Execution Version
Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
OPTIKA INVESTMENT COMPANY, INC.,
DD ACQUISITION, INC.,
CABLE CONCEPTS, INC.
AND
THE SHAREHOLDERS OF CABLE CONCEPTS, INC.
DATED MARCH 1, 2001
SCHEDULES
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2.1(a) - (hh) Company Disclosure Schedule
Schedule 2.2(c) Outstanding Warrants and Options in Acquiror
Schedule 2.2(g) Acquiror's Financial Disclosures
Schedule 2.2(h) Filing of Reports
EXHIBITS
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Exhibit A Form of Agreement and Plan of Merger
Exhibit B Form of Certificate of Designation, Preferences and Other
Rights
Exhibit C Form of BroadbandNOW Promissory Note
Exhibit D Shareholder Table
Exhibit E Escrow Agreement
Exhibit F Form of Investor Representative Statement
Exhibit G Form of ▇▇▇ ▇▇▇▇▇▇ Employment Agreement
Exhibit H Form of Retention of Purchaser Representative Agreement
Exhibit I Form of Purchaser Representative Agreement
Exhibit J Form of Spousal Consent
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AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") dated effective
as of March 1, 2001, is made by and between OPTIKA INVESTMENT COMPANY, INC., a
Nevada corporation ("Acquiror"), DD ACQUISITION, INC., a Washington corporation
("Subsidiary"), which is a wholly-owned subsidiary of Acquiror, CABLE CONCEPTS,
INC., a Washington corporation (the "Company"), and THE SHAREHOLDERS OF THE
COMPANY set forth on the signature page hereof (individually a "Shareholder" and
collectively, the "Shareholders").
W I T N E S S E T H:
WHEREAS, Subsidiary is a newly-formed corporation duly organized and
existing under the laws of the State of Washington, with authorized capital
stock of 100 shares of common stock, no par value, all of which immediately
prior to the Effective Date (as defined in Section 1.2 below), will be issued
and outstanding and held by Acquiror;
WHEREAS, the Company is a corporation duly organized and existing under the
laws of the State of Washington, with authorized capital stock of Two Million
Five Hundred Thousand (2,500,000) shares of preferred stock, $.001 par value of
which none are issued and outstanding, and Eleven Million Nine Hundred
Thirty-Three Thousand Nine Hundred Fifty-Eight (11,933,958) shares of common
stock, $.001 par value of which Two Million Five Hundred Fifty-Four Thousand Two
Hundred Seventy Two (2,554,272) shares will be issued and outstanding as of the
Effective Date; and
WHEREAS, the boards of directors of the Company and Subsidiary have adopted
resolutions declaring advisable the proposed merger (the "Merger") of Subsidiary
with and into the Company and upon the terms and conditions of the Agreement and
the Plan of Merger in the form attached hereto as Exhibit A (the "Plan of
Merger").
NOW, THEREFORE, in consideration of the mutual promises, representations and
warranties herein contained, and on the terms and subject to the conditions
herein set forth, the parties hereto agree as follows:
ARTICLE 1
THE MERGER; CLOSING
Subject to the terms and conditions of this Agreement, Acquiror, Subsidiary,
the Company, and the Shareholders agree as follows:
1.1 THE CLOSING. The Closing under this Agreement (the "Closing") shall be
held on March 27, 2001, or if not possible on that day, as promptly as
practicable thereafter, but not more than one business day following the
satisfaction or waiver of all of the conditions set forth in Article 4. In any
event, if the Closing has not occurred on or before April 30, 2001, this
Agreement may be terminated in accordance with Section 5.1. The Closing shall be
held at the offices of Preston, Gates & ▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ at 10:00 a.m., on the date on which the
Closing is to be held, or at such other time and place as the parties may agree
upon in writing.
1.2 EFFECTIVE TIME OF MERGER. Subject to the provisions of this Agreement,
including the conditions set forth in Article 4, immediately after the Closing,
Subsidiary shall be merged into Company in accordance with the terms of this
Agreement and Plan of Merger and articles of merger shall be duly prepared and
executed by Subsidiary and Surviving Corporation (as defined below) and
delivered to the Secretary of State of the State of Washington, for filing, in
accordance with applicable law (collectively, the "Articles of Merger"). The
Merger shall become effective upon the later of the filings described above
(such date and time hereinafter being called the "Effective Date").
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1.3 EFFECTS OF THE MERGER. At the Effective Date, the separate existence
of Subsidiary shall cease and Subsidiary shall be merged with and into Company,
which shall be the surviving corporation (the "Surviving Corporation"); the
articles of incorporation of the Company shall be the articles of incorporation
of Surviving Corporation after the Effective Date, and thereafter may be amended
in accordance with its terms and as provided by applicable law; the bylaws of
the Company as in effect on the Effective Date shall be the bylaws of Surviving
Corporation, and thereafter may be amended in accordance with the terms thereof
and as provided by applicable law; the Surviving Corporation shall have duly
elected as director of Surviving Corporation the individuals required by
Section 1.7 hereof; the Board of Directors of the Surviving Corporation shall
have duly appointed as officers of the Surviving Corporation the individuals
required by Section 1.7 hereof; and the Merger shall, from and after the
Effective Date, have all the effects provided by applicable law.
1.4 CONVERSION OF THE COMPANY'S SECURITIES.
(a) CONVERSION OF THE COMPANY'S CLASS A COMMON STOCK. On the Effective
Date, each issued and outstanding share of the Company's Class A Common
Stock, par value $.001 per share (the "Class A Common Stock") will by virtue
of the Merger and without any action on the part of the holder thereof, be
cancelled and converted into the right to receive that number of fully paid
and nonassessable shares of Acquiror's Common Stock, $.001 par value per
share (the "Newly Issued Shares of Acquiror Common Stock") derived by
dividing 1,000,000 (subject to adjustment pursuant to Section 1.4(e)) by the
number of shares of Class A Common Stock issued and outstanding as of the
Effective Date, as hereinafter provided and as set forth on Exhibit D
(rounded to the nearest whole share). The aggregate number of shares of the
Newly Issued Shares of Acquiror Common Stock to be issued on the Effective
Date will be 1,000,000 (subject to adjustment pursuant to Section 1.4(e))
shares of Newly Issued Shares of Acquiror Common Stock.
(b) CONVERSION OF THE COMPANY'S CLASS B, CLASS C, AND CLASS D COMMON
STOCK. On the Effective Date, each issued and outstanding share of the
Company's Class B Common Stock, par value $.001 per share (the "Class B
Common Stock"), Class C Common Stock, par value $.001 per share (the
"Class C Common Stock"), and Class D Common Stock, par value $.001 per share
(the "Class D Common Stock"), will by virtue of the Merger and without any
action on the part of the holder thereof, be cancelled and converted into
the right to receive the following: (i) that number of fully paid and
nonassessable shares of Acquiror's Series C Preferred Stock, $.001 par value
per share, with the rights and preferences set forth on Exhibit B (the
"Series C Preferred Stock") derived by dividing 7,875,000 (subject to
adjustment pursuant to Section 1.4(e)) by the number of shares of Class B,
C, and D Common Stock issued and outstanding as of the Effective Date, as
hereinafter provided and as set forth on Exhibit D (rounded to the nearest
whole share) and (ii) that number of fully paid and nonassessable shares of
Acquiror Common Stock, $.001 par value per share (the "Preferred Holders
Common Stock") derived by dividing 82,500 by the number of shares of
Class B, C, and D Common Stock issued and outstanding as of the Effective
Date (rounded to the nearest whole share). The aggregate number of shares of
the Series C Preferred Stock to be issued on the Effective Date will be
7,875,000 (subject to adjustment pursuant to Section 1.4(e)) shares of
Series C Preferred Stock and the aggregate number of shares of the Preferred
Holders Common Stock to be issued on the Effective Date will be 82,500
shares of Preferred Holders Common Stock.
(c) CONVERSION OF BROADBANDNOW TEXAS, INC. ("BROADBANDNOW") DEBT. On
the Effective Date, all outstanding principal and accrued but unpaid
interest on the $1,750,000 Cable Concepts, Inc., d/b/a Direct Digital
Communications Senior Subordinated Note issued by the Company to
BroadbandNOW, dated June 29, 2000, will in connection with the Merger and
without any action on the part of BroadbandNOW, be assumed by Acquiror and
be cancelled and converted into the right to receive the following:
(i) 1,475,000 fully paid and nonassessable shares of Acquiror's Series B
Preferred Stock, $.001 par value per share, with the rights and preferences
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set forth on Exhibit B (the "Series B Preferred Stock"), (ii) a promissory
note from Acquiror in the principal amount of $750,000 on the terms and
conditions of the promissory note attached hereto as Exhibit C, and
(iii) 15,452 shares of Acquiror's common stock, $.001 par value.
(d) CONVERSION OF GENEVA ASSOCIATES MERCHANT BANKING PARTNERS I, LLC
DEBT; LASALLE BANK NATIONAL ASSOCIATION CERTIFICATE OF DEPOSIT RELEASE. On
the Effective Date, all outstanding principal and accrued but unpaid
interest on the $1,200,000 Amended and Restated Revolving Promissory
Note issued by the Company to Geneva Associates Merchant Banking Partners
I, LLC, dated February 2, 2001, will in connection with the Merger and
without any action on the part of Geneva Associates Merchant Banking
Partners I, LLC thereof, be assumed by Acquiror and be cancelled and
converted into the right to receive the following: (i) 1,150,000 fully paid
and nonassessable shares of Acquiror's Series B Preferred Stock,
(ii) 12,048 shares of Acquiror's Common Stock, $.001 par value per share,
and (iii) such number of shares of Acquiror's Series A Preferred Stock,
$.001 par value per share, with the rights and preferences set forth on
Exhibit B (the "Series A Preferred Stock"), calculated by dividing $50,000
by the per share issuance price of the Series A Preferred Stock sold by the
Acquiror prior to the Effective Date. On the Effective Date, Geneva
Associates Merchant Banking Partners I, LLC shall release to LaSalle Bank
National Association the $500,000 certificate of deposit pledged as
collateral to LaSalle Bank National Association for the Company's $2,000,000
promissory note to LaSalle Bank National Association, $250,000 of which
shall be applied to pay and pre-pay interest on such note and $250,000 of
which shall be applied to pre-pay principal on such note (or such other
terms as may be reasonably acceptable to Acquiror) and in exchange
therefore, Acquiror will issue to Geneva Associates Merchant Banking
Partners I, LLC such number of shares of Series A Preferred Stock calculated
by dividing $500,000 by the per share issuance price of the Series A
Preferred Stock sold by Acquiror prior the Effective Date. In connection
with the Series A Preferred Stock issued to Geneva Associates Merchant
Banking Partners I, LLC, that entity shall be entitled to all registration
rights, rights of co-sale, and other rights provided to other purchasers of
the Series A Preferred Stock, so long as it enters into and executes all of
the agreements and documents required to benefit from the same.
(e) ADJUSTMENT OF THE PURCHASE PRICE. The Company and Acquiror shall
determine the level of outstanding accounts payable ("Accounts Payable") of
the Company as of the most recent date practicable prior to the Effective
Date. For these purposes, liabilities that qualify as "accounts payable"
shall be determined in a manner consistent with past practice of the
Company. To the extent the REMAINDER of (i) Accounts Payable outstanding as
of such measurement date LESS (ii) the amounts of expenses incurred by the
Company from and after the date of this Agreement and prior to such
measurement date towards meeting the $2,135,034 in build-out expenses that
the Company expects to incur on ▇▇▇ contracts in place and under
construction as of the date of this Agreement as set forth on
Exhibit 2.1(e)(1) of the Company Disclosure Schedule under the heading
"Liability to Build-out ▇▇▇ contracts (Complete)," EXCEEDS $3,000,000, then:
(i) the 1,000,000 referenced at Section 1.4(a) shall be reduced by an amount
equal to the remainder of 50% of such excess divided by the per share
issuance price of the Series A Preferred Stock sold by Acquiror prior to the
Effective Date; and (ii) the 7,875,000 referenced at Section 1.4(b) shall be
reduced by an amount equal to 50% of such excess. By way of example, if at
the measurement date, there are $3,400,000 in Accounts Payable, no credit
for build-out expenses and the Series A Preferred Stock was sold for $1.50
per share, the 1,000,000 at Section 1.4(a) would be reduced to 866,667 (50%
of $400,000 or $200,000 divided by $1.50 equals $133,333.33) and the
7,875,000 referenced at Section 1.4(b) would be reduced to 7,675,000 (50% of
$400,000 equals $200,000).
(f) ACQUIROR STOCK. The Newly Issued Shares of Acquiror Common Stock,
Preferred Holders Common Stock, Series C Preferred Stock, Series B Preferred
Stock, Series A Preferred Stock, and other Acquiror stock issued pursuant to
this Section 1.4 shall hereinafter be collectively referred to as the
"Acquiror Stock."
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1.5 SUBSIDIARY SHARES. At the Effective Date, each share of common stock
of Subsidiary will be converted into and become one share of Class A Common
Stock, $.001 par value, of Surviving Corporation.
1.6 SURRENDER OF CERTIFICATES. The Shareholders will deliver to Acquiror
on or prior to the Effective Date each outstanding certificate or certificates
representing collectively all of the outstanding shares of the Company Class A
Common Stock, Class B Common Stock, Class C Common Stock, and Class D Common
Stock. At the Effective Date, Acquiror will (i) issue and deliver certificates
representing the Series C Preferred Stock, Series B Preferred Stock and
Series A Stock of Acquiror in the name of each Shareholder and other party
designated on Exhibit D as receiving the Series C Preferred Stock, Series B
Preferred Stock and Series A Stock of Acquiror upon conversion of the Company
Class B Common Stock, Class C Common Stock, and Class D Common Stock, and upon
conversion of the debt to BroadbandNOW and Geneva Associates Merchant Banking
Partners I, LLC and release of the certificate of deposit to LaSalle Bank
National Association, which certificates shall be in the amount specified by
Exhibit D, and (ii) provide irrevocable instructions to OTC Stock Transfer, the
transfer agent appointed by Acquiror, to issue certificates pursuant to the
terms of the Escrow Agreement for the Newly Issued Shares of Acquiror Common
Stock, Preferred Holders Common Stock and other Acquiror common stock issuable
to the Shareholders and other parties, designated on Exhibit D.
1.7 BOARD OF DIRECTORS; OFFICERS.
(a) The director or directors of Subsidiary immediately prior to the
Effective Date shall be the directors of Surviving Corporation and each
shall remain a director from the Effective Date until the earlier of such
director's resignation or removal or until such director's successor shall
have been elected and shall qualify, or as otherwise provided in the bylaws
of Surviving Corporation.
(b) The officers of Subsidiary immediately prior to the Effective Date
shall be the officers of Surviving Corporation and each shall hold office
from the Effective Date until the earlier of such officer's resignation or
removal or until such officer's successor shall have been elected and shall
qualify, or as otherwise provided in the bylaws of Surviving Corporation.
(c) If at the Effective Date a vacancy shall exist in the Board of
Directors or in any of the offices of Surviving Corporation, such vacancy
may thereafter be filled in the manner provided in the bylaws of Surviving
Corporation.
1.8 SHAREHOLDERS' REPRESENTATION ON ACQUIROR'S BOARD OF
DIRECTORS. Acquiror shall use its reasonable efforts to appoint the designee of
Geneva Associates Merchant Banking Partners I, L.L.C. to Acquiror's Board of
Directors for so long as at least fifty percent (50%) of the Series C Preferred
Stock issued pursuant to the terms of this Agreement continue to be held by the
Shareholders (or their affiliates) originally receiving the Series C Preferred
Stock. The initial designee of Geneva Associates Merchant Banking Partners
I, L.L.C. to serve as a member of Acquiror's Board of Directors until the
earlier of such director's resignation or removal or until such director's
successor shall have been elected and shall be qualified, shall be ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇.
1.9 TAX DEFERRED REORGANIZATION. The parties intend the transactions
contemplated herein to constitute a reorganization within the meaning of
sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code of 1986, as
amended (the "Code") and the parties shall treat and report the transactions
consistently with this intention for all purposes; however, the parties intend
that Acquiror and its counsel, and the Company and its counsel, shall have no
liability to the Company or the Shareholders if, for any reason, the
transactions contemplated herein do not constitute a reorganization within the
meaning of sections 368(a)(1)(A) and 368(a)(2)(E) of the Code.
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1.10 ESCROW AGREEMENT. Pursuant to an Escrow Agreement to be entered into
on or before the Closing in the form of Exhibit E (the "Escrow Agreement"),
among Acquiror, Company, the Shareholders, and the Representative (as defined in
the preamble paragraph of the Escrow Agreement hereof) of each Shareholder, and
U.S. Bank National Association, a national banking association (the "Escrow
Agent"), Acquiror will issue and deliver into escrow 100% of the Newly Issued
Shares of Acquiror Common Stock, 100% of the Preferred Holders Common Stock and
the 12,048 shares of Acquiror Common Stock to be delivered pursuant to
Section 1.4(d), and 5,000,000 shares of the Series C Preferred Stock issued in
the Merger as set forth on Exhibit D (the "Escrow Shares"), provided however
that in the event the conditions for release of 50% or 100% of the 2,000,000
shares of Series C Stock placed in escrow to serve as sole remedy for breaches
and indemnification in respect of Section 2.1(gg) and Section 6.1(d), relating
to ▇▇▇ contract terminations (such shares, the "▇▇▇ Escrow Shares") set forth in
the Escrow Agreement are met prior to the Effective Date, the ▇▇▇ Escrow Shares
that would otherwise be subject to release shall not be required to be placed in
escrow or treated as Escrow Shares. On or before the Effective Date, Acquiror
will deposit or cause to be deposited in escrow pursuant to the Escrow
Agreement, the Escrow Shares. The Escrow Shares will be held in escrow as
collateral and sole recourse for the indemnification obligations of the Company
(or in the case of the ▇▇▇ Escrow Shares, will be held as sole recourse only
with respect to the matters covered by Sections 2.1(gg) and 6.1(d)) and the
Shareholders under Article 6 below and pursuant to the terms of the Escrow
Agreement, pending release from escrow pursuant to the Escrow Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS AND THE COMPANY. Except
as set forth in a disclosure schedule of the Company, which identifies by
specific section number the section and subsection to which such disclosure
relates, and is delivered by the Company to Acquiror concurrently with the
execution of this Agreement (the "Company Disclosure Schedule"), the Company and
the Shareholders jointly and severally (subject to the limitations of this
Agreement) represent and warrant to Acquiror as of the date hereof and as of the
Effective Date as follows:
(a) AUTHORIZATION, ETC. Each of the Shareholders and the Company have
duly executed and delivered this Agreement. This Agreement and any
agreements executed in connection herewith constitute the legal, valid, and
binding obligation of each Shareholder and the Company, enforceable against
each Shareholder and the Company, in accordance with their terms. The
execution, delivery, and performance by the Company of this Agreement has
been duly authorized by the Board of Directors and the Shareholders of the
Company, and no further corporate action is necessary on the part of the
Company to make this Agreement a legal, valid, and binding obligation of the
Company, enforceable against it in accordance with its terms.
(b) CORPORATE STATUS.
The Company is a corporation duly organized and validly existing under
the laws of the jurisdiction of the State of Washington with full corporate
power and authority to carry on its business and to own or lease and to
operate its properties in the places where such business is conducted and
such properties are owned, leased, or operated.
The Company is duly qualified or licensed to do business and is in good
standing in each of the jurisdictions specified in the Company Disclosure
Schedule, which are the only jurisdictions in which the Company's operations
or the character of the properties owned, leased, or operated by it makes
such qualification or licensing necessary.
The Company has delivered to Acquiror complete and correct copies of the
Company's articles of incorporation and bylaws or other organizational
documents, in each case as amended and in effect on the date hereof. The
Company is not in violation of any of the provisions of its
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articles of incorporation or bylaws or any other organizational documents.
The minute books, stock books, and stock transfer records of the Company,
true and complete copies of which have been delivered to Acquiror, contain
complete and correct minutes and records of all minutes and records or
meetings, consents, proceedings, and other formal actions of the
shareholders, board of directors, and committees of the board of directors
of the Company from the date of incorporation of the Company to and
including the date hereof.
All of the issued and outstanding shares of capital stock of the Company
are owned of record and beneficially by the persons identified on
Exhibit D, with no other person owning or having any rights (including
without limitation any voting rights, whether as proxy, attorney-in-fact,
assignee, transferee, or otherwise) in or with respect thereto.
The Company does not own, directly or indirectly, any equity interest or
investment in any corporation, partnership, joint venture, trust, or any
other entity or unincorporated association whatsoever.
(c) NO CONFLICTS, ETC. The execution, delivery, and performance by the
Shareholders and the Company of this Agreement and the consummation of the
transactions contemplated hereby do not and will not conflict with or result
in a violation of or a default under (with or without the giving of notice
or the lapse of time or both) (i) any applicable law applicable to the
Company, any Shareholder, or any affiliate of the Company or any
Shareholder, or any of the properties or assets of the Company, (ii) the
articles of incorporation or bylaws or other organizational documents of the
Company, or (iii) any material contract to which any Shareholder or the
Company (here and for the balance of Section 2.1, references to "Company"
shall be deemed to include the Company's wholly-owned direct or indirect
subsidiaries unless the context otherwise requires) or any of their
affiliates is a party or by which any Shareholder, the Company, or their
affiliates, or any of their respective properties or assets may be bound or
affected. No governmental approval or other consent is required to be
obtained or made by any Shareholder or the Company in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(d) FINANCIAL STATEMENTS. The Company has delivered to Acquiror
financial statements of the Company as, at, and for the fiscal year-end
periods of the Company ended December 31, 2000 (the " Financial
Statements"), including a balance sheet, a statement of income and retained
earnings, and a statement of cash flows. Subject to normal year-end and
audit adjustments, the Financial Statements are complete and correct in all
material respects, auditable, fairly present, accurately reflect the assets,
liabilities, and results of operations and financial condition of the
Company, and have been prepared in accordance with generally accepted
accounting principles ("GAAP").
(e) ABSENCE OF UNDISCLOSED LIABILITIES. The Company has no liabilities
or obligations of any nature, whether absolute, accrued, contingent, or
otherwise and whether due or to become due, arising out of or relating to
the Company, except (i) as and to the extent disclosed or reserved against
in the Financial Statements, (ii) for liabilities and obligations that were
incurred after December 31, 2000 in the ordinary course of business
consistent with prior practice and that, from and after the date of this
Agreement were, incurred in a manner consistent with the Company's covenants
under this Agreement, and (iii) disclosed in the Company Disclosure
Schedule. None of the employees of the Company is now or will by the passage
of time hereinafter become entitled to receive any vacation time, vacation
pay, or severance pay attributable to services rendered prior to December
31, 2000 that is not reflected as an accrued liability on the Financial
Statements. The Company Disclosure Schedule discloses all those liabilities
and obligations binding on the Company as of the date of this Agreement that
singly exceed $25,000.
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(f) TAXES.
COPIES OF TAX RETURNS. The Company has furnished the Acquiror with
copies of all income and sales Tax Returns filed by or with respect to the
Company relating to the period encompassing the three taxable years of the
Company preceding the date hereof.
FILING OF TAX RETURNS; PAYMENT OF TAXES. The Company has filed all Tax
Returns that the Company was required to file prior to the date hereof
(determined with regard to extensions of the due date thereof). All such Tax
Returns were correct and complete in all respects and were prepared and
filed in accordance with applicable law. All Taxes owed by or with respect
to the Company (whether or not shown on any Tax Return) with respect to all
taxable periods for which Tax Returns were required to be filed by the
Company prior to the date hereof (determined with regard to extensions of
the due date thereof) have been paid. All other Taxes due and payable by the
Company with respect to periods ending on or before the date of the Closing
or in respect of transactions entered into or any state of facts existing as
of the date of the Closing (whether or not a Tax Return is due on such date)
either (A) have been or will be paid on or before the date of the Closing,
(B) in the case of taxable periods (or portions thereof) through
December 31, 2000, are reflected in reserves for Taxes in the Financial
Statements, or (C) in the case of taxable periods (or portions thereof)
since January 1, 2001, are or will otherwise be reflected in reserves for
Taxes accrued on the books of the Company. For purposes of the preceding
sentence, in determining the amount of Taxes payable by the Company with
respect to periods ending on the date of the Closing or in respect of
transactions entered into or any state of facts existing as of the date of
the Closing shall be deemed to be the last day of any applicable taxable
period. The Financial Statements fully accrue consistent with past practices
and in accordance with generally accepted accounting principles ("GAAP") all
actual and contingent liabilities for Taxes with respect to all taxable
periods through the date of the Financial Statements. No liability for Taxes
has been incurred since the date of the Financial Statements other than in
the ordinary course of business and adequate provision has been made for all
Taxes since that date in accordance with GAAP on at least a monthly basis.
All Tax Returns the due date of which (determined with extensions) shall be
on or after the date hereof but on or before the date of the Closing will be
correct and complete and filed in accordance with applicable law.
TAXING JURISDICTIONS. The Company Disclosure Schedule lists (A) all
countries, states, cities, or other jurisdictions in which the Company is
currently subject to an obligation to file Tax Returns or to collect sales
or use Taxes, (B) all elections for income Taxes made by the Company that
are currently in force or to which the Company is bound, (C) the years for
which the Company's federal and state income Tax Returns, respectively, have
been audited, and (D) any years which are the subject of a pending audit by
the Internal Revenue Service.
GENERAL TAX MATTERS. With respect to each taxable period of the Company
ending on or before the date of the Closing (assuming for such purpose that
the date of the Closing was the last day of any applicable taxable period of
the Company), or as of the date hereof and as of the date of the Closing or
as of such other date as set forth below, (A) [intentionally omitted];
(B) no deficiency or proposed adjustment that has not been settled or
otherwise resolved for any amount of Taxes has been asserted or assessed by
any taxing authority against the Company; (C) the Company has not consented
to extend the time in which any Taxes may be assessed or collected by any
taxing authority; (D) the Company has not requested or been granted an
extension of time for filing any Tax Return; (E) there is no action, suit,
taxing authority proceeding, or audit or claim for refund now in progress,
pending, or threatened against or with respect to the Company regarding
Taxes; (F) the Company has not made an election or filed a consent under
Section 341(f) of the Code (or any corresponding provision of state, local
or foreign law) or agreed to have Section 341(f)(2) of the Code (or any
corresponding provision of state, local or foreign law) apply
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to any disposition of subsection (f) assets (as defined in
Section 341(f)(4) of the Code or any corresponding provision of state, local
or foreign law) owned by the Company; (G) there are no liens, pledges,
charges, claims, security interests, or other encumbrances on the assets of
the Company relating or attributable to Taxes (other than liens for sales
and payroll Taxes not yet due and payable) and the Company and the
Shareholders have no knowledge of any reasonable basis for the assertion of
any claim relating or attributable to Taxes which, if adversely determined,
would result in any lien, pledge, charge, claim, security interest, or other
encumbrance on the assets of the Company; (H) the Company will not be
required (1) as a result of a change in method of accounting for a taxable
period ending on or prior to the date of the Closing, to include any
adjustment under Section 481 of the Code (or any corresponding provision of
state, local, or foreign law) in taxable income for any taxable period (or
portion thereof) beginning after the date of the Closing or (2) as a result
of any "closing agreement" as described in Section 7121 of the Code (or any
corresponding provision of state, local, or foreign law) to include any item
of income or exclude any item of deduction from any taxable period (or
portion thereof) beginning after the date of the Closing; (I) the Company is
not and has not been a member of an "affiliated group" (as defined in
Section 1504 of the Code) other than the affiliated group of which the
Company is currently the common parent, or except with respect to such
group, filed or been included in a combined, consolidated, or unitary income
tax return; (J) the Company is not and has not been a party to or bound by
any tax allocation or tax sharing agreement and has no current contractual
or other obligation to indemnify any other person with respect to any tax or
pay the Taxes of any other person under Treasury Regulations
Section 1.1502-6 (or the corresponding provisions of state, local, or
foreign law) as a transferee or successor, by contract or otherwise; (K) no
claim has ever been made by a taxing authority in a jurisdiction where the
Company does not file Tax Returns that the Company is or may be subject to
Taxes assessed by such jurisdiction; (L) the Company has not had a permanent
establishment in any foreign country, as defined in the relevant tax treaty
between the United States of America and such foreign country; (M) the
Company has not been a "U.S. real property holding corporation" (within the
meaning of Code Section 897(c)(2)) during the applicable period specified in
Code Section 897(c)(1)(A)(ii); (N) the Company has disclosed on each Tax
Return filed by the Company all positions taken thereon that could give rise
to a substantial understatement of penalty of federal income Taxes within
the meaning of Code Section 6662; (O) the Company was not acquired in a
"qualified stock purchase "under Code Section 338(d)(3) and no elections
under Code Section 338(g), protective carryover basis elections, or offset
prohibition elections are applicable to the Company; (P) the Company has
made no payments, is not obligated to make any payments, and is not a party
to any agreement that under any circumstances could obligate it to make any
payments, that will not be deductible under Code Sections 280G or 162 as a
result of the transactions contemplated by the Agreement; (Q) no sales or
use tax will be payable by the Company as a result of the transactions
contemplated by this Agreement, and there will be no non-recurring
intangible tax, documentary stamp tax, or other excise tax (or comparable
tax imposed by an governmental entity) as a result of the transactions
contemplated by this Agreement; (R) Acquiror will not be required to deduct
and withhold any amount with respect to Taxes upon consummation of the
transactions contemplated by this Agreement; (S) none of the Company's
assets is or has been property required to be treated as being owned by any
other person under the "safe harbor lease" provisions of former
Section 168(f)(8) of the Internal Revenue Code of 1954, as amended, or is
has been financed with or directly or indirectly secures any bond or debt
the interest of which is tax-exempt under Section 103(a) of the Code; (T)
the Company has withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to an employee,
independent contractor, shareholder, or other third party; (U) the Company
has owned no interest in any "controlled foreign corporation" (within the
meaning of Code Section 957), "passive foreign investment company" (within
the meaning of Code Section 1297) or other entity the income of which is
required to be included in the income of the Company whether or not
distributed, (V) no
8
facts exist (including without limitation the existence of any "deferred
intercompany transactions" (within the meaning of Treasury Regulations
Section 1.1502-13) or the presence of any "excess kiss account" (within the
meaning of Treasury Regulations Section 1.1502-19) that will give rise to an
obligation of the Company to pay Taxes as a consequence of the
disaffiliation of any corporation from such affiliated group; (W) if the
Company was at any time an "S corporation" (as defined in Section 1361(a),
of the Code), such Company has no unpaid liabilities for Taxes under Code
Sections 1363(d), 1374, or 1375 (or the corresponding provisions of state,
local, or foreign law); and (X) the Company has not been either a
"distributing company" or a "controlled corporation" (within the meaning of
Code Section 355(a)(1)(A) in a distribution of stock qualifying in whole or
in part for tax-free treatment under Code Section 355. For purposes of
clause (P), the term "payments" refers to payments in the nature of
compensation. The Company has no pending claim for refund with the Internal
Revenue Service or any other taxing authority.
DEFINITIONS.
The term "Company" for purposes of this Section 2.1(f) shall include
the Company (and any predecessor entity) and any other entity in which
the Company owns or has owned an interest (and any predecessor entity).
The terms "Tax" or "Taxes" for purposes of this Agreement shall mean
any federal, state, provincial, local, foreign, or other income,
alternative, minimum, alternative minimum, accumulated earnings, personal
holding company, franchise, capital stock, net worth, capital, profits,
windfall profits, gross receipts, value added, privilege, sales, use,
goods and services, excise, customs duties, transfer, conveyance,
mortgage, registration, stamp, documentary, recording, premium,
severance, environmental, real property, personal property, transfer, ad
valorem, intangibles, rent, occupancy, license, occupational, employment,
unemployment insurance, social security, disability, workers'
compensation, payroll, health care, registration, withholding, estimated,
or other tax, duty, or other governmental charge of any kind or
assessment or deficiencies thereof (including all interest and penalties
thereon and additions thereto, whether disputed or not).
The term "Tax Return" for purposes of this Agreement shall mean any
return, report, declaration, form, report, claim for refund, or
information return or statement relating to Taxes, including any schedule
or attachment thereto, and including any amendment thereof.
UNITED STATES PERSON. Each of the Company and the Shareholders is a
"United States person" within the meaning of Section 7701 of the Code.
FISCAL YEAR. The Company employs a fiscal year ending December 31 as
its taxable year.
(g) ABSENCE OF CHANGES. Since December 31, 2000, the Company has
conducted its business only in the ordinary course consistent with prior
practice and has not, except in the ordinary course of business:
suffered or permitted to occur any event, occurrence, fact, condition,
change, or effect that individually or in the aggregate with similar
events, occurrences, facts, conditions, changes, or effects will or can
reasonably be expected to result in a cost expense charge, liability,
loss of revenue, or diminution in value equal to or greater than $15,000
("Material Adverse Effect");
incurred any obligation or liability, absolute, accrued, contingent, or
otherwise, whether due or to become due, except current liabilities for
trade or business obligations incurred in connection with the purchase of
goods or services in the ordinary course of business consistent with
prior practice; discharged or satisfied any mortgage, pledge,
hypothecation, right of others, claim, security interest, encumbrance,
lease, sublease, license, occupancy agreement, adverse claim or interest,
easement, covenant, encroachment, burden, title defect, title
9
retention agreement, voting trust agreement, interest, equity, option,
lien, right of first refusal, charge, or other restrictions, or
limitations of any nature whatsoever, including, without limited, to such
that may arise under any Contracts as defined in this Agreement ("Lien")
other than those then required to be discharged or satisfied, or paid any
obligation or liability, absolute, accrued, contingent, or otherwise,
whether due or to become due, other than current liabilities shown on the
Financial Statements and current liabilities incurred since the date
thereof in the ordinary course of business consistent with prior
practice;
mortgaged, pledged, or subjected to Lien, any property, business, or
assets, tangible or intangible;
sold, transferred, leased to others, or otherwise disposed of any assets,
except in the ordinary course of business, or canceled or compromised any
debt or claim, or waived or released any right of substantial value;
received any notice of termination of any contract, lease, or other
agreement or suffered any damage, destruction, or loss (whether or not
covered by insurance);
transferred or granted any rights under, or entered into any settlement
regarding the breach or infringement of, any intellectual property
assets, or modified, failed to preserve, lost, or suffered any diminution
of value of any existing rights with respect thereto;
made any material change in the rate of compensation, commission, bonus,
or other direct or indirect remuneration payable, or paid or agreed or
orally promised to pay, conditionally or otherwise, any bonus, incentive,
retention, or other compensation, retirement, welfare, fringe, or
severance benefit or vacation pay, to or in respect of any director,
officer, employee, salesman, distributor, shareholder, affiliate, or
agent of the Company;
encountered any labor union organizing activity, had any actual or
threatened employee strikes, work stoppages, slowdowns, or lockouts, or
had any material change in its relations with its employees, agents,
customers, or suppliers;
subject to the availability of cash and access to credit, failed to
replenish its inventories in a normal and customary manner consistent
with its prior practice and prudent business practices prevailing in the
industry, or made any purchase commitment in excess of the normal,
ordinary, and usual requirements of its business or at any price in
excess of the then current market price or upon terms and conditions more
onerous than those usual and customary in the industry, or made any
change in its selling, pricing, advertising, or personnel practices
inconsistent with its prior practice and prudent business practices
prevailing in the industry;
made any capital expenditures or capital additions or improvements in
excess of an aggregate of $5,000;
instituted, settled, or agreed to settle any litigation, action, or
proceeding before any court or governmental body; entered into any
transaction, contract, or commitment other than in the ordinary course of
business or paid or agreed to pay any legal, accounting, brokerage,
finder's fee, Taxes or other expenses (other than such fees or other
expenses or Taxes that are payable by Acquiror pursuant to this Agreement
or payable solely by the Shareholders and as to which neither the Company
nor Acquiror will have any liability or obligation), or incurred any
severance pay obligations by reason of, this Agreement or the
transactions contemplated hereby;
written up the carrying value of any of assets;
suffered any loss of employees, customers, or suppliers;
10
entered into any employment, compensation, consulting, or collective
bargaining agreement with any person or group, or modified or amended in
any material respect the terms of any such existing agreement;
amended, modified, or terminated, or agreed to amend, modify, or
terminate, any existing material contract, agreement, plan, lease,
license, permit, or franchise;
taken any action or failed to take any action the result of which can
reasonably be expected to be a termination of or default under any
contract, agreement, plan, lease, license, permit, or franchise;
amended its articles of incorporation, bylaws, or other constituent
corporate documents;
made claims against any supplier of inventories in excess of amounts
reasonably due the Company with respect to defective goods or indemnity
obligations of such suppliers;
made any change or modification in the Company's accounting practices,
policies, or procedures;
increased or decreased the time cycle in which receivables are collected
or payables are paid by the Company; or
taken any action or omitted to take any action that would result in the
occurrence of any of the foregoing.
(h) LITIGATION. There is no action, claim, demand, suit, proceeding,
arbitration, grievance, citation, summons, subpoena, inquiry, or
investigation of any nature, civil, criminal, regulatory, or otherwise, in
law or in equity, pending or threatened against the Company or in connection
with or relating to the transactions contemplated by this Agreement, and,
there is no basis for the same. No citations, fines, or penalties have been
asserted against the Company under any Environmental Law (as defined in
Section 2.1(s)(iii)(A)).
(i) COMPLIANCE WITH LAWS; GOVERNMENTAL APPROVALS AND CONSENTS;
GOVERNMENTAL CONTRACTS. The Company has complied in all material respects
with all applicable laws applicable to it or otherwise in any manner
affecting the Company's business and the Company has received no notice
alleging any such conflict, violation, breach, or default.
Item 0 of the Company Disclosure Schedule sets forth all governmental
approvals and other consents that are necessary for, or otherwise material
to, the Company or the conduct of the Company's business. All such
governmental approvals and consents have been duly obtained and are in full
force and effect, and the Company is in compliance in all material respects
with each of such governmental approvals and consents held by it with
respect to the Company's business.
The Company Disclosure Schedule sets forth all contracts with any
governmental authority.
The Company has filed with the proper authorities all statements and
reports required by the laws, regulations, licensing requirements, and
orders to which it or any of its employees (because of his or her activities
on behalf of his or her employer) is subject.
To the best of the knowledge of the Shareholders, there are no proposed
laws, rules, regulations, ordinances, orders, judgments, decrees,
governmental takings, condemnations, or other proceedings, specific to the
Company or to the specific industry in which the Company is involved, which
would be applicable to the Company that might have a Material Adverse Effect
on the properties, assets, liabilities, operations, or prospects of the
Company or its business, either before or after the Effective Date.
11
(j) OPERATION OF THE COMPANY'S BUSINESS. The Company's business has
been conducted only through the Company and its wholly-owned subsidiaries
and not through any affiliate of the Company, whether incorporated or
unincorporated, or any shareholder of the Company.
(k) CAPITALIZATION. The authorized capital stock of the Company
consists of Eleven Million Nine Hundred Thirty-Three Thousand Nine Hundred
Fifty-Eight (11,933,958) shares of Company Common Stock, consisting of
(i) Nine Million Thirty-Three Thousand Nine Hundred Fifty-Eight (9,033,958)
shares of Class A Common Stock, of which Eight Hundred Forty-Eight Thousand
Seven Hundred Ninety-Eight (848,798) shares are issued and outstanding and
of which 978,792 will be issued and outstanding as of the Effective Date;
(ii) One Million Two Hundred Fifty Thousand (1,250,000) shares of Class B
Common Stock, of which Six Hundred Thirty-Four Thousand Six Hundred Thirty
(634,630) shares are issued and outstanding; (iii) Eight Hundred Fifty
Thousand (850,000) shares of Class C Common Stock, of which Five Hundred
Seventy-Three Thousand Seven Hundred Fifty-Five (573,755) shares are issued
and outstanding; and (iv) Eight Hundred Thousand (800,000) shares of Class D
Common Stock, of which Three Hundred Thirty-Two Thousand Eight Hundred
Seventy-Three (332,873) shares are issued and outstanding and of which
367,095 will be issued and outstanding as of the Effective Date. The Company
has no other issued and outstanding securities. All of the Company's
outstanding capital stock is owned beneficially and of record by the
Shareholders, is owned free and clear of all liens, pledges, charges,
security interests, adverse claims, or other encumbrances of any nature
whatsoever, is validly issued, fully paid, non-assessable, and has not been
issued in violation of any pre-emptive rights of any shareholder of the
Company or any other person. Except for this Agreement, there are no
outstanding subscriptions, options, rights, warrants, convertible
securities, or other agreements or commitments (contingent or otherwise)
obligating any of the Shareholders to sell or transfer any of the capital
stock of the Company owned by any of them or obligating the Company to issue
or to transfer from treasury any additional shares of or any securities
convertible into the capital stock of the Company. There are no stock
transfer restrictions (other than applicable federal securities laws) or
shareholder agreements operating or in effect relating to the capital stock
of the Company, and there are no restrictions or qualifications (other than
applicable federal and state securities laws) of any kind on the sale or
transfer of such stock, other than restrictions which will be terminated at
Closing pursuant to the terms of this Agreement. No Shareholder owns any
debt securities of the Company.
(l) CONTRACTS. The Company Disclosure Schedule contains a complete and
correct description of all agreements, contracts, commitments, and other
instruments and arrangements (whether written or both oral and material) of
the types described below (x) by which the Company or any of its assets,
businesses, or operations receive benefits, including without limitation the
names and addresses of all others who are parties thereto, or receive
benefits thereunder, or (y) to which the Company is a party or by which the
Company is bound (the "Contracts"):
leases, licenses, permits, franchises, insurance policies, governmental
approvals, and other contracts to which the Company is a party;
employment, bonuses, vacations, pensions, profit sharing, retirement,
stock options, stock purchases, employee discounts, or other employee
benefits, consulting, agency, collective bargaining, or other similar
contracts, agreements, and other instruments and arrangements relating to
or for the benefit of current, future, or former employees, officers,
directors, shareholders, sales representatives, distributors, dealers,
agents, independent contractors, or consultants;
12
loan agreements, indentures, letters of credit, mortgages, security
agreements, pledge agreements, deeds of trust, bonds, notes, guarantees,
and other agreements and instruments relating to the borrowing of money
or obtaining of or extension of credit;
licenses, licensing arrangements, and other contracts providing in whole
or in part for the use of, or limiting the use of, any Intellectual
Property, except for shrinkwrap software licenses;
brokerage or finder's agreements;
joint venture, partnership, and similar contracts involving a sharing of
profits or expenses (including but not limited to joint research and
development and joint marketing contracts); asset purchase agreements and
other acquisition or divestiture agreements, including but not limited to
any agreements relating to the sale, lease, or disposal of any assets
(other than sales of inventory in the ordinary course of business) or
involving continuing indemnity or other obligations;
orders and other contracts for the purchase or sale of inventories,
materials, supplies, products, or services open or as to which any
liability will exist as of the Effective Date, which are in effect as of
the date of this Agreement and which involve payments in excess of
$15,000 individually;
contracts with respect to which the aggregate amount that could
reasonably expected to be paid or received thereunder in the future
exceeds $15,000, except for ordinary purchase orders for the supply or
receipt of products or services;
sales agency, manufacturer's representative, marketing, or
distributorship agreements;
contracts, agreements, or arrangements with respect to the representation
of the Company in foreign countries;
master lease agreements providing for the leasing of personal property;
contracts, agreements, or commitments with any director, officer,
employee, shareholder, or affiliate of the Company; and
any other contracts, agreements, or commitments that are material to the
Company.
The Company has delivered or made available to Acquiror complete and
correct copies of all written contracts, together with all amendments
thereto, and accurate descriptions of all material terms of all oral
contracts, set forth on item 2.1(l) of the Company Disclosure Schedule.
All contracts are in full force and effect and enforceable against each
party thereto. The Company has not received notice of any plan or intention
of any party to any contract to exercise any right to cancel or terminate
any contract. There does not exist under any contract any event of default
or event or condition that, after notice or lapse of time or both, would
constitute a violation, breach, or event of default thereunder on the part
of the Company or, any other party thereto. No consent of any third party is
required under any contract as a result of or in connection with, and the
enforceability of any contract will not be affected in any manner by, the
execution, delivery, and performance of this Agreement or the consummation
of the transactions contemplated hereby.
The Company does not have outstanding any power of attorney.
(m) TERRITORIAL RESTRICTIONS. The Company is not restricted by any
agreement or understanding with any other person from carrying on operations
anywhere in the world. Neither Acquiror nor any of its affiliates will, as a
result of any action by the Company, become restricted in carrying on the
Company's business anywhere in the world as a result of any contract or
other
13
agreement to which the Company or any Shareholder is a party or by which
they or any of their affiliates are bound.
(n) CUSTOMERS. Item 2.1(n) of the Company Disclosure Schedule sets
forth (i) the number and location of the properties that have been
constructed and built out to support the Company's services for use in its
business, (ii) the aggregate number of active subscribers, per unit, of the
Company's services as of February 28, 2001, and (iii) the average amount by
property for which subscribers at such property pay for the Company's
services on a monthly basis, as of February 28, 2001.
(o) ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Company nor any
officer, shareholder, employee, or agent of the Company, or any other person
acting on its behalf, has, directly or indirectly, within the past five
years given or agreed to give any gift, bribe, rebate, or kickback or
otherwise provided any similar benefit to any customer, supplier,
governmental employee, or other person who is or may be in a position to
help or hinder the Company (or assist the Company in connection with any
actual or proposed transaction) (i) that subjected or might have subjected
the Company to any damage or penalty in any civil, criminal, or governmental
litigation or proceeding, (ii) which if not given in the past, or if not
continued in the future, might have a Material Adverse Effect or subject the
Company to suit or penalty in any private or governmental litigation or
proceeding, (iii) for any of the purposes described in Section 162(c) of the
Code, or (iv) for the purpose of establishing or maintaining any concealed
fund or concealed bank account.
(p) INTELLECTUAL PROPERTY. The Company Disclosure Schedule contains a
complete and correct list and a brief description of all Intellectual
Property that is owned by the Company and primarily related to, used in,
held for use in connection with, or necessary for the conduct of, or
otherwise material to the Company's business (the "Owned Intellectual
Property"). The Company owns or has the exclusive right to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
Assets (as defined in Section 2.1(p)(viii) below), free from any Liens and
free from any requirement of any past, present, or future royalty payments,
license fees, charges or other payments, or conditions or restrictions
whatsoever. No affiliate of the Company owns or has any interest in or with
respect to any Intellectual Property Asset and the Intellectual Property
Assets comprise all of the Intellectual Property necessary for the Company
to conduct and operate its business following the Effective Date.
Immediately after the Effective Date, the Company will have the right to
use all Intellectual Property Assets, free from any Liens and on the same
terms and conditions as in effect prior to the Effective Date, provided that
no representation of non-infringement is given by this item 0.
The conduct of the Company's business does not infringe or otherwise
conflict with any rights of any person in respect of any Intellectual
Property. None of the Intellectual Property Assets is being infringed or
otherwise used or available for use by any other person.
The Company is in compliance with all of the agreements, arrangements,
or laws (A) pursuant to which the Company has leased or licensed
Intellectual Property Assets, or the use of Intellectual Property Assets as
otherwise permitted (through non-assertion, settlement, or similar
agreements or otherwise) by, any other person and (B) pursuant to which the
Company has had Intellectual
Property licensed to it, or has otherwise been permitted to use
Intellectual Property (through non-assertion, settlement, or similar
agreements or otherwise). All such agreements, arrangements, or laws are in
full force and effect in accordance with their terms and no default exists
thereunder by the Company or by any other party thereto, (y) are free and
clear of all Liens, and (z) do not contain any change of control or other
terms or conditions that will become applicable or inapplicable as a result
of the consummation of the transactions contemplated by this Agreement.
14
The Company has made available or delivered to Acquiror true and complete
copies of all licenses and arrangements (including amendments) applicable to
this Section 2.1(p)(iv). All royalties, license fees, charges, and other
amounts payable by, on behalf of, to, or for the account of, the Company in
respect of Intellectual Property Assets are disclosed in the Financial
Statements and summarized on the Company Disclosure Schedule.
No claim or demand of any person has been made nor is there any
proceeding that is pending, or threatened, nor is there, a reasonable basis
therefor, which (A) challenges the rights of the Company in respect of any
of the Intellectual Property Assets, (B) asserts that the Company is
infringing or otherwise in conflict with, or is required to pay any royalty,
license fee, charge, or other amount with regard to any Intellectual
Property, or (iii) claims that any default exists under any agreement or
arrangement applicable to Section 2.1(p)(iv). None of the Intellectual
Property Assets is subject to any outstanding order, ruling, decree,
judgment, or stipulation by or with any court, arbitrator, or administrative
agency, or has been the subject of any litigation within the last five
years, whether or not resolved in favor of the Company.
There are, and immediately after the Effective Date will be, no
contractual restrictions or limitations pursuant to any order, decisions,
injunctions, judgments, awards, or decrees binding on the Company of any
governmental authority on the Company's right to use the names and marks set
forth on Schedule 0.
INTELLECTUAL PROPERTY: means any and all Company, whether United States
or foreign: (a) patents (including reexaminations, design patents,
industrial designs, and utility models) and patent applications (including
docketed patent disclosures awaiting filing, provisional applications,
reissues, divisions, continuations, continuations-in-part, and extensions),
patent disclosures awaiting filing determination, inventions, and
improvements thereto; (b) trademarks, service marks, trade names, trade
dress, logos, business and product names, slogans, and registrations and
applications for registration thereof; (c) copyrights (including software)
and registrations thereof; (d) inventions, processes, designs, formulae,
trade secrets, know-how, industrial models, confidential and technical
information, manufacturing, engineering, and technical drawings, product
specifications, and confidential business information; (e) mask work and
other semiconductor chip rights and registrations thereof; (f) intellectual
property rights similar to any of the foregoing; and (g) copies and tangible
embodiments thereof (in whatever form or medium, including electronic
media).
INTELLECTUAL PROPERTY ASSETS: means all Intellectual Property and all
rights thereunder or in respect thereof primarily relating to or used or
held for use in connection with the Company's business, including, but not
limited to, rights to enforce and remedies against past, present, and future
infringements thereof, and rights of priority and protection of interests
therein under the laws of any jurisdiction worldwide and all tangible
embodiments thereof.
(q) INSURANCE. The Company Disclosure Schedule contains a complete and
correct list and summary description of all insurance policies maintained by
the Company. The Company has delivered to Acquiror complete and correct
copies of all such policies together with all riders and amendments thereto.
Such policies are in full force and effect, and all premiums due thereon
have been paid. The Company has complied in all material respects with the
terms and provisions of such policies. The Company Disclosure Schedule sets
out all claims made by the Company under any policy of insurance during the
past two years and, in the opinion of the Shareholders reasonably formed and
held, there is no basis on which a claim should or could be made under any
such policy.
(r) REAL PROPERTY. The Company does not own, directly or indirectly,
nor does the Company have any fixed or contingent obligation to acquire, any
interest in real property.
15
The Company Disclosure Schedule hereto contains a complete and correct
list of all Leases, setting forth the address, landlord, and tenant for each
Lease. The Company has delivered to Acquiror correct and complete copies of
the Leases. Each Lease is legal, valid, binding, enforceable, and in full
force and effect. Neither the Company nor, any third party, is in default,
violation, or breach in any material respect under any Lease, and no event
has occurred and is continuing that constitutes or, with notice or the lapse
of time or both, would constitute a default, violation, or breach in any
respect under any Lease. The Company enjoys peaceful and undisturbed
possession under its Leases.
The Leased Real Property constitutes all of the real property leased,
occupied, or used by the Company. None of the Leased Real Property is
subject to any sublease, assignment, or license.
(s) ENVIRONMENTAL MATTERS.
COMPLIANCE WITH ENVIRONMENTAL LAWS. The Company has complied and is in
compliance in all material respects with all applicable Environmental Laws
(as defined in Section 0 below) pertaining to the Leased Real Property and
any of its properties and assets and the use and ownership thereof. No
violation by the Company is being alleged of any applicable Environmental
Law relating to any of its properties and assets, including the Leased Real
Property, or the use or ownership thereof, or to the operation of the
Company's business.
OTHER ENVIRONMENTAL MATTERS.
Neither the Company nor, any third person (including any tenant or
subtenant) has caused or taken any action or is aware of any action that
will result in, and the Company is not subject to, any material liability
or obligation or any threatened material liability or obligation relating
to (x) the environmental conditions on, under, or about any real property
or other properties leased, operated, or used by the Company or any
predecessor thereto, including the Leased Real Property, at the present
time or in the past, including without limitation, the air, soil, and
groundwater conditions at such properties or (y) the past or present use,
management, handling, transport, treatment, generation, storage,
disposal, or release of any Hazardous Substances (as defined in
Section 2.1(s)(iii)(D) below).
The Company has disclosed and made available to Acquiror all
information, including without limitation all studies, analyses, and test
results, in the possession, custody, or control of or otherwise known to
the Company relating to (x) the environmental conditions on, under, or
about any real property, including the Leased Real Property, or other
properties or assets owned, leased, operated, or used by the Company or
any predecessor in interest thereto at the present time or in the past,
and (y) any Hazardous Substances used, managed, handled, transported,
treated, generated, stored, disposed of, or released by the Company or
any other person on, under, about, or from the Leased Real Property, or
otherwise in connection with the use or operation of any of the
properties and assets of the Company, or the Company's business, which
might reasonably result in liability to the Company.
DEFINITIONS.
ENVIRONMENTAL LAWS: all applicable laws relating to the protection of
the environment, to human health and safety, industrial hygiene, or to any
emission, discharge, generation, processing, storage, holding, abatement,
existence, release, threatened release, or transportation of any Hazardous
Substances, including, without limitation, (i) CERCLA, the Resource
Conservation and Recovery Act, and the Occupational Safety and Health Act,
(ii) all other requirements pertaining to reporting, licensing, permitting,
investigation, or remediation of emissions, discharges, releases, or
threatened releases of Hazardous Substances into the air, surface water,
ground water, or land, or relating to the manufacture, processing,
distribution, use, sale, treatment, receipt, storage,
16
disposal, transport, or handling of Hazardous Substances, and (iii) all
other requirements pertaining to the protection of the health and safety of
employees or the public.
ENVIRONMENTAL LIABILITIES AND COSTS: all Losses (as defined below in
Section 6.1), whether direct or indirect, known or unknown, current or
potential, past, present or future, imposed by, under or pursuant to
Environmental Laws, including, without limitation, all Losses related to
remedial actions, and all fees, disbursements and expenses of counsel,
experts, personnel, and consultants based on, arising out of, or otherwise
in respect of: (i) the ownership or operation of the Company's business, the
Leased Real Property or any other real properties, assets, equipment, or
facilities, by the Company, or any of its predecessors or affiliates;
(ii) the environmental conditions, whether known or unknown, existing on the
Effective Date on, under, above, or about any Leased Real Property or any
other real properties, assets, equipment, or facilities currently or
previously owned, leased, or operated by the Company, or any of its
predecessors or affiliates; and (iii) expenditures necessary to cause any
Leased Real Property or any aspect of the Company's business to be in
compliance with any and all requirements of Environmental Laws as of the
Effective Date, including, without limitation, all Environmental Permits (as
defined in 0 below) issued under or pursuant to such Environmental Laws, and
reasonably necessary to make full economic use of any Leased Real Property.
ENVIRONMENTAL PERMITS: any federal, state, or local permit, license,
registration, consent, order, administrative consent order, certificate,
approval, or other authorization with respect to the Company necessary for
the conduct of the Company's business as currently conducted or previously
conducted under any Environmental Law including any renewals thereof.
HAZARDOUS SUBSTANCES: any substance that: (i) is or contains asbestos,
urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum or
petroleum-derived substances or wastes, radon gas, or related materials,
(ii) requires investigation, removal, or remediation or for which there are
restrictions pursuant to any Environmental Law regarding its use or
disposal, under any Environmental Law, or is defined, listed, or identified
as a "hazardous waste," "toxic substance," "toxic material," "pollutant," or
"hazardous substance" thereunder, or (iii) is toxic, explosive, corrosive,
flammable, infectious, radiologically contaminated, carcinogenic, mutagenic,
or otherwise hazardous and is regulated by any Governmental Authority or
Environmental Law.
(t) EMPLOYEES, LABOR MATTERS, ETC. The Company is not a party to or
bound by any collective bargaining agreement and there are no labor unions
or other organizations representing, purporting to represent or, attempting
to represent any employees employed by the Company. There has not occurred
or been threatened any material strike, slowdown, picketing, work stoppage,
concerted refusal to work overtime, or other similar labor activity with
respect to any employees employed by the Company. There are no labor
disputes currently subject to any grievance procedure, arbitration, or
litigation, and there is no representation petition pending or threatened
with respect to any employee employed by the Company. The Company has
complied and will comply through the Effective Date with all provisions of
applicable law pertaining to the employment of employees including without
limitation all such applicable law relating to labor relations, termination
of employees, employee layoffs, equal employment, fair employment practices,
entitlement, prohibited discrimination, or other similar employment
practices or acts. The Company has not incurred any liability in connection
with the termination or layoff of any of its employees that was not resolved
or discharged in connection with such termination or layoff. The Company
Disclosure Schedule sets forth each current employee's salary or
compensation, vacation earned, vacation pay, money owed to any employee, and
reimbursements owed to any employee to the extent the monthly aggregates of
such reimbursements to all employees exceed $12,000. The Company has not
materially changed its vacation policy to the detriment of the Company since
December 31, 1999.
17
(u) EMPLOYEE BENEFIT PLANS. The Company Disclosure Schedule lists each
pension, retirement, profit-sharing, deferred compensation, bonus, or other
incentive plan, or other employee benefit program, arrangement, agreement,
or understanding, or medical, vision, dental, or other health plan or life
insurance or disability plan, or any other employee benefit plan, including,
without limitation, any "employee benefit plan" as defined in
Section 3(3) of ERISA, to which the Company contributes or to which the
Company is a party or by which the Company is bound or under which the
Company may have any liability, whether written or unwritten, and under
which employees or former employees of the Company (or their beneficiaries)
are eligible to participate or derive a benefit ("Employee Benefit Plans").
The Company has delivered to Acquiror true, correct, and complete copies of
all Employee Benefit Plans and related trust agreements. With respect to
each Employee Benefit Plan that the Company or any member of a controlled
group of organizations that includes the Company within the meaning of
Section 414(b), (c), or (m) of the Code ("Commonly Controlled Entity"),
maintains or ever has maintained, or to which any of them contributes, ever
has contributed, or ever has been required to contribute:
No such Employee Benefit Plan that is an employee pension benefit
plan (within the meaning of Section 3(2) of ERISA) has been completely or
partially terminated or has been the subject of a "reportable event"
(other than as may be caused by this Agreement) as to which notices would
be required to be filed with the Pension Benefit Guaranty Corporation
("PBGC"). No proceeding by the PBGC to terminate any such employee
pension benefit plan has been instituted or threatened.
The Company has not incurred, and none of the Company's shareholders,
directors, officers, and employees with responsibility for employee
benefits matters has any reason to expect that the Company will incur,
any liability to the PBGC (other than PBGC premium payments) or otherwise
under Title IV of ERISA (including any withdrawal liability).
Neither the Company nor any Commonly Controlled Entity (A) currently
maintains or contributes to any employee benefit plan subject to
Title IV of ERISA as to which the assets of each such Employee Benefit
Plan are not at least equal in value to the present value of the
projected benefit obligations (vested and unvested) of the participants
in such Employee Benefit Plan, based on the actuarial methods and
assumptions used in the most recent actuarial valuation report; or
(B) has any liability for any lien imposed under section 302(f) of ERISA
or interest payment required under Section 302(e) of ERISA or Section
412(n) of the Code or excise Tax imposed by Section 4971 of the Code.
Neither the Company nor any Commonly Controlled Entity has engaged in
any transaction that may result in the imposition of any excise Tax under
Sections 4971 through 4980 of the Code, or otherwise incurred a liability
for any excise Tax, other than excise Taxes that have been paid. Neither
the Company nor any Commonly Controlled Entity is now, nor will at any
time by virtue of any action taken prior to the Effective Date, be
subject to the requirement to provide security under Section 401(a)(29)
of the Code.
Neither the Company nor any Commonly Controlled Entity has engaged
in, or has entered into any arrangement pursuant to which any person or
entity is contractually bound to enter into, any transaction that could
result in imposition upon either the Company or Acquiror of either an
excise Tax under Section 4975 of the Code or civil liability under
Section 502(i) of ERISA.
Neither the Company nor any Commonly Controlled Entity contributes
to, ever has contributed to, or ever has been required to contribute to
any multi-employer plan within the meaning of Section 4001(a)(3) of ERISA
or any "multiple employer plan" within the meaning of Section 4063 or
4064 of ERISA or has any liability (including withdrawal liability) under
any multi-employer plan or multiple employer plan.
18
The Company does not maintain and has not maintained, or contribute,
ever contributed, or has ever been required to contribute to, any
employee welfare benefit plan (within the meaning of Section 3(1) of
ERISA) providing medical, health, or life insurance or other welfare-type
benefits for current or future retired or terminated employees, their
spouses, or their dependents (other than in accordance with Code
Section 4980B).
Each Employee Benefit Plan that is intended to be qualified under
Section 401(a) of the Code is so qualified and has received a favorable
determination letter the IRS under Section 401(a) of the Code and each
trust related thereto has been determined by the IRS to be exempt from
Tax pursuant to Section 501(a) of the Code. No event has occurred since
the date of such determinations, including effective changes in laws or
modifications to the plan or arrangement, that would adversely affect
such qualification or Tax exempt status, other than the failure to make
any required amendments the time for the adoption of which has not yet
expired. The Company will deliver to the Acquiror true and complete
copies of the most recent IRS determinations letters with respect to each
such Plan.
The Company has in all respects performed all obligations required to
be performed by it under ERISA, the Code and any other applicable state,
federal or foreign law and under the terms of each Employee Benefit Plan.
The Company has no knowledge of and has received no written notice of the
existence of any material default or violation by any other party of any
of such laws, terms or requirements applicable to any of the Employee
Benefit Plans. All contributions (including contributions that consist of
employee deferrals) required of the Company have been completely and
timely made in compliance with all applicable laws or agreements, all
such contributions have been and are deductible for income Tax purposes,
and no such contributions or deductions have been challenged or
disallowed by any governmental entity or other tribunal.
Other than routine claims for benefits, the Company has not received
any written notice of any pending material claims or lawsuits which have
been asserted or instituted against any of the Employee Benefit Plans,
the assets of the trust or funds under the Employee Benefit Plans, the
sponsor or administrator of any of the Employee Benefit Plans, or against
any fiduciary of any of the Employee Benefit Plans with respect to the
operation of such Plan.
The Company has no knowledge of and has received no written notice of
any pending investigation or pending enforcement action by the PBGC, the
Department of Labor, the IRS, or any other governmental agency with
respect to any of the Employee Benefit Plans.
All obligations or liabilities incurred with respect to each Employee
Benefit Plan that is an "Employee Welfare Benefit Plan" within the
meaning of Section 3(l) of ERISA are fully and completely insured by an
insurance policy issued by an insurance company licensed to sell
insurance products in the applicable state. With respect to any insurance
policy that has, or does, provide insurance for benefits under any
Employee Benefit Plan, (A) there will be no material liability of the
Company or the Acquiror in the nature of a retroactive or retrospective
rate adjustment, loss sharing arrangement, or other actual or contingent
liability as of the Effective Date, nor would there be any such liability
if such insurance policy were terminated on the date hereof, and (B) no
insurance company issuing any such policy is in receivership,
conservatorship, liquidation, or similar proceeding and, no such
proceedings with respect to any insurer are imminent.
Each group health plan of the Company has at all times been operated
in compliance with the provisions of Code Section 4980B.
(v) CONFIDENTIALITY. The Company has taken reasonable steps necessary
to preserve the confidential nature of all material confidential information
(including, without limitation, any
19
proprietary information) with respect to its business, including but not
limited to information relating to the distribution, marketing, or pricing
of any of its products or services or any promotional plans related thereto.
(w) NO GUARANTEES. None of the obligations or liabilities of the
Company is guaranteed by or subject to a similar contingent obligation of
any other person. The Company has not guaranteed or become subject to a
similar contingent obligation in respect of the obligations or liabilities
of any other person. There are no outstanding letters of credit, surety
bonds, or similar instruments of the Company or any affiliate of the Company
in connection with the Company's business.
(x) RECORDS. The minute books of the Company are complete and correct
in all material respects. The books of account of the Company are sufficient
to prepare the Financial Statements in accordance with GAAP. There are no
false or fictitious entries on the books and records of the Company.
(y) BANK ACCOUNTS. The Company Disclosure Schedule sets forth a
complete and correct list containing the names of each bank in which the
Company has an account or safe deposit or lock box, the account or box
number, as the case may be, and the name of every person authorized to draw
thereon or having access thereto.
(z) BROKERS, FINDERS, ETC. All negotiations relating to this Agreement
and the transactions contemplated hereby have been carried on without the
participation of any person acting on behalf of the Company or the
Shareholders in such manner as to give rise to any valid claim against the
Company, Acquiror, or any of their affiliates for any brokerage or finder's
commission, fee, or similar compensation, or for any bonus payable to any
officer, director, shareholder, employee, agent, or sales representative of
or consultant to the Company or the Shareholders or any affiliate of the
Company or the Shareholders upon consummation of the transactions
contemplated hereby or thereby or otherwise.
(aa) RECEIVABLES. All of the Company's accounts receivable that are
reflected in the Financial Statements, and all such receivables which will
have arisen since December 31, 2000 and through the Effective Date, shall
have arisen only from bona fide transactions in the ordinary course of
business. The Shareholders have no knowledge of any facts or circumstances
(other than general economic conditions) that would result in any material
increase in the uncollectability of such receivables in excess of the
reserves therefor set forth in the Financial Statements. The Company
Disclosure Schedule hereto accurately lists as of February 23, 2001 all
overdue accounts receivable, the amount owing and the aging of such
receivables, the name and last known address of the party from whom such
receivable is owing, and any security in favor of the Company for the
repayment of such accounts receivable that the Company purports to have. The
Company has provided access to Acquiror to complete and correct copies of
all instruments, documents, and agreements evidencing such accounts
receivable and of all instruments, documents, or agreements, if any,
creating security therefor. The Company has valid and perfected security
interests in such security (to the extent such priority may be obtained
under applicable law by possession of such security or the filing of
financing statements or similar documents with respect thereto).
(bb) BACKLOG. All of the Company's backlog of unfilled orders, as of
February 23, 2001, for products or services sold by the Company represent
bona fide transactions incurred in the ordinary course of the Company's
business and are set forth in the Company's Disclosure Schedule.
(cc) PAYMENTS TO THE SHAREHOLDERS. Since December 31, 2000, neither
the Company nor any other person acting on behalf of or for the benefit of
the Company has, directly or indirectly, made any distributions, or paid any
dividends or made any other payments of any kind or nature to any
Shareholder or any affiliate thereof other than ordinary course salaries and
employment benefits.
20
(dd) DISCLOSURE. No representation or warranty by the Company or
Shareholders contained in this Agreement nor any certificate or agreement
furnished or to be furnished by or on behalf of the Company or Shareholders
in connection herewith or pursuant hereto contains or will contain any
untrue statement of a material fact, or omits or will omit to state any
material fact required to make the statements contained herein or therein
not misleading. There is no material fact (other than matters of a general
economic or political nature which do not affect the Company uniquely),
known to the Shareholders that has not been disclosed to Acquiror that might
reasonably be expected to have or result in a Material Adverse Effect.
(ee) NO CONTRACTUAL INTERFERENCE. At no time in the course of the
discussions of the transactions contemplated by this Agreement did Acquiror
induce Shareholders or the Company to impair or terminate any contractual
relationship to which he or it is a party or to deprive any person of any
prospective economic benefit.
(ff) ADEQUACY OF INFORMATION SYSTEMS. Each component of the Company's
management information and operating systems relating to or supportive of
the Company's sales, accounting, inventory, distribution, and other material
systems and operations, including all hardware and software relating thereto
(collective "MIS Systems"), is adequate to support the Company's present and
expected future business operations.
(gg) NO LIABILITY UPON TERMINATION OF ROES. In the event the Company
were to terminate any of the ▇▇▇ contracts identified on
Exhibit 2.1(e)(1) to the Company Disclosure Schedule under the heading
"Liability to Build-Out ▇▇▇ Contracts (Dispose))", neither the Company nor
any of its subsidiaries would incur any liability or damages in connection
with the termination of such contracts.
(hh) NO DEFAULT OF ANY ▇▇▇ CONTRACTS. The Company Disclosure
Schedule includes a list of all of the Company's ▇▇▇ contracts. The Company
is not in default under any of such ▇▇▇ contracts and no event or condition
has occurred with respect to such ▇▇▇ contracts, which with notice, passage
of time, or both, would constitute an event of default or breach.
(ii) TREATMENT OF ACCOUNTS PAYABLE. The Company immediately treats all
amounts invoiced to the Company as accounts payable, with the exception of
those amounts that require field approval in connection with the build out
of ▇▇▇ contracts and except for other invoices that do not exceed in the
aggregate $30,000. As of the Effective Date, the Company may supplement
Exhibit 2.1(g)(xxii) of the Company Disclosure Schedule to account for all
accounts payable since the date of this Agreement through the Effective
Date.
2.2 REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND SUBSIDIARY. Acquiror
represents and warrants to the Shareholders and the Company as follows:
(a) CORPORATE STATUS; AUTHORIZATION, ETC. Acquiror is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Nevada with full corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder, and to
consummate the transactions contemplated hereby. Subsidiary is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Washington with full corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder, and to
consummate the transactions contemplated hereby. The execution, delivery,
and performance by Acquiror and Subsidiary of this Agreement, and the
consummation of the transactions contemplated hereby, have been duly
authorized by all requisite corporate action of Acquiror and Subsidiary, and
no further corporate action is necessary on the part of Acquiror or
Subsidiary to make this Agreement a legal, valid, and binding obligation of
Acquiror and Subsidiary, enforceable against them in accordance with its
terms. Acquiror and Subsidiary have duly executed and delivered this
Agreement. This Agreement and any agreements executed in
21
connection herewith constitute the legal, valid, and binding obligation of
Acquiror and Subsidiary, enforceable against both Acquiror and Subsidiary in
accordance with their terms.
(b) NO CONFLICTS, ETC. The execution, delivery, and performance by
Acquiror and Subsidiary of this Agreement and the consummation of the
transactions contemplated hereby, do not and will not conflict with or
result in a violation of or a default under (with or without the giving of
notice or the lapse of time or both) (i) the articles of incorporation or
bylaws or other organizational documents of Acquiror or Subsidiary,
(ii) any law applicable to Acquiror, or any affiliate of Acquiror, or any of
its properties or assets, or (iii) any contract to which Acquiror or any of
its affiliates is a party or by which Acquiror, or its affiliates, or any of
their respective properties or assets, may be bound or affected. Except for
the filing of the articles of merger with the Secretary of State of the
State of Washington, no governmental approval or other consent is required
to be obtained or made by Acquiror or Subsidiary in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(c) CAPITALIZATION. As of the Effective Date and after giving effect
to the transactions contemplated by this Agreement, the authorized capital
stock of the Acquiror will consist of the following: (i) 100,000,000 shares
of common stock, par value $.001 per share, of which 3,759,643 shares plus
the Newly Issued Shares of Acquiror's Common Stock will be issued and
outstanding as of the Effective Date and (ii) 50,000,000 shares of preferred
stock, par value $.001 per share, with (1) 7,000,000 shares designated as
Series A Preferred Stock, par value $.001 per share, of which (w) 3,000,000
shares will be issued and outstanding as of the Effective Date assuming the
Acquiror sells $3,000,000 of such shares prior to the Effective Date at
$1.00 per share; (x) 2,000,000 shares will be issued and outstanding as of
the Effective Date assuming the Acquiror sells $3,000,000 of such shares
prior to the Effective Date at $1.50 per share; (y) 2,750,000 shares will be
issued and outstanding as of the Effective Date assuming the Acquiror sells
$2,750,000 of such shares prior to the Effective Date at $1.00 per share;
and (z) approximately 1,833,333 shares will be issued and outstanding as of
the Effective Date assuming the Acquiror sells $2,750,000 of such shares
prior to the Effective Date at $1.50 per share; (2) 2,625,000 shares
designated as Series B Preferred Stock, par value $.001 per share, of which
2,625,000 shares will be issued and outstanding as of the Effective Date
(subject to adjustment pursuant to Section 1.4(e)); and (3) 7,875,000 shares
designated as Series C Preferred Stock, par value $.001 per share, of which
7,875,000 shares will be issued and outstanding as of the Effective Date
(subject to adjustment pursuant to Section 1.4(e)). All such shares have
been duly authorized, have been validly issued, are fully paid and
nonassessable and are free of any liens or encumbrances other than any liens
or encumbrances created by or imposed upon the holders thereof. As of the
Effective Date, Acquiror shall have reserved: (1) 7,000,000 shares of
Series A Preferred Stock for issuance to investors in connection with
Acquiror's offering of restricted Series A Preferred Stock; (2) 7,165,000
shares of common stock for issuance upon conversion of the Series A
Preferred Stock and Series C Preferred Stock; and (3) a sufficient number of
shares of common stock for issuance upon the conversion of certain debt
instruments and exercise of certain warrants and options as identified and
described on Schedule 2.2(c) attached hereto. There are no other equity
securities, options, warrants, calls, rights, commitments or agreements of
any character to which Acquiror is a party or by which it is bound
obligating Acquiror to issue, deliver, sell, repurchase or redeem, or cause
to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of Acquiror or obligating Acquiror to grant, extend or enter
into any such equity security, option, warrant, call, right, commitment or
agreement.
(d) VALID ISSUANCE OF STOCK. The shares of Acquiror Stock to be issued
pursuant to the transactions contemplated hereby will, upon issuance and
delivery in accordance with this Agreement, be duly authorized, validly
issued, and fully paid and nonassessable.
22
(e) LITIGATION. There is no action, claim, demand, suit, proceeding,
arbitration, grievance, citation, summons, subpoena, inquiry, or
investigation of any nature, civil, criminal, regulatory, or otherwise, in
law or in equity, pending, or threatened against Acquiror or in connection
with or relating to the transactions contemplated by this Agreement, and, to
the knowledge of Acquiror, there is no basis for the same. No citations,
fines, or penalties have been asserted against Acquiror under any
Environmental Law.
(f) COMPLIANCE WITH SECURITIES LAWS. Assuming the correctness of the
representations made by the Shareholders in the Investor Representation
Statements in form of Exhibit F, the offer and sale of the Acquiror Stock to
the Shareholders is in compliance with applicable exemptions from the
registration and prospectus delivery requirements of the Securities Act of
1933, as amended.
(g) FINANCIAL STATEMENTS. Acquiror has furnished or made available to
Company a true and complete copy of each statement, report, schedule,
registration statement, and definitive proxy or information statement filed
by Acquiror with the Securities and Exchange Commission ("SEC") on or since
February 10, 2000 (the "Acquiror SEC Documents"), which are all the
documents (other than preliminary material) that Acquiror was required to
file with the SEC. As of their respective filing dates, the Acquiror SEC
Documents complied in all material respects with the requirements of the
Exchange Act or the Securities Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Acquiror SEC Documents,
and none of the Acquiror SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. The
financial statements of Acquiror included in the Acquiror SEC Documents (the
"Acquiror Financial Statements") (i) were prepared in accordance with the
books and records of Acquiror; (ii) were prepared in accordance with GAAP,
consistently applied except as otherwise permitted by Form 10-Q, and comply
as to form with all applicable accounting requirements and with the
rules and regulations of the SEC; (iii) reflect all necessary adjustments
and accruals (subject to normal year-end audit adjustments in the case of
unaudited interim Acquiror Financial Statements) and otherwise fairly
present Acquiror's consolidated financial condition and the results of its
operations and cash flows at the relevant dates thereof and for the periods
covered thereby in accordance with GAAP; (iv) contain and reflect adequate
provisions for all reasonably anticipated liabilities for all Taxes,
federal, state, local or foreign, with respect to the periods then ended;
and (v) with respect to contracts and commitments for the sale of goods or
the provision of services by Acquiror, contain and reflect adequate reserves
for all reasonably anticipated material losses and costs and expenses in
excess of expected receipts. There has been no change in Acquiror's
accounting policies or the methods of making accounting estimates or changes
in estimates that are material to Acquiror Financial Statements or estimates
except as described in the notes thereto. Except as set forth in the
Acquiror's SEC Documents and Schedule 2.2(g) attached hereto, since the
Acquiror Financial Statements for the period ended December 31, 2000, the
Acquiror has not suffered any material change in its financial condition,
results, or prospects. Acquiror may, in its sole discretion, advance
additional funds to the Company prior to the Effective Date on terms and
conditions to be agreed upon.
(h) FILING OF REPORTS. Since February 10, 2000, Acquiror has filed all
reports Acquiror was required to file under the Securities Exchange Act of
1934, including, but not limited to, reports on Forms 10-K, 10-Q, and 8-K.
Except as set forth on Schedule 2.2(h), such reports were prepared in
accordance with all applicable regulations of the SEC and contain all
information required to be reported therein and such reports, and the
information contained therein, are accurate in all material respects.
23
(i) COMPLIANCE WITH LAWS; COMPLIANCE WITH SECURITIES LAWS.
Acquiror has complied in all material respects with all applicable laws
applicable to it or otherwise in any manner affecting Acquiror's business
and Acquiror has received no notice alleging any such conflict, violation,
breach, or default.
All capital stock of Acquiror was issued by Acquiror in compliance with
all applicable Federal and state securities laws.
(j) BROKERS, FINDERS, ETC. All negotiations relating to this Agreement
and the transactions contemplated hereby have been carried on without the
participation of any person acting on behalf of Acquiror in such manner as
to give rise to any valid claim against the Shareholders for any brokerage
or finder's commission, fee, or similar compensation.
(k) NO INTENT TO REDEEM THE SERIES C PREFERRED STOCK. Acquiror has no
current intent to redeem the Series C Preferred Stock.
(l) DISCLOSURE. No representation or warranty by Acquiror contained in
this Agreement nor any certificate or agreement furnished or to be furnished
by or on behalf of Acquiror in connection herewith or pursuant hereto
contains or will contain any untrue statement of a material fact, or omits
or will omit to state any material fact required to make the statements
contained herein or therein not misleading. There is no material fact (other
than matters of a general economic or political nature which do not affect
Acquiror uniquely), known to Acquiror that has not been disclosed to the
Company that might reasonably be expected to have or result in a Material
Adverse Effect.
ARTICLE 3
COVENANTS
3.1 COVENANTS OF THE COMPANY AND THE SHAREHOLDERS.
(a) CONDUCT OF BUSINESS. From the date hereof to the Effective Date
(and thereafter with respect to any covenant or agreement extending beyond
the Effective Date), except as expressly permitted or required by this
Agreement, as contemplated by the Company's Business Plan dated
January 2001, a copy of which has been delivered to Acquiror, or as
otherwise consented to by Acquiror in writing, the Company will, and the
Shareholders will cause the Company to:
subject to access to cash, carry on its business in, and only in, the
ordinary course, in substantially the same manner as heretofore
conducted, and use all reasonable efforts to preserve intact its present
business organization, maintain its properties in good operating
condition and repair, keep available the services of its present officers
and employees, and subject to costs, preserve its relationship with
customers, suppliers, and others having business dealings with it, with
the goal and intent that its goodwill and ongoing business will be in all
material respects unimpaired following the Effective Date;
subject to access to cash, pay accounts payable and other obligations
of the Company when they become due and payable in the ordinary course of
business consistent with prior practice;
subject to access to cash, perform in all material respects all of
its obligations under all contracts and other agreements and instruments
and comply in all material respects with all applicable laws applicable
to it;
other than sales and purchases of inventories or services in the
ordinary course not exceeding $2,500 individually or $15,000 in the
aggregate (except to fulfill obligations under ▇▇▇ Agreements listed on
the Company Disclosure Schedule at Exhibit 2.1(e)(1), Liability to
24
Build out ▇▇▇ Contracts (Complete)), not enter into or assume any
material agreement, contract, or instrument, or enter into or permit any
material amendment, supplement, waiver, or other modification in respect
thereof;
not grant (or commit to grant) any increase in the compensation
(including incentive or bonus compensation) of any employee or institute,
adopt, or amend (or commit to institute, adopt, or amend) any
compensation or benefit plan, policy, program, or arrangement or
collective bargaining agreement applicable to any such employee;
continue all policies of insurance in full force and effect;
not make any change or modification in the Company's accounting
practices, policies, or procedures;
not file any Tax Returns without the consent of the Acquiror;
not make any distributions to the Shareholders with respect to cash,
property, assets, or stock of the Company; and
not take any action or omit to take any action, which action or
omission would result in a breach of any of the representations and
warranties set forth in Section 2.1.
(b) NO SOLICITATION. No Shareholder, nor any affiliate of any
Shareholder (including the Company), nor any person acting on any of such
parties' behalf, will (i) solicit or encourage any inquiries or proposals
for, or enter into any discussions with respect to, the acquisition of any
properties and assets held for use in connection with, necessary for the
conduct of, or otherwise material to, the Company's business or
(ii) furnish or cause to be furnished any non-public information concerning
the Company to any person (other than Acquiror and its agents and
representatives), other than in the ordinary course of business or pursuant
to applicable law and after prior written notice to Acquiror. No
Shareholder, nor any affiliate of any Shareholder (including the Company)
will sell, transfer, or otherwise dispose of, grant any option or proxy to
any person with respect to, create any Lien upon, or transfer any interest
in, any of the Company's assets, other than in the ordinary course of
business and consistent with this Agreement. No Shareholder, nor any
affiliate of any Shareholder (including the Company) will transfer or
otherwise dispose of, grant any option or proxy to any person with respect
to, create any Lien upon, or transfer any interest in, any of the capital
stock of the Company other than pursuant to the provisions of this
Agreement. The foregoing restrictions shall terminate upon termination of
this Agreement.
(c) FURTHER ACTIONS.
Subject to requirements of law, the Company and the Shareholders will
not, nor will they permit any of their affiliates to, make any public
announcement in respect of this Agreement or the transactions contemplated
hereby without the prior written consent of Acquiror.
The Company and the Shareholders will, as promptly as practicable, file
or supply, or cause to be filed or supplied, all applications,
notifications, and information required to be filed or supplied by them
pursuant to applicable law in connection with this Agreement and the
consummation of the other transactions contemplated hereby.
The Company and the Shareholders, as promptly as practicable, will use
all reasonable efforts to obtain, or cause to be obtained, all consents
(including, without limitation, all governmental approvals and any consents
required under any contract) necessary to be obtained by them in order to
consummate the transactions contemplated thereby.
25
The Company and the Shareholders will, and will cause each of their
affiliates to, coordinate and cooperate with Acquiror in exchanging such
information and supplying such assistance as may be reasonably requested by
Acquiror in connection with the filings and other actions contemplated by
Section 3.2(a).
At all times prior to the Effective Date, the Company and the
Shareholders will promptly notify Acquiror in writing of any fact,
condition, event, or occurrence known to the Company or the Shareholders in
the exercise of reasonable business prudence that will or may result in the
failure of any of the conditions contained in Sections 4.1 and 4.2 to be
satisfied, promptly upon becoming aware of the same.
(d) FURTHER ASSURANCES. Following the Effective Date, the Shareholders
will, and will cause each of their affiliates to, from time to time, execute
and deliver such additional instruments, documents, conveyances, or
assurances and take such other actions as may be reasonably necessary, or
otherwise reasonably requested by Acquiror, to confirm and assure the rights
and obligations provided for in this Agreement and render effective the
consummation of the transactions contemplated hereby.
(e) CERTIFICATE OF TAX AUTHORITIES. On or before the Effective Date,
the Company and the Shareholders will provide to Acquiror certificates from
all appropriate taxing authorities stating that no Taxes are due to any
state or other taxing authority, except for such certificates with respect
to California.
(f) FINANCIAL TREATMENT OF ACQUIROR'S SERIES A PREFERRED STOCK,
SERIES B PREFERRED STOCK, AND SERIES C PREFERRED STOCK. In the event
Acquiror's accountants, which shall be a nationally recognized accountancy
firm, determine that the Series A Preferred Stock, Series B Preferred Stock
or Series C Preferred Stock should be treated as debt on Acquiror's
financial statements, the Company and the Shareholders will take all steps
reasonably requested by the Acquiror to revise, amend, or modify the terms
of Acquiror's Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock in order for such preferred stock to be properly
presented as equity on Acquiror's financial statements, provided that
Acquiror shall use its reasonable best efforts so that the Company and
Shareholders are not required to agree to any revision, amendment or
modification that would materially adversely affect the basic economic terms
of this Agreement and the Acquiror's preferred stock, taken as a whole.
(g) COMPLETION OF AUDIT. Within forty-five (45) days of the date of
Closing, the Shareholders shall cause an audit (the "Audit") of the
Company's business and financial condition for the fiscal years 1999 and
2000 to have been completed, an audit report issued to the Company in a form
reasonably acceptable to Acquiror indicating no Material Adverse Change
since the Financial Statements previously provided to the Acquiror, audited
financial statements delivered to Acquiror and prepared accordance with the
rules and regulations under Regulation S-X and Form 8-K for inclusion of
such audited financial statements in the Company's report on Form 8-K (the
"Audited Statements"), and the consent of the accountancy firm performing
the Audit to include the Audited Statements in the Company's report on Form
8-K and any required amendments. The Shareholders shall select the
accountancy firm to perform the Audit; however, such accountancy firm must
be reasonably acceptable to Acquiror. All fees and expenses incurred in the
connection with the Audit shall be paid by Geneva Associates Merchant
Banking Partners I, LLC directly to the accountancy firm performing the
Audit upon demand.
(h) TERMINATION OF CERTAIN ROES; NO TRANSFER OR SALE OF CERTAIN
ROES. Within sixty (60) days of the date of this Agreement, the
Shareholders shall use their reasonable best efforts to cause the Company to
terminate the ▇▇▇ contracts identified on Exhibit 2.1(e)(1) to the Company
Disclosure Schedule under the heading "Liability to Build-out ▇▇▇ Contracts
(Dispose)" and to obtain a release of any and all claims, whether known or
unknown, from any
26
parties to such ▇▇▇ contracts, all in the form and upon terms reasonably
satisfactory to Acquiror. Without Acquiror's prior written consent, which
will not be unreasonably withheld or delayed, neither the Shareholders nor
the Company shall sell, assign, dispose, mortgage, or otherwise transfer to
any other party any of the ▇▇▇ contracts identified on Exhibit 2.1(e)(1) to
the Company Disclosure Schedule under the heading "Liability to Build-out
▇▇▇ Contracts (Dispose)."
3.2 COVENANTS OF ACQUIROR.
(a) FURTHER ACTIONS.
Acquiror agrees to use all reasonable good faith efforts to take all
actions and to do all things necessary, proper, or advisable to consummate
the transactions contemplated hereby by the Effective Date.
Acquiror will, as promptly as practicable, file or supply, or cause to
be filed or supplied, all applications, notifications, and information
required to be filed or supplied by Acquiror pursuant to applicable law in
connection with this Agreement and the consummation of the other
transactions contemplated hereby and thereby.
Acquiror will coordinate and cooperate with the Company and the
Shareholders in exchanging such information and supplying such reasonable
assistance as may be reasonably requested by the Company and the
Shareholders in connection with the filings and other actions contemplated
by Section 3.1(c).
At all times prior to the Effective Date, Acquiror will promptly notify
the Company and the Shareholders in writing of any fact, condition, event,
or occurrence that will or may result in the failure of any of the
conditions contained in Sections 4.1 and 4.3 to be satisfied, promptly upon
becoming aware of the same.
(b) FURTHER ASSURANCES. Following the Effective Date, Acquiror will,
and will cause all of its affiliates to, from time to time, execute and
deliver such additional instruments, documents, conveyances, or assurances
and take such other actions as may be reasonably necessary, or otherwise
reasonably requested by the Company and the Shareholders, to confirm and
assure the rights and obligations provided for in this Agreement and render
effective the consummation of the transactions contemplated thereby.
(c) [Intentionally omitted].
(d) BOARD EXPANSION. Acquiror shall have taken all required actions to
expand Acquiror's Board of Directors to include the designee of Geneva
Associates Merchant Banking Partners I, LLC.
(e) PREFERRED STOCK REDEMPTIONS. For the period of three years
following the Effective Date, Acquiror shall utilize ten percent (10%) of
the net proceeds received from any future sales or grants of equity
(excluding Acquiror's offering and sale of up to $7,000,000 by May 31, 2001
of its Series A Preferred Stock, par value $.001 per share, equity issued to
employees, consultants, directors, officers, or in connection with any
acquisition or other business combination) as follows: (i) first towards the
outstanding principle and accrued but unpaid interest outstanding under the
promissory note issued to BroadbandNOW, in the form of Exhibit C and
(ii) then for redemption of the Series B Preferred Stock and Series C
Preferred Stock as provided by the Acquiror's Articles of Incorporation.
Such ten percent (10%) net proceeds shall first be used to redeem the
Series B Preferred Stock in full, and then towards the redemption of the
Series C Preferred Stock.
27
(f) RELEASE OF CERTAIN GUARANTEES. Acquiror shall use reasonable
efforts to have the personal guarantees of ▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇
released on or before the first anniversary of the Effective Date.
(g) ACCESS TO PERFORM THE AUDIT. Acquiror shall allow the accountancy
firm retained by the Shareholders to perform the Audit required under
Section 3.1(g) of this Agreement reasonable access to the books, records,
properties, Company officers and directors, and other information that is
customarily required to perform the Audit.
(h) MINIMIZE INDEMNIFICATION OBLIGATIONS. Following the Effective
Date, Acquiror shall use its reasonable efforts to minimize the underlying
obligations that give rise to the Shareholders' indemnification obligations
under Article 6 with respect to those items for which the Company is either
in violation of or in default under, as specifically disclosed in the
Company Disclosure Schedule.
3.3 EXCHANGE RIGHT FOR SHAREHOLDERS ACQUIRING SERIES C PREFERRED STOCK.
(a) EXCHANGE RIGHT. From and after the Effective Date, each
Shareholder holding Series C Preferred Stock shall have the right, at the
option of such Shareholder, to surrender to Acquiror all certificates
representing the Series C Preferred Stock held by such Shareholder (the
"Exchange Shares") and to receive in exchange therefore the following:
A number of fully paid and nonassessable shares of Acquiror's Common
Stock equal to the product of the number of Exchange Shares surrendered
to Acquiror, multiplied by 0.020952 (the "Series C Exchange Rate"),
rounded to the nearest number of whole shares, and
A return of that portion of the Exchange Shares determined by
multiplying the total number of Exchange Shares surrendered by that
number calculated as follows: (x) 1 MINUS (y) the product of the
Series C Exchange Rate times the Original Series A Issue Price (rounded
to the nearest number of whole shares).
By way of example, if a Shareholder holds 78,000 Exchange Shares and the
Original Series A Issue Price is $1.50, then in exchange for the
Shareholder's surrender of such 78,000 Exchange Shares, the Shareholder
would receive the following: (x) 1,634 (78,000 * 0.020952) shares of
Acquiror Common Stock and (y) would have returned to it 75,549 (78,000 * (1
- (0.020952 * 1.50)) shares of Series C Preferred Stock.
(b) LIMITATIONS ON EXCHANGE RIGHTS.
In order to exercise its rights hereunder, a Shareholder must exercise
its exchange rights with respect to all Series C Preferred Stock held by
such Shareholder. Once a Shareholder (or other holder of Series C Preferred
Stock having the right to exercise the exchange rights set forth herein)
effects such exchange, such Shareholder shall have no further right to
exchange any shares of Series C Preferred Stock.
The Series C Exchange Rate was established so that upon the surrender of
all Exchange Shares pursuant hereto, the total number of shares of Common
Stock to be issued upon the exchange would equal approximately 165,000
(subject to adjustment as provided herein). The Series C Exchange Rate shall
be subject to adjustment as set forth below.
The exchange right provided for herein will terminate with respect to
any Exchange Shares on the date specified in a notice of redemption of such
Exchange Shares, given by Acquiror in accordance with Section III.5 of the
Certificate of Designation, Preferences and Other Rights in the form of
Exhibit B attached hereto. Such termination date shall not be earlier than
thirty (30) days and not later than sixty (60) days after the giving of such
notice.
28
(c) MECHANICS. Before any holder of Series C Preferred Stock shall be
entitled to participate in the exchange permitted by Section 3.3(a) above,
such holder shall surrender all certificates representing the Exchange
Shares, duly endorsed, at the office of the Acquiror or of any transfer
agent for the Series C Preferred Stock, and shall give written notice to the
Acquiror at its principal corporate office, of the election to exchange the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock to be issued and Series C Preferred
Stock to be returned are to be issued. The Acquiror shall, as soon as
practicable after delivery of the surrendered certificates as referenced
above, issue and deliver at such office to such holder of Series C Preferred
Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock and Series C Preferred
Stock to which such holder shall be entitled as aforesaid. Such exchange
shall be deemed to have been made immediately prior to the close of business
on the date of such surrender of the Exchange Shares, and the person or
persons entitled to receive the shares of Common Stock and Series C
Preferred Stock issuable upon such exchange shall be treated for all
purposes as the record holder or holders of such shares of Common Stock and
Series C Preferred Stock as of such date.
(d) ADJUSTMENTS TO SERIES C EXCHANGE RATE.
In the event the Acquiror should at any time or from time to time after
the initial issuance of shares of Series C Preferred Stock effect a split or
subdivision of the outstanding shares of Common Stock or make a dividend or
other distribution to the holders of Common Stock, payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock
Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock Equivalents (including
the additional shares of Common Stock issuable upon conversion or exercise
thereof), then, as of the date of such dividend distribution, split or
subdivision, the Series C Exchange Rate shall be appropriately increased so
that the number of shares of Common Stock issuable on exchange of each share
of Series C Preferred Stock shall be increased in proportion to such
increase of outstanding shares of Common Stock (including Common Stock
Equivalents).
If the number of shares of Common Stock outstanding at any time after
the initial issuance of Series C Preferred Stock by the Acquiror is
decreased by a combination of the outstanding shares of Common Stock, then
upon such event the Series C Exchange Rate shall be appropriately reduced so
that the number of shares of Common Stock issuable on exchange of each share
of Series C Preferred Stock shall be decreased in proportion to such
decrease in outstanding shares of Common Stock.
(e) OTHER DISTRIBUTIONS. In the event the Acquiror shall declare a
distribution payable in securities of other persons, evidences of
indebtedness issued by the Acquiror or other persons, assets (excluding cash
dividends) or options or rights not referred to in Section 3.3(d), then, in
each such case for the purpose of this Section 3.3(d), the holders of
Series C Preferred Stock shall be, on an exchange effected pursuant to this
Section 3.3(e), entitled to a proportionate share of any such distribution
as though they were the holders of the number of shares of Common Stock of
the Acquiror into which their shares of Series C Preferred Stock are
exchangeable as of the record date fixed for the determination of the
holders of Common Stock of the Acquiror entitled to receive such
distribution.
(f) RECAPITALIZATION. If at any time or from time to time there shall
be a recapitalization of the Common Stock of the Acquiror (other than a
subdivision or combination of shares provided for elsewhere in this
Section 3.3) provision shall be made so that the holders of each share of
Series C Preferred Stock shall thereafter be entitled to receive upon
exchange of such share of
29
Series C Preferred Stock the number of shares of stock or other securities
or property of the Company or otherwise, to which a holder of Common Stock
deliverable upon exchange would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of
the provisions of this Section with respect to the rights of the holders of
each share of Series C Preferred Stock after the recapitalization to the end
that the provisions of this Section (including adjustment of the Series C
Exchange Rate then in effect and the number of shares issuable upon
conversion of shares of Series C Preferred Stock) shall be applicable after
that event as nearly equivalent as may be practicable.
(g) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
No fractional shares shall be issued upon exchange of the Series C
Preferred Stock and the number of shares of Common Stock and Series C
Preferred Stock to be issued shall be rounded to the nearest whole share.
Whether or not fractional shares are issuable upon such exchange shall be
determined on the basis of the total number of shares of Exchange Shares
held by the holder at the time of the exchange, all of which Exchange Shares
must be surrendered as provided herein.
Upon the occurrence of each adjustment or readjustment of any Series C
Exchange Rate pursuant to this Section, the Acquiror, at its expense, shall
promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of Series C Preferred
Stock still entitled to exchange rights as provided herein, a certificate
setting forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based. The Acquiror
shall, upon the written request at any time of any holder of Series C
Preferred Stock still entitled to exchange rights as provided herein,
furnish or cause to be furnished to such holder a like certificate setting
forth (A) such adjustment and readjustment, and (B) the Series C Exchange
Rate at the time in effect.
(h) NOTICES OF RECORD DATE. In the event of any taking by the Acquiror
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend) or other distribution, or to receive any other
right, the Acquiror shall mail to each Shareholder holding Series C
Preferred Stock still entitled to exchange rights as provided herein, at
least 20 days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such
dividend or other distribution right, and the amount and character of such
dividend or other distribution right.
(i) RESERVATION. The Acquiror shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock solely
for the purpose of effecting the exchange of the shares of Series C
Preferred Stock such number of its shares of Common Stock as shall from time
to time be sufficient to effect the exchange of all outstanding shares of
Series C Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
exchange of all then outstanding shares of Series C Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Series C Preferred Stock, the Acquiror will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes.
(j) ASSIGNMENT. The rights of Shareholders under this Section 3.3 are
assignable in connection with any transfer of at least 1,000 shares of
Series C Preferred Stock (subject to adjustments for stock splits and the
like) made in compliance with applicable law and any contractual
restrictions in favor of the Acquiror.
30
ARTICLE 4
CONDITIONS PRECEDENT
4.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The obligations of the
parties to consummate the transactions contemplated hereby will be subject to
the fulfillment on or prior to the Effective Date of the following conditions:
(a) NO INJUNCTION, ETC. Consummation of the transactions contemplated
hereby shall not have been restrained, enjoined, or otherwise prohibited by
any applicable law, including any order, injunction, decree, or judgment of
any court or other governmental authority. No court or other governmental
authority shall have determined any applicable law to make illegal the
consummation of the transactions contemplated hereby, and no proceeding with
respect to the application of any such applicable law to such effect will be
pending.
4.2 CONDITIONS TO OBLIGATIONS OF ACQUIROR. The obligation of the Acquiror
to consummate the transactions contemplated hereby will be subject to the
fulfillment (or waiver by the Acquiror in its sole discretion), on or prior to
the Effective Date, of the following additional conditions, which the
Shareholders and the Company agree to use reasonable good faith efforts to cause
to be fulfilled.
(a) REPRESENTATIONS, PERFORMANCE. Except for representations and
warranties that are made only as of a certain date, the representations and
warranties of the Company and the Shareholders contained in this Agreement
(i) will be true and correct in all material respects at and as of the date
hereof, and (ii) will be repeated and will be true and correct in all
material respects on and as of the Effective Date with the same effect as
though made on and as of the Effective Date. The Company and the
Shareholders will have duly performed and complied with all covenants and
agreements and conditions required by this Agreement to be performed or
complied with by the Company and the Shareholders prior to or on the
Effective Date. The Company and the Shareholders will have delivered to
Acquiror a duly authorized, properly executed certificate or certificates,
dated the Effective Date, to the foregoing effect.
(b) CONSENTS. The Company and the Shareholders will have obtained and
will have delivered to Acquiror copies of (i) all governmental approvals or,
in the case of Federal Communications Commission microwave licenses ("FCC
Licenses"), grants of special temporary authority, required to be obtained
by the Company and the Shareholders in connection with the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby and (ii) all consents (including, without limitation,
all consents required under any contract) or, in the case of FCC Licenses,
grants of special temporary authority, necessary to be obtained in
connection with contracts or agreements of the Company in order to
consummate the transactions contemplated thereby.
(c) NO MATERIAL ADVERSE EFFECT. No event, occurrence, fact, condition,
change, development, or effect relating to the Company and the Shareholders
shall have occurred, exist, or come to exist since the date of this
Agreement, that, individually or in the aggregate, has constituted or
resulted in or, in the sole and absolute discretion of Acquiror, could
reasonably be expected to constitute or result in, a Material Adverse
Effect.
(d) OTHER DOCUMENTS. The Company and the Shareholders will deliver to
Acquiror:
certificates representing the Company Class A Common Stock, Class B
Common Stock, Class C Common Stock, and Class D Common Stock, free and
clear of any Liens, duly endorsed in blank or accompanied by stock powers
or other instruments of transfer duly executed in blank;
Employment Agreement in the form of Exhibit G, executed by ▇▇▇ ▇▇▇▇▇▇;
31
an opinion addressed to Acquiror and dated the Effective Date, from
▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇ LLP, counsel to the Company, in the form reasonably
acceptable to Acquiror and its legal counsel;
evidence that all of the Company's employment agreements with any of its
employees have been terminated on or before the Effective Date;
written resignations of the Company's directors and officers, dated as of
the Effective Date;
if not otherwise required under Section 2.1(d), Financial Statements as
reasonably requested by Acquiror;
Executed Investor Representation Statements by each Shareholder in the
form of Exhibit F;
Executed Escrow Agreement in the form of Exhibit E;
Executed Retention of Purchaser Representative Agreement by the Company,
Acquiror and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ in the form of Exhibit H;
Executed Purchaser Representative Agreement by each Shareholder holding
Class A Common Stock of the Company and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ in the form of
Exhibit I;
The original $1,750,000 Cable Concepts, Inc., d/b/a Direct Digital
Communications Senior Subordinated Note issued by the Company to
BroadbandNOW, dated June 29, 2000, which has been properly assigned over,
without recourse, by BroadbandNOW to Acquiror;
The original $1,200,000 Amended and Restated Revolving Promissory
Note issued by the Company to Geneva Associates Merchant Banking Partners
I, LLC, dated February 2, 2001, which has been properly assigned over,
without recourse, by Geneva Associates Merchant Banking Partners I, LLC
to Acquiror;
Certificates of insurance coverage regarding the insurance policies set
forth on Item 2.1(q) of the Company Disclosure Schedule;
LaSalle Bank National Association, Pacifica Bank, and all other lenders
of the Company shall have delivered notices to the Company stating that
the Company is in compliance with such credit facilities and no default
has occurred or will occur with the passage of time, all dated within ten
(10) days of the Effective Date; and
such other evidence of the performance of all covenants and satisfaction
of all conditions required of the Company and the Shareholders by this
Agreement, at or prior to the Effective Date, as Acquiror or its counsel
may reasonably require.
(e) CONVERSION OF GENEVA ASSOCIATES MERCHANT BANKING PARTNERS I, LLC
LOAN. Prior to Closing, Geneva Associates Merchant Banking Partners I, LLC
will have converted all outstanding debt into Series B Preferred Stock,
Acquiror's common stock, and Series A Preferred Stock (as contemplated by
Section 1.4(d)).
(f) CONVERSION OF BROADBANDNOW LOAN. Prior to Closing, BroadbandNow
shall convert the total unpaid principle and accrued interest under the
$1,750,000 Cable Concepts, Inc., d/b/a Direct Digital Communications Senior
Subordinated Note issued by the Company to BroadbandNOW, dated June 29, 2000
into (a) 1,475,000 shares of Series B Preferred Stock, (b) a $750,000
promissory note due fifteen (15) months from the date of issuance, in
substantially the form of Exhibit C attached hereto, and (c) Acquiror's
common stock (as contemplated by Section 1.4(c)).
(g) COMPLETION OF DUE DILIGENCE. Acquiror shall have conducted its due
diligence investigation of the Company and shall have determined, in its
sole absolute discretion, that the Company's relationship and agreements
with Direct TV, business records, assets, contracts,
32
liabilities, operations, and other aspects of its business are satisfactory
to Acquiror, in its sole discretion, in all respects.
(h) TERMINATION OF 401(K) PLAN. The Company's Board of Directors shall
have adopted a resolution terminating the Company's 401(k) plan and 100%
vesting of participants' accounts in the plan as of the Effective Date.
(i) TERMINATION OF OPTIONS AND WARRANTS. Prior to Closing all options
and warrants to acquire equity securities of the Company shall have been
converted into Company common stock or terminated, without incurring any
liability to the Company.
(j) BROKERAGE OR FINDERS AGREEMENTS. The letter agreement dated
January 13, 2000, as amended on February 25, 2000, between Geneva Associates
Advisors, LLC and the Company shall have been terminated with no fee owing
to Geneva Associates Advisors, LLC or its affiliates with respect to any
transaction contemplated by this Agreement or any other fee owed by the
Company to Geneva Associates Advisors, LLC.
(k) STOCK PURCHASE AGREEMENTS. The Class A, Class B, Class C, and
Class D Stock Purchase Agreements between the Company and the Shareholders
shall have been terminated.
(l) CONSENT OF LENDERS. All lenders, including LaSalle Bank National
Association, Pacifica Bank, Broadband Now, and Geneva Associates Merchant
Banking Partners I, LLC shall have consented to the terms of this Agreement
and the transactions contemplated by this Agreement.
(m) [Intentionally omitted]
(n) TERMINATION OF REGISTRATION RIGHTS. All rights the Company has
granted to any employee, director, officer, consultant, or other party
regarding the registration of securities under the Securities Act shall have
been terminated.
(o) DIRECT TV CONSENT. Direct TV shall have consented to the Merger,
in a form and on terms satisfactory to Acquiror, in its sole discretion, and
Direct TV shall have acknowledged it will continue its relationship with the
Company and Acquiror after the Effective Date, on terms currently applicable
to the Company.
(p) TERM EXTENSION OF PACIFICA BANK CREDIT FACILITY. Pacifica Bank
shall have extended the term of the Company's credit facility until at least
May 30, 2002, all on terms reasonably satisfactory to Acquiror.
(q) TERMINATION OF EMPLOYMENT AGREEMENTS. All employment agreements
between the Company and any of its employees shall have been terminated.
(r) LASALLE BANK NATIONAL ASSOCIATION PAYMENTS. Geneva Associates
Merchant Banking Partners I, LLC shall release to LaSalle Bank National
Association the $500,000 CD it has pledged to LaSalle Bank National
Association, $250,000 of which shall be applied towards the total unpaid
principal and the balance towards accrued and future interest under that
certain $2,000,000 promissory note of the Company, dated September 29,
2000(or such other terms as may be reasonably acceptable to Acquiror).
(s) [Intentionally omitted]
(t) RELEASE BY GENEVA ASSOCIATES MERCHANT BANKING PARTNERS I,
LLC. Geneva Associates Merchant Banking Partners I, LLC and its affiliates
shall have executed a written release from any fees, compensation, or other
monies due from the Company or any of its Subsidiaries.
(u) [Intentionally omitted].
33
(v) TERMINATION OF MOTOR HOME LEASE. The August 1, 1998 lease between
the Company and ▇▇▇ ▇▇▇▇▇▇ for the 36-month lease of a motor home shall have
been terminated.
(w) FOXCOM, INC. MEMORANDUM OF UNDERSTANDING. The November 23, 1999
Memorandum of Understanding between the Company and FOXCOM, Inc. shall have
been terminated.
(x) DISSENTER PAYMENTS. No Shareholder shall have elected any
dissenter rights or associated payments under Washington law, Revised Code
of Washington Chapter 23B.13.
4.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND SHAREHOLDERS. The
obligation of the Shareholders and the Company to consummate the transactions
contemplated hereby will be subject to the fulfillment (or waiver by the Company
and the Shareholders in their sole discretion), on or prior to the Effective
Date, of the following additional conditions, which Acquiror agrees to use
reasonable good faith efforts to cause to be fulfilled.
(a) REPRESENTATIONS, PERFORMANCE, ETC. Except for representations and
warranties that are made only as of a certain date, the representations and
warranties of Acquiror contained in this Agreement (i) will be true and
correct in all material respects at and as of the date hereof and (ii) will
be repeated and will be true and correct in all material respects on and as
of the Effective Date with the same effect as though made at and as of such
time. Acquiror and Subsidiary will have duly performed and complied in all
material respects with all agreements and conditions required by this
Agreement to be performed or complied with by Acquiror or Subsidiary prior
to or on the Effective Date. Acquiror will have delivered to the Company and
the Shareholders a certificate, dated the Effective Date and signed by its
duly authorized officer, to the foregoing effect.
(b) CORPORATE PROCEEDINGS. All necessary corporate proceedings of
Acquiror in connection with this Agreement and the transactions contemplated
hereby and thereby, and all documents and instruments incident thereto, will
be reasonably satisfactory in substance and form to the Company and the
Shareholders and their counsel.
(c) FILING OF ARTICLES OF AMENDMENT. Acquiror shall prepare and file,
contemporaneously with the Closing, Articles of Amendment setting forth the
rights and preferences of the Series B Preferred Stock and Series C
Preferred Stock, substantially in the form of Exhibit B.
(d) NEW CAPITAL. Acquiror will have received a minimum of
$3,000,000 million of cash in respect of its sale of Series A Preferred
Stock with substantially the rights and preferences set forth on Exhibit B,
LESS all funds advanced or loaned by Acquiror to the Company prior to the
Effective Date.
(e) NO MATERIAL ADVERSE EFFECT. No event, occurrence, fact, condition,
change, development, or effect relating to Acquiror shall have occurred,
exist, or come to exist since December 31, 2000, that, individually or in
the aggregate, has constituted or resulted in or could reasonably be
expected to constitute or result in, a material adverse effect.
(f) DELIVERY OF CERTIFICATES EVIDENCING THE PREFERRED STOCKS. Acquiror
shall deliver to those Shareholders entitled to receive the Series B
Preferred Stock and Series C Preferred Stock as set forth on Exhibit D of
this Agreement, certificates evidencing such shares in the form acceptable
to the Shareholders.
(g) ARTICLES OF AMENDMENT. Acquiror shall have filed with the State of
Nevada Office of the Secretary of State (i) Articles of
Amendment authorizing "blank check" preferred stock and (ii) the Articles of
Amendment or certificate designating the rights and preferences of
Acquiror's Series A Preferred Stock, Series B Preferred Stock, and Series C
Preferred Stock, in substantially the form of Exhibit B.
34
(h) EMPLOYMENT AGREEMENTS. Acquiror shall have executed and delivered
an Employment Agreement with ▇▇▇ ▇▇▇▇▇▇, in the form of Exhibit G.
(i) CONVERSION OF PROMISSORY NOTES. ▇▇▇▇ ▇▇▇▇▇ shall have converted
the $250,000 convertible note, dated February 2, 2001, into Acquiror
Series A Preferred Stock, par value $.001 per share. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
shall have converted the $50,000 convertible note, dated March 7, 2001, into
Acquiror Series A Preferred Stock, par value $.001 per share.
(j) ▇▇▇▇▇ & ▇▇▇▇▇▇ OPINION LETTER. The Company and the Shareholders
shall have received an opinion addressed to the Shareholders and dated the
Effective Date, from ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, counsel to Acquiror, in the form
reasonably acceptable to the Company and its legal counsel.
ARTICLE 5
TERMINATION
5.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Date:
(a) by the written agreement of the Company and Acquiror;
(b) by the Company or Acquiror by written notice to the other party if
the transactions contemplated hereby shall not have been consummated
pursuant hereto by 5:00 p.m. Seattle, Washington, time on April 30, 2001,
unless such date shall be extended by the mutual written consent of the
Company and Acquiror;
(c) by Acquiror by written notice to the Company and Shareholders if
(i) the representations and warranties of the Company and the Shareholders
shall not have been true and correct in all material respects as of the date
when made or (ii) if any of the covenants or conditions set forth in
Sections 3.1, 4.1 or 4.2 shall not have been, or if it becomes apparent that
any of such covenants or conditions will not be, fulfilled by 5:00 p.m.
Seattle, Washington time on April 30, 2001 unless such failure shall be due
to the failure of Acquiror to perform or comply with any of the covenants,
agreements, or conditions hereof to be performed or complied with by it
prior to the Effective Date; or
(d) by the Company by written notice to Acquiror if (i) the
representations and warranties of Acquiror shall not have been true and
correct in all material respects as of the date when made or (ii) if any of
the covenants or conditions set forth in Sections 3.2, 4.1 or 4.3 shall not
have been, or if it becomes apparent that any of such covenants or
conditions will not be, fulfilled by 5:00 p.m. Seattle, Washington time on
April 30, 2001 unless such failure shall be due to the failure of the
Company or Shareholders to perform or comply with any of the covenants,
agreements, or conditions hereof to be performed or complied with by them
prior to the Effective Date.
5.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to the provisions of Section 5.1, this Agreement will become
void and have no effect, without any liability to any person in respect hereof
or of the transactions contemplated hereby on the part of any party hereto, or
any of its directors, officers, employees, agents, consultants, representatives,
advisers, shareholders, or affiliates, except as specified in Section 8.1 and
except for any liability resulting from such party's breach of this Agreement.
ARTICLE 6
INDEMNIFICATION
6.1 INDEMNIFICATION BY SHAREHOLDER. Each Shareholder, jointly and
severally (but subject to the limitations of this Agreement), covenants and
agrees to defend, indemnify and hold harmless the Company, Acquiror, and their
respective officers, directors, employees, agents, advisers, representatives,
and affiliates (collectively, the "Acquiror Indemnitees") from and against, and
to pay or reimburse
35
Acquiror Indemnitees for, any and all claims, liabilities, obligations, losses,
fines, costs, royalties, proceedings, deficiencies, or damages (whether
absolute, accrued, conditional, or otherwise and whether or not resulting from
third party claims) including without limitation any out-of-pocket expenses and
reasonable attorneys' and accountants' fees incurred in the investigation or
defense of any of the same or in asserting any of their respective rights
hereunder (collectively, "Losses"), resulting from or arising out of:
(a) any inaccuracy of any representation or warranty made by the Company
or the Shareholders herein or in connection herewith;
(b) any failure of the Company or any of the Shareholders to perform any
covenant or agreement hereunder or to fulfill any other obligation in
respect hereof;
(c) all Environmental Liabilities and Costs arising out of the Company's
operations or its business prior to the Effective Date, to the extent
constituting a breach of the representations and warranties in Article 6;
(d) the termination of, or failure to terminate, the ▇▇▇ contracts
identified on Exhibit 2.1(e)(1) to the Company Disclosure Schedule under the
heading "Liability to Build-Out ▇▇▇ Contracts (Dispose))"; and
(e) the Company Tax Returns that have not yet been filed for the years
1998, 1999, and 2000.
6.2 INDEMNIFICATION BY ACQUIROR. Acquiror covenants and agrees to defend,
indemnify, and hold harmless the Shareholders (collectively, the "Shareholder
Indemnitees") from and against any and all Losses resulting from or arising out
of:
(a) any inaccuracy in any representation or warranty by Acquiror made or
contained in this Agreement;
(b) any failure of Acquiror to perform any covenant or agreement made or
contained in this Agreement or to fulfill any other obligation in respect
hereof; and
(c) the operation of the Company following the Effective Date; except,
in the case of clause (b) or (c), to the extent such Losses are attributable
to acts or circumstances occurring prior to the Effective Date or constitute
Losses for which the Shareholders are required to indemnify Acquiror
Indemnitees under this Article 6.
6.3 ADJUSTMENTS TO INDEMNIFICATION PAYMENTS. Any payment made by the
Shareholders to Acquiror Indemnitees, on the one hand, or by Acquiror to
Shareholder Indemnitees, on the other hand, pursuant to this Article 6 in
respect of any claim will be net of any insurance proceeds realized by and paid
to the Indemnified Party or recovered from third parties in respect of such
claim. The Indemnified Party will use its reasonable efforts to make insurance
claims relating to any claim for which it is seeking indemnification pursuant to
this Article 6 or to pursue third party claims; provided that the Indemnified
Party will not be obligated to make such an insurance claim if the Indemnified
Party in its reasonable judgment believes that the cost of pursuing such an
insurance claim together with any corresponding increase in insurance premiums
or other chargebacks to the Indemnified Party, as the case may be, would exceed
the value of the claim for which the Indemnified Party is seeking
indemnification.
6.4 INDEMNIFICATION PROCEDURES. In the case of any claim entitling a party
hereto to indemnification (the "Indemnified Party"), notice will be given by the
Indemnified Party to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party has actual knowledge
of any claim as to which indemnity may be sought, and the Indemnified Party will
permit the Indemnifying Party (at the expense of such Indemnifying Party) to
assume the defense of any claim or any litigation resulting therefrom; provided
that (i) the counsel for the Indemnifying Party
36
who shall conduct the defense of such claim or litigation will be reasonably
satisfactory to the Indemnified Party, (ii) the Indemnified Party may
participate in such defense at such Indemnified Party's expense, and (iii) the
omission by any Indemnified Party to give notice as provided herein will not
relieve the Indemnifying Party of its indemnification obligation under this
Agreement except to the extent that such omission results in a failure of actual
notice to the Indemnifying Party and such Indemnifying Party is materially
damaged as a result of such failure to give notice. Except with the prior
written consent of the Indemnified Party, no Indemnifying Party, in the defense
of any such claim or litigation, will consent to entry of any judgment or enter
into any settlement that provides for injunctive or other nonmonetary relief
affecting the Indemnified Party or that does not include as an unconditional
term thereof the giving by each claimant or plaintiff to such Indemnified Party
of a release from all liability with respect to such claim or litigation. In the
event that the Indemnified Party shall in good faith determine that the
Indemnified Party may have available to it one or more defenses that are
inconsistent with one or more of those that may be available to the Indemnifying
Party in respect of such claim or any litigation relating thereto, the
Indemnified Party will have the right at all times to participate in the
defense, settlement, negotiations, or litigation relating to any such claim. In
the event that the Indemnifying Party does not accept the defense of any matter
as above provided, the Indemnified Party will have the full right to defend
against any such claim or demand and will be entitled to settle or agree to pay
in full such claim or demand. In any event, the Indemnifying Party and the
Indemnified Party will cooperate in the defense of any claim or litigation
subject to this Section 6.4 and the records of each will be available to the
other with respect to such defense.
6.5 LIMITATIONS. Notwithstanding any other provision in this Section 6,
the Acquiror Indemnitees shall be entitled to indemnification only if the
aggregate Losses exceed twenty five thousand dollars ($25,000.00) (the
"THRESHOLD AMOUNT"). The Losses to be paid by the Company and the Shareholders
shall be satisfied solely from the shares subject to the Escrow Agreement and
the Company and Shareholders shall have no other liability under this Article 6
or otherwise for matters covered by Section 6.1. Further, notwithstanding any
other provision in this Section 6, Acquiror shall not be obligated to provide
indemnification to the Shareholders until the aggregate Losses exceed the
Threshold Amount, provided that no Shareholder shall be entitled to
indemnification from Acquiror in an amount greater than the value of the
Acquiror Stock, valued as of the Effective Date, held by such Shareholder. All
claims for indemnification under Article 6 must be initiated on or before the
later of (a) fifteen (15) months from the Effective Date or (b) completion of
the audit of the Company for the year ended December 31, 2001 and delivery of
the accountant's audit report and related financial statements to the Company.
Acquiror agrees to cause such an audit to be undertaken and completed as soon as
possible. Notwithstanding the foregoing, (x) the Losses to be paid by Company
and Shareholders and arising out of or in respect of breaches and
indemnification in respect of Section 2.1(gg) and Section 6.1(d), relating to
the ▇▇▇ contract terminations, shall be satisfied solely from the ▇▇▇ Escrow
Shares and the Company and the Shareholders shall have no other liability under
this Article 6 or otherwise for such matters, and (y) the ▇▇▇ Escrow Shares
shall be available to satisfy claims in respect of breaches and indemnification
in respect of Section 2.1(gg) and Section 6.1(d), relating to ▇▇▇ contract
terminations, and for no other purpose or claim whatsoever.
6.6 MONETARY IMPLICATIONS. Two shares of Series C Preferred, and that
number of Newly Issued Shares of Acquiror Common Stock, Preferred Holders'
Common Stock and Acquiror's common stock issued pursuant to
Section 1.4(d) equal to 2 divided by the per share issuance price of the
Series A Preferred Stock sold by the Acquiror prior to the Effective Date, to
the extent constituting escrow shares, shall be used to satisfy each dollar of
Losses to be paid to the Acquiror Indemnitees by the Company and the
Shareholders. In addition, in the event the representations set forth in
Section 2.1(b)(iv), or in Section 2.1(a) or (c), to the extent related to a
Shareholder, of this Agreement, are not true with respect to any of the issued
and outstanding capital stock of the Company held by such Shareholder, then
indemnification for any Losses relating thereto shall be satisfied (a) first
from the Escrow Shares constituting such Shareholder's Proportionate Stock
Interest (as defined in the
37
Escrow Agreement) and (b) then from all other Shareholders' Proportionate Stock
Interest on a pro rata basis. In the event a release is made pursuant to item
(b) of the previous sentence, by signing this Agreement, the Shareholder whose
breach is responsible for such release pursuant to such item (b) agrees to
indemnify the other Shareholders in respect of the shares lost as a result of
such release.
8.6 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which will be deemed an original and all of which will together
constitute one and the same instrument.
8.7 GOVERNING LAW, ETC. This Agreement will be governed in all respects,
including as to validity, interpretation and effect, by the internal laws of the
State of Utah, without giving effect to the conflict of laws rules thereof.
8.8 BINDING EFFECT. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
8.9 ASSIGNMENT. This Agreement will not be assignable or otherwise
transferable by any party hereto without the prior written consent of the other
parties hereto.
8.10 NO THIRD PARTY BENEFICIARIES. Except as provided in Article 6 with
respect to indemnification of Indemnified Parties hereunder, nothing in this
Agreement will confer any rights upon any person or entity other than the
parties hereto and their respective, successors, and permitted assigns. Without
limiting the generality of the foregoing, no provision of this Agreement will
constitute an offer, guaranty, or contract of employment.
6.7 BINDING EFFECT. The indemnification obligations of Acquiror and the
Shareholders contained in this Section 6 are an integral part of this Agreement
in the absence of which the parties would not have entered into this Agreement.
6.8 SOLE REMEDY. Indemnification under this Article 6 shall be the
exclusive method of recovery for matters covered by it, regardless of whether a
claim for such recovery is characterized as a claim under this Article 6, a
claim for breach of representations, breach of contract, or otherwise.
ARTICLE 7
DISPUTE RESOLUTION
7.1 DISPUTES. Any claim, dispute, or other matter in controversy (herein
called "Dispute"), whether based on contract, tort, statute, or other legal
theory (including but not limited to any claim of fraud or misrepresentation),
arising out of or related to the Agreement or the breach thereof will be settled
according to the procedures set forth in this Article 7 exclusively; PROVIDED,
HOWEVER, that (a) any party may seek preliminary judicial relief if, in its
judgment, such action is necessary to avoid irreparable damage during the
pendency of such procedures, and (b) nothing in this Section 7.1 will prevent
any party from exercising any rights of termination or suspension under
applicable law.
7.2 DIRECT NEGOTIATION. The parties will endeavor in good faith to
promptly resolve the Dispute by direct negotiations between individuals who have
authority to settle such Dispute.
(a) Any party may give another party written notice of any Dispute not
resolved in the normal course of business ("Notice of Dispute"). Within ten
(10) days after delivery of the Notice of Dispute, the receiving party will
submit to the other a written response. The notice and response will include
a summary of the Dispute and a statement of each party's position. Within
ten (10) days after delivery of the notice of dispute, the parties will meet
at a mutually acceptable time and place, or telephonically, and thereafter
as often as they reasonably deem necessary, to attempt to resolve the
Dispute. All reasonable requests for information made by one party to the
other will be honored.
38
(b) All negotiations pursuant to this Section are confidential and will
be treated as compromise and settlement negotiations for purposes of
applicable rules of evidence.
7.3 MEDIATION. If the Dispute has not been resolved by direct negotiations
within sixty (60) days of the response (or due date for the response) to the
disputing party's notice, or if the parties failed to meet within twenty (20)
days, the parties will endeavor to settle the Dispute by mediation in Salt Lake
City, Utah administered by the American Arbitration Association ("AAA") under
its Commercial Mediation Rules in effect on the date of the Notice of Dispute.
(a) Unless otherwise agreed in writing by the parties, mediation will be
commenced by notice of demand for mediation served by either party upon the
other in the same manner as otherwise provided for notice in this Agreement,
and with the AAA, within ten (10) days after the expiration of the period
set forth in this Section 7.3 or on such other date as the parties mutually
agree. The Notice of Demand for mediation will set forth with reasonable
specificity the basis of the Dispute and the performance or relief sought.
(b) In the event either party to the Dispute has need for material
information in the possession of the other in order to prepare for
mediation, the parties will attempt in good faith to agree on procedures for
the exchange of such information, with the help of the mediator, if
required. Any discovery disputes will be resolved by the mediator.
(c) The mediation proceedings are confidential, and no stenographic,
visual or audio record will be made. All conduct, statements, promises,
offers, views, documents, records, papers, and opinions, whether oral or
written, made or delivered in the course of the mediation proceedings by any
of the parties to the Dispute, their agents, employees or representatives,
and by the mediator (who will be the joint agent of the parties for the
purpose of the mediation proceedings), are confidential and will be kept
confidential by all parties to the Dispute and the mediator. Such conduct,
statements, promises, offers, views, documents, records, papers, and
opinions will not be discoverable or admissible for any purposes, and will
not be disclosed to anyone not a party to the Dispute, unless required under
applicable law; provided, however, that by agreement of the parties, the
settlement agreement may be converted into an arbitration award, and the
award, in turn, may be enforced by any court having jurisdiction.
7.4 ARBITRATION. If the parties have first attempted in good faith to
resolve the Dispute by direct negotiations as provided in Section 7.2, mediation
is initiated and the Dispute remains unresolved sixty (60) days after mediation
is initiated, or on whatever date the mediator sooner determines, or the parties
sooner agree in writing, that the Dispute cannot be resolved by mediation, then
the Dispute will be settled by arbitration in Salt Lake City, Utah, in
accordance with the then current Commercial Rules of Arbitration ("Arbitration
Rules") of the AAA in effect on the date of this Agreement, as supplemented or
modified by the following:
(a) Notice of demand for arbitration will be filed with the other party
and AAA after the expiration of the period set forth in this Section 7.4 or
such other date as the parties mutually agree.
(b) Notwithstanding any choice of law or other provisions of this
Agreement to the contrary, the agreement to arbitrate set forth in this
Article 7 will be governed by the Federal Arbitration Act, 9 U.S.C.
Section 1 et seq. (the "Act"), which will not be superseded or supplemented
by any other arbitration act, statute or regulation.
(c) In the event that all or a portion of the Dispute is the
responsibility in whole or in part of a person who is under no obligation to
arbitrate such matter with the parties in the same proceeding, then the
parties will, in the absence of an agreement between them to the contrary,
delay or stay any arbitration between them pending the determination, in a
separate proceeding, of the responsibility and liability of or to such
person for the Dispute or matter involved, provided
39
that the parties will use their best efforts to cause any affiliate of such
party to participate in such arbitration proceedings. Each party agrees that
any arbitration instituted by such party under this Section 7.4 may, at the
election of the other party, be consolidated with any other arbitration
proceeding involving a common question of fact or law between the electing
party and any other persons. In any Dispute concerning the application of
this Section 7.4(c), the question of arbitrability will be decided by the
appropriate court and not by arbitration.
(d) A party who files a notice of demand for arbitration must assert in
the demand all claims, disputes or other matters then known to that party on
which arbitration is permitted to be demanded. When a party fails to include
a claim through oversight, inadvertence or excusable neglect, or when the
claim had not matured at the time of the notice of demand or was acquired
subsequently, the arbitration panel will permit amendment. In no event will
a demand for arbitration be made when the institution of legal or equitable
proceedings based on such Dispute would be barred by laches or any
applicable statute of limitations; and whether or not a Dispute is
time-barred will be decided by an appropriate court having jurisdiction and
not by arbitration.
(e) If the claim in the Dispute does not exceed $100,000, there will be
a single arbitrator selected by mutual agreement of the parties or, if the
parties cannot agree on an arbitrator within ten (10) days, appointed
according to the Arbitration Rules. If the claim in the Dispute exceeds
$100,000, the arbitration panel will consist of three (3) members, one of
whom will be selected by each party and the third, who will serve as
chairman, will be selected by the two (2) so selected. If either party fails
to select an arbitrator within ten (10) days after a demand for arbitration,
or if the two arbitrators named by the parties fail to agree upon a third
within ten (10) days after the last of them have been appointed, then AAA
will select the arbitrator(s) not selected by the parties or the selected
arbitrators. All arbitrators must be neutral and must be knowledgeable in
the subject matter of the Dispute. At least two (2) of the arbitrators on
the panel (or the single arbitrator, as the case may be) must be or have
been a partner in a highly respected law firm for at least fifteen (15)
years specializing in either general corporate or commercial transactional
or litigation matters. The mediator who has served in that capacity under
Section 7.3 or otherwise will not be eligible to serve as an arbitrator.
(f) In advance of the hearing, the arbitrator(s) may compel the parties
to exchange a detailed statement of their claims, including the names and
addresses of the witnesses and a brief description of the documents on which
they intend to rely. The arbitrator(s) may exclude from the hearing the
introduction of any evidence or the testimony of any witness not disclosed
to the other party in advance as ordered by the arbitrator(s). The
arbitrator(s) may also permit the oral depositions of the parties to be
taken. However, there will be no other pre-hearing discovery unless and then
only to the extent that all parties otherwise agree in writing.
(g) Except for good cause, or in case of emergency, the arbitration
hearing will commence within sixty (60) days after the notice of demand for
arbitration is given and will proceed during each business day thereafter
until concluded.
(h) The award may not grant any relief that could not be granted in
court litigation to resolve the Dispute under Utah law. A monetary award may
only be made for compensatory damages, and if any other damages (whether
exemplary, punitive, consequential or other) are included, the award will be
vacated and remanded, or modified or corrected as appropriate to promote
this damage limitation. The arbitration panel will award the prevailing
party in the arbitration its reasonable attorneys' fees and costs incurred
in connection with the arbitration. Any party who succeeds, by claim or
counterclaim, in court proceedings to stay litigation or compel arbitration
will also be entitled to recover all costs incurred in connection with such
proceedings, including attorneys' fees to be awarded by the court. In
addition, the arbitration panel will award the costs of administration by
AAA as it may in its judgment decide.
40
(i) The arbitration award will be in writing and will include a
statement of findings of fact and conclusions of law for the award. Except
as otherwise expressly provided in this Section 7.4, the award rendered by
the arbitrator(s) will be final and judgment may be entered upon it in
accordance with the Act in any court having jurisdiction.
(j) Within fifteen (15) days after the date of the arbitration award,
either party may request the arbitration panel to correct clerical,
typographical or computational errors in the award and to make an additional
award as to claims presented in the arbitration proceedings but not dealt
with in the award.
(k) Either party can appeal to the U.S. District Court for the District
of Utah if such court has jurisdiction, and otherwise to any state court of
record in Salt Lake County, Utah having jurisdiction, to vacate and remand,
or modify or correct the arbitration award for any of the grounds specified
in the Act.
(l) At the request of either party, but only if contained in the initial
written demand for arbitration or in the initial response to the demand, the
arbitration proceedings will be conducted in secrecy. In such case (i) the
fact of the pending arbitration will not be disclosed or confirmed by the
parties or the arbitration panel to any person who is not a party to, or
called to testify at, the proceedings until the arbitration award has been
made, (ii) the proceedings will not be recorded or transcribed in any
manner, and (iii) all documents, testimony and records (other than the
contract documents out of which the Dispute arises) will be received, heard
and maintained by the arbitrator in secrecy, available for inspection only
by the parties, their attorneys and by experts who will agree, in advance
and in writing, to receive all such information in secrecy. Also in such
case, the information will not be described in the arbitration award in such
manner as to be commercially useful.
ARTICLE 8
MISCELLANEOUS
8.1 EXPENSES. Subject to Closing, Acquiror will bear $25,000 of all
expenses, costs, and fees (including attorneys', auditors', and financing
commitment fees) in connection with the transactions contemplated hereby,
including the preparation, execution, and delivery of this Agreement and
compliance herewith (the "Transaction Expenses"). However, if the Transaction
Expenses exceed $25,000, the Shareholders shall be responsible for the
Transaction Expenses that exceed $25,000.
8.2 SEVERABILITY. If any provision of this Agreement, including any
phrase, sentence, clause, section, or subsection is inoperative or unenforceable
for any reason, such circumstances will not have the effect of rendering the
provision in question inoperative or unenforceable in any other case or
circumstance, or of rendering any other provision or provisions herein contained
invalid, inoperative, or unenforceable to any extent whatsoever.
8.3 NOTICES. All notices, demands, and other communications provided for
hereunder will be in writing (including facsimile or similar transmission) and
mailed (by U.S. certified mail, Return receipt requested, postage prepaid),
sent, or delivered (including by way of overnight courier service),
(a) if to Acquiror: Optika Investment Company, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
41
with a copy to: ▇▇▇▇▇ & ▇▇▇▇▇▇ L.L.P.
15 West South Temple, Suite ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Company: Cable Concepts, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇. ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to: ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Geneva Associates Merchant Banking Partners
I, LLC
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
(c) if to a Shareholder, to the address set forth below such
Shareholder's signature on the Signature pages to this Agreement.
or, as to any party, to such other person and/or at such other address
or number as shall be designated by such party in a written notice to the
other party. All such notices, demands, and communications, if mailed, will
be effective upon the earlier of (i) actual receipt by the addressee,
(ii) the date shown on the return receipt of such mailing, or (iii) three
(3) days after deposit in the mail. All such notices, demands, and
communications, if not mailed, will be effective upon the earlier of
(i) actual receipt by the addressee, (ii) with respect to facsimile and
similar electronic transmission, the earlier of (x) the time that electronic
confirmation of a successful transmission is received, or (y) the date of
transmission, if a confirming copy of the transmission is also mailed as
described above on the date of transmission, and (iii) with respect to
delivery by overnight courier service, the day after deposit with the
courier service, if delivery on such day by such courier is confirmed with
the courier or the recipient orally or in writing.
8.4 HEADINGS. The headings contained in this Agreement are for purposes of
convenience only and will not affect the meaning or interpretation of this
Agreement.
8.5 ENTIRE AGREEMENT. This Agreement (including the Company Disclosure
Schedules and the exhibits hereto) constitute the entire agreement and supersede
all prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof.
8.6 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which will be deemed an original and all of which will together
constitute one and the same instrument.
8.7 GOVERNING LAW, ETC. This Agreement will be governed in all respects,
including as to validity, interpretation and effect, by the internal laws of the
State of Utah, without giving effect to the conflict of laws rules thereof.
42
8.8 BINDING EFFECT. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
8.9 ASSIGNMENT. This Agreement will not be assignable or otherwise
transferable by any party hereto without the prior written consent of the other
parties hereto.
8.10 NO THIRD PARTY BENEFICIARIES. Except as provided in Article 6 with
respect to indemnification of Indemnified Parties hereunder, nothing in this
Agreement will confer any rights upon any person or entity other than the
parties hereto and their respective, successors, and permitted assigns. Without
limiting the generality of the foregoing, no provision of this Agreement will
constitute an offer, guaranty, or contract of employment.
8.11 AMENDMENT; WAIVERS, ETC. No amendment, modification, or discharge of
this Agreement, and no waiver hereunder, will be valid or binding unless set
forth in writing and duly executed by the party against whom enforcement of the
amendment, modification, discharge, or waiver is sought. Any such waiver will
constitute a waiver only with respect to the specific matter described in such
writing and will in no way impair the rights of the party granting such waiver
in any other respect or at any other time. Neither the waiver by any of the
parties hereto of a breach of or a default under any of the provisions of this
Agreement, nor the failure by any of the parties, on one or more occasions, to
enforce any of the provisions of this Agreement or to exercise any right or
privilege hereunder, will be construed as a waiver of any other breach or
default of a similar nature, or as a waiver of any of such provisions, rights,
or privileges hereunder. The rights and remedies herein provided are cumulative
and are not exclusive of any rights or remedies that any party may otherwise
have at law or in equity. The rights and remedies of any party based upon,
arising out of or otherwise in respect of any inaccuracy or breach of any
representation, warranty, covenant, or agreement, or failure to fulfill any
condition will in no way be limited by the fact that the act, omission,
occurrence, or other state of facts upon which any claim of any such inaccuracy
or breach is based may also be the subject matter of any other representation,
warranty, covenant, or agreement as to which there is no inaccuracy or breach.
The representations and warranties of the Company and the Shareholders will not
be affected or deemed waived by reason of any investigation made by or on behalf
of Acquiror (including but not limited to, by any of its advisors, consultants,
or representatives) or by reason of the fact that Acquiror or any of such
advisors, consultants, or representatives knew or should have known that any
such representation or warranty is or might be inaccurate.
8.12 LEGAL COUNSEL. Each Shareholder hereby acknowledges that ▇▇▇▇▇▇▇
▇▇▇▇▇ & ▇▇▇▇▇ LLP represents the Company solely and that such Shareholder has
had opportunity to consult with his or her own advisors, including, but not
limited to, legal and tax advisors.
8.13 RELEASE. Effective as of the Effective Date, and except as to claims
under this Agreement, rights with respect to debt owed, salary, vacation pay,
benefits, and reimbursements of employment-related expenses, each Shareholder
hereby irrevocably waives and releases all known and unknown claims such
Shareholder may have against the Company, Acquiror, any of the Company's
subsidiaries, any of the Acquiror's subsidiaries, or any present and former
directors, officers, agents, and employees of the Company, Acquiror, any of the
Company's subsidiaries, or any of the Acquiror's subsidiaries, from any and all
actions, claims, causes of action, or liabilities of any nature, in law or
equity, known or unknown, and whether or not heretofore asserted, which such
Shareholder ever had, now has, or hereafter can, will, or may have against any
of the foregoing, upon or by reason of any matter, cause, or thing whatsoever
from the formation of the Company and each of the Company's subsidiaries to the
Effective Date.
8.14 SPOUSAL CONSENTS. Each of the Shareholders which are natural persons,
whose shares of stock of the Company constitute community or marital property
under the laws of any applicable jurisdiction, shall cause their spouse to
execute and deliver to the Company a consent (the "Consent") to the transactions
contemplated by this Agreement with respect to such shares of stock of the
43
Company, which Consent shall be in the form of Exhibit J. Any Shareholder that
does not deliver to the Company such Consent, hereby represents and warrants to
Acquiror that the shares of stock of the Company owned by such Shareholder do
not constitute community or marital property under the laws of any applicable
jurisdiction.
8.15 OTHER TAX MATTERS.
(a) COOPERATION. Acquiror and Shareholders shall cooperate fully, as
and to the extent reasonably requested by the other party, in connection
with the filing of all Tax Returns the due date of which occurs after the
date of the Closing and any audit, litigation or other proceeding with
respect to Taxes of the Company; provided that no Shareholder shall be
required to prepare or file any Tax Return of the Company. Such cooperation
shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to any
such audit, litigation or other proceeding and making employees available on
a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Shareholders agree to, and
Acquiror agrees to cause the Company to, retain all books and records with
respect to Tax matters pertinent to the Company relating to any taxable
period beginning before the date of the Closing until the expiration of the
statute of limitations (including any extension thereof) of the respective
taxable periods and to abide by all record retention agreements entered into
with any taxing authority. So long as taxable periods of, or related to the
Company ending on or before the date of the Closing remain open, Acquiror
will, and will cause the Company to, promptly notify Shareholders in writing
of any pending or threatened tax audits or assessments for which
Shareholders have or may have liability. Shareholders will promptly notify
Acquiror and the Company in writing of any written or other notification
received by Shareholders from the Internal Revenue Service or any other
taxing authority of any proposed adjustment raised in connection with a tax
audit, examination, proceeding or determination of a taxable period of the
Company ending on or before the date of the Closing.
(b) TAX REFUNDS. Any refunds of Taxes of the Company received
following the Effective Date by the Shareholders, the Company, or the
Acquiror shall be the property of the Company.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
44
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
OPTIKA INVESTMENT COMPANY, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------------
Title: President
-----------------------------------------
DD ACQUISITION, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
Title: President
-----------------------------------------
CABLE CONCEPTS, INC.
By: /s/ ▇▇▇ ▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇ ▇▇▇▇▇▇
-----------------------------------------
Title: President
-----------------------------------------
45
SHAREHOLDERS:
CLASS A COMMON STOCK SHAREHOLDERS:
/s/ ▇▇▇ ▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------------- -------------------------------------------
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------------- -------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ #▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
------------------------------------------- -------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇.
------------------------------------------- -------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇ Blue Ridge Investors II Limited Partnership
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇. By:
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ Its:
P. O. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------------
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, L.L.C.
By:
Its:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
46
CLASS B COMMON STOCK SHAREHOLDERS:
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇.
-------------------------------------------
Blue Ridge Investors II Limited Partnership
By:
Its:
P. O. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇.
-------------------------------------------
Geneva Associates Merchant Banking
Partners I, LLC
By:
Its:
P. O. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
47
CLASS C COMMON STOCK SHAREHOLDERS:
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇. /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------- -------------------------------------------
Geneva Associates Merchant Banking Geneva Associates LLC
Partners I, LLC By:
By: Its:
Its: P. O. ▇▇▇ ▇▇▇▇▇
▇. ▇. ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇
------------------------------------------- -------------------------------------------
Potpourri Press Profit Sharing & Trust ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇
By: P. O. Box 1510
Its: ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------------- -------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇. /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------------------- -------------------------------------------
Badger Capital I, LLC ▇▇▇▇ ▇▇▇▇▇▇▇▇
By: Whiteco Industries
Its: ▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ 700-N
▇▇-▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Frontier Spinning ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
48
CLASS D COMMON STOCK SHAREHOLDERS:
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇ /s/ J. ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇.
------------------------------------------- -------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇ J. ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇.
Whiteco Industries Thetford Investment Management
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ 700-N ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------------- -------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Revocable Trust
▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇ By:
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ Its:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇ /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------------- -------------------------------------------
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Whiteco Industries ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇-▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------------- -------------------------------------------
Geneva Associates Advisors, LLC ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇
By: Prime Residential
Its: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
P. O. ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------------
Namtron Family Trust
By:
Its:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
49