SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
UBRANDIT.COM
- - - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction applies:
common stock
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2) Aggregate number of securities to which transaction applies:
12,100,000
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
$0.60 per share
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4) Proposed maximum aggregate value of transaction:
$7,260,000
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5) Total fee paid:
$1,452
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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UBRANDIT.COM
6405 MIRA MESA BOULEVARD, SUITE 100
SAN DIEGO, CALIFORNIA 92121
FEBRUARY __, 2001
To the Stockholders of Ubrandit:
On behalf of the Board of Directors of Ubrandit.com, a Nevada
corporation ("UBRANDIT"), I cordially invite you to attend the 2001 Annual
Meeting of the Stockholders of Ubrandit to be held at The Windmill (Holiday Inn)
located at 890 Palomar Airport Road, Carlsbad, California 92008, on March 22,
2001, at 9:00 a.m. local time (the "ANNUAL MEETING").
At the Annual Meeting, holders (the "UBRANDIT STOCKHOLDERS") of common
stock of Ubrandit ("UBRANDIT COMMON STOCK") will be asked to consider and vote
on the election of six directors to serve until the next Annual Meeting of the
Stockholders and thereafter until their successors are elected and qualified (or
as otherwise provided pursuant to the Fourth Amendment to Articles (as defined
below) if approved by the Ubrandit Stockholders at the Annual Meeting) and the
ratification of the appointment of BDO Seidman, LLP as Ubrandit's independent
auditors. In addition, the Ubrandit Stockholders will be asked to consider, vote
on, approve and adopt an Agreement and Plan of Merger, dated as of December 4,
2000, as amended effective as of January 12, 2001 ("MERGER AGREEMENT"), by and
among Ubrandit, Ubrandit Acquisition Corporation, a Nevada corporation and
wholly-owned subsidiary of Ubrandit ("MERGER SUB"), and Mindtronics Corporation,
a Nevada corporation ("MINDTRONICS"). In the Merger, Merger Sub will be merged
with and into Mindtronics, with Mindtronics being the surviving entity and
subsidiary of Ubrandit. Holders of Mindtronics common stock ("MINDTRONICS COMMON
STOCK") will receive for each share of Mindtronics Common Stock approximately
1.1942 shares of Ubrandit Common Stock, and the Ubrandit Stockholders will
continue to hold their shares of Ubrandit Common Stock. Pursuant to the Merger,
up to 12,100,000 shares of Ubrandit Common Stock will be issued to Mindtronics
Stockholders. As a result, immediately following the Merger, former Mindtronics
Stockholders will hold up to approximately 49.35% of the then-outstanding shares
of Ubrandit Common Stock, on a fully-diluted basis.
After careful consideration, the Board of Directors of Ubrandit (the
"UBRANDIT BOARD OF DIRECTORS" or the "UBRANDIT BOARD") has determined that the
Merger is in the best interests of Ubrandit and the Ubrandit Stockholders.
Before we can proceed with the Merger, the Ubrandit Stockholders must vote in
favor of the proposed transaction. YOU SHOULD CONSIDER CAREFULLY THE RISK
FACTORS BEGINNING ON PAGE 13 OF THE ACCOMPANYING PROXY STATEMENT BEFORE VOTING
YOUR SHARES.
At the Annual Meeting, the Ubrandit Stockholders also will be asked to
consider, vote on and approve (i) an amendment to the Articles of Incorporation
of Ubrandit (the "FIRST AMENDMENT TO ARTICLES") that will increase the total
number of authorized shares of Ubrandit Common Stock from 25,000,000 to
100,000,000; (ii) an amendment to the Articles of Incorporation of Ubrandit (the
"SECOND AMENDMENT TO ARTICLES") that will authorize 20,000,000 shares of
preferred stock to be designated and issued by the Ubrandit Board of Directors
under "blank check" authority; (iii) an amendment to the Articles of
Incorporation of Ubrandit (the "THIRD AMENDMENT TO ARTICLES") that will provide
for staggered terms of Ubrandit's directors, effective immediately and affecting
the Ubrandit Board of Directors elected at the Annual Meeting; and (iv) an
amendment to the Articles of Incorporation of Ubrandit (the "FOURTH AMENDMENT TO
ARTICLES") that will eliminate the personal liability of the directors and
officers of Ubrandit and provide for the indemnification of such directors and
officers.
Enclosed herewith is a Notice of Annual Meeting of Stockholders and a
Proxy Statement that describe and contain other information relating to the
election of directors, the ratification of Ubrandit's independent auditors, the
Merger, the Merger Agreement, the First Amendment to Articles, the Second
Amendment to Articles, the Third Amendment to Articles and the Fourth Amendment
to Articles. You are urged to read carefully all of these materials.
Under the General Corporation Law of the State of Nevada, the
affirmative vote of the holders of a majority of the shares of Ubrandit Common
Stock present and/or represented and voted at the Annual Meeting (provided that
a quorum is established) is required to elect directors and to ratify Ubrandit's
independent auditors. Under the rules of the American Stock Exchange (on which
shares of Ubrandit Common Stock are listed), the affirmative vote of the holders
of a majority of the shares of Ubrandit Common Stock present and/or represented
and voted at the Annual Meeting (provided that a quorum is established) is
required to approve the Merger Agreement and the transactions contemplated
thereby, including, without limitation, the Merger. Under the General
Corporation Law of the State of Nevada, the affirmative vote of the holders of a
majority of the shares of Ubrandit Common Stock outstanding is required to
approve the First Amendment to Articles, the Second Amendment to Articles, the
Third Amendment to Articles and the Fourth Amendment to Articles.
Your participation in the Annual Meeting, in person or by proxy, is
important. Therefore, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN
PERSON, PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD
IN THE ENVELOPE PROVIDED. YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER
OF SHARES YOU OWN.
By Order of the Board of Directors
/S/ Jefferey D. Phillips
-----------------------------------
Jefferey D. Phillips
President
UBRANDIT.COM
6405 MIRA MESA BOULEVARD, SUITE 100
SAN DIEGO, CALIFORNIA 92121
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Notice of Annual Meeting of Stockholders
to be held March 22, 2001
------------------
Notice hereby is given that the 2001 Annual Meeting (the "ANNUAL
MEETING") of the Stockholders (the "UBRANDIT STOCKHOLDERS") of Ubrandit.com, a
Nevada corporation ("UBRANDIT"), will be held on March 22, 2001, at 9:00 a.m.
local time, at The Windmill (Holiday Inn) located at 890 Palomar Airport Road,
Carlsbad, California 92008, to consider and vote on the following matters
described in the accompanying Proxy Statement:
1. The election of six directors to serve until the next Annual
Meeting of Stockholders or until their successors are elected
and qualified (or as otherwise provided pursuant to the Fourth
Amendment to Articles (as defined below) if approved by the
Ubrandit Stockholders at the Annual Meeting).
2. The ratification of the appointment of BDO Seidman, LLP as
Ubrandit's independent auditors.
3. The approval of the merger (the "MERGER") of Ubrandit
Acquisition Corporation ("MERGER SUB"), a Nevada corporation
and wholly-owned subsidiary of Ubrandit, with and into
Mindtronics Corporation, a Nevada corporation ("MINDTRONICS"),
in accordance with the terms and conditions of the Agreement
and Plan of Merger, dated as of December 4, 2000, as amended
effective as of January 12, 2001 (the "MERGER AGREEMENT"), by
and among Ubrandit, Merger Sub and Mindtronics, pursuant to
which, among other things, (i) Mindtronics will become a
wholly-owned subsidiary of Ubrandit, and (ii) each share of
common stock, par value $0.001, of Mindtronics ("MINDTRONICS
COMMON STOCK") outstanding on the date of consummation of the
Merger (other than shares of Mindtronics Common Stock held by
Mindtronics Stockholders who perfect dissenters' rights under
Nevada law) will be converted into the right to receive
approximately 1.1942 shares of common stock, $0.001 par value,
of Ubrandit ("UBRANDIT COMMON STOCK").
4. The approval of an amendment to the Articles of Incorporation
of Ubrandit (the "FIRST AMENDMENT TO ARTICLES") that will
increase the total number of authorized shares of Ubrandit
Common Stock from 25,000,000 to 100,000,000.
5. The approval of an amendment to the Articles of Incorporation
of Ubrandit (the "SECOND AMENDMENT TO ARTICLES") that will
authorize 20,000,000 shares of preferred stock to be
designated and issued by the Ubrandit Board of Directors under
"blank check" authority.
6. The approval of an amendment to the Articles of Incorporation
of Ubrandit (the "THIRD AMENDMENT TO ARTICLES") that will
provide for staggered terms of Ubrandit's directors, effective
immediately and affecting the Ubrandit Board of Directors
elected at the Annual Meeting.
7. The approval of an amendment to the Articles of Incorporation
of Ubrandit (the "FOURTH AMENDMENT TO ARTICLES") that will
eliminate the personal liability of the directors and officers
of Ubrandit and provide for the indemnification of such
directors and officers.
8. The transaction of such other business as may come properly
before the Annual Meeting or any adjournment or postponement
thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. The Merger Agreement is attached as APPENDIX
E to the accompanying Proxy Statement.
Only Ubrandit Stockholders of record at the close of business on March
8, 2001 (the "RECORD DATE") are entitled to notice of and to vote at the Annual
Meeting or any adjournment of postponement thereof.
Under the General Corporation Law of the State of Nevada, the
affirmative vote of the holders of a majority of the shares of Ubrandit Common
Stock present and/or represented and voted at the Annual Meeting (provided that
a quorum is established) is required to elect directors and to ratify Ubrandit's
independent auditors. Under the rules of the rules of the American Stock
Exchange (on which shares of Ubrandit Common Stock are listed), the affirmative
vote of the holders of a majority of the shares of Ubrandit Common Stock present
and/or represented and voted at the Annual Meeting (provided that a quorum is
established) is required to approve the Merger Agreement and the transactions
contemplated thereby, including, without limitation, the Merger. Under the
General Corporation Law of the State of Nevada, the affirmative vote of the
holders of a majority of the shares of Ubrandit Common Stock outstanding is
required to approve the First Amendment to Articles, the Second Amendment to
Articles, the Third Amendment to Articles and the Fourth Amendment to Articles.
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL MEETING.
EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING, WE HOPE THAT YOU PROMPTLY WILL
MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY. THIS WILL NOT LIMIT YOUR RIGHT
TO ATTEND OR VOTE AT THE ANNUAL MEETING. You may revoke your proxy at any time
before it has been voted, and, if you attend the Annual Meeting, you may vote
your shares personally, whether or not you previously submitted a proxy. On the
matters coming before the Annual Meeting for which a choice has been specified
by a Ubrandit Stockholder by means of the ballot on the proxy, the shares will
be voted accordingly. If no choice is specified, the shares will be voted "FOR"
the election of management's nominee directors and the ratification of
Ubrandit's independent auditors, "FOR" the Merger Agreement and the transactions
contemplated thereby, including, without limitation, the Merger, and "FOR" the
First Amendment to Articles, the Second Amendment to Articles, the Third
Amendment to Articles and the Fourth Amendment to Articles.
By Order of the Board of Directors
/S/ Jefferey D. Phillips
-----------------------------------
Jefferey D. Phillips
President
San Diego, California
February __, 2001
UBRANDIT.COM
6405 Mira Mesa Boulevard, Suite 100
San Diego, California 92121
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PROXY STATEMENT
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General
This Proxy Statement is being furnished to the stockholders (the
"UBRANDIT STOCKHOLDERS") of Ubrandit.com, a Nevada corporation ("UBRANDIT"), in
connection with the solicitation of proxies by the Board of Directors of
Ubrandit (the "UBRANDIT BOARD OF DIRECTORS" or the "UBRANDIT BOARD") from the
holders of outstanding shares of Ubrandit common stock ("UBRANDIT COMMON
STOCK"), for use at the Annual Meeting of the Ubrandit Stockholders to be held
on March 22, 2001, at 9:00 a.m. local time, at The Windmill (Holiday Inn)
located at 890 Palomar Airport Road, Carlsbad, California 92008, and at any
adjournment or postponement thereof (the "ANNUAL MEETING").
This Proxy Statement and the other enclosed documents first are being
mailed on or about February [__], 2001 to all Ubrandit Stockholders entitled to
vote at the Annual Meeting. This proxy solicitation is made by the Ubrandit
Board of Directors.
Stockholder Proposals to be Presented at Next Annual Meeting
Proposals that are intended to be presented by Ubrandit Stockholders at
Ubrandit's 2002 Annual Meeting of the Stockholders must be received by Ubrandit
at its principal executive offices no later than November 22, 2001 to be
considered for inclusion in Ubrandit's proxy statement relating to that meeting.
Revocability of Proxies
A proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is exercised by filing with the Secretary
of Ubrandit a written revocation or a duly executed proxy bearing a later date
or by voting in person at the Annual Meeting.
Solicitation of Proxies
Ubrandit will bear the entire cost of the solicitation of proxies,
including costs incurred in connection with the preparation, assembly, printing
and mailing of this Proxy Statement, the proxy and any additional information
furnished to the Ubrandit Stockholders in relation to the Annual Meeting. Copies
of solicitation materials will be furnished to banks, brokerage houses,
fiduciaries and custodians holding in their names shares of Ubrandit Common
Stock beneficially owned by others for forwarding to such beneficial owners.
Ubrandit may reimburse persons representing beneficial owners of Ubrandit Common
Stock for their costs of forwarding solicitation materials to such beneficial
owners. Original solicitation of proxies by mail may be supplemented by
telephone, telegram or personal solicitation by directors, officers or other
regular employees of Ubrandit. No additional compensation will be paid to
directors, officers or other regular employees for such services.
Record Date, Shares Outstanding and Voting Rights
Only holders of record of Ubrandit Common Stock at the close of
business on the March 8, 2001 (the "RECORD DATE") are entitled to notice of, and
to vote at, the Annual Meeting. There were approximately [_________] holders of
record of Ubrandit Common Stock at the close of business on the Record Date,
with [__________] shares of Ubrandit Common Stock issued and outstanding. Each
share of Ubrandit Common Stock entitles the holder thereof to one vote on each
matter submitted for Ubrandit Stockholder approval.
-i-
Purposes of the Annual Meeting
The purposes of the Annual Meeting are to consider and vote on the
election of six directors to serve until the next Annual Meeting of the
Stockholders and thereafter until their successors are elected and qualified (or
as otherwise provided pursuant to the Fourth Amendment to Articles (as defined
below) if approved by the Ubrandit Stockholders at the Annual Meeting) and the
ratification of the appointment of BDO Seidman, LLP as Ubrandit's independent
auditors. In addition, the Ubrandit Stockholders will be asked to consider, vote
on, approve and adopt the proposed merger (the "MERGER") of Ubrandit Acquisition
Corporation, a Nevada corporation and wholly-owned subsidiary of Ubrandit
("MERGER SUB"), with and into Mindtronics Corporation, a Nevada corporation
("MINDTRONICS"), pursuant to an Agreement and Plan of Merger, dated as of
December 4, 2000, as amended effective as of January 12, 2001 (the "MERGER
AGREEMENT"). As a result of the Merger, (i) Mindtronics will become a
wholly-owned subsidiary of Ubrandit, and (ii) each outstanding share of common
stock of Mindtronics ("MINDTRONICS COMMON STOCK"), except for shares of
Mindtronics Common Stock with respect to which dissenters' rights have been
perfected under the Nevada Revised Statutes (the "NEVADA LAW"), will be
converted into the right to receive approximately 1.1942 shares of Ubrandit
Common Stock. A detailed description of the Merger is set forth below in this
Proxy Statement, and a copy of the Merger Agreement is attached to this Proxy
Statement as APPENDIX E.
Pursuant to the Merger, up to 12,100,000 shares of Ubrandit Common
Stock will be issued to Mindtronics Stockholders. As a result, immediately
following the Merger, former Mindtronics Stockholders will hold up to
approximately 49.35% of the then-outstanding shares of Ubrandit Common Stock, on
a fully-diluted basis.
Concurrently with the execution of the Merger Agreement, Ubrandit and
Mindtronics executed a Loan and Security Agreement substantially in the form
attached to the Merger Agreement (the "LOAN AGREEMENT"), pursuant to which
Ubrandit became obligated to make a secured loan to Mindtronics in the principal
amount of $750,000, which Ubrandit is obligated to advance to Mindtronics in
accordance with a budget and schedule pre-approved by Ubrandit. At the date of
this Proxy Statement, under the Loan Agreement, Ubrandit has disbursed loan
funds to Mindtronics in the aggregate principal amount of $368,000.
At the Annual Meeting, holders of Ubrandit Common Stock also will be
asked to consider, vote on and approve (i) an amendment to the Articles of
Incorporation of Ubrandit (the "FIRST AMENDMENT TO ARTICLES") that will increase
the total number of authorized shares of Ubrandit Common Stock from 25,000,000
to 100,000,000; (ii) an amendment to the Articles of Incorporation of Ubrandit
(the "SECOND AMENDMENT TO ARTICLES") that will authorize 20,000,000 shares of
preferred stock to be designated and issued by the Ubrandit Board of Directors
under "blank check" authority; (iii) an amendment to the Articles of
Incorporation of Ubrandit (the "THIRD AMENDMENT TO ARTICLES") that will provide
for staggered terms of Ubrandit's directors, effective immediately and affecting
the Ubrandit Board of Directors elected at the Annual Meeting; and (iv) an
amendment to the Articles of Incorporation of Ubrandit (the "FOURTH AMENDMENT TO
ARTICLES") that will eliminate the personal liability of the directors and
officers of Ubrandit and provide for the indemnification of such directors and
officers.
Although approval of the First Amendment to Articles is not required by
the Merger Agreement, if the Ubrandit Stockholders at the Annual Meeting fail to
approve this proposal, the Ubrandit Board of Directors will un-reserve certain
shares of Ubrandit's authorized capital stock previously reserved as shares
underlying stock options authorized and/or issued under Ubrandit's 1999 Stock
Option and Incentive Plan in order to make available for issuance a number of
authorized shares of Ubrandit Common Stock sufficient for the purpose of
consummating the Merger, and the Ubrandit Board of Directors will request
management of Ubrandit to forbear exercising any of their stock options unless
and until Ubrandit's authorized capital stock has been increased as contemplated
by the First Amendment to Articles. In the event that Ubrandit does un-reserve
such shares of Ubrandit's authorized capital stock, Ubrandit intends to call a
special meeting of the Ubrandit Stockholders as soon as reasonably practicable
after consummation of the Merger (the "POST-CLOSING SPECIAL MEETING") to
consider, vote on and approve an amendment to the Articles of Incorporation of
Ubrandit, substantially identical to the First Amendment to Articles, that will
be proposed at that time to increase the total number of authorized shares of
Ubrandit Common Stock from 25,000,000 to 100,000,000 and amendments to
-ii-
Ubrandit's Articles of Incorporation substantially identical to the Second
Amendment to Articles, the Third Amendment to Articles and the Fourth Amendment
to Articles if the Ubrandit Stockholders fail to approve those amendments at the
Annual Meeting. At the Post-Closing Special Meeting, by reason of the number of
shares of Ubrandit Common Stock that will have been issued in connection with
the Merger, management of Ubrandit will hold a number of authorized shares of
Ubrandit Common Stock sufficient for the purpose of approving all such
amendments to the Articles of Incorporation of Ubrandit, and it is anticipated
that management of Ubrandit will vote such shares accordingly.
Therefore, although the First Amendment to Articles, the Second
Amendment to Articles, the Third Amendment to Articles and the Fourth Amendment
to Articles are not integral parts of the Merger, the Ubrandit Board recommends
to the Ubrandit Stockholders that, if they vote at the Annual Meeting to approve
the Merger Agreement and the transactions contemplated thereby, they also should
vote at the Annual Meeting to approve the First Amendment to Articles, the
Second Amendment to Articles, the Third Amendment to Articles and the Fourth
Amendment to Articles.
Quorum; Required Vote
The presence, in person or by proxy, at the Annual Meeting of the
holders of a majority of the shares of Ubrandit Common Stock outstanding and
entitled to vote at the Annual Meeting is necessary to constitute a quorum at
the Annual Meeting. Under the General Corporation Law of the State of Nevada,
the affirmative vote of the holders of a majority of the shares of Ubrandit
Common Stock present and/or represented and voted at the Annual Meeting
(provided that a quorum is established) is required to elect directors and to
ratify Ubrandit's independent auditors. Under the rules of the American Stock
Exchange (on which shares of Ubrandit Common Stock are listed; "AMEX"), the
affirmative vote of the holders of a majority of the shares of Ubrandit Common
Stock present and/or represented and voted at the Annual Meeting (provided that
a quorum is established) is required to approve the Merger Agreement and the
transactions contemplated thereby, including, without limitation, the Merger.
Under the General Corporation Law of the State of Nevada, the affirmative vote
of the holders of a majority of the shares of Ubrandit Common Stock outstanding
is required to approve the First Amendment to Articles, the Second Amendment to
Articles, the Third Amendment to Articles and the Fourth Amendment to Articles.
Abstentions and broker non-votes will not affect the outcome of the
vote on the election of directors, the ratification of Ubrandit's independent
auditors or the Merger Agreement and the transactions contemplated thereby.
Abstentions and broker non-votes will count as votes "AGAINST" the First
Amendment to Articles, the Second Amendment to Articles, the Third Amendment to
Articles and the Fourth Amendment to Articles.
Voting and Revocation of Proxies
The shares represented by the proxies received in response to this
solicitation and not revoked will be voted at the Annual Meeting and at any
adjournment or postponement of the Annual Meeting. A proxy may be revoked at any
time before it is exercised by filing with the Secretary of Ubrandit a written
revocation or a duly executed proxy bearing a later date or by voting in person
at the Annual Meeting. On the matters coming before the Annual Meeting for which
a choice has been specified by a Ubrandit Stockholder by means of the ballot on
the proxy, the shares will be voted accordingly. If no choice is specified, the
shares will be voted "FOR" the election of management's nominee directors and
the ratification of Ubrandit's independent auditors, "FOR" the Merger Agreement
and the transactions contemplated thereby, including, without limitation, the
Merger, and "FOR" the First Amendment to Articles, the Second Amendment to
Articles, the Third Amendment to Articles and the Fourth Amendment to Articles.
Recommendation of the Ubrandit Board of Directors
The Ubrandit Board of Directors unanimously recommends that the
Ubrandit Stockholders vote "FOR" the election of management's six nominee
directors and "FOR" the ratification of BDO Seidman, LLP as Ubrandit's
independent auditors. In addition, the Ubrandit Board of Directors has concluded
that the proposal to adopt the Merger Agreement is advisable and in the best
interests of Ubrandit and the Ubrandit Stockholders and unanimously has approved
and adopted the proposal. Accordingly, the Ubrandit Board of Directors
unanimously recommends that all Ubrandit Stockholders vote "FOR" approval and
adoption of the Merger Agreement and the transactions contemplated thereby,
including the Merger. The Ubrandit Board of Directors further recommends that
Ubrandit Stockholders vote "FOR" the proposals to approve the First Amendment to
Articles, the Second Amendment to Articles, the Third Amendment to Articles and
the Fourth Amendment to Articles.
-iii-
Roger C. Royce, Ubrandit's Chairman of the Board of Directors and Chief
Operating Officer and a Ubrandit Stockholder, owns of record 1,000,000 shares of
Mindtronics Common Stock. Mr. Royce has executed and delivered to Ubrandit a
certain Stockholder Support Agreement, pursuant to which Mr. Royce is obligated
to vote all of his shares of Mindtronics Common Stock to approve the Merger
Agreement and the transactions contemplated thereby.
Other Matters
At the date of this Proxy Statement, the Ubrandit Board of Directors
does not know of any business to be presented at the Annual Meeting other than
as set forth in the Notice accompanying this Proxy Statement. If other matters
properly come before the Annual Meeting, it is the intention of the persons
named in the enclosed form of proxy to vote the shares they represent as the
Ubrandit Board of Directors may recommend.
-------------------------
The date of this Proxy Statement is February [___], 2001.
Questions and/or requests for information should be directed to
Jefferey D. Phillips, President of Ubrandit, at the following address (or
telephone/fax numbers):
Ubrandit.com
6405 Mira Mesa Boulevard, Suite 100
San Diego, California 92121
Telephone: (858) 350-9566
Facsimile: (858) 350-0132
-------------------------
All information contained in this Proxy Statement relating to Ubrandit
has been supplied by Ubrandit, and all information contained in this Proxy
Statement relating to Mindtronics has been supplied by Mindtronics.
-------------------------
IMPORTANT
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING, WE URGE
YOU TO MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT AT YOUR EARLIEST
CONVENIENCE IN THE ENCLOSED POSTAGE-PREPAID RETURN ENVELOPE. THIS WILL NOT LIMIT
YOUR RIGHTS TO ATTEND OR VOTE AT THE ANNUAL MEETING.
-------------------------
-iv-
SECURITIES LAW COMPLIANCE
Ubrandit has not filed a registration statement with the Securities and
Exchange Commission (the "SEC") pursuant to the Securities Act of 1933, as
amended (the "SECURITIES ACT"), with respect to the issuance of Ubrandit Common
Stock in connection with the Merger. Rather, Ubrandit intends to rely on an
exemption from the registration requirements of Section 5 of the Securities Act
with respect to the Merger. Accordingly, Ubrandit Common Stock issued in
connection with the Merger will be "restricted" for the purposes of the
Securities Act. Investment Representation Letters will be completed by
Mindtronics Stockholders for certain statements concerning, and their
acknowledgement of, the restricted nature of the Ubrandit Common Stock issuable
in connection with the Merger.
NEITHER THE MERGER NOR THE SECURITIES OF UBRANDIT ISSUABLE IN
CONNECTION WITH THE MERGER HAVE BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
[INTENTIONALLY LEFT BLANK]
-v-
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE MERGER...........................................................................1
SUMMARY..........................................................................................................4
The Companies..............................................................................................4
The Merger.................................................................................................4
Conversion of Securities...................................................................................5
Conditions to Consummation of the Merger...................................................................5
Effective Time of the Merger...............................................................................5
Directors and Executive Officers of the Combined Company Following the Merger..............................5
Termination of the Merger Agreement........................................................................6
Dissenters' Rights.........................................................................................6
Material Federal Income Tax Consequences...................................................................6
Reasons For the Merger.....................................................................................7
Future of Ubrandit If the Merger is not Consummated........................................................7
Recommendation of the Ubrandit Board of Directors..........................................................7
Interests of Officers and Directors in the Merger..........................................................7
Anticipated Accounting Treatment...........................................................................8
Regulatory Approvals.......................................................................................8
Market Price and Dividend Data.............................................................................8
SELECTED FINANCIAL INFORMATION AND COMPARATIVE PER SHARE DATA....................................................9
Ubrandit Selected Financial Data...........................................................................9
Mindtronics Selected Financial Data.......................................................................10
Selected Unaudited PRO FORMA Condensed Combined Financial Information.....................................11
SECURITIES LAW COMPLIANCE.......................................................................................12
Forward-Looking Information.....................................................................................12
RISK FACTORS....................................................................................................13
Risks Related to the Merger...............................................................................13
Risks Related to Ubrandit.................................................................................17
PROPOSAL ONE election of directors..............................................................................22
Nominees..................................................................................................22
Committees................................................................................................24
Board Meetings............................................................................................24
Other Executive Officers..................................................................................24
Family Relationships......................................................................................24
EXECUTIVE COMPENSATION..........................................................................................25
AUDIT COMMITTEE REPORT..........................................................................................27
AUDIT COMMITTEE.................................................................................................27
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.....................................................27
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.........................................................28
COMPENSATION COMMITTEE..........................................................................................28
PERFORMANCE GRAPH...............................................................................................29
Nature of the Vote Required and Voting Procedures.........................................................29
PROPOSAL TWO RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS................................................30
Nature of the Vote Required and Voting Procedures.........................................................31
PROPOSAL THREE THE MERGER.......................................................................................32
General Description of the Merger.........................................................................32
Background................................................................................................32
Reasons For the Merger....................................................................................33
Interests of Ubrandit's Officers and Directors in the Merger..............................................34
Material Federal Income Tax Consequences..................................................................34
Anticipated Accounting Treatment..........................................................................34
Restrictions on Resales...................................................................................35
-vi-
CERTAIN TERMS OF THE MERGER AGREEMENT...........................................................................35
The Merger................................................................................................35
Effective Time of the Merger..............................................................................35
Conversion of Securities..................................................................................35
Representations and Warranties............................................................................35
Meeting of Ubrandit Stockholders..........................................................................36
No Solicitation...........................................................................................36
Loan Agreement............................................................................................36
Conditions to Consummation of the Merger..................................................................36
Certain Covenants and Agreements..........................................................................38
Directors and Executive Officers of the Combined Company Following the Merger.............................38
Dissenters' Rights........................................................................................40
Stockholder Support Agreement.............................................................................40
Appointment of Representative.............................................................................40
Closing...................................................................................................41
Termination of the Merger Agreement.......................................................................41
Effect of Termination.....................................................................................41
Indemnification and Escrow................................................................................42
Fees and Expenses.........................................................................................42
Survival of Representations and Warranties................................................................43
Assignment................................................................................................43
Amendments; Waivers.......................................................................................43
Public Announcements......................................................................................43
Nature of the Vote Required and Voting Procedures.........................................................43
PROPOSAL FOUR AMENDMENT TO UBRANDIT ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES
OF UBRANDIT COMMON STOCK..................................................................................44
Post-Closing Special Meeting of Ubrandit Stockholders if Necessary........................................45
Nature of the Vote Required and Voting Procedures.........................................................45
PROPOSAL FIVE AMENDMENT TO UBRANDIT ARTICLES OF INCORPORATION TO AUTHORIZE A CLASS OF PREFERRED STOCK TO
BE DESIGNATED AND ISSUED BY THE UBRANDIT BOARD OF DIRECTORS UNDER "BLANK CHECK" AUTHORITY.................46
Post-Closing Special Meeting of Ubrandit Stockholders if Necessary........................................46
Nature of the Vote Required and Voting Procedures.........................................................47
PROPOSAL SIX AMENDMENT TO UBRANDIT ARTICLES OF INCORPORATION THAT WILL PROVIDE FOR STAGGERED TERM FOR
DIRECTORS.................................................................................................48
Post-Closing Special Meeting of Ubrandit Stockholders if Necessary........................................49
Nature of the Vote Required and Voting Procedures.........................................................50
PROPOSAL SEVEN AMENDMENT TO UBRANDIT ARTICLES OF INCORPORATION THAT WILL ELIMINATE THE PERSON LIABILITY
OF DIRECTORS AND OFFICERS AND PROVIDE FOR THE INDEMNIFICATION OF SUCH DIRECTORS AND OFFICERS..............51
Post-Closing Special Meeting of Ubrandit Stockholders if Necessary........................................51
Nature of the Vote Required and Voting Procedures.........................................................51
INFORMATION ABOUT UBRANDIT......................................................................................52
Business of Ubrandit......................................................................................52
Recent Developments.......................................................................................52
Brandable Website Business................................................................................53
Plan of Operation.........................................................................................54
Products and Services.....................................................................................55
Revenue Sources...........................................................................................57
Marketing.................................................................................................57
Proprietary Technology and Research and Development.......................................................58
Competition...............................................................................................58
Governmental Regulation...................................................................................58
Employees.................................................................................................59
Properties................................................................................................59
Legal Proceedings.........................................................................................59
-vii-
UBRANDIT SELECTED FINANCIAL DATA................................................................................60
Ubrandit Selected Financial Data..........................................................................60
Ubrandit Supplementary Financial Information..............................................................61
UBRANDIT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................62
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................................................65
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF UBRANDIT......................................67
INFORMATION ABOUT MINDTRONICS...................................................................................68
Business of Mindtronics...................................................................................68
MINDTRONICS SELECTED FINANCIAL DATA.............................................................................71
Mindtronics Selected Financial Data.......................................................................71
MINDTRONICS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............72
DIRECTORS AND EXECUTIVE OFFICERS OF MINDTRONICS.................................................................74
BOARD OF ADVISORS AND CONSULTANTS OF MINDTRONICS................................................................75
CERTAIN OTHER KEY EMPLOYEES OF MINDTRONICS......................................................................77
SECURITY OWNERSHIP OF UBRANDIT AFTER THE MERGER.................................................................78
WHERE YOU CAN FIND MORE INFORMATION.............................................................................79
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934............................................79
OTHER MATTERS...................................................................................................79
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K......................................................................79
APPENDICES
- - - ----------
Appendix A - Consolidated Financial Statements of Ubrandit
Appendix B - Consolidated Financial Statements of Mindtronics
Appendix C - Unaudited PRO FORMA condensed combined financial statements post-Merger
Appendix D - Audit Committee Charter
Appendix E - Agreement and Plan of Merger, as amended
Appendix F - Text of First Amendment to Articles and Second Amendment to Articles
Appendix G - Text of Third Amendment to Articles
Appendix H - Text of Fourth Amendment to Articles
Appendix I - Form of Proxy Card for Ubrandit.com
-viii-
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING THE MERGER?
A: We are proposing the Merger of Merger Sub with and into Mindtronics
because we believe the resulting combination will create a stronger,
more competitive company capable of achieving greater financial
strength, operational efficiencies, technological development, earning
power and growth potential than either company would have on its own.
Q: WHAT WILL HAPPEN IN THE MERGER?
A: The Merger will cause Mindtronics to become a wholly-owned subsidiary
of Ubrandit.
Q: WHAT WILL MINDTRONICS STOCKHOLDERS RECEIVE IN THE MERGER?
A: As a result of the Merger, each outstanding share of Mindtronics Common
Stock (other than shares of Mindtronics Common Stock held by
Mindtronics Stockholders who perfect dissenters' rights under the
Nevada Law) will be converted into the right to receive approximately
1.1942 shares of Ubrandit Common Stock. Pursuant to the Merger, up to
12,100,000 shares of Ubrandit Common Stock will be issued to
Mindtronics Stockholders. As a result, immediately following the
Merger, former Mindtronics Stockholders will hold up to approximately
49.35% of the then-outstanding shares of Ubrandit Common Stock, on a
fully-diluted basis.
Q: DOES THE UBRANDIT BOARD OF DIRECTORS RECOMMEND VOTING IN FAVOR OF THE
MERGER?
A: Yes. After careful consideration, the Ubrandit Board of Directors has
declared advisable and recommends that the Ubrandit Stockholders vote
in favor of the Merger Agreement and the Merger. The Ubrandit Board
further recommends that the Ubrandit Stockholders vote in favor of the
First Amendment to Articles, the Second Amendment to Articles, the
Third Amendment to Articles and the Fourth Amendment to Articles.
Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE TO
APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY?
A: Yes. In evaluating the Merger Agreement and the transactions
contemplated thereby, you should consider carefully the factors
discussed in the section "RISK FACTORS" beginning on page 13 of this
Proxy Statement.
Q: WHAT ARE THE EFFECTS OF THE MERGER ON MY SHARES OF UBRANDIT COMMON
STOCK?
A: Ubrandit Stockholders will continue to own their shares of Ubrandit
Common Stock after the Merger. There will be no change in the number of
shares of Ubrandit Common Stock held by current Ubrandit Stockholders
as a resut of the Merger. Pursuant to the Merger, up to 12,100,000
shares of Ubrandit Common Stock will be issued to Mindtronics
Stockholders. As a result of this issuance, your percentage ownership
interest in Ubrandit will be reduced.
Q: WHAT STOCKHOLDER APPROVALS ARE NEEDED?
A: Approval of the Merger Agreement and the transactions contemplated
thereby, including the Merger, requires the affirmative vote of the
holders of a majority of the shares of Ubrandit Common Stock present
and/or represented and voted at the Annual Meeting (provided that a
quorum is established). Abstentions and broker non-votes will not
affect the outcome of the vote. Each holder of Ubrandit Common Stock is
entitled to one vote per share. At the Record Date, Ubrandit directors
and executive officers and their affiliates beneficially owned
approximately 13.54% of the outstanding shares of Ubrandit Common
Stock. It is anticipated that they will vote all of such shares to
approve the Merger Agreement and the transactions contemplated thereby,
including the Merger.
-1-
Q: WHAT CONSTITUTES A QUORUM, AND WHY IS A QUORUM REQUIRED?
A: A quorum is required for the Ubrandit Stockholders to conduct business
at the Annual Meeting. The presence at the Annual Meeting, in person or
by proxy, of the holders of a majority of the outstanding shares of
Ubrandit Common Stock entitled to vote on the Record Date will
constitute a quorum. Proxies received but marked as abstentions and
broker non-votes will be included in the calculation of the number of
shares considered to be present at the Annual Meeting for quorum
purposes.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: Ubrandit and Mindtronics are working towards consummating the Merger as
quickly as possible. Both companies hope to complete the Merger during
the first quarter of 2001. The exact timing of consummation of the
Merger cannot be determined because consummation of the Merger is
subject to a number of conditions.
Q: WHAT DO I NEED TO DO NOW?
A: We urge you to read this Proxy Statement carefully and to consider how
the Merger affects you. Then, just mail your completed and signed proxy
card in the enclosed return envelope as soon as possible so that your
shares can be voted at the Annual Meeting. The form of the proxy card
is attached to this Proxy Statement as APPENDIX I.
Q: DO I NEED TO ATTEND THE ANNUAL MEETING?
A: No. You can vote by completing and signing your proxy card and
returning it in the enclosed postage-paid envelope. We anticipate that
most Ubrandit Stockholders will not attend the Annual Meeting in
person.
Q: WHAT IF I DON'T VOTE?
A: If you respond and do not indicate how you vote, your proxy will be
counted as a vote "FOR" the Merger Agreement and the transactions
contemplated thereby, including the Merger. If you respond and mark
your proxy to indicate that you abstain from voting, your proxy will
not affect the outcome of the vote, but it will be counted toward a
quorum. If you do not respond, your shares of Ubrandit Common Stock
will not be counted in the vote or in determining whether a quorum is
present at the Annual Meeting.
Q: MAY I VOTE IN PERSON?
A: Yes. You may attend the Annual Meeting and vote your shares in person,
rather than sign and return your proxy card.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You may change your vote at any time before your proxy card is
voted at the Annual Meeting. You can do so in one of three ways. First,
you can send a written notice stating that you would like to revoke
your proxy. Second, you can complete and submit a new, later-dated
proxy card to the Secretary of Ubrandit. Third, you can attend the
Annual Meeting and vote in person. Your attendance alone will not
revoke your proxy. If you have instructed a broker to vote your shares,
you must follow directions received from your broker to change those
instructions.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on
how to vote by following the information provided to you by your
broker.
-2-
Q: AM I ENTITLED TO DISSENTERS' OR APPRAISAL RIGHTS?
A: No. Under the Nevada Law, holders of Ubrandit Common Stock are not
entitled to dissenters' or appraisal rights in connection with the
Merger.
Q: IS THE MERGER A TAXABLE TRANSACTION?
A: Ubrandit Stockholders and Mindtronics Stockholders will not recognize
gain or loss for United States federal income tax purposes as a result
of the Merger, except that Mindtronics Stockholders will recognize gain
or loss with respect to cash received instead of fractional shares of
Ubrandit Common Stock. All Ubrandit Stockholders are urged to consult
their own tax advisors to determine their particular tax consequences.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you are a Ubrandit Stockholder and would like additional copies,
without charge, of this Proxy Statement, or if you have questions about
the Merger, including questions about the procedures for voting your
shares, you should contact: Jefferey D. Phillips, President of
Ubrandit, at (858) 350-9566.
[INTENTIONALLY LEFT BLANK]
-3-
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION REGARDING UBRANDIT,
MERGER SUB, MINDTRONICS AND THE MERGER. FURTHER INFORMATION REGARDING UBRANDIT
IS SET FORTH IN THE CONSOLIDATED FINANCIAL STATEMENTS OF UBRANDIT, WHICH ARE
ATTACHED TO THIS PROXY STATEMENT AS APPENDIX A (AUDITED AS OF SEPTEMBER 30, 2000
AND 1999, AND FOR THE YEAR ENDED SEPTEMBER 30, 2000, THE NINE-MONTH PERIOD ENDED
SEPTEMBER 30, 1999 AND THE YEAR ENDED DECEMBER 31, 1998). FURTHER INFORMATION
REGARDING MINDTRONICS IS SET FORTH IN THE CONSOLIDATED FINANCIAL STATEMENTS OF
MINDTRONICS, WHICH ARE ATTACHED TO THIS PROXY STATEMENT AS APPENDIX B (AUDITED
AS OF SEPTEMBER 30, 2000 AND 1999, AND FOR THE YEARS THEN ENDED AND FOR THE
PERIOD FROM MAY 20, 1998 (INCEPTION) TO SEPTEMBER 30, 2000). UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS ON A POST-MERGER BASIS ARE ATTACHED TO
THIS PROXY STATEMENT AS APPENDIX C. A MORE COMPLETE DESCRIPTION OF THE MERGER IS
SET FORTH IN THE MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED TO THIS PROXY
STATEMENT AS APPENDIX E.
THE FOLLOWING SUMMARY NECESSARILY IS INCOMPLETE AND SELECTIVE AND IS
QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION CONTAINED IN THE
DOCUMENTS INCLUDED WITH THIS PROXY STATEMENT. ALL UBRANDIT STOCKHOLDERS ARE
URGED TO READ THIS PROXY STATEMENT AND THE ACCOMPANYING DOCUMENTS IN THEIR
ENTIRETY. ALL CAPITALIZED TERMS IN THIS PROXY STATEMENT THAT ARE NOT OTHERWISE
DEFINED HEREIN WILL HAVE THE MEANINGS ASCRIBED TO THEM IN THE MERGER AGREEMENT.
THE DELIVERY OF THIS PROXY STATEMENT WILL NOT UNDER ANY CIRCUMSTANCE
CREATE AN IMPLICATION THAT NO CHANGE HAS OCCURRED IN THE AFFAIRS OF UBRANDIT OR
MINDTRONICS SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS PROXY
STATEMENT IS CORRECT AT ANY TIME AFTER THE DATE HEREOF.
THE COMPANIES
UBRANDIT. Ubrandit.com is a corporation organized and existing under
the laws of the State of Nevada. Its principal offices are located at 6405 Mira
Mesa Boulevard, Suite 100, San Diego, California 92121. Ubrandit is a
business-to-business provider of branded Internet services.
MERGER SUB. Ubrandit Acquisition Corporation is a corporation organized
and existing under the laws of the State of Nevada that is a corporation
wholly-owned by Ubrandit.com and will be used for the purpose of effecting the
acquisition of Mindtronics by means of the Merger. Merger Sub has no material
assets and is not engaged in any activity except in connection with the proposed
acquisition. Merger Sub's executive offices are located at 6405 Mira Mesa
Boulevard, Suite 100, San Diego, California 92121.
MINDTRONICS. Mindtronics Corporation is a corporation organized and
existing under the laws of the State of Nevada with its principal executive
offices located at 4500 Wasatch Boulevard, Suite 210, Salt Lake City, Utah
84124. Mindtronics anticipates moving its headquarters to a different location
early in the first quarter of 2001. SEE "Information About
Mindtronics--Properties." Mindtronics is a research and development company
engaged in advanced research and development for computer hardware, software,
integrated technologies and innovative applications of leading-edge technology
and methodology. Mindtronics currently is undertaking to patent certain of its
products and recently commenced marketing and licensing certain of its specialty
technologies.
THE MERGER (SEE Page 35)
Upon consummation of the Merger, under the terms and subject to the
conditions set forth in the Merger Agreement, Merger Sub will be merged with and
into Mindtronics, the separate corporate existence of Merger Sub will cease, and
Mindtronics will continue as the surviving corporation and wholly-owned
subsidiary of Ubrandit.
-4-
CONVERSION OF SECURITIES (SEE Page 35)
Under the terms of the Merger Agreement, each issued and outstanding
share of Mindtronics Common Stock (other than shares held by persons exercising
and perfecting dissenters' rights in accordance with Sections 92A.300 ET SEQ. of
the Nevada Law) will be converted into the right to receive a number of
newly-issued shares of Ubrandit Common Stock equal to 12,100,000 divided by the
number of shares of Mindtronics Common Stock outstanding immediately before the
Effective Time of the Merger (the "EXCHANGE RATE"); provided that, if before the
Effective Time of the Merger any dividend is declared or paid on shares of
Ubrandit Common Stock or the shares of Ubrandit Common Stock are adjusted
pursuant to any stock dividend, stock split, reverse stock split or other
similar transaction, then the Exchange Rate will be proportionately adjusted
accordingly. A portion of the shares of Ubrandit Common Stock to be issued
pursuant to Merger Agreement will be deposited in an escrow account pursuant to
the Merger Agreement.
CONDITIONS TO CONSUMMATION OF THE MERGER (SEE Page 36)
Ubrandit's and Mindtronics' respective obligations to complete the
Merger are subject to the satisfaction or waiver of the closing conditions
detailed in the Merger Agreement.
Among such conditions to Mindtronics' obligation to complete the Merger
is that Ubrandit must have made a secured loan to Mindtronics in the principal
amount of $750,000, which Ubrandit is obligated to advance to Mindtronics in
accordance with a budget and schedule pre-approved by Ubrandit, pursuant to an
executed Loan and Security Agreement substantially in the form attached to the
Merger Agreement (the "LOAN AGREEMENT"). At the date of this Proxy Statement,
under the Loan Agreement, Ubrandit has disbursed loan funds to Mindtronics in
the aggregate principal amount of $368,000.
If either Ubrandit or Mindtronics waives any condition, we will
consider the facts and circumstances at that time and make a determination
whether a restriction of proxies from the Ubrandit Stockholders is appropriate.
EFFECTIVE TIME OF THE MERGER
The Merger will be consummated upon the filing with the Nevada
Secretary of State of Articles of Merger (the "ARTICLES OF MERGER") as required
by Section 92A.200 of the Nevada Law (the "EFFECTIVE TIME OF THE MERGER").
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMBINED COMPANY FOLLOWING THE MERGER
Following the Merger, the Ubrandit Board of Directors will consist of:
Roger C. Royce Mark K. La Count
Jefferey D. Phillips Rod Ylst
James W. Truher M. Karlynn Hinman
Steven K. Radowicz
In order for the Ubrandit Board to be so constituted at that time, immediately
following the Merger, or as soon as practicable thereafter, Messrs. David C.
Pollei and Gregory V. Gibson, each of whom currently is a director of Ubrandit
and a management nominee for election as a director at the Annual Meeting (SEE
"Proposal One"), will resign from the Ubrandit Board of Directors, and the
remaining Ubrandit directors thereupon will fill the two vacancies then existing
by appointing Mark K. La Count and Rod Ylst as directors of Ubrandit. In
addition, at that time the Ubrandit Board will expand the Ubrandit Board to
consist of seven directors and appoint M. Karlynn Hinman as a new additional
director of Ubrandit. For the biographies of Mark K. La Count, Rod Ylst and M.
Karlynn Hinman, SEE "Information About Mindtronics--Directors and Executive
Officers of Mindtronics." In the event that the Ubrandit Stockholders approve
the Third Amendment to Articles at the Annual Meeting, or in the event that an
amendment to the Articles of Incorporation of Ubrandit substantially identical
to the Third Amendment to Articles is approved by the Ubrandit Stockholders at
the Post-Closing Special Meeting, if held (SEE "Purposes of the Annual Meeting"
above), then all three of such newly-appointed Ubrandit directors will be Class
1 directors. SEE "Proposal Six Amendment to Ubrandit Articles of Incorporation
that will Provide for Staggered Terms for Directors."
-5-
Following the Merger, the officers of Ubrandit will be as follows:
Chairman and CEO Roger C. Royce
President Rod Ylst
CFO (interim) Mark Cullivan
Executive Vice President Jefferey D. Phillips
Executive Vice President Mark K. La Count
Secretary Christopher A. Wilson
Following the Merger, the Mindtronics Board of Directors will consist
of:
Roger C. Royce Mark K. La Count
Jefferey D. Phillips Rod Ylst
James W. Truher M. Karlynn Hinman
Steven K. Radowicz
Following the Merger, the officers of Mindtronics will be as follows:
Chairman and CEO Roger C. Royce
President Rod Ylst
CFO (interim) Mark Cullivan
Executive Vice President Jefferey D. Phillips
Executive Vice President Mark K. La Count
Secretary Christopher A. Wilson
TERMINATION OF THE MERGER AGREEMENT (SEE Page 41)
Each of Ubrandit and Mindtronics has the right to terminate the Merger
Agreement under certain circumstances. In certain cases, termination of the
Merger Agreement will require payment of a termination fee by Ubrandit.
DISSENTERS' RIGHTS
Under the Nevada Law, Ubrandit Stockholders are not entitled to
dissenters' rights.
Shares of Mindtronics Common Stock that are not voted in favor of the
Merger and that have exercised and perfected dissenters' rights in accordance
with the Nevada law will not be converted into the right to receive shares of
Ubrandit Common Stock in accordance with the Exchange Rate unless and until the
holder of such shares withdraws his demand for dissenters' rights or becomes
ineligible for dissenters' rights. If a holder of dissenting shares withdraws
his demand for dissenters' rights or becomes ineligible for dissenters' rights,
then, as of the Effective Time of the Merger or the occurrence of such event,
whichever occurs later, such holder's dissenting shares will cease to be
dissenting shares and will be converted into and represent the right to receive
shares of Ubrandit Common Stock in accordance with the Exchange Rate.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE Page 34)
We have structured the Merger so that, in general, Ubrandit, the
Ubrandit Stockholders, Mindtronics and the Mindtronics Stockholders will not
recognize gain or loss for United States federal income tax purposes in
connection with the Merger, except as a result of cash received by Mindtronics
Stockholders instead of fractional shares of Ubrandit Common Stock.
It is a condition to the Merger that both Ubrandit and Mindtronics
receive legal opinions to the effect that the Merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code.
-6-
TAX MATTERS CAN BE COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER
TO YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR
OWN TAX ADVISORS TO UNDERSTAND FULLY THE TAX CONSEQUENCES OF THE MERGER TO YOU.
REASONS FOR THE MERGER (SEE Page 33)
The Ubrandit Board of Directors believes that combining the resources
of Ubrandit and Mindtronics pursuant to the Merger could provide Ubrandit and
the Ubrandit Stockholders with an opportunity for long-term growth and
profitability. In assessing the proposed Merger, management of Ubrandit reviewed
the past performance and future potential of Mindtronics, Mindtronics' existing
and proposed product lines and the capabilities of Mindtronics' management
personnel, as compared to other potential candidates for a business combination
with Ubrandit. Among the factors that contributed to the recommendation of the
Ubrandit Board to approve the Merger are, in order of relative importance, (i)
Mindtronics' innovate existing and proposed line of products, (ii) the potential
for sales growth if such products are accepted as industry standards and (iii)
the capabilities of Mindtronics' technical and management personnel. The
Ubrandit Board also believes that the combination of the two research and
development teams may assist in the enhancement of each company's existing line
of products and the development of new products. Although Mindtronics' history
of operating losses initially caused concern, the management of Ubrandit
attributes such matters primarily to the costs and risks inherent in any
business enterprise engaged primarily in the research and development of
products, particularly high-technology products, and believes that Mindtronics'
revenue and earnings will commence upon completion of product commercialization
anticipated to occur commencing in the first quarter of calendar year 2001. The
Ubrandit Board also considered that Ubrandit's current business model has
generated insufficient revenues and no net profits and is not expected to do so
in the foreseeable future and that Ubrandit's market niche appears to have
fallen out of favor in the investment community, making it extremely difficult
for Ubrandit to raise much-needed investment capital.
Based on all of the foregoing and such other factors as the Ubrandit
Board may have deemed appropriate, the Ubrandit Board believes that the Merger
represents the best opportunity for the redeployment of Ubrandit's assets. With
respect to its decision, the Ubrandit Board did not retain any third party to
conduct an independent valuation of Mindtronics or render a fairness opinion as
to the Merger. The Ubrandit Board does not believe that an independent valuation
or opinion is necessary in making its determination that the Merger is in the
best interests of the Ubrandit Stockholders. The managements of Ubrandit and
Mindtronics determined by negotiation the number of shares of Ubrandit Common
Stock to be issued to Mindtronics Stockholders in connection with the Merger.
FUTURE OF UBRANDIT IF THE MERGER IS NOT CONSUMMATED
Management of Ubrandit believes that the Merger is in the best
interests of, and recommends that it be approved by, the Ubrandit Stockholders.
If the Merger is not consummated, Ubrandit intends to continue providing its
current products and services to client websites and to seek new alternative
acquisition candidates that have Internet technologies and/or Internet-related
businesses. SEE "Information About Ubrandit."
RECOMMENDATION OF THE UBRANDIT BOARD OF DIRECTORS
The Ubrandit Board of Directors unanimously has approved and adopted
the Merger Agreement and the Merger and recommends a vote "FOR" approval of the
Merger Agreement and the transactions contemplated thereby, including the
Merger.
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER
On the Ubrandit Record Date, the executive officers and directors of
Ubrandit beneficially owned an aggregate of 1,681,880 shares of Ubrandit Common
Stock, or approximately 13.54% of the shares of Ubrandit Common Stock then
outstanding.
-7-
We currently expect that the directors and executive officers of
Ubrandit will vote the shares of Ubrandit Common Stock owned by them "FOR" the
proposal to approve and adopt the Merger Agreement and the transactions
contemplated thereby.
Roger C. Royce, Ubrandit's Chairman of the Board of Directors and Chief
Operating Officer and a Ubrandit Stockholder, owns of record 1,000,000 shares of
Mindtronics Common Stock. Mr. Royce has executed and delivered to Ubrandit a
certain Stockholder Support Agreement, pursuant to which Mr. Royce is obligated
to vote all of his shares of Mindtronics Common Stock to approve the Merger
Agreement and the transactions contemplated thereby.
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase" transaction under
generally accepted accounting principles.
REGULATORY APPROVALS
No federal or state regulatory approvals are required and no federal or
state regulatory requirements must be complied with to consummate the Merger
other than (i) compliance with certain state securities laws in order to offer
and/or sell shares of Ubrandit Common Stock in such states pursuant to the
Merger and (ii) the filing of the Articles of Merger with the Nevada Secretary
of State.
MARKET PRICE AND DIVIDEND DATA
Ubrandit Common Stock is listed on AMEX and designated under the symbol
"UBI." The following table sets forth, for the periods indicated, the range of
high and low per share sales prices for Ubrandit Common Stock as reported on
AMEX.
UBRANDIT COMMON STOCK
LOW HIGH
FISCAL YEAR ENDING SEPTEMBER 30, 2001
First quarter........................... $0.375 $2.125
FISCAL YEAR ENDING SEPTEMBER 30, 2000
First quarter........................... 2.875 6.125
Second quarter.......................... 3.000 7.000
Third quarter........................... 2.438 7.000
Fourth quarter.......................... 1.875 4.625
FISCAL YEAR ENDING SEPTEMBER 30, 1999
Second quarter.......................... 0.375 3.625
Third quarter........................... 3.750 11.625
Fourth quarter.......................... 4.250 7.625
RESPECTIVE FISCAL QUARTERS
Ubrandit's fiscal year ends on September 30, and Mindtronics' fiscal
year also ends on September 30.
-8-
AMEX LISTING
Following the Merger, Ubrandit Common Stock will continue to be listed
on AMEX. Further, shares of Ubrandit Common Stock issued to Mindtronics
Stockholders in connection with the Merger also will be listed on AMEX. But SEE
"Risk Factors--Risks Related to the Merger--The Board of Governors of AMEX has
the authority at any time to de-list from trading on AMEX shares of Ubrandit
Common Stock."
ABSENCE OF DIVIDENDS
Ubrandit never has declared or paid cash dividends on Ubrandit Common
Stock. The policy of Ubrandit is to retain earnings, if any, for use in
Ubrandit's business.
SELECTED FINANCIAL INFORMATION AND COMPARATIVE PER SHARE DATA
UBRANDIT SELECTED FINANCIAL DATA
The following table sets forth certain historical consolidated
financial data for Ubrandit for the fiscal year ended September 30, 2000, the
nine months ended September 30, 1999 and the fiscal year ended December 31,
1998, which have been derived from the audited consolidated financial statements
of Ubrandit. SEE APPENDIX A. Ubrandit was incorporated and first began
operations on December 19, 1997. Historical financial data may not be indicative
of Ubrandit's future performance. This information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and notes thereto included
elsewhere in this Proxy Statement.
Fiscal Year Nine Months Fiscal Year
Ended Ended Ended
September 30, September 30, December 31,
2000 1999(restated) 1998
------------- ------------- -------------
INCOME STATEMENT DATA
Revenue $ 869,623 $ 35,656 $ --
Cost of sales $ 1,100,405 $ 567,286 $ --
Operating expenses $ 2,398,389 $ 547,095 $ 93
Loss from operations $ (2,629,121) $ (1,078,725) $ (93)
Other income (expense), net $ 225,321 $ 30,973 $ --
Net loss $ (2,403,850) $ (1,047,752) $ (93)
Earnings (loss) per share -
Basic and diluted $ (0.20) $ (0.11) $ (0.00)
September 30, September 30, December 31,
2000 1999 1998
------------- ------------- -------------
BALANCE SHEET DATA
Total current assets $ 3,879,890 $ 5,704,834 $ 44,187
Total assets $ 5,965,327 $ 6,907,655 $ 44,507
Total current liabilities $ 393,978 $ 77,641 $ 400
Total liabilities $ 424,522 $ 86,500 $ 400
Total shareholders equity $ 5,540,805 $ 6,821,155 $ 44,107
[INTENTIONALLY LEFT BLANK]
-9-
MINDTRONICS SELECTED FINANCIAL DATA
The following table sets forth certain selected consolidated financial
data for Mindtronics for each year ended September 30, since Mindtronics'
predecessor corporation's inception, Mindtronics, Inc., on May 28, 1998. The
selected financial data should be read in conjunction with the consolidated
financial statements of Mindtronics and the notes thereto included elsewhere in
this Proxy Statement.
Fiscal Year Ended Fiscal Year Ended
September 30, 2000 September 30, 1999
------------------ ------------------
INCOME STATEMENT DATA
Revenue -- --
Cost of sales -- --
Operating expenses $ (450,025) $ (7,500)
Loss from operations $ (450,025) $ (7,500)
Other income (expense), net $ (3,872) $ (950)
Net loss $ (453,897) $ (8,450)
Earnings (loss) per share-basic
and diluted $ (0.05) $ 0.00
BALANCE SHEET DATA
Total current assets $ 20,697 $ 1,570
Total assets $ 98,345 $ 1,570
Total current liabilities $ 66,372 --
Total liabilities $ 66,372 --
Total shareholder equity $ 31,973 $ 1,570
[INTENTIONALLY LEFT BLANK]
-10-
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited PRO FORMA condensed combined financial
information is based on historical financial statements and has been prepared to
illustrate the effects of the proposed acquisition of Mindtronics. The
acquisition contemplates Ubrandit's issuance of up to 12,100,000 shares of
Ubrandit Common Stock in exchange for all of the issued and outstanding shares
of Mindtronics Common Stock. The acquisition has not been consummated and is
subject to the satisfaction of various contingencies, including stockholder
approval.
Ubrandit's acquisition of Mindtronics will be accounted for using the
purchase method of accounting with the assets acquired and liabilities assumed
recorded at their fair market value as of the date of the acquisition. The
excess of the purchase price over the fair market value of the assets acquired
and liabilities assumed represents goodwill, which will be amortized on a
straight-line basis over the estimated useful life of five years.
The unaudited PRO FORMA condensed combined balance sheet information
assumes that the acquisition occurred on September 30, 2000, and was prepared
using the historical balance sheets of Ubrandit and Mindtronics as of that date.
The unaudited PRO FORMA condensed combined statement of operations information
illustrates the effect of the acquisition of Mindtronics on Ubrandit's results
of operations for the year ended September 30, 2000, assuming that the
acquisition took place on October 1, 1999.
The unaudited PRO FORMA condensed combined balance sheet information
and statement of operations information are not intended to be indicative of the
financial position or results of operations that actually would have been
realized had the acquisition occurred on the dates assumed or of future results
of operations of the entities on a combined basis. The unaudited PRO FORMA
condensed combined selected financial information should be read in conjunction
with the respective financial statements of Mindtronics and Ubrandit and the
notes thereto included elsewhere in this Proxy Statement.
Ubrandit and Mindtronics Unaudited PRO FORMA
--------------------------------------------
Condensed Combined Statement of Operations
------------------------------------------
Revenue $ 869,623
Cost of sales $(1,100,405)
Operating Expenses $(4,853,039)
Loss from operations $(5,083,821)
Other income (expense). net loss $ 221,449
Net loss $(4,862,372)
Earnings (loss) per share-
Basic and diluted $ (0.20)
Ubrandit and Mindtronics Unaudited PRO FORMA
--------------------------------------------
Condensed Combined Balance Sheet
--------------------------------
Total current assets $ 3,900,587
Total assets $16,086,799
Total current liabilities $ 460,350
Total liabilities $ 490,894
Total stockholders' equity $15,595,905
Net tangible book value per share $ 0.16
[INTENTIONALLY LEFT BLANK]
-11-
SECURITIES LAW COMPLIANCE
Ubrandit has not filed a registration statement with the Securities and
Exchange Commission (the "SEC") pursuant to the Securities Act of 1933, as
amended (the "SECURITIES ACT"), with respect to the issuance of Ubrandit Common
Stock in connection with the Merger. Rather, Ubrandit intends to rely on an
exemption from the registration requirements of Section 5 of the Securities Act
with respect to the Merger. Accordingly, Ubrandit Common Stock issued in
connection with the Merger will be "restricted" for the purposes of the
Securities Act. Investment Representation Letters will be completed by
Mindtronics Stockholders for certain statements concerning, and their
acknowledgement of, the restricted nature of the Ubrandit Common Stock issuable
in connection with the Merger.
NEITHER THE MERGER NOR THE SECURITIES OF UBRANDIT ISSUABLE IN
CONNECTION WITH THE MERGER HAVE BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
FORWARD-LOOKING INFORMATION
This Proxy Statement contains certain forward-looking statements (as
such term is defined in Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934) and information relating to Ubrandit
and Mindtronics that are based on the beliefs of the management of Ubrandit and
Mindtronics as well as assumptions made by and information currently available
to the management of Ubrandit and Mindtronics. In addition, when used in this
document, the words "likely," "will," "suggests," "may," "would," "could,"
"anticipate," "believe," "estimate," "expect," "intend," "plan," "predict" and
similar expressions and their variants, as they relate to Ubrandit or
Mindtronics or the management of either company, may identify forward-looking
statements. Such statements reflect the judgment of Ubrandit or Mindtronics
management at the date of this Proxy Statement with respect to future events,
the outcome of which is subject to certain risks, including the risk factors set
forth herein, which may have a significant impact on the business, operating
results or financial conditions of Ubrandit, Mindtronics or the combined
company. Ubrandit Stockholders are cautioned that these forward-looking
statements are inherently uncertain. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results or outcomes may vary materially from those described herein.
Neither Ubrandit nor Mindtronics undertakes any obligation to update
forward-looking statements.
[INTENTIONALLY LEFT BLANK]
-12-
RISK FACTORS
You should consider the following factors in evaluating whether to
approve and adopt the Merger Agreement and the Merger. These factors should be
considered in conjunction with the other information included or incorporated by
reference in this Proxy Statement.
RISKS RELATED TO THE MERGER:
MINDTRONICS FINANCIAL CONDITION IS SERIOUSLY ADVERSE.
Since inception, the operating capital of Mindtronics has been provided
primarily through the sale of common stock, advances from stockholders and the
Loan made by Ubrandit to Mindtronics. SEE "Certain Terms of the Merger
Agreement--Loan Agreement." While it is Mindtronics' intent to generate working
capital from the sale of its products, Mindtronics expects that it will require
no less than $975,000 of additional operating capital during fiscal year 2001,
assuming that operations are maintained at their current level. Such funds will
be required even if the Merger is consummated, as Ubrandit historically has and
currently is generating losses from operations and thus is not expected to
generate positive cash flow from its operations in the foreseeable future. There
can be no assurance that Mindtronics or Ubrandit will be able to obtain the
required financing or that such financing will be available on terms acceptable
to Mindtronics or Ubrandit. Due to Mindtronics' historical operating losses,
there can be no assurance that Mindtronics' capital requirements will not
substantially exceed its current and future capital resources in the near or
long term. In the event that funds available to Mindtronics from Ubrandit are
insufficient for Mindtronics' working capital needs after the Merger is
consummated, Ubrandit and Mindtronics expect to issue additional Ubrandit equity
securities, either on a public or private basis. Such issuances would, if
consummated, affect the ongoing capital structures of Mindtronics or Ubrandit.
At the date of this Proxy Statement, no agreement with respect to any such
issuance has been entered into, and there can be no assurance that any such
issuance will be consummated. In the event that funding sources are not
available as and when needed by Mindtronics, management of Mindtronics would be
required to reduce significantly Mindtronics' operating costs until such
financing became available. Failure to obtain additional financing, if needed,
could have a severe adverse impact on the combined business and results of
operations of Mindtronics and Ubrandit and could result in Mindtronics and
Ubrandit being unable to continue as a going concern.
IT IS ANTICIPATED THAT THE COMBINED COMPANIES WILL NEED AN INFUSION OF
ADDITIONAL EQUITY CAPITAL IN THE SHORT-TERM FUTURE IN ORDER TO CONTINUE AND
MAINTAIN THEIR PRODUCT DEVELOPMENT EFFORTS AND EXPECTED LEVELS OF OPERATIONS.
There can be no assurance that additional capital from any source will
be available when needed by Ubrandit and/or Mindtronics or that such capital
will be available under terms acceptable to Ubrandit and/or Mindtronics on a
timely basis. If additional funds are raised through the issuance of equity,
convertible debt or similar securities of Ubrandit, the percentage of ownership
of Ubrandit by the Ubrandit Stockholders will be reduced, the Ubrandit
Stockholders will experience dilution, and such securities may have rights or
preferences senior to those of Ubrandit Common Stock. Moreover, if adequate
funds were not available to satisfy Ubrandit's short-term or long-term capital
requirements (which will include capital required to finance some or all of
Mindtronics' business operations and those of its subsidiaries), Ubrandit would
be required to limit its operations significantly as well as those of
Mindtronics and its subsidiaries. Ubrandit's and Mindtronics' capital
requirements will depend on many factors, including, without limitation, the
rate at which Ubrandit and Mindtronics can introduce their products and
services, the market acceptance and competitive position of such products and
services and the response of the competitors to such products and services.
EXPECTATIONS CONCERNING THE FUTURE OPERATIONS OF THE BUSINESSES OF THE COMBINED
COMPANIES MAY NOT BE FULFILLED.
In determining the terms of the proposed Merger, the managements of
Ubrandit and Mindtronics evaluated the respective businesses of Ubrandit and
Mindtronics based in part on the expectations concerning the future operations
of the businesses of the combined companies. The evaluations reflected to a
material extent the expectation that Mindtronics would commence the sale of its
products and that such sales would increase as a result of the development and
enhancement of new and existing Mindtronics' products financed by the Loan made
by Ubrandit to Mindtronics. SEE "Certain Terms of the Merger Agreement--Loan
Agreement." There can be no assurance that these expectations will be fulfilled.
-13-
IF UBRANDIT AND MINDTRONICS CANNOT EFFECTIVELY INTEGRATE THEIR OPERATIONS AND
INFRASTRUCTURE, SOME OF THE POTENTIAL BENEFIT OF THE MERGER WILL NOT BE
REALIZED.
One reason for the Merger is that it is expected to allow Ubrandit to
use Mindtronics' facilities and employees to provide an enhanced level of
services in connection Ubrandit's business. To do so, Ubrandit and Mindtronics
will have to integrate their networks and management teams and their managed and
professional services operations. If this integration effort is not successful,
then results of operations could be affected adversely, employee morale could
decline, key employees could leave and customers could cancel existing orders or
decide not to place new ones. In addition, difficulties or delays in the
integration of the operations of Ubrandit and Mindtronics could disrupt customer
services after the Merger. If Ubrandit's operations after the Merger do not meet
the expectations of Ubrandit's or Mindtronics' existing or future customers,
then those customers might reduce their future orders or cease doing business
with the combined company altogether.
THE MARKET PRICE OF UBRANDIT COMMON STOCK IS HIGHLY VOLATILE AND COULD DECLINE
AS A RESULT OF THE MERGER.
In the past, Ubrandit Common Stock has experienced substantial price
volatility. Such volatility might occur in the future, which could cause
Ubrandit Common Stock to be worth less after the Merger than before the Merger.
Volatility can occur particularly as a result of quarter-to-quarter variations
in the actual or anticipated financial results of Ubrandit, its customers or
competitors and announcements by Ubrandit or its competitors regarding new
products and services introductions. In addition, the market price of Ubrandit
Common Stock can fluctuate due to price and volume fluctuations in the stock
market, particularly those that affect the market price of Internet stocks.
In addition, the market price of Ubrandit Common Stock might decline
significantly as a result of the Merger if:
o Ubrandit does not experience the benefits of the Merger as
quickly as anticipated, or at all, or the costs of or
operational difficulties arising from the Merger are greater
than anticipated; or
o the impact of the Merger on Ubrandit's financial results is
not in line with the expectations of financial analysts.
THE MERGER COULD RESULT IN THE LOSS OF EMPLOYEES AT UBRANDIT AND MINDTRONICS
BEFORE AND AFTER CONSUMMATION OF THE MERGER.
Whether or not the Merger occurs, Ubrandit and Mindtronics may be
unable to retain some of their key employees. Mindtronics currently has "at
will" employment agreements with Mark K. La Count, Rod Ylst, M. Karlynn Hinman,
Robert Mabey, David Yurth and Ross Stenquist. It is anticipated that, in
connection with the Merger, Mindtronics will enter into three-year employment
agreements with Mark K. La Count, Rod Ylst and M. Karlynn Hinman. Although
incentives that may be offered by Ubrandit and Mindtronics to their employees
after announcement of the Merger may mitigate this effect, it is possible that
employees will seek employment elsewhere. After the Merger, integration of the
businesses of Ubrandit and Mindtronics could result in changes in the culture
and operations of the companies that could cause the combined company to lose
key employees. The success of the combined company will depend in part on its
ability to attract and retain highly-skilled technical, managerial, sales and
marketing personnel, particularly additional management in the areas of
application integration and technical support. After the Merger, Ubrandit may
not be able to hire or retain the necessary personnel to integrate Mindtronics
with Ubrandit and implement its business strategy. In addition, Ubrandit may
need to pay higher compensation for employees than it currently expects. Neither
Ubrandit nor Mindtronics is aware of any impending departure of any of its key
personnel. The combined company's inability to retain and attract key employees
could have a material adverse effect on the combined company's product
development and results of operations.
-14-
IF MEMBERS OF MINDTRONICS' MANAGEMENT LEAVE, THE POTENTIAL BENEFITS OF THE
MERGER MAY NOT BE REALIZED.
Success of the Merger will depend, in significant part, on the
continued services of Mindtronics' management personnel and of its key technical
and sales personnel. If members of Mindtronics' current management were to
terminate their employment with Mindtronics, the ability of Ubrandit to manage
Mindtronics' business and workforce after the Merger would be harmed, and
Mindtronics' operations could be disrupted. Although members of the Mindtronics'
management team will be subject to non-competition agreements with Ubrandit and
Mindtronics after the Merger, these agreements may not result in the retention
of any member of the management of Mindtronics for any significant time. A loss
of any member of Mindtronics' management could prevent Ubrandit from realizing
or defer realization of the benefits that Ubrandit anticipates from the Merger.
THE COMBINED COMPANY MAY NOT BE ABLE TO DEVELOP OR ACQUIRE NEW PRODUCTS AND
SERVICES AND ENHANCE THEIR EXISTING PRODUCTS AND SERVICES ON A TIMELY BASIS TO
ACCOMMODATE THE LATEST TECHNOLOGICAL ADVANCES.
The Internet industry in which Ubrandit and Mindtronics compete is
characterized by frequent and rapid changes in technology and customer
preferences. Ubrandit's and Mindtronics' competitiveness have depended on their
abilities to enhance their existing products and to offer new products on a
timely basis. Ubrandit and Mindtronics, having more limited resources than many
of their competitors, have restricted their product development efforts to a
relatively small number of projects. The combined company will be required to
develop or acquire new products and enhance its existing products on a timely
basis to accommodate the latest technological advances. There can be no
assurance that these efforts will be technologically successful, that any
resulting product will achieve market acceptance or that the combined company
will develop products that ultimately are accepted by the marketplace.
THE COMBINED COMPANY'S MEANS OF PROTECTING PROPRIETARY RIGHTS AND PRODUCTS MAY
BE INADEQUATE.
With the exception of Mindtronics' "Nano Time" technology, for which
Mindtronics has filed a patent application with the United States Patent and
Trademark Office, Ubrandit and Mindtronics rely on a combination of trade
secrets and contractual provisions to protect their respective proprietary
rights and products. No assurance can be given that these protections will be
adequate or that the competitors of Ubrandit or Mindtronics will not develop
independently technologies that are substantially equivalent or superior to
those of Ubrandit or Mindtronics. In addition, the laws of certain countries in
which the products of Mindtronics are licensed or sold (such as Germany) may
offer less protection of intellectual property rights than the laws of the
United States.
UBRANDIT AND MINDTRONICS COMPETE IN INDUSTRIES THAT ARE CHARACTERIZED BY RAPID
TECHNOLOGICAL CHANGE.
Many of Ubrandit's and Mindtronics' competitors have established market
positions, and a number of them are major corporations that have substantially
greater financial resources than Ubrandit or Mindtronics and that expend
considerably larger sums than does Ubrandit or Mindtronics for research, new
product development and marketing.
THE COMPOSITION OF THE UBRANDIT BOARD OF DIRECTORS WILL CHANGE.
Immediately following the Merger, or as soon as practicable thereafter,
Messrs. David C. Pollei and Gregory V. Gibson, each of whom currently is a
director of Ubrandit and a management nominee for election as a director at the
Annual Meeting (SEE "Proposal One"), will resign from the Ubrandit Board of
Directors, and the remaining Ubrandit directors thereupon will fill the two
vacancies then existing by appointing Mark K. La Count and Rod Ylst as directors
of Ubrandit. In addition, at that time the Ubrandit Board will expand the
Ubrandit Board to consist of seven directors and appoint M. Karlynn Hinman as a
new additional director of Ubrandit. All three of such new appointees currently
are directors, officers and principal stockholders of Mindtronics. As a
consequence of the foregoing, after consummation of the Merger, former
affiliates of Mindtronics may have a significant impact on the policies and
management of the combined company.
-15-
THE COSTS ASSOCIATED WITH THE MERGER MAY BE HIGHER THAN EXPECTED, WHICH COULD
HARM THE FINANCIAL RESULTS OF THE COMBINED COMPANY AND CAUSE A DECLINE IN THE
VALUE OF UBRANDIT COMMON STOCK.
Ubrandit and Mindtronics estimate that they will incur direct
transaction-related costs of approximately $400,000 associated with the Merger.
Ubrandit expects to incur additional costs associated with consolidation and
integration of operations. These costs cannot be estimated accurately at this
time. If the total costs of the Merger and related consolidation and integration
exceed estimates, or if the costs of the Merger exceed the benefits of the
Merger, the financial results of the combined company would suffer. Any
shortfall in anticipated operating results could cause the market price of
Ubrandit Common Stock to decline. In addition, the market price of Ubrandit
Common Stock could decline immediately, and perhaps significantly, if Ubrandit
does not experience business benefits as quickly or in as great an amount as
expected by securities analysts.
THE ACQUISITIONS UBRANDIT RECENTLY COMPLETED MAY INCREASE THE INTEGRATION
DIFFICULTIES ASSOCIATED WITH THE MERGER.
The challenges of integrating the operations of Ubrandit and
Mindtronics will be increased by ongoing efforts associated with the continuing
integration of Ubrandit's other recent acquisitions: Global Investors Guide and
ClickSmart.com. SEE "Information about Ubrandit--Business of Ubrandit, Recent
Developments." Further, Ubrandit anticipates that in the future it will continue
to consider other acquisitions of businesses and assets to expand its business
and to acquire complementary technologies and personnel. The integration of
multiple organizations requires a substantial amount of management resources and
attention. These acquisitions, as well as other potential future acquisitions,
will require Ubrandit to manage and integrate the acquired businesses and their
personnel, which may be located in diverse geographic locations, and also will
require Ubrandit to develop and market services to new markets with which
Ubrandit may not be familiar. Ubrandit's failure to manage and integrate
acquired businesses successfully and to retain their employees and customers,
and to address new markets associated with the acquired businesses successfully,
would harm Ubrandit's business and increase the difficulties associated with the
integration of the operations of Ubrandit.
AFFILIATES OF UBRANDIT AND MINDTRONICS MAY HAVE THE ABILITY TO DELAY OR PREVENT
A CHANGE IN CONTROL OR MANAGEMENT OF UBRANDIT.
Immediately following the Merger, the directors and executive officers
of Ubrandit and Mindtronics will hold approximately 55.6% of the total shares of
Ubrandit Common Stock then outstanding. SEE "Security Ownership of Ubrandit
after the Merger." Accordingly, affiliates of Ubrandit and Mindtronics may be
able to exercise a controlling influence over the business and affairs of
Ubrandit after the Merger, which could have the effect of delaying or preventing
a change in control or management of Ubrandit.
THE ISSUANCE OF SHARES OF UBRANDIT COMMON STOCK TO MINDTRONICS STOCKHOLDERS MAY
INCREASE VOLATILITY OF THE STOCK PRICE OF UBRANDIT COMMON STOCK.
The market price of Ubrandit Common Stock has been volatile. Possible
future announcements of technical innovations or new commercial products by
Ubrandit, Mindtronics or competitors of Ubrandit and/or Mindtronics and market
conditions in the technology industry may have a significant impact on the
market price of Ubrandit Common Stock. As a result of the Merger, Ubrandit will
issue up to 12,100,000 shares of Ubrandit Common Stock. In general, such shares
will not be freely tradable for at least one year following the Merger and
additionally will be subject to certain resale restrictions if held by
affiliates of Ubrandit or Mindtronics pursuant to Rules 144 and/or 145 under the
Securities Act. The eventual sale of such shares may cause substantial
fluctuations in the price of Ubrandit Common Stock.
THE MERGER WILL HAVE A DILUTIVE EFFECT ON THE UBRANDIT STOCKHOLDERS.
The shares of Ubrandit Common Stock to be issued to Mindtronics'
Stockholders in connection with the Merger will dilute substantially the
ownership interests of the current Ubrandit Stockholders compared to their
ownership interests in Ubrandit before the Merger. The issuance of additional
shares of Ubrandit Common Stock upon exercise of stock options that Ubrandit may
grant to Mindtronics' management and workforce after the Merger will result in
further dilution to current Ubrandit Stockholders.
-16-
Although Ubrandit and Mindtronics believe that beneficial synergies
will result from the Merger, there can be no assurance that the combining of the
two companies' businesses, even if achieved in an efficient, effective and
timely manner, will result in combined results of operations and financial
condition superior to what would have been achieved by each company
independently, or as to the period of time required to achieve such result. The
issuance of Ubrandit Common Stock in connection with the Merger will have the
effect of reducing Ubrandit's net income per share and could reduce the market
price of Ubrandit Common Stock unless and until revenue growth, cost savings
and/or other business synergies sufficient to offset the effect of such issuance
can be achieved. There can be no assurance that such synergies will be achieved.
Based on the number of shares of Ubrandit Common Stock outstanding at the Record
Date and the fact that up to 12,100,000 shares of Ubrandit Common Stock will be
issued in connection with the Merger, approximately 24,517,333 shares of
Ubrandit Common Stock will be outstanding upon consummation of the Merger. Based
on Ubrandit's book value at September 30, 2000 and on the unaudited PRO FORMA
book value of the combined companies at September 30, 2000, the Merger will
cause the tangible net book value per share of Ubrandit to decrease from $0.32
to $0.16.
AS A RESULT OF THE MERGER, FORMER MINDTRONICS STOCKHOLDERS WILL HAVE A
SUBSTANTIAL OWNERSHIP INTEREST IN UBRANDIT.
Upon consummation of the Merger, former Mindtronics Stockholders will
own up to 12,100,000 shares of Ubrandit Common Stock, representing approximately
49.35% of all shares of Ubrandit Common Stock then outstanding. As a result,
such former Mindtronics Stockholders will be able to influence the management of
Ubrandit. In addition, such former Mindtronics Stockholders will have influence
over the outcome of a stockholder vote on any matter relating to a change in
control of Ubrandit.
FUTURE SALES OF UBRANDIT COMMON STOCK BY FORMER MINDTRONICS STOCKHOLDERS COULD
CAUSE THE PRICE OF UBRANDIT COMMON STOCK TO DECLINE.
All of the shares of Ubrandit Common Stock issued upon consummation of
the Merger will be "restricted" shares under the federal securities laws.
Eventually, such shares will be tradable on the market. The market price of
Ubrandit Common Stock could decline as a result of sales by former Mindtronics
Stockholders of their shares of Ubrandit Common Stock or the perception that
such sales could occur.
THE BOARD OF GOVERNORS OF AMEX HAS THE AUTHORITY AT ANY TIME TO DE-LIST FROM
TRADING ON AMEX SHARES OF UBRANDIT COMMON STOCK.
AMEX, as a matter of policy, will consider the suspension of trading
in, or removal from listing or unlisted trading of, any security when, in the
opinion of AMEX, among other factors, the financial condition and/or operating
results of an issuer appear to be unsatisfactory. There can be no assurance
that, whether or not the Merger is consummated, and, if consummated, even after
consummation of the Merger, Ubrandit's financial condition and/or operating
results will appear satisfactory to AMEX at any given time. Accordingly, whether
or not the Merger is consummated, there can be no assurance that shares of
Ubrandit Common Stock will continue to be listed for trading on AMEX.
RISKS RELATED TO UBRANDIT:
THERE IS SUBSTANTIAL DOUBT ABOUT UBRANDIT'S ABILITY TO CONTINUE AS A GOING
CONCERN.
Ubrandit has suffered substantial recurring losses from operations,
expects to incur additional losses and has entered into a definitive agreement
to acquire Mindtronics, a development-stage company with a history of
substantial operating losses and to which Ubrandit has agreed to advance
$750,000. These factors, among others, raise substantial doubt about Ubrandit's
ability to continue as a going concern.
-17-
UBRANDIT HAS HAD A HISTORY OF LOSSES AND NEGATIVE CASH FLOW, EXPECTS TO CONTINUE
INCURRING SUCH LOSSES AND NEGATIVE CASH FLOW IN THE FORESEEABLE FUTURE AND IS
UNCERTAIN WHETHER IT EVER WILL BECOME PROFITABLE.
Ubrandit was founded in 1997 and has not to date significantly
generated revenues from the sale of its products and services. At September 30,
2000, Ubrandit had cumulative net losses since inception of $3,451,695, and
Ubrandit expects to continue incurring substantial losses and negative cash flow
at least through fiscal year 2001. There can be no assurance that Ubrandit will
be able to generate any substantial revenue in the future. From inception in
December 1997 until September 1999, Ubrandit's principal business activities
were limited to organizational matters, research and development activities, the
acquisition and creation of website content and the introduction of Ubrandit's
e-commerce sites. In fiscal year 2000, Ubrandit launched its first products.
Such products have resulted in limited gross revenues of approximately $304,000
in fiscal year 2000. Ubrandit also consummated its acquisition of Clicksmart.com
in fiscal year 2000. The limited revenues from this acquired company totaled
$566,000 in fiscal year 2000. In each year since its inception, Ubrandit has
experienced substantial losses from operations. Ubrandit therefore has no
significant operating history on which to evaluate its future prospects and
ability to implement its business plan and objectives. Ubrandit expects its
operating losses to continue in the near future as its development, marketing
and sales activities and operations continue. Ubrandit is uncertain as to when,
or whether, Ubrandit ever will become profitable. There can be no assurance that
Ubrandit ever will become profitable or cash-flow positive at any time in the
future. The likelihood of Ubrandit's success must be considered in the light of
the expenses, difficulties, complications and delays frequently encountered in
connection with the formation of a new business and the competitive environment
in which Ubrandit must operate. It is not possible to estimate future operating
expenses and revenues based on historical operating performance. Operating
results will depend, in part, on matters over which Ubrandit has no control,
including, without limitation, general economic conditions, competition, demand
for Ubrandit's products and services and the availability of talented personnel.
UBRANDIT ANTICIPATES NEEDING AN INFUSION OF ADDITIONAL EQUITY CAPITAL IN THE
SHORT-TERM FUTURE IN ORDER TO CONTINUE AND MAINTAIN ITS PRODUCT DEVELOPMENT
EFFORTS AND EXPECTED LEVELS OF OPERATIONS.
Ubrandit has limited operating capital and currently has no access to
credit facilities. Management estimates that Ubrandit currently has sufficient
funds to continue operations through September 30, 2001 at currently projected
levels of operational expense. Ubrandit expects, however, that additional funds
will be necessary for Ubrandit to implement its business plan. Ubrandit's
continued operations therefore will depend on its ability to raise additional
funds through bank borrowings or equity or debt financings. There can be no
assurance that additional capital from any source will be available when needed
by Ubrandit or that such capital will be available under terms acceptable to
Ubrandit on a timely basis. If Ubrandit cannot obtain needed funds, Ubrandit may
be forced to curtail or cease its activities. If additional funds are raised
through the issuance of equity, convertible debt or similar securities of
Ubrandit, the percentage of ownership of Ubrandit by the Ubrandit Stockholders
will be reduced, the Ubrandit Stockholders will experience dilution, and such
securities may have rights or preferences senior to those of Ubrandit Common
Stock. Moreover, if adequate funds were not available to satisfy Ubrandit's
short-term or long-term capital requirements, Ubrandit would be required to
limit its operations significantly. Ubrandit's capital requirements will depend
on many factors, including, without limitation, the rate at which Ubrandit can
introduce its products and services, the market acceptance and competitive
position of such products and services and the response of the competitors to
such products and services.
UBRANDIT'S ACQUISITION STRATEGY MAY RESULT IN A SIGNIFICANT CHANGE IN BUSINESS
STRATEGY.
Ubrandit continues its strategy of acquiring Internet-related
businesses. Ubrandit's current business of marketing branded websites has a
number of uncertainties, including whether additional capital is available from
the capital markets, whether profitability can be achieved and sustained and
whether Ubrandit can create a protectable market niche without proprietary
intellectual property. As a result of such uncertainties, Ubrandit has
determined to identify and pursue other potential acquisitions to expand its
product offerings. Ubrandit has entered into an Agreement and Plan of Merger
with Mindtronics pursuant to which Mindtronics would become a wholly-owned
subsidiary of Ubrandit. Consummation of the Merger is conditioned on
satisfaction of numerous conditions precedent, including approval by Ubrandit
Stockholders. If the Merger is consummated, Ubrandit will focus substantially,
but not exclusively, on the technology and products developed by Mindtronics.
Although Ubrandit will continue its current business of marketing branded
websites, its new substantial focus on the technology and products developed by
Mindtronics will effectively be a new business operation and will have all risks
inherent in such new businesses.
-18-
THE MARKETPLACE MAY NOT ACCEPT UBRANDIT'S PRODUCTS AND SERVICES.
Ubrandit introduced its initial branding services in September 1999 and
others throughout fiscal year 2000. Such products have been marketed and sold
for a very limited time. To date, market acceptance has been limited, and
Ubrandit has been unable to sell such products and services at a profit.
Therefore, Ubrandit is unable to provide any assurance or guarantee that the
marketplace will accept Ubrandit's branding services and related online
products, or that Ubrandit will be able to sell such services and products at a
profit.
UBRANDIT'S SUCCESS STILL DEPENDS ON ITS ABILITY TO ATTRACT AND RETAIN QUALIFIED
TECHNICAL AND MANAGEMENT PERSONNEL.
At present, Ubrandit employs 23 full-time personnel plus various
consultants in management, sales, programming, legal and editorial
responsibilities. Ubrandit does not have an employment agreement with any
employee. Ubrandit's success will depend, in part, on its ability to attract and
retain qualified employees, technical consultants and management personnel.
Ubrandit is unable to provide any assurance or guarantee that Ubrandit will be
able to attract, integrate or retain sufficiently qualified personnel.
Ubrandit's inability to retain additional qualified personnel in the future
could harm its business. Ubrandit does not maintain life insurance on the life
of any employee.
UBRANDIT'S SYSTEMS MAY FAIL OR EXPERIENCE A SLOW DOWN.
Ubrandit's facilities will house a variety of hardware and software
computer systems. Ubrandit's operations depend on its ability to protect these
systems against damage from fire, earthquakes, power loss, telecommunications
failures, break-ins and similar events. Additionally, computer viruses,
electronic break-ins or other similar disruptive problems could harm Ubrandit's
operations. A disaster or malfunction that disables Ubrandit's facility could
cause an interruption in the production and distribution of Ubrandit's products
and services or limit the quantity or timeliness of updates to Ubrandit's
productions. Ubrandit's insurance policies may not adequately compensate
Ubrandit for any loss that may occur due to any failure or interruption in
Ubrandit's systems. Ubrandit does not presently have a formal disaster recovery
plan. Although Ubrandit has safety measures and contingency plans for certain
emergencies, Ubrandit does not expect to develop a formal disaster recovery plan
in the foreseeable future.
THE MARKET FOR ONLINE SERVICES IS INTENSELY COMPETITIVE.
E-commerce and the market for online services are intensely competitive
industries. Ubrandit will compete against established companies with
significantly greater financial, marketing, personnel and other resources than
Ubrandit. Such competition could have a material adverse effect on Ubrandit's
profitability.
THE MARKET FOR UBRANDIT'S SECURITIES IS LIMITED AND MAY NOT PROVIDE ADEQUATE
LIQUIDITY.
Ubrandit Common Stock currently is traded on the American Stock
Exchange ("AMEX"). Ubrandit is unable to provide any assurance or guarantee that
trading on AMEX will provide adequate liquidity or that a trading market will be
sustained. Ubrandit Stockholders may be unable to sell shares purchased, should
they desire to do so. Furthermore, it is unlikely that a lending institution
will accept Ubrandit's securities as pledged collateral.
Ubrandit Common Stock may be delisted from AMEX if Ubrandit fails to
comply with applicable listing requirements. Under the rules of AMEX, AMEX may
delist from trading any stock that trades below $1.00 for more than 30
consecutive trading days. Ubrandit's inability to maintain its listing on AMEX
could have an adverse effect on the market for Ubrandit Common Stock and the
ability of Ubrandit Stockholders to sell their shares.
-19-
"PENNY STOCK" REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON MARKETABILITY OF
SECURITIES.
The SEC has in place regulations relating to the marketability of
securities, which generally define "penny stock" to be an equity security that
has a market price of less than $5.00 per share. Ubrandit Common Stock may be
subject to rules that impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and "accredited investors" (generally those with assets in excess of
$1,000,000 or annual incomes exceeding $200,000 or $300,000 together with their
spouse). For transactions covered by these rules, a broker-dealer must make a
special suitability determination for the purchase of such securities and have
received the purchaser's prior written consent to the transaction. Additionally,
for any transaction, other than exempt transactions, involving a penny stock,
the rules require the delivery, before the transaction, of a risk disclosure
document mandated by the SEC relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities, and, if the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell Ubrandit Common Stock and may
affect the ability to sell Ubrandit Common Stock in the secondary market.
UBRANDIT'S MARKET AND BUSINESS TECHNOLOGY IS RAPIDLY CHANGING.
To remain competitive, Ubrandit must continue to enhance and improve
the responsiveness, functionality and features of Ubrandit's websites and
Internet storefronts. Internet e-commerce and other Internet-based industries
currently are characterized by rapid technological change, changes in customer
requirements and preferences, frequent new product and service introductions
embodying new technologies and the emergence of new industry standards and
practices that could render Ubrandit's existing websites, Internet storefronts
and enabling technologies obsolete. If Ubrandit is unable, for technical, legal,
financial or other reasons, to adapt quickly to changing market conditions and
customer requirements, Ubrandit's business, financial condition and results of
operations would be materially adversely affected.
SECURITY BREACHES AND CREDIT CARD FRAUD COULD HARM UBRANDIT'S BUSINESS.
A significant barrier to online commerce and communications is the
secure transmission of confidential information over public networks. Ubrandit
relies on licensed third-party encryption and authentication technology to
provide the security and authentication necessary to effect secure transmission
of confidential information, such as customer credit card numbers. Ubrandit's
servers run on a Microsoft Windows NT platform and employ IIS 4.0 software that
includes encryption technology. Information is verified and authenticated by
Verisign, Inc. Advances in computer capabilities, new discoveries in the field
of cryptography or other events or developments may result in a compromise or
breach of the algorithms Ubrandit uses to protect its customers, transaction
data or its software vendors and products. Someone who is able to circumvent
Ubrandit's security measures could misappropriate proprietary information to
cause interruptions in Ubrandit's operations. Ubrandit may be required to expend
significant capital and other resources to protect against such security
breaches or alleviate problems caused by such breaches. Such expenditures could
have a material adverse effect on Ubrandit's business, results of operations and
financial condition.
Because Ubrandit stores and transmits proprietary information, a breach
of Ubrandit's security could damage Ubrandit's reputation and expose Ubrandit to
potential liability from litigation and reimbursement of losses. Ubrandit is
unable to provide any assurance that its security measures will prevent a future
security breach or that, should a security breach occur, it will not have a
material adverse effect on Ubrandit's business, results of operations and
financial condition. In addition, Ubrandit may incur losses, as have other
retailers who accept credit card payments without obtaining a signature, from
orders placed using fraudulent or stolen credit card information, despite
obtaining approvals from financial institutions. Under current commercial
banking and credit card practices, Ubrandit is liable for fraudulent credit card
transactions. Ubrandit is unable to provide any assurance that its security
measures always will be successful and, as a result, could suffer from
significant losses in the future that could have a material adverse effect on
Ubrandit's business, results of operations and financial condition.
-20-
UBRANDIT'S OPERATIONS SIGNIFICANTLY DEPEND ON MAINTENANCE AND CONTINUED
IMPROVEMENT OF THE INTERNET'S INFRASTRUCTURE.
The Internet has experienced, and is expected to continue experiencing,
significant growth in the number of users and amount of traffic. Ubrandit's
success will depend on the development and maintenance of the Internet's
infrastructure to cope with this increased traffic. This will require a reliable
network backbone with the necessary speed, bandwidth, data capacity and
security. Improvement of the Internet's infrastructure also will require the
timely development of complementary products, such as high-speed modems, to
provide reliable Internet access and services.
The Internet has experienced a variety of outages and other delays as a
result of damage to portions of its infrastructure and could face similar
outages and delays in the future. Outages and delays are likely to affect the
level of Internet usage, the level of traffic on Ubrandit's website and the
number of purchases on Ubrandit's website. In addition, the Internet could lose
its viability as a mode of commerce due to delays in the development or adoption
of new standards to handle increased levels of activity or due to increased
government regulation. The adoption of new standards or government regulation
also may require Ubrandit to incur substantial compliance costs.
UBRANDIT MAY BE EXPOSED TO LIABILITY FOR CONTENT RETRIEVED FROM ITS WEBSITES.
Ubrandit's exposure to liability from providing content on the Internet
currently is uncertain. Due to third party use of information and content
downloaded from our websites, Ubrandit may be subject to claims for defamation,
negligence, copyright, trademark or patent infringement or other theories based
on the nature and content of online materials. Ubrandit's exposure to any
related liability could have a material adverse effect on Ubrandit's business,
financial condition and results of operations. Ubrandit does not maintain
insurance specifically covering such claims. Liability or alleged liability
could harm further Ubrandit's business by diverting the attention and resources
of Ubrandit's management and by damaging Ubrandit's reputation in its industry
and with its customers.
UBRANDIT'S INDUSTRY MAY BE SUBJECT TO INCREASED GOVERNMENT REGULATION.
As commerce conducted on the Internet and online services continue to
evolve, federal, state or foreign agencies may adopt regulations or impose new
taxes intended to cover Ubrandit's business operations. These agencies may seek
to regulate areas including user privacy, pricing, content and consumer
protection standards for Ubrandit's products and services. Compliance with
additional regulation could hinder Ubrandit's growth or prove to be
prohibitively expensive. It also is possible that the introduction of additional
regulations could expose companies involved in Internet commerce, or the
provision of content over the Internet, to significant liability. If enacted,
these government regulations could materially adversely affect the viability of
the Internet commerce and online services, generally, as well as Ubrandit's
business, financial condition and results of operations.
[INTENTIONALLY LEFT BLANK]
-21-
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
At the Annual Meeting, six directors are to be elected. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for management's six nominees named below, all of whom presently are directors
of Ubrandit. If any management nominee is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee designated by the present Ubrandit Board of Directors to fill the
vacancy. Ubrandit is not aware of any nominee who will be unable or will decline
to serve as a director. Subject to the following sentence, the term of office
for each person elected as a director will continue until the next Annual
Meeting of Stockholders or until his successor has been elected and qualified
(or as otherwise provided pursuant to the Fourth Amendment to Articles (as
defined below) if approved by the Ubrandit Stockholders at the Annual Meeting).
If the Merger is consummated (SEE Proposal Three), immediately
following the Merger, or as soon as practicable thereafter, Messrs. David C.
Pollei and Gregory V. Gibson, each of whom currently is a director of Ubrandit
and a management nominee for election as a director at the Annual Meeting (as
stated below), will resign from the Ubrandit Board of Directors, and the
remaining Ubrandit directors thereupon will fill the two vacancies then existing
by appointing Mark K. La Count and Rod Ylst as directors of Ubrandit. In
addition, at that time the Ubrandit Board will expand the Ubrandit Board to
consist of seven directors and appoint M. Karlynn Hinman as a new additional
director of Ubrandit. For the biographies of Mark K. La Count, Rod Ylst and M.
Karlynn Hinman, SEE "Information About Mindtronics--Directors and Executive
Officers of Mindtronics." In the event that the Ubrandit Stockholders approve
the Third Amendment to Articles at the Annual Meeting, or in the event that an
amendment to the Articles of Incorporation of Ubrandit substantially identical
to the Third Amendment to Articles is approved by the Ubrandit Stockholders at
the Post-Closing Special Meeting, if held (SEE "Purposes of the Annual Meeting"
above), then all three of such newly-appointed Ubrandit directors will be Class
1 directors. SEE "Proposal Six Amendment to Ubrandit Articles of Incorporation
that will Provide for Staggered Terms for Directors."
THE UBRANDIT BOARD RECOMMENDS THAT THE UBRANDIT STOCKHOLDERS VOTE "FOR"
THE ELECTION OF ALL NOMINEES LISTED BELOW AS DIRECTORS OF UBRANDIT.
The names of the nominees and certain information about them are set
forth below:
NAME AGE POSITION
- - - ---- --- --------
Jefferey D. Phillips 33 President, Chief Executive Officer, Director
Roger C. Royce 60 Chairman of the Board, Chief Operating Officer
David C. Pollei 57 Vice President Marketing, Director
Gregory V. Gibson 50 Vice President, Legal, Secretary, Director
Steven K. Radowicz 32 Director
James W. Truher 65 Director
MR. PHILLIPS was the President of Global Investors Guide of San Diego,
California from 1997 to March 1999. Global Investors Guide maintains a financial
research site and performs contract programming for companies in the financial
and e-commerce markets. As President, Mr. Phillips was in charge of budgeting,
project planning and management and development of specialty tools as per the
clients' needs. He also was responsible for exploring and implementing the
newest technology into Global Investors Guide's websites pertaining to the
financial Internet market. During the past five years Mr. Phillips also was a
marketing consultant to public relations firms and the owner of LPC
Communications, an advertising agency, and Market Publishing, Inc., a
fulfillment and order processing company. From 1994 to 1997, before joining
Global Investors Guide, Mr. Phillips was President of Arboc Marketing, an
independent marketing company located in Santa Barbara, California. Mr. Phillips
received his B.A. in Economics from the University of California, Santa Barbara.
-22-
MR. ROYCE joined Ubrandit in March 1999 as its Chief Operating Officer
and as a member of the Board of Directors. Mr. Royce currently is the Chairman
of the Ubrandit Board and a member of Ubrandit's Audit Committee. From 1997 to
1999, before his association with Ubrandit, Mr. Royce was Chairman and CEO of
Fortune Financial Systems, Inc., a diversified education and training company.
>From 1994 to 1997, before joining Fortune Financial, Mr. Royce held executive
positions (including President and CEO) with the Academic Excellence Institute,
Inc., an accelerated learning and distribution company, and its successor. Also
from March 1993 until the present, Mr. Royce has served as Chairman and CEO of
Westban Financial, Inc., a financial and management consulting company. His
other experiences include: President and CEO of Motel 6, Inc., a national
lodging chain (from 1982 to 1986); President of Fotomat Labs, Inc. and Corporate
Sr. Vice President and Managing Operations Director for Fotomat Corporation, a
national conglomerate holding company with a retail chain of photographic
processing/camera stores (from 1968 to 1982); and President of Woodfin Suites
Hotels, Inc., a national hotel management and franchise company that was the
founding franchisee for the Marriott Residence Inns chain (from 1986 to 1989).
Mr. Royce holds a B.A. and M.B.A. from California Western University and has
completed additional postgraduate studies at UCLA and Harvard.
MR. POLLEI began his association with Ubrandit in August 1999 as a
marketing consultant and joined Ubrandit as Vice President Marketing and a
member of the Board of Directors in October 1999. From 1996 to 1999, before
joining Ubrandit, Mr. Pollei was an independent media consultant with various
media and Internet company clients. From the beginning of 1995 to 1996, Mr.
Pollei was President of SISNA, Inc., a Salt Lake City based Internet Service
Provider. From 1980 to 1982, Mr. Pollei was a Vice President at ABC Radio, where
he pioneered the first satellite-delivered radio network. Mr. Pollei also served
in a presidential capacity for a number of companies, including the California
Political News Syndicate (1989) and WaveShift, a new media company providing
interactive media and software (from 1992 to 1993). Mr. Pollei's analyses as an
industry expert and consultant have been featured in the Wall Street Journal,
Barron's, Billboard, Gannett and Electronic Media. Mr. Pollei received a double
B.A. in International Relations and French from Brigham Young University and
serves on the board of directors of a number of civic and non-profit
organizations.
MR. GIBSON joined Ubrandit as Vice President Legal and Secretary in the
first quarter of 1999. Mr. Gibson is an attorney specializing in securities and
securities broker dealerships for over 20 years. Presently, Mr. Gibson is member
of the law firm Gibson, Haglund and Paulsen. From 1993 to 1996, before his
present affiliations, Mr. Gibson was corporate counsel for three years to Global
Resource Investment Limited, a southern California based broker dealer
specializing in resource and foreign publicly-traded securities. Before working
at Global, Mr. Gibson practiced securities and international law with the law
firms of Gibson and Haglund and Gibson, Ogden and Johnson. Mr. Gibson attended
Claremont Men's College and Brigham Young University for undergraduate studies
and received his J.D. from Pepperdine University School of Law.
MR. RADOWICZ, an independent director of Ubrandit and a member of the
Audit Committee and Compensation Committee, is the managing partner and owner of
Apquip Company LLC, located in Monterey, California. Apquip manufactures
equipment for the wood products industry and services a worldwide clientele. Mr.
Radowicz joined Apquip as a sales engineer in 1991 and in 1996 became Vice
President of Sales. From 1997 to the present, Mr. Radowicz has been Apquip's
Chief Executive Officer. While at Apquip, Mr. Radowicz has been responsible for
establishing a network of dealers and representation for Apquip worldwide. Mr.
Radowicz received a B.A. in business economics from the University of California
at Santa Barbara in 1990.
MR. TRUHER joined Ubrandit in February 2000 as an independent member of
the Board of Directors and a member of the Audit Committee and Compensation
Committee. During the last five years, Mr. Truher has been an independent
telecommunications consultant and currently is a member of the Board of
Directors of Superwire.com and Meridian Holdings, Inc. Also during the last five
years, from October 1995 to April 1996, Mr. Truher was Chairman of Xecom Corp.,
a telephone service company. Mr. Truher was an area Vice President with AT&T and
held senior management positions in the cable and telephone networks with such
companies and associations as Selec Tel (founder), Polaris, Intelecom, the Bell
System (at AT&T), Pacific Telephone and the Society of Television Engineers
(past President). Mr. Truher graduated from Stanford University with a degree in
engineering.
-23-
COMMITTEES
The Audit Committee consists of Messrs. Royce, Radowicz and Truher.
Although Mr. Royce is not an independent member of the Audit Committee by virtue
of his capacity as an executive officer of Ubrandit (as independence is defined
under the listing standards adopted by AMEX), the Ubrandit Board of Directors
determined that his extensive management experience and insight would enhance
the composition of the Audit Committee. Mr. Royce intends to resign from the
Audit Committee before June 1, 2001, at which time a new third independent
member of the Audit Committee will be appointed to comply with the listing
standards adopted by AMEX then in effect.
The Audit Committee reviews the consolidated financial statements and
independent auditors' report, including recommendations for the independent
auditors regarding internal controls and other matters. The Audit Committee held
no meetings during fiscal year 2000 and held one meeting with respect to
Ubrandit's Annual Report on Form 10-K with Ubrandit's independent auditors on
January 2, 2001.
The Audit Committee's report is set forth below.
Ubrandit formed the Compensation Committee in the fourth quarter of
fiscal year 2000. The Compensation Committee consists of Messrs. Radowicz and
Truher, both of whom are independent members of the Compensation Committee. The
Compensation Committee's Report on Compensation is set forth below.
Ubrandit currently does not have a standing nominating committee.
BOARD MEETINGS
During fiscal year 2000, the Ubrandit Board of Directors held four
meetings and took action by written consent on nine occasions. During the fiscal
year, each director attended every director meeting held after his respective
election as a director.
OTHER EXECUTIVE OFFICERS
The following information relates to the only executive officer of
Ubrandit at the date of this Proxy Statement who is not a director of Ubrandit:
Joseph W. Larkin, age 48.
MR. LARKIN was appointed as Ubrandit's Vice President
Administrations/Operations and as President of Ubrandit ISP, Ubrandit's
wholly-owned Internet service provider, in June 2000. Immediately before joining
Ubrandit, Mr. Larkin was a strategic planning and executive development
independent consultant. From 1997 to the beginning of 1999, Mr. Larkin was Vice
President Planning and Development for Fortune Financial Systems, a Salt Lake
City based marketing company. From 1993 to 1997, Mr. Larkin was Vice President
Planning and Analysis for Freecom Communications, a Salt Lake City based
marketing firm. Before joining Ubrandit, Mr. Larkin served in executive
capacities such as Senior Vice President of Strategic Planning & Acquisitions,
Vice President of Corporate Development, Vice President of Human Resources and
Vice President of Marketing for companies such as Northrop Aviation and TSN,
Inc., among others. Additionally, Mr. Larkin served as a Principal and President
of the consulting firm, The Hendrix Information Group, which specialized in
strategic planning in the media industry and whose client list included
Bonneville Corporation, American Red Cross, Security Pacific National Bank, Los
Angeles County, Utah Department of Education, Bank of A. Levi, The United Way,
Kiro Radio & TV, among others. Mr. Larkin has B.A. and M.A. degrees from Brigham
Young University and is a Ph.D. candidate at the University of Southern
California.
FAMILY RELATIONSHIPS
No family relationships exist among Ubrandit's directors and executive
officers.
-24-
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION. The following table summarizes all
compensation paid to those persons who were the most highly compensated
executive officers for services rendered in all capacities to Ubrandit for the
fiscal year ended September 30, 2000, the nine-month period ended September 30,
1999 and the year ended December 31, 1998. None of Ubrandit's officers received
any compensation prior to the acquisition of Global Investors Guide in March
1999.
Summary Compensation Table
LONG TERM COMPENSATION
-----------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYMENTS
--------------------------------------- ------ --------
Securities
Restricted Underlying LTIP
Name and Principal Annual Other Annual Stock Option/ Pay- All Other
Position (1) Year Salary($) Bonus ($) Compensation ($) Awards ($) SARS (#) outs ($) Compensation($)
- - - ------------------ ---- --------- --------- ---------------- ---------- -------- -------- ---------------
Jefferey D. Phillips, 2000 96,000 -- -- -- 200,000 (7) -- --
CEO (2) 1999 (3) 96,000 -- -- -- 400,000 (4) -- --
1998 -- -- -- -- -- -- --
Roger C. Royce, 2000 120,000 -- -- -- 150,000 (7) -- --
Chief Operating Officer 1999 (3) 120,000 -- -- -- 425,000 (5) -- --
1998 -- -- -- -- -- -- --
Gregory V. Gibson, 2000 96,000 (6) -- -- -- 75,000 (7) -- --
Vice President, Legal 1999 (3) 96,000 (6) -- -- -- 125,000 (4) -- --
1998 -- -- -- -- -- -- --
- - - ----------------
(1) All other compensation in the form of perquisites and other personal
benefits has been omitted because the aggregate amount of such
perquisites and other personal benefits constituted the lesser of
$50,000 or 10% of the total annual salary and bonus of the named
executive for such year.
(2) Mr. Phillips was the President and CEO of Global Investors Guide before
its acquisition by Ubrandit.
(3) Compensation for fiscal year 1999 was determined on an annualized basis
for the twelve months following the acquisition of Global Investors
Guide in March 1999.
(4) Includes shares of Ubrandit Common Stock underlying options that are
exercisable at $.50 per share. See "Certain Relationships and Related
Transactions."
(5) Includes 75,000 shares of Ubrandit Common Stock underlying options that
are exercisable at $1.50 per share and 350,000 shares of Common Stock
underlying options exercisable at $3.35 per share. See "Certain
Relationships and Related Transactions."
(6) Represents amounts paid as legal fees to Mr. Gibson's law firm.
(7) Includes shares of Ubrandit Common Stock underlying options that are
exercisable at $3.75 per share. SEE "Certain Relationships and Related
Transactions."
-25-
OPTION GRANTS. The following tables sets forth certain information
concerning grants of stock options to each of Ubrandit's executive officers
named in the Summary Compensation Table during the fiscal year ended September
30, 2000. In addition, in accordance with the rules and regulations of the SEC,
the following table sets forth the hypothetical gains or "option spreads" that
would exist for the options. As required by the rules and regulations of the
SEC, such gains are based on assumed rates of annual compound stock appreciation
of 5% and 10% from the date on which the options were granted over the full term
of the options. No assurance can be given that the rates of annual compound
stock appreciation assumed for the purposes of the following table will be
achieved.
OPTION GRANTS IN FISCAL YEAR 2000
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM(4)
---------------------------------------------------------- -----------------------------------
NUMBER OF % OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR(1) ($/SH)(2) DATE(3) 5% ($) 10%($)
- - - ---- ---------- -------------- --------- ---------- -------- ------
Jefferey D. Phillips 200,000 23.8% $3.75 03/11/05 $207,211 $457,883
Roger C. Royce 150,000 17.8% 3.75 03/11/05 155,408 343,412
Gregory V. Gibson 75,000 8.9% 3.75 03/11/05 77,704 171,706
- - - ------------
(1) Based on options granted to certain directors, executive officers and
employees to purchase 841,000 shares of Ubrandit Common Stock, but not
including options granted to certain consultants to purchase 102,500
additional shares of Ubrandit Common Stock.
(2) The exercise price on the date of grant was equal to 100% of the fair
market value on the date of grant.
(3) The options have a term of five years commencing from the date on which
they were granted, subject to earlier termination in certain events
related to termination of employment.
(4) The 5% and 10% assumed rates of appreciation are suggested by the rules
of the SEC and do not represent the Company's estimate or projection of
the future Common Stock price. There can be no assurance that any of
the values reflected in the table will be achieved.
OPTION EXERCISES. The following table sets forth certain information
concerning the exercise of options by each of Ubrandit's executive officers
named in the Summary Compensation Table during the fiscal year ended September
30, 2000, including the aggregate value of gains on the date of exercise. In
addition, the table includes the number of shares covered by both exercisable
and unexercisable stock options as of December 31, 2000. Also reported are the
values for "in the money" options that represent the positive spread between the
exercise prices of any of such exiting stock options and the closing sale price
of Ubrandit Common Stock as of December 31, 2000.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 2000
AND 2000 YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SEPTEMBER 30, 2000(#) DECEMBER 31, 2000($)(2)
--------------------- -----------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($)(1) UNEXERCISABLE UNEXERCISABLE
- - - ---- --------------- --------------- --------------------- -----------------------
Jefferey D. Phillips -- $ -- 400,000/200,000 $0/0
Roger C. Royce -- -- 308,334/266,666 $0/0
Gregory V. Gibson -- -- 125,000/75,000 $0/0
- - - ------------
(1) Calculated on the basis of the fair market value of the underlying
securities at the exercise date minus the exercise price.
(2) Calculated on the basis of the fair market value of the underlying
securities at December 29, 2000 ($0.4375 per share) minus the exercise
price.
-26-
COMPENSATION PLANS. Ubrandit has customary medical and health insurance
plans for its employees. Ubrandit has no retirement, pension or profit sharing
plans exclusively covering its officers and directors and does not contemplate
implementing any such plan at this time.
COMPENSATION OF DIRECTORS. Directors of Ubrandit who also are employees
do not receive cash compensation for their services as directors or members of
committees of the Board of Directors but are reimbursed for their reasonable
expenses in connection with attending meetings of the Board of Directors or
management committees. Non-employee directors are expected to be paid a fee per
Board meeting attended and reimbursement for expenses. Ubrandit also has granted
to such non-employee directors options to purchase shares of Ubrandit Common
Stock. SEE "Certain Relationships and Related Transactions."
AUDIT COMMITTEE REPORT
The Audit Committee is responsible for providing independent, objective
oversight of Ubrandit's independent auditors, accounting functions and internal
controls. The Audit Committee is comprised of three persons, a majority of whom
are independent under AMEX's listing standards. The Audit Committee acts under a
written charter adopted by the Ubrandit Board of Directors, a copy of which is
attached to this Proxy Statement as APPENDIX D.
The Audit Committee reviewed and discussed the annual financial
statements with management and the independent accountants. As part of this
process, management represented to the Audit Committee that the financial
statements were prepared in accordance with generally accepted accounting
principles. The Audit Committee also received and reviewed written disclosures
and a letter from the accountants concerning their independence as required
under applicable standards for auditors of public companies. The Audit Committee
discussed with the accountants the contents of such materials, the accountant's
independence and the additional matters required under Statement on Auditing
Standards No. 61. Based on such review and discussions, the Audit Committee
recommended that the Ubrandit Board of Directors include the audited
consolidated financial statements in the Company's Annual Report on Form 10-K
for the year ended September 30, 2000 for filing with the SEC.
After due consideration, Ubrandit's Audit Committee has determined that
BDO Seidman, LLP's provision of the services referenced below under "Proposal
Two Ratification of Appointment of Independent Auditors--Financial Information
Systems Design and Implementation Fees" and "--All Other Fees" to Ubrandit is
compatible with maintaining BDO Seidman's independence.
AUDIT COMMITTEE
Roger C. Royce
Steven K. Radowicz
James W. Truher
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No directors of Ubrandit other than those identified above as members
of the Compensation Committee served on that Committee during fiscal year 2000.
No member of the Compensation Committee was an officer or employee of Ubrandit
or its subsidiary during fiscal year 2000. None of the executive officers of
Ubrandit has served on the board of directors or on the compensation committee
of any other entity, any of whose officers served either on the Ubrandit Board
of Directors or on the Ubrandit Compensation Committee.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF UBRANDIT'S
PREVIOUS OR FUTURE FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT"), THAT MIGHT INCORPORATE BY REFERENCE PREVIOUS OR FUTURE FILINGS,
INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORT AND
THE PERFORMANCE GRAPH ON PAGE 30 OF THIS PROXY STATEMENT SHALL NOT BE
INCORPORATED BY REFERENCE INTO ANY OF SUCH FILINGS.
-27-
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation program for Ubrandit's executive officers is
determined by the Compensation Committee of the Board of Directors (the
"COMPENSATION COMMITTEE") on an annual basis. The executive management's
recommendations of compensation to be paid to executive officers of Ubrandit are
considered by the Compensation Committee in its decision-making process. The
Compensation Committee currently is composed of two non-employee directors.
The Compensation Committee administers Ubrandit's 1999 Stock Option and
Incentive Plan (the "PLAN") and determines grants to executive officers.
The Compensation Committee's policy on executive compensation is to
attract and retain highly qualified personnel while tying compensation to
performance. Consequently, the Compensation Committee seeks to establish
compensation that will reward individuals for Ubrandit performance as well as
individual performance and motivate and reward executives for achievement of
strategic business objectives.
The Compensation Committee believes that the compensation of the
Executive Officers, including that of the Chief Executive Officer (collectively
the "EXECUTIVE OFFICERS"), should be influenced by Ubrandit's performance.
However, with a young start-up company that has not realized all of its revenue
and profit potential, performance is measured by more intangible factors
relating to the growth and development of Ubrandit. The Compensation Committee
establishes the salary ranges and bonuses of all of the Executive Officers by
considering:
o Ubrandit's financial performance for the past year;
o Ubrandit's growth and development for the past year;
o The achievement of certain objectives related to the
particular Executive Officer's area of responsibility; and
o The salaries and bonuses of Executive Officers in similar
positions of comparably-sized companies.
The Compensation Committee believes that the Executive Officers'
salaries and bonuses in the fiscal year ending September 30, 2000 were
comparable in the industry for similarly-sized businesses.
In addition to salary and bonus, the Compensation Committee from time
to time is responsible for recommending grants of options to Executive Officers
and other employees in an effort to properly align the long-term interests of
Ubrandit's management and the Ubrandit Stockholders. The Compensation Committee
thus views option grants as an important component of its long-term
performance-based compensation philosophy. Since the value of an option bears a
direct relationship to the price of Ubrandit Common Stock, the Compensation
Committee believes that options motivate Executive Officers and other employees
to manage Ubrandit and perform in a manner that also will benefit Ubrandit
Stockholders. The Compensation Committee believes that the Plan enables Ubrandit
to attract and retain the highest-quality managers. One of the principal factors
considered in granting options to an Executive Officer is the Executive
Officer's ability to influence Ubrandit's long-term growth and profitability.
COMPENSATION COMMITTEE
Steven K. Radowicz
James W. Truher
-28-
PERFORMANCE GRAPH
The following graph illustrates a comparison of the cumulative total
stockholder return (change in stock price plus reinvested dividends) of Ubrandit
Common Stock with that of the NASDAQ Market Index and the Media General Industry
Group Index (852) consisting of Internet software and services, assuming an
investment of $100 in each on January 22, 1999. Ubrandit Common Stock was traded
on NASDAQ's Electronic Bulletin Board from January 1999 to March 2000, after
which Ubrandit Common Stock commenced trading on AMEX under the new trading
symbol "UBI." The comparisons in the graph are required by the SEC and are not
intended to forecast or be indicative of any possible future performance of
Ubrandit Common Stock.
[PERFORMANCE GRAPH APPEARS HERE]
01/22/99 03/31/99 06/20/99 09/30/99 12/31/99 03/21/00 06/30/00 09/29/00 12/29/00
Ubrandit.com 100.00 725.00 900.00 1025.00 975.00 1050.00 875.00 387.50 87.50
MG Group Index 100.00 126.97 127.86 123.74 225.06 220.07 138.02 123.87 53.42
NASDAQ Market Index 100.00 98.18 106.83 108.57 160.35 182.45 156.92 144.81 97.31
NATURE OF THE VOTE REQUIRED AND VOTING PROCEDURES
The affirmative vote of the holders of a plurality of the shares of
Ubrandit Common Stock present and/or represented and voted at the Annual Meeting
(provided that a quorum is established) is required to elect management's six
nominee directors. THE UBRANDIT BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
THE UBRANDIT STOCKHOLDERS VOTE "FOR" THE ELECTION OF MANAGEMENT'S SIX NOMINEE
DIRECTORS. Proxies solicited by management of Ubrandit will be voted "FOR" the
election of management's six nominee directors. If you mark "WITHHOLD" on your
proxy with respect to this proposal, your shares will be counted in the number
of votes cast and as votes "AGAINST" this proposal. If a broker or other nominee
holding shares for a beneficial owner does not vote on this proposal, the shares
so held will not be counted in the number of votes cast and not be counted as
votes "FOR" or "AGAINST" this proposal.
-29-
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Ubrandit Board of Directors has selected BDO Seidman, LLP,
independent auditors, to audit the consolidated financial statements of Ubrandit
as of and for the fiscal year ending September 30, 2001 and recommends that the
Ubrandit Stockholders vote for ratification of such appointment. In the event of
a negative vote on such ratification, the Ubrandit Board will reconsider its
selection.
BDO Seidman, LLP has audited Ubrandit's financial statements annually
since fiscal year 2000. Its representatives are expected to be present at the
meeting with the opportunity to make a statement if they desire to do so and are
expected to be available to respond to appropriate questions.
AUDIT FEES
The aggregate fees billed by BDO Seidman, LLP for professional services
rendered for the audit of Ubrandit's annual financial statements for fiscal year
2000 and the reviews of the financial statements included in Ubrandit's Forms
10-Q for fiscal year 2000 were $84,562.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
The aggregate fees billed for professional services provided by BDO
Seidman, LLP to Ubrandit related to (a) directly or indirectly operating, or
supervising the operation of, Ubrandit's information system or managing
Ubrandit's local area network and/or (b) designing or implementing a hardware or
software system that aggregates source data underlying Ubrandit's financial
statements or generates information that is significant to Ubrandit's financial
statements taken as a whole for fiscal year 2000 were $0.00.
ALL OTHER FEES
The aggregate fees billed for services rendered by BDO Seidman, LLP to
Ubrandit, other than the services referred to above, for fiscal year 2000 were
$47,587.
AUDIT COMMITTEE'S DETERMINATION
After due consideration, Ubrandit's Audit Committee has determined that
BDO Seidman, LLP's provision of the services referenced above under "Financial
Information Systems Design and Implementation Fees" and "All Other Fees" to
Ubrandit is compatible with maintaining BDO Seidman's independence. SEE
"Proposal One Election of Directors--Audit Committee Report" above.
PERCENTAGE OF AUDIT WORK ATTRIBUTED TO OUTSIDE EMPLOYEES
All of the hours expended on the principal accountant's engagement to
audit Ubrandit's consolidated financial statements for the fiscal year ended
September 30, 2000 were attributed to work performed by persons that are the
principal accountant's full-time, permanent employees.
-30-
NATURE OF THE VOTE REQUIRED AND VOTING PROCEDURES
The affirmative vote of the holders of a majority of the shares of
Ubrandit Common Stock present and/or represented and voted at the Annual Meeting
(provided that a quorum is established) is required to approve this proposal.
THE UBRANDIT BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE UBRANDIT
STOCKHOLDERS VOTE "FOR" APPROVAL OF THIS PROPOSAL. Proxies solicited by
management of Ubrandit will be voted "FOR" approval of this proposal. If you
mark "ABSTAIN" on your proxy with respect to this proposal, your shares will be
counted for the purpose of determining the presence or absence of the required
quorum, will not be counted in the number of votes cast and will not be counted
as votes "FOR" or "AGAINST" this proposal. If you fail to mark either "ABSTAIN"
or "AGAINST" on your proxy with respect to this proposal, or if you fail to make
any mark at all on your proxy with respect to this proposal, your shares will be
counted as votes "FOR" this proposal. If a broker or other nominee holding
shares for a beneficial owner does not vote on this proposal, the shares so held
will not be counted in the number of votes cast and not be counted as votes
"FOR" or "AGAINST" this proposal.
[INTENTIONALLY LEFT BLANK]
-31-
PROPOSAL THREE
THE MERGER
GENERAL DESCRIPTION OF THE MERGER
Subject to the conditions set forth in the Merger Agreement, Merger Sub
will be merged with and into Mindtronics, the separate corporate existence of
Merger Sub will cease, and Mindtronics will continue as the surviving
corporation and subsidiary of Ubrandit.
The Merger will become effective when Articles of Merger are duly filed
with the Nevada Secretary of State or at such other time specified in the
Articles of Merger as Ubrandit and Mindtronics agree. It is contemplated that
the Merger will be consummated as soon as practicable after the satisfaction or
waiver of each of the conditions set forth in the Merger Agreement.
The Merger Agreement provides that the directors of Ubrandit and the
surviving corporation will be Roger C. Royce, Jefferey D. Phillips, James W.
Truher, Mark K. La Count, Rod Ylst, M. Karlynn Hinman and one other independent
director to be named. It further provides that Mark K. La Count, Rod Ylst, M.
Karlynn Hinman, Roger C. Royce, and Jefferey Phillips will be the executive
officers of Ubrandit and the surviving corporation. The Merger Agreement also
provides that the articles of incorporation of Merger Sub in effect immediately
before the Effective Time of the Merger will be the articles of incorporation of
the surviving corporation. The Merger Agreement further provides that the bylaws
of Merger Sub in effect immediately before the Effective Time of the Merger will
be the bylaws of the surviving corporation.
BACKGROUND
The terms and conditions of the Merger Agreement and the Merger are the
result of arm's-length negotiations between Ubrandit and Mindtronics. Set forth
below is a summary of the background of such negotiations and certain related
matters preceding such negotiations.
In March 2000, Ubrandit learned of a technology owned by Mindtronics
with potential applications in improving and lowering the costs of Ubrandit's
branded ISP service. At that time, Roger C. Royce, Chairman of the Board and COO
of Ubrandit and who had been an independent advisor to Mindtronics since
September 1998, was serving in a limited role as an advisor to Mindtronics and
also was a Mindtronics Stockholder.
In April 2000, Ubrandit was exploring acquisition candidates in the
branding and licensing arena to enhance Ubrandit's product offerings and to
increase Ubrandit's revenue base. On June 15, 2000, Ubrandit acquired
Clicksmart.com, a provider of branding and fulfillment tools to the magazine
industry. In the following months, Ubrandit continued to review and meet with
other acquisition candidates.
In those same months, Jefferey Phillips, President and CEO of Ubrandit,
and Mr. Royce also continued to examine and learn about Mindtronics' ISP
technology along with other technologies and patent applications in progress by
Mindtronics. In September 2000, the Ubrandit Board of Directors determined that
it would be in Ubrandit's interest to explore the possibility of becoming
involved with Mindtronics.
The Ubrandit Board of Directors and key executive officers visited
Mindtronics' corporate offices regularly throughout the month of September and
into October 2000. In October 2000, upon reviewing Ubrandit's top acquisition
candidates, the Ubrandit Board determined that, with Ubrandit's current business
model, an acquisition of Mindtronics offered Ubrandit Stockholders the best
opportunity for increased stockholder value. Thereupon, the Ubrandit Board of
Directors immediately commenced acquisition negotiations with Mindtronics.
On October 30, 2000, Ubrandit and Mindtronics signed a Letter of Intent
regarding the acquisition of Mindtronics by Ubrandit, subject to additional due
diligence by both parties. On December 4, 2000, the Ubrandit Board of Directors
voted unanimously to enter into a definitive Agreement and Plan of Merger
pursuant to which Ubrandit would acquire Mindtronics.
-32-
REASONS FOR THE MERGER
The following discussion of the parties' reasons for the Merger
contains a number of forward-looking statements that reflect the current views
of Ubrandit with respect to future events that may have an effect on Ubrandit's
future financial performance. Forward-looking statements are subject to risks
and uncertainties. Actual results and outcomes may differ materially from the
results and outcomes discussed in the forward-looking statements. Cautionary
statements that identify important factors that could cause or contribute to
differences in results and outcomes include those discussed in "Summary--Forward
Looking Information" and "Risk Factors."
The Ubrandit Board of Directors believes that combining the resources
of Ubrandit and Mindtronics pursuant to the Merger could provide Ubrandit and
the Ubrandit Stockholders with an opportunity for long-term growth and
profitability. In assessing the proposed Merger, management of Ubrandit reviewed
the past performance and future potential of Mindtronics, Mindtronics' existing
and proposed product lines and the capabilities of Mindtronics' management
personnel, as compared to other potential candidates for a business combination
with Ubrandit. Among the factors that contributed to the recommendation of the
Ubrandit Board to approve the Merger are, in order of relative importance, (i)
Mindtronics' innovate existing and proposed line of products, (ii) the potential
for sales growth if such products are accepted as industry standards and (iii)
the capabilities of Mindtronics' technical and management personnel. The
Ubrandit Board also believes that the combination of the two research and
development teams may assist in the enhancement of each company's existing line
of products and the development of new products. Although Mindtronics' history
of operating losses initially caused concern, the management of Ubrandit
attributes such matters primarily to the costs and risks inherent in any new
business enterprise and believes that Mindtronics' revenue and earnings will
commence upon completion of product commercialization anticipated to occur
commencing in the first quarter of calendar year 2001. The Ubrandit Board also
considered that Ubrandit's current business model has generated insufficient
revenues and no net profits and is not expected to do so in the foreseeable
future and that Ubrandit's market niche appears to have fallen out of favor in
the investment community, making it extremely difficult for Ubrandit to raise
much-needed investment capital.
Based on all of the foregoing and such other factors as the Ubrandit
Board may have deemed appropriate, the Ubrandit Board believes that the Merger
represents the best opportunity for the redeployment of Ubrandit's assets. With
respect to its decision, the Ubrandit Board did not retain any third party to
conduct an independent valuation of Mindtronics or render a fairness opinion as
to the Merger. The Ubrandit Board does not believe that an independent valuation
or opinion is necessary in making its determination that the Merger is in the
best interests of the Ubrandit Stockholders. The managements of Ubrandit and
Mindtronics determined by negotiation the number of shares of Ubrandit Common
Stock to be issued to Mindtronics Stockholders in connection with the Merger.
The Ubrandit Board of Directors also considered certain potentially
negative factors that may result from the Merger, including the following: (i)
the expectation that the Merger would be dilutive to earnings per share in the
near term; (ii) the potential adverse effect the market price of Ubrandit Common
Stock if revenue and profitability expectations for the combined company are not
achieved; (iii) the general difficulties of integrating the products, marketing,
research and development and manufacturing of the two companies; (iv) the
possibility of cultural conflicts; (v) the risk that the combined company might
not achieve the expected operating synergies; (vi) the adverse effects of
one-time charges expected to be incurred in connection with the costs of the
Merger and the subsequent integration of the companies, including write-offs for
in-process research and development expenses; (vii) the potential adverse
effects on the combined company's results of operations of amortizing the
goodwill and other intangible assets that would be recorded in connection with
the Merger; (viii) the risk that other benefits sought to be achieved by the
Merger would not be obtained; and (ix) the other risks described above under
"Risk Factors." The Ubrandit Board of Directors concluded that these negative
factors are outweighed by the potential benefits of the Merger. Although this
list of the negative factors and potential benefits of the Merger is not
exhaustive, it represents the material factors that the Ubrandit Board of
Directors considered.
In reaching its decision to approve the Merger, the Ubrandit Board of
Directors did not assign any relative or specific weight to the factors
considered, and individual directors may have given different weights to
different factors. The Ubrandit Board of Directors based its position and
recommendation on the information as a whole presented to it.
-33-
INTERESTS OF UBRANDIT'S OFFICERS AND DIRECTORS IN THE MERGER
In considering the recommendation of the Ubrandit Board of Directors
with respect to adopting the Merger Agreement and approving the Merger, Ubrandit
Stockholders should be aware that certain persons who were members of the
Ubrandit Board of Directors and management of Ubrandit at the time of approval
and signing of the Merger Agreement have interests in the Merger that are in
addition to the interests of Ubrandit generally. The Ubrandit Board of Directors
was aware of these interests and considered them, among other matters, in
approving and adopting the Merger and the Merger Agreement.
Roger C. Royce, Ubrandit's Chairman of the Board of Directors and Chief
Operating Officer and a Ubrandit Stockholder, owns of record 1,000,000 shares of
Mindtronics Common Stock. Mr. Royce has executed and delivered to Ubrandit a
certain Stockholder Support Agreement, pursuant to which Mr. Royce is obligated
to vote all of his shares of Mindtronics Common Stock to approve the Merger
Agreement and the transactions contemplated thereby.
In connection with the acquisition of Clicksmart.com, effective as of
May 4, 2000, Ubrandit entered into an employment agreement with Mr. Peter
Heumiller. Mr. Heumiller served as the President of Clicksmart.com before it was
acquired by Ubrandit. The employment agreement provides for an initial term of
three years, subject to prior termination as provided in the employment
agreement. Under the employment agreement, Mr. Heumiller will continue to serve
as the President of Clicksmart.com at an annual salary of $95,000 per year.
Ubrandit may terminate Mr. Heumiller's employment for cause, disability or the
employee's material breach of the employment agreement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences relevant to the conversion of shares of Mindtronics Common Stock
into shares of Ubrandit Common Stock and/or cash pursuant to the Merger that
generally are applicable to holders of Ubrandit Common Stock. This discussion is
based on currently-existing provisions of the Internal Revenue Code of 1986, as
amended (the "CODE"), existing and proposed Treasury Regulations thereunder and
current administrative rulings and court decisions, all of which are subject to
change. Any such change, which may or may not be retroactive, could alter the
tax consequences to Ubrandit Stockholders.
Ubrandit Stockholders should be aware that this discussion does not
deal with all federal income tax considerations that may be relevant to
particular Ubrandit Stockholders in the light of their particular circumstances,
such as those persons who are dealers in securities, who are subject to the
alternative minimum tax provisions of the Code, who are foreign persons, who do
not hold their Ubrandit Common Stock as capital assets or who acquired their
shares in connection with stock option or stock purchase plans or in other
compensatory transactions, or who hold their shares as part of a hedging,
straddle, conversion or other risk reduction transaction. In addition, the
following discussion does not address the tax consequences of the Merger under
foreign, state or local tax laws or the tax consequences of transactions
effectuated before or after, or concurrently with, the Merger (whether or not
any such transaction is undertaken in connection with the Merger). ACCORDINGLY,
MINDTRONICS STOCKHOLDERS AGREED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES.
NONE OF UBRANDIT STOCKHOLDERS, MERGER SUB STOCKHOLDERS OR MINDTRONICS
STOCKHOLDERS WILL RECOGNIZE ANY GAIN SOLELY AS A RESULT OF THE MERGER.
ANTICIPATED ACCOUNTING TREATMENT
The acquisition will be accounted for by the "purchase" method of
accounting under generally accepted accounting principles.
-34-
RESTRICTIONS ON RESALES
Ubrandit has not filed a Registration Statement with the SEC pursuant
to the Securities Act with respect to the issuance of Ubrandit Common Stock in
connection with the proposed Merger. Rather, Ubrandit intends to rely on an
exemption from the registration requirements of Section 5 of the Securities Act
with respect to the Merger. Accordingly, Ubrandit Common Stock issued in
connection with the Merger will be "restricted" for the purposes of the
Securities Act. Investment Representation Letters will be completed by
Mindtronics Stockholders for certain statements concerning, and their
acknowledgement of, the restricted nature of the Ubrandit Common Stock issuable
in connection with the Merger.
CERTAIN TERMS OF THE MERGER AGREEMENT
The following description of the Merger Agreement describes the
material terms of the Merger Agreement. The full text of the Merger Agreement is
attached as APPENDIX E to this Proxy Statement and is incorporated herein by
reference. We encourage you to read the entire Merger Agreement.
THE MERGER
Under the terms and subject to the conditions set forth in the Merger
Agreement, Merger Sub will be merged with and into Mindtronics, the separate
corporate existence of Merger Sub will cease and Mindtronics will continue as
the surviving corporation and subsidiary of Ubrandit.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective when Articles of Merger are duly filed
with the Nevada Secretary of State or at such other time specified in the
Articles of Merger as Ubrandit and Mindtronics agree.
CONVERSION OF SECURITIES
Under the terms of the Merger Agreement, each issued and outstanding
share of Mindtronics Common Stock (other than shares held by persons exercising
and perfecting dissenters' rights in accordance with Sections 92A.300 ET SEQ. of
the Nevada Law) will be converted into the right to receive a number of
newly-issued shares of Ubrandit Common Stock equal to 12,100,000 divided by the
number of shares of Mindtronics Common Stock outstanding immediately before the
Effective Time of the Merger (the "EXCHANGE RATE"); provided that, if before the
Effective Time of the Merger any dividend is declared or paid on shares of
Ubrandit Common Stock or the shares of Ubrandit Common Stock are adjusted
pursuant to any stock dividend, stock split, reverse stock split or other
similar transaction, then the Exchange Rate will be proportionately adjusted
accordingly. A portion of the shares of Ubrandit Common Stock to be issued
pursuant to Merger Agreement will be deposited in an escrow account pursuant to
the Merger Agreement.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties of the parties thereto, including representations by Mindtronics
relating to: (i) Organization and Related Matters; (ii) Capitalization; (iii)
Financial Statements; Changes; Contingencies; (iv) Books and Records; (v) Taxes;
(vi) Material Contracts; (vii) Contracts; No Defaults; (viii) Title To Property;
Encumbrances; (ix) Condition and Sufficiency of Assets; (x) Accounts Receivable;
(xi) Inventory; (xii) No Undisclosed Liabilities; (xiii) Intellectual Property;
(xiv) Corporate Authorization; (xv) Authorization; (xvi) Non-contravention;
(xvii) Legal Proceedings; (xviii) Insurance; (xix) Compliance with Law and Legal
Requirements; Governmental Authorizations; (xx) Employees; (xxi) Employee
Benefits; (xxii) Customers; (xxiii) Suppliers; (xxiv) Product Warranties; (xxv)
Environmental Law Compliance; (xvi) Minute Books; (xxvii) Due Diligence
Materials; (xxviii) Related Party Transactions; (xxix) Disclosure; and (xxx) No
Brokers or Finders.
The Merger Agreement also contains representations and warranties by
Ubrandit, including those relating to: (i) Organization and Related Matters;
(ii) Capitalization; (iii) Corporate Authorization; (iv) Authorization; (v)
Non-Contravention; (vi) Legal Proceedings; (vii) Compliance with Law; (viii) No
Brokers or Finders; (ix) SEC Documents; and (x) Due Diligence Materials.
-35-
MEETING OF UBRANDIT STOCKHOLDERS
The Merger Agreement provides that Ubrandit will, as soon as
practicable, duly call, give notice of, convene and hold a Meeting of the
Ubrandit Stockholders for the purpose of obtaining the approval and adoption of
the Merger Agreement by the Ubrandit Stockholders. The Annual Meeting will be
held for this purpose, among others.
NO SOLICITATION
The Merger Agreement provides that Mindtronics will and will direct and
use its best efforts to cause its officers, directors, employees, agents and
representatives (including any investment banker, attorney, financial advisor or
accountant retained by Mindtronics) not to initiate, solicit or knowingly
encourage, directly or indirectly (including by way of furnishing non-public
information or assistance), or take any other action to facilitate knowingly,
any inquiry or the making of any proposal that constitutes, or reasonably may be
expected to lead to, any competing transaction, or enter into or continue
discussions or negotiations with any person in furtherance of such inquiries or
to obtain a competing transaction, or agree to or endorse any competing
transaction, or authorize any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by Mindtronics to take any such action, and Mindtronics
will notify Ubrandit of all inquiries or proposals that Mindtronics may receive
relating to any of such matters and, if such inquiry or proposal is in writing,
will deliver to Ubrandit a copy of such inquiry or proposal.
LOAN AGREEMENT
Concurrently with the execution of the Merger Agreement, Ubrandit and
Mindtronics executed a Loan and Security Agreement substantially in the form
attached to the Merger Agreement (the "LOAN AGREEMENT"), pursuant to which
Ubrandit became obligated to make a secured loan to Mindtronics in the principal
amount of $750,000, which Ubrandit is obligated to advance to Mindtronics in
accordance with a budget and schedule pre-approved by Ubrandit. At the date of
this Proxy Statement, under the Loan Agreement, Ubrandit has disbursed loan
funds to Mindtronics in the aggregate principal amount of $368,000.
The security for the full and prompt repayment of such loan is a
pledge by the principal stockholders of Mindtronics of all shares of Mindtronics
Common Stock held of record or beneficially by them. Such shares of Mindtronics
Common Stock will be placed in an escrow account and held as collateral for the
loan. Upon consummation of the Merger and within three business days, all
collateral stock will be returned to the Principal Stockholders, and the loan
will remain on the books of Mindtronics, as a subsidiary of Ubrandit, and will
be accounted for accordingly. If the Merger is not consummated, then during the
term of the loan, for each $50,000 that is repaid with interest, 250,000 shares
of Mindtronics Common Stock will be released from escrow and returned to the
principal stockholders of Mindtronics, on a PRO RATA basis.
Ubrandit will forgive debt owed by Mindtronics to Ubrandit under the
Loan Agreement in certain circumstances. SEE "Termination of the Merger
Agreement" below.
CONDITIONS TO CONSUMMATION OF THE MERGER
CONDITIONS TO OBLIGATIONS OF UBRANDIT AND MINDTRONICS
The obligations of Ubrandit and Mindtronics to consummate the Merger
are subject to certain conditions, including, without limitation, the following:
- The Merger Agreement must have been approved and adopted by
the requisite affirmative vote of the holders of Ubrandit
Common Stock.
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- The parties must have obtained all necessary governmental
permits and approvals in connection with the Merger and the
transactions contemplated thereby.
- The parties must have received written opinions from their
respective counsel stating that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the
Code.
- No action will have been instituted or threatened against any
of the parties by any governmental entity seeking to restrain
or prohibit the consummation of the Merger or the transactions
contemplated thereby.
CONDITIONS TO OBLIGATIONS OF UBRANDIT
Unless waived, in whole or part, in writing by Ubrandit, Ubrandit's
obligations under the Merger Agreement are subject, before or at the
consummation of the Merger, to the satisfaction of certain conditions,
including, without limitation, the following:
- Mindtronics must perform corporate clean-up satisfactory to
Ubrandit, as determined by Ubrandit in its sole discretion.
- The representations and warranties of Mindtronics contained in
the Merger Agreement must be true at the date of consummation
of the Merger with the same effect as though made at such
time.
- Mindtronics must have performed all obligations and complied
with all covenants and conditions required by the Merger
Agreement to be performed or complied with by Mindtronics at
or before the date of consummation of the Merger.
- There must not have been any material adverse change in or
affecting Mindtronics since the date of the balance sheet.
- Ubrandit must receive from M. Karlynn Hinman, Esq., counsel to
Mindtronics, an opinion dated as of the date of consummation
of the Merger, satisfactory to Ubrandit.
- True and complete copies of all corporate proceedings and
documents effecting the authorization and approval of the
transaction documents and the transactions contemplated
thereunder by Mindtronics, certified by both the CEO and the
Secretary of Mindtronics, must have been furnished to
Ubrandit.
- Mindtronics must have executed and delivered the transaction
documents to which Mindtronics is a party other than the
Merger Agreement.
- Mindtronics must have obtained all approvals and permits
necessary to consummate the transactions contemplated by the
Merger Agreement.
- Ubrandit must have received a signed Investor Representation
Letter in substantially the form attached to the Merger
Agreement from each of the Mindtronics Stockholders.
- Ubrandit must be satisfied that the issuance of Ubrandit
Common Stock in connection with the Merger is exempt from the
registration requirements of the Securities Act pursuant to
Section 4(2) of the Securities Act.
- Each of Mindtronics' executive officers requested by Ubrandit
must have executed and delivered an employment agreement in
the form attached to the Merger Agreement.
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- Each of Mindtronics' Principal Stockholders referenced in the
Merger Agreement must have executed and delivered a
non-competition agreement in the form attached to the Merger
Agreement.
- Mindtronics must have delivered to Ubrandit the Financial
Statements referenced in the Merger Agreement and must have
prepared and delivered to Ubrandit or Ubrandit's independent
auditors all financial statements and information necessary
for inclusion in this Proxy Statement.
CONDITIONS TO OBLIGATIONS OF MINDTRONICS
Unless waived, in whole or part, in writing by Mindtronics,
Mindtronics' obligations under the Merger Agreement are subject, before or at
the consummation of the Merger, to the satisfaction of certain conditions,
including, without limitation, the following:
- The representations and warranties of Ubrandit contained in
the Merger Agreement must be true at the date of consummation
of the Merger with the same effect as though made at such
time.
- Ubrandit must have performed all obligations and complied with
all covenants and conditions required by the Merger Agreement
to be performed or complied with by Ubrandit at or before the
date of consummation of the Merger.
- Ubrandit must have executed and delivered the transaction
documents to which Ubrandit is a party other than the Merger
Agreement.
- The surviving corporation must have executed and delivered to
each of the Principal Stockholders of Mindtronics referenced
in the Merger Agreement an employment agreement in the form
attached to the Merger Agreement.
- The surviving corporation must have executed and delivered to
each of the Principal Stockholders of Mindtronics referenced
in the Merger Agreement a non-competition agreement in the
form attached to the Merger Agreement.
CERTAIN COVENANTS AND AGREEMENTS
Under the Merger Agreement, Ubrandit and Mindtronics have made certain
covenants and entered into certain agreements respecting the Merger Agreement
and the Merger. The covenants and agreements of Mindtronics include, among other
things and without limitation, Mindtronics' agreement to continue in its
ordinary course of business, to refrain from significant changes to its capital
structure, to refrain from entering into various significant agreements from the
date of the Merger Agreement until the Effective Time of the Merger, to permit
certain inspections and access to information and to take action necessary to
approve and implement the Merger. The covenants and agreements of Ubrandit
include, among other things and without limitation, Ubrandit's agreement to
continue in its ordinary course of business, to refrain from significant changes
to its capital structure, to refrain from entering into various significant
agreements from the date of the Merger Agreement until the Effective Time of the
Merger, to permit certain inspections and access to information and to take
actions necessary to approve and implement the Merger.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMBINED COMPANY FOLLOWING THE MERGER
Following the Merger, the Ubrandit Board of Directors will consist of:
Roger C. Royce Mark K. La Count
Jefferey D. Phillips Rod Ylst
James W. Truher M. Karlynn Hinman
Steven K. Radowicz
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In order for the Ubrandit Board to be so constituted at that time, immediately
following the Merger, or as soon as practicable thereafter, Messrs. David C.
Pollei and Gregory V. Gibson, each of whom currently is a director of Ubrandit
and a management nominee for election as a director at the Annual Meeting (SEE
"Proposal One"), will resign from the Ubrandit Board of Directors, and the
remaining Ubrandit directors thereupon will fill the two vacancies then existing
by appointing Mark K. La Count and Rod Ylst as directors of Ubrandit. In
addition, at that time the Ubrandit Board will expand the Ubrandit Board to
consist of seven directors and appoint M. Karlynn Hinman as a new additional
director of Ubrandit. For the biographies of Mark K. La Count, Rod Ylst and M.
Karlynn Hinman, SEE "Information About Mindtronics--Directors and Executive
Officers of Mindtronics." In the event that the Ubrandit Stockholders approve
the Third Amendment to Articles at the Annual Meeting, or in the event that an
amendment to the Articles of Incorporation of Ubrandit substantially identical
to the Third Amendment to Articles is approved by the Ubrandit Stockholders at
the Post-Closing Special Meeting, if held (SEE "Purposes of the Annual Meeting"
above), then all three of such newly-appointed Ubrandit directors will be Class
1 directors. SEE "Proposal Six Amendment to Ubrandit Articles of Incorporation
that will Provide for Staggered Terms for Directors."
Set forth below is information about the three directors to be
appointed by the Ubrandit Board of Directors if the Merger is consummated.
BUSINESS EXPERIENCE AND
NAME AGE PRINCIPAL OCCUPATION
---- --- --------------------
Mark K. La Count For Mr. La Count's biography, SEE
"Directors and Officers of Mindtronics"
Rod Ylst For Mr. Ylst's biography, SEE "Directors
and Officers of Mindtronics"
M. Karlynn Hinman For Ms. Hinman's biography, SEE "Directors
and Officers of Mindtronics"
Following the Merger, the officers of Ubrandit will be as follows:
Chairman and CEO Roger C. Royce
President Rod Ylst
CFO (interim) Mark Cullivan
Executive Vice President Jefferey D. Phillips
Executive Vice President Mark K. La Count
Secretary Christopher A. Wilson
Following the Merger, the Mindtronics Board of Directors will consist
of:
Roger C. Royce Mark K. La Count
Jefferey D. Phillips Rod Ylst
James W. Truher M. Karlynn Hinman
Steven K. Radowicz
Following the Merger, the officers of Mindtronics will be as follows:
Chairman and CEO Roger C. Royce
President Rod Ylst
CFO (interim) Mark Cullivan
Executive Vice President Jefferey D. Phillips
Executive Vice President Mark K. La Count
Secretary Christopher A. Wilson
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DISSENTERS' RIGHTS
Under the Nevada Law, Ubrandit Stockholders are not entitled to
dissenters' rights.
Shares of Mindtronics Common Stock that are not voted in favor of the
Merger and that have exercised and perfected dissenters' rights in accordance
with the Nevada law will not be converted into the right to receive shares of
Ubrandit Common Stock in accordance with the Exchange Rate unless and until the
holder of such shares withdraws his demand for dissenters' rights or becomes
ineligible for dissenters' rights. If a holder of dissenting shares withdraws
his demand for dissenters' rights or becomes ineligible for dissenters' rights,
then, as of the Effective Time of the Merger or the occurrence of such event,
whichever occurs later, such holder's dissenting shares will cease to be
dissenting shares and will be converted into and represent the right to receive
shares of Ubrandit Common Stock in accordance with the Exchange Rate.
STOCKHOLDER SUPPORT AGREEMENT
On the date of Mindtronics' execution and delivery of the Merger
Agreement and concurrently therewith, each of Rod Ylst, Mark K. La Count, M2CH,
Inc., a Utah corporation, Roger C. Royce and M. Karlynn Hinman (the "MINDTRONICS
PRINCIPAL STOCKHOLDERS") entered into a separate Stockholder Support Agreement
in the form attached to the Merger Agreement as APPENDIX B for the benefit of
Ubrandit (the "STOCKHOLDER SUPPORT AGREEMENT"), under which the Mindtronics
Principal Stockholders (i) agreed and became contractually obligated as of such
date to vote all of their shares of Mindtronics Common Stock in favor of
adoption of the Merger Agreement and approval of the Merger and the other
transactions contemplated by the Merger Agreement and in favor of any other
matter necessary for the consummation of the transactions contemplated by the
Merger Agreement and considered and voted on by the Mindtronics Stockholders;
and (ii) granted to Roger C. Royce, the Chief Executive Officer of Ubrandit, an
irrevocable proxy (the "IRREVOCABLE PROXY") for the purpose of voting the
Mindtronics Principal Stockholders' respective shares of Mindtronics Common
Stock with respect to all matters relating to the Merger.
Approval of the Merger Agreement, the Merger and all of the
transactions contemplated thereby requires the affirmative vote of the holders
of a majority of the outstanding shares of Mindtronics Common Stock. As of
February 9, 2001, the Mindtronics Principal Stockholders owned an aggregate of
10,000,000 shares of Mindtronics Common Stock, or approximately 98.7% of the
outstanding shares of Mindtronics Common Stock at such date. Therefore, the vote
of the Mindtronics Principal Stockholders pursuant to and in accordance with the
provisions of their respective Stockholder Support Agreements, or the vote of
Roger C. Royce as the Irrevocable Proxy pursuant to and in accordance with the
provisions of the Mindtronics Principal Stockholders' respective Stockholder
Support Agreements, will be sufficient under the Nevada Law to constitute the
approval by the Mindtronics Stockholders of the Merger Agreement, the Merger and
all of the transactions contemplated thereby. Accordingly, approval of the
Merger Agreement, the Merger and all of the transactions contemplated thereby by
the requisite vote of the Mindtronics Stockholders under the Nevada Law is
assured.
The Merger Agreement also provides that the Merger Agreement must be
approved and adopted by the affirmative vote of the holders of not less than
95.0% of the outstanding shares of Mindtronics Common Stock. Such approval is
assured by reason of the executed Stockholder Support Agreements.
APPOINTMENT OF REPRESENTATIVE
The Merger Agreement provides that, by virtue of their approval of the
Merger Agreement, Mindtronics and the Mindtronics Stockholders will be deemed to
have irrevocably constituted and appointed Rod Ylst, the President of
Mindtronics, as "REPRESENTATIVE," effective as of the Effective Time of the
Merger, as their true and lawful agent and attorney-in-fact to enter into any
agreement in connection with the transactions contemplated by the Merger
Agreement or any transaction contemplated by the Escrow Agreement, to exercise
all or any of the powers, authority and discretion conferred on the
Representative under either the Merger Agreement or the Escrow Agreement, to
waive any term or condition of any such agreement, to give and receive notices
on their behalf and to be their exclusive representative with respect to any
action arising with respect to any transaction contemplated by any such
agreement, including, without limitation, the defense, settlement or compromise
of any action for which Ubrandit or Merger Sub may be entitled to
indemnification. The Merger Agreement further provides that the Representative
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agrees to act as, and to undertake the duties and responsibilities of, such
agent and attorney-in-fact. The Merger Agreement also provides that, if the
Representative is unable or unwilling to serve in such capacity, the
Representative's successor, who will serve and exercise the powers of the
Representative under the Merger Agreement, will be named by those persons
holding a majority of the shares of Mindtronics Common Stock.
CLOSING
The Merger Agreement provides that the closing of the transactions
contemplated by it (the "CLOSING") will take place as soon as practicable after
the satisfaction or waiver of each of the conditions set forth in the Merger
Agreement but no later than May 1, 2001 (the "CLOSING DATE"); provided that, in
the event that Ubrandit by May 1, 2001 for any reason has not obtained approval
of the Merger Agreement and the transactions contemplated thereby by the holders
of the requisite number of then-outstanding shares of Ubrandit Common Stock,
then the "CLOSING DATE" will be extended and be deemed and interpreted
throughout the Merger Agreement for all purposes to mean September 1, 2001.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement and the transactions contemplated by the Merger
Agreement will terminate if the Merger is not consummated on or before the
Closing Date. The Merger Agreement and the transactions contemplated by the
Merger Agreement may be terminated at any time before the Closing Date (i) by
the mutual written consent of Ubrandit and Mindtronics; (ii) by Ubrandit by
written notice to Mindtronics if any event occurs or condition exists that would
render impossible the satisfaction of one or more of the conditions to the
obligation of Ubrandit to consummate the transactions contemplated by the Merger
Agreement; (iii) by Mindtronics by written notice to Ubrandit if any event
occurs or condition exists that would render impossible the satisfaction of one
or more of the conditions to the obligation of Mindtronics to consummate the
transactions contemplated by the Merger Agreement; (iv) by Ubrandit if any
material information (whether or not in writing) delivered by or on behalf of
Mindtronics to Ubrandit is inaccurate or incomplete in any material respect; (v)
by Mindtronics if any material information (whether or not in writing) delivered
by or on behalf of Ubrandit to Mindtronics is inaccurate or incomplete in any
material respect; (vi) by Ubrandit if there has been a material
misrepresentation or other material breach by Mindtronics in Mindtronics'
representations, warranties or covenants set forth in the Merger Agreement,
provided that, if such breach is susceptible to cure, Mindtronics will have 10
business days after receiving notice from Ubrandit of Ubrandit's intention to
terminate the Merger Agreement if such breach continues in which to cure such
breach; (vii) by Mindtronics if there has been a material misrepresentation or
other material breach by Ubrandit in Ubrandit's representations, warranties or
covenants set forth in the Merger Agreement, provided that, if such breach is
susceptible to cure, Ubrandit will have 10 business days after receiving notice
from Mindtronics of Mindtronics' intention to terminate the Merger Agreement if
such breach continues in which to cure such breach.
EFFECT OF TERMINATION
If the Merger Agreement is terminated pursuant to its terms, then all
further obligations of Ubrandit, Merger Sub and Mindtronics under the Merger
Agreement will terminate without further liability of any party to another
party; provided that if the Merger Agreement is terminated (a) because Ubrandit
is unable to consummate the Merger for any reason within its direct control on
or before September 1, 2001 or (b) because Ubrandit terminates the Merger
Agreement, unless such termination results from or relates to Mindtronics'
material breach of any of its representations, warranties, agreements or
covenants contained in the Merger Agreement or Mindtronics' failure to fulfill
any condition precedent required of Mindtronics, then Ubrandit will be obligated
under the Merger Agreement to pay to Mindtronics a one-time break-up fee in the
amount of $250,000 increased by $50,000 on the first day of each calendar month
commencing March 1, 2001 (the "BREAK-UP FEE"). The Merger Agreement also
provides that the Break-Up Fee will be automatically offset against any debt
owed by Mindtronics to Ubrandit under the Loan and Security Agreement. It
further provides that, if the amount of the Break-Up Fee exceeds the debt owed
by Mindtronics to Ubrandit, then Ubrandit will be obligated to pay to
Mindtronics the difference in cash within 10 days after the termination. For the
purposes of the foregoing, the Merger Agreement provides that the failure of
Ubrandit to obtain the requisite approval of the Ubrandit Stockholders of the
Merger Agreement and the Merger will be deemed to be within the control of
Ubrandit.
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INDEMNIFICATION AND ESCROW
ESCROW FUND
Ten percent of the aggregate shares of Ubrandit Common Stock to be
issued in connection with the Merger to the principal Mindtronics Stockholders,
namely, Mark K. La Count, Rod Ylst, M2CH, Inc., a Utah corporation, Roger C.
Royce and M. Karlynn Hinman, will be registered in the name of, and deposited
with, City National Bank as "ESCROW AGENT." Such deposit will constitute the
Escrow Fund and be governed by the terms set forth in the Escrow Agreement
attached as APPENDIX I to the Merger Agreement (the "ESCROW AGREEMENT"). The
Escrow Fund will be available to compensate Ubrandit pursuant to the
indemnification obligations of Mindtronics under the Merger Agreement.
INDEMNIFICATION
The Merger Agreement provides that Mindtronics will indemnify and hold
harmless Ubrandit and each subsidiary of Ubrandit, and their respective
directors, officers, employees, affiliates, agents and assigns, from and against
any and all losses of Ubrandit or any subsidiary of Ubrandit as a result of, or
based on or arising from (i) any inaccuracy in or breach or nonperformance of
any of the representations, warranties, covenants or agreements made by
Mindtronics in or pursuant to the Merger Agreement or (ii) any third party claim
or demand regarding the conduct of the business of Mindtronics before
consummation of the Merger, whether asserted before or after consummation of the
Merger. All amounts owed by Mindtronics to Ubrandit will be paid out of the
Escrow Fund in accordance with the Escrow Agreement.
The Merger Agreement also provides that Ubrandit will indemnify and
hold harmless the Mindtronics Stockholders from and against any loss of the
Mindtronics Stockholders as a result of, or based on or arising from any
inaccuracy in or breach or nonperformance of any of the representations,
warranties, covenants or agreements made by Ubrandit in or pursuant to the
Merger Agreement. Any such payment made by Ubrandit to the Mindtronics
Stockholders in respect of losses incurred by the Mindtronics Stockholders will
be paid in shares of Ubrandit Common Stock. For the purpose of determining the
number of shares of Ubrandit Common Stock to be so delivered to Mindtronics
Stockholders, the price per share of Ubrandit Common Stock will be the average
closing price of the Ubrandit Common Stock (as quoted on AMEX) during the 10
trading days ending two days before the day on which any such payment is
required to be made.
FEES AND EXPENSES
The Merger Agreement provides that all fees and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
will be paid by the party incurring such fees and expenses, whether or not the
Merger is consummated.
Ubrandit expects that it will incur the following expenses in
connection with the Merger:
Legal Fees $200,000
Accounting Fees 75,000
Printing Costs 50,000
Filing Fees 5,000
Miscellaneous Costs (travel, ETC.) 70,000
---------
Total $400,000
=========
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SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The Merger Agreement provides that the representations, warranties and
agreements contained in the Merger Agreement will survive the consummation of
the Merger until the date on which Ubrandit files with the SEC if first Annual
Report on Form 10-K that includes consolidated financial statements of Ubrandit
and Mindtronics.
ASSIGNMENT
The Merger Agreement provides that no party to it may assign the Merger
Agreement without the prior written consent of the other parties to the Merger
Agreement, except that Ubrandit can assign the Merger Agreement without the
prior written consent of any other party in connection with the sale of all or
substantially all of the assets or stock of Ubrandit or in connection with the
merger, consolidation or similar reorganization of Ubrandit.
AMENDMENTS; WAIVERS
The Merger Agreement provides that (i) all parties must approve any
amendment to the Merger Agreement, (ii) any waiver of any right or remedy
requires the consent of the party waiving it, (iii) every amendment or waiver
must be in writing and designated as an amendment or waiver, as appropriate, and
(iv) no failure by any party to insist on the strict performance of any
provision of the Merger Agreement, or to exercise any right or remedy, will be
deemed a waiver of such performance, right or remedy or of any other provision
of the Merger Agreement.
PUBLIC ANNOUNCEMENTS
The Merger Agreement provides that Ubrandit and Mindtronics will
consult with each other before issuing any press release or making any public
statement with respect to the Merger Agreement or the transactions contemplated
thereby and will mutually agree on the substance of any such press release or
public statement.
NATURE OF THE VOTE REQUIRED AND VOTING PROCEDURES
The affirmative vote of the holders of a majority of the shares of
Ubrandit Common Stock present and/or represented and voted at the Annual Meeting
(provided that a quorum is established) is required to approve the Merger
Agreement and the transactions contemplated thereby, including, without
limitation, the Merger. THE UBRANDIT BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT THE UBRANDIT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING, WITHOUT LIMITATION, THE
MERGER. Proxies solicited by management of Ubrandit will be voted "FOR" approval
of this proposal. If you mark "ABSTAIN" on your proxy with respect to this
proposal, your shares will be counted for the purpose of determining the
presence or absence of the required quorum, will not be counted in the number of
votes cast and will not be counted as votes "FOR" or "AGAINST" this proposal. If
you fail to mark either "ABSTAIN" or "AGAINST" on your proxy with respect to
this proposal, or if you fail to make any mark at all on your proxy with respect
to this proposal, your shares will be counted as votes "FOR" this proposal. If a
broker or other nominee holding shares for a beneficial owner does not vote on
this proposal, the shares so held will not be counted in the number of votes
cast and not be counted as votes "FOR" or "AGAINST" this proposal.
[INTENTIONALLY LEFT BLANK]
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PROPOSAL FOUR
AMENDMENT TO UBRANDIT ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF UBRANDIT COMMON STOCK
The Ubrandit Board of Directors has determined unanimously that it is
advisable and in the best interests of Ubrandit and the Ubrandit Stockholders to
amend Ubrandit's Articles of Incorporation to increase the number of authorized
shares of Ubrandit Common Stock in order to provide Ubrandit with an adequate
supply of authorized but unissued shares of Ubrandit Common Stock for general
corporate needs, including additional financing, payment of stock dividends,
stock splits, acquisitions of other businesses and employee incentive and
benefit plans. Attached to this Proxy Statement as APPENDIX F and incorporated
herein by reference is the text of the proposed amendment to the Ubrandit
Articles of Incorporation.
If this proposal is approved, Ubrandit's Articles of Incorporation will
be amended to increase the number of authorized shares of Ubrandit Common Stock
from 25,000,000 to 100,000,000. At the Record Date, there were 12,417,333 shares
of Ubrandit Common Stock outstanding and approximately 2,261,000 shares of
Ubrandit Common Stock reserved or designated for future issuance under
Ubrandit's 1999 Stock Option Plan and stock purchase warrants. At the Record
Date, the number of unissued and unreserved shares of Ubrandit Common Stock was
10,321,667. If this proposal is approved and the Merger is not consummated,
there will be 85,321,667 shares of unreserved Ubrandit Common Stock available
for issuance by Ubrandit. If this proposal is approved and the Merger is
consummated, then, pursuant to the Merger, up to 12,100,000 shares of Ubrandit
Common Stock will be issued to Mindtronics Stockholders, and thereupon there
will be approximately 73,221,667 shares of unreserved Ubrandit Common Stock
available for issuance by Ubrandit.
The additional authorized shares of Ubrandit Common Stock would, when
issued, have the same rights as the shares of Ubrandit Common Stock currently
outstanding. There are no statutory preemptive rights with respect to any of the
shares Ubrandit Common Stock. Although the Ubrandit Board would authorize the
issuance of additional shares of Ubrandit Common Stock based on its judgement
that doing so would be in the best interests of Ubrandit and the Ubrandit
Stockholders, and although it is necessary to do so in order to consummate the
Merger (being a condition of such consummation), the issuance of additional
shares of Ubrandit Common Stock could have the effect of diluting the voting
power and book value per share of the shares of Ubrandit Common Stock currently
outstanding.
Although Ubrandit has no arrangements, understandings or commitments
(other than the Merger) with respect to the issuance of additional shares of
Ubrandit Common Stock, it is considered advisable to have sufficient authorized
and unissued shares of Ubrandit Common Stock available to enable Ubrandit, as
the need may arise, to move promptly to take advantage of market conditions and
the availability of other favorable opportunities without further delay. Unless
otherwise required by applicable laws or regulations, if this proposal is
approved, the additional shares of Ubrandit Common Stock will be issuable
without further authorization by vote or consent of the Ubrandit Stockholders
and under such terms and for such consideration as may be determined by the
Ubrandit Board of Directors.
The amendment increasing the authorized shares of Ubrandit Common Stock
could, under certain circumstances, discourage or make more difficult an attempt
to gain control of Ubrandit or the Ubrandit Board of Directors by tender offer
or proxy contest, or to consummate a merger or consolidation with Ubrandit after
acquiring control, and to remove incumbent management, even if such transactions
were favorable to the Ubrandit Stockholders. In certain circumstances, the
issuance of additional shares of Ubrandit Common Stock could be used to create
voting impediments or to frustrate persons seeking to gain control of Ubrandit,
especially if the shares were issued in a private placement to persons
sympathetic to management and opposed to any attempt to gain control of
Ubrandit. Accordingly, this proposal to amend Ubrandit's Articles of
Incorporation may be deemed, under certain circumstances that may or may not
occur, to be an anti-takeover measure. This proposal, however, is not being
presented as, and it is not part of, any plan to adopt a series of anti-takeover
measures.
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POST-CLOSING SPECIAL MEETING OF UBRANDIT STOCKHOLDERS IF NECESSARY
If the Ubrandit Stockholders at the Annual Meeting fail to approve this
proposal, the Ubrandit Board of Directors will un-reserve certain shares of
Ubrandit's authorized capital stock previously reserved as shares underlying
stock options authorized and/or issued under Ubrandit's 1999 Stock Option and
Incentive Plan in order to make available for issuance a number of authorized
shares of Ubrandit Common Stock sufficient for the purpose of consummating the
Merger, and the Ubrandit Board of Directors will request management of Ubrandit
to forbear exercising any of their stock options unless and until Ubrandit's
authorized capital stock has been increased as contemplated by the First
Amendment to Articles. In the event that Ubrandit does un-reserve such shares of
Ubrandit's authorized capital stock, Ubrandit intends to call a special meeting
of the Ubrandit Stockholders as soon as reasonably practicable after
consummation of the Merger (the "POST-CLOSING SPECIAL MEETING") to consider,
vote on and approve an amendment to the Articles of Incorporation of Ubrandit,
substantially identical to the amendment described in this proposal, that will
be proposed at that time to increase the total number of authorized shares of
Ubrandit Common Stock from 25,000,000 to 100,000,000. At the Post-Closing
Special Meeting, by reason of the number of shares of Ubrandit Common Stock that
will have been issued in connection with the Merger, management of Ubrandit will
hold a number of authorized shares of Ubrandit Common Stock sufficient for the
purpose of approving such amendment to the Articles of Incorporation of
Ubrandit, and it is anticipated that management of Ubrandit will vote such
shares accordingly.
Therefore, although the First Amendment to Articles is not an integral
part of the Merger, the Ubrandit Board recommends to the Ubrandit Stockholders
that, if they vote at the Annual Meeting to approve the Merger Agreement and the
transactions contemplated thereby, they also should vote at the Annual Meeting
to approve the First Amendment to Articles.
NATURE OF THE VOTE REQUIRED AND VOTING PROCEDURES
The affirmative vote of the holders of a majority of the shares of
Ubrandit Common Stock outstanding on the Record Date is required to approve this
proposal. THE UBRANDIT BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
UBRANDIT STOCKHOLDERS VOTE "FOR" APPROVAL OF THIS PROPOSAL. Proxies solicited by
management of Ubrandit will be voted "FOR" approval of this proposal. If you
fail to make any mark at all on your proxy with respect to this proposal, your
shares will be counted as votes "FOR" this proposal. If you mark "ABSTAIN" on
your proxy with respect to this proposal, your shares will be counted as votes
"AGAINST" this proposal. If a broker or other nominee holding shares for a
beneficial owner does not vote on this proposal, the shares so held also will be
counted as votes "AGAINST" this proposal.
[INTENTIONALLY LEFT BLANK]
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PROPOSAL FIVE
AMENDMENT TO UBRANDIT ARTICLES OF INCORPORATION TO AUTHORIZE A CLASS OF
PREFERRED STOCK TO BE DESIGNATED AND ISSUED BY THE UBRANDIT BOARD OF
DIRECTORS UNDER "BLANK CHECK" AUTHORITY
The Ubrandit Board of Directors has determined unanimously that it is
advisable and in the best interests of Ubrandit to amend Ubrandit's Articles of
Incorporation that will authorize 20,000,000 shares of preferred stock to be
designated and issued by the Ubrandit Board of Directors under "blank check"
authority. Attached to this Proxy Statement as APPENDIX F and incorporated
herein by reference is the text of the proposed amendment to the Ubrandit
Articles of Incorporation.
Ubrandit currently has no authorized capital stock other than common
stock. If this proposal is approved, the Ubrandit Board of Directors will be
entitled to issue 20,000,000 shares of "blank check" preferred stock in one or
more series, for such consideration and on such terms as the Ubrandit Board of
Directors determines in its sole discretion, without further authorization by
the Ubrandit Stockholders. The term "blank check" preferred stock refers to
preferred stock for which the designations, preferences, conversion rights,
dividend rights, voting rights, redemption prices, maturity dates and similar
matters are determined by the Ubrandit Board of Directors.
The Ubrandit Board of Directors believes that it is advisable to
authorize the preferred stock and have it available for issuance in connection
with possible future transactions, such as financings and acquisitions. "Blank
check" preferred stock allows Ubrandit greater flexibility than Ubrandit Common
Stock can allow in financings and acquisitions because with "blank check"
preferred stock Ubrandit can more precisely satisfy the financial criteria of
any investor or acquisition candidate.
Ubrandit currently has no arrangements, understandings or commitments
with respect to the issuance of any of the preferred stock. There will be no
statutory preemptive rights with respect to any of the preferred stock.
Although the Ubrandit Board of Directors has no present intention of
doing so, it could issue shares of preferred stock (within the limits imposed by
applicable law) that could make more difficult or discourage an attempt to
obtain control of Ubrandit by means of a merger, tender offer, proxy contest or
other means. The issuance of preferred stock could be used to create voting or
other impediments or to discourage persons seeking to gain control of Ubrandit
by selling preferred stock to purchasers favorable to the Ubrandit Board of
Directors. In addition, the Ubrandit Board of Directors could issue a series of
preferred stock that entitles its holders to vote, either separately as a class
or with the holders of Ubrandit Common Stock, on any merger, sale or exchange of
assets by Ubrandit or any other extraordinary corporate transaction. The
issuance of a series of preferred stock could be used to dilute the stock
ownership of a person or entity seeking to obtain control of Ubrandit if the
Ubrandit Board of Directors considers the actions of such person or entity not
to be in the best interests of the Ubrandit Stockholders. Such issuance of
preferred stock also could have the effect of diluting the earnings per share
and book value per share of Ubrandit Common Stock.
Accordingly, this proposal to amend the Ubrandit Articles of
Incorporation may be deemed, under certain circumstances that may or may not
occur, to be an anti-takeover measure. This proposal, however, is not being
presented as, and it is not a part of, any plan to adopt a series of
anti-takeover measures.
POST-CLOSING SPECIAL MEETING OF UBRANDIT STOCKHOLDERS IF NECESSARY
If the Ubrandit Stockholders at the Annual Meeting fail to approve this
proposal, Ubrandit intends to call a special meeting of the Ubrandit
Stockholders as soon as reasonably practicable after consummation of the Merger
(the "POST-CLOSING SPECIAL MEETING") to consider, vote on and approve an
amendment to the Articles of Incorporation of Ubrandit, substantially identical
to the amendment described in this proposal, that will be proposed at that time.
At the Post-Closing Special Meeting, by reason of the number of shares of
Ubrandit Common Stock that will have been issued in connection with the Merger,
management of Ubrandit will hold a number of authorized shares of Ubrandit
Common Stock sufficient for the purpose of approving such amendment to the
Articles of Incorporation of Ubrandit, and it is anticipated that management of
Ubrandit will vote such shares accordingly.
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NATURE OF THE VOTE REQUIRED AND VOTING PROCEDURES
The affirmative vote of the holders of a majority of the shares of
Ubrandit Common Stock outstanding on the Record Date is required to approve this
proposal. THE UBRANDIT BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
UBRANDIT STOCKHOLDERS VOTE "FOR" APPROVAL OF THIS PROPOSAL. Proxies solicited by
management of Ubrandit will be voted "FOR" approval of this proposal. If you
fail to make any mark at all on your proxy with respect to this proposal, your
shares will be counted as votes "FOR" this proposal. If you mark "ABSTAIN" on
your proxy with respect to this proposal, your shares will be counted as votes
"AGAINST" this proposal. If a broker or other nominee holding shares for a
beneficial owner does not vote on this proposal, the shares so held also will be
counted as votes "AGAINST" this proposal.
[INTENTIONALLY LEFT BLANK]
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PROPOSAL SIX
AMENDMENT TO UBRANDIT ARTICLES OF INCORPORATION THAT WILL
PROVIDE FOR STAGGERED TERM FOR DIRECTORS
The Ubrandit Board of Directors has determined unanimously that it is
advisable and in the best interests of Ubrandit to amend Ubrandit's Articles of
Incorporation to provide for staggered terms of Ubrandit's directors, effective
immediately and affecting the Ubrandit Board of Directors elected at the Annual
Meeting. Attached to this Proxy Statement as APPENDIX G and incorporated herein
by reference is the text of the proposed amendment to the Ubrandit Articles of
Incorporation.
Under the proposed amendment, the Ubrandit Board of Directors will be
divided into three classes if the number of directors is four or more, with the
classes to be as equal in number as may be possible. Any director or directors
in excess of the number divisible by three first will be assigned to Class 1,
and any additional director will be assigned to Class 2, as the case may be. For
example, if there are five directors, the fourth director will be assigned to
Class 1, and the fifth director will be assigned to Class 2.
If the proposed amendment is approved by the Ubrandit Stockholders, the
Ubrandit Board of Directors will be divided into three classes, with each Class
1 director to serve until the next ensuing Annual Meeting of the Ubrandit
Stockholders, each Class 2 director to serve until the second ensuing Annual
Meeting of the Ubrandit Stockholders and each Class 3 director to serve until
the third ensuing Annual Meeting of the Ubrandit Stockholders. At each Annual
Meeting of the Ubrandit Stockholders, the number of directors equal to the
number of directors in a Class whose term expires at the time of such meeting
will be elected to serve until the third ensuing Annual Meeting of the Ubrandit
Stockholders.
The proposed amendment also provides that, notwithstanding the
foregoing, directors will serve until their successors are elected and qualified
or until their earlier death, resignation or removal from office, or until there
is a decrease in the number of directors, provided that no decrease in the
number of directors will have the effect of shortening the term of any incumbent
director.
At the Annual Meeting, six directors are to be elected. Management's
nominees for directors to be elected at the Annual Meeting are Jefferey D.
Phillips, Roger C. Royce, David C. Pollei, Gregory V. Gibson, Steven K. Radowicz
and James W. Truher. SEE "Proposal One Election of Directors." It is anticipated
that the Ubrandit Stockholders at the Annual Meeting will vote to elect all of
such nominees as directors. Assuming that that occurs, if the Merger is
consummated (SEE Proposal Three), immediately following the Merger, or as soon
as practicable thereafter, Messrs. David C. Pollei and Gregory V. Gibson will
resign from the Ubrandit Board of Directors, and the remaining Ubrandit
directors thereupon will fill the two vacancies then existing by appointing Mark
K. La Count and Rod Ylst as directors of Ubrandit, both of whom currently are
directors and officers of Mindtronics. In addition, at that time the Ubrandit
Board will expand the Ubrandit Board to consist of seven directors and appoint
M. Karlynn Hinman as a new additional director of Ubrandit, who also currently
is a director and officer of Mindtronics.
In the event that the Ubrandit Stockholders approve this proposal at
the Annual Meeting, or in the event that an amendment to the Articles of
Incorporation of Ubrandit substantially identical to the amendment described in
this proposal is approved by the Ubrandit Stockholders at the Post-Closing
Special Meeting, if held (SEE "Post-Closing Special Meeting of Ubrandit
Stockholders if Necessary" below), then all three of such newly-appointed
Ubrandit directors will be Class 1 directors. Further, in either such event,
Jefferey D. Phillips and Roger C. Royce will be Class 2 directors, and Steven K.
Radowicz and James W. Truher will be Class 3 directors.
The proposed amendment can provide both advantages and disadvantages to
the Ubrandit Stockholders. The proposed amendment does not prevent a purchase of
all or a majority of the equity securities of Ubrandit, whether pursuant to
open-market purchases, negotiated purchases from large stockholders or an
unsolicited bid for all or part of the securities of Ubrandit. Rather, the
Ubrandit Board believes that the proposed amendment would discourage disruptive
tactics and encourage persons who may seek to acquire control of Ubrandit to
initiate such an acquisition through negotiations with the Ubrandit Board. The
Ubrandit Board believes that it therefore will be in a better position to
protect the interests of all the Ubrandit Stockholders. Further, the Ubrandit
Stockholders will have a more meaningful opportunity to evaluate any such
action.
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Although the proposed amendment is intended to encourage persons
seeking to acquire control of Ubrandit to initiate such an acquisition through
arm's-length negotiations with the Ubrandit Board, the overall effect of the
proposed amendment may be to discourage a third party from making a tender offer
for a portion or all of the outstanding shares of Ubrandit Common Stock, or
otherwise attempting to obtain a substantial position in the equity securities
of Ubrandit, by preventing such third party from immediately removing and
replacing the incumbent Ubrandit directors.
A staggered Ubrandit Board would make it more difficult to change
control of Ubrandit by removing and replacing all or a majority of the Ubrandit
Board. Since not all Ubrandit directors would stand for election at a single
meeting of the Ubrandit Stockholders, Ubrandit Stockholders desiring to change
control would have to vote at multiple meetings in order to do so, requiring at
least two annual meetings to remove and replace a majority of the Ubrandit
directors and three annual meetings to remove and replace the entire Ubrandit
Board.
To the extent that any potential acquirer is deterred by the proposed
amendment, the proposed amendment also may serve to benefit incumbent management
by making it more difficult to remove management, even when the only reason for
the proposed change of control of a Ubrandit Stockholder action may be the
unsatisfactory performance of the present directors. In addition, since the
proposed amendment is in part designed to discourage accumulations of large
blocks of Ubrandit voting securities by purchasers whose objective is to have
such voting securities repurchased by Ubrandit at a premium, its adoption could
tend to reduce the temporary fluctuations in the market price of such voting
securities that are caused by such accumulations. Accordingly, Ubrandit
Stockholders could be deprived of certain opportunities to sell their shares of
Ubrandit Common Stock at a temporarily higher market price.
Takeovers or changes in the Ubrandit Board that are effected without
prior consultation and negotiation with Ubrandit would not necessarily be
detrimental to Ubrandit and the Ubrandit Stockholders. The Ubrandit Board
believes, however, that the benefits of seeking to protect the ability of
Ubrandit to negotiate effectively, through Ubrandit directors who previously
were elected as such by the Ubrandit Stockholders as a whole and are familiar
with Ubrandit, outweigh any disadvantage of discouraging such unsolicited
proposals.
The proposed amendment is not in response to any specific effort of
which Ubrandit is aware to accumulate shares of Ubrandit Common Stock or obtain
control of Ubrandit. The Ubrandit Board of Directors is recommending the
approval of the proposed amendment to further continuity and stability in the
leadership and policies of Ubrandit and to discourage certain kinds of tactics
that could involve actual or threatened changes of control that are not in the
best interests of the Ubrandit Stockholders. Because of the time associated with
obtaining approval of the Ubrandit Stockholders, the Ubrandit Board believes
that it is inadvisable to defer consideration of the proposed amendment until a
takeover threat is pending. Once a specific threat exists, the time required to
adopt the proposed amendment may render its approval impractical before the
completion of the takeover. Further, the absence of a specific threat permits
the Ubrandit Stockholders to consider the merits of the proposed amendment
outside the pressured atmosphere of a takeover threat. For these reasons, the
Ubrandit Board believes that it is prudent to consider the proposed amendment at
this time.
POST-CLOSING SPECIAL MEETING OF UBRANDIT STOCKHOLDERS IF NECESSARY
If the Ubrandit Stockholders at the Annual Meeting fail to approve this
proposal, Ubrandit intends to call a special meeting of the Ubrandit
Stockholders as soon as reasonably practicable after consummation of the Merger
(the "POST-CLOSING SPECIAL MEETING") to consider, vote on and approve an
amendment to the Articles of Incorporation of Ubrandit, substantially identical
to the amendment described in this proposal, that will be proposed at that time.
At the Post-Closing Special Meeting, by reason of the number of shares of
Ubrandit Common Stock that will have been issued in connection with the Merger,
management of Ubrandit will hold a number of authorized shares of Ubrandit
Common Stock sufficient for the purpose of approving such amendment to the
Articles of Incorporation of Ubrandit, and it is anticipated that management of
Ubrandit will vote such shares accordingly.
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NATURE OF THE VOTE REQUIRED AND VOTING PROCEDURES
The affirmative vote of the holders of a majority of the shares of
Ubrandit Common Stock outstanding on the Record Date is required to approve this
proposal. THE UBRANDIT BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
UBRANDIT STOCKHOLDERS VOTE "FOR" APPROVAL OF THIS PROPOSAL. Proxies solicited by
management of Ubrandit will be voted "FOR" approval of this proposal. If you
fail to make any mark at all on your proxy with respect to this proposal, your
shares will be counted as votes "FOR" this proposal. If you mark "ABSTAIN" on
your proxy with respect to this proposal, your shares will be counted as votes
"AGAINST" this proposal. If a broker or other nominee holding shares for a
beneficial owner does not vote on this proposal, the shares so held also will be
counted as votes "AGAINST" this proposal.
[INTENTIONALLY LEFT BLANK]
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PROPOSAL SEVEN
AMENDMENT TO UBRANDIT ARTICLES OF INCORPORATION THAT WILL ELIMINATE THE
PERSON LIABILITY OF DIRECTORS AND OFFICERS AND PROVIDE FOR THE
INDEMNIFICATION OF SUCH DIRECTORS AND OFFICERS
The Ubrandit Board of Directors has determined unanimously that it is
advisable and in the best interests of Ubrandit to amend Ubrandit's Articles of
Incorporation to eliminate the personal liability of the directors and officers
of Ubrandit and to provide for the indemnification of such directors and
officers. Attached to this Proxy Statement as APPENDIX H and incorporated herein
by reference is the text of the proposed amendment to the Ubrandit Articles of
Incorporation.
Elimination of liabilities and the indemnification thereof, as provided
by these provisions, currently is permitted under the Nevada Law, and they are
considered the "state of the art" under the corporate laws of most other states.
The purposes of this proposal are to conform the Articles of Incorporation of
Ubrandit to contemporary corporate law and to enable Ubrandit more effectively
to attract and retain competent management personnel.
POST-CLOSING SPECIAL MEETING OF UBRANDIT STOCKHOLDERS IF NECESSARY
If the Ubrandit Stockholders at the Annual Meeting fail to approve this
proposal, Ubrandit intends to call a special meeting of the Ubrandit
Stockholders as soon as reasonably practicable after consummation of the Merger
(the "POST-CLOSING SPECIAL MEETING") to consider, vote on and approve an
amendment to the Articles of Incorporation of Ubrandit, substantially identical
to the amendment described in this proposal, that will be proposed at that time.
At the Post-Closing Special Meeting, by reason of the number of shares of
Ubrandit Common Stock that will have been issued in connection with the Merger,
management of Ubrandit will hold a number of authorized shares of Ubrandit
Common Stock sufficient for the purpose of approving such amendment to the
Articles of Incorporation of Ubrandit, and it is anticipated that management of
Ubrandit will vote such shares accordingly.
NATURE OF THE VOTE REQUIRED AND VOTING PROCEDURES
The affirmative vote of the holders of a majority of the shares of
Ubrandit Common Stock outstanding on the Record Date is required to approve this
proposal. THE UBRANDIT BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
UBRANDIT STOCKHOLDERS VOTE "FOR" APPROVAL OF THIS PROPOSAL. Proxies solicited by
management of Ubrandit will be voted "FOR" approval of this proposal. If you
fail to make any mark at all on your proxy with respect to this proposal, your
shares will be counted as votes "FOR" this proposal. If you mark "ABSTAIN" on
your proxy with respect to this proposal, your shares will be counted as votes
"AGAINST" this proposal. If a broker or other nominee holding shares for a
beneficial owner does not vote on this proposal, the shares so held also will be
counted as votes "AGAINST" this proposal.
[INTENTIONALLY LEFT BLANK]
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INFORMATION ABOUT UBRANDIT
BUSINESS OF UBRANDIT
Ubrandit is an enterprise engaged in the development of specialty
websites and other online related services and products. Ubrandit's primary
focus is the "branding" (private labeling) of Ubrandit's destination financial
and e-commerce sites on the World Wide Web to the existing websites of companies
desiring to drive traffic and encourage repeat visitors to their respective
sites. "Private labeling" or "branding" means that, when Ubrandit creates
content for a client's website, the content (or Web pages) will contain the
client company's name, logo and navigation buttons and will not include
information about Ubrandit. Ubrandit believes that branded content provides more
credibility to a client's website than a linked component, which directs all of
the credit to the company that created the content. Ubrandit believes that its
specialty websites will be less costly than in-house developed websites. While
in-house developed websites may better reflect the content desired by the
developer, Ubrandit attempts to provide desirable content and offers other
advantages. Ubrandit offers e-commerce and customized "sticky" content solutions
to customers at affordable prices. These solutions are costly to develop
in-house. Ubrandit has initially focused on providing brandable turnkey systems
in the areas of financial information, e-commerce and Internet Service Provider,
ISP.
Ubrandit offers online products and services through its on line
e-commerce and financial services destination sites. Ubrandit offers four
primary products and services:
o Junglejeff.com - Became operational for branding in September
1999, www.junglejeff.com is one of Ubrandit's e-commerce sites
that offers over 1,000,000 titles of books, music CDs and
tapes, and movie videos and DVDs to online purchasers.
o Stockstudy.com - Became operational for branding in March
1999, www.stockstudy.com is a comprehensive financial site
that provides Web users with an extensive array of valuable
features, including: stock quotes, personal portfolio
management, mutual fund data, news releases and exclusive
editorial content.
o Clicksmart.com - Acquired in April 2000, www.clicksmart.com is
one of Ubrandit's e-commerce sites that provides specialty
interest books and videos to online purchasers and toll-free
telephone purchasers.
o Ubrandit ISP - Formed in April 2000, Ubrandit ISP provides
businesses, affinity groups and individuals with a brandable
Internet service provider, or ISP, portal service. Ubrandit
ISP enables clients to offer Internet access through their own
brand and identity. Ubrandit ISP operates Bigramp.com, which
is a demonstration site for potential clients' brandable ISPs.
Ubrandit was incorporated on December 19, 1997, in the State of Nevada
under the name of Mount Merlot Estates, Inc. In January 1999, Ubrandit changed
its name to Virtual Brand, Inc. In February 1999, Ubrandit changed its name a
second time to Ubrandit.com. Ubrandit raised operating capital through the sale
of equity securities, which Ubrandit used to recruit and organize management and
to finance the initial costs associated with corporate strategic planning and
development. Other than the combined operations of Ubrandit noted above,
Ubrandit has not conducted significant operations at the date of this Proxy
Statement. Ubrandit's principal corporate offices are located at 6405 Mira Mesa
Boulevard, Suite 100, San Diego, CA 92121. Its telephone number is (858)
350-9566.
RECENT DEVELOPMENTS
ACQUISITION OF CLICKSMART.COM. In the third fiscal quarter of 2000,
Ubrandit acquired ClickSmart.com, an Internet content and services company.
ClickSmart.com specializes in special interest video and book e-commerce, direct
response print marketing, database management and order processing/fulfillment
services to hundreds of leading magazine publishers and content websites.
Management believes that the combination of the two companies presents many
opportunities for enhanced product offerings and online traffic integration and
expansion.
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BRANDABLE WEBSITE BUSINESS
Ubrandit's primary business of developing brandable websites commenced
with its acquisition of Global Investors Guide in March 1999. Global Investors
Guide developed www.stockstudy.com, which provides online investors with
targeted content, including, but not limited to: stock quotes, personal
portfolio management, charting, mutual fund data, news releases, public company
website listings, an automated investor relations package request system and
financial editorial content. The branding technology developed by Global
Investors Guide and by its former personnel now employed by Ubrandit has become
the principal technology of Ubrandit. Ubrandit has continued the development of
the branding and private labeling technology.
BUSINESS OBJECTIVES. Ubrandit's business strategy is to offer brandable
Web modules to other websites. Ubrandit generates revenues through advertising,
sales and sponsorship payments on its brandable e-commerce site and destination
financial sites on the World Wide Web. Ubrandit expects that companies with
existing websites desiring to drive traffic and encourage repeat visitors to
their respective sites will brand the Ubrandit.com's destination sites thereby
increasing Ubrandit.com's e-commerce sales, the value of its advertising space
and sponsorship revenue. Ubrandit's key objectives for the brandable website
business are:
(1) Market and sell its existing brandable websites;
(2) Continually improve and update the content on these sites;
(3) Upgrade branding technology and support systems to permit
large-scale branding of sites;
(4) Increase revenue generated by the advertising space available
on both Ubrandit's website and branded sites; and
(5) Increase the number of customers utilizing the custom website
design and programming.
Ubrandit's principal business objective is to provide "private labeled"
and "branded" financial and e-commerce Web-based systems to the Internet.
"Private labeling" or "branding" means that, when Ubrandit creates content for a
client's website, the content (or Web pages) will contain the client company's
name, logo and navigation buttons and will include very minimal information
about Ubrandit.com. or its affiliates. The goal of one of Ubrandit's branded
sites is to have it appear to be part of the client's website and to have the
Internet user believe that he or she has not left the client's site when
accessing the content available on the private-labeled site. Ubrandit believes
that the content provided by branded sites will provide Web users with
significant incentives to visit and remain at the client's website enabling the
client to have an increased Web presence. Branded content is different from
content assessable by "linking." Usually linking occurs when a Web user accesses
a link and is sent to a different and distinct site where the company that
created the content is located. After visiting the different site the Internet
user has little incentive to return to the originating site where the link was
found when desiring to access that specific content again.
Ubrandit's current focus is on providing branded turnkey systems for
three segments of the Internet: financial information, e-commerce and brandable
ISP packages. Through technology developed by Global Investors Guide and through
the development of and purchase of other Web content, it is Ubrandit's plan to
develop valuable "sticky" technology (content and systems which hold traffic at
websites) that will enable the generation of income through commission-based
programs and advertisement. All sales are paid by credit card. Ubrandit has
engaged Bank of America as the credit card facilitator and Cybercash, Inc. as
the third party credit card authorization agent.
The barriers of entry into developing an Internet business are
relatively minor. The costs to obtain and maintain traffic to sustain this
business can be significant. The development of a website requires a relatively
small cost in time and capital for a simple design. More complex sites,
including especially e-commerce solutions, are much more time consuming and
capital intensive. However, without exposure, usually through advertising, even
the most costly site will have few visitors and generate limited revenue. Many
established sites in their respective niche markets have very substantial
advertising/marketing budgets, which make it extremely difficult for newly
created sites to compete unless they also have substantial marketing and
advertising resources to draw on. Ubrandit believes that its branding model
provides an effective new way of gaining exposure. By allowing other sites to
brand its site, Ubrandit expects to achieve substantial market exposure much
faster, at a lower cost, to enable it to compete with the traditional,
well-capitalized Internet businesses. Ubrandit.com believes that its branding
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model will allow it to enter areas of Internet businesses in which it otherwise
could not compete. Ubrandit expects that in the future other sites will choose
to begin branding their site's content as this concept gains popularity.
Ubrandit's principal websites are in the financial area and the e-commerce
Internet business areas. Ubrandit believes that it is essential to its success
that Ubrandit continue to offer additional content and websites in the future,
as more companies follow Ubrandit's branding business model. Such sites may be
acquired from the developers or developed by Ubrandit. Ubrandit believes it will
be able to remain competitive by offering more variations of brandable sites to
its branding affiliates.
CLICKSMART.COM. ClickSmart.com, Inc., a wholly-owned subsidiary of
Ubrandit.com, provides toll-free telephone ordering and e-commerce solutions for
thousands of companies nationwide that want to provide their customers with
convenient shopping and ordering of books, videos and other media products.
Among these companies are major magazine groups such as Hearst Publications and
Readers Digest as well as non-profit organizations such as Children's Television
Workshop and Science Service. ClickSmart.com provides a similar ordering service
for well-known magazines by providing toll-free order taking of books and other
media items reviewed or mentioned in those magazines along with a ClickSmart.com
toll-free order number.
PLAN OF OPERATION
Ubrandit has financed its research and development and initial
marketing activities through the sale of equity securities to its stockholders
in private transactions. At December 31, 2000, Ubrandit had approximately
$2,800,000 in cash. At the current cash burn rate, after deducting all costs
associated with the proposed acquisition of Mindtronics, Ubrandit anticipates
that such funds will be sufficient to continue operations through September 30,
2001 at historic levels of cash usage. However, Ubrandit expects that additional
funds will be necessary for Ubrandit to fully implement its business plan and
strategies. Thereafter, Ubrandit will depend on the receipt of additional debt
or equity capital to sustain operations and fund future growth and product
development. Without additional capital, there is substantial uncertainty about
the ability of Ubrandit to implement its business plan.
Ubrandit commenced providing branding services to approved clients in
September 1999. Ubrandit has entered into branding affiliate agreements with
more than 6,500 sites through the date of this Proxy Statement. Additional sites
are expected to commence generating revenue as the marketing program progresses.
To date, Ubrandit has not generated sufficient revenue from the sites to sustain
its costs of operation.
Ubrandit has determined to continue its business strategy of acquiring
Internet-related businesses, particularly those with proprietary technology and
software. As a result, the Board of directors of Ubrandit has approved the
execution of an Agreement and Plan of Merger with Mindtronics, a
development-stage company that has proprietary technology, including Internet
search engine technology, time synchronization software for network computers
and others. If consummated, Ubrandit anticipates that the products and
technology developed and being developed by Mindtronics will become its primary
business focus. The operation of the brandable Website business will, however,
continue as described below.
Ubrandit's principal focus for the brandable website business will be
to market and sell its existing brandable websites and to increase the revenue
generated thereby. Ubrandit also plans, as part of its ongoing development
efforts, to increase the amount of content and the quality of the content on all
of its sites. Ubrandit is researching the development of websites for computer
products and auction based e-commerce. Ubrandit also plans to enter into other
strategic alliances with product providers, such as those providing the book,
music and video products, to offer a larger number and greater variety of
products. Ubrandit believes that the prices for goods and services in its
agreements with its suppliers are comparable to those available to other
Web-based retailers. Ubrandit's cost to expand marketing exposure by website
branding is expected to result in lower costs of sales. As a result, Ubrandit
anticipates that its branded sites will compete on a price basis with other
Web-based retailers.
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Ubrandit expects to increase the information available on its financial
sites and increase the database of public companies available on Stockstudy.com.
Ubrandit plans to continue increasing the variety of available quotes (to
include commodities and foreign securities), portfolio management, charting and
company information available on the site www.stockstudy.com. This will be done
through additional programming and development of the site and by the purchase
of additional data feeds from data providers. Ubrandit also plans to increase
the attractiveness of Stockstudy.com by increasing both the number and variety
of newsletters available on the site. Ubrandit does not, and does not intend to,
develop proprietary content, except that Ubrandit has engaged one staff writer
to provide a morning and evening summary analysis of the stock market. All other
content is licensed or purchased from third parties.
Ubrandit intends to differentiate its product line from other similar
sites by providing a broad range of content. For example, while many financial
sites contain newsletters or similar information, few sites offer as many
newsletters from such a broad topical range as Stockstudy.com. Ubrandit also
will rely on the input of its branded site users to include information that
customers demand.
During fiscal year 2000, Ubrandit purchased additional computer
equipment, including servers, hubs, routers, Internet connectivity lines and
work stations. Ubrandit expects that this equipment will be capable of servicing
the projected number of users on Ubrandit's e-commerce sites and content sites
for the foreseeable future. Ubrandit's computer systems are scalable and, if the
number of Internet users accessing the sites exceed expectations, more funds
will be allocated to the purchase of additional servers and connectivity lines.
Ubrandit uses off-site server providers in secure server locations to house most
of its Internet server computers and expects to continue this practice in the
foreseeable future.
Ubrandit ISP, a wholly-owned subsidiary of Ubrandit, is a
private-labeled virtual Internet Service Provider program, which Ubrandit plans
to market to small- and medium-sized businesses. Under the Ubrandit ISP program,
businesses and affinity groups have immediate entry into the Internet access
business arena via their own "custom brands" and have the opportunity to
generate ongoing revenue. For an initial, one-time base set-up fee of $12,500,
branding clients are able to offer both full service dial-up and broadband
Internet access services to their customer base via their own brand name and
identity with no mention of Ubrandit.com or Ubrandit ISP.
PRODUCTS AND SERVICES
Ubrandit offers a diverse suite of sophisticated websites with the
purpose of "branding" the sites to clients as "sticky" solutions. As the word
would imply, stickiness means finding ways of keeping Web users glued to a
particular website. Three major sites have been completed: www.stockstudy.com,
www.bigramp.com and www.junglejeff.com. Ubrandit's destination websites have
been designed to reflect the latest in sticky technologies. Ubrandit is now
branding junglejeff.com, stockstudy.com and bigramp.com.
Ubrandit uses the terms "branding" and "private labeling"
interchangeably. The goal of Ubrandit's proprietary branding technology is to
provide private-labeled content to client sites whereby the content will appear
to belong exclusively to the client company. This will be achieved by
incorporating the client company's name, logo, Web-color scheme and navigation
into the content. Ubrandit's destination websites have been designed to be
"transparent" in the way client sites access the branded content. The branding
content is designed so that the user will not notice the change in content
provider when they leave the client's site and enter Ubrandit's branded content.
This is unlike the traditional "affiliate" model or "linking" arrangement where
the user typically is transferred directly to the main site of the company that
created the content. Ubrandit believes that the lack of transparency in the
traditional affiliate model and linking arrangement is a major shortcoming. In
many cases, the user eventually will bypass the affiliate site in favor of going
directly to the content provider. Ubrandit's systems have been designed so that
the user will not be aware of Ubrandit's destination sites, www.junglejeff.com;
www.stockstudy.com or www.bigramp.com. This transparency is critical because
users will not be tempted to bypass the clients' site. Additionally, Ubrandit is
able to run a variety of e-mail-based promotions designed to drive traffic back
to Ubrandit's clients' sites.
JUNGLEJEFF.COM. Launched in June 1999, JungleJeff.com is an e-commerce
site that currently features over 1,000,000 book, music, video and DVD titles.
The site is located on the Internet at www.junglejeff.com. Ubrandit began
branding JungleJeff.com in September 1999. Ubrandit is able to brand
JungleJeff.com to websites that either do not have an entertainment presence or
wish to upgrade their entertainment presence, a customer base that potentially
encompasses a significant portion of websites on the Internet. As is the case
with finance centers, there are thousands of websites that currently link to
other sites for their entertainment presence via associate programs (associate
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sites earn commissions through the generation of sales). Ubrandit believes that
a significant number of these sites may take advantage of a cost effective and
sophisticated private-labeled entertainment e-commerce site if it were made
available to them. Ubrandit plans through JungleJeff.com to offer client
companies an affiliate revenue sharing program. An affiliate site is able to
customize its store to highlight certain categories and items, according to its
respective needs.
During the first two fiscal quarters of the 2000 fiscal year, Ubrandit
expanded its relationships with media companies and enrolled a number of media
properties in its Junglejeff.com branding program. Ubrandit entered into
multi-year arrangements with Communications Corporation of America and White
Knight broadcasting, under which Ubrandit incorporates over 20 media properties
to the Junglejeff.com branding program.
Ubrandit also entered into an arrangement with Citadel Communications
Corp., under which the Internet properties of 183 Citadel radio stations will
utilize JungleJeff.com. The agreement with Citadel provides that all of
Citadel's 183 radio station Web properties will be integrated with
Junglejeff.com. Ubrandit earns revenue on all sales generated by Citadel's
branded e-stores.
At September 30, 2000, a total of 6,665 clients had joined the
Junglejeff.com branded affiliate program.
The products that are sold through Junglejeff.com, similar to other
e-commerce sites, are purchased from large music and book distributors and
resold to buyers purchasing on the Internet. Currently, Ubrandit has a contract
with Baker & Taylor, Inc., a major industry distributor, to provide its music,
book and video products through a drop shipment program. Under the terms of its
agreement with Baker & Taylor, Ubrandit has a license to use and display
information from Baker & Taylor's extensive database of products on Ubrandit's
websites. The right to use and display information from the Baker & Taylor
database is included in the wholesale price of the products purchased by
Ubrandit's brandable store, junglejeff.com. Pursuant to the program, products
purchased on a retail website are drop shipped to the customer on an as
available basis. No specific inventory has been designated as belonging to
Ubrandit, and Ubrandit only purchases the inventory as it fulfills orders.
Ubrandit's License Agreement with Muze Inc., a New York corporation,
provides that Muze grants to Ubrandit a non-exclusive, nontransferable, limited
right to use the data and software provided by Muze. The License Agreement is
for a term of one year and requires Ubrandit to make payments of a minimum
monthly fee of $3,500 or a greater fee calculated on a fixed price per unit
sold. Ubrandit may only use the data at specified sites and may not assign, sell
or otherwise use the data except as provided in the agreement. Muze agrees to
indemnify Ubrandit against infringement of the intellectual property rights of
third parties, subject to certain exceptions and requirements. Ubrandit agrees
to indemnify Muze against claims arising out of content not provided by Muze,
breach of the License Agreement and illegal or unauthorized use of the data.
Ubrandit also contracts with Baker & Taylor and Muze Inc. to provide
the book, music and video data base feeds. These data feeds that appear on
Ubrandit's destination sites (and Ubrandit's branded sites) allow purchasers to
view video, book or music jackets and pricing, biographic synopsis and other
information about the products that are offered for sale. Since Ubrandit relies
exclusively on the drop shipment program run by its distributors, Ubrandit does
not keep an inventory of its products. Since Ubrandit will not keep its own
inventory, products will only be available to the Internet purchaser if they are
currently in stock or as they become available to Ubrandit's distributors.
Ubrandit's system updates distributor's inventory on a weekly basis. Products
are purchased exclusively by credit card, and Ubrandit processes such credit
card purchases through CyberCash, Inc. of Reston, Virginia, a provider of secure
electronic payment solutions. Ubrandit insures secure Internet transactions by
the use of VeriSign, of Mountain View, California, a provider of Public Key
Infrastructure (PKI) and digital credit solutions used by websites to conduct
communications and transactions over the Internet. Products are purchased from
distributors on an as available basis. If the product is not available within 15
days, then the purchaser will be notified by e-mail and have the opportunity to
cancel the order. Ubrandit has a return policy that a customer may return any
unused item for a full refund, provided that the customer returns it to Ubrandit
in its original condition within 15 days following receipt of order. Ubrandit
refunds shipping costs only if the return is due to an error on the part of
Ubrandit.
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UBRANDIT ISP. In April 2000, Ubrandit formed Ubrandit ISP as a new
wholly-owned subsidiary to expand into the ISP business sector. Operating out of
Ubrandit's offices in Salt Lake City, Utah, Ubrandit ISP provides "private
labeled" entry into the ISP sector for businesses and affinity groups of
virtually any size and scope. Ubrandit operates the destination site Bigramp.com
to show customers the functionality of their branded ISP. For a one-time base
setup fee of $12,500, a Ubrandit ISP client is able to operate as a complete
Internet access provider via its own unique brand and identity. In addition to
the setup fee, Ubrandit.com has the ability to earn revenue on the monthly
Internet access services provided to the client for resale to end consumers. The
ISP program is exclusively private labeled to each individual client and
delivered "turnkey" and "ready for marketing," enabling the client to offer a
premier Internet access service to customers in more than 2,800 United States
and Canadian cities.
STOCKSTUDY.COM. Located on the Internet at www.stockstudy.com,
stockstudy.com is a comprehensive financial site that provides Web users with an
extensive array of sticky features, including stock quotes, personal portfolio
management, mutual fund data, news releases and exclusive editorial content.
Quotes are provided on a minimum of 15 minutes delay per each exchange
requirement. Quotes are being continually updated by a constant feed from the
data providers as trades take place. Articles and newsletters are being updated
on a daily basis. The Morning and Evening Bell commentary is updated twice
daily. The public information on companies is being updated constantly by data
feeds as the public databases are changed and updated. Ubrandit has developed a
fully automated Investor Reporting ("IR") package request system for
Stockstudy.com. Users simply utilize the site's search engine to find the
company they are interested in receiving an IR package from, and click "send."
The system automatically sends an e-mail to the IR department of the selected
company with the user's contact information and request. The IR department of
the specific company then makes a determination on the disposition of the
request.
CLICKSMART.COM. ClickSmart.com, Inc., a wholly owned subsidiary of
Ubrandit, is an Internet services company that provides special interest video
and book e-commerce and direct-response print marketing, database management and
order processing and fulfillment services to hundreds of leading magazine
publishers and content websites. Ubrandit's proprietary database is segmented
into hundreds of hard-to-find, how-to and educational book and video categories
and subcategories, including sports, music, academic studies, test preparation,
children's learning, travel, home improvement, cooking, crafts and hobbies,
boating and gardening, among others.
REVENUE SOURCES
In fiscal year 2000, Ubrandit's primary sources of revenue were from
e-commerce sales, primarily from book sales by Clicksmart.com (approximately
$566,000) and books, music CDs, videos, DVDs and other products at
Junglejeff.com (approximately $273,000). Ubrandit generated minimal revenue from
ISP services (approximately $15,000) and from list rentals (approximately
$14,000).
To date, Ubrandit has not earned any revenue from advertising. Ubrandit
does control the advertising space on its destination and branded sites.
MARKETING
Ubrandit intends to market its branded e-commerce, ISP and financial
information platforms through direct, in-house channels. Ubrandit also expects
to advertise its products through the utilization of banner advertisements on
its existing and future branding partners. Ubrandit does not expect to allocate
any significant funds toward the outside marketing of its branding platforms
over the next 12 months. Assuming Ubrandit completes the proposed acquisition of
Mindtronics, Ubrandit intends to allocate significant funds toward the outside
marketing of the Mindtronics product base.
Ubrandit initially will market its products through multiple media
advertising campaigns, including Web-based advertisements, targeted mailings and
print and radio advertisements. Ubrandit's small marketing budget will not
permit national or regional radio or television promotional campaigns. If
Ubrandit is able to raise additional capital, a portion of the proceeds would be
used to expand its marketing efforts. Ubrandit also will benefit as its client
base grows, since Ubrandit plans to control the advertising space on its branded
sites. Ubrandit expects advertising exposure to increase as Ubrandit develops
more branded sites.
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Each branded affiliate (I.E., a customer who purchases and uses a
branded website) enters into an agreement with Ubrandit pursuant to which
Ubrandit determines the advertising placed on the website. Ubrandit recognizes
that its selection of advertisers will be important to branded affiliates and
will endeavor where possible to select advertisers that will not directly
compete with the business of the branded affiliate. If branded affiliates are
displeased with Ubrandit's selection of advertisers, they may terminate the
agreement. Upon such termination, Ubrandit terminates the customer's access to
the branded website.
The potential customers of Ubrandit are significant since many websites
are constantly searching for new "sticky" content to differentiate themselves
from their competition and to encourage repeat visits by their users. Ubrandit
believes that its products will appeal to virtually every type of website that
provides content and will represent very significant savings to these sites over
the development of similar sticky solutions by their own programmers.
PROPRIETARY TECHNOLOGY AND RESEARCH AND DEVELOPMENT
Ubrandit does not have any patent on its Internet processes. Ubrandit
has various proprietary technologies used in its business. Ubrandit expects
that, once its proprietary processes become readily available in the
marketplace, competitors will attempt and possibly may replicate successfully
certain advantageous processes developed by Ubrandit that are part of its
branding technology. Ubrandit also applied for Trademark protection for its name
and logo. Ubrandit also applied for a service mark with the U.S. Patent and
Trademark Office on the mark "ubrandit" and "ubrandit.com" with and without the
distinctive fonts and color scheme. Ubrandit also secured the names of its
present sites with InterNIC and Network Solutions, Inc. and intends to renew the
registration in approximately two years when renewals are due. The current
business strategy of Ubrandit focusing on the development and branding of its
destination websites has resulted in Ubrandit expending significant amounts of
its resources on research and development.
COMPETITION
The Internet market is extremely competitive, new and dynamic. Ubrandit
will be competing with companies that have far greater resources than that of
Ubrandit. Ubrandit competes against companies with far greater financial and
management resources, longer operating history and more established name
recognition.
It is management's opinion that content providers represent the major
competition to Ubrandit as they are vying for similar relationships with
third-party Internet marketers. Ubrandit's major competitors generally fall into
the following two categories: (1) e-commerce sites, such as Amazon.com and
BarnesandNoble.com, and (2) financial information providers, such as CBS
Marketwatch and PC Quote, Inc. Portals offer a broad range of content and
services, including both affiliate e-commerce programs and financial
information. Certain e-commerce sites provide third-party sites with affiliate
programs similar to the branding affiliate programs that Ubrandit offers. Larger
sites also may keep an inventory of certain books and music and thus may be able
to deliver products that are not available to Ubrandit through its distributors.
Also, some of the larger sites may be able to deliver certain products out of
inventory on a more timely basis than Ubrandit. Financial information providers
provide third-party sites with comprehensive financial information (stock
quotes, market news, etc.) much like stockstudy.com. Many of the larger sites
have the advantages of "tie ins" with radio, print and television media that
give them significantly greater exposure than that available to Ubrandit (being
primarily dependent upon exposure through the Internet).
GOVERNMENTAL REGULATION
Ubrandit will be subject to regulation by state, federal and local
authorities, with regard to content, copyright and Federal Trade Commission
regulations. No assurance can be given that unforeseen regulations will not be
adopted by the governmental authorities prohibiting Ubrandit from conducting
business as planned or, once in business, limiting the success of such business
operations through the expense of complying with new regulations.
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EMPLOYEES
At December 31, 2000, Ubrandit and its subsidiaries had 23 full-time
personnel plus various consultants in management, sales, Internet and technology
computer application, programming, legal and editorial responsibilities.
Ubrandit relies significantly on outsourcing of its computer programming and
other consulting needs and plans to control costs by extensively utilizing
outsourcing in the future. Management of Ubrandit expects to hire additional
employees as needed.
Further reference is made to Ubrandit's Consolidated Financial
Statements and the notes included therein and to the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" with regard to Ubrandit's business and planning.
PROPERTIES
Ubrandit subleases approximately 9,800 square feet of general-use
office space in San Diego, California as its primary corporate office. The term
of the sublease is until March 2002. The current monthly rent expense
approximates $13,000.00. These offices are sufficient for Ubrandit to conduct
its current operations. On site, Ubrandit has a secure facility for housing one
of Ubrandit's eight high-capacity Internet servers. The other seven servers are
housed at a secure location operated by CONNECTNET, a local Internet service
provider located in San Diego. Ubrandit believes that its current configuration
of server computers and purchased bandwidth are capable of handling the expected
high volume Internet traffic during peak user hours. In addition, Ubrandit's
systems have been designed to be scalable to meet growth beyond the expected use
of the system.
LEGAL PROCEEDINGS
No material legal proceedings to which Ubrandit is a party are pending,
nor is any known to be contemplated, and Ubrandit knows of no legal proceedings
pending or threatened, or judgments entered, against any director or officer of
Ubrandit in his capacity as such.
[INTENTIONALLY LEFT BLANK]
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UBRANDIT SELECTED FINANCIAL DATA
UBRANDIT SELECTED FINANCIAL DATA
The following table sets forth certain historical consolidated
financial data for Ubrandit for the fiscal year ended September 30, 2000, the
nine months ended September 30, 1999 and the fiscal year ended December 31,
1998, which have been derived from the audited consolidated financial statements
of Ubrandit. SEE APPENDIX A. Ubrandit was incorporated and first began
operations on December 19, 1997. Historical financial data may not be indicative
of Ubrandit's future performance. This information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and notes thereto included
elsewhere in this Proxy Statement.
Nine Months Ended
Fiscal Year Ended September 30, 1999 Fiscal Year Ended
September 30, 2000 (restated) December 31, 1998
------------------ ---------- -----------------
INCOME STATEMENT DATA
Revenue $ 869,623 $ 35,656 $ -
Cost of sales $ 1,100,405 $ 567,286 $ -
Operating expenses $ 2,398,389 $ 547,095 $ 93
Loss from operations $ (2,629,121) $ (1,078,725) $ (93)
Other income (expense), net $ 225,321 $ 30,973 $ -
Net loss $ (2,403,850) $ (1,047,752) $ (93)
Earnings (loss) per share -
Basic and diluted $ (0.20) $ (0.11) $ (0.00)
September 30, 2000 September 30, 1999 December 31, 1998
------------------ ------------------ -----------------
BALANCE SHEET DATA
Total current assets $ 3,879,890 $ 5,704,834 $ 44,187
Total assets $ 5,965,327 $ 6,907,655 $ 44,507
Total current liabilities $ 393,978 $ 77,641 $ 400
Total liabilities $ 424,522 $ 86,500 $ 400
Total shareholders equity $ 5,540,805 $ 6,821,155 $ 44,107
[INTENTIONALLY LEFT BLANK]
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UBRANDIT SUPPLEMENTARY FINANCIAL INFORMATION
SUMMARY OF SELECTED QUARTERLY FINANCIAL DATA
For the Quarters Ended
September 30, 2000 June 30, 2000 March 31, 2000 December 31, 1999
------------------ ------------- -------------- -----------------
Revenue $ 395,841 $ 356,471 $ 84,600 $ 32,711
Net Loss $ (732,819) $ (637,208) $ (634,768) $ (399,055)
Earnings (loss per share -
basic and diluted $ (0.07) $ (0.05) $ (0.05) $ (0.03)
For the Quarters Ended
September 30, 1999 June 30, 1999 March 31, 1999
------------------ ------------- --------------
Revenue $ 15,040 $ 18,567 $ 2,049
Net Loss $ (413,914) $ (557,807) $ (76,031)
Earnings (loss) per share -
basic and diluted $ (0.04) $ (0.06) $ (0.01)
[INTENTIONALLY LEFT BLANK]
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UBRANDIT MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
FORWARD-LOOKING STATEMENTS
This Proxy Statement includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. This Act
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about themselves so long as they identify
these statements as forward looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected results. All statements other than statements of historical fact,
including statements regarding industry prospects and future results of
operations or financial position, made in this Proxy Statement are forward
looking. We use words such as "anticipates," "believes," "expects," "future" and
"intends" and similar expressions to identify forward-looking statements.
Forward-looking statements reflect management's current expectations and are
inherently uncertain. Ubrandit's actual results may differ significantly from
management's expectations. The following discussion includes forward-looking
statements regarding expectations of future profitability of our business, gross
margin, improvement in operating loss and sales, all of which are inherently
difficult to predict. Actual results could differ significantly for a variety of
reasons, including the accessibility to additional capital, the rate of growth
and consumer acceptance of the Internet and online commerce, the amount that
Ubrandit invests in new business opportunities and the timing of those
investments, customer spending patterns, the mix of products sold to customers,
the mix of revenues derived from product sales as compared to services and risks
of fulfillment throughput and productivity. These risks and uncertainties, as
well as other risks and uncertainties, could cause Ubrandit's actual results to
differ significantly from management's expectations.
OVERVIEW
Management points out that when comparing the financial numbers from
these two time periods, it should be noted that the recently ended period is a
full twelve-month fiscal year, whereas the comparative period is comprised of a
nine-month period. Hence most of the line items will possibly reflect an
increase at least partially due to the longer time period which will not be
discussed below. During the fiscal year ended September 30, 2000, Ubrandit (or
the "COMPANY") continued to develop its products and launch new programs,
reaching several significant milestones. The newly-developed brandable
e-commerce site had tremendous growth in both the number of branded partners and
in sales volume. The Internet service provider division, Ubrandit ISP, was
established in the second quarter with the first sales being made near the end
of the third quarter. Also in the second quarter, the Company commenced the
branding of the financial website, Stockstudy.com. In May 2000, Clicksmart.com,
Inc., based in New Jersey, was acquired for 300,000 shares of Ubrandit Common
Stock and cash equaling $196,000. The Company continued to deficit spend with
the building of and organizational costs of the various divisions. The Company
expects both revenues and gross profit to increase moving forward.
TWELVE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1999
REVENUES FROM SALES
The Company's revenues for the twelve months ended September 30, 2000
were $869,623 as compared to $35,656 for the nine months ended September 30,
1999, an increase of 2,339%. In fiscal year 2000, the Company's primary sources
of revenue were from e-commerce sales, primarily from books sales by
Clicksmart.com (approximately $566,000) and books, music CDs, videos, DVDs and
other products at Junglejeff.com (approximately $273,000). The Company generated
minimal revenue from ISP services (approximately $15,000) and from list rentals
(approximately $14,000).
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GROSS MARGIN
The Company recorded a gross margin loss of $230,782 for the 12 months
ended September 30, 2000 as compared to a gross margin loss of $531,630 for the
nine months ended September 30, 1999. The decrease in gross margin loss was
primarily due to an increase in the Company's overall business and significant
revenues from newly acquired Clicksmart.com, Inc. which carries higher gross
margins. The gross margin profit for Clicksmart.com totaled $98,046 for the year
ended September 30, 2000 and the gross margin loss for the Ubrandit e-commerce
group totaled $(330,304) for the year ended September 30, 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses increased by 345% to
$2,032,420 for the twelve months ended September 30, 2000 from $456,575 for the
nine months ended September 30, 1999. The increase was primarily due to the
Company's continued growth and expansion, including increased marketing expenses
totaling $170,709, increased payroll costs totaling $641,162, increased
accounting and legal fees in connection with public company expenses totaling
$153,212 and other expenses associated with running the newly formed ISP
division.
DEPRECIATION AND AMORTIZATION EXPENSE
For the twelve months ended September 30, 2000, depreciation and
amortization costs were $365,969, as compared to $90,520 for the nine months
ended September 30, 1999. The increase was due to amortization of goodwill
recorded from the acquisitions of Global Investors Guide, Inc. and
Clicksmart.com, Inc.
INTEREST INCOME
Interest income for the twelve months ended September 30, 2000
increased to $233,349 as compared to interest income of $32,366 for the nine
months ended September 30, 1999. The increase in interest income was due to
interest earned on increased cash balances received from equity offerings.
NET LOSS
Net Loss for the twelve months ended September 30, 2000 was $2,403,850
or 276% of revenues as compared to $1,047,752 or approximately 2,939% of
revenues for the nine months ended September 30, 1999. The increase in net loss
was primarily due to the Company's overall expansion and increased operating
expenses. Net loss as a percentage of revenues decreased by 2,663% primarily due
to the additional revenues from newly acquired Clicksmart.com, Inc. which
carries higher gross margins.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO 12 MONTHS ENDED DECEMBER 31,
1998
Management believes that a comparison of the Company's results of
operation for the nine months ended September 30, 1999 to those for the year
ended December 31, 1998 is not meaningful, as the Company did not commence
operations until the acquisition of Global Investors Guide in March of 1999.
REVENUES FROM SALES
The Company's revenues for the nine months ended September 30, 1999
were $35,656 as compared to nil for the twelve months ended December 31, 1998.
Approximately 66% of the revenue for the nine months ended September 30, 1999,
was generated by renting of mailing lists following the acquisition of Global
Investors Guide and the remaining portion was generated from newly commenced
product sales on the JungleJeff website.
GROSS MARGIN
The Company recorded a gross margin loss of $531,630 for the nine
months ended September 30, 1999 as compared to a gross margin loss of nil for
the twelve months ended December 31, 1998. The loss was due to the low sales
volume and related high costs of maintaining the branded websites.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses increased to $456,575 for
the nine months ended September 30, 1999 as compared to $13 for the twelve
months ended December 31, 1998. The increase was primarily due to increases in
research and development costs, administrative payroll, accounting and legal
fees associated with a public company, rent expense, and other business fees.
DEPRECIATION AND AMORTIZATION EXPENSE
For the nine months ended September 30, 1999, depreciation and
amortization costs were $90,520, as compared to $80 for the twelve months ended
December 31, 1998. The increase was due to amortization of core technology and
goodwill recorded from the acquisition of Global Investors Guide, and
depreciation of fixed assets.
INTEREST INCOME
Interest income increased to $32,366 for the nine months ended
September 30, 1999 as compared to nil for the twelve months ended December 31,
1998. The increase in interest income was due to interest earned on increased
cash balances received from equity offerings.
NET LOSS
Net Loss for the nine months ended September 30, 1999 was $1,047,752 or
2,939% of revenues as compared to $93 for the twelve months ended December 31,
1998. The increase was primarily due to the Company's expansion and development
of websites as well as increased operating expenses.
LIQUIDITY AND CAPITAL RESOURCES AND HISTORICAL RESULTS OF CASH FLOW
HISTORICAL RESULTS OF CASH FLOWS
At September 30, 2000, our cash balance approximated $3,701,000,
compared to $5,614,000 at September 30, 1999. The $1,913,000 decrease in cash is
discussed below.
Net cash used in operating activities amounted to $1,810,000 for fiscal
year 2000. This was primarily attributable to the net loss for the year of
$2,404,000, partially offset by non-cash charges related to depreciation and
amortization totaling $366,000, as well as $206,000 of cash provided by changes
in operating assets and liabilities. Cash provided by changes in operating
assets and liabilities is primarily a function of an increase in accounts
payable and accrued liabilities.
Net cash used in investing activities amounted to $323,000 for fiscal
year 2000. This was primarily attributable to purchases of fixed assets of
$128,000 and cash paid for the acquisition of a business of $196,000.
Net cash provided by financing activities amounted to $221,000 for
fiscal year 2000. This was primarily attributable to the proceeds from the
exercise of stock options totaling $186,000 and the collection of a stock
subscription receivable totaling $51,000, partially offset by the payments on
capital leases totaling $16,000.
GOING CONCERN
The Company has suffered substantial recurring losses from operations,
expects to incur additional losses and has entered into a definitive agreement
to acquire a development-stage company, Mindtronics Corporation, with a history
of substantial operating losses and to which the Company has agreed to advance
$750,000. These factors, among others, raise substantial doubt as to the
Company's ability to continue as a going concern.
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LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, our sole source of liquidity consisted of
$3,701,000 of cash. We currently do not have access to any other sources of
funding, including debt and equity financing facilities. As of September 30,
2000, our principal commitments consisted of our operating obligations and our
amount outstanding under operating and capital leases.
We believe that current cash will not be sufficient to meet our
anticipated operating cash needs for the next 12 months commencing January 1,
2001. The Company has limited operating capital and no current access to credit
facilities. We estimate that we currently have sufficient funds to continue
operations through September 30, 2001 at currently projected levels of
operational expense. However, we expect that additional funds may be necessary
for the Company to implement its business plan and to consummate its proposed
acquisition of Mindtronics Corporation. The Company's continued operations
therefore may depend on its ability to raise additional funds through bank
borrowings or equity or debt financing. There is no assurance that the Company
will be able to obtain the additional funding when needed, or that such funding,
if available, can be obtained on terms acceptable to the Company. If the Company
cannot obtain needed funds, it may be forced to curtail or cease its activities.
PROPOSED ACQUISITION
On December 4, 2000, the Company entered into a definitive Agreement
and Plan of Merger with Mindtronics Corporation, under which the Company will
acquire all of the outstanding shares of capital stock of Mindtronics in
exchange for up to 12,100,000 shares of Ubrandit Common Stock. The Agreement and
Plan of Merger was amended effective January 12, 2001. Mindtronics is a
development-stage technology development company that has proprietary technology
and products relating to the Internet, including a Internet search engine,
software for coordinating communications among network computers and others. The
agreement requires the Company to loan to Mindtronics Corporation $750,000
before the consummation of the acquisition. The acquisition is subject to the
approval of the Ubrandit Stockholders and the satisfaction of a number of other
conditions. The Company can provide no guarantee or assurance that it will
complete the acquisition as planned or that, if completed, the Company will be
able to integrate successfully its operations with the operations of Mindtronics
Corporation. With respect to the planned acquisition of Mindtronics Corporation,
the Company's Chairman of the Board of Directors and Chief Operating Officer
owns 1,000,000 (approximately 10% at September 30, 2000) of Mindtronics Common
Stock.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Ubrandit does not have any financial instrument that is subject to
market risk.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Roger C. Royce, Ubrandit's Chairman of the Board of Directors and Chief
Operating Officer and a Ubrandit Stockholder, owns of record 1,000,000 shares of
Mindtronics Common Stock. Mr. Royce has executed and delivered to Ubrandit a
certain Stockholder Support Agreement, pursuant to which Mr. Royce is obligated
to vote all of his shares of Mindtronics Common Stock to approve the Merger
Agreement and the transactions contemplated thereby.
In connection with Ubrandit's acquisition of Global Investors Guide in
March 1999, all of the shares of Global Investors Guide were purchased from
officers and a director of that company in exchange for restricted shares of
Ubrandit Common Stock (the "exchange shares") on a PRO RATA basis. Mr. Phillips,
President and director of that company, received 1,606,880 exchange shares, and
Messrs. Fagan, Cullivan, Childers and Arterburn, all executive officers of that
company, received 54,780 shares each for an aggregate of 1,826,000 exchange
shares. Ubrandit received computer equipment, services and cash in exchange for
a $100,000 amount due to a company 100% owned by Mr. Phillips, an executive
officer and director of Ubrandit. The aggregate $100,000 amount due resulted
from $50,000 advanced to such company, office space provided to such company at
$1,000 a month for 12 months, receptionist, secretarial and clerical support
services provided to such company at $2,000 per month for 12 months and the sale
of the following office equipment: copier, postage machine, shredder, address
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labeler, computer printer, two fax machines and three computers. Such office
equipment was sold to Ubrandit for $14,000, which was purchased by such company
within the preceding eighteen months for approximately $23,000. The entire
amount due was converted to 200,000 shares of Ubrandit Common Stock, which were
issued to such company. Mr. Phillips subsequently sold all of his interest in
such company, which now is owned by an unrelated party.
Mr. Gibson, an executive officer and director, provides legal services
to Ubrandit through his law firm Gibson, Haglund and Paulsen. For the nine month
period ended September 30, 1999, Mr. Gibson's law firm had received $66,000 for
legal services rendered. For the year ended September 30, 2000, Mr. Gibson's law
firm had received $96,000 for legal services rendered.
Before his appointment as officer of the Company, Mr. Pollei provided
services to the Company as a consultant. During the last fiscal year and through
the month of April 2000, Mr. Pollei received consulting fees of $44,500.
Beginning in May 2000, Mr. Pollei was retained as a full-time employee and
receives a monthly salary of $6,750.
During the fiscal year ended September 30, 1999, Mr. Phillips received
options to purchase 400,000 shares of Ubrandit Common Stock. SEE "Executive
Compensation--Summary Compensation Table." In March 2000, Mr. Phillips received
options to purchase 200,000 additional shares of Ubrandit Common Stock. The
options granted to Mr. Phillips during the current fiscal year vest on March 11,
2001 and are exercisable at an exercise price of $3.75 per share.
During the fiscal year ended September 30, 1999, Mr. Royce received
options to purchase 425,000 shares of Ubrandit Common Stock. SEE "Executive
Compensation--Summary Compensation Table." In March 2000, Mr. Royce received
options to purchase 150,000 additional shares of Ubrandit Common Stock. The
options granted to Mr. Royce during the current fiscal year vest on March 11,
2001 and are exercisable at an exercise price of $3.75 per share.
During the fiscal year ended September 30, 1999, Mr. Gibson received
options to purchase 125,000 shares of Ubrandit Common Stock. SEE "Executive
Compensation--Summary Compensation Table." In March 2000, Mr. Gibson received
options to purchase 75,000 additional shares of Ubrandit Common Stock at an
exercise price of $3.75 per share.
On August 5, 1999, Mr. Pollei received options to purchase 7,500 shares
of Ubrandit Common Stock at an exercise price of $4.69 per share, which were
exercisable immediately at the date of grant. On October 19, 1999, Mr. Pollei
received a second set of options to purchase 50,000 shares of Ubrandit Common
Stock at an exercise price of $4.00 per share, all of which options are
exercisable currently. In March 2000, Mr. Pollei received options to purchase
100,000 additional shares of Ubrandit Common Stock at an exercise price of $3.75
per share. The options granted to Mr. Pollei during fiscal year 2000 vest on
March 11, 2001.
On August 5, 1999, Ubrandit granted to Mr. Truher, one of Ubrandit's
directors and a director nominee, options to purchase 7,500 shares of Ubrandit
Common Stock at an exercise price of $4.69 per share. These options are
exercisable immediately at an exercise price of $4.69 per share. In February
2000, Ubrandit granted to Mr. Truher options to purchase 40,000 additional
shares of Ubrandit Common Stock at an exercise price of $3.50 per share. This
second set of options granted to Mr. Truher vest on February 24, 2001.
On March 5, 1999, Ubrandit granted to Mr. Radowicz options to purchase
25,000 shares of Ubrandit Common Stock, which are exercisable immediately at
$1.50 per share. On March 11, 2000, Mr. Radowicz received options to purchase
25,000 additional shares of Ubrandit Common Stock at an exercise price of $3.75
per share. This second set of options granted to Mr. Radowicz vest on March 11,
2001.
In connection with the employment of Mr. Joseph Larkin in March 2000,
Ubrandit granted to Mr. Larkin options to purchase 50,000 shares of Ubrandit
Common Stock at an exercise price of $3.75 per share. Such options vest one year
from the date of grant.
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All options granted to directors and officers through the date of this
Proxy Statement are exercisable for five years after the date on which they
vest.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF UBRANDIT
The following table sets forth certain information as to the beneficial
ownership of the capital stock of Ubrandit at December 31, 2000, by: (i) each
person known to Ubrandit to beneficially own more than five percent (5%) of the
capital stock of Ubrandit; (ii) each of Ubrandit's directors (including the
director nominees identified above; (iii) each of Ubrandit's executive officers
named under "Executive Compensation--Summary Compensation Table"; and (iv) all
executive officers and directors as a group.
NUMBER OF SHARES APPROXIMATE
BENEFICIALLY PERCENTAGE
NAME (1) OWNED (2) OWNED
- - - -------- ---------------- -----------
Jefferey D. Phillips (3)........................ 2,206,880 17.0%
Roger C. Royce (4).............................. 650,000 5.0%
David Pollei (5)................................ 157,500 1.3%
Gregory V. Gibson (6)........................... 200,000 1.6%
Steven K. Radowicz (7).......................... 50,000 *
James W. Truher (8)............................. 47,500 *
All Named Executive Officers and Directors ..... 3,311,880 23.6%
as a group (6 individuals)
- - - ----------------
* Less than one percent (1%)
(1) Unless otherwise noted, the Company believes that all shares are
beneficially owned and that all persons named in the table have sole
voting and investment power with respect to all shares owned by them.
(2) Beneficial ownership is determined in accordance with the applicable
rules under the Exchange Act. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options held by that person
that are currently exercisable, or become exercisable within 60 days
from the date hereof, are deemed outstanding. However, such shares are
not deemed outstanding for purposes of computing the percentage
ownership of any other person. Percentage ownership is based on
12,417,333 shares of Common Stock outstanding at July 31, 2000.
(3) Includes 400,000 shares issuable upon exercise of stock options
exercisable at an exercise price of $.50 per share and 200,000 shares
issuable upon exercise of stock options exercisable at an exercise
price of $3.75 per share.
(4) Includes 75,000 shares issuable upon exercise of options exercisable at
an exercise price of $1.50 per share, 350,000 shares issuable upon
exercise of options exercisable at an exercise price of $3.35 per share
and 150,000 shares issuable upon exercise of stock options exercisable
at an exercise price of $3.75 per share.
(5) Includes 7,500 shares issuable upon exercise of options exercisable at
an exercise price of $4.69 per share, 50,000 shares issuable upon
exercise of options exercisable at an exercise price of $4.00 per share
and 100,000 shares issuable upon exercise of stock options exercisable
at an exercise price of $3.75 per share.
(6) Includes 125,000 shares issuable upon the exercise of options
exercisable at an exercise price of $.50 per share and 75,000 shares
issuable upon exercise of stock options exercisable at an exercise
price of $3.75 per share.
(7) Includes 25,000 shares issuable upon the exercise of options
exercisable at a price of $1.50 per share and 25,000 shares issuable
upon exercise of stock options exercisable at an exercise price of
$3.75 per share.
(8) Includes 7,500 shares issuable upon the exercise of options exercisable
at an exercise price of $4.69 per share and 40,000 shares issuable upon
exercise of stock options exercisable at an exercise price of $3.50 per
share.
[INTENTIONALLY LEFT BLANK]
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INFORMATION ABOUT MINDTRONICS
BUSINESS OF MINDTRONICS
Mindtronics Corporation ("MINDTRONICS") is a research and development
company engaged in advanced research and development for computer hardware,
software, integrated technologies and innovative applications of leading-edge
technology and methodology. Mindtronics currently is undertaking to patent
certain of its products and recently commenced marketing and licensing specialty
technologies with patent pending.
PRODUCTS AND SERVICES
Mindtronics is researching and developing:
o a method of synchronizing computer-based networks, whether
Local or Wide Area, applicable to communications and standard
data applications;
o a method to help Internet and network users read and copy data
in a book-like format, useable with all alphabets and
languages (including left-right and right-left line reading);
o a data management and retrieval system that significantly
reduces labor-intensive index and keyword servicing, thus
increasing access and storage capabilities and significantly
reducing operating costs of Internet and Intranet management
and retrieval;
o a full-range database, application server and client server
that may be used as an ISP server, a knowledge server and a
data storage facility;
o a rapid, high-capacity search engine capable of daily
searching of web content;
o a consumer and commercial hand-held computing device with "add
on" upgrades for computers, players and servers;
o multi-level and multi-access security technology and
methodology for data base access and use;
o a remote Digital Network camera system that is capable of
linking to a viewer and video stream storage via various
deliver systems such as satellite, network, Internet or direct
connection;
o enhanced ISP and ASP services, including web-hosting, wireless
services, high-speed Internet access and telephone and cable
television access; and
o other programs and devices in ALPHA and BETA testing
development.
SALES AND DISTRIBUTION
Mindtronics' corporate marketing structure is organized to facilitate
maximum distribution of new products. New applications can be offered rapidly in
widespread market areas and niches as opportunities arise. In addition to United
States marketing, sales and distribution, negotiations are underway, and
infrastructure is being developed, for marketing in Europe, Canada, Mexico,
Central and South America and Pacific Rim nations.
PRODUCT DEVELOPMENT - EMPLOYEES
Mindtronics is beginning its ramp up phase. It currently has seven
employees and, as a company philosophy, uses out-sourcing specialty consultants,
developers and programmers on a project-by-project basis in the United States
and Europe. As Mindtronics continues to expand and market its products, it
anticipates increasing its staff to 65 employees over the next 18 months.
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INTELLECTUAL PROPERTY
Mindtronics relies on a combination of trade secrets, copyright and
trademark laws, confidentiality, non-circumvention and licensing agreements to
protect its intellectual property. In order to maximize ultimate patent
protection, Mindtronics is working with its intellectual property counsel for
strategic filings for patent pending status on certain technologies, determining
with counsel how best to make patent claims for individual technologies and for
combinations of two or more of its technologies. Mindtronics has filed a patent
application (and thus has patent pending) for its network synchronization
product and anticipates filing a patent application for the page-formatting
technology and applications for certain trademarks before the proposed closing
date for the Merger. Mindtronics takes the precautions recommended by its
intellectual property counsel to preserve patenting rights in the United States
and, as may be appropriate to particular products, elsewhere.
Mindtronics requires all employees and consultants involved in
proprietary or technologies services to sign agreements providing for the
maintenance of confidentiality and to assign all rights to inventions made by
them while associated with Mindtronics. Mindtronics routinely requires potential
business partners, clients and others who may provide business opportunities to
sign non-disclosure and non-circumvention agreements before Mindtronics enters
into discussions or provides introductory materials about its proprietary
information and plans.
Despite these efforts to protect its intellectual property,
unauthorized parties may attempt to copy or otherwise obtain and use the
technologies under development by Mindtronics. These precautions may not prevent
misappropriation or infringement of Mindtronics' intellectual property. The laws
of some foreign countries in which the Mindtronics technologies were developed
or may be licensed do not protect the intellectual property rights of
Mindtronics to the same extent as do the laws of the United States. In addition,
other parties may assert infringement claims against Mindtronics. Because patent
applications in the United States are not publicly disclosed until the patent is
issued, Mindtronics may be unaware of filed applications that relate to its
technologies. As of February 9, 2001, Mindtronics has not received a notice or
claim of any alleged infringement. However, from time to time, third parties,
including competitors, may assert patent, copyright, trademark and other
intellectual property rights to technologies that are important to Mindtronics.
Mindtronics likely will be increasingly subject to license offers and
infringement claims as it ramps up to market and distribute its products and
services. Patents of third parties may be determined to be valid, and some of
Mindtronics' technologies ultimately may be determined to infringe on such
patents. Third parties may pursue litigation with respect to those or other
claims. The results of any litigation are inherently uncertain. In the event of
an adverse result in any litigation with respect to intellectual property rights
relevant to Mindtronics' technologies that could arise in the future,
Mindtronics could be required to obtain licenses to the infringing technology,
to pay substantial damages under applicable law, to cease the manufacture, use,
licensing and sale of infringing products or technologies or to expend
significant resources to develop non-infringing technology. Licenses may not be
available from third parties either on commercially reasonable terms or at all.
In addition, litigation frequently involves substantial expenditures and can
require significant management attention, even if Mindtronics ultimately were to
prevail. Accordingly, any infringement claim or litigation against Mindtronics
could significantly harm the business, operating results and financial condition
of Mindtronics.
COMPETITION
Although Mindtronics is focusing on a number of market niches and
technological areas that would be considered as breakthrough areas, it
anticipates that, once these areas are well defined, Mindtronics' existing and
proposed products and services will have a leading position in a variety of
technology markets. Mindtronics anticipates it will compete for market shares
against major search-engine, data-management and computer-hardware companies.
MATERIALS AND SUPPLIES
To the extent possible, Mindtronics designs its products with
specialized programming, proprietary chips and algorithmic designs to assure
compatibility with off-the-shelf products and known systems. For example, key
Mindtronics products in the data-management area can recognize and address
approximately 125 known operating systems, making the Mindtronics products both
useful and desirable to computer and network users.
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PROPERTIES
In February 2001, Mindtronics began moving into a new location, leaving
its former headquarters at 4505 South Wasatch Boulevard, Suite 210, Salt Lake
City, Utah 84124, which is under 3,000 square feet, to the new expanded leased
premises of 7,400 square feet at 4001 South 700 East, Suite 850, Salt Lake City,
Utah 84047. European and off-premises consultants and developers provide their
own facilities in connection with their services.
LEGAL PROCEEDINGS
Neither Mindtronics nor its subsidiary corporations are engaged in any
legal or administrative proceeding. No legal or administrative proceedings have
been threatened, and Mindtronics has no knowledge of any claim or matter that
could lead to administrative or legal proceedings.
[INTENTIONALLY LEFT BLANK]
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MINDTRONICS SELECTED FINANCIAL DATA
MINDTRONICS SELECTED FINANCIAL DATA
The following table sets forth certain selected consolidated financial
data for Mindtronics for each year ended September 30, since Mindtronics'
predecessor corporation's inception, Mindtronics, Inc., on May 28, 1998. The
selected financial data should be read in conjunction with the consolidated
financial statements of Mindtronics and the notes thereto included elsewhere in
this Proxy Statement.
Fiscal Year Ended Fiscal Year Ended
September 30, 2000 September 30, 1999
------------------ ------------------
INCOME STATEMENT DATA
Revenue -- --
Cost of sales -- --
Operating expenses $ (450,025) $ (7,500)
Loss from operations $ (450,025) $ (7,500)
Other income (expense), net $ (3,872) $ (950)
Net loss $ (453,897) $ (8,450)
Earnings (loss) per share-basic
and diluted $ (0.05) $ 0.00
BALANCE SHEET DATA
Total current assets $ 20,697 $ 1,570
Total assets $ 98,345 $ 1,570
Total current liabilities $ 66,372 --
Total liabilities $ 66,372 --
Total shareholder equity $ 31,973 $ 1,570
[INTENTIONALLY LEFT BLANK]
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MINDTRONICS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the financial
statements of Mindtronics, attached to this Proxy Statement as APPENDIX B.
FORWARD-LOOKING STATEMENTS
This Proxy Statement includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. This Act
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about themselves so long as they identify
these statements as forward looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected results. All statements other than statements of historical fact,
including statements regarding industry prospects and future results of
operations or financial position, made in this Proxy Statement are forward
looking. Mindtronics uses words such as "anticipates," "believes," "expects,"
"future" and "intends" and similar expressions to identify forward-looking
statements. Forward-looking statements reflect management's current expectations
and are inherently uncertain. Mindtronics' actual results may differ
significantly from management's expectations. The following discussion includes
forward-looking statements regarding expectations of future profitability of
Mindtronics' business, gross margin, improvement in operating loss and sales,
all of which are inherently difficult to predict. Actual results could differ
significantly for a variety of reasons, including the accessibility to
additional capital, the rate of growth and consumer acceptance of the Internet
and online commerce, the amount that Mindtronics invests in new business
opportunities and the timing of those investments, customer spending patterns,
the mix of products sold to customers, the mix of revenues derived from product
sales as compared to services and risks of fulfillment throughput and
productivity. These risks and uncertainties, as well as other risks and
uncertainties, could cause Mindtronics' actual results to differ significantly
from management's expectations.
TWELVE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO TWELVE MONTHS ENDED SEPTEMBER
30, 1999
Since its inception, the main activity of Mindtronics, an early stage
start-up company, has been organizational and geared towards research and
development. Mindtronics has sold equity shares to raise capital, developed
proprietary computer hardware and software technologies, recruited and organized
management and commenced corporate strategic planning. Mindtronics has sold no
products to date. Mindtronics has entered into two agreements to license its
products for which no cash has been received to date. On December 4, 2000,
Mindtronics signed an Agreement and Plan of Merger pursuant to which it would be
acquired by Ubrandit.com. The Agreement and Plan of Merger was amended effective
January 12, 2001. Currently Mindtronics has completed the research and
development on several of its products and has begun marketing them to companies
internationally. At September 30, 2000, Mindtronics owned approximately $77,648
in tangible property, net of depreciation.
REVENUES FROM SALES
Mindtronics' revenues for the twelve months ended September 30, 2000
were NIL as compared to NIL for the twelve months ended September 30, 1999. Thus
far, Mindtronics' operations have been exclusively organizational and research
and development.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses increased to $334,577 for
the twelve months ended September 30, 2000 from $7,500 for the twelve months
ended September 30, 1999. The increase was due to Mindtronics' growth and
expansion of operations, including payroll and other organizational costs.
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RESEARCH AND DEVELOPMENT
Research and development expense increased to $110,423 for the twelve
months ended September 30, 2000 compared to no such expenses for the twelve
months ended September 30, 1999. The increase was due to the commencement of
research and development programs focusing on new technologies.
DEPRECIATION AND AMORTIZATION EXPENSE
For the twelve months ended September 30, 2000, depreciation and
amortization costs were $5,025, as compared to NIL for the twelve months ended
September 30, 1999. The increase was due to depreciation of newly- acquired
furniture and fixtures and electronic hardware and software.
INTEREST EXPENSE
Interest expense for the twelve months ended September 30, 2000
increased to $4,939 as compared to interest income of $950 for the twelve months
ended September 30, 1999. The increase in interest expense was due to interest
charged on equipment leases.
NET LOSS
Net Loss for the twelve months ended September 30, 2000 was $453,897 as
compared to $8,450 for the twelve months ended September 30, 1999. The increase
in net loss was due to Mindtronics' commencement of operations.
LIQUIDITY AND CAPITAL RESOURCES AND HISTORICAL RESULTS OF CASH FLOW
HISTORICAL RESULTS OF CASH FLOWS
At September 30, 2000, Mindtronics' cash balance was $6,189, compared
to $1,570 at September 30, 1999. The change in cash is discussed below.
Net cash used in operating activities amounted to $402,062 for fiscal
2000. This was primarily attributable to the net loss for the year of $453,897,
partially offset by stock issued for services totaling $21,500, non-cash charges
related to depreciation and amortization totaling $5,025, as well as $25,310 of
cash provided by changes in operating assets and liabilities. Cash provided by
changes in operating assets and liabilities is primarily a function of an
increase in accounts payable and accrued liabilities.
Net cash used in investing activities amounted to $88,173 for fiscal
2000. This was attributable to purchases of fixed assets of $82,673 and cash
advanced for a note receivable of $5,500.
Net cash provided by financing activities amounted to $494,854 for
fiscal 2000. This was primarily attributable to the proceeds from the issuance
of Mindtronics Common Stock totaling $462,800 and the proceeds from related
party debt totaling $32,054.
GOING CONCERN
Mindtronics has a working capital deficit, has minimal capitalization,
has had no revenues, has incurred substantial losses and expects to incur
additional losses. These factors, among others, raise substantial doubt about
Mindtronics' ability to continue as a going concern.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, Mindtronics' sole source of liquidity
consisted of $6,189 of cash. Mindtronics currently does not have access to any
other source of funding, including debt or equity financing facilities, other
than the $750,000 loan from Ubrandit. As of September 30, 2000, Mindtronics'
principal commitments consisted of its operating obligations and its amounts
outstanding under operating leases.
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Mindtronics believes that current cash will not be sufficient to meet
Mindtronics' anticipated operating cash needs for the next 12 months.
Mindtronics has limited operating capital and no current access to credit
facilities other than the $750,000 loan from Ubrandit. Mindtronics currently
estimates that it currently has sufficient funds to continue operations through
March 31, 2001 at currently-projected levels of operational expense. Mindtronics
expects, however, that additional funds may be necessary for Mindtronics to
implement its business plan. Mindtronics' continued operations therefore may
depend on its ability to raise additional funds through bank borrowings or
equity or debt financings. There is no assurance that Mindtronics will be able
to obtain the additional funding when needed or that such funding, if available,
can be obtained on terms acceptable to Mindtronics. If Mindtronics cannot obtain
needed funds, it may be forced to curtail or cease its activities.
PROPOSED ACQUISITION
On December 4, 2000, Mindtronics signed a definitive Agreement and Plan
of Merger pursuant to which it would be acquired by Ubrandit.com. The Agreement
and Plan of Merger was amended effective January 12, 2001. Pursuant to the
Agreement and Plan of Merger, as amended, each outstanding share of Mindtronics
Common Stock (other than shares of Mindtronics Common Stock held by Mindtronics
Stockholders who perfect dissenters' rights under the Nevada Law) will be
converted into the right to receive approximately 1.1942 shares of Ubrandit
Common Stock. Pursuant to the Agreement and Plan of Merger, as amended, up to
12,100,000 shares of Ubrandit Common Stock will be issued to Mindtronics
Stockholders. As a result, immediately following the Merger, former Mindtronics
Stockholders will hold up to approximately 49.35% of the then-outstanding shares
of Ubrandit Common Stock, on a fully-diluted basis.
Concurrently with the execution of the Agreement and Plan of Merger,
Ubrandit and Mindtronics executed a Loan and Security Agreement, pursuant to
which Ubrandit became obligated to make a secured loan to Mindtronics in the
principal amount of $750,000, which Ubrandit is obligated to advance to
Mindtronics in accordance with a budget and schedule pre-approved by Ubrandit.
At the date of this Proxy Statement, under the Loan Agreement, Ubrandit has
disbursed loan funds to Mindtronics in the aggregate principal amount of
$368,000. The acquisition is subject to the approval of the stockholders and the
satisfaction of a number of other conditions.
DIRECTORS AND EXECUTIVE OFFICERS OF MINDTRONICS
The names, ages and positions of Mindtronics' directors and executive
officers at December 31, 2000 are listed below:
NAME AGE POSITION
- - - ---- --- --------
Mark K. La Count 43 CEO and Chairman of the Board
Rod Ylst 48 President, COO and Director
M. Karlynn Hinman 61 General Counsel, Corporate Secretary and Director
The following is biographical information regarding Mindtronics'
directors and executive officers:
MR. LA COUNT has been the CEO and Chairman of the Board of Mindtronics
(or its predecessor Mindtronics, Inc.) since May 1998. Mr. La Count has over 15
years of corporate experience managing high-growth technology environments, in
the United States and Switzerland. In 1989, Mr. La Count founded and served as
President of CNF AG until his duties with Mindtronics became full-time. CNF AG
is an international computer consultant company that advised companies such as
Philips (worldwide), Toshiba (Europe), Panasonic (Europe) and large Swiss
distribution companies with respect to technologies and peripherals. In 1986,
Mr. La Count founded Swiss-based Global Development Systems ("GLOBAL") to
manufacture and distribute speed-up switches for IBM-AT 001 002 computers. Under
contract with Ozalid AG (a wholly-owned subsidiary of Pluss-Stauffer GmbH),
Global developed a 23-country distribution network for lap-top computer add-ons
-74-
created and manufactured by Global. From 1980 to 1987, Mr. La Count worked for
RETCOM International Ltd. (a product protection and diamond courier service) as
its President. From 1983 to 1985, he was at Data Crossing, a company engaged in
computer integration. In 1985, Mr. La Count founded the TUNE Company, which
handled MIDI interface products. Mr. La Count majored in Business and Computer
Applications at Brigham Young University.
MR. YLST has been the President, COO and a director of Mindtronics (and
its predecessor Mindtronics, Inc.) since May 1998. He has over 20 years of
experience in investment, finance, marketing, product development,
manufacturing, construction and international development/negotiations in the
United States, Europe and South America. Since December 1983, Mr. Ylst has been
president of HPR Investments, Inc., a privately-held business ("HPR"), where he
is responsible for overseeing acquisitions, sales of investment properties and
corporate assets. Mr. Ylst was a founder of HPR, which developed from some four
years of Mr. Ylst's self-employment in real estate and construction services.
>From 1976 to 1979, he was president of Roshell Clock and Lighting Company, an
international distributor to chain stores, including 1,500-store Zales Jewelers.
While at Roschell, he was a principal and head of development, manufacturing and
distribution for commercial and residential lighting fixtures for the United
States market. Mr. Ylst attended the University of Utah, where he studied
Business and Economics. He also is an inventor with special interests in energy
and power applications and has had experience in diversified industries,
including manufacturing, real estate management and construction.
DR. HINMAN has been Mindtronics' General Counsel, Secretary and a
Director of Mindtronics (and its predecessor Mindtronics, Inc.) since May 1998.
She has practiced law in areas of commercial litigation, contracts and letters
of credit for over 25 years. Her extensive business and legal experience
includes establishing her own practice (1997 to 2000) and membership from 1982
to 1996 in the Utah law firm of Kirton & McConkie. From 1973 to 1982, she was an
associate with the New York City office of Cleary, Gottlieb, Steen & Hamilton, a
Wall Street law firm where she practiced international, commercial and
securities litigation. She was the first woman to serve as a confidential law
clerk with the Appellate Division (Second Department) of the New York Supreme
Court (1980-82). Dr. Hinman has been a past chair of the Utah Board of Water
Resources and a member of the Board since 1993. From 1995 to 2000, she was
administrative chair of the Consumer Hearing Panel, a dispute resolution panel
appointed by the Utah Board of Child and Family Services. She is active in
volunteer municipal, private and political organizations. Dr. Hinman earned a
Ph.D. and M.A. at Harvard University, a J.D. at the University of Chicago Law
School (where she was a member of the Law Review) and a B.A. at the University
of Utah (where she was elected to PHI BETA KAPPA and several other academic
honor societies). Dr. Hinman was a Fulbright Fellow at the University of London,
Institute of Historical Research and won Betty Crocker, Dean's Merit, Harvard,
Radcliffe and La Vern Noyes Foundation scholarships. She has been an associate
and adjunct professor at several universities.
BOARD OF ADVISORS AND CONSULTANTS OF MINDTRONICS
The names, ages and positions of member of the Board of Advisors of
Mindtronics at December 31, 2000 are listed below:
NAME AGE POSITION
- - - ---- --- --------
Roger C. Royce 60 Member of Board of Advisors, Consultant
Marcus H. Matuszak 33 Primary Technical Advisor (Research and Development)
David Faust 52 Consulting Director of Applications Technologies
The following is biographical information regarding the foregoing
persons:
For MR. ROYCE'S biography, SEE "Proposal One Election of Directors."
-75-
MR. MATUSZAK became and has been Mindtronics' Primary Technical Advisor
since May 1998, following almost 10 years of private and personal research.
After assigning his technology and inventions to Mindtronics, Mr. Matuszak has
provided leadership in research and development as an independent consultant.
Working from Hamburg, Germany, Mr. Matuszak offers to Mindtronics extensive
technology experience with computers and computer applications. Mr. Matusak's
background includes operating as an inventor and scientist in the field of
computer technology and methodology. He has developed numerous innovative
computer devices and applications in both software and hardware areas. He has
recognized expertise and creative conceptual skills in research, planning,
design, prototype modeling, technical security and process implementation,
optical data acquisition systems and relational databases. In addition, he has
extensive experience in configuration for HP900, Seiman BS200 and many other
computer models. For approximately five years, ending in 1998, Mr. Matuszak
worked in Hamburg for Philips Consumer Electronics Office Division, where he
designed e-mail boxes, radio Pager Stock notification systems and other
interface systems. While at Philips, he also worked with emerging concepts of PC
multimedia marketing and was Press Officer in the Interactive Media Department.
He has developed Photo-CD and CD-I business processes for product development,
printing and catalogs and has worked on all types of LAN/WAN speech applications
and hardware protocols for the European multi-cultural environment. Mr. Matuszak
is noted particularly for the broad range of his technical interests and
knowledge, ranging from infrared technologies to conceptual artificial
intelligence applications.
MR. FAUST has 25 years engineering experience in research, development,
testing and sales in industrial, laboratory, academic, field and military
environments and has served as Mindtronics' Consulting Director of Application
Technologies since August 2000. He has studied computer science, engineering,
biophysics and from 1971 to 1979 studied and worked at Drexel University
Department of Physics and Atmospheric Science. He attended the Cleveland
Institute of Electronics and Albright College to study history and physics. He
completed Hazardous Materials Incident Response Training complying with OSHA
(HAZMAT) standards and SRS Safety and Operations training. From 1998, he has
been an engineering executive at Nu Omni-Comm Technologies Inc. From 1995 to
2000, he worked as Engineering Management Consultant at Photon Robotics Corp.;
and from 1993 to 1996 he worked at KAI Technologies Inc. as its Vice President
of Engineering. From 1978 to 1995, he worked at Eyring Research Institute (now
Eyring Research Corporation), where his positions included Associate Scientist,
Senior Engineer, Senior Test and Development Engineer and Program Manager in the
Communications Systems, Military Systems and Advanced Systems Research Divisions
and qualified for U.S. Government security clearances. He also has worked on
specific engineering or programming projects at Logical Technical Services
Corporation, Broomall Industries Inc., Kruzen Research Center, Moss
Rehabilitation Hospital, Bechtel Engineering and Construction at the Calvert
Cliffs Nuclear job site and Governor Mifflin School District. He holds a General
Radiotelephone Operators FCC Commercial License, RADAR endorsement, FCC Amateur
Radio Operators License and is a member of the U.S. Army Military Affiliate
Radio System. Professional memberships include Institute of Electrical and
Electronic Engineers (Group memberships in Antennas & Propagation, EMC,
Broadcast, Biomedical, Geophysics, Vehicular Technologies, Robotics & Automation
and Industrial Applications); Society of Photo-Optical Instrumentation
Engineers; Aircraft Owners and Pilots Association; Armed Forces Communications
and Electronics Association; Applied Computational Electromagnetics Society;
American Institute of Aeronautics and Astronautics; Society of American Military
Engineers and American Society for Nondestructive Testing.
Mindtronics will, from time to time, interview and consider other
appointments to its Board of Advisors.
[INTENTIONALLY LEFT BLANK]
-76-
CERTAIN OTHER KEY EMPLOYEES OF MINDTRONICS
The names, ages and positions of certain key employees and consultants
of Mindtronics at December 31, 2000 are listed below:
NAME AGE POSITION
- - - ---- --- --------
Ross J. Stenquist 45 Information and Marketing Director
Robert A. Mabey 38 Sales Director
Jared C. Cowart 25 Computer Center Technology Director
The following is biographical information regarding the foregoing
persons:
MR. STENQUIST was appointed as Mindtronics' Information and Marketing
Director in 2000. During the previous approximately five years, he was a
Marketing/Training Consultant for marketing and computer training entities,
including First Security Bank, US Transformers, KEAN Inc./Erudite, Inc.,
Productivity Point International, ASTRON/ EDS, I-Link and the Institute for the
Individual. Mr. Stenquist was previously Vice President supervising six
departments of HomeOwner Plus/AIM Mortgage Company (Marketing, Training,
Customer Service, Operations of New Offices, IT and Maintenance). He has been an
Account Executive in the United States and International Divisions for Mexico
and Puerto Rico with Franklin/Covey-Shipley Company and training Director for
Westinghouse/APTUS where he trained manufacturers and municipality owners in 11
northwestern States. He has been Franchise Director for the Central States
Region (over 200 franchises) for Adventure Land Video/Aardvark Video Company and
served as President of Financial Strategies & Investments Corporation, an
insurance agency. Mr. Stenquist received his Business Administration degree from
Utah State University, has insurance and securities licenses and is a certified
trainer in communication skills, time management, team building and
presentations skills programs. Mr. Stenquist is bilingual in English and
Spanish.
MR. MABEY currently is serving as Vice President of Technical Sales for
Consolidated Digital Inc., a subsidiary of Mindtronics, and has been associated
with Mindtronics since July of 2000. Before this time, he served as Vice
President of National Sales and Technology for GlobeComm Technologies. From 1996
to 1998, he was a consultant for Real Estate Investment Trusts, Regional Bell
Operating Companies, Incumbent Local Exchange Carriers and Bundled Services
Providers. From 1994 to 1996, he became a Director of Operations for U.S.
Telesys, Inc. and Cypress Telecommunications who provided bundled services,
including Cable television, telephone (local and long distance), Internet,
security and billing services for multiple dwelling units in Utah, Arizona,
Colorado, Texas, Mississippi, Tennessee and Alabama. From 1989 to 1994, he
served as Executive Vice President with PacificTel Communications, directing
sales, design and installation of "C" band cable television and telephone
systems and microwave links with operations from Utah to Texas. Mr. Mabey is a
graduate of the University of Utah having majored in Economics and minored in
Finance. He holds multiple certifications on telephone systems, cable television
equipment and microwave equipment.
MR. COWART joined Mindtronics in December 2000 and currently is serving
as Director of Mindtronics Computer Center. Before joining Mindtronics, Mr.
Cowart served from February 1999 to December 2000 as a Senior Consultant of
Implementation Services for Learnframe.com, where he designed and brought that
company's Data Center Online and continued to manage the Data Center Network
with the additional responsibilities of training clients with respect to company
services and products. From June 1998 to February 1999, he served as Manager of
Sales Technical Support for Microdomain. From June 1997 to June 1998, he served
as Corporate Trainer/Instructor for PPI Company, where he taught course work in
Microsoft, Corel and Lotus Products. Mr. Cowart attended Tacoma Community
College and has extensive experience in MS-DOS, Linux, Solaris and Network
Technology, including Intranet/Internet, Citrix Metaframe, Cisco Switches,
routes and firewalls.
[INTENTIONALLY LEFT BLANK]
-77-
SECURITY OWNERSHIP OF UBRANDIT AFTER THE MERGER
The following table sets forth certain information regarding an
estimate of the beneficial ownership of Ubrandit Common Stock immediately after
consummation of the Merger with respect to: (i) persons known to Ubrandit to
own, or to be expected to own, a sufficient number of shares such that Ubrandit
estimates they will own more than five percent of the shares of Ubrandit Common
Stock outstanding after the Merger; (ii) directors of Ubrandit and persons
expected to be appointed as directors of Ubrandit; and (iii) all directors and
executive officers and persons to be appointed as executive officers of Ubrandit
as a group.
NUMBER OF SHARES
BENEFICIALLY Approximate
NAME (1) OWNED (2) Percentage Owned
- - - -------- --------- ----------------
Mark K. La Count (3) 3,224,340 13.2%
Rod Ylst 2,686,950 11.0%
M. Karlynn Hinman 2,149,560 8.8%
Roger C. Royce (4) 1,844,200 7.3%
Jefferey D. Phillips (5) 2,206,880 8.8%
James W. Truher (6) 47,500 *
Marcus Matuszak (3) 2,686,950 11.0%
Steven K. Radowicz (7) 50,000 *
All Named Executive Officers 14,896,380 57.8%
and Directors as a group
(8 individuals)
- - - ----------------
* Less than one percent (1%)
(1) Unless otherwise noted, Ubrandit believes that all shares are
beneficially owned and that all persons named in the table have sole
voting and investment power with respect to all shares owned by them.
(2) Beneficial ownership is determined in accordance with the applicable
rules under the Securities Exchange Act of 1934. In computing the
number of shares beneficially owned by a person and the percentage
ownership of that person, shares of Ubrandit Common Stock subject to
options held by that person that currently are exercisable, or become
exercisable within 60 days from the date hereof, are deemed
outstanding. Percentage ownership is based on 24,517,333 shares of
Ubrandit Common Stock expected to be outstanding upon consummation of
the Merger.
(3) Includes or consists of 2,686,950 shares that will be held of record by
M2CH, Inc., a Utah corporation.
(4) Includes 75,000 shares issuable upon exercise of stock options
exercisable at an exercise price of $1.50 per share, 350,000 shares
issuable upon exercise of stock options exercisable at an exercise
price of $3.35 per share and 150,000 shares issuable upon exercise of
stock options exercisable at an exercise price of $3.75 per share.
(5) Includes 400,000 shares issuable upon exercise of stock options
exercisable at an exercise price of $.50 per share and 200,000 shares
issuable upon exercise of stock options exercisable at an exercise
price of $3.75 per share.
(6) Includes 7,500 shares issuable upon the exercise of stock options
exercisable at an exercise price of $4.69 per share and 40,000 shares
issuable upon exercise of stock options exercisable at an exercise
price of $3.50 per share.
(7) Includes 25,000 shares issuable upon the exercise of stock options
exercisable at an exercise price of $1.50 per share and 25,000 shares
issuable upon exercise of stock options exercisable at an exercise
price of $3.75 per share.
[INTENTIONALLY LEFT BLANK]
-78-
WHERE YOU CAN FIND MORE INFORMATION
Ubrandit files annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any report, statement
or other information that Ubrandit files at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms.
Ubrandit's public filings also are available to the public from commercial
document retrieval services and at the Internet website maintained by the SEC at
http://www.sec.gov. Reports, proxy statements and other information concerning
Ubrandit also may be inspected at the offices of the National Association of
Securities Dealers, Inc., Listing Section, 1735 K Street, Washington, D.C.
20006.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT TO VOTE YOUR SHARES AT THE ANNUAL MEETING. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT DIFFERS FROM
THAT CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED FEBRUARY
[___] 2001. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT IS ACCURATE AT ANY DATE OTHER THAN THAT DATE, AND NEITHER THE MAILING
OF THIS PROXY STATEMENT TO UBRANDIT STOCKHOLDERS NOR THE ISSUANCE OF SHARES OF
UBRANDIT COMMON STOCK IN CONNECTION WITH THE MERGER WILL CREATE ANY IMPLICATION
TO THE CONTRARY.
COMPLIANCE WITH SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires
Ubrandit's directors and executive officers and persons who own more than 10% of
a registered class of Ubrandit's equity securities to file with the SEC initial
reports of ownership and reports of changes in ownership of Ubrandit Common
Stock and other equity securities of Ubrandit. Officers, directors and greater
than 10% Ubrandit stockholders are required by regulations promulgated by the
SEC to furnish Ubrandit with copies of all Section 16(a) reports they file.
Based solely on the review of copies of such reports furnished to Ubrandit and
written representations that no other reports were required, Ubrandit believes
that, during the fiscal year ended September 30, 2000, Ubrandit's officers,
directors and all persons who own more than 10% of a registered class of
Ubrandit's equity securities complied with all Section 16(a) filing
requirements.
OTHER MATTERS
At the date of this Proxy Statement, Ubrandit knows of no other matters
to be submitted to the Annual Meeting. If other matters properly come before the
Annual Meeting, it is the intention of the persons named in the enclosed form of
proxy to vote the shares they represent as the Ubrandit Board of Directors may
recommend.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
UBRANDIT'S ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL
STATEMENTS AND THE SCHEDULES THERETO, FILED WITH THE SEC FOR UBRANDIT'S FISCAL
YEAR ENDED SEPTEMBER 30, 2000, WILL BE FURNISHED TO UBRANDIT STOCKHOLDERS AS OF
THE RECORD DATE FOR THE ANNUAL MEETING, WITHOUT CHARGE, UPON WRITTEN REQUEST. IF
YOU DESIRE TO OBTAIN A COPY OF SUCH ANNUAL REPORT ON FORM 10-K, PLEASE DIRECT
SUCH WRITTEN REQUEST TO UBRANDIT.COM, ATTENTION: SECRETARY, 6405 MIRA MESA
BOULEVARD, SUITE 100, SAN DIEGO, CALIFORNIA 92121.
THE BOARD OF DIRECTORS
Dated: February [___], 2001
-79-
APPENDIX A
CONSOLIDATED FINANCIAL STATEMENTS OF UBRANDIT
Appendix A-1
------------
UBRANDIT.COM, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Certified Public Accountants (BDO Seidman, LLP) F-2
Report of Independent Auditors (Stark Tinter & Associates, LLC) F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Shareholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-9 - F-21
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Ubrandit.com, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Ubrandit.com,
Inc. and Subsidiaries (the "Company") as of September 30, 2000, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Ubrandit.com, Inc. and Subsidiaries as of September 30, 2000, and the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Notes 2 and 8
to the consolidated financial statements, the Company has suffered substantial
recurring losses from operations, expects to incur additional losses, and has
entered into a definitive agreement to acquire a development-stage company with
a history of substantial operating losses and to which the Company has agreed to
advance $750,000. These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ BDO SEIDMAN, LLP
Costa Mesa, California
November 14, 2000, except for
Note 8 as to which the date
is December 22, 2000
F-2
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Ubrandit.com, Inc.
We have audited the accompanying consolidated balance sheet of Ubrandit.com,
Inc. as of September 30, 1999, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the nine month period ended
September 30, 1999 and the year ended December 31, 1998. 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 audits 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 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 consolidated financial position of Ubrandit.com, Inc.
as of September 30, 1999, and the results of its operations and its cash flows
for the nine months ended September 30, 1999 and the year ended December 31,
1998, in conformity with generally accepted accounting principles.
/s/ Stark Tinter & Associates, LLC
Englewood, Colorado
November 5, 1999
F-3
UBRANDIT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, September 30,
2000 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,700,864 $ 5,613,922
Accounts receivable 9,294 7,290
Subscription receivable -- 51,000
Other receivables 5,675 --
Prepaid expenses 86,190 20,750
Inventory, net of reserve of $7,500 (2000) 27,493 --
Deposits 50,374 11,872
------------ ------------
Total current assets 3,879,890 5,704,834
Other assets (Notes 3 and 4):
Property and equipment, net of accumulated depreciation of
$136,230 (2000) and $38,580 (1999) 403,337 150,567
Core technology, net of accumulated amortization of $113,210
(2000) and $18,210 (1999) 361,790 456,790
Goodwill, net of accumulated amortization of $225,053 (2000)
and $52,845 (1999) 1,320,310 594,354
Other -- 1,110
------------ ------------
$ 5,965,327 $ 6,907,655
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 177,814 $ 45,581
Accrued expenses 45,314 3,257
Current portion of leases payable (Note 7) 35,243 5,129
Customer deposits 39,434 --
Accrued compensation 62,690 16,067
Payroll taxes payable 33,483 7,607
------------ ------------
Total current liabilities 393,978 77,641
Leases payable, net of current portion (Note 7) 30,544 8,859
------------ ------------
Total liabilities 424,522 86,500
------------ ------------
Commitments and contingencies (Notes 7 and 8)
Shareholders' equity (Note 5):
Common stock, $0.001 par value. Authorized 25,000,000 shares;
issued and outstanding 12,167,333 (2000) and 11,738,333
(1999) shares 12,167 11,738
Additional paid in capital 8,980,333 7,857,262
Accumulated deficit (3,451,695) (1,047,845)
------------ ------------
Total shareholders' equity 5,540,805 6,821,155
------------ ------------
$ 5,965,327 $ 6,907,655
============ ============
See reports of independent certified public accountants, and accompanying notes
to consolidated financial statements.
F-4
UBRANDIT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine months
Year ended ended Year ended
September 30, September 30, December 31,
2000 1999 1998
------------- ------------- -------------
Revenues from sales $ 869,623 $ 35,656 $ --
Cost of sales 1,100,405 567,286 (--)
------------- ------------- -------------
Gross margin (230,782) (531,630) --
Operating expenses:
Sales, general and administrative 2,032,420 456,575 13
Depreciation and amortization 365,969 90,520 80
------------- ------------- -------------
Loss from operations (2,629,171) (1,078,725) (93)
Other income (expense):
Interest income 233,349 32,366 --
Interest expense (8,028) (1,393) --
------------- ------------- -------------
Net loss $ (2,403,850) $ (1,047,752) $ (93)
============= ============= =============
Per share information:
Weighted average shares outstanding -
basic and diluted 11,912,141 9,353,151 777,041
============= ============= =============
Net loss per common share - basic and diluted $ (0.20) $ (0.11) $ (0.00)
============= ============= =============
See reports of independent certified public accountants, and accompanying notes
to consolidated financial statements.
F-5
UBRANDIT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional
Common Stock Paid in Accumulated
Shares Amount Capital Deficit Total
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 40,000 $ 40 $ 360 $ -- $ 400
(see Note 5)
Stock issued for cash at $0.01 per
share net of issuance cost 860,000 860 4,540 -- 5,400
Stock issued for cash at $0.01 per
share net of issuance cost 4,140,000 4,140 34,260 -- 38,400
Net loss -- -- -- (93) (93)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 5,040,000 5,040 39,160 (93) 44,107
(see Note 5)
Stock issued for cash at $0.50 per
share, net of issuance costs 1,890,000 1,890 935,110 -- 937,000
Stock issued in a business
combination (Note 3) 1,826,000 1,826 911,174 -- 913,000
Stock issued as repayment for debt
and accrued interest 300,000 300 163,951 -- 164,251
Stock issued to a related party as
repayment for advance 200,000 200 361,800 -- 362,000
Stock issued for cash at $1.00 per
share, net of issuance costs 1,000,000 1,000 989,000 -- 990,000
Stock issued for cash and
subscription receivable at
$3.00 per share, net of
issuance costs 1,482,333 1,482 4,409,977 -- 4,411,459
Warrants issued for services
rendered -- -- 47,090 -- 47,090
Net loss -- -- -- (1,047,752) (1,047,752)
------------ ------------ ------------ ------------ ------------
Balance at September 30, 1999 11,738,333 11,738 7,857,262 (1,047,845) 6,821,155
(see Note 5)
Stock issued upon exercise of
options 129,000 129 185,871 -- 186,000
Stock issued in connection with
acquisition (Note 3) 300,000 300 937,200 -- 937,500
Net loss -- -- -- (2,403,850) (2,403,850)
------------ ------------ ------------ ------------ ------------
Balance at September 30, 2000 12,167,333 $ 12,167 $ 8,980,333 $(3,451,695) $ 5,540,805
============ ============ ============ ============ ============
See reports of independent certified public accountants, and accompanying notes
to consolidated financial statements.
F-6
UBRANDIT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months
Year ended ended Year ended
September 30, September 30, December 31,
2000 1999 1998
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,403,850) $(1,047,752) $ (93)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 365,969 90,520 --
Write-off of inventory 13,848 -- --
Provision for inventory obsolescence 7,500 -- --
Compensation expense related to debt conversion - 262,000 --
Compensation related to warrants - 47,090 --
Changes in operating assets and liabilities,
net of business acquisitions:
Accounts and other receivables (7,679) 823 --
Prepaid expenses (65,440) (21,600) (320)
Inventory 699 -- --
Deposits (7,755) (11,872) --
Accounts payable 132,233 28,060 --
Accrued expenses 42,057 4,058 400
Customer deposits 39,434 -- --
Accrued compensation 46,623 16,067 --
Payroll taxes payable 25,876 7,607 --
------------ ------------ ------------
Net cash used in operating activities (1,810,485) (624,999) (13)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (127,583) (109,283) --
Cash acquired in business combination - 18,660 --
Payments for business acquisition (195,792) -- --
------------ ------------ ------------
Net cash used in investing activities (323,375) (90,623) --
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of capital lease obligations (16,198) (2,102) --
Net proceeds from issuance of common stock, net
of issuance costs - 6,338,459 43,800
Subscription receivable 51,000 (51,000) --
Proceeds from exercise of stock options 186,000 -- --
------------ ------------ ------------
Net cash provided by financing activities 220,802 6,285,357 43,800
------------ ------------ ------------
Net increase (decrease) in cash (1,913,058) 5,569,735 43,787
CASH AND CASH EQUIVALENTS, beginning of period 5,613,922 44,187 400
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, ending of period $ 3,700,864 $ 5,613,922 $ 44,187
============ ============ ============
See reports of independent certified public accountants, and accompanying notes
to consolidated financial statements.
F-7
UBRANDIT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Nine months
Year ended ended Year ended
September 30, September 30, December 31,
2000 1999 1998
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest $ 8,028 $ 1,393 $ --
============= ============= =============
Income taxes $ -- $ -- $ --
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Net tangible assets (liabilities) acquired
in business combination $ 235,127 $ (209,198) $ --
============= ============= =============
Issuance of common stock in business
acquisition $ 937,500 $ 913,000 $ --
============= ============= =============
Core technology recorded in business
combination $ -- $ 475,000 $ --
============= ============= =============
Goodwill recorded in business
combination $ 898,165 $ 647,198 $ --
============= ============= =============
Issuance of stock in repayment of
convertible debt $ -- $ (164,251) $ --
============= ============= =============
Issuance of stock in repayment of
related party advances $ -- $ (100,000) $ --
============= ============= =============
Property and equipment acquired under
capital leases $ 67,997 $ -- $ --
============= ============= =============
See reports of independent certified public accountants, and accompanying notes
to consolidated financial statements.
F-8
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Ubrandit.com ("Ubrandit" or the "Company") was incorporated on December
19, 1997 in the State of Nevada under the name of Mount Merlot Estates,
Inc. On January 14, 1999, the Company's name was changed to Virtual
Brand, Inc. The name was again changed to Ubrandit.com on February 18,
1999. The Company's primary concentrations are in providing of "branded"
financial and e-commerce Web-based systems. The Company's branded
e-commerce system provides online access to books, CDs and videos. The
Company's financial system provides online access to stock quotes,
personal portfolio management, mutual fund data, news releases, investor
reports and exclusive editorial content. The Company also owns
Clicksmart.com, Inc., through which it also provides specialty books,
CDs and videos through mail order and online services.
FISCAL YEARS
Beginning with the period September 30, 1999, the Company changed its
fiscal year from December 31 to September 30. Accordingly, the
accompanying financial statements include the audited financial
statements for the year ended December 31, 1998, the nine months ended
September 30, 1999, and year ended September 30, 2000.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the financial
statements of Ubrandit.com and its wholly owned subsidiaries, including
Ubrandit ISP.com, Inc., JungleJeff.com, Inc., Global Investors Guide,
and Clicksmart.com, Inc. All significant intercompany accounts and
transactions have been eliminated in consolidation.
REVENUE RECOGNITION
The Company recognizes revenue from product sales when the products are
received by the customers. For all product sales transactions with its
customers, the Company acts as a principal, takes title to all products
sold upon shipment, bears credit risk, and bears inventory risk for
returned products that are not successfully returned to suppliers,
although these risks are mitigated through arrangements with credit card
issuers, shippers and suppliers.
The Company realizes mailing list revenue for Global Investors Guide on
the date the customer uses the mailing list. The rental is limited to a
one-time use for each customer at the time the list is rented.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consists of all highly liquid investments with
an original maturity of three months or less.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first out) or
market (net realizable value).
F-9
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL AND CORE TECHNOLOGY
Goodwill represents the excess of the purchase price over net assets
acquired through business combinations accounted for as a purchase and
is amortized on a straight-line basis over its estimated useful life of
five to seven years (see Note 3).
Core technology is carried at cost and is amortized on a straight-line
basis over its estimated useful life of five years (see Note 3).
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are computed principally
using the straight-line method over the estimated useful lives of the
assets (or lease term, if shorter), which range from 3 to 7 years.
Maintenance and repairs are expensed as incurred while renewals and
betterments are capitalized.
LONG-LIVED ASSETS
The Company reviews the carrying amount of its long-lived assets and
identifiable intangible assets for possible impairment whenever events
or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less
costs to sell.
INCOME TAXES
The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Deferred income taxes are recognized
based on the differences between financial statement and income tax
bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. Valuation
allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized. The provision for income
taxes represents the tax payable for the period and the change during
the period in deferred tax assets and liabilities.
SEGMENT REPORTING
The Company follows Statement of Financial Accounting Standards No. 130,
"Disclosures About Segments of an Enterprise and Related Information."
The Company operates as a single segment and will evaluate additional
segment disclosure requirements as it expands its operations.
F-10
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company applies APB Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost is
recognized for its employee stock option plans, unless the exercise
price of options granted is less than fair market value on the date of
grant. The Company has adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."
EARNINGS (LOSS) PER SHARE AND SHARES OUTSTANDING
Earnings (loss) per share is calculated pursuant to Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"). Basic earnings (loss) per share includes no dilution and is
computed by dividing income (loss) available to common shareholders by
the weighted average number of shares outstanding during the period.
Diluted earnings (loss) per share reflects the potential dilution that
could occur from common shares issuable through stock options, warrants
and other convertible securities. Basic and diluted EPS are the same as
the effect of common stock equivalents on earnings (loss) per share is
antidilutive for all periods presented. Common stock equivalents
excluded from the calculation of earnings (loss) per share total
2,376,000 and 1,571,000 at September 30, 2000 and 1999, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" requires all entities to disclose
the fair value of financial instruments, both assets and liabilities
recognized and not recognized on the balance sheet, for which it is
practicable to estimate fair value. This statement defines fair value of
a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties. As of
September 30, 2000 and 1999, the fair value of all financial instruments
approximated carrying value.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") during Fiscal 2000. SFAS
130 established new rules for the reporting and display of comprehensive
income and its components in a full set of general-purpose financial
statements. The adoption of SFAS 130 had no effect on the accompanying
consolidated financial statements, because the Company had no other
components of comprehensive income for all periods presented.
ADVERTISING
Advertising costs are expenses as incurred. Advertising costs totaling
$46,331 and $0 for the year ended September 30, 2000 and the nine-month
period ended September 30, 1999, respectively.
RESEARCH AND DEVELOPMENT EXPENSES
Expenditures for research and development are expensed as incurred.
F-11
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RELATED PARTY TRANSACTION
A board member of the Company also provides legal services to the
Company. The fees paid to said board member's law firm totaled $96,000
and $66,000 for the year ended September 30, 2000 and the nine-month
period ended September 30, 1999, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could materially differ from
those estimates.
AMERICAN STOCK EXCHANGE LISTING
The Company's common stock may be delisted from the American Stock
Exchange if it fails to comply with applicable listing requirements.
Under the rules of the American Stock Exchange, among others, the
exchange may delist from trading any stock that trades below $1.00 for
more than 30 consecutive trading days. The Company's inability to
maintain its listing on the American Stock Exchange, could have an
adverse effect on the market for its common stock and the ability of its
stockholders to sell their shares.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially expose the Company to
concentration of credit risk, consist primarily of cash and accounts
receivable. The Company places its cash with high quality financial
institutions. The cash balances are approximately $3,500,000 and
$5,300,000 at September 30, 2000 and 1999, respectively, in excess of
the amounts insured by the Federal Deposit Insurance Corporation.
The Company extends credit to its customers based upon an evaluation of
the customer's financial condition and credit history and generally does
not require collateral. Credit losses are provided for in the financial
statements and consistently have been within management's expectations.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivatives
and Hedging Activities" ("SFAS No. 133"), which establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collective referred
to as derivatives), and for hedging activities. SFAS No 133, as amended
by SFAS No. 137, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company currently does not engage in,
nor does it expect to engage in, derivative or hedging activities and,
accordingly, the Company anticipates there will be no impact to its
consolidated financial statements.
F-12
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB 101"). SAB 101 summarizes certain areas of the Staff's views in
applying generally accepted accounting principles to revenue recognition
in financial statements. The Company believes that its current revenue
recognition policies comply with SAB 101.
In July 2000, the EITF reached a consensus on EITF Issue 99-19,
"Reporting Revenue Gross as a Principal versus Net as an Agent." This
consensus provides guidance concerning under what circumstances a
company should report revenue based on (a) the gross amount billed to a
customer because it has earned revenue from the sale of the goods or
services or (b) the net amount retained (that is, the amount billed to
the customer less the amount paid to a supplier) because it has earned a
commission or fee. Application of the provisions of this consensus did
not change the Company's existing accounting policies.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year consolidated
financial statements to be consistent with the 2000 presentation.
2. GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company has
suffered substantial recurring losses from operations, expects to incur
additional losses, and has entered into a definitive agreement to
acquire a development-stage company with a history of substantial
operating losses and to which the Company has agreed to advance
$750,000. These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
The Company has taken certain actions in an effort to become profitable
and improve cash flow from operations in the future. These actions
include seeking new revenue opportunities and additional financing
sources. In addition, the Company has entered into a plan of merger with
Mindtronics Corporation (see Note 8). Management continues to implement
plans to increase revenues, reduce existing cost structures, improve
operating efficiencies, and strengthen the Company's operating
infrastructure. There can be no assurances that management will be
successful in the implementation of its plans.
3. ACQUISITIONS
On March 11, 1999 the Company entered into an Agreement and Plan of
Exchange with a corporation, Global Investors Guide. As of March 11,
1999, Global became a wholly owned subsidiary of the Company. The
acquisition was accounted for as a purchase in which the Company
acquired all of the net liabilities of Global and all of the outstanding
shares of Global's common stock. In the transaction the Company issued
1,826,000 shares of common stock, at a price per share of $0.50, for a
value of $913,000. A price of $0.50 per share was used to value the
stock issued in the acquisition transaction as the sale of approximately
2,000,000 shares one month prior to the merger at $0.50 per share is the
best indicator of value
F-13
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
3. ACQUISITIONS (CONTINUED)
of the stock. The excess estimated fair value of the net liabilities
assumed over the value of the shares issued was $1,122,198 and was
allocated as follows: core technology $475,000, goodwill $647,198.
Management determined the goodwill fair value by reference to the
present value of estimated future cash inflows of the acquired assets,
and believes the valuation to be reasonable, appropriate and not
impaired. The goodwill is being amortized using the straight-line method
over five years. Management also believes the value allocated to core
technology, the difference between the excess estimated fair value of
the net liabilities assumed over the value of the shares issued less the
goodwill, is reasonable, appropriate and not impaired.
The following unaudited pro forma summary presents the consolidated
results of operations of the Company as if the business combination had
occurred on January 1, 1998 and January 1, 1999, respectively:
Nine months ended Year ended
September 30, December 31,
1999 1998
----------------- ------------
Total revenues $ 66,342 $ 361,678
Net loss $ (1,175,184) $ (149,676)
Basic and diluted loss per share $ (0.12) $ (0.06)
The pro forma results of operations do not purport to be indicative of
the results which would actually have been obtained had the merger
occurred on the dates indicated or which may be obtained in the future.
Effective April 30, 2000, the Company acquired certain assets of
Clicksmart.com, Inc. pursuant to the terms of an Asset Purchase
Agreement. The purchase price of the acquisition included the issuance
of 300,000 shares of the Company's common stock, with a fair market
value of $937,500, and a cash payment of $195,792. The acquisition has
been accounted for using the purchase method of accounting and the
assets acquired were recorded at their estimated fair values at the date
of the acquisition. The cost in excess of the net assets acquired was
$898,165, which is being amortized on a straight-line basis over the
estimated useful life of seven years.
The following unaudited pro forma summary presents the consolidated
results of operations of the Company as if the business combination had
occurred at the beginning of the respective periods presented below.
Year ended Nine months ended
September 30, September 30,
2000 1999
------------- -----------------
Total revenues $ 1,873,946 $ 550,382
Net loss $ (2,548,223) $ (1,239,508)
Basic and diluted loss per share $ (0.21) $ (0.13)
The pro forma results of operations do not purport to be indicative of
the results which would actually have been obtained had the merger
occurred on the dates indicated or which may be obtained in the future.
F-14
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30, September 30,
2000 1999
------------- -------------
Computer equipment $ 400,025 $ 128,622
Office furniture and equipment 55,455 44,434
Assets held under capital lease obligations 84,087 16,091
------------- -------------
539,567 189,147
Less accumulated depreciation and amortization (136,230) (38,580)
------------- -------------
$ 403,337 $ 150,567
============= =============
Included in accumulated depreciation and amortization is $18,178 and
$2,235 of amortization related to assets held under capital lease
obligations as of September 30, 2000 and 1999, respectively.
5. SHAREHOLDERS' EQUITY
COMMON STOCK
During December 1997 and February 1998, 40,000 and 860,000, shares of
stock were issued to various investors at $0.01 per share for cash of
$400 and $5,400, pursuant to a Regulation D offering. Issuance costs
were $3,200.
During December 1998, 4,140,000 shares of stock were issued to various
investors at $0.01 per share for cash of $38,400, pursuant to a
Regulation D offering. Issuance costs were $3,000.
During February 1999, 1,890,000 shares of stock were issued to various
investors at $0.50 per share for cash of $945,000, pursuant to a
Regulation D offering. Issuance costs were $8,000.
On March 11, 1999 1,826,000 shares of stock were issued in conjunction
with the acquisition of Global (see Note 3).
During March 1999, the Company converted $150,000 of debt and $14,251 of
accrued interest due to an unrelated party into 300,000 shares of stock
at a value of $164,251. The stock was valued at approximately $0.50 per
share, the fair value of the Company's common stock as of January 1999
(the date of the commitment with the unrelated party). The per share
price of $0.50 was the price of shares sold in the Company's private
offering nearest to January 1999. The Company issued the shares in April
1999.
During March 1999 the Company converted an amount due to a related party
of $100,000 into 200,000 shares of stock at a value of $362,000. The
stock was valued $1.81 per share, the closing price of the Company's
common stock on the date of the conversion. The difference of $262,000
between the amount due of $100,000 and value assigned to the shares of
stock of $362,000 was recorded as compensation expense to the President
of the Company in 1999. The Company issued the shares in April 1999.
F-15
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
5. SHAREHOLDERS' EQUITY (CONTINUED)
During April 1999, 1,000,000 shares of stock were issued to various
investors at $1.00 per share for cash of $1,000,000, pursuant to a
Regulation D offering. Issuance costs were $10,000.
During August 1999, 1,482,333 shares of stock were issued to various
investors at $3.00 per share for cash of $4,446,999 pursuant to a
Regulation S offering. Issuance costs were $35,540.
During the year ended September 30, 2000, employees exercised 10,000
options at $0.75 per share and 119,000 options at $1.50 per share.
During the year ended September 30, 2000, the Company issued 300,000
shares valued at $937,500 in connection with an acquisition (see Note
3).
STOCK OPTIONS
In March 1999, the Company adopted the 1999 Stock Option Plan (the
"Plan"). The Plan is administered by a committee appointed by the Board
of Directors (the "Committee") which determines the recipients and the
terms of the options granted. The Plan provides that options granted may
be either incentive stock options or non-statutory stock. Options may be
granted to eligible employees, directors, consultants, vendors,
customers, and others to purchase shares of the Company's common stock
at a price generally not less than 110% of the fair market value of the
common stock on the date of grant for incentive stock options and not
less than 85% for non-statutory stock options. The Plan provides for the
granting of options for up to 2,500,000 shares of the Company's common
stock. During 2000, the plan was revised to increase the number of
options available for grant to 4,750,000. Options may expire up to five
years from the date of grant, subject to termination of employment.
The Company accounts for stock-based compensation for non-employees
using the fair value of the option award on the measurement date.
Compensation for non-employee stock options are recorded in the period
earned.
A summary of stock option activity is as follows:
Weighted
Average
Number of Price Per Aggregate Exercise
Shares Share Price Price
------------- -------------- ------------- -------------
Balance, December 31, 1998 -- $ -- $ -- $ --
Options granted 1,551,500 0.50-6.75 2,434,225 1.57
------------- -------------- ------------- -------------
Balance, September 30, 1999 1,551,500 0.50-6.75 2,434,225 1.57
Options granted 943,500 2.75-4.50 3,500,775 3.71
Options exercised (129,000) 0.75-1.50 (186,000) (1.44)
Options forfeited/cancelled (10,000) 4.93 (49,300) (4.93)
------------- -------------- ------------- -------------
Balance, September 30, 2000 2,356,000 $ 0.50-6.75 $ 5,699,700 $ 2.42
============= ============== ============= =============
F-16
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
5. SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes information with respect to stock options
outstanding at September 30, 2000:
Options Outstanding Options Exercisable
----------------------------------------------------- -------------------------------
Weighted
Number Average Number Weighted
Outstanding at Remaining Exercisable at Average
Exercise September 30, Contractual September 30, Exercise
Prices 2000 Life 2000 Price
---------------- ------------------- -------------- ---------------- -----------
$.50 775,000 3.3 775,000 $ .50
$1.50 231,000 4.3 231,000 1.50
$2.75 47,500 5.7 - -
$3.03-$3.75 1,181,000 5.2 238,334 3.34
$4.00-$4.93 107,500 4.7 87,500 4.40
$6.75 14,000 4.5 14,000 6.75
---------------- ------------------- -------------- ---------------- -----------
$.50-$6.75 2,356,000 4.5 1,345,834 $ 1.49
================ =================== ============== ================ ===========
If the Company had elected the fair value method of accounting for
stock-based compensation, compensation cost would be accrued at the
estimated fair value of all stock option grants over the service period,
regardless of later changes in stock prices and price volatility. The
fair value at date of grant for options granted during the year ended
September 30, 2000, the nine months ended September 30, 1999 and the
year ended December 31, 1998 has been estimated based on a Black-Scholes
valuation model with the following assumptions: no dividend yield;
expected volatility of 25% to 82% in 2000 and 110% to 118% in 1999,
based on historical results; risk-free interest rates of 6.5% in 2000
and 4.8% in 1999; and average expected lives of 2.5 years in 2000 and 5
years in 1999.
The weighted average fair value of the options granted during the
periods was $1.11 per share in 2000 and $1.11 per share in 1999.
The following table sets forth the net loss and loss per share amounts
for the periods presented as if the Company had elected the fair value
method of accounting for stock options:
Nine Months
Ended
Year Ended September 30,
September 30, 1999
2000 (restated)
------------------ -----------------
NET LOSS
As reported $ (2,403,850) $ (1,047,752)
================== =================
Pro forma $ (3,716,351) $ (1,818,157)
================== =================
BASIC AND DILUTED LOSS PER SHARE
As reported $ (0.20) $ (0.11)
================== =================
Pro forma $ (0.32) $ (0.19)
================== =================
F-17
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
5. SHAREHOLDERS' EQUITY (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's stock options
have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its stock options.
Additional incremental compensation expense includes the excess of fair
values of options granted during the period over any compensation
amounts recorded for options whose exercise prices were less than the
market value at date of grant, and for any expense recorded for
non-employee grants.
All such incremental compensation is amortized over the related vesting
period, or expensed immediately if fully vested. The above calculations
include the effects of all grants in the periods presented. Because
options often vest over several years and additional awards are made
each year, the results shown above may not be representative of the
effects on net income (loss) in future years.
The Company accounts for stock-based compensation for employees under
the "intrinsic value" method. Under this method, no compensation expense
is recorded for these plans and arrangements for current employees whose
grants provide for exercise prices at or above the market price on the
date of grant. Compensation expense for employees is recorded based on
intrinsic value (excess of market price over exercise price on
measurement date) which is accounted for as unearned compensation and is
reflected as a separate component of shareholders' equity until earned.
All options awarded to employees during the years ended September 30,
2000 and 1999, were granted with exercise prices which equaled or
exceeded the market price of the common stock at the date of grant.
WARRANTS
During July 1999 the company issued warrants to purchase 20,000 shares
of the Company's common stock to an unrelated third party in
consideration of consulting services rendered. These warrants are
exercisable at $4.56 per share, which was fair market value at date of
issuance. One half of the warrants vest one year from date of grant and
the balance vest eighteen months after date of grant. The warrants
expire in June 2004. In accordance with SFAS No. 123 these warrants were
recorded as compensation expense as of the date of issuance. The
weighted average fair value of the warrants was $2.36 per warrant for
calculated compensation expense of $47,090. The following weighted
average assumptions were used for grant: risk-free interest rate of
4.8%, no dividend yield, expected volatility of 110% and average
expected life of 1.5 years.
6. INCOME TAXES
The provision for income taxes for the year ended September 30, 2000,
the nine months ended September 30, 1999, and year ended December 31,
1998 is comprised of the minimum current state income tax. Differences
between the statutory and effective tax rates are primarily due to
valuation allowances recorded to offset deferred tax benefits associated
with net operating losses.
F-18
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
6. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and amounts used for income tax purposes.
Components of the Company's deferred tax assets and liabilities are
comprised primarily of the future tax benefit of the Company's net
operating loss carryforward of approximately $1.1 million at September
30, 2000. Such deferred tax asset is offset by a valuation allowance
equal to the total net deferred tax asset balance.
As of September 30, 2000, the Company has a federal net operating loss
carryforward of approximately $2.8 million, expiring through 2020, and a
state net operating loss carryforward of approximately $1.8 million,
expiring through 2005.
The utilization of the net operating loss carryforwards could be limited
due to restrictions imposed under federal and state laws upon a change
in ownership. The amount of the limitation, if any, has not been
determined at this time. A valuation allowance is provided when it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. As a result of the Company's continued losses and
uncertainties surrounding the realization of the net operating loss
carryforwards, management has determined that the realization of
deferred tax assets is not more likely than not. Accordingly, a
valuation allowance equal to the net deferred tax asset amount has been
recorded as of September 30, 2000 and 1999.
7. COMMITMENTS AND CONTINGENCIES
LEASES
During 2000, the Company entered into an agreement to lease a new
corporate facility. The lease has an initial term of eighteen months.
The Company has also acquired certain equipment under capital leases
which are payable in various scheduled monthly installments through
March 2003.
Future minimum lease payments are as follows:
Operating
YEARS ENDING SEPTEMBER 30, Leases Capital Leases
--------------------------------------------------------- --------------- ----------------
2001 $ 154,454 $ 43,307
2002 80,049 26,524
2003 -- 8,851
--------------- ----------------
Total minimum lease payments $ 234,503 78,682
===============
Amount representing interest ranging from 16% to 19% (12,895)
----------------
65,787
Present value of future minimum capital lease
obligations, current portion (35,243)
----------------
$ 30,544
================
F-19
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Total rent expense for the periods ended September 30, 2000, September
30, 1999 and December 31, 1998 were $134,231, $56,167 and $0,
respectively.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with the President of Clicksmart
which provides for a specified salary plus incentive compensation and
other benefits through May 2002.
LICENSE AGREEMENTS
On February 2, 1998 the Company's subsidiary Global entered into an
Information Distribution License agreement with an unrelated company.
The Agreement grants a nonexclusive, nontransferable right and license
to distribute electronically, a stock quote data feed. Under the terms
of the three-year agreement Global paid a one-time installation fee of
$1,230 in January 1998. In addition the contract requires Global to pay
a monthly fee of $970 plus redistribution fees based on the number of
months the data feed is used. The installation fee and the monthly fees
are expensed as incurred.
The Company's subsidiary Global entered into a Computer Software License
Agreement on April 21, 1998. The agreement grants Global the right to
use "NT-TASRV" operating system and provides monthly service and support
of this system. Under the terms of the contract Global paid an initial
license fee of $1,025 and pays a monthly fee of $1,025. The installation
fee and the monthly fees are expensed as incurred.
The Company's subsidiary Global entered into a License Agreement with an
unrelated company on January 19, 1999. The Agreement grants a
non-exclusive, non-transferable, limited right to use data feeds for
music, video, books and an encyclopedia of popular music. Under the
terms of the one-year agreement, Global will pay the greater of a
minimum monthly fee of $3,500 or a calculated fee based on a fixed price
per unit sold. These fees are expensed as incurred.
In March 1999, the Company entered into a distribution and fulfillment
agreement with a third party company to provide and ship the books, CDs
and videos ordered on its branded e-commerce site. The agreement is for
a term of one year, and is automatically renewed for five one-year
successive periods. The Company incurred $273,155 and $9,250 with
respect to purchases of product pursuant to this agreement during the
year ended September 30, 2000 and the nine-month period ended September
30, 1999, respectively.
8. SUBSEQUENT EVENTS
On December 4, 2000, the Company entered into an agreement and plan of
merger with Mindtronics Corporation (the "Merger Agreement").
Mindtronics is a Utah based corporation in which the Company's Chairman
of the Board and COO owns 1 million shares (approximately 10% as of
September 30, 2000) of Mindtronics common stock.
Pursuant to the Merger Agreement, the Company will exchange 12,500,000
shares of the Company's common stock for all the outstanding shares of
Mindtronics capital stock. Consummation of the merger is subject to
numerous conditions, including, but not limited to, approval by the
Company's shareholders, completion of due diligence and other customary
F-20
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
8. SUBSEQUENT EVENTS (CONTINUED)
conditions. The Company anticipates that the merger, if approved, will
be consummated early in the first quarter of 2001. In connection with
the Merger Agreement, the Company has agreed to advance Mindtronics
$750,000, of which $268,000 has been advanced to Mindtronics through
December 22, 2000.
As of December 22, 2000, the Company's cash position has decreased from
$3,700,864 to $2,812,698. The reduction of cash is due to cash advanced
to Mindtronics and funding of the Company's operations.
The Company has granted an additional 135,000 options subsequent to
September 30, 2000. Of these options, 7,500 vest immediately, 7,500 vest
six months from date of grant, 20,000 vest one year from date of grant
and 100,000 vest ratable over a 30-month period. The options have
exercise prices ranging from $0.50 to $3.00, with an average exercise
price of $1.85.
F-21
APPENDIX B
CONSOLIDATED FINANCIAL STATEMENTS OF MINDTRONICS
Appendix B-1
------------
Mindtronics Corporation
Index to Consolidated Financial Statements
Page
----
Consolidated Financial Statements of Mindtronics Corporation Reference
- - - ------------------------------------------------------------ ---------
Report of Certified Independent Public Accountants F-2
Consolidated Balance Sheets as of September 30, 2000 and 1999 F-3
Consolidated Statements of Operations for the Years Ended
September 30, 2000 and 1999, and for the Period May 20,
1998 (inception) through September 30, 2000 F-4
Consolidated Statements of Shareholders' Equity for the Years
Ended September 30, 2000 and 1999, and for the Period
May 20, 1998 (inception) through September 30, 2000 F-5
Consolidated Statements of Cash Flows for the Years Ended
September 30, 2000 and 1999, and for the Period May 20,
1998 (inception) through September 30, 2000 F-6
Notes to Consolidated Financial Statements F-7 to F-14
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Mindtronics Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Mindtronics
Corporation and Subsidiaries (the "Company") (a development stage company) as of
September 30, 2000 and 1999, and the related consolidated statements of
operations, shareholders' equity and cash flows for the years then ended and for
the period from May 20, 1998 (inception) to September 30, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Mindtronics Corporation and Subsidiaries as of September 30, 2000 and 1999, and
the consolidated results of their operations and their cash flows for the years
then ended and for the period from May 20, 1998 (inception) to September 30,
2000, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has a working capital deficit,
had minimal capitalization, has had no revenues, has incurred substantial losses
and expects to incur additional losses. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ BDO SEIDMAN, LLP
Costa Mesa, California
December 24, 2000, except
for Note 9 as to
which the note is
January 12, 2001
F-2
MINDTRONICS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
September 30, September 30,
2000 1999
------------- -------------
ASSETS
Current assets:
Cash $ 6,189 $ 1,570
Prepaid expenses 4,304 --
Deposits 4,704 --
Note receivable (Note 3) 5,500 --
------------- -------------
Total current assets 20,697 1,570
Property and equipment, net (Note 4) 77,648 --
------------- -------------
$ 98,345 $ 1,570
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,466 $ --
Accrued expenses 11,852 --
Notes payable to related parties (Note 7) 32,054 --
------------- -------------
Total current liabilities 66,372 --
------------- -------------
Commitments and contingencies (Note 8)
Shareholders' equity (Note 5):
Common stock, $0.001 par value
Authorized 100,000,000 shares;
issued and outstanding 10,116,860 (2000)
and 10,020,000 (1999) 10,117 10,020
Additional paid in capital 484,203 --
Deficit accumulated during development stage (462,347) (8,450)
------------- -------------
Total shareholders' equity 31,973 1,570
------------- -------------
$ 98,345 $ 1,570
============= =============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
MINDTRONICS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
(INCLUDING THE PREDECESSOR OPERATIONS OF MINDTRONICS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from
May 20, 1998
Year ended Year ended (inception) to
September 30, September 30, September 30,
2000 1999 2000
------------- ------------- -------------
Revenue $ -- $ -- $ --
Cost of sales -- -- --
------------- ------------- -------------
Gross profit -- -- --
Operating expenses:
Sales, general and administrative 334,577 7,500 342,077
Research and development 110,423 -- 110,423
Depreciation and amortization 5,025 -- 5,025
------------- ------------- -------------
Loss from operations (450,025) (7,500) (457,525)
Other income (expenses):
Interest expense (4,939) (950) (5,889)
Other 1,067 -- 1,067
------------- ------------- -------------
Loss before income taxes (453,897) (8,450) (462,347)
Income taxes (Note 6) -- -- --
------------- ------------- -------------
Net loss $ (453,897) $ (8,450) $ (462,347)
============= ============= =============
Per share information:
Weighted average shares outstanding -
basic and diluted 10,051,146 10,020,000
============= =============
Net loss per common share - basic and diluted $ (0.05) $ (0.00)
============= =============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
MINDTRONICS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
(INCLUDING THE PREDECESSOR OPERATIONS OF MINDTRONICS, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Deficit
Accumulated
Additional During the Total
Common Stock Subscriptions Paid in Development Shareholders'
Shares Amount Receivable Capital Stage Equity
----------- ----------- ----------- ----------- ----------- -----------
Issuance of founders
stock 10,020,000 $ 10,020 $ (10,020) $ -- $ -- $ --
----------- ----------- ----------- ----------- ----------- -----------
Balance at
September 30, 1998 10,020,000 10,020 (10,020) -- -- --
Collection of
subscriptions
receivable -- -- 10,020 -- -- 10,020
Net loss -- -- -- -- (8,450) (8,450)
----------- ----------- ----------- ----------- ----------- -----------
Balance at
September 30, 1999 10,020,000 10,020 -- -- (8,450) 1,570
Stock issued in
connection with
private placement
(Note 5) 92,560 93 -- 462,707 -- 462,800
Stock issued for
services (Note 5) 4,300 4 -- 21,496 -- 21,500
Net loss -- -- -- -- (453,897) (453,897)
----------- ----------- ----------- ----------- ----------- -----------
Balance at
September 30, 2000 10,116,860 $ 10,117 $ -- $ 484,203 $ (462,347) $ 31,973
=========== =========== =========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
MINDTRONICS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
(INCLUDING THE PREDECESSOR OPERATIONS OF MINDTRONICS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from
May 20, 1998
Year ended Year ended (inception) to
September 30, September 30, September 30,
2000 1999 2000
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (453,897) $ (8,450) $ (462,347)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 5,025 -- 5,025
Stock issued for services 21,500 -- 21,500
Changes in operating assets and
liabilities:
Prepaid expenses (4,304) -- (4,304)
Deposits (4,704) -- (4,704)
Accounts payable 22,466 -- 22,466
Accrued expenses 11,852 -- 11,852
------------- ------------- -------------
Net cash used in operating activities (402,062) (8,450) (410,512)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (82,673) -- (82,673)
Note receivable advance (5,500) -- (5,500)
------------- ------------- -------------
Net cash used in investing activities (88,173) -- (88,173)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 462,800 10,020 472,820
Net proceeds from related party debt 32,054 -- 32,054
------------- ------------- -------------
Net cash provided by financing activities 494,854 10,020 504,874
------------- ------------- -------------
Net increase in cash 4,619 1,570 6,189
CASH, beginning of period 1,570 -- --
------------- ------------- -------------
CASH, ending of period $ 6,189 $ 1,570 $ 6,189
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for:
Interest $ 4,780 $ 950 $ 5,730
============= ============= =============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
MINDTRONICS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
(INCLUDING THE PREDECESSOR OPERATIONS OF MINDTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Mindtronics Corporation ("Mindtronics" or the "Company"), a development
stage company, was incorporated in the state of Nevada on October 28,
1999. The Company is the successor to Mindtronics, Inc., a Utah
Corporation that was formed on May 20, 1998. The Company is a research
and development company with products under development which include
computer hardware, software and product design for high tech
applications, including telecommunication network synchronization, audio
and video compression, database engineering, and advanced search engine
technologies and methodologies.
BASIS OF PRESENTATION
Mindtronics Corporation ("MC") merged with Mindtronics, Inc. ("MI") on
October 29, 1999. The merger was accounted for as a purchase of MC by MI
in a "reverse acquisition", since MC had no ongoing business or
operations at the time of the merger and the executive officers and
members of the board of directors of the post-merger entity were
primarily comprised of individuals previously associated with MI. In a
reverse acquisition, the accounting treatment differs from the legal
form of the transaction, as the continuing legal parent company (MC) is
not assumed to be the acquirer and the financial statements of the
combined entity are those of the accounting acquirer (MI), including any
comparative prior year financial statements presented by the combined
entity after the business combination. Consequently, the consolidated
financial statements include the accounts of MI, and beginning October
29, 1999, include the accounts of MC.
In connection with the acquisition, 10,020,000 shares of Mindtronics
Corporation stock were exchanged for all of the outstanding shares of
Mindtronics, Inc. (a share for share transaction). Accordingly, the
number of shares and the per share information in the accompanying
consolidated financial statements do not require retroactive adjustment.
The proforma effect of this merger for the year ended September 30, 2000
would not be materially different than the amounts reported in the
accompanying statement of operations.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
financial statements of Mindtronics Corporation and its wholly owned
subsidiaries, which include: Mindtronics, Inc., Consolidated Digital,
Inc., Digihand Corporation, Impera Corporation, Intellectual Property
Corporation, and Webyman Corporation. All significant intercompany
accounts and transactions have been eliminated in consolidation.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, less accumulated
depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives
of the assets (or lease term, if shorter), which range from 3 to 7
years. Maintenance and repairs are expensed as incurred while renewals
and betterments are capitalized.
F-7
MINDTRONICS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
(INCLUDING THE PREDECESSOR OPERATIONS OF MINDTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
The Company reviews the carrying amount of its long-lived assets and
identifiable intangible assets for possible impairment whenever events
or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less
costs to sell.
INCOME TAXES
The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Deferred income taxes are recognized
based on the differences between financial statement and income tax
bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. Valuation
allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized. The provision for income
taxes represents the tax payable for the period and the change during
the period in deferred tax assets and liabilities.
SEGMENT REPORTING
The Company follows Statement of Financial Accounting Standards No.
130, "Disclosures About Segments of an Enterprise and Related
Information." The Company operates as a single segment and will
evaluate additional segment disclosure requirements as it expands its
operations.
EARNINGS (LOSS) PER SHARE AND SHARES OUTSTANDING
Loss per share is calculated pursuant to Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). Basic
loss per share includes no dilution and is computed by dividing loss
available to common shareholders by the weighted average number of
shares outstanding during the period. Diluted loss per share reflects
the potential dilution of securities, common stock equivalents, that
could share in the earnings of the Company. The Company had no common
stock equivalents outstanding as of September 30, 2000 and 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" requires all entities to disclose
the fair value of financial instruments, both assets and liabilities
recognized and not recognized on the balance sheet, for which it is
practicable to estimate fair value. This statement defines fair value of
a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties. As of
September 30, 2000, the fair value of all financial instruments
approximated carrying value.
F-8
MINDTRONICS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
(INCLUDING THE PREDECESSOR OPERATIONS OF MINDTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could materially differ from
those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially expose the Company to
concentration of credit risk, consist primarily of cash. The Company
places its cash with high quality financial institutions. At times, cash
balances may be in excess of the amounts insured by the Federal Deposit
Insurance Corporation.
DEVELOPMENT STAGE ENTERPRISE
The Company is a development stage enterprise with no sales revenue and
minimal operating history. The Company is exposed to all of the risks
associated with being a development stage company, including the
substantial risk of business failure.
UNINSURED RISKS
The Company does not maintain general commercial and employment-related
liability insurance coverage. As a result, the Company is substantially
exposed to the financial risks such insurance coverages are designed to
mitigate.
RESEARCH & DEVELOPMENT
Research and development costs are expensed as incurred.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes internally generated software development costs
in accordance with SFAS No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed." To date, no such
costs have been capitalized.
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 requires
the reporting and display of comprehensive income and its components in
a full set of general-purpose financial statements. SFAS 130 had no
effect on the accompanying financial statements, because the Company had
no other components of comprehensive income.
F-9
MINDTRONICS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
(INCLUDING THE PREDECESSOR OPERATIONS OF MINDTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivatives
and Hedging Activities" ("SFAS No. 133"), which establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collective referred
to as derivatives), and for hedging activities. SFAS No 133, as amended
by SFAS No. 137, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company currently does not engage in,
nor does it expect to engage in, derivative or hedging activities and,
accordingly, the Company anticipates there will be no impact to its
financial statements.
2. GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company has a
working capital deficit, has minimal capitalization, has had no
revenues, has incurred substantial losses and expects to incur
additional losses. These factors, among others, raise substantial doubt
about the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
The Company has taken certain actions in an effort to become profitable
and improve cash flow from operations in the future. These actions
include the completion of two of its key software products, the filing
of patent protection of one of its products and the execution of two
license agreements of the other product (see Note 9). In addition, the
Company has entered into a plan of merger with Ubrandit.com, Inc., which
has agreed to advance the Company up to $750,000 (see Note 9).
Management continues to implement plans to bring the Company's products
to market, and strengthen the Company's operating infrastructure. There
can be no assurances that management will be successful in the
implementation of its plans.
3. NOTE RECEIVABLE
On June 23, 2000, the Company advanced cash to an unrelated party in the
amount of $5,000 which is acknowledged by a promissory note. The note
bears interest at 5%, includes a $500 origination fee and is secured by
certain assets, as defined in the agreement. The unpaid principal and
interest were due on September 23, 2000.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30,
2000
-------------
Furniture and fixtures $ 3,805
Electronic hardware 69,103
Electronic software 6,048
Leasehold improvements 3,717
-------------
82,673
Less accumulated depreciation and amortization (5,025
-------------
$ 77,648
=============
F-10
MINDTRONICS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
(INCLUDING THE PREDECESSOR OPERATIONS OF MINDTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999
5. SHAREHOLDERS' EQUITY
COMMON STOCK
From November 1999 through September 2000, 92,560 shares of stock were
issued to various investors at $5.00 per share for cash of $462,800,
pursuant to a Regulation D, Rule 504 offering.
From November 1999 through March 2000, 4,300 shares of stock were issued
to consultants for services, which were valued at $5.00 per share.
6. INCOME TAXES
Differences between the statutory and effective tax rates are primarily
due to valuation allowances recorded to offset deferred tax benefits
associated with net operating losses.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and amounts used for income tax purposes.
Components of the Company's deferred tax assets and liabilities are
comprised primarily of the federal and state future tax benefit of the
Company's net operating loss carryforwards of approximately $169,000 at
September 30, 2000. Such deferred tax asset is offset by a valuation
allowance equal to the total deferred tax asset balance.
As of September 30, 2000, the Company has a federal net operating loss
carryforward of approximately $453,000, which expires through 2020. As
of September 30, 2000, the Company has a state net operating loss
carryforward of approximately $453,000, which expires through 2005.
The utilization of the net operating loss carryforwards could be limited
due to restrictions imposed under federal and state laws upon a change
in ownership. The amount of the limitation, if any, has not been
determined at this time. A valuation allowance is provided when it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. As a result of the Company's continued losses and
uncertainties surrounding the realization of the net operating loss
carryforwards, management has determined that the realization of
deferred tax assets is not more likely than not. Accordingly, a
valuation allowance equal to the net deferred tax asset amount has been
recorded as of September 30, 2000.
7. RELATED PARTY TRANSACTIONS
NOTES PAYABLE TO RELATED PARTIES
At September 30, 2000, the Company was indebted to two principal
shareholders in the amounts of $14,772 and $17,282, respectively,
acknowledged by unsecured promissory notes. The notes bear interest at
16% and are payable on demand.
F-11
MINDTRONICS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
(INCLUDING THE PREDECESSOR OPERATIONS OF MINDTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999
7. RELATED PARTY TRANSACTIONS (CONTINUED)
TRANSACTIONS WITH SHAREHOLDER
A significant shareholder of the Company, who resides in Germany, is
also a research and development consultant to the Company. The
shareholder, in a separate agreement in 1998, assigned all of his rights
to certain technology to the Company, which currently represents
substantially all of the Company's core technology. The shareholder
received 2,500,000 shares of common stock of the Company in conjunction
with such assignment. The shareholder on a consulting basis assists the
Company in the further development of said core technology. The
shareholder was paid $105,423 for the year ended September 30, 2000 for
such consulting services.
PROPOSED MERGER WITH UBRANDIT.COM, INC.
A significant shareholder of the Company is also a shareholder and the
Chairman of the Board of Directors and Chief Operating Officer of
Ubrandit.com, Inc. (see Note 9)
SERVICE CONTRACT
On September 18, 2000, one of the Company's subsidiaries, Consolidated
Digital, Inc. ("CDI") entered into an Internet Services Contract with
Internet Promotions, Inc. ("IPI"), an entity in which two of the
Company's employees have an interest. The Company owns three percent of
the authorized voting common shares in IPI. The contract is for a term
of approximately five years, expires on December 31, 2005 and may be
extended for additional periods of one-year each upon agreement by both
parties. Per the terms of the contract, IPI appointed CDI as its
exclusive internet service provider and web provider with standard
collocation services, whereby CDI will begin providing these services at
an economically reasonable time. In addition, CDI will provide supply
equipment and racks in the co-location facility. As agreed, IPI will pay
CDI $12,000 per month for collocation services and $7.50 per customer
per month for internet access services. During the year ended September
31, 2000, the Company received $0 in service fees from IPI.
8. COMMITMENTS AND CONTINGENCIES
LEASES
On January 1, 2000, the Company entered into an agreement to lease a
corporate facility. The lease has a term of twelve months and expires on
December 31, 2000.
On November 24, 2000, management signed an agreement to lease a new
corporate facility. The new lease has a projected commencement date of
March 1, 2001, subject to the completion of construction of certain
tenant improvements, with a five year term.
F-12
MINDTRONICS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
(INCLUDING THE PREDECESSOR OPERATIONS OF MINDTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments are as follows:
Operating
YEARS ENDING SEPTEMBER 30, Leases
--------------------------------------- -------------
2001 $ 86,000
2002 139,000
2003 142,000
2004 146,000
2005 150,000
Thereafter 63,000
-------------
Total minimum lease payments $ 726,000
=============
Total rent expense for the periods ended September 30, 2000 and 1999
were $19,328 and $0, respectively.
SALES AND DISTRIBUTION AGREEMENT
On April 13, 2000 the Company entered into a Sales Distribution and
Commission Agreement with Tri-Star Ventures, LLC ("TSV"), an unrelated
company. The agreement is for a term of one year and may be extended for
additional one-year terms subject to mutual written consent by both
parties. The Agreement grants a non-exclusive right to distribute
certain of the Company's products, as defined. The contract requires
Mindtronics to pay a percentage commission based upon sales price for
new, accepted hardware and software orders. During the year ended
September 30, 2000, no hardware and software orders were received and
the Company incurred $0 in commissions.
SERVICE AGREEMENT
Effective May 8, 2000, the Company entered into a Service Agreement with
Jato Operating Corporation, an unrelated company. The term of the
agreement is for one year and shall continue on a month-to-month basis
until terminated in writing by either party. Per the terms of the
agreement, Jato will provide THE Company with certain network,
communications, applications and other services, as defined. In
consideration for the services provided, the Company paid a one-time
installation fee of $120. In addition, the contact requires Mindtronics
to pay a recurring monthly fee of $444.
9. SUBSEQUENT EVENTS
PROPOSED MERGER
On December 4, 2000, the Company entered into an agreement and plan of
merger with Ubrandit.com, Inc. (the "Merger Agreement"). Such agreement
was subsequently amended on January 12, 2001. Pursuant to the Merger
Agreement, Ubrandit.com, Inc. will exchange 12,100,000 shares of its
common stock for all of the outstanding shares of Mindtronics capital
stock. Consummation of the merger is subject to numerous conditions
precedent, including, but not limited to, approval by Ubrandit.com,
Inc.'s shareholders, completion of due diligence and other customary
conditions.
F-13
MINDTRONICS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
(INCLUDING THE PREDECESSOR OPERATIONS OF MINDTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999
9. SUBSEQUENT EVENTS (CONTINUED)
In 1999 the Chairman of the Board and COO of Ubrandit.com, Inc.
purchased 1,000,000 shares of the Company's common stock from various
shareholders.
UBRANDIT.COM, INC. LOAN
In connection with the Merger Agreement, the parties executed and
delivered a Loan and Security Agreement and a series of Promissory notes
dated from November 6, 2000 through December 24, 2000. U-Brandit.com,
Inc. agreed to advance to the Company up to $750,000, secured by a
pledge of shares of the Company's capital stock. The loan bears interest
at 8% per annum and is due on demand. Through December 24, 2000, the
Company received $268,000.
LICENSE AGREEMENTS
On December 18, 2000, Webyman Corporation ("WC"), one of the Company's
subsidiaries, entered into a System Application License Agreement with
Royal International Group, LLC ("RI"), an unrelated party. The term of
the agreement is for 5 years. The license grants RI the exclusive right
to use and apply the System Application and software known as the
Webyman Search Engine System in South Korea, with certain sublicense
and/or assignment rights, as defined. In consideration for the license,
RI shall pay WC certain amounts, over a predetermined period of time, as
defined, to assist WC in establishing operational feasibility of the
search engine. To date, no funds have been received from RI. In
addition, RI shall pay ongoing licensing fees based upon the greater of
gross revenues anticipated or realized by RI related to or arising from
the Systems Application in the territory, or a guaranteed amount.
On December 18, 2000, Webyman Corporation, entered into a second System
Application License Agreement with Royal International Group, LLC. The
term of the agreement is for 5 years. The license grants RI the
exclusive right to use and apply the Webyman Search Engine System in
Japan, with certain sublicense and/or assignment rights, as defined. In
consideration for the license, RI shall pay WC certain amounts, over a
predetermined period of time, as defined, to assist WC in establishing
operational feasibility of the search engine. To date, no funds have
been received from RI. In addition, RI shall pay ongoing licensing fees
based upon the greater of gross revenues anticipated or realized by RI
related to or arising from the Systems Application in the territory, or
a guaranteed amount.
F-14
APPENDIX C
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS POST-MERGER
Appendix C-1
------------
UBRANDIT.COM, INC.
Index to Pro Forma Condensed Combined Financial Statements
Page
Unaudited Pro Forma Condensed Combined Financial Information of Ubrandit.com, Inc. Reference
- - - ---------------------------------------------------------------------------------- ---------
Introduction to Unaudited Pro Forma Condensed Combined Financial Information F-2
Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2000 F-3
Unaudited Pro Forma Condensed Combined Statement of Operations for the Year
Ended September 30, 2000 F-4
Unaudited Pro Forma Condensed Combined Financial Information F-5
F-1
UBRANDIT.COM, INC.
Unaudited Pro Forma Condensed Combined Financial Information
The following unaudited pro forma condensed combined financial information is
based upon historical financial statements and has been prepared to illustrate
the effects of the proposed acquisition of Mindtronics Corporation. The
acquisition contemplates the Company's issuance of 12,100,000 shares of common
stock for all of the issued and outstanding shares of common stock of
Mindtronics Corporation. The acquisition has not been consummated and is subject
to the satisfaction of various contingencies, including shareholder approval.
The acquisition of Mindtronics will be accounted for using the purchase method
of accounting with the assets acquired and liabilities assumed recorded at their
fair market value as of the date of the acquisition. The excess of the purchase
price over the fair value of the assets acquired and liabilities assumed
represents goodwill which will be amortized on a straight-line basis over the
estimated useful life of five years.
The unaudited pro forma condensed combined balance sheet assumes the acquisition
occurred on September 30, 2000, and was prepared using the historical balance
sheets of the Company and Mindtronics Corporation as of that date. The unaudited
pro forma condensed combined statement of operations illustrates the effect of
the acquisition of Mindtronics Corporation on the Company's results of
operations for the year ended September 30, 2000, assuming the acquisition took
place on October 1, 1999.
The unaudited pro forma condensed combined balance sheet and statement of
operations are not intended to be indicative of the financial position or
results of operations which actually would have been realized had the
acquisition occurred on the dates assumed, nor of future results of operations
of the entities on a combined basis. The accompanying unaudited pro forma
condensed combined financial statements should be read in connection with the
historical financial statements and notes of the Company and Mindtronics
Corporation.
F-2
UBRANDIT.COM, INC.
Unaudited Pro Forma Condensed Combined Balance Sheet
September 30, 2000
PROFORMA
ADJUSTMENTS PROFORMA
UBRANDIT(1) MINDTRONICS(2) DEBIT (CREDIT) CONSOLIDATED
------------- ------------- ------------- -------------
Current Assets:
Cash $ 3,700,864 $ 6,189 $ -- $ 3,707,053
Accounts receivable 9,294 -- -- 9,294
Prepaid expenses 91,865 4,304 -- 96,169
Deposits 50,374 4,704 -- 55,078
Inventory 27,493 -- -- 27,493
Note Receivable -- 5,500 -- 5,500
------------- ------------- ------------- -------------
Total current assets 3,879,890 20,697 -- 3,900,587
Other assets:
Property and equipment, net 403,337 77,648 -- 480,985
Core technology, net 361,790 -- -- 361,790
Goodwill, net 1,320,310 -- 10,023,127(3) 11,343,437
------------- ------------- ------------- -------------
Total assets $ 5,965,327 $ 98,345 $ 10,023,127 $ 16,086,799
============= ============= ============= =============
Current liabilities:
Accounts payable $ 177,814 $ 22,466 $ -- $ 200,280
Accrued expenses 180,921 11,852 -- 192,773
Loans payable to related parties -- 32,054 -- 32,054
Current portion of lease payable 35,243 -- -- 35,243
------------- ------------- ------------- -------------
Total current liabilities 393,978 66,372 -- 460,350
Leases payable, net of current
portion 30,544 -- -- 30,544
------------- ------------- ------------- -------------
Total liabilities 424,522 66,372 -- 490,894
------------- ------------- ------------- -------------
Shareholders' equity:
Common stock, $0.001 par value
Authorized 25,000,000 shares;
Issued and outstanding
12,167,333 (Historical) and
24,267,333 (Pro Forma) 12,167 10,117 1,983 24,267
Additional paid in capital 8,980,333 484,203 9,558,797 19,023,333
Accumulated deficit (3,451,695) (462,347) 462,347 (3,451,695)
------------- ------------- ------------- -------------
Total shareholders' equity 5,540,805 31,973 10,023,127(3) 15,595,905
------------- ------------- ------------- -------------
Total liabilities and shareholders'
equity $ 5,965,327 $ 98,345 $ 10,023,127 $ 16,086,799
============= ============= ============= =============
See notes to pro forma condensed combined balance sheet on F-5.
F-3
UBRANDIT.COM, INC.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended September 30, 2000
PROFORMA
ADJUSTMENTS PROFORMA
UBRANDIT(1) MINDTRONICS(2) DEBIT (CREDIT) CONSOLIDATED
------------- -------------- ------------- -------------
Revenue $ 869,623 $ -- $ -- $ 869,623
Cost of sales 1,100,405 -- -- 1,100,405
------------- ------------- ------------- -------------
Gross loss (230,782) -- -- (230,782)
Sales, general and administrative 2,032,420 334,577 -- 2,366,997
Research and development -- 110,423 -- 110,423
Depreciation and amortization 365,969 5,025 2,004,625 (4) 2,375,619
------------- ------------- ------------- -------------
Operating loss (2,629,171) (450,025) (2,004,625) (5,083,821)
Interest income 233,349 -- -- 233,349
Interest expense (8,028) (4,939) -- (12,967)
Other income (expense) -- 1,067 -- 1,067
------------- ------------- ------------- -------------
Net loss $ (2,403,850) $ (453,897) $ (2,004,625) $ (4,862,372)
============= ============= ============= =============
Net loss per share, basic and diluted $ (0.20) $ (0.20) (5)
============= =============
See notes to pro forma condensed combined balance sheet on F-5.
F-4
UBRANDIT.COM, INC.
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
September 30, 2000
(1) Represents audited historical financial information of Ubrandit.com,
Inc. as reflected in the consolidated financial statements of
Ubrandit.com, Inc. included in its annual report on Form 10-K filed
with the Securities and Exchange Commission on January 4, 2001.
(2) Represents audited historical financial information of Mindtronics
Corporation as reflected in the consolidated financial statements of
Mindtronics Corporation included herein at Appendix B.
(3) The acquisition of Mindtronics Corporation is expected to be accounted
for using the purchase method of accounting, with the assets acquired
and liabilities assumed recorded at their fair market value as of the
date of the acquisition. The excess of the purchase price over the fair
value of the assets acquired and liabilities assumed represents
goodwill which is expected to be amortized on a straight-line basis
over an estimated useful life of five years. The proforma adjustments
to record the acquisition in the accompanying unaudited pro forma
condensed combined balance sheet are as follows:
Purchase price: issuance of 12,100,000 shares
of the Company's common stock valued at
$0.831 per share $ 10,055,100
Estimated fair value of the net assets (31,973)
--------------
Goodwill $ 10,023,127
==============
(4) Goodwill is estimated to have a useful life of five years and is
amortized using the straight-line method. Amortization for a one year
period is estimated at $2,004,625.
(5) Pro forma loss per share is based on the weighted average number of
shares of common stock outstanding during the period after giving pro
forma effect to the issuance of 12,100,000 shares of Common Stock of
Ubrandit.com, Inc. to the shareholders' of the Mindtronics Corporation.
Options and warrants to purchase common stock were excluded in the
calculation of the pro forma loss per share, as their effect would be
antidilutive. The computation of the pro forma weighted average number
of shares is as follows:
Historical weighted average number of shares of
Ubrandit.com, I nc. 11,912,141 (1)
Shares of common stock expected to be issued upon
consummation of the proposed acquisition. 12,100,000
-------------
Pro forma weighted average shares 24,012,141
=============
F-5
APPENDIX D
AUDIT COMMITTEE CHARTER
GENERAL PURPOSE.
The Audit Committee of Ubrandit.com (the "Company") is appointed by the
Board of Directors to assist the Board and to perform an oversight function with
respect to the following:
(1) discussing the financial statements of the Company with
management and the Company's independent auditors;
(2) monitoring actions taken by the Company to comply with its
internal policies as well as external accounting, legal and
regulatory requirements;
(3) reviewing disclosures regarding the independence of the
Company's outside auditors; and
(4) evaluating the performance of the Company's independent
auditors.
SELECTION OF MEMBERS OF THE AUDIT COMMITTEE.
The members of the Audit Committee shall meet the independence and
experience requirements required by the Securities and Exchange Commission and
other applicable regulatory authorities (as then required and in effect). The
members of the Audit Committee shall be appointed by the Board on the
recommendation of the Board of Directors.
POWERS.
The Audit Committee has the authority, at the Company's expense, to
retain professional advisors, including without limitation special legal,
accounting or other consultants, to advise the Audit Committee, as the Audit
Committee deems necessary or advisable in connection with the exercise of its
powers and responsibilities as set forth in this Audit Committee Charter, all on
such terms as the Audit Committee deems necessary or advisable.
The Audit Committee may request any officer or employee of the Company
or the Company's outside counsel or independent auditor to attend a meeting of
the Audit Committee or to meet with any members of, or consultants to, the Audit
Committee.
RESPONSIBILITIES.
The Audit Committee shall meet at least four times annually, or more
frequently as circumstances dictate.
In connection with the general purpose, powers and responsibilities set
forth above, the Audit Committee shall also:
1. Recommend to the Board the appointment of the independent
auditor, which firm is ultimately accountable to the Audit
Committee and the Board.
2. Approve the fees to be paid to the independent auditor.
3. Receive periodic reports from the independent auditor
regarding the auditor's independence consistent with
Independence Standards Board Standard No. 1, discuss such
reports with the auditor, and if so determined by the Audit
Committee, take or recommend that the full Board take
appropriate action to oversee the independence of the auditor.
Appendix D-1
------------
4. Evaluate together with the Board the performance of the
independent auditor and, if so determined by the Audit
Committee, recommend that the Board replace the independent
auditor.
5. Meet with the independent auditor prior to the audit to review
the scope, planning and staffing of the audit.
6. Review and discuss with management the annual audited
financial statements including major issues regarding
accounting and auditing principles and practices as well as
the adequacy of internal controls that could significantly
affect the Company's financial statements.
7. Review significant financial reporting issues and judgments
made in connection with the preparation of the Company's
financial statements.
8. Review major changes to the Company's auditing and accounting
principles and practices as suggested by the independent
auditor, internal auditors or management.
9. Discuss with the independent auditor the matters required to
be discussed by Statement on Auditing Standards No. 61
relating to the conduct of the audit.
10. Review with the independent auditor any problems or
difficulties the auditor may have encountered including any
restrictions on the scope of activities or access to required
information or any changes required in the planned scope of
the audit.
11. Review any management letter provided by the auditor and the
Company's response to that letter.
12. Monitor actions taken by the Company in response to any
letters or reports to management provided by the independent
auditors.
13. At any meeting of the Audit Committee duly called to review
the Company's quarterly financial statements, review with
management and the independent auditor the Company's quarterly
financial statements prior to the filing of that quarter's
Form 10-Q. The Chair of the Audit Committee may represent the
entire Audit Committee for purposes of this review.
14. Prepare any report of the Audit Committee required by the
rules of the Securities and Exchange Commission to be included
in the Company's annual proxy statement.
15. Review the Company's policies with respect to conflicts of
interest.
16. Advise the Board with respect to the Company's policies and
procedures regarding compliance with its internal policies as
well as applicable laws and regulations, including without
limitation with respect to maintaining books, records and
accounts and a system of internal accounting controls in
accordance with Section 13(b)(2) of the Securities Exchange
Act of 1934.
17. Review with the Company's chief financial officer and general
counsel, legal matters that may have a material impact on the
financial statements, the Company's compliance policies and
any material reports or inquiries received from regulators or
governmental agencies.
18. Meet at least annually with the chief financial officer and
the independent auditor in separate executive sessions.
19. Review and reassess the adequacy of this Audit Committee
Charter annually and recommend any proposed changes to the
Board for approval.
20. Maintain minutes of meetings and periodically report to Board
of Directors on significant results of the foregoing
activities.
Appendix D-2
------------
LIMITATION ON RESPONSIBILITIES AND POWERS.
While the Audit Committee has the responsibilities and powers set forth
above in this Audit Committee Charter, it is not the duty or responsibility of
the Audit Committee:
(1) to plan or conduct audits;
(2) to determine that the Company's financial statements are
complete and accurate and are in accordance with generally
accepted accounting principles (this determination shall
remain the responsibility of management and the independent
auditor);
(3) to conduct investigations;
(4) to resolve disagreements, if any, between management and the
independent auditor; or
(5) to assure compliance with the Company's internal policies,
accounting rules and other applicable laws and regulations.
Appendix D-3
------------
APPENDIX E
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
UBRANDIT.COM, INC.,
UBRANDIT ACQUISITION CORP.
AND
MINDTRONICS CORPORATION
DECEMBER 4, 2000
Appendix E-1
------------
TABLE OF CONTENTS
PAGE
----
ARTICLE I THE MERGER.......................................................................5
1.1 The Merger......................................................................5
1.2 Effect on Capital Stock.........................................................6
1.3 Surrender of Certificates.......................................................7
1.4 No Further Ownership Rights in Seller Capital Stock.............................9
1.5 Lost, Stolen or Destroyed Certificates..........................................9
1.6 Tax and Accounting Consequences.................................................9
1.7 Taking of Necessary Action; Further Action......................................9
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER........................................9
2.1 Organization And Related Matters................................................9
2.2 Capitalization.................................................................10
2.3 Financial Statements; Changes; Contingencies...................................10
2.4 Books and Records..............................................................12
2.5 Taxes..........................................................................13
2.6 Material Contracts.............................................................14
2.7 Contracts; No Defaults.........................................................14
2.8 Title To Property; Encumbrances................................................16
2.9 Condition and Sufficiency of Assets............................................17
2.10 Accounts Receivable............................................................17
2.11 Inventory......................................................................17
2.12 No Undisclosed Liabilities.....................................................17
2.13 Intellectual Property..........................................................18
2.14 Corporate Authorization........................................................19
2.15 Authorization..................................................................19
2.16 Non-contravention..............................................................19
2.17 Legal Proceedings..............................................................20
2.18 Insurance......................................................................21
2.19 Compliance With Law and Legal Requirements; Governmental Authorizations........22
2.20 Employees......................................................................23
2.21 Employee Benefits..............................................................23
2.22 Customers......................................................................24
2.23 Suppliers......................................................................24
2.24 Product Warranties.............................................................25
2.25 Environmental Law Compliance...................................................25
2.26 Minute Books...................................................................25
2.27 Due Diligence Materials........................................................25
2.28 Related Party Transactions.....................................................25
2.29 Disclosure.....................................................................25
2.30 No Brokers or Finders..........................................................26
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER.......................................26
3.1 Organization And Related Matters...............................................26
3.2 Capitalization.................................................................26
3.3 Corporate Authorization........................................................26
3.4 Authorization..................................................................27
3.5 Non-Contravention..............................................................27
3.6 Legal Proceedings..............................................................27
3.7 Compliance With Law............................................................27
3.8 No Brokers Or Finders..........................................................27
3.9 SEC Documents..................................................................27
3.10 Due Diligence Materials........................................................28
Appendix E-2
------------
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
ARTICLE IV CONDUCT BEFORE CLOSING.........................................................28
4.1 Conduct of Seller..............................................................28
4.2 Conduct of Buyer...............................................................29
4.3 No Solicitation of Transactions................................................29
ARTICLE V ADDITIONAL AGREEMENTS...........................................................29
5.1 Access.........................................................................29
5.2 Due Diligence..................................................................30
5.3 Corporate Clean-Up.............................................................30
5.4 Preserve Accuracy of Representations and Warranties............................30
5.5 Notification of Certain Matters................................................30
5.6 Permits and Approvals..........................................................31
5.7 Stockholder Meeting; Information Statement.....................................31
5.8 Amendment of Articles of Incorporation of Buyer................................31
5.9 Preparation of Proxy Statement.................................................31
5.10 Meeting of Stockholders of Buyer...............................................31
5.11 Loan...........................................................................31
5.12 Legal Services for WebyMan Intellectual Property...............................32
5.13 Conditions.....................................................................32
5.14 Blue Sky Laws..................................................................32
5.15 Reorganization.................................................................32
ARTICLE VI CONDITIONS TO CLOSING..........................................................32
6.1 General Conditions.............................................................32
6.2 Conditions to Obligations of Buyer.............................................33
6.3 Conditions to Obligations of Seller............................................34
ARTICLE VII TERMINATION OF OBLIGATIONS....................................................34
7.1 Termination of Agreement.......................................................34
7.2 Effect of Termination; Break-Up Fee............................................35
ARTICLE VIII INDEMNIFICATION..............................................................35
8.1 Escrow Fund....................................................................35
8.2 Obligations of Seller..........................................................35
8.3 Obligations of Buyer...........................................................36
8.4 Procedure......................................................................36
ARTICLE IX MISCELLANEOUS..................................................................36
9.1 Survival of Representations and Warranties.....................................36
9.2 Public Announcements...........................................................36
9.3 Confidentiality................................................................36
9.4 Expenses.......................................................................37
9.5 Representative.................................................................37
9.6 Notices........................................................................37
9.7 Further Assurances.............................................................38
9.8 Sections and Other Headings....................................................38
9.9 Integrated Agreement...........................................................38
9.10 Assignment.....................................................................38
9.11 Amendments; Waivers............................................................38
9.12 Interpretation.................................................................38
9.13 Counterparts...................................................................38
9.14 Headings; Exhibits.............................................................38
9.15 Severability...................................................................38
9.16 Governing Law..................................................................38
9.17 Specific Performance...........................................................38
9.18 Arbitration....................................................................39
Appendix E-3
------------
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
EXHIBITS:
Seller Disclosure Schedule
Exhibit A -- Definitions
Exhibit B -- Form of Stockholder Support Agreement
Exhibit C -- Loan and Security Agreement and Related Promissory Note
Exhibit D -- Form of Tax Opinions of Respective Counsel of Buyer and Seller
Exhibit E -- Form of Opinion of counsel to Seller
Exhibit F -- Form of Investor Representation Letter
Exhibit G -- Form of Employment Agreement
Exhibit H -- Form of Non-Competition Agreement
Exhibit I -- Escrow Agreement
Appendix E-4
------------
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "AGREEMENT") is effective as of
December 4, 2000, by and among UBRANDIT.COM, INC., a Nevada corporation
("BUYER"), UBRANDIT ACQUISITION CORP., a Nevada corporation ("ACQUISITION
CORP."), and MINDTRONICS CORPORATION, a Nevada corporation ("SELLER"). Certain
capitalized terms used in this Agreement are defined in the text or on EXHIBIT A
attached hereto.
RECITALS
A. The Boards of Directors of Seller, Buyer and Acquisition Corp.
believe it is in the best interests of their respective companies and the
stockholders of their respective companies that Seller and Acquisition Corp.
combine into a single company through the merger of Acquisition Corp. with and
into Seller (the "MERGER") and, in furtherance thereof, have approved the
Merger.
B. Pursuant to the Merger, among other things, the outstanding shares
of Seller's capital stock (collectively, "SELLER CAPITAL STOCK") will be
exchanged for shares of Buyer's Common Stock ("BUYER COMMON Stock"), as set
forth herein.
C. Seller, Buyer and Acquisition Corp. desire to make certain
representations and warranties and other agreements in connection with the
Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Code and to cause the
Merger to qualify as a reorganization under the provisions of Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code.
E. Concurrently with the execution of this Agreement, Rod Ylst, Mark La
Count, M2HC, Inc., a Utah corporation, M. Karlynn Hinman and Roger C. Royce,
each will deliver to Buyer an agreement in the form of Exhibit B attached hereto
(as amended, supplemented or otherwise modified from time to time, the
"STOCKHOLDER SUPPORT AGREEMENT") to vote their shares of Seller Capital Stock in
favor of the Merger, on the terms and subject to the conditions set forth in the
Stockholder Support Agreement.
F. The parties intend to cause the Merger to be accounted for as a
purchase which is intended not to cause adverse tax implications.
The parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER.
(a) CONSTITUENTS OF THE MERGER. The constituent entities of
the Merger are Acquisition Corp. and Seller. The name, address, place of
organization, governing law and kind of entity of Acquisition Corp. are as
follows:
Name: UBRANDIT ACQUISITION CORP.
Address: 6405 Mira Mesa Blvd., Suite 100
San Diego, California 92121
Place of Organization: Nevada
Governing Law: Nevada
Kind of Entity: Corporation
Relationship to Buyer: Acquisition Corp. is a wholly-owned
subsidiary of Buyer
Appendix E-5
------------
The name, address, place of organization, governing law and kind of entity of
Seller are as follows:
Name: MINDTRONICS CORPORATION
Address: 4505 S. Wasatch Blvd., Suite 210
Salt Lake City, Utah 84124-4202
Place of Organization: Nevada
Governing Law: Nevada
Kind of Entity: Corporation
(b) THE MERGER. At the Effective Time (as defined below) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the General Corporation Law of the State of Nevada (the
"NEVADA CORPORATION LAW"), Acquisition Corp. will be merged with and into
Seller, the separate corporate existence of Acquisition Corp. will cease, and
Seller will continue as the surviving corporation. Seller as the surviving
corporation after the Merger is referred to in this Agreement from time to time
as the "SURVIVING CORPORATION."
(c) CLOSING EFFECTIVE TIME. The closing of the transactions
contemplated by this Agreement (the "CLOSING") will take place as soon as
practicable after the satisfaction or waiver of each of the conditions set forth
in Article VI hereof but no later than March 1, 2001 (the "CLOSING DATE");
provided, however, that, in the event that Buyer by March 1, 2001 for any reason
whatsoever has not obtained approval of this Agreement and the transactions
contemplated hereby, including, without limitation, the Merger, by the holders
of at least a majority of the then-outstanding shares of Buyer Common Stock,
then the "CLOSING DATE" shall be extended and be deemed and interpreted
throughout this Agreement for all purposes to mean September 1, 2001. The
Closing will take place at the offices of Seller, located at 4505 S. Wasatch
Boulevard, Suite 210, Salt Lake City, Utah 84124-4202, or at such other location
as the parties agree. In connection with the Closing, the parties will cause the
Merger to be consummated by filing with the Nevada Secretary of State Articles
of Merger ("ARTICLES OF MERGER") as required by Section 92A.200 of the Nevada
Corporation Law (the time of such filing being the "EFFECTIVE TIME").
(d) EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger will be as provided in this Agreement and the applicable provisions
of the Nevada Corporation Law. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Seller and Acquisition Corp. will vest in
the Surviving Corporation, and all debts, liabilities and duties of Seller and
Acquisition Corp. will become the debts, liabilities and duties of the Surviving
Corporation.
(e) ARTICLES OF INCORPORATION; BYLAWS. The Articles of
Incorporation and bylaws of Acquisition Corp. in effect at the Effective Time
will be the Articles of Incorporation and bylaws of the Surviving Corporation
until amended in accordance with applicable Law. From and after the Effective
Time, until successors are duly elected or appointed and qualified in accordance
with applicable Law, (i) Mark K. La Count, Rod Ylst and M. Karlynn Hinman, Roger
C. Royce, Jeffery Phillips, James W. Truher and one other independent director
to be named, will be the directors of Buyer and of the Surviving Corporation,
and (ii) Mark K. La Count, Rod Ylst and M. Karlynn Hinman, Roger C. Royce,
Jeffery Phillips will be the executive officers of the Surviving Corporation and
parent Corporation. The Proxy Statement (as defined in SECTION 5.9 hereof) shall
be prepared to solicit the approval of the stockholders of Buyer of the
foregoing persons as the director nominees of Buyer.
1.2 EFFECT ON CAPITAL STOCK. By virtue of the Merger and without any
action on the part of Acquisition Corp., Seller or the holders of any of the
following securities at the Effective Time:
Appendix E-6
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(a) CONVERSION OF SELLER CAPITAL STOCK. Each issued and
outstanding share of Seller Capital Stock (other than shares held by persons
exercising dissenters' rights in accordance with Sections 92A.300 ET SEQ. of the
Nevada Corporation Law ("SELLER DISSENTING SHARES") will be converted into the
right to receive a number of newly-issued shares of Buyer Common Stock equal to
12,500,000 divided by the number of shares of Seller Capital Stock outstanding
immediately before the Effective Time (the "EXCHANGE RATE"); provided that, if
before the Effective Time any dividend is declared or paid on shares of Buyer
Common Stock or the shares of Buyer Common Stock are adjusted pursuant to any
stock dividend, stock split, reverse stock split or other similar transaction,
then the Exchange Rate will be proportionately adjusted accordingly. A portion
of the shares of Buyer Common Stock to be issued pursuant to this Section will
be deposited in an escrow account pursuant to SECTION 1.3(i) and SECTION 8.1
hereof.
(b) CAPITAL STOCK OF ACQUISITION CORP. At the Effective Time,
each share of Common Stock of Acquisition Corp. ("ACQUISITION CORP. COMMON
STOCK") issued and outstanding immediately before the Effective Time will be
converted into and exchanged for one validly issued, fully-paid and
nonassessable share of Common Stock of the Surviving Corporation.
(c) FRACTIONAL SHARES. No fraction of a share of Buyer Common
Stock will be issued, but in lieu thereof each holder of shares of Seller
Capital Stock who otherwise would be entitled to a fraction of a share of Buyer
Common Stock (after aggregating all fractional shares of Buyer Common Stock to
be received by such holder) will receive from Buyer an amount of cash (rounded
to the nearest whole cent) equal to the product of (i) such fraction, multiplied
by (ii) the Average Share Price. The fractional share interests of each
Stockholder of Seller will be aggregated so that no Stockholder of Seller will
receive cash in respect of fractional share interests in an amount greater than
the value of the Average Share Price.
(d) DISSENTERS' RIGHTS OF STOCKHOLDERS OF SELLER. Seller
Dissenting Shares, if any, will not be converted into Buyer Common Stock but
instead will be converted into the right to receive such consideration as may be
determined to be due with respect to such Seller Dissenting Shares pursuant to
the Nevada Corporation Law. Seller will give Buyer prompt notice of any demand
received by Seller to require Seller to purchase shares of Seller Capital Stock,
and Buyer will have the right to direct and participate in all negotiations and
proceedings with respect to such demand. Except with the prior written consent
of Buyer, or as required under the Nevada Corporation Law, Seller will not
voluntarily make any payment with respect to, or settle or offer to settle, any
such purchase demand. Each holder of Seller Dissenting Shares ("SELLER
DISSENTING STOCKHOLDER") who, pursuant to the provisions of the Nevada
Corporation Law, becomes entitled to payment of the fair value for shares of
Seller Capital Stock will receive payment therefor (but only after the value
therefor has been agreed on or finally determined pursuant to such provisions).
If, after the Effective Time, any Seller Dissenting Shares lose their status as
Seller Dissenting Shares, Buyer will issue and deliver, upon surrender by such
stockholder of a certificate or certificates representing shares of Seller
Capital Stock, the number of shares of Buyer Common Stock to which such
stockholder otherwise would be entitled under this ARTICLE I less the number of
shares allocable to such stockholder that have been deposited in the Escrow Fund
(as defined below) in respect of such shares of Buyer Common Stock pursuant to
SECTION 1.3(i) and SECTION 8.1 hereof.
(e) CERTIFICATE LEGENDS. The shares of Buyer Common Stock to
be issued pursuant to this ARTICLE I will not be registered and will be
characterized as "restricted securities" under the federal securities laws, and
under such laws such shares may be resold without registration under the
Securities Act, only in certain limited circumstances. Each certificate
evidencing shares of Buyer Common Stock to be issued pursuant to this ARTICLE I
will bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
WITHOUT AN EXEMPTION UNDER THE SECURITIES ACT OR AN OPINION OF
LEGAL COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED."
1.3 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. American Securities Transfer & Trust will
act as exchange agent (the "EXCHANGE AGENT") in the Merger.
Appendix E-7
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(b) BUYER TO PROVIDE COMMON STOCK AND CASH. Promptly after the
Effective Time, Buyer will make available to the Exchange Agent for exchange in
accordance with this ARTICLE I hereof through such reasonable procedures as
Buyer may adopt (i) the shares of Buyer Common Stock issuable pursuant to
SECTION 1.2(a) hereof in exchange for shares of Seller Capital Stock outstanding
immediately before the Effective Time less the number of shares of Buyer Common
Stock to be deposited into an escrow fund (the "ESCROW FUND") pursuant to the
requirements of SECTION 8.1 hereof and (ii) cash in an amount sufficient to
permit payment of cash in lieu of fractional shares pursuant to SECTION 1.2(c)
hereof.
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time,
the Surviving Corporation will cause to be mailed to each holder of record of a
certificate or certificates (the "CERTIFICATES") that immediately before the
Effective Time represented outstanding shares of Seller Capital Stock, whose
shares were converted into the right to receive shares of Buyer Common Stock
(and cash in lieu of fractional shares) pursuant to SECTION 1.2(a) hereof, (i) a
letter of transmittal (which will specify that delivery will be effected, and
risk of loss and title to the Certificates will pass, only upon receipt of the
Certificates by the Exchange Agent, and will be in such form and have such other
provisions as Buyer may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of Buyer Common Stock (and cash in lieu of fractional
shares). Upon surrender of a Certificate for cancellation to the Exchange Agent,
together with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holder of such Certificate will be
entitled to receive in exchange therefor a certificate representing the number
of whole shares of Buyer Common Stock less the number of shares of Buyer Common
Stock to be deposited in the Escrow Fund (as applicable) on such holder's behalf
pursuant to Sections 1.3(i) and 8.1 hereof and payment in lieu of fractional
shares, which such holder has the right to receive pursuant to SECTION 1.2(c)
hereof, and the Certificate so surrendered will forthwith be canceled. Until so
surrendered, each outstanding Certificate that, before the Effective Time,
represented shares of Seller Capital Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of dividends,
to evidence the ownership of the number of full shares of Buyer Common Stock
into which such shares of Seller Capital Stock will have been so converted and
the right to receive an amount in cash in lieu of the issuance of fractional
shares in accordance with SECTION 1.2(c) hereof.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions with respect to Buyer Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Buyer Common Stock
represented thereby until the holder of record of such Certificate has
surrendered such Certificate. Subject to applicable Law, following surrender of
any such Certificate, there will be paid to the record holder of the
certificates representing whole shares of Buyer Common Stock issued in exchange
therefor, without interest at the time of such surrender, the amount of any such
dividend or other distribution with a record date after the Effective Time
theretofore payable (but for the provisions of this SECTION 1.3(d)) with respect
to such shares of Buyer Common Stock.
(e) TRANSFER OF OWNERSHIP. If any certificate for shares of
Buyer Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the Person
requesting such exchange will have paid to Buyer or any agent designated by it
all transfer or other taxes required by reason of the issuance of a certificate
for shares of Buyer Common Stock in any name other than that of the registered
holder of the Certificate surrendered, or established to the satisfaction of
Buyer or any agent designated by it that such tax has been paid or is not
payable.
(f) TERMINATION OF EXCHANGE. Any portion of the Exchange Fund
that remains undistributed to the Stockholders of Seller one year after the
Effective Time will be delivered to Buyer, upon demand, and all Stockholders of
Seller who have not complied previously with this SECTION 1.3 thereafter will
look only to Buyer for payment of their claim for Buyer Common Stock, cash for
fractional shares and any dividend or distribution with respect to Buyer Common
Stock.
(g) NO LIABILITY. Notwithstanding anything to the contrary in
this SECTION 1.3, none of the Exchange Agent, the Surviving Corporation or any
party hereto will be liable to any Person for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar Law.
Appendix E-8
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(h) SELLER DISSENTING SHARES. The provisions of this SECTION
1.3 also will apply to Seller Dissenting Shares that lose their status as such,
except that the obligations of Buyer under this SECTION 1.3 will commence on the
date of loss of such status, and the holder of such shares will be entitled to
receive in exchange for such shares the number of shares of Buyer Common Stock
to which such holder is entitled pursuant to SECTION 1.2 hereof.
(i) ESCROW. As soon as practicable after the Effective Time,
and subject to and in accordance with the provisions of SECTION 8.1 hereof,
Buyer will cause to be deposited with an approved Escrow Agent, to be named, a
certificate or certificates representing ten percent (10%) of the aggregate
shares of Buyer Common Stock to be issued pursuant to SECTION 1.2(a) hereof to
Mark K. La Count, Rod Ylst, M2HC, Inc., a Utah corporation, M. Karlynn Hinman
and Roger C. Royce (collectively, "SELLER'S PRINCIPAL STOCKHOLDERS"), which
shares will be registered in the name of Escrow Agent as nominee for the holders
of Certificates of Seller's Principal Stockholders canceled pursuant to this
SECTION 1.3. Such shares will be beneficially owned by Seller's Principal
Stockholders and will be held in escrow and will be available to compensate
Buyer for certain damages as provided in ARTICLE VIII hereof. To the extent not
used for such purposes, such shares will be released and returned on or before
December 15, 2001, all as provided in the Escrow Agreement. However, if for any
reason, the shareholder approval is not obtained per the transaction agreement
then said shares will be released and returned within 5 working days after such
determination.
1.4 NO FURTHER OWNERSHIP RIGHTS IN SELLER CAPITAL STOCK. All shares of
Buyer Common Stock issued upon the surrender for exchange of shares of Seller
Capital Stock in accordance with the terms of this Agreement (including any cash
paid in lieu of fractional shares) will be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Seller Capital Stock,
and there will be no further registration of transfers on the records of the
Surviving Corporation of shares of Seller Capital Stock that were outstanding
immediately before the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
will be canceled and exchanged as provided in this ARTICLE I.
1.5 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event Certificates
have been lost, stolen or destroyed, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Certificates, upon the making of an affidavit
of that fact by the holder thereof such shares of Buyer Common Stock (and cash
in lieu of fractional shares) as may be required pursuant to SECTION 1.3 hereof;
provided, however, that Buyer may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificates to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against Buyer, the Surviving
Corporation or the Exchange Agent with respect to the Certificates alleged to
have been lost stolen or destroyed.
1.6 TAX AND ACCOUNTING CONSEQUENCES. The parties intend that the Merger
will constitute a reorganization within the meaning of Section 368 of the Code
and qualify for accounting treatment as a purchase.
1.7 TAKING OF NECESSARY ACTION; FURTHER ACTION. If at any time after
the Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Seller and Acquisition Corp., the officers and directors of
Seller and Acquisition Corp. are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action, so long as such action is not inconsistent with this
Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and each of Seller's Principal Stockholders represents and
warrants as follows:
2.1 ORGANIZATION AND RELATED MATTERS.
(a) Seller is a corporation duly organized, validly existing
and in good standing under the Nevada Corporation Law. Seller has all corporate
power, Permits and Approvals necessary to own its properties and assets and to
carry on its business as now conducted and is duly qualified or licensed to do
business as a foreign corporation in good standing in all jurisdictions in which
the character or the location of the assets owned or leased by Seller or the
nature of the business conducted by Seller requires licensing or qualification
and where the failure to be so licensed or qualified would have a material
adverse effect on the Business. SECTION 2.1 of the Seller Disclosure Schedule
correctly lists the current directors and executive officers of Seller. Seller
is not a registered or reporting company under the Exchange Act.
Appendix E-9
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(b) SECTION 2.1 of the Seller Disclosure Schedule contains a
complete and accurate list of each Other Acquired Company of its name, its
jurisdiction of incorporation, other jurisdictions in which it is authorized to
do business and its capitalization (including the identity of each stockholder
and the number of shares held by each). Each Other Acquired Company is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, with full corporate power and authority to
conduct its business as it currently is being conducted, to own or use the
properties and assets that it purports to own or use and to perform all its
obligations under Applicable Contracts. Each Other Acquired Company is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each state or other jurisdiction in which either the ownership or
use of the properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification.
(c) Seller has delivered to Buyer true, correct and complete
copies of the Organizational Documents of Seller and of each Other Acquired
Company, as currently in effect.
2.2 CAPITALIZATION.
(a) The authorized capital stock of Seller consists of
100,000,000 shares of Common Stock. At the Closing Date, there will be
outstanding 10,120,160 shares of Common Stock. All outstanding shares of Seller
Capital Stock have been duly authorized and validly issued and are fully-paid
and nonassessable. Except as set forth in this Section and in SECTION 2.2 of the
Seller Disclosure Schedule, there are no outstanding (i) shares of capital stock
or voting securities of Seller, (ii) securities of Seller convertible into or
exchangeable for shares of capital stock or voting securities of Seller or (iii)
options, warrants, restricted stock, other stock-based compensation awards or
other rights to acquire from Seller or other obligations of Seller to issue any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of Seller. There are no outstanding
obligations of Seller to repurchase, redeem or otherwise acquire any securities
referred to in clauses (i), (ii) or (iii) above in this paragraph. None of the
outstanding equity securities or other securities of Seller was issued in
violation of the Securities Act or any other Law or Legal Requirement.
(b) All of the outstanding equity securities and other
securities of each Other Acquired Company are owned of record and beneficially
by Seller or one or more of the Other Acquired Companies, free and clear of all
Encumbrances. No legend or other reference to any purported Encumbrance appears
upon any certificate representing equity securities of any Other Acquired
Company. All of the outstanding equity securities of each Other Acquired Company
have been duly authorized and validly issued and are fully-paid and
nonassessable. There are no Contracts relating to the issuance, sale or transfer
of any equity securities or other securities of any Other Acquired Company. None
of the outstanding equity securities or other securities of any Other Acquired
Company was issued in violation of the Securities Act or any other Law or Legal
Requirement. No Other Acquired Company owns, or has any Contract to acquire, any
equity securities or other securities of any Person (other than Other Acquired
Companies) or any direct or indirect equity or ownership interest in any other
business.
2.3 FINANCIAL STATEMENTS; CHANGES; CONTINGENCIES.
(a) Seller has delivered to Buyer (i) an unaudited
consolidated balance sheet of Seller and the Other Acquired Companies as of
September 30, 2000 (the "INTERIM BALANCE SHEET"), and the related unaudited
statement of operations for the nine-month period then ended, (ii) an unaudited
consolidated balance sheet of Seller and the Other Acquired Companies as of
December 31, 1999, and the related unaudited statement of operations for the
year then ended, (iii) an unaudited consolidated balance sheet of Seller and the
Other Acquired Companies as of December 31, 1998, and the related unaudited
statement of operations for the five-month period then ended, (iv) a
consolidated balance sheet of Seller and the Other Acquired Companies as of
September 30, 2000, and the related unaudited statements of operations,
stockholders' equity (deficit) and cash flows for each of the years in the two
year period then ended, together with the audit report thereon of BDO Seidman,
LLP, Independent Certified Public Accountants (the "AUDITED FINANCIAL
STATEMENTS"), and (v) an unaudited consolidated balance sheet of Seller and the
Other Acquired Companies as of the Closing Date (the "CLOSING DATE BALANCE
SHEET"), and the related unaudited statement of operations for the period from
October 1, 2000 through the Closing Date. Such financial statements and note
fairly present the financial condition and the result of operations, changes in
Appendix E-10
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stockholder's equity and cash flow of Seller and the other Acquired Companies as
at the respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP, subject in the case of interim
financial statements, to normal recurring year-end adjustments (the effect of
which will not, individually or in the aggregate, be material adverse) and the
absence of notes (that if presented, would not differ materially from those
included in the Balance Sheet The financial statements referred to in this
Section 2.3 reflect the consistent application of such accounting principles
throughout the periods involved. No financial statements of any Person other
than the Other acquired Companies are required by GAAP to be included in the
consolidated financial statements of Seller. All of the foregoing financial
statements are referred to collectively in this Agreement as the "Financial
Statements."
(b) Except as set forth in SECTION 2.3 of the Seller
Disclosure Schedule, since the Interim Balance Sheet Date, whether or not in the
Ordinary Course of Business, there has not been, occurred or arisen:
(i) any event, occurrence, development or state of
circumstances or facts that would, individually or in the aggregate, have a
material adverse effect on the Business;
(ii) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of Seller Capital
Stock, or any repurchase, redemption or other acquisition by Seller or any Other
Acquired Company of any outstanding shares of capital stock or other securities
of, or other ownership interests in, Seller or any Other Acquired Company;
(iii) any incurrence, assumption or guarantee by
Seller or any Other Acquired Company of any indebtedness for borrowed money;
(iv) any creation or other incurrence by Seller or
any Other Acquired Company of any Encumbrance on any material asset;
(v) any making of any material loan, advance or
capital contribution to or investment in any Person other than an Other Acquired
Company;
(vi) any damage, destruction or other casualty loss
(whether or not covered by insurance) affecting the Business;
(vii) any transaction or commitment made, or any
Contract entered into by Seller or any Other Acquired Company, involving the
acquisition or disposition of any material asset of Seller and/or any Other
Acquired Company;
(viii) any strike or labor dispute, other than
routine individual grievances, or any activity or proceeding by a labor union or
representative thereof to organize any of the employees of Seller or of any
Other Acquired Company, which employees were not subject to a collective
bargaining agreement at the Balance Sheet Date, or any lockout, strike,
slowdown, work stoppage or threat thereof by or with respect to any of such
employees;
(ix) any Tax election, change in accounting method or
any settlement or compromise of any Tax liability by Seller or any Other
Acquired Company;
(x) (i) any grant of any severance or termination pay
to any current or former independent contractor, employee, officer or director
of Seller or of any Other Acquired Company, (ii) any increase in benefits
payable under any existing severance or termination pay policies or employment
Contract to which Seller or any Other Acquired Company is party, (iii) the
entering into of any employment, deferred compensation or other similar Contract
(or any amendment to any such existing Contract) by Seller or any Other Acquired
Company with any current or former independent contractor, director, officer or
employee of Seller or of any Other Acquired Company, (iv) the establishment,
adoption or material amendment (except as required by applicable Law or Legal
Requirement) by Seller or any Other Acquired Company of any collective
bargaining, bonus, profit-sharing, thrift, pension, retirement, deferred
compensation, compensation, stock option, restricted stock or other benefit plan
or arrangement covering any current or former director, officer or employee of
Seller or of any Other Acquired Company or (v) any increase in compensation,
bonus or other benefits payable to any current or former director, officer or
employee of Seller or of any Other Acquired Company;
Appendix E-11
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(xi) change in any Other Acquired Company's
authorized or issued capital stock; grant of any stock option or right to
purchase shares of capital stock of any Other Acquired Company; issuance of any
security convertible into such capital stock; grant by Seller or any Other
Acquired Company of any registration right; purchase, redemption, retirement or
other acquisition by any Other Acquired Company of any shares of any such
capital stock; or declaration or payment of any dividend or other distribution
or payment by Seller or any Other Acquired Company in respect of shares of
capital stock;
(xii) amendment to the Organizational Documents of
Seller or any Other Acquired Company;
(xiii) payment or increase by Seller or any Other
Acquired Company of any bonus, salary or other compensation to any independent
contractor, stockholder, director, officer or (except in the Ordinary Course of
Business) employee or entry into any employment, severance or similar Contract
with any director, officer or employee;
(xiv) adoption of, or increase in the payments to or
benefits under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement or other employee benefit plan for or with any
employee of Seller or any Other Acquired Company;
(xv) damage to or destruction or loss of any asset or
property of Seller or any Other Acquired Company, whether or not covered by
insurance, materially and adversely affecting the properties, assets, business,
financial condition or prospects of Seller or the Other Acquired Companies,
taken as a whole;
(xvi) entry into, termination of or receipt of notice
of termination by Seller or any Other Acquired Company of (i) any license,
distributorship, dealer, sales representative, joint venture, credit or similar
agreement or (ii) any Contract or transaction involving a total remaining
commitment by or to Seller or any Other Acquired Company of at least $10,000;
(xvii) sale (other than sales of inventory in the
Ordinary Course of Business), lease or other disposition of any asset or
property of Seller or any Other Acquired Company or mortgage, pledge or
imposition of any lien or other encumbrance on any material asset or property of
Seller or any Other Acquired Company, including the sale, lease or other
disposition of any Intellectual Property;
(xviii) cancellation or waiver of any claim or right
with a value to Seller or any Other Acquired Company in excess of $10,000;
(xix) material change in the accounting methods used
by Seller or any Other Acquired Company; or
(xx) agreement, whether oral or written, by Seller or
any Other Acquired Company to do any of the foregoing.
(c) Seller and the Other Acquired Companies have no
liabilities of any nature, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, probable of assertion or not, except
liabilities that (i) are reflected or disclosed in the Balance Sheet, (ii) were
incurred after the Balance Sheet Date in the Ordinary Course of Business or
(iii) are set forth in SECTION 2.3(c) of the Seller Disclosure Schedule.
2.4 BOOKS AND RECORDS. The books of account, minute books, stock record
books and other records of Seller and of the Other Acquired Companies, all of
which have been made available to Buyer, are complete and correct and have been
maintained in accordance with sound business practices and the requirements of
Section 13(b)(2) of the Exchange Act (regardless of whether or not Seller or the
Other Acquired Companies are subject to that Section), including the maintenance
of an adequate system of internal controls. The minute books of Seller and of
the Other Acquired Companies contain accurate and complete records of all
meetings held of, and corporate actions taken by, the stockholders, the Boards
of Directors and committees of the Boards of Directors of Seller and of the
Other Acquired Companies, and no meeting of any such stockholders, Board of
Directors or committee has been held for which minutes have not been prepared
and are not contained in such minute books. At the Closing, all of those books
and records will be in the possession of Seller and the Other Acquired
Companies.
Appendix E-12
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2.5 TAXES. Except as set forth in SECTION 2.5 of the Seller Disclosure
Schedule:
(a) All Tax Returns required to be filed by or with respect to
Seller have been timely filed, and all such Tax Returns are complete and correct
in all material respects. Seller has paid all Taxes that are due from or with
respect to Seller for the periods covered by such Tax Returns and has made all
required estimated Tax payments sufficient to avoid penalties for underpayment.
The accrual for Taxes in the Interim Balance Sheet is adequate to cover all
unpaid Taxes (whether or not disputed and whether or not due) of Seller with
respect to all taxable periods ending on or before September 30, 2000. Seller
has not incurred any Tax after September 30, 2000, except for Taxes incurred in
the Ordinary Course of Business.
(b) (i) the Tax Returns referred to in clause (a) above have
not been examined by the IRS or other appropriate Governmental Entity, or the
period for assessment of the Taxes in respect of which such Tax Returns were
required to be filed has expired, (ii) there is no audit, examination, suit,
investigation or similar proceeding pending or, to the Knowledge of Seller,
proposed or threatened with respect to Taxes of Seller, and, to the Knowledge of
Seller, no basis exists therefor; and (iii) there are no outstanding waivers
extending the statutory period of limitation relating to the payment of Taxes
due from Seller.
(c) SECTION 2.5(c) of the Seller Disclosure Schedule sets
forth the amount of net operating losses, net capital losses, foreign Tax
credits and investment and other Tax credits of Seller as of the date of the
Interim Balance Sheet.
(d) No Closing Agreement pursuant to Section 7121 of the Code
or any similar provision of any state, local or foreign Law has been entered
into by or with respect to Seller that reasonably could be expected to have an
effect on Seller's liability for or reporting of Taxes in any period ending
after the Closing Date.
(e) All Taxes that Seller has been required by Law or Legal
Requirement to withhold or to collect for payment have been duly withheld and
collected and have been paid or accrued, reserved against and added on the books
of Seller. Seller has complied in all material respects with all information
reporting and backup withholding requirements, including maintenance of required
records with respect thereto, in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other third party.
(f) Seller is not liable for the Taxes of any Person,
including as a transferee, pursuant to Treasury Regulations Section 1.1502-6 or
any analogous provision of state, local or foreign Law or Legal Requirement, or
as a result of any contractual arrangement with any third party or any taxing
authority.
(g) No consent to the application of Section 341(f)(2) of the
Code (or any similar state law provision) has been made or filed by or with
respect to Seller.
(h) There is no Contract by or with Seller covering any Person
as to which payment or vesting thereunder (including any payment or vesting as a
result of the Merger) could result in a nondeductible expense to Seller by
reason of Section 280(g) of the Code or an excise tax to the recipient of such
payment pursuant to Section 4999 of the Code.
(i) There are no liens for Taxes on the assets of Seller,
except for liens relating to current Taxes not yet due and payable.
(j) The Other Acquired Companies have filed or caused to be
filed (on a timely basis since October 1, 1999) all Tax Returns that are or were
required to be filed by or with respect to any of them, either separately or as
a member of a group of corporations, pursuant to applicable Law and Legal
Requirements. Seller has delivered to Buyer copies of, and SECTION 2.5(j) of the
Seller Disclosure Schedule contains a complete and accurate list of, all such
Tax Returns filed since October 1, 1999. The Other Acquired Companies have paid,
or made provisions for the payment of, all Taxes that have or may have become
due pursuant to those Tax Returns or otherwise, or pursuant to any assessment
received by any Other Acquired Company, except such Taxes, if any, as are listed
in SECTION 2.5(j) of the Seller Disclosure Schedule and are being contested in
good faith and as to which adequate reserves (determined in accordance with
GAAP) have been provided in the Interim Balance Sheet.
Appendix E-13
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(k) The United States federal and state income Tax Returns of
each Other Acquired Company subject to such Taxes have not been audited by the
IRS or relevant state tax authorities or are closed by the applicable statute of
limitations for all taxable years through October 1, 1999. SECTION 2.5(k) of the
Seller Disclosure Schedule contains a complete and accurate list of all audits
of all such Tax Returns, including a reasonable detailed description of the
nature and outcome of each audit. All deficiencies proposed as a result of such
audits have been paid, reserved against, settled or, as described in SECTION
2.5(k) of the Seller Disclosure Schedule, are being contested in good faith by
appropriate proceedings. SECTION 2.5(k) of the Seller Disclosure Schedule
describes all adjustments to the United States federal income Tax Returns filed
by any Other Acquired Company for all taxable years since October 1, 1999, and
the resulting deficiencies proposed by the IRS. Except as described in SECTION
2.5(k) of the Seller Disclosure Schedule, no Other Acquired Company has given or
been requested to give waivers or extensions (or is or would be subject to a
waiver or extension given by any other Person) of any statute of limitations
relating to the payment of Taxes of any Other Acquired Company or for which any
Other Acquired Company may be liable.
(l) The charges, accruals and reserves with respect to Taxes
on the Interim Balance Sheet are adequate (determined in accordance with GAAP)
and are at least equal to that Other Acquired Company's liability for Taxes.
There exists no proposed tax assessment against any Other Acquired Company
except as disclosed in the Balance Sheet or in SECTION 2.5(l) of the Seller
Disclosure Schedule. No consent to the application of Section 341(f)(2) of the
Code has been filed with respect to any property or asset held, acquired or to
be acquired by any Other Acquired Company. All taxes that any Other Acquired
Company is or was required by Law or Legal Requirement to withhold or collect
have been duly withheld or collected and, to the extent required, have been paid
to the proper Governmental Entity or other Person.
(m) All Tax Returns filed by (or that include on a
consolidated basis) any Other Acquired Company are true, correct and complete.
There is no tax sharing agreement that will require any payment by any Other
Acquired Company after the date of this Agreement. No Other Acquired Company is,
or within the five-year period preceding the Closing Date has been, an "S"
corporation.
2.6 MATERIAL CONTRACTS. SECTION 2.6 of the Seller Disclosure Schedule
lists each Contract to which Seller is a party or to which Seller or any of
Seller's properties is subject or by which any thereof is bound that is deemed a
Material Contract under this Agreement. Unless otherwise so noted in SECTION 2.6
of the Seller Disclosure Schedule, each such Contract was entered into in the
Ordinary Course of Business. Each Contract that (a) after the Balance Sheet Date
obligates Seller to pay or receive an amount of $50,000 or more, (b) has an
unexpired term as of the date of this Agreement in excess of one year, (c)
represents a Contract upon which the Business is substantially dependent or
which otherwise could be material to the Business, (d) relates to indebtedness
for money borrowed or provides for an extension of credit, (e) limits or
restricts the ability of Seller to compete or otherwise to conduct its business
in any manner or place, (f) provides for a guaranty or indemnity by Seller, (g)
grants a power of attorney, agency or similar authority to another Person, (h)
contains a right or obligation of any Associate, Affiliate, officer or director
of Seller to Seller, (i) is an employment contract, consulting agreement,
stockholder agreement or voting trust or (j) was not made in the Ordinary Course
of Business will be deemed to be a Material Contract and has been identified in
SECTION 2.6 of the Seller Disclosure Schedule. True copies of the Material
Contracts appearing in SECTION 2.6 of the Seller Disclosure Schedule, including
all amendments and supplements thereto, and a written description of the terms
of all oral Material Contracts, have been delivered to Buyer. Each Material
Contract is valid and subsisting; Seller has duly performed all of Seller's
obligations thereunder to the extent that such obligations to perform have
accrued; and no breach or default, alleged breach or default, or event that
would (with the passage of time, notice or both) constitute a material breach or
default, thereunder by Seller or, to the Knowledge of Seller, any other party or
obligor with respect thereto, has occurred or as a result of this Agreement or
performance hereof will occur. Consummation of the transactions contemplated by
this Agreement will not (and will not give any Person a right to) terminate or
modify any right of, or accelerate or augment any obligation of, Seller under
any of the Contracts listed in SECTION 2.6 of the Seller Disclosure Schedule,
except as set forth in SECTION 2.6 of the Seller Disclosure Schedule.
2.7 CONTRACTS; NO DEFAULTS.
(a) SECTION 2.7(a) of the Seller Disclosure Schedule contains
a complete and accurate list, and Seller has delivered to Buyer true and
complete copies, of:
Appendix E-14
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(i) each Applicable Contract that involves
performance of services or delivery of goods or materials by Seller or one or
more Other Acquired Companies of an amount or value in excess of $10.000;
(ii) each Applicable Contract that involves
performance of services or delivery of goods or materials to Seller or one or
more Other Acquired Companies of an amount or value in excess of $10,000;
(iii) each Applicable Contract that was not entered
into in the Ordinary Course of Business and that involves expenditures or
receipts by Seller or one or more Other Acquired Companies in excess of $10,000;
(iv) each lease, rental or occupancy agreement,
license, installment and conditional sale agreement and other Applicable
Contract affecting the ownership of, leasing of, title to, use of or any
leasehold or other interest in any real or personal property (except personal
property leases and installment and conditional sales agreements having a value
per item or aggregate payments of less than $10,000 and with terms of less than
one year) of Seller or one or more Other Acquired Company;
(v) each licensing agreement or other Applicable
Contract with respect to patents, trademarks, copyrights or other intellectual
property, including agreements with current or former employees, consultants or
contractor regarding the appropriation or the nondisclosure of any of
Intellectual Property of Seller or one or more Other Acquired Company;
(vi) each collective bargaining agreement and other
Applicable Contract to or with any labor union or other employee representative
of a group of employees of Seller or any Other Acquired Company;
(vii) each joint venture, partnership and other
Applicable Contract (however named) involving a sharing of profits, losses,
costs or liabilities by Seller or any Other Acquired Company with any other
Person;
(viii) each Applicable Contract containing covenants
that in any way purport to restrict the business activity of Seller or any Other
Acquired Company or any Affiliate of Seller or any Other Acquired Company or
limit the freedom of Seller or any Other Acquired Company or any Affiliate of
Seller or any Other Acquired Company to engage in any line of business or to
compete with any Person;
(ix) each Applicable Contract providing for payments
to or by any Person based on sales, purchases or profits, other than direct
payments for goods;
(x) each power of attorney on behalf of Seller or any
Other Acquired Company that is currently effective and outstanding;
(xi) each Applicable Contract entered into other than
in the Ordinary Course of Business that contains or provides for an express
undertaking by Seller or any Other Acquired Company to be responsible for
consequential damages;
(xii) each Applicable Contract for capital
expenditures by Seller or any other Acquired Company in excess of $10,000;
(xiii) each written warranty, guaranty and/or other
similar undertaking with respect to contractual performance extended by Seller
or any Other Acquired Company other than in the Ordinary Course of Business; and
(xiv) each amendment, supplement and modification
(whether oral or written) in respect of any of the foregoing.
SECTION 2.7(a) of the Seller Disclosure Schedule sets forth reasonably
complete details about such Contracts, including the parties to such Contracts,
the amount of the remaining commitment of Seller and/or the Other Acquired
Companies under such Contracts and the Other Acquired Companies' offices where
details relating to the Contracts are located, as applicable.
Appendix E-15
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(b) Except as set forth in SECTION 2.17(b) of the Seller
Disclosure Schedule:
(i) Seller has no right under, and Seller is not and
will not become subject to any obligation or liability under, any Contract that
relates to the business of, or any of the assets owned or used by, any Other
Acquired Company; and
(ii) no officer, director, agent, employee,
consultant or contractor of Seller or any Other Acquired Company is bound by any
Contract that purports to limit the ability of such officer, director, agent,
employee, consultant or contractor to (A) engage in or continue any conduct,
activity or practice relating to the business of Seller and/or any Other
Acquired Company or (B) assign to Seller and/or any Other Acquired Company or to
any other Person any right to any invention, improvement or discovery.
(c) Except as set forth in SECTION 2.17(c) of the Seller
Disclosure Schedule, each Contract identified or required to be identified in
SECTION 2.17(A) of the Seller Disclosure Schedule is in full force and effect
and is valid and enforceable in accordance with its terms.
(d) Except as set forth in SECTION 2.17(d) of the Seller
Disclosure Schedule:
(i) Seller and each Other Acquired Company is, and at
all times since October 27, 1999 has been, in full compliance with all
applicable terms and requirements of each Contract under which Seller and/or
such Other Acquired Company has or had any obligation or liability or by which
Seller and/or such Other Acquired Company or any of the assets owned or used by
Seller and/or such Other Acquired Company is or was bound;
(ii) each other Person that has or had any obligation
or liability under any Contract under which Seller or any Other Acquired Company
has or had any right is, and at all times since October 27, 1999 has been, in
full compliance with all applicable terms and requirements of such Contract;
(iii) no event has occurred or circumstance exists
that (with or without notice or lapse of time) may contravene, conflict with or
result in a violation or breach of, or give any Other Acquired Company or other
Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate or modify,
any Applicable Contract; and
(iv) neither Seller nor any Other Acquired Company
has given to or received from any other Person, at any time since October 27,
1999, any notice or other communication (whether oral or written) regarding any
actual, alleged, possible or potential violation or breach of, or default under,
any Contract.
(e) There are no renegotiations of, attempts to renegotiate or
outstanding rights to renegotiate any material amount paid or payable to Seller
or any Other Acquired Company under current or completed Contracts with any
Person, and no such Person has made written demand for such renegotiation.
(f) The Contracts relating to the sale, design, manufacture or
provision of products or services by Seller and the Other Acquired Companies
have been entered into in the Ordinary Course of Business and have been entered
into without the commission of any act alone or in concert with any other
Person, or any consideration having been paid or promised, that is or would be
in violation of any Law or Legal Requirement.
2.8 TITLE TO PROPERTY; ENCUMBRANCES. SECTION 2.8 of the Seller
Disclosure Schedule contains a complete and accurate list of all real property,
leaseholds or other interests therein owned by Seller or any Other Acquired
Company. Seller has delivered or made available to Buyer copies of the deeds and
other instruments (as recorded) by which Seller and/or the Other Acquired
Companies acquired such real property and interests, and copies of all title
insurance policies, opinions, abstracts and surveys in the possession of Seller
or the Other Acquired Companies and relating to such property or interests.
Seller and the Other Acquired Companies own (with good and marketable title in
the case of real property, subject only to the matters permitted by the
following sentence) all the properties and assets (whether real, personal or
mixed and whether tangible or intangible) that they purport to own, including
Appendix E-16
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all of properties and assets reflected in the Interim Balance Sheet (except for
assets held under capitalized leases disclosed or not required to be disclosed
in SECTION 2.8 of the Seller Disclosure Schedule and the personal property sold
since the date of the Interim Balance Sheet, as the case may be, in the Ordinary
Course of Business), and all of the properties and assets purchased or otherwise
acquired (by Seller and/or the Other Acquired Companies since the date of the
Interim Balance Sheet (except for personal property acquired and sold since the
date of the Interim Balance Sheet in the Ordinary Course of Business and
consistent with past practice), which subsequently purchased or acquired
properties and assets (other than inventory and short-term investments) are
listed in SECTION 2.8 of the Seller Disclosure Schedule). All material
properties and assets reflected in the Interim Balance Sheet are free and clear
of all Encumbrances and are not, in the case of real property, subject to any
right of way, building use restriction, exception, variance, reservation or
limitation of any nature except, with respect to all such properties and assets,
(a) mortgages or security interests shown on the Interim Balance Sheet as
securing specified liabilities or obligations, with respect to which no default
(or event that, with notice or lapse of time or both, would constitute a
default) exists, (b) mortgages or security interests incurred in connection with
the purchase of property or assets after the date of the Interim Balance Sheet
(such mortgages and security interests being limited to the property or assets
so acquired), with respect to which no default (or event that, with notice or
lapse of time or both, would constitute a default) exists, (c) liens for current
taxes not yet due and (d) with respect to real property, (i) minor imperfections
of title, if any, none of which is substantial in amount, materially detracts
from the value or impairs the use of the property subject thereto or impairs the
operations of Seller or any Other Acquired Company and (ii) zoning laws and
other land use restrictions that do not impair the present or anticipated use of
the property subject thereto. All buildings, plants and structures owned by
Seller and the Other Acquired Companies lie wholly within the boundaries of the
real property owned by Seller and the Other Acquired Companies and do not
encroach upon the property of, or otherwise conflict with the property rights
of, any other Person.
2.9 CONDITION AND SUFFICIENCY OF ASSETS. The buildings, plants,
structures and equipment of Seller and the Other Acquired Companies are sound
structurally, are in good operating condition and repair and are adequate for
the use to which they are being put, and none of such buildings, plants,
structures or equipment is in need of maintenance or repairs except for
ordinary, routine maintenance and repairs that are not material in nature of
cost. The building, plants, structures and equipment of Seller and the Other
Acquired Companies are sufficient for the continued conduct of the Business
after the Closing in substantially the same manner as conducted before the
Closing.
2.10 ACCOUNTS RECEIVABLE. All accounts receivable of Seller and the
Other Acquired Companies that are reflected on the Interim Balance Sheet or the
Closing Date Balance Sheet (collectively, the "ACCOUNTS RECEIVABLE") represent
or will represent valid obligations arising from sales actually made or services
actually performed in the Ordinary Course of Business. Unless paid before the
Closing Date, the Accounts Receivable are or will be as of the Closing Date
current and collectible net of the respective reserves shown on the Balance
Sheet or the Interim Balance Sheet or the Closing Date Balance Sheet (which
reserves are adequate and calculated consistent with past practice and, in the
case of the reserve as of the Closing Date, will not represent a greater
percentage of the Accounts Receivable as of the Closing Date than the reserve
reflected in the Interim Balance Sheet represented of the Accounts Receivable
reflected therein and will not represent a material adverse change in the
composition of such Accounts Receivable in terms of aging). Subject to such
reserves, each of the Accounts Receivable either has been or will be collected
in full, without any set-off, within 90 days after the day on which it first
becomes due and payable. There is no contest, claim or right of set-off, other
than returns in the Ordinary Course of Business, under any Contract with any
obligor of an Accounts Receivable relating to the amount or validity of such
Accounts Receivable. SECTION 2.10 of the Seller Disclosure Schedule contains a
complete and accurate list of all Accounts Receivable as of the date of the
Interim Balance Sheet, which list sets forth the aging of such Accounts
Receivable.
2.11 INVENTORY. Except as set forth in SECTION 2.11 of the Seller
Disclosure Schedule, all inventory of Seller and the Other Acquired Companies,
whether or not reflected in the Interim Balance Sheet, consists of a quality and
quantity usable and salable in the Ordinary Course of Business, except for
obsolete items and items of below-standard quality, all of which have been
written off or written down to net realizable value in the Interim Balance
Sheet. All inventories not written off have been priced at the lower of cost or
on a first in, first out basis. The quantities of each item of inventory
(whether raw materials, work-in-process, or finished goods) are not excessive,
but are reasonable in the present circumstances of Seller and the Other Acquired
Companies.
2.12 NO UNDISCLOSED LIABILITIES. Except as set forth in SECTION 2.12 of
the Seller Disclosure Schedule, Seller and the Other Acquired Companies have no
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent or otherwise) except for liabilities or
obligations reflected or reserved against in the Balance Sheet or the Interim
Balance Sheet and current liabilities incurred in the Ordinary Course of
Business since the respective dates thereof.
Appendix E-17
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2.13 INTELLECTUAL PROPERTY.
(a) SECTION 2.13(a) of the Seller Disclosure Schedule contains
a complete and correct list of (i) all Intellectual Property that is owned by
Seller or any Other Acquired Company and primarily related to, used in, held for
use in connection with or necessary for the conduct of, or otherwise material
to, the Business, (ii) all Contracts pursuant to which Seller or any Other
Acquired Company has licensed Intellectual Property to, or the use of
Intellectual Property otherwise is permitted by, any other Person and (iii) all
Contracts pursuant to which Seller or any Other Acquired Company has had
Intellectual Property licensed to it or otherwise has been permitted to use
Intellectual Property. Except as set forth in SECTION 2.13(a) of the Seller
Disclosure Schedule, (a) neither Seller nor any Other Acquired Company has
assigned, hypothecated or otherwise encumbered any Intellectual Property and (b)
none of the licenses included in the Intellectual Property of Seller or any
Other Acquired Company purport to grant sole or exclusive licenses to another
Person, including sole or exclusive licenses limited to specific fields of use.
Except as set forth in SECTION 2.13(a) of the Seller Disclosure Schedule, the
patents owned by Seller or any Other Acquired Company are valid and enforceable,
and any patent issuing from patent applications of Seller the best of Seller's
knowledge, or any Other Acquired Company will be valid and enforceable. Except
as set forth in SECTION 2.13(a) of the Seller Disclosure Schedule, Seller has no
Knowledge of any infringement by any other Person of any Intellectual Property
of Seller or any Other Acquired Company, and neither Seller nor any Other
Acquired Company has entered into any agreement to indemnify any other party
against any charge of infringement of any Intellectual Property. Except as set
forth in SECTION 2.13(a) of the Seller Disclosure Schedule, neither Seller nor
any Other Acquired Company, to the best of Seller's knowledge, has violated or
violates or infringes any Intellectual Property of any other Person, and neither
Seller nor any Other Acquired Company has received any communication alleging
that it violates or infringes the Intellectual Property of any other Person.
Except as set forth in SECTION 2.13(a) of the Seller Disclosure Schedule,
neither Seller nor any Other Acquired Company has been sued for infringing any
Intellectual Property of another Person.
(b) Seller and the Other Acquired Companies collectively have
full title and ownership of, or have license to, all Intellectual Property
necessary to enable Seller and/or the Other Acquired Companies and/or (after the
Closing) the Surviving Corporation to carry on the Business as now conducted and
as presently proposed to be conducted without any conflict with or infringement
of the rights of any other Person (collectively, the "NECESSARY INTELLECTUAL
PROPERTY"). No third Person has any ownership right, title, interest, claim in
or lien on any of the Necessary Intellectual Property, and Seller and the Other
Acquired Companies individually and collectively have taken, and in the future
Seller and the Other Acquired Companies will take, all steps necessary to
preserve Seller's and/or the Other Acquired Companies' legal rights in, and the
secrecy of, all of the Necessary Intellectual Property, except those for which
disclosure is required for legitimate business or legal reasons.
(c) Seller and none of the Other Acquired Companies has
granted, and there is not outstanding, any option, license or agreement of any
kind relating to any Necessary Intellectual Property, nor is Seller or any Other
Acquired Company bound by or a party to any option, license or agreement of any
kind with respect to any of the Necessary Intellectual Property. Neither Seller
nor any Other Acquired Company is obligated to pay any royalty or other payment
to any Person with respect to the marketing, sale, distribution, manufacture,
license or use of any of the Necessary Intellectual Property.
(d) No employee or consultant of Seller or of any Other
Acquired Company is obligated under any agreement (including licenses, covenants
or commitments of any nature) or subject to any judgment, decree or order of any
court or administrative agency or any other restriction that would interfere
with the use of such employee's or consultant's best efforts to carry out such
employee's or consultant's duties for Seller and/or any Other Acquired Company
and/or (after the Closing) the Surviving Corporation or to promote the interests
of Seller and/or any Other Acquired Company or that would conflict with the
Business as conducted currently and as proposed to be conducted. The carrying on
of the Business by the employees and contractors of Seller and/or of any of the
Other Acquired Companies and the conduct of the Business by Seller, any Other
Acquired Company or (after the Closing) the Surviving Corporation as presently
proposed will not conflict with or result in a breach of the terms, conditions
or provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees or contractors or Seller or any
Other Acquired Company currently is obligated. It is not and will not be
Appendix E-18
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necessary for Seller, any Other Acquired Company or the Surviving Corporation to
use any invention of any employee of Seller or of any Other Acquired Company (or
any person that Seller or any Other Acquired Company currently intends to hire)
made before such employee's or person's employment by Seller and/or any Other
Acquired Company. At no time during the conception of or reduction of any of the
Intellectual Property of Seller and/or any Other Acquired Company to practice
was any developer, inventor or other contributor to Intellectual Property
operating under any grant from any governmental entity or agency or private
source performing research sponsored by any governmental entity or agency or
private source or subject to any employment agreement or invention assignment or
nondisclosure agreement or other obligation with any third Person that could
affect adversely Seller's and/or any Other Acquired Company's rights in any of
such Intellectual Property.
2.14 CORPORATE AUTHORIZATION. Seller has all requisite corporate power
and authority to execute, deliver and perform each Transaction Document to which
it is a party. The execution, delivery and performance of the Transaction
Documents to which Seller is a party have been duly authorized by all necessary
corporate action on the part of Seller subject only to the approval of the
Merger by the Stockholders of Seller as contemplated by SECTION 6.1(a) hereof.
This Agreement constitutes, and the other Transaction Documents to which Seller
is a party, when executed by Seller, will constitute, the valid and binding
obligations of Seller, enforceable against Seller in accordance with their
respective terms. The affirmative vote of the holders of a majority of the
shares of Seller Capital Stock in accordance with SECTION 6.1(a) hereof is the
only vote of the holders of any of Seller Capital Stock necessary under the
Nevada Corporation Law to approve this Agreement and the transactions
contemplated hereby. Seller's Board of Directors has (i) unanimously approved
and adopted this Agreement and the Merger, (ii) determined that in its opinion
the Merger is in the best interests of the Stockholders of Seller and is on
terms that are fair to the Stockholders of Seller and (iii) recommended that the
Stockholders of Seller approve this Agreement and the Merger.
2.15 AUTHORIZATION. The execution, delivery and performance by Seller
of the Transaction Documents to which Seller is a party and the consummation of
the transactions contemplated thereby require no action by or in respect of, or
filing with, any Governmental Entity except for (a) the filing of the Articles
of Merger as provided in SECTION 1.1, (b) filings required under the Securities
Act, as applicable, and under any applicable state blue sky Law, (c) such
filings as may be required under the Hart-Scott-Rodino Act and (d) other filings
and Approvals described in SECTION 2.15 of the Seller Disclosure Schedule.
2.16 NON-CONTRAVENTION.
(a) The execution, delivery and performance by Seller of the
Transaction Documents to which Seller is a party and the consummation by Seller
of the transactions contemplated thereby do not and will not (i) violate the
Articles of Incorporation or bylaws of Seller, (ii) violate any applicable Law
or Legal Requirement, (iii) require any consent or other action by any Person
under, constitute a default under or give rise to any right of termination,
cancellation or acceleration of any right or obligation of Seller or to a loss
of any benefit to which Seller is entitled under any provision of any Material
Contract or any Permit or Approval affecting, or relating in any way to, the
Business or (iv) result in the creation or imposition of any Encumbrance on any
asset of Seller or of any Other Acquired Company except, in the case of clauses
(ii), (iii) and (iv), for such matters as would not, individually or in the
aggregate, have a material adverse effect on the Business or materially impair
the ability of Seller to consummate the transactions contemplated by this
Agreement except as set forth and disclosed in the transaction documents.
(b) Except as set forth in SECTION 2.16 of the Seller
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the consummation or performance of any of the transactions contemplated hereby
will, directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with or result in a
violation of (A) any provision of the Organizational Documents of Seller or any
Other Acquired Company or (B) any resolution adopted by the board of directors
or the stockholders of Seller or any Other Acquired Company;
Appendix E-19
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(ii) contravene, conflict with or result in a
violation of, or give any Governmental Entity or other Person the right to
challenge any of the transactions contemplated by this Agreement or to exercise
any remedy or obtain any relief under, any Legal Requirement or any Order to
which any Other Acquired Company or Seller, or any of the assets owned or used
by, any Other Acquired Company or Seller, may be subject.
(iii) contravene, conflict with or result in a
violation of any of the terms or requirements of, or give any Governmental
Entity the right to revoke, withdraw, suspend, cancel, terminate or modify, any
Governmental Authorization that is held by Seller or any Other Acquired Company
or that otherwise relates to the business of, or any of the assets owned or used
by, Seller or any Other Acquired Company.
(iv) caused Buyer to become subject to or to become
liable for the payment of any Tax;
(v) cause any the assets owned by Seller or any Other
Acquired Company to be reassessed or revalued by any taxing authority or other
Governmental Entity;
(vi) contravene, conflict with or result in a
violation or breach of any provision of, or give any Person the right to declare
a default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate or modify, any Applicable Contract; or
(vii) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or used by Seller or
any Other Acquired Company.
2.17 LEGAL PROCEEDINGS.
(a) No Order has been issued and no Action is pending, or, to
the Knowledge of Seller, threatened against or affecting Seller or any of its
properties or assets that individually or when aggregated with one or more other
Orders or Actions has or might reasonably be expected to have a material adverse
effect on (a) Seller, (b) the Business or (c) Seller's ability to perform its
obligations under the Transaction Documents or any aspect of the transactions
contemplated thereby. SECTION 2.17 of the Seller Disclosure Schedule lists each
Order or Action that involves a claim or potential claim of aggregate liability
in excess of $50,000 against, or that enjoins or compels or seeks to enjoin or
to compel any activity by, Seller. There is no matter as to which Seller has
received any notice, claim or assertion, or, to the Knowledge of Seller, which
otherwise has been threatened or is reasonably expected to be threatened or
initiated, against or affecting any director, officer, employee, agent or
representative of Seller or any other Person, nor to the Knowledge of Seller is
there any reasonable basis therefor, in connection with which any such Person
has or may reasonably be expected to have, any right to indemnification by
Seller.
(b) Except as set forth in SECTION 2.17 of the Seller
Disclosure Schedule, there is no pending Proceeding: (i) that has been commenced
by or against any Other Acquired Company or that otherwise relates to or may
affect the business of, or any of the assets owned or used by, any Other
Acquired Company; or (ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any of the
transactions contemplated by this Agreement. To the Knowledge of Seller, (1) no
such proceeding has been threatened, and (2) no event has occurred or
circumstance exists that may give rise to or serve as a basis for the
commencement of any such proceeding. Seller has delivered to Buyer copies of all
pleadings, correspondence and other documents relating to each proceeding listed
in SECTION 2.17 of the Seller Disclosure Schedule. The proceedings listed in
SECTION 2.17 of the Seller Disclosure Schedule will not have a material adverse
effect on the business, operations, assets, condition or prospects of any Other
Acquired Company.
(c) Except as set forth in SECTION 2.17 of the Seller
Disclosure Schedule:
(i) there is no Order to which any of the Other
Acquired Companies, or any of the assets owned or used by, any Other Acquired
Company, is subject;
(ii) no Other Acquired Company is subject to any
Order that relates to the business of, or any of the assets owned or used by,
such Other Acquired Company or any Other Acquired Company; and
Appendix E-20
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(iii) no officer, director, agent or employee of any
Other Acquired Company is subject to any Order that prohibits such officer,
director, agent or employee from engaging in or continuing any conduct, activity
or practice relating to the business of such Other Acquired Company any Other
Acquired Company.
(d) Except as set forth in SECTION 2.17 of the Seller
Disclosure Schedule:
(i) each Other Acquired Company is, and at all times
since October 27, 1999 has been, in full compliance with all of the terms and
requirements of each Order to which it, or any of the assets owned or used by
it, is or has been subject;
(ii) no event has occurred or circumstance exists
that may constitute or result in (with or without notice or lapse of time) a
violation of or failure to comply with any term or requirement of any Order to
which any Other Acquired Company, or any of the assets owned or used by any
Other Acquired Company, is subject; and
(iii) no Other Acquired Company has received, at any
time since October 27, 1999, any notice or other communication (whether oral or
written) from any Governmental Entity or any other Person regarding any actual,
alleged, possible or potential violation of, or failure to comply with, any term
or requirement of any Order to which such Other Acquired Company, or any of the
assets owned or used by such Other Acquired Company, is or has been subject.
2.18 INSURANCE.
(a) Seller is and at all times during the past two years has
been insured with reputable insurers against all risks normally insured against
by companies in similar lines of business. SECTION 2.18 of the Seller Disclosure
Schedule lists all insurance policies that are material to the Business and all
claims under any insurance policy made since January 1, 1995. All of the
insurance policies listed in SECTION 2.18 of the Seller Disclosure Schedule are
in full force and effect. Seller is not in default under any such policy except
as disclosed to Buyer.
(b) Seller has delivered to Buyer:
(i) true and complete copies of all policies of
insurance to which Seller or any Other Acquired Company is a party or under
which Seller or any Other Acquired Company, or any director of Seller or any
Other Acquired Company, is or has been covered at any time within the five years
preceding the date of this Agreement;
(ii) true and complete copies of all pending
applications for policies of insurance; and
(iii) any statement by the auditor of Seller or any
Other Acquired Company's financial statements with regard to the adequacy of
such entity's coverage or of the reserves for claims.
(c) SECTION 2.18(c) of the Seller Disclosure Schedule
describes:
(i) any self-insurance arrangement by or affecting
Seller or any Other Acquired Company, including any reserves established
thereunder;
(ii) any contract or arrangement, other than a policy
of insurance, for the transfer or sharing of any risk by Seller or any Other
Acquired Company; and
(iii) all obligations of Seller or the Other Acquired
Companies to third parties with respect to insurance (including such obligations
under leases and service agreements) and identifies the policy under which such
coverage is provided.
Appendix E-21
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(d) Neither Seller nor any Other Acquired Company has received
(A) any refusal of coverage or any notice that a defense will be afforded with
reservation of right, or (B) any notice of cancellation or any other indication
that any insurance policy no longer is in full force or effect or will not be
renewed or that the issuer of any policy is not willing or able to perform its
obligations thereunder.
2.19 COMPLIANCE WITH LAW AND LEGAL REQUIREMENTS; GOVERNMENTAL
AUTHORIZATIONS.
(a) Except as set forth in SECTION 2.19 of the Seller
Disclosure Schedule:
(i) Seller and each Other Acquired Company is, and at
all times since October 27, 1999 has been, in full compliance with each Law and
Legal Requirement that is or was applicable to it or to the conduct or operation
of its business or the ownership or use of any of its assets;
(ii) no event has occurred or circumstance exists
that (with or without notice or lapse of time) (A) may constitute or result in a
violation by Seller or any Other Acquired Company of, or a failure on the part
of Seller or any Other Acquired Company to comply with, any Law or Legal
Requirement or (B) may give rise to any obligation on the part of Seller or any
Other Acquired Company to undertake, or to bear all or any portion of the cost
of, any remedial action of any nature; and
(iii) neither Seller nor any Other Acquired Company
has received, at any time since October 27, 1999, any notice or other
communication (whether oral or written) from any Governmental Entity or any
other Person regarding (A) any actual, alleged, possible or potential violation
of, or failure to comply with, any Law or Legal Requirement or (B) any actual,
alleged, possible or potential obligation on the part of Seller or any Other
Acquired Company to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature.
(b) SECTION 2.19 of the Seller Disclosure Schedule contains a
complete and accurate list of each Governmental Authorization that is held by
Seller or any Other Acquired Company or that otherwise relates to the business
of, or to any of the assets owned or used by, Seller or any Other Acquired
Company. Each Governmental Authorization listed or required to be listed in
SECTION 2.19 of the Seller Disclosure Schedule is valid and in full force and
effect. Except as set forth in SECTION 2.19 of the Seller Disclosure Schedule:
(i) Seller and each Other Acquired Company is, and at
all times since October 27, 1999 has been, in full compliance with all of the
terms and requirements of each Governmental Authorization identified or required
to be identified in SECTION 2.19 of the Seller Disclosure Schedule;
(ii) no event has occurred or circumstance exists
that may (with or without notice or lapse of time) (A) constitute or result
directly or indirectly in a violation of or a failure to comply with any term or
requirement of any Governmental Authorization listed or required to be listed in
SECTION 2.19 of the Seller Disclosure Schedule, or (B) result directly or
indirectly in the revocation, withdrawal, suspension, cancellation, or
termination of, or any modification to, any Governmental Authorization listed or
required to be listed in SECTION 2.19 of the Seller Disclosure Schedule;
(iii) neither Seller nor any Other Acquired Company
has received, at any time since October 27, 1999, any notice or other
communication (whether oral or written) from any Governmental Entity or any
other Person regarding (A) any actual, alleged, possible or potential violation
of or failure to comply with any term or requirement of any Governmental
Authorization or (B) any actual, proposed, possible or potential revocation,
withdrawal, suspension, cancellation, termination of or modification to any
Governmental Authorization; and
(iv) all applications required to have been filed for
the renewal of the Governmental Authorizations listed or required to be listed
in SECTION 2.19 of the Seller Disclosure Schedule have been duly filed on a
timely basis with the appropriate Governmental Entities, and all other filings
required to have been made with respect to such Governmental Authorizations have
been duly made on a timely basis with the appropriate Governmental Entities.
The Governmental Authorizations listed in SECTION 2.19 of the Seller
Disclosure Schedule collectively constitute all of the Governmental
Authorizations necessary to permit Seller and the Other Acquired Companies to
lawfully conduct and operate their businesses in the manner they currently
conduct and operate such businesses and to permit Seller and the Other Acquired
Companies to own and use their assets in the manner in which they currently own
and use such assets.
Appendix E-22
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2.20 EMPLOYEES.
(a) Seller has no dispute existing, or to Seller's Knowledge,
threatened, involving strikes, work stoppages, slow downs or lockouts. There are
no grievance proceedings or claims of unfair labor practices filed or, to
Seller's Knowledge, threatened to be filed with the National Labor Relations
Board or any state agency against Seller. There is no union representation or
organizing effort pending or, to Seller's Knowledge, threatened against Seller.
Seller has not agreed to recognize any union or other collective bargaining
unit. None of the key employees of Seller referred to in SECTION 2.20 of the
Seller Disclosure Schedule has indicated an intent to terminate employment with
Seller for any reason in the twelve (12) months preceding the date of this
Agreement.
(b) SECTION 2.20 of the Seller Disclosure Schedule contains a
complete and accurate list of the following information for each employee or
director of Seller and each Other Acquired Company, including each employee on
leave of absence or layoff status: employer; name; job title; current
compensation paid or payable and any change in compensation since October 27,
1999; vacation accrued; and service credited for purposes of vesting and
eligibility to participate under any pension, retirement, profit-sharing,
thrift-savings, deferred compensation, stock bonus, stock option, cash bonus,
employee stock ownership (including investment credit or payroll stock
ownership), severance pay, insurance, medical, welfare or vacation plan, other
Employee Pension Benefit Plan or Employee Welfare Benefit Plan, or any other
employee benefit plan or any Director Plan.
(c) No employee or director of Seller or any Other Acquired
Company is a party to, or is otherwise bound by, any agreement or arrangement,
including any confidentiality, noncompetition or proprietary rights agreement,
between such employee or director and any other Person ("PROPRIETARY RIGHTS
AGREEMENT") that in any way adversely affects or will affect (i) the performance
of such person's duties as an employee or director of Seller or any Other
Acquired Company, or (ii) the ability of Seller or any Other Acquired Company to
conduct its business, including any Proprietary Rights Agreement with Seller or
any Other Acquired Company by any such employee or director. No director,
officer or other key employee of Seller or any Other Acquired Company intends to
terminate employment with Seller or such Other Acquired Company.
(d) SECTION 2.20 of the Seller Disclosure Schedule also
contains a complete and accurate list of the following information for each
retired employee or director of Seller and the Other Acquired Companies, or
their dependents, receiving benefits or scheduled to receive benefits in the
future: name, pension benefit, pension option election, retiree medical
insurance coverage, retiree life insurance coverage and other benefits.
2.21 EMPLOYEE BENEFITS.
(a) Employee Benefit Plans and Similar Arrangements.
(i) Seller has no ERISA Affiliates. Except as set
forth in SECTION 2.21 of the Seller Disclosure Schedule, Seller has no employee
benefit plan, whether written or unwritten, to which Seller or any ERISA
Affiliate is or during the last five years has been a party or by which any of
them is or during the last five years has been bound, legally or otherwise,
including (i) any profit-sharing, deferred compensation, bonus, stock option,
stock purchase, pension, retainer, consulting, retirement, severance, welfare or
incentive plan, agreement or arrangement, (ii) any plan, agreement or
arrangement providing for "fringe benefits" or perquisites to employees,
officers, directors or agents, including but not limited to benefits relating to
company automobiles, clubs, vacation, child care, parenting, sabbatical, sick
leave, medical, dental, hospitalization, life insurance and other types of
insurance or (iii) any other "employee benefit plan" (within the meaning of
Section 3(3) of ERISA).
(ii) Seller has delivered to Buyer true and complete
copies of all documents and summary plan descriptions with respect to such
plans, agreements and arrangements, or summary descriptions of any such plans,
agreements or arrangements not otherwise in writing.
(iii) There are no negotiations, demands or proposals
that are pending or have been made that concern matters now covered, or that
would be covered, by plans, agreements or arrangements of the type described in
this Section.
Appendix E-23
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(iv) Seller is in compliance in all material respects
with the applicable provisions of ERISA (as amended through the date of this
Agreement), the regulations and published authorities thereunder and all other
Laws and Legal Requirements applicable with respect to all such employee benefit
plans, agreements and arrangements. Seller has performed in all material
respects all of its obligations under all such plans, agreements and
arrangements, and all such plans, agreements and arrangements have been operated
in all material respects in compliance with their terms. To the Knowledge of
Seller, there are no Actions (other than routine claims for benefits) pending or
threatened against such plans or their assets, or arising out of such plans,
agreements or arrangements, and, to the Knowledge of Seller, no facts exist
which could give rise to any such Actions.
(v) All obligations of Seller under each such plan
agreement and arrangement (i) that are due before the Closing Date have been
paid or will be paid before that time and (ii) that have accrued before the
Closing Date have been properly accrued.
(vi) Seller may (except to the extent prohibited by
Law) in any manner and without the consent of any employee, beneficiary or
dependent, employees' organization or other person, terminate, modify or amend
each such plan or arrangement (or its participation therein) effective as of any
date before, on or after the Closing Date.
(vii) Except as disclosed in SECTION 2.21 of the
Seller Disclosure Schedule, the consummation, announcement or other action
relating to the transactions contemplated by this Agreement will not (either
alone or upon the occurrence of any additional or further acts or events) result
in any (i) payment (whether of severance pay or otherwise) becoming due from
Seller to any officer, employee, former employee, director or former director
thereof or to the trustee under any "rabbi trust" or similar arrangement or (ii)
benefit under any such plan or arrangement being established, accelerated,
vested or payable.
(b) Qualified Plans. Seller has no "employee pension benefit
plan" (within the meaning of Section 3(2) of ERISA and within the meaning of
Section 401 (a) of the Code).
(c) Welfare Plans. Except as required under Section 4980B of
the Code, Seller has no obligation to provide health benefits to any employee
following termination of employment.
(d) Fines and Penalties. There has been no act or omission by
Seller that has given rise to or may give rise to fines, penalties, taxes, or
related charges under Section 502(c) or (i) or Section 4071 of ERISA or Chapter
43 of the Code.
2.22 CUSTOMERS. SECTION 2.22 of the Seller Disclosure Schedule lists
the names of, and describes all Contracts with and the appropriate percentage of
Business attributable to, the 10 largest customers of the Business during the
nine-month period ended September 30, 2000. Seller has not received any notice
and has no Knowledge that (i) any of such customers has ceased, or will cease,
or has materially reduced or will materially reduce, the use the products, goods
or services of the Business, or (ii) any of such customers has materially
reduced or will materially reduce the price it will pay for products, goods or
services of the Business, including in each case after the consummation of the
transactions contemplated by this Agreement or (iii) it will not obtain the
projected purchases for calendar year 2000 shown opposite each customer's name
in SECTION 2.22 of the Seller Disclosure Schedule. To the Knowledge of Seller,
no customer of the Business listed in SECTION 2.22 of the Seller Disclosure
Schedule has threatened to take any action described in the preceding sentence
as a result of the consummation of the transactions contemplated by this
Agreement.
2.23 SUPPLIERS. SECTION 2.23 of the Seller Disclosure Schedule lists
the 10 most significant suppliers of the Business for the fiscal year ended
December 31, 1999 and the nine-month period ended September 30, 2000, and any
sole-source suppliers of significant goods or services (other than electricity,
gas, telephone or water) to Seller with respect to which alternative sources of
supply are not readily available on comparable terms and conditions. Seller has
not experienced or been notified of any shortage in goods or services provided
by sole-source suppliers, which shortage would have a material adverse effect on
the Business or cause a significant delay in any material product shipments by
Seller. Seller has not received any notice and has no reason to believe that
there has been any material adverse change in the price of raw materials,
supplies, goods, services or other merchandise provided by such suppliers or
that such suppliers will not continue to provide the Surviving Corporation with
supplies at any time after the Closing Date on terms and conditions similar to
those used in their current sales to the Business. To the Knowledge of Seller,
no supplier listed in SECTION 2.23 has threatened to take any action described
in the preceding sentence as a result of the consummation of the transactions
contemplated by this Agreement.
Appendix E-24
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2.24 PRODUCT WARRANTIES. Except as set forth in SECTION 2.24 of the
Seller Disclosure Schedule: (a) there are no warranties express or implied,
written or oral, with respect to the products of the Business except as
disclosed to Buyer; (b) there are no pending or threatened claims with respect
to any such warranty; (c) except as accrued on the Balance Sheet, Seller has no
liability with respect to any such warranty, whether known or unknown, absolute,
accrued, contingent or otherwise and whether due or to become due; (d) no
returns of any single product-line sold by Seller during the two years preceding
the date hereof have exceeded one percent (1%); (e) there have been no product
recalls or Actions pending or, to Seller's Knowledge, threatened during such
period relating to Seller's products, and (f) to Seller's Knowledge, no customer
of Seller that purchased $100,000 or more of products from Seller during
calendar year 1999 has experienced failures or serious product performance
defects greater than one percent (1%) for any product purchased from Seller
within the 24 months preceding the date of this Agreement. Adequate reserves
have been provided on the Balance Sheet for Seller's warranty obligations.
2.25 ENVIRONMENTAL LAW COMPLIANCE. Except as set forth in SECTION 2.25
of the Seller Disclosure Schedule, there are no pending or, to Seller's
Knowledge, threatened claims, suits or proceedings arising out of or related to
any noncompliance with any Environmental Laws in connection with the Business.
Seller has complied and is in compliance with all Laws applicable to the
Business relating to environmental protection, including standards relating to
air, water, land and the generation, storage, transportation, treatment or
disposal of, Hazardous Substances (collectively, "ENVIRONMENTAL LAWS"), except
where non-compliance with any such Laws would not have a material adverse effect
on the Business. Seller has received all Permits relating to environmental
matters, including all air, water and waste permits and permits for emission
and/or disposal of solid, liquid and gaseous materials from its operations, and
Seller is operating the Business in conformance with such Permits. To Seller's
Knowledge, there is no place on Seller's properties where Hazardous Substances
have entered the air, soil or groundwater. Seller has not installed, used,
buried or removed any and, to Seller's Knowledge, there are no surface
impoundments, or underground tanks or vessels or sumps, drains or pipelines that
hold or have held Hazardous Substances on Seller's properties.
2.26 MINUTE BOOKS. The minute books of Seller accurately reflect all
material actions and proceedings taken to date by the Stockholders, Board of
Directors, and committees of Seller, and such minute books contain true and
complete copies of the charter documents of Seller and all related amendments.
The stock record book of Seller reflects accurately all transactions in its
capital stock of all classes.
2.27 DUE DILIGENCE MATERIALS. All documents, agreements and other
materials provided by Seller to Buyer or any representative of Buyer in
connection with the due diligence conducted in connection with the transactions
contemplated by this Agreement have been true, correct and complete originals or
copies of the documents, agreements and other materials purported to be provided
or to which access has been given.
2.28 RELATED PARTY TRANSACTIONS. Except as set forth in SECTION 2.28 of
the Seller Disclosure Schedule, no director or officer of Seller or any Other
Acquired Company and no Person related to any of them by consanguinity or
marriage has any direct or indirect interest in (i) any equipment or other
property, real or personal, tangible or intangible, including any item of
intellectual property, used in connection with or pertaining to the Business, or
(ii) any creditor, supplier, customer, manufacturer, agent, representative, or
distributor of products of Seller or any Other Acquired Company; provided,
however, that (A) no such director or officer or other Person will be deemed to
have such an interest solely by virtue of the ownership of less than 1% of the
outstanding voting stock or debt securities of any publicly held company, the
stock or debt securities of which are traded on a recognized stock exchange or
quoted on the National Association of Securities Dealers Automated Quotation
System, and (B) no such director or officer or other Person will be deemed to
have such an interest solely by virtue of the ownership by a partnership in
which he is a partner of less than 5% of the outstanding voting stock or debt
securities of any privately held company.
2.29 DISCLOSURE.
(a) No representation or warranty of Seller in this Agreement
and no statement in the Seller Disclosure Schedule omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
Appendix E-25
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(b) No notice given pursuant to SECTION 5.5 will contain any
untrue statement or omit to state a material fact necessary to make the
statements therein or in this Agreement, in light of the circumstances in which
they were made, not misleading.
(c) There is no fact known to Seller that has specific
application to Seller or any Other Acquired Company (other than general economic
or industry conditions) and that materially adversely affects, materially
threatens, the assets, Business, prospects, financial condition or results of
operations of Seller and/or the Other Acquired Companies (on a consolidated
basis) that has not been set forth in this Agreement or the Seller Disclosure
Schedule.
2.30 NO BROKERS OR FINDERS. No agent, broker, finder, investment or
commercial banker or other Person or firm engaged by or acting on behalf of
Seller or any agent of Seller, or on behalf of any of the Other Acquired
Companies or any agent of the Other Acquired Companies, in connection with the
negotiation, execution or performance of this Agreement or the transactions
contemplated by this Agreement is or will be entitled to any brokerage or
finder's or similar fee or other commission as a result of this Agreement or
such transactions.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants as follows:
3.1 ORGANIZATION AND RELATED MATTERS. Buyer is a corporation duly
organized, validly existing and in good standing under the Nevada Corporation
Law. SECTION 3.1 of the Buyer Disclosure Schedule sets forth the capitalization
of Buyer. Buyer and each Buyer Subsidiary is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
organization. Buyer and each Buyer Subsidiary have all corporate power, Permits
and Approvals necessary to own their respective properties and assets and to
carry on their respective businesses as now conducted and are duly qualified or
licensed to do business as foreign corporations in good standing in all
jurisdictions in which the character or the location of the assets owned or
leased by any of them or the nature of the business conducted by any of them
requires licensing or qualification. SECTION 3.1 of the Buyer Disclosure
Schedule correctly lists the current directors and executive officers of Buyer
and of each Buyer Subsidiary. True, correct and complete copies of the
respective charter documents of Buyer and each Buyer Subsidiary as in effect on
the date of this Agreement have been delivered to Seller. Except as set forth in
SECTION 3.1 of the Buyer Disclosure Schedule, Buyer has no interest in any
partnership, joint venture, limited liability company or other entity.
Acquisition Corp. is a Nevada corporation, duly organized by Buyer for the
purposes of the Merger and the transactions contemplated by this Agreement.
Acquisition Corp. has no employees, liabilities, assets (other than cash
received upon issuance of shares of common stock of Acquisition Corp.) or
contractual obligations, other than the obligations created by this Agreement.
3.2 CAPITALIZATION. The authorized capital stock of Buyer consists of
25,000,000 shares of Common Stock. Upon the filing of the Article Amendment (as
defined in SECTION 5.8 hereof) with the Nevada Secretary of State, the
authorized capital stock of Buyer will consist of 100,000,000 shares of Common
Stock. As of November 16, 2000, there were outstanding 12,167,333 shares of
Buyer Common Stock. All outstanding shares of Buyer Common Stock have been duly
authorized and validly issued and are fully-paid and nonassessable. Except as
set forth in SECTION 3.2 of the Buyer Disclosure Schedule, Buyer owns all of the
outstanding shares of capital stock of each Buyer Subsidiary. Except as set
forth in this Section and in SECTION 3.2 of the Buyer Disclosure Schedule, as of
December 4, 2000, there were not outstanding any (i) shares of capital stock or
voting securities of Buyer, (ii) securities of Buyer convertible into or
exchangeable for shares of capital stock or voting securities of Buyer or (iii)
options, warrants, restricted stock, other stock-based compensation awards or
other rights to acquire from Buyer or other obligation of Buyer to issue any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of Buyer. There are no outstanding
obligations of Buyer or any Buyer Subsidiary to repurchase, redeem or otherwise
acquire any securities referred to in clauses (i), (ii) or (iii) above.
3.3 CORPORATE AUTHORIZATION. Subject to required approval by Buyer's
shareholders, Buyer has all necessary corporate power and authority to execute,
deliver and perform each Transaction Document to which it is a party. The
execution, delivery and performance of the Transaction Documents to which Buyer
is a party have been duly authorized by all necessary corporate action on the
part of Buyer. This Agreement constitutes, and the other Transaction Documents
Appendix E-26
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to which Buyer is a party, when executed by Buyer will constitute, the valid and
binding obligations of Buyer, enforceable against Buyer in accordance with their
respective terms. Buyer's Board of Directors has (i) unanimously approved and
adopted this Agreement and the Merger, which approval satisfies in full the
applicable requirements of the Nevada Corporation Law and (ii) determined that
in its opinion the Merger is in the best interests of the stockholders of Buyer.
3.4 AUTHORIZATION. The execution, delivery and performance by Buyer of
the Transaction Documents to which Buyer is a party and the consummation of the
transactions contemplated thereby require no action by or in respect of, or
filing with, any Governmental Entity except for (a) filings required under
Regulation D of the Securities Act and Section 25103(h) of the Nevada
Corporation Law, (b) such filings as may be required under the Hart-Scott-Rodino
Act and (c) any other filing or Approval described in SECTION 3.4 of the Buyer
Disclosure Schedule.
3.5 NON-CONTRAVENTION. The execution, delivery and performance by Buyer
of the Transaction Documents to which Buyer is a party and the consummation by
Buyer of the transactions contemplated thereby do not and will not (i) violate
the Articles of Incorporation or bylaws of Buyer, (ii) assuming compliance with
the matters referred to in SECTION 3.4 of the Buyer Disclosure Schedule, violate
any applicable Law, (iii) except the approval of Buyer's shareholders, require
any consent or other action by any Person under, constitute a default under, or
give rise to any right of termination, cancellation or acceleration of any right
or obligation of Buyer or to a loss of any benefit to which Buyer is entitled
under any provision of any Contract binding on Buyer or any Permit or Approval
affecting, or relating in any way to, the assets or business of Buyer or (iv)
result in the creation or imposition of any Encumbrance on any material asset of
Buyer or any Buyer Subsidiary except, in the case of clauses (ii), (iii) and
(iv), for such matters as would not, individually or in the aggregate, have a
material adverse effect on Buyer or materially impair the ability of Buyer to
consummate the transactions contemplated by this Agreement.
3.6 LEGAL PROCEEDINGS. No Order has been issued and no Action is
pending, or, to the Knowledge of Buyer, threatened against or affecting Buyer or
any Buyer Subsidiary or any of their respective properties or assets that
individually or when aggregated with one or more other Orders or Actions has or
might reasonably be expected to have a material adverse effect on (a) Buyer or
any Buyer Subsidiary or (b) Buyer's ability to perform the Transaction Documents
or any aspect of the transactions contemplated thereby. SECTION 3.6 of the Buyer
Disclosure Schedule lists each Order or Action that involves a claim or
potential claim of aggregate liability in excess of $50,000 against, or that
enjoins or compels or seeks to enjoin or to compel any activity by, Buyer or any
Buyer Subsidiary. There is no matter as to which Buyer or any Buyer Subsidiary
has received any notice, claim or assertion, or, to the Knowledge of Buyer,
which otherwise has been threatened or is reasonably expected to be threatened
or initiated, against or affecting any director, officer, employee, agent or
representative of Buyer, Buyer or any Buyer Subsidiary or any other Person, nor
to the Knowledge of Buyer is there any reasonable basis therefor, in connection
with which any such Person has or may reasonably be expected to have any right
to indemnification by Buyer or any Buyer Subsidiary.
3.7 COMPLIANCE WITH LAW. Buyer and each Buyer Subsidiary are and have
been in compliance with and are not under investigation with respect to and have
not been threatened to be charged with or given notice of any violation of any
applicable Law, except those where the violation would not have a material
adverse effect on Buyer or its ability to consummate the transactions
contemplated hereby.
3.8 NO BROKERS OR FINDERS. No agent, broker, finder or investment or
commercial banker or other Person or firms engaged by or acting on behalf of
Buyer or its Affiliates in connection with the negotiation, execution or
performance of this Agreement or the transactions contemplated by this Agreement
is or will be entitled to any broker's or finder's or similar fee or other
commission as a result of this Agreement or such transactions.
3.9 SEC DOCUMENTS. Buyer has filed all Buyer SEC Documents required to
be filed by Buyer before the date of this Agreement. As of their respective
dates, the Buyer SEC Documents complied as to form in all material respects with
the requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable to
such Buyer SEC Documents, and none of the Buyer SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. Except to
Appendix E-27
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the extent that information contained in any Buyer SEC Document has been revised
or superseded by a later-filed Buyer SEC Document, filed and publicly available
before the date of this Agreement, as of the date of this Agreement, none of the
Buyer SEC Documents contains any untrue statement of a material fact or omits 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
were made, not misleading. The financial statements of Buyer included in the
Buyer SEC Documents complied as of their respective dates of filing with the SEC
as to form and substance in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. As of the date of this Agreement, except as set forth in SECTION 3.9 of
the Buyer Disclosure Schedule, there are no material contracts that Buyer
expects to file as exhibits to its Annual Report on Form 10-K for the year ended
September 30, 2000.
3.10 DUE DILIGENCE MATERIALS. All documents, agreements and other
materials provided by Buyer to Seller or any representative of Seller in
connection with the due diligence conducted in connection with the transactions
contemplated by this Agreement have been true, correct and complete originals or
copies of the documents, agreements and other materials purported to be provided
or to which access has been given.
ARTICLE IV
CONDUCT BEFORE CLOSING
4.1 CONDUCT OF SELLER. Except as provided in the transaction document,
from the date of this Agreement until the Effective Time, except with the prior
written consent of Buyer, Seller will conduct its business in the ordinary
course consistent with past practice, including payment of accounts payable and
collection of accounts receivable, and will use its best efforts to preserve
intact its business organizations and relationships with third parties and to
keep available the services of its present officers and employees. Without
limiting the generality of the foregoing, from the date hereof until the
Effective Time, except as consented to by Buyer in writing, Seller will not:
(a) adopt or propose any change in its charter documents or
bylaws;
(b) merge or consolidate with any other Person or acquire a
material amount of assets or any capital stock or other securities of any other
Person;
(c) sell, lease, license or otherwise dispose of any material
assets or property except pursuant to existing Contracts;
(d) take any action that would make any representation or
warranty of Seller hereunder inaccurate at the Effective Time;
(e) enter into any licensing agreement, private label
arrangement or understanding or other similar arrangement with respect to any of
Seller's Intellectual Property;
(f) (i) grant any severance or termination pay to any current
or former employee, officer or director of Seller, (ii) increase benefits
payable under any existing severance or termination pay policy or employment
contract, (iii) enter into any employment, deferred compensation or other
similar contract (or any amendment to any such existing contract), (iv)
establish, adopt or amend (except as required by applicable Law or Legal
Requirement) any collective bargaining, bonus, profit sharing, thrift, pension,
retirement, deferred compensation, compensation, stock option, restricted stock
or other benefit plan or arrangement or (v) increase compensation, bonus or
other benefits payable to any current or former director, officer or employee of
Seller;
(g) issue any additional shares of capital stock, or issue,
sell or grant any option or right to acquire or otherwise dispose of or commit
to dispose of any of its authorized but unissued capital stock or other
corporate securities;
(h) declare or pay any dividend or make any other distribution
in cash or property on its capital stock or other equity interests;
(i) repurchase or redeem any shares of its capital stock or
other equity interests;
Appendix E-28
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(j) grant any kind of Encumbrance with respect to any of its
assets, real or personal, tangible or intangible;
(k) amend any Tax Return or make or change any Tax election or
take any Tax reporting position inconsistent with prior reporting practices
except to comply with GAAP;
(l) (i) incur any indebtedness for borrowed money or guarantee
any such indebtedness of another Person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Seller, guarantee any
debt securities of another Person, enter into any "keep well" or other agreement
to maintain any financial statement condition of another Person or enter into
any arrangement having the economic effect of any of the foregoing, except for
short-term borrowings incurred in the Ordinary Course of Business consistent
with past practice, or (ii) make any loan, advance or capital contribution to,
or investment in, any other Person;
(m) make or agree to make any new capital expenditure or
expenditures, which, individually, is in excess of $50,000 or, in the aggregate,
are in excess of $100,000 except as disclosed;
(n) except in the Ordinary Course of Business, modify, amend
or terminate any Material Contract to which Seller is a party or waive, release
or assign any material right or claim;
(o) make any change in any method of accounting or accounting
practice or policy other than those required or permitted by GAAP; or
(p) agree or commit to do any of the foregoing.
4.2 CONDUCT OF BUYER. Except as contemplated by this Agreement, from
the date of this Agreement until the Effective Time, Buyer will conduct its
business in the ordinary course consistent with past practice and will use its
best efforts to preserve intact its business organizations and relationships
with third parties and to keep available the services of its present officers
and employees.
4.3 NO SOLICITATION OF TRANSACTIONS. Seller will and will direct and
use its best efforts to cause its officers, directors, employees, agents and
representatives (including any investment banker, attorney, financial advisor or
accountant retained by Seller) not to initiate, solicit or knowingly encourage,
directly or indirectly (including by way of furnishing non-public information or
assistance), or take any other action to facilitate knowingly, any inquiry or
the making of any proposal that constitutes, or reasonably may be expected to
lead to, any Competing Transaction, or enter into or continue discussions or
negotiations with any Person in furtherance of such inquiries or to obtain a
Competing Transaction, or agree to or endorse any Competing Transaction, or
authorize any of its officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other representative retained by
Seller to take any such action, and Seller will notify Buyer of all inquiries or
proposals that Seller may receive relating to any of such matters and, if such
inquiry or proposal is in writing, will deliver to Buyer a copy of such inquiry
or proposal.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 ACCESS.
(a) Seller will make available for inspection by Buyer and its
representatives, during normal business hours and in a manner so as not to
interfere with normal business operations, all of Seller's records (including
Tax records), books of account, premises, Contracts and all other documents in
Seller's possession or control that are reasonably requested by Buyer and its
representatives to inspect and examine the business and affairs of Seller and
the Other Acquired Companies. Seller will cause its managerial employees,
counsel and regular independent accountants to be available upon reasonable
advance notice to answer questions of Buyer and Buyer's representatives about
the business and affairs of Seller and the Other Acquired Companies. No
examination by Buyer and its representatives will constitute a waiver or
relinquishment by Buyer of its rights to rely on Seller's covenants,
representations and warranties made herein or pursuant hereto.
Appendix E-29
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(b) Buyer will make available for inspection by Seller and its
representatives, during normal business hours and in a manner so as not to
interfere with normal business operations, those of Buyer's records, premises,
Contracts and documents in Buyer's possession or control that are reasonably
requested by Seller and its representatives to evaluate an investment in the
Buyer Common Stock. Buyer will cause its managerial employees, counsel and
regular independent accountants to be available upon reasonable advance notice
to answer questions of Seller and Seller's representatives about the business
and affairs of Buyer. No examination by Seller and its representatives will
constitute a waiver or relinquishment by Seller of its rights to rely on Buyer's
covenants, representations and warranties made herein or pursuant hereto.
5.2 DUE DILIGENCE. Seller covenants and agrees to all of the terms and
provisions set forth in this SECTION 5.2. Between the date of this Agreement and
December 15, 2000, in addition to Buyer's rights provided by SECTION 5.1(a)
hereof, Buyer, acting through Buyer's own personnel, counsel, accountants and
other representatives and agents, shall have the full right to (a) examine the
offices, properties, equipment, invoices, customer records, agreement books and
records of Seller and of all of the Other Acquired Companies, (b) meet and
discuss the Business and the operations, history and prospects of the Business
with representatives and employees of Seller and the Other Acquired Companies
and (c) otherwise perform such due diligence review of Seller, the Other
Acquired Companies and the Business as Buyer in its sole and absolute discretion
deems necessary or appropriate, including, without limitation, a due diligence
review of the Contracts, assets, rights, liabilities and Intellectual Property
of Seller and/or the Other Acquired Companies. Buyer's representatives and
agents, with the assistance of Seller's personnel and the personnel of the Other
Acquired Companies, will prepare an inventory of all assets and other
Intellectual Property of Seller and the Other Acquired Companies. Seller shall
promptly provide to Buyer copies of all documents related to the Business that
Buyer requests. Buyer and Buyer's representatives and agents shall be permitted
to meet with representatives and employees of Seller individually and as a
group. The due diligence review by Buyer will be at Buyer's sole expense, except
that Seller shall make Seller's and the Other Acquired Companies' employees,
representatives, officers and accountants available to Buyer without charge and
shall provide copies of documents to Buyer without charge. If the results of
such due diligence review or meetings are not entirely satisfactory or
acceptable to Buyer for any reason whatsoever, as determined by Buyer in Buyer's
reasonable discretion, then, notwithstanding any other term or provision of this
Agreement, Buyer will have no duty or obligation of any kind or nature
whatsoever to proceed with and/or to consummate any of the transactions
contemplated by this Agreement, including, without limitation, the Merger, or to
negotiate revised terms, provisions or conditions for any of the transactions
contemplated by this Agreement, including, without limitation, the Merger, and
Buyer may terminate this Agreement without payment of any damages or penalty.
5.3 CORPORATE CLEAN-UP. Seller covenants and agrees to all of the terms
and provisions set forth in this SECTION 5.3. Between the date of this Agreement
and December 15, 2000, Seller shall prepare and have prepared, execute and
furnish copies of documents for such purposes as correcting all errors and
mistakes in any of the corporate records or Contracts of Seller and/or any and
all of the Other Acquired Companies, as required by Buyer and to Buyer's
satisfaction which will not be unreasonable withheld. If the documents prepared,
executed and furnished to Buyer pursuant to the foregoing provisions are not
satisfactory or acceptable to Buyer, as determined by Buyer in Buyer's
reasonable discretion, then, notwithstanding any other term or provision of this
Agreement, Buyer will have no duty or obligation of any kind or nature
whatsoever to proceed with and/or to consummate any of the transactions
contemplated by this Agreement, including, without limitation, the Merger, or to
negotiate revised terms, provisions or conditions for any of the transactions
contemplated by this Agreement, including, without limitation, the Merger, and
Buyer may terminate this Agreement without payment of any damages or penalty.
5.4 PRESERVE ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each of the
parties hereto shall maintain the truth and accuracy of the representations and
warranties made by such party in this Agreement. Each of the parties hereto
shall refrain, and shall cause each Person and Subsidiary controlled by such
party to refrain, from any act or omission that would or could render any
representation and/or warranty made by such party not true and accurate at the
Closing Date.
5.5 NOTIFICATION OF CERTAIN MATTERS.
(a) Seller will promptly notify Buyer of (i) any event of
which Seller obtains Knowledge that has had or might reasonably be expected to
have a material adverse effect on the Business or that if known as of the date
of this Agreement would be required to be disclosed to Buyer and (ii) any
failure of Seller to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by Seller under this Agreement.
Appendix E-30
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(b) Buyer will promptly notify Seller of (i) any event of
which Buyer obtains Knowledge that has had or might reasonably be expected to
have a material adverse effect on Buyer or that if known as of the date of this
Agreement would be required to be disclosed to Seller and (ii) any failure of
Buyer to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by Buyer under this Agreement.
5.6 PERMITS AND APPROVALS. Seller and Buyer will cooperate with each
other and use their best efforts to obtain (and will immediately prepare all
registrations, filings and applications, requests and notices preliminary to)
all Approvals and Permits that may be necessary or that may be reasonably
requested by the other party to consummate the transactions contemplated by this
Agreement, including under the Securities Act and the state Blue Sky Laws.
5.7 STOCKHOLDER MEETING; INFORMATION STATEMENT. Seller will, in
accordance with applicable Law and the Articles of Incorporation and bylaws of
Seller and as soon as reasonably practicable, cause a meeting of the
Stockholders of Seller to be duly called and held or obtain the necessary
written consent of the Stockholders of Seller to approve and adopt this
Agreement and the transactions contemplated hereby. In connection with such
meeting or written consent, as the case may be, Seller will use its best efforts
to obtain the necessary approvals by the Stockholders of Seller of this
Agreement and the transactions contemplated hereby and otherwise comply with all
legal requirements applicable to such meeting or written consent, as the case
may be. Seller will prepare and deliver to the Stockholders of Seller an
Information Statement describing the transactions contemplated by this Agreement
for the purpose of such meeting, and Buyer will cooperate and provide all
information reasonably requested by Seller in preparing such Information
Statement.
5.8 AMENDMENT OF ARTICLES OF INCORPORATION OF BUYER. Subject to the
approval of the stockholders of Buyer as required by the Nevada Corporation Law,
Buyer will use its commercially reasonable best efforts to amend the Articles of
Incorporation of Buyer before the Effective Time to increase the authorized
number of shares of Buyer Common Stock from 25,000,000 to 100,000,000 (the
"ARTICLE AMENDMENT").
5.9 PREPARATION OF PROXY STATEMENT. Buyer will use its commercially
reasonable best efforts to prepare or have prepared a proxy statement (the
"PROXY STATEMENT") and notice of stockholders' meeting to be distributed to
Buyer's stockholders in connection with a meeting of Buyer's stockholders to be
called to consider and vote upon the election of directors of Buyer, the Article
Amendment (as defined in SECTION 5.9 hereof) and this Agreement and all of the
transactions contemplated hereby, including the Merger. Except as may be
consented to by the other party or request by Law or Legal Requirement, which
consent will not be withheld or delayed unreasonably, neither Buyer nor Seller
will publish any communication other than the Proxy Statement and such filings
required to be made with or by Governmental Entities with respect to this
Agreement or the Merger. Buyer and Seller acknowledge and agree that the
information contained in the Proxy Statement about Buyer will be provided by
Buyer and will be Buyer's responsibility, and the information in the Proxy
Statement about Seller will be provided by Seller and will be Seller's
responsibility.
5.10 MEETING OF STOCKHOLDERS OF BUYER. Buyer will use its commercially
reasonable best efforts to submit this the Article Amendment and this Agreement
and the transactions contemplated hereby, including the Merger, to the
stockholders of Buyer for approval at a meeting of such stockholders duly held
for such purpose. The Board of Directors of Buyer will recommend approval of the
Article Amendment and this Agreement and the transactions contemplated hereby,
including the Merger (subject to the fiduciary duties of the Board of Directors
of Buyer to the stockholders of Buyer under applicable Law).
5.11 LOAN. Concurrently with the execution and delivery of this
Agreement, Seller and Buyer will execute and deliver the Loan and Security
Agreement and related Promissory Note substantially in the form attached hereto
as Exhibit C, pursuant to which, as of the date hereof, Buyer will make a
secured loan to Seller in the principal amount up to $750,000, and the security
for the full and prompt repayment of such loan shall be a pledge by Seller's
Appendix E-31
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Principal Stockholders of shares of Seller Capital Stock held of record or
beneficially by them. The principal amount of the loan shall be advanced by the
Buyer to the Seller in increments of $50,000 with 250,000 shares of Mindtronics
Corporation Stock placed in an escrow account to be named, and held as
collateral for the loan. The five principals collectively owning 10,000,000
share of Mindtronics Corporation will contribute collateral stock prorated
according to each principal's ownership interest. Upon closing and within 3
business days, all collateral stock will be returned to the appropriate
principals and the loan will simply remain on the books of the Subsidiary and
accounted for accordingly. However, if for any reason the closing does not take
place, then during the term of the loan, for each $50,000 dollars that is repaid
with interest, then 250,000 shares will be released from escrow and returned to
principals prorated according to the percent interest of the pledged principal's
interest.
5.12 LEGAL SERVICES FOR WEBYMAN INTELLECTUAL PROPERTY. Seller and Buyer
agree that, after the date of this Agreement and before the Closing, Pillsbury
Madison & Sutro LLP, counsel to Buyer ("PILLSBURY"), may provide various legal
services to WebyMan Corporation, a Subsidiary of Seller and an Other Acquired
Company ("WEBYMAN"), relating to WebyMan's technology and intellectual property
(collectively, the "WEBYMAN IP"). Seller and Buyer each hereby irrevocably
waives all potential and actual conflicts that may arise or exist by reason of
Pillsbury's representation of Buyer in connection with this Agreement and all of
the transactions contemplated hereby and Pillsbury's representation of WebyMan
relating to the WebyMan IP (the "WEBYMAN REPRESENTATION"). Buyer will pay all of
Pillsbury's fees and costs incurred in connection with the Webyman
Representation; provided, however, that, if the Merger is not consummated for
any reason whatsoever or otherwise is terminated, Seller shall reimburse Buyer
for all funds paid by Buyer to Pillsbury for the WebyMan Representation and
shall be exclusively liable for all previously-incurred but then-unpaid fees and
costs of Pillsbury incurred in connection with the WebyMan Representation, and
Buyer will have no further or additional obligation or liability to pay fees or
costs incurred in connection with the WebyMan Representation, whether previously
or prospectively. In addition, Seller acknowledges and agrees that, in such
event, Pillsbury will have the absolute right in its sole discretion to
terminate the Webyman Representation and otherwise Pillsbury's relationship with
WebyMan, without liability to WebyMan.
5.13 CONDITIONS. Seller will use its best efforts to take all actions
reasonably necessary or appropriate to cause each condition set forth in SECTION
6.2 to be fulfilled on or before the Closing, and Buyer will use its best
efforts to take all actions reasonably necessary or appropriate to cause each
condition set forth in SECTION 6.3 to be fulfilled on or before the Closing.
5.14 BLUE SKY LAWS. Buyer will take such steps as may be necessary to
comply with the securities and Blue Sky laws of all jurisdictions that are
applicable to the issuance of the Buyer Common Stock in connection with the
Merger. Seller will use its best efforts to assist Buyer as may be necessary to
comply with the securities and Blue Sky laws of all jurisdictions that are
applicable in connection with the issuance of Buyer Common Stock in connection
with the Merger.
5.15 REORGANIZATION. Seller and Buyer will each use its best efforts to
cause the business combination to be effected by the Merger to be qualified as a
"reorganization" described in Section 368(a) of the Code.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 GENERAL CONDITIONS. The obligations of the parties to consummate
the Merger are subject to satisfaction of the following conditions:
(a) STOCKHOLDER APPROVALS. This Agreement, including the
appointment of the Representative as provided in SECTION 9.5 hereof, must have
been approved and adopted by the requisite affirmative vote of the holders of
Buyer Common Stock and by the affirmative vote of the holders of not less than
ninety five percent (95.0%) of the then-outstanding shares of Seller Capital
Stock in accordance with the respective Articles of Incorporation of Buyer and
Seller and the Nevada Corporation Law.
(b) APPROVAL OF ARTICLE AMENDMENT BY STOCKHOLDERS OF BUYER.
The Article Amendment must have been approved and adopted by the requisite
affirmative vote of the holders of Buyer Common Stock in accordance with the
Articles of Incorporation of Buyer and the Nevada Corporation Law.
Appendix E-32
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(c) GOVERNMENT APPROVALS. The parties shall have obtained
timely from each Governmental Entity all Permits and Approvals, if any,
necessary for the consummation of, or in connection with, the Merger and the
several transactions contemplated hereby, including such approvals, waivers and
consents as may be required under the Securities Act and state Blue Sky laws.
(d) TAX-FREE REORGANIZATION. Each of Buyer and Seller shall
have received substantially identical written opinions from their respective
counsel to the effect that the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code, which opinions shall be in the form
attached hereto as EXHIBIT D. In rendering such opinions, counsel will be
entitled to rely on representations of Buyer, Acquisition Corp. and Seller and
certain stockholders of Seller.
(e) NO RESTRAINING ACTION. No Action will have been instituted
or threatened against Buyer, any Buyer Subsidiary, Acquisition Corp., Seller or
any Other Acquired Company before any Governmental Entity seeking to restrain or
prohibit the consummation of the transactions contemplated hereby.
(f) MERGER. The Articles of Merger shall have been filed with
the Nevada Secretary of State.
6.2 CONDITIONS TO OBLIGATIONS OF BUYER. Unless waived, in whole or
part, in writing by Buyer, Buyer's obligations hereunder are subject, before or
at the Closing, to satisfaction of each of the following conditions:
(a) DUE DILIGENCE. The results of Buyer's due diligence review
or meetings pursuant to SECTION 5.2 hereof must have been entirely satisfactory
and acceptable to Buyer, as determined by Buyer in Buyer's reasonable
discretion.
(b) CORPORATE CLEAN-UP. The documents prepared, executed and
furnished to Buyer pursuant to SECTION 5.3 hereof must be entirely satisfactory
and acceptable to Buyer, as determined by Buyer in Buyer's sole and absolute
discretion.
(c) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller contained in ARTICLE II hereof will be true at the Closing
Date with the same effect as though made at such time. Seller will have
performed all obligations and complied with all covenants and conditions
required by this Agreement to be performed or complied with by Seller at or
before the Closing Date, and Seller will have delivered to Buyer a certificate
of Seller in form and substance satisfactory to Buyer, dated the Closing Date
and signed by Seller's Chief Executive Officer and Chief Financial Officer to
such effect.
(d) MATERIAL ADVERSE CHANGE. There will not have been any
material adverse change in or affecting the Business since the INTERIM Balance
Sheet Date.
(e) OPINION OF COUNSEL. Buyer must have received from Karlyn
Hinman, Esq., counsel to Seller, an opinion dated the Closing Date, in form and
substance satisfactory to Buyer, substantially as set forth on EXHIBIT E
attached hereto.
(f) CORPORATE PROCEEDINGS. True and complete copies of all
corporate proceedings and documents effecting the authorization and approval of
the Transaction Documents and the transactions contemplated thereunder by
Seller, certified by the Chief Executive Officer and the Secretary of Seller,
will have been furnished to Buyer.
(g) TRANSACTION DOCUMENTS. Seller will have executed and
delivered the Transaction Documents to which it is a party other than this
Agreement.
(h) APPROVALS AND PERMITS. Seller must have obtained all
Approvals and Permits necessary to consummate the transactions contemplated
hereby.
(i) INVESTMENT REPRESENTATION. Buyer shall have received a
signed Investor Representation Letter in substantially the form attached hereto
as EXHIBIT F from each of the Stockholders of Seller.
Appendix E-33
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(j) SECURITIES LAW COMPLIANCE. Buyer shall be satisfied that
the transaction is exempt under Section 4(2) of the Securities Act.
(k) EMPLOYMENT AGREEMENTS. Each of Seller's executive officers
requested by Buyer shall have executed and delivered an employment agreement in
the form of EXHIBIT G attached hereto.
(l) NON-COMPETITION AGREEMENTS. Each of Seller's Principal
Stockholders shall have executed and delivered a non-competition agreement in
the form of EXHIBIT H attached hereto.
(m) FINANCIAL STATEMENTS. Seller shall have delivered to Buyer
the Financial Statements set forth in Section 2.3 hereof, and shall prepare and
deliver to Buyer or Buyer's independent auditors all financial statement and
information necessary for inclusion in the Proxy Statement to be delivered to
Buyer's shareholders pursuant to the Securities Exchange Act of 1934.
6.3 CONDITIONS TO OBLIGATIONS OF SELLER. Unless waived, in whole or
part, in writing by Seller, Seller's obligations hereunder are subject, before
or at the Closing, to satisfaction of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer contained in ARTICLE III hereof will be true at the Closing
Date with the same effect as though made at such time. Buyer will have performed
all obligations and complied with all covenants and conditions required by this
Agreement to be performed or complied with by Buyer at or before the Closing
Date, and Buyer will have delivered to Seller a certificate of Buyer in form and
substance satisfactory to Seller, dated the Closing Date and signed by Buyer's
Chief Executive Officer and Chief Financial Officer to such effect.
(b) TRANSACTION DOCUMENTS. Buyer must have executed and
delivered the Transaction Documents to which Buyer is a party other than this
Agreement.
(c) EMPLOYMENT AGREEMENTS. The Surviving Corporation shall
have executed and delivered to each of Seller's Principal Stockholders an
employment agreement in the form of EXHIBIT G attached hereto.
(d) NON-COMPETITION AGREEMENTS. The Surviving Corporation
shall have executed and delivered to each of Seller's Principal Stockholders a
non-competition agreement in the form of EXHIBIT H attached hereto.
(e) CORPORATE PROCEEDINGS. True and complete copies of all
corporate proceedings and documents effecting the authorization and approval of
the Transaction Documents and the transactions contemplated thereunder by Buyer,
certified by the Chief Executive Officer and the Secretary of Buyer, shall have
been furnished to Seller.
(f) DUE DILIGENCE. The results of Seller's due diligence
review or meetings must be satisfactory and acceptable to Seller, as determined
by Seller in Seller's reasonable discretion.
ARTICLE VII
TERMINATION OF OBLIGATIONS
7.1 TERMINATION OF AGREEMENT. This Agreement and the transactions
contemplated by this Agreement will terminate if the Closing does not occur on
or before the close of business on March 1, 2001, unless extended pursuant to
SECTION 1.1(C) hereof, in which case this Agreement and the transactions
contemplated by this Agreement will terminate if the Closing does not occur on
or before the Closing Date as extended pursuant to SECTION 1.1(C) hereof, and
otherwise may be terminated at any time before the Closing as follows and in no
other manner:
(a) MUTUAL CONSENT. By the mutual consent in writing of Buyer
and Seller.
Appendix E-34
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(b) CONDITIONS TO BUYER'S PERFORMANCE NOT SATISFIED. By Buyer
by written notice to Seller if any event occurs or condition exists that would
render impossible the satisfaction of one or more conditions to the obligations
of Buyer to consummate the transactions contemplated by this Agreement as set
forth in SECTION 6.1, SECTION 6.2 hereof or SECTION 6.3 hereof.
(c) CONDITIONS TO SELLER'S PERFORMANCE NOT SATISFIED. By
Seller by written notice to Buyer if any event occurs or condition exists that
would render impossible the satisfaction of one or more conditions to the
obligation of Seller to consummate the transactions contemplated by this
Agreement as set forth in SECTION 6.1, SECTION 6.2 hereof or SECTION 6.3 hereof.
(d) INACCURATE INFORMATION OF SELLER. By Buyer if any material
information (whether or not in writing) delivered by or on behalf of Seller to
Buyer is inaccurate or incomplete in any material respect.
(e) INACCURATE INFORMATION OF BUYER. By Seller if any material
information (whether or not in writing) delivered by or on behalf of Buyer to
Seller is inaccurate or incomplete in any material respect.
(f) MATERIAL BREACH BY SELLER. By Buyer if there has been a
material misrepresentation or other material breach by Seller in Seller's
representations, warranties or covenants set forth herein; provided, however,
that if such breach is susceptible to cure, Seller will have 10 business days
after receiving notice from Buyer of Buyer's intention to terminate this
Agreement if such breach continues in which to cure such breach.
(g) MATERIAL BREACH BY BUYER. By Seller if there has been a
material misrepresentation or other material breach by Buyer's in Buyer's
representations, warranties or covenants set forth herein; provided, however,
that if such breach is susceptible to cure, Buyer will have 10 business days
after receiving notice from Seller of Seller's intention to terminate this
Agreement if such breach continues in which to cure such breach.
7.2 EFFECT OF TERMINATION; BREAK-UP FEE. If this Agreement is
terminated pursuant to SECTION 7.1 hereof, all further obligations of the
parties under this Agreement will terminate without further liability of any
party to another party; provided, however, that, if this Agreement is terminated
pursuant to SECTION 7.1(b), SECTION 7.1(e) or SECTION 7.1(g) hereof for any
reason that is or was within the direct control of Buyer, Buyer will pay to
Seller, within 10 days after such termination, a one-time break-up fee in the
amount of Two Hundred Fifty Thousand Dollars ($250,000), in cash or its
equivalent credit reducing any outstanding loan balance (the "BREAK-UP FEE").
For the purposes of the foregoing, the failure of Buyer to obtain the requisite
approval of the stockholders of Buyer of the Article Amendment and/or this
Agreement and the transactions contemplated hereby, including the Merger, will
be deemed to be within the control of Buyer. However, upon Buyer's payment to
Seller of the Break-Up Fee, Buyer will have no further or additional liability
whatsoever to Seller by reason of such termination of this Agreement. The
obligations of the parties contained in SECTION 9.3 hereof and SECTION 9.5
hereof will survive any termination of this Agreement. For the purposes of the
foregoing, the failure of Buyer to obtain the requisite approval of the
stockholders of Buyer of the Article Amendment and/or this Agreement and the
transactions contemplated hereby, including the Merger, will be deemed to be
within the control of Buyer. Except as provided above in this Section with
respect to terminations pursuant to SECTION 7.1(c), SECTION 7.1(d) or SECTION
7.1(f) hereof, a termination under SECTION 7.1 hereof will not relieve any party
of any liability for a breach of, or for any misrepresentation under, this
Agreement, or be deemed to constitute a waiver of any available remedy
(including specific performance if available) for any such breach or
misrepresentation.
ARTICLE VIII
INDEMNIFICATION
8.1 ESCROW FUND. As soon as practicable after the Effective Time, 10%
of the specified shares of Buyer Common Stock to be issued pursuant to SECTION
1.2(a) hereof to Seller's Principal Stockholders (the "ESCROW SHARES") will be
registered in the name of, and deposited with, the Escrow Agent, such deposit to
constitute the Escrow Fund and to be governed by the terms set forth in the
Escrow Agreement attached hereto as Exhibit I (the "ESCROW AGREEMENT"). The
Escrow Fund will be available to compensate Buyer pursuant to the
indemnification obligations of Seller.
8.2 OBLIGATIONS OF SELLER. Seller will indemnify and hold harmless
Buyer and each Buyer Subsidiary, and their respective directors, officers,
employees, Affiliates, agents and assigns from and against any and all Losses of
Buyer or any Buyer Subsidiary, directly or indirectly, as a result of, or based
on or arising from (a) any inaccuracy in or breach or nonperformance of any of
Appendix E-35
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the representations, warranties, covenants or agreements made by Seller in or
pursuant to this Agreement or (b) any third party claim or demand regarding the
conduct of the Business before the Closing, whether asserted before or after the
Closing. All amounts owed by Seller to Buyer will be paid out of the Escrow Fund
in accordance with the Escrow Agreement.
8.3 OBLIGATIONS OF BUYER. Buyer will indemnify and hold harmless the
Stockholders of Seller from and against any Losses of the Stockholders of
Seller, directly or indirectly, as a result of, or based on or arising from, any
inaccuracy in or breach or nonperformance of any of the representations,
warranties, covenants or agreements made by Buyer in or pursuant to this
Agreement. Any payment made by Buyer to the Stockholders of Seller in respect of
Losses incurred by the Stockholders of Seller pursuant to this Section 8.3 will
be paid in shares of Buyer Common Stock. For purposes of determining the number
of shares of Buyer Common Stock to be delivered to the Stockholders of Seller
pursuant to this Section 8.3, the price per share of Buyer Common Stock will be
the average closing price of the Buyer Common Stock (as quoted on AMEX) during
the 10 trading days ending two days before the day upon which any such payment
is required to be made.
8.4 PROCEDURE.
(a) Any party seeking indemnification with respect to any Loss
will give notice to the party required to provide indemnity hereunder on or
before the date specified in SECTION 9.1. The Representative will act on behalf
of the Stockholders of Seller for all purposes under this ARTICLE VIII in
accordance with SECTION 9.6 hereof.
(b) If any claim, demand or liability is asserted by any third
party against any Indemnified Party, the Indemnifying Party will, upon the
written request of the Indemnified Party, defend any Action brought against the
Indemnified Party with respect to matters embraced by the indemnity with counsel
satisfactory to the Indemnified Party, but the Indemnified Party will have the
right to conduct and control the defense, compromise or settlement of any
Indemnifiable Claim if the Indemnified Party chooses to do so, on behalf of and
for the account and risk of the Indemnifying Party who will be bound by the
result so obtained to the extent provided herein; provided, however, that no
Indemnifiable Claim will be settled by an Indemnified Party unless the
Indemnifying Party consents thereto, which consent will not be unreasonably
withheld or delayed. If, after a request to defend any Action, the Indemnifying
Party neglects to defend the Indemnified Party, a recovery against the latter
suffered by it in good faith is conclusive in its favor against the Indemnifying
Party; provided, however, that, if the Indemnifying Party has not received
reasonable notice of the Action against the Indemnified Party or is not allowed
to control its defense, judgment against the Indemnified Party is only
presumptive evidence against the Indemnifying Party. Each party hereto, to the
extent that it is or becomes an Indemnifying Party, hereby stipulates that a
judgment against the Indemnified Party will be conclusive upon the Indemnifying
Party. The parties will cooperate in the defense of all third-party claims that
may give rise to Indemnifiable Claims hereunder. In connection with the defense
of any claim, each party will make available to the party controlling such
defense all books, records or other documents within its control that are
reasonably requested in the course of such defense.
ARTICLE IX
MISCELLANEOUS
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties and agreements contained in this Agreement will survive the Closing
until the date on which Buyer files with the SEC its first Annual Report on Form
10-K that includes consolidated financial statements of Buyer and Seller.
9.2 PUBLIC ANNOUNCEMENTS. Buyer and Seller will consult with each other
before issuing any press release or making any public statement with respect to
this Agreement or the transactions contemplated hereby and will mutually agree
on the substance of any such press release or public statement.
9.3 CONFIDENTIALITY. All information disclosed by any party (or its
representatives), whether before or after the date hereof, in connection with
the transactions contemplated by, or the discussions and negotiations preceding,
this Agreement to any other party (or its representatives) will be kept
confidential by such other party and its representatives and will not be used by
any such Person other than as contemplated by this Agreement, except to the
extent that such information (i) was known by the recipient when received, (ii)
Appendix E-36
-------------
is or hereafter becomes lawfully obtainable from other sources, (iii) is
necessary or appropriate to disclose to a Governmental Entity having
jurisdiction over the parties, or as otherwise may be required by Law or Legal
Requirement or (iv) to the extent such duty as to confidentiality is waived in
writing by the other party. If this Agreement is terminated, each party will use
all reasonable efforts to return upon written request from the other party all
documents (and reproductions thereof) received by such party or its
representatives from such other party (and, in the case of reproductions, all
such reproductions made by the receiving party) that include information not
within the exceptions contained in the first sentence of this Section 9.3,
unless the recipients provide assurances reasonably satisfactory to the
requesting party that such documents have been destroyed.
9.4 EXPENSES. Except as otherwise provided herein, each of the parties
will bear all expenses incurred by it in connection with this Agreement and in
the consummation of the transactions contemplated hereby and in preparation
therefor.
9.5 REPRESENTATIVE. Seller and the Stockholders of Seller, by virtue of
their approval of this Agreement, will be deemed to have irrevocably constituted
and appointed the Representative, effective as of the Effective Time, as their
true and lawful agent and attorney-in-fact to enter into any agreement in
connection with the transactions contemplated by this Agreement or any
transaction contemplated by the Escrow Agreement, to exercise all or any of the
powers, authority and discretion conferred on the Representative under either
this Agreement or the Escrow Agreement, to waive any term or condition of any
such agreement, to give and receive notices on their behalf and to be their
exclusive representative with respect to any Action arising with respect to any
transaction contemplated by any such agreement, including, without limitation,
the defense, settlement or compromise of any Action for which Buyer or
Acquisition Corp. may be entitled to indemnification, and the Representative
agrees to act as, and to undertake the duties and responsibilities of, such
agent and attorney-in-fact. This power of attorney is coupled with an interest
and is irrevocable. The Representative will not be liable for any action taken
or not taken by the Representative in connection with the Representative's
obligations under this Agreement in the absence of the Representative's own
gross negligence or willful misconduct. If the Representative is unable or
unwilling to serve in such capacity, the Representative's successor, who will
serve and exercise the powers of the Representative hereunder, will be named by
those persons holding a majority of the shares of Seller Capital Stock.
9.6 NOTICES. All notices (including other communications required or
permitted) under this Agreement must be in writing and must be delivered: (a) in
person; (b) by registered, express or certified mail, postage prepaid, return
receipt requested; (c) by a generally recognized courier or messenger service
that provides written acknowledgement of receipt by the addressee; or (d) by
facsimile or other generally accepted means of electronic transmission with a
verification of delivery. A notice will be deemed delivered at the earlier of
the date such notice is actually received by a party or three days after such
notice is given. Notices must be given at the addresses below, but any party may
furnish, from time to time, other addresses for notices to it.
IF TO BUYER, AT: WITH A COPY TO:
Ubrandit.com, Inc. Pillsbury Madison & Sutro LLP
6405 Mira Mesa Blvd. Suite 100 650 Town Center Drive, 7th Floor
San Diego, California 92121 Costa Mesa, California 92626
Attn: Karlynn Hinman -General Counsel Telephone: (714) 436-6800
Telephone: (858) 350-9566 Fax: (714) 436-2800
Fax: (858) 858-350-0132 Attn: Christopher A. Wilson, Esq.
IF TO SELLER, AT: WITH A COPY TO:
Mindtronics Corporation
4500 S. Wasatch Blvd., Suite 210
Salt Lake City, Utah 84124-4204
Attn: President
Telephone: (801) 277-1444
Fax: (801) 272-0603
Appendix E-37
-------------
The addresses to which notices or demands are to be given may be
changed from time to time by notice served as provided above. Delivery of notice
to the copied parties above is not notice to Buyer or Seller, as the case may
be.
9.7 FURTHER ASSURANCES. Seller will, upon the request of Buyer, from
time to time execute and deliver such additional certificates, agreements and
other documents and take such other actions as Buyer reasonably requests to
render effective the transactions contemplated by this Agreement.
9.8 SECTIONS AND OTHER HEADINGS. Sections or other headings contained
in this Agreement are for reference purposes only and will not affect in any way
the meaning or interpretation of this Agreement.
9.9 INTEGRATED AGREEMENT. This Agreement and the Exhibits and Schedules
attached hereto constitute the entire agreement between the parties hereto, and
no agreements, understandings, restrictions, warranties or representations exist
between the parties hereto other than those set forth herein or provided for
herein except for non disclosure and non circumvention agreements signed by the
parties prior to negotiations for the Letter of Intent (LOI).
9.10 ASSIGNMENT. No party to this Agreement may assign this Agreement
without the prior written consent of the other parties to this Agreement.
9.11 AMENDMENTS; WAIVERS. All parties must approve any amendment to
this Agreement. Any waiver of any right or remedy requires the consent of the
party waiving it. Every amendment or waiver must be in writing and designated as
an amendment or waiver, as appropriate. No failure by any party to insist on the
strict performance of any provision of this Agreement, or to exercise any right
or remedy, will be deemed a waiver of such performance, right or remedy or of
any other provision of this Agreement.
9.12 INTERPRETATION. If any claim is made by a party relating to any
conflict, omission or ambiguity in the provisions of this Agreement, no
presumption or burden of proof or persuasion will be implied because this
Agreement was prepared by or at the request of any party or its counsel. The
parties waive any statute or rule of Law to the contrary. Unless the context
otherwise requires: (i) a term has the meaning assigned to it; (ii) "of" is not
exclusive; (iii) words in the singular include the plural, and words in the
plural include the singular; (iv) "herein," "hereof' and other words of similar
import refer to this Agreement as a whole and not to any particular Section,
Subsection, paragraph, clause or other subdivision; (v) all references to
"Section," "Schedule" or "Exhibit" refer to the particular Section, Schedule or
Exhibit in or attached to this Agreement; and (vi) "including" and "includes,"
when following any general provision, sentence, clause, statement, term or
matter, will be deemed to be followed by, "but not limited to," and "but is not
limited to," respectively.
9.13 COUNTERPARTS. This Agreement is being signed in several
counterparts. Each of them is an original, and all of them constitute one
agreement. However, parties agree that each will have a fax copy signed by all
parties and deemed to be an original within 5 working days from the effective
date of signing.
9.14 HEADINGS; EXHIBITS. The headings in this Agreement are only for
convenience and ease of reference and are not to be considered in construction
or interpretation. All exhibits, schedules and appendices attached to this
Agreement are incorporated herein.
9.15 SEVERABILITY. If any provision of this Agreement is held to be
unenforceable for any reason, it will be adjusted rather than voided, if
possible, to achieve the intent of the parties to the extent possible. In any
event, all other provisions of this Agreement will be deemed valid and
enforceable to the extent possible.
9.16 GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the internal Law of the State of Nevada (without reference to
its rules as to conflicts of Law).
9.17 SPECIFIC PERFORMANCE. The parties agree that irreparable damage
would occur if any provision of this Agreement was not performed in accordance
with the terms hereof and that the parties will be entitled to specific
performance of the terms hereof in addition to any other remedy to which they
are entitled at law or equity.
Appendix E-38
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9.18 ARBITRATION.
(a) All disputes of any nature (whether sounding in contract
or in tort) arising out of or relating to this Agreement must be initiated,
maintained and determined exclusively by binding arbitration in the County of
San Diego, State of California, pursuant to SECTION 9.18(c) hereof. Each party
agrees irrevocably to submit itself, in any suit to confirm the judgment or
finding of such arbitrator, to the jurisdiction for the United States Southern
District Court for San Diego and Imperial Counties and the jurisdiction of any
court of the State of California located in San Diego County and waives any and
all objections to jurisdiction that it may have under the laws of the State of
Utah, Nevada, California or the United States.
(b) In case of a dispute, any party may commence the
arbitration by giving written notice to the other pursuant to SECTION 9.6
hereof. The Arbitrator (as defined below) will be a retired judge of the United
States Southern District Court for San Diego and Imperial Counties or of the
Superior Court of the State of California in and for the County of San Diego.
The arbitration proceeding will be conducted by means of a reference pursuant to
[APPLICABLE RULES OF CIVIL PROCEDURE]. Within 10 business days after receipt of
the notice requesting arbitration, the parties will attempt in good faith to
agree upon the arbitrator to whom the dispute will be referred and on a joint
statement of contentions. Unless agreement as to an Arbitrator is theretofore
reached, within 10 business days after receipt of the notice requesting
arbitration, each party will submit the names of three (3) retired judges who
have served at least five (5) years as trial judges in the Superior Court of the
State of California or in the United States Southern District Court for San
Diego and Imperial Counties. Either party then may file a petition seeking the
appointment by the presiding Judge of the Superior Court of one of the persons
so named as "referee" in accordance with said Code of Civil Procedure, which
petition will recite in a clear and meaningful manner the factual basis of the
controversy between the parties and the issues to be submitted to the referee
for decision. Each party hereby consents to the jurisdiction of the Superior
Court in and for the County of San Diego for such action and agrees that service
of process will be deemed completed when a notice similarly sent would be deemed
received under SECTION 9.6 hereof.
(c) The hearing before the arbitrator will be held within
thirty (30) days after the parties reach agreement as to the identity of the
arbitrator (or within thirty (30) days after the appointment by the court) (as
finally determined pursuant to this SECTION 9.18 hereof, the "ARBITRATOR").
Unless more extensive discovery is expressly permitted by the Arbitrator, each
party has only the right to one document production request, may serve but one
set of interrogatories and is only entitled to depose those witnesses that the
Arbitrator expressly permits, it being the intention of the parties to minimize
discovery procedures and to hold the hearing on an expedited basis. The
Arbitrator will establish the discovery schedule promptly following submission
of the joint statement of intentions (or the filing of the answer to the
petition), to which such schedule will be strictly adhered. All decisions of the
Arbitrator will be in writing and will not be subject to appeal. The Arbitrator
will make all substantive rulings in accordance with Nevada law and will have
authority equal to that of a Superior Court Judge to grant equitable relief in
an action pending in California Superior Court in which all parties have
appeared. The Arbitrator will use its best efforts to hear the dispute on
consecutive days and to render a decision and award within thirty (30) days.
Unless otherwise agreed to by the parties to the dispute being arbitrated, a
court reporter will be present at and record the proceedings of the hearing. All
motions will be heard at the time of the hearing. The Arbitrator will determine
which rules of evidence, and which procedural rules, will apply. In the absence
of a determination thereof by the Arbitrator, the rules of the American
Arbitration Association, not inconsistent with this Section, will apply to the
conduct of the proceeding.
(d) All disputing parties will share the fees and costs of the
Arbitrator equally. The Arbitrator will award legal fees, disbursements and
other expenses to the prevailing party or parties for such amounts as determined
by the Arbitrator to be appropriate. Judgment upon the Arbitrator's award may be
entered as if after trial in accordance with Nevada law. Should a party fail to
pay fees as required, the other party may advance the same and will be entitled
to a judgment from the Arbitrator in the amount of such fees plus interest at
the prime rate as determined by the Bank of America. Any award issued by the
Arbitrator will bear interest at the judgment rate in effect in the State of
Nevada from the date determined by the Arbitrator.
Appendix E-39
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers to be effective as of
the day and year first written above.
UBRANDIT.COM, INC.,
a Nevada corporation
By: __________________________________
Name:
Its: Chief Executive Officer
UBRANDIT ACQUISITION CORP.,
a Nevada corporation
By: __________________________________
Name:
Its: Chief Executive Officer
MINDTRONICS CORPORATION,
a Nevada corporation
By: __________________________________
Name:
Its: Chief Executive Officer
__________________________________
Name
Its: President
Appendix E-40
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EXHIBIT A
---------
DEFINITIONS
-----------
"ACQUISITION CORP." has the meaning set forth in the introduction to
this Agreement.
"ACQUISITION CORP. COMMON STOCK" has the meaning set forth in SECTION
1.2(b).
"ACTION" means any action, complaint, petition, investigation, suit or
other proceeding, whether civil or criminal, in law or in equity, or before any
arbitrator or Governmental Entity.
"AFFILIATE" means a Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by or is under common control
with a specified Person.
"AGREEMENT" means this Agreement by and among Buyer, Acquisition Corp.
and Seller as it may be amended, supplemented or modified from time to time.
"AMEX" means the American Stock Exchange.
"APPROVAL" means any approval, authorization, consent, qualification or
registration, or any waiver of any of the foregoing, required to be obtained
from, or any notice, statement or other communication required to be filed with
or delivered to, any Governmental Entity or any other Person.
"APPLICABLE CONTRACT" means any Contract (a) under which Seller or any
Other Acquired Company has or may acquire any right, (b) under which Seller or
any Other Acquired Company has or may become subject to any obligation or
liability or (c) by which Seller or any Other Acquired Company or any of the
assets owned or used by Seller or any Other Acquired Company is or may become
bound.
"ARBITRATOR" has the meaning set forth in SECTION 9.18(c).
"ARTICLE AMENDMENT" has the meaning set forth in SECTION 5.8.
"ARTICLES OF MERGER" has the meaning set forth in Section 1.1( c).
"ASSOCIATE" of a Person means:
(i) a corporation or organization (other than a party to this
Agreement) of which such Person is an officer or partner or, directly or
indirectly, beneficially owns 10% or more of any class of equity securities;
(ii) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar capacity; and
(iii) any relative or spouse of such Person or any relative of
such spouse who has the same home as such Person or who is a director or officer
of Seller or any of its Affiliates or of any of the Other Acquired Companies or
any of its Affiliates.
"AVERAGE SHARE PRICE" means dollar per share of Buyer Common Stock.
(See Section 8.3)
"BUSINESS" means the business of Seller and of the Other Acquired
Companies and will be deemed to include any of the following incidents of such
business: income, cash flow, operations, condition (financial or other), assets,
properties, anticipated revenues/income and liabilities.
"BUYER COMMON STOCK" has the meaning set forth in the recitals.
Appendix E-41
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"BUYER DISCLOSURE SCHEDULE" means the disclosure schedule dated, and
delivered by Buyer to Seller on, the date of this Agreement. The Sections of the
Buyer Disclosure Schedule will be numbered to correspond to the applicable
Section of this Agreement and, together with all matters under such heading,
will be deemed to qualify only that Section unless it is manifestly evident from
such disclosure that it qualifies another Section, in which case it will be
deemed to qualify such other Section.
"BUYER SEC DOCUMENTS" means all required reports, schedules, forms,
statements and other documents filed by Buyer with the SEC since January 1,
2000.
"BUYER SUBSIDIARY" means Ubrandit Acquisition Corporation, Nevada
corporation.
"CERTIFICATES" has the meaning set forth in Section 1.3(c).
"CLOSING" has the meaning set forth in SECTION 1.1(b).
"CLOSING DATE" has the meaning set forth in Section 1.1(c).
"CLOSING DATE BALANCE SHEET" has the meaning set forth in Section 2.3
(a).
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPETING TRANSACTION" means (i) any merger, consolidation, share
exchange, business combination or other similar transaction involving Seller,
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition
of 50% or more of the assets of Seller, taken as a whole, in a single
transaction or a series of transactions, other than in the Ordinary Course of
Business, (iii) any Person having acquired beneficial ownership or the right to
acquire beneficial ownership of or any "group" (as defined in Section 13(d) of
the Exchange Act) having been formed that beneficially owns or has the right to
acquire beneficial ownership of 10% or more of the Seller Capital Stock or (iv)
any public announcement of a proposal, plan or intent to do any of the foregoing
or any agreement to engage in any of the foregoing other than any transaction
contemplated by this Agreement.
"CONTRACT" means any agreement, contract, obligation, promise,
undertaking, arrangement, bond, commitment, franchise, indemnity, indenture,
instrument, lease, license or understanding, whether written or oral and whether
express or implied.
"EFFECTIVE TIME" has the meaning set forth in Section 1.1(c).
"ENCUMBRANCE" means any claim, charge, community property interest,
condition, equitable interest, easement, encumbrance, lease, covenant, security
interest, lien, option, pledge, right of first refusal, rights of others or
restriction or any kind, including any restriction on use, voting, transfer,
receipt of income or exercise of any other attribute of ownership (whether on
voting, sale, transfer, disposition or otherwise), whether imposed by agreement,
understanding, Law, Legal Requirement, equity or otherwise, except for any
restriction on transfer generally arising under any applicable federal or state
securities law.
"ENVIRONMENTAL LAWS" has the meaning set forth in Section 2.25.
"ERISA AFFILIATE" means (i) any corporation that is a member of a group
of corporations of which Seller is a member and that is a controlled group of
corporations within the meaning of Section 414(b) of the Code; (ii) any trade or
business (whether or not incorporated) that is a member of a group of trades or
businesses under common control within the meaning of Section 414(c) of the Code
of which Seller is a member; and (iii) a member of an affiliated service group
within the meaning of Section 414(m) or (o) of the Code of which Seller, any
corporation described in clause (i) above or any trade or business described in
clause (ii) above is a member.
"ESCROW AGENT" has the meaning set forth in Section 1.3 (i).
"ESCROW AGREEMENT" has the meaning set forth in SECTION 8.1.
Appendix E-42
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"ESCROW FUND" has the meaning set forth in Section 1.3(b).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE AGENT" has the meaning set forth in SECTION 1.3(a).
"EXCHANGE FUND" means the shares of Buyer Common Stock and cash
delivered to the Exchange Agent pursuant to Section 1.3(b).
"EXCHANGE RATE" has the meaning set forth in SECTION 1.2(a).
"FINANCIAL STATEMENTS" has the meaning set forth in SECTION 2.3(a).
"GAAP" means generally accepted accounting principles in the United
States, as in effect from time to time.
"GOVERNMENTAL AUTHORIZATION" means any approval, consent, license,
permit, waiver or other authorization issued, granted, given or otherwise made
available by or under the authority of any Governmental Entity or pursuant to
any Law or Legal Requirement.
"GOVERNMENTAL ENTITY" means any government or any agency, bureau,
board, commission, court, department, official, political subdivision, tribunal
or other instrumentality of any government, whether federal, state or local,
domestic or foreign.
"HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, or any successor law, and the regulations
and published interpretations related to that Act or any successor law.
"HAZARDOUS SUBSTANCE" means (but is not limited to) substances that are
defined or listed in, or otherwise classified pursuant to, any applicable Law as
"hazardous substances," "hazardous materials," "hazardous wastes" or "toxic
substances," or any other formulation intended to define, list or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, radioactivity, carcinogenicity, reproductive toxicity
or "EP toxicity," and petroleum and drilling fluids, produced waters and other
wastes associated with the exploration, development, or production of crude oil,
natural gas or geothermal energy.
"INDEMNIFIABLE CLAIM" means any Loss for or against which any party is
entitled to indemnification under this Agreement.
"INDEMNIFIED PARTY" means the party entitled to indemnity under this
Agreement.
"INDEMNIFYING PARTY" means the party obligated to provide
indemnification under this Agreement.
"INTELLECTUAL PROPERTY" means any trade secret, secret process or other
confidential or proprietary information or know-how, patent, patent application
and/or any brand name, copyright, trademark, trademark application, service
mark, service mark application, trade name, trade dress, URL, moral right, mask
work, invention, composition of matter, formula, design and/or process and all
registrations or applications for registration of any of the foregoing.
"INTERIM BALANCE SHEET" has the meaning set forth in SECTION 2.3(a).
"INTERIM BALANCE SHEET DATE" means September 30, 2000.
"IRS" means the United States Internal Revenue Service or any successor
agency and, to the extent relevant, the United States Department of the
Treasury.
Appendix E-43
-------------
"KNOWLEDGE" with respect to Seller means the actual knowledge of Mark
La Count, M2HC, Inc., Rod Ylst, M. Karlynn Hinman and Roger C. Royce after
conducting a reasonable investigation of the subject matter thereof, and
"KNOWLEDGE" with respect to Buyer means the actual knowledge of the executive
officers of Buyer after conducting a reasonable investigation of the subject
matter thereof.
"LAW" means any constitutional provision, statute or other law, rule,
regulation or interpretation of any Governmental Entity and any Order.
"LEGAL REQUIREMENT" means any federal, state, local, municipal,
foreign, international, multinational or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute or
treaty.
"LOSS" means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including interest or other carrying costs, penalties, legal, accounting and
other professional fees and expenses incurred in the investigation, collection,
prosecution and defense of claims and amounts paid in settlement, that may be
imposed on or otherwise incurred or suffered by the specified person.
"MATERIAL" means an amount, which individually is in excess of $10,000
or, in the aggregate with other individual amounts, is in excess of $50,000.
"MATERIAL CONTRACT" means any Contract material to the Business as of
or after the date hereof and includes but is not limited to those contracts
deemed material by SECTION 2.6.
"MERGER" has the meaning set forth in SECTION A OF THE RECITAL.
"NECESSARY INTELLECTUAL PROPERTY" has the meaning set forth in SECTION
2.13(b).
"NEVADA CORPORATION LAW" has the meaning set forth in SECTION 1.1(b).
"ORDER" means any award, decision, decree, injunction, judgment, order,
ruling, subpoena, assessment, writ or verdict.
"ORDINARY COURSE OF BUSINESS": An action taken by any Person will be
deemed to have been taken in the "Ordinary Course of Business" only if: (a) such
action is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person; (b) such
action is not required to be authorized by the board of directors of such Person
(or by any Person or group of Persons exercising similar authority) and is not
required to be specifically authorized by the parent company (if any) of such
Person; and (c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or by
any Person or group of Persons exercising similar authority), in the ordinary
course of the normal day-to-day operations of other Persons that are in the same
line of business as such Person.
"ORGANIZATIONAL DOCUMENTS" means (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation or organization of a Person; and (e) any amendment
to any of the foregoing.
"OTHER ACQUIRED COMPANY" means any and every Subsidiary of Seller.
"OTHER ACQUIRED COMPANIES" means all Subsidiaries of Seller,
collectively.
"PERMIT" means any license, permit, franchise, certificate of authority
or order, or any waiver of the foregoing, required to be issued by any
Governmental Entity.
"PERSON" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited-liability company, joint
venture, estate, trust, association, organization, labor union or any other
entity, including a Governmental Entity.
Appendix E-44
-------------
"PROXY STATEMENT" has the meaning set forth in SECTION 5.9.
"REPRESENTATIVE" means Karlynn Hinman.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"SELLER" is defined in the introduction to this Agreement.
"SELLER CAPITAL STOCK" has the meaning set forth in the recitals.
"SELLER DISCLOSURE SCHEDULE" means the disclosure schedule dated, and
delivered by Seller to Buyer on, the date of this Agreement. The Sections of the
Seller Disclosure Schedule will be numbered to correspond to the applicable
Section of this Agreement and, together with all matters under such heading,
will be deemed to qualify only that Section unless it is manifestly evident from
such disclosure that it qualifies another Section, in which case it will be
deemed to qualify such other Section.
"SELLER DISSENTING SHARES" has the meaning set forth in SECTION 1.2(a).
"SELLER DISSENTING STOCKHOLDER" has the meaning set forth in SECTION
1.2(d).
"SELLER'S PRINCIPAL STOCKHOLDERS" has the meaning set forth in SECTION
1.3(i).
"STOCKHOLDERS OF SELLER" means the holders of the Seller Capital Stock
at the Effective Time.
"STOCKHOLDER SUPPORT AGREEMENT" is defined in the recitals.
"SUBSIDIARY" means, with respect to any Person (the "OWNER"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the occurrence of a contingency
that has not occurred) are held by the Owner or one or more of the Owner's
Subsidiaries.
"SURVIVING CORPORATION" has the meaning set forth in Section 1.1(b).
"TAX" means any foreign, federal, state, county or local income, sales
and use, excise, franchise, real and personal property, transfer, gross receipt,
capital gain, capital stock, production, business and occupation, disability,
employment, payroll, severance or withholding tax or charge imposed by any
Governmental Entity, all interest and penalties (civil or criminal) related
thereto or to the nonpayment thereof, and any Loss in connection with the
determination, settlement or litigation of any Tax liability.
"TAX RETURN" means a report, return or other information required to be
supplied to a Governmental Entity with respect to Taxes, including, where
permitted or required, combined or consolidated returns for any group of
entities that includes Seller.
"TRANSACTION DOCUMENTS" means this Agreement, the Escrow Agreement and
the Articles of Merger.
Appendix E-45
-------------
AMENDMENT NO. 1
TO
AGREEMENT AND PLAN OF MERGER
BY AND AMONG UBRANDIT.COM,
UBRANDIT ACQUISITION CORPORATION
AND MINDTRONICS CORPORATION
THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER, dated as of
January ___, 2001 (this "AMENDMENT"), is entered into by and among
UBRANDIT.COM., a Nevada corporation ("BUYER"), UBRANDIT ACQUISITION CORPORATION,
a Nevada corporation ("ACQUISITION CORP."), and MINDTRONICS CORPORATION, a
Nevada corporation ("SELLER").
RECITALS
A. Buyer, Acquisition Corp. and Seller entered into that certain
Agreement and Plan of Merger, dated as of December 4, 2000 (the "MERGER
AGREEMENT").
B. SECTION 9.11 of the Merger Agreement provides, generally, that the
Merger Agreement may be amended in writing by the parties thereto.
C. Buyer, Acquisition Corp. and Seller intend that certain sections and
provisions of the Merger Agreement be amended or amended and restated.
D. The respective Boards of Directors of Buyer, Acquisition Corp. and
Seller have approved this Amendment and deem it advisable and in the best
interests of each party hereto and its respective stockholders.
The parties agree as follows:
1. All references in the Merger Agreement to "Ubrandit.com, Inc."
hereby are deleted and replaced with references to "Ubrandit.com."
2. All references in the Merger Agreement to "Ubrandit Acquisition
Corp." hereby are deleted and replaced with references to "Ubrandit Acquisition
Corporation."
3. All references in the Merger Agreement to "M2HC, Inc." hereby are
deleted and replaced with references to "M2CH, Inc."
4. All references in the Merger Agreement to "Pillsbury Madison & Sutro
LLP" hereby are deleted and replaced with references to "Pillsbury Winthrop
LLP."
5. The first sentence of SECTION 1.1(c) of the Merger Agreement hereby
is amended and restated as follows:
"(c) CLOSING; EFFECTIVE TIME. The closing of the transactions
contemplated by this Agreement (the "CLOSING") will take place as soon
as practicable after the satisfaction or waiver of each of the
conditions set forth in ARTICLE VI hereof but no later than May 1, 2001
(the "CLOSING DATE"); provided, however, that, in the event that Buyer
by May 1, 2001 for any reason whatsoever has not obtained approval of
this Agreement and the transactions contemplated hereby, including,
without limitation, the Merger by the holders of the requisite number
of then-outstanding shares of Buyer Common Stock, then the "CLOSING
DATE" shall be extended and be deemed and interpreted throughout this
Agreement for all purposes to mean September 1, 2001."
6. The last sentence of SECTION 1.1(e) of the Merger Agreement hereby
is deleted in its entirety and shall be of no further force or effect.
7. All references in SECTION 1.2(a) of the Merger Agreement and
appearing elsewhere in the Merger Agreement to the number "12,500,000" hereby
are deleted and replaced with references to the number "12,100,000."
8. The last sentence of SECTION 1.3(i) of the Merger Agreement hereby
is deleted in its entirety and shall be of no further force or effect.
Appendix E-46
-------------
9. The first sentence of SECTION 2.2(a) of the Merger Agreement hereby
is amended and restated as follows: "The authorized capital stock of Seller
consists of 100,000,000 shares of Common Stock. At the Closing Date, there will
be outstanding 10,132,860 shares of Common Stock."
10. The second sentence of SECTION 3.2 of the Merger Agreement hereby
is amended and restated as follows: "Provided that the Article Amendment (as
defined in SECTION 5.8 hereof) has been approved by the requisite vote of the
stockholders of Buyer as required by the Nevada Corporation Law, upon the filing
of the Article Amendment with the Nevada Secretary of State, the authorized
number of shares of Buyer Common Stock will be 100,000,000."
11. SECTION 3.4(a) of the Merger Agreement hereby is amended and
restated as follows: "(a) such filings as may be required under federal and
state securities laws."
12. SECTION 5.8 of the Merger Agreement hereby is amended and restated
in its entirety as follows:
"5.8 AMENDMENT OF ARTICLES OF INCORPORATION OF BUYER. Subject
to the approval of the stockholders of Buyer as required by the Nevada
Corporation Law, Buyer will use its commercially reasonable best
efforts to amend the Articles of Incorporation of Buyer before the
Effective Time to increase the authorized number of shares of Buyer
Common Stock from 25,000,000 to 100,000,000 (the "ARTICLE AMENDMENT");
provided, however, that Buyer makes no assurance, representation or
warranty to Seller that Buyer will be able to obtain such approval of
the stockholders of Buyer; and provided further that neither the
obtaining of such approval of the stockholders of Buyer nor the
effectiveness of the Article Amendment will be a condition to the
performance of Seller's obligations under this Agreement or to the
consummation of the transactions contemplated hereby, including,
without limitation, the Merger."
13. The parenthetical reference in SECTION 5.9 of the Merger Agreement
to "SECTION 5.9 HEREOF" hereby is deleted and replaced with a reference to
"SECTION 5.8 HEREOF."
14. SECTION 6.1(a) of the Merger Agreement hereby is amended and
restated in its entirety as follows:
"6.1(a) STOCKHOLDER APPROVALS. This Agreement, including the
appointment of the Representative as provided in SECTION 9.5 hereof,
must have been approved and adopted by the requisite affirmative vote
of the holders of Buyer Common Stock and by the affirmative vote of the
holders of not less than ninety five percent (95.0%) of the
then-outstanding shares of Seller Capital Stock in accordance with the
respective Articles of Incorporation of Buyer and Seller, the Nevada
Corporation Law (as applicable) and AMEX Rules (as applicable);
provided, however, that neither the obtaining of the approval by the
stockholders of Buyer of the Article Amendment nor the effectiveness of
the Article Amendment will be a condition to the performance of
Seller's obligations under this Agreement or to the consummation of the
transactions contemplated hereby, including, without limitation, the
Merger."
15. SECTION 6.1(b) of the Merger Agreement hereby is deleted in its
entirety and shall be of no further force or effect.
16. The reference in SECTION 7.1 of the Merger Agreement to the date
"March 1, 2001" hereby is deleted and replaced with a reference to the date "May
1, 2001."
17. SECTION 7.2 of the Merger Agreement hereby is amended and restated
in its entirety as follows:
"EFFECT OF TERMINATION; BREAK-UP FEE. If this Agreement is
terminated for any of the reasons set forth below, then Buyer will pay
to Seller a one-time break-up fee in the amount of Two Hundred Fifty
Thousand Dollars ($250,000) increased by Fifty Thousand Dollars
($50,000) on the first day of each calendar month commencing March 1,
2001 (the "BREAK-UP FEE"). The Break-Up Fee shall be automatically
offset against any debt owed by Seller to Buyer under the Loan and
Security Agreement referenced in SECTION 5.11. If the amount of the
Break-Up Fee exceeds the debt owed by Seller to Buyer, then Buyer shall
pay the difference in cash within 10 days after the termination.
Appendix E-47
-------------
The Break-Up Fee shall be due if and only if the Agreement is
terminated for any of the following reasons:
(a) Buyer is unable to consummate the Merger for any
reason within its direct control on or before
September 1, 2001. For the purposes of the foregoing,
the failure of Buyer to obtain the requisite approval
of the stockholders of Buyer of this Agreement and
the Merger will be deemed to be within the control of
Buyer.
(b) Buyer terminates this Agreement, unless termination
results from or relates to Seller's Material breach
of any of its representations, warranties, agreements
or covenants contained in this Agreement or Seller's
failure to fulfill any conditions precedent required
of Seller.
Upon Buyer's payment to Seller of the Break-Up Fee, Buyer will
have no further or additional liability whatsoever to Seller
by reason of such termination of this Agreement except as
specifically provided in Section 9.3 of the Merger Agreement."
18. FULL FORCE AND EFFECT. Except as set forth herein, the Merger
Agreement is not otherwise amended, supplemented or modified, and the terms,
conditions and agreements set forth in the Merger Agreement hereby are ratified
and confirmed and shall continue in full force and effect.
19. GOVERNING LAW. This Amendment shall be construed in accordance with
and governed by the law of the State of Nevada, without regard to principles of
conflicts of law.
20. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
21. CAPITALIZED TERMS. Capitalized terms not defined in this Amendment
shall have the meanings defined in the Merger Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to be executed by its duly authorized officers to be effective as of
the day and year first written above.
UBRANDIT.COM,
A Nevada corporation
By: ____________________________________
Name:
Its: Chief Executive Officer
UBRANDIT ACQUISITION CORPORATION,
A Nevada corporation
By: ____________________________________
Name:
Its: Chief Executive Officer
MINDTRONICS CORPORATION,
a Nevada corporation
By: ____________________________________
Name: Mark La Count
Its: Chief Executive Officer
Appendix E-48
-------------
APPENDIX F
TEXT OF FIRST AMENDMENT TO ARTICLES
AND SECOND AMENDMENT TO ARTICLES
In the event that the Ubrandit Stockholders approve Proposal Four (the
First Amendment to Articles) but fail to approve Proposal Five (the Second
Amendment to Articles), Article FOURTH will be amended to read in its entirety
as follows:
"FOURTH: This corporation is authorized to issue 100,000,000 shares of
capital stock, all of which shall be designated shares of "Common Stock" having
a par value of $0.001 each."
In the event that the Ubrandit Stockholders approve both Proposal Four
(the First Amendment to Articles) and Proposal Five (the Second Amendment to
Articles), Article FOURTH will be amended to read in its entirety as follows:
"FOURTH:
(A) This corporation is authorized to issue to issue 120,000,000 shares
of capital stock, of which (i) 100,000,000 shares shall be designated shares of
"Common Stock" having a par value of $0.001 each and (ii) 20,000,000 shares
shall be designated shares of "Preferred Stock" having a par value of $0.001
each.
(B) The Board of Directors of this corporation (the "BOARD OF
DIRECTORS") is authorized to issue or provide for the issuance of the shares of
Preferred Stock as shares of Preferred Stock of any series, and, in connection
with the creation of each such series, the Board of Directors is authorized to
fix by resolution providing for the issuance of such shares thereof the number
of shares of such series and the powers, designations, privileges, preferences,
limitations, restrictions, price and relative rights of such series to the full
extent permitted by the laws of the State of Nevada. Different series of
Preferred Stock shall not be deemed or construed to constitute different classes
of shares for the purposes of voting by classes unless so expressly provided in
these Articles of Incorporation."
Appendix F-1
------------
APPENDIX G
TEXT OF THIRD AMENDMENT TO ARTICLES
Article FIFTH will be amended to read in its entirety as follows:
"FIFTH:
(A) The Board of Directors shall be composed of not less than one nor
more than nine Directors. The specific number of Directors shall be set by
resolution of the Board of Directors or, if the Directors in office constitute
fewer than a quorum of the Board of Directors, by the affirmative vote of a
majority of all the Directors in office. The number of Directors of this
corporation may be increased or decreased from time to time in the manner
provided herein, but no decrease in the number of Directors shall have the
effect of shortening the term of any incumbent Director.
(B) The Directors of this corporation shall be divided into three
classes, with each class to be as nearly equal in number as possible, as
specified by resolution of the Board of Directors or, if the Directors in office
constitute fewer than a quorum of the Board of Directors, by the affirmative
vote of a majority of all the Directors in office. The term of office of
Directors of the first Class (Class 1) shall expire at the first annual meeting
of stockholders after their election. The term of office of Directors of the
second Class (Class 2) shall expire at the second annual meeting after their
election. The term of office of Directors of the third Class (Class 3) shall
expire at the third annual meeting after their election. At each annual meeting
after such classification, a number of Directors equal to the number of the
Class whose term expires at the time of such meeting shall be elected to hold
office until the third succeeding annual meeting. Absent his or her death,
resignation or removal, a Director shall continue to serve despite the
expiration of the Director's term until his or her successor has been elected
and qualified or until there is a decrease in the number of Directors.
(C) The stockholders may remove one or more Directors, with or without
cause, but only at a special meeting called for the purpose of removal the
Director or Directors, and the meeting notice must state that the purpose, or
one of the purposes, of the meeting is the removal of the Director or Directors.
(D) If a vacancy occurs on the Board of Directors, including a vacancy
resulting from an increase in the number of Directors, the Board of Directors
may fill the vacancy, or, if the Directors in office constitute fewer than a
quorum of the Board of Directors, they may fill the vacancy by the affirmative
vote of a majority of all the Directors in office. The stockholders may fill a
vacancy only if there are no Directors in office.
Appendix G-1
------------
APPENDIX H
TEXT OF FOURTH AMENDMENT TO ARTICLES
The Articles of Incorporation of Ubrandit will be amended to
include the following new Article THIRTEENTH and Article FOURTEENTH, which will
read in their entireties follows:
"THIRTEENTH: The personal liability of the directors and officers of
this corporation hereby is eliminated to the fullest extent permitted by Nevada
Revised Statutes, Chapter 78, as the same may be amended and supplemented. No
director or officer of this corporation will be liable to this corporation or
its stockholders for damages for breach of fiduciary duty as a director or
officer, except for (a) acts or omissions that involve intentional misconduct,
fraud, or a knowing violation of law or (b) the payment of dividends in
violation of Nevada Revised Statutes Section 78.300. No amendment or repeal of
this Article applies to or has any effect on the liability or alleged liability
of any director or officer of this corporation for or with respect to any act or
omission of such director or officer having occurred before such amendment or
repeal, except as otherwise required by law."
"FOURTEENTH: This corporation shall, to the fullest extent permitted by
Nevada Revised Statutes, Chapter 78, as the same may be amended and
supplemented, indemnify all persons whom it shall have power to indemnify under
Nevada Revised Statutes, Chapter 78, as the same may be amended and
supplemented, from and against all of the expenses, liabilities or other matters
referred to in or covered by Nevada Revised Statutes, Chapter 78. The
indemnification provided for herein shall not be deemed exclusive of any other
right to which a person indemnified may be entitled under any Bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as to actions
of such person in such person's official capacity and as to actions of such
person in another capacity while holding such office. This corporation shall
have power to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of this corporation, or is or was
serving at the request of this corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against such person in any such
capacity or arising out of such person's status as such, whether or not this
corporation would have the power to indemnify such person against such liability
under the provisions of Nevada Revised Statutes, Chapter 78, as the same may be
amended and supplemented. The indemnification provided for herein shall continue
as to a person who has ceased to be a director, officer, employee or agent of
this corporation, or to a person who has ceased to serve at the request of this
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, and shall inure to the
benefit of the heirs, executors and administrators of such a person. No
amendment or repeal of this Article applies to or has any effect on any right or
protection of a director, officer, employee or agent of this corporation, or to
a person who has ceased to serve at the request of this corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, existing at the time of such amendment or
repeal."
Appendix H-1
------------
APPENDIX I
FORM OF PROXY CARD FOR UBRANDIT.COM
PROXY PROXY
UBRANDIT.COM
PROXY SOLICITED BY BOARD OF DIRECTORS FOR ANNUAL MEETING
OF STOCKHOLDERS MARCH 22, 2001
The undersigned hereby appoints Jefferey D. Phillips and James W.
Truher or any of them proxies, each with the power of substitution, to represent
the undersigned and to vote all of the shares of the Common Stock of
Ubrandit.com, a Nevada corporation (the "COMPANY"), which the undersigned is
entitled to vote, at the Annual Meeting of Stockholders of the Company to be
held on Thursday, March 22, 2001, and all postponements or adjournments thereof
(if any) (1) as hereinafter specified upon the proposals listed below and as
more particularly described in the Company's Proxy Statement, receipt of which
hereby is acknowledged and (2) in their discretion upon such other matters as
may come properly before the meeting.
A vote "FOR" the following proposals is recommended by the Ubrandit
Board of Directors:
FOR WITHHOLD
Nominees listed AUTHORITY
(except as marked to vote for all
to the contrary) nominees listed
1. To elect six (6) directors to the Board of Directors: [ ] [ ]
Jefferey D. Phillips, Roger C. Royce, David C. Pollei, Gregory V. Gibson,
Steven K. Radowicz and James W. Truher
FOR AGAINST ABSTAIN
2. To ratify the appointment of BDO Seidman, LLP as the Company's independent [ ] [ ] [ ]
auditors.
3. To approve the merger of Ubrandit Acquisition Corporation, a Nevada [ ] [ ] [ ]
corporation and wholly-owned subsidiary of the Company, with and into
Mindtronics Corporation, a Nevada corporation, in accordance with the terms
and conditions of the Agreement and Plan of Merger, dated as of December 4,
2000, as amended effective as of January 12, 2001, by and among the
Company, Ubrandit Acquisition Corporation and Mindtronics Corporation.
4. To approve an amendment to the Company's Articles of Incorporation that will [ ] [ ] [ ]
increase the total number of authorized shares of Common Stock of the
Company from 25,000,000 to 100,000,000.
5. To approve an amendment to the Company's Articles of Incorporation that will [ ] [ ] [ ]
authorize 20,000,000 shares of preferred stock to be designated and issued
by the Board of Directors under "blank check" authority.
6. To approve an amendment to the Company's Articles of Incorporation that will [ ] [ ] [ ]
provide for staggered terms of the Company's directors, effective
immediately and affecting the Board of Directors elected and this Annual
Meeting.
7. To approve an amendment to the Company's Articles of Incorporation that will [ ] [ ] [ ]
eliminate the personal liability of the directors and officers of the
Company and provide for the indemnification of such directors and officers.
8. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE HEREIN. IF
NO SPECIFICATIONS ARE MADE, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF THE
SIX NOMINEES FOR DIRECTOR AND "FOR" PROPOSALS 2, 3, 4, 5, 6 AND 7.
Appendix I-1
------------
Dated: March ___, 2001 Name of Holder: ____________________________________________________________
Please print name as it appears on the stock certificate(s).
Signature: ____________________________________________________________
If signing for an estate, trust or corporation, title and
capacity should be stated. If shares are held jointly, each
holder should sign.
STOCKHOLDERS SHOULD SIGN THIS PROXY PROMPTLY
AND RETURN IT IN THE ENCLOSED ENVELOPE.
Appendix I-2
------------