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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
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COMMUNICATIONS WORLD INTERNATIONAL, INC.
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(Name of Small Business Issuer in its Charter)
Colorado 84-0917382
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7315 S. Revere Parkway,
Suite 602, Englewood, Colorado 80112
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(Address of principal executive offices) (Zip Code)
(303) 721-8200
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Issuer's Telephone Number, Including Area Code
Securities to be registered under Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
Common Stock, no par value per share
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(Title of class)
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PART I
Item l. Description of Business
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Business Development
Communications World International, Inc. ("Registrant," "Company" or
"CommWorld") was incorporated in 1983 under Colorado law and has its principal
executive offices at 7315 South Revere Parkway, Suite 602, Englewood, Colorado
80112. CommWorld has established a distribution network for a variety of
telecommunications products and services, including business telephone systems,
through franchises under the CommWorld name and Company-owned outlets, including
a national accounts subsidiary. The Company had 63 franchises located in 25
states and 3 Company-owned outlets at July 20, 1999. Through its distribution
network the Company sells and services private telephone systems and peripheral
products, such as voice messaging and related systems, for business users. The
Company's franchisees and Company-owned outlets market their products primarily
to small and medium-size businesses while the Company's national accounts
subsidiary markets the same products and services directly to multi-location
businesses.
The Company's franchise division purchases telephone and related communications
equipment from manufacturers and supply houses. The Company sells this
equipment to the franchisees who, in turn, sell the equipment to their customers
and connect this equipment to local telephone company lines servicing areas in
which their customers are located. The principal telephone systems sold to
customers are Key telephone systems, which differ from larger PBX systems in
that each incoming telephone line can be accessed by each telephone in the
particular business.
Company owned operations provide a variety of products and services to
customers, including:
. Telephone equipment sales, installation and service.
. Integrated telecommunication system design, installation, remote
management and support of customer premise telephone equipment for
companies having multiple locations.
. Design and installation of standards based cabling systems.
. Technical consulting for large installations.
. Coordination and installation of access to long distance telephone
service.
. On site support for large installations.
The Company has incurred substantial losses in recent fiscal years. The
Company's available cash and other liquid resources have been low and the
Company's ability to expand has been impaired. During the fiscal year ended
April 30, 1999, the Board of Directors of the Company determined that a new
business strategy was needed. As a result the Company made key management
changes, completed a merger with Interconnect Acquisition Corporation ("IAC")
and established as its mission to become a highly profitable and dominant
interconnect company in the southwestern U.S. markets. The Company's strategy to
achieve this mission is to acquire select, local interconnect companies, build a
portfolio of products and services to provide the customer convenient
communications procurement, and conduct an efficient operation.
The Company completed two acquisitions in the fiscal year ended April 30, 1999.
In March, 1999 the Company closed on its acquisition of assets from Texas based
Connective Resources, Inc., (CRI) and in April, 1999 completed the acquisition
of Donaldson and Associates, Inc., a franchisee, which has been doing business
as CommWorld of Denver. These acquisitions are further described in the Notes to
the
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consolidated financial statements. The Company also completed the sale of the
assets of its operating units in Phoenix and Tucson, Arizona and its operating
unit in Alexandria, Virginia. The operating units were repurchased by the
original owners principally in exchange for the cancellation of preferred stock.
Although the strategic business plan for the Company is to grow through
acquisitions, these particular operations did not meet the criteria for new
acquisitions because of their relative size or their geographic location.
The Company paid $77,750 in cash and a note payable in the amount of $25,000 for
the purchase of assets from CRI. The note was paid at maturity in July 1999.
Approximately $35,000 of tangible assets were acquired, as well as the customer
base, which was valued at $42,750. The Company paid $550,000 in cash for the
acquisition of CommWorld of Denver and issued notes payable to the owners in the
principal amount of $700,000. The scheduled maturities of the notes are: $50,000
in October, 1999, $290,000 in April, 1999, and $90,000 annually thereafter for
four years. The notes are convertible into equity of the Company at the
noteholders' option. Approximately $115,000 of tangible assets were acquired and
the balance of the purchase price has been recorded as an intangible asset and
is being amortized over twenty years.
Franchise Program
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Pursuant to the terms of the Company's current franchise program, a franchisee
will pay a one time, non-refundable, franchise fee of $3,500. The franchise fee
is payable upon the execution of the franchise agreement.
The franchisee is entitled to purchase equipment from or through the Company on
a "cost mark-up royalty" basis, meaning based on the cost to the Company of
equipment and products purchased plus a mark-up to the franchisee. The amount
of the cost mark-up royalty varies by manufacturer and by the volume of
purchases of the individual franchisee. A franchisee only pays royalties on
equipment purchased through or from the Company.
The franchisee is not required to make any purchases of equipment through the
Company; however, the Company believes it will be able to obtain favorable
pricing from suppliers based on negotiated purchases and quantity buying
arrangements. The Company anticipates these prices will be lower than prices
which the franchisee could negotiate directly with suppliers. Currently, most
franchisees purchase some equipment or services from the Company. The
franchisee is responsible for all warranty service on equipment sold by it and
manufacturers' warranties are passed through to the franchisee. The Company
also offers sales and marketing training and other assistance to the franchisees
for scheduled fees.
The franchisee is granted a license to use the "COMMWORLD" name and trademarks
in the franchised territory. The franchisee is required to conform to certain
standards of business practices, to maintain minimum inventories of products and
services, and to make arrangements with local telephone companies, as necessary,
to provide installation services to customers. The installation and the service
work performed by the franchisees is either done by their staff or is
subcontracted through installation companies, which are independently owned and
operated. Each franchise is run as an independent business and, as such, is
responsible for the operation of its business including the collection of
receivables, arrangement of any customer financing, and employment of adequate
staff.
Franchisees are permitted to assign their franchise provided the Company
receives advance notice of the proposed assignment, the transferee assumes the
obligations under the franchise agreement, the transferee meets certain
conditions and qualifications, and the Company receives a transfer fee equal to
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10 percent of the franchise fee then in effect. In addition, the Company has
the right of first refusal to purchase the franchise prior to its sale to
another party.
The term of the franchise is for 10 years unless earlier terminated provided,
during the first 12 months of the franchise, the franchisee has the right to
terminate the franchise without a refund of the franchise fee. The Company has
the right to terminate any franchise in the event of the franchisee's
bankruptcy, a default under the franchise agreement, or other events. The
franchisee has the right to renew the initial term of the agreement for an
additional 10 years if, at the time of renewal, the franchisee is in good
standing and pays a successor franchisee fee in the amount of 10 percent of the
franchise fee then in effect.
Competition
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The Company's principal business is in the interconnect telephone industry,
which sells and services private telephone systems for the business user. The
interconnect industry, so-called because it involves the connection of privately
manufactured and owned equipment to local telephone systems, developed from the
divestiture of the Bell operating companies and court and regulatory rulings
allowing telephone customers to connect separately purchased equipment to
existing local telephone systems.
The interconnect industry continues to expand beyond sales of traditional
telephone equipment, with the greatest growth in sales of voice processing, data
communications, and data processing equipment. The Company competes with other
interconnect telephone companies on the basis of the equipment offered by the
Company and its franchisees, price and after-sale service. Although the Company
concentrates on the sale of Key systems as opposed to larger PBX systems, the
manufacturers of these systems have been successful in providing state-of-the
art electronic equipment for this market segment. The Company believes
consummating its acquisition strategy will enable it to market larger PBX
Systems.
The Company faces intense competition from AT&T, Williams Communications, the
various former regional Bell operating companies and over 10,000 other companies
believed to be engaged in the interconnect telephone industry. Many of these
companies have resources substantially greater than those of the Company. It
can be expected competition in the interconnect telephone industry will be
intense for the foreseeable future.
Product Supply
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The Company currently purchases telephone systems and various peripheral
equipment from several major suppliers. One of the suppliers, Toshiba America
Information Systems, Inc. (TAIS), provides approximately 85% of the inventory
and products purchased by the Company while offering flexible credit terms. If
the Company's relationship with TAIS were to cease, or to deteriorate, it could
have a significant adverse impact on the operations of the Company. The Company
has significant indebtedness to TAIS as further described in Item 2. Product
availability from suppliers under open lines of credit has been sufficient for
the Company's current operations. However, all products may not necessarily be
available in the future. The Company continually monitors changes in products
offered by these manufacturers, as well as others, to review its current and
future product mix. The Company's products are warranted by their vendors for
at least one year for defects in material and workmanship.
Regulation
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The Federal Communications Commission ("FCC") regulates the telephone industry.
The FCC has a registration program providing minimum specifications for
customer-owned equipment.
The Federal Trade Commission ("FTC") requires franchisors to provide prospective
franchisees with a Uniform Franchise Offering Circular, which sets forth
detailed information about the franchisor and the franchise program.
A number of states require a franchisor to register prior to selling franchises
in those particular states and the Company registers its offering of the
franchise program in those states in which registration is required. In
addition, states may impose certain minimum requirements on franchises located
within that state. For example, franchises in Iowa, by law, have a three-mile
exclusive territory.
Employees
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As of July 20, 1999, the Company had approximately 65 full-time employees
involved in administration, sales, accounting, warehousing, franchise relations,
and Company owned branches.
Special Cautionary Notice Regarding Forward-Looking Statements
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This Report contains certain forward-looking statements and information relating
to the Company that is based on the beliefs of management, as well as
assumptions made by and information currently available to management. Such
forward-looking statements are principally contained in and include, without
limitation, the Company's plans for its business, including the introduction of
new products and services, expansion into new markets, and mergers and
acquisitions. In addition, in those and other portions of the Report, the words
"anticipates," "believes," "estimates," "expects," "plans," "intends" and
similar expressions, as they relate to the Company or its management, are
intended to specifically identify forward-looking statements. Such statements
reflect the current views of the Company with respect to future events and are
subject to certain risks, uncertainties, and assumptions, including the risk
factors described in this Report. In addition to factors described elsewhere in
this Report, the Company specifically cautions the factors listed under the
caption "Risk Factors" could cause actual results to differ materially from
those expressed in any forward-looking statement. Should one or more of these
risks or uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated or expected. The Company does not intend to
update these forward-looking statements.
Risk Factors
In evaluating the Company and its business, this entire Report (including the
Exhibits) should be read carefully and special consideration given to, among
others, the following risk factors in addition to the other information
contained in this Report.
Recent Operating Losses; Accumulated Deficit; Key Customer
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The Company is reporting a loss from continuing operations of $1,351,000 for the
fiscal year ended April 30, 1999. An additional write down of $429,000 is being
reported as a result of the sale of its operating units in Arizona and Virginia.
The Company had an accumulated deficit at April 30, 1999 of approximately
$7,322,000. The losses in the most recent fiscal year are largely attributable
to lower revenue and decreased margins in the Company's national account
subsidiary. The lower revenue results from a reduction in the average size of
invoicing from the subsidiary's major customer. This customer
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accounted for 56% and 61% of direct equipment and service sales for the years
ended April 30, 1999 and 1998, respectively. Increased costs from subcontractors
not passed on to the Company's customers are the most significant contributing
factor to decreased margins. Although the Company is making efforts to improve
margins, there can be no assurance that the Company's efforts will be
successful. The Company believes relations with its major customer are good and
the Company is working on several projects. However, the loss of significant
revenues from this customer or continued poor margins would likely have a
material adverse impact on the Company.
Management believes much of the loss in previous periods has been related to the
Company's acquisition efforts, increase in interest expense and increases in
allowance for doubtful accounts. In addition, the Company's losses have been a
direct result of the increased level of general and administrative expense
associated with its direct sales efforts. Management is currently evaluating
the extent to which general and administrative expenses will need to be
increased to maintain support for the planned acquisitions of interconnect
companies and an increased base of franchisees. Although the Company recently
made significant changes in its management personnel, there can be no assurance
the Company will be more successful in its operations, or that the acquisition
candidates selected by the new management will enable the Company to be
profitable in the future.
Lack of Working Capital; Need for Additional Financing
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The Company's operations have historically been adversely affected by a lack of
working capital. The Company uses a line of credit from a lending institution,
which is limited to the extent of available collateral. The Company's line of
credit is fully utilized to the extent of available collateral. The lack of
available funding impedes the Company's ability to fund additional equipment
purchases and to expand its business operations. Although the Company is
involved in efforts to obtain additional capital, it has no firm commitments
from any source and there can be no assurance the Company will obtain the
necessary capital. Moreover, due to the Company's poor liquidity and operating
results and the absence of a Nasdaq listing for its Common Stock, the cost of
obtaining additional capital is expected to be significant.
The Company sold equity securities during the fiscal year ended April 30, 1999
in which it received net proceeds of $2,838,000. These proceeds were used to
fund recent operating losses of the Company, to fund the cash purchase price of
the acquisitions completed during 1999, and to repay certain debt obligations.
The Company will need substantial additional capital in order to have reasonable
prospects for achieving its strategic objective of growth through acquisitions,
there can be no assurance that the Company will be successful in obtaining this
capital or that, if obtained, the terms will be satisfactory to the Company.
During the quarter ending July 31, 1999 the Company has received net proceeds of
$212,440 from the sale of Units of Subordinated Convertible Notes and Common
Stock Purchase Warrants. Each Unit consists of a $50,000 Subordinated
Convertible Note and 20,000 Warrants. The Notes bear interest at 8% per annum
and are convertible into Common Stock at any time prior to maturity at $1.50.
The Notes mature at the earlier of 36 months from the date of issue or upon the
occurrence of certain other events. The Warrants are exercisable for a period
of five years from the date of issuance at $.40 per Warrant. The company may
raise additional funds from the sale of these Units, although it has no firm
commitments for funding from any person.
Changes In Technology
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The interconnect industry in which the Company operates has experienced rapid
technological advances and, in order to satisfy customer demands, the Company
has to offer the latest available equipment and services. Although the Company
has established relationships with several major suppliers of telephone
interconnect equipment, in the event other suppliers offer more advanced
equipment, there is no assurance the Company would be able to establish
satisfactory relationships with these other manufacturers.
Relationships With Suppliers
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Although the Company has established relationships with several suppliers of
telephone equipment including Toshiba America Information Systems, Inc.
("TAIS"), Comdial, Inc., Panasonic Communications & Systems Company, a Division
of Matsushita Electric Corporation of America, Sprint/North Supply, Inc.,
Applied Voice Technologies, Inc., and Voice Systems Research, Inc., there is no
assurance the Company will continue to be able to maintain these relationships,
and to purchase products under advantageous terms and conditions from its
suppliers, or all products will be available to future franchise locations.
This may adversely affect the Company's ability to sell future franchises, to
offer products to its franchisees and customers, and to obtain mark-up royalties
from sales to existing franchisees.
TAIS provides approximately 85% of the inventory and products purchased by the
Company while offering flexible credit terms. If the Company's relationship
with TAIS were to cease or to deteriorate, it could have a significant adverse
impact on the Company's operations.
Lack of Information Regarding Acquisition Candidates
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Acquisitions of other companies in the telecommunications industry is a
principal strategic objective of the Company. The Company has identified other
candidates for acquisition, but has no firm arrangements for acquisition. The
Company has determined not to provide information regarding any of the
acquisition candidates in this Report, inasmuch as it has no agreements or
understandings regarding the terms of acquisition of any company. Although
management of the Company will endeavor to evaluate the risks inherent in any
particular acquisition candidate, there can be no assurance the Company will
properly ascertain all such risks. Management of the Company will have
virtually unrestricted flexibility in identifying and selecting prospective
acquisition candidates and may have broad discretion with respect to the
specific application of proceeds of future financing.
Although the Company intends to consider the ability of the management of a
prospective acquisition candidate in connection with evaluating the desirability
of effecting a business combination, there can be no assurance that the
Company's assessment of management will prove to be correct. The Company does
not intend to rely upon the assistance of outside consultants to assess the
management skills of acquisition candidates. In addition, there can be no
assurance management of the acquired companies will have the necessary skills to
manage a company intending to implement an aggressive acquisition program.
Appropriate Acquisitions May Not Be Available
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Results of the Company's business plan are dependent upon the Company's ability
to identify, attract and acquire attractive acquisition candidates, which may
take considerable time. No assurances can be given whether the Company will be
successful in identifying, attracting or acquiring desirable acquisition
candidates, such candidates will be successfully integrated into the Company, or
the acquisition
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candidates, once acquired, will be profitable. The failure to complete
acquisitions or to operate the acquired companies profitably could be expected
to have a material adverse effect on the Company's business, financial condition
and results of operations.
Integration of Acquisitions
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The Company's strategic objective, which is subject to additional financing,
anticipates an aggressive acquisition program. The success of the Company will
depend, in part, on the Company's ability to integrate the operations of the
acquired companies. There can be no assurance the Company's management team
will effectively be able to oversee the combined entity and implement the
Company's operating and growth strategies. No assurance can be given the
Company will be able to successfully integrate any future acquisitions without
substantial cost, delays or other problems. The cost of integration could have
an adverse effect on short-term operating results. Such costs could include
severance payments to employees of such acquired companies, restructuring
charges associated with the acquisitions and expenses associated with the change
of control.
There can be no assurance the Company will be able to execute successfully its
consolidation strategy or anticipate all of the changing demands that successive
consolidation transactions will impose on its management personnel, operational
and management information systems and financial systems. The integration of
newly acquired companies may also lead to diversion of management attention from
other ongoing business concerns. In addition, there can be no assurance the
rapid pace of acquisitions will not adversely affect the Company's efforts to
integrate acquisitions and manage those acquisitions profitably. Any or all of
these factors could have a material adverse effect on the Company's business,
financial condition or results of operations.
Risks Related to Acquisition Financing; Leverage
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The Company is currently planning to obtain additional financing. If the
Company is successful in obtaining this financing and other financing related
specifically to acquisitions (of which there is no assurance) the Company plans
to use a significant portion of its resources to pursue its business strategy
for growth. The timing, size and success of the Company's acquisition efforts
and any associated capital commitments cannot be readily predicted. The Company
currently intends to finance future acquisitions by using shares of its Common
Stock, cash, borrowed funds, including the issuance of promissory notes to the
sellers of the companies to be acquired, or a combination thereof. If the
Common Stock does not maintain a sufficient market value, or if potential
acquisition candidates are otherwise unwilling to accept Common Stock as part of
the consideration for the sale of their businesses, the Company may be required
to use more of its cash resources or more borrowed funds, in each case if
available, in order to initiate and maintain its acquisition program. The
Company may also use preferred stock in connection with acquisitions. If the
Company does not have sufficient cash resources, its growth could be limited
unless it is able to obtain additional capital through debt or equity financing.
There can be no assurance that the Company will he able to obtain any additional
financing that it may need for its acquisition program on terms that the Company
deems acceptable.
The Company may borrow money to consummate future acquisitions or assume or
refinance the indebtedness of acquired companies if the Company's management
deems it beneficial to the Company. The Company anticipates it will need to
borrow substantial funds to complete additional acquisitions, the availability
of which is not assured. Among the possible adverse effects of borrowings are:
(i) if the Company's operating revenues after the acquisitions are insufficient
to pay debt service, there would be a risk of default and foreclosure on the
Company's assets; (ii) if a loan agreement contains covenants
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requiring the maintenance of certain financial ratios or reserves, and any such
covenant were breached without a waiver or re-negotiation of the terms of the
covenant, then the lender could have the right to accelerate the payment of the
indebtedness even if the Company has made all principal and interest payments
when due; (iii) if the terms of a loan did not provide for amortization prior to
maturity of the full amount borrowed and the "balloon" payment could not be
refinanced at maturity on acceptable terms, the Company might be required to
seek additional financing and, to the extent additional financing is not
available on acceptable terms, to liquidate its assets; and (iv) if the interest
rate of a loan is variable, the Company would be subject to interest rate
fluctuations which could increase the Company's debt service obligations.
Consideration for Operating Companies May Substantially Exceed Asset Value
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The purchase prices of the Company's acquisitions will not be established by
independent appraisals, but generally through arm's length negotiations between
the Company's management and representatives of such companies. The
consideration paid for each such company will be based primarily on the value of
such company as a going concern and not on the value of the acquired assets.
Valuations of these companies determined solely by appraisals of the acquired
assets are likely to be substantially less than the consideration paid for the
companies. No assurance can be given the future performance of such companies
will be commensurate with the consideration paid. Moreover, the Company expects
to incur significant amortization charges resulting from consideration paid in
excess of the fair value of the net assets of the companies acquired in business
combinations accounted for under the purchase method of accounting.
Material Amount of Intangible Assets
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It is likely a substantial portion of the Company's total assets subsequent to
the acquisitions will be goodwill. Goodwill is an intangible asset representing
the difference between the aggregate purchase price for the assets acquired and
the amount of such purchase price allocated to such assets for purposes of the
balance sheet. It is expected any acquisitions completed by the Company would
involve amortization of goodwill over long-term periods with the amount
amortized in a particular period constituting an expense reducing the Company's
net income for that period. Generally, the Company may amortize goodwill over a
15-year period for income tax purposes. Under accounting rules, the Company is
required to periodically evaluate if goodwill has been impaired by reviewing the
cash flows of acquired companies and comparing such amounts with the carrying
value of the associated goodwill. If goodwill is impaired, the Company would be
required to write down goodwill and incur a related charge to its income. A
reduction in net income resulting from the amortization or write down of
goodwill could have an adverse impact upon the market price of the Common Stock.
Hart-Scott-Rodino Requirements
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The Company's acquisition strategy may be subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which could
adversely affect the pace of the Company's acquisitions. In addition,
acquisitions of businesses in regulated industries would subject the Company to
regulatory requirements which could limit the Company's flexibility in growing
and operating its businesses.
Tax Considerations
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As a general rule, federal and state tax laws and regulations have a significant
impact upon the
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structuring of business combinations. The Company will evaluate the possible tax
consequences of any prospective business combination and will endeavor to
structure the business combination so as to achieve the most favorable tax
treatment to the Company, the acquisition candidate and their respective
stockholders. There can be no assurance, however, the Internal Revenue Service
(the "IRS") or appropriate state tax authorities will ultimately assent to the
Company's tax treatment of a consummated business combination. To the extent the
IRS or state tax authorities ultimately prevail in re-characterizing the tax
treatment of a business combination, there may be adverse tax consequences to
the Company, the acquisition candidate and their respective stockholders.
Competition for Acquisitions
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The Company expects to encounter substantial competition in making acquisitions
from other companies with objectives similar to the Company, as well as, from
companies engaged in other acquisition type activities. Many companies have
acquisition strategies similar to CommWorld in the telecommunications industry,
including companies which are attempting to effect consolidations concurrent
with conducting an initial public offering of securities. Consequently, the
Company may expect stiff competition in attracting acquisition candidates and
the price to be paid for such candidates may be higher than the price which
would be paid in a less competitive environment.
Even if the Company is successful in obtaining additional financing and
completing several acquisitions, it is likely certain of its competitors will be
substantially larger than the Company and have greater financial resources.
Volatility of Stock Price
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There has been significant volatility in the market price for the Company's
Common Stock. The Common Stock is currently traded on the Electronic Bulletin
Board, which may discourage investor interest in trading the Common Stock. On
July 20, 1999, the closing bid price of the Company's Common Stock was $1.06 per
share. There can be no assurance the price of the Common Stock will remain at or
exceed current levels. Factors such as announcements relating to the Company's
operations, acquisitions, new products and services, prices and costs of
products, sales of products, new technology offered by the Company's
competitors, government regulation or other matters may have a significant
impact on the market price of the Company's securities. Moreover, trading in
the Company's Common Stock is limited and sporadic, which may contribute to
volatility of the market price.
Regulation Of Trading In Low-Priced Securities May Discourage Investor Interest
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Trading in the Company's Common Stock is subject to the "penny stock" rules of
the Securities and Exchange Commission (the "SEC"). The penny stock rules
require a broker-dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to deliver a standardized risk disclosure document
prescribed by the SEC, which provides information about penny stocks and the
nature and level of risks in the penny stock market. The broker-dealer also
must provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. The bid and offer quotations and
the broker-dealer and salesperson compensation information must be given to the
customer orally or in writing before or with the customer's confirmation. In
addition, the penny stock rules require prior to a transaction in a penny stock
not otherwise exempt from such rules, the broker-dealer must make a special
written determination the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to
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the transaction. These disclosure requirements may have the effect of reducing
the level of trading activity in the secondary market for a stock that becomes
subject to the penny stock rules. The Company believes the penny stock rules may
discourage investor interest in, and limit the marketability of, the Common
Stock of the Company.
Preferred Shares Available For Issuance; Current Acquisitions and Financing
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Plans
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The Company has 3,000,000 shares of preferred stock authorized. There are
currently 371,545 shares of Series C Preferred Stock outstanding, which were
issued in connection with the acquisition of the Company's subsidiaries. The
Company has also issued 169,818 shares of Series F Preferred Stock in connection
with the conversion of notes issued in connection with certain acquisitions and
issued 45,000 shares of Series F Preferred Stock for cash. Shares of preferred
stock may be issued by the Company in the future without shareholder approval
and upon such terms as the Board of Directors may determine. The rights of the
holders of Common Stock will be subject to and may be affected adversely by the
rights of holders of any preferred stock that may be issued in the future. The
availability of preferred stock, while providing desired flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of discouraging a third party from acquiring control of the Common
Stock of the Company. The Company presently has no definitive arrangements for
any acquisitions, and there can be no assurance the Company will be successful
in obtaining additional financing or completing any acquisitions. Moreover, the
terms of any such financing and/or acquisition may not be beneficial to the
Company.
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Item 2. Management's Discussion and Analysis or Plan of Operations
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Results of Operations
For the Year Ended April 30, 1999
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During the year ended April 30, 1999 ("fiscal 1999") the Company completed its
merger with IAC and focused on raising funds to implement IAC's acquisition
strategy, as well as focusing on improving the performance of the operating
units. The Company reported a net loss of $1,780,000 for fiscal 1999 as compared
to a net loss of $1,091,000 for the year ended April 30, 1998 ("fiscal 1998").
The increase of $689,000 in the net loss compared to the prior year is largely
attributable to a decrease in revenue from direct equipment sales and also a
decrease in the margin realized on those sales. The gross margin from direct
equipment sales was $933,000 lower than in the prior year. This decrease was
partially offset by a lower provision for bad debts of $203,000, reduced
amortization of intangibles of $70,000 and reduced interest expense of $160,000.
General and administrative expenses were higher by about $181,000 related to
personnel costs associated with the IAC merger and officer severance
compensation related to two executive officers who are no longer with the
Company.
During the quarter ended January 31, 1999, the Company sold its operating
divisions in Alexandria, Virginia and Phoenix and Tucson, Arizona. The divisions
were sold to the original owners of those operations primarily for the return of
preferred stock that was issued in connection with the acquisitions. Although
the strategic business plan for the Company is to grow through acquisitions,
these particular operations did not meet the criteria for new acquisitions
because of their relative size or their geographic location. On a cumulative
basis, these operations reported a net loss of $33,000 and $289,000 for the
fiscal years ended April 30, 1999 and 1998, respectively. A loss on the sale of
these operations of $396,000 was also reported for fiscal 1999.
Franchise equipment sales increased $202,000 or 3.9% compared to the prior year.
The gross margin percentage realized on this revenue was relatively constant at
11.2% for fiscal 1999 and 10.9% for fiscal 1998.
Revenue from direct equipment and service sales for fiscal 1999 decreased
$1,210,000 or 25.7% from the previous year. The gross margin percentage realized
on this revenue was 33.7% for fiscal 1999 compared to 44.8% for the previous
year. The combination of lower revenue and decreased gross margin percentage
resulted in gross margin from this source of revenue being $933,000 lower than
in the previous year. The lower gross revenue accounted for approximately
$543,000 of the decrease in gross margin and the lower gross margin percentage
accounted for $390,000 of the decrease. For both fiscal 1999 and fiscal 1998,
substantially all of the revenue from direct equipment sales and service
represent the operations of the Company's national account subsidiary. During
fiscal 1999, this subsidiary experienced a decrease of approximately 50% in the
average size of its individual invoice to its major customer. The decrease
relates to the size of new telephone system installation for this customer. The
most significant contributing factor to the decreased gross margin percentage is
the increased cost of outside labor used to service the national account
customers. Also contributing to the decreased margin percentage is competition,
which keeps the Company from passing through all of its increased costs to the
national account customers. Although the Company is making efforts to improve
margins, there can be no assurance that the Company's efforts will be
successful. The Company believes relations with its major customer are good and
the Company is working on several projects. However, the loss of
-12-
<PAGE>
significant revenues from this customer or continued poor margins would likely
have a material adverse impact on the Company.
Royalty fees represent a cost up charge to certain of the Company's franchises
that purchase product directly from the manufacturer. These fees were $32,000 or
14% lower in fiscal 1999 than in the previous year. The decrease is reflective
of a decrease in purchase volumes by these franchises. Initial franchise fees
for fiscal 1999 were $36,000 compared to $12,500 for the previous year. The
initial fee was lowered in the current year and eleven new franchises were added
to the network. Only one new franchise was added in fiscal 1998. Other revenue
sources for fiscal 1999 were $55,000 compared to $134,000 in the previous year.
In fiscal 1998, the Company received approximately $60,000 in fee revenue from a
leasing program that it maintained; however, there were also general and
administrative expenses of approximately $50,000 associated with this program.
The program was not continued in fiscal 1999 and therefore, other revenue and
certain expenses were lower.
Selling expenses in fiscal 1999 were $404,000 or 4.4% of gross revenue compared
to $418,000 or 4.1% of gross revenue for fiscal 1998.
General and administrative expenses for fiscal 1999 were $2,588,000 compared to
$2,407,000 for the previous year, an increase of $181,000. There are numerous
components of general and administrative expense that comprise the change from
year to year. The significant components that decreased during fiscal 1999 are
(1) depreciation expense decreased $136,000 due to a significant portion of the
Company's fixed assets which were fully depreciated at April 30, 1998, (2)
charges for outside services and professional fees decreased $97,000 because
fiscal 1998 expense included significant charges, including the services of an
investment banker, associated with an attempted acquisition, and (3) travel and
entertainment expenses decreased $41,000 as management curtailed any
nonessential travel. The significant components of general and administrative
expense that increased from the prior year are (1) payroll costs increased by
approximately $110,000 as a result of new personnel associated with the merger
with IAC, (2) in connection with the merger with IAC, the Company effected
certain management changes; officer severance compensation of $138,500 is
included in general and administrative expense for the current year, (3) office
rent increased by $49,000 due to lease renewals, as well as, a broker commission
of approximately $32,000 related to the subleasing of the Company's office space
in Englewood, Colorado, and (4) general and administrative expenses of the two
new acquisitions for the period that they were owned totaled $61,000. Other
changes were not individually significant.
Interest expense and loan fees for fiscal 1999 were $254,000 compared to
$414,000 in fiscal 1998. The significant decrease results from the lower gross
revenue of the Company resulting in lower accounts receivable and therefore
lower outstanding balances on the Company's collaterallized line of credit.
Also, for a period of approximately 4 months, the Company had excess cash
balances related to its equity fundraising. These balances were later disbursed
in connection with the two acquisitions completed in the fourth quarter of
fiscal 1999.
The provision for bad debts for fiscal 1999 was $47,000 compared to $250,000 in
the prior year. The provision in fiscal 1999 is representative of the normal
experience for bad debts for the Company. The provision in the prior year
reflected substantial additions to cover older stale accounts and certain notes
receivable.
For the Year Ended April 30, 1998
- ---------------------------------
-13-
<PAGE>
The Company reported a net loss of $1,091,000 for fiscal 1998 as compared to net
income of $83,000 for the year ended April 30, 1997 ("fiscal 1997"). The change
in net income to loss of $1,174,000 is largely attributable to a decrease in
margins realized on equipment sales to franchises, a decrease in margins
realized on direct equipment sales and service, an increase in general and
administrative expenses of $175,000, an increase in interest expense of
$84,000, and an increase in provision for bad debts of $87,000. The Company
recognized $400,000 of income tax credit for fiscal 1998 related to its net
operating loss carryforward compared to $385,000 of tax credit recognized for
the prior year. Additionally, the Company recorded a loss of $400,000 related to
the discontinued operations of its Seattle subsidiary. This loss is net of tax
credits of $260,000.
Effective October 31, 1997, the Company closed its Seattle subsidiary. The
subsidiary incurred substantial operating losses and management determined the
resources necessary to invest in the operation to return it to profitability
were not available. The operating losses of the Seattle subsidiary for fiscal
1998 were $168,000 compared to an operating loss of $171,000 for fiscal 1997.
The estimated loss on the disposal of the discontinued operations of $400,000
(net of income tax benefit of $260,000) represents the estimated loss on the
disposal of the assets of the subsidiary, write off of the remaining intangible
assets of $209,000, and a provision of $100,000 for expenses expected to be
incurred subsequent to October 31, 1997.
Franchise equipment sales decreased $329,000 or 6% for fiscal 1998. The decrease
in revenue is reflective of a net decrease of 4 franchises in the past fiscal
year and an overall decrease in the purchasing volume of several franchises. The
gross margin percentage realized on this revenue was 10% during fiscal 1998
compared to 13.1% for the previous year. The Company for the last three years
has recorded a charge to the cost of franchise equipment sales on a monthly
basis to allow for obsolescence in its inventory. In the fourth quarter of
fiscal 1998, the overall obsolescence of the inventory was reviewed and an
additional charge of $195,000 was recorded. This additional charge accounts for
the decrease in the gross margins on this revenue for fiscal 1998.
Revenue from direct equipment and service sales for fiscal 1998 decreased
$111,000 or 1.4% from the previous year. The gross margin percentage realized on
this revenue was 40.5% for fiscal 1998 compared to 43.4% for the previous year.
The decrease in margins resulted in a decrease of $224,000 in gross margins
realized by the Company. The most significant contributing factor to the
decreased margin is the increased cost of outside labor used to service the
national account customers. The Company was not able in fiscal 1998 to pass
those increases on to its customers. Also contributing to the decrease in margin
were several larger and more complex installations in the southwest that
required additional time to complete. The margins realized on these
installations were well below average margins for the operation. Management has
also restructured the operations in the southwest and will concentrate on
traditional sources of revenue where margins are more predictable.
Other revenue sources for fiscal 1998 were $147,000 compared to $165,000 for the
previous year. Initial franchise fees for fiscal 1998 were $22,000 lower than in
the previous year. Only one new franchise was added during fiscal 1998.
Selling expenses in fiscal 1998 of $742,000 were 5.6% of gross revenue compared
to selling expenses in fiscal 1997 of $759,000 or 5.5% of gross revenues. The
decrease in expense is directly related to the decrease in gross revenues.
General and administrative expenses for fiscal 1998 were $3,264,000 compared to
$3,089,000 for the previous year or a decrease of $682,000. Although management
continues to assess these expenses and
-14-
<PAGE>
take action to reduce them when necessary and appropriate, there were some
obligations incurred in fiscal 1998 that were not comparable to prior years. The
Company actively pursued the acquisition of a significant company in the
interconnect industry. In connection with this attempted acquisition, the
services of a new investment banker were secured along with significant outside
legal advice. Costs for outside services and professional fees were $245,000
higher in fiscal 1998 than in the previous year. A portion of the fees accrued
for the services of the investment banker were paid in fiscal 1999 by the
issuance of 25,000 shares of Common Stock. This obligation was valued at
approximately $58,000. Partially offsetting the increase in the costs of outside
services and professional fees was a decrease in the current year in salaries
and employee benefits of $91,000 compared to the previous year. This reduction
is primarily due to attrition and management choosing not to replace certain
positions.
Interest expense and loan fees for fiscal 1998 of $421,000 increased $84,000
from the previous year. Approximately $75,000 of the increase is related to
costs incurred in securing financing for the acquisition that was not completed.
These commitment fees were expensed at the time that it was determined that the
acquisition would not close.
Liquidity and Capital Resources
- -------------------------------
The Company has continually suffered from a lack of working capital and
liquidity as a result of its operating losses. The Company had an accumulated
deficit at April 30, 1999 of $7.3 million and negative working capital of
$1,667,000. Over the past two fiscal years the Company sold equity securities
realizing net proceeds of $2,838,000, which has allowed the Company to continue
to operate. Significant non-operating obligations of the Company in the current
year include the installment note payable to TAIS in the amount of $376,000
("Note") and notes payable to the sellers of CommWorld of Denver in the amount
of $700,000. TAIS has agreed to defer payments on the note for a period of two
months (June and July, 1999) and receive a reduced payment of $10,000 in August,
1999 and $20,000 in September, 1999. The seller notes are convertible into
equity of the Company at the holders' option. Significant additional funds will
need to be raised in order to complete other acquisitions and accomplish the
strategic goal of the Company. There can be no assurances the Company will be
successful in raising additional funds.
In addition to the sale of equity securities in the past two fiscal years,
management has taken the following actions to improve its liquidity and
capitalization:
(A) In October, 1996, the Company re-negotiated and renewed its accounts
receivable financing agreement with its lender for a three year term.
Pursuant to the new agreement, the Company may be extended credit of up to
$2,000,000 based upon its outstanding accounts receivable, at an interest
rate of 5.0% in excess of the prime rate. The agreement is subject to
termination upon 30 days notice by either party. Advances under the line of
credit are limited to 75% of eligible receivables, as defined. The
outstanding amount is reduced by accounts receivable collections and
increased periodically by advances supported by new receivables and
collection activity. The outstanding balance under this line of credit was
$497,000 and $1,120,000 at April 30, 1999 and 1998, respectively.
(B) Effective December 22, 1995, the Company negotiated with TAIS, its major
supplier and unsecured creditor, to transfer $1,531,000 of current trade
accounts payable and a short-term note payable to a long-term note payable
and to increase the current credit facility by $400,000. This allowed the
Company to meet its immediate obligations, provided a short-term increase in
cash flow, and increased working capital by the long-term portion of the
Note, approximately $1,260,000. The
-15-
<PAGE>
credit facility is currently at $1 million and is fully drawn. The Note
balance has been paid down to $376,000. TAIS has also agreed to treat the
note as non-interest bearing resulting in a total discount of $231,000.
Pursuant to the Note, the Company is required to make 60 equal installments
of $29,598, including interest at 6% per annum, which began in February
1996. In addition to the monthly installments, the Company is required to
make prepayments of principal of at least $10,000 per month if the monthly
net operating cash flow of the Company, defined as pre-tax income plus
depreciation and amortization, exceeds $75,000 for three consecutive months.
Thereafter, 60% of each additional $5,000 of monthly net operating cash flow
in excess of $75,000 must be paid. The Company is also required to use a
portion of the net proceeds from any offering of its stock or debt
securities to make a principal prepayment. The prepayment will be equal to a
percentage of the net proceeds in excess of $350,000 as follows: 40% of net
proceeds between $350,000 and $1 million and 50% of net proceeds between $1
million and $2 million, but not to exceed the remaining principal balance of
the Note. This provision of the Note was waived during fiscal 1999 as it
related to the private placement of the equity units described above. The
remaining principal balance of this Note at April 30, 1999 is $376,645. The
Company has negotiated with TAIS to defer principal payments on the Note for
the months of June and July 1999 and to make reduced principal payments in
August and September. The former president of the Company personally
guaranteed the Note. The Company has indemnified the former president
relative to this guarantee.
Based on the sale of equity securities in the past two fiscal years and the
credit extended to the Company by its major supplier, management believes it has
sufficient financial resources to meet its short-term working capital needs. The
availability of credit under the existing accounts receivable financing
agreement is also necessary for the Company to meet its obligations. However,
there can be no assurance the Company will be able to successfully implement its
acquisition plans and thereby increase revenue, improve gross profit margins and
contain general and administrative expenses. The successful completion of the
acquisition plan, including the raising of additional new equity, is necessary
for the Company to finance its operations over the longer term.
Year 2000 Issue
- ---------------
Based on an assessment in the current fiscal year, the Company determined it
needed to modify or replace its operating computer system, including both
hardware and software, in order for the system to properly utilize dates beyond
December 31, 1999. The Company selected a new operating system in October 1998
and secured the hardware and software in November. The cost of the new system
approximates $100,000 of which $72,000 has been placed on a capital lease with a
three year term. The system conversion from the old software to the new was
started in December 1998 and has now been completed. All of the Company's
operating units, except for the most recently acquired operating unit, CommWorld
of Denver, are utilizing the new system which is Year 2000 compliant. CommWorld
of Denver will be fully utilizing the new system by September 30, 1999.
The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
Issue. The Company's major suppliers have indicated that their systems are Year
2000 compliant. However, the Company does not have any control over these or
other third parties with whom the Company does business and, therefore, the
Company can not currently determine to what extent future operating results may
be adversely affected by the failure of third parties to
-16-
<PAGE>
successfully address their Year 2000 Issue. The Company has determined it has no
exposure to contingencies related to the Year 2000 Issue for the products it has
sold.
-17-
<PAGE>
Item 3. Description of Property
-----------------------
The Company leases (i) 5,310 square feet of office and warehouse space in
Englewood, Colorado, which is used for its corporate headquarters, for
approximately $4,100 per month under a lease which expires in March, 2000, (ii)
6,000 square feet of office and warehouse space in Fort Collins, Colorado under
a lease which expires in November, 2001 for approximately $4,800 per month,
(iii) 5,870 square feet of office space in Dallas, Texas under a lease which
expires in May, 2001 for approximately $4,400 per month, (iv) 3,000 square feet
of office space in Englewood, Colorado under a lease which expires in November,
2003 for approximately $4,600 per month, and (v) approximately 7,700 square feet
of space in Englewood, Colorado for approximately $14,100 per month pursuant to
a lease, which expires in July, 2003. The Company subleased this space in
January 1999, on a recourse basis for the remainder of the lease term on
substantially the same terms as the original lease.
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<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management
---------------------------------------------------------------
The following table sets forth the persons known to the Company to own
beneficially more than five percent of the outstanding Common Stock on July 20,
1999 and information as of July 20, 1999 with respect to the ownership of equity
by each director of the Company and by all officers and directors as a group.
Certain Beneficial Owners
- -------------------------
<TABLE>
<CAPTION>
Name & Address of Shares Beneficially
Beneficial Owner Title of Class Owned (1) Percent
----------------- -------------- --------- -------
<S> <C> <C> <C>
Samuel D. Addoms (2) Common Stock 44,625 .5%
1900 Fairfax Street
Denver, Colorado 80220
Lionel Brown (3) Common Stock 714,000 8.1%
7315 S. Revere Parkway, Suite 602
Englewood, Colorado 80112
James M. Ciccarelli (3) Common Stock 1,125,000 12.8%
7315 S. Revere Parkway, Suite 602
Englewood, Colorado 80112
Steven M. Bathgate (4) Common Stock 861,915 9.8%
5350 S. Roslyn, Suite 380
Englewood, Colorado 80111
James M. Corboy (2) Common Stock 67,000 .8%
6530 S. Yosemite St.
Englewood, Colorado 80111
Eugene C. McColley (4) Common Stock 474,865 5.4%
5350 S. Roslyn, Suite 380
Englewood, Colorado 80111
Officers and Directors as Common Stock 2,355,625 26.5%
a Group (6 persons)(2)(5)
</TABLE>
(1) Beneficial ownership results in each case from the possession of sole or
shared voting and investment power with respect to the shares.
(2) The number of shares set forth opposite the name of Samuel D. Addoms
includes options to purchase 44,000 shares. The number of shares set forth
opposite the name of James M. Corboy includes options to purchase 41,000
shares. The number of shares set forth opposite the officers and directors
as a group includes the aforementioned options to Messrs. Addoms and
Corboy.
(3) The number of shares set forth opposite the name of James M. Ciccarelli
includes options to purchase 125,000 shares. The number of shares set
forth opposite the name of Lionel Brown includes options to purchase 89,000
shares.
(4) The shares set forth opposite the names of Steven M. Bathgate and Eugene C.
McColley include warrants to purchase 313,265 and 187,115 shares,
respectively. Messrs. Bathgate and McColley are principals of Bathgate
McColley Capital Group, LLC. See Item 7.
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<PAGE>
(5) The number of shares set forth opposite the officers and directors as a
group includes the aforementioned options to Messrs. Ciccarelli and Brown,
as well as, options to purchase 15,000 shares for Mr. Bennett and 20,000
shares for Mr. Welch
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<PAGE>
Item 5. Directors, Executive Officers, Promoters and Control Persons;
--------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
The directors and executive officers of the Company are as follows:
Name Position
- ---- --------
Samuel D. Addoms Director
James M. Corboy Director
James M. Ciccarelli Chief Executive Officer and Chairman of the Board of
Directors
Lionel Brown President and Director
Mark Bennett Executive Vice President
David E. Welch Vice President, Secretary and Treasurer
Samuel D. Addoms - Age 59. Mr. Addoms has been a director of the Company since
- ----------------
October, 1992. From November, 1993 to January, 1995 he served as the Executive
Vice President of Frontier Airlines, Inc., and has served as President from
January, 1995 to present. He has also served as a Director of Frontier
Airlines, Inc., from November, 1993 to present. From February, 1996 to present,
he has been an Independent General Partner and a Director of Boettcher Venture
Capital Partners. Mr. Addoms received a BA degree from Wesleyan University.
James M. Corboy - Age 58. Mr. Corboy is a general partner in the investment
- ---------------
banking firm of Corboy and Jerde, LLC. Mr. Corboy served as President of
Century Capital Group, Inc., investment bankers, and its predecessor, SKB Corby,
Inc. from 1995 to 1998. From 1988 to 1995 he was the general partner of Corboy
and Company, LP. Mr. Corboy received a BA degree from Allegheny College and an
MBA Degree from the University of Colorado.
James M. Ciccarelli - Age 47. Mr. Ciccarelli has served as Chief Executive
- -------------------
Officer of the Company since July 1, 1998. He has served as President and CEO
of IAC from its founding in 1997 until its merger with the Company. He has
served as a director of Birner Dental Management Services, Inc., since 1995. He
also serves as a director for Wireless Telcom, Inc. and has served in that
capacity since 1993. From 1990 to 1993, Mr. Ciccarelli was the Vice President
of Intelligent Electronics and the President and CEO of its Reseller Network
Division from 1987 to 1989. From 1988 to 1990, he was President of Connecting
Point of America.
Lionel Brown - Age 51. Mr. Brown has served as President of the Company since
- ------------
October, 1998. He has served as Secretary and Chief Operations Officer of IAC
from its founding in 1997 until its merger with the Company. From 1996 to 1997,
he served as the Chief Information Officer of the Reseller Network Division and
XL Source, two operating divisions of Intelligent Electronics, Inc. From 1993
to 1995, he served as the Vice President of Operations and Information Systems
for Wireless Telcom, Inc. From 1989 to 1993, he held the position of Vice
President of Operations and Information Systems for the Reseller Network
Division of Intelligent Electronics, Inc.
-21-
<PAGE>
Mark W. Bennett - Age 43. Mr. Bennett joined CommWorld in September, 1998 as
- ---------------
Executive Vice President of Marketing and Franchise Development. From 1997 to
1998, he served as President and CEO of Communication Expo, a telecommunications
company located in Dallas, Texas. From 1994 to 1997, he was a partner in the
firm Rohner & Associates, a channels consulting firm located in Los Gatos,
California. From 1998 to 1994, he served as the President of ISG, a division of
Intelligent Electronics, Inc., a computer reseller and franchisor of retail
computer stores located in Denver, Colorado.
David E. Welch - Age 52. Mr. Welch joined CommWorld in February, 1999. In
- --------------
July, 1999 he became Vice President and Chief Financial Officer, Secretary and
Treasurer. During 1998 he served as Chief Information Officer for Language
Management International, Inc., a multinational translation firm located in
Denver, Colorado. From 1996 to 1997, he was Director of Information Systems for
Micromedex, Inc., an electronic publishing firm, located in Denver, Colorado.
From 1989 to 1996, he served as Director of Information Systems, for the
Reseller Division of Intelligent Electronics, Inc.
Each of the directors was elected to serve until the next annual meeting of
shareholders and until their successors have been elected and have qualified.
There are no family relationships between any director or executive officer of
the Company.
-22-
<PAGE>
Item 6. Executive Compensation
----------------------
The following table sets forth information concerning all compensation paid by
the Company and options granted by the Company to the Chief Executive Officer of
the Company and to each officer who earned more than $100,000, during the years
ended April 30, 1999 and 1998.
<TABLE>
<CAPTION>
Long-term Compensation
------------------------------------------
Annual Compensation Awards Payouts
---------------------------------- ------------------- -------
Other Restricted
Name and Annual Stock Options/ LTIP All Other
Principal Position (1) Year Salary $ Bonus Compensation (2) Awards SARs Payouts Compensation
- -------------------------- ---- -------- ----- ---------------- ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James M. Ciccarelli, CEO 1999 65,600 -0- -0- -0- -0- -0- -0-
Richard D. Olson, CEO 1999 102,000 -0- -0- -0- -0- -0- -0-
Richard D. Olson, CEO 1998 102,000 -0- -0- -0- -0- -0- -0-
</TABLE>
(1) The Company pays health insurance premiums for its executive officers. The
aggregate amount of such compensation is less than either $50,000 or 10% of
the total of annual salary and bonus for the above executive officers, which
includes automobile expense of approximately $4,000. Mr. Olson resigned as
CEO effective June 30, 1998. The compensation listed for Mr. Olson for 1999
includes fees paid to him pursuant to a severance agreement whereby he
provided consulting services to the Company.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
---------------------------------------------
Number of Percent of Total
Securities Underlying Options/SAR's
Options/SAR's granted to employees Exercise or Expiration
Name Granted (#) in fiscal year or base price ($/sh) Date
- -------------------------- ---------------------- --------------------- -------------------- ----------
<S> <C> <C> <C> <C>
James M. Ciccarelli, CEO 60,000 15.3% $1.00 11/12/2001
James M. Ciccarelli, CEO 65,000 16.6% $1.50 2/5/2002
Richard D. Olson, CEO 100,000 25.5% $1.30 8/11/2001
</TABLE>
401(k) Plan
- -----------
On August 1, 1985, the Company established an Employees' Savings Plan (ESP) for
all full-time employees who have at least twelve months of continuous service by
August 1 of each plan year and who have attained the age of twenty-one. As
amended, the Company may make matching contributions up to 50% of the
participant's contribution (made via salary reduction arrangements) as described
in the ESP. In addition, the Company may also make an annual contribution from
its profits. The Company made no contribution to the ESP in 1999 or 1998.
Stock Option and Stock Appreciation Plans
- -----------------------------------------
In fiscal 1998, the Company adopted the 1997 Stock Option Plan (the "97 Plan"),
pursuant to which options to purchase up to 150,000 shares of Common Stock may
be granted to employees and consultants of the Company. No options were
granted. Additionally, the Plan provided for the specific grant of 135,000
options to certain key employees and consultants. Of these options, 115,000
were granted at $1.30 per share and 20,000 were granted at $1.50 per share,
representing the market values on the respective dates of grant. The options
are fully vested and exercisable and will expire in August 2001.
-23-
<PAGE>
In fiscal 1999, the Company has also adopted the 1998 Stock Incentive Plan (the
"98 Plan"), pursuant to which options to purchase up to 1,000,000 shares of
common stock may be granted to employees and consultants of the Company. Options
to purchase 310,250 shares have been granted. Of this amount, options to
purchase 126,500 shares at $1 per share have been issued, including 119,500 to
officers and directors, and will expire in November 2003 if not exercised.
Options for 114,500 shares are fully vested and the other options vest in one-
third installments over a three year period. Options to purchase 161,250 shares
at $1.50 have been issued, including 136,000 to officers and directors, and will
expire in February 2004 if not exercised. Options to purchase 22,500 shares of
Common Stock, of which 20,000 shares are to an officer of the Company, at $1.30
have been issued, which will expire in March 2004, if not exercised. Options
for 116,000 shares are fully vested and the other options vest in one-third
installments over a three year period. All options under the 98 Plan were
issued at the market value on the date of grant.
Compensation of Directors
- -------------------------
In 1993, the Company adopted a Non-discretionary Stock Option Plan for non-
employee directors pursuant to which options to purchase up to 20,000 shares of
the Company's Common Stock may be granted to directors who are not employees of
the Company. Options to purchase 8,000 shares of the Company's Common Stock are
currently outstanding and exercisable at prices ranging from $.88 to $5.13 per
share. The Plan expired in November 1997.
The exercise price for all outstanding options is the fair market value of the
Common Stock on the respective grant dates. Each director was entitled to
receive options to purchase 1,000 shares of Common Stock on November 1 of each
year. The options are exercisable for five years from the date of grant.
In fiscal 1999, the Company adopted the 1999 Non-discretionary Stock Option Plan
(the "99 Plan"), pursuant to which options to purchase up to 300,000 shares of
common stock may be granted to non-employee directors of the Company. Options to
purchase 10,000 shares have been granted to each of Samuel Addoms and James
Corboy at $1.50 per share, the fair market value on the date of grant. These
options will expire in February, 2004. Options to purchase 10,000 shares will be
granted to any person becoming a director who is not employed by the Company or
any of its subsidiaries. In addition, each non-employee director will receive
options to purchase 10,000 shares annually, commencing February 1, 2000 and
ending February 1, 2004. If any option grant expires or terminates, all shares
which were not issued under the option grant will become available for
additional awards under the 1999 Plan.
The Company does not pay directors for meetings attended. During the year ended
April 30, 1999, the Company held 12 meetings of the Board of Directors and took
action at other times by written consent. Each director attended 75 percent or
more of the meetings held during the period he served as a director.
-24-
<PAGE>
Item 7. Certain Relationships and Related Transactions
----------------------------------------------
Effective June 30, 1998, Richard Olson resigned as President and Chief Executive
Officer and director of the Company. The Company retained the services of Olson
as a consultant for six months thereafter at Olson's previous salary level of
$8,500 per month. The Company also agreed to pay Olson $127,000 at the end of
the consulting period, and Olson agreed to repay a $25,000 loan from the
Company, which amounts are expected to be paid during 1999. All of Olson's
stock options were canceled. The Company issued a Warrant to Olson entitling
Olson to purchase up to 100,000 shares of Common Stock at an exercise price of
$1.30 per share. The Warrants will expire on August 11, 2001. The Company
agreed to indemnify Olson for personal guarantees he made of the Company's
obligations to Toshiba America Information Systems ("TAIS"). In December, 1995,
the Company and TAIS agreed to transfer $1,530,950 of current trade accounts
payable and a short-term note payable to a long-term note payable. The
remaining principal balance of the note on April 30, 1999 was $376,646.
Effective July 1, 1998, James M. Ciccarelli became Chief Executive Officer of
the Company. In November 1998, Lionel Brown became President of the Company.
The Company currently pays each of them a monthly salary $4,000. If the
Company's financial position improves, it is likely that the Company will enter
into three year employment agreements with each of these executive at
anticipated monthly salaries of $15,000 for Mr. Ciccarelli and $10,000 for Mr.
Brown. Options have been granted to Messrs. Ciccarelli and Brown pursuant to
the 1998 Stock Incentive Plan.
In September 1997 the Company entered into an agreement with Century Capital
Group, Inc., for Century Capital to provide the Company with financial advisory
and investment banking services. James M. Corboy, a director of the Company,
was President of Century Capital. The Company agreed to pay Century Capital
$1,000 per month and additional compensation if certain acquisitions were
completed. In June, 1998, the Company entered into a new agreement with Century
Capital, which superseded the September, 1997 agreement. Century Capital agreed
to provide financial advisory services to the Company, including due diligence
and a fairness opinion in connection with the Company's merger with IAC. The
Company paid to Century Capital $32,930 during the period from September, 1997
through April 1999, including a $25,000 fee for a fairness opinion delivered to
the Company in connection with the IAC merger.
In October 1998, the Company formed a subsidiary, IAC Acquisition Corporation,
and completed a merger with IAC. The shareholders of IAC received an aggregate
of1,000 shares of the Company's Series I Preferred Stock, which were converted
into an aggregate of 2,000,000 shares of Common Stock. Of the 1,000 shares
issued, Mr. Ciccarelli received 500 shares and Mr. Brown received 312.5 shares.
The Company has used the services of Bathgate McColley Capital Group, LLC
("BMCG"), as a placement agent for offerings in 1998 and 1999 of Common Stock,
Preferred Stock and debt. During this period, BMCG sold an aggregate of
$3,137,000 in equity and debt securities on behalf of the Company. The Company
paid BMCG an aggregate of $253,667 in commissions, and issued warrants to
purchase an aggregate of 250,850 shares of Common Stock. Steven M. Bathgate and
Eugene McColley, principals of BMCG, participated as investors in these
offerings and are principal shareholders of the Company. See Item 4. It is
expected that BMCG will be paid commissions and issued warrants upon the sale of
additional securities of the Company.
-25-
<PAGE>
Item 8. Description of Securities
-------------------------
Common Stock
- ------------
The Company is authorized to issue 25,000,000 shares of Common Stock, no par
value. Holders of shares of Common Stock are entitled to one vote per share on
all matters to be voted upon by shareholders generally, and are not entitled to
cumulate votes in the election of directors. Approval of proposals submitted to
shareholders at a meeting requires the favorable vote of a majority of the
shares voting. Shareholders are entitled to receive such dividends as may be
declared from time to time by the Company's Board of Directors out of funds
legally available therefore, the Company has no plans to pay dividends on its
Common Stock in the near future, and is currently restricted in its ability to
pay dividends. In the event of liquidation, dissolution, or winding up of the
Company, holders of shares of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities and distribution to holders of
preferred stock. The holders of shares of Common Stock have no preemptive,
conversion or subscription rights. The shares of Common Stock currently
outstanding are validly issued, fully paid, and non-assessable.
Preferred Stock - General
- -------------------------
The Company is authorized to issue up to 3,000,000 shares of $1.00 par value
preferred stock, which may be issued from time to time in one or more series.
The Board of Directors is allowed to fix or alter the dividend rights, the terms
of redemption and the liquidation preferences of any unissued series of
preferred stock and may designate the number of shares constituting any such
series.
Series C Preferred Stock
- ------------------------
The Company has authorized 440,000 shares of Series C Preferred Stock of which
371,545 shares are issued and outstanding. Shares of the Series C Preferred
Stock were convertible into Common Stock at the election of the holders.
Effective July 16, 1997 the conversion rights expired. Dividends on the Series
C Preferred Stock are paid when declared by the Board of Directors, at the rate
of $.08 per share per annum before any dividends on shares of the Company's
common stock are paid. Upon liquidation, dissolution or winding up of the
Company, the Series C Preferred Stock shall have a preference of $1.00 per share
plus accumulated and unpaid dividends, payable from the proceeds of sale or
distribution of the Company's assets prior to any distribution to the holders of
common stock. The Company may redeem the Series C Preferred Stock at $1.00 per
share plus accrued and unpaid dividends by giving thirty days notice to the
holders of the Series C Preferred Stock. At April 30, 1999, there were $130,630
in accumulated dividends.
Series F Preferred Stock
- ------------------------
The Company has authorized 1,100,000 shares of Series F Preferred
Stock of which 214,818 shares are issued and outstanding. Shares of the Series
F Preferred Stock are convertible into Common Stock at the election of the
holders at a conversion price equal to 50% of the current market price
determined by the 30 day average price prior to conversion. The shares of
Series F Preferred Stock will automatically be converted into fully-paid and
non-assessable shares of Common Stock upon the effective date of a registration
statement covering the Common Stock. Dividends on the Series F Preferred Stock
are paid when declared by the Board of Directors, at the rate of $.08 per share
per annum before any dividends on shares of the Company's common stock are paid.
Upon liquidation, dissolution or winding up of the
-26-
<PAGE>
Company, the Series F Preferred Stock has a preference of $1.00 per share plus
accumulated and unpaid dividends, payable from the proceeds of sale or
distribution of the Company's assets prior to any distribution to the holders of
common stock. At April 30, 1999, there were $44,195 in accumulated dividends.
-27-
<PAGE>
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
-------------------------------------------------------------------
Other Stockholder Matters
- -------------------------
The Company's Common Stock currently trades on the Electronic Bulletin Board
under the symbol "CWII." The Common Stock was formerly traded on the Nasdaq
Small Cap Market. Set forth in the following table are high and low bid
quotations for each quarter in the fiscal years ended April 30, 1999 and 1998.
Trading in the Common Stock is limited and sporadic. The quotations represent
inter-dealer quotations without retail markups, markdowns or commissions, and
may not represent actual transactions.
Common Stock
------------
Quarter Ended High Low
- --------------------------------- ----- -----
July 31, 1997 $1.56 $1.00
October 31, 1997 2.50 1.06
January 31, 1998 2.68 2.00
April 30, 1998 2.38 1.25
July 31, 1998 2.25 1.75
October 31, 1998 1.75 .72
January 31, 1999 .90 1.13
April 30, 1999 1.50 1.13
July 31, 1999 (through July 20) 1.31 1.06
There were approximately 270 holders of record of the Common Stock as of July
20, 1999.
No dividends have been declared or paid on the shares of Common Stock and the
Company does not anticipate paying cash dividends on the shares of Common Stock
in the foreseeable future. The Company may not pay dividends without the
consent of its accounts receivable finance company. No dividends may be paid on
the Common Stock unless accumulated dividends on the Preferred Stock have been
paid.
-28-
<PAGE>
Item 2. Legal Proceedings
-----------------
The Company is not currently a party to any material pending or threatened legal
proceedings.
Item 3. Changes In and Disagreements With Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
Item 4. Recent Sales of Unregistered Securities
---------------------------------------
<TABLE>
<CAPTION>
Date Title Amount Consideration
- ---- ----- ------ -----------------------------------------------
<S> <C> <C> <C>
9/96 Common Stock $ 83,500 Assets of CommWorld of Tucson (CWT)
9/96 Series F Preferred Stock $ 143,000 Assets of CWT
9/96 Series G Preferred Stock $ 83,500 Assets of CWT
9/96 Series F Preferred Stock $ 169,818 Conversion of notes payable into equity on
a dollar for dollar basis
11/96 Series F Preferred Stock $ 45,000 (1) $39,150 cash proceeds, net of offering costs of $5,850
5/97 Series C Preferred Stock $ 10,000 Issued as incentive compensation
12/97 Common Stock $ 25,000 (2) $21,750 cash proceeds, net of offering costs
of $3,250; shares issued at $2 per share
4/98 Common Stock and
Warrants $ 43,750 (3) $43,750 cash proceeds; shares issued at
$1.25 per share
5/98 Common Stock and
Warrants $ 367,825 (3) $367,825 cash proceeds; shares issued at
$1.25 per share
10/98 Series I Preferred Stock $ 1,000 Acquisition of Interconnect Acquisition Corp.
1,000 shares of Series I Preferred Stock
converted into 2,000,000 shares of Common
7/98 -
3/99 Series H Preferred Stock $2,761,500 (3) $2,462,975 cash proceeds, net of offering costs
and Warrants at $3 per of $298,525; shares of Series H Preferred Stock
share were converted into 2,761,500 shares of common
</TABLE>
(1) A finder's fee of 13% of proceeds was paid to Pinnacle Management.
(2) A finder's fee of 13% of proceeds was paid to Liaison Consulting.
(3) The placement agent was Bathgate McColley Capital Group, LLC. No cash fees
were paid. Warrants for the purchase of 40,000 shares of Common Stock at
$1.25 were issued to the placement agent.
(4) The placement agent was Bathgate McColley Capital Group, LLC. A commission
of 8% plus non-accountable expense allowance of 2% was paid to the
placement agent and warrants for the purchase of 276,150 shares of Common
Stock at $1.00 and 55,230 shares at $3.00 were issued to the placement
agent.
All, or substantially all, of the purchasers of securities were "accredited
investors" as defined in SEC Regulation D. The Company relied on Sections
4(2) and 3(b) of the Securities Act of 1933, as amended, and Regulation D
in effecting these transactions.
Item 5. Indemnification of Officers and Directors
-----------------------------------------
The Colorado Business Corporation Act provides authority for indemnification by
a corporation of costs incurred by directors, officers, employees and agents in
connection with an action, suit or proceeding
-29-
<PAGE>
brought by reason of their position as a director, officer, employee or agent.
The person being indemnified must have acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be provided in proceedings by or for the
corporation in which the director was adjudged liable to the corporation or in
which the director is held liable for deriving an improper personal benefit.
In addition to the general indemnification section, Colorado law provides
further protection for directors under Section 7-108-402 of the Colorado
Business Corporation Act. This section allows a Colorado corporation to include
in its Articles of Incorporation a provision that eliminates and limits certain
personal liability of a director for monetary damages for certain breaches of
the director's fiduciary duty of care, provided that any such provision does not
eliminate or limit the liability of a director (in the words of the statute) for
any of the following:
"Any breach of the director's duty of loyalty to the corporation or its
stockholders; acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; acts specified in Section 7-108-403
[dealing with violations of the statutory provisions concerning unlawful
distributions]; or any transaction from which the director derived an improper
personal benefit. No such provision shall eliminate or limit the liability of
a director to the Corporation or to its shareholders for monetary damages for
any act or omission occurring prior to the date when such provision becomes
effective."
The Company's Articles of Incorporation, as amended, include such a provision.
The Board of Directors is empowered to make other indemnification as authorized
by the Articles of Incorporation, Bylaws or Corporate Resolutions so long as the
indemnification is consistent with Colorado law. The Company's Bylaws provide
for indemnification of its officers and directors against expenses reasonably
incurred in connection with an action unless the officer or director is adjudged
to have been guilty of or liable for negligence or misconduct in the performance
of his duty. In the event of settlement, the Company shall indemnify officers
and directors as determined in the settlement and approved by court or by a
majority of directors, which majority does not include interested directors.
PART F/S
Consolidated financial statements required to be filed hereunder are included
following Part III.
-30-
<PAGE>
PART III
Item 1. Index to Exhibits
-----------------
(a) Exhibits
--------
2. Plan of Acquisition
(a) Plan and Agreement of Merger dated October 20, 1998 by and among
Interconnect Acquisition Corporation, Communications World
International, Inc. and IAC Acquisition Corporation.
(b) Merger Agreement dated April 26, 1999 by and among Donaldson &
Associates, Inc. and IAC Acquisition Corporation.
(c) Asset Purchase Agreement dated December 31, 1998 between
Communications World International, Inc., CommWorld-National Capitol
Area, Inc., Ben Hester and Alpha Communications & Technologies, Inc.
(d) Asset Purchase Agreement dated December 3, 1998 between
Communications World International, Inc., CommWorld of Phoenix, Inc.,
Mick Heath and Summit Team Investments, Inc..
(e) Asset Purchase Agreement dated December 4, 1998 between
Communications World International, Inc., CommWorld of Phoenix, Inc.,
Bill Heath and Digital Voice and Data, Inc.
3. Articles of Incorporation and Bylaws.
(a) Articles of Incorporation, as amended, filed as Exhibit 3(a) to the
Registration Statement on Form SB-2 (File No. 33-87808) is
incorporated herein by this reference.
(b) Bylaws, as amended, filed as Exhibit 3.2 to the Registration
Statement on Form S-1 (File No. 33-53550) is incorporated herein by
this reference.
(c) Articles of Amendment to the Articles of Incorporation of
Communications World International, Inc. filed as Exhibits 2 and 3 to
the Form 8-K dated October 16, 1997 is incorporated herein by this
reference.
(d) Articles of Amendment to the Articles of Incorporation dated August
4, 1998 filed as Exhibit 3 (d) to the report on Form 10-KSB for the
year ended April 30, 1998 is incorporated herein by this reference.
(e) Articles of Amendment to the Articles of Incorporation dated March
23, 1999.
4. Instruments defining the rights of holders, including indentures
(a) Certificate of Designation establishing Series C Preferred Stock
filed with Amendments to Articles of Incorporation in 3(a) above.
-31-
<PAGE>
(b) Certificate of Designation establishing Series F Preferred Stock
filed with Amendments to the Articles of Incorporation in 3(c) above.
10. Material Contracts
(a) Current Form of Franchise Agreement.
(b) Non-Discretionary Stock Option Plan filed as Exhibit 10(h) to the
Registration Statement on Form SB-2 (File No. 33-87808) is
incorporated herein by this reference.
(c) Accounts Receivable Financing Agreement dated January 19, 1995 with
Republic Acceptance Corporation filed as Exhibit 10(m) to the
Registration Statement on Form SB-2 (File No. 33-87808) is
incorporated herein by this reference.
(d) Security Agreement dated January 19, 1995 with Republic Acceptance
Corporation filed as Exhibit 10(n) to the Registration Statement on
Form SB-2 (File No. 33-87808) is incorporated herein by this
reference.
(e) Agreement to Restructure Debt, effective December 22, 1995 between
Registrant and Toshiba America Information Systems, Inc., Promissory
Note dated December 22, 1995 in the amount of $1,530,950 made by
Registrant to Toshiba America Information Systems, Inc., and Personal
Guaranty by Richard D. Olson, President of Registrant, in favor of
Toshiba America Information Systems, Inc. effective December 22,
1995, filed as Exhibit (a) to the Report on Form 10-QSB for the
quarter ended January 31, 1996 is incorporated herein by this
reference.
(f) Telecommunications Master Dealer Agreement between Registrant and
Toshiba America Information Systems, Inc., dated April 1, 1998 filed
as Exhibit 10(k) to the Report on From 10-KSB for the year ended
April 30, 1998 is incorporated herein by reference.
(g) Amended and Restated 1997 Stock Option Plan filed as Exhibit 10(k) to
the Report on From 10-KSB for the year ended April 30, 1998 is
incorporated herein by reference.
(h) Consulting and Severance Agreement dated July 24, 1998 with Richard
D. Olson, including Warrant and Proxy filed as Exhibit 10(m) to the
Report on Form 10-KSB for the year ended April 30, 1998 is
incorporated herein by reference.
(i) Agreement between Registrant and M.H. Meyerson and Co., Inc., dated
May 20, 1997 filed as Exhibit 10(n) to the Report on Form 10-KSB for
the year ended April 30, 1998 is incorporated herein by reference.
(j) Agreement between Registrant and Century Capital Group, Inc., dated
June 23, 1998 filed as Exhibit 10 (o) to the Report on Form 10-KSB
for the year ended April 30, 1998 is incorporated herein by
reference.
(k) 1998 Stock Incentive Plan.
(l) 1999 Non-discretionary stock option plan.
-32-
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: July 27, 1999
COMMUNICATIONS WORLD INTERNATIONAL, INC.
(a Colorado Corporation)
By: /s/ James M. Ciccarelli
-------------------------
James M. Ciccarelli, Chief Executive Officer
-33-
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
Communications World International, Inc.:
We have audited the accompanying consolidated balance sheet of Communications
World International, Inc. and subsidiaries as of April 30, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Communications World
International, Inc. and subsidiaries as of April 30, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Levine, Hughes & Mithuen, Inc.
Denver, Colorado
July 9, 1999
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
April 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets 1999 1998
------ ----------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 57,118 $ 13,594
Trade accounts and current portion of notes receivable, less
allowance for doubtful accounts of $206,757 and $363,735 in 1999
and 1998, respectively 1,353,223 1,711,959
Inventory 331,696 624,610
Prepaid expenses 7,265 16,678
Deferred tax asset 38,963 100,240
--------------- ---------------
Total current assets 1,788,265 2,467,081
Property and equipment, net 263,775 246,805
Deposits and other assets 40,592 49,818
Notes receivable 33,283 81,017
Intangible assets, net 1,687,328 864,425
Deferred tax asset 1,006,037 944,760
--------------- ---------------
$ 4,819,280 $ 4,653,906
=============== ===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
April 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1999 1998
------------------------------------ --------------- ---------------
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 1,817,103 $ 1,809,766
Revolving line of credit 496,753 1,120,022
Current portion of notes payable, including amounts due to
related parties of $402,168 in 1999 and $69,537 in 1998 766,219 387,541
Accrued expenses, deposits and other liabilities 354,528 699,921
Current portion of capital lease obligations 20,388 13,200
--------------- ---------------
Total current liabilities 3,454,991 4,030,450
Long-Term Liabilities:
Capital lease obligations 46,350 10,218
Notes payable, including amounts due to related parties
of $360,000 in 1999 and $37,177 in 1998 381,475 415,013
--------------- ---------------
3,882,816 4,455,681
--------------- ---------------
Commitments and contingencies (Note 9)
Stockholders' equity (Notes 10, 11 and 12):
Convertible preferred stock, $1.00 par value, 3,000,000
shares authorized:
Series B (cumulative) - 80,088 shares issued and
outstanding in 1998 - 80,088
Series C (cumulative) - 371,545 shares issued and
outstanding in 1999 and 436,679 in 1998
(Liquidation preference $502,175) 371,545 436,679
Series F (cumulative) - 214,818 shares issued and
outstanding in 1999 and 357,818 in 1998
(Liquidation preference $259,013) 214,818 357,818
Series G (cumulative) - 83,500 shares issued and
outstanding in 1998 - 83,500
Common stock, no par value, 25,000,000 shares authorized;
6,702,571 issued and outstanding shares in 1999 and
1,668,071 shares in 1998 7,062,987 4,290,012
Additional paid-in capital 609,254 492,009
Accumulated deficit (7,322,140) (5,541,881)
--------------- ---------------
Total stockholders' equity 936,464 198,225
--------------- ---------------
$ 4,819,280 $ 4,653,906
=============== ===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income
Years Ended April 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Revenue:
Franchise equipment sales $ 5,361,569 $ 5,159,968
Direct equipment and service sales 3,505,436 4,715,519
Royalty fees 191,368 222,987
Initial franchise fees 36,000 12,500
Interest and other income 55,308 134,522
--------------- ---------------
9,149,681 10,245,496
--------------- ---------------
Costs and expenses:
Cost of franchise equipment sales 4,759,150 4,596,432
Cost of direct equipment and service sales 2,325,227 2,602,656
Selling 403,767 417,928
General and administrative 2,587,833 2,406,900
Interest expense and loan fees, including related party
interest of $6,783 in 1999 and $11,875 in 1998 253,883 413,687
Amortization of intangible assets 123,367 193,085
Provision for bad debts 47,380 250,000
--------------- ---------------
10,500,607 10,880,688
--------------- ---------------
Loss from operations before income taxes (1,350,926) (635,192)
Income tax benefit - 400,000
--------------- ---------------
Loss from continuing operations (1,350,926) (235,192)
--------------- ---------------
Discontinued operations, net of income taxes:
Loss from operations of discontinued subsidiaries (33,052) (456,220)
Loss on disposal of discontinued subsidiaries, net of
income tax benefit of $260,000 in 1998 (396,281) (400,000)
--------------- ---------------
Loss from discontinued operations (429,333) (856,220)
--------------- ---------------
Net loss (1,780,259) (1,091,412)
Cumulative dividends on preferred stock 47,709 76,647
--------------- ---------------
Loss applicable to common stock $ (1,827,968) $ (1,168,059)
=============== ===============
Loss per share:
Basic:
Loss from continuing operations $ (.56) $ (.14)
================ ================
Net loss $ (.76) $ (.72)
================ ================
Diluted:
Loss from continuing operations $ (.56) $ (.14)
================ ================
Net loss $ (.76) $ (.72)
================ ================
Weighed - average number of outstanding common shares
Basic: 2,409,816 1,622,824
--------------- ---------------
Diluted: 4,184,593 1,960,464
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Years Ended April 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Note 10)
Preferred Stock
Series B, C, F ,G,H,& I Common Stock Additional Accumulated Shareholders'
---------------------------- -----------------------------
Shares Amount Shares Amount Paid-in Capital Deficit Equity
------------- -------------- ----------- -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances, April 30, 1997 948,085 $ 948,085 1,620,571 $4,224,512 $ 447,009 $(4,450,469) $ 1,169,137
Issuance of preferred
stock 10,000 10,000 - - - - 10,000
Issuance of common stock - - 47,500 65,500 - - 65,500
Issuance of options and
warrants to consultants - - - - 45,000 - 45,000
Net loss - - - - - (1,091,412) (1,091,412)
--------- ----------- ----------- ---------- ---------- ----------- -----------
Balances, April 30, 1998 958,085 $ 958,085 1,668,071 $4,290,012 $ 492,009 $(5,541,881) $ 198,225
Issuance of preferred
stock 14,807 14,807 - - 2,746,693 - 2,761,500
Preferred stock offering
costs - - - - (298,525) - (298,525)
Conversion of preferred
stock into common upon
shareholder approval of
additional authorized
shares (14,807 (14,807) 4,761,500 2,462,975 (2,448,168) - -
Cancellation of
preferred stock taken as
partial consideration
for sale of subsidiary
operation (371,722 (371,722) - - - - (371,722)
Issuance of options and
warrants to consultants
and non-employee
directors - - - - 117,245 - 117,245
Issuance of common stock - - 273,000 310,000 - - 310,000
Net loss - - - - - (1,780,259) (1,780,259)
--------- ----------- ----------- ---------- ---------- ----------- -----------
Balances, April 30, 1999 586,363 $ 586,363 6,702,571 $7,062,987 $ 609,254 $(7,322,140) $ 936,464
========= =========== =========== ========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended April 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,780,259) $ (1,091,412)
Adjustments to reconcile to net cash provided by
(used in) operating activities, net of effect of acquisitions:
Depreciation and amortization 181,545 396,372
Provision for bad debts 47,380 250,000
Provision for inventory obsolescence - 233,000
Stock options and warrant compensation 117,245 55,000
Intangible write off-discontinued operations 341,432 258,055
Changes in operating assets and liabilities:
Trade accounts and notes receivable 334,090 615,505
Inventories 57,914 89,941
Prepaid expenses 9,413 55,959
Deferred taxes - (660,000)
Deposits and other assets 9,226 (10,344)
Trade accounts payable 7,337 (368,819)
Accrued expenses, deposits and other liabilities (345,393) 429,669
-------------- -------------
Net cash provided by (used in) operating activities (1,020,070) 252,926
-------------- -------------
Cash flows from investing activities
Capital expenditures (75,427) (40,657)
Cash paid for acquisitions (602,570) -
-------------- -------------
Net cash used in investing activities (677,997) (40,657)
-------------- -------------
Cash flows from financing activities:
Net borrowings under line-of-credit agreement (623,269) 157,551
Payments of notes payable (379,860) (470,687)
Principal payments on capital lease obligations (28,255) (31,599)
Issuance of preferred stock, net of offering costs 2,462,975 -
Issuance of common stock 310,000 65,500
-------------- -------------
Net cash provided by (used in) financing activities 1,741,591 (279,235)
-------------- -------------
Net increase (decrease) in cash 43,524 (66,966)
Cash at beginning of the year 13,594 80,560
-------------- -------------
Cash at end of the year $ 57,118 $ 13,594
============== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended April 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid $ 256,993 $ 351,843
Non-cash investing activities:
Business acquisitions financed by:
Issuance of notes payable 725,000 -
Capital acquisitions financed by leases 71,575 -
Non-cash financing activities:
Issuance of preferred stock as
bonus compensation - 10,000
Issuance of stock options and warrants to outside
consultants 117,245 45,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies
Presentation
The consolidated financial statements presented are those of Communications
World International, Inc., and its subsidiaries, CommWorld Acquisition
Corporation d.b.a. CRI, IAC Acquisition Corporation d.b.a. CommWorld of
Denver, CommWorld of Phoenix, Inc., CommWorld of Seattle, Inc., Digital
Telecom, Inc. d.b.a. CommWorld NationWide and CommWorld National Capitol
Area, Inc. (collectively, the "Company" or "CommWorld"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
Organization and Nature of Operations
CommWorld was incorporated under Colorado law in 1983 and has its principal
executive offices at 7315 South Revere Parkway, Suite 602, Englewood,
Colorado 80112. CommWorld is engaged in the distribution of franchise
licenses within the telephone interconnect industry. The Company derives
income primarily from the sale of equipment and services to franchisees,
multi-location customers (national accounts), and through its Company-owned
outlets, leasing fees and initial franchise fees.
Revenue Recognition
Initial Franchise Fees
----------------------
Franchise fees are recognized upon execution of the franchise agreement as
all material services and conditions relating to the sale have been
substantially performed or satisfied. Direct costs associated with the
sale, including franchisor obligations, are expensed upon the recognition
of the related revenue.
Royalty Fees
------------
Royalty fees are cost mark-up fees charged to certain franchisees who
purchase equipment directly from suppliers with whom the Company has
purchasing contracts. The Company is notified by the supplier when the
franchisees makes purchases and the fees are charged to the franchisee and
recognized as income on a monthly basis.
Franchise Equipment Sales
-------------------------
Revenue from franchise equipment sales is generally recognized when
products are shipped. The franchisee is entitled to purchase equipment
from or through the Company on a "cost mark-up royalty" basis; based on the
cost to the Company of the equipment and products purchased plus a mark-up
to the franchisee. The amount of the cost mark-up royalty varies by
manufacturer and by the volume of purchases of the individual franchise.
F-8
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies (continued)
Direct Equipment and Service Sales
----------------------------------
Revenue from direct equipment and service sales is generally recognized
upon completion of the installation of the equipment or upon completion of
the service provided by the Company for telephone systems, voice processing
products and related peripherals, since most contracts are completed as of
a period end. For significant projects not complete as of a period end, a
percentage of revenue and expense for the entire project is recognized
based on the estimated percentage of completion.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Inventory
Inventory is valued at the lower of cost (first-in, first-out method) or
estimated market value and includes used and replacement stock items.
Property and Equipment
Property and equipment are reported at cost. Depreciation is computed over
the estimated useful lives of the assets using the straight-line method for
financial reporting purposes.
Intangible Assets
Goodwill and Non-compete Agreements
-----------------------------------
Acquisitions of interconnect dealers, including franchise outlets, are
accounted for using the purchase method of accounting. Under this method,
the purchase price is allocated to assets acquired and liabilities assumed
based on their estimated fair values as of the date of acquisition. The
excess of the consideration paid over the fair value of net assets acquired
has been recorded as goodwill and is amortized on the straight-line basis
over periods ranging from ten to twenty years. Non-compete agreements
associated with business acquisitions are amortized over the term of the
agreement. The Company reviews unamortized intangible assets whenever
events or changes in circumstances indicate that the carrying value of the
asset may not be recoverable. If there is an indication the carrying
amount may not be recoverable, the Company estimates the future cash flows
expected to result from the operation of the applicable Company-owned
outlet and its eventual disposition. If the sum of the expected future
cash flows (undiscounted and without interest charges) is less than the
F-9
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies (continued)
carrying amount of the intangible asset, the Company recognizes an
impairment loss by reducing the unamortized cost of the intangible asset to
its estimated fair value.
Reacquired Franchises
---------------------
Reacquired franchises include individual franchises taken over by the
Company upon termination of the franchise agreements and/or abandonment by
the franchisee. Reacquired franchises are recorded based upon the estimated
fair value of the assets received less any liabilities assumed by the
Company, but not in excess of the Company's cost. Costs in excess of
amounts allocated to inventory, equipment and other assets are classified
as franchises reacquired to the extent supportable by the fair value of the
customer bases and territories acquired based upon estimates by Company
management.
The Company amortizes its investment in franchises reacquired to the extent
of the annual pre-tax operating income, if any, of the reacquired franchise
and may recognize additional amortization to reduce the investment to its
net realizable value as estimated by Company management.
Reacquired franchises also include the cost of master franchise territories
reacquired. Reacquired master franchise territories are amortized when
individual franchises in the related territories are sold. The maximum
amortization period for reacquired franchises is five years from the date
of reacquisition. There were no franchises reacquired in fiscal years 1999
or 1998.
Loss Per Common Share
Loss per common share is computed using the weighted average number of
common shares outstanding during each period. Common stock equivalents are
not material and do not affect the income per share. Common stock
equivalents are not included in the calculation of loss per share since
they are anti-dilutive.
Income Taxes
The Company provides for income taxes using the asset and liability method
as prescribed by Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-10
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies (continued)
Financial Instruments
The Company periodically maintains cash balances at a commercial bank in
excess of the Federal Deposit Insurance Corporation Insurance limit of
$100,000.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130 Reporting Comprehensive Income, effective May 1, 1998. SFAS No. 130
establishes standards for reporting comprehensive income and its components
(revenues, expenses, gains and losses). Components of comprehensive income
are net income and all other non-owner changes in equity. SFAS No. 130
requires an enterprise to (a) classify items of other comprehensive income
by their nature in a financial statement, and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of
financial position. Reclassifications of financial statements for earlier
periods provided for comparative purposes is required. The Company has no
items of comprehensive income at April 30, 1999 or 1998, respectively.
Operating Segments
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
131 Disclosures About Segments of an Enterprise and Related Information,
effective May 1, 1998. SFAS No. 131 establishes standards for reporting
information about segments in annual and interim financial statements.
SFAS No. 131 introduces a new model for segment reporting called the
"management approach." The management approach is based on the way the
chief operating decision maker organizes segments within the Company for
making operating decisions and assessing performance. Reportable segments
are based on products and services, geography, legal structure, management
structure, and any other method in which management disaggregates a
company. Based on the management approach model, the Company has
determined its business is comprised of a single operating segment and SFAS
No. 131, therefore, has no impact on its financial statements.
Recent Pronouncements
The FASB issued SFAS No. 133, Accounting for Derivative Financial
Instruments and Hedging Activities. SFAS No. 133, establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging
activities. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. The adoption of the standard is not expected to have a
significant impact on the consolidated financial statements of the Company.
F-11
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies (continued)
Reclassifications
Certain amounts in the 1998 consolidated financial statements have been
reclassified to conform to the presentation used in the 1999 consolidated
financial statements.
(2) Business Acquisitions
The Company entered into a letter of intent on June 25, 1998 to merge with
Interconnect Acquisition Corporation ("IAC"), a privately held company.
The Company completed its merger with IAC in October, 1998. Pursuant to
the terms of the merger agreement, the Company issued to shareholders of
IAC 1,000 shares of Series I preferred stock, which was convertible into 2
million shares of the Company's Common Stock. During March, 1999 the IAC
shareholders exercised their preferred shares into 2 million shares of the
Company's Common Stock. IAC, a development stage company, was recently
formed to acquire interconnect telephony businesses. Prior to the merger,
IAC had entered into a letter of intent to acquire five such businesses,
subject to obtaining financing, as well as, customary conditions of mergers
and acquisitions.
In connection with the IAC merger the Company formed a wholly-owned
subsidiary, IAC Acquisition Corporation, a Colorado corporation. As a
result of the merger and plan of reorganization IAC was merged into IAC
Acquisition Corporation.
The Company completed two acquisitions during the fiscal year ended Aril
30, 1999. During March, 1999, the Company, through a wholly-owned
subsidiary (CommWorld Acquisition Corporation), acquired certain assets
from Connective Resources, Inc. in Dallas, Texas. The Company, in a
transaction structured as an asset purchase, acquired inventory of
approximately $20,000, fixed assets of approximately $15,000 and the
existing customer base valued at $42,750. The Company paid $52,750 in cash
and issued a note payable for $25,000, which was paid subsequent to year
end. The value of the customer base has been recorded as an intangible
asset and is being amortized over twenty years.
During April, 1999, the Company, through a wholly-owned subsidiary (IAC
Acquisition Corporation), acquired Donaldson and Associates, Inc. (formerly
doing business as CommWorld of Denver, a franchisee). The Company acquired
inventory of approximately $70,000 and fixed assets with a net book value
of approximately $45,000. The Company paid $550,000 in cash and issued
notes payable in the total amount of $700,000. The notes are convertible
into common stock of the Company at the option of the holder on the basis
of $1 per share for $250,000 of the notes and at a 10% discount of market
value for the other $450,000 of notes. The acquisition was accounted for
as a purchase and, accordingly, the purchase price was allocated to the
assets acquired based on their estimated fair values as of the date of the
merger. The excess of the consideration paid over the fair value of net
assets acquired of approximately $1,135,000 was recorded as goodwill and is
being amortized on a straight line basis over twenty years. In connection
with the transaction the principals of CommWorld of Denver entered into
employment and non-compete agreements with the Company. The employment
agreements range from one to five years and call for the principals, among
other things, to receive their regular salaries during the term of the
agreements.
F-12
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(2) Business Acquisitions (continued)
The following unaudited pro forma information for the years ended April 30,
1999 and 1998 assumes the acquisition of CRI and CommWorld of Denver
occurred as of May 1, 1997. The pro forma results do not purport to be
indicative of the results of operations which would actually have occurred
had the acquisitions occurred on May 1, 1997, or which may occur in the
future.
<TABLE>
<CAPTION>
Year ended April 30,
-----------------------------------
1999 1998
-----------------------------------
(unaudited)
-----------------------------------
<S> <C> <C>
Gross revenue $13,058,429 $12,622,428
Net loss (1,731,215) (1,060,665)
Loss per common share from continuing operations (.56) (.17)
</TABLE>
(3) Revolving Line of Credit
The Company entered into a revolving line of credit agreement in January,
1995 with a finance company. The revolving line of credit permits the
Company to borrow up to $2,000,000 subject to certain collateral
limitations. Interest, at the rate of prime plus 5% per annum, is due
monthly. The revolving line of credit is collaterallized by substantially
all of the assets of the Company. At April 30, 1999 and 1998 the Company
had outstanding borrowings on the line of credit of $496,753 and
$1,120,022, respectively.
(4) Notes Receivable
Occasionally, amounts due on open account from various franchisees were
converted to promissory notes bearing interest at rates ranging from 8.5%
to 12% per annum, payable in installment periods ranging from 12 to 36
months, and secured by the franchisee's business assets. In prior years,
the Company sold various Company-owned outlets (see Note 7) with a portion
of the sales financed with promissory notes.
The Company also may finance payments of initial franchise fees with
promissory notes for up to four months. Notes receivable consist of the
following at April 30:
<TABLE>
<CAPTION>
1999 1998
----------------- ------------------
<S> <C> <C>
Equipment sales $ 53,935 $ 81,975
Company-owned outlet sales 22,000 97,987
Franchise fees 9,000 9,375
Former president of the Company 25,000 25,000
-------- --------
109,935 214,337
Less current portion 76,652 133,320
-------- --------
Non-current portion $ 33,283 $ 81,107
======== ========
</TABLE>
F-13
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(5) Property and Equipment
Property and equipment consists of the following at April 30:
<TABLE>
<CAPTION>
Estimated
useful life 1999 1998
--------------- ----------------- ------------------
<S> <C> <C> <C>
Furniture, fixtures and equipment 3-5 $396,007 $ 957,371
Rental property 5 - 33,830
Vehicles 5 9,000 115,087
Leasehold improvements and other 5 22,040 967
-------- ----------
427,047 1,107,255
Less accumulated depreciation and
amortization 163,272 860,450
-------- ----------
Property and equipment, net $263,775 $ 246,805
======== ==========
</TABLE>
(6) Notes Payable
Notes payable consist of the following at April 30:
<TABLE>
<CAPTION>
1999 1998
------------------ -----------------
<S> <C> <C>
Installment note payable to Toshiba America Information Systems,
Inc. (TAIS), net of discount $ 376,646 $675,275
Notes payable to sellers of acquired companies
(see Note 2) 762,168 106,705
Other notes payable 8,880 20,574
---------- --------
1,147,694 802,554
Less current portion 766,219 387,541
---------- --------
Non-current portion $ 381,475 $415,013
========== ========
</TABLE>
Effective December 22, 1995, the Company entered into an agreement with
TAIS, its major supplier and unsecured creditor, to transfer $1,530,950 of
accounts and note payable to a long-term obligation (the "Note") and to
increase its credit facility by $400,000. Under the terms of the Note, the
Company is required to make 60 equal installments of $29,598, including
interest at 6% per annum, commencing in February 1996. Additionally, the
Company is required to make principal prepayments of at least $10,000 per
month if the monthly net operating cash flow of the Company, defined as
pre-tax income plus depreciation and amortization, exceeds $75,000 for
three consecutive months. Thereafter, 60% of each additional $5,000 of
monthly net operating cash flow in excess of $75,000 must be paid. The
Company is also required to use a portion of the net proceeds from the
offering of its stock or debt securities to make a principal prepayment.
The prepayment is equal to a percentage of the net proceeds in excess of
$350,000 as follows: 40% of net proceeds between $350,000 and $1 million,
50% of net proceeds between $1 million and $2 million, 60% of net proceeds
between $2 million and $3 million and 100% of net proceeds in excess of $3
million, but
F-14
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(6) Notes Payable (continued)
not to exceed the remaining principal balance of the Note ($376,646 as of
April 30, 1999). The provisions for additional principal payments during
1999 were waived related to the Company's private placement of equity
securities. The Note contains the personal guarantee of the Company's
former president. The Company has indemnified its former president
relative to this guarantee.
Effective April 30, 1997 TAIS agreed to treat the Note as a non-interest-
bearing obligation from inception through April 30, 1997, resulting in a
discount of the note balance of approximately $103,000. The discount was
treated as a reduction of cost of franchise equipment sales for the year
ended April 30, 1997. During the year ended April 30, 1998, TAIS agreed to
treat the note as a non-interest bearing obligation provided monthly
payments are continued in a timely manner. A discount of $127,958 was
recorded on the Note and treated as a reduction of cost of franchise
equipment sales for the year ended April 30, 1998. Imputed interest in the
amount of $56,522 and $68,796 was recognized on the Note during the years
ended April 30, 1999 and 1998.
The fair value of the note payable to TAIS is estimated based on the amount
of future cash flows discounted using the Company's current borrowing rate
for loans of comparable maturity. At April 30, 1999 and 1998, the
estimated fair value of the TAIS note was approximately $335,000 and
$599,000, respectively.
The scheduled maturities of notes payable, by fiscal year, are, $766,219 in
2000, $111,475 in 2001, $90,000 in 2002, $90,000 in 2003, and $90,000 in
2004.
(7) Franchised and Company-Owned Outlets
The following table provides data on franchised outlets and Company-owned
outlets:
<TABLE>
<CAPTION>
Franchised Company-owned
outlets Outlets
--------------- -----------------------
<S> <C> <C>
Total at April 30, 1997 57 5
------------------------------
Additions 1 -
Terminated (5) (1)
Acquired franchises - -
-- --
Total at April 30, 1998 53 4
------------------------------
Additions 11 -
Terminated (1) (3)
Acquired franchises - 2
-- --
Total at April 30, 1999 63 3
------------------------------ == ==
</TABLE>
F-15
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(8) Intangible Assets
Intangible assets consist of the following at April 30:
<TABLE>
CAPTION>
Amortization
period 1999 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Goodwill 10-20 years $1,987,369 $1,259,608
Franchises reacquired 5 years 315,567 315,567
Non-compete agreements 2-5 years 172,500 172,500
---------- ----------
2,475,436 1,747,675
Less accumulated amortization 788,108 883,250
---------- ----------
Intangible assets, net $1,687,328 $ 864,425
========== ==========
</TABLE>
(9) Commitments
Operating Leases
The Company leases office space and related facilities, equipment and
vehicles under non-cancelable operating leases. Future minimum lease
payments for such operating leases are as follows:
Year ended April 30:
--------------------------------
2000 $ 442,500
2001 366,000
2002 279,400
2003 205,400
2004 68,900
Thereafter -
----------
$1,362,200
==========
Aggregate rental expense under operating leases was $254,754 and
$286,925 for the years ended April 30, 1999 and 1998, respectively.
During fiscal 1999, the Company relocated its corporate headquarters to
one of the Company's other operating facilities. The Company entered into
sublease agreements, with recourse, on the vacated facilities, under
terms substantially the same as the original leases.
F-16
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(9) Commitments (continued)
Capital Leases
The Company leases computer equipment under capital leases. At April 30,
1999, scheduled future minimum payments under capital leases with initial
or remaining terms of one year or more are as follows:
<TABLE>
<CAPTION>
Year ended April 30:
--------------------------------
<S> <C>
1999 $32,580
2000 32,580
2001 21,720
-------
Total minimum lease payments 86,880
Less interest 20,142
-------
Present value of net minimum lease payments 66,738
Less current portion 20,388
-------
Non-current portion $46,350
=======
</TABLE>
The following is a summary of property and equipment under capital leases
at April 30:
<TABLE>
<CAPTION>
1999 1998
--------------- -----------------
<S> <C> <C>
Computer equipment $71,575 $ 80,692
Vehicles - 78,935
------- ---------
71,575 159,627
Accumulated amortization (7,953) (119,796)
------- ---------
$63,622 $ 39,831
======= =========
</TABLE>
Amortization of assets held under capital leases is included with
depreciation expense.
Employment Agreements
The Company has entered into Employment Agreements (the "Agreements")
with several individuals in connection with various business acquisitions
during fiscal years 1994 to 1999. Generally, the terms of these
Agreements provide for a two to five year term of employment and a fixed
minimum amount of annual compensation and bonus-performance incentives.
Total compensation paid under these Agreements during fiscal years ended
April 30, 1999 and 1998 was $107,792 and $193,345, respectively.
F-17
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(9) Commitments (continued)
The future minimum payments required under these Agreements at April 30,
1999 are as follows:
<TABLE>
<CAPTION>
Year ended April 30:
------------------------------
<S> <C>
2000 $210,000
2001 210,000
2002 120,000
2003 120,000
2004 120,000
Thereafter 120,000
--------
$780,000
========
</TABLE>
(10) Shareholders' Equity and Related Party Transactions
Series A Preferred Stock
In October 1992, the Company authorized the establishment and designation
of 1,000,000 shares of Series A Preferred Stock. There were no Series A
Preferred Stock shares issued and outstanding at April 30, 1999 and 1998.
Series B Preferred Stock
In connection with the Company's acquisition of Master Franchise, Inc.
and Communications World of Phoenix South, Inc. in April 1994, the
Company authorized 100,000 shares of Series B Preferred Stock and issued
80,088 shares to the sole shareholder of the acquirees. Shares of the
Series B Preferred Stock were convertible into common stock at the
election of the holders. The conversion rights were not exercised and
expired April 30, 1997. In 1999, the Company sold its operating unit in
Phoenix back to the original owner. As partial consideration for the
purchase, the Company took back and canceled all of the outstanding
shares of Series B Preferred Stock and the rights to accumulated and
unpaid dividends were waived.
Series C Preferred Stock
The Company authorized 440,000 shares of Series C Preferred Stock and
issued 140,060 shares to the shareholders of CommWorld of Seattle North,
Inc., and issued 181,484 shares to the shareholders of Digital Telecom
Incorporated, and issued 40,000 shares to the shareholders of
Communications World of Columbia, Inc., and issued 65,135 shares to the
sole shareholder of Alpha Communications & Technology, Inc. and issued
10,000 shares to employees as incentive compensation. In connection with
the Company's sale of certain operating units during the current fiscal
year, 65,135 shares of Series C Preferred Stock were taken as partial
consideration and were canceled by the Company. The rights to accumulated
and unpaid dividends on these shares of stock were waived. Shares of the
Series C Preferred Stock were convertible into common stock at the
election of the holders. Effective July 16, 1997 the conversion rights
expired. Dividends on the Series C Preferred Stock are
F-18
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(10) Shareholders' Equity and Related Party Transactions (continued)
paid when declared by the Board of Directors, at the rate of $.08 per share
per annum before any dividends on shares of the Company's common stock are
paid. Upon liquidation, dissolution or winding up of the Company, the
Series C Preferred Stock shall have a preference of $1.00 per share plus
accumulated and unpaid dividends, payable from the proceeds of sale or
distribution of the Company's assets prior to any distribution to the
holders of common stock. The Company may redeem the Series C Preferred
Stock at $1.00 per share plus accrued and unpaid dividends by giving thirty
days notice to the holders of the Series C Preferred Stock. At April 30,
1999, there were $130,630 in accumulated dividends.
Series F Preferred Stock
The Company authorized 1,100,000 shares of Series F Preferred Stock. Shares
of the Series F Preferred Stock are convertible into Common Stock at the
election of the holders at a conversion price equal to 50% of the current
market price determined by the 30 day average price prior to conversion.
The shares of Series F Preferred Stock will automatically be converted into
fully-paid and non-assessable shares of Common Stock upon the effective
date of a registration statement covering the Common Stock. Dividends on
the Series F Preferred Stock are paid when declared by the Board of
Directors, at the rate of $.08 per share per annum before any dividends on
shares of the Company's common stock are paid. Upon liquidation,
dissolution or winding up of the Company, the Series F Preferred Stock has
a preference of $1.00 per share plus accumulated and unpaid dividends,
payable from the proceeds of sale or distribution of the Company's assets
prior to any distribution to the holders of common stock. At April 30,
1999, there were $44,195 in accumulated dividends.
The Company issued 143,000 shares of Series F Preferred Stock in connection
with the acquisition of the assets of its franchise, CommWorld of Tucson
(see Note 2). The Company also issued, for cash, 45,000 shares of Series F
Preferred Stock, realizing net proceeds of $39,150, in connection with a
private offering of the shares. The Company issued, for cash, 169,818
shares in connection with the exercise and conversion of certain notes
payable into equity (see Note 11). In connection with the Company's sale of
certain operating units in 1999, 143,000 shares of Series F Preferred Stock
were received as partial consideration and canceled by the Company. The
rights to accumulated and unpaid dividends on these shares of stock were
waived.
Series G Preferred Stock
The Company authorized and issued 83,500 shares of Series G Preferred Stock
to an individual in connection with the acquisition of the assets of
CommWorld of Tucson (see Note 2). Shares of the Series G Preferred Stock
were convertible into common stock at the election of the holders at a
conversion price of $1.625. Dividends on the Series G Preferred Stock are
paid when declared by the Board of Directors, at the rate of $.08 per share
per annum before any dividends on shares of the Company's common stock are
paid. In 1999, the Company sold its operating unit in Tucson to the
original owner. As partial consideration for the sale, the Company received
in exchange and canceled
F-19
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(10) Shareholders' Equity and Related Party Transactions (continued)
all of the previously issued and outstanding Series G preferred shares.
All rights to accumulated and unpaid dividends were waived.
Series H Preferred Stock
The Company authorized 17,700 shares of Series H Preferred Stock in 1999 in
connection with a private placement of equity securities. The shares of
Series H Preferred Stock were offered in a unit offering of securities with
each unit consisting of one share of Series H Preferred Stock and 40 common
stock purchase warrants exercisable at $3 per share. Each share of Series H
Preferred Stock was convertible into 200 shares of common stock upon
approval of the shareholders of the Company of an increase in the
authorized shares of common stock, which approval was granted in March of
1999. There were 13,807.5 shares of Series H Preferred Stock issued which
were converted into 2,761,500 shares of common stock.
Series I Preferred Stock
The Company authorized 1,000 shares of Series I Preferred Stock in
connection with the merger with Interconnect Acquisition Corporation (IAC)
and issued all of the shares to the shareholders of IAC. Each share of
Series I Preferred Stock was converted into 2,000,000 shares of common
stock upon the approval of the shareholders of the Company of an increase
in authorized shares of common stock, which approval was granted in March
of 1999. The Series I Preferred Stock was converted into 2,000,000 shares
of common stock.
The schedule on the following page summarizes the preferred stock activity
for Series B, C, F, G, H and I for fiscal years ended April 30, 1999 and
1998:
F-20
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(10) Shareholders' Equity and Related Party Transactions (continued)
<TABLE>
<CAPTION>
Series B Series C Series F Series G
------------------- ------------------- --------------------- -------------------
Shares Amount Shares Amount Shares Amount Shares Amount
-------- --------- -------- --------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, April 30, 1997 80,088 $ 80,088 426,679 $426,679 357,818 $ 357,818 83,500 $ 83,500
Issuance of preferred
stock - - 10,000 10,000 - - - -
------- -------- ------- -------- -------- --------- ------- --------
Balances, April 30, 1998 80,088 80,088 436,679 436,679 357,818 357,818 83,500 83,500
Issuance of preferred
stock - - - - - - - -
Cancellation of preferred
stock in connection with
sale of operating units (80,088) (80,088) (65,134) (65,134) (143,000) (143,000) (83,500) (83,500)
Conversion of preferred
stock into common stock
upon shareholder approval
of additional authorized
common shares - - - - - - - -
------- -------- ------- -------- -------- --------- ------- --------
Balances, April 30, 1999 - $ - 371,545 $371,545 214,818 $ 214,818 - $ -
======= ======== ======= ======== ======== ========= ======= ========
<CAPTION>
Series H Series I Total Preferred Stock
------------------- ----------------- --------------------
Shares Amount Shares Amount Shares Amount
-------- --------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances, April 30, 1997 - $ - - - 948,085 $ 948,085
Issuance of preferred
stock - - - - 10,000 10,000
------- -------- ------ ------- -------- ---------
Balances, April 30, 1998 - - - - 958,085 958,085
Issuance of preferred
stock 13,807 13,807 1,000 1,000 14,807 14,807
Cancellation of preferred
stock in connection with
sale of operating units - - - - (371,722) (371,722)
Conversion of preferred
stock into common stock
upon shareholder approval
of additional authorized
common shares (13,807) (13,807) (1,000) (1,000) (14,807) (14,807)
------- -------- ------ ------- -------- ---------
Balances, April 30, 1999 - $ - - $ - 586,363 $ 586,363
======= ======== ====== ======= ======== =========
</TABLE>
F-21
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(10) Shareholders' Equity and Related Party Transactions (continued)
During the year ended April 30, 1999, shares of Series H and Series I
Preferred Stock were issued and subsequently converted into Common Stock.
There were 13,807.5 shares of Series H Preferred Stock issued which were
converted into 2,761,500 shares of Common Stock; there were 1,000 shares
of Series I Preferred Stock issued which were converted into 2,000,000
shares of Common Stock.
Common Stock Purchase Warrants
On May 20, 1997, the Company entered into an investment banking agreement
(the Agreement) with M.H. Meyerson & Co., Inc. (Meyerson). Under the terms
of the Agreement, Meyerson provides investment banking services for the
Company, on a best efforts basis, including assistance with mergers and
acquisitions, internal capital structuring and the placement of new debt
and equity issues for a period of up to five years commencing from the
date of the Agreement. In consideration of the services to be performed,
the Company granted Meyerson warrants to purchase 175,000 shares of Common
Stock at a price of $1.20 per share. The warrants are fully vested and may
be exercised at any time up to and including May 20, 2002. The warrants
carry piggyback registration rights. The warrants were valued at $.30 each
and a charge of $37,000 was recorded in the year ended April 30, 1998,
with an offsetting increase to additional paid-in capital.
The Company completed a private placement of equity securities on May 25,
1998. The private placement consisted of 283,000 Units with each Unit
consisting of one share of common stock and one common stock purchase
warrant exercisable at $2.50 for a period of five years. The Units were
sold for $1.25 each for total proceeds of $353,750. In addition to the
Units, the Company sold to the Placement Agent 40,000 Common Stock
purchase warrants for $100, exercisable at $1.25 per share for a period of
five years.
The Company completed an additional private placement of equity securities
in March, 1999. The private placement consisted of 13,807.5 Units with
each Unit consisting of one share of Series H Preferred Stock and 40
common stock purchase warrants. Each warrant entitles the holder to
purchase one share of common stock at $3 per share at any time up to and
including March 31, 2004. Additionally, 331,380 common stock purchase
warrants were issued to the placement agent. The warrants may also be
exercised at any time up to March 31, 2004; 276,150 warrants are
exercisable at $1 per share and 55,230 are exercisable at $3 per share.
As a part of severance agreements with executive officers of the Company,
common stock purchase warrants were issued which entitle the holders to
purchase 135,000 shares of common stock at $1.30 per share and 25,000
shares at $1.00 per share. The 135,000 warrants may be exercised at any
time up to August 11, 2001 and the 25,000 warrants may be exercised at any
time up to September 20, 1999. The warrants were fair valued at $.31 and
$.13 per share, respectively, and a charge of $45,100 was recorded for
fiscal year ended April 30, 1999 with an offsetting increase to additional
paid in capital.
F-22
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(11) Benefit Plans
Stock Options
The Company has adopted two stock incentive plans for its employees and
consultants. The 1997 Stock Option Plan provides for the reservation of
130,000 shares of the Company's Common Stock. Pursuant to the terms of the
1997 Plan, options may be granted to employees of the Company and
consultants to the Company. In addition to the shares reserved under the
Plan for future issuance, there was a specific grant of 135,000 options to
certain employees, directors and consultants. Options to purchase 115,000
shares are exercisable at $1.30 per share and options to purchase 20,000
shares are exercisable at $1.50 per share, the fair market values of the
Common Stock on the respective dates of grant. The specific grants are
fully vested and will expire in August 2001.
The 1998 Stock Incentive Plan provides authority for the grant of options
to purchase up to 1,000,000 shares of common stock. Options to purchase
310,250 shares have been granted. Of this amount, options to purchase
126,500 shares at $1 per share have been issued, including 119,500 to
officers and directors, and will expire in November, 2003 if not exercised.
Options for 114,500 shares are fully vested and the other options vest in
one-third installments over a three year period. Options to purchase
161,250 shares at $1.50 have been issued, including 136,000 to officers and
directors, and will expire in February, 2004 if not exercised. Options to
purchase 22,500 shares of Common Stock, of which 20,000 shares are to an
officer of the Company, at $1.30 have been issued, which will expire in
March, 2004, if not exercised. Options for 116,000 shares are fully vested
and the other options vest in one-third installments over a three year
period. All options under the 98 Plan were issued at the market value on
the date of grant.
Additionally, in accordance with a stock option plan adopted in February,
1993, the Company's board of directors authorized the issuance of options
to purchase up to 20,000 common shares to non-employee directors of the
Company. Options are granted at the market value on the date of grant.
The options granted become exercisable over a three-year period and must be
exercised within five years from the date of grant. At April 30, 1999, the
Company had 8,000 options granted to purchase common stock at prices
ranging from $.88 to $5.13 per share, with expirations occurring through
November 1, 2002. The Plan expired in November, 1997. During fiscal years
1999 and 1998 no stock options were exercised.
In fiscal year 1999, the Company adopted the 1999 Non-discretionary Stock
Option Plan (the "99 Plan"), pursuant to which options to purchase up to
300,000 shares of Common Stock could be granted to non-employee directors
of the Company. Options to purchase 10,000 shares each have been granted to
two non-employee board members at $1.50 per share, the fair market value on
the date of grant. The options were valued at $.36 each and a charge of
$14,320 was recorded in the year ended April 30, 1999, with an offsetting
increase in additional paid-in capital. These options will expire in
February 2004. Options to purchase 10,000 shares will be granted to any
person becoming a director who is not employed by the Company or any of its
subsidiaries. In addition, each non-employee director will receive options
to purchase 10,000 shares annually, commencing February 1, 2000 and ending
F-23
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(11) Benefit Plans (continued)
February 1, 2004. If any option grant expires or terminates, all shares
which were not issued under the option grant will become available for
additional awards under the 1999 Plan.
Furthermore, the board of directors has granted options to certain
individuals that were not issued pursuant to any plan. At April 30, 1999,
the Company had 37,500 options outstanding to purchase common stock at
prices ranging from $1.00 to $3.13 per share. These options expire
September 20, 1999. During fiscal year 1999 and 1998, no stock options
were exercised.
The following is a summary of the status of options granted:
<TABLE>
<CAPTION>
Number Aggregate Weighted Average
of Shares Exercise Price Exercise Price
----------------- ----------------- --------------------
<S> <C> <C> <C>
Balances, April 30, 1997 216,583 $ 470,966 $2.17
Options granted 257,000 335,500 1.30
Options canceled (3,583) (20,590) 5.75
-------- ---------
Balances, April 30, 1998 470,000 785,876 1.67
Options granted 354,750 464,375 1.31
Options canceled (314,000) (532,976) 1.70
-------- ---------
Balances, April 30, 1999 510,750 $ 717,275 $1.40
======== ========= =====
</TABLE>
The weighted average fair value of options granted during fiscal years 1999
and 1998 was $1.31 and $1.30 per share, respectively.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-
Based Compensation. Accordingly, no compensation cost has been recognized.
Had compensation cost for these option plans been determined based on the
fair value at the grant date for options granted in 1999 and 1998,
consistent with the provisions of SFAS 123, the Company's net loss and net
loss per share applicable to common stock for 1999 and 1998 would have been
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
--------------------- --------------------
<S> <C> <C>
Net loss applicable to common stock -
as reported $(1,827,968) $(1,168,059)
Net loss applicable to common stock -
pro forma (1,903,724) (1,264,879)
Loss per common share -
as reported (.76) (.72)
Loss per common share -
pro forma $ (.79) $ (.78)
</TABLE>
F-24
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(11) Benefit Plans (continued)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<S> <C>
Risk-fee interest 5.0% - 6.0%
Expected life 3 years
Expected volatility 30%
Expected dividend $0
</TABLE>
The following table summarizes the stock options outstanding at April 30,
1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ---------------------------------------
Range of Number Weighted Average Number Weighted Average
Exercise Prices Outstanding Exercise Price Exercisable Exercise Price
---------------- -------------- -------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
$ 0.88 - 1.00 141,000 $1.00 129,000 $1.00
1.01 - 1.30 137,500 1.30 115,000 1.30
1.31 - 2.00 201,250 1.50 156,000 1.50
2.01 - 5.13 31,000 3.09 27,000 3.28
------- -------
$ 0.88 - 5.13 510,750 $1.40 427,000 $1.41
======= =======
</TABLE>
401(k) Plan
On August 1, 1985, the Company established an Employees' Savings Plan (ESP)
for all full-time employees who have at least twelve months of continuous
service and who have attained the age of twenty-one. The Company may make
matching contributions of up to 50% of the participant's contribution, made
via salary reduction arrangements, as described in the ESP. In addition,
the Company may also make an annual contribution from its profits. The
Company made no contributions to the ESP in fiscal 1999 or 1998.
(12) Income Taxes
There was no income tax expense attributable to income from operations for
the years ended April 30, 1999 and 1998 due to losses incurred from
operations. The Company's net deferred tax asset for future deductions and
its net operating loss carryforward in excess of future taxable amounts is
offset by a valuation allowance.
F-25
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(12) Income Taxes (continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at April 30, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
<S> <C> <C>
Net operating loss carryforwards $ 2,843,000 $ 2,492,000
Allowance for doubtful accounts 83,000 145,000
Allowance for obsolete inventory 28,000 139,000
Amortization of goodwill 11,000 153,000
Other, net 6,000 16,000
----------- -----------
Total gross deferred taxes 2,971,000 2,945,000
Valuation allowance (1,926,000) (1,900,000)
----------- -----------
Net deferred taxes $ 1,045,000 $ 1,045,000
=========== ===========
</TABLE>
As of April 30, 1999 the Company had accumulated net operating loss
carryforwards of approximately $5,808,000. Generally, these operating
losses are available to offset future federal and state taxable income.
Based upon the Company's change in control, resulting from the issuance of
equity securities, the Company expects the annual use of portions of the
operating loss carryforwards will be limited under Section 382 of the
Internal Revenue Code of 1986, as amended. As a result the Company expects
the utilization of its net operating loss will be limited to approximately
$3,300,000 in future years.
(13) Certain Risks and Concentrations
The Company is reporting a loss from continuing operations of $1,351,000
for the fiscal year ended April 30, 1999. The Company's operations have
historically been adversely affected by a lack of working capital. The
Company uses a line of credit from a lending institution, which is limited
to the extent of available collateral. The Company's line of credit is
fully utilized to the extent of available collateral at April 30, 1999.
The lack of available funding impedes the Company's ability to fund
additional equipment purchases and to expand its business operations. The
Company sold equity securities during the fiscal year. These proceeds were
used to fund recent operating losses of the Company, to fund the cash
purchase price of the acquisitions completed during 1999, and to repay
certain debt obligations. The Company will need substantial additional
capital in order to have reasonable prospects for achieving its strategic
objective of growth through acquisitions.
The Company currently purchases telephone systems and various peripheral
equipment from several major suppliers. One of the suppliers provides
approximately 85% of the inventory and products purchased by the Company
while offering flexible credit terms. If the Company's relationship with
the supplier was to cease, it could have a significant adverse impact on
the operations of the Company.
F-26
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(13) Certain Risks and Concentrations (continued)
The Company had 63 franchises located in 25 states and three Company-owned
outlets at April 30, 1999. The Company sells its products and services
primarily to franchisees, multi-location customers, and to customers of
Company-owned outlets, generally without requiring any collateral. The
Company maintains adequate allowances for potential credit losses and
performs ongoing credit evaluations. One customer accounted for
approximately 56% and 61% of the Company's direct equipment sales at April
30, 1999 and 1998, respectively.
The Company's products are concentrated in the telephone interconnect
industry, which is highly competitive and rapidly changing. Significant
technological changes in the industry could affect operating results
adversely. The Company's inventories include spare parts and components,
which are specialized in nature and subject to technological obsolescence.
While the Company has programs to minimize the required inventories on hand
and considers technological obsolescence in estimating required allowances
to reduce recorded amounts to market values, such estimates could change in
the future.
(14) Disposal of Operating Subsidiaries
During September, 1998 the Company adopted a formal plan to dispose of its
operating subsidiaries in Alexandria, Virginia, and Phoenix and Tucson,
Arizona. During the Company's fiscal quarter ended January, 1999, the
Company completed the sale of these operating subsidiaries. The
subsidiaries were sold to the original owners of those operations primarily
in return for preferred stock, which was previously issued in connection
with these acquisitions.
The Company realized an aggregate loss from the sale of the operating
subsidiaries of approximately $396,000. On a cumulative basis, the
operating subsidiaries reported a net loss of approximately $33,000 and
$289,000 for the years ended April 30, 1999 and 1998, respectively.
Net sales of the operating subsidiaries for fiscal 1999 and 1998 were
$667,000 and $957,000, respectively. These amount are not included in net
sales in the accompanying statements of operations. The prior year
financial statements have been restated to conform to the current year
presentation reflecting the sale and disposal of the operating
subsidiaries.
(15) Subsequent Events
During the quarter ending July 31, 1999 the Company received net proceeds
of $212,440 from the sale of Units of Subordinated Convertible Notes and
Common Stock Purchase Warrants. Each Unit consists of a $50,000
Subordinated Convertible Note and 20,000 Warrants. The Notes bear interest
at 8% per annum and are convertible into Common Stock at any time prior to
maturity at $1.50. The Notes mature at the earlier of 36 months from the
date of issue or upon the occurrence of certain other events. The Warrants
are exercisable for a period of five years from the date of issuance at
$.40 per Warrant.
F-27
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(16) Year 2000 Issue (Unaudited)
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar business activities.
Based on an assessment in the current fiscal year, the Company determined
that it needed to modify or replace its operating computer system,
including both hardware and software, in order for the system to properly
utilize dates beyond December 31, 1999. The Company selected a new
operating system in October of 1998 and secured the hardware and software
in November. The cost of the new system approximates $100,000 of which
$72,000 has been placed on a capital lease with a three year term. The
system conversion from the old software to the new was started in December,
1998 and has now been completed. All of the Company's operating units are
utilizing the new system which is expected to be Year 2000 compliant.
The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company
is vulnerable to those third parties' failure to remediate their own Year
2000 Issue. The Company's major suppliers have indicated that their
systems are Year 2000 compliant. However, the Company does not have any
control over these or other third parties with whom the Company does
business and, therefore, the Company can not currently determine to what
extent future operating results may be adversely affected by the failure of
third parties to successfully address their Year 2000 Issue. The Company
does not believe it has significant exposure to contingencies related to
the Year 2000 Issue for the products it has sold.
F-28
<PAGE>
Communications World International, Inc.
Form 10-SB
Exhibit 2 (a)
PLAN AND AGREEMENT OF
MERGER
BY AND AMONG
INTERCONNECT ACQUISITION CORPORATION
COMMUNICATIONS WORLD INTERNATIONAL, INC.
IAC ACQUISITION CORPORATION
AND
THE STOCKHOLDERS
OF
INTERCONNECT ACQUISITION CORPORATION
Dated as of October 20, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DEFINITIONS............................................... 1
1.1 General Definitions....................................... 1
2. MERGER.................................................... 3
2.1 Terms of Merger........................................... 3
(a) Merger; Surviving Company................................. 3
(b) The Effective Date and Time............................... 4
(c) Registered Office and Agent............................... 4
(d) Certificate of Incorporation of Surviving Corporation..... 4
(e) Bylaws of the Surviving Corporation....................... 4
(f) Effect of Merger on Stock of Constituent Corporations..... 4
(g) Officers and Directors of Surviving Corporation........... 4
(h) Approval by Stockholders; Effective Date.................. 5
(i) Amendment................................................. 5
(j) Termination of Merger..................................... 5
(k) Tax Free Reorganization................................... 5
2.2 Further Assurances........................................ 5
3. REPRESENTATIONS AND WARRANTIES OF IAC..................... 5
3.1 Organization; Qualification............................... 6
3.2 Authority Relative to this Agreement...................... 6
3.3 Capitalization............................................ 6
3.4 Consents and Approvals.................................... 6
3.5 No Violations............................................. 7
3.6 No Brokers................................................ 7
3.7 No Liabilities............................................ 7
4. REPRESENTATIONS AND WARRANTIES OF CWII.................... 7
4.1 Organization; Qualification............................... 7
4.2 Authority Relative to this Agreement...................... 7
4.3 Consents and Approvals.................................... 8
4.4 No Brokers................................................ 8
4.5 CWII Stock; Authorized and Issued Shares.................. 8
4.6 No Violations............................................. 8
5. ADDITIONAL AGREEMENTS..................................... 8
5.1 Agreement to Consummate................................... 8
5.2 Agreement Regarding Brokers............................... 9
5.3 Filings................................................... 9
6. CONDITIONS PRECEDENT TO CLOSING........................... 9
6.1 General Conditions........................................ 9
(a) No Injunction............................................. 9
(b) Proceedings............................................... 9
(c) Legislation............................................... 9
(d) Litigation................................................ 10
6.2 Conditions to Closing in Favor of the Stockholders and IAC 10
(a) Representations and Warranties of CWII.................... 10
(b) CWII's Officers' Certificate.............................. 10
(c) Governmental Consents, Authorizations, Etc................ 10
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
(d) Closing Consideration..................................... 10
(e) Third Party Consents...................................... 10
(f) Approval.................................................. 10
(g) Certificate of Authorities................................ 11
(h) Certificate of Merger..................................... 11
(k) Other Matters............................................. 11
6.3 Conditions to Closing in Favor of CWII and Purchaser...... 11
(a) Representations and Warranties of IAC..................... 11
(b) IAC's Officers' Certificate............................... 11
(c) Governmental Consents, Authorizations, Etc................ 12
(d) Third Party Consents...................................... 12
(e) Approval.................................................. 12
(f) Certificate of Authorities................................ 12
(g) Corporate Records and Books of Account.................... 12
(h) Certificate of Merger..................................... 12
(i) Fairness Opinion.......................................... 12
(j) Other Matters............................................. 12
7. CLOSING AND TERMINATION................................... 13
7.1 Closing Date.............................................. 13
7.2 Termination............................................... 13
7.3 Effect of Termination..................................... 13
7.4 Extension; Waiver......................................... 13
8. INDEMNIFICATION........................................... 14
8.1 Indemnity by CWII and Purchaser........................... 14
8.2 Indemnity by IAC and the Stockholders..................... 14
8.3 Indemnification Notice.................................... 14
9. GENERAL PROVISIONS AND OTHER AGREEMENTS................... 15
9.1 Notices................................................... 15
9.2 Fees and Expenses......................................... 16
9.3 Interpretation............................................ 16
9.4 Counterparts.............................................. 16
9.5 Miscellaneous............................................. 16
9.6 Publicity................................................. 16
9.7 Invalid Provisions........................................ 16
9.8 Binding Effect............................................ 17
9.9 Captions.................................................. 17
9.10 Attorneys' Fees........................................... 17
9.11 Jurisdiction and Venue.................................... 17
9.12 Assignability............................................. 17
9.13 Entirety.................................................. 17
9.14 Amendment................................................. 17
9.15 Survival of Representations and Warranties................ 18
</TABLE>
LIST OF EXHIBITS
Exhibit A - Right, Designations and Preferences of Preferred Stock
Exhibit B - Form of Certificate of Merger
Exhibit C - Ownership of IAC Common Stock
ii
<PAGE>
PLAN AND AGREEMENT OF MERGER
----------------------------
THIS PLAN AND AGREEMENT OF MERGER (this "Agreement") is made as of October
20, 1998, by and among INTERCONNECT ACQUISITION CORPORATION, a Delaware
corporation ("IAC"), COMMUNICATIONS WORLD INTERNATIONAL, INC., a Colorado
corporation ("CWII"), IAC ACQUISITION CORPORATION, a Colorado corporation and a
wholly-owned subsidiary of CWII ("Purchaser"), JAMES A. CICCARELLI, a resident
of Arapahoe County, Colorado, LIONEL BROWN, a resident of Arapahoe County,
Colorado, MARK BENNETT, a resident of Arapahoe County, Colorado, and PHIL LEWIS,
a resident of Collin County, Texas, (the foregoing individuals, collectively,
the "Stockholders" and each, a "Stockholder"), such individuals being all of the
stockholders of IAC.
In consideration of the mutual covenants and agreements contained herein,
the parties covenant and agree as follows:
1. DEFINITIONS
1.1 General Definitions. Unless otherwise stated in this Agreement, the
-------------------
following terms shall have the following meanings:
"Affiliate": Any Person that, directly or indirectly, controls, or is
---------
controlled by or under common control with, another Person. For the purposes of
this definition, "control" (including the terms "controlled by" and "under
common control with"), as used with respect to any Person, means the power to
direct or cause the direction of the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities or by
contract or otherwise.
"Certificate of Merger": The Certificate of Merger in the form attached hereto
---------------------
as Exhibit "B."
"Closing": As defined in Section 7.1 hereof.
-------
"Closing Date": As defined in Section 7.1 hereof.
------------
"CWII Preferred Stock": shall mean the Series I Convertible Preferred Stock,
--------------------
$1.00 par value per share, of CWII, the rights, designations and preferences of
which are described on Exhibit "A" attached hereto.
"Effective Date": As defined in Section 2.1(b) hereof.
--------------
"Governmental Body": Any court or any federal, state, municipal or other
-----------------
governmental department, commission, board, bureau, agency, authority or
instrumentality, domestic or foreign.
"IAC Common Stock": Common stock, $0.01 par value per share, of IAC.
----------------
PLAN AND AGREEMENT OF MERGER - Page 1
- ----------------------------
<PAGE>
"Liens": shall mean all mortgages, deeds of trust, claims, liens, security
-----
interests, pledges, leases, conditional sale contracts, rights of first refusal,
options, charges, liabilities, obligations, agreements, easements, rights-of-
way, powers of attorney, limitations, reservations, restrictions and other
encumbrances of any kind.
"Merger": shall mean the merger of IAC with and into Purchaser in a transaction
------
qualifying as a tax-free reorganization under Section 368(a)(1)(A) of the Code.
"Operative Documents": All agreements, instruments, documents, schedules,
-------------------
exhibits and certificates executed and delivered by or on behalf of the
Stockholders, Purchaser, IAC or CWII at or before the Closing pursuant to this
Agreement.
"Order": Any order, writ, injunction, decree, judgment, award or determination
-----
of any Governmental Body.
"Permits": All permits, authorizations, certificates, approvals, registrations,
-------
variances, exemptions, rights-of-way, franchises, privileges, immunities,
grants, ordinances, licenses and other rights of every kind and character (a)
under any (1) federal, state, local or foreign statute, ordinance or regulation,
(2) Order or (3) contract with any Governmental Body or (b) granted by any
Governmental Body.
"Person": An individual, partnership, joint venture, corporation, company,
------
limited liability company, bank, trust, unincorporated organization,
Governmental Body or other entity or group.
"Proceeding": Any action, order, claim, suit, proceeding, litigation,
----------
investigation, inquiry, review or notice.
"Securities Act": shall mean the Securities Act of 1933.
--------------
"Stock Consideration": As defined in Section 2.2 hereof.
-------------------
"Stockholders Agreement": That certain Stockholders Agreement dated May 29,
----------------------
1998 by and among IAC and the Stockholders of IAC.
"Subsidiary" or "Subsidiaries" with respect to any corporation shall mean any
---------- ------------
other corporation of which at least a majority of the securities having by their
terms ordinary voting power to elect a majority of the Board of Directors of
such other corporation is at the time directly or indirectly owned or controlled
by such first corporation, or by such first corporation and one or more of its
Subsidiaries.
"Surviving Corporation": As defined in Section 2.1(a).
---------------------
"Taxes": Any federal, state, local or foreign income, sales, excise, real or
-----
personal property or other taxes, assessments, fees, levies, imposts, duties,
deductions or other charges of any nature
PLAN AND AGREEMENT OF MERGER - Page 2
- ----------------------------
<PAGE>
whatsoever (including, without limitation, interest and penalties) imposed by
any law, rule or regulation.
"Third Party Consents": As defined in Section 6.3(f) hereof.
--------------------
"Threatened": Any matter or thing will be deemed to have been "Threatened" when
----------
used herein with respect to any party if that party has received notice, in
writing, from the Person to whom the threat is attributable, or such Person's
agents, which makes specific reference to and clearly identifies the matter or
thing being threatened.
"Transaction" or "Transactions": The consummation of the Merger and the
----------- ------------
performance of the other covenants and transactions described in this Agreement.
"Transaction Expenses": The expenses incurred in connection with the
--------------------
preparation, negotiation, execution and performance of this Agreement and the
Transactions, including all fees and expenses of counsel and representatives.
Other defined terms shall have the meanings ascribed to such terms elsewhere
herein.
2. MERGER
2.1 Terms of Merger. Subject to the terms and conditions set forth
---------------
herein, on the Closing Date, IAC shall be merged into Purchaser as described
below.
(a) Merger; Surviving Company. In accordance with the applicable laws
-------------------------
of the State of Delaware and the State of Colorado, upon the Effective Date
the separate existence of IAC shall thereupon cease, and Purchaser, as the
surviving corporation in the Merger (the "Surviving Corporation"), shall
continue its corporate existence under the laws of the State of Colorado.
The Surviving Corporation shall possess all of the rights, privileges,
immunities, powers, franchises and authority, whether of a public or of a
private nature, and be subject to all restrictions, disabilities and duties
of each of the constituent corporations, and all the rights, privileges,
immunities, powers, franchises and authority of each of the constituent
corporations, and all assets and property of every description, real,
personal, and mixed, and every interest therein, wherever located, and all
debts or other obligations belonging or due to either of the constituent
corporations on whatever account, as well as stock subscriptions and all
other choses in action or every other interest of or belonging to each of
such corporations shall be vested in the Surviving Corporation; and all
property, rights, privileges, immunities, powers, franchises and authority,
and all other interests, shall be thereafter as effectually the property of
the Surviving Corporation as they were of the constituent corporations; but
all rights of creditors and all Liens upon any property of either of the
constituent corporations shall be preserved unimpaired, and the Surviving
Corporation shall be liable for the obligations of each of the constituent
corporations and any claim existing, or action or proceeding
PLAN AND AGREEMENT OF MERGER - Page 3
- ----------------------------
<PAGE>
pending, by or against either of the constituent corporations may be
prosecuted to judgment with right of appeal, as if the Merger had not taken
place.
(b) The Effective Date and Time. The Certificate of Merger shall be
---------------------------
filed with and recorded by the Secretary of State of Colorado and the
Secretary of State of Delaware concurrently with the Closing, and the
Merger shall be effective at midnight, local Denver time, on the date of
such filings (the "Effective Date").
(c) Registered Office and Agent. The registered agent and address of
---------------------------
the registered office of the Surviving Corporation in the State of Colorado
will be Scott E. Harris at 6025 S. Quebec Street, Suite 300, Englewood,
Colorado 80111.
(d) Certificate of Incorporation of Surviving Corporation. The
-----------------------------------------------------
Certificate of Incorporation of the Surviving Corporation shall be the
Certificate of Incorporation of Purchaser as in effect on the date hereof
without change, unless and until amended in accordance with applicable law.
(e) Bylaws of the Surviving Corporation. The Bylaws of the Surviving
-----------------------------------
Corporation shall be the Bylaws of Purchaser as in effect on the date
hereof without change, unless and until amended or repealed in accordance
with applicable law.
(f) Effect of Merger on Stock of Constituent Corporations. On the
-----------------------------------------------------
Effective Date, (i) each one hundred outstanding shares of IAC Common Stock
shall be converted into one (1) share of CWII Preferred Stock, and (ii)
each issued share of IAC Common Stock held in treasury by IAC shall be
returned and canceled and no shares of CWII Preferred Stock shall be issued
in respect thereof. On and after the Effective Date, all of the outstanding
certificates which prior to that time represented shares of IAC Common
Stock shall be deemed for all purposes to evidence ownership of and to
represent shares of CWII Preferred Stock into which the shares of IAC
Common Stock represented by such certificates have been converted, as
herein provided, and shall be so registered on the books and records of
CWII. The registered owners of all such outstanding stock certificates
shall, until such certificates shall have been surrendered for transfer or
conversion or otherwise accounted for to CWII, have and be entitled to
exercise any voting and other rights with respect to and to receive any
dividends and other distributions upon the shares of CWII Preferred Stock
evidenced by such outstanding certificates as above provided.
(g) Officers and Directors of Surviving Corporation. Upon the
-----------------------------------------------
Effective Date, the officers and directors of the Surviving Corporation
shall be the officers and directors of Purchaser in office at such date,
and such persons shall hold office in accordance with the Bylaws of the
Surviving Corporation or until their respective successors shall have been
appointed or elected. If, upon the Effective Date, a vacancy shall exist in
the Board of Directors of the Surviving Corporation, such vacancy shall be
filled in the manner provided by its Certificate of Incorporation and
Bylaws.
PLAN AND AGREEMENT OF MERGER - Page 4
- ----------------------------
<PAGE>
(h) Approval by Stockholders; Effective Date. This Agreement and the
----------------------------------------
Merger contemplated hereby are subject to approval by the requisite vote of
the stockholders of IAC in accordance with applicable Delaware law. As
promptly as practicable after approval of this Agreement by the
stockholders of IAC in accordance with applicable law, duly authorized
officers of the respective parties shall make and execute a Certificate of
Merger and such other documents as shall be reasonably necessary to
consummate the Merger and shall cause such documents to be filed with the
Secretary of States of Delaware and Colorado, respectively, in accordance
with the laws of the States of Colorado and Delaware.
(i) Amendment. The Board of Directors of Purchaser and IAC may amend
---------
this Agreement at any time prior to the Effective Date, provided that an
amendment made subsequent to the approval of the Merger by the stockholders
of IAC shall not (i) alter or change the amount or kind of shares to be
received by exchange for or on conversion of all or any of the shares of
IAC Common Stock, (ii) alter or change any term of the Certificate of
Incorporation of the Surviving Corporation, or (iii) alter or change any of
the terms and conditions of this Agreement, if such alteration or change
would adversely affect the holders of IAC Common Stock.
(j) Termination of Merger. This Agreement may be terminated and the
---------------------
Merger abandoned at any time prior to the filing of a Certificate of Merger
with the Secretary of State of Colorado and the Secretary of State of
Delaware, whether before or after stockholder approval of this Agreement,
by the consent of the Board of Directors of IAC and Purchaser.
(k) Tax Free Reorganization. It is intended that the Merger will
-----------------------
qualify as a tax free reorganization within the meaning of Section
368(a)(1)(A) and (a)(1)(F) of the Internal Revenue Code of 1986, as
amended.
2.2 Further Assurances. At the Closing, and at all times thereafter as
------------------
may be reasonably necessary, the officers of IAC shall execute and deliver to
Purchaser such instruments of transfer as shall be reasonably necessary or
appropriate to vest in Purchaser title of the type specified herein to the
assets of IAC and to otherwise comply with the terms, purposes and intent of
this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF IAC
IAC hereby represents and warrants to CWII and Purchaser that the following are
true and correct as of the date of this Agreement and will be true and correct
(without limitation) through the Closing Date, regardless of what
investigations, if any, CWII shall have made prior hereto or prior to Closing:
PLAN AND AGREEMENT OF MERGER - Page 5
- ----------------------------
<PAGE>
3.1 Organization; Qualification. IAC (a) is a corporation duly organized,
---------------------------
validly existing and in good standing under the laws of the State of Delaware,
(b) has all requisite power and authority to own and lease all of the properties
and assets it now owns and leases and to carry on its businesses as now being
conducted, and (c) is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary.
3.2 Authority Relative to this Agreement. IAC has full power and
------------------------------------
authority (corporate and otherwise) to execute, deliver and perform this
Agreement (including, without limitation, execution, delivery and performance of
the Operative Documents to which it is a party) and to consummate the
Transactions. The execution and delivery by IAC of this Agreement and the
Operative Documents, and the consummation of the Transactions, have been duly
and validly authorized by IAC and no other actions on the part of IAC are
necessary with respect thereto. This Agreement and the Operative Documents have
been duly and validly executed and delivered by IAC, and constitute the legal,
valid and binding obligations of IAC, enforceable against it in accordance with
its terms. IAC will take all corporate action that is necessary for IAC to
complete the Transactions pursuant to this Agreement.
3.3 Capitalization.
--------------
(a) The authorized capital stock of IAC consists solely of One Million
(1,000,000) shares of common stock, $0.01 par value per share, of which One
Hundred Thousand (100,000) shares are issued and outstanding. As of the
date hereof, such shares of IAC Common Stock are the only shares of capital
stock of IAC outstanding. All such outstanding shares of IAC Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable. There are no outstanding options, warrants, rights,
subscriptions, claims of any character, agreements, obligations,
convertible or exchangeable securities or other commitments, contingent or
otherwise, relating to the capital stock of IAC, pursuant to which IAC is
or may become obligated to issue or exchange any share of capital stock.
There is not now any Person who holds shares of capital stock of IAC other
than as set forth on Exhibit "C" attached hereto.
(b) Other than the "Stockholders Agreement", there is no outstanding
subscription, option, warrant, call, right, agreement or commitment
(including any right of conversion or exchange under any outstanding
security or other instrument) entitling any person to purchase or otherwise
acquire from IAC any capital stock of IAC or any security convertible into
or exchangeable therefor, or any other right to acquire, any capital stock
of IAC or relating to the issuance, sale, delivery or transfer of Stock by
the Stockholders or IAC. Other than the Stockholders Agreement, there are
no outstanding contractual obligations of IAC to repurchase, redeem or
otherwise acquire any of its outstanding of IAC to repurchase, redeem or
otherwise acquire any of its outstanding capital stock.
3.4 Consents and Approvals. Except for the approval of the Merger by the
----------------------
stockholders of IAC, the execution, delivery and performance by IAC of this
Agreement and the
PLAN AND AGREEMENT OF MERGER - Page 6
- ----------------------------
<PAGE>
Operative Documents and the consummation of the Transactions by it requires no
consent, approval, order or authorization of, action by or in respect of, or
registration or filing with, any Governmental Body or other Person.
3.5 No Violations. The execution, delivery and performance of this
-------------
Agreement and the Operative Documents by IAC, the consummation by IAC of the
Transactions and compliance by IAC with the provisions hereof does not and will
not (a) conflict with or result in any breach or violation of any provision of
the Certificate of Incorporation or Bylaws of IAC, (b) result in a default, or
give rise to any right of termination, cancellation or acceleration or loss
under any of the provisions of any note, bond, mortgage, indenture, license,
trust, agreement, lease or other instrument or obligation to which IAC is a
party or by which IAC may be bound, (c) result in the creation or imposition of
any Lien on any of the property of IAC, (d) violate any Order, statute, rule or
regulation applicable to IAC, or (e) violate any territorial restriction on IAC
or any noncompetition or similar arrangement.
3.6 No Brokers. IAC has not employed any broker, agent or finder or
----------
incurred any Liability for any brokerage fees, commissions or finders' fees in
connection with the Transactions.
3.7 No Liabilities. At Closing, IAC shall have no outstanding debts,
--------------
liabilities or obligations.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND CWII
Purchaser and CWII hereby represent and warrant to IAC and the Stockholders that
the following are true and correct as of the date of this Agreement and will be
true and correct through the Closing Date, regardless of what investigations, if
any, IAC or the Stockholders shall have made prior hereto or prior to the
Closing:
4.1 Organization; Qualification. Each of CWII and Purchaser (a) is a
---------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Colorado, (b) has all requisite power and authority to own and
lease all of the properties and assets it now owns and leases and to carry on
its businesses as now being conducted, and (c) is duly qualified or licensed to
do business as a foreign corporation and is in good standing in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification necessary.
4.2 Authority Relative to this Agreement. Each of CWII and Purchaser has
------------------------------------
full power and authority (corporate and otherwise) to execute, deliver and
perform this Agreement (including, without limitation, execution, delivery and
performance of the Operative Documents to which it is a party) and to consummate
the Transactions. The execution and delivery by each of CWII and Purchaser of
this Agreement and the Operative Documents, and the consummation of the
Transactions, have been duly and validly authorized by CWII and Purchaser and no
other actions on the part of CWII or Purchaser are necessary with respect
thereto. This Agreement and the
PLAN AND AGREEMENT OF MERGER - Page 7
- ----------------------------
<PAGE>
Operative Documents have been duly and validly executed and delivered by CWII
and Purchaser, and constitute the legal, valid and binding obligations of CWII
and Purchaser, enforceable against each of CWII and Purchaser in accordance with
its terms. CWII and Purchaser will take all corporate action that is necessary
for CWII and Purchaser to complete the Transactions pursuant to this Agreement.
4.3 Consents and Approvals. Except as set forth in or otherwise required
----------------------
by this Agreement or the Operative Documents, the execution, delivery and
performance by CWII and Purchaser of this Agreement and the consummation of the
Transactions by it requires no consent, approval, order or authorization of,
action by or in respect of, or registration or filing with, any Governmental
Body or other Person, other than the consent of Toshiba.
4.4 No Brokers. Neither CWII nor Purchaser has not retained any broker,
----------
agent or finder or incurred any Liability for any brokerage fees, commissions or
finders' fees in connection with the Transactions, other than the retention of
Century Capital by CWII for purposes of rendering a fairness opinion concerning
the Transactions.
4.5 CWII Stock; Authorized and Issued Shares. The shares of CWII Preferred
----------------------------------------
Stock to be issued or delivered by CWII in connection with the Merger have been
duly authorized for issuance and will, when issued and delivered as provided in
this Agreement, be duly and validly issued, fully paid and non-assessable, and
will be delivered to the Stockholders free and clear of all Liens. The
authorized capital stock of CWII consists of 2,000,000 shares of Common Stock,
no par value per share, and 2,700,000 shares of Preferred Stock, $1.00 par value
per share. As of September 30, 1998, there were 1,916,071 shares of Common
Stock issued and outstanding and 953,005 shares of Preferred Stock issued and
outstanding. Purchaser is a wholly-owned subsidiary of CWII. CWII is currently
engaged in an offering of convertible preferred stock and warrants to purchase
Common Stock.
4.6 No Violations. The execution, delivery and performance of this
-------------
Agreement and the Operative Documents by CWII and Purchaser, the consummation by
CWII and Purchaser of the Transactions and compliance by CWII and Purchaser with
the provisions hereof does not and will not (a) conflict with or result in any
breach or violation of any provision of the Certificate of Incorporation or
Bylaws of CWII or Purchaser, (b) result in a default, or give rise to any right
of termination, cancellation or acceleration or loss under any of the provisions
of any note, bond, mortgage, indenture, license, trust, agreement, lease or
other instrument or obligation to which CWII or Purchaser is a party or by which
CWII or Purchaser may be bound, (c) result in the creation or imposition of any
Lien on any of the property of CWII or Purchaser, (d) violate any Order,
statute, rule or regulation applicable to CWII or Purchaser, or (e) violate any
territorial restriction on CWII or Purchaser or any noncompetition or similar
arrangement.
5. ADDITIONAL AGREEMENTS
5.1 Agreement to Consummate. Subject to the terms and conditions herein
-----------------------
provided, each of the parties hereto agrees to use their best efforts to do all
things necessary, proper or
PLAN AND AGREEMENT OF MERGER - Page 8
- ----------------------------
<PAGE>
advisable under applicable laws and regulations to consummate and make
effective, as soon as reasonably practicable, the Transactions contemplated by
the Operative Documents, including, but not limited to, the obtaining of all
consents, authorizations, orders and approvals required in connection therewith
and initiating or defending any legal action that is necessary or appropriate to
permit the Transactions to be consummated. At any time after the Closing Date,
if any further action is necessary, proper or advisable to carry out the
purposes of this Agreement, then, as soon as is reasonably practicable, each
party to this Agreement shall take, or cause its proper officers to take, such
action. No party to this Agreement shall take or cause to be taken any action
that would cause the representations or warranties expressed herein to be untrue
or incorrect on the Closing Date.
5.2 Agreement Regarding Brokers. Except for the fee payable to Century
---------------------------
Capital for rendering the fairness opinion discussed in Section 4.4 above, each
party agrees that it will pay or dispute, and hold the other party harmless
from, any claims of brokers or others for finder's or brokerage fees asserted as
a result of representations by such party to such brokers or others.
5.3 Filings. The parties will each make or cause to be made any filings
-------
and submissions under the laws of any jurisdiction, to the extent that such
filings are necessary to consummate the transactions contemplated hereby and
will take all actions necessary to consummate the transactions contemplated
hereby in a manner consistent with the applicable laws of such jurisdiction.
Each party will furnish to the other party such necessary information and
reasonable assistance as such other party may request in connection with its
preparation of necessary filings or submissions to any governmental entity.
6. CONDITIONS PRECEDENT TO CLOSING
6.1 General Conditions. Consummation of the Transactions shall be subject
------------------
to the fulfillment at the Closing Date of each of the following conditions:
(a) No Injunction. No court having jurisdiction shall have issued an
-------------
injunction preventing the consummation of the Transactions that shall not
have been stayed or dissolved prior to or on the Closing Date.
(b) Proceedings. All proceedings taken or to be taken in connection
-----------
with the Transactions, and all documents incident thereto shall be
reasonably satisfactory in form and substance to the parties and their
counsel, and the parties and their counsel shall have received all such
counterpart originals or certified or other copies of such documents as the
parties or their counsel may reasonably request.
(c) Legislation. No law or legally binding regulation shall have been
-----------
enacted that does or would prohibit, restrict or delay consummation of the
Transactions or any of the conditions to the consummation of the
Transactions.
PLAN AND AGREEMENT OF MERGER - Page 9
- ----------------------------
<PAGE>
(d) Litigation. There shall be no effective Order of any nature
----------
(including any temporary restraining order) issued by a Governmental Body
of competent jurisdiction restraining or prohibiting consummation or
altering the terms of any of the Transactions, or actions seeking damages
based upon the foregoing.
6.2 Conditions to Closing in Favor of the Stockholders and IAC.
----------------------------------------------------------
Consummation of the Transactions shall be subject to the fulfillment, to the
reasonable satisfaction of IAC and the Stockholders, or their written waiver, at
or before the Closing Date, of each of the following conditions:
(a) Representations and Warranties of CWII. The representations,
--------------------------------------
warranties and statements of CWII and Purchaser contained in this Agreement
and the Operative Documents shall be complete and accurate as of the date
of this Agreement and shall also be complete and accurate at and as of the
Closing Date, except for changes contemplated by this Agreement, as if made
on the Closing Date; and CWII and Purchaser shall have performed or
complied with all agreements and covenants required by this Agreement to be
performed or complied with by it at or prior to the Closing Date.
(b) CWII's Officers' Certificate. CWII and Purchaser shall have
----------------------------
delivered to the Stockholders an Officers' Certificate, dated the Closing
Date, of CWII and Purchaser certifying to (a) the due adoption by the Board
of Directors of the resolutions approving the execution and delivery of
this Agreement, and the consummation of the Transactions, (b) the
incumbency of the President, Secretary and other officers of CWII and
Purchaser executing any of the Operative Documents, and (c) the
satisfaction of the items in subsection (a) above.
(c) Governmental Consents, Authorizations, Etc. All material
------------------------------------------
consents, authorizations, orders or approvals of, and filings or
registrations with, and any permits, licenses or other authorizations that
are required for, or in connection with, the execution and delivery of this
Agreement by CWII and Purchaser and the consummation by CWII and Purchaser
of the Transactions shall have been obtained or made.
(d) Closing Consideration. CWII shall have delivered to the
---------------------
Stockholders the shares of CWII Preferred Stock to be received by them in
connection with the Merger.
(e) Third Party Consents. CWII and Purchaser shall have delivered to
--------------------
IAC and the Stockholders copies of all Third Party Consents (including,
without limitation, the consent of Toshiba) necessary to permit the
consummation of the Transactions contemplated by this Agreement in a form
satisfactory to IAC and the Stockholders.
(f) Approval. The Board of Directors of Purchaser shall have approved
--------
this Agreement and the transactions contemplated hereby.
PLAN AND AGREEMENT OF MERGER - Page 10
- ----------------------------
<PAGE>
(g) Certificate of Authorities. CWII and Purchaser shall have
--------------------------
furnished to IAC and the Stockholders (i) certificates of the Secretary of
State of each state in which CWII or Purchaser is organized or
incorporated, dated as of a date not more than five (5) business days prior
to the Closing Date, attesting to the incorporation and good standing of
CWII and Purchaser, (ii) a copy, certified by the Secretary of State of
each state in which CWII or Purchaser is organized or incorporated, as of a
date not more than five (5) business days prior to the Closing Date, of the
Certificate of Incorporation and all amendments thereto for CWII and
Purchaser, (iii) a copy, certified by the Secretary of CWII and Purchaser,
of the Bylaws of CWII and Purchaser, as amended and in effect as of the
Closing Date, and (iv) a copy, certified by the Secretary of CWII and
Purchaser, of resolutions duly adopted by the Board of Directors of CWII
and Purchaser duly authorizing the transactions contemplated in this
Agreement.
(h) Certificate of Merger. IAC and the Stockholders shall have
---------------------
received fully-executed Certificates of Merger and such other documents as
shall be reasonably necessary to consummate the Merger sufficient for
filing with the States of Delaware and Colorado in order to consummate the
Merger.
(i) Other Matters. CWII and Purchaser shall have delivered to IAC, in
-------------
form and substance reasonably satisfactory to counsel for IAC and the
Stockholders, such certificates and other evidence as IAC and the
Stockholders may reasonably request as to the satisfaction of the
conditions contained in this Section 6.2.
6.3 Conditions to Closing in Favor of CWII and Purchaser. Consummation of
----------------------------------------------------
the Transactions shall be subject to the fulfillment, to the reasonable
satisfaction of CWII and Purchaser, or their written waiver, at or before the
Closing Date of the following conditions:
(a) Representations and Warranties of IAC. The representations,
-------------------------------------
warranties and statements of IAC contained in this Agreement shall be
complete and accurate as of the date of this Agreement and shall also be
complete and accurate at and as of the Closing Date, except for changes
contemplated by this Agreement, as if made at and as of the Closing Date;
and IAC shall have performed or complied with all agreements and covenants
required by this Agreement to be performed or complied with by it at or
prior to the Closing Date.
(b) IAC's Officers' Certificate. IAC shall have delivered to CWII and
---------------------------
Purchaser an Officers' Certificate, dated the Closing Date, of IAC
certifying to (a) the due adoption by the Board of Directors and the
Stockholders of IAC of the resolutions approving the execution and delivery
of this Agreement, and the consummation of the Transactions, (b) the
incumbency of the President, Secretary and other officers of IAC executing
any of the Operative Documents, and (c) the satisfaction of the items in
subsection (a) above.
PLAN AND AGREEMENT OF MERGER - Page 11
- ----------------------------
<PAGE>
(c) Governmental Consents, Authorizations, Etc. All material
------------------------------------------
consents, authorizations, orders or approvals of, and filings or
registrations with, and any permits, licenses or other authorizations that
are required for or in connection with, the execution and delivery of this
Agreement by the stockholders and the consummation by the Stockholders of
the Transactions shall have been obtained or made.
(d) Third Party Consents. IAC shall have delivered to CWII and
--------------------
Purchaser copies of all Third Party Consents, if any, necessary to permit
the consummation of the Transactions contemplated by this Agreement in a
form satisfactory to CWII.
(e) Approval. The Board of Directors of IAC and the stockholders of
--------
IAC each shall have approved this Agreement and the transactions
contemplated hereby.
(f) Certificate of Authorities. IAC shall have furnished to CWII and
--------------------------
Purchaser (i) certificates of the Secretary of State of each state in which
IAC is organized or incorporated, dated as of a date not more than five (5)
business days prior to the Closing Date, attesting to the incorporation and
good standing of IAC, (ii) a copy, certified by the Secretary of State of
each state in which IAC is organized or incorporated, as of a date not more
than five (5) business days prior to the Closing Date, of the Certificate
of Incorporation and all amendments thereto for IAC, (iii) a copy,
certified by the Secretary of IAC, of the Bylaws of IAC, as amended and in
effect as of the Closing Date, and (iv) a copy, certified by the Secretary
of IAC, of resolutions duly adopted by the Board of Directors of IAC duly
authorizing the transactions contemplated in this Agreement.
(g) Corporate Records and Books of Account. The respective corporate
--------------------------------------
seals, articles of incorporation, bylaws, stock certificates, stock
transfer ledgers, and corporate books and records of IAC, updated up to the
Closing Date, shall be delivered to CWII.
(h) Certificate of Merger. CWII shall have received from IAC fully-
---------------------
executed Certificates of Merger and such other documents as shall be
reasonably necessary to consummate the Merger sufficient for filing with
the States of Delaware and Colorado in order to consummate the Merger.
(i) Fairness Opinion. CWII shall have received a fairness opinion
----------------
with respect to the Merger in form and substance reasonably satisfactory to
CWII.
(j) Subscription Agreement. CWII shall have received a subscription
----------------------
agreement from the Stockholders in form and substance reasonably
satisfactory to CWII.
(k) Other Matters. IAC shall have delivered to CWII and Purchaser, in
-------------
form and substance reasonably satisfactory to counsel for CWII and
Purchaser, such certificates and other evidence as CWII may reasonably
request as to the satisfaction of the conditions contained in this Section
6.3.
PLAN AND AGREEMENT OF MERGER - Page 12
- ----------------------------
<PAGE>
7. CLOSING AND TERMINATION
7.1 Closing Date. Subject to the right of CWII, Purchaser and the
------------
Stockholders of IAC to terminate this Agreement pursuant to Section 7.2 hereof,
the closing of the Transactions (the "Closing") shall, unless another date or
place is agreed to in writing by IAC and CWII, take place at the offices of
Robert M. Bearman, Bearman, Talesnick & Clowdus, 1200 Seventeenth Street, Suite
2600, Denver, Colorado 80202-5826 at 10:00 a.m. on October _______, 1998 (the
"Closing Date") or such other place and date as all the parties may agree upon
in writing.
7.2 Termination. This Agreement may be terminated at any time prior to the
-----------
Closing Date:
(a) by written agreement of CWII, Purchaser, IAC and the Stockholders;
(b) by IAC and the Stockholders if any representation or warranty of
CWII or Purchaser or by CWII and Purchaser if any representation or
warranty of IAC contained herein shall have been incorrect or breached in
any material respect, as to which notice shall have been given to the
breaching party, and shall not have been cured or otherwise resolved to the
reasonable satisfaction of the other party on or before the Closing Date,
or by either CWII and Purchaser or IAC and the Stockholders if any
condition to the consummation of the Transactions contemplated hereunder
that must be fulfilled to its satisfaction has become impractical to be
fulfilled;
(c) by either CWII and Purchaser or IAC and the Stockholders if any
permanent injunction or other order of a court or other competent authority
preventing the consummation of the Transactions shall have become final and
non-appealable; or,
(d) by CWII and Purchaser or IAC and the Stockholders if the Closing
has not occurred by October _______, 1998; provided, however, that such
date may be extended by written agreement among the parties and provided,
further, that no party shall be permitted to terminate hereunder if such
party is in violation of this Agreement.
7.3 Effect of Termination. In the event of the termination of this
---------------------
Agreement as provided herein, this Agreement shall become wholly void and have
no further force and effect except as hereinafter provided; and there shall be
no Liability on the part of the Stockholders and IAC or CWII and Purchaser,
except to pay the fees and expenses as apportioned in Section 9.2 and except as
otherwise expressly provided herein. Nothing contained herein shall relieve any
party from liability for its breach of this Agreement.
7.4 Extension; Waiver. At any time prior to the Closing Date, any party
-----------------
hereto that is entitled to the benefits hereof (with respect to any such
corporate party by action taken by its Board of Directors or a duly authorized
officer), may (a) extend the time for the performance of any of the obligations
or other acts of any of the other parties hereto, (b) in whole or in part, waive
any inaccuracy in the representations and warranties of any of the other parties
hereto contained herein
PLAN AND AGREEMENT OF MERGER - Page 13
- ----------------------------
<PAGE>
or in any exhibit or schedule hereto or in any document delivered pursuant
hereto, and (c) in whole or in part, waive compliance with any of the agreements
of any of the other parties hereto or conditions contained herein. Any agreement
on the part of any party hereto to any such extension or waiver shall only be
valid if same is set forth in an instrument in writing signed and delivered on
behalf of such party.
INDEMNIFICATION
8.1 Indemnity by CWII and Purchaser. CWII and Purchaser agree to indemnify
-------------------------------
and hold the Stockholders, IAC and IAC's officers, directors, agents, attorneys
and accountants harmless from any and all damages, losses (which shall include
any diminution in value, liabilities, joint or several), payments, obligations,
penalties, claims, litigation, demands, defenses, judgments, suits, proceedings,
costs, disbursements or expenses (including without limitation, fees,
disbursements and expenses of attorneys, accountants and other professional
advisors and of expert witnesses and costs of investigation and preparation) of
any kind or nature whatsoever (collectively "Damages"), directly or indirectly
resulting from, relating to or arising out of:
(a) any breach or nonperformance (partial or total) of or inaccuracy
in any representation or warranty or covenant or agreement of CWII or
Purchaser contained in this Agreement or any Operative Document which
survives the Closing hereof; and,
(b) CWII's or Purchaser's business conducted prior to the Closing, but
only with respect to a claim made by a third party..
8.2 Indemnity by IAC and the Stockholders. The Stockholders and IAC agree
-------------------------------------
to jointly and severally indemnify and hold CWII and Purchaser and CWII's and
Purchaser's officers, directors, agents, attorneys and accountants harmless from
any and all Damages directly or indirectly resulting from, relating to and
arising out of:
(a) any breach or nonperformance (partial or total) of or inaccuracy
in any representation or warranty or covenant or agreement of IAC contained
in this Agreement or any Operative Document which survives the Closing
hereof; and,
(b) IAC's business conducted prior to the Closing, but only with
respect to a claim made by a third party..
8.3 Indemnification Notice. If any Person intends to exercise its right to
----------------------
indemnification provided in this Article 8 (an "Indemnitee"), such Indemnitee
shall provide the party or parties from whom the indemnification will be sought
(the "Indemnitor") at least fifteen (15) days prior written notice (the
"Indemnification Notice") of such Indemnitee's intention to do so and the facts
or circumstances giving rise to the claim ("Indemnification Claim"). Nothing
contained herein shall preclude any Indemnitee from taking any actions deemed
reasonably necessary or appropriate in response to any third party claims during
such interim period. An Indemnification Claim may, at the option of Indemnitee,
be asserted as soon as any situation, event
PLAN AND AGREEMENT OF MERGER - Page 14
- ----------------------------
<PAGE>
or occurrence has been noticed by Indemnitee regardless whether actual harm has
been suffered or out-of-pocket expenses incurred. During such fifteen (15) day
period, the Indemnitor shall be entitled to cure the defect or situation giving
rise to the Indemnification Claim to the satisfaction of Indemnitee. If the
Indemnitor is unwilling or unable to cure the defect giving rise to the
Indemnification Claim during such fifteen (15) period, Indemnitee may, on the
sixteenth (16th) day after the Indemnification Notice, seek indemnification as
provided in this Article 8.
9. GENERAL PROVISIONS AND OTHER AGREEMENTS
9.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if and when delivered personally or
transmitted by telex, facsimile (receipt confirmed) or telegram, mailed by
registered or certified mail (return receipt requested) or sent by a recognized
next business day courier to the following persons at the following addresses
(or at such other address for a party as shall be specified by like notice):
(a) If to IAC or the Stockholders:
Interconnect Acquisition Corporation
5082 East Hampden, Suite 304
Denver, Colorado 80222
Attn: James M. Ciccarelli, President
Facsimile: (303) 337-2834
with a copy to:
Bell, Nunnally & Martin, PLLC
3232 McKinney Avenue, Suite 1400
Dallas, Texas 75204
Attn: Larry L. Shosid
Facsimile: (214) 740-1499
(b) If to CWII or Purchaser:
Communications World International, Inc.
6025 South Quebec, Suite 300
Englewood, Colorado 80111
Attn: James Corboy
Facsimile: (303) 741-1137
PLAN AND AGREEMENT OF MERGER - Page 15
- ----------------------------
<PAGE>
with a copy to:
Bearman, Talesnick & Clowdus
1200 Seventeenth Street, Suite 2600
Denver, Colorado 80202-5826
Attn: Robert M. Bearman
Facsimile: (303) 572-6511
9.2 Fees and Expenses. The Stockholders, IAC, Purchaser and CWII shall
-----------------
each pay all of their own fees, costs and expenses (including without
limitation, those of accountants, appraisers and attorneys) incurred in
connection with or related to the preparation, negotiation, execution, delivery,
satisfaction, compliance and consummation of this Agreement and the Transactions
contemplated hereby and the closing conditions hereunder.
9.3 Interpretation. The headings contained in this Agreement are for
--------------
reference purposes only and shall not affect the meaning or interpretation of
this Agreement. Terms such as "herein," "hereof," "hereinafter" refer to this
Agreement as a whole and not to the particular sentence or paragraph where they
appear, unless the context otherwise requires. Terms used in the plural include
the singular, and vice versa, unless the context otherwise requires.
9.4 Counterparts. This Agreement may be executed by facsimile in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.5 Miscellaneous. This Agreement (a) constitutes the entire agreement and
-------------
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof;
(b) is not intended to and shall not confer upon any other person any rights or
remedies hereunder or otherwise with respect to the subject matter hereof,
except for rights that may expressly arise as a consequence of the Transactions;
(c) may not be assigned by operation of law or otherwise; (d) has been drafted
by all of the parties to this Agreement and should not be construed against any
of the parties hereto; and (e) shall be governed in all respects, including
validity, interpretation and effect by the substantive laws of the State of
Colorado without regard to conflict of law provisions.
9.6 Publicity. Prior to Closing, no party hereto shall issue any press
---------
release or make any other public statement, in either case relating to or
connected with or arising out of this Agreement or the matters contained herein,
without obtaining the prior written approval of the other parties to the
contents and the manner of presentation and publication thereof, which approval
shall not be unreasonably withheld.
9.7 Invalid Provisions. If any provision of this Agreement is held to be
------------------
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable. This Agreement shall
be construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof; and the remaining
PLAN AND AGREEMENT OF MERGER - Page 16
- ----------------------------
<PAGE>
provisions of this Agreement shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or its severance
from this Agreement. Furthermore, in lieu of such illegal, invalid or
unenforceable provision there shall be added automatically as part hereof a
provision as similar in terms, but in any event no more restrictive than, such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid and enforceable.
9.8 Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective heirs, legal representatives,
successors and permitted assigns.
9.9 Captions. The captions, headings and arrangements used in this
--------
Agreement are for convenience only and do not in any way affect, limit or
amplify the provisions hereof.
9.10 Attorneys' Fees. In the event that any Proceeding is commenced by any
---------------
party hereto for the purpose of enforcing any provision of this Agreement, the
party to such Proceeding may receive as part of any award, judgment, decision or
other resolution of such Proceeding its costs and attorneys' fees as determined
by the person or body making such award, judgment, decision or resolution.
Should any claim hereunder be settled short of the commencement of any such
Proceeding, the parties in such settlement may mutually agree to include as part
of the damages alleged to have been incurred reasonable costs of attorneys or
other professionals in investigation or counseling on such claim.
9.11 Jurisdiction and Venue. Any judicial proceedings brought by or
----------------------
against any party on any dispute arising out of this Agreement or any matter
related thereto shall be brought in the state or federal courts of Arapahoe
County, Colorado, and, by execution and delivery of this Agreement, each of the
parties accepts for itself the exclusive jurisdiction and venue of the aforesaid
courts as trial courts, and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement after exhaustion of all
appeals taken (or by the appropriate appellate court if such appellate court
renders judgment).
9.12 Assignability. This Agreement may not be transferred, assigned,
-------------
pledged or hypothecated by any party hereto without the prior written consent of
the other parties to this Agreement.
9.13 Entirety. This Agreement and the documents executed and delivered
--------
pursuant hereto, executed on the date hereof or in connection herewith, contain
the entire agreement among the parties with respect to the matters addressed
herein and supersede all prior representations, inducements, promises or
agreements, oral or otherwise, which are not embodied herein or therein.
9.14 Amendment. This Agreement and the exhibits and schedules hereto may be
---------
amended by the parties hereto at any time prior to the Closing Date; provided,
however, that any
PLAN AND AGREEMENT OF MERGER - Page 17
- ----------------------------
<PAGE>
amendment must be by an instrument or instruments in writing signed and
delivered on behalf of each of the parties hereto.
9.15 Survival of Representations and Warranties. The respective
------------------------------------------
representations and warranties of the parties contained in this Agreement, the
Operative Documents and any investigation shall survive the consummation of the
Transactions contemplated in this Agreement and shall continue in full force and
effect after the Closing for a period of two (2) years from the Closing, at
which time they shall expire, except as to claims made in respect thereof in
writing on or before the expiration of such period.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers.
IAC:
INTERCONNECT ACQUISITION CORPORATION
By:___________________________________
James M. Ciccarelli, President
CWII:
COMMUNICATIONS WORLD INTERNATIONAL,
INC.
By:___________________________________
Printed Name:_________________________
Title:________________________________
PLAN AND AGREEMENT OF MERGER - Page 18
- ----------------------------
<PAGE>
PURCHASER:
IAC ACQUISITION CORPORATION
By:___________________________________
Printed Name:_________________________
Title:________________________________
STOCKHOLDERS:
______________________________________
JAMES M. CICCARELLI
______________________________________
LIONEL BROWN
______________________________________
MARK BENNETT
______________________________________
PHIL LEWIS
PLAN AND AGREEMENT OF MERGER - Page 19
- ----------------------------
<PAGE>
Communications World International, Inc.
Form 10-SB
Exhibit 2 (b)
MERGER AGREEMENT
BY AND AMONG
IAC ACQUISITION CORPORATION
DONALDSON & ASSOCIATES, INC. D/B/A COMMUNICATIONS WORLD
AND
JIM DONALDSON
AND
MICHAEL BANKOFF
Dated as of April ____, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DEFINITIONS....................................................... 1
1.1 General Definitions............................................ 1
2. MERGER............................................................ 5
2.1 Terms of Merger................................................ 5
(a) Merger; Surviving Company................................. 5
(b) The Effective Date and Time............................... 6
2.2 Purchase Price and Terms....................................... 6
2.3 Merger Certificates............................................ 7
2.4 Further Assurances............................................. 7
2.5 Closing Payables and Closing Receivables....................... 7
(a) Assumed Contracts and Assumed Payables.................... 7
(b) Adjustment Period......................................... 8
(c) Payment to Donaldson...................................... 9
(d) Deduction from Note....................................... 9
(e) Other Accounts............................................ 9
2.6 Cash........................................................... 9
3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS..................... 10
3.1 Transfer of and Title to Stock................................. 10
3.2 Organization; Qualification.................................... 10
3.3 Authority Relative to this Agreement........................... 10
3.4 Capitalization................................................. 10
3.5 Consents and Approvals......................................... 11
3.6 No Violations.................................................. 11
3.7 Title to and Condition of Assets and Property.................. 11
3.8 Inventory...................................................... 11
3.9 Distributors and Suppliers..................................... 12
3.10 Product Warranties............................................. 12
3.11 Investigation or Litigation.................................... 12
3.12 Taxes.......................................................... 12
3.13 No Brokers..................................................... 13
3.14 Accounts....................................................... 13
3.15 Insurance...................................................... 13
3.16 Contracts; Oral Commitments; Defaults.......................... 13
3.17 Corporate Matters.............................................. 13
3.18 Permits........................................................ 13
3.19 Compliance with Laws........................................... 14
3.20 Corporate Name................................................. 14
3.21 Disclosure..................................................... 14
3.22 Employee Matters............................................... 14
3.23 Plans.......................................................... 15
3.24 Transactions with Affiliates................................... 15
3.25 Financial Statements........................................... 15
3.26 Undisclosed Liabilities........................................ 16
3.27 Leases......................................................... 16
3.28 Real Property.................................................. 16
3.29 Environmental Matters.......................................... 17
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
(a) Compliance Generally......................................... 17
(b) Claims....................................................... 17
(c) Certain Environmental Liabilities............................ 17
(d) Operations................................................... 17
(e) Liability for Others......................................... 17
3.30 Intellectual Property........................................ 17
3.31 Bank Accounts and Powers of Attorney......................... 18
3.32 Knowledge of Sellers......................................... 18
3.33 Inspection Does Not Affect Warrants.......................... 18
3.34 Rights and Assets............................................ 18
3.35 Absence of Certain Changes................................... 18
3.36 Books and Records............................................ 19
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER......................... 19
4.1 Organization................................................... 19
4.2 Authority Relative to this Agreement........................... 19
4.3 Consents and Approvals......................................... 20
4.4 No Brokers..................................................... 20
5. ADDITIONAL AGREEMENTS............................................... 20
5.1 Conduct of the Company......................................... 20
5.2 Forbearances by Sellers........................................ 20
5.3 No Solicitation................................................ 21
5.4 Investigation of the Company................................... 22
5.5 Agreement to Consummate........................................ 22
5.6 Approval of Third Parties...................................... 22
5.7 Agreement Regarding Brokers.................................... 23
5.8 Notice......................................................... 23
5.9 Disclosure Schedules........................................... 23
5.10 Filings........................................................ 23
5.11 Taxes........................................................... 23
6. CONDITIONS PRECEDENT TO CLOSING..................................... 24
6.1 General Conditions........................................... 24
(a) No Injunction................................................ 24
(b) Proceedings.................................................. 24
(c) Employment and Noncompetition Agreement...................... 24
6.2 Conditions to Closing in Favor of Sellers..................... 24
(a) Representations and Warranties of Purchaser.................. 24
(b) Purchaser's Officers' Certificate............................ 25
(c) Governmental Consents, Authorizations, Etc................... 25
(d) Closing Consideration........................................ 25
(e) Security Agreement........................................... 25
6.3 Conditions to Closing in Favor of Purchaser................... 25
(a) Representations and Warranties of Sellers.................... 25
(b) Governmental Consents, Authorizations, Etc................... 25
(c) Shareholder Releases......................................... 26
(d) Seller's Certificate......................................... 26
(e) Opinion of Counsel........................................... 26
(f) Legislation.................................................. 26
(g) Litigation................................................... 26
(h) No Adverse Change............................................ 26
(i) Delivery of Documents/Acceptance of Disclosure Schedules..... 26
(j) Third Party Consents......................................... 26
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
(k) Purchaser's Investigation................................... 26
(l) Approval.................................................... 27
(m) Certificate of Authorities.................................. 27
(n) Corporate Records and Books of Account...................... 27
(o) Bank Accounts............................................... 27
(p) Certificate of Merger....................................... 27
(q) Subscription Agreement...................................... 27
(r) Other Matters............................................... 27
7. CLOSING AND TERMINATION............................................. 27
7.1 Closing Date................................................... 27
7.2 Termination.................................................... 28
7.3 Effect of Termination.......................................... 28
7.4 Extension; Waiver.............................................. 28
8. SURVIVAL AND INDEMNIFICATION........................................ 29
8.1 Survival of Representations and Warranties..................... 29
8.2 Indemnity...................................................... 29
8.3 Indemnification Notice......................................... 30
8.4 Identification with Respect to Pending Litigation.............. 31
8.5 Offset......................................................... 31
9. GENERAL PROVISIONS AND OTHER AGREEMENTS............................. 32
9.1 Notices........................................................ 32
9.2 Fees and Expenses.............................................. 33
9.3 Interpretation................................................. 33
9.4 Counterparts................................................... 33
9.5 Miscellaneous.................................................. 33
9.6 Publicity...................................................... 33
9.7 Invalid Provisions............................................. 33
9.8 Binding Effect................................................. 34
9.9 Captions....................................................... 34
9.10 Attorneys' Fees................................................ 34
9.11 Jurisdiction and Venue......................................... 34
9.12 Assignability.................................................. 34
9.13 Entirety....................................................... 34
9.14 Amendment...................................................... 34
9.15 Governing Law.................................................. 35
</TABLE>
LIST OF EXHIBITS
Exhibit A - Form of Employment and Noncompetition Agreement (Jim Donaldson)
Exhibit B - Form of Employment and Noncompetition Agreement (Michael
Bankoff)
Exhibit C - Form of Subordinated Convertible Promissory Note (Jim
Donaldson)
Exhibit D - Form of Subordinated Convertible Promissory Note (Jim
Donaldson)
Exhibit E - Form of Subordinated Convertible Promissory Note (Michael
Bankoff)
Exhibit F - Form of Shareholder Release
Exhibit G - Form of Opinion of Counsel
Exhibit H - Form of Guaranty
Exhibit I - Form of Subscription Agreement
(iii)
<PAGE>
LIST OF SCHEDULES
Schedule 2.5(a)(1) Assumed Contracts
Schedule 2.5(a)(2) Assumed Payables and Non-Assumed Payables
Schedule 2.5(b) Pre-Closing Receivables
Schedule 2.6 Outstanding Checks, Deposits and Other Prepayments
Schedule 3.4 Capitalization
Schedule 3.5 Consents and Approvals
Schedule 3.7 Title to and Condition of Assets
Schedule 3.8 Inventory
Schedule 3.9 Distributors and Suppliers
Schedule 3.10 Express Product Warranties and Guaranties
Schedule 3.11 Investigation or Litigation
Schedule 3.14 Accounts
Schedule 3.15 Insurance
Schedule 3.16 Contracts
Schedule 3.18 Permits
Schedule 3.22 Employee Matters
Schedule 3.23 Plans
Schedule 3.24 Transactions with Affiliates
Schedule 3.25 Financial Statements
Schedule 3.27 Leases
Schedule 3.28 Real Property
Schedule 3.30 Intellectual Property
Schedule 3.31 Bank Accounts and Powers of Attorney
Schedule 3.35 Certain Changes
(iv)
<PAGE>
MERGER AGREEMENT
----------------
THIS MERGER AGREEMENT (this "Agreement") is made as of April ____, 1999, by
and among IAC ACQUISITION CORPORATION, a Colorado corporation ("Purchaser"),
DONALDSON & ASSOCIATES, INC., a Colorado corporation d/b/a Communications World
(the "Company"), and JIM DONALDSON ("Donaldson") and MICHAEL BANKOFF ("Bankoff")
(Donaldson and Bankoff hereinafter collectively referred to as, "Seller"), such
individuals being all of the shareholders of the Company.
In consideration of the mutual covenants and agreements contained herein,
the parties covenant and agree as follows:
1. DEFINITIONS
1.1 General Definitions. Unless otherwise stated in this Agreement, the
-------------------
following terms shall have the following meanings:
"Accountants": As defined in Section 2.5(b).
-----------
"Accounts": All accounts receivable of the Company and other rights of the
--------
Company to payment for services rendered, including, without limitation, those
which are not evidence by instruments or whether or not they have been earned by
performance or have been written off or reserved against as a bad debt or
doubtful account in any financial statement, together with all instruments
representing any of the foregoing, and all rights, title, security and
guaranties in favor of the Company with respect to any of the foregoing.
"Adjustment Period": As defined in Section 2.5(b) hereof.
-----------------
"Affiliate": Any Person that, directly or indirectly, controls, or is
---------
controlled by or under common control with, another Person. For the purposes of
this definition, "control" (including the terms "controlled by" and "under
common control with"), as used with respect to any Person, means the power to
direct or cause the direction of the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities or by
contract or otherwise.
"Assumed Contracts": As defined in Section 2.5(a) hereof.
-----------------
"Assumed Payables": As defined in Section 2.5(a) hereof.
----------------
"Best Knowledge": Those matters of which either the Company or Seller has or
--------------
should have knowledge after (i) suitable inquiries of the appropriate
responsible employees or agents of the Company or Seller, and (ii) a suitable
review of appropriate corporate records and documents of the Company or Seller
in such parties actual or constructive possession or to which it has access.
MERGER AGREEMENT - Page 1
- ----------------
<PAGE>
"Broker": As defined in Section 4.4 hereof.
------
"Closing": As defined in Section 7.1 hereof.
-------
"Closing Date": As defined in Section 7.1 hereof.
------------
"Code": The Internal Revenue Code of 1986, as amended.
----
"CWII": Communications World International, Inc., a Colorado corporation.
----
"CWII Common Stock": The Common Stock, no par value per share, of CWII.
-----------------
"Damages": As defined in Section 8.2 hereof.
-------
"Disclosure Schedules": The package of Disclosure Schedules to this Agreement
--------------------
delivered by Seller to Purchaser prior to the date hereof (and subsequently
supplemented and amended) which are approved by Purchaser (with reservation of
all rights with respect thereto) and incorporated by reference to the Section of
this Agreement to which each such schedule relates. The disclosure of an item
in a Disclosure Schedule or under a heading in a Disclosure Schedule
corresponding to that particular section or subsection of this Agreement shall
not be deemed a disclosure under (i) any other item of such Disclosure Schedule,
(ii) any other Disclosure Schedules or (iii) any other section or subsection
thereof. In the event of any inconsistency between the statements in the body of
this Agreement and those in the Disclosure Schedules hereto (other than an
exception expressly set forth as such in the schedules in relation to a
specifically identified representation or warranty), those in this Agreement
shall control.
"Employment and Noncompetition Agreement": The Noncompetition and Employment
---------------------------------------
Agreements substantially in the forms of Exhibits A and B attached hereto.
-----------------
"Environmental Requirements": All federal, state, foreign and local laws,
--------------------------
statutes, codes, rules, regulations, ordinances, judgments, orders, decrees and
the like of any Governmental Body, and all obligations concerning public health
and safety, worker health and safety, or pollution or protection of the
environment, including all those relating to the presence, use, production,
generation, handling, transport, treatment, storage, disposal, distribution,
labeling, testing, processing, discharge, release, Threatened release, control
or cleanup of any hazardous or otherwise regulated materials, substances or
wastes, chemical substances or mixtures, pesticides, pollutants, contaminants,
toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation.
"Escrow Account": As defined in Section 2.2(f).
--------------
"Escrow Agent": As defined in Section 2.2(f).
------------
"Escrowed Amount": As defined in Section 2.2(f).
---------------
MERGER AGREEMENT - Page 2
- ----------------
<PAGE>
"Financial Statements": As defined in Section 3.25 hereof.
--------------------
"Governmental Body": Any court or any federal, state, municipal or other
-----------------
governmental department, commission, board, bureau, agency, authority or
instrumentality, domestic or foreign.
"Guaranty": The Guaranty substantially in the form of Exhibit H attached
-------- ---------
hereto.
"Indemnification Claim": As defined in Section 8.3 hereof.
---------------------
"Indemnification Notice": As defined in Section 8.3 hereof.
----------------------
"Indemnitor": As defined in Section 8.3 hereof.
----------
"Intellectual Property": All domestic and foreign patents, patent applications,
---------------------
registered trademarks and service marks owned by the Company, registered
copyrights owned by the Company and computer software programs owned by or
licensed to the Company.
"Judgment": As defined in Section 2.2(f).
--------
"Lawsuit": shall mean the lawsuit styled Anita Culver, et. al. v. Donaldson and
-------
Associates, Inc., et. al., Case No. 98 CV 3985, Division 3, District Court,
Arapahoe County, Colorado.
"Liabilities" or "Liability": All claims, liabilities, debts, indebtedness and
----------- ---------
obligations, whether asserted or unasserted, absolute, liquidated, contingent,
accrued or otherwise.
"Lien": All mortgages, deeds of trust, claims, liens, security interests,
----
pledges, leases, conditional sale contracts, rights of first refusal, options,
charges, liabilities, obligations, agreements, easements, rights-of-way, powers
of attorney, limitations, reservations, restrictions and other encumbrances of
any kind.
"Material Adverse Effect": Any change (individually or in the aggregate) in the
-----------------------
general affairs, management, business, goodwill, results of operations,
condition (financial or otherwise), assets, liabilities or prospects (whether or
not the result thereof would be covered by insurance) that will or can
reasonably be expected to result in a cost, expense, charge, Liability, loss of
revenue or diminution in value equal to or greater than $10,000.00.
"Merger": shall mean the merger of the Company with and into the Purchaser in a
------
transaction qualifying as a tax-free reorganization under Section 368(a)(1)(A)
of the Code.
"Offset Notice": As defined in Section 8.4 hereof.
-------------
"Operative Documents": All agreements, instruments, documents, schedules,
-------------------
exhibits and certificates executed and delivered by or on behalf of Seller, the
Company or Purchaser at or before the Closing pursuant to this Agreement.
MERGER AGREEMENT - Page 3
- ----------------
<PAGE>
"Order": Any order, writ, injunction, decree, judgment, award or determination
-----
of any Governmental Body.
"Permits": All permits, authorizations, certificates, approvals, registrations,
-------
variances, exemptions, rights-of-way, franchises, privileges, immunities,
grants, ordinances, licenses and other rights of every kind and character (a)
under any (1) federal, state, local or foreign statute, ordinance or regulation,
(2) Order or (3) contract with any Governmental Body or (b) granted by any
Governmental Body.
"Person": An individual, partnership, joint venture, corporation, company,
------
limited liability company, bank, trust, unincorporated organization,
Governmental Body or other entity or group.
"Plans": As defined in Section 3.23 hereof.
-----
"Post-Closing Receivables": As defined in Section 2.5(b) hereof.
------------------------
"Pre-Closing Receivables": As defined in Section 2.5(b) hereof.
-----------------------
"Proceeding": Any action, order, claim, suit, proceeding, litigation,
----------
investigation, inquiry, review or notice.
"Purchase Price": As defined in Section 2.2 hereof.
--------------
"Purchaser Indemnitees": As defined in Section 8.2 hereof.
---------------------
"Resolution Period": As defined in Section 2.5(d).
-----------------
"Settlement": As defined in Section 2.2(f).
----------
"Shareholder Release": As defined in Section 6.3(c) hereof.
-------------------
"Stock": One thousand (1,000) shares of common stock, no par value per share, of
-----
the Company, which shares represent all of the issued and outstanding shares of
capital stock of the Company.
"Subordinated Convertible Promissory Note": The Subordinated Convertible
----------------------------------------
Promissory Notes substantially in the forms of Exhibits C, D and E attached
-------------------
hereto.
"Subscription Agreement": The Subscription Agreement substantially in the form
----------------------
of Exhibit I attached hereto.
---------
"Subsidiary" or "Subsidiaries": with respect to any corporation shall mean any
---------- ------------
other corporation of which at least a majority of the securities having by their
terms ordinary voting power to elect a majority of the Board of Directors of
such other corporation is at the time directly or indirectly owned or controlled
by such first corporation, or by such first corporation and one or more of its
Subsidiaries.
MERGER AGREEMENT - Page 4
- ----------------
<PAGE>
"Summary Plan Descriptions": The summary plan descriptions and summary of
-------------------------
material modifications that include the information required by (S)102(b) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and that
are written in a manner calculated to be understood by the average Plan
participant, and that are sufficiently accurate and comprehensive to reasonably
apprise such participants and beneficiaries of their rights and obligations
under the Plans.
"Taxes": Any federal, state, local or foreign income, sales, excise, real or
-----
personal property or other taxes, assessments, fees, levies, imposts, duties,
deductions or other charges of any nature whatsoever (including, without
limitation, interest and penalties) imposed by any law, rule or regulation.
"Third Party Consents": As defined in Section 5.6 hereof.
--------------------
"Threatened": Any matter or thing will be deemed to have been "Threatened" when
----------
used herein with respect to any party if that party has received notice, in
writing, from the Person to whom the threat is attributable, or such Person's
agents, which makes specific reference to and clearly identifies the matter or
thing being threatened.
"Transaction" or "Transactions": The sale and purchase of the Stock and the
----------- ------------
performance of the other covenants and transactions described in this Agreement.
"Transaction Expenses": The expenses incurred in connection with the
--------------------
preparation, negotiation, execution and performance of this Agreement and the
Transactions, including all fees and expenses of counsel and representatives.
Other defined terms shall have the meanings ascribed to such terms
elsewhere herein.
2. MERGER
2.1 Terms of Merger. Subject to the terms and conditions set forth
---------------
herein, on the Closing Date, the Company shall be merged into Purchaser as
described below.
(a) Merger; Surviving Company. In accordance with the applicable laws
-------------------------
of the State of Colorado, upon the effectiveness of the Merger the separate
existence of the Company shall thereupon cease, and Purchaser, as the
surviving corporation in the Merger (the "Surviving Corporation"), shall
continue its corporate existence under the laws of the State of Colorado.
The Surviving Corporation shall possess all of the rights, privileges,
immunities, powers, franchises and authority, whether of a public or of a
private nature, and be subject to all restrictions, disabilities and duties
of each of the constituent corporations, and all the rights, privileges,
immunities, powers, franchises and authority of each of the constituent
corporations, and all assets and property of every description, real,
personal, and mixed, and every interest therein, wherever located, and all
debts or other obligations belonging or due to either of the constituent
corporations on
MERGER AGREEMENT - Page 5
- ----------------
<PAGE>
whatever account, as well as stock subscriptions and all other choses in
action or every other interest of or belonging to each of such corporations
shall be vested in the Surviving Corporation; and all property, rights,
privileges, immunities, powers, franchises and authority, and all other
interests, shall be thereafter as effectually the property of the Surviving
Corporation as they were of the constituent corporations; but all rights of
creditors and all Liens upon any property of either of the constituent
corporations shall be preserved unimpaired, and the Surviving Corporation
shall be liable for the obligations of each of the constituent corporations
and any claim existing, or action or proceeding pending, by or against
either of the constituent corporations may be prosecuted to judgment with
right of appeal, as if the Merger had not taken place.
(b) The Effective Date and Time. The Certificate of Merger shall be
---------------------------
filed with and recorded by the Secretary of State of Colorado concurrently
with the Closing, and the Merger shall be effective at midnight, local
Denver time, on the date of such filings.
2.2 Purchase Price and Terms. At the Closing, subject to the terms and
------------------------
conditions of this Agreement and in consideration of the aforesaid sale,
conveyance, assignment, transfer and delivery, Purchaser shall pay to Seller the
sum of ONE MILLION TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($1,250,000.00)
(the "Purchase Price"). The Purchase Price shall be paid at Closing by
delivering:
(a) to Donaldson by wire transfer of immediately available funds to
such bank account as shall have been delivered in writing by Donaldson to
Purchaser at least (2) business days prior to the Closing Date, the sum of
FOUR HUNDRED THIRTY FIVE THOUSAND AND NO/100 DOLLARS ($435,000.00);
(b) to Bankoff by wire transfer of immediately available funds to
such bank account as shall have been delivered in writing by Bankoff to
Purchaser at least (2) business days prior to the Closing Date, the sum of
FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00);
(c) to Donaldson the Subordinated Convertible Promissory Note in the
original principal amount of FOUR HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($450,000.00);
(d) to Donaldson the Subordinated Convertible Promissory Note in the
original principal amount of TWO HUNDRED TWENTY FIVE THOUSAND AND NO/100
DOLLARS ($225,000.00);
(e) to Bankoff the Subordinated Convertible Promissory Note in the
original principal amount of TWENTY FIVE THOUSAND AND NO/100 DOLLARS
($25,000.00); and
MERGER AGREEMENT - Page 6
- ----------------
<PAGE>
(f) into an escrow account (the "Escrow Account") to be established
with Mega Bank of Arapahoe ("Escrow Agent") the sum of Sixty Five Thousand
and No/100 Dollars ($65,000.00) (the "Escrowed Amount") to be used to
satisfy any settlement or judgment arising out of the Lawsuit. Upon the
first to occur of (i) the settlement of the Lawsuit by all parties to the
Lawsuit and a general release by the plaintiff of all claims against the
Company (the "Settlement"), and (ii) a final non-appealable judgment from a
court of competent jurisdiction with respect to all claims arising out of
the Lawsuit (a "Judgment"), Purchaser and Donaldson shall instruct the
Escrow Agent to pay to the plaintiff in the Lawsuit the amount required to
be paid by the Company and Donaldson pursuant to the Settlement or
Judgment, as the case may be, and to pay any balance remaining in the
Escrow Account after such payment to the plaintiff in the lawsuit to
Donaldson. Each of Donaldson and Purchaser shall execute such agreements
with Escrow Agent, as Escrow Agent shall request, in connection with it
serving as Escrow Agent. Any Judgment or Settlement shall be subject to
the terms and conditions set forth in Section 8.4 below.
2.3 Merger Certificates. At the Closing, in addition to such other
--------------------
instruments as shall be reasonably required in order to fully consummate the
merger, Seller and the Company shall deliver to Purchaser articles of merger,
and such other documents, all in form and substance satisfactory to Purchaser
and its legal counsel, as shall be necessary to consummate the Merger.
2.4 Further Assurances. At the Closing, and at all times thereafter as
------------------
may be reasonably necessary, Seller and the Company shall execute and deliver to
Purchaser such instruments of transfer as shall be reasonably necessary or
appropriate to vest in Purchaser title of the type specified herein to the
assets of the Company and to otherwise comply with the terms, purposes and
intent of this Agreement.
2.5 Closing Payables and Closing Receivables.
----------------------------------------
(a) Assumed Contracts and Assumed Payables. On or prior to Closing,
--------------------------------------
the Company shall pay in full, discharge and satisfy completely all
Liabilities of the Company, except for (i) contracts of the Company that
are not in default, entered into in the ordinary course of business and
described on Schedule 2.5(a)(1) (the "Assumed Contracts"), and (ii) current
------------------
trade payables (for this purpose, a "current" trade payable shall mean an
amount outstanding in accordance with the normal payment cycle of the
Company for that particular vendor, but in no event more than thirty (30)
days past invoice date) entered into or incurred in the ordinary course of
business through arm's length transactions and described on Schedule
--------
2.5(a)(2) (the "Assumed Payables"), except that Assumed Payables shall not
---------
include that portion of invoices received prior to or within ninety (90)
days after the Closing Date that relate to inventory for pending jobs to be
installed and/or services for pending jobs to be rendered by the Company
after the Closing Date to the extent that Purchaser is entitled to receive
payment therefor and such portion of such invoices shall not be required to
be paid, discharged or satisfied by the Company prior to Closing and shall
be assumed and paid by Purchaser; provided, however, that any such invoices
received prior to
MERGER AGREEMENT - Page 7
- ----------------
<PAGE>
the Closing Date shall be described on Schedule 2.5(a)(2) under a heading
------------------
entitled "Non-Assumed Payables." Purchaser and Seller acknowledge and agree
--------------------
that the Assumed Payables described on Schedule 2.5(a)(2) shall be revised
------------------
by the parties within thirty (30) days after Closing to reflect invoices
received on or after the Closing Date that relate to inventory installed
and/or services rendered by the Company on or prior to the Closing Date
that Donaldson is entitled to receive payment for pursuant to Section
2.5(b) below. Any such invoices that relate to inventory installed and/or
services rendered prior to and after the Closing Date shall be allocated
between Purchaser and Seller in good faith and to the extent that any such
disagreements have not been resolved prior to the expiration of the
Resolution Period (hereinafter defined ), such disputes shall be resolved
in accordance with the procedures set forth in Section 2.5(b) below.
(b) Adjustment Period. For a period of ninety (90) days after Closing
-----------------
(the "Adjustment Period"), Purchaser shall collect (i) all Accounts
existing as of the day immediately prior to the Closing Date (for this
purpose, Accounts existing as of the date immediately prior to Closing
shall mean that at Closing the subject invoice giving rise to the Account
has been deposited in the U.S. Mail in accordance with normal business
practices) and described on Schedule 2.5(b) (the "Pre-Closing
---------------
Receivables"), and (ii) all Accounts arising on and after the Closing Date
and relating, either in whole or in part, to products sold and services
provided by the Company prior to 5:00 p.m. (Denver time) on the Closing
Date (the "Post-Closing Receivables"). Within five (5) business days after
the Closing Date, Donaldson shall provide Purchaser with a proposed list
(the "Proposal") of Post-Closing Receivables and the percentage of each
such Post-Closing Receivable relating to the period prior to 5:00 p.m.
(Denver time) on the Closing Date ("Donaldson's Portion"). Purchaser shall
review the Proposal and provide Donaldson with any objections or proposed
changes thereto within five (5) business days after Purchaser's receipt of
the Proposal. For a period of fourteen (14) days after Donaldson's receipt
of Purchaser's objections and proposed changes to the Proposal, (the
"Resolution Period"), Donaldson and Purchaser shall negotiate in good faith
the resolution of any objections or proposed changes of Purchaser with
respect to the Proposal. If Purchaser and Donaldson shall fail to reach an
agreement with respect to any objection or proposed change to the Proposal
prior to the expiration of the Resolution Period, then all such disputed
objections or changes shall, not later than five (5) business days after
the earlier to occur of (i) the expiration of the Resolution Period, or
(ii) the date one of the parties affirmatively terminates discussions in
writing with respect to such objections or changes, be submitted for
resolution to the Denver office of an impartial certified public accounting
firm (the "Accountants") selected by Purchaser and Donaldson. If Purchaser
and Donaldson cannot agree on the selection of the Accountants within such
five (5) business day period, then Purchaser and Donaldson shall each have
the right to request the American Arbitration Association to appoint as
the Accountants a certified public accounting firm that has not had a
material relationship with Donaldson, Purchaser or the Affiliates of either
of them within the preceding five (5) years. Donaldson and Purchaser agree
to execute, if requested by the Accountants, an engagement letter and shall
share equally the cost of the Accountants. Donaldson and Purchaser shall
MERGER AGREEMENT - Page 8
- ----------------
<PAGE>
use their reasonable efforts to cause the report of the Accountants, which
shall be in the form of a written statement addressed and delivered to
Purchaser and Donaldson, to be rendered within thirty (30) days after the
Accountants' appointment. Donaldson and Purchaser shall request the
Accountants to act as an arbitrator to determine, based solely on
presentations by Purchaser and Donaldson, and not by independent review,
only those issues still in disputes; provided, however, that the role and
the scope of investigation of the Accountants may be modified by Donaldson
and Purchaser in the event that the Accountants would otherwise refuse such
engagement. The Accountants' determination as to the appropriateness and
extent of such changes (if any) to the Proposal shall be final and binding
on the parties thereto.
(c) Payment to Donaldson. Within fourteen (14) days after the last to
--------------------
occur of (i) the ninetieth (90/th/) day after the Closing Date, and (ii)
the final resolution of any objections or proposed changes with respect to
the Proposal and the Assumed Payables, Purchaser shall pay to Donaldson the
excess, if any, by which the sum of (i) the Pre-Closing Receivables, and
(iii) Donaldson's Portion of the Post Closing Receivables collected by
Purchaser during the Adjustment Period exceed the Assumed Payables.
Donaldson and Purchaser shall use their best efforts to collect any Pre-
Closing Receivables and Donaldson's Portion of the Post-Closing Receivables
not collected by Purchaser during the Adjustment Period and such funds
shall be promptly paid by Purchaser to Donaldson after collection, provided
that the aggregate of the Pre-Closing Receivables and Donaldson's Portion
of the Post-Closing Receivables collected by Purchaser exceed the Assumed
Payables and Purchaser does not otherwise have any claims or offset rights
against such monies.
(d) Deduction from Note. If, at the end of the Adjustment Period, the
-------------------
Assumed Payables paid by Purchaser during the Adjustment Period exceed the
Pre-Closing Receivables and Donaldson's Portion of the Post-Closing
Receivables collected by Purchaser during the Adjustment Period, Purchaser
shall deduct such excess from the principal amount of the Subordinated
Convertible Promissory Notes payable to Donaldson.
(e) Other Accounts. All Accounts of the Company, other than the Pre-
--------------
Closing Receivables and Donaldson's Portion of the Post-Closing
Receivables, shall be collected after Closing by Purchaser for its own
account and Seller shall have no claim or interest therein.
2.6 Cash. Except to the extent necessary to cover all outstanding checks
----
of the Company and deposits or other prepayments received from customers by
the Company set forth on Schedule 2.6, Seller shall be permitted to
------------
distribute to themselves all of the Company's cash and cash equivalents in
receipt by the Company on or prior to the day immediately prior to the
Closing Date.
MERGER AGREEMENT - Page 9
- ----------------
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and the Company hereby jointly and severally represent and warrant
to Purchaser that the following are true and correct as of the date of this
Agreement and will be true and correct (without limitation) through the Closing
Date, regardless of what investigations, if any, Purchaser shall have made prior
hereto or prior to Closing:
3.1 Transfer of and Title to Stock. Seller has good and marketable title
------------------------------
to all shares of the Stock and is the sole record and beneficial owners thereof.
Seller has the full legal right, power, capacity and authority to enter into
this Agreement and transfer, convey and sell the Stock to Purchaser at Closing,
and upon consummation of the Merger, Seller will transfer good and marketable
title to the Stock, free and clear of all Liens.
3.2 Organization; Qualification. The Company (a) is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the state of
its formation or existence, (b) has all requisite power and authority to own and
lease all of the properties and assets it now owns and leases and to carry on
its businesses as now being conducted, and (c) is duly qualified or licensed to
do business as a foreign corporation and is in good standing in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification necessary.
3.3 Authority Relative to this Agreement. The Company and Seller have
------------------------------------
full power and authority (corporate and otherwise) to execute, deliver and
perform this Agreement (including, without limitation, execution, delivery and
performance of the Operative Documents to which each of them is a party) and to
consummate the Transactions. The execution and delivery by Seller and the
Company of this Agreement and the Operative Documents, and the consummation of
the Transactions, have been duly and validly authorized by the Company and
Seller and no other actions on the part of the Company and Seller are necessary
with respect thereto. This Agreement and the Operative Documents have been duly
and validly executed and delivered by the Company and Seller, and constitute the
legal, valid and binding obligations of Seller and the Company, enforceable
against them in accordance with its terms. The Company will take all corporate
action that is necessary for the Company to complete the Transactions pursuant
to this Agreement.
3.4 Capitalization.
--------------
(a) The authorized capital stock of the Company consists solely of
fifty thousand (50,000) shares of common stock, no par value per share, of
which one thousand (1,000) shares are issued and outstanding. As of the
date hereof, the shares of Stock are the only shares of capital stock of
the Company outstanding. All such outstanding shares of Stock have been
duly authorized and validly issued and are fully paid and nonassessable.
There are no outstanding options, warrants, rights, subscriptions, claims
of any character, agreements, obligations, convertible or exchangeable
securities or other commitments, contingent or otherwise, relating to the
capital stock of the Company, pursuant to which the Company is or may
become obligated to issue or exchange any share of capital stock.
MERGER AGREEMENT - Page 10
- ----------------
<PAGE>
There is not now nor has there ever been any Person who holds shares of
capital stock of the Company other than the Shareholders.
(b) Other than as set forth on Schedule 3.34 attached hereto, there
-------------
is no outstanding subscription, option, warrant, call, right, agreement or
commitment (including any right of conversion or exchange under any
outstanding security or other instrument) entitling any person to purchase
or otherwise acquire from Seller or the Company any capital stock of the
Company or any security convertible into or exchangeable therefor, or any
other right to acquire, any capital stock of the Company or relating to the
issuance, sale, delivery or transfer of Stock by Seller or the Company.
Other than as set forth on Schedule 3.34 attached hereto, there are no
-------------
outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any of its outstanding of the Company to repurchase,
redeem or otherwise acquire any of its outstanding capital stock.
3.5 Consents and Approvals. Except as set forth on Schedule 3.5, the
---------------------- ------------
execution, delivery and performance by Seller and the Company of this Agreement
and the Operative Documents and the consummation of the Transactions by them
requires no consent, approval, order or authorization of, action by or in
respect of, or registration or filing with, any Governmental Body or other
Person.
3.6 No Violations. The execution, delivery and performance of this
-------------
Agreement and the Operative Documents by Seller and the Company, the
consummation by Seller and the Company of the Transactions and compliance by
Seller and the Company with the provisions hereof does not and will not (a)
conflict with or result in any breach or violation of any provision of the
Articles of Incorporation or Bylaws of the Company, (b) result in a default, or
give rise to any right of termination, cancellation or acceleration or loss
under any of the provisions of any note, bond, mortgage, indenture, license,
trust, agreement, lease or other instrument or obligation to which Seller or the
Company are a party or by which Seller or the Company may be bound, (c) result
in the creation or imposition of any Lien on any of the property of Seller or
the Company, (d) violate any Order, statute, rule or regulation applicable to
Seller or the Company, or (e) violate any territorial restriction on the Company
or Seller or any noncompetition or similar arrangement.
3.7 Title to and Condition of Assets and Property. Except as specifically
---------------------------------------------
set forth on Schedule 3.7, the Company has good and marketable title to all its
------------
properties and assets (real and personal, tangible and intangible), such
properties and assets are free and clear of all Liens, and such properties and
assets are in good operating condition and a state of good maintenance and
repair and are sufficient to conduct the Company's operations after Closing in
the ordinary course of business and consistent with past practices.
3.8 Inventory. Except as set forth on Schedule 3.8, the Company has good
--------- ------------
title to all inventory reflected on the Financial Statements and all inventory
purchased or created since the date of the Financial Statements (other than
inventory disposed of since such date in the ordinary course of business
consistent with past practices), free and clear of all Liens. The inventory is
adequate for the conduct of the Company's operations. The inventory levels are
not in excess of
MERGER AGREEMENT - Page 11
- ----------------
<PAGE>
the normal operating requirements of the Company. The value at which the
inventory is carried on the Financial Statements reflects the normal inventory
policies of the Company and has been determined in accordance with generally
accepted accounting principles. Except as set forth on Schedule 3.8, all
------------
inventory is or will be at Closing, located at the Company's offices at 6050
Greenwood Plaza Boulevard, Suite 130, Englewood, Colorado 80111. The Company is
under no obligation to repurchase any inventory previously sold in connection
with the operation of the Company.
3.9 Distributors and Suppliers. Except as set forth on Schedule 3.9, the
-------------------------- ------------
Company is not involved in any controversy with any of the distributors,
customers, or suppliers of the Company. Schedule 3.9 lists all distributors,
------------
customers and suppliers which, as of date of the Financial Statements and for
the period then ended, accounted for five percent (5%) or more of (i) the
Company's revenues, and (ii) purchases of products, supplies, equipment or parts
used exclusively in connection with the operation of the Company.
3.10 Product Warranties. Schedule 3.10 contains the forms of express
------------------ -------------
product and service warranties and guaranties which have been used by the
Company. Except as set forth on Schedule 3.10, the Company has not offered any
-------------
materially different forms of express product warranties and guaranties. The
Company's product and service warranty expense in 1995, 1996, and 1997 with
respect to products manufactured or sold by the Company in connection with the
Company's operation was _______________, ___________, and ________________,
respectively. To the Company's and the Seller's Best Knowledge, no events have
occurred or facts exist which could result in a material increase in such
product warranty expenses.
3.11 Investigation or Litigation. Except as set forth on Schedule 3.11,
--------------------------- -------------
there is no Proceeding pending or, to the Company's and the Seller's Best
Knowledge, Threatened against, relating to or affecting the Company. The
Company is not subject to any currently existing Proceeding by any Governmental
Body. There is no basis for the assertion of any Proceeding by any Governmental
Body or any Person regarding any violation of federal or state laws.
3.12 Taxes. All Taxes that are due and payable by the Company, other than
-----
those presently payable without penalty or interest, have been timely paid, and
the Company has timely filed (and, through the Closing Date, will timely file)
all Tax reports and returns required by law to be filed by them. All such Tax
reports and returns are true, complete and correct in all respects with regard
to the Company for the periods covered thereby. The Company is not delinquent
in the payment of any Tax. There is no Tax deficiency asserted against the
Company, and there is no unpaid assessment, proposal for additional Taxes,
deficiency or delinquency in the payment of any of the Taxes of the Company or
any violation of any Tax law that could be asserted by any taxing authority.
There are no Tax Liens upon any properties or assets of the Company nor has
notice been given of any event which could lead to any such Lien. No Internal
Revenue Service, state or local, audit, investigation or Proceeding of the
Company is pending or Threatened, and the results of any completed audits are
properly reflected in the Financial Statements. The Company has not granted any
extension to any taxing authority of the limitation period during which any Tax
MERGER AGREEMENT - Page 12
- ----------------
<PAGE>
Liability may be asserted. The Company has not committed any violation of any
Tax laws. All monies required for the payment of Taxes not yet due and payable
with respect to the operations of the Company through and including the Closing
Date have been approved, reserved against and entered upon the books and
Financial Statements. All monies required to be withheld by the Company from
employees, if any, independent contractors, or others or collected from
customers for income taxes, social security and unemployment insurance taxes and
sales, excise and use taxes, and the portion of any such taxes to be paid by the
Company to governmental agencies or set aside in accounts for such purpose have
been approved, reserved against and entered upon the books and Financial
Statements.
3.13 No Brokers. Seller have not employed any broker, agent, or finder or
----------
incurred any Liability for any brokerage fees, commissions or finders' fees in
connection with the Transactions.
3.14 Accounts. Schedule 3.14 contains a complete and accurate list of all
-------- -------------
the Company's Accounts as of ________________, 199__, showing the name of each
account debtor and the amount due from each by invoice number and date. All of
such Accounts have arisen in the ordinary course of business for services
rendered or products sold. Except as set forth on Schedule 3.14, there is no
-------------
event or condition with respect to a specific customer that will cause such
Accounts to not be collected in full in due course without resort to litigation
and such Accounts will not be subject to counterclaim or setoff.
3.15 Insurance. All the insurance policies maintained by the Company are in
---------
full force and effect, all insurance premiums have been timely paid to date, and
no such policy will be canceled prior to Closing. A description of the Company's
insurance policies (including, without limitation, insurance providing benefits
for employees) is attached hereto as Schedule 3.15. The insurance policies set
-------------
forth on Schedule 3.15 provide adequate coverage, less deductibles, against the
-------------
risks involved in the operation of the Company.
3.16 Contracts; Oral Commitments; Defaults. Schedule 3.16 sets forth a true
------------------------------------- -------------
and correct list of all contracts and agreements of the Company (or summaries of
all oral commitments) and the Company has provided true, correct and complete
copies of such contracts and agreements to Purchaser prior to the date hereof.
There exists no breach or default under any of such contracts and no event
exists which, with the like giving of notice, passage of time, or happening of
any other event, would constitute a breach or default under such contract.
3.17 Corporate Matters. The Board of Directors and shareholders of the
-----------------
Company have approved the execution and delivery of this Agreement and the
consummation of the Transactions contemplated hereby in accordance with
applicable law.
3.18 Permits. Schedule 3.18 lists all Permits held by the Company. Such
------- -------------
Permits are valid, and neither the Company nor Seller have received any notice
that any Governmental Body intends to cancel, terminate or not renew any such
Permit. The Company holds all licenses, franchise, permits and other
governmental authorizations required by any Governmental Body or
MERGER AGREEMENT - Page 13
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<PAGE>
any Order. The Company is not being conducted, in violation of any statute, law,
ordinance, regulation, rule or Permit of any Governmental Body or any Order.
3.19 Compliance with Laws. The Company has complied with and is in
--------------------
compliance with all federal, state, local and foreign statutes, laws,
ordinances, regulations, rules, permits, judgments, orders or decrees applicable
to the Company or any of its properties, assets, operations and businesses, and
there does not exist any basis for any claim or default under or violation of
any such statute, law, ordinance, regulation, rule, judgment, order or decree.
3.20 Corporate Name. The Company's use of the Company's corporate name and
--------------
any assumed names used by the Company, do not infringe upon the right of any
third party.
3.21 Disclosure.
----------
(a) Seller have delivered or made available to Purchaser complete and
accurate copies of all documents listed on the Disclosure Schedules
delivered as a part hereof and all other information requested by Purchaser
pursuant hereto. No representation or warranty of Seller contained in
this Agreement or any statement in the Disclosure Schedules hereto contains
any untrue statement. No representation or warranty of Seller contained in
this Agreement or statement in the Disclosure Schedules hereto omits to
state a material fact necessary in order to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading.
(b) There is no facts known to Seller which have specific application
to Purchaser and which could have a Material Adverse Effect on the Company
but which has not been set forth in this Agreement or the Disclosure
Schedules hereto.
3.22 Employee Matters. Schedule 3.22 contains a list of the names and
---------------- -------------
current aggregate annual cash compensation, sales compensation and other
incentive and bonus plans, agreements or arrangements and identifies the other
material benefits with respect to salaried employees, of each employee of the
Company expected to be hired by Purchaser and any employment contracts, secrecy
or confidentiality agreements, or noncompetition agreements to which the Company
is a party. Except as set forth on Schedule 3.22, no labor organization,
-------------
collective bargaining representative, or group represents or, to Seller' Best
Knowledge, claims to represent any of the Company's present employees, and
except as set for on Schedule 3.22, the Company has no collective bargaining or
-------------
employment or consulting agreements with any consultants or employees of the
Company. As set forth on Schedule 3.22, with respect to employees of the
-------------
Company, (a) there is no labor strike, work stoppage, organized slowdown, or
lockout actually pending or, to the Best Knowledge of Seller, Threatened against
or affecting the Company and no such action has been pending; (b) to the Best
Knowledge of Seller, no union organization campaign is in progress and no
question concerning representation exists; (c) the Company is in compliance in
all material respects 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 practice; (d) there is no unfair labor
practice charge or complaint
MERGER AGREEMENT - Page 14
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<PAGE>
against the Company pending or, to the Best Knowledge of Seller, Threatened
before the National Labor Relations Board; (e) there is no pending or, to the
Best Knowledge of Seller, Threatened grievance before any Governmental Body; and
(f) (i) no charges with respect to or relating to the Company are pending or, to
Seller' Best Knowledge, Threatened before the Equal Employment Opportunity
Commission or any state or local agency responsible for the prevention of
unlawful employment practices; and (ii) the Company has received no notice of
the intent of any federal or other Governmental Body responsible for the
enforcement of labor or employment laws to conduct an investigation with respect
to or relating to the Company, and no such investigation is in progress.
3.23 Plans. Schedule 3.23 sets forth a complete and accurate description
----- -------------
of all employee benefit plans and all collective bargaining agreements relating
to employee benefits with respect to which the Company or any of its
predecessors contributes or is required to contribute and has or may incur any
future or contingent obligations, including, without limitation, all plans,
agreements or arrangements relating to deferred compensation, pension, profit
sharing, retirement income or other benefits, stock purchase and stock option
plans, bonuses, severance arrangements, health benefits, insurance benefits,
welfare benefits and all other material employee benefits or fringe benefits
(collectively referred to as the "Plans"). Except as set forth on Schedule 3.23:
-------------
(a) true, correct and complete copies of each Plan, all related Summary Plan
Descriptions and material employee communications, related trust agreements or
annuity contracts (or any other funding instruments), annual reports on the Form
5500 series required to be filed with any governmental agency for each Plan for
the two most recent Plan years and the most recent actuarial reports and
trustee's reports relating thereto (if applicable) have been furnished to
Purchaser; (b) each Plan has been administered and operated in accordance with
its terms and applicable law, and to the extent applicable, each Plan is
"qualified" within the meaning of Section 401(a) of the Code and each related
trust is exempt from tax under Section 501(a) of the Code; (c) each qualified
Plan has been amended to conform to the requirements of all applicable federal
statutes and regulations, and no Liability under any applicable law has been
incurred with respect to any Plan; (d) all reports and disclosures relating to
such Plans required to be filed with any agency of the federal, state or local
government or distributed to employees or beneficiaries have been or will be
properly and timely filed or distributed in compliance with applicable law; (e)
the Company does not maintain and has not been maintaining a "defined
contribution plan" or has incurred any Liability with respect to such a plan;
and (f) full payment has been made of all amounts which were required under the
terms of any of the Plans to have been paid as a contribution to such Plan.
3.24 Transactions with Affiliates. Schedule 3.24 contains a complete and
---------------------------- -------------
accurate description of all contracts, agreements and other arrangements
(whether written, oral, express or implied) between the Company and any
Affiliate of the Company.
3.25 Financial Statements. Attached to Schedule 3.25 are true, complete
-------------------- -------------
and correct copies of the balance sheet of the Company as of March 31, 1999, and
the related statements of income, and changes in shareholder's equity and net
worth for the periods then ended of the Company (the "Financial Statements")
provided by Seller to Purchaser. The Financial Statements
MERGER AGREEMENT - Page 15
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<PAGE>
are true, complete and correct, have been prepared in conformity with generally
accepted accounting principles consistently applied, present fairly the
financial position of the Company at the respective dates indicated and do not
omit to state or reflect any material fact concerning the Company required to be
stated or reflected therein or necessary to make the statements therein not
misleading, and shall be accompanied by an unqualified opinion audit report of
an independent accounting firm engaged at Seller' sole cost and expense.
3.26 Undisclosed Liabilities. The Company does not have any Liabilities
-----------------------
and there are no claims against the Company for any Liabilities, except as
disclosed in the Financial Statements or incurred subsequent to the date of the
Financial Statements in the ordinary course of business not involving borrowing
by the Company.
3.27 Leases. Schedule 3.27 contains an accurate and complete list and
------ -------------
description of the terms of all real and personal property leases to which the
Company is a party (as lessee or lessor). Each lease set forth on Schedule 3.27
-------------
(or required to be set forth on Schedule 3.27) is in full force and effect; all
-------------
rents and additional rents due to date on each such lease have been paid; in
each case, the lessee has been in peaceable possession since the commencement of
the original term of such lease and is not in default thereunder and no waiver,
indulgence or postponement of the lessee's obligations hereunder has been
granted by the lessor; and there exists no event of default or event,
occurrence, condition or act (including the purchase of the Stock hereunder)
which, with the giving of notice, the lapse of time or the happening of any
further event or condition, would become a default under such lease. The
Company has not violated any of the terms or conditions under any such lease in
any material respect, and, to the Best Knowledge of the Company, all of the
covenants to be performed by any other party under any such lease have been
fully performed. Any property leased by the Company is in a state of good
maintenance and repair and is adequate and suitable for the purposes for which
it is presently being used.
3.28 Real Property. Schedule 3.28 contains an accurate and complete list
------------- -------------
of all real property owned in whole or in part by the Company and includes the
name of the record title holder thereof and a list of all indebtedness secured
by a lien, mortgage or deed of trust thereon. The Company has good and
marketable title in fee simple to all the real property specified as owned by it
on Schedule 3.28 (or required to be set forth on Schedule 3.28), free and clear
------------- -------------
of all Liens. All of the buildings, structures and appurtenances situated on
the real property listed on Schedule 3.28 (or required to be set forth on
-------------
Schedule 3.28) are in good operating condition and in a state of good
- -------------
maintenance and repair, are adequate and suitable for the purposes for which
they are presently being used and with respect to each, the Company has adequate
rights of ingress and egress in the ordinary course. None of such buildings,
structured or appurtenances (or any equipment therein), nor the operation or
maintenance thereof, violates any restrictive covenant or any provision of any
federal, state or local law, ordinance, rule or regulation, or encroaches on any
property owned by others. Except as set forth on Schedule 3.28, no condemnation
-------------
proceeding is pending, or to the Best Knowledge of Seller, Threatened which
would preclude or impair the use of any such property by the Company for the
purposes for which it is currently used.
MERGER AGREEMENT - Page 16
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<PAGE>
3.29 Environmental Matters.
---------------------
(a) Compliance Generally. The Company complied and is in material
--------------------
compliance with all Environmental Requirements.
(b) Claims. The Company has not received any claim, complaint,
------
citation, report or other notice regarding any liabilities or potential
liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise), including any investigatory, remedial or corrective
obligations, arising under the Environmental Requirements.
(c) Certain Environmental Liabilities. The Company has not stored,
---------------------------------
disposed of, arranged for or permitted the disposal of, transported,
handled or released any substance, including, without limitation, any
hazardous substance, pollutant, contaminant or waste, or owned or operated
any facility or property, so as to give rise to Liabilities of the Company
pursuant to the Environmental Requirements, including, without limitation,
any Liability of response costs, corrective action, natural resources
damages, personal injury, property damage or attorneys fees.
(d) Operations. The Company has taken no action relating to the past
----------
or present facilities, properties or operations of the Company that will
prevent, hinder or limit continued compliance with the Environmental
Requirements, give rise to any investigatory, remedial or corrective
obligations pursuant to the Environmental Requirements, or give rise to any
other Liabilities pursuant to the Environmental Requirements, including any
Environmental Requirements relating to onsite or offsite releases or
threatened releases of hazardous or otherwise regulated materials,
substances or wastes, personal injury, property damages or natural
resources damage.
(e) Liability for Others. The Company has not, either expressly or by
--------------------
operation of law, assumed or undertaken any Liability or corrective or
remedial obligations of any other Person relating to Environmental
Requirements.
3.30 Intellectual Property. The operation of the Company, in the ordinary
---------------------
course and as presently conducted, requires no rights under Intellectual
Property (as hereinafter defined) other than rights related to Intellectual
Property owned by the Company and listed on Schedule 3.30. Except as set forth
-------------
on Schedule 3.30, all licenses or similar agreements listed on Schedule 3.30 are
------------- -------------
in full force and effect. Except as otherwise set forth on Schedule 3.30, with
-------------
respect to Intellectual Property which is owned by the Company, the Company owns
all right, title and interest in such Intellectual Property, including, without
limitation, exclusive rights to use and license the same to third parties.
Except as set forth on Schedule 3.30, during the past seven (7) years no claim
-------------
adverse to the interests of the Company in the Intellectual Property has been
made. To the Best Knowledge of Seller, except as set forth on Schedule 3.30, no
-------------
such claim has been Threatened, no valid basis exists for any such claim and no
person has infringed or otherwise violated the Company's rights in any of the
Intellectual Property. Neither the execution of this Agreement and the
Operative
MERGER AGREEMENT - Page 17
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<PAGE>
Documents nor the consummation of the Transactions will materially adversely
alter or materially impair the rights of the Company to use any of the
Intellectual Property listed on Schedule 3.30.
-------------
3.31 Bank Accounts and Powers of Attorney. Set forth on Schedule 3.31 is
------------------------------------ -------------
an accurate and complete list showing (a) the name and address of each bank in
which the Company has an account or safe deposit box, the number of any such
account or any such box and the names of all persons authorized to draw thereon
or to have access thereto, and (b) the names of all persons, if any, holding
powers of attorney from the Company and a summary statement of the terms
thereof.
3.32 Knowledge of Seller. Where any representations or warranty contained
-------------------
in this Article III is expressly qualified by reference to the Best Knowledge of
Seller, Seller, who are officers of the Company, confirm that, as to the matters
that are the subject of such representations and warranties, they have made
suitable inquiries of the appropriate responsible Company employees and have
made a suitable review of appropriate corporate records and documents within
their possession or control, and Seller who are directors of the Company confirm
that, as to matters that are the subject of such representations and warranties,
they have made a suitable review of appropriate corporate records and documents
which have been furnished to them or are otherwise within their possession or
control.
3.33 Inspection Does Not Affect Warranties. The representations and
-------------------------------------
warranties of Seller contained in this Agreement shall in no way be abridged,
reduced, waived, be considered fulfilled or otherwise be affected by any
examination or inspection made by Purchaser at any time.
3.34 Rights and Assets. The Company shall receive at Closing all tangible
-----------------
and intangible rights and assets necessary for the Company to operate the
Company's business after Closing in the same manner as the business of the
Company was conducted prior to Closing.
3.35 Absence of Certain Changes. Since the date of Financial Statements,
--------------------------
there has been no material adverse change in the assets or liabilities, or in
the results of operations of the Company, and, to the Best Knowledge of Seller,
no fact or condition (other than general economic conditions) exists or is
contemplated or Threatened which might cause such a change in the future.
Except as set forth on Schedule 3.35, since the date of the Financial
-------------
Statements, the Company has not, (a) incurred, or assumed or become subject to,
whether directly or by way of guarantee or otherwise, any material Liability,
(b) permitted any of its assets to be subjected to any Lien, (c) sold,
transferred or otherwise disposed of any assets, except in the ordinary course
of business, (d) made any material capital expenditure, additions to property,
plant or equipment or acquisition of other property or assets or commitment
therefor, (e) declared or paid any dividend or made any distribution on any
shares of its capital stock, or redeemed, purchased or otherwise acquired any
shares of its capital stock or any option, warrant or other right to purchase or
acquire any shares, (f) made any bonus or profit sharing distribution or payment
of any kind, (g) increased its indebtedness for borrowed money or made any loan
to any party, (h) written off as uncollectible any notes or accounts receivable,
(i) granted any increase in the rate of wages, salaries, bonuses or other
remuneration of any executive employee or other employees, except in the
ordinary course of
MERGER AGREEMENT - Page 18
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<PAGE>
business, (j) canceled or waived any debts, claims or rights or material value,
(k) made any change in any method of accounting or auditing practice, (l)
suffered any damage, destruction or loss materially adversely affecting the
properties or assets of the Company, (m) made any change or amendment in its
Articles of Incorporation or Bylaws or other governing instruments, (n) issued
or sold any of its capital stock or redemption or otherwise, any such capital
stock, reclassified, split up or otherwise changed any such capital stock or
granted or entered into any options, warrants, calls or commitments of any kind
with respect thereto, (o) paid, discharged or satisfied any Liabilities, other
than in the ordinary course of business, (p) prepaid any material obligations
having a maturity of more than ninety (90) days from the date such obligation
was issued or incurred, (q) disposed of or permitted to lapse any rights to the
use of any material patent, trademark, copyright, license or other intellectual
property owned or used by it, (r) entered into any collective bargaining or
union contract or agreement, (s) incurred any material Liability required by
generally accepted accounting principles to be reflected on a balance sheet,
other than in the ordinary course of business, or (t) agreed, whether or not in
writing, to do any of the foregoing. As used in this Section 3.35 the reference
to "material" Liabilities, assets, capital expenditures or values of claims or
rights shall mean such items individually or in the aggregate in excess of
$5,000.00.
3.36 Books and Records. The minute books and other corporate records of
-----------------
the Company, as previously made available to Purchaser and its representatives,
constitute all of the minute books and other corporate records of the Company
and such corporate records of the Company and such books and records contain
accurate records of all meetings of and corporate actions or written consents by
the respective shareholders and Board of Directors of the Company and the
subsidiaries. The Company does not have any of its respective records, systems,
controls, data or information recorded, stored, maintained, operated or
otherwise wholly or partly dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
which (including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of the Company.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller that the following are true
and correct as of the date of this Agreement and will be true and correct
through the Closing Date, regardless of what investigations, if any, Seller
shall have made prior hereto or prior to the Closing:
4.1 Organization. Purchaser is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Colorado.
4.2 Authority Relative to this Agreement. Purchaser has full power and
------------------------------------
authority (corporate and otherwise) to execute, deliver and perform this
Agreement (including, without limitation, execution, delivery and performance of
the Operative Documents to which it is a party) and to consummate the
Transactions. The execution and delivery by Purchaser of this Agreement, and
the consummation of the Transactions, have been duly and validly authorized by
the Board of Directors of Purchaser and no other corporate proceedings on the
part of Purchaser are necessary with respect thereto.
MERGER AGREEMENT - Page 19
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<PAGE>
4.3 Consents and Approvals. Except as set forth in or otherwise required
----------------------
by this Agreement or the Operative Documents, the execution, delivery and
performance by Purchaser of this Agreement and the consummation of the
Transactions by it requires no consent, approval, order or authorization of,
action by or in respect of, or registration or filing with, any Governmental
Body or other Person.
4.4 No Brokers. Purchaser has not employed any broker, agent or finder or
----------
incurred any Liability for any brokerage fees, commissions or finders' fees in
connection with the Transactions.
5. ADDITIONAL AGREEMENTS
5.1 Conduct of the Company. After the date hereof and prior to the Closing
----------------------
Date, Seller shall cause the Company to conduct its operations according to its
normal course of business to preserve its business organization, keep available
the services of its employees and independent contractors, maintain satisfactory
relationships with Governmental Bodies, suppliers, customers and all others
having business relationships with the Company and continue to service and
maintain all of its respective assets in a manner consistent with past
practices. All risk of loss arising out of fire and casualty and all Liability
to third parties arising out of the operations of the Company prior to the
Closing Date shall be that of Seller, and Purchaser shall have no obligation or
Liability in connection therewith.
5.2 Forbearances by Seller. Seller covenant that except as contemplated by
----------------------
this Agreement, Seller shall not, after the date hereof and prior to the Closing
Date, without the prior written consent of Purchaser, permit the Company to:
(a) change or amend its Articles of Incorporation or Bylaws (or other
similar documents);
(b) issue, encumber, sell or otherwise dispose of any shares of its
capital stock or any other securities (except upon the exercise of
currently outstanding options), pledge or agree to pledge any capital stock
or other securities owned by it, acquire directly or indirectly, by
redemption or otherwise, any such capital stock, reclassify, combine or
split up any such capital stock or grant or enter into any options,
warrants, calls or commitments of any kind with respect thereto;
(c) except as permitted by Section 2.6 above, declare, set aside or
pay any dividend payable in cash, stock or property, or make any other
distribution with respect to its capital stock or redeem or otherwise
acquire any of its securities;
(d) except in the ordinary course of business, incur or assume any
debt, or assume, guarantee or otherwise become liable or responsible for
the obligations of any other person or make any loans, advances or capital
contributions to, or investments in, any other person or entity, or grant
any security interest on any properties or assets of the Company;
MERGER AGREEMENT - Page 20
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<PAGE>
(e) merge or consolidate with any other person or entity, or organize
any new subsidiary or other person or entity, acquire any capital stock or
other equity securities or all or substantially all of the assets of any
person or entity or acquire any equity or other ownership interest in any
business or person or entity;
(f) cancel any debt or waive any claim or right or cancel any debts
or waive any claims or rights;
(g) transfer, lease, license, sell, mortgage, pledge, dispose of or
encumber any of its properties or assets, other than property disposed of
in the ordinary course of business consistent with past practice;
(h) grant any increase in the compensation payable or to become
payable by the Company or enter into any new employment agreement,
severance agreement or other contract or arrangement with respect to the
performance of personal services, or adopt any new, or amend or otherwise
increase the amounts payable or to become payable under any existing,
bonus, incentive compensation, deferred compensation, profit sharing, stock
option, stock purchase, insurance, pension, retirement, health insurance or
other employee benefit plan (including, without limitation, the granting of
stock options, stock appreciation rights or restricted stock awards);
(i) change or alter the manner in keeping books, accounts or records
of the Company or change accounting principles or methods;
(j) enter into any agreement with any person or entity involving or
reasonably likely to involve an expenditure by the Company in excess of
$5,000.00.
(k) make any capital expenditure or acquire any property or assets
(other than inventory) for a cost in excess of $5,000.00 in the aggregate;
(l) enter into any agreement that materially restricts the Company
from carrying on its business;
(m) pay, discharge or satisfy any material Liability, other than
payment, discharge or satisfaction in the ordinary course of business of
Liabilities or obligations incurred in the ordinary course of business and
consistent with past practice;
(n) enter into or amend any lease of real or personal property; or
(o) write-off as uncollectible any notes or Accounts.
5.3 No Solicitation. Seller covenant and agree that they will not and will
---------------
not permit any of its agents or representatives (including, without limitation,
investment bankers, attorneys and accountants) to, directly or indirectly (a)
solicit, initiate or encourage submission of proposals or offers by, or (b)
furnish any information with respect to or otherwise cooperate in any way with,
or
MERGER AGREEMENT - Page 21
- ----------------
<PAGE>
participate in any discussions or negotiations with, any Person with respect to
any proposal regarding the acquisition or purchase of all or a material portion
of the assets of the Company or any equity interest in the Company or any
business combination with the Company.
5.4 Investigation of the Company. Prior to the Closing Date, Purchaser
----------------------------
may make or cause to be made such investigation of the Company and of its
financial and legal condition as appropriate or advisable to familiarize itself
therewith. The Company agrees to furnish Purchaser and its employees, officers,
agents, accountants, legal counsel and other representatives with all financial,
operating and other data and information concerning the Company and commitments
of the Company as Purchaser shall from time to time reasonably request and will
afford Purchaser and its employees, officers, accountants, attorneys, agents,
investment bankers and other authorized representatives access to the Company's
offices (including access during normal business hours) to review such documents
and its books and records and will be given opportunity to ask questions of, and
receive answers from, representatives of the Company with respect to such
matters. No investigations by Purchaser or its employees, representatives or
agents shall reduce or otherwise affect the Liability of the Company or Seller
with respect to any representations, warranties, covenants or agreements made
herein or in an exhibit, schedule or other certificate, instrument, agreement or
document (including the Disclosure Schedule), executed or delivered in
connection with this Agreement. Any confidential information disclosed by the
Company to Purchaser shall be subject to the non-disclosure obligations set
forth in the Letter of Intent between Seller and Purchaser with respect to the
Transaction.
5.5 Agreement to Consummate. Subject to the terms and conditions herein
-----------------------
provided, each of the parties hereto agrees to use their best efforts to do all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective, as soon as reasonably practicable, the
Transactions contemplated by the Operative Documents, including, but not limited
to, the obtaining of all consents, authorizations, orders and approvals of any
Governmental Body required in connection therewith and initiating or defending
any legal action that is necessary or appropriate to permit the Transactions to
be consummated. At any time after the Closing Date, if any further action is
necessary, proper or advisable to carry out the purposes of this Agreement,
then, as soon as is reasonably practicable, each party to this Agreement shall
take, or cause its proper officers to take, such action. Each of the parties
hereto further agree that it will cooperate with the other after the
consummation of the Transactions for the purpose of providing Purchaser with the
information and access to information necessary to ensure Purchaser with a
reasonably smooth transition into the ownership of the Company. No party to
this Agreement shall take or cause to be taken any action that would cause the
representations or warranties expressed herein to be untrue or incorrect on the
Closing Date.
5.6 Approval of Third Parties. As soon as practicable after the execution
-------------------------
of this Agreement, Seller will use their best efforts to obtain all necessary
approvals and consents of all third parties required on the part of Seller for
the consummation of the Transactions (the "Third Party Consents"). Purchaser
will reasonably cooperate with Seller in securing any necessary
MERGER AGREEMENT - Page 22
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<PAGE>
consents from, or in making any filings with or giving any notice to any third
parties necessary for Seller to comply with this Section 5.6.
5.7 Agreement Regarding Brokers. Each party agrees that it will pay or
---------------------------
dispute, and hold the other party harmless from, any claims of brokers or others
for finder's or brokerage fees asserted as a result of representations by such
party to such brokers or others, regardless of whether the existence of such
brokers or others are disclosed herein.
5.8 Notice. Seller shall promptly give written notice to Purchaser upon
------
becoming aware of the occurrence or failure to occur, or the impending or
Threatened occurrence or failure to occur, of any event that would cause or
constitute, any of their representations or warranties being or becoming untrue.
5.9 Disclosure Schedules. Seller shall have delivered to Purchaser, prior
--------------------
to the date hereof, the proposed final version of the Disclosure Schedules
containing all of the disclosures, exhibits and other information or items
required by the various provisions of this Agreement. Thereafter, Seller shall
deliver to Purchaser any supplements or amendments to such Disclosure Schedule
promptly after Seller become aware of any event which changes any
representation, warranty or disclosure made by Seller or the Company in this
Agreement or any statement made by the Disclosure Schedule or in any supplement
or amendment thereto. Within ten (10) business days after receipt of any
supplements or amendment to such Disclosure Schedule, if in Purchaser's sole and
absolute judgment such amendment and/or supplement represents, reflects or
results in a Material Adverse Effect on or to the Company, its business
prospects, assets, financial condition or result or operations (and in making
such judgment, Purchaser shall have the right to consider the effect of any such
amendment and/or supplement in the aggregate with all prior amendments and/or
supplements), this Agreement and the transactions contemplated hereby may be
terminated and abandoned by Purchaser by written notification to Seller.
5.10 Filings. The parties will each make or cause to be made any filings
-------
and submissions under the laws of any jurisdiction, to the extent that such
filings are necessary to consummate the transactions contemplated hereby and
will take all actions necessary to consummate the transactions contemplated
hereby in a manner consistent with the applicable laws of such jurisdiction.
Each party will furnish to the other party such necessary information and
reasonable assistance as such other party may request in connection with its
preparation of necessary filings or submissions to any governmental entity.
5.11 Taxes.
-----
(a) Seller hereby agree to cooperate fully with Purchaser and the
Company in connection with the preparation of any returns or reports, any
examinations of the Company by any governmental taxing authority,
including, without limitation, making available records, books of account
or other materials reasonably necessary or helpful for the preparation of
such returns or reports or the defense against the assertions of any taxing
authority as to any tax returns.
MERGER AGREEMENT - Page 23
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<PAGE>
(b) Seller shall be solely responsible for the payment of any Taxes
of the Company with respect to taxable periods that end on or prior to the
Closing Date and Seller shall timely pay same when due. Seller shall
reimburse Purchaser for their pro-rata share of any Taxes of the Company
with respect to taxable periods beginning prior to and ending after the
Closing Date within fifteen (15) days of the payment of such Taxes. In the
case of taxable periods beginning prior to and ending after the Closing
Date, Seller pro-rata share of such Taxes shall be (i) in the case of any
Taxes other than Taxes based upon or related to income, the amount of such
Tax for the entire taxable period multiplied by a fraction the numerator of
which is the number of days in the taxable period ending on the Closing
Date and the denominator of which is the number of days in the entire
taxable period, and (ii) in the case of any Tax based upon or related to
income, the amount of such Tax that would have been payable if the relevant
taxable period ended on the Closing Date.
(c) This agreement terminates any and all sharing or other allocation
agreements or arrangements for Taxes in effect as of the Closing to which
the Company was a party.
6. CONDITIONS PRECEDENT TO CLOSING
6.1 General Conditions. Consummation of the Transactions shall be subject
------------------
to the fulfillment at the Closing Date of each of the following conditions:
(a) No Injunction. No court having jurisdiction shall have issued, to
-------------
the Best Knowledge of Purchaser or Seller, an injunction preventing the
consummation of the Transactions that shall not have been stayed or
dissolved prior to or on the Closing Date.
(b) Proceedings. All proceedings taken or to be taken in connection
-----------
with the Transactions, and all documents incident thereto shall be
reasonably satisfactory in form and substance to the parties and their
counsel, and the parties and their counsel shall have received all such
counterpart originals or certified or other copies of such documents as the
parties or their counsel may reasonably request.
(c) Employment and Noncompetition Agreement. At the Closing,
---------------------------------------
Purchaser and each of Donaldson and Bankoff shall enter into a
Noncompetition and Employment Agreement.
6.2 Conditions to Closing in Favor of Seller. Consummation of the
----------------------------------------
Transactions shall be subject to the fulfillment, to the reasonable satisfaction
of Seller, or their written waiver, at or before the Closing Date, of each of
the following conditions:
(a) Representations and Warranties of Purchaser. The representations,
-------------------------------------------
warranties and statements of Purchaser contained in this Agreement and the
Operative Documents shall be complete and accurate as of the date of this
Agreement and shall also be complete and accurate at and as of the Closing
Date, except for changes contemplated by
MERGER AGREEMENT - Page 24
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<PAGE>
this Agreement, as if made on the Closing Date; and Purchaser shall have
performed or complied with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date.
(b) Purchaser's Officers' Certificate. Purchaser shall have delivered
---------------------------------
to Seller an Officers' Certificate, dated the Closing Date, of Purchaser
certifying to (a) the due adoption by the Board of Directors of the
attached resolutions approving the execution and delivery of this
Agreement, and the consummation of the Transactions and (b) the incumbency
of the President, Secretary and other officers of Purchaser executing any
of the Operative Documents.
(c) Governmental Consents, Authorizations, Etc. All material
-------------------------------------------
consents, authorizations, orders or approvals of, and filings or
registrations with, and any permits, licenses or other authorizations
required by, any applicable Governmental Body that are required for, or in
connection with, the execution and delivery of this Agreement by Purchaser
and the consummation by Purchaser of the Transactions shall have been
obtained or made.
(d) Closing Consideration. Purchaser shall have delivered to Seller
---------------------
the Purchase Price required by Section 2.2 hereof, including the
Subordinated Convertible Promissory Notes.
(e) Guaranty. CWII shall have delivered to Seller the Guaranty.
--------
6.3 Conditions to Closing in Favor of Purchaser. Consummation of the
-------------------------------------------
Transactions shall be subject to the fulfillment, to the reasonable satisfaction
of Purchaser, or its written waiver, at or before the Closing Date of the
following conditions:
(a) Representations and Warranties of Seller. The representations,
----------------------------------------
warranties and statements of Seller contained in this Agreement, the
exhibits hereto and the Disclosure Schedules shall be complete and accurate
as of the date of this Agreement and shall also be complete and accurate at
and as of the Closing Date, except for changes contemplated by this
Agreement, as if made at and as of the Closing Date; and Seller shall have
performed or complied with all agreements and covenants required by this
Agreement to be performed or complied with by them at or prior to the
Closing Date.
(b) Governmental Consents, Authorizations, Etc. All material
-------------------------------------------
consents, authorizations, orders or approvals of, and filings or
registrations with, and any permits, licenses or other authorizations
required by, any applicable Governmental Body that are required for or in
connection with, the execution and delivery of this Agreement by Seller and
the consummation by Seller of the Transactions shall have been obtained or
made.
MERGER AGREEMENT - Page 25
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<PAGE>
(c) Shareholder Release. Seller shall have executed and delivered to
-------------------
Purchaser a general release releasing any and all claims for compensation
or otherwise as directors, officers, employees and shareholders in the form
attached hereto as Exhibit F.
---------
(d) Seller's Certificate. Seller shall have delivered to Purchaser
--------------------
Seller's certificates dated the Closing Date, certifying as to the
fulfillment of the conditions set forth in Section 6.3(a) and (b).
(e) Opinion of Counsel. Seller shall have furnished Purchaser with an
------------------
opinion dated the Closing Date of a law firm suitable to Purchaser in the
form attached as Exhibit G hereto, or with such modifications thereto as
---------
are approved by Purchaser, in its sole and absolute discretion.
(f) Legislation. No law or legally binding regulation shall have been
-----------
enacted that does or would prohibit, restrict or delay consummation of the
Transactions or any of the conditions to the consummation of the
Transactions or that does or would have a Material Adverse Effect on the
Company.
(g) Litigation. There shall be no effective Order of any nature
----------
(including any temporary restraining order) issued by a Governmental Body
of competent jurisdiction restraining or prohibiting consummation or
altering the terms of any of the Transactions, or actions seeking damages
based upon the foregoing which Purchaser reasonably deems material. Seller
shall not have become subject to any litigation, which, if adversely
determined, could, in the opinion of Purchaser, have a Material Adverse
Effect on the Company.
(h) No Adverse Change. There shall have occurred no adverse change
-----------------
(whether or not covered by insurance) in operations, assets, liabilities,
properties or financial condition of the Company since the date of the
Financial Statements.
(i) Delivery of Documents/Acceptance of Disclosure Schedules. Seller
--------------------------------------------------------
shall have timely delivered any and all amendments and/or supplements to
the Disclosure Schedules and all other documents, instruments, schedules
and financial statements required hereunder to Purchaser. The Disclosure
Schedules, as amended and supplemented, shall be acceptable in form and
substance to Purchaser, in its absolute discretion.
(j) Third Party Consents. Seller shall have delivered copies of all
--------------------
Third Party Consents, if any, necessary to permit the consummation of the
Transactions contemplated by this Agreement shall have been obtained in a
form satisfactory to Purchaser.
(k) Purchaser's Investigation. The investigations by Purchaser and
-------------------------
its representatives in connection with the proposed Transactions shall not
have caused Purchaser or its representatives to become aware of any facts
or circumstances relating to
MERGER AGREEMENT - Page 26
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<PAGE>
the Company that in the sole discretion of Purchasers make it inadvisable
for Purchaser to proceed with the Transactions.
(l) Approval. The Board of Directors of the Company and Seller each
--------
shall have approved this Agreement and the transactions contemplated
hereby.
(m) Certificate of Authorities. Seller shall have furnished to
--------------------------
Purchaser (i) certificates of the Secretary of State of each state in which
the Company is organized or incorporated, dated as of a date not more than
five (5) business days prior to the Closing Date, attesting to the
incorporation and good standing of the Company, (ii) a copy, certified by
the Secretary of State of each state in which the Company is organized or
incorporated, as of a date not more than five (5) business days prior to
the Closing Date, of the Articles of Incorporation and all amendments
thereto for the Company, (iii) a copy, certified by the Secretary of the
Company, of the Bylaws of the Company, as amended and in effect as of the
Closing Date, and (iv) a copy, certified by the Secretary of the Company,
of resolutions duly adopted by the Board of Directors of the Company duly
authorizing the transactions contemplated in this Agreement.
(n) Corporate Records and Books of Account. The respective corporate
--------------------------------------
seals, articles of incorporation, bylaws, stock certificates, stock
transfer ledgers, and corporate books and records of the Company, updated
up to the Closing Date, shall be delivered to Purchaser.
(o) Bank Accounts. Seller shall have caused the Company to have
-------------
revoked all existing authorities and all instructions to banks in respect
of the operations of the bank accounts of the Company and new authorities
and instructions shall be given to such persons on such terms as Purchasers
may require.
(p) Certificate of Merger. Purchaser shall have received fully
---------------------
executed Certificates of Merger sufficient for filing with the State of
Colorado in order to consummate the Merger.
(q) Subscription Agreement. Seller shall have executed and delivered
----------------------
to Purchaser the Subscription Agreement.
(r) Other Matters. Seller shall have delivered to Purchaser, in form
-------------
and substance reasonably satisfactory to counsel for Purchaser, such
certificates and other evidence as Purchaser may reasonably request as to
the satisfaction of the conditions contained in this Section 6.3.
7. CLOSING AND TERMINATION
7.1 Closing Date. Subject to the right of Purchaser and Seller to
------------
terminate this Agreement pursuant to Section 7.2 hereof, the closing of the
Transactions (the "Closing") shall,
MERGER AGREEMENT - Page 27
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<PAGE>
unless another date or place is agreed to in writing by Seller and Purchaser,
take place at the offices of 7315 South Revere Parkway, Suite 602, Englewood,
Colorado 80112, at 10:00 a.m. (Denver time) on April _____, 1999 (the "Closing
Date") or such other place and date as the parties may mutually agree upon in
writing. Purchaser shall, at its option, have the right, but not the obligation
to extend the Closing Date by not more than forty-five (45) days by giving
written notice thereof to Seller at least three (3) business days prior to the
Closing Date referred to in the preceding sentence. If Purchaser exercises its
option hereunder to extend the Closing Date, the term Closing Date as used
herein shall mean and refer to such Closing Date as extended.
7.2 Termination. This Agreement may be terminated at any time prior to the
-----------
Closing Date:
(a) by mutual written agreement of Purchaser and Seller;
(b) by Seller if any representation or warranty of Purchaser or by
Purchaser if any representation or warranty of Seller contained herein
shall have been incorrect or breached in any material respect, as to which
notice shall have been given to the breaching party, and shall not have
been cured or otherwise resolved to the reasonable satisfaction of the
other party on or before the Closing Date, or by either Purchaser or Seller
if any condition to the consummation of the Transactions contemplated
hereunder that must be fulfilled to its satisfaction has become impractical
to be fulfilled;
(c) by either Purchaser or Seller if any permanent injunction or
other order of a court or other competent authority preventing the
consummation of the Transactions shall have become final and non-
appealable; or
(d) by Purchaser or Seller if the Closing has not occurred by April
1, 1999; provided, however, that such date may be extended by written
agreement among the parties and provided, further, that no party shall be
permitted to terminate hereunder if such party is in violation of this
Agreement.
7.3 Effect of Termination. In the event of the termination of this
---------------------
Agreement as provided herein, this Agreement shall become wholly void and have
no further force and effect except as hereinafter provided; and there shall be
no Liability on the part of Seller or Purchaser (or Purchaser's respective
officers of directors) except to comply with the provisions of Section 5.7
regarding brokers, to pay the fees and expenses as apportioned in Section 9.2
and except as otherwise expressly provided herein. Nothing contained herein
shall relieve any party from Liability for its breach of this Agreement.
7.4 Extension; Waiver. At any time prior to the Closing Date, any party
-----------------
hereto that is entitled to the benefits hereof (with respect to any such
corporate party by action taken by its Board of Directors or a duly authorized
officer), may (a) extend the time for the performance of any of the obligations
or other acts of any of the other parties hereto, (b) in whole or in part, waive
any inaccuracy in the representations and warranties of any of the other parties
hereto contained herein or in any exhibit or schedule hereto or in any document
delivered pursuant hereto, and (c) in whole
MERGER AGREEMENT - Page 28
- ----------------
<PAGE>
or in part, waive compliance with any of the agreements of any of the other
parties hereto or conditions contained herein. Any agreement on the part of any
party hereto to any such extension or waiver shall only be valid if same is set
forth in an instrument in writing signed and delivered on behalf of such party.
8. SURVIVAL AND INDEMNIFICATION
8.1 Survival of Representations and Warranties. The respective
------------------------------------------
representations and warranties of Seller contained in this Agreement, the
Operative Documents and any investigation shall survive the consummation of the
Transactions contemplated in this Agreement and shall continue in full force and
effect after the Closing for a period of four (4) years from the Closing at
which time they shall expire, except as to claims made in respect thereof in
writing by Purchaser on or before the expiration of such period; provided,
however that (a) the representations and warranties contained in Section 3.12
shall survive until the expiration of the statutory period of limitations for
assessment of Tax deficiencies, including any extensions thereof, for each
taxable year of the Company which begins before the Closing, and (b) the
representations and warranties contained in Sections 3.1 and 3.29 shall survive
indefinitely. The covenants and agreements of Seller shall not be affected by
the expiration of any representation or warranty pursuant to this Section 8.1
and shall survive indefinitely.
8.2 Indemnity. Seller agrees to indemnify and hold Purchaser, its
---------
officers, directors, agents, attorneys and accountants ("Purchaser Indemnitees")
harmless from any and all damages, losses (which shall include any diminution in
value, liabilities, joint or several), payments, obligations, penalties, claims,
litigation, demands, defenses, judgments, suits, proceedings, costs,
disbursements or expenses (including without limitation, fees, disbursements and
expenses of attorneys, accountants and other professional advisors and of expert
witnesses and costs of investigation and preparation) of any kind or nature
whatsoever (collectively "Damages"), directly or indirectly resulting from,
relating to or arising out of:
(a) any breach or nonperformance (partial or total) of or inaccuracy
in any representation or warranty or covenant or agreement of Seller
contained in this Agreement or any Operative Document which survives the
Closing hereof;
(b) Liability arising out of the Company's business conducted prior
to the Closing and not expressly assumed by Purchaser pursuant to this
Agreement;
(c) any losses or costs of defending against any claims which may be
made against Purchaser by any Person claiming violations by the Company of
any local, state, or federal law relating to the employment relationship,
including, but not limited to, wages, hours, concerted activity,
nondiscrimination, occupational health and safety and the payment and
withholding of Taxes, where such claims arise out of circumstances
occurring prior to the Closing Date;
MERGER AGREEMENT - Page 29
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<PAGE>
(d) any actual or threatened violation of or non-compliance with, or
remedial obligation arising under, any environmental laws arising from any
event, condition, circumstance, activity, practice, incident, action or
plan existing or occurring prior to the Closing relating in any way to the
Company;
(e) the Transaction Expenses incurred by Seller; and
(f) the Lawsuit in accordance with this Article VIII and Section 2.2
(f) above.
8.3 Indemnification Notice. If a Purchaser Indemnitee intends to exercise
----------------------
its right to indemnification provided in this Article 8, such Purchaser
Indemnitee shall provide the party or parties from whom the indemnification will
be sought (the "Indemnitor") at least fifteen (15) days prior written notice
(the "Indemnification Notice") of such Purchaser Indemnitee's intention to do so
and the facts or circumstances giving rise to the claim ("Indemnification
Claim"). Nothing contained herein shall preclude any Purchaser Indemnitee from
taking any actions deemed reasonably necessary or appropriate in response to any
third party claims during such interim period. An Indemnification Claim may, at
the option of Purchaser Indemnitee, be asserted as soon as any situation, event
or occurrence has been noticed by Purchaser Indemnitee regardless whether actual
harm has been suffered or out-of-pocket expenses incurred. During such fifteen
(15) day period, the Indemnitor shall be entitled to cure the defect or
situation giving rise to the Indemnification Claim to the complete satisfaction
of Purchaser Indemnitee. If the Indemnitor is unwilling or unable to cure, to
the complete satisfaction and the Indemnitor, the defect or situation giving
rise to the Indemnification Claim during such fifteen (15) period, the
Indemnitor shall assume the defense of such claim at its sole expense through
counsel reasonably satisfactory to the Purchaser Indemnitee; provided that (i)
the Indemnitor shall not permit any lien, encumbrance or other adverse charge
upon any asset of any Purchaser Indemnitee; (ii) the Indemnitor shall permit
Purchaser Indemnitee to participate in such settlement or defense through
counsel selected by such Purchaser Indemnitee at Indemnitor's expense, and (iii)
the Indemnitor shall agree to promptly reimburse such Purchaser Indemnitee for
the full amount of its liability to the third party claimant. If the Indemnitor
shall not have employed counsel reasonably satisfactory to the Purchaser
Indemnitee to defend such claim or if such Purchaser Indemnitee shall have
reasonably concluded (with the written advice of counsel) that the position of
such Purchaser Indemnitee and the Indemnitor may be in conflict (in which case
the Indemnitor shall not have the right to direct the defense of any such claim
on behalf of such Purchaser Indemnitee), the Purchaser Indemnitee may defend
against such claim or related legal proceeding with such counsel and in such
manner as the Purchaser Indemnitee deems appropriates, and may consent to the
settlement or compromise of, or consent to the entry of a judgment arising from,
such claim or legal proceeding without the consent of the Indemnitor and the
reasonable legal and other expenses incurred by such Purchaser Indemnitee shall
be borne by the Indemnitor. Notwithstanding the foregoing, each Purchaser
Indemnitee shall have the right to pay or settle any such claim provided in such
event it shall waive its right to indemnity therefore by the Indemnitor.
MERGER AGREEMENT - Page 30
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<PAGE>
8.4 Indemnification with Respect to Pending Litigation. Notwithstanding
--------------------------------------------------
the disclosure by the Company and the Seller of the Lawsuit in Schedule 3.11
attached hereto, and notwithstanding any other provisions of this Agreement to
the contrary, Seller hereby agrees to:
(a) defend the Lawsuit and pay all Damages incurred therewith in
accordance with this Article VIII;
(b) pay any Settlement or Judgment that may be imposed upon or paid
by any Purchaser Indemnitees or any of their successors with respect to the
Lawsuit (Purchaser and Seller acknowledging that the Escrowed Amount
deposited into the Escrowed Account pursuant to Section 2.2(f) above shall
be paid to the plaintiff in the Lawsuit prior to Seller being required to
pay additional funds with respect to the Lawsuit); and
(c) Provide Purchaser and its counsel with full and complete access
to all pleadings, correspondence, documents and other writings pertaining
to the Lawsuit.
8.5 Offset. At any time or from time to time prior to the final payment
------
by Purchaser to Seller of any amounts or sums due under or pursuant to this
Agreement or the Operative Documents, including, without limitation, the
Subordinated Convertible Promissory Notes, Purchaser shall be entitled, in
addition to, and not in lieu of, any other right or remedy which Purchaser may
have against Seller, under or pursuant to this Agreement, or otherwise, to
notify Seller in writing (an "Offset Notice") that Purchaser reasonably believes
that it is entitled to indemnity for Damages under Section 8.2. Any Offset
Notice provided hereunder shall identify the provision of this Agreement which
Purchaser believes entitles it to such indemnity for Damages and shall briefly
identify the facts which constitute the basis for each such claim of indemnity
and the dollar amount of such claim. If on or before thirty (30) days after
delivery of the Offset Notice, Seller shall not have objected thereto, Purchaser
may, but, shall not be required to, offset against any portion of the amounts
due under this Agreement then remaining unpaid, the amount of the Damages
claimed in the Offset Notice (and thus to reduce the amounts due under this
Agreement). Notwithstanding any offset exercised pursuant to this Section 8.4,
to the extent that the actual amount of any Damages arising from a claim for
indemnity set forth in an Offset Notice shall exceed the value of the offset
against the amounts due under this Agreement claimed, Seller shall remain liable
for, and shall promptly reimburse Purchaser the amount of, any such excess
Damages. If on or before thirty (30) days following delivery of the Offset
Notice, Seller shall notify Purchaser that Seller questions the amount of any
Damages for which indemnity is claimed therein (or the entitlement to
indemnity), Purchaser shall nonetheless be entitled to exercise its rights of
offset provided for in this Section 8.4, but in lieu of reducing the amounts due
under this Agreement immediately, shall defer payment of a portion or portions
of the amounts due under this Agreement remaining unpaid in the amount of the
disputed claim until such time as (i) Purchaser shall have received written
authorization from Seller to retain such unpaid portion of the amounts due under
this Agreement in partial or total satisfaction of Purchaser's claim for
indemnity, or (ii) Seller shall have delivered to Purchaser, a certified or
file-stamped copy of a final decision of a court of competent jurisdiction
establishing the amount
MERGER AGREEMENT - Page 31
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<PAGE>
of such Damages or directing a specific distribution of all or any part of the
amounts due under this Agreement being held by Purchaser pursuant to this
Section 8.4. It shall be a condition to Purchaser's obligation to defer applying
any unpaid portion of the amounts due under this Agreement, subject to the
resolution of Seller' objection to the amount of Damages claimed or the
entitlement to indemnity with regard thereto, that Seller, as applicable,
specify in writing the provisions of this Agreement and other facts supporting
such objection. Purchaser shall not be obligated to exercise the rights of
offset provided for in this Section 8.4, and no failure to exercise any such
right of offset shall relieve Seller of any indemnity obligations under Section
8.2, or otherwise. This Section 8.4 shall survive the Closing indefinitely.
9. GENERAL PROVISIONS AND OTHER AGREEMENTS
9.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if and when delivered personally or
transmitted by telex, facsimile (receipt confirmed) or telegram, mailed by
registered or certified mail (return receipt requested) or sent by a recognized
next business day courier to the following persons at the following addresses
(or at such other address for a party as shall be specified by like notice):
(a) If to Purchaser:
IAC Acquisition Corporation
7315 South Revere Parkway, Suite 602
Englewood, Colorado 80112
Attention: James M. Ciccarelli, Chief Executive Officer
Facsimile: (303) 649-9514
with a copy to:
Bell, Nunnally & Martin PLLC
3232 McKinney Avenue, Suite 1400
Dallas, Texas 75204
Attn: Larry L. Shosid, Esq.
Facsimile: (214) 740-1499
(b) If to Seller or the Company:
Communications World
6050 Greenwood Plaza Blvd., Suite 130
Englewood, Colorado 80111
Attn: Jim Donaldson, President
Facsimile: (303) 850-9444
MERGER AGREEMENT - Page 32
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<PAGE>
with a copy to:
Hart & Trinen, L.L.P.
1624 Washington Street
Denver, Colorado 80203
Attn: William T. Hart, Esq.
Facsimile: (303) 839-5414
9.2 Fees and Expenses. Seller and Purchaser shall each pay all of their
-----------------
own fees, costs and expenses (including without limitation, those of
accountants, appraisers and attorneys) incurred in connection with or related to
the preparation, negotiation, execution, delivery, satisfaction, compliance and
consummation of this Agreement and the Transactions contemplated hereby and the
closing conditions hereunder.
9.3 Interpretation. The headings contained in this Agreement are for
--------------
reference purposes only and shall not affect the meaning or interpretation of
this Agreement. Terms such as "herein," "hereof," "hereinafter" refer to this
Agreement as a whole and not to the particular sentence or paragraph where they
appear, unless the context otherwise requires. Terms used in the plural include
the singular, and vice versa, unless the context otherwise requires.
9.4 Counterparts. This Agreement may be executed by facsimile in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.5 Miscellaneous. This Agreement (a) constitutes the entire agreement and
-------------
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof;
(b) is not intended to and shall not confer upon any other person any rights or
remedies hereunder or otherwise with respect to the subject matter hereof,
except for rights that may expressly arise as a consequence of the Transactions;
(c) may not be assigned by operation of law or otherwise; (d) has been drafted
by all of the parties to this Agreement and should not be construed against any
of the parties hereto; and (e) shall be governed in all respects, including
validity, interpretation and effect by the substantive laws of the State of
Colorado without regard to conflict of law provisions.
9.6 Publicity. Prior to Closing, no party hereto shall issue any press
---------
release or make any other public statement, in either case relating to or
connected with or arising out of this Agreement or the matters contained herein,
without obtaining the prior written approval of the other parties to the
contents and the manner of presentation and publication thereof, which approval
shall not be unreasonably withheld.
9.7 Invalid Provisions. If any provision of this Agreement is held to be
------------------
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable. This Agreement shall
be construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof; and the remaining
MERGER AGREEMENT - Page 33
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<PAGE>
provisions of this Agreement shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or its severance
from this Agreement. Furthermore, in lieu of such illegal, invalid or
unenforceable provision there shall be added automatically as part hereof a
provision as similar in terms, but in any event no more restrictive than, such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid and enforceable.
9.8 Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective heirs, legal representatives,
successors and permitted assigns.
9.9 Captions. The captions, headings and arrangements used in this
--------
Agreement are for convenience only and do not in any way affect, limit or
amplify the provisions hereof.
9.10 Attorneys' Fees. In the event that any Proceeding is commenced by any
---------------
party hereto for the purpose of enforcing any provision of this Agreement, the
party to such Proceeding may receive as part of any award, judgment, decision or
other resolution of such Proceeding its costs and attorneys' fees as determined
by the person or body making such award, judgment, decision or resolution.
Should any claim hereunder be settled short of the commencement of any such
Proceeding, the parties in such settlement may mutually agree to include as part
of the damages alleged to have been incurred reasonable costs of attorneys or
other professionals in investigation or counseling on such claim.
9.11 Jurisdiction and Venue. Any judicial proceedings brought by or
----------------------
against any party on any dispute arising out of this Agreement or any matter
related thereto shall be brought in the state or federal courts of Arapaho
County, Colorado and, by execution and delivery of this Agreement, each of the
parties accepts for itself the exclusive jurisdiction and venue of the aforesaid
courts as trial courts, and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement after exhaustion of all
appeals taken (or by the appropriate appellate court if such appellate court
renders judgment).
9.12 Assignability. This Agreement may not be transferred, assigned,
-------------
pledged or hypothecated by any party hereto without the prior written consent of
the other parties to this Agreement.
9.13 Entirety. This Agreement and the documents executed and delivered
--------
pursuant hereto, executed on the date hereof or in connection herewith, contain
the entire agreement among the parties with respect to the matters addressed
herein and supersede all prior representations, inducements, promises or
agreements, oral or otherwise, which are not embodied herein or therein.
9.14 Amendment. This Agreement and the exhibits and schedules hereto may be
---------
amended by the parties hereto at any time prior to the Closing Date; provided,
however, that any
MERGER AGREEMENT - Page 34
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<PAGE>
amendment must be by an instrument or instruments in writing signed and
delivered on behalf of each of the parties hereto.
9.15 Governing Law. This Agreement shall be governed by the substantive
-------------
laws of the State of Colorado without regard to principles of choice or conflict
of law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers.
PURCHASER:
IAC ACQUISITION CORPORATION
By:______________________________
James M. Ciccarelli, President
COMPANY:
DONALDSON & ASSOCIATES, INC.
By:______________________________
Jim Donaldson, President
SELLER:
_________________________________
Jim Donaldson
_________________________________
Michael Bankoff
MERGER AGREEMENT - Page 35
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<PAGE>
Communications World International, Inc.
Form 10-SB
Exhibit 2 (c)
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of the
31st day of December, 1998, by and among COMMUNICATIONS WORLD INTERNATIONAL,
INC., a Colorado corporation ("CommWorld"), COMMWORLD-NATIONAL CAPITOL AREA,
INC., a Virginia corporation ("Seller"), BEN HESTER ("Hester"), and ALPHA
COMMUNICATIONS & TECHNOLOGIES, INC., a Virginia corporation ("Purchaser").
R E C I T A L S:
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WHEREAS, Seller desires to transfer and sell and Purchaser desires to
purchase and acquire, substantially all of Seller's assets relating to the
operation of Seller's interconnect business operated in Alexandria, Virginia
(the "Business");
WHEREAS, Seller is the wholly-owned subsidiary of CommWorld and Hester is
the sole director, officer and shareholder of Purchaser; and
WHEREAS, Seller, CommWorld, Hester and Purchaser desire to enter into this
Agreement in order to set forth the terms and conditions of such transaction;
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
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1.01 Purchase And Sale. Seller hereby agrees to sell, assign, transfer
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and convey to Purchaser, and Purchaser hereby agrees to purchase, accept and
acquire from Seller, subject to the terms and conditions contained herein, the
following described real and personal property (collectively referred to as the
"Acquired Assets"):
(a) Real Property Lease. All of Seller's right, title and interest in
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and to the real property lease, including, without limitation, all leasehold
improvements and security deposits with respect thereto, listed and described on
Schedule 1.01(a) attached hereto (the "Real Property Lease").
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(b) Books, Records and Written Materials. All books of account,
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records, files, invoices, customer lists, supplier lists, promotional and
advertising materials, catalogs, brochures, manuals and handbooks and other
similar data reduced to writing or other storage media, but only to the extent
that same are used by Seller exclusively in connection with the
ASSET PURCHASE AGREEMENT - Page 1
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operations of the Business and located within the leased premises that are the
subject of the Real Property Lease (the "Leased Premises") (the "Books and
Records").
(c) Personal Property Leases. All of Seller's right, title and
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interest in and to those personal property leases described on Schedule 1.01(c)
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attached hereto (the "Personal Property Leases").
(d) Acquired Contracts. All rights and benefits of Seller in, to or
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under those agreements, contracts and purchase orders listed or described on
Schedule 1.01(d) attached hereto (the "Acquired Contracts").
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(e) Personal Property. All of Seller's right, title and interest in
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the tools, equipment, trade fixtures, furniture and other personal property
located within the Leased Premises (the "Personal Property").
(f) Software. All of Seller's right, title and interest in the
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software used by Seller exclusively with respect to the Business, as listed or
described on Schedule 1.01(f), attached hereto (the "Software").
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(g) Inventory. FORTY-FIVE THOUSAND AND NO/100 DOLLARS ($45,000.00) of
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inventory selected by Purchaser (based upon the book value thereof) (the "Base
Inventory").
1.02 Retained Assets. Notwithstanding anything contained hereunto the
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contrary, Seller shall, and hereby does, expressly retain all of Seller's right,
title and interest in and to all of Seller's assets, properties, rights and
interests, other than the Acquired Assets expressly and specifically described
above (the "Retained Assets"), including, without, limitation, Seller's: (a)
accounts receivables, (b) inventory not selected by Purchaser pursuant to
Section 1.01(g) or Section 7.08, (c) certain business records; (d) all of
Seller's rights to receive commissions and payments from customer accounts; (e)
all of Seller's right, title and interest in the service marks and related
logos, whether or not registered, and all goodwill associated therewith, used in
connection with this Business; (f) all of Seller's right, title and interest in
and to all of Seller's cash and cash equivalents in place at Closing; and (g)
any liabilities of the Alexandria Business not specifically assumed by
Purchaser.
1.03 Assignability and Consents. To the extent that the consummation of
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the transactions contemplated herein or the assignment of any of the Acquired
Contracts, the Real Property Lease or the Personal Property Leases shall require
the consent or waiver of any third party or any federal, state, county, parish,
local or foreign governmental entity or municipality or subdivision thereof or
any authority, arbitrator, department, commission, board, bureau, body, agency,
court or instrumentality thereof (each, a "Governmental Authority"), Seller
shall use all reasonable efforts to obtain the consent or waiver of each such
third party or Governmental Authority (each, a "Required Consent") to the
assignment thereof on or prior to the Closing Date, but the failure of Seller to
obtain any Required Consent, other than the Required Consent with
ASSET PURCHASE AGREEMENT - Page 2
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<PAGE>
respect to the assignment of the Real Property Lease, shall not enable Purchaser
to terminate this Agreement.
1.04 Assumed Liabilities and Obligations. On the Closing Date, Purchaser
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shall assume and agrees to pay, perform and discharge as and when due, all of
the obligations and liabilities of Seller based upon events occurring on or
after the Closing Date under (i) the Real Property Lease, (ii) the Personal
Property Leases, and (iii) the Acquired Contracts. All of the foregoing to be
assumed by Purchaser hereunder are collectively referred to as the "Assumed
Liabilities."
1.05 Retained Liabilities and Obligations. Notwithstanding any other
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provision of this Agreement or doctrine of law to the contrary, Seller shall
retain, and Purchaser shall not assume or be liable with respect to, any
liability or obligation of Seller, except for the Assumed Liabilities. All of
the foregoing obligations and liabilities to be retained by Seller hereunder are
collectively referred to as the "Retained Liabilities."
1.06 Schedules. All references in this Agreement to "Schedules" shall
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mean the disclosure Schedules identified in this Agreement, which are
incorporated herein and shall be deemed a part of this Agreement for all
purposes. The disclosure of an item in a Schedule or under a heading in a
Schedule corresponding to a particular section or subsection of this Agreement
shall also be deemed a disclosure under (i) any other item of such Schedule,
(ii) any other Schedules, and (iii) any other section or subsection thereof.
Provided Seller complies with Section 5.01 hereof, Seller shall be permitted to
amend and/or supplement the Schedules as Seller deems necessary. Seller shall
provide written notice (including a copy of the amended Schedule as affected
thereby) of any such change as soon as practicable after Seller obtains actual
knowledge of any such event. In the event Seller notifies Purchaser in writing
that an amendment and/or supplement to a Schedule is necessary, (a) Purchaser
shall have the termination rights provided in Section 10.01(b) hereof, and (b)
provided that Purchaser fails to exercise such termination rights within three
(3) days after Purchaser's receipt of such notice, Purchaser's termination
rights with respect to such Schedule amendment and/or supplement shall terminate
and Purchaser shall be deemed to have irrevocably accepted same.
ARTICLE II
PURCHASE PRICE
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2.01 Purchase Price. In consideration for the Acquired Assets, at
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Closing, Purchaser shall (a) assume the Assumed Liabilities, and (b) pay to
Seller a total of FIFTY SEVEN THOUSAND FIVE HUNDRED SIXTY SEVEN AND NO/100
DOLLARS ($57,567.00) (the "Purchase Price"). The Purchase Price shall consist
of (i) 65,134 shares of Series C Preferred Stock, $1.00 par value per share, of
CommWorld, including any accumulated dividends thereon (the "Series C Stock"),
standing in the name of Hester on the books of CommWorld and represented by
stock certificate numbers 8 and 9 (for purposes of the Agreement the Series C
Stock shall be valued at $0.50 per share); and (ii) a promissory note in the
original principal amount of TWENTY-FIVE THOUSAND AND NO/100 DOLLARS
($25,000.00) in the form of Exhibit "A" attached hereto (the "Note"). In
addition, Purchaser shall pay to Seller on the
ASSET PURCHASE AGREEMENT - Page 3
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<PAGE>
Closing Date cash in the amount of $5,000.00 as reimbursement for Seller's
office lease security deposit.
2.02 Removal of Inventory. Seller and CommWorld shall be permitted, for a
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period of thirty (30) days after Closing, to remove from the Leased Premises any
inventory of Seller located in the Leased Premises that is not selected by
Purchaser. Upon prior notice to Purchaser, Purchaser shall provide Seller and
CommWorld with reasonable access to the Leased Premises for the purposes of
removing said inventory. Purchaser shall use reasonable efforts to safeguard
Seller's inventory until it is removed by Seller and to keep Seller's inventory
segregated from Purchaser's inventory.
2.03 Allocation of Purchase Price. The Purchase Price and the Assumed
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Liabilities represent the amount agreed upon by the parties to be the value of
the Acquired Assets, it being further agreed that the Purchase Price and the
Assumed Liabilities shall be allocated among the Acquired Assets as the parties
may mutually agree in writing. Purchaser and Seller shall enter into such a
mutual written agreement within a reasonable period of time after the Closing
Date and (i) report the purchase and sale of the Acquired Assets in accordance
with such mutually agreed allocation, if any, for all federal, foreign, state
and local tax purposes, and (ii) file Internal Revenue Service Form 8594
pursuant to Section 1060 of the Internal Revenue Code of 1986, as amended. If
Purchaser and Seller do not enter into such a mutual written agreement within
ninety (90) days after the Closing Date, both Purchaser and Seller shall have
complete discretion in reporting such allocation.
ARTICLE III
CLOSING
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3.01 Closing. The closing of the transactions contemplated in this
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Agreement ("Closing") shall occur at the offices of CommWorld located at 6025
South Quebec, Suite 300, Englewood, Colorado 80111, on December 31, 1998, or
such other date as the parties shall mutually agree (the "Closing Date").
Notwithstanding anything contained herein to the contrary, if the conditions to
Closing contemplated in Article VIII hereof have not occurred on or prior to the
scheduled Closing Date, either party shall have the right to extend the Closing
Date for a period not to exceed seven (7) days. Closing shall consist of the
delivery of the documents referenced in Section 3.02 below and the payment of
the Purchase Price as provided in Section 2.01 above, together with the
performance of the other matters required to occur at Closing pursuant to this
Agreement.
3.02 Closing Documents. At Closing, Seller, CommWorld, Hester and
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Purchaser, as appropriate, shall deliver, or cause to be delivered, the
following items:
(a) Promissory Note. Purchaser shall execute and deliver the Note in
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the original principal amount of $25,000.00 in the form attached hereto as
Exhibit "A";
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ASSET PURCHASE AGREEMENT - Page 4
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<PAGE>
(b) Assignments. Purchaser and Seller shall each execute and deliver
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the Assignment of Leasehold Interest in the form attached hereto as Exhibit "B",
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with respect to the Real Property Lease;
(c) Bill of Sale and Assignment. Seller shall execute and deliver the
Bill of Sale and Assignment in the form attached hereto as Exhibit "C";
(d) Lien Releases. Seller shall deliver such lien releases as shall
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be necessary for Purchaser to acquire the Acquired Assets free and clear of all
liens, claims and encumbrances, except liens for 1998 personal property taxes
not yet delinquent and any contractual or statutory landlord's liens under, or
pursuant to, the Real Property Lease;
(e) Undertaking and Assumption Agreement. Purchaser shall execute and
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deliver the Undertaking and Assumption Agreement in the form attached hereto as
Exhibit "D";
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(f) Mutual Release. Hester and Seller shall execute and deliver the
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Mutual Release in the form attached hereto as Exhibit "E".
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(g) Franchise Agreement. Purchaser and CommWorld shall execute and
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deliver the Franchise Agreement in the form attached hereto as Exhibit "F".
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(h) Security Agreement. Purchaser and CommWorld shall execute and
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deliver the Security Agreement in the form attached hereto as Exhibit "G";
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(i) Officer's Certificates. Each of Seller and Purchaser shall
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deliver a fully executed Officer's Certificate, executed by a senior executive
officer and dated the Closing Date, confirming the matters expressed in Section
8.01(a) and Section 8.02(a), respectively;
(j) Certificate of Authorities. Each of Seller and Purchaser shall
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deliver (i) a certificate from the appropriate Governmental Authorities, dated
as of a date not more than seven (7) days prior to the Closing Date, attesting
to their certificate or articles of incorporation, good standing and existence,
(ii) a copy, certified by its Secretary, of the Bylaws, as amended and in effect
on the Closing Date, and resolutions duly adopted by the Board of Directors,
authorizing the transactions contemplated in this Agreement; and
(k) Other Documents. Seller shall deliver such other documents,
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certificates of tittle, endorsements, assignments and instruments in form and
substance reasonably satisfactory to Purchaser and its counsel, as shall be
necessary, advisable or desirable to vest in Purchaser title to the Acquired
Assets.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
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4.01 Representations and Warranties of Seller. Seller hereby represents
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and warrants to Purchaser that the following are true and correct as of Closing:
ASSET PURCHASE AGREEMENT - Page 5
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(a) Corporate Status. Seller is a corporation duly organized, validly
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existing and in good standing under the laws of the State of Virginia.
(b) Authority. Seller has the requisite corporate power and authority
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to enter into this Agreement, and the other documents and agreements to be
entered into hereunder by Seller, and to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement by Seller, and the
other documents and agreements to be executed and delivered hereunder by Seller,
the performance by Seller of its obligations hereunder and thereunder and the
consummation by Seller of the transactions contemplated herein and therein have
been duly authorized by the board of directors of Seller, and no other corporate
proceedings on the part of the Seller are necessary to authorize the execution
and delivery of this Agreement, and the other documents and agreements to be
executed and delivered hereunder, the performance by the Seller of its
obligations hereunder and thereunder, and the consummation by Seller of the
transaction contemplated hereby and thereby. This Agreement, and the other
documents and agreements to be executed and delivered hereunder, have been, or
will be at Closing, duly executed and delivered by Seller and constitute the
valid and binding obligations of Seller, enforceable in accordance with their
respective terms.
(c) No Impediment to Performance. Neither the execution nor the
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performance of this Agreement by Seller, or the other documents and agreements
to be executed and performed by Seller hereunder, will conflict with or result
in any default under or in any violation of any provision of (i) the charter or
bylaws of Seller, (ii) any agreement, mortgage, contract, or other instrument to
which Seller is a party or by which Seller or any of its properties (including,
without limitation, the Acquired Assets) is bound except for mortgages or
security instruments which will be released at, or prior to, Closing, or (iii)
any applicable statute, regulation, ordinance, judgment, order or decree to
which Seller or any of its properties (including, without limitation, the
Acquired Assets) are subject.
(d) Title to Assets. Seller has good title to the Personal Property,
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free and clear of liens, security interests and encumbrances, except liens for
1998 personal property taxes not yet delinquent and any contractual or statutory
landlord's liens under, or pursuant to, the Real Property Lease.
(e) Compliance with Laws. Seller is in compliance in all material
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respects with all applicable federal, state or local laws, statutes, ordinances,
federal, state or local laws, statutes, ordinances, regulations, orders and
other requirements of any Governmental Authority having jurisdiction over the
Acquired Assets or the conduct of the Business.
(f) Limited Warranty; Disclaimer Of Certain Warranties And
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Representations. NOTWITHSTANDING ANY PROVISION TO THE CONTRARY IN THIS
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AGREEMENT, SELLER MAKES NO REPRESENTATION WHATSOEVER AS TO THE PHYSICAL
CONDITION OF THE ACQUIRED ASSETS. PURCHASER AGREES THAT AS BETWEEN PURCHASER AND
SELLER, WITH RESPECT TO THE ACQUIRED ASSETS, PURCHASER SHALL ACCEPT THE ACQUIRED
ASSETS
ASSET PURCHASE AGREEMENT - Page 6
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<PAGE>
IN ITS "AS IS" CONDITION, WITH ALL FAULTS, AND SELLER EXPRESSLY DISCLAIMS ANY
WARRANTY OF MERCHANTABILTY OR FITNESS FOR ANY INTENDED OR PARTICULAR PURPOSE.
PURCHASER HEREBY WAIVES PURCHASER'S RIGHT TO RELY ON ANY REPRESENTATION,
WARRANTY, OR ASSURANCE HEREAFTER OR HERETOFORE MADE BY SELLER OR SELLER'S
EMPLOYEES. PURCHASER AGREES AND CONFIRMS THAT NEITHER SELLER NOR ANY OF SELLER'S
OFFICERS, EMPLOYEES AND/OR AGENTS HAVE MADE AFFIRMATIONS OF FACT OR PROMISES
RELATING TO THE ACQUIRED ASSETS.
4.02 Representations and Warranties of Purchaser. Purchaser hereby
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represents and warrants to Seller that the following are true and correct as of
Closing:
(a) Corporate Status. Purchaser is a corporation duly organized,
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validly existing and in good standing under the laws of the State of Virginia.
(b) Authority. Purchaser has the requisite corporate power and
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authority to enter into this Agreement, and the other documents and agreements
to be entered into hereunder by Purchaser, and to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement by
Purchaser, and the other documents and agreements to be executed and delivered
hereunder by Purchaser, the performance by Purchaser of its obligations
hereunder and thereunder and the consummation by Purchaser of the transactions
contemplated herein and therein have been duly authorized by the board of
directors of Purchaser, and no other corporate proceedings on the part of the
Purchaser are necessary to authorize the execution and delivery of this
Agreement, and the other documents and agreements to be executed and delivered
hereunder, the performance by the Purchaser of its obligations hereunder and
thereunder, and the consummation by Purchaser of the transaction contemplated
hereby and thereby. This Agreement, and the other documents and agreements to be
executed and delivered hereunder, have been, or will be at Closing, duly
executed and delivered by Purchaser and constitute the valid and binding
obligations of Purchaser, enforceable in accordance with their respective terms.
(c) No Impediment to Performance. Neither the execution nor the
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performance of this Agreement by Purchaser, or the other documents and
agreements to be executed and performed by Purchaser hereunder, will conflict
with or result in any default under or in any violation of any provision of (i)
the articles or bylaws of Purchaser, (ii) any agreement, mortgage, contract or
other instrument to which Purchaser is a party or by which Purchaser or any of
its properties is bound except for mortgages or security instruments which will
be released at, or prior to, Closing, or (iii) any applicable statute,
regulation, ordinance, judgment, order or decree to which Purchaser or any of
its properties are subject.
(d) Compliance with Laws. Purchaser is in compliance in all material
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respects with all applicable federal, state or local laws, statutes, ordinances,
federal, state or local laws, statutes, ordinances, regulations, orders and
other requirements of any Governmental Authority having jurisdiction over the
conduct of Purchaser's business.
ASSET PURCHASE AGREEMENT - Page 7
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<PAGE>
ARTICLE V
COVENANTS OF SELLER
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Seller hereby covenants to Purchaser that:
5.01 Conduct of the Business Pending Closing. Seller covenants and agrees
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that, prior to the earlier of (i) the Closing, or (ii) the termination of this
Agreement in accordance with the provisions hereof, except as otherwise agreed
to in writing by Purchaser, or otherwise expressly contemplated by this
Agreement, Seller will cause the Business to be conducted in the ordinary course
of business and consistent with past practice.
5.02 Reasonable Efforts. Seller agrees that prior to the Closing it will
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use all reasonable efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement; provided,
however, that, Seller shall not be required (i) to incur any expense (except
that Seller shall incur those fees and expenses, including fees of legal,
accounting and other advisors, and take such other actions which are normal and
customary for transactions of the type contemplated by this Agreement or are
otherwise provided to be taken by Seller pursuant to the terms of this
Agreement) or further obligation, (ii) to agree to any condition or obligation
affecting the business or assets of Seller or any of its affiliates, other than
conditions or obligations that become effective only upon consummation of the
transactions contemplated by this Agreement, or (iii) to agree to the amendment
or other modification of any terms of any material agreement constituting or
relating to any of the Acquired Assets, other than amendments or modifications
that become effective only upon consummation of the transactions contemplated by
this Agreement and which are consented to in writing by Purchaser.
ARTICLE VI
COVENANTS OF PURCHASER
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6.01 Maintenance of Records. Purchaser shall keep and maintain all
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documents and records relating to the Business acquired pursuant to the
transactions contemplated in this Agreement for a period of three (3) years
after Closing. Upon request, Purchaser shall make such documents and records
available to Seller and Seller's accountants, counsel and other designated
representatives for inspection and copying, at Seller's expense, during regular
business hours. Should Purchaser sell or otherwise dispose of all or
substantially all of the Business, the acquiror(s) shall be specifically
required to assume the obligations of this Section 6.01 as a part of any such
acquisition.
6.02 Reasonable Efforts. Purchaser agrees that prior to the Closing it
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will use all reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement;
provided, however, that, Purchaser shall not be required to (i) incur any
expense (except that Purchaser shall incur those fees and expenses, including
fees of legal, accounting and other advisors, and take such other actions which
are normal and customary for transactions of the type contemplated by this
Agreement or otherwise provided to
ASSET PURCHASE AGREEMENT - Page 8
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<PAGE>
be taken by Purchaser pursuant to this Agreement) or further obligation, (ii) to
agree to any condition or obligation affecting the Business or the Acquired
Assets or Purchaser's business or assets that adversely affects Purchaser's
economic position with respect thereto or the business or assets of Purchaser or
any of its affiliates, or (iii) to the amendment or other modification of any
terms of any material agreement constituting or relating to any of the Acquired
Assets that adversely affects Purchaser's economic position with respect
thereto.
6.03 Collection of Receivables. Purchaser agrees that after Closing it
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will use all reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary to assist and cooperate with
Seller in the collection of all accounts receivable of the Business existing at
Closing.
ARTICLE VII
ADDITIONAL AGREEMENTS OF PURCHASER AND SELLER
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7.01 Employees and Subagents. As of the Closing Date those employees and
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independent contractors who work and provide services exclusively to the
Business (including Hester) and not to any of the businesses retained by Seller,
shall terminate their relationship with Seller. Seller shall use its reasonable
efforts, upon Purchaser's request, to ensure that such persons and entities
continue their relationship with the Business and Purchaser. Hester's
employment agreement with Seller or CommWorld shall terminate at Closing.
7.02 Products. For a period of two (2) years after Closing, CommWorld
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will sell inventory to Purchaser at CommWorld's cost plus a five percent (5%)
royalty; provided, however, that such sales of product shall remain subject to
CommWorld's standard terms and conditions of sale (including credit approval),
as same may be amended from time to time by CommWorld. At the end of such two
(2) year period, the royalty will be determined by CommWorld on the basis of
Purchaser's purchase volumes.
7.03 Prorations. Base and percentage rents, insurance premiums, common
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area maintenance expenses, and ad valorem taxes (the "Prorated Expenses") for
the current year shall be prorated at Closing effective as of the date of
Closing. If Closing shall occur before the amount of any Prorated Expense is
fixed for the then current year, the apportionment of the Prorated Expense shall
be upon the basis of the Prorated Expense for the preceding year (applied to the
latest assessed valuation, if appropriate), but any difference in actual and
estimated Prorated Expenses for the year of sale actually paid by Purchaser
shall be adjusted between the parties upon receipt of written evidence of the
payment thereof. This Section 7.03 shall survive the Closing.
7.04 Brokers. Each party represents and warrants to the other party that
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such party has had no dealings with any person, firm, agent or finder in
connection with the negotiation of this Agreement and/or the consummation of the
purchase and sale contemplated herein, and no broker, agent, person, firm or
entity is entitled to any commission or finder's fee in connection with this
transaction as the result of any dealings or acts of such party. Each party
hereby agrees to indemnify, defend, protect and hold the other party harmless
from and against any costs,
ASSET PURCHASE AGREEMENT - Page 9
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<PAGE>
expenses or liability for compensation, commission, fee, or charges which may be
claimed by any broker, agent, finder or other similar party by reason of any
dealings or act of the indemnifying party. This Section 7.04 shall survive the
Closing.
7.05 Casualty Loss. All risk of loss to the Acquired Assets shall remain
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upon Seller prior to Closing. If, prior to Closing, the Acquired Assets are
damaged or destroyed by fire or other casualty, to a material extent, Purchaser
may either terminate this Agreement by written notice to Seller or close. If
Purchaser elects to close, despite said material damage or destruction, there
shall be no reduction in the Purchase Price, and Seller shall assign to
Purchaser Seller's right, title and interest in and to all insurance proceeds
resulting or to result from said damage or destruction. Unless otherwise
provided herein, the term "material" shall mean damage or destruction, the cost
of repairing which exceeds ten percent (10%) of the Purchase Price. If, prior
to Closing, the Acquired Assets are damaged or destroyed by fire or other
casualty to less than a material extent, Seller shall either repair the same
prior to Closing, at Seller's expense, or reimburse Purchaser for the cost of
repairing the same by assigning any insurance proceeds resulting therefrom
(which insurance proceeds shall be sufficient to repair such damage) to
Purchaser or by allowing Purchaser to deduct such cost from the consideration
payable to Seller at Closing. If the extent of damage or the amount of
insurance proceeds to be made available is not able to be determined prior to
Closing, or the repairs are not able to be completed prior to said date, either
party, by written notice to the other, may postpone the date of Closing to such
date as shall be designated in such notice, but not more than thirty (30) days
after Closing.
7.06 Cancellation of Services. On the Closing Date, Seller will cancel
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all services of the Business, including, without limitation, telephone,
utilities, and pager services. Purchaser will be responsible for obtaining all
of the services in its name and transferring all telephone numbers to an account
established by Purchaser and Seller shall assist and cooperate in connection
therewith.
7.07 Purchase of Additional Inventory. On the Closing Date, Purchaser
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shall have the right to select and make purchases of inventory of the Business
in addition to the Base Inventory based upon the book value of such inventory
("Additional Inventory"). Purchaser shall execute a promissory note payable in
full no later than six (6) months of the Closing Date in the amount of the book
value of any Additional Inventory agreed to be purchased by Purchaser.
ARTICLE VIII
CONDITIONS OF CLOSING
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8.01 Obligation of Purchaser. The obligation of Purchaser to consummate
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the purchase and sale contemplated by the provisions of this Agreement shall be
subject to the fulfillment on or prior to the Closing Date of the following
conditions (any of which may be waived in writing, in whole or part, by
Purchaser):
(a) Representations and Warranties; Performance. The representations
and warranties of Seller set forth in this Agreement shall be true, correct and
complete when made on the date hereof, and, except for such changes in the
Schedules as are expressly permitted by
ASSET PURCHASE AGREEMENT - Page 10
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<PAGE>
Section 1.06 hereof, as of the Closing Date (as though such representations and
warranties were made anew at and as of such date), except with respect to the
effect of transactions specifically permitted by the provisions of this
Agreement. Seller shall have duly performed in all material respects all
agreements and covenants herein required to be performed by Seller on or before
the Closing Date.
(b) Closing Documents. Seller shall deliver, or cause to be delivered,
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all of the documents required to be delivered pursuant to Section 3.02 above.
(c) Consents and Approvals. Except as otherwise provided in Section
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1.03 above, all material consents, approvals and novations, in form and
substance reasonably satisfactory to Purchaser, of third parties and each
Governmental Authority that shall be (i) required to consummate the transactions
contemplated hereby, or (ii) reasonably necessary to permit Purchaser to operate
the Business, shall have been obtained.
8.02 Obligation of Seller. The obligation of Seller to consummate the
--------------------
purchase and sale contemplated by the provisions of this Agreement shall be
subject to the fulfillment on or prior to the Closing Date of the following
conditions (any of which may be waived in writing, in whole or in part by
Seller):
(a) Representations and Warranties; Performance. The representations
-------------------------------------------
and warranties of Purchaser set forth in this Agreement shall be true, correct
and complete when made on the date hereof, and as of the Closing Date (as though
such representations and warranties were made anew at and as of such date),
except with respect to the effect of transactions specifically permitted by the
provisions of this Agreement. Purchaser shall have duly performed in all
material respects all agreements and covenants herein required to be performed
by Purchaser on or before the Closing Date.
(b) Consents and Approvals. Except as otherwise provided in Section
----------------------
1.03 above, all material consents, approvals and novations, in form and
substance reasonably satisfactory to Seller of third parties and each
governmental authority that shall be (i) required to consummate the transactions
contemplated hereby, or reasonably necessary to permit Purchaser to operate the
Business hall have been obtained.
(c) Closing Documents. Purchaser shall have delivered, or caused to
-----------------
be delivered, all of the documents required to be delivered pursuant to Section
3.02 above.
ARTICLE IX
INDEMNIFICATION
---------------
9.01 General Indemnification. Purchaser hereby agrees to indemnify and
-----------------------
save harmless Seller from any and all losses, claims, demands, actions, causes
of action, suits, proceedings, damages, liabilities, costs, and expenses,
including attorney's and other professional fees, of every nature and kind
whatsoever (collectively, "Losses") occurring subsequent to 11:59 p.m.,
Alexandria time, on the date of Closing; which may arise or exist with respect
to (i) any
ASSET PURCHASE AGREEMENT - Page 11
- ------------------------
<PAGE>
failure of Purchaser to assume, pay, perform and discharge the Assumed
Liabilities, (ii) Purchaser's breach of any of Purchaser's representations,
warranties, obligations, covenants or agreements contained in this Agreement,
(iii) any action, claim, judicial or other proceeding asserted by any third
party against Seller with respect to any of the Assumed Liabilities, or (iv) any
liabilities or obligations accruing by Purchaser as a result of the operation of
the Business by Purchaser. Seller hereby agrees to indemnify and save harmless
Purchaser from any and all Losses occurring at or prior to 11:59 p.m.,
Alexandria time, on the date of Closing; which may arise or exist with respect
to (i) any failure of Seller to assume, pay, perform and discharge the Retained
Liabilities, (ii) Seller's breach of any of Seller's representations,
warranties, covenants or agreements contained in this Agreement, (iii) any
action, claim, judicial or other proceeding asserted by any third party against
Seller with respect to any of the Retained Liabilities, or (iv) any liabilities
or obligations accruing after the Closing Date as a result of the operation of
the Business by Seller.
9.02 Notification of Claim. Each indemnified party will promptly, and
---------------------
within fifteen (15) days (except in the case of litigation where such notice
shall be required within five (5) days) after notice to such indemnified party
of any claim as to which it asserts a claim for indemnification, notify the
indemnifying party of such claim and the amount thereof; provided, however, if
the indemnified party fails to give such notification the indemnifying party
shall be entitled to offset the incremental losses incurred by the indemnifying
party as a result of the failure by the indemnified party to give such notice
against Losses the indemnifying party would otherwise be required to pay.
During such fifteen (15) day notice period, without the indemnifying party's
prior written consent, the indemnified party shall not pay, settle or compromise
any such claim; provided, however, if the indemnified party pays, settles or
compromises any such claim, or any such litigation or proceeding during such
fifteen (15) day period, the indemnifying party shall be entitled to offset the
incremental losses incurred by the indemnifying party as a result of the
indemnifying party paying, settling or compromising any such claim, litigation
or proceeding during such fifteen (15) day period. Notice to an indemnified
party for the purpose of the preceding sentence shall mean the service of
process on such party in any legal action, receipt of any claim in writing or
similar form of actual written notice.
9.03 Defense of Claim. If, with respect to any claim which may give rise
----------------
to indemnity under this Agreement resulting from or arising out of any claim or
legal proceeding by a person other than the indemnified party (a "Third-Party
Claim"), the indemnifying party acknowledges in writing to the indemnified party
the indemnifying party's obligation to indemnify the indemnified party pursuant
hereto, the indemnifying party, at its sole cost and expense, may, upon written
notice to the indemnified party, assume the defense of such claim or related
legal proceeding. If the indemnifying party so assumes the defense of any such
claim or legal proceeding, the indemnifying party shall select counsel
reasonably acceptable to the indemnified party to conduct the defense of such
claim or legal proceeding and, at the sole cost and expense of the indemnifying
party, shall take all steps necessary in the defense or settlement thereof,
provided that the indemnifying party shall not expressly consent to a settlement
or compromise of, or expressly consent to the entry of any judgment arising
from, any such claim or legal proceeding without the prior written consent (not
to be unreasonably withheld) of the
ASSET PURCHASE AGREEMENT - Page 12
- ------------------------
<PAGE>
indemnified party (it being understood that in considering whether or not to
give such consent the indemnified party is entitled to assess the implications
of such settlement, compromise or judgment on the future conduct of the
indemnified party's business activities). The indemnified party shall be
entitled to participate in (but not control) the defense of any such action,
with its own counsel and at its own expense. Whether or not the indemnifying
party chooses to defend any claim or litigation for which the indemnified party
may be entitled to indemnification hereunder, each of the parties hereto shall
cooperate in the defense thereof.
If, with respect to a Third-Party Claim, the indemnifying party
neither acknowledges nor disclaims in writing, or the indemnifying party
disclaims in writing to the indemnified party, the indemnifying party's
obligation to indemnify the indemnified party pursuant hereto, the indemnified
party may defend against such claim or related legal proceeding with such
counsel and in such manner as they deem appropriate, and may consent to the
settlement or compromise of, or consent to the entry of a judgment arising from,
such claim or legal proceeding without the consent of the indemnifying party.
From and after the date of delivery of notice of a Third-Party Claim
hereunder, at the reasonable request of the indemnifying party the indemnified
party shall grant the indemnifying party and its representatives full and
complete access to the books, records and properties of the indemnified party to
the extent reasonably related to the matters to which the Third-Party Claim
relates. The indemnifying party will not disclose to any third person (except
its representatives participating in such Third-Party Claim) any information
obtained pursuant to this Section which is designated as confidential by the
indemnified party and which is not otherwise generally available to the public,
except as may be required by applicable law. The indemnifying party shall
instruct its representatives not to disclose any such information (except as may
be required by applicable law). All such access shall be granted during normal
business hours, shall be subject to the normal safety regulations of the
indemnified party, and shall be granted under conditions which will not
interfere with the business and operations of the indemnified party.
ARTICLE X
TERMINATION AND REMEDIES
------------------------
10.01 Termination of Agreement. This Agreement and the transactions
------------------------
contemplated hereby may be terminated and abandoned at any time on or prior to
the Closing as follows:
(a) by the written consent of Purchaser and Seller;
(b) by Purchaser, (i) if there is or occurs an inaccuracy in any
material respect in the representations and warranties of Seller set forth in
this Agreement, which inaccuracy is not capable of being cured by December 31,
1998, (ii) if there has been a breach in any material respect of a covenant of
Seller, or a failure in any material respect on the part of Seller to comply
with its obligations hereunder, and such breach or failure is not capable of
being cured by December 31, 1998, (iii) if any of the conditions set forth in
Section 8.01 hereof are not satisfied
ASSET PURCHASE AGREEMENT - Page 13
- ------------------------
<PAGE>
on or before December 31, 1998, or (iv) at such other times as are expressly
permitted by this Agreement;
(c) by Seller, (i) if there is or occurs an inaccuracy in any
material respect in the representations and warranties of Purchaser set forth in
this Agreement, which inaccuracy is not capable of being cured by December,
1998, (ii) if there has been a breach in any material respect of a covenant of
Purchaser, or failure in any material respect on the part of Purchaser to comply
with its obligations hereunder, and such breach or failure is not capable of
being cured by December 31, 1998, or (iii) if any of the conditions set forth in
Section 8.02 hereof are not satisfied on or before December 31, 1998; and
(d) by Purchaser or Seller (i) if the Closing Date shall not have
occurred before December 31, 1998, for any reason other than the failure of the
party seeking to terminate this Agreement to perform in any material respect its
obligations hereunder or the breach or inaccuracy in any material respect of a
representation or warranty made by such party, and (ii) at such other times as
are expressly permitted by this Agreement.
10.02 Obligations upon Termination. Except for obligations provided in
----------------------------
Section 6.01 hereof, in the event that this Agreement is terminated pursuant to
the provisions of Section 10.01(a) or (d) hereof, Seller shall have no
obligation to Purchaser and Purchaser shall have no obligation to Seller. In
the event that Seller or Purchaser shall terminate this Agreement pursuant to
Section 10.01(b) or (c) hereof, respectively, the right of Purchaser or Seller,
as the case may be, to pursue any and all rights it may have at law or equity or
hereunder shall survive unimpaired.
ARTICLE XI
MISCELLANEOUS PROVISIONS
------------------------
11.01 Notices. Any notice, consent, request, claim or other communication
-------
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand, (ii) delivered by facsimile with receipt thereof confirmed,
(iii) delivered by overnight courier, or (iv) delivered or deposited with the
U.S. Postal Service with sufficient postage prepaid to ensure delivery by
Registered or Certified Mail, Return Receipt Requested, with each such notice
being delivered to the following address or facsimile number:.
ASSET PURCHASE AGREEMENT - Page 14
- ------------------------
<PAGE>
If to Purchaser: Alpha Communications & Technologies, Inc.
5350 Shawnee Road, Suite 103
Alexandria, Virginia 22312
Attn: President
Facsimile: (703) 658-2110
with a copy to: Sarah Calvert, Esq.
Calvert & Associates, P.C.
10621 Jones Street, No. 301A
Fairfax, Virginia 22030
Facsimile: (703) 591-6427
ASSET PURCHASE AGREEMENT - Page 15
- ------------------------
<PAGE>
If to Seller: CommWorld-National Capitol Area
6025 South Quebec, Suite 300
Englewood, Colorado 80111
Attn: President
Facsimile: (303) 721-8299
with a copy to: Larry L. Shosid, Esq.
Bell, Nunnally & Martin PLLC
1400 One McKinney Plaza
3232 McKinney Avenue
Dallas, Texas 75204
Facsimile: (214) 740-1499
Such addresses or facsimile numbers may be changed by any party by
notice given in the manner provided above.
11.02 Entire Agreement; Amendment. This Agreement, together with all
---------------------------
exhibits and the documents referred to herein, contains all the terms and
conditions agreed upon by the parties hereto with respect to the transactions
contemplated hereby, and shall not be amended or modified except by written
instrument signed by all of the parties.
11.03 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the representatives, heirs, estates, successors and
assigns to the parties hereto.
11.04 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
UNDER THE LAWS OF THE STATE OF VIRGINIA.
11.05 Assignment. Purchaser shall not be permitted to assign this
----------
Agreement without the prior written consent of Seller.
11.06 Counterparts; Facsimile. This Agreement may be executed in
-----------------------
counterparts. Facsimile signatures shall be effective.
11.07 Time for Performance. Time is of the essence with respect to the
--------------------
performance of each party's duties and obligations under this Agreement. Strict
compliance with the times for performance is required.
11.08 Attorneys' Fees. The prevailing party in any legal proceeding
---------------
brought under or with relation to this Agreement or transaction shall be
entitled to recover court costs, reasonable attorneys' fees, and all other
litigation expenses from the non-prevailing parties.
11.09 Survival. The representations and warranties contained in this
--------
Agreement, shall survive the Closing for a period of one (1) year.
ASSET PURCHASE AGREEMENT - Page 16
- ------------------------
<PAGE>
11.10 Jurisdiction and Venue. Any judicial proceedings brought by or
----------------------
against any party on any dispute arising out of this Agreement or any matter
related thereto shall be brought in the state or federal courts of Fairfax
County, Virginia, and, by execution and delivery of this Agreement, each of the
parties accepts for itself the exclusive jurisdiction and venue of the aforesaid
courts as trial courts, and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement after exhaustion of all
appeals taken (or by the appropriate appellate court if such appellate court
renders judgment).
11.11 Interest. To the extent that either Seller or Purchaser fails to
--------
pay or reimburse the other party as expressly provided hereunder, the party
failing to make such payment, in addition to the other rights and remedies
hereunder, shall also be required to pay the other party interest at the lesser
of (a) eighteen percent (18%) per annum, and (b) the highest rate permitted by
applicable law.
11.12 Expenses. Each party shall bear all expenses incurred by such party
--------
in connection with negotiating, documenting, consummating or investigating the
transactions contemplated herein.
Signature Page Follows
ASSET PURCHASE AGREEMENT - Page 17
- ------------------------
<PAGE>
IN WITNESS WHEREOF, this Asset Purchase Agreement is entered into by Seller
and Purchaser as of the date first above written.
COMMWORLD:
COMMUNICATIONS WORLD INTERNATIONAL, INC., a
Colorado corporation
By:_________________________________
Printed Name:_______________________
Title:______________________________
SELLER:
COMMWORLD-NATIONAL CAPITOL
AREA, INC., a Virginia corporation
By:_________________________________
Printed Name:_______________________
Title:______________________________
PURCHASER:
ALPHA COMMUNICATIONS &
TECHNOLOGIES, INC., a Virginia
corporation
By:_________________________________
Ben Hester, President
____________________________________
BEN HESTER
ASSET PURCHASE AGREEMENT - Page 18
- ------------------------
<PAGE>
Communications World International, Inc.
Form 10-SB
Exhibit 2 (d)
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of the
____ day of December, 1998, by and between COMMUNICATIONS WORLD INTERNATIONAL,
INC., a Colorado corporation ("CWII"), COMMWORLD OF PHOENIX, INC., an Arizona
corporation ("Seller"), MICK HEATH ("Heath"), and SUMMIT TEAM INVESTMENTS, INC.,
an Arizona corporation ("Purchaser").
R E C I T A L S:
- - - - - - - -
WHEREAS, Seller desires to transfer and sell and Purchaser desires to
purchase and acquire, substantially all of Seller's assets relating to the
operation of Seller's interconnect business operated in Scottsdale, Arizona (the
"Business");
WHEREAS, Seller is the wholly-owned subsidiary of CWII and Heath is the
sole director, officer and shareholder of Purchaser; and
WHEREAS, Seller, CWII, Heath and Purchaser desire to enter into this
Agreement in order to set forth the terms and conditions of such transaction;
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
---------------------------
1.01 Purchase And Sale. Seller hereby agrees to sell, assign, transfer
-----------------
and convey to Purchaser, and Purchaser hereby agrees to purchase, accept and
acquire from Seller, subject to the terms and conditions contained herein, the
following described real and personal property (collectively referred to as the
"Acquired Assets"):
(a) Real Property Lease. All of Seller's right, title and interest in
-------------------
and to the real property lease, including, without limitation, all leasehold
improvements and security deposits with respect thereto, listed and described on
Schedule 1.01(a) attached hereto (the "Real Property Lease"); provided, however,
- ---------------
that Seller shall be permitted to terminate the Real Property Lease if the
landlord thereunder fails to consent to the assignment of the Real Property
Lease to Purchaser within fourteen (14) days of Seller's request for such
landlord's consent and Purchaser shall not be entitled to terminate this
Agreement as a result of such termination.
(b) Books, Records and Written Materials. All books of account,
------------------------------------
records, files, invoices, customer lists, supplier lists, promotional and
advertising materials, catalogs,
ASSET PURCHASE AGREEMENT - Page 1
- ------------------------
<PAGE>
brochures, manuals and handbooks and other similar data reduced to writing or
other storage media, but only to the extent that same are used by Seller
exclusively in connection with the operations of the Business and located within
the leased premises that are the subject of the Real Property Lease (the "Leased
Premises") (the "Books and Records").
(c) Personal Property Leases. All of Seller's right, title and
------------------------
interest in and to those personal property leases described on Schedule 1.01(c)
----------------
attached hereto (the "Personal Property Leases").
(d) Acquired Contracts. All rights and benefits of Seller in, to or
------------------
under those agreements, contracts and purchase orders listed or described on
Schedule 1.01(d) attached hereto (the "Acquired Contracts").
- ----------------
(e) Personal Property. All of Seller's right, title and interest in
-----------------
the tools, equipment, trade fixtures, furniture and other personal property
located within the Leased Premises (the "Personal Property").
(f) Software. All of Seller's right, title and interest in the
--------
software used by Seller exclusively with respect to the Business, as listed or
described on Schedule 1.01(f), attached hereto (the "Software").
----------------
(g) Inventory. Fifty Thousand and No/100 Dollars ($50,000.00) worth of
---------
inventory (valued based upon the book value thereof) located at the Leased
Premises and selected by Purchaser on or prior to Closing.
1.02 Retained Assets. Notwithstanding anything contained hereunto the
---------------
contrary, Seller shall, and hereby does, expressly retain all of Seller's right,
title and interest in and to all of Seller's assets, properties, rights and
interests, other than the Acquired Assets expressly and specifically described
above (the "Retained Assets"), including, without, limitation, Seller's: (a)
accounts receivables, (b) all inventory not selected by Purchaser pursuant to
Section 1.01(g) above, (c) items being purchased by Seller under installment
sales, (d) all of Seller's right, title and interest in the service marks and
related logos, whether or not registered, and all goodwill associated therewith,
used in connection with this Business, and (e) all of Seller's right, title and
interest in and to all of Seller's cash and cash equivalents in place at
Closing.
1.03 Assignability and Consents. To the extent that the consummation of
--------------------------
the transactions contemplated herein or the assignment of any of the Acquired
Contracts, the Real Property Lease or the Personal Property Leases shall require
the consent or waiver of any third party or any federal, state, county, parish,
local or foreign governmental entity or municipality or subdivision thereof or
any authority, arbitrator, department, commission, board, bureau, body, agency,
court or instrumentality thereof (each, a "Governmental Authority"), Seller
shall use all reasonable efforts to obtain the consent or waiver of each such
third party or Governmental Authority (each, a "Required Consent") to the
assignment thereof on or prior to the Closing Date.
ASSET PURCHASE AGREEMENT - Page 2
- ------------------------
<PAGE>
1.04 Assumed Liabilities and Obligations. On the Closing Date, Purchaser
-----------------------------------
shall assume and agrees to pay, perform and discharge as and when due, all of
the obligations and liabilities of Seller based upon events occurring on or
after the Closing Date under (i) the Real Property Lease, (ii) the Personal
Property Leases, and (iii) the Acquired Contracts. All of the foregoing to be
assumed by Purchaser hereunder are collectively referred to as the "Assumed
Liabilities."
1.05 Retained Liabilities and Obligations. Notwithstanding any other
------------------------------------
provision of this Agreement or doctrine of law to the contrary, Seller shall
retain, and Purchaser shall not assume or be liable with respect to, any
liability or obligation of Seller, except for the Assumed Liabilities. All of
the foregoing obligations and liabilities to be retained by Seller hereunder are
collectively referred to as the "Retained Liabilities."
1.06 Schedules. All references in this Agreement to "Schedules" shall
---------
mean the disclosure Schedules identified in this Agreement, which are
incorporated herein and shall be deemed a part of this Agreement for all
purposes. The disclosure of an item in a Schedule or under a heading in a
Schedule corresponding to a particular section or subsection of this Agreement
shall also be deemed a disclosure under (i) any other item of such Schedule,
(ii) any other Schedules, and (iii) any other section or subsection thereof.
Provided Seller complies with Section 5.01 hereof, Seller shall be permitted to
amend and/or supplement the Schedules as Seller deems necessary. Seller shall
provide written notice (including a copy of the amended Schedule as affected
thereby) of any such change as soon as practicable after Seller obtains actual
knowledge of any such event. In the event Seller notifies Purchaser in writing
that an amendment and/or supplement to a Schedule is necessary, (a) Purchaser
shall have the termination rights provided in Section 10.01(b) hereof, and (b)
provided that Purchaser fails to exercise such termination rights within three
(3) days after Purchaser's receipt of such notice, Purchaser's termination
rights with respect to such Schedule amendment and/or supplement shall terminate
and Purchaser shall be deemed to have irrevocably accepted same.
ARTICLE II
PURCHASE PRICE
--------------
2.01 Purchase Price. In consideration for the Acquired Assets, at
--------------
Closing, Purchaser shall (a) assume the Assumed Liabilities, and (b) pay to
Seller the sum of SIXTY FIVE THOUSAND FORTY FOUR AND NO/100 DOLLARS ($65,044.00)
(the "Purchase Price"). The Purchase Price shall consist of (i) 80,088 shares
of Series B Preferred Stock, $1.00 par value per share, of CWII, including all
accumulated, but unpaid dividends thereon (the "Series B Stock"), standing in
the name of Heath on the books of CWII and represented by stock certificate
number ____; (ii) 50,000 shares of Series F Preferred Stock, $1.00 par value per
share, of CWII, including all accumulated, but unpaid dividends thereon (the
"Series F Stock), standing in the name of Heath on the books of CWII and
represented by Stock Certificate Number ______; and (iii) all accumulated, but
unpaid dividends on the 64,812 shares of Series F Preferred Stock, $1.00 par
value per share, of CWII, standing in the name of Heath on the books of CWII and
represented by Stock Certificate No. ______.
ASSET PURCHASE AGREEMENT - Page 3
- ------------------------
<PAGE>
2.02 Removal of Inventory. Seller and CWII shall be permitted, for a
--------------------
period of thirty (30) days after Closing, to remove from the Leased Premises any
inventory of Seller located in the Leased Premises. Upon prior notice to
Purchaser, Purchaser shall provide Seller and CWII with reasonable access to the
Leased Premises for the purposes of removing said inventory. Purchaser shall
use reasonable efforts to safeguard Seller's inventory until it is removed by
Seller and to keep Seller's inventory segregated from Purchaser's inventory.
2.03 Allocation of Purchase Price. The Purchase Price and the Assumed
----------------------------
Liabilities represent the amount agreed upon by the parties to be the value of
the Acquired Assets, it being further agreed that the Purchase Price and the
Assumed Liabilities shall be allocated among the Acquired Assets as the parties
may mutually agree in writing. Purchaser and Seller shall enter into such a
mutual written agreement within a reasonable period of time after the Closing
Date and (i) report the purchase and sale of the Acquired Assets in accordance
with such mutually agreed allocation, if any, for all federal, foreign, state
and local tax purposes, and (ii) file Internal Revenue Service Form 8594
pursuant to Section 1060 of the Internal Revenue Code of 1986, as amended. If
Purchaser and Seller do not enter into such a mutual written agreement within
ninety (90) days after the Closing Date, both Purchaser and Seller shall have
complete discretion in reporting such allocation.
ARTICLE III
CLOSING
-------
3.01 Closing. The closing of the transactions contemplated in this
-------
Agreement ("Closing") shall occur at the offices of CWII located at 6025 South
Quebec, Suite 300, Englewood, Colorado 80111, on December ____, 1998, or such
other date as the parties shall mutually agree (the "Closing Date").
Notwithstanding anything contained herein to the contrary, if the conditions to
Closing contemplated in Article VIII hereof have not occurred on or prior to the
scheduled Closing Date, either party shall have the right to extend the Closing
Date for a period not to exceed seven (7) days. Closing shall consist of the
delivery of the documents referenced in Section 3.02 below and the payment of
the Purchase Price as provided in Section 2.01 above, together with the
performance of the other matters required to occur at Closing pursuant to this
Agreement.
3.02 Closing Documents. At Closing, Seller, CWII, Heath and Purchaser, as
-----------------
appropriate, shall deliver, or cause to be delivered, the following items:
(a) Assignments. Purchaser and Seller shall each execute and deliver
-----------
the Assignment of Leasehold Interest in the form attached hereto as Exhibit
-------
"A", with respect to the Real Property Lease;
- ---
(b) Bill of Sale and Assignment. Seller shall execute and deliver the
---------------------------
Bill of Sale and Assignment in the form attached hereto as Exhibit "B";
-----------
(c) Lien Releases. Seller shall deliver such lien releases as shall be
-------------
necessary for Purchaser to acquire the Acquired Assets free and clear of all
liens, claims and encumbrances,
ASSET PURCHASE AGREEMENT - Page 4
- ------------------------
<PAGE>
except liens for 1998 personal property taxes not yet delinquent and any
contractual or statutory landlord's liens under, or pursuant to, the Real
Property Lease;
(d) Undertaking and Assumption Agreement. Purchaser shall execute
------------------------------------
and deliver the Undertaking and Assumption Agreement in the form attached hereto
as Exhibit "C";
-----------
(e) Mutual Release. Heath and Seller shall execute and deliver the
--------------
Mutual General Release in the form attached hereto as Exhibit "D".
-----------
(f) Franchise Agreement. Purchaser and CWII shall execute and
-------------------
deliver the Franchise Agreement in the form attached hereto as Exhibit "E".
-----------
(g) Officer's Certificates. Each of Seller and Purchaser shall
----------------------
deliver a fully executed Officer's Certificate, executed by a senior executive
officer and dated the Closing Date, confirming the matters expressed in Section
8.01(a) and Section 8.02(a), respectively;
(h) Certificate of Authorities. Each of Seller and Purchaser shall
--------------------------
deliver (i) a certificate from the appropriate Governmental Authorities, dated
as of a date not more than seven (7) days prior to the Closing Date, attesting
to their certificate or articles of incorporation, good standing and existence,
(ii) a copy, certified by its Secretary, of the Bylaws, as amended and in effect
on the Closing Date, and resolutions duly adopted by the Board of Directors,
authorizing the transactions contemplated in this Agreement;
(i) Stock Powers. Heath shall execute and deliver to Purchaser
------------
stock powers, in form and content reasonably acceptable to Purchaser, sufficient
to transfer the Series B Stock and Series F Stock to CWII; and,
(j) Other Documents. Seller shall deliver such other documents,
---------------
certificates of tittle, endorsements, assignments and instruments in form and
substance reasonably satisfactory to Purchaser and its counsel, as shall be
necessary, advisable or desirable to vest in Purchaser title to the Acquired
Assets.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
4.01 Representations and Warranties of Seller. Seller hereby represents
----------------------------------------
and warrants to Purchaser that the following are true and correct as of Closing:
(a) Corporate Status. Seller is a corporation duly organized,
----------------
validly existing and in good standing under the laws of the State of Arizona.
(b) Authority. Seller has the requisite corporate power and authority
_________
to enter into this Agreement, and the other documents and agreements to be
entered into hereunder by Seller, and to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement by Seller, and the
other documents and agreements to be executed and delivered
ASSET PURCHASE AGREEMENT - Page 5
- ------------------------
<PAGE>
hereunder by Seller, the performance by Seller of its obligations hereunder and
thereunder and the consummation by Seller of the transactions contemplated
herein and therein have been duly authorized by the board of directors of
Seller, and no other corporate proceedings on the part of the Seller are
necessary to authorize the execution and delivery of this Agreement, and the
other documents and agreements to be executed and delivered hereunder, the
performance by the Seller of its obligations hereunder and thereunder, and the
consummation by Seller of the transaction contemplated hereby and thereby. This
Agreement, and the other documents and agreements to be executed and delivered
hereunder, have been, or will be at Closing, duly executed and delivered by
Seller and constitute the valid and binding obligations of Seller, enforceable
in accordance with their respective terms.
(c) No Impediment to Performance. Neither the execution nor the
----------------------------
performance of this Agreement by Seller, or the other documents and agreements
to be executed and performed by Seller hereunder, will conflict with or result
in any default under or in any violation of any provision of (i) the charter or
bylaws of Seller, (ii) any agreement, mortgage, contract, or other instrument to
which Seller is a party or by which Seller or any of its properties (including,
without limitation, the Acquired Assets) is bound except for mortgages or
security instruments which will be released at, or prior to, Closing, or (iii)
any applicable statute, regulation, ordinance, judgment, order or decree to
which Seller or any of its properties (including, without limitation, the
Acquired Assets) are subject.
(d) Title to Assets. Seller has good title to the Personal Property,
---------------
free and clear of liens, security interests and encumbrances, except liens for
1998 personal property taxes not yet delinquent and any contractual or statutory
landlord's liens under, or pursuant to, the Real Property Lease.
(e) Compliance with Laws. Seller is in compliance in all material
--------------------
respects with all applicable federal, state or local laws, statutes, ordinances,
federal, state or local laws, statutes, ordinances, regulations, orders and
other requirements of any Governmental Authority having jurisdiction over the
Acquired Assets or the conduct of the Business.
(f) Limited Warranty; Disclaimer Of Certain Warranties And
------------------------------------------------------
Representations. NOTWITHSTANDING ANY PROVISION TO THE CONTRARY IN THIS
- ---------------
AGREEMENT, SELLER MAKES NO REPRESENTATION WHATSOEVER AS TO THE PHYSICAL
CONDITION OF THE ACQUIRED ASSETS. PURCHASER AGREES THAT AS BETWEEN PURCHASER AND
SELLER, WITH RESPECT TO THE ACQUIRED ASSETS, PURCHASER SHALL ACCEPT THE ACQUIRED
ASSETS IN ITS "AS IS" CONDITION, WITH ALL FAULTS, AND SELLER EXPRESSLY DISCLAIMS
ANY WARRANTY OF MERCHANTABILTY OR FITNESS FOR ANY INTENDED OR PARTICULAR
PURPOSE. PURCHASER HEREBY WAIVES PURCHASER'S RIGHT TO RELY ON ANY
REPRESENTATION, WARRANTY, OR ASSURANCE HEREAFTER OR HERETOFORE MADE BY SELLER OR
SELLER'S EMPLOYEES. PURCHASER AGREES AND CONFIRMS THAT NEITHER SELLER NOR ANY OF
SELLER'S OFFICERS, EMPLOYEES AND/OR AGENTS HAVE MADE AFFIRMATION OF FACT OR
PROMISE RELATING TO THE ACQUIRED ASSETS.
ASSET PURCHASE AGREEMENT - Page 6
- ------------------------
<PAGE>
4.02 Representations and Warranties of Purchaser. Purchaser hereby
-------------------------------------------
represents and warrants to Seller that the following are true and correct as of
Closing:
(a) Corporate Status. Purchaser is a corporation duly organized,
----------------
validly existing and in good standing under the laws of the State of Arizona.
(b) Authority. Purchaser has the requisite corporate power and
---------
authority to enter into this Agreement, and the other documents and agreements
to be entered into hereunder by Purchaser, and to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement by
Purchaser, and the other documents and agreements to be executed and delivered
hereunder by Purchaser, the performance by Purchaser of its obligations
hereunder and thereunder and the consummation by Purchaser of the transactions
contemplated herein and therein have been duly authorized by the board of
directors of Purchaser, and no other corporate proceedings on the part of the
Purchaser are necessary to authorize the execution and delivery of this
Agreement, and the other documents and agreements to be executed and delivered
hereunder, the performance by the Purchaser of its obligations hereunder and
thereunder, and the consummation by Purchaser of the transaction contemplated
hereby and thereby. This Agreement, and the other documents and agreements to be
executed and delivered hereunder, have been, or will be at Closing, duly
executed and delivered by Purchaser and constitute the valid and binding
obligations of Purchaser, enforceable in accordance with their respective terms.
(c) No Impediment to Performance. Neither the execution nor the
----------------------------
performance of this Agreement by Purchaser, or the other documents and
agreements to be executed and performed by Purchaser hereunder, will conflict
with or result in any default under or in any violation of any provision of (i)
the articles or bylaws of Purchaser, (ii) any agreement, mortgage, contract or
other instrument to which Purchaser is a party or by which Purchaser or any of
its properties is bound except for mortgages or security instruments which will
be released at, or prior to, Closing, or (iii) any applicable statute,
regulation, ordinance, judgment, order or decree to which Purchaser or any of
its properties are subject.
(d) Compliance with Laws. Purchaser is in compliance in all
----------
material respects with all applicable federal, state or local laws, statutes,
ordinances, federal, state or local laws, statutes, ordinances, regulations,
orders and other requirements of any Governmental Authority having jurisdiction
over the conduct of Purchaser's business.
ARTICLE V
COVENANTS OF SELLER
-------------------
Seller hereby covenants to Purchaser that:
5.01 Conduct of the Business Pending Closing. Seller covenants and agrees
---------------------------------------
that, prior to the earlier of (i) the Closing, or (ii) the termination of this
Agreement in accordance with the provisions hereof, except as otherwise agreed
to in writing by Purchaser, or otherwise expressly contemplated by this
Agreement, Seller will cause the Business to be conducted in the ordinary
ASSET PURCHASE AGREEMENT - Page 7
- ------------------------
<PAGE>
course of business and consistent in the ordinary course of business and
consistent with past practice.
5.02 Reasonable Efforts. Seller agrees that prior to the Closing it will
------------------
use all reasonable efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement; provided,
however, that, Seller shall not be required (i) to incur any expense (except
that Seller shall incur those fees and expenses, including fees of legal,
accounting and other advisors, and take such other actions which are normal and
customary for transactions of the type contemplated by this Agreement or are
otherwise provided to be taken by Seller pursuant to the terms of this
Agreement) or further obligation, (ii) to agree to any condition or obligation
affecting the business or assets of Seller or any of its affiliates, other than
conditions or obligations that become effective only upon consummation of the
transactions contemplated by this Agreement, or (iii) to agree to the amendment
or other modification of any terms of any material agreement constituting or
relating to any of the Acquired Assets, other than amendments or modifications
that become effective only upon consummation of the transactions contemplated by
this Agreement and which are consented to in writing by Purchaser.
ARTICLE VI
COVENANTS OF PURCHASER
-----------------------
6.01 Maintenance of Records. Purchaser shall keep and maintain all
----------------------
documents and records relating to the Business acquired pursuant to the
transactions contemplated in this Agreement for a period of five (5) years
after Closing. Upon request, Purchaser shall make such documents and records
available to Seller and Seller's accountants, counsel and other designated
representatives for inspection and copying, at Seller's expense, during regular
business hours. Should Purchaser sell or otherwise dispose of all or
substantially all of the Business, the acquiror(s) shall be specifically
required to assume the obligations of this Section 6.01 as a part of any such
acquisition.
6.02 Reasonable Efforts. Purchaser agrees that prior to the Closing it
------------------
will use all reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement;
provided, however, that, Purchaser shall not be required to (i) incur any
expense (except that Purchaser shall incur those fees and expenses, including
fees of legal, accounting and other advisors, and take such other actions which
are normal and customary for transactions of the type contemplated by this
Agreement or otherwise provided to be taken by Purchaser pursuant to this
Agreement) or further obligation, (ii) to agree to any condition or obligation
affecting the Business or the Acquired Assets or Purchaser's business or assets
that adversely affects Purchaser's economic position with respect thereto or the
business or assets of Purchaser or any of its affiliates, or (iii) to the
amendment or other modification of any terms of any material agreement
constituting or relating to any of the Acquired Assets that adversely affects
Purchaser's economic position with respect thereto.
ASSET PURCHASE AGREEMENT - Page 8
- ------------------------
<PAGE>
ARTICLE VII
ADDITIONAL AGREEMENTS OF PURCHASER AND SELLER
---------------------------------------------
7.01 Employees and Subagents. As of the Closing Date those employees and
-----------------------
independent contractors who work and provide services exclusively to the
Business (including Heath) and not to any of the businesses retained by Seller,
shall terminate their relationship with Seller. Seller shall use its reasonable
efforts, upon Purchaser's request, to ensure that such persons and entities
continue their relationship with the Business and Purchaser. Heath's employment
agreement with Seller or CWII shall terminate at Closing.
7.02 Products. For a period of three (3) years after Closing, CWII will
--------
sell products to Purchaser at CWII's cost plus a five percent (5%) royalty;
provided, however, that such sales of product shall remain subject to CWII's
standard terms and conditions of sale (including credit approval), as same may
be amended from time to time by CWII. At the end of such three (3) year period,
the royalty will be determined by CWII on the bases of Purchaser's purchase
volumes.
7.03 No Non-Compete. CWII and Seller shall have the right to make
--------------
acquisitions and operate other company-owned offices in the Phoenix, Arizona
market after Closing and CWII and Seller shall not be bound by any non-compete
restrictions.
7.04 CWII Employee. An employee of CWII will reside at the Business'
-------------
principal place of business, at no additional cost or expense to CWII, for
approximately sixty (60) days after Closing, for the purpose of collecting
existing accounts receivable, which accounts receivable are pledged to Republic
Bank.
7.05 Prorations. Base and percentage rents, insurance premiums, common
----------
area maintenance expenses, and ad valorem taxes (the "Prorated Expenses") for
the current year shall be prorated at Closing effective as of the date of
Closing. If Closing shall occur before the amount of any Prorated Expense is
fixed for the then current year, the apportionment of the Prorated Expense shall
be upon the basis of the Prorated Expense for the preceding year (applied to the
latest assessed valuation, if appropriate), but any difference in actual and
estimated Prorated Expenses for the year of sale actually paid by Purchaser
shall be adjusted between the parties upon receipt of written evidence of the
payment thereof. This Section 7.05 shall survive the Closing.
7.06 Brokers. Each party represents and warrants to the other party that
-------
such party has had no dealings with any person, firm, agent or finder in
connection with the negotiation with this Agreement and/or the consummation of
the purchase and sale contemplated herein, and no broker, agent, person, firm or
entity is entitled to any commission or finder's fee in connection with this
transaction as the result of any dealings or acts of such party. Each party
hereby agrees to indemnify, defend, protect and hold the other party harmless
from and against any costs, expenses or liability for compensation, commission,
fee, or charges which may be claimed by any broker, agent, finder or other
similar party by reason of any dealings or act of the indemnifying party. This
Section 7.06 shall survive the Closing.
ASSET PURCHASE AGREEMENT - Page 9
- ------------------------
<PAGE>
7.07 Casualty Loss. All risk of loss to the Acquired Assets shall remain
-------------
upon Seller prior to Closing. If, prior to Closing, the Acquired Assets are
damaged or destroyed by fire or other casualty, to a material extent, Purchaser
may either terminate this Agreement by written notice to Seller or close. If
Purchaser elects to close, despite said material damage or destruction, there
shall be no reduction in the Purchase Price, and Seller shall assign to
Purchaser Seller's right, title and interest in and to all insurance proceeds
resulting or to result from said damage or destruction. Unless otherwise
provided herein, the term "material" shall mean damage or destruction, the cost
of repairing which exceeds ten percent (10%) of the Purchase Price. If, prior
to Closing, the Acquired Assets are damaged or destroyed by fire or other
casualty to less than a material extent, Seller shall either repair the same
prior to Closing, at Seller's expense, or reimburse Purchaser for the cost of
repairing the same by assigning any insurance proceeds resulting therefrom
(which insurance proceeds shall be sufficient to repair such damage) to
Purchaser or by allowing Purchaser to deduct such cost from the consideration
payable to Seller at Closing. If the extent of damage or the amount of
insurance proceeds to be made available is not able to be determined prior to
Closing, or the repairs are not able to be completed prior to said date, either
party, by written notice to the other, may postpone the date of Closing to such
date as shall be designated in such notice, but not more than thirty (30) days
after Closing.
7.08 Cancellation of Services. On the Closing Date, Seller will cancel
------------------------
all services of the Business, including, without limitation, telephone,
utilities, and pager services. Purchaser will be responsible for obtaining all
of the services in its name and transferring all telephone numbers to an account
established by Purchaser and Seller shall assist and cooperate in connection
therewith.
ARTICLE VIII
CONDITIONS OF CLOSING
---------------------
8.01 Obligation of Purchaser. The obligation of Purchaser to consummate
-----------------------
the purchase and sale contemplated by the provisions of this Agreement shall be
subject to the fulfillment on or prior to the Closing Date of the following
conditions (any of which may be waived in writing, in whole or part, by
Purchaser):
(a) Representations and Warranties; Performance. The representations
-------------------------------------------
and warranties of Seller set forth in this Agreement shall be true, correct and
complete when made on the date hereof, and, except for such changes in the
Schedules as are expressly permitted by Section 1.06 hereof, as of the Closing
Date (as though such representations and warranties were made anew at and as of
such date), except with respect to the effect of transactions specifically
permitted by the provisions of this Agreement. Seller shall have duly performed
in all material respects all agreements and covenants herein required to be
performed by Seller on or before the Closing Date.
(b) Closing Documents. Seller shall deliver, or cause to be
-----------------
delivered, all of the documents required to be delivered pursuant to Section
3.02 above.
ASSET PURCHASE AGREEMENT - Page 10
- ------------------------
<PAGE>
(c) Consents and Approvals. All material consents, approvals and
----------------------
novations, in form and substance reasonably satisfactory to Purchaser, of third
parties and each Governmental Authority that shall be (i) required to consummate
the transactions contemplated hereby, or (ii) reasonably necessary to permit
Purchaser to operate the Business, shall have been obtained.
8.02 Obligation of Seller. The obligation of Seller to consummate the
--------------------
purchase and sale contemplated by the provisions of this Agreement shall be
subject to the fulfillment on or prior to the Closing Date of the following
conditions (any of which may be waived in writing, in whole or in part by
Seller):
(a) Representations and Warranties; Performance. The representations
---------------
and warranties of Purchaser set forth in this Agreement shall be true, correct
and complete when made on the date hereof, and as of the Closing Date (as though
such representations and warranties were made anew at and as of such date),
except with respect to the effect of transactions specifically permitted by the
provisions of this Agreement. Purchaser shall have duly performed in all
material respects all agreements and covenants herein required to be performed
by Purchaser on or before the Closing Date.
(b) Consents and Approvals. All material consents, approvals and
----------------------
novations, in form and substance reasonably satisfactory to Seller of third
parties and each governmental authority that shall be (i) required to consummate
the transactions contemplated hereby, or reasonably necessary to permit
Purchaser to operate the Business hall have been obtained.
(c) Closing Documents. Purchaser shall have delivered, or caused
-----------------
to be delivered, all of the documents required to be delivered pursuant to
Section 3.02 above.
ARTICLE IX
INDEMNIFICATION
---------------
9.01 General Indemnification. Purchaser hereby agrees to indemnify and
-----------------------
save harmless Seller from any and all losses, claims, demands, actions, causes
of action, suits, proceedings, damages, liabilities, costs, and expenses,
including attorney's and other professional fees, of every nature and kind
whatsoever (collectively, "Losses") occurring subsequent to 11:59 p.m., Phoenix
time, on the date of Closing; which may arise or exist with respect to (i) any
failure of Purchaser to assume, pay, perform and discharge the Assumed
Liabilities, (ii) Purchaser's breach of any of Purchaser's representations,
warranties, obligations, covenants or agreements contained in this Agreement,
(iii) any action, claim, judicial or other proceeding asserted by any third
party against Seller with respect to any of the Assumed Liabilities, or (iv) any
liabilities or obligations accruing by Purchaser as a result of the operation of
the Business by Purchaser. Seller hereby agrees to indemnify and save harmless
Purchaser from any and all Losses occurring at or prior to 11:59 p.m., Phoenix
time, on the date of Closing; which may arise or exist with respect to (i) any
failure of Seller to assume, pay, perform and discharge the Retained
Liabilities, (ii) Seller's breach of any of Seller's representations,
warranties, covenants or agreements contained in this Agreement, (iii) any
action, claim, judicial or other proceeding
ASSET PURCHASE AGREEMENT - Page 11
- ------------------------
<PAGE>
asserted by any third party against Seller with respect to any of the Retained
Liabilities, or (iv) any liabilities or obligations accruing after the Closing
Date as a result of the operation of the Business by Seller.
9.02 Notification of Claim. Each indemnified party will promptly, and
---------------------
within fifteen (15) days (except in the case of litigation where such notice
shall be required within five (5) days) after notice to such indemnified party
of any claim as to which it asserts a claim for indemnification, notify the
indemnifying party of such claim and the amount thereof; provided, however, if
the indemnified party fails to give such notification the indemnifying party
shall be entitled to offset the incremental losses incurred by the indemnifying
party as a result of the failure by the indemnified party to give such notice
against Losses the indemnifying party would otherwise be required to pay.
During such fifteen (15) day notice period, without the indemnifying party's
prior written consent, the indemnified party shall not pay, settle or compromise
any such claim; provided, however, if the indemnified party pays, settles or
compromises any such claim, or any such litigation or proceeding during such
fifteen (15) day period, the indemnifying party shall be entitled to offset the
incremental losses incurred by the indemnifying party as a result of the
indemnifying party paying, settling or compromising any such claim, litigation
or proceeding during such fifteen (15) day period. Notice to an indemnified
party for the purpose of the preceding sentence shall mean the service of
process on such party in any legal action, receipt of any claim in writing or
similar form of actual written notice.
9.03 Defense of Claim. If, with respect to any claim which may give rise
----------------
to indemnity under this Agreement resulting from or arising out of any claim or
legal proceeding by a person other than the indemnified party (a "Third-Party
Claim"), the indemnifying party acknowledges in writing to the indemnified party
the indemnifying party's obligation to indemnify the indemnified party pursuant
hereto, the indemnifying party, at its sole cost and expense, may, upon written
notice to the indemnified party, assume the defense of such claim or related
legal proceeding. If the indemnifying party so assumes the defense of any such
claim or legal proceeding, the indemnifying party shall select counsel
reasonably acceptable to the indemnified party to conduct the defense of such
claim or legal proceeding and, at the sole cost and expense of the indemnifying
party, shall take all steps necessary in the defense or settlement thereof,
provided that the indemnifying party shall not expressly consent to a settlement
or compromise of, or expressly consent to the entry of any judgment arising
from, any such claim or legal proceeding without the prior written consent (not
to be unreasonably withheld) of the indemnified party (it being understood that
in considering whether or not to give such consent the indemnified party is
entitled to assess the implications of such settlement, compromise or judgment
on the future conduct of the indemnified party's business activities). The
indemnified party shall be entitled to participate in (but not control) the
defense of any such action, with its own counsel and at its own expense.
Whether or not the indemnifying party chooses to defend any claim or litigation
for which the indemnified party may be entitled to indemnification hereunder,
each of the parties hereto shall cooperate in the defense thereof.
If, with respect to a Third-Party Claim, the indemnifying party neither
acknowledges nor disclaims in writing, or the indemnifying party disclaims in
writing to the
ASSET PURCHASE AGREEMENT - Page 12
- ------------------------
<PAGE>
indemnified party, the indemnifying party's obligation to indemnify the
indemnified party pursuant hereto, the indemnified party may defend against such
claim or related legal proceeding with such counsel and in such manner as they
deem appropriate, and may consent to the settlement or compromise of, or consent
to the entry of a judgment arising from, such claim or legal proceeding without
the consent of the indemnifying party.
From and after the date of delivery of notice of a Third-Party
Claim hereunder, at the reasonable request of the indemnifying party the
indemnified party shall grant the indemnifying party and its representatives
full and complete access to the books, records and properties of the indemnified
party to the extent reasonably related to the matters to which the Third-Party
Claim relates. The indemnifying party will not disclose to any third person
(except its representatives participating in such Third-Party Claim) any
information obtained pursuant to this Section which is designated as
confidential by the indemnified party and which is not otherwise generally
available to the public, except as may be required by applicable law. The
indemnifying party shall instruct its representatives not to disclose any such
information (except as may be required by applicable law). All such access shall
be granted during normal business hours, shall be subject to the normal safety
regulations of the indemnified party, and shall be granted under conditions
which will not interfere with the business and operations of the indemnified
party.
ARTICLE X
TERMINATION AND REMEDIES
------------------------
10.01 Termination of Agreement. This Agreement and the transactions
------------------------
contemplated hereby may be terminated and abandoned at any time on or prior to
the Closing as follows:
(a) by the written consent of Purchaser and Seller;
(b) by Purchaser, (i) if there is or occurs an inaccuracy in any
material respect in the representations and warranties of Seller set forth in
this Agreement, which inaccuracy is not capable of being cured by December___,
1998,(ii) if there has been a breach in any material respect of a covenant of
Seller, or a failure in any material respect on the part of Seller to comply
with its obligations hereunder, and such breach or failure is not capable of
being cured by December___,1998, (iii) if any of the conditions set forth in
Section 8.01 hereof are not satisfied on or before December___,1998, or (iv) at
such other times as are expressly permitted by this Agreement;
(c) by Seller, (i) if there is or occurs an inaccuracy in any
material respect in the representations and warranties of Purchaser set forth in
this Agreement, which inaccuracy is not capable of being cured by December ___,
1998, (ii) if there has been a breach in any material respect of a covenant of
Purchaser, or failure in any material respect on the part of Purchaser to comply
with its obligations hereunder, and such breach or failure is not capable of
being cured by December ___, 1998, or (iii) if any of the conditions set forth
in Section 8.02 hereof are not satisfied on or before December ___, 1998; and
ASSET PURCHASE AGREEMENT - Page 13
- ------------------------
<PAGE>
(d) by Purchaser or Seller (i) if the Closing Date shall not have
occurred before December ___, 1998, for any reason other than the failure of the
party seeking to terminate this Agreement to perform in any material respect its
obligations hereunder or the breach or inaccuracy in any material respect of a
representation or warranty made by such party, and (ii) at such other times as
are expressly permitted by this Agreement.
10.02 Obligations upon Termination. Except for obligations provided in
----------------------------
Section 6.01 hereof, in the event that this Agreement is terminated pursuant to
the provisions of Section 10.01(a) or (d) hereof, Seller shall have no
obligation to Purchaser and Purchaser shall have no obligation to Seller. In
the event that Seller or Purchaser shall terminate this Agreement pursuant to
Section 10.01(b) or (c) hereof, respectively, the right of Purchaser or Seller,
as the case may be, to pursue any and all rights it may have at law or equity or
hereunder shall survive unimpaired.
ARTICLE XI
MISCELLANEOUS PROVISIONS
------------------------
11.01 Notices. Any notice, consent, request, claim or other
-------
communication hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand, (ii) delivered by telecopy with receipt
thereof confirmed, (iii) delivered by overnight courier, or (iv) delivered or
deposited with the U.S. Postal Service with sufficient postage prepaid to ensure
delivery by Registered or Certified Mail, Return Receipt Requested, with each
such notice being delivered to the address or telecopy number shown for the
respective party at the conclusion of this Agreement. Such addresses or telecopy
number may be changed by any party by notice given in the manner provided above.
11.02 Entire Agreement; Amendment. This Agreement, together with all
---------------------------
exhibits and the documents referred to herein, contains all the terms and
conditions agreed upon by the parties hereto with respect to the transactions
contemplated hereby, and shall not be amended or modified except by written
instrument signed by all of the parties.
11.03 Successors and Assigns. This Agreement shall be binding upon and
----------------------
insure to the benefit of the representatives, heirs, estates, successors and
assigns to the parties hereto.
11.04 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
UNDER THE LAWS OF THE STATE OF ARIZONA.
11.05 Assignment. Purchaser shall not be permitted to assign this
----------
Agreement without the prior written consent of Seller.
11.06 Counterparts; Facsimile. This Agreement may be executed in
-----------------------
counterparts. Facsimile signatures shall be effective.
ASSET PURCHASE AGREEMENT - Page 14
- ------------------------
<PAGE>
11.07 Time for Performance. Time is of the essence with respect to the
--------------------
performance of each party's duties and obligations under this Agreement. Strict
compliance with the times for performance is required.
11.08 Attorneys' Fees. The prevailing party in any legal proceeding
---------------
brought under or with relation to this Agreement or transaction shall be
entitled to recover court costs, reasonable attorneys' fees, and all other
litigation expenses from the non-prevailing parties.
11.09 Survival. The representations and warranties contained in this
--------
Agreement, shall survive the Closing for a period of one (1) year.
11.10 Jurisdiction and Venue. Any judicial proceedings brought by or
----------------------
against any party on any dispute arising out of this Agreement or any matter
related thereto shall be brought in the state or federal courts of Maricopa
County, Phoenix, Arizona, and, by execution and delivery of this Agreement, each
of the parties accepts for itself the exclusive jurisdiction and venue of the
aforesaid courts as trial courts, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Agreement after exhaustion of
all appeals taken (or by the appropriate appellate court if such appellate court
renders judgment).
11.11 Interest. To the extent that either Seller or Purchaser fails to
--------
pay or reimburse the other party as expressly provided hereunder, the party
failing to make such payment, in addition to the other rights and remedies
hereunder, shall also be required to pay the other party interest at the lesser
of (a) eighteen percent (18%) per annum, and (b) the highest rate permitted by
applicable law.
11.12 Expenses. Each party shall bear all expenses incurred by such
--------
party in connection with negotiating, documenting, consummating or investigating
the transactions contemplated herein.
Signature Page Follows
ASSET PURCHASE AGREEMENT - Page 15
- ------------------------
<PAGE>
IN WITNESS WHEREOF, this Asset Purchase Agreement is entered into by Seller
and Purchaser as of the date first above written.
CWII:
COMMUNICATIONS WORLD INTERNATIONAL, INC., a
Colorado corporation
By:_________________________________________
Printed Name:_______________________________
Title:______________________________________
SELLER:
COMMWORLD OF PHOENIX, INC., an Arizona
corporation
By:_________________________________________
Printed Name:_______________________________
Title:______________________________________
PURCHASER:
SUMMIT TEAM INVESTMENTS, INC.,
an Arizona corporation
By:_________________________________________
Mick Heath, President
HEATH:
____________________________________________
MICK HEATH
ASSET PURCHASE AGREEMENT - Page 16
- ------------------------
<PAGE>
Communications World International, Inc.
Form 10-SB
Exhibit 2 (e)
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of the
____ day of December, 1998, by and between COMMUNICATIONS WORLD INTERNATIONAL,
INC., a Colorado corporation ("CommWorld"), COMMWORLD OF PHOENIX, INC., an
Arizona corporation ("Seller"), BILL HEATH ("Heath"), and DIGITAL VOICE AND
DATA, INC., an Arizona corporation ("Purchaser").
R E C I T A L S:
- - - - - - - -
WHEREAS, Seller desires to transfer and sell, and Purchaser desires to
purchase and acquire, substantially all of Seller's assets relating to the
operation of Seller's interconnect business operated in Tucson, Arizona (the
"Business");
WHEREAS, Seller is the wholly-owned subsidiary of CommWorld and Heath is
the sole director, officer and shareholder of Purchaser; and
WHEREAS, Seller, CommWorld, Heath and Purchaser desire to enter into this
Agreement in order to set forth the terms and conditions of such transaction;
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
---------------------------
1.01 Purchase And Sale. Seller hereby agrees to sell, assign, transfer
-----------------
and convey to Purchaser, and Purchaser hereby agrees to purchase, accept and
acquire from Seller, subject to the terms and conditions contained herein, the
following described real and personal property (collectively referred to as the
"Acquired Assets"):
(a) Real Property Lease. All of Seller's right, title and interest in
-------------------
and to the real property lease, including, without limitation, all leasehold
improvements and security deposits with respect thereto, listed and described on
Schedule 1.01(a) attached hereto (the "Real Property Lease").
- ----------------
(b) Books, Records and Written Materials. All books of account,
------------------------------------
records, files, invoices, customer lists, supplier lists, promotional and
advertising materials, catalogs, brochures, manuals and handbooks and other
similar data reduced to writing or other storage media, but only to the extent
that same are used by Seller exclusively in connection with the
ASSET PURCHASE AGREEMENT - Page 1
- ------------------------
<PAGE>
operations of the Business and located within the leased premises that are the
subject of the Real Property Lease (the "Leased Premises") (the "Books and
Records").
(c) Personal Property Leases. All of Seller's right, title and
------------------------
interest in and to those personal property leases described on Schedule 1.01(c)
----------------
attached hereto (the "Personal Property Leases").
(d) Acquired Contracts. All rights and benefits of Seller in, to or
------------------
under those agreements, contracts and purchase orders listed or described on
Schedule 1.01(d) attached hereto (the "Acquired Contracts").
- ----------------
(e) Personal Property. All of Seller's right, title and interest
-----------------
in the tools, equipment, trade fixtures, furniture and other personal property
located within the Leased Premises (the "Personal Property").
(f) Software. All of Seller's right, title and interest in the
--------
software used by Seller exclusively with respect to the Business, as listed or
described on Schedule 1.01(f), attached hereto (the "Software").
----------------
(g) Inventory. THIRTY THOUSAND AND NO/100 DOLLARS ($30,000.00) of
---------
inventory selected by Purchaser (based upon the book value thereof).
1.02 Retained Assets. Notwithstanding anything contained hereunto the
---------------
contrary, Seller shall, and hereby does, expressly retain all of Seller's right,
title and interest in and to all of Seller's assets, properties, rights and
interests, other than the Acquired Assets expressly and specifically described
above (the "Retained Assets"), including, without, limitation, Seller's: (a)
accounts receivables, (b) inventory not selected by Purchaser pursuant to
Section 1.01(g) above, (c) all of Seller's right, title and interest in the
service marks and related logos, whether or not registered, and all goodwill
associated therewith, used in connection with this Business; (d) all of Seller's
right, title and interest in and to all of Seller's cash and cash equivalents in
place at Closing; and (e) any liabilities of the Tucson Business not
specifically assumed by Purchaser.
1.03 Assignability and Consents. To the extent that the consummation of
--------------------------
the transactions contemplated herein or the assignment of any of the Acquired
Contracts, the Real Property Lease or the Personal Property Leases shall require
the consent or waiver of any third party or any federal, state, county, parish,
local or foreign governmental entity or municipality or subdivision thereof or
any authority, arbitrator, department, commission, board, bureau, body, agency,
court or instrumentality thereof (each, a "Governmental Authority"), Seller
shall use all reasonable efforts to obtain the consent or waiver of each such
third party or Governmental Authority (each, a "Required Consent") to the
assignment thereof on or prior to the Closing Date, but the failure of Seller to
obtain any Required Consent shall not enable Purchaser to terminate this
Agreement.
1.04 Assumed Liabilities and Obligations. On the Closing Date, Purchaser
-----------------------------------
shall assume, and agrees to pay, perform and discharge as and when due, all of
the obligations and
ASSET PURCHASE AGREEMENT - Page 2
- ------------------------
<PAGE>
liabilities of Seller based upon events occurring on or after the Closing Date
under (a) the Real Property Lease, (b) the Personal Property Leases, and (c) the
Acquired Contracts. All of the foregoing to be assumed by Purchaser hereunder
are collectively referred to as the "Assumed Liabilities."
1.05 Retained Liabilities and Obligations. Notwithstanding any other
------------------------------------
provision of this Agreement or doctrine of law to the contrary, Seller shall
retain, and Purchaser shall not assume or be liable with respect to, any
liability or obligation of Seller, except for the Assumed Liabilities. All of
the foregoing obligations and liabilities to be retained by Seller hereunder are
collectively referred to as the "Retained Liabilities." The Retained Liabilities
shall expressly include any liabilities of the Business associated with Toshiba
co-op funds and the Tadiran accounts.
1.06 Schedules. All references in this Agreement to "Schedules" shall
---------
mean the disclosure Schedules identified in this Agreement, which are
incorporated herein and shall be deemed a part of this Agreement for all
purposes. The disclosure of an item in a Schedule or under a heading in a
Schedule corresponding to a particular section or subsection of this Agreement
shall also be deemed a disclosure under (a) any other item of such Schedule, (b)
any other Schedules, and (c) any other section or subsection thereof. Provided
Seller complies with Section 5.01 hereof, Seller shall be permitted to amend
and/or supplement the Schedules as Seller deems necessary. Seller shall provide
written notice (including a copy of the amended Schedule as affected thereby) of
any such change as soon as practicable after Seller obtains actual knowledge of
any such event. In the event Seller notifies Purchaser in writing that an
amendment and/or supplement to a Schedule is necessary, (a) Purchaser shall have
the termination rights provided in Section 10.01(b) hereof, and (b) provided
that Purchaser fails to exercise such termination rights within three (3) days
after Purchaser's receipt of such notice, Purchaser's termination rights with
respect to such Schedule amendment and/or supplement shall terminate and
Purchaser shall be deemed to have irrevocably accepted same.
ARTICLE II
PURCHASE PRICE
--------------
2.01 Purchase Price. In consideration for the Acquired Assets, at
--------------
Closing, Purchaser shall (a) assume the Assumed Liabilities, and (b) pay to
Seller a total of EIGHTY-EIGHT THOUSAND TWO HUNDRED FIFTY AND NO/100 DOLLARS
($88,250.00) (the "Purchase Price"). The Purchase Price shall consist of (a)
83,500 shares of Series G Preferred Stock, $1.00 par value per share, of
CommWorld, including any accumulated dividends thereon (the "Series G Stock"),
standing in the name of Heath on the books of CommWorld and represented by stock
certificate number ____ (for purposes of the Agreement the Series G Stock shall
be valued at $0.50 per share); and (b) 93,000 shares of Series F Preferred
Stock, $1.00 par value per share, of CommWorld, including any accumulated
dividends thereon (the "Series F Stock"), standing in the name of Heath on the
books of CommWorld and represented by stock certificate number ____ (for
purposes of this Agreement, the Series F Stock shall be valued at $0.50 per
share).
ASSET PURCHASE AGREEMENT - Page 3
- ------------------------
<PAGE>
2.02 Removal of Inventory. Seller and CommWorld shall be permitted, for a
--------------------
period of thirty (30) days after Closing, to remove from the Leased Premises any
inventory of Seller located in the Leased Premises that is not selected by
Purchaser. Upon prior notice to Purchaser, Purchaser shall provide Seller and
CommWorld with reasonable access to the Leased Premises for the purposes of
removing said inventory. Purchaser shall use reasonable efforts to safeguard
Seller's inventory until it is removed by Seller and to keep Seller's inventory
segregated from Purchaser's inventory.
2.03 Allocation of Purchase Price. The Purchase Price and the Assumed
----------------------------
Liabilities represent the amount agreed upon by the parties to be the value of
the Acquired Assets, it being further agreed that the Purchase Price and the
Assumed Liabilities shall be allocated among the Acquired Assets as the parties
may mutually agree in writing. Purchaser and Seller shall enter into such a
mutual written agreement within a reasonable period of time after the Closing
Date and (a) report the purchase and sale of the Acquired Assets in accordance
with such mutually agreed allocation, if any, for all federal, foreign, state
and local tax purposes, and (b) file Internal Revenue Service Form 8594 pursuant
to Section 1060 of the Internal Revenue Code of 1986, as amended. If Purchaser
and Seller do not enter into such a mutual written agreement within ninety (90)
days after the Closing Date, both Purchaser and Seller shall have complete
discretion in reporting such allocation.
ARTICLE III
CLOSING
-------
3.01 Closing. The closing of the transactions contemplated in this
-------
Agreement ("Closing") shall occur at the offices of CommWorld located at 6025
South Quebec, Suite 300, Englewood, Colorado 80111, on December ______, 1998, or
such other date as the parties shall mutually agree (the "Closing Date").
Notwithstanding anything contained herein to the contrary, if the conditions to
Closing contemplated in Article VIII hereof have not occurred on or prior to the
scheduled Closing Date, either party shall have the right to extend the Closing
Date for a period not to exceed seven (7) days. Closing shall consist of the
delivery of the documents referenced in Section 3.02 below and the payment of
the Purchase Price as provided in Section 2.01 above, together with the
performance of the other matters required to occur at Closing pursuant to this
Agreement.
3.02 Closing Documents. At Closing, Seller, CommWorld and Purchaser, as
-----------------
appropriate, shall deliver, or cause to be delivered, the following items:
(a) Assignments. Purchaser and Seller shall each execute and deliver
-----------
the Assignment of Leasehold Interest in the form attached hereto as Exhibit
-------
"A", with respect to the Real Property Lease;
- ---
(b) Bill of Sale and Assignment. Seller shall execute and deliver the
---------------------------
Bill of Sale and Assignment in the form attached hereto as Exhibit "B";
-----------
ASSET PURCHASE AGREEMENT - Page 4
- ------------------------
<PAGE>
(c) Lien Releases. Seller shall deliver such lien releases as shall
-------------
be necessary for Purchaser to acquire the Acquired Assets free and clear of all
liens, claims and encumbrances, except liens for 1998 personal property taxes
not yet delinquent and any contractual or statutory landlord's liens under, or
pursuant to, the Real Property Lease;
(d) Undertaking and Assumption Agreement. Purchaser shall execute and
------------------------------------
deliver the Undertaking and Assumption Agreement in the form attached hereto as
Exhibit "C";
- -----------
(e) Mutual Release. Heath and Seller shall execute and deliver the
-------------
Mutual Release in the form attached hereto as Exhibit "D".
-----------
(f) Franchise Agreement. Purchaser and CommWorld shall execute and
-------------------
deliver the Franchise Agreement in the form attached hereto as Exhibit "E".
-----------
(g) Officer's Certificates. Each of Seller and Purchaser shall
----------------------
deliver a fully executed Officer's Certificate, executed by a senior executive
officer and dated the Closing Date, confirming the matters expressed in Section
8.01(a) and Section 8.02(a), respectively;
(h) Certificate of Authorities. Each of Seller and Purchaser shall
--------------------------
deliver (a) a certificate from the appropriate Governmental Authorities, dated
as of a date not more than seven (7) days prior to the Closing Date, attesting
to their Certificate or Articles of Incorporation, good standing and existence,
(b) a copy, certified by its Secretary, of the Bylaws, as amended and in effect
on the Closing Date, and resolutions duly adopted by the Board of Directors,
authorizing the transactions contemplated in this Agreement; and
(i) Other Documents. Seller shall deliver such other documents,
---------------
certificates of tittle, endorsements, assignments and instruments in form and
substance reasonably satisfactory to Purchaser and its counsel, as shall be
necessary, advisable or desirable to vest in Purchaser title to the Acquired
Assets.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
4.01 Representations and Warranties of Seller. Seller hereby represents
----------------------------------------
and warrants to Purchaser that the following are true and correct as of Closing:
(a) Corporate Status. Seller is a corporation duly organized, validly
----------------
existing and in good standing under the laws of the State of Arizona.
(b) Authority. Seller has the requisite corporate power and authority
---------
to enter into this Agreement, and the other documents and agreements to be
entered into hereunder by Seller, and to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement by Seller, and the
other documents and agreements to be executed and delivered hereunder by Seller,
the performance by Seller of its obligations hereunder and thereunder and the
consummation by Seller of the transactions contemplated herein and therein have
been duly
ASSET PURCHASE AGREEMENT - Page 5
- ------------------------
<PAGE>
authorized by the board of directors of Seller, and no other corporate
proceedings on the part of the Seller are necessary to authorize the execution
and delivery of this Agreement, and the other documents and agreements to be
executed and delivered hereunder, the performance by the Seller of its
obligations hereunder and thereunder, and the consummation by Seller of the
transaction contemplated hereby and thereby. This Agreement, and the other
documents and agreements to be executed and delivered hereunder, have been, or
will be at Closing, duly executed and delivered by Seller and constitute the
valid and binding obligations of Seller, enforceable in accordance with their
respective terms.
(c) No Impediment to Performance. Neither the execution nor the
----------------------------
performance of this Agreement by Seller, or the other documents and agreements
to be executed and performed by Seller hereunder, will conflict with or result
in any default under or in any violation of any provision of (a) the charter or
bylaws of Seller, (b) any agreement, mortgage, contract, or other instrument to
which Seller is a party or by which Seller or any of its properties (including,
without limitation, the Acquired Assets) is bound except for mortgages or
security instruments which will be released at, or prior to, Closing, or (b) any
applicable statute, regulation, ordinance, judgment, order or decree to which
Seller or any of its properties (including, without limitation, the Acquired
Assets) are subject.
(d) Title to Assets. Seller has good title to the Personal Property,
---------------
free and clear of liens, security interests and encumbrances, except liens for
1998 personal property taxes not yet delinquent and any contractual or statutory
landlord's liens under, or pursuant to, the Real Property Lease.
(e) Compliance with Laws. Seller is in compliance in all material
--------------------
respects with all applicable federal, state or local laws, statutes, ordinances,
federal, state or local laws, statutes, ordinances, regulations, orders and
other requirements of any Governmental Authority having jurisdiction over the
Acquired Assets or the conduct of the Business.
(f) Limited Warranty; Disclaimer Of Certain Warranties And
------------------------------------------------------
Representations. NOTWITHSTANDING ANY PROVISION TO THE CONTRARY IN THIS
- ---------------
AGREEMENT, SELLER MAKES NO REPRESENTATION WHATSOEVER AS TO THE PHYSICAL
CONDITION OF THE ACQUIRED ASSETS. PURCHASER AGREES THAT AS BETWEEN PURCHASER AND
SELLER, WITH RESPECT TO THE ACQUIRED ASSETS, PURCHASER SHALL ACCEPT THE ACQUIRED
ASSETS IN ITS "AS IS" CONDITION, WITH ALL FAULTS, AND SELLER EXPRESSLY DISCLAIMS
ANY WARRANTY OF MERCHANTABILTY OR FITNESS FOR ANY INTENDED OR PARTICULAR
PURPOSE. PURCHASER HEREBY WAIVES PURCHASER'S RIGHT TO RELY ON ANY
REPRESENTATION, WARRANTY, OR ASSURANCE HEREAFTER OR HERETOFORE MADE BY SELLER OR
SELLER'S EMPLOYEES. PURCHASER AGREES AND CONFIRMS THAT NEITHER SELLER NOR ANY OF
SELLER'S OFFICERS, EMPLOYEES AND/OR AGENTS HAVE MADE AFFIRMATIONS OF FACT OR
PROMISES RELATING TO THE ACQUIRED ASSETS.
ASSET PURCHASE AGREEMENT - Page 6
- ------------------------
<PAGE>
4.02 Representations and Warranties of Purchaser. Purchaser hereby
-------------------------------------------
represents and warrants to Seller that the following are true and correct as of
Closing:
(a) Corporate Status. Purchaser is a corporation duly organized,
----------------
validly existing and in good standing under the laws of the State of Arizona.
(b) Authority. Purchaser has the requisite corporate power and
---------
authority to enter into this Agreement, and the other documents and agreements
to be entered into hereunder by Purchaser, and to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement by
Purchaser, and the other documents and agreements to be executed and delivered
hereunder by Purchaser, the performance by Purchaser of its obligations
hereunder and thereunder and the consummation by Purchaser of the transactions
contemplated herein and therein have been duly authorized by the board of
directors of Purchaser, and no other corporate proceedings on the part of the
Purchaser are necessary to authorize the execution and delivery of this
Agreement, and the other documents and agreements to be executed and delivered
hereunder, the performance by the Purchaser of its obligations hereunder and
thereunder, and the consummation by Purchaser of the transaction contemplated
hereby and thereby. This Agreement, and the other documents and agreements to be
executed and delivered hereunder, have been, or will be at Closing, duly
executed and delivered by Purchaser and constitute the valid and binding
obligations of Purchaser, enforceable in accordance with their respective terms.
(c) No Impediment to Performance. Neither the execution nor the
----------------------------
performance of this Agreement by Purchaser, or the other documents and
agreements to be executed and performed by Purchaser hereunder, will conflict
with or result in any default under or in any violation of any provision of (a)
the articles or bylaws of Purchaser, (b) any agreement, mortgage, contract or
other instrument to which Purchaser is a party or by which Purchaser or any of
its properties is bound except for mortgages or security instruments which will
be released at, or prior to, Closing, or (b) any applicable statute, regulation,
ordinance, judgment, order or decree to which Purchaser or any of its properties
are subject.
(d) Compliance with Laws. Purchaser is in compliance in all material
--------------------
respects with all applicable federal, state or local laws, statutes, ordinances,
federal, state or local laws, statutes, ordinances, regulations, orders and
other requirements of any Governmental Authority having jurisdiction over the
conduct of Purchaser's business.
ARTICLE V
COVENANTS OF SELLER
-------------------
Seller hereby covenants to Purchaser that:
5.01 Conduct of the Business Pending Closing. Seller covenants and agrees
---------------------------------------
that, prior to the earlier of (a) the Closing, or (b) the termination of this
Agreement in accordance with the provisions hereof, except as otherwise agreed
to in writing by Purchaser, or otherwise expressly contemplated by this
Agreement, Seller will cause the Business to be conducted in the ordinary course
of business and consistent with past practice.
ASSET PURCHASE AGREEMENT - Page 7
- ------------------------
<PAGE>
5.02 Reasonable Efforts. Seller agrees that prior to the Closing it will
------------------
use all reasonable efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement; provided,
however, that, Seller shall not be required (a) to incur any expense (except
that Seller shall incur those fees and expenses, including fees of legal,
accounting and other advisors, and take such other actions which are normal and
customary for transactions of the type contemplated by this Agreement or are
otherwise provided to be taken by Seller pursuant to the terms of this
Agreement) or further obligation, (b) to agree to any condition or obligation
affecting the business or assets of Seller or any of its affiliates, other than
conditions or obligations that become effective only upon consummation of the
transactions contemplated by this Agreement, or (c) to agree to the amendment or
other modification of any terms of any material agreement constituting or
relating to any of the Acquired Assets, other than amendments or modifications
that become effective only upon consummation of the transactions contemplated by
this Agreement and which are consented to in writing by Purchaser.
ARTICLE VI
COVENANTS OF PURCHASER
----------------------
6.01 Maintenance of Records. Purchaser shall keep and maintain all
----------------------
documents and records relating to the Business acquired pursuant to the
transactions contemplated in this Agreement for a period of five (5) years after
Closing. Upon request, Purchaser shall make such documents and records available
to Seller and Seller's accountants, counsel and other designated representatives
for inspection and copying, at Seller's expense, during regular business hours.
Should Purchaser sell or otherwise dispose of all or substantially all of the
Business, the acquiror(s) shall be specifically required to assume the
obligations of this Section 6.01 as a part of any such acquisition.
6.02 Reasonable Efforts. Purchaser agrees that prior to the Closing it
------------------
will use all reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement;
provided, however, that, Purchaser shall not be required to (a) incur any
expense (except that Purchaser shall incur those fees and expenses, including
fees of legal, accounting and other advisors, and take such other actions which
are normal and customary for transactions of the type contemplated by this
Agreement or otherwise provided to be taken by Purchaser pursuant to this
Agreement) or further obligation, (b) to agree to any condition or obligation
affecting the Business or the Acquired Assets or Purchaser's business or assets
that adversely affects Purchaser's economic position with respect thereto or the
business or assets of Purchaser or any of its affiliates, or (c) to the
amendment or other modification of any terms of any material agreement
constituting or relating to any of the Acquired Assets that adversely affects
Purchaser's economic position with respect thereto.
ASSET PURCHASE AGREEMENT - Page 8
- ------------------------
<PAGE>
ARTICLE VII
ADDITIONAL AGREEMENTS OF PURCHASER AND SELLER
---------------------------------------------
7.01 Employees and Subagents. As of the Closing Date those employees and
-----------------------
independent contractors who work and provide services exclusively to the
Business (including Heath) and not to any of the businesses retained by Seller,
shall terminate their relationship with Seller. Seller shall use its reasonable
efforts, upon Purchaser's request, to ensure that such persons and entities
continue their relationship with the Business and Purchaser. Heath's and Lynette
Heath's employment agreements with Seller or CommWorld shall terminate at
Closing.
7.02 Toshiba Products. For a period of two (2) years after Closing,
----------------
CommWorld will sell inventory to Purchaser at CommWorld's cost plus a five
percent (5%) royalty; provided, however, that such sales of product shall remain
subject to CommWorld's standard terms and conditions of sale (including credit
approval), as same may be amended from time to time by CommWorld. At the end of
such two (2) year period, the royalty will be determined by CommWorld on the
bases of Purchaser's purchase volumes.
7.03 Prorations. Base and percentage rents, insurance premiums, common
----------
area maintenance expenses, and ad valorem taxes (the "Prorated Expenses") for
the current year shall be prorated at Closing effective as of the date of
Closing. If Closing shall occur before the amount of any Prorated Expense is
fixed for the then current year, the apportionment of the Prorated Expense shall
be upon the basis of the Prorated Expense for the preceding year (applied to the
latest assessed valuation, if appropriate), but any difference in actual and
estimated Prorated Expenses for the year of sale actually paid by Purchaser
shall be adjusted between the parties upon receipt of written evidence of the
payment thereof. This Section 7.03 shall survive the Closing.
7.04 Brokers. Each party represents and warrants to the other party that
-------
such party has had no dealings with any person, firm, agent or finder in
connection with the negotiation of this Agreement and/or the consummation of the
purchase and sale contemplated herein, and no broker, agent, person, firm or
entity is entitled to any commission or finder's fee in connection with this
transaction as the result of any dealings or acts of such party. Each party
hereby agrees to indemnify, defend, protect and hold the other party harmless
from and against any costs, expenses or liability for compensation, commission,
fee, or charges which may be claimed by any broker, agent, finder or other
similar party by reason of any dealings or act of the indemnifying party. This
Section 7.04 shall survive the Closing.
7.05 Casualty Loss. All risk of loss to the Acquired Assets shall remain
-------------
upon Seller prior to Closing. If, prior to Closing, the Acquired Assets are
damaged or destroyed by fire or other casualty, to a material extent, Purchaser
may either terminate this Agreement by written notice to Seller or close. If
Purchaser elects to close, despite said material damage or destruction, there
shall be no reduction in the Purchase Price, and Seller shall assign to
Purchaser Seller's right, title and interest in and to all insurance proceeds
resulting or to result from said damage or
ASSET PURCHASE AGREEMENT - Page 9
- ------------------------
<PAGE>
destruction. Unless otherwise provided herein, the term "material" shall mean
damage or destruction, the cost of repairing which exceeds ten percent (10%) of
the Purchase Price. If, prior to Closing, the Acquired Assets are damaged or
destroyed by fire or other casualty to less than a material extent, Seller shall
either repair the same prior to Closing, at Seller's expense, or reimburse
Purchaser for the cost of repairing the same by assigning any insurance proceeds
resulting therefrom (which insurance proceeds shall be sufficient to repair such
damage) to Purchaser or by allowing Purchaser to deduct such cost from the
consideration payable to Seller at Closing. If the extent of damage or the
amount of insurance proceeds to be made available is not able to be determined
prior to Closing, or the repairs are not able to be completed prior to said
date, either party, by written notice to the other, may postpone the date of
Closing to such date as shall be designated in such notice, but not more than
thirty (30) days after Closing.
7.06 Cancellation of Services. On the Closing Date, Seller will cancel
------------------------
all services of the Business, including, without limitation, telephone,
utilities, and pager services. Purchaser will be responsible for obtaining all
of the services in its name and transferring all telephone numbers to an account
established by Purchaser and Seller shall assist and cooperate in connection
therewith.
ARTICLE VIII
CONDITIONS OF CLOSING
---------------------
8.01 Obligation of Purchaser. The obligation of Purchaser to consummate
-----------------------
the purchase and sale contemplated by the provisions of this Agreement shall be
subject to the fulfillment on or prior to the Closing Date of the following
conditions (any of which may be waived in writing, in whole or part, by
Purchaser):
(a) Representations and Warranties; Performance. The representations
-------------------------------------------
and warranties of Seller set forth in this Agreement shall be true, correct and
complete when made on the date hereof, and, except for such changes in the
Schedules as are expressly permitted by Section 1.06 hereof, as of the Closing
Date (as though such representations and warranties were made anew at and as of
such date), except with respect to the effect of transactions specifically
permitted by the provisions of this Agreement. Seller shall have duly performed
in all material respects all agreements and covenants herein required to be
performed by Seller on or before the Closing Date.
(b) Closing Documents. Seller shall deliver, or cause to be
-----------------
delivered, all of the documents required to be delivered pursuant to Section
3.02 above.
(c) Consents and Approvals. Except as otherwise provided in Section
----------------------
1.03 above, all material consents, approvals and novations, in form and
substance reasonably satisfactory to Purchaser, of third parties and each
Governmental Authority that shall be (i) required to consummate the transactions
contemplated hereby, or (ii) reasonably necessary to permit Purchaser to operate
the Business, shall have been obtained.
ASSET PURCHASE AGREEMENT - Page 10
- ------------------------
<PAGE>
8.02 Obligation of Seller. The obligation of Seller to consummate the
--------------------
purchase and sale contemplated by the provisions of this Agreement shall be
subject to the fulfillment on or prior to the Closing Date of the following
conditions (any of which may be waived in writing, in whole or in part by
Seller):
(a) Representations and Warranties; Performance. The representations
-------------------------------------------
and warranties of Purchaser set forth in this Agreement shall be true, correct
and complete when made on the date hereof, and as of the Closing Date (as though
such representations and warranties were made anew at and as of such date),
except with respect to the effect of transactions specifically permitted by the
provisions of this Agreement. Purchaser shall have duly performed in all
material respects all agreements and covenants herein required to be performed
by Purchaser on or before the Closing Date.
(b) Consents and Approvals. Except as otherwise provided in Section
----------------------
1.03 above, all material consents, approvals and novations, in form and
substance reasonably satisfactory to Seller of third parties and each
governmental authority that shall be (i) required to consummate the transactions
contemplated hereby, or reasonably necessary to permit Purchaser to operate the
Business hall have been obtained.
(c) Closing Documents. Purchaser shall have delivered, or caused to
-----------------
be delivered, all of the documents required to be delivered pursuant to Section
3.02 above.
ARTICLE IX
INDEMNIFICATION
---------------
9.01 General Indemnification. Purchaser hereby agrees to indemnify and
-----------------------
save harmless Seller from any and all losses, claims, demands, actions, causes
of action, suits, proceedings, damages, liabilities, costs, and expenses,
including attorney's and other professional fees, of every nature and kind
whatsoever (collectively, "Losses") occurring subsequent to 11:59 p.m., Tucson
time, on the date of Closing; which may arise or exist with respect to (a) any
failure of Purchaser to assume, pay, perform and discharge the Assumed
Liabilities, (b) Purchaser's breach of any of Purchaser's representations,
warranties, obligations, covenants or agreements contained in this Agreement,
(c) any action, claim, judicial or other proceeding asserted by any third party
against Seller with respect to any of the Assumed Liabilities, or (d) any
liabilities or obligations accruing by Purchaser as a result of the operation of
the Business by Purchaser. Seller hereby agrees to indemnify and save harmless
Purchaser from any and all Losses occurring at or prior to 11:59 p.m., Tucson
time, on the date of Closing; which may arise or exist with respect to (a) any
failure of Seller to assume, pay, perform and discharge the Retained
Liabilities, (b) Seller's breach of any of Seller's representations, warranties,
covenants or agreements contained in this Agreement, (c) any action, claim,
judicial or other proceeding asserted by any third party against Seller with
respect to any of the Retained Liabilities, or (d) any liabilities or
obligations accruing after the Closing Date as a result of the operation of the
Business by Seller.
ASSET PURCHASE AGREEMENT - Page 11
- ------------------------
<PAGE>
9.02 Notification of Claim. Each indemnified party will promptly, and
---------------------
within fifteen (15) days (except in the case of litigation where such notice
shall be required within five (5) days) after notice to such indemnified party
of any claim as to which it asserts a claim for indemnification, notify the
indemnifying party of such claim and the amount thereof; provided, however, if
the indemnified party fails to give such notification the indemnifying party
shall be entitled to offset the incremental losses incurred by the indemnifying
party as a result of the failure by the indemnified party to give such notice
against Losses the indemnifying party would otherwise be required to pay. During
such fifteen (15) day notice period, without the indemnifying party's prior
written consent, the indemnified party shall not pay, settle or compromise any
such claim; provided, however, if the indemnified party pays, settles or
compromises any such claim, or any such litigation or proceeding during such
fifteen (15) day period, the indemnifying party shall be entitled to offset the
incremental losses incurred by the indemnifying party as a result of the
indemnifying party paying, settling or compromising any such claim, litigation
or proceeding during such fifteen (15) day period. Notice to an indemnified
party for the purpose of the preceding sentence shall mean the service of
process on such party in any legal action, receipt of any claim in writing or
similar form of actual written notice.
9.03 Defense of Claim. If, with respect to any claim which may give rise
----------------
to indemnity under this Agreement resulting from or arising out of any claim or
legal proceeding by a person other than the indemnified party (a "Third-Party
Claim"), the indemnifying party acknowledges in writing to the indemnified party
the indemnifying party's obligation to indemnify the indemnified party pursuant
hereto, the indemnifying party, at its sole cost and expense, may, upon written
notice to the indemnified party, assume the defense of such claim or related
legal proceeding. If the indemnifying party so assumes the defense of any such
claim or legal proceeding, the indemnifying party shall select counsel
reasonably acceptable to the indemnified party to conduct the defense of such
claim or legal proceeding and, at the sole cost and expense of the indemnifying
party, shall take all steps necessary in the defense or settlement thereof,
provided that the indemnifying party shall not expressly consent to a settlement
or compromise of, or expressly consent to the entry of any judgment arising
from, any such claim or legal proceeding without the prior written consent (not
to be unreasonably withheld) of the indemnified party (it being understood that
in considering whether or not to give such consent the indemnified party is
entitled to assess the implications of such settlement, compromise or judgment
on the future conduct of the indemnified party's business activities). The
indemnified party shall be entitled to participate in (but not control) the
defense of any such action, with its own counsel and at its own expense. Whether
or not the indemnifying party chooses to defend any claim or litigation for
which the indemnified party may be entitled to indemnification hereunder, each
of the parties hereto shall cooperate in the defense thereof.
If, with respect to a Third-Party Claim, the indemnifying party
neither acknowledges nor disclaims in writing, or the indemnifying party
disclaims in writing to the indemnified party, the indemnifying party's
obligation to indemnify the indemnified party pursuant hereto, the indemnified
party may defend against such claim or related legal proceeding with such
counsel and in such manner as they deem appropriate, and may consent to the
ASSET PURCHASE AGREEMENT - Page 12
- ------------------------
<PAGE>
settlement or compromise of, or consent to the entry of a judgment arising from,
such claim or legal proceeding without the consent of the indemnifying party.
From and after the date of delivery of notice of a Third-Party Claim
hereunder, at the reasonable request of the indemnifying party the indemnified
party shall grant the indemnifying party and its representatives full and
complete access to the books, records and properties of the indemnified party to
the extent reasonably related to the matters to which the Third-Party Claim
relates. The indemnifying party will not disclose to any third person (except
its representatives participating in such Third-Party Claim) any information
obtained pursuant to this Section which is designated as confidential by the
indemnified party and which is not otherwise generally available to the public,
except as may be required by applicable law. The indemnifying party shall
instruct its representatives not to disclose any such information (except as may
be required by applicable law). All such access shall be granted during normal
business hours, shall be subject to the normal safety regulations of the
indemnified party, and shall be granted under conditions which will not
interfere with the business and operations of the indemnified party.
ARTICLE X
TERMINATION AND REMEDIES
------------------------
10.01 Termination of Agreement. This Agreement and the transactions
------------------------
contemplated hereby may be terminated and abandoned at any time on or prior to
the Closing as follows:
(a) by the written consent of Purchaser and Seller;
(b) by Purchaser, (i) if there is or occurs an inaccuracy in any
material respect in the representations and warranties of Seller set forth in
this Agreement, which inaccuracy is not capable of being cured by December
______, 1998, (ii) if there has been a breach in any material respect of a
covenant of Seller, or a failure in any material respect on the part of Seller
to comply with its obligations hereunder, and such breach or failure is not
capable of being cured by December ______, 1998, (iii) if any of the conditions
set forth in Section 8.01 hereof are not satisfied on or before December ______,
1998, or (iv) at such other times as are expressly permitted by this Agreement;
(c) by Seller, (i) if there is or occurs an inaccuracy in any
material respect in the representations and warranties of Purchaser set forth in
this Agreement, which inaccuracy is not capable of being cured by December
______, 1998, (ii) if there has been a breach in any material respect of a
covenant of Purchaser, or failure in any material respect on the part of
Purchaser to comply with its obligations hereunder, and such breach or failure
is not capable of being cured by December ______, 1998, or (iii) if any of the
conditions set forth in Section 8.02 hereof are not satisfied on or before
December ______, 1998; and
(d) by Purchaser or Seller (i) if the Closing Date shall not have
occurred before December ______, 1998, for any reason other than the failure of
the party seeking to terminate this Agreement to perform in any material respect
its obligations hereunder or the
ASSET PURCHASE AGREEMENT - Page 13
- ------------------------
<PAGE>
breach or inaccuracy in any material respect of a representation or warranty
made by such party, and (ii) at such other times as are expressly permitted by
this Agreement.
10.02 Obligations upon Termination. Except for obligations provided in
----------------------------
Section 6.01 hereof, in the event that this Agreement is terminated pursuant to
the provisions of Section 10.01(a) or (d) hereof, Seller shall have no
obligation to Purchaser and Purchaser shall have no obligation to Seller. In the
event that Seller or Purchaser shall terminate this Agreement pursuant to
Section 10.01(b) or (c) hereof, respectively, the right of Purchaser or Seller,
as the case may be, to pursue any and all rights it may have at law or equity or
hereunder shall survive unimpaired.
ARTICLE XI
MISCELLANEOUS PROVISIONS
------------------------
11.01 Notices. Any notice, consent, request, claim or other communication
-------
hereunder shall be in writing and shall be deemed to have been duly given if (a)
delivered by hand, (b) delivered by telecopy with receipt thereof confirmed, (c)
delivered by overnight courier, or (d) delivered or deposited with the U.S.
Postal Service with sufficient postage prepaid to ensure delivery by Registered
or Certified Mail, Return Receipt Requested, with each such notice being
delivered to the address or telecopy number shown for the respective party at
the conclusion of this Agreement. Such addresses or telecopy number may be
changed by any party by notice given in the manner provided above.
11.02 Entire Agreement; Amendment. This Agreement, together with all
---------------------------
exhibits and the documents referred to herein, contains all the terms and
conditions agreed upon by the parties hereto with respect to the transactions
contemplated hereby, and shall not be amended or modified except by written
instrument signed by all of the parties.
11.03 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the representatives, heirs, estates, successors and
assigns to the parties hereto.
11.04 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
UNDER THE LAWS OF THE STATE OF ARIZONA.
11.05 Assignment. Purchaser shall not be permitted to assign this
----------
Agreement without the prior written consent of Seller.
11.06 Counterparts; Facsimile. This Agreement may be executed in
-----------------------
counterparts. Facsimile signatures shall be effective.
11.07 Time for Performance. Time is of the essence with respect to the
--------------------
performance of each party's duties and obligations under this Agreement. Strict
compliance with the times for performance is required.
ASSET PURCHASE AGREEMENT - Page 14
- ------------------------
<PAGE>
11.08 Attorneys' Fees. The prevailing party in any legal proceeding
---------------
brought under or with relation to this Agreement or transaction shall be
entitled to recover court costs, reasonable attorneys' fees, and all other
litigation expenses from the non-prevailing parties.
11.09 Survival. The representations and warranties contained in this
--------
Agreement, shall survive the Closing for a period of one (1) year.
11.10 Jurisdiction and Venue. Any judicial proceedings brought by or
----------------------
against any party on any dispute arising out of this Agreement or any matter
related thereto shall be brought in the state or federal courts of Pima County,
Tucson, Arizona, and, by execution and delivery of this Agreement, each of the
parties accepts for itself the exclusive jurisdiction and venue of the aforesaid
courts as trial courts, and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement after exhaustion of all
appeals taken (or by the appropriate appellate court if such appellate court
renders judgment).
11.11 Interest. To the extent that either Seller or Purchaser fails to
--------
pay or reimburse the other party as expressly provided hereunder, the party
failing to make such payment, in addition to the other rights and remedies
hereunder, shall also be required to pay the other party interest at the lesser
of (a) eighteen percent (18%) per annum, and (b) the highest rate permitted by
applicable law.
11.12 Expenses. Each party shall bear all expenses incurred by such party
--------
in connection with negotiating, documenting, consummating or investigating the
transactions contemplated herein.
Signature Page Follows
ASSET PURCHASE AGREEMENT - Page 15
- ------------------------
<PAGE>
IN WITNESS WHEREOF, this Asset Purchase Agreement is entered into by Seller
and Purchaser as of the date first above written.
COMMWORLD:
COMMUNICATIONS WORLD INTERNATIONAL, INC., a
Colorado corporation
By:___________________________________________
Printed Name:_________________________________
Title:________________________________________
SELLER:
COMMWORLD OF PHOENIX, INC., an Arizona
corporation
By:___________________________________________
Printed Name:_________________________________
Title:________________________________________
PURCHASER:
DIGITAL VOICE AND DATA, INC., an Arizona
corporation
By:___________________________________________
Bill Heath, President
______________________________________________
BILL HEATH
ASSET PURCHASE AGREEMENT - Page 16
- ------------------------
<PAGE>
ASSIGNMENT OF LEASEHOLD INTEREST
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the undersigned, COMMWORLD OF PHOENIX, INC., an
Arizona corporation, hereinafter referred to as ASSIGNOR, does hereby assign,
transfer and convey to DIGITAL VOICE AND DATA, INC., an Arizona corporation,
hereinafter referred to as ASSIGNEE, all its rights, title and interest in and
to the Lease dated January 1, 1997, by and between Gowing Enterprises, (the
"Landlord"), as Landlord, and Assignor, as Tenant, a copy of which has been
provided to Assignee (the "Lease"). This Assignment is being delivered by
Assignor to Assignee pursuant to that certain Asset Purchase Agreement dated
December _____, 1998, by and among Assignor, Communications World International,
Inc., Bill Heath and Assignee.
ASSIGNEE, in accepting the foregoing assignment, as of the date of the
execution of this assignment, assumes and agrees to perform all of the terms,
conditions, covenants and agreements of the Lease on the part of the Lessee to
be performed, including making all payments due to or payable on behalf of
Landlord.
This Assignment may be executed in any number of counterparts, and
each counterpart hereof shall be deemed to be an original instrument, but all
such counterparts shall constitute but one Assignment.
The Assignment will bind and inure to the benefit of the parties,
their successors in interest and assigns.
IN WITNESS WHEREOF, ASSIGNOR and ASSIGNEE have executed this
Assignment as of the ____ day of December, 1998.
ASSIGNOR:
COMMWORLD OF PHOENIX, INC., an Arizona corporation
By:_____________________________________
Printed Name:___________________________
Title:__________________________________
ASSIGNEE:
DIGITAL VOICE AND DATA, INC.
By: ________________________________
Bill Heath, President
ASSIGNMENT OF LEASEHOLD INTEREST - Page 1
- --------------------------------
<PAGE>
BILL OF SALE AND ASSIGNMENT
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, paid by DIGITAL VOICE AND DATA, INC., an Arizona
corporation ("Purchaser"), to COMMWORLD OF PHOENIX, INC., an Arizona corporation
("Seller"), Seller does hereby SELL, TRANSFER, ASSIGN and DELIVER to Purchaser,
its successors and assigns, all of Seller's right, title and interest in and to
the Acquired Assets (as that term is defined in that certain Asset Purchase
Agreement dated December ___, 1998, by and among Seller, Communications World
International, Inc., Bill Heath and Purchaser).
Notwithstanding anything contained in this Bill of Sale and Assignment
or in the Asset Purchase Agreement to the contrary, the Acquired Assets shall
not include any of the Retained Assets, as such term is defined in the Asset
Purchase Agreement.
TO HAVE AND TO HOLD the Acquired Assets unto Purchaser, its successors
and assigns, forever and Seller does hereby bind itself and its successors to
WARRANT and FOREVER DEFEND, all and singular, title to the Acquired Assets unto
Purchaser, its successors and assigns, against every person whomsoever lawfully
claiming or to claim the same, or any part thereof, by or through Seller.
Further, Seller hereby warrants that title to the Acquired Assets is free and
clear from any security interest, lien, or encumbrance.
Seller hereby agrees to execute and/or deliver or cause to be executed
and/or delivered all such other documents and instruments, and to perform such
further acts and assurances, as Purchaser may reasonably require to perfect
Purchaser's interest in the Acquired Assets.
NOTWITHSTANDING ANY PROVISION TO THE CONTRARY IN THIS AGREEMENT,
SELLER MAKES NO REPRESENTATION WHATSOEVER AS TO THE PHYSICAL CONDITION OF THE
ACQUIRED ASSETS. PURCHASER AGREES THAT AS BETWEEN PURCHASER AND SELLER, WITH
RESPECT TO THE ACQUIRED ASSETS, PURCHASER SHALL ACCEPT THE ACQUIRED ASSETS IN
ITS "AS IS" CONDITION, WITH ALL FAULTS, AND SELLER EXPRESSLY DISCLAIMS ANY
WARRANTY OF MERCHANTABILTY OR FITNESS FOR ANY INTENDED OR PARTICULAR PURPOSE.
PURCHASER HEREBY WAIVES PURCHASER'S RIGHT TO RELY ON ANY REPRESENTATION,
WARRANTY, OR ASSURANCE HEREAFTER OR HERETOFORE MADE BY SELLER OR SELLER'S
EMPLOYEES. PURCHASER AGREES AND CONFIRMS THAT NEITHER SELLER NOR ANY OF SELLER'S
OFFICERS, EMPLOYEES AND/OR AGENTS HAVE MADE AFFIRMATION OF FACT OR PROMISE
RELATING TO THE ACQUIRED ASSETS.
Signature Page Follows
BILL AND SALE OF ASSIGNMENT - Page 1
- ---------------------------
<PAGE>
IN WITNESS WHEREOF, Seller has caused this Bill of Sale to be executed
this ____ day of December, 1998.
SELLER:
COMMWORLD OF PHOENIX, INC., an Arizona corporation
By: ______________________________________
Printed Name: _____________________________
Title: ____________________________________
BILL AND SALE OF ASSIGNMENT - Page 2
- ---------------------------
<PAGE>
UNDERTAKING AND ASSUMPTION AGREEMENT
THIS UNDERTAKING AND ASSUMPTION AGREEMENT dated December ___, 1998, is
executed by DIGITAL VOICE AND DATA, INC., an Arizona corporation ("Purchaser"),
in favor of COMMWORLD OF PHOENIX, INC., an Arizona corporation ("Seller") and
COMMUNICATIONS WORLD INTERNATIONAL, INC., a Colorado corporation ("CommWorld").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to that certain Asset Purchase Agreement dated as of
December _____, 1998, (the "Asset Purchase Agreement"), by and among Purchaser,
Bill Heath, CommWorld and Seller, Seller is delivering to Purchaser the assets,
properties, rights and interests defined in the Agreement as the Acquired
Assets; and
WHEREAS, in partial consideration for such sale, assignment, transfer,
conveyance and delivery of the Acquired Assets, the Agreement requires Purchaser
to assume and agree to discharge certain obligations and liabilities of Seller.
NOW, THEREFORE, pursuant to the terms of the Agreement and for good
and valuable consideration, Purchaser hereby assumes and agrees to pay, perform
and discharge in accordance with the terms thereof each of the Assumed
Liabilities (as such term is defined in the Asset Purchase Agreement); provided,
--------
hereby, that Purchaser expressly does not assume and shall not be liable for any
- ------
liability or obligation under any Retained Asset or Retained Liability (as such
terms are defined in the Asset Purchase Agreement). Nothing contained herein,
express or implied, in intended to confer upon any person or entity other than
the parties hereto and their successors in interest and permitted assigns any
rights or remedies under or by reason of this Agreement and no such third party
shall be entitled to rely on this Agreement. Except as expressly provided
hereinabove, or in the Asset Purchase Agreement, Purchaser does not assume or
agree to pay, perform or discharge, and shall not be responsible for, any
liabilities or obligations of Seller, whether accrued, absolute, contingent or
otherwise.
This Undertaking and Assumption Agreement shall inure to the benefit
of and be binding upon the successors and assigns of Purchaser and Seller.
This Agreement, and the rights and obligations of the parties hereto,
shall be governed by and construed and enforced in accordance with the
substantive laws of the State of Arizona, without regard to its principles of
conflicts of laws.
Nothing contained herein shall be deemed to modify, alter or amend the
terms and provisions of the Asset Purchase Agreement.
Signature Page Follows
UNDERTAKING AND ASSUMPTION AGREEMENT - Page 1
- ------------------------------------
<PAGE>
IN WITNESS WHEREOF, Purchaser has caused this Undertaking and
Assumption Agreement to be duly executed and delivered as of the date first set
forth above.
DIGITAL VOICE AND DATA, INC., an Arizona
corporation
By:________________________________
Bill Heath, President
UNDERTAKING AND ASSUMPTION AGREEMENT - Page 2
- ------------------------------------
<PAGE>
Communications World International, Inc.
Form 10-SB
Exhibit 3 (e)
ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION
OF
COMMUNICATIONS WORLD INTERNATIONAL, INC.
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned Corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the Corporation is Communications World International,
Inc.
SECOND: The first paragraph of Article Four of the Articles of Incorporation,
as amended, of the Corporation is amended in its entirety to read as follows:
Article Four. The aggregate number of shares which the Corporation shall
------------
authority to issue is 28,000,000 shares, of which 25,000,000 shall be no par
value common shares, and 3,000,000 shall be preferred shares, each having a par
value of $1.00. All shares shall be fully paid and non-assessable for any
purpose.
THIRD: The Articles of Incorporation of the Corporation, as amended, are
amended by the addition of the following Article Ten:
Article Ten. When, with respect to any action to be taken by holders of
-----------
the common stock of this Corporation, the Colorado Corporation Code required the
vote or concurrence of the holders of two-thirds of the outstanding shares, such
action may be taken by the vote or concurrence of a majority of such shares.
FOURTH: This amendment does not provide for an exchange, reclassification or
cancellation of issued shares.
FIFTH: The date of adoption of this amendment was March 23, 1999.
SIXTH: This amendment was adopted by the shareholders of the Corporation and
the number of votes casts by each voting group was sufficient for approval.
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment to
the Articles of Incorporation to be executed on the 23rd__ day of March, 1999.
COMMUNICATIONS WORLD INTERNATIONAL, INC.
By:________________________
___________________________
Name
___________________________
Title
<PAGE>
Communications World International, Inc.
Form 10-SB
Exhibit 10 (a)
COMMUNICATIONS WORLD INTERNATIONAL, INC.
FRANCHISE AGREEMENT
Franchisee:_____________________________
Date of Agreement:______________________
Franchised Location:____________________
________________________________________
________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. RECITALS................................................................................... 1
2. GRANT OF FRANCHISE......................................................................... 1
2.1. Grant of Franchise................................................................. 1
2.2. Scope of Franchise Operations...................................................... 1
2.3. Franchised Location................................................................ 2
2.4. Marketing Area..................................................................... 2
2.5. Franchisor's Reservation of Rights................................................. 2
3. FRANCHISE FEES............................................................................. 3
3.1. Initial Franchise Fee.............................................................. 3
3.2. Cost-Up Royalty.................................................................... 3
4. FRANCHISEE'S DEVELOPMENT AND CONVERSION OBLIGATIONS........................................ 4
4.1. Conversion and Commencement of Operations.......................................... 4
4.2. Product Authorization.............................................................. 4
4.3. Franchised Location................................................................ 4
4.4. Acquisition of Inventory and Equipment............................................. 5
4.5. Licenses and Permits............................................................... 5
4.6. Coordination of Telecommunications Services........................................ 5
5. FRANCHISOR'S DEVELOPMENT AND CONVERSION ASSISTANCE......................................... 5
5.1. Orientation Program................................................................ 5
5.2. Operations Manual.................................................................. 6
5.3. Product Authorizations............................................................. 6
6. FRANCHISOR'S OPERATING ASSISTANCE.......................................................... 6
6.1. Franchisor's Assistance............................................................ 6
6.2. Franchisor's Optional Services..................................................... 6
6.3. Assistance in the Marketing Area................................................... 7
7. FRANCHISEE'S OPERATIONAL COVENANTS......................................................... 7
7.1. Franchised Location................................................................ 7
7.2. Compliance With Operations Manual.................................................. 8
7.3. Improvements to Licensed Methods................................................... 8
7.4. Confidentiality.................................................................... 8
7.5. Reports and Records................................................................ 8
7.6. Compliance With Laws............................................................... 8
7.7. Third Party Obligations............................................................ 8
7.8. Operation and Management of Business............................................... 9
7.9. Coordination of Related Telecommunications Services................................ 9
7.10. Continuing Training................................................................ 9
7.11. Insurance.......................................................................... 10
8. QUALITY CONTROL............................................................................ 10
8.1. Standards and Specifications....................................................... 10
8.2. Inspections........................................................................ 10
8.3. Categories of Inventory............................................................ 11
8.4. Additional Categories of Inventory................................................. 11
8.5. Approved Suppliers................................................................. 11
</TABLE>
<PAGE>
<TABLE>
<S> <C>
8.6. Modifications...................................................................... 12
9. PROPRIETARY MARKS.......................................................................... 12
9.1. Marks and Licensed Methods......................................................... 12
9.2. Franchisee's Business Name......................................................... 12
9.3. Trademark Infringement............................................................. 12
9.4. Change of Proprietary Marks........................................................ 13
10. ADVERTISING................................................................................ 13
10.1. Approved Advertising............................................................... 13
10.2. Advertising Fee.................................................................... 13
10.3. Regional Advertising Programs...................................................... 14
11. REPORTS AND RECORDS........................................................................ 15
11.1. Reporting and Record Keeping....................................................... 15
11.2. Verification and Disclosure........................................................ 15
11.3. Audit.............................................................................. 15
12. TRANSFER................................................................................... 15
12.1. Transfer by Franchisee............................................................. 15
12.2. Pre-Conditions to Franchisee's Transfer............................................ 16
12.3. Franchisor's Approval of Transfer.................................................. 16
12.4. Right of First Refusal............................................................. 17
12.5. Types of Transfers................................................................. 17
12.6. Franchisee's Death or Disability................................................... 18
12.7. Transfer By Franchisor............................................................. 18
13. TERM AND EXPIRATION....................................................................... 18
13.1. Term of the Franchise.............................................................. 18
13.2. Rights Upon Expiration............................................................. 18
13.3. Exercise of Option For Successor Franchise......................................... 19
13.4. Conditions of Refusal.............................................................. 19
14. DEFAULT AND TERMINATION................................................................... 19
14.1. Termination - Effective Upon Notice................................................ 19
14.2. Termination - Fifteen Days Notice.................................................. 19
14.3. Termination - Thirty Days Notice................................................... 20
14.4. Franchisee's Right to Terminate Without Cause...................................... 20
14.5. Obligations of Franchisee Upon Termination or Expiration........................... 21
14.6. Acknowledgement.................................................................... 21
14.7. Governing State Law................................................................ 22
15. BUSINESS RELATIONSHIP...................................................................... 22
15.1. Independent Businesspersons........................................................ 22
15.2. Payment of Third Party Obligations................................................. 22
15.3. Indemnification.................................................................... 22
16. RESTRICTIVE COVENANTS...................................................................... 22
16.1. Non-Competition During Term........................................................ 22
16.2. Confidentiality of Proprietary Information......................................... 23
16.3. Prohibition Against Reshipment..................................................... 23
16.4. Remedies and Attorneys' Fees....................................................... 23
17. MISCELLANEOUS PROVISIONS................................................................... 23
17.1. Modification....................................................................... 23
</TABLE>
<PAGE>
<TABLE>
<S> <C>
17.2. Injunctive Relief.................................................................. 24
17.3. Waiver............................................................................. 24
17.4. Governing Law/Consent to Venue and Jurisdiction.................................... 24
17.5. Binding Effect..................................................................... 24
17.6. Invalidity......................................................................... 24
17.7. Prohibition Against Nonpayment..................................................... 25
17.8. Notices............................................................................ 25
17.9. No Violation or Interference....................................................... 25
17.10. Integration........................................................................ 25
17.11. Review of Agreement................................................................ 25
17.12. Attorney's Fees.................................................................... 25
17.13. No Right to Set Off................................................................ 26
17.14. Effective Date..................................................................... 26
17.15. Notice............................................................................. 26
</TABLE>
EXHIBITS
I Addendum to Franchise Agreement
II Personal Guaranty
III Statement of Ownership
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
FRANCHISE AGREEMENT
THIS AGREEMENT ("Agreement") is made effective_______________, 19___, by
and between Communications World International, Inc., a Colorado corporation,
located at 7315 South Revere Parkway, Suite 602, Englewood, Colorado 80112,
("Franchisor") and ____________________________________________________________
___________________________________ with its principal business address at:
___________________________________________________________ ("Franchisee"),
who, on the basis of the following understandings and recitals and in
consideration of the following promises, intending to be legally bound, agree as
follows:
1. RECITALS
1.1. The Franchisor is the owner and developer of certain business methods
("Licensed Methods") for operating businesses that market telephone and
telecommunications systems and equipment, and related products and services,
which Licensed Methods are used in connection with the Franchisor's service
marks "COMMUNICATIONS WORLD", "COMMWORLD" and other exclusive trademarks,
service marks, logotypes and trade names specifically associated with the
Franchisor ("Marks"). The Licensed Methods have been specially designed to
include, among other things, distinctive business methods for the conversion of
an existing, independent business into a business operated under the Marks.
1.2. The Franchisor utilizes the Marks and Licensed Methods in connection
with the franchising of businesses offering telephone and telecommunications
systems and equipment, and related products and services, for sale or lease to
customers.
1.3. The Franchisee desires to use the Marks and Licensed Methods in
connection with operation of a business offering telephone and
telecommunications systems and equipment, and related products and services for
sale or lease to customers, by obtaining from the Franchisor the right to
operate a franchised business ("COMMWORLD Business") under the Marks and in
accordance with the Licensed Methods.
1.4. The Franchisor desires to grant to the Franchisee the right and
license to operate a COMMWORLD Business under the terms and conditions which are
contained or otherwise referenced in this Agreement.
2. GRANT OF FRANCHISE
2.1. Grant of Franchise.
-------------------
The Franchisor grants to the Franchisee and the Franchisee accepts from the
Franchisor the right to use the Licensed Methods and Marks in connection with
the operation of a COMMWORLD Business. The Franchisee agrees to use the Marks
and Licensed Methods, as they may be changed, improved and further developed by
the Franchisor from time to time, only in accordance with the terms and
conditions of this Agreement.
2.2. Scope of Franchise Operations.
------------------------------
The Franchisee agrees to faithfully, honestly and diligently perform its
obligations hereunder, and to continuously use its best efforts to promote the
COMMWORLD Business. The Franchisee agrees to utilize the Marks and Licensed
Methods to operate all aspects of the business franchised hereunder, in
<PAGE>
accordance with the methods and systems developed and prescribed from time to
time by the Franchisor, all of which are a part of the Licensed Methods. The
grant of a franchise for the operation of a COMMWORLD Business shall include,
without limitation, the right to purchase certain telephone and
telecommunications products and equipment as may be available from product and
equipment manufacturers, vendors and suppliers with whom the Franchisor has
established central purchase programs ("Equipment Vendors"). The Franchisee's
COMMWORLD Business shall offer the categories of products and services
designated or recommended by the Franchisor, which may include, without
limitation, telephone and telecommunications products and equipment, related
products and equipment, coordination with local telephone companies and
installation technicians for the installation of equipment ordered by customers
of the Franchisee, demonstration equipment, service calls for repairs,
maintenance, and system additions, moves and changes for the Franchisee's
customers. Except with respect to the marketing and sale of telephone and
telecommunications products and equipment and other mandatory services as may be
designated by the Franchisor from time to time, the Franchisee may, with the
prior approval of the Franchisor, utilize an approved third party to provide the
related support services and ancillary products to customers of the COMMWORLD
Business.
2.3. Franchised Location.
--------------------
The Franchisee's COMMWORLD Business office shall be located at one licensed
location ("Franchised Location"), approved by the Franchisor and designated in
the addendum, attached hereto as Exhibit I and incorporated herein by reference
---------
("Addendum"). The Franchised Location may not be relocated without the prior
written consent of the Franchisor, which shall not be unreasonably withheld.
2.4. Marketing Area.
---------------
The Franchisee shall devote its primary and best efforts to developing and
operating the COMMWORLD Business, through the marketing and sales of telephone
and telecommunications products, equipment and services within a geographic area
of primary responsibility described in the Addendum ("Marketing Area"). The
Franchisee shall obtain the Franchisor's consent, which consent shall not be
unreasonably withheld, prior to making any sales of products purchased through
the Franchisor's product purchase programs to customers located outside of the
Franchisee's Marketing Area. The Franchisee acknowledges that the designation
of the Marketing Area shall in no manner prevent the Franchisor or another
Franchisee from conducting a COMMWORLD Business from a location within the
Marketing Area, nor shall it give the Franchisee exclusive rights to any
particular market, customers or accounts.
2.5. Franchisor's Reservation of Rights.
-----------------------------------
The Franchisee acknowledges that the franchise granted hereunder is
nonexclusive and that the Franchisor retains the rights, among others: (1) to
use, and to license others to use, the Marks and Licensed Methods for other
COMMWORLD Businesses at any location; (2) to advertise for, solicit, sell to and
service local, regional or national customers or accounts wherever located,
within or outside of the Marketing Area, subject to any policies or limitations
as may be set forth in the Franchisor's Operations Manual, described in Section
5.2 below, regarding Franchisee participation in servicing certain customers and
accounts; (3) to use the Marks and Licensed Methods in connection with the sale
of equipment, services, products, promotional and marketing efforts or related
items, materials or services which are the same as or different from those
offered and sold by the Franchisee, at any location; and (4) to use and license
the use of other proprietary marks which are not the same as or confusingly
similar to the Marks in connection with the operation of any type of telephone
and telecommunications business at any location, which is the same as, similar
to or different from the COMMWORLD Business, on any terms and conditions as the
Franchisor deems advisable, and without granting the Franchisee any rights
therein.
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3. FRANCHISE FEES
3.1. Initial Franchise Fee.
----------------------
The Franchisee shall pay an initial franchise fee in an amount which is set
forth in the Addendum, which entitles the Franchisee to use the Marks and
Licensed Methods of the Franchisor, to purchase certain telephone and
telecommunications products and equipment as may be available through the
Franchisor's product purchase programs, subject in certain circumstances to
approval from Equipment Vendors, and to avail itself of the services provided by
the Franchisor or offered for sale by the Franchisor. The initial franchise fee
is due and payable as of the date of execution of this Agreement unless
otherwise set forth in the Addendum. The Franchisee acknowledges and agrees
that the initial franchise fee represents payment for the initial grant of the
rights to use the Marks and Licensed Methods and that the Franchisor has earned
the initial franchise fee upon receipt thereof. The initial franchise fee is
therefore not refundable after payment thereof under any circumstances.
3.2. Cost-Up Royalty.
----------------
a. If the Franchisee desires to purchase certain products and
equipment from or through the Franchisor's purchase programs, then the
Franchisee may be required to pay to the Franchisor a mark-up ("Cost-Up
Royalty") based upon a percentage override of the cost incurred by the
Franchisor for the products or equipment ("Product Cost"). The Cost-Up
Royalty and those products and equipment on which it is charged shall be
designated by the Franchisor in the Operations Manual, described in Section
5.2 below, as may be updated periodically by the Franchisor. The Franchisor
does not require that the Franchisee purchase any products or equipment
from the Franchisor.
b. Payment for products and equipment purchased from or through the
Franchisor or its product purchase programs with Equipment Vendors shall be
due and payable within 30 days of the date of invoicing, if the Franchisee
has qualified for approved credit, or as may otherwise be established by
the Franchisor in the Operations Manual. The Franchisor may, in its sole
discretion, extend the time or manner of payment or change its invoicing
procedures in accordance with policies and procedures contained in its
Operations Manual. Delinquent payments shall be subject to a late charge
on any unpaid amounts equal to the lesser of: (1) 10% plus interest at 10
points over the prevailing prime interest rate at the Franchisor's
principal bank; or (2) the highest rate allowed by applicable law. In
addition, if the Franchisee is delinquent in the payment of any amounts due
for product or equipment purchases, the Franchisor shall have the right to
invoke such remedies as may be more fully described in the Operations
Manual, including without limitation, terminating this Agreement or
restricting the ability of the Franchisee to purchase products or equipment
from the Franchisor or its product purchase programs with Equipment
Vendors.
c. Nothing herein shall be construed to prevent the Franchisor from
marking up the cost of products and equipment sold to the Franchisee, or
from receiving commissions, cash or other items of benefit from any of the
Equipment Vendors, or from changing the manner in which the Franchisee's
costs for peripheral products purchased through the Franchisor's purchase
programs are calculated, including, without limitation, changing the
override calculation on peripheral products from a Cost-Up Royalty to a
published catalog price. "Peripheral" products refers to categories of
ancillary telecommunications products and parts offered through the
COMMWORLD Business, which shall be distinguished from categories of primary
and major products in the Operations Manual. Nor shall any provision
herein be construed to imply that the
3
<PAGE>
Franchisee shall receive a more favorable rate or price for products or
equipment purchased by or through the Franchisor and its purchase programs
than is available from other sources. The Franchisee acknowledges that
Product Cost may, in the Franchisor's sole determination, include direct
and indirect costs related to the acquisition of products and equipment by
the Franchisor and may be more or less than an Equipment Vendor's actual
price charged to the Franchisor.
d. The Franchisor may unilaterally change the Cost-Up Royalty which
is set by the Franchisor and charged to the Franchisee without prior
notice, but such change shall not be applicable to any orders placed by the
Franchisee prior to the date of the change.
4. FRANCHISEE'S DEVELOPMENT AND CONVERSION OBLIGATIONS
4.1. Conversion and Commencement of Operations.
------------------------------------------
The Franchisee shall have 90 days from the date of this Agreement within
which to commence operation of the COMMWORLD Business or convert any telephone
and telecommunications business and premises which it operates as of the date of
this Agreement ("Conversion Business") into a COMMWORLD Business. Conversion
will be considered to have occurred when all other terms and conditions for
development and conversion as described in this Article 4 are completed. The
Franchisor will extend the time in which the Franchisee has to convert its
operations into a COMMWORLD Business for a reasonable period of time in the
event factors beyond the Franchisee's reasonable control prevent the Franchisee
from meeting this development schedule, so long as the Franchisee has made
reasonable and continuing efforts to comply with such development and conversion
obligations and the Franchisee requests, in writing, before the end of the 90
day period, an extension of time within which to have the COMMWORLD Business
operating. The Franchisor will notify the Franchisee within seven business days
of approval or disapproval of the proposed Franchised Location and extend the 90
day time period for approval of Franchisee's Franchised Location for a
reasonable period of time if the Franchisee selects a site within 90 days and
the Franchisor disapproves of the Franchisee's site.
4.2. Product Authorization.
----------------------
The Franchisee, at its option, may determine the product and equipment
brands, if any, which it shall initially purchase from or through the
Franchisor's available product purchase programs and such product and equipment
brands shall be designated in the Addendum. The Franchisee shall then qualify
or otherwise obtain the authorization to purchase and resell such product and
equipment brands from the Equipment Vendor and/or from the Franchisor, as may be
applicable. The Franchisor will only supply the Franchisee with products if the
Franchisee has been authorized by the Equipment Vendor to receive, market and
resell products. Equipment Vendors may change their requirements for obtaining
and maintaining authorizations at any time and from time to time, without prior
notice. The Franchisor makes no guaranties, warranties or representations that
the Franchisee may be able to obtain or maintain any authorizations and the
Franchisor does not assume any liability in the event that authorizations are
terminated, cancelled, not obtained or otherwise not available to the
Franchisee. Any initial designation of product or equipment brands in the
Addendum shall in no way limit the Franchisee's right to discontinue such brands
or to attempt to obtain authorization to purchase additional product or
equipment brands from or through the Franchisor's available product purchase
programs.
4.3. Franchised Location.
--------------------
The Franchisee shall obtain the Franchisor's approval of its Franchised
Location, which approval shall not be unreasonably withheld, prior to commencing
operation of a COMMWORLD Business at the premises. The Franchisor will notify
the Franchisee within 7 business days of approval or disapproval of
4
<PAGE>
the Franchised Location and extend the 90 day time period for approval of the
Franchisee's Franchised Location for a reasonable period of time if the
Franchisee selects a site within 90 days and the Franchisor disapproves of the
Franchisee's site. In the case of a Conversion Business, execution of this
Agreement shall be deemed approval of the Franchised Location by the Franchisor,
unless additional obligations to convert or upgrade the business office at the
location are described in the Addendum.
4.4. Acquisition of Inventory and Equipment.
---------------------------------------
The Franchisee shall have available for such customer calls and resultant
customer orders all demonstration equipment, displays, vehicles, minimum
inventory and other products and equipment meeting the minimum standards and
specifications of the Franchisor. The Franchisee shall affix such signs
identifying its COMMWORLD Business, vehicle, demonstration equipment and other
items which display the Franchisor's Marks, in a manner which may be set forth
in the Operations Manual. The Franchisee shall use no name, mark or other
designation in connection with signs, vehicle identification and other items
displaying the Franchisor's Marks except as may be approved in writing by the
Franchisor. It is understood that the Marks shall be displayed in connection
with the COMMWORLD Business as prominently or more prominently than the
Franchisee's current legal name or trade name.
4.5. Licenses and Permits.
---------------------
The Franchisee shall be fully responsible for having in place prior to
commencement of operation as a COMMWORLD Business all required licenses to
conduct all business which is a part of the Licensed Methods, as may be required
by applicable federal, state or local law or ordinance and shall have supplied
the Franchisor with copies of or other documentation of such licenses.
4.6. Coordination of Telecommunications Services.
--------------------------------------------
The Franchisee shall, prior to commencement of operation of a COMMWORLD
Business, have established a relationship or made other arrangements with the
local telephone company as may be necessary to conduct the COMMWORLD Business.
The Franchisee, itself or through an agreement or arrangement with another third
party approved by the Franchisor, shall have in place prior to commencement of
operation of its COMMWORLD Business, the operational capability to provide
installation services, maintenance and repair calls, system additions, moves and
change services and parts and inventory for the benefit of its customers within
the Marketing Area.
5. FRANCHISOR'S DEVELOPMENT AND CONVERSION ASSISTANCE
5.1. Orientation Program.
--------------------
The Franchisor shall provide an initial orientation program to be held at
the Franchisor's principal offices or at such other location as may be
determined in the Franchisor's reasonable discretion. The orientation will last
approximately 2 to 5 days and will be scheduled from time to time when the
Franchisor determines, in its reasonable discretion, that a minimum number of
persons will attend. The orientation program will include an introduction to
the Franchisor's Licensed Methods and may, at the Franchisor's option, include
instruction in business planning, personnel training and management techniques.
The Franchisee, or if the Franchisee is not an individual, the person designated
by the Franchisee to assume primary responsibility for the management of the
COMMWORLD Business ("Principal Operator") must attend and successfully complete
the initial orientation program, provided however, that if the Franchisee is
operating a Conversion Business, the Franchisee will not be required to attend
or complete the orientation program. The Franchisee acknowledges that it is
responsible for any of its employees' travel and living expenses associated with
attendance at such orientation.
5
<PAGE>
5.2. Operations Manual.
------------------
The Franchisor shall loan to the Franchisee during the term of this
Agreement one copy of the Franchisor's Operations Manual. The Operations Manual
may be contained in one or more designated written publications provided by the
Franchisor, all of which are collectively referred to in this Agreement as the
"Operations Manual." The Operations Manual is the sole property of the
Franchisor and is to be used by the Franchisee only during the term of this
Agreement and in accordance with the terms and conditions hereof. The
Operations Manual will be updated periodically by the Franchisor. The
Franchisee shall update the Operations Manual as instructed by the Franchisor
and shall conform its operations with the updated provisions within 30 days
thereafter or as may be otherwise agreed upon by the parties. Modifications to
the Operations Manual may reflect changes in the image, specifications,
standards, procedures, products and Licensed Methods to be utilized in the
COMMWORLD Business, provided that no such addition or modification shall alter
the Franchisee's fundamental status and rights hereunder. The master copy of
the Operations Manual maintained by the Franchisor at its principal office shall
be controlling in the event of a dispute relative to the content of any
provision therein.
5.3. Product Authorizations.
-----------------------
The Franchisor shall assist the Franchisee in the preparation and
submission of applications for authorization to sell the products and equipment
of Equipment Vendors whose products and equipment the Franchisee has designated
in the Addendum as being those brands it desires to initially sell through the
COMMWORLD Business.
6. FRANCHISOR'S OPERATING ASSISTANCE
6.1. Franchisor's Assistance.
------------------------
The Franchisor agrees to provide the Franchisee with the following
operating assistance:
a. Provision and updating of the Operations Manual, which contains
certain standards and specifications for the operation of the COMMWORLD
Business, information regarding Equipment Vendors, product and equipment
purchase information, standards for marketing and advertising the
COMMWORLD Business and guidelines for authorized products and services to
be offered through the COMMWORLD Business.
b. Provision of telephone and telecommunications product and
equipment price information, to be included in the Operations Manual or
other form as may be designated by the Franchisor, describing the items
available through Equipment Vendors and their current prices which are
available to the Franchisee from or through the Franchisor and its product
purchase programs.
c. When available, provision of sales leads on a non-exclusive basis
to the Franchisee in the Marketing Area, divided up amongst COMMWORLD
Businesses within the vicinity, in the Franchisor's sole discretion.
6.2. Franchisor's Optional Services.
-------------------------------
The Franchisor may make available to the Franchisee, at the Franchisor's
then current charges, if any, the following additional support services and
products:
6
<PAGE>
a. Standardized business forms, including stationery and business
cards.
b. If reasonably requested to do so by the Franchisee, the
Franchisor may provide assistance to the Franchisee in coordinating the
availability of follow-up and support telecommunications services through
the local phone company, installation, repair and maintenance, system
additions, moves and changes and other telephone and telecommunications
services to support the Franchisee's customers within its Marketing Area.
c. Continuing sales training and other training and support services
as may be created or established by the Franchisor in the Franchisor's sole
discretion; provided, however, such training and support services may
require that certain standards, conditions or other requirements of uniform
application must be met in order to qualify for participation in the
training or for utilization of the services.
d. Ongoing assistance to the Franchisee in obtaining and maintaining
the requisite authorizations from the Equipment Vendors or otherwise
qualifying for participation in national or central purchase programs, in
order to establish and maintain the categories and brands of product and
equipment which the Franchisee desires to market and sell through the
COMMWORLD Business.
e. Special promotional advertising and marketing programs, as may be
developed by the Franchisor or Equipment Vendors and made available to the
Franchisee from time to time.
6.3. Assistance in the Marketing Area.
---------------------------------
In the event that the Franchisee desires additional assistance from the
Franchisor in operating its COMMWORLD Business which necessitates that the
Franchisor visit the Franchisee's Franchised Location or Marketing Area, the
Franchisee may request, in writing, that a representative of the Franchisor
visit the COMMWORLD Business to assist the Franchisee. Prior to such visit, the
Franchisee and the Franchisor shall agree in writing as to the compensation to
be paid for any such additional assistance.
7. FRANCHISEE'S OPERATIONAL COVENANTS
7.1. Franchised Location.
--------------------
The Franchisee shall obtain the Franchisor's prior written approval of a
location before entering into a lease or purchase agreement for the office
premises proposed as a Franchised Location hereunder. The execution of this
Agreement for a Conversion Business shall be deemed approval of the lease or
purchase agreement for the Franchised Location, unless otherwise noted in the
Addendum. The Franchisee shall not sublease or share any portion of the
Franchised Location with any business which is not the COMMWORLD Business
without the prior written consent of the Franchisor. The Franchisee shall
obtain a separate, dedicated telephone line for its COMMWORLD Business at the
Franchised Location. The Franchisee shall also obtain and maintain White Page,
Yellow Page, and information listings predominantly displaying the Franchisor's
Marks, in a manner as may be set forth in the Operations Manual. The COMMWORLD
Business office at the Franchised Location shall have available telephone
reception or answering service capabilities and shall be staffed in accordance
with the standards as may be set forth in the Operations Manual.
7
<PAGE>
7.2. Compliance With Operations Manual.
----------------------------------
The Franchisee shall maintain and operate the COMMWORLD Business in
compliance with this Agreement and the standards and specifications contained in
the Operations Manual, as it may be modified from time to time. The Franchisee
shall use the Marks and Licensed Methods only as specified in the Operations
Manual. The standards and specifications set forth in the Operations Manual are
incorporated into this Agreement, and a material breach of such standards and
specifications by the Franchisee may, in the sole discretion of the Franchisor,
be deemed a material breach of this Agreement. The Franchisee shall not
duplicate the Operations Manual or disclose its contents to persons other than
employees of its COMMWORLD Business, and then only to the extent the disclosure
of such information is necessary for the operation of the COMMWORLD Business.
The Franchisee shall return the Operations Manual to the Franchisor upon the
expiration or termination of this Agreement or transfer of the franchise.
7.3. Improvements to Licensed Methods.
---------------------------------
The Franchisee acknowledges that the Franchisor may supplement, improve or
otherwise alter the Licensed Methods, including the addition or elimination of
products or services offered to customers. The Franchisee acknowledges that
Franchisor shall have sole control and discretion over all supplements,
improvements, alterations and development of the Licensed Methods, and the
products and services offered thereunder; that this control and discretion is in
the best interests of the Franchisor and all of its Franchisees; and that
Franchisee will comply with all of Franchisor's requirements concerning the
Licensed Methods and improvements thereto.
7.4. Confidentiality.
----------------
The Franchisee shall maintain the confidentiality of all of the elements of
the Licensed Methods, the Operations Manual and the Franchisor's methods of
doing business. In furtherance of the foregoing, the Franchisee shall fully
comply with all restrictive covenants set forth in Article 16 of this Agreement.
7.5. Reports and Records.
--------------------
The Franchisee shall supply to the Franchisor reports and keep records in a
manner and form as the Franchisor may from time to time reasonably require, as
more fully described in Article 11 of this Agreement.
7.6. Compliance With Laws.
---------------------
The Franchisee shall operate its COMMWORLD Business in compliance with all
applicable federal, state and local laws, rules, regulations and statutes. The
Franchisee is responsible for acquiring and maintaining all local licenses,
approvals, permits and authorizations necessary for operation of the COMMWORLD
Business.
7.7. Third Party Obligations.
------------------------
The Franchisee shall promptly pay when due, all taxes and other third party
obligations incurred in the operation of the COMMWORLD Business and shall comply
with all agreements with third parties which affect or relate to the COMMWORLD
Business, including, in particular, all provisions of any agreements with
telecommunications support service providers and all commitments to customers
and accounts for the provision of telephones and telecommunications products and
equipment.
8
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7.8. Operation and Management of Business.
-------------------------------------
The Franchisee shall cause a person who has been trained in and is
familiar with the Licensed Methods to be responsible for the management of the
COMMWORLD Business at all times during the Franchisee's hours of operation. The
Franchisee shall provide to the Franchisor a list of all management personnel
and keep the list updated to reflect changes in personnel. In addition:
a. The Franchisee shall refrain from operating or engaging in any
other type of business or profession through the COMMWORLD Business other
than has been previously authorized in writing by the Franchisor.
b. The Franchisee shall at all times operate the COMMWORLD Business
in such a manner so as to not detract from or adversely reflect upon the
name and reputation of the Franchisor and the goodwill associated with the
Marks.
c. The Franchisee shall at all times during the term of this
Agreement own and control the COMMWORLD Business authorized hereunder.
Upon request, the Franchisee shall promptly provide satisfactory proof of
such ownership to the Franchisor. The Franchisee represents that the
Statement of Ownership, attached hereto as Exhibit III and by this
-----------
reference incorporated herein, is true, complete, accurate and not
misleading, and, in accordance with the information contained in the
Statement of Ownership, the controlling ownership of the COMMWORLD
Business is to be held by the Franchisee executing this Agreement. The
Franchisee shall promptly provide the Franchisor with a written
notification if the information contained in the Statement of Ownership
changes at any time during the term of this Agreement and shall comply
with the applicable transfer provisions contained in Article 12 herein. If
the Franchisee is not an individual, an individual or individuals
designated by the Franchisor shall guaranty the performance of the
Franchisee hereunder by execution of the Guaranty attached hereto as
Exhibit II and by this reference incorporated herein.
----------
7.9. Coordination of Related Telecommunications Services.
----------------------------------------------------
The Franchisee shall at all times during the term of the Agreement
maintain the operational capability, itself or through an agreement or
arrangement with a third party approved by the Franchisor, to provide
installation services, maintenance and repair calls, system additions, moves and
changes and parts and inventory for the benefit of its customers within the
Marketing Area.
7.10. Continuing Training.
--------------------
The Franchisee or its Principal Operator shall attend any on-going
mandatory national, regional or local training programs or meetings as may be
offered by the Franchisor. The Franchisor shall give the Franchisee at least
30 days prior written notice of any on-going programs or meetings which are
deemed mandatory. Any such mandatory training programs shall be offered without
fee or tuition; however, the Franchisee shall be responsible for traveling and
living expenses associated with its attendance. Certain Equipment Vendors may
also require that the Franchisee attend training sessions as a condition of
giving their authorization to the Franchisee to sell such Equipment Vendor's
products and equipment. The Franchisee shall comply with all training standards
of the vendors it chooses to utilize in connection with the particular products
and equipment sold through the COMMWORLD Business.
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7.11. Insurance.
----------
The Franchisee agrees to purchase and maintain at all times, and at its
own expense, the following policies of insurance with respect to the COMMWORLD
Business:
a. Commercial general liability insurance for the COMMWORLD Business
premises and operations covering bodily injury and property damage,
including without limitation, premises/operations, independent
contractors, product/completed operations, personal injury and blanket
contractual liability, with a limit of not less than One Million Dollars
($1,000,000) combined single limit per occurrence, Two Million Dollars
($2,000,000) annual aggregate;
b. Automobile liability insurance covering all owned, hired and non-
owned vehicles of the COMMWORLD Business in an amount not less than One
Million Dollars ($l,000,000) per occurrence;
c. Unemployment and workers' compensation insurance with a broad
form all-states endorsement coverage sufficient to meet the requirements
of the law including employer's liability; and
d. All-risk replacement cost personal property insurance in an
amount equal to at least one hundred percent (100%) of the replacement
cost of the contents and tenant improvements of the COMMWORLD Business.
All of the above policies of insurance shall name the Franchisor as an
additional insured and loss payee and shall contain a requirement of 30 days
advance written notice to the Franchisor of cancellation. The Franchisee shall
provide the Franchisor with certificates of insurance on an annual basis showing
such policies to be in full force and effect (or a continuous certificate of
insurance) and evidence that such policies have been renewed and premiums paid
prior to expiration. The Franchisor reserves the right to require the
Franchisee to notify the Franchisor of all claims made under the policies.
8. QUALITY CONTROL
8.1. Standards and Specifications.
-----------------------------
The Franchisor will make available to the Franchisee standards and
specifications for services, products, equipment and parts offered at or through
the COMMWORLD Business and the marketing techniques, telephone and
telecommunications products, equipment and parts, ancillary products,
installation, repair and maintenance, and system additions, moves and change
services, materials, forms, and supplies used in connection with the franchised
business. The Franchisor reserves the right to change standards and
specifications regarding the COMMWORLD Business upon 30 days prior written
notice to the Franchisee. The Franchisor may, but shall not be obligated to,
implement, employ and enforce any minimum standards and specifications as may be
required by Equipment Vendors whose products or equipment the Franchisee has
chosen to purchase and offer for sale through its COMMWORLD Business, as a part
of the Licensed Methods of the Franchisor.
8.2. Inspections.
------------
The Franchisor shall have the right to examine the Franchised Location,
including the inventory, products, equipment, materials or supplies, to ensure
compliance with all standards and specifications set by the Franchisor. The
Franchisor shall conduct such inspections during regular business hours and the
Franchisee may be present at such inspections.
10
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8.3. Categories of Inventory.
------------------------
In order to maintain the quality of inventory and service standards
consistent with the COMMWORLD Business image, the categories of inventory
offered by the Franchisee through the COMMWORLD Business shall be subject to the
Franchisor's prior approval. The term "category" shall be considered a broad
description of a type of product offered and is not meant to restrict the brands
of products which may be carried, except to the extent certain brands may not
meet the minimum standards and specifications of the Franchisor. For the
purposes of this Agreement, approved categories of inventory shall include, at a
minimum, telephone and telecommunications products and equipment, ancillary
products and equipment as may be listed in the Operations Manual and
demonstration equipment. Within a particular category, the selection of
inventory brands shall be up to the discretion of the Franchisee, provided that
the Franchisee notifies the Franchisor of the product brands which are to be
sold at or through the COMMWORLD Business, and that the product and equipment
quality standards and specifications of the Franchisor are met. The Franchisee
shall be notified of any such standards through written communications from the
Franchisor, and such standards shall become effective 30 days from the date of
mailing of the written communication. The Franchisee shall not offer or sell
any products or services to other COMMWORLD Businesses without obtaining the
Franchisor's prior written approval.
8.4. Additional Categories of Inventory.
-----------------------------------
If the Franchisee proposes to purchase and resell a category of inventory
not previously approved by the Franchisor as meeting its specifications, the
Franchisee shall first notify the Franchisor requesting approval. The
Franchisor shall not unreasonably withhold its approval, provided that the
category of inventory does not conflict with or is not inconsistent with the
COMMWORLD Business image associated with the Marks and Licensed Methods, and
meets the Franchisor's minimum product quality standards. The Franchisor will
advise the Franchisee within a reasonable time whether such additional
categories of inventory meet its specifications.
8.5. Approved Suppliers.
-------------------
The Franchisee shall purchase all products, equipment, parts, services,
supplies and materials required for the operation of the COMMWORLD Business
licensed herein, from vendors, manufacturers, suppliers or distributors
(collectively referred to herein as "Suppliers") approved by the Franchisor as
meeting the Franchisor's specifications and standards as to quality,
technological capability, composition, appearance and service, and adequately
demonstrating their capacity and facilities to supply the Franchisee's needs in
the quantities, at the times, and with the reliability requisite to an efficient
operation. In the event the Franchisee intends to purchase products, equipment,
parts, services, supplies or materials from Suppliers other than those
previously approved by the Franchisor, the Franchisee shall submit to the
Franchisor a written request for approval of the proposed Supplier and such
Supplier must meet the minimum standards and specifications of the Franchisor.
Upon submission of such written request, the Franchisee may begin to use the
proposed Supplier. Provided however, that the Franchisor reserves the right to
reject the intended new Supplier within 60 days after the receipt of the
Franchisee's notice, by notifying the Franchisee in writing of its rejection.
Any products, equipment, parts, services, supplies and materials purchased by
the Franchisee from the Supplier prior to notification of rejection by the
Franchisor will not be considered to be a violation of this provision. Failure
to notify the Franchisee within such time period shall constitute a waiver of
any and all objections by the Franchisor to the new Supplier. The Franchisor's
approval of the Franchisee's intended Suppliers shall not be unreasonably
withheld, so long as the minimum standards and specifications of the Franchisor
are met. The Franchisor
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reserves the right to revoke such approval if such Supplier subsequently fails
to meet the Franchisor's standards and specifications.
8.6. Modifications.
-------------
The Franchisor reserves the right to change its published standards and
specifications regarding the development and operation of the COMMWORLD Business
from time to time upon 30 days prior written notice to the Franchisee, except
with respect to changes in pricing on which Cost-Up Royalty is based, in which
case, there will be an immediate change in Cost-Up Royalty cost to the
Franchisee, without prior notice.
9. PROPRIETARY MARKS
9.1. Marks and Licensed Methods.
--------------------------
The Franchisee acknowledges that the Marks and the Licensed Methods are the
Franchisor's sole and exclusive property and they may not be duplicated or
distributed to or used by anyone unless the Franchisor first gives its
permission, and that the Franchisee's only rights in the Marks and the Licensed
Methods are as set forth in this Agreement. The Franchisee shall not offer or
sell any products or services related to telephone or telecommunications systems
or equipment or related products or services except in connection with the Marks
and the Franchisee shall not offer or sell any products or services in
connection with the Marks without the Franchisor's prior written consent. The
Franchisor warrants that it will use diligence and best efforts to insure that
its use of the Marks and Licensed Methods shall be of a high standard and be
adequate and suited to the protection and enhancement of the Marks and Licensed
Methods. Except as permitted in the Operations Manual, the Franchisee agrees
not to use any of the Marks as part of an electronic mail address or on any
sites on the Internet or World Wide Web and the Franchisee agrees not to use or
register any of the Marks as a domain name on the Internet. Any unauthorized
use by the Franchisee of the Marks and Licensed Methods shall constitute an
infringement of the rights of the Franchisor, for which the Franchisee may be
liable for damages or subject to equitable relief for the benefit of the
Franchisor. The Franchisee acknowledges and agrees that its use of the Marks
and any goodwill established thereby shall inure to the Franchisor's exclusive
benefit and that this Agreement does not confer any goodwill or similar interest
in the Marks upon the Franchisee.
9.2. Franchisee's Business Name.
--------------------------
The Franchisee acknowledges that the Franchisor has a prior and superior
claim to the COMMUNICATIONS WORLD and COMMWORLD trade names. The Franchisee
shall not use the words "COMMUNICATIONS WORLD" or "COMMWORLD" in the legal name
of its corporation, partnership or any other business entity used in conducting
the business provided for in this Agreement. The Franchisee also agrees not to
register or attempt to register a trade name using the words "COMMUNICATIONS
WORLD" or "COMMWORLD", in the Franchisee's name or that of any other person or
business entity, without prior written consent of the Franchisor. When this
Agreement is terminated, the Franchisee shall execute any assignment or other
document the Franchisor requires to transfer to itself any rights the Franchisee
may possess in a trade name utilizing the words "COMMUNICATIONS WORLD" or
"COMMWORLD" or any other Mark owned by the Franchisor.
9.3. Trademark Infringement.
----------------------
The Franchisee shall notify the Franchisor in writing of any possible
infringement or illegal use by others of a trademark, service mark or logotype,
the same as or confusingly similar to the Marks covered by this Agreement which
may come to its attention. The Franchisee acknowledges that the
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Franchisor shall have the right to determine whether action will be taken on
account of any possible infringement or illegal use. The Franchisor shall
commence or prosecute such action in the Franchisor's own name and may join the
Franchisee as a party thereto, if the Franchisor determines it to be reasonably
necessary for the continued protection and quality control of the Marks and
Licensed Methods. The Franchisor shall bear the reasonable cost of any such
action, including attorneys' fees. In no event may the Franchisee institute any
action on account of any possible infringement or illegal use of the Marks.
9.4. Change of Proprietary Marks.
---------------------------
In the event that the Franchisor, in its sole discretion, shall determine
to modify or discontinue use of the Marks, or to develop additional or
substitute proprietary marks, the Franchisee shall, within a reasonable time
after receipt of written notice of such a modification or discontinuation from
the Franchisor, take such action, at the Franchisee's sole expense, as may be
necessary to comply with such modification, discontinuation, addition or
substitution. The Franchisor shall not be obligated to reimburse the Franchisee
for any loss of goodwill associated with any modifications or discontinuance of
the Marks or for any expenditures made by the Franchisee to promote a modified
or substitute trademark or service mark.
10. ADVERTISING
10.1. Approved Advertising.
--------------------
The Franchisee shall use only written advertising or other marketing or
promotional programs in connection with the COMMWORLD Business which have been
previously approved by the Franchisor as being in accordance with minimum
standards and specifications for advertising and marketing, including, without
limitation, minimum standards and specifications for telephone directory
advertising, direct mail pieces, Internet and World Wide Web sites and telephone
sales programs. If the general form or content of proposed advertising or
marketing items have not been previously approved by the Franchisor, then such
proposed written advertising or a description of the marketing or promotional
program shall be submitted to the Franchisor at least 10 days prior to
publication, broadcast or use. The Franchisee shall only advertise within the
Franchisee's Marketing Area and shall place advertising only in publications
which have more than one half of their circulation within the Franchisee's
Marketing Area. The Franchisee acknowledges that advertising and promoting the
COMMWORLD Business in accordance with the Franchisor's standards and
specifications is an essential aspect of the Licensed Methods, and the
Franchisee agrees to comply with all advertising standards and specifications.
10.2. Advertising Fee.
---------------
The Franchisor reserves the right to charge the Franchisee, in addition to
Royalties, an advertising fee of up to 0.5% of the total amount of the
Franchisee's gross sales ("Advertising Fee"). For purposes of this Section,
"Gross Sales" shall be defined as the aggregate amount received by the
Franchisee from all sales, services, products and merchandise which is sold from
or through the Franchised Business, less sales taxes. The Franchisor will
provide the Franchisee with no less than 30 days prior written notice before
commencing the collection of all or a portion of the Advertising Fee chargeable
hereunder. In the event that the Franchisor charges all or a portion of the
Advertising Fee, the following terms and conditions will apply:
a. The Advertising Fee shall be mailed to the Franchisor, postmarked
no later than the 15th day of each month, for all Advertising Fees based on
Gross Sales for the immediately preceding month.
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b. In the event that the Franchisee fails to pay any Advertising Fees
within 10 days after they are due, the Franchisee shall be required to pay
interest on the amount of unpaid Advertising Fees at the rate of 1.5%
percent per month, provided however, that in no event shall the Franchisee
be required to pay interest at a rate greater than the maximum interest
rate permitted by applicable law.
c. Any Advertising Fee collected by the Franchisor will be deposited
by the Franchisor in one or more separate bank accounts, commercial
accounts or savings accounts (referred herein collectively as "Account"),
all designated as "COMMWORLD Franchise Advertising Account."
d. Upon written request by the Franchisee, the Franchisor will make
available to the Franchisee, no later than 120 days after the end of each
calendar year, an annual financial statement for the Account which
indicates how deposits to the Account have been spent.
e. The Account, if and when established, will be administered by the
Franchisor, in its sole discretion, and may be used for production and
placement of media advertising, direct response literature, direct
mailings, brochures, collateral material advertising, surveys of
advertising effectiveness, or other advertising or public relations
expenditures relating to advertising the Franchisee's services and
products.
f. The Franchisor may reimburse itself for independent audits,
reasonable accounting, bookkeeping, reporting and legal expenses, taxes,
overhead expenses, salaries and other reasonable direct and indirect
expenses as may be incurred by the Franchisor or its authorized
representatives in connection with the programs funded by the Account. The
Franchisor will not be liable for any act or omission with respect to such
Account which is consistent with this Agreement and is done in good faith.
The Advertising Fee will be charged to and collected from the Franchisee only in
the event and to the extent the Franchisor implements the change on either a
regionwide or national basis; provided, however, the Franchisor makes no
guarantee to the Franchisee that the Account will ever be established or that
COMMWORLD Franchisees will ever be charged for the Advertising Fees and that, if
established, the advertising expenditures from the Account will benefit the
Franchisee directly on a pro rata basis.
10.3. Regional Advertising Programs.
-----------------------------
Although not obligated to do so, the Franchisor reserves the right to
allocate all or a portion of the Advertising Fees as may be collected in
accordance with Section 10.2 above toward a regional advertising program for the
benefit of COMMWORLD franchisees located within a particular region. The
Franchisor has the right, in its sole discretion, to determine the composition
of all geographic territories and market areas for the implementation of such
regional advertising and promotion campaigns and to require that the Franchisee
participate in such regional advertising programs and campaigns as and when they
may be established by the Franchisor. If a regional advertising program is
implemented on behalf of a particular region by the Franchisor, the Franchisor,
to the extent reasonably calculable, will only use contributions from COMMWORLD
franchisees within such region for the particular regional advertising program.
The Franchisor also reserves the right to establish an advertising cooperative
for a particular region to enable the cooperative to self-administer the
regional advertising program. If a regional advertising cooperative is
established by the Franchisor, the Franchisee agrees that it will participate in
the same.
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11. REPORTS AND RECORDS
11.1. Reporting and Record Keeping.
-----------------------------
The Franchisee agrees to comply with such reporting and record keeping
requirements as may be specified by the Franchisor and as may be reasonably
necessary to confirm the Franchisee's compliance with this Agreement or to
compile studies and surveys relating to the Franchisor's evaluation and
improvement of the Licensed Methods. Books and records of the COMMWORLD
Business shall be kept at the Franchisee's Franchised Location or some other
alternative location as may be approved by the Franchisor. The Franchisee shall
furnish to the Franchisor such information regarding the COMMWORLD Business in a
form as the Franchisor may reasonably request from time to time which may
include, but not be limited to, monthly reports showing gross sales of products
and equipment purchased and sold by the COMMWORLD Business, according to product
vendor, and a quarterly profit and loss statement and balance sheet for the
COMMWORLD Business, prepared in accordance with generally accepted accounting
principles.
11.2. Verification and Disclosure.
---------------------------
Each report and financial statement shall be signed and verified by the
Franchisee. The Franchisor shall have the right to disclose data derived from
such sales reports, without identifying the Franchisee, except to the extent
required by law. The Franchisor shall have the right to independently verify
the information received from the Franchisee, in any reasonable manner and upon
reasonable prior notice given to the Franchisee and the Franchisee agrees to
cooperate with the Franchisor and/or its representatives in the event that the
Franchisor deems such verification necessary.
11.3. Audit.
-----
Commencing at such time that the Franchisor begins collection of the Advertising
Fee as described in Section 10.2, it shall have the right to review, inspect
and/or audit the COMMWORLD Business books and records at any time during regular
business hours, at the Franchisor's expense. "Books and records" includes, but
is not limited to, all books and records of the COMMWORLD Business, local, state
and federal tax returns and reports, cash register tapes, sales slips and bank
statements. In the event that any audit discloses an understatement of the
Franchisee's Gross Sales of the COMMWORLD Business, the Franchisee shall
immediately pay all deficiencies which may be due and owing to the Franchisor,
including interest at 18% per annum. In addition, if such audit reflects
underpayment to the Franchisor by 5% or more, the Franchisee will bear the
entire cost of such audit and all related reasonable expenses.
12. TRANSFER
12.1. Transfer by Franchisee.
----------------------
The franchise granted herein is personal to the Franchisee and, except as
stated below, the Franchisor shall not allow or permit any transfer, assignment,
subfranchise or conveyance of this Agreement or any interest hereunder. The
failure of the Franchisee to abide by the provisions of this Article 12 may be
considered by the Franchisor to be a material default by the Franchisee under
the terms of this Agreement. As used in this Agreement, the term "transfer"
includes the Franchisee's voluntary, involuntary, direct or indirect assignment,
sale, gift or other disposition of any interest in (1) this Agreement; (2) the
Franchisee entity; (3) the COMMWORLD Business governed by this Agreement; or (4)
all or a substantial portion of the assets, including but not limited to the
customer list, of the Franchisee's COMMWORLD Business.
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12.2. Pre-Conditions to Franchisee's Transfer.
---------------------------------------
The Franchisee shall not engage in a transfer unless the Franchisee
obtains the Franchisor's written consent and the Franchisee and the proposed
transferee comply with the following conditions:
a. All amounts due and owing pursuant to this Agreement by the
Franchisee to the Franchisor or its affiliates or to third parties whose
debts or obligations the Franchisor has guaranteed on behalf of the
Franchisee, if any, are paid in full;
b. The proposed transferee agrees to operate the business as a
COMMWORLD Business and agrees to satisfactorily complete the initial
training program described in this Agreement, which training may be
completed by the transferee either prior to or immediately after the
transfer is effective;
c. The proposed transferee agrees to execute the then current form of
franchise agreement which shall supersede this Agreement in all respects.
If a new franchise agreement is signed, the terms thereof may differ from
the terms of this Agreement; provided however, the transferee will not be
required to pay any initial franchise fees;
d. The Franchisee provides written notice to the Franchisor 30 days
prior to the proposed effective date of the transfer and includes
information reasonably detailed to enable the Franchisor to evaluate the
terms and conditions of the proposed transfer which, at a minimum, includes
a written offer from the proposed transferee;
e. The proposed transferee provides information to the Franchisor
sufficient for the Franchisor to assess the proposed transferee's business
experience, aptitude and financial qualification, and the Franchisor
approves the proposed transferee as a franchisee;
f. The Franchisee and each of the Owners (defined in Section 12.6
below) of the Franchisee execute a general release, in a form satisfactory
to the Franchisor, of any and all claims against the Franchisor, its
affiliates and their respective officers, directors, employees and agents;
g. The Franchisee or the proposed transferee pay a transfer fee equal
to 20% of the then current initial franchise fee charged to new franchisees
or, if no franchises are then currently being offered by the Franchisor,
the sum of $2,000;
h. The Franchisee agrees to abide by all covenants set forth herein,
including, without limitation, the confidentiality provision in Section
16.2 below; and
i. Prior to the effective date of the transfer, the proposed
transferee shall have received all Equipment Vendor's authorizations as may
be required by the Franchisor pursuant to Section 4.2 of this Agreement.
12.3. Franchisor's Approval of Transfer.
---------------------------------
The Franchisor shall have 30 days from the date of the written notice to
approve or disapprove in writing, of the Franchisee's proposed transfer. The
Franchisee acknowledges that the proposed transferee shall be evaluated for
approval by the Franchisor based on the same criteria as is currently being used
to assess new franchisees of the Franchisor and such proposed transferee shall
be provided, if appropriate, with such disclosures as may be required by state
or federal law. If the Franchisee and its proposed
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transferee comply with all conditions for transfer set forth herein and the
Franchisor has not given the Franchisee notice of its approval or disapproval
within such 30 day period, approval is deemed granted.
12.4. Right of First Refusal.
----------------------
In the event that the Franchisee wishes to engage in a transfer, the
Franchisee hereby grants to the Franchisor or its designee, a 30 day right of
first refusal to purchase the interest proposed to be transferred on the same
terms and conditions as are contained in the written notice set forth in Section
12.2.d; provided however, the following additional terms and conditions shall
apply:
a. The parties acknowledge that the Franchisor's right of first
refusal shall include the right of first refusal to purchase any and all of
the Franchisee's interest in the Franchised Location premises if such
premises are owned by the Franchisee.
b. The 30 day right of first refusal period shall run concurrently
with the period during which the Franchisor has the right to approve or
disapprove of the proposed transferee;
c. The right of first refusal will be effective for each proposed
transfer and any material change in the terms or conditions of the proposed
transfer shall be deemed a separate offer on which the Franchisor shall
have a new 30 day right of first refusal;
d. If the consideration or the manner of payment offered by a proposed
transferee is such that the Franchisor may not reasonably be required to
furnish the same, then the Franchisor may purchase the interest which is
proposed to be sold for the reasonable cash equivalent. If the parties
cannot agree within a reasonable time on the cash consideration, an
independent appraiser shall be designated by the Franchisor, whose
determination shall be binding upon the parties. All expenses of the
appraiser shall be paid for equally between the Franchisor and the
Franchisee; and
e. If the Franchisor chooses not to exercise its right of first
refusal, the Franchisee shall be free to complete the transfer subject to
compliance with Sections 12.2 and 12.3 above. Absence of a reply to the
Franchisee's notice of a proposed transfer with the 30 day period may be
deemed a waiver of such right of first refusal.
12.5. Types of Transfers.
------------------
The Franchisee acknowledges that the Franchisor's right to approve or
disapprove of a proposed transfer as provided for above, shall apply (1) if the
Franchisee is a partnership, corporation or other business association, (i) to
the addition or deletion of a partner, shareholder or members of the association
or the transfer of any ownership interest among existing partners, shareholders
or members; (ii) to any proposed transfer of 25% or more of the interest
(whether stock, partnership interest or membership interest) to a third party,
whether such transfer occurs in a single transaction or several transactions;
and (2) if the Franchisee is an individual, to the transfer from such individual
or individuals to a corporation or other entity controlled by them, in which
case the Franchisor's approval will be conditioned upon: (i) the continuing
personal guarantee of the individual (or individuals) for the performance of
obligations under this Agreement; and (ii) a limitation on the corporation's or
other entity's business activity to that of operating the COMMWORLD Business and
related activities provided that with respect to such transfer, the Franchisor's
right of first refusal to purchase shall not apply and the Franchisor will not
charge any transfer fee.
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12.6. Franchisee's Death or Disability.
--------------------------------
If the Franchisee or any Owner of the Franchisee, hereinafter defined,
dies or becomes permanently disabled, the personal representative of such person
shall transfer the Franchisee's interest in this Agreement or such interest in
the Franchisee entity to an approved third party. Such disposition of this
Agreement or such interest (including without limitation, transfer by bequest or
inheritance) shall be completed within a reasonable time, not to exceed 120 days
from the date of death or permanent disability (unless extended by probate
proceedings), and shall be subject to all terms and conditions applicable to
transfer contained in this Article 12. Failure to transfer the interest within
said period of time shall constitute a breach of this Agreement. For the
purposes hereof, the term "permanent disability" shall mean a mental or physical
disability, impairment or condition that is reasonably expected to prevent or
actually does prevent the Franchisee or Owner from supervising the management
and operation of the COMMWORLD Business for a period of 120 days from the onset
of such disability, impairment or condition. For the purposes of this Section
12.6, "Owner" shall be defined as any individual owning 25% or more of, or
controlling the Franchisee entity.
12.7. Transfer By Franchisor.
----------------------
The Franchisor has the right to assign or transfer this Agreement to a
third party and such assignment or transfer shall inure to the benefit of any of
its assignees or other legal successors in interest and the Franchisor shall in
such event be fully released from the same.
13. TERM AND EXPIRATION
13.1. Term of the Franchise.
---------------------
The term of this Agreement is for a period of 10 years from the date that
the Franchisor executes this Agreement. This Agreement may be terminated before
the expiration of the 10 year period in accordance with the provisions of
Article 14 herein.
13.2. Rights Upon Expiration.
----------------------
At the end of the initial 10 year term of this Agreement, the Franchisee
shall have the option to renew its franchise rights for an additional term of 10
years, by acquiring successor franchise rights, if the Franchisor does not
exercise its right not to offer a successor franchise in accordance with Section
13.4 below and if the Franchisee:
a. Executes the then current form of Franchise Agreement being offered
to new prospective Franchisees, or at the option of the Franchisor, in
writing acknowledge the continued effectiveness of this Agreement;
b. Has "Substantially Complied" with all provisions of this Agreement
during the current term, in a manner more fully described in Section 13.4
below;
c. Upgrades the COMMWORLD Business and operations (the necessity of
which shall be in the sole discretion of the Franchisor) to conform with
the then current standards as may be set forth in the Operations Manual;
d. Pays a successor franchise fee equal to 10% of the then current
initial franchise fee customarily charged by the Franchisor for the grant
of a franchise for a COMMWORLD Business operated under the Marks and
Licensed Methods; and
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e. Executes a general release, in a form satisfactory to the
Franchisor, of any and all claims against the Franchisor and its
affiliates, and their respective officers, directors, employees and agents,
arising out of or relating to this Agreement.
13.3. Exercise of Option For Successor Franchise.
------------------------------------------
The Franchisee may exercise its option for a successor franchise by
giving notice of such exercise to the Franchisor not less than 90 days prior to
the scheduled expiration of this Agreement. The Franchisee acknowledges that the
Franchisor may change any terms of this Agreement when the Franchisee signs the
then current form of Franchise Agreement for a successor franchise, including
the terms of the Franchisee's Marketing Area. The Franchisee's successor
franchise rights shall become effective by signing the form of Franchise
Agreement then currently being offered to new prospective franchisees of the
Franchisor and by paying the successor franchise fee; however, an additional
initial franchise fee will not be charged.
13.4. Conditions of Refusal.
---------------------
The Franchisor shall not be obligated to offer the Franchisee a successor
franchise upon the expiration of this Agreement if the Franchisee has not
"Substantially Complied" with all provisions of this Agreement. "Substantial
Compliance" shall mean that:
a. The Franchise shall have received less than 5 written notices of
breach of this Agreement during the term hereof; and
b. No default shall exist at the time the offer of the successor
franchise would otherwise be made which would enable the Franchisor to
terminate this Agreement under the terms and conditions contained in
Article 14 herein.
Under any of the above circumstances, the Franchisor shall give notice of
expiration of the franchise 180 days prior to the expiration of the term, and
such notice shall set forth the reasons for such refusal to offer successor
franchise rights. Upon the expiration of this Agreement, the Franchisee shall
comply with the provisions of Section 14.5 below.
14. DEFAULT AND TERMINATION
14.1. Termination - Effective Upon Notice.
-----------------------------------
The Franchisor has the right to terminate this Agreement, effective upon
written notice to the Franchisee, if the Franchisee: (a) is declared bankrupt
or insolvent or voluntarily institutes a bankruptcy proceeding under the Federal
Bankruptcy Code or is adjudicated bankrupt as a result of an involuntary
petition in bankruptcy being filed against it if, under the circumstances,
termination is permissible under applicable bankruptcy laws and regulations, or
(b) if Franchisee is convicted of a felony or any crime or offense that is
reasonably likely, in the sole opinion of the Franchisor, to materially and
unfavorably affect the Franchisor's Licensed Methods, Marks, goodwill or
reputation thereof, or (c) the Franchisee has made any material
misrepresentation or omission in its application for the franchise.
14.2. Termination - Fifteen Days Notice.
---------------------------------
The Franchisor has the right to terminate this Agreement, effective after
15 days written notice to the Franchisee, such notice to contain a right to cure
the default, if:
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a. The Franchisee defaults in payment of any indebtedness due to the
Franchisor or any of its affiliated or related entities and such default
continues for 10 days after the date such indebtedness is due; or
b. The Franchisee closes, abandons or loses the right to occupy the
Franchised Location of the COMMWORLD Business for a 5 day period or longer,
in which case the Franchisor shall have the right to terminate this
Agreement, unless the closure, abandonment or loss is reasonably
unavoidable due to war conditions, government regulations, strikes, fire,
flood or other casualty or government order.
14.3. Termination - Thirty Days Notice.
--------------------------------
The Franchisor shall have the right to terminate this Agreement,
effective after 30 days written notice to the Franchisee, if the Franchisee
breaches any other provision of this Agreement (other than as set forth in
Sections 14.1 and 14.2 herein), including, but not limited to the following:
a. The Franchisee surrenders or transfers control of or ownership of
the COMMWORLD Business's operation without the Franchisor's prior written
consent or otherwise fails to comply with the provisions for assignment set
forth in Article 12 of this Agreement;
b. The Franchisee materially breaches any other agreement with the
Franchisor directly or indirectly related to the COMMWORLD Business,
including without limitation, any credit agreement, product or equipment
purchase agreement or support service agreement with the Franchisor;
c. The Franchisee makes any unauthorized use of the Marks or
unauthorized use or disclosure of any of the Franchisor's proprietary or
confidential information which is a part of the Licensed Methods, or uses,
duplicates or discloses any portion of the Operations Manual in violation
of this Agreement;
d. The Franchisee relocates the Franchised Location without the
Franchisor's written approval; or
e. The Franchisee fails to timely submit any reports and records
required hereunder.
Under circumstances where the breach is of the nature that it may be cured
through the actions of the Franchisee, the Franchisor shall permit the
Franchisee the same 30 day period to cure any such breach or default, after
which time, if the breach or default has not been cured, the Franchisor may
terminate this Agreement immediately. Notwithstanding the foregoing, if the
breach is curable, but is of the nature which cannot be reasonably cured within
such 30 day period and the Franchisee has commenced and is continuing to make
good faith efforts to cure the breach during such 30 day period, then the
Franchisee shall be given an additional reasonable period of time to cure the
same and the Agreement shall not terminate. Under no circumstances will the
Franchisor terminate this Agreement without good cause.
14.4. Franchisee's Right to Terminate Without Cause.
---------------------------------------------
During the initial 12 month period after the date of full execution of
this Agreement, the Franchisee may terminate this Agreement, at any time, with
or without cause, by giving 60 days prior written notice to the Franchisor,
which notice is received by the Franchisor within that 12 month period.
20
<PAGE>
Upon termination under these circumstances, the Franchisee shall be subject to
compliance with Section 14.5 below and shall not be entitled to a refund or
return of any portion of the initial franchise fee.
14.5. Obligations of Franchisee Upon Termination or Expiration.
--------------------------------------------------------
The Franchisee is obligated upon termination or expiration of this
Agreement to:
a. Pay to the Franchisor and its affiliated or related entities all
royalties, other fees, any and all amounts or accounts payable which are
then owed and unpaid pursuant to this Agreement or pursuant to any other
agreements or arrangements between the parties, within 15 days of the
effective date of such termination;
b. Immediately cease to identify itself, the COMMWORLD Business or any
other business as being, or having been, associated with the Franchisor, or
to use any of the Marks of the Franchisor or colorable imitation thereof
for any purpose;
c. Immediately deliver to the Franchisor all signs, sign-faces,
catalogs, advertising materials, forms and other materials bearing any of
the Marks of the Franchisor or otherwise identified with the Franchisor;
d. Immediately deliver to the Franchisor the Operations Manual and all
other information proprietary to the Franchisor;
e. Promptly take such action as may be required to cancel all
fictitious or assumed names or equivalent registrations relating to its use
of any of the Marks of the Franchisor;
f. Notify the telephone company and all telephone directory publishers
of the termination or expiration of the Franchisee's right to use the Marks
or any name containing the Marks;
g. Immediately refrain from using or copying any of the advertising
shells and/or advertising styles and designs, supplied or made available by
the Franchisor or using or containing references to the Marks in any manner
or form;
h. Notify Equipment Vendors and other product supply vendors of the
termination or expiration of the franchise; and
i. Abide by all restrictive covenants set forth in Article 16 of this
Agreement.
The Franchisee shall within 30 days of the effective date of termination or
expiration give written notice and satisfactory evidence to the Franchisor that
it has complied with each of the above provisions.
14.6. Acknowledgement.
---------------
In the event this Agreement is terminated by the Franchisor prior to its
expiration as set forth in Sections 14.1, 14.2 or 14.3 above, the Franchisee
acknowledges and agrees that, in addition to all other available remedies, the
Franchisor shall have the right to recover lost future Cost-Up Royalties during
any period in which the Franchisee fails to pay such Cost-Up Royalties through
and including the remainder of the then current term of this Agreement.
21
<PAGE>
14.7. Governing State Law.
-------------------
If any mandatory provisions of the governing state law prohibit
termination of this Agreement or limit the Franchisor's rights to terminate to
some other basis or terms than are herein provided, or require renewal hereof,
or require repurchase hereof, then said mandatory provisions of state law shall
be deemed incorporated in this Agreement by reference and shall prevail over any
inconsistent terms hereof.
15. BUSINESS RELATIONSHIP
15.1. Independent Businesspersons.
---------------------------
The parties agree that each of them are independent businesspersons,
their only relationship is by virtue of this Agreement and that no fiduciary
relationship is created hereunder. Neither party is liable or responsible for
the other's debts or obligations, nor shall either party be obligated for any
damages to any person or property directly or indirectly arising out of the
operation of the other party's business authorized by or conducted pursuant to
this Agreement. The Franchisor and the Franchisee agree that neither of them
will hold themselves out to be the agent, employer or partner of the other and
that neither of them has the authority to bind or incur liability on behalf of
the other.
15.2. Payment of Third Party Obligations.
----------------------------------
The Franchisor shall have no liability for the Franchisee's obligations
to pay any third parties, including without limitation, any product vendors, or
any sales, use, service, occupation, excise, gross receipts, income, property or
other tax levied upon the Franchisee, the Franchisee's COMMWORLD Business, the
Franchisee's property or upon the Franchisor in connection with the sales made
or business conducted by the Franchisee (except any taxes the Franchisor is
required by law to collect from the Franchisee with respect to purchases from
the Franchisor).
15.3. Indemnification.
---------------
The Franchisee agrees to indemnify, defend and hold harmless the
Franchisor, its subsidiaries and affiliates, and their shareholders, directors,
officers, employees, agents, successors and assignees, (the "Indemnified
Parties") against, and to reimburse them for all claims, obligations and damages
described in this Section 15.3, any and all third party obligations described in
Section 15.2 and any and all claims and liabilities directly or indirectly
arising out of the operation of the COMMWORLD Business or arising out of the use
of the Marks and Licensed Methods in any manner not in accordance with this
Agreement. For purposes of this indemnification, claims shall mean and include
all obligations, actual and consequential damages and costs reasonably incurred
in the defense of any claim against the Indemnified Parties, including, without
limitation, reasonable accountants', attorneys' and expert witness fees, costs
of investigation and proof of facts, court costs, other litigation expenses and
travel and living expenses. The Franchisor shall have the right to defend any
such claim against it. This indemnity shall continue in full force and effect
subsequent to and notwithstanding the expiration or termination of this
Agreement.
16. RESTRICTIVE COVENANTS
16.1. Non-Competition During Term.
---------------------------
The Franchisee acknowledges that, in addition to the license of the Marks
hereunder, the Franchisor has also licensed commercially valuable information
which comprises and is a part of the Licensed Methods, including without
limitation, operations, marketing, advertising and related information and
materials and that the value of this information derives not only from the time,
effort and
22
<PAGE>
money which went into its compilation, but from the usage of the same by all
Franchisees of the Franchisor using the Marks and Licensed Methods. The
Franchisee therefore agrees that other than the COMMWORLD Business licensed
herein, the Franchisee and any officers and directors of a corporate Franchisee,
are restricted during the term of this Agreement directly or indirectly, for
themselves, or through, on behalf of, or in conjunction with any person, persons
or legal entity, from: (1) operating any other business or profession which is
directly or indirectly involved in the distributing or selling of any telephone
or telecommunications products or equipment or from providing telephone
installation, repair and maintenance, or system additions, moves and changes, or
telephone parts and inventory, or telecommunications consulting services other
than through the COMMWORLD Business licensed hereunder, without the prior
written consent of the Franchisor; or (2) diverting or attempting to divert any
business or customer of the COMMWORLD Business, the Franchisor's business or any
other COMMWORLD franchisee's business, to any competitor, by direct inducement
or otherwise, or diverting or attempting to divert the employment of any
employee of the Franchisor or another franchisee licensed by the Franchisor to
use the Marks and Licensed Methods, to any competitor by any direct inducement
or otherwise.
16.2. Confidentiality of Proprietary Information.
------------------------------------------
The Franchisee shall treat all information it receives which comprises or
is a part of the Licensed Methods licensed hereunder as proprietary and
confidential and will not disclose the same to any person without first
obtaining the Franchisor's written consent. The Franchisee acknowledges that
the Marks and the Licensed Methods have valuable goodwill attached to them, that
the protection and maintenance thereof is essential to the Franchisor and that
any unauthorized use of the Marks and Licensed Methods will result in
irreparable harm to the Franchisor.
16.3. Prohibition Against Reshipment.
------------------------------
The Franchisee shall not in any manner reship, transship, distribute or
sell any products or equipment purchased from or through the Franchisor and its
purchase programs to any reseller of said products or equipment, including but
not limited to, other COMMWORLD franchisees. The Franchisee shall sell products
or equipment purchased from or through the Franchisor and its purchase programs
only to end users and only from or through the authorized Franchised Location
and the COMMWORLD Business.
16.4. Remedies and Attorneys' Fees.
----------------------------
The Franchisee shall reimburse the Franchisor for attorneys' fees and
other reasonable costs incurred in the reasonable enforcement of the
restrictions imposed by this Article 16. The Franchisee acknowledges that the
provisions hereof may, in addition to all other available remedies, be enforced
through an action for injunctive relief.
17. MISCELLANEOUS PROVISIONS
17.1. Modification.
------------
The Franchisor and/or the Franchisee may modify this Agreement only upon
execution of a written agreement between the parties. The Franchisee
acknowledges that the Franchisor may modify its standards and specifications set
forth in the Operations Manual unilaterally under any conditions and to the
extent to which the Franchisor, in its sole discretion, deems necessary to
protect, promote, or improve the Marks and the quality of the Licensed Methods,
but under no circumstances will such modifications
23
<PAGE>
be made without good cause therefor. The Franchisee agrees to accept and utilize
any such changes or modifications which are reasonably requested as if they were
a part of this Agreement.
17.2. Injunctive Relief.
------------------
Nothing herein shall prevent the Franchisor or the Franchisee from seeking
injunctive relief to prevent irreparable harm in addition to all other remedies.
If the Franchisor seeks an injunction, the Franchisor will not be required to
post a bond in excess of $500.
17.3. Waiver.
-------
No waiver of any condition or covenant in this Agreement or failure to
exercise a right or remedy of the Franchisor or the Franchisee shall be
considered to imply or constitute a further waiver by the Franchisor or the
Franchisee of the same or any other condition, covenant, right or remedy.
17.4. Governing Law/Consent to Venue and Jurisdiction.
------------------------------------------------
Except to the extent governed by the United States Trademark Act of 1945
(Lanham Act, 15 U.S.C. Sections 1051 et seq.) or other federal law, this
-------
Agreement shall be interpreted under the laws of the state of Colorado and any
disputes between the parties shall be governed by and determined in accordance
with the substantive laws of the state of Colorado, which laws shall prevail in
the event of any conflict of law. The Franchisee and the Franchisor have
negotiated regarding a forum in which to resolve any disputes which may arise
between them and have agreed to select a forum in order to promote stability in
their relationship. Therefore, if a claim is asserted in a legal proceeding
involving the Franchisee, its officers, directors, partners or managers
(collectively, "Franchisee Affiliates") and the Franchisor, its officers,
directors or sales employees (collectively, "Franchisor Affiliates") all parties
agree that the exclusive venue for disputes between them shall be in the state
and federal courts of Colorado and each waive any objections they may have to
the personal jurisdiction of or venue in the state and federal courts of
Colorado. The Franchisor, the Franchisor Affiliates, the Franchisee and the
Franchisee Affiliates each waive their rights to a trial by jury.
17.5. Binding Effect.
---------------
The provisions of this Agreement shall inure to the benefit of and be
binding upon each of the parties respective representatives, successors, assigns
and heirs.
Delegation by the Franchisor.
- ----------------------------
The Franchisor has the right in its sole discretion to delegate the
performance of all or any portion of its obligations and duties, or assign any
or all of its rights, under this Agreement to third parties, whether such third
parties are agents or affiliates of the Franchisor or independent contractors
which the Franchisor has contracted with to fulfill such obligations and duties,
or to participate in such rights.
17.6. Invalidity.
-----------
If any provision of this Agreement is held invalid by any tribunal in a
final decision from which no appeal is or can be taken, such provision shall be
deemed modified to eliminate the invalid element and, as so modified, such
provision shall be deemed a part of this Agreement as though originally
included. The remaining provisions of this Agreement shall not be affected by
such modification.
24
<PAGE>
17.7. Prohibition Against Nonpayment.
-------------------------------
The Franchisee agrees to consult with the Franchisor with respect to any
alleged nonperformance of the Franchisor and the Franchisee will not, on the
grounds of any alleged nonperformance by the Franchisor of its obligations
hereunder, withhold payment of any Cost-Up Royalties or other payment of fees
payable by the Franchisee pursuant to the terms of this Agreement.
17.8. Notices.
--------
All notices required to be given under this Agreement shall be given in
writing, by certified mail, return receipt requested, or by delivery to a
commercial carrier service for next business day delivery, to each party at
their respective addresses set forth in the first Section of this Agreement, or
at such other addresses as the Franchisor or the Franchisee may designate from
time to time, and shall be effectively given when deposited with the commercial
carrier or in the United States mail, postage prepaid.
17.9. No Violation or Interference.
-----------------------------
By execution of this Agreement the Franchisee warrants and represents to
the Franchisor that neither the execution of this Agreement nor any of the terms
hereof in any way violate or interfere with the terms of any other contractual
arrangements and agreements to which the Franchisee may be a party.
17.10. Integration.
------------
This Agreement, including all exhibits and addenda, contains the entire
agreement between the parties and supersedes any and all prior agreements
concerning the subject matter hereof. The Franchisee agrees and understands that
the Franchisor shall not be liable or obligated for any oral representations or
commitments made prior to the execution hereof or for claims of negligent or
fraudulent misrepresentation based on any such oral representations or
commitments and that no modifications of this Agreement shall be effective
except those in writing and signed by both parties. The Franchisor does not
authorize and will not be bound by any representation of any nature other than
those expressed in this Agreement. The Franchisee further acknowledges and
agrees that no representations have been made to it by the Franchisor regarding
projected sales volumes, market potential, revenues, profits of the Franchisee's
COMMWORLD Business, or operational assistance other than as stated in this
Agreement or in any disclosure document provided by the Franchisor or its
representatives.
17.11. Review of Agreement.
--------------------
The Franchisee acknowledges that it has had a copy of this Agreement in
its possession for a period of time not less than ten full business days, during
which time the Franchisee has had the opportunity to submit same for
professional review and advice of the Franchisee's choosing prior to freely
executing this Agreement.
17.12. Attorney's Fees.
----------------
In the event of any default on the part of either party to this
Agreement, in addition to all other remedies, the party in default will pay the
aggrieved party all amounts due and all damages, costs and expenses, including
reasonable attorney's fees incurred by the aggrieved party in any legal action,
arbitration or other proceeding as a result of such default, plus interest at
the highest rate allowable by law, accruing from the date of such default.
25
<PAGE>
17.13. No Right to Set Off.
--------------------
The Franchisee shall not be allowed to set off amounts owed to the
Franchisor for Cost-Up Royalties, fees or other amounts due hereunder, against
any monies owed to the Franchisee, nor shall the Franchisee, in any event,
withhold such amounts due to any alleged nonperformance by the Franchisor
hereunder, which right of set off is hereby expressly waived by the Franchisee.
17.14. Effective Date.
---------------
This Agreement will not become effective until it has been fully executed
by both the Franchisor and the Franchisee. Any insertions to the Agreement or
any Addendum hereto must be initialed by both the Franchisor and Franchisee to
be effective.
17.15. Notice.
-------
BEFORE SIGNING THIS AGREEMENT, THE FRANCHISEE SHOULD READ IT CAREFULLY
WITH THE ASSISTANCE OF LEGAL COUNSEL. THE FRANCHISEE ACKNOWLEDGES THAT:
A. THE SUCCESS OF THE BUSINESS VENTURE CONTEMPLATED HEREIN INVOLVES
SUBSTANTIAL RISKS AND DEPENDS UPON THE FRANCHISEE'S ABILITY AS AN
INDEPENDENT BUSINESSPERSON AND ITS ACTIVE PARTICIPATION IN THE DAILY
AFFAIRS OF THE BUSINESS, AND
B. NO ASSURANCE OR WARRANTY, EXPRESSED OR IMPLIED, HAS BEEN GIVEN AS
TO THE POTENTIAL SUCCESS OF SUCH BUSINESS VENTURE OR THE EARNINGS LIKELY
TO BE ACHIEVED, AND
C. NO STATEMENT, REPRESENTATION OR OTHER ACT, EVENT OR COMMUNICATION,
EXCEPT AS SET FORTH IN THIS DOCUMENT, AND IN ANY OFFERING CIRCULAR
SUPPLIED TO THE FRANCHISEE IS BINDING ON THE FRANCHISOR IN CONNECTION
WITH THE SUBJECT MATTER OF THIS AGREEMENT.
26
<PAGE>
Fully executed this ____ day of _______________, 19__.
COMMUNICATIONS WORLD
INTERNATIONAL, INC.
By:___________________________________
Title:________________________________
Date:_________________________________
FRANCHISEE: (if an individual)
______________________________________
Individually
______________________________________
OR:
(if a corporation or partnership)
______________________________________
Company Name
By:___________________________________
Its:__________________________________
Date:_________________________________
27
<PAGE>
EXHIBIT I
TO FRANCHISE AGREEMENT
ADDENDUM
TO
FRANCHISE AGREEMENT
This is an Addendum to the Franchise Agreement dated _____________, 199__,
(the "Agreement") by and between Communications World International, Inc.,
hereinafter "Franchisor" and _________________________________________________,
hereinafter "Franchisee." This Addendum modifies the terms of the Agreement and
in the event of a conflict in terms between the Agreement and this Addendum, the
terms of this Addendum shall be controlling.
The parties agree as follows:
1. Franchised Location. The Franchisee's Franchised Location, as
-------------------
referred to in Section 2.3 of the Agreement, shall be the following address:
___________________________________________________________________________.
2. Franchise Name. The Franchisee shall be entitled to begin using the
--------------
trade name and doing business as _________________________ pursuant to the terms
of the Agreement upon execution of this Addendum.
3. Marketing Area. The Franchisee's Marketing Area, as referred to in
--------------
Section 2.4 of the Agreement, shall be as follows:.
4. Initial Franchise Fee. The initial franchise fee paid by the
---------------------
Franchisee to the Franchisor is $______________, payable as follows:.
5. Product Authorization. The following shall be added to Section 4.2 of
---------------------
the Agreement:
The product and equipment brands which the Franchisee desires to request
authorization to purchase from or through the Franchisor's available
purchase programs from Equipment Vendors are as follows:
Executed this ________ day of __________________________, 19___.
COMMUNICATIONS WORLD FRANCHISEE:
INTERNATIONAL, INC.:
By:_________________________ By:__________________________
Title:______________________ Title:_______________________
<PAGE>
EXHIBIT II
TO FRANCHISE AGREEMENT
GUARANTY
The undersigned, whether one or more, hereby jointly and severally
unconditionally guarantee the full payment of all fees, costs, expenses and
damages and any and all other amounts which by virtue of this Agreement become
payable by the Franchisee to the Franchisor.
This guarantee shall continue in force until all obligations of Franchisee
under the Agreement shall have been satisfied, or until the Franchisee's
liability under the Agreement has been completely discharged, whichever first
occurs. The undersigned shall not be discharged from liability hereunder as long
as any claim by the Franchisor against the Franchisee remains outstanding.
Notice of acceptance by the Franchisor is waived. Notice of default on the part
of the Guarantor is waived. Notice of default on the part of the Franchisee is
not waived. This guarantee shall be binding on the undersigned and/or their
successors and assigns.
__________________________________________________
Date:_____________________________________________
__________________________________________________
Date:_____________________________________________
__________________________________________________
Date:_____________________________________________
<PAGE>
EXHIBIT III
TO FRANCHISE AGREEMENT
STATEMENT OF OWNERSHIP
Franchisee:_____________________________________________________________________
Trade name (if different from above):___________________________________________
Form of Ownership
(Check One)
Limited
_____ Individual _____ Partnership _____ Corporation _____ Liability
Company
If a Partnership or limited liability company, provide name and address of
each partner or member showing percentage owned, whether active in management,
and state in which partnership or limited liability company was formed.
If a Corporation, give the state and date of incorporation, the names and
-------------
addresses of each officer and director, and list the names and addresses of
- --------------------------------------
every shareholder showing what percentage of stock is owned by each.
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Use additional sheets if necessary. Any and all changes to the above
information must be reported to the Franchisor.
FRANCHISEE
By:____________________________________
_____________________ Title:_________________________________
Date
OR
_______________________________________
Individual Signature
_______________________________________
Print Name
<PAGE>
Communications World International, Inc.
Form 10-SB
Exhibit 10 (k)
COMMUNICATIONS WORLD INTERNATIONAL, INC.
1998 STOCK INCENTIVE PLAN
This 1998 Stock Incentive Plan (the "Plan") is adopted in consideration for
services rendered and to be rendered to Communications World International, Inc.
and related companies.
1. Definitions.
-----------
The terms used in this Plan shall, unless otherwise indicated or
required by the particular context, have the following meanings:
Board: The Board of Directors of Communications World International,
-----
Inc.
Change in Control: (i) The acquisition, directly or indirectly, by
-----------------
any person or group (within the meaning of Section 13(d)(3) of the Exchange Act)
of the beneficial ownership of more than fifty percent of the outstanding
securities of the Company, (ii) a merger or consolidation in which the Company
is not the surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated, (iii) the
sale, transfer or other disposition of all or substantially all of the assets of
the Company, (iv) a complete liquidation or dissolution of the Company, or (v)
any reverse merger in which the Company is the surviving entity but in which
securities possessing more than fifty percent of the total combined voting power
of the Company's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
merger.
Code: The Internal Revenue Code of 1986, as amended.
----
Common Stock: The no par value Common Stock of Communications World
------------
International, Inc.
Company: Communications World International, Inc., a corporation
-------
incorporated under the laws of Colorado, and any successors in interest by
merger, operation of law, assignment or purchase of all or substantially all of
the property, assets or business of the Company.
Consultant: A Consultant is any person, including any advisor,
----------
engaged by the Company or any Related Company to render consulting services and
may include members of the Board.
Continuous Status as an Employee or Consultant: The employment by, or
----------------------------------------------
relationship as a Consultant with, the Company or any Related Company is not
interrupted or terminated. The Board, at its sole discretion, may determine
whether Continuous Status as an Employee or Consultant shall be considered
interrupted due to personal or other mitigating circumstances.
Date of Grant: The date on which an Option is granted under the Plan.
-------------
Employee: An Employee is an employee of the Company or any Related
--------
Company.
Exchange Act: The Securities Exchange Act of 1934, as amended.
------------
<PAGE>
Exercise Price: The price per share of Common Stock payable upon
--------------
exercise of an Option.
2
<PAGE>
Fair Market Value: The Fair Market Value of the Option Shares. Such
-----------------
Fair Market Value as of any date shall be reasonably determined by the Option
Committee; provided, however, that if there is a public market for the Common
Stock, the Fair Market Value of the Option Shares as of any date shall be the
officially quoted closing price, if available, through The Nasdaq Stock Market,
Inc., or a stock exchange, or if no officially quoted closing price is
available, the representative closing bid price, on the date in question. In
the event there is no officially quoted closing price or bid price or the Common
Stock is not traded publicly, the Fair Market Value of a share of Common Stock
on any date shall be determined, in good faith, by the Board or the Option
Committee after such consultation with outside legal, accounting and other
experts as the Board or the Option Committee may deem advisable, and the Board
or the Option Committee shall maintain a written record of its method of
determining such value.
Incentive Stock Options ("ISOs"): "Incentive Stock Options" as that
--------------------------------
term is defined in Section 422 of the Code.
Non-Incentive Stock Options ("Non-ISOs"): Options which are not
----------------------------------------
intended to qualify as "Incentive Stock Options" under Section 422 of the Code.
Offeree: An Employee or Consultant to whom a Right to Purchase has
-------
been offered or who has acquired Restricted Stock under the Plan.
Option: The rights granted to an Employee or Consultant to purchase
------
Common Stock pursuant to the terms and conditions of an Option Agreement.
Option Agreement: The written agreement (and any amendment or
----------------
supplement thereto) between the Company and an Employee or Consultant
designating the terms and conditions of an Option.
Option Committee: The Plan shall be administered by the Option
----------------
Committee which shall consist of the Board or a committee of the Board as the
Board may from time to time designate composed of not less than two members of
the Board who are not employees of the Company or a Related Company.
Option Shares: The shares of Common Stock underlying an Option
-------------
granted to an Employee or Consultant.
Optionee: An Employee or Consultant who has been granted an Option.
--------
Participant: An Employee or Consultant who holds an Option, a Right
-----------
to Purchase or Restricted Stock under the Plan.
Purchase Price: The Purchase Price per share of Restricted Stock
--------------
payable upon acceptance of a Right to Purchase.
Related Company: Any subsidiary of the Company and any other business
---------------
venture in which the Company has a significant interest as determined in the
discretion of the Option Committee.
Restricted Stock: The shares of Common Stock issued pursuant to
----------------
Section 15, subject to any restrictions and conditions as are established
pursuant to such Section 15.
3
<PAGE>
Right to Purchase: A right to purchase Restricted Stock granted to an
-----------------
Offeree pursuant to Section 15 hereof.
Rule 16b-3: Rule 16b-3 as promulgated by the Securities and Exchange
----------
Commission under Section 16(b) of the Exchange Act.
2. Purpose and Scope.
-----------------
(a) The purpose of this Plan is to advance the interests of the
Company and its stockholders by affording Employees and Consultants an
opportunity for investment in the Company and the incentive advantages inherent
in stock ownership in this Company.
(b) This Plan authorizes the Option Committee to grant Options to
purchase shares of Common Stock to Employees and Consultants selected by the
Option Committee while considering criteria such as employment position or other
relationship with the Company, duties and responsibilities, ability,
productivity, length of service or association, morale, interest in the Company,
recommendations by supervisors, and other matters.
3. Administration of the Plan. The Plan shall be administered by the
--------------------------
Option Committee. The Option Committee shall have the authority granted to it
under this section and under each other section of the Plan.
In accordance with and subject to the provisions of the Plan, the
Option Committee shall select the Optionees and Offerees, shall determine (i)
the number of shares of Common Stock to be subject to each Option and Right to
Purchase, (ii) the time at which each Option or Right to Purchase is to be
granted, (iii) whether an Option or Right to Purchase shall be granted in
exchange for the cancellation and termination of a previously granted option or
options under the Plan or otherwise, (iv) the Exercise Price for the Option
Shares, (v) the Purchase Price of Restricted Stock, (vi) the option period, and
(vii) the manner in which the Option becomes exercisable. In addition, the
Option Committee shall fix such other terms of each Option and Right to Purchase
as the Option Committee may deem necessary or desirable. The Option Committee
shall determine the form of Option Agreement to evidence each Option and the
form of Stock Purchase Agreement to evidence each Right to Purchase.
The Option Committee from time to time may adopt such rules and
regulations for carrying out the purposes of the Plan as it may deem proper and
in the best interests of the Company. The Option Committee shall keep minutes
of its meetings and those minutes shall be distributed to every member of the
Board.
All actions taken and all interpretations and determinations made by
the Option Committee in good faith (including determinations of Fair Market
Value) shall be final and binding upon all Employees, Consultants, the Company
and all other interested persons. No member of the Option Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan, and all members of the Option Committee shall,
in addition to rights they may have if Directors of the Company, be fully
protected by the Company with respect to any such action, determination or
interpretation.
4
<PAGE>
4. The Common Stock. The Board is authorized to appropriate, issue and
----------------
sell for the purposes of the Plan, and the Option Committee is authorized to
grant Options and Rights to Purchase with respect to, a total number, not in
excess of 1,000,000 shares of Common Stock, either treasury or authorized but
unissued, or the number and kind of shares of stock or other securities which in
accordance with Section 16 shall be substituted for the 1,000,000 shares or into
which such 1,000,000 shares shall be adjusted. All or any unsold shares subject
to an Option or Right to Purchase that for any reason expires or otherwise
terminates may again be made subject to Options or Rights to Purchase under the
Plan. No person may be granted Options or Rights to Purchase under this Plan
covering in excess of an aggregate of 500,000 Option Shares and shares of
Restricted Stock in any calendar year, subject to adjustments in connection with
Section 16.
5. Eligibility. Options which are intended to qualify as ISOs will be
-----------
granted only to Employees. Employees and Consultants may hold more than one
Option under the Plan and may hold Options under the Plan and options granted
pursuant to other plans or otherwise, and may hold Rights to Purchase under the
Plan.
6. Option Price. The Exercise Price for the Option Shares shall be
------------
established by the Option Committee or shall be determined by a method
established by the Option Committee; provided that the Exercise Price to be paid
by Optionees for the Option Shares that are intended to qualify as ISOs, shall
not be less than 100 percent of the Fair Market Value of the Option Shares on
the Date of Grant, or the date on which the Optionee is hired or promoted (or
similar event), if the Date of Grant occurs not more than 90 days after the date
of such hiring, promotion or other event.
7. Duration and Exercise of Options.
--------------------------------
(a) The option period shall commence on the Date of Grant and shall
be as set by the Option Committee, but not to exceed 10 years in length. Except
as otherwise provided herein or as determined by the Option Committee, no Option
shall be exercised for the period of one year following the Date of Grant;
provided, however, that this limitation shall not apply to the exercise of an
Option pursuant to the terms of the relevant Option Agreement upon the
Optionee's death.
(b) During the lifetime of the Optionee, the Option shall be
exercisable only by the Optionee; provided, that in the event of the legal
disability of an Optionee, the guardian or personal representative of the
Optionee may exercise the Option. However, if the Option is an ISO it may be
exercised by the guardian or personal representative of the Optionee only if
such guardian or personal representative obtains a ruling from the Internal
Revenue Service or an opinion of counsel to the effect that neither the grant
nor the exercise of such power is violative of the Code. Any opinion of counsel
must be both from counsel and in a form acceptable to the Option Committee.
(c) The Option Committee may determine whether any Option shall be
exercisable in installments only; if the Option Committee determines that an
Option shall be exercisable in installments, it shall determine the number of
installments and the percentage of the Option exercisable at each installment
date. All such installments shall be cumulative.
5
<PAGE>
(d) In the event an Optionee's Continuous Status as an Employee or
Consultant terminates for any reason, any Option held by the Optionee on the
date of termination may be exercised within 90 days after the date of
termination, but only to the extent that the Option was exercisable according to
its terms on the date of termination. After such 90-day period, any unexercised
portion of an Option shall expire.
(e) Each Option shall be exercised in whole or in part by delivering
to the office of the Treasurer of the Company written notice of the number of
shares with respect to which the Option is to be exercised and by paying in full
the Exercise Price for the Option Shares purchased as set forth in Section 8;
provided, that an Option may not be exercised in part unless the Exercise Price
for the Option Shares purchased is at least $2,000.
(f) No Option may be exercised until the Plan is approved by the
shareholders of the Company as provided in Section 17 below.
8. Payment for Option Shares. If the Exercise Price of the Option Shares
-------------------------
purchased by any Optionee at one time exceeds $2,000, the Option Committee may
permit all or part of the Exercise Price for the Option Shares to be paid by
delivery to the Company for cancellation shares of the Company's Common Stock
previously owned by the Optionee with a Fair Market Value as of the date of
payment equal to the portion of the Exercise Price for the Option Shares that
the Optionee does not pay in cash. In the case of all other Option exercises,
the Exercise Price shall be paid in cash or check upon exercise of the Option,
except that the Option Committee may permit an Optionee to elect to pay the
Exercise Price upon the exercise of an Option by authorizing a third party to
sell some or all of the Option Shares acquired upon exercise of an Option and
remit to the Company a sufficient portion of the sale proceeds to pay the entire
Exercise Price and any tax withholding resulting from such exercise.
9. Relationship to Employment or Position. Nothing contained in the
--------------------------------------
Plan, or in any Option or Right to Purchase granted pursuant to the Plan, shall
confer upon any Participant any right with respect to continuance of employment
by the Company, as an Employee or as a Consultant or interfere in any way with
the right of the Company to terminate the Participant's employment as an
Employee or position as a Consultant, at any time.
10. Nontransferability of Option. Except as otherwise provided by the
----------------------------
Option Committee, no Option granted under the Plan shall be transferable by the
Optionee, either voluntarily or involuntarily, except by will or the laws of
descent and distribution.
11. Rights as a Stockholder. No person shall have any rights as a
-----------------------
shareholder with respect to any share covered by an Option until that person
shall become the holder of record of such share and, except as provided in
Section 16, no adjustments shall be made for dividends or other distributions or
other rights as to which there is an earlier record date.
6
<PAGE>
12. Securities Laws Requirements. No Option Shares shall be issued unless
----------------------------
and until, in the opinion of the Company, any applicable registration
requirements of the Securities Act of 1933, as amended, any applicable listing
requirements of any securities exchange on which stock of the same class is then
listed, and any other requirements of law or of any regulatory bodies having
jurisdiction over such issuance and delivery, have been fully complied with.
Each Option and each Option Share certificate may be imprinted with legends
reflecting federal and state securities laws, restrictions and conditions, and
the Company may comply therewith and issue "stop transfer" instructions to its
transfer agent and registrar in good faith without liability.
13. Disposition of Shares. Each Optionee, as a condition of exercise,
---------------------
shall represent, warrant and agree, in a form of written certificate approved by
the Company, as follows: (a) that all Option Shares are being acquired solely
for his own account and not on behalf of any other person or entity; (b) that no
Option Shares will be sold or otherwise distributed in violation of the
Securities Act of 1933, as amended, or any other applicable federal or state
securities laws; (c) that if he is subject to reporting requirements under
Section 16(a) of the Exchange Act, he will (i) not violate Section 16(b) of the
Exchange Act, (ii) furnish the Company with a copy of each Form 4 and Form 5
filed by him, and (iii) timely file all reports required under the federal
securities laws; and (d) that he will report all sales of Option Shares to the
Company in writing on a form prescribed by the Company.
14. Ten Percent Shareholder Rule. With respect to ISO's, no Option may be
----------------------------
granted to an Employee who, at the time the Option is granted, owns stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company, unless at the time the Option is granted the
purchase price for the Option Shares is at least 110 percent of the Fair Market
Value of the Option Shares on the Date of Grant and such Option by its terms is
not exercisable after the expiration of five years from the Date of Grant.
15. Rights to Purchase
------------------
15.1 Nature of Right to Purchase. A Right to Purchase granted to an
---------------------------
Offeree entitles the Offeree to purchase, for a Purchase Price determined by the
Option Committee, shares of Common Stock subject to such terms, restrictions and
conditions as the Option Committee may determine at the time of grant
("Restricted Stock"). Such conditions may include, but are not limited to,
continued employment or the achievement of specified performance goals or
objectives.
15.2 Acceptance of Right to Purchase. An Offeree shall have no rights
-------------------------------
with respect to the Restricted Stock subject to a Right to Purchase unless the
Offeree shall have accepted the Right to Purchase within ten days (or such
longer or shorter period as the Option Committee may specify) following the
grant of the Right to Purchase by making payment of the full Purchase Price to
the Company in the manner set forth in Section 15.3 hereof and by executing and
delivering to the Company a Stock Purchase Agreement. Each Stock Purchase
Agreement shall be in such form, and shall set forth the Purchase Price and such
other terms, conditions and restrictions of the Restricted Stock, not
inconsistent with the provisions of this Plan, as the Option Committee shall,
from time to time, deem desirable. Each Stock Purchase Agreement may be
different from each other Stock Purchase Agreement.
15.3 Payment of Purchase Price. Subject to any legal restrictions,
-------------------------
payment of the Purchase Price upon acceptance of a Right to Purchase Restricted
Stock may be made, in the discretion of the Option Committee, by (a) cash; (b)
check; (c) the surrender of shares of Common Stock owned by the
7
<PAGE>
Offeree that have been held by the Offeree for at least six months, which
surrendered shares shall be valued at Fair Market Value as of the date of such
exercise; (d) any combination of the foregoing methods of payment or any other
consideration or method of payment as shall be permitted by applicable corporate
law.
15.4 Rights as a Shareholder. Upon complying with the provisions of
-----------------------
Section 15.2 hereof, an Offeree shall have the rights of a shareholder with
respect to the Restricted Stock purchased pursuant to the Right to Purchase,
including voting and dividend rights, subject to the terms, restrictions and
conditions as are set forth in the Stock Purchase Agreement. Unless the Option
Committee shall determine otherwise, certificates evidencing shares of
Restricted Stock shall remain in the possession of the Company in accordance
with the terms of the Stock Purchase Agreement.
15.5 Restrictions. Shares of Restricted Stock may not be sold,
------------
assigned, transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in the Stock Purchase Agreement or by the Option
Committee. In the event a Participant's Continuous Service as an Employee or
Consultant terminates for any reason, the Stock Purchase Agreement may provide,
in the discretion of the Option Committee, that the Company shall have the
right, exercisable at the discretion of the Option Committee , to repurchase (a)
at the original Purchase Price, any shares of Restricted Stock which have not
vested as of the date of termination, and (b) at Fair Market Value, any shares
of Restricted Stock which have vested as of such date, on such terms as may be
provided in the Stock Purchase Agreement.
15.6 Vesting of Restricted Stock. The Stock Purchase Agreement shall
---------------------------
specify the date or dates, the performance goals or objectives which must be
achieved, and any other conditions on which the Restricted Stock may vest.
15.7 Dividends. If payment for shares of Restricted Stock is made by
---------
promissory note, any cash dividends paid with respect to the Restricted Stock
may be applied, in the discretion of the Option Committee, to repayment of such
note.
15.8 Nonassignability of Rights. No Right to Purchase shall be
--------------------------
assignable or transferable except by will or the laws of descent and
distribution or as otherwise provided by the Option Committee.
16. Change in Stock, Adjustments, Etc. In the event that each of the
----------------------------------
outstanding shares of Common Stock (other than shares held by dissenting
shareholders which are not changed or exchanged) should be changed into, or
exchanged for, a different number or kind of shares of stock or other securities
of the Company, or, if further changes or exchanges of any stock or other
securities into which the Common Stock shall have been changed, or for which it
shall have been exchanged, shall be made (whether by reason of merger,
consolidation, reorganization, recapitalization, stock dividends,
reclassification, split-up, combination of shares or otherwise), then
appropriate adjustment shall be made by the Option Committee to the aggregate
number and kind of shares subject to this Plan, and the number and kind of
shares and the price per share subject to outstanding Options and Rights to
Purchase as provided in the respective Option Agreements and Stock Purchase
Agreements in order to preserve, as nearly as practical, but not to increase,
the benefits to Participants.
8
<PAGE>
17. Effective Date of Plan; Termination Date of Plan. Subject to the
------------------------------------------------
approval of the Plan by the affirmative vote of the holders of a majority of the
Company's securities entitled to vote and represented at a meeting duly held in
accordance with applicable law, the Plan shall be deemed effective November 12,
1998. The Plan shall terminate at midnight on November 11, 2008, except as to
Options previously granted and outstanding under the Plan at that time. No
Options or Rights to Purchase shall be granted after the date on which the Plan
terminates. The Plan may be abandoned or terminated at any earlier time by the
Board, except with respect to any Options or Rights to Purchase then outstanding
under the Plan.
18. Withholding Taxes. The Company, or any Related Company, may take such
-----------------
steps as it may deem necessary or appropriate for the withholding of any taxes
wh1ich the Company, or any Related Company, is required by any law or regulation
or any governmental authority, whether federal, state or local, domestic or
foreign, to withhold in connection with any Option or Right to Purchase
including, but not limited to, the withholding of all or any portion of any
payment or the withholding of issuance of Option Shares or Restricted Stock to
be issued upon the exercise of any Option.
19. Change in Control.
-----------------
In the event of a Change in Control of the Company, (a) the Option
Committee, in its discretion, may, at any time an Option or Right to Purchase is
granted, or at any time thereafter, accelerate the time period relating to the
exercise or realization of any Options, Rights to Purchase and Restricted Stock
and (b) with respect to Options and Rights to Purchase, the Option Committee in
its discretion may, at any time an Option or Right to Purchase is granted, or at
any time thereafter, take one or more of the following actions: (i) provide for
the purchase of each Option or Right to Purchase for an amount of cash or other
property that could have been received upon the exercise of the Option or Right
to Purchase had the Option been currently exercisable, (ii) adjust the terms of
the Options and Rights to Purchase in a manner determined by the Option
Committee to reflect the Change in Control, (iii) cause the Options and Rights
to Purchase to be assumed, or new rights substituted therefor, by another
entity, through the continuance of the Plan and the assumption of outstanding
Options and Rights to Purchase, or the substitution for such Options and Rights
to Purchase of new options and new rights to purchase of comparable value
covering shares of a successor corporation, with appropriate adjustments as to
the number and kind of shares and exercise prices, in which event the Plan and
such Options and Rights to Purchase, or the new options and rights to purchase
substituted therefor, shall continue in the manner and under the terms so
provided or (iv) make such other provision as the Committee may consider
equitable. If the Option Committee does not take any of the foregoing actions,
all Options and Rights to Purchase shall terminate upon the consummation of the
Change in Control and the Option Committee shall cause written notice of the
proposed transaction to be given to all Participants not less than fifteen days
prior to the anticipated effective date of the proposed transaction.
20. Amendment.
---------
(a) The Board may amend, alter or discontinue the Plan, but no
amendment, alteration or discontinuation shall be made which would (i) impair
the right of a Participant under an outstanding Option Agreement or Stock
Purchase Agreement, except such an amendment made to cause the Plan to qualify
for the exemption provided by Rule 16b-3, or (ii) disqualify the Plan from the
exemption provided by Rule 16b-3. In addition, no such amendment shall be made
without the approval of the Company's shareholders to the extent such approval
is required by law or agreement
9
<PAGE>
(b) The Committee may amend the terms of any Option or Right to
Purchase theretofore granted, prospectively or retroactively, but no such
amendment shall impair the rights of any Participant without the Participant's
consent except such an amendment made to cause the Plan to qualify for the
exemption provided by Rule 16b-3.
(c) Subject to the above provisions, the Board shall have authority
to amend the Plan to take into account changes in law and tax and accounting
rules as well as other developments, and to grant Options and Rights to Purchase
which qualify for beneficial treatment under such rules without shareholder
approval.
21. Other Provisions.
----------------
(a) The use of a masculine gender in the Plan shall also include
within its meaning the feminine, and the singular may include the plural, and
the plural may include the singular, unless the context clearly indicates to the
contrary.
(b) Any expenses of administering the Plan shall be borne by the
Company.
(c) This Plan shall be construed to be in addition to any and all
other compensation plans or programs. Neither the adoption of the Plan by the
Board nor the submission of the Plan to the shareholders of the Company for
approval shall be construed as creating any limitations on the power or
authority of the Board to adopt such other additional incentive or other
compensation arrangements as the Board may deem necessary or desirable.
(d) The validity, construction, interpretation, administration and
effect of the Plan and of its rules and regulations, and the rights of any and
all personnel having or claiming to have an interest therein or thereunder shall
be governed by and determined exclusively and solely in accordance with the laws
of the State of Colorado.
* * * * * * * *
10
<PAGE>
Communications World International, Inc.
Form 10-SB
Exhibit 10 (L)
Communications World International, Inc.
1999 Non-Discretionary Stock Option Plan
This Non-Discretionary Stock Option Plan (the "Plan") is adopted by
Communications World International, Inc. (the "Company"), on February 5, 1999.
1. Definitions.
-----------
Unless otherwise indicated or required by the particular context, the
terms used in this Plan shall have the following meanings:
Board: The Board of Directors of the Company.
-----
Code: The Internal Revenue Code of 1986, as amended.
----
Common Stock: The no par value common stock of the Company.
------------
Company: Communications World International, Inc., a corporation
-------
incorporated under the laws of Colorado, and any successors in interest by
merger, operation of law, assignment or purchase of all or substantially all of
the property, assets or business of the Company.
Date of Grant: The date on which an Option, as defined below, is
-------------
granted under the Plan.
Fair Market Value: The Fair Market Value of the Common Stock as of
-----------------
any date shall be determined as follows: If there is a public market for the
Common Stock, Fair Market Value of the Option Shares as of any date shall be the
officially quoted closing price, if available, through The Nasdaq Stock Market,
Inc. or a stock exchange, or if no officially quoted closing price is available,
the representative closing bid price, on the date in question. In the event
there is no officially quoted closing price or representative bid price or the
Common Stock does not trade publicly, the Fair Market Value on any date shall be
determined, in good faith, by the Board after such consultation with outside
legal, accounting and other experts as the Board may deem advisable, and the
Board shall maintain a written record of its method of determining such Fair
Market Value.
Non-Employee Director: A person who is a member of the Board of
---------------------
Directors of the Company and who is not an employee of the Company or any
subsidiary of the Company.
Option: The rights to purchase Common Stock granted pursuant to the
------
terms and conditions of an Option Agreement (defined below).
Option Agreement: The written agreement (including any amendments or
----------------
supplements thereto) between the Company and a Non-Employee Director designating
the terms and conditions of an Option.
<PAGE>
Option Shares: The shares of Common Stock underlying an Option
-------------
granted pursuant to this Plan.
Optionee: A Non-Employee Director who has been granted an Option.
--------
SEC: Securities and Exchange Commission.
---
2. Purpose and Scope.
-----------------
(a) The purpose of the Plan is to advance the interests of the
Company and its shareholders by affording Non-Employee Directors, whose
participation and guidance contributes to the successful operation of the
Company, an opportunity for investment in the Company and the incentive
advantages inherent in stock ownership in the Company.
(b) This Plan provides that Options be granted to Non-Employee
Directors according to the formula set forth in Section 3 of this Plan.
3. Operation of the Plan.
---------------------
(a) Grant of Options: Amount and Timing. An Option to purchase
----------------
10,000 Option Shares shall be granted to each person who is a Non-Employee
Director on February 5, 1999. In addition, effective February 1 of each year,
commencing 2000 and ending 2004, Options to purchase an additional 10,000 Option
Shares shall be granted to each person who is then a Non-Employee Director. Any
person who becomes a Non-Employee Director subsequent to February 5, 1999 shall
receive an Option to purchase 10,000 Option Shares. All Options shall be
exercisable only as set forth in Section 3(c) below and shall be subject to the
other terms and conditions set forth in this Plan or otherwise established by
the Company.
(b) Option Exercise Price. The exercise price for the Options shall
---------------------
be the Fair Market Value of the Common Stock on the Date of Grant.
(c) Exercise. Each Option granted pursuant to this Plan shall be
--------
exercisable in full effective as of the Date of Grant, except as provided in
Section 6(c) below.
(d) Term. Each Option shall expire five years from the Date of
----
Grant, except that an Option will expire, if not exercised, 90 days after the
Optionee ceases to be a Non-Employee Director of the Company or an employee of
the Company. Provided, that, if an Optionee dies while either a Non-Employee
Director of the Company or an employee of the Company, then the estate of the
Optionee shall have the right to exercise the Option for six months after the
date of the Optionee's death.
(e) Amendments. This Plan may be changed or modified from time to
----------
time provided, however, that (A) no such change or modification shall impair any
Option previously granted under the Plan except to qualify under SEC rules, (B)
no such change shall disqualify the Plan from the exemption provided by SEC Rule
16b-3, (C) the approval by the affirmative votes of the holders of a majority of
shares of the Company's securities present, or represented, and entitled to vote
at a meeting duly held in accordance with the applicable laws of the State of
Colorado, shall be required for any amendment which would do any of the
following:
2
<PAGE>
(i) materially modify the eligibility requirements for receiving
Options under the Plan;
(ii) materially increase the benefits accruing to Non-Employee
Directors under the Plan; or
(iii) materially increase the number of shares of Common Stock that
may be issued under the Plan.
4. Number of Shares.
----------------
The Board is authorized to appropriate, issue and sell for the
purposes of the Plan an aggregate maximum of 300,000 shares of Common Stock,
including both treasury and newly issued shares, or the number and kind of
shares of stock or other securities which in accordance with Section 8 shall be
substituted for the 300,000 shares or into which such 300,000 shares shall be
adjusted. All or any unsold shares subject to an Option, that for any reason
expires or otherwise terminates before it has been exercised, again may be made
subject to other Options under the Plan.
5. Eligibility.
-----------
Options shall be granted under the Plan only to Non-Employee Directors
provided that any Non-Employee Director may waive his right to participate in
the Plan.
6. Exercise of Options.
-------------------
(a) During the lifetime of the Optionee, the Option shall be
exercisable only by the Optionee; provided that, subject to Sections 3(c) and
3(d), in the event of the legal disability of an Optionee, the guardian or
personal representative of the Optionee may exercise the Option.
(b) Each Option shall be exercised in whole or in part by delivering
to the office of the Treasurer of the Company written notice of the number of
shares with respect to which the Option is to be exercised and by paying in full
the purchase price for the Option Shares purchased as set forth in Section 7
herein; provided, that an Option may not be exercised in part unless the
purchase price for the Option Shares purchased is at least $1,000.
(c) No Option may be exercised until the Plan is approved by the
shareholders of the Company as provided in Section 14 below.
7. Payment for Option Shares.
-------------------------
(a) For any single purchase by an Optionee of Option Shares at a
total purchase price in excess of $5,000, the Company, in its sole discretion,
upon request by the Optionee, may permit all or part of the purchase price for
the Option Shares to be paid by delivery to the Company for cancellation shares
of the Common Stock previously owned by the Optionee ("Previously Owned Shares")
with a Fair Market Value as of the date of the payment equal to the portion of
the purchase price for the Option Shares that the Optionee does not pay in cash.
Notwithstanding the above, an Optionee shall be permitted to exercise his Option
by delivering Previously Owned Shares only if he has held, and provides
appropriate evidence of such, the Previously Owned Shares for more than six
months prior to the date of exercise. This period (the "Holding Period") may be
extended by the
3
<PAGE>
Company acting in its sole discretion as is necessary, in the opinion of the
Company, so that, under generally accepted accounting principles, no
compensation shall be considered to have been or to be paid to the Optionee as a
result of the exercise of the Option in this manner. At the time the Option is
exercised, the Optionee shall provide an affidavit, and such other evidence and
documents as the Company shall request, to establish the Optionee's Holding
Period. As indicated above, an Optionee may deliver shares of Common Stock as
part of the purchase price only if the Company, in its sole discretion agrees,
on a case by case basis, to permit this form of payment.
(b) If payment for the exercise of an Option is made other than by
the delivery to the Company for cancellation of shares of the Common Stock, the
purchase price shall be paid in cash or certified funds.
8. Change in Stock, Adjustments, etc.
----------------------------------
In the event that each of the outstanding shares of Common Stock
(other than shares held by dissenting shareholders which are not changed or
exchanged) should be changed into, or exchanged for, a different number or kind
of shares of stock or other securities of the Company, or if further changes or
exchanges of any stock or other securities into which the Common Stock shall
have been changed, or for which it shall have been exchanged, shall be made
(whether by reason of merger, consolidation, reorganization, recapitalization,
stock dividends, reclassification, split-up, combination of shares or
otherwise), then there shall be substituted for each share of Common Stock that
is subject to the Plan but not subject to an outstanding Option hereunder, the
number and kind of shares of stock or other securities into which each
outstanding share of Common Stock (other than shares held by dissenting
shareholders which are not changed or exchanged) shall be so changed or for
which each outstanding share of Common Stock (other than shares held by
dissenting shareholders) shall be so changed or for which each such share shall
be exchanged. Any securities so substituted shall be subject to similar
successive adjustments.
In the event of any such changes or exchanges (i) the Company shall
adjust the number, or kind, or option price of the shares or other securities
that are then subject to an Option or Options granted pursuant to the Plan in
order to prevent dilution or enlargement of rights and (ii) such adjustments
shall be effective and binding for all purposes of the Plan.
9. Status as Director.
------------------
Nothing contained in the Plan, or in any Option granted or Option
Shares issued pursuant to the Plan, (i) shall confer upon any Optionee any right
with respect to continuance of his position as a director of the Company, or
(ii) shall interfere in any way with the right of the Company at any time to
elect not to continue or to terminate the Optionee's position as a director of
the Company.
10. Nontransferability of Option.
----------------------------
No Option granted under the Plan shall be transferable by the
Optionee, either voluntarily or involuntarily, except by will or by the laws of
descent and distribution, or pursuant to a qualified domestic relations order as
defined in the Code, the Employee Retirement Income Security Act, or rules
promulgated thereunder. Except as provided in the preceding sentence, any
attempt to transfer an Option shall void the Option.
4
<PAGE>
11. Rights as a Shareholder.
-----------------------
No person shall have any rights as a shareholder with respect to any
share covered by an Option until that person shall become the holder of record
of such share and, except as provided in Section 8, no adjustments shall be made
for dividends or other distributions or other rights as to which there is an
earlier record date.
12. Securities Laws Requirements.
----------------------------
No Option Shares shall be issued unless and until, in the opinion of
the Company, any applicable registration requirements of the Securities Act of
1933, as amended, any applicable listing requirements of any securities exchange
on which stock of the same class is then listed or of The Nasdaq Stock Market,
Inc., and any other requirement of law or of any regulatory bodies having
jurisdiction over such issuance and delivery, have been fully complied with.
Each Option Agreement and each Option Share certificate may be imprinted with
legends reflecting federal and state securities laws restrictions and
conditions, and the Company may comply therewith and issue "stop transfer"
instructions to its transfer agent and registrar in good faith without
liability.
13. Disposition of Shares.
---------------------
To the extent reasonably requested by the Company, each Optionee, as a
condition of exercise, shall represent, warrant and agree, in a form of written
certificate approved by the Company, as follows: (a) that all Option shares are
being acquired solely for his own account and not on behalf of any other person
or entity; (b) that no Option Share will be sold for at least six months
following the Date of Grant of the Option; (c) that no Option Shares will be
sold or otherwise distributed in violation of the Securities Act of 1933, as
amended, or any other applicable federal or state securities laws; (d) that he
will report all sales of Option Shares to the Company in writing on a form
prescribed by the Company; and (e) that if he is subject to reporting
requirements under Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (i) he will not violate Section 16(b) of the
Exchange Act, (ii) he will furnish the Company with a copy of each Form 4 and
Form 5 filed by him, and (iii) he will timely file all reports required under
the federal securities laws.
14. Effect Date of Plan; Termination Date of Plan.
---------------------------------------------
The Plan shall be deemed effective February 5, 1999 (the "Effective
Date of the Plan") and shall terminate on February 5, 2004, except as to Options
previously granted and outstanding under the Plan at that time. No Options
shall be granted after the date on which the Plan terminates. The Plan may be
abandoned or terminated at any earlier time by the affirmative vote of the
holders of a majority of the shares of Common Stock present, or represented, and
entitled to vote at a meeting duly held in accordance with the applicable laws
of the State of Colorado, except with respect to any Options then outstanding
under the Plan.
15. Withholding Taxes.
-----------------
The Option Agreement shall provide that the Company may take such
steps as it may deem necessary or appropriate for the withholding of any taxes
which the Company is required by any law or regulation or any governmental
authority, whether federal, state or local, domestic or foreign, to withhold in
connection with any Option including, but not limited to, the withholding of
5
<PAGE>
all or any portion of any payment or the withholding of issuance of Option
Shares to be issued upon the exercise of any Option.
16. Administration of the Plan.
--------------------------
The Plan shall be administered by the Option Committee of the Board,
which may consist of the Board or a Committee of the Board as the Board may from
time to time designate composed of not less than two members of the Board, each
of whom shall be a Non-Employee Director. The Option Committee shall interpret
the Plan, establish rules for the administration of the Plan and take such
actions in connection with the Plan as it deems advisable. All interpretations,
rules and actions of the Option Committee shall be final and binding.
17. Withholding Taxes.
-----------------
The following provisions are also in effect under the Plan:
(a) The use of a masculine gender in the Plan shall also include
within its meaning the feminine, and the singular may include the plural, and
the plural may include the singular, unless the context clearly indicates to the
contrary.
(b) Any expenses of administering the Plan shall be borne by the
Company.
(c) This Plan shall be construed to be in addition to any and all
other compensation plans or programs. The adoption of the Plan by the
shareholders of the Company shall not be construed as creating any limitations
on the power or authority of the Board to adopt such other additional incentive
or other compensation arrangements as the Board may deem necessary or desirable.
(d) This Plan shall be governed in accordance with the laws of the
State of Colorado.
6
