SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
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U.S. TECHNOLOGIES INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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[LOGO] U.S.TECHNOLOGIES
INCORPORATED
U.S. TECHNOLOGIES INC.
1130 Connecticut Avenue, NW, Suite 700
Washington, DC 20036
August 17, 2001
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
U.S. Technologies Inc. to be held at 10:00 a.m. (Eastern Standard Time) on
August 30, 2001 at the RCC Conference Room, 1616 P Street, N.W., 7th Floor,
Washington, DC 20036. The accompanying Notice of Meeting and Proxy Statement
describe the matters to come before the meeting.
Whether or not you plan to attend the meeting on August 30, 2001, please
fill in the appropriate blanks, sign and date the enclosed proxy, and return it
in the envelope provided. The envelope does not need postage if it is mailed in
the United States. Your prompt cooperation will be appreciated. Voting
Agreements already in existence assure the passage of each proposal to be
presented at the meeting, nevertheless, the Company encourages your
participation either by proxy or in person.
On behalf of the Board of Directors, thank you for your continued support
and interest in U.S. Technologies Inc.
Sincerely,
/s/ Gregory Earle
Gregory Earls
Chairman of the Board and
Chief Executive Officer
TABLE OF CONTENTS
Page
----
LETTER TO SHAREHOLDERS............................................................................. Title Page
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS........................................................... iii
SUMMARY TERM SHEET................................................................................. v
PROXY STATEMENT.................................................................................... 1
QUESTIONS AND ANSWERS.............................................................................. 2
What am I voting on?.............................................................................. 2
Am I entitled to appraisal or dissenters' rights with respect to either the E2E Acquisition or the
Yazam Acquisition?.............................................................................. 2
Who is entitled to vote on each proposal?......................................................... 2
How do I vote?.................................................................................... 2
Is my vote confidential?.......................................................................... 3
Who will count the votes?......................................................................... 3
What does it mean if I get more than one proxy card?.............................................. 3
What constitutes a quorum for the meeting and each proposal?...................................... 3
Who can attend the annual meeting?................................................................ 3
When are stockholder proposals for the Company's 2002 annual meeting due?......................... 3
How does a stockholder nominate someone to be considered for election as a director of the
Company?........................................................................................ 4
Who pays for this proxy solicitation?............................................................. 4
Who can answer my other questions?................................................................ 4
FORWARD-LOOKING INFORMATION AND GOING CONCERN OPINION.............................................. 5
PROPOSAL 1--THE CHARTER AMENDMENT.................................................................. 6
Description of the Charter Amendment.............................................................. 6
Vote Required and Board Recommendation............................................................ 6
E2E ACQUISITION................................................................................... 7
Overview of the E2E Acquisition................................................................. 7
Background of and Reasons for the E2E Acquisition............................................... 7
Background of E2E............................................................................... 7
E2E Assets Acquired............................................................................. 8
E2E Liabilities Assumed......................................................................... 8
Interests of Certain Persons in the E2E Acquisition............................................. 8
The E2E Stock Exchange Agreement, as Amended (the "Acquisition Agreement")...................... 9
YAZAM ACQUISITION................................................................................. 13
Overview of the Yazam Acquisition............................................................... 13
Background of and Reasons for the Yazam Acquisition............................................. 13
Background of Yazam and the Yazam Acquisition................................................... 14
Yazam Assets Acquired........................................................................... 15
Yazam Liabilities Assumed....................................................................... 15
Interests of Certain Persons in the Yazam Transaction........................................... 15
The Yazam Merger Agreement...................................................................... 16
Series F Stock Waiver and Replacement Agreement................................................. 22
Related Financings.............................................................................. 22
Accounting Treatment............................................................................ 25
Overview of Associated Companies................................................................ 25
Regulation of our Associated Companies.......................................................... 30
Conflicts of Interests.......................................................................... 34
Financial Information About Our Associated Companies............................................ 34
Other Wholly Owned Operating Subsidiaries....................................................... 35
Information About Parties to the Transaction.................................................... 35
i
Page
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PROPOSAL 2--AMENDMENT TO ELIMINATE THE RESTRICTION ON THE PREFERENCE THAT
MAY BE CONFERRED ON THE PREFERRED STOCK OF THE COMPANY UPON
LIQUIDATION......................................................................... 35
Vote Required and Board Recommendation............................................... 36
PROPOSAL 3--ADOPTION OF THE 1999 STOCK OPTION PLAN, AS FURTHER AMENDED
APRIL 27, 2001...................................................................... 37
Summary of the Tax Consequences of the 1999 Stock Option Plan........................ 37
Summary of the 1999 Stock Option Plan................................................ 38
Vote Required and Board Recommendation............................................... 40
PROPOSAL 4--ELECTION OF BOARD OF DIRECTORS............................................ 41
Nominees............................................................................. 41
Vote Required and Board Recommendation............................................... 43
COMPANY MARKET PRICES AND DIVIDEND POLICY............................................. 44
BOARD OF DIRECTORS.................................................................... 45
Board Size and Composition........................................................... 45
Board Committees and Meetings........................................................ 45
Board Compensation................................................................... 46
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION............................... 46
AUDIT COMMITTEE REPORT................................................................ 47
EXECUTIVE OFFICERS AND COMPENSATION................................................... 47
Executive Officers Who Are Not Directors............................................. 47
Executive Compensation............................................................... 48
Summary Compensation................................................................. 48
Option Grants........................................................................ 49
Options Exercised in 2000 and 2000 Year-End Values................................... 49
Employment Agreements, Termination of Employment, and Change-In-Control.............. 49
Compensation Committee Interlocks and Insider Participation.......................... 50
Section 16(a) Beneficial Ownership Reporting Compliance.............................. 50
SECURITY OWNERSHIP.................................................................... 51
COMMON STOCK PERFORMANCE GRAPH........................................................ 55
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 55
INDEPENDENT AUDITORS.................................................................. 57
FINANCIAL INFORMATION................................................................. 58
INDEX TO FINANCIAL INFORMATION........................................................ F-1
APPENDIX A--U.S. Technologies Inc. Audit Committee Charter............................ A-1
APPENDIX B--Stock Exchange Agreement Between E2Enet, Inc. and U.S. Technologies Inc... B-1
APPENDIX C--Amendment to Stock Exchange Agreement..................................... C-1
APPENDIX D--Yazam Merger Agreement by and among U.S. Technologies Inc., Merger Sub and
Yazam............................................................................... D-1
APPENDIX E--First Amendment to the Yazam Merger Agreement............................. E-1
APPENDIX F--Voting Agreement Between Yazam and Gregory Earls.......................... F-1
ii
[LOGO] U.S.TECHNOLOGIES
INCORPORATED
U.S. TECHNOLOGIES INC.
1130 Connecticut Avenue, NW, Suite 700
Washington, DC 20036
August 17, 2001
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 30, 2001
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To the Holders of Common Stock, par value $.02 per share ("Common Stock"),
Series A Convertible Preferred Stock ("Series A Stock"), Series B Mandatorily
Convertible Preferred Stock ("Series B Stock"), Series C Mandatorily
Convertible Preferred Stock ("Series C Stock"), Series D Mandatorily
Convertible Preferred Stock ("Series D Stock") and Series F Convertible
Preferred Stock ("Series F Stock" and, together with the Series A Stock, Series
B Stock, Series C Stock and Series D Stock, the "Preferred Stock") of U.S.
Technologies Inc.:
NOTICE IS HEREBY GIVEN that the 2001 Annual Meeting (the "Meeting") of
Stockholders of U.S. Technologies Inc., a Delaware corporation (the "Company"),
will be held at the RCC Conference Room, 1616 P Street, N.W., 7th Floor,
Washington, DC 20036 on August 30, 2001 at 10:00 a.m. (Eastern Standard Time)
for the purpose of:
(1) approving an amendment to the Company's Restated Certificate of
Incorporation that would increase the number of authorized shares of Common
Stock to 500,000,000;
(2) approving an amendment to the Company's Restated Certificate of
Incorporation that would eliminate the restriction on the preference that
may be conferred on the preferred stock of the Company upon liquidation;
(3) approving the 1999 Stock Option Plan, as further amended as of April
27, 2001; and
(4) electing ten directors;
and transacting any other proper business brought before the Meeting or any
adjournment or postponement. The Board of Directors is not aware of any other
business to come before the Meeting.
The Board of Directors has fixed July 26, 2001 as the record date (the
"Record Date") for the determination of stockholders entitled to notice of and
eligible to vote at the Meeting. Holders of record of the Company's Preferred
Stock and Common Stock at the close of business on the Record Date may vote on
certain or all of the matters coming before the Meeting as detailed in the
Proxy Statement. A complete list of stockholders entitled to vote on certain or
all matters at the Meeting will be maintained in the Company's offices at 1130
Connecticut Avenue, NW, Suite 700, Washington, DC 20036 for ten days prior to
the Meeting.
The Board of Directors approved the E2E Stock Exchange Agreement, dated as
of February 21, 2000, as amended April 5, 2000, which called for the increase
in authorized common stock. At that time, the Board consisted only of Messrs.
Earls and Warren. When the E2E Acquisition was completed on April 12, 2000, the
Board was expanded to eight members, in June 2000 to nine members and in May
2001 up to ten members. The Board of Directors approved the Yazam Merger
Agreement, dated as of February 28, 2001, as amended March 22, 2001, which also
called for the increase in authorized common stock.
The Board has recommended that the stockholders vote "FOR" each of the
proposals and the reelection of all nominated directors.
iii
Your vote is important. Whether or not you plan to attend the Meeting in
person, please mark, execute, date, and return the enclosed proxy in the
envelope provided, which requires no postage if mailed within the United
States. If you attend the Meeting in person, you may withdraw your proxy and
vote your shares.
By Order of the Board of Directors,
/s/ Gregory Earle
Gregory Earls
Chairman of the Board and
Chief Executive Officer
Washington, D.C.
August 17, 2001
iv
SUMMARY TERM SHEET
The following is a summary of the material terms of our two acquisitions.
You should carefully read this entire document, its annexes, and the documents
to which it refers for a more complete description of the acquisitions.
Overview of the E2E Acquisition and the Yazam Acquisition
The Company issued shares of preferred stock to acquire Yazam.com Inc. and
shares of preferred stock to acquire E2Enet, Inc. Because the Company does not
have a sufficient number of shares of common stock authorized to permit the
conversion of these shares of preferred stock into common stock, you are being
asked to approve the authorization and issuance of additional shares of common
stock pursuant to the two merger agreements
. Structure of the E2E Acquisition--Since the acquisition, E2E is a wholly
owned subsidiary of U.S. Technologies. See page 9.
. Structure of the Yazam Acquisition--Since the acquisition, Yazam is a
wholly-owned subsidiary of U.S. Technologies, and Yazam's subsidiaries
will be indirect wholly-owned subsidiaries of U.S. Technologies. See page
16.
. Dissenters' rights--As a U.S. Technologies stockholder, you do not have a
right to dissent to the acquisitions and seek an appraisal of the fair
value of your shares.
. Conditions to the acquisitions--Although both acquisitions were subject to
the customary conditions of public company mergers, neither acquisition
was subject to U.S. Technologies' shareholder approval. However, if U.S.
Technologies fails to have a sufficient number of shares of common stock
available to permit the former stockholders of Yazam to convert their
shares of Company Series F Preferred on September 1, 2001, the Series F
Stockholders may require the Company to repurchase their Series F stock
for the greater of $250 per share of Series F Stock (or essentially 25
cents per underlying common share) or the twenty day trailing average
price for USXX common stock prior to the date such stockholders make their
election multiplied by 1,000. Some Series F Stockholders have agreed to
waive this right. See pages 22 and 56 .
. Interests of insiders in the mergers--Some members of our board of
directors and management have interests in the mergers that may be
different from, or in addition to, your interest as a U.S. Technologies
shareholder. See pages 8 and 15.
The Parties
U.S. Technologies Inc. (see pages 25 through 35). We develop and operate a
network of technology and related companies. The Company builds and develops
associated companies by providing them with operational assistance, capital
support, industry expertise, other venture business services and access to a
strategic network of business relationships. Our associated companies include
technology and emerging growth companies with what management believes is high
growth potential. Historically, the Company has been engaged in the operation
of industrial facilities located within state and local prisons under the
guidelines of the 1979 Prison Industry Enhancement program.
E2Enet, Inc. (see page 7). E2Enet was a privately-held company that had
interests in several development stage businesses.
Yazam.com Inc. (see page 14). Yazam was a privately-held company that
provided seed-stage capital and business development services to emerging
Internet and technology related start-ups. Yazam's wholly owned subsidiary,
Gregory FCA Communications, provided public and investor relations services.
v
Board Recommendation (see pages 6, 36, 40 and 43)
Your board of directors, after careful consideration, approved both
acquisitions and determined that the acquisitions are advisable and fair to and
in the best interests of U.S. Technologies and our shareholders. Your board of
directors recommends that you vote "FOR" approval of the amendment to increase
the number of authorized shares of Company common stock which will allow the
preferred stock issued in the acquisitions to convert to common stock.
vi
U.S. TECHNOLOGIES INC.
1130 Connecticut Avenue, NW, Suite 700
Washington, DC 20036
-----------------
PROXY STATEMENT
-----------------
Proxy Statement for Annual Meeting of Stockholders
To Be Held August 30, 2001
-----------------
U.S. Technologies Inc. (the "Company") solicits the accompanying proxy,
first mailed to stockholders with the Notice of Annual Meeting and this Proxy
Statement on or about August 18, 2001. The proxy is to be voted at the Annual
Meeting of Stockholders (the "Meeting") to be held at the RCC Conference Room,
1616 P Street, N.W., 7th Floor, Washington, DC 20036 on August 30, 2001 at
10:00 a.m. (Eastern Standard Time). The proxy may be revoked by a stockholder
at any time prior to its exercise by
. executing and returning a proxy bearing a later date,
. giving written notice of revocation to the Secretary of the Company, or
. attending the Meeting and voting in person.
All properly-executed, unrevoked proxies received before the Meeting will be
voted as marked.
1
QUESTIONS AND ANSWERS
Q. What am I voting on?
A. . approval of an amendment to the Company's Restated Certificate of
Incorporation increasing the number of authorized shares of Common Stock
to 500,000,000;
. approval of an amendment to the Company's Restated Certificate of
Incorporation to eliminate the restriction on the preference that may be
conferred on the preferred stock of the Company upon liquidation;
. approval and adoption of the 1999 Stock Option Plan, as further amended as
of April 27, 2001, and
. election of ten directors.
Q. Am I entitled to appraisal or dissenters' rights with respect to either the
E2E Acquisition or the Yazam Acquisition?
A. . No. None of the items for which your vote is being solicited entitle you
to appraisal or dissenters' rights.
Q. Who is entitled to vote on each proposal?
A. . At the close of business on the Record Date, holders of Common Stock and
the holders of all of our outstanding Series A Stock are entitled to vote
on the proposal to amend our Restated Certificate of Incorporation in
order to increase the number of authorized shares. The holders of Series A
Stock will vote such shares as if they had been converted into Common
Stock, together with the holders of Common Stock, as a single class.
. Holders of Common Stock and Preferred Stock as of the Record Date are
entitled to vote on each of the other proposals including the election of
directors, as well as any other matter that may be brought before the
meeting. The holders of Preferred Stock will vote such shares as if they
had been converted into Common Stock, together with the holders of Common
Stock, as a single class.
Q. How do I vote?
A. . Sign and date each proxy card. Proxy cards can be returned in the prepaid
envelope. If you do not mark any selections, your proxy card will be voted
in favor of each of the proposals for which you are entitled to vote
including for the election of each of the nine nominees for election as
directors. You may change your vote at any time before the vote takes
place at the annual meeting by
. attending the annual meeting and voting in person,
. completing a new proxy card, or
. sending a written notice stating you would like to revoke your proxy to
U.S. Technologies Inc., 1130 Connecticut Avenue, NW, Suite 700,
Washington, DC 20036, Attention: Assistant Secretary. This notice must
reach the Company's Assistant Secretary before the proxy is voted.
If you return your signed proxy card, but do not vote on all of the
proposals, the proxy will be voted FOR each of the proposals for which you
are entitled to vote including for the election of each of the nine nominees
for election as directors.
The Board of Directors is not aware of any other matter to be presented at
the annual meeting. If a proposal other than the five listed in the Notice
is presented to the company, your proxy card gives authority to Gregory
Earls and Henry T. Wilson, or either of them or their substitute, to vote on
any such proposal. They both have indicated their intention to vote on any
such proposal in accordance with their best judgment.
2
If you are present or represented by a proxy at the annual meeting and you
abstain, your abstention will have the same effect as a vote AGAINST the
five proposals. Not being present or represented by a proxy at the annual
meeting, or otherwise not voting at the meeting, will also have the same
effect as a vote AGAINST the two proposals to amend the Company's Restated
Certificate of Incorporation.
Q. Is my vote confidential?
A. Yes. Proxy cards, ballots and voting tabulations that identify stockholders
are confidential. Only the inspectors of election and certain employees who
process proxy cards and count the vote have access to your card. All
comments directed to management, whether written on the proxy card or
elsewhere, will remain confidential unless you ask that your name be
disclosed.
Q. Who will count the votes?
A. Representatives of the Company and its legal counsel, Fleischman and Walsh,
L.L.P., will tabulate the votes and act as inspectors of the election.
Q. What does it mean if I get more than one proxy card?
A. Your shares may be registered differently and owned in more than one
account. If you own shares of different classes, you should receive at least
one proxy card for each class. Sign and return all proxy cards to ensure
that all your shares are voted.
Q. What constitutes a quorum for the meeting and each proposal?
A. There are different quorum requirements depending on the proposal to be
voted on. A quorum sufficient for calling the meeting to order will exist as
long as one of the quorum requirements is met. Submitting a properly
executed proxy card will ensure that you are part of the relevant quorum.
Charter amendment to increase the number of authorized shares quorum
requirement: As of the Record Date, there were issued and outstanding
29,610,786 shares of the Company's Common Stock and 625,000 shares of Series
A Stock, which are convertible into 51,229,508 shares of Common Stock. This
means there are 80,840,294 eligible votes for the Charter Amendment. One
third of those eligible votes, or 26,946,765 votes, constitutes a quorum.
Quorum requirement for the other four proposals: As of the Record Date,
there were issued and outstanding 29,610,786 shares of the Company's Common
Stock, 625,000 shares of Series A Stock, which are convertible into
51,229,508 shares of Common Stock, 112,000 shares of Series B Stock, which
are convertible into 56,000,000 shares of Common Stock and 4,534 shares of
Series C Stock, which are convertible into 6,034,482 shares of Common Stock
and 1,552.5 shares of Series D Stock, which are convertible into 1,552,500
shares of common Stock, and 27,374 shares of Series F Stock which are
convertible into 27,374,000 shares of Common Stock. This means there are
171,801,276 eligible votes on the other four proposals and any other matters
that may be brought before the meeting. One third of those eligible votes
combined, or 57,267,092 votes, constitutes a quorum.
Q. Who can attend the annual meeting?
A. All holders of Common Stock and Preferred Stock as of the Record Date may
attend.
Q. When are stockholder proposals for the Company's 2002 annual meeting due?
A. According to the Company's Bylaws, the Company's 2002 annual meeting will be
held April 19, 2002. To be considered for inclusion in next year's annual
meeting proxy statement, stockholder proposals must be submitted in writing
by December 20, 2001 to Dana Rochelle, Assistant Corporate Secretary, U.S.
Technologies Inc., 1130 Connecticut Avenue, NW, Suite 700, Washington, D.C.
20036. If the Annual
3
Meeting is delayed for any reason, stockholders will be informed of any new
deadline for the receipt of stockholder proposals.
Q. How does a stockholder nominate someone to be considered for election as a
director of the Company?
A. At the annual meeting, the Company will entertain nominations for directors
in accordance with the Company's Bylaws.
Q. Who pays for this proxy solicitation?
A. The Company will reimburse brokerage houses and other custodians, nominees
and fiduciaries for their reasonable out-of-pocket expenses for forwarding
proxy and solicitation material to the owners of Common Stock and Preferred
Stock.
Q. Who can answer my other questions?
A. If you have any questions about the matters to be voted on, or if you need
additional copies of this document or the enclosed proxy card, you should
contact:
Dana Rochelle
Assistant Corporate Secretary
Investor Relations
(202) 466-3100
4
FORWARD-LOOKING INFORMATION INCLUDING THE COMPANY'S ABILITY TO
CONTINUE AS A GOING CONCERN
Certain statements in these proxy materials contain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, which statements can generally be identified by use of forward-looking
terminology, such as "may," "will," "expect," "estimate," "anticipate,"
"believe," "target," "plan," "project," or "continue" or the negatives thereof
or other variations thereon or similar terminology, and are made on the basis
of management's plans and current analyses of the Company, its business and the
industry as a whole. These forward-looking statements are subject to risks and
uncertainties, including, but not limited to, economic conditions, competition,
interest rate sensitivity and exposure to regulatory and legislative changes.
Current economic and business conditions have created a difficult environment
in which to raise capital. The Company's ability to execute its business plan
is, and its ability to continue as a going concern may be, dependant on its
ability to raise capital. The above factors, in some cases, have affected, and
in the future could affect, the Company's financial performance and could cause
actual results for 2001 and beyond to differ materially from those expressed or
implied in such forward-looking statements, even if experience or future
changes make it clear that any projected results expressed or implied therein
will not be realized.
These proxy materials also contain forward-looking statements concerning
prospective acquisitions and investments, and prospects for acquisitions and
investments. The Company cautions that the actual developments and results of
the Company's acquisitions and investments may differ from its expectations.
There can be no assurance that the conditions necessary to completing any
prospective acquisition, investment or related financing transaction will be
satisfied, or that any such prospective event will occur. Additional
investments by the Company or an unrelated person in any of the Company's
associated companies provide no assurance that such associated company will
succeed or that the Company's investments will be recovered or profitable. The
Company's assets and operations, including results of operations, would be
affected materially by the extent to which the Company and the Company's
associated companies continue to have access to financing sources on reasonable
terms in order to pursue its and their business plans, by the success or
failure of the business plans of the Company, and the Company's associated
companies, by economic conditions generally and particularly in the developing
technology market, by competition and technological changes in the Company's
and the Company's associated companies industries and businesses, and by the
results of the Company's and the Company's associated companies operations if
and when operating. In addition, the occurrence of any of the foregoing events
or the failure of any of the foregoing events to occur would materially affect
the Company's assets, operations and results of operations.
The Company's consolidated financial statements have been presented on the
basis that it is a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The
Company incurred significant losses during each of the three years in the
period ended December 31, 2000, and had working capital deficiencies at
December 31, 2000 and 1999. These circumstances raise substantial doubt about
the Company's ability to continue as a going concern.
The Company's ability to support its business objectives is dependent upon
its ability to raise capital, primarily through sales of convertible preferred
stock and common stock. See "PROPOSAL 1--Amendment to the Related Certificate
of Incorporation to Increase the Number of Authorized Shares of Common Stock to
500,000,000." The Company's continued ability to access the capital markets may
be dependant on its ability to generate cash flow from operations (through
increasing revenues and controlling costs at its LTI operations and generating
revenues as a result of providing services to the Associated Companies),
positive earnings or realizing a return from the cash flow of, or sale of its
interests in, one or more of its Associated Companies. Should the Company be
unable to raise sufficient capital to meet its cash flow needs, the Company may
be required to significantly curtail its operations and investing activities.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
5
PROPOSALS TO BE VOTED ON
1. AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
TO 500,000,000 (THE "CHARTER AMENDMENT")
Description of the Charter Amendment
This amendment increases the number of shares of Common Stock that the
Company is authorized to issue from 40,000,000 to 500,000,000 (the "Charter
Amendment"). The increase is needed to allow the conversion or exercise of all
of the Company's outstanding convertible securities or rights to acquire Common
Stock. These are the Company's Series A Stock, the Series B Stock issued to
acquire E2E, the Series C Stock, the Series D Stock, Series F Stock, warrants
outstanding, and options granted. All of these securities and rights together
require a total of 139,282,903 shares of Common Stock to be available in order
for them to be converted or exercised. If the Company's 1999 Stock Option Plan,
as further amended, as of April 27, 2001 is adopted at the meeting, the maximum
number of options available for grant under the 1999 Stock Option Plan will be
30 million. Without this amendment, there is an insufficient number of shares
of Common Stock available to cover the number of outstanding convertible
securities as well as options that could be granted under the 1999 Stock Option
Plan, if the plan is approved.
An increase in the number of authorized shares also is necessary to ensure
that there is an adequate number of shares available for the Company's growth
through any future security issuances for financing or in order to acquire
other assets or businesses. However, other than the conversion or exercise of
shares of convertible preferred stock presently outstanding or that may be sold
in continuing financing efforts, shares of common stock that may be privately
issued in payment for services rendered to the Company or one of its associated
companies, warrants and options granted, or options that could be granted under
the Company's 1999 Stock Option Plan, the Company at present has no definitive
plans to issue additional shares of Common Stock or securities convertible into
or rights to acquire shares of Common Stock. No preemptive rights are attached
to the Common Stock.
The Charter Amendment also is a post-closing covenant of the Company under
the E2E Acquisition Agreement and the Yazam Merger Agreement, both as described
below.
Vote Required and Board Recommendation
In order to amend the Restated Certificate of Incorporation to increase the
number of authorized shares of Common Stock, a majority of the total number of
votes that could be cast on this proposal at the annual meeting must vote in
favor of the proposal. Your Board of Directors recommends a vote FOR the
Charter Amendment increasing the number of shares of Common Stock authorized
for issuance.
6
E2E ACQUISITION
Overview of the E2E Acquisition
The Company, E2Enet, Inc. ("E2E"), and certain E2E stockholders signed a
Stock Exchange Agreement, dated as of February 21, 2000, for the Company's
acquisition of E2E (the "E2E Acquisition"). At that time, E2E was a
privately-held Internet incubator company. This agreement was amended on April
5, 2000 (as so amended, the "E2E Acquisition Agreement") to structure the
agreement as a merger to assure that the acquisition could qualify as a
tax-free reorganization for the companies and the E2E stockholders when their
E2E stock was converted, as a result of the merger, into Series B Stock. Under
the terms of the E2E Acquisition Agreement and as a condition subsequent to the
Company's acquisition of E2E, the Company is committed to effecting the Charter
Amendment.
The E2E Acquisition closed on April 12, 2000. The Company issued options to
the founders of the E2E associated companies and shares of the Company's Series
B Stock with an aggregate liquidation preference of $11,200,000 were issued to
the former stockholders of E2E in exchange for all of the outstanding capital
stock of E2E. Holders of the Series B Stock may vote as if their Series B Stock
were already converted to Common Stock on all matters at the annual meeting,
with the exception of the Charter Amendment. Shares of the Series B Stock
automatically will be converted into and exchanged for 56,000,000 shares of
Common Stock when the Charter Amendment increasing the number of shares of
Common Stock authorized for issuance becomes effective after it is approved by
the holders of shares of the Company's Common Stock and Series A Stock.
Background of and Reasons for the E2E Acquisition
The Company acquired E2E in order to establish a position in the growing
technology industry and to enhance the Company's ability to invest in and to
develop promising early-stage technology ventures. E2E had interests in several
development stage technology businesses prior to the merger.
The Company's Chairman and Chief Executive Officer, Gregory Earls, began
preliminary discussions with certain founders and creditors of E2E in late
December 1999. Company representatives, including financial and legal advisors,
carried out corporate due diligence with respect to E2E in February 2000. In
February 2000, Jonathan J. Ledecky and representatives of Northwood Ventures
LLC and Northwood Capital Partners LLC, venture capital investment funds
(collectively "Northwood"), as representatives of E2E, developed a plan with
Mr. Earls to exchange E2E stock for Company stock and for the Company to fund
E2E's immediate needs through a private offering of preferred stock. In
mid-February, E2E and the Company accelerated their discussions and entered
into the Stock Exchange Agreement on February 21, 2000.
Background of E2E
E2E's predecessor was founded in late 1998 as an incubator for early stage
technology companies. The predecessor merged with Ironbound Partners later in
1998. Ironbound Partners was principally funded by Jonathan J. Ledecky. E2E was
principally funded by Jonathan J. Ledecky and Northwood. During 1999, E2E
invested in several technology operations, both passively as well as in more
active management roles.
In order to support the growth of the associated companies and to pursue
other technology-related investments, E2E sought to have an initial public
offering (the "IPO"). On May 17, 1999, E2E filed a registration statement with
the Securities and Exchange Commission for an initial public offering of common
stock. E2E abandoned the IPO effort in November 1999. The IPO was to have been
E2E's primary capital source for E2E's operations, and for investments in new
and existing associated companies.
Between December 1999 and the end of January 2000, E2E's activities quickly
declined to a minimum level of activity. Its associated companies began to seek
capital from other sources. E2E's principal operating executives formed a
separate venture which was funded independently. That new venture relieved E2E
of obligations related to an office lease, employee compensation, and certain
other limited liabilities.
7
As part of the E2E reorganization prior to the E2E Acquisition by the
Company, Northwood and Jonathan Ledecky converted their E2E notes (which were
secured by all of E2E's assets) into E2E common stock. Those shares, plus other
shares they already owned, made them, collectively, the 97.67% owners of E2E.
Immediately prior to the closing of the E2E Acquisition, the notes to Northwood
totaled $4,203,452, including accrued interest, and the notes to Jonathan
Ledecky totaled $4,033,559, including accrued interest.
E2E Assets Acquired
Through its acquisition of E2E, the Company primarily acquired interests in
several development stage technology companies. See "--Overview of Associated
Companies."
E2E Liabilities Assumed
As part of the E2E Acquisition, the Company assumed E2E's liabilities of
approximately $1.5 million. These liabilities consisted primarily of legal,
accounting and printing fees incurred by E2E during its formation and its
unsuccessful IPO efforts.
The Company also agreed to assume E2E founder Jonathan Ledecky's obligations
under a May 14, 1999 Put Agreement ("Put Agreement"). The Put Agreement
provided that two E2E stockholders who were founders of one of the E2E
associated companies had the right to put their E2E stock (which represented
107.56 shares of Series B Stock, collectively) to Jonathan Ledecky for
$2,000,010 in the aggregate. The two stockholders' shares of Series B Stock
would have converted into 537,800 shares of Common Stock, collectively. The two
holders did not consent to this assignment, which consent was required pursuant
to the terms of the Put Agreement. On May 15, 2000, the two stockholders gave
notice to Jonathan Ledecky that they were exercising their put. No payment was
made to the two stockholders. On June 19, 2000, the two stockholders filed suit
against Mr. Ledecky in the U.S. District Court for the District of Columbia
alleging that Mr. Ledecky had failed to perform under the Put Agreement. On
August 10, 2000, Mr. Ledecky filed an answer generally denying all of the
allegations in the plaintiff's complaint. On March 30, 2001, this matter was
settled with the Company paying Mr. Ledecky $1,994,750 to cover the costs of
his settlement with the two stockholders.
Interests of Certain Persons in the E2E Acquisition
Voting Agreement. Under the terms of the E2E Acquisition Agreement, the
following parties entered into a Voting Agreement ("Voting Agreement") on April
12, 2000: the Company; USV, which is controlled by Mr. Earls, Chairman and
Chief Executive Officer of the Company; James V. Warren, a member of the board
of directors; Northwood Ventures LLC and Northwood Capital Partners LLC
(together, "Northwood"); and Jonathan J. Ledecky. Northwood and Jonathan
Ledecky were E2E stockholders prior to the Company's acquisition of E2E. The
parties to the Voting Agreement agreed to vote all of their shares of Common
Stock, Series A Stock and Series B Stock, and any other voting securities of
the Company acquired by any of the parties after the date of the Voting
Agreement, for the election of four directors designated by USV (one of whom
will be Gregory Earls or his designee), two directors designated by Jonathan
Ledecky, and two directors designated by Northwood. The Voting Agreement
terminates on April 12, 2003. See "PROPOSAL 5--Election of Board of Directors."
Proxy Agreement. On April 12, 2000, USV, James V. Warren and Gregory Earls
entered into a Voting Agreement and Proxy (the "Proxy"), pursuant to which Mr.
Warren and USV executed irrevocable proxies in favor of Gregory Earls,
empowering and directing Mr. Earls to vote their shares of Series A Stock and
Common Stock in favor of the Charter Amendment. Mr. Earls' voting of these
executed proxies and his own voting in accordance with the Proxy Agreement
assures approval of the Charter Amendment since holders of Series B, Series C,
Series D, and Series F Stock are not entitled to vote on the Charter Amendment
and the votes of Mr. Earls, Mr. Warren and USV represent a majority of the
votes entitled to vote on the Charter Amendment. The Proxy Agreement terminates
after the stockholders approve the Charter Amendment.
8
Waiver Agreement. USV and the Company entered into a Waiver Agreement dated
as of March 1, 2000, pursuant to which USV waived its right to convert its
shares of Series A Stock into Common Stock until the Company's stockholders
approve the Charter Amendment. USV intends to convert all of its Series A Stock
into Common Stock if and when the Charter Amendment becomes effective, which
also will be the same time that the shares of Series B, Series C and Series D
Stock are converted to Common Stock. By a letter agreement dated September 20,
2000, this waiver was extended to include securities convertible into Common
Stock owned by Mr. Earls, personally.
Registration Rights Agreement. On April 12, 2000, the Company, USV Partners
LLC, Northwood Capital Partners LLC, Northwood Ventures LLC, Jonathan Ledecky,
and the other holders of the Company's Series B and Series C Stock entered into
an Amended and Restated Registration Rights Agreement (the "Registration Rights
Agreement"). Under the Registration Rights Agreement, the stockholder/parties
have the right on three occasions to compel the Company to register their
respective shares at the Company's expense and on other occasions to register
shares at such holders' expense. These stockholders also have unlimited
registration rights to be combined, at the Company's expense, with certain
registrations of any equity securities by the Company ("piggyback rights"),
subject to restrictions which an underwriter might impose for the sale of the
shares. Six months after the date on which the Series B and Series C Stock are
converted into Common Stock, the demand registration rights will be exercisable
only by a request from holders of one-third or more of the shares covered by
the Registration Rights Agreement. The Registration Rights Agreement terminates
and the registration obligations under it expire on April 12, 2006.
Stock Options. Upon the closing of the E2E Acquisition, certain directors,
consultants and employees were granted 250,000 stock options each, with an
annual vesting over three years on February 21, 2001; February 21, 2002; and
February 21, 2003. See "BOARD OF DIRECTORS--Board Compensation" and "BOARD OF
DIRECTORS--Stock Option Plans."
Common Investments. The Northwood entities and Jonathan Ledecky have
investments in certain of the technology businesses in which the Company,
through E2E, has investments. Similar "side-by-side" investments may occur in
the future, though no other such common investments are planned presently. See
"--E2E Assets Acquired and Liabilities Assumed" and "--The Buyline
Reorganization."
The E2E Stock Exchange Agreement, as amended (the "Acquisition Agreement")
Closing. The E2E Acquisition became effective upon the filing of the
Certificate of Merger with the Secretary of State of Delaware on April 12,
2000.
Merger Consideration. As consideration for their E2E stock, all of the
former E2E stockholders received shares of the Company's Series B Stock with an
aggregate stated value of $11,200,000, mandatorily convertible into an
aggregate of 56,000,000 shares of Common Stock.
Representations and Warranties. The Acquisition Agreement contained certain
mutual representations and warranties made by the Company and the stockholders
of E2E to each other, which did not survive the closing. These representations
and warranties related to:
. corporate organization, authority, existence, qualification, standing, and
power;
. capitalization;
. subsidiaries and investments;
. government consents and approvals to complete the merger;
. absence of conflict with or violation of organizational documents, certain
agreements, debt or security instruments as a result of execution,
delivery, and performance of the Acquisition Agreement;
9
. tax matters;
. financial statements;
. litigation;
. legal compliance of operations;
. intellectual property;
. labor and employment matters;
. no default under material contracts;
. no undisclosed liabilities;
. no material adverse changes since specified dates;
. no broker's or finder's fees;
. veracity of minute books, stock book, stock certificate ledgers and other
similar records;
. no undisclosed investments; and
. no untrue or omitted material fact in the agreement or proxy statement.
In addition, the stockholders of E2E made representations and warrantees to
the Company acknowledging that:
. the Company's Preferred Stock issued in exchange for E2E stock would not
be registered, would bear a specific legend, and were acquired as an
investment and not with a view to distribution or resale; and
. the stockholders of E2E represented and warranted to E2E that they were
"accredited investors" as defined in Regulation D of the Securities and
Exchange Act of 1934.
Certain Covenants. E2E and, in certain instances, E2E stockholders with
respect to E2E or their E2E stock, agreed that prior to closing it, or they,
would:
. refrain from any material change of business;
. preserve E2E as an ongoing business and maintain its goodwill;
. preserve all licenses, authorizations, and other governmental rights and
permits;
. not enter into any material transactions;
. not purchase, sell, lease, dispose of or otherwise transfer or subject to
a lien any E2E assets;
. not hire any employees or enter into any employment severance or similar
contract;
. not make any capital expenditure or commitment to make a capital
expenditure except as indicated in the Acquisition Agreement;
. not make any changes in financial policies or practices, or in strategic
policies or practices except as required by law;
. comply materially with all applicable laws;
. not allow E2E to make any loan or advance to any officer, director,
stockholder, employee, individual;
. not amend its organizational documents;
. provide reasonable access to offices, properties, and employees of E2E and
provide access to E2E books, papers and records prior to Closing;
. notify the Company of significant changes in E2E's business or operations;
. furnish financial, operating, and other data related to E2E investments;
. use reasonable best efforts to obtain all necessary third party consents,
approvals, and waivers;
10
. not declare or pay dividends with respect to its capital stock nor split,
combine or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities for exchange of any shares of
its capital stock, except as contemplated by the Acquisition Agreement;
. not issue securities, except as contemplated by the Acquisition Agreement;
. take no action inconsistent with their obligations under the Acquisition
Agreement nor disclose confidential information to unauthorized persons or
entities.
The Company agreed to:
. assume Jonathan Ledecky's obligation pursuant to a Put Agreement, dated
May 14, 1999 (the "Put Agreement") by and among Jonathan Ledecky, William
K. Dodd, and Katherine W. Kelley, as amended. See "--Interests of Certain
Persons in the E2E Acquisition";
. make no material change in the conduct of its business prior to the
closing date;
. provide E2E access to its offices, properties, and records as well as
update E2E as to any significant change of business;
. use reasonable efforts to obtain necessary third party consents;
. not declare dividends, splits, etc. of its capital stock;
. not issue securities except as contemplated by the Acquisition Agreement;
and
. take no action inconsistent with its obligations under the Acquisition
Agreement and related documents.
Material Conditions to the Merger. The obligation of E2E and the E2E
stockholders to close the acquisition were subject to certain conditions,
including the following:
. all representations, warranties, covenants and agreements of E2E and its
stockholders in the agreement were materially true and satisfied;
. organizational documents of E2E appropriately changed;
. due diligence by the Company was completed;
. capital infusion into the Company of at least $6,250,000 and up to
$10,000,000;
. satisfaction that the stock exchange would not result in material federal
or state income tax to E2E stockholders;
. execution and delivery of the Voting Agreement regarding nomination and
election of Company directors. (See "Interests of Certain Persons in the
E2E Acquisition");
. execution and delivery of a voting agreement and proxy by USV and James
Warren (see "Interests of Certain Persons in the E2E Acquisition");
. execution and delivery of an amended and restated registration rights
agreement; and
. assumption of the Put Agreement (see above).
The obligation of the Company to close the acquisition was subject to
certain conditions, including the following:
. all representations, warranties, covenants and agreements in the agreement
were materially true and satisfied;
. appropriate documentation was received prior to closing;
. completion of due diligence;
. capital infusion of at least $6,250,000 and up to $10,000,000;
11
. satisfaction that the stock exchange would not result in material federal
or state income tax to former E2E stockholders; and
. execution and delivery of a voting agreement regarding the designation of
directors. See "--Interests of Certain Persons in the E2E Acquisition."
Termination. The Acquisition Agreement could have been terminated prior to
the closing by mutual, written agreement of E2E and the Company, or by either
one of E2E or the Company, if:
. the E2E Acquisition was not consummated by 5:00 p.m. Eastern Standard Time
on April 11, 2000, as long as the party seeking termination was not in
breach of the Acquisition Agreement; or
. a government entity had issued an order or taken action preventing the
merger transactions and such order or action was final and non-appealable,
as long as the party seeking termination had taken all reasonable efforts
to remove such order or action; or
. there had been one or more breaches by E2E of the Acquisition Agreement
that would have permitted the Company not to close and E2E had not cured
the breach within 30 days; or
. there had been one or more breaches by the Company of the Acquisition
Agreement that would have permitted E2E not to close and the Company had
not cured the breach within 30 days.
12
YAZAM ACQUISITION
Overview of the Yazam Acquisition
On March 27, 2001, the Company consummated its acquisition by merger (the
"Yazam Acquisition"), of Yazam.com Inc., a Delaware corporation ("Yazam").
Yazam had been engaged in seed-stage funding and business development services
to emerging Internet and technology-related start-ups. At its peak, Yazam had
investments in 26 portfolio companies (the "Yazam Associated Companies") in
several different countries and approximately 129 employees. Principally due to
reverses in the stock market, Yazam had effectively ceased capital raising and
investment operations in the fourth quarter of 2000 pending its liquidation or
sale.
The purchase price for Yazam was $22,000,000 in cash, 27,374 shares of the
Company's Series F Convertible Preferred Stock (the "Series F Stock") and
warrants to purchase an aggregate of 8,000,000 shares of the Company's common
stock at $0.34 per share. Pursuant to the transaction, the Company obtained
approximately $28.9 million of cash held by Yazam at closing, investments in
various associated companies and a subsidiary under contract for sale, which
has since closed, valued at $500,000. The net result is that, in addition to
acquiring Yazam and its associated companies, the Company acquired
approximately $6.9 million in cash and issued redeemable convertible preferred
stock.
The Series F Stock has an aggregate liquidation preference equal to $219.19
per share. Holders of the Series F Stock may vote together with the holders of
common stock, as if their shares of Series F Stock were converted to common
stock, on all matters at any annual or special meeting of stockholders, with
the exception of votes that affect the rights of the Series F Stock, in which
case the holders of the Series F Stock shall vote as a separate class, and
except for the Charter Amendment, as to which the holders of Series F Stock are
not entitled to vote. Shares of the Series F Stock will be convertible into
27,374,000 shares of common stock of the Company following shareholder approval
of the Charter Amendment.
Of the investments in 26 Yazam Associated Companies acquired in the Yazam
Acquisition, Yazam prior to the acquisition, wrote down its investment in 19 of
such companies, in accordance with an assessment of the respective companies'
cash positions and potential to execute its business plan. The associated
companies of Yazam are being developed and will be monitored by existing
Company personnel and seven Yazam professionals that remain with the Company
after the Yazam Acquisition. Currently a wholly owned subsidiary of the
Company, Gregory Communications FCA Inc. is a public relations and investor
relations firm that will complement the Company's existing capabilities in
providing business development services to associated companies.
The issuance to former stockholders of Yazam of shares of the Company's
common stock upon the exercise of the warrants or the conversion of the Series
F Stock will require the prior amendment of the Company's charter, as
previously disclosed by the Company. In the event that the Company's charter is
not amended and a sufficient number of additional shares of common stock of the
Company necessary for the conversion of the Series F Stock and the exercise of
the Company warrants is not authorized prior to September 1, 2001, holders of
the Company's Series F Stock will have the right to sell their shares to the
Company, and the Company has the obligation to purchase such shares, in
accordance with the terms of the Yazam Merger Agreement (as defined below).
Some of the Series F Stockholders have agreed to waive this right. See "--The
Yazam Merger Agreement" and "--Series F Stock Waiver and Replacement
Agreement."
Background of and Reasons for the Yazam Acquisition
On February 28, 2001, the Company, U.S. Technologies Acquisition Co.
("Acquisition Co.") and Yazam entered into an Agreement and Plan of Merger, as
amended March 22, 2001 (as so amended, the "Yazam Merger Agreement"), for the
Company's acquisition, via merger, of Yazam. Under the terms of the Yazam
Merger Agreement, the Company agreed to effect the Charter Amendment.
13
The Company acquired what remained of Yazam in order to obtain approximately
$6.9 million in cash, to expand its position in the growing technology sector,
to enhance the Company's ability to invest in, develop and operate promising
early-stage technology ventures, and to leverage the investment and management
experience of the seven investment professionals hired via the Yazam
Acquisition. Prior to its acquisition by the Company, Yazam had made
investments in 26 development stage technology-related businesses. Management
hoped the Yazam Acquisition would allow the Company to take advantage of
possible synergistic relationships between its current investments in various
early-stage technology companies and the 26 development stage
technology-related businesses held by Yazam in order to maximize the growth
potential of each such investment. See, "--Yazam Assets Acquired."
Background of Yazam and the Yazam Acquisition
Yazam is a Delaware corporation that was created in April 1999 and began
funding start-ups using its own capital, as well as capital provided by a
network of other investors which were called the "Yazam Angel Investors" in
October 1999. In addition to providing seed-stage financing, Yazam provided
business development services to emerging Internet and technology start-ups.
From April 1999 through December 2000, Yazam invested in approximately 26
companies.
In November 2000, Yazam's Board of Directors reassessed the business
direction of Yazam. At approximately the same time, the Chief Executive Officer
and President of Yazam left the company. Yazam's Chief Financial Officer was
appointed as acting Chief Executive Officer with his principal responsibility
being to evaluate Yazam's strategic alternatives. Yazam's Board and management
quickly concluded that liquidation of the company was the most likely
alternative for Yazam, and began the process of winding down operations, while
at the same time continuing to search for other companies willing to purchase
what remained of Yazam.
USXX submitted an initial offer to Yazam on February 8, 2001 and submitted a
final offer on February 11, 2001. Yazam's Board accepted the USXX proposal on
February 13, 2001, and the process of negotiating the terms of the transaction
commenced shortly thereafter. On February 28, 2001, the Boards of each party
approved the transaction, the parties executed the Yazam Merger Agreement, and
Yazam and Gregory Earls, Chairman and Chief Executive Officer of the Company,
executed the voting agreement in connection with the Yazam Acquisition.
In the interim period between signing and closing, the parties undertook to
satisfy all of the closing conditions to the Yazam Acquisition, as discussed
below.
During the week of February 19, the Company and its advisors conducted due
diligence on Yazam, and representatives of Yazam and the Company attended a
day-long presentation on February 21, 2001.
On March 8, 2001, Yazam gave notice of the Yazam Acquisition to its option
holders and offered such holders the opportunity to exercise their respective
options, pursuant to the decision on February 28, 2001 of Yazam's Compensation
Committee to accelerate the vesting of all outstanding options to purchase
common stock of Yazam and allow for the exercise of such options.
Also on or about March 8, 2001, Yazam sought the consent of its
shareholders, via its consent solicitation statement, to the Yazam Acquisition.
Yazam shareholders were provided the details of the pending transaction and
informed as to the procedures for voting. Subsequently, on or about March 15,
2001, Yazam distributed letters of transmittal to all of its stockholders.
On March 20, 2001, the Company sought the consent to (a) the Yazam Merger
Agreement, (b) the creation and issuance of the Series F Stock, and (c) all
actions of the Company in connection with the Yazam Acquisition, from the
holders of its Series A Preferred Stock, Series B Preferred Stock and certain
other owners of registrable securities under a registration rights agreement
among the Company and certain investors specified therein.
14
On March 22, 2001, the Company, Acquisition Co. and Yazam amended the Yazam
Merger Agreement to address the prepayment of certain debt of Yazam prior to
the closing and to extend the date, from June 1, 2001 to September 1, 2001, by
which the Company had to solicit shareholder approval of the Charter Amendment.
Both the Company's Board of Directors and the sole director of Acquisition
Co. approved the Yazam Merger Agreement, as amended, on March 26, 2001. The
Company's Board of Directors also approved the Certificate of Designations,
Preferences and Rights of the Series F Convertible Preferred Stock of the
Company (the "Certificate of Designations"), the filing thereof with the
Delaware Secretary of State, and the loan the Company was to enter into with
Safra Bank of New York in connection therewith.
Similarly, the Yazam Board of Directors met on March 26, 2001 to discuss the
Yazam Acquisition. At that meeting, Yazam's Board approved the amendment to the
Yazam Merger Agreement, and certain other matters related to the Yazam
Acquisition.
The Company filed the Certificate of Designations on March 27, 2001 in
anticipation of the closing. Yazam filed its charter amendment on the same day,
clarifying that the Yazam Acquisition would not be deemed a liquidation event
under the company's original charter, thereby eliminating any liquidation
preferences.
The Yazam Acquisition was consummated on March 27, 2001 by the filing of the
Certificate of Merger, whereby Acquisition Co. was merged with and into Yazam,
Acquisition Co. ceased to exist, and Yazam became a wholly-owned subsidiary of
the Company.
Yazam Assets Acquired
Through its acquisition of Yazam, the Company primarily acquired
approximately $6.9 million in cash, interests in the 26 Yazam Associated
Companies and Yazam's wholly-owned subsidiaries, which included Gregory FCA
Communications Inc., Yazam.com Financial Advisors Inc. and Yazam Capital Corp.
Due to the liquidation process Yazam was undergoing at the time of the Yazam
Acquisition, and as a result of the financial condition and prospects of the
associated companies, Yazam's investment in most of these portfolio companies
was being written down. The Company is continuing to perform additional due
diligence to assess the viability of all of the associated company investments.
See "--Overview of Associated Companies."
Yazam Liabilities Assumed
As part of the Yazam Acquisition, the Company agreed to assume up to $3.0
million of Yazam's existing liabilities at the time of the merger. At March 27,
2001 these liabilities were estimated at approximately $2.0 million and
consisted of accounts payable of approximately $900,000, accrued severance pay,
legal fees, audit fees and real estate commissions of approximately $700,000,
and accrued payroll and other costs of approximately $400,000. Further, the
Company's issuance of Series F Preferred Stock in the transaction is also
considered to be a liability in view of the associated put and redemption
features, the former of which could be activated if the Charter Amendment is
not approved prior to September 1, 2001.
Interests of Certain Persons in the Yazam Transaction
Phillip Garfinkle is a member of the advisory board of USXX, was a director
and the former president of Yazam, and holds options to purchase 1,000,000
shares of USXX common stock, such options having been granted to Mr. Garfinkle
as compensation for his services as a member of the advisory board of USXX, and
which vest over a four year period beginning April 2001. Mr. Garfinkle will
subscribe to the Company's offering of Series E Convertible Preferred Stock.
The USXX advisory board is an informal group that advises the Chairman on
technology matters.
Registration Rights Agreement
On March 27, 2001, the Company and holders of Yazam Preferred securities and
Yazam Warrants ("Yazam Holders") entered into a Registration Rights Agreement
("the Yazam Registration Rights Agreement"). Under
15
the Yazam Registration Rights Agreement, the Yazam Holders have the right to
compel the Company to register their respective shares at the Company's
expense. The Yazam Holders also have unlimited registration rights to be
combined, at the Company's expense, with certain registrations of any equity
securities by the Company ("piggyback rights"), subject to restrictions which
an underwriter might impose for the sale of the shares. This Yazam Registration
Rights Agreement expires by its terms on March 27, 2007.
Voting Agreement
Under the terms of the Yazam Merger Agreement, Mr. Earls, Chairman and Chief
Executive Office of the Company, entered into a Voting Agreement. Pursuant to
the Voting Agreement, Mr. Earls agreed to vote all of the shares of Common
Stock controlled by him at the time of the Vote in favor of the Charter
Amendment.
The Yazam Merger Agreement
The following is a brief summary of the material terms of the Yazam Merger
Agreement. However, we recommend that you read carefully the complete Yazam
Merger Agreement for the precise legal terms of the Yazam Acquisition and other
information that may be important to you. The Yazam Merger Agreement is
attached as Appendix D to this Proxy Statement.
Yazam Acquisition Consideration
In the Yazam Acquisition, Yazam stockholders received, in the aggregate:
. $22,000,000 in cash, subject to adjustment downward of $1.00 for every
dollar that Yazam's closing cash balance (the "Closing Cash Balance") in
its primary bank account was less than $25,000,000 (the "Closing Cash
Balance Deficiency"), allocated pursuant to the exchange ratios described
below;
. Warrants to purchase an aggregate of 8,000,000 shares of Company common
stock, allocated pursuant to the exchange ratios described below, at an
exercise price of the average price of Company common stock as reported on
the "Over the Counter Market" (the "OTC BB") for the 20 trading days prior
to the effective time of the Yazam Acquisition, but not less than $0.25
per share, exercisable for a period of three years following the effective
time. Upon executing the registration rights agreement, holders of the
warrants became entitled to "piggy-back" registration rights pursuant
thereto; and
. 27,374 shares of the Company's Series F Stock, convertible initially into
1,000 shares of Company common stock for each share of Series F Stock,
subject to adjustment. Holders of Series F Stock will receive preferential
treatment in a liquidation of the Company over all existing holders of
Company common stock and Preferred Stock ("Existing Preferred Stock"),
and, upon executing the Registration Rights Agreement, became entitled to
demand and piggy-back registration rights pursuant thereto. Further, for a
90-day period following the second anniversary of the effective time of
the Yazam Acquisition, holders will have the right to require the Company
to redeem the Series F Stock at a price of $100 per share. The Series F
Stock also will have voting rights on an as-converted basis with Company
common stock. A vote of the holders of two-thirds of the Series F Stock
will be required to approve any diminution in the rights of the Series F
Stock, and a vote of a majority of the stock is required before the
Company may issue any securities with the same preference or priority as,
or with a preference or priority senior to, the Series F Stock. No
dividends will accrue or be payable at any time with respect to the Series
F Stock.
By this Proxy Statement the Company intends to amend its Charter to increase
the authorized number of shares of Company common stock in order to authorize
and reserve a sufficient number of shares of common stock for issuance in
connection with the conversion of the Series F Stock and exercise of the
warrants. If the Company does not authorize and issue such additional number of
shares of common stock as necessary for the conversion of the Series F Stock
and the exercise of the warrants prior to September 1, 2001, the Yazam
stockholders who receive shares of Series F Stock may require the Company after
such date to repurchase their
16
shares of Series F Stock for a price per share of the average price of Company
common stock as reported on the OTC BB (or other applicable nationally
recognized market quotation system) for the 20 trading days prior to the date
of the request multiplied by 1,000, but not less than $250 per share. See,
"--Series F Stock Waiver and Replacement Agreement."
After the Yazam Acquisition, holders of certificates representing shares of
Yazam stock, or options or warrants in respect of any Yazam security, ceased to
have any rights as stockholders, option holders or warrant holders of Yazam,
except such rights, if any, as they may have under the DGCL. The sole
outstanding warrant to purchase shares of Yazam common stock was converted into
a warrant (the "Converted Warrant"), with an exercise price of $2.74, to
purchase a U.S. Technologies' warrant to purchase 153,221 shares of U.S.
Technologies common stock.
By virtue of the Yazam Acquisition and without any action on the part of the
Yazam stockholders, each share of Yazam stock issued and outstanding, except
shares held in Yazam's treasury, shares held by any subsidiary of Yazam or
dissenting shares, were converted as follows:
. each share of common stock was converted into the right to receive a U.S.
Technologies warrant to purchase approximately 0.19 shares of Company
common stock, depending upon the number of options that were exercised
prior to the effective time;
. each share of Yazam Series A Preferred Stock was converted into the right
to receive a U.S. Technologies warrant to purchase one share of Company
common stock;
. each share of Yazam Series B Preferred Stock was converted into the right
to receive cash in the amount of approximately $0.54 (subject to
adjustment), approximately 0.00067 shares of Series F Stock and a warrant
to purchase approximately 0.074 shares of Company common stock; and
. each share of Yazam Series C Preferred Stock was converted into the right
to receive cash in the amount of approximately $1.627 (subject to
adjustment), approximately 0.00202 shares of Series F Stock and a warrant
to purchase approximately 0.22 shares of Company common stock.
Each record holder of Yazam stock, immediately prior to the closing of the
Yazam Acquisition, was entitled to receive, upon surrender to the Company of
the certificates representing such shares of Yazam stock for cancellation,
their share of the Yazam Acquisition consideration, subject to any required
withholding of taxes. No interest was to accrue or be paid on the cash and
securities payable upon the surrender of the certificates.
Representations and Warranties
The Yazam Merger Agreement contained customary representations and
warranties of Yazam, USXX and Acquisition Co. The Yazam Merger Agreement
contained representations and warranties of Yazam regarding, among other
things:
. organization, qualification and good standing of Yazam and its
subsidiaries;
. Yazam's authority to enter into the Yazam Merger Agreement and to
consummate the transactions contemplated thereby;
. the Board's authorization of the Yazam Acquisition transactions;
. Yazam's capital structure;
. consents or approvals from any third party or governmental authority
required for Yazam to enter into the Yazam Merger Agreement and consummate
the transactions contemplated thereby;
. Yazam's unaudited financial statements furnished to the Company;
. Yazam's and its subsidiaries' compliance with applicable law and the
provisions of their respective organizational documents;
17
. Yazam's interests in real and personal property;
. Yazam's intellectual property;
. contracts to which Yazam was a party;
. Yazam's employee benefits plans;
. actions pending against Yazam;
. affiliate transactions;
. filing of tax returns and payment of taxes;
. use of brokers, finders or financial intermediaries in connection with the
transactions contemplated by the Yazam Merger Agreement;
. Yazam's employees; and
. Yazam's investor base.
The Yazam Merger Agreement contained representations and warranties of the
Company and Acquisition Co. regarding, among other things:
. organization, qualification and good standing of the Company and
Acquisition Co.;
. the Company's and Acquisition Co.'s authority to enter into the Yazam
Merger Agreement and to consummate the transactions contemplated thereby;
. consents or approvals from any third party or governmental authority
required for the Company or Acquisition Co. to enter into the Yazam Merger
Agreement and to consummate the transactions contemplated thereby;
. litigation;
. use of brokers, finders or financial intermediaries in connection with the
transactions contemplated by the Yazam Merger Agreement;
. the Company's capitalization, including a representation that Gregory
Earls, the Company's Chairman and Chief Executive Officer, would have
executed and delivered a voting agreement in favor of the Charter
Amendment;
. that in the event the authorization of additional shares of common stock
of the Company pursuant to the Charter Amendment is not completed prior to
September 1, 2001, the holders of the Series F Stock may require the
Company to repurchase such shares for a price per share of the average
price of Company common stock as reported on the OTC BB (or other
applicable nationally recognized market quotation system) for the 20
trading days prior to the date of the request multiplied by 1,000, but not
less than $250 per share;
. the Company's SEC reports; and
. sufficient funds to finance the cash portion of the Yazam Acquisition
consideration.
Covenants
Yazam agreed that prior to the closing it would, among other things, conduct
its business (and cause its subsidiaries to conduct their businesses) in the
ordinary course in substantially the same manner as in the past, use reasonable
commercial efforts to preserve intact its and its subsidiaries' present
business organization, keep available the services of its officers and
employees and those of its subsidiaries, and preserve its relationships and
those of its subsidiaries with customers, suppliers and others having business
dealings with them. In addition, Yazam agreed that it would not do, and would
not permit any of its subsidiaries to do any of the following, at or before the
closing of the Yazam Acquisition:
18
. amend its certificate of incorporation, by-laws or other organizational
documents;
. rescind, modify, amend or otherwise change or affect any of the
resolutions of the Board recommending adoption of the Yazam Merger
Agreement and authorization of the Yazam Acquisition;
. issue, sell, transfer, assign, pledge, convey or dispose of any security
or equity interest or any security convertible into or exchangeable or
exercisable for any security or equity interest, including, without
limitation, any subscriptions, options, warrants, calls, conversions or
other rights, agreements, commitments, arrangements or understandings of
any kind obligating Yazam or any of its subsidiaries, contingently or
otherwise, to issue or sell, or cause to be issued or sold, any security
or equity interest of Yazam, any of its subsidiaries, or any of Yazam's
investment portfolio companies or any security convertible into or
exchangeable or exercisable for any security or equity interest (subject
to the exception with respect to Yazam's subsidiary, First Tuesday);
. split, combine or reclassify any shares of any class of its capital stock,
declare, set aside or pay any dividend or other distribution in respect of
any class of its capital stock, or redeem or otherwise acquire any shares
of such capital stock;
. write off any receivables in excess of $5,000 individually, or $20,000 in
the aggregate;
. sell, assign, lease or otherwise transfer or dispose of any assets in
excess of $15,000 individually, or $50,000 in the aggregate;
. create, incur or assume any liability or make or commit to make capital
expenditures in excess of $25,000 individually or $50,000 in the
aggregate, or create, incur, assume, maintain or permit to exist any
indebtedness in aggregate amount greater than $50,000 for Yazam and its
subsidiaries combined, or assume, guarantee, endorse or otherwise become
liable or responsible for the obligations of any other person (subject to
certain exceptions);
. increase or modify, or agree to increase or modify, the compensation,
bonuses or other benefits or perquisites of any employee of Yazam or any
Yazam subsidiary, or pay or commit to pay any compensation, bonus, pension
or other retirement benefit or allowance, fringe benefit or other benefit
not required by the terms of an existing plan as in effect on the date of
the Yazam Merger Agreement, or suspend or terminate any employee of Yazam
or any Yazam subsidiary;
. make any new elections, or make any changes or current elections, with
respect to taxes;
. change its auditors or materially change its auditing or bookkeeping
practices;
. take or fail to take any action that would cause any of its
representations and warranties not to be true and correct on the closing
date in the manner required by the Yazam Merger Agreement;
. cancel, terminate or materially amend or modify any real or material
personal property leases;
. cancel or materially amend or modify any agreement with any customer; or
. enter into any new agreement with any customer.
No Solicitation of Transactions
Yazam also agreed that, prior to closing, it would not to take, directly or
indirectly, any action to initiate, assist, solicit, receive, negotiate,
encourage or accept any offer or inquiry to:
. engage in, reach an agreement or understanding for, otherwise attempt to
consummate or provide information with respect to Yazam or its
subsidiaries to any third party considering: (1) a merger, consolidation,
acquisition, partnership or combination to which Yazam or any of its
subsidiaries is or would be a party, (2) any sale, dividend, split or
other disposition of capital stock or other equity interest of Yazam, any
of its subsidiaries or any of its portfolio companies or (3) any sale,
dividend or other disposition of all or substantially all of the assets
and properties of Yazam, any of its subsidiaries or any of its portfolio
companies; or
19
. (A) purchase, acquire, sell or otherwise transfer any capital stock or
other equity interest of a third party as described above, (B) purchase or
acquire all or substantially all of the assets and properties of such
third party or (C) invest in or enter into a joint venture, strategic
partnership or other similar arrangement with such third party.
Restrictions on Transfer
The shares of Series F Stock, the Converted Warrant and the Company's
warrants issued pursuant to the Yazam Acquisition and upon exercise of the
Converted Warrant, and the shares of Company common stock issuable upon
conversion of the Series F Stock or exercise of the warrants, have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
or the securities laws of any jurisdiction, and were issued to the stockholders
in reliance on exemption from registration pursuant to Section 4(2) of the
Securities Act and applicable state securities laws. These securities and the
shares of Company common stock issued upon conversion or exercise thereof may
not be sold, transferred or otherwise disposed of without registration under
the Securities Act and any applicable state securities laws, or pursuant to an
exemption from registration. The certificates representing the Series F Stock,
the warrants, shares of common stock and the Converted Warrant will bear any
legend required by state law in addition to a legend substantially to the
following effect, until such time, if any, as the same is no longer required:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES OR "BLUE-SKY" LAWS.
THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED PLEDGED, ENCUMBERED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNLESS THE ISSUER RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO
THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED."
As a general matter, however, if all conditions of Rule 144, promulgated
pursuant to the Securities Act, are met, shares of Company common stock may be
transferred in limited amounts beginning one year after issuance thereof.
Conditions to the Yazam Acquisition
The Yazam Merger Agreement provided that the obligations of the Company,
Acquisition Co. and Yazam to complete the Yazam Acquisition were subject to the
fulfillment, at or prior to the closing of the Yazam Acquisition, of the
following conditions:
. Each party has performed in all material respects each of its respective
obligations under the Yazam Merger Agreement required to be performed by
it on or prior to the closing;
. The representations and warranties of the parties set forth in the Yazam
Merger Agreement that were qualified by reference to a material adverse
effect were true and correct, and all other representations and warranties
of the parties were true and correct, except for failures to be true and
correct as would not, individually or in the aggregate, have had a
material adverse effect, as of the date of the Yazam Merger Agreement and
as of the closing of the Yazam Acquisition, as though made as of the
closing of the Yazam Acquisition (except to the extent any such
representation or warranty expressly spoke as of an earlier date, in which
case it would have been true and correct in all material respects as of
such date);
. Yazam would have received a certificate, dated the closing date, of the
President or any Vice President of the Company to the effect that the
conditions specified above had been fulfilled, and the Company and
Acquisition Co. also would have received a certificate, dated the closing
date, of the acting Chief Executive Officer of Yazam to the effect that
the conditions specified above had been fulfilled and certifying as of the
closing date as to the Closing Cash Balance for purposes of adjusting, in
the event of a Closing Cash Balance Deficiency, the cash portion of the
Yazam Acquisition consideration;
. Neither any preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction, any governmental,
regulatory or administrative agency or any commission, nor
20
any applicable law promulgated or enacted by any governmental authority,
would be in effect which was reasonably likely to make the consummation of
the Yazam Acquisition by the Company, Acquisition Co. and Yazam illegal or
otherwise prevent the consummation of the Yazam Acquisition; and
. On the closing date, in addition to any other documents specifically
required to be delivered pursuant to the Yazam Merger Agreement, each of
the parties would have executed and delivered, or caused to be executed
and delivered, in form and substance reasonably acceptable to the other
parties and their respective counsel, such other certificates, documents,
instruments and agreements as may have been reasonably necessary in
connection with the consummation of the transactions contemplated by the
Yazam Merger Agreement, including but not limited to consents, all in form
and substance reasonably satisfactory to the other parties and their
respective counsel.
The obligations of Yazam to complete the Yazam Acquisition were further
subject to the fulfillment, at or prior to the closing of the Yazam
Acquisition, of the following conditions;
. Yazam would have received the opinion of Shaw Pittman, counsel to the
Company and Acquisition Co., in the form and substance reasonably
satisfactory to Yazam;
. The Company would have executed the Registration Rights Agreement as
provided in the Yazam Merger Agreement; and
. the Company would have obtained written waivers from the applicable number
of stockholders in order to enable the Company to authorize the Series F
Stock with rights senior to the Company's Existing Preferred Stock.
The obligations of the Company and Acquisition Co. to complete the Yazam
Acquisition were further subject to the fulfillment, at or prior to the closing
of the Yazam Acquisition, of the following conditions:
. approval and adoption of the Yazam Acquisition by the requisite consent of
the stockholders entitled to vote as required by the DGCL, the Charter and
Yazam's by-laws;
. receipt by the Company of a letter of resignation from each of the
executive officers and directors of Yazam, effective as of the closing of
the Yazam Acquisition;
. the Company would have received from Yazam such information as reasonably
requested by the Company regarding each of Yazam's stockholders who were
to receive a portion of the Yazam Acquisition consideration sufficient for
the Company to determine whether each such stockholder was an "accredited
investor" as defined in Section 501(a) of Regulation D of the Securities
Act;
. Yazam would have obtained all necessary consents or waivers in lieu
thereof;
. the Company and Acquisition Co. should each have received the opinion of
Gibson Dunn, counsel to Yazam, in form and substance reasonably
satisfactory to the Company;
. Yazam should have delivered to the Company documentation representing
investments in certain portfolio companies and stock certificates
representing the number of shares held by Yazam in such portfolio
companies; and
. The employment agreements of certain employees of Yazam would have been
amended to clarify the employees' severance payment entitlements.
Termination
The Yazam Merger Agreement could have been terminated at any time prior to
the closing of the Yazam Acquisition:
. by mutual consent of the Company and Yazam;
. by the Company and Acquisition Co. if the Yazam Acquisition had not been
completed by May 15, 2001, unless the failure to complete the Yazam
Acquisition by that date was caused by the Company or Acquisition Co.;
21
. by Yazam if the Company or Acquisition Co. materially breached any of its
covenants or made a material misrepresentation and failed to cure the
breach or misrepresentation within 15 days of notice of the breach;
. by Yazam if the Yazam Acquisition had not been completed by April 5, 2001,
unless the failure to complete the Yazam Acquisition by that date was
caused by Yazam;
. by the Company if Yazam materially breached any of its covenants or made a
material misrepresentation and failed to cure the breach or
misrepresentation within 15 days of notice of the breach; or
. by either the Company or Yazam if any court or other governmental agency
of competent jurisdiction issued a final, non-appealable order prohibiting
the Yazam Acquisition.
Series F Stock Waiver and Replacement Agreement
The holders of the Company's Series F Stock may, if authorized shares of
Common Stock are not then adequate for conversion of their Series F Stock and
Warrants, put their respective shares of Series F Stock to the Company at any
time on or after September 1, 2001 for the greater of the trailing twenty-day
market average prior to exercise of their put or $250.00 per share of Series F
Stock. In mid-July, 2001, the Company began negotiations with certain
significant holders of the Series F Stock to obtain waivers of their put. On
July 19 and 20, 2001 the Company entered into Waiver and Replacement Agreements
with respect to the Series F Stock held by the two largest holders of that
class. The Waiver and Replacement Agreements provide for a waiver of their put
as well as their right to redeem their shares after March 27, 2003 that is set
forth in the Series F Certificate of Designations. In return, the holders of
those shares of Series F Stock received the right to require the Company to
purchase their shares at a purchase price of $300.00 per share of Series F
Stock during a ninety-day period beginning September 30, 2002.
On July 19, 2001, the Carlyle Group entered into a Waiver and Replacement
Agreement with the Company. On July 20, 2001, various affiliates of the Texas
Pacific Group ("TPG") entered into an agreement to sell their shares of Series
F Stock to USV Partners at $150.00 per share of Series F Stock by August 3,
2001 and USV entered into a Waiver and Replacement Agreement with respect to
those shares. USV and its assignees expect to close the transaction soon.
Related Financings
The E2E Acquisition Agreement required the Company to raise at least
$6,250,000 but not more than $10,000,000 of additional financing before the E2E
Acquisition could close. USV Partners LLC ("USV") purchased 125,000 shares of
the Company's Series A Stock for $1,250,000 in a private placement on April 12,
2000. Gregory Earls, the Company's Chairman and Chief Executive Officer, is the
sole member of the manager of USV. USV owns 507,140 shares of the 625,000
shares of Series A Stock that are issued and outstanding. Upon the conversion
of all of the Series A Stock it holds, USV would be entitled to receive
41,568,852 shares of Common Stock. USV and the Company entered into a Waiver
Agreement, dated as of March 1, 2000, whereby USV waived its right to convert
its Series A shares into Common Stock until the Company's stockholders approve
an amendment to the Company's Restated Certificate of Incorporation to increase
the number of authorized shares of Common Stock to a level that would be
satisfied by the proposed Charter Amendment increasing the number of shares of
Common Stock the Company is authorized to issue. On September 20, 2000, this
waiver was extended to included all other beneficial interests of Mr. Earls by
an agreement among Mr. Earls, the Earls Family Limited Partnership and the
Company. Mr. Earls and USV intend to convert all of their shares of Series A
Stock to Common Stock if and when this Charter Amendment becomes effective.
On April 12, 2000, the Company's offering of 5,184 shares of Series C Stock,
par value $0.02 per share, for an aggregate of $5,184,000 was fully subscribed.
Ultimately, the Company received funds for 4,534 shares of Series C Stock for
an aggregate of $4,534,000. These shares will be mandatorily converted into an
aggregate of
22
3,057,930 shares of Common Stock when the Charter Amendment is effective. Of
these shares, USV purchased 2,120 shares for $2,120,000. Holders of Series C
Stock are not permitted to vote on this Charter Amendment, but they are
otherwise permitted to vote shares of Series C Stock as if their conversion to
Common Stock had already occurred.
On December 28, 2000, the company entered into an agreement with
Buyline.net, Incorporated ("Buyline"), one of the company's associated
companies, and Andersen Consulting LLP ("Andersen"). Buyline owed Andersen for
software consulting and other services performed for Buyline. In order to
support Buyline's efforts to satisfy in full the amount owed to Andersen, the
company issued to Andersen 1,552.5 shares of the company's new Series D
Preferred Stock, par value $0.02 per share ("Series D Preferred"), which shares
are mandatorily convertible into 1,552,500 shares of common stock of the
Company when the Charter Amendment is effective. In consideration for the
company issuing its Series D Preferred stock to Andersen, Buyline issued to the
company 5,025,819 shares of Buyline common stock. Buyline also issued shares of
its common stock to Andersen, which shares represent approximately 5.57% of the
outstanding common stock of Buyline.
On March 27, 2001, in connection with the company's acquisition of
Yazam.com, Inc., the company issued warrants to purchase 8,000,000 shares of
company Common Stock and 27,374 shares of Series F stock, par value $0.02 per
share, which shares are convertible into 27,374,000 shares of Company Common
Stock, when the Charter Amendment is effective. See, "--Overview of the Yazam
Acquisition."
The company, USV Partners, Northwood Capital, Northwood Ventures, Ledecky
and other holders of the company's Series B and C preferred stock, entered into
an agreement regarding registrations rights for the Series A, Series B, and
Series C preferred stock and common stock into which they are to be converted.
Collectively, the stockholders party to the agreement have the right on three
occasions to compel the company to register their respective shares at the
expense of the company and rights on other occasions to have such registration
effected at the expense of the holders. These stockholders also have unlimited
registration rights to be combined, at the company's expense, with certain
registrations of any equity securities by the company (Piggyback Rights),
subject to restrictions which might be imposed by an underwriter for the sale
of such shares.
The proceeds of these private placement sales thus far have been, and will
continue to be, used to finance additional investments in new and existing
technology businesses, the payment of costs incurred and liabilities assumed in
connection with the E2E Acquisition and the Yazam Acquisition and related
business transactions, and the Company's ongoing working capital needs and
operating expenses.
Key Terms of Series B, C, D and F Stock. The Company's Series B Stock has an
aggregate stated value of $11,200,000, and is mandatorily convertible into an
aggregate of 56,000,000 shares of Common Stock. Such conversion will be
effective as of the date the amendment to the Company's charter increasing the
number of shares of authorized common stock of the Company is filed with the
Secretary of State of Delaware. Series B Stock has no dividend rights. In the
event of any bankruptcy, liquidation, dissolution or winding up of the Company,
each Holder of Series B Stock is entitled to a liquidation preference such that
the holders of the Series B Stock would receive a pro rata share of the
aggregate stated value. In the event the corporation had insufficient funds
upon liquidation, then the Series B Stockholders would share in any such
distribution ratably with the holders of any other capital stock of the Company
ranking on a parity with the Series B Stock as to liquidation. Currently, this
would include the Series A Stock, Series C Stock and Series D Stock. The Series
B Stock has certain voting rights prior to conversion. Namely, the Company must
obtain an affirmative vote from a majority of the holders of the Series B Stock
before undertaking:
. certain activities which would have the effect of diluting the holdings of
the Series B Stockholders;
. modifying the Company's charter or bylaws other than as contemplated by
this Proxy;
. filing for bankruptcy; or
. acquiring any equity interest in any entity other than as discussed in
this proxy statement.
23
Except as otherwise required by law, holders of Series B Stock will be
entitled to vote on all matters as if the Series B Stock had already been
converted to common stock. However, Series B Stockholders will not be entitled
to vote on an amendment to the Company's charter that would increase the number
of authorized shares of Company common stock to permit conversion of the Series
B Stock to common stock. In the event of any reorganization, recapitalization
or sale of the Company, at their election, the holders of Series B Stock will
receive their pro rata share of the consideration as if they had converted
their shares of Series B Stock to common stock on the day immediately prior to
announcement of the transaction.
The Company's Series C Stock is mandatorily convertible into 6,034,482
shares of common stock. Of the 8,750 authorized shares of Series C Stock, 4,534
have been issued and are outstanding and, upon conversion, represent 3,126,896
shares of Common Stock. The conversion will be effective as of the date the
amendment to the Company's charter increasing the number of authorized common
stock of the Company sufficient to permit conversion of the Series C Stock is
filed with the Secretary of State of Delaware. The Series C Stock has no
dividend rights. In the event of any bankruptcy, liquidation, dissolution or
winding up of the Company, each holder of Series C Stock is entitled to a
liquidation preference, such that the holders of the Series C Stock would
receive a pro rata share of the aggregate stated value. In the event the
corporation had insufficient funds upon liquidation, then the Series C
Stockholders would share in any such distribution ratably with the holders of
any other capital stock of the Company ranking on a parity with the Series C as
to liquidation. Currently, this would include the Series A Stock, Series B
Stock and Series D Stock. In the event of any reorganization, recapitalization
or sale of the Company, at their election, the holders of Series C Stock will
receive their pro rata share of the consideration as if they had converted
their shares of Series C Stock to common stock on the day immediately prior to
announcement of the transaction.
The Company has 1,552.5 shares of Series D stock outstanding which is
mandatorily convertible into 1,552,500 shares of common stock. The conversion
will be effective as of the date the amendment to the Company's charter
increasing the number of authorized common stock of the Company sufficient to
permit conversion of the Series D Stock is filed with the Secretary of State of
Delaware. The Series D Stock has no dividend rights. In the event of any
bankruptcy, liquidation, dissolution or winding up of the Company, each holder
of Series D Stock is entitled to the amount paid or distributed to holders of
Company Common Stock as if the Series D Stock had already been converted to
Common Stock. In the event of any reorganization, recapitalization or sale of
the Company, at their election, the holders of Series D Stock will receive
their pro rata share of the consideration as if they had converted their shares
of Series D Stock to common stock on the day immediately prior to announcement
of the transaction.
The Company's Series F Stock has an aggregate value of $7,713,790 and is
initially convertible into 27,374,000 shares of common stock, subject to
anti-dilution provisions. Of the 27,374 authorized shares of Series F Stock,
all 27,374 have been issued and are outstanding. The holders of Series F Stock
shall have the right to convert their shares as of the date the amendment to
the Company's charter increasing the number of authorized common stock of the
Company sufficient to permit conversion of the Series F Stock is filed with the
Secretary of State of Delaware. The holders of Series F Stock have the right to
require the Company to redeem their Series F Stock at a price of $100.00 per
share for a ninety-day period commencing March 27, 2003. The Series F Stock has
no dividend rights. In the event of any bankruptcy, liquidation, dissolution or
winding up of the Company, each holder of Series F Stock is entitled to a
liquidation preference, such that each holder of the Series F Stock would
receive a pro rata share of the aggregate stated value. The Series F Stock is
ranked senior to all other classes of Company capital stock. Currently, this
would include the Series A Stock, Series B Stock, Series C Stock and Series D
Stock. In the event of any reorganization, recapitalization or sale of the
Company, at their election, the holders of Series F Stock will receive their
pro rata share of the consideration as if they had converted their shares of
Series F Stock to common stock on the day immediately prior to announcement of
the transaction. Certain holders of Series F Stock have waived their ability to
put their shares to the Company on September 1, 2001 and have waived their
right to have the Company redeem their shares on March 27, 2003. See, "--Series
F Stock Waiver and Replacement Agreement."
24
All presently outstanding series of preferred stock are subject to a
limitation on the amount of their preference in liquidation. Outstanding series
would share, ratably by class based on their respective stated values, in the
amount that is available to preferred holders. If that amount was not
sufficient to pay their entire stated values, they would not be entitled to
participate in the distribution of any remaining amount available to common
stock holders, although they could choose to convert their preferred shares to
common stock and participate in any distribution to common stock holders rather
than receive any preferred distribution. The Company's board has proposed and
recommends the elimination of this limitation. See "PROPOSAL 3--Amendment to
Eliminate the Restriction on the Preference That May be Conferred on the
Preferred Stock of the Company Upon Liquidation."
The Board of Directors has authorized, and the Company is in the midst of
raising capital through, the sale of additional series of convertible preferred
stock. The offering principally is being made to current accredited investors
in USXX stock, but may also be made to other accredited investors. Discussions
are ongoing and there can be no assurances any offering can be completed on the
terms discussed above, or at all.
Accounting Treatment
The E2E Acquisition and the Yazam Acquisition were accounted for by the
Company under the purchase method of accounting in accordance with generally
accepted accounting principles. Under the purchase method of accounting, the
Company's operating results reflect the operations of the acquired companies
only from the date of acquisition, forward. At the closings of the two
transactions, the Company recorded the assets and liabilities of the two
acquired companies at their estimated fair values and recorded any difference
between the respective purchase price for each of the companies and the
respective net worth of each of the companies as goodwill. See "Pro Forma
Condensed Consolidated Financial Statements (Unaudited)."
Overview of Associated Companies
The equity interests we have acquired are primarily in development stage
technology companies. Through December 31, 2000, we had acquired interests in
or established the eight technology companies listed below.
Interests in Associated Companies Acquired from E2E
29th Street Partners, Inc. ("29th Street Partners") operates an e-commerce
site for upscale cosmetics and accessories. 29th Street Partners intends to
follow a "clicks and bricks" investment strategy by also acquiring high-end
cosmetic specialty retailers and currently operates two retail stores in
Washington, D.C. and one retail store in Philadelphia, Pennsylvania. On
February 10, 2001, the Company converted its original 29.05% interest in
Bluemercury into a 9.12% interest in 29th Street Partners, thus allowing 29th
Street Partners to acquire a 100% interest in Bluemercury.
Buyline.net, Incorporated ("Buyline") developed B2B e-commerce applications.
Buyline was creating a proprietary Internet software program designed to be a
universal platform for entry-level B2B e-commerce, linking buyers and sellers.
Buyline's software application for RFP/RFQ (Request for Proposal/Request for
Quotation) technology was projected to be used in a full range of on-line
advertising on Internet-based directories and in commercial web sites.
Subsequent to the E2Enet Acquisition, the Company reorganized Buyline, and
the Company also made an additional investment in Buyline, resulting in Buyline
becoming a consolidated subsidiary of the Company. U.S. Technologies increased
its holdings of Buyline to the present level by:
. helping Buyline retire outstanding debts to Accenture L.L.P. ("Accenture")
formerly known as Anderson Consulting through an issuance of company
preferred stock to Accenture; and
. purchasing an additional equity interest in Buyline for nominal
consideration.
25
During the fourth quarter of 2000, the net book value of the assets of
Buyline was reduced to zero by an asset impairment charge, due to the loss of
its primary client and the inability to retain the management personnel
necessary to execute Buyline's business strategy. This resulted in a charge of
approximately $1,684,000 to earnings. At that time, the Company had
approximately a 64.16% equity interest in Buyline.
On December 27, 2000, the Company purchased 3,450,000 shares of Buyline
common stock for $345 from Northwood Ventures L.L.C. and Northwood Capital
Partners L.L.C., entities controlled by Peter G. Schiff and Henry T. Wilson,
members of the Company's Board of Directors.
Effective as of June 30, 2001, the Company sold all of its shares of
Buyline.net, Incorporated to an entity wholly owned by Gregory Earls. As
consideration for such shares, the purchaser delivered to the Company a
promissory note in the principal amount of $100,000. The promissory note, plus
accrued interest, will become due and payable only upon the earlier of, and
only to the extent of: (i) any distributions by Buyline or (ii) the sale by
such purchaser of its shares of Buyline. The Company has the right to
repurchase for $250,000 such Buyline shares at any time prior to June 30, 2004.
Such transaction was approved by at least a majority of the disinterested
directors of the Company.
Gomembers.com ("Gomembers") provides software that helps associations, labor
unions and professional societies manage a variety of tasks including payroll
and Internet integration. Initially, E2Enet had invested in MEI Software
Systems, Inc. ("MEI") which provided customized software systems to manage the
databases of trade associations, professional associations, fund-raising
organizations, and chambers-of-commerce. MEI was acquired by Gomembers on
November 7, 2000, thereby converting the Company's approximately 5% interest in
MEI to a 0.47% interest in Gomembers.
OneMade, Inc. provides an e-commerce community to serve wholesalers,
retailers, consumers, and artists active in the arts, hobby and crafts
industries.
PromiseMark, Inc. ("PromiseMark"), formerly known as "Vipro Corporation," is
an Internet surety company providing, among other services, repair guarantees
against computer viruses. PromiseMark has e-commerce relationships with a
leading Internet utility company, a credit card association, one of the largest
warranty claims administrators in the world, and over 170 Internet service
providers.
On June 26, 2001 the Company paid $500,000 to purchase shares of
PromiseMark's Series C preferred Stock and warrants to purchase shares of
PromiseMark's Series C-1 Preferred Stock as part of a financing by which
PromiseMark raised an additional $1.5 million to fund continuing operations. As
a result of this financing the Company had an approximately 16% equity interest
in PromiseMark.
Urban Box Office, Inc. developed networked multi-media web sites providing
e-commerce services to Internet users interested in urban culture, information,
entertainment, and products. On November 2, 2000, the date that it announced
that it would be filing for bankruptcy, the Company had approximately a 8.03%
equity interest in UBO on a fully-diluted basis. During the fourth quarter, the
investment in UBO was written off, resulting in approximately a $3,945,000
charge to earnings for asset impairment.
Interests in Associated Companies Acquired Subsequent to the E2E Acquisition
Portris, Inc. (Portris), a software company formed in 2000, is developing
technology that is intended to manage efficiently business group information
over an Internet network. The Portris system would enable teams simultaneously
to exchange information and collaborate on documents over networks.
On October 16, 2000, the company completed the acquisition of a 30.4% equity
interest in Portris, Inc. Under the terms of the agreement the company received
its interest in Portris for an aggregate of $380,000, by canceling $250,000 of
debt, which was included in the company's notes receivable as of September 30,
2000, and providing additional cash to Portris.
26
On May 15, 2001 the Company purchased shares of Portris' Series A-1
Convertible Preferred Stock. In return for cancellation of $370,000 in
promissory notes and accrued interest, services rendered to Portris valued at
$150,000 and $185,000 in cash the Company increased its equity interest in
Portris to approximately 42%.
Final Arrangements LLC ("Final Arrangements") is an Internet start-up that
offers the ability to make funeral arrangements online. Initially, E2Enet had
invested in WebMilestones.com ("WebMilestones"). WebMilestones was acquired by
Final Arrangements on December 27, 2000, thereby converting the Company's
37.35% interest in WebMilestones to a 0.13% interest in Final Arrangements.
Interests in Associated Companies Acquired From Yazam
Baobab is developing technology that will allow humans to conduct a direct
dialogue with machines using natural spoken language as the communication
channel. Baobab has developed an alpha version of Frontware, a platform that
enables complete understanding of dialogue goals, context, flow and direction
by integrating eight levels of language understanding and processing.
Ezface is developing a platform to sell cosmetics and accessories online
that enables users to sample cosmetics "virtually" to see how makeup products
and colors look on their own faces. The platform integrates chat and
photo-sharing utilities to allow the consumer to consult with friends before
making a purchase.
Gammasite is developing a search engine for use on the Internet that will
enable users to perform very accurate searches by automatically collecting and
categorizing information.
Incepto is developing technology to allow web hosting. Internet Service
provides the ability to host websites at various locations simultaneously and
cost efficiently. The company is beginning to solicit potential beta customers.
Phlair provides transaction-tracking infrastructure to provide businesses
with the ability to track their customer's online commercial transactions.
Quintessence plans to develop fiber optic components to increase network
bandwidth by eliminating the bottlenecks that restrict data flow on the
Internet. The company intends to develop and market high power pump lasers,
addressing such bottlenecks, which occur at crossconnects of next generation
all-optical switches and current generation electrical switches.
Selis Networks is developing Web-based management systems for business
critical networks and applications dedicated to network management. The
company's first product is aimed at enabling network managers to create an
enterprise-wide portal dedicated to network management, permitting the network
manager to conduct integrated real-time monitoring of multiple networks,
systems and applications.
Soneta provides turnkey back-end solutions for e-merchants, delivering
global connectivity to a managed network of commerce service providers that
includes call centers, online customer support, strategic fulfillment,
distribution and supply chain management in a controlled, real-time
environment.
TravelBond plans to provide an enabling Web-based infrastructure for travel
agents and their clients that allows prospective travelers to investigate, plan
and book travel online while consulting directly with their existing travel
agents.
Ownership Position in Our Associated Companies
From April 12, 2000 through June 30, 2001, we acquired interests in or
established approximately 34 technology companies. As of May 31, 2001 the
fifteen technology companies listed below are considered to be the most likely
to be able to execute their respective business plans. We classify companies in
which we invest as
27
associated companies. We have indicated below our percentage of equity
ownership in each associated company. Our equity ownership/voting power
percentages have been calculated based on the issued and outstanding common
stock of each associated company, assuming the issuance of common stock upon
the exercise of outstanding options and warrants and the conversion into common
stock of outstanding convertible securities. Except where we indicate
otherwise, our equity ownership and voting power percentages are the same.
For those companies in which our equity ownership or voting power percentage
is greater than 50%, we generally direct or control all of their operating
activities and account for them as a consolidated subsidiary. For those
companies in which our equity ownership or voting power percentage is at least
20%, but not more than 50%, we generally have significant involvement in and
influence over their operating activities,with board representation and rights
to participate in material decisions and accordingly account for them on the
equity basis. For those companies in which our equity ownership and voting
power percentage is less than 20%, we may not be actively involved in their
management or day-to-day operations, but may have Board representation and may
offer or provide them advisory services and accordingly account for them on the
cost basis. We also seek to encourage and facilitate cooperation and mutual
assistance among our associated companies.
We have identified below by marking with an asterisk (*) each associated
company that is a development stage company. A development stage company has
not yet begun planned principal operations, or has begun planned principal
operations but has not yet generated significant revenue from those operations.
Whether a company is in the development stage is determined on a case-by-case
basis by that company's management. There is no specific revenue threshold that
is applicable in all cases. A development stage company typically will be
devoting most of its efforts to activities such as financial planning, raising
capital, research and development, acquiring operating assets, and recruiting
and training personnel. Currently, most of our associated companies are in the
development stage. Our percentage ownership in any of the associated companies
is subject to change as we make new investments and our associated companies
accept new investments from us or other investors.
28
Associated Company Market Date Formed Associated Since
- ------------------ ------ ----------- ----------------
Associated Companies Acquired in the E2E Acquisition
29th Street Partners............. Provides e-commerce site for February 1999 May 1999
(Formerly, Bluemercury, Inc.)(1) upscale female cosmetic products Enet converted its interest to 29th
www.bluemercury.com and accessories. Street Partners in February 2001
Gomembers.com.................... Provides customized management 1992 November 2000 E2Enet made its
(Formerly MEI Software)(2) software systems to manage trade initial investment in a predecessor,
www.members.com associations, professional MEI, in September 1999.
associations and trade unions.
Onemade.com, Inc.(1)*............ Provides e-commerce site that will April 1999 May 1999
www.onemade.com serve participants in the arts, crafts,
and hobby industries.
PromiseMark, Inc.(3)*............ Internet surety company which August 1999 October 1999
www.promisemark.com provides repair guarantees against
viruses that harm computers.
Associated Companies Acquired Subsequent to the E2E Acquisition
Portris, Inc.(4)*................ Develops technology to facilitate the February 2000 October 2000
www.portris.com simultaneous exchange of
information and collaboration on
documents over the Internet.
Final Arrangements, LLC.......... Provides Internet publishing April 2000 July 2000
(Formerly WebMilestones)(1)* services. E2Enet converted its interest to
www.arrangeonline.com Final Arrangements in December 2001
Associated Companies Acquired in the Yazam Acquisition
Baobab(5)*....................... Developing language recognition 01/18/00 March 27, 2001
www.baobabtech.com technology
Ezface(5)*....................... Developing interactive cosmetic 12/06/99 March 27, 2001
www.ezface.com websites
Gammasite(5)*.................... Provides internet searching 12/29/99 March 27, 2001
www.gammasite.com capabilities
Incepto(5)....................... Provides technology that allows 11/12/99 March 27, 2001
www.incepto.com ISPs to operate cost efficiently
Phlair(5)*....................... Provides commercial transaction 02/24/00 March 27, 2001
www.phlair.com tracking services
Quintessence(5).................. Developing fiber optic hardware 11/16/00 March 27, 2001
www.quintessence.com
(reserved only)
Soneta(5)........................ Provides one-stop shopping for 02/01/00 March 27, 2001
www.soneta.com outsourced internet commerce
solutions
Selis(5)......................... Developing Web-based network 01/19/00 March 27, 2001
www.selis-networks.com management systems
TravelBond(5).................... Developing Web-based 03/31/00 March 27, 2001
www.travelbond.com infrastructure for interactive travel
planning
Associated Company Equity Ownership Board Representation
- ------------------ ---------------- --------------------
Associated Companies Acquired in the E2E Acquisition
29th Street Partners............. 9.12% The Company may unilaterally designate
(Formerly, Bluemercury, Inc.)(1) one member.
www.bluemercury.com Total Directors--3
Gomembers.com.................... 0.47% None
(Formerly MEI Software)(2)
www.members.com
Onemade.com, Inc.(1)*............ 12.25% The Company may unilaterally designate
www.onemade.com one member and jointly, with the majority
stockholders, designate one additional
member.
Total Directors--5
PromiseMark, Inc.(3)*............ 10.38% The Company may unilaterally designate
www.promisemark.com one member and jointly designate three
additional members.
Total Directors--7
Associated Companies Acquired Subsequent to the E2E Acquisition
Portris, Inc.(4)*................ 42.2% The Company may unilaterally designate 2
www.portris.com members.
Total Directors--9
Final Arrangements, LLC.......... 0.13% None
(Formerly WebMilestones)(1)*
www.arrangeonline.com
Associated Companies Acquired in the Yazam Acquisition
Baobab(5)*....................... 9.02% The Company has the right to designate 1
www.baobabtech.com member.
Total Directors--4
Ezface(5)*....................... 6.96% The Company has the right to designate 1
www.ezface.com member.
Total Directors--up to 7
Gammasite(5)*.................... 9.75% The Company has the right to designate 1
www.gammasite.com member.
Total Directors--up to 7
Incepto(5)....................... 7% (5% common stock and a carry of As holder of a majority of the Preferred
www.incepto.com preferred shareholders equal to Shares, the Company may designate 1
approximately another 2% of the member subject to approval of the
Company) founders not be unreasonably withheld,
and to jointly designate one other member.
Total Directors--4
Phlair(5)*....................... 9.28% As holder of the majority of Series B
www.phlair.com Stock, the Company has the right to
designate 1 member.
Total Directors--4
Quintessence(5).................. 1.5% (The Company funded a bridge No Board Representation
www.quintessence.com loan which will convert into additional
(reserved only) equity)
Soneta(5)........................ 8.42% The Company has the right to designate 1
www.soneta.com member.
Total Directors--4
Selis(5)......................... 12.24% As holder of the Series A Stock, the
www.selis-networks.com Company has the right to designate 1
member.
Total Directors--3
TravelBond(5).................... 26.47% The Company has the right to designate 1
www.travelbond.com member. The Company currently owns a
majority of the Series B Stock.
Total Directors--up to 3
- --------
(1)Information current as of March 31, 2001.
(2)Information current as of November 7, 2000.
(3)Information current as of May 15, 2001.
(4)Information current as of June 26, 2001.
(5)Information current as of March 27, 2001.
29
Of our 34 associated companies, 9 have generated revenues as of December 31,
2000.
Competition. We face intense competition to develop and acquire interests in
technology companies from traditional venture capital firms, companies with
business strategies similar to our own, corporate strategic investors, other
better financed Internet incubators and other capital providers. Competitors
with business strategies similar to our own include publicly-held CMGI,
Internet Capital Group and Safeguard Scientifics, as well as private companies,
including Idealab. In addition, we may face competition from an emerging group
of online service providers that facilitate relationships between entrepreneurs
and venture capitalists, such as vcapital.com and Garage.com. We also will be
competing with corporate strategic investors that include Fortune 500 companies
that are developing Internet strategies and Internet capabilities as well as
investing in Internet companies. Further, certain professional service firms,
directly or through affiliated private investment funds, provide capital and
services to technology companies that are clients. Many of our competitors have
more experience identifying and acquiring interests in technology companies,
and have greater financial and management resources, brand name recognition and
industry contacts than we do.
This intense competition, and the impact it has on the valuation of
technology companies, could limit our opportunities to acquire interests in
associated companies or force us to pay higher prices to acquire these
interests, which would result in lower returns or losses on acquisitions. In
addition, some of our competitors, including venture capital firms, private
companies with business strategies similar to ours and corporate strategic
investors, may have a competitive advantage over us because they have more
flexibility than we do in structuring acquisitions in companies because they do
not need to acquire majority or controlling interests in companies to avoid
regulation under the Investment Company Act, as discussed below.
Since we are principally acquiring interests in and developing technology
companies we are also competing against large and well-financed technology
companies management consulting firms and others for executives with
appropriate management expertise in discrete technology fields. Due to the
rapid growth and expansion of new technology, competition for experienced
management is fierce. Management believes that it has been able to attract
well-qualified personnel to help develop its associated companies and believes
it can continue to do so but can provide no assurances in this regard.
Regulation of our Associated Companies
Investment Company Act of 1940. U.S. companies that have more than 100
stockholders or whose shares are publicly traded in the U.S. and are, or hold
themselves out to be, engaged primarily in the business of investing,
reinvesting or trading of securities are regulated by the Securities and
Exchange Commission (the "Commission" or "SEC") pursuant to the Investment
Company Act. Investment Company Act regulations are inconsistent with USXX's
strategy of actively managing, developing, operating and promoting
collaboration among its network of associated companies. USXX would not be able
to operate its business as a registered investment company.
Management of USXX believes that because of the planned structure of USXX's
interests in its associated companies and its business strategy, USXX will not
be regulated under the Investment Company Act. However, USXX cannot assure you
that the present structure of its associated company interests and its business
strategy will preclude regulation under the Investment Company Act, and USXX
may need to take specific actions to avoid regulation under the Investment
Company Act that may not be in its best interests or consistent with its
strategy. To avoid regulation under the Investment Company Act and related SEC
rules, USXX may need to sell assets that it would otherwise want to retain and
may be unable to sell assets that it would otherwise want to sell. In addition,
USXX may be forced to acquire additional, or retain existing, income-generating
or loss-generating assets which it would not otherwise have acquired or
retained and may need to forego opportunities to acquire interests in companies
that it believed would benefit its business. If USXX were forced to sell, buy
or retain assets in this manner, it may be prevented from successfully
executing its business strategy.
30
Because gains, losses, income and asset values for technology businesses can
be highly volatile, and because future rounds of financing for rapidly moving
technology associated companies will dilute USXX's ownership interests, the
financial analyses relevant to its status under the Investment Company Act will
be subject to regular change. The audit committee of USXX's board of directors,
together with USXX's management, will decide financial and other valuation
issues relevant to determining USXX's compliance with the Investment Company
and related regulations.
E-commerce Regulation and Other Legal Uncertainties. There are several new
laws and regulations that affect the Internet and e-commerce. For example,
Congress recently enacted laws regarding online copyright infringement and the
collection of personal information and financial data. Additionally, the
Federal government has applied old rules and regulations to this new medium in
certain areas. E-commerce businesses are subject to the same numerous laws
affecting interstate and international commerce in general. However, the
application of these laws to online business is sometimes unclear and subject
to litigation in both domestic and foreign jurisdictions.
Although there generally remains a desire by legislators and regulators to
keep the Internet as unfettered as possible with new rules and regulations, the
Internet's popularity, increased use and its impact on consumers will
undoubtedly foster the adoption of additional laws and regulations on a local,
state and federal level, as well as globally. Current laws and regulations
cover issues such as the collection and use of data from website visitors and
related privacy issues, pricing, content, copyrights, trademarks, promotions,
distribution and quality of goods and services, registration of domain names
and use, and export and distribution of encryption technology. The enactment of
additional laws or regulations may impede the growth of the technology
industry, which could decrease the revenues of our associated companies and
place additional economic burdens on them.
Other specific areas of legislative and regulatory activity include:
Taxes. Through the Internet Tax Freedom Act of 1998, Congress has enacted
a three-year moratorium, ending on October 21, 2001, on the application of
discriminatory, multiple or special taxes by the states on Internet access
or on products and services delivered over the Internet. Congress further
declared that there will be no federal taxes on goods, services and
information sold exclusively over the Internet until the end of the
moratorium. However, this moratorium does not prevent states from taxing
activities or goods and services that the states would otherwise have the
power to tax. Furthermore, the moratorium does not apply to some state taxes
on Internet access that were in place before the moratorium was enacted,
provided the tax was generally imposed and actually enforced. The moratorium
also does not affect federal and state income taxes on the taxable income of
e-commerce businesses.
Online Privacy. In the past year, there has been considerable legislative
and regulatory activity in regards to the protection of consumer privacy and
the collection, distribution, and disclosure of personal and financial data
online. The protection of privacy on the Internet is also becoming an area
of increased litigation in state, federal and foreign courts.
The Children's Online Privacy Protection Act of 1998 ("COPPA") requires
that all commercial website operators and online services that are directed
to children under the age of thirteen (13) or who knowingly collect personal
information from children(including the use of cookies and other tracking
mechanisms) must obtain verifiable parental consent before collecting, using
or disclosing such information. Additional requirements include posting of a
website Privacy Notice, which must explain how the collection of personal
information will be treated, in a "clear and prominent" place on the webpage
and each area where the information is collected. Violators are subject to
civil judgments and $10,000 fines per violation. State Attorneys General are
also authorized to enforce COPPA via state action. The Federal Trade
Commission ("FTC") issued regulations for COPPA that became effective in
April 2000.
The Financial Services Modernization Act of 1999 (also known as the
Gramm-Leach-Bliley Act) governs the disclosure and sharing of nonpublic
personal information to affiliates and third parties by a "financial
institution," including information collected and shared over the Internet.
Financial institutions
31
are not limited to traditional banks or savings and loans, but defined
broadly to encompass companies providing services such as leasing real or
personal property (or acting as an agent, broker, or advisor in such
leasing), providing investment, financial or economic advisor services, and
operating a travel agency in connection with such services. The Act also
restricts distribution of personal information such as social security
numbers, credit history and loan application information without a
customer's consent. The FTC's regulations implementing this new law were
adopted May 2000 and are effective July 2001.
In addition to its new regulations, the FTC has issued numerous
guidelines on its long-standing prohibition on unfair or deceptive acts and
practices in sales, advertising, marketing and promotional activities and
the application of these rules to the Internet and e-commerce. The same
consumer protection laws that apply to commercial activities in other media
such as television and cable also apply to Internet transactions. Therefore,
the FTC's Mail or Telephone Order Merchandise Rule, Telemarketing Sales
Rule, Disclosure of Written Consumer Product Warranty Terms and Conditions
Rule, etc. also apply to online activity.
The FTC has issued several substantive reports and recommendations for
legislation to Congress in the areas of consumer protection. For example, in
its third report on Internet privacy, "Privacy Online: Fair Information
Practices in the Electronic Marketplace," released May 2000, the FTC
concluded that self-regulation by most commercial websites to protect the
privacy of Internet consumers was not effective. Thus, the FTC asked for
congressional authority to regulate Internet privacy given the failure of
most web sites to meet standards of disclosure for personal information. The
FTC also asked for Congressional authority to regulate "online profiling,"
the process by which network advertising companies manage and provide
advertising for unrelated websites based on tracking consumer data and
Internet usage. It issued a report, "Online Profiling: Benefits and
Concerns," and testified before the U.S. Senate Commerce Committee in June
2000. After the report was issued, a group of Internet advertising companies
negotiated with the FTC to establish self-imposed privacy standards that
would circumvent new legislation. The FTC made specific recommendations to
Congress in July 2000 following its negotiations with the Internet
advertising industry. Currently, there are no pending bills which would
implement these recommendations.
In addition, in 1998 the European Union ("EU") directed its member
nations to enact much more stringent privacy protection laws than are
generally found in the United States. The U.S. Department of Commerce has
negotiated an agreement with the EU that will create a "safe harbor" for
U.S. companies that agree to a voluntary self-regulatory code. The "U.S.
Safe Harbor Privacy Principles" will allow the exportation of personal
information from European citizens, including corporate employees. The
Agreement was expected to become effective late July 2000. However, due to a
number of unsettled areas its effectiveness was delayed until November 2000.
Under the safe harbor, as enacted, an EU organization can ensure that it is
sending information to an organization that is complying with the safe
harbor by checking it against a list of organizations which self-certify
that they comply with the safe harbor. The list of self-certifying
organizations is available on the Department of Commerce's Website.
Private industry initiatives and standards have also developed concerning
privacy issues, primarily as a means to circumvent new legislation and
regulation. In addition to compliance with governmental regulation, we and
our associated companies may decide that it is in our best interest to
comply with industry standards or public opinion regarding privacy issues
voluntarily.
Online Content. The distribution and visual depiction of objectionable
content on the Internet such as obscenity and child pornography is regulated
under multiple criminal statutes and enforced by various local, state and
federal law enforcement agencies. Internet Service Providers ("ISPs") and
operators could be liable for "aiding and abetting" such illegal action if
the distribution or reproduction of such material via its system is known.
There is also legislation that serves to protect online service providers
from civil liability in causes of actions such as libel and copyright
infringement. The Communications Decency Act ("CDA"), part of the
Telecommunications Act of 1996, provides for the protection for "Good
Samaritan" blocking and screening of offensive material. The Act states that
no provider or user of an interactive computer service shall be
32
treated as the publisher or speaker of any information provided by another
information content provider. Operators are protected from civil liability
if they merely pass along the content of others, even if an operator in good
faith monitors the website for the removal of material the provider or user
considers to be obscene, lewd, lascivious, filthy, excessively violent,
harassing, or otherwise objectionable, whether or not such material is
constitutionally protected. However, an unresolved issue is the definition
of "provider." Furthermore, the CDA has no effect on criminal law,
intellectual property law, or state law.
Protections from copyright infringement fall under the Digital Millennium
Copyright Act of 1998 ("DMCA"), which created a safe harbor for online
service providers from copyright liability for certain actions. ISPs are not
liable when they conduct transitory communications, system caching, storage
of information on systems or networks at direction of users, and use of
information location tools. However, the DMCA does not offer protection from
copyright infringement claims for music, literary or other creative content,
issues currently in litigation in federal and foreign courts.
Domain Names. The authority for the distribution and maintenance of web
site addresses (i.e., domain names) generally is provided by the Internet
Corporation for Assigned Names and Numbers ("ICANN"), which was established
in 1998. The World Intellectual Property Organization ("WIPO") is also
involved in the administration of domain names and has adopted new
enforcement provisions for violators of registration procedures and
trademark infringement, to be administered by ICANN. The distribution of web
site addresses in the United States and in foreign countries has changed
drastically with the growth of new registration companies and the pending
addition of new generic top level domain names (i.e., .bus). As a result,
our associated companies may not be able to acquire or maintain relevant web
site addresses in all countries where they conduct business.
In 1999, Congress enacted the Anti-Cybersquatting Consumer Protection Act
of 1999, to address domain name cybersquatting, which is the practice of
registering an Internet address of an established trademark with the hopes
of selling the Internet address to the affected company. The legislation
also includes a prohibition on the registration of a domain name that is the
name of another living person or a name that is confusingly similar to that
name. The scope of the Act has not been precisely defined and the definition
of cybersquatting has been challenged in numerous courts. Furthermore,
several foreign jurisdictions have adopted stringent cybersquatting laws.
Even more countries are reviewing the issue. As a result of increased
legislation and trademark laws generally, we or our associated companies may
be subject to liability based on use of domain names or trademarks that
allegedly infringe the rights of third parties.
Regulation of Communications Facilities. To some extent, the rapid growth
of the Internet in the United States has been due to the relative lack of
government intervention in the marketplace for Internet access. This lack of
intervention may not continue in the future. For example, the Federal
Communications Commission ("FCC") began a formal proceeding in September,
2000 on the issue of access to a cable company's platform by multiple ISPs.
Non-affiliated ISPs have requested that the FCC regulate broadband Internet
access over cable systems in much the same manner as telephone services,
which could slow the deployment of broadband Internet access services.
Additionally, local telephone carriers have petitioned the FCC to regulate
Internet service providers in a manner similar to long distance telephone
carriers by imposing access fees on the providers. The FCC is also expected
to address the issue of payment of reciprocal compensation to telephone
companies which terminate ISP traffic. This FCC decision could offset the
relationships and arrangements for the provision of these services. Because
of these proceedings or others, new laws or regulations could be enacted
which could burden the companies that provide the infrastructure on which
the Internet is based, slowing the rapid expansion of the medium and its
availability to new users.
Business Opportunities. An amendment to the Delaware General Corporation
Law, which became effective on July 1, 2000, clarifies that a corporation
has the power to waive in advance, in its certificate of incorporation or by
action of its board of directors, the corporation's interest or expectations
in business opportunities or classes or categories of business
opportunities, as those opportunities may be defined by the corporation.
These classes or categories of opportunities could be defined in many
different ways, including
33
by type of business, by who originated the business opportunity, by who has
the interest in the business opportunity, by the period of time, or by the
geographical location. Our Board of Directors may consider and take action
as permitted by this new statutory provision. If we waive an opportunity in
accordance with this provision, a director would not be required to present
the waived opportunity to us, even if pursuing the opportunity could be in
our best interest, and instead could present it to other businesses,
including the director's own business.
In addition to the specific issues outlined above, other generally
applicable laws may also affect our associated companies and us. The exact
applicability of many of these laws to Internet e-commerce is, however,
uncertain.
Conflicts of Interests
We intend always to resolve conflicts of interest that arise between us and
our directors, officers, affiliates and entities in which these persons have an
interest in accordance with applicable Delaware corporate law. Accordingly, we
intend that any future transactions between us and these persons and entities
will be on terms no less favorable to us than can be obtained on an arm's
length basis from unaffiliated third parties. Any of these transactions will be
subject to approval by the disinterested members of our Board of Directors.
However, we cannot guarantee that every contract or other transaction involving
a conflict of interest will in fact be on terms as favorable to us as would
have existed in the absence of the conflict of interest. Further, we cannot
guarantee that we will not enter into transactions which we would not otherwise
have entered into absent our relationship with the affiliated party.
An amendment to the Delaware General Corporation Law, which became effective
on July 1, 2000, clarifies that a corporation has the power to waive in
advance, in its certificate of incorporation or by action of its board of
directors, the corporation's interest or expectations in business opportunities
or classes or categories of business opportunities, as those opportunities may
be defined by the corporation. These classes or categories of opportunities
could be defined in many different ways, including by type of business, by who
originated the business opportunity, by who has the interest in the business
opportunity, by the period of time, or by the geographical location. Our Board
of Directors may consider and take action as permitted by this new statutory
provision. If we waive an opportunity in accordance with this provision, a
director would not be required to present the waived opportunity to us, even if
pursuing the opportunity could be in our best interest, and instead could
present it to other businesses, including the director's own business.
Financial Information About Our Associated Companies
SEC reporting requirements and generally accepted accounting principles will
determine the extent of financial information we provide about our associated
companies. We may not be required to provide separate financial statements
pertaining to any of our associated companies for periods after their
acquisition by us. For periods prior to our acquisition or investment, we will
only provide financial statements for a new associated company in a Form 8-K
when at least one of three conditions specified by the SEC is met: (1) our
proportionate share of the total assets of the associated company exceeds 20%
of our consolidated total assets; (2) our equity in the pre-tax income or loss
of the associated company exceeds 20% of our consolidated pre-tax income or
loss; or (3) the amount paid by us as consideration for the associated company
interest exceeds 20% of our consolidated total assets. In the event the Company
makes an asset purchase, we will only provide financial statements of the newly
acquired assets in a Form 8-K where the assets meet any of the above three
conditions at the 10% level. The number of years of separate audited financial
statements that we may provide for an associated company will be based on a
sliding scale, depending on the significance to the Company of an associated
company.
Our stockholders may not be able to assess the impact and risks of our
interests in our associated companies individually or in the aggregate. Our
stockholders may have difficulty evaluating the success of any individual
associated company and, accordingly, the success of our business strategy.
Although we expect to recognize revenues, expenses and other income from our
associated companies, each of which has a different cost structure
34
and revenue model, we also generate expenses independent of our associated
companies. Our total revenues, expenses and other income may therefore
correlate to a lesser extent than those of companies in other industries. As a
result, our operating results may be difficult for stockholders to interpret.
Other Wholly Owned Operating Subsidiaries
Labor-to-Industry. The Company operates industrial facilities located within
state and private prisons through its wholly owned subsidiary,
Labor-to-Industry ("LTI"). LTI staffs these facilities principally with inmate
labor under the guidelines of the 1979 Prison Industry Enhancement ("PIE")
program. Congress established the PIE program to encourage state and local
governments to create jobs for prisoners that approximate private sector work,
pay the local prevailing wages for similar work, and enable inmates to acquire
marketable skills to increase their chances for rehabilitation and employment
upon release. In this outsourcing capacity, the Company solicits manufacturing,
assembly, repair, kitting and fulfillment services and other businesses.
Gregory FCA Communications. The Company conducts public and investor
relations for emerging and established technology concerns, as well as publicly
traded clients, through its wholly owned subsidiary, Gregory FCA Communications
("Gregory FCA"). Gregory FCA has a staff of 26 professionals that focus on
gaining exposure for clients through national, trade and financial media.
Gregory FCA was acquired with Yazam in March 2001.
Information About Parties to the Transaction
U.S. Technologies Inc.
. Description of Business
. Description of Property
. Legal Proceedings
. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters
. Selected Financial Data
. Management's Discussion and Analysis of Financial Condition and Results of
Operations
. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
. Quantitative and Qualitative Disclosures About Market Risk
. Quarterly data (unaudited)
The above information is located in the Company's Form 10-K for the year
ended December 31, 2000 or in the Company's Form 10-Q for the period ended
March 31, 2001, both of which have been delivered herewith.
2. AMENDMENT TO ELIMINATE THE RESTRICTION ON THE PREFERENCE
THAT MAY BE CONFERRED ON THE PREFERRED STOCK OF THE COMPANY
UPON LIQUIDATION
This amendment eliminates the restriction on the Board's ability to
authorize preferential payments to holders of the Company's Preferred Stock in
the event of involuntary liquidation. Currently, the Company's Certificate of
Incorporation allows the Board to fix and determine preferential rights for
Preferred Stockholders ahead of common stockholders in the event of an
involuntary liquidation, subject to the following restriction. The restriction
set forth in the Company's Restated Certificate of Incorporation states: "The
aggregate preferential
35
amount payable pursuant to the terms of any class or all classes, together, of
Preferred Stock may not exceed twenty-five percent of the sum of Preferred
Stock, Common Stock, capital surplus and earned surplus, less treasury shares
of the Corporation and its Consolidated Subsidiaries that has been certified by
the principal accounting officer of the Corporation, adjusted to reflect any
changes in Preferred Stock, Common Stock, capital surplus and treasury shares
since the date of such balance sheet, including any proposed issuance of shares
of Preferred Stock." The foregoing language would be deleted from the Company's
Certificate of Incorporation if this amendment is adopted. Currently, each
outstanding series of Preferred Stock is subject to the limitations of this
section of the Company's Restated Certificate of Incorporation.
The Company agreed to amend the Certificate of Incorporation to eliminate
this provision that restricts the liquidation preference on its preferred
securities as part of an investment agreement dated July 16, 1998 between the
Company and USV, the holder of all outstanding shares of Series A Preferred
Stock. USV is a company owned and controlled by Gregory Earls, who is now
Chairman and Chief Executive Officer of the Company. That agreement
memorialized USV's initial $5 million investment in the Company's Series A
Preferred Stock.
USV has committed to converting all the Series A Preferred Stock into
Company common stock upon the passage of the Charter Amendment. The Series B
Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock
are mandatorily convertible once the Charter Amendment is passed and filed with
the Secretary of the State of Delaware, where the Company is incorporated. The
Voting Agreement between Messrs. Earls and Warren guarantees the passage of the
Charter Amendment authorizing the Company to issue more shares of common stock.
Thus, soon after passage of the Charter Amendment, all of the Company's Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock will be converted into common stock and the former
holders of Preferred Stock will be holders of common stock ranking pari passu
with all other holders of common stock. Because Series A, B, C and D Preferred
Stock will not be in existence after passage of the Charter Amendment, it will
be unnecessary to make conforming changes in the Certificates of Designation
for the Series A, B, C and D Preferred Stock. Due to the fact that the Series F
Stock is not mandatorily convertible to Common Stock in the event the amendment
to increase the number of authorized shares of Common Stock becomes effective,
the Company expects that some or all of the Series F Stock will be outstanding
in the event that the amendment to reduce the liquidation preference becomes
effective. Therefore, in case of involuntary liquidation of the Company, the
liquidation preference of the Series F Stock will no longer be limited to 25%
of the Company's net worth. See "THE CHARTER AMENDMENT--Interests of Certain
Persons in the E2E Acquisition."
It is the Company's opinion that eliminating the limitation on the
liquidation preference on the Company's Preferred Stock should have no
immediate effect on the current holders of Company common stock. However,
elimination of the limitation on the preferential payment provision will permit
the Company's Board to authorize and issue stock having a liquidation
preference that may exceed 25% of the Company's net worth. The Company believes
that elimination of this restriction is beneficial to the Company and its
stockholders because the Company will have more flexibility, and as a result
hopefully more opportunities, for rationalizing its capital structure, and
conducting future financings. Passage of the amendment would not otherwise
affect the authority vested in the Board of Directors to fix and determine
voting powers, designations, relative, participating, optional or other special
rights, and qualifications, limitations, or restrictions on any class of
Company Preferred Securities either outstanding or to be issued in the future.
See "THE CHARTER AMENDMENT--New Financings."
Vote Required and Board Recommendation
In order to amend the Articles of Incorporation to eliminate the limitation
on the liquidation preference conferred upon the Company's Preferred Stock, a
majority of the total number of votes that could be cast at the annual meeting
must vote in favor of the proposal.
The Board of Directors recommends a vote FOR the amendment of Section 4 of
the Company's Restated Certificate of Incorporation.
36
3. ADOPTION OF THE 1999 STOCK OPTION PLAN,
AS FURTHER AMENDED APRIL 27, 2001
The 1999 Stock Option Plan was adopted by the Company's Board of Directors
as of November 1, 1999. Subsequently, the 1999 Stock Option Plan was amended
effective as of February 21, 2000, and further amended effective as of April
27, 2001, and as further amended (the "1999 Stock Option Plan"). The 1999 Stock
Option Plan was adopted in order to permit the grant of stock options to
directors, officers and key employees and consultants of the Company and its
subsidiaries in order to focus the attention of management and other employees
on the long-term improvement of stockholder value and to align the interests of
management and the Company's stockholders. The Company's Board believes that
the use of awards is important to the Company's ability to attract and retain
talented people to manage the Company, and possibly to incentivize
entrepreneurs to have their businesses become associated companies.
Summary of the Tax Consequences of the 1999 Stock Option Plan
Requirements under Internal Revenue Code Section 162(m). Under Section
162(m), a publicly held corporation generally cannot deduct compensation paid
to the chief executive officer or any of the four other most highly compensated
officers to the extent that the compensation paid to such officer exceeds
$1,000,000 in a taxable year. An exception to this deduction limitation exists
for certain performance-based compensation. Compensation derived from stock
options will qualify as performance-based compensation and be excepted from the
$1,000,000 deduction limitation if the material terms of the compensation are
disclosed to and approved by the stockholders and the compensation otherwise
meets the requirements set forth in Code Section 162(m).
In order to satisfy the requirements of Code Section 162(m), a stock option
plan must generally provide for a maximum number of shares for which options
may be granted to any participant during a calendar year. Under the 1999 Stock
Option Plan, no participant may be granted awards having an aggregate fair
market value of more than $100,000 during any calendar year.
Compensation derived from stock options is generally treated as
performance-based compensation for purposes of Code Section 162(m) only if the
exercise price of the stock option is at least equal to the fair market value
of the stock as of the date of grant. The 1999 Stock Option Plan provides that
the exercise price of Non-Qualified Stock Options under the 1999 Stock Option
Plan shall be equal to the fair market value of the Common Stock as of the date
of grant. Code Section 162(m) also requires that the compensation committee of
a stock option plan consist solely of two or more "outside directors." The 1999
Stock Option Plan provides that the Compensation Committee shall consist of no
fewer than two directors, each of whom shall be an outside director within the
meaning of Code Section 162(m) and a "non-employee director" within the meaning
of Rule 16b-3 promulgated under the Exchange Act. While the 1999 Stock Option
Plan, as discussed in the two preceding paragraphs, provides certain limits and
other requirements in order that stock options granted under the 1999 Stock
Option Plan may qualify as performance-based compensation under Code Section
162(m), other Awards granted under the 1999 Stock Option Plan may not qualify
as performance-based compensation and thus may be subject to the $1,000,000
deduction limitation under Code Section 162(m).
Transferability of Non-Qualified Stock Options. Rule 16b-3 promulgated under
the Exchange Act no longer provides that non-qualified stock options must not
be transferable in order to be exempt from the short-swing profit recovery
provisions of the Exchange Act. In order to take advantage of this change to
Rule 16b-3, the 1999 Stock Option Plan gives the Compensation Committee
discretionary authority to grant Non-Qualified Stock Options that may be
gratuitously transferred by the participant (but not the participant's
transferee) to any member of the participant's immediate family, to a trust for
the benefit of one or more members of the participant's immediate family, to a
partnership or other entity in which the only partners or interest holders are
members of the participant's immediate family, and to a charitable
organization, or to any of the foregoing. The 1999 Stock Option Plan also gives
the Compensation Committee discretionary authority to amend outstanding
Non-Qualified Stock Options to provide for such transferability.
37
Summary of the 1999 Stock Option Plan
The above discussion relating to the 1999 Stock Option Plan and the summary
of the 1999 Stock Option Plan that is set forth below are qualified in their
entirety by reference to the full text of the 1999 Stock Option Plan a copy of
which has been filed as an exhibit to the Company's Form 10-K for the Year
ended December 31, 2000, and which may be obtained by any stockholder by
writing to U.S. Technologies Inc., 1130 Connecticut Avenue, NW, Suite 700,
Washington, D.C. 20036.
Eligibility. Any officer, other salaried employee, advisor or consultant of
the Company or of any subsidiary of the Company is eligible to be granted
awards under the 1999 Stock Option Plan. The Company estimates that
substantially all of its employees are eligible to participate in the 1999
Stock Option Plan.
Shares Available. Under the 1999 Stock Option Plan awards pertaining to up
to 30,000,000 shares of Common Stock are reserved to be issued upon the
exercise of stock options. A stock option or SAR granted under the 1999 Stock
Option Plan expires prior to exercise, then the shares of Common Stock
associated with such award will be available for future awards.
Plan Administration. The Plan Committee makes all decisions regarding: (i)
the granting of awards under the 1999 Stock Option Plan (ii) eligibility of
employees to receive awards; and (iii) interpretation of the 1999 Stock Option
Plan. The Plan Committee must consist of no fewer than two directors, each of
whom is a "non-employee director" within the meaning of Rule 16b-3 promulgated
under the Exchange Act and an "outside director" within the meaning of Code
Section 162(m).
Duration. Any award must be granted prior to November 1, 2009. Unless
otherwise specified by the Plan Committee in the grant of an award, once
granted an award (if then vested) will terminate on the earlier of: (i) the
date set forth in the grant of the award; (ii) ninety (90) days following the
date on which the employee's employment is terminated for any reason (including
retirement) other than death or permanent and total disability; or (iii) one
year after the date of termination if by reason of death or disability. The
Board of Directors or the Plan Committee may at any time and for any or no
reason suspend or terminate 1999 Stock Option Plan if (i) the affected
participant consents in writing to such modification or amendment, or (ii)
there is a dissolution or winding up of the Company. An award may not be
granted while the 1999 Stock Option Plan is suspended or after it has expired
or been terminated.
Awards granted while the 1999 Stock Option Plan is in effect shall not be
altered or impaired by suspension or termination of the 1999 Stock Option Plan
except upon the consent of any person to whom an Award was granted.
Stock Options. Types of Stock Options. Stock options granted under the 1999
Stock Option Plan may be either Incentive Stock Options or Non-Qualified Stock
Options. The Plan Committee determines the terms and conditions of each stock
option granted. To qualify as an Incentive Stock Option under Code Section 422,
the Incentive Stock Option must meet certain requirements including
requirements regarding: (i) exercise price; (ii) duration; (iii)
exercisability; and (iv) transferability.
Exercise Price. The exercise price for each share of stock subject to an
Incentive Stock Option may not be less than the Fair Market Value as determined
by the Board of Directors or the Compensation Committee of Common Stock on the
date the option is granted. In the case of an Incentive Stock Option granted to
an employee who at the time the stock option is granted owns (as defined in the
Code) stock possessing more than 10% of the total combined voting power of all
classes of the Company the exercise price for each share of Common Stock,
subject to the stock option, must be at least 110% of the Fair Market Value of
the shares at the time of grant and the stock option cannot be exercisable
after five years from the date of grant.
The exercise price for each share subject to a Non-Qualified Stock Option
shall be equal to the Fair Market Value of the Common Stock on the date the
stock option is granted.
38
Limit on Number of Incentive Stock Options. The aggregate Fair Market Value
determined on the date of grant of the shares with respect to which Incentive
Stock Options are exercisable for the first time by an employee in any calendar
year may not exceed $100,000.
Transferability. Incentive Stock Options are not transferable, other than by
will or the laws of descent and distribution. Non-Qualified Stock Options are
not transferable, other than by will or the laws of descent and distribution or
pursuant to the terms of a qualified domestic relations order. If the
participant should die, then such participant's legal representative or
beneficiary may exercise such stock option not later than one year from the
date of death. However, in no event may a stock option be exercised if it is
not vested or at any time after the expiration date specified in such stock
option.
Payment. The exercise price of a stock option may be paid in cash, by
certified check or by delivering already-owned shares of Common Stock having a
Fair Market Value equal to the exercise price or by delivery of a combination
of the above.
Duration. The Code provides that in no case may an Incentive Stock Option be
exercised after the tenth anniversary of the date on which it was granted, and
in no case may an Incentive Stock Option granted to an individual who at any
time of grant owned (together with members of his or her family) 10% or more of
the combined total voting power of the Company be exercised after the fifth
anniversary of the date on which it was granted. The Plan Committee has
complete discretion in setting the duration of a Non-Qualified Stock Option and
the duration of a Non-Qualified Stock Option will be as set forth in the grant.
Vesting. Although not a requirement of the 1999 Stock Option Plan, it has
been the Company's policy that Stock Options granted by the Company vest over a
period of time, usually at a rate of 33.3% per year beginning on the first
anniversary of the date of grant. The exact vesting schedule with respect to
any stock option grant is subject to the complete discretion of the
Compensation Committee and will be set forth in the grant of the Stock Option.
Adjustment. To prevent dilution of the rights of a holder of a stock option
in the event of any merger, consolidation, reorganization, recapitalization,
stock (but not cash) dividend, stock split, split-up, split-off, spin-off,
combination or exchange of shares or other like change in structure of the
Company, the 1999 Stock Option Plan provides for the adjustment of: (i) the
number of shares upon which stock options may be granted; (ii) the number of
shares subject to outstanding stock options; and, (iii) the exercise price of a
stock option. Upon certain events constituting a change in control of the
Company, as specified in the 1999 Stock Option Plan all stock options then
outstanding will become immediately exercisable.
Federal Income Tax Considerations--Treatment of Non-Qualified Stock Options.
With respect to Non-Qualified Stock Options, a participant generally would
realize ordinary income and the Company would receive a deduction in the year a
stock option is exercised. (As discussed above under the heading "Summary of
1998 Amendments," Code Section 162(m) may limit the deduction to which the
Company would otherwise be entitled.) In the case of Non-Qualified Stock
Options, the amount of income would be equal to the difference between the
stock option price and the Fair Market Value of the stock on the exercise date.
Notwithstanding the preceding paragraph, Section 83 of the Code provides for
deferral of taxation to the optionee and the deduction by the Company so long
as the shares acquired upon exercise of the stock option are subject to the
substantial risk of forfeiture and are not transferable. This deferral can be
avoided, and the tax consequences described above with respect to the
Non-Qualified Stock Options made applicable, if the optionee, within thirty
days after the exercise of the stock option, makes an election to be taxed
under Code Section 83(b).
Treatment of Incentive Stock Options. With respect to Incentive Stock
Options, generally, no income to an employee will result for federal income tax
purposes upon either the granting or the exercise of an Incentive Stock Option
under the 1999 Stock Option Plan. If the employee later sells the acquired
stock at least two years
39
after the date the Incentive Stock Option is granted and at least one year
after the exercise of the Incentive Stock Option, the difference between the
exercise price and the price at which the stock is sold is treated as a capital
gain. If the employee's gain is taxed as a capital gain, the Company will not
be allowed a deduction. If the employee disposes of the acquired stock before
the end of such holding periods, (a) the employee will realize ordinary income
in the year of disposition equal to the lesser of (i) the difference between
the exercise price and the Fair Market Value of the stock on the exercise date
or (ii) if the disposition is a taxable sale or exchange, the amount of gain
realized and (b) except as noted above, the Company will receive an equivalent
deduction.
Although an optionee does not realize ordinary income upon the exercise of
an Incentive Stock Option, the excess of the Fair Market Value of the shares
acquired at the time of exercise over the option price constitutes an
adjustment to "alternative minimum taxable income" under Code Section 56, and
thus may result in the optionee being subject to the "alternative minimum tax"
pursuant to Code Section 55.
Withholding. Where an individual is deemed to have compensation in respect
of stock option exercises, payments or constructive receipt of SARs under the
1999 Stock Option Plan, income taxes will be withheld by the Company to the
extent the Company is required to make such withholding. Any required
withholding payable by a participant with respect to any tax may be paid in
cash, in whole shares of Common Stock or in a combination of whole shares of
Common Stock and cash having an aggregate Fair Market Value equal to the amount
of any required withholding obligations. The Company may, at its discretion,
either (i) withhold the amount of any taxes required by any government to be
withheld or otherwise deducted upon payment of any Dividend Equivalent,
Performance Shares or Units or Restricted Stock or exercise of any stock option
or SAR from any other sums due to such participant or (ii) hold the stock
certificates to which such participant is entitled as security for payment of
such withholding tax liability until cash sufficient to pay such withholding
has been accumulated.
Change of Control Provisions. All Awards will automatically vest and become
exercisable in the event of a "change of control," which is defined by the 1999
Stock Option Plan, as when either: (i) any person becomes the beneficial owner,
directly or indirectly, of Company securities presenting thirty-five percent
(35%) or more of the combined voting power of the Company's outstanding
securities then entitled to vote for the election of directors; (ii) there is a
change in the composition of the Board over a period of twenty-four (24) months
or less such that a majority of the directors cease, by reason of one or more
proxy contests, to be comprised of individuals who either (x) have been
directors continuously since the beginning of such period or (y) have been
elected or nominated for election as a director during such period by at least
two-thirds of the directors described in clause (x) who were still in office at
the time such election or nomination was approved by the Board, or (iii) the
stockholders shall approve a sale of all, or substantially all, the assets of
the Company, or any merger, consolidation, issuance of securities or purchase
of assets, the result of which would be the occurrence of any event described
in clauses (i) or (ii) above.
Changes, Suspension and Termination. The 1999 Stock Option Plan, may be
amended, modified, suspended or terminated by the Board of Directors or the
Plan Committee without stockholder approval. However, except for the purpose of
meeting or addressing any changes in legal requirements or for any other
purpose permitted by law, 1999 Stock Option Plan, may not be amended without
the consent of holders of a majority of the outstanding shares of Common Stock
represented at a meeting for which a quorum is present to: (i) increase the
aggregate number of shares available for issuance under the 1999 Stock Option
Plan (except for the adjustments described above); (ii) extend the maximum
period during which options may be granted or exercised; (iii) change the class
of persons eligible for options under the 1999 Stock Option Plan; or (iv)
modify the requirements as to eligibility for participation in the 1999 Stock
Option Plan.
Vote Required and Board Recommendation
In order to approve the 1999 Stock Option Plan, a majority of the total
number of votes that could be cast at the Annual Meeting must vote in favor of
the proposal. Your Board recommends a vote FOR the approval of the
40
1999 Stock Option Plan. In considering the recommendation of the Board,
stockholders should be aware that because directors and executive officers (who
may also be members of the Board) are participants who have received Awards and
are eligible to receive future Awards under the 1999 Stock Option Plan, each of
them has an interest in the approval of the 1999 Stock Option Plan. See
"EXECUTIVE OFFICERS AND COMPENSATION--Option Grants in 1999."
4. ELECTION OF BOARD OF DIRECTORS
Nominees
Beth Dozoretz, Gregory Earls, Arthur Maxwell, George J. Mitchell, Carl J.
Rickertsen, Peter G. Schiff, James V. Warren, William H. Webster, Henry T.
Wilson and Eric D. Becker (the "Nominees") are standing for re-election to
terms of office expiring at the next Annual Meeting of Stockholders or until
their successors are duly elected and qualified.
Each of the Nominees is willing, if elected, to continue to serve as a
director. However, if any of them should decline or become unable to serve as a
director, votes will be cast either for a substitute nominee designated by the
Board of Directors, or, if no substitute is so designated, in the judgment of
the person voting the proxy, which is expected to be a vote only for the other
Board-designated nominees.
Eric D. Becker
Director Since May 2001
Eric Becker is a Managing Partner and co-founder of Sterling Venture
Partners. In 1983 Mr. Becker co-founded and served as a Managing General
Partner of Sterling Capital, Ltd. He also co-founded and served as chief
executive officer for Tango Communications, a Sterling portfolio company, prior
to its sale to a public company. Mr. Becker is a director of a number of
Sterling Venture Partners portfolio companies. He serves on the boards of the
Maryland/Israel Development Center, Port Discovery Children's Museum, and the
Garrison Forest School. Age: 39
Beth Dozoretz
Director since June 2000
Beth Dozoretz has been Senior Vice-President and a Director of FHC Health
Systems since June 1998. In 1999, she was the National Finance Chair of the
Democratic National Committee. Prior to June 1998, she was primarily a
homemaker and active in charitable and political interests. Ms. Dozoretz is
also a member of the board of the U.S. Holocaust Memorial Museum, the Executive
Committee of the American Israel Public Affairs Committee, George Washington
University's National Council for Political Management, Harvard University's
John F. Kennedy School of Government Women's Leadership Section, the Rabin
Medical Center, the D.C. Jewish Community Center, and the Meridian House. Age:
49
Gregory Earls
Director since February 1999
Gregory Earls currently is the Chairman of the Board, the Chief Executive
Officer and the President of the company. During the year-ended December 31,
2000, Mr. Earls fulfilled the roles of Chief Financial Officer and Principal
Accounting Officer of the company. Mr. Earls had been the Co-Chairman of the
Board and Co-Chief Executive Officer of the company with James V. Warren since
November 1999 until March 15, 2001. Mr. Earls served as sole Chairman of the
company's Board of Directors and sole Chief Executive Officer from February
1999 until he began to share the positions with Mr. Warren in November 1999.
Mr. Earls has been President and Chief Executive Officer of U.S. Viewing
Corporation, a private investment management company, since 1980. Mr. Earls is
also president and a director of privately-held Equitable Production Funding of
Canada, Inc., a film licensing and communications holding company. He is also
president and a director of National Networks, Inc., a
41
private investment company. From 1992 to 1996, he served as chairman of the
board of directors of Health and Sciences Television Network, Inc., a
distributor of educational programming which was acquired by Primedia, Inc. in
1996. Mr. Earls has served as a director of Jayhawk Acceptance Corporation
since he co-founded the finance company in 1994. Mr. Earls' previous business
experience also included work with a large investment banking firm in the
1990's. Age: 56
Arthur J. Maxwell
Director since April 2000
Since 1989 Arthur Maxwell has been President and Chief Executive Officer of
Affordable Interior Systems, one of the largest business furniture
manufacturers in the U.S. Age: 43.
George J. Mitchell
Director since April 2000
The Honorable George J. Mitchell was a U.S. Senator from Maine from 1980 to
1995, and was Senator Majority Leader from 1989 to 1995. Since 1995, Senator
Mitchell has been senior counsel to Verner, Liipfert, Bernard, McPherson & Hand
of Washington, D.C., and senior counsel to Preti, Flaherty, Beliveau, Pachios &
Halley of Portland, Maine. Senator Mitchell was Chairman of the Northern
Ireland Peace Talks from 1996 to 1998. He also is a member of the board of
directors of Federal Express Corporation, Unum Provident Corporation, KTI,
Inc., The Walt Disney Company, Xerox Corporation, Starwood Hotels and Resorts,
Unilever NV, Casella Waste Systems, Inc. and Staples, Inc. Age: 67
Carl J. ("Rick") Rickertsen
Director since April 2000
Carl J. Rickertsen has been chief operating officer and a partner at Thayer
Capital Partners, a Washington, D.C. investment management firm, since 1994.
Mr. Rickertsen heads Thayer Capital Partners' information technology practice.
He also is chairman of the board of directors of SAGA Systems, Inc., and a
director of E-Plus Inc. and Global Vacation Group, Inc. Age: 41
Peter G. Schiff
Director since April 2000
Peter G. Schiff is president of Northwood Ventures LLC, a private venture
capital investment firm which he co-founded in 1983. He is also president of
Northwood Capital Partners LLC and managing general partner of Rabbit Hollow
Partners. Age: 49
James V. Warren
Director since November 1999
Mr. Warren was the Co-Chairman of the Board of Directors and Co-Chief
Executive Officer of the company from November 1999 until March 15, 2001. He
and Mr. Earls shared responsibilities as Co-Chairmen of the Board of Directors
and Co-Chief Executive Officers of the company. Mr. Warren is also President
and Chief Executive Officer of The Spear Group, a global professional
management company located in Atlanta, Georgia that he co-founded in 1981. The
Spear Group develops and implements solutions for personnel and human resources
management. Age: 67
William H. Webster
Director since April 2000
The Honorable William H. Webster has been a senior partner in the
Washington, D.C. office of the law firm of Milbank, Tweed, Hadley & McCloy
since 1991. From 1987 to 1991, he was the Director of the U.S.
Central Intelligence Agency. Mr. Webster was Director of the Federal Bureau of
Investigation from 1978 to 1987. He was a judge on the U.S. Court of Appeals,
8th Circuit, from 1973 to 1978. Age: 77
42
Henry T. Wilson
Director since April 2000
Henry T. Wilson has been a Managing Director of Northwood Ventures LLC and
Northwood Capital Partners LLC, private venture capital investment firms, since
1991. From 1986 to 1991, he was a vice-president for investment banking at
Merrill Lynch & Co. Age: 41
Vote Required and Board Recommendation
Directors are elected by a majority of the total number of votes cast at the
Annual Meeting for each director seat. A Voting Agreement with respect to eight
directors has been executed by and among USV Partners, LLC, James V. Warren,
Jonathan J. Ledecky, Northwood Ventures LLC, and Northwood Capital Partners
LLC. See "PROPOSAL 1--Interests of Certain Persons in the E2E Acquisition."
Your Board has recommended a vote FOR each of its nominees for election.
43
COMPANY MARKET PRICES AND DIVIDEND POLICY
The Company's Common Stock had been quoted on the OTC Bulletin Board under
the symbol "USXX" until the Company's Form 10-K for the year ended December 31,
2000 was not timely filed. However, the Company's Common Stock is currently
traded over-the-counter. The Company believes that its Common Stock will resume
being quoted on the OTC Bulletin Board shortly after the Company becomes
current in its reporting obligation.
The following table sets forth the high and low bid prices of the Common
Stock in the over-the-counter market for thus far in 2001, and the years ended
December 31, 2000, 1999 and 1998. Prices are from the OTC Bulletin Board
System. Quotations reflect inter-dealer prices without retail mark-up,
mark-down or commissions, and may not necessarily represent actual
transactions.
BID
---------------
High Low
------- -------
2001
1st Quarter $0.5312 $0.1250
2nd Quarter $0.5468 $0.0937
2000
4th Quarter $0.8600 $0.1100
3rd Quarter $1.2200 $0.6300
2nd Quarter $2.9100 $1.0000
1st Quarter $5.7500 $0.1500
1999
4th Quarter $0.2600 $0.1000
3rd Quarter $0.4100 $0.2100
2nd Quarter $0.4600 $0.3200
1st Quarter $0.5900 $0.3400
1998
4th Quarter $0.6300 $0.3800
3rd Quarter $0.7100 $0.4200
2nd Quarter $0.9000 $0.6400
1st Quarter $0.9200 $0.4400
On February 18, 2000, the last trading day before the announcement of the
E2E Acquisition Agreement, the last sale price for the Company's Common Stock
as quoted on the OTC Bulletin Board System was $0.84 per share. On April 12,
2000, the date the E2E Acquisition was completed, the last sale price was $2.68
per share. On February 13, 2001, the last trading day before the announcement
of the Yazam Merger Agreement, the last sale price for the Company's Common
Stock as quoted on the OTC Bulletin Board System was $0.23. On March 27, 2001,
the date the Yazam Acquisition was completed, the last sale price was $0.45 per
share. On August 15, 2001, the last available sale price of the Company's
Common Stock was $0.125. On that date, there were 529 holders of record of the
Company's Common Stock. This number is exclusive of beneficial owners whose
securities are held in street name.
The Company has neither declared nor paid any cash dividends on its Common
Stock. The Board of Directors' policy is to retain any earnings for the
expansion and development of the Company's business. Stockholders of the
Company's stock should not expect any declaration of dividends. Future dividend
policy will be determined by the Board of Directors in light of existing
circumstances and other factors considered relevant by the Board of Directors.
44
BOARD OF DIRECTORS
Board Size and Composition
The Company's Bylaws provide that the Board of Directors shall consist of
not less than one nor more than fifteen members. Each member of the Board of
Directors is elected for a one-year term and until his or her successor is
elected and qualified. The Board of Directors voted to expand its size to eight
members in April, 2000 in connection with the Company's acquisition of E2Enet,
in June 2000 to nine members, and in May 2001 up to ten members. With respect
to the ten present directors of the Company, eight of such directorships are
governed by a voting agreement, dated as of April 12, 2000, by and among the
Company, USV Partners, LLC, James V. Warren, Northwood Ventures LLC, Northwood
Capital Partners LLC and Jonathan J. Ledecky. Under the voting agreement, each
of the parties has agreed to vote all of their U.S. Technologies Common Stock
and all other U.S. Technologies securities then owned or acquired so that the
board of directors shall be composed of four directors designated by USV
Partners, LLC, two directors designated by Jonathan Ledecky and two directors
designated jointly by Northwood Ventures LLC and Northwood Capital Partners
LLC.
Board Committees and Meetings
In the year ended December 31, 2000 the Board of Directors met three times,
the Compensation Committee met twice and the Audit Committee met once. All
directors attended at least 75% of the full board and individual committee
meetings.
Executive Committee. The Board of Directors has an Executive Committee
composed of Gregory Earls, Carl J. Rickertsen and Peter G. Schiff. Mr. Earls
serves as the Executive Committee Chairman. This committee was formed, and its
members elected, by the Company's Board of Directors at its meeting held on May
15, 2000. During the intervals between meetings of the Board of Directors, this
committee has the authority to exercise all of the powers of the Board of
Directors in the management of the Company's business, property and affairs
unless restricted by statute, by the Company's Restated Certificate of
Incorporation, or by its Bylaws. This committee must exercise such authority in
the best interests of the Company and consistent with any specific directions
of the Board of Directors.
Pursuant to resolutions adopted by the Board of Directors of the Company,
the Board of Directors delegated to the Executive Committee the authority to
approve any of the Company's equity investments not exceeding $1,000,000. Any
such equity investments exceeding $1,000,000 requires the approval of the
entire Board of Directors.
Compensation Committee. The Board of Directors has a Compensation Committee
composed of George J. Mitchell, Carl J. Rickertsen and Peter G. Schiff. Mr.
Rickertsen serves as the Compensation Committee Chairman. This committee was
formed, and its members elected, by the Company's Board of Directors at its
meeting held on May 15, 2000. This Committee's responsibilities include
administration of the Company's option plans and approval of executive
compensation.
Audit Committee. The Board of Directors has an Audit Committee composed of
William H. Webster, Henry T. Wilson, and Arthur Maxwell. Mr. Webster serves as
the Audit Committee Chairman. The Audit Committee was formed, and its members
elected, by the Company's Board of Directors on May 15, 2000. This committee
has the duties of recommending to the Board of Directors the appointment of
independent auditors, reviewing their charges for services, reviewing the scope
and results of the audits performed, reviewing the adequacy and operation of
the Company's internal accounting controls, and performing other accounting,
financial and operating control duties with respect to the Company. The
Company's Audit Committee is not required to have a charter. However, on
September 6, 2000, the Audit Committee approved and on September 12, 2000, the
Board of Directors adopted, an Audit Committee Charter, a copy of which is
attached as Appendix A to this proxy statement. The Board of Directors believes
that all members of the Audit Committee are independent within the meaning of
the NASD listing standards and SEC rules.
45
Board Compensation
Directors of the Company are reimbursed for travel expenses related to their
service on the Board of Directors. This reimbursement was the sole compensation
directors received from the Company for their service as directors until 2000
when directors were granted stock options. Mr. Earls and the outside directors
of the Company at the time of the closing of the E2E Acquisition were each
awarded 250,000 stock options as of February 21, 2000 at an exercise price of
$0.90. Those directors were Messrs. Webster, Mitchell, Rickertsen, Schiff,
Wilson and Earls. Outside director Beth Dozoretz received a similar award of
250,000 stock options as of June 1, 2000 at an exercise price of $0.98. These
options all have a three year vesting period.
The Chairmen of the three Board Committees are awarded 15,000 stock options
for their service. Such awards, with an exercise price of $1.34 per share, were
made on May 16, 2000 to each of Messrs. Earls, Rickertsen and Webster. Each
member, including the Chairmen of the Board Committees, are awarded 25,000
stock options for their service. Such awards, with an exercise price of $1.34
per share, were made on May 16, 2000, to each of Messrs. Earls, Mitchell,
Webster, Wilson and Maxwell. Because Messrs. Rickertsen and Schiff are on two
committees, they received 50,000 stock options each. All of these option grants
have a three year vesting period, which requires the directors' service to
continue through such period. These stock option awards and the June 1, 2000
grant to Beth Dozoretz were made subject to the condition that the Charter
Amendment authorizing additional Common Stock becomes effective.
On June 6, 2000, Mr. Earls was awarded 1,200,000 stock options at an
exercise price of $1.56. These options have a four year vesting schedule.
As of April 27, 2001, the Board of Directors were awarded 350,000 stock
options each for their services for the most recent year. Such awards were made
with an exercise price of $0.28 per share and have a three year vesting period,
which requires directors service to continue through such period. Each director
that served on a Board Committee received an additional 25,000 stock options.
Such awards were made to each of Messrs. Maxwell, Mitchell, Rickertsen, Schiff,
Webster, Becker and Wilson. Each director that served as a chairman of a Board
Committee received an additional 25,000 stock options. Such awards were made to
Messrs. Rickertsen and Webster. On the same date, Mr. Earls received 2,400,000
stock options for his service to the Company over the past year.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During 2000, the Board of Directors had a separate compensation committee.
Compensation decisions during 2000 were made by the Compensation Committee
which consisted of Carl J. Rickertsen, George J. Mitchell and Peter G. Schiff.
The Compensation Committee has sought to, and intends to, align the total
compensation of the executive officers with the Company's performance and
operating results, but, primarily seeks to reward the executive officers for
their identification and realization of objectives consistent with the
Company's long-term business strategy. The factors and criteria utilized by the
Compensation Committee include the assessment of comparable information from
other companies with similar operations. The Committee believes the performance
on which executive officer compensation is based should be assessed both on an
annual basis and also over a longer period of time to ensure that executive
officers work to support both the Company's current objectives as well as its
strategic objectives. The 1999 Stock Option Plan, as amended was introduced in
order to focus the attention of management on the long-term improvement of
stockholder value. The Committee believes the performance on which executive
officer compensation is based should be assessed both on an annual basis and
also over a longer period of time to ensure that executive officers work to
support both the Company's current objectives as well as its strategic
objectives. The Committee will consider all aspects of compensation provided to
the executive officers prior to determining appropriate awards to be given
under the 1999 Stock Option Plan, as Amended to each executive. See "Proposals
to be Voted Upon--Approval of the 1999 Stock Option Plan, as Amended."
46
The Compensation Committee believes that it has concentrated, and intends to
continue to concentrate, the bulk of Mr. Earl's compensation as the Chief
Executive Officer on long-term incentives such as stock option grants which are
directly attributable to increasing stockholder value and achieving corporate
objectives.
The Compensation Committee believes that the foregoing combination of base
salaries, merit increases, incentive bonuses, and performance-based stock
options have helped develop executive officers dedicated to achieving
significant improvement in both the short-term and long-term financial
performance of the Company.
By:Carl J. Rickertsen
George J. Mitchell
Peter G. Schiff
(The Compensation Committee as of December 31, 2000)
AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed the audited consolidated
financial statements with management. Further, the Audit Committee has
discussed with BDO Seidman, LLP, the Company's independent accountants, the
matters required to be discussed in accordance with Statements on Auditing
Standards 61. The Committee has received the written disclosures and the letter
from BDO Seidman required by Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees" and has discussed independence
with representatives from BDO Seidman.
Based on its reviews and discussions of the matters referred to above, among
others, the Audit Committee recommended to the Board of Directors that the
consolidated financial statements for the year ended December 31, 2000 be
included in the Company's Annual Report on From 10-K for filing with the
Securities and Exchange Commission.
By:William H. Webster
Henry T. Wilson Arthur
J. Maxwell
(The Audit Committee as of December 31, 2000)
EXECUTIVE OFFICERS AND COMPENSATION
Executive Officers Who Are Not Directors
The Executive Officers of the Company are elected annually by and serve at
the pleasure of the Board for one year or until their successors are elected
and qualified. The following Executive Officers of the Company were, or are,
not directors:
David Ledecky became associated with the company in March 2000 as a
consultant and served as vice-president of operations from May 2000 until
December 2000 when he resigned from the company. From May 1999 to August 1999,
Mr. Ledecky was senior vice-president and chief operating office of E2Enet,
Inc. Mr. Ledecky was a co-founder, director, senior vice-president, and chief
legal administrative officer of Building One Services Corporation (formerly
Consolidated Capital Corp. and Ledecky Brothers LLC, predecessor of Building
One Services Corporation) from February 1997 to May 1999. From December 1992 to
February 1997, Mr. Ledecky was an attorney at the Washington, D.C. law firm of
Gomez, Boyd & Luskin. Age: 40.
J.L. (Skip) Moore served as executive vice-president and chief operating
officer of the company from November 1999 until March 2001. Mr. Moore was
responsible for all operating activities of the company's prison-based
outsourcing facilities until March 2001, when he resigned from the company.
Prior to joining the
47
company, Mr. Moore had been employed by the Spear Group in a number of
capacities, most recently as chief operating officer. During his tenure at the
Spear Group, Mr. Moore served as director and officer of several of the Spear
Group's subsidiaries. Age: 46.
Richard C. Legge, Jr. ("Rick") accepted the position of President of
Labor-To-Industry in March 2001. From October 2001 to March 2001 he served as
acting President of BuyLine.net, one of our associated companies, where his
role was to develop a strategy to preserve shareholder value in this struggling
e-commerce company. From May 1997 to October 2000 Rick was Division Manager of
Joelson-Taylor Products, a large regional manufacturer of building products.
For the twelve years ending in 1997 Rick lead the growth and international
expansion of CES Wireless Electronics where he held positions including Sales
Manager, Engineering Manager, V.P. Business Development and President, and then
through a management buyout became Principle Owner and Chairman. Rick has over
twenty years of electronics manufacturing experience and has led several
successful turn-arounds.
Allyson Holland joined the Company in May 2001 as Vice President of Finance,
Controller and Principal Accounting Officer. From 1999 to 2001 Ms. Holland was
Vice President of Finance and Administration with Direct Capital Securities
Inc., an e-commerce company and capital access firm. From 1998 to 1999 Ms.
Holland was Chief Financial Officer and Compliance Officer of Halbert Hargrove,
an investment advisory firm and broker dealer. From 1997 to 1998 Ms. Holland
was Chief Financial Officer of DBC Securities, a broker dealer and bond
analytic company. Ms. Holland has over twenty years experience in the
securities and financial services industries including Drexel Burnham and
Lambert, Beverly Hills, where she worked in the High Yield and Convertible Bond
Department as Vice President of the Business Management Division.
Executive Compensation
The table below sets forth compensation paid by the Company and its
subsidiaries for services rendered in all capacities during the year ended 2000
to each Chief Executive Officer of the Company and the only other executive
officer of the Company whose compensation for 2000 exceeded $100,000.
Summary Compensation
Long-Term Compensation
------------------------------------
Annual Compensation Restricted All
-------------------------- Stock Options/ LTIP Other
Fiscal Salary Bonus Other Awards(s) SARs Payouts Compe-
Name and Principal Position Year ($) ($) ($) ($) (#) ($) sation
- --------------------------- ------ ------- ----- ----- ---------- --------- ------- -------
Gregory Earls(1)....................... 2000 250,000 0 0 0 1,450,000 0 0
Chairman of the Board, President and 1999 99,918 0 0 0 850,000 0 0
Chief Executive Officer 1998 0 0 0 0 0 0 0
James Warren(2)........................ 2000 0 0 0 0 0 0 0
Former Co-Chairman of the Board and 1999 0 0 0 0 1,500,000 0 0
Former Co-Chief Executive Officer 1998 0 0 0 0 0 0 0
J.L. (Skip) Moore(3)................... 2000 111,023 0 0 0 300,000 0 0
Executive Vice President 1999 0 0 0 0 400,000 0 0
1998 0 0 0 0 0 0 0
- --------
(1)Mr. Earls was appointed Chief Executive Officer of the Company on February
11, 1999. From November 29, 1999 to March 15, 2001, Mr. Earls served as
Co-Chief Executive Officer and Co-Chairman with James V. Warren.
(2)Mr. Warren was appointed and served as Co-Chief Executive Officer of the
Company from November 29, 1999 until March 15, 2001
(3)Mr. Moore resigned from the Company in March 2001. The 300,000 options
granted to Mr. Moore were terminated on the date of his resignation.
48
Option Grants
Individual Grants Potential Realization Value
---------------------- at Assumed Annual Rates
% of Total of Stock Price Appreciation
Number of Options for Option Term
Securities Granted To ---------------------------
Underlying Employees Exercise or
Options In Fiscal Base Price Expiration
Name Granted(1) Year Per Share(2) Date 5%(3) 10%(3)
- ---- ---------- --------- ------------ ----------- --------- ---------
Gregory Earls(4). 1,200,000(5) 17.5% 1.562 06/06/10 1,178,800 2,987,300
Gregory Earls.... 250,000 3.6% 0.90 02/21/10 139,600 354,600
J.L. (Skip) Moore 300,000 4.4% 1.343 06/06/10 253,400 642,000
- --------
(1)Unless otherwise noted, options vest on a three-year schedule.
(2)On the date of grant, all options were granted at market price.
(3)The dollar amounts under these columns are the result of calculations from
the date of grant to the expiration of the option at the 5% and 10% annual
appreciation rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast possible future appreciation, if
any, in the price of the Common Stock. No gain to the optionee is possible
without an increase in price of the Common Stock. In order to reach the
potential values set forth in the 5% and 10% columns of this table for
options with a ten year term, the price per share of the Company's Common
Stock would be $2.544, $1.450 and $2.188, respectively. In order to reach
the potential values set forth in the 10% column of this table for options
with a ten year term, the price per share of the Company's Common Stock
would be $4.051, $2.308 and $3.483, respectively.
(4)These option grants are conditional; options may only be exercised following
amendment of the Company's Charter to authorize the issuance of additional
shares of Common Stock.
(5)These options vest equally over four years.
Options Exercised in 2000 and 2000 Year-End Values
(a) (h) (c) (d) (e)
Shares Value Number of Securities Underlying Value of Unexercised In-the-Money
Acquired on Realized Unexercised Options/SARs at Options/SARs at FY-End ($)
Name Exercise (#) ($) FY-End (#) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ -------- ------------------------------------ ---------------------------------
Gregory Earls.... -- -- 1,200,000/1,450,000(1) -0-
James Warren..... -- -- 1,500,000/0 -0-
J.L. (Skip) Moore -- -- 400,000/300,000(1)(2) -0-
- --------
(1)These option grants are conditional; such options may only be exercised
following amendment of the Company's Charter to authorize the issuance of
additional shares of Common Stock.
(2)Mr. Moore resigned from the Company in March 2001, and the 300,000 options
granted to Mr. Moore in the year ended December 31, 2000 were terminated.
Employment Agreements, Termination of Employment, and Change-In-Control
The company added James V. Warren and J.L. (Skip) Moore to its management
team by entering into a Management Agreement, dated as of November 29, 1999,
with Mr. Warren and Mr. Moore. Under the terms of the Management Agreement, Mr.
Warren was elected a director, co-chairman of the company's board of directors,
and co-chief executive officer. Gregory Earls' positions as chairman and chief
executive officer of the company were modified to include Mr. Warren. Mr. Moore
was elected to serve as the company's executive vice-president and chief
operating officer. The accounting functions of the company were moved from the
company's manufacturing facility at Lockhart, Texas to Atlanta, Georgia in
accordance with the Management Agreement. Mr. Warren resigned his position as
co-chairman and co-chief executive officer effective March 15, 2001. Mr. Moore
resigned from the company in March, 2001. See "Certain Relationships and
Related Transactions."
49
Compensation Committee Interlocks and Insider Participation
Until May 15, 2000, the Board of Directors did not have a separate
compensation committee. Prior to such date, all decisions regarding management
compensation were made by the full Board of Directors. From February 1999 to
November 1999, Gregory Earls was the sole member of the Board of Directors.
From November 1999 until April 2000, the Board of Directors consisted solely of
Gregory Earls and James V. Warren. During their respective terms as directors,
Messrs. Earls and Warren were also executive officers of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the company's
directors, certain officers and persons who own more than 10% of the
outstanding Common Stock of the company to file with the Securities and
Exchange Commission reports of changes in ownership of the company's Common
Stock held by such persons. Officers, directors and greater than 10%
stockholders also are required to furnish the company with copies of all forms
they file under Section 16(a).
To the best of the company's knowledge, based solely on a review of the
copies of such reports furnished to the company and representations that no
other reports were required, during 2000, the company has complied with all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% stockholders.
50
BENEFICIAL OWNERSHIP TABLE
The following table shows as of August 15, 2001, the number of all shares of
the Company's voting securities beneficially held by each director, by each
named executive officer and by each person known by the Company to beneficially
own 5% or more of any class of the Company's voting securities, and by all
directors and executive officers as a group. Except as otherwise indicated, to
our knowledge, each owner has sole voting and investment power over his or her
shares.
Shares of Shares of Shares of
Shares of Series A Series B Series C
Common Preferred Preferred Preferred
Stock Stock % of Stock % of Stock % of
Beneficially % of Beneficially Series A Beneficially Series B Beneficially Series C
Name Owned(1) Class(2) Owned(1) Class Owned(1) Class Owned(1) Class
- ---- ------------ -------- ------------ -------- ------------ -------- ------------ --------
Gregory Earls(4)........... 4,976,360(5) 14.05% 573,700(6) 93.28% -- -- 2,120(7) 46.76%
USV Partners, LLC(8)....... 2,549,352 7.73% 483,840(9) 78.67% -- -- 2,120(10) 46.76%
Jonathan Ledecky(11)....... -- -- -- -- 52,641.85 47.00% -- --
Northwood Ventures
LLC(12)................... -- -- -- -- 49,656.77 44.34% -- --
Texas Pacific Group(13).... 1,109,055(14) 3.52% -- -- -- -- -- --
The Carlyle Group(15)...... 857,671(14) 2.74% -- -- -- -- -- --
James V. Warren(16)........ 7,857,152(17) 20.52% 5,000(18) * -- -- -- --
Northwood Capital
Partners LLC(19).......... -- -- -- -- 7,094.17 6.33% -- --
Microdent Ltd.(20)......... 295,749(14) * -- -- -- -- -- --
China Development
Industrial Bank(21)....... 184,843(14) * -- -- -- -- -- --
Peter G. Schiff(22)........ 83,333(23) * -- -- -- -- -- --
Carl J. Rickertsen(24)..... 83,333(25) * -- -- -- -- -- --
George J. Mitchell(26)..... 83,333(27) * -- -- 69.79(28) * -- --
William H. Webster(29)..... 83,333(30) * -- -- -- -- 150(31) 3.31%
Henry T. Wilson(32)........ 83,333(33) * -- -- -- -- -- --
Arthur J. Maxwell(34)...... 83,333(35) * -- -- -- -- 500(36) 11.03%
Beth Dozoretz(37).......... -0-(38) * -- -- -- -- -- --
J. L. (Skip) Moore(39)..... 400,000(40) 1.29% -- -- -- -- -- --
David Ledecky(41).......... 400,000(42) 1.29% -- -- 174.26(43) * -- --
Accenture LLP (f/k/a
Andersen Consulting
L.L.P.)(44)............... -- -- -- -- -- -- -- --
All directors and executive
officers as a group(45)... 14,133,510 40.42% 587,700 94.10% 244.05 * 2770 61.09%
Shares of
Common
Stock
Beneficially
Owned
Assuming
Shares of Shares of Conversion
Series D Series F of all
Preferred Preferred Outstanding
Stock % of Stock % of Classes of % of
Beneficially Series D Beneficially Series F Preferred All Classes
Name Owned(1) Class Owned(1) Class Stock(1) Combined(3)
- ---- ------------ -------- ------------ -------- ------------ -----------
Gregory Earls(4)........... -- -- -- -- 53,463,019(5) 31.33%
USV Partners, LLC(8)....... -- -- -- -- 43,670,437 25.86%
Jonathan Ledecky(11)....... -- -- -- -- 26,320,923 15.58%
Northwood Ventures
LLC(12)................... -- -- -- -- 24,828,385 14.70%
Texas Pacific Group(13).... -- -- 10,119.77 36.96% 11,228,825 5.11%
The Carlyle Group(15)...... -- -- 7,825.96 28.59% 8,683,631 5.12%
James V. Warren(16)........ -- -- -- -- 8,266,988 4.85%
Northwood Capital
Partners LLC(19).......... -- -- -- -- 3,547,085 2.10%
Microdent Ltd.(20)......... -- -- 2,698.61 9.85% 2,994,359 1.77%
China Development
Industrial Bank(21)....... -- -- 1,686.63 6.16% 1,871,473 1.11%
Peter G. Schiff(22)........ -- -- -- -- 83,333 *
Carl J. Rickertsen(24)..... -- -- -- -- 83,333 *
George J. Mitchell(26)..... -- -- -- -- 118,226 *
William H. Webster(29)..... -- -- -- -- 426,781 *
Henry T. Wilson(32)........ -- -- -- -- 83,333 *
Arthur J. Maxwell(34)...... -- -- -- -- 428,161 *
Beth Dozoretz(37).......... -- -- -- -- -0- *
J. L. (Skip) Moore(39)..... -- -- -- -- 400,000 *
David Ledecky(41).......... -- -- -- -- 487,131 *
Accenture LLP (f/k/a
Andersen Consulting
L.L.P.)(44)............... 1,552.5 100% -- -- 1,552,500 *
All directors and executive
officers as a group(45)... -- -- -- -- 63,840,305 36.81%
51
- --------
* Constitutes less than 1% of the Company's class of, or fully-diluted, stock
as applicable.
(1)"Beneficial Ownership" includes shares for which an individual or entity,
directly or indirectly, has or shares, or has the right within sixty (60)
days to have or share, voting or investment power or both. Beneficial
ownership as reported in the above table has been determined in accordance
with Rule 13d-3 of the Exchange Act. Options to purchase shares of Common
Stock will be considered to be vested if such options vest by October 14,
2001.
(2)The percentage of ownership reported for each person, entity or group
appearing in this column is based on the 30,430,458 shares of Common Stock
outstanding as of August 15, 2001, plus shares of Common Stock issuable
upon the exercise or conversion of such entity's or individual's vested
options and warrants only (excluding shares of Common Stock issuable upon
the exercise of options which do not vest by October 14, 2001 and shares of
Common Stock issuable upon the exercise or conversion of options and
warrants which are not exercisable or convertible until after the amendment
of the Company's Restated Certificate of Incorporation, as described herein
(the "Charter Amendment"). For purposes of calculating the percentage in
this column, we have assumed that no outstanding shares of the Company's
preferred stock are convertible into shares of Common Stock.
(3)The percentage of ownership reported for each person, entity or group
appearing in this column is based on the 30,430,458 shares of Common Stock
outstanding as of August 15, 2001, plus shares of Common Stock issuable
upon the conversion of all shares of Series A, Series B, Series C, Series D
and Series F Preferred Stock. Assuming such conversions, the Company would
have 168,893,689 shares of Common Stock outstanding.
(4)Mr. Earls is the Chairman and Chief Executive Officer of the Company.
(5)This amount includes the following shares which may be deemed to be
beneficially owned by Mr. Earls: (i) 500,000 shares issuable upon the
exercise of warrants held directly by The Earls Family Limited Partnership;
(ii) 693,675 shares of Common Stock owned directly by Equitable Production
Funding, Inc.; (iii) 1,233,333 shares issuable upon the exercise of stock
options issued to Mr. Earls under the Company's 1999 Stock Option Plan, as
amended (the "1999 Stock Option Plan"); and (iv) 2,549,352 shares of Common
Stock held by USV Partners, LLC ("USV"). Mr. Earls is the sole member of
USV Management, LLC, the manager of USV, and an investor in USV. This
amount excludes shares beneficially owned by James V. Warren.
The amount in this column does not include an additional (i) 3,300,000
shares of common stock issuable pursuant to options not vested and subject
to the Charter Amendment, or (ii) 166,667 shares of common stock issuable
pursuant to options not vested and not subject to the Charter Amendment.
Forpurposes of Rule 13d-3 of the Securities Exchange Act of 1934, Mr.
Earls may be deemed to be the beneficial owner of all shares owned by
USV. Mr. Earls disclaims beneficial ownership over the shares of Common
Stock held directly by USV, except for an amount of such shares held by
USV represented by Mr. Earls' pecuniary interest therein.
Forpurposes of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended, Mr. Earls may be deemed to be the beneficial owner of all shares
owned by James V. Warren because Mr. Earls is entitled to vote Mr.
Warren's shares solely for purposes of effecting the Charter Amendment.
Mr. Earls disclaims beneficial ownership over all shares of Common Stock
beneficially owned by Mr. Warren.
Forpurposes of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended, Mr. Earls may be deemed to be the beneficial owner of all
shares owned by The Earls Family Limited Partnership and Equitable
Production Funding, Inc. because Mr. Earls owns all of the capital
stock of Equitable Production Funding, Inc. and controls The Earls
Family Limited Partnership.
Pursuantto an agreement entered into by Mr. Earls, USV and The Earls Family
Limited Partnership in favor of the Company, such parties have agreed
not to convert any securities held by them which are convertible into
shares of Common Stock (including options, warrants, Series A
preferred shares, Series C preferred shares, and Series F preferred
shares) until after the Charter Amendment.
(6)Such shares of Series A Preferred Stock are convertible into 47,024,590
shares of Common Stock. The amount shown includes 483,840 shares of the
Company's Series A Preferred Stock, which are convertible into 39,659,016
shares of Common Stock, held directly by USV. Mr. Earls is the sole member
of USV Management, LLC, the manager of USV, and an investor in USV. For
purposes of Rule 13d-3 of the Securities Exchange Act of 1934, Mr. Earls
may be deemed to be the beneficial owner of all shares owned by USV. Mr.
Earls disclaims beneficial ownership over the shares of Common Stock held
directly by USV, except for an amount of such shares held by USV
represented by Mr. Earls' pecuniary interest therein.
Pursuantto an agreement entered into by Mr. Earls, USV and The Earls Family
Limited Partnership in favor of the Company, such parties have agreed
not to convert any securities convertible into shares of Common Stock
(including options, warrants, Series A preferred shares, Series C
preferred shares, and Series F shares) until after the Charter Amendment.
(7)These 2,120 shares of Series C Preferred Stock, which are mandatorily
convertible into 1,462,069 shares of Common Stock after the Charter
Amendment, are held directly by USV. Mr. Earls is the sole member of USV
Management, LLC, the manager of USV. For purposes of Rule 13d-3 of the
Securities Exchange Act of 1934, Mr. Earls may be deemed to be the
beneficial owner of all shares owned by USV. Mr. Earls disclaims beneficial
ownership over the shares of Common Stock directly beneficially owned by
USV, except for an amount of such shares held by USV represented by Mr.
Earls' pecuniary interest therein.
Pursuantto an agreement entered into by Mr. Earls, USV and The Earls Family
Limited Partnership in favor of the Company, such parties have agreed
not to convert any securities held by them which are convertible into
shares of Common Stock (including shares of Series C Preferred Stock)
until after the Charter Amendment.
(8)USV's address is c/o U.S. Technologies Inc., 1130 Connecticut Avenue, NW,
Suite 700, Washington, D.C. 20036.
(9)Such shares of Series A Preferred Stock are convertible into 39,659,016
shares of Common Stock. Pursuant to an agreement entered into by USV in
favor of the Company, USV has agreed not to convert any securities held by
them which are convertible into shares of Common Stock (including shares of
Series A Preferred Stock) until after the Charter Amendment.
52
(10)Such shares of Series C Preferred Stock are mandatorily convertible into
1,462,069 shares of Common Stock after the Charter Amendment. Pursuant to
an agreement entered into by USV in favor of the Company, USV has agreed
not to convert any securities held by it which are convertible into shares
of Common Stock (including shares of Series C Preferred Stock) until after
the Charter Amendment.
(11)Mr. Ledecky's address is c/o U.S. Technologies Inc., 1130 Connecticut
Avenue, NW, Suite 700, Washington, D.C. 20036.
(12)Northwood Ventures LLC's and Northwood Capital Partners LLC's address is
485 Underhill Boulevard #205, Syosset NY 11791-3491. These entities will be
referred to herein together as "Northwood" and may be deemed to be a
"group" for purposes of Rule 13d of the Exchange Act.
(13)Texas Pacific Group's address is 201 Main Street, Suite 2420, Fort Worth,
Texas 76111. The amount shown includes: 5,608.18 shares of Series F
preferred stock and 614,617 warrants owned directly by TPG Partners III,
L.P., 728.61 shares of Series F preferred stock and 79,851 warrants owned
directly by TGP Partners III, L.P., 146.66 shares of Series F preferred
stock and 16,072 warrants owned directly by TPG Dutch Parallel III, C.V.,
388.14 shares of Series F preferred stock and 37,058 warrants owned
directly by TPG Investor III, L.P., 2,599.83 shares of Series F preferred
stock and 284,923 warrants owned directly by T2 Partners, L.P., 196.38
shares of Series F preferred stock and 21,522 warrants owned directly by T3
Parallel, L.P. 151.07 shares of Series F preferred stock and 16,556
warrants owned directly by T3 Dutch Parallel, C.V., 145.58 shares of Series
F preferred stock and 969 warrants owned directly by FOF Partners III,
L.P., and 196.48 shares of Series F preferred stock and 21,532 warrants
owned directly by FOF Partners II- B, L.P.
(14)This amount represents warrants to purchase shares of Common Stock.
(15)The Carlyle Group holds these shares through CIPE Investment I, L.P. and
its address is 57 Berkeley Square, London, W1X5DA, United Kingdom.
(16)Mr. Warren is a director of the Company.
(17)This amount includes: (i) 6,357,152 shares of Common Stock that are owned
directly by Mr. Warren and may be voted by Mr. Earls in favor of the
Charter Amendment as discussed in footnote five above; (ii) 1,500,000
shares of Common Stock issuable upon the exercise of presently exercisable
stock options issued to Mr. Warren under the 1999 Stock Option Plan; and
(iii) 38,500 shares of Common stock owned directly by Mr. Warren's wife,
which Mr. Warren may be deemed to beneficially own.
The amount of this column does not include an additional (i) 350,000 shares
of common stock issuable pursuant to options not vested and subject to the
Charter Amendment.
(18)Such shares of Series A Preferred Stock are convertible into 409,836 shares
of Common Stock after the Charter Amendment becomes effective. Mr. Warren
invested $50,000 in USV in April 2000 and acquired a membership interest in
USV. Based on Mr. Warren's investment in USV, Mr. Warren may be deemed to
have a beneficial interest in shares of Series A Preferred Stock held by
USV in an amount so disclosed in this column.
(19)Northwood Capital Partners LLC's address is 485 Underhill Boulevard, #205,
Syosset, NY 11791-3491. See Note 12.
(20)Microdent Ltd.'s address is Technology Park, Manhat, 91487, Jerusalem,
Israel.
(21)China Development Industrial Bank Inc.'s address is 9 F 125 Nanking East
Road, Section 5, Taipei 105, Taiwan.
(22)Mr. Schiff is a director of the Company. Mr. Schiff is the president of
both Northwood Ventures LLC and Northwood Capital Partners LLC. For
purposes of Rule 13d-3 of the Securities Exchange Act of 1934, Mr. Schiff
may be deemed to be the beneficial owner of the shares held by Northwood.
(23)This amount does not include: (i) an additional 50,000 shares of Common
Stock issuable upon the exercise of vested options which may not be
exercised until after the Charter Amendment; (ii) an additional 475,000
shares of Common Stock issuable pursuant to options which have not vested
and are subject to the Charter Amendment; and (iii) 166,667 shares of
Common Stock issuable upon the exercise of options which have not vested
and are not subject to the Charter Amendment, all of which shares are
deemed not to be beneficially owned pursuant to Rule 13d-3. Such options
were received as compensation for service on the Company's board of
directors.
(24)Mr. Rickertsen is a director of the Company.
(25)This amount does not include: (i) an additional 55,000 shares of Common
Stock issuable upon the exercise of vested options which may not be
exercised until after the Charter Amendment; (ii) an additional 510,000
shares of Common Stock issuable pursuant to options which have not vested
and are subject to the Charter Amendment; and (iii) an additional 166,667
shares of Common Stock issuable upon the exercise of options which have not
vested and are not subject to the Charter Amendment, all of which shares
are deemed not to be beneficially owned pursuant to Rule 13d-3. Such
options were received as compensation for service on the Company's board of
directors.
(26)Senator Mitchell is a director of the Company.
(27)This amount does not include: (i) an additional 41,600 shares of Common
Stock issuable upon the exercise of vested options which may not be
exercised until after the Charter Amendment; (ii) an additional 458,400
shares of Common Stock issuable pursuant to options which have not vested
and are subject to the Charter Amendment; and (iii) an additional 166,667
shares of Common Stock issuable upon the exercise of options which have not
vested and are not subject to the Charter Amendment, all of which shares
are deemed not to be beneficially owned pursuant to Rule 13d-3. Such
options were received as compensation for service on the Company's board of
directors.
(28)Such shares of Series B Preferred Stock are mandatorily convertible into
34,893 shares of Common Stock after the Charter Amendment.
(29)Judge Webster is a director of the Company.
(30)This amount does not include: (i) an additional 46,667 shares of Common
Stock issuable upon the exercise of vested options which may not be
exercised until after the Charter Amendment; (ii) an additional 493,333
shares of Common Stock issuable pursuant to options which have not vested
and are subject to the Charter Amendment; and (iii) an additional 166,667
shares of Common Stock issuable upon the exercise of options which have not
vested and are not subject to the Charter Amendment, all of which shares
are deemed not to be beneficially owned pursuant to Rule 13d-3. Such
options were received as compensation for service on the Company's board of
directors.
(31)Such shares of Series C Preferred Stock are mandatorily convertible into
103,448 shares of Common Stock after the Charter Amendment.
53
(32)Mr. Wilson is a director of the Company. Mr. Wilson is a managing director
of both Northwood Ventures LLC and Northwood Capital Partners LLC. For
purposes of Rule 13d-3 of the Securities Exchange Act of 1934, Mr. Wilson
may be deemed to be the beneficial owner of shares held by Northwood.
(33)This amount does not include: (i) an additional 41,600 shares of Common
Stock issuable upon the exercise of vested options which may not be
exercised until after the Charter Amendment; (ii) an additional 458,400
shares of Common Stock issuable pursuant to options which have not vested
and are subject to the Charter Amendment; and (iii) an additional 166,667
shares of Common Stock issuable upon the exercise of options which have not
vested and are not subject to the Charter Amendment, all of which shares
are deemed not to be beneficially owned pursuant to Rule 13d-3. Such
options were received as compensation for service on the Company's board of
directors.
(34)Mr. Maxwell is a director of the Company.
(35)This amount does not include: (i) an additional 41,600 shares of Common
Stock issuable upon the exercise of vested options which may not be
exercised until after the Charter Amendment; (ii) an additional 458,400
shares of Common Stock issuable pursuant to options which have not vested
and are subject to the Charter Amendment; and (iii) an additional 166,666
shares of Common Stock issuable upon the exercise of options which have not
vested and are not subject to the Charter Amendment, all of which shares
are deemed not to be beneficially owned pursuant to Rule 13d-3. Such
options were received as compensation for service on the Company's board of
directors.
(36)Such shares are convertible into 344,828 shares of Common Stock. Such
shares are held directly by Affordable Interior Systems. Mr. Maxwell is the
President and Chief Executive Officer of Affordable Interior Systems. For
purposes of Rule 13d-3 of the Securities Exchange Act of 1934, Mr. Maxwell
may be deemed to be the beneficial owner of these shares. However, Mr.
Maxwell disclaims beneficial ownership of any of the shares owned by
Affordable Interior Systems.
(37)Ms. Dozoretz is a director of the Company.
(38)This amount does not include: (i) 87,500 shares of Common Stock issuable
upon the exercise of vested options which may not be exercised until after
the Charter Amendment and (ii) an additional 612,500 shares of Common Stock
issuable pursuant to options which have not vested and are subject to the
Charter Amendment, all of which shares are deemed not to be beneficially
owned pursuant to Rule 13d-3. Such options were received as compensation
for service on the Company's board of directors.
(39)Mr. Moore resigned from the Company in March 2001.
(40)All of Mr. Moore's options are currently vested and exercisable.
(41)Mr. Ledecky resigned from the Company in December 2000.
(42)Upon Mr. Ledecky's resignation from the Company, Mr. Ledecky's options
became fully vested. This amount does not include an additional 300,000 of
vested options which are not exercisable until after the Charter Amendment.
(43)Such shares are mandatorily convertible into 87,131 shares of Common Stock
after the Charter Amendment
(44)Accenture LLP's address is 100 South Wacker Drive, Chicago Illinois 60606.
(45)Includes the shares described in all footnotes above relating to directors
and executive officers. There were no other executive officers of the
Company as of August 15, 2001 that beneficially owned any shares of Common
Stock.
54
COMMON STOCK PERFORMANCE GRAPH
Comparison of Five-Year Cumulative Total Returns
Performance Graph for
U.S. TECHNOLOGIES INC.
Produced on 6/22/2001 including data to 12/29/2000
[CHART]
Common Stock Performance Graph
[Graphic]
1995 1996 1997 1998 1999 2000
U.S. TECH $100.0 $23.3 $145.5 $113.5 $64.0 $43.6
NASDAQ $100.0 $123.0 $150.7 $212.4 $394.8 $237.4
Nasdaq Electronic $100.0 $173.2 $181.6 $280.5 $521.6 $428.7
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company issued 500,000 shares of its Series A Stock to USV in an
offering that closed May 15, 1999. The Company also issued to USV warrants to
purchase 500,000 shares of the Company's Common Stock. For the Series A Stock
and the warrants, USV paid an aggregate of $5,000,000. USV transferred the
warrants to the Earls Family Limited Partnership after their issuance in
consideration for approximately $400,000 in cash contributed by the Earls
Family Limited Partnership to USV. Gregory Earls controls both USV and the
Earls Family Limited Partnership. The terms of the Series A Stock were amended
on November 29, 1999 to cancel the right of the Series A stockholders to
receive an annual dividend and in consideration thereof to change the
conversion price for the Series A Stock to $0.122. On April 12, 2000, USV
purchased an additional 125,000 shares of Series A Stock at $10.00 per share.
On April 12, 2000, USV also purchased 2,120 shares of Series C Preferred Stock,
which shares are convertible into 1,461,069 shares of Common Stock.
As of March 1, 2000 the amount of shares of Common Stock derived from the
conversion of the Company's Convertible Preferred Stock and the exercise on
conversion of convertible securities would have exceeded the number of shares
of Common Stock authorized by the Company's Restated Certificate of
Incorporation. Therefore, USV and the Company entered into a March 1, 2000
waiver agreement pursuant to which USV waived its right of conversion until an
appropriate amendment to the Company's Restated Certificate of Incorporation
(as previously discussed) is filed with the Delaware Secretary of State. On
September 20, 2000, this waiver was extended to cover all convertible
securities beneficially owned by Mr. Earls.
Under the terms of a November 29, 1999 Management Agreement with both James
V. Warren and J.L. (Skip) Moore, Mr. Warren was elected Director, Co-Chairman,
and Co-Chief Executive Officer of the Company. As Co-Chairman and Co-Chief
Executive Officer, Mr. Warren shared responsibilities for those positions with
55
Gregory Earls. Mr. Moore was elected Executive Vice President and Chief
Operating Officer of the Company. The Management Agreement also provided that:
. the conversion price for the Series A Stock was changed to $0.122 per
share;
. Mr. Warren was granted options under the Company's 1999 Stock Option Plan
to purchase 1,500,000 shares of Common Stock; and
. Mr. Moore was granted options under the Company's 1999 Stock Option Plan
to purchase 400,000 shares of Common Stock.
In connection with the E2Enet acquisition, the Company committed to raise
capital for general corporate purposes. To fulfill this commitment, the Company
sold Series C stock. On April 12, 2000, the Company's offering of 5,184 shares
of Series C Stock for an aggregate of $5,184,000 was fully subscribed.
Ultimately, the Company received funds for 4,534 shares of Series C Stock for
an aggregate of $4,534,000, or $4,337,914 net of issuance costs. Several
directors of the Company took part in that offering. William Webster purchased
150 shares. Affordable Interior Systems, an entity controlled by Arthur
Maxwell, purchased 500 shares through Affordable Interior Systems, and USV,
which is controlled by Gregory Earls, purchased 2,120 shares.
In connection with the Company's offering of Series A Preferred Stock in
April 2000, Mr. Warren invested $50,000 in USV. Therefore, Mr. Warren has an
indirect interest in 5,000 shares of Series A Stock that are owned directly by
USV.
As of December 31, 2000, the Company's operations and accounting center was
located in the offices of The Spear Group in Norcross, Georgia. James V.
Warren, the former Co-Chairman of the Company's Board of Directors and former
Co-Chief Executive Officer, is the co-founder and president of The Spear Group.
The Company had a management services arrangement with The Spear Group,
pursuant to which The Spear Group provided operating, accounting, and
administrative services for the Company's prison facilities during 2000. The
Company paid approximately $97,000 to The Spear Group pursuant to this
arrangement. As of mid-March 2001, the Company's management services
arrangement with The Spear Group also terminated. The Company's operating
services were transferred to an office in DeBary, Florida and accounting and
administrative services were consolidated in the Company's executive officers
in Washington, D.C.
During the year ended December 31, 2000, the Company recorded other income
of $206,863, of which $136,000 was due to management and facilities fees
charged to Portris, OneMade and WebMilestones.
On December 27, 2000, the Company purchased 3,450,000 shares of Buyline
common stock for $345 from Northwood Ventures L.L.C. and Northwood Capital
Partners L.L.C., entities controlled by Peter G. Schiff and Henry T. Wilson,
members of the Company's Board of Directors.
Effective as of June 30, 2001, the Company sold all of its shares of
Buyline.net, Incorporated to an entity wholly owned by Gregory Earls. As
consideration for such shares, the purchaser delivered to the Company a
promissory note in the principal amount of $100,000. The promissory note, plus
accrued interest, will become due and payable only upon the earlier of, and
only to the extent of: (i) any distributions by Buyline or (ii) the sale by
such purchaser of its shares of Buyline. The Company has the right to
repurchase for $250,000 such Buyline shares at any time prior to June 30, 2004.
Such transaction was approved by at least a majority of the disinterested
directors of the Company.
On July 20, 2001, various affiliates of the Texas Pacific Group ("TPG")
entered into an agreement to sell their shares of Series F Stock to USV
Partners at $150.00 per share by August 3, 2001 and USV entered into a Waiver
and Replacement Agreement with respect to those shares. USV and its assignees
expect to close the transaction soon. See "PROPOSAL 1--Series F Stock Waiver
and Replacement Agreement."
56
INDEPENDENT AUDITORS
BDO Seidman, LLP has served as the Certified Public Accountants for the
fiscal year ended December 31, 2000 and has served in this capacity since the
year ended December 31, 1997. The Board's Audit Committee is expected to
recommend prior to year end who the Board will engage as the Company's
Certified Public Accountants for the fiscal year ending December 31, 2001.
Representatives of BDO Seidman are not expected to be present at the annual
meeting.
Audit Fees. The aggregate fees billed by BDO Seidman for professional
services rendered for the audit of the Company's annual financial statements
for the year ended December 31, 2000 and the reviews of financial statements
included in the Company's Forms 10-Q for the year ended December 31, 2000 were
$434,700.
All Other Fees. BDO Seidman provided other services to the Company in the
year ended December 31, 2000 for which they were paid $148,200, none of which
related to information technology consulting services.
The Company's audit committee has considered whether the non-audit services
provided by the Company's auditors in connection with the year ended December
31, 2000 were compatible with the auditors' independence.
57
FINANCIAL INFORMATION
Additional information concerning the Company, including consolidated
financial statements of the Company, is provided in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2000, and in the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 2001, as filed
with the Securities and Exchange Commission on August 7, 2001 and August 7,
2001, respectively. This Annual Report on Form 10-K and this Quarterly Report
on Form 10-Q are available to stockholders without charge.
We have undertaken to deliver with this proxy statement a copy of our Annual
Report on Form 10-K for the year ended December 31, 2000 and a copy of our
Quarterly Report on Form 10-Q for the period ended March 31, 2001. If you have
received this proxy statement without receiving either our Annual Report on
Form 10-K for the year ended December 31, 2000 or our Quarterly Report on Form
10-Q for the period ended March 31, 2001, we will provide, without charge, to
each person to whom a proxy statement is delivered, upon written or oral
request of that person and by first class mail or other equally prompt means
within one business day of receipt of such request, a copy of such Report
including any and all information that has been incorporated by reference into
the proxy statement. Such requests should be directed as follows:
Dana Rochelle, Investor Relations
U.S. Technologies Inc.
1130 Connecticut Avenue, N.W.
Suite 700
Washington, D.C. 20036
(202) 466-3100
Neither the Annual Report on Form 10-K for the year ended December 31, 2000
nor the Quarterly Report on Form 10-Q for the period ended March 31, 2001 is to
be treated as part of the proxy solicitation materials or as having been
incorporated hereby by reference.
By Order of the Board of Directors,
/s/ Gregory Earle
Gregory Earls
Chairman of the Board and
Chief Executive Officer
Washington, D.C.
August 17, 2001
58
INDEX TO FINANCIAL INFORMATION
E2Enet, Inc. Audited Financial Statements......................................................... F-1
Report of Independent Certified Public Accountants............................................... F-1
Financial Statements as of December 31, 1999 and 1998
Balance Sheets................................................................................. F-2
Statements of Operations....................................................................... F-3
Statements of Stockholders' Equity (Capital Deficit)........................................... F-4
Statements of Cash Flows....................................................................... F-5
Notes to Financial Statements.................................................................. F-6
Yazam.com Inc. Audited Financial Statements....................................................... F-18
Report of Independent Certified Auditors......................................................... F-18
Financial Statements as of December 31, 2000 and 1999
Consolidated Balance Sheets.................................................................... F-19
Consolidated Statements of Operations.......................................................... F-20
Consolidated Statements of Changes in Stockholders' Equity..................................... F-21
Consolidated Statements of Cash Flows.......................................................... F-22
Notes to Financial Statements.................................................................. F-23
U.S. Technologies Inc. Pro Forma Condensed Consolidated Financial Statements (Unaudited).......... F-34
Introduction................................................................................... F-34
Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2000 (Unaudited)............. F-35
Pro Forma Condensed Consolidated Statements of Operations for the year ended December 31, 2000
(Unaudited).................................................................................. F-37
Notes to Unaudited Pro Forma Consolidated Financial Statements................................. F-38
The Company's Annual Report on Form 10-K for the year ended December 31,
2000, and the Company's Quarterly Report on Form 10-Q for the period ended
March 31, 2001, are being sent herewith.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders of E2Enet, Inc.
Washington, DC
We have audited the accompanying balance sheets of E2Enet, Inc. (a
development stage enterprise) as of December 31, 1999 and 1998, and the related
statements of operations and cash flows for the year ended December 31, 1999,
the period September 1, 1998 (inception) through December 31, 1998, and the
period September 1, 1998 (inception) through December 31, 1999, and the
statements of stockholders' equity (capital deficit) for each of the years
(period) from September 1, 1998 (inception) through December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of E2Enet, Inc. as of December
31, 1999 and 1998, and the results of its operations and its cash flows for the
year ended December 31, 1999, the period September 1, 1998 (inception) through
December 31, 1998, and the period September 1, 1998 (inception) to December 31,
1999 in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Atlanta, Georgia
September 8, 2000, except for Note 12(b),
which is as of November 2, 2000
F-1
E2ENet, INC.
(A development stage enterprise)
BALANCE SHEETS
December 31,
----------------------
1999 1998
------------ --------
ASSETS
Current assets:
Cash.......................................................................... $ 243,477 $ --
Prepaid expenses.............................................................. 5,330 --
------------ --------
Total current assets...................................................... 248,807 --
Investments in affiliates........................................................ 9,840,920 --
Note receivable.................................................................. 747,500 --
Deferred acquisition costs....................................................... 461,124 --
Fixed assets, net................................................................ 32,234 6,288
------------ --------
Total assets.............................................................. $ 11,330,585 $ 6,288
============ ========
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)
Current liabilities:
Accounts payable.............................................................. $ 1,494,951 $ --
Accrued expenses.............................................................. 437,035 13,714
Notes payable to stockholders................................................. 7,803,637 72,172
------------ --------
Total current liabilities................................................. 9,735,623 85,886
------------ --------
Commitments and contingencies
Stockholders' equity (capital deficit):
Common stock; par value $.01; 100,000,000 shares authorized; 4,358,669 shares
issued and outstanding at December 31, 1999................................. 43,587 --
Common stock subscription receivable.......................................... (4,325) --
Capital in excess of par value................................................ 43,190,060 100
Deficit accumulated during development stage.................................. (41,634,360) (79,698)
------------ --------
Total stockholders' equity (capital deficit).............................. 1,594,962 (79,598)
------------ --------
Total liabilities and stockholders' equity (capital deficit).............. $ 11,330,585 $ 6,288
============ ========
See accompanying summary of significant accounting policies and notes to
financial statements.
F-2
E2Enet, INC.
(A development stage enterprise)
STATEMENT OF OPERATIONS
Period Period
September 1, September 1,
1998 1998
(inception) (inception)
Year Ended through through
December 31, December 31, December 31,
1999 1998 1999
------------ ------------ ------------
Revenues.................................. $ -- $ -- $ --
------------ ---------- ------------
Operating expenses:
General and administrative............. 3,063,763 79,698 3,143,461
Stock compensation..................... 31,072,080 -- 31,072,080
------------ ---------- ------------
34,135,843 79,698 34,215,541
------------ ---------- ------------
Operating loss......................... (34,135,843) (79,698) (34,215,541)
Equity in loss of investees............ (3,824,279) -- (3,824,279)
Interest expense....................... (3,594,540) -- (3,594,540)
------------ ---------- ------------
Loss before income taxes.................. (41,554,662) (79,698) (41,634,360)
Provision for income taxes................ -- -- --
------------ ---------- ------------
Net loss.................................. $(41,554,662) $ (79,698) $(41,634,360)
============ ========== ============
Basic and diluted loss per common shares.. $ (12.62) $ (.05) $ (14.64)
============ ========== ============
Weighted average common shares outstanding 3,292,591 1,500,000 2,843,244
============ ========== ============
See accompanying summary of significant accounting policies and notes to
financial statements.
F-3
E2Enet, INC.
(A development stage enterprise)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)
Period September 1, 1998 (inception) through December 31, 1999
Member Deficit
Interest/ Common Accumulated
Common stock Capital in Stock Treasury Stock During
----------------- Excess of Subscription ----------------- Development
Shares Amount Par Value Receivable Shares Amount Stage Total
--------- ------- ----------- ------------ -------- ------- ------------ ------------
Balance, September 1, 1998
(inception)................... -- $ -- $ -- $ -- -- $ -- $ -- $ --
Sales of member interests..... -- -- 100 -- -- -- -- 100
Net loss...................... -- -- -- -- -- -- (79,698) (79,698)
--------- ------- ----------- ------- -------- ------- ------------ ------------
Balance, December 31, 1998...... -- -- 100 -- -- -- (79,698) (79,598)
Issuance of common stock upon
incorporation................ 1,500,000 15,000 -- -- -- -- -- 15,000
Repurchase of common
stock........................ -- -- -- -- (200,000) (2,000) -- (2,000)
Convertible notes issued...... 1,970,148 1,970,148
Warrants issued in connection
with convertible note
agreement.................... -- -- 1,358,626 -- -- -- -- 1,358,626
Issuance of common stock for
investments.................. 466,669 4,667 8,660,030 -- 200,000 2,000 -- 8,666,697
Issuance of common stock to
employees, directors and
others....................... 2,392,000 23,920 31,077,212 (4,325) -- -- -- 31,096,807
Imputed executive salaries.... -- -- 123,944 -- -- -- -- 123,944
Net loss...................... -- -- -- -- -- -- (41,554,662) (41,554,662)
--------- ------- ----------- ------- -------- ------- ------------ ------------
Balance, December 31, 1999...... 4,358,669 $43,587 $43,190,060 $(4,325) -- $ -- $(41,634,360) $ 1,594,962
========= ======= =========== ======= ======== ======= ============ ============
See accompanying summary of significant accounting policies and notes to
financial statements.
F-4
E2Enet, INC.
(A development stage enterprise)
STATEMENTS OF CASH FLOWS
Year Ended December 31, 1999, Period September 1, 1998 (inception) through
December 31, 1998, and Period September 1, 1998 (inception) through December
31, 1999
Period Period
September 1, September 1,
1998 (inception) 1998 (inception)
Year Ended through through
December 31, December 31, December 31,
1999 1998 1999
------------ ---------------- ----------------
Operating activities:
Net loss................................................ $(41,554,662) $(79,698) $(41,634,360)
------------ -------- ------------
Adjustments to reconcile net loss to net cash used in
development stage activities:
Stock compensation.................................... 31,072,080 -- 31,072,080
Equity in loss of investees........................... 3,824,279 -- 3,824,279
Interest accretion on convertible notes and warrants.. 3,328,774 -- 3,328,774
Imputed executive salaries............................ 123,944 -- 123,944
Depreciation and amortization......................... 6,759 370 7,129
Changes in assets and liabilities:
Increase in prepaid expenses........................ (5,330) -- (5,330)
Increase in accounts payable and accrued expenses... 1,579,734 13,714 1,593,448
------------ -------- ------------
Total adjustments................................. 39,930,240 14,084 39,944,324
------------ -------- ------------
Net cash used in development stage activities..... (1,624,422) (65,614) (1,690,036)
------------ -------- ------------
Investing activities:
Cash paid for investments............................... (5,005,169) -- (5,005,169)
Cash advanced on note receivable........................ (747,500) -- (747,500)
Cash paid for deferred acquisition costs................ (117,454) -- (117,454)
Purchases of fixed assets............................... (32,705) (6,658) (39,363)
------------ -------- ------------
Net cash used in investing activities............. (5,902,828) (6,658) (5,909,486)
------------ -------- ------------
Financing activities:
Sale of member interests................................ -- 100 100
Issuance of common stock................................ 39,262 -- 39,262
Issuance of convertible notes payable................... 1,970,148 -- 1,970,148
Issuance of stock purchase warrants..................... 1,358,626 -- 1,358,626
Borrowings from stockholder............................. 4,402,691 72,172 4,474,863
------------ -------- ------------
Net cash provided by financing activities......... 7,770,727 72,272 7,842,999
------------ -------- ------------
Net increase in cash..................................... 243,477 -- 243,477
Cash, beginning of period................................ -- -- --
------------ -------- ------------
Cash, end of period...................................... $ 243,477 $ -- $ 243,477
============ ======== ============
Supplemental cash flow information:
Issuance of common stock for subscription receivable.... $ 4,325 $ -- $ 4,325
============ ======== ============
Accrued deferred acquisition costs...................... $ 343,670 $ -- $ 343,670
============ ======== ============
Issuance of common stock for investments................ $ 8,655,363 $ -- $ 8,655,363
============ ======== ============
See accompanying summary of significant accounting policies and notes to
financial statements.
F-5
E2Enet, INC.
(A development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
1. Business and Organization
E2Enet, Inc., a Delaware corporation (the "Company"), was incorporated on
February 9, 1999. The Company is building a platform of technologies,
applications and services that are believed to be common components of many
Internet businesses. The Company is designing this platform so that many of the
components can be customized for the business to business, or B2B, and business
to consumer, or B2C, Internet-related market sectors. As part of the effort to
develop this platform, the Company has invested in certain Internet-related
businesses.
The Company intends to generate revenue by licensing it's platform or its
component parts to the investee businesses, as well as to other Internet
organizations and traditional businesses that desire to develop a means to
conduct business on the Internet. No revenues have been generated since the
inception of the Company. To date, the Company has primarily focused on
creating infrastructure and raising capital. Accordingly, the Company's
financial statements are presented in accordance with Statement of Financial
Accounting Standards No. 7, Accounting and Reporting by Development Stage
Enterprises. As a development stage enterprise, the Company has relied on
stockholder loans and capital contributions as its primary sources of cash
since inception.
Ironbound Partners LLC ("Ironbound"), a limited liability company formed
pursuant to and in accordance with the laws of the State of Delaware, was
formed in September 1998. Ironbound did not generate any revenue from
operations. On May 14, 1999, Ironbound was merged with the Company and ceased
to exist. For the period from September 1, 1998 through December 31, 1998,
Ironbound incurred a loss of $79,698. For the period January 1, 1999 through
May 14, 1999, Ironbound incurred a loss of $248,652. Expenses incurred through
May 14, 1999 were solely for the establishment of Ironbound and costs in
connection with the analysis of the potential initial investments of the
Company.
Prior to and at the time of the merger on May 14, 1999, the voting rights of
the Company and Ironbound were both 100% under common control through direct
ownership or irrevocable unilateral proxy by the founder and sole member of
Ironbound and founder and majority stockholder of the Company (collectively,
the "Founder"). See further discussion regarding the Company's structure in
Note 8.
During 1999 the Company filed a Form S-1 registration statement with the
Securities and Exchange Commission registering certain of the Company's common
stock. This registration statement was subsequently withdrawn by the Company.
Effective April 12, 2000, the shareholders of the Company sold all of their
outstanding shares of stock to U.S. Technologies Inc. ("USXX") (see Note 12)
2. Summary of Significant Accounting Policies
Use of Estimates
The financial statements are prepared on the accrual basis of accounting in
conformity with generally accepted accounting principles. 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 reported period. Actual results
could differ from those estimates.
F-6
E2Enet, INC.
(A development stage enterprise)
NOTES TO FINANCIAL STATEMENTS (Continued)
Accounting for Investments
The various investments that the Company acquires are accounted for under
three broad methods: the consolidation, equity and cost methods. The accounting
method applied is generally determined based on the Company's voting interest
in the investee, the degree of influence exercised over the investee's
operations, and the level of control over key management positions.
Consolidation
Investee companies in which the Company owns more than 50% of the
outstanding voting securities are generally accounted for under the
consolidation method of accounting. Under this method, the subsidiary company's
results are reflected within the Company's financial statements. All
significant intercompany accounts and transactions are eliminated.
Participation of other stockholders in the earnings or losses of the
consolidated subsidiary is reflected as minority interest such that the
Company's results of operations reflect only the Company's share of such
earnings or losses. The Company has no consolidated subsidiaries as of December
31, 1999 or in the periods presented herein.
Equity Method
Investee companies over which the Company exercises significant influence
are accounted for under the equity method of accounting. Whether or not the
Company exercises significant influence with respect to the investee company
depends on several factors, including but not limited to: an ownership interest
level of 20% to 50% in the voting securities of the investee, active
participation on the investee's board of directors, approval of the investee's
operating and budgetary decisions, and other shareholder rights which allow the
Company to exercise significant control over the investee. Under the equity
method of accounting, an investee's results of operations are not reflected
within the Company's consolidated accounts, however, the Company's share of the
earnings or losses of the investee is reflected in the caption "equity in loss
of investees" in the statement of operations. If the Company's equity
investment represents the sole financing source for the respective investee,
the Company reflects 100% of the investee company's loss in its statement of
operations.
The amount by which the Company's carrying value at the time of the initial
purchase of the investment exceeds its share of the underlying net assets of
investments accounted for under the equity method of accounting is amortized on
a straight-line basis over the useful life of the underlying assets or
investments, generally three years. Amortization is reflected as an adjustment
of the Company's share of the investee's earnings or losses.
Cost Method
Investments not accounted for under the consolidation or equity methods of
accounting are accounted for under the cost method of accounting. Under this
method, the Company's share of the earnings or losses of the investee is not
included in the statement of operations. However, cost method impairment
charges are recognized in the statement of operations if circumstances indicate
a permanent impairment.
The Company records its ownership interest in equity securities of
investments accounted for under the cost method at cost, unless these
securities have readily determinable fair values based on quoted market prices,
in which case these interests would be classified as available-for-sale
securities or some other classification in accordance with Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities. The Company used the cost method for certain of its
investments and had no available-for-sale investments at December 31, 1999. All
investments are stated at the lower of cost or net realizable value.
F-7
E2Enet, INC.
(A development stage enterprise)
NOTES TO FINANCIAL STATEMENTS (Continued)
The Company continually evaluates investments for indications of impairment
based on the fair value of each investment relative to cost, financial
condition, near-term prospects of the investment and other relative factors.
Accounting for Sales of Stock by a Subsidiary
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
51, at the time an investee that is accounted for under the consolidation or
equity method of accounting sells its stock at a price per share different from
the investment's book value per share, the Company's share of the investee's
net equity changes. If at that time, the investee is not a start-up company, a
non-operating entity, a research and development company or a development stage
enterprise, and there is no question as to the investee's ability to continue
as a going concern, the Company records the change in its share of the
investee's net equity as a non-operating gain or loss in its statement of
operations.
Cash and Cash Equivalents
Highly liquid investments with maturities of three months or less at the
date of purchase are considered cash equivalents.
Supplemental Cashflow Information
There were no cash payments for interest or taxes during the periods ended
December 31, 1999 or 1998.
During the year ended December 31, 1999, significant non-cash investing
activities included issuances of the Company's common stock as the
consideration for investments by the Company. Such amounts have been disclosed
in the statements of cash flows and changes in stockholders' equity (capital
deficit).
Fixed Assets
Fixed assets consist of office computers, office equipment and furniture and
fixtures, and are stated at cost less accumulated depreciation. The cost of
additions and improvements are capitalized, while maintenance and repairs are
charged to expense as incurred. Depreciation is provided on the straight-line
basis over the estimated useful lives of the assets over a three year period.
The Company recognizes gains or losses on the sale or disposal of fixed assets
in the period of disposal. Long-lived assets held and utilized by the Company
are reviewed for impairment whenever changes in circumstances indicate the
carrying value of such assets may not be recoverable.
Organization Costs
The Company accounts for organization costs under the provisions of
Statement of Position 98-5, Reporting on the Costs of Start-Up Activities,
which requires that all organization costs be expensed as incurred.
Income Taxes
The Company accounts for income taxes in accordance with the liability
method. Deferred income taxes are recognized for the tax consequences in future
years for differences between the tax bases of assets and liabilities and their
financial reporting amounts at the end of the period, based on enacted laws and
statutory rates
F-8
E2Enet, INC.
(A development stage enterprise)
NOTES TO FINANCIAL STATEMENTS (Continued)
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the expected realizable amount. The provision for income
taxes consists of the current tax provision and the change during the period in
deferred tax assets and liabilities.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123"), permits entities to choose between a
fair value based method of accounting for employee stock options and similar
equity instruments and the intrinsic value based method of accounting
prescribed under Accounting Principles Board Opinion No. 25 ("APB 25"). The
Company has elected to apply the intrinsic value based method of APB 25 in
accounting for its employee stock-based compensation programs and will disclose
the pro forma net income and earnings per share as if the fair value method had
been applied. All non-employee stock-based compensation plans are accounted for
under the fair value based method in accordance with SFAS 123. At December 31,
1999, the Company has issued no such equity instruments.
Comprehensive Income
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income, requires the presentation and disclosure of all changes in equity from
non-owner sources as other comprehensive income. The Company had no items of
other comprehensive income for the year ended December 31, 1999 and the period
from September 1, 1998 (inception) through December 31, 1998.
Segment Reporting
Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131"), replaces the
industry segment approach under previously issued pronouncements with the
management approach. The management approach designates the internal
organization that is used by management for allocating resources and assessing
performance as the source of the Company's reportable segments. SFAS 131 also
requires disclosures about products and services, geographic areas and major
customers. The Company currently operates in one industry segment which
includes investing in and acquiring companies engaged in Internet related
commerce.
Loss Per Common Share
The Company has adopted the provisions of SFAS No. 128, Earnings Per Share,
which is effective for fiscal years ending after December 15, 1997. Basic
earnings per common share are calculated based on the weighted average number
of common shares outstanding during the period. Diluted earnings per share
include the dilutive effect of convertible notes payable and warrants. Diluted
earnings per share have not been presented for all periods because the impact
of the assumed exercise of the convertible notes payable and warrants would
have been anti-dilutive. The impact of the assumed exercise may have a dilutive
effect in future periods.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"), establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging. In
July 1999, Statement of Financial
F-9
E2Enet, INC.
(A development stage enterprise)
NOTES TO FINANCIAL STATEMENTS (Continued)
Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of Financial Accounting Standards
Board Statement No. 133 ("SFAS 137"), was issued. SFAS 137 deferred the
effective date of SFAS 133 from fiscal years beginning after June 15, 1999 to
all fiscal years beginning after June 15, 2000. Currently the Company has no
derivative instruments thus the adoption of SFAS 133 would have no impact on
the Company's financial condition or results of operations.
The Financial Accounting Standards Board issued Interpretation No. 44,
Accounting for Certain Transactions Involving Stock Compensation, an
Interpretation of APB Opinion No. 25 (the "Interpretation") which is effective
July 1, 2000. The Interpretation clarifies (a) the definition of employee for
purposes of applying Opinion 25, (b) the criteria for determining whether a
stock compensation plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. Adoption of the provisions of the
Interpretation are not expected to have a significant impact on the Company's
financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101
Revenue Recognition which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements
filed with the SEC. The Company believes that adopting SAB No. 101 will not
have a material impact on its financial position or results of operations.
3. Investments in Affiliates
The Company acquired interests in six companies during the year ended
December 31, 1999. Certain of these are preferred stock investments which
convert to common stock at the option of the Company and no later than the
investee's IPO. The investments, all of which are development stage
enterprises, include in the following companies:
. Bluemercury, Inc.--is developing a web site focusing on offering a broad
range of women's cosmetic products and accessories.
. Blue Rock, Inc.--is developing an electronic commerce web site focused on
unique gift selection and related services.
. Hooey, Inc.--is developing an electronic commerce community focused on
hand-made products.
. Urban Box Office Network, Inc.--is developing an online web-site for
consumers of urban culture, information, entertainment and products. On
November 2, 2000, Urban Box Office filed for bankruptcy protection (See
Note 12(b)).
. VIPRO Corporation ("Vipro")--is an Internet surety company, which provides
repair guarantees against viruses that harm computers. Vipro has
e-commerce relationships with a leading Internet utility company, a credit
card association, one of the largest warranty claims administrators in the
world and over 170 Internet service providers.
. MEI Software Systems, Inc. ("MEI")--provides customized software systems
to manage the databases of trade associations, professional associations,
fund-raising organizations and chambers of commerce.
F-10
E2Enet, INC.
(A development stage enterprise)
NOTES TO FINANCIAL STATEMENTS (Continued)
The significant terms of these agreements are summarized below:
Initial Additional Fair Value of Ownership
Investment Cash Cash E2Enet Interest at
Company Name Date Invested Committed Stock Sold 12/31/99
- ------------ ------------------ ---------- ---------- ------------- -----------
*Bluemercury, Inc.............. May 14, 1999 $ 532,533 $ 500,000 $2,165,004 27.83%
*Blue Rock, Inc................ May 14, 1999 1,267,330 -- 1,732,009 35.91%
*Hooey, Inc.................... May 14, 1999 643,504 637,500 2,165,004 20.49%
*Urban Box Office Network, Inc. May 14, 1999 1,033,232 -- 2,598,013 7.40%
**VIPRO, Inc................... October 7, 1999 320,673 650,000 -- 4.25%
**MEI Software Systems, Inc.... September 16, 1999 1,207,897 -- -- 4.37%
---------- ---------- ----------
$5,005,169 $1,787,500 $8,660,030
========== ========== ==========
- --------
* equity method
** cost method
These amounts are included in the accompanying balance sheet as of December
31, 1999 as follows:
Cash invested............................................................................ $ 5,005,169
Fair value of E2Enet stock sold.......................................................... 8,660,030
Equity in loss of investees.............................................................. (922,822)
Amortization of carrying value of investment in excess of underlying equity in net assets (1,768,166)
Accrual of loss upon disposition of Blue Rock, Inc....................................... (1,133,291)
-----------
$ 9,840,920
===========
Cash invested represents the initial cash paid as well as other direct costs
incurred by the Company for these transactions. The direct costs of the
investments totaled $217,669 as of December 31, 1999. Additional cash committed
is to be provided at the request of the investee or upon IPO of the Company. In
addition to the cash invested, the Company also sold common shares to certain
owners of the investee companies at $0.01 per share. The fair value of the
Company's stock at the time of the sales was approximately $8.7 million. The
difference between the fair value of the stock sold and the price paid by the
owners of the investee companies has been recognized in the basis of each
investment.
Equity losses reduced the carrying value of the equity method investments by
$922,822 during the year ended December 31, 1999.
In connection with the purchase of the above interest in Blue Rock, Inc.,
one of the founders of E2E entered into a put agreement with the two principal
shareholders of Blue Rock, Inc. This put agreement allows the shareholders to,
under certain circumstances, require the Founder to repurchase the Company
shares acquired in connection with this transaction for $15 per share. The fair
value of this put agreement is immaterial to the Company's financial statements
taken as a whole. In connection with USXX's acquisition of the Company, USXX
agreed to assume the founder's liability under this put agreement. The two put
holders have not consented to the assignment. Subsequent to year-end the
holders of the put exercised their right to put their shares of the Series B
Preferred Stock (approximately 53 shares of Series B Preferred Stock each,
which shares were received in exchanged for their shares of E2E common stock in
connection with USXX's acquisition of the Company) to the founder.
F-11
E2Enet, INC.
(A development stage enterprise)
NOTES TO FINANCIAL STATEMENTS (Continued)
At December 31, 1999 the Company's carrying value in investments accounted
for under the equity method exceeded its share of the underlying equity in the
net assets of such companies by approximately $3,802,000. This excess is being
amortized over a three-year period. Amortization expense of $1,768,944 is
included in "equity loss of investees" in the accompanying statement of
operations for the year ended December 31, 1999.
The following summarized unaudited financial information for investments
accounted for under the equity method of accounting, excluding Blue Rock, Inc.,
which was disposed on February 4, 2000, has been presented based upon the
financial statements of the respective investees at December 31, 1999:
Balance sheets:
Current assets..................................... $ 413,872
Non-current assets................................. 2,790,305
----------
Total assets................................... $3,204,177
==========
Current liabilities................................... $1,761,997
Non-current liabilities............................... 1,259,925
Stockholders' equity.................................. 182,255
----------
Total liabilities and stockholders' equity..... $3,204,177
==========
Results of operations:
Revenue............................................... $ 7,412
==========
Net loss.............................................. $4,947,589
==========
On February 4, 2000, the Company sold its investment in Blue Rock, Inc. to
third parties for $1,250,000. This resulted in a loss of $1,133,291, which was
accrued at December 31, 1999.
Subsequent to year-end USXX restructured some of E2E's investments in its
investee companies and provided additional working capital through E2E to
stimulate further growth and expansion. Upon this restructuring, E2E's
investment in Buyline.net, Inc. ("Buyline") was increased so that Buyline
became a majority owned subsidiary of USXX. On April 26, 2000, USXX completed
its acquisition of 20,700,005 shares of Buyline's common stock. Also, USXX
issued 23,000 shares of common stock to one of the founders of Buyline in
exchange for 634,699 shares of Buyline common stock. The Buyline Purchase
Agreement provided for (1) the conversion to Buyline's common stock of E2E's
existing loans to Buyline (including accrued interest), (2) acknowledgment of
the in-kind services previously rendered by E2E, and (3) an additional
$1,000,000 cash investment by USXX through E2E. Simultaneous with entering into
the Buyline Agreement, USXX hired a technology executive who has become
Buyline's President and Chief Executive Officer. As a result, USXX, through
E2E, will be the controlling shareholder of Buyline, and will designate and
supervise the Buyline management team. The details of the purchase of Buyline
have been reported by USXX in its Form 8-K filed on May 11, 2000.
On March 13, 2000, USXX signed an agreement with Vipro Corporation
("Vipro"), an E2E portfolio company, to invest through E2E an additional
$1,000,000 in exchange for shares of Vipro Series B Convertible Preferred
Stock. This agreement closed on April 12, 2000.
Effective July 5, 2000, the Company completed its acquisition of 8,225
membership units of WebMiles-tones.com, LLC, ("WebMilestones") for $100,000 in
cash. WebMilestones is an internet services company that will initially provide
a site for publishing obituary notices that can be accessed through the
Internet's World
F-12
E2Enet, INC.
(A development stage enterprise)
NOTES TO FINANCIAL STATEMENTS (Continued)
Wide Web. As a result of the acquisition the Company owns 41.125% of the
outstanding membership units of WebMilestones. In conjunction with the
acquisition the Company loaned WebMilestones an additional $300,000 under a
promissory note bearing interest at the prime rate. The entire principal
balance together with all accrued and unpaid interest is payable upon demand by
the holder at any time after May 31, 2002.
4. Note Receivable
The Company advanced $747,500 to Buyline.net, Inc. ("Buyline") on an
unsecured, non-interest bearing note receivable under the terms of a stock
purchase agreement dated August 10, 1999 that was canceled as a result of the
withdrawal of the Company's IPO as described more fully in Note 1. Subsequent
to year-end the note was converted to Buyline common stock as described more
fully in Note 3.
5. Deferred Acquisition Costs
In contemplation of the August 10, 1999 stock purchase agreement with
Buyline described in Note 4, the Company also paid certain legal and consulting
fees. These costs have been capitalized as deferred acquisition costs at
December 31, 1999.
6. Fixed Assets
Fixed assets consist of the following:
December 31,
---------------
1999 1998
------- ------
Computer equipment............ $33,930 $6,658
Office equipment.............. 4,950 --
Furniture and fixtures........ 483 --
------- ------
39,363 6,658
Less: accumulated depreciation (7,129) (370)
------- ------
Fixed assets, net............. $32,234 $6,288
======= ======
Depreciation expense was $6,759 and $370 for the year ended December 31,
1999, and the period September 1, 1998 (inception) through December 31, 1998,
respectively.
7. Notes Payable to Stockholders
Notes payable to stockholders includes advances to the Company from the
Founder under a promissory note dated December 23, 1998. The note bears
interest at the prime rate (8.5% at December 31, 1999) and is payable on
December 31, 2000 or upon demand. On May 7, 1999 the note was amended to allow
advances of up to $10 million in order to help the Company meet its working
capital needs and to provide funding for investments in development stage
enterprises. Borrowings under the promissory note were $7,803,687 and $72,172,
as of December 31, 1999 and 1998, respectively. No interest was paid during the
period from inception through December 31, 1999, and accrued interest was
approximately $266,000 at December 31, 1999. The note is secured by certain
securities of the Company's investees.
On September 10, 1999, the Company issued Convertible Secured Notes (the
"Notes") with warrants to purchase 400,000 shares of common stock for $4
million to Northwood Ventures LLC and Northwood Capital
F-13
E2Enet, INC.
(A development stage enterprise)
NOTES TO FINANCIAL STATEMENTS (Continued)
Partners LLC that bear interest at the prime rate and mature on the earlier of
(a) five days after the IPO or (b) December 31, 2000. The Notes contained a
beneficial conversion feature, the fair value of which was $1,970,148 at the
time of issuance. The warrants may be exercised for a term that is the lesser
of seven years from the closing of the Note agreements or five years from the
completion of the Company's IPO. The fair value of the warrants was $1,358,626
at the time of issuance. The fair value of the Notes were $671,226 at the date
of issuance. Interest expense of $3,328,774 has been recorded for the
difference between the fair value of the Notes and warrants upon issuance and
$4,000,000, the face amount of the Notes during 1999. In connection with the
merger with USXX, the Notes and the warrants were converted to equity.
8. Stockholders' Equity
The Company's authorized common stock consists of 100,000,000 shares, par
value $.01 per share. The holders of common stock are entitled to one vote per
share and are entitled to dividends as declared. Future dividends may be
restricted by the inability of the Company to liquidate ownership interests in
investees to fund cash distributions.
The Company has the right to establish one or more classes or series of
preferred stock. The holders of the preferred stock may be entitled to
preferences over common stockholders with respect to dividends, liquidation,
dissolution, or dilution as established by the Board of Directors. No preferred
stock shares were authorized or issued at December 31, 1999.
Common Stock
On September 1, 1998, the Founder invested $100 for 100% of the member
interest in Ironbound.
For presentation purposes, all such Ironbound ownership interests are
presented as capital in excess of par value of the Company. On February 9,
1999, the Founder of the Company invested $15,000 for 100 shares of common
stock; subsequently, in May 1999, the Company authorized a 15,000-to-1 stock
split. The effect of the stock split was recorded retroactively to the date of
incorporation. On May 7, 1999, the Company repurchased 200,000 shares from the
stockholder at the original issuance price. On May 14, 1999, all Ironbound
units were converted to common stock of the Company.
During May 1999, the Company sold 2,392,000 shares of the Company's common
stock to certain employees, directors and other individuals at $.01 per share
for gross proceeds of $23,920 and a stock subscription receivable of $4,325.
Although these shares are voting shares, the stockholders have assigned their
respective unilateral, irrevocable proxy rights to the Founder. The Company has
recorded compensation expense of $31,072,080 for the difference between the
purchase price and the fair value of the stock on the date of issuance.
In connection with the four investment agreements executed on May 14, 1999,
the Company issued 666,669 shares of $.01 par common stock at a purchase price
of $.01 per share. The fair value of these shares was $8,660,030. The
difference between fair value of the shares and the price paid has been
included in the basis of each investment.
9. Imputed Executive Salaries
The Company's management team did not receive salaries for the period from
May 14, 1999 (date of employment agreements) through June 30, 1999. These
individuals will be compensated at the earlier of an initial
F-14
E2Enet, INC.
(A development stage enterprise)
NOTES TO FINANCIAL STATEMENTS (Continued)
public offering of the Company or upon approval of the Board of Directors. In
accordance with Securities and Exchange Commission Staff Accounting Bulletin
No. 79, the Company has measured the value of compensation at $123,944 (based
upon total future annual compensation as provided in each individual's
employment agreement) and has recognized the related compensation expense and
capital contribution in the accompanying statements of operations and changes
in stockholders' equity (capital deficit).
10. Income Taxes
From the period of September 1, 1998 (date of inception) through May 14,
1999, Ironbound reflected no provision for income taxes. As a limited liability
corporation, Ironbound's owner elected to be taxed as a partnership under the
Internal Revenue Code. As a result, taxable income or losses accrued to the
individual member.
Effective May 14, 1999, the Founder of the Company merged the two companies
resulting in the termination of Ironbound's legal existence and the Company's
assumption of all of its assets and liabilities.
The provision for income taxes (benefits) for the period from May 14, 1999
through December 31, 1999 is comprised of the following:
Deferred:
Federal...................................................... $(3,484,000)
State........................................................ (615,000)
-----------
Total deferred tax provision (benefits).................. (4,099,000)
Less valuation allowance........................................ 4,099,000
-----------
Total income tax provision............................... $ --
===========
Deferred tax assets consist of the following:
Deferred tax assets:
Net operating loss carryforward.............................. $ 1,606,000
Equity in net loss before taxes of investees................. 1,161,000
Imputed interest on notes payable............................ 1,332,000
-----------
Total deferred tax assets before valuation allowance..... 4,099,000
Less valuation allowance........................................ (4,099,000)
-----------
Deferred tax assets............................................. $ --
===========
Had the results of Ironbound been included in the provision above, the tax
asset would have been increased by approximately $125,000 and $30,000 at
December 31, 1999 and 1998, respectively, and would have been offset with an
equal valuation allowance, resulting in no change to the income tax provision
or deferred tax assets of the Company.
Deferred income taxes are provided for temporary differences between the
financial reporting basis and the tax basis of the Company's assets. The
temporary differences that give rise to the deferred tax assets are the
Company's net operating losses since the merger and equity in net losses of
investees before taxes. At current statutory rates, the net operating loss
carryforward tax asset at December 31, 1999 will offset approximately
$4,000,000 in taxable income and will expire in 2019.
F-15
E2Enet, INC.
(A development stage enterprise)
NOTES TO FINANCIAL STATEMENTS (Continued)
Gross deferred tax assets at December 31, 1999, prior to valuation
allowances, are $4,099,000. Valuation allowances of $4,099,000 were provided
against the net deferred tax asset due to the uncertainty of realizing the
benefit of these assets.
No income taxes were paid from May 14, 1999 (date of merger) to December 31,
1999.
A reconciliation between the statutory federal income tax rate and the
effective rate of income tax expense follows:
Period May 14, 1999 through
December 31, 1999
---------------------------
Statutory federal income tax rate (34)%
State income taxes............... (6)
Stock compensation............... 31
Change in valuation allowance.... 8
Other............................ 1
---
--%
===
11. Commitments and Contingencies
Leases
The Company leases certain buildings for use in its operations under
noncancelable operating lease agreements. Certain of the leases contain renewal
clauses and require the payment of common area maintenance charges. Rent
expense was $139,000 and $2,000 for the year ended December 31, 1999 and the
period September 1, 1998 (inception) through December 31, 1998, respectively.
The future minimum payments under non-cancelable operating leases at
December 31, 1999 are as follows:
2000...... $ 246,000
2001...... 246,000
2002...... 248,000
2003...... 263,000
2004...... 263,000
Thereafter 1,314,000
----------
Total.. $2,580,000
==========
Investment Company Act of 1940
Because many of the Company's investments are not in majority-owned
subsidiaries, changes in the value of the Company's interests and the income or
losses attributable to the investees could result in the requirement for the
Company to register under the Investment Company Act of 1940. Should such
changes occur, the Company believes it can take steps that would result in it
being unnecessary to register under the Investment Company Act. It is
anticipated that such changes would not adversely affect its operations or
stockholder value.
F-16
12. Subsequent Events
(a) Merger of the Company with a subsidiary of USXX.
On April 12, 2000, the Company merged with U.S. Technologies Acquisition
Sub, Inc. ("Newco"), a wholly owned subsidiary of USXX, with Newco being the
surviving corporation and the name of the surviving corporation by virtue of
the merger being E2Enet, Inc. The merger was consummated through the exchange
of 112,000 shares of USXX Series B Mandatorily Convertible Preferred Stock
("Series B Stock") for all of the Company's outstanding common stock. The
Series B Stock shares are convertible following the USXX charter amendment into
56,000,000 shares of USXX common stock.
(b) Bankruptcy Filing of Urban Box Office Network, Inc.
On November 2, 2000, Urban Box Office Network, Inc., an entity in which the
Company has invested, filed bankruptcy protection and ceased operations. The
Company will write off it's investment in Urban Box Office Network, Inc. during
the year ending December 31, 2000. Such investment was approximately $2.6
million at December 31, 1999.
F-17
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Yazam.com, Inc. and Subsidiaries
New York, NY
We have audited the accompanying consolidated balance sheets of Yazam.com,
Inc. and Subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flow for the year ended December 31, 2000 and for the period April 15,
1999 (inception) through December 31, 1999. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Yazam.com, Inc. and
Subsidiaries at December 31, 2000 and 1999, and the results of their operations
and their cash flows for the year ended December 31, 2000 and for the period
April 15, 1999 (inception) through December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
RADIN GLASS & CO., LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
July 6, 2001
F-18
YAZAM.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
2000 1999
------------ -----------
ASSETS
Current Assets:
Cash and cash equivalents.................................................... $ 34,780,839 $ 3,122,568
Restricted cash.............................................................. 646,524 616,877
Fees and other receivables................................................... 1,263,799 187,816
Subscription receivable, preferred stock..................................... -- 10,000,000
Prepaid expenses and other current assets.................................... 441,835 135,621
------------ -----------
Total Current Assets..................................................... 37,132,997 14,062,882
------------ -----------
Property and Equipment, Net..................................................... 1,918,728 90,874
------------ -----------
Other Assets:
Investments in portfolio companies........................................... 1,631,258 460,000
Security deposits............................................................ 770,905 30,000
Goodwill, net................................................................ 1,634,394 --
------------ -----------
Total Other Assets....................................................... 4,036,557 490,000
------------ -----------
Total Assets............................................................. $ 43,088,282 $14,643,756
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses........................................ $ 3,613,477 $ 1,128,520
Due to investors............................................................. 466,413 616,877
------------ -----------
Total Liabilities........................................................ 4,079,890 1,745,397
------------ -----------
Commitments and Contingencies................................................... -- --
Stockholders' Equity:
Series A convertible preferred stock, $2.00 stated value, $0.0001 par value;
2,000,000 shares authorized, issued and outstanding........................ 4,000,000 4,000,000
Series B convertible preferred stock, $2.00 stated value, $0.0001 par value;
5,000,000 shares authorized, issued and outstanding........................ 10,000,000 10,000,000
Series C convertible preferred stock, $6.00 stated value, $0.0001 par value;
12,416,667 shares authorized, 11,858,333 shares issued and outstanding..... 71,150,000 --
Common stock, $0.0001 par value, 40,000,000 shares authorized, 19,881,775
and 16,716,600 shares issued, 17,490,177 and 16,200,002 shares
outstanding, respectively.................................................. 1,989 1,672
Additional paid-in capital................................................... 9,587,864 4,449,925
Deferred compensation........................................................ (346,391) --
Foreign currency translation adjustments..................................... 77,741 --
Treasury stock, at cost, 2,391,598 and 516,598 shares, respectively.......... (10,750,052) (52)
Accumulated deficit.......................................................... (44,712,759) (5,553,186)
------------ -----------
Total Stockholders' Equity............................................... 39,008,392 12,898,359
------------ -----------
Total Liabilities and Stockholders' Equity............................... $ 43,088,282 $14,643,756
============ ===========
See notes to financial statements.
F-19
YAZAM.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Period
April 15, 1999
For the Year (Inception)
Ended Through
December 31, December 31,
2000 1999
------------ --------------
Revenues:
Fee income............................ $ 2,157,198 $ 175,000
Interest income....................... 2,100,309 18,123
------------ -----------
4,257,507 193,123
------------ -----------
Expenses:
Compensation expense.................. 10,225,681 4,606,367
Other general and administrative...... 5,255,869 290,237
Professional fees..................... 3,750,826 161,646
Marketing............................. 3,515,627 687,382
Loss from investees................... 2,134,708 --
Depreciation and amortization......... 1,313,448 677
Write-off of uncollectible receivable. 298,005 --
Asset impairment...................... 16,922,916 --
------------ -----------
43,417,080 5,746,309
------------ -----------
Net Loss.......................... $(39,159,573) $(5,553,186)
============ ===========
See notes to financial statements.
F-20
YAZAM.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Preferred Stock Common Stock Treasury Stock
---------------------- ----------------- ----------------------- Additional
Shares Amount Shares Amount Shares Amount Paid-in Capital
---------- ----------- ---------- ------ ---------- ------------ ---------------
Balance--April 15, 1999
(Inception)........................ -- $ -- -- $ -- -- $ -- $ --
Issuance of shares to founders...... 2,411 24
Issuance of shares to key
employee........................... 375 4 4,499,996
Stock split......................... 16,713,814 1,644 (221)
Redemption of common stock.......... 516,598 (52)
Issuance of Series A preferred
stock.............................. 2,000,000 4,000,000
Issuance of Series B preferred
stock.............................. 5,000,000 10,000,000
Costs of raising capital-preferred
stock.............................. (49,850)
Net loss............................
---------- ----------- ---------- ------ ---------- ------------ ----------
Balance--December 31, 1999.......... 7,000,000 $14,000,000 16,716,600 $1,672 516,598 $ (52) $4,449,925
Issuance of stock in connection with
First Tuesday......................
merger.............................. 1,317,675 132 2,108,148
Issuance of stock in connection with
Gregory merger..................... 350,000 35 559,965
Issuance of stock in connection with
Todo merger........................ 700,000 70 860,930
Issuance of Series C preferred
stock.............................. 9,983,333 59,900,000
Sale and exchange................... 1,875,000 11,250,000 1,875,000 (10,750,000)
Costs of raising capital-preferred
stock.............................. (311,716)
Issuance of options for
compensation....................... 1,761,192
Amortization of deferred
compensation.......................
Exercise of options................. 797,500 80 159,420
Foreign currency translation
adjustment.........................
Net loss............................
---------- ----------- ---------- ------ ---------- ------------ ----------
Balance--December 31, 2000.......... 18,858,333 $85,150,000 19,881,775 $1,989 $2,391,598 $(10,750,052) $9,587,864
========== =========== ========== ====== ========== ============ ==========
Accumulated
Other
Deferred Accumulated Comprehensive
Compensation Deficits Income* Total
------------ ------------ ------------- ------------
Balance--April 15, 1999
(Inception)........................ $ -- $ -- $ -- $ --
Issuance of shares to founders...... 24
Issuance of shares to key
employee........................... 4,500,000
Stock split......................... 1,423
Redemption of common stock.......... (52)
Issuance of Series A preferred
stock.............................. 4,000,000
Issuance of Series B preferred
stock.............................. 10,000,000
Costs of raising capital-preferred
stock.............................. (49,850)
Net loss............................ (5,553,186) (5,553,186)
----------- ------------ ------- ------------
Balance--December 31, 1999.......... $ -- $ (5,553,186) $ -- 12,898,359
Issuance of stock in connection with
First Tuesday......................
merger.............................. 2,108,280
Issuance of stock in connection with
Gregory merger..................... 560,000
Issuance of stock in connection with
Todo merger........................ 861,000
Issuance of Series C preferred
stock.............................. 59,900,000
Sale and exchange................... 500,000
Costs of raising capital-preferred
stock.............................. (311,716)
Issuance of options for
compensation....................... (1,761,192) --
Amortization of deferred
compensation....................... 1,414,801 1,414,801
Exercise of options................. 159,500
Foreign currency translation
adjustment......................... 77,741 77,741
Net loss............................ (39,159,573) (39,159,573)
----------- ------------ ------- ------------
Balance--December 31, 2000.......... $ (346,391) $(44,712,759) $77,741 $ 39,008,392
=========== ============ ======= ============
- --------
*Comprehensive income (loss) equals net loss plus other comprehensive income
which approximated $(39,082,000) in 2000.
See notes to financial statements.
F-21
YAZAM.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Period
April 15, 1999
For the Year (Inception)
Ended Through
December 31, December 31,
2000 1999
------------ --------------
Cash Flows from Operating Activities:
Net loss..................................................................... $(39,159,573) $(5,553,186)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization.............................................. 1,313,448 677
Stock-based compensation................................................... 2,002,302 4,501,395
Write-off of uncollectible receivable...................................... 298,005 --
Assets impairment.......................................................... 16,922,916 --
Loss from investees........................................................ 2,134,708 --
Changes in operating assets and liabilities:
Fees and other receivables................................................. (1,373,988) (187,816)
Prepaid expenses and others................................................ (329,141) (135,621)
Security deposits.......................................................... (740,905) (30,000)
Accounts payable and accrued expenses...................................... 2,484,957 1,128,520
Due to investors........................................................... (150,465) 616,877
------------ -----------
Cash flow provided by (used in) operating activities..................... (16,597,736) 340,846
------------ -----------
Cash Flows from Investing Activities:
Purchases of property and equipment.......................................... (2,480,143) (91,551)
Investments in portfolio companies........................................... (9,717,967) (460,000)
Payments for acquisitions.................................................... (8,313,767) --
Net changes in restricted cash............................................... (29,647) (616,877)
Capitalization of website development costs.................................. (940,494) --
------------ -----------
Cash flow used in investing activities................................... (21,482,018) (1,168,428)
------------ -----------
Cash Flows Provided by Financing Activities:
Proceeds from issuance of preferred stock.................................... 70,650,000 4,000,000
Purchase of treasury stock................................................... (10,750,000) --
Costs of raising capital-preferred stock..................................... (311,716) (49,850)
Collection on subscription receivable........................................ 10,000,000 --
Proceeds from issuance of common stock....................................... 72,000 --
------------ -----------
Cash flow provided by financing activities............................... 69,660,284 3,950,150
------------ -----------
Net effect of exchange rate changes on cash................................... 77,741 --
------------ -----------
Net increase in cash and cash equivalents................................ 31,658,271 3,122,568
Cash and equivalents, beginning............................................... 3,122,568 --
------------ -----------
Cash and equivalents, ending.................................................. $ 34,780,839 $ 3,122,568
============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the periods for:
Interest................................................................... $ -- $ --
============ ===========
Taxes...................................................................... $ -- $ --
============ ===========
Non-cash investing and financing activities:
Stock issued for acquisitions.............................................. $ 3,529,280 $ --
============ ===========
Issuance of preferred stock for subscription receivable.................... $ -- $10,000,000
============ ===========
See notes to financial statements.
F-22
YAZAM.COM. INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. Organization and Purpose
Yazam.com, Inc. (the "Company") was formed pursuant to the laws of the State
of Delaware on April 15, 1999 for the purpose of investing in privately held,
early-stage, technology companies.
During the year ended December 31, 2000, the Company raised significant
financing (see Note 6) and made a number of investments (see Notes 4 and 7).
During the first quarter of 2001, the Company ceased significant operations and
was sold on March 27, 2001 (see Note 11).
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries: one domestic subsidiary and four foreign
subsidiaries. All significant intercompany balances have been eliminated in
consolidation.
Investments and Impairment
Investments consist of investments in privately held companies and are
valued under the equity method of accounting in accordance with Accounting
Principles Board ("APB") No. 18, The Equity Method of Accounting for
Investments in Common Stock. There are no investments which should be covered
by Statements of Financial Accounting Standards ("SFAS") No. 115, Accounting
for Certain Investments in Debt and Equity Securities. These investments are
described in Note 4.
During the period from inception to December 31, 2000, the Company made a
number of investments in start-up ventures, primarily in the "new economy" or
in "dot-com's". The majority of these ventures were unsuccessful and were
discontinued by the end of the year ended December 31, 2000. Accordingly,
investments deemed to be unsuccessful were written off as impaired under SFAS
No. 121, Accounting for Long-Lived Assets and Long-Lived Assets to be Disposed
Of. These investments and their concomitant write off are described in Note 4.
Foreign Currency Translation
The accounts of the Company's foreign subsidiaries are translated utilizing
the methodology of SFAS No. 52, Foreign Currency Translation. The balance sheet
amounts are translated at year-end currency rates; the income statements and
cash flow amounts at average currency rates during the periods. The net
exchange gains or losses resulting from the translation of foreign financial
statements are accumulated and reported as a separate component of
shareholders' equity.
Comprehensive Income
The Company adopted SFAS No. 130, Reporting Comprehensive Income, in 1999.
SFAS No. 130 requires the reporting of comprehensive income in addition to net
income from operations. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain financial information
that historically has not been recognized in the calculation of net income.
F-23
YAZAM.COM, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make significant
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates. The evaluations of the investments were a result of
estimates.
Organization Costs
Organization costs have been charged to expense as incurred as required by
Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-Up
Activities.
Revenue Recognition
Revenues primarily represent fees paid to Gregory FCA (see Note 7). Fees
paid by investees in the form of shares were not recorded as revenue as there
is no objective means of valuing such shares.
Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized over the term of the lease or the estimated life of
the improvement, whichever is shorter. Whenever assets are sold or retired,
their cost and related accumulated depreciation are removed from the
appropriate accounts. Any gains and losses on dispositions are recorded in
current operations. The carrying values of these assets are tested for
impairment as required by SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed (see Note 3 for
further information).
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash, receivables,
accounts payable and accrued expenses approximate fair value based on the
short-term maturity of these instruments.
Income Taxes
The Company utilizes the liability method of accounting for income taxes as
set forth in SFAS No. 109, Accounting for Income Taxes. Under the liability
method, deferred taxes are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect in the years for which the differences are expected to reverse.
Employee Stock Options and Shares Issued for Services
The Company accounts for employee stock transactions in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees. The Company has
adopted the proforma disclosure requirements of SFAS 123, Accounting for
Stock-Based Compensation. Accordingly, any excess of fair market value of stock
issued to employees over exercise prices has been recorded as compensation
expense and additional paid in capital.
F-24
YAZAM.COM, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
Software and Website Development Costs
Software development costs and web site development costs have been
capitalized after design and technological feasibility have been established as
required under SOP 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use and Emerging Task Consensus ("ETIF")
00-2, Accounting for Web Site Development Costs. The carrying values of these
assets are tested for impairment as required by SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. As of December 31, 2000, the Company wrote off these costs, as impairment,
amounted to $852,951.
Fees and Other Receivables
Fees and other receivables have been adjusted for all known uncollectible
amounts. All accounts recorded on the Company's books at December 31, 2000 and
1999 are deemed collectible.
Operating Segments
SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information, establishes annual and interim reporting standards for an
enterprise's operating segments and related disclosures about its products,
services, geographic areas and major customers. Under SFAS No. 131, the Company
had three segments of operations: Yazam, Gregory FCA and FT (see Notes 1 and 7
for description of business) at December 31, 2000 and one segment at December
31, 1999.
A summary of the Company's business activities reported by its three
business segments was as follows:
Yazam Gregory FCA FT Total
------------ ----------- ----------- ------------
2000
Fee income............................. $ 469,750 $1,353,974 $ 333,474 $ 2,157,198
Pretax Profit (Loss)................... $(35,100,247) $ 272,966 $(4,332,292) $(39,159,573)
Total Assets........................... $ 41,637,387 $ 812,101 $ 638,794 $ 43,088,282
Depreciation and amortization.......... $ 1,210,699 $ 7,765 $ 94,984 $ 1,313,448
Expenditures for property and equipment $ 2,224,570 $ 171,442 $ 84,131 $ 2,480,143
Operations by geographic areas were as follows:
2000 1999
----------- -----------
Fee Income
United States. $ 1,567,181 $ 160,000
United Kingdom 343,725 --
Israel........ 154,116 15,000
Japan......... 92,176 --
----------- -----------
$ 2,157,198 $ 175,000
=========== ===========
Total Assets
United States. $40,461,933 $13,684,505
United Kingdom 1,033,031 --
Israel........ 1,196,620 959,251
Japan......... 396,698 --
----------- -----------
$43,088,282 $14,643,756
=========== ===========
F-25
YAZAM.COM, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
short-term investments with an original maturity of three months or less to be
cash equivalents. The Company had cash balances in the bank in excess of the
maximum amount insured by the FDIC throughout the period.
3. Property and Equipment
Property and equipment at December 31, 2000 and 1999 consist of the
following:
Estimated
2000 1999 Useful Lives
---------- ------- ------------
Computer and office equipment. $1,041,764 $44,859 3 years
Furniture and fixtures........ 37,786 42,839 7 years
Leasehold improvements........ 1,003,535 3,853 5-10 years
---------- -------
2,083,085 91,551
Less: Accumulated depreciation 164,357 677
---------- -------
Property and Equipment, Net... $1,918,728 $90,874
========== =======
Depreciation expense for the year ended December 31, 2000 and for the period
April 15, 1999 (inception) through December 31, 1999 was $247,616 and $677,
respectively. In addition, during the year ended December 31, 2000, the Company
wrote off property and equipment, as impairment, amounted to $404,673.
F-26
YAZAM.COM, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
4. Investments and Related Impairment
Investments consist of investments in privately held internet services
companies' warrants, preferred and/or common stock as follows at December 31,
2000:
Company's
Share of Company's
Income (Loss) Share of
from Income (Loss)
Date of Recorded
Investment to as of
Date of Initial % of December 31, December 31,
Name Investment Country Ownership Cost 2000 2000
- ---- ------------------- ------- --------- ----------- ------------- -------------
3G Vision February 2000 Israel 5% $ 65,000 $ (2,888) $ (2,888)
Baobob November 2000 Israel 7% 180,000 (29,030) (29,030)
CommerceTone* August 2000 U.S. 11% 180,000 (228,063) (228,063)
Coremarkets August 2000 U.S. 12% 1,173,578 (775,473) (775,473)
GammaSite March 2000 Israel 7% 195,000 (118,973) (118,973)
Incepto September 1999 U.K. 7% 182,792 (138,923) (138,923)
Phlair November 2000 U.S. 5% 180,000 (14,027) (14,027)
Ezface, Inc. February 2000 U.S. 6% 180,000 (150,000) (150,000)
Quintessence December 2000 U.S. 1% 180,000 -- --
Selis April 2000 Israel 9% 185,000 (160,952) (160,952)
Soneta February 2000 U.S. 7% 540,096 (108,041) (108,041)
Travel Bond May 2000 Israel 25% 210,000 (168,838) (168,838)
Vship/GC Zone December 1999 U.S. 4% 239,500 (382,928) (239,500)
----------- ----------- -----------
3,690,966 $(2,278,136) $(2,134,708)
=========== ===========
Square.com --Liquidation Value 75,000
Loss from investees (2,134,708)
-----------
Net Investments $ 1,631,258
===========
- --------
* The Company invested an additional $220,000 in this investee in the first
quarter of 2001.
As of December 31, 2000, the Company had commitments to invest an additional
$1,000,000, which amount was invested by March 9, 2001.
F-27
YAZAM.COM, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
During the year ended December 31, 2000, the following investments were
written off as impairment in accordance with SFAS No. 121, Accounting for
Long-Lived Assets and Long-Lived Assets to be Disposed Of:
Date of Initial
Name Investment Function Country Cost
- ---- --------------- -------------------- ------- ----------
Ankura........... September 2000 Internet Services Israel $ 225,020
Envelopes........ June 2000 Internet Services U.S. 255,040
Impressia........ May 2000 Internet Services Israel 1,710,015
The Law.com...... April 2000 Internet Services U.S. 215,000
Configman........ April 2000 Internet Services U.S. 360,000
VC Village....... March 2000 Internet Services U.S. 175,000
EMT International March 2000 Internet Services Israel 1,564,808
PrimeShot........ February 2000 Internet Services U.S. 182,080
Ezsize, Inc...... November 2000 Internet Services U.S. 400,020
Square.com, Inc.. March 2000 Business Development U.S. 174,998
Money Hunt....... June 2000 Business Development U.S. 250,000
iPace Inc........ December 1999 Internet Services U.S. 360,020
Gold Names, Inc.. December 1999 Internet Services Israel 180,000
Infocharms....... January 2000 Internet Services U.S. 180,000
Onna.com, Inc.... December 1999 Internet Services U.S. 180,000
----------
$6,412,001
==========
5. Goodwill and Related Impairment
The carrying value of intangibles, as required by SFAS No. 121, is reviewed
if the facts and circumstances, such as significant declines in sales, earnings
or cash flows, or a material adverse change in the business environment
indicate that an impairment may have occurred. If there is an indication of
such impairment, an evaluation of the estimated cash flows of the related
entity is made, and, if impairment is determined, a write down is made.
The Company reviews long-lived assets, certain identifiable assets and any
goodwill related to those assets for impairment whenever the conditions
indicated in SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of, require: a decrease in the market
value of an asset, a change in the use of the asset, a change in legal factors
or business climate, accumulation of costs significantly in excess of original
expectations or a current period loss combined with a history of losses.
As of December 31, 2000, the Company wrote down its goodwill to the expected
liquidation value. As a result, the Company recorded an impairment of its
goodwill of $9,230,364. The remaining goodwill consists of $1,000,000 of FT and
$634,394 of Gregory FCA (see Note 7). Goodwill at December 31, 2000 consists of
the following:
Estimated
Amount Useful Lives
----------- ------------
Goodwill...................... $11,843,047 5 Years
Less: accumulated amortization 978,289
-----------
10,864,758
Impairment.................... 9,230,364
-----------
Goodwill, net.............. $ 1,634,394
===========
Amortization expense for the year ended December 31, 2000 was $978,289.
F-28
YAZAM.COM, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Stockholders' Equity
Authorized Shares
The Company's authorized shares consists of 60,000,000 shares, divided into
40,000,000 shares of common stock, par value $.0001 per share, and 20,000,000
shares of preferred stock, par value $.0001 per share.
Shares Issued to Key Employee
During 1999, in connection with an employment contract with a key employee,
the Company issued shares of its common stock to a designated limited liability
company equal to 12.5% of the Company's issued and outstanding common stock.
Such shares were valued at fair value of the stock at the time of issuance,
amounting to $4,500,000 and were reflected as compensation expense.
Stock Split
During 1999, the Company had a stock split of 6,000 to 1 of its common
stock, thus increasing the number of shares issued and outstanding to
16,716,600 shares and decreasing the par value per share to $0.0001 per share.
Treasury Stock
During 1999, certain founding stockholders redeemed 516,598 (post stock
split) of their shares of common stock which the Company recorded as treasury
stock at par value.
Preferred Series A Stock
During 1999, the Company issued 2,000,000 shares of its Preferred Series A
Stock at $2.00 per share resulting in total proceeds of $4,000,000. Preferred
Series A stockholders are entitled to dividends and distributions equal to
those issued to the common shareholders and have a liquidation preference of
$2.00 per share. The Company incurred costs of approximately $50,000 in
connection with the issuance of Preferred Series A Stock. Preferred Series A
Stock is convertible at the option of the holder, at any time, into shares of
common stock at a conversion rate of 1 to 1.
Preferred Series B Stock
On December 31, 1999, an investor subscribed for 5,000,000 shares of the
Preferred Series B Stock at $2.00 per share, which was paid on January 18,
2000. Proceeds totaled $10,000,000. Preferred Series B stockholders are
entitled to dividends and distributions equal to those issued to the common
shareholders and have a liquidation preference of $2.00 per share. Preferred
Series B Stock is convertible at the option of the holder, at any time, into
shares of common stock at a conversion rate of 1 to 1.
Preferred Series C Stock
During 2000, a number of investors purchased 11,858,333 shares of the
Preferred Series C Stock at $6.00 per share. Proceeds totaled $71,150,000.
Preferred Series C stockholders are entitled to dividends and distributions
equal to those issued to the common shareholders and have a liquidation
preference of $6.00 per share. Preferred Series C Stock is convertible at the
option of the holder, at any time, into shares of common stock at a conversion
rate of 1 to 1.
F-29
YAZAM.COM, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
Sale and Exchange
At the time of the sale of the Preferred Series C Stock, as part of an
agreement with the new investors, a portion of the proceeds was used to
repurchase 1,875,000 shares of common stock for $10,750,000. The cost of the
repurchase of common shares is recorded as treasury stock.
Options
During the year ended December 31, 2000, the Company granted to its
employees three-year options to purchase 901,423 shares of its common stock
with an exercise price less than market value. As a result, the Company
recorded deferred compensation of $346,391 and recognized $1,414,801 in
compensation expenses for these options. The deferred compensation will be
amortized over the vesting period.
Furthermore, the Company granted 2,722,749 and 589,500 options to its
employees with exercise prices equal to or greater than the market value of the
stock at the grant dates during the year ended and the period April 15, 1999
(inception) through December 31, 1999, respectively.
Weighted average exercise prices for options outstanding at December 31,
2000 and 1999 were $2.11 and $0.20 per share, respectively. In light of the
Acquisition (see Note 11), the Company accelerated all outstanding unvested
options immediately prior to the effective time of the Acquisition. In order to
be eligible for the exercise of the accelerated options, notice of exercise and
applicable payment must have been delivered to the Company no later than March
23, 2001, with any unexercised options to be voided. Accordingly, as of March
27, 2001, options to purchase 187,946 shares of common stock were exercised and
the unexercised options were voided.
The following table summarizes the changes in options outstanding and the
related price ranges for shares of the Company's common stock:
Weighted
Average
Shares Exercise Price
--------- --------------
Outstanding at December 31, 1998 --
Granted...................... 589,500 $0.20
Exercised.................... --
Expired or cancelled......... --
---------
Outstanding at December 31, 1999 589,500 $0.20
Granted...................... 3,624,172 $2.00
Exercised.................... (797,500) $0.20
Expired or cancelled......... --
---------
Outstanding at December 31, 2000 3,416,172 $2.11
=========
For disclosure purposes in accordance with SFAS No. 123, the fair value of
each stock option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for stock options granted during the year ended December 31,
2000 and the period April 15, 1999 (inception) through December 31, 1999:
annual dividends of $0.00, expected volatility of 0%, risk-free interest rate
of 6% and expected life of three years for both periods. The weighted-average
fair value of the stock options granted during the year ended and the period
April 15, 1999 (inception) through December 31, 2000 was $0.53 and $0.03,
respectively.
F-30
YAZAM.COM, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
If the Company recognized compensation cost for the employee stock option
plan in accordance with SFAS No. 123, the Company's pro forma net loss would
have been approximately $39,206,000 and $5,553,000 respectively, in the year
ended December 31, 2000 and the period April 15, 1999 (inception) through
December 31, 1999.
7. Business Acquisitions
On July 20, 2000, the Company acquired First Tuesday, Inc. ("FT") through a
merger transaction. As consideration for the merger, the Company issued
1,317,675 shares of its common stock, valued at $1.60 per share, and paid
$4,559,000 in cash. In addition, the Company incurred acquisition costs of
approximately $232,000 in connection with the merger. The total purchase price
of approximately $6,900,000 was allocated principally to goodwill, which is
being amortized over 5 years. On March 30, 2001, the Company entered into a
Stock Purchase Agreement to sell FT for $500,000 in cash and a promissory note
in the amount of $500,000, bearing interest at a rate of 5% per annum.
FT was the umbrella organization for operations in a number of cities which
ran get-togethers for entrepreneurs and service providers in the "dot.com"
industries. FT ran the London operation; the other operations were run by
entrepreneurs in other cities with a loose affiliation to the umbrella
organization.
On July 31, 2000, the Company acquired Gregory Communications, Inc.
("Gregory") and Financial Communications Associates, Inc. ("FCA") (collectively
referred to as "Gregory FCA") through a merger transaction. As consideration
for the merger, the Company issued 350,000 shares of its common stock, valued
at $1.60 per share, and $450,000 in cash. The Company also incurred acquisition
costs of approximately $107,000 in connection with the merger. The purchase
price of approximately $1,100,000 was allocated principally to goodwill, which
is being amortized over 5 years.
Gregory FCA operates a full service investor and media relations agency in
the Philadelphia metropolitan area providing direct marketing to institutional
investors, security analysts, retail stock brokers and the financial media.
On September 1, 2000, the Company acquired Todo Technologies, Inc. ("Todo")
through a merger transaction. As consideration for the merger, the Company
issued 700,000 shares of its common stock, valued at $1.23 per share, and
$550,000 in cash. The Company also incurred acquisition costs of approximately
$63,000 in connection with the merger. The purchase price of approximately
$1,500,000 was allocated principally to goodwill, which is being amortized over
5 years. In March 2001, the Company entered into an agreement to sell Todo for
$100 in cash. As of December 31, 2000, the unamortized goodwill was written off
(see Note 10).
Todo was acquired for the purpose of investing in privately held,
early-stage, technology companies in Japan.
The above acquisitions were accounted for using the purchase method. The
operations of FT, Gregory FCA and Todo have been included in the accompanying
statements of operations since July 20, 2000, July 31, 2000 and September 1,
2000, respectively. The unaudited results of operations, as if FT, Gregory FCA
and Todo had been acquired at the beginning of periods ended December 31, 2000
and 1999, are as follows:
2000 1999
------------ -----------
Net revenues $ 5,504,809 $ 2,038,530
Net loss.... $(43,845,266) $(7,662,018)
F-31
YAZAM.COM, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
8. Commitments and Contingencies
Leases
The Company has certain lease agreements expiring on various dates through
September 2010 for its office space in United States, Israel, Japan, and United
Kingdom. Rent expense was approximately $355,000 and $37,000 for the year ended
December 31, 2000 and for the period April 15, 1999 (inception) through
December 31, 1999, respectively. Most of these leases were terminated in
connection with the reduction of operations (see Note 1) and the Acquisition
(see Note 11).
The future minimum rental payments to be made under remaining operating
leases as of December 31, 2000 are as follows:
For the Year Ending December 31, Amount
- -------------------------------- ----------
2001................. $ 426,000
2002................. 371,000
2003................. 232,000
2004................. 211,000
2005................. 211,000
Thereafter........... 1,002,000
Litigation
The Company is subject to litigation from time to time arising in the
ordinary course of its business. The Company does not believe that any such
litigation is likely, individually or in the aggregate, to have a material
adverse effect on the financial condition of the Company.
Employment Agreements
The Company entered into various employment agreements with its officers and
employees. Most of these employment agreements were terminated in connection
with the reduction of operations (see Note 1) and the Acquisition (see Note
11). As of December 31, 2000, total future commitments under the active
employment agreements approximated $441,000, payable through March 1, 2002.
9. Income Taxes
The Company accounts for its income taxes under SFAS No. 109, Accounting for
Income Taxes, which requires the recognition of deferred tax assets and
liabilities for both the expected impact of differences between the financial
statements and tax basis of assets and liabilities, and for the expected future
tax benefit to be derived from tax losses and tax credit carryforwards. At
December 31, 2000 and 1999, the Company had net operating loss carryforwards of
approximately $34,505,000 and $5,553,000, respectively expiring through 2020.
SFAS No. 109 additionally requires the establishment of a valuation allowance
to reflect the likelihood of realization of deferred tax assets. At December
31, 2000 and 1999, a valuation allowance for the full amount of the deferred
tax asset was recorded because of operating losses incurred and the
uncertainties as to the amount of taxable income that would be generated in the
future years. The utilization of the Company's net operating loss carryforwards
is subject to certain limitations under the provisions of Internal Revenue Code
Section 382. As a result of the Acquisition (see Note 11), the Company had a
Section 382 "change of ownership" and therefore a limitation on the
availability of the net operating loss carryforward.
F-32
YAZAM.COM, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
The components of the net deferred tax asset at December 31, 2000 and 1999
consist of the following:
2000 1999
----------- ----------
Net operating loss carryforwards $12,077,000 $1,944,000
Valuation allowance............. 12,077,000 1,944,000
----------- ----------
$ -- $ --
=========== ==========
The provision for income taxes differs from the amount computed applying the
statutory federal income tax rate to income before income taxes at December 31,
2000 and 1999 as follows:
2000 1999
------------ -----------
Income tax benefit computed at statutory rate at 35% $(13,706,000) $(1,943,000)
Goodwill amortization and impairment................ 3,573,000 --
Tax benefit not recognized.......................... 10,133,000 1,943,000
------------ -----------
Provision for income taxes....................... $ -- $ --
============ ===========
10. Asset Impairment/Write-off
The asset impairment/write-off for the year ended December 31, 2000
comprised the following:
Write down of FT goodwill........................... $ 7,802,231
Write down of Todo goodwill......................... 1,428,133
Write down of software and website development costs 852,951
Write down of property and equipment................ 404,673
Write down of investments........................... 6,412,001
Write down of FT investment in a German subsidiary.. 22,927
-----------
$16,922,916
===========
11. Subsequent Events
On March 27, 2001, U.S. Technologies Inc. ("UST") acquired the Company
through a merger. The purchase price was $22 million in cash plus 27,374 shares
of UST's Series F Convertible Preferred Stock, which may be converted into
27,374,000 shares of common stock, and warrants to purchase an aggregate of
8,000,000 shares of UST's common stock at $0.34 per share (the "Acquisition").
UST obtained approximately $28 million of cash held by the Company and certain
other assets.
12. Accounting Developments
In June 2000, the FASB issued SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, which amends the
accounting and reporting standards of SFAS No. 133. SFAS No. 133 was previously
amended by SFAS No. 137, which deferred the effective date of SFAS No. 133 to
fiscal years commencing after June 15, 2000. The Company does not believe that
the adoptions of SFAS No. 138 and SFAS No. 133 have a material impact on the
Company's results of operations.
In March 2000, the FASB issued Interpretation (FIN) No. 44, Accounting for
Certain Transactions Involving Stock Compensation--an Interpretation of APB
Opinion No. 25, which was effective on July 1, 2000. The Company adopted the
provisions of FIN No. 44 as of July 1, 2000.
F-33
U.S. TECHNOLOGIES INC.
INTRODUCTION TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements have
been prepared to give effect to the purchase on April 12, 2000 and March 27,
2001, respectively, by U.S. Technologies Inc. ("USXX") of all of the
outstanding equity interests of E2Enet, Inc. ("E2E") and Yazam.com, Inc.
("Yazam"), both development stage enterprises. The proforma balance sheet is
presented as if the acquisition of Yazam occurred on December 31, 2000. The
proforma statement of operations is presented as if each of the acquisitions of
E2E and Yazam occurred on January 1, 2000. The pro forma condensed consolidated
financial statements have been prepared and/or derived from, and should be read
in conjunction with, the historical consolidated financial statements and notes
thereto of USXX, E2E and Yazam.
The unaudited pro forma condensed consolidated balance sheet assumes that
all outstanding shares of Yazam common stock and all preferred stock of Yazam
were acquired by USXX as of December 31, 2000 and reflect preliminary
application of the purchase method of accounting for the acquisition. USXX
acquired assets with an estimated fair market value of approximately
$32,949,000 and assumed liabilities of approximately $2,015,000 in exchange for
payment of $22,000,000 in cash, $7,714,000 of USXX's Series F redeemable
convertible preferred stock and $880,000 of USXX's common stock warrants. The
Series F preferred shares are redeemable at the option of the holder in the
event that a charter amendment authorizing additional common shares is not
effected by September 1, 2001, except for those shareholders who waived such
redemption right on July 19 and 20, 2001. The unaudited pro forma condensed
consolidated balance sheet gives effect to the cash used in the operations of
Yazam from January 1, 2001 to March 27, 2001. The application of the purchase
method of accounting for the E2E acquisition is already incorporated into the
historical consolidated balance sheet of USXX as of December 31, 2000.
The unaudited pro forma consolidated statement of operations gives effect to
the E2E and Yazam acquisitions as if they had occurred on January 1, 2000 and
include appropriate adjustments for amortization and other items related to the
transaction, but exclude any potential cost savings. Further, Yazam had
effectively curtailed its operations during December 2000 and had begun a
process of liquidating its assets prior to the purchase by USXX.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma consolidated financial statements do not purport to
represent the consolidated results that would have been obtained had the
transaction occurred at the dates indicated, as assumed, nor do they purport to
present the results which may be obtained in the future.
F-34
U.S. TECHNOLOGIES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 2000
(Unaudited)
Historical U.S.
-------------------------- Technologies,
U.S. Inc.
Technologies, Yazam.Com Pro Forma Pro Forma
Inc. Inc. Adjustments Notes Consolidated
------------- ------------ ------------ ----- -------------
ASSETS
Current Assets
Cash and cash equivalents................................... $ 6,110 $ 35,427,363 $ 22,000,000 (A) $ 5,418,871
(22,000,000) (B)
(22,000,000) (D)
(8,014,602) (B)
Accounts receivable, less allowance......................... 401,253 1,263,799 1,665,052
Inventories................................................. 169,834 -- 169,834
Prepaid expenses............................................ 81,848 441,835 523,683
------------ ------------ ------------ ------------
Total current assets....................................... 659,045 37,132,997 (30,014,602) 7,777,440
------------ ------------ ------------ ------------
Property and equipment, net................................. 656,820 1,918,728 2,575,548
Other assets:
Investment in associated companies.......................... 3,434,217 1,631,258 5,065,475
Note receivable............................................. 90,000 -- 90,000
Security deposits........................................... 770,905 770,905
Goodwill.................................................... 1,634,394 1,634,394
Other....................................................... 450 -- 450
------------ ------------ ------------ ------------
Total other assets......................................... 3,524,667 4,036,557 0 7,561,224
------------ ------------ ------------ ------------
Total assets............................................... $ 4,840,532 $ 43,088,282 $(30,014,602) $ 17,914,212
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities
Accounts payable and accrued expenses....................... $ 2,006,571 $ 3,613,477 400,000 (B) $ 6,020,048
Obligation under put option assumed in conjunction with E2E
acquisition................................................ 2,000,010 2,000,010
Due to Yazam shareholders................................... 466,413 466,413
Line of credit.............................................. 197,392 197,392
Notes payable............................................... 685,861 685,861
Notes payable Yazam acquisition............................. 22,000,000 (A) 0
(22,000,000) (D)
------------ ------------ ------------ ------------
Totals current liabilities................................. 4,889,834 4,079,890 400,000 9,369,724
Series F convertible preferred stock.......................... -- 7,713,790 (B) 7,713,790
Stockholders' equity
Common stock................................................ 592,216 1,989 (1,989) (B) 592,216
Convertible preferred stock................................. 21,958,689 85,150,000 (85,150,000) (B) 21,958,689
Convertible preferred stock, subscribed but unissued........ 1,199,200 -- 1,199,200
Additional paid in capital.................................. 27,601,507 9,587,864 (9,587,864) (B) 34,503,787
6,022,280 (C)
880,000 (B)
Deferred compensation....................................... (346,391) 346,391 (B) 0
Accumulated deficit......................................... (51,400,914) (44,712,759) 44,712,759 (B) (57,423,194)
(6,022,280) (C)
Foreign currency translation adjustments.................... 77,741 (77,741) (B) 0
Treasury stock, at cost..................................... (10,750,052) 10,750,052 (B) 0
------------ ------------ ------------ ------------
Total Stockholders' Equity................................. (49,302) 39,008,392 (38,128,392) 830,698
------------ ------------ ------------ ------------
Total Liabilities and Equity............................... $ 4,840,532 $ 43,088,282 $(30,014,602) $ 17,914,212
============ ============ ============ ============
F-35
U.S. TECHNOLOGIES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
Please refer to the accompanying "Introduction to Unaudited Pro Forma
Condensed Consolidated Financial Statements".
Note (A) Adjustment to record proceeds from bank note to fund cash portion of
purchase price. Note bears interest at 6% and matures on April 27, 2001.
Note (B) Records the purchase of the remaining assets of Yazam utilizing
purchase accounting. The unaudited pro forma consolidated balance sheet
assumes that all outstanding shares of Yazam common stock and all
preferred stock are acquired by USXX in exchange for $22,000,000 in
cash, $7,713,790 in Series F redeemable convertible preferred stock and
$880,000 in warrants. The following table summarizes the estimated fair
values of the assets acquired and liabilities assumed in connection with
the acquisition as if it occurred December 31, 2000:
Cash................................. $ 5,413,000
Accounts receivable.................. 1,264,000
Investments in associated companies
3G Vision......................... 62,000
Baobab............................ 151,000
Coremarkets....................... 350,000
Gammasite......................... 76,000
Incepto........................... 44,000
Phlair............................ 166,000
EZ Face........................... 30,000
Quintessence...................... 180,000
Selis............................. 24,000
Soneta............................ 432,000
TravelBond........................ 41,000
Square.com........................ 75,000
-------
1,631,000
Other assets......................... 4,766,000
Accounts payable and accrued expenses (4,480,000)
-----------
$ 8,594,000
===========
The Pro Forma Condensed Consolidated Balance Sheet gives effect to the cash
used in the operations of Yazam from January 1, 2001 to March 27, 2001.
Note (C)Adjustment for deemed dividend resulting from beneficial conversion
features of the Series F Preferred Stock issued in association with the
acquisition of Yazam.
Note (D)To retire bridge loan immediately subsequent to closing.
F-36
U.S. TECHNOLOGIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 2000
(Unaudited)
Historical
---------------------------------------
U.S. E2Enet.com U.S.
Technologies, Inc. Yazam.com Technologies,
Inc. (January 1- Inc. Inc.
Year Ended April 12, Year Ended Pro Forma Pro Forma
12/31/2000 2000) 12/31/2000 Adjustments Notes Consolidated
------------- ----------- ------------ ----------- ----- -------------
Net sales and revenues........................ 2,671,378 -- 2,157,198 4,828,576
Operating costs and expenses
Cost of sales............................... 2,902,444 -- -- 2,902,444
Selling, general and administrative expense. 6,423,867 261,015 24,359,456 31,044,338
Impairment of long-lived assets............. 12,304,800 -- 16,922,916 29,227,716
------------ ----------- ------------ ----------- ------------
Total operating costs and expenses......... 21,631,111 261,015 41,282,372 0 63,174,498
------------ ----------- ------------ ----------- ------------
Loss from operations.......................... (18,959,733) (261,015) (39,125,174) 0 (58,345,922)
Other expense (income)
Interest, net............................... (34,383) 173,284 (2,100,309) 1,304,269 (E) (735,423)
(173,284) (E)
95,000 (E)
Equity in loss of associated companies...... 640,350 600,068 2,134,708 3,375,126
Other, net.................................. (206,863) -- -- (206,863)
------------ ----------- ------------ ----------- ------------
Total other expense (income)............... 399,104 773,352 34,399 1,225,985 2,432,840
------------ ----------- ------------ ----------- ------------
Net loss before minority interest in loss of
subsidiary................................... (19,358,837) (1,034,367) (39,159,573) (1,225,985) (60,778,762)
Minority interest in loss of subsidiary....... (707,740) -- -- (707,740)
------------ ----------- ------------ ----------- ------------
Net loss...................................... (18,651,097) (1,034,367) (39,159,573) (1,225,985) (60,071,022)
Deemed dividends to preferred shareholders.... 14,757,650 -- -- 6,022,280 (F) 20,779,930
------------ ----------- ------------ ----------- ------------
Net loss available to common shareholders..... $(33,408,747) $(1,034,367) $(39,159,573) $(7,248,265) $(80,850,952)
============ =========== ============ =========== ============
Net loss per common share basic and diluted... $ (1.14) $ (2.75)
============ =========== ============ =========== ============
Average common shares outstanding basic and
diluted...................................... 29,408,063 -- -- -- 29,408,063
============ =========== ============ =========== ============
F-37
U.S. TECHNOLOGIES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 2000
Please refer to the accompanying "Introduction to Unaudited Pro Forma
Condensed Consolidated Financial Statements."
(E)Adjustment to reduce interest income assuming $22,000,000 cash portion of
purchase price is paid out as of January 1, 2000 and unavailable for
investment by Yazam, to eliminate interest expense on E2E shareholder notes
payable and warrants converted to equity on the date of its acquisition by
USXX and to record interest expense on the bridge loan.
(F)Adjustment for deemed dividend resulting from beneficial conversion features
of the Series F Preferred Stock issued in association with the acquisition
of Yazam.
F-38
APPENDIX A
U.S. TECHNOLOGIES INC.
AUDIT COMMITTEE CHARTER
Overview
The Audit Committee of the Board of Directors assists the full Board in
fulfilling its oversight responsibilities with respect to assuring that the
company maintains (1) appropriate financial accounting and management controls,
(2) sound financial reporting practices, (3) appropriate and independent advice
from its Independent Accountants, and (4) compliance with legal and regulatory
requirements.
The Audit Committee's role and proper functioning requires that it monitor,
review and challenge management and the Independent Accountants. Although the
Audit committee will exercise the powers set forth in this Charter, it is the
responsibility of management throughout the company to ensure that overall
controls are adequate to meet operating, financial and compliance objectives,
and it is the responsibility of management and the Independent Accountants to
plan and conduct audits, and to determine that the Company's financial
statements are materially complete and accurate and are in accordance with U.S.
generally accepted accounting principles.
The Audit Committee assists the full Board in independently overseeing any
internal audit functions and the external audit functions to ensure adequate
audit coverage is achieved. Specifically, the audit function is designed to
ensure:
--a system of internal controls is maintained throughout the Company which
protects the assets of the Company and provides the proper authorization
and recording of transactions such that the financial information is
reliable and materially accurate; and
--financial statements fairly present, in all material respects, the
financial condition and results of operations of the Company in accordance
with U.S. generally accepted accounting principles.
Membership
The Board of Directors shall appoint the Audit Committee members, all of
whom shall be Directors, but none of whom may be officers or employees of U.S.
Technologies Inc. or any of its subsidiaries. All Audit Committee members shall
meet the independence and experience requirements of NASDAQ and SEC rules.
The Audit Committee shall consist of not less than three members, including
a Chairperson. A majority of the members of the Committee shall constitute a
quorum. The Committee shall generally meet on such occasions and at such
intervals considered necessary or appropriate by the Committee in fulfilling
its responsibilities.
Responsibilities
The Audit Committee will meet with representatives (both as a group and, as
appropriate, individually) from the Independent Accountants, company officers,
and others, as necessary, to perform the following:
1. Charter Review
The Audit Committee shall reassess the adequacy of its Charter annually and
recommend any proposed changes to the full Board for approval.
2. Nomination of Independent Accountants
The Audit Committee shall recommend to the Board of Directors and
shareholders the selection, retention or termination of the Company's
Independent Accountants.
A-1
3. Evaluation of Independent Accountants
The Independent Accountants shall have ultimate accountability to the Audit
Committee and the Board of Directors. The Audit Committee shall evaluate and
make recommendations with respect to the Independent Accountants.
The Audit Committee shall:
--Receive and review information from the Independent Accountants on a
periodic basis, including a formal written statement, pertaining to the
Independent Accountants' independence, including matters required by
Independence Standards Board Standard No. 1; discuss such information with
the Independent Accountants; and, if so determined by the Audit Committee,
recommend that the full Board take appropriate action to satisfy itself of
such independence.
--Review, in consultation with management, the terms of the engagement of
the Independent Accountants, including the scope of their audit, proposed
fees and personnel qualifications.
--Discuss with the Independent Accountants the matters required to be
discussed by Statement on Auditing Standards No. 61, which has
subsequently been amended by SAS 90 "Audit Committee Communications" (and
as may be further modified or supplemented), related to the conduct of the
audit.
--Receive required communications from the Independent Accountants.
--Discuss with the Independent Accountants the quality of the Company's
financial accounting personnel, and any relevant recommendations of the
Independent Accountants.
4. Matters Pertaining to Filings with Government Agencies
The Audit Committee shall:
--Review with the Independent Accountants and management the Company's Form
10-K prior to filing with the Securities and Exchange Commission.
--Prepare the Audit Committee Report required by the Rules of the Securities
and Exchange Commission to be included in the Company's annual proxy
statement.
--Review the results of each quarterly review by the Independent
Accountants.
5. Financial Reporting
The Audit Committee shall:
--Review, in connection with its review of the annual financial statements,
an analysis prepared by management and the Independent Accountant of
significant financial reporting issues and judgments made in connection
with the preparation of the Company's financial statements.
--Review with the Independent Accountants and management the results of the
Independent Accountant's year-end audit, including areas of significant
disagreement, if any, between management and the Independent Accountants.
6. Controls
The Audit Committee shall:
--Review with management and the Independent Accountants their separate
opinions as to the adequacy and effectiveness of the Company's system of
internal accounting controls, and review with them the Independent
Accountant's Annual Report on Internal Controls and management's response
thereto.
--Review the Company's procedures with respect to accounting and financial
controls, including changes in auditing and/or accounting principles,
practices and procedures.
--Review with management the Company's major financial risk exposures and
the steps management has taken to monitor, mitigate and control such
exposures.
A-2
7. Fraud and Illegal Acts
The Audit Committee shall:
--Receive and review reports regarding fraud involving senior management and
any fraud that causes a material misstatement of financial statements.
--Review reports of illegal acts that are not "clearly inconsequential" that
have come to the Independent Accountants' attention in the course of their
audits. Ensure, in such cases, that management has taken timely and
appropriate actions regarding reported illegal acts that could have a
material effect on the financial statements.
8. Other Responsibilities
--Review, as and when the Audit Committee considers appropriate, with the
Company's counsel those legal matters that the Committee believes may have
a material impact on the Company's operations and financial statements,
and material reports or inquiries received from regulators or governmental
agencies and any other legal matters as the Committee may consider
appropriate.
9. General Powers
The Audit Committee shall conduct or authorize investigations into any
matters within the scope of the Committee's responsibilities.
To carry out and effectuate the purposes of this Charter, the Audit
Committee shall have authority it deems necessary to confer with the Company's
Independent Accountants and Company officers and to conduct or authorize
investigations. The Audit Committee shall have the authority to retain
independent legal, accounting or other consultants to advise the Committee.
A-3
APPENDIX B
STOCK EXCHANGE AGREEMENT
This Stock Exchange Agreement (the "Agreement") is made as of this 21st day
of February, 2000, by and among U.S. Technologies Inc., a Delaware corporation
(the "Company"), E2ENET, Inc., a Delaware corporation ("E2E"), and the E2E
Stockholders as hereinafter defined (each, individually, a "Party" and,
collectively, the "Parties").
WITNESSETH:
WHEREAS, the E2E Stockholders desire to sell to the Company, and the Company
desires to purchase from the E2E Stockholders, all of the shares of capital
stock of E2E (the "E2E Shares") to be issued and outstanding as of the Closing,
upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the respective representations,
warranties, covenants and agreements set forth herein, and other good and
valuable consideration, the receipt and sufficiency of which is hereby mutually
acknowledged, the Parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. As used herein, the following terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):
"AAA" shall have the meaning given to it in Section 11.11(a).
"Action or Proceeding" means any action, suit, arbitration, proceeding or
Government Entity investigation or audit.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under direct or
indirect common control with such Person. For the purposes of this
definition, a Person shall be deemed to control another Person if it
possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such other Person, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" means this Stock Exchange Agreement as from time to time
amended and in effect between the Parties, including all schedules hereto.
"Amended and Restated Registration Rights Agreement" means the
Registration Rights Agreement of USV Partners, LLC, which will be amended
and restated at Closing to provide the E2E Stockholders with essentially the
same rights as provided to USV Partners, LLC in said Registration Rights
Agreement of USV Partners, LLC.
"Audited Financial Statements" has the meaning given to it in Section
7.9.
"Board" means the Board of Directors of the Company.
"Books and Records" means all titles, documents, instruments, papers,
books and records relating to the business and operations of any Party,
including financial statements, tax returns and related workpapers and
letters from accountants, budgets, pricing guidelines, ledgers, journals,
deeds, title policies, minute books, stock certificates, corporate books,
stock transfer ledgers, contracts, Licenses, customer lists, computer files
and programs, retrieval programs, operating data and plans and environmental
studies and plans.
B-1
"Business Day" means any day other than a Saturday, Sunday or public
holiday or the equivalent for banks under the laws of Washington, D.C.
"Capital Lease" means any lease of property (real, personal or mixed)
which, in accordance with GAAP, is required to be capitalized on the
lessee's balance sheet.
"Certificate of Designations" means the Certificate of Designations,
Preferences and Rights of the Series B Convertible Preferred Stock of U.S.
Technologies Inc. to be adopted by the Company, as described in Section 3.1.
"Charter Amendment" has the meaning given to it in Section 7.17.
"Closing" has the meaning given to it in Section 2.2.
"Common Stock" means (a) the Company's common stock, with a par value of
$0.02 per share, as authorized on the date of this Agreement, (b) any other
capital stock of any class or classes (however designated) of the Company
authorized on or after the date hereof, the holders of which shall have the
right, without limitation as to amount per share, either to all or to a
share of the balance of current dividends and liquidating distributions
after the payment of dividends and distributions on any shares entitled to
preference in the payment thereof, and the holders of which shall
ordinarily, in the absence of contingencies, be entitled to vote for the
election of directors of the Company, and (c) any other securities into
which or for which any of the securities described in (a) or (b) above may
be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
"Company" means U.S. Technologies Inc., a Delaware corporation, and its
successors and permitted assigns.
"Company Group" means the Company and each of its Subsidiaries,
including, without limitation, Labor-to-Industry Inc., a Texas corporation,
and Service-to-Industry Inc., a Delaware corporation.
"Company Group Business" means and includes, with respect to any date,
all businesses engaged in by any Member.
"Contracts" has the meaning given to it in Section 6.12(a).
"E2E Stockholders" means the persons other than the Company and E2E that
are Parties hereto (including those that are expected to be added as parties
to this Agreement by joinder as contemplated by Section 6.21) and who
presently, or prior to the Closing, will own, collectively, all of the
issued and outstanding shares of capital stock of E2E as of the Closing.
"E2E Representatives" means Jonathan J. Ledecky, Northwood Ventures LLC,
and Northwood Capital Partners LLC.
"GAAP" shall mean the generally accepted accounting principles of the
United States consistently applied.
"Government Entity" means any court or tribunal or administrative,
governmental or regulatory body, agency, commission, division, department,
public body or other authority.
"Indebtedness" means all obligations, contingent and otherwise which
should, in accordance with GAAP, be classified upon the obligor's balance
sheet as liabilities, but in any event including, without limitation,
liabilities secured by any mortgage on property owned or acquired subject to
such mortgage, whether or not the liability secured thereby shall have been
assumed, and also including, without limitation, (a) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be so reflected in said
balance sheet except guaranties by endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business, and (b) the present value of any Capital Leases.
"Investment Documents" shall mean this Agreement, the Preferred Shares,
the Certificate of Designations, and the Amended and Restated Registration
Rights Agreement.
B-2
"Knowledge" means, with respect to any Person, the knowledge that such
Person (including the directors and Principal Officers of such Person) has
or should have after reasonable inquiry.
"Laws" means all laws, statutes, rules, regulations, ordinances and other
pronouncements having the effect of law in the United States, or any state,
province, county, municipality or other political subdivision thereof.
"Liabilities" means all Indebtedness, obligations, and other liabilities
of a Person, including any impairment of any asset (whether absolute,
accrued, contingent, fixed or otherwise, or whether due or to become due).
"Licenses" means all licenses, permits, certificates, approvals,
registrations, franchises and similar consents granted or issued by a
Government Entity or any other Person.
"Lien" means any mortgage, security interest, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge, preference, priority or other security agreement, option, warrant,
attachment, right of first refusal, preemptive, conversion, put, call or
other claim or right, restriction on transfer (other than restrictions
imposed by applicable securities Laws), or preferential arrangement of any
kind or nature whatsoever (including any restriction on the transfer of any
assets), any conditional sale or other title retention agreement, any
financing lease involving substantially the same economic effect as any of
the foregoing and the filing of any financing statement or similar document
with any pertinent public or private registry.
"Member" means any member of the Company Group.
"Order" means any writ, judgment, decree, injunction or similar order of
any Government Entity (in each case whether preliminary or final).
"Organizational Documents" means with respect to any Person, articles of
incorporation, certificates of incorporation, by-laws, partnership
agreement, articles of association, joint venture or other agreement,
instrument or document, individually or collectively, pursuant to which such
Person is established or organized, and that governs the internal affairs of
such Person, as such documents may be amended from time to time.
"Party" means any party to this Agreement.
"Person" means and includes any individual, partnership, joint venture,
corporation, trust, limited liability company, joint stock company,
unincorporated organization, Government Entity or any political subdivision
or agency thereof, or any other entity.
"Preferred Shares" has the meaning given to it in Section 2.1.
"Preferred Stock" means all series of preferred stock of the Company.
"Principal Officer" means any management level employee.
"Proxy Statement" means the proxy statement, together with any amendments
thereof or supplements thereto, with respect to the Company's annual meeting
of stockholders, which, among other things, will include a proposal with
respect to the Charter Amendment contemplated by this Agreement.
"Registration Rights Agreement of USV Partners, LLC" means the
Registration Rights Agreement by and between the Company and USV Partners,
LLC, dated as of July 16, 1998.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar successor federal statute, and the rules and regulations of the
United States Securities and Exchange Commission (or any other federal
agency at that time administering the Securities Act) thereunder, all as the
same shall be in effect at the time.
"Subsidiary" or "Subsidiaries" means (a) any entity with more than fifty
percent (50%) of whose capital stock of any class or classes having by the
terms thereof ordinary voting power to elect directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such entity shall have or might have voting power by reason of the happening
of any contingency) is at the time owned
B-3
directly or indirectly by any one or more members and (b) any partnership,
association, joint venture or other entity in which any one or more of its
members has more than a fifty percent (50%) equity interest at the time.
"Tax Return" means any report, return, statement or other written
information required to be supplied to a taxing authority in connection with
Taxes.
"Taxes" means (a) any and all taxes, levies or other like assessments,
charges or fees (including estimated taxes, charges and fees), including,
without limitation, income, corporation, add-on minimum, ad valorem,
advances, gross receipts, transfer, excise, property, sales, use,
value-added, License, payroll, employment, severance, pay as you earn,
withholding on amounts paid by or to the relevant party, social security and
franchise or other governmental taxes or charges, imposed by the United
States or by any other nation, state, province, county, local or foreign
government or by any subdivision or agency of the foregoing; and such term
shall include any interest (punitive or otherwise), penalties or additions
to tax related or attributable to such taxes; and (b) Liability for the
payment of any amounts of the type described in (a) as a result of any
obligation to indemnify any other Person.
"Unaudited Financial Statements" has the meaning given to it in Section
7.9.
1.2 Interpretation. Unless otherwise expressly provided herein (a) defined
terms in the singular include the plural and vice versa, and the masculine,
feminine and neuter gender include all genders; (b) the words "hereof,"
"herein" and "hereunder" and words of similar import refer to this Agreement as
a whole and not to any particular provision of this Agreement; (c) the words
"include," "includes," and "including" mean include, includes and including
"without limitation" and "without limitation by specification"; and (d)
references to any Person shall be construed as a reference to such Person and
any permitted successors or assigns of such Person; (e) references to "consent"
shall mean prior consent evidenced in writing; (f) terms such as "satisfactory
to ," "acceptable to ," "in such manner as may determine," to 's
satisfaction," and phrases of similar import authorize and permit such Party to
approve, disapprove, act or decline to act, unless otherwise specified herein,
in its reasonable discretion without unreasonable delay or condition; and (g)
references to Sections refer to Sections of this Agreement.
1.3 Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP, and all financial data submitted
pursuant to this Agreement and all financial tests to be calculated in
accordance with this Agreement shall be prepared and calculated in accordance
with GAAP. All financial tests described herein relating to the Company shall
be calculated with respect to the Company Group on a consolidated basis.
ARTICLE II.
EXCHANGE OF SHARES
2.1 Exchange of Shares. Subject to and in reliance upon the representations,
warranties, terms and conditions of this Agreement, each of the E2E
Stockholders agrees to sell all of its respective E2E Shares (which number of
shares after any reorganization or recapitalization of E2E contemplated by this
Agreement is listed below their names on the signature pages hereto), free and
clear of any and all Liens, to the Company. In exchange for the E2E Shares, the
Company agrees to issue and deliver to the E2E Stockholders duly authorized,
validly issued, fully paid, and non-assessable shares of the Company's Series B
Convertible Preferred Stock ("Preferred Shares") with an aggregate stated value
equal to $11,200,000, mandatorily convertible into an aggregate of 56,000,000
shares of Common Stock as described in Section 3.1.
2.2 The Closing. Subject to the terms and conditions of this Agreement, such
exchange described in Section 2.1 (the "Exchange") shall take place at a
closing ("Closing") to be held at the offices of Fleischman and Walsh, L.L.P.
at 10:00 a.m., local time, on a date mutually satisfactory to the Company and
E2E which is no later
B-4
than the fifth Business Day after satisfaction (or waiver) of the conditions to
Closing set forth in Articles IV and V hereof (other than those conditions
which require the delivery of any documents or the taking of other action, at
the Closing) (the "Closing Date"). At the Closing, (i) the Company will issue
to each E2E Stockholder a certificate evidencing such E2E Stockholder's pro
rata amount of Preferred Shares, registered in the name of such E2E
Stockholder; and (ii) the E2E Stockholders will deliver to the Company
certificates representing their respective E2E Shares, duly endorsed (or
accompanied by stock powers duly executed) in favor of the Company.
ARTICLE III.
TERMS OF PREFERRED SHARES
3.1 The Preferred Shares. (a) As of the Closing Date, the Company will have
adopted the Certificate of Designations, authorizing the issuance to the E2E
Stockholders of the Preferred Shares, which shares of Preferred Stock shall
have terms essentially equivalent to those of the Company's outstanding Series
A Preferred Stock except for the following provisions: (i) pro rata liquidation
value per share based on an aggregate stated value of all shares of Preferred
Stock to be issued to the E2E Stockholders at Closing equal to $11,200,000;
(ii) pari passu in liquidation on a pro rata basis per liquidation values with
pre-existing Series A Preferred Stock and the additional shares of Preferred
Stock to be issued at Closing for cash as contemplated by Schedule 4.5; (iii)
mandatorily convertible into Common Stock immediately following the approval of
the Charter Amendment as described herein; (iv) voting rights as if converted
into Common Stock (voting together with all other shares of Common Stock and
Preferred Stock); and (v) no right to elect members of the Company's Board of
Directors.
ARTICLE IV.
CONDITIONS PRECEDENT TO E2E AND E2E STOCKHOLDERS' OBLIGATION TO CLOSE
The obligations of E2E and the E2E Stockholders to exchange the E2E Shares
hereunder for the Preferred Shares at the Closing is subject to satisfaction of
each the following conditions, all or any of which may be waived in writing by
E2E and the E2E Stockholders:
4.1 Representations, Warranties, Covenants and Agreements. Each of the
representations and warranties of the Company set forth in Article VII hereof
shall be true and correct in all material respects as of the Closing Date as
though made on and as of that date and all covenants and agreements required by
this Agreement to be performed or complied with by the Company at or prior to
the Closing shall have been performed or complied with in all material respects
by the Company.
4.2 Documentation at Closing. E2E and the E2E Stockholders shall have
received prior to or at the Closing all of the following, each in form and
substance reasonably satisfactory to them and their respective counsel:
(a) The Certificate of Designations, as adopted by the Board, attested to
by the Secretary or Assistant Secretary of the Company and filed with the
Secretary of State of the State of Delaware.
(b) Stock certificates, duly executed by the Company, representing the
Preferred Shares.
(c) Certified copies of the resolutions of the Board of Directors
evidencing (to the extent legally required prior to the Closing) approval
of: (i) the Investment Documents, and (ii) all other matters contemplated
thereby.
(d) A certificate from a duly authorized officer of the Company stating
that each of the representations and warranties contained in Article VII
hereof are true and correct in all material respects as of the Closing Date
as though made on and as of that date and that all covenants and agreements
required by this Agreement to be performed or complied with by the Company
at or prior to the Closing have been performed or complied with in all
material respects by the Company other than those, if any, waived by E2E in
writing.
B-5
(e) All third-party and governmental and regulatory consents and
approvals necessary for the consummation by the Company of the transactions
contemplated hereby.
(f) The opinion of Fleischman and Walsh, LLP, special counsel for the
Company, in form and scope reasonably acceptable to E2E's and E2E
Stockholders' respective counsel.
(g) Such other documents (other than the Charter Amendment) referenced or
relating to the transactions contemplated by the Investment Documents as E2E
or its special counsel may reasonably request.
4.3 Amended Organizational Documents. The Board of Directors of the Company
shall have duly authorized the issuance of the Preferred Shares pursuant to the
Certificate of Designations as described in Section 3.1.
4.4 Due Diligence. Completion by the E2E Representatives of due diligence
with respect to the Company to their reasonable satisfaction.
4.5 Capital Infusion. Successful infusion of at least $6,250,000 and up to
$10,000,000 of additional capital into the Company consistent with Schedule 4.5
hereto.
4.6 Tax Matters. Reasonable satisfaction that the Company's share exchange
for E2E Shares will not result in any material federal or state income tax to
E2E Stockholders.
4.7 Voting Agreement. Execution and delivery of a voting agreement for a
period of three (3) years among USV Partners, LLC, James V. Warren and each of
the E2E Representatives with respect to the composition of the board of
directors of the Company, pursuant to which the parties thereto will agree to
vote for the following directors: (i) four directors designated by USV
Partners, LLC, including Gregory C. Earls as Chairman and CEO; (ii) two
directors designated by Jonathan J. Ledecky; and (iii) two directors designated
by Northwood Ventures LLC and Northwood Capital Partners LLC; provided,
however, that such rights will be subject to forfeiture by any party that sells
at least half of the shares owned by it as of the Closing.
4.8 Proxy. Execution and delivery of a voting agreement and proxy by USV
Partners, LLC, and James V. Warren in favor of the E2E Stockholders with
respect to the Charter Amendment.
4.9 Amended and Restated Registration Rights Agreement. The Amended and
Restated Registration Rights Agreement, duly executed and delivered by the
Company.
4.10 Joinder. The E2E Representatives shall have obtained the joinder of the
other E2E Stockholders to this Agreement and the transactions contemplated
hereby as contemplated by Section 6.21 and delivered evidence thereof to the
Company.
4.11 Assumption of Put Agreement. Execution and delivery by the Company as
contemplated by Section 8.2(g), which agreement shall be reasonably
satisfactory to the E2E Representatives.
B-6
ARTICLE V.
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATION TO CLOSE
The obligation of the Company to issue to the E2E Stockholders the Preferred
Shares at the Closing is subject to satisfaction of each the following
conditions, all or any of which may be waived in writing by the Company:
5.1 Representations, Warranties, Covenants and Agreements. Each of the
representations and warranties of E2E and the E2E Stockholders set forth in
Article VI hereof shall be true and correct in all material respects as of the
Closing Date as though made on and as of that date and all covenants and
agreements required by this Agreement to be performed or complied with by them
at or prior to the Closing shall have been performed or complied with by them
in all material respects.
5.2 Documentation at Closing. The Company shall have received prior to or at
the Closing all of the following, each in form and substance satisfactory to
the Company and its special counsel:
(a) Certificates representing all of the E2E Shares, which shall be
either duly endorsed or accompanied by stock powers duly executed in favor
of the Company.
(b) Certified copies of the resolutions of E2E, and to the extent
required, the E2E Stockholders, evidencing approval of the Investment
Documents and all other matters contemplated thereby; certified copies of
the organizational documents of E2E and certified copies of all documents
evidencing other necessary corporate or other action and governmental
approvals, if any, with respect to the Investment Documents and all other
matters contemplated thereby.
(c) A certificate of the Secretary or an Assistant Secretary of E2E dated
the date of Closing, which shall certify the names of the officers of E2E
authorized to sign the Investment Documents and any other documents or
certificates to be delivered pursuant thereto, together with the true
signatures of such officers.
(d) The opinion of Hogan & Hartson, L.L.P., special counsel for E2E, in
form and scope reasonably acceptable to the Company's counsel.
(e) A certificate from a duly authorized officer of E2E and each of the
E2E Stockholders stating that each of the representations and warranties
contained in Article VI hereof are true and correct in all material respects
as of the Closing as though made on and as of that date and that all
covenants and agreements required by this Agreement to be performed or
complied with by them at or prior to the Closing have been performed or
complied with by them in all material respects other than those, if any,
waived by the Company in writing.
(f) All third-party and governmental and regulatory consents and
approvals necessary for the consummation by E2E and the E2E Stockholders of
the transactions contemplated hereby.
(g) Written resignations, effective on the Closing Date, of officers and
directors of E2E that the Company shall have requested prior to the Closing.
(h) All corporate records (including minute books and stock books and
registers) and financial and tax records of E2E.
(i) Such other documents referenced or relating to the transactions
contemplated by the Investment Documents as the Company or its special
counsel may reasonably request.
5.3 Joinder. The E2E Representatives shall have obtained the joinder of the
other E2E Stockholders to this Agreement and the transactions contemplated
hereby as contemplated by Section 6.21 and delivered evidence thereof to the
Company.
5.4 Due Diligence. Completion of due diligence with respect to E2E and its
investments to the Company's reasonable satisfaction consistent with the terms
of this Agreement.
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5.5 Capital Infusion. Successful infusion of at least $6,250,000 of
additional capital into the Company consistent with Schedule 4.5 hereto.
5.6 Tax Matters. Reasonable satisfaction that the Company's share exchange
with the E2E Stockholders and the related reorganizations and restructurings of
E2E and its investments will not result in any adverse federal or state income
tax consequences to the Company or E2E.
5.7 Voting Agreement. Execution and delivery of a voting agreement for a
period of three (3) years among USV Partners, LLC, James V. Warren and each of
the E2E Representatives with respect to the composition of the board of
directors of the Company, pursuant to which the parties thereto will agree to
vote for the following directors: (i) four directors designated by USV
Partners, LLC, including Gregory C. Earls as Chairman and CEO; (ii) two
directors designated by Jonathan J. Ledecky; and (iii) two directors designated
by Northwood Ventures LLC and Northwood Capital Partners LLC; provided,
however, that such rights will be subject to forfeiture by any party that sells
at least half of the shares owned by it as of the Closing.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF E2E AND THE E2E STOCKHOLDERS
E2E and each of the E2E Stockholders, as to itself, hereby represent and
warrant as of the date of this Agreement and as of the Closing that:
6.1 Organization. E2E and each E2E Stockholder that is not an individual is
duly organized, validly existing and in good standing under the laws of its
state of organization. E2E (a) has all requisite corporate power and authority
to own, lease and operate its property and to conduct its business as it is now
being conducted and presently proposed to be conducted, (b) is in compliance in
all material respects with all Laws applicable to it or its business, including
but not limited to any tax Laws, and (c) has obtained and maintained all
Licenses required to conduct its business as it is currently being conducted
and presently proposed to be conducted. E2E is duly qualified, licensed or
admitted to do business and is in good standing in all jurisdictions in which
the ownership, use or leasing of its assets and properties, or the conduct or
nature of its business, makes such qualification, licensing or admission
necessary. True, complete and correct copies of the Organizational Documents of
E2E presently in effect have been delivered to the Company. E2E is not in
violation of its Organizational Documents.
6.2 Authority. It has the power and authority, and in the case of any E2E
Stockholder who is an individual the legal capacity, to enter into the
Investment Documents to which it is a party, and to carry out its respective
obligations thereunder. The execution, delivery and performance of the
Investment Documents to which it is a party and the consummation of the
transactions contemplated thereby have been duly authorized by all necessary
internal proceedings, and no other internal proceedings on its part are
necessary to authorize the Investment Documents to which it is a party or the
transactions contemplated thereby. Each Investment Document to which it is a
party has been duly and validly executed and delivered (or will be duly and
validly executed and delivered with respect to those deliveries to be executed
and delivered by it at Closing) by it and (assuming this Agreement constitutes
a valid and binding obligation of the Company) constitutes (or will constitute
with respect to those deliveries made at Closing) a valid and binding agreement
of it, enforceable against it in accordance with its respective terms, except
as enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally and by general principles of equity.
6.3 Capitalization of E2E and Status of Capital Stock
(a) The E2E Shares are, or upon the consummation of the recapitalization
of E2E pursuant to the exercise of all outstanding rights, options and
warrants and the conversion of all notes payable to the E2E Representatives
contemplated by this Agreement will be, duly authorized, validly issued,
fully paid,
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nonassessable and free and clear of all Liens. As of the date hereof, E2E
has a total authorized capitalization consisting of 100,000,000 shares of
common stock, par value $0.01 per share, of which 4,358,669 shares are
issued and outstanding.
(b) As of the Closing, there will be no options, warrants or rights
(including conversion rights) to purchase shares of capital stock or other
securities of E2E issued or outstanding, nor will E2E be obligated in any
other manner to issue shares of its capital stock or other securities. All
such options, warrants or rights (including conversion rights) will be
canceled, or fully exercised and E2E Shares issued therefor, prior to the
Closing. There are no restrictions on the transfer of shares of capital
stock of E2E other than those imposed by relevant state and federal
securities laws. Except as set forth in this Agreement, no holder of any
security of E2E is entitled to preemptive or similar statutory or
contractual rights, either arising pursuant to any agreement or instrument
to which E2E is a party, or which are otherwise binding upon E2E.
(c) Except as acquired pursuant to the Contracts described on Schedule
6.12(a), E2E does not have any Subsidiaries nor does it presently own, of
record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock, or any other equity or
similar interest, in any Person, nor, directly or indirectly, is a
participant in any joint venture, partnership or other noncorporate entity.
6.4 Consents and Approvals. No filing with, and no License of, any
Government Entity is necessary for the execution, delivery and performance of
this Agreement or the other documents contemplated hereby by it and the
consummation by it of the transactions contemplated by the Investment
Documents.
6.5 No Conflict or Violation. The execution, delivery and performance by E2E
and the E2E Stockholders of this Agreement and the other Investment Documents
to which they are a party, the consummation of the transactions contemplated
hereby and thereby, the fulfillment of the terms hereof and thereof, and the
compliance with any of the provisions hereof and thereof:
(a) will not conflict with or result in a breach or violation of the
Organizational Documents of E2E or any E2E Stockholder;
(b) will not conflict with, result in a violation or 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, vesting, payment,
exercise, acceleration, suspension, revocation or modification) under, any
of the terms, conditions or provisions of any note, credit agreement, bond,
mortgage, deed of trust, security instrument, indenture, lease, License,
Contract, plan or other instrument or obligation to which it is a party or
by which it or any of its respective properties or assets may be bound or
affected, or result in the creation or imposition of any material Lien on
any of the assets or properties of it pursuant to (i) any Law to which it or
any of its property is subject, or (ii) any Order to which it is bound or
any of its respective property is subject;
(c) do not require the consent, approval or authorization of, or
registration or filing with, any Person; and
(d) will not violate any Order or Law applicable to it or any of its
properties or assets.
6.6 Taxes.
(a) E2E has (i) duly filed (or has had filed on its behalf) with the
appropriate Government Entities all Tax Returns required to be filed by it,
all of which Tax Returns are true, correct and complete in all material
respects and (ii) duly paid in full all Taxes owed by it whether or not
shown on any Tax Return;
(b) E2E has withheld and paid to the proper Government Entity all Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder or
other third party;
(c) No Actions or Proceedings, or other administrative or court claims
are pending, or to E2E's Knowledge, threatened, with regard to any Taxes or
Tax Returns of E2E;
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(d) The income Tax Returns of E2E required to be filed as of the date
hereof have been filed with the appropriate Government Entities, and no
deficiencies have been asserted as a result of any such filings that have
not been resolved and fully paid; E2E has not granted any requests,
agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment, collection or payment of any Taxes
for which E2E may be liable;
(e) There are no Liens outstanding against any assets, properties or
businesses of E2E which arise from or are otherwise related to Taxes or Tax
Returns, other than Liens securing Taxes which are not yet due and payable
or which are being contested in good faith;
(f) True, correct and complete copies of all Tax Returns, examination
reports and statements of deficiencies assessed against or agreed to by E2E
since December 31, 1999 have been made available to the Company or its
Affiliates for review; and
(g) E2E is not a party to any Tax sharing, Tax indemnity or other
agreement or arrangement relating to Taxes with any Person.
6.7 Financial Statements. E2E has made available to the Company true,
correct and complete copies of its audited financial statements for the
six-month period ending June 30, 1999, including therein consolidated balance
sheets of E2E as of June 30, 1999 and consolidated statements of income and of
shareholders' equity and of cash flows of E2E for the six-month period ending
June 30, 1999, together with all schedules and notes thereto (collectively, the
"E2E Financial Statements"). The E2E Financial Statements fairly present, or
will fairly present, in conformity with GAAP, applied on a consistent basis in
accordance with past practice (except as may be indicated in the notes
thereto), the consolidated financial position of E2E as of the respective dates
thereof and the results of its operations and its cash flows for the periods
then ended.
6.8 Litigation. There is no claim, Action or Proceeding (whether at law or
equity, before or by any Government Entity or before any arbitrator) pending,
or to the Knowledge of E2E, threatened, against or affecting E2E or any of its
assets or properties that would have a material adverse effect upon E2E. There
are no Orders, stipulations or awards (whether rendered by a Government Entity
or by arbitration) against E2E or any of its properties, assets or businesses.
6.9 Legal Compliance. E2E has conducted its operations in compliance in all
material respects with all applicable Laws. E2E has not received any written
complaint or notice from any Government Entity alleging that it has violated
any Order or Law and, to E2E's Knowledge, no such complaint or notice is
threatened.
6.10 Intellectual Property. E2E owns or possesses, and has taken all actions
necessary to record, preserve and protect, adequate and enforceable long-term
licenses or other rights to use all copyrights, patents, trade names, trade
secrets, trademarks, franchises, source codes and similar rights now owned,
used or employed by E2E in connection with its business, including, without
limitation, all trade names, trademarks and logos of E2E that previously have
been used in the conduct or operation of E2E.
6.11 Labor Matters.
(a) E2E is not engaged in any unfair labor practices as defined in any
applicable Law, and E2E is in compliance in all material respects with all
applicable Laws respecting employment and employment practices, including,
without limitation, terms and conditions of employment, wages, employment
discrimination, workers' compensation, family and medical leave, the
Immigration Reform and Control Act, hours of work and occupational safety
and health requirements.
(b) There is no unfair labor practice, charge or complaint brought by any
employee pending, or to the Knowledge of E2E, threatened, against E2E and,
to E2E's Knowledge, there is no basis for any such charge, complaint or
grievance.
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(c) There is no labor strike, lock-out, slow-down, employment-related
arbitration or work stoppage pending, or to E2E's Knowledge, threatened,
against E2E, nor have there been any such actions or threats since E2E's
formation.
(d) E2E has not experienced any significant work stoppage or been a party
to any Action or Proceeding for the past three (3) years.
(e) All Persons classified by E2E as independent contractors do satisfy
and have satisfied the requirements of Law to be so classified, and E2E has
fully and accurately reported their compensation on IRS Forms 1099 or other
comparable reports when required to do so.
(f) There is no charge or compliance proceeding actually pending, or to
E2E's Knowledge, threatened, against it before the Equal Employment
Opportunity Commission or any state, local or foreign agency responsible for
the prevention of unlawful employment practices.
6.12 Contracts.
(a) Schedule 6.12(a) lists or describes: (i) all unexpired written or
oral contracts, leases, agreements, arrangements, commitments, instruments
or understandings (collectively, "Contracts") that restrict E2E from
engaging in any business activity; (ii) all investment Contracts (whether
equity or debt) with any Person, including its portfolio companies; and
(iii) all Contracts of every nature to which E2E is a party or to which it
or any of its assets or properties are bound if such Contract obligates E2E
to pay more than $50,000 in remaining payment obligations. Each Contract
listed on Schedule 6.12(a) represents a valid, binding and enforceable
agreement of E2E, and, to the Knowledge of E2E and each of the E2E
Stockholders, the other party or parties thereto, except as enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditors' rights
generally and by general principles of equity.
(b) True, complete and correct copies of all written Contracts listed in
Schedule 6.12(a) have been made available to the Company and true, complete
and correct descriptions of all oral Contracts have been provided therein.
Each such Contract is enforceable in accordance with its terms (except as
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditors' rights
generally and by general principles of equity) and is in full force and
effect. E2E is not, nor to its Knowledge, is any other party to any of such
Contracts (with or without the lapse of time or the giving of notice, or
both), in material violation thereof or in material default thereunder.
6.13 Absence of Undisclosed Liabilities. Except for the Liabilities to be
assumed by the Company as of the Closing as described in Section 9.2, E2E does
not have any Liabilities of any kind whatsoever, either accrued, absolute,
contingent, determined or determinable or otherwise, or any existing condition,
situation or set of circumstances that could reasonably be expected to result
in such a Liability (including documentary or standby letters of credit, bid or
performance bonds or customer or third party guarantees), except Liabilities
reflected or reserved against in the E2E Financial Statements and not
heretofore paid or discharged. To E2E's Knowledge, there are no asserted claims
for indemnification by any Person against E2E under any Law or agreement or
pursuant to the Organizational Documents of E2E, and E2E has no Knowledge of
any facts or circumstances that could reasonably be expected to give rise to
the assertion of such a claim against E2E thereunder.
6.14 Absence of Certain Changes or Events. Since June 30, 1999, E2E has
conducted its business in the ordinary and regular course consistent with past
practices, and there has not been:
(a) any material adverse effect;
(b) any material damage, destruction or casualty loss to any material
asset or property of E2E that is not covered by insurance that will promptly
be paid to E2E;
(c) any entry into of any employment agreement, deferred compensation or
other similar agreement or any arrangement with any of its officers or
employees; any increase in the rate or terms of the compensation
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payable or to become payable to employees of E2E, except increases occurring
in accordance with customary practices or in accordance with employment
agreements, or any modification in employee benefits, or any borrowing of
money from E2E by any employee of E2E (other than routine travel and similar
advances);
(d) any sale, assignment, lease, transfer or other disposition, or the
execution of any agreement for the sale, assignment, lease, transfer or
other disposition, of any material assets of E2E;
(e) any change by E2E in accounting or bookkeeping methods, principles or
practices, except as required by GAAP;
(f) any borrowing of money, including any increase or extension of
purchase money credit of E2E or any increase in the Liabilities of E2E from
those reflected in the E2E Financial Statements;
(g) any transaction with any officer, director or shareholder (including
any of their respective family members) of E2E or any of their respective
Affiliates, other than payments of salary and employee benefits in the
ordinary course;
(h) any declaration or payment of any dividend or other distribution on
or with respect to, or any redemption or purchase or other acquisition of,
the capital stock of E2E; or
(i) any change in any material Tax election or any other action with
respect to Taxes that is inconsistent with past practices.
6.15 Certain Fees. None of E2E or any of the E2E Stockholders has entered
into, nor will it enter into, during the term of this Agreement, any agreement,
arrangement or understanding with any Person that will result in the obligation
of the Company to pay any finder's fee, brokerage commission or similar payment
in connection with the transactions contemplated hereby.
6.16 Books and Records. The minute books and other similar records of E2E
contain a true, complete and correct record, in all material respects, of all
material actions taken at all meetings and by all written consents in lieu of
meetings of the stockholders and the boards of directors of E2E. The stock book
and the share certificate ledgers and other similar records of E2E as made
available to the Company and its Affiliates (or any of their respective
representatives) accurately reflect all record transfers and any rights or
Contracts related to or involving any shares of capital stock of E2E. E2E does
not have any of its Books and Records recorded, stored, maintained, operated or
otherwise wholly or partly dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
which (including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of E2E.
6.17 Investments in Other Persons. Except as disclosed in the Contracts
listed on Schedule 6.12(a), E2E has not made any investment in, or loan or
advance (other than trade credit advanced in the ordinary course of business
and consistent with past practices) to, any Person which is outstanding on the
date of this Agreement, nor is E2E obligated or committed to make any such loan
or advance. Each such investment constitutes a duly authorized and valid
investment by E2E pursuant to any written or oral Contract.
6.18 Disclosure. No representation or warranty by it in this Agreement or
any Schedule hereto, or any certificate furnished or to be furnished by it in
connection with this Agreement, contains or will contain an untrue statement of
material fact, or omits or will omit to state a material fact necessary to make
the statements contained herein or therein, in light of the circumstances in
which they were made, not misleading.
6.19 Proxy Statement. None of the information supplied or to be supplied by
or on behalf of any of the E2E Stockholders in the Proxy Statement, in
definitive form, relating to the Company Vote to be sought with respect to the
Charter Amendment will, at the date the Proxy Statement is first mailed to the
Company's shareholders or at any time the Proxy Statement is amended or
supplemented, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading.
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6.20 Investment Representation.
(a) Each of the E2E Stockholders acknowledges that the Preferred Shares
are not registered under the securities laws of any jurisdiction and that it
is acquiring the Preferred Shares for its own account, and not as nominee or
agent.
(b) The Preferred Shares are being and will be acquired for the purpose
of investment and not with a view to distribution or resale thereof,
subject, nevertheless, to the condition that, except as otherwise provided
herein and subject to compliance with applicable securities laws, the
disposition of the property of the E2E Stockholders shall at all times be
within its control.
(c) It hereby acknowledges that the Preferred Shares and any other
securities issued in respect of such securities upon any stock split, stock
dividend, recapitalization, merger or similar event (unless no longer
required in the opinion of counsel) shall bear a legend substantially in the
following form (in addition to any other legend required by the Investment
Documents):
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
SOLD OR TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF WITHOUT AN OPINION
OF LEGAL COUNSEL (REASONABLY SATISFACTORY TO U.S. TECHNOLOGIES INC. AND
ITS LEGAL COUNSEL) THAT SUCH SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
IS IN COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF
APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS
THEREFROM.
(d) Each of the E2E Stockholders represents and warrants to the Company
that (i) at the time it was offered the Preferred Shares, it was, (ii) at
the date hereof, it is, and (iii) at the Closing Date, it will be, an
"accredited investor" as defined in Regulation D under the Securities Act.
The acquisition at Closing by the E2E Stockholders of the Preferred Shares
shall constitute a confirmation by it of each of the foregoing
representations and warranties.
6.21 E2E Representatives. The E2E Representatives have the power and
authority to bind the E2E Representatives themselves and the other E2E
Stockholders to this Agreement. Notwithstanding the foregoing, prior to
Closing, the E2E Representatives will secure the joinder of the other E2E
Stockholders to this Agreement and the transactions contemplated hereby.
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY GROUP
The Company represents and warrants as of the date hereof and as of the
Closing that:
7.1 Organization. The Company is a corporation, duly organized, validly
existing and in good standing under the Laws of the State of Delaware.
Labor-to-Industry Inc. is a corporation, duly organized, validly existing and
in good standing under the Laws of the State of Texas. Service-to-Industry Inc.
is a corporation duly organized, validly existing and in good standing under
the Laws of the State of Delaware. Each Member (a) has all requisite corporate
power and authority to own, lease and operate its property and to conduct its
business as it is now being conducted and presently proposed to be conducted;
(b) is in compliance in all material respects with all Laws applicable to it or
its business, including but not limited to any tax Laws, and (c) has obtained
and maintained all Licenses required to conduct its business as it is currently
being conducted and presently proposed to be conducted. Each Member is duly
qualified, licensed or admitted to do business and is in good standing in all
jurisdictions in which the ownership, use or leasing of its assets and
properties, or the conduct or nature of its business, makes such qualification,
licensing or admission necessary. No Member is in violation of its
Organizational Documents.
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7.2 Corporate Action. The Company has all necessary corporate power and
authority to enter into the Investment Documents and to carry out its
obligations thereunder (subject to the approval of the Charter Amendment). The
Company has duly executed and delivered (or will have, with respect to
deliveries to be executed and delivered by it at Closing) each of the
Investment Documents, and each is (or will be, with respect to deliveries to be
executed and delivered by it at Closing) a legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
except as enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally and by general principles of equity. The issuance
of the Preferred Shares is not subject to preemptive or other similar statutory
or contractual rights.
7.3 Capitalization of the Company and Status of Capital Stock
(a) The Preferred Shares, when issued and exchanged for E2E Shares at the
Closing, will be duly authorized, validly issued, fully paid, nonassessable
and free and clear of all Liens other than Liens created by the E2E
Stockholders. The Company has a total authorized capitalization consisting
of 40,000,000 shares of Common Stock, of which 28,795,278 shares were issued
and outstanding on November 8, 1999, and 10,000,000 shares of Preferred
Stock, of which 500,000 shares are issued and outstanding as of the date
hereof.
(b) Except as disclosed in the Company's reports filed with the SEC, an
additional aggregate number of options that do not exceed 1,500,000 granted
by the Company prior to the end of 1999 that the Company previously
disclosed to the E2E Representatives, and the options described on Schedule
7.3(b), as of the Closing there will be no options, warrants or rights to
purchase shares of capital stock or other securities of the Company issued
or outstanding, nor will the Company be obligated in any other manner to
issue shares of its capital stock or other securities. There are no
restrictions on the transfer of shares of capital stock of the Company other
than those imposed by relevant state and federal securities laws. Except as
set forth in this Agreement, no holder of any security of the Company is
entitled to preemptive or similar statutory or contractual rights, either
arising pursuant to any agreement or instrument to which the Company is a
party, or which are otherwise binding upon the Company.
7.4 Capital Stock of Subsidiaries. The Company owns, directly or indirectly,
all of the outstanding capital stock of each of the Subsidiaries, beneficially
and of record, free and clear of all Liens. All of the outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized and validly
issued, and are fully paid, nonassessable and free and clear of all Liens.
There are no options, warrants or rights to purchase shares of capital stock or
other securities of any of the Subsidiaries issued or outstanding, nor is any
Subsidiary obligated in any other manner to issue shares of its capital stock
or other securities.
7.5 Subsidiaries. No Member of the Company Group (other than the Company)
has any Subsidiaries or presently owns, of record or beneficially, or controls,
directly or indirectly, any capital stock, securities convertible into capital
stock, or any other equity or similar interest, in any Person, nor is any
Member, directly or indirectly, a participant in any joint venture, partnership
or other noncorporate entity.
7.6 Governmental Approvals. No authorization, consent, approval, License,
exemption of or filing or registration with any court or Government Entity is
or will be necessary for, or in connection with, the offer, issuance, sale,
execution or delivery by the Company of, or for the performance by the Company
of its obligations under any of the Investment Documents other than (i) under
applicable securities laws with respect to the Charter Amendment and (ii) under
applicable securities laws with respect to the transactions contemplated by the
registration rights set forth in the Amended and Restated Registration Rights
Agreement.
7.7 No Conflict or Violation. Subject to the approval of the Charter
Amendment, the execution, delivery and performance of the Investment Documents,
the consummation of the transactions contemplated thereby, the fulfillment of
the terms hereof, and the compliance with any of the provisions hereof will
not:
(a) conflict with or result in a breach or violation of the
Organizational Documents of any Member;
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(b) conflict with, result in a violation or breach of, constitute (with
or without due notice or the lapse of time or both) a default (or give rise
to any right of termination, cancellation, vesting, payment, exercise,
acceleration, suspension, revocation or modification) under, any of the
terms, conditions or provisions of any note, credit agreement, bond,
mortgage, deed of trust, security instrument, indenture, lease, License,
Contract, plan or other instrument or obligation to which any Member is a
party or by which any Member or any of their respective properties or assets
may be bound or affected, or result in the creation or imposition of any
material Lien on any of the assets or properties of any Member pursuant to
(i) any Law to which any Member or any of its respective property is
subject, or (ii) any Order to which any Member is bound or any of its
respective property is subject; or
(c) violate any Order or Law applicable to any Member or any of its
respective properties or assets.
7.8 Taxes.
(a) Each Member has (i) duly filed (or has had filed on its behalf) with
the appropriate Government Entities all Tax Returns required to be filed by
it, all of which Tax Returns are true, correct and complete in all material
respects and (ii) duly paid in full all Taxes owed by it whether or not
shown on any Tax Return;
(b) Each Member has withheld and paid to the proper Government Entity all
Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder
or other third party;
(c) No Actions or Proceedings, or other administrative or court claims
are pending, or to the Knowledge of the Company, threatened, with regard to
any Taxes or Tax Returns of any Member;
(d) The income Tax Returns of each Member required to be filed as of the
date hereof have been filed with the appropriate Government Entities, and no
deficiencies have been asserted as a result of any such filings that have
not been resolved and fully paid; no Member has granted any requests,
agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment, collection or payment of any Taxes
for which any Member may be liable;
(e) There are no Liens outstanding against any assets, properties or
business of any Member which arise from or are otherwise related to Taxes or
Tax Returns, other than Liens securing Taxes which are not yet due and
payable or which are being contested in good faith; and
(f) No Member is a party to any Tax sharing, Tax indemnity or other
agreement or arrangement relating to Taxes with any Person.
7.9 Financial Statements. The Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, as filed with the SEC (the "Audited
Financial Statements"), and Quarterly Report on Form 10-Q for the period ending
September 30, 1999, as filed with the SEC (the "Unaudited Financial
Statements"), fairly present in conformity with GAAP, applied on a consistent
basis in accordance with past practice (except as may be indicated in the notes
thereto), the consolidated financial position of the Company Group as of the
respective dates thereof and the results of its operations and its cash flows
for the periods then ended.
7.10 Absence of Certain Changes or Events. Since the date of the Unaudited
Financial Statements, except as disclosed in the Company's reports filed with
the SEC, each Member has conducted its business in the ordinary and regular
course consistent with past practices, and there has not been:
(a) any material adverse effect;
(b) any material damage, destruction or casualty loss to any material
asset or property of any Member that is not covered by insurance that will
promptly be paid to the Member;
(c) any entry into of any employment agreement, deferred compensation or
other similar agreement or any arrangement with any of their officers or
employees; any increase in the rate or terms of the compensation payable or
to become payable to employees of any Member, except increases occurring in
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accordance with customary practices or in accordance with existing
collective bargaining or employment agreements, or any modification in
employee benefits, or any borrowing of money from any Member by any employee
of any Member (other than routine travel and similar advances);
(d) any sale, assignment, lease, transfer or other disposition, or the
execution of any agreement for the sale, assignment, lease, transfer or
other disposition, of any material assets of any Member, except in the
ordinary course of business and consistent with past practice;
(e) any change by any Member in accounting or bookkeeping methods,
principles or practices, except as required by GAAP;
(f) any borrowing of money, including any increase or extension of
purchase money credit of any Member or any increase in the Liabilities of
any Member from those reflected in the Unaudited Financial Statements other
than current Liabilities incurred in the ordinary course of business and
consistent with past practice;
(g) any transaction with any officer, director or shareholder (including
any of their respective family members) of any Member or any of their
respective Affiliates, other than payments of salary and employee benefits
in the ordinary course;
(h) any declaration or payment of any dividend or other distribution on
or with respect to, or any redemption or purchase or other acquisition of,
the capital stock of any Member; or
(i) any change in any material Tax election or any other action with
respect to Taxes that is inconsistent with past practices.
7.11 Litigation. Except as set forth in the Company's public filings with
the SEC or as set forth on Schedule 7.11: (i) there is no claim, Action or
Proceeding (whether at law or equity, before or by any Government Entity or
before any arbitrator) pending, or to the Knowledge of the Company, threatened,
against or affecting any Member or any of its assets or properties that would
result in a material adverse effect upon the Company Group taken as a whole and
(ii) there are no Orders, stipulations or awards (whether rendered by a
Government Entity or by arbitration) against any Member or against any of its
respective properties, assets or business that would result in a material
adverse effect on the Company Group taken as a whole.
7.12 Legal Compliance. To the Knowledge of the Company, each Member has
conducted its operations in compliance in all material respects with all
applicable Laws. The Company has not received any written complaint or notice
from any Government Entity alleging that it has violated any Order or Law and,
to the Knowledge of the Company, no such complaint or notice is threatened.
7.13 Intellectual Property. Each Member owns or possesses, and has taken all
actions necessary to record, preserve and protect, adequate and enforceable
long-term licenses or other rights to use all copyrights, patents, trade names,
trade secrets, trademarks, franchises, source codes and similar rights now
owned, used or employed by such Member in connection with its business,
including, without limitation, all trade names, trademarks and logos of each
Member that previously have been used in the conduct or operation of the
Company Group Business.
7.14 Absence of Undisclosed Liabilities. No Member has any Liabilities of
any kind whatsoever, either accrued, absolute, contingent, determined or
determinable or otherwise, or any existing condition, situation or set of
circumstances that could reasonably be expected to result in such a Liability
(including documentary or standby letters of credit, bid or performance bonds
or customer or third party guarantees), except Liabilities reflected or
reserved against in the Audited Financial Statements or the Unaudited Financial
Statements and not heretofore paid or discharged, and Liabilities arising in
the ordinary course of business or in connection with the transactions
contemplated by this Agreement, none of which, individually or in the
aggregate, are expected to have a material adverse effect. To the Knowledge of
the Company, there are no asserted claims for indemnification by any Person
against any Member under any Law or agreement or pursuant to the
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Organizational Documents of any Member, and the Company has no Knowledge of any
facts or circumstances that could reasonably be expected to give rise to the
assertion of such a claim against any Member thereunder.
7.15 Certain Fees. No Member, nor any of their respective officers,
directors or employees, has entered into, or will enter into, during the term
of this Agreement, any agreement, arrangement or understanding with any Person
to pay any finder's fee, brokerage commission or similar payment in connection
with the transactions contemplated hereby.
7.16 Proxy Statement. None of the information supplied or to be supplied by
or on behalf of the Company in the Proxy Statement, in definitive form,
relating to the Company Vote to be sought as a result of the Exchange will, at
the date the Proxy Statement is first mailed to the Company's shareholders or
at any time the Proxy Statement is amended or supplemented, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading. The Proxy
Statement will comply as to form and in substance in all material respects with
the applicable provisions of the Exchange Act and the rules and regulations
thereunder.
7.17 Vote Required. The Company requires the approval of the Company's
shareholders (the "Company Vote") for the amendment of the Company's Restated
Certificate of Incorporation to increase the number of shares of Common Stock
authorized (the "Charter Amendment"), which will enable the automatic
conversion of the Preferred Shares into Common Stock (pursuant to the terms of
the Certificate of Designations as described herein). The Charter Amendment
requires the approval by the holders of a majority of the outstanding shares of
Common Stock and Series A Preferred Stock of the Company, voting together as a
class. Other than the Company Vote and, with respect to the issuance of the
Preferred Shares, the affirmative vote of the holders of a majority of the then
outstanding shares of Series A Preferred Stock, voting as a class, no other
vote of the holders of any class or series of capital stock of the Company is
required to approve the Charter Amendment.
ARTICLE VIII.
COVENANTS
8.1 Covenants of E2E and the E2E Stockholders. E2E and the E2E Stockholders
agree to observe and perform the following covenants and agreements:
(a) Conduct of the Business Prior to the Closing Date. Except (i) as
required by law or regulation or (ii) as otherwise expressly consented to in
writing by the Company, which consent will not be unreasonably withheld or
delayed, prior to the Closing, E2E will: (1) not make or permit any material
change in the general nature of its business; (2) preserve E2E as an ongoing
business and use reasonable efforts to maintain the goodwill associated with
E2E; (3) preserve all of its licenses, authorizations and other governmental
rights and permits; (4) not enter into any material transaction or Contract;
(5) not purchase, sell, lease, dispose of or otherwise transfer or make any
contract for the purchase, sale, lease, disposition or transfer of, or
subject to lien, any of the assets of E2E; (6) not hire any employees or
enter into any employment, severance or similar contract with any Person;
(7) except as disclosed or specifically contemplated in this Agreement, not
make any capital expenditure or capital expenditure commitment; (8) not make
any changes in financial policies or practices, or strategic or operating
policies or practices, except as required by law, rule or regulation; (9)
comply in all material respects with all applicable Laws; (10) not make (i)
any loan or advance to any officer, director, stockholder or employee or
(ii) make any other loan or advance to any Person or any investment in any
Person; and (11) not amend any of its Organizational Documents.
(b) Access to Offices, Properties and Records; Updating Information.
(1) From and after the date hereof and until the Closing Date, E2E
shall permit the Company and its representatives to have, on reasonable
notice and at reasonable times, reasonable access to such of
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the offices, properties and employees of E2E, and shall disclose, and
make available to the Company and its representatives all books, papers
and records to the extent that they relate to the ownership, operation,
obligations and liabilities of or pertaining to E2E and its businesses,
assets and investments.
(2) E2E will notify the Company as promptly as practicable of any
significant change in the ordinary course of business or operation of
E2E or any of its investments and shall use reasonable efforts to keep
the Company fully informed of such events and permit the Company's
representatives access to all materials prepared in connection
therewith, consistent with any applicable Contract.
(3) As promptly as practicable after the Company's request, E2E will
furnish such financial and operating data and other information
pertaining to the E2E investments and their businesses and assets as the
Company may reasonably request; provided, however, that nothing herein
will obligate E2E to take actions that would violate the terms of any
Contract to which it is a party.
(c) Third Party Consents. E2E will use its reasonable best efforts to
obtain all necessary consents, approvals and waivers from any Person
required under any license, lease, permit or Contract applicable to E2E.
(d) Dividends and Extraordinary Events. Except as expressly contemplated
by this Agreement, E2E shall not: (i) declare or pay any dividends on or
make other distributions in respect of any of its capital stock; or (ii)
split, combine or reclassify any of its capital stock or issue or authorize
or propose the issuance of any other securities in respect of, or in
substitution for, any shares of its capital stock.
(e) Issuance of Securities. Except as expressly contemplated by this
Agreement, E2E shall not, nor shall it permit any of its Subsidiaries to,
issue, agree to issue, deliver, sell, award, pledge, dispose of or otherwise
encumber or authorize or propose the issuance, delivery, sale, award,
pledge, disposal or other encumbrance of, any shares of its or their capital
stock of any class or any securities convertible into or exchangeable for,
or any rights, warrants or options to acquire, any such shares or
convertible or exchangeable securities.
(f) No Inconsistent Action. Neither the E2E Stockholders nor E2E shall
take any action that is inconsistent with their respective obligations under
the Investment Documents in any material respect or that could reasonably be
expected to hinder or delay the consummation of the transactions
contemplated by the Investment Documents. Neither the E2E Stockholders, E2E,
nor any of their respective representatives or agents shall, directly or
indirectly, solicit, initiate, or participate in any way in discussions or
negotiations with, or provide any confidential information to, any Person
(other than the Company or any Affiliate of the Company and their respective
representatives and agents) concerning any possible sale of E2E (including,
without limitation, shares of capital stock of E2E), the sale of any
material assets of E2E, or any similar transaction.
8.2 Covenants of the Company. The Company agrees to observe and perform the
following covenants and agreements:
(a) Conduct of the Business Prior to the Closing Date. Except (i) as
required by law or regulation or (ii) as otherwise expressly consented to in
writing by E2E, which consent will not be unreasonably withheld or delayed,
prior to the Closing, the Company will: (1) not make or permit any material
change in the general nature of its business; (2) maintain its ordinary
course of business in accordance with prudent business judgment and
consistent with past practice and policy; (3) preserve the Company as an
ongoing business and use reasonable efforts to maintain the goodwill
associated with the Company; (4) preserve all of its licenses,
authorizations and other governmental rights and permits; (5) not enter into
any material transaction or Contract other than in the ordinary course of
business; (6) not purchase, sell, lease, dispose of or otherwise transfer or
make any contract for the purchase, sale, lease, disposition or transfer of,
or subject to lien, any of the material assets of the Company or any of its
Subsidiaries other than in the ordinary course of business; (7) not make any
changes in financial policies or practices, or strategic or operating
policies or practices, except as required by law, rule or regulation; (8)
comply in all material respects with all
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applicable Laws; (9) not make (i) any loan or advance to any officer,
director, stockholder or employee other than in the ordinary course of
business or (ii) make any other loan or advance to any Person other than in
the ordinary course of business; and (10) not amend any of its
Organizational Documents (except for taking any actions in connection with
the Charter Amendment).
(b) Access to Offices, Properties and Records; Updating Information.
(1) From and after the date hereof and until the Closing Date, the
Company shall permit E2E and its representatives to have, on reasonable
notice and at reasonable times, reasonable access to such of the
offices, properties and employees of the Company, and shall disclose,
and make available to E2E and its representatives all books, papers and
records to the extent that they relate to the ownership, operation,
obligations and liabilities of or pertaining to the Company and its
businesses, assets and investments.
(2) The Company will notify E2E as promptly as practicable of any
significant change in the ordinary course of business or operation of
the Company and shall use reasonable efforts to keep E2E fully informed
of such events and permit E2E's representatives access to all materials
prepared in connection therewith, consistent with any applicable
Contract.
(3) As promptly as practicable after E2E's request, the Company will
furnish such financial and operating data and other information
pertaining to the Company's businesses and assets as E2E may reasonably
request; provided, however, that nothing herein will obligate the
Company to take actions that would violate the terms of any Contract to
which it is a party.
(c) Third Party Consents. The Company will use its reasonable best
efforts to obtain all necessary consents, approvals and waivers from any
Person required under any license, lease, permit or Contract applicable to
the Company.
(d) Dividends. The Company shall not: (i) declare or pay any dividends on
or make other distributions in respect of any of its capital stock; or (ii)
split, combine or reclassify any of its capital stock or issue or authorize
or propose the issuance of any other securities in respect of, or in
substitution for any shares of its capital stock.
(e) Issuance of Securities. Except as a result of any of the transactions
contemplated or permitted by this Agreement, the Company shall not, nor
shall it permit any of its Subsidiaries to, issue, agree to issue, deliver,
sell, award, pledge, dispose of or otherwise encumber or authorize or
propose the issuance, delivery, sale, award, pledge, disposal or other
encumbrance of, any shares of its or their capital stock of any class or any
securities convertible into or exchangeable for, or any rights, warrants or
options to acquire, any such shares or convertible or exchangeable
securities.
(f) No Inconsistent Action. The Company shall not take any action that is
inconsistent with its obligations under the Investment Documents in any
material respect or that could reasonably be expected to hinder or delay the
consummation of the transactions contemplated by the Investment Documents.
(g) Assumption of Put Agreement. The Company shall assume the obligation
of Jonathan J. Ledecky pursuant to the Put Agreement by and among Jonathan
J. Ledecky, William K. Dodd and Katharine W. Kelley dated as of May 14,
1999, as amended to date.
ARTICLE IX.
POST-CLOSING COVENANTS
9.1 Proxy Statement. The Company will, as promptly as practicable after the
Closing, prepare and file with the SEC the Proxy Statement with respect to the
Charter Amendment contemplated by this Agreement. The Company will use all
reasonable efforts to cause the Proxy Statement to be mailed to stockholders of
the Company at the earliest practicable date thereafter. The Proxy Statement
shall meet the requirements of the
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Exchange Act and the relevant rules and regulations of the SEC. Each party
hereto agrees to cooperate reasonably with each other party in connection with
the preparation and filing of the Proxy Statement, including providing
information to the other party with respect to itself as may be reasonably
required in connection therewith. No representation, warranty, covenant or
agreement is made by or on behalf of the Company with respect to information
supplied by any other party for inclusion in the Proxy Statement. No
representation, warranty, covenant or agreement is made by or on behalf of the
E2E Stockholders with respect to information supplied by any other party for
inclusion in the Proxy Statement. No filing of, or amendment or supplement to,
the Proxy Statement shall be made by the Company without providing the E2E
Representatives with the opportunity to review and comment thereon. If at any
time prior to the approval of the Charter Amendment any information relating to
any party hereto or any of their respective officers, directors, shareholders
or Subsidiaries, should be discovered by any party hereto which should be set
forth in an amendment or supplement to the Proxy Statement so that the Proxy
Statement would not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other parties hereto and
an appropriate amendment or supplement describing such information shall be
promptly prepared, filed with the SEC and, to the extent required by law,
disseminated to the shareholders of the Company, as may be necessary.
9.2 Assumption of Liabilities. As of Closing, the Company will assume all of
the legitimate, verified liabilities of E2E outstanding as of the Closing Date,
including without limitation, E2E's legal, accounting and printing expenses and
other trade payables, in an amount not to exceed $1,500,000 in the aggregate.
ARTICLE X.
TERMINATION
10.1 Termination by Either the Company or the E2E Representatives. (a) This
Agreement may be terminated and the Exchange may be abandoned by (i) the
mutual, written agreement of the E2E Representatives and the Company, (ii) by
either the E2E Representatives or the Company if (x) the Exchange shall not
have been consummated by 5:00 p.m. Eastern Time on the date 45 days after the
date hereof, provided that the party seeking to terminate this Agreement
pursuant to this clause (ii) is not in breach of this Agreement (or in the case
of the E2E Representatives, neither they nor any of the other E2E Stockholders
are in breach of this Agreement), or (y) a Government Entity shall have issued
an Order or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
Order or other action shall have become final and nonappealable; provided, that
the party or parties seeking to terminate this Agreement pursuant to this
clause (ii) (y) shall have used all reasonable efforts to remove such Order.
(b) This Agreement may be terminated at any time prior to the Closing by the
Company, if there has been one or more breaches by E2E or the E2E Stockholders
of any representations, warranties, covenants, or agreements contained in this
Agreement which would entitle the Company not to close pursuant to Article V;
provided however, that the Company may not terminate this Agreement pursuant to
this Section 10.1(b) unless, within ten (10) days of becoming aware of such
breach, the Company has given written notice of such breach to the E2E
Representatives and has provided such E2E Representatives with thirty (30) days
to cure such breach.
(c) This Agreement may be terminated at any time prior to the Closing by the
E2E Representatives, if there has been one or more breaches by the Company of
any representations, warranties, covenants, or agreements contained in this
Agreement which would entitle the E2E or the E2E Stockholders not to close
pursuant to Article IV; provided however, that the E2E Representatives may not
terminate this Agreement pursuant to this Section 10.1(c) unless, within ten
(10) days of becoming aware of such breach, the E2E Representatives have given
written notice of such breach to the Company and has provided the Company with
thirty (30) days to cure such breach.
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10.2 Effect of Termination and Abandonment. In the event of termination of
the Agreement pursuant to this Article X, the terminating party shall give
written notice thereof as promptly as practicable to the other Parties to this
Agreement and this Agreement shall terminate and the transactions contemplated
herein shall be abandoned, without further action by any of the Parties hereto.
If this Agreement is terminated as provided herein: (a) there shall be no
liability or obligation on the part of any of the Parties hereto or any of
their respective officers and directors, and all obligations of the Parties
shall terminate, except for the obligations of the Parties pursuant to Articles
X and XI; provided, however, that a Party who is in material breach of its
representations, warranties, covenants or agreements set forth in this
Agreement shall be liable for damages occasioned by such breach, including,
without limitation, any expenses incurred by the other Parties in connection
with this Agreement and the transactions contemplated hereby and (b) all
filings, applications, and other submissions made pursuant to the transactions
contemplated by this Agreement shall, to the extent practicable, be withdrawn
from the agency or Person to which made.
ARTICLE XI.
MISCELLANEOUS
11.1 Severability. If any term, provision, covenant or restriction of this
Agreement is held to be invalid, void or unenforceable, such provision shall be
amended by the Parties only to the extent necessary to be enforceable
consistent with the Parties' intent, and the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect, unless such action would substantially impair the benefits to
any Party of the remaining provisions of this Agreement.
11.2 Survival of Representations and Warranties. The representations and
warranties contained herein shall be terminated effective as of, and shall not
survive, the Closing.
11.3 Entire Agreement; Amendments. This Agreement (including the Schedules
hereto) and the other documents and instruments referred to herein contain the
entire understanding of the Parties with respect to the matters covered hereby
and supersede all other prior agreements and understandings, both written and
oral, among the Parties or any of them, with respect to the subject matter
hereof. This Agreement may be amended only by an instrument in writing executed
by the Parties.
11.4 Notices. Any notices or communications required or permitted hereunder
shall be in writing and addressed as follows:
If to E2E or any E2E Stockholder, to each of the E2E Representatives at
their respective addresses as set forth on the signature page hereto.
With a copy to:
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004-1109
Attn: J. Hovey Kemp
Facsimile: (202) 637-5910
Telephone: (202) 637-5600
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If to the Company:
U.S. Technologies Inc.
c/o U.S. Viewing Corporation
2001 Pennsylvania Avenue, NW
Suite 675
Washington, DC 20006
Attn: Gregory C. Earls
Telephone: 202-466-3100
Facsimile: 202-466-4557
with a copy to:
Fleischman and Walsh L.L.P.
1400 Sixteenth Street, N.W.
Washington, DC 20036
Attn: Stephen A. Bouchard
Telephone: 202-939-7945
Facsimile: 202-265-5706
Any Party may, on fifteen (15) days' notice given in accordance with this
Section 11.4 to the other Parties, designate another address or Person for
receipt of notices hereunder. All notices, claims, demands and other
communications hereunder shall be in writing and shall be deemed given (a) in
the case of a facsimile transmission, when received by recipient in legible
form and sender has received an electronic confirmation of receipt of the
transmission; (b) in the case of delivery by a standard overnight courier, upon
the date of delivery indicated in the records of such courier; (c) in the case
of delivery by hand, when delivered by hand; or (d) in the case of delivery by
first class (registered or certified) mail, upon the expiration of seven (7)
Business Days after the day when mailed (postage prepaid, return receipt
requested), addressed to the respective Parties at the above address (or such
other address for a party as shall be specified by like notice).
11.5 Waivers. No waiver by either Party of any default with respect to any
provision, condition or requirement hereof shall be deemed to be a continuing
waiver in the future thereof or a waiver of any other provision, condition or
requirement hereof; nor shall any delay or omission of either Party to exercise
any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
11.6 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
11.7 Successors and Assignees. This Agreement shall be binding upon and
inure to the benefit of the Parties and their successors and permitted assigns.
Neither this Agreement nor any of the rights or obligations hereunder may be
assigned by any Party without the prior written consent of the other Parties
hereto.
11.8 No Third Party Beneficiaries. This Agreement is intended for the
benefit of the Parties hereto, and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person.
11.9 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each Party and
delivered to the other Parties, it being understood that all Parties need not
sign the same counterpart.
11.10 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware, United States of
America, without regard to the conflicts of laws principles thereof.
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11.11 Dispute Resolution.
(a) All disputes, controversies, and claims directly or indirectly
arising out of or in relation to this Agreement or the validity,
interpretation, construction, performance, breach or enforceability of this
Agreement shall be finally, exclusively and conclusively settled by binding
arbitration, as provided in this Section, under the International Rules of
Conciliation and Arbitration of the American Arbitration Association (the
"AAA") which are in effect as of the Closing.
(b) The arbitral tribunal shall be composed of three (3) arbitrators, one
arbitrator being selected by the Company, one arbitrator being selected
jointly by the E2E Representatives, and the third arbitrator being selected
by the other two arbitrators. The arbitration proceedings shall be conducted
in the English language, and all documents not in English submitted by any
party must be accompanied by an English translation. The arbitration
proceedings shall be conducted and any arbitral award shall be made in
Washington, DC. No discovery shall be conducted except by written agreement
of all Parties.
(c) The Parties agree: (i) that the arbitrator shall have no authority to
award punitive damages or any damages other than those recoverable in
accordance with this Agreement (which may include reasonable attorneys' fees
and other costs of arbitration); (ii) to be bound by any arbitral award or
Order resulting from any arbitration conducted thereunder and that any such
award or Order shall be a reasoned award, shall be in writing, and shall
specify the factual and legal basis for the award, shall be final and
binding; (iii) not to commence, procure, participate in, or otherwise be
involved as a party in any claim, Action or Proceeding that might result in
any Order concerning a dispute (except for initiating Actions or Proceedings
to obtain a judgment recognizing or enforcing an arbitral award or Order and
except for applications, claims, Actions or Proceedings by the Parties,
seeking interim interlocutory or other provisional relief in any court
having jurisdiction, but only on the ground that the award to which the
applicant may be entitled may be rendered ineffectual without such
provisional relief); (iv) any monetary award shall be made and payable in
U.S. Dollars, in each case through a bank selected by the recipient of the
award, together with interest therein at the lesser of the one year London
Interbank Offered Rate (LIBOR), as appearing in the Reuters screen, plus
five (5) percent or the maximum interest rate permissible under applicable
Law, from the fifth (5) Business Day after the award is granted to but
excluding the date it is paid in full; and (v) that judgment or any arbitral
award or Order resulting from an arbitration conducted under this Section
may be entered in any court of competent jurisdiction having jurisdiction
thereof or having jurisdiction over either Party or any of their assets.
(d) The Company, E2E and the E2E Stockholders hereby irrevocably waive
and exclude all rights of appeal, challenge, or recourse to any court from
any arbitral award or Order resulting from any arbitration conducted under
this Section (except for initiating Actions or Proceedings to obtain a
judgment recognizing or enforcing an arbitral award or Order and except for
Actions or Proceedings seeking interim, interlocutory or other provisional
relief in any court having jurisdiction, but only on the ground that the
award to which the applicant may be entitled may be rendered ineffectual
without such provisional relief). Each of the Parties to this Agreement
hereby consents to the non-exclusive jurisdiction of any court of competent
jurisdiction in Washington, DC for all Actions or Proceedings to obtain a
judgment recognizing or enforcing an arbitral award or Order and waives any
defense or opposition to such jurisdiction.
(e) The arbitrators, in their discretion, may consolidate two or more
arbitrations or claims between any of the Parties arising pursuant to this
Agreement or any other agreement among the parties or to which the
shareholders of the Company, E2E and the E2E Stockholders are a party into
one arbitration, or terminate any such consolidation and/or establish other
arbitration proceedings for different claims that may rise in any one
arbitration. Notwithstanding the foregoing, the arbitrators shall
consolidate arbitrations and/or claims, if they determine that it would be
more efficient to consolidate such arbitrations and/or claims than to
continue them separately and (i) there are matters of fact or law that are
common to the arbitrations and/or claims to be consolidated, (ii) there are
related payment and performance obligations considered in the arbitrations
and/or claims to be consolidated or (iii) there is a danger of inconsistent
awards.
(f) Each Party shall bear its own expenses in connection with the
arbitration provided in this Section, provided that the fees of the
arbitrators shall be divided equally between the Parties.
B-23
11.12 Drafting. Each Party acknowledges that its legal counsel participated
in the preparation of this Agreement. The Parties therefore stipulate that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of this Agreement to favor
any Party against the other.
11.13 Waiver of Jury Trial. EACH PARTY HERETO WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, THE RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OF OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
11.14 Expenses. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
11.15 Further Assurances. From and after the date of this Agreement, each
party shall execute and deliver such instruments, documents and other writings
as may be reasonably necessary or desirable to confirm and carry out and to
effectuate fully the intent and purposes of this Agreement.
11.16 Disclosure to Other Persons. No party hereto shall issue, make or
cause the publication of any press release or other announcement with respect
to this Agreement or the transactions contemplated hereby, or otherwise make
any disclosures relating thereto, without the consent of the other parties,
such consent not to be unreasonably withheld or delayed; provided, however,
that such consent shall not be required where such release or announcement is
required by applicable law or the rules or regulations of a securities
exchange, in which event the party so required to issue such release or
announcement shall endeavor, wherever possible, to furnish an advance copy of
the proposed release to the other parties.
[THE REMAINDER OF THIS PAGE INTENTIONALLY IS LEFT BLANK.]
B-24
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
U.S. TECHNOLOGIES INC.
/S/ GREGORY EARLS
By: ___________________________________________________________________________
Name: C. Gregory Earls
Title: Co-Chairman and Co-CEO
E2ENET, INC.
/S/ STEVEN J. QUAMME
By: ___________________________________________________________________________
Name: Steven J. Quamme
B-25
[signature page to Stock Exchange Agreement, dated as of February 21st, 2000]
NORTHWOOD CAPITAL PARTNERS LLC
/S/ HENRY T. WILSON
By: ___________________________________________________________________________
Name: Henry T. Wilson
Title: Managing Director
Address: 485 Underhill Boulevard
Suite 205
Syosset, New York 11791-3491
Phone: (516) 364-5544
Fax: (212) 832-7480
NORTHWOOD VENTURES LLC
/S/ HENRY T. WILSON
By: ___________________________________________________________________________
Name: Henry T. Wilson
Title: Managing Director
Address: 485 Underhill Boulevard
Suite 205
Syosset, New York 11791-3491
Phone: (516) 364-5544
Fax: (212) 832-7480
B-26
SCHEDULE 4.5
COMPANY NEW INVESTMENTS
Company New Investments (cash for working capital, any PIE acquisitions, any
E2E expenses assumed that are to be paid at E2E/Company closing, and any new
investments in E2E portfolio companies)
--Additional Series A shares to Earls affiliates for $1,250,000 recent and
anticipated advances consistent with his previous commitments/rights; use 12.2
(cent) valuation/conversion to common;
--New Series to others (to close by $5,000,000 E2E closing); use $.90 for
conversion to $8,750,000 common (essentially USXX closing market price before
USXX/E2E announcement); mandatorily convertible when adequate common authorized
B-27
Schedule 6.12(a)
E2E Contracts
Agreement and Plan of Merger made as of September 16, 1999, by and among
E2Enet, Inc. ("E2E"), MEI Merger Company, Inc. and MEI Software Systems, Inc.,
including any amendments thereto
Loan Agreement between E2E and MEI Software Systems, Inc. dated September
16, 1999, including any amendments thereto
Convertible Note and Warrant Purchase Agreement by and between E2E and
Northwood Ventures LLC and Northwood Capital Partners LLC dated as of September
10, 1999, including any amendments thereto
Warrant to purchase 350,000 shares of common stock of E2E issued to
Northwood Ventures LLC, including any amendments thereto
Warrant to purchase 50,000 shares of common stock of E2E issued to Northwood
Capital Partners LLC, including any amendments thereto
Convertible Secured Note issued by E2E in favor of Northwood Ventures LLC
dated September 10, 1999, including any amendments thereto
Convertible Secured Note issued by E2E in favor of Northwood Capital
Partners LLC dated September 10, 1999, including any amendments thereto
Registration Rights Agreement dated as of September 10, 1999, between E2E
and the Stockholders executing same, including any amendments and joinders
thereto
Pledge Agreement by and among E2E, Jonathan J. Ledecky, Northwood Ventures
LLC and Northwood Capital Partners LLC dated as of September 10, 1999,
including any amendments thereto
Intercreditor Agreement by and among Jonathan J. Ledecky, Northwood Ventures
LLC, Northwood Capital Partners LLC and E2E dated as of September 10, 1999,
including any amendments thereto
Loan and Pledge Agreement between E2E and Jonathan J. Ledecky dated as of
May 14, 1999, including any amendments thereto
Escrow Agreement dated as of September 10, 1999, by and among Jonathan J.
Ledecky, Northwood Ventures LLC and Northwood Capital Partners LLC, Hogan &
Hartson as escrow agent, and E2E, including any amendments thereto
Second Amended and Restated Promissory Note issued by E2E in favor of
Jonathan J. Ledecky dated as of September 10, 1999, including any amendments
thereto
Stockholders Agreement by and among E2E, Jonathan J. Ledecky and the
Stockholders of E2E dated May 14, 1999, effective as of May 7, 1999, including
any amendments and joinders thereto
Purchase Agreement between E2E and Buyline.net, Inc. dated as of August 10,
1999, including any amendments thereto
Registration Rights Agreement dated as of August 10, 1999, among
Buyline.net, Inc., E2E and the stockholders of Buyline.net, Inc. party to the
agreement, including any amendments and joinders thereto
B-28
Stockholders Agreement dated as of August 10, 1999, by and among
Buyline.net, Inc., E2E, Silverman Trust and the other Stockholders party to the
agreement, including any amendments and joinders thereto
Promissory notes issued by Buyline.net, Inc. in favor of E2E pursuant to the
Purchase Agreement between the parties, including any amendments thereto
Stock Purchase Agreement by and among Bluemercury, Inc. and E2E dated as of
May 14, 1999, including any amendments thereto
Stockholders Agreement by and among Bluemercury, Inc., E2E, Barry Beck and
Marla Malcolm dated as of May 20, 1999, including any amendments and joinders
thereto
Registration Rights Agreement by and among Bluemercury, Inc., E2E, Barry
Beck and Marla Malcolm dated as of May 20, 1999, including any amendments and
joinders thereto
Escrow Agreement dated as of May 20, 1999, among Bluemercury, Inc., its
stockholders party to the agreement, and E2E as escrow agent, including any
amendments thereto
Purchase Agreement by and between Urban Box Office Network, Inc. ("UBO") and
E2E dated as of May 14, 1999, including any amendments thereto
Amended and Restated Stockholders Agreement by and among UBO, Allen &
Company Incorporated, E2E, Nicholas Negroponte, George Jackson, Adam Kidron and
Frank Cooper dated as of August 10, 1999, including any amendments and joinders
thereto
Amended and Restated Registration Rights Agreement by and among UBO, Allen &
Company Incorporated, E2E, Nicholas Negroponte, George Jackson, Adam Kidron and
Frank Cooper dated as of August 10, 1999, including any amendments and joinders
thereto
Stock Purchase Agreement by and among Hooey, Inc. and E2E dated May 14,
1999, including any amendments thereto
Registration Rights Agreement by and among Hooey, Inc., E2E, William P.
Phelan and Liavan Mallin dated as of May 14, 1999, including any amendments and
joinders thereto
Stockholders Agreement by and among Hooey, Inc., E2E, William P. Phelan and
Liavan Mallin dated as of May 14, 1999, including any amendments and joinders
thereto
Stock Purchase Agreement dated on or about February 11, 2000, by and among
E2E, the individuals and entities listed as investors on an exhibit to the
agreement, and, as to Section 5.9 of the Agreement, Blue Rock, Inc., William
Dodd and Katharine Kelley, including any amendments thereto
Put Agreement by and among Jonathan J. Ledecky and William K. Dodd and
Katharine W. Kelley dated as of May 14, 1999, including any amendments thereto
E2E's investment in VIPRO Corporation pursuant to a Purchase Agreement dated
and related agreements, including any amendments thereto
*Exercise Price = $.90 per share, to vest pro rata on the first, second and
third anniversaries of their grants.
B-29
SCHEDULE 7.3(B)
ADDITIONAL COMPANY OPTIONS
BOARD OF DIRECTORS
Number of options*
------------------
The Honorable Alexander M. Haig, Jr....................................... 250,000
The Honorable William H. Webster.......................................... 250,000
The Honorable George J. Mitchell.......................................... 250,000
Rick Rickertsen........................................................... 250,000
Peter Schiff.............................................................. 250,000
Henry T. Wilson........................................................... 250,000
Greg Earls................................................................ 250,000
ADVISORS
H. Lee Rust............................................................... 50,000
Edward Hauk............................................................... 100,000
PERSONNEL
Michael Deale............................................................. 200,000
Lucille A. Payne.......................................................... 75,000
Dana R. Williams.......................................................... 75,000
Jacqueline D. Scott....................................................... 75,000
Amy Blodgett Paladini..................................................... 75,000
Sharon D. Anderson........................................................ 25,000
- --------
*Exercise Price = $.90 per share, to vest pro rata on the first, second and third anniversaries of their grants.
OTHERS**
Liaven Mallin............................................................. 125,000
William Phelan............................................................ 125,000
Marla Malcolm-Nagler...................................................... 100,000
Barry Beck................................................................ 66,667
Adam Kidron............................................................... 100,000
Frank Cooper, III......................................................... 100,000
- --------
ExercisePrice = $.90 per share.
B-30
SCHEDULE 7.11
LITIGATION
In late 1999, Affordable Interior Systems ("AIS") filed a suit against the
Company and the Company has filed a countersuit relating to the service
arrangement between the Company and AIS.
B-31
APPENDIX C
AMENDMENT TO STOCK EXCHANGE AGREEMENT
This Amendment to Stock Exchange Agreement (the "Amendment") is made as of
this 5th day of April, 2000, by and among U.S. Technologies Inc., a Delaware
corporation (the "Company"), U.S. Technologies Acquisition Sub, Inc., a
Delaware corporation and wholly owned subsidiary of the Company ("Newco"),
E2Enet, Inc., a Delaware corporation ("E2E"), Northwood Ventures LLC, a New
York limited liability company ("Northwood Ventures"), Northwood Capital
Partners LLC, a New York limited liability company ("Northwood Capital" and
together with Northwood Ventures, "Northwood"), Jonathan J. Ledecky ("Ledecky")
and the other E2E Stockholders (as defined below) (each of the foregoing,
individually, a "Party," and, collectively, the "Parties"). Capitalized terms
used but not defined herein have the respective meanings assigned to them in
the Stock Exchange Agreement (as defined below).
RECITALS:
A. The Company, E2E and the E2E Stockholders entered into a Stock Exchange
Agreement dated as of February 21, 2000 (the "Stock Exchange Agreement"),
pursuant to which the Company agreed to acquire all of the issued and
outstanding shares of capital stock of E2E (the "E2E Shares") from those
persons who would own all of such shares as of the closing of the acquisition
contemplated therein (the "E2E Stockholders");
B. In exchange for all of the issued and outstanding shares of E2E, the
Company agreed to issue to the E2E Stockholders the Preferred Shares; and
C. The Parties desire to amend the Stock Exchange Agreement to provide for
(i) the merger of E2E with and into Newco, with Newco being the surviving
corporation, and (ii) the conversion of the shares of capital stock of E2E into
the Preferred Shares, all upon the terms and conditions set forth herein.
AGREEMENTS:
In consideration of the foregoing and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Parties agree
as follows:
1. Additional Party. Newco is added as a party to the Stock Exchange
Agreement, and all references to Members of the Company Group shall be deemed
to include Newco.
2. Amendment to Article I.
(a) The definition of "Investment Documents" in Article I of the Stock
Exchange Agreement is amended by replacing it in its entirety with the
following:
"Investment Documents" shall mean this Agreement, the Preferred Shares,
the Certificate of Designations, the Amended and Restated Registration
Rights Agreement, the Voting Agreement relating to the Board of Directors of
the Company and the Certificate of Merger (as defined below).
(b) The following definition is added to Article I of the Stock Exchange
Agreement:
"Certificate of Merger" has the meaning given to it in Section 2.2.
(c) The definition of "Preferred Shares" in Article I of the Stock Exchange
Agreement is amended by replacing it in its entirety with the following:
"Preferred Shares" means the duly authorized, validly issued, fully paid
and non-assessable shares of the Series B Mandatorily Convertible Preferred
Stock of the Company with an aggregate stated value equal to $11,200,000,
mandatorily convertible into an aggregate of 56,000,000 shares of Common
Stock as described in Section 3.1.
C-1
3. Amendment to Article II. Article II of the Stock Exchange Agreement is
amended by replacing it in its entirety with the following:
ARTICLE II.
THE MERGER
2.1 Merger; Effects of Merger.
(a) Upon the terms and subject to the conditions of this Agreement, at the
Effective Time (as defined below), (i) E2E shall be merged with an into Newco
(the "Merger"), (ii) the separate existence of E2E shall thereupon cease, and
(iii) the name of Newco, as the surviving corporation in the Merger (the
"Surviving Corporation"), shall by virtue of the Merger be E2Enet, Inc.
(b) The Merger shall have the effects set forth in the Delaware General
Corporation Law (the "DGCL"). Without limiting the generality of the foregoing,
at the Effective Time, all of the properties, rights, privileges, powers and
franchises of E2E and Newco shall vest in the Surviving Corporation, and all of
the debts, liabilities and duties of E2E and Newco shall become the debts,
liabilities and duties of the Surviving Corporation.
2.2 Closing of Merger. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place at the
offices of Fleischman and Walsh, L.L.P. at 10:00 a.m., local time, on a date
satisfactory to the Company, Newco and E2E which is no later than the fifth
Business Day after satisfaction (or waiver) of the conditions to Closing set
forth in Articles IV and V hereof (other than those conditions which require
the delivery of any documents or the taking of other actions at the Closing)
(the "Closing Date"). On the Closing Date, the Parties agree to file with the
Secretary of State of the State of Delaware a certificate of merger (the
"Certificate of Merger") in the form required by, and executed in accordance
with, the relevant provisions of the DGCL. The Merger will become effective
upon filing of the Certificate of Merger with the Secretary of State of the
State of Delaware (the "Effective Time").
2.3 Articles of Incorporation. The Articles of Incorporation of Newco in
effect at the time of the merger shall be the Articles of Incorporation of the
Surviving Corporation, until thereafter amended as provided thereunder and
under the DGCL.
2.4 Bylaws. The Bylaws of Newco in effect at the time of the Merger shall be
the Bylaws of the Surviving Corporation, until thereafter altered, amended or
repealed as provided thereunder and under the Articles of Incorporation of the
Surviving Corporation and the DGCL.
2.5 Directors and Officers of Surviving Corporation. The directors and
officers of Newco immediately prior to the Effective Time will be the directors
and officers of the Surviving Corporation, and each shall hold office from the
Closing Date until such time as his successor is duly elected or appointed and
qualified in the manner provided in the Articles of Incorporation and Bylaws of
the Surviving Corporation, or as otherwise provided by law.
2.6 Conversion of Shares.
(a) E2E Shares. As of the Effective Time, by virtue of the Merger and
without any action on the part of the E2E Stockholders, the E2E Shares held by
each E2E Stockholder shall be converted into such E2E Stockholder's pro rata
share of the Preferred Shares. As of the Closing Date, all of the certificates
which immediately prior to the Closing represented E2E Shares shall be deemed
for all purposes to evidence ownership of and to represent the Preferred Shares
into which the E2E Shares formerly represented by such certificates have been
converted as herein provided.
(b) Exchange of Certificates. On or after the Closing Date, the E2E
Stockholders shall surrender to Fleischman and Walsh, L.L.P., as exchange agent
(the "Exchange Agent"), stock certificates representing their respective E2E
Shares, together with stock powers duly executed in favor of the Company. Upon
the surrender of
C-2
any such stock certificate by or on behalf of any E2E Stockholder, the Company
shall direct the Exchange Agent (1) on behalf of the Surviving Corporation, to
cancel such stock certificate, and (2) on behalf of the Company, to issue to
such E2E Stockholder certificates representing the Preferred Shares into which
the E2E Shares held by such E2E Stockholder shall have been converted at the
Effective Time. The E2E Shares, when converted into the Preferred Shares at the
Effective Time, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist. The Exchange Agent shall hold in
escrow stock certificates representing all of the Preferred Shares issues in
connection with the Merger until the earlier of (i) written notice by the
Company directing the Exchange Agent to release such certificates; (ii) written
notice by the Company directing the Exchange Agent to release such certificates
following the Company's receipt of (x) a joinder to the Agreement and a consent
and joinder to the Amendment, duly executed by each of the E2E Stockholders
other than Ledecky and Northwood, (y) releases in the form of the letter from
Hogan & Hartson, L.L.P. to each E2E Stockholder dated March 20, 2000, duly
executed by each of the E2E Stockholders other than Ledecky and Northwood, and
(z) stock certificates representing all of the E2E Shares, together with stock
powers duly executed in favor of the Company; or (iii) approval of the Charter
Amendment and the conversion of the Preferred Shares into Common Stock as
described in the Agreement (provided, however, that, notwithstanding approval
of the Charter Amendment and the conversion of the Preferred Shares into Common
Stock, the Exchange Agent shall continue to hold in escrow certificates
representing shares of Common Stock issued to those E2E Stockholders who have
not executed and delivered to the Company the documents described in Section
2.6(b)(ii) until the Company receives such documents).
(c) Newco Shares. Each share of common stock, par value $0.01 per share, of
Newco issued and outstanding immediately prior to the Closing Date shall be
converted into and exchanged for one (1) validly issued, fully paid and
nonassessable share of common stock, par value $0.01 per share, of the
Surviving Corporation.
2.7 Tax-Free Merger. It is intended that the Merger will constitute a
tax-free reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"), and that this Agreement will constitute a "plan
of reorganization" within the meaning of the regulations promulgated under such
section of the Code.
4. Amendments to Article IV. Sections 4.2(b), 4.2(f) and 4.10 of the Stock
Exchange Agreement are deleted in their entirety.
5. Amendment to Article V. Sections 5.2(a), 5.2(d) and 5.3 of the Stock
Exchange Agreement are deleted in their entirety.
6. Amendments to Article VII.
(a) Section 7.6 of the Stock Exchange Agreement is amended by replacing it
in its entirety with the following:
7.6 Governmental Approvals. No authorization, consent, approval, License,
exemption of or filing or registration with any court or Government Entity is
or will be necessary for, or in connection with, the offer, issuance, sale,
execution or delivery by the Company of, or for the performance by the Company
of its obligations under, any of the Investment Documents other than (i) under
applicable securities laws with respect to the Charter Amendment, (ii) the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware, and (iii) under applicable securities laws with respect to the
transactions contemplated by the registration rights set forth in the Amended
and Restated Registration Rights Agreement.
(b) Article VII of the Stock Exchange Agreement is amended by adding the
following Section 7.18:
7.18 Newco
(a) Newco is a corporation duly organized, validly existing and in good
standing under the Laws of the State of Delaware.
C-3
(b) Newco has all necessary corporate power and authority to enter into the
Investment Documents to which it is a party and to carry out its obligations
thereunder. Newco has duly executed and delivered (or will have, with respect
to deliveries to be executed and delivered by it at Closing) each of the
Investment Documents, and each is (or will be, with respect to deliveries to be
executed and delivered by it at Closing) a legal, valid and binding obligation
of Newco, enforceable against Newco in accordance with its terms, except as
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally and by general principles of equity.
(c) The authorized capital stock of Newco consists of 1,000 shares of common
stock, par value $0.01 per share, of which 100 shares are issued and
outstanding on the date hereof. Without limiting the generality of the
foregoing Section 7.4, all of the outstanding shares of capital stock of Newco
have been duly authorized and validly issued, and are fully paid, nonassessable
and free and clear of all Liens. There are no options, warrants or rights to
purchase shares of capital stock or other securities of Newco issued or
outstanding, nor is Newco obligated in any other manner to issue shares of its
capital stock or other securities.
(d) Other than the filing of the Certificate of Merger, no authorization,
consent, approval, License, exemption of or filing or registration with any
court or Government Entity is or will be necessary for or in connection with
the execution or delivery by Newco of or the performance by Newco of its
obligations under any of the Investment Documents.
(e) Section 7.16 of the Stock Exchange Agreement is amended to replace the
reference to the "Exchange" with a reference to the "Merger".
7. Amendments to Article VIII.
(a) Section 8.2 of the Stock Exchange Agreement is amended such that all
references therein to the "Company" shall be deemed to be references to the
Company and Newco.
(b) Section 8.2 of the Stock Exchange Agreement is amended by adding the
following Section 8.2(h):
(h) Tax-Free Merger. The Company and Newco agree that the Merger is
intended to be a tax-free reorganization under Section 368 of the Code and
that this Agreement is intended to be a "plan of reorganization" within the
meaning of the regulations promulgated under such section of the Code.
Neither the Company nor the Surviving Corporation will take or fail to take
any action which would jeopardize the qualification of the Merger as such a
reorganization (other than such actions as may be legally required).
8. Amendments to Article X.
(a) Section 10.1(a) of the Stock Exchange Agreement is amended by replacing
it in its entirety with the following:
(a) This Agreement may be terminated and the Merger may be abandoned by
(i) the mutual, written agreement of the E2E Representatives and the
Company, (ii) by either the E2E Representatives or the Company if (x) the
Merger shall not have been consummated by 5:00 p.m. Eastern Standard Time on
April 11, 2000, provided that the party seeking to terminate this Agreement
pursuant to this clause (ii) is not in breach of this Agreement (or in the
case of the E2E Representatives, neither they nor any of the other E2E
Stockholders are in breach of this Agreement), of (y) a Government Entity
shall have issued an Order or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such Order or other action shall have
become final and nonappealable; provided that the Party or Parties seeking
to terminate this Agreement pursuant to this clause (ii) (y) shall have used
all reasonable efforts to remove such Order.
(b) Section 10.1(c) of the Stock Exchange Agreement is amended such that all
references therein to the "Company" shall be deemed to be references to the
Company or Newco, as the case may be.
C-4
9. Amendment to Article XI. Section 11.4 of the Stock Exchange Agreement is
amended to add the following address for Newco:
U.S. Technologies Acquisition Sub, Inc.
c/o U.S. Viewing Corporation
2001 Pennsylvania Avenue, NW
Suite 675
Washington, DC 20006
Attn: Gregory C. Earls
Telephone: 202-466-3100
Facsimile: 202-466-4557
With a copy to:
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, NW
Washington, DC 20036
Attn: Stephen A. Bouchard
Telephone: 202-939-7945
Facsimile: 202-265-5706
10. Stock Exchange Agreement. Except as otherwise expressly provided in this
Amendment, the provisions of the Stock Exchange Agreement remain in full force
and effect.
11. Counterparts; Facsimile Signatures. This Amendment may be executed in
one or more counterparts, and executed signature pages sent by a Party to the
other Parties by facsimile shall be binding as evidence of such Party's
agreement hereto and acceptance hereof.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
C-5
The parties hereto have executed this Amendment to Stock Exchange Agreement
as of the date first written above.
U.S. TECHNOLOGIES INC.
By: /s/ C. GREGORY EARLS
__________________________________
Name: C. Gregory Earls
Title: Co-Chairman and Co-CEO
U.S. TECHNOLOGIES ACQUISITION SUB,
INC.
By: /s/ C. GREGORY EARLS
__________________________________
Name: C. Gregory Earls
Title: President
[signature page to Amendment to Stock Exchange Agreement, dated as of April 5,
2000]
C-6
E2ENET, INC.
/S/ STEVEN J. QUAMME
By: _________________________________
Name: Steven J. Quamme
Title:Senior Vice President
NORTHWOOD CAPITAL PARTNERSHIP LLC
/S/ HENRY T. WILSON
By: _________________________________
Name: Henry T. Wilson
Title:Managing Director
NORTHWOOD VENTURES LLC
/S/ HENRY T. WILSON
By: _________________________________
Name: Henry T. Wilson
Title:Managing Director
/S/ JONATHAN J. LEDECKY
__________________________________
Jonathan J. Ledecky
[signature page to Amendment to Stock Exchange Agreement, dated as of April 5,
2000]
C-7
E2ENET, INC.
/S/ STEVEN J. QUAMME
By: _________________________________
Name: Steven J. Quamme
Title: Senior Vice President
NORTHWOOD CAPITAL PARTNERSHIP LLC
/S/ HENRY T. WILSON
By: _________________________________
Name: Henry T. Wilson
Title: Managing Director
NORTHWOOD VENTURES LLC
/S/ HENRY T. WILSON
By: _________________________________
Name: Henry T. Wilson
Title: Managing Director
/S/ JONATHAN J. LEDECKY
__________________________________
Jonathan J. Ledecky
[signature page to Amendment to Stock Exchange Agreement, dated as of April
5, 2000]
C-8
E2ENET, INC.
/S/ STEVEN J. QUAMME
By: _________________________________
Name: Steven J. Quamme
Title: Senior Vice President
NORTHWOOD CAPITAL PARTNERSHIP LLC
/S/ HENRY T. WILSON
By: _________________________________
Name: Henry T. Wilson
Title: Managing Director
NORTHWOOD VENTURES LLC
/S/ HENRY T. WILSON
By: _________________________________
Name: Henry T. Wilson
Title: Managing Director
/S/ JONATHAN J. LEDECKY
__________________________________
Jonathan J. Ledecky
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APPENDIX D
AGREEMENT AND PLAN OF MERGER
AMONG
U.S. TECHNOLOGIES INC.,
U.S. TECHNOLOGIES ACQUISITION CO.
AND
YAZAM.COM INC.
Dated as of February 28, 2001
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS............................................... 1
ARTICLE II. THE MERGER................................................ 4
2.1 The Merger................................................ 4
2.2 Certificate of Incorporation.............................. 5
2.3 By-Laws................................................... 5
2.4 Directors and Officers.................................... 5
2.5 Shareholder's Approval.................................... 5
2.6 Effective Time............................................ 5
ARTICLE III. CONVERSION OF SHARES...................................... 5
3.1 Yazam Stock............................................... 5
3.2 Yazam Closing Cash Balance Adjustment..................... 6
3.3 Dissenting Shares......................................... 6
3.4 Acquisition Co. Common Stock.............................. 7
3.5 Payment for, and Distribution of, the Merger Consideration 7
3.6 Adjustment to Prevent Dilution............................ 8
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF YAZAM................... 8
4.1 Organization, etc......................................... 8
4.2 Authorization and Binding Obligation...................... 9
4.3 Capitalization............................................ 9
4.4 Consents and Approvals; No Conflicts...................... 9
4.5 Financial Statements...................................... 10
4.6 Compliance with Laws...................................... 10
4.7 Real Property............................................. 10
4.8 Property.................................................. 10
4.9 Intellectual Property..................................... 11
4.10 Contracts................................................. 11
4.11 Employee Benefit Plans.................................... 11
4.12 Actions Pending........................................... 12
4.13 Affiliate Transactions.................................... 12
4.14 Taxes..................................................... 13
4.15 Finders and Investment Bankers............................ 13
4.16 Labor..................................................... 13
4.17 Yazam Accredited Investors................................ 13
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND
ACQUISITION CO.......................................... 14
5.1 Organization and Standing................................. 14
5.2 Authorization and Binding Obligation...................... 14
5.3 Consents and Approvals; No Conflicts...................... 14
5.4 Litigation................................................ 14
5.5 Brokers, Finders, Etc..................................... 15
5.6 Capitalization of Parent.................................. 15
5.7 Parent SEC Reports........................................ 15
5.8 Financing................................................. 16
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ARTICLE VI. COVENANTS............................................................ 16
6.1 Conduct of Business.................................................. 16
6.2 Third-Party Consents................................................. 17
6.3 Compliance with DGCL; Filings; Consent Solicitation Statement........ 17
6.4 Additional Agreements................................................ 18
6.5 Acquisition Proposals................................................ 18
6.6 Public Announcements................................................. 18
6.7 Consent of the Parent................................................ 19
6.8 Transfer Taxes....................................................... 19
6.9 Access............................................................... 19
6.10 Advice Regarding Changes............................................. 19
6.11 Notice of Prospective Breach......................................... 19
6.12 Shareholder Letter of Transmittal.................................... 19
6.13 Indemnification of Directors and Officers............................ 19
ARTICLE VII. RESTRICTIONS ON TRANSFER............................................. 20
7.1 Restricted Shares.................................................... 20
7.2 Legends.............................................................. 20
ARTICLE VIII. CLOSING CONDITIONS................................................... 20
8.1 Conditions to the Obligation of Yazam................................ 20
8.2 Conditions Precedent to Obligations of the Parent and Acquisition Co. 21
ARTICLE IX. CLOSING.............................................................. 22
9.1 Time and Place....................................................... 22
9.2 Filings at the Closing; Other Actions................................ 23
ARTICLE X. SURVIVAL OF COVENANTS................................................ 23
ARTICLE XI. TERMINATION RIGHTS................................................... 23
11.1 Termination.......................................................... 23
11.2 Procedure and Effect of Termination.................................. 23
ARTICLE XII. OTHER PROVISIONS..................................................... 24
12.1 Amendment and Modification........................................... 24
12.2 Benefit and Assignment............................................... 24
12.3 No Third-Party Beneficiaries......................................... 24
12.4 Entire Agreement..................................................... 24
12.5 Expenses............................................................. 24
12.6 Headings............................................................. 24
12.7 Choice of Law........................................................ 24
12.8 Notices.............................................................. 24
12.9 Counterparts......................................................... 25
12.10 Confidentiality...................................................... 25
Exhibits
Exhibit-A-Certificate of Designation
Exhibit-B-Warrant Certificate
Exhibit-C-Certificate of Merger
Exhibit-D-Letter of Transmittal
Exhibit-E-Opinion of Shaw Pittman
Exhibit-F-Registration Rights Agreement
Exhibit-G-Opinion of Gibson Dunn & Crutcher
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 28, 2001 (the
"Agreement"), among U.S. TECHNOLOGIES INC., a Delaware corporation (the
"Parent"), U.S. TECHNOLOGIES ACQUISITION CO., a Delaware corporation and a
wholly-owned subsidiary of the Parent ("Acquisition Co."), and YAZAM.COM INC.,
a Delaware corporation ("Yazam").
ARTICLE I
DEFINITIONS
Unless otherwise stated, the following terms when used herein have the
meanings assigned to them below.
1.01 "Acquisition Co." has the meaning set forth in the preamble to this
Agreement.
1.02 "Acquisition Co. Common Stock" has the meaning set forth in Section
3.04 hereof.
1.03 "Affiliate" means a Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, the Person specified.
1.04 "Agreement" has the meaning set forth in the preamble to this
Agreement.
1.05 "Applicable Law" means all applicable provisions of all (i)
constitutions, treaties, statutes, laws (including, but not limited to, the
common law), rules, regulations, ordinances, codes or orders of any
Governmental Authority and (ii) orders, decisions, rulings, injunctions,
judgments, awards and decrees, executive orders or consents of or agreements
with any Governmental Authority.
1.06 "Benefit Plan" means any plan, program, agreement, policy or
arrangement, whether covering a single individual or group of individuals, and
whether or not reduced to writing, that is: (a) an employee welfare benefit
plan within the meaning of Section 3(1) of ERISA; (b) an employee pension
benefit plan within the meaning of Section 3(2) of ERISA; (c) a stock bonus,
stock purchase, stock option, restricted stock, stock appreciation right or
similar equity-based plan; or (d) any other deferred-compensation, retirement,
welfare-benefit, bonus, incentive or fringe benefit plan or arrangement,
vacation, sick, holiday or other paid leave plan, life insurance or other death
benefit plan, severance or other similar benefit plan.
1.07 "Business Combination" means (x) any merger, consolidation,
acquisition, partnership or combination to which Yazam or any of the Yazam
Subsidiaries is or would be a party, (y) any sale, dividend, split or other
disposition of capital stock or other equity interest of Yazam, any of the
Yazam Subsidiaries or any of Yazam's portfolio companies, or (z) any sale,
dividend or other disposition of all or substantially all of the assets and
properties of Yazam, any of the Yazam Subsidiaries or any of Yazam's portfolio
companies.
1.08 "Business Day," whether or not initially capitalized, means every day
of the week excluding Saturdays, Sundays and federal holidays.
1.09 "Certificates" has the meaning set forth in Section 3.05(a) hereof.
1.10 "Closing" means the closing of the Merger.
1.11 "Closing Date" means the date on which the Closing occurs.
1.12 "Code" means the Internal Revenue Code of 1986, as amended, together
with all regulations and rulings issued thereunder by any Governmental
Authority.
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1.13 "Common Stock Consideration" has the meaning set forth in Section 3.01
hereof.
1.14 "Consent Solicitation Statement" has the meaning set forth in Section
6.03(b) hereof.
1.15 "Contracts" has the meaning set forth in Section 4.10 hereof.
1.16 "DGCL" means the Delaware General Corporation Law.
1.17 "Dissenting Shares" has the meaning set forth in Section 3.03 hereof.
1.18 "Effective Time" has the meaning set forth in Section 2.06 hereof.
1.19 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, together with the regulations and rulings issued thereunder by any
Governmental Authority.
1.20 "Filings" has the meaning set forth in Section 6.03(c) hereof.
1.21 "Financial Statements" has the meaning set forth in Section 4.05
hereof.
1.22 "GAAP" means United States generally accepted accounting principles.
1.23 "Governmental Authority" means any nation or government, any state or
other political subdivision thereof or any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, in each case to the extent the same has jurisdiction over the
Person or property in question.
1.24 "IRS" means the Internal Revenue Service of the United States.
1.25 "Knowledge" means, with respect to Yazam or any Yazam Subsidiary, the
actual knowledge of any of the individuals set forth on Schedule 1.25 hereto.
1.26 "Leased Property" has the meaning set forth in Section 4.07 hereof.
1.27 "Liens" means all debts, liens, security interests, mortgages, pledges,
judgments, trusts, adverse claims, liabilities, encumbrances, material rights
of way, charges which are liens and other impairments of title of any kind
other than Permitted Liens.
1.28 "Letter of Transmittal" has the meaning set forth in Section 3.05(a)
hereof.
1.29 "Material Adverse Effect" means a material adverse effect on the
business, assets, properties, liabilities or financial condition of Yazam and
the Yazam Subsidiaries, taken as a whole, or on the ability of Yazam to timely
consummate the transactions contemplated hereby.
1.30 "Merger" has the meaning set forth in Section 2.01 hereof.
1.31 "Merger Consideration" has the meaning set forth in Section 2.01
hereof.
1.32 "Merger Filings" has the meaning set forth in Section 2.06 hereof.
1.33 "Notice" has the meaning set forth in Section 6.03(b) hereof.
1.34 "Parent" has the meaning set forth in the preamble to this Agreement.
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1.35 "Parent Common Stock" means the common stock, par value $0.02 per
share, issued by Parent.
1.36 "Parent Preferred Stock" means the Series F Convertible Preferred
Stock, par value $0.02 per share, issued by Parent, which shall have the
rights, privileges and preferences provided in the Certificate of Designation,
attached hereto substantially in the form of Exhibit A.
1.37 "Parent Warrants" means the warrants to be issued by the Parent in
connection with the Merger, attached hereto substantially in the form of
Exhibit B, granting the right to receive Parent Common Stock.
1.38 "Permitted Liens" has the meaning set forth in Section 4.07 hereof.
1.39 "Person" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization,
including any Governmental Authority or any other government or political
subdivision or an agency or instrumentality thereof.
1.40 "Plans" has the meaning set forth in Section 4.11 hereof.
1.41 "Preferred Stock Consideration" has the meaning set forth in Section
3.01(d) hereof.
1.42 "Real Estate Laws" means any applicable building, zoning, subdivision
and other land use and similar laws, codes, ordinances, rules, regulations and
orders of Governmental Authorities.
1.43 "Registration Rights Agreement" has the meaning set forth in Section
8.01(g) hereof.
1.44 "Representatives" has the meaning set forth in Section 6.05 hereof.
1.45 "Series B Stock Cash Consideration" has the meaning set forth in
Section 3.01(c) hereof.
1.46 "Series B Stock Consideration" has the meaning set forth in Section
3.01(c) hereof.
1.47 "Series C Stock Cash Consideration" has the meaning set forth in
Section 3.01(b) hereof.
1.48 "Series C Stock Consideration" has the meaning set forth in Section
3.01(b) hereof.
1.49 "Surviving Corporation" has the meaning set forth in Section 2.01
hereof.
1.50 "Surviving Corporation Common Stock" has the meaning set forth in
Section 3.04 hereof.
1.51 "Tax" means any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, withholding on amounts paid to or by Yazam or any
Yazam Subsidiary, payroll, employment, excise, severance, stamp, occupation,
premium, property, environmental or windfall profits tax, custom duty or other
tax, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, in addition to any tax or
additional amount imposed by any Governmental Authority (domestic or foreign)
(a "Taxing Authority").
1.52 "Taxing Authority" has the meaning set forth in the definition of Tax.
1.53 "Tax Returns" shall mean any report, return, declaration, claim for
refund, information statement or return relating to Taxes or other documents
filed or maintained or required to be filed or maintained, in connection with
any Tax.
1.54 "Transactions" has the meaning set forth in Section 2.05 hereof.
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1.55 "Yazam Closing Cash Balance" shall mean the cash balance in the primary
bank account of Yazam as of the Closing Date, as calculated in the ordinary
course of business, consistent with past practice.
1.56 "Yazam Common Stock" means the common stock, par value $0.0001 per
share, issued by Yazam.
1.57 "Yazam Options" means the outstanding options to purchase Yazam Common
Stock issued prior to the Closing Date pursuant to the option plans listed on
Schedule 1.57 hereto.
1.58 "Yazam Preferred Stock" means, collectively, the Yazam Series A Stock,
the Yazam Series B Stock, and the Yazam Series C Stock.
1.59 "Yazam Rights" has the meaning set forth in Section 4.03(b).
1.60 "Yazam Series A Stock" means the Series A Preferred Stock, par value
$0.0001 per share, issued by Yazam.
1.61 "Yazam Series B Stock" means the Series B Preferred Stock, par value
$0.0001 per share, issued by Yazam.
1.62 "Yazam Series C Stock" means the Series C Preferred Stock, par value
$0.0001 per share, issued by Yazam.
1.63 "Yazam Subsidiary" means any corporation, partnership, limited
liability company, joint venture or other entity of which Yazam owns, directly
or indirectly, at least a majority of the securities or other ownership
interests having by the terms thereof ordinary voting power or otherwise has
the right or power to elect a majority of the board of directors or other
Persons performing similar functions of such corporation, partnership, limited
liability company, joint venture or other entity.
1.64 "Yazam Warrant" means the outstanding warrant to purchase Yazam Common
Stock issued prior to the Closing Date hereof as set forth on Schedule 1.64
hereto.
1.65 "1933 Act" means the Securities Act of 1933, as amended or any similar
federal statute and the rules and regulations of the Commission thereunder, all
as the same shall be in effect from time to time.
1.66 "1934 Act" means the Securities Exchange Act of 1934, as amended or any
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
ARTICLE II
THE MERGER
2.01 The Merger. The aggregate consideration to be paid in connection with
the Merger, as more particularly described in Article III hereof, shall be the
following: (i) $22,000,000 in cash (as may be adjusted pursuant to Section 3.02
hereof), (ii) 27,374 shares of Parent Preferred Stock, and (iii) Parent
Warrants to purchase 8,000,000 shares of Parent Common Stock (collectively, the
"Merger Consideration"). In accordance with the provisions of this Agreement
and the DGCL, at the Effective Time: (i) Acquisition Co. shall be merged with
and into Yazam (the "Merger"), and Yazam shall be the surviving corporation of
the Merger (hereinafter sometimes called the "Surviving Corporation") and shall
continue its corporate existence under the laws of the State of Delaware; (ii)
the name, identity, existence, rights, privileges, powers, franchises,
properties and assets of Yazam shall continue immediately following
consummation of the Merger unaffected and unimpaired; and (iii) the separate
existence of Acquisition Co. shall cease, and all of the rights, privileges,
powers, franchises, properties and assets of Acquisition Co. shall be vested in
Yazam. The name of the surviving corporation shall be "Yazam.com Inc."
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2.02 Certificate of Incorporation. The Certificate of Incorporation of Yazam
in effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
therein or by Applicable Law.
2.03 By-Laws. The By-Laws of Yazam in effect immediately prior to the
Effective Time shall be the By-Laws of the Surviving Corporation immediately
following the Effective Time until thereafter amended, altered or repealed as
provided therein.
2.04 Directors and Officers. The directors of Acquisition Co. immediately
prior to the Effective Time shall be the directors of the Surviving Corporation
immediately following the Effective Time, each to hold office in accordance
with the Certificate of Incorporation and By-Laws of the Surviving Corporation
until his or her successor is appointed and qualified or until his or her
earlier death, resignation or removal.
2.05 Shareholders' Approval. Yazam shall, as soon as practicable following
the date of this Agreement, use its best efforts to take all actions necessary,
in accordance with the DGCL and the Certificate of Incorporation and Bylaws of
Yazam, to obtain the requisite approval by all of the shareholders of Yazam
entitled to vote thereon by written consent, in form satisfactory to the
Parent, for the purpose of obtaining the approval and adoption of this
Agreement, the Merger and the other transactions contemplated hereby
(collectively, the "Transactions"). The vote required for the adoption and
approval of the Transactions by the holders of Yazam Common Stock and Yazam
Preferred Stock shall be at least the minimum vote required by the DGCL or
Yazam's Certificate of Incorporation and Bylaws.
2.06 Effective Time. The Merger shall become effective upon the filing with
the Secretary of State of the State of Delaware of a certificate of merger, in
the form attached hereto as Exhibit C, in accordance with Sections 252 and 103
of the DGCL (the "Merger Filings"), or on such other time as is duly set forth
in the Merger Filings. The Merger Filings shall be filed simultaneously with or
before the Closing. The date and time when the Merger shall become effective is
hereinafter referred to as the "Effective Time."
ARTICLE III
CONVERSION OF SHARES
3.01 Yazam Stock. (a) At the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof, each share of Yazam
Common Stock (except for (i) shares of Yazam Common Stock then held in the
treasury of Yazam or by any Yazam Subsidiary, and (ii) Dissenting Shares)
issued and outstanding immediately prior to the Effective Time shall be
converted into the right to receive Parent Warrants, to purchase the number of
shares of Parent Common Stock equal to 3,000,000 divided by the number of
shares of Yazam Common Stock issued and outstanding immediately prior to the
Effective Time (the "Common Stock Consideration").
(b) At the Effective Time, by virtue of the Merger and without any action on
the part of the holder thereof, each share of Yazam Series C Stock (except for
(i) shares of Yazam Series C Stock then held in the treasury of Yazam or any
Yazam Subsidiary, and (ii) Dissenting Shares) issued and outstanding
immediately prior to the Effective Time shall be converted into the right to
receive the following: (i) cash in the amount of $19,288,971.11 (as may be
adjusted pursuant to Section 3.02 hereof) divided by the number of shares of
Yazam Series C Stock issued and outstanding immediately prior to the Effective
Time (the "Series C Stock Cash Consideration"), (ii) the number of fully paid
and non-assessable shares of Parent Preferred Stock equal to 24,000.74 divided
by the number of shares of Yazam Series C Stock issued and outstanding
immediately prior to the Effective Time, and (iii) Parent Warrants to purchase
the number of shares of Parent Common Stock equal to 2,630,314 divided by the
number of shares of Yazam Series C Stock issued and outstanding immediately
prior to the Effective Time (collectively, the "Series C Stock Consideration").
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(c) At the Effective Time, by virtue of the Merger and without any action on
the part of the holder thereof, each share of Yazam Series B Stock (except for
(i) shares of Yazam Series B Stock then held in the treasury of Yazam or any
Yazam Subsidiary, and (ii) Dissenting Shares) issued and outstanding
immediately prior to the Effective Time shall be converted into the right to
receive the following: (i) cash in the amount of $2,711,028.89 (as may be
adjusted pursuant to Section 3.02 hereof) divided by the number of shares of
Yazam Series B Stock issued and outstanding immediately prior to the Effective
Time (the "Series B Stock Cash Consideration"), (ii) the number of fully paid
and non-assessable shares of Parent Preferred Stock equal to 3,373.26 divided
by the number of shares of Yazam Series B Stock issued and outstanding
immediately prior to the Effective Time, and (iii) Parent Warrants to purchase
the number of shares of Parent Common Stock equal to 369,686 divided by the
number of shares of Yazam Series B Stock issued and outstanding immediately
prior to the Effective Time (collectively, the "Series B Stock Consideration").
(d) At the Effective Time, by virtue of the Merger and without any action on
the part of the holder thereof, each share of Yazam Series A Stock (except for
(i) shares of Yazam Series A Stock then held in the treasury of Yazam or by any
Yazam Subsidiary, and (ii) Dissenting Shares) issued and outstanding
immediately prior to the Effective Time shall be converted into the right to
receive Parent Warrants to purchase the number of shares of Parent Common Stock
equal to 2,000,000 divided by the number of shares of Yazam Series A Stock
issued and outstanding immediately prior to the Effective Time (collectively,
the "Series A Stock Consideration"; together with the Series B Stock
Consideration and the Series C Stock Consideration, the "Preferred Stock
Consideration").
(e) At the Effective Time, by virtue of the Merger and without any action on
the part of the holder thereof, the Yazam Warrant shall be converted into a
warrant (the "Converted Warrant") to purchase Parent Warrants to purchase
153,221 shares of Parent Common Stock. The Converted Warrant shall have an
exercise price equal to $2.74 per share.
(f) Each share of Yazam Common Stock or Yazam Preferred Stock held in the
treasury of Yazam or by any Yazam Subsidiary immediately prior to the Effective
Time shall, by virtue of the Merger, be canceled and retired and cease to
exist, without any conversion thereof.
(g) The holders of certificates representing shares of Yazam Common Stock,
Yazam Preferred Stock, Yazam Warrant or Yazam Options shall, as of the
Effective Time, cease to have any rights as shareholders, warrant holders or
option holders of Yazam, except such rights, if any, as they may have pursuant
to the DGCL, and, except as aforesaid, their sole right shall be the right to
receive their pro rata share of the Merger Consideration as determined and paid
in the manner set forth in this Agreement.
3.02 Yazam Closing Cash Balance Adjustment. In the event that on the Closing
Date, the Yazam Closing Cash Balance is less than $25,000,000, then (i) the
Series C Cash Consideration shall be adjusted downward by $0.877 for each
dollar that the Yazam Closing Cash Balance is below $25,000,000, and (ii) the
Series B Cash Consideration shall be adjusted downward by $0.123 for each
dollar that the Yazam Closing Cash Balance is below $25,000,000.
3.03 Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, shares of Yazam Common Stock and Yazam Preferred Stock which are held
by shareholders who shall have effectively dissented from the Merger and
perfected their appraisal rights, if permitted by, and in accordance with, the
provisions of Section 262 of the DGCL (the "Dissenting Shares"), shall not be
converted into or be exchangeable for the right to receive any Merger
Consideration, but the holders thereof shall be entitled to payment from the
Surviving Corporation of the fair value of such shares in accordance with the
provisions of Section 262 of the DGCL; provided, however, that if any such
holder shall have failed to perfect such appraisal rights or shall have
effectively withdrawn or lost such rights, pursuant to Section 262 of the DGCL
or otherwise, his or her shares of Yazam Common Stock or Yazam Preferred Stock,
as the case may be, shall thereupon be converted into and exchangeable for, at
the Effective Time, their pro rata share of the aggregate Merger Consideration,
without interest as applicable, as determined and paid in the manner set forth
in this Agreement.
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3.04 Acquisition Co. Common Stock. At the Effective Time, each share of
common stock, par value $.01 per share, of Acquisition Co. (the "Acquisition
Co. Common Stock"), issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into and exchangeable for one fully paid and
non-assessable share of common stock, par value $0.0001 per share, of the
Surviving Corporation ("Surviving Corporation Common Stock"). From and after
the Effective Time, each outstanding certificate theretofore representing
shares of Acquisition Co. Common Stock shall be deemed for all purposes to
evidence ownership of and to represent the number of shares of Surviving
Corporation Common Stock into which such shares of Acquisition Co. Common Stock
shall have been converted. Promptly after the Effective Time, the Surviving
Corporation shall issue to the Parent a stock certificate or certificates
representing 1,00 shares of Surviving Corporation Common Stock in exchange for
the certificate or certificates which formerly represented shares of
Acquisition Co. Common Stock, which former shares of Acquisition Co. Common
Stock shall automatically be deemed to be canceled.
3.05 Payment for, and Distribution of, the Merger Consideration. Each record
holder of Yazam Common Stock or Yazam Preferred Stock, as the case may be,
immediately prior to the Effective Time shall be entitled to receive, upon
surrender to the Parent of the certificates representing such shares of Yazam
Common Stock or Yazam Preferred Stock, as the case may be (collectively, the
"Certificates") for cancellation, their share of the Merger Consideration,
subject to any required withholding of taxes, as set forth in Sections 3.01,
(b), (c), and (d) hereof. At or prior to the Effective Time, the Parent shall
make available sufficient funds to make all payments as determined by Sections
3.01, (b), (c), and (d). No interest shall accrue or be paid on the cash and
securities payable upon the surrender of the Certificates. Notwithstanding
anything contained herein to the contrary, neither the Parent, the Surviving
Corporation nor any party hereto shall be liable to a holder of shares of Yazam
Common Stock or Yazam Preferred Stock for any cash or interest delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws. As soon as practicable after the date hereof, Yazam shall mail to each
record holder of shares of Yazam Common Stock and Yazam Preferred Stock (i) a
form of letter of transmittal (which shall specify that delivery will be
effected, and risk of loss and title to the Certificates will pass, only upon
proper delivery of the Certificates to the Parent), substantially in the form
of Exhibit D hereto (the "Letter of Transmittal"), and (ii) instructions for
use in effecting the surrender of the Certificates for payment.
(b) With respect to any Certificate alleged to have been lost, stolen or
destroyed, the owner or owners of such Certificate shall be entitled to the
consideration set forth above upon delivery to the Parent of an affidavit of
such owner or owners setting forth such allegation and an indemnity agreement
to indemnify the Parent and the Surviving Corporation, on terms reasonably
satisfactory to the Parent, against any claim that may be made against any of
them on account of the alleged loss, theft or destruction of any such
Certificate or the delivery of the payment set forth above.
(c) If consideration is to be delivered to a Person other than the Person in
whose name the Certificate surrendered in exchange therefor is registered, it
shall be a condition to delivery of the consideration that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the Person requesting such consideration shall pay any transfer or
other Taxes required by reason of the payment to a Person other than the
registered holder of the Certificate surrendered or establish to the
satisfaction of the Parent that such Tax has been paid or is not applicable.
(d) Until surrendered in accordance with the provisions of this Section
3.05, from and after the Effective Time, each Certificate (other than (i)
Certificates representing shares of Yazam Common Stock or Yazam Preferred Stock
held in the treasury by Yazam or by any Yazam Subsidiary and (ii) Dissenting
Shares in respect of which appraisal rights are perfected) shall represent, for
all purposes, only the right to receive the cash, Parent Warrants and/or Parent
Preferred Stock pursuant to Sections 3.013.01, (b), (c), and (d) as applicable,
as determined and paid in the manner set forth in this Agreement.
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(e) After the Effective Time there shall be no transfers on the stock
transfer books of the Surviving Corporation of the shares of Yazam Common
Stock, shares of Yazam Preferred Stock, Yazam Options or Yazam Warrant that
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Parent or the Surviving
Corporation, they shall be canceled and exchanged for the applicable
consideration referred to in this Section 3.05.
3.06 Adjustment to Prevent Dilution. In the event that Yazam changes the
number of shares of Yazam Common Stock or Yazam Preferred Stock or securities
convertible or exchangeable into or exercisable for shares of Yazam Common
Stock or Yazam Preferred Stock issued and outstanding prior to the Effective
Time, or the Parent changes the number of shares of Parent Common Stock
outstanding, in either case, solely as a result of a reclassification, stock
split (including a reverse split), stock dividend or distribution,
recapitalization, merger,
subdivision, issuer tender or exchange offer, or other similar transaction, the
Merger Consideration shall be equitably adjusted.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF YAZAM
Yazam hereby represents and warrants to the Parent and Acquisition Co. as
follows:
4.01 Organization, etc. (a) Yazam is a corporation duly organized and
validly existing under the laws of the State of Delaware and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. Yazam is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified or licensed would not individually or in the aggregate have a
Material Adverse Effect or materially restrict the ability of Yazam to conduct
business as presently conducted by it in such jurisdiction. Each jurisdiction
where Yazam is so qualified is listed on Schedule 4.01(a) hereto. Except as set
forth on Schedule 4.01(b) hereto, there are no Yazam Subsidiaries and, except
as set forth on Schedule 4.01(b) hereto, Yazam does not own, directly or
indirectly, any capital stock of or equity interests in any Person. Yazam has
heretofore delivered or made available to the Parent accurate and complete
copies of the Certificate of Incorporation and By-Laws of Yazam, as amended and
in effect on the date hereof. The stock certificate books and ledgers of Yazam,
which have been made available to the Parent, accurately reflect, at the date
hereof, the ownership of the issued and outstanding capital stock of Yazam.
(b) Each Yazam Subsidiary is listed on Schedule 4.01(b) hereto, is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to own, lease and operate its properties and to carry out
its business as now being conducted. Each Yazam Subsidiary is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified or licensed would not individually or in the aggregate have a
Material Adverse Effect or materially restrict the ability of such Yazam
Subsidiary to conduct business as presently conducted by it in such
jurisdiction. Each jurisdiction where each Yazam Subsidiary is so qualified is
listed on Schedule 4.01(b) hereto. Yazam has heretofore delivered to the Parent
accurate and complete copies of the Certificate of Incorporation and By-Laws or
other organizational documents of each Yazam Subsidiary, as amended and in
effect on the date hereof.
(c) Except as set forth on Schedule 4.01(c) hereto, Yazam owns of record and
beneficially 100% of the issued and outstanding capital stock and all other
equity interests in each Yazam Subsidiary, free and clear of any Liens.
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4.02 Authorization and Binding Obligation. (a) Yazam has all necessary
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. Subject to the approvals
referred to in Section 2.05, Yazam's execution, delivery and performance of
this Agreement has been duly and validly authorized by all necessary corporate
action on the part of Yazam and this Agreement has been duly executed and
delivered by Yazam. Except for the actions referred to in Sections 2.05 hereof,
which actions are, or as of the Effective Time will be, in full force and
effect, and the giving of notice in accordance with the provisions of Section
251 and 262 of the DGCL, no other corporate action or proceedings on the part
of Yazam are necessary to authorize this Agreement or the consummation of the
transactions contemplated hereby. Subject to the approvals referred to in
Section 2.05, this Agreement constitutes the valid and binding obligation of
Yazam, enforceable against Yazam in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar rights of creditors generally and by general principles of equity.
(b) The Board has authorized the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and has not
withdrawn such authorization. A true and complete copy of such approvals by the
Board has been delivered to the Parent.
(c) There are no "fair price," "moratorium," "control share acquisition" or
any other applicable provision of the DGCL similar thereto that is applicable
to the Merger or other similar anti-takeover statute or regulation or any
applicable anti-takeover provision in the Certificate of Incorporation and
By-laws of Yazam.
4.03 Capitalization. (a) The authorized Yazam Common Stock, Yazam Preferred
Stock and other authorized capital stock of Yazam and each of the Yazam
Subsidiaries is as set forth on Schedule 4.03 hereto. All issued and
outstanding shares of Yazam Common Stock, Yazam Preferred Stock and other
equity interests of Yazam and each of the Yazam Subsidiaries (other than the
Yazam Options and the Yazam Warrant) are duly authorized, validly issued, fully
paid, non-assessable and free of preemptive rights. Schedule 4.03 hereto sets
forth the name of each Person who owns beneficially or of record any shares of
capital stock and other equity interests of any Yazam Subsidiary and, in the
case of each Yazam Subsidiary, the number of shares owned by each such Person.
(b) Except as set forth on Schedule 4.03 hereto, there are not now, and at
the Effective Time there will not be, any options, warrants, calls,
subscriptions or other rights or other agreements or commitments of any nature
whatsoever obligating Yazam or any of the Yazam Subsidiaries to issue,
transfer, deliver or sell, or cause to be issued, transferred, delivered or
sold, any additional shares of Yazam Common Stock or other equity interest of
Yazam or any of the Yazam Subsidiaries, or any securities or obligations
convertible into or exchangeable for any such Yazam Common Stock or other
equity interests, or obligating Yazam or any of the Yazam Subsidiaries to
grant, extend or enter into any such agreement or commitment and no
authorization therefor has been given or made by Yazam or any Yazam Subsidiary
(collectively, any such instrument described in this Section, "Yazam Rights").
Except for the arrangements described in Schedule 4.03 hereto, there are no
contractual arrangements that obligate Yazam or any Yazam Subsidiary to (i)
repurchase, redeem or otherwise acquire any of its capital stock or its other
equity interests or (ii) pay any Person any consideration that is calculated
with reference to the consideration to be paid to the Yazam shareholders under
this Agreement. Prior to the Effective Time, all Yazam Rights set forth on
Schedule 4.03 shall have been exercised or shall have otherwise been terminated
or canceled.
4.04 Consents and Approvals; No Conflicts. Except as set forth on Schedule
4.04 hereto and the approvals referred to in Sections 2.05 and 4.02 hereof, the
giving of notice in accordance with Section 251 of the DGCL and the filing and
recordation of the Merger Filings as required by the DGCL, no filing with, and
no permit, authorization, consent or approval of, any Governmental Authority or
other third party is necessary for the consummation by Yazam of the
transactions contemplated by this Agreement, except where the failure to make
such filing or obtain such authorization, consent or approval would not
individually or in the aggregate have a Material Adverse Effect. Subject to
obtaining such approvals and making such filings, neither the execution and
delivery of this Agreement by Yazam nor the consummation by Yazam of the
transactions contemplated hereby,
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nor compliance by Yazam with any of the provisions hereof, will (i) result in
any violation of any provision of the Certificate of Incorporation or By-Laws
or other organizational documents of Yazam or any Yazam Subsidiary, (ii)
violate any Applicable Law or (iii) except as set forth on Schedule 4.04
hereto, result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default or give rise to a right of any
Person to terminate, cancel or accelerate the payment or performance of any
liability, obligation or commitment under, any contract to which Yazam or any
of the Yazam Subsidiaries is a party, or by which any of their respective
properties are bound, except, in the case of clause (iii) above, where such
violation, breach, default or right of termination, cancellation or
acceleration would not individually or in the aggregate have a Material Adverse
Effect.
4.05 Financial Statements. Yazam has furnished the Parent with an unaudited
consolidated balance sheet of Yazam as of December 31, 2000, an unaudited
consolidated income statement of Yazam as of December 31, 2000 and an unaudited
consolidated statement of cash flows (on a cash basis) of Yazam for each month
ended October 31, 2000, November 30, 2000 and December 31, 2000. All such
financial statements are referred to herein collectively as the "Financial
Statements." To the Knowledge of Yazam, the balance sheet included in the
Financial Statements fairly presents, in all material respects, the financial
position of Yazam and the Yazam Subsidiaries as at the date thereof, and, to
the Knowledge of Yazam, the income statement and cash flows included in the
Financial Statements fairly presents, in all material respects, the results of
the operations and cash flows, respectively, of Yazam and the Yazam
Subsidiaries for the periods indicated therein.
4.06 Compliance with Laws. Except as set forth on Schedule 4.06 hereto,
neither Yazam nor any Yazam Subsidiary is in conflict with or in violation or
breach of or default under (a) any Applicable Law or (b) any provision of its
organizational documents, and neither Yazam nor any Yazam Subsidiary has
received any written notice alleging any such conflict, violation, breach or
default, except for any such violations, breaches or defaults which would not
individually or in the aggregate have a Material Adverse Effect.
4.07 Real Property. Yazam does not own any real property. Schedule 4.07
hereto sets forth a complete list of all real property and all interests in
real property leased by Yazam or the Yazam Subsidiaries (collectively, the
"Leased Property"). Except as set forth on Schedule 4.07 hereto, Yazam and the
Yazam Subsidiaries have good and valid leasehold interests in all Leased
Property, free and clear of any Liens, except for easements, rights of way and
minor and immaterial liens, charges or encumbrances that do not interfere with
the use of the Leased Property in the normal conduct of the business of Yazam
and the Yazam Subsidiaries and that do not materially impair the value of the
Leased Property (collectively, the "Permitted Liens"). Complete and correct
copies of each lease relating to the Leased Property described on Schedule 4.07
hereto have been furnished or made available to the Parent. Except as disclosed
on Schedule 4.07 hereto, no damage or destruction has occurred and, to the
Knowledge of Yazam, no condemnation or rezoning proceeding has been threatened
or commenced with respect to any of the Leased Property that would individually
or in the aggregate materially impair the continued use or operation of the
Leased Property. To the Knowledge of Yazam, the Leased Property is in
compliance with all Real Estate Laws, and neither Yazam nor any Yazam
Subsidiary has any Knowledge of any written notice of violation or claimed
violation of any Real Estate Law, in either case except where such violation or
lack of compliance would not individually or in the aggregate materially
restrict the ability of Yazam or any Yazam Subsidiary to conduct its business
as presently conducted by it at any location. Except as disclosed on Schedule
4.07 hereto, neither Yazam nor any Yazam Subsidiary is obligated under or a
party to any option, right of first refusal or other contractual right to
purchase, acquire, sell or dispose of any real property or any interests in
real property. Neither Yazam nor any Yazam Subsidiary is a lessor, sublessor or
grantor under any lease, sublease or other instrument granting to another
Person any right to the possession, lease, occupancy or enjoyment of the Leased
Property, other than pursuant to any agreements listed on Schedule 4.07 hereto.
4.08 Property. Schedule 4.08 hereto sets forth a complete list of each item
of property, plant and equipment owned or leased by Yazam or any Yazam
Subsidiary. Except as set forth on Schedule 4.08 hereto, Yazam and each of the
Yazam Subsidiaries has good and valid title to all tangible personal property
and assets which it owns, including the material tangible personal property
reflected in the balance sheet included in the
D-10
Financial Statements as being owned by Yazam or such Yazam Subsidiary, as the
case may be, except for such tangible personal property and assets disposed of
in the ordinary course of business, consistent with past practice, having a
value not in excess of $50,000.
4.09 Intellectual Property. To the Knowledge of Yazam, except as set forth
on Schedule 4.09 hereto, no registered trademarks, trade names, copyrights or
patents used by Yazam or any Yazam Subsidiary infringes on any trademark or
trade name in any state or country in which such trademark, trade name,
copyright or patent is used by Yazam or such Yazam Subsidiary. Neither Yazam
nor any Yazam Subsidiary has received written notification of infringement of
any patent, copyright, trademark or trade name, or any application therefor,
from any Person.
4.10 Contracts. Schedule 4.10 hereto lists (or describes in the case of oral
contracts) each contract, note, debt instrument, lease, sublease, covenant not
to compete, supply agreement, guarantee, licensing agreement, partnership
agreement, joint venture agreement, employment agreement, collective bargaining
agreement or other agreement or commitment of any kind, whether written or
oral, to which Yazam or any Yazam Subsidiary is a party or by which either of
them is bound (each, a "Contract"), provided that such Schedule need not list
any written or oral Contract or related written Contracts under which the
aggregate payments required to be made by or to Yazam or any Yazam Subsidiary
over the life of the Contract or Contracts are less than $25,000. Complete
copies of every written Contract listed or referred to on Schedule 4.10 hereto
have been previously made available to the Parent. Each of Yazam and the Yazam
Subsidiaries has performed all material obligations required to be performed by
it to date under the Contracts, and neither Yazam nor any Yazam Subsidiary has
received written (or, to the Knowledge of Yazam, oral) notice that it is in
material default in the performance of any of its obligations under any
Contract.
4.11 Employee Benefit Plans. (a) Schedule 4.11 hereto contains a true and
complete list of each Benefit Plan maintained, administered or contributed to
for the benefit of any of Yazam's or any Yazam Subsidiary's current or former
employees, officers, Directors or any other independent contractors or leased
employees who provide services to Yazam or any Yazam Subsidiary (collectively,
the "Plans"). Yazam has made available to the Parent true and complete copies
of (i) all Plans, other than those maintained outside the United States and
required by Applicable Law (the "U.S. Plans"), (ii) all related trust
agreements and insurance contracts forming a part of any U.S. Plans, (iii) the
most recent determination letter issued in respect of each such U.S. Plan, (iv)
the current summary plan descriptions with respect to such U.S. Plans for which
such a description has been distributed, and (v) and all amendments to any such
document.
(b) Each of the Plans has been operated and administered in all material
respects in accordance with their terms and Applicable Laws, including but not
limited to ERISA and the Code, and there are no material unfunded liabilities
with respect to any Plan which are not reflected on the Financial Statements.
There are no pending or, to the Knowledge of Yazam, threatened material claims
by or on behalf of any of the Plans or by any participant therein (other than
routine claims for benefits). All contributions required to have been made by
Yazam and the Yazam Subsidiaries to any Plan pursuant to Applicable Law
(including, without limitation, ERISA and the Code) have been made on a timely
basis.
(c) Yazam, the Yazam Subsidiaries and any corporation, trust, partnership or
other entity that would be considered as a single employer with Yazam or the
Yazam Subsidiaries under Section 4001(b)(1) of ERISA or Sections 414(b), (c),
(m) or (o) of the Code (each, an "ERISA Affiliate") do not currently, and
within the preceding six years have not maintained or contributed to an
employee pension benefit plan (within the meaning of Section 3(2) of ERISA)
subject to Title IV of ERISA, Section 412 of the Code or Section 302 of ERISA.
No ERISA Affiliate has any obligation to contribute to (or any other liability
with respect to) any "multi-employer plan," as defined in the Multi-employer
Pension Plan Amendments Act of 1980, and no ERISA Affiliate has incurred or
will incur (as a result of the transaction contemplated by this Agreement) any
withdrawal liability or termination liability as a result of a complete or
partial withdrawal from any multi-employer plan. No U.S. Plan, ERISA Affiliate
or officer of any ERISA Affiliate with respect to any U.S. Plan which is
subject to ERISA, any
D-11
trusts created thereunder or any trustee or administrator thereof, has engaged
in a nonexempt "prohibited transaction" (as such term defined in Section 406 of
ERISA or Section 4975 of the Code) or any other breach of fiduciary
responsibility that could subject any ERISA Affiliate or any officer thereof to
any material tax or penalty on prohibited transactions imposed by such Section
4975 or to any material liability under Section 502(i) or 502(1) of ERISA.
(d) With respect to any U.S. Plan that is an "employee welfare benefit plan"
within the meaning of ERISA Section 3(1), (i) all such U.S. Plans are unfunded
and no such U.S. Plan is funded through a "welfare benefits fund" (as such term
is defined in Section 419(e) of the Code), and (ii) each such U.S. Plan may be
amended or terminated in accordance with its terms without material liability
to any ERISA Affiliate on or at any time after the Effective Time, except with
respect to contributions, premiums or benefit claims (actual or contingent)
with respect to the period from the Effective Time to such termination.
(e) With respect to any current or former employee, officer, Director or any
other independent contractor or leased employee who provides services to Yazam
or a Yazam Subsidiary (for purposes of this Section 4.11, collectively
"Employees"), neither Yazam nor any Yazam Subsidiary has an obligation to
contribute to (or any other liability with respect to) any funded or unfunded
plan or program which provides medical, health, life insurance or other welfare
benefits for current or future retirees or current or future former Employees
(including their dependents and spouses) except for limited continued medical
benefit coverage for former Employees, their spouses and their other dependents
as required to be provided under the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended ("COBRA"). Yazam and each Yazam Subsidiary are in
material compliance in all respects with the continued medical and other
welfare benefits coverage requirements of COBRA and all other Applicable Laws.
(f) Each person classified as an independent contractor by Yazam and each
Yazam Subsidiary has been reasonably classified as such based on the
requirements of Applicable Law to be so classified and each such entity has
fully and accurately reported the compensation of such person on IRS Forms 1099
when required to do so. All agreements to which Yazam and each Yazam Subsidiary
are parties, with respect to Employees provided by any professional employer
organization, employee leasing organization or other employee contracting
organization, are set forth on Schedule 4.11(f) and true, complete and correct
copies of all such agreements have been provided to Parent.
Except as set forth on Schedule 4.11 hereto, the consummation of the
transactions contemplated by this Agreement will not (i) entitle any employees
of Yazam or any Yazam Subsidiary to severance pay, (ii) accelerate the time of
payments or vesting or trigger any payment of compensation or benefits under,
or increase the amount payable or trigger any other material obligation
pursuant to, any Company Plan, or (iii) result in any breach or violation of,
or a default under, any of the Company Plans.
4.12 Actions Pending. Except as set forth in Schedule 4.12 hereto, there is
no civil, criminal or administrative action, suit, hearing, claim, litigation,
proceeding or investigation pending or, to the Knowledge of Yazam, threatened,
against or affecting Yazam or any Yazam Subsidiary or the business or any of
the assets of Yazam or any Yazam Subsidiary, or which seeks to enjoin or
prohibit, or otherwise questions the validity of, any action taken or to be
taken in connection with this Agreement, and there is no order, decision,
ruling, injunction, judgment, award or decree or consent of or agreements with
any Governmental Authority affecting Yazam or any Yazam Subsidiary or the
business or assets of Yazam or any Yazam Subsidiary, or which enjoins or
prohibits any action taken or to be taken in connection with this Agreement.
4.13 Affiliate Transactions. Except as set forth on Schedule 4.13 hereto,
there are no existing agreements, understandings or arrangements between Yazam
or any Yazam Subsidiary, on the one hand, and any Affiliate of Yazam or any
Yazam Subsidiary, on the other hand.
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4.14 Taxes.
(a) Except as set forth on Schedule 4.14 hereto, (i) Yazam and the Yazam
Subsidiaries have each (or by the Closing Date will have) duly and timely filed
or caused to be filed all Tax Returns that they are required to have filed on
or before the Closing Date, and all such Tax Returns are true, correct and
complete in all respects; (ii) Yazam and the Yazam Subsidiaries have paid all
Taxes shown (or required to be shown) on such Tax Returns, and have (or by the
Closing will have) withheld and paid to the appropriate Taxing Authority, all
Taxes that are required to be withheld on or before the Closing Date; (iii) no
claim in writing by the IRS or any other Taxing Authority for assessment or
collection of Taxes, that are or may become payable by Yazam or the Yazam
Subsidiaries or chargeable as a Lien upon the assets thereof, has been received
by Yazam or any Yazam Subsidiary; (iv) the taxable years of Yazam and the Yazam
Subsidiaries through the taxable year ended 1995, to the extent examined, have
been closed; (v) neither Yazam nor any Yazam Subsidiary has granted any
extension or waiver of the limitation period applicable to any Tax or Tax
Returns or agreed to any extension of time with respect to a Tax assessment or
deficiency, which has continuing effect; (vi) neither Yazam nor any Yazam
Subsidiary has received any notice in writing of any claim, audit, action,
suit, proceeding or investigation now pending against or with respect to Yazam
or any Yazam Subsidiary in respect of any Tax; (vii) there are no requests for
rulings or determinations in respect of any Tax pending between Yazam or any
Yazam Subsidiary, on the one hand, and any Taxing Authority on the other;
(viii) neither Yazam nor any Yazam Subsidiary has (A) been a member of an
affiliated group, or (B) filed or been included in a combined, consolidated or
unitary Tax Return, in each case involving group members other than Yazam and
the Yazam Subsidiaries, or (C) any liability for the Taxes of any other Person;
(ix) neither Yazam nor any Yazam Subsidiary is or has been a party to any Tax
allocation, Tax sharing or similar agreement or arrangement; and (x) no Liens
exist on any of the assets of Yazam or any Yazam Subsidiaries that arose in
connection with any failure (or alleged failure) to pay any Tax.
(b) Yazam and the Yazam Subsidiaries have delivered to the Parent complete
and accurate copies of all of the following materials that relate to periods
ending after January 1, 1997: (i) all federal income Tax Returns filed by Yazam
or the Yazam Subsidiaries; (ii) all examination reports relating to Taxes of
Yazam or the Yazam Subsidiaries; (iii) all statements of Taxes assessed against
or agreed to by Yazam or the Yazam Subsidiaries; (iv) all written rulings Yazam
or the Yazam Subsidiaries have received from any Taxing Authority relating to
any Tax; and (v) all written agreements Yazam or the Yazam Subsidiaries have
entered into with any Taxing Authority relating to any Tax. To the extent
requested by Parent, Yazam and the Yazam Subsidiaries have made available to
Parent: (i) complete and accurate copies of all Tax Returns Yazam and the Yazam
Subsidiaries have filed for all periods; and (ii) complete and accurate copies
of all documents described in the previous sentence without regard to the
period to which they relate. Schedule 4.14 hereto contains a list of all Tax
Returns filed by Yazam or any Yazam Subsidiary and the period covered by each
such Tax Return.
4.15 Brokers, Finders, etc. Except as described on Schedule 4.15, neither
Yazam nor any Yazam Subsidiary has employed, or is subject to the valid claim
of, any broker, finder or other financial intermediary in connection with the
transactions contemplated by this Agreement or the transactions contemplated
hereby, who might be entitled to a fee or commission in connection herewith.
4.16 Labor. In the two year period prior to the date hereof, Yazam has not
employed more than 100 employees who are or were (i) either working at
locations in the United States, or (ii) are United States citizens working at
Yazam locations outside of the United States. Except as set forth on Schedule
4.16 hereof, in the one year period prior to the Closing Date, Yazam has paid
to each employee terminated by Yazam not for cause, severance in the amounts
set forth in each such employee's employment agreement, if any, or severance in
the amounts provided by Yazam in the ordinary course of business, consistent
with past practice.
4.17 Yazam Accredited Investors. There are no more than 30 shareholders of
Yazam who are eligible to receive a portion of the Merger Consideration
hereunder that are not, in each case, an "accredited investor" as defined in
Section 501(a) of Regulation D of the 1933 Act.
D-13
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND ACQUISITION CO.
The Parent and Acquisition Co., jointly and severally, represent and warrant
to Yazam as follows:
5.01 Organization and Standing. The Parent is a corporation duly organized
and in good standing under the laws of the State of Delaware and has the power
and authority to carry on its business as presently conducted, except where the
failure to be so qualified would not individually or in the aggregate have a
material adverse effect on its business, assets, properties, liabilities or
financial condition or its ability to timely perform its obligations hereunder
or consummate the transactions contemplated hereby. Acquisition Co. is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as presently conducted, except where the
failure to be so qualified would not individually or in the aggregate have a
material adverse effect on its ability to timely perform its obligations
hereunder or consummate the transactions contemplated hereby. Since the date of
its incorporation, Acquisition Co. has not carried on any business or conducted
any operations other than the execution of this Agreement, the performance of
its obligations hereunder and matters ancillary thereto. Acquisition Co. has no
liabilities or obligations of any nature, contingent or otherwise, other than
those related to the transactions contemplated hereby. Acquisition Co. is a
wholly owned subsidiary of the Parent.
5.02 Authorization and Binding Obligation. Each of the Parent and
Acquisition Co. has all necessary corporate or other power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Parent
and Acquisition Co. and the consummation by the Parent and Acquisition Co. of
the transactions contemplated hereby have been duly and validly authorized and
approved by all necessary corporate (or other) action on the part of each of
the Parent and Acquisition Co. and no other corporate action or other
proceedings on the part of the Parent or Acquisition Co. is necessary to
authorize this Agreement or the consummation of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by each of the
Parent and Acquisition Co. and constitutes a valid and binding obligation of
the Parent and Acquisition Co., enforceable against the Parent and Acquisition
Co. in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar rights of
creditors generally and by general principles of equity.
5.03 Consents and Approvals; No Conflicts. Except for filing and recordation
of the Merger Filings as required by the DGCL, no filing with, and no permit,
authorization, consent or approval of, any public body or authority is
necessary for the consummation by the Parent or Acquisition Co. of the
transactions contemplated by this Agreement, except where the failure to make
such filing or obtain such permit, authorization, consent or approval, would
not individually or in the aggregate have a material adverse effect on such
Person's ability to timely perform its obligations hereunder or consummate the
transactions contemplated hereby. Except as set forth on Schedule 5.03, neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby, nor compliance by the Parent or Acquisition
Co. with any of the provisions hereof will (a) result in any violation of any
provision of the organizational documents of the Parent or Acquisition Co., (b)
violate any Applicable Law, or (c) result in a material violation or breach of,
or constitute (with or without due notice or lapse of time or both) a material
default (or give rise to any right of termination, cancellation or
acceleration) under, any material contract, agreement, note, bond, mortgage,
indenture, license, lease, franchise, permit, Plan or other instrument or
obligation to which the Parent or Acquisition Co. is a party, or by which any
of them or any of their respective properties is bound, except in the case of
clause (c) above, where such violation, breach, default or right of termination
would not individually or in the aggregate have a material adverse effect on
such Person's business, assets, properties, liabilities or financial condition
or its ability to timely perform its obligations hereunder or to consummate the
transactions contemplated hereby.
5.04 Litigation. There is no claim, litigation, proceeding or investigation
pending or, to the best of the Parent's or Acquisition Co.'s knowledge,
threatened, which seeks to enjoin or prohibit, or otherwise questions
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the validity of, any action taken or to be taken by the Parent or Acquisition
Co. in connection with this Agreement or which would individually or in the
aggregate have a material adverse effect on such Person's business, assets,
properties, liabilities or financial condition or its ability timely to perform
its respective obligations hereunder or to consummate the transactions
contemplated hereby.
5.05 Brokers, Finders, Etc. Neither the Parent nor Acquisition Co. has
employed, or is subject to the valid claim of, any broker, finder or other
financial intermediary in connection with the transactions contemplated by this
Agreement, who might be entitled to a fee or commission in connection
therewith.
5.06 Capitalization of Parent. The Parent Preferred Stock and the Parent
Warrants to be issued in connection with the Merger will, when issued and
delivered to the respective shareholders of Yazam as a result of the Merger and
pursuant to the terms of this Agreement and the Merger Filings, be duly
authorized, validly issued, non-assessable and, upon receipt of consideration
therefore, fully paid. The shares of Parent Common Stock to be issued as a
result of the conversion of the Parent Preferred Stock and upon the exercise of
such Parent Warrants will be, when issued and delivered to the respective
shareholders of Yazam pursuant to the terms of such preferred stock and
warrants, duly authorized, validly issued, non-assessable, and fully paid;
provided, however, as of the date hereof a sufficient number of such shares
shall not have been, and as of the Effective Time, a sufficient number of such
shares may not be, authorized and reserved for issuance. Subject to any
required approval by the Securities and Exchange Commission, the Parent shall
use its best efforts to authorize and issue, as soon as practicable after the
Closing Date but in any event prior to June 1, 2001, such additional number of
shares of Parent Common Stock as necessary for the conversion of the Parent
Preferred Stock and the exercise of the Parent Warrants issued in connection
with the Merger. In the event that the authorization of such addition shares of
the Parent Common Stock does not occur prior to June 1, 2001, the shareholders
of Yazam who receive shares of Parent Preferred Stock pursuant to the Merger
may require the Parent after such date to repurchase their shares of Parent
Preferred Stock for a price per share of the average price of Parent Common
Stock as reported on the "Over the Counter Market" ("OTC BB"), or such other
applicable nationally recognized market quotation system, for the 20 trading
days prior to the requested date of such repurchase multiplied by 1,000;
provided, however, such price shall in any event not be less than $250 per
share. As of the date hereof, Gregory Earls has executed and delivered to
Yazam, a voting agreement whereby he shall have agreed to vote the shares of
capital stock of the Parent owned, held beneficially, and/or controlled by him
(as of the appropriate record date for such shareholder vote) in favor of the
amendment of the Certificate of Incorporation of the Parent to increase the
authorized number of shares of Parent Common Stock in order to authorize and
reserve a sufficient number of shares of Parent Common Stock for issuance in
connection with the conversion of the Parent Preferred Stock and the exercise
of the Parent Warrants.
5.07 Parent SEC Reports. Except for the financial statements required to be
filed in connection with the Form 8K filed with the Securities Exchange
Commission by USXX on April 12, 2000, April 27, 2000 and July 20, 2000, since
June 1, 1999, the Parent has timely filed all registration statements,
prospectuses, forms, reports and documents required to be filed by it with the
Securities Exchange Commission under the 1933 Act or the 1934 Act
(collectively, the "Parent SEC Reports"). The Parent SEC Reports (i) as of
their respective dates, were prepared in accordance with, and complied as to
form in all material respects with, the requirements of the 1933 Act or the
1934 Act, as the case may be, and the applicable rules and regulations
thereunder, and (ii) did not, at the time they were filed, contain any untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. No subsidiary of
Parent is subject to the periodic reporting requirements of the 1934 Act. Each
of the consolidated balance sheets (including the related notes) included in
the Parent SEC Reports presents fairly, in all material respects, the
consolidated financial position of Parent and its subsidiaries as of its date,
and each of the other related statements (including the related notes) included
in the Parent SEC Reports presents fairly, in all material respects, the
results of operations, cash flows and changes in shareholders' equity of Parent
and its subsidiaries as of its date and for the respective periods set forth
therein, all in conformity with GAAP consistently applied during the periods
involved, except as otherwise noted therein and subject, in the case of the
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unaudited interim financial statements, to normal year-end adjustments. To the
extent any such Parent SEC Reports were not timely filed, such failure is not
reasonably likely to individually or in the aggregate have a material adverse
effect on such the Parent's business, assets, properties, liabilities or
financial condition or its ability timely to perform its respective obligations
hereunder or to consummate the transactions contemplated hereby.
5.08 Financing. As of the Closing Date, the Parent shall have funds
sufficient to pay the cash portion of the Merger Consideration pursuant to the
terms and conditions of this Agreement.
ARTICLE VI
COVENANTS
6.01 Conduct of Business. During the period from the date hereof to the
Effective Time, Yazam covenants and agrees that it shall, and shall cause the
Yazam Subsidiaries to, carry on their businesses in the ordinary course of
business, in substantially the same manner as heretofore conducted, and shall
use its reasonable commercial efforts to preserve intact its and the Yazam
Subsidiaries' present business organization, keep available the services of
their respective officers and employees and preserve their relationships with
customers and suppliers and others having business dealings with them, to the
end that their goodwill and going business shall be maintained following the
Closing. Without limiting the generality of the foregoing, except as expressly
permitted by this Agreement or with the prior written consent of the Parent in
its sole discretion, or as set forth on Schedule 6.01 hereto, Yazam covenants
and agrees that it shall not, and it shall not permit any Yazam Subsidiary to
do, or agree to do, on or after the date hereof, any of the following, at or
before the Effective Time:
(a) amend their respective certificates of incorporation or by-laws or
other organizational documents;
(b) rescind, modify, amend or otherwise change or affect any of the
resolutions of the Board recommending adoption of this Agreement and
authorization of the Merger;
(c) issue, sell, transfer, assign, pledge, convey or dispose of any
security or equity interest or any security convertible into or exchangeable
or exercisable for any security or equity interest, including, without
limitation, any subscriptions, options, warrants, calls, conversions or
other rights, agreements, commitments, arrangements or understandings of any
kind obligating Yazam or any Yazam Subsidiary, contingently or otherwise, to
issue or sell, or cause to be issued or sold, any security or equity
interest of Yazam, any Yazam Subsidiary, or any of Yazam's investment
portfolio companies or any security convertible into or exchangeable or
exercisable for any security or equity interest; provided, however, that
Yazam may sell substantially all of the assets of, or all of the securities
of, the Yazam Subsidiary named First Tuesday, Inc. (as well as any
subsidiary of First Tuesday, Inc.) with the Parent's written consent, which
consent shall not be unreasonably withheld or delayed;
(d) split, combine or reclassify any shares of any class of its capital
stock, declare, set aside or pay any dividend or other distribution (whether
in cash, stock or property or any combination thereof) in respect of any
class of its capital stock, or redeem or otherwise acquire any shares of
such capital stock, except as required under the agreements listed on
Schedule 6.01(d) hereto;
(e) write off any receivables in excess of $5,000 individually, or
$20,000 in the aggregate;
(f) sell, assign, lease or otherwise transfer or dispose of any assets in
excess of $15,000 individually, or $50,000 in the aggregate;
(g) create, incur or assume any liability, including obligations in
respect of capital leases, or make or commit to make capital expenditures in
excess of $25,000 each or $50,000 in the aggregate, or create, incur,
assume, maintain or permit to exist any indebtedness in an aggregate amount
greater than $50,000 for Yazam and the Yazam Subsidiaries combined, or
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
other Person, except for
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assumptions, guarantees or endorsements by Yazam of the obligations of any
Yazam Subsidiary in the ordinary course of business consistent with past
practice; (iii) make any loans, advances or capital contributions to, or
investments in, any other Person; or (iv) create, assume or permit to exist
any Lien upon their assets, except for those in existence on the date of
this Agreement;
(h) increase or modify or agree to increase or modify the compensation,
bonuses or other benefits or perquisites of any employee of Yazam or any
Yazam Subsidiary, or pay or commit to pay any compensation, bonus, pension
or other retirement benefit or allowance, fringe benefit or other benefit
not required by the terms of an existing Plan as in effect on the date
hereof or suspend or terminate any employee of Yazam or any Yazam
Subsidiary;
(i) make any new elections, or make any changes to current elections,
with respect to Taxes;
(j) change its auditors or materially change its auditing or bookkeeping
practices;
(k) take or fail to take any action that would cause any of its
representations and warranties not to be true and correct on the Closing
Date in the manner required by Section 8.02(c) hereof;
(l) cancel, terminate or materially amend or modify any real or material
personal property leases;
(m) cancel or materially amend or modify any agreement with any customer;
or
(n) enter into any new agreement with any customer.
6.02 Third-Party Consents. Yazam covenants and agrees that it shall and
shall cause each Yazam Subsidiary to use reasonable commercial efforts to
obtain, prior to the Closing, the consents of third parties and Governmental
Authorities set forth on Schedule 4.04 hereto.
6.03 Compliance with DGCL; Filings; Consent Solicitation Statement. Yazam
shall cooperate with, and deliver to, the Parent, such information as
reasonably requested by the Parent from time to time prior to the Closing
regarding each of the shareholders of Yazam who are to receive a portion of the
Merger Consideration hereunder to assist the Parent in determining whether each
such shareholder is an "accredited investor" as defined in Section 501(a) of
Regulation D of the 1933 Act (such information to be true and correct to the
Knowledge of Yazam).
(b) As soon as practicable after the date of this Agreement, the Parent
shall prepare and deliver to Yazam certain information regarding the Parent,
the Parent Preferred Stock, the Parent Warrants and the Parent Common Stock, as
required by applicable federal and state securities laws, to be included in a
consent solicitation statement, prepared in accordance with Section 3.05
hereof, to be delivered to the shareholders of Yazam (the "Consent Solicitation
Statement"). As soon as practicable after receipt thereof, Yazam shall prepare
and deliver to each shareholder of Yazam the Consent Solicitation Statement,
which shall include a notice (the "Notice"), in accordance with Section 251 of
the DGCL, regarding (i) the execution of this Agreement, (ii) the Board's
authorization of the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby; and (iii) the
availability of appraisal rights under Section 262 of the DGCL. As promptly as
practicable thereafter, Yazam will deliver to each holder of Yazam Common
Stock, Yazam Preferred Stock and Yazam Rights, a copy of the Consent
Solicitation Statement, provided that Yazam shall not circulate the Consent
Solicitation Statement without the Parent's prior written consent. Yazam agrees
that none of the information included or incorporated by reference in the
Consent Solicitation Statement will be false or misleading with respect to any
material fact or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; provided, that the
foregoing shall not apply to information supplied by or on behalf of the Parent
or Acquisition Co. specifically for inclusion or incorporation by reference in
the Consent Solicitation Statement. The Parent agrees that none of the
information supplied by or on behalf of the Parent or Acquisition Co.
specifically for inclusion or incorporation by reference in the Consent
Solicitation Statement will be false or misleading with
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respect to any material fact or will omit to state any material fact required
to be stated therein or necessary in order to make the statements in such
Consent Solicitation Statement, in light of the circumstances under which they
are made, not misleading.
(c) As promptly as practicable, each of Yazam, the Parent and Acquisition
Co. shall properly prepare and file any filings required under any Applicable
Law relating to the Merger and the transactions contemplated herein
(collectively, the "Filings"). The Parent and Acquisition Co., on the one hand,
and Yazam, on the other, shall promptly notify the other of the receipt of any
comments on, or any request for amendments or supplements to, the Filings by
any governmental official, and each of Yazam, the Parent and Acquisition Co.
shall supply the other with copies of all correspondence between it and each of
its subsidiaries and representatives, on the one hand, and any appropriate
governmental official, on the other hand, with respect to the Filings.
6.04 Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use (and Yazam shall cause the
Yazam Subsidiaries to use) their commercially reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement and to cooperate
with one another in connection with the foregoing, including using its
commercially reasonable efforts to obtain all necessary consents, approvals and
authorizations as are required to be obtained under Applicable Law, to defend
all lawsuits or other legal proceedings challenging this Agreement or the
consummation of the transactions contemplated hereby, to cause to be lifted or
rescinded any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions
contemplated hereby, and to effect all necessary registrations and Filings.
6.05 Acquisition Proposals. (a) Yazam hereby covenants and agrees that for
the period from the date hereof until the Effective Time, subject to the duties
imposed by applicable law, neither Yazam nor any of the Yazam Subsidiaries
shall take, directly or indirectly, any action to initiate, assist, solicit,
receive, negotiate, encourage or accept any offer or inquiry from any Person
(or authorize or permit any of their respective officers, directors, employees,
agents, counsel, accountants, financial advisors, consultants and other
representatives (together "Representatives")) (1) to engage in any Business
Combination, (2) to reach any agreement or understanding (whether or not such
agreement or understanding is absolute, revocable, contingent or conditional)
for, or otherwise attempt to consummate, any Business Combination, (3) to
furnish or cause to be furnished any information with respect to Yazam or any
of the Yazam Subsidiaries to any Person (other than as contemplated by this
Agreement) who Yazam or any such Yazam Subsidiary or Representative knows or
has reason to believe is in the process of considering any Business
Combination, or (4) to (i) purchase, acquire, sell or otherwise transfer any
capital stock or other equity interest of such other Person, (ii) purchase or
acquire all or substantially all of the assets and properties of such other
Person, or (iii) invest in or enter into a joint venture, strategic partnership
or other similar arrangement with such other Person. If Yazam or any such Yazam
Subsidiary or Representative receives from any Person any offer, inquiry or
informational request referred to above, Yazam shall promptly advise such
Person, by written notice, of the terms of this section and shall promptly,
orally and in writing, advise the Parent of such offer, inquiry or request and
deliver a copy of the foregoing notice to the Parent.
(b) If at any time between the date hereof and the Closing Date, Yazam, any
of the Yazam Subsidiaries or Yazam Representatives is approached by any Person
concerning participation by Yazam, any of the Yazam Subsidiaries or Yazam
Representatives or such other Person in a transaction or transactions involving
the assets or businesses of, or securities issued by, Yazam or any Yazam
Subsidiary, Yazam shall promptly inform the Parent of the nature of such
contact and the parties thereto.
6.06 Public Announcements. The Parent and Yazam shall consult with one
another before issuing any press release or otherwise making any public
statement with respect to this Agreement or the Merger and shall not issue any
such press release or make any such public statement prior to such consultation
without the express
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consent of the Parent and Yazam, except based on the advice of counsel for
Yazam or the Parent, as the case may be, as required by Applicable Law.
6.07 Consent of the Parent. The Parent, as the sole shareholder of
Acquisition Co., by executing this Agreement hereby consents to the execution,
delivery and performance of this Agreement by Acquisition Co. and such consent
shall be treated for all purposes as a vote duly adopted at a meeting of the
shareholders of Acquisition Co. held for such purpose.
6.08 Transfer Taxes. The Parent shall be responsible for the payment of all
Transfer Taxes arising out of or in connection with or attributable to the
transactions effected pursuant to this Agreement.
6.09 Access. Upon reasonable notice, and except as may otherwise be required
by Applicable Law, each of Yazam and Parent shall (and shall cause each of
their Affiliates to) afford the other's officers, agents and advisors
reasonable access, during normal business hours throughout the period prior to
the Effective Time, to its properties, books, contracts and records and, during
such period, such party shall (and shall cause its Affiliates to) furnish to
the other and its agents and advisors all information concerning its business,
properties and personnel as they may reasonably request. All such information
shall be considered confidential and subject to Section 12.10 hereof.
6.10 Advice Regarding Changes. Yazam shall confer on a regular basis with
the Parent, report on operational matters and promptly advise the Parent orally
and in writing of any change, event or circumstance having, or which could
reasonably be expected to be reasonably likely to have, a Material Adverse
Effect or which could materially impair (negatively or positively) Yazam or any
of the Yazam Subsidiaries' financial projections, forecasts or prospects. The
Parent and Yazam agree that all information obtained pursuant to this Section
shall be considered confidential and shall be subject to Section 12.10 hereof.
6.11 Notice of Prospective Breach. Each Party hereto shall immediately
notify the other parties in writing upon the occurrence of any act, event,
circumstance or thing that, to such party's knowledge, is reasonably likely to
cause or result in a representation or warranty hereunder to be untrue at the
Closing, the failure of a closing condition to be achieved at the Closing, or
any other breach or violation hereof or default hereunder.
6.12 Shareholder Letter of Transmittal. Yazam shall cooperate and use its
commercially reasonable efforts to cause each shareholder of Yazam who is to
receive a portion of the Merger Consideration hereunder to execute and deliver,
at or prior to the Closing, the Letter of Transmittal.
6.13 Indemnification of Directors and Officers.
(a) After the Effective Time, any repeal or modification of Section 23 of
the Bylaws of Yazam shall not adversely affect any right or protection of an
officer, director, employee or agent of Yazam existing at the time of such
repeal or modification.
(b) For the shorter of (i) three years after the Effective Time, or (ii) for
as long as the current directors' and officers' liability insurance policies of
the Parent are in effect, the Parent shall cause to be maintained in effect
policies of directors' and officers' insurance, for the benefit of those
persons who are covered by Yazam's directors' and officers' liability insurance
at the date of this Agreement, providing coverage with respect to such claims
as covered thereby as of such date, that is at least equal to the coverage
provided under Yazam's current directors' and officers' liability insurance
policies, to the extent that such liability insurance can be purchased for a
total of no more than an aggregate amount of $180,000; provided, however, that
if such insurance cannot be so maintained at or below such cost, Parent shall
maintain as much of such insurance as can so be maintained at a cost equal to
300 percent of the current annual premiums of Yazam for such insurance. The
forgoing provisions shall not in any way restrict or preclude any sale,
liquidation or dissolution of any subsidiary of Parent at any
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time after the Effective Time. The Parent agrees to pay all expenses (including
fees and expenses of counsel) that may be incurred by any Indemnified Party in
successfully enforcing the indemnity or other obligations under this Section
6.13. The Parent or the Surviving Corporation shall provide a copy of such
directors' and officers' liability insurance policy, upon request, to any
beneficiary of such policy and shall notify the beneficiaries of such policy in
the event of a reduction or termination of such policy coverage in accordance
with the provisions herein.
(c) In the event the Parent or the Surviving Corporation or any of their
successors or assigns (i) consolidates with or merges into any other person and
is not the continuing or surviving corporation or entity of such consolidation
or merger or (ii) transfers or conveys all or substantially all of its
properties and assets to any person, then, and in each case, the successors and
assigns of the Parent or the Surviving Corporation shall be deemed to have
assumed the obligations set forth in this Section 6.13 automatically and
without any further action.
(d) The provisions of this Section 6.13 are (i) intended to be for the
benefit of, and to be enforceable by, each Indemnified Party, his or her heirs
and his or her representatives and (ii) in addition to, and not in substitution
for, any other rights to indemnification or contribution that may such person
may have by contract or otherwise.
ARTICLE VII
RESTRICTIONS ON TRANSFER
7.01 Restricted Shares. Yazam acknowledges that the Parent Common Stock, the
Parent Preferred Stock and the Parent Warrants may not be sold, transferred or
otherwise disposed of without registration under the 1933 Act and any
applicable state securities laws absent an exemption therefrom, and that in the
absence of an effective registration statement covering such securities or an
available exemption from registration under the 1933 Act and any applicable
state securities laws, the Parent Common Stock, the Parent Preferred Stock and
the Parent Warrants must be held indefinitely.
7.02 Legends. All certificates evidencing the Parent Common Stock, the
Parent Preferred Stock and the Parent Warrants shall bear a legend
substantially to the following effect until the same is no longer required
under the 1933 Act:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES OR "BLUE-SKY" LAWS.
THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM UNLESS THE ISSUER RECEIVES AN OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT
REQUIRED."
The certificates evidencing the Parent Common Stock, the Parent Preferred Stock
and the Parent Warrants shall also bear any legend required by any applicable
state securities laws.
ARTICLE VIII
CLOSING CONDITIONS
8.01 Conditions to the Obligation of Yazam. The obligation of Yazam to
effect the Merger is subject to the fulfillment at or prior to the Effective
Time of the following conditions:
(a) The Parent and Acquisition Co. shall each have performed in all
material respects each of its respective obligations under this Agreement
required to be performed by it on or prior to the Effective Time pursuant to
the terms hereof.
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(b) The representations and warranties of Parent and Acquisition Co. set
forth in this Agreement that are qualified by reference to a material
adverse effect shall be true and correct, and all other representations and
warranties of Parent and Acquisition Co. shall be true and correct, except
for failures to be true and correct as would not, individually or in the
aggregate, have a material adverse effect on each of their respective
businesses, assets, properties, liabilities or financial conditions or each
of their respective abilities to timely perform its obligations hereunder or
consummate the transactions contemplated hereby, as of the date of this
Agreement and as of the Effective Time as though made as of the Effective
Time (except to the extent any such representation or warranty expressly
speaks as of an earlier date, in which case it shall have been true and
correct in all material respects as of such date).
(c) Yazam shall have received a certificate, dated the Closing Date, of
the President or any Vice President of Parent, to the effect that the
conditions specified in paragraphs (a) and (b) of this Section 8.01 have
been fulfilled.
(d) No preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission nor any Applicable Law
promulgated or enacted by any Governmental Authority shall be in effect
which would be reasonably likely to (i) make the consummation of the Merger
by the Parent, Acquisition Co. or Yazam illegal or (ii) otherwise prevent
the consummation of the Merger.
(e) On the Closing Date, in addition to any other documents specifically
required to be delivered pursuant to this Agreement, the Parent and
Acquisition Co. shall have executed and delivered or caused to be executed
and delivered, in form and substance reasonably acceptable to Yazam and its
counsel, such other certificates, documents, instruments and agreements as
may be reasonably necessary in connection with the consummation of the
transactions contemplated hereby, including but not limited to consents, all
in form and substance reasonably satisfactory to Yazam and its counsel.
(f) Yazam shall have received the opinion of Shaw Pittman, counsel to the
Parent and Acquisition Co., in form and substance reasonably satisfactory to
Yazam, as to the opinions set forth on Exhibit E hereto.
(g) The registration rights agreement setting forth the respective
registration rights of the holders of the Parent Preferred Stock and the
Parent Warrants, substantially in the form of Exhibit F hereto (the
"Registration Rights Agreement"), shall have been executed and delivered by
the Parent.
(h) The Parent shall have received written waivers from the applicable
number of shareholders in order to waive the conflicts set forth on Schedule
5.03 hereof.
8.02 Conditions Precedent to Obligations of the Parent and Acquisition Co.
The obligations of the Parent and Acquisition Co. to effect the Merger are
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) The Merger shall have been approved and adopted as set forth in this
Agreement by the requisite vote of the shareholders of Yazam entitled to
vote as required by the DGCL and Yazam's Certificate of Incorporation and
By-laws.
(b) Yazam shall have performed in all material respects each of its
obligations under this Agreement required to be performed by it on or prior
to the Effective Time pursuant to the terms hereof.
(c) The representations and warranties of Yazam set forth in this
Agreement that are qualified by reference to a Material Adverse Effect shall
be true and correct, and all other representations and warranties of Yazam
shall be true and correct, except for failures to be true and correct as
would not, individually or in the aggregate, have a Material Adverse Effect,
as of the date of this Agreement and as of the Effective Time as though made
as of the Effective Time (except to the extent any such representation or
warranty expressly speaks as of an earlier date, in which case it shall have
been true and correct in all material respects as of such date).
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(d) The Parent and Acquisition Co. shall have received a certificate,
dated the Closing Date, of the acting Chief Executive Officer of Yazam, to
the effect that the conditions specified in paragraphs (b) and (c) of this
Section 8.02 have been fulfilled and certifying as to the amount of the
Yazam Closing Cash Balance.
(e) No preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission nor any Applicable Law
promulgated or enacted by any Governmental Authority shall be in effect
which would be reasonably likely to (i) make the consummation of the Merger
by the Parent, Acquisition Co. or Yazam illegal or (ii) otherwise prevent
the consummation of the Merger.
(f) Each of the executive officers and directors of Yazam shall have
delivered a letter of resignation to the Parent, effective as of the
Effective Time.
(g) The Parent shall have received a Letter of Transmittal from a
sufficient number of shareholders of Yazam who are to receive a portion of
the Merger Consideration hereunder, for the Parent to determine that there
are less than 30 of such shareholders who are not an "accredited investor"
as defined in Section 501(a) of Regulation D of the 1933 Act.
(h) The consents (or in lieu thereof waivers) listed in Schedule 4.04 (a)
shall have been obtained, (b) shall be in form and substance reasonably
satisfactory to Parent, (c) shall not be subject to the satisfaction of any
condition that has not been satisfied or waived, and (d) shall be in full
force and effect, except where the failure to obtain any such consent (or in
lieu thereof waiver) could not reasonably be expected, individually or in
the aggregate with other such failures, to result in a Material Adverse
Effect.
(i) On the Closing Date, in addition to any other documents specifically
required to be delivered pursuant to this Agreement, Yazam or the holders of
Yazam Common Stock and Yazam Preferred Stock, as the case may be, shall have
executed and delivered or caused to be executed and delivered, in form and
substance reasonably acceptable to Parent and its counsel, such other
certificates, documents, instruments and agreements as may be reasonably
necessary in connection with the consummation of the transactions
contemplated hereby, including but not limited to consents, all in form and
substance reasonably satisfactory to Parent and its counsel.
(j) The Parent and Acquisition Co. shall each have received the opinion
of Gibson, Dunn & Crutcher LLP, counsel to Yazam, in form and substance
reasonably satisfactory to the Parent, as to the opinions set forth on
Exhibit G hereto.
(k) The Parent and Acquisition Co. shall have received from Yazam the
original stock certificates representing the number of shares held by Yazam
in certain portfolio companies as of the date hereof as set forth on
Schedule 8.02(k) hereto, and the original copies of the documentation
representing each such investment (or true and correct copies thereof in the
event such original copies are unavailable).
(l) The employment agreements between Yazam and each of Marc Lesnick, Ari
Gorlin and Arik Kleinstein, each as amended as of February 12, 2001, shall
be amended prior to the Effective Time to clarify that each such employee
shall be entitled to receive one severance payment in the amount set forth
in such agreement by either Yazam, the Parent or the Surviving Corporation
and under no circumstances shall such individual be entitled to more than
one severance payment as provided therein.
ARTICLE IX
CLOSING
9.01 Time and Place. Subject to the satisfaction or waiver of all applicable
conditions in Article VIII, the Closing shall take place at the offices of
Gibson, Dunn & Crutcher, LLP, 200 Park Ave., 48th Floor, New York, N.Y. 10166,
at 10:00 a.m., local time, on March 27, 2001, or at such other location, on
such other date as Yazam and the Parent may agree.
D-22
9.02 Filings at the Closing; Other Actions. At the Closing, the Parent and
Yazam shall cause the Merger Filings to be filed and recorded in accordance
with the applicable provisions of the DGCL (unless filed previously thereto),
and shall take any and all other lawful actions and do any and all other lawful
things necessary to cause the Merger to become effective.
ARTICLE X
SURVIVAL OF COVENANTS
The covenants and agreements set forth herein shall survive the Closing.
ARTICLE XI
TERMINATION RIGHTS
11.01 Termination. This Agreement may be terminated at any time prior to the
Effective Time:
(a) by mutual consent of the Parent and Yazam;
(b) by the Parent and Acquisition Co., (i) if Yazam shall have materially
breached any of its covenants herein or if Yazam shall have made a material
misrepresentation and not cured the same within 15 days of notice of such
breach or misrepresentation, or (ii) if the Merger shall not have been
consummated on or before May 15, 2001; provided, however, that the right to
terminate this Agreement shall not be available to the Parent or Acquisition
Co. in the event that the failure to fulfill any obligation of this
Agreement or satisfy any closing condition contained in Section 8.01 hereof
(other than Section 8.01(d) hereof) by the Parent or Acquisition Co. has
been the cause of, or resulted in, the failure of the Merger to have
occurred on or before the aforesaid date;
(c) by Yazam, (i) if either the Parent or Acquisition Co. shall have
materially breached any of its covenants herein or if either the Parent or
Acquisition Co. shall have made a material misrepresentation herein and not
cured the same within 15 days of notice of such breach or misrepresentation,
or (ii) if the Merger shall not have been consummated on or before April 5,
2001; provided, however, that the right to terminate this Agreement shall
not be available to Yazam in the event that the failure to fulfill any
obligation of this Agreement or satisfy any closing condition contained in
Section 8.02 hereof (other than Section 8.02(e) hereof) by Yazam has been
the cause of, or resulted in, the failure of the Merger to have occurred on
or before the aforesaid date; or
(d) by either the Parent or Yazam, if any court of competent jurisdiction
or other governmental agency of competent jurisdiction shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger, and such order, decree, ruling or other
action shall have become final and non-appealable.
11.02 Procedure and Effect of Termination. In the event of termination and
abandonment of the Merger by the Parent or Yazam pursuant to Section 11.01
hereof, written notice thereof shall forthwith be given to Yazam or the Parent,
respectively, and this Agreement shall terminate and the Merger shall be
abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided herein, no party hereto shall have any
liability or further obligation to any other party to this Agreement except
that any termination shall be without prejudice to the rights of any party
hereto arising out of a breach by any other party of any covenant or agreement
contained in this Agreement, and except that (a) the provisions of Sections
6.06, 12.10, 12.04, 12.05 and 12.07 hereof shall survive such termination, and
(b) the parties hereto shall cooperate in taking any action necessary to
cancel, rescind, modify or revoke any Filings previously made.
D-23
ARTICLE XII
OTHER PROVISIONS
12.01 Amendment and Modification. Subject to Applicable Law, this Agreement
may be amended, modified or supplemented only by mutual written agreement of
the parties hereto.
12.02 Benefit and Assignment. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
successors and assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party to this
Agreement without the prior written consent of the other parties hereto. Any
purported assignment made in contravention of the previous sentence shall be
null and void.
12.03 No Third-Party Beneficiaries. Nothing in this Agreement shall confer
any rights upon any Person other than the parties hereto and their respective
heirs, successors and permitted assigns.
12.04 Entire Agreement. This Agreement and the exhibits and schedules hereto
embody the entire agreement and understanding of the parties hereto, and
supersede any and all prior agreements, arrangements and understandings,
relating to the matters provided for herein and therein. Acquisition Co. hereby
agrees that any consent or waiver of compliance given by the Parent hereunder
shall be conclusively binding upon Acquisition Co., whether given expressly on
its behalf or not. No party is making any representation or warranty
whatsoever, express or implied, except the representations and warranties
contained in this Agreement, and each party acknowledges and agrees that it has
not relied on or been induced to enter into this Agreement by any
representation or warranty other than those expressly set forth herein.
12.05 Expenses. Except as otherwise provided in this Agreement, each of the
Parent and Acquisition Co., on the one hand, and Yazam, on the other hand,
shall be responsible for the payment of their and their Affiliates' respective
expenses, including legal and accounting fees, in connection with the
preparation, negotiation and closing of this Agreement and the transactions
contemplated hereby.
12.06 Headings. The headings set forth in this Agreement are for convenience
only and will not control or affect the meaning or construction of the
provisions of this Agreement.
12.07 Choice of Law. The construction and performance of this Agreement
shall be governed by the laws of the State of Delaware without regard to its
principles of conflict of laws, and the state and federal courts of Delaware
shall have exclusive jurisdiction over any controversy or claim arising out of
or relating to this Agreement.
12.08 Notices. All notices, requests, demands, letters, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed, certified or registered mail with postage prepaid, (c)
sent by next-day or overnight mail or delivery or (d) sent by facsimile, as
follows:
(a) If to the Parent or Acquisition Co., to it at:
U.S. Technologies Inc.
1130 Connecticut Ave., NW
Suite 700
Washington, DC 20036
Telecopy #: (202) 466-4557
Attention: Mr. Gregory Earls
D-24
with a copy to:
Shaw Pittman
2300 N Street, NW
Washington, D.C. 20037
Telecopy #: (202) 663-8007
Attention: Gregory S. Feis, Esq.
(b) If to Yazam, to it at:
Yazam.com Inc.
22 Cortlandt Street, 20th Floor
New York, NY 10007
Telecopy #: (212) 239-7929
Attention: Bernard Siegel
Acting Chief Executive Officer
with a copy to:
Gibson, Dunn & Crutcher LLP
200 Park Ave., 47th Floor
New York, NY 10166
Telecopy #: (212) 351-6201
Attention: Dennis J. Friedman, Esq.
or to such other Person or address as any party shall specify by notice in
writing to the party entitled to notice. All such notices, requests, demands,
letters, waivers and other communications shall be deemed to have been received
(w) if by personal delivery on the day of such delivery, (x) if by certified or
registered mail, when received, (y) if by next-day or overnight mail or
delivery, on the day delivered, or (z) if by facsimile, on the day on which
such facsimile was sent and electronically confirmed if during business hours
where received (and if not, on the next Business Day).
12.09 Counterparts. This Agreement may be executed in one or more
counterparts and/or by facsimile, each of which will be deemed an original and
all of which together will constitute one and the same instrument.
12.10 Confidentiality. Each party hereto will hold, and will use its best
efforts to cause its Affiliates, and their respective Representatives to hold,
in strict confidence from any Person (other than any such Affiliate or
Representative), unless (i) compelled to disclose by judicial or administrative
process (including without limitation in connection with obtaining the
necessary approvals of this Agreement and the transactions contemplated hereby
of Governmental Authorities) or by other requirements of Applicable Law or (ii)
disclosed in an action or proceeding brought by any party hereto in pursuit of
its rights or in the exercise of its remedies hereunder, all documents and
information concerning any party or any of their Affiliates furnished to each
of them by any other party or such other party's Representatives in connection
with this Agreement or the transactions contemplated hereby, except to the
extent that such documents or information can be shown to have been (a)
previously known by the party receiving such documents or information, (b) in
the public domain (either prior to or after the furnishing of such documents or
information hereunder) through no fault of such receiving party, or (c) later
acquired by the receiving party from another source if the receiving party is
not aware that such source is under an obligation to another party hereto to
keep such documents and information confidential; provided that following the
Closing the foregoing restrictions will not apply to Parent's and Acquisition
Co.'s use of documents and information concerning Yazam's business furnished by
Yazam hereunder. In the event the transactions contemplated hereby are not
consummated, upon the request of the other party, each party hereto
D-25
will, and will cause its Affiliates and their respective Representatives to,
promptly (and in no event later than five Business Days after such request)
redeliver or cause to be redelivered all copies of documents and information
furnished by any of the other parties in connection with this Agreement or the
transactions contemplated hereby and destroy or cause to be destroyed all
electronic copies of the foregoing and all notes, memoranda, summaries,
analyses, compilations and other writings related thereto or based thereon
prepared by the party which furnished such documents and information or its
Representatives.
[The remainder of this page intentionally left blank.]
D-26
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first written above.
U.S. TECHNOLOGIES INC.
/S/ GREGORY EARLS
By: _________________________________
Gregory Earls
Chairman and Chief Executive
Officer
U.S. TECHNOLOGIES ACQUISITION CO.
/S/ GREGORY EARLS
By: _________________________________
Gregory Earls
President
YAZAM.COM INC.
/S/ BERNARD SIEGEL
By: _________________________________
Name: Bernard Siegel
Title:Acting Chief Executive
Officer
D-27
SCHEDULE 1.25
KNOWLEDGE INDIVIDUALS
Shlomo Kalish--Chairman of the Board
Phillip Garfinkle--former President
M. Bernard Siegel--acting CEO
Arik Kleinstein--COO, Executive VP
Julie Zuckerman--Executive VP
Marc Lesnick--Executive VP
Ephraim Rudman--VP
Sean Coleman--Managing Director, Washington DC office
Melissa Kesh--Controller
D-28
SCHEDULE 5.03
The Charter of the Parent provides that the Company may not issue any stock of
the Corporation with the same preference and priority as the Series A
Convertible Preferred Stock of the Parent, and the Series B Convertible
Preferred Stock of the Parent, or with a preference or priority senior to such
securities without the consent of the majority of each such class of preferred
shareholders.
The Amended and Restated Registration Rights Agreement among U.S. Technologies
Inc., USV Partners, LLC, Northwood Capital Partners LLC, Northwood Ventures
LLC, Jonathan J. Ledecky and certain other shareholders of U.S. Technologies
Inc., dated April 12, 2000, provides that the Parent shall not enter into any
agreement offering registration rights that are superior to the rights granted
to the parties under such agreement without the prior written consent of the
"Holders of a majority of the Registrable Securities" under such agreement.
D-29
EXHIBIT C
MERGER CERTIFICATE
[to be attached]
D-30
EXHBIT E
OPINIONS OF SHAW PITTMAN
1. The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware. The Company has all
requisite corporate power and authority to own, lease, and operate its
properties and assets and to carry on its businesses as now being conducted, to
enter into the Transaction Documents to which it is a party, to perform its
obligations thereunder, and to consummate the transactions contemplated
thereby. The Company is duly qualified and in good standing to do business in
all jurisdictions in which the failure to be so qualified and in good standing
could reasonably be expected to have a material adverse effect on the business,
properties, liabilities, assets, operations, results of operations, condition
(financial or otherwise), prospects or affairs of the Company (a "Material
Adverse Effect").
2. The execution, delivery, and performance by the Company of the
Transaction Documents to which each is a party and the consummation of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action or other requisite action on the part of the
Company. The Transaction Documents to which each is a party are valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to applicable bankruptcy, reorganization,
insolvency, moratorium and other laws affecting creditors' rights and remedies
generally, as in effect from time to time, and to general equitable principles.
3. None of the execution, delivery, and performance of the Transaction
Documents to which the Company is a party, or the consummation by the Company
of the transactions contemplated thereby, will in any respect conflict with,
result in any violations of, cause a default under, or give rise to any
obligation or result in the loss of any material benefit under any law,
statute, rule, or other such regulation of any governmental authority
applicable to the Company, the Company's governing documents. Except as set
forth in the Agreement, there are no consents, authorizations, orders or
approvals of, or filings or registrations with, any governmental authority
which are required for or in connection with the execution and delivery by the
Company of the Transaction Documents or the consummation by the Company of the
transactions contemplated thereby.
4. To our knowledge, there are no legal, administrative, arbitration or
other proceedings or governmental investigations pending or threatened, against
the Company which seek to enjoin or rescind the transactions contemplated by
the Transaction Documents or otherwise prevent the Company from complying with
the terms and provisions of the Transaction Documents.
5. All issued and outstanding shares of Series F Convertible Preferred Stock
of the Company have been duly authorized, are validly issued and outstanding,
are fully paid and nonassessable, and are not subject to preemptive rights.
Except as disclosed in the Merger Agreement and the documents contemplated
thereby, to our knowledge, there are no voting trusts, voting agreements,
proxies, first refusal rights, first offer rights, co-sale rights, transfer
restrictions or other agreements, instruments or understandings (whether
written or oral, formal or informal) with respect to the voting, transfer or
disposition of the capital stock of the Company to which the Company is a party
or by which it is bound, or, to the knowledge of the Company, among or between
any persons other than the Company.
6. The Merger has been duly approved by the Company and the appropriate
percentage of its shareholders and the Company has taken all actions necessary
(including the filing of the Certificate of Merger) to effectuate the Merger.
D-31
EXHIBIT G
OPINIONS OF GIBSON DUNN & CRUTCHER
1. The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware. The Company has all
requisite corporate power and authority to own, lease, and operate its
properties and assets and to carry on its businesses as now being conducted, to
enter into the Transaction Documents to which it is a party, to perform its
obligations thereunder, and to consummate the transactions contemplated
thereby. The Company is duly qualified and in good standing to do business in
all jurisdictions in which the failure to be so qualified and in good standing
could reasonably be expected to have a material adverse effect on the business,
properties, liabilities, assets, operations, results of operations, condition
(financial or otherwise), prospects or affairs of the Company (a "Material
Adverse Effect").
2. The execution, delivery, and performance by the Company of the
Transaction Documents to which each is a party and the consummation of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action or other requisite action on the part of the Company
other than any required stockholder action which shall be taken prior to the
Effective Time. The Transaction Documents to which each is a party are valid
and binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to applicable bankruptcy, reorganization,
insolvency, moratorium and other laws affecting creditors' rights and remedies
generally, as in effect from time to time, and to general equitable principles.
3. None of the execution, delivery, and performance of the Transaction
Documents to which the Company is a party, or the consummation by the Company
of the transactions contemplated thereby, will in any respect conflict with,
result in any violations of, cause a default under, or give rise to any
obligation or result in the loss of any material benefit under any law,
statute, rule, or other such regulation of any governmental authority
applicable to the Company, the Company's governing documents, or the agreements
set forth on Schedule 4.10 of the Merger Agreement to which the Company is a
party, or by which the Company or any of their properties, assets or rights may
be bound, except as set forth in the Disclosure Schedules to the Merger
Agreement. Except as set forth in the Agreement, there are no consents,
authorizations, orders or approvals of, or filings or registrations with, any
governmental authority which are required for or in connection with the
execution and delivery by the Company of the Transaction Documents or the
consummation by the Company of the transactions contemplated thereby.
4. To our knowledge, there are no legal, administrative, arbitration or
other proceedings or governmental investigations pending or threatened, against
the Company which seek to enjoin or rescind the transactions contemplated by
the Transaction Documents or otherwise prevent the Company from complying with
the terms and provisions of the Transaction Documents.
5. After consummation of the Merger, all of the Yazam Options shall be
cancelled and be of no further force and effect.
6. All issued and outstanding shares of the capital stock of the Company
have been duly authorized, are validly issued and outstanding, are fully paid
and nonassessable, and are not subject to preemptive rights. Except as
disclosed in the Merger Agreement, to our knowledge, there are no voting
trusts, voting agreements, proxies, first refusal rights, first offer rights,
co-sale rights, transfer restrictions or other agreements, instruments or
understandings (whether written or oral, formal or informal) with respect to
the voting, transfer or disposition of the capital stock of the Company to
which the Company is a party or by which it is bound, or, to the knowledge of
the Company, among or between any persons other than the Company.
7. The Merger has been duly approved by the Company and the appropriate
percentage of its shareholders and the Company has taken all actions necessary
(including the filing of the Certificate of Merger) to effectuate the Merger.
D-32
APPENDIX E
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (the "Amendment") is
made and entered into this 22nd day of March, 2001, by and among U.S.
TECHNOLOGIES INC., a Delaware corporation (the "Parent"), U.S. TECHNOLOGIES
ACQUISITION CO., a Delaware corporation and a wholly-owned subsidiary of the
Parent ("Acquisition Co."), and YAZAM.COM INC., a Delaware corporation
("Yazam").
RECITALS
WHEREAS, the parties entered into that certain Agreement And Plan Of Merger,
dated as of February 28, 2001 (the "Agreement"); and
WHEREAS, the parties wish to amend the Agreement as set forth in this
Amendment;
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing matters and the mutual
covenants and agreements herein set forth, and for other good and valuable
consideration, the receipt, sufficiency and adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree
as follows:
1. Capitalized terms used but not defined in this Amendment shall have
the meanings therefor which are set forth in the Agreement.
2. Notwithstanding the restrictions on Yazam set forth in Section 6.01 or
elsewhere in the Agreement, Yazam shall be permitted to, and shall,
concurrently with the Closing, prepay in full the principal of, along with
all interest accrued through the payoff date on, Yazam's line of credit
under the Line of Credit Agreement dated as of April 17, 1999 by and between
Jerusalem Global Ltd. and Yazam in the original principal amount of
$500,000.00. The total amount of such payoff has been calculated and agreed
upon by the parties and by the payee at US $[570,000.00].
3. Each of the two uses of the words "June 1" in Section 5.06 of the
Agreement are replaced with the words "September 1".
4. Sections 12.01, 12.02, 12.03, 12.04, 12.07, 12.09 and 12.10 of the
Agreement apply, mutatis mutandis, to this Amendment.
5. Other than as and to the extent amended by this Amendment, the
Agreement remains in full force and effect.
E-1
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the date first above written.
U.S. TECHNOLOGIES INC.
By: /s/ GREGORY EARLS
__________________________________
Gregory Earls
Chairman and Chief Executive
Officer
U.S. TECHNOLOGIES ACQUISITION CO.
By: /s/ GREGORY EARLS
__________________________________
Gregory Earls
President
YAZAM.COM INC.
By: /s/ BERNARD SIEGEL
__________________________________
Bernard Siegel
Acting Chief Executive Officer
E-2
APPENDIX F
VOTING AGREEMENT
VOTING AGREEMENT (this "AGREEMENT"), dated as of February 28, 2001, by and
between Yazam.com Inc., a Delaware corporation ("YAZAM"), and Gregory Earls, an
individual (the "STOCKHOLDER").
WHEREAS, Yazam has entered into an Agreement and Plan of Merger as of the
date hereof (the "MERGER AGREEMENT") with U.S. Technologies Inc., a Delaware
corporation ("USXX") and U.S. Technologies Acquisition Co., a Delaware
corporation and wholly-owned subsidiary of USXX ("NEWCO"), pursuant to which
Newco will merge with and into Yazam with Yazam surviving the merger (the
"MERGER");
WHEREAS, pursuant to the Merger, certain stockholders of Yazam will receive
shares of convertible preferred stock, par value $0.02 per share, of USXX (the
"PREFERRED STOCK"), as more fully described in the Merger Agreement;
WHEREAS, USXX intends to amend its certificate of incorporation (the
"CHARTER AMENDMENT") to increase the authorized number of its common stock, par
value $0.02 per share (the "COMMON STOCK"), in order to authorize and reserve a
sufficient number of the Common Stock for the conversion of the Preferred
Stock;
WHEREAS, the Stockholder is the largest single stockholder of USXX and
controls the voting power of the number of shares of capital stock of USXX
required to approve the Charter Amendment in accordance with the provisions of
the Delaware General Corporation Law (the "DGCL"); and
WHEREAS, in consideration of Yazam entering into the Merger Agreement, the
Stockholder has agreed to enter into this Agreement to vote his Shares (as
defined herein), in favor of the Charter Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein, for
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, and intending to be legally bound, and upon the terms and subject
to the conditions hereinafter set forth, the parties hereby agree as follows.
1. Definitions. For purposes of this Agreement:
"PERSON" shall mean an individual, corporation, association, partnership,
limited liability company, joint venture, organization, business, trust or
any other entity or organization, including a government or any subdivision
or agency thereof.
"PERMITTED TRANSFEREE" shall mean any person who is (A) the spouse or
former spouse of, or any lineal descendent of, or any spouse of such lineal
descendent of, or the grandparent, parent, brother or sister of, or spouse
of such brother or sister of, either the Stockholder or of a Permitted
Transferee; (B) upon the death of the Stockholder or any Permitted
Transferee of the Stockholder, the executors of the estate of the
Stockholder or such Permitted Transferee, and any of the Stockholder's or
such Permitted Transferee's heirs, testamentary trustees, devisees or
legatees; (C) any trust for the benefit of the Stockholder or any Permitted
Transferees; (D) upon the disability of either the Stockholder or such
Permitted Transferee, any guardian or conservator of the Stockholder or such
Permitted Transferee; provided, however, that in each case such transferee
assumes and agrees to perform and becomes a party to this Agreement. For
purposes of this Agreement, when a Permitted Transferee has acquired Shares
in accordance herewith, such person shall be deemed a "Stockholder"
hereunder.
F-1
"SHARES" shall mean the shares of capital stock of USXX and any right to
acquire shares of capital stock of USXX owned by the Stockholder as of the
date hereof and any shares of capital stock of USXX or rights to acquire
shares of capital stock of USXX acquired by the Stockholder in any capacity
after the date hereof and prior to the termination of this Agreement. In the
event of a stock dividend or distribution, or any change in the capital
stock of USXX by reason of any stock dividend, split-up, recapitalization,
reclassification, combination, exchange of shares or the like, the term
"Shares" shall be deemed to refer to and include the Shares as well as all
such stock dividends and distributions and any shares into which or for
which any or all of the Shares may be changed, reclassified or exchanged,
and appropriate adjustments shall be made to the terms and provisions of
this Agreement.
2. Agreements.
(a) Voting Agreement. Subject to Section 4 below, the Stockholder hereby
irrevocably and unconditionally agrees to vote all of the Shares owned or
controlled by him at the time of the relevant stockholder vote (or action by
written consent) in any circumstances upon which his vote, consent or other
approval is sought in favor of the Charter Amendment. The Stockholder
represents that he owns or controls the voting rights with respect to a
sufficient number of Shares necessary to approve the Charter Amendment in
accordance with the DGCL and any other applicable laws.
(b) No Inconsistent Arrangements. The Stockholder hereby covenants and
agrees that with respect to the Shares owned or controlled by him, he shall not
(i) transfer (which term shall include, without limitation, any sale, gift,
pledge or other disposition), or consent to any transfer of, any or all of the
Shares to any Person who is not a Permitted Transferee (a "PROHIBITED
TRANSFER"), (ii) enter into any contract, option or other agreement or
understanding with respect to any Prohibited Transfer of any Shares, or any
interest therein, (iii) deposit any Shares into a voting trust, grant any
proxy, power-of-attorney or other authorization in or with respect to any
Shares to any Person other than the Permitted Transferee, (iv) except for this
Agreement or as permitted herein, enter into a voting agreement or arrangement
with respect to any Shares, or (v) take any other action that would in any way
restrict, limit or interfere with the performance of his obligations hereunder.
(c) Actions as Director. Subject to the fiduciary duties as a director of
USXX, the Stockholder agrees to recommend to the board of directors of USXX to
approve and adopt the Charter Amendment, to vote in favor of the Charter
Amendment as a director, to recommend the approval and adoption of the Charter
Amendment to the stockholders of USXX and to use his best efforts to cause the
Charter Amendment to be approved by the stockholders of USXX no later than
[June 1, 2001].
3. Representations and Warranties. (a) The Stockholder hereby represents and
warrants to Yazam as follows:
(i) Ownership of Securities. As of the date hereof, the Stockholder
beneficially owns approximately 59,008,818 Shares and holds proxies or other
rights to vote an additional approximately 56,055,000 Shares, the aggregate
of which constitutes 71% of the outstanding capital stock of USXX as of the
date hereof (the "CONTROLLED SHARES"). The Stockholder has sole voting power
for all of the Controlled Shares with no contractual or ownership
limitations, qualifications or restrictions on such rights that would
interfere with the Stockholder's ability to perform his commitments herein,
subject to applicable securities laws and the terms of this Agreement.
(ii) Power; Binding Agreement. The Stockholder has the requisite power
and authority to enter into and perform all of his obligations under this
Agreement. This Agreement has been duly and validly executed and delivered
by the Stockholder and constitutes a valid and binding agreement of the
Stockholder, enforceable against the Stockholder in accordance with its
terms.
4. Termination. This Agreement and the covenants, representations and
warranties and agreements contained herein or granted pursuant hereto shall
terminate upon the earlier of the Merger or termination of the Merger
Agreement.
F-2
5. Miscellaneous.
(a) Specific Performance. The Stockholder recognizes and agrees that if, for
any reason, any of the provisions of this Agreement are not performed by him in
accordance with its specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused to Yazam for which money damages
would not be an adequate remedy. Accordingly, the Stockholder agrees that, in
addition to any other available remedies, Yazam shall be entitled to an
injunction restraining any violation or threatened violation of the provisions
of this Agreement without the necessity of Yazam posting a bond or other form
of security. In the event that any action should be brought in equity to
enforce the provisions of this Agreement, the Stockholder will not allege, and
hereby waives the defense, that there is an adequate remedy at law.
(b) Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. Without limiting the
foregoing, with respect to any provision of this Agreement, if it is determined
by a court of competent jurisdiction to be excessive as to duration or scope,
it is the parties' intention that such provision nevertheless be enforced to
the fullest extent that it may be enforced.
(c) GOVERNING LAW. THIS AGREEMENT AND ALL DISPUTES, CONTROVERSIES OR CLAIMS
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR A BREACH THEREOF SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
(d) Entire Agreement. This Agreement constitutes the entire agreement among
the parties hereto with respect to the subject matter hereof and supersedes all
written and oral prior agreements and understandings, and all contemporaneous
oral agreements and understandings, among the parties or any of them with
respect to the subject matter hereof.
(e) Amendment, Modification and Waiver. This Agreement may not be amended,
modified or waived except by an instrument or instruments in writing signed by
both parties hereto.
(f) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
[The rest of this page has intentionally been left blank.].
F-3
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
YAZAM.COM INC.
By: /s/ BERNARD SIEGEL
__________________________________
Name: Bernard Siegel
C. GREGORY EARLS
/s/ GREGORY EARLS
__________________________________
F-4
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF U.S. TECHNOLOGIES INC.
The undersigned, having received the Notice of the Annual Meeting of
Stockholders and Proxy Statement of U.S. Technologies Inc. (the "Company"),
dated August 17, 2001, hereby appoints C. Gregory Earls and Allyson Holland,
or either of them, with power of substitution in each, proxies of the
undersigned, to vote the shares of the common stock of the Company owned by
the undersigned, at the Annual Meeting of Stockholders of the Company to be
held at the RCC Conference Room, 1616 P Street, N.W., 7th Floor, Washington,
DC 20036, on August 30, 2001 at 10:00 A.M. Eastern Standard Time and at any
adjournments(s) thereof, with all powers the undersigned would possess if
personally present at said meeting with full power of substitution or
revocation. The following purposes for which this proxy may be exercised are
set forth in the Notice of the Annual Meeting of Stockholders and are more
fully set forth in the Proxy Statement.
1. To amend the Company's Restated Certificate of Incorporation to increase the number of authorized shares of [_] FOR
Common Stock to 500,000,000.
2. To amend the Company's Restated Certificate of Incorporation to eliminate the restriction on the preference [_] FOR
that may be conferred on the preferred stock of the Company upon liquidation.
3. To approve and adopt the 1999 Stock Option Plan, as amended. [_] FOR
4. To elect ten members to the Company's Board of Directors.
1. To amend the Company's Restated Certificate of Incorporation to increase the number of authorized shares of [_] AGAINST
Common Stock to 500,000,000.
2. To amend the Company's Restated Certificate of Incorporation to eliminate the restriction on the preference [_] AGAINST
that may be conferred on the preferred stock of the Company upon liquidation.
3. To approve and adopt the 1999 Stock Option Plan, as amended. [_] AGAINST
4. To elect ten members to the Company's Board of Directors.
1. To amend the Company's Restated Certificate of Incorporation to increase the number of authorized shares of [_] ABSTAIN
Common Stock to 500,000,000.
2. To amend the Company's Restated Certificate of Incorporation to eliminate the restriction on the preference [_] ABSTAIN
that may be conferred on the preferred stock of the Company upon liquidation.
3. To approve and adopt the 1999 Stock Option Plan, as amended. [_] ABSTAIN
4. To elect ten members to the Company's Board of Directors.
[_] FOR all nominees listed below (except as marked to the contrary below).
[_] WITHHOLD AUTHORITY to vote for all nominees listed below.
INSTRUCTION: To withhold authority to vote for any individual nominee, strike
a line through the nominee's name in the list below.
Gregory Earls Beth Dozoretz Carl J. "Rick" Rickertsen
Harold T. Wilson William H. Webster George J. Mitchell
Peter G. Schiff James V. Warren Arthur J. Maxwell Eric D. Becker
The undersigned ratifies and confirms all that said proxy may do by virtue
hereof. The proxy is authorized to vote in his discretion with respect to
matters not known or determined at the date of the Proxy Statement. Said proxy
shall be present and acting at the meeting and shall have and may exercise all
of the powers of proxy hereunder.
1
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE ABOVE IN REGARD TO THE PROPOSALS NUMBERED 1 THROUGH 5. IN
THE ABSENCE OF A SPECIFICATION THIS PROXY WILL BE VOTED FOR THE PROPOSALS
NUMBERED 1 THROUGH 4.
Date___________, 2001
_____________________
Signature
_____________________
Signature
Stockholders should sign here exactly as the name or names are printed. When
signing as attorney, executor, administrator, trustee or guardian, please give
your full title as such. Joint owners should each sign personally.
IMPORTANT
PLEASE DATE, SIGN AND MAIL PROMPTLY IN THE ENCLOSED ENVELOPE.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
2
PROXY THIS PROXY IS SOLICITED ON PROXY
BEHALF OF THE BOARD OF
DIRECTORS OF U.S.
TECHNOLOGIES INC.
The undersigned, having received the Notice of the Annual Meeting of
Stockholders and Proxy Statement of U.S. Technologies Inc. (the "Company"),
dated August 17, 2001, hereby appoints Gregory Earls and Allyson Holland, or
either of them, with power of substitution in each, proxies of the
undersigned, to vote the shares of the Series A Preferred Stock of the
Company owned by the undersigned, at the Annual Meeting of Stockholders of
the Company to be held at the RCC Conference Room, 1616 P Street, N.W., 7th
Floor, Washington, DC 20036, on August 30, 2001 at 10:00 A.M. Eastern
Standard Time and at any adjournment(s) thereof, with all powers the
undersigned would possess if personally present at said meeting with full
power of substitution or revocation. The following purposes for which this
proxy may be exercised are set forth in the Notice of the Annual Meeting of
Stockholders and are more fully set forth in the Proxy Statement.
1. To amend the Company's Restated Certificate of Incorporation to increase
the number of authorized shares of Common Stock to 500,000,000.
[_] FOR [_] AGAINST [_] ABSTAIN
2. To amend the Company's Restated Certificate of Incorporation to eliminate
the restriction on the preference that may be conferred on the preferred
stock of the Company upon liquidation.
[_] FOR [_] AGAINST [_] ABSTAIN
3. To approve and adopt the 1999 Stock Option Plan, as amended
[_] FOR [_] AGAINST [_] ABSTAIN
4. To elect the ten members to the Company's Board of Directors
[_] For all nominees listed below (except as marked to the contrary below).
[_] WITHHOLD AUTHORITY to vote for all nominees listed below.
Instruction: To withhold authority to vote for any individual nominee, strike
a line throughthe nominee's name in the list below.
Gregory Earls Beth Dozoretz Carl J. "Rick" Rickertsen
Harold T. Wilson William H. Webster George J. Mitchell
Peter G. Schiff James V. Warren Arthur J. Maxwell Eric D. Becker
The undersigned ratifies and confirms all that said proxy may do by virtue
hereof. The proxy is authorized to vote in his discretion with respect to
matters not known or determined at the date of the Proxy Statement. Said
proxy shall be present and acting at the meeting and shall have and may
exercise all of the powers of proxy hereunder.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE ABOVE IN REGARD TO THE PROPOSALS NUMBERED 1 THROUGH 4. IN
THE ABSENCE OF A SPECIFICATION THIS PROXY WILL BE VOTED FOR THE PROPOSALS
NUMBERED 1 THROUGH 4.
Date __________, 2001
_____________________
Signature
_____________________
Signature
Stockholders should sign here exactly as the name or names are printed.
When signing as attorney, executor, administrator, trustee or guardian,
please give your full title as such. Joint owners should each sign
personally.
IMPORTANT
PLEASE DATE, SIGN AND MAIL PROMPTLY IN THE ENCLOSED ENVELOPE. THIS PROXY
IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF U.S. TECHNOLOGIES INC.
The undersigned, having received the Notice of the Annual Meeting of
Stockholders and Proxy Statement of U.S. Technologies Inc. (the "Company"),
dated August 17, 2001, hereby appoints Gregory Earls and Allyson Holland, or
either of them, with power of substitution in each, proxies of the
undersigned, to vote the shares of the Series B Preferred Stock of the
Company owned by the undersigned, at the Annual Meeting of Stockholders of
the Company to be held at the RCC Conference Room, 1616 P Street, N.W., 7th
Floor, Washington, DC 20036, on August 30, 2001 at 10:00 A.M. Eastern
Standard Time and at any adjournments(s) thereof, with all powers the
undersigned would possess if personally present at said meeting with full
power of substitution or revocation. The following purposes for which this
proxy may be exercised are set forth in the Notice of the Annual Meeting of
Stockholders and are more fully set forth in the Proxy Statement.
1. To amend the Company's Restated Certificate of Incorporation to eliminate the
restriction on the preference that may be conferred on the preferred stock of
the Company upon liquidation. [_] FOR
2. To approve and adopt the 1999 Stock Option Plan, as amended [_] FOR
1. To amend the Company's Restated Certificate of Incorporation to eliminate the
restriction on the preference that may be conferred on the preferred stock of
the Company upon liquidation. [_] AGAINST
2. To approve and adopt the 1999 Stock Option Plan, as amended [_] AGAINST
1. To amend the Company's Restated Certificate of Incorporation to eliminate the
restriction on the preference that may be conferred on the preferred stock of
the Company upon liquidation. [_] ABSTAIN
2. To approve and adopt the 1999 Stock Option Plan, as amended [_] ABSTAIN
3. To elect the ten members to the Company's Board of Directors
[_] For all nominees listed below (except as marked to the contrary below).
[_] WITHHOLD AUTHORITY to vote for all nominees listed below.
Instruction: To withhold authority to vote for any individual nominee, strike
a line through the nominee's name in the list below.
Gregory Earls Beth Dozoretz Carl J. "Rick" Rickertsen
Harold T. Wilson William H. Webster George J. Mitchell
Peter G. Schiff James V. Warren Arthur J. Maxwell Eric D. Becker
The undersigned ratifies and confirms all that said proxy may do by virtue
hereof. The proxy is authorized to vote in his discretion with respect to
matters not known or determined at the date of the Proxy Statement. Said
proxy shall be present and acting at the meeting and shall have and may
exercise all of the powers of proxy hereunder.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE ABOVE IN REGARD TO THE PROPOSALS NUMBERED 1 THROUGH 3. IN
THE ABSENCE OF A SPECIFICATION THIS PROXY WILL BE VOTED FOR THE PROPOSALS
NUMBERED 1 THROUGH 3.
Date _________ , 2001
_____________________
Signature
_____________________
Signature
Stockholders should sign here exactly as the name or names are printed.
When signing as attorney, executor, administrator, trustee or guardian,
please give your full title as such. Joint owners should each sign
personally.
IMPORTANT
PLEASE DATE, SIGN AND MAIL PROMPTLY IN THE ENCLOSED ENVELOPE. THIS PROXY
IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF U.S. TECHNOLOGIES INC.
The undersigned, having received the Notice of the Annual Meeting of
Stockholders and Proxy Statement of U.S. Technologies Inc. (the "Company"),
dated August 17, 2001, hereby appoints Gregory Earls and Allyson Holland, or
either of them, with power of substitution in each, proxies of the
undersigned, to vote the shares of the Series C Preferred Stock of the
Company owned by the undersigned, at the Annual Meeting of Stockholders of
the Company to be held at the RCC Conference Room, 1616 P Street, N.W., 7th
Floor, Washington, DC 20036, on August 30, 2001 at 10:00 A.M. Eastern
Standard Time and at any adjournment(s) thereof, with all powers the
undersigned would possess if personally present at said meeting with full
power of substitution or revocation. The following purposes for which this
proxy may be exercised are set forth in the Notice of the Annual Meeting of
Stockholders and are more fully set forth in the Proxy Statement.
1. To amend the Company's Restated Certificate of Incorporation to eliminate the
restriction on the preference that may be conferred on the preferred stock of
the Company upon liquidation. [_] FOR [_] AGAINST [_] ABSTAIN
2. To approve and adopt the 1999 Stock Option Plan, as amended [_] FOR [_] AGAINST [_] ABSTAIN
3. To elect the ten members to the Company's Board of Directors
[_] For all nominees listed below (except as marked to the contrary below). [_] WITHHOLD AUTHORITY to vote for all nominees
listed below.
Instruction: To withhold authority to vote for any individual nominee, strike a line through the nominee's name in the
list below.
Gregory Earls Beth Dozoretz Carl J. "Rick" Rickertsen Harold T. Wilson William H. Webster
George J. Mitchell Peter G. Schiff James V. Warren Arthur J. Maxwell Eric D. Becker
The undersigned ratifies and confirms all that said proxy may do by virtue
hereof. The proxy is authorized to vote in his discretion with respect to
matters not known or determined at the date of the Proxy Statement. Said
proxy shall be present and acting at the meeting and shall have and may
exercise all of the powers of proxy hereunder.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE ABOVE IN REGARD TO THE PROPOSALS NUMBERED 1 THROUGH 3. IN
THE ABSENCE OF A SPECIFICATION THIS PROXY WILL BE VOTED FOR THE PROPOSALS
NUMBERED 1 THROUGH 3.
Date _________ , 2001
_____________________
Signature
_____________________
Signature
Stockholders should sign here exactly as the name or names are printed.
When signing as attorney, executor, administrator, trustee or guardian,
please give your full title as such. Joint owners should each sign
personally.
IMPORTANT
PLEASE DATE, SIGN AND MAIL PROMPTLY IN THE ENCLOSED ENVELOPE. THIS PROXY
IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE PROXY
BOARD OF DIRECTORS OF U.S. TECHNOLOGIES INC.
The undersigned, having received the Notice of the Annual Meeting of
Stockholders and Proxy Statement of U.S. Technologies Inc. (the "Company"),
dated August 17, 2001, hereby appoints Gregory Earls and Allyson Holland, or
either of them, with power of substitution in each, proxies of the
undersigned, to vote the shares of the Series D Preferred Stock of the
Company owned by the undersigned, at the Annual Meeting of Stockholders of
the Company to be held at the RCC Conference Room, 1616 P Street, N.W., 7th
Floor, Washington, DC 20036, on August 30, 2001 at 10:00 A.M. Eastern
Standard Time and at any adjournment(s) thereof, with all powers the
undersigned would possess if personally present at said meeting with full
power of substitution or revocation. The following purposes for which this
proxy may be exercised are set forth in the Notice of the Annual Meeting of
Stockholders and are more fully set forth in the Proxy Statement.
1. To amend the Company's Restated Certificate of Incorporation to eliminate the
restriction on the preference that may be conferred on the preferred stock of
the Company upon liquidation. [_] FOR [_] AGAINST [_] ABSTAIN
2. To approve and adopt the 1999 Stock Option Plan, as amended [_] FOR [_] AGAINST [_] ABSTAIN
3. To elect the ten members to the Company's Board of Directors
[_] For all nominees listed below (except as marked to the contrary below). [_] WITHHOLD AUTHORITY to vote for all nominees
listed below.
Instruction: To withhold authority to vote for any individual nominee, strike a line through the nominee's name in the
list below.
Gregory Earls Beth Dozoretz Carl J. "Rick" Rickertsen Harold T. Wilson William H. Webster
George J. Mitchell Peter G. Schiff James V. Warren Arthur J. Maxwell Eric D. Becker
The undersigned ratifies and confirms all that said proxy may do by virtue
hereof. The proxy is authorized to vote in his discretion with respect to
matters not known or determined at the date of the Proxy Statement. Said
proxy shall be present and acting at the meeting and shall have and may
exercise all of the powers of proxy hereunder.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE ABOVE IN REGARD TO THE PROPOSALS NUMBERED 1 THROUGH 3. IN
THE ABSENCE OF A SPECIFICATION THIS PROXY WILL BE VOTED FOR THE PROPOSALS
NUMBERED 1 THROUGH 3.
Date __________, 2001
_____________________
Signature
_____________________
Signature
Stockholders should sign here exactly as the name or names are printed.
When signing as attorney, executor, administrator, trustee or guardian,
please give your full title as such. Joint owners should each sign
personally.
IMPORTANT
PLEASE DATE, SIGN AND MAIL PROMPTLY IN THE ENCLOSED ENVELOPE. THIS PROXY
IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE PROXY
BOARD OF DIRECTORS OF U.S. TECHNOLOGIES INC.
The undersigned, having received the Notice of the Annual Meeting of
Stockholders and Proxy Statement of U.S. Technologies Inc. (the "Company"),
dated August 17, 2001, hereby appoints Gregory Earls and Allyson Holland, or
either of them, with power of substitution in each, proxies of the
undersigned, to vote the shares of the Series F Preferred Stock of the
Company owned by the undersigned, at the Annual Meeting of Stockholders of
the Company to be held at the RCC Conference Room, 1616 P Street, N.W., 7th
Floor, Washington, DC 20036, on August 30, 2001 at 10:00 A.M. Eastern
Standard Time and at any adjournment(s) thereof, with all powers the
undersigned would possess if personally present at said meeting with full
power of substitution or revocation. The following purposes for which this
proxy may be exercised are set forth in the Notice of the Annual Meeting of
Stockholders and are more fully set forth in the Proxy Statement.
1. To amend the Company's Restated Certificate of Incorporation to eliminate
the restriction on the preference that may be conferred on the preferred
stock of the Company upon liquidation. [_] FOR [_] AGAINST [_] ABSTAIN
2. To approve and adopt the 1999 Stock Option Plan, as amended [_] FOR [_] AGAINST [_] ABSTAIN
3. To elect the ten members to the Company's Board of Directors.
[_] For all nominees listed below (except as marked to the contrary below). [_] WITHHOLD AUTHORITY to vote for all nominees
listed below.
Instruction: To withhold authority to vote for any individual nominee, strike a line through the nominee's name in the
list below.
Gregory Earls Beth Dozoretz Carl J. "Rick" Rickertsen Harold T. Wilson William H. Webster
George J. Mitchell Peter G. Schiff James V. Warren Arthur J. Maxwell Eric D. Becker
The undersigned ratifies and confirms all that said proxy may do by virtue
hereof. The proxy is authorized to vote in his discretion with respect to
matters not known or determined at the date of the Proxy Statement. Said
proxy shall be present and acting at the meeting and shall have and may
exercise all of the powers of proxy hereunder.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE ABOVE IN REGARD TO THE PROPOSALS NUMBERED 1 THROUGH 3. IN
THE ABSENCE OF A SPECIFICATION THIS PROXY WILL BE VOTED FOR THE PROPOSALS
NUMBERED 1 THROUGH 3.
Date _________ , 2001
_____________________
Signature
_____________________
Signature
Stockholders should sign here exactly as the name or names are printed.
When signing as attorney, executor, administrator, trustee or guardian,
please give your full title as such. Joint owners should each sign
personally.
IMPORTANT
PLEASE DATE, SIGN AND MAIL PROMPTLY IN THE ENCLOSED ENVELOPE. THIS PROXY
IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
2