Exhibit 10.2
AGREEMENT AND PLAN OF MERGER
among
Othnet, Inc.,
Othnet Merger Sub, Inc.,
and
Association of Volleyball Professionals, Inc.
Dated as of June 29, 2004
AGREEMENT AND PLAN OF MERGER, dated as of June 29, 2004 (the
"Agreement"), among Othnet, Inc., a Delaware Corporation
("Othnet"), Othnet Merger Sub, Inc., a Delaware corporation and
wholly owned subsidiary of Othnet ("Merger Sub"), and Association
of Volleyball Professionals, Inc., a Delaware corporation (the
"Company"). Othnet, Shareholder, Merger Sub, and the Company are
collectively referred to herein as the "Parties." Othnet and
Merger Sub are sometimes referred to herein collectively as the
"Othnet Parties."
RECITALS:
WHEREAS, the respective boards of directors of each of
Othnet, Merger Sub and the Company have approved the merger of
Merger Sub with and into the Company (the "Merger") upon the
terms and subject to the conditions set forth in this Agreement;
WHEREAS, it is intended that, for federal income tax
purposes, the Merger shall qualify as a reorganization under the
provisions of Section 368(a) of the Internal Revenue Code of
1986, as amended, and the rules and regulations promulgated
thereunder (the "Code"); and
WHEREAS, the Company, Othnet and Merger Sub desire to make
certain representations, warranties, covenants and agreements in
connection with this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual
promises herein made, and in consideration of the
representations, warranties, covenants and agreements herein
contained, and intending to be legally bound hereby, the Parties
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Definitions. In addition to other terms
defined elsewhere herein, the following terms shall, when used in
this Agreement, have the following meanings:
"Acquisition" means the acquisition by a Person of any
businesses, assets or property other than in the ordinary course,
whether by way of the purchase of assets or stock, by merger,
consolidation or otherwise.
"Affiliate" means, with respect to any Person: (i) any
Person directly or indirectly owning, controlling, or holding
with power to vote 10% or more of the outstanding voting
securities of such other Person (other than passive or
institutional investors); (ii) any Person 10% or more of whose
outstanding voting securities are directly or indirectly owned,
controlled, or held with power to vote, by such other Person;
(iii) any Person directly or indirectly controlling, controlled
by, or under common control with such other Person; and (iv) any
officer, director or partner of such other Person. "Control" for
the foregoing purposes shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the
ownership of voting securities or voting interests, by contract
or otherwise.
"Business Day" means any day other than Saturday, Sunday or
a day on which banking institutions in Los Angeles, California,
are required or authorized to be closed.
"Code" means the United States Internal Revenue Code of
1986, as amended.
"Collateral Documents" mean the Exhibits and any other
documents, instruments and certificates to be executed and
delivered by the Parties hereunder or thereunder.
"Commission" means the Securities and Exchange Commission or
any Regulatory Authority that succeeds to its functions.
"Company Assets" mean all properties, assets, privileges,
powers, rights, interests and claims of every type and
description that are owned, leased, held, used or useful in the
Company Business and in which the Company has any right, title or
interest or in which the Company acquires any right, title or
interest on or before the Closing Date, wherever located, whether
known or unknown, and whether or not now or on the Closing Date
on the books and records of the Company, but excluding any of the
foregoing, if any, transferred prior to the Closing pursuant to
this Agreement or any Collateral Documents.
"Company Business" means the acquisition and operating of
sports and entertainment events.
"Company Common Stock" means the common shares of the
Company.
"Company Preferred Stock" means the Series A Preferred Stock
of the Company.
"Company Shareholders" means, as of any particular date, the
holders of Company Common Stock and Series A Preferred Stock on
that date.
"Company Stock" means the Company Common Stock and the
Company Preferred Stock.
"Encumbrance" means any material mortgage, pledge, lien,
encumbrance, charge, security interest, security agreement,
conditional sale or other title retention agreement, limitation,
option, assessment, restrictive agreement, restriction, adverse
interest, restriction on transfer or exception to or material
defect in title or other ownership interest (including
restrictive covenants, leases and licenses).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"Legal Requirement" means any statute, ordinance, law, rule,
regulation, code, injunction, judgment, order, decree, ruling, or
other requirement enacted, adopted or applied by any Regulatory
Authority, including judicial decisions applying common law or
interpreting any other Legal Requirement.
"Losses" shall mean all damages, awards, judgments,
assessments, fines, sanctions, penalties, charges, costs,
expenses, payments, diminutions in value and other losses,
however suffered or characterized, all interest thereon, all
costs and expenses of investigating any claim, lawsuit or
arbitration and any appeal therefrom, all actual attorneys',
accountants' investment bankers' and expert witness' fees
incurred in connection therewith, whether or not such claim,
lawsuit or arbitration is ultimately defeated and, subject to
Section 9.4, all amounts paid incident to any compromise or
settlement of any such claim, lawsuit or arbitration.
"Liability" means any liability or obligation (whether known
or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), including any
liability for Taxes.
"Material Adverse Effect" means a material adverse effect on
(i) the assets, liabilities, properties or business of the
Parties, (ii) the validity, binding effect or enforceability of
this Agreement or the Collateral Documents or (iii) the ability
of any Party to perform its obligations under this Agreement and
the Collateral Documents; provided, however, that none of the
following shall constitute a Material Adverse Effect on the
Company: (a) occurrences due to a disruption of a Party's
business as a result of the announcement of the execution of this
Agreement or changes caused by the taking of action required by
this Agreement, (b) general economic conditions, or (c) any
changes generally affecting the industries in which a Party
operates.
"Merger Shares" means the shares of Othnet Series A
Convertible Preferred Stock deliverable by Othnet in exchange for
Company Common Stock pursuant to Section 2.5(a).
"Othnet Assets" mean all properties, assets, privileges,
powers, rights, interests and claims of every type and
description that are owned, leased, held, used or useful in the
Othnet Business and in which Othnet or any of its Subsidiaries
has any right, title or interest or in which Othnet or any of its
Subsidiaries acquires any right, title or interest on or before
the Closing Date, wherever located, whether known or unknown, and
whether or not now or on the Closing Date on the books and
records of Othnet or any of its Subsidiaries.
"Othnet Business" means the business conducted by Othnet and
its Subsidiaries.
"Othnet Common Stock" means the common shares of Othnet.
"Othnet Preferred Stock" means Series A Convertible
Preferred Stock and the Series B Convertible Preferred Stock of
Othnet.
"Othnet Securities Filings" means Othnet's Annual Report on
Form 10-KSB and its quarterly reports on Form 10-QSB, and all
other reports filed and to be filed with the Commission prior to
the Effective Time.
"Othnet Series A Convertible Preferred Stock" means shares
of Series A Preferred Stock of Othnet to be designated by the
Board of Directors of Othnet prior to the Closing containing the
terms and provisions set forth in Exhibit A hereto.
"Othnet Series B Convertible Preferred Stock" means shares
of Series B Preferred Stock of Othnet to be designated by the
Board of Directors of Othnet prior to the Closing containing the
terms and provisions set forth in Exhibit B hereto.
"Othnet Shareholders" means the holders of Othnet Common
Stock immediately prior to the Effective Time.
"Permit" means any license, permit, consent, approval,
registration, authorization, qualification or similar right
granted by a Regulatory Authority.
"Permitted Liens" means (i) liens for Taxes not yet due and
payable or being contested in good faith by appropriate
proceedings; (ii) rights reserved to any Regulatory Authority to
regulate the affected property; (iii) statutory liens of banks
and rights of set-off; (iv) as to leased assets, interests of the
lessors and sublessors thereof and liens affecting the interests
of the lessors and sublessors thereof; (v) inchoate
materialmen's, mechanics', workmen's, repairmen's or other like
liens arising in the ordinary course of business; (vi) liens
incurred or deposits made in the ordinary course in connection
with workers' compensation and other types of social security;
(vii) licenses of trademarks or other intellectual property
rights granted by the Company or Othnet, as the case may be, in
the ordinary course and not interfering in any material respect
with the ordinary course of the business of the Company or
Othnet, as the case may be; and (viii) as to real property, any
encumbrance, adverse interest, constructive or other trust,
claim, attachment, exception to or defect in title or other
ownership interest (including, but not limited to, reservations,
rights of entry, rights of first refusal, possibilities of
reversion, encroachments, easement, rights-of-way, restrictive
covenants, leases, and licenses) of any kind, which otherwise
constitutes an interest in or claim against property, whether
arising pursuant to any Legal Requirement, under any contract or
otherwise, that do not, individually or in the aggregate,
materially and adversely affect or impair the value or use
thereof as it is currently being used in the ordinary course.
"Person" means any natural person, corporation, partnership,
trust, unincorporated organization, association, limited
liability company, Regulatory Authority or other entity.
"Regulatory Authority" means: (i) the United States of
America; (ii) any state, commonwealth, territory or possession of
the United States of America and any political subdivision
thereof (including counties, municipalities and the like); (iii)
Canada and any other foreign (as to the United States of America)
sovereign entity and any political subdivision thereof; or (iv)
any agency, authority or instrumentality of any of the foregoing,
including any court, tribunal, department, bureau, commission or
board.
"Representative" means any director, officer, employee,
agent, consultant, advisor or other representative of a Person,
including legal counsel, accountants and financial advisors.
"Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
"Subsidiary" of a specified Person means (a) any Person if
securities having ordinary voting power (at the time in question
and without regard to the happening of any contingency) to elect
a majority of the directors, trustees, managers or other
governing body of such Person are held or controlled by the
specified Person or a Subsidiary of the specified Person; (b) any
Person in which the specified Person and its subsidiaries
collectively hold a 50% or greater equity interest; (c) any
partnership or similar organization in which the specified Person
or subsidiary of the specified Person is a general partner; or
(d) any Person the management of which is directly or indirectly
controlled by the specified Person and its Subsidiaries through
the exercise of voting power, by contract or otherwise.
"Tax" means any U.S. or non U.S. federal, state, provincial,
local or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs duties, capital,
franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property,
intangible property, recording, occupancy, sales, use, transfer,
registration, value added minimum, estimated or other tax of any
kind whatsoever, including any interest, additions to tax,
penalties, fees, deficiencies, assessments, additions or other
charges of any nature with respect thereto, whether disputed or
not.
"Tax Return" means any return, declaration, report, claim
for refund or credit or information return or statement relating
to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
"Treasury Regulations" means regulations promulgated by the
U.S. Treasury Department under the Code.
ARTICLE II
THE MERGER
2.1 Merger; Surviving Corporation. In accordance with and
subject to the provisions of this Agreement and the General
Corporation Law of the State of Delaware ("GCL"), at the
Effective Time (as defined in Section 2.4), the Merger Sub shall
be merged with and into the Company (the "Merger"), and the
Company shall be the surviving corporation in the Merger
(hereinafter sometimes called the "Surviving Corporation") and
shall continue its corporate existence under the laws of the
State of Delaware. At the Effective Time, the separate existence
of the Merger Sub shall cease. All properties, franchises and
rights belonging to the Company and Merger Sub, by virtue of the
Merger and without further act or deed, shall be vested in the
Surviving Corporation, which shall thenceforth be responsible for
all the liabilities and obligations of each of Merger Sub and the
Company.
2.2 Articles of Incorporation. The Company's certificate
of incorporation, as in effect at the Effective Time, shall
continue in full force and effect as the certificate of
incorporation of the Surviving Corporation until altered or
amended as provided therein or by law.
2.3 By-Laws. The Company's by-laws, as in effect at the
Effective Time, shall be the by-laws of the Surviving Corporation
until altered, amended or repealed as provided therein or by law.
2.4 Effective Time. The Merger shall become effective at
the time and date that the certificate of merger with an
Officers' Certificate of each of the Merger Sub and the Company
(the "Certificate of Merger"), in form and substance acceptable
to the Parties, is accepted for filing by the Secretary of State
of the State of Delaware in accordance with the provisions of the
GCL. The Certificate of Merger shall be executed by the Merger
Sub and the Company and delivered to the Secretary of State of
the State of Delaware for filing on the Closing Date. The date
and time when the Merger becomes effective are referred to herein
as the "Effective Time."
2.5 Merger Shares; Conversion and Cancellation of
Securities.
(a) Conversion of Company Common Stock. At the
Effective Time, all shares of Company Stock outstanding
immediately before the Effective Time and all Options as defined
in Section 3.2(b) converted pursuant to Section 2.5(b) and stock
options authorized for issuance to Company employees and players,
other than shares described in Section 2.5(c) and other than
Dissenting Shares (as defined in Section 2.8), collectively, the
"Excluded Shares", shall be converted, by virtue of the Merger,
into an amount of Series A Convertible Preferred Stock (together
with the aforesaid options "Merger Shares") determined as
follows:
(i) Subject to adjustment as elsewhere provided
herein, the amount of Merger Shares shall equal the sum of (I)
the product obtained by multiplying (A) the sum of the amount of
(i) Othnet stock outstanding on a fully diluted basis (i.e.,
common stock outstanding or issuable upon exercise or conversion
of outstanding securities or other rights to acquire Othnet
common stock), without giving effect to the Merger or the
Financings, as hereinafter defined ("Outstanding Othnet"), plus
(ii) the amount of Othnet common stock ("Bridge Stock") issued or
issuable upon exercise or conversion of securities issued
pursuant to the Bridge Financing, as hereinafter defined, minus
the product obtained by multiplying the amount of shares subject
to warrants included in the Bridge Stock by a fraction, the
numerator of which shall be .21, and the denominator of which
shall be .5366; plus (iii) the quotient obtained by dividing
$4,000,000 by $.5366 by (B) 1.6681 (i.e., the quotient obtained
by dividing .6252 by 1 minus .6252), plus (II) any excess of the
quotient obtained by dividing $4,000,000 by .5366 over the amount
of the amount of Othnet common stock issuable upon conversion of
the Othnet Series B Convertible Preferred Stock ("Series B
Stock") to be issued in the Private Placement (together with the
Bridge Financing, the "Financings") referred to in Section 5.11.
(ii) Section 5.2(a)(i) is expressed algebraically
as follows:
MS = (O + (BS - (W*(.21/.5633)) + (4,000,000/.5366))*1.6881
+ (($4,000,000/.5366) - B)
Where: MS is the amount of Merger Shares;
O is the amount of Outstanding Othnet;
BS is the amount of Bridge Stock;
B is the amount of Othnet common stock issuable upon
conversion of the Series B Stock; and
W is the amount of warrants issued pursuant to the
Bridge Financing.
(iii) The amount of Merger Shares determined in
accordance with the previous section shall be subject to
adjustment as follows: If the amount of Outstanding Othnet shall
be 22,344,279 shares; the Series B Stock shall be sold pursuant
to the Private Placement at a price of $0.5366 per share; at
least 20 units (but not more than 23 units), comprised as set
forth in Section 6.10, shall be sold in the Bridge Financing, and
the notes ("Bridge Notes") sold in the Bridge Financing shall be
convertible into Othnet common stock at a per share price equal
to 85% of the price at which sold pursuant to the Private
Placement; the sum of the principle amount of converted Bridge
Notes plus the proceeds net to Othnet of the Private Placement
shall be $6,300,000; and Othnet shall have no debt as of the
Closing Date, no adjustment shall be made. In any other case,
adjustment to the amount of Merger Shares shall be made so that
the holders of Merger Shares immediately after giving effect to
the Merger and the Financings shall be in at least as good a
position vis- -vis the other holders of Othnet equity securities
as such holders of Merger Shares would have been had the
immediately preceding sentence been true.
(iv) Notwithstanding anything else contained
herein, (x) it is expressly understood that the shares underlying
warrants referred to in Section 11.15 shall not be included in
any calculation under this Section 2.5(a), and (y), if, within 24
months from the date of Closing, it shall be determined that, as
of the Closing Date, Othnet shall have had any Liability, other
than unconverted Bridge Notes, additional Merger Shares, on an as
converted basis, or Othnet common stock equal to the quotient
obtained by dividing the amount of such Liabilities by .5366
shall be issued pro rata among those persons who were holders of
Merger Shares immediately after the Closing. The right to
receive such additional shares shall not be transferable other
than by will, inheritance, or operation of law.
(v) Sample calculations are set forth as Exhibit
2.5(a).
At the Effective Time, all Company Shares shall no longer be
outstanding and shall be cancelled and retired and shall cease to
exist, and each certificate formerly representing any Company
Common Stock (other than Excluded Shares) shall thereafter
represent only the right to the Merger Shares and any
distribution or dividend pursuant to Section 2.6(b).
(b) Stock Options. At the Effective Time, each
outstanding option to purchase Company Common Stock (a "Company
Option"), whether vested or unvested, shall be deemed to
constitute a fully vested option to acquire, on the same terms
and conditions as were applicable under such Company Option, the
same number of shares of Othnet Series A Convertible Preferred
Stock as the holder of such Company Option would have been
entitled to receive pursuant to the Merger had such holder
exercised such option in full immediately prior to the Effective
Time (rounded up to the nearest whole number), at a price per
share (rounded up to the nearest whole cent) equal to (i) the
aggregate exercise price for the Company Common Stock otherwise
purchasable pursuant to such Company Option divided by (ii) the
number of full shares of Othnet Series A Convertible Preferred
Stock deemed purchasable pursuant to such Company Option in
accordance with the foregoing. At or prior to the Effective
Time, Othnet shall take all corporate action necessary to reserve
for issuance a sufficient number of Othnet Series A Convertible
Preferred Stock for delivery upon exercise of Company Options
assumed by it in accordance with this Section.
(c) Treasury Shares, Etc. Each share of Company
Common Stock held in the treasury of the Company and (each share
of Company Common Stock, if any, held by Othnet or any Subsidiary
of Othnet or of the Company immediately before the Effective
Time) shall be cancelled and extinguished, and nothing shall be
issued or paid in respect thereof.
(d) Fractional Shares. No certificates or scrip
evidencing fractional shares of Othnet Preferred Stock shall be
issued in exchange for Company Common Stock. All fractional
share amounts shall be rounded up to the nearest whole share.
2.6 Surrender of Company Certificates.
(a) Exchange Procedures. Promptly after the Effective
Time, Othnet or its appointed designee shall mail to each holder
of a certificate or certificates of Company Common Stock
("Company Certificates") whose shares are converted into the
right to receive the Merger Shares, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of
loss and title to the Company Certificates shall pass to Othnet,
only upon delivery of the Company Certificates to Othnet and
which shall be in such form and have such other provisions as
Othnet may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Company Certificates in exchange
for the Merger Shares and any dividends or other distributions
pursuant to Section 2.6(b). Upon surrender of Company
Certificates for cancellation to Othnet, together with such
letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holders of such
Company Certificates shall be entitled to receive the Merger
Shares in exchange therefore and any dividends or distributions
payable pursuant to Section 2.6(b), and the Company Certificates
so surrendered shall forthwith be canceled. Until so
surrendered, outstanding Company Certificates will be deemed from
and after the Effective Time, for all corporate purposes, subject
to Section 2.8, to evidence the ownership of the number of full
shares of Othnet Preferred Stock into which such shares of the
Company Common Stock shall have been so converted and any
dividends or distributions payable pursuant to Section 2.6(b).
Notwithstanding the foregoing, if any Company Certificate is
lost, stolen, destroyed or mutilated, such holder shall provide
evidence reasonably satisfactory to Othnet as to such loss,
theft, destruction or mutilation and an affidavit in form and
substance satisfactory to Othnet, and, thereupon, such holder
shall be entitled to receive the Merger Shares in exchange
therefore and any dividends or distributions payable pursuant to
Section 2.6(b), and the Company Certificates so surrendered shall
forthwith be canceled.
(a) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the date
of this Agreement with respect to Othnet Common Stock with a
record date after the Effective Time, will be paid to the holders
of any unsurrendered Company Certificates with respect to the
shares of Othnet Preferred Stock represented thereby until the
holders of record of such Company Certificates shall surrender
such Company Certificates or, in the case of any Company
Certificate which is lost, stolen, destroyed or mutilated, an
affidavit in form and substance satisfactory to Othnet. Subject
to applicable law, following surrender of any such Company
Certificates or delivery of such affidavit, Othnet shall deliver
to the record holders thereof, without interest, the Merger
Shares hereof and the amount of any such dividends or other
distributions with a record date after the Effective Time payable
with respect to such whole shares of Othnet Preferred Stock.
(b) Transfers of Ownership. If certificates for shares of
Othnet Preferred Stock are to be issued in a name other than that
in which the Company Certificates surrendered in exchange
therefore are registered, it will be a condition of the issuance
thereof that the Company Certificates so surrendered will be
properly endorsed and otherwise in proper form for transfer and
that the persons requesting such exchange will have paid to
Othnet or any agent designated by it any transfer or other taxes
required by reason of the issuance of certificates for shares of
Othnet Preferred Stock in any name other than that of the
registered holder of the Company Certificates surrendered, or
established to the satisfaction of Othnet or any agent designated
by it that such tax has been paid or is not payable.
(c) Required Withholding. In connection with any payment to any
holder or former holder of the Company Common Stock, each of
Othnet and the Surviving Corporation shall be entitled to deduct
and withhold from any consideration payable or otherwise
deliverable pursuant to this Agreement to any holder or former
holder of the Company Common Stock such amounts as may be
required to be deducted or withheld therefrom under the Code or
under any provision of state, local or foreign tax law or under
any other applicable laws. To the extent such amounts are so
deducted or withheld, such amounts shall be treated for all
purposes under this Agreement as having been paid to the person
to whom such amounts would otherwise have been paid.
(d) No Liability. Notwithstanding anything to the contrary in
this Section 2.6, neither Othnet, the Surviving Corporation nor
any party hereto shall be liable to any Person for any amount
properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Company
Certificate shall not have been surrendered prior to the date
immediately prior to the date on which such property would
otherwise escheat to or become the property of any Governmental
or Regulatory Authority, any such property, to the extent
permitted by applicable law, shall become the property of the
Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.
(e) Termination. Any holders of the Company Certificates who
have not complied with this ARTICLE II shall look only to Othnet
or the Surviving Corporation for, and Othnet and the Surviving
Corporation shall remain liable for, payment of their claim for
Merger Shares and any dividends or distributions with respect to
Othnet Common Stock, without interest thereon.
2.7 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be
no further registration of transfers of shares of Company Common
Stock thereafter on the records of the Company.
2.8 Dissenting Shares. Shares of Company Common Stock
which are issued and outstanding immediately prior to the
Effective Time and which are held by persons who have properly
exercised, and not withdrawn or waived, appraisal rights with
respect thereto in accordance with the GCL (the "Dissenting
Shares"), will not be converted into the right to receive the
Merger Shares, and holders of such shares of Company Common Stock
will be entitled, in lieu thereof, to receive payment of the
appraised value of such shares of Company Common Stock in
accordance with the provisions of the GCL unless and until such
holders fail to perfect or effectively withdraw or lose their
rights to appraisal and payment under the GCL. If, after the
Effective Time, any such holder fails to perfect or effectively
withdraws or loses such right, such shares of Company Common
Stock will thereupon be treated as if they had been converted at
the Effective Time into the right to receive the Merger Shares,
without any interest thereon. The Company will give Othnet
prompt notice of any demands received by the Company for
appraisal of shares of Company Common Stock. Prior to the
Effective Time, the Company will not, except with the prior
written consent of Othnet make any payment with respect to, or
settle or offer to settle, any such demands.
2.9 Restriction on Transfer. The Merger Shares may not be
sold, transferred, or otherwise disposed of without registration
under the Act or an exemption therefrom, and that in the absence
of an effective registration statement covering the Merger Shares
or any available exemption from registration under the Act, the
Merger Shares must be held indefinitely. The Company
Shareholders are aware that the Merger Shares may not be sold
pursuant to Rule 144 promulgated under the Act unless all of the
conditions of that Rule are met. Among the conditions for use of
Rule 144 may be the availability of current information to the
public about Othnet.
2.10 Restrictive Legend. All certificates representing the
Merger Shares shall contain the following legend:
"THE SECURITIES REPRESENTED BY THIS
CERTIFICATE, ARE SUBJECT TO THE TERMS OF AN
AGREEMENT AND PLAN OF MERGER, DATED AS OF
[THE DATE HEREOF], AMONG OTHNET INC., OTHNET
MERGER SUB, INC. AND [THE COMPANY], A COPY OF
WHICH IS ON FILE IN THE PRINCIPAL OFFICE OF
THE ISSUER. FURTHER, THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE
SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF
WITHOUT REGISTRATION UNDER THE ACT OR AN
EXEMPTION THEREFROM."
2.11 Closing. The closing of the transactions contemplated
by this Agreement and the Collateral Documents (the "Closing")
shall take place at the offices of the Company, or at such other
location as the parties may agree at 11:00 a.m., Pacific Time on
the agreed date, which, shall be four (4) weeks after delivery to
Othnet of the Company Audited Financial Statements pursuant to
Section 3.8, but no earlier than August 31, 2004 (the "Closing
Date").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Othnet that the
statements contained in this ARTICLE III are correct and complete
as of the date of this Agreement and, except as provided in
Section 7.1, will be correct and complete in all material
respects as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this
Agreement throughout this ARTICLE III, except in the case of
representations and warranties stated to be made as of the date
of this Agreement or as of another date and except for changes
contemplated or permitted by this Agreement).
3.1 Organization and Qualification. The Company and each
of its Subsidiaries, collectively referred to herein as the
Company, is a corporation duly organized, validly existing and in
good standing under the laws of its respective jurisdiction of
organization. The Company has all requisite power and authority
to own, lease and use its assets as they are currently owned,
leased and used and to conduct its business as it is currently
conducted. The Company is duly qualified or licensed to do
business in and is in good standing in each jurisdiction in which
the character of the properties owned, leased or used by it or
the nature of the activities conducted by it make such
qualification necessary, except any such jurisdiction where the
failure to be so qualified or licensed would not have a Material
Adverse Effect on the Company or a material adverse effect on the
validity, binding effect or enforceability of this Agreement or
the Collateral Documents or the ability of the Company to perform
its obligations under this Agreement or any of the Collateral
Documents.
3.2 Capitalization.
(a) The authorized, issued and outstanding capital stock and
other ownership interests of the Company consists of 22,110,000
shares of common stock, of which 14,233,672 shares were
outstanding as of the date hereof and 4,950,000 shares of Series
A Preferred Stock, all of which were outstanding as the date
hereof. All of the outstanding Company capital stock has been
duly authorized and are validly issued, fully paid and
nonassessable.
(b) Listed in Item 3.2(b) to the disclosure schedule delivered
by the Company to Othnet (the "Company Disclosure Schedule") are
all outstanding or authorized options, warrants, purchase rights,
preemptive rights or other contracts or commitments that could
require the Company to issue, sell, or otherwise cause to become
outstanding any of its capital stock or other ownership interests
(collectively "Options").
(c) All of the issued and outstanding shares of Company Common
Stock have been duly authorized and are validly issued and
outstanding, fully paid and nonassessable and have been issued in
compliance with applicable securities laws and other applicable
Legal Requirements or transfer restrictions under applicable
securities laws.
3.3 Authority and Validity. The Company has all requisite
corporate power to execute and deliver, to perform its
obligations under, and to consummate the transactions
contemplated by, this Agreement (subject to the approval of the
Company Shareholders as contemplated by Section 5.6 and to
receipt of any consents, approvals, authorizations or other
matters referred to in Section 5.2). The execution and delivery
by the Company of, the performance by the Company of its
obligations under, and the consummation by the Company of the
transactions contemplated by, this Agreement have been duly
authorized by all requisite action of the Company (subject to the
approval of the Company Shareholders as contemplated by
Section 5.6). This Agreement has been duly executed and
delivered by the Company and (assuming due execution and delivery
by the Othnet Parties and approval by the Company Shareholders)
is the legal, valid, and binding obligation of the Company,
enforceable against it in accordance with its terms, except that
such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii)
general equitable principles. Upon the execution and delivery of
the Collateral Documents by each Person (other than the Othnet
Parties) that is required by this Agreement to execute, or that
does execute, this Agreement or any of the Collateral Documents,
and assuming due execution and delivery thereof by the Othnet
Parties, the Collateral Documents will be the legal, valid and
binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except that
such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii)
general equitable principles.
3.4 No Breach or Violation. Subject to obtaining the
consents, approvals, authorizations, and orders of and making the
registrations or filings with or giving notices to Regulatory
Authorities and Persons identified herein, the execution,
delivery and performance by the Company of this Agreement and the
Collateral Documents to which it is a party, and the consummation
of the transactions contemplated hereby and thereby in accordance
with the terms and conditions hereof and thereof, do not and will
not conflict with, constitute a violation or breach of,
constitute a default or give rise to any right of termination or
acceleration of any right or obligation of the Company under, or
result in the creation or imposition of any Encumbrance upon the
Company, the Company Assets, the Company Business or the Company
Common Stock by reason of the terms of (i) the articles of
incorporation, by-laws or other charter or organizational
document of the Company or any Subsidiary of the Company, (ii)
any material contract, agreement, lease, indenture or other
instrument to which the Company is a party or by or to which the
Company, or the Assets may be bound or subject and a violation of
which would result in a Material Adverse Effect on the Company,
(iii) any order, judgment, injunction, award or decree of any
arbitrator or Regulatory Authority or any statute, law, rule or
regulation applicable to the Company or (iv) any Permit of the
Company, which in the case of (ii), (iii) or (iv) above would
have a Material Adverse Effect on the Company or a material
adverse effect on the validity, binding effect or enforceability
of this Agreement or the Collateral Documents or the ability of
the Company to perform its obligations under this Agreement or
any of the Collateral Documents.
3.5 Consents and Approvals. Except for requirements
described in Item 3.5 of the Company Disclosure Schedule, no
consent, approval, authorization or order of, registration or
filing with, or notice to, any Regulatory Authority or any other
Person is necessary to be obtained, made or given by the Company
in connection with the execution, delivery and performance by the
Company of this Agreement or any Collateral Document or for the
consummation by the Company of the transactions contemplated
hereby or thereby, except to the extent the failure to obtain any
such consent, approval, authorization or order or to make any
such registration or filing would not have a Material Adverse
Effect on the Company or a material adverse effect on the
validity, binding effect or enforceability of this Agreement or
the Collateral Documents or the ability of the Company to perform
its obligations under this Agreement or any of the Collateral
Documents.
3.6 Intellectual Property. The Company has good title to
or the right to use all material company intellectual property
rights and all material inventions, processes, designs, formulae,
trade secrets and know-how necessary for the operation of the
Company Business without the payment of any royalty or similar
payment. Item 3.6 of the Company Disclosure Schedule lists all
patents, trade names, trademarks and service marks, all patent,
trademark and service ▇▇▇▇ registrations or applications,
presently owned, possessed, used or held by the Company and all
copyrights and copyright applications and registrations, relating
to the business of the Company, all of which are collectively
referred to as the "Proprietary Rights". Item 3.6 of the Company
Disclosure Schedule also lists all licenses, if any granted by or
to the Company. Except as set forth in Item 3.6 of the Company
Disclosure Schedule, the Company has not granted to any person,
firm or corporation, any right, license or privilege in any of
the Proprietary Rights or the know-how used in the business of
the Company nor have such Proprietary Rights or know-how been
revealed to any persons other that its employees, customers and
consultants. No Proprietary Rights or applications or grants of
licenses set forth in Item 3.6 of the Company Disclosure Schedule
are subject to any pending or threatened challenge.
3.7 Compliance with Legal Requirements. The Company has
operated the Company Business in compliance with all Legal
Requirements applicable to the Company except to the extent the
failure to operate in compliance with all material Legal
Requirements would not have a Material Adverse Effect on the
Company or Material Adverse Effect on the validity, binding
effect or enforceability of this Agreement or the Collateral
Documents.
3.8 Financial Statements. Item 3.8 of the Company
Disclosure Schedule includes (i) an unaudited statement of
operations of the Company as of December 31, 2003 and (ii) an
unaudited balance sheet of the Company as of March 31, 2004. Such
financial statements (the "Company Unaudited Financial
Statements") have been prepared in accordance with U.S. generally
accepted accounting principles (GAAP) applied on a basis
consistent throughout all periods presented, present fairly in
all material respects the financial condition of the Company and
its results of operations as of the date and for the periods
indicated subject to year-end adjustments based on the Company's
outside auditors' review of such Financial Statements with
respect to the unaudited financial statements. At the earliest
possible time, the Company shall deliver to Othnet the following
financial statements of the Company which shall have been audited
by an independent certified public accounting firm (the "Company
Auditors") and which shall be presented in accordance with United
States generally accepted accounting principles applied on a
basis consistent throughout all the years presented: Balance
Sheet as at December 31, 2003, and Statements of Income,
Statements of Cash Flows and Changes in Stockholder's Equity for
the years ended December 31, 2002 and 2003, and the notes
relating thereto (the "Company Audited Financial Statements").
In addition thereto, at the earliest possible time but prior to
the Effective Time, the Company shall deliver to the Company the
unaudited Balance Sheet of the Company as at June 30, 2004 and
the related Statements of Income, Statements of Cash Flows for
the period then ended which will be prepared in accordance with
U.S. generally accepted accounting principles applicable on a
basis consistent throughout all periods presented and which will
include a report of the Company Auditors confirming that they
have reviewed such financial statements using professional
standards and procedures for conducting such reviews as
established by generally accepted auditing standards (the
"Company June 30, 2004 Financial Statements"). All of the
financial statements to be delivered pursuant hereto will be
complete and accurate and present fairly the financial position
of the Company and the results of its operations and changes in
its financial positions as of the dates and for the periods
indicated as being covered thereby.
3.9 Litigation. Except as set forth on Item 3.9 of the
Company Disclosure Schedule, there are no outstanding judgments
or orders against or otherwise affecting or related to the
Company, the Company Business or the Company Assets and there is
no action, suit, complaint, proceeding or investigation,
judicial, administrative or otherwise, that is pending or, to the
Company's knowledge, threatened that, if adversely determined,
would have a Material Adverse Effect on the Company or a material
adverse effect on the validity, binding effect or enforceability
of this Agreement or the Collateral Documents.
3.10 Taxes. The Company has duly and timely filed in proper
form all Tax Returns for all Taxes required to be filed with the
appropriate Regulatory Authority, and has paid all Taxes required
to be paid in respect thereof except where such failure would not
have a Material Adverse Effect on the Company.
3.11 Books and Records. The books and records of the
Company accurately and fairly represent the Company Business and
its results of operations in all material respects. All accounts
receivable and inventory of the Company Business are reflected
properly on such books and records in all material respects.
3.12 Brokers or Finders. Except as set forth on Item 3.12 of
the Company Disclosure Schedule, all negotiations relative to
this Agreement and the transactions contemplated hereby have been
carried out by the Company or any of its Affiliates in connection
with the transactions contemplated by this Agreement, and neither
the Company, nor any of its Affiliates has incurred any
obligation to pay any brokerage or finder's fee or other
commission in connection with the transaction contemplated by
this Agreement.
3.13 Proxies. Company management holds, or prior to the
Closing will hold, irrevocable proxies from the Company
Shareholders adequate to ensure Company Shareholder approval of
the Merger as required by applicable law.
3.14 No Undisclosed Liabilities. Except as set forth as
Item 3.14 of the Company Disclosure Schedule, the Company is not
subject to any material liability (including, to Company's
knowledge, unasserted claims), absolute or contingent, which is
not shown or which is in excess of amounts shown or reserved for
in the March 31, 2004 balance sheet, other than liabilities of
the same nature as those set forth in the Company Financial
Statements and reasonably incurred in the ordinary course of its
business after March 31, 2004.
3.15 Absence of Certain Changes. Except as set forth as Item
3.15 of the Company Disclosure Schedule hereto since March 31,
2004, the Company has not: (a) suffered any material adverse
change in its financial condition, assets, liabilities or
business; (b) except in the ordinary course of business,
contracted for or paid any capital expenditures; (c) incurred any
indebtedness or borrowed money, issued or sold any debt or equity
securities, declared any dividends or discharged or incurred any
liabilities or obligations except in the ordinary course of
business as heretofore conducted; (d) mortgaged, pledged or
subjected the Company to any lien, lease, security interest or
other charge or encumbrance any of its properties or assets; (e)
paid any material amount on any indebtedness prior to the due
date, forgiven or cancelled any material amount on any
indebtedness prior to the due date, forgiven or cancelled any
material debts or claims or released or waived any material
rights or claims; (f) suffered any damage or destruction to or
loss of any assets (whether or not covered by insurance); (g)
except in the ordinary course of business, acquired or disposed
of any assets or incurred any liabilities or obligations; (h)
made any payments to its affiliates or associates or loaned any
money to any person or entity; (i) formed or acquired or disposed
of any interest in any corporation, partnership, limited
liability company, joint venture or other entity; (j) except in
the ordinary course of business, entered into any employment,
compensation, consulting or collective bargaining agreement or
any other agreement of any kind or nature with any person or
group, or modified or amended in any respect the terms of any
such existing agreement; (k) entered into any other commitment or
transaction or experience any other event that relates to or
affect in any way this Agreement or to the transactions
contemplated hereby, or that has affected, or may adversely
affect the Company's business, operations, assets, liabilities or
financial condition; or (1) amended its certificate of
incorporation or By-laws, except as otherwise contemplated
herein.
3.16 Contracts. Item 3.16 of the Company Disclosure
Schedule is a true and complete list of all contracts,
agreements, leases, commitments or other understandings or
arrangements, written or oral, express or implied, to which the
Company is a party or by which it or any of its property is bound
or affected requiring payments to or from, or incurring of
liabilities by, the Company in excess of $25,000 (the
"Contracts"). Except as set forth as Item 3.16 of the Company
Disclosure Schedule, the Company has complied with and performed,
in all material respects, all of its obligations required to be
performed under and is not in default with respect to any of the
Contracts, as of the date hereof, nor has any event occurred
which has not been cured which, with or without the giving of
notice, lapse of time, or both, would constitute a default in any
respect thereunder. To the best knowledge of the Company, no
other party has failed to comply with or perform, in all material
respects, any of its obligations required to be performed under
or is in material default with respect to any such Contracts, as
of the date hereof, nor has any event occurred which, with or
without the giving of notice, lapse of time or both, would
constitute a material default in any respect by such party
thereunder. Except as set forth as Item 3.16 of the Company
Disclosure Schedule, the Company knows of no and has no reason to
believe that there are any facts or circumstances which would
make a material default by any party to any contract or
obligation likely to occur subsequent to the date hereof.
3.17 Permits and Licenses. The Company has all certificates
of occupancy, rights, permits, certificates, licenses,
franchises, approvals and other authorizations as are reasonably
necessary to conduct its business and to own, lease, use, operate
and occupy its assets, at the places and in the manner now
conducted and operated, except those the absence of which would
not materially adversely affect its business. The Company has not
received any written or oral notice or claim pertaining to the
failure to obtain any material permit, certificate, license,
approval or other authorization required by any federal, state or
local agency or other regulatory body, the failure of which to
obtain would materially and adversely affect its business.
3.18 Assets Necessary to Business. The Company owns or
leases all properties and assets, real, personal, and mixed,
tangible and intangible, and is a party to all licenses, permits
and other agreements necessary to permit it to carry on its
business as presently conducted. Item 3.18 of the Company
Disclosure Schedule lists all of the material properties and
assets of the Company and all material contracts to which it is a
party or by which it is bound. Prior to Closing, the Company
will make all records available to Othnet with respect to all
such material contracts.
3.19 Labor Agreements and Labor Relations. The Company has
no collective bargaining or union contracts or agreements. The
Company is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of
employment and wages and hours, and is not engaged in any unfair
labor practices; to the Company's knowledge, there are no charges
of discrimination or unfair labor practice charges or complaints
against the Company pending or threatened before any governmental
or regulatory agency or authority; and, there is no labor strike,
dispute, slowdown or stoppage actually pending or threatened
against or affecting the Company.
3.20 Employment Arrangements. Except as set forth as Item
3.20 of the Company Disclosure Schedule hereto, the Company has
no employment or consulting agreements or arrangements, written
or oral, which are not terminable at the will of the Company, or
any pension, profit-sharing, option, other incentive plan, or any
other type of employment benefit plan as defined in ERISA or
otherwise, or any obligation to or customary arrangement with
employees for bonuses, incentive compensation, vacations,
severance pay, insurance or other benefits. No employee of the
Company is in violation of any employment agreement or
restrictive covenant.
3.21 Affiliate Transactions. Except as set forth in Item
3.21 of the Company Disclosure Schedule, no officer, director or
employee of the Company (or any of the relatives or affiliates of
any of the aforementioned persons) is a party to any agreement,
contract, commitment or transaction with the Company or affecting
the business of the Company, or has any interest in any property,
whether real, personal or mixed, or tangible or intangible, used
in or necessary to the Company which will subject the Company to
any liability or obligation from and after the Effective Time.
3.22 Restrictive Agreements. There is no agreement
(non-compete or otherwise), commitment, judgment, injunction,
order or decree to which the Company is a party or otherwise
binding upon the Company which would have a material adverse
effect on the Company's business. Except as set forth in Item
3.22 of the Company Disclosure Schedule, the Company has not
entered into any agreement under which the Company is restricted
from selling, licensing or otherwise distributing any of its
products to or providing services to, customers or potential
customers or any class of customers, in any geographic areas,
during any period of time or in any segment of the market.
3.23 Disclosure. No representation or warranty of the
Company in this Agreement or in the Collateral Documents and no
statement in any certificate furnished or to be furnished by the
Company pursuant to this Agreement contained, contains or will
contain on the date such agreement or certificate was or is
delivered, or on the Closing Date, any untrue statement of a
material fact, or omitted, omits or will omit on such date to
state any material fact necessary in order to make the statements
made, in light of the circumstances under which they were made,
not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE OTHNET PARTIES
Each of the Othnet Parties, jointly and severally, represent
and warrant to the Company that the statements contained in this
ARTICLE IV are correct and complete as of the date of this
Agreement and, except as provided in Section 8.1, will be correct
and complete in all material respects as of the Closing Date (as
though made then and as though the Closing Date were substituted
for the date of this Agreement throughout this ARTICLE IV, except
in the case of representations and warranties stated to be made
as of the date of this Agreement or as of another date and except
for changes contemplated or permitted by the Agreement).
4.1 Organization and Qualification. Each of Othnet and
Merger Sub is a corporation duly organized, validly existing and
in good standing under the laws of Delaware and California,
respectively. Each of Othnet and Merger Sub has all requisite
power and authority to own, lease and use its assets as they are
currently owned, leased and used and to conduct its business as
it is currently conducted. Both Othnet and Merger Sub are duly
qualified or licensed to do business in and are each in good
standing in each jurisdiction in which the character of the
properties owned, leased or used by it or the nature of the
activities conducted by it makes such qualification necessary,
except any such jurisdiction where the failure to be so qualified
or licensed and in good standing would not have a Material
Adverse Effect on Othnet or a Material Adverse Effect on the
validity, binding effect or enforceability of this Agreement or
the Collateral Documents or the ability of the Company or any of
the Othnet Parties to perform their obligations under this
Agreement or any of the Collateral Documents.
4.2 Capitalization.
(a) As of the date hereof, the authorized capital stock of
Othnet consists of 2,000,000 shares of Preferred Stock, $.001 par
value of which there are no shares outstanding and 40,000,000
shares of common stock $0.001 par value of which there are
17,794,279 shares outstanding. The shares of Othnet Preferred
Stock included in the Merger Shares, when issued in accordance
with this Agreement, will have been duly authorized, validly
issued and outstanding and will be fully paid and nonassessable.
(b) As of the date hereof, the authorized capital stock of
Merger Sub consists of 100 shares of common stock no par value of
which there are 100 shares outstanding. Each outstanding share
of Merger Sub is duly authorized, validly issued and outstanding
and will be fully paid and nonassessable and is owned by Othnet.
(c) Listed in Item 4.2(c) to the disclosure schedule delivered
by Othnet to the Company (the "Othnet Disclosure Schedule") are
all outstanding or authorized options, warrants, purchase rights,
preemptive rights or other contracts or commitments that could
require Othnet or any of its Subsidiaries to issue, sell, or
otherwise cause to become outstanding any of its capital stock or
other ownership interests.
(d) All of the issued and outstanding shares of Othnet Capital
Stock, and all outstanding ownership interests of each of
Othnet's Subsidiaries have been duly authorized and are validly
issued and outstanding, fully paid and nonassessable (with
respect to Subsidiaries that are corporations) and have been
issued in compliance with applicable securities laws and other
applicable Legal Requirements.
4.3 Authority and Validity. Each Othnet Party has all
requisite power to execute and deliver, to perform its
obligations under, and to consummate the transactions
contemplated by, this Agreement and the Collateral Documents.
The execution and delivery by each Othnet Party of, the
performance by each Othnet Party of its respective obligations
under, and the consummation by the Othnet Parties of the
transactions contemplated by, this Agreement and the Collateral
Documents have been duly authorized by all requisite action of
each Othnet Party. This Agreement has been duly executed and
delivered by each of the Othnet Parties and (assuming due
execution and delivery by the Company) is the legal, valid and
binding obligation of each Othnet Party, enforceable against each
of them in accordance with its terms except that such enforcement
may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general
equitable principles. Upon the execution and delivery by each of
the Othnet Parties of the Collateral Documents to which each of
them is a party, and assuming due execution and delivery thereof
by the other parties thereto, the Collateral Documents will be
the legal, valid and binding obligations of each such Person, as
the case may be, enforceable against each of them in accordance
with their respective terms except that such enforcement may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting or relating to enforcement of
creditors' rights generally and (ii) general equitable
principles.
4.4 No Breach or Violation. Subject to obtaining the
consents, approvals, authorizations, and orders of and making the
registrations or filings with or giving notices to Regulatory
Authorities and Persons identified herein, the execution,
delivery and performance by the Othnet Parties of this Agreement
and the Collateral Documents to which each is a party and the
consummation of the transactions contemplated hereby and thereby
in accordance with the terms and conditions hereof and thereof,
do not and will not conflict with, constitute a violation or
breach of, constitute a default or give rise to any right of
termination or acceleration of any right or obligation of any
Othnet Party under, or result in the creation or imposition of
any Encumbrance upon the property of Othnet or Merger Sub by
reason of the terms of (i) the articles of incorporation, by-laws
or other charter or organizational document of any Othnet Party,
(ii) any contract, agreement, lease, indenture or other
instrument to which any Othnet Party is a party or by or to which
any Othnet Party or their property may be bound or subject and a
violation of which would result in a Material Adverse Effect on
Othnet taken as a whole, (iii) any order, judgment, injunction,
award or decree of any arbitrator or Regulatory Authority or any
statute, law, rule or regulation applicable to any Othnet Party
or (iv) any Permit of Othnet or Merger Sub, which in the case of
(ii), (iii) or (iv) above would have a Material Adverse Effect on
Othnet or a material adverse effect on the validity, binding
effect or enforceability of this Agreement or the Collateral
Documents or the ability of any Othnet Party to perform its
obligations hereunder or thereunder.
4.5 Consents and Approvals. Except for requirements under
applicable United States or state securities laws, no consent,
approval, authorization or order of, registration or filing with,
or notice to, any Regulatory Authority or any other Person is
necessary to be obtained, made or given by any Othnet Party in
connection with the execution, delivery and performance by them
of this Agreement or any Collateral Documents or for the
consummation by them of the transactions contemplated hereby or
thereby, except to the extent the failure to obtain such consent,
approval, authorization or order or to make such registration or
filings or to give such notice would not have a Material Adverse
Effect on Othnet or a material adverse effect on the validity,
binding effect or enforceability of this Agreement or the
Collateral Documents or the ability of the Company or any of the
Othnet Parties to perform its obligations under this Agreement or
any of the Collateral Documents.
4.6 Compliance with Legal Requirements. Othnet and its
Subsidiaries have operated the Othnet Business in compliance with
all material Legal Requirements including, without limitation,
the Exchange Act and the Securities Act applicable to Othnet and
its Subsidiaries, except to the extent the failure to operate in
compliance with all material Legal Requirements, would not have a
Material Adverse Effect on Othnet or a Material Adverse Effect on
the validity, binding effect or enforceability of this Agreement
or the Collateral Documents.
4.7 Litigation. There are no outstanding judgments or
orders against or otherwise affecting or related to Othnet, any
of its Subsidiaries, or their business or assets; and there is no
action, suit, complaint, proceeding or investigation, judicial,
administrative or otherwise, that is pending or, to the best
knowledge of any Othnet Party, threatened that, if adversely
determined, would have a Material Adverse Effect on Othnet or a
material adverse effect on the validity, binding effect or
enforceability of this Agreement or the Collateral Documents.
4.8 Ordinary Course. Since the date of the balance sheet
included in the most recent Othnet Securities Filings filed
through the date hereof, there has not been any occurrence,
event, incident, action, failure to act or transaction involving
Othnet or any of its Subsidiaries which is reasonably likely,
individually or in the aggregate, to have a Material Adverse
Effect on Othnet.
4.9 Assets and Liabilities. As of the date of this
Agreement, neither Othnet nor any of its Subsidiaries has any
Assets or Liability, except for the (i) Assets and Liabilities
disclosed in the balance sheet included in the most recent Othnet
Securities Filings filed through the date hereof or disclosed on
Item 4.9 to the Company Disclosure Schedule and (ii) Liabilities
incurred in connection with this Agreement, the Financings and
expenses referred to in Sections 6.10 and 8.10.
4.10 Taxes. Othnet has, and each of its Subsidiaries has,
duly and timely filed in proper form all Tax Returns for all
Taxes required to be filed with the appropriate Governmental
Authority, except where such failure to file would not have a
Material Adverse Effect on Othnet.
4.11 Books and Records. The books and records of Othnet and
its Subsidiaries accurately and fairly represent the Othnet
Business and its results of operations in all material respects.
All accounts receivable and inventory of the Othnet Business are
reflected properly on such books and records in all material
respects.
4.12 Financial and Other Information.
(a) The historical financial statements (including the
notes thereto) contained (or incorporated by reference) in the
Othnet Securities Filings have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered
thereby (except as may be indicated in the notes thereto), and
present fairly the financial condition of Othnet and its results
of operations as of the dates and for the periods indicated,
subject in the case of the unaudited financial statements only to
normal year-end adjustments (none of which will be material in
amount) and the omission of footnotes.
(b) To the knowledge of current management, the Othnet
Securities Filings did not, as of their filing dates, contain
(directly or by incorporation by reference) any untrue statement
of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein (or
incorporated therein by reference), in light of the circumstances
under which they were or will be made, not misleading.
4.13 Brokers or Finders. Except as contemplated in
connection with the Financings, no broker or finder has acted
directly or indirectly for Othnet, any Othnet Party or any of
their Affiliates in connection with the transactions contemplated
by this Agreement, and neither Othnet, any Othnet Party nor any
of their Affiliates has incurred any obligation to pay any
brokerage or finder's fee or other commission in connection with
the transaction contemplated by this Agreement. The Company
shall have no liability regarding any broker or finder engaged by
Othnet.
4.14 Disclosure. No representation or warranty of Othnet in
this Agreement or in the Collateral Documents and no statement in
any certificate furnished or to be furnished by Othnet pursuant
to this Agreement contained, contains or will contain on the date
such agreement or certificate was or is delivered, or on the
Closing Date, any untrue statement of a material fact, or
omitted, omits or will omit on such date to state any material
fact necessary in order to make the statements made, in light of
the circumstances under which they were made, not misleading.
4.15 Filings. To the knowledge of current management,
Othnet has made all of the filings required by the Securities Act
of 1933, as amended, and the Exchange Act of 1934, as amended,
required to be made and no such filing contains any untrue
statement of a material fact or omits to state a material fact
necessary to make the statements made, not misleading.
ARTICLE V
COVENANTS OF THE COMPANY
Between the date of this Agreement and the Closing Date:
5.1 Additional Information. The Company shall provide to
Othnet and its Representatives such financial, operating and
other documents, data and information relating to the Company,
the Company Business and the Company Assets and Liabilities of
the Company, as Othnet or its Representatives may reasonably
request. In addition, the Company shall take all action
necessary to enable Othnet and its Representatives to review,
inspect and audit the Company Assets, the Company Business and
Liabilities of the Company and discuss them with the Company's
officers, employees, independent accountants, customers,
licensees, and counsel. Notwithstanding any investigation that
Othnet may conduct of the Company, the Company Business, the
Company Assets and the Liabilities of the Company, the Othnet
Parties may fully rely on the Company's warranties, covenants and
indemnities set forth in this Agreement.
5.2 Consents and Approvals. As soon as practicable after
execution of this Agreement, the Company shall use commercially
reasonable efforts to obtain any necessary consent, approval,
authorization or order of, make any registration or filing with
or give any notice to, any Regulatory Authority or Person as is
required to be obtained, made or given by the Company to
consummate the transactions contemplated by this Agreement and
the Collateral Documents.
5.3 Non-circumvention. It is understood that in connection
with the transactions contemplated hereby, the Othnet Parties
have been and will be seeking to find investors willing to
provide loans and/or capital investments to finance the Company's
business plans. In connection therewith, during the term of this
Agreement, and for a period of one year thereafter in the event
this Agreement is terminated prior to consummation, the Company
will not, and it will cause its directors, officers, employees,
agents and representatives not to, attempt, directly or
indirectly, (i) to contact any party introduced to it by any of
the Othnet Parties, or (ii) deal with, or otherwise become
involved in any transaction with any party which has been
introduced to it by any of the Othnet Parties, without the
express written permission of the introducing party and without
having entered into a commission agreement with the introducing
party. Any violation of the covenant shall be deemed an attempt
to circumvent the Othnet parties, and the party so violating this
covenant shall be liable for damages in favor of the circumvented
party.
5.4 No Solicitations. From and after the date of this
Agreement until the Effective Time or termination of this
Agreement pursuant to ARTICLE X, the Company will not, nor will
it permit any of its officers, directors or agents acting on its
behalf to: (a) take any action to solicit, initiate, encourage or
assist the submission of any proposal, negotiation or offer from
any person or entity other than Othnet, and other person(s) or
entities for purposes of soliciting their participation as
investors or co-investors with the Company, relating to the
acquisition, sale or transfer of any of the capital stock of the
Company or any material part of the assets of the Company; (b)
offer to sell or transfer any of the capital stock of the Company
or any material part of the assets of the Company to any person
other than Othnet and/or other person(s) or entities who
participate as investors or co-investors with Othnet; or
(c) disclose financial or other information relating to the
Company other than in the ordinary course of business to any
person or entity other than Othnet, Othnet's agents and
representatives, and other person(s) or entities for purposes of
soliciting their participation as investors or co-investors with
Othnet, except with the written consent of Othnet. The Company
acknowledges and agrees that the legal remedies available to
Othnet in the event the Company violates any of the foregoing
covenants would be inadequate and that Othnet shall be entitled
to specific performance, injunctive relief and other equitable
remedies in the event of any such violation. The Company will
immediately notify Othnet regarding any contact between the
Company, any of its directors, officers, employees, agents or
representatives and any other person regarding any offer,
proposal or inquiry during this exclusivity period.
5.5 Notification of Adverse Change. The Company shall
promptly notify Othnet of any material adverse change in the
condition (financial or otherwise) of the Company.
5.6 Meeting of the Company Shareholders. Promptly after
the date hereof, the Company will take all action necessary in
accordance with its articles of incorporation and by-laws, and in
accordance with federal and state securities laws, to convene a
meeting of the Company's shareholders to consider the adoption
and approval of this Agreement and approval of the Merger to be
held as promptly as practicable. The Company will use its
reasonable efforts to solicit from its shareholders proxies in
favor of the adoption and approval of this Agreement and the
approval of the Merger and will take all other action necessary
or advisable to secure the vote or consent of its shareholders
required by the GCL to obtain such approvals. In lieu of such
meeting, the adoption and approval of this Agreement and the
Merger may be approved by shareholder consent.
5.7 Notification of Certain Matters. The Company shall
promptly notify Othnet of any fact, event, circumstance or action
known to it that is reasonably likely to cause the Company to be
unable to perform any of its covenants contained herein or any
condition precedent in ARTICLE VII not to be satisfied, or that,
if known on the date of this Agreement, would have been required
to be disclosed to Othnet pursuant to this Agreement or the
existence or occurrence of which would cause any of the Company's
representations or warranties under this Agreement not to be
correct and/or complete. The Company shall give prompt written
notice to Othnet of any adverse development causing a breach of
any of the representations and warranties in ARTICLE III as of
the date made. In the event that the Company Disclosure Schedule
is not delivered contemporaneously with the execution of this
Agreement, it shall be delivered as soon as practicable but no
later than the date of delivery to Othnet of the Company Audited
Financial Statements pursuant to Section 3.8.
5.8 Company Disclosure Schedule. The Company shall, from
time to time prior to Closing, supplement the Company Disclosure
Statement with additional information that, if existing or known
to it on the date of delivery to the Othnet Parties, would have
been required to be included therein. For purposes of
determining the satisfaction of any of the conditions to the
obligations of the Othnet Parties in ARTICLE VII, the Company
Disclosure Statement shall be deemed to include only (a) the
information contained therein on the date of this Agreement and
(b) information added to the Company Disclosure Statement by
written supplements delivered prior to Closing by the Company
that (i) are accepted in writing by Othnet, or (ii) reflect
actions taken or events occurring after the date hereof prior to
Closing.
5.9 State Statutes. The Company and its Board of Directors
shall, if any state takeover statute or similar law is or becomes
applicable to the Merger, this Agreement or any of the
transactions contemplated by this Agreement, use all reasonable
efforts to ensure that the Merger and the other transactions
contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and
otherwise to minimize the effect of such statute or regulation on
the Merger, this Agreement and the transactions contemplated
hereby.
5.10 Conduct of Business. Prior to the Closing Date, the
Company shall conduct its business in the normal course, and
shall not sell, pledge, or assign any assets, without the prior
written approval of Othnet, except in the regular course of
business. Except as otherwise provided herein, the Company shall
not amend its Articles of Incorporation or Bylaws: declare
dividends, redeem or sell stock or other securities; incur
additional or newly-funded liabilities; acquire or dispose of
fixed assets; change employment terms; except in the ordinary
course of business, enter into any material or long-term
contract; guarantee obligations of any third party; settle or
discharge any balance sheet receivable for less than its stated
amount or pay more on any liability than its stated amount; or
enter into any other transaction other than in the regular course
of business.
5.11 Private Placement. Promptly after the date hereof, the
Company and Othnet shall complete the preparation of a private
placement memorandum (the "Memorandum"), which shall be
reasonably acceptable to both parties, for the offering (the
"Private Placement") of up to $6,300,000 (net of any conversion
of Notes as defined in Section 6.10) (or such other lesser amount
as the parties shall mutually agree) of Othnet Series B Preferred
Stock based upon a valuation of the Company of $42,000,000. The
Memorandum shall be prepared in accordance with the applicable
requirements of the Securities Act of 1933, as amended, and any
applicable state or foreign securities laws, and Othnet shall
cause such offering to be made to "accredited investors" only and
to be conducted in compliance with all such laws. Othnet shall be
responsible for any and all required filings with the Securities
and Exchange Commission and shall make any required blue sky
filing in any applicable state in connection with the offering
contemplated by the Memorandum. The information contained in the
Memorandum relating to each of Othnet and the Company, its
business and its prospects shall not contain any untrue statement
of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements
therein not misleading.
5.12 Employment Agreements. Prior to the Effective Time,
the AVP will use its best efforts to execute employment
agreements with its key members of management on terms reasonably
acceptable to Othnet.
ARTICLE VI
COVENANTS OF THE OTHNET PARTIES
Between the date of this Agreement and the Closing Date,
6.1 Additional Information. Othnet shall provide to the
Company and its Representatives such financial, operating and
other documents, data and information relating to Othnet and its
Subsidiaries, the Othnet Business and the Othnet Assets and the
Liabilities of Othnet and its Subsidiaries, as the Company or its
Representatives may reasonably request. In addition, the Company
shall take all action necessary to enable the Company and its
Representatives to review and inspect the Othnet Assets, the
Othnet Business and the Liabilities of Othnet and its
Subsidiaries and discuss them with the Company's officers,
employees, independent accountants and counsel. Notwithstanding
any investigation that the Company may conduct of Othnet and its
Subsidiaries, the Othnet Business, the Othnet Assets and the
Liabilities of Othnet and its Subsidiaries, the Company may fully
rely on the Othnet Parties' warranties, covenants and indemnities
set forth in this Agreement.
6.2 No Solicitations. From and after the date of this
Agreement until the Effective Time or termination of this
Agreement pursuant to ARTICLE X, Othnet will not nor will it
authorize or permit any of its officers, directors, affiliates or
employees or any investment banker, attorney or other advisor or
representative retained by it, directly or indirectly, (i)
solicit or initiate the making, submission or announcement of any
other acquisition proposal, (ii) participate in any discussions
or negotiations regarding, or furnish to any person any
non-public information with respect to any other acquisition
proposal, (iii) engage in discussions with any Person with
respect to any other acquisition proposal, except as to the
existence of these provisions, (iv) approve, endorse or recommend
any other acquisition proposal, (v) offer to sell or transfer any
of the capital stock of the Company or any material part of the
assets of the Company, except as contemplated hereby, for the
purpose of consummating the transactions contemplated hereby; or
(vi) enter into any letter of intent or similar document or any
contract agreement or commitment contemplating or otherwise
relating to any of the foregoing.
6.3 Notification of Adverse Change. Othnet shall promptly
notify the Company of any material adverse change in the
condition (financial or otherwise) of Othnet.
6.4 Consents and Approvals. As soon as practicable after
execution of this Agreement, the Othnet Parties shall use their
commercially reasonable efforts to obtain any necessary consent,
approval, authorization or order of, make any registration or
filing with or give notice to, any Regulatory Authority or Person
as is required to be obtained, made or given by any of the Othnet
Parties to consummate the transactions contemplated by this
Agreement and the Collateral Documents.
6.5 Notification of Certain Matters. Othnet shall promptly
notify the Company of any fact, event, circumstance or action
known to it that is reasonably likely to cause any Othnet Party
to be unable to perform any of its covenants contained herein or
any condition precedent in ARTICLE VIII not to be satisfied, or
that, if known on the date of this Agreement, would have been
required to be disclosed to the Company pursuant to this
Agreement or the existence or occurrence of which would cause any
of the Othnet Parties' representations or warranties under this
Agreement not to be correct and/or complete. The Othnet Parties
shall give prompt written notice to the Company of any adverse
development causing a breach of any of the representations and
warranties in ARTICLE IV.
6.6 Othnet Disclosure Schedule. The Othnet Parties shall,
from time to time prior to Closing, supplement the Othnet
Disclosure Statement with additional information that, if
existing or known to it on the date of this Agreement, would have
been required to be included therein. For purposes of
determining the satisfaction of any of the conditions to the
obligations of the Company in ARTICLE VIII, the Othnet Disclosure
Statement shall be deemed to include only (a) the information
contained therein on the date of delivery to the Company and (b)
information added to the Othnet Disclosure Statement by written
supplements delivered prior to Closing by the Othnet Parties that
(i) are accepted in writing by the Company or (ii) reflect
actions taken or events occurring after the date hereof and prior
to Closing.
6.7 State Statutes. Othnet and its Board of Directors
shall, if any state takeover statute or similar law is or becomes
applicable to the Merger, this Agreement or any of the
transactions contemplated by this Agreement, use all reasonable
efforts to ensure that the Merger and the other transactions
contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and
otherwise to minimize the effect of such statute or regulation on
the Merger, this Agreement and the transactions contemplated
hereby.
6.8 Securities Filings. Othnet will timely file all
reports and other documents relating to the operation of Othnet
required to be filed with the Securities and Exchange Commission,
which reports and other documents do not and will not contain any
misstatement of a material fact, and do not and will not omit any
material fact necessary to make the statements therein not
misleading.
6.9 Election to Othnet's Board of Directors. At the
Effective Time of the Merger, Othnet shall take all steps
necessary so that there will be a seven member board consisting
of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, a designee of Fox Sports Net, and a
designee of NBC, in addition to which ▇▇▇▇▇▇ ▇▇▇▇▇▇ will be
granted permission to attend any and all meetings of the Board of
Directors as an observer for so long as ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
remains a director of Othnet, provided, however, that the Board
of Directors shall have the right to exclude ▇▇. ▇▇▇▇▇▇ from any
such meetings when deemed reasonably appropriate by the Board.
6.10 Financings. Othnet will use its best efforts to
complete as soon as reasonably possible following the date hereof
a private placement offering of up to $2,300,000 (the "Bridge
Financing") wherein Othnet is offering to sell up to 23 units
with each unit consisting of a $100,000 principal amount of a 10%
Convertible Promissory Note (the "Notes"), 200,000 shares of
Common Stock (the "Bridge Shares") and 200,000 warrants (the
"Bridge Warrants"), and will loan to the Company $2,000,000 (the
"Bridge Proceeds") of the proceeds therefrom, net to the Company,
pursuant to the Company's issuance of debentures in form mutually
acceptable to the parties. Any of the proceeds received by
Othnet in the Bridge Financing in excess of the Bridge Proceeds
shall be used by Othnet as it shall determine in its sole
discretion to pay existing liabilities, commissions, placement or
referral fees to third parties, legal and accounting fees, and
other out-of-pocket expenses. Following the completion of the
Bridge Financing, and subject to Section 5.11, Othnet shall use
its best efforts to complete the Private Placement as soon as
reasonably possible.
6.11 Othnet Liabilities. Othnet shall use its best efforts
to eliminate its balance sheet liabilities to the extent
reasonably practicable prior to the Effective Time.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE OTHNET PARTIES
All obligations of the Othnet Parties under this Agreement
shall be subject to the fulfillment at or prior to Closing of
each of the following conditions, it being understood that the
Othnet Parties may, in their sole discretion, to the extent
permitted by applicable Legal Requirements, waive any or all of
such conditions in whole or in part.
7.1 Accuracy of Representations. All representations and
warranties of the Company contained in this Agreement, the
Collateral Documents and any certificate delivered by any of the
Company at or prior to Closing shall be, if specifically
qualified by materiality, true in all respects and, if not so
qualified, shall be true in all material respects, in each case
on and as of the Closing Date with the same effect as if made on
and as of the Closing Date, except for representations and
warranties expressly stated to be made as of the date of this
Agreement or as of another date other than the Closing Date and
except for changes contemplated or permitted by this Agreement.
The Company shall have delivered to Othnet and Merger Sub a
certificate dated the Closing Date to the foregoing effect.
7.2 Covenants. The Company shall, in all material
respects, have performed and complied with each of the covenants,
obligations and agreements contained in this Agreement and the
Collateral Documents that are to be performed or complied with by
them at or prior to Closing. The Company shall have delivered to
Othnet and Merger Sub a certificate dated the Closing Date to the
foregoing effect.
7.3 Consents and Approvals. All consents, approvals,
permits, authorizations and orders required to be obtained from,
and all registrations, filings and notices required to be made
with or given to, any Regulatory Authority or Person as provided
herein.
7.4 Delivery of Documents. The Company shall have
delivered, or caused to be delivered, to Othnet and Merger Sub
the following documents:
(i) Certified copies of the Company articles of incorporation
and by-laws and certified resolutions of the board of directors
and Shareholders of the Company authorizing the execution of this
Agreement and the Collateral Documents to which it is a party and
the consummation of the transactions contemplated hereby and
thereby.
(ii) Such other documents and instruments as Othnet may
reasonably request: (A) to evidence the accuracy of the Company's
representations and warranties under this Agreement, the
Collateral Documents and any documents, instruments or
certificates required to be delivered thereunder; (B) to evidence
the performance by the Company of, or the compliance by the
Company with, any covenant, obligation, condition and agreement
to be performed or complied with by the Company under this
Agreement and the Collateral Documents; or (C) to otherwise
facilitate the consummation or performance of any of the
transactions contemplated by this Agreement and the Collateral
Documents.
7.5 No Material Adverse Change. Since the date hereof,
there shall have been no material adverse change in the Company
Assets, the Company Business or the financial condition or
operations of the Company, taken as a whole.
7.6 Additional Disclosure. There shall have been no
disclosure in any Company Disclosure Schedule or any supplement
to the Company Disclosure Schedule or documents set forth in or
attached thereto delivered after the execution of this Agreement,
which, in the opinion of Othnet, does or may have a Material
Adverse Effect on the Company.
7.7 Company Financial Statements. The Company Audited
Financial Statements and the Company June 30, 2004 Financial
Statements shall show no material deviation from the Company
Unaudited Financial Statements.
7.8 Consulting Agreement. The Company shall have entered
into a Management Consulting Agreement with an entity to be
formed and controlled by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ and
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ which agreement will be for a term of one year,
provide for an monthly fee of $20,000 and contain such other
terms mutually acceptable.
7.9 Directors and Officers Insurance. The Company shall
have obtained, if commercially reasonable and acceptable, a
commitment to issue Directors and Officers Insurance for Othnet
and the Company to be effective upon the Closing Date in such
amount and on terms and conditions reasonably acceptable to
Othnet .
7.10 Satisfaction with Company. Othnet shall be fully
satisfied in the exercise of its sole discretion with the results
of the investigation and review it conducts (or has its
representatives conduct), prior to the Closing Date, of the
business, properties or affairs of the Company.
7.11 Election to the Company's Board of Directors. At the
Effective Time of the Merger, the Company shall take all steps
necessary so that there will be a seven member board consisting
of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, a designee of Fox Sports Net, and a
designee of NBC, in addition to which ▇▇▇▇▇▇ ▇▇▇▇▇▇ will be
granted permission to attend any and all meetings of the Board of
Directors as an observer for so long as ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
remains a director of the Company, provided, however, that the
Board of Directors shall have the right to exclude ▇▇. ▇▇▇▇▇▇
from any such meetings when deemed reasonably appropriate by the
Board.
7.12 Director Nomination. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇ shall have entered into an
agreement, in form acceptable to Othnet, which agreement shall
provide that for a period of two years from the Closing Date, (i)
they will, at any time that directors are to be elected, use
their best efforts to cause the Board of Directors to nominate
and recommend to all stockholders of Othnet and the Company, as a
proposed member of the Board of Directors of each of Othnet and
the Company, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, and (ii) ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ shall in
his capacity as a stockholder of Othnet, at any time directors
are to be elected, vote in favor of the election of ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ as a member of the Board of Directors.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
All obligations of the Company under this Agreement shall be
subject to the fulfillment at or prior to Closing of the
following conditions, it being understood that the Company may,
in its sole discretion, to the extent permitted by applicable
Legal Requirements, waive any or all of such conditions in whole
or in part.
8.1 Accuracy of Representations. All representations and
warranties of the Othnet Parties contained in this Agreement and
the Collateral Documents and any other document, instrument or
certificate delivered by any of the Othnet Parties at or prior to
the Closing shall be, if specifically qualified by materiality,
true and correct in all respects and, if not so qualified, shall
be true and correct in all material respects, in each case on and
as of the Closing Date with the same effect as if made on and as
of the Closing Date, except for representations and warranties
expressly stated to be made as of the date of this Agreement or
as of another date other than the Closing Date and except for
changes contemplated or permitted by this Agreement. The Othnet
Parties shall have delivered to the Company a certificate dated
the Closing Date to the foregoing effect.
8.2 Covenants. The Othnet Parties shall, in all material
respects, have performed and complied with each obligation,
agreement, covenant and condition contained in this Agreement and
the Collateral Documents and required by this Agreement and the
Collateral Documents to be performed or complied with by the
Othnet Parties at or prior to Closing. The Othnet Parties shall
have delivered to the Company a certificate dated the Closing
Date to the foregoing effect.
8.3 Consents and Approvals. All consents, approvals,
authorizations and orders required to be obtained from, and all
registrations, filings and notices required to be made with or
given to, any Regulatory Authority or Person as provided herein.
8.4 Delivery of Documents. The Othnet Parties, as
applicable, shall have executed and delivered, or caused to be
executed and delivered, to the Company the following documents:
(i) Certified copies of the articles of incorporation and
by-laws of Othnet and certified resolutions by the board of
directors authorizing the execution of this Agreement and the
Collateral Documents and the consummation of the transactions
contemplated hereby.
(ii) Such other documents and instruments as the Company may
reasonably request: (A) to evidence the accuracy of the
representations and warranties of the Othnet Parties under this
Agreement and the Collateral Documents and any documents,
instruments or certificates required to be delivered thereunder;
(B) to evidence the performance by the Othnet Parties of, or the
compliance by the Othnet Parties with, any covenant, obligation,
condition and agreement to be performed or complied with by the
Othnet Parties under this Agreement and the Collateral Documents;
or (C) to otherwise facilitate the consummation or performance of
any of the transactions contemplated by this Agreement and the
Collateral Documents.
(iii) Letters of resignation from Othnet's current officers
to be effective upon the Closing.
(iv) Board resolutions from Othnet's current directors appointing
the designees of the Company to Othnet's board of directors.
8.5 No Material Adverse Change. There shall have been no
material adverse change in the business, financial condition or
operations of Othnet and its Subsidiaries taken as a whole.
8.6 No Litigation. No action, suit or proceeding shall be
pending or threatened by or before any Regulatory Authority and
no Legal Requirement shall have been enacted, promulgated or
issued or deemed applicable to any of the transactions
contemplated by this Agreement and the Collateral Documents that
would: (i) prevent consummation of any of the transactions
contemplated by this Agreement and the Collateral Documents; (ii)
cause any of the transactions contemplated by this Agreement and
the Collateral Documents to be rescinded following consummation;
or (iii) have a Material Adverse Effect on Othnet.
8.7 No Assets and Liabilities. Othnet and its Subsidiaries
shall have no assets other than cash or cash equivalents and no
liabilities except for Notes which have not been converted into
Common Stock pursuant to the Bridge Financing.
8.8 Dissenters' Rights. Not more than $150,000 in claims
shall have been asserted in connection with dissenters' appraisal
rights under the GCL in connection with the Merger.
8.9 Exchange Act Requirements. The Company shall have
complied with the provisions of Rule 14f-1 of the Exchange Act,
if necessary.
8.10 Financings. The Company shall have received the Bridge
Proceeds from Othnet as follows: (a) $1,000,000 on or before the
date hereof, (b) $500,000 on or before two (2) business days from
the date hereof, and (c) $500,000 on or before five (5) business
thereafter. The sum of the principal amount of the Notes
converted into Common Stock and the net proceeds of the Private
Placement referred to in Section 5.11 (after the payment of
commissions, placement or referral fees to third parties, other
expenses, including legal and accounting fees, and any remaining
existing liabilities, which together shall not exceed 10% of the
gross proceeds of the Private Placement), less the amount which
equals the difference between the amount of the Bridge Financing
raised by Othnet and the Bridge Proceeds loaned to the Company,
shall be at least $4,000,000 in the aggregate.
8.11 Certificates of Designation. Certificates of
Designation creating the Othnet Preferred Stock shall have been
filed by the Delaware Secretary of State.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by the Company. The Company shall
indemnify, defend and hold harmless (i) Othnet, (ii) each of
Othnet's assigns and successors in interest to the Company
Shares, and (iii) each of their respective current, former and
future shareholders, members, partners, directors, officers,
managers, employees, agents, attorneys and representatives, from
and against any and all Losses which may be incurred or suffered
by any such party and which may arise out of or result from any
inaccuracy in or breach of any material representation, warranty,
covenant or agreement of the Company contained in this Agreement
or in any document or other writing delivered pursuant thereto,
insofar as total Losses exceed $250,000. All claims to be
asserted hereunder must be made by the first anniversary of the
Closing.
9.2 Indemnification by the Othnet Parties. The Othnet
Parties shall indemnify, defend and hold harmless (i) the
Company, (ii) each of the Company Shareholders and their
respective assigns and successors in interest to the Othnet
Series A Convertible Preferred Stock, and (iii) each of their
respective current, former and future shareholders, members,
partners, directors, officers, managers, employees, agents,
attorneys and representatives from and against any and all
Losses which may be incurred or suffered by any such party hereto
and which may arise out of or result from any inaccuracy in or
any breach of any material representation, warranty, covenant or
agreement of the Othnet Parties contained in this Agreement or in
any document or other writing delivered pursuant thereto, insofar
as total Losses exceed $250,000. All claims to be asserted
hereunder must be made by the first anniversary of the Closing.
9.3 Notice to Indemnifying Party. If any party (the
"Indemnified Party") receives notice of any claim or other
commencement of any action or proceeding with respect to which
any other party (or parties) (the "Indemnifying Party") is
obligated to provide indemnification pursuant to Sections 9.1 or
9.2, the Indemnified Party shall promptly give the Indemnifying
Party written notice thereof, which notice shall specify in
reasonable detail, if known, the amount or an estimate of the
amount of the liability arising therefrom and the basis of the
claim. Such notice shall be a condition precedent to any
liability of the Indemnifying Party for indemnification
hereunder, but the failure of the Indemnified Party to give
prompt notice of a claim shall not adversely affect the
Indemnified Party's right to indemnification hereunder unless the
defense of that claim is materially prejudiced by such failure.
The Indemnified Party shall not settle or compromise any claim by
a third party for which it is entitled to indemnification
hereunder without the prior written consent of the Indemnifying
Party (which shall not be unreasonably withheld or delayed)
unless suit shall have been instituted against it and the
Indemnifying Party shall not have taken control of such suit
after notification thereof as provided in Section 9.4.
9.4 Defense by Indemnifying Party. In connection with any
claim giving rise to indemnity hereunder resulting from or
arising out of any claim or legal proceeding by a Person who is
not a party to this Agreement, the Indemnifying Party at its sole
cost and expense may, upon written notice to the Indemnified
Party, assume the defense of any such claim or legal proceeding
(i) if it acknowledges to the Indemnified Party in writing its
obligations to indemnify the Indemnified Party with respect to
all elements of such claim (subject to any limitations on such
liability contained in this Agreement) and (ii) if it provides
assurances, reasonably satisfactory to the Indemnified Party,
that it will be financially able to satisfy such claims in full
if the same are decided adversely. If the Indemnifying Party
assumes the defense of any such claim or legal proceeding, it may
use counsel of its choice to prosecute such defense, subject to
the approval of such counsel by the Indemnified Party, which
approval shall not be unreasonably withheld or delayed. The
Indemnified Party shall be entitled to participate in (but not
control) the defense of any such action, with its counsel and at
its own expense; provided, however, that if the Indemnified
Party, in its sole discretion, determines that there exists a
conflict of interest between the Indemnifying Party (or any
constituent party thereof) and the Indemnified Party, the
Indemnified Party (or any constituent party thereof) shall have
the right to engage separate counsel, the reasonable costs and
expenses of which shall be paid by the Indemnified Party. If the
Indemnifying Party assumes the defense of any such claim or legal
proceeding, the Indemnifying Party shall take all steps necessary
to pursue the resolution thereof in a prompt and diligent manner.
The Indemnifying Party shall be entitled to consent to a
settlement of, or the stipulation of any judgment arising from,
any such claim or legal proceeding, with the consent of the
Indemnified Party, which consent shall not be unreasonably
withheld or delayed; provided, however, that no such consent
shall be required from the Indemnified Party if (i) the
Indemnifying Party pays or causes to be paid all Losses arising
out of such settlement or judgment concurrently with the
effectiveness thereof (as well as all other Losses theretofore
incurred by the Indemnified Party which then remain unpaid or
unreimbursed), (ii) in the case of a settlement, the settlement
is conditioned upon a complete release by the claimant of the
Indemnified Party and (iii) such settlement or judgment does not
require the encumbrance of any asset of the Indemnified Party or
impose any restriction upon its conduct of business.
ARTICLE X
TERMINATION
10.1 Termination. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned, at any time
prior to the Effective Time.
(a) by mutual written agreement of Othnet and the Company hereto
duly authorized by action taken by or on behalf of their
respective Boards of Directors;
(b) upon ten (10) days written notice by the Company (provided
it is not in material breach of its obligations under this
Agreement) if Othnet fails to provide the Bridge Proceeds in
accordance with Section 8.10, and such failure or failures are
not cured within such ten (10) day period after notice thereof;
or
(c) by either the Company or Othnet upon notification to the
non-terminating party by the terminating party:
(i) if the terminating party is not in material breach of its
obligations under this Agreement and there has been a material
breach of any representation, warranty, covenant or agreement on
the part of the non-terminating party set forth in this Agreement
such that the conditions in Sections 7.1, 7.2, 8.1 or 8.2 will
not be satisfied; provided, however, that if such breach is
curable by the non-terminating party and such cure is reasonably
likely to be completed prior to the date specified in
Section 10.1(b)(ii), then, for so long as the non-terminating
party continues to use commercially reasonable efforts to effect
and cure, the terminating party may not terminate pursuant to
this Section 10.1(b)(i);
(ii) if the Closing has not transpired within the period referred
to in Section 2.11 or by September 30, 2004, whichever is
earlier; or
(iii) if any court of competent jurisdiction or other
competent Governmental or Regulatory Authority shall have issued
an order making illegal or otherwise permanently restricting,
preventing or otherwise prohibiting the Merger and such order
shall have become final and nonappealable.
10.2 Effect of Termination. If this Agreement is validly
terminated by either the Company or Othnet pursuant to Section
10.1, this Agreement will forthwith become null and void and
there will be no liability or obligation on the part of the
parties hereto other than the obligations under Section 5.3 and
Section 11.12, except that nothing contained herein shall relieve
any party hereto from liability for willful breach of its
representations, warranties, covenants or agreements contained in
this Agreement nor relieve the Company from the repayment of the
Bridge Proceeds pursuant to debentures issued by the Company.
ARTICLE XI
MISCELLANEOUS
11.1 Parties Obligated and Benefited. This Agreement shall
be binding upon the Parties and their respective successors by
operation of law and shall inure solely to the benefit of the
Parties and their respective successors by operation of law, and
no other Person shall be entitled to any of the benefits
conferred by this Agreement, except that the Company Shareholders
shall be third party beneficiaries of this Agreement. Without
the prior written consent of the other Party, no Party may assign
this Agreement or the Collateral Documents or any of its rights
or interests or delegate any of its duties under this Agreement
or the Collateral Documents.
11.2 Publicity. The initial press release shall be a joint
press release and thereafter until the termination hereof or
consummation of the transactions contemplated hereby neither
party shall issue any press releases or otherwise making public
announcements with respect to the Merger and the other
transactions contemplated by this Agreement without the consent
of the other, and prior to making any filings with any third
party and/or any Regulatory Authorities (including any national
securities interdealer quotation service) with respect thereto,
each shall party shall consult with the other, except as may be
required by law or by obligations pursuant to any listing
agreement with or rules of any national securities interdealer
quotation service.
11.3 Notices. Any notices and other communications required
or permitted hereunder shall be in writing and shall be effective
upon delivery by hand or upon receipt if sent by certified or
registered mail (postage prepaid and return receipt requested) or
by a nationally recognized overnight courier service
(appropriately marked for overnight delivery) or upon
transmission if sent by telex or facsimile (with request for
immediate confirmation of receipt in a manner customary for
communications of such respective type and with physical delivery
of the communication being made by one or the other means
specified in this Section as promptly as practicable thereafter).
Notices shall be addressed as follows:
(a) If to the Othnet Parties to:
Othnet, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ and ▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇, Esq.
Facsimile No. (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company to:
Association of Volleyball Professionals, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Facsimile No. (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Loeb & Loeb LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No. (▇▇▇) ▇▇▇-▇▇▇▇
Any Party may change the address to which notices are required to
be sent by giving notice of such change in the manner provided in
this Section.
11.4 Attorneys' Fees. In the event of any action or suit
based upon or arising out of any alleged breach by any Party of
any representation, warranty, covenant or agreement contained in
this Agreement or the Collateral Documents, the prevailing Party
shall be entitled to recover reasonable attorneys' fees and other
costs of such action or suit from the other Party.
11.5 Headings. The Article and Section headings of this
Agreement are for convenience only and shall not constitute a
part of this Agreement or in any way affect the meaning or
interpretation thereof.
11.6 Choice of Law. This Agreement and the rights of the
Parties under it shall be governed by and construed in all
respects in accordance with the laws of the State of California,
without giving effect to any choice of law provision or rule
(whether of the State of California or any other jurisdiction
that would cause the application of the laws of any jurisdiction
other than the State of California).
11.7 Rights Cumulative. All rights and remedies of each of
the Parties under this Agreement shall be cumulative, and the
exercise of one or more rights or remedies shall not preclude the
exercise of any other right or remedy available under this
Agreement or applicable law.
11.8 Further Actions. The Parties shall execute and deliver
to each other, from time to time at or after Closing, for no
additional consideration and at no additional cost to the
requesting party, such further assignments, certificates,
instruments, records, or other documents, assurances or things as
may be reasonably necessary to give full effect to this Agreement
and to allow each party fully to enjoy and exercise the rights
accorded and acquired by it under this Agreement. In addition,
each of the Parties shall use its best efforts to cause
satisfaction of conditions under its control to the other party's
obligations to close and otherwise to cooperate to cause
consummation of the transactions contemplated hereunder.
11.9 Time of the Essence. Time is of the essence under this
Agreement. If the last day permitted for the giving of any
notice or the performance of any act required or permitted under
this Agreement falls on a day which is not a Business Day, the
time for the giving of such notice or the performance of such act
shall be extended to the next succeeding Business Day.
11.10 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
11.11 Entire Agreement. This Agreement (including the
Exhibits, the Company Disclosure Statement, the Othnet Disclosure
Statement and any other documents, instruments and certificates
referred to herein, which are incorporated in and constitute a
part of this Agreement) contains the entire agreement of the
Parties.
11.12 Expenses. Each party will be responsible for
payment of its expenses in connection with the transactions
contemplated by this Agreement, except as otherwise provided
elsewhere herein.
11.13 Survival of Representations and Covenants.
Notwithstanding any right of the Othnet Parties, on the one hand,
or the Company on the other, fully to investigate the affairs of
the other side, and notwithstanding any knowledge of facts
determined or determinable by the investigating side pursuant to
such investigation or right of investigation, the investigating
side shall have the right to rely fully upon the representations,
warranties, covenants and agreements of the other contained in
this Agreement.
11.14 Rule 144. The Company shall cause Othnet to
continue to file in a timely manner all required reports pursuant
to the Securities Exchange Act of 1934 as amended. Additionally,
the Company shall cause Othnet to promptly comply with any
request of any current stockholder of Othnet to sell any shares
of the Common Stock pursuant to Rule 144 subject to the receipt
of appropriate paperwork.
11.15 Warrants. Upon the Closing, the Parties shall
cause Othnet to issue warrants to acquire up to such number of
shares of capital stock of Othnet which equals 15% of Othnet's
fully diluted capital stock as of the Effective Time (the "Joint
Warrant Pool") which warrants will be issued as follows: 60% of
such warrants will be issued to the AVP management team in such
amounts determined by AVP prior to the Effective Time, and 40%
will be issued to designees of Othnet in such amounts determined
by Othnet prior to the Effective Time. Such warrants shall be
exercisable for a term of five years, be exercisable for Common
Stock only for cash at $0.28 per share, be transferable to the
extent permitted under applicable law and will have piggy-back
registration rights. Notwithstanding the foregoing, in the
event the sum of the principal amount of the Notes converted into
Common Stock and the gross proceeds raised by Othnet in the
Private Placement referred to in Section 5.11 less the amount
which equals the difference between the amount of the Bridge
Financing raised by Othnet and the Bridge Proceeds loaned to the
Company (the total of which is referred to herein as the "Closing
Proceeds"), does not equal or exceed $6,000,000 at the Effective
Time, then the percentage of the Joint Warrant Pool to be issued
to designees of Othnet shall be reduced by a percentage
calculated as follows: (x) 100% minus (y) the percentage which
equals the Closing Proceeds divided by $6,000,000. Prior to the
Closing, each of the Parties shall use its best efforts to reduce
the number of any other options and/or warrants it may have
outstanding (other than as contemplated by the Joint Warrant Pool
and the Bridge Warrants contemplated by the Bridge Financing) to
such amount which will entitle the holders thereof of each of the
Parties to acquire in the aggregate no more than 5% each of
Othnet's fully diluted capital stock as of the Effective Time.
IN WITNESS WHEREOF, the Parties hereto have duly executed
this Agreement as of the day and year first above written.
OTHNET, INC., A DELAWARE CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Title: President
OTHNET MERGER SUB, INC., A DELAWARE
CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Title: President
ASSOCIATION OF VOLLEYBALL PROFESSIONALS,
INC., A DELAWARE CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: President