AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1999
REGISTRATION NO. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------------
TOMAHAWK CORPORATION
(Exact name of registrant as specified in its charter)
ALBERTA, CANADA 7374 --
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization)Classification Code Number) Identification No.)
8315 Century Park Court, Suite 200, San Diego, California 92123, (619)
874-7692 (Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
---------------------------------
Steven M. Caira
President, Chief Executive Officer and Chairman of the Board
8315 Century Park Court, Suite 200, San Diego, California 92123, (619) 874-7692
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
John J. Hentrich, Esq.
Baker & McKenzie
101 West Broadway, 12th Floor, San Diego, California 92101, (619) 236-1441
---------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
CALCULATION OF REGISTRATION FEE
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Amount Proposed Maximum Proposed Maximum
Title of Each Class of Securities to be To Be Offering Price Aggregate Offering Amount of
Registered Registered (1) Per Share Price (2) Registration Fee
- --------------------------------------------- ---------------- --------------------- ---------------------- -------------------
Common Stock, $0.001 par value............. 5,650,300 $ 1.65 $ 9,322,995 $ 2,595
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(1) Amount of shares of common stock to be registered based on the estimated
number of outstanding common shares after the completion of the
one-for-fifteen consolidation of Registrant's common shares.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) of the Securities Act of 1933, as amended.
Pursuant to Rule 457(f)(1), the maximum offering price per share is $1.65,
the U.S. dollar equivalent (based on the closing exchange rate on July 6,
1999, of the average of the bid and asked prices of the Registrant's common
shares as reported by The Alberta Stock Exchange on July 6, 1999,
multiplied by fifteen to account for the one-for-fifteen common share
consolidation. The maximum aggregate offering price of $9,322,995 is the
product of $1.65 and the number of shares of the Registrant's Common Stock
being registered hereby.
---------------------------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with the provisions of Section
8(a) of the Securities Act of 1933, as amended, or until the Registration
Statement shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
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TOMAHAWK CORPORATION
5,650,300 SHARES OF COMMON STOCK
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
PROPOSED DELAWARE DOMESTICATION--YOUR VOTE IS VERY IMPORTANT
We are calling an annual and special meeting for our shareholders to:
- Receive and consider the financial statements of TomaHawk
Corporation for the year ended December 31, 1998 and the
auditors' report thereon;
- Fix the number of directors to be elected at the annual and
special meeting;
- Elect four directors;
- Appoint the auditors of TomaHawk Corporation; and
- Authorize TomaHawk Corporation to issue shares through one or
more private placements.
In addition, you will be asked to vote on the following proposal:
- To approve TomaHawk Corporation's change in jurisdiction of
incorporation from the Province of Alberta, Canada to the State
of Delaware, U.S.A. and to make certain other amendments to our
articles of incorporation and bylaws regarding the domestication
into Delaware.
If this domestication into Delaware is approved, then we will adjourn
the annual and special meeting, effect a one-for-fifteen consolidation of the
common shares, and complete the Delaware domestication. After we have completed
the Delaware domestication, we will reconvene the annual and special meeting,
and request that you vote on five proposed amendments to the new Delaware
corporation's certificate of incorporation and bylaws. You should review the
accompanying Proxy Statement and Information Circular for more information on
the specific proposals to be voted on at the annual and special meeting.
Under Alberta corporate law, the proposed domestication from Alberta to
Delaware requires shareholder approval. (See "Summary--The Annual and Special
Meeting; Voting; Proxies--Voting.") Our board of directors believes that it is
in our best interests and in the best interests of our shareholders to
domesticate into Delaware. The new Delaware corporation will be called TomaHawk
Engineering, Inc., and will continue to operate as the parent holding company of
TomaHawk II, Inc., our operating subsidiary.
If TomaHawk Corporation domesticates into Delaware, then you
automatically will own shares of common stock of the new Delaware corporation
unless you exercise your right of dissent. The shares of common stock of the
new Delaware corporation will continue to trade on The Alberta Stock Exchange,
but will trade under the symbol "THK" instead of our current trading symbol
"TKC."
If you properly dissent to the Delaware domestication, then you may
obtain payment of the fair value of your common shares of the existing Alberta
corporation instead of receiving shares of common stock of the new Delaware
corporation.
Our board of directors recommends that you vote "FOR" the Delaware
domestication and each of the other proposals. See "Summary--The Annual and
Special Meeting; Voting; Proxies." The annual and special meeting will be held
at 10:00 a.m., San Diego time, on ______________, 1999 at 8315 Century Park
Court, Suite 200, San Diego, California.
YOU SHOULD REVIEW THE RISK FACTORS BEGINNING ON PAGE 10 OF THE
ACCOMPANYING PROXY STATEMENT AND INFORMATION CIRCULAR FOR A DISCUSSION OF
VARIOUS RISKS RELATING TO THE PROPOSED DELAWARE DOMESTICATION AND TO OUR
CONTINUING OPERATIONS. PLEASE NOTE THAT NEITHER THE U.S. SECURITIES AND
EXCHANGE COMMISSION NOR ANY STATE OR PROVINCIAL SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THE PROXY STATEMENT
AND INFORMATION CIRCULAR IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The accompanying Proxy Statement and Information Circular provides
additional information relating to the proposals to be voted on at the annual
and special meeting. You should read the entire Proxy Statement and Information
Circular carefully. We first mailed the accompanying Proxy Statement and
Information Circular to our shareholders on or about ______________, 1999.
Sincerely,
Steven M. Caira
President, Chief Executive Officer, Acting Chief
Financial Officer and Chairman of the Board
PROXY STATEMENT AND INFORMATION CIRCULAR
TABLE OF CONTENTS
PAGE
----
PROXY STATEMENT AND INFORMATION CIRCULAR.........................................................................1
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.......................................................................1
TRADEMARKS.......................................................................................................1
SUMMARY..........................................................................................................2
Risk Factors............................................................................................2
General Information about the Delaware Domestication....................................................2
The Annual and Special Meeting; Voting; Proxies.........................................................3
Proposals to be Voted on at the Annual and Special Meeting.....................................3
Voting.........................................................................................3
Proxies........................................................................................4
The Existing Alberta corporation........................................................................5
More Details about the Delaware Domestication...........................................................5
Board of Directors Recommendation..............................................................5
Reasons for the Delaware Domestication.........................................................5
Conditions to Consummation of the Delaware Domestication.......................................6
One-for-Fifteen Common Share Consolidation.....................................................6
Effective Time of the Delaware Domestication...................................................6
Exchange of Share Certificates.................................................................6
Comparison of Rights of Shareholders....................................................................6
Tax Considerations......................................................................................7
Canadian Federal Income Tax Considerations.....................................................7
U.S. Federal Income Tax Considerations.........................................................7
Dissenter's Rights......................................................................................8
Regulatory Approval.....................................................................................8
Security Ownership of Company Management................................................................8
Market Information......................................................................................8
RISK FACTORS....................................................................................................10
Risk Factors Relating to the Delaware Domestication....................................................10
We may be subject to Canadian federal income tax liability as a result of
the Delaware domestication..................................................................10
Holders of common shares in Canadian registered retirement savings plans may be
subject to Canadian federal income tax liability............................................10
The Delaware domestication will affect your rights as a shareholder...........................10
Certain proposed provisions of the new Delaware corporation's certificate of incorporation and
bylaws may deter takeover attempts..........................................................11
Risk Factors Relating to our Continuing Operations.....................................................12
Our limited working capital may prevent us from continuing as a going concern.................12
We will require additional financing to continue operating our business.......................12
We depend on contracts funded by the U.S. government to provide the majority
of our revenues.............................................................................12
Our revenues fluctuate based on the U.S. government's spending cycle..........................13
We have experienced significant fluctuations in our operating results.........................13
The U.S. government can generally terminate, without penalty, the contracts that provide the
majority of our revenues....................................................................13
We cannot guarantee that we will continue to successfully obtain contracts through the U.S.
government's bidding process................................................................14
We may not attract, motivate and retain key executives and employees .........................14
We may not retain the consultant that coordinates our marketing efforts directed at the U.S.
government..................................................................................14
Our private sector revenues are highly vulnerable to changes in spending priorities in the
defense and aerospace industries............................................................15
We derive a substantial portion of our revenues from short-term contracts.....................15
Fixed price contracts may adversely affect our profitability..................................15
We may not manage effectively the challenges presented by our rapid growth....................15
We face potential competition from the in-house capabilities of certain customers.............15
We face potential competition from new document conversion outsourcing businesses because of
the relatively low costs of entry...........................................................16
i
Our engineering and precision machining services may expose us to product liability...........16
Certain of our services utilize processes and software that may not be protected by trade
secret laws.................................................................................16
Certain of our services depend on technology licensed from third parties......................16
New technologies could render certain of our services obsolete or unmarketable................17
Our officers, directors and significant shareholders have the power to influence the election
of directors and the passage of shareholder proposals because they collectively hold a
substantial number of common shares.........................................................17
We may be subject to liability for unauthorized disclosures of confidential information.......17
Our common shares may be subject to wide fluctations in value and limited trading volume......17
Our shares of common stock will be considered "penny stock" and therefore subject to
additional SEC regulations, which may make it more difficult to sell these shares............17
Future sales of our common stock in the public market may affect adversely the price of our
common stock and our ability to raise additional funds through equity issuances.............18
We do not pay dividends on our common shares..................................................18
Your investment in our common stock is subject to currency exchange rate risk.................19
We may be exposed to unanticipated year 2000 problems.........................................19
We may be exposed to our customers' year 2000 problems........................................19
We may be exposed to our suppliers' year 2000 problems........................................19
THE ANNUAL AND SPECIAL MEETING..................................................................................20
Proposals to be Voted on at the Annual and Special Meeting.............................................20
Record Date; Voting Rights.............................................................................21
Quorum; Vote Required for Adoption.....................................................................21
Proxies ..............................................................................................22
General.......................................................................................22
Revocation....................................................................................23
Validity......................................................................................23
Solicitation of Proxies.......................................................................23
PARTICULARS OF MATTERS TO BE ACTED UPON.........................................................................24
PROPOSAL ONE--FIXING THE NUMBER OF DIRECTORS....................................................................24
Fixing Number of Directors.............................................................................24
Vote Required..........................................................................................24
PROPOSAL TWO--ELECTION OF DIRECTORS.............................................................................25
Information Regarding Director Nominees................................................................25
Board of Directors.....................................................................................27
Board Meetings and Committees..........................................................................27
Compensation of the Existing Alberta Corporation's Directors...........................................27
Board of Directors Interlocks and Insider Participation................................................27
Compiance with Section 16(a) of the Securities Exchange Act of 1934....................................27
Vote Required..........................................................................................27
PROPOSAL THREE--RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS.............................................29
General ..............................................................................................29
Vote Required..........................................................................................29
PROPOSAL FOUR--AUTHORIZATION TO CONDUCT PRIVATE PLACEMENTS......................................................30
General ..............................................................................................30
The Proposed Resolution................................................................................30
Vote Required..........................................................................................31
PROPOSAL FIVE--DOMESTICATION INTO THE STATE OF DELAWARE.........................................................32
General ..............................................................................................32
Principal Reasons for the Delaware Domestication.......................................................33
Simplification of Corporate Structure.........................................................33
Commercial Advantage..........................................................................33
No Business Reason to Remain Domiciled in Canada..............................................33
Reduction of Canadian Tax and Regulatory Obligations..........................................33
Advantages of Delaware Law....................................................................33
Change in Par Value of Equity Securities...............................................................34
Board of Directors has Discretion to Effect Delaware Domestication.....................................34
Corporate Governance Differences; Delaware and Alberta Law Comparisons.................................34
Shareholder Quorum...................................................................34
Supermajority........................................................................34
ii
Required Approvals of Shareholders...................................................35
Examination of Corporate Records.....................................................35
Minority (Dissenter's) Rights........................................................35
Disqualification of Directors........................................................36
Personal Liability of Directors......................................................36
Indemnification......................................................................37
Cumulative Voting for the Election of Directors......................................37
Loans to Officers and Employees......................................................38
Dividends and Repurchases of Shares..................................................38
Interested Director Transactions.....................................................38
Anti-Takeover Effects................................................................38
Regulatory Approval....................................................................................41
Tax Considerations.....................................................................................41
Canadian Federal Income Tax Considerations....................................................41
United States Federal Income Tax Considerations...............................................44
Right Of Dissent.......................................................................................47
General.......................................................................................47
Fair Market Valuation.........................................................................47
Valuation by Application to Court.............................................................47
Restrictions on Right of Dissent..............................................................47
Action Required to Exercise Right of Dissent..................................................48
Rights of Dissenting Shareholders.............................................................48
Securities Law Consequences............................................................................49
United States Securities Law Consequences.....................................................49
Canadian Securities Law Consequences..........................................................49
Exchange of Share Certificates.........................................................................49
The Delaware Domestication Resolution..................................................................49
Vote Required..........................................................................................51
PROPOSAL SIX--AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS
TO REQUIRE ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS AND PROPOSALS....................................52
General ..............................................................................................52
Reasons for Stockholder Approval.......................................................................53
Potential Anti-Takeover Effects........................................................................53
The Proposed Amendments................................................................................53
Vote Required..........................................................................................55
PROPOSAL SEVEN--AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS TO PROHIBIT
STOCKHOLDERS FROM CALLING SPECIAL MEETINGS OF THE STOCKHOLDERS.........................................56
General ..............................................................................................56
Reasons for Stockholder Approval.......................................................................56
Potential Anti-Takeover Effects........................................................................56
The Proposed Amendments................................................................................57
Vote Required..........................................................................................57
PROPOSAL EIGHT--AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION TO ELIMINATE
ACTIONS OF THE STOCKHOLDERS BY WRITTEN CONSENT WITHOUT A MEETING.......................................58
General ..............................................................................................58
Reasons for Stockholder Approval.......................................................................58
Potential Anti-Takeover Effects........................................................................58
The Proposed Amendment.................................................................................59
Vote Required..........................................................................................59
PROPOSAL NINE--AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS TO
REQUIRE A SUPERMAJORITY VOTE TO AMEND CERTAIN PROVISIONS OF THE NEW DELAWARE CORPORATION'S CERTIFICATE
OF INCORPORATION AND BYLAWS............................................................................60
General ..............................................................................................60
Reasons for Stockholder Approval.......................................................................60
Potential Anti-Takeover Effects........................................................................60
The Proposed Amendments................................................................................61
Vote Required..........................................................................................61
iii
PROPOSAL TEN--APPROVAL OF FORM INDEMNIFICATION AGREEMENT........................................................62
General ..............................................................................................62
Terms of the Indemnification Agreements................................................................63
Reasons For Shareholder Approval.......................................................................63
Vote Required..........................................................................................63
ANTI-TAKEOVER MEASURES CURRENTLY INCLUDED IN THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION
AND BYLAWS.............................................................................................64
Blank Check Preferred Stock............................................................................64
Section 203 of the General Corporation Law of the State of Delaware....................................64
No Cumulative Voting...................................................................................65
DESCRIPTION OF CAPITAL STOCK....................................................................................66
Common Stock...........................................................................................66
Preferred Stock........................................................................................66
Dividends and Liquidation Preference..........................................................66
Conversion Right..............................................................................67
Cancellation of Preferred Stock...............................................................67
Change of Control Provisions...........................................................................67
Blank Check Preferred Stock...................................................................67
Increased Stockholder Vote for Amendment of Certificate of Incorporation or Bylaws............67
Proposal Six -- Advance Notice of Stockholder Nominations and Proposals.......................68
Proposal Seven -- Elimination of the Ability of Stockholders to Call a Special Meeting.......68
Proposal Eight -- Stockholders Cannot Take Action by Written Consent..........................68
Proposal Nine -- Increased Stockholder Vote for Amendment of the Certain Provisions of the
Certificate of Incorporation and Bylaws.....................................................68
Section 203 of General Corporation Law of the State of Delaware...............................68
Transfer Agent and Registrar...........................................................................69
Disclosure of SEC Position on Indemnification for Securities Act Liabilities...........................69
BUSINESS .......................................................................................................70
Overview ..............................................................................................70
Corporate History......................................................................................70
Services ..............................................................................................71
Document Imaging and Conversion Services......................................................71
Engineering and Manufacturing Services........................................................72
Sales and Marketing....................................................................................73
ADCS Program and Government Contracts..................................................................74
ADCS Program..................................................................................74
Intergraph Contracts..........................................................................74
General Services Administration Contract......................................................74
Competition............................................................................................75
Customers..............................................................................................75
Proprietary Rights.....................................................................................75
Employees..............................................................................................75
Acquisition............................................................................................76
Facilities............................................................................................ 76
Legal Proceedings......................................................................................76
MARKET FOR THE EXISTING ALBERTA CORPORATION'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.....................78
Market Price Information...............................................................................78
Holders ..............................................................................................78
Dividend Policy........................................................................................78
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................79
Overview ..............................................................................................79
Results of Operations..................................................................................80
Three Months Ended March 31, 1999 Compared with Three Months Ended
March 31, 1998..............................................................................80
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997................................81
Liquidity and Capital Resources........................................................................83
Year 2000 Compliance...................................................................................83
Internal Year 2000 Readiness..................................................................84
Year 2000 Readiness of our Suppliers and Customers............................................84
Change In Accountants..................................................................................84
iv
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..................................................85
MANAGEMENT......................................................................................................88
EXECUTIVE COMPENSATION..........................................................................................90
Summary Compensation...................................................................................90
Stock Option Plan......................................................................................91
Stock Options Granted In The Year Ended December 31, 1998..............................................92
Common Shares Underlying Unexercised Options and Option Values.........................................93
Employment Agreements..................................................................................93
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................................................94
Consulting Arrangement with Capstone National Partners, LLC............................................94
Indebtedness of Directors, Executive Officers, Senior Management and Significant Shareholders..........94
Restructuring of Notes........................................................................94
Variable Accounting Treatment.................................................................95
Indebtedness of the Existing Alberta Corporation to its Directors, Officers, and Significant
Shareholders..................................................................................95
Indebtedness to Directors and Officers........................................................95
Indebtedness to Significant Shareholder.......................................................96
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON........................................................96
Indemnification........................................................................................96
INTEREST OF NAMED EXPERTS AND COUNSEL...........................................................................96
LEGAL MATTERS...................................................................................................96
TAX MATTERS.....................................................................................................97
EXPERTS.........................................................................................................97
AVAILABLE INFORMATION...........................................................................................97
OTHER MATTERS...................................................................................................97
SHAREHOLDER PROPOSALS...........................................................................................97
APPROVAL OF DIRECTORS...........................................................................................97
CERTIFICATE OF TOMAHAWK CORPORATION.............................................................................98
TOMAHAWK CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ...............................................F-1
APPENDIX I.....................................................................................................A-1
APPENDIX II....................................................................................................B-1
APPENDIX III...................................................................................................C-1
APPENDIX IV....................................................................................................D-1
v
PROXY STATEMENT AND INFORMATION CIRCULAR
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
The information presented in this Proxy Statement and Information
Circular includes certain "forward-looking statements." You should not rely
excessively on these forward-looking statements, because they are only
predictions based on our current expectations and assumptions. Forward-looking
statements often contain words like "estimate," "anticipate," "believe" or
"expect." Many known and unknown risks and uncertainties, including those
described under the headings "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" (and elsewhere in
this Proxy Statement and Information Circular) could cause our actual results to
differ materially from those indicated in these forward-looking statements. For
example, the U.S. Internal Revenue Service or the Canadian Department of
National Revenue, Customs, Excise and Taxation may not agree with the
conclusions reached by our tax advisors regarding the tax consequences of the
Delaware domestication for our shareholders, resulting in different tax
consequences than are discussed in this Proxy Statement and Information
Circular.
You should review carefully the risks and uncertainties identified in
this Proxy Statement and Information Circular, including the risk factors
beginning on page 10. We have no obligation to update or announce revisions to
any forward-looking statements to reflect actual events or developments. All
future written and oral forward-looking statements made by us or by persons
acting on our behalf are expressly qualified in their entirety by this notice.
WHILE WE INCLUDE FORWARD-LOOKING STATEMENTS FOR THE NEW DELAWARE
CORPORATION OF WHICH YOU SHOULD BE AWARE, PLEASE NOTE THAT THE SAFE HARBOR
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT PROVIDED IN SECTION
27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934 ARE NOT AVAILABLE TO THE NEW DELAWARE CORPORATION AS A NEW ISSUER.
TRADEMARKS
TomaHawk-TM- and TomaHawk II-TM- are trademarks of the existing Alberta
corporation. All other trademarks and registered trademarks used in this
Prospectus and Information Circular are the property of their respective owners.
1
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY STATEMENT
AND INFORMATION CIRCULAR. IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. YOU SHOULD READ CAREFULLY THIS ENTIRE PROXY STATEMENT AND
INFORMATION CIRCULAR, INCLUDING ITS APPENDICES, TO UNDERSTAND THE DELAWARE
DOMESTICATION MORE FULLY, AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS
OF THE DELAWARE DOMESTICATION.
RISK FACTORS
YOU SHOULD REVIEW AND CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON
PAGE 10, ESPECIALLY THOSE RISKS RELATING TO THE DELAWARE DOMESTICATION AND
RELATED TAX CONSEQUENCES.
GENERAL INFORMATION ABOUT THE DELAWARE DOMESTICATION
We propose to change our jurisdiction of incorporation from the Province
of Alberta, Canada to the State of Delaware, U.S.A. This change is referred to
as a "domestication." After the Delaware domestication, we will become a new
Delaware corporation called TomaHawk Engineering, Inc. Our board of directors
recommends that you vote "FOR" the domestication. Please note the following
issues concerning the Delaware domestication:
- If the shareholders approve the Delaware domestication, then,
prior to effecting the Delaware domestication, we will conduct a
one-for-fifteen consolidation of our common shares;
- As a result of the Delaware domestication, you will become a
stockholder of the new Delaware corporation;
- Until the anticipated merger of the new Delaware corporation and
its wholly-owned operating subsidiary TomaHawk II, Inc., the new
Delaware corporation will continue to act as the parent holding
company for TomaHawk II, Inc., which will continue to engage in
the same business in which it currently engages;
- As a stockholder of the new Delaware corporation, your relative
voting rights and ownership interest will be substantially
similar to the rights and interests that you currently have as a
shareholder of the existing Alberta corporation; and
- As a stockholder of the new Delaware corporation, your shares of
common stock will continue to be listed on The Alberta Stock
Exchange.
2
THE ANNUAL AND SPECIAL MEETING; VOTING; PROXIES
PROPOSALS TO BE VOTED ON AT THE ANNUAL AND SPECIAL MEETING. We will
hold the annual and special meeting of our shareholders at 10:00 a.m., San Diego
time, on ______________, 1999 at 8315 Century Park Court, Suite 200, San
Diego, California. At the annual and special meeting, we will ask that you:
- receive and consider our consolidated financial statements for
the year ended December 31, 1998 and the auditors' report
thereon; and
- consider and vote on the following proposals:
1. To fix the number of directors to be elected at the annual
and special meeting at four;
2. To elect four directors;
3. To appoint the independent auditors of TomaHawk
Corporation and to authorize our directors to fix their
remuneration as our independent auditors;
4. To consider, and, if deemed advisable by our
shareholders, to pass an ordinary resolution
authorizing the issuance, in one or more private
placements, of a number of securities that could result
in TomaHawk Corporation issuing, during the next 12
months, a number of securities that exceeds 25% but is
not greater than 100% of the issued and outstanding
securities, subject to the restrictions described in
this Proxy Statement and Information Circular;
5. To approve TomaHawk Corporation's change in
jurisdiction of incorporation from the Province of
Alberta, Canada to the State of Delaware, U.S.A. and to
make certain other amendments to our articles of
incorporation and bylaws regarding the domestication
into Delaware. See "Proposal Five--Domestication into
the State of Delaware."
If the domestication into Delaware is approved, then we will adjourn the
annual and special meeting, effect a one-for-fifteen consolidation of the common
shares, and complete the Delaware domestication. After we have completed the
Delaware domestication, we will reconvene the annual and special meeting, and
request that you vote on the following five proposals relating to the new
Delaware corporation:
6. To require advance notice of stockholder nominations
and proposals;
7. To prevent the stockholders from calling special
meetings of the stockholders;
8. To prohibit stockholder action by written consent;
9. To require a supermajority vote to amend certain
provisions of the new Delaware corporation's
certificate of incorporation and bylaws; and
10. To approve the adoption of a form indemnification
agreement for the new Delaware corporation's directors
and executive officers.
VOTING. You can vote at the annual and special meeting if you own any
common shares or Class A Series III Preferred Shares of TomaHawk Corporation at
the close of business on ____________, 1999, also known as the record date.
For Proposal Five, you are entitled to one vote for each common
3
share and one vote for each Class A Series III Preferred Share that you hold on
the record date. The holders of common shares and Class A Series III Preferred
Shares will vote as a single class on Proposal Five. THE HOLDERS OF CLASS A
SERIES III PREFERRED SHARES WILL NOT VOTE ON PROPOSALS ONE THROUGH FOUR AND SIX
THROUGH NINE. You may vote your shares in person by attending the annual and
special meeting or by mailing, faxing or delivering your proxy to our president,
Steven M. Caira, c/o CIBC Mellon Trust Company, 600 Dome Tower, 333 - 7th Avenue
S.W., Calgary, Alberta T2P 2Z1, not later than 10:00 a.m. (San Diego time) on
______________, 1999, or by the close of business on the last business day
before any adjournment of the annual and special meeting.
At the annual and special meeting, with respect to Proposals One through
Five, we will not consider abstentions and broker "non-votes" for purposes of
obtaining a quorum or in determining whether Proposal Five passes. Approval of
Proposals One through Four requires the affirmative vote of the holders of a
majority of the common shares represented and voting at the annual and special
meeting. Approval of Proposal Five requires the affirmative vote of the holders
of 66 2/3% of the common shares and Class A Series III Preferred Shares, voting
as one class, represented and voting at the annual and special meeting.
With respect to Proposals Six through Nine, we will consider abstentions
and broker "non-votes" as "present" for purposes of obtaining a quorum but will
not count them as votes cast in determining whether Proposals Six through Nine
pass. Approval of Proposals Six through Nine requires the affirmative vote of a
majority of the holders of shares of common stock represented and voting at the
annual and special meeting. Therefore, abstentions and broker "non-votes" will
have the same effect as votes cast against each of Proposals Six through Nine.
We will consider abstentions as "present" for purposes of obtaining a
quorum but will not count them as votes cast in determining whether Proposal Ten
passes. Approval of Proposal Ten requires the affirmative vote of a majority of
the votes present or represented by proxy and entitled to vote on this subject
matter at the meeting and held by disinterested stockholders. Since each
director and each executive officer is an interested party with respect to this
matter, shares owned directly or indirectly by any director or executive officer
may not be voted on this proposal although they will be counted for purposes of
determining whether a quorum is present. Broker non-votes will not be treated
as entitled to vote on this subject matter at the meeting. See "The Annual and
Special Meeting--Record Date; Voting Rights" and "--Quorum; Vote Required for
Adoption."
PROXIES. Our board of directors is soliciting from you the accompanying
proxy. You may grant a proxy to vote for or against the proposal to approve the
Delaware domestication and each of the proposals related to the new Delaware
corporation. For a proxy to be effective, our president must receive the proxy
not later than 10:00 a.m. (San Diego time) on ______________, 1999, or by
the close of business on the last business day before any adjournment of the
annual and special meeting. Your properly executed proxy will determine how
your common shares or Class A Series III Preferred Shares will be voted. You
should be aware that, if you properly execute your proxy card without indicating
how you want to vote, then your shares will be voted "FOR" the proposal to
approve the Delaware domestication and each of the proposals related to the new
Delaware corporation.
You may revoke a proxy at any time before its exercise by following the
proxy revocation instructions described under the section entitled "The Annual
and Special Meeting--Proxies--Revocation." If your shares are held in the name
of a bank, broker or other nominee, then you should follow the instructions
provided by the bank, broker or other nominee on voting your shares and in
revoking your previously voted shares. See "The Annual and Special
Meeting--Proxies."
4
THE EXISTING ALBERTA CORPORATION
TomaHawk Corporation currently is incorporated under the laws of the
Province of Alberta, Canada. The existing Alberta corporation is the parent
holding company of TomaHawk II, Inc., an Illinois corporation. TomaHawk II,
Inc. provides document imaging and conversion services, engineering design and
manufacturing services to both the U.S. federal government and commercial
customers.
The existing Alberta corporation manages its day-to-day activities from
the principal executive offices of TomaHawk II, Inc., located at 8315 Century
Park Court, Suite 200, San Diego, California 92123. Our telephone number is
(619) 874-7692, and our Internet address is http://www.tomahawk.com.
TomaHawk Corporation is a small business issuer as defined by
Regulation S-B under the Securities Act.
MORE DETAILS ABOUT THE DELAWARE DOMESTICATION
BOARD OF DIRECTORS RECOMMENDATION. Our board of directors has approved
unanimously the Delaware domestication and the proposals related to the new
Delaware corporation, and recommends that you vote "FOR" the approval of the
Delaware domestication and these other proposals.
In determining to recommend the Delaware domestication, our board of
directors consulted with the existing Alberta corporation's management, who
reported to the directors on their consultation with our financial advisors and
tax advisors, and considered various factors, including those described below
under the sections entitled "--Reasons for the Delaware Domestication,"
"Proposal Five--Domestication into the State of Delaware--Certain United States
Federal Income Tax Considerations" and "--Certain Canadian Federal Income Tax
Considerations."
REASONS FOR THE DELAWARE DOMESTICATION. Because the focus of our
operations and business is in the United States, our board of directors believes
that it is preferable to be governed by the laws of a state of the United
States. In addition, our board of directors recommends the Delaware
domestication for the following reasons:
- Our board of directors believes that our current corporate
structure is unnecessarily complicated, and that it is in our
best interests to consolidate our corporate structure into one
Delaware corporation. Alberta corporate law does not permit an
Alberta corporation to merge with corporations incorporated
outside of Alberta. The Delaware domestication will allow us to
merge with TomaHawk II, Inc. in the future;
- Our board of directors believes that we will gain a commercial
advantage by domesticating into Delaware because certain
potential customers may desire to work exclusively with U.S.
companies;
- Our board of directors believes that there is no business reason
for our continued incorporation in Canada, given that we have no
facilities, employees or operations in Canada, and most of our
shareholders and customers are in the United States;
- Our board of directors believes that by domesticating into
Delaware, we will reduce our Canadian corporate tax and reporting
obligations; and
- The State of Delaware has adopted comprehensive, modern and
flexible corporate laws, and its courts have developed
considerable expertise in dealing with corporate issues,
developing a substantial body of case law and establishing public
policies with respect to Delaware corporations. Our board of
directors therefore believes that domesticating into Delaware is
in our best interests and the best interests of our shareholders.
5
See "Proposal Five--Domestication into the State of Delaware--Principal Reasons
for the Delaware Domestication."
CONDITIONS TO CONSUMMATION OF THE DELAWARE DOMESTICATION. Holders of 66
2/3% of the common shares and Class A Series III Preferred Shares, voting
together as a single class, present or represented by proxy and voting at the
annual and special meeting must approve the Delaware domestication. Our board
of directors may choose, however, not to complete the Delaware domestication for
any reason, including the following:
- If the Delaware domestication results in an unreasonably high tax
liability for the existing Alberta corporation (see "Proposal
Five--Domestication into the State of Delaware--Tax
Considerations--Canadian Federal Income Tax
Considerations--Canadian Federal Income Tax Consequences to the
Existing Alberta Corporation");
- If a significant number of the shareholders exercise their right
of dissent; or
- If any other circumstance arises that convinces our board of
directors that the Delaware domestication would not be in the
best interests of our company and our shareholders.
ONE-FOR-FIFTEEN COMMON SHARE CONSOLIDATION. If the shareholders approve
the Delaware domestication, then, before completing the Delaware domestication,
subject to approval by The Alberta Stock Exchange, we will effect a
one-for-fifteen consolidation of the common shares and corresponding name change
of the existing Alberta corporation whereby TomaHawk Corporation will be renamed
TomaHawk Engineering, Inc. Our shareholders authorized this common share
consolidation and name change on September 22, 1998.
EFFECTIVE TIME OF THE DELAWARE DOMESTICATION. The Delaware
domestication will become effective as soon as the appropriate Certificate of
Domestication is filed with the Secretary of State of the State of Delaware. If
the shareholders approve the Delaware domestication, then we intend to adjourn
the annual and special meeting for a short period to enable us to file the
necessary documents with the Secretary of State of the State of Delaware to
effect the Delaware domestication.
EXCHANGE OF SHARE CERTIFICATES. If the Delaware domestication is
completed and you have not exercised your right of dissent, then your common
shares automatically will convert into shares of common stock and your Class A
Series III Preferred Shares automatically will convert into shares of Class A
Preferred Stock of the new Delaware corporation at the effective time of the
Delaware domestication. Following the Delaware domestication, we will issue to
you certificates bearing the name of the new Delaware corporation upon your
surrender to us of certificates representing the existing common shares and
Class A Series III Preferred Shares for transfer or exchange. See "Proposal
Five--Domestication into the State of Delaware--Exchange of Share Certificates."
COMPARISON OF RIGHTS OF SHAREHOLDERS
The principal attributes of the common shares of the existing Alberta
corporation and the common stock of the new Delaware corporation will be
similar. However, certain differences exist concerning the rights of
shareholders under Alberta corporate law and Delaware corporate law. In
addition, certain differences exist among the existing Alberta corporation's
articles of incorporation and bylaws and the new Delaware corporation's
certificate of incorporation and bylaws. See "Proposal Five--Domestication into
the State of Delaware--Corporate Governance Differences; Delaware and Alberta
Law Comparisons."
6
TAX CONSIDERATIONS
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS. This section briefly
summarizes the opinion of our Canadian tax advisors, the Ernst & Young LLP
International member firm in Canada, regarding the Canadian federal income tax
consequences of the Delaware domestication. YOU SHOULD CONSULT YOUR OWN TAX
ADVISORS WITH RESPECT TO YOUR PARTICULAR CIRCUMSTANCES. See "Proposal
Five--Domestication into the State of Delaware--Tax Considerations--Canadian
Federal Income Tax Considerations."
For Canadian federal income tax purposes, the existing Alberta
corporation will be deemed to have disposed of all of its assets on the
effective date of the Delaware domestication for an amount equal to the fair
market value of these assets. If these deemed proceeds exceed the cost or
adjusted cost base of the existing Alberta corporation's assets, then the
excess, or three-fourths of the excess in the case of a capital property, will
be included in income on that date. To the extent these amounts exceed any
deductions otherwise available, then the existing Alberta corporation will incur
a tax liability in Canada. In addition, the Delaware domestication will subject
the existing Alberta corporation to a special exit tax on the difference between
the aggregate fair market value of the assets and the aggregate of the
liabilities and paid-up capital of the shares of the existing Alberta
corporation immediately before the Delaware domestication is completed. See
"Proposal Five--Domestication into the State of Delaware--Tax
Considerations--Canadian Federal Income Tax Considerations--Canadian Federal
Income Tax Consequences to the Existing Alberta Corporation."
Your Canadian federal income tax consequences from the Delaware
domestication will vary depending on whether you are an individual, corporation,
resident or non-resident of Canada, and on whether or not you dissent with
respect to the Delaware domestication. See "Proposal Five--Domestication into
the State of Delaware--Tax Considerations--Canadian Federal Income Tax
Considerations." If you do not dissent with respect to the Delaware
domestication, then you generally will not be considered to have disposed of
your common shares, and you should not have any immediate Canadian tax
consequences. If you dissent with respect to the Delaware domestication and if
you require the existing Alberta corporation to purchase for cash your common
shares, then you generally will be considered to have received a dividend on the
redemption of your common shares, and you may incur Canadian tax liability. See
"Proposal Five--Domestication into the State of Delaware--Tax
Considerations--Canadian Federal Income Tax Considerations."
The one-for-fifteen consolidation of the common shares of the existing
Alberta corporation will be considered a disposition for Canadian federal income
tax purposes; however, the disposition occurs at your adjusted cost base, and,
therefore, you will not recognize any capital gain or loss as a result of the
consolidation. The consolidation will result in a proportional adjustment to
the adjusted cost base of the reduced number of common shares held by each
shareholder.
U.S. FEDERAL INCOME TAX CONSIDERATIONS. This section briefly summarizes
the opinion of our U.S. tax advisors, Ernst & Young LLP, regarding the U.S.
federal income tax consequences of the Delaware domestication. This discussion
does not address certain U.S. federal income tax consequences applicable to U.S.
Shareholders that owned or own (directly or indirectly) 10% or more of the
voting power of the existing Alberta corporation at any time during the five
year period ending on the date that the Delaware domestication is completed. YOU
SHOULD CONSULT YOUR OWN TAX ADVISORS WITH RESPECT TO YOUR PARTICULAR
CIRCUMSTANCES. See "Proposal Five--Domestication into the State of
Delaware--Tax Considerations--United States Federal Income Tax Considerations."
The Delaware domestication will constitute a tax-free reorganization
under the U.S. Internal Revenue Code of 1986. As a result, the existing Alberta
corporation will not have any immediate U.S. federal tax consequences. See
"Proposal Five--Domestication into the State of Delaware--Tax
7
Considerations--United States Federal Income Tax Considerations--U.S. Federal
Income Tax Consequences to the Existing Alberta Corporation."
Your U.S. tax consequences from the Delaware domestication will vary
depending on whether you are a resident or non-resident of the United States,
and on whether or not you dissent with respect to the Delaware domestication.
See "Proposal Five--Domestication into the State of Delaware--Tax
Considerations--United States Federal Income Tax Considerations." If you do not
reside in the United States, and if you do not dissent with respect to the
Delaware domestication, then you will not recognize any gain or loss from the
Delaware domestication. If you do reside within the United States, then you
likely will not recognize any gain or loss from the Delaware domestication. See
"Proposal Five--Domestication into the State of Delaware--Tax
Considerations--United States Federal Income Tax Considerations--Residents of
the United States--Non-Dissenting Shareholders." If you are subject to U.S.
federal income tax and if you dissent with respect to the Delaware
domestication, then any cash that you receive in payment for your shares of the
existing Alberta corporation will be treated as cash received to redeem your
common shares. As a result, you may have to recognize capital gain or loss or
ordinary income as a result of the Delaware domestication.
The one-for-fifteen consolidation of the common shares will not be
considered a disposition for U.S. tax purposes. You therefore will not realize
any capital gain or loss as a result of the common share consolidation.
DISSENTER'S RIGHTS
If you choose to vote against the Delaware domestication and the
Delaware domestication is consummated, then, under Alberta corporate law, you
may exercise dissenter's rights and have the existing Alberta corporation pay to
you in cash the fair value of your common shares. IF YOU FAIL TO COMPLY
STRICTLY WITH THE REQUIREMENTS OF THE BUSINESS CORPORATIONS ACT (ALBERTA), THEN
YOU MAY LOSE YOUR RIGHT OF DISSENT. ACCORDINGLY, IF YOU WISH TO DEMAND
DISSENTER'S RIGHTS, THEN WE URGE YOU TO READ CAREFULLY "PROPOSAL
FIVE--DOMESTICATION INTO THE STATE OF DELAWARE--RIGHT OF DISSENT" AND THE COPY
OF SECTION 184 OF THE BUSINESS CORPORATIONS ACT (ALBERTA) SHOWN IN APPENDIX I TO
THIS PROXY STATEMENT AND INFORMATION CIRCULAR.
REGULATORY APPROVAL
The existing Alberta corporation will apply to the Registrar of
Corporations for the Province of Alberta for permission to domesticate our
company into the State of Delaware. We must obtain this approval for the
Delaware domestication to take place. We also must file a Certificate of
Domestication with the Secretary of State of the State of Delaware. There are
no other regulatory approvals necessary for consummation of the Delaware
domestication.
SECURITY OWNERSHIP OF COMPANY MANAGEMENT
As of May 31, 1999, the directors and executive officers of the existing
Alberta corporation and its subsidiary TomaHawk II, Inc. beneficially owned
common shares representing approximately 24.2% of the total outstanding common
shares. See "Security Ownership of Certain Beneficial Owners and Management."
MARKET INFORMATION
Our common shares are quoted on The Alberta Stock Exchange under the
trading symbol "TKC." After the Delaware domestication is completed, our shares
of common stock will be quoted on The
8
Alberta Stock Exchange under the trading symbol "THK." On May 31, 1999, the
closing price of our common shares was Cdn. $0.20 (US $0.14).
The following table sets forth the high and low closing prices of our
common shares in Canadian dollars as reported by The Alberta Stock Exchange for
the calendar period indicated. The high and low closing prices also are listed
in U.S. dollars (based on the currency exchange rate on the date the listed
price was reported on The Alberta Stock Exchange). The prices below represent
prices between dealers, without adjustment for retail mark-ups, mark-downs or
commissions, and may not reflect actual transactions.
CLOSING PRICES
--------------------------------------------------------------------
HIGH LOW
-------------------------------- ---------------------------------
1999
First Quarter Cdn. $0.35 (US $0.23) Cdn. $0.22 (US $0.15)
1998
Fourth Quarter Cdn. $0.40 (US $0.26) Cdn. $0.25 (US $0.16)
Third Quarter Cdn. $0.47 (US $0.31) Cdn. $0.28 (US $0.18)
Second Quarter Cdn. $0.56 (US $0.39) Cdn. $0.20 (US $0.14)
First Quarter Cdn. $0.34 (US $0.24) Cdn. $0.23 (US $0.16)
1997
Fourth Quarter Cdn. $0.30 (US $0.22) Cdn. $0.20 (US $0.14)
Third Quarter Cdn. $0.34 (US $0.24) Cdn. $0.17 (US $0.12)
Second Quarter Cdn. $0.27 (US $0.19) Cdn. $0.16 (US $0.12)
First Quarter Cdn. $0.35 (US $0.26) Cdn. $0.21 (US $0.15)
The existing Alberta corporation has never declared a cash dividend on
its common shares.
9
RISK FACTORS
You should evaluate carefully all of the information contained and
incorporated by reference in this Proxy Statement and Information Circular and,
in particular, the following risk factors. References below to the existing
Alberta corporation include its subsidiary, TomaHawk II, Inc.
RISK FACTORS RELATING TO THE DELAWARE DOMESTICATION
WE MAY BE SUBJECT TO CANADIAN FEDERAL INCOME TAX LIABILITY AS A RESULT
OF THE DELAWARE DOMESTICATION.
Upon the completion of the Delaware domestication, the existing Alberta
corporation will be deemed under Canadian tax law to dispose of all of its
assets for an amount equal to the fair market value of these assets on the
effective date of the Delaware domestication. If the deemed proceeds exceed the
cost or adjusted cost base of the existing Alberta corporation's assets on that
date, then the existing Alberta corporation will be required to include the
excess, or three-quarters of the excess in the case of capital property, as
income for Canadian tax purposes. To the extent that the amount included in
income is not offset by available deductions, it will be subject to Canadian tax
at an effective rate of 39%. In addition, completing the Delaware domestication
will require us to pay a special 5% exit tax on the difference between the
aggregate fair market value of our assets and the aggregate amount of our
liabilities immediately before the Delaware domestication is completed and the
paid-up capital of the common shares. We have not applied to the Canadian tax
authorities for a ruling on these matters. We anticipate that we will owe a
certain amount of Canadian federal taxes based on certain valuations and
positions. However, the Canadian federal tax authorities might not accept our
valuations or positions and could claim that we owe additional taxes as a result
of this transaction. See "Proposal Five--Domestication into the State of
Delaware--Tax Considerations--Canadian Federal Income Tax Considerations."
HOLDERS OF COMMON SHARES IN CANADIAN REGISTERED RETIREMENT SAVINGS PLANS
MAY BE SUBJECT TO CANADIAN FEDERAL INCOME TAX LIABILITY.
If the Delaware domestication is completed, then the new Delaware
corporation's shares will constitute "foreign property" for purposes of deferred
income plans such as registered retirement savings plans. The conversion of the
common shares to "foreign property" may cause certain deferred income plans
holding common shares to exceed their foreign property limits. If the Delaware
domestication causes your registered retirement savings plan to exceed its
foreign property limit, then your registered retirement savings plan may be
subject to certain penalties assessed by the Canadian Department of National
Revenue, Customs, Excise and Taxation, and you may be forced to sell all or a
portion of your shares of the new Delaware corporation. We cannot guarantee the
price that you will receive from these sales. See "Proposal Five--Domestication
into the State of Delaware--Tax Considerations--Canadian Federal Income Tax
Considerations--Residents of Canada--Non-Dissenting Shareholders."
THE DELAWARE DOMESTICATION WILL AFFECT YOUR RIGHTS AS A SHAREHOLDER.
After the Delaware domestication, you will become a stockholder of the
new Delaware corporation. Currently, we are incorporated in Alberta, Canada and
governed by Alberta corporate law and our current articles of incorporation and
bylaws. After the Delaware domestication, we will be incorporated in the State
of Delaware, U.S.A. and governed by Delaware corporate law and a new certificate
of incorporation and bylaws. There are certain differences in corporate law and
shareholder rights between the two jurisdictions that could affect adversely the
rights that you currently enjoy as a shareholder of the existing Alberta
corporation. These differences are summarized below, but you should
10
read the section "Proposal Five--Domestication into the State of
Delaware--Corporate Governance Differences; Delaware and Alberta Law
Comparisons" for a more complete description of these differences:
- CERTAIN PROVISIONS OF DELAWARE CORPORATE LAW MAY DETER TAKEOVER
ATTEMPTS. Delaware corporate law prohibits a Delaware
corporation from engaging in any business combination with any
interested stockholder for a period of three years from the time
when the person became an interested stockholder unless certain
conditions are met. This prohibition could delay or make more
difficult a merger, tender offer or proxy contest involving the
new Delaware corporation, and could limit the price that certain
investors might be willing to pay in the future for shares of the
new Delaware corporation's common stock. There is no comparable
provision under Alberta corporate law. See "Description of
Capital Stock--Change of Control Provisions."
- UNDER DELAWARE CORPORATE LAW, CERTAIN EXTRAORDINARY TRANSACTIONS
REQUIRE THE APPROVAL OF ONLY A SIMPLE MAJORITY OF STOCKHOLDERS.
Alberta corporate law requires that certain extraordinary
transactions, such as mergers, sales of substantially all of a
corporation's assets or change in a corporation's domicile, be
approved by a two-thirds majority of the shares voting at a
shareholders meeting. The simple majority vote requirement in
Delaware could allow a group of stockholders to more easily
approve a transaction to the detriment of minority stockholders.
See "Proposal Five--Domestication into the State of
Delaware--Corporate Governance Differences; Delaware and Alberta
Law Comparisons--Required Approvals of Shareholders."
- DISSENTER'S RIGHTS PROVIDED BY DELAWARE CORPORATE LAW ARE NOT AS
EXTENSIVE AS THOSE PROVIDED BY ALBERTA CORPORATE LAW, GIVEN THAT
THEY APPLY TO A NARROWER RANGE OF CORPORATE ACTION. Although the
certificate of incorporation of the new Delaware corporation will
expand dissenter's rights to mirror those provided by Alberta
corporate law, the certificate of incorporation could be amended
in the future to eliminate these additional dissenter's rights.
By approving the Delaware domestication, you may therefore agree
to forego certain dissenter's rights available to you under
Alberta corporate law. See "Proposal Five--Domestication into
the State of Delaware--Corporate Governance Differences; Delaware
and Alberta Law Comparisons--Minority (Dissenter's) Rights."
CERTAIN PROPOSED PROVISIONS OF THE NEW DELAWARE CORPORATION'S
CERTIFICATE OF INCORPORATION AND BYLAWS MAY DETER TAKEOVER ATTEMPTS.
The proposed amendments described in Proposals Six through Nine could
delay, defer or prevent a change in control of the new Delaware corporation and
could limit the price that certain investors might be willing to pay in the
future for shares of the new Delaware corporation's common stock. If approved,
these proposed amendments will:
- require advance stockholder notice to nominate directors and
raise matters at the annual stockholders meeting;
- prohibit stockholders from calling special meetings of
stockholders;
- eliminate the right of stockholders to act by written consent
without a meeting; and
- increase the percentage vote needed to amend the new Delaware
corporation's certificate of incorporation and bylaws.
11
For a more complete description of these amendments and their potential
anti-takeover effects, see "Proposal Five--Domestication into the State of
Delaware--Corporate Governance Differences, Delaware and Alberta Law
Comparisons--Anti-Takeover Effects," Proposals Six through Nine and "Description
of Capital Stock--Change of Control Provisions."
RISK FACTORS RELATING TO OUR CONTINUING OPERATIONS
If the Delaware domestication is completed, then the following risk
factors will continue to apply to the new Delaware corporation:
OUR LIMITED WORKING CAPITAL MAY PREVENT US FROM CONTINUING AS A GOING
CONCERN.
Our independent auditor's report on our December 31, 1998 financial
statements contains an explanatory paragraph which indicates that there is
substantial doubt as to our ability to continue as a going concern. As of March
31, 1999, we had a working capital deficit of $2.1 million and an accumulated
deficit of $11.3 million since our inception. We had losses of $1.6 million for
the year ended December 31, 1998, and $859,000 for the quarter ended March 31,
1999, and expect our losses to continue. Our available cash and future earnings
may not be sufficient to fund our operations and successfully implement our
business plan. We expect that we will need to obtain additional financing to
continue operations, but we might not be able to raise additional capital on
favorable terms, if at all. Unless we generate consistent positive cash flows
from operations for the immediate and foreseeable future, we may be required to
cease or substantially reduce our operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
WE WILL REQUIRE ADDITIONAL FINANCING TO CONTINUE OPERATING OUR BUSINESS.
We have limited cash resources and expect that we will need to obtain
additional debt and/or equity financing to continue operations. As of March 31,
1999 we had a negative working capital balance of $2.1 million, and the report
of our independent auditors for the year ended December 31, 1998 included a
qualification relating to our ability to continue as a going concern. (See
"--Our limited working capital may prevent us from continuing as a going
concern.") However, we might not be able to raise additional funds on favorable
terms, if at all, and any funds that we can raise may not be sufficient to allow
us to continue operations long enough to become profitable. If we cannot raise
additional capital, then our ability to continue our operations may be seriously
impaired. The operation and expansion of our precision machining, in
particular, require considerable capital expenditures. We have relied heavily
on our working capital line of credit to fund continuing operations, and expect
to continue to utilize this line of credit to the extent that cash flow does not
meet our working capital requirements. However, we are currently unable to
utilize this line of credit because as of March 31, 1999, the balance
outstanding exceeded the amount available for borrowing based on our eligible
accounts receivable by $169,000. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
WE DEPEND ON CONTRACTS FUNDED BY THE U.S. GOVERNMENT TO PROVIDE THE
MAJORITY OF OUR REVENUES.
Approximately 69.0% of our total revenues in fiscal year 1998 and 53.6%
of our total revenues in 1997, respectively, resulted from document conversion
contracts or subcontracts funded by the U.S. Department of Defense.
Accordingly, changes in government contracting policies or the U.S. Department
of Defense's funding levels or priorities may affect materially and adversely
our future revenues. Although we are trying to diversify into commercial
markets, we believe that we will continue to depend
12
on our ability to participate in government contract programs in the future.
Among the factors that could affect materially and adversely our government
contracting business are:
- changes in government funding priorities away from document
conversion;
- changes in government procurement practices and policies; and
- technological developments that make our services obsolete.
See "Business--ADCS Program and Government Contracts."
OUR REVENUES FLUCTUATE BASED ON THE U.S. GOVERNMENT'S SPENDING CYCLE.
Our revenues from government funded contracts and subcontracts can
fluctuate significantly from quarter to quarter. These fluctuations in the
government's spending cycle could affect materially and adversely our quarterly
performance and the price of our stock, depending on:
- the timing and amount of Congressional appropriations to the
Automated Document Conversion Systems program (see
"Business--ADCS Program and Government Contracts");
- variances between anticipated budgets and Congressional
appropriations;
- the timing and amount of allocations and contracts by each of the
armed services;
- the release of funds for awarded projects;
- any delay in accumulating the documents to be converted; and
- any changes in policy or budgetary measures that adversely affect
government contracts in general.
In addition, these fluctuations could increase significantly from
disruptions in the U.S. Department of Defense's contracting operations due to
year 2000 compliance problems. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Compliance--Year 2000
Readiness of our Suppliers and Customers."
WE HAVE EXPERIENCED SIGNIFICANT FLUCTUATIONS IN OUR OPERATING RESULTS.
Our revenues, particularly those from contracts funded by the U.S.
Department of Defense, have been subject to significant fluctuations, and we
expect these fluctuations to continue. Our commercial backlog and new
commercial contracts currently do not provide enough revenues to offset the
effects of the fluctuation in government funded revenues on our operating
results. In addition, delays in the initiation of new commercial document
conversion projects may aggravate these fluctuations. Although we have begun to
concentrate more of our sales and marketing efforts in the commercial sector,
these efforts have not yet increased substantially our percentage of revenues
derived from private sector customers. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
THE U.S. GOVERNMENT CAN GENERALLY TERMINATE, WITHOUT PENALTY, THE
CONTRACTS THAT PROVIDE THE MAJORITY OF OUR REVENUES.
Government contracts awarded to us typically contain provisions that
permit the government customer to terminate the contract on short notice, with
or without cause. In addition, government agencies generally are not obligated
to renew contracts after the completion of the initial period of
13
performance. The unexpected termination of or our inability to renew one or
more significant contracts could result in severe revenue shortfalls, which,
without corresponding reductions in expenses, could negatively affect our
financial condition.
WE CANNOT GUARANTEE THAT WE WILL CONTINUE TO SUCCESSFULLY OBTAIN
CONTRACTS THROUGH THE U.S. GOVERNMENT'S BIDDING PROCESS.
To obtain contracts from U.S. government agencies, we frequently need to
participate in a competitive bidding process. We may not obtain a sufficient
number of contracts through the competitive bidding process to allow us to
become profitable. To succeed in this competitive bidding process, we must
estimate a cost structure for servicing the proposed contract, the time required
to establish operations and the likely terms of the proposals submitted by
competitors. We must assemble and submit a large volume of information on a
rigid timetable set by the awarding agency. Our proposal must be competitive
with other bids, but allow us to earn a profit on the services that we perform.
Upon expiration of the initial period of performance, contracts may be subjected
to a competitive re-bidding process. Our ability to respond successfully to the
competitive bidding process in the future will have an important impact on our
ability to obtain new contracts in the future.
WE MAY NOT ATTRACT, MOTIVATE AND RETAIN KEY EXECUTIVES AND EMPLOYEES.
Our success depends in large part on the continued service of our key
technical, marketing, sales and management personnel, and our ability to
continue to attract, motivate and retain highly qualified employees. These
personnel are in short supply, and the competition for their services is
intense. This shortage is especially true for design engineers, numerical
control programmers and experienced "Auto-CAD" drafters, which are critical to
our engineering and manufacturing services. With the exception of Steven M.
Caira, our president and chief executive officer, who has agreed to the terms of
an employment agreement, none of our key personnel has entered into employment
contracts. The loss of the services of key personnel or our failure to attract
additional qualified employees could materially and adversely affect our ability
to deliver services to our customers in a timely manner, if at all. In
addition, we have obtained contracts from certain customers due to relationships
between these customers and certain key personnel. These customers may not
continue to utilize our services at historical levels, if at all, if we lose any
these employees.
WE MAY NOT RETAIN THE CONSULTANT THAT COORDINATES OUR MARKETING EFFORTS
DIRECTED AT THE U.S. GOVERNMENT.
We have engaged marketing consultants to establish and maintain
relationships with members of Congress and government agencies and to identify
and pursue potential projects. We currently retain an outside federal marketing
consulting firm to coordinate our government marketing efforts. In 1998,
certain principals at this consulting firm played key roles in helping us
acquire contracts and subcontracts funded by the U.S. Department of Defense that
provided 69.0% of our total revenues. We currently do not have a written
contract with this consulting firm, which might not continue to provide its
marketing services to us. Our failure to continue to retain this consulting
firm could affect materially and adversely our ability to obtain contracts
funded by the U.S. government. See "Certain Relationships and Related
Transactions--Consulting Arrangement with Capstone National Partners, LLC" and
"Business--Sales and Marketing."
14
OUR PRIVATE SECTOR REVENUES ARE HIGHLY VULNERABLE TO CHANGES IN SPENDING
PRIORITIES IN THE DEFENSE AND AEROSPACE INDUSTRIES.
We primarily derive our commercial revenues from a relatively small
number of customers in the aerospace and defense industries. Changes in the
business conditions or the spending priorities of these industries in general or
these customers in particular could cause a material reduction in demand for our
services. In addition, delays in the initiation of new document conversion
projects could adversely affect our quarterly operating results. We may not be
able to maintain long-term relationships with our significant commercial
customers, and we also may not be able to expand our customer base to different
industries. Downturns in the aerospace or defense industries therefore could
affect negatively our business and our ability to generate future revenues. See
"Business--Customers."
WE DERIVE A SUBSTANTIAL PORTION OF OUR REVENUES FROM SHORT-TERM
CONTRACTS.
We derive a significant amount of our revenues from services provided
under short-term purchase orders in response to customer requests or on a
project-by-project basis. In addition, customers generally can terminate our
orders at any time without penalty. We anticipate that we will continue to
derive a significant amount of our revenues from these short-term purchase
orders. However, existing clients may not continue to use our services at
historical levels, if at all. Furthermore, we may not be able to obtain new
contracts, and existing or future contracts may be terminated before we have
fully completed the orders.
FIXED PRICE CONTRACTS MAY ADVERSELY AFFECT OUR PROFITABILITY.
A substantial portion of our service contracts are fixed price
contracts. Consequently, regardless of how much time or how many resources we
devote to a contract, our customer pays a fixed price that has been agreed upon
ahead of time. Failure to anticipate technical problems, to estimate costs
accurately, or to control costs during performance of a fixed price contract may
reduce our profit or cause a loss. We might not achieve the profitability we
expect under our fixed price contracts, and may in fact incur losses on fixed
price contracts in the future.
WE MAY NOT MANAGE EFFECTIVELY THE CHALLENGES PRESENTED BY OUR RAPID
GROWTH.
We currently are experiencing a period of rapid growth that has placed
significant and increasing demands on our management and operational, technical,
financial and other resources. This growth has:
- increased our funding requirements for working capital and
capital expenditures;
- caused us to expand our efforts to recruit qualified personnel;
- forced us to expand our operational capacity and to operate at or
near peak capacity; and
- caused us to increase our expenditures on quality control.
We may not address successfully the demands caused by our rapid growth.
WE FACE POTENTIAL COMPETITION FROM THE IN-HOUSE CAPABILITIES OF CERTAIN
CUSTOMERS.
A significant source of our potential competition comes from the
in-house capabilities of our target customer base. Many of our customers
include large national or multinational companies that have sufficient financial
resources to develop or expand their in-house capabilities. These businesses
may:
- stop outsourcing their engineering services and document imaging
and conversion needs;
- move in-house the services that they currently outsource; or
- develop existing in-house capabilities into a competitive service
business.
15
We might not compete successfully against current or future competitors, and
competitive pressures may affect negatively our ability to obtain new contracts
in the future.
WE FACE POTENTIAL COMPETITION FROM NEW DOCUMENT CONVERSION OUTSOURCING
BUSINESSES BECAUSE OF THE RELATIVELY LOW COSTS OF ENTRY.
Our document conversion services accounted for approximately 77.1% of
our revenues in 1998. Although there are currently relatively few document
conversion outsourcing businesses competing with us, the capital equipment
requirements for starting a document conversion business are relatively low. In
addition, document conversion software is commercially available. Potential
competitors, including companies with greater financial, technical and marketing
resources, therefore may enter or increase their focus on document conversion
services. The entry of competitors in the document conversion business or in
our other business segments could prevent us from obtaining new contracts in the
future.
OUR ENGINEERING AND PRECISION MACHINING SERVICES MAY EXPOSE US TO
PRODUCT LIABILITY.
We provide engineering and precision machining services to produce parts
and tools used to fabricate or maintain our customers' products. If we produce
a part or a tool, or provide services relating to a part or tool, that is in any
way defective, we may be exposed to substantial liabilities. For example, the
failure of an airframe, aircraft engine or other aircraft part incorporating
parts that we manufactured, or that was serviced or manufactured by a tool that
we designed and/or manufactured, could result in material claims against us.
Although we have instituted quality control procedures that we believe produce
parts and tools of the highest quality, we may become subject to future
proceedings alleging defects in our parts and/or tools. We maintain insurance
to protect against claims associated with our design and numerical control
programming services, and are in the process of acquiring insurance coverage to
protect against claims relating to our manufacture of parts or tools for our
customers. We might not be able to obtain insurance coverage for product
liability claims at commercially reasonable rates, and any insurance that we do
obtain might be insufficient to cover any claims that might arise. Even
unsuccessful claims could force us to incur significant litigation costs and
divert our management's attention from our business. See
"Business--Services--Engineering and Manufacturing Services."
CERTAIN OF OUR SERVICES UTILIZE PROCESSES AND SOFTWARE THAT MAY NOT BE
PROTECTED BY TRADE SECRET LAWS.
We regard certain of our processes and software as proprietary and rely
primarily on trade secret laws and employee and third-party nondisclosure
agreements to protect our proprietary rights. However, one or more of our
employees may leave and attempt to utilize our proprietary processes to compete
against us. In addition, although we have one patent pending relating to a
proprietary process for the conversion of certain types of design drawings, much
of the technology that we use in providing services is not proprietary and could
be utilized by our competitors. This situation is particularly true for our
document conversion business, which accounted for approximately 77.1% of our
revenues in 1998. Our competitors may develop independently or utilize existing
technologies to offer services that are substantially equivalent or superior to
the services that we offer.
CERTAIN OF OUR SERVICES DEPEND ON TECHNOLOGY LICENSED FROM THIRD
PARTIES.
Many of our services utilize software or other intellectual property
licensed from third parties. We may have to seek new or renew existing licenses
in the future. The inability to obtain certain licenses or other rights on
favorable terms, or the need to engage in litigation over these licenses or
rights, could harm seriously our ability to provide services to our customers.
16
NEW TECHNOLOGIES COULD RENDER CERTAIN OF OUR SERVICES OBSOLETE OR
UNMARKETABLE.
Our document conversion services, which accounted for approximately
77.1% of our revenues during 1998, could become obsolete by the development of
improved commercially available software that is capable of converting documents
to computer aided design ("CAD") ready computer files. Our failure to develop
and introduce enhancements in existing services and new services in a timely and
cost-effective manner in response to changing technologies or customer
requirements could affect materially and adversely our ability to obtain new
contracts from new or existing customers.
OUR OFFICERS, DIRECTORS AND SIGNIFICANT SHAREHOLDERS HAVE THE POWER TO
INFLUENCE THE ELECTION OF DIRECTORS AND THE PASSAGE OF SHAREHOLDER PROPOSALS
BECAUSE THEY COLLECTIVELY HOLD A SUBSTANTIAL NUMBER OF COMMON SHARES.
As of May 31, 1999, our executive officers and directors and the
executive officers and directors of our subsidiary, TomaHawk II, Inc.,
beneficially owned 24.2% of the total outstanding common shares. If the
Delaware domestication is approved, then they will own approximately 24.2% of
the total issued and outstanding shares of common stock of the new Delaware
corporation. Accordingly, our executive officers and directors and their
affiliates may influence the election of directors and corporate actions
requiring stockholder approval. This concentration of ownership could limit the
price that certain investors might be willing to pay in the future for shares of
common stock, and could make it more difficult for a third party to acquire, or
discourage a third party from attempting to acquire, control of the new Delaware
corporation. See "Security Ownership of Certain Beneficial Owners and
Management."
WE MAY BE SUBJECT TO LIABILITY FOR UNAUTHORIZED DISCLOSURES OF
CONFIDENTIAL INFORMATION.
Our customers sometimes provide documents containing confidential and
other sensitive information to us in connection with our performance of certain
services. Although we have established procedures intended to prevent any
unauthorized disclosure of this information, we might be found liable for any
unauthorized disclosure.
OUR COMMON SHARES MAY BE SUBJECT TO WIDE FLUCTUATIONS IN VALUE AND
LIMITED TRADING VOLUME.
Our common shares are quoted on The Alberta Stock Exchange. If the
Delaware domestication occurs, then the new Delaware corporation's common stock
will continue to be listed on The Alberta Stock Exchange. Based upon the
historical performance of our common shares, we anticipate that the share price
of the common stock may be subject to wide fluctuations because of limited
trading volume, quarterly variations in operating results, changes in earnings
announcements of contract awards and technological developments by us or by our
competitors, general market conditions or other events largely outside of our
control. These fluctuations may be disproportionate or unrelated to our
operating performance. These broad market fluctuations, general economic
conditions or other factors outside our control may affect adversely the market
price for the new Delaware corporation's stock. See "Market for the Existing
Alberta Corporation's Common Equity and Related Shareholder Matters--Market
Price Information."
OUR SHARES OF COMMON STOCK WILL BE CONSIDERED "PENNY STOCK" AND
THEREFORE SUBJECT TO ADDITIONAL SEC REGULATIONS, WHICH MAY MAKE IT MORE
DIFFICULT TO SELL THESE SHARES.
By filing this Proxy Statement and Information Circular with the SEC, we
will be registering each of our outstanding shares of common stock, and will
therefore become a reporting company under the Securities Exchange Act. Because
of the price and certain other characteristics of the shares of common stock,
upon the completion of the Delaware domestication, our shares of common stock
will be classified
17
as "penny stock" as defined in the Securities Exchange Act. Accordingly, the
new Delaware corporation's common stock will be subject to the penny stock rules
adopted by the SEC under the Securities Exchange Act. The penny stock rules
generally impose additional sales practice and disclosure requirements upon
broker-dealers who sell our securities to persons other than certain "accredited
investors" or in transactions not recommended by the broker-dealer. Accredited
investors generally are institutions with assets greater than US $5,000,000 or
individuals with net worth greater than US $1,000,000 or annual incomes
exceeding US $200,000, or US $300,000 jointly with their spouse. For
transactions covered by the penny stock rules, the broker-dealer must make a
suitability determination for each purchaser and receive the purchaser's written
agreement prior to the sale. In addition, the broker-dealer must make certain
mandated disclosures in penny stock transactions, including the actual sale or
purchase price and actual bid and offer quotation, and the compensation to be
received by the broker-dealer and certain associated persons, and deliver
certain disclosures required by the SEC. Consequently, you may find it more
difficult to dispose of or obtain accurate quotations of the share price of the
new Delaware corporation's common stock. For example, before effecting the
transaction, broker-dealers selling these securities must provide their
customers with a document that discloses the risks of investing in these
securities. Furthermore, if the person purchasing the securities is someone
other than an accredited investor or an established customer of the
broker-dealer, then the broker-dealer also must approve the potential customer's
account by obtaining information concerning the customer's financial situation,
investment experience and investment objectives. The broker-dealer also must
determine whether the transaction is suitable for the customer and whether the
customer has sufficient knowledge and experience in financial matters to be
reasonably expected to be capable of evaluating the risk of transactions in
these securities. Accordingly, the SEC's rules may limit the number of
potential purchasers of the shares of the new Delaware corporation's common
stock. Moreover, various state securities laws impose restrictions on
transferring penny stocks, which may impair your ability to sell shares of the
new Delaware corporation's common stock.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY AFFECT
ADVERSELY THE PRICE OF OUR COMMON STOCK AND OUR ABILITY TO RAISE ADDITIONAL
FUNDS THROUGH EQUITY ISSUANCES.
The sale of substantial amounts of common stock in the public market (or
the prospect of these sales) or the sale or issuance of convertible securities
or warrants could affect adversely the market price of our common stock. By
filing this Proxy Statement and Information Circular with the SEC, we will be
registering each of our outstanding shares of common stock. Accordingly,
substantially all of the issued and outstanding shares of common stock will be
freely tradable once the registration statement is effective, including
approximately 39,650,600 shares of common stock received in exchange for common
shares that are currently subject to certain U.S. trading restrictions. In
addition, as of May 31, 1999, we had outstanding options to purchase 7,330,570
common shares and debt convertible into 1,474,565 common shares. We also have
outstanding 750,000 shares of Class A Series III Preferred Shares, which
potentially are convertible into 7,500,000 common shares upon our achievement of
certain financial milestones. See "Description of Capital Stock."
WE DO NOT PAY DIVIDENDS ON OUR COMMON SHARES.
We have never paid cash dividends on our common shares. Our current
policy is to retain earnings, if any, to finance the anticipated growth of our
business. Our board of directors will determine whether to pay any dividends,
depending upon our operating results, financial condition, capital requirements,
general business conditions and other factors that our board of directors deems
relevant. We may procure credit from third parties for additional capital for
expansion and business development activities. Any credit facility that we
procure may limit or restrict our ability to pay cash dividends under
18
certain circumstances. If the Delaware domestication is approved, then our
dividend policy likely will remain the same.
YOUR INVESTMENT IN OUR COMMON STOCK IS SUBJECT TO CURRENCY EXCHANGE RATE
RISK.
Our common shares are traded in Canadian dollars. If the Delaware
domestication is completed, then the new Delaware corporation's common stock
will continue to be traded in Canadian dollars. Fluctuations in exchange rates
may affect materially and adversely your return on investment in the common
stock. These fluctuations may have a material adverse effect on the value in
U.S. dollars of an investment in the new Delaware corporation's common stock.
WE MAY BE EXPOSED TO UNANTICIPATED YEAR 2000 PROBLEMS.
We use a significant number of computer software programs and operating
systems in our internal operations. To the extent that these software
applications contain a source code that is unable to interpret appropriately the
upcoming calendar year 2000, some level of modification or even possible
replacement of source code or applications will be necessary. We currently are
modifying, replacing and/or upgrading our computer software programs and
operating systems, as necessary, to make them year 2000 compliant and we intend
to complete our year 2000 compliance program in the fourth quarter of 1999. We
anticipate that our expenditures for year 2000 compliance will not be
significant. However, we may incur unanticipated costs or systems interruptions
that could have a material adverse effect on our financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance--Internal Year 2000 Readiness."
WE MAY BE EXPOSED TO OUR CUSTOMERS' YEAR 2000 PROBLEMS.
The failure by our customers to be year 2000 compliant may have a
material adverse effect on our ability to obtain new contracts or receive
payments from noncompliant customers. To the extent that our customers devote
significant resources to making their information systems year 2000 compliant,
they may be compelled to reduce their expenditures on our services. Because of
the revenues we derive from contracts funded by the U.S. Department of Defense,
we are especially vulnerable to any year 2000 related disruptions to the U.S.
government's contracting operations. According to published reports, which we
have not verified, the U.S. government may not be fully year 2000 compliant on a
timely basis. This noncompliance could delay the issuance of new contracts or
payment of funds to us. In addition, our customers also may reduce their
expenditures on our services to the extent they suffer a reduction in earnings
from their customers' year 2000 problems.
WE MAY BE EXPOSED TO OUR SUPPLIERS' YEAR 2000 PROBLEMS.
Certain of our services depend on the timely delivery of supplies. To
the extent that our vendors experience year 2000 compliance problems, our
ability to timely provide machined products to our customers may be affected
adversely. Delays in product deliveries could affect materially and adversely
our ability to obtain new orders from these customers. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance--Year 2000 Readiness of our Suppliers and Customers."
19
THE ANNUAL AND SPECIAL MEETING
This Proxy Statement and Information Circular constitutes a prospectus
of TomaHawk Corporation and a proxy statement in connection with the
solicitation of proxies for use at the annual and special meeting of TomaHawk
Corporation's shareholders. Unless otherwise indicated or the context otherwise
requires, references to "the existing Alberta corporation" or the "new Delaware
corporation" will include its subsidiary, TomaHawk II, Inc.
PROPOSALS TO BE VOTED ON AT THE ANNUAL AND SPECIAL MEETING
An annual and special meeting of TomaHawk Corporation's shareholders
will be held on ______________, 1999 at 8315 Century Park Court, Suite 200, San
Diego, California at 10:00 a.m., local time, to:
- receive and consider our consolidated financial statements for
the year ended December 31, 1998 and the auditors' report
thereon; and
- consider and vote on the following proposals:
1. To fix the number of directors to be elected at the annual
and special meeting at four;
2. To elect four directors;
3. To appoint the independent auditors of TomaHawk Corporation
and to authorize our directors to fix their remuneration as
our independent auditors;
4. To consider, and, if deemed advisable by our shareholders,
to pass an ordinary resolution authorizing the issuance, in
one or more private placements, of a number of securities
that could result in TomaHawk Corporation issuing, during
the next 12 months, a number of securities that exceeds 25%
but is not greater than 100% of the issued and outstanding
securities, subject to the restrictions described in this
Proxy Statement and Information Circular;
5. To approve TomaHawk Corporation's change in jurisdiction of
incorporation from the Province of Alberta, Canada to the
State of Delaware, U.S.A. and to make certain other
amendments to our articles of incorporation and bylaws
regarding the domestication into Delaware. See "Proposal
Five--Domestication into the State of Delaware."
If the domestication into Delaware is approved, then we will adjourn the
annual and special meeting, effect a one-for-fifteen consolidation of the common
shares, and complete the Delaware domestication. After we have completed the
Delaware domestication, we will reconvene the annual and special meeting, and
request that you vote on the following five proposals relating to the new
Delaware corporation:
6. To require advance notice of stockholder nominations and
proposals;
7. To prevent the stockholders from calling special meetings of
the stockholders;
8. To prohibit stockholder action by written consent;
9. To require a supermajority vote to amend certain provisions
of the new Delaware corporation's certificate of
incorporation and bylaws; and
20
10. To approve the adoption of a form indemnification agreement
for the new Delaware corporation's directors and executive
officers.
We do not know of any other matters that likely will be brought before
the annual and special meeting. However, if any other matters properly come
before the annual and special meeting, then the persons named in the enclosed
proxy will vote the proxy in accordance with their best judgment on these
matters.
Our board of directors has unanimously approved, and recommends that
shareholders vote "FOR," each of the above listed proposals.
RECORD DATE; VOTING RIGHTS
Only shareholders of record at the close of business on
_________________, 1999, also known as the record date, will be entitled to
notice of and to vote, or to grant proxies to vote, at the annual and special
meeting. Each shareholder of record on the record date will be entitled to one
vote for each common share, and, with respect to Proposal Five, to one vote for
each Class A Series III Preferred Share, that he holds on the record date. The
holders of common shares and Class A Series III Preferred Shares will vote on
Proposal Five as a single class. HOLDERS OF CLASS A SERIES III PREFERRED SHARES
WILL NOT VOTE ON PROPOSALS ONE THROUGH FOUR AND SIX THROUGH NINE.
We will prepare a list of shareholders showing the number of common
shares and Class A Series III Preferred Shares owned by each shareholder as of
the record date. A shareholder named in the list will be entitled to one vote
for each common share (and, with respect to Proposal Five, to one vote for each
Class A Series III Preferred Share) shown opposite his name. If the shareholder
transferred any shares after the completion of this list, then the person
receiving the shares is entitled to vote the shares only if he establishes to us
that he owns the shares and demands that his name be included in the list of
shareholders eligible to vote at the annual and special meeting. The recipient
must make this demand no later than ten days before the annual and special
meeting.
The vote of any shareholder who is represented at the annual and special
meeting by proxy will be cast as specified by the proxy or, if no vote is
specified, the vote will be cast "FOR" each of the above listed proposals. Any
shareholder of record who is present at the annual and special meeting in person
will be entitled to vote at the annual and special meeting regardless of whether
the shareholder has previously granted a proxy.
QUORUM; VOTE REQUIRED FOR ADOPTION
A quorum for the transaction of business at the annual and special
meeting will occur if at least two individuals appear at the annual and special
meeting in person or by proxy holding or representing at least twenty percent
(20%) of the issued and outstanding common shares and Class A Series III
Preferred Shares entitled to vote at the annual and special meeting.
On all matters that may come before the annual and special meeting,
shareholders of the existing Alberta corporation on the record date are entitled
to one vote for each common share held of record.
Proposals One through Four require the affirmative votes of the holders
of a majority of the shares of common stock represented and voting at the annual
and special meeting. HOLDERS OF CLASS A SERIES III PREFERRED SHARES WILL NOT
VOTE ON PROPOSALS ONE THROUGH FOUR. Broker non-votes will not be treated as
entitled to vote on these proposals at the meeting.
21
On Proposal Five, shareholders are also entitled to one vote for each
Class A Series III Preferred Share held of record. Approval of this proposal
requires the affirmative votes of holders of not less than two-thirds of the
common shares and Class A Series III Preferred Shares, voting as a single class,
represented and voting at the annual and special meeting. Abstentions and
broker "non-votes" will not be counted as present for purposes of obtaining a
quorum and will not be counted in determining whether Proposal Five passes.
Proposals Six through Nine require the affirmative votes of the holders
of a majority of the shares of common stock represented and voting at the annual
and special meeting. HOLDERS OF CLASS A SERIES III PREFERRED SHARES WILL NOT
VOTE ON PROPOSALS SIX THROUGH NINE. Abstentions and broker "non-votes" will be
counted as present for purposes of obtaining a quorum but will not be treated as
votes in favor of the proposals. Accordingly, abstentions and broker
"non-votes" will have the effect of votes against Proposals Six through Nine.
Approval of Proposal Ten requires the affirmative vote of a majority of
the common shares present or represented by proxy and entitled to vote on this
subject matter at the meeting and held by disinterested stockholders. HOLDERS
OF CLASS A SERIES III PREFERRED SHARES WILL NOT VOTE ON PROPOSAL TEN. Since
each director and each executive officer is an interested party with respect to
this matter, shares owned directly or indirectly by any director or executive
officer may not be voted on this proposal although they will be counted for
purposes of determining whether a quorum is present. Broker non-votes will not
be treated as entitled to vote on this proposal at the meeting.
As of the record date, there were _________ common shares and
_________ Class A Series III Preferred Shares outstanding. In addition, as
of the record date, our directors and executive officers and the directors and
executive officers of our subsidiary TomaHawk II, Inc. beneficially owned, in
the aggregate, __________ common shares, which is approximately _____%
of the shares entitled to vote at the annual and special meeting. They have
indicated their intention to vote those shares in favor of the proposal to
approve the Delaware domestication and the other five proposals.
PROXIES
GENERAL. Each holder of our common shares and Class A Series III
Preferred Shares as of the record date will receive the accompanying proxy.
Shareholders may grant a proxy to vote for or against, or to abstain from voting
on, any of the proposals by appropriately marking the proxy card, executing the
proxy card in the space provided and returning it to the transfer agent.
Shareholders who hold their common shares in the name of a bank, broker or other
nominee should follow the instructions provided by their bank, broker or nominee
on voting their shares. You must instruct your broker to vote your shares or
the broker will not vote your shares. Broker "non-votes" will have the same
effect as votes cast against the proposals.
To be effective, you must mail, fax, or deliver your proxy to our
president, Steven M. Caira, c/o CIBC Mellon Trust Company, 600 The Dome Tower,
333-7th Avenue S.W., Calgary, Alberta T2P 2Z1. All proxies must be received not
later than 10:00 a.m. (San Diego time) on _____________, 1999 or by the
close of business on the last business day before any adjournment of the annual
and special meeting. Common shares represented by a properly executed proxy
will be voted in the manner specified by the proxy. If you properly execute
your proxy without indicating how you want to vote, then your shares will be
voted "FOR" the proposals.
If any other matters are properly presented at the annual and special
meeting for consideration, including consideration of a motion to adjourn the
annual and special meeting to another time and/or place (including adjournments
for the purpose of soliciting additional proxies), then the persons named in
22
the proxy card and acting thereunder will have the discretion to vote on these
other matters in accordance with their best judgment.
REVOCATION. You may revoke any proxy given pursuant to this
solicitation at any time before its exercise by:
- appearing at the annual and special meeting, revoking your proxy
and voting in person;
- delivering written notice of the revocation, executed by you or
your attorney, to the registered office of the existing Alberta
corporation no later than the last business day preceding the
date of the annual and special meeting;
- delivering written notice of the revocation, executed by you or
your attorney, to the chairman of the annual and special meeting
before the start of the annual and special meeting; or
- properly completing and executing a later-dated proxy and
delivering it to the president of the existing Alberta
corporation, care of CIBC Mellon Trust (as described in
"--General" above) or the chairman of the annual and special
meeting at or before the annual and special meeting.
You may attend the annual and special meeting even if you have granted a proxy.
However, your presence without voting at the annual and special meeting will not
automatically revoke a proxy, and any revocation during the annual and special
meeting will not affect votes previously taken. Shareholders who hold their
common shares in the name of a bank, broker or other nominee should follow the
instructions provided by their bank, broker or nominee in revoking their
previously voted shares.
VALIDITY. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of proxies will be determined by the
inspectors of election of the annual and special meeting. The inspectors'
determination will be final and binding. Our board of directors will have the
right to waive any irregularities or conditions as to the manner of voting. We
may accept proxies by any reasonable form of communication, so long as we can
reasonably determine that the shareholder authorized the communication.
SOLICITATION OF PROXIES. Our board of directors is soliciting the
accompanying proxy. We will bear the expenses of preparing, printing and
mailing the proxy and the materials used in the proxy solicitation.
Our directors, executive officers and employees will solicit proxies by
personal interview, telephone and telegram without additional compensation for
their services,. We also may make arrangements with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
materials to the beneficial owners of the common shares held by these persons.
We will reimburse our directors, executive officers and employees for reasonable
expenses incurred by them in connection with their solicitation efforts.
23
PARTICULARS OF MATTERS TO BE ACTED UPON
PROPOSAL ONE
FIXING THE NUMBER OF DIRECTORS
Our board of directors currently consists of four directors, each of
whose term of office will expire at the annual and special meeting. At the
annual and special meeting, you will be asked to consider, and if thought fit,
approve a resolution fixing the number of directors to be elected at four.
FIXING NUMBER OF DIRECTORS
At the annual and special meeting, we propose that our shareholders fix
at four the number of directors to be elected at the annual and special meeting
to hold office until our next annual meeting or until their successors are
elected or appointed, subject to our articles of incorporation and bylaws.
Holders of proxies solicited by this Proxy Statement and Information Circular
will vote the proxies received by them as directed on the proxy card or if no
direction is made, in favor of fixing the number of directors to be elected at
the annual meeting at a maximum of four, subject to amendment between annual
meetings by our board of directors.
VOTE REQUIRED
Fixing the number of directors at four requires the approval of a
majority of the votes cast by the holders of common shares present or
represented by proxy at the annual and special meeting on this proposal.
Under Alberta corporate law, abstentions and broker non-votes are not
counted as for purposes of determining the presence or absence of a quorum for
the transaction of business, and are not counted as votes cast. Accordingly,
abstentions and broker non-votes with respect to this proposal will not be
considered and will not be counted in determining whether this proposal passes.
Our board of directors recommends that you vote "FOR" fixing the number
of directors at four.
24
PROPOSAL TWO
ELECTION OF DIRECTORS
Our board of directors currently consists of four directors, each of
whose term of office will expire at the annual and special meeting. At the
annual and special meeting, you will be asked to consider, and if thought fit,
approve a resolution providing that four directors be elected to hold office
until the next Annual Meeting or until their successors are elected or
appointed.
INFORMATION REGARDING DIRECTOR NOMINEES
The following table sets forth the names, ages, principal occupations
for the periods indicated and other directorships of the four director nominees,
each of whom is currently a director of the existing Alberta corporation.
Information as to the stock ownership of each director nominee and all current
directors and executive officers of the existing Alberta corporation as a group
is set forth below under "Security Ownership of Certain Beneficial Owners and
Management."
NAME AGE PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS AND OTHER DIRECTOR
DIRECTORSHIPS SINCE
- ------------------- ----- -------------------------------------------------------- ------------
STEVEN M. CAIRA 42 Mr. Caira has served: 1994
- since May 11, 1999, as the acting chief
financial officer of Tomahawk Corporation;
- since February 1994, as the president, chief
executive officer and chairman of the board of
directors of TomaHawk Corporation and TomaHawk
II, Inc.;
- from May 1993 to February 1994, as the
Director of National Operations of TomaHawk
II, Inc.;
- from December 1984 to May 1992, as a manager
of Rohr, Inc. assuming a wide range of
managerial responsibilities, including:
- program manager for the (Air Force) F-22
fighter program;
- manager, information systems services;
- manager of various financial and production
functions; and
- from June 1992 to May 1993, as Director of
Production and Customer Services for Point
Control of Eugene, Oregon.
Mr. Caira also served as Production Control
Manager for General Dynamics in San Diego, California,
as Manager of Industrial Engineering and Plant Services
for General Dynamics in Fort Worth, Texas, and as an
Industrial Engineer and Computer Programmer for Boeing
Aircraft. Mr. Caira received a Bachelors of Science in
Mechanical Engineering from the University of Lowell in
Lowell, Massachusetts in 1978, and an AIIMS Executive
MBA from the University of Washington in 1986.
25
NAME AGE PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS AND OTHER DIRECTOR
DIRECTORSHIPS SINCE
- ------------------- ----- -------------------------------------------------------- ------------
THOMAS M. DUSMET 46 Mr. Dusmet has served: 1995
- since September 1995, as the secretary and a
director of TomaHawk Corporation;
- since February 1996, as an investment advisor
with Nesbitt Burns Inc., a Canadian investment
banking firm;
- from February 1995 to February 1996, as
President and a director of 1110060 Ontario
Inc., an independent roofing materials and
products sales company; and
- from November 1989 to February 1995, as
General Manager of Nord Bitumi Canada, Ltd., a
roofing distribution company.
DOUGLAS W. LOUGHRAN 58 Mr. Loughran has served: 1995
- since September 1995, as a director of
TomaHawk Corporation;
- since July 1998, as president of Pieces
Reliable Ltd., a wholesale distribution
company;
- since June 1993, as president of Reliable
Parts Inc., a wholesale distribution company;
- since October 1989, as president of Columbia
Distributors Ltd., a wholesale distribution
company;
- since 1980, as president of R&D Business
Systems Ltd., a computer programming company;
and
- since 1957, as president of Reliable Parts
Ltd., a wholesale distribution company.
JONATHAN F. TURPIN 66 Mr. Turpin has served: 1995
- since September 1995, as a director of
TomaHawk Corporation; and
- from April 1981 to November 1994, as the vice
president and general manager of Canadian
Transport Co. Ltd., a British Columbia deep
sea ship operating company.
Mr. Turpin is currently retired, and has worked
occasionally as a marine consultant for Fraser River
Harbour Commission of New Westminster, British
Columbia.
26
For a listing of the number of shares beneficially owned by each of the
above listed director nominees, see "Securities Ownership of Certain Beneficial
Owners and Management."
BOARD OF DIRECTORS
The existing Alberta corporation's articles of incorporation provide for
a range of one to nine directors, with the current authorized number set at
four. Each director is to be elected for a term of one year, and to hold office
until his or her successor is duly elected and qualified. In each case, a
director serves for the designated term and until his or her respective
successor is duly elected and qualified, unless he resigns or his seat on the
board of directors becomes vacant due to his death, removal or other cause.
BOARD MEETINGS AND COMMITTEES
During the year ended December 31, 1998, the existing Alberta
corporation's board of directors held ______ meetings. Each director
attended at least 75% of the meetings held during 1998.
The existing Alberta corporation's board of directors has appointed an
audit committee consisting of Mr. Turpin, Mr. Dusmet and Mr. Loughran. However,
the audit committee has not met regularly and its duties have been discharged by
the entire board of directors at regular board of directors meetings. The board
of directors does not maintain a compensation committee or a nominating
committee.
COMPENSATION OF THE EXISTING ALBERTA CORPORATION'S DIRECTORS
We do not pay compensation on a regular basis to our directors for their
services as directors, but we do reimburse them for their reasonable expenses
for attending board of directors meetings. In 1998, after not paying any
compensation to our directors from 1995 through 1997, we paid a total of US
$34,270 to each of our directors to allow them to exercise options to purchase
175,000 common shares and to pay their resulting tax obligations. This amount
included our accrual of an obligation to pay US $7,808 to each of our directors.
In addition, on March 18, 1998, we granted to each of our directors 225,000
options to purchase common shares, vesting over a six month period, at an
exercise price of Cdn. $0.22 per share, which was Cdn. $0.03 below the closing
price of our common shares that day.
BOARD OF DIRECTORS INTERLOCKS AND INSIDER PARTICIPATION
There are no interlocking relationships between our board of directors
and the board of directors or compensation committee of any other company. This
type of interlocking relationship did not exist at any time during the year
ended December 31, 1998.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act requires a reporting
company's officers, directors, and persons who own more than ten percent of a
registered class of the reporting company's equity securities to file reports of
ownership and changes in ownership with the SEC. Officers, directors and
greater than ten percent stockholders are required by regulations of the SEC to
furnish the company with copies of all Section 16(a) forms that they file. If
the Delaware domestication is approved, then we will become a reporting company.
However, we are currently not a reporting company, and our officers, directors
and greater than ten percent stockholders are therefore not required to file
Section 16(a) reports at this time.
VOTE REQUIRED
The four director nominees receiving the highest number of affirmative
votes of the common shares present in person or represented by proxy at the
annual and special meeting shall be elected as directors of the existing Alberta
corporation.
27
Under Alberta law, votes withheld from any director nominee are counted
for purposes of determining the presence or absence of a quorum for the
transaction of business, but have no other legal effect. Holders of proxies
solicited by this Proxy Statement and Information Circular will vote the proxies
received by them as directed on the proxy card or if no direction is made, for
the election of our board's nominees. If any of the director nominees is unable
or declines to serve as a director at the time of the annual and special
meeting, the proxy holders will vote for a nominee designated by the present
board of directors to fill the vacancy. It is not presently expected that any
of the nominees will be unable or will decline to serve as a director.
Our board of directors recommends a vote "FOR" each of the above listed
director nominees.
28
PROPOSAL THREE
APPOINTMENT OF INDEPENDENT AUDITORS
GENERAL
Our board of directors recommends that you vote to appoint Ernst & Young
as our independent auditors for the year ended December 31, 1999. Ernst & Young
LLP has served as our independent auditors since December 30, 1997 (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Change in Accountants." A representative of Ernst & Young LLP is
expected to attend the annual and special meeting with the opportunity to make a
statement if he desires to do so, and is expected to be available to respond to
your questions.
Holders of proxies solicited by this Proxy Statement and Information
Circular will vote the proxies received by them as directed on the proxy card or
if no direction is made, in favor of re-appointing Ernst & Young LLP as our
independent auditors.
VOTE REQUIRED
Appointment of Ernst & Young LLP as independent auditors requires the
approval of a majority of the votes cast by the holders of common shares present
or represented by proxy at the annual and special meeting on this proposal.
Under Alberta corporate law, abstentions and broker non-votes are not
counted as for purposes of determining the presence or absence of a quorum for
the transaction of business, and are not counted as votes cast. Accordingly,
abstentions and broker non-votes with respect to this proposal will not be
considered and will not be counted in determining whether this proposal passes.
Our board of directors recommends that you vote "FOR" the appointment of Ernst &
Young LLP as our independent auditors.
29
PROPOSAL FOUR
AUTHORIZATION TO CONDUCT PRIVATE PLACEMENTS
GENERAL
The rules of The Alberta Stock Exchange provide that the aggregate number of
securities which are issued pursuant to private placement transactions during
any six month period generally cannot exceed 25% of the issuer's outstanding
securities. However, The Alberta Stock Exchange may consider a request by a
listed company to exceed the 25% limit and may in certain circumstances require
shareholder approval of such an increase.
The application of this requirement may restrict our ability to raise
capital in the future through private placements of our securities.
In particular, our board of directors considers it to be in our best
interests for us to retain flexibility in raising equity for working capital.
The Alberta Stock Exchange has advised that it will accept advance approval by a
company's shareholders in anticipation of private placements that may exceed the
25% rule, providing such placements are completed within 12 months of the date
the company's shareholders provide this advance approval. By approving this
proposal, you will be satisfying this advance shareholder approval requirement.
Any private placement that we undertake will remain subject to regulatory
approval, including approval of the Alberta Stock Exchange.
Any future private placement that we undertake pursuant to this proposal
will be subject to the following additional restrictions:
- it cannot result in a change of control of TomaHawk Corporation;
- it cannot exceed 100% of our issued and outstanding securities;
- it must be completed within twelve months following the date the
advance shareholder approval is given; and
- it must comply with the private placement pricing rules of The
Alberta Stock Exchange, which currently require that the price
per security must not be lower than the closing market price of
the security on The Alberta Stock Exchange on the trading day
prior to the date notice of the private placement is given to The
Alberta Stock Exchange, less the applicable discount, as follows:
Closing Market Price Maximum Discount
-------------------- ----------------
Cdn. $0.50 or less 25%
Cdn. $0.51 - $1.00 20%
Cdn. $1.01 - $2.00 18%
Cdn. $2.01 - $5.00 15%
over Cdn. $5.00 10%
We will negotiate a private placement only if our board of directors
believes that the subscription price is reasonable under the circumstances and
if the funds are required to continue or expand our activities. IF THIS
PROPOSAL IS APPROVED, WE MAY SELL COMMON SHARES THROUGH PRIVATE PLACEMENTS
AUTHORIZED BY THIS PROPOSAL TO DIRECTORS, OFFICERS, EMPLOYEES AND OTHER INSIDERS
OF THE EXISTING ALBERTA CORPORATION.
THE PROPOSED RESOLUTION
The text of the ordinary resolution to be considered at the meeting
approving the private placement is as follows:
30
"BE IT RESOLVED, as an ordinary resolution, that the issuance by the
Corporation in one or more private placements of such number of
securities that could result in the Corporation issuing during the next
twelve (12) months an amount of common shares that exceeds 25% but is
equal to or less than 100% of the Corporation's issued and outstanding
common shares, subject to the restrictions described in the Information
Circular of the Corporation dated April 8, 1999, including regulatory
approval, be and is hereby approved."
VOTE REQUIRED
The authorization of future private placements requires the approval of
a majority of the votes cast by the holders of common shares present or
represented by proxy at the annual and special meeting on this proposal.
Under Alberta corporate law, abstentions and broker non-votes are not
counted as for purposes of determining the presence or absence of a quorum for
the transaction of business, and are not counted as votes cast. Accordingly,
abstentions and broker non-votes with respect to this proposal will not be
considered and will not be counted in determining whether this proposal passes.
Our board of directors recommends that you vote "FOR" the authorization
of future private placements.
31
PROPOSAL FIVE
DOMESTICATION INTO THE STATE OF DELAWARE
GENERAL
The existing Alberta corporation is a corporation formed and operating
under the corporate laws of Alberta. You will be asked at the annual and
special meeting to pass a resolution that:
- authorizes the existing Alberta corporation to domesticate into
the State of Delaware pursuant to Section 388 of the General
Corporation Law of the State of Delaware, thereby continuing the
existing Alberta corporation as if it had been originally
incorporated under Delaware corporate law as a Delaware
corporation; and
- changes the existing Alberta corporation's authorized capital
from:
- an unlimited number of common shares without par value;
- an unlimited number of class "B" common non-voting shares
without par value;
- an unlimited number of preferred shares without par value;
- a first series of preferred shares consisting of 100,000
shares without nominal or par value, designated as 6%
non-cumulative redeemable retractable first preferred
shares, Series A; and
- an unlimited number of Class A, Series I, Series II and
Series III Preferred Shares;
to:
- 20,000,000 shares of common stock, US $0.001 par value per
share;
- 750,000 shares of Class A Preferred Stock, US $0.001 par
value per share; and
- 750,000 shares of preferred stock, US $0.001 par value per
share.
If the shareholders approve this proposal, then, before completing the
Delaware domestication, subject to approval by The Alberta Stock Exchange, we
will effect a one-for-fifteen consolidation of the common shares and
corresponding name change of the existing Alberta corporation whereby TomaHawk
Corporation will be renamed TomaHawk Engineering, Inc. Our shareholders
authorized this common share consolidation and name change on September 22,
1998.
After the one-for-fifteen common share consolidation is completed, the
new Delaware corporation's authorized share capital will consist of 20,000,000
shares of common stock, 750,000 shares of Class A Preferred Stock and 750,000
shares of preferred stock. No fractional shares will be issued in the common
share consolidation. Any fractional shares remaining after aggregating all
fractional shares held by a shareholder will be rounded up to the nearest whole
share. For example, if you hold 100 common shares before the common share
consolidation, then after the common share consolidation you will hold seven
shares of common stock.
Upon the effectiveness of the Delaware domestication, the BUSINESS
CORPORATIONS ACT (Alberta) will cease to apply and Delaware corporate law will
govern us as if the existing Alberta corporation had been incorporated
originally in Delaware. Except as is otherwise described in this Proxy
Statement and Information Circular, the Delaware domestication will not cause
any change in our business, assets, liabilities, net worth or management.
After the Delaware domestication, you will hold securities of the new
Delaware corporation, and the common stock of the Delaware Corporation will
continue to trade on The Alberta Stock Exchange. We do not anticipate that any
shares of the Class A Preferred Stock or the preferred stock will trade publicly
on any exchange. Upon consummation of the Delaware domestication, the new
Delaware corporation will file a Current Report on
32
Form 8-K with the SEC to reflect the Delaware domestication for the purposes of
Section 15(d) of the Securities Exchange Act.
You have the right to dissent to the Delaware domestication (see
"--Right of Dissent"). If you choose to exercise your dissenter's rights and we
effect the Delaware domestication, then we will be required to purchase for cash
your common shares at their fair value as of __________, 1999. If enough of
our shareholders dissent to the Delaware domestication, then our obligation to
purchase their common shares could affect adversely our financial condition.
Accordingly, if our board of directors determines that completing the Delaware
domestication will not be in our best interests, then our board of directors
will not proceed with the Delaware domestication.
PRINCIPAL REASONS FOR THE DELAWARE DOMESTICATION
Our board of directors believes that the focus of our operations and
business is in the United States. Accordingly, our board of directors believes
that the laws of a state of the United States should govern our company. In
addition, the following factors weigh in favor of our domesticating into
Delaware:
SIMPLIFICATION OF CORPORATE STRUCTURE. Our board of directors believes
that our corporate structure is unnecessarily complicated and that we should
consolidate our corporate structure. To this end, we recently amalgamated with
TomaHawk Imaging & Financial, Inc., a wholly-owned subsidiary and the former
parent of TomaHawk II, Inc. We would like to further simplify our corporate
structure by merging with TomaHawk II, Inc. after the completion of the Delaware
domestication. However, Alberta corporate law does not permit an Alberta
corporation to merge with non-Alberta corporations. Effecting the Delaware
domestication will allow us to merge with our subsidiary TomaHawk II, Inc. in
the future, thereby completing the consolidation of our corporate structure.
COMMERCIAL ADVANTAGE. Virtually all of our significant customers are
located within the United States. Although our status as a Canadian company
does not preclude us from performing services for these customers, it has at
times complicated our sales negotiations in the past and may disadvantage our
future negotiations if potential customers are reluctant to work with a foreign
service provider. We believe this disadvantage may occur particularly in the
aerospace and defense industries. We believe that eliminating this potential
disadvantage will help us attract more business. For these reasons, our board
of directors believes that we will gain a commercial advantage by domesticating
into Delaware.
NO BUSINESS REASON TO REMAIN DOMICILED IN CANADA. We currently do not
have any business reason for our incorporation in Canada. In addition, we have
no facilities, employees or operations in Canada, and most of our shareholders
are located within the United States.
REDUCTION OF CANADIAN TAX AND REGULATORY OBLIGATIONS. As an Alberta
corporation, we currently are subject to Canadian tax requirements. We also are
subject to tax in the United States because our operations are conducted through
our subsidiary, TomaHawk II, Inc., an Illinois corporation. By domesticating
into Delaware, our board of directors believes that we will reduce significantly
our ongoing Canadian tax obligations. In addition, we will eliminate our need
to comply with the regulations of the Registrar of Corporations for the Province
of Alberta and Alberta corporate law. You should note, however, that, if we
complete the Delaware domestication, then we will have to comply with U.S.
securities regulations.
ADVANTAGES OF DELAWARE LAW. For many years, Delaware has encouraged
incorporation in that state and has adopted comprehensive, modern and flexible
corporate laws, which are periodically updated and revised to meet changing
business needs. In addition, the Delaware courts have developed considerable
expertise in dealing with corporate issues and have developed a substantial body
of case law interpreting Delaware corporate law and establishing public policies
with respect to Delaware corporations. As a result, many major corporations
have chosen to incorporate in Delaware or have later reincorporated in Delaware
in a manner similar to our proposed domestication.
33
CHANGE IN PAR VALUE OF EQUITY SECURITIES
In connection with the proposed Delaware domestication, our board of
directors has proposed that we establish a par value of the shares of our common
stock, preferred stock and Class A Preferred Stock of US $0.001 par value per
share. The existing Alberta corporation's capital stock has no par value. Our
board of directors believes that the change will be in our best interests and
the best interests of our stockholders, because the Delaware franchise fees
applicable to no par value shares are significantly higher than those for US
$0.001 par value shares. Par value represents the minimum consideration which
must be received by a company for the issuance of a share of stock. The change
in par value will have no effect upon your rights as a shareholder. By voting
in favor of the Delaware domestication, you are voting in favor of establishing
the US $0.001 par value per share of our shares of common stock, preferred stock
and Class A Preferred Stock. If this Proposal Five is approved, then the new
Delaware corporation's certificate of incorporation to be filed with the
Secretary of State of the State of Delaware will reflect this change.
BOARD OF DIRECTORS HAS DISCRETION TO EFFECT DELAWARE DOMESTICATION
Notwithstanding the shareholders' approval of the Delaware
domestication, our board of directors may elect not to effect the Delaware
domestication if, for example:
- the Delaware domestication causes the existing Alberta
corporation to incur substantial tax liability;
- a significant number of the shareholders exercise dissenter's
rights; or
- our board of directors determines that the Delaware domestication
is not in the best interests of TomaHawk Corporation and its
shareholders.
If the Delaware domestication is not effected, then we will remain an
Alberta corporation.
CORPORATE GOVERNANCE DIFFERENCES; DELAWARE AND ALBERTA LAW COMPARISONS.
By approving the Delaware domestication, you will approve the proposed
certificate of incorporation (attached hereto as APPENDIX II) and bylaws
(attached hereto as APPENDIX III), and agree to hold securities in a corporation
governed by Delaware corporate law. In exercising your vote, you should
consider the distinctions between Delaware and Alberta corporate law, some of
which are outlined below.
Delaware corporate law and the new Delaware corporation's certificate of
incorporation and bylaws differ in many respects from Alberta corporate law and
the existing Alberta corporation's charter documents. Please note, however,
that the new Delaware corporation's certificate of incorporation includes
certain shareholder rights required by Alberta corporate law to effect the
Delaware domestication. The following discussion summarizes certain differences
that could affect materially your rights as a shareholder. THE FOLLOWING
SUMMARIES OF THE NEW DELAWARE CORPORATION'S PROPOSED CERTIFICATE OF
INCORPORATION AND BYLAWS ARE NOT COMPLETE AND SHOULD BE READ IN CONJUNCTION WITH
THE NEW DELAWARE CORPORATION'S PROPOSED CERTIFICATE OF INCORPORATION (ATTACHED
AS APPENDIX II) AND BYLAWS (ATTACHED AS APPENDIX III).
SHAREHOLDER QUORUM. Under our current bylaws, the presence of at least
two individuals holding or representing a total of at least 20% of our
outstanding shares that are entitled to attend and vote at the meeting
constitutes a quorum. Under Delaware corporate law, a corporation's certificate
of incorporation and bylaws may specify the number of shares necessary to
constitute a quorum at any meeting of stockholders; provided, however, that a
quorum may not consist of less than one-third of the shares entitled to vote at
the meeting. The new Delaware corporation's proposed bylaws provide that a
majority of the shares entitled to vote, present in person or represented by
proxy, is required for a quorum at a meeting of stockholders.
SUPERMAJORITY. Alberta corporate law requires, and Delaware corporate
law permits, the adoption of a higher requisite vote for certain types of
corporate action, subject to certain limitations. Alberta corporate law
34
provides that the approval of two-thirds of the votes present and voting at an
annual and special meeting of shareholders is required to amend the existing
Alberta corporation's charter documents, including changing the corporation's
name, altering its share capital or any of the rights attached to any shares and
approving certain extraordinary corporate transactions. Delaware corporate law
generally has no limit on how high a percentage the vote must be, provided that
the supermajority requirements are specified in a corporation's certificate of
incorporation. Proposal Nine would amend the new Delaware corporation's
certificate of incorporation and bylaws to provide for a supermajority vote to
amend certain sections of the certificate of incorporation and bylaws. See
"Proposal Nine--Amendment to the New Delaware Corporation's Certificate of
Incorporation and Bylaws to Require a Supermajority Vote to Amend Certain
Provisions of the New Delaware Corporation's Certificate of Incorporation and
Bylaws."
REQUIRED APPROVALS OF SHAREHOLDERS. Alberta corporate law requires that
at least two-thirds of the votes present or represented by proxy and voting at a
meeting must approve various extraordinary corporate transactions, including
mergers, the sale of substantially all of a corporation's assets or the change
of a corporation's domicile. Under Delaware corporate law, stockholders holding
a majority of the outstanding shares entitled to vote generally must approve
these extraordinary transactions. Because the existing Alberta corporation's
quorum requirements are more easily met than those of the new Delaware
corporation (see "--Shareholder Quorum"), shareholder action can be taken under
Alberta corporate law with a smaller percentage of the vote than is required
under Delaware corporate law.
EXAMINATION OF CORPORATE RECORDS. Under Alberta corporate law, a
corporation's directors and shareholders, including their agents and legal
representatives, may examine the following documents free of charge during the
corporation's usual business hours:
- the articles of incorporation, bylaws and all amendments thereto;
- any unanimous shareholder agreement and all amendments thereto;
- the minutes of all shareholders' meetings and resolutions;
- the securities register;
- copies of the financial statements; and
- copies of all documents filed with the Registrar of Corporations
of the Province of Alberta.
In addition, shareholders are entitled upon request, without charge, to
one copy of the corporation's articles of incorporation and bylaws, including
any amendments thereto, and to one copy of any unanimous shareholder agreement,
including any amendments thereto.
Under Delaware corporate law, stockholders have the right for any proper
purpose to inspect, upon written demand under oath stating the purpose for the
inspection, the corporation's stock ledger, list of stockholders, and its other
books and records, and to make copies or extracts of the same. A proper purpose
means a purpose reasonably related to a person's interest as a stockholder.
MINORITY (DISSENTER'S) RIGHTS. Under Alberta corporate law, holders of
shares of any class of the existing Alberta corporation have the right to
dissent from certain corporate acts involving:
- amendments to the existing Alberta corporation's articles of
incorporation to add, change or remove any provisions restricting
the issue or transfer of shares of that class;
- amendments to the existing Alberta corporation's articles of
incorporation to change or remove any restriction on the business
in which the corporation may engage;
- amalgamation with a corporation which is not wholly owned by the
existing Alberta corporation;
- continuation under the laws of another jurisdiction; and
- transfers of substantially all of the existing Alberta
corporation's assets.
35
Under Delaware corporate law, stockholders have the right to dissent and
exercise appraisal rights only with respect to certain forms of corporate
mergers and consolidations. In addition, under Delaware corporate law,
appraisal rights are not available with respect to any shares of stock if, at
the record date fixed to determine the stockholders entitled to vote on the
merger or consolidation:
- the shares were listed on a national securities exchange or
designated as a national market system security on an interdealer
quotation system by the National Association of Securities
Dealers, Inc.; or
- the shares were held of record by more than 2,000 holders.
However, appraisal rights are available if, under the terms of an agreement of
merger or consolidation, the stockholders are required to accept for their stock
something other than:
- shares of stock of the surviving corporation;
- shares of stock of any other corporation which is listed on a
national securities exchange or designated as a national market
system security or an interdealer quotation system by the
National Association of Securities Dealers, Inc. or which has
more than 2,000 stockholders of record;
- cash instead of fractional shares; and/or
- any combination of the above.
The new Delaware corporation's certificate of incorporation will provide the
same dissenter's rights as provided by Alberta corporate law. However, the new
Delaware corporation's certificate of incorporation could be amended in the
future to eliminate this type of dissenter's rights.
THEREFORE, IN APPROVING THE DELAWARE DOMESTICATION, YOU MAY FOREGO THE
MORE EXTENSIVE DISSENTER'S RIGHTS UNDER ALBERTA CORPORATE LAW WITH RESPECT TO
FUTURE ACTIONS.
DISQUALIFICATION OF DIRECTORS. Alberta corporate law prohibits the
following persons from serving as a director:
- persons under age 18;
- persons who are mentally infirm;
- corporations; and
- undischarged bankrupts.
Delaware corporate law contains no comparable statutory prohibitions.
PERSONAL LIABILITY OF DIRECTORS. Alberta corporate law provides that
every director, in exercising his powers and discharging his duties, will act
honestly and in good faith and in the best interests of the corporation and
exercise the care, diligence and skill of a reasonably prudent person. Alberta
corporate law also specifically imposes joint and several personal liability
upon directors who vote for or consent to a resolution that violates applicable
provisions of Alberta corporate law relating to the acquisition of a
corporation's own shares, the payment of commissions on a sale of a
corporation's shares, the payment of dividends, financial assistance, payment of
an indemnity, or payment to a shareholder, subject to certain limited defenses.
Alberta corporate law provides that this liability is in addition to and not
instead of any liability imposed on a director by any other legislation,
regulation or rule of law.
Alberta corporate law entitles a shareholder or a director of the
corporation, with the approval of the Court of Queen's Bench of Alberta and in
the name of the corporation, to commence legal proceedings to enforce a duty or
right owed to the corporation or to obtain monetary damages for breach of the
right or duty whether the right or duty arises under Alberta corporate law.
Shareholders may bring derivative actions on behalf of a corporation
36
against the corporation's directors for cash damages or to enforce rights or
duties owed by the director to the corporation. Under Alberta corporate law,
there is no statutory limitation with respect to the monetary liability that may
be imposed on directors and the existing Alberta corporation's articles of
incorporation and bylaws do not contain these limitations.
Under Delaware corporate law, the directors of a corporation act in a
fiduciary capacity and owe the duties of loyalty and due care to the corporation
and its stockholders. Delaware corporate law entitles a stockholder to bring
derivative actions against officers and directors of a corporation for breach of
their fiduciary duty to the corporation and its stockholders or for other
fraudulent misconduct, so long as the stockholder was a stockholder of the
corporation at the time of the transaction in question or that he or she
obtained the stock thereafter solely by operation of law.
Delaware corporate law permits a corporation to adopt a provision in its
certificate of incorporation eliminating the liability of a director to the
corporation or its stockholders for monetary damages for breach of the
director's fiduciary duty of care, except where the liability arises from:
- a breach of the director's duty of loyalty to the corporation or
its stockholders;
- acts or omissions not in good faith, involving intentional
misconduct or a knowing violation of law;
- unlawfully paying a dividend, approving stock repurchases or
redemptions; or
- a transaction where the director derived an improper personal
benefit.
The new Delaware corporation's certificate of incorporation eliminates
the liability of its directors to the fullest extent permissible under
applicable law. The foregoing limitations on monetary damages have no effect,
however, on the standard of care to which directors must conform or the
availability of monetary damages.
INDEMNIFICATION. Delaware corporate law generally provides that a
corporation shall indemnify a director against all costs, charges and expenses
actually and reasonably incurred by the director, including an amount paid to
settle an action or satisfy a judgment in a civil, criminal or administrative
action to which the director is a party by reason of his having been a director,
provided that the director was acting in good faith. The indemnification
permitted under Delaware corporate law does not differ substantially in nature
or extent from that permitted under Alberta corporate law and currently provided
for in the articles of incorporation and bylaws of the existing Alberta
corporation. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or controlling persons,
the SEC has indicated that this indemnification is against public policy as
expressed in the Securities Act.
After the Delaware domestication, we intend to enter into
indemnification agreements with our directors and executive officers. See
"Proposal Ten--Approval of Form Indemnification Agreement."
CUMULATIVE VOTING FOR THE ELECTION OF DIRECTORS. Cumulative voting
entitles each shareholder to cast a number of votes that is equal to the number
of voting shares held by the shareholder multiplied by the total number of
directors to be elected. Shareholders may cast these votes for one nominee or
distribute the votes among up to as many candidates as there are positions to be
filled. Without cumulative voting, a shareholder or group of shareholders must
hold a majority of the voting shares to cause the election of one or more
nominees. Cumulative voting enables a minority shareholder or group of
shareholders holding a relatively small number of shares to elect a
representative or representatives to the board of directors.
Under Alberta corporate law and Delaware corporate law, cumulative
voting is permitted only if provided for in a corporation's articles of
incorporation or certificate of incorporation. Neither the existing Alberta
corporation's articles of incorporation nor the new Delaware corporation's
proposed certificate of incorporation provide for cumulative voting.
37
LOANS TO OFFICERS AND EMPLOYEES. Under Alberta corporate law, a
corporation may give financial assistance to:
- any person in the ordinary course of business if the lending of
the money is part of the ordinary business of the corporation;
- any person on account of expenditures incurred or to be incurred
on behalf of the corporation;
- to the corporation's holding company;
- to the corporation's subsidiary;
- to the corporation's (or its affiliates') employees for the
purchase of a home; or
- to the corporation's (or its affiliates') employees in accordance
with a plan for the purchase of the corporation's shares to be
held by a trustee;
provided that (1) the corporation is not insolvent (or, in the case of a loan,
would not be made insolvent by giving the loan) at the time it gives the
financial assistance, and (2) the realizable value of the corporation's assets
would not be less than the aggregate of its liabilities and stated capital after
giving effect to the financial assistance.
Under Delaware corporate law, a corporation may make loan subsidies
(including loans to directors who are also officers or employees) when these
loans, in the judgment of the directors, may reasonably be expected to benefit
the corporation.
DIVIDENDS AND REPURCHASES OF SHARES. Alberta corporate law prohibits a
corporation from acquiring any of its own shares if the corporation is insolvent
or would be rendered insolvent by the acquisition. The declaration and payment
of dividends is regulated entirely by a corporation's articles of incorporation,
which typically give the directors authority to declare dividends.
Delaware corporate law permits a corporation to declare and pay
dividends out of surplus or, if there is no surplus, out of net profits for the
fiscal year in which the dividend is declared and/or for the preceding fiscal
year. However, the amount of capital of the corporation following the
declaration and payment of the dividend cannot be less than the aggregate amount
of the capital represented by the outstanding stock of all classes having a
preference upon the distribution of assets. In addition, Delaware corporate law
generally provides that a corporation may redeem or repurchase its shares only
if the redemption or repurchase would not impair the capital of the corporation.
INTERESTED DIRECTOR TRANSACTIONS. Under Alberta corporate law,
transactions in which a director has an interest are valid if the transaction is
fair and reasonable at the time it was entered into and, after full disclosure
by the interested director, the transaction is approved by either a majority of
(1) the directors not involved in the transaction at a meeting at which a quorum
is present, or (2) the shareholders. If a director or officer fails to disclose
his interest in a material transaction, a court may, on the application of the
corporation or any of its shareholders, set aside the transaction.
Under Delaware corporate law, if board approval is sought, then the
transaction must be approved by a majority of the disinterested directors (even
if the number of disinterested directors does not constitute a quorum).
ANTI-TAKEOVER EFFECTS. Certain provisions of Delaware corporate law, of
the new Delaware corporation's certificate of incorporation and bylaws, and the
proposed amendments to the new Delaware corporation's certificate of
incorporation and bylaws may have an anti-takeover effect. See Proposals Six
through Nine and "Description of Capital Stock Change of Control Provisions."
These provisions may delay, defer or prevent a hostile tender offer or takeover
attempt that a stockholder might consider in his or her best interest, including
those attempts that might result in the payment of an additional amount over the
market price for the shares held by stockholders. Despite these anti-takeover
implications, the proposals to be voted on at the annual and special meeting are
not intended to prevent an acquisition of the existing Alberta corporation. We
are not aware of any effort to accumulate the
38
existing Alberta corporation's securities or to obtain control of the existing
Alberta corporation by means of a merger, tender offer or solicitation in
opposition to management or otherwise.
- DELAWARE ANTI-TAKEOVER LAW. Section 203 of the General
Corporation Law of the State of Delaware applies to a Delaware
corporation with a class of voting stock listed on a national
securities exchange, authorized for quotation on an interdealer
quotation system or held of record by 2,000 or more persons. In
general, Section 203 prevents an "interested stockholder"
(defined generally as any person owning 15% or more of a
corporation's outstanding voting stock, including the person's
affiliates and associates) from engaging in a "business
combination" with a Delaware corporation for three years
following the time the person became an interested stockholder,
unless:
- before the person became an interested stockholder, the
board of directors approved the business combination or
the transaction that resulted in the stockholder becoming
an interested stockholder;
- upon consummation of the transactions which resulted in
the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the time the
transaction commenced, excluding stock held by directors
who are also officers of the corporation and by employee
stock plans that do not provide employees with the rights
to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange
offer; or
- at or subsequent to the time the person became an
interested stockholder, the business combination is
approved by the board of directors of the corporation and
authorized at an annual or special meeting of
stockholders by the affirmative vote of the holders of at
least 66 2/3% of the outstanding voting stock of the
corporation not owned by the interested stockholder.
The restrictions described above do not apply to certain
business combinations proposed by an interested stockholder
following the announcement of one of certain extraordinary
transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or
who became an interested stockholder with the approval of a
majority of the corporation's directors.
- SIZE OF THE BOARD OF DIRECTORS. Alberta corporate law provides
that the board of directors may fix the exact number of directors
within a stated range specified in the corporation's charter
documents, if that stated range has been approved by the
shareholders. Delaware corporate law permits the corporation to
adopt a provision in its certificate of incorporation or bylaws
authorizing the board of directors alone to change the authorized
number or the range of directors by amendment to the bylaws. The
new Delaware corporation's proposed certificate of incorporation
provides that the number of directors will be as specified in its
bylaws and authorizes the board of directors to make, alter,
amend or repeal the bylaws. The ability of the board of
directors to alter the size of the board of directors without
stockholder approval will enable the new Delaware corporation to
respond quickly to a potential opportunity to attract the
services of a qualified director or to eliminate a vacancy for
which a suitable candidate is not available.
- ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND
DIRECTOR NOMINATIONS. Under Alberta corporate law, we must, not
less than 42 days before a general meeting at which a director is
to be elected, publish in a Calgary newspaper an advance notice
of the record date of the meeting giving the date of the meeting.
We must mail proxy solicitation materials to registered
shareholders not less than 21 days before the meeting.
Shareholders holding not less than 5% of the shares entitled to
vote at a meeting may submit a written proposal to management of
a corporation for the election of directors at least 90 days
before the anniversary date of the previous annual meeting of
shareholders. However, this requirement does not preclude
shareholders from nominating directors at the annual meeting of
shareholders.
39
If approved, Proposal Six will require that stockholders
seeking to bring business before an annual meeting of
stockholders, or to nominate candidates for election as directors
at an annual or a special meeting of stockholders, must provide
timely notice of the proposal or nomination in writing. To be
timely, a stockholder's notice will have to be delivered to, or
mailed and received at, our principal executive offices:
- for an annual meeting, not less than seventy days nor
more than ninety days before the anniversary date of the
immediately preceding annual meeting of stockholders, and
- for a special meeting, not more than ninety days before
the special meeting, and not less than the later of
seventy days before the special meeting or ten days after
the public announcement of the date of the meeting.
Proposal Six also specifies certain requirements for a
stockholder's notice to be in proper written form. These
provisions may preclude some stockholders from bringing matters
before the stockholders at an annual or special meeting or from
making nominations for directors at an annual or special meeting.
- SPECIAL MEETINGS OF SHAREHOLDERS. Alberta corporate law provides
that the board of directors or the holders of 5% of the
outstanding shares with a right to vote can call a special
meeting. Under Delaware corporate law, a special meeting may be
called by the board of directors or by any other person
authorized to do so in the corporation's certificate of
incorporation or bylaws. The new Delaware corporation's proposed
bylaws authorize the board of directors or any stockholder or
stockholders collectively representing 5% of the outstanding
shares of common stock to call a special meeting. If Proposal
Seven is approved, then only our board of directors will be
authorized to call a special meeting of stockholders. See
"Proposal Seven--Amendment to the New Delaware Corporation's
Certificate of Incorporation and Bylaws to Prohibit Stockholders
from Calling Special Meetings of the Stockholders."
- SHAREHOLDER ACTION BY WRITTEN CONSENT. Under Alberta corporate
law, a resolution in writing signed by all of the shareholders
entitled to vote on that resolution is as valid as a vote taken
at a meeting of shareholders. Under Delaware corporate law, a
majority of stockholders entitled to vote on a proposal may
execute an action by written consent instead of a stockholder
meeting, unless this right is eliminated in the corporation's
certificate of incorporation. If approved, Proposal Five will
eliminate the stockholders' ability to act by written consent.
Elimination of written consents of stockholders could lengthen
the amount of time required to take stockholder actions, because
certain actions by written consent are not subject to the minimum
notice requirement of a stockholders meeting. The elimination of
stockholders' written consents may deter, however, hostile
takeover attempts by preventing a holder or group of holders
controlling a majority in interest of a corporation's capital
stock from amending the corporation's certificate of
incorporation or bylaws or removing directors by means of a
stockholder's written consent.
- AMENDMENTS TO THE CERTIFICATE OF INCORPORATION AND BYLAWS. The
existing Alberta corporation's articles of incorporation may be
amended if approved by two-thirds of the votes cast at a
shareholders meeting. Amendments to the existing Alberta
corporation's bylaws, however, may be made by a simple majority
of the votes cast. An amendment to the existing Alberta
corporation's articles of incorporation becomes effective on the
date shown in the certificate of amendment issued by the
Registrar of Corporations for the Province of Alberta on receipt
of the articles of amendment.
Delaware corporate law provides that the vote of holders
of a majority of the outstanding shares entitled to vote is
required to alter, amend, change or repeal a corporation's
certificate of incorporation, unless a greater vote is otherwise
specified in the certificate of incorporation. If Proposal Nine
is approved, then a two-thirds vote will be required to amend
certain provisions of the new Delaware corporation's certificate
of incorporation and bylaws. (See "Proposal Nine--Amendment to
the New Delaware Corporation's Certificate of Incorporation
and Bylaws to Require a Supermajority Vote to Amend Certain
Provisions of the New Delaware Corporation's
40
Certificate of Incorporation and Bylaws"). This limitation on
the ability of stockholders to amend the new Delaware
corporation's charter documents may make a potential change in
control of the new Delaware corporation a lengthier and more
difficult process. See "Proposal Nine--Amendment to the New
Delaware Corporation's Certificate of Incorporation and Bylaws
to Require a Supermajority Vote to Amend Certain Provisions of
the New Delaware Corporation's Certificate of Incorporation
and Bylaws."
REGULATORY APPROVAL
The existing Alberta corporation will apply to the Registrar of
Corporations for the Province of Alberta for permission to continue the existing
Alberta corporation into the State of Delaware. This approval must be obtained
for the Delaware domestication to take place. The existing Alberta corporation
must also file a Certificate of Domestication with the Secretary of State of the
State of Delaware. There are no other regulatory approvals necessary for
consummation of the Delaware domestication.
TAX CONSIDERATIONS
The following sections summarize certain provisions of U.S. federal and
Canadian federal income tax laws that may affect us and our shareholders. This
summary applies to shareholders that are corporations or individuals resident in
Canada or the United States who hold their shares as capital property. This
summary generally does not apply to shareholders that are trusts, deferred
income plans or similar entities.
Although this summary discusses certain tax considerations that we deem
material to your decision regarding Proposal Five, it does not discuss all of
the U.S. federal and Canadian federal income tax consequences that may be
relevant to you, nor will it apply to the same extent or in the same way to all
shareholders. We provide no information with respect to the effect of any
state, local or provincial tax law, rule or regulation, or any foreign tax law,
other than the federal income tax law of Canada and the United States to the
extent specifically described in this discussion. WE URGE YOU TO CONSULT WITH
YOUR OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO YOU OF THE DELAWARE
DOMESTICATION.
We have not sought an advance tax ruling or interpretation from any tax
authority with respect to any of the transactions discussed in this Proxy
Statement and Information Circular. Consequently, the tax consequences to you
could differ from the consequences discussed below.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS. This discussion of
potential tax consequences is included for general information only. It does
not address the provincial, local or foreign tax aspects of the Delaware
domestication. The following summary is based on:
- provisions of the INCOME TAX ACT (Canada), as amended to date;
- regulations related to the INCOME TAX ACT (Canada);
- draft legislation amending the INCOME TAX ACT (Canada) and its
related regulations that was released prior to the date of this
Proxy Statement and Information Circular;
- the Canada - U.S. Tax Convention, as amended to date; and
- where applicable, our tax advisors' understanding of the current
administrative practices and policies of the Canadian Department
of National Revenue, Customs, Excise and Taxation.
Changes to relevant Canadian federal income tax law could affect the
opinions discussed in this Proxy Statement and Information Circular. YOU SHOULD
CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE DELAWARE
DOMESTICATION TO YOU, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL,
PROVINCIAL, LOCAL AND FOREIGN TAX LAWS.
41
RESIDENTS OF CANADA. This discussion generally addresses certain
Canadian federal income tax consequences of the Delaware domestication
to shareholders residing in Canada that, within the meaning of the
INCOME TAX ACT (Canada):
- hold their shares of the existing Alberta corporation as
"capital property;" and
- deal at arm's length with the existing Alberta
corporation.
Your common shares generally will be considered "capital property" under
Canadian tax law unless you:
- are a trader or dealer in securities; or
- hold the shares for a purpose other than investment.
NON-DISSENTING SHAREHOLDERS. If you are a resident Canadian
shareholder and do not dissent to the Delaware domestication, then you
generally will not be considered to have disposed of your common shares
as a result of the Delaware domestication. The adjusted cost base of
your shares of the new Delaware corporation's stock will equal the
adjusted cost base of your shares of the existing Alberta corporation
immediately prior to the Delaware domestication.
Upon the completion of the Delaware domestication, the shares of
the new Delaware corporation's capital stock will constitute "foreign
property" for purposes of deferred income plans in Canada, such as
registered retirement savings plans. A Canadian deferred income plan
may not hold more than 20% of its investments (based on original cost)
in foreign property without incurring tax penalties. If you hold any
shares of TomaHawk Corporation in a deferred income plan, then you
should carefully review your foreign property limits and consult your
tax advisors.
If you are a Canadian resident, then you must include in your
income for Canadian federal income tax purposes 100% of the Canadian
dollar equivalent of the amount of any dividend that you receive from
the new Delaware corporation at any time after the completion of the
Delaware domestication. Dividends paid by the new Delaware corporation
also would be subject to U.S. withholding tax. Depending on your
particular circumstances, this withholding tax may or may not qualify
for a credit against Canadian federal income tax or a deduction against
Canadian taxable income.
DISSENTING SHAREHOLDERS. If you dissent to the Delaware
domestication and we complete the Delaware domestication, then you will
be treated as if you had received a dividend equal to the amount of the
excess, if any, of the amount deemed paid for your shares over the
amount of the paid-up capital of your shares. Under Canadian tax law,
an individual shareholder resident in Canada who dissents to the
Delaware domestication is required to include as income 125% of the
actual amount of this dividend and is entitled to claim a dividend tax
credit equal to 13.33% of the grossed up amount in calculating Canadian
federal income tax payable.
A private corporation resident in Canada would be subject to a tax
of 33 1/3% to the extent that the amount received for the shares exceeds
the paid-up capital of the shares, provided that you did not own more
than 10% of the common shares at the time of the Delaware domestication.
A private corporation will receive a tax refund with respect to
dividends received from the new Delaware corporation equal to $1 for
each $3 in dividends received, so long as the private corporation passes
the dividends through to its shareholders.
In addition to the deemed dividend discussed above, you will be
considered to have disposed of your shares for "proceeds of disposition"
equal to the paid-up capital of your shares on the deemed sale of your
shares. If these proceeds exceed the adjusted cost base of your shares,
then you will realize a capital gain. Under Canadian tax law,
three-fourths of this capital gain will be included in income for
Canadian tax purposes in the year that you exercise your right of
dissent. If the proceeds are less than the adjusted cost base of your
shares, then you will incur a capital loss. Under Canadian tax law,
three-fourths of this
42
capital loss can be used to offset current year capital gains. If the
capital loss exceeds current year capital gains, then any excess can be
carried back three years or forward indefinitely to offset capital gains
in those periods. If the adjusted cost base of your shares is equal to
the paid-up capital of the shares, then you will not realize any capital
gain or loss.
SHAREHOLDERS NOT RESIDENT IN CANADA. The following summary
generally applies to you if you:
- are not a resident of Canada;
- do not use or hold or are not deemed to use or hold your
shares in carrying on a business in Canada, including a
life insurance business;
- deal at arm's length with the existing Alberta
corporation; and
- hold your shares as capital property.
NON-DISSENTING SHAREHOLDERS. If you do not dissent to the Delaware
domestication, then, upon the completion of the Delaware domestication,
you generally will not be considered to have disposed of your common
shares as a result of the Delaware domestication. The adjusted cost
base of your shares of the new Delaware corporation's stock will equal
the adjusted cost base of your shares of the existing Alberta
corporation immediately prior to the Delaware domestication.
Any dividends that you receive from the new Delaware corporation
after the Delaware domestication will not be subject to Canadian federal
income tax.
DISSENTING SHAREHOLDERS. If you dissent to the Delaware
domestication and we complete the Delaware domestication, then you will
be treated as if you had received a dividend from the deemed purchase of
your shares equal to the amount of the excess, if any, of the amount
paid for your shares over the amount of the paid-up capital of your
shares. You then will be subject to Canadian withholding tax of 25% of
the amount of the dividend. The withholding tax rate may be reduced
pursuant to the terms of an applicable tax treaty. Under the Canada -
U.S. Tax Convention, for example, the applicable withholding tax rate
would be:
- 15% of the amount of the dividend for dividends paid to
individuals or corporate shareholders owning less than
10% of the existing Alberta corporation's outstanding
voting shares; or
- 5% of the amount of the dividend for corporate
shareholders owning more than 10% of the existing Alberta
corporation's outstanding voting shares.
Depending on your particular circumstances, the tax withheld may or may
not qualify for a credit against income tax or a deduction against
taxable income in your jurisdiction of taxation.
As a dissenting shareholder who is not a Canadian resident, any
capital gains that you realized as a result of the Delaware
domestication are only subject to Canadian federal income taxation if
the shares constitute "taxable Canadian property" to you. The common
shares generally will not constitute "taxable Canadian property," as
defined by the INCOME TAX ACT (Canada), to a dissenting shareholder who
is not a Canadian resident, unless at any time within the five years
preceding the disposition of the shares:
- you, together with any other person or entity not dealing
at arm's length with you, owned and/or had options to
acquire 25% or more of the issued shares of any class of
series of capital stock of the existing Alberta
corporation;
- you, upon ceasing to be a resident of Canada, elected
under the INCOME TAX ACT (Canada) to have the existing
Alberta corporation's shares treated as "taxable Canadian
property;" or
43
- the shares of the existing Alberta corporation were
acquired in circumstances in which they were deemed to be
taxable Canadian property.
CANADIAN FEDERAL INCOME TAX CONSEQUENCES TO THE EXISTING ALBERTA
CORPORATION. If we proceed with the Delaware domestication, then the
existing Alberta corporation will be deemed to have:
- a year end immediately prior to the Delaware
domestication;
- disposed of each of its assets for an amount equal to the
fair market value of the assets; and
- immediately reacquired each of its assets at a cost equal
to the fair market value of the assets.
The deemed disposition of assets may give rise to income or loss,
or capital gains or capital losses depending on whether the fair market
value of the assets are greater than or less than their cost or adjusted
cost base. The resulting net income or loss and three-fourths of the
net capital gains will be included in computing the existing Alberta
corporation's taxable income for the fiscal period ending immediately
prior to the Delaware domestication. If the amounts included in
computing the existing Alberta corporation's taxable income exceed
available deductions, then the excess amount will be subject to Canadian
tax at an effective rate of 39%.
In addition, a 25% exit tax generally will apply to the amount by
which the aggregate fair market value of the existing Alberta
corporation's assets immediately prior to the Delaware domestication
exceeds the aggregate of its liabilities (including liability for income
tax for our taxable year ending immediately prior to the Delaware
domestication) and its paid-up capital of all of its issued and
outstanding shares, excluding the paid-up capital in respect of all
dissenting shareholders whose shares have been redeemed. The general
tax rate of 25% is reduced to 5% pursuant to the Canada - U.S. Tax
Convention. This exit tax is payable by the existing Alberta
corporation within six months after the end of the taxable year ending
immediately prior to the Delaware domestication.
Upon the completion of the Delaware domestication, the existing
Alberta corporation will be deemed to have been incorporated in Delaware
for Canadian federal income tax purposes and generally will be subject
to federal income tax in Canada for:
- business income attributable to a permanent establishment
in Canada;
- gains realized on disposition of taxable Canadian
property; and
- withholding tax in respect of Canadian source passive
income such as dividends and interest.
CONSEQUENCES OF THE ONE-FOR-FIFTEEN COMMON SHARE CONSOLIDATION.
The one-for-fifteen common share consolidation will not result in a
disposition of your common shares for income tax purposes under Canadian
tax law. However, you will not realize any capital gain or capital loss
as a result of the common share consolidation as your proceeds of
disposition are deemed to equal your adjusted cost base. After the
common share consolidation is effected, the adjusted cost base and
paid-up capital of your common shares will be equal to the aggregate
adjusted cost base and paid-up capital of your pre-consolidated common
shares divided by the new number of common shares.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS. This discussion of
potential tax consequences is included for general information only. It does
not address the state, local or foreign tax aspects of the Delaware
domestication. The discussion is based on:
- currently existing provisions of the U.S. Internal Revenue Code;
- existing and proposed treasury regulations relating to the U.S.
Internal Revenue Code; and
44
- current administrative rulings and court decisions.
Changes to relevant law could affect the validity of this discussion.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF
THE DELAWARE DOMESTICATION TO YOU, INCLUDING THE APPLICATION AND EFFECT OF
FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
This discussion does not address certain U.S. federal income tax
consequences applicable to U.S. shareholders who own or owned (directly or
indirectly) 10% or more of the voting power of the existing Alberta corporation
at any time during the five-year period ending on the date when the Delaware
domestication is completed.
RESIDENTS OF THE UNITED STATES. This discussion generally
addresses certain U.S. federal income tax consequences of the Delaware
domestication to shareholders residing in the United States.
The Delaware domestication will be treated for U.S. federal
income tax purposes as a transfer by the existing Alberta Corporation of
all of its assets and liabilities to the new Delaware corporation in
exchange for stock of the new Delaware corporation. The existing
Alberta corporation then will be deemed to distribute this stock of the
new Delaware corporation to its shareholders.
NON-DISSENTING SHAREHOLDERS. If you do not dissent to the
Delaware domestication, then you will not realize any capital gain or
loss from the deemed transfer of shares of the existing Alberta
corporation for stock of the new Delaware corporation, assuming that:
- the existing Alberta corporation has not been a
controlled foreign corporation, as defined by U.S. tax
law, at any time during the five years ending on the date
of the Delaware domestication;
- certain proposed regulations (which, if finalized at
least 30 days before the domestication, would require you
to recognize gain realized on the exchange) are not
effective as of the date of the Delaware domestication;
- the existing Alberta corporation is not a passive foreign
investment corporation; and
- you file the appropriate notice with the U.S. Internal
Revenue Service.
Our tax advisor, Ernst & Young LLP, has not made any
determination as to whether the existing Alberta corporation is, or has
ever been, a controlled foreign corporation or a passive foreign
investment corporation.
Your basis in the stock of the new Delaware corporation that you
receive after the Delaware domestication generally will be equal to your
basis in the shares of the existing Alberta corporation prior to the
Delaware domestication, increased by any income (e.g., deemed dividends)
or gain that you recognize as a result of the Delaware domestication.
Generally, if you do not dissent to the Delaware domestication,
then you will have a holding period for the stock of the new Delaware
corporation that you receive after the Delaware domestication equal to
your holding period for the shares of the existing Alberta corporation
immediately prior to the Delaware domestication.
DISSENTING SHAREHOLDERS. If you dissent to the Delaware
domestication, then you generally will be treated as having received
cash in redemption of your shares. As a result, you may have to
recognize capital gain or loss or ordinary income as a result of the
Delaware domestication. YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISOR AS
TO THE SPECIFIC U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DELAWARE
DOMESTICATION TO YOU.
45
SHAREHOLDERS NOT RESIDENT IN THE UNITED STATES. The following
summary generally applies to you if you do not reside in the United
States and hold your shares as a capital asset.
The Delaware domestication will be treated for U.S. federal
income tax purposes as a transfer by the existing Alberta Corporation of
all of its assets and liabilities to the new Delaware corporation in
exchange for stock of the new Delaware corporation. The existing
Alberta corporation will then be deemed to liquidate and distribute the
stock of the new Delaware corporation to its shareholders.
NON-DISSENTING SHAREHOLDERS. If you are not a U.S. resident and
you do not dissent to the Delaware domestication, then you will not
recognize any gain or loss from the deemed receipt of shares of the new
Delaware corporation's common stock solely in exchange for your common
shares. Generally, if you are not a U.S. resident and you do not
dissent to the Delaware domestication, then you will have a basis in the
stock of the new Delaware corporation that you receive after the
Delaware domestication equal to your basis in the shares of the existing
Alberta corporation prior to the Delaware domestication.
DISSENTING SHAREHOLDERS. If you dissent to the Delaware
domestication and you are subject to U.S. federal income tax, then you
generally will be treated as having received cash in redemption of your
shares. As a result, you may have to recognize capital gain or loss or
ordinary income as a result of the Delaware domestication. You should
consult with your own tax advisor as to the specific U.S. federal income
tax consequences of the Delaware domestication to you.
U.S. FEDERAL INCOME TAX CONSEQUENCES TO THE EXISTING ALBERTA
CORPORATION. The Delaware domestication will be treated as an exchange
by the existing Alberta corporation of its assets and its liabilities
for stock of the new Delaware corporation and will constitute a tax-free
reorganization under the U.S. Internal Revenue Code. As a result, the
existing Alberta corporation will not recognize any gain or loss from
the deemed transfer of its assets to the new Delaware corporation, and
the new Delaware corporation will not recognize any gain or loss.
The new Delaware corporation's basis in and holding period of the
assets of the existing Alberta corporation after the Delaware
domestication will be the same as the existing Alberta corporation's
basis in and holding period of its assets prior to the Delaware
domestication.
The taxable year of the existing Alberta corporation will end on
the date when the Delaware domestication is completed. The new Delaware
corporation's first taxable year will begin on the day after the
Delaware domestication is completed and will end on December 31, 1999.
CONSEQUENCES OF THE ONE-FOR-FIFTEEN COMMON SHARE CONSOLIDATION.
Our tax advisors, Ernst & Young LLP, believe that under existing U.S.
federal income tax laws and regulations, the one-for-fifteen
consolidation of the common shares will constitute a recapitalization
and, therefore, a tax-free reorganization under the U.S. Internal
Revenue Code. As a result, no gain or loss will be recognized by the
existing Alberta corporation from the common share consolidation.
Generally, no gain or loss will be recognized by the exchanging
shareholders from the common share consolidation. Your aggregate basis
in your common shares after the common share consolidation will be equal
to your aggregate basis in your pre-consolidation common shares. This
aggregate basis must be allocated pro rata among the number of common
shares that you own after the common share consolidation.
The holding period for your common shares after the common share
consolidation will include the holding period for your pre-consolidation
common shares, provided that your common shares are held as a capital
asset on the date of the common share consolidation. This holding
period must be allocated pro rata among the common shares that you own
immediately following the common share consolidation. For example, if
before the common share consolidation you had held 15 common shares for
one month and 15
46
common shares for two years, then, after the common share consolidation,
you would hold two shares of common stock, each with a holding period as
follows:
- 50% of each share will have a one month holding period;
and
- 50% of each share will have a two year holding period.
RIGHT OF DISSENT
GENERAL. The following description of the right of shareholders to
dissent to the Delaware domestication is not a comprehensive statement of the
procedures to be followed by a dissenting shareholder who seeks payment of the
fair value of his common shares or Class A Series III Preferred Shares. This
description is qualified in its entirety by the reference to the full text of
Section 184 of the BUSINESS CORPORATIONS ACT (Alberta) which is attached to this
Proxy Statement and Information Circular as APPENDIX I. The statutory
provisions covering the right of dissent and appraisal are technical and
complex. IF YOU WISH TO EXERCISE YOUR RIGHT OF DISSENT AND APPRAISAL IN RESPECT
OF THE DELAWARE DOMESTICATION, THEN YOU SHOULD SEEK YOUR OWN LEGAL ADVICE, AS
FAILURE TO COMPLY STRICTLY WITH THE PROVISIONS OF SECTION 184 OF THE BUSINESS
CORPORATIONS ACT (ALBERTA) MAY RESULT IN A LOSS OF ALL RIGHTS THEREUNDER. If
the number of shareholders exercising their right of dissent could adversely
affect our financial condition, then our board of directors may abandon the
Delaware domestication.
FAIR MARKET VALUATION. You are entitled to dissent and to have us pay to
you the fair value of your common shares or Class A Series III Preferred Shares,
determined as of the close of business on the last business day before the
annual and special meeting.
VALUATION BY APPLICATION TO COURT. If the Delaware domestication is
passed, then either a shareholder or the existing Alberta corporation may apply
to the Court of Queen's Bench of Alberta, Canada (the "Court") to fix the fair
value of your shares. If an application is made to the Court, unless the Court
otherwise orders, then we must send to each dissenting shareholder a written
offer to pay to the dissenting shareholder an amount considered by the existing
Alberta corporation to be the fair value of the shares. The offer to each
dissenting shareholder must be on the same terms and contain or be accompanied
by a statement showing how the fair value was determined.
If you choose to dissent, then you may enter into an agreement with us
for the purchase of your common shares or Class A Series III Preferred Shares,
in the amount offered by us or otherwise, at any time before the Court
pronounces an order fixing the fair value of the common shares or the Class A
Series III Preferred Shares.
On an application under Section 184 of the BUSINESS CORPORATION ACT
(Alberta), the Court must make an order fixing the fair value of the shares of
all dissenting shareholders, giving judgment in that amount against us and in
favor of each dissenting shareholder, and fixing the time within which we must
pay each dissenting shareholder. The Court may allow a reasonable rate of
interest on the amount payable to each dissenting shareholder from the date on
which the dissenting shareholder ceases to have any rights as a shareholder of
the existing Alberta corporation until the date of payment.
RESTRICTIONS ON RIGHT OF DISSENT. You are not entitled to dissent with
respect to any shares if you vote (or instruct or are deemed, by submission of
an incomplete proxy, to have instructed a proxyholder to vote) any shares in
favor of the Delaware domestication, but you may abstain from voting on the
Delaware domestication (or submitting a proxy) without affecting your right of
dissent.
You may dissent only with respect to the common shares or Class A Series
III Preferred Shares that you hold on your own behalf or on behalf of any one
beneficial owner and registered in your name. IF YOU ARE A BENEFICIAL OWNER OF
COMMON SHARES OR CLASS A SERIES III PREFERRED SHARES REGISTERED IN THE NAME OF A
BROKER, CUSTODIAN, NOMINEE OR OTHER INTERMEDIARY AND YOU WISH TO DISSENT, THEN
YOU SHOULD BE AWARE THAT ONLY THE REGISTERED OWNER OF THE SHARES IS ENTITLED TO
DISSENT. ACCORDINGLY, IF YOU WANT TO EXERCISE YOUR RIGHT TO DISSENT, THEN YOU
MUST MAKE ARRANGEMENTS FOR THE COMMON SHARES OR CLASS A SERIES III PREFERRED
SHARES THAT YOU BENEFICIALLY OWN TO BE REGISTERED IN YOUR NAME BEFORE THE TIME
THAT WE MUST RECEIVE THE WRITTEN
47
OBJECTION TO THE DELAWARE DOMESTICATION OR, ALTERNATIVELY, YOU MUST MAKE
ARRANGEMENTS FOR THE REGISTERED HOLDER OF YOUR COMMON SHARES OR CLASS A SERIES
III PREFERRED SHARES TO DISSENT ON YOUR BEHALF.
ACTION REQUIRED TO EXERCISE RIGHT OF DISSENT. If you choose to dissent,
then you must send us a written objection to the Delaware domestication, which
must be received by our president, Steven M. Caira, at our registered office,
1400, 350-7th Avenue S.W., Calgary, Alberta, Canada T2P 3N9 or the chairman of
the annual and special meeting at or before the annual and special meeting. A
vote against the Delaware domestication, an abstention or the execution of a
proxy to vote against the Delaware domestication does not constitute the
required written objection, but you need not vote your shares against the
Delaware domestication to dissent.
If you dissent to the Delaware domestication, then you are not required
to give security for costs in respect of an application to the Court to fix the
fair value of your shares, and, except in special circumstances, you will not be
required to pay the costs of the application or appraisal.
RIGHTS OF DISSENTING SHAREHOLDERS. A dissenting shareholder does not
have any rights as a shareholder, other than the right to be paid the fair value
of his or her shares, on the earliest of:
- the effective date of the Delaware domestication;
- the making of an agreement between the existing Alberta
corporation and the dissenting shareholder as to the payment to
be made for the dissenting shareholder's shares; or
- the pronouncement of the order of the Court fixing the fair value
of the shares.
Until any of the foregoing events occur, a dissenting shareholder may withdraw
his dissent or we may rescind the Delaware domestication. In either event,
proceedings under Section 184 will automatically terminate.
We will not make a payment to a dissenting shareholder under Section
184 if there are reasonable grounds for believing that we are, or would after
the payment be, unable to pay our liabilities as they become due, or that the
realizable value of our assets would thereby be less than the aggregate of
our liabilities. If this situation occurs, then we will notify each
dissenting shareholder that we are unable lawfully to pay the dissenting
shareholder for its shares, in which case the dissenting shareholder may, by
written notice to us within 30 days after receipt of this notice, withdraw
its written notice of dissent. In this case, we would be deemed to have
consented to the withdrawal and the shareholder would be reinstated to its
full rights as a shareholder of the existing Alberta corporation.
The above summary does not provide a comprehensive statement of the
procedures that you must follow to receive payment of the fair value of your
shares. IF YOU WISH TO EXERCISE YOUR RIGHT OF DISSENT AND APPRAISAL IN RESPECT
OF THE DELAWARE DOMESTICATION, THEN YOU SHOULD SEEK YOUR OWN LEGAL ADVICE, AS
FAILURE TO COMPLY STRICTLY WITH THE PROVISIONS OF SECTION 184 OF THE BUSINESS
CORPORATIONS ACT (ALBERTA) MAY RESULT IN A LOSS OF ALL RIGHTS THEREUNDER.
48
SECURITIES LAW CONSEQUENCES
UNITED STATES SECURITIES LAW CONSEQUENCES. Unless you are deemed to be
an "affiliate" (as defined under the Securities Act) of the existing Alberta
corporation before the Delaware domestication, then all of the shares of common
stock that you receive in the Delaware domestication will be freely
transferable, except as described under "Canadian Securities Law Consequences"
below. If you are an affiliate of the existing Alberta corporation, then you
may resell your shares only in accordance with the resale provisions of Rule 144
promulgated, or as otherwise permitted, under the Securities Act. Persons who
may be deemed to be affiliates of the existing Alberta corporation generally
include individuals or entities that control, are controlled by, or are under
common control with, the existing Alberta corporation and may include certain
officers and directors of the existing Alberta corporation as well as principal
shareholders of the party or persons who hold restricted shares.
CANADIAN SECURITIES LAW CONSEQUENCES. If you are a Canadian resident,
then the shares of common stock or Class A Preferred Stock that you receive
after the Delaware domestication will continue to be subject to any applicable
resale restrictions imposed by the securities laws of the province of Canada in
which you are resident.
EXCHANGE OF SHARE CERTIFICATES
Following the effective date of the Delaware domestication, existing
holders of common shares will become holders of shares of the new Delaware
corporation's common stock and existing holders of the Class A Series III
Preferred Shares will become holders of shares of the new Delaware corporation's
Class A Preferred Stock. This conversion will occur regardless of when the
certificates formerly representing common shares or Class A Series III Preferred
Shares are surrendered. Shortly after the effective date of the Delaware
domestication, we will provide each of the holders of common shares with a
letter of transmittal containing instructions on how to exchange certificates
formerly representing common shares for certificates representing shares of
common stock. Upon our receipt of this letter of transmittal and the
certificate(s) formerly representing common shares, we will issue a certificate
representing the appropriate number of shares of common stock. We will provide
a similar letter to each holder of Class A Series III Preferred Shares.
THE DELAWARE DOMESTICATION RESOLUTION
Based on the foregoing discussion, our board of directors has approved
and believes that it is in the best interests of the existing Alberta
corporation and its shareholders to domesticate the existing Alberta corporation
into the State of Delaware. To reduce the franchise fees payable to the
Delaware corporate authorities following the Delaware domestication, our board
of directors believes that it is in our best interests and the best interests of
our shareholders to alter our authorized capital from:
- an unlimited number of common shares without par value;
- an unlimited number of Class "B" non-voting common shares; and
- an unlimited number of preferred shares without par value (of
which a first series of preferred shares consisting of 100,000
shares without par value have been created, designated as 6%
non-cumulative redeemable retractable first preferred shares,
Series A and an unlimited number of Class A Series I, Series II
and Series III Preferred Shares have been created);
to (after giving effect to the common share consolidation):
- 20,000,000 shares of common stock, par value of US $0.001 per
share;
- 750,000 shares of Class A Preferred Stock, par value of US $0.001
per share; and
- 750,000 shares of preferred stock, par value of US $0.001 per
share.
If the shareholders approve this proposal, then, before completing the
Delaware domestication and subject to approval by The Alberta Stock Exchange, we
will effect a one-for-fifteen consolidation of the common shares
49
and corresponding name change whereby the existing Alberta corporation will be
renamed TomaHawk Engineering, Inc. Our shareholders authorized this common
share consolidation and name change on September 22, 1998.
Accordingly, you will be asked at the annual and special meeting to
approve the following resolution changing our jurisdiction of incorporation from
Alberta to Delaware, altering our authorized share capital and approving a new
certificate of incorporation and bylaws, in substantially the following terms:
"BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:
1. the continuance of the Company out of the jurisdiction of the BUSINESS
CORPORATIONS ACT (Alberta) to the State of Delaware pursuant to Section
388 of the General Corporation Law of the State of Delaware be and is
hereby approved;
2. the Company obtain the approval of the Registrar appointed under the
BUSINESS CORPORATIONS ACT (Alberta) that the Company be permitted to
continue into and be registered as a "Corporation" in the State of
Delaware pursuant to the General Corporation Law of the State of
Delaware;
3. the Company make application to the appropriate authorities in the State
of Delaware for consent to be domesticated into and registered as a
"Corporation" pursuant to the General Corporation Law of the State of
Delaware;
4. effective on the date of domestication of the Company under the General
Corporation Law of the State of Delaware and after giving effect to the
one-for-fifteen common share consolidation (the "Share Consolidation"),
the authorized share capital of the Company be reconstituted as
20,000,000 shares of common stock, each with a par value of US $0.001
per share, 750,000 shares of preferred stock, each with a par value of
US $0.001 per share, and 750,000 shares of Class A Preferred Stock, each
with a par value of US $0.001 per share, all having the rights,
privileges, restrictions and conditions as set forth in APPENDIX II
attached to the Proxy Statement and Information Circular (the
"Information Circular") of the Company dated __________, 1999;
5. effective on the date of domestication of the Company under the General
Corporation Law of the State of Delaware, the Company's issued and
outstanding common shares shall each be replaced with a share of common
stock with a par value of US $0.001 per share having the rights,
privileges, restrictions and conditions as set forth in APPENDIX II
attached to the Information Circular and each issued and outstanding
Class A Series III Preferred Share of the Company shall be replaced with
a share of Class A Preferred Stock having the rights, privileges and
restrictions and conditions as set forth in APPENDIX II to the
Information Circular;
6. effective on the date of domestication of the Company under the General
Corporation Law of the State of Delaware, the Company adopt in
substitution for its existing Articles of Incorporation and Bylaws a
Certificate of Incorporation and Bylaws in the form attached as APPENDIX
II and APPENDIX III, respectively, to the Proxy Statement and
Information Circular, with such amendments thereto as the director or
officer executing the same may approve, such approval to be conclusively
evidenced by his signature thereto;
7. any of the directors or officers of the Company is hereby authorized to
make such applications, execute such documents, and do such further and
other acts and things as may be necessary or advisable in connection
with the foregoing; and
8. the directors of the Corporation may abandon the domestication
application without further approval of the shareholders at any time
prior to the Company's registration as a "Corporation" pursuant to the
General Corporation Law of the State of Delaware."
50
VOTE REQUIRED
The Delaware domestication requires the approval of two-thirds of the
votes cast by the holders of common shares and Class A Series III Preferred
Shares present or represented by proxy and voting as one class at the annual and
special meeting on this proposal.
Under Alberta corporate law, abstentions and broker non-votes are not
counted as for purposes of determining the presence or absence of a quorum for
the transaction of business, and are not counted as votes cast. Accordingly,
abstentions and broker non-votes with respect to this proposal will not be
considered and will not be counted in determining whether this proposal passes.
Our board of directors has approved unanimously the Delaware
domestication of the existing Alberta corporation under the provisions of
Section 182 of the BUSINESS CORPORATIONS ACT (Alberta) and Section 388 of the
General Corporation Law of the State of Delaware and recommends that you vote
"FOR" the Delaware domestication.
51
PROPOSAL SIX
AMENDMENT TO THE NEW DELAWARE CORPORATION'S
CERTIFICATE OF INCORPORATION AND BYLAWS
TO REQUIRE ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS AND PROPOSALS
GENERAL
The new Delaware corporation's certificate of incorporation (attached
hereto as APPENDIX II) and bylaws (attached hereto as APPENDIX III) do not
currently provide for the timing of any notice that stockholders must give to us
before they may nominate a candidate for the board of directors or make a
proposal to be voted on at an annual stockholders meeting. Our board of
directors therefore has adopted, subject to stockholder approval, proposed
amendments to the new Delaware corporation's certificate of incorporation and
bylaws that will provide a detailed notice procedure for stockholder nominations
of candidates for election as directors and stockholder proposals to be brought
before an annual meeting of stockholders. If this proposal is approved, then:
- only persons who are nominated by or at the direction of our
board of directors, or by a stockholder who has given timely
prior written notice to our secretary before the meeting at which
directors are to be elected, will be eligible for election as
directors; and
- stockholder proposals must be submitted in writing in a timely
manner to be considered at any annual meeting.
If this proposal is approved, then, in order to be considered timely, a
stockholder must deliver his notice for director nominations or stockholder
proposals to us:
- for an annual meeting, not less than seventy days nor more than
ninety days before the anniversary date of the immediately
preceding annual meeting of stockholders, and
- for a special meeting, not more than ninety days before the
special meeting, and not less than the later of seventy days
before the special meeting or ten days after the public
announcement of the date of the meeting.
If this proposal is approved, then notice from a stockholder who
proposes to nominate a person at a meeting for election as a director must
contain the following information about the nominee:
- age;
- business and residence addresses;
- principal occupation;
- the class and number of shares of common stock or other capital
stock beneficially owned;
- the consent of the person to be nominated; and
- any other information required to be included in a proxy
statement soliciting proxies for the election of the proposed
nominee.
The nominating stockholder must also disclose his name, address, and the number
of shares of stock that he owns.
If this proposal is approved, then notice relating to a stockholder
proposal must contain certain information about the proposal and the stockholder
making the proposal, including a brief description of the proposal, the
proposing stockholder's name and address, and the number of shares of stock that
the proposing stockholder owns.
52
REASONS FOR STOCKHOLDER APPROVAL
By requiring advance notice of director nominations by stockholders, our
board of directors will have a meaningful opportunity to consider the
qualifications of the proposed nominees and, if deemed necessary or desirable by
our board of directors, to inform stockholders about the qualifications of the
proposed nominees. Similarly, by requiring advance notice of stockholder
proposals, our board of directors will have a more orderly procedure for
conducting annual meetings of stockholders and a meaningful opportunity to
analyze the proposals and to decide whether it is appropriate to either omit the
proposal or inform our stockholders, before these meetings, of any proposal to
be introduced at these meetings. The advance notice requirement also allows our
board of directors to weigh the merits of the proposal and prepare an analysis
and a recommendation for our stockholders to consider. Finally, these
procedures will give stockholders sufficient time to determine whether they
desire to attend the annual meeting of stockholders, or whether they wish to
grant a proxy to our management as to the disposition of any stockholder
proposals.
POTENTIAL ANTI-TAKEOVER EFFECTS
Although the proposed amendments do not give our board of directors any
power to approve or disapprove stockholder nominations or proposals, they may
discourage or make it more difficult to bring a nomination or proposal to a
vote. The proposed amendments also may discourage a stockholder from conducting
a solicitation of proxies to elect his own slate of directors or otherwise
attempting to obtain control of the new Delaware corporation, even though this
action might be beneficial to the new Delaware corporation and our stockholders.
For these reasons, this proposal may have an anti-takeover effect, particularly
when combined with Seven through Nine. Our board of directors nonetheless
believes that it is important that it give advance notice of and consideration
to any stockholder nominations or proposals and that stockholders have the
opportunity to consider carefully any matters that may affect their rights. In
addition, our board of directors believes that the proposed amendments will help
assure the continuity and stability of our business and reduce our vulnerability
to unsolicited takeover proposals that could curtail our board of directors
ability to negotiate effectively on behalf of all of our stockholders. See
"Proposal Five--Domestication into the State of Delaware--Corporate Governance
Differences; Delaware and Alberta Law Comparisons--Anti-Takeover Effects."
While they may be deemed to have potential anti-takeover effects, the
proposed amendments are not prompted by any specific effort or takeover threat
that we currently perceive. We presently are not aware of any attempt to take
over or acquire the existing Alberta corporation or to remove our incumbent
management.
THE PROPOSED AMENDMENTS
If the stockholders approve this Proposal Six, then our board of
directors will amend the new Delaware corporation's certificate of incorporation
by adding the following section after Article SIXTH, Section (5):
"(6) Advance notice of stockholder nominations for the
election of directors and proposals to be voted on at stockholder
meetings shall be given in the manner provided in the bylaws of the
Corporation."
If the stockholders approve this Proposal Six, then our board of
directors also will amend the new Delaware corporation's bylaws by adding the
following section after Section 1.12:
"Section 1.13. STOCKHOLDER NOMINATIONS AND PROPOSALS
(A) ANNUAL MEETINGS OF STOCKHOLDERS.
(1) Nominations of persons for election to the
Board of Directors of the Corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting of
stockholders (a) pursuant to the Corporation's notice of meeting
delivered pursuant to Section 1.3 of these bylaws, (b) by or at the
direction of the Chairman or the Board of
53
Directors or (c) by any stockholder of the Corporation who is entitled
to vote at the meeting, who complied with the notice procedures set
forth in clauses (2) and (3) of this paragraph (A) of this bylaw and who
was a stockholder of record at the time such notice is delivered to the
Secretary of the Corporation.
(2) For nominations or other business to be
properly brought before an annual meeting by a stockholder pursuant to
clause (c) of paragraph (A)(1) of this bylaw, the stockholder must have
given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered to
the Secretary at the principal executive offices of the Corporation not
less than seventy days nor more than ninety days prior to the first
anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is advanced by
more than twenty days, or delayed by more than seventy days, from such
anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the ninetieth day prior to such annual
meeting and not later than the close of business on the later of the
seventieth day prior to such annual meeting or the tenth day following
the day on which public announcement of the date of such meeting is
first made. Such stockholder's notice shall set forth: (a) as to each
person whom the stockholder proposes to nominate for election or
reelection as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected;
(b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at
the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the
proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal
is made, (i) the name and address of such stockholder, as they appear on
the Corporation's books, and of such beneficial owner and (ii) the class
and number of shares of the Corporation that are owned beneficially and
of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second
sentence of paragraph (A)(2) of this bylaw to the contrary, in the event
that the number of directors to be elected to the Board of Directors of
the Corporation is increased and there is no public announcement naming
all of the nominees for director or specifying the size of the increased
Board of Directors made by the Corporation at least eighty days prior to
the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this bylaw shall also be considered
timely, but only with respect to nominees for any new positions created
by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close
of business on the tenth day following the day on which such public
announcement is first made by the Corporation.
(B) SPECIAL MEETINGS OF STOCKHOLDERS. Only such
business shall be conducted at a special meeting of stockholders as
shall have been brought before the meeting pursuant to the Corporation's
notice of meeting pursuant to Section 1.3 of these bylaws. Nominations
of persons for election to the Board of Directors may be made at a
special meeting of stockholders at which directors are to be elected
pursuant to the Corporation's notice of meeting (a) by or at the
direction of the Board of Directors or (b) by any stockholder of the
Corporation who is entitled to vote at the meeting, who complies with
the notice procedures set forth in this bylaw and who is a stockholder
of record at the time such notice is delivered to the Secretary of the
Corporation. Nominations by stockholders of persons for election to the
Board of Directors may be made at such a special meeting of stockholders
if the stockholder's notice as required by paragraph (A)(2) of this
bylaw shall be delivered to the Secretary at the principal executive
offices of the Corporation not earlier than the ninetieth day prior to
such special
54
meeting and not later than the close of business on the later of the
seventieth day prior to such special meeting or the tenth day following
the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors
to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time
period for the giving of a stockholder's notice as described above.
(C) GENERAL.
(1) Only persons who are nominated in
accordance with the procedures set forth in this bylaw shall be eligible
to serve as director and only such business shall be conducted at a
meeting of stockholders as shall have been brought before the meeting in
accordance with the procedures set forth in this bylaw. Except as
otherwise provided by law, the Certificate of Incorporation or these
bylaws, the chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought
before the meeting was made in accordance with the procedures set forth
in this bylaw and, if any proposed nomination or business is not in
compliance with this bylaw, to declare that such defective proposal or
nomination shall be disregarded.
(2) For purposes of this bylaw, "public
announcement" shall mean disclosure in a press release reported by the
Dow Jones News Service, Associated Press or comparable national news
service or in a document publicly filed by the Corporation with the
Securities and Exchange Commission pursuant to Section 13, 14 or 15(d)
of the Exchange Act.
(3) Notwithstanding the foregoing provisions
of this bylaw, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this bylaw. Nothing
in this bylaw shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement
pursuant to Rule 14a-8 under the Exchange Act."
VOTE REQUIRED
The approval of the proposed amendments to the new Delaware
corporation's certificate of incorporation and bylaws to require advance notice
of stockholder nominations and proposals requires the affirmative vote of a
majority of all outstanding shares of common stock as of ___________, 1999,
the record date.
Under Delaware law, we will count abstentions and broker non-votes to
determine the presence or absence of a quorum for the transaction of business,
but we will not count them as votes cast. Accordingly, abstentions and broker
non-votes will have the effect of votes against the proposal.
Our board of directors has unanimously approved and recommends that you
vote "FOR" the adoption of the proposed amendments to the new Delaware
corporation's certificate of incorporation and bylaws to require advance notice
of stockholder nominations and proposals to be voted on at annual meetings of
stockholders.
55
PROPOSAL SEVEN
AMENDMENT TO THE NEW DELAWARE CORPORATION'S
CERTIFICATE OF INCORPORATION AND BYLAWS
TO PROHIBIT STOCKHOLDERS
FROM CALLING SPECIAL MEETINGS OF THE STOCKHOLDERS
GENERAL
The bylaws of the new Delaware corporation currently provide that our
board of directors or holders of at least 5% of the outstanding shares of common
stock may call special meetings of the stockholders. Our board of directors has
adopted, subject to stockholder approval, amendments to the new Delaware
corporation's certificate of incorporation and bylaws to prohibit our
stockholders from calling a special meeting of stockholders. If this proposal
is approved, then only our board of directors will be permitted to call a
special meeting of stockholders.
REASONS FOR STOCKHOLDER APPROVAL
If approved, this proposal will prevent stockholders from forcing
stockholder consideration of a proposal over the opposition of our board of
directors by calling a special meeting of stockholders before the next annual
meeting. In addition, a stockholder will not have the ability to force
stockholder consideration of a proposal over the opposition of our board of
directors by calling a special meeting of stockholders earlier than our board
believes to be appropriate. As a result, the proposed amendments will enable
our board of directors to conduct stockholder meetings in an orderly manner and
to adequately inform stockholders of the matters to be considered at any special
meeting of stockholders.
This proposed amendment, in conjunction with Proposals Six, Eight and
Nine, is intended to protect against attempts to acquire control of the new
Delaware corporation by coercive and unfair practices that do not treat all
shareholders equally. For example, an acquiror may propose a two-tiered
takeover bid that forces stockholders to sell or risk receiving an even lower
price in the second step of the transaction. The acquiror also may use the
threat of a proxy fight and/or a takeover bid as a means of forcing the new
Delaware corporation to repurchase the acquiror's shares at a substantial
premium over the market price. By preventing the stockholders from calling a
special meeting, this proposed amendment is intended to encourage potential
acquirors to negotiate with our board of directors before making a takeover bid.
These negotiations should provide our board of directors with the time it needs
to evaluate any takeover proposal and to review alternatives with a goal of
maximizing value for all of our stockholders. If these negotiations produce a
proposal that our board of directors believes is fair to all of our
stockholders, then our board of directors will call a special meeting to vote on
the takeover proposal.
POTENTIAL ANTI-TAKEOVER EFFECTS
If this proposal is approved, then it may discourage or make it more
difficult to attempt to take control of the new Delaware corporation, even
though this action might be beneficial to the new Delaware corporation and our
stockholders. Potential acquirors would be forced to wait for the next annual
meeting to attempt a takeover. This proposal therefore may have an
anti-takeover effect, particularly when combined with Proposals Six, Eight and
Nine. See "Proposal Five--Domestication into the State of Delaware--Corporate
Governance Differences; Delaware and Alberta Law Comparisons--Anti-Takeover
Effects--Special Meetings of Shareholders."
While it may be deemed to have potential anti-takeover effects, the
proposed amendments are not prompted by any specific effort or takeover threat
that we currently perceive. We presently are not aware of any attempt to take
over or acquire the existing Alberta corporation or to remove our incumbent
management.
56
THE PROPOSED AMENDMENTS
If the stockholders approve this Proposal Seven, then our board of
directors will amend the new Delaware corporation's certificate of incorporation
by adding the following section after Article SIXTH, Section (6):
"(7) Special meetings of stockholders may be called
only by the Board of Directors, and may not be called by any other
person or persons."
If the stockholders approve this Proposal Seven, then our board of
directors also will amend the new Delaware corporation's bylaws by deleting the
phrase "or by holders of shares of Common Stock of the Corporation representing
5% of the outstanding shares" from the first sentence of Section 1.2, and adding
the phrase "but such special meetings may not be called by any other person or
persons."
VOTE REQUIRED
The approval of the proposed amendments to the new Delaware
corporation's certificate of incorporation and bylaws to prohibit stockholders
from calling special meetings of stockholders requires the affirmative vote of a
majority of all outstanding shares of common stock as of ___________, 1999,
the record date.
Under Delaware law, we will count abstentions and broker non-votes to
determine the presence or absence of a quorum for the transaction of business,
but we will not count them as votes cast. Accordingly, abstentions and broker
non-votes will have the effect of votes against the proposal.
Our board of directors has unanimously approved and recommends that you
vote "FOR" the adoption of the proposed amendments to the new Delaware
corporation's certificate of incorporation and bylaws to prohibit stockholders
from calling special meetings of stockholders.
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PROPOSAL EIGHT
AMENDMENT TO THE NEW DELAWARE CORPORATION'S
CERTIFICATE OF INCORPORATION
TO ELIMINATE ACTIONS OF THE STOCKHOLDERS
BY WRITTEN CONSENT WITHOUT A MEETING
GENERAL
Under Delaware corporate law, stockholders may take any action required
or permitted to be taken by stockholders without a meeting, without prior notice
and without a stockholder vote if a written consent setting forth the action to
be taken is signed by the holders of stock having the requisite number of votes
needed to approve the action. However, Delaware corporate law provides that a
corporation's certificate of incorporation may require that its stockholders act
at an annual or special meeting and prohibit stockholder action by written
consent. The new Delaware corporation's certificate of incorporation (attached
hereto as APPENDIX II) currently does not prohibit this type of action by
written consent. Consequently, a person or group of persons holding a majority
interest in the new Delaware corporation could take significant corporate action
without giving to all stockholders advance notice or the opportunity to vote.
Our board of directors therefore has adopted, subject to stockholder approval,
an amendment to the new Delaware corporation's certificate of incorporation that
will prevent the new Delaware corporation's stockholders from taking action
without a meeting by written consent.
REASONS FOR STOCKHOLDER APPROVAL
Our board of directors believes that it is in the best interests of our
stockholders to be advised of in advance and given the opportunity to vote on
any significant corporate action that requires their approval. If action by
written consent without a meeting is permitted, then a majority of the
stockholders could consent in writing to certain action without advance notice
to the other stockholders. Requiring advance notice of proposed stockholder
action provides all stockholders with the opportunity to express their views on
the proposed action and to obtain the support or opposition of other
stockholders. Our board of directors believes that stockholder decisions that
have been reached only after all stockholders have received notice and have had
an opportunity to express their views will better reflect the best interests of
all of our stockholders.
Like Proposal Seven, this proposed amendment is intended to protect
against attempts to acquire control of the new Delaware corporation by coercive
and unfair practices that do not treat all shareholders equally. By forcing our
stockholders to take action only at a meeting, this proposed amendment is
intended to prevent a potential acquiror from taking control of our company by
soliciting the written consent of a simple majority of our stockholders. This
proposal should encourage potential acquirors to negotiate with our board of
directors before making a takeover bid. These negotiations should provide our
board of directors with the time it needs to evaluate any takeover proposal and
to review alternatives with a goal of maximizing value for all of our
stockholders. This proposal is also intended to prevent a potential acquiror
from avoiding the requirements of Proposal Seven by taking action without
holding a stockholders meeting.
POTENTIAL ANTI-TAKEOVER EFFECTS
Action by written consent may, in some circumstances, permit our
stockholders to take action opposed by our board of directors more rapidly than
would be possible if a meeting were required. Action by written consent may
include proposals to approve offers to acquire the new Delaware corporation, to
acquire the assets of the new Delaware corporation or to replace members of our
board of directors, which proposals our board of directors may oppose. The
proposed amendment to the new Delaware corporation's certificate of
incorporation therefore may complicate or delay any attempt to assume control of
the new Delaware corporation without the approval of our board of directors.
This provision may discourage or make it more difficult to complete a merger,
tender offer, proxy contest or the assumption of control and removal of our
incumbent management, even though this action might be beneficial to the new
Delaware corporation and our stockholders. Our board of directors nonetheless
believes that it is important that it give advance notice of and consideration
to any stockholder action and that
58
stockholders discuss at a meeting any matters which may affect their rights.
See "Proposal Five--Domestication into the State of Delaware--Corporate
Governance Differences; Delaware and Alberta Law Comparisons--Anti-Takeover
Effects."
While it may be deemed to have potential anti-takeover effects, the
proposed amendment is not prompted by any specific effort or takeover threat
that we currently perceive. We presently are not aware of any attempt to take
over or acquire the existing Alberta corporation or to remove our incumbent
management.
THE PROPOSED AMENDMENT
If our stockholders approve this Proposal Eight, then our board of
directors will amend the new Delaware corporation's certificate of incorporation
by adding the following section after Article SIXTH, Section (7):
"(8) No action that is required or permitted to be
taken by the stockholders of the Corporation at any annual or special
meeting of stockholders may be effected by written consent of
stockholders in lieu of a meeting of stockholders."
VOTE REQUIRED
The approval of the proposed amendment to the new Delaware corporation's
certificate of incorporation to eliminate the right to act by written consent
requires the affirmative vote of a majority of all outstanding shares of common
stock as of ___________, 1999, the record date.
Under Delaware law, we will count abstentions and broker non-votes to
determine the presence or absence of a quorum for the transaction of business,
but we will not count them as votes cast. Accordingly, abstentions and broker
non-votes will have the effect of votes against the proposal.
Our board of directors has unanimously approved and recommends that you
vote "FOR" the amendment to the new Delaware corporation's certificate of
incorporation to eliminate the right to act by written consent.
59
PROPOSAL NINE
AMENDMENT TO THE NEW DELAWARE CORPORATION'S
CERTIFICATE OF INCORPORATION AND BYLAWS
TO REQUIRE A SUPERMAJORITY VOTE TO AMEND CERTAIN PROVISIONS OF THE
NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS
GENERAL
Delaware law provides that the vote of the holders of a majority of the
outstanding shares entitled to vote is required to alter, amend, change or
repeal a corporation's certificate of incorporation, unless otherwise specified
in the corporation's certificate of incorporation or bylaws. Our board of
directors has adopted, subject to stockholder approval, amendments to the new
Delaware corporation's certificate of incorporation and bylaws that would
require the affirmative vote of the holders of at least two-thirds of the
outstanding shares entitled to vote to amend Article SIXTH of the new Delaware
corporation's certificate of incorporation, and Sections 1.2 and 1.13 of the new
Delaware corporation's bylaws, which govern:
- the size of our board of directors;
- the elimination of actions by written consent of stockholders;
- advance notice requirements;
- the removal of directors; and
- the filling of vacancies on the board of directors.
REASONS FOR STOCKHOLDER APPROVAL
As discussed above in Proposals Six through Eight, our board of
directors believes it is in the best interests of our stockholders to be advised
of in advance and given the opportunity to consider and vote on any significant
corporate action that requires the approval of the stockholders. The proposed
amendments described in Proposals Six through Eight are intended to further this
goal. This Proposal Nine is designed to prevent a stockholder with a majority
of the voting power from avoiding the protections of the proposed amendments
described in Proposals Six through Eight by simply repealing them.
This proposed amendment, like Proposals Six through Eight, is intended
to protect against attempts to acquire control of the new Delaware corporation
by coercive and unfair practices that do not treat all shareholders equally. By
forcing potential acquirors to comply with the protections of the proposed
amendments in Proposals Six through Eight, this proposed amendment should force
potential acquirors to negotiate with our board of directors before making a
takeover bid. These negotiations should provide our board of directors with the
time it needs to evaluate any takeover proposal and to review alternatives with
a goal of maximizing value for all of our stockholders.
POTENTIAL ANTI-TAKEOVER EFFECTS
This supermajority voting provision may discourage or make it more
difficult to complete a merger, tender offer, proxy contest or the assumption of
control and removal of our incumbent management, even though this action might
be beneficial to the new Delaware corporation and our stockholders. While it
may be deemed to have potential anti-takeover effects, the proposed Articles
THIRTEENTH and FOURTEENTH are not prompted by any specific effort or takeover
threat that we currently perceive. We presently are not aware of any attempt to
take over or acquire the existing Alberta corporation or to remove our incumbent
management. See "Proposal Five--Domestication into the State of
Delaware--Corporate Governance Differences; Delaware and Alberta Law
Comparisons--Anti-Takeover Effects."
60
THE PROPOSED AMENDMENTS
If the stockholders approve this Proposal Nine, then our board of
directors will amend the new Delaware corporation's certificate of incorporation
by deleting Article THIRTEENTH and replacing it with the following:
"THIRTEENTH. Notwithstanding any other provisions of this
Certificate of Incorporation or the bylaws of the Corporation (and
notwithstanding the fact that a lesser percentage may be specified by
law, this Certificate of Incorporation or the bylaws of the
Corporation), the affirmative vote of the holders of two-thirds of the
total voting power of all shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single
class, shall be required to amend or repeal, or adopt any provision
inconsistent with, this Article THIRTEENTH or Articles SIXTH or
FOURTEENTH."
"FOURTEENTH. Notwithstanding any other provisions of this
Certificate of Incorporation or the bylaws of the Corporation (and
notwithstanding the fact that a lesser percentage maybe specified by
law, this Certificate of Incorporation or the bylaws of the
Corporation), the affirmative vote of the holders of two-thirds of all
outstanding shares of common stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single
class, shall be required to amend or repeal, or adopt any provision
inconsistent with, Sections 1.2, 1.13 or 7.6 of the Corporation's
bylaws."
If the stockholders approve this Proposal Nine, then our board of
directors will also amend the new Delaware corporation's bylaws by deleting
Section 7.6 and replacing it with the following:
"Section 7.6. AMENDMENTS. These bylaws may be altered, amended
or repealed, and new bylaws made, at any meeting of the Board of
Directors or of the stockholders, provided notice of the proposed change
was given in the notice of the meeting and, in the case of a meeting of
the Board, in a notice given not less than two days prior to the
meeting; PROVIDED, HOWEVER, that, in the case of amendments by
stockholders, notwithstanding any other provisions of these bylaws or
any provision of law which might otherwise permit a lesser vote or no
vote, but in addition to any affirmative vote of the holders of any
particular class or series of the capital stock of the Corporation
required by law, the Certificate of Incorporation or these bylaws, the
affirmative vote of the holders of at least two-thirds of the total
voting power of all shares of the Corporation entitled to vote generally
in the election of directors, voting together as a single class, shall
be required to amend or repeal, or adopt any provision inconsistent
with, this Section 7.6 or any provision of Sections 1.2 or 1.13 of these
bylaws."
VOTE REQUIRED
The approval of the proposed amendments to the new Delaware
corporation's certificate of incorporation and bylaws to require a supermajority
vote to amend the new Delaware corporation's certificate of incorporation or
bylaws requires the affirmative vote of a majority of all outstanding shares of
common stock as of ___________, 1999, the record date.
Under Delaware law, we will count abstentions and broker non-votes to
determine the presence or absence of a quorum for the transaction of business,
but we will not count them as votes cast. Accordingly, abstentions and broker
non-votes will have the effect of votes against the proposal.
Our board of directors has unanimously approved and recommends that you
vote "FOR" the proposed amendments to require a supermajority vote to amend the
new Delaware corporation's certificate of incorporation or bylaws.
61
PROPOSAL TEN
APPROVAL OF FORM INDEMNIFICATION AGREEMENT
GENERAL
We intend to enter into indemnification agreements with our directors
and executive officers upon the effectiveness of the Delaware domestication.
These indemnification agreements will, among other things, provide the maximum
protection permitted by Delaware law for the indemnification of the directors
and executive officers of the new Delaware corporation.
Section 144 of the General Corporation Law of the State of Delaware
provides that no transaction between the corporation and:
- one or more of its directors or officers;
- any other corporation, partnership, association, or other
organization in which one or more of its directors or officers
are directors or officers; or
- any other corporation, partnership, association, or other
organization in which one or more of its directors or officers
have a financial interest;
is void solely because (1) the relationship exists, (2) the director or officer
is present or participates in the board meeting which authorizes the
transaction, or (3) the director's or officer's votes are counted for
authorizing the transaction, if:
- the material facts relating to the director's or officer's
relationship or interest are disclosed or are known to the board
of directors and a majority of the disinterested directors
authorizes the transaction in good faith, even though the
disinterested directors do not constitute a quorum;
- the material facts relating to the director's or officer's
relationship or interest are disclosed or are known to the
stockholders entitled to vote on the transaction, and the
transaction is specifically approved in good faith by vote of the
stockholders; or
- the transaction is fair to the corporation as of the time it is
authorized, approved or ratified, by the board of directors or
the stockholders.
If the stockholders approve the Delaware domestication, then the new
Delaware corporation intends to enter into indemnification agreements with each
of its directors and executive officers. Although we believe that the
indemnification agreements are just and reasonable, and that stockholder
approval therefore may not be required, we believe that it is appropriate to
submit the indemnification agreements to our stockholders for consideration. If
the indemnification agreements are approved, then no stockholder may later claim
that the indemnification agreements are invalid due to improper authorization.
If the indemnification agreements are not approved, then a stockholder may claim
that the agreements are invalid. If a stockholder does assert this type of
claim, then the person asserting the validity of the agreements may have the
burden of proving that they were just and reasonable to the new Delaware
corporation at the time they were authorized.
Insurance has traditionally provided additional protection to directors
and officers by covering litigation expenses and judgments in a wide range of
cases, even if a corporation cannot indemnify them directly. In recent years,
however, insurance for director and officer liability has become either
unavailable or available only in reduced amounts and at substantially increased
prices. In light of this situation, our board of directors has determined that
it is in our best interests to supplement any insurance coverage that the new
Delaware corporation may maintain by entering into the indemnification
agreements.
We request that you review and approve the proposed form of
indemnification agreement in substantially the form attached hereto as APPENDIX
IV. Please read the attached agreement in its entirety.
62
TERMS OF THE INDEMNIFICATION AGREEMENTS
The proposed form of indemnification agreement is intended to provide
the maximum indemnification to our directors and executive officers allowed
under Delaware corporate law, including indemnification not expressly permitted
by the statute. The proposed form of indemnification agreement covers all
expenses, judgments, penalties, fines and amounts paid in settlement (if
approved in advance by the new Delaware corporation) arising from claims based
on the indemnified party's action or inaction while serving as a director or
executive officer of the new Delaware corporation, any subsidiary or another
entity (if at the new Delaware corporation's request). Indemnification would
not be available, however, for a claim if a court determines that
indemnification is not permitted under applicable law.
The proposed form of indemnification agreement also provides for the
prompt advancement of all expenses incurred in connection with any claim. If it
is later determined that the indemnified party was not entitled to
indemnification, then he is obligated to reimburse the new Delaware corporation
for all amounts advanced.
The proposed form of indemnification agreement also provides that it is
not exclusive, although it does prohibit double payment. While the proposed
form of indemnification agreement does not require the new Delaware corporation
to maintain liability insurance for directors and executive officers, if a
policy exists, then indemnification must be provided for any liability in excess
of the maximum coverage afforded under the liability insurance policy. The
proposed form of indemnification agreement, together with the limitation of
liability provided by the new Delaware corporation's certificate of
incorporation, will reduce significantly the number of instances in which
directors might be held liable to the new Delaware corporation or its
stockholders for monetary damages. Therefore, you should note that the
directors have a direct personal interest in the approval of the indemnification
agreements.
Steven M. Caira, our president, chief executive officer, acting chief
financial officer and chairman of the board of directors is currently a
defendant in a pending lawsuit. See "Business--Legal Proceedings." A verdict
for the plaintiff in this suit might result in a claim for indemnification
under the indemnification agreements. We are not aware of any other pending
or threatened litigation involving any of our other directors or executive
officers.
REASONS FOR THE STOCKHOLDER APPROVAL
We believe that our stockholders should approve the proposed form of
indemnification agreement because:
- the increasing hazard and related expense of unfounded litigation
against directors, executive officers and other service
providers;
- the general unavailability of liability insurance for directors
and executive officers or significant limitations in the amount
and breadth of the coverage;
- dramatic increases in premiums for liability insurance for
directors and executive officers; and
- our potential inability to continue to attract and retain
qualified directors and executive officers in light of these
circumstances.
Although the foregoing concerns have not prevented us from attracting
and retaining directors and executive officers, our board of directors believes
that the indemnification agreements will strengthen our ability to attract and
retain the services of knowledgeable and experienced persons who can make a
significant contribution to our success. We believe that the indemnification
agreements will complement the indemnity available under Delaware corporate law,
the new Delaware corporation's certificate of incorporation and bylaws, and any
insurance policies that the new Delaware corporation may maintain.
VOTE REQUIRED
The approval of the form indemnification agreements requires the
affirmative vote of a majority of the votes present or represented by proxy and
entitled to vote on this subject matter at the meeting and held by
63
disinterested stockholders. Since each director and each executive officer is
an interested party with respect to this matter, shares owned directly or
indirectly by any director or executive officer may not be voted on this
proposal although they will be counted for purposes of determining whether a
quorum is present.
Under Delaware law, we will count abstentions to determine the presence
or absence of a quorum for the transaction of business, but we will not count
them as votes cast. Accordingly, abstentions will have the effect of votes
against the proposal. A broker non-vote will not be treated as entitled to vote
on this subject matter at the meeting.
Our board of directors has unanimously approved and recommends that you
vote "FOR" the approval of the proposed form of indemnification agreement.
ANTI-TAKEOVER MEASURES CURRENTLY INCLUDED IN THE NEW DELAWARE
CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS
Delaware corporate law and the new Delaware corporation's certificate of
incorporation and bylaws currently include several provisions that could
discourage or make it more difficult to complete a merger, tender offer, proxy
contest or the assumption of control and removal of our incumbent management.
These anti-takeover effects could deter actions that might be beneficial to the
new Delaware corporation and our stockholders.
BLANK CHECK PREFERRED STOCK. The term "blank check preferred stock"
refers to the inclusion of a provision in a company's certificate of
incorporation that allows the company's board of directors to issue preferred
stock and to determine the characteristics of that preferred stock. The new
Delaware corporation's certificate of incorporation contains a blank check
preferred stock provision that authorizes our board of directors to issue
shares of preferred stock in one or more series and to determine the
preferred stock's characteristics, including voting and conversion rights.
In addition, our board of directors may redeem all or any part of any series
of preferred stock at any time in compliance with the terms of the preferred
stock.
Faced with an attempted hostile takeover, our board of directors could
use this blank check preferred stock to create dilutive effects, voting
impediments or buyout obstacles, or to otherwise frustrate persons seeking to
acquire control of the new Delaware corporation.
SECTION 203 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE.
After the Delaware domestication, we will be governed by Delaware corporate law,
including Section 203 of the General Corporation Law of the State of Delaware.
In general, Section 203 prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years following the time that the person became an interested
stockholder, unless (with certain exceptions) our board of directors approves
the business combination or the transaction in which the person became an
interested stockholder. Generally, a business combination includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the interested stockholder. In addition, an interested stockholder is generally
a person who, together with affiliates and associates, owns, or within three
years before the determination of interested stockholder status, did own, 15% or
more of a corporation's voting stock. This provision could have anti-takeover
effects with respect to transactions not approved in advance by our board of
directors, including discouraging takeover attempts that might offer a premium
over the market price of the common stock. See "Proposal Five--Domestication
into the State of Delaware--Corporate Governance Differences; Delaware and
Alberta Law Comparisons--Anti-Takeover Effects--Delaware Anti-Takeover Law."
64
NO CUMULATIVE VOTING. The new Delaware corporation's certificate of
incorporation does not authorize cumulative voting for the election of
directors. Cumulative voting would enable substantial minority stockholders to
have representation on our board of directors. The absence of cumulative voting
could therefore be considered as an anti-takeover measure.
Our board of directors does not intend to propose any amendments to the
new Delaware corporation's certificate of incorporation or bylaws, other than
Proposals Six through Nine, which would impact an attempt by a third party to
obtain control of the new Delaware corporation. You should read Proposals Six
through Nine for a more complete description of the potential anti-takeover
effects created by these proposals.
65
DESCRIPTION OF CAPITAL STOCK
The existing Alberta corporation's authorized capital stock consists of
an unlimited number of common shares and an unlimited number of preferred
shares. If the Delaware domestication is completed, after giving effect to the
one-for-fifteen common share consolidation, then the authorized capital of the
new Delaware corporation will consist of 20,000,000 shares of common stock, par
value US $0.001 per share, 750,000 shares of Class A Preferred Stock, par value
US $0.001 per share, and 750,000 shares of preferred stock, par value US $0.001
per share.
The following summaries of certain provisions of the common stock and
preferred stock are not complete. You should review the new Delaware
corporation's certificate of incorporation, a copy of which is attached as
APPENDIX II.
COMMON STOCK
As of May 31, 1999, the existing Alberta corporation had 84,744,165
common shares outstanding. If the Delaware domestication is completed, then the
holders of common shares will become holders of shares of common stock of the
new Delaware corporation. After giving effect to the common share
consolidation, there will be approximately 5,650,300 shares of common stock
outstanding.
The holders of the existing Alberta corporation's common shares are
entitled to, among other things:
- one vote per share on all matters submitted to a shareholder
vote;
- receive a pro rata share of any dividends declared by our board
of directors out of funds legally available for paying dividends
subject to preferences applicable to outstanding shares of Class
A Series III Preferred Shares (see "--Preferred Stock--Dividends
and Liquidation Preference"); and
- if the existing Alberta corporation is liquidated, dissolved or
wound-up, receive a pro rata share of all assets remaining after
we have paid our liabilities and the liquidation preference of
the Class A Series III Preferred Shares (see "--Preferred
Stock--Dividends and Liquidation Preference").
Holders of the existing Alberta corporation's common shares have no
preemptive rights and no rights to convert their common shares into any other
securities. In addition, there are no redemption or sinking fund provisions
with respect to the common shares. All of the outstanding common shares are
fully paid and non-assessable. The rights, preferences and privileges of
holders of common shares are subject to, and may be affected adversely by, the
rights of the holders of shares of the Class A Series III Preferred Shares and
any series of preferred shares that the existing Alberta corporation may
designate and issue in the future.
The rights of the holders of common stock after the Delaware
domestication will be substantially similar to the rights of the holders of
common shares. For a description of the differences of stockholder rights after
the Delaware domestication, see "Proposal Five--Domestication into the State of
Delaware Corporate Governance Differences; Delaware and Alberta Law
Comparisons."
PREFERRED STOCK
As of May 31, 1999, the existing Alberta corporation had 750,000 Class A
Series III Preferred Shares outstanding. If the Delaware domestication is
completed, then the holders of Class A Series III Preferred Shares will receive
shares of Class A Preferred Stock of the new Delaware corporation. Although the
one-for-fifteen common share consolidation will affect the conversion ratio of
the shares of Class A Preferred Stock, the conversion will not affect the number
of outstanding shares of Class A Preferred Stock. See "--Conversion Right."
DIVIDENDS AND LIQUIDATION PREFERENCE. Holders of Class A Series III
Preferred Shares are entitled to a pro-rata share of any dividends declared by
our board of directors, so long as the dividends are paid out of funds legally
available for paying dividends. If the existing Alberta corporation liquidates,
dissolves, sells all of our assets or distributes any of our capital before we
distribute anything to the holders of common shares, holders of
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Class A Series III Preferred Shares are entitled to receive US $0.001 for
each Class A Series III Preferred Shares held and a pro-rata share of any
unpaid dividends accrued with respect to each preferred share held.
CONVERSION RIGHT. Each Class A Series III Preferred Share may be
converted into ten common shares if our subsidiary TomaHawk II, Inc. earns Cdn.
$2.50 per shares in net income after tax, but adjusted to add back the following
expenses:
- depletion
- deferred taxes;
- amortization of goodwill; and
- deferred research and development costs.
If the Delaware domestication is completed and TomaHawk II, Inc. earns
Cdn. $2.50 per share in adjusted net income after tax, then, after giving effect
to the one-for-fifteen common share consolidation, each share of Class A
Preferred Stock may be converted into 0.67 shares of common stock of the new
Delaware corporation. Our articles of incorporation also permit us to apply to
The Alberta Stock Exchange to amend the terms of conversion. The Class A
Preferred Stock will be cancelled if they are not eligible for conversion by
December 31, 1999.
After the Delaware domestication, the rights of holders of Class A
Preferred Stock will be substantially similar to the rights that they have as
holders of Class A Series III Preferred Shares. For a description of the
differences of stockholder rights after the Delaware domestication, see
"Proposal Five--Domestication into the State of Delaware Corporate Governance
Differences; Delaware and Alberta Law Comparisons."
CANCELLATION OF PREFERRED STOCK. If we become insolvent, file or have
filed against us a petition in bankruptcy, or stop operating our business, then
the Class A Series III Preferred Shares must be surrendered to us for
cancellation.
CHANGE OF CONTROL PROVISIONS
The existing Alberta corporation's articles of incorporation and bylaws
include certain provisions that may discourage or make it more difficult to take
control of the existing Alberta corporation. These provisions include:
BLANK CHECK PREFERRED STOCK. The existing Alberta corporation currently
is authorized to issue an unlimited number of preferred shares by action of our
board of directors without further action by our shareholders. Our board of
directors could authorize the issuance of preferred shares with special voting
and other rights that could deter, or hinder the completion of, any proposed
tender offer, merger or other attempt to gain control of our company which is
not approved by our board of directors, to the extent permissible under
applicable law. Issuance of preferred shares could make removal of incumbent
management more difficult, even if this removal were viewed to be in the best
interests of our shareholders. We have no present plans to issue additional
preferred shares.
INCREASED STOCKHOLDER VOTE FOR AMENDMENT OF CERTIFICATE OF INCORPORATION
OR BYLAWS Under Alberta corporate law, amendments to our articles of
incorporation require the approval of two-thirds of the outstanding shares
entitled to vote on the amendment. This requirement makes it more difficult to
amend our articles of incorporation, including those provisions that tend to
deter takeover attempts. Obtaining a greater than majority vote can be
difficult, especially if our management opposes the proposed action. As of May
31, 1999, our directors and executive officers and the directors and executive
officers of TomaHawk II, Inc. held an aggregate of 24.2% of the outstanding
common shares.
If the Delaware domestication is approved, then these provisions will be
included in the new Delaware corporation's certificate of incorporation and
bylaws. In addition, if approved, the proposed amendments to the new Delaware
corporation's certificate of incorporation and bylaws described in Proposals Six
through Nine of this Proxy Statement and Information Circular also may deter an
attempt to take control of the new Delaware corporation. These proposed
amendments are:
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PROPOSAL SIX -- ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS AND PROPOSALS.
If approved, Proposal Six would require that stockholders provide us with
advance notice of all nominations for the election of directors and proposals to
be considered at a meeting of stockholders. This proposal also would require
stockholders to provide us with certain information about their nominees and
proposals. See "Proposal Six--Amendment to the New Delaware Corporation's
Certificate of Incorporation and Bylaws to Require Advance Notice of Stockholder
Nominations and Proposals-- General." The advance notice requirement would not
give to our board of directors the power to approve or disapprove stockholder
nominations or proposals. However, it might preclude a contest for the election
of directors if the nominating stockholder does not follow the established
procedures. See "Proposal Five--Domestication into the State of
Delaware--Corporate Governance Differences; Delaware and Alberta Law
Comparisons--Anti-Takeover Effects--Advance Notice Requirements for Shareholder
Proposals and Director Nominations."
PROPOSAL SEVEN -- ELIMINATION OF THE ABILITY OF STOCKHOLDERS TO CALL A
SPECIAL MEETING If approved, Proposal Seven would eliminate the stockholders'
ability to call a special meeting. When combined with the elimination of the
stockholders' ability to act by written consent in Proposal Eight, this
amendment would prevent our stockholders from taking any action opposed by our
board of directors until the next annual meeting of stockholders. This proposal
would make it more difficult to take control of the new Delaware corporation.
See "Proposal Five--Domestication into the State of Delaware--Corporate
Governance Differences; Delaware and Alberta Law Comparisons--Anti-Takeover
Effects--Special Meetings of Shareholders" and "Proposal Seven--Amendment to the
New Delaware Corporation's Certificate of Incorporation and Bylaws to Prohibit
Stockholders from Calling Special Meetings of the Stockholders."
PROPOSAL EIGHT -- STOCKHOLDERS CANNOT TAKE ACTION BY WRITTEN CONSENT If
Proposal Eight is approved, then our stockholders will not be able to take any
action by written consent. If adopted, the proposed amendment would tend to
support incumbent directors and management and make it more difficult for
stockholders to take certain actions even if the actions are desired by the
holders of a majority of the outstanding shares. See "Proposal
Five--Domestication into the State of Delaware--Corporate Governance
Differences; Delaware and Alberta Law Comparisons--Anti-Takeover
Effects--Shareholder Action by Written Consent" and "Proposal Eight--Amendment
to the New Delaware Corporation's Certificate of Incorporation to Eliminate
Actions of the Stockholders by Written Consent Without a Meeting."
PROPOSAL NINE -- INCREASED STOCKHOLDER VOTE FOR AMENDMENT OF THE CERTAIN
PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS. Under Delaware
corporate law, a corporation's certificate of incorporation and bylaws can be
amended by a simple majority of the shares entitled to vote on the amendment.
If Proposal Nine is approved, then amendments to certain provisions of the new
Delaware corporation's certificate of incorporation and bylaws would require the
concurrence of the holders of at least two-thirds of the voting power of the new
Delaware corporation entitled to vote on the amendment. This requirement is
designed to prevent a stockholder controlling a majority of the voting power
from avoiding the requirements of the anti-takeover provisions by simply
repealing them. This proposal may tend to discourage takeover attempts. See
"Proposal Five--Domestication into the State of Delaware--Corporate Governance
Differences; Delaware and Alberta Law Comparisons--Anti-Takeover
Effects--Amendments to the Certificate of Incorporation and Bylaws" and
"Proposal Nine--Amendment to the New Delaware Corporation's Certificate of
Incorporation and Bylaws to Require a Supermajority Vote to Amend Certain
Provisions of the New Delaware Corporation's Certificate of Incorporation and
Bylaws."
SECTION 203 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE. If
the Delaware domestication is approved, then we will be governed by Delaware
corporate law, including Section 203 of the General Corporation Law of the State
of Delaware. In general, Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the time that the person
became an interested stockholder, unless (with certain exceptions) our board of
directors approves the business combination or the transaction in which the
person became an interested stockholder. Generally, a business combination
includes a merger, asset or stock sale, or other transaction resulting in a
financial benefit to the interested stockholder. In addition, an interested
stockholder is generally a person who, together with affiliates and associates,
owns (or within three years before the determination of interested stockholder
status, did
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own) 15% or more of a corporation's voting stock. This provision could have
anti-takeover effects with respect to transactions not approved in advance by
our board of directors, such as discouraging takeover attempts that might offer
a premium over the market price of the common stock. See "Proposal
Five--Domestication into the State of Delaware--Corporate Governance
Differences; Delaware and Alberta Law Comparisons--Anti-Takeover
Effects--Delaware Anti-Takeover Law."
TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar for our common shares is CIBC Mellon
Trust. If the Delaware domestication is approved, then our transfer agent and
registrar for our common stock will continue to be CIBC Mellon Trust.
DISCLOSURE OF SEC POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
If the Delaware domestication and the proposed form of indemnification
agreement are approved (see "Proposal Five--Delaware Domestication into the
State of Delaware" and "Proposal Ten--Approval of Form Indemnification
Agreement"), then the indemnification provisions provided in our certificate of
incorporation, bylaws and agreements with directors and executive officers will
provide for broad indemnification under Delaware corporate law with no express
exclusion for liabilities arising under or in connection with the Securities
Act. In the SEC's opinion, indemnification for liabilities arising under the
Securities Act is against public policy and therefore is unenforceable.
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BUSINESS
OVERVIEW
TomaHawk Corporation is the parent holding company of TomaHawk II, Inc.,
a Delaware corporation. TomaHawk II, Inc. provides document imaging and
conversion, engineering design and manufacturing services to both the U.S.
federal government and commercial customers. References to "TomaHawk," "we" or
"us" include TomaHawk Corporation and TomaHawk II, Inc.
Our current services include:
- scanning and conversion of large and small technical documents to
computer intelligent or computer-aided-design ("CAD") formats;
- numerical control programming for the automated manufacture of
parts and components;
- tool design;
- precision machining and inspection of parts and components;
- engineering design and analysis of parts and components; and
- reverse engineering of parts and components that do not have
plans, drawings or models to allow for the creation of CAD format
documents.
Our services, described in more detail below, address significant needs
of both large and small organizations in various industries, including defense,
aerospace, engineering, architecture, automotive, telecommunications and
utilities. To date, we have provided our services primarily to customers in the
defense, aerospace, engineering and architecture industries.
We provide a range of services to our customers throughout the design to
manufacture life cycle of a product or project, including individual services as
well as total project solutions that we refer to as "Paper to Parts." As an
outsourcing resource, we provide services to our customers that they cannot
perform internally or that supplement their existing capabilities. In addition,
by utilizing our services, and not performing the same services in-house, our
customers can determine more accurately project completion dates and control
project costs, as we generally perform our services based on quoted budgets and
delivery schedules.
We believe that two emerging trends will continue to affect the current
market for our services. The first trend is the continued evolution and
acceptance of CAD technology. Some form of CAD technology is utilized in
designing everything from manufactured parts to complex machinery. Our
customers are beginning to convert their inventories of historical documents to
electronic format to make them compatible with current CAD design. The second
trend involves the current industry movement toward outsourcing an increasing
number of tasks and services that can be performed more efficiently by
independent suppliers. Companies and governmental agencies at all levels are
downsizing and turning to outsourcing as a cost-effective alternative to
maintaining in-house capabilities for non-core functions, tasks or services that
they can purchase more efficiently from other companies.
CORPORATE HISTORY
The predecessor company of TomaHawk Corporation was originally
incorporated in Alberta, Canada on September 10, 1986. TomaHawk II, Inc. was
formed on February 3, 1993. Effective March 8, 1993, we acquired all of the
issued and outstanding shares of capital of TomaHawk II, Inc. and commenced our
current business operations.
TomaHawk Corporation currently does not carry on any business other than
acting as the parent holding company of TomaHawk II, Inc. TomaHawk II, Inc. is
the sole operating subsidiary through which TomaHawk Corporation conducts its
business operations. In order to simplify our capital structure, we intend to
merge TomaHawk II, Inc. into TomaHawk Corporation at some time after the
completion of the Delaware domestication.
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TomaHawk Software, Inc., a corporation organized under the laws of India
and located in Bangalore, India, is a wholly-owned subsidiary of TomaHawk II,
Inc.
SERVICES
We offer document conversion, engineering and manufacturing services
through two primary divisions: (1) document imaging and conversion services and
(2) engineering and manufacturing services.
DOCUMENT IMAGING AND CONVERSION SERVICES. Our document imaging and
conversion services convert technical information from written form (i.e.,
paper, mylar, parchment, linen, etc.) to electronic format. In this division,
we focus primarily on the conversion of technical, engineering and architectural
drawings from their original source document to CAD formats. We convert the
following types of documents:
- engineering design drawings;
- maps;
- technical manuals;
- electrical schematic drawings;
- architectural design drawings; and
- civil engineering/topographical drawings.
Our primary document imaging and conversion services are described below:
DOCUMENT CONVERSION SERVICES. Document conversion to intelligent
electronic formats involves the conversion of documents to computer
readable or "intelligent" formats. In this process, we convert scanned
raster (or view only) images to geometric entities such as lines,
circles, arcs and splines in a computer vector format to replicate the
original design or drawing in an intelligent electronic or "CAD ready"
format. Although adequate for most engineering applications, this
format only replicates the design or drawing, but is not accurate to
specific dimensions because original drawings often contain dimensional
inaccuracies when drafted by hand.
Similarly, we convert scanned text previously in raster format on
smaller documents such as technical manuals to their simplest
intelligent form (i.e. ASCII). Computers then can recognize this
information for applications such as engineering changes and word
processing. The process of taking a scanned image containing
alphanumeric raster images and converting it into intelligent "ASCII"
characters is called optical character recognition ("OCR"). Once in an
intelligent (i.e. ASCII or vector) format, images are no longer simple
pictures or text, but rather intelligent computer data that forms the
basis for other, more advanced applications such as CAD applications.
In addition to converting images to CAD ready formats, we convert
images to "CAD perfect" format. CAD perfect format involves computer
files containing a design or image that is dimensionally accurate even
though the original source document is not necessarily accurate. We
provide these CAD models in various application formats, including
AutoCAD, CATIA, Unigraphics, IDEAS, Microstation and Pro-E.
PRECISION CONVERSION SERVICES. Precision conversion services
focus specifically on supporting customers in the aerospace industry.
In this process, we convert large format drawings that are used
traditionally in the design and manufacture of aircraft structural
components and assemblies to CAD ready format. Because of the high
degree of precision required in the aerospace industry, converted
documents must match the original documents to a high degree of
accuracy.
Large format aerospace drawings were typically created by hand,
on a one-to-one scale, to represent the exact shape and configuration of
the parts to be manufactured. These drawings generally are
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un-dimensioned and depict complex geometric entities. Reproduction of
the geometry contained within the drawings using manual methods is very
labor intensive and subject to error.
By converting technical drawings into an electronic format, our
precision conversion services allow our customers to work with and
modify these drawings electronically to facilitate engineering changes
and re-designs and provide the numerical data required to enable
automatic machining of components (see "--Engineering and Manufacturing
Services--Numerical Control Programming Services"). Additionally, the
base material on which the drawings were created is often distorted due
to age and exposure to varying environmental conditions over time. By
converting the documents to an electronic format, we eliminate the
possibility that damage or distortions will make these documents
useless. In addition, our customers can use the electronic files to
produce multiple copies or to use in direct manufacturing applications.
Electronic conversion also eliminates the burden of handling and storing
large, bulky design documents.
DOCUMENT SCANNING SERVICES. Document (bulk) scanning involves
the initial conversion process that transforms hard copy documents, such
as blueprints, engineering drawings, maps and schematics, into raster
formats. This process produces an "unintelligent" image, which may be
stored, plotted and edited using an appropriate software package.
Once documents are converted to a scanned electronic image,
customers can store the information electronically for easier access and
retrieval under more advanced indexing or networking methods. In
addition, a customer can make these electronic files available
throughout its enterprise, via local area networks and wide area
networks, or store them locally using CD technology. Electronic files
also allow for simple creation of additional copies and back-ups, and
eliminate the risk of deterioration and damage.
TEXT INSERTION AND CLEAN-UP SERVICES. Text insertion and
clean-up services are common editing services that we provide after
information has been scanned into a digital format. Text insertion
involves the replacement of handwritten characters with type fonts.
This process allows end-users to edit the text contained in the picture
or raster image, while reducing text legibility problems. Our clean-up
services involve the physical removal of pixels and clean-up of the
scanned images of drawings that are of poor quality or have deteriorated
over time. We use this service to eliminate folds, creases and tear
lines, and restore faded documents. This effort promotes greater focus
on the information content and serves to enhance document
"view-ability."
ENGINEERING AND MANUFACTURING SERVICES. This division provides the
following services:
- numerical control ("NC") programming;
- tool engineering and design;
- manufacturing and inspection;
- engineering design; and
- re-engineering and reverse engineering.
Our primary engineering and manufacturing services are described below:
NUMERICAL CONTROL PROGRAMMING SERVICES. Numerical control
programming is the process of developing numerical (mathematical)
controlled instructions for machine tools, called computerized numerical
control ("CNC") machines. CNC machines are used to manufacture parts or
tools from raw metal or castings. In addition to the numerically
controlled programs, we provide all machine pre-planning, including
machine set-up instructions, tool lists and cutter data, including the
speed, feed and depth of cut, for the specific part or tool being
machined. We also provide tool path verification before we release the
data to the customer, which ensures that mistakes, which are inherent to
this process because programs are developed manually, are found and
corrected on the computer screen, rather than on the physical machine,
which can be very costly to a customer.
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TOOL ENGINEERING AND DESIGN SERVICES. Tool engineering and
design involves the design of tools required to manufacture or produce
parts or components. First, engineers analyze the part or component
that needs to be manufactured. Next, the engineers design a tool that
will accomplish the desired objective based on the form, fit and
functional relationships of the needed part or component. Finally, the
engineers document the means of performing the tasks and create detailed
plans for the production of the tools necessary to build, handle and/or
store parts used in manufacturing. Our tool design projects have
included the design of assembly jigs, machine fixtures, composite lay-up
tools, detail tools, structural weld jigs and trim and drill fixtures.
MANUFACTURING AND INSPECTION SERVICES. Manufacturing and
inspection services include precision part and component machining,
utilizing three, four and five-axis CNC machines, and third-party
inspection of parts utilizing computerized, programmable inspection
equipment. In addition, we have established relationships with other
local manufacturers to supplement our existing manufacturing
capabilities.
THREE-DIMENSIONAL COMPUTER DESIGN SERVICES. Three-dimensional
computer design services involve the electronic construction of
geometric shapes in a three-dimensional computer format. For example, a
primary application of this process involves the electronic design and
modeling of an aircraft part for eventual manufacturing and assembly
into the aircraft. This type of modeling can include three dimensional
wireframe or solid modeling. For solid modeling applications, we
provide advanced surfacing services, including the electronic
development and manipulation of surface contours for a part created in a
three dimensional model. Solid models enable engineers to determine the
exact form, fit and function of a part's geometry before constructing a
prototype or any production hardware. This electronic simulation (or
mock-up) streamlines the design process and brings products to market
much more accurately, in much less time and at much less cost.
SALES AND MARKETING
We market our services to government agencies and private companies that
have document conversion, engineering or manufacturing outsourcing requirements.
Specifically, our marketing efforts are directed at governmental agencies such
as the U.S. Department of Defense, as well as companies in the aerospace,
defense, automotive, engineering, architecture, telecommunications and utilities
industries. To date, we have been more successful in obtaining contracts from
government agencies than from private companies. We recently have begun to
focus additional marketing resources on the private sector in an effort to
increase the proportion of our revenues derived from commercial sources.
Our sales and marketing efforts are conducted by an outside federal
marketing consulting firm, an in-house staff, and by independent sales
representatives. We have retained Capstone National Partners, LLC, a federal
marketing consulting firm, to coordinate our government marketing efforts. John
Rogers, our former Vice President of Federal Sales and Marketing, is the
president of Capstone National Partners, LLC. This consulting firm assists us
in generating Congressional support and funding for our services, interfacing
with high level Department of Defense officials, and marketing to and working
with government agencies to identify opportunities for our services. We pay to
Capstone National Partners, LLC a monthly retainer and a commission on our
revenues from contracts that Capstone National Partners, LLC plays a significant
role in obtaining on our behalf. We currently do not have a written agreement
with Capstone National Partners, LLC. See "Risk Factors--Risk Factors Relating
to our Continuing Operations--We may not be able to retain the consultant that
coordinates our marketing efforts directed at the U.S. government."
We currently employ eight sales and marketing personnel, of which six
sell our document conversion services, one sells our engineering and
manufacturing services, and one is responsible for national marketing. Three of
our document conversion marketers are responsible for the western United States,
two for the eastern United States, and one for the Midwest. We also retain four
independent sales representatives that sell engineering and manufacturing
services. Each of these independent representatives is responsible for specific
segments of our engineering and manufacturing services, and markets these
services on a national basis.
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In March 1999, we entered into a teaming agreement with Oce Deutschland
GmbH, a corporation organized under the laws of Germany specializing in the sale
of copiers, scanners, plotters and other imaging equipment. Under this teaming
agreement, Oce obtained exclusive rights to market our services in Germany. To
date, we have received a small amount of business from this relationship.
ADCS PROGRAM AND GOVERNMENT CONTRACTS
ADCS PROGRAM. In 1998, we received approximately 69.0% of our total
revenues from contracts for document conversion services funded by the U.S.
Department of Defense through the Automated Document Conversion Systems ("ADCS")
program. As a percentage of document conversion revenues, these contracts
represented approximately 77.1% of our total document conversion service
revenues in 1998.
Congress created the ADCS program in 1993 to provide funding for the
Department of Defense's initiative to convert its hard-copy documents into an
electronic CAD-ready format. Annual funding for the ADCS program has increased
steadily since its inception, from US $20 million in 1997, to US $40 million in
1998 and to US $45 million in 1999. Once Congress authorizes and appropriates
funding, the Department of Defense selects specific projects for funding from a
list of projects proposed by each of the armed services.
INTERGRAPH CONTRACTS. During 1998, we received the majority of our
document conversion revenues from ADCS related contracts through a subcontract
agreement with Intergraph Corporation. Under this subcontract agreement, which
we entered into in March 1997, we provide document conversion services under
Intergraph Corporation's three prime contracts with the U.S. Department of the
Navy:
- Naval Sea Systems Command (NAVSEA) CAD-2;
- Naval Facilities Engineering Command (NAVFAC) Installation
Management/Facilities CAD-2; and
- Naval Air Systems Command/Space and Naval Warfare Systems Command
(NAVAIR/SPAWAR) CAD-2.
These prime contracts are 12-year indefinite delivery indefinite
quantity agreements, under which Intergraph Corporation and its subcontractors
provide a wide range of CAD and computer-aided manufacturing ("CAM") products
and services.
We provide document conversion services under our subcontract with
Intergraph Corporation on a time and effort basis. Labor rates for our services
are based on rates for labor categories provided in the prime contract. We
perform our services under the subcontract only upon our receipt of a purchase
order that specifies:
- the labor categories authorized to work on the project;
- the authorized number of hours and labor rates for each of these
labor categories; and
- the period of performance, which generally ranges between six
months and one year.
GENERAL SERVICES ADMINISTRATION CONTRACT. We also provide document
conversion services for the Department of Defense under a General Services
Administration contract awarded to us in November 1998. This contract
designates us as an approved General Services Administration vendor, and allows
us to contract for document conversion services directly with government
agencies. This contract does not result, however, in any specific orders for
services. Specific orders for document conversion services under our General
Services Administration contract are described in purchase orders that identify
the nature, scope and price of the services to be performed. Orders for
document conversion services under our General Services Administration contract
are typically based on fixed prices negotiated in advance of the contract award.
See "Risk Factors--Risk Factors relating to our Continuing Operations--Fixed
price contracts may adversely affect our profitability." While we did not
receive any revenue in 1998 through the General Services Administration
contract, we believe that a significant
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percentage of future work funded by the government will be contracted through
the General Services Administration. Our General Services Administration
contract expires on September 30, 2001.
We believe that we will continue to rely heavily on the ADCS Program as
a source of funding for Department of Defense related work, and on the
Intergraph Corporation and General Services Administration contracts as
contracting vehicles for this work. See "Risk Factors--Risk Factors Relating to
our Continuing Operations--We depend on contracts funded by the U.S. government
to provide the majority of our revenues."
COMPETITION
We compete primarily with small, local firms that individually do not
offer the range of services that we provide. We are not aware of any
competitor currently providing the same range of document conversion,
engineering and manufacturing services that we provide. In addition, the
number and size of competitors varies by geographic region. However, in many
cases, our most significant competition comes from a customer or potential
customer that continues to perform comparable services on an in-house basis.
In addition to performing these services internally, these companies easily
could elect to offer document conversion services to other companies. See
"Risk Factors--Risk Factors Relating to our Continuing Operations--We face
potential competition from the in-house capabilities of certain customers"
and "--We face potential competition from new document conversion outsourcing
businesses because of the relatively low costs of entry."
We believe that the principal competitive factors in our business are
technical understanding, capacity to handle large projects quickly, quality of
the finished product, past contract performance, personnel qualifications and
price.
CUSTOMERS
The majority of our revenues are derived from contracts funded by the
U.S. Department of Defense. For the year ended December 31, 1998, the
Department of Defense accounted for approximately 69.0% percent of our total
sales. See "Risk Factors--Risk Factors Relating to our Continuing
Operations--We depend on contracts funded by the U.S. government to provide
the majority of our revenues." Our other customers are primarily large
companies in the defense and aerospace industries, but we also have provided
services to large and small customers in the automotive, engineering,
architecture, telecommunications and utilities industries. See "Risk
Factors--Risk Factors Relating to our Continuing Operations--Our private
sector revenues are highly vulnerable to changes in spending priorities in
the defense and aerospace industries." We currently are attempting to
broaden our commercial customer base and increase the proportion of our
revenues derived from commercial sources.
PROPRIETARY RIGHTS
We consider certain of the processes that we have developed internally
and software that we have modified to be proprietary. We also have one patent
pending relating to a proprietary process for the conversion of certain types of
design drawings. We rely primarily on trade secret laws and employee and
third-party nondisclosure agreements to protect our proprietary rights. We do
not believe that any of our processes or services infringe on the proprietary
rights of third parties.
EMPLOYEES
As of May 31, 1999, TomaHawk II, Inc. employed 121 persons, of whom 68
were engaged in document conversion services, 19 in engineering services, 11 in
manufacturing and inspection services, 8 in sales, marketing, customer support
and related activities, and 15 in management, administration and finance. As of
the same date, TomaHawk Software, Inc., the wholly-owned subsidiary of TomaHawk
II, Inc., employed 40 persons in Bangalore, India, of whom 35 were engaged in
document conversion services and 5 in management, administration and finance.
None of our employees is currently represented by a labor union. We consider
our relations with our employees to be good.
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ACQUISITION
In an effort to expand our service offerings, TomaHawk II, Inc. acquired
in August 1998 substantially all of the assets of Aerated Engineering Company, a
precision machining company based in San Diego, California. TomaHawk II, Inc.
uses the acquired equipment in performing its manufacturing services. We
accounted for the acquisition under the purchase method of accounting.
FACILITIES
Our primary document conversion and engineering operations, as well as
our manufacturing operations, are located in San Diego, California. We also
have operation facilities in Vernon Hills, Illinois, Lynnwood, Washington and
Bangalore, India. We also maintain sales offices in Washington, D.C. and
Boston, Massachusetts.
TomaHawk II, Inc. currently leases approximately 24,000 square feet of
office and operations space located at 8315 Century Park Court, Suite 200, San
Diego, California. The related lease expires on July 1, 2000. In addition,
TomaHawk II, Inc. has entered into the following leases:
- approximately 48,500 square feet of manufacturing space located
at 7140 Opportunity Road, San Diego, California, pursuant to a
lease expiring on December 3, 2003;
- approximately 3,500 square feet of office and operations space
located at 50 Lakeview Parkway, #101, Vernon Hills, Illinois,
pursuant to a lease expiring on October 31, 2002;
- approximately 1,200 square feet of office space located at 2901
North Sheffield, Chicago, Illinois, pursuant to a lease expiring
on December 31, 2000; and
- approximately 3,300 square feet of office and operations space in
Bangalore, India, pursuant to a month-to-month lease.
We believe that these facilities are adequate for our current business
needs.
We are also currently leasing approximately 1,600 square feet of office
and operations space located at 19109 36th Ave. W, #203, Lynnwood, Washington,
pursuant to a lease expiring on January 31, 2000. In May 1999, we provided
notice of our intent to terminate the lease and vacate this space in August
1999.
LEGAL PROCEEDINGS
TomaHawk Corporation, together with TomaHawk II, Inc., our current chief
executive officer, Steven M. Caira, and his wife, Renee Caira, are defendants in
a lawsuit filed in the Superior Court for the State of California, County of San
Mateo, entitled DENNIS R. DIRICCO, CO-TRUSTEE OF THE CONNIE DOHERTY LIVING TRUST
V. TOMAHAWK II, INC., ET AL., Case No. 406661. In this action, the plaintiff
makes numerous claims arising out of alleged agreements that plaintiff claims to
have entered into in October 1994, pursuant to which:
- we allegedly were obligated to issue 2,000,000 common shares to
the plaintiff's wife as consideration for her transfer of the
same number of shares to David Smoot, our former chairman and
chief executive officer, in connection with the settlement of a
lawsuit between Mr. DiRicco and Mr. Smoot (which did not involve
TomaHawk Corporation or TomaHawk II, Inc.); and
- our current chief executive officer and his wife allegedly would
hold 1,000,000 common shares in trust for the plaintiff's wife
and return them to her when they became freely tradable on The
Alberta Stock Exchange.
We have filed a demurrer to the complaint, which seeks to dismiss a
number of the causes of action as a matter of law. We also have filed a motion
to prevent the plaintiff from proceeding pro per and to force the plaintiff to
obtain counsel. The court has not yet heard the demurrer or the motion.
Although none of the defendants has filed an answer to the complaint, we and the
other defendants will deny the material allegations,
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claiming that they are without merit. We intend to defend this lawsuit
vigorously, but cannot express an opinion of the likely outcome at this time.
WE ALSO ARE AWARE OF OTHER POSSIBLE CLAIMS THAT MR. DIRICCO HAS FROM TIME TO
TIME ASSERTED AGAINST US, TOMAHAWK II, INC. AND MANY OF OUR PRESENT AND FORMER
OFFICERS AND DIRECTORS AND THE PRESENT AND FORMER OFFICERS AND DIRECTORS OF
TOMAHAWK II, INC., NONE OF WHICH CLAIMS WE BELIEVE HAVE ANY MERIT. WE CURRENTLY
ARE NOT AWARE OF ANY OTHER MATERIAL THREATENED OR PENDING LEGAL PROCEEDINGS.
77
MARKET FOR THE EXISTING ALBERTA CORPORATION'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
MARKET PRICE INFORMATION
The existing Alberta corporation's common shares trade on The Alberta
Stock Exchange under the symbol "TKC." After the Delaware domestication is
completed, our common shares will trade on The Alberta Stock Exchange under the
trading symbol "THK." On May 31, 1999, the common shares closed at Cdn. $0.20
(US $0.14) on The Alberta Stock Exchange.
The following table sets forth the high and low closing prices of the
common shares in Canadian dollars, as reported by The Alberta Stock Exchange,
for the calendar period indicated. The high and low closing prices also are
listed in U.S. dollars based on the currency exchange rate on the date when The
Alberta Stock Exchange reported the listed price. The prices below represent
prices between dealers, without adjustment for retail mark-ups, mark-downs or
commissions, and may not reflect actual transactions.
CLOSING PRICES
---------------------------------------------------------
HIGH LOW
--------------------------- --------------------------
1999
First Quarter Cdn. $0.35 (US $0.23) Cdn. $0.22 (US $0.15)
1998
Fourth Quarter Cdn. $0.40 (US $0.26) Cdn. $0.25 (US $0.16)
Third Quarter Cdn. $0.47 (US $0.31) Cdn. $0.28 (US $0.18)
Second Quarter Cdn. $0.56 (US $0.39) Cdn. $0.20 (US $0.14)
First Quarter Cdn. $0.34 (US $0.24) Cdn. $0.23 (US $0.16)
1997
Fourth Quarter Cdn. $0.30 (US $0.22) Cdn. $0.20 (US $0.14)
Third Quarter Cdn. $0.34 (US $0.24) Cdn. $0.17 (US $0.12)
Second Quarter Cdn. $0.27 (US $0.19) Cdn. $0.16 (US $0.12)
First Quarter Cdn. $0.35 (US $0.26) Cdn. $0.21 (US $0.15)
HOLDERS
On May 31, 1999, the number of holders of record of the common shares
was approximately 170. We believe that the common shares are owned beneficially
by approximately 700 persons.
DIVIDEND POLICY
We have never declared nor paid cash dividends on our capital stock. We
currently intend to retain any earnings for future growth and, therefore, do not
intend to pay any cash dividends in the foreseeable future. Our board of
directors may review our dividend policy from time to time in its sole
discretion.
78
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements based on
our current expectations, estimates and projections about our industry, our
beliefs and certain assumptions made by us. Forward-looking statements include
statements preceded by, followed by or that include terms such as "may," "will,"
"should," "believes," "expects," "anticipates," "estimates," "continues" or
similar expressions. These forward-looking statements involve risks and
uncertainties, and our actual results may differ materially from those
anticipated or expressed in these statements. Potential risks and uncertainties
include, among others, those described under the "Risk Factors" section of this
Proxy Statement and Information Circular. You should read the following
discussion in conjunction with our audited consolidated financial statements and
the accompanying notes. Except as required by law, we undertake no obligation
to update any forward-looking statement, whether as a result of new information,
future events or otherwise.
OVERVIEW
TomaHawk Corporation is the parent holding company of TomaHawk II, Inc.,
an Illinois corporation that provides document imaging and conversion,
engineering and manufacturing services. TomaHawk II, Inc. is the sole operating
subsidiary through which TomaHawk Corporation currently conducts its business
operations.
TomaHawk II, Inc. began operations in March 1993 with the primary
objective of providing document imaging and conversion services to the U.S.
Department of Defense. In August 1996, TomaHawk II, Inc. expanded its service
offerings to include numerical control programming, engineering, manufacturing
and support services through the creation of its Engineering and Manufacturing
Services Division. See "Business--Services." TomaHawk II, Inc. further
expanded its services to include precision machining and manufacturing through
its acquisition of Aerated Engineering Company in August 1998. See
"Business--Acquisition."
Although we have expanded our range of services, we continue to generate
the majority of our revenues from our document imaging and conversion services.
Revenues from these services represented 77.0% of our total revenues in 1998 and
63.7% of our total revenues in 1997. In 1998, engineering services generated
20.9% of our total revenues, down from 36.3% in 1997. We began offering
precision machining services in August 1998, which generated 2.1% of our total
revenues in 1998. Our business is highly dependent on contracts for document
conversion services funded by the U.S. Department of Defense. See "Risk
Factors--Risk Factors Relating to our Continuing Operations--We depend on
contracts funded by the U.S. government to provide the majority of our
revenues." Approximately 69.0% of our total revenues in 1998 and 53.6% of our
total revenues in 1997 resulted from contracts or subcontracts for document
conversion services funded by the U.S. Department of Defense. See
"Business--ADCS Program and Government Contracts." The continued growth of
revenues from our document conversion, engineering and manufacturing services is
dependent on several factors, including:
- authorized government funding levels for the ADCS program;
- budgetary constraints and priorities of the U.S. Department of
Defense and our commercial customers;
- our reputation for providing timely and reliable services; and
- the continuation of the trend of increased outsourcing of
non-core business functions.
We provide services under both time and material and fixed price
contracts. Revenues earned under time and material contracts are based on the
number of billable hours incurred and the negotiated hourly rate. We generally
recognize revenues under time and material contracts as we perform the services.
Revenues earned under fixed price contracts are based on negotiated contract
prices. We generally recognize these revenues on a percentage of completion
basis.
79
Our cost of revenues consists principally of wages and benefits,
supplies and overhead charges such as rent, utilities and equipment costs
associated with providing our services, and direct materials (unless purchased
directly by our customer) in the case of our precision machining services. Our
gross margin can be affected adversely if:
- we cannot bill or fail to manage effectively our service
activities;
- there is a significant amount of unbillable time; or
- we fail to properly price our fixed price contracts.
General and administrative expenses include wages, benefits and other
compensation expenses associated with our executive and middle management,
professional fees for legal, tax and accounting services, facility costs and
other accounting and administrative expenses. Marketing and sales expenses
include wages, benefits and commissions for our sales representatives and
marketing consultants and expenses related to our promotional activities and
materials. Other expenses include interest expense related to debt and capital
lease obligations and, in 1998, costs associated with our efforts to complete a
financing to fund potential acquisitions that we ultimately ended.
Our financial statements for the years ended December 31, 1997 and 1998
are stated in U.S. dollars (US $) and are prepared in accordance with U.S.
generally accepted accounting principles ("GAAP"). Our financial statements for
prior years were prepared in accordance with Canadian GAAP. This change to U.S.
GAAP significantly increased general and administrative expenses in 1998. See
"--Results of Operations--Year Ended December 31, 1998 Compared with Year Ended
December 31, 1997--General and Administrative Expenses."
Our auditor's report on our financial statements as of December 31, 1998
contains an explanatory paragraph as to our ability to continue as a going
concern because of our continuing operating losses. We had a working capital
deficit as of December 31, 1998, of $1.7 million.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH
31, 1998.
REVENUES. Our revenues for the three months ended March 31, 1999
were $2.5 million, representing a decrease of 27.9% compared to revenues
of $3.4 million for the three months ended March 31, 1998. Our revenues
from document conversion services totaled $1.8 million during the three
months ended March 31, 1999, compared to $2.5 million during the three
months ended March 31, 1998. The decreased revenues from these services
resulted primarily from delays in our receipt of new orders for document
conversion services in the first quarter of 1999 for projects funded by
the U.S. Department of Defense. Revenues from engineering and
manufacturing services were $638,000 during the three months ended March
31, 1999 compared to $934,000 during the three months ended March 31,
1998. The decreased revenues from these services resulted from the
completion of certain contracts and a decrease in new contract awards
during the first quarter of 1999.
COST OF REVENUES. Our cost of revenues for the three months
ended March 31, 1999 was $1.9 million, representing a decrease of 19.1%
compared to $2.4 million for the three months ended March 31, 1998.
This decrease resulted primarily from the decreased revenues relative to
the first quarter of 1998. Gross profit decreased by $500,000, or
48.4%, from $1.0 million for the three months ended March 31, 1998 to
$535,000 for the three months ended March 31, 1999. As a percentage of
revenues, our gross margin was 21.5% in the three months ended March 31,
1999 compared to 30.1% in the three months ended March 31, 1998. This
decrease in gross margin resulted primarily from higher direct costs, as
a percentage of revenues, associated with new fixed price contract
project start-up costs, and to the lower absorption of cost of sales
overhead expenses as a result of lower revenues.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the three months ended March 31, 1999 were $835,000,
compared to general and administrative expenses of $496,000 for the
three months ended March 31, 1998. The increased general and
administrative expenses during the first quarter of 1999 resulted
primarily from:
80
- administrative expense associated with our manufacturing
services division that we created in August 1998;
- higher salaries, wages and related benefits associated
with management and administrative staff additions;
- higher legal and accounting fees associated with our
efforts to domesticate into Delaware; and
- higher non-cash compensation expenses associated with the
valuation of notes receivable and issuance of stock
options below their fair market value.
As a percentage of revenues, general and administrative expenses
were 33.7% in the three months ended March 31, 1999 compared to 14.4% in
the three months ended March 31, 1998. This higher percentage in the
first quarter of 1999 resulted primarily from the higher overall
expenses and the lower revenues described above.
MARKETING AND SALES EXPENSES. Marketing and sales expenses for
the three months ended March 31, 1999 were $446,000, representing an
increase of 22.6% compared to $364,000 for the three months ended March
31, 1998. These increased expenses resulted primarily from higher
salaries, wages, related benefits and fees paid in connection with the
hiring and retention of sales representatives and brokers and from
higher travel and promotional expenses. As a percentage of revenues,
marketing and sales expenses were 18.0% in the three months ended March
31, 1999, compared to 10.6% in the three months ended March 31, 1998.
OTHER EXPENSES. Other expenses for the three months ended March
31, 1999 were $112,000, compared to $65,000 for the three months ended
March 31, 1998. These increased expenses resulted from higher interest
expenses incurred during the first quarter of 1999, resulting from
higher average balances outstanding on our working capital credit line
and to increases in the amounts related to leased equipment.
NET LOSS. Our net loss for the three months ended March 31, 1999
was $859,000, compared to a net profit of $110,000 for the three months
ended March 31, 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997.
REVENUES. Our revenues for the year ended December 31, 1998 were
$13.5 million, representing an increase of 46.0% compared to revenues of
$9.3 million for the year ended December 31, 1997. This increase
resulted primarily from the continued growth of our document conversion
business as we obtained additional document conversion contracts funded
by the U.S. Department of Defense. Our revenues from document
conversion services totaled $10.4 million during 1998, representing an
increase of 76.4% compared to revenues of $6.0 million during 1997. We
do not expect, however, that our revenues from document conversion
services will continue to increase at this growth rate in the future.
Revenues from engineering and manufacturing services were $3.1 million
during 1998 compared to $3.4 million during 1997. The decreased
revenues from these services during 1998 resulted primarily from the
completion of certain contracts and a decrease of new contracts awarded
to us during 1998.
COST OF REVENUES. Our cost of revenues for the year ended
December 31, 1998 was $9.6 million, representing an increase of 33.8%
compared to cost of revenues of $7.1 million for the year ended December
31, 1997. This increase resulted primarily from additional costs
incurred relating to the increased revenues. Gross profit increased by
$1.9 million, or 86.5%, from $2.1 million for the year ended December
31, 1997 to $4.0 million for the year ended December 31, 1998. As a
percentage of revenues, our gross margin was 29.4% in 1998 compared to
23.0% in 1997. This increase in gross margin resulted primarily from
increased revenues for document conversion services, which generally
have a higher gross margin than revenues for engineering and
manufacturing services, and greater absorption of overhead expenses by
our higher revenue base.
81
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the year ended December 31, 1998 were $3.2 million compared
to general and administrative expenses of $1.4 million for the year
ended December 31, 1997. General and administrative expenses for 1998
included non-cash expenses totaling approximately $843,000 recorded in
connection with the change in the preparation of our financial
statements from Canadian GAAP to U.S. GAAP. These non-cash expenses
included:
- $679,000 for compensation expense related to certain
notes receivable previously granted to TomaHawk II, Inc.
by certain management personnel and directors in
connection with purchases of our common shares (see
"Certain Relationships and Related
Transactions--Indebtedness of Directors, Executive
Officers, Senior Management and Significant
Shareholders--Variable Accounting Treatment"); and
- $163,000 for compensation expense related to the issuance
of stock options below fair market value, versus $5,000
in 1997.
In 1997, we did not record compensation expense related to the
above notes receivable. Under U.S. GAAP, our restructuring of the notes
in 1998 required us to recognize compensation expense under the variable
accounting rules. These modifications included an extension of their
maturity dates and a conversion from full-recourse to non-recourse notes
required us to record compensation expense based on changes in the
market value of the common shares purchased with the notes. Based on
this requirement, future increases in stock price will result in
significant additional non-cash expenses during any period that these
notes receivable remain outstanding. See "Certain Relationships and
Related Transactions--Indebtedness of Directors, Executive Officers,
Senior Management and Significant Shareholders--Variable Accounting
Treatment" and Note 5 to our Consolidated Financial Statements.
The remaining significant factors accounting for the higher
general and administrative expenses in 1998 include increased personnel
costs, professional fees and facility costs related to our continued
growth, and increased legal fees incurred in connection with litigation
that we concluded and with potential acquisition opportunities that we
pursued during the year. The higher expenses in 1998 also resulted from
increased legal and accounting fees incurred in connection with our
efforts to domesticate TomaHawk Corporation into Delaware.
As a percentage of revenues, general and administrative expenses,
excluding the non-cash charges mentioned above, were 17.6% in 1998
compared to 15.4% in 1997. This higher percentage in 1998 resulted from
the factors discussed above.
MARKETING AND SALES EXPENSES. Marketing and sales expenses for
the year ended December 31, 1998 were $1.7 million, representing a 48.3%
increase compared to marketing and sales expenses of $1.1 million for
the year ended December 31, 1997. These increased expenses resulted
primarily from higher sales commissions relating to our increased
revenues, additional hires of sales personnel and increased promotional
and marketing activities. As a percentage of revenues, marketing and
sales expenses were 12.4% in 1998 and 12.2% in 1997.
OTHER EXPENSES. Other expenses for the year ended December 31,
1998 were $637,000 compared to $136,000 for the year ended December 31,
1997. These increased expenses resulted from higher interest expense in
1998 of $321,000 compared to $136,000 in 1997, due primarily to higher
average balances outstanding on our working capital credit line and
higher interest amounts related to equipment obtained during 1998 under
capital lease arrangements. In 1998, we also incurred non-recurring
charges of $316,000 when we ceased our efforts to raise additional
capital to fund potential acquisitions.
NET LOSS. Our net loss for the year ended December 31, 1998 was
$1.6 million compared to a net loss of $413,000 for the year ended
December 31, 1997.
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LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, we had negative working capital (current assets
less current liabilities) of $2.2 million. This negative working capital
balance has resulted primarily from our continued operating losses. Our
negative working capital balance at March 31, 1999 includes $1.5 million in
short-term bank debt under our working capital credit line. This credit
facility provides for maximum borrowing of up to $3.0 million based on our
eligible accounts receivable. Our current balance exceeds the amount available
for borrowing based on our eligible accounts receivable by $169,000. Until our
current receivable balances increase, we cannot borrow additional funds from
this credit facility.
The negative working capital balance as of March 31, 1999 represents a
decrease in working capital of $500,000 from December 31, 1998, due primarily to
our continued operating losses. As a result of the negative working capital
balance as of December 31, 1998, the report of our independent auditors for the
year ended December 31, 1998 included a qualification relating to our ability to
continue as a going concern. See "Risk Factors--Risk Factors Relating to our
Continuing Operations--Our limited working capital may prevent us from
continuing as a going concern."
Historically, we have funded operating losses through the issuance of
equity and debt securities, and through borrowing under our bank credit
facility. We have initiated efforts to restructure our bank credit facility and
to raise up to $1.0 million for additional working capital through a private
placement of equity or debt securities. However, we may not complete
successfully this debt restructuring or this private placement and additional
equity or debt financing may not be available at terms favorable to us, if at
all. In addition, the sale of additional equity securities would dilute the
holdings of our existing shareholders and the incurrence of debt would result in
additional interest expense.
YEAR 2000 COMPLIANCE
Many existing computer systems and applications and other control
devices use only two digits to identify a year in the date field, without
considering the impact of the upcoming change in the century. As a result,
these systems, applications and other control devices could fail or create
erroneous results unless corrected to process data related to the year 2000.
The state of our year 2000 readiness may affect the services that we market, our
information technology ("IT") systems, our non-IT systems and the systems of any
third-parties with whom we have a material business relationship.
We created a year 2000 plan in the fourth quarter of 1998 to identify,
assess, remediate, replace and test the potential year 2000 vulnerability of
our:
- IT hardware;
- IT software;
- non-IT business systems;
- telecommunications systems;
- facilities;
- suppliers; and
- service providers.
83
INTERNAL YEAR 2000 READINESS. We currently are assessing the year 2000
readiness of our IT and non-IT infrastructure. We expect to complete our
identification, assessment, remediation, replacement or testing of all critical
systems by the end of October 1999. To date, we have tested all of our personal
computers, which make up the majority of our hardware systems. All of our
personal computers are either year 2000 compliant or require the computer's
calendar system to be rolled over manually, which we have successfully tested.
We also have tested our Unix systems and believe that they are year 2000
compliant except for one server unit. We will make this server unit compliant
by replacing certain software by the end of October 1999.
Although we have not tracked expenses related to our year 2000 readiness
efforts separately, we estimate that our costs to date are less than $25,000,
which amount primarily reflects internal labor costs associated with the
development and implementation of our year 2000 plan. Our year 2000 readiness
efforts to date have not disrupted our business and have not required the
deferral of other IT projects. We do not expect that additional internal year
2000 costs will affect materially our business, financial condition and results
of operations, and we do not expect any material disruption in our operations as
a result of our failure to be year 2000 compliant.
YEAR 2000 READINESS OF OUR SUPPLIERS AND CUSTOMERS. We have initiated
communications with our key third-party suppliers to determine the extent to
which we may be vulnerable to their failure to be year 2000 compliant in the
products and services that they supply to us. Certain of our suppliers have
provided certification letters indicating that their products or services are
year 2000 compliant. Other suppliers are publicly traded corporations, which
have disclosed their year 2000 readiness in SEC filings. We currently are
completing our review of our key suppliers' year 2000 readiness and will contact
any suppliers that have not yet provided us with adequate certification of their
year 2000 compliance. Due to the technical sophistication of our key suppliers,
we do not believe that a significant risk exists that our suppliers' state of
year 2000 readiness will affect materially and adversely our business, financial
condition and results of operations.
We currently are developing a contingency plan to address our key
supplier year 2000 compliance issues that may be identified through our ongoing
assessment. We intend to complete this contingency plan by the end of October
1999. This contingency plan will identify potential new suppliers that are year
2000 compliant and back-up procedures for systems that fail to function
properly. We do not believe that the costs associated with developing this
contingency plan will be material.
We currently do not know whether our key customers will be year 2000
compliant. If our key customers are not year 2000 compliant, then they more
likely will suffer disruptions to their businesses that could cause them to
delay or cancel new projects that we otherwise would have performed. We are
sending letters to our key customers, including the U.S. Department of Defense,
requesting information as to the state of their year 2000 readiness. This is
especially true of U.S. government agencies because of our dependence on
revenues from contracts funded by the U.S. Department of Defense. We will
develop contingency plans according to the information contained in the
responses that we receive. If some or all of our key customers are not
compliant, then we could suffer lost contracts and delays in receiving payment
for existing projects, any of which could affect materially and adversely our
business, financial condition and results of operations. See "Risk
Factors--Risk Factors Relating to our Continuing Operations--We may be exposed
to our customers' year 2000 problems."
CHANGE IN ACCOUNTANTS
Effective December 30, 1997, we replaced our Canadian chartered
accountant, Mathew J. Hoogendoorn, with Ernst & Young LLP. Our board of
directors ratified the appointment of Ernst & Young LLP on June 3, 1998. The
report of Mr. Hoogendoorn, dated May 27, 1997, on our financial statements as of
and for the fiscal year ended December 31, 1996 did not contain an adverse
opinion or a disclaimer opinion. In addition, we had no disagreements with Mr.
Hoogendoorn during that time period.
84
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 31, 1999, certain information
regarding the beneficial ownership of the existing Alberta corporation's common
shares by: each person (including any group as that term is used in Section
13(d)(3) of the Securities Exchange Act) that we know to be the beneficial owner
of more than 5% of our voting securities; each director; each of TomaHawk II,
Inc.'s named executive officers listed in the Summary Compensation Table
appearing below; and all of our directors and TomaHawk II, Inc.'s directors and
executive officers as a group.
COMMON SHARES BENEFICIALLY CLASS A SERIES III PREFERRED
OWNED (1) SHARES BENEFICIALLY OWNED
-------------------------------- ------------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
NAME AND ADDRESS SHARES TOTAL SHARES TOTAL
- ------------------------------------------------------ -------------- -------------- -------------- --------------
Norman F. Siegel(2) 18,568,079 21.5% -- --
1836 N. Sedgwick
Chicago, IL 60614
Steven M. Caira (3) 10,221,483 11.7% -- --
Chairman of the Board, President, and Chief
Executive Officer of TomaHawk Corporation and
TomaHawk II, Inc., and Acting Chief Financial
Officer of TomaHawk Corporation
Spirit Enterprise Limited 6,074,656 7.2% -- --
1st Floor Columbus Centre Building
P.O. Box 901
Road Town, Tortola
British Virgin Islands
Elliott Broidy (4) 4,527,200 5.3% -- --
c/o Broidy Capital Management
1801 Century Park East
Suite 2150
Los Angeles, California 90067
Douglas W. Loughran (5) 3,034,600 3.6% -- --
Director of TomaHawk Corporation
Phillip W. Card (6) 2,653,042 3.1% -- --
Vice President of Operations and Technology of
TomaHawk II, Inc. and a Director of TomaHawk II,
Inc.
John F. Peace (7) 2,275,057 2.7% -- --
Director of TomaHawk II, Inc.
Michael H. Lorber (8) 2,000,000 2.3% -- --
Vice President - Finance and Chief Financial
Officer of TomaHawk II, Inc. and a Director of
TomaHawk II, Inc.
John C. Rogers (9) 1,257,401 1.5% -- --
Former Vice President - Federal Sales and
Marketing of TomaHawk II, Inc.
Thomas M. Dusmet (10) 1,150,000 1.4% -- --
Secretary and Director of TomaHawk Corporation
Jonathan F. Turpin (11) 400,000 * -- --
Director of TomaHawk Corporation
David P. Smoot -- -- 337,500 45%
1435 Camden Court
Buffalo Grove, Illinois 60090
434556 B.C. Ltd. -- -- 337,500 45%
1590 - 609 Granville Street
Vancouver, British Columbia
All directors and executive officers of TomaHawk 21,734,182 24.2% -- --
Corporation and TomaHawk II, Inc. as a group
(seven (7) persons)(12)
- ---------------------------
85
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules and
regulation of the SEC and generally includes the power to vote or sell
the securities. Stock options to purchase common shares which are
currently exercisable or will become exercisable within 60 days of May
31, 1999 are deemed to be outstanding for purposes of computing the
percentage of the shares held by an individual, but are not
outstanding for purposes of computing the percentage of any other
person. Except as indicated below in the other footnotes, and subject
to community property laws where applicable, the persons named in the
above table have sole voting and investment power with respect to all
common shares shown as beneficially owned by them.
(2) Includes 1,474,565 shares issuable under a convertible note which may
be converted within 60 days of May 31, 1999. Also includes 6,431,896
shares held in trust by the existing Alberta corporation, over which
Mr. Siegel possesses exclusive voting control. See "Certain
Relationships and Related Transactions--Indebtedness of Directors,
Executive Officers, Senior Management and Significant
Shareholders--Restructuring of Notes."
(3) Includes 2,525,000 shares issuable under stock options exercisable
within 60 days of May 31, 1999, including 25,000 shares issuable under
stock options owned by Renee Caira, Mr. Caira's spouse. Also includes
5,640,636 shares held in trust by the existing Alberta corporation,
over which Mr. Caira possesses exclusive voting control. See "Certain
Relationships and Related Transactions--Indebtedness of Directors,
Executive Officers, Senior Management and Significant
Shareholders--Restructuring of Notes."
(4) Includes 906,733 shares held in trust by the existing Alberta
corporation, over which Mr. Broidy possesses exclusive voting control.
See "Certain Relationships and Related Transactions--Indebtedness of
Directors, Executive Officers, Senior Management and Significant
Shareholders--Restructuring of Notes."
(5) Includes 225,000 shares issuable under stock options exercisable
within 60 days of May 31, 1999. Also includes 425,000 shares held in
trust by the existing Alberta corporation, over which Mr. Loughran
possesses exclusive voting control. See "Certain Relationships and
Related Transactions--Indebtedness of Directors, Executive Officers,
Senior Management and Significant Shareholders--Restructuring of
Notes."
(6) Includes 700,000 shares issuable under stock options exercisable
within 60 days of May 31, 1999. Also includes 1,547,020 shares held in
trust by the existing Alberta corporation, over which Mr. Card
possesses exclusive voting control. See "Certain Relationships and
Related Transactions--Indebtedness of Directors, Executive Officers,
Senior Management and Significant Shareholders--Restructuring of
Notes."
(7) Includes 710,250 shares issuable under stock options exercisable
within 60 days of May 31, 1999. Also includes 850,000 shares held in
trust by the existing Alberta corporation, over which Mr. Peace
possesses exclusive voting control. See "Certain Relationships and
Related Transactions--Indebtedness of Directors, Executive Officers,
Senior Management and Significant Shareholders--Restructuring of
Notes."
(8) Includes 500,000 shares issuable under stock options exercisable
within 60 days of May 31, 1999. Also includes 1,500,000 shares held in
trust by the existing Alberta corporation, over which Mr. Lorber
possesses exclusive voting control. See "Certain Relationships and
Related Transactions--Indebtedness of Directors, Executive Officers,
Senior Management and Significant Shareholders--Restructuring of
Notes."
86
(9) Includes 250,000 shares issuable under stock options exercisable
within 60 days of May 31, 1999. Also includes 381,000 shares held in
trust by the existing Alberta corporation, over which Mr. Rogers
possesses exclusive voting control. See "Certain Relationships and
Related Transactions--Indebtedness of Directors, Executive Officers,
Senior Management and Significant Shareholders--Restructuring of
Notes."
(10) Includes: 225,000 shares issuable under stock options exercisable
within 60 days of May 31, 1999; 210,000 shares owned by Mr. Dusmet's
spouse; 15,000 shares owned by 1110060 Ontario, Inc., a corporation
organized under the laws of Ontario, Canada, which is jointly owned by
Mr. Dusmet and his spouse; and 20,000 shares held in trust for Mr.
Dusmet's children for which Mr. Dusmet is a trustee. Also includes
315,000 shares held in trust by the existing Alberta corporation, over
which Mr. Dusmet possesses exclusive voting control. See "Certain
Relationships and Related Transactions--Indebtedness of Directors,
Executive Officers, Senior Management and Significant
Shareholders--Restructuring of Notes." Does not include 100,000
shares owned by Mr. Dusmet's father.
(11) Includes 225,000 shares issuable under stock options exercisable
within 60 days of May 31, 1999.
(12) Includes: 5,110,250 shares issuable under stock options exercisable
within 60 days of May 31, 1999, including 25,000 shares issuable under
stock options owned by Mr. Caira's spouse; 210,000 shares owned by Mr.
Dusmet's spouse; 15,000 shares owned by 1110060 Ontario, Inc., a
corporation organized under the laws of Ontario, Canada, which is
jointly owned by Mr. Dusmet and his spouse; and 20,000 shares held in
trust for Mr. Dusmet's children for which Mr. Dusmet is a trustee.
Does not include 100,000 shares owned by Mr. Dusmet's father. Also
does not include 757,401 shares and 250,000 shares issuable under
stock options exercisable within 60 of May 31, 1999 owned by Mr.
Rogers. Also includes 10,277,656 shares held in trust by the existing
Alberta corporation, over which certain executive officers and
directors of TomaHawk Corporation and TomaHawk II, Inc. collectively
possess exclusive voting control as described in footnotes 3, 5, 6, 7,
8 and 10. See "Certain Relationships and Related
Transactions--Indebtedness of Directors, Executive Officers, Senior
Management and Significant Shareholders--Restructuring of Notes."
87
MANAGEMENT
The directors and executive officers of the existing Alberta company and
its subsidiary TomaHawk II, Inc. are as follows:
NAME OF DIRECTOR OR
EXECUTIVE OFFICER AGE POSITION
- ----------------------------------------- --------- ------------------------------------------------------------------
Steven M. Caira 42 Chairman of the Board, President, and Chief Executive Officer of
TomaHawk Corporation and TomaHawk II, Inc. and Acting Chief
Financial Officer of TomaHawk Corporation
Thomas M. Dusmet 46 Director and Secretary of TomaHawk Corporation
Douglas W. Loughran 58 Director of TomaHawk Corporation
Jonathan F. Turpin 66 Director of TomaHawk Corporation
Phillip W. Card 57 Vice President of Operations and Technology and a Director of
TomaHawk II, Inc.
Michael H. Lorber 43 Vice President of Finance, Chief Financial Officer and a Director
of TomaHawk II, Inc.
John F. Peace 54 Vice President of Engineering Services and a Director of TomaHawk
II, Inc.
For a description of the background of each of our current directors,
see "Proposal Two--Election of Directors--Information Regarding Director
Nominees." A description of the background of each of our executive officers
who is not a director follows:
Mr. PHILLIP W. CARD has served:
- since January 1996, as the vice president of operations and
technology and a director of TomaHawk II, Inc.;
- from January 1986 to December 1995, in a variety of positions for
Rohr, Inc., including:
- from February 1993 to December 1995, as manager of
engineering information systems;
- from February 1991 to February 1993, as director of
management information systems; and
- from 1968 to 1985, in a variety of positions with Boeing
Computer Services Company of Seattle, Washington. In his
last position with Boeing, Mr. Card oversaw and directed
the Boeing Aerospace Company's information management and
computer aided design/computer aided manufacturing
(CAD/CAM) function.
Mr. Card received a Bachelors of Science in Mathematics in 1964 and
Masters of Science in Mathematics in 1966, each from the University of Montana.
Mr. MICHAEL H. LORBER has served:
- since October 1996, as vice president of finance, chief
financial officer and a director of TomaHawk II, Inc.;
88
- from July 1994 to May 1995, as senior vice president of finance
and chief financial officer of M.G. Products, a publicly traded
manufacturer of decorative lighting and fixtures; and
- from September 1988 to July 1994, and from May 1995 to October
1996, as vice president and chief financial officer of LIDAK
Pharmaceuticals (now known as AVANIR Pharmaceuticals), a publicly
traded biotechnology company.
Mr. Lorber received a Bachelors of Science degree in Accounting from the
University of Illinois in 1979. Mr. Lorber was certified by the State of
California as a Certified Public Accountant in 1982.
Mr. JOHN F. PEACE has served:
- since June 1995, as a director of TomaHawk II, Inc.;
- since December 1998, as the vice president of engineering
services of TomaHawk II, Inc.;
- from November 1993 to March 1997, as the chief operating officer
of TomaHawk II, Inc.;
- from March 1997 to December 1998, as Director of Precision
Conversion of TomaHawk II, Inc.;
- from July 1985 to November 1994, in a variety of management
positions with Rohr, Inc., including:
- manager, spares administration;
- unit manager, assembly operations; and
- chief, numerical control systems.
Mr. Peace received the equivalent of a Bachelors of Science in
Mechanical Engineering from Sheffield Technical College in Sheffield, England in
1965.
89
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table shows, as to the Chief Executive Officer and each of
the other four most highly compensated executive officers of TomaHawk II, Inc.
(collectively, the "Named Executive Officers"), information concerning
compensation awarded to, earned by or paid for services to the existing Alberta
corporation and/or its subsidiary TomaHawk II, Inc. in all capacities during the
fiscal years ended December 31, 1998 and 1997.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION
(1) AWARDS PAYOUTS
--------------------- ------------------------- ------------
STOCK LONG-TERM ALL OTHER
RESTRICTED OPTIONS INCENTIVE COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK AWARDS (IN SHARES) PLAN PAYOUTS (2)
- ------------------------------------- ------ ----------- -------- ------------ ----------- ------------ ------------
Steven M. Caira 1998 $300,000 $128,000 -- 2,500,000 -- --
President and Chief Executive 1997 237,500 $123,500 -- -- -- --
Officer of TomaHawk Corporation
and TomaHawk II, Inc. and Acting
Chief Financial Officer of
TomaHawk Corporation
John C. Rogers (3) 1998 $180,000 -- -- 250,000 -- $164,403 (4)
Former Vice President of Federal 1997 $256,431(5) -- -- -- -- --
Sales and Marketing of
TomaHawk II, Inc.
Phillip W. Card 1998 $150,000 -- -- 700,000 -- --
Vice President of Operations and 1997 $129,750 -- -- -- -- --
Technology of TomaHawk II, Inc.
Michael H. Lorber 1998 $150,000 -- -- 500,000 -- --
Vice President - Finance and 1997 $131,004 -- -- -- -- --
Chief Financial Officer of
TomaHawk II, Inc.
John F. Peace 1998 $111,441 -- -- 110,000 -- --
Vice President - Engineering 1997 $109,692 -- -- -- -- --
Services of TomaHawk II, Inc.
William D. Koren (6) 1998 $100,008 -- -- 200,000 -- --
Director - New Business 1997 $98,831 -- -- -- -- --
Development of TomaHawk II, Inc.
---------------------------
(1) All compensation has been paid by TomaHawk II, Inc. TomaHawk
Corporation has not paid any compensation to its executive officers.
(2) Does not include amount of accounting expense attributed to compensation
by variable accounting treatment. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations--Year Ended December 31, 1998 Compared with Year Ended
December 31, 1997--General and Administrative Expenses" and "Certain
Relationships and Related
90
Transactions--Indebtedness of Directors, Executive Officers, Senior
Management and Significant Shareholders--Variable Accounting Treatment."
(3) During 1997, Mr. Rogers provided services to TomaHawk II, Inc. as a
consultant. In January 1998, Mr. Rogers became an officer of TomaHawk
II, Inc. However, as of January 1, 1999, Mr. Rogers resigned as an
officer and returned to providing services to TomaHawk II, Inc. as a
consultant. See "Certain Relationships and Related
Transactions--Consulting Arrangement with Capstone National Partners,
LLC."
(4) Represents commissions from revenues derived from contracts and
subcontracts funded by the U.S. Department of Defense pursuant to Mr.
Rogers' compensation arrangement. See "Certain Relationships and
Related Transactions--Consulting Arrangement with Capstone National
Partners, LLC."
(5) The compensation shown for 1997 represents broker fees and commissions
earned by Mr. Rogers pursuant to a consulting arrangement with TomaHawk
II, Inc. See "Certain Relationships and Related
Transactions--Consulting Arrangement with Capstone National Partners,
LLC."
(6) Mr. Koren currently serves as TomaHawk II, Inc.'s Director of New
Business Development. From August 1996 until August 1997, Mr. Koren
served as TomaHawk II, Inc.'s Director of Engineering Services, and then
served as TomaHawk II, Inc.'s Vice President of Engineering Services
until December 1998.
STOCK OPTION PLAN
Our stock option plan provides for the grant of stock options to
employees, directors and consultants. The rules of The Alberta Stock Exchange
permit us to issue a total number of options equal to 10% of our outstanding
common shares. As of May 31, 1999, we had granted options to purchase 7,330,570
common shares of the permissible pool of options to purchase 8,474,416 common
shares.
Our board of directors administers the stock option plan and determines
the exercise price, term and vesting periods of options granted under the plan.
The exercise price of stock options granted under the plan must be at least
equal to 85% of the fair market value of the common shares on the date of grant.
Option holders may pay the exercise price in cash, by certified check or by bank
draft. Options are terminated 90 days after the participant ceases to be a
director, officer or employee, and within 12 months after the participant's
death.
No insider or employee may be granted options to purchase an amount of
common shares greater than 5% of the then outstanding common shares. For all
other participants, this amount is limited to 1% of the then outstanding common
shares.
Our board of directors may amend, modify or terminate the stock option
plan at any time without the consent of the optionees. However, any amendment,
modification or termination will not affect options already granted under the
plan.
91
STOCK OPTIONS GRANTED IN THE YEAR ENDED DECEMBER 31, 1998
The following table shows, as to the Named Executive Officers,
information concerning stock options granted during the year ended December 31,
1998.
INDIVIDUAL GRANTS
--------------------------------------------------------------------------------------------
NUMBER OF SECURITIES % OF TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE PRICE PER SHARE
NAME GRANTED (1) IN 1998 (2) (3), (4) EXPIRATION DATE
- ------------------------ -------------------- -------------------- ------------------------ ----------------
Steven M. Caira 2,500,000 42% $0.22 3/18/03
Michael H. Lorber 500,000 8% 0.22 3/18/03
Phillip W. Card 700,000 12% 0.22 3/18/03
John F. Peace 110,000 2% 0.22 3/18/03
John C. Rogers 250,000 4% 0.22 3/18/03
William D. Koren 200,000 3% 0.22 3/18/03
- ---------------------------------
(1) These options were granted under the existing Alberta corporation's
stock option plan.
(2) Based on a total of 5,972,000 options granted to all employees during
1998.
(3) Exercise price per share in Canadian dollars.
(4) Exercise price is Cdn. $0.03 less than the closing price of the options
on the date of grant. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of
Operations--Year Ended December 31, 1998 Compared with Year Ended
December 31, 1997--General and Administrative Expenses" and "Certain
Relationships and Related Transactions--Variable Accounting Treatment."
92
COMMON SHARES UNDERLYING UNEXERCISED OPTIONS AND OPTION VALUES
The following table shows, as to the Named Executive Officers,
information concerning stock options exercised during the year ended December
31, 1998 and unexercised stock options at December 31, 1998.
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED IN THE MONEY
DECEMBER 31, 1998 OPTIONS AT DECEMBER 31, 1998 (1)
--------------------------------- ----------------------------------
SHARES
ACQUIRED VALUE
NAME ON EXERCISE RECEIVED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ----------- ---------- --------------- --------------- --------------- ---------------
Steven M. Caira 2,500,000 200,000 2,500,000 -- 150,000 --
Michael H. Lorber 500,000 40,000 500,000 -- 30,000 --
Phillip W. Card 425,000 49,750 700,000 -- 42,000 --
John F. Peace -- -- 710,250 -- 64,213 --
William D. Koren 150,000 15,375 250,000 -- 15,000 --
John C. Rogers -- -- 200,000 -- 12,000 --
- --------------------------------------
(1) Represents the difference between the exercise price of the outstanding
options and the estimated market price of the common shares on December
31, 1998 of Cdn. $0.28 per share.
EMPLOYMENT AGREEMENTS
We recently agreed to the terms of an employment agreement with Stephen
M. Caira, our president and chief executive officer. The agreement provides for
a five year term at a base salary of $300,000 per year. Mr. Caira is also
eligible for an annual bonus and a grant of stock options, each subject to the
approval of our board of directors. In the event that Mr. Caira is terminated
without good cause, he will be entitled to a severance payment equal to one year
of salary plus one month of salary for each full year of his employment with our
company at the time of his termination.
We have no employment agreements with any of our other Named Executive
Officers.
93
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None or our directors, officers, or insiders, or any associate or
affiliate of any of the foregoing persons, has or had any material interest in
any transaction since the beginning of our last completed fiscal year or any
proposed transaction that has materially affected, or will materially affect us
or any of our affiliates, except as disclosed below. References to "we" or "us"
include TomaHawk Corporation and TomaHawk II, Inc.
CONSULTING ARRANGEMENT WITH CAPSTONE NATIONAL PARTNERS, LLC
We have retained Capstone National Partners, LLC, a federal marketing
consulting firm, to coordinate our government marketing efforts. John Rogers,
our former Vice President of Federal Sales and Marketing, is the president and
majority member of Capstone National Partners, LLC. We pay to Capstone National
Partners, LLC a monthly retainer in the amount of US $10,000 and a 5% commission
on all revenues from contracts that Capstone National Partners, LLC plays a
significant role in obtaining on our behalf. To date, Capstone National
Partners, LLC has helped us obtain each of our contracts funded by the ADCS
program. We currently do not have a written agreement with Capstone National
Partners, LLC. See "Risk Factors--Risk Factors Relating to our Continuing
Operations--We may not retain the consultant that coordinates our marketing
efforts directed at the U.S. government."
This arrangement was not in effect during 1998 when Mr. Rogers served as
our Vice President of Federal Sales and Marketing. Instead, during 1998, we
paid to Mr. Rogers a base salary of US $180,000, a 2% commission on all revenues
up to US $5 million from contracts that he played a significant role in
obtaining on our behalf, and a 2.5% commission on all revenues from US $5
million to US $10 million from these contracts. In 1998, these commissions
totaled US $164,403. See "Executive Compensation--Summary Compensation."
In 1997 we paid US $256,431 to Mr. Rogers through consulting
arrangements with various consulting companies controlled by Mr. Rogers. See
"Executive Compensation--Summary Compensation."
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS, SENIOR MANAGEMENT AND SIGNIFICANT
SHAREHOLDERS
RESTRUCTURING OF NOTES. Between October 1996 and January 1999 certain
directors, executive officers, senior management and significant shareholders of
TomaHawk Corporation and TomaHawk II, Inc. borrowed an aggregate of US
$2,756,588 from Tomahawk II, Inc. to purchase common shares in connection with a
private placement, exercise stock options or exercise warrants. As of May 31,
1999, an aggregate of US $2,606,588 remained outstanding. Each of these loans
is evidenced by a promissory note and secured by the common shares purchased
with the proceeds of the respective loan. We will hold each borrower's common
shares in trust until the borrower has repaid his loan in full.
All of the loans made between October 1996 and December 1997 were
originally written as two-year non-recourse loans. In connection with the audit
of our financial statements for the year ended December 31, 1997, our auditors
informed us that because the notes were non-recourse, under U.S. GAAP, we were
required to account for the notes under variable accounting treatment. Because
this accounting treatment could have resulted in significant non-cash
compensation expenses to the existing Alberta corporation, we restructured the
notes to make them full-recourse. In addition, each of the loans we made to our
directors, officers and shareholders between January 1998 and January 1999 were
structured as full-recourse loans.
In November 1998, when the original notes issued in 1996 reached their
maturity dates, we agreed to extend the maturity dates of each of the
outstanding notes until November 1, 1999. In connection with the audit of our
1998 financial statements, our auditors informed us that by extending the
maturity date of the notes, the notes were again subject to variable accounting
treatment. Because the notes were now subject to variable accounting treatment
whether or not they were full-recourse notes, and because our original intention
had been to have non-recourse notes secured by the common shares purchased with
the proceeds of the loans, we elected to restructure the notes once again. Each
of these notes is now therefore a non-interest bearing, non-recourse note,
secured by the common shares purchased with the proceeds of the respective loan,
and maturing on November 1, 2004. See "See
94
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Results of Operations--Year Ended December 31, 1998 Compared with
Year Ended December 31, 1997--General and Administrative Expenses."
The following table shows, as to the directors, executive officers,
senior management and significant shareholders that have restructured their
notes, the amounts of outstanding indebtedness restructured and the number of
common shares securing the restructured outstanding indebtedness:
AMOUNT OF OUTSTANDING COMMON SHARES SECURING
NAME INDEBTEDNESS (US $) (1) OUTSTANDING INDEBTEDNESS
------------------------ -------------------------------------- -----------------------------------------
Norman F. Siegel $854,832 (2) 6,431,896
Steven M. Caira $735,295 (3) 5,640,636
Michael H. Lorber $188,974 1,500,000
Phillip W. Card $176,635 (4) 1,547,020
John F. Peace $110,775 850,000
Elliot Broidy $89,586 906,733
Douglas W. Loughran $60,775 425,000
(1) Includes only indebtedness in excess of US $60,000.
(2) Reflects a payment in the amount of US $50,000 made after the loan but
before the restructuring; does not include US $250,000 owed to Mr.
Siegel by TomaHawk II, Inc. related to a convertible debenture (see
"--Indebtedness of the Existing Alberta Corporation to its Directors,
Officers, and Significant Shareholders--Indebtedness to Significant
Shareholder").
(3) Reflects a payment in the amount of US $100,000 made after the loan but
before the restructuring; does not include approximately US $88,000 owed
to Mr. Caira by TomaHawk II, Inc. related to accrued bonuses and other
expenses.
(4) Does not include approximately US $100,000 owed to Mr. Card by TomaHawk
II, Inc. related to accrued bonuses.
VARIABLE ACCOUNTING TREATMENT. In order to conform with U.S. generally
accepted accounting principals, we accounted for the restructured loans made to
our directors, officers, and employees under accounting rules for variable
instruments. These loans to our directors, officers and employees include the
loans listed in the above table, as well as loans made to Mr. Dusmet, Mr. Rogers
and two other officers of TomaHawk II, Inc. These variable accounting rules
require that, until these loans are paid in full, we must record compensation
expense on a quarterly basis equal to the amount of the increase in the fair
market value of the common shares purchased with the loans. In 1998, this
variable accounting treatment resulted in a non-cash, general and administrative
expense of US $679,000. Until these loans are paid in full, we will continue to
incur significant non-cash expenses if the fair market value of our common
shares increases. See Note 5 to our Consolidated Financial Statements
INDEBTEDNESS OF THE EXISTING ALBERTA CORPORATION TO ITS DIRECTORS, OFFICERS, AND
SIGNIFICANT SHAREHOLDERS
INDEBTEDNESS TO DIRECTORS AND OFFICERS. As of December 31, 1998, we
owed $100,000 in accrued bonus to Philip W. Card, which we anticipate will be
used to pay part of the outstanding balance on his note payable to us
95
(see "--Restructuring of Notes") and $87,697 in accrued bonus and expenses to
Steven M. Caira. These liabilities are non-interest bearing, and will be
settled through the normal course of business.
INDEBTEDNESS TO SIGNIFICANT SHAREHOLDER. In December 1996, we borrowed
US $250,000 from Norman F. Siegel, a shareholder owning approximately 21.5% of
our outstanding common shares. We secured the loan with accounts receivable,
intangible assets, and plant and equipment not otherwise pledged. In January
1997, we refinanced the loan by issuing a convertible debenture due January 8,
1999, bearing interest at prime plus 1% per annum. This indebtedness is
convertible into our common shares at Cdn. $0.23 per share, up to a maximum of
1,474,565 common shares. In connection with this financing, we issued to Mr.
Siegel a warrant for the purchase of 1,474,565 shares at a price of Cdn. $0.23
per share, expiring January 8, 1999. In January 1999, Mr. Siegel exercised this
warrant through the issuance of a five year non-interest bearing note. At the
same time, the maturity date of the US $250,000 note in favor of Mr. Siegel was
extended until January 8, 2001.
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
INDEMNIFICATION
Section 145 of the General Corporation Law of the State of Delaware
provides that indemnification of directors, officers, employees and other agents
of the corporation, and persons who serve at its request as directors, officers,
employees or other agents of another organization, may be provided by it to
whatever extent specified in or authorized by the articles of organization, a
bylaw adopted by the shareholders or a vote adopted by the holders of a majority
of the shares of stock entitled to vote on the election of directors.
The new Delaware corporation's certificate of incorporation includes
provisions eliminating the personal liability of the new Delaware corporation's
directors for monetary damages resulting from breaches of their fiduciary duty
except in certain circumstances. The new Delaware corporation's certificate of
incorporation and bylaws provide indemnification to directors and officers
against claims to the full extent allowable under Delaware corporate law. We
also intend to enter into indemnification agreements with our directors and
executive officers providing, among other things, that we provide defense costs
against this type of claim, subject to reimbursement in certain events. See
"Proposal Ten--Approval of Form Indemnification Agreement." Furthermore, we
intend to maintain a directors and officers liability insurance policy.
INTEREST OF NAMED EXPERTS AND COUNSEL
Jonathan S. Kitchen, a partner in the law firm of Baker & McKenzie,
currently owns 425,000 of our common shares (before the one-for-fifteen common
share consolidation), which amount represents less than 1% of our outstanding
common shares as of May 31, 1999. All of Mr. Kitchen's common shares are being
registered under this Proxy Statement and Information Circular. Mr. Kitchen has
represented us in connection with certain litigation matters. Apart from
providing information with respect to ongoing litigation (see "Business--Legal
Proceedings"), Mr. Kitchen was not involved in the preparation of this Proxy
Statement and Information Circular.
LEGAL MATTERS
Certain matters with respect to the issuance of the shares of common
stock and preferred stock in connection with the Delaware domestication will
be passed upon by Baker & McKenzie, San Diego, California.
96
TAX MATTERS
Ernst & Young LLP, our tax advisor, has rendered a tax opinion included
as an exhibit to this S-4 registration statement. It is included on the
authority of Ernst & Young LLP as an expert in tax matters.
EXPERTS
Our financial statements as of and for the year ended December 31, 1998
and 1997 included in this Proxy Statement and Information Circular, and
elsewhere in the Registration Statement of which this Proxy Statement and
Information Circular forms a part, have been audited by Ernst & Young LLP,
independent auditors, as described in their report on our financial
statements appearing in this Proxy Statement and Information Circular and
elsewhere in the Registration Statement. The financial statements are
included in this Proxy Statement and Information Circular and in the
Registration Statement in reliance on the report of Ernst & Young LLP, upon
the authority of that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We currently do not report under the Securities Exchange Act. We have
filed with the SEC a registration statement on Form S-4 covering the shares of
common stock described in this Proxy Statement and Information Circular. We
have not included in this Proxy Statement and Information Circular certain
information contained in the registration statement and you should refer to the
registration statement and its exhibits for further information. For a fee, you
may obtain a copy of the registration statement from the public reference
section of the SEC at: Judiciary Plaza, 450 5th Street, N.W., Washington, D.C.
20549; and the SEC's Regional Offices located at 7 World Trade Center, Suite
1300, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. In addition, the SEC
maintains a web site on the Internet at the address http://www.sec.gov that
contains reports, proxy information statements and other information regarding
registrants that file electronically with the SEC. After completion of this
offering, we will be subject to the reporting requirements of the Securities
Exchange Act.
OTHER MATTERS
We are not aware of any other matters which you will vote on at the
annual and special meeting. If any other matter properly comes before the
annual and special meeting, then the persons named in the enclosed form of proxy
will vote the shares represented thereby in accordance with their best judgment
on the matter.
SHAREHOLDER PROPOSALS
Any shareholder proposing to have any appropriate matter brought before
the 2000 annual meeting of shareholders is required to submit a proposal in
accordance with the SEC's proxy rules to the secretary of the new Delaware
corporation not later than ____________, 2000, to be considered for inclusion in
the 2000 proxy statement.
APPROVAL OF DIRECTORS
The contents of this Proxy Statement and Information Circular have been
approved by the board of directors of TomaHawk Corporation.
97
CERTIFICATE OF TOMAHAWK CORPORATION
The foregoing contains no untrue statement of a material fact and does
not omit to state a material fact that is required to be stated or that is
necessary to make a statement not misleading in the light of the circumstances
in which it was made.
DATED at San Diego, California, this 8th day of July, 1999.
/s/ STEVEN M. CAIRA
- --------------------------------------------------------
STEVEN M. CAIRA
CHAIRMAN OF THE BOARD, PRESIDENT, CHIEF EXECUTIVE
OFFICER AND ACTING CHIEF FINANCIAL OFFICER
98
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TOMAHAWK CORPORATION PAGE
----
Report of Ernst & Young, LLP, Independent Auditors..............................F-2
Consolidated Balance Sheets at December 31, 1998 and 1997.......................F-3
Consolidated Statements of Operations for the years ended December 31, 1998
and 1997.....................................................................F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998 and 1997...................................................F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1998 and 1997................................................................F-6
Notes to Consolidated Financial Statements......................................F-7
Consolidated Balance Sheets at March 31, 1999 (unaudited) and
December 31, 1998...........................................................F-22
Consolidated Statements of Operations for the Three Months Ended
March 31, 1999 (unaudited) and 1998 (unaudited) ............................F-23
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1999 (unaudited) and 1998 (unaudited) ............................F-24
Notes to Unaudited Consolidated Financial Statements...........................F-25
F-1
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Tomahawk Corporation
We have audited the accompanying consolidated balance sheets of Tomahawk
Corporation as of December 31, 1998 and 1997, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Tomahawk
Corporation at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 1, at December 31, 1998 the Company had a working capital
deficiency of $1.7 million. While management is actively seeking additional
financing to ensure that the Company has sufficient working capital to fund its
ongoing operations, there are no assurances that financing can be obtained.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. The accompanying financial statements of the Company do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
ERNST & YOUNG LLP
San Diego, California
March 12, 1999
F-2
Tomahawk Corporation
Consolidated Balance Sheets
DECEMBER 31,
1998 1997
------------------------------------
ASSETS
Current assets:
Cash $ 169,129 $ 271,576
Accounts receivable, net of allowance for doubtful accounts
of $298,939 in 1998 and $63,946 in 1997 2,178,353 2,072,388
Other current assets 89,724 186,546
------------------------------------
Total current assets 2,437,206 2,530,510
Property and equipment, net 2,292,410 1,053,718
Goodwill, net of accumulated amortization of $78,271 in 1998 and
$6,035 in 1997 1,507,737 29,960
Other assets 216,517 125,521
------------------------------------
Total assets $ 6,453,870 $ 3,739,709
------------------------------------
------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 969,634 $ 1,120,172
Accrued expenses 967,867 826,721
Bank debt 1,383,081 661,519
Current maturities of long-term debt 165,000 -
Convertible debenture to a shareholder, net 250,000 160,641
Current maturities of capital lease obligations 415,041 255,068
------------------------------------
Total current liabilities 4,150,623 3,024,121
Long-term debt 935,000 -
Capital lease obligations 977,180 268,880
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value; 750,000 and 1,500,000 shares
authorized and outstanding at December 31, 1998 and 1997,
respectively 547 1,094
Common stock, no par value; 83,269,600 and 69,055,649 shares
authorized and outstanding at December 31, 1998 and 1997,
respectively 9,358,973 7,432,422
Additional paid-in capital 3,895,837 3,026,762
Deferred compensation (26,430) -
Notes receivable for purchase of common stock, net (2,379,690) (1,159,676)
Obligation to issue common stock - 39,631
Accumulated deficit (10,458,170) (8,893,525)
------------------------------------
Total stockholders' equity 391,067 446,708
------------------------------------
------------------------------------
Total liabilities and stockholders' equity $ 6,453,870 $ 3,739,709
------------------------------------
------------------------------------
SEE ACCOMPANYING NOTES.
F-3
Tomahawk Corporation
Consolidated Statements of Operations
YEARS ENDED DECEMBER 31,
1998 1997
------------------------------------
Net sales $ 13,546,510 $ 9,281,351
Cost of sales 9,564,315 7,145,864
------------------------------------
Gross margin 3,982,195 2,135,487
Operating expenses:
General and administrative 3,225,966 1,435,763
Marketing and sales 1,683,481 1,135,378
------------------------------------
Total operating expenses 4,909,447 2,571,141
------------------------------------
Loss from operations (927,252) (435,654)
Other expenses:
Interest expense (321,195) (136,336)
Terminated offering costs (316,198) -
Gain on settlement of debt - 158,672
------------------------------------
Net loss $ (1,564,645) $ (413,318)
------------------------------------
------------------------------------
Net loss per share - basic and diluted $ (.02) $ (.01)
------------------------------------
------------------------------------
Weighted average shares used in computing net loss per
share - basic and diluted 75,399,286 59,758,748
------------------------------------
------------------------------------
SEE ACCOMPANYING NOTES.
F-4
Tomahawk Corporation
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1998 and 1997
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------------- -------------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------------------------- -----------------------------------------------
Balance at December 31, 1996 2,250,000 $1,642 53,654,263 $ 5,497,222 $ 2,842,996
Cancellation of Series I preferred stock (750,000) (548)
Common stock upon private placement - - 2,433,632 431,699 -
Common stock issued upon exercise of warrants - - 12,677,754 1,462,516 -
Common stock issued upon exercise of options - - 50,000 6,080 -
Common stock issued upon acquisition of
company - - 125,000 19,999 -
Common stock issued for services - - 115,000 14,906 -
Compensation expense related to stock options - - - - 5,048
Debt issuance costs upon issuance of
warrants with convertible debenture - - - - 178,718
Net loss - - - - -
-------------------------------------------------------------------------------
Balance at December 31, 1997 1,500,000 1,094 69,055,649 7,432,422 3,026,762
Cancellation of Series II preferred stock (750,000) (547) - - -
Common stock issued upon exercise of warrants - - 9,566,281 1,373,334 -
Common stock issued upon exercise of options - - 4,308,780 488,586 -
Common stock issued upon acquisition of
company - - 200,000 39,631 -
Common stock issued in connection with
litigation settlement - - 138,890 25,000 -
Payments on notes receivable - - - - -
Deferred compensation related to stock
options - - - - 189,845
Amortization of deferred compensation - - - - -
Compensation expense related to notes
receivable from management personnel and - - - - 679,230
directors
Net loss - - - - -
-------------------------------------------------------------------------------
Balance at December 31, 1998 750,000 $ 547 83,269,600 $ 9,358,973 $ 3,895,837
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
NOTES
RECEIVABLE FROM
MANAGEMENT
PERSONNEL,
DIRECTORS, AND OBLIGATION TO TOTAL
DEFERRED SIGNIFICANT ISSUE COMMON ACCUMULATED STOCKHOLDERS'
COMPENSATION SHAREHOLDERS STOCK DEFICIT EQUITY
-----------------------------------------------------------------------------
Balance at December 31, 1996 $ - $ (538,226) $ - $ (8,480,207) $ (676,573)
Cancellation of Series I preferred stock - - - (548)
Common stock upon private placement - - - - 431,699
Common stock issued upon exercise of warrants - (621,450) - - 841,066
Common stock issued upon exercise of options - - - - 6,080
Common stock issued upon acquisition of
company - - 39,631 - 59,630
Common stock issued for services - - - - 14,906
Compensation expense related to stock options - - - - 5,048
Debt issuance costs upon issuance of
warrants with convertible debenture - - - - 178,718
Net loss - - - (413,318) (413,318)
-----------------------------------------------------------------------------
Balance at December 31, 1997 - (1,159,676) 39,631 (8,893,525) 446,708
Cancellation of Series II preferred stock - - - - (547)
Common stock issued upon exercise of warrants - (984,140) - - 389,194
Common stock issued upon exercise of options - (290,885) - - 197,701
Common stock issued upon acquisition of
company - - (39,631) - -
Common stock issued in connection with
litigation settlement - - - - 25,000
Payments on notes receivable - 55,011 - - 55,011
Deferred compensation related to stock
options (189,845) - - - -
Amortization of deferred compensation 163,415 - - - 163,415
Compensation expense related to notes
receivable from management personnel and - - - - 679,230
directors
Net loss - - - (1,564,645) (1,564,645)
-----------------------------------------------------------------------------
Balance at December 31, 1998 $ (26,430) $ (2,379,690) $ - $(10,458,170) $ 391,067
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
SEE ACCOMPANYING NOTES.
F-5
Tomahawk Corporation
Consolidated Statements of Cash Flows
DECEMBER 31,
1998 1997
------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,564,645) $ (413,318)
Adjustments to reconcile net loss to net cash used in operating
activities:
Provision for doubtful accounts 164,050 60,502
Depreciation and amortization 636,282 250,157
Gain on settlement of debt - (158,672)
Amortization of debt discount 89,359 89,359
Foreign currency loss 11,105 18,216
Legal settlement for stock 25,000 14,906
Compensation expense related to options 163,415 5,048
Compensation expense related to notes receivable from management
personnel and directors 679,230 -
Changes in operating assets and liabilities:
Accounts receivable (270,015) (1,407,852)
Other assets 5,826 (303,692)
Accounts payable and accrued expenses (59,392) 791,356
------------------------------------
Net cash used in operating activities (119,785) (1,053,990)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition (439,569) -
Purchases of property and equipment (516,234) (244,963)
------------------------------------
Net cash used for investing activities (955,803) (244,963)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of shares by private placement - 431,699
Private placement warrants exercised 389,194 841,068
Exercise of stock options 197,701 6,080
Issuance of shares related to acquisitions - 19,999
Increase in note payable - 12,423
Increase in bank indebtedness 721,562 661,519
Repayment of notes receivable 55,011 -
Repayment of note payable - (187,577)
Principal payments under capital lease obligations (390,327) (244,459)
------------------------------------
Net cash provided by financing activities 973,141 1,540,752
------------------------------------
(Decrease) increase in cash (102,447) 241,799
Cash at beginning of year 271,576 29,777
------------------------------------
Cash at end of year $ 169,129 $ 271,576
------------------------------------
------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 283,470 $ 183,653
------------------------------------
------------------------------------
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Purchase of equipment under capital leases $ 613,356 $ 768,407
------------------------------------
------------------------------------
Acquisition - See Note 2
SEE ACCOMPANYING NOTES.
F-6
Tomahawk Corporation
Notes to Consolidated Financial Statements
December 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND BUSINESS
The consolidated financial statements represent the consolidation of the
accounts of Tomahawk Corporation, Tomahawk Imaging & Financial, Inc.,
Tomahawk II, Inc., and Tomahawk Software, Inc. (collectively the "Company").
Both Tomahawk Corporation and Tomahawk Imaging & Financial, Inc. are
incorporated in Alberta, Canada and Tomahawk Corporation is a registrant on
the Alberta Stock Exchange. Tomahawk Imaging & Financial, Inc. is a
wholly-owned subsidiary of Tomahawk Corporation. Tomahawk II, Inc. is
incorporated in the State of Illinois, USA and Tomahawk Software, Inc.
("TSI") is incorporated in India. Tomahawk II is a wholly-owned subsidiary of
Tomahawk Imaging & Financial, Inc. TSI is a majority-owned subsidiary of
Tomahawk II. (See Note 9). All significant intercompany accounts have been
eliminated in consolidation.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) in the United States (US) and,
unless otherwise indicated in US dollars; however, the Company will present the
financial statements to the Alberta Stock Exchange. As required by the rules of
the Alberta Stock Exchange, a reconciliation between the financial statements
prepared in US GAAP and Canadian GAAP is presented in Note 10.
The accompanying financial statements have also been prepared assuming that the
Company is a going concern. At December 31, 1998, the Company had a working
capital deficiency of $1.7 million. Management is actively seeking financing
from both debt and equity sources to ensure the Company has sufficient working
capital to fund its ongoing operations. While management believes that they will
be successful, there are no assurances that financing can be obtained. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The accompanying financial statements of the Company do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
The Company provides engineering and manufacturing services to companies
primarily in the aerospace, space and defense industries. Its dominant business
consists of the conversion of hard copy documents such as blueprints and text
into electronic computer aided design formats. The Company also performs
engineering services, two and three dimensional modeling, tool design, numerical
control ("NC") programming, and precision machining and manufacturing of parts
and components.
F-7
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue on fixed-price contracts is recognized on a percentage-of-completion
basis. Revenue on time and materials contracts are recognized as earned as
services are performed at the applicable rates in accordance with the terms of
the underlying contract.
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 differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, less accumulated depreciation.
Depreciation is provided on a straight-line method over the estimated useful
lives of the assets, which range from three to ten years. Amortization of
leasehold improvements is provided over the lesser of the remaining lease term
or the estimated useful life of the improvements.
The Company leases machinery, computer hardware, computer software, and office
furniture and fixtures. The leased assets meeting the requirements for
capitalization are included as capitalized leased assets and are amortized over
the equipment's useful life.
GOODWILL
Goodwill relating to cost in excess of net assets acquired arose from the
acquisition of various companies (see Note 2). Goodwill is amortized over
estimated useful lives ranging from five to ten years.
FOREIGN CURRENCY TRANSLATION
The Company has determined that the US dollar is the functional currency.
Monetary assets and liabilities of the Company's operations which are
denominated in currencies other than U.S. dollar are translated into US dollars
at the exchange rate prevailing at year end. Non-monetary items are translated
at historical rates. Revenue and expense transactions are translated at exchange
rates prevailing at the transaction date. All exchange gains and losses are
included in net earnings in the period in which they arise.
F-8
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
As permitted by Statement of Financial Accounting Standards ("SFAS") 123, the
Company has elected to follow Accounting Principles Board Opinion 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES ("APB 25"), and related interpretations in
accounting for its employee stock awards. Under APB 25, when the exercise price
of the Company's employee stock awards is not less than the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
NET LOSS PER SHARE
In 1997, the Company adopted SFAS 128, "Earnings Per Share." SFAS 128 replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported primary earnings per share. Since such securities are antidilutive
there is no difference between basic and diluted earnings (loss) per share for
any of the periods presented and none of the prior periods were required to be
restated.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, the Company reviews long-lived
assets and intangible assets for impairment caused by events or changes in
circumstances which indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of that asset to future 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 exceeded the fair value of the assets.
2. ACQUISITIONS
The following acquisitions were recorded using the purchase method of
accounting. Their results of operations have been included in the consolidated
financial statements since their respective dates of acquisition.
During 1997, the Company acquired three businesses through the issuance of
325,000 shares of common stock valued at $59,630. As of December 31, 1997, the
Company had issued 19,999 shares and had recorded an obligation to issue the
remaining 39,631 shares.
F-9
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS (CONTINUED)
These shares were issued in fiscal year 1998. In conjunction with these
transactions, the Company acquired current assets of $115,419, capital assets of
$195,909, and assumed liabilities of $291,391. The Company recorded
approximately $40,000 of goodwill in connection with these acquisitions. One of
the acquired businesses was a company that provided document conversion
services; a second business provided NC programming and engineering services;
and the third business provided high volume document scanning services.
During 1998, the Company acquired certain assets of a precision machine shop
for a total purchase price of $1,540,000. The acquisition was accounted for
under the purchase method and the Company recorded goodwill of approximately
$1,550,000 (which the Company is amortizing over ten years) and machinery and
equipment of $635,000, net of liabilities for capital leases of $645,000. In
connection with this acquisition, the Company's consideration was $400,000 in
cash, $40,000 in acquisition costs, a note payable with the seller in the
amount of $1,100,000. Interest at an annual rate of prime plus 1% is payable
on the outstanding principal balance commencing December 19, 1998. The
outstanding principal balance is payable over a 60-month period commencing
March 19, 1999.
3. FINANCIAL STATEMENT INFORMATION
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and consist of the following:
DECEMBER 31,
1998 1997
----------------------------------
Machinery and tools $ 1,027,149 $ -
Computer hardware 929,414 623,342
Computer software 870,319 493,503
Office furniture, fixtures and equipment 325,787 271,237
Leasehold improvements 82,878 44,727
----------------------------------
3,235,547 1,432,809
Less accumulated depreciation and amortization (943,137) (379,091)
----------------------------------
----------------------------------
$ 2,292,410 $ 1,053,718
----------------------------------
----------------------------------
Computer hardware and software, with a cost of $332,483 in 1997 were fully
depreciated in 1997 and have been deducted from the cost and accumulated
depreciation totals.
F-10
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
3. FINANCIAL STATEMENT INFORMATION (CONTINUED)
Equipment acquired under capital leases totaled $1,370,735 and $643,764 (net of
accumulated amortization of $406,742 and $124,643 at December 31, 1998 and 1997,
respectively).
BANK LOANS
In February 1997, the Company entered into a Revolving Credit Loan Agreement
(the "Agreement") whereby the Company is able to borrow amounts not to exceed
the lesser of: 1) $750,000; or 2) the sum of 65% of the Company's net current
accounts receivable at that time. The Agreement was secured by substantially all
of the assets of the Company. Interest accrued at the rate of the bank's prime
plus 1.5% per annum (10.25% at December 31, 1997) and outstanding borrowings
totaled approximately $640,000 at December 31, 1997. In March 1998, the Company
paid in full the outstanding principal and interest balances and terminated the
Agreement.
As a result of one of the Company's 1997 acquisitions, the Company assumed a
Revolving Promissory Draw Note (the "Note") whereby the Company was able to
borrow amounts not to exceed $55,000. Interest under the Note accrued at the
rate of prime plus 1.75% per annum. At December 31, 1997, the interest rate was
10.50% and outstanding borrowings totaled approximately $22,000. In February
1998, the Company paid in full the outstanding principal and interest balance
and terminated the agreement.
In March 1998, the Company entered into a Business Loan Agreement (the "Loan
Agreement") to borrow up to a maximum of $2,000,000. The Loan Agreement was
secured by substantially all of the assets of Tomahawk II and is guaranteed by
the Company. Interest was payable at the bank's preferred rate plus 1% per annum
due on April 1, 1998 and then monthly, thereafter, until payment in full of any
principal outstanding under the Loan Agreement. Outstanding principal and any
unpaid interest was due on February 28, 1999. At December 31, 1998, outstanding
borrowings totaled approximately $1,383,081.
In March 1999, the Company revised and amended the Loan Agreement by entering
into an Amended and Restated Business Loan Agreement (the "Amended Loan
Agreement") to borrow up to a maximum of $3,000,000 based on eligible accounts
receivable. The Amended Loan Agreement is secured substantially by all of the
assets of Tomahawk II and is guaranteed by the Company. Interest is payable at
the bank's reference rate plus 1% per annum starting on April 1, 1999, and
monthly thereafter, until payment in full of any principal outstanding under the
Amended Loan Agreement. Outstanding principal and any unpaid interest is due on
February 29, 2000. The Amended Loan Agreement
F-11
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
3. FINANCIAL STATEMENT INFORMATION (CONTINUED)
contains restrictive covenants subject to the bank's consent, including
limitations on capital expenditures and restrictions on making any loans to
officers, directors or shareholders of the Company.
CONVERTIBLE DEBENTURE
As of December 31, 1996, the Company had a $250,000 loan provided by a
significant shareholder and secured by accounts receivable, intangible assets,
and plant and equipment, not otherwise pledged. In 1997, the loan was refinanced
by the issuance of a convertible debenture due January 8, 1999, bearing interest
at prime plus 1% per annum. The indebtedness is convertible into common shares
on the basis of Canadian (CN) $0.23 per share, to a maximum of 1,474,565 shares.
In connection with the financing, the debenture holder was issued a warrant for
the purchase of 1,474,565 shares at a price of CN$0.23 per share, which expired
on January 8, 1999. Based on the estimated fair value of the attached warrant,
$178,717 was booked as debt discount relating to the warrant for the purchase of
1,474,565 shares attached to the convertible debenture. The debt discount was
amortized over approximately two years. Accordingly, the Company recognized
$89,359 in expense as of December 31, 1998 and December 31, 1997, respectively.
OTHER EXPENSES
In fiscal year 1998, the Company ceased its efforts to complete an equity or
debt financing and the related costs of $316,198 incurred through December 31,
1998, were charged to operations.
In 1994, the Company purchased computer hardware and software and entered into a
Secured Promissory Note (the "Promissory Note") in the original principal amount
of approximately $403,000. The Promissory Note was secured by the computer
assets purchased. The Promissory Note became past due in December 1996, and in
April 1997, the Company negotiated a settlement of the full amount of the
liability for $200,000. The settlement resulted in a gain of debt of $158,672.
4. SEGMENT AND RELATED INFORMATION
The Company has two reportable segments as defined by FASB Statement 131,
DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The
Company's reportable segments are business units that offer different services
and are managed separately because each business requires different technology
and marketing strategies.
F-12
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
4. SEGMENT AND RELATED INFORMATION (CONTINUED)
The document imaging and conversion services segment accounted for 77% of total
revenues in 1998. The engineering and precision machining services segment
accounted for 23% of total revenues in 1998.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. The Company
allocates resources and evaluates the performance of segments based on profit or
loss from operations, excluding unusual gains or losses. The Company allocates
general and administrative expenses to each segment based on their respective
percentages of total revenue. Intersegment sales were not significant for any
period.
One customer of the document imaging and conversion services segment accounted
for 67% and 35% of net sales in 1998 and 1997, respectively. Two additional
customers of the document imaging and conversion services segment accounted for
12% and 11% of net sales in 1997. Information regarding industry segments for
1998 and 1997 is as follows:
FOR THE YEARS ENDED DECEMBER 31 1998 1997
- ------------------------------- -------------------------------------
Net sales:
Document imaging and conversion services $10,424,953 $5,908,346
Engineering and precision machining services 3,121,557 3,373,005
-------------------------------------
Total consolidated net sales $13,546,510 $9,281,351
-------------------------------------
-------------------------------------
Cost of sales:
Document imaging and conversion services $ 6,166,822 $4,154,081
Engineering and precision machining services 3,397,493 2,991,783
-------------------------------------
Total consolidated cost of sales $ 9,564,315 $7,145,864
-------------------------------------
-------------------------------------
Gross margin (loss):
Document imaging and conversion services $ 4,258,404 $1,754,265
Engineering and precision machining services (276,209) 381,222
-------------------------------------
Total consolidated gross margin $ 3,982,195 $2,135,487
-------------------------------------
-------------------------------------
F-13
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
4. SEGMENT AND RELATED INFORMATION (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31 1998 1997
- ------------------------------- ------------------------------------
Income (loss) from operations before unallocated amount:
Document imaging and conversion services $ 731,634 $ (249,057)
Engineering and precision machining services (979,656) (186,597)
------------------------------------
Total loss from operations before unallocated amount (248,022) (435,654)
Unallocated amount:
Compensation expense related to notes receivable from
management personnel and directors (679,230) -
------------------------------------
Total consolidated loss from operations $ (927,252) $ (435,654)
------------------------------------
------------------------------------
Other unallocated amounts:
Interest expense $ (321,195) $ (136,336)
Terminated offering costs (316,198) -
Gain on settlement of debt - 158,672
------------------------------------
Total other unallocated amounts $ (637,393) $ 22,336
------------------------------------
------------------------------------
Net loss $ (1,564,645) $ (413,318)
------------------------------------
------------------------------------
Depreciation and amortization deducted in arriving at operating
income (loss) from operations:
Document imaging and conversion services $ 254,823 $ 140,910
Engineering and precision machining services 309,223 103,212
------------------------------------
564,046 244,122
Goodwill amortization 72,236 6,035
------------------------------------
$ 636,282 $ 250,157
------------------------------------
------------------------------------
Capital expenditures (including acquisitions and capital leases):
Document conversion services $ 567,819 $ 407,539
Engineering and precision machining services 1,234,958 623,888
------------------------------------
$ 1,802,777 $ 1,031,427
------------------------------------
------------------------------------
AT DECEMBER 31 1998 1997
- -------------- ------------------------------------
Total assets by segment:
Document imaging and conversion services $ 2,592,638 $ 2,159,518
Engineering and precision machining services 3,584,801 1,060,494
Unallocated amounts 276,431 519,697
------------------------------------
Total consolidated assets $6,453,870 $3,739,709
------------------------------------
------------------------------------
Assets located in foreign countries were not significant.
F-14
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY
PREFERRED STOCK
In connection with the acquisition of Tomahawk Imaging & Financial Inc. ("TIFI")
in March of 1993, the Company issued 2,250,000 Class A non-voting preferred
shares. In 1997, the Company has 1,500,000 issued and outstanding preferred
non-cumulative shares, 750,000 of the shares relate to Series II preferred
shares and 750,000 of the shares relate to Series III preferred shares.
At December 31, 1998, the Company had 750,000 shares of Series III preferred
shares authorized and outstanding. For each CN$2.50 of cumulative cash flow, a
share of Series III preferred shares is convertible into 10 common shares. In
the event these shares are not converted nor eligible for conversion by the end
of 1999, they will, subject to the discretion of the Alberta Stock Exchange, be
returned to the Company for cancellation. The Company does not expect these
shares to be eligible for conversion. In 1998 and 1997, the Company canceled the
750,000 shares of Series II preferred and the 750,000 shares of Series I
preferred, respectively, as the performance criteria for their respective
conversion was not met.
PRIVATE PLACEMENT ISSUANCE OF SHARES
In 1997, the Company issued 2,433,632 units (comprising 2,433,632 of common
stock and warrants to purchase additional 1,216,816 shares of common stock at a
price of CN $0.40 per share, which expired on March 24, 1999) at a price of
CN$.1774 per unit. Various directors and officers of the Company have
participated in this and previous private placements.
WARRANTS
Transactions for all warrants granted are summarized as follows:
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
---------------------------------------
Warrants outstanding at December 31, 1996 28,827,365 CN$0.22
Issued 2,691,381 0.31
Exercised (12,677,754) 0.16
Canceled (557,274) 0.17
---------------------------------------
Warrants outstanding at December 31, 1997 18,283,718 0.28
Exercised (9,566,281) 0.22
Canceled (6,026,056) 0.36
---------------------------------------
Warrants outstanding at December 31, 1998 2,691,381 CN$0.31
---------------------------------------
---------------------------------------
F-15
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
As discussed above in Note 3, the warrants outstanding at December 31, 1998
expired during March of 1999. The warrants exercised were originally sold to
officers and directors for notes receivable and cash (see below).
STOCK OPTIONS
The Stock Option Plan (the "Plan") of Tomahawk is administered by the Board of
Directors of the Company. The shares offered under the Plan consist of
authorized but unissued common shares of the Company. The aggregate number of
shares to be delivered upon the exercise of all options granted under the Plan
shall not exceed 10% of the number of common shares outstanding at the date of
grant. If any options granted under the Plan shall expire or terminate for any
reason without having been exercised in full, the unpurchased shares subject
thereto shall again be available for the purpose of this Plan.
The Board of Directors may in its sole discretion, determine the time during
which options shall vest and the method of vesting, or that no vesting
restriction shall exist. The 1993, 1994, 1995, and 1996 grants have no vesting
restrictions. Starting in 1997, the Board of Directors has attached a six-month
vesting period on all future option grants.
The exercise price of the shares covered by each option shall be determined by
the Board of Directors of the Company. The exercise price shall not be less than
the price permitted by any stock exchange on which the common shares are then
listed. The common shares are listed in the Alberta Stock Exchange (the
"Exchange"). The Exchange permits up to a 15% discount on the fair market value
of the stock on the date of grant.
The Company has historically taken the allowable discount in determining the
exercise price of the stock. However, in accordance with generally accepted
accounting principles in the United States, under APB 25, when the exercise
price of the Company's employee stock award is less than the market price of the
underlying stock on the date of grant, compensation expense is recognized over
the vesting period of the options. The Company has recognized compensation
expense totaling $161,415 in December 31, 1998, none in 1997 and $2,848,044 for
the periods prior to 1997. Also, based on the vesting period of the options, the
Company has $26,430 in deferred compensation at December 31, 1998. Furthermore,
pursuant to APB 25, when options are granted to non-employees (i.e.,
consultants) compensation expense is recognized immediately upon grant based on
the total number of shares multiplied by fair market value on the date of grant.
The Company has recognized compensation expense relating to grants to
consultants of $1,762 and $5,048 in December 31, 1998 and 1997, respectively. As
of December 31,
F-16
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
1998 and 1997, the Company has recognized cumulative compensation expense of
$3,011,459 and $2,848,044, respectively, related to the issuance of stock
options below fair market value and the issuance of stock options to
consultants.
Each option and all other rights expire on the date set out in the option
agreements. Since 1996 options issued by the Company expire within five years
from the date of grant.
Activity for the Plan is as follows:
WEIGHTED -
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
-------------------------------------
Outstanding at December 31, 1996 5,251,750 CN$0.17
Granted 793,000 0.20
Exercised (50,000) 0.17
Canceled (85,000) 0.18
-------------------------------------
Outstanding at December 31, 1997 5,909,750 0.17
Granted 5,972,000 0.22
Exercised (4,308,780) 0.16
Canceled (97,000) 0.19
-------------------------------------
Outstanding at December 31, 1998 7,475,970 CN$0.21
-------------------------------------
-------------------------------------
Following is a further breakdown of the options outstanding as of December 31,
1998:
WEIGHTED-
WEIGHTED- AVERAGE
AVERAGE WEIGHTED- EXERCISE PRICE
OPTIONS REMAINING LIFE AVERAGE OPTIONS OF OPTIONS
EXERCISE PRICES OUTSTANDING IN YEARS EXERCISE PRICE EXERCISABLE EXERCISABLE
- --------------------------------------------------------------------------------------------------------------
CN$0.23 233,750 1 CN $0.23 233,750 CN$0.23
0.19 16,920 1 0.19 16,920 0.19
0.17 602,300 1 0.17 602,300 0.17
0.20 656,000 4 0.20 656,000 0.20
0.22 5,567,000 4 0.22 5,567,000 0.22
0.21 400,000 5 0.21 - -
------------------- -------------------
7,475,970 7,075,970
------------------- -------------------
------------------- -------------------
F-17
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
Pro forma information regarding net income (loss) and earnings (loss) per share
is required by SFAS 123, and has been determined as if the Company has accounted
for its employee stock options using the fair value method. The fair value of
these options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions for 1998 and 1997:
risk-free interest rate of 6.50%; dividend yield of 0%; volatility factor of 79%
and a weighted-average life of five years.
The Black-Scholes 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 employee 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 employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period. The Company's pro forma net
loss is as follows:
DECEMBER 31,
1998 1997
----------------------------------------
Pro forma net loss $(2,344,072) $(756,609)
----------------------------------------
----------------------------------------
Pro forma net loss per share $(.03) $(.01)
----------------------------------------
----------------------------------------
Future pro forma results of operations under SFAS 123 may be materially
different from actual amounts reported.
The weighted-average fair value of options granted during the year was $0.13.
The weighted-average remaining contractual life of options outstanding at
December 31, 1998 is 4 years.
NOTES RECEIVABLE
During 1996 through 1998, the Company issued non-interest bearing full-recourse
notes receivable (the "Notes") to various management personnel, directors and
significant shareholders for the purchase of stock and the exercise of options
and warrants. Several of these Notes came due in 1998 and the Company extended
their respective maturities
F-18
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
and ultimately concluded to revise all the Notes relating to management
personnel and directors in 1999 such that they are non-recourse notes
receivable. In accordance with generally accepted accounting principles, upon
extending the maturities, the Company began accounting for Notes relating to
management personnel and directors as variable instruments and accordingly,
recorded expense of $679,230.
6. NET LOSS PER SHARE
The following table sets for the computation of basic and diluted net loss per
share:
DECEMBER 31,
1998 1997
------------------------------------
Numerator:
Net loss $(1,564,645) $(413,318)
------------------------------------
------------------------------------
Denominator:
Weighted average shares 75,399,286 59,758,748
------------------------------------
------------------------------------
Basic and diluted net loss per share $(.02) $(.01)
------------------------------------
------------------------------------
All potential common shares have been excluded from the diluted net loss per
share calculations as they are antidilutive.
7. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases space under operating leases expiring between 2000 and 2002
in San Diego, Chicago and Seattle. The Company records rent expense on a
straight line basis ratably over the lease term.
F-19
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company leases machinery, computer hardware, computer software, and office
furniture and fixtures under capital leases. Capitalized lease obligations of
$1,309,243 and $768,407 were incurred in 1998 and 1997, respectively, as a
result of the Company entering into various equipment capital leases. Aggregate
future minimum lease commitments for all leases at December 31, 1998 are as
follows:
OPERATING CAPITAL
LEASES LEASES
------------------------------------
1999 $ 691,933 $ 560,299
2000 603,069 490,414
2001 397,665 323,704
2002 401,320 289,785
2003 309,502 90,803
Thereafter - 39,143
------------------------------------
$ 2,403,489 1,794,148
-------------------
-------------------
Less amount representing interest 401,927
------------------
Present value of net minimum lease payments 1,392,221
Less current portion 415,041
------------------
Long-term portion of capital lease obligations $ 977,180
------------------
------------------
Rent expense was $431,976 and $229,872 for the years ended December 31, 1998 and
1997, respectively.
LITIGATION
On February 21, 1997, a competitor commenced legal action against the Company
regarding certain former employees of the plaintiff now employed by the Company.
In March of 1998, the matter was settled and the case was dismissed. According
to the Settlement Agreement, the Company agreed to pay $125,000 payable in cash
and stock in fiscal years 1998 and 1999. As of December 31, 1997, the Company
accrued the total settlement of $125,000 in the financial statements. In fiscal
year 1998, the Company issued $25,000 in common stock and paid $50,000 in cash
in accordance with the terms of the settlement.
As of December 31, 1998, the Company accrued $37,500 relating to a breach of
contract claim filed against the Company in 1997 and settled in 1998. The
$37,500 amount of the settlement is expected to be paid in 1999.
F-20
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
During 1998, the Company received approximately $250,000 in cash net of attorney
fees relating to legal settlements.
8. INCOME TAXES
At December 31, 1998, the Company had federal and California tax operating loss
carryforwards of approximately $4,785,000 and $994,000, respectively. The
federal and California tax loss carryforward will begin expiring in 2008 and
2001, respectively, unless previously utilized. The Company also has foreign net
operating loss carryforwards of approximately $989,000, which will begin
expiring in 1999 unless previously utilized.
Pursuant to Internal Revenue Code Sections 382 and 383, annual use of the
Company's net operating loss and credit carryforwards may be limited if a
cumulative change in ownership of more than 50% occurs within any three-year
period.
Significant components of the Company's deferred tax assets and liabilities are
shown below. A valuation allowance of $2,290,000, of which $132,000 is related
to 1998, has been recognized to offset the deferred tax assets as realization of
such assets is uncertain.
DECEMBER 31,
1998 1997
----------------------------------
Deferred tax assets:
Net operating losses $ 2,170,000 $ 2,057,000
Other, net 120,000 101,000
----------------------------------
Total deferred tax assets 2,290,000 2,158,000
Valuation allowance for deferred tax assets (2,290,000) (2,158,000)
----------------------------------
Net deferred tax assets $ - $ -
----------------------------------
----------------------------------
9. SUBSEQUENT EVENTS
In February 1999, Tomahawk Corporation and Tomahawk Imaging & Financial, Inc.
were combined into one corporate entity in order to simplify the Company's
corporate structure. Additionally, Tomahawk Corporation is proposing to change
its jurisdiction of incorporation from the Province of Alberta, Canada to the
State of Delaware, USA ("domestication"), subject to an affirmative vote of the
holders of 66 2/3% of the common shares of Tomahawk Corporation. After the
completion of the domestication, the Company intends to merge Tomahawk II with
the Delaware Company.
F-21
Tomahawk Corporation
Consolidated Balance Sheets
MARCH 31, DECEMBER 31,
1999 1998
-----------------------------------
(UNAUDITED)
ASSETS
Current assets:
Cash $ 74,578 $ 169,129
Account receivable, net 1,724,484 2,178,353
Other current assets 206,973 89,724
-----------------------------------
Total current assets 2,006,035 2,437,206
Property and equipment, net 2,258,497 2,292,410
Goodwill, net 1,471,468 1,507,737
Other assets 227,232 216,517
-----------------------------------
Total assets $ 5,963,232 $ 6,453,870
-----------------------------------
-----------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 1,208,913 $ 969,634
Accrued expenses 900,144 967,867
Bank debt 1,463,081 1,383,081
Current maturities of long-term debt 220,000 165,000
Convertible debenture to a shareholder, net - 250,000
Current maturities of capital lease obligations 417,745 415,041
-----------------------------------
Total current liabilities 4,209,883 4,150,623
Long-term debt 880,000 935,000
Capital lease obligations 1,002,614 977,180
Convertible debenture to a shareholder, net 250,000 -
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value; 750,000 shares authorized and 547 547
outstanding both at March 31, 1999 and December 31, 1998
Common stock, no par value; 84,759,565 and 83,269,600 shares authorized and
outstanding at March 31, 1999 and December
31, 1998, respectively 9,585,025 9,358,973
Additional paid-in capital 3,965,782 3,895,837
Deferred compensation (10,572) (26,430)
Notes receivable for purchase of common stock, net (2,603,029) (2,379,690)
Accumulated deficit (11,317,018) (10,458,170)
-----------------------------------
Total stockholders' equity (379,265) 391,067
-----------------------------------
Total liabilities and stockholders' equity $ 5,963,232 $ 6,453,870
-----------------------------------
-----------------------------------
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
F-22
Tomahawk Corporation
Consolidated Statements of Operations
THREE MONTHS ENDED MARCH 31,
1999 1998
-----------------------------------
(UNAUDITED)
Net sales $ 2,481,621 $ 3,441,425
Cost of sales 1,947,097 2,406,262
-----------------------------------
Gross margin 534,524 1,035,163
Operating expenses:
General and administrative 835,184 495,708
Marketing and sales 446,264 363,892
-----------------------------------
Total operating expenses 1,281,448 859,600
-----------------------------------
Income (loss) from operations (746,924) 175,563
Other expenses:
Interest expense (111,924) (65,391)
-----------------------------------
Net income (loss) $ (858,848) $ 110,172
-----------------------------------
-----------------------------------
Net income (loss) per share - basic $ (.01) $ .002
-----------------------------------
Net income (loss) per share - diluted $ (.01) $ .001
-----------------------------------
Weighted average shares used in computing net income (loss) per share
- basic 84,629,467 69,190,232
-----------------------------------
-----------------------------------
Weighted average shares used in computing net income (loss) per share
- diluted 84,629,467 81,836,182
-----------------------------------
-----------------------------------
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
F-23
Tomahawk Corporation
Consolidated Statements of Cash Flows
THREE MONTHS ENDED MARCH 31,
1999 1998
-----------------------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(858,848) $ 110,172
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 208,924 111,316
Amortization of debt discount - 22,338
Foreign currency loss - 6,410
Legal settlement for stock - 25,000
Compensation expense related to options 15,858 -
Compensation expense related to notes receivable from management
personnel and directors 69,945 26,355
Changes in operating assets and liabilities:
Accounts receivable 587,777 (692,170)
Other assets (261,872) (67,759)
Accounts payable and accrued expenses 171,556 160,493
-----------------------------
Net cash used in operating activities (66,660) (297,845)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (138,241) (347,400)
-----------------------------
Net cash used for investing activities (138,241) (347,400)
CASH FLOWS FROM FINANCING ACTIVITIES:
Private placement warrants exercised - 32,253
Exercise of stock options 2,212 174,286
Issuance of shares related to acquisitions - 39,631
Increase in bank indebtedness 80,000 103,906
Repayment of notes receivable - 100,000
Advance under capital lease line 116,000 209,411
Principal payments under capital lease obligations (87,862) (283,259)
-----------------------------
Net cash provided by financing activities 110,350 376,228
-----------------------------
Decrease in cash (94,551) (269,017)
Cash at beginning of period 169,129 271,576
-----------------------------
Cash at end of period $ 74,578 $ 2,559
-----------------------------
-----------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 102,152 $ 59,219
-----------------------------
-----------------------------
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Purchase of equipment under capital leases $ 116,000 $ 209,411
-----------------------------
-----------------------------
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
F-24
Tomahawk Corporation
Notes to Unaudited Consolidated Financial Statements
March 31, 1999
(UNLESS OTHERWISE NOTED, AMOUNTS EXPRESSED IN U.S. DOLLARS)
1. CONSOLIDATION AND BASIS OF PRESENTATION
The unaudited interim financial statements presented herein represent the
consolidation of accounts of TomaHawk Corporation, TomaHawk II, Inc and TomaHawk
Software, Inc. TomaHawk Corporation is incorporated in Alberta, Canada, and is a
registrant on the Alberta Stock Exchange. TomaHawk II, Inc. is incorporated in
the state of Illinois, USA and is the sole operating entity of TomaHawk
Corporation. TomaHawk Software Inc. is incorporated in India is a majority-owned
subsidiary of TomaHawk II. All significant intercompany accounts have been
eliminated in consolidation.
These interim unaudited statements have been prepared by the Company pursuant to
rules and regulations of the United States Securities and Exchange commission
and in accordance with generally accepted accounting principles in the United
States. Accordingly, certain information and footnote disclosures normally
included in annual financial statements have been omitted or condensed. These
statements should be read in conjunction with the Company's audited financial
statements and notes thereto for the fiscal year ended December 31, 1998. In the
opinion of management, all necessary adjustments have been made to provide a
fair presentation. The operating results for the three months ended March 31,
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999.
2. EARNINGS PER SHARE
Earnings per share are computed in accordance with Financial Accounting
Standards Board Statement No. 128, EARNINGS PER SHARE. Basic earnings per share
are computed using the weighted average number of common shares outstanding
during each period. Diluted earnings per share include the dilutive effect of
common shares potentially issuable upon the exercise of stock options and
warrants and the conversion of convertible debt or preferred stock. For the
purposes of computing diluted earnings per share, weighted average common share
equivalents do not include stock options or warrants with an exercise price that
exceeds the average fair market value of the Company's common stock for that
period. Furthermore, when a loss is reported for the period, weighted average
common share equivalents do not include shares issuable upon the exercise of
stock options and warrants and the conversion of convertible debt and preferred
shares on the basis that such further issuance of shares would have an
anti-dilutive effect on the loss per share for that period. Accordingly, for the
three months ended March 31, 1999, options and warrants to purchase 7,533,072
shares of common stock, and convertible debt and preferred stock convertible
into 8,974,565 shares of common stock were excluded from the computation of
diluted loss per share. For the three months ended March 31, 1998, warrants to
purchase 4,216,816 were excluded from the computation of diluted earnings per
share.
F-25
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
2. EARNINGS PER SHARE (CONTINUED)
The following table reconciles the denominators used in computing basic and
diluted earnings per share:
Three months ended March 31,
1999 1998
------------------------------
Weighted average common shares outstanding 84,629,467 69,190,232
Effect of dilutive securities - 12,645,950
------------------------------
84,629,467 81,836,182
------------------------------
------------------------------
3. SEGMENT AND RELATED INFORMATION (UNAUDITED)
Unaudited industry segment and related information for the three months ended
March 31, 1999 is as follows:
THREE MONTHS ENDED MARCH 31, 1999 1998
---------------------------------
Net sales:
Document imaging and conversion services $ 1,843,954 $ 2,507,572
Engineering services, and precision machining services 637,667 933,853
---------------------------------
$ 2,481,621 $ 3,441,425
---------------------------------
---------------------------------
Segment profit (loss) :
Document imaging and conversion services $ (361,325) $ 347,305
Engineering services, and precision machining services (315,654) (145,387)
---------------------------------
$ 676,979 $ 201,918
---------------------------------
---------------------------------
Segment assets
Document imaging and conversion services $ 2,090,467 $ 2,772,444
Engineering services, and precision machining services 3,781,266 1,402,689
Unallocated amounts 91,499 298,379
---------------------------------
$ 5,963,232 $ 4,473,512
---------------------------------
---------------------------------
Reconciliation of segment profit (loss) to total consolidated profit (loss):
Total profit (loss) for reportable segments $ (676,979) $ 201,918
Unallocated amounts:
Compensation expense related to notes receivable from
management personnel and directors 69,945 26,355
Interest expense 111,924 65,391
---------------------------------
Total consolidated profit (loss) $ (858,848) $ 110,172
---------------------------------
---------------------------------
F-26
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS OF TOMAHAWK CORPORATION
Annual and Special Meeting of Shareholders
_____________, 1999
The undersigned shareholder of TomaHawk Corporation, an Alberta
corporation, hereby acknowledges receipt of the Notice of Annual and Special
Meeting of Shareholders and Proxy Statement and Information Circular, each dated
___________, 1999, and hereby appoints Steven M. Caira, President of TomaHawk
Corporation, or failing this person, and Michael H. Lorber, an officer of
TomaHawk Corporation, or in place of the foregoing __________________________
(please print name), proxies and attorneys-in-fact, with full power to each of
substitution, on behalf and in the name of the undersigned, to represent the
undersigned at the Annual and Special Meeting of Shareholders, ____________,
1999 at 10:00 a.m., San Diego time, to be held at 8315 Century Park Court, Suite
200, San Diego, California, and at any adjournment(s) thereof and vote all
common shares and Series III Class A Preferred Shares which the undersigned
would be entitled to vote if then and there personally present, on the matters
set forth below:
Resolutions (for full detail of each item, please see the enclosed
Proxy Statement and Information Circular)
1. APPROVAL OF AN ORDINARY RESOLUTION FIXING THE NUMBER OF
DIRECTORS AT FOUR
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. ELECTION OF STEVEN M. CAIRA, THOMAS M. DUSMET, DOUGLAS W.
LOUGHRAN AND JONATHAN F. TURPIN AS DIRECTORS
[ ] FOR each of [ ] FOR each of the nominees [ ] Withhold authority
the nominees (except as indicated below) to vote for all
nominees
To withhold authority to vote for any nominee, write that
nominee's name on the line provided below
-------------------------------------------
3. APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. AUTHORIZATION TO CONDUCT PRIVATE PLACEMENTS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. DOMESTICATION INTO THE STATE OF DELAWARE
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF
INCORPORATION AND BYLAWS TO REQUIRE ADVANCE NOTICE OF
STOCKHOLDER NOMINATIONS AND PROPOSALS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF
INCORPORATION AND BYLAWS TO PROHIBIT STOCKHOLDERS FROM CALLING
SPECIAL MEETINGS OF THE STOCKHOLDERS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
8. AMENDMENT OF THE NEW DELAWARE CORPORATION'S CERTIFICATE OF
INCORPORATION TO ELIMINATE ACTIONS OF THE STOCKHOLDERS BY
WRITTEN CONSENT WITHOUT A MEETING
[ ] FOR [ ] AGAINST [ ] ABSTAIN
9. AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF
INCORPORATION AND BYLAWS TO REQUIRE A SUPERMAJORITY VOTE TO
AMEND CERTAIN PROVISIONS OF THE NEW DELAWARE CORPORATION'S
CERTIFICATE OF INCORPORATION AND BYLAWS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
10. APPROVAL OF FORM INDEMNIFICATION AGREEMENT
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This proxy will be voted as directed or, if no contrary direction is
indicated, will be voted for approval of each of the proposals set forth above,
and as said proxies deem advisable on such other matters as may come before the
meeting and any adjournment(s) thereof.
Affix Label Here The undersigned shareholder hereby
revokes any proxy previously given to
attend and vote at said meeting.
Name of Shareholder Please sign here:
---------------------------------------
Address of Shareholder Date:
---------------------------------------
Number of Securities Represented by This proxy form is not valid unless it
Proxy is signed and dated. If someone other
than the shareholder of the Company
signs this proxy form on behalf of the
named shareholder of the Company,
documentation acceptable to the
Chairman of the Meeting must be
deposited with this proxy form
authorizing the signing person to do
such. To be represented at the meeting,
this proxy form must be received at the
place shown on the enclosed envelope
and its fax number is _______________.
The Chairman of the Meeting has the
discretion to accept proxies deposited
less than forty-eight hours prior to
the time of the Meeting.
1. This Proxy is solicited by our management and our board of directors.
2. If you cannot attend the meeting but wish to vote on the resolutions
and to appoint one of our management appointees named, then please
leave the wording appointing a nominee as shown, sign and date the
proxy form and return the proxy form. If you do not specify a choice on
a resolution shown on the proxy form, then a nominee of management
acting as proxy holder will vote the securities as if you had specified
an affirmative vote.
3. If you wish to attend the meeting to vote on the resolutions in person,
please register your attendance with our scrutineers at the annual and
special meeting, obtain a ballot and vote at the annual and special
meeting.
4. If you cannot attend the meeting but wish to vote on the resolutions,
then you can appoint another person, who need not be a shareholder of
TomaHawk Corporation, to vote according to your instructions. To
appoint someone other than the person named, please cross off the
management appointee name or names and insert your appointed proxy
holder's name in the space provided, sign and date the proxy form and
return the proxy form. If you do not specify a choice on a resolution
shown on the proxy form, this proxy form confers discretionary
authority upon your appointed proxy holder.
5. The securities represented by this proxy form will be voted or withheld
from voting in accordance with the your instructions on any ballot of a
resolution that may be called for and, if you specify a choice with
respect to any matter to be acted upon, the securities will be voted
accordingly. With respect to any amendments or variations in any of the
resolutions shown on the proxy form, or matters which may properly come
before the Meeting, the securities will be voted by the nominee
appointed as the nominee in its sole discretion sees fit.
6. If the shareholder votes on the resolutions and returns the proxy form,
the shareholder may still attend the meeting and vote in person should
the shareholder later decide to do so. To vote in person at the
meeting, the shareholder must revoke the proxy form and obtain a ballot
at the Meeting.
- 2 -
APPENDIX I
Shareholders have the right to dissent to the Delaware domestication.
Such right of dissent is described in the Proxy Statement and Information
Circular. See "Proposal Five--Domestication into the State of Delaware--Right of
Dissent" for full details of the right to dissent. The full text of Section 184
of BUSINESS CORPORATIONS ACT (Alberta) is provided below.
SHAREHOLDER'S RIGHT TO DISSENT
(l) Subject to sections 185 and 234, a holder of shares of any class of a
corporation may dissent if the corporation resolves to
(a) amend its articles under section 167 or 168 to add, change or
remove any provisions restricting or constraining the issue or
transfer of shares of that class,
(b) amend its articles under section 167 to add, change or remove any
restrictions on the business or businesses that the corporation
may carry on,
(c) amalgamate with another corporation, otherwise than under section
178 or 180.1,
(d) be continued under the laws of another jurisdiction under section
182, or
(e) sell, lease or exchange of all or substantially all its property
under section 183.
(2) A holder of shares of any class or series of shares entitled to vote
under section 170, other than section 170(l)(a), may dissent if the
corporation resolves to amend its articles in a manner described in that
section.
(3) In addition to any other right he may have, but subject to subsection
(20), a shareholder entitled to dissent under this section and who
complies with this section is entitled to be paid by the corporation the
fair value of the shares held by him in respect of which he dissents,
determined as of the close of business on the last business day before
the day on which the resolution from which he dissents was adopted.
(4) A dissenting shareholder may only claim under this section with respect
to all the shares of a class held by him or on behalf of any one
beneficial owner and registered in the name of the dissenting
shareholder.
(5) A dissenting shareholder shall send to the corporation a written
objection to a resolution referred to in subsection (1) or (2)
(a) at or before any meeting of shareholders at which the resolution
is to be voted on, or
(b) if the corporation did not send notice to the shareholder of the
purpose of the meeting or of his right to dissent, within a
reasonable time after he learns that the resolution was adopted
and of his right to dissent.
(6) An application may be made to the Court by originating notice after the
adoption of a resolution referred to in subsection (1) or (2),
(a) by the corporation, or
(b) by a shareholder if he has sent an objection to the corporation
under subsection (5), to fix the fair value in accordance with
subsection (3) of the shares of a shareholder who dissents under
this section.
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(7) If an application is made under subsection (6), the corporation shall,
unless the Court otherwise orders, send to each dissenting shareholder a
written offer to pay him an amount considered by the directors to be the
fair value of the shares.
(8) Unless the Court otherwise orders, an offer referred to in subsection (7)
shall be sent to each dissenting shareholder
(a) at least 10 days before the date on which the application is
returnable, if the corporation is the applicant, or
(b) within 10 days after the corporation is served with a copy of
originating notice, if a shareholder is the applicant.
(9) Every offer made under subsection (7) shall
(a) be made on the same terms, and
(b) contain or be accompanied by a statement showing how the fair
value was determined.
(10) A dissenting shareholder may make an agreement with the corporation for
the purchase of his shares by the corporation, in the amount of the
corporation's offer under subsection (7) or otherwise, at any time before
the Court pronounces an order fixing the fair value of the shares.
(11) A dissenting shareholder
(a) is not required to give security for costs in respect of an
application under subsection (6), and
(b) except in special circumstances shall not be required to pay the
costs of the application or appraisal.
(12) In connection with an application under subsection (6), the Court may
give directions for
(a) joining as parties all dissenting shareholders whose shares have
not been purchased by the corporation and for the representation
of dissenting shareholders who, in the opinion of the Court, are
in need of representation,
(b) the trial of issues and interlocutory matters, including pleadings
and examinations for discovery,
(c) the payment to the shareholder of all or part of the sum offered
by the corporation for the shares,
(d) the deposit of the share certificates with the Court or with the
corporation or the transfer agent,
(e) the appointment and payment of independent appraisers, and the
procedures to be followed by them,
(f) the service of documents, and
(g) the burden of proof on the parties.
(13) On an application under subsection (6), the Court shall make an order
(a) finding the fair value of the shares in accordance with subsection
(3) of all dissenting shareholders who are parties to the
application,
(b) giving judgment in that amount against the corporation and in
favor of each of those dissenting shareholders, and
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(c) fixing the time within which the corporation must pay that amount
to a shareholder.
(14) On
(a) the action approved by the resolution from which the shareholder
dissents becoming effective,
(b) the making of an agreement under subsection (10) between the
corporation and the dissenting shareholder as to the payment to be
made by the corporation for his shares, whether by the acceptance
of the corporation's offer under subsection (7) or otherwise, or
(c) the pronouncement of an order under subsection (13),
whichever first occurs, the shareholder ceases to have any rights as a
shareholder other than the right to be paid the fair value of his shares in the
amount agreed to between the corporation and the shareholder or in the amount of
the judgment, as the case may be.
(15) Subsection (14)(a) does not apply to a shareholder referred to in
subsection (5)(b).
(16) Until one of the events mentioned in subsection (14) occurs,
(a) the shareholder may withdraw his dissent or
(b) the corporation may rescind the resolution,
and in either event proceedings under this section shall be discontinued.
(17) The Court may in its discretion allow a reasonable rate of interest on
the amount payable to each dissenting shareholder, from the date on which
the shareholder ceases to have any rights as a shareholder by reason of
subsection (14) until the date of payment.
(18) If subsection (20) applies, the corporation shall, within 10 days after
(a) the pronouncement of an order under subsection (13), or
(b) the making of an agreement between the shareholder and the
corporation as to the payment to be made for his shares,
notify each dissenting shareholder that it is unable lawfully to pay dissenting
shareholders for their shares.
(19) Notwithstanding that a judgment has been given in favor of a dissenting
shareholder under subsection (13)(b), if subsection (20) apples, the
dissenting shareholder, by written notice delivered to the corporation
within 30 days after receiving the notice under subsection (18), may
withdraw his notice of objection, in which case the corporation is deemed
to consent to the withdrawal and the shareholder is reinstated to his
full rights as a shareholder, failing which he retains a status as a
claimant against the corporation, to be paid as soon as the corporation
is lawfully able to do so or, in a liquidation, to be ranked subordinate
to the rights of creditors of the corporation but in priority to its
shareholders.
(20) A corporation shall not make a payment to a dissenting shareholder under
this section if there are reasonable grounds for believing that
(a) the corporation is or would after the payment be unable to pay its
liabilities as they become due, or
(b) the realizable value of the corporation's assets would thereby be
less than the aggregate of its liabilities.
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APPENDIX II
CERTIFICATE OF INCORPORATION
OF
TOMAHAWK ENGINEERING, INC.
FIRST: The name of the Corporation is TOMAHAWK ENGINEERING, INC. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, State of Delaware, 19801. The name of its
registered agent at that address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: (a) AUTHORIZED CAPITAL STOCK. The total number of shares of
stock which the Corporation shall have authority to issue is 21,500,000,
consisting of 20,000,000 shares of Common Stock, par value $0.001 per share
("Common Stock"), 750,000 shares of Class A Preferred Stock, par value $0.001
per share ("Class A Preferred Stock"), and 750,000 shares of Preferred Stock,
par value $0.001 per share ("Preferred Stock").
(b) PREFERRED STOCK. Shares of Preferred Stock may be issued
in one or more series, from time to time, with each such series to consist of
such number of shares and to have such voting powers, full or limited, or no
voting powers, and such designations, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, as shall be stated in the resolution or resolutions
providing for the issuance of such series adopted by the Board of Directors of
the Corporation (the "Board of Directors"), and the Board of Directors is hereby
expressly vested with authority, to the full extent now or hereafter provided by
law, to adopt any such resolution or resolutions.
The authority of the Board of Directors with respect to each
series shall include, but not be limited to, determination of the following:
(i) The number of shares constituting that series and the
distinctive designation of that series;
(ii) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of
that series;
(iii) Whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;
(iv) Whether that series shall have conversion privileges,
and, if so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(v) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable, and
the amount per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(vi) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
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(vii) The rights of the shares of that series in the
event of voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, and the relative rights of priority, if any, of payment of shares
of that series; and
(viii) Any other relative rights, preferences and
limitations of that series.
(c) CLASS A PREFERRED STOCK.
(i) DIVIDENDS
Subject to the prior rights of the holders of any other
class or series of Preferred Stock of the Corporation with respect to priority
in the payment of dividends, the holders of Class A Preferred Stock shall be
entitled to receive dividends, if as and when declared by the Board of Directors
out of assets of the Corporation legally available for the payment of dividends,
in such amount and in such form as the Board of Directors may from time to time
determine.
(ii) PRIORITY ON LIQUIDATION
In the event of a dissolution or liquidation of the
Corporation, whether voluntary or involuntary, a sale of all or substantially
all of the assets of the Corporation, in the event of the insolvency of the
Corporation, or upon any distribution of its capital (other than a distribution
of capital stock in the nature of a dividend), there shall be paid to the
holders of Class A Preferred Stock $0.001 per share plus any accrued but unpaid
dividends thereon without interest (the "Redemption Amount") before any sum
shall be paid to or any assets distributed among the holders of the Common
Stock. After the payment of the Redemption Amount to the holders of the Class A
Preferred Stock, the remaining assets and funds of the Corporation shall be
distributed ratably to the holders of the Common Stock in proportion to their
holdings of such shares.
(iii) CONVERSION RIGHT
(A) In the event that the Corporation earns Cumulative
Cash Flow (as defined below) equal to or greater than $2.50 per outstanding
share of Class A Preferred Stock prior to the cancellation of the Class A
Preferred Stock, each outstanding share of Class A Preferred Stock will be
convertible into 2/3 of one share of Common Stock of the Corporation at the
option of the holder.
In the event of a consolidation, subdivision or
reclassification of the Corporation's Common Stock, the conversion calculation
must be adjusted so that the proportion of the outstanding shares of Class A
Preferred Stock available for conversation is adjusted to reflect such
consolidation, subdivision or reclassification.
The Class A Preferred Stock may be converted only once
during the Corporation's financial year. The conversion calculation must be
based on the Corporation's annual audited consolidated financial statements
for the year or years during which the conversion requirements were met in
respect of the Class A Preferred Stock to be converted.
For the purposes of the above-referenced conversion
formula, "Cash Flow" means net income or loss after tax, generated from the
business of the Corporation or any of its subsidiaries as shown on the
consolidated audited financial statements or verified by the Corporation's
auditors, adjusted to add back the following expenses:
(i) Depreciation;
(ii) Depletion;
(iii) Deferred taxes;
(iv) Amortization of goodwill; and
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(v) Deferred research and development costs.
"Cumulative Cash Flow" means, at any time, the
aggregate Cash Flow of the Corporation up to that time from a date no earlier
than June 1, 1993, net of any negative Cash Flow.
(B) A holder of Class A Preferred Stock who wishes to
avail himself of this right of conversion shall submit to the head office of
the Corporation a written notice indicating the number of shares of Class A
Preferred Stock that he wishes to convert. Certificates representing the
shares of Class A Preferred Stock to be converted shall be attached to the
notice duly endorsed. Upon receipt of any such notice and the Certificates,
the Corporation shall consult its auditors to confirm the number of shares of
Class A Preferred Stock which are at that time convertible, and without
charge issue ten (10) shares of Common Stock for each share of Class A
Preferred Stock which is then requested to be converted or which then is
convertible as determined by the Cumulative Cash Flow of the Corporation,
whichever is less, and if only some of the Class A Preferred Stock evidenced
on the certificates are converted, the Corporation shall, without charge,
issue a new certificate representing the remaining shares of Class A
Preferred Stock.
(iv) TRANSFERABILITY
Class A Preferred Stock may not be transferred except with the
prior approval of the Board of Directors, that may in its absolute discretion,
refuse to register the transfer of any said shares, such approval to be
evidenced by a resolution of the Board of Directors.
(v) CANCELLATION
In the event that any of the shares of Class A Preferred Stock
are not eligible for conversion into Common Stock at the conclusion of the
Corporation's fiscal year beginning 1999, the Class A Preferred Stock shall be
cancelled.
(vi) OTHER PROVISIONS
In the event that the Corporation or any of its subsidiaries
becomes insolvent, voluntarily or involuntarily files for bankruptcy, takes
legislative protection from its creditors or ceases, then any shares of Class A
Preferred Stock which remain outstanding must be surrendered to the Corporation
for cancellation and the Corporation and holders of such shares covenant to
attend to their cancellation immediately.
(vii) VOTING RIGHTS
Except as otherwise required by law, the Class A Preferred Stock
shall not be entitled to vote on any matters brought before the stockholders of
the Corporation.
FIFTH: The name and address of the Incorporator is as follows:
NAME ADDRESS
---- -------
Janine M. Salomone Richards, Layton & Finger
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19801
SIXTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(1) The number of directors of the Corporation shall be such
as from time to time shall be fixed by, or in the manner provided in, the
bylaws.
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(2) In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to make,
alter or repeal the bylaws of the Corporation subject to the powers of the
stockholders of the Corporation to alter or repeal any bylaw whether adopted by
them or otherwise.
(3) Unless and except to the extent that the bylaws of the
Corporation shall so require, the election of directors of the Corporation need
not be by written ballot.
(4) Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
(5) Any newly created directorship or any vacancy occurring
in the Board of Directors for any cause may be filled by a majority of the
remaining members of the Board of Directors, although such majority is less than
a quorum, and each director so elected shall hold office until the expiration of
the term of office of the director whom he has replaced or until his successor
is elected and qualified.
SEVENTH: A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except (i) for any breach of a director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware,
or (iv) for any transaction from which a director derived an improper personal
benefit. No amendment to or repeal of these provisions shall apply to or have
any effect on the liability or alleged liability of any person for or with
respect to any acts or omissions of such person occurring prior to such
amendment.
EIGHTH: (1) Appraisal rights shall be available to the holders of shares
of any class or series of stock of the Corporation in the event that the
Corporation:
(a) amends its Certificate of Incorporation to add,
change or remove any provisions restricting or constraining the issue or
transfer of shares of that class;
(b) amends it Certificate of Incorporation to add,
change or remove any restrictions on the business or businesses that the
Corporation may carry on;
(c) merges with another corporation, except where the
other corporation (i) is a wholly-owned subsidiary of the Corporation or (ii)
owns all of the outstanding capital stock of the Corporation;
(d) continues its corporate existence under the laws
of another jurisdiction; or
(e) sells, leases or exchanges all or substantially
all of its property under Section 271 of the General Corporation Law of the
State of Delaware.
(2) The procedures set forth in Section 262 of the General
Corporation Law of the State of Delaware except for subsection (b) shall apply
MUTATIS MUTANDIS to the exercise by a shareholder of appraisal rights contained
in this Certificate of Incorporation.
NINTH: (1) Subject to subsection (2) of this Article, a holder of
shares of any class or series of stock of the Corporation may apply to any court
of equitable jurisdiction within the State of Delaware ("Court") for leave to:
(a) bring an action in the name and on behalf of the
Corporation or any of its subsidiaries; or
(b) intervene in an action to which the Corporation or
any of its subsidiaries is a party, for the purpose of prosecuting, defending or
discontinuing the action on behalf of the Corporation or its subsidiary.
(2) For the purposes of this Article, a Court shall not grant
leave unless it is satisfied that:
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(a) the stockholder has given reasonable notice to the
directors of the Corporation or its subsidiary of his or her intention to apply
to the Court under subsection (1) of this Article if the directors of the
Corporation or its subsidiary do not bring, diligently prosecute, defend or
discontinue the action;
(b) the stockholder is acting in good faith; and
(c) it appears to be in the interests of the
Corporation or its subsidiary that the action be brought, prosecuted, defended
or discontinued.
TENTH: (1) A holder of shares of any class or series of stock of the
Corporation may apply to any Court for an order under this Article.
(2) If on an application under subsection (1) of this
Article, the Court is satisfied that in respect of the Corporation or any
corporation which controls, or is controlled by, or is under common control
with, the Corporation (collectively, its "affiliates"):
(a) any act or omission of the Corporation or any of
its affiliates effects a result,
(b) the business or affairs of the Corporation or any
of its affiliates are, or have been carried on or conducted in a manner, or
(c) the powers of the directors of the Corporation or
any of its affiliates are or have been exercised in a manner
that is oppressive or unfairly prejudicial to or that unfairly disregards the
interests of any such stockholder, the Court may make an order to rectify the
matters complained of.
(3) In connection with an application under this Article, the
Court may make any interim or final order that it thinks fit.
(4) For purposes of this Article, "control" means the
ownership of securities to which attach more than fifty percent (50%) of the
votes that may be cast to elect directors, so long as such number of votes, if
cast, would be sufficient to elect a majority of the directors.
ELEVENTH: The Corporation shall, to the fullest extent permitted by the
provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities, or other matters referred to
in or covered by said section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
TWELFTH: The powers of the Incorporator shall terminate upon the filing
of this Certificate of Incorporation with the Secretary of State of the State of
Delaware. The names, mailing addresses and classes of the persons who are to
serve as the initial directors of the Corporation until their successors are
duly elected and qualified, are:
Steven M. Caira TomaHawk II, Inc.
8315 Century Park Court, #200
San Diego, California 92123
Thomas M. Dusmet Nesbitt Burns
90 Burnhamthorpe Road West, Suite 210
Mississagua, Ontario
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L5B 3C3 Canada
Douglas W. Loughran 85 North Bend Street
Coquitlam, British Columbia
V3K 6N1 Canada
Jonathan F. Turpin 2605 Fromme Road
North Vancouver, British Columbia
V7J 2R4 Canada
THIRTEENTH. The Corporation reserves the right at any time, and from time
to time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law; and all rights, preferences and privileges
of whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the rights reserved in this
Article.
The undersigned Incorporation hereby acknowledges that the foregoing
Certificate of Incorporation is her act and deed on _____________, 1999.
By:
--------------------------------------
Janine M. Salomone
Incorporator
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APPENDIX III
BYLAWS
OF
TOMAHAWK ENGINEERING, INC.
------------------------------------------------------------
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1.1. ANNUAL MEETINGS. An annual meeting of stockholders shall be held
for the election of directors at such date, time and place, either within or
without the State of Delaware, as may be designated by resolution of the Board
of Directors from time to time. Any other proper business may be transacted at
the annual meeting.
Section 1.2. SPECIAL MEETINGS. Special meetings of stockholders for any
purpose or purposes may be called at any time by the Board of Directors or by
holders of shares of Common Stock of the Corporation representing 5% of the
outstanding shares. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 1.3. NOTICE OF MEETINGS. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given that shall state the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the Corporation's certificate of
incorporation (the "Certificate of Incorporation") or these bylaws, the written
notice of any meeting shall be given not less than ten (10) nor more than sixty
(60) days before the date of the meeting to each stockholder entitled to vote at
such meeting. If mailed, such notice shall be deemed to be given when deposited
in the United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the records of the Corporation.
Section 1.4. ADJOURNMENTS. Any meeting of stockholders, annual or special, may
adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 1.5. QUORUM. Except as otherwise provided by law, the Certificate of
Incorporation or these bylaws, at each meeting of stockholders the presence in
person or by proxy of the holders of a majority in voting power of the
outstanding shares of stock entitled to vote at the meeting shall be necessary
and sufficient to constitute a quorum. In the absence of a quorum, the
stockholders so present may, by a majority in voting power thereof, adjourn the
meeting from time to time in the manner provided in Section 1.4 of these bylaws
until a quorum shall attend. Shares of its own stock belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes; provided, however, that the foregoing shall not limit the
right of the Corporation or any subsidiary of the Corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
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Section 1.6. ORGANIZATION. Meetings of stockholders shall be presided over by
the Chairman of the Board, if any, or in his absence by the Vice Chairman of the
Board, if any, or in his absence by the President, or in his absence by a Vice
President, or in the absence of the foregoing persons by a chairman designated
by the Board of Directors, or in the absence of such designation by a chairman
chosen at the meeting. The Secretary shall act as secretary of the meeting, but
in his absence the chairman of the meeting may appoint any person to act as
secretary of the meeting.
Section 1.7. VOTING; PROXIES. Except as otherwise provided by or pursuant to
the provisions of the Certificate of Incorporation, each stockholder entitled to
vote at any meeting of stockholders shall be entitled to one vote for each share
of stock held by such stockholder which has voting power upon the matter in
question. Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by proxy, but no
such proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period. A proxy shall be irrevocable if it
states that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or by delivering
a proxy in accordance with applicable law bearing a later date to the Secretary
of the Corporation. Voting at meetings of stockholders need not be by written
ballot. At all meetings of stockholders for the election of directors a
plurality of the votes cast shall be sufficient to elect. All other elections
and questions shall, unless otherwise provided by the Certificate of
Incorporation, these bylaws, the rules or regulations of any stock exchange
applicable to the Corporation, as otherwise provided by law or pursuant to any
regulation applicable to the Corporation, be decided by the affirmative vote of
the holders of a majority in voting power of the shares of stock of the
Corporation which are present in person or by proxy and entitled to vote
thereon.
Section 1.8. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In order
that the Corporation may determine the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which record date: (1) in the case of determination of stockholders entitled to
vote at any meeting of stockholders or adjournment thereof, shall, unless
otherwise required by law, not be more than sixty (60) nor less than ten (10)
days before the date of such meeting; (2) in the case of determination of
stockholders entitled to express consent to corporate action in writing without
a meeting, shall not be more than ten (10) days from the date upon which the
resolution fixing the record date is adopted by the Board of Directors; and
(3) in the case of any other action, shall not be more than sixty (60) days
prior to such other action. If no record date is fixed: (1) the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (2) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action of the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation in accordance with applicable law, or, if prior action by the Board
of Directors is required by law, shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action; and
(3) the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 1.9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the
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meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present. Upon the willful neglect or refusal of the directors to produce such a
list at any meeting for the election of directors, they shall be ineligible for
election to any office at such meeting. Except as otherwise provided by law,
the stock ledger shall be the only evidence as to who are the stockholders
entitled to examine the stock ledger, the list of stockholders or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 1.10. ACTION BY WRITTEN CONSENT OF STOCKHOLDERS. Unless otherwise
restricted by the Certificate of Incorporation, any action required or permitted
to be taken at any annual or special meeting of the stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted and shall be
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which minutes of proceedings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall, to the extent required by law, be given to
those stockholders who have not consented in writing and who, if the action had
been taken at a meeting, would have been entitled to notice of the meeting if
the record date for such meeting had been the date that written consents signed
by a sufficient number of holders to take the action were delivered to the
Corporation.
Section 1.11. INSPECTORS OF ELECTION. The Corporation may, and shall if
required by law, in advance of any meeting of stockholders, appoint one or more
inspectors of election, who may be employees of the Corporation, to act at the
meeting or any adjournment thereof and to make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. In the event that no inspector so appointed or
designated is able to act at a meeting of stockholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his or her duties, shall take
and sign an oath to execute faithfully the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspector or
inspectors so appointed or designated shall (i) ascertain the number of shares
of capital stock of the Corporation outstanding and the voting power of each
such share, (ii) determine the shares of capital stock of the Corporation
represented at the meeting and the validity of proxies and ballots, (iii) count
all votes and ballots, (iv) determine and retain for a reasonable period a
record of the disposition of any challenges made to any determination by the
inspectors, and (v) certify their determination of the number of shares of
capital stock of the Corporation represented at the meeting and such inspectors'
count of all votes and ballots. Such certification and report shall specify
such other information as may be required by law. In determining the validity
and counting of proxies and ballots cast at any meeting of stockholders of the
Corporation, the inspectors may consider such information as is permitted by
applicable law. No person who is a candidate for an office at an election may
serve as an inspector at such election.
Section 1.12. CONDUCT OF MEETINGS. The date and time of the opening and the
closing of the polls for each matter upon which the stockholders will vote at a
meeting shall be announced at the meeting by the person presiding over the
meeting. The Board of Directors may adopt by resolution such rules and
regulations for the conduct of the meeting of stockholders as it shall deem
appropriate. Except to the extent inconsistent with such rules and regulations
as adopted by the Board of Directors, the chairman of any meeting of
stockholders shall have the right and authority to prescribe such rules,
regulations and procedures and to do
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all such acts as, in the judgment of such chairman, are appropriate for the
proper conduct of the meeting. Such rules, regulations or procedures, whether
adopted by the Board of Directors or prescribed by the chairman of the meeting,
may include, without limitation, the following: (i) the establishment of an
agenda or order of business for the meeting; (ii) rules and procedures for
maintaining order at the meeting and the safety of those present; (iii)
limitations on attendance at or participation in the meeting to stockholders of
record of the Corporation, their duly authorized and constituted proxies or such
other persons as the chairman of the meeting shall determine; (iv) restrictions
on entry to the meeting after the time fixed for the commencement thereof; and
(v) limitations on the time allotted to questions or comments by participants.
Unless and to the extent determined by the Board of Directors or the chairman of
the meeting, meetings of stockholders shall not be required to be held in
accordance with the rules of parliamentary procedure.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. NUMBER; QUALIFICATIONS. The Board of Directors shall consist of
one or more members, the number thereof to be determined from time to time by
resolution of the Board of Directors. Directors need not be stockholders.
Section 2.2. ELECTION; RESIGNATION; VACANCIES. The Board of Directors shall
initially consist of the persons named as directors in the Certificate of
Incorporation, and each director so elected shall hold office until the first
annual meeting of stockholders or until his successor is duly elected and
qualified. At the first annual meeting of stockholders and at each annual
meeting thereafter, the stockholders shall elect directors each of whom shall
hold office for a term of one year or until his successor is duly elected and
qualified, subject to such director's earlier death, resignation,
disqualification or removal. Any director may resign at any time upon written
notice to the Corporation. Unless otherwise provided by law or the Certificate
of Incorporation, any newly created directorship or any vacancy occurring in the
Board of Directors for any cause may be filled by a majority of the remaining
members of the Board of Directors, although such majority is less than a quorum,
or by a plurality of the votes cast at a meeting of stockholders, and each
director so elected shall hold office until the expiration of the term of office
of the director whom he has replaced or until his successor is elected and
qualified.
Section 2.3. REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held at such places within or without the State of Delaware and at such times
as the Board of Directors may from time to time determine.
Section 2.4. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be held at any time or place within or without the State of Delaware whenever
called by the President, any Vice President, the Secretary, or by any member of
the Board of Directors. Notice of a special meeting of the Board of Directors
shall be given by the person or persons calling the meeting at least twenty-four
hours before the special meeting.
Section 2.5. TELEPHONIC MEETINGS PERMITTED. Members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting thereof by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this bylaw shall
constitute presence in person at such meeting.
Section 2.6. QUORUM; VOTE REQUIRED FOR ACTION. At all meetings of the Board of
Directors a majority of the whole Board of Directors shall constitute a quorum
for the transaction of business. Except in cases in which the Certificate of
Incorporation, these bylaws or applicable law otherwise provides, the vote of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
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Section 2.7. ORGANIZATION. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
their absence by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 2.8. ACTION BY WRITTEN CONSENT OF DIRECTORS. Unless otherwise
restricted by the Certificate of Incorporation or these bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board of Directors or such committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or such committee.
ARTICLE III
COMMITTEES
Section 3.1. COMMITTEES. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent permitted by law and to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it.
Section 3.2. COMMITTEE RULES. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these bylaws.
ARTICLE IV
OFFICERS
Section 4.1. EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE;
RESIGNATION; REMOVAL; VACANCIES. The Board of Directors shall elect a President
and Secretary, and it may, if it so determines, choose a Chairman of the Board
and a Vice Chairman of the Board from among its members. The Board of Directors
may also choose one or more Vice Presidents, one or more Assistant Secretaries,
a Treasurer and one or more Assistant Treasurers. Each such officer shall hold
office until the first meeting of the Board of Directors after the annual
meeting of stockholders next succeeding his election, and until his successor is
elected and qualified or until his earlier resignation or removal. Any officer
may resign at any time upon written notice to the Corporation. The Board of
Directors may remove any officer with or without cause at any time, but such
removal shall be without prejudice to the contractual rights of such officer, if
any, with the Corporation. Any number of offices may be held by the same
person. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise may be filled for the unexpired portion of the
term by the Board of Directors at any regular or special meeting.
Section 4.2. POWERS AND DUTIES OF EXECUTIVE OFFICERS. The officers of the
Corporation shall have such powers and duties in the management of the
Corporation as may be prescribed in a resolution by the Board of Directors and,
to the extent not so provided, as generally pertain to their respective offices,
subject to the control of the Board of Directors. The Board of Directors may
require any officer, agent or employee to give security for the faithful
performance of his duties.
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ARTICLE V
STOCK
Section 5.1. CERTIFICATES. Every holder of stock shall be entitled to have a
certificate signed by or in the name of the Corporation by the Chairman or Vice
Chairman of the Board of Directors, if any, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the Corporation certifying the number of shares owned
by him in the Corporation. Any of or all the signatures on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent, or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if he
were such officer, transfer agent, or registrar at the date of issue.
Section 5.2. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW
CERTIFICATES. The Corporation may issue a new certificate of stock in the place
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
ARTICLE VI
INDEMNIFICATION
Section 6.1. RIGHT TO INDEMNIFICATION. The Corporation shall indemnify and
hold harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person (an "Indemnitee") who was or is
made or is threatened to be made a party or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"proceeding"), by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the Corporation or,
while a director or officer of the Corporation, is or was serving at the written
request of the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise or nonprofit
entity, including service with respect to employee benefit plans, against all
liability and loss suffered and expenses (including attorneys' fees) reasonably
incurred by such Indemnitee. Notwithstanding the preceding sentence, except as
otherwise provided in Section 6.3, the Corporation shall be required to
indemnify an Indemnitee in connection with a proceeding (or part thereof)
commenced by such Indemnitee only if the commencement of such proceeding (or
part thereof) by the Indemnitee was authorized by the Board of Directors.
Section 6.2. PREPAYMENT OF EXPENSES. The Corporation shall pay the expenses
(including attorneys' fees) incurred by an Indemnitee in defending any
proceeding in advance of its final disposition, PROVIDED, HOWEVER, that, to the
extent required by law, such payment of expenses in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the Indemnitee to repay all amounts advanced if it should be ultimately
determined that the Indemnitee is not entitled to be indemnified under this
Article VI or otherwise.
Section 6.3. CLAIMS. If a claim for indemnification or advancement of expenses
under this Article VI is not paid in full within sixty (60) days after a written
claim therefor by the Indemnitee has been received by the Corporation, the
Indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the Corporation shall have the
burden of proving that the Indemnitee is not entitled to the requested
indemnification or advancement of expenses under applicable law.
Section 6.4. NONEXCLUSIVITY OF RIGHTS. The rights conferred on any Indemnitee
by this Article VI shall not be exclusive of any other rights which such
Indemnitee may have or hereafter acquire under any statute,
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provision of the Certificate of Incorporation, these bylaws, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 6.5. OTHER SOURCES. The Corporation's obligation, if any, to indemnify
or to advance expenses to any Indemnitee who was or is serving at its request as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, enterprise or nonprofit entity shall be reduced by any
amount such Indemnitee may collect as indemnification or advancement of expenses
from such other corporation, partnership, joint venture, trust, enterprise or
non-profit enterprise.
Section 6.6. AMENDMENT OR REPEAL. Any repeal or modification of the foregoing
provisions of this Article VI shall not adversely affect any right or protection
hereunder of any Indemnitee in respect of any act or omission occurring prior to
the time of such repeal or modification.
Section 6.7. OTHER INDEMNIFICATION AND PREPAYMENT OF EXPENSES. This Article VI
shall not limit the right of the Corporation, to the extent and in the manner
permitted by law, to indemnify and to advance expenses to persons other than
Indemnitees when and as authorized by appropriate corporate action.
ARTICLE VII
MISCELLANEOUS
Section 7.1. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 7.2. SEAL. The corporate seal shall have the name of the Corporation
inscribed thereon and shall be in such form as may be approved from time to time
by the Board of Directors.
Section 7.3. MANNER OF NOTICE. Except as otherwise provided herein, notices to
directors and stockholders shall be in writing and delivered personally or
mailed to the directors or stockholders at their addresses appearing on the
books of the Corporation. Notice to directors may be given by telegram,
telecopier, telephone or other means of electronic transmission.
Section 7.4. WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
COMMITTEES. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at nor the purpose of any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
Section 7.5. FORM OF RECORDS. Any records maintained by the corporation in the
regular course of its business, including its stock ledger, books of account,
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs, or any other information storage device,
provided that the records so kept can be converted into clearly legible form
within a reasonable time.
Section 7.6. AMENDMENT OF BYLAWS. These bylaws may be altered, amended or
repealed, and new bylaws made, by the Board of Directors, but the stockholders
may make additional bylaws and may alter and repeal any bylaws whether adopted
by them or otherwise.
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APPENDIX IV
[FORM OF INDEMNIFICATION AGREEMENT]
AGREEMENT
This Agreement, made and entered into this ____ day of _____________,
199__ ("Agreement"), by and between TomaHawk Engineering, Inc., a Delaware
corporation ("Company"), and _____________________ ("Indemnitee"):
WHEREAS, highly competent persons have become more reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance or adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that, in order to attract and retain qualified individuals, the
Company will attempt to maintain on an ongoing basis, at its sole expense,
liability insurance to protect persons serving the Company and its subsidiaries
from certain liabilities. Although the furnishing of such insurance has been a
customary and widespread practice among United States-based corporations and
other business enterprises, the Company believes that, given current market
conditions and trends, such insurance may be available to it in the future only
at higher premiums and with more exclusions. At the same time, directors,
officers, and other persons in service to corporations or business enterprises
are being increasingly subjected to expensive and time-consuming litigation
relating to, among other things, matters that traditionally would have been
brought only against the Company or business enterprise itself; and
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining such
persons; and
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining such persons is detrimental to the best interests of
the Company's stockholders and that the Company should act to assure such
persons that there will be increased certainty of such protection in the future;
and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify, and to advance expenses on behalf
of, such persons to the fullest extent permitted by applicable law so that they
will serve or continue to serve the Company free from undue concern that they
will not be so indemnified; and
WHEREAS, this Agreement is a supplement to and in furtherance of the
bylaws of the Company (the "Bylaws") and any resolutions adopted pursuant
thereto, and shall not be deemed a substitute therefore, nor to diminish or
abrogate any rights of Indemnitee thereunder; and
WHEREAS, each of Section 145 of the General Corporation Law of the State
of Delaware and the Bylaws is nonexclusive, and therefore contemplates that
contracts may be entered into with respect to indemnification of directors,
officers and employees; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that he
be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
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Section 1. SERVICES BY INDEMNITEE. Indemnitee agrees to serve [as a
[director] [executive officer] of the Company] [,at the request of the Company,
as a [director] [executive officer] of [another corporation, partnership, joint
venture, trust employee benefit plan or other enterprise]. Indemnitee may at
any time and for any reason resign from such position (subject to any other
contractual obligation or any obligation imposed by operation of law), in which
event the Company shall have no obligation under this Agreement to continue
Indemnitee in such position. This Agreement shall not be deemed an employment
contract between the Company (or any of its subsidiaries or any Enterprise) and
Indemnitee. Indemnitee specifically acknowledges that Indemnitee's employment
with the Company (or any of its subsidiaries or any Enterprise), if any, is at
will, and the Indemnitee may be discharged at any time for any reason, with or
without cause, except as may be otherwise provided in any written employment
contract between Indemnitee and the Company (or any of its subsidiaries or any
Enterprise), other applicable formal severance policies duly adopted by the
Board, or, with respect to service as a director or executive officer of the
Company, by the Company's Certificate of Incorporation, the Company's Bylaws,
and the General Corporation Law of the State of Delaware. The foregoing
notwithstanding, this Agreement shall continue in force after Indemnitee has
ceased to serve as an [executive officer] [director] of the Company.
Section 2. INDEMNIFICATION - GENERAL. The Company shall indemnify,
and advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in
this Agreement and (b) (subject to the provisions of this Agreement) to the
fullest extent permitted by applicable law in effect on the date hereof and as
such law may be amended from time to time. The rights of Indemnitee provided
under the preceding sentence shall include, but shall not be limited to, the
rights set forth in the other Sections of this Agreement.
Section 3. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF
THE COMPANY. Subject to the provisions of this Agreement, Indemnitee shall be
entitled to the rights of indemnification provided in this Section 3 if, by
reason of his Corporate Status (as hereinafter defined), he is, or is threatened
to be made, a party to or a participant in any Proceeding (as hereinafter
defined), other than a Proceeding by or in the right of the Company. Pursuant
to this Section 3 but subject to the provisions of this Agreement, Indemnitee
shall be indemnified against all Expenses, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 4. PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY.
Indemnitee shall be entitled to the rights of indemnification provided in this
Section 4 but subject to the provisions of this Agreement if, by reason of his
Corporate Status, he is, or is threatened to be made, a party to or a
participant in any Proceeding brought by or in the right of the Company to
procure a judgment in its favor. Pursuant to this Section but subject to the
provisions of this Agreement, Indemnitee shall be indemnified against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with such Proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company; PROVIDED,
HOWEVER, that, if applicable law so provides, no indemnification against such
Expenses shall be made in respect of any claim, issue or matter in such
Proceeding as to which Indemnitee shall have been adjudged to be liable to the
Company unless and to the extent that the Court of Chancery of the State of
Delaware, or the court in which such Proceeding shall have been brought or is
pending, shall determine that such indemnification may be made.
Section 5. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR
PARTLY SUCCESSFUL. Notwithstanding any other provision of this Agreement, to
the extent that Indemnitee is, by reason of his Corporate Status, a party to (or
a participant in) and is successful, on the merits or otherwise, in any
Proceeding, he shall be indemnified to the maximum extent permitted by law
against all Expenses actually and reasonably incurred by him or on his behalf in
connection therewith. If Indemnitee is not wholly successful in such Proceeding
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by him or on
his behalf in connection with each successfully resolved claim, issue or matter.
For purposes of this Section and without limitation, the termination of any
claim, issue or matter in such a Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such claim, issue or
matter.
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Section 6. INDEMNIFICATION FOR EXPENSES OF A WITNESS.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to
which Indemnitee is not a party, he shall be indemnified against all Expenses
actually and reasonably incurred by him or on his behalf in connection
therewith.
Section 7. ADVANCEMENT OF EXPENSES. Notwithstanding any provision
of this Agreement to the contrary, the Company shall advance all reasonable
Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding in which Indemnitee is involved with by reason of Indemnitee's
Corporate Status within ten days after the receipt by the Company of a statement
or statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses. Any advances and undertakings to repay pursuant to this Section 7
shall be unsecured and interest free.
Section 8. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO
INDEMNIFICATION.
(a) To obtain indemnification under this Agreement,
Indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the Company shall,
promptly upon receipt of such a request for indemnification, advise the Board in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for
indemnification pursuant to Section 8(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case: (i) if a Change in Control (as hereinafter defined) shall
have occurred, by Independent Counsel (as hereinafter defined) in a written
opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee; or (ii) if a Change in Control shall not have occurred, (A) by a
majority vote of the Disinterested Directors (as hereinafter defined), even
though less than a quorum of the Board, or (B) if there are no such
Disinterested Directors or, if such Disinterested Directors so direct, by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee or (C) if so directed by the Board, by the stockholders
of the Company; and, if it is so determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten (10) days after
such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b)
hereof, the Independent Counsel shall be selected as provided in this
Section 8(c). If a Change in Control shall not have occurred, the Independent
Counsel shall be selected by the Disinterested Directors or, if there are no
such Disinterested Directors, by the Board of Directors, and the Company shall
give written notice to Indemnitee advising him of the identity of the
Independent Counsel so selected. If a Change in Control shall have occurred,
the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall
request that such selection be made by the Board of Directors, in which event
the preceding sentence shall apply), and Indemnitee shall give written notice to
the Company advising it of the identity of the Independent Counsel so selected.
In either event, Indemnitee or the Company, as the case may be, may, within 10
days after such written notice of selection shall have been given, deliver to
the Company or to Indemnitee, as the case may be, a written objection to such
selection; PROVIDED, HOWEVER, that such objection may be asserted only on the
ground that the Independent Counsel so selected does not meet the requirements
of "Independent Counsel" as defined in Section 17 of this Agreement, and the
objection shall set forth with particularity the factual basis of such
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assertion. Absent a proper and timely objection, the person so selected shall
act as Independent Counsel. If such written objection is so made and
substantiated, the Independent Counsel so selected may not serve as Independent
Counsel unless and until such objection is withdrawn or the Court of Chancery of
the State of Delaware or other court of competent jurisdiction has determined
that such objection is without merit. If, within 20 days after submission by
Indemnitee of a written request for indemnification pursuant to Section 8(a)
hereof, no Independent Counsel shall have been selected and not objected to,
either the Company or Indemnitee may petition the Court of Chancery of the State
of Delaware or other court of competent jurisdiction for resolution of any
objection which shall have been made by the Company or Indemnitee to the other's
selection of Independent Counsel and/or for the appointment as Independent
Counsel of a person selected by the Court or by such other person as the Court
shall designate, and the person with respect to whom all objections are so
resolved or the person so appointed shall act as Independent Counsel under
Section 8(b) hereof. Upon the due commencement of any judicial proceeding or
arbitration pursuant to Section 10(a) of this Agreement, Independent Counsel
shall be discharged and relieved of any further responsibility in such capacity
(subject to the applicable standards of professional conduct then prevailing).
(d) The Company shall not be required to obtain the
consent of the Indemnitee to the settlement of any Proceeding which the Company
has undertaken to defend if the Company assumes full and sole responsibility for
such settlement and the settlement grants the Indemnitee a complete and
unqualified release in respect of the potential liability. The Company shall
not be liable for any amount paid by the Indemnitee in settlement of any
Proceeding that is not defended by the Company, unless the Company has consented
to such settlement, which consent shall not be unreasonably withheld.
Section 9. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) In making a determination with respect to
entitlement to indemnification under this Agreement, the person or persons or
entity making such determination shall presume that Indemnitee is entitled to
indemnification under this Agreement if Indemnitee has submitted a request for
indemnification in accordance with Section 8(a) of this Agreement, and the
Company shall have the burden of proof to overcome that presumption in
connection with the making by any person, persons or entity of any determination
contrary to that presumption. Neither the failure of the Company (including by
its directors or Independent Counsel) to have made a determination prior to the
commencement of any action pursuant to this Agreement that indemnification is
proper in the circumstances because Indemnitee has met the applicable standard
of conduct, nor an actual determination by the Company (including by its
directors or Independent Counsel) that Indemnitee has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that Indemnitee has not met the applicable standard of conduct.
(b) If the person, persons or entity empowered or
selected under Section 8 of this Agreement to determine whether Indemnitee is
entitled to indemnification shall not have made a determination within sixty
(60) days after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; PROVIDED, HOWEVER, that such 60-day period
may be extended for a reasonable time, not to exceed an additional thirty (30)
days, if the person, persons or entity making the determination with respect to
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating of documentation and/or information relating
thereto; and provided, further, that the foregoing provisions of this Section
9(b) shall not apply (i) if the determination of entitlement to indemnification
is to be made by the stockholders pursuant to Section 8(b) of this Agreement and
if (A) within fifteen (15) days after receipt by the Company of the request for
such determination the Board of Directors has resolved to submit such
determination to the stockholders for their consideration at an annual meeting
thereof to be held within seventy five (75) days after such receipt and such
determination is made thereat, or (B) a special meeting of stockholders is
called within fifteen (15) days after such receipt for the purpose of making
such determination, such meeting is held for such purpose within sixty (60) days
after having been so called and such
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determination is made thereat, or (ii) if the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b) of
this Agreement.
(c) The termination of any Proceeding or of any claim,
issue or matter therein, by judgment, order, settlement or conviction, or upon a
plea of NOLO CONTENDERE or its equivalent, shall not (except as otherwise
expressly provided in this Agreement or as otherwise required by law) of itself
adversely affect the right of Indemnitee to indemnification or create a
presumption that Indemnitee did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the Company
or, with respect to any criminal Proceeding, that Indemnitee had reasonable
cause to believe that his conduct was unlawful.
(d) RELIANCE AS SAFE HARBOR. For purposes of any
determination of Good Faith, Indemnitee shall be deemed to have acted in Good
Faith if Indemnitee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to
Indemnitee by the officers of the Enterprise in the course of their duties, or
on the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with the reasonable care
by the Enterprise. The provisions of this Section 9(d) shall not be deemed to
be exclusive or to limit in any way the other circumstances in which the
Indemnitee may be deemed to have met the applicable standard of conduct set
forth in this Agreement.
(e) ACTIONS OF OTHERS. The knowledge and/or actions,
or failure to act, of any director, officer, agent or employee of the Enterprise
shall not be imputed to Indemnitee for purposes of determining the right to
indemnification under this Agreement.
Section 10. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made
pursuant to Section 8 of this Agreement that Indemnitee is not entitled to
indemnification under this Agreement, (ii) advancement of Expenses is not timely
made pursuant to Section 7 of this Agreement, (iii) no determination of
entitlement to indemnification shall have been made pursuant to Section 8(b) of
this Agreement within 90 days after receipt by the Company of the request for
indemnification, (iv) payment of indemnification required under Section 5, 6,
the last sentence of Section 8(b) or the last sentence of Section 17(h) of this
Agreement is not made within ten (10) days after receipt by the Company of a
written request therefor, or (v) payment of indemnification pursuant to Section
3 or 4 of this Agreement is not made within ten (10) days after a determination
has been made that Indemnitee is entitled to indemnification, Indemnitee shall
be entitled to an adjudication by the Court of Chancery of the State of Delaware
of his entitlement to such indemnification or advancement of Expenses.
Alternatively, in accordance with this Section 10, Indemnitee, at his option,
may seek an award in arbitration to be conducted by a single arbitrator pursuant
to the Commercial Arbitration Rules of the American Arbitration Association.
Indemnitee shall commence such proceeding seeking an adjudication or an award in
arbitration within 180 days following the date on which Indemnitee first has the
right to commence such proceeding pursuant to this Section 10(a); PROVIDED,
HOWEVER, that the foregoing clause shall not apply in respect of a proceeding
brought by Indemnitee to enforce his rights under Section 5 of this Agreement.
The Company shall not oppose Indemnitee's right to seek any such adjudication or
award in arbitration.
(b) In the event that a determination shall have been
made pursuant to Section 8(b) of this Agreement that Indemnitee is not entitled
to indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 10 shall be conducted in all respects as a DE NOVO trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination.
(c) If a determination shall have been made pursuant
to Section 8(b) of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 10, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
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(d) In the event that Indemnitee, pursuant to this
Section 10, seeks a judicial adjudication of or an award in arbitration to
enforce his rights under, or to recover damages for breach of, this Agreement,
Indemnitee shall be entitled to recover from the Company, and shall be
indemnified by the Company against, any and all expenses (of the types described
in the definition of Expenses in Section 17 of this Agreement) actually and
reasonably incurred by him in such judicial adjudication or arbitration, but
only if (and only to the extent) he prevails therein. If it shall be determined
in said judicial adjudication or arbitration that Indemnitee is entitled to
receive part but not all of the indemnification or advancement of Expenses
sought, the expenses incurred by Indemnitee in connection with such judicial
adjudication or arbitration shall be appropriately prorated.
(e) The Company shall be precluded from asserting in
any judicial proceeding or arbitration commenced pursuant to this Section 10
that the procedures and presumptions of this Agreement are not valid, binding
and enforceable and shall stipulate in any such court or before any such
arbitrator that the Company is bound by all the provisions of this Agreement.
Section 11. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE;
SUBROGATION.
(a) The rights of indemnification and to receive
advancement of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled
under applicable law, the Company's Certificate of Incorporation, the Company's
Bylaws, any other agreement, a vote of stockholders or a resolution of
directors, or otherwise. No amendment, alteration or repeal of this Agreement
or of any provision hereof shall limit or restrict any right of Indemnitee under
this Agreement in respect of any action taken or omitted by such Indemnitee in
his Corporate Status prior to such amendment, alteration or repeal. To the
extent that a change in the General Corporation Law of the State of Delaware,
whether by statute or judicial decision, permits greater indemnification or
advancement of Expenses than would be afforded currently under the Company's
Bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change. No right or remedy herein conferred is intended to be exclusive of
any other right or remedy, and every other right and remedy shall be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an
insurance policy or policies providing liability insurance for directors,
officers, employees, or agents of the Company or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person serves at the request of the Company, Indemnitee shall be
covered by such policy or policies in accordance with its or their terms to the
maximum extent of the coverage available for any such director, officer,
employee or agent under such policy or policies.
(c) In the event of any payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, and Indemnitee shall execute all papers
required and take all action necessary to secure such rights, including
execution of such documents as are necessary to enable the Company to bring suit
to enforce such rights.
(d) The Company shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable (or for which
advancement is provided hereunder) hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise; PROVIDED, HOWEVER, that the Company
shall be liable to make payment of any amounts indemnifiable to the extent
Indemnitee is entitled to indemnification in excess of the amount of any
payments received by Indemnitee under such insurance policy, contract or
agreement.
(e) The Company's obligation to indemnify or advance
Expenses hereunder to Indemnitee who is or was serving at the request of the
Company as a director or executive officer of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
shall be reduced by any
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amount Indemnitee has actually received as indemnification or advancement of
expenses from such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
Section 12. DURATION OF AGREEMENT. This Agreement shall continue
until and terminate upon the later of: (a) 10 years after the date that
Indemnitee shall have ceased to serve as a director or executive officer of the
Company or of any Enterprise which Indemnitee served at the request of the
Company; or (b) the final termination of any Proceeding then pending in respect
of which Indemnitee is granted rights of indemnification or advancement of
Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to
Section 10 of this Agreement relating thereto. This Agreement shall be binding
upon the Company and its successors and assigns and shall inure to the benefit
of Indemnitee and his heirs, executors and administrators.
Section 13. SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby and shall remain
enforceable to the fullest extent permitted by law; (b) such provision or
provisions shall be deemed reformed to the extent necessary to conform to
applicable law and to give the maximum effect to the intent of the parties
hereto; and (c) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of any Section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested thereby.
Section 14. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF
EXPENSES. Notwithstanding any other provision of this Agreement, but subject to
Section 10(d) hereof, Indemnitee shall not be entitled to indemnification or
advancement of Expenses under this Agreement with respect to any Proceeding
brought by Indemnitee, or any claim therein, unless the bringing of such
Proceeding or making of such claim shall have been approved by the Board of
Directors.
Section 15. IDENTICAL COUNTERPARTS. This Agreement may be executed
in one or more counterparts, each of which shall for all purposes be deemed to
be an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 16. HEADINGS. The headings of the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
Section 17. DEFINITIONS. For purposes of this Agreement:
(a) "Change in Control" means a change in control of
the Company occurring after the Effective Date of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A (or in response to any similar item on any similar schedule or form)
promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or
not the Company is then subject to such reporting requirement; PROVIDED,
HOWEVER, that, without limitation, such a Change in Control shall be deemed to
have occurred if after the Effective Date (i) any "person" (as such term is used
in Sections 13(d) and 14(d) of the Act) other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company representing 50% or more of
the combined voting power of the Company's then outstanding securities without
the prior approval of at least two-thirds of the members of the Board in office
immediately prior to such person attaining such percentage interest; (ii) there
occurs a proxy contest, or the Company is a party to a merger, consolidation,
sale of assets, plan of liquidation or other reorganization not approved by at
least two-thirds of the members of the Board then in office, as a consequence of
which members of the Board in office immediately prior to such transaction or
event constitute less than a majority of the Board thereafter; or (iii) during
any period of two consecutive years, other than as a result of an event
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described in clause (a)(ii) of this Section 17, individuals who at the beginning
of such period constituted the Board (including for this purpose any new
director whose election or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of such period) cease for any reason
to constitute at least a majority of the Board.
(b) "Corporate Status" describes the status of a
person who is or was a director or executive officer of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the request of the
Company in accordance with this Agreement.
(c) "Disinterested Director" means a director of the
Company who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
(d) "Effective Date" means ______________, 199__.
(e) "Enterprise" shall mean (i) the Company and/or any
entity in which the Company has an equity interest, and/or (ii) any other
corporation, partnership, joint venture, trust, employee welfare or benefit plan
of the Company and/or of any entity in which the Company has an equity interest
or other enterprise of which Indemnitee is or was serving at the express written
request of the Company as a director or executive officer.
(f) "Expenses" shall include all reasonable attorneys'
fees, retainers, court costs, transcript costs, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or expenses
of the types customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating, being or preparing to be a
witness in, or otherwise participating in, a Proceeding.
(g) "Good Faith" shall mean Indemnitee having acted in
good faith and in a manner Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
Proceeding, having had no reasonable cause to believe Indemnitee's conduct was
unlawful.
(h) "Independent Counsel" means a law firm, or a
member of a law firm, that is experienced in matters of corporation law and
neither presently is, nor in the past five years has been, retained to
represent: (i) the Company or Indemnitee in any matter material to either such
party (other than with respect to matters concerning the Indemnitee under this
Agreement, or of other indemnitees under similar indemnification agreements), or
(ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement. The Company agrees to pay the
reasonable fees and expenses of the Independent Counsel referred to above and to
fully indemnify such counsel against any and all Expenses, claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto.
(i) "Proceeding" includes any threatened, pending or
completed action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise, including any counterclaims therein, and whether civil, criminal,
administrative or investigative, in which Indemnitee was, is or will be involved
as a party or otherwise, by reason of the fact that Indemnitee is or was a
director or executive officer of the Company, by reason of any action taken by
him or of any inaction on his part while acting as director or executive
officer of the Company, or by reason of the fact that he is or was serving at
the request of the Company as a director or executive officer of another
corporation, partnership, joint venture, trust or other enterprise, in each case
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification or advancement of
expenses can be provided under this Agreement; except one initiated by a
Indemnitee pursuant to Section 10 of this Agreement to enforce his rights under
this Agreement.
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(j) References to "other enterprise" shall include
employee welfare or benefit plans; references to "fines" shall include any
excise tax assessed with respect to any employee welfare or benefit plan;
references to "serving at the request of the Company" shall include any service
as a director or executive officer of the Company which imposes duties on, or
involves services by, such director or executive officer with respect to an
employee welfare or benefit plan, as participants or beneficiaries; and a person
who acted in good faith and in the manner he reasonably believed to be in the
interests of the participants and beneficiaries of an employee welfare or
benefit plan shall be deemed to have acted in manner "not opposed to the best
interests of the Company" as referred to in this Agreement.
Section 18. ENFORCEMENT.
(a) The Company expressly confirms and agrees that it
has entered into this Agreement and assumed the obligations imposed on it hereby
in order to induce Indemnitee to serve as a [director] [and executive officer]
of the Company, and the Company acknowledges that Indemnitee is relying upon
this Agreement in serving as a [director] [and executive officer] of the
Company.
(b) This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, oral, written and implied,
between the parties hereto with respect to the subject matter hereof.
Section 19. MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 20. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to
notify the Company in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
Proceeding or matter which may be subject to indemnification or advancement of
Expenses covered hereunder. The failure of Indemnitee to so notify the Company
shall not relieve the Company of any obligation which it may have to the
Indemnitee under this Agreement or otherwise, except to the extent the Company
is materially prejudiced by such failure.
Section 21. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
(b) If to the Company, to:
OR TO SUCH OTHER ADDRESS AS MAY HAVE BEEN FURNISHED TO INDEMNITEE BY THE COMPANY
OR TO THE COMPANY BY INDEMNITEE, AS THE CASE MAY BE.
Section 22. CONTRIBUTION. To the fullest extent permissible under
applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee,
whether for judgments, fines,
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penalties, excise taxes, amounts paid or to be paid in settlement and/or for
Expenses, in connection with any claim relating to an indemnifiable event under
this Agreement, in such proportion as is deemed fair and reasonable in light of
all of the circumstances of such Proceeding in order to reflect (i) the relative
benefits received by the Company and Indemnitee as a result of the event(s)
and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative
fault of the Company (and its directors, officers, employees and agents) and
Indemnitee in connection with such event(s) and/or transaction(s).
Section 23. GOVERNING LAW; SUBMISSION TO JURISDICTION: APPOINTMENT OF
AGENT FOR SERVICE OF PROCESS. This Agreement and the legal relations among the
parties shall be governed by, and construed and enforced in accordance with, the
laws of the State of Delaware, without regard to its conflict of laws rules.
Except with respect to any arbitration commenced by Indemnitee pursuant to
Section 10(a) of this Agreement, the Company and Indemnitee hereby irrevocably
and unconditionally (i) agree that any action or proceeding arising out of or in
connection with this Agreement shall be brought only in the Chancery Court of
the State of Delaware (the "Delaware Court"), and not in any other state or
federal court in the United States of America or any court in any other country,
(ii) consent to submit to the exclusive jurisdiction of the Delaware Court for
purposes of any action or proceeding arising out of or in connection with this
Agreement, (iii) appoint, to the extent such party is not a resident of the
State of Delaware, irrevocably the Corporation Trust Company, Corporation Trust
Center, 1209 Orange Street, Wilmington, Delaware, 19801 as its agent in the
State of Delaware as such party's agent for acceptance of legal process in
connection with any such action or proceeding against such party with the same
legal force and validity as if served upon such party personally within the
State of Delaware, (iv) waive any objection to the laying of venue of any such
action or proceeding in the Delaware Court, and (v) waive, and agree not to
plead or to make, any claim that any such action or proceeding brought in the
Delaware Court has been brought in an improper or otherwise inconvenient forum.
Section 24. MISCELLANEOUS. Use of the masculine pronoun shall be
deemed to include usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
TOMAHAWK ENGINEERING, INC.
By:
----------------------------------
Name:
Title:
-----------------------------------------
Indemnitee
Address:
-------------------------------
-------------------------------
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Business Company Act (Alberta) (the "Alberta Act") provides that a
corporation may indemnify a director or former director of a corporation against
all costs, charges and expenses in any action to which he or she is made a party
by reason of being or having been a director so long as (a) he or she acted
honestly and in good faith with a view to the best interests of the corporation;
and (b) in the case of a criminal or administrative action or proceeding that is
enforced by a monetary penalty, he or she had reasonable grounds for believing
that his or her conduct was lawful. In addition, a director or former director
who satisfies these criteria is entitled to indemnity from the corporation for
all costs incurred in defending himself or herself from in any civil, criminal
or administrative action or proceeding to which he or she is made a party by
reason of being or having been a director or officer of the corporation or body
corporate, if he or she was substantially successful on the merits in his or her
defense of the action or proceeding.
Sections 7.01 to 7.03 of the existing Alberta corporation's bylaws
provide that:
7.01 LIMITATION OF LIABILITY. Every director and officer of
the Corporation in exercising his powers and discharging his duties
shall act honestly and in good faith with a view to the best interests
of the Corporation and exercise the care, diligence and skill that a
reasonably prudent person would exercise in comparable circumstances.
Subject to the foregoing, no director or officer shall be liable for the
acts, receipts, neglects or defaults of any other director or officer or
employee, or for joining in any receipt or other act for conformity, or
for any loss, damage or expense happening to the Corporation through the
insufficiency or deficiency of title to any property acquired for or on
behalf of the Corporation, or for the insufficiency or deficiency of any
security in or upon which any of the monies of the Corporation shall be
invested, or for any loss or damage arising from the bankruptcy,
insolvency or tortious acts of any person with whom any of the monies,
securities or effects of the Corporation shall be deposited, or for any
loss occasioned by any error of judgment or oversight on his part, or
for any other loss, damage or misfortune whatsoever which shall happen
in the execution of the duties of his office or in relation thereto,
unless the same are occasioned by his own willful neglect or default;
provided that nothing herein shall relieve any director or officer from
the duty to act in accordance with the Act and the regulations
thereunder or from liability for any breach thereof.
No act or proceeding of any director or officer or the board
shall be deemed invalid or ineffective by reason of the subsequent
ascertainment of any irregularity in regard to the act or proceeding or
the qualification of such director or officer or board.
Directors may rely upon the accuracy of any statement or report
prepared by the Corporation's auditors, internal accountants or other
responsible officials and shall not be responsible or held liable for
any loss or damage resulting from the paying of any dividends or
otherwise acting upon the statement or report.
7.02 INDEMNITY. Subject to the limitations contained in the
Act, the Corporation shall indemnify a director or officer, a former
director or officer, or a person who acts or acted at the Corporation's
request as a director or officer of a body corporate of which the
Corporation is or was a shareholder or creditor (or a person who
undertakes or has undertaken any liability on behalf of the Corporation
or any such body corporate) and his heirs and legal representatives,
against all costs, charges and expenses, including an amount paid to
settle an action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal or administrative action or proceeding to
which he is made a party by reason of being or having been a director or
officer of the Corporation or the body corporate, if:
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(a) he acted honestly and in good faith with a view to
the best interests of the Corporation; and
(b) in the case of a criminal or administrative action
or proceeding that is enforced by a monetary penalty, he had
reasonable grounds for believing that his conduct was lawful.
7.03 INSURANCE. Subject to the limitations contained in the
Act, the Corporation may purchase and maintain insurance for the benefit
of its directors and officers as such, as the board may from time to
time determine.
Article ELEVENTH of the new Delaware corporation's certificate of
incorporation provides that:
The corporation shall, to the fullest extent permitted by the
provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and
all persons whom it shall have power to indemnify under said section
from and against any and all of the expenses, liabilities, or other
matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any Bylaw,
agreement, vote of shareholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another
capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors and administrators of such
a person.
Our company may obtain insurance for the protection of its directors and
officers against any liability asserted against them in their official
capacities. The rights of indemnification described above are not exclusive of
any other rights of indemnification to which the persons indemnified may be
entitled under any bylaw, agreement, vote of shareholders or directors or
otherwise.
In addition to the foregoing indemnification rights, the new Delaware
corporation's certificate of incorporation eliminates liability of each director
to the our company and our shareholders for monetary damages to the fullest
extent permitted under Delaware corporate law.
Insofar as indemnification of our company for liabilities arising under
the Securities Act of 1933 may be permitted to our directors, officers and
controlling persons, pursuant to the foregoing provisions or otherwise, we have
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than our payment of expenses incurred or paid by
a director, officer or controlling person of our company in the successful
defense of any action suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, we
will, unless in the opinion of their respective counsel the matter has been
settled by a controlling precedent and subject to possible conflict of laws
questions involving Canadian corporation law, submit to a court of appropriate
jurisdiction the question whether such indemnification by them is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed with or incorporated by
reference in this Registration Statement.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------
2.1 Articles of Amalgamation of the Registrant and TomaHawk Imaging &
Financial Inc.
II-2
2.2 Asset Purchase Agreement, dated as of August 1, 1998, between the
Registrant and Robin Hartley
3.1 Alberta Certificate of Incorporation of the Registrant, and amendments
thereto
3.2 Alberta By-laws of the Registrant, and amendments thereto
4.1 Specimen Stock Certificate for the Registrant's Common Shares
5.1* Opinion of Baker & McKenzie regarding the legality of securities being
registered
8.1 Opinion of Ernst & Young LLP regarding certain tax matters
10.1 Stock Option Plan of the Registrant
10.2 Document Imaging Subcontract, dated as of March 12, 1997, between the
Registrant and Intergraph Corporation
10.3 Equipment Lease Agreement, dated as of November 19, 1998, between the
Registrant and Finova Group Inc.
10.4 Equipment Lease Agreement, dated as of June 10, 1997, between the
Registrant and Boston Financial Equity Corporation.
10.5 Promissory Note, dated as of February 25, 1999, payable by the
Registrant to Norman F. Siegel
10.6 Promissory Note, dated as of August 20, 1998, payable by the Registrant
to Robin Hartley
10.7 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Norman F. Siegel to the Registrant
10.8 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Norm Siegel
10.9 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Steven M. Caira to the Registrant
10.10 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Steven M. Caira
10.11 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Michael H. Lorber to the Registrant
10.12 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Michael H. Lorber
10.13 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Philip W. Card to the Registrant
10.14 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Philip W. Card
10.15 Consolidated Promissory Note, dated as of November 1, 1998, payable by
John F. Peace to the Registrant
II-3
10.16 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and John F. Peace
10.17 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Elliott Broidy to the Registrant
10.18 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Elliott Broidy
10.19 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Douglas W. Loughran to the Registrant
10.20 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Douglas W. Loughran
10.21 Subordination Agreement, dated as of January 25, 1999, between the
Registrant and Bank of America, N.A.
10.22 Sublease, dated as of March 4, 1997, between the Registrant and
Medaphis Physician Services Corporation, for premises located at 8315
Century Park Court, Suite 200, San Diego, California 92123
10.23 Lease Agreement, dated as of June 5, 1998 between the Registrant and
Hamann/Martin/Whitaker for premises located at 7140 Opportunity Road,
San Diego, California 92123
23.1 Consent of Baker & McKenzie (contained in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Ernst & Young LLP, Tax Advisor
24.1 Power of Attorney (included on the signature page of this Registration
Statement)
27.1 Financial Data Schedule (As of December 31, 1998)
27.2 Financial Data Schedule (As of March 31, 1999)
* To be filed by amendment.
(b) Schedules. No supporting schedules have been included because
they are not required.
ITEM 22. UNDERTAKINGS.
"The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or
II-4
high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement; provided, however, that paragraphs (1)(i) and (1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the SEC by the registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended, that are
incorporated by reference in the registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus: (i) that is filed
pursuant to the immediately preceding paragraph or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415 of the Securities
Act, will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
after the effective date of the registration statement through the date of
responding to the request.
II-5
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective."
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of San
Diego, California on July 8, 1999.
TOMAHAWK CORPORATION
By: /s/ Steven M. Caira
---------------------------------------------------
Steven M. Caira, Chairman of the Board,
President, Chief Executive Officer and Acting Chief
Financial Officer
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature
appears below on this Registration Statement hereby constitutes and appoints
Steven M. Caira and Michael H. Lorber, and each and either of them, with full
power to act without the other, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities (until revoked in writing) to sign
any and all amendments (including, without limitation, post-effective amendments
and amendments thereto) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Steven M. Caira Chairman of the Board, President, July 8, 1999
- --------------------------- Chief Executive Officer and Acting
Steven M. Caira Chief Financial Officer
/s/ Thomas M. Dusmet Secretary and Director July 8, 1999
- ---------------------------
Thomas M. Dusmet
/s/ Douglas W. Loughran Director July 8, 1999
- ---------------------------
Douglas W. Loughran
/s/ Jonathan F. Turpin Director July 8, 1999
- ---------------------------
Jonathan F. Turpin
II-7
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------
2.1 Articles of Amalgamation of the Registrant and TomaHawk Imaging &
Financial Inc.
2.2 Asset Purchase Agreement, dated as of August 1, 1998, between the
Registrant and Robin Hartley
3.1 Alberta Certificate of Incorporation of the Registrant, and amendments
thereto
3.2 Alberta By-laws of the Registrant, and amendments thereto
4.1 Specimen Stock Certificate for the Registrant's Common Shares
5.1* Opinion of Baker & McKenzie regarding the legality of securities being
registered
8.1 Opinion of Ernst & Young LLP regarding certain tax matters
10.1 Stock Option Plan of the Registrant
10.2 Document Imaging Subcontract, dated as of March 12, 1997, between the
Registrant and Intergraph Corporation
10.3 Equipment Lease Agreement, dated as of November 19, 1998, between the
Registrant and Finova Group Inc.
10.4 Equipment Lease Agreement, dated as of June 10, 1997, between the
Registrant and Boston Financial Equity Corporation.
10.5 Promissory Note, dated as of February 25, 1999, payable by the
Registrant to Norman F. Siegel
10.6 Promissory Note, dated as of August 20, 1998, payable by the Registrant
to Robin Hartley
10.7 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Norman F. Siegel to the Registrant
10.8 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Norman F. Siegel
10.9 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Steven M. Caira to the Registrant
10.10 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Steven M. Caira
10.11 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Michael H. Lorber to the Registrant
10.12 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Michael H. Lorber
10.13 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Philip W. Card to the Registrant
10.14 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Philip W. Card
10.15 Consolidated Promissory Note, dated as of November 1, 1998, payable by
John F. Peace to the Registrant
10.16 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and John F. Peace
10.17 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Elliott Broidy to the Registrant
10.18 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Elliott Broidy
10.19 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Douglas W. Loughran to the Registrant
10.20 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Douglas W. Loughran
10.21 Subordination Agreement, dated as of January 25, 1999, between the
Registrant and Bank of America, N.A.
10.22 Sublease, dated as of March 4, 1997, between the Registrant and
Medaphis Physician Services Corporation, for premises located at 8315
Century Park Court, Suite 200, San Diego, California 92123
10.23 Lease Agreement, dated as of June 5, 1998 between the Registrant and
Hamann/Martin/Whitaker for premises located at 7140 Opportunity Road,
San Diego, California 92123
23.1 Consent of Baker & McKenzie (contained in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Ernst & Young LLP, Tax Advisor
24.1 Power of Attorney (included on the signature page of this Registration
Statement)
27.1 Financial Data Schedule (As of December 31, 1998)
27.2 Financial Data Schedule (As of March 31, 1999)
* To be filed by amendment.