING.
Tremor, through New Systems following the Merger, will in the future be
required to raise additional funds through public or private financing,
strategic relationships or other arrangements. Tremor cannot be certain that any
such financing will be available on acceptable terms, or at all, and its failure
to raise capital when needed could seriously harm its business. Additional
equity financing following the Merger may be dilutive to the holders of New
Systems Common Stock, and debt financing, if available, may involve restrictive
covenants. Moreover, strategic relationships, if necessary to raise additional
funds, may require Tremor to relinquish some technology rights or modify its
allocation of resources.
TREMOR'S BUSINESS IS DEPENDENT UPON PUBLISHING ARRANGEMENTS WITH THIRD PARTIES
Tremor's success depends on its ability to enter into agreements with
third party publishers who have the capacity to fund, market, and distribute the
products Tremor creates. These agreements typically include advance payments
against future royalties to fund the actual cost of development. Software
development costs, in the form of advances against royalties, have increased
significantly in recent years and reduce the potential profits derived from
sales of Tremor's software. Future sales of Tremor's titles may not be
sufficient to recover advances paid to Tremor.
Tremor's profitability depends upon its ability to continue to enter
into development agreements with publishers on commercially feasible terms.
Numerous companies compete intensely for agreements with publishers, and Tremor
may not be able to enter such agreements on favorable terms or at all in the
future.
TREMOR'S TITLES MAY HAVE SHORT LIFECYCLES AND MAY FAIL TO GENERATE SIGNIFICANT
REVENUES
The market for Tremor's interactive entertainment software is
characterized by short product lifecycles and the frequent introduction of new
products. Many software titles do not achieve sustained market acceptance or do
not generate a sufficient level of sales to offset the costs associated with
product development. A significant percentage of the sales of new titles
generally occurs within the first three months following their release.
Therefore, Tremor's continued profitability depends upon its ability to develop
new, commercially successful titles and to replace revenues from titles in the
later stages of their lifecycles. Any competitive, financial, technological or
other factors which delay or impair Tremor's ability to develop its software -
or which delay or impair its publishing partners' ability to market its software
- - could adversely affect Tremor's future operating results.
A significant portion of Tremor's revenues are derived from a limited
number of titles. For the year ended March 31, 2001, one title accounted for
approximately 85% of Tremor's revenues, with a second title accounting for
approximately 12% of Tremor's revenues and a third title accounting for
approximately 3% of Tremor's revenues. While Tremor expects to become less
dependent on any particular new title, future titles may not be commercially
viable. Tremor also may not be able to release new titles within scheduled
release times or at all. If Tremor fails to continue to develop and sell new,
commercially successful titles, Tremor's revenues and profits may decrease
substantially.
TREMOR CONTINUALLY NEEDS TO DEVELOP NEW INTERACTIVE ENTERTAINMENT SOFTWARE FOR
VARIOUS OPERATING SYSTEMS
The development of new interactive entertainment software - and the
intellectual properties that support them - is lengthy, expensive and uncertain.
Considerable time, effort and resources will be required to complete development
of Tremor's proposed titles. Tremor has in the past and may in the future
experience delays in introducing new titles. Delays, expenses,
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technical problems or difficulties could force the abandonment of or material
changes in the development and commercialization of Tremor's proposed titles. In
addition, the costs associated with developing titles for use on new or future
platforms may increase Tremor's development expenses.
TREMOR MAY FAIL TO ANTICIPATE CHANGING CONSUMER PREFERENCES
Tremor's business is speculative and is subject to all of the risks
generally associated with the interactive entertainment software industry, which
has been cyclical in nature and has been characterized by periods of significant
growth followed by rapid declines. Tremor's future operating results will depend
on numerous factors beyond Tremor's control, including:
- the popularity, price and timing of new interactive entertainment
titles being released;
- international, national and regional economic conditions, particularly
economic conditions adversely affecting discretionary consumer
spending;
- changes in consumer demographics;
- the availability of other forms of entertainment; and
- critical reviews and public tastes and preferences, all of which
change rapidly and cannot be predicted.
In order to plan for new products, Tremor must anticipate and respond
to rapid changes in consumer tastes and preferences. A decline in the popularity
of interactive entertainment software or particular platforms could cause sales
of Tremor current titles to decline dramatically, or prevent third party
publishers from seeking new titles from Tremor. The period of time necessary to
develop new game titles, obtain approvals of manufacturers and produce DVDs,
CD-ROMs or game cartridges is unpredictable. During this period, consumer appeal
of a particular title may decrease, causing projected sales to decline.
RAPIDLY CHANGING TECHNOLOGY AND POTENTIAL OBSOLESCENCE OF SOFTWARE AND PLATFORMS
COULD HARM TREMOR'S OPERATING RESULTS
The interactive entertainment software market is associated with
rapidly changing technology, which leads to software and platform obsolescence
and significant price erosion of interactive entertainment software. Tremor's
titles have been developed primarily for video game consoles, including Sony
PlayStation and Sega Dreamcast. In 2000, Sony introduced its PlayStation 2. In
2001, Microsoft is scheduled to release its Xbox console and Nintendo is
scheduled to release its Gamecube console. If the sales rates of video game
consoles level off or decline as a result of the anticipated release of new
platforms or other technological changes, sales of Tremor's titles developed for
these platforms may decrease.
Tremor needs to anticipate technological changes and continually adapt
its new titles to emerging platforms to remain competitive. Tremor's success
depends upon its ability to adapt software to operate on and to be compatible
with the products of original equipment manufacturers and to function on various
hardware platforms and operating systems. If Tremor designs titles to operate on
new platforms, Tremor may be required to make substantial development
investments well in advance of platform introductions, and will be subject to
the risks that any new platform
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may not achieve initial or continued market acceptance. If Tremor is unable to
develop or adapt titles to operate on and be compatible with future platforms
that achieve market acceptance or to maintain compatibility with new platforms
as needed, Tremor will be unable to offer titles that may appeal to consumers in
the future.
The introduction of new platforms and technologies can render existing
interactive entertainment software obsolete and unmarketable. Tremor expects
that as more advanced platforms are introduced, consumer demand for software for
older platforms will decline. As a result, Tremor's titles developed for such
platforms may not generate sufficient sales to make such titles profitable.
THE INTERACTIVE ENTERTAINMENT SOFTWARE INDUSTRY IS HIGHLY COMPETITIVE
Tremor competes for the funding, marketing and distribution resources
of publishers with a variety of development entities, some of which are the
internal development teams at such companies as Sony, Nintendo, Sega and
Microsoft, each of which is the largest developer and marketer of software for
its platforms. Sony and Nintendo currently dominate the industry and have the
financial resources to increase their own software development efforts.
The interactive game development industry has traditionally been
fiercely competitive as a result of low barriers to entry: in the past, anyone
with a computer could set up shop as a developer.
In addition, Tremor competes with those domestic public and private
companies, international companies, large software companies and media companies
that have development capacity. Many of these companies have far greater
financial, technical, personnel and other resources than Tremor does, and many
are able to spend more on the development of original titles. Tremor's titles
also compete with other forms of entertainment such as motion pictures,
television and audio and video cassettes featuring similar themes, on-line
computer programs and forms of entertainment which may be less expensive or
provide other advantages to consumers.
Retailers typically have limited shelf space and promotional resources,
and competition is intense among an increasing number of newly introduced
interactive entertainment software titles for adequate levels of shelf space and
promotional support. Accordingly, Tremor may not be able to achieve the levels
of support and shelf space that other titles receive. Prolonged price
competition may cause Tremor's projected royalty revenues to decrease
significantly.
TREMOR'S PUBLISHING PARTNERS DEPEND ON CONSOLE MANUFACTURERS FOR SUPPLIES OF
TREMOR'S GAMES
The publishers that fund, market and distribute Tremor's games depend
on non-exclusive licenses with Sony, Nintendo, Sega, and Microsoft both for the
right to publish titles for their platforms and for the manufacture of Tremor's
software designed for use on their platforms. As a result, the number of titles
that publishers are able to develop and publish for these platforms
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may be limited and this may decrease Tremor's ability to gain publishing
agreements in the future.
Each platform license provides that the manufacturer (E.G., Sony,
Nintendo, Microsoft) may raise prices for the titles at any time and grants the
manufacturer substantial control over the release of new titles. Each of these
manufacturers also publishes software for its own platforms and manufactures
titles for all of its other licensees and may choose to give priority to its own
titles or those of other publishers if it has insufficient manufacturing
capacity or if there is increased demand.
These manufacturers may not have sufficient production capacity to
satisfy Tremor's publishers' scheduling requirements during any period of
sustained demand. If manufacturers are unable to produce titles for Tremor on
favorable terms without delays, or if manufacturers do not give priority to
Tremor in the manufacture of the titles, Tremor's royalty stream could be
adversely affected.
TREMOR MAY NOT BE ABLE TO PROTECT ITS PROPRIETARY RIGHTS OR AVOID CLAIMS THAT IT
INFRINGES ON THE PROPRIETARY RIGHTS OF OTHERS
Tremor develops proprietary software, technologies and intellectual
properties. Tremor attempts to protect its software and intellectual property
under copyright, trademark and trade secret laws, as well as through contractual
restrictions on disclosure, copying and distribution. Tremor generally does not
hold any patents.
Interactive entertainment software is susceptible to unauthorized
copying. Unauthorized third parties may be able to copy or to reverse engineer
Tremor's software to obtain and use programming or production techniques that
Tremor regards as proprietary. In addition, Tremor's competitors could
independently develop technologies substantially equivalent or superior to
Tremor's technologies.
As the amount of interactive entertainment software in the market
increases and the functionality of this software further overlaps, Tremor
believes that interactive entertainment software will increasingly become the
subject of claims that such software infringes the copyrights or patents of
others. Although Tremor believes that its software, technologies and
intellectual properties, and those of the publishers with whom Tremor has
contractual relations, do not and will not infringe or violate proprietary
rights of others, it is possible that infringement of proprietary rights of
others may occur. Any claims of infringement, with or without merit, could be
time-consuming, costly and difficult to defend.
TREMOR'S EXPANSION MAY STRAIN ITS OPERATIONS
Tremor has expanded through internal growth and this has placed and may
continue to place a significant strain on Tremor's management, administrative,
operational, financial and other resources. Tremor's plans call for continued
growth. To manage this growth successfully, Tremor must continue to implement
and improve its operating systems as well as hire, train and manage an
increasing number of management, technical, administrative and other personnel.
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Tremor's plans for the development of original titles may require
significant amounts of capital. Through New Systems, Tremor will need to seek to
obtain additional debt or equity financing to fund the cost of continuing
expansion and there can be no issuance that Tremor or New Systems will be able
to obtain such funding. Furthermore, the issuance of equity securities in any
such financing would dilute the interests of existing stockholders.
TREMOR'S ACCOUNTS RECEIVABLE ARE CONCENTRATED IN A LIMITED NUMBER OF CUSTOMERS
Advance royalties from Tremor's three largest customers (publishers)
accounted for over 94% of Tremor's revenues for the years ended March 31, 2001
and March 31, 2000, respectively. The loss of Tremor's relationships with key
publishers could harm Tremor's operating results. Tremor's accounts receivable
at March 31, 2001 were $200,000. 100% of Tremor's accounts receivable were due
from Microsoft. These receivables have all been collected in the ordinary course
of business to date.
TREMOR IS DEPENDENT UPON OUR KEY EXECUTIVES AND PERSONNEL
Tremor's success is largely dependent on the personal efforts of certain
key personnel in the areas of programming, game design and animation. The loss
of the services of one or more of these key employees could adversely affect
Tremor's business and prospects. The Company does not have key man life
insurance on any of its employees at this time. Tremor's success is also
dependent upon our ability to hire and retain additional qualified operating,
technical, art-oriented, design and financial personnel. Competition for
qualified personnel in the computer software industry is intense, and Tremor may
have difficulty hiring or retaining necessary personnel in the future. If Tremor
fails to hire and retain necessary personnel as needed, Tremor's business will
be significantly impaired.
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TERMS OF TRANSACTION
The following is a summary of certain provisions of the Merger
Agreement. This summary is qualified in its entirety by reference to the full
text of the Merger Agreement, a copy of which is attached as Exhibit C to this
Information Statement and incorporated herein by reference. Any capitalized
terms used and not defined below have the meaning given to them in the Merger
Agreement.
BACKGROUND AND REASONS FOR THE MERGER
Since its inception on or about December 10, 1987, New Systems has not
engaged in any profitable operations and has utilized all funds received from
its initial public offering in an attempt to conduct viable commercial
operations. New Systems has for some period of time been seeking to locate an
existing operating business with which New Systems might enter into a merger,
acquisition or similar transaction. After investigating several possible merger
or acquisition targets, New Systems believes this Merger with Tremor will
provide a very good business opportunity with more profitable operations than
New Systems has historically experienced, which will enhance the value of New
Systems Common Stock for its stockholders.
THE MERGER
The Merger Agreement provides that the Merger will become effective
upon the filing of an Agreement of Merger with the Secretary of State of the
State of California and, if necessary, with the Secretary of State of the State
of Nevada, or at such later time as may be agreed in writing by Tremor and New
Systems as is specified in the Agreement of Merger.
Pursuant to the Merger Agreement, at the Effective Time, Acquisition
will be merged with and into Tremor, the separate existence of Acquisition will
cease, and Tremor, as the surviving corporation, will become a wholly-owned
subsidiary of New Systems and continue to operate its software game development
business. Immediately after the Effective Time, Tremor shall amend its articles
of incorporation to change its name to "Tremor Games Inc."
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As a result of the Merger, and subject to the applicable provisions of
the California General Corporation Law, all property, rights, privileges,
powers, and franchises of Acquisition shall vest in Tremor as the surviving
corporation, and wholly-owned subsidiary of New Systems in the Merger, and all
debts, liabilities and duties of Acquisition shall become the debts, liabilities
and duties of the Surviving Corporation. All such property, rights, privileges,
powers, franchises, debts, liabilities and duties of Tremor shall remain with
Tremor as the surviving corporation and wholly-owned subsidiary of New Systems
pursuant to the Merger.
EXCHANGE RATIO
The Merger Agreement provides that at the Effective Time, by virtue of
the Merger and without any action on the part of the holder thereof, and after
giving effect to the Reverse Split, each share of Tremor Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares of Tremor
Common Stock held by Continuing Shareholders exercising dissenters' rights)
shall be automatically converted into the right to receive, and be exchangeable
for, 2,000 fully paid and non-assessable shares (the "Exchange Ratio") of New
Systems Common Stock. Any shares of Tremor Common Stock held in the treasury of
Tremor shall not be converted but shall be canceled and extinguished.
Immediately prior to the Effective Time, the 1,800,000 shares of New
Systems Common Stock owned by Tremor will be cancelled.
The Merger Agreement further provides that in the case of common stock
issued and outstanding by Acquisition immediately prior to the Effective Time,
each such share will be converted into one validly issued, fully paid and
non-assessable share of common stock of the Surviving Corporation.
LOCK-UP
Each holder of Tremor Common Stock receiving shares of New Systems
Common Stock pursuant to the Merger (such shares of New Systems Common Stock
referred to as "Lock-Up Shares") shall not be permitted to publicly sell, or
otherwise publicly dispose of, transfer, pledge, hypothecate, assign or
otherwise transfer, any Lock-Up Shares until the first anniversary of the
effective date of the Merger (the "Lock-Up"); PROVIDED, HOWEVER, that the
Lock-Up shall not apply to any sale of New Systems Common Stock by Harmony
Investments, an affiliate of Steve Oshinsky who is the President and Chief
Executive Officer of Tremor, pursuant to Harmony Investments' existing agreement
with Tremor with respect to the registration of up to 600,000 shares of Tremor
Common Stock (before giving effect to the Reverse Split).
SURRENDER AND EXCHANGE OF SHARES OF TREMOR COMMON STOCK
Following the Effective Time, New Systems or its designee shall send to
each Continuing Shareholder of Tremor that does not exercise dissenters' rights
a letter of transmittal requesting each Continuing Shareholder to deliver and
surrender all certificates ("Certificates") representing outstanding shares of
Tremor Common Stock beneficially owned by such Continuing Shareholder to New
Systems to receive in exchange therefor, without cost to the Continuing
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Shareholders, a certificate representing the shares of New Systems Common Stock.
The Certificates so surrendered shall be cancelled by New Systems. Following
surrender of the Certificates, together with a properly completed letter of
transmittal and other related documentation, including the Lock-Up
acknowledgement discussed above, New Systems or its designee shall deliver
certificates representing shares of New Systems Common Stock to the Continuing
Shareholders of Tremor. The share certificates representing the Lock-Up Shares
shall bear an appropriate legend stating that such shares are subject to the
Lock-Up.
TREATMENT OF STOCK OPTIONS
As of the Effective Time, all options to purchase shares of Tremor
Common Stock issued pursuant to Tremor's stock option plans or otherwise (the
"Options"), and any other securities of Tremor convertible into, and other
derivative securities exercisable for, shares of Tremor Common Stock (together
with the Options, "Convertible Securities"), which are outstanding immediately
prior to the Effective Time, whether vested or unvested, shall be assumed by New
Systems. At the Effective Time, each such Option shall be deemed to constitute
an option to acquire, on the same terms and conditions as were applicable under
such Option at the Effective Time, such number of shares of New Systems Common
Stock as is equal to the number of shares of Tremor Common Stock subject to the
unexercised portion of such Option multiplied by the Exchange Ratio (with any
fraction resulting from such multiplication to be rounded down to the near whole
number.) The exercise price per share of each Option shall be equal to the
exercise price immediately prior to the Effective Time, divided by the Exchange
Ratio (with any fraction resulting from such multiplication to be rounded up to
the nearest whole cent.)
DIRECTORS AND OFFICERS; ARTICLES OF INCORPORATION AND BYLAWS FOLLOWING THE
MERGER
Under the terms of the Merger Agreement, upon consummation of the
Merger, the directors and officers of Tremor immediately prior to the Effective
Time will be the directors and officers of the Surviving Corporation from and
after the Effective Time. The Directors of New Systems shall be Steven Oshinsky,
Karl Flowers and Martin Eric Weisberg. Steven Oshinsky shall be Chairman of the
Board of Directors of New Systems. The existing officers of Tremor shall be the
officers of New Systems.
The articles of incorporation of Tremor in effect immediately prior to
the Effective Time will be the articles of incorporation of the Surviving
Corporation from and after the Effective Time. Immediately after the Merger, the
articles of incorporation of New Systems will be amended to change its name to
"Tremor Entertainment Inc.", and the articles of incorporation of the Surviving
Corporation will be amended to change its name to "Tremor Games Inc."
The bylaws of Acquisition in effect immediately prior to the Effective
Time will be the bylaws of the Surviving Corporation from and after the
Effective Time. The bylaws of New Systems in effect immediately prior to the
Effective Time will be unchanged from and after the Effective Time.
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REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain representations and warranties of
Tremor, Acquisition and New Systems. The representations of Tremor relate to,
among other things, its organization, capitalization, power and authority to
enter into the Merger Agreement and the related documents to be executed and
delivered by Tremor, that the Merger Agreement is a valid and binding obligation
of Tremor, the absence of violations or conflicts with corporate documents and
agreements of Tremor with respect to the transactions contemplated by the Merger
Agreement, compliance with laws, Tremor's financial statements, required
consents, absence of litigation, material contracts and taxes. The
representations of Acquisition and New Systems relate to, among other things,
organization of Acquisition and New Systems, capitalization of Acquisition and
New Systems, the due authorization and valid issuance of the New Systems Common
Stock that is issued and outstanding, as well as the due authorization and valid
issuance of the New Systems Common Stock to be issued in the Merger, the power
and authority to enter into the Merger Agreement and related documents to be
executed and delivered by Acquisition or New Systems with respect to the Merger
Agreement, that the Merger Agreement and the related documents are valid and
binding obligations of Acquisition and New Systems, the absence of violations of
or conflicts with corporate documents and agreements of Acquisition and New
Systems, compliance with Securities and Exchange Commission ("SEC") filing
requirements and applicable laws, absence of litigation, title to assets,
material contracts, taxes, and absence of notification with respect to any
actual or alleged violation or non-compliance relating to the listing or
quotation of the New Systems Common Stock on the OTC Bulletin Board.
COVENANTS
TAXES
Tremor, Acquisition and New Systems have agreed that no party shall
take any action either prior to or after Closing that results in the Merger
failing to qualify as a "reorganization" within the meaning of Section 368 of
the Code.
REQUIRED CONSENTS
Tremor shall obtain all Tremor Required Consents and New Systems shall
obtain all New Systems Required Consents on or prior to the Closing Date.
ACCESS TO INFORMATION; CONFIDENTIAL INFORMATION
Tremor and New Systems will provide each other, and the other's
representatives, reasonable access, upon prior notice to, and approval by, the
other party, to its properties, books, records and, personnel during the period
prior to the Effective Time to obtain information concerning its business as the
other party may reasonably request. Each party shall at all times hold in the
strictest confidence and not disclose to any other person or entity, directly or
indirectly, or make any use of, any Confidential Information disclosed by either
party or its
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representatives, whether before or after the date of the Merger Agreement, in
connection with the transactions contemplated thereby.
THE SPECIAL MEETING
Tremor will take all action necessary in accordance with the CGCL and
Tremor's Articles of Incorporation and By-laws, to call, give notice, convene
and hold the Special Meeting of Tremor's shareholders to vote on the approval
and adoption of the Merger Agreement and to approve the Reverse Split. Tremor
will solicit proxies from its shareholders and will use its best efforts to take
all other action necessary or advisable to secure the vote or consent of its
shareholders required by the CGCL to obtain such approvals.
CONDUCT OF BUSINESS - TREMOR
Tremor shall conduct its business in the ordinary course, consistent
with past practice, and in such a manner that would not result in a material
adverse effect on Tremor. Tremor shall not, except as required by the Merger
Agreement or as is necessary to consummate the transactions contemplated hereby,
and except as New Systems may otherwise consent to in writing: (1) amend its
Articles of Incorporation or By-Laws, or similar governing documents; (2) except
for the issuance to RAMVH of warrants to acquire up to 750,000 shares
(pre-Reverse Split) of Tremor Common Stock in connection with a $250,000 loan to
be made by RAMVH to Tremor, as described below (see "Merger Agreement - Loan to
Tremor"), issue and sell any securities, (3) acquire, sell, lease, transfer or
dispose of any of its properties or assets, except in the ordinary course of
business and consistent with past practice; (4) except as required by applicable
law, change any accounting principle or method or make any election for purposes
of foreign, federal, state or local income taxes; or (5) enter into any
agreement to do, or take, or agree in writing or otherwise to take or consent
to, any of the foregoing actions. In addition, Tremor shall ensure that,
following the Closing, (i) until the first anniversary of the Closing, New
Systems does not sell in excess of 2,000,000 shares of New Systems Common Stock,
or securities convertible or exercisable into, or exchangeable for, shares of
New Systems Common Stock, except for (y) issuances of New Systems Common Stock
for special project financing, as determined by the Board of Directors of New
Systems, and (z) the issuance of stock options pursuant to any employee stock
option plan or similar plan approved by the Board of Directors of New Systems;
(ii) any such permitted sales of New Systems Common Stock for the one year
period following the Closing shall be at a sale price of not less than 50% of
the then-prevailing market price of New Systems Common Stock, and any
conversion, exercise or exchange price of securities convertible or exercisable
into, or exchangeable for shares of New Systems Common Stock shall not be less
than 50% of the then-prevailing market price of New Systems Common Stock; and
(iii) any grant of registration rights in connection with such permitted sales
of New Systems Common Stock during the one year period following the Closing
shall be subject to the following restrictions: (x) no "demand" registration
rights shall be exercisable until the six month anniversary of the Closing Date;
(y) no "piggyback" registration rights shall be triggered by the exercise of
demand registration rights by Harmony Investments, an affiliate of Steven
Oshinsky (the "Harmony Registration Rights"), until the first anniversary of the
Closing Date; and (z) any such grant of demand registration rights shall include
the simultaneous grant of
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"piggyback" registration rights with respect thereto to the purchasers of New
Systems Common Stock under the private placement described below, if
consummated.
CONDUCT OF BUSINESS - NEW SYSTEMS
Prior to the date of Closing, New Systems shall not, except as required
by the Merger Agreement or as is necessary to consummate the transactions as
contemplated in the Merger Agreement, and except as Tremor may otherwise consent
in writing: (1) amend its articles of incorporation or by-laws, or similar
governing documents; (2) issue and sell any securities, other than the issuance
and sale of up to an aggregate of 2,000,000 or more shares of New Systems Common
Stock in one or more private placement transactions prior to the Closing, with
respect to which (i) no "demand" registration rights may be granted and (ii) no
"piggyback" registration rights may be granted in connection with the Harmony
Registration Rights; (3) split, combine or reclassify any shares of its capital
stock, or declare, set aside or pay any dividend or other distribution to any
shareholder or redeem or otherwise acquire any of its securities; (4) acquire,
sell, lease, transfer or dispose of any of its properties or assets except in
the ordinary course of business and consistent with past practice; (5) incur any
indebtedness, obligation or liability of any kind; (6) assume, guarantee,
endorse or otherwise become liable or responsible for any obligations of any
other person; (7) enter into any contract with any Person; (8) engage in any
business or activity of any kind; or (9) enter into any agreement to do, or
take, or agree in writing or otherwise to take or consent to, any of the
foregoing actions.
RULE 14F-1 FILING
New Systems shall, no later than ten (10) days prior to the Closing,
file with the SEC the information statement required by Rule 14f-1 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
shall transmit such information statement to all holders of record of New
Systems Common Stock in accordance with applicable law.
NEW SYSTEMS PRIVATE PLACEMENT
Promptly after the date of the Merger Agreement, New Systems shall
retain one or more designees of Tremor, as exclusive placement agents
(collectively, the "Placement Agent"), to privately place up to 2,000,000 or
more shares of New Systems Common Stock at a sale price per share of not less
that 50% of the then-prevailing market price of New Systems Common Stock (the
"Private Placement"). The net proceeds of the Private Placement (the "Proceeds")
shall be deposited into a special New Systems bank account (the "Special
Account"). The Proceeds so deposited shall be advanced to Tremor promptly upon
the written request of Tremor as needed to fund Tremor's payroll and other
ongoing business operations requirements prior to the Closing in accordance with
Tremor's written request. Any prior advances of Proceeds to Tremor shall be
repaid to New Systems and shall bear interest from the date of termination at
the then-prevailing "prime rate", as published in the "Money Rates" column of
The Wall Street Journal, until paid.
-53-
LOAN TO TREMOR
In accordance with the Merger Agreement, on September 6, 2001, RAMVH
made a loan to Tremor in the amount of $250,000 (the "Loan") bearing interest at
an annual rate of 12% and repayable within 60 days. In consideration for the
Loan, Tremor delivered to RAMVH a three-year warrant to acquire 750,000 shares
of Tremor Common Stock (prior to giving effect to the Reverse Split) at an
exercise price of $0.10 per share.
PUBLIC STATEMENTS
In addition, Tremor and New Systems have further agreed not to issue or
release any press release or any oral or written public announcement concerning
or with respect to the transactions contemplated under the Merger Agreement
without the prior written consent of the other party, unless such announcement
is required by law.
EXCLUSIVITY
From and after the date of the Merger Agreement and unless and until
the Merger Agreement is terminated, neither New Systems nor Tremor shall, and
each party shall ensure that no affiliate of such party nor any other
representative of such party shall, directly or indirectly, encourage, solicit,
initiate or participate in discussions or negotiations with, provide any
information to, receive any proposals or offers from, or enter into any
agreement with, any third party that involves the sale, joint venture or the
other disposition of all or any portion of New Systems or Tremor or their
respective businesses or any merger, consolidation, recapitalization or other
business combination of any kind (each an "Acquisition Transaction") involving
New Systems or Tremor, or enter into any agreement, arrangement or
understanding, formal or informal, written or oral, with respect to any such
Acquisition Transaction. Each party shall promptly notify the other party of any
communication or solicitation received by the notifying party or its
representatives with respect to an Acquisition Transaction.
OTHER ACTIONS
Subject to the terms and conditions provided in the Merger Agreement,
each of the parties has agreed to use its best efforts to take, or cause to be
taken, all actions, to do, or cause to be done, all things and execute and
deliver all such documents, instruments and other papers, as in each case may be
necessary, proper or advisable under applicable laws, or reasonably required in
order to carry out the terms and provisions of the Merger Agreement and to
consummate and make effective the transactions contemplated hereby.
CONDITIONS PRECEDENT TO THE CONSUMMATION OF THE MERGER
The obligation of New Systems to consummate the Merger is subject to
the satisfaction prior of each of the following conditions:
1. The representations and warranties of Tremor contained in the
Merger Agreement shall be true and correct as of the Closing Date except for
such representations and warranties as are made as of a specific date, which
shall be true and correct as of such date;
-54-
2. The covenants and agreements of Tremor contained in the Merger
Agreement and required to be complied with or performed on or prior to the
Closing Date shall have been complied with or performed in all material
respects;
3. New Systems and Acquisition shall have received, each in form
and substance reasonably satisfactory to New Systems and Acquisition, all
consents from any governmental entity or other person or entity that is required
for the consummation of the transactions contemplated under the Merger
Agreement, including without limitation, the Merger;
4. The form and substance of all certificates, consents,
instruments, and other documents delivered to New Systems and Acquisition under
the Merger Agreement shall be reasonably satisfactory to New Systems and
Acquisition and their counsel;
5. Tremor shall have delivered to New Systems: (a) a certificate
dated the Closing Date executed by the President of Tremor stating that the
representations and warranties, and covenants and agreements of Tremor under the
Merger Agreement have been satisfied; (b) a certificate of the Secretary of
Tremor certifying the resolutions duly and validly adopted by the Board and
Tremor's shareholders evidencing the approval of the Merger, and the agreements
to be executed in connection with the Merger accompanied by a certification by
the Secretary as to the results of the vote of the shareholders with respect to
the Merger, the names and signatures of Tremor's officers authorized to sign the
Merger Agreement and the other agreements in connection with the Merger, and the
Articles of Incorporation and By-laws; and (c) good standing certificates from
the Secretary of State of California and any other jurisdiction in which Tremor
is qualified to do business;
6. No law shall be in effect that prohibits any party hereto from
consummating the transactions contemplated hereby;
7. There shall be no order, decree or injunction of a court of
competent jurisdiction or other governmental entity that prevents the
consummation of the Merger and the transactions contemplated under the Merger
Agreement and no proceeding shall have been commenced that threatens to prevent
such transactions;
8. New Systems shall have received written confirmation from the
Secretary of State of the State of California that the Agreement of Merger has
been filed and has become effective; and
9. No material adverse effect with respect to the business of
Tremor shall have occurred between the date of the Merger Agreement and the
Closing Date, with "material adverse effect" defined to mean the termination of
the Tremor's existing product development agreement with Microsoft Corporation.
-55-
The obligation of Tremor to consummate the Merger is subject to the
satisfaction of each of the following conditions:
1. The representations and warranties of New Systems and
Acquisition contained in the Merger Agreement shall be true and correct in all
material respects as of the Closing Date, other than such representations and
warranties as are made as of a specific date, which shall be true and correct in
all material respects as of such date;
2. The covenants and agreements contained in the Merger Agreement
to be complied with or performed by New Systems and Acquisition on or before the
Closing Date shall have been complied with or performed in all material
respects;
3. Tremor shall have received, each in form and substance
reasonably satisfactory to Tremor, all consents from any governmental entity or
other person or entity that is required for the consummation of the transactions
contemplated pursuant to the Merger Agreement, including, without limitation,
the Merger;
4. The form and substance of all certificates, consents,
instruments and other documents delivered to Tremor under the Merger Agreement
shall be reasonably satisfactory in all reasonable respects to Tremor and its
counsel;
5. New Systems shall have delivered to Tremor: (a) a certificate
dated the Closing Date executed by an officer of New Systems stating that the
representations and warranties, and covenants and agreements of New Systems
under the Merger Agreement have been satisfied; (b) a certificate of the
Secretary of New Systems certifying the resolutions duly and validly adopted by
the New Systems Board of Directors and Acquisition evidencing the approval of
the Merger, and the agreements to be executed in connection with the Merger and,
the names and signatures of the officers of New Systems and Acquisition
authorized to sign the Merger Agreement and the other agreements in connection
with the Merger; and (c) the resignation of the directors and executive officers
of New Systems;
6. No law shall be in effect that prohibits any party hereto from
consummating the Merger;
7. There shall be no order, decree or injunction of a court of
competent jurisdiction or other governmental entity that prevents the
consummation of the Merger and the transactions contemplated by the Merger
Agreement and no Proceeding shall have been commenced that threatens to prevent
such transactions;
8. Tremor shall have received assurances that (a) holders of not
more than three percent (3%) of the issued and outstanding shares of Tremor
Common Stock have voted against the Merger and (b) the holders of a majority of
the issued and outstanding shares of Tremor Common Stock, excluding RAM Capital
and its affiliates, have voted in favor of the Merger;
9. Tremor shall have received all requisite consents of its
shareholders necessary to effect the Reverse Split;
-56-
10. Tremor shall have received from each of its shareholders who
have voted in favor of and approved the Merger a written certification to the
effect that: (a) the shares of New Systems Common Stock to be issued to such
shareholder pursuant to the Merger Agreement will be "restricted securities"
within the meaning of Rule 144 of the General Rules and Regulations under the
Securities Act of 1933, as amended (the "Securities Act"); (b) such shareholder
is acquiring its, his or her shares New Systems Common Stock for its, his or her
own account and not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act; (c) such shareholder understands that such
shareholder must bear the economic risk of the investment indefinitely because
its, his or her shares of New Systems Common Stock may not be sold, hypothecated
or otherwise disposed of unless subsequently registered under the Securities Act
and applicable state securities laws or an exemption from registration is
available; and (d) such shareholder is either (i) an "accredited investor," as
that term is defined under Rule 501 of the Securities Act, or (ii) a
sophisticated investor who either (x) has such knowledge and experience in
financial and business matters such that he is capable of evaluating the merits
and risks of this investment in the securities being acquired hereunder, or (y)
has obtained independent professional financial advice sufficient to enable such
shareholder to evaluate the merits and risks of this investment in the
securities being acquired hereunder;
11. Tremor shall have received the opinion of a financial advisor
reasonably acceptable to the Board to the effect that the Exchange Ratio is fair
to the shareholders of Tremor;
12. The current directors of New Systems, or any successor or
replacement directors, shall have continued to serve in such capacities until
the Closing;
13. Tremor shall have received written confirmation from the
Secretary of State of the State of California that (i) the amendment to the
Articles of Incorporation effecting the Reverse Split has been filed with the
Secretary of State of the State of California and (ii) after the filing of the
foregoing amendment, the Agreement of Merger has been filed and has become
effective;
14. No event or events shall have occurred between the date
hereof and the date of the Closing which, individually or in the aggregate,
have, or are reasonably likely to have, a Material Adverse Effect on New
Systems; and
15. Tremor shall have received evidence satisfactory to it that
New Systems has complied with its obligations under Rule 14f-1 and Regulation
14C of the Exchange Act.
TERMINATION
The Merger Agreement may be terminated at any time prior to the
Closing: (1) by the mutual written consent of Tremor and New Systems; (2) by
Tremor, on the one hand, or by New Systems, on the other hand, giving written
notice to such effect to the other party if the Closing shall not have occurred
on or before November 30, 2001, or such later date as the parties shall have
agreed upon in writing prior to the giving of such notice, or (3) by either
Tremor, on the one hand, or by New Systems or Acquisition, on the other hand, in
the event of a material breach by or default of the other party to the Merger
Agreement.
-57-
Upon termination of the Merger Agreement, all obligations of the
parties shall terminate, except for the obligations of each party not to
disclose confidential information of the other party, restrictions on issuance
of public statements (except to the extent required by law) and provisions
relating to certain remedies; PROVIDED, HOWEVER, that no termination shall
relieve Tremor of any liability to New Systems or Acquisition, or relieve New
Systems or Acquisition of any liability to Tremor, by reason of any breach or
default under the Merger Agreement.
AMENDMENT
The Merger Agreement may not be amended unless such amendment is in
writing and signed by or on behalf of the party against whom the amendment is
sought to be enforced.
VOTE REQUIRED FOR APPROVAL OF THE MERGER
The approval and adoption of the Merger Agreement required the
affirmative vote or written consent of at least a majority of the outstanding
shares of New Systems Common Stock.
ACCOUNTING TREATMENT
For accounting and financial reporting purposes, the Merger will be
treated as a reverse purchase. Under accounting principles generally accepted in
the United States of America, the Merger is considered to be a capital
transaction in substance, rather than a business combination. That is, the
Merger is equivalent to the issuance of stock by Tremor for the net monetary
assets of New Systems accompanied by a recapitalization, and is accounted for as
a change in capital structure. Accordingly, the accounting for the Merger is
identical to that resulting from a reverse acquisition, except that no goodwill
is recorded. Under reverse takeover accounting, the post-reverse-acquisition
financial statements of the "legal acquiror" New Systems, are those of the
"legal acquiree", Tremor, meaning the accounting acquiror.
REGULATORY FILINGS AND APPROVALS
New Systems is required, no later than ten (10) days prior to the
consummation of the Merger, to prepare and file with the SEC the information
statement required by Rule 14f-1 promulgated under the Exchange Act, relating to
a change in the majority of directors of New Systems.
Immediately after the consummation of the Merger, New Systems shall
file the Amendment to its Articles of Incorporation to change its corporate name
with the Secretary of State of the State of Nevada.
Tremor does not believe that any material federal or state regulatory
approvals, filings or notices are required by it in connection with the Merger,
other than the filing of the agreement and plan of merger with the Secretary of
State of the State of California, and the filing of an amendment to Tremor's
articles of incorporation to effect the Reverse Split.
RISK THAT THE MERGER WILL NOT BE CONSUMMATED
Consummation of the Merger is subject to certain conditions, including
adoption of the Merger Agreement and approval of the Reverse Split by Tremor's
shareholders. Even though the requisite approval by holders of a majority of the
issued and outstanding shares of New Systems Common Stock has been obtained,
there can be no assurance that the Merger will be consummated.
-58-
ACTION 2
APPROVAL OF AN AMENDMENT TO THE ARTICLES OF INCORPORATION
---------------------------------------------------------
OF NEW SYSTEMS TO CHANGE ITS CORPORATE NAME
-------------------------------------------
The holders of a majority of the issued and outstanding shares of New
Systems Common Stock have approved an amendment to the articles of incorporation
of New Systems (the "Articles of Incorporation") to change New Systems'
corporate name to "Tremor Entertainment Inc."( the "Amendment") after the
consummation of the Merger. The Amendment to the Articles of Incorporation, a
copy of which is attached hereto as Exhibit D, will be filed with the Secretary
of State of the State of Nevada immediately after the consummation of the
Merger.
New Systems' Board of Directors believes that such name change will
more properly reflect the nature of the industry and business operations that
will be conducted by New Systems upon consummation of the Merger.
Immediately after the effective date of the name change, New Systems
will request the assignment of a new CUSIP number from the CUSIP Service Bureau
and a new ticker symbol from the National Association of Securities Dealers
(NASD) in order to commence trading on the OTC Bulletin Board under its new
name. The stockholders of New Systems will not be required to exchange their
outstanding stock certificates for new certificates which reflect New Systems
new name upon consummation of the Merger.
-59-
EXHIBIT A
---------
UNANIMOUS WRITTEN CONSENT
OF THE
BOARD OF DIRECTORS
OF
NEW SYSTEMS, INC.
The undersigned, being the all of the directors of New Systems, Inc., a
Nevada corporation (the "Company"), do hereby adopt the following resolutions by
unanimous written consent, in lieu of a meeting, pursuant to Section 78.315 of
the Nevada Revised Statutes:
WHEREAS, the Company for some time has been seeking to
locate an existing business operation with which the Company
might enter into a merger, acquisition or similar transaction;
and
WHEREAS, the Board of Directors (the "Board") believes
that a possible merger or acquisition target will provide the
Company with more profitable operations than the Company has
historically experienced;
NOW, BE IT THEREFORE,
RESOLVED, that for the reasons set forth
above, the Board believes it is in the best
interests of the Company to enter into an agreement
and plan of merger (the "Merger Agreement"), by and
among the Company, Tremor Entertainment Inc., a
California corporation ("Tremor"), and New Tremor
Acquisition Corp., a California corporation and
wholly-owned subsidiary of the Company
("Acquisition"), a copy of which is attached hereto
as Exhibit A, pursuant to which, Acquisition will be
merged with and into Tremor (the "Merger"), and
Tremor will continue as the surviving corporation in
the Merger and as a wholly-owned subsidiary of the
Company; and it is further
RESOLVED, that pursuant to the Merger
Agreement, the Board hereby authorizes and approves
the exchange and issuance of two thousand (2,000)
shares of common stock, $0.001 par value per share
(the "Common Stock"), of the Company to the
shareholders of Tremor in exchange for each
outstanding share of common stock, without par
value, of Tremor held by such shareholders
immediately prior to the Merger; and it is further
RESOLVED, that the transactions
contemplated by the Merger Agreement, are hereby
authorized and approved in all respects, subject to
the approval of the Merger by the affirmative vote
or written consent of stockholders of the Company
holding at least a majority of the voting power of
the Common Stock; and it is further
RESOLVED, that the Board hereby approves an
amendment to the articles of incorporation of the
Company to change the Company's corporate name to
"Tremor Entertainment Inc." (the "Amendment"), to be
effective immediately after the consummation of the
Merger, subject to the approval of the Amendment by
stockholders of the Company holding at least a
majority of the voting power of the Common Stock and
the filing of the Amendment with the Secretary of
State of the State of Nevada; and it is further
RESOLVED, that the officers of the Company
are each authorized and directed to take any and all
actions they may deem necessary or appropriate to
effect the foregoing resolutions, with the taking of
any such action by such officer or officers to be
deemed conclusive evidence of the approval thereof.
IN WITNESS WHEREOF, the undersigned have executed this Unanimous
Written Consent as of the 21st day of August, 2001.
---------------------------------
Norman Becker
---------------------------------
Frank R. Bauer
---------------------------------
Diane Martini
A-2
EXHIBIT B
---------
WRITTEN CONSENT
OF STOCKHOLDERS
OF
NEW SYSTEMS, INC.
The undersigned, representing by proxy, a majority of all of the issued
and outstanding shares of common stock, par value $0.001 per share (the "Common
Stock"), of New Systems, Inc., a Nevada corporation (the "Company"), do hereby
consent to the adoption of the following resolution by written consent, in lieu
of a meeting, pursuant to Section 78.320 of the Nevada Revised Statutes:
RESOLVED, that the agreement and plan of merger to
be entered into by and among the Company, Tremor
Entertainment Inc., a California corporation ("Tremor"), and
New Tremor Acquisition Corp., a California corporation and
wholly-owned subsidiary of the Company ("Acquisition"), a
copy of which is attached hereto, pursuant to which
Acquisition will be merged with and into Tremor (the
"Merger"), Tremor will continue as the surviving corporation
in the Merger and as a wholly-owned subsidiary of the
Company, and each outstanding share of common stock, without
par value, of Tremor will be converted into two thousand
(2,000) shares of common stock, par value $0.001 per share of
the Company, is hereby authorized and approved.
IN WITNESS WHEREOF, the undersigned have executed this Written
Consent as of the 3rd day of October, 2001.
RAM VENTURE HOLDINGS CORP., as
proxy for Tremor Entertainment Inc. with
respect to 1,500,000 shares of Common Stock
By:/s/
----------------------------------------
Name:
Title:
KM FINANCIAL, INC., as proxy for Tremor
Entertainment Inc. with respect to 300,000
shares of Common Stock
By: /s/
----------------------------------------
Name:
Title:
EXHIBIT C
---------
AGREEMENT AND PLAN OF MERGER
================================================================================
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NEW SYSTEMS, INC.,
NEW TREMOR ACQUISITION CORP.
AND
TREMOR ENTERTAINMENT INC.
DATED AS OF AUGUST 21, 2001
================================================================================
TABLE OF CONTENTS
Page
----
ARTICLE I CERTAIN DEFINITIONS........................................................................1
1.1 Certain Definitions..................................................................1
ARTICLE II THE MERGER................................................................................5
2.1 The Merger...........................................................................5
2.2 Consummation of the Merger...........................................................5
2.3 Charter; Bylaws; Directors and Officers..............................................6
2.4 Effect of the Merger.................................................................6
2.5 The Closing..........................................................................6
2.6 Further Assurances...................................................................6
ARTICLE III CONVERSION OF SHARES.....................................................................6
3.1 Conversion of Shares.................................................................6
3.2 Stock Options, Warrants, Rights, Treasury Shares, Etc................................7
3.3 Surrender and Exchange of Shares.....................................................8
3.4 Conversion of Acquisition Stock......................................................8
3.5 Cancellation of New Systems Common Stock Owned by Tremor.............................8
3.6 Lock-Up..............................................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TREMOR..................................................9
4.1 Organization.........................................................................9
4.2 Capitalization.......................................................................9
4.3 Authorization; Validity of Agreement................................................10
4.4 No Violations; Consents and Approvals...............................................10
4.5 Financial Statements................................................................11
4.6 No Brokers..........................................................................11
4.7 Litigation; Compliance with Law; Licenses and Permits...............................11
4.8 Employee Benefit Plans; ERISA.......................................................12
4.9 Material Contracts..................................................................12
4.10 Taxes...............................................................................13
4.11 No Misstatements or Omissions.......................................................13
ARTICLE V REPRESENTATIONS AND WARRANTIES OF NEW SYSTEMS AND ACQUISITION.............................14
5.1 Organization........................................................................14
5.2 Capitalization......................................................................14
5.3 New Systems Common Stock............................................................15
5.4 Authorization; Validity of Agreement................................................15
5.5 No Violations; Consents and Approvals...............................................15
i
Table of Contents
-----------------
(continued)
Page
----
5.6 SEC Filings.........................................................................16
5.7 Litigation; Compliance with Law; Licenses and Permits...............................17
5.8 Employee Benefit Plans..............................................................17
5.9 Title to Assets.....................................................................17
5.10 Contracts...........................................................................17
5.11 Taxes...............................................................................18
5.12 Affiliated Party Transactions.......................................................18
5.13 No Brokers..........................................................................18
5.14 OTC Listing.........................................................................18
5.15 No Prior Activities of Acquisition..................................................18
5.16 No Misstatements or Omissions.......................................................18
ARTICLE VI OTHER AGREEMENTS OF THE PARTIES..........................................................19
6.1 Taxes...............................................................................19
6.2 Access to Information; Non-Disclosure of Confidential Information...................19
6.3 Public Statements...................................................................20
6.4 Other Actions.......................................................................20
6.5 Required Consents...................................................................20
6.6 Tremor Shareholders Meeting.........................................................20
6.7 Exclusivity.........................................................................20
6.8 Conduct of Business - Tremor........................................................21
6.9 Conduct of Business - New Systems...................................................22
6.10 Rule 14f-1 Filing...................................................................23
6.11 Information Statement...............................................................23
6.12 New Systems Private Placement.......................................................23
6.13 Loan to Tremor......................................................................23
ARTICLE VII CONDITIONS PRECEDENT TO THE CLOSING.....................................................24
7.1 Conditions Precedent to New Systems' Obligations to Close...........................24
7.2 Conditions Precedent to Tremor's Obligation to Close................................25
ARTICLE VIII DOCUMENTS TO BE DELIVERED AT THE CLOSING...............................................27
8.1 Deliveries of Tremor................................................................27
8.2 Deliveries of New Systems...........................................................27
ARTICLE IX TERMINATION MATTERS......................................................................28
9.1 Termination.........................................................................28
ii
Table of Contents
-----------------
(continued)
Page
----
ARTICLE X MISCELLANEOUS.............................................................................28
10.1 Non-Survival of Representations, Warranties and Agreements..........................28
10.2 Notices.............................................................................29
10.3 Amendment...........................................................................30
10.4 Waiver..............................................................................30
10.5 Governing Law.......................................................................30
10.6 Jurisdiction........................................................................30
10.7 Remedies............................................................................30
10.8 Severability........................................................................31
10.9 Assignment..........................................................................31
10.10 Binding Effect......................................................................31
10.11 No Third Party Beneficiaries........................................................31
10.12 Entire Agreement....................................................................31
10.13 Headings............................................................................31
10.14 Counterparts........................................................................31
iii
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger, dated as of August 21, 2001 (this
"Agreement"), by and among New Systems, Inc., a Nevada corporation ("New
Systems"), New Tremor Acquisition Corp., a California corporation
("Acquisition"), and Tremor Entertainment Inc., a California corporation
("Tremor").
RECITALS
--------
A. This Agreement contemplates a transaction in which Acquisition, a
wholly-owned subsidiary of New Systems, will merge with and into Tremor and, as
a result of the Merger (as hereinafter defined), Tremor will continue as the
surviving corporation and the separate existence of Acquisition shall cease. As
a result of the Merger, at the Effective Time (as hereinafter defined), all of
the outstanding shares of the common stock, no par value, of Tremor held by
shareholders of Tremor (the "Tremor Shareholders") shall be converted into the
right to receive shares of common stock, par value $.001 per share, of New
Systems on the terms and conditions set forth herein.
B. The Boards of Directors of New Systems, Acquisition and Tremor have
each determined that the Merger is in the best interests of their respective
companies and shareholders, as the case may be, and have each duly adopted
resolutions approving this Agreement and the transactions contemplated hereby
subject, in the case of Tremor, to approval by the Tremor Shareholders. In
accordance with the foregoing, Acquisition desires to merge with and into Tremor
upon and subject to the terms and conditions set forth below.
C. It is intended that the Merger constitute a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations promulgated thereunder and that this Agreement
shall constitute a "plan of reorganization" for purposes of the Code.
Therefore, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
AGREEMENTS
----------
ARTICLE I
CERTAIN DEFINITIONS
-------------------
1.1 Certain Definitions. The terms defined in this Section 1.1,
whenever used in this Agreement (including, without limitation, the exhibits and
schedules attached hereto), shall have the following meanings:
"Acquisition" has the meaning given to such term in the Introduction of
this Agreement.
"Acquisition Transaction" has the meaning given to such term in Section
6.7 of this Agreement.
"Affiliate" means, with respect to any Person, an entity controlling,
controlled by or under common control with that Person.
"Agreement" has the meaning given to such term in the Introduction of
this Agreement.
"Agreement of Merger" has the meaning given to such term in Section 2.2
of this Agreement.
"Certificates" has the meaning given to such term in Section 3.3(a) of
this Agreement.
"CGCL" has the meaning given to such term in Section 2.1 of this
Agreement.
"Closing" has the meaning given to such term in Section 2.6 of this
Agreement.
"Closing Date" has the meaning given to such term in Section 2.6 of
this Agreement.
"Code" has the meaning given to such term in the Recitals of this
Agreement.
"Confidential Information" has the meaning given to such term in
Section 6.2(b) of this Agreement.
"Consent" has the meaning given to such term in Section 4.4(b) of this
Agreement.
"Contract" has the meaning given to such term in Section 4.4 of this
Agreement.
"Effective Time" has the meaning given to such term in Section 2.2 of
this Agreement.
"ERISA" has the meaning given to such term in Section 4.9(a) of this
Agreement.
"Exchange Act" has the meaning given to such term in Section 5.6(a) of
this Agreement.
"Exchange Ratio" has the meaning given to such term in Section 3.1(a)
of this Agreement.
"Financial Reports" has the meaning given to such term in Section
4.5(a) of this Agreement.
"GAAP" has the meaning given to such term in Section 4.5(b) of this
Agreement.
"Governmental Entity" has the meaning given to such term in Section
4.4(b) of this Agreement.
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"Investor Representation Letters" has the meaning given to such term in
Section 7.2(j) of this Agreement.
"IRS" has the meaning given to such term in Section 4.9(b) of this
Agreement.
"Laws" has the meaning given to such term in Section 4.8(b) of this
Agreement.
"License" has the meaning given to such term in Section 4.8(c) of this
Agreement.
"Liens" means any liens, charges, options, rights of first refusal,
security interests, claims, mortgages, pledges, or any other encumbrances, or
third party rights or equitable interests of any nature whatsoever.
"Material Adverse Effect" means, with respect to an entity, any change,
event, violation, circumstance or effect that (a) is materially adverse to the
business, assets, liabilities, condition (financial or otherwise), results of
operations or prospects of such entity or (b) could reasonably be expected to
have a material adverse effect on such entity's ability to consummate the Merger
or to perform its obligations hereunder.
"Material Contracts" has the meaning given to such term in Section
4.12(a) of this Agreement.
"Merger" has the meaning given to such term in Section 2.1 of this
Agreement.
"New Systems" has the meaning given to such term in the Introduction of
this Agreement.
"New Systems Common Stock" has the meaning given to such term in
Section 3.1(a) of this Agreement.
"New Systems Financial Statements" has the meaning given to such term
in Section 5.6(b) of this Agreement.
"New Systems Required Consents" has the meaning given to such term in
Section 5.5(b) of this Agreement.
"New Systems Schedule" has the meaning given to such term in Section
5.1 of this Agreement.
"New Systems SEC Reports" has the meaning given to such term in Section
5.6(a) of this Agreement.
"New Systems Transaction Documents" has the meaning given to such term
in Section 5.4 of this Agreement.
"Person" shall mean any individual, corporation (including any
non-profit corporation), general partnership, limited partnership, limited
liability partnership, joint
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venture, estate, trust, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization, or
entity.
"Plans" has the meaning given to such term in Section 4.9(a) of this
Agreement.
"Proceeding" has the meaning given to such term in Section 4.7(a) of
this Agreement.
"Reverse Split" has the meaning given to such term in Section 6.6(a) of
this Agreement.
"SEC" has the meaning given to such term in Section 5.6(a) of this
Agreement.
"Securities Act" has the meaning given to such term in Section 5.6(a)
of this Agreement.
"Shareholders Meeting" has the meaning given to such term in Section
6.6(a) of this Agreement.
"Surviving Corporation" has the meaning given to such term in Section
2.1 of this Agreement.
"Tax" shall mean any tax, charge, fee, levy, deficiency or other
assessment of whatever kind or nature including, without limitation, any net
income, gross income, profits, gross receipts, excise, real or personal
property, sales, ad valorem, withholding, social security, retirement, excise,
employment, unemployment, minimum, estimated, severance, stamp, property,
occupation, environmental, windfall profits, use, service, net worth, payroll,
franchise, license, gains, customs, transfer, recording and other tax, duty,
fee, assessment or charge of any kind whatsoever, imposed by any Tax Authority,
including, without limitation, any liability therefor as a transferee
(including, without limitation, under Code Section 6901 or any similar provision
of applicable law), as a result of Treas. Reg. ss.1.1502-6 or any similar
provision of applicable law, or as a result of any tax sharing or similar
agreement, together with any interest, penalties or additions to tax relating
thereto;
"Tax Authority" shall mean any branch, office, department, agency,
instrumentality, court, tribunal, officer, employee, designee, representative,
or other Person that is acting for, on behalf or as a part of any foreign or
domestic government (or any political subdivision thereof) that is engaged in or
has any power, duty, responsibility or obligation relating to the legislation,
promulgation, interpretation, enforcement, regulation, monitoring, supervision
or collection of or any other activity relating to any Tax or Tax Return; and
"Tax Return" shall mean any return, election, declaration, report,
schedule, information return, document, statement, or any amendment to any of
the foregoing (including, without limitation, any consolidated, combined or
unitary return) submitted or required to be submitted to any Tax Authority.
"Tremor" has the meaning given to such term in the Introduction of this
Agreement.
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"Tremor Amended Articles of Incorporation" has the meaning given to
such term in Section 4.1 of this Agreement.
"Tremor Capital Stock" has the meaning given to such term in Section
4.2(a) of this Agreement.
"Tremor Common Stock" has the meaning given to such term in Section
3.1(a) of this Agreement.
"Tremor Convertible Securities" has the meaning given to such term in
Section 3.2(a) of this Agreement.
"Tremor Options" has the meaning given to such term in Section 3.2(a)
of this Agreement.
"Tremor Preferred Stock" has the meaning given to such term in Section
4.2(a) of this Agreement.
"Tremor Required Consents" has the meaning given to such term in
Section 4.4(b) of this Agreement.
"Tremor Schedule" has the meaning given to such term in Section 4.1 of
this Agreement.
"Tremor Shareholders" has the meaning given to such term in the
Recitals of this Agreement.
"Tremor Transaction Documents" has the meaning given to such term in
Section 4.3 of this Agreement.
ARTICLE II
THE MERGER
----------
2.1 The Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time (as hereinafter defined), in accordance with the terms and
conditions of this Agreement and in accordance with Chapter 12 of the California
General Corporation Law (the "CGCL"), Acquisition shall be merged with and into
Tremor (the "Merger"), with Tremor being the surviving corporation (the
"Surviving Corporation").
2.2 Consummation of the Merger. The Merger shall become effective upon
the filing with the Secretary of State of the State of California of a properly
executed Agreement of Merger in a form mutually acceptable to the parties and
their counsel (the "Agreement of Merger") on the Closing Date (as hereinafter
defined). The Merger shall be effective when the Agreement of Merger has been
filed or at such later time as may be agreed in writing by New Systems and
Tremor and specified in the Agreement of Merger. The date and time when the
Merger is effective is referred to in this Agreement as the "Effective Time."
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2.3 Charter; Bylaws; Directors and Officers.
(a) The Articles of Incorporation of Tremor in effect immediately prior
to the Effective Time shall be the Articles of Incorporation of the Surviving
Corporation from and after the Effective Time.
(b) The Bylaws of Acquisition in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation from and after
the Effective Time.
(c) The directors and officers of Tremor immediately prior to the
Effective Time shall be the directors and officers of the Surviving Corporation
on and after the Effective Time, in each case until their respective successors
are duly elected and qualified.
2.4 Effect of the Merger. At the Effective Time and without any action
of Acquisition, the effect of the Merger shall be as provided in this Agreement
and the applicable provisions of the CGCL. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all of the property,
rights, privileges, powers, and franchises of Tremor and Acquisition shall vest
in the Surviving Corporation, and all debts, liabilities and duties of Tremor
and Acquisition shall become the debts, liabilities and duties of the Surviving
Corporation.
2.5 The Closing. The consummation of the Merger and the other
transactions contemplated by this Agreement (the "Closing") shall take place a
location mutually agreeable to the parties at 10:00 a.m., local time, within two
(2) business days following the satisfaction of all closing conditions contained
herein, but in no event later than November 30, 2001, unless otherwise agreed to
by the parties in writing. The date on which the Closing occurs is referred to
as the "Closing Date."
2.6 Further Assurances. On and after the Effective Time, each of the
parties to this Agreement shall, from time to time, at the request of any of the
other parties, promptly execute such certificates, instruments and other
documents and take such other actions as the requesting party may reasonably
request to evidence or implement the transactions contemplated by this
Agreement.
ARTICLE III
CONVERSION OF SHARES
--------------------
3.1 Conversion of Shares.
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of the holder thereof, and after giving effect to the Reverse
Split described in Section 6.6(a) hereof, each share of common stock, no par
value, of Tremor ("Tremor Common Stock") that is issued and outstanding
immediately prior to the Effective Time shall be automatically converted into
the right to receive, and shall be exchangeable for, 2,000 fully paid and
non-assessable shares (the "Exchange Ratio") of common stock, par value $.001
per share, of New Systems ("New Systems Common Stock"); PROVIDED,
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HOWEVER, that each share of Tremor Common Stock that is held in the treasury of
Tremor shall not be so converted but shall be canceled and extinguished. Any
fractional shares resulting from the foregoing conversion shall be rounded up or
down, as the case may be, to the nearest whole share of New Systems Common
Stock.
(b) If, between the date hereof and the Effective Time, either New
Systems or Tremor (i) except for the Reverse Split, recapitalizes either through
a split-up of its outstanding shares into a greater number of shares or through
a combination of its outstanding shares into a lesser number of shares, (ii)
reorganizes, reclassifies or otherwise changes its outstanding shares into the
same or a different number of shares of other classes (other than through a
split-up or combination of shares provided for in the previous clause), or (iii)
declares a dividend on its outstanding shares payable in shares or securities
convertible into shares, the calculation of the Exchange Ratio will be adjusted
appropriately.
(c) If any shares of Tremor Common Stock that are outstanding
immediately prior to the Effective Time are unvested or are subject to a
repurchase option, risk of forfeiture or other condition providing that such
shares may be forfeited or repurchased by Tremor upon any termination of a
Person's shareholder, employment, directorship or other relationship with Tremor
(and/or any affiliate of Tremor), as the case may be, under the terms of any
restricted stock purchase agreement or other agreement with Tremor that does not
by its terms provide that such repurchase option, risk of forfeiture or other
condition lapses upon consummation of the Merger, then the shares of New Systems
Common Stock issued upon the conversion of such shares of Tremor Common Stock in
the Merger shall, subject to compliance with applicable laws, continue to be
unvested and subject to the same repurchase options, risks of forfeiture or
other conditions following the Effective Time, and the certificates representing
such New Systems Common Stock may accordingly be marked with appropriate legends
noting such repurchase options, risks of forfeiture or other conditions. Tremor
shall take all action that may be necessary to ensure that, from and after the
Effective Time, New Systems is entitled to exercise any such repurchase option
or other right set forth in any such restricted stock purchase agreement or
other agreement.
3.2 Stock Options, Warrants, Rights, Treasury Shares, Etc.
(a) As of the Effective Time, all options to purchase shares of Tremor
Common Stock issued by Tremor pursuant to its stock option plans or otherwise
which are outstanding immediately prior to the Effective Time ("Tremor Options")
and all warrants to purchase shares of Tremor Common Stock and any other
securities convertible into shares of Tremor Common Stock which are outstanding
immediately prior to the Effective Time set forth in Schedule 3.2(a) of the
Tremor Schedule (together with the Tremor Options, "Tremor Convertible
Securities"), whether vested or unvested, shall be assumed by New Systems. At
the Effective Time, each such Option shall be deemed to constitute an option to
acquire, on the same terms and conditions as were applicable under such Option
at the Effective Time, such number of shares of New Systems Common Stock as is
equal to the number of shares of Tremor Common Stock subject to the unexercised
portion of such Option multiplied by the Exchange Ratio (with any fraction
resulting from such multiplication to be rounded down to the nearest whole
number). The exercise price per share of each such assumed Option shall be equal
to the exercise price of such Option
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immediately prior to the Effective Time, divided by the Exchange Ratio (with any
fraction resulting from such multiplication to be rounded up to the nearest
whole cent). The term, exercisability, vesting schedule, status as an "incentive
stock option" under Section 422 of the Code, if applicable, and all of the other
terms of the Options shall otherwise remain unchanged.
(b) New Systems shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of New Systems Common Stock for
delivery upon exercise of the Tremor Convertible Securities assumed in
accordance with this Section 3.2.
3.3 Surrender and Exchange of Shares.
(a) Within thirty (30) days following the Effective Time, New Systems
or its designee, with the cooperation and assistance of the current officers and
directors of New Systems, shall cause to be sent to each Tremor Shareholder a
letter of transmittal requesting that each Tremor Shareholder deliver and
surrender all certificates ("Certificates") representing outstanding shares of
Tremor Common Stock beneficially owned by such Tremor Shareholder to New Systems
and, upon receipt by New Systems of such Certificates, each Tremor Shareholder
shall be entitled to receive in exchange therefor, without cost to them,
certificates representing the shares of New Systems Common Stock to which they
are entitled under Section 3.1(a), and the Certificate or Certificates so
surrendered in exchange for such consideration shall forthwith be cancelled by
New Systems.
(b) Within thirty (30) days following a Tremor Shareholder's surrender
for cancellation of Certificates representing Tremor Common Stock pursuant to
Section 3.3(a) above, together with a properly completed letter of transmittal
and related documentation, New Systems or its designee shall deliver to the
Tremor Shareholder the certificates representing shares of New Systems Common
Stock.
3.4 Conversion of Acquisition Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of the holder thereof, each
share of Acquisition common stock that is issued and outstanding immediately
prior to the Effective Time will be converted into one validly issued, fully
paid and non-assessable share of common stock of the Surviving Corporation.
3.5 Cancellation of New Systems Common Stock Owned by Tremor.
Immediately prior to the Effective Time, the 1,800,000 shares of New Systems
Common Stock owned by Tremor on the date hereof shall be cancelled.
3.6 Lock-Up. Each Tremor Shareholder receiving shares of New Systems
Common Stock pursuant to the Merger (such shares of New Systems Common Stock
referred to as "Lock-Up Shares") shall not be permitted to publicly sell, or
otherwise publicly dispose of, transfer, pledge, hypothecate, assign or
otherwise transfer, any Lock-Up Shares until the first anniversary of the
Effective Date (the "Lock-Up"), PROVIDED, HOWEVER, that the Lock-Up shall not
apply to any sale of New Systems Common Stock by Harmony Investments pursuant to
its existing agreement with Tremor with respect to the registration of up to
600,000 shares of Tremor Common Stock (before giving effect to the Reverse Split
described in Section 6.6(a) hereof) (the "Harmony Registration Rights"). The
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share certificates representing the Lock-Up Shares shall bear an appropriate
legend stating that such shares are subject to the Lock-Up set forth in this
Section 3.6.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TREMOR
----------------------------------------
Tremor represents and warrants to New Systems and Acquisition as
follows:
4.1 Organization. Tremor is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
the requisite corporate power and authority to carry on its business as it is
presently being conducted. Tremor is duly qualified or licensed to do business
as a foreign corporation, and is in good standing, in each jurisdiction in which
the nature of its business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary, except for those
jurisdictions where the failure to be so qualified or licensed, or to be in good
standing, individually, or in the aggregate, would not have a Material Adverse
Effect on Tremor. Tremor has previously delivered to New Systems true, complete
and correct copies of its Articles of Incorporation and Bylaws, as currently in
effect, together with the form of amendment to Tremor's Articles of
Incorporation to be filed by Tremor with the Secretary of State of the State of
California immediately prior to the Effective Time (the "Tremor Amended Articles
of Incorporation"), copies of which are annexed to Section 4.1 of the disclosure
schedule of Tremor, dated the date hereof and accompanying this Agreement (the
"Tremor Schedule").
4.2 Capitalization.
(a) The authorized capital stock of Tremor consists of 120,000,000
shares, of which (i) 100,000,000 shares are classified as common stock, without
par value ("Tremor Common Stock"), of which 14,658,033 shares are issued and
outstanding on the date hereof, and (ii) 20,000,000 are classified as preferred
stock, without par value ("Tremor Preferred Stock" and, together with the Tremor
Common Stock, the "Tremor Capital Stock"), of which 6,000,000 shares of Series A
Convertible Preferred Stock, without par value (Series A Preferred Stock"), are
issued and outstanding on the date hereof, which 6,000,000 shares of Series A
Preferred Stock are convertible into an aggregate of 30,000,000 shares of Tremor
Common Stock. The shares of Tremor Capital Stock are the only shares of capital
stock of Tremor that are issued and outstanding, and all of the shares of Tremor
Capital Stock are owned of record and beneficially by the Tremor Shareholders in
the amounts set forth in Section 4.2(a) of the Tremor Schedule. Immediately
prior to the Effective Time, all shares of Tremor Preferred Stock shall have
been converted into shares of Tremor Common Stock in accordance with the
provisions of Section 3.2(c) hereof and Tremor's Articles of Incorporation. All
of the shares of Tremor Capital Stock are duly authorized, validly issued, fully
paid and non-assessable. Except for outstanding options to acquire an aggregate
of 2,648,935 shares of Tremor Common Stock and warrants to acquire an aggregate
of 889,208 shares of Tremor Common Stock, as set forth in Section 4.2(a) of the
Tremor Schedule, there are no (i) options, warrants, calls, preemptive rights,
subscriptions or other rights, convertible securities, or securities convertible
into or exchangeable for equity interests of Tremor, agreements or commitments
of any character obligating Tremor to issue, transfer or sell any shares of
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capital stock, options, warrants, calls or other equity interests of any kind
whatsoever in Tremor or securities convertible into or exchangeable for such
shares or equity interests, (ii) contractual obligations of Tremor to
repurchase, redeem or otherwise acquire any capital stock of, or equity interest
in, Tremor or (iii) voting trusts, proxies or similar agreements to which Tremor
is a party with respect to the voting of the capital stock of Tremor.
Accordingly, on the date hereof, without giving effect to the Reverse Split
described in Section 6.6(a) hereof, 48,196,176 shares of Tremor Common Stock are
outstanding on a fully diluted basis.
(b) Tremor does not own any outstanding shares of capital stock (or
other equity interests of entities other than corporations) of any partnership,
joint venture, trust, corporation, limited liability company or other entity.
4.3 Authorization; Validity of Agreement. Tremor has the corporate
power and authority to execute, deliver and perform this Agreement and each of
the other agreements, instruments, documents and certificates executed or to be
executed and delivered by Tremor pursuant to this Agreement (collectively, with
this Agreement, the "Tremor Transaction Documents") and to consummate the
transactions contemplated hereby and thereby, including, without limitation, the
Merger, subject to approval of the Merger by the Tremor Shareholders. Each of
this Agreement and the other Tremor Transaction Documents has been duly executed
and delivered by Tremor and, subject to approval of the Merger by the Tremor
Shareholders, constitutes the legal, valid and binding obligation of Tremor,
enforceable against Tremor in accordance with its respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights and by
equitable principles of general application which may limit the availability of
certain remedies such as specific performance. The execution, delivery and
performance by Tremor of the Tremor Transaction Documents and the consummation
of the transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of Tremor and, other than the approval of the Merger by
the Tremor Shareholders, no other corporate proceedings are necessary to
authorize the execution, delivery and performance by Tremor of the Tremor
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby, including, without limitation, the Merger.
4.4 No Violations; Consents and Approvals.
(a) The execution, delivery and performance of this Agreement and of
the other Tremor Transaction Documents by Tremor do not, and the consummation by
Tremor of the transactions contemplated hereby will not, (i) violate or conflict
with any provision of the Articles of Incorporation or Bylaws of Tremor, (ii)
violate, conflict with, result in a breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, guarantee,
other evidence of indebtedness, license, lease, option, contract, undertaking,
understanding, covenant, agreement or other instrument or document
(collectively, a "Contract") material to the business of Tremor to which Tremor
is a party or by which Tremor or any of its properties or assets is bound or
otherwise subject, except for such items referred to as Tremor Required
Consents, as hereinafter defined and set forth in Section 4.4(b) of the Tremor
Schedule, or (iii) to the knowledge of Tremor, violate any Law
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applicable to Tremor or any of its properties or assets, except, in the case of
(ii) and (iii), those that would not have a Material Adverse Effect on Tremor.
(b) To the knowledge of Tremor, no filing or registration with,
notification to, or authorization, consent or approval of, any legislative or
executive agency or department or other regulatory service, authority or agency
or any court, arbitration panel or other tribunal or judicial authority of any
foreign, provincial, United States federal, state, county, municipal or other
local jurisdiction, political entity, body, organization, subdivision or branch
(a "Governmental Entity") or any other Person is required in connection with the
execution, delivery and performance of this Agreement or the other Tremor
Transaction Documents by Tremor or the consummation by Tremor of the
transactions contemplated hereby and thereby, except for (i) the filing of the
Agreement of Merger with the Secretary of State of the State of California and
(ii) such consents, approvals, orders, authorizations, notifications, notices,
estoppel certificates, releases, registrations, ratifications, declarations,
filings, waivers, exemptions or variances (individually, a "Consent" and
collectively, "Consents") with respect to any License or Law as are set forth in
Section 4.4(c) of the Tremor Schedule (the "Tremor Required Consents"), and
except where the failure to obtain such Consents could not, individually or in
the aggregate, have a Material Adverse Effect on Tremor, prevent the
consummation of the Merger or otherwise prevent the parties from performing
their obligations under this Agreement.
4.5 Financial Statements.
(a) Section 4.5(a) of the Tremor Schedule sets forth the audited
balance sheets of Tremor as of March 31, 1999, March 31, 2000 and March 31,
2001, together with the related audited consolidated statements of income and
cash flows for each of the twelve (12) month periods then ended, and the notes
thereto (collectively, the "Financial Reports").
(b) Except as set forth in the notes thereto, if any, each of the
Financial Reports, together with the notes thereto, have been prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis ("GAAP"), with allowances established consistent with GAAP and
set forth on such Financial Reports, and fairly present in all material respects
the financial position of Tremor at the respective dates thereof and the results
of its operations, cash flows and stockholders' equity for each of the periods
than ended.
4.6 No Brokers. Tremor has not employed, or otherwise engaged, any
broker or finder or incurred any liability for any brokerage or investment
banking fees, commissions, finders' fees or other similar fees in connection
with the transactions contemplated by this Agreement.
4.7 Litigation; Compliance with Law; Licenses and Permits.
(a) There is no claim, suit, action, investigation, arbitration,
alternative dispute resolution proceeding or other proceeding (collectively, a
"Proceeding") pending, nor, to the knowledge of Tremor, is there any Proceeding
threatened, against Tremor, or which in any way relates to the Merger or the
transactions contemplated hereby, by or before any Governmental Entity, court,
arbitration panel or any other Person that,
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if adversely determined, would have a Material Adverse Effect on Tremor or
materially and adversely affect the consummation of the transactions
contemplated hereby.
(b) Tremor has, and on the Closing Date will have, complied with all
applicable criminal, civil or common laws, statutes, ordinances, orders, codes,
rules, regulations, policies, guidance documents, writs, judgments, decrees,
injunctions, or agreements of any Governmental Entity (collectively, "Laws"),
except those where the failure to comply with such Laws could not, individually
or in the aggregate, have a Material Adverse Effect on Tremor. Tremor has not
received any written notice of any violation of any Law.
(c) Tremor has obtained every license, permit, certification,
qualification or franchise issued by any Governmental Entity (each, a "License")
that is required or necessary for Tremor to conduct its business as presently
conducted, and all such Licenses are in full force and effect, except where the
failure to obtain such License could not, individually or in the aggregate, have
a Material Adverse Effect on Tremor. The applicability and validity of each such
License will not be adversely affected by the Merger and the consummation of the
transactions contemplated by this Agreement.
4.8 Employee Benefit Plans; ERISA.
(a) Section 4.8 of the Tremor Schedule lists each "employee benefit
plan" (as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974 ("ERISA")), and all other material employee benefit (including, without
limitation, any non-qualified plans), bonus, deferred compensation, incentive,
stock option (or other equity-based), severance, change-in-control, medical
insurance and fringe benefit plans maintained or contributed to by Tremor or any
trade or business, whether or not incorporated, that, together with Tremor,
would be deemed a "single employer" within the meaning of Section 4001 of ERISA
(collectively, "Plans"), for the benefit of any employee or former employee of
Tremor.
(b) Each of Tremor's Plans has been administered in material compliance
with the applicable provisions of ERISA and the Code. Each of Tremor's Plans
that is intended to be "qualified" within the meaning of Section 401(a) of the
Code has received a determination letter from the Internal Revenue Service (the
"IRS") that it is so qualified or a determination letter request will be filed
with the IRS within the remedial amendment period (as described in Section
401(b) of the Code and the regulations thereunder). There are no pending or
threatened claims (other than routine claims for benefits), actions, suits or
proceedings by, on behalf of or against any of the Plans of Tremor or any trusts
related thereto.
4.9 Material Contracts
(a) Section 4.9(a) of the Tremor Schedule sets forth a true, correct
and complete list of all material Contracts ("Material Contracts") to which
Tremor is a party or otherwise bound or to which its properties or assets are
subject, except for each of those which either (i) is terminable by Tremor
without liability, expense or other obligation in excess of $25,000 on thirty
(30) days' notice or less, or (ii) involve aggregate payments to
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or by Tremor of $25,000 or less calculated over the full term thereof,
including, without limitation, those contracts:
(i) with any Affiliate;
(ii) providing for any joint venture or similar arrangement;
(iii) under which Tremor agrees to indemnify any party against
any liability (including, but not limited to, any liability for Taxes);
(iv) that cannot be canceled without liability, premium or
penalty on fewer than 30 days notice and involving in excess of $25,000;
(v) restricting Tremor from competing in any line of business
or with any Person or in any geographical area or similar covenants with any
other Person;
(vi) with respect to employment terms with employees,
consultants or independent contractors; or
(vii) relating to the borrowing of money in excess of $25,000.
(b) There has not been claimed, with respect to any Material Contract,
any existing default, or event of default or event, that with notice or lapse of
time or both, would constitute a default or event of default on the part of
Tremor. The Material Contracts are in full force and effect, constitute the
legal, valid and binding obligations of Tremor and, to the best of Tremor's
knowledge, the other parties thereto. No consent, approval, authorization or
waiver from, or notice to, any other party is required to maintain all of the
Material Contracts in full force and effect after the Closing.
4.10 Taxes. Except as set forth in Section 4.10(a) of the Tremor
Schedule, Tremor has (i) filed with each Tax Authority each Tax Return required
to have been filed by or on behalf of Tremor, or extensions have been duly
obtained, and (ii) paid, or adequately reserved for on the Financial Reports,
all Taxes required to have been paid by it, except where the failure to file
such Tax Returns or pay such Taxes would not, in the aggregate, have a Material
Adverse Effect on Tremor.
4.11 No Misstatements or Omissions. No representation or warranty by
Tremor contained in this Agreement and no statement contained in any
certificate, list, Schedule, Exhibit or other instrument specified or referred
to in this Agreement, whether heretofore furnished by Tremor to Acquisition or
New Systems or hereafter furnished by Tremor to Acquisition or New Systems
pursuant to this Agreement, contains or will contain any untrue statement of a
material fact or omits or will omit any material fact necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
OF NEW SYSTEMS AND ACQUISITION
------------------------------
New Systems and Acquisition, jointly and severally, represent and
warrant to Tremor as follows:
5.1 Organization. New Systems is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada and has the
requisite corporate power and authority to carry on its business as it is
presently being conducted. New Systems is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership, leasing or operation of its properties makes such
qualification or licensing necessary, except for those jurisdictions where the
failure to be so qualified or licensed or to be in good standing individually or
in the aggregate would not have a Material Adverse Effect on New Systems.
Acquisition is a corporation duly organized, validly existing and in good
standing under the laws of the State of California and has the requisite
corporate power and authority to carry on its business as it is presently being
conducted. New Systems has previously delivered to Tremor true, correct and
complete copies of the Certificate of Incorporation and Bylaws of New Systems,
copies of which are annexed to Section 5.1 of the disclosure schedule of New
Systems, dated the date hereof and accompanying this Agreement (the "New Systems
Schedule").
5.2 Capitalization
(a) The authorized capital stock of New Systems consists of 250,000,000
shares of common stock, par value $.001 per share ("New Systems Common Stock")
of which 3,353,000 shares are issued and outstanding on the date hereof. The
shares of New Systems Common Stock are the only shares of capital stock of New
Systems that are issued and outstanding, and all of the shares of New Systems
Common Stock are owned of record and beneficially by the New Systems
shareholders in the amounts set forth in Section 5.2(a) of the New Systems
Schedule. The authorized capital stock of Acquisition consists of 100 shares of
Common Stock, par value $.01 per share ("Acquisition Common Stock"), of which
one hundred (100) shares are issued and outstanding on the date hereof, all of
which are owned of record and beneficially by New Systems. All of the shares of
New Systems Common Stock and Acquisition Common Stock are duly authorized,
validly issued, fully paid and non-assessable. There are no (i) options,
warrants, calls, preemptive rights, subscriptions or other rights, convertible
securities, or securities convertible into or exchangeable for equity interests
of New Systems or Acquisition, agreements or commitments of any character
obligating New Systems or Acquisition to issue, transfer or sell any shares of
capital stock, options, warrants, calls or other equity interests of any kind
whatsoever in New Systems or Acquisition, as the case may be, or securities
convertible into or exchangeable for such shares or equity interests, (ii)
contractual obligations of New Systems to repurchase, redeem or otherwise
acquire any capital stock of, or equity interest in, New Systems or Acquisition,
as the case may be, or (iii) voting trusts, proxies or similar agreements to
which New Systems is a party with respect to the voting of the capital stock of
New Systems or Acquisition, as the case may be.
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(b) New Systems does not own any outstanding shares of capital stock
(or other equity interests of entities other than corporations) of any
partnership, joint venture, trust, corporation, limited liability company or
other entity, other than Acquisition.
5.3 New Systems Common Stock. The shares of New Systems Common Stock,
when issued and delivered to the Tremor Shareholders in accordance with the
terms and provisions of this Agreement, will be (i) duly authorized and validly
issued, fully paid and non-assessable and (ii) free and clear of any Liens
5.4 Authorization; Validity of Agreement. Each of New Systems and
Acquisition has the corporate power and authority to execute, deliver and
perform this Agreement and each of the other agreements, instruments, documents
and certificates to be executed and delivered by New Systems or Acquisition, as
the case may be, pursuant to this Agreement (collectively, with this Agreement,
the "New Systems Transaction Documents") and to consummate the transactions
contemplated hereby and thereby, including, without limitation, the Merger,
subject to approval of the Merger by the shareholders of New Systems. Each of
this Agreement and the other New Systems Transaction Documents has been duly
executed and delivered by New Systems and Acquisition, as applicable, and,
subject to approval of the Merger by the shareholders of New Systems, is a valid
and binding obligation of each of New Systems and Acquisition, enforceable
against each of them in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights and by
equitable principles of general application which may limit the availability of
certain remedies such as specific performance. The execution, delivery and
performance by New Systems and Acquisition of the New Systems Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by their respective Boards of
Directors and, other than the approval of the Merger by the shareholders of New
Systems, no other corporate proceedings on their part are necessary to authorize
the execution, delivery and performance of the New Systems Transaction Documents
and the consummation of the transactions contemplated hereby and thereby,
including, without limitation, the Merger.
5.5 No Violations; Consents and Approvals.
(a) The execution, delivery and performance of this Agreement and the
New Systems Transaction Documents by New Systems and Acquisition do not, and the
consummation by New Systems and Acquisition of the transactions contemplated
hereby and thereby will not, (i) violate any provision of the Certificate of
Incorporation or Bylaws of New Systems and Acquisition, (ii) violate, conflict
with, result in a breach of, or constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any Contract material to the business of New Systems or Acquisition to which
New Systems or Acquisition is a party or by which New Systems or Acquisition or
any of their respective properties or assets may be bound or otherwise subject,
except for such items referred to as New Systems Required Consents, as hereafter
defined and set forth in Section 5.5(b) of the New Systems Schedule, or (iii) to
the knowledge of New Systems or Acquisition, as the case may be, violate any Law
applicable to New Systems or Acquisition or any of their respective properties
or assets, except, in the case of (ii) and (iii), those that would not have a
Material Adverse Effect on New Systems.
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(b) To the knowledge of New Systems and Acquisition, no filing or
registration with, notification to, or authorization, consent or approval of,
any Governmental Entity or any other Person is required in connection with the
execution, delivery and performance of this Agreement or the other New Systems
Transaction Documents by New Systems or Acquisition or the consummation by New
Systems or Acquisition of the transactions contemplated hereby and thereby,
except for (i) the filing of the Agreement of Merger with the Secretary of State
of the State of California and, if applicable, the Secretary of State of the
State of Nevada, and (ii) such Consents with respect to any License or Law as
are set forth in Section 5.5(b) of the New Systems Schedule (the "New System
Required Consents"), and except where the failure to obtain such Consents could
not, individually or in the aggregate, have a Material Adverse Effect on New
Systems, prevent the consummation of the Merger or otherwise prevent the parties
from performing their obligations under this Agreement.
5.6 SEC Filings.
(a) To the best knowledge of the executive officers and directors of
New Systems, after due inquiry, New Systems has filed with the Securities
Exchange Commission (the "SEC"), and has previously delivered to Tremor a copy
of, each report, form, statement, prospectus, schedule and other document
(collectively, the "New Systems SEC Reports") required to be filed by New
Systems under the Securities Act of 1933, as amended (the "Securities Act"), and
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on or
after January 1, 1999. To the best knowledge of the executive officers and
directors of New Systems, after due inquiry, the New Systems SEC Reports
required to be filed by New Systems on or prior to the date hereof (i) comply in
all material respects with the requirements of the Exchange Act and (ii) did not
at the time they were filed (or if amended or superseded by a filing prior to
the date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. All New Systems
SEC Reports required to be filed by New Systems after the date hereof and prior
to the Closing Date (x) shall be duly and timely filed by New Systems, (y) shall
comply in all material respects with the requirements of the Securities Act and
the Exchange Act, as the case may be, and (z) shall 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 therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Since January 1, 1999, except for comments received by New
Systems from the Staff of the SEC in connection with the filing by New Systems
of its Registration Statement on Form 10-SB, which comments were received prior
to the effective date thereof and were responded to in a manner satisfactory to
the Staff, neither New Systems nor its counsel or representatives have received
any comments or other communications of any nature, written or oral, from the
Staff of the SEC with respect to any New Systems SEC Reports or otherwise.
(b) Each of (i) New Systems' audited consolidated balance sheets and
related consolidated statements of income, cash flows and changes in
stockholders' equity (together with related notes) as of and for the years ended
December 31, 1999 and December 31, 2000, as contained in the New Systems SEC
Reports, and (ii) New Systems' unaudited consolidated balance sheet and related
consolidated statements of income, cash
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flows and changes in stockholders' equity as of and for the six month period
ended June 30, 2001, as contained in the New Systems SEC Reports (collectively,
the "New Systems Financial Statements"), (x) fairly present in all material
respects the financial position of New Systems as of the dates thereof and the
results of its operation, cash flows and stockholders' equity for each of the
periods then ended, except that the unaudited financial statements are subject
to normal year-end adjustments, and (y) were prepared in accordance with GAAP
throughout the periods involved, in each case, except as otherwise indicated in
the notes thereto.
5.7 Litigation; Compliance with Law; Licenses and Permits.
(a) There is no Proceeding pending, nor, to the knowledge of New
Systems, is there any Proceeding threatened, against New Systems or which in any
way relates to the Merger or the transactions contemplated hereby, by or before
any Governmental Entity, court, arbitration panel or any other Person that, if
adversely determined, would have a Material Adverse Effect on New Systems or
materially and adversely affect the consummation of the transactions
contemplated hereby.
(b) New Systems has, and on the Closing Date will have, complied with
all applicable Laws, except those where the failure to comply with such Laws
could not, individually or in the aggregate, have a Material Adverse Effect on
New Systems. New Systems has not received any written notice of any violation of
any Law.
(c) New Systems has obtained every License that is required or
necessary for New Systems to conduct its business as presently conducted, and
all such Licenses are in full force and effect, except where the failure to
obtain such License could not, individually or in the aggregate, have a Material
Adverse Effect on New Systems. The applicability and validity of each such
License will not be adversely affected by the Merger and the consummation of the
transactions contemplated by this Agreement.
5.8 Employee Benefit Plans. New Systems is not a party to or bound by,
and has no obligations of any nature whatsoever with respect to, any Plans.
5.9 Title to Assets.
(a) New Systems has good and marketable title to all of its assets,
free and clear of any and all Liens. At the Effective Time, New Systems will
have good title to all of its assets, properties and rights, free and clear of
all Liens.
(b) Section 5.9(b) of the New Systems Schedule sets forth a true,
correct and complete list of all real property, interests in real property and
tangible personal property (including, but not limited to, machinery, equipment,
office equipment, vehicles, inventory and supplies) owned or leased by New
Systems, indicating whether such property is owned or leased and the location of
such property.
5.10 Contracts
(a) Except as set forth in Section 5.10(a) of the New Systems Schedule,
New Systems is not a party to any Contract.
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(b) There has not been claimed, with respect to any Contract, any
existing default, or event of default or event, that with notice or lapse of
time or both, would constitute a default or event of default on the part of New
Systems. The Contracts are in full force and effect, constitute the legal, valid
and binding obligations of New Systems and, to the best of New Systems'
knowledge, the other parties thereto. No consent, approval, authorization or
waiver from, or notice to, any other party is required to maintain all of the
Contracts in full force and effect after the Closing.
5.11 Taxes. Except as set forth in Section 5.11 of the New Systems
Schedule, New Systems has (i) filed with each Tax Authority each Tax Return
required to have been filed by or on behalf of New Systems or extensions have
been duly obtained, and (ii) paid, or adequately reserved for on the New Systems
Financial Statements, all Taxes required to have been paid by it.
5.12 Affiliated Party Transactions. Except for an obligation of $25,000
by New Systems to RAM Venture Holdings Corp. as set forth on Section 5.12 of the
New Systems Schedule and for obligations arising under this Agreement, as of the
Closing Date, no director, executive officer or controlling shareholder of New
Systems and, to the best knowledge of the executive officers and directors of
New Systems, after due inquiry, no other shareholder of New Systems, will have,
directly or indirectly, any obligation to or cause of action or claim against
New Systems, no assets owned by any shareholder of New Systems are used by New
Systems in the operation of its business, and New Systems has no obligation to
or cause of action or claim against any other New Systems shareholder.
5.13 No Brokers. New Systems has not employed, or otherwise engaged,
any broker or finder or incurred any liability for any brokerage or investment
banking fees, commissions, finders' fees or other similar fees in connection
with the transactions contemplated by this Agreement.
5.14 OTC Listing. The New Systems Common Stock is currently traded on
the OTC Electronic Bulletin Board under the symbol "NEWY." Since January 1,
1999, New Systems has not received any notification, written or otherwise, from
the National Association of Securities Dealers, Inc. or any regulatory authority
with respect to any actual or alleged violation or non-compliance relating to
the listing or quotation of the New Systems Common Stock on the OTC Bulletin
Board. New Systems has no reason to believe that the New Systems Common Stock
will not continue to trade on the OTC Bulletin Board as of the Closing Date.
5.15 No Prior Activities of Acquisition. Except for obligations
incurred in connection with its incorporation or organization or the negotiation
and consummation of this Agreement and the transactions contemplated hereby,
Acquisition has neither incurred any obligation or liability nor engaged in any
business or activity of any type or kind or entered into any agreement or
arrangement with any Person.
5.16 No Misstatements or Omissions. No representation or warranty by
New Systems or Acquisition contained in this Agreement and no statement
contained in any certificate, list, Schedule, Exhibit or other instrument
specified or referred to in this Agreement, whether heretofore furnished by New
Systems or Acquisition to Tremor or hereafter furnished by New Systems or
Acquisition to Tremor pursuant to this Agreement,
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contains or will contain any untrue statement of a material fact or omits or
will omit any material fact necessary to make the statements contained therein,
in light of the circumstances under which they were made, not misleading.
ARTICLE VI
OTHER AGREEMENTS OF THE PARTIES
-------------------------------
6.1 Taxes. New Systems, Acquisition and Tremor each acknowledge and
agree that it intends that the Merger constitute a "reorganization" within the
meaning of Section 368 of the Code. No party shall take any action either prior
to or after the Closing that results in the Merger failing to qualify as a
"reorganization" within the meaning of Section 368 of the Code, PROVIDED,
HOWEVER, that no action taken by a party that is contemplated by this Agreement
or the transactions contemplated herein shall constitute a breach of this
Section 5.1.
6.2 Access to Information; Non-Disclosure of Confidential Information.
(a) Each of Tremor and New Systems will provide each other and the
other's accountants, counsel and other representatives reasonable access, upon
prior notice to, and approval by, the other party, to its properties, books,
records and, personnel during the period prior to the Effective Time to obtain
information concerning its business as such other party may reasonably request.
No information or knowledge obtained in any investigation pursuant to this
Section 6.2 will affect or be deemed to modify in any manner any representation
or warranty contained in this Agreement or the conditions to the obligations of
the parties to consummate the Merger.
(b) Each party shall at all times hold in the strictest confidence and
not disclose to any other Person, directly or indirectly, or make any use of,
any Confidential Information (hereinafter defined) disclosed by any party or its
representatives to the covenanting party or its representatives, whether before
or after the date of this Agreement, in connection with the transactions
contemplated hereby. For purposes hereof, "Confidential Information" means all
information relating to the business of the disclosing party that is not
generally known to the public, whether of a technical, business or other nature,
including, but not limited to, software, inventions, know-how, designs,
formulas, test data, customer and supplier lists, business plans, marketing
plans and strategies, customer requirements, pricing strategies, financial
information or other subject matter pertaining to any aspect of the business of
the disclosing party of any of its clients, customers, consultants, licensees or
Affiliates, regardless of the form in which it is embodied; PROVIDED, HOWEVER,
that "Confidential Information" shall not include information which the
receiving party can clearly establish has not been derived from information
obtained by the receiving party from the disclosing party or is or becomes
public knowledge without breach of this Agreement by the receiving party. In the
event of the termination of this Agreement for any reason whatsoever, the
receiving party shall promptly deliver to the disclosing party or destroy, in
accordance with the instruction of the disclosing party, copies of all records,
materials, drawings, documents, and data of any nature pertaining to the
Confidential Information. In the event the receiving party becomes legally
compelled to disclose any of the Confidential Information, the receiving party
shall provide the disclosing party with prompt prior notice thereof so that it
may seek an appropriate
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protective order and, in the absence of such order, the receiving party shall
furnish only that portion of the Confidential Information that is legally
required and shall use its best efforts to obtain confidential treatment
thereof.
6.3 Public Statements. From and after the date hereof, neither New
Systems nor Tremor shall, or permit any Affiliate thereof to, either make, issue
or release any press release or any oral or written public announcement or
statement concerning or with respect to, or acknowledgment of the existence of,
or reveal the terms, conditions and status of, the transactions contemplated
hereby, including without limitation, the Merger, without the prior written
consent of each of the other (which consent shall not be unreasonably withheld
or delayed), unless such announcement is required by Law, in which case the
other party shall be given notice of such requirement prior to such announcement
and the parties shall consult with each other as to the scope and substance of
such disclosure.
6.4 Other Actions. Each of the parties hereto shall use its best
efforts to (i) take, or cause to be taken, all actions, (ii) do, or cause to be
done, all things, and (iii) execute and deliver all such documents, instruments
and other papers, as in each case may be necessary, proper or advisable under
applicable Laws, or reasonably required in order to carry out the terms and
provisions of this Agreement and to consummate and make effective the
transactions contemplated hereby.
6.5 Required Consents. Tremor shall obtain all Tremor Required
Consents, and New Systems shall obtain all New Systems Required Consents, as
promptly as practicable but in any event on or prior to the Closing Date.
6.6 Tremor Shareholders Meeting.
(a) Subject to the receipt by the Tremor Board of Directors of the
fairness opinion referred to in Section 7.2(k), Tremor will take all action
necessary in accordance with California law and Tremor's Articles of
Incorporation and Bylaws to call, notice, convene and hold a special meeting of
the Tremor Shareholders (the "Shareholders Meeting") to be held as promptly as
practicable for the purpose of voting upon approval of (i) this Agreement and
the Merger and (ii) an amendment to Tremor's Articles of Incorporation to effect
a 1:6,000 reverse split of Tremor's Common Stock to take effect prior to the
Effective Date (the "Reverse Split"). Tremor will solicit from the Tremor
Shareholders proxies in favor of the approval of this Agreement and the Merger
and the Reverse Split, and will use its best efforts to take all other action
necessary or advisable to secure the vote or consent of the Tremor Shareholders
required by California law to obtain such approvals.
(b) The Board of Directors of Tremor shall recommend that the Tremor
Shareholders vote in favor of and approve this Agreement and the Merger and the
Reverse Split at the Shareholders Meeting and the proxy statement circulated by
Tremor in connection therewith shall include a statement to the effect that the
Board of Directors of Tremor has recommended that the Tremor Shareholders vote
in favor of and approve such transactions.
6.7 Exclusivity. From and after the date hereof and unless and until
this Agreement is terminated as provided in Article IX, neither New Systems nor
Tremor shall,
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and each of New Systems and Tremor shall ensure that no Affiliate of such party
nor any investment banker, financial advisor, attorney or other representative
of such party shall, directly or indirectly, encourage, solicit, initiate or
participate in discussions or negotiations with, provide any information to,
receive any proposals or offers from, or enter into any agreement with, any
third party that involves the sale, joint venture or the other disposition of
all or any portion of New Systems or Tremor or their respective businesses or
any merger, consolidation, recapitalization or other business combination of any
kind (each an "Acquisition Transaction") involving New Systems or Tremor, or
enter into any agreement, arrangement or understanding, formal or informal,
written or oral, with respect to any such Acquisition Transaction. Each party
shall promptly notify the other parties hereto of any communication or
solicitation received by the notifying party or its representatives with respect
to an Acquisition Transaction.
6.8 Conduct of Business - Tremor. Except as required by this Agreement
or as is necessary to consummate the transactions contemplated hereby, during
the period from the date hereof through the Closing Date, Tremor shall conduct
its business in the ordinary course, consistent with past practice, and in such
a manner that would not result in a material adverse effect on Tremor (as the
term "material adverse effect" is defined in Section 7.1(i) hereof). Without
limiting the generality of and in addition to the foregoing, prior to the
Closing Date, Tremor shall not, except as required by this Agreement or as is
necessary to consummate the transactions contemplated hereby, and except as New
Systems may otherwise consent to in writing:
(a) amend its Articles of Incorporation or Bylaws, or similar
governing documents;
(b) except for the issuance of warrants to acquire up to
750,000 shares (before giving effect to the Reverse Split) of Tremor Common
Stock as contemplated by Section 6.13 hereof, authorize for issuance, issue,
sell, deliver or agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any stock of any class or any other securities;
(c) acquire, sell, lease, transfer or dispose of any of its
properties or assets except in the ordinary course of business and consistent
with past practice;
(d) except to the extent required by applicable law, change
any accounting principle or method or make any election for purposes of foreign,
federal, state or local income Taxes; or
(e) enter into any agreement to do, or take, or agree in
writing or otherwise to take or consent to, any of the foregoing actions.
In addition, Tremor shall ensure that, following the Closing:
(i) until the first anniversary of the Closing, New Systems
does not sell in excess of Two Million (2,000,000) shares of New Systems Common
Stock, or securities convertible or exercisable into, or exchangeable for,
shares of New Systems Common Stock, except for (y) issuances of New Systems
Common Stock for special project financing, as determined by the Board of
Directors of New Systems, and (z) the
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issuance of stock options pursuant to any employee stock option plan or similar
plan approved by the Board of Directors of New Systems;
(ii) any such permitted sales of New Systems Common Stock for
the one year period following the Closing shall be at a sale price of not less
than fifty percent (50%) of the then-prevailing market price of New Systems
Common Stock, and any conversion, exercise or exchange price of securities
convertible or exercisable into, or exchangeable for shares of New Systems
Common Stock shall not be less than fifty percent (50%) of the then-prevailing
market price of New Systems Common Stock; and
(iii) any grant of registration rights in connection with such
permitted sales of New Systems Common Stock during the one year period following
the Closing shall be subject to the following restrictions: (x) no "demand"
registration rights shall be exercisable until the six month anniversary of the
Closing Date; (y) no "piggyback" registration rights shall be exercisable with
respect to the Harmony Registration Rights (as defined in Section 3.6 hereof)
until the first anniversary of the Closing Date; and (z) any such grant of
demand registration rights shall include the simultaneous grant of "piggyback"
registration rights with respect thereto to the purchasers of New Systems Common
Stock under the private placement referred to in Section 6.12 hereof.
6.9 Conduct of Business - New Systems. New Systems presently conducts
no business operations, and its sole business activity consists of seeking a
business to acquire or merge with. During the period from the date hereof
through the Closing Date, New Systems shall not engage in any activity
inconsistent with the foregoing. Without limiting the generality of the
foregoing, prior to the Closing Date, New Systems shall not, except as required
by this Agreement or as is necessary to consummate the transactions contemplated
hereby, and except as Tremor may otherwise consent in writing:
(a) amend its Articles of Incorporation or Bylaws, or similar governing
documents;
(b) other than with respect to the issuance and sale of up to an
aggregate of two million (2,000,000) or more shares of New Systems Common Stock
in one or more private placement transactions between the date hereof and the
Closing Date in accordance with Section 6.12 hereof, with respect to which (1)
no "demand" registration rights may be granted and (2) no "piggyback"
registration rights may be granted in connection with the Harmony Registration
Rights (as defined in Section 3.6 hereof), authorize for issuance, issue, sell,
deliver or agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any stock of any class or any other securities;
(c) split, combine or reclassify any shares of its capital stock, or
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) to any shareholder or otherwise in
respect of its capital stock or redeem or otherwise acquire any of its
securities;
(d) acquire, sell, lease, transfer or dispose of any of its properties
or assets except in the ordinary course of business and consistent with past
practice;
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(e) incur any indebtedness, obligation or liability of any kind;
(f) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for any obligations of
any other Person;
(g) enter into any Contract with any Person;
(h) engage in any business or activity of any kind; or
(i) enter into any agreement to do, or take, or agree in writing or
otherwise to take or consent to, any of the foregoing actions.
6.10 Rule 14f-1 Filing. With the cooperation and assistance of Tremor,
New Systems shall, no later than ten (10) days prior to the Closing, file with
the SEC the information statement required by Rule 14f-1 promulgated under the
Exchange Act and shall transmit such information statement to all holders of
record of New Systems Common Stock in accordance with applicable Law.
6.11 Information Statement. With the cooperation and assistance of
Tremor, as promptly as practicable after the date hereof, New Systems shall
prepare and file with the SEC a preliminary information statement on Schedule
14C (the "Information Statement") with respect to approval of the Merger by the
written consent of the holders of a majority of the issued and outstanding
shares of New Systems Common Stock and, as promptly as practicable thereafter,
New Systems shall take all steps as shall be necessary to file with the SEC and
distribute to the shareholders of New Systems a definitive Information
Statement.
6.12 New Systems Private Placement. Promptly after the date hereof, New
Systems shall retain one or more designees of Tremor, as exclusive placement
agents (collectively, the "Placement Agent"), to privately place up to two
million (2,000,000) or more shares of New Systems Common Stock at a sale price
per share of not less that 50% of the then-prevailing market price of New
Systems Common Stock (the "Private Placement"). The net proceeds of the Private
Placement (the "Proceeds") shall be deposited into a special New Systems bank
account at a bank with a Ft. Lauderdale, Florida branch office, with Diane
Martini and Steven Oshinsky, or their respective designees, to be named as
co-signatories for such account (the "Special Account"). The Proceeds so
deposited shall be advanced to Tremor promptly upon the written request of
Tremor as needed to fund Tremor's payroll and other ongoing business operations
requirements prior to the Closing in accordance with Tremor's written request.
If this Agreement is terminated pursuant to Section 9.1, any prior advances of
Proceeds to Tremor shall be repaid to New Systems and shall bear interest from
the date of termination at the then-prevailing "prime rate", as published in the
"Money Rates" column of The Wall Street Journal, until paid.
6.13 Loan to Tremor. No later than September 9, 2001, New Systems shall
procure for Tremor a loan of not less than Two Hundred Fifty Thousand Dollars
($250,000) (the "Loan") from RAM Venture Holdings Corp. ("RAMVH"), which Loan
shall bear interest at an annual rate of twelve percent (12%) and be repayable
within sixty (60) days. In consideration for the Loan, Tremor shall deliver to
RAMVH a three-year warrant to acquire Seven Hundred Fifty Thousand (750,000)
shares of Tremor Common Stock (prior
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to giving effect to the Reverse Split) at an exercise price of Ten Cents ($0.10)
per share, and containing such other terms as are customary for a transaction of
that nature.
ARTICLE VII
CONDITIONS PRECEDENT TO THE CLOSING
-----------------------------------
7.1 Conditions Precedent to New Systems' Obligations to Close. The
obligation of New Systems to consummate the transactions contemplated hereby is
subject to the satisfaction prior to or on the Closing Date of each of the
following conditions; PROVIDED, HOWEVER, that New Systems shall have the right
to waive all or any part of each such condition and to close the transactions
contemplated hereby without, however, releasing Tremor from any representation,
warranty, covenant, obligation, agreement or condition contained herein or from
any liability for any loss or damage sustained by New Systems or Acquisition by
reason of the breach by Tremor of any representation, warranty, covenant,
obligation, agreement or condition contained herein or by reason of any
misrepresentation made by Tremor; and PROVIDED FURTHER, HOWEVER, that the
participation of New Systems and Acquisition in the Closing shall not in any way
be deemed to be a waiver of any claim they may have hereunder for any breach of
any representation, warranty, covenant or agreement:
(a) The representations and warranties of Tremor contained in this
Agreement shall be true and correct as of the Closing Date (except that any
representation and warranty that by its terms is expressly modified by
"materiality," "in all material respects" or words of similar import shall be
true in all respects as so modified), except for such representations and
warranties as are made as of a specific date, which shall be true and correct as
of such date.
(b) The covenants and agreements of Tremor contained in this Agreement
and required to be complied with or performed on or prior to the Closing Date
shall have been complied with or performed in all material respects.
(c) New Systems and Acquisition shall have received, each in form and
substance reasonably satisfactory to New Systems and Acquisition, all Required
Consents and any other Consent from any Governmental Entity or other Person that
is required for the consummation of the transactions contemplated hereby,
including without limitation, the Merger.
(d) The form and substance of all certificates, consents, instruments,
and other documents delivered to New Systems and Acquisition under this
Agreement shall be reasonably satisfactory to New Systems and Acquisition and
their counsel.
(e) Tremor shall have delivered to New Systems each of the items
required to be delivered pursuant to Section 8.1.
(f) No Law shall be in effect that prohibits any party hereto from
consummating the transactions contemplated hereby.
(g) There shall be no order, decree or injunction of a court of
competent jurisdiction or other Governmental Entity that prevents the
consummation of the Merger
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and the transactions contemplated by this Agreement and no Proceeding shall have
been commenced that threatens to prevent such transactions.
(h) New Systems shall have received written confirmation from the
Secretary of State of the State of California that the Agreement of Merger has
been filed and has become effective.
(i) No material adverse effect with respect to the business of Tremor
shall have occurred between the date hereof and the Closing Date, with "material
adverse effect" defined to mean the termination of Tremor's existing product
development agreement with Microsoft Corporation.
7.2 Conditions Precedent to Tremor's Obligation to Close. The
obligation of Tremor to consummate the transactions contemplated hereby is
subject to the satisfaction prior to or on the Closing Date of each of the
following conditions; PROVIDED, HOWEVER, that Tremor shall have the right to
waive all or any part of each such condition, and to close the transactions
contemplated hereby without, however, releasing New Systems or Acquisition from
any representation, warranty, covenant, obligation, agreement or condition
contained herein or from any liability for any loss or damage sustained by
Tremor by reason of the breach by New Systems or Acquisition of any
representation, warranty, covenant, obligation, agreement or condition contained
herein, or by reason of any misrepresentation made by New Systems or
Acquisition; and PROVIDED FURTHER, HOWEVER, that the participation of Tremor and
the Tremor Shareholders in the Closing shall not in any way be deemed to be a
waiver of any claim they may have hereunder for any breach of any
representation, warranty, covenant or agreement:
(a) The representations and warranties of New Systems and Acquisition
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date (except that any representation and warranty that by its
terms is expressly modified by "materiality," "in all material respects" or
words of similar import shall be true in all respects as so modified), other
than such representations and warranties as are made as of a specific date,
which shall be true and correct in all material respects as of such date.
(b) The covenants and agreements contained in this Agreement to be
complied with or performed by New Systems and Acquisition on or before the
Closing Date shall have been complied with or performed in all material
respects.
(c) Tremor shall have received, each in form and substance reasonably
satisfactory to Tremor, all Tremor Required Consents and every other consent
from any Governmental Entity or other Person that is required for the
consummation of the transactions contemplated hereby, including, without
limitation, the Merger.
(d) The form and substance of all certificates, consents, instruments
and other documents delivered to Tremor under this Agreement shall be reasonably
satisfactory to Tremor and its counsel.
(e) New Systems shall have delivered to Tremor each of the items
required to be delivered pursuant to Section 8.2.
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(f) No Law shall be in effect that prohibits any party hereto from
consummating the transactions contemplated hereby.
(g) There shall be no order, decree or injunction of a court of
competent jurisdiction or other Governmental Entity that prevents the
consummation of the Merger and the transactions contemplated by this Agreement
and no Proceeding shall have been commenced that threatens to prevent such
transactions.
(h) Tremor shall have received assurances that (1) holders of not more
than three percent (3%) of the issued and outstanding shares of Tremor Common
Stock have voted against the Merger and (2) the holders of a majority of the
issued and outstanding shares of Tremor Common Stock, excluding RAM Capital
Management and its Affiliates, have voted in favor of the Merger.
(i) Tremor shall have received all requisite consents of Tremor
Shareholders necessary to effect the Reverse Split.
(j) Tremor shall have received from each Tremor Shareholder who has
voted in favor of and approved the Merger a written certification (such
certifications referred to as "Investor Representation Letters") to the effect
that: (a) the New Systems Shares to be issued to such Tremor Shareholder
pursuant to this Agreement will be "restricted securities" within the meaning of
Rule 144 of the General Rules and Regulations under the Securities Act; (b) such
Tremor Shareholder is acquiring its, his or her New Systems Shares for its, his
or her own account and not with a view to their distribution within the meaning
of Section 2(11) of the Securities Act; (c) such Tremor Shareholder understands
that such Tremor Shareholder must bear the economic risk of the investment
indefinitely because its, his or her New Systems Shares may not be sold,
hypothecated or otherwise disposed of unless subsequently registered under the
Securities Act and applicable state securities laws or an exemption from
registration is available; and (d) such Tremor Shareholder is (i) an "accredited
investor" as that term is defined under Rule 501 of the Securities Act or (ii) a
sophisticated investor who either (x) has such knowledge and experience in
financial and business matters such that he is capable of evaluating the merits
and risks of this investment in the securities being acquired hereunder, or (y)
has obtained independent professional financial advice sufficient to enable such
Tremor Shareholder to evaluate the merits and risks of this investment in the
securities being acquired hereunder.
(k) Tremor shall have received the opinion of a financial advisor
reasonably acceptable to the Board of Directors of Tremor to the effect that the
Exchange Ratio is fair, from a financial point of view, to the Tremor
Shareholders.
(l) The current directors of New Systems, or any successor or
replacement directors, shall have continued to serve in such capacities until
the Closing.
(m) Tremor shall have received written confirmation from the Secretary
of State of the State of California and, if necessary, the Secretary of State of
the State of Nevada, that (i) the amendment to the Articles of Incorporation of
Tremor effecting the Reverse Split has been filed with the Secretary of State of
the State of California and (ii) after the filing of the foregoing amendment,
the Agreement of Merger has been filed and has become effective.
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(n) No event or events shall have occurred between the date hereof and
the Closing Date which, individually or in the aggregate, have, or are
reasonably likely to have, a Material Adverse Effect on New Systems.
(o) Tremor shall have received evidence satisfactory to it that New
Systems has complied with its obligations under Rule 14f-1 and Regulation 14C of
the Exchange Act and that the SEC has raised no objection to the distribution of
the definitive Information Statement to shareholders of New Systems.
ARTICLE VIII
DOCUMENTS TO BE DELIVERED AT THE CLOSING
----------------------------------------
8.1 Deliveries of Tremor. At the Closing, Tremor shall deliver or cause
to be delivered the following items to New Systems:
(a) a certificate dated the Closing Date and executed by the President
of Tremor certifying the satisfaction of the conditions referred to in Sections
7.1(a) and (b);
(b) a certificate of the Secretary of Tremor certifying as to (i) the
resolutions duly and validly adopted by Tremor's Board of Directors and its
shareholders evidencing the authorization of their execution and delivery of
this Agreement and the other Tremor Transaction Documents and the consummation
of the transactions contemplated hereby and thereby and the approval of the
Merger by the Tremor Shareholders, accompanied by a certification by the
Secretary of Tremor as to the results of the vote of the Tremor Shareholders
with respect to the Merger, (ii) the names and signatures of the officers of
Tremor authorized to sign this Agreement and the other Tremor Transaction
Documents; and (iii) the Articles of Incorporation and Bylaws of Tremor;
(c) the certificates referred to in Section 7.1;
(d) a certificate with respect to Tremor from the jurisdiction of its
incorporation and any jurisdiction in which Tremor is qualified to do business
attesting as to its valid existence and good standing as of a recent date;
(c) the Tremor Required Consents; and
(d) such other documents and instruments as New Systems may reasonably
request to consummate the transactions contemplated hereby.
8.2 Deliveries of New Systems. At the Closing, New Systems and/or
Acquisition, as the case may be, shall deliver or cause to be delivered the
following items to Tremor:
(a) certificates dated the Closing Date and executed by the President
of New Systems and Acquisition, respectively, certifying the satisfaction of the
conditions referred to in Sections 7.2(a) and (b);
(b) certificates of the Secretary of each of New Systems and
Acquisition certifying the resolutions duly and validly adopted by their
respective Boards of Directors
-27-
evidencing the authorization of their execution and delivery of this Agreement
and the other Transaction Documents and the consummation of the transactions
contemplated hereby and thereby, including, but not limited to, the Merger, and
the names and signatures of the officers of New Systems and Acquisition
authorized to sign this Agreement and the other Transaction Documents;
(c) the New Systems Required Consents;
(d) the resignations of the directors and executive officers of New
Systems;
(e) such releases from directors and executive officers of New Systems
as shall reasonably be requested by Tremor to confirm the representations of New
Systems set forth in Section 5.12; and
(f) such other documents and instruments as Tremor may reasonably
request to consummate the transactions contemplated hereby.
ARTICLE IX
TERMINATION MATTERS
-------------------
9.1 Termination.
(a) This Agreement may be terminated at any time prior to the Closing:
(1) by the mutual written consent of Tremor and New Systems;
(2) by Tremor, on the one hand, or by New Systems, on the other hand
(if such party is not in breach of or default under this Agreement), giving
written notice to such effect to the other party if the Closing shall not have
occurred on or before November 30, 2001, or such later date as the parties shall
have agreed upon in writing prior to the giving of such notice; or
(3) by either Tremor, on the one hand, or by New Systems or
Acquisition, on the other hand, in the event of a material breach by or default
of the other party hereto.
(b) Upon termination of this Agreement pursuant to Section 9.1, all
obligations of the parties shall terminate except those under Sections 6.2(b),
6.3 and 10.7; PROVIDED, HOWEVER, that no such termination shall relieve Tremor
of any liability to New Systems or Acquisition, or relieve New Systems or
Acquisition of any liability to Tremor, by reason of any breach of or default
under this Agreement.
ARTICLE X
MISCELLANEOUS
-------------
10.1 Non-Survival of Representations, Warranties and Agreements. None
of the representations, warranties, covenants and other agreements in this
Agreement or in any instrument delivered pursuant to this Agreement, including
any rights arising out of any breach of such representations, warranties,
covenants and other agreements, shall survive
-28-
the Effective Time, except for those covenants and agreements contained herein
and therein that by their terms apply or are to be performed in whole or in part
after the Effective Time.
10.2 Notices. Any notice, demand, request or other communication which
is required, called for or contemplated to be given or made hereunder to or upon
any party hereto shall be deemed to have been duly given or made for all
purposes if (a) in writing and sent by (i) messenger or a recognized national
overnight courier service for next day delivery with receipt therefor, or (ii)
certified or registered mail, postage paid, return receipt requested, or (b)
sent by facsimile transmission with a written copy thereof sent on the same day
by postage paid first-class mail or (c) by personal delivery to such party at
the following address:
if to Tremor, to:
Tremor Entertainment Inc.
2621 West Empire Avenue
Burbank, California 91504
Attention: President
Facsimile No.: (818) 729-0025
with a copy to:
Jenkens & Gilchrist Parker Chapin LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Attention: Martin Eric Weisberg, Esq.
Facsimile No.: (212) 704-6288
if to New Systems or Acquisition, to:
New Systems, Inc.
3040 E. Commercial Blvd.
Ft. Lauderdale, Florida 33308
Attention: President
Facsimile No.: (954) 491-7050
with a copy to:
David A. Carter, P.A.
2300 Glades Road
Suite 210
West Tower
Boca Raton, Florida 33431
Attention: Bert Gusrae, Esq.
Facsimile No.: (561) 367-9060
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or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this Section.
The date of giving or making of any such notice or demand shall be, in the case
of clause (a)(i), the date of the receipt, in the case of clause (a)(ii), five
business days after such notice or demand is sent, and, in the case of clause
(b) or (c), the next business day following the date such notice or demand is
sent.
10.3 Amendment. Except as otherwise provided herein, no amendment of
this Agreement shall be valid or effective unless in writing and signed by or on
behalf of the party against whom the same is sought to be enforced.
10.4 Waiver. No course of dealing of any party hereto, no omission,
failure or delay on the part of any party hereto in asserting or exercising any
right hereunder, and no partial or single exercise of any right hereunder by any
party hereto shall constitute or operate as a waiver of any such right or any
other right hereunder. No waiver of any provision hereof shall be effective
unless in writing and signed by or on behalf of the party to be charged
therewith. No waiver of any provision hereof shall be deemed or construed as a
continuing waiver, as a waiver in respect of any other or subsequent breach or
default of such provision, or as a waiver of any other provision hereof unless
expressly so stated in writing and signed by or on behalf of the party to be
charged therewith.
10.5 Governing Law. This Agreement shall be governed by, and
interpreted and enforced in accordance with, the laws of the State of Florida.
10.6 Jurisdiction. Each of the parties hereto hereby irrevocably
consents and submits to the exclusive jurisdiction of the courts of the State of
California located in the County of Los Angeles, the Courts of the State of
Florida located in Broward County, the United States District Court for the
Central District of California and the United States District Court for the
Southern District of Florida in connection with any Proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby, waives any
objection to venue in such District, and agrees that service of any summons,
complaint, notice or other process relating to such Proceeding may be effected
in the manner provided by clause (a) of Section 10.2.
10.7 Remedies. In the event of any actual or prospective breach or
default by any party hereto, the other parties shall be entitled to equitable
relief, including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive. Nothing
contained herein and no election of any particular remedy shall be deemed to
prohibit or limit any party from pursuing, or be deemed a waiver of the right to
pursue, any other remedy or relief available now or hereafter existing at law or
in equity (whether by statute or otherwise) for such actual or prospective
breach or default, including the recovery of damages. In furtherance and not in
limitation of the foregoing, in the event that a party enters into an agreement
with another Person with respect to an Acquisition Transaction in violation of
Section 6.7 hereof, then, in addition to any other remedy available to the
non-breaching party, the breaching party shall reimburse the non-breaching party
for all expenses incurred by the non-breaching party, including, without
limitation, attorneys' fees and fees of accountants and financial advisors, in
connection with the transactions contemplated hereby.
-30-
10.8 Severability. The provisions hereof are severable and if any
provision of this Agreement shall be determined to be legally invalid,
inoperative or unenforceable in any respect by a court of competent
jurisdiction, then the remaining provisions hereof shall not be affected, but
shall, subject to the discretion of such court, remain in full force and effect,
and any such invalid, inoperative or unenforceable provision shall be deemed,
without any further action on the part of the parties hereto, amended and
limited to the extent necessary to render such provision valid, operative and
enforceable.
10.9 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto, their heirs and
their respective successors and permitted assignees. Neither New Systems,
Acquisition, Tremor nor the Tremor Shareholders may assign any of their
obligations hereunder without the consent of all other parties hereto.
10.10 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective legal representatives,
successors and permitted assigns.
10.11 No Third Party Beneficiaries. Nothing contained in this
Agreement, whether express or implied, is intended, or shall be deemed, to
create or confer any right, interest or remedy for the benefit of any Person
other than as otherwise provided in this Agreement.
10.12 Entire Agreement. This Agreement (including all the Schedules and
Exhibits hereto), together with the Exhibits, Schedules, certificates and other
documentation referred to herein or required to be delivered pursuant to the
terms hereof, contains the terms of the entire Agreement among the parties with
respect to the subject matter hereof and supersedes any and all prior or
contemporaneous agreements, commitments, understandings, discussions,
negotiations or arrangements of any nature relating thereto. This Agreement
shall not be construed or interpreted with any presumption against the party
causing the Agreement to be drafted.
10.13 Headings. The headings contained in this Agreement are included
for convenience and reference purposes only and shall be given no effect in the
construction or interpretation of this Agreement.
10.14 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
NEW SYSTEMS, INC.
By:
--------------------------------------
Name:
Title:
NEW TREMOR ACQUISITION CORP.
By:
--------------------------------------
Name:
Title:
TREMOR ENTERTAINMENT INC.
By:
--------------------------------------
Name:
Title:
[SIGNATURE PAGE - AGREEMENT AND PLAN OF MERGER]
-32-
EXHIBIT D
---------
CERTIFICATE OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
NEW SYSTEMS, INC.
-----------------
The undersigned, Steven Oshinsky, President and Chief Executive Officer
of New Systems, Inc., does, in accordance with Section 78.390 of the Nevada
Revised Statutes, certify the following:
1. The name of the corporation is New Systems, Inc. (the "Company").
2. The articles of incorporation of the Company were filed with the
Secretary of State of the State of Nevada on December 10, 1987.
3. Article I of the articles of incorporation of the Company is hereby
amended to read as follows:
"ARTICLE I
----------
NAME
----
The name of the corporation hereby created shall be:
TREMOR ENTERTAINMENT INC."
4. The foregoing amendment to the articles of incorporation of the
Company was approved by the vote of those stockholders holding shares of common
stock, par value $0.001 (the "Common Stock"), of the Company entitling them to
exercise at least a majority of the voting power of the Company. The number of
shares of Common Stock voting in favor of the amendment was 1,800,000 shares,
representing 53.7% of the total issued and outstanding shares of Common Stock of
the Company.
Dated: _______________, 2001
/s/
--------------------------------------------
Name: Steven Oshinsky
Title: President and Chief Executive Officer