SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: September 24, 1997
White Cloud Exploration, Inc.
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(Exact name of registrant as specified in its charter)
Utah 0114244 84-0959153
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
116 Stanyan, San Francisco, CA 94118
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 415-387-3135
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1430 Larimer, #209, Denver, CO 80202
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(Former name or former address, if changed since last report.)
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Item 1. Changes in Control of Registrant
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On April 17, 1997, WCM Investments, Inc. (William C. Meier) purchased
control of Registrant through the acquisition of 5,010,750 shares of common
stock which constituted 51% of total outstanding common stock.
On May 14, 1997, the company issued 7,500,000 shares of common stock to WCM
Investments, Inc. for $7,500 in consideration. This, in the aggregate, increased
the control of Registrant by WCM Investments, Inc. to 72.2% of the outstanding
shares.
On June 29, 1997, the Board of Directors approved a reverse split of the
outstanding shares of stock of 173.25 to one, reducing the outstanding shares to
100,000, effective June 29, 1997.
Item 2. Acquisition or Disposition of Assets
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None.
Item 3. Bankruptcy or Receivership
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None.
Item 4. Changes in Registrants Certifying Accountant
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None.
Item 5. Other Events
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On May 30, 1997, the company entered into an agreement with Goldpoint, Ltd.
to acquire the assets of Goldpoint for 2,140,000 shares of common stock of
registrant. The agreement is subject to funding of certain notes totalling up to
$ 550,000.
On May 30, 1997, the company entered into an agreement with Watchout, Inc.
to acquire the assets of Watchout for 11,640,003 shares of common stock of
registrant. The agreement is subject to funding of certain notes totalling up to
$ 550,000.
As of September 30, 1997, $ 450,000 in notes had been funded to the
Registrant and Watchout.
The Company has issued a Note and Warrant to Capstone Investments.
On June 30, 1997, the company agreed to issue 1,150,000 shares of stock for
services rendered in the event that the Watchout and Goldpoint transactions were
consummated.
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Item 6. Resignation of Directors
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It is agreed that upon consummation of the Watchout and Goldpoint
transactions and the effectiveness of the required 14F Notice to Shareholders,
Directors--Messrs. Signer and Mahanti will resign and the appointment of Messrs.
Robert Galoob and David Galoob will become effective.
Item 7. Financial Statements, Pro Forma Financials & Exhibits
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Financials - None at this time.
Exhibits
7.1 Goldpoint Contract
7.2 WATCHOUT! Contract
7.3 Note
7.4 Note
7.5 Warrant Agreement
7.6 Warrant Agreement
7.7 Warrant Agreement
7.8 Warrant Agreement
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September 24, 1997 White Cloud Exploration, Inc.
By: /s/ Steven Signer
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Steven Signer, President
LLC INTEREST AND ASSET CONTRIBUTION AGREEMENT
THIS LLC INTEREST AND ASSET CONTRIBUTION AGREEMENT ("Agreement") is made
and entered into effective as of this 30th day of May, 1997 by and among White
Cloud Exploration, Inc. Corp., a Utah corporation ("White Cloud"); Goldpoint
International, LLC, a Delaware limited liability company (the "Company");
Stephen J. Petre, an individual ("Petre") and each of the persons (including
Petre) listed on Schedule A hereto (each, a "Selling Member" and collectively
the "Selling Members").
W I T N E S S E T H:
WHEREAS, White Cloud is a public company; and
WHEREAS, the Company is engaged in the business of the design, manufacture
and marketing of fine writing instruments (all such activities of the Company,
together with all other business activities of the Company, being hereinafter
referred to as the "Business"); and
WHEREAS, Selling Members own the number of limited liability company
interests set forth opposite their names on Schedule A which, in the aggregate,
represent 100% of the interests in the Company (the "Selling Members
Interests"); and
WHEREAS, Selling Members desire to contribute to White Cloud Selling
Members' Interests for an aggregate consideration of 2,140,000 shares of White
Cloud restricted Common Stock (the "Goldpoint Transaction") (based on 1,250,000
shares of White Cloud common stock being outstanding prior to the Goldpoint
Transaction. In the event that a greater or lesser number of White Cloud shares
of common stock are outstanding prior to the Goldpoint Transaction, the
2,000,000 shares of White Cloud common stock shall be increased or
decreasedaccordingly (the foregoing, the "Adjustment")), all upon the terms and
conditions contained herein; and
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WHEREAS, simultaneous with, and as a condition precedent to, the Goldpoint
Transaction, White Cloud shall acquire all of the issued and outstanding shares
of Common Stock of Watchout!, a California corporation ("Watchout") in exchange
for 11,640,003 shares of White Cloud restricted Common Stock, subject to the
Adjustment (the "Watchout Transaction"); and
WHEREAS, the Goldpoint Transaction, together with the Watchout Transaction,
are components of a single integrated transaction that is intended to qualify
for the treatment provided in Section 351 of the Internal Revenue Code of 1986,
as amended (the "Code"); and
WHEREAS, following the Goldpoint Transaction and the Watchout Transaction,
it is intended that a private offering of White Cloud securities ( the "Private
Placement") be consummated pursuant to that certain Selling Agreement dated as
of February 5, 1997 between the Company and Sands Brothers & Co., Ltd. ("Sands
Brothers")
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants hereinafter set forth, the parties
hereto hereby agree as follows:
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SECTION I
CONTRIBUTION OF SELLING MEMBERS' INTERESTS
1.01. Conveyance of Selling Members' Interests. At Closing, Selling Members
shall contribute, transfer, assign, convey and deliver certificates or other
written evidence of their Selling Members' Interests to White Cloud in the
amounts set forth on Exhibit A hereto. Each of such certificates or other
written evidence of their Selling Members' Interests shall be duly endorsed for
transfer and duly executed in favor of White Cloud. All transfer taxes, if any,
payable by reason of transferring Selling Members' Interests shall be paid by
White Cloud.
1.02. Consideration for Selling Members' Interests. In exchange for Selling
Members' Interests, White Cloud shall issue stock certificates evidencing an
aggregate of 2,140,000 restricted shares of White Cloud's Common Stock, subject
to the Adjustment (the "New Shares") in the denominations and in the names of
the persons and entities set forth on Exhibit A hereto.
SECTION II
ADDITIONAL AGREEMENTS
2.01. Lock-Up Agreement. In the event that the Private Placement is
completed upon consummation of the Private Placement, each of Selling Members
will enter into a lock-up agreement with White Cloud in form and substance
reasonably satisfactory to Sands Brothers ("Lock-Up Agreement") pursuant to
which Selling Members will agree to certain restrictions, as established by
Sands Brothers, on the transferability of the New Shares acquired by them
pursuant to this Agreement.
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SECTION III
CLOSING
3.01. Closing. The consummation of the contribution of the Selling Members'
Interests, and the other transactions contemplated hereby ("Closing") shall take
place at the offices of Sands Brothers, 90 Park Avenue, NY, NY 10016 on June 25,
1997, or as soon as practical after all conditions precedent set forth in
Sections IX and X hereof have been satisfied or waived, whichever is later, at
10:00 a.m. (local time), or at such other date, time and place as shall be fixed
in writing by the mutual consent of the parties hereto (the "Closing Date"). The
Closing shall be deemed to be effective as of the opening of business on the
Closing Date.
3.02. Selling Members' and the Company's Deliveries. At the Closing, in
addition to such certificates, opinions, documents and agreements as are
specified in Articles IX and X, Members and/or the Company shall do, execute and
deliver, or cause to be done, executed and delivered, the following:
(a) Selling Members' Interests duly endorsed for transfer. 3.03. White
Cloud's Deliveries. At the Closing, in addition to such certificates,
opinions, documents and agreements as are specified in Articles IX and X,
White Cloud shall do, execute and deliver, or cause to be done, executed
and delivered, the following:
(a) the New Shares;
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SECTION IV
Representations and Warranties Concerning Selling Members
Each Selling Member on behalf of himself, herself or itself represents and
warrants to, and agrees with, White Cloud as follows:
4.01. Ownership of Selling Member's Interests. Such Selling Member is the
owner, beneficially and of record, of all of Selling Members' Interests as set
forth in Exhibit A and there exists no pledge, lien, security interest,
encumbrance, claim or equity of any kind with respect to such shares. Such
Selling Member is not a party to any operating or similar agreement, voting
trust or other voting or similar agreement with respect to such Selling Member's
Interests. Such Selling Member has full right and authority to transfer such
Selling Member's Interests and, upon delivery of such Selling Member's Interests
to White Cloud pursuant to this Agreement, White Cloud will receive good and
marketable title thereto, free and clear of any pledge, lien, security interest,
encumbrance, claim or equity of any kind.
4.02. Authority of Selling Members. Such Selling Member is of full age and
has the full right, capacity, power and authority to enter into this Agreement
and the Documents and to consummate the transactions contemplated hereby and
thereby. This Agreement and the Documents (as hereinafter defined) have been
duly executed and delivered by each Selling Member and constitute the valid and
binding obligations of such Selling Member enforceable against each such Selling
<PAGE>
Member in accordance with their respective terms, subject, as to enforcement, to
the discretion of the courts in awarding equitable relief and to applicable
bankruptcy, reorganization, insolvency, moratorium and similar laws affecting
the rights of creditors generally.
4.03. No Violations. Neither the execution and delivery of this Agreement
or any of the Documents, the performance by such Selling Member of his
obligations hereunder and thereunder nor the consummation of the transactions
contemplated hereby or thereby will, directly or indirectly, with or without the
giving of notice or the passage of time, or both (i) violate, or be in conflict
with, or constitute a default under, or cause or permit the termination or the
acceleration of the maturity of, any agreement, personal guarantee, lease,
mortgage, debt or obligation of such Selling Member or require the payment or
any pre-payment or other penalty with respect thereto; (ii) require notice to or
the consent of any party to or beneficiary of any agreement, personal guarantee,
lease, mortgage, debt or obligation to which such Selling Member is a party or
by which he or his properties is bound or subject, including without limitation,
any agreement or obligation containing a right of first refusal or similar right
or permitting any party to renegotiate, receive a refund, modify or otherwise
change any such agreement or obligation; (iii) result in the creation or
imposition of any lien, security interest, claim or other encumbrance upon any
property or assets of such Selling Member under any agreement, personal
guarantee, lease, mortgage, debt or obligation to which he is a party or by
which he or his properties is bound or subject; or (iv) violate any statute or
law or any judgment, decree, order, regulation or rule of any court or
governmental authority to which such Selling Member or his properties is or may
be bound or subject.
<PAGE>
4.04. Consents and Approvals of Governmental Authorities. No consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority is required to be made or obtained by such
Selling Member in connection with the execution, delivery or performance by such
Selling Members of this Agreement or the Documents or the consummation by such
Selling Member of the transactions contemplated hereby or thereby.
4.05. Affiliate Transactions. Such Selling Member has no direct or indirect
interest in any firm, corporation, association or business enterprise which
competes with the Company or is a supplier, client, customer or agent of, or is
otherwise engaged in the business engaged in by, the Company.
4.06. Investment Intent. The New Shares are being acquired for such Selling
Member's own account, for investment purposes only and not with a view towards
distribution or resale to others. The New Shares have not been registered under
the Securities Act and Selling Members will not sell or otherwise transfer the
New Shares unless they are registered under the Securities Act or unless in the
opinion of counsel satisfactory to White Cloud an exemption from such
registration is available. Such Selling Member understand that the New Shares
have not been registered under the Securities Act by reason of a claimed
exemption under the provisions of the Securities Act which depends, in part,
upon such Selling Member's investment intention. Such Selling Member has
reviewed, or has had the opportunity to review, such documents, ask questions
and obtain additional information concerning White Cloud in connection with the
transactions contemplated hereby. Furthermore, such Selling Member has, or has
had the opportunity to, consult his own counsel, accountants and other
<PAGE>
professional advisors as to the financial, legal, tax and related matters
concerning an investment in White Cloud. Until (a) the New Shares are
effectively registered under the Securities Act, or (b) the holder of the New
Shares, at such holder's expense, deliver to White Cloud a written opinion of
counsel reasonably acceptable to White Cloud to the effect that such legend is
no longer necessary under the Securities Act, White Cloud will cause each
certificate(s) representing the New Shares to be stamped or otherwise imprinted
with a legend to substantially the following effect:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and thus may not be transferred
unless so registered or unless an exemption from registration is available."
4.07. Finders' Fee. There is no investment banker, broker, finder or other
intermediary which has been retained by, or is authorized to act on behalf of,
such Selling Member who might be entitled to any fee or commission from White
Cloud or the Company or any of their affiliates upon the consummation of the
transactions contemplated by this Agreement or the Documents, except Sands
Brothers.
4.08. Disclosure. No representation or warranty of such Selling Member
contained in this Agreement or any of the Documents or in any statement or
certificate furnished or to be furnished to White Cloud or the Company pursuant
hereto or thereto in connection with the transactions contemplated hereby or
thereby contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
made herein or therein, in the light of the circumstances in which they were
made, not misleading.
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SECTION V
Representations and Warranties Concerning the Company
Subject to the Disclosure Schedule attached hereto the Company represents
and warrants to, and agrees with, White Cloud as follows:
5.01. Organization; Authority.
(a) The Company, and each of the Companies under its control (each a
"Subsidiary, and collectively, the "Subsidiaries") is a limited liability
company duly organized, validly existing and in good standing under the laws of
its jurisdiction of formation and has all requisite power and authority to carry
on its business as such business is now being conducted and to own and lease the
properties it now owns or leases. The Company is duly qualified to do business
in the states or jurisdictions set forth in the Disclosure Schedule. Except as
set forth in the Disclosure Schedule, there is no jurisdiction in which the
conduct of the Company's business or ownership or leasing of its properties
requires it to be qualified to do business as a foreign limited liability
company, except where such qualifications have been obtained or the failure to
be so qualified would not have a material adverse effect on the business,
financial condition or prospects of the Company taken as a whole. The Company
has all requisite power and authority to execute and deliver this Agreement and
to carry out the transactions contemplated by this Agreement.
<PAGE>
(b) The limited liability company records of the Company have been
delivered or made available to White Cloud. Such records are complete, correct
and current in all material respects, with all necessary signatures, and have
been maintained in accordance with good business practices in all material
respects.
5.02. Capitalization. Exhibit A hereto lists the authorized and the
equitable ownership of the limited liability company interests of the Company
(the "Interests") and the name and number of shares of Interests owned by each
member of the Company. Except as set forth in Exhibit A, there are no other
classes of capital stock or other securities authorized by the Company.
(ii) The Company has no obligation (contingent or otherwise make any other
distribution in respect of any of its membership interests, except as set forth
in the Company's operating agreement. The Company is not a party to, and has no
knowledge of, voting trusts or agreements, pledge agreements, buy-sell
agreements, rights of first refusal or proxies relating to any securities of the
Company (whether or not the Company is a party thereto). All of the outstanding
securities of the Company were issued, in all material respects, in compliance
with all applicable federal and state securities laws. The Company has no
obligation (contingent or otherwise) to repurchase, redeem or otherwise acquire
any membership interests.
(iii) The Members of record and the holders of subscriptions, warrants,
options, preemptive rights, convertible securities and other rights (contingent
or otherwise) to purchase or otherwise acquire equity securities of the Company
are as set forth in Exhibit A. The designations, powers, preferences, rights,
privileges, qualifications, limitations and restrictions in respect of
<PAGE>
Membership Interests are as set forth in the Operating Agreement and all such
designations, powers, preferences, rights, privileges, qualifications,
limitations and restrictions are valid, binding and enforceable in accordance
with all applicable laws (subject, as to enforcement, to the discretion of the
courts in awarding equitable relief and to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting the rights of
creditors generally). Except as disclosed in Exhibit A or the Disclosure
Schedule, no person owns of record, or is known to the Company to own
beneficially, any Membership Interest of the Company; no subscription, warrant,
option, preemptive right, convertible security, agreement or other right
(contingent or otherwise) to purchase or otherwise acquire equity securities of
the Company is authorized or outstanding; and there is no commitment by the
Company to issue membership interests, subscriptions, warrants, options,
preemptive rights, convertible securities or other such rights or to distribute
to holders of any of its equity securities any evidence of indebtedness or
asset. An appropriate number of membership interests have been reserved for
issuance upon the conversion or exercise, as the case may be, of any of the
securities referred to in this Section.
5.03. Subsidiaries and Investments. The Company does not own, directly or
indirectly, any capital stock, or other equity ownership or proprietary
interest, in any other corporation, association, trust, partnership, joint
venture or other entity.
5.04. Financial Statements. The audited consolidated balance sheet of the
Company as of December 31, 1996 (the "1996 Balance Sheet") and the related
consolidated statements of operations, shareholders equity and statements of
cash flow for the fiscal year ended December 31, 1996 certified by Comprehensive
<PAGE>
Systems, Inc. and the unaudited consolidated balance sheet (the "February
Balance Sheet") of the Company as of February 28, 1997 (the "Balance Sheet
Date"), and the related unaudited consolidated statements of operations,
shareholders equity and statements of cash flow for the two month period ending
February 28, 1997 (collectively, the "Financial Statements"), are attached
hereto as Exhibit B. Except as may be otherwise indicated herein and therein and
in the notes thereto, the Financial Statements have been prepared in conformity
with Generally Accepted Accounting Principles consistently applied and present
fairly in all material respects the financial position and results of operations
of the Company as of the dates and for the periods indicated.
5.05 Keeping of Records and Books of Account. The Company has maintained
adequate records and books of account, in which complete entries have been made
in accordance with Generally Accepted Accounting Principles, consistently
applied, reflecting all financial transactions of the Company and in which, for
each fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business have been made. The records and books of account of the Company are in
good order and have been properly maintained in all material respects.
5.06 Access to Corporate Documents. The minute books of the Company and of
its Subsidiaries have been made available to White Cloud and such minute books
reflect in all material respect the meetings and actions of the managers,
member-managers and Members of the Company or of its Subsidiaries, respectively,
since the time of their respective formation and reflect all transactions
referred to in such minutes accurately in all material respects.
<PAGE>
5.07. Absence of Undisclosed Liabilities. The Company has no material
outstanding claims, liabilities, obligations or indebtedness, contingent or
otherwise, whether asserted or unasserted, except as set forth in the 1996
Balance Sheet, or referred to in any of the notes thereto. All liabilities of
the Company and its Subsidiaries incurred subsequent to the Balance Sheet Date
have been incurred in the ordinary course of business and do not involve
borrowings which individually exceed $5,000 and which do not exceed $10,000 in
the aggregate. Neither the Company nor its Subsidiaries is in default in respect
of the terms or conditions of any indebtedness.
5.08. Absence of Changes. Since the Balance Sheet Date, there has not been
any material change in the condition, financial or otherwise, of the Company or
of any of its Subsidiaries, which materially adversely affects the ability of
the Company or the ability of any of its Subsidiaries to conduct its operations
s currently conducted and neither the Company nor any of its Subsidiaries have
incurred any material liabilities or obligations, direct or contingent, not in
the ordinary course of business since such Balance Sheet Date.
5.09. Accounts Receivable. The accounts receivable of the Company reflected
on the 1996 Balance Sheet, and all accounts receivable of the Company arising
since the 1996 Balance Sheet Date, are not subject to discount (other than
discounts and allowances provided by normal trade terms), rebate or offset and
have arisen from bona fide transactions in the ordinary course of business.
<PAGE>
5.10. Title to Properties; Encumbrances.
(i) Except for properties and assets reflected in the 1996 Balance Sheet or
acquired since the 1996 Balance Sheet Date which have been sold or otherwise
disposed of in the ordinary course of business since such date, the Company and
each of its Subsidiaries has good, valid and marketable title to (A) all of its
properties and assets (personal, tangible and intangible), reflected as owned in
the 1996 Balance Sheet, except as indicated in the notes thereto; and (B) all
the properties and assets purchased or otherwise acquired by the Company or by
any Subsidiary since the 1996 Balance Sheet Date; in each case clear of all
encumbrances, liens, claims, charges or other restrictions of whatever kind or
character ("Liens"), except for (1) liens reflected in the 1996 Balance Sheet,
(2) liens for current taxes, assessments or governmental charges or levies on
property not yet due and delinquent and (3) such Liens as do not materially and
adversely affect the value of such property and do not materially interfere with
the use made or proposed to be made of such property by the Company.
(ii) The Company and its Subsidiaries own no real property. To the best of
the Company's knowledge after due inquiry, there are no condemnation,
environmental, zoning or other land use regulation proceedings, either
instituted or planned to be instituted, which would materially and adversely
affect the use or operation of the Company's and its Subsidiaries' properties
and assets for their respective intended uses and purposes or the value of such
properties, and the Company and its Subsidiaries have not received notice of any
special assessment proceedings which would affect such properties and assets.
<PAGE>
5.11. Condition of Equipment, Machinery and Fixtures. The equipment,
machinery and fixtures leased and/or owned by the Company and utilized by the
Company and its Subsidiaries in the conduct of their business are in good
operating condition and are fit for their intended purpose.
5.12. Leased Property. Each real property and personal property lease or
sublease to which the Company or any of its Subsidiaries is a party is valid and
binding and is in full force and effect; all rent and other sums, and charges
payable by the Company or by each Subsidiary as lessee or sublessee thereunder,
are current through the last day of the immediately preceding calendar month; no
notice of default or termination under any lease is outstanding; no termination
event or condition or uncured default on the part of the Company or any
Subsidiary, or the landlord, exists under any lease; the Company and its
Subsidiaries currently occupy or use the premises leased pursuant to the real
property leases; and no event has occurred and no condition exists which with
the giving of notice or the lapse of time or both, would constitute such a
default or termination event or condition. Neither the Company, nor its
Subsidiaries, nor any of the officers or directors of the Company or of its
Subsidiaries has any ownership, financial or other interest in the landlord
under any real property lease. Each lease was negotiated on an arm's-length
basis.
5.13. Inventories. All inventory reflected in the 1996 Balance Sheet of the
Company and of its Subsidiaries and all inventory acquired by the Company and by
its Subsidiaries subsequent to the 1996 Balance Sheet Date, were acquired
<PAGE>
subsequent to the 1996 Balance Sheet Date, were acquired and have been
maintained in accordance with the regular business practices of the relevant
entity, consists of items of quality and quantity reasonably expected to be
useable or saleable in the ordinary course of business consistent with past
practice, are valued in accordance with United States Generally Accepted
Accounting Principles, and such inventory which is known or reasonably believed
to be obsolete or slow moving has been adequately reserved to reduce such
inventory to net realizable value. Subject to amounts reserved therefor on the
Financial Statements, the values at which all inventories of the Company and of
its Subsidiaries (collectively, the "Inventories") are carried on the Financial
Statements reflect the historical inventory valuation policy of the Company and
of its Subsidiaries of stating such Inventories. at the lower of cost
(determined on the first-in, first-out method) or market value and all
Inventories are valued such that the Company and its Subsidiaries will earn
its/their customary gross margins thereon. The Company has good and marketable
title to the Inventories free and clear of all encumbrances. The Inventories do
not consist of any items held on consignment. The Company is under no obligation
or liability with respect to accepting returns of items of Inventory or
merchandise in the possession of its customers other than in the ordinary course
of business consistent with past practice. No clearances or extraordinary sale
of the Inventories has been conducted since the Balance Sheet Date. Neither the
Company or any of its Subsidiaries has manufactured Inventory for sale which is
not of a quality and quantity usable in the ordinary course of business
consistent with past practice and within a reasonable period of time nor has the
Company or any of its Subsidiaries changed the price of any Inventory except (i)
for reductions to reflect any reduction in the cost thereof to the Company or to
<PAGE>
any of its Subsidiaries; (ii) for reductions and increases responsive to normal
competitive conditions and consistent with the Company's or the Subsidiaries'
past sales practices; and (iii) to reflect any increase in the cost thereof to
the Company or to the Subsidiaries. The Inventories are in good and merchantable
condition in all material respects, are suitable and usable for the purposes for
which they are intended and are in a condition such that they can be sold in the
ordinary course of business consistent with past practice.
5.14. Patents, Trademarks and Copyrights, Etc. The Company and its
Subsidiaries own or are licensed or otherwise entitled to use all patents,
trademarks, trade names, service marks, copyrights, technology, know-how,
processes and other intellectual property used in the conduct of its business as
currently conducted. The Company and its Subsidiaries have received no notice of
any claims, and have no knowledge of any threatened claims, and know of no facts
which would form the basis of any claim, asserted by any person, to the effect
that the sale or use of any product or process now used or offered by the
Company or any Subsidiary infringes on any patents or infringes upon the use of
any such trademarks, trade names, service marks, copyrights, technology,
know-how, processes or other intellectual property of another person or
challenges or questions the validity or effectiveness of any such license or
agreement. To the Company's knowledge, the sale and use of any such products and
processes by the Company and its Subsidiaries, and the use of any such patents,
trademarks, trade names, service marks, copyrights, technology, know-how,
processes or other intellectual property by the Company and its Subsidiaries,
does not infringe on the rights of any person.
<PAGE>
5.15. Litigation. There is no action, suit, investigation, customer
complaint, claim or proceeding at law or in equity by or before any arbitrator,
governmental instrumentality or other agency now pending or, to the Company's
knowledge, threatened against or affecting the Company or any Subsidiary, nor,
to the best of the Company's knowledge, does there exist any basis therefor.
Neither the Company nor any Subsidiary is subject to any judgment, order,
writ, injunction or decree of any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign.
5.16. Non-Defaults; Non-Contravention. Neither the Company nor its
Subsidiaries is in default in the performance or observance of any obligation
(i) under its Certificate of Formation, as amended, or its Operating Agreement,
or any indenture, mortgage, contract, purchase order or other agreement or
instrument to which the Company is a party or by which it or any of its property
is bound or affected; or (ii) with respect to any order, writ, injunction or
decree of any court of any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, except for such defaults as would not, individually or in the
aggregate, result in a material adverse effect on the business or operations of
the Company as a whole, and there exists no condition, event or act which
constitutes, nor which after notice, the lapse of time or both, would
constitute, a material default under any of the foregoing.
<PAGE>
5.17. Employment of Officers, Employees and Consultants. To the Company's
knowledge, no third party may assert any valid claim against the Company or its
Subsidiaries with respect to the (i) continued employment by, or association
with, the Company or its Subsidiaries of any of its present officers, employees
or consultants; or (ii) the use by the Company or its Subsidiaries of any
information which the Company or its Subsidiaries would be prohibited from using
under any prior agreements or arrangements or any laws applicable to unfair
competition, trade secrets or proprietary information.
5.18. Taxes. The Company and its Subsidiaries have filed all federal,
state, local and foreign tax returns which are required to be filed by them or
have requested extensions thereof, and all such returns are true and correct in
all material respects. The Company and its Subsidiaries have paid all taxes
pursuant to such returns or pursuant to any assessments received by them and
have withheld all amounts which they are obligated to withhold from amounts
owing to any employee, creditor or third party. The tax returns of the Company
and of its Subsidiaries have never been audited by any state, local or federal
authorities. The Company and its Subsidiaries have not waived any statute of
limitations with respect to taxes or agreed to any extension of time with
respect to any tax assessment or deficiency. All tax elections have been made by
the Company and its Subsidiaries in accordance with generally accepted
practices. No deficiency assessment with respect to or proposed adjustment of
the Company's and its Subsidiaries federal, state, county or local taxes is
pending or, to the best of the Company's knowledge, threatened. There is no tax
lien, whether imposed by any federal, state, county or local taxing authority,
outstanding against the assets, properties or business of the Company or of its
Subsidiaries.
<PAGE>
5.19. Agreements. Except as set forth in the Disclosure Schedule, neither
the Company nor any Subsidiary is a party to any written or oral contract not
made in the ordinary course of business and, whether or not made in the ordinary
course business, neither the Company nor any Subsidiary is a party to any
written or oral (i) collective bargaining agreement or any other contract with
any labor union; (ii) contract for the future purchase of fixed assets or for
the future purchase of materials, supplies or equipment in excess of $10,000;
(iii) contract for the employment of any officer, key employee or other key
person on a full-time basis or any contract with any person on a consulting
basis requiring the payment of any amount in the future; (iv) bonus, pension,
profit-sharing, vacation, deferred compensation, retirement, stock purchase,
stock option, hospitalization, health, medical insurance, life insurance,
disability insurance or similar plan, contract or understanding in effect with
respect to employees, or any other employee benefit plan, including, without
limitation, any employee benefit plan" as defined in Section 3(l) of the
Employee Retirement Income Security Act of 1974 and the rules and regulations
thereunder, as amended from time to time (collectively, "ERISA"), to which the
Company or any Subsidiary contributes or is a party, or is bound, or under which
it may have liability and under which employees or former employees of the
Company or any Subsidiary (or their beneficiaries) are eligible to participate
or derive a benefit; (v) agreement, indenture or other instrument relating to
the borrowing of money or to the mortgaging, pledging or otherwise placing a
<PAGE>
lien on any assets ofthe Company or of any Subsidiary; (vi) guaranty of any
obligation for borrowed money or otherwise; (vii) agreement or other commitment
for capital expenditures in excess of $10,000; (viii) contract or agreement
under which the Company or any Subsidiary is obligated to pay any broker's fees,
finder's fees or any such similar fees, to any third party other than in
conjunction with the transactions contemplated by this Agreement; (ix) sales
agency, marketing, distributorship or continuing brokerage agreements or
franchises between the Company or any Subsidiary and any other person; (x)
partnership or joint venture agreement of any kind to which the Company or any
Subsidiary or their assets may be bound; (xi) licenses to or from others with
respect to the business or assets of the Company or any Subsidiary; (xii)
contracts or commitments limiting the freedom of the Company or any Subsidiary
or any of their officers or employees to compete with respect to the business of
the Company or any Subsidiary in any geographic area or with any person or
otherwise restricting the conduct of the Company's business or that of any
Subsidiary; (xiii) contract, agreement, arrangement, or understanding with
respect to the sale of the business of the Company or of any Subsidiary or of a
substantial portion of the Company's or any Subsidiary's assets to any third
party, including any option agreement for any such sale or disposition; or (xiv)
contract, agreement, arrangement or understanding which is material to the
business of the Company or to the business of any Subsidiary. Each material
contract of the Company or of any of its Subsidiaries is valid and binding on
the Company or on such Subsidiary (subject, as to enforcement, to the discretion
of the courts in awarding equitable relief and to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting the rights of
creditors generally), and neither the Company nor any of its Subsidiaries has
<PAGE>
received notice that anysuch contract is not binding on any party thereto. The
Company and its Subsidiaries have performed in all material respects all
obligations to have been performed on such contracts through the date hereof,
and neither the Company nor any Subsidiary is in default in any material respect
under any such contract.
5.20. Compliance with Laws; Environmental Matters, Licenses, Etc. The
Company and its Subsidiaries have received no notice of any violation of, or
noncompliance with, any federal, state, local or foreign laws, ordinances,
regulations or orders (including, without limitation, those relating to
environmental protection, occupational safety and health and other labor laws,
ERISA, federal drug laws, federal securities laws, equal employment opportunity,
consumer protection, credit reporting, "truth-in-lending," and warranties and
trade practices) applicable to its business or the business of any Subsidiary,
the violation of, or noncompliance with which, would have a material adverse
effect on the Company's business or operations, taken as a whole, or that of any
Subsidiary, and the Company knows of no facts or set of circumstances which
would give rise to such a notice. The Company and its Subsidiaries have all
licenses and permits and other governmental certificates, authorizations and
permits and approvals (collectively, "Licenses") required by every federal,
state and local government or regulatory body for the operation of their
business and the use of their properties, the absence of which would have a
material adverse affect on the business of the Company, taken as a whole. The
Licenses are in full force and effect and no violations are or have been
recorded in respect of any License and no proceeding is pending or, to the
Company's knowledge threatened to revoke or limit any thereof.
<PAGE>
The Company and its Subsidiaries have not received any written opinion or
memorandum from legal counsel providing that it/they has taken any action which
has resulted in, or is reasonably likely to result in, the Company or any of its
Subsidiaries incurring any liability which may be material to its/their
respective business, prospects, financial condition, operations, property or
affairs.
5.21. Authorization of Agreement, Etc. Each of this Agreement, the
Registration Rights Agreement and all other agreements or documents required to
be executed and delivered by the Company in connection with the transactions
contemplated by this Agreement (collectively the "Documents") has been or will
be duly executed and delivered by the Company and the execution, delivery and
performance by the Company of this Agreement and the Documents has been duly
authorized by all requisite corporate action by the Company; and each
constitutes, or will constitute, the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms, except as enforce ability may
be limited by bankruptcy, insolvency, reorganization, usury or other similar
laws affecting the enforcement of creditors' rights generally and except as
rights to indemnification hereunder may be limited by applicable law. The
execution, delivery and performance of this Agreement will not (i) violate any
provision of law or statute or any order of any court or other agency of
government binding on the Company or its Subsidiaries; or (ii) conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute (with due notice or lapse of time or both) a default under, or result
in the creation of any lien, security interest, charge or encumbrance upon any
of the properties or assets of the Company or of its Subsidiaries under the
<PAGE>
Certificate of Formation, as amended, or Operating Agreement or ByLaws of the
Company or of its Subsidiaries or any indenture, mortgage, lease agreement or
other agreement or instrument to which the Company or any of its Subsidiaries is
a party or by which it or any of its property is bound or affected, except for
such conflict, breach or default (x) as to which requisite waivers or consents
shall have been obtained by the Company or by its Subsidiaries and delivered to
White Cloud by the time of Closing or (y) which individually or int he aggregate
would not result in a material adverse effect on the business of the Company,
taken as a whole.
5.22. Related Transactions. Except as set forth in the Disclosure Schedule,
no current or former member, manager, member-manager, officer or employee of the
Company, nor any affiliate of any such person, is presently, or since the
inception of the Company has been, directly or indirectly, through his, her or
its affiliation with any other person or entity, a party to any loan from the
Company or from any of its Subsidiaries.
5.23. Intentionally Omitted.
5.24. Salaries and Bonuses. The Disclosure Schedule contains a true and
complete list of all current officers, managers, member managers and employees
of the Company and of its Subsidiaries who received during the fiscal year ended
December 31, 1996 remuneration from the Company or from any of its Subsidiaries
in excess of $50,000, together with the current aggregate base salary rate for
each such person.
5.25. Insurance. All insurable assets and properties of the Company and its
Subsidiaries are insured, for the benefit of the Company and its Subsidiaries,
against all risks usually insured against by persons owning or operating similar
<PAGE>
properties in the localities where such properties are located, through
insurance policies all of which are in full force and effect. The Company and
each Subsidiary are insured, for their benefit, against all claims relating to
their services to the same extent that the risks of such claims are usually
insured against by persons providing similar services. Each of the insurance
policies referred to in this Section is issued by an insurer of recognized
responsibility, and neither the Company nor its Subsidiaries has received any
notice or threat of the cancellation or nonrenewal of any such policy. The
Company will make available to the White Cloud, upon its request, a list of all
insurance coverage carried by the Company or its Subsidiaries, the carrier and
the terms and amount of coverage.
5.26. Employee Benefit Plans.
(i) Welfare Plans. Each welfare plan of the Company and its Subsidiaries is
in compliance with the applicable provisions of ERISA and the Internal Revenue
Code of 1986, as amended (the "Code"). The Company and each Subsidiary have no
contingent, future or other obligations or liabilities under or with respect to
any welfare plan which provides for the continuation of benefits at the expense
of the Company or any Subsidiary after retirement or other termination of
employment.
(ii) Pension Plans. Each pension plan of the Company and of each Subsidiary
is in compliance with the applicable provisions of ERISA and the Code including,
without limitation, any applicable minimum funding requirements. There have been
no reportable events within the meaning of Section 4043 of ERISA with respect to
any pension plan. In the event of the termination of all pension plans, the
Company and each Subsidiary would have no liability under Sections 4062, 4063 or
4064 of ERISA.
<PAGE>
(iii) Effect of Transactions. The execution and delivery of this Agreement
by the Company and the consummation of the transactions contemplated hereby will
not involve any prohibited transactions with respect to the Company or any of
its Subsidiaries within the meaning of ERISA.
5.27. Brokers. The Company has not, nor have any of its Subsidiaries, or
any of its/their respective officers, directors, employees or shareholders,
employed any broker or finder in connection with the transactions contemplated
by this Agreement, other than Sands Brothers.
5.28. No Consents. No permit, consent, approval, authorization, order or
filing with any court or governmental authority is required to consummate the
transactions contemplated by this Agreement, except as required under applicable
state and federal securities laws with respect to the issuance of securities as
contemplated pursuant to the Watchout Transaction, the Goldpoint Transaction and
the Private Placement.
5.29. Employee Relations. Each of the Company and its Subsidiaries has
generally enjoyed a satisfactory employer-employee relationship with its
employees and is in material compliance with all federal, state, local, and
foreign laws and regulations respecting employment and employment practices,
terms and conditions of employment and wages and hours. There are no pending
investigations involving the Company or any of its Subsidiaries by the U.S.
Department of Labor, or any other governmental agency responsible for the
enforcement of such federal, state, local, or foreign laws and regulations.
<PAGE>
There is no unfair labor practice charge or complaint against the Company or its
Subsidiaries pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving the Company or its Subsidiaries, or any predecessor entity, and
none has ever occurred. No representation question exists respecting the
employees of the Company or the employees of any of its Subsidiaries, and no
collective bargaining agreement or modification thereof is currently being
negotiated by the Company or its Subsidiaries. No grievance or arbitration
proceeding is pending under any expired or existing collective bargaining
agreements of the Company or any of its Subsidiaries. No labor dispute with the
employees of the Company or its Subsidiaries exists, or, is imminent.
5.30. Foreign Corrupt Practices Act. None of the Company, its Subsidiaries
nor to their knowledge any of their respective members, managers,
manager-members, officers, employees, agents or any other person acting on
behalf of the Company or any of its Subsidiaries has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, or official or
employee of any governmental agency (domestic or foreign) or instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company or the business of any of
its Subsidiaries (or to assist the Company or any of its Subsidiaries in
connection with any actual or proposed transaction which (a) might subject the
<PAGE>
Company or any of its Subsidiaries, or any other such person, to any damage or
penalty in any civil, criminal or governmental litigation or proceeding
(domestic or foreign); (b) if not given in the past, might have had a material
adverse effect on the assets, business or operations of the Company or of any of
its Subsidiaries; or (c) if not continued in the future, might adversely affect
the assets, business, operations or prospects of the Company and of its
Subsidiaries, taken as a whole. The Company believes that its and its
Subsidiaries' international accounting controls are sufficient to cause the
Company and its Subsidiaries to comply with the Foreign Corrupt Practices Act of
1977, as amended.
5.31. Affiliations. Except as set forth in the Disclosure Schedule, member
or manager of the Company or of any of its Subsidiaries, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the
Securities Act of 1933, as amended) of any such person or entity or of the
Company or its Subsidiaries, has or has had, either directly or indirectly (i)
an interest in any person or entity which (A) furnishes or sells services or
products which are furnished or sold or are proposed to be furnished or sold by
the Company or its Subsidiaries; or (B) purchases from or sells or furnishes to
the Company or any of its Subsidiaries any goods or services; or (ii) a
beneficiary interest in any contract or agreement to which the Company or any of
its Subsidiaries is a party or by which it may be bound or affected. Except as
set forth in the Disclosure Schedule, there are no existing agreements,
arrangements, understandings or transactions, or proposed agreements,
arrangements, understandings or transactions, between or among the Company or
any of its Subsidiaries, and any member or manager of the Company or any of its
Subsidiaries, or any affiliate or associate of any such person or entity.
<PAGE>
5.32. Limited Liability Company Representations. Any certificate signed by
any manager or manager-member of the Company or by an officer of any of the
Company's Subsidiaries and delivered to White Cloud or to the White Cloud's
counsel pursuant to this Agreement, shall be deemed a representation and
warranty by the Company and by any of its Subsidiaries to White Cloud as to the
matters covered thereby.
5.33. Disclosure. Neither this Agreement nor any other document,
certificate or written statement to be furnished to White Cloud by or on behalf
of the Company in connection with the transactions contemplated hereby contains
or will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements contained herein
and therein not misleading. There is no fact known to the Company which
materially adversely affects the business operations, affairs, prospects,
conditions, properties or assets of the Company or of its Subsidiaries
(hereinafter "Material Facts") which has not been set forth in this Agreement.
To the extent Material Facts become known to the Company subsequent to the date
hereof and up and through the Closing Date, such facts will be set forth in the
documents, certificates or statements furnished to White Cloud by or on behalf
of the Company pursuant hereto.
<PAGE>
SECTION VI
Representations and Warranties of White Cloud
White Cloud hereby represents and warrants to, and agrees with the Company
and the Selling Members as follows:
6.01. Organization; Etc. White Cloud is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. White Cloud has full corporate power and authority to carry on
its business as such business is now being conducted and to own the properties
and assets it now owns.
6.02. Authority of White Cloud. White Cloud has full corporate power and
authority to enter into this Agreement and the Documents applicable to it and to
consummate the transactions contemplated hereby and thereby. The Board of
Directors and shareholders of White Cloud (to the extent, if any, required) have
taken all action required to authorize the execution and delivery of this
Agreement and the Documents by White Cloud, the issuance of the New Shares, the
performance of the obligations of White Cloud hereunder and thereunder and the
consummation by White Cloud of the transactions contemplated hereby and thereby.
No other corporate proceedings on the part of White Cloud are necessary to
authorize the execution and delivery by White Cloud of this Agreement or the
Documents or the performance by either White Cloud of its obligations hereunder
or thereunder. This Agreement is, and each Document will be, a valid and binding
agreement of White Cloud, enforceable against it in accordance with their terms.
6.03. No Violation. Neither the execution and delivery of this Agreement or
any of the Documents, the performance by White Cloud of its obligation hereunder
and thereunder nor the consummation of the transactions contemplated hereby or
<PAGE>
thereby will, directly or indirectly, with or without the giving of notice or
lapse of time, or both: (i) violate any provisions of the Certificate of
Incorporation or By-laws of White Cloud; (ii) violate, or be in conflict with,
or constitute a default under, or cause or permit the termination or the
acceleration of the maturity of, any agreement, lease, mortgage, debt or
obligation of White Cloud or require the payment, any pre-payment or other
penalty with respect thereof; (iii) require notice to or the consent of any
party to any agreement or commitment to which either White Cloud is a party, or
by which it or its properties is bound or subject, including without limitation,
any lease, license or any agreement containing a right of first refusal or
similar right or permitting any such party to re-negotiate, receive a refund,
modify or otherwise change any agreement or commitment; (iv) result in the
creation or imposition of any security interest, lien, claim or other
encumbrance upon any property or assets of White Cloud, as the case may be,
under any agreement or commitment to which it is a party or by which it or its
properties is bound or subject; or (v) violate any statute or law or any
judgment, decree, order, regulation or rule of any court or governmental
authority to which either White Cloud or its properties is bound or subject.
6.04. Finders' and Investment Bankers' Fees. There is no investment banker,
broker, finder or other intermediary which has been retained by White Cloud who
might be entitled to any fee or commission from Selling Members or any of his
affiliates in connection with the transactions contemplated by this Agreement or
the Documents, except for Sands Brothers and WCM Investments, Inc.
<PAGE>
6.05. Investment Intent. White Cloud is acquiring the Selling Members'
Interests for investment purposes only and not with a view to a sale or
distribution thereof within the meaning of the Securities Act.
6.06. New Shares. When issued to the Selling Members, the New Shares will
be duly and validly issued, fully paid and non-assessable shares of White
Cloud's Common Stock.
6.07. Securities Law Compliance. White Cloud will have filed all reports
and other documents required to be filed by it with the Securities and Exchange
Commission under the Act and the Securities Exchange Act of 1934, as amended
(the "Exchange Act") within 30 days of the Closing and, to White Cloud's
knowledge, each such report or other document, at the time it was filed and when
filed, did not and will not contain any untrue statement of a material fact or
omitted to state a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading. To White Cloud's best knowledge, no event has occurred or
is likely to occur that required or would require an amendment to any report or
document referred to in this Section 6.07 that has not been filed or distributed
as required. White Cloud has made and will make , within 30 days of Closing, all
reports and provided all information and materials to shareholders and to the
Securities and Exchange Commission required by law to be made or provided by
White Cloud.
6.08. Organization; Authority.
(a) White Cloud, and each of the companies under its control (each a "White
Cloud Subsidiary, and collectively, the "White Cloud Subsidiaries") is a
corporation duly organized, validly existing and in good standing under the laws
<PAGE>
of its jurisdiction of incorporation and has all requisite corporate power and
authority to carry on its business as such business is now being conducted and
to own and lease the properties it now owns or leases. White Cloud is duly
qualified to do business in the states or jurisdictions set forth in the White
Cloud Disclosure Schedule. Except as set forth in the White Cloud Disclosure
Schedule, there is no jurisdiction in which the conduct of White Cloud's
business or ownership or leasing of its properties requires it to be qualified
to do business as a foreign corporation, except where such qualifications have
been obtained or the failure to be so qualified would not have a material
adverse effect on the business, financial condition or prospects of White Cloud
taken as a whole. White Cloud has all requisite power and authority to execute
and deliver this Agreement and to carry out the transactions contemplated by
this Agreement.
(b) The corporate records of White Cloud have been delivered or made
available to the Company. Such records are complete, correct and current in all
material respects, with all necessary signatures, and have been maintained in
accordance with good business practices in all material respects.
6.09. Capitalization. Exhibit D hereto lists the authorized and the
equitable ownership of the capital stock of White Cloud (the "Capital Stock")
and the name and number of shares of Capital Stock owned by each shareholder of
White Cloud as of a specified record date. Each such share is validly paid,
fully paid and nonassessable. Except as set forth in Exhibit D, there are no
other classes of capital stock or other securities authorized by White Cloud.
<PAGE>
(ii) White Cloud has no obligation (contingent or otherwise) to pay any
dividend or make any other distribution in respect of any of its capital stock.
White Cloud is not a party to, and has no knowledge of, voting trusts or
agreements, Members' agreements, pledge agreements, buy- sell agreements, rights
of first refusal or proxies relating to any securities of White Cloud (whether
or not White Cloud is a party thereto). All of the outstanding securities of
White Cloud were issued, in all material respects, in compliance with all
applicable federal and state securities laws. White Cloud has no obligation
(contingent or otherwise) to repurchase, redeem or otherwise acquire any shares
of its capital stock.
(iii) The Members of record and the holders of subscriptions, warrants,
options, preemptive rights, convertible securities and other rights (contingent
or otherwise) to purchase or otherwise acquire equity securities of White Cloud,
and the number of shares of capital stock of White Cloud and the number of such
subscriptions, warrants, options, preemptive rights, convertible securities and
other such rights held by each, are as set forth in Exhibit F. The designations,
powers, preferences, rights, privileges, qualifications, limitations and
restrictions in respect of each class and series of authorized capital stock of
White Cloud are as set forth in the Certificate of Incorporation and all such
designations, powers, preferences, rights, privileges, qualifications,
limitations and restrictions are valid, binding and enforceable in accordance
with all applicable laws (subject, as to enforcement, to the discretion of the
courts in awarding equitable relief and to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting the rights of
creditors generally). Except as disclosed in Exhibit F or the White Cloud
<PAGE>
Disclosure Schedule, no person owns of record, or is known to White Cloud to own
beneficially, any share of capital stock of White Cloud; no subscription,
warrant, option, preemptive right, convertible security, agreement or other
right (contingent or otherwise) to purchase or otherwise acquire equity
securities of White Cloud is authorized or outstanding; and there is no
commitment by White Cloud to issue shares, subscriptions, warrants, options,
preemptive rights, convertible securities or other such rights or to distribute
to holders of any of its equity securities any evidence of indebtedness or
asset. An appropriate number of shares of the Common Stock have been reserved
for issuance upon the conversion or exercise, as the case may be, of any of the
securities referred to in this Section.
6.10. Subsidiaries and Investments. Except as set forth in the White Cloud
Disclosure Schedule, White Cloud does not own, directly or indirectly, any
capital stock, or other equity ownership or proprietary interest, in any other
corporation, association, trust, partnership, joint venture or other entity.
Each White Cloud Subsidiary is wholly owned by White Cloud.
6.11. Financial Statements. The audited consolidated balance sheet of White
Cloud as of June 30, 1996 (the "White Cloud 1996 Balance Sheet") and the related
consolidated statements of operations, shareholders equity and statements of
cash flow for the fiscal year ended December 31, 1996 certified by Michael B.
Johnson & Company and the unaudited consolidated balance sheet (the "White Cloud
April Balance Sheet") of White Cloud as of April 30, 1997 (the "White Cloud
Balance Sheet Date"), and the related unaudited consolidated statements of
operations, shareholders equity and statements of cash flow for the two month
period ending April
<PAGE>
30, 1997 (collectively, the "White Cloud Financial Statements"), are attached
hereto as Exhibit F. Except as may be otherwise indicated herein and therein and
in the notes thereto, the White Cloud Financial Statements have been prepared in
conformity with Generally Accepted Accounting Principles consistently applied
and present fairly in all material respects the financial position and results
of operations of White Cloud as of the dates and for the periods indicated.
6.12. Keeping of Records and Books of Account. White Cloud has maintained
adequate records and books of account, in which complete entries have been made
in accordance with Generally Accepted Accounting Principles, consistently
applied, reflecting all financial transactions of White Cloud and in which, for
each fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business have been made. The records and books of account of White Cloud are in
good order and have been properly maintained in all material respects.
6.13. Intentionally omitted.
6.14. Absence of Undisclosed Liabilities. White Cloud has no material
outstanding claims, liabilities, obligations or indebtedness, contingent or
otherwise, whether asserted or unasserted, except as set forth in the 1996
Balance Sheet, or referred to in any of the notes thereto. All liabilities of
White Cloud and its White Cloud Subsidiaries incurred subsequent to the White
Cloud Balance Sheet Date have been incurred in the ordinary course of business
and do not involve borrowings which individually exceed $5,000 and which do not
exceed $10,000 in the aggregate. Neither White Cloud nor its White Cloud
Subsidiaries is in default in respect of the terms or conditions of any
indebtedness.
<PAGE>
6.15. Absence of Changes. Since the White Cloud Balance Sheet Date, there
has not been any material change in the condition, financial or otherwise, of
White Cloud or of any of its White Cloud Subsidiaries, which materially
adversely affects the ability of White Cloud or the ability of any of its White
Cloud Subsidiaries to conduct its operations as currently conducted and neither
White Cloud nor any of its White Cloud Subsidiaries have incurred any material
liabilities or obligations, direct or contingent, not in the ordinary course of
business since such White Cloud Balance Sheet Date.
6.16. Title to Properties; Encumbrances.
(i) Except for properties and assets reflected in the White Cloud 1996
Balance Sheet or acquired since the White Cloud 1996 Balance Sheet Date which
have been sold or otherwise disposed of in the ordinary course of business since
such date, White Cloud and each of its White Cloud Subsidiaries has good, valid
and marketable title to (A) all of its properties and assets (personal, tangible
and intangible), reflected as owned in the White Cloud Balance Sheet, except as
indicated in the notes thereto; and (B) all the properties and assets purchased
or otherwise acquired by White Cloud or by any White Cloud Subsidiary since the
White Cloud 1996 Balance Sheet Date; in each case clear of all encumbrances,
liens, claims, charges or other restrictions of whatever kind or character
("White Cloud Liens"), except for (1) liens reflected in the White Cloud 1996
Balance Sheet, (2) liens for current taxes, assessments or governmental charges
or levies on property not yet due and delinquent and (3) such White Cloud Liens
as do not materially and adversely affect the value of such property and do not
materially interfere with the use made or proposed to be made of such property
by White Cloud.
<PAGE>
(ii) White Cloud and its White Cloud Subsidiaries own no real property. To
the best of White Cloud's knowledge after due inquiry, there are no
condemnation, environmental, zoning or other land use regulation proceedings,
either instituted or planned to be instituted, which would materially and
adversely affect the use or operation of White Cloud's and its White Cloud
Subsidiaries' properties and assets for their respective intended uses and
purposes or the value of such properties, and White Cloud and its White Cloud
Subsidiaries have not received notice of any special assessment proceedings
which would affect such properties and assets.
6.17. Litigation. There is no action, suit, investigation, customer
complaint, claim or proceeding at law or in equity by or before any arbitrator,
governmental instrumentality or other agency now pending or, to White Cloud's
knowledge, threatened against or affecting White Cloud or any White Cloud
Subsidiary, nor, to the best of White Cloud's knowledge, does there exist any
basis therefor. Neither White Cloud nor any White Cloud Subsidiary is subject to
any judgment, order, writ, injunction or decree of any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
6.18. Non-Defaults; Non-Contravention. Neither White Cloud nor its White
Cloud Subsidiaries is in default in the performance or observance of any
obligation (i) under its Certificate of Incorporation, as amended, or its
By-laws, nor any indenture, mortgage, contract, purchase order or other
<PAGE>
agreement or instrument to which White Cloud is a party or by which it or any of
its property is bound or affected; nor (ii) with respect to any order, writ,
injunction or decree of any court of any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, except for such defaults as would not, individually or in
the aggregate, result in a material adverse effect on the business or operations
of White Cloud as a whole, and there exists no condition, event or act which
constitutes, nor which after notice, the lapse of time or both, would
constitute, a material default under any of the foregoing.
6.19. Employment of Officers, Employees and Consultants. To White Cloud's
knowledge, no third party may assert any valid claim against White Cloud or its
White Cloud Subsidiaries with respect to the (i) continued employment by, or
association with, White Cloud or its White Cloud Subsidiaries of any of its
present officers, employees or consultants; or (ii) the use by White Cloud or
its White Cloud Subsidiaries of any information which White Cloud or its White
Cloud Subsidiaries would be prohibited from using under any prior agreements or
arrangements or any laws applicable to unfair competition, trade secrets or
proprietary information.
6.20. Taxes. White Cloud and its White Cloud Subsidiaries have filed all
federal, state, local and foreign tax returns which are required to be filed by
them or have requested extensions thereof, and all such returns are true and
correct in all material respects. White Cloud and its White Cloud Subsidiaries
have paid all taxes pursuant to such returns or pursuant to any assessments
received by them and have withheld all amounts which they are obligated to
withholdfrom amounts owing to any employee, creditor or third party. The tax
<PAGE>
returns of White Cloud and of its White Cloud Subsidiaries have never been
audited by any state, local or federal authorities. White Cloud and its White
Cloud Subsidiaries have not waived any statute of limitations with respect to
taxes or agreed to any extension of time with respect to any tax assessment or
deficiency.
All tax elections have been made by White Cloud and its White Cloud
Subsidiaries in accordance with generally accepted practices. No deficiency
assessment with respect to or proposed adjustment of White Cloud's and its White
Cloud Subsidiaries federal, state, county or local taxes is pending or, to the
best of White Cloud's knowledge, threatened. There is no tax lien, whether
imposed by any federal, state, county or local taxing authority, outstanding
against the assets, properties or business of White Cloud or of its White Cloud
Subsidiaries. Neither White Cloud nor any of its White Cloud Subsidiaries nor
any of its/their respective present or former Members has ever filed an election
pursuant to Section 1362 of the Code, that White Cloud or any of its White Cloud
Subsidiaries be taxed as an S corporation.
6.21. Agreements. Except as set forth in the White Cloud Disclosure
Schedule, neither White Cloud nor any White Cloud Subsidiary is a party to any
written or oral contract not made in the ordinary course of business and,
whether or not made in the ordinary course business, neither White Cloud nor any
White Cloud Subsidiary is a party to any written or oral (i) collective
bargaining agreement or any other contract with any labor union; (ii) contract
for the future purchase of fixed assets or for the future purchase of materials,
supplies or equipment in excess of $10,000; (iii) contract for the employment of
any officer, key employee or other key person on a full-time basis or any
<PAGE>
contract with any person on a consulting basis requiring the payment of any
amount in the future; (iv) bonus, pension, profit-sharing, vacation, deferred
compensation, retirement, stock purchase, stock option, hospitalization, health,
medical insurance, life insurance, disability insurance or similar plan,
contract or understanding in effect with respect to employees, or any other
employee benefit plan, including, without limitation, any employee benefit plan"
as defined in Section 3(l) of the Employee Retirement Income Security Act of
1974 and the rules and regulations thereunder, as amended from time to time
(collectively, "ERISA"), to which White Cloud or any White Cloud Subsidiary
contributes or is a party, or is bound, or under which it may have liability and
under which employees or former employees of White Cloud or any White Cloud
Subsidiary (or their beneficiaries) are eligible to participate or derive a
benefit; (v) agreement, indenture or other instrument relating to the borrowing
of money or to the mortgaging, pledging or otherwise placing a lien on any
assets of White Cloud or of any White Cloud Subsidiary; (vi) guaranty of any
obligation for borrowed money or otherwise; (vii) agreement or other commitment
for capital expenditures in excess of $10,000; (viii) contract or agreement
under which White Cloud or any White Cloud Subsidiary is obligated to pay any
broker's fees, finder's fees or any such similar fees, to any third party other
than in conjunction with the transactions contemplated by this Agreement; (ix)
sales agency, marketing, distributorship or continuing brokerage agreements or
franchises between White Cloud or any White Cloud Subsidiary and any other
person; (x) partnership or joint venture agreement of any kind to which White
Cloud or any White Cloud Subsidiary or their assets may be bound; (xi) licenses
to or from others with respect to the business or assets of White Cloud or any
<PAGE>
White Cloud Subsidiary; (xii) contracts or commitments limiting the freedom of
White Cloud or any White Cloud Subsidiary or any of their officers or employees
to compete with respect to the business of White Cloud or any White Cloud
Subsidiary in any geographic area or with any person or otherwise restricting
the conduct of White Cloud's business or that of any White Cloud Subsidiary;
(xiii) contract, agreement, arrangement, or understanding with respect to the
sale of the business of White Cloud or of any White Cloud Subsidiary or of a
substantial portion of White Cloud's or any White Cloud Subsidiary's assets to
any third party, including any option agreement for any such sale or
disposition; or (xiv) contract, agreement, arrangement or understanding which is
material to the business of White Cloud or to the business of any White Cloud
Subsidiary. Each material contract of White Cloud or of any of its White Cloud
Subsidiaries is valid and binding on White Cloud or on such White Cloud
Subsidiary (subject, as to enforcement, to the discretion of the courts in
awarding equitable relief and to applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting the rights of creditors
generally), and neither White Cloud nor any of its White Cloud Subsidiaries has
received notice that any such contract is not binding on any party thereto.
White Cloud and its White Cloud Subsidiaries have performed in all material
respects all obligations to have been performed on such contracts through the
date hereof, and neither White Cloud nor any White Cloud Subsidiary is in
default in any material respect under any such contract.
6.22. Compliance with Laws; Environmental Matters, Licenses, Etc. White
Cloud and its White Cloud Subsidiaries have received no notice of any violation
of, or noncompliance with, any federal, state, local or foreign laws,
ordinances, regulations or orders (including, without limitation, those relating
to environmental protection, occupational safety and health and other labor
<PAGE>
laws, ERISA, federal drug laws, federal securities laws, equal employment
opportunity, consumer protection, credit reporting, "truth-in-lending," and
warranties and trade practices) applicable to its business or the business of
any White Cloud Subsidiary, the violation of, or noncompliance with which, would
have a material adverse effect on White Cloud's business or operations, taken as
a whole, or that of any White Cloud Subsidiary, and White Cloud knows of no
facts or set of circumstances which would give rise to such a notice. White
Cloud and its White Cloud Subsidiaries have all licenses and permits and other
governmental certificates, authorizations and permits and approvals
(collectively, "Licenses") required by every federal, state and local government
or regulatory body for the operation of their business and the use of their
properties, the absence of which would have a material adverse affect on the
business of White Cloud, taken as a whole. The Licenses are in full force and
effect and no violations are or have been recorded in respect of any License and
no proceeding is pending or, to White Cloud's knowledge threatened to revoke or
limit any thereof. White Cloud and its White Cloud Subsidiaries have not
received any written opinion or memorandum from legal counsel providing that
it/they has taken any action which has resulted in, or is reasonably likely to
result in, White Cloud or any of its White Cloud Subsidiaries incurring any
liability which may be material to its/their respective business, prospects,
financial condition, operations, property or affairs.
<PAGE>
6.23. Authorization of Agreement, Etc. Each of this Agreement and all other
agreements or documents required to be executed and delivered by White Cloud in
connection with the transactions contemplated by this Agreement (collectively
the "Documents") has been or will be duly executed and delivered by White Cloud
and the execution, delivery and performance by White Cloud of this Agreement and
the Documents has been duly authorized by all requisite corporate action by
White Cloud; and each constitutes, or will constitute, the legal, valid and
binding obligation of White Cloud, enforceable in accordance with its terms,
except as enforce ability may be limited by bankruptcy, insolvency,
reorganization, usury or other similar laws affecting the enforcement of
creditors' rights generally and except as rights to indemnification hereunder
may be limited by applicable law. The execution, delivery and performance of
this Agreement will not (i) violate any provision of law or statute or any order
of any court or other agency of government binding on White Cloud or its White
Cloud Subsidiaries; or (ii) conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute (with due notice or lapse of
time or both) a default under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of White
Cloud or of its White Cloud Subsidiaries under the Certificate of Incorporation,
as amended, or By-Laws of White Cloud or of its White Cloud Subsidiaries or any
indenture, mortgage, lease agreement or other agreement or instrument to which
White Cloud or any of its White Cloud Subsidiaries is a party or by which it or
any of its property is bound or affected, except for such conflict, breach or
default (x) as to which requisite waivers or consents shall have been obtained
by White Cloud or by its White Cloud Subsidiaries and delivered to White Cloud
by the time of Closing or (y) which individually or int he aggregate would not
result in a material adverse effect on the business of White Cloud, taken as a
whole.
<PAGE>
6.24. Related Transactions. Except as set forth in the White Cloud
Disclosure Schedule, no current or former shareholder, director, officer or
employee of White Cloud, nor any affiliate of any such person, is presently, or
since the inception of White Cloud has been, directly or indirectly, through
his, her or its affiliation with any other person or entity, a party to any loan
from White Cloud or from any of its White Cloud Subsidiaries.
6.25. Registration Rights. Except as may exist with respect to the holders
of the New Shares, (i) no person or entity has any right to cause White Cloud to
effect the registration under the Securities Act of any securities of White
Cloud and (ii) no person or entity holds any anti-dilution or "piggy back"
rights with respect to any securities of White Cloud.
6.26. Salaries and Bonuses. The White Cloud Disclosure Schedule contains a
true and complete list of all current officers, directors and employees of White
Cloud and of its White Cloud Subsidiaries who received during the fiscal year
ended December 31, 1996 remuneration from White Cloud or from any of its White
Cloud Subsidiaries in excess of $50,000, together with the current aggregate
base salary rate for each such person.
6.27. Foreign Corrupt Practices Act. None of White Cloud, its White Cloud
Subsidiaries nor to their knowledge any of their respective officers, employees,
agents or any other person acting on behalf of White Cloud or any of its White
Cloud Subsidiaries has, directly or indirectly, given or agreed to give any
money, gift or similar benefit (other than legal price concessions to customers
<PAGE>
in the ordinary course of business) to any customer, supplier, employee or agent
of a customer or supplier, or official or employee of any governmental agency
(domestic or foreign) or instrumentality of any government (domestic or foreign)
or any political party or candidate for office (domestic or foreign) or other
person who was, is, or may be in a position to help or hinder the business of
White Cloud or the business of any of its White Cloud Subsidiaries (or to assist
White Cloud or any of its White Cloud Subsidiaries in connection with any actual
or proposed transaction) which (a) might subject White Cloud or any of its White
Cloud Subsidiaries, or any other such person, to any damage or penalty in any
civil, criminal or governmental litigation or proceeding (domestic or foreign);
(b) if not given in the past, might have had a material adverse effect on the
assets, business or operations of White Cloud or of any of its White Cloud
Subsidiaries; or (c) if not continued in the future, might adversely affect the
assets, business, operations or prospects of White Cloud and of its White Cloud
Subsidiaries, taken as a whole. White Cloud believes that its and its White
Cloud Subsidiaries' international accounting controls are sufficient to cause
White Cloud and its White Cloud Subsidiaries to comply with the Foreign Corrupt
Practices Act of 1977, as amended.
6.28. Affiliations. Except as set forth in the White Cloud Disclosure
Schedule, no officer, director or shareholder of White Cloud or officer,
director or shareholder of any of its White Cloud Subsidiaries, or any
"affiliate" or "associate" (as these terms are defined in Rule 405 promulgated
under the Securities Act of 1933, as amended) of any such person or entity or of
White Cloud or its White Cloud Subsidiaries, has or has had, either directly or
indirectly (i) an interest in any person or entity which (A) furnishes or sells
<PAGE>
services or products which are furnished or sold or are proposed to be furnished
or sold by White Cloud or its White Cloud Subsidiaries; or (B) purchases from or
sells or furnishes to White Cloud or any of its White Cloud Subsidiaries any
goods or services; or (ii) a beneficiary interest in any contract or agreement
to which White Cloud or any of its White Cloud Subsidiaries is a party or by
which it may be bound or affected. Except as set forth in the White Cloud
Disclosure Schedule, there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among White Cloud or any of its White
Cloud Subsidiaries, and any officer, director, or principal Member of White
Cloud or any of its White Cloud Subsidiaries, or any affiliate or associate of
any such person or entity.
6.29. Corporate Representations. Any certificate signed by any officer of
White Cloud or by an officer of any of White Cloud's Subsidiaries and delivered
to the Company or to the Company's counsel pursuant to this Agreement, shall be
deemed a representation and warranty by White Cloud and by any of its White
Cloud Subsidiaries to the Company as to the matters covered thereby.
6.30. Disclosure. Neither this Agreement nor any other document,
certificate or written statement to be furnished to the Company by or on behalf
of White Cloud in connection with the transactions contemplated hereby contains
or will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements contained herein
and therein not misleading. There is no fact known to White Cloud which
<PAGE>
materially adversely affects the business operations, affairs, prospects,
conditions, properties or assets of White Cloud or of its White Cloud
Subsidiaries (hereinafter "Material Facts") which has not been set forth in this
Agreement. To the extent Material Facts become known to White Cloud subsequent
to the date hereof and up and through the Closing Date, such facts will be set
forth in the documents, certificates or statements furnished to White Cloud by
or on behalf of White Cloud pursuant hereto.
6.31. No Consents. No permit, consent, approval, authorization, order or
filing with any court or governmental authority is required to consummate the
transactions contemplated by this Agreement, except as required under applicable
state and federal securities laws with respect to the issuance of securities as
contemplated pursuant to the Watchout Transaction, the Goldpoint Transaction and
the Private Placement.
ARTICLE VII
Conduct of Business Pending Closing
From and after the date hereof until the Closing, and except as otherwise
specifically contemplated by this Agreement and the Documents and the Schedules
and Exhibits hereto or thereto, or consented to or approved by White Cloud or
the Company, as the case may be, in writing, the Company shall, on the one hand,
and White Cloud shall, on the other hand, conform to the following:
<PAGE>
7.01. Regular Course of Business. Except as otherwise contemplated by this
Agreement or to the extent waived by the other parties in writing, the parties
shall, carry on their respective businesses in the same manner as heretofore
conducted, and shall not engage in any transaction or activity, enter into any
agreement or make any commitment with or to any Selling Member or any manager,
manager-member, officer, director or employee of such party, or any person
affiliated with any of the foregoing, except in the ordinary course of business.
7.02. Amendments. No change or amendment shall be made in the Certificate
of Formation, Operating Agreement, By-laws or other governing instrument of the
Company or White Cloud.
7.03. Capital Changes. Neither White Cloud nor the Company shall issue or
sell rights (including, without limitation, conversion rights), options,
warrants to purchase or to subscribe to, or enter into any arrangement or
contract with respect to, any shares of any of its Stock or any other securities
of, or equity interest in, the Company or White Cloud.
7.04. Dividends; Redemptions. Neither White Cloud nor the Company shall
declare, pay or set aside for payment any dividend or other distribution in
respect to any of its Stock or Member Shares or directly or indirectly redeem,
purchase or otherwise acquire any shares of its equity securities.
7.05. Organization. Both White Cloud and the Company shall use their best
efforts to preserve their respective properties, assets, and legal and business
relationships with their respective employees, suppliers, customers and others
having business relations with them, respectively.
<PAGE>
7.06. Contracts. Except for purchase and sales orders entered into in the
ordinary course of business, no contracts or commitments involving,
individually, in excess of $25,000 (or $50,000 in the aggregate), or having a
term of more than one (1) year, shall be entered into by or on behalf of the
Company or White Cloud, respectively, including without limitation, any contract
or commitment: (i) to acquire additional real property or any interest therein;
(ii) to dispose of, amend, modify, terminate or encumber any real property
lease, or any interest therein or sublease the premises demised thereunder;
(iii) to enter into any lease for additional real property; or (iv) to amend,
modify, extend, renew or waive any right with respect to any existing agreement
or arrangement involving (or which, as the result of such amendment,
modification, extension, renewal or waivers would involve) in excess of $25,000
or having an unexpired term in excess of one (1) year.
7.07. Consultation with White Cloud and the Company. To the fullest extent
practicable, the Company, on the one hand, shall cause its Managers, Manager-
Members, executive officers to consult with and consider the views of White
Cloud in operating its business through the Closing Date, and White Cloud, on
the other hand, shall, to the fullest extent practicable, cause its executive
officers to consult with and consider the views of the Company in operating its
business through the Closing Date.
<PAGE>
7.08. Maintain Properties. Both White Cloud the Company will maintain their
respective properties and assets, whether owned or leased, in good repair, order
and condition, reasonable wear and tear excepted.
7.09. Compensation. Neither White Cloud nor the Company will grant any
increase in compensation to any manager, manager-member, officer, employee or
agent or enter into or amend any Plan or any employment or consulting agreement.
7.10. Indebtedness/Loans. Other than in connection with certain proposed
bridge financing to White Cloud, neither White Cloud nor the Company will
create, incur or assume any indebtedness (including without limitation, under
existing lines of credit and revolving loans) other than in the ordinary course
of business and in an amount not to exceed $50,000 in the aggregate, or
guarantee or otherwise become liable with respect to any indebtedness for
borrowed money. Neither White Cloud nor the Company will make any capital
expenditures in excess of $50,000 in the aggregate and will not make any loan,
advance, capital contribution to or investment in, any other person.
7.11. Taxes. Except for Taxes contested in good faith, both White Cloud and
the Company will pay all Taxes upon their respective incomes, properties and
businesses as they become due and prepare and timely file all Tax Returns and
other returns and reports which are re quired to be filed in respect of Taxes.
7.12. No Disposition or Encumbrance. Neither White Cloud nor the Company
shall sell, lease, mortgage, pledge or otherwise dispose of or agree to sell,
lease, mortgage, pledge or otherwise dispose of any of their respective assets
or properties other than sales, leases, mortgages, pledges and dispositions of
assets and properties except in the ordinary course of business.
<PAGE>
7.13. Insurance. Both White Cloud and the Company will maintain insurance
upon their respective businesses and properties and insurance in respect of the
kinds of risks currently insured against, in accordance with their current
practice.
7.14. No Mergers. Neither White Cloud nor the Company will nor shall agree
to merge or consolidate with any other corporation, or acquire any stock,
business, or substantially all or any substantial portion of the property or
assets of, any other person, firm, association, corporation or other business
organization.
7.15. No Breach. Neither White Cloud nor the Company, shall do any act or
omit to do any act which, with or without the giving of notice or the passage of
time, or both, would result in a breach of or default under any contract,
commitment or obligation of the Company or White Cloud, as the case may be.
7.16. Due Compliance. Both White Cloud and the Company will duly comply
with all laws applicable to them and to the conduct of their respective
Businesses.
7.17. Accounting Practice. Neither White Cloud nor the Company shall change
any method of accounting practice currently employed by them.
<PAGE>
ARTICLE VIII
Additional Covenants and Agreements
8.01. Continued Effectiveness of Representations and Warranties; Advice of
Change.
(a) Selling Members and the Company will promptly advise White Cloud, on
the one hand, and White Cloud will promptly advise the Selling Members and the
Company, on the other hand, in writing, upon obtaining knowledge of: (i) any
event which occurred on or prior to the date of execution of this Agreement that
is not disclosed herein and any event which occurs after the date of this
Agreement, in each case that would, under this Agreement or any Exhibit or
Schedule delivered pursuant hereto, have been required to be disclosed on the
date of execution of this Agreement by Selling Members and the Company, on the
one hand, and by White Cloud, on the other hand; and (ii) any change in the
business, operations, prospects, properties, assets or condition, financial or
otherwise, of the Company, or White Cloud, as the case may be.
(b) From the date hereof through the Closing Date, Selling Members shall
use their best efforts, and the Company shall use its best efforts, to conduct
their respective affairs in such a manner so that, except as otherwise
contemplated or permitted by this Agreement, the representations and warranties
contained in Articles IV and V respectively, hereof shall continue to be true
and correct on and as of the Closing Date as if made on and as of the Closing
Date and Selling Members and the Company shall promptly notify White Cloud of
any event, condition or circumstance occurring from the date hereof through the
Closing Date that would constitute a material violation or breach by Selling
Members or the Company of any of such representations and warranties.
<PAGE>
(c) From the date hereof through the Closing Date, White Cloud shall use
its best efforts to conduct its affairs in such a manner so that, except as
otherwise contemplated or permitted by this Agreement, the representations and
warranties contained in Article VI hereof shall continue to be true and correct
on and as of the Closing Date as if made on and as of the Closing Date and White
Cloud shall promptly notify the Company of any event, condition or circumstance
occurring from the date hereof through the Closing Date that would constitute a
material violation or breach by White Cloud of any of such representations and
warranties.
8.02. Reasonable Access. Both White Cloud and the Company shall (i) afford
the other and its authorized representatives, during normal business hours, full
and free access to the properties, personnel, books and records of such party in
order that the other party shall have a full opportunity to make such
investigation as it shall reasonably desire to make of the affairs of such other
party and to obtain copies of relevant documents in connection therewith, (ii)
provide additional financial and other information as to the Business of such
party as the other party or its representatives shall reasonably request and
(iii) otherwise fully cooperate with such other party or its representatives.
<PAGE>
8.03. Books and Records. On the Closing Date, the Company shall to deliver
to White Cloud all of the books and records of the Company, including without
limitation, the limited liability company minute book of the Company.
8.04. Cooperation Regarding Plans. The parties will cooperate with each
other and their advisers in preparing, filing, and diligently pursuing any and
all filings, applications, or notifications that may be necessary or advisable
with respect to any of the Plans in connection with the transactions
contemplated by this Agreement, including, without limitation the Watchout
Transaction and the Private Placement.
8.05. Satisfaction of Closing Conditions.
(a) Each Selling Member and the Company shall use their respective best
efforts to cause all of the conditions to the obligations of Selling Members and
the Company set forth in Article IX and Article X hereof to be satisfied with
respect to the Closing.
(b) White Cloud shall use its best efforts to cause all of the conditions
to the obligations of White Cloud set forth in Article IX and Article X hereof
to be satisfied with respect to the Closing.
8.06. Confidentiality; Publicity.
(a) Each of White Cloud, Selling Members and the Company shall, and shall
cause the respective directors, officers, employees and authorized
representatives of White Cloud and the Company to, hold in strictest confidence
and not disclose to others for any reason whatsoever any information received
from White Cloud or the Company or their respective directors, officers,
employees and authorized representatives, in connection with the transactions
contemplated hereby or by the Documents, except as otherwise required by law.
(b) Neither the Company, nor any Selling Member (nor any of their
affiliates or members of their respective families) shall utilize any
confidential information in connection with the purchase or sale of White
Cloud's Common Stock in open market transactions.
<PAGE>
8.07. Other Offers.
(a) From the date hereof until the termination hereof, Selling Members
shall not, and Petrie shall use his best efforts to cause the Company and its
Manager, Manager-Members, officers, employees, affiliates and their
representatives not to, (i) take any action to solicit or solicit any offer from
any person with respect to any Acquisition Proposal (as hereinafter defined) or
(ii) engage in negotiations with or disclose any nonpublic information relating
to the Company or its business or afford access to the properties, books or
records of the Company to any person with respect to an Acquisition Proposal
without the express written consent of White Cloud. "Acquisition Proposal" means
any proposal for a merger or other business transaction to which Selling
Members, or the Company is or would be a party or involving the acquisition of
any substantial equity interest in, or a substantial portion of the assets of,
the Company or Selling Members' Interests, other than the transactions
contemplated by this Agreement. Selling Members shall promptly notify White
Cloud if they or the Company receive any inquiry from any person with respect to
an Acquisition Proposal, which notice shall contain the name of the person
involved and the nature of the Acquisition Proposal.
(b) From the date hereof until the termination hereof, White Cloud and its
directors, officers, employees, affiliates and their representatives shall not,
(i) take any action to solicit or solicit any offer from any person with respect
to any Acquisition Proposal (as hereinafter defined) or (ii) engage in
negotiations with or disclose any nonpublic information relating to White Cloud
or its business or afford access to the properties, books or records of White
Cloud to any person with respect to an Acquisition Proposal without the express
<PAGE>
written consent of the Company. "Acquisition Proposal" means any proposal for a
merger or other business transaction to which White Cloud is or would be a party
or involving the acquisition of any substantial equity interest in, or a
substantial portion of the assets of White Cloud other than the transactions
contemplated by this Agreement. White Cloud shall promptly notify the Company if
it receives any inquiry from any person with respect to an Acquisition Proposal,
which notice shall contain the name of the person involved and the nature of the
Acquisition Proposal.
8.08. Additional Instruments. The Company, Selling Members, and White
Cloud, as the case may be, at the request of one of the others, at or after the
Closing will execute and deliver, or cause to be executed and delivered, to the
other, such documents and instruments as may reasonably be necessary or
desirable to carry out or implement any provision of this Agreement.
8.09. Litigation.
(a) From the date hereof through the Closing Date, the Company shall
promptly notify White Cloud of any actions or proceedings of the type referred
to in Section 5.15 hereof that from the date hereof are threatened or commenced
against the Company or any Manager, Manager- Member, officer, employee, property
or asset of the Company, and of any requests for additional information or
documentary materials by any governmental or regulatory body in connection with
the transactions contemplated hereby.
(b) From the date hereof through the Closing Date, White Cloud shall
promptly notify the Company of any actions or proceedings of the type referred
to in Section 6.17 hereof that from the date hereof are threatened or commenced
against White Cloud or any director, officer, employee, property or asset of
White Cloud, and of any requests for additional information or documentary
materials by any governmental or regulatory body in connection with the
transactions contemplated hereby.
<PAGE>
8.10. Consents. The Company shall use its best efforts to obtain all
consents, approvals and waivers of third parties or authorities required under
Section 5.28 hereto and to satisfy the conditions set forth in Article IX hereof
no later than five (5) business days prior to the Closing and White Cloud shall
use its best efforts to obtain the consents approvals and waivers of third
parties or authorities required under Section 6.31 hereof and to satisfy the
conditions set forth in Article X hereof no later than five (5) business days
prior to the Closing.
8.11. Supplements to Exhibits. The parties shall deliver to each other, as
soon as possible after a party becomes aware thereof, but not later than the
Closing, supplemental information updating the information set forth in the
Schedules hereto so that such Schedules supplemented by such information shall
be true and correct as of the Closing Date as if then made, provided that the
foregoing shall not be deemed to permit any transaction not otherwise permitted
by this Agreement or to constitute a waiver by any party of any
misrepresentation or breach by any other party of any agreement, covenant or
warranty made therein. Each party agrees to disclose to the other parties any
misrepresentation or breach of any covenant or warranty of any such party when
such breach becomes known to any of them.
8.12. Private Placement. Following the Closing, White Cloud and the Company
shall cooperate in furtherance of the consummation of the Private Placement.
<PAGE>
ARTICLE IX
Conditions to White Cloud's Obligations
The obligations of White Cloud to consummate the transactions contemplated by
this Agreement and the Documents with respect to the Closing shall be subject to
the satisfaction, on or before the Closing, of each of the following conditions:
9.01. Representations and Warranties. The representations and warranties
made by Selling Members and the Company in this Agreement and in the Documents
(including all Exhibits and Schedules hereto or thereto), shall be true and
correct, individually and in the aggregate, in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
9.02. Performance. With respect to agreements, covenants, obligations and
conditions required to be performed or complied with by Selling Members and the
Company at or prior to the Closing, Selling Members and the Company shall have
performed in all material respects, such agreements, covenants, obligations and
conditions, including, without limitation, the execution and delivery of the
agreements contemplated by Section 3.02.
9.03. Approvals and Filings. All approvals, consents, and authorizations
from, and all declarations, filings and registrations with, third parties and
government agencies required to consummate the transactions contemplated hereby
shall have been obtained or made, shall be in full force and effect and shall be
reasonably satisfactory in form and substance to White Cloud.
<PAGE>
9.04. Certificates. At Closing, there shall be delivered to White Cloud a
certificate, in a form acceptable to White Cloud, dated the appropriate Closing
Date, and signed by a Manager or Manager-Member of the Company, certifying that
the conditions set forth in Sections 9.01, 9.02 and 9.03 hereof have been
fulfilled.
9.05. No Injunction. There shall not be in effect any preliminary or
permanent injunction or other order issued by any state or federal court or
governmental body of competent jurisdiction or any statute, rule or regulation
which prevents the transactions contemplated hereby. No action or proceeding
before any court or governmental body shall be pending or threatened wherein an
unfavorable judgment, decree or order would prevent the carrying out of this
Agreement, the Documents or any of the transactions contemplated hereby or
thereby, declare unlawful the transactions contemplated by this Agreement or the
Documents or cause such transactions to be rescinded.
9.06. Opinion of Counsel. There shall have been delivered to White Cloud an
opinion of Albert Loew, Esq, counsel to Selling Members and the Company, dated
the Closing Date, in the form of Exhibit C hereto.
9.07. Due Diligence. Prior to the Closing, White Cloud shall have concluded
a customary due diligence investigation of the Company to its reasonable
satisfaction.
9.08. Waiver of Rights as Members. At the Closing, each Selling Member
shall waive and release, pursuant to waiver and releases substantially in the
form of Exhibit E hereto, any and all rights and claims each of them may have
against the Company, arising out of or related to their status as members of the
Company.
<PAGE>
9.09. Watchout Transaction. At or prior to Closing, White Cloud shall have
concluded the Watchout Transaction.
9.11. Board of Directors. At the Closing, the Board of Directors of White
Cloud shall be constituted in a manner reasonably satisfactory to White Cloud
and Sands Brothers.
ARTICLE X
Conditions to Selling Members' and Company's Obligations
The obligations of Selling Members and the Company to consummate the
transactions contemplated by this Agreement and the Documents shall be subject
to the satisfaction, on or before the Closing of each of the following
conditions:
10.01. Representations and Warranties. The representations and warranties
made by White Cloud in this Agreement and in the Documents (including all
Exhibits and Schedules hereto or thereto) shall be true and correct,
individually and in the aggregate, in all material respects on and as of the
Closing Date with the same force and effect as though made on and as of the
Closing Date.
<PAGE>
10.02. Performance. With respect to agreements, covenants, obligations and
conditions required to be performed or complied with by White Cloud at or prior
to the Closing, White Cloud shall have performed in the aggregate, in all
material respects, such agreements, covenants, obligations and conditions,
including, without limitation, the execution and delivery of the agreements
contemplated by Article 3.03.
10.03. Approvals and Filings. All approvals, consents, and authorizations
from, and all declarations, filings and registrations with, third parties and
government agencies required to consummate the transactions contemplated hereby
and by the Documents, to the extent required to be obtained by White Cloud,
including without limitation, such filings, registrations and qualifications
required under applicable federal and state securities laws, shall have been
obtained or made, shall be in full force and effect and shall be satisfactory in
form and substance to Selling Members or the Company and their counsel.
10.04. Certificates. At Closing, there shall be delivered to Selling
Members a certificate, in a form acceptable to Selling Members, dated the
appropriate Closing Date, and signed by an officer of White Cloud certifying
that the conditions set forth in Sections 10.01, 10.02 and 10.03 have been
fulfilled.
10.05. No Injunction. There shall not be in effect any preliminary or
permanent injunction or other order issued by any state or federal court or
governmental body of competent jurisdiction or any statute, rule or regulation
which prevents the transactions contemplated hereby. No action or proceeding
before any court or governmental body shall be pending or threatened wherein an
<PAGE>
unfavorable judgment, decree or order would prevent the carrying out of this
Agreement, the Documents or any of the transactions contemplated hereby or
thereby, declare unlawful the transactions contemplated by this Agreement or the
Documents or cause such transactions to be rescinded.
10.06. Approval of Proceedings. All actions, proceedings, instruments and
documents required to carry out this Agreement and the transactions contemplated
hereby, or incidental thereto, and all other related legal matters shall have
been approved by counsel for Selling Members.
10.07 Opinion of Counsel. There shall have been delivered to the Company
and the Selling Members an opinion of Michael A. Littman, Esq., counsel to White
Cloud, dated the Closing date, in the form of Exhibit G hereto.
10.07. Due Diligence. Prior to the Closing, the Selling Members and the
Company shall have concluded a customary due diligence investigation of White
Cloud to their satisfaction.
10.08. Watchout Transaction. At or prior to Closing, White Cloud shall have
concluded the Watchout Transaction.
10.09. Board of Directors. At the Closing, the Board of Directors of White
Cloud shall be constituted in a manner reasonably satisfactory to White Cloud
and Sands Brothers.
<PAGE>
ARTICLE XI
Termination
11.01. Right of Rescission. Notwithstanding any other provision of this
Agreement, in the event that, due to the inadequacy or deficiency of the
financial statements of the Company, White Cloud is unable to comply, after the
Closing Date, with the provisions of Form 8- K, within the time frame specified
under the rules governing the filing of Form 8-K, then White Cloud shall have
the unilateral right but not the duty, for a period of an additional 30 days
from the end of such period (the "Rescission Period"), by written notice to the
Company, to deem this Agreement rescinded and null and void ab initio. As a
result thereof, (i) the Watchout Transaction shall be reversed and the New
Shares be canceled and the Selling Stockholders' Shares transferred to White
Cloud by the Selling Stockholders be returned; (i) the directors and officers of
White Cloud as then constituted shall resign, nominating the officers and board
of directors of White Cloud as constituted prior to the Closing Date in their
stead, and (iii) all other things necessary to unwind the Transaction not
specifically set forth herein shall be completed.
11.02 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by mutual consent of White Cloud, the Company, and the Majority in
Interest (as hereinafter defined) of Selling Members; or
(b) by Selling Members or the Company after June , 1997 if the Closing
shall not have been consummated on or prior to the Closing Date so long as the
party terminating this Agreement pursuant to this Section 11.02(b) has not made
any material misrepresentation or materially breached an agreement, covenant
obligation or condition of such party herein contained; or
<PAGE>
(c) by White Cloud if Selling Members or the Company shall file a petition
or commence a voluntary case seeking to take advantage of any law relating to
bankruptcy, insolvency, reorganization or similar actions, shall make a general
assignment for the benefit of creditors or a proceeding shall be commenced
against Selling Members or the Company seeking the reorganization, liquidation,
dissolution or winding up of him or it or the appointment of a trustee or
receiver for any such person or his or its assets which is not dismissed within
sixty (60) days after filing; or
(d) by White Cloud if the contribution of Selling Members' Interests
contemplated hereby shall violate any non-appealable final order, decree or
judgment of any court or governmental body having competent jurisdiction or
there shall be a statute, rule or regulation which makes the contribution of the
Selling Members' Interests contemplated hereby illegal or otherwise prohibited;
or
(e) by the Company and the majority in interest of Selling Members, on the
one hand, and White Cloud, on the other hand, in the event the other(s) make a
material misrepresentation or breaches a covenant, agreement, warranty,
obligation or condition of such parties herein contained, but such
non-misrepresenting or non-breaching party's election to terminate shall not
limit, wave or prejudice such party's remedies at law, in equity or pursuant to
this Agreement.
<PAGE>
(f) In the event this Agreement is terminated as provided in Section
11.02(a), (b), (c), (d) or (e), this Agreement shall become void and of no
further force and effect and no party hereto shall have any further liability to
any other party hereto.
ARTICLE XII
Indemnification
12.01. Indemnification by White Cloud. White Cloud agrees to indemnify,
defend and hold Selling Members and the Company harmless from and against any
and all Losses (as hereinafter defined) arising out of or resulting from the
misrepresentation or breach by White Cloud of any warranty, covenant or
agreement of White Cloud contained in this Agreement or the Documents (including
all Exhibits and Schedules hereto). For purposes of this Article XII, the term
"Losses" shall mean all liabilities, obligations, damages, losses, claims,
encumbrances, costs and expenses (including reasonable attorneys' fees) of every
kind, nature or description.
12.02. Indemnification by Selling Members. Each Selling Member, severally
and pro rata in accordance with their respective ownerships of Selling Members'
Interests, hereby agrees to indemnify, defend and hold White Cloud harmless from
and against any and all Losses arising out of or resulting from the
misrepresentation (or alleged misrepresentation) or breach (or alleged breach)
by such Selling Member, as the case may be, of any warranty, covenant or agree
ment of any Selling Member contained in this Agreement or the Documents
(including all Exhibits and Schedules hereto) made as of the date of this
Agreement or the Closing Date.
<PAGE>
12.03. Indemnification by the Company. The Company hereby agrees to
indemnify, defend and hold White Cloud harmless from and against any and all
Losses arising out of or resulting from the misrepresentation (or alleged
misrepresentation) or breach (or alleged breach) by the Company of any warranty,
covenant or agreement of the Company contained in this Agreement or the
Documents (including all Exhibits and Schedules hereto) made as of the date of
this Agreement or the Closing Date.
<PAGE>
12.04. Indemnification Procedure.
(a) An indemnified party shall notify the indemnifying party of any claim
of such indemnified party for indemnification under this Agreement within thirty
(30) days of the date on which such indemnified party first becomes aware of the
existence of such claim. Such notice shall specify the nature of such claim in
reasonable detail and the indemnifying party shall be given reasonable access to
any documents or properties within the control of the indemnified party as may
be useful in the investigation of the basis for such claim. The failure to so
notify the indemnifying party within such thirty (30) day period shall not
constitute a waiver of such claim but an indemnified party shall not be entitled
to receive any indemnification hereunder with respect to any Loss that occurred
as a result of the failure of such person to give such notice. The indem nifying
party shall have the right (without prejudice to the right of any indemnified
party to participate at its expense through counsel of its own choosing) to
defend or prosecute such claim at his or its expense and through counsel of his
or its own choosing if he or it gives written notice of his or its intention to
do so not later than twenty (20) days following notice thereof by the
indemnifying party or such shorter time period as required so that the interests
of the indemnified party would not be materially prejudiced as a result of his
or its failure to have received such notice; provided, however, that if the
defendants in any action shall include both an indemnifying party and an
indemnified party and the indemnified party shall have reasonably concluded that
counsel selected by the indemnifying party has a conflict of interest because of
the availability of different or additional defenses to the indemnified party,
the indemnified party shall have the right to select separate counsel to
participate in the defense of such action on its behalf, at the expense of the
<PAGE>
indemnifying party. Notwithstanding the assumption of the defense of any claim
by an indemnifying party pursuant to this paragraph, the indemnified party shall
have the right to approve the terms of any settlement of a claim (which approval
shall not be unreasonably withheld).
(b) The indemnifying party and the indemnified party shall cooperate in
furnishing evidence and testimony and in any other manner which the other may
reasonably request, and shall in all other respects have an obligation of good
faith dealing, one to the other, so as not to unrea sonably expose the other to
an undue risk of loss. The indemnified party shall be entitled to reimbursement
for out-of-pocket expenses reasonably incurred by him or it in connection with
such cooperation.
<PAGE>
ARTICLE XIII
Miscellaneous Provisions
13.01. Nature and Survival of Representations and Warranties. All
statements contained herein or in any certificate, schedule or other document
delivered pursuant hereto shall be deemed representations and warranties. All
representations and warranties shall survive the Closing and shall not be
affected by any investigation at any time made by or on behalf of any party
hereto.
13.02. Amendment and Modification. This Agreement may be amended, modified
or supplemented only by written agreement of the parties hereto, provided,
however, that an amendment of this Agreement may be made on behalf of all
Selling Members by an instrument in writing executed by that number of Selling
Members who are holders of 51% of the issued and outstanding Selling Members'
Interests (the "Majority in Interest").
13.03. Waiver. Any breach of any obligation, covenant, agreement or
condition contained herein shall be deemed waived by the non-breaching party,
only by a writing, setting forth with particularity the breach being waived and
the scope of the waiver, but such waiver shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other breach. No failure or duly by
any party in exercising any right, power or privilege hereunder or under the
Documents and no course of dealing by any party shall operate as a waiver and
any right, power or privilege hereunder or under any Document nor shall any
single or partial exercise thereof or the exercise of any other right, power or
privilege.
<PAGE>
13.04. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand:
(a) If to the Company or any Selling Member, to:
Goldpoint International, LLC
29 Haines Road
Bedford Hills, NY 10507
Attn.: Stephen J. Petre
With a copy to:
Albert Loew, Esq.
989 Avenue of the Americas
NY, NY 10036
or to such other person or address as the Company or any Selling Member shall
furnish White Cloud in writing.
(b) If to White Cloud to:
White Cloud Exploration, Inc.
1050 Seventeenth Street
Denver, Colorado 80265
with a copy to:
Michael A. Littman, Esq.
10200 West 44th Avenue, #400
Wheat Ridge, Colorado 80033
<PAGE>
or to such other person or address as White Cloud shall furnish Selling Members
and the Company in writing.
13.05. Binding Nature; Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns, but neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without prior written consent of the other parties; provided,
however that the rights of White Cloud hereunder may be assigned to any lender
or financing institution as security for a loan or loans granted or equity
raised in order to facilitate participation in the transaction contemplated
herein.
13.06. Governing Law; Submission to Jurisdiction. This Agreement and the
legal relations among the parties hereto shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and performed therein.
13.07. Public Announcements. Prior to the Closing, except as required by
applicable law the parties hereto agree not to make any disclosure or public
announcement concerning the transactions contemplated hereby without the prior
consent of the other parties hereto; provided, however, that in connection with
the transactions contemplated herein, with respect to any disclosure or public
announcement which a party reasonably deems to be necessary pursuant to any
state or federal law or regulation, such party may make such disclosure or
public announcement without the consent of any other party so long as the party
making such announcement or disclosure has used reasonable efforts to provide to
<PAGE>
to each other party hereto advance notice of such disclosure or public
announcement. In connection with any disclosure required by law the party making
such disclosure shall use its best efforts to obtain, to the extent available,
confidential treatment with respect to information concerning the transaction
contemplated herein.
13.08. Expenses. Except as otherwise provided herein, all costs and
expenses incurred in connection with this Agreement and the Documents shall be
paid by the party incurring such cost or expense.
13.09. Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
13.10. Headings. The headings contained in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
13.11. Entire Agreement. This Agreement and the Documents together with the
Schedules herein and therein and Exhibits hereto and thereto, constitute the
entire agreement between the parties hereto pertaining to the subject matter
hereof and supersede all prior and contemporaneous agreements, understandings,
documents, negotiations and discussions, whether oral or written, of the parties
hereto.
13.12. Obligations of Predecessors. When any provision of this Agreement or
any Document refers to or contemplates: (i) any agreement, lease, license,
permit or authorization to which the Company is a party or by which its assets
are bound or subject; (ii) any other obligation or duty of the Company of any
kind or nature; or (iii) the existence or absence of any fact or matter such
<PAGE>
provision existence or absence of any fact or matter such provision shall be
deemed to include, in addition to any contract, document, agreement, lease,
license, permit or authorization or other obligation or duty of the Company or
the existence or absence of any fact or matter; (x) any contract, document,
agreement, lease, license, permit or authorization or other obligation or duty
assigned to or assumed by the Company or its predecessors, directly or
indirectly, by agreement, by operation of law or otherwise and (y) the existence
of any fact or matter to the extent relevant to any such predecessor.
When any provision of this Agreement or any Document refers to a
"predecessor" such reference shall be deemed to include any corporation,
partnership, joint venture or other business, business organization or entity
which is the predecessor of the Company and shall include any or all of the
foregoing to the extent that the Company is the direct or indirect successor
thereof.
13.13. Knowledge of Selling Members and the Company. When any provision of
this Agreement or any Document refers to or contemplates the knowledge of a
party, it shall mean: (i) with respect to any matter relating to third parties,
actual knowledge of Selling Members, Managers, Manager-Members and executive
officers of the Company or White Cloud, as the case may be, with regard to such
third parties and (ii) with respect to Selling Members or any of their
obligations, rights or properties, the actual knowledge of such Selling Member,
after due inquiry.
13.14. Remedies Exclusive. Prior to the Closing, the rights, remedies and
obligations of the parties hereto under this Agreement and the Documents set
forth in Article XI hereof shall be deemed to be exclusive of all other rights,
remedies and obligations under this Agreement and the Documents that would
otherwise be available to the parties hereto. After the Closing, the rights,
<PAGE>
remedies and obligations under this Agreement and the Documents of the parties
hereto set forth in Article XII hereof shall be deemed to be exclusive of all
other rights, remedies and obligations under this Agreement and the Documents
that would otherwise be available to the parties hereto. Notwithstanding the
foregoing, the parties agree that the business of the Company is unique and that
remedies at law may be inadequate, and accordingly, White Cloud, in addition to
other remedies it may have, shall have the right to enforce the obligation of
Selling Members to consummate the sale of Selling Members' Interests upon the
terms contemplated hereunder by an action or actions for specific performance,
injunction or other appropriate equitable remedies.
13.15. Disclosure on Schedules. For purposes of this Agreement, a
disclosure by any party hereto of any fact on any Schedule shall be deemed a
disclosure on every Schedule of any party hereto to the extent such disclosure
properly could have been made thereon but was not made.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed the day and year first above written.
By:
----------------------------------------
Selling Member
Goldpoint International, LLC
By:
----------------------------------------
Authorized Member
WHITE CLOUD EXPLORATION, INC.
By:
----------------------------------------
Authorized Officer
By:
----------------------------------------
Stephen J. Petre, individually
<PAGE>
LIST OF EXHIBITS
A. - Ownership of Selling Members /New Shares
B. - Financial Statements
C. - Form of Opinion of Counsel to the Company and Selling Members
D. - White Cloud Capitalization
E. - Form of Selling Members' Waiver
F. - White Cloud Financial Statements
G. - Form of Opinion of Counsel to White Cloud
<PAGE>
LIST OF SCHEDULES
1. Disclosure Schedule
2. White Cloud Disclosure Schedule
STOCK AND ASSET CONTRIBUTION AGREEMENT
THIS STOCK AND ASSET CONTRIBUTION AGREEMENT ("Agreement") is made and
entered into effective as of this day of June 1997 by and among White Cloud
Exploration, Inc. Corp., a Utah corporation ("White Cloud"); Watchout!, a
California corporation (the "Company"); Robert Galoob, an individual ("RG");
David Galoob, an individual ("DG"and with RG, the "Galoobs") and each of the
persons (including the Galoobs) listed on Schedule A hereto (each, a "Selling
Stockholder" and collectively the "Selling Stockholders").
W I T N E SS E T H:
WHEREAS, White Cloud is a public company; and
WHEREAS, the Company is engaged in the business of designing, developing
and marketing consumer goods utilizing proprietary colored liquid crystal
display technology (all such activities of the Company, together with all other
business activities of the Company, being hereinafter referred to as the
"Business"); and
WHEREAS, Selling Stockholders own the number of issued and outstanding
shares of the Company's Common Stock set forth opposite their names on Schedule
A which, in the aggregate, consists of 255,607 shares of the Company's Common
Stock (the "Selling Stockholders Shares") which represents 100% of the issued
and outstanding shares of Common Stock of the Company; and
WHEREAS, Selling Stockholders desire to contribute to White Cloud Selling
Stockholders' Shares for an aggregate consideration of 11,640,003 shares of
White Cloud restricted Common Stock ( the "Watchout Transaction") (based on
<PAGE>
1,250,000 shares of White Cloud common stock being outstanding prior to the
Watchout Transaction. In the event that a greater or lesser number of White
Cloud shares of common stock are outstanding prior to the Watchout Transaction,
the 11,640,003 shares of White Cloud common stock shall be increased or
decreased accordingly (the foregoing, the "Adjustment")), all upon the terms and
conditions contained herein; and
WHEREAS, simultaneous with, and as a condition precedent to, the Watchout
Transaction, White Cloud shall acquire all of the limited liability interests of
Goldpoint International, LLC ("Goldpoint") in exchange for 2,140,000 shares of
White Cloud restricted Common Stock, subject to the Adjustment (the "Goldpoint
Transaction"); and
WHEREAS, the Watchout Transaction, together with the Goldpoint Transaction,
are components of a single integrated transaction that is intended to qualify
for the treatment provided in Section 351 of the Internal Revenue Code of 1986,
as amended (the "Code"); and
WHEREAS, following the Watchout Transaction and the Goldpoint Transaction,
it is intended that a private offering of White Cloud securities (the "Private
Placement") be consummated pursuant to that certain Selling Agreement dated as
of February 5, 1997 between the Company and Sands Brothers & Co., Ltd. ("Sands
Brothers").
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants hereinafter set forth, the parties
hereto hereby agree as follows:
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<PAGE>
SECTION I
CONTRIBUTION OF SELLING STOCKHOLDERS' SHARES
1.01. Conveyance of Selling Stockholders' Shares. At Closing, Selling
Stockholders shall contribute, transfer, assign, convey and deliver certificate
or certificates representing Selling Stockholders' Shares to White Cloud in the
denominations set forth on Exhibit A hereto. Each of such certificates shall be
duly endorsed for transfer or accompanied by appropriate stock powers duly
executed, in either case, in favor of White Cloud. All transfer taxes, if any,
payable by reason of transferring Selling Stockholders' Shares shall be paid by
White Cloud.
1.02. Consideration for Selling Stockholders's Shares. In exchange for
Selling Stockholders' Shares, White Cloud shall issue stock certificates
evidencing an aggregate of 11,640,003 restricted shares of White Cloud's Common
Stock, subject to the Adjustment (the "New Shares") in the denominations and in
the names of the persons and entities set forth on Exhibit A hereto.
SECTION II
ADDITIONAL AGREEMENTS
2.01. Lock-Up Agreement. In the event that the Private Placement is
completed, upon consummation of the Private Placement, each of Selling
Stockholders will enter into a lock-up agreement with White Cloud in form and
substance reasonably satisfactory to Sands Brothers ("Lock-Up Agreement")
pursuant to which Selling Stockholders will agree to certain restrictions, as
established by Sands Brothers, on the transferability of the New Shares acquired
by them pursuant to this Agreement.
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<PAGE>
SECTION III
CLOSING
3.01. Closing. The consummation of the contribution of the Selling
Stockholders' Shares, and the other transactions contemplated hereby ("Closing")
shall take place at the offices of Sands Brothers, 90 Park Avenue, NY, NY 10016
on June , 1997, or as soon as practical after all conditions precedent set forth
in Sections IX and X hereof have been satisfied or waived, whichever is later,
at 10:00 a.m. (local time), or at such other date, time and place as shall be
fixed in writing by the mutual consent of the parties hereto (the "Closing
Date"). The Closing shall be deemed to be effective as of the opening of
business on the Closing Date.
3.02. Selling Stockholders' and the Company's Deliveries. At the Closing,
in addition to such certificates, opinions, documents and agreements as are
specified in Articles IX and X, Stockholders and/or the Company shall do,
execute and deliver, or cause to be done, executed and delivered, the following:
(a) Selling Stockholders' Shares duly endorsed for transfer; and
3.03. White Cloud's Deliveries. At the Closing, in addition to such
certificates, opinions, documents and agreements as are specified in Articles IX
and X, White Cloud shall do, execute and deliver, or cause to be done, executed
and delivered, the following:
(a) the New Shares.
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<PAGE>
SECTION IV
Representations and Warranties Concerning Selling Stockholders
Each Selling Stockholder on behalf of himself, herself or itself represents
and warrants to, and agrees with, White Cloud as follows:
4.01. Ownership of Selling Stockholder's Shares. Such Selling Stockholder
is the owner, beneficially and of record, of all of Selling Stockholders' Shares
as set forth in Exhibit A and there exists no pledge, lien, security interest,
encumbrance, claim or equity of any kind with respect to such shares. Such
Selling Stockholder is not a party to any stockholders' agreement, partnership
agreement, voting trust or other voting or similar agreement with respect to
such Selling Stockholder's Shares. Such Selling Stockholder has full right and
authority to transfer such Selling Stockholder's Shares and, upon delivery of
such Selling Stockholder's Shares to White Cloud pursuant to this Agreement,
White Cloud will receive good and marketable title thereto, free and clear of
any pledge, lien, security interest, encumbrance, claim or equity of any kind.
4.02. Authority of Selling Stockholders. Such Selling Stockholder is of
full age and has the full right, capacity, power and authority to enter into
this Agreement and the Documents and to consummate the transactions contemplated
hereby and thereby. This Agreement and the Documents (as hereinafter defined)
have been duly executed and delivered by each Selling Stockholder and constitute
the valid and binding obligations of such Selling Stockholder enforceable
against each such Selling Stockholder in accordance with their respective terms,
subject, as to enforcement, to the discretion of the courts in awarding
equitable relief and to applicable bankruptcy, reorganization, insolvency,
moratorium and similar laws affecting the rights of creditors generally.
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<PAGE>
4.03. No Violations. Neither the execution and delivery of this Agreement
or any of the Documents, the performance by such Selling Stockholder of his
obligations hereunder and thereunder nor the consummation of the transactions
contemplated hereby or thereby will, directly or indirectly, with or without the
giving of notice or the passage of time, or both (i) violate, or be in conflict
with, or constitute a default under, or cause or permit the termination or the
acceleration of the maturity of, any agreement, personal guarantee, lease,
mortgage, debt or obligation of such Selling Stockholder or require the payment
or any pre-payment or other penalty with respect thereto; (ii) require notice to
or the consent of any party to or beneficiary of any agreement, personal
guarantee, lease, mortgage, debt or obligation to which such Selling Stockholder
is a party or by which he or his properties is bound or subject, including
without limitation, any agreement or obligation containing a right of first
refusal or similar right or permitting any party to renegotiate, receive a
refund, modify or otherwise change any such agreement or obligation; (iii)
result in the creation or imposition of any lien, security interest, claim or
other encumbrance upon any property or assets of such Selling Stockholder under
any agreement, personal guarantee, lease, mortgage, debt or obligation to which
he is a party or by which he or his properties is bound or subject; or (iv)
violate any statute or law or any judgment, decree, order, regulation or rule of
any court or governmental authority to which such Selling Stockholder or his
properties is or may be bound or subject.
4.04. Consents and Approvals of Governmental Authorities. No consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority is required to be made or obtained by such
Selling Stockholder in connection with the execution, delivery or performance by
such Selling Stockholders of this Agreement or the Documents or the consummation
by such Selling Stockholder of the transactions contemplated hereby or thereby.
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4.05. Affiliate Transactions. Such Selling Stockholder has no direct or
indirect interest in any firm, corporation, association or business enterprise
which competes with the Company or is a supplier, client, customer or agent of,
or is otherwise engaged in the business engaged in by, the Company.
4.06. Investment Intent. The New Shares are being acquired for such Selling
Stockholder's own account, for investment purposes only and not with a view
towards distribution or resale to others. The New Shares have not been
registered under the Securities Act and Selling Stockholders will not sell or
otherwise transfer the New Shares unless they are registered under the
Securities Act or unless in the opinion of counsel satisfactory to White Cloud
an exemption from such registration is available. Such Selling Stockholder
understand that the New Shares have not been registered under the Securities Act
by reason of a claimed exemption under the provisions of the Securities Act
which depends, in part, upon such Selling Stockholder's investment intention.
Such Selling Stockholder has reviewed, or has had the opportunity to review,
such documents, ask questions and obtain additional information concerning White
Cloud in connection with the transactions contemplated hereby. Furthermore, such
Selling Stockholder has, or has had the opportunity to, consult his own counsel,
accountants and other professional advisors as to the financial, legal, tax and
related matters concerning an investment in White Cloud. Such Selling
Stockholder acknowledges that the law firm of Howard, Rice, Nemerovski, Canady,
Falk & Rabin, a professional corporation, has represented the Company and the
Galoobs in connection with the negotiation of this Agreement and with respect to
the Watchout Transaction, and that such law firm has not represented and does
not represent any other Selling Stockholder in connection therewith. Until (a)
the New Shares are effectively registered under the Securities Act, or (b) the
holder of the New Shares, at such holder's expense, deliver to White Cloud a
written opinion of counsel reasonably acceptable to White Cloud to the effect
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that such legend is no longer necessary under the Securities Act, White Cloud
will cause each certificate(s) representing the New Shares to be stamped or
otherwise imprinted with a legend to substantially the following effect:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
thus may not be transferred unless so registered or unless an
exemption from registration is available."
4.07. Finders' Fee. There is no investment banker, broker, finder or other
intermediary which has been retained by, or is authorized to act on behalf of,
such Selling Stockholder who might be entitled to any fee or commission from
White Cloud or the Company or any of their affiliates upon the consummation of
the transactions contemplated by this Agreement or the Documents, except Sands
Brothers.
4.08. Disclosure. No representation or warranty of such Selling Stockholder
contained in this Agreement or any of the Documents or in any statement or
certificate furnished or to be furnished to White Cloud or the Company pursuant
hereto or thereto in connection with the transactions contemplated hereby or
thereby contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
made herein or therein, in the light of the circumstances in which they were
made, not misleading.
SECTION V
Representations and Warranties Concerning the Company
Subject to the Disclosure Schedule attached hereto the Company represents
and warrants to, and agrees with, White Cloud as follows:
5.01. Organization; Authority.
(a) The Company, and each of the Companies under its control (each a
"Subsidiary, and collectively, the "Subsidiaries") is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power and
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authority to carry on its business as such business is now being conducted and
to own and lease the properties it now owns or leases. The Company is duly
qualified to do business in the states or jurisdictions set forth in the
Disclosure Schedule. Except as set forth in the Disclosure Schedule, there is no
jurisdiction in which the conduct of the Company's business or ownership or
leasing of its properties requires it to be qualified to do business as a
foreign corporation, except where such qualifications have been obtained or the
failure to be so qualified would not have a material adverse effect on the
business, financial condition or prospects of the Company taken as a whole. The
Company has all requisite power and authority to execute and deliver this
Agreement and to carry out the transactions contemplated by this Agreement.
(b) The corporate records of the Company have been delivered or made
available to White Cloud. Such records are complete, correct and current in all
material respects, with all necessary signatures, and have been maintained in
accordance with good business practices in all material respects.
5.02. Capitalization. Exhibit A hereto lists the authorized and the
equitable ownership of the capital stock of the Company (the "Capital Stock")
and the name and number of shares of Capital Stock owned by each shareholder of
the Company. Each such share is validly paid, fully paid and nonassessable.
Except as set forth in Exhibit A, there are no other classes of capital stock or
other securities authorized by the Company.
(ii) The Company has no obligation (contingent or otherwise) to pay any
dividend or make any other distribution in respect of any of its capital stock.
The Company is not a party to, and has no knowledge of, voting trusts or
agreements, stockholders' agreements, pledge agreements, buy-sell agreements,
rights of first refusal or proxies relating to any securities of the Company
(whether or not the Company is a party thereto). All of the outstanding
securities of the Company were issued, in all material respects, in compliance
with all applicable federal and state securities laws. The Company has no
obligation (contingent or otherwise) to repurchase, redeem or otherwise acquire
any shares of its capital stock.
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(iii) The stockholders of record and the holders of subscriptions,
warrants, options, preemptive rights, convertible securities and other rights
(contingent or otherwise) to purchase or otherwise acquire equity securities of
the Company, and the number of shares of capital stock of the Company and the
number of such subscriptions, warrants, options, preemptive rights, convertible
securities and other such rights held by each, are as set forth in Exhibit A.
The designations, powers, preferences, rights, privileges, qualifications,
limitations and restrictions in respect of each class and series of authorized
capital stock of the Company are as set forth in the Certificate of
Incorporation and all such designations, powers, preferences, rights,
privileges, qualifications, limitations and restrictions are valid, binding and
enforceable in accordance with all applicable laws (subject, as to enforcement,
to the discretion of the courts in awarding equitable relief and to applicable
bankruptcy, reorganization, insolvency, moratorium and similar laws affecting
the rights of creditors generally). Except as disclosed in Exhibit A or the
Disclosure Schedule, no person owns of record, or is known to the Company to own
beneficially, any share of capital stock of the Company; no subscription,
warrant, option, preemptive right, convertible security, agreement or other
right (contingent or otherwise) to purchase or otherwise acquire equity
securities of the Company is authorized or outstanding; and there is no
commitment by the Company to issue shares, subscriptions, warrants, options,
preemptive rights, convertible securities or other such rights or to distribute
to holders of any of its equity securities any evidence of indebtedness or
asset. An appropriate number of shares of the Common Stock have been reserved
for issuance upon the conversion or exercise, as the case may be, of any of the
securities referred to in this Section.
5.03. Subsidiaries and Investments. The Company does not own, directly or
indirectly, any capital stock, or other equity ownership or proprietary
interest, in any other corporation, association, trust, partnership, joint
venture or other entity.
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5.04. Financial Statements. The audited consolidated balance sheet of the
Company as of December 31, 1996 (the "1996 Balance Sheet") and the related
consolidated statements of operations, shareholders equity and statements of
cash flow for the fiscal year ended December 31, 1996 certified by Comyns,
Smith, McCleary, LLP and the unaudited consolidated balance sheet (the "February
Balance Sheet") of the Company as of February 28, 1997 (the "Balance Sheet
Date"), and the related unaudited consolidated statements of operations,
shareholders equity and statements of cash flow for the two month period ending
February 28, 1997 (collectively, the "Financial Statements"), are attached
hereto as Exhibit B. Except as may be otherwise indicated herein and therein and
in the notes thereto, the Financial Statements have been prepared in conformity
with Generally Accepted Accounting Principles consistently applied and present
fairly in all material respects the financial position and results of operations
of the Company as of the dates and for the periods indicated.
5.05 Keeping of Records and Books of Account. The Company has maintained
adequate records and books of account, in which complete entries have been made
in accordance with Generally Accepted Accounting Principles, consistently
applied, reflecting all financial transactions of the Company and in which, for
each fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business have been made. The records and books of account of the Company are in
good order and have been properly maintained in all material respects.
5.06 Access to Corporate Documents. The minute books of the Company and of
its Subsidiaries have been made available to White Cloud and such minute books
reflect in all material respect the meetings and actions of the directors and
stockholders of the Company or of its Subsidiaries, respectively, since the time
of their respective incorporation and reflect all transactions referred to in
such minutes accurately in all material respects.
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5.07. Absence of Undisclosed Liabilities. The Company has no material
outstanding claims, liabilities, obligations or indebtedness, contingent or
otherwise, whether asserted or unasserted, except as set forth in the 1996
Balance Sheet, or referred to in any of the notes thereto. All liabilities of
the Company and its Subsidiaries incurred subsequent to the Balance Sheet Date
have been incurred in the ordinary course of business and do not involve
borrowings which individually exceed $5,000 and which do not exceed $10,000 in
the aggregate. Neither the Company nor its Subsidiaries is in default in respect
of the terms or conditions of any indebtedness.
5.08. Absence of Changes. Since the Balance Sheet Date, there has not been
any material change in the condition, financial or otherwise, of the Company or
of any of its Subsidiaries, which materially adversely affects the ability of
the Company or the ability of any of its Subsidiaries to conduct its operations
s currently conducted and neither the Company nor any of its Subsidiaries have
incurred any material liabilities or obligations, direct or contingent, not in
the ordinary course of business since such Balance Sheet Date.
5.09. Accounts Receivable. The accounts receivable of the Company reflected
on the 1996 Balance Sheet, and all accounts receivable of the Company arising
since the 1996 Balance Sheet Date, are not subject to discount (other than
discounts and allowances provided by normal trade terms), rebate or offset and
have arisen from bona fide transactions in the ordinary course of business.
5.10. Title to Properties; Encumbrances.
(i) Except for properties and assets reflected in the 1996 Balance Sheet or
acquired since the 1996 Balance Sheet Date which have been sold or otherwise
disposed of in the ordinary course of business since such date, the Company and
each of its Subsidiaries has good, valid and marketable title to (A) all of its
properties and assets (personal, tangible and intangible), reflected as owned in
the 1996 Balance Sheet, except as indicated in the notes thereto; and (B) all
the properties and assets purchased or otherwise acquired by the Company or by
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any Subsidiary since the 1996 Balance Sheet Date; in each case clear of all
encumbrances, liens, claims, charges or other restrictions of whatever kind or
character ("Liens"), except for (1) liens reflected in the 1996 Balance Sheet,
(2) liens for current taxes, assessments or governmental charges or levies on
property not yet due and delinquent and (3) such Liens as do not materially and
adversely affect the value of such property and do not materially interfere with
the use made or proposed to be made of such property by the Company.
(ii) The Company and its Subsidiaries own no real property. To the best of
the Company's knowledge after due inquiry, there are no condemnation,
environmental, zoning or other land use regulation proceedings, either
instituted or planned to be instituted, which would materially and adversely
affect the use or operation of the Company's and its Subsidiaries' properties
and assets for their respective intended uses and purposes or the value of such
properties, and the Company and its Subsidiaries have not received notice of any
special assessment proceedings which would affect such properties and assets.
5.11. Condition of Equipment, Machinery and Fixtures. The equipment,
machinery and fixtures leased and/or owned by the Company and utilized by the
Company and its Subsidiaries in the conduct of their business are in good
operating condition and are fit for their intended purpose.
5.12. Leased Property. Each real property and personal property lease or
sublease to which the Company or any of its Subsidiaries is a party is valid and
binding and is in full force and effect; all rent and other sums, and charges
payable by the Company or by each Subsidiary as lessee or sublessee thereunder,
are current through the last day of the immediately preceding calendar month; no
notice of default or termination under any lease is outstanding; no termination
event or condition or uncured default on the part of the Company or any
Subsidiary, or the landlord, exists under any lease; the Company and its
Subsidiaries currently occupy or use the premises leased pursuant to the real
property leases; and no event has occurred and no condition exists which with
the giving of notice or the lapse of time or both, would constitute such a
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default or termination event or condition. Neither the Company, nor its
Subsidiaries, nor any of the officers or directors of the Company or of its
Subsidiaries has any ownership, financial or other interest in the landlord
under any real property lease. Each lease was negotiated on an arm's-length
basis.
5.13. Inventories. All inventory reflected in the 1996 Balance Sheet of the
Company and of its Subsidiaries and all inventory acquired by the Company and by
its Subsidiaries subsequent to the 1996 Balance Sheet Date, were acquired and
have been maintained in accordance with the regular business practices of the
relevant entity, consists of items of quality and quantity reasonably expected
to be useable or saleable in the ordinary course of business consistent with
past practice, are valued in accordance with United States Generally Accepted
Accounting Principles, and such inventory which is known or reasonably believed
to be obsolete or slow moving has been adequately reserved to reduce such
inventory to net realizable value. Subject to amounts reserved therefor on the
Financial Statements, the values at which all inventories of the Company and of
its Subsidiaries (collectively, the "Inventories") are carried on the Financial
Statements reflect the historical inventory valuation policy of the Company and
of its Subsidiaries of stating such Inventories. at the lower of cost
(determined on the first-in, first-out method) or market value and all
Inventories are valued such that the Company and its Subsidiaries will earn
its/their customary gross margins thereon. The Company has good and marketable
title to the Inventories free and clear of all encumbrances. The Inventories do
not consist of any items held on consignment. The Company is under no obligation
or liability with respect to accepting returns of items of Inventory or
merchandise in the possession of its customers other than in the ordinary course
of business consistent with past practice. No clearances or extraordinary sale
of the Inventories has been conducted since the Balance Sheet Date. Neither the
Company or any of its Subsidiaries has manufactured Inventory for sale which is
not of a quality and quantity usable in the ordinary course of business
consistent with past practice and within a reasonable period of time nor has the
Company or any of its Subsidiaries changed the price of any Inventory except (i)
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for reductions to reflect any for reductions to reflect any reduction in the
cost thereof to the Company or to any of its Subsidiaries; (ii) for reductions
and increases responsive to normal competitive conditions and consistent with
the Company's or the Subsidiaries' past sales practices; and (iii) to reflect
any increase in the cost thereof to the Company or to the Subsidiaries. The
Inventories are in good and merchantable condition in all material respects, are
suitable and usable for the purposes for which they are intended and are in a
condition such that they can be sold in the ordinary course of business
consistent with past practice.
5.14. Patents, Trademarks and Copyrights, Etc. The Company and its
Subsidiaries own or are licensed or otherwise entitled to use all patents,
trademarks, trade names, service marks, copyrights, technology, know-how,
processes and other intellectual property used in the conduct of its business as
currently conducted. The Company and its Subsidiaries have received no notice of
any claims, and have no knowledge of any threatened claims, and know of no facts
which would form the basis of any claim, asserted by any person, to the effect
that the sale or use of any product or process now used or offered by the
Company or any Subsidiary infringes on any patents or infringes upon the use of
any such trademarks, trade names, service marks, copyrights, technology,
know-how, processes or other intellectual property of another person or
challenges or questions the validity or effectiveness of any such license or
agreement. To the Company's knowledge, the sale and use of any such products and
processes by the Company and its Subsidiaries, and the use of any such patents,
trademarks, trade names, service marks, copyrights, technology, know-how,
processes or other intellectual property by the Company and its Subsidiaries,
does not infringe on the rights of any person.
5.15. Litigation. There is no action, suit, investigation, customer
complaint, claim or proceeding at law or in equity by or before any arbitrator,
governmental instrumentality or other agency now pending or, to the Company's
knowledge, threatened against or affecting the Company or any Subsidiary, nor,
to the best of the Company's knowledge, does there exist any basis therefor.
Neither the Company nor any Subsidiary is subject to any judgment, order, writ,
injunction or decree of any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign.
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5.16. Non-Defaults; Non-Contravention. Neither the Company nor its
Subsidiaries is in default in the performance or observance of any obligation
(i) under its Certificate of Incorporation, as amended, or its By-laws, or any
indenture, mortgage, contract, purchase order or other agreement or instrument
to which the Company is a party or by which it or any of its property is bound
or affected; or (ii) with respect to any order, writ, injunction or decree of
any court of any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
except for such defaults as would not, individually or in the aggregate, result
in a material adverse effect on the business or operations of the Company as a
whole, and there exists no condition, event or act which constitutes, nor which
after notice, the lapse of time or both, would constitute, a material default
under any of the foregoing.
5.17. Employment of Officers, Employees and Consultants. To the Company's
knowledge, no third party may assert any valid claim against the Company or its
Subsidiaries with respect to the (i) continued employment by, or association
with, the Company or its Subsidiaries of any of its present officers, employees
or consultants; or (ii) the use by the Company or its Subsidiaries of any
information which the Company or its Subsidiaries would be prohibited from using
under any prior agreements or arrangements or any laws applicable to unfair
competition, trade secrets or proprietary information.
5.18. Taxes. The Company and its Subsidiaries have filed all federal,
state, local and foreign tax returns which are required to be filed by them or
have requested extensions thereof, and all such returns are true and correct in
all material respects. The Company and its Subsidiaries have paid all taxes
pursuant to such returns or pursuant to any assessments received by them and
have withheld all amounts which they are obligated to withhold from amounts
owing to any employee, creditor or third party. The tax returns of the Company
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and of its Subsidiaries have never been audited by any state, local or federal
authorities. The Company and its Subsidiaries have not waived any statute of
limitations with respect to taxes or agreed to any extension of time with
respect to any tax assessment or deficiency. All tax elections have been made by
the Company and its Subsidiaries in accordance with generally accepted
practices. No deficiency assessment with respect to or proposed adjustment of
the Company's and its Subsidiaries federal, state, county or local taxes is
pending or, to the best of the Company's knowledge, threatened. There is no tax
lien, whether imposed by any federal, state, county or local taxing authority,
outstanding against the assets, properties or business of the Company or of its
Subsidiaries. Neither the Company nor any of its Subsidiaries nor any of
its/their respective present or former stockholders has ever filed an election
pursuant to Section 1362 of the Code, that the Company or any of its
Subsidiaries be taxed as an S corporation.
5.19. Agreements. Except as set forth in the Disclosure Schedule, neither
the Company nor any Subsidiary is a party to any written or oral contract not
made in the ordinary course of business and, whether or not made in the ordinary
course business, neither the Company nor any Subsidiary is a party to any
written or oral (i) collective bargaining agreement or any other contract with
any labor union; (ii) contract for the future purchase of fixed assets or for
the future purchase of materials, supplies or equipment in excess of $10,000;
(iii) contract for the employment of any officer, key employee or other key
person on a full-time basis or any contract with any person on a consulting
basis requiring the payment of any amount in the future; (iv) bonus, pension,
profit-sharing, vacation, deferred compensation, retirement, stock purchase,
stock option, hospitalization, health, medical insurance, life insurance,
disability insurance or similar plan, contract or understanding in effect with
respect to employees, or any other employee benefit plan, including, without
limitation, any employee benefit plan" as defined in Section 3(l) of the
Employee Retirement Income Security Act of 1974 and the rules and regulations
thereunder, as amended from time to time (collectively, "ERISA"), to which the
Company or any Subsidiary contributes or is a party, or is bound, or under which
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it may have liability and under which employees or former employees of the
Company or any Subsidiary (or their beneficiaries) are eligible to participate
or derive a benefit; (v) agreement, indenture or other instrument relating to
the borrowing of money or to the mortgaging, pledging or otherwise placing a
lien on any assets of the Company or of any Subsidiary; (vi) guaranty of any
obligation for borrowed money or otherwise; (vii) agreement or other commitment
for capital expenditures in excess of $10,000; (viii) contract or agreement
under which the Company or any Subsidiary is obligated to pay any broker's fees,
finder's fees or any such similar fees, to any third party other than in
conjunction with the transactions contemplated by this Agreement; (ix) sales
agency, marketing, distributorship or continuing brokerage agreements or
franchises between the Company or any Subsidiary and any other person; (x)
partnership or joint venture agreement of any kind to which the Company or any
Subsidiary or their assets may be bound; (xi) licenses to or from others with
respect to the business or assets of the Company or any Subsidiary; (xii)
contracts or commitments limiting the freedom of the Company or any Subsidiary
or any of their officers or employees to compete with respect to the business of
the Company or any Subsidiary in any geographic area or with any person or
otherwise restricting the conduct of the Company's business or that of any
Subsidiary; (xiii) contract, agreement, arrangement, or understanding with
respect to the sale of the business of the Company or of any Subsidiary or of a
substantial portion of the Company's or any Subsidiary's assets to any third
party, including any option agreement for any such sale or disposition; or (xiv)
contract, agreement, arrangement or understanding which is material to the
business of the Company or to the business of any Subsidiary. Each material
contract of the Company or of any of its Subsidiaries is valid and binding on
the Company or on such Subsidiary (subject, as to enforcement, to the discretion
of the courts in awarding equitable relief and to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting the rights of
creditors generally), and neither the Company nor any of its Subsidiaries has
received notice that any such contract is not binding on any party thereto. The
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Company and its Subsidiaries have performed in all material respects all
obligations to have been performed on such contracts through the date hereof,
and neither the Company nor any Subsidiary is in default in any material respect
under any such contract.
5.20. Compliance with Laws; Environmental Matters, Licenses, Etc. The
Company and its Subsidiaries have received no notice of any violation of, or
noncompliance with, any federal, state, local or foreign laws, ordinances,
regulations or orders (including, without limitation, those relating to
environmental protection, occupational safety and health and other labor laws,
ERISA, federal drug laws, federal securities laws, equal employment opportunity,
consumer protection, credit reporting, "truth-in-lending," and warranties and
trade practices) applicable to its business or the business of any Subsidiary,
the violation of, or noncompliance with which, would have a material adverse
effect on the Company's business or operations, taken as a whole, or that of any
Subsidiary, and the Company knows of no facts or set of circumstances which
would give rise to such a notice. The Company and its Subsidiaries have all
licenses and permits and other governmental certificates, authorizations and
permits and approvals (collectively, "Licenses") required by every federal,
state and local government or regulatory body for the operation of their
business and the use of their properties, the absence of which would have a
material adverse affect on the business of the Company, taken as a whole. The
Licenses are in full force and effect and no violations are or have been
recorded in respect of any License and no proceeding is pending or, to the
Company's knowledge threatened to revoke or limit any thereof. The Company and
its Subsidiaries have not received any written opinion or memorandum from legal
counsel providing that it/they has taken any action which has resulted in, or is
reasonably likely to result in, the Company or any of its Subsidiaries incurring
any liability which may be material to its/their respective business, prospects,
financial condition, operations, property or affairs.
5.21. Authorization of Agreement, Etc. Each of this Agreement, the
Registration Rights Agreement and all other agreements or documents required to
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be executed and delivered by the Company in connection with the transactions
contemplated by this Agreement (collectively the " Documents") has been or will
be duly executed and delivered by the Company and the execution, delivery and
performance by the Company of this Agreement and the Documents has been duly
authorized by all requisite corporate action by the Company; and each
constitutes, or will constitute, the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms, except as enforce ability may
be limited by bankruptcy, insolvency, reorganization, usury or other similar
laws affecting the enforcement of creditors' rights generally and except as
rights to indemnification hereunder may be limited by applicable law. The
execution, delivery and performance of this Agreement will not (i) violate any
provision of law or statute or any order of any court or other agency of
government binding on the Company or its Subsidiaries; or (ii) conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute (with due notice or lapse of time or both) a default under, or result
in the creation of any lien, security interest, charge or encumbrance upon any
of the properties or assets of the Company or of its Subsidiaries under the
Certificate of Incorporation, as amended, or By-Laws of the Company or of its
Subsidiaries or any indenture, mortgage, lease agreement or other agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which it or any of its property is bound or affected, except for such conflict,
breach or default (x) as to which requisite waivers or consents shall have been
obtained by the Company or by its Subsidiaries and delivered to White Cloud by
the time of Closing or (y) which individually or int he aggregate would not
result in a material adverse effect on the business of the Company, taken as a
whole.
5.22. Related Transactions. Except as set forth in the Disclosure Schedule,
no current or former shareholder, director, officer or employee of the Company,
nor any affiliate of any such person, is presently, or since the inception of
the Company has been, directly or indirectly, through his, her or its
affiliation with any other person or entity, a party to any loan from the
Company or from any of its Subsidiaries.
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5.23. Registration Rights. Except as may exist with respect to the holders
of the New Shares, (i) no person or entity has any right to cause the Company to
effect the registration under the Securities Act of any securities of the
Company and (ii) no person or entity holds any anti-dilution or "piggy back"
rights with respect to any securities of the Company.
5.24. Salaries and Bonuses. The Disclosure Schedule contains a true and
complete list of all current officers, directors and employees of the Company
and of its Subsidiaries who received during the fiscal year ended December 31,
1996 remuneration from the Company or from any of its Subsidiaries in excess of
$50,000, together with the current aggregate base salary rate for each such
person.
5.25. Insurance. All insurable assets and properties of the Company and its
Subsidiaries are insured, for the benefit of the Company and its Subsidiaries,
against all risks usually insured against by persons owning or operating similar
properties in the localities where such properties are located, through
insurance policies all of which are in full force and effect. The Company and
each Subsidiary are insured, for their benefit, against all claims relating to
their services to the same extent that the risks of such claims are usually
insured against by persons providing similar services. Each of the insurance
policies referred to in this Section is issued by an insurer of recognized
responsibility, and neither the Company nor its Subsidiaries has received any
notice or threat of the cancellation or nonrenewal of any such policy. The
Company will make available to the White Cloud, upon its request, a list of all
insurance coverage carried by the Company or its Subsidiaries, the carrier and
the terms and amount of coverage.
5.26. Employee Benefit Plans.
(i) Welfare Plans. Each welfare plan of the Company and its Subsidiaries is
in compliance with the applicable provisions of ERISA and the Internal Revenue
Code of 1986, as amended (the "Code"). The Company and each Subsidiary have no
contingent, future or other obligations or liabilities under or with respect to
any welfare plan which provides for the continuation of benefits at the expense
of the Company or any Subsidiary after retirement or other termination of
employment.
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(ii) Pension Plans. Each pension plan of the Company and of each Subsidiary
is in compliance with the applicable provisions of ERISA and the Code including,
without limitation, any applicable minimum funding requirements. There have been
no reportable events within the meaning of Section 4043 of ERISA with respect to
any pension plan. In the event of the termination of all pension plans, the
Company and each Subsidiary would have no liability under Sections 4062, 4063 or
4064 of ERISA.
(iii) Effect of Transactions. The execution and delivery of this Agreement
by the Company and the consummation of the transactions contemplated hereby will
not involve any prohibited transactions with respect to the Company or any of
its Subsidiaries within the meaning of ERISA.
5.27. Brokers. The Company has not, nor have any of its Subsidiaries, or
any of its/their respective officers, directors, employees or shareholders,
employed any broker or finder in connection with the transactions contemplated
by this Agreement, other than Sands Brothers.
5.28. No Consents. No permit, consent, approval, authorization, order or
filing with any court or governmental authority is required to consummate the
transactions contemplated by this Agreement, except as required under applicable
state and federal securities laws with respect to the issuance of securities as
contemplated pursuant to the Watchout Transaction, the Goldpoint Transaction and
the Private Placement.
5.29. Employee Relations. Each of the Company and its Subsidiaries has
generally enjoyed a satisfactory employer-employee relationship with its
employees and is in material compliance with all federal, state, local, and
foreign laws and regulations respecting employment and employment practices,
terms and conditions of employment and wages and hours. There are no pending
investigations involving the Company or any of its Subsidiaries by the U.S.
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Department of Labor, or any other governmental agency responsible for the
enforcement of such federal, state, local, or foreign laws and regulations.
There is no unfair labor practice charge or complaint against the Company or its
Subsidiaries pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving the Company or its Subsidiaries, or any predecessor entity, and
none has ever occurred. No representation question exists respecting the
employees of the Company or the employees of any of its Subsidiaries, and no
collective bargaining agreement or modification thereof is currently being
negotiated by the Company or its Subsidiaries. No grievance or arbitration
proceeding is pending under any expired or existing collective bargaining
agreements of the Company or any of its Subsidiaries. No labor dispute with the
employees of the Company or its Subsidiaries exists, or, is imminent.
5.30. Foreign Corrupt Practices Act. None of the Company, its Subsidiaries
nor to their knowledge any of their respective officers, employees, agents or
any other person acting on behalf of the Company or any of its Subsidiaries has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of the
Company or the business of any of its Subsidiaries (or to assist the Company or
any of its Subsidiaries in connection with any actual or proposed transaction)
which (a) might subject the Company or any of its Subsidiaries, or any other
such person, to any damage or penalty in any civil, criminal or governmental
litigation or proceeding (domestic or foreign); (b) if not given in the past,
might have had a material adverse effect on the assets, business or operations
of the Company or of any of its Subsidiaries; or (c) if not continued in the
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future, might adversely affect the assets, business, operations or prospects of
the Company and of its Subsidiaries, taken as a whole. The Company believes that
its and its Subsidiaries' international accounting controls are sufficient to
cause the Company and its Subsidiaries to comply with the Foreign Corrupt
Practices Act of 1977, as amended.
5.31. Affiliations. Except as set forth in the Disclosure Schedule, no
officer, director or shareholder of the Company or officer, director or
shareholder of any of its Subsidiaries, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Securities Act of
1933, as amended) of any such person or entity or of the Company or its
Subsidiaries, has or has had, either directly or indirectly (i) an interest in
any person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company or its
Subsidiaries; or (B) purchases from or sells or furnishes to the Company or any
of its Subsidiaries any goods or services; or (ii) a beneficiary interest in any
contract or agreement to which the Company or any of its Subsidiaries is a party
or by which it may be bound or affected. Except as set forth in the Disclosure
Schedule, there are no existing agreements, arrangements, understandings or
transactions, or proposed agreements, arrangements, understandings or
transactions, between or among the Company or any of its Subsidiaries, and any
officer, director, or principal stockholder of the Company or any of its
Subsidiaries, or any affiliate or associate of any such person or entity.
5.32. Corporate Representations. Any certificate signed by any officer of
the Company or by an officer of any of the Company's Subsidiaries and delivered
to White Cloud or to the White Cloud's counsel pursuant to this Agreement, shall
be deemed a representation and warranty by the Company and by any of its
Subsidiaries to White Cloud as to the matters covered thereby.
5.33. Disclosure. Neither this Agreement nor any other document,
certificate or written statement to be furnished to White Cloud by or on behalf
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of the Company in connection with the transactions contemplated hereby contains
or will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements contained herein
and therein not misleading. There is no fact known to the Company which
materially adversely affects the business operations, affairs, prospects,
conditions, properties or assets of the Company or of its Subsidiaries
(hereinafter "Material Facts") which has not been set forth in this Agreement.
To the extent Material Facts become known to the Company subsequent to the date
hereof and up and through the Closing Date, such facts will be set forth in the
documents, certificates or statements furnished to White Cloud by or on behalf
of the Company pursuant hereto.
SECTION VI
Representations and Warranties of White Cloud
White Cloud hereby represents and warrants to, and agrees with the Company
and the Selling Stockholders as follows:
6.01. Organization; Etc. White Cloud is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. White Cloud has full corporate power and authority to carry on
its business as such business is now being conducted and to own the properties
and assets it now owns.
6.02. Authority of White Cloud. White Cloud has full corporate power and
authority to enter into this Agreement and the Documents applicable to it and to
consummate the transactions contemplated hereby and thereby. The Board of
Directors and shareholders of White Cloud (to the extent, if any, required) have
taken all action required to authorize the execution and delivery of this
Agreement and the Documents by White Cloud, the issuance of the New Shares, the
performance of the obligations of White Cloud hereunder and thereunder and the
consummation by White Cloud of the transactions contemplated hereby and thereby.
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No other corporate proceedings on the part of White Cloud are necessary to
authorize the execution and delivery by White Cloud of this Agreement or the
Documents or the performance by either White Cloud of its obligations hereunder
or thereunder. This Agreement is, and each Document will be, a valid and binding
agreement of White Cloud, enforceable against it in accordance with their terms.
6.03. No Violation. Neither the execution and delivery of this Agreement or
any of the Documents, the performance by White Cloud of its obligation hereunder
and thereunder nor the consummation of the transactions contemplated hereby or
thereby will, directly or indirectly, with or without the giving of notice or
lapse of time, or both: (i) violate any provisions of the Certificate of
Incorporation or By-laws of White Cloud; (ii) violate, or be in conflict with,
or constitute a default under, or cause or permit the termination or the
acceleration of the maturity of, any agreement, lease, mortgage, debt or
obligation of White Cloud or require the payment, any pre-payment or other
penalty with respect thereof; (iii) require notice to or the consent of any
party to any agreement or commitment to which either White Cloud is a party, or
by which it or its properties is bound or subject, including without limitation,
any lease, license or any agreement containing a right of first refusal or
similar right or permitting any such party to re-negotiate, receive a refund,
modify or otherwise change any agreement or commitment; (iv) result in the
creation or imposition of any security interest, lien, claim or other
encumbrance upon any property or assets of White Cloud, as the case may be,
under any agreement or commitment to which it is a party or by which it or its
properties is bound or subject; or (v) violate any statute or law or any
judgment, decree, order, regulation or rule of any court or governmental
authority to which either White Cloud or its properties is bound or subject.
6.04. Finders' and Investment Bankers' Fees. There is no investment banker,
broker, finder or other intermediary which has been retained by White Cloud who
might be entitled to any fee or commission from Selling Stockholders or any of
his affiliates in connection with the transactions contemplated by this
Agreement or the Documents, except for Sands Brothers and WCM Investments, Inc.
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6.05. Investment Intent. White Cloud is acquiring the Selling Stockholders'
Shares for investment purposes only and not with a view to a sale or
distribution thereof within the meaning of the Securities Act.
6.06. New Shares. When issued to the Selling Stockholders, the New Shares
will be duly and validly issued, fully paid and non-assessable shares of White
Cloud's Common Stock.
6.07. Securities Law Compliance. White Cloud will have filed all reports
and other documents required to be filed by it with the Securities and Exchange
Commission under the Act and the Securities Exchange Act of 1934, as amended
(the "Exchange Act") within 30 days of the Closing and, to White Cloud's
knowledge, each such report or other document, at the time it was filed, and
when filed, did not and will not contain any untrue statement of a material fact
or omitted to state a material fact required to be stated therein, or necessary
to make the statements therein, in light of the circumstances in which they were
made, not misleading. To White Cloud's best knowledge, no event has occurred or
is likely to occur that required or would require an amendment to any report or
document referred to in this Section 6.07 that has not been filed or distributed
as required. White Cloud has made and, within 30 days of the Closing, will make
all reports and provided all information and materials to shareholders and to
the Securities and Exchange Commission required by law to be made or provided by
White Cloud.
6.08. Organization; Authority.
(a) White Cloud, and each of the companies under its control (each a "White
Cloud Subsidiary, and collectively, the "White Cloud Subsidiaries") is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has all requisite corporate power and
authority to carry on its business as such business is now being conducted and
to own and lease the properties it now owns or leases. White Cloud is duly
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qualified to do business in the states or jurisdictions set forth in the White
Cloud Disclosure Schedule. Except as set forth in the White Cloud Disclosure
Schedule, there is no jurisdiction in which the conduct of White Cloud's
business or ownership or leasing of its properties requires it to be qualified
to do business as a foreign corporation, except where such qualifications have
been obtained or the failure to be so qualified would not have a material
adverse effect on the business, financial condition or prospects of White Cloud
taken as a whole. White Cloud has all requisite power and authority to execute
and deliver this Agreement and to carry out the transactions contemplated by
this Agreement.
(b) The corporate records of White Cloud have been delivered or made
available to the Company. Such records are complete, correct and current in all
material respects, with all necessary signatures, and have been maintained in
accordance with good business practices in all material respects.
6.09. Capitalization. Exhibit D hereto lists the authorized and the
equitable ownership of the capital stock of White Cloud (the "Capital Stock")
and the name and number of shares of Capital Stock owned by each shareholder of
White Cloud as of a specified record date. Each such share is validly paid,
fully paid and nonassessable. Except as set forth in Exhibit D, there are no
other classes of capital stock or other securities authorized by White Cloud.
(ii) White Cloud has no obligation (contingent or otherwise) to pay any
dividend or make any other distribution in respect of any of its capital stock.
White Cloud is not a party to, and has no knowledge of, voting trusts or
agreements, stockholders' agreements, pledge agreements, buy- sell agreements,
rights of first refusal or proxies relating to any securities of White Cloud
(whether or not White Cloud is a party thereto). All of the outstanding
securities of White Cloud were issued, in all material respects, in compliance
with all applicable federal and state securities laws. White Cloud has no
obligation (contingent or otherwise) to repurchase, redeem or otherwise acquire
any shares of its capital stock.
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(iii) The stockholders of record and the holders of subscriptions,
warrants, options, preemptive rights, convertible securities and other rights
(contingent or otherwise) to purchase or otherwise acquire equity securities of
White Cloud, and the number of shares of capital stock of White Cloud and the
number of such subscriptions, warrants, options, preemptive rights, convertible
securities and other such rights held by each, are as set forth in Exhibit D.
The designations, powers, preferences, rights, privileges, qualifications,
limitations and restrictions in respect of each class and series of authorized
capital stock of White Cloud are as set forth in the Certificate of
Incorporation and all such designations, powers, preferences, rights,
privileges, qualifications, limitations and restrictions are valid, binding and
enforceable in accordance with all applicable laws (subject, as to enforcement,
to the discretion of the courts in awarding equitable relief and to applicable
bankruptcy, reorganization, insolvency, moratorium and similar laws affecting
the rights of creditors generally). Except as disclosed in Exhibit D or the
White Cloud Disclosure Schedule, no person owns of record, or is known to White
Cloud to own beneficially, any share of capital stock of White Cloud; no
subscription, warrant, option, preemptive right, convertible security, agreement
or other right (contingent or otherwise) to purchase or otherwise acquire equity
securities of White Cloud is authorized or outstanding; and there is no
commitment by White Cloud to issue shares, subscriptions, warrants, options,
preemptive rights, convertible securities or other such rights or to distribute
to holders of any of its equity securities any evidence of indebtedness or
asset. An appropriate number of shares of the Common Stock have been reserved
for issuance upon the conversion or exercise, as the case may be, of any of the
securities referred to in this Section.
6.10. Subsidiaries and Investments. Except as set forth in the White Cloud
Disclosure Schedule, White Cloud does not own, directly or indirectly, any
capital stock, or other equity ownership or proprietary interest, in any other
corporation, association, trust, partnership, joint venture or other entity.
Each White Cloud Subsidiary is wholly owned by White Cloud.
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6.11. Financial Statements. The audited consolidated balance sheet of White
Cloud as of June 30, 1996 (the "White Cloud 1996 Balance Sheet") and the related
consolidated statements of operations, shareholders equity and statements of
cash flow for the fiscal year ended June 30, 1996 certified by Michael B.
Johnson & Company and the unaudited consolidated balance sheet (the "White Cloud
April Balance Sheet") of White Cloud as of April 30, 1997 (the "White Cloud
Balance Sheet Date"), and the related unaudited consolidated statements of
operations, shareholders equity and statements of cash flow for the two month
period ending April 30, 1997 (collectively, the "White Cloud Financial
Statements"), are attached hereto as Exhibit F. Except as may be otherwise
indicated herein and therein and in the notes thereto, the White Cloud Financial
Statements have been prepared in conformity with Generally Accepted Accounting
Principles consistently applied and present fairly in all material respects the
financial position and results of operations of White Cloud as of the dates and
for the periods indicated.
6.12. Keeping of Records and Books of Account. White Cloud has maintained
adequate records and books of account, in which complete entries have been made
in accordance with Generally Accepted Accounting Principles, consistently
applied, reflecting all financial transactions of White Cloud and in which, for
each fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business have been made. The records and books of account of White Cloud are in
good order and have been properly maintained in all material respects.
6.13. Intentionally omitted.
6.14. Absence of Undisclosed Liabilities. White Cloud has no material
outstanding claims, liabilities, obligations or indebtedness, contingent or
otherwise, whether asserted or unasserted, except as set forth in the 1996
Balance Sheet, or referred to in any of the notes thereto. All liabilities of
White Cloud and its White Cloud Subsidiaries incurred subsequent to the White
Cloud Balance Sheet Date have been incurred in the ordinary course of business
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and do not involve borrowings which individually exceed $5,000 and which do not
exceed $10,000 in the aggregate. Neither White Cloud nor its White Cloud
Subsidiaries is in default in respect of the terms or conditions of any
indebtedness.
6.15. Absence of Changes. Since the White Cloud Balance Sheet Date, there
has not been any material change in the condition, financial or otherwise, of
White Cloud or of any of its White Cloud Subsidiaries, which materially
adversely affects the ability of White Cloud or the ability of any of its White
Cloud Subsidiaries to conduct its operations as currently conducted and neither
White Cloud nor any of its White Cloud Subsidiaries have incurred any material
liabilities or obligations, direct or contingent, not in the ordinary course of
business since such White Cloud Balance Sheet Date.
6.16. Title to Properties; Encumbrances.
(i) Except for properties and assets reflected in the White Cloud 1996
Balance Sheet or acquired since the White Cloud 1996 Balance Sheet Date which
have been sold or otherwise disposed of in the ordinary course of business since
such date, White Cloud and each of its White Cloud Subsidiaries has good, valid
and marketable title to (A) all of its properties and assets (personal, tangible
and intangible), reflected as owned in the White Cloud Balance Sheet, except as
indicated in the notes thereto; and (B) all the properties and assets purchased
or otherwise acquired by White Cloud or by any White Cloud Subsidiary since the
White Cloud 1996 Balance Sheet Date; in each case clear of all encumbrances,
liens, claims, charges or other restrictions of whatever kind or character
("White Cloud Liens"), except for (1) liens reflected in the White Cloud 1996
Balance Sheet, (2) liens for current taxes, assessments or governmental charges
or levies on property not yet due and delinquent and (3) such White Cloud Liens
as do not materially and adversely affect the value of such property and do not
materially interfere with the use made or proposed to be made of such property
by White Cloud.
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(ii) White Cloud and its White Cloud Subsidiaries own no real property. To
the best of White Cloud's knowledge after due inquiry, there are no
condemnation, environmental, zoning or other land use regulation proceedings,
either instituted or planned to be instituted, which would materially and
adversely affect the use or operation of White Cloud's and its White Cloud
Subsidiaries' properties and assets for their respective intended uses and
purposes or the value of such properties, and White Cloud and its White Cloud
Subsidiaries have not received notice of any special assessment proceedings
which would affect such properties and assets.
6.17. Litigation. There is no action, suit, investigation, customer
complaint, claim or proceeding at law or in equity by or before any arbitrator,
governmental instrumentality or other agency now pending or, to White Cloud's
knowledge, threatened against or affecting White Cloud or any White Cloud
Subsidiary, nor, to the best of White Cloud's knowledge, does there exist any
basis therefor. Neither White Cloud nor any White Cloud Subsidiary is subject to
any judgment, order, writ, injunction or decree of any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
6.18. Non-Defaults; Non-Contravention. Neither White Cloud nor its White
Cloud Subsidiaries is in default in the performance or observance of any
obligation (i) under its Certificate of Incorporation, as amended, or its
By-laws, nor any indenture, mortgage, contract, purchase order or other
agreement or instrument to which White Cloud is a party or by which it or any of
its property is bound or affected; nor (ii) with respect to any order, writ,
injunction or decree of any court of any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, except for such defaults as would not, individually or in
the aggregate, result in a material adverse effect on the business or operations
of White Cloud as a whole, and there exists no condition, event or act which
constitutes, nor which after notice, the lapse of time or both, would
constitute, a material default under any of the foregoing.
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6.19. Employment of Officers, Employees and Consultants. To White Cloud's
knowledge, no third party may assert any valid claim against White Cloud or its
White Cloud Subsidiaries with respect to the (i) continued employment by, or
association with, White Cloud or its White Cloud Subsidiaries of any of its
present officers, employees or consultants; or (ii) the use by White Cloud or
its White Cloud Subsidiaries of any information which White Cloud or its White
Cloud Subsidiaries would be prohibited from using under any prior agreements or
arrangements or any laws applicable to unfair competition, trade secrets or
proprietary information.
6.20. Taxes. White Cloud and its White Cloud Subsidiaries have filed all
federal, state, local and foreign tax returns which are required to be filed by
them or have requested extensions thereof, and all such returns are true and
correct in all material respects. White Cloud and its White Cloud Subsidiaries
have paid all taxes pursuant to such returns or pursuant to any assessments
received by them and have withheld all amounts which they are obligated to
withhold from amounts owing to any employee, creditor or third party. The tax
returns of White Cloud and of its White Cloud Subsidiaries have never been
audited by any state, local or federal authorities. White Cloud and its White
Cloud Subsidiaries have not waived any statute of limitations with respect to
taxes or agreed to any extension of time with respect to any tax assessment or
deficiency. All tax elections have been made by White Cloud and its White Cloud
Subsidiaries in accordance with generally accepted practices. No deficiency
assessment with respect to or proposed adjustment of White Cloud's and its White
Cloud Subsidiaries federal, state, county or local taxes is pending or, to the
best of White Cloud's knowledge, threatened. There is no tax lien, whether
imposed by any federal, state, county or local taxing authority, outstanding
against the assets, properties or business of White Cloud or of its White Cloud
Subsidiaries. Neither White Cloud nor any of its White Cloud Subsidiaries nor
any of its/their respective present or former stockholders has ever filed an
election pursuant to Section 1362 of the Code, that White Cloud or any of its
White Cloud Subsidiaries be taxed as an S corporation.
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6.21. Agreements. Except as set forth in the White Cloud Disclosure
Schedule, neither White Cloud nor any White Cloud Subsidiary is a party to any
written or oral contract not made in the ordinary course of business and,
whether or not made in the ordinary course business, neither White Cloud nor any
White Cloud Subsidiary is a party to any written or oral (i) collective
bargaining agreement or any other contract with any labor union; (ii) contract
for the future purchase of fixed assets or for the future purchase of materials,
supplies or equipment in excess of $10,000; (iii) contract for the employment of
any officer, key employee or other key person on a full-time basis or any
contract with any person on a consulting basis requiring the payment of any
amount in the future; (iv) bonus, pension, profit-sharing, vacation, deferred
compensation, retirement, stock purchase, stock option, hospitalization, health,
medical insurance, life insurance, disability insurance or similar plan,
contract or understanding in effect with respect to employees, or any other
employee benefit plan, including, without limitation, any employee benefit plan"
as defined in Section 3(l) of the Employee Retirement Income Security Act of
1974 and the rules and regulations thereunder, as amended from time to time
(collectively, "ERISA"), to which White Cloud or any White Cloud Subsidiary
contributes or is a party, or is bound, or under which it may have liability and
under which employees or former employees of White Cloud or any White Cloud
Subsidiary (or their beneficiaries) are eligible to participate or derive a
benefit; (v) agreement, indenture or other instrument relating to the borrowing
of money or to the mortgaging, pledging or otherwise placing a lien on any
assets of White Cloud or of any White Cloud Subsidiary; (vi) guaranty of any
obligation for borrowed money or otherwise; (vii) agreement or other commitment
for capital expenditures in excess of $10,000; (viii) contract or agreement
under which White Cloud or any White Cloud Subsidiary is obligated to pay any
broker's fees, finder's fees or any such similar fees, to any third party other
than in conjunction with the transactions contemplated by this Agreement; (ix)
sales agency, marketing, distributorship or continuing brokerage agreements or
franchises between White Cloud or any White Cloud Subsidiary and any other
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person; (x) partnership or joint venture agreement of any kind to which White
Cloud or any White Cloud Subsidiary or their assets may be bound; (xi) licenses
to or from others with respect to the business or assets of White Cloud or any
White Cloud Subsidiary; (xii) contracts or commitments limiting the freedom of
White Cloud or any White Cloud Subsidiary or any of their officers or employees
to compete with respect to the business of White Cloud or any White Cloud
Subsidiary in any geographic area or with any person or otherwise restricting
the conduct of White Cloud's business or that of any White Cloud Subsidiary;
(xiii) contract, agreement, arrangement, or understanding with respect to the
sale of the business of White Cloud or of any White Cloud Subsidiary or of a
substantial portion of White Cloud's or any White Cloud Subsidiary's assets to
any third party, including any option agreement for any such sale or
disposition; or (xiv) contract, agreement, arrangement or understanding which is
material to the business of White Cloud or to the business of any White Cloud
Subsidiary. Each material contract of White Cloud or of any of its White Cloud
Subsidiaries is valid and binding on White Cloud or on such White Cloud
Subsidiary (subject, as to enforcement, to the discretion of the courts in
awarding equitable relief and to applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting the rights of creditors
generally), and neither White Cloud nor any of its White Cloud Subsidiaries has
received notice that any such contract is not binding on any party thereto.
White Cloud and its White Cloud Subsidiaries have performed in all material
respects all obligations to have been performed on such contracts through the
date hereof, and neither White Cloud nor any White Cloud Subsidiary is in
default in any material respect under any such contract.
6.22. Compliance with Laws; Environmental Matters, Licenses, Etc. White
Cloud and its White Cloud Subsidiaries have received no notice of any violation
of, or noncompliance with, any federal, state, local or foreign laws,
ordinances, regulations or orders (including, without limitation, those relating
to environmental protection, occupational safety and health and other labor
laws, ERISA, federal drug laws, federal securities laws, equal employment
opportunity, consumer protection, credit reporting, "truth-in-lending," and
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warranties and trade practices) applicable to its business or the business of
any White Cloud Subsidiary, the violation of, or noncompliance with which, would
have a material adverse effect on White Cloud's business or operations, taken as
a whole, or that of any White Cloud Subsidiary, and White Cloud knows of no
facts or set of circumstances which would give rise to such a notice. White
Cloud and its White Cloud Subsidiaries have all licenses and permits and other
governmental certificates, authorizations and permits and approvals
(collectively, "Licenses") required by every federal, state and local government
or regulatory body for the operation of their business and the use of their
properties, the absence of which would have a material adverse affect on the
business of White Cloud, taken as a whole. The Licenses are in full force and
effect and no violations are or have been recorded in respect of any License and
no proceeding is pending or, to White Cloud's knowledge threatened to revoke or
limit any thereof. White Cloud and its White Cloud Subsidiaries have not
received any written opinion or memorandum from legal counsel providing that
it/they has taken any action which has resulted in, or is reasonably likely to
result in, White Cloud or any of its White Cloud Subsidiaries incurring any
liability which may be material to its/their respective business, prospects,
financial condition, operations, property or affairs.
6.23. Authorization of Agreement, Etc. Each of this Agreement and all other
agreements or documents required to be executed and delivered by White Cloud in
connection with the transactions contemplated by this Agreement (collectively
the " Documents") has been or will be duly executed and delivered by White Cloud
and the execution, delivery and performance by White Cloud of this Agreement and
the Documents has been duly authorized by all requisite corporate action by
White Cloud; and each constitutes, or will constitute, the legal, valid and
binding obligation of White Cloud, enforceable in accordance with its terms,
except as enforce ability may be limited by bankruptcy, insolvency,
reorganization, usury or other similar laws affecting the enforcement of
creditors' rights generally and except as rights to indemnification hereunder
may be limited by applicable law. The execution, delivery and performance of
this Agreement will not (i)
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violate any provision of law or statute or any order of any court or other
agency of government binding on White Cloud or its White Cloud Subsidiaries; or
(ii) conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute (with due notice or lapse of time or both) a
default under, or result in the creation of any lien, security interest, charge
or encumbrance upon any of the properties or assets of White Cloud or of its
White Cloud Subsidiaries under the Certificate of Incorporation, as amended, or
By-Laws of White Cloud or of its White Cloud Subsidiaries or any indenture,
mortgage, lease agreement or other agreement or instrument to which White Cloud
or any of its White Cloud Subsidiaries is a party or by which it or any of its
property is bound or affected, except for such conflict, breach or default (x)
as to which requisite waivers or consents shall have been obtained by White
Cloud or by its White Cloud Subsidiaries and delivered to White Cloud by the
time of Closing or (y) which individually or int he aggregate would not result
in a material adverse effect on the business of White Cloud, taken as a whole.
6.24. Related Transactions. Except as set forth in the White Cloud
Disclosure Schedule, no current or former shareholder, director, officer or
employee of White Cloud, nor any affiliate of any such person, is presently, or
since the inception of White Cloud has been, directly or indirectly, through
his, her or its affiliation with any other person or entity, a party to any loan
from White Cloud or from any of its White Cloud Subsidiaries.
6.25. Registration Rights. Except as may exist with respect to the holders
of the New Shares, (i) no person or entity has any right to cause White Cloud to
effect the registration under the Securities Act of any securities of White
Cloud and (ii) no person or entity holds any anti-dilution or "piggy back"
rights with respect to any securities of White Cloud.
6.26. Salaries and Bonuses. The White Cloud Disclosure Schedule contains a
true and complete list of all current officers, directors and employees of White
Cloud and of its White Cloud Subsidiaries who received during the fiscal year
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ended June 30, 1996 remuneration from White Cloud or from any of its White Cloud
Subsidiaries in excess of $50,000, together with the current aggregate base
salary rate for each such person.
6.27. Foreign Corrupt Practices Act. None of White Cloud, its White Cloud
Subsidiaries nor to their knowledge any of their respective officers, employees,
agents or any other person acting on behalf of White Cloud or any of its White
Cloud Subsidiaries has, directly or indirectly, given or agreed to give any
money, gift or similar benefit (other than legal price concessions to customers
in the ordinary course of business) to any customer, supplier, employee or agent
of a customer or supplier, or official or employee of any governmental agency
(domestic or foreign) or instrumentality of any government (domestic or foreign)
or any political party or candidate for office (domestic or foreign) or other
person who was, is, or may be in a position to help or hinder the business of
White Cloud or the business of any of its White Cloud Subsidiaries (or to assist
White Cloud or any of its White Cloud Subsidiaries in connection with any actual
or proposed transaction) which (a) might subject White Cloud or any of its White
Cloud Subsidiaries, or any other such person, to any damage or penalty in any
civil, criminal or governmental litigation or proceeding (domestic or foreign);
(b) if not given in the past, might have had a material adverse effect on the
assets, business or operations of White Cloud or of any of its White Cloud
Subsidiaries; or (c) if not continued in the future, might adversely affect the
assets, business, operations or prospects of White Cloud and of its White Cloud
Subsidiaries, taken as a whole. White Cloud believes that its and its White
Cloud Subsidiaries' international accounting controls are sufficient to cause
White Cloud and its White Cloud Subsidiaries to comply with the Foreign Corrupt
Practices Act of 1977, as amended.
6.28. Affiliations. Except as set forth in the White Cloud Disclosure
Schedule, no officer, director or shareholder of White Cloud or officer,
director or shareholder of any of its White Cloud Subsidiaries, or any
"affiliate" or "associate" (as these terms are defined in Rule 405 promulgated
under the Securities Act of 1933, as amended) of any such person or entity or of
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White Cloud or its White Cloud Subsidiaries, has or has had, either directly or
indirectly (i) an interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by White Cloud or its White Cloud Subsidiaries; or (B) purchases from or
sells or furnishes to White Cloud or any of its White Cloud Subsidiaries any
goods or services; or (ii) a beneficiary interest in any contract or agreement
to which White Cloud or any of its White Cloud Subsidiaries is a party or by
which it may be bound or affected. Except as set forth in the White Cloud
Disclosure Schedule, there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among White Cloud or any of its White
Cloud Subsidiaries, and any officer, director, or principal stockholder of White
Cloud or any of its White Cloud Subsidiaries, or any affiliate or associate of
any such person or entity.
6.29. Corporate Representations. Any certificate signed by any officer of
White Cloud or by an officer of any of White Cloud's White Cloud Subsidiaries
and delivered to the Company or to the Company's counsel pursuant to this
Agreement, shall be deemed a representation and warranty by White Cloud and by
any of its White Cloud Subsidiaries to the Company as to the matters covered
thereby.
6.30. Disclosure. Neither this Agreement nor any other document,
certificate or written statement to be furnished to the Company by or on behalf
of White Cloud in connection with the transactions contemplated hereby contains
or will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements contained herein
and therein not misleading. There is no fact known to White Cloud which
materially adversely affects the business operations, affairs, prospects,
conditions, properties or assets of White Cloud or of its White Cloud
Subsidiaries (hereinafter "Material Facts") which has not been set forth in this
Agreement. To the extent Material Facts become known to White Cloud subsequent
to the
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date hereof and up and through the Closing Date, such facts will be set forth in
the documents, certificates or statements furnished to White Cloud by or on
behalf of White Cloud pursuant hereto.
6.31. No Consents. No permit, consent, approval, authorization, order or
filing with any court or governmental authority is required to consummate the
transactions contemplated by this Agreement, except as required under applicable
state and federal securities laws with respect to the issuance of securities as
contemplated pursuant to the Watchout Transaction, the Goldpoint Transaction and
the Private Placement.
ARTICLE VII
Conduct of Business Pending Closing
From and after the date hereof until the Closing, and except as otherwise
specifically contemplated by this Agreement and the Documents and the Schedules
and Exhibits hereto or thereto, or consented to or approved by White Cloud or
the Company, as the case may be, in writing, the Company shall and the Galoobs
shall cause the Company to, on the one hand, and White Cloud shall, on the other
hand, conform to the following:
7.01. Regular Course of Business. Except as otherwise contemplated by this
Agreement or to the extent waived by the other parties in writing, the parties
shall, and in the case of the Company, the Galoobs shall cause the Company to,
carry on their respective businesses in the same manner as heretofore conducted,
and shall not engage in any transaction or activity, enter into any agreement or
make any commitment with or to any Selling Stockholder or any officer, director
or employee of such party, or any person affiliated with any of the foregoing,
except in the ordinary course of business.
7.02. Amendments. No change or amendment shall be made in the Certificate
of Incorporation, By-laws or other governing instrument of the Company or White
Cloud.
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7.03. Capital Changes. Neither White Cloud nor the Company shall issue or
sell rights (including, without limitation, conversion rights), options,
warrants to purchase or to subscribe to, or enter into any arrangement or
contract with respect to, any shares of any of its Stock or any other securities
of, or equity interest in, the Company or White Cloud.
7.04. Dividends; Redemptions. Neither White Cloud nor the Company shall
declare, pay or set aside for payment any dividend or other distribution in
respect to any of its Stock or directly or indirectly redeem, purchase or
otherwise acquire any shares of any of its Stock.
7.05. Organization. Both White Cloud and the Company shall use their best
efforts to preserve their respective properties, assets, and legal and business
relationships with their respective employees, suppliers, customers and others
having business relations with them, respectively.
7.06. Contracts. Except for purchase and sales orders entered into in the
ordinary course of business, no contracts or commitments involving,
individually, in excess of $25,000 (or $50,000 in the aggregate), or having a
term of more than one (1) year, shall be entered into by or on behalf of the
Company or White Cloud, respectively, including without limitation, any contract
or commitment: (i) to acquire additional real property or any interest therein;
(ii) to dispose of, amend, modify, terminate or encumber any real property
lease, or any interest therein or sublease the premises demised thereunder;
(iii) to enter into any lease for additional real property; or (iv) to amend,
modify, extend, renew or waive any right with respect to any existing agreement
or arrangement involving (or which, as the result of such amendment,
modification, extension, renewal or waivers would involve) in excess of $25,000
or having an unexpired term in excess of one (1) year.
7.07. Consultation with White Cloud and the Company. To the fullest extent
practicable, the Company, on the one hand, shall cause its executive officers to
consult with and consider the views of White Cloud in operating its business
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through the Closing Date, and White Cloud, on the other hand, shall, to the
fullest extent practicable, cause its executive officers to consult with and
consider the views of the Company in operating its business through the Closing
Date.
7.08. Maintain Properties. Both White Cloud the Company will maintain their
respective properties and assets, whether owned or leased, in good repair, order
and condition, reasonable wear and tear excepted.
7.09. Compensation. Neither White Cloud nor the Company will grant any
increase in compensation to any officer, employee or agent or enter into or
amend any Plan or any employment or consulting agreement.
7.10. Indebtedness/Loans. Other than in connection with certain proposed
bridge financing to White Cloud, neither White Cloud nor the Company will
create, incur or assume any indebtedness (including without limitation, under
existing lines of credit and revolving loans) other than in the ordinary course
of business and in an amount not to exceed $50,000 in the aggregate, or
guarantee or otherwise become liable with respect to any indebtedness for
borrowed money. Neither White Cloud nor the Company will make any capital
expenditures in excess of $50,000 in the aggregate and will not make any loan,
advance, capital contribution to or investment in, any other person.
7.11. Taxes. Except for Taxes contested in good faith, both White Cloud and
the Company will pay all Taxes upon their respective incomes, properties and
businesses as they become due and prepare and timely file all Tax Returns and
other returns and reports which are required to be filed in respect of Taxes.
7.12. No Disposition or Encumbrance. Neither White Cloud nor the Company
shall sell, lease, mortgage, pledge or otherwise dispose of or agree to sell,
lease, mortgage, pledge or otherwise dispose of any of their respective assets
or properties other than sales, leases, mortgages, pledges and dispositions of
assets and properties except in the ordinary course of business.
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7.13. Insurance. Both White Cloud and the Company will maintain insurance
upon their respective businesses and properties and insurance in respect of the
kinds of risks currently insured against, in accordance with their current
practice.
7.14. No Mergers. Neither White Cloud nor the Company will nor shall agree
to merge or consolidate with any other corporation, or acquire any stock,
business, or substantially all or any substantial portion of the property or
assets of, any other person, firm, association, corporation or other business
organization.
7.15. No Breach. Neither White Cloud nor the Company, shall do any act or
omit to do any act which, with or without the giving of notice or the passage of
time, or both, would result in a breach of or default under any contract,
commitment or obligation of the Company or White Cloud, as the case may be.
7.16. Due Compliance. Both White Cloud and the Company will duly comply
with all laws applicable to them and to the conduct of their respective
Businesses.
7.17. Accounting Practice. Neither White Cloud nor the Company shall change
any method of accounting practice currently employed by them.
ARTICLE VIII
Additional Covenants and Agreements
8.01. Continued Effectiveness of Representations and Warranties; Advice of
Change.
(a) Selling Stockholders and the Company will promptly advise White Cloud,
on the one hand, and White Cloud will promptly advise the Selling Stockholders
and the Company, on the other hand, in writing, upon obtaining knowledge of: (i)
any event which occurred on or prior to the date of execution of this Agreement
that is not disclosed herein and any event which occurs after the date of this
Agreement, in each case that would, under this Agreement or any Exhibit or
Schedule delivered pursuant hereto, have been required to be disclosed on the
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date of execution of this date of execution of this Agreement by Selling
Stockholders and the Company, on the one hand, and by White Cloud, on the other
hand; and (ii) any change in the business, operations, prospects, properties,
assets or condition, financial or otherwise, of the Company, or White Cloud, as
the case may be.
(b) From the date hereof through the Closing Date, Selling Stockholders
shall use their best efforts, and the Company shall use its best efforts, to
conduct their respective affairs in such a manner so that, except as otherwise
contemplated or permitted by this Agreement, the representations and warranties
contained in Articles IV and V respectively, hereof shall continue to be true
and correct on and as of the Closing Date as if made on and as of the Closing
Date and Selling Stockholders and the Company shall promptly notify White Cloud
of any event, condition or circumstance occurring from the date hereof through
the Closing Date that would constitute a material violation or breach by Selling
Stockholders or the Company of any of such representations and warranties.
(c) From the date hereof through the Closing Date, White Cloud shall use
its best efforts to conduct its affairs in such a manner so that, except as
otherwise contemplated or permitted by this Agreement, the representations and
warranties contained in Article VI hereof shall continue to be true and correct
on and as of the Closing Date as if made on and as of the Closing Date and White
Cloud shall promptly notify the Company of any event, condition or circumstance
occurring from the date hereof through the Closing Date that would constitute a
material violation or breach by White Cloud of any of such representations and
warranties.
8.02. Reasonable Access. Both White Cloud and the Company shall (i) afford
the other and its authorized representatives, during normal business hours, full
and free access to the properties, personnel, books and records of such party in
order that the other party shall have a full opportunity to make such
investigation as it shall reasonably desire to make of the affairs of such other
party and to obtain copies of relevant documents in connection therewith, (ii)
provide additional financial and other information as to the Business of such
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party as the other party or its representatives shall reasonably request and
(iii) otherwise fully cooperate with such other party or its representatives.
8.03. Books and Records. On the Closing Date, the Company shall to deliver
to White Cloud all of the books and records of the Company, including without
limitation, the corporate minute book of the Company.
8.04. Cooperation Regarding Plans. The parties will cooperate with each
other and their advisers in preparing, filing, and diligently pursuing any and
all filings, applications, or notifications that may be necessary or advisable
with respect to any of the Plans in connection with the transactions
contemplated by this Agreement, including, without limitation, the Goldpoint
Transaction and the Private Placement.
8.05. Satisfaction of Closing Conditions.
(a) Each Selling Stockholder and the Company shall use their respective
best efforts to cause all of the conditions to the obligations of Selling
Stockholders and the Company set forth in Article IX and Article X hereof to be
satisfied with respect to the Closing.
(b) White Cloud shall use its best efforts to cause all of the conditions
to the obligations of White Cloud set forth in Article IX and Article X hereof
to be satisfied with respect to the Closing.
8.06. Confidentiality; Publicity. (a) Each of White Cloud, Selling
Stockholders and the Company shall, and shall cause the respective directors,
officers, employees and authorized representatives of White Cloud and the
Company to, hold in strictest confidence and not disclose to others for any
reason whatsoever any information received from White Cloud or the Company or
their respective directors, officers, employees and authorized representatives,
in connection with the transactions contemplated hereby or by the Documents,
except as otherwise required by law.
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(b) Neither the Company, nor any Selling Stockholder (nor any of their
affiliates or members of their respective families) shall utilize any
confidential information in connection with the purchase or sale of White
Cloud's Common Stock in open market transactions.
8.07. Other Offers.
(a) From the date hereof until the termination hereof, Selling Stockholders
shall not, and the Galoobs shall use their best efforts to cause the Company and
its directors, officers, employees, affiliates and their representatives not to,
(i) take any action to solicit or solicit any offer from any person with respect
to any Acquisition Proposal (as hereinafter defined) or (ii) engage in
negotiations with or disclose any nonpublic information relating to the Company
or its business or afford access to the properties, books or records of the
Company to any person with respect to an Acquisition Proposal without the
express written consent of White Cloud. "Acquisition Proposal" means any
proposal for a merger or other business transaction to which Selling
Stockholders, or the Company is or would be a party or involving the acquisition
of any substantial equity interest in, or a substantial portion of the assets
of, the Company or Selling Stockholders' Shares, other than the transactions
contemplated by this Agreement. Selling Stockholders shall promptly notify White
Cloud if they or the Company receive any inquiry from any person with respect to
an Acquisition Proposal, which notice shall contain the name of the person
involved and the nature of the Acquisition Proposal.
(b) From the date hereof until the termination hereof, White Cloud and its
directors, officers, employees, affiliates and their representatives shall not,
(i) take any action to solicit or solicit any offer from any person with respect
to any Acquisition Proposal (as hereinafter defined) or (ii) engage in
negotiations with or disclose any nonpublic information relating to White Cloud
or its business or afford access to the properties, books or records of White
Cloud to any person with respect to an Acquisition Proposal without the express
written consent of the Company. "Acquisition Proposal" means any proposal for a
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merger or other business transaction to which White Cloud is or would be a party
or involving the acquisition of any substantial equity interest in, or a
substantial portion of the assets of White Cloud other than the transactions
contemplated by this Agreement. White Cloud shall promptly notify the Company if
it receives any inquiry from any person with respect to an Acquisition Proposal,
which notice shall contain the name of the person involved and the nature of the
Acquisition Proposal.
8.08. Additional Instruments. The Company, Selling Stockholders, and White
Cloud, as the case may be, at the request of one of the others, at or after the
Closing will execute and deliver, or cause to be executed and delivered, to the
other, such documents and instruments as may reasonably be necessary or
desirable to carry out or implement any provision of this Agreement.
8.09. Litigation.
(a) From the date hereof through the Closing Date, the Company shall
promptly notify White Cloud of any actions or proceedings of the type referred
to in Section 5.15 hereof that from the date hereof are threatened or commenced
against the Company or any director, officer, employee, property or asset of the
Company, and of any requests for additional information or documentary materials
by any governmental or regulatory body in connection with the transactions
contemplated hereby.
(b) From the date hereof through the Closing Date, the White Cloud shall
promptly notify the Company of any actions or proceedings of the type referred
to in Section 6.17 hereof that from the date hereof are threatened or commenced
against White Cloud or any director, officer, employee, property or asset of
White Cloud, and of any requests for additional information or documentary
materials by any governmental or regulatory body in connection with the
transactions contemplated hereby.
8.10. Consents. The Company shall use its best efforts to obtain all
consents, approvals and waivers of third parties or authorities required under
Section 5.28 hereto and to satisfy the conditions set forth in Article IX hereof
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no later than five (5) business days prior to the Closing and White Cloud shall
use its best efforts to obtain the consents approvals and waivers of third
parties or authorities required under Section 6.31 hereof and to satisfy the
conditions set forth in Article X hereof no later than five (5) business days
prior to the Closing
8.11. Supplements to Exhibits. The parties shall deliver to each other, as
soon as possible after a party becomes aware thereof, but not later than the
Closing, supplemental information updating the information set forth in the
Schedules hereto so that such Schedules supplemented by such information shall
be true and correct as of the Closing Date as if then made, provided that the
foregoing shall not be deemed to permit any transaction not otherwise permitted
by this Agreement or to constitute a waiver by any party of any
misrepresentation or breach by any other party of any agreement, covenant or
warranty made therein. Each party agrees to disclose to the other parties any
misrepresentation or breach of any covenant or warranty of any such party when
such breach becomes known to any of them.
8.12. Private Placement. Following the Closing, White Cloud and the Company
shall cooperate in furtherance of the consummation of the Private Placement.
ARTICLE IX
Conditions to White Cloud's Obligations
The obligations of White Cloud to consummate the transactions contemplated
by this Agreement and the Documents with respect to the Closing shall be subject
to the satisfaction, on or before the Closing, of each of the following
conditions:
9.01. Representations and Warranties. The representations and warranties
made by Selling Stockholders and the Company in this Agreement and in the
Documents (including all Exhibits and Schedules hereto or thereto), shall be
true and correct, individually and in the aggregate, in all material respects on
and as of the Closing Date with the same force and effect as though made on and
as of the Closing Date.
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9.02. Performance. With respect to agreements, covenants, obligations and
conditions required to be performed or complied with by Selling Stockholders and
the Company at or prior to the Closing, Selling Stockholders and the Company
shall have performed in all material respects, such agreements, covenants,
obligations and conditions, including, without limitation, the execution and
delivery of the agreements contemplated by Section 3.02.
9.03. Approvals and Filings. All approvals, consents, and authorizations
from, and all declarations, filings and registrations with, third parties and
government agencies required to consummate the transactions contemplated hereby
shall have been obtained or made, shall be in full force and effect and shall be
reasonably satisfactory in form and substance to White Cloud.
9.04. Certificates. At Closing, there shall be delivered to White Cloud in
a form acceptable to White Cloud certifying that the conditions set forth in
Sections 9.01, 9.02 and 9.03 hereof have been fulfilled.
9.05. No Injunction. There shall not be in effect any preliminary or
permanent injunction or other order issued by any state or federal court or
governmental body of competent jurisdiction or any statute, rule or regulation
which prevents the transactions contemplated hereby. No action or proceeding
before any court or governmental body shall be pending or threatened wherein an
unfavorable judgment, decree or order would prevent the carrying out of this
Agreement, the Documents or any of the transactions contemplated hereby or
thereby, declare unlawful the trans actions contemplated by this Agreement or
the Documents or cause such transactions to be rescinded.
9.06. Opinion of Counsel. There shall have been delivered to White Cloud an
opinion of Howard, Rice, Nemerovski, Canady, Falk & Rabin, counsel to the
Company, dated the Closing Date, in the form of Exhibit C hereto.
9.07. Due Diligence. Prior to the Closing, White Cloud shall have concluded
a customary due diligence investigation of the Company to its reasonable
satisfaction.
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9.08. Waiver of Rights as Stockholders. At the Closing, each Selling
Stockholder shall waive and release, pursuant to waiver and releases
substantially in the form of Exhibit E hereto, any and all rights and claims
each of them may have against the Company, arising out of or related to their
status as shareholders of the Company.
9.09. Goldpoint Transaction. At or prior to Closing, White Cloud shall have
concluded the Goldpoint Transaction.
9.11. Licenses. At Closing, the Company shall furnish evidence, reasonably
satisfactory to White Cloud, that (i) its license with Boit Incorporated is in
full force and effect, and (ii) a license with LucasFilm is in full force and
effect.
ARTICLE X
Conditions to Selling Stockholders' and Company's Obligations
The obligations of Selling Stockholders and the Company to consummate the
transactions contemplated by this Agreement and the Documents shall be subject
to the satisfaction, on or before the Closing of each of the following
conditions:
10.01. Representations and Warranties. The representations and warranties
made by White Cloud in this Agreement and in the Documents (including all
Exhibits and Schedules hereto or thereto) shall be true and correct,
individually and in the aggregate, in all material respects on and as of the
Closing Date with the same force and effect as though made on and as of the
Closing Date.
10.02. Performance. With respect to agreements, covenants, obligations and
conditions required to be performed or complied with by White Cloud at or prior
to the Closing, White Cloud shall have performed in the aggregate, in all
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material respects, such agreements,covenants, obligations and conditions,
including, without limitation, the execution and delivery of the agreements
contemplated by Article 3.03.
10.03. Approvals and Filings. All approvals, consents, and authorizations
from, and all declarations, filings and registrations with, third parties and
government agencies required to consummate the transactions contemplated hereby
and by the Documents, to the extent required to be obtained by White Cloud,
including without limitation, such filings, registrations and qualifications
required under applicable federal and state securities laws, shall have been
obtained or made, shall be in full force and effect and shall be satisfactory in
form and substance to Selling Stockholders or the Company and their counsel.
10.04. Certificates. At Closing, there shall be delivered to Selling
Stockholders a certificate, in a form acceptable to Selling Stockholders, dated
the appropriate Closing Date, and signed by an officer of White Cloud certifying
that the conditions set forth in Sections 10.01, 10.02 and 10.03 have been
fulfilled.
10.05. No Injunction. There shall not be in effect any preliminary or
permanent injunction or other order issued by any state or federal court or
governmental body of competent jurisdiction or any statute, rule or regulation
which prevents the transactions contemplated hereby. No action or proceeding
before any court or governmental body shall be pending or threatened wherein an
unfavorable judgment, decree or order would prevent the carrying out of this
Agreement, the Documents or any of the transactions contemplated hereby or
thereby, declare unlawful the trans actions contemplated by this Agreement or
the Documents or cause such transactions to be rescinded.
10.06. Approval of Proceedings. All actions, proceedings, instruments and
documents required to carry out this Agreement and the transactions contemplated
hereby, or incidental thereto, and all other related legal matters shall have
been approved by counsel for Selling Stockholders.
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10.07 Opinion of Counsel. There shall have been delivered to the Company
and the Selling Stockholders an opinion of Michael A. Littman, Esq., counsel to
White Cloud, dated the Closing date, in the form of Exhibit G hereto.
10.08. Due Diligence. Prior to the Closing, the Selling Shareholders and
the Company shall have concluded a customary due diligence investigation of
White Cloud to their satisfaction.
10.09. Goldpoint Transaction. At or prior to Closing, White Cloud shall
have concluded the Goldpoint Transaction.
10.10. Board of Directors. At the Closing, the Board of Directors of White
Cloud shall be constituted in a manner reasonably satisfactory to the Company
and Sands Brothers.
ARTICLE XI
Termination
11.01. Right of Rescission. Notwithstanding any other provision of this
Agreement, in the event that, due to the inadequacy or deficiency of the
financial statements of the Company, White Cloud is unable to comply, after the
Closing Date, with the provisions of Form 8-K, within the time frame specified
under the rules governing the filing of Form 8-K, then White Cloud shall have
the unilateral right but not the duty, for a period of an additional 30 days
from the end of such period (the "Rescission Period"), by written notice to the
Company, to deem this Agreement rescinded and null and void ab initio. As a
result thereof, (i) the Watchout Transaction shall be reversed and the New
Shares be canceled and the Selling Stockholders' Shares transferred to White
Cloud by the Selling Stockholders be returned; (i) the directors and officers of
White Cloud as then constituted shall resign, nominating the officers and board
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of directors of White Cloud as constituted prior to the Closing Date in their
stead, and (iii) all other things necessary to unwind the Transaction not
specifically set forth herein shall be completed.
11.02 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by mutual consent of White Cloud, the Company, and the Majority in
Interest (as hereinafter defined) of Selling Stockholders; or
(b) by Selling Stockholders or the Company after June , 1997 if the Closing
shall not have been consummated on or prior to the Closing Date so long as the
party terminating this Agreement pursuant to this Section 11.02(b) has not made
any material misrepresentation or materially breached an agreement, covenant
obligation or condition of such party herein contained; or
(c) by White Cloud if Selling Stockholders or the Company shall file a
petition or commence a voluntary case seeking to take advantage of any law
relating to bankruptcy, insolvency, reorganization or similar actions, shall
make a general assignment for the benefit of creditors or a proceeding shall be
commenced against Selling Stockholders or the Company seeking the
reorganization, liquidation, dissolution or winding up of him or it or the
appointment of a trustee or receiver for any such person or his or its assets
which is not dismissed within sixty (60) days after filing; or
(d) by White Cloud if the contribution of Selling Stockholders' Shares
contemplated hereby shall violate any non-appealable final order, decree or
judgment of any court or governmental body having competent jurisdiction or
there shall be a statute, rule or regulation which makes the contribution of the
Selling Stockholders' Shares contemplated hereby illegal or otherwise
prohibited; or
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(e) by the Company and the majority in interest of Selling Stockholders, on
the one hand, and White Cloud, on the other hand, in the event the other(s) make
a material misrepresentation or breaches a covenant, agreement, warranty,
obligation or condition of such parties herein contained, but such
non-misrepresenting or non-breaching party's election to terminate shall not
limit, wave or prejudice such party's remedies at law, in equity or pursuant to
this Agreement.
(f) In the event this Agreement is terminated as provided in Section
11.02(a), (b), (c), (d) or (e), this Agreement shall become void and of no
further force and effect and no party hereto shall have any further liability to
any other party hereto.
ARTICLE XII
Indemnification
12.01. Indemnification by White Cloud. White Cloud agrees to indemnify,
defend and hold Selling Stockholders and the Company harmless from and against
any and all Losses (as hereinafter defined) arising out of or resulting from the
misrepresentation or breach by White Cloud of any warranty, covenant or
agreement of White Cloud contained in this Agreement or the Documents (including
all Exhibits and Schedules hereto). For purposes of this Article XII, the term
"Losses" shall mean all liabilities, obligations, damages, losses, claims,
encumbrances, costs and expenses (including reasonable attorneys' fees) of every
kind, nature or description.
12.02. Indemnification by Selling Stockholders. Each Selling Stockholder,
severally and pro rata in accordance with their respective ownerships of Selling
Stockholders' Shares, hereby agrees to indemnify, defend and hold White Cloud
harmless from and against any and all Losses arising out of or resulting from
the misrepresentation (or alleged misrepresentation) or breach (or alleged
breach) by such Selling Stockholder, as the case may be, of any warranty,
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<PAGE>
covenant or agreement of any Selling Stockholder contained in this Agreement or
the Documents (including all Exhibits and Schedules hereto) made as of the date
of this Agreement or the Closing Date.
12.03. Indemnification by the Company. The Company and hereby agrees to
indemnify, defend and hold White Cloud harmless from and against any and all
Losses arising out of or resulting from the misrepresentation (or alleged
misrepresentation) or breach (or alleged breach) by the Company of any warranty,
covenant or agreement of the Company contained in this Agreement or the
Documents (including all Exhibits and Schedules hereto) made as of the date of
this Agreement or the Closing Date.
12.04. Indemnification Procedure.
(a) An indemnified party shall notify the indemnifying party of any claim
of such indemnified party for indemnification under this Agreement within thirty
(30) days of the date on which such indemnified party first becomes aware of the
existence of such claim. Such notice shall specify the nature of such claim in
reasonable detail and the indemnifying party shall be given reasonable access to
any documents or properties within the control of the indemnified party as may
be useful in the investigation of the basis for such claim. The failure to so
notify the indemnifying party within such thirty (30) day period shall not
constitute a waiver of such claim but an indemnified party shall not be entitled
to receive any indemnification hereunder with respect to any Loss that occurred
as a result of the failure of such person to give such notice. The indemnifying
party shall have the right (without prejudice to the right of any indemnified
party to participate at its expense through counsel of its own choosing) to
defend or prosecute such claim at his or its expense and through counsel of his
or its own choosing if he or it gives written notice of his or its intention to
do so not later than twenty (20) days following notice thereof by the
indemnifying party or such shorter time period as required so that the interests
of the indemnified party would not be materially prejudiced as a result of his
or its failure to have received such notice; provided, however, that if the
defendants in any action shall include both an indemnifying party and an
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<PAGE>
indemnified party and the indemnified party shall have reasonably concluded that
counsel selected by the indemnifying party has a conflict of interest because of
the availability of different or additional defenses to the indemnified party,
the indemnified party shall have the right to select separate counsel to
participate in the defense of such action on its behalf, at the expense of the
indemnifying party. Notwithstanding the assumption of the defense of any claim
by an indemnifying party pursuant to this paragraph, the indemnified party shall
have the right to approve the terms of any settlement of a claim (which approval
shall not be unreasonably withheld).
(b) The indemnifying party and the indemnified party shall cooperate in
furnishing evidence and testimony and in any other manner which the other may
reasonably request, and shall in all other respects have an obligation of good
faith dealing, one to the other, so as not to unrea sonably expose the other to
an undue risk of loss. The indemnified party shall be entitled to reimbursement
for out-of-pocket expenses reasonably incurred by him or it in connection with
such cooperation.
ARTICLE XIII
Miscellaneous Provisions
13.01. Nature and Survival of Representations and Warranties. All
statements contained herein or in any certificate, schedule or other document
delivered pursuant hereto shall be deemed representations and warranties. All
representations and warranties shall survive the Closing and shall not be
affected by any investigation at any time made by or on behalf of any party
hereto.
13.02. Amendment and Modification. This Agreement may be amended, modified
or supplemented only by written agreement of the parties hereto, provided,
however, that an amendment of this Agreement may be made on behalf of all
Selling Stockholders by an instrument in writing executed by that number of
Selling Stockholders who are holders of 51% of the issued and outstanding
Selling Stockholders' Shares (the "Majority in Interest").
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<PAGE>
13.03. Waiver. Any breach of any obligation, covenant, agreement or
condition contained herein shall be deemed waived by the non-breaching party,
only by a writing, setting forth with particularity the breach being waived and
the scope of the waiver, but such waiver shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other breach. No failure or duly by
any party in exercising any right, power or privilege hereunder or under the
Documents and no course of dealing by any party shall operate as a waiver and
any right, power or privilege hereunder or under any Document nor shall any
single or partial exercise thereof or the exercise of any other right, power or
privilege.
13.04. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand:
(a) If to the Company or any Selling Stockholder, to:
Watchout!
56 Bernard Street
San Francisco, CA 94133
Attn: Robert Galoob, President
With a copy to:
Howard, Rice, Nemerovski, Canady,
Falk & Rabin
3 Embarcadero Center, 7th floor
San Francisco, CA 94111
Attn: Howard Lasky, Esq.
or to such other person or address as the Company or any Selling Stockholder
shall furnish White Cloud in writing.
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<PAGE>
(b) If to White Cloud to:
White Cloud Exploration, Inc.
1050 Seventeenth Street
Denver, Colorado 80265
with a copy to:
Michael A. Littman, Esq.
10200 West 44th Avenue, #400
Wheat Ridge, Colorado 80033
or to such other person or address as White Cloud shall furnish Selling
Stockholders and the Company in writing.
13.05. Binding Nature; Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns, but neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without prior written consent of the other parties; provided,
however that the rights of White Cloud hereunder may be assigned to any lender
or financing institution as security for a loan or loans granted or equity
raised in order to facilitate participation in the transaction contemplated
herein.
13.06. Governing Law; Submission to Jurisdiction. This Agreement and the
legal relations among the parties hereto shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and performed therein.
13.07. Public Announcements. Prior to the Closing, except as required by
applicable law the parties hereto agree not to make any disclosure or public
announcement concerning the transactions contemplated hereby without the prior
consent of the other parties hereto; provided, however, that in connection with
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<PAGE>
the transactions contemplated herein, with respect to any disclosure or public
announcement which a party reasonably deems to be necessary pursuant to any
state or federal law or regulation, such party may make such disclosure or
public announcement without the consent of any other party so long as the party
making such announcement or disclosure has used reasonable efforts to provide to
each other party hereto advance notice of such disclosure or public
announcement. In connection with any disclosure required by law the party making
such disclosure shall use its best efforts to obtain, to the extent available,
confidential treatment with respect to information concerning the transaction
contemplated herein.
13.08. Expenses. Except as otherwise provided herein, all costs and
expenses incurred in connection with this Agreement and the Documents shall be
paid by the party incurring such cost or expense.
13.09. Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
13.10. Headings. The headings contained in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
13.11. Entire Agreement. This Agreement and the Documents together with the
Schedules herein and therein and Exhibits hereto and thereto, constitute the
entire agreement between the parties hereto pertaining to the subject matter
hereof and supersede all prior and contemporaneous agreements, understandings,
documents, negotiations and discussions, whether oral or written, of the parties
hereto.
13.12. Obligations of Predecessors. When any provision of this Agreement or
any Document refers to or contemplates: (i) any agreement, lease, license,
permit or authorization to which the Company is a party or by which its assets
are bound or subject; (ii) any other obligation or duty of the Company of any
kind or nature; or (iii) the existence or absence of any fact or matter such
provision shall be deemed to include, in addition to any contract, document,
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<PAGE>
agreement, lease, license, permit or authorization or other obligation or duty
of the Company or the existence or absence of any fact or matter; (x) any
contract, document, agreement, lease, license, permit or authorization or other
obligation or duty assigned to or assumed by the Company or its predecessors,
directly or indirectly, by agreement, by operation of law or otherwise and (y)
the existence of any fact or matter to the extent relevant to any such
predecessor.
When any provision of this Agreement or any Document refers to a
"predecessor" such reference shall be deemed to include any corporation,
partnership, joint venture or other business, business organization or entity
which is the predecessor of the Company and shall include any or all of the
foregoing to the extent that the Company is the direct or indirect successor
thereof.
13.13. Knowledge of Selling Stockholders and the Company. When any
provision of this Agreement or any Document refers to or contemplates the
knowledge of a party, it shall mean: (i) with respect to any matter relating to
third parties, actual knowledge of Selling Stockholders and executive officers
of the Company or White Cloud, as the case may be, with regard to such third
parties and (ii) with respect to Selling Stockholders or any of their
obligations, rights or properties, the actual knowledge of such Selling
Stockholder, after due inquiry.
13.14. Remedies Exclusive. Prior to the Closing, the rights, remedies and
obligations of the parties hereto under this Agreement and the Documents set
forth in Article XI hereof shall be deemed to be exclusive of all other rights,
remedies and obligations under this Agreement and the Documents that would
otherwise be available to the parties hereto. After the Closing, the rights,
remedies and obligations under this Agreement and the Documents of the parties
hereto set forth in Article XII hereof shall be deemed to be exclusive of all
other rights, remedies and obligations under this Agreement and the Documents
that would otherwise be available to the parties hereto. Notwithstanding the
foregoing, the parties agree that the business of the Company is unique and that
remedies at law may be inadequate, and accordingly, White Cloud, in addition to
other remedies it may have, shall have the right to enforce the obligation of
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<PAGE>
Selling Stockholders to consummate the sale of Selling Stockholders' Shares upon
the terms contemplated hereunder by an action or actions for specific
performance, injunction or other appropriate equitable remedies.
13.15. Disclosure on Schedules. For purposes of this Agreement, a
disclosure by any party hereto of any fact on any Schedule shall be deemed a
disclosure on every Schedule of any party hereto to the extent such disclosure
properly could have been made thereon but was not made.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed the day and year first above written.
By:
-----------------------------------------
Selling Stockholder
WATCHOUT!
By:
-----------------------------------------
Authorized Officer
WHITE CLOUD EXPLORATION, INC.
By:
-----------------------------------------
Authorized Officer
By:
-----------------------------------------
Robert Galoob, individually
By:
-----------------------------------------
David Galoob, individually
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<PAGE>
LIST OF EXHIBITS
A. - Ownership of Selling Stockholders /New Shares
B. - Financial Statements
C. - Form of Opinion of Counsel to the Company and Selling Stockholders
D. - White Cloud Capitalization
E. - Form of Shareholders' Waiver
F. - White Cloud Financial Statements
G. - Form of Opinion of Counsel to White Cloud
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<PAGE>
LIST OF SCHEDULES
1. Disclosure Schedule
2. White Cloud Disclosure Schedule
-64-
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
18% Senior Promissory Note
$150,000
September 3, 1997
New York, New York
FOR VALUE RECEIVED, (1)WHITE CLOUD EXPLORATION, INC., a Utah corporation,
having a principal place of business at 1050 Seventeenth Street, Denver,
Colorado 80265 (the "Company"), and, subject to the provisions of Section 5
hereof, Watchout! A California corporation ("Watchout") and Goldpoint
International, LLC, a Delaware limited liability company ("Goldpoint") (Watchout
and Goldpoint, together, the "Co-obligors") hereby jointly and severally promise
to pay to Watchout-Goldpoint Partners, LP (the "Payee"), the principal amount of
Twenty Five Thousand ($25,000) Dollars, (2) the Company and, subject to the
provisions of Section 5 hereof, Watchout hereby jointly and severally promise to
pay tothe Payee the principal amount of One Hundred Thousand ($100,000) Dollars
and (3) the Company promises to pay to the Payee the principal amount of Twenty
Five Thousand ($25,000) Dollars, on September 3, 1998 (such date, as same may be
accelerated in accordance with the terms hereof, is referred to herein as the
"Maturity Date"), together with interest,at a rate per annum of eighteen percent
(18%) (computed on the basis of actual calendar days outstanding using a 360-day
year basis). Payments of principal and interest shall be made at the offices of
the holder of this Note, in immediately available lawful money of the United
States of America.
1. Bridge Financing. This Note is issued in connection with the Stock and
Asset Contribution Agreement by and among the Company , Watchout and certain
other individuals set forth therein dated May 30, 1997 (the "Watchout
Agreement") and in the LLC Interest and Asset Contribution Agreement by and
among the Company, Goldpoint and certain other individuals set forth therein
dated May 30, 1997 (the "Goldpoint Agreement").
2. Seniority. This Note is the direct obligation of the Company. The
indebtedness evidenced by this Note and the payment of the principal thereof
shall be Senior (as hereinafter defined) to, and have priority in right of
payment over, all indebtedness of the Company, now outstanding or hereinafter
incurred. "Senior," as used herein, shall be deemed to mean that, in the event
of any default in the payment of the obligations represented by this Note (after
giving effect to "cure" provisions, if any) or of any liquidation, insolvency,
bankruptcy, reorganization, or similar proceedings relating to the Company, all
sums payable on this Note shall first be paid in full, with interest, if any,
before any payment is made upon any other indebtedness, now outstanding or
hereinafter incurred, and, in any such event, any payment or distribution of any
<PAGE>
character which shall be made in respect of any otherindebtedness of the
Company, shall be paid over to the holder of this Note for application to the
payment hereof, unless and until the obligations under this Note (which shall
mean the principal and other obligations arising out of, premium, if any,
interest on, and any costs and expenses payable under, this Note) shall have
been paid and satisfied in full.
3. Restrictions on Transfer. This Note shall not be transferred (such term
to include any disposition which would constitute a sale within the meaning of
the Securities Act).
4. Prepayment Provisions. (a) This Note may be prepaid, at the option of
the Company, as a whole or in minimum principal amounts of $10,000 each, at any
time or from time to time, in each case on any date on or after the date of
issuance and prior to maturity, at a redemption price of 100% of the principal
amount of this Note, together with accrued interest through the date of
prepayment ("Voluntary Prepayment"); provided, however, that this Note shall be
prepaid ("Mandatory Prepayment") to the extent of proceeds exceeding $2,000,000
received by the Company or any affiliate of the Company from the sale or
issuance of any debt or equity securities of the Company or any affiliate of the
Company or the receipt in such amount of any proceeds of any loans or
indebtedness by any of such entities.
(b) If this Note is called for Voluntary Prepayment pursuant to subsection
4(a) of this Note, the Company shall give written notice to the Payee not less
than 5 nor more than 10 days prior to the date fixed for the prepayment thereof.
Mandatory Prepayments shall occur simultaneously with the event causing the
Mandatory Prepayment.
Upon notice of any prepayment being given as provided in this subsection
4(b), the Company covenants and agrees to prepay on the date therein fixed for
prepayment the principal amount of this Note as specified in such notice,
together with interest accrued thereon to such date fixed for prepayment.
5. Obligation of Co-obligors. Anything contained in this Note to the
contrary notwithstanding, the Co-Obligors shall be obligated to make payment of
the amounts set forth herein, if, and only if, the Watchout Agreement is
rescinded pursuant to Section 11.01 thereof with respect to Watchout, and the
Goldpoint Agreement is rescinded pursuant to Section 11.01 thereof with respect
to Goldpoint.
6. Default. Upon the occurrence of any of the following events (herein
called "Events of Default") which shall have occurred and be continuing:
(i) the Company shall default in the payment of principal or interest of
this Note when the same becomes due and payable and the continuance of such
failure for a period of five (5) days; or
2
<PAGE>
(ii) (a) the Company shall commence any proceeding or other action relating
to it in bankruptcy or seek reorganization, arrangement, readjustment of its
debts, receivership, dissolution, liquidation, winding-up, composition or any
other relief under the Bankruptcy Act, as amended, or under any other
insolvency, reorganization, liquidation, dissolution, arrangement, composition,
readjustment of debt or any other similar act or law, of any jurisdiction,
domestic or foreign, now or hereafter existing; or (b) the Company shall admit
the material allegations of any petition or pleading in connection with any such
proceeding; or (c) the Company applies for, or consents or acquiesces to, the
appointment of a receiver, conservator, trustee or similar officer for it or for
all or a substantial part of its property; or (d) the Company makes a general
assignment for the benefit of creditors; or
(iii) (a) commencement of any proceedings or the taking of any other action
against the Company in bankruptcy or seeking reorganization, arrangement,
readjustment of its debts, liquidation, dissolution, arrangement, composition,
readjustment of debt or any other similar act or law of any jurisdiction,
domestic or foreign, now or hereafter existing and the continuance of any of
such events for sixty (60) days undismissed, unbonded or undischarged; or (b)
the appointment of a receiver, conservator, trustee or similar officer for the
Company or for all or substantially all of its property and the continuance of
any of such events for sixty (60) days undismissed, unbonded or undisclosed; or
(c) the issuance of a warrant of attachment, execution or similar process
against any of the material assets of the Company and the continuance of such
event for sixty (60) days undismissed, unbonded and undischarged; then, and in
any such event the holder of this Note may by written notice to the Company
declare the entire unpaid principal amount of this Note outstanding together
with accrued interest thereon at a rate (the "Late Rate") equal to the highest
maximum rate permitted by law (but in any event, not to exceed 18%), due and
payable, and the same shall, unless such default be cured within ten (10) days
after such notice, forthwith become due and payable upon the expiration of such
ten (10) day period, without presentment, demand, protest, or other notice of
any kind, all of which are expressly waived.
7. Affirmative Covenants. The Company covenants and agrees that, while any
amounts under this Note are outstanding, it shall:
(a) Pay all indebtedness as and when due and payable, as the same may be
modified or waived by the lenders or other obligees;
(b) Perform, within all required time periods (after giving effect to any
applicable grace periods), all of its obligations and enforce all of its rights
under each material agreement to which it is a party;
(c) do all things necessary to preserve and keep in full force and effect
its corporate existence and continue to conduct its business substantially as
now conducted or as otherwise permitted hereunder;
3
<PAGE>
(d) Pay and discharge promptly when due all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits or
in respect of its property before the same shall become delinquent or in
default, unless, in each case, the validity or amount thereof is being contested
in good faith by appropriate proceedings;
(e) Comply in all material respects with all Federal, state and local laws
and regulations, orders, judgments, decrees, injunctions, rules, regulations,
permits, licenses, authorizations and requirements applicable to it
(collectively, "Requirements") of all governmental bodies, departments,
commissions, boards, companies or associations insuring the premises, courts,
authorities, officials or officers which are applicable to the Company or any of
its properties, except where the failure to so comply would not have a material
effect on the Company or any of its properties; provided, however, that nothing
provided herein shall prevent the Company from contesting the validity or the
application of any Requirements; and
(f) Shall keep its insurable properties adequately insured at all times by
financially sound and reputable insurers and maintain such other insurance, to
such extent and against such risks, including fire and other risks insured
against by extended coverage, as is customary with companies similarly situated
and in the same or similar business.
8. Negative Covenants. The Company covenants and agrees that while any
amount of this Note is outstanding it will not directly or indirectly:
(a) Incur, create, assume or permit to exist any lien senior to this Note
on any of its properties or assets, whether owned at the date hereof or
hereafter acquired, or assign or convey any rights to or security interest in
any future revenues; and
(b) Guarantee or otherwise in any way become or be responsible for
indebtedness for borrowed money or obligations of any other party, contingently
or otherwise, other than indebtedness for lease financing or indebtedness
incurred in the ordinary course of business.
9. Miscellaneous. (a) To the extent permitted by applicable law, the
Company hereby agrees to waive, and does hereby absolutely and irrevocably waive
and relinquish, the benefit and advantage of any valuation, stay, appraisement,
extension or redemption law now existing or which may hereafter exist, which,
but for this provision, might be applicable to any sale made under the judgment,
order or decree of any court, or otherwise, based on this Note or on any claim
for principal or interest on this Note.
(b) The Company agrees that the provisions of this Note shall bind and
shall inure to the benefit of the parties hereto and their successors and
assigns.
4
<PAGE>
(c) Except as otherwise provided herein, this Note may be amended, and the
performance and observance of any term of this Note may be waived, with (and
only with) the written consent of the Company and the holder of this Note as to
whom performance is to be waived.
(d) If any interest rate specified herein is held to be usurious, then the
rate charged on the indebtedness represented hereby shall be reduced to the
highest rate then permitted by law.
(e) All notices and other communications provided for hereunder or under
this Note shall be in writing, and, if to the Payee, shall be delivered or
mailed by registered mail addressed to the Payee at the address as shown at the
beginning of this Note or to such other address as the Payee may designate to
the Company in writing and, if to the Company, shall be delivered or mailed by
registered mail to the Company at 1050 Seventeenth Street, Denver, Colorado
80265 or to such other address as the Company may designate to you in writing.
(f) This Note shall be construed in accordance with and governed by the
laws of the State of New York without regard to principles of conflicts of law,
and cannot be changed, discharged or terminated orally but only by an instrument
in writing signed by the party against whom enforcement of any change, discharge
or termination is sought.
(g) The headings of the sections of this Note are inserted for convenience
only and do not affect the meaning of such section.
5
<PAGE>
IN WITNESS WHEREOF, each of the undersigned have caused this Note to be
signed by its duly authorized officer or member and to be dated the date and
year first above written.
WHITE CLOUD EXPLORATION, INC.
By:
-------------------------------------------
Authorized Officer
WATCHOUT!
By:
-------------------------------------------
Authorized Officer
GOLDPOINT INTERNATIONAL, LLC
By:
-------------------------------------------
Authorized Member
6
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On this ______day of ___________ 1997, before me, the undersigned Notary
Public, personally appeared _________________ _________________, who being by me
duly sworn did depose and say that he is (the) (a) ______________ of WHITE CLOUD
EXPLORATION, INC. the entity that executed the foregoing instrument and that he
executed such instrument by order of the Board of Directors, and that he signed
his name by like order.
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ______day of ___________ 1997, before me, the undersigned Notary
Public, personally appeared _________________ _________________, who being by me
duly sworn did depose and say that he is (the) (a) ______________ of WATCHOUT!
the entity that executed the foregoing instrument and that he executed such
instrument by order of the Board of Directors, and that he signed his name by
like order.
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ______day of ___________ 1997, before me, the undersigned Notary
Public, personally appeared _________________ _________________, who being by me
duly sworn did depose and say that he is the Member-Manager of GOLDPOINT
INTERNATIONAL, LLC the entity that executed the foregoing instrument.
Notary Public
7
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
18% Senior Promissory Note
$50,000
September 3, 1997
New York, New York
FOR VALUE RECEIVED, (1)WHITE CLOUD EXPLORATION, INC., a Utah corporation,
having a principal place of business at 1050 Seventeenth Street, Denver,
Colorado 80265 (the "Company"), and, subject to the provisions of Section 5
hereof, Watchout! A California corporation ("Watchout") and Goldpoint
International, LLC, a Delaware limited liability company ("Goldpoint") (Watchout
and Goldpoint, together, the "Co-obligors") hereby jointly and severally promise
to pay to Raymond J. Larkin (the "Payee"), the principal amount of Eight
Thousand Three Hundred and Thirty Three ($8,333) Dollars, (2) the Company and,
subject to the provisions of Section 5 hereof, Watchout hereby jointly and
severally promise to pay tothe Payee the principal amount of Thirty Three
Thousand Three Hundred and Thirty Four ($33,334) Dollars and (3) the Company
promises to pay to the Payee the principal amount of Eight Thousand Three
Hundred and Thirty Three ($8,333) Dollars, on September 3, 1998 (such date, as
same may be accelerated in accordance with the terms hereof, is referred to
herein as the "Maturity Date"), together with interest,at a rate per annum of
eighteen percent (18%) (computed on the basis of actual calendar days
outstanding using a 360-day year basis). Payments of principal and interest
shall be made at the offices of the holder of this Note, in immediately
available lawful money of the United States of America.
1. Bridge Financing. This Note is issued in connection with the Stock and
Asset Contribution Agreement by and among the Company , Watchout and certain
other individuals set forth therein dated May 30, 1997 (the "Watchout
Agreement") and in the LLC Interest and Asset Contribution Agreement by and
among the Company, Goldpoint and certain other individuals set forth therein
dated May 30, 1997 (the "Goldpoint Agreement").
2. Seniority. This Note is the direct obligation of the Company. The
indebtedness evidenced by this Note and the payment of the principal thereof
shall be Senior (as hereinafter defined) to, and have priority in right of
payment over, all indebtedness of the Company, now outstanding or hereinafter
incurred. "Senior," as used herein, shall be deemed to mean that, in the event
of any default in the payment of the obligations represented by this Note (after
giving effect to "cure" provisions, if any) or of any liquidation, insolvency,
bankruptcy, reorganization, or similar proceedings relating to the Company, all
sums payable on this Note shall first be paid in full, with interest, if any,
before any payment is made upon any other indebtedness, now outstanding or
hereinafter incurred, and, in any such event, any payment or distribution of any
<PAGE>
character which shall be made in respect of any other indebtedness of the
Company, shall be paid over to the holder of this Note for application to the
payment hereof, unless and until the obligations under this Note (which shall
mean the principal and other obligations arising out of, premium, if any,
interest on, and any costs and expenses payable under, this Note) shall have
been paid and satisfied in full.
3. Restrictions on Transfer. This Note shall not be transferred (such term
to include any disposition which would constitute a sale within the meaning of
the Securities Act).
4. Prepayment Provisions. (a) This Note may be prepaid, at the option of
the Company, as a whole or in minimum principal amounts of $10,000 each, at any
time or from time to time, in each case on any date on or after the date of
issuance and prior to maturity, at a redemption price of 100% of the principal
amount of this Note, together with accrued interest through the date of
prepayment ("Voluntary Prepayment"); provided, however, that this Note shall be
prepaid ("Mandatory Prepayment") to the extent of proceeds exceeding $2,000,000
received by the Company or any affiliate of the Company from the sale or
issuance of any debt or equity securities of the Company or any affiliate of the
Company or the receipt in such amount of any proceeds of any loans or
indebtedness by any of such entities.
(b) If this Note is called for Voluntary Prepayment pursuant to subsection
4(a) of this Note, the Company shall give written notice to the Payee not less
than 5 nor more than 10 days prior to the date fixed for the prepayment thereof.
Mandatory Prepayments shall occur simultaneously with the event causing the
Mandatory Prepayment.
Upon notice of any prepayment being given as provided in this subsection
4(b), the Company covenants and agrees to prepay on the date therein fixed for
prepayment the principal amount of this Note as specified in such notice,
together with interest accrued thereon to such date fixed for prepayment.
5. Obligation of Co-obligors. Anything contained in this Note to the
contrary notwithstanding, the Co-Obligors shall be obligated to make payment of
the amounts set forth herein, if, and only if, the Watchout Agreement is
rescinded pursuant to Section 11.01 thereof with respect to Watchout, and the
Goldpoint Agreement is rescinded pursuant to Section 11.01 thereof with respect
to Goldpoint.
6. Default. Upon the occurrence of any of the following events (herein
called "Events of Default") which shall have occurred and be continuing:
(i) the Company shall default in the payment of principal or interest of
this Note when the same becomes due and payable and the continuance of such
failure for a period of five (5) days; or
2
<PAGE>
(ii) (a) the Company shall commence any proceeding or other action relating
to it in bankruptcy or seek reorganization, arrangement, readjustment of its
debts, receivership, dissolution, liquidation, winding-up, composition or any
other relief under the Bankruptcy Act, as amended, or under any other
insolvency, reorganization, liquidation, dissolution, arrangement, composition,
readjustment of debt or any other similar act or law, of any jurisdiction,
domestic or foreign, now or hereafter existing; or (b) the Company shall admit
the material allegations of any petition or pleading in connection with any such
proceeding; or (c) the Company applies for, or consents or acquiesces to, the
appointment of a receiver, conservator, trustee or similar officer for it or for
all or a substantial part of its property; or (d) the Company makes a general
assignment for the benefit of creditors; or
(iii) (a) commencement of any proceedings or the taking of any other action
against the Company in bankruptcy or seeking reorganization, arrangement,
readjustment of its debts, liquidation, dissolution, arrangement, composition,
readjustment of debt or any other similar act or law of any jurisdiction,
domestic or foreign, now or hereafter existing and the continuance of any of
such events for sixty (60) days undismissed, unbonded or undischarged; or (b)
the appointment of a receiver, conservator, trustee or similar officer for the
Company or for all or substantially all of its property and the continuance of
any of such events for sixty (60) days undismissed, unbonded or undisclosed; or
(c) the issuance of a warrant of attachment, execution or similar process
against any of the material assets of the Company and the continuance of such
event for sixty (60) days undismissed, unbonded and undischarged; then, and in
any such event the holder of this Note may by written notice to the Company
declare the entire unpaid principal amount of this Note outstanding together
with accrued interest thereon at a rate (the "Late Rate") equal to the highest
maximum rate permitted by law (but in any event, not to exceed 18%), due and
payable, and the same shall, unless such default be cured within ten (10) days
after such notice, forthwith become due and payable upon the expiration of such
ten (10) day period, without presentment, demand, protest, or other notice of
any kind, all of which are expressly waived.
7. Affirmative Covenants. The Company covenants and agrees that, while any
amounts under this Note are outstanding, it shall:
(a) Pay all indebtedness as and when due and payable, as the same may be
modified or waived by the lenders or other obligees;
(b) Perform, within all required time periods (after giving effect to any
applicable grace periods), all of its obligations and enforce all of its rights
under each material agreement to which it is a party;
(c) do all things necessary to preserve and keep in full force and effect
its corporate existence and continue to conduct its business substantially as
now conducted or as otherwise permitted hereunder;
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<PAGE>
(d) Pay and discharge promptly when due all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits or
in respect of its property before the same shall become delinquent or in
default, unless, in each case, the validity or amount thereof is being contested
in good faith by appropriate proceedings;
(e) Comply in all material respects with all Federal, state and local laws
and regulations, orders, judgments, decrees, injunctions, rules, regulations,
permits, licenses, authorizations and requirements applicable to it
(collectively, "Requirements") of all governmental bodies, departments,
commissions, boards, companies or associations insuring the premises, courts,
authorities, officials or officers which are applicable to the Company or any of
its properties, except where the failure to so comply would not have a material
effect on the Company or any of its properties; provided, however, that nothing
provided herein shall prevent the Company from contesting the validity or the
application of any Requirements; and
(f) Shall keep its insurable properties adequately insured at all times by
financially sound and reputable insurers and maintain such other insurance, to
such extent and against such risks, including fire and other risks insured
against by extended coverage, as is customary with companies similarly situated
and in the same or similar business.
8. Negative Covenants. The Company covenants and agrees that while any
amount of this Note is outstanding it will not directly or indirectly:
(a) Incur, create, assume or permit to exist any lien senior to this Note
on any of its properties or assets, whether owned at the date hereof or
hereafter acquired, or assign or convey any rights to or security interest in
any future revenues; and
(b) Guarantee or otherwise in any way become or be responsible for
indebtedness for borrowed money or obligations of any other party, contingently
or otherwise, other than indebtedness for lease financing or indebtedness
incurred in the ordinary course of business.
9. Miscellaneous. (a) To the extent permitted by applicable law, the
Company hereby agrees to waive, and does hereby absolutely and irrevocably waive
and relinquish, the benefit and advantage of any valuation, stay, appraisement,
extension or redemption law now existing or which may hereafter exist, which,
but for this provision, might be applicable to any sale made under the judgment,
order or decree of any court, or otherwise, based on this Note or on any claim
for principal or interest on this Note.
(b) The Company agrees that the provisions of this Note shall bind and
shall inure to the benefit of the parties hereto and their successors and
assigns.
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<PAGE>
(c) Except as otherwise provided herein, this Note may be amended, and the
performance and observance of any term of this Note may be waived, with (and
only with) the written consent of the Company and the holder of this Note as to
whom performance is to be waived.
(d) If any interest rate specified herein is held to be usurious, then the
rate charged on the indebtedness represented hereby shall be reduced to the
highest rate then permitted by law.
(e) All notices and other communications provided for hereunder or under
this Note shall be in writing, and, if to the Payee, shall be delivered or
mailed by registered mail addressed to the Payee at the address as shown at the
beginning of this Note or to such other address as the Payee may designate to
the Company in writing and, if to the Company, shall be delivered or mailed by
registered mail to the Company at 1050 Seventeenth Street, Denver, Colorado
80265 or to such other address as the Company may designate to you in writing.
(f) This Note shall be construed in accordance with and governed by the
laws of the State of New York without regard to principles of conflicts of law,
and cannot be changed, discharged or terminated orally but only by an instrument
in writing signed by the party against whom enforcement of any change, discharge
or termination is sought.
(g) The headings of the sections of this Note are inserted for convenience
only and do not affect the meaning of such section.
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<PAGE>
IN WITNESS WHEREOF, each of the undersigned have caused this Note to be
signed by its duly authorized officer or member and to be dated the date and
year first above written.
WHITE CLOUD EXPLORATION, INC.
By:
-----------------------------------------
Authorized Officer
WATCHOUT!
By:
-----------------------------------------
Authorized Officer
GOLDPOINT INTERNATIONAL, LLC
By:
-----------------------------------------
Authorized Member
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<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On this ______day of ___________ 1997, before me, the undersigned Notary
Public, personally appeared _________________ _________________, who being by me
duly sworn did depose and say that he is (the) (a) ______________ of WHITE CLOUD
EXPLORATION, INC. the entity that executed the foregoing instrument and that he
executed such instrument by order of the Board of Directors, and that he signed
his name by like order.
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ______day of ___________ 1997, before me, the undersigned Notary
Public, personally appeared _________________ _________________, who being by me
duly sworn did depose and say that he is (the) (a) ______________ of WATCHOUT!
the entity that executed the foregoing instrument and that he executed such
instrument by order of the Board of Directors, and that he signed his name by
like order.
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On this ______day of ___________ 1997, before me, the undersigned Notary
Public, personally appeared _________________ _________________, who being by me
duly sworn did depose and say that he is the Member-Manager of GOLDPOINT
INTERNATIONAL, LLC the entity that executed the foregoing instrument.
Notary Public
7
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW AND
MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES UNLESS
THE ISSUER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
REASONABLY SATISFACTORY TO THE ISSUER STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT
THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT.
WHITE CLOUD EXPLORATION, INC.
September 3, 1997 225,000 shares
Warrant for the Purchase of Shares of Common Stock
FOR VALUE RECEIVED, White Cloud Exploration, Inc. (the "Company"), a Utah
corporation, hereby certifies that Watchout-Goldpoint Partners, LLC (the
"Holder"), is entitled, subject to the provisions of this warrant (the
"Warrant"), to purchase from the Company at any time, or from time to time,
during the period commencing at 9:00 a.m., New York local time on September 3,
1997 and expiring at 5:00 p.m., New York local time, on September 3, 2000,
225,000 fully paid and non-assessable shares of Common Stock, $.001 par value
("Common Stock"), of the Company at an initial price of $.01 per share of Common
Stock.
The term "Common Stock" means the shares of Common Stock $.001 par value,
of the Company as constituted on the date of issuance of the Warrant (the "Base
Date"). The number of shares of Common Stock to be received upon the exercise of
this Warrant may be adjusted from time to time as hereinafter set forth. The
shares of Common Stock deliverable upon such exercise, and as adjusted from time
to time, are hereinafter sometimes referred to as "Warrant Stock." The term the
"Company" means and includes the corporation named above as well as (i) any
immediate or more remote successor corporation resulting from the merger or
consolidation of such corporation (or any immediate or more remote successor
corporation of such corporation) with another corporation, and/or (ii) any
corporation to which such corporation (or any immediate or remote successor
corporation of such corporation) has transferred all or substantially all of its
property or assets as an entirety or substantially as an entirety.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and, in the case of
loss, theft or destruction, of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date.
<PAGE>
The Holder agrees with the Company that this Warrant is issued, and all the
rights hereunder shall be held, subject to all of the conditions, limitations
and provisions set forth herein.
This Warrant is issued in connection with the purchase and sale of the
Warrant and a senior subordinated promissory note of the Company (the "Note") to
the Holder.
1. Exercise of Warrant. This Warrant may be exercised in whole or in part
at any time, or from time to time, during the period commencing at 9:00 a.m.,
New York local time on September 3, 1997 and expiring at 5:00 p.m., New York
local time, on September 3, 2000 (the "Warrant Exercise Term"), or, if such day
is a day on which banking institutions in the City of New York are authorized by
law to close, then on the next succeeding day that shall not be such a day, by
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Warrant Exercise Form
attached hereto duly executed and accompanied by payment (either in cash or by
Company check, payable to the order of the Company) of the Exercise Price for
the number of shares of Common Stock specified in such Form and instruments of
transfer, if appropriate, duly executed by the Holder or his or her duly
authorized attorney. If this Warrant should be exercised in part only, the
Company shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to purchase
the balance of the shares purchasable hereunder. Upon receipt by the Company of
this Warrant, together with the Exercise Price, at its office, or by the stock
transfer agency of the Company at its office, in proper form for exercise, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such shares
of Common Stock shall not then be actually delivered to the Holder. The Company
shall pay any and all documentary stamp or similar issue payable in respect of
the issue or delivery of shares of Common Stock on exercise of this Warrant.
2. Reservation of Shares. The Company will at all times reserve for
issuance and delivery upon exercise of this Warrant all shares of Common Stock
or other shares of capital stock of the Company (and other securities and
property) from time to time receivable upon exercise of this Warrant. All such
shares (and other securities and property) shall be duly authorized and, when
issued upon such exercise, shall be validly issued, fully paid and
non-assessable and free of all preemptive rights.
3. Restrictions upon Transferability of Warrant.
3.1 Restrictions Upon Transferability. Subject to the terms and provisions
of the registration rights provisions contained in Section 7 hereof (such rights
are referred to as the "Registration Rights"), the shares of Common Stock
issuable upon exercise of this Warrant are not presently, and upon their
issuance may not be, registered under the Securities Act of 1933, as amended
(the "Act").
4. Fractional Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant, but the Company shall
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<PAGE>
issue one additional share ofCommon Stock in lieu of each fraction of a share
otherwise called for upon any exercise of this Warrant.
5. No Redemption. This Warrant is not redeemable by the Company.
6. Anti-Dilution Provisions.
6.1 Adjustment for Dividends in Other Securities, Property, Etc.;
Reclassification, Etc. In case at any time or from time to time after the Base
Date, the holders of Common Stock (or any other securities at the time
receivable upon the exercise of this Warrant) shall have received, or on or
after the record date fixed for the determination of eligible stockholders,
shall have become entitled to receive without payment thereof: (a) other or
additional securities, or property (other than cash) by way of dividend, (b) any
cash paid or payable except out of earned surplus of the Company at the Base
Date as increased (decreased) by subsequent credits (charges) thereto (other
than credits in respect of any capital or paid-in surplus or surplus created as
a result of a revaluation of property) or (c) other or additional (or fewer)
securities or property (including cash) by way of stock-split, spin-off,
split-up, reclassification, combination of shares or similar corporate
rearrangement (other than in each such case additional shares of Common Stock or
any securities convertible into or exchangeable for Common Stock or any rights
or options to acquire any of the foregoing, adjustments in respect of which
shall be covered by Section 6.2), then, and in each such case, the Holder of
this Warrant, upon the exercise thereof as provided in Section 1, shall be
entitled to receive the amount of securities and property (including cash in the
cases referred to in clauses (b) and (c) above) which such Holder would hold on
the date of such exercise if on the Base Date it had been the holder of record
of the number of shares of Common Stock (as constituted on the Base Date)
subscribed for upon such exercise as provided in Section 1 and had thereafter,
during the period from the Base Date to and including the date of such exercise,
retained such shares and/or all other additional (or fewer) securities and
property (including cash in the cases referred to in clauses (b) and (c) above)
receivable by it as aforesaid during such period, giving effect to all
adjustments called for during such period by Section 6.2.
6.2 Adjustment for Reorganization, Consolidation, Merger, Etc. In case of
any reorganization of the Company (or any other corporation, the securities of
which are at the time receivable on the exercise of this Warrant) after the Base
Date or in case after such date the Company (or any such other corporation)
shall consolidate with or merge into another corporation or convey all or
substantially all of its assets to another corporation, then, and in each such
case, the Holder of this Warrant upon the exercise thereof as provided in
Section 1 at any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to receive, in lieu of
the securities and property receivable upon the exercise of this Warrant prior
to such consummation, the securities and property to which such Holder would
have been entitled upon such consummation if such Holder had exercised this
Warrant immediately prior thereto, all subject to further adjustment as provided
in Section 6.1; in each such case, the terms of this Warrant shall be applicable
to the securities or property receivable upon the exercise of this Warrant after
such consummation.
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<PAGE>
6.3 Notices of Record Date, Etc. In case:
(a) the Company shall take a record of the holders of its Common Stock (or
other securities at the time receivable upon the exercise of the Warrant) for
the purpose of entitling them to receive any dividend (other than a cash
dividend payable out of earned surplus) or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities, or to receive any other right; or
(b) of any capital reorganization of the Company (other than a stock split
or reverse stock split), any reclassification of the capital stock of the
Company, any consolidation or merger of the Company with or into another
corporation (other than a merger for purposes of change of domicile) or any
conveyance of all or substantially all of the assets of the Company to another
corporation; or
(c) of any voluntary or involuntary dissolution, liquidation or winding-up
of the Company; then, and in each such case, the Company shall mail or cause to
be mailed to each Holder of the Warrant at the time outstanding a notice
specifying, as the case may be, (i) the date on which a record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the date on which
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up is to take place, and the time, if any,
is to be fixed, as to which the holders of record of Common Stock (or such other
securities at the time receivable upon the exercise of the Warrant) shall be
entitled to exchange their shares of Common Stock (or such other securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up. Such notice shall be mailed at least twenty (20) days prior to the
date therein specified and this Warrant may be exercised prior to said date
during the term of the Warrant no later than five days prior to said date.
7. Registration Rights.
7.1. Incidental Registration Rights. At any time commencing on the date of
the issuance of this Warrant, if the Company shall determine to proceed with the
actual preparation and filing of a registration statement under the Securities
Act in connection with the proposed offer and sale of any of its securities by
it or any of its security holders (other than a registration statement on Form
S-4, S-8 or other limited purpose form), the Company will give written notice of
its determination to the holders of the Warrant. Upon the written request from
any of the Holders (the "Responding Holders") within twenty (20) days after
receipt of any such notice from the Company, the Company will, except as herein
provided, cause the shares of Common Stock underlying this, and all like kind
Warrants (the "Warrant Securities") owned by the Responding Holders to be
included in such registration statement, all to the extent requisite to permit
the sale or other disposition by the prospective seller or sellers of the
Warrant Securities to be so registered; provided, however, that nothing herein
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<PAGE>
shall prevent the Company from, at any time, abandoning or delaying any
registration. If any registration pursuant to this Section 7.1 shall be
underwritten in whole or in part, the Company shall require that the Warrant
Securities requested for inclusion pursuant to this Section 7.1 be included in
the underwriting on the same terms and conditions as the securities otherwise
being sold through the underwriters.
Notwithstanding the foregoing, if the managing underwriter determines and
advises in writing that the inclusion of all Warrant Securities proposed to be
included in the underwritten public offering, together with any other issued and
outstanding securities proposed to be included therein by holders of securities
other than the Responding Holders, would interfere with the successful marketing
of such securities, then the number of such Warrant Securities that the managing
underwriter believes may be sold in such underwritten public offering shall be
allocated for inclusion in the registration statement in the following order of
priority, subject to any existing contractual rights of the Company: (i) the
securities being offered by the Company, (ii) the number of securities held by
other holders, including Responding Holders, on a pro rata basis, based upon the
number of securities sought to be registered by each such other holder or
Responding Holder. The Warrant Securities that are excluded from the
underwritten public offering shall be withheld from the market by the Responding
Holders for a period, not to exceed 180 days, that the managing underwriter
reasonably determines as necessary in order to effect the underwritten public
offering.
The Company shall pay the expenses described in Section 7.3 for
Registration Statements filed pursuant to this Section 7.1.
7.2. Registration Procedures. If and whenever the Company is required by
the provisions of Section 7.1 to effect the registration of Warrant Securities
under the Securities Act, the Holder shall deliver to the Company such
information that is reasonably needed by the Company to effect the registration
of Warrant Securities and the Company will:
(a) prepare and file with the SEC a registration statement with respect to
such securities, and use its best efforts to cause such registration statement
to become and, with respect to Section 7.1, remain effective for such period as
may be reasonably necessary to effect the sale of such securities, not to exceed
nine months;
(b) prepare and file with the SEC such amendments to such registration
statement and supplements to the prospectus contained therein as may be
necessary to keep such registration statement effective for such period as may
be reasonably necessary to effect the sale of such securities as set forth in
Section 7.2(a) above;
(c) furnish to the holders of Warrant Securities participating in such
registration and to the underwriters of the securities being registered, such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as the holders and such
underwriters may reasonably request in order to facilitate the public offering
of such securities;
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<PAGE>
(d) use its best efforts to register or qualify the Warrant Securities
covered by such registration statement under such state securities or blue sky
laws of such jurisdictions as the participating holders may reasonably request
in writing within twenty (20) days following the original filing of such
registration statement, except that the Company shall not for any purpose be
required to execute a general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction wherein it is not so
qualified;
(e) notify the Holders of Warrant Securities participating in such
registration, promptly after it shall receive notice thereof, of the time when
such registration statement has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed;
(f) notify such holders promptly of any request by the SEC for the amending
or supplementing of such registration statement or prospectus or for additional
information;
(g) prepare and file with the SEC, promptly upon the request of the holders
of a majority of the Warrant Securities covered thereby, any amendments or
supplements to such registration statement or prospectus which, in the opinion
of counsel for such holders (and concurred in by counsel for the Company), is
required under the Securities Act or the rules and regulations thereunder in
connection with the distribution of Shares by such Holders;
(h) prepare and promptly file with the SEC and promptly notify the holders
of the filing of such amendment or supplement to such registration statement or
prospectus as may be necessary to correct any statements or omissions if, at any
time when a prospectus relating to such securities is required to be delivered
under the Securities Act, any event shall have occurred as the result of which
any such prospectus or any other prospectus as then in effect would include an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances in which they
were made, not misleading; and
(i) advise the holders, promptly after it shall receive notice or obtain
knowledge thereof, of the issuance of any stop order by the SEC suspending the
effectiveness of such registration statement or the initiation or threatening of
any proceeding for that purpose and promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order should
be issued.
7.3 Expenses.
(a) With respect to an inclusion of Warrant Securities in a registration
statement pursuant to Section 7.1 hereof, all fees, costs and expenses of and
incidental to such registration, inclusion and public offering (as specified in
paragraph (b) below) in connection therewith shall be borne by the Company;
provided, however, that the Holders participating in such registration shall
bear their pro rata share of the underwriting discount and commissions and
transfer taxes, and each holder shall be responsible for the payment of such
holder's legal fees.
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<PAGE>
(b) The fees, costs and expenses of registration to be borne by the Company
as provided in Section 7.3(a) above shall include, without limitation, all
registration, filing, and NASD fees, printing expenses, fees and disbursements
of counsel and accountants for the Company, and all legal fees and disbursements
and other expenses of complying with state securities or blue sky laws of any
jurisdiction in which the securities to be offered are to be registered and
qualified. Fees and disbursements of counsel and accountants for the selling
holders not expressly included above shall be borne by such holders.
7.4 Indemnification.
(a) The Company will indemnify and hold harmless each holder of Warrant
Securities which are included in a registration statement pursuant to the
provisions of Section 7.1 hereof, its directors and officers, and any
underwriter (as defined in the Securities Act) for such holder and each person,
if any, who controls such Holder or such underwriter within the meaning of the
Securities Act, from and against, and will reimburse such Holder and each such
underwriter and controlling person with respect to, any and all loss, damage,
liability, cost and expense to which such Holder or any such underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, damages liabilities, costs or expenses are caused by any
untrue statement or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, damage, liability,
cost or expenses arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by such Holder, such underwriter or such controlling
person in writing specifically for use in the preparation thereof.
(b) Each holder of Warrant Securities included in a registration pursuant
to the provisions of Section 7.1 hereof will indemnify and hold harmless the
Company, its directors and officers, any controlling person and any underwriter
thereof from and against, and will reimburse the Company, its directors and
officers, any controlling person and any underwriter thereof with respect to,
any and all loss, damage, liability, cost or expense to which the Company or any
controlling person and/or any underwriter thereof may become subject under the
Securities Act or otherwise, insofar as such losses, damages, liabilities, costs
or expenses are caused by any untrue statement or alleged untrue statement of
any material fact contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein, in
light of the circumstances in which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made in reliance upon
and in strict conformity with written information furnished by or on behalf of
such holder specifically for use in the preparation thereof.
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<PAGE>
(c) Promptly after receipt by an indemnified party pursuant to the
provisions of paragraph (a) or (b) of this Section 7.4 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of said paragraph
(a) or (b), promptly notify the indemnifying party of the commencement thereof;
but the omission to so notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than
hereunder. In case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party shall have the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, that if the defendants in any action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or in addition to
those available to the indemnifying party, or if there is a conflict of interest
which would prevent counsel for the indemnifying party from also representing
the indemnified party, the indemnified party or parties shall have the right to
select separate counsel to participate in the defense of such action on behalf
of such indemnified party or parties. After notice from the indemnifying party
to an indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant to the
provisions of said paragraph (a) or (b) for any legal or other expense
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation, unless (i) the indemnified
party shall have employed counsel in accordance with the provisions of the
preceding sentence, (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after the notice of the commencement of the
action or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnified party.
8. Adjustments of Exercise Price and Number of Shares.
8.1 Computation of Adjusted Price. Except as hereinafter provided, in case
the Company shall at any time after the date hereof issue or sell any shares of
Common Stock, including shares held in the Company's treasury and shares of
Common Stock issued upon the exercise of any options, rights or warrants to
subscribe for shares of Common Stock and shares of Common Stock issued upon the
direct or indirect conversion or exchange of securities for shares of Common
Stock, for a consideration per share less than the Exercise Price in effect
immediately prior to the issuance or sale of such shares or without
consideration, then forthwith upon such issuance or sale, the Exercise Price
shall (until another such issuance or sale) be reduced to the price (calculated
to the nearest full cent) equal to the quotient derived by dividing (A) an
amount equal to the sum of (X) the product of (a) the total number of shares of
Common Stock outstanding immediately prior to such issuance or sale, multiplied
by (b) the Exercise Price in effect immediately prior to such issuance or sale,
plus, (Y) the aggregate of the amount of all consideration, if any, received by
the Company upon such issuance or sale, by (B) the total number of shares of
Common Stock outstanding immediately after such issuance or sale; provided,
however, that in no event shall the Exercise Price be adjusted pursuant to this
computation to an amount in excess of the Exercise Price in effect immediately
prior to such computation.
-8-
<PAGE>
For the purposes of any computation to be made in accordance with this
Section 8.1, the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price) before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a dividend or other
distribution on any stock of the Company) of shares of Common Stock for a
consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors of the
Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(iv) The reclassification of securities of the Company other than shares of
Common Stock into securities including shares of Common Stock shall be deemed to
involve the issuance of such shares of Common Stock for a consideration other
than cash immediately prior to the close of busi ness on the date fixed for the
determination of security holders entitled to receive such shares, and the value
of the consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (ii) of this Section 8.1.
(v) The number of shares of Common Stock at any one time outstanding shall
include the aggregate number of shares issued or issuable upon the exercise of
options, rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
8.2 Options, Rights, Warrants and Convertible and Exchangeable Securities.
If the Company shall at any time after the date hereof issue options, rights or
warrants to subscribe for shares of Common Stock, or issue any securities
convertible into or exchangeable for shares of Common Stock, (i) for a
consideration per share less than the Exercise Price in effect immediately prior
to the issuance of such options, rights or warrants, or such convertible or
exchangeable securities or (ii) without consideration, the Exercise Price in
effect immediately prior to the issuance of such options, rights or warrants, or
such convertible or exchangeable securities, as the case may be, shall be
reduced to a price determined by making a computation in accordance with the
provisions of Section 8.1 hereof, provided that:
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<PAGE>
(a) The aggregate maximum number of shares of Common Stock, as the case may
be, issuable under all the outstanding options, rights or warrants shall be
deemed to be issued and outstanding at the time all the outstanding options,
rights or warrants were issued, and for a consideration equal to the minimum
purchase price per share provided for in the options, rights or warrants at the
time of issuance, plus the consideration (determined in the same manner as
consideration received on the issue or sale of shares in accordance with the
terms of the Warrants), if any, received by the Company for the options, rights
or warrants, and if no minimum price is provided in the options, rights or
warrants, then the consideration shall be equal to zero; provided, however, that
upon the expiration or other termination of the options, rights or warrants, if
any thereof shall not have been exercised, the number of shares of Common Stock
deemed to be issued and outstanding pursuant to this subsection (a) (and for the
purposes of subsection (v) of Section 8.1 hereof) shall be reduced by such
number of shares as to which options, warrants and/or rights shall have expired
or terminated unexercised, and such number of shares shall no longer be deemed
to be issued and outstanding, and the Exercise Price then in effect shall
forthwith be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of shares actually issued
or issuable upon the exercise of those options, rights or warrants as to which
the exercise rights shall not have expired or terminated unexercised.
(b) The aggregate maximum number of shares of Common Stock issuable upon
conversion or exchange of any convertible or exchangeable securities shall be
deemed to be issued and outstanding at the time of issuance of such securities,
and for a consideration equal to the consideration (determined in the same
manner as consideration received on the issue or sale of shares of Common Stock
in accordance with the terms of the Warrants) received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; provided, however, that upon the
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason of redemption or otherwise), the number of shares
deemed to be issued and outstanding pursuant to this subsection (b) (and for the
purpose of subsection (v) of Section 8.1 hereof) shall be reduced by such number
of shares as to which the conversion or exchange rights shall have expired or
terminated unexercised, and such number of shares shall no longer be deemed to
be issued and outstanding and the Exercise Price then in effect shall forthwith
be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued or issuable upon the conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised.
(c) If any change shall occur in the price per share provided for in any of
the options, rights or warrants referred to in subsection (a) of this Section
8.2, or in the price per share at which the securities referred to in subsection
(b) of this Section 8.2 are convertible or exchangeable, the options, rights or
warrants or conversion or exchange rights, as the case may be, shall be deemed
to have expired or terminated on the date when such price change became
effective in respect of shares not theretofore issued pursuant to the exercise
or conversion or exchange thereof, and the Company shall be deemed to have
issued upon such date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable upon the exercise of such options, rights or warrants or the conversion
or exchange of such convertible or exchangeable securities.
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<PAGE>
8.3 Excepted Issues and Sales. No adjustments pursuant to this Section 8
shall be made in respect of (i) shares of Common Stock issued upon the exercise
of any option, warrant, convertible debt or other derivative security of the
Company issued and outstanding as of the date of this Warrant, (ii) shares of
Common Stock issuable pursuant to employee stock option plans, or similar
compensation plans, or pursuant to employment, consulting, advisory or other
similar agreements, (iii) shares of Common Stock underlying options and warrants
issued to investment banking firms, financial advisors, placement agents or
underwriters, (iv) shares of Common Stock offered to the public pursuant to a
registration statement under the Securities Act of 1933, as amended and (v)
shares of Common Stock issued pursuant to the acquisition of another corporation
or other entity by the Company by merger, purchase of substantially all of such
other corporation's or entity's assets, or by other reorganization whereby the
Company ends up owning, directly or indirectly, greater than 50% of the voting
power of such corporation or entity.
9. Legend. Upon exercise of any of the Warrants and the issuance of any of
the shares thereunder, all certificates representing shares shall bear on the
face thereof substantially the following legends, insofar as is consistent with
applicable law:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH
SECURITIES UNLESS THE ISSUER RECEIVES AN OPINION OF COUNSEL FOR
THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
ISSUER STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR THAT THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER
THE ACT."
10. Applicable Law. The Warrant is issued under and shall for all purposes
be governed by and construed in accordance with the laws of the State of New
York excluding the choice of law rules thereof.
11. Notices. Notices and other communications to be given to the Holder of
the Warrant evidenced by this certificate shall be deemed to have been
sufficiently given, if delivered or mailed, addressed to the Holder at 515
Madison Avenue, 21st Floor, New York, NY 10022 or at such other address as the
Holder or any successor holder shall have designated by written notice to the
Corporation as herein provided and if mailed, sent registered or certified mail,
postage prepaid. Notices or other communications to the Company shall be deemed
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<PAGE>
to have been sufficiently givenif delivered by hand or mailed, by registered or
certified mail, postage prepaid, to White Cloud Exploration, Inc., 1050
Seventeenth Street, Denver Colorado 80265, or at such other address as the
Company shall have designated by written notice to such registered owner as
herein provided. Notice by mail shall be deemed to have been given upon
delivery, if delivered personally, five business days after mailing, if mailed,
or one business day after delivery to the courier, if delivered by overnight
courier service.
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<PAGE>
IN WITNESS WHEREOF, White Cloud Exploration, Inc. has caused this Warrant
to be signed on its behalf, in its corporate name, by its duly authorized
officer, all as of the day and year first above written.
WHITE CLOUD EXPLORATION, INC.
By:
-------------------------------------------
Authorized Officer
Attest:
By:
-------------------------------------------
Secretary
STATE OF )
) ss.:
COUNTY OF )
On this ______day of ___________ 1997, before me, the undersigned Notary
Public, personally appeared _________________ _________________, who being by me
duly sworn did depose and say that he is (the) (a) ______________ of WHITE CLOUD
EXPLORATION, INC., the entity that executed the foregoing instrument and that he
executed such instrument by order of the Board of Directors, and that he signed
his name by like order.
Notary Public
-13-
<PAGE>
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing ____________ shares of Common Stock of White Cloud
Exploration, Inc. and hereby makes payment at the rate of $ ___ per share, or an
aggregate of $ ________________ in payment therefor.
- ----------------------------- ------------------------------------
Name of Registered Holder Signature, if held jointly
- ----------------------------- ------------------------------------
Signature Date
INSTRUCTIONS FOR ISSUANCE OF STOCK
(if other than to the registered Holder of the within Warrant)
Name
------------------------------------------------------------------
(Please typewrite or print in block letters)
Address
--------------------------------------------------------------
Social Security or Taxpayer
Identification Number
-------------------------------------------------
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<PAGE>
ASSIGNMENT FORM
The Holder hereby assigns and transfers unto
Name
----------------------------------------------------------------
(Please typewrite or print in block letters)
Address
-------------------------------------------------------------
the right to purchase Common Stock of White Cloud Exploration, Inc. represented
by this Warrant to the extent of ______________ shares of Common Stock as to
which such right is exercisable and does hereby irrevocably constitute and
appoint ____________________ Attorney, to transfer the same on the books of
White Cloud Exploration, Inc. with full power of substitution in the premises.
Date: ___________________, 199_
-------------------------------------------
Name of Registered Holder
-------------------------------------------
Signature
-------------------------------------------
Signature, if held jointly
-15-
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW AND
MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES UNLESS
THE ISSUER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
REASONABLY SATISFACTORY TO THE ISSUER STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT
THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT.
WHITE CLOUD EXPLORATION, INC.
September 3, 1997 75,000 shares
Warrant for the Purchase of Shares of Common Stock
FOR VALUE RECEIVED, White Cloud Exploration, Inc. (the "Company"), a Utah
corporation, hereby certifies that Raymond J. Larkin (the "Holder"), is
entitled, subject to the provisions of this warrant (the "Warrant"), to purchase
from the Company at any time, or from time to time, during the period commencing
at 9:00 a.m., New York local time on September 3 , 1997 and expiring at 5:00
p.m., New York local time, on September 3, 2000, 75,000 fully paid and
non-assessable shares of Common Stock, $.001 par value ("Common Stock"), of the
Company at an initial price of $.01 per share of Common Stock.
The term "Common Stock" means the shares of Common Stock $.001 par value,
of the Company as constituted on the date of issuance of the Warrant (the "Base
Date"). The number of shares of Common Stock to be received upon the exercise of
this Warrant may be adjusted from time to time as hereinafter set forth. The
shares of Common Stock deliverable upon such exercise, and as adjusted from time
to time, are hereinafter sometimes referred to as "Warrant Stock." The term the
"Company" means and includes the corporation named above as well as (i) any
immediate or more remote successor corporation resulting from the merger or
consolidation of such corporation (or any immediate or more remote successor
corporation of such corporation) with another corporation, and/or (ii) any
corporation to which such corporation (or any immediate or remote successor
corporation of such corporation) has transferred all or substantially all of its
property or assets as an entirety or substantially as an entirety.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and, in the case of
loss, theft or destruction, of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date.
<PAGE>
The Holder agrees with the Company that this Warrant is issued, and all the
rights hereunder shall be held, subject to all of the conditions, limitations
and provisions set forth herein.
This Warrant is issued in connection with the purchase and sale of the
Warrant and a senior subordinated promissory note of the Company (the "Note") to
the Holder.
1. Exercise of Warrant. This Warrant may be exercised in whole or in part
at any time, or from time to time, during the period commencing at 9:00 a.m.,
New York local time on September 3, 1997 and expiring at 5:00 p.m., New York
local time, on September 3, 2000 (the "Warrant Exercise Term"), or, if such day
is a day on which banking institutions in the City of New York are authorized by
law to close, then on the next succeeding day that shall not be such a day, by
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Warrant Exercise Form
attached hereto duly executed and accompanied by payment (either in cash or by
Company check, payable to the order of the Company) of the Exercise Price for
the number of shares of Common Stock specified in such Form and instruments of
transfer, if appropriate, duly executed by the Holder or his or her duly
authorized attorney. If this Warrant should be exercised in part only, the
Company shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to purchase
the balance of the shares purchasable hereunder. Upon receipt by the Company of
this Warrant, together with the Exercise Price, at its office, or by the stock
transfer agency of the Company at its office, in proper form for exercise, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such shares
of Common Stock shall not then be actually delivered to the Holder. The Company
shall pay any and all documentary stamp or similar issue payable in respect of
the issue or delivery of shares of Common Stock on exercise of this Warrant.
2. Reservation of Shares. The Company will at all times reserve for
issuance and delivery upon exercise of this Warrant all shares of Common Stock
or other shares of capital stock of the Company (and other securities and
property) from time to time receivable upon exercise of this Warrant. All such
shares (and other securities and property) shall be duly authorized and, when
issued upon such exercise, shall be validly issued, fully paid and
non-assessable and free of all preemptive rights.
3. Restrictions upon Transferability of Warrant.
3.1 Restrictions Upon Transferability. Subject to the terms and provisions
of the registration rights provisions contained in Section 7 hereof (such rights
are referred to as the "Registration Rights"), the shares of Common Stock
issuable upon exercise of this Warrant are not presently, and upon their
issuance may not be, registered under the Securities Act of 1933, as amended
(the "Act").
4. Fractional Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant, but the Company shall
issue one additional share of Common Stock in lieu of each fraction of a share
otherwise called for upon any exercise of this Warrant.
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<PAGE>
5. No Redemption. This Warrant is not redeemable by the Company.
6. Anti-Dilution Provisions.
6.1 Adjustment for Dividends in Other Securities, Property, Etc.;
Reclassification, Etc. In case at any time or from time to time after the Base
Date, the holders of Common Stock (or any other securities at the time
receivable upon the exercise of this Warrant) shall have received, or on or
after the record date fixed for the determination of eligible stockholders,
shall have become entitled to receive without payment thereof: (a) other or
additional securities, or property (other than cash) by way of dividend, (b) any
cash paid or payable except out of earned surplus of the Company at the Base
Date as increased (decreased) by subsequent credits (charges) thereto (other
than credits in respect of any capital or paid-in surplus or surplus created as
a result of a revaluation of property) or (c) other or additional (or fewer)
securities or property (including cash) by way of stock-split, spin-off,
split-up, reclassification, combination of shares or similar corporate
rearrangement (other than in each such case additional shares of Common Stock or
any securities convertible into or exchangeable for Common Stock or any rights
or options to acquire any of the foregoing, adjustments in respect of which
shall be covered by Section 6.2), then, and in each such case, the Holder of
this Warrant, upon the exercise thereof as provided in Section 1, shall be
entitled to receive the amount of securities and property (including cash in the
cases referred to in clauses (b) and (c) above) which such Holder would hold on
the date of such exercise if on the Base Date it had been the holder of record
of the number of shares of Common Stock (as constituted on the Base Date)
subscribed for upon such exercise as provided in Section 1 and had thereafter,
during the period from the Base Date to and including the date of such exercise,
retained such shares and/or all other additional (or fewer) securities and
property (including cash in the cases referred to in clauses (b) and (c) above)
receivable by it as aforesaid during such period, giving effect to all
adjustments called for during such period by Section 6.2.
6.2 Adjustment for Reorganization, Consolidation, Merger, Etc. In case of
any reorganization of the Company (or any other corporation, the securities of
which are at the time receivable on the exercise of this Warrant) after the Base
Date or in case after such date the Company (or any such other corporation)
shall consolidate with or merge into another corporation or convey all or
substantially all of its assets to another corporation, then, and in each such
case, the Holder of this Warrant upon the exercise thereof as provided in
Section 1 at any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to receive, in lieu of
the securities and property receivable upon the exercise of this Warrant prior
to such consummation, the securities and property to which such Holder would
have been entitled upon such consummation if such Holder had exercised this
Warrant immediately prior thereto, all subject to further adjustment as provided
in Section 6.1; in each such case, the terms of this Warrant shall be applicable
to the securities or property receivable upon the exercise of this Warrant after
such consummation.
-3-
<PAGE>
6.3 Notices of Record Date, Etc. In case:
(a) the Company shall take a record of the holders of its Common Stock (or
other securities at the time receivable upon the exercise of the Warrant) for
the purpose of entitling them to receive any dividend (other than a cash
dividend payable out of earned surplus) or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities, or to receive any other right; or
(b) of any capital reorganization of the Company (other than a stock split
or reverse stock split), any reclassification of the capital stock of the
Company, any consolidation or merger of the Company with or into another
corporation (other than a merger for purposes of change of domicile) or any
conveyance of all or substantially all of the assets of the Company to another
corporation; or
(c) of any voluntary or involuntary dissolution, liquidation or winding-up
of the Company; then, and in each such case, the Company shall mail or cause to
be mailed to each Holder of the Warrant at the time outstanding a notice
specifying, as the case may be, (i) the date on which a record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the date on which
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up is to take place, and the time, if any,
is to be fixed, as to which the holders of record of Common Stock (or such other
securities at the time receivable upon the exercise of the Warrant) shall be
entitled to exchange their shares of Common Stock (or such other securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up. Such notice shall be mailed at least twenty (20) days prior to the
date therein specified and this Warrant may be exercised prior to said date
during the term of the Warrant no later than five days prior to said date.
7. Registration Rights.
7.1. Incidental Registration Rights. At any time commencing on the date of
the issuance of this Warrant, if the Company shall determine to proceed with the
actual preparation and filing of a registration statement under the Securities
Act in connection with the proposed offer and sale of any of its securities by
it or any of its security holders (other than a registration statement on Form
S-4, S-8 or other limited purpose form), the Company will give written notice of
its determination to the holders of the Warrant. Upon the written request from
any of the Holders (the "Responding Holders") within twenty (20) days after
receipt of any such notice from the Company, the Company will, except as herein
provided, cause the shares of Common Stock underlying this, and all like kind
Warrants (the "Warrant Securities") owned by the Responding Holders to be
included in such registration statement, all to the extent requisite to permit
the sale or other disposition by the prospective seller or sellers of the
Warrant Securities to be so registered; provided, however, that nothing herein
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<PAGE>
shall prevent the Company from, at any time, abandoning or delayingany
registration. If any registration pursuant to this Section 7.1 shall be
underwritten in whole or in part, the Company shall require that the Warrant
Securities requested for inclusion pursuant to this Section 7.1 be included in
the underwriting on the same terms and conditions as the securities otherwise
being sold through the underwriters.
Notwithstanding the foregoing, if the managing underwriter determines and
advises in writing that the inclusion of all Warrant Securities proposed to be
included in the underwritten public offering, together with any other issued and
outstanding securities proposed to be included therein by holders of securities
other than the Responding Holders, would interfere with the successful marketing
of such securities, then the number of such Warrant Securities that the managing
underwriter believes may be sold in such underwritten public offering shall be
allocated for inclusion in the registration statement in the following order of
priority, subject to any existing contractual rights of the Company: (i) the
securities being offered by the Company, (ii) the number of securities held by
other holders, including Responding Holders, on a pro rata basis, based upon the
number of securities sought to be registered by each such other holder or
Responding Holder. The Warrant Securities that are excluded from the
underwritten public offering shall be withheld from the market by the Responding
Holders for a period, not to exceed 180 days, that the managing underwriter
reasonably determines as necessary in order to effect the underwritten public
offering.
The Company shall pay the expenses described in Section 7.3 for
Registration Statements filed pursuant to this Section 7.1.
7.2. Registration Procedures. If and whenever the Company is required by
the provisions of Section 7.1 to effect the registration of Warrant Securities
under the Securities Act, the Holder shall deliver to the Company such
information that is reasonably needed by the Company to effect the registration
of Warrant Securities and the Company will:
(a) prepare and file with the SEC a registration statement with respect to
such securities, and use its best efforts to cause such registration statement
to become and, with respect to Section 7.1, remain effective for such period as
may be reasonably necessary to effect the sale of such securities, not to exceed
nine months;
(b) prepare and file with the SEC such amendments to such registration
statement and supplements to the prospectus contained therein as may be
necessary to keep such registration statement effective for such period as may
be reasonably necessary to effect the sale of such securities as set forth in
Section 7.2(a) above;
(c) furnish to the holders of Warrant Securities participating in such
registration and to the underwriters of the securities being registered, such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as the holders and such
underwriters may reasonably request in order to facilitate the public offering
of such securities;
-5-
<PAGE>
(d) use its best efforts to register or qualify the Warrant Securities
covered by such registration statement under such state securities or blue sky
laws of such jurisdictions as the participating holders may reasonably request
in writing within twenty (20) days following the original filing of such
registration statement, except that the Company shall not for any purpose be
required to execute a general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction wherein it is not so
qualified;
(e) notify the Holders of Warrant Securities participating in such
registration, promptly after it shall receive notice thereof, of the time when
such registration statement has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed;
(f) notify such holders promptly of any request by the SEC for the amending
or supplementing of such registration statement or prospectus or for additional
information;
(g) prepare and file with the SEC, promptly upon the request of the holders
of a majority of the Warrant Securities covered thereby, any amendments or
supplements to such registration statement or prospectus which, in the opinion
of counsel for such holders (and concurred in by counsel for the Company), is
required under the Securities Act or the rules and regulations thereunder in
connection with the distribution of Shares by such Holders;
(h) prepare and promptly file with the SEC and promptly notify the holders
of the filing of such amendment or supplement to such registration statement or
prospectus as may be necessary to correct any statements or omissions if, at any
time when a prospectus relating to such securities is required to be delivered
under the Securities Act, any event shall have occurred as the result of which
any such prospectus or any other prospectus as then in effect would include an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances in which they
were made, not misleading; and
(i) advise the holders, promptly after it shall receive notice or obtain
knowledge thereof, of the issuance of any stop order by the SEC suspending the
effectiveness of such registration statement or the initiation or threatening of
any proceeding for that purpose and promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order should
be issued.
7.3 Expenses.
(a) With respect to an inclusion of Warrant Securities in a registration
statement pursuant to Section 7.1 hereof, all fees, costs and expenses of and
incidental to such registration, inclusion and public offering (as specified in
paragraph (b) below) in connection therewith shall be borne by the Company;
provided, however, that the Holders participating in such registration shall
bear their pro rata share of the underwriting discount and commissions and
transfer taxes, and each holder shall be responsible for the payment of such
holder's legal fees.
-6-
<PAGE>
(b) The fees, costs and expenses of registration to be borne by the Company
as provided in Section 7.3(a) above shall include, without limitation, all
registration, filing, and NASD fees, printing expenses, fees and disbursements
of counsel and accountants for the Company, and all legal fees and disbursements
and other expenses of complying with state securities or blue sky laws of any
jurisdiction in which the securities to be offered are to be registered and
qualified. Fees and disbursements of counsel and accountants for the selling
holders not expressly included above shall be borne by such holders.
7.4 Indemnification.
(a) The Company will indemnify and hold harmless each holder of Warrant
Securities which are included in a registration statement pursuant to the
provisions of Section 7.1 hereof, its directors and officers, and any
underwriter (as defined in the Securities Act) for such holder and each person,
if any, who controls such Holder or such underwriter within the meaning of the
Securities Act, from and against, and will reimburse such Holder and each such
underwriter and controlling person with respect to, any and all loss, damage,
liability, cost and expense to which such Holder or any such underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, damages liabilities, costs or expenses are caused by any
untrue statement or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, damage, liability,
cost or expenses arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by such Holder, such underwriter or such controlling
person in writing specifically for use in the preparation thereof.
(b) Each holder of Warrant Securities included in a registration pursuant
to the provisions of Section 7.1 hereof will indemnify and hold harmless the
Company, its directors and officers, any controlling person and any underwriter
thereof from and against, and will reimburse the Company, its directors and
officers, any controlling person and any underwriter thereof with respect to,
any and all loss, damage, liability, cost or expense to which the Company or any
controlling person and/or any underwriter thereof may become subject under the
Securities Act or otherwise, insofar as such losses, damages, liabilities, costs
or expenses are caused by any untrue statement or alleged untrue statement of
any material fact contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein, in
light of the circumstances in which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made in reliance upon
and in strict conformity with written information furnished by or on behalf of
such holder specifically for use in the preparation thereof.
-7-
<PAGE>
(c) Promptly after receipt by an indemnified party pursuant to the
provisions of paragraph (a) or (b) of this Section 7.4 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of said paragraph
(a) or (b), promptly notify the indemnifying party of the commencement thereof;
but the omission to so notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than
hereunder. In case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party shall have the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, that if the defendants in any action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or in addition to
those available to the indemnifying party, or if there is a conflict of interest
which would prevent counsel for the indemnifying party from also representing
the indemnified party, the indemnified party or parties shall have the right to
select separate counsel to participate in the defense of such action on behalf
of such indemnified party or parties. After notice from the indemnifying party
to an indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant to the
provisions of said paragraph (a) or (b) for any legal or other expense
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation, unless (i) the indemnified
party shall have employed counsel in accordance with the provisions of the
preceding sentence, (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after the notice of the commencement of the
action or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnified party.
8. Adjustments of Exercise Price and Number of Shares.
8.1 Computation of Adjusted Price. Except as hereinafter provided, in case
the Company shall at any time after the date hereof issue or sell any shares of
Common Stock, including shares held in the Company's treasury and shares of
Common Stock issued upon the exercise of any options, rights or warrants to
subscribe for shares of Common Stock and shares of Common Stock issued upon the
direct or indirect conversion or exchange of securities for shares of Common
Stock, for a consideration per share less than the Exercise Price in effect
immediately prior to the issuance or sale of such shares or without
consideration, then forthwith upon such issuance or sale, the Exercise Price
shall (until another such issuance or sale) be reduced to the price (calculated
to the nearest full cent) equal to the quotient derived by dividing (A) an
amount equal to the sum of (X) the product of (a) the total number of shares of
Common Stock outstanding immediately prior to such issuance or sale, multiplied
by (b) the Exercise Price in effect immediately prior to such issuance or sale,
plus, (Y) the aggregate of the amount of all consideration, if any, received by
the Company upon such issuance or sale, by (B) the total number of shares of
Common Stock outstanding immediately after such issuance or sale; provided,
however, that in no event shall the Exercise Price be adjusted pursuant to this
computation to an amount in excess of the Exercise Price in effect immediately
prior to such computation.
-8-
<PAGE>
For the purposes of any computation to be made in accordance with this
Section 8.1, the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price) before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a dividend or other
distribution on any stock of the Company) of shares of Common Stock for a
consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors of the
Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(iv) The reclassification of securities of the Company other than shares of
Common Stock into securities including shares of Common Stock shall be deemed to
involve the issuance of such shares of Common Stock for a consideration other
than cash immediately prior to the close of business on the date fixed for the
determination of security holders entitled to receive such shares, and the value
of the consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (ii) of this Section 8.1.
(v) The number of shares of Common Stock at any one time outstanding shall
include the aggregate number of shares issued or issuable upon the exercise of
options, rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
8.2 Options, Rights, Warrants and Convertible and Exchangeable Securities.
If the Company shall at any time after the date hereof issue options, rights or
warrants to subscribe for shares of Common Stock, or issue any securities
convertible into or exchangeable for shares of Common Stock, (i) for a
consideration per share less than the Exercise Price in effect immediately prior
to the issuance of such options, rights or warrants, or such convertible or
exchangeable securities or (ii) without consideration, the Exercise Price in
effect immediately prior to the issuance of such options, rights or warrants, or
such convertible or exchangeable securities, as the case may be, shall be
reduced to a price determined by making a computation in accordance with the
provisions of Section 8.1 hereof, provided that:
-9-
<PAGE>
(a) The aggregate maximum number of shares of Common Stock, as the case may
be, issuable under all the outstanding options, rights or warrants shall be
deemed to be issued and outstanding at the time all the outstanding options,
rights or warrants were issued, and for a consideration equal to the minimum
purchase price per share provided for in the options, rights or warrants at the
time of issuance, plus the consideration (determined in the same manner as
consideration received on the issue or sale of shares in accordance with the
terms of the Warrants), if any, received by the Company for the options, rights
or warrants, and if no minimum price is provided in the options, rights or
warrants, then the consideration shall be equal to zero; provided, however, that
upon the expiration or other termination of the options, rights or warrants, if
any thereof shall not have been exercised, the number of shares of Common Stock
deemed to be issued and outstanding pursuant to this subsection (a) (and for the
purposes of subsection (v) of Section 8.1 hereof) shall be reduced by such
number of shares as to which options, warrants and/or rights shall have expired
or terminated unexercised, and such number of shares shall no longer be deemed
to be issued and outstanding, and the Exercise Price then in effect shall
forthwith be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of shares actually issued
or issuable upon the exercise of those options, rights or warrants as to which
the exercise rights shall not have expired or terminated unexercised.
(b) The aggregate maximum number of shares of Common Stock issuable upon
conversion or exchange of any convertible or exchangeable securities shall be
deemed to be issued and outstanding at the time of issuance of such securities,
and for a consideration equal to the consideration (determined in the same
manner as consideration received on the issue or sale of shares of Common Stock
in accordance with the terms of the Warrants) received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; provided, however, that upon the
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason of redemption or otherwise), the number of shares
deemed to be issued and outstanding pursuant to this subsection (b) (and for the
purpose of subsection (v) of Section 8.1 hereof) shall be reduced by such number
of shares as to which the conversion or exchange rights shall have expired or
terminated unexercised, and such number of shares shall no longer be deemed to
be issued and outstanding and the Exercise Price then in effect shall forthwith
be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued or issuable upon the conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised.
(c) If any change shall occur in the price per share provided for in any of
the options, rights or warrants referred to in subsection (a) of this Section
8.2, or in the price per share at which the securities referred to in subsection
(b) of this Section 8.2 are convertible or exchangeable, the options, rights or
warrants or conversion or exchange rights, as the case may be, shall be deemed
to have expired or terminated on the date when such price change became
effective in respect of shares not theretofore issued pursuant to the exercise
or conversion or exchange thereof, and the Company shall be deemed to have
issued upon such date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable upon the exercise of such options, rights or warrants or the conversion
or exchange of such convertible or exchangeable securities.
-10-
<PAGE>
8.3 Excepted Issues and Sales. No adjustments pursuant to this Section 8
shall be made in respect of (i) shares of Common Stock issued upon the exercise
of any option, warrant, convertible debt or other derivative security of the
Company issued and outstanding as of the date of this Warrant, (ii) shares of
Common Stock issuable pursuant to employee stock option plans, or similar
compensation plans, or pursuant to employment, consulting, advisory or other
similar agreements, (iii) shares of Common Stock underlying options and warrants
issued to investment banking firms, financial advisors, placement agents or
underwriters, (iv) shares of Common Stock offered to the public pursuant to a
registration statement under the Securities Act of 1933, as amended and (v)
shares of Common Stock issued pursuant to the acquisition of another corporation
or other entity by the Company by merger, purchase of substantially all of such
other corporation's or entity's assets, or by other reorganization whereby the
Company ends up owning, directly or indirectly, greater than 50% of the voting
power of such corporation or entity.
9. Legend. Upon exercise of any of the Warrants and the issuance of any of
the shares thereunder, all certificates representing shares shall bear on the
face thereof substantially the following legends, insofar as is consistent with
applicable law:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH
SECURITIES UNLESS THE ISSUER RECEIVES AN OPINION OF COUNSEL FOR
THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
ISSUER STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR THAT THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER
THE ACT."
10. Applicable Law. The Warrant is issued under and shall for all purposes
be governed by and construed in accordance with the laws of the State of New
York excluding the choice of law rules thereof.
11. Notices. Notices and other communications to be given to the Holder of
the Warrant evidenced by this certificate shall be deemed to have been
sufficiently given, if delivered or mailed, addressed to the Holder at 515
Madison Avenue, 21st Floor, New York, NY 10022 or at such other address as the
Holder or any successor holder shall have designated by written notice to the
Corporation as herein provided and if mailed, sent registered or certified mail,
postage prepaid. Notices or other communications to the Company shall be deemed
-11-
<PAGE>
to have been sufficiently given if delivered by hand or mailed, by registered or
certified mail, postage prepaid, to White Cloud Exploration, Inc., 1050
Seventeenth Street, Denver Colorado 80265, or at such other address as the
Company shall have designated by written notice to such registered owner as
herein provided. Notice by mail shall be deemed to have been given upon
delivery, if delivered personally, five business days after mailing, if mailed,
or one business day after delivery to the courier, if delivered by overnight
courier service.
-12-
<PAGE>
IN WITNESS WHEREOF, White Cloud Exploration, Inc. has caused this Warrant
to be signed on its behalf, in its corporate name, by its duly authorized
officer, all as of the day and year first above written.
WHITE CLOUD EXPLORATION, INC.
By:
-----------------------------------------
Authorized Officer
Attest:
By:
-----------------------------------------
Secretary
STATE OF )
) ss.:
COUNTY OF )
On this ______day of ___________ 1997, before me, the undersigned Notary
Public, personally appeared _________________ _________________, who being by me
duly sworn did depose and say that he is (the) (a) ______________ of WHITE CLOUD
EXPLORATION, INC., the entity that executed the foregoing instrument and that he
executed such instrument by order of the Board of Directors, and that he signed
his name by like order.
Notary Public
-13-
<PAGE>
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing ____________ shares of Common Stock of White Cloud
Exploration, Inc. and hereby makes payment at the rate of $ ___ per share, or an
aggregate of $ ________________ in payment therefor.
- ------------------------------- --------------------------------------
Name of Registered Holder Signature, if held jointly
- ------------------------------- --------------------------------------
Signature Date
INSTRUCTIONS FOR ISSUANCE OF STOCK
(if other than to the registered Holder of the within Warrant)
Name
---------------------------------------------------------------
(Please typewrite or print in block letters)
Address
-----------------------------------------------------------
Social Security or Taxpayer
Identification Number
----------------------------------------------
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<PAGE>
ASSIGNMENT FORM
The Holder hereby assigns and transfers unto
Name
----------------------------------------------------------------
(Please typewrite or print in block letters)
Address
-------------------------------------------------------------
the right to purchase Common Stock of White Cloud Exploration, Inc. represented
by this Warrant to the extent of ______________ shares of Common Stock as to
which such right is exercisable and does hereby irrevocably constitute and
appoint ____________________ Attorney, to transfer the same on the books of
White Cloud Exploration, Inc. with full power of substitution in the premises.
Date: ___________________, 199_
----------------------------------------
Name of Registered Holder
----------------------------------------
Signature
----------------------------------------
Signature, if held jointly
-15-
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW AND
MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES UNLESS
THE ISSUER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
REASONABLY SATISFACTORY TO THE ISSUER STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT
THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT.
WHITE CLOUD EXPLORATION, INC.
September 3, 1997 25,000 shares
Warrant for the Purchase of Shares of Common Stock
FOR VALUE RECEIVED, White Cloud Exploration, Inc. (the "Company"), a Utah
corporation, hereby certifies that Mark G. Hollo (the "Holder"), is entitled,
subject to the provisions of this warrant (the "Warrant"), to purchase from the
Company at any time, or from time to time, during the period commencing at 9:00
a.m., New York local time on September 3, 1997 and expiring at 5:00 p.m., New
York local time, on September 3, 2002, 25,000 fully paid and non-assessable
shares of Common Stock, $.001 par value ("Common Stock"), of the Company at an
initial price of $.01 per share of Common Stock.
The term "Common Stock" means the shares of Common Stock $.001 par value,
of the Company as constituted on the date of issuance of the Warrant (the "Base
Date"). The number of shares of Common Stock to be received upon the exercise of
this Warrant may be adjusted from time to time as hereinafter set forth. The
shares of Common Stock deliverable upon such exercise, and as adjusted from time
to time, are hereinafter sometimes referred to as "Warrant Stock." The term the
"Company" means and includes the corporation named above as well as (i) any
immediate or more remote successor corporation resulting from the merger or
consolidation of such corporation (or any immediate or more remote successor
corporation of such corporation) with another corporation, and/or (ii) any
corporation to which such corporation (or any immediate or remote successor
corporation of such corporation) has transferred all or substantially all of its
property or assets as an entirety or substantially as an entirety.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and, in the case of
loss, theft or destruction, of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date.
<PAGE>
The Holder agrees with the Company that this Warrant is issued, and all the
rights hereunder shall be held, subject to all of the conditions, limitations
and provisions set forth herein.
This Warrant is issued in connection with the purchase and sale of the
Warrant and a senior subordinated promissory note of the Company (the "Note") to
the Holder.
1. Exercise of Warrant. This Warrant may be exercised in whole or in part
at any time, or from time to time, during the period commencing at 9:00 a.m.,
New York local time on September 3, 1997 and expiring at 5:00 p.m., New York
local time, on September 3, 2002 (the "Warrant Exercise Term"), or, if such day
is a day on which banking institutions in the City of New York are authorized by
law to close, then on the next succeeding day that shall not be such a day, by
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Warrant Exercise Form
attached hereto duly executed and accompanied by payment (either in cash or by
Company check, payable to the order of the Company) of the Exercise Price for
the number of shares of Common Stock specified in such Form and instruments of
transfer, if appropriate, duly executed by the Holder or his or her duly
authorized attorney. If this Warrant should be exercised in part only, the
Company shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to purchase
the balance of the shares purchasable hereunder. Upon receipt by the Company of
this Warrant, together with the Exercise Price, at its office, or by the stock
transfer agency of the Company at its office, in proper form for exercise, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such shares
of Common Stock shall not then be actually delivered to the Holder. The Company
shall pay any and all documentary stamp or similar issue payable in respect of
the issue or delivery of shares of Common Stock on exercise of this Warrant.
2. Reservation of Shares. The Company will at all times reserve for
issuance and delivery upon exercise of this Warrant all shares of Common Stock
or other shares of capital stock of the Company (and other securities and
property) from time to time receivable upon exercise of this Warrant. All such
shares (and other securities and property) shall be duly authorized and, when
issued upon such exercise, shall be validly issued, fully paid and
non-assessable and free of all preemptive rights.
3. Restrictions upon Transferability of Warrant.
3.1 Restrictions Upon Transferability. Subject to the terms and provisions
of the registration rights provisions contained in Section 7 hereof (such rights
are referred to as the "Registration Rights"), the shares of Common Stock
issuable upon exercise of this Warrant are not presently, and upon their
issuance may not be, registered under the Securities Act of 1933, as amended
(the "Act").
4. Fractional Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant, but the Company shall
issue one additional share of Common Stock in lieu of each fraction of a share
otherwise called for upon any exercise of this Warrant.
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<PAGE>
5. No Redemption. This Warrant is not redeemable by the Company.
6. Anti-Dilution Provisions.
6.1 Adjustment for Dividends in Other Securities, Property, Etc.;
Reclassification, Etc. In case at any time or from time to time after the Base
Date, the holders of Common Stock (or any other securities at the time
receivable upon the exercise of this Warrant) shall have received, or on or
after the record date fixed for the determination of eligible stockholders,
shall have become entitled to receive without payment thereof: (a) other or
additional securities, or property (other than cash) by way of dividend, (b) any
cash paid or payable except out of earned surplus of the Company at the Base
Date as increased (decreased) by subsequent credits (charges) thereto (other
than credits in respect of any capital or paid-in surplus or surplus created as
a result of a revaluation of property) or (c) other or additional (or fewer)
securities or property (including cash) by way of stock-split, spin-off,
split-up, reclassification, combination of shares or similar corporate
rearrangement (other than in each such case additional shares of Common Stock or
any securities convertible into or exchangeable for Common Stock or any rights
or options to acquire any of the foregoing, adjustments in respect of which
shall be covered by Section 6.2), then, and in each such case, the Holder of
this Warrant, upon the exercise thereof as provided in Section 1, shall be
entitled to receive the amount of securities and property (including cash in the
cases referred to in clauses (b) and (c) above) which such Holder would hold on
the date of such exercise if on the Base Date it had been the holder of record
of the number of shares of Common Stock (as constituted on the Base Date)
subscribed for upon such exercise as provided in Section 1 and had thereafter,
during the period from the Base Date to and including the date of such exercise,
retained such shares and/or all other additional (or fewer) securities and
property (including cash in the cases referred to in clauses (b) and (c) above)
receivable by it as aforesaid during such period, giving effect to all
adjustments called for during such period by Section 6.2.
6.2 Adjustment for Reorganization, Consolidation, Merger, Etc. In case of
any reorganization of the Company (or any other corporation, the securities of
which are at the time receivable on the exercise of this Warrant) after the Base
Date or in case after such date the Company (or any such other corporation)
shall consolidate with or merge into another corporation or convey all or
substantially all of its assets to another corporation, then, and in each such
case, the Holder of this Warrant upon the exercise thereof as provided in
Section 1 at any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to receive, in lieu of
the securities and property receivable upon the exercise of this Warrant prior
to such consummation, the securities and property to which such Holder would
have been entitled upon such consummation if such Holder had exercised this
Warrant immediately prior thereto, all subject to further adjustment as provided
in Section 6.1; in each such case, the terms of this Warrant shall be applicable
to the securities or property receivable upon the exercise of this Warrant after
such consummation.
-3-
<PAGE>
6.3 Notices of Record Date, Etc. In case:
(a) the Company shall take a record of the holders of its Common Stock (or
other securities at the time receivable upon the exercise of the Warrant) for
the purpose of entitling them to receive any dividend (other than a cash
dividend payable out of earned surplus) or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities, or to receive any other right; or
(b) of any capital reorganization of the Company (other than a stock split
or reverse stock split), any reclassification of the capital stock of the
Company, any consolidation or merger of the Company with or into another
corporation (other than a merger for purposes of change of domicile) or any
conveyance of all or substantially all of the assets of the Company to another
corporation; or
(c) of any voluntary or involuntary dissolution, liquidation or winding-up
of the Company; then, and in each such case, the Company shall mail or cause to
be mailed to each Holder of the Warrant at the time outstanding a notice
specifying, as the case may be, (i) the date on which a record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the date on which
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up is to take place, and the time, if any,
is to be fixed, as to which the holders of record of Common Stock (or such other
securities at the time receivable upon the exercise of the Warrant) shall be
entitled to exchange their shares of Common Stock (or such other securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up. Such notice shall be mailed at least twenty (20) days prior to the
date therein specified and this Warrant may be exercised prior to said date
during the term of the Warrant no later than five days prior to said date.
7. Registration Rights.
7.1. Incidental Registration Rights. At any time commencing on the date of
the issuance of this Warrant, if the Company shall determine to proceed with the
actual preparation and filing of a registration statement under the Securities
Act in connection with the proposed offer and sale of any of its securities by
it or any of its security holders (other than a registration statement on Form
S-4, S-8 or other limited purpose form), the Company will give written notice of
its determination to the holders of the Warrant. Upon the written request from
any of the Holders (the "Responding Holders") within twenty (20) days after
receipt of any such notice from the Company, the Company will, except as herein
provided, cause the shares of Common Stock underlying this, and all like kind
Warrants (the "Warrant Securities") owned by the Responding Holders to be
included in such registration statement, all to the extent requisite to permit
the sale or other disposition by the prospective seller or sellers of the
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Warrant Securities to be so registered; provided, however, that nothing herein
shall prevent the Company from, at any time, abandoning or delaying any
registration. If any registration pursuant to this Section 7.1 shall be
underwritten in whole or in part, the Company shall require that the Warrant
Securities requested for inclusion pursuant to this Section 7.1 be included in
the underwriting on the same terms and conditions as the securities otherwise
being sold through the underwriters.
Notwithstanding the foregoing, if the managing underwriter determines and
advises in writing that the inclusion of all Warrant Securities proposed to be
included in the underwritten public offering, together with any other issued and
outstanding securities proposed to be included therein by holders of securities
other than the Responding Holders, would interfere with the successful marketing
of such securities, then the number of such Warrant Securities that the managing
underwriter believes may be sold in such underwritten public offering shall be
allocated for inclusion in the registration statement in the following order of
priority, subject to any existing contractual rights of the Company: (i) the
securities being offered by the Company, (ii) the number of securities held by
other holders, including Responding Holders, on a pro rata basis, based upon the
number of securities sought to be registered by each such other holder or
Responding Holder. The Warrant Securities that are excluded from the
underwritten public offering shall be withheld from the market by the Responding
Holders for a period, not to exceed 180 days, that the managing underwriter
reasonably determines as necessary in order to effect the underwritten public
offering.
The Company shall pay the expenses described in Section 7.3 for
Registration Statements filed pursuant to this Section 7.1.
7.2. Registration Procedures. If and whenever the Company is required by
the provisions of Section 7.1 to effect the registration of Warrant Securities
under the Securities Act, the Holder shall deliver to the Company such
information that is reasonably needed by the Company to effect the registration
of Warrant Securities and the Company will:
(a) prepare and file with the SEC a registration statement with respect to
such securities, and use its best efforts to cause such registration statement
to become and, with respect to Section 7.1, remain effective for such period as
may be reasonably necessary to effect the sale of such securities, not to exceed
nine months;
(b) prepare and file with the SEC such amendments to such registration
statement and supplements to the prospectus contained therein as may be
necessary to keep such registration statement effective for such period as may
be reasonably necessary to effect the sale of such securities as set forth in
Section 7.2(a) above;
(c) furnish to the holders of Warrant Securities participating in such
registration and to the underwriters of the securities being registered, such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as the holders and such
underwriters may reasonably request in order to facilitate the public offering
of such securities;
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<PAGE>
(d) use its best efforts to register or qualify the Warrant Securities
covered by such registration statement under such state securities or blue sky
laws of such jurisdictions as the participating holders may reasonably request
in writing within twenty (20) days following the original filing of such
registration statement, except that the Company shall not for any purpose be
required to execute a general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction wherein it is not so
qualified;
(e) notify the Holders of Warrant Securities participating in such
registration, promptly after it shall receive notice thereof, of the time when
such registration statement has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed;
(f) notify such holders promptly of any request by the SEC for the amending
or supplementing of such registration statement or prospectus or for additional
information;
(g) prepare and file with the SEC, promptly upon the request of the holders
of a majority of the Warrant Securities covered thereby, any amendments or
supplements to such registration statement or prospectus which, in the opinion
of counsel for such holders (and concurred in by counsel for the Company), is
required under the Securities Act or the rules and regulations thereunder in
connection with the distribution of Shares by such Holders;
(h) prepare and promptly file with the SEC and promptly notify the holders
of the filing of such amendment or supplement to such registration statement or
prospectus as may be necessary to correct any statements or omissions if, at any
time when a prospectus relating to such securities is required to be delivered
under the Securities Act, any event shall have occurred as the result of which
any such prospectus or any other prospectus as then in effect would include an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances in which they
were made, not misleading; and
(i) advise the holders, promptly after it shall receive notice or obtain
knowledge thereof, of the issuance of any stop order by the SEC suspending the
effectiveness of such registration statement or the initiation or threatening of
any proceeding for that purpose and promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order should
be issued.
7.3 Expenses.
(a) With respect to an inclusion of Warrant Securities in a registration
statement pursuant to Section 7.1 hereof, all fees, costs and expenses of and
incidental to such registration, inclusion and public offering (as specified in
paragraph (b) below) in connection therewith shall be borne by the Company;
provided, however, that the Holders participating in such registration shall
bear their pro rata share of the underwriting discount and commissions and
transfer taxes, and each holder shall be responsible for the payment of such
holder's legal fees.
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<PAGE>
(b) The fees, costs and expenses of registration to be borne by the Company
as provided in Section 7.3(a) above shall include, without limitation, all
registration, filing, and NASD fees, printing expenses, fees and disbursements
of counsel and accountants for the Company, and all legal fees and disbursements
and other expenses of complying with state securities or blue sky laws of any
jurisdiction in which the securities to be offered are to be registered and
qualified. Fees and disbursements of counsel and accountants for the selling
holders not expressly included above shall be borne by such holders.
7.4 Indemnification.
(a) The Company will indemnify and hold harmless each holder of Warrant
Securities which are included in a registration statement pursuant to the
provisions of Section 7.1 hereof, its directors and officers, and any
underwriter (as defined in the Securities Act) for such holder and each person,
if any, who controls such Holder or such underwriter within the meaning of the
Securities Act, from and against, and will reimburse such Holder and each such
underwriter and controlling person with respect to, any and all loss, damage,
liability, cost and expense to which such Holder or any such underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, damages liabilities, costs or expenses are caused by any
untrue statement or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, damage, liability,
cost or expenses arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by such Holder, such underwriter or such controlling
person in writing specifically for use in the preparation thereof.
(b) Each holder of Warrant Securities included in a registration pursuant
to the provisions of Section 7.1 hereof will indemnify and hold harmless the
Company, its directors and officers, any controlling person and any underwriter
thereof from and against, and will reimburse the Company, its directors and
officers, any controlling person and any underwriter thereof with respect to,
any and all loss, damage, liability, cost or expense to which the Company or any
controlling person and/or any underwriter thereof may become subject under the
Securities Act or otherwise, insofar as such losses, damages, liabilities, costs
or expenses are caused by any untrue statement or alleged untrue statement of
any material fact contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein, in
light of the circumstances in which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made in reliance upon
and in strict conformity with written information furnished by or on behalf of
such holder specifically for use in the preparation thereof.
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<PAGE>
(c) Promptly after receipt by an indemnified party pursuant to the
provisions of paragraph (a) or (b) of this Section 7.4 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of said paragraph
(a) or (b), promptly notify the indemnifying party of the commencement thereof;
but the omission to so notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than
hereunder. In case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party shall have the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, that if the defendants in any action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or in addition to
those available to the indemnifying party, or if there is a conflict of interest
which would prevent counsel for the indemnifying party from also representing
the indemnified party, the indemnified party or parties shall have the right to
select separate counsel to participate in the defense of such action on behalf
of such indemnified party or parties. After notice from the indemnifying party
to an indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant to the
provisions of said paragraph (a) or (b) for any legal or other expense
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation, unless (i) the indemnified
party shall have employed counsel in accordance with the provisions of the
preceding sentence, (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after the notice of the commencement of the
action or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnified party.
8. Adjustments of Exercise Price and Number of Shares.
8.1 Computation of Adjusted Price. Except as hereinafter provided, in case
the Company shall at any time after the date hereof issue or sell any shares of
Common Stock, including shares held in the Company's treasury and shares of
Common Stock issued upon the exercise of any options, rights or warrants to
subscribe for shares of Common Stock and shares of Common Stock issued upon the
direct or indirect conversion or exchange of securities for shares of Common
Stock, for a consideration per share less than the Exercise Price in effect
immediately prior to the issuance or sale of such shares or without
consideration, then forthwith upon such issuance or sale, the Exercise Price
shall (until another such issuance or sale) be reduced to the price (calculated
to the nearest full cent) equal to the quotient derived by dividing (A) an
amount equal to the sum of (X) the product of (a) the total number of shares of
Common Stock outstanding immediately prior to such issuance or sale, multiplied
by (b) the Exercise Price in effect immediately prior to such issuance or sale,
plus, (Y) the aggregate of the amount of all consideration, if any, received by
the Company upon such issuance or sale, by (B) the total number of shares of
Common Stock outstanding immediately after such issuance or sale; provided,
however, that in no event shall the Exercise Price be adjusted pursuant to this
computation to an amount in excess of the Exercise Price in effect immediately
prior to such computation.
-8-
<PAGE>
For the purposes of any computation to be made in accordance with this
Section 8.1, the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price) before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a dividend or other
distribution on any stock of the Company) of shares of Common Stock for a
consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors of the
Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(iv) The reclassification of securities of the Company other than shares of
Common Stock into securities including shares of Common Stock shall be deemed to
involve the issuance of such shares of Common Stock for a consideration other
than cash immediately prior to the close of business on the date fixed for the
determination of security holders entitled to receive such shares, and the value
of the consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (ii) of this Section 8.1.
(v) The number of shares of Common Stock at any one time outstanding shall
include the aggregate number of shares issued or issuable upon the exercise of
options, rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
8.2 Options, Rights, Warrants and Convertible and Exchangeable Securities.
If the Company shall at any time after the date hereof issue options, rights or
warrants to subscribe for shares of Common Stock, or issue any securities
convertible into or exchangeable for shares of Common Stock, (i) for a
consideration per share less than the Exercise Price in effect immediately prior
to the issuance of such options, rights or warrants, or such convertible or
exchangeable securities or (ii) without consideration, the Exercise Price in
effect immediately prior to the issuance of such options, rights or warrants, or
such convertible or exchangeable securities, as the case may be, shall be
reduced to a price determined by making a computation in accordance with the
provisions of Section 8.1 hereof, provided that:
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<PAGE>
(a) The aggregate maximum number of shares of Common Stock, as the case may
be, issuable under all the outstanding options, rights or warrants shall be
deemed to be issued and outstanding at the time all the outstanding options,
rights or warrants were issued, and for a consideration equal to the minimum
purchase price per share provided for in the options, rights or warrants at the
time of issuance, plus the consideration (determined in the same manner as
consideration received on the issue or sale of shares in accordance with the
terms of the Warrants), if any, received by the Company for the options, rights
or warrants, and if no minimum price is provided in the options, rights or
warrants, then the consideration shall be equal to zero; provided, however, that
upon the expiration or other termination of the options, rights or warrants, if
any thereof shall not have been exercised, the number of shares of Common Stock
deemed to be issued and outstanding pursuant to this subsection (a) (and for the
purposes of subsection (v) of Section 8.1 hereof) shall be reduced by such
number of shares as to which options, warrants and/or rights shall have expired
or terminated unexercised, and such number of shares shall no longer be deemed
to be issued and outstanding, and the Exercise Price then in effect shall
forthwith be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of shares actually issued
or issuable upon the exercise of those options, rights or warrants as to which
the exercise rights shall not have expired or terminated unexercised.
(b) The aggregate maximum number of shares of Common Stock issuable upon
conversion or exchange of any convertible or exchangeable securities shall be
deemed to be issued and outstanding at the time of issuance of such securities,
and for a consideration equal to the consideration (determined in the same
manner as consideration received on the issue or sale of shares of Common Stock
in accordance with the terms of the Warrants) received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; provided, however, that upon the
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason of redemption or otherwise), the number of shares
deemed to be issued and outstanding pursuant to this subsection (b) (and for the
purpose of subsection (v) of Section 8.1 hereof) shall be reduced by such number
of shares as to which the conversion or exchange rights shall have expired or
terminated unexercised, and such number of shares shall no longer be deemed to
be issued and outstanding and the Exercise Price then in effect shall forthwith
be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued or issuable upon the conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised.
(c) If any change shall occur in the price per share provided for in any of
the options, rights or warrants referred to in subsection (a) of this Section
8.2, or in the price per share at which the securities referred to in subsection
(b) of this Section 8.2 are convertible or exchangeable, the options, rights or
warrants or conversion or exchange rights, as the case may be, shall be deemed
to have expired or terminated on the date when such price change became
effective in respect of shares not theretofore issued pursuant to the exercise
or conversion or exchange thereof, and the Company shall be deemed to have
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<PAGE>
issued upon such date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable upon the exercise of such options, rights or warrants or the conversion
or exchange of such convertible or exchangeable securities.
8.3 Excepted Issues and Sales. No adjustments pursuant to this Section 8
shall be made in respect of (i) shares of Common Stock issued upon the exercise
of any option, warrant, convertible debt or other derivative security of the
Company issued and outstanding as of the date of this Warrant, (ii) shares of
Common Stock issuable pursuant to employee stock option plans, or similar
compensation plans, or pursuant to employment, consulting, advisory or other
similar agreements, (iii) shares of Common Stock underlying options and warrants
issued to investment banking firms, financial advisors, placement agents or
underwriters, (iv) shares of Common Stock offered to the public pursuant to a
registration statement under the Securities Act of 1933, as amended and (v)
shares of Common Stock issued pursuant to the acquisition of another corporation
or other entity by the Company by merger, purchase of substantially all of such
other corporation's or entity's assets, or by other reorganization whereby the
Company ends up owning, directly or indirectly, greater than 50% of the voting
power of such corporation or entity.
9. Legend. Upon exercise of any of the Warrants and the issuance of any of
the shares thereunder, all certificates representing shares shall bear on the
face thereof substantially the following legends, insofar as is consistent with
applicable law:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH
SECURITIES UNLESS THE ISSUER RECEIVES AN OPINION OF COUNSEL FOR
THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
ISSUER STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR THAT THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER
THE ACT."
10. Applicable Law. The Warrant is issued under and shall for all purposes
be governed by and construed in accordance with the laws of the State of New
York excluding the choice of law rules thereof.
11. Notices. Notices and other communications to be given to the Holder of
the Warrant evidenced by this certificate shall be deemed to have been
sufficiently given, if delivered or mailed, addressed to the Holder at 90 Park
Avenue, 39th Floor, New York, NY 10016 or at such other address as the Holder or
any successor holder shall have designated by written notice to the Corporation
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<PAGE>
as herein provided and if mailed, sent registered or certified mail, postage
prepaid. Notices or other communications to the Company shall be deemed to have
been sufficiently given if delivered by hand or mailed, by registered or
certified mail, postage prepaid, to White Cloud Exploration, Inc., 1050
Seventeenth Street, Denver Colorado 80265, or at such other address as the
Company shall have designated by written notice to such registered owner as
herein provided. Notice by mail shall be deemed to have been given upon
delivery, if delivered personally, five business days after mailing, if mailed,
or one business day after delivery to the courier, if delivered by overnight
courier service.
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<PAGE>
IN WITNESS WHEREOF, White Cloud Exploration, Inc. has caused this Warrant
to be signed on its behalf, in its corporate name, by its duly authorized
officer, all as of the day and year first above written.
WHITE CLOUD EXPLORATION, INC.
By:
------------------------------------------
Authorized Officer
Attest:
By:
------------------------------------------
Secretary
STATE OF )
) ss.:
COUNTY OF )
On this ______day of ___________ 1997, before me, the undersigned Notary
Public, personally appeared _________________ _________________, who being by me
duly sworn did depose and say that he is (the) (a) ______________ of WHITE CLOUD
EXPLORATION, INC., the entity that executed the foregoing instrument and that he
executed such instrument by order of the Board of Directors, and that he signed
his name by like order.
Notary Public
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<PAGE>
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing ____________ shares of Common Stock of White Cloud
Exploration, Inc. and hereby makes payment at the rate of $ ___ per share, or an
aggregate of $ ________________ in payment therefor.
- ------------------------------ ----------------------------------------
Name of Registered Holder Signature, if held jointly
- ------------------------------ ----------------------------------------
Signature Date
INSTRUCTIONS FOR ISSUANCE OF STOCK
(if other than to the registered Holder of the within Warrant)
Name
-----------------------------------------------------------
(Please typewrite or print in block letters)
Address
--------------------------------------------------------
Social Security or Taxpayer
Identification Number
------------------------------------------
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<PAGE>
ASSIGNMENT FORM
The Holder hereby assigns and transfers unto
Name
----------------------------------------------------------------
(Please typewrite or print in block letters)
Address
-------------------------------------------------------------
the right to purchase Common Stock of White Cloud Exploration, Inc. represented
by this Warrant to the extent of ______________ shares of Common Stock as to
which such right is exercisable and does hereby irrevocably constitute and
appoint ____________________ Attorney, to transfer the same on the books of
White Cloud Exploration, Inc. with full power of substitution in the premises.
Date: ___________________, 199_
-------------------------------------------
Name of Registered Holder
-------------------------------------------
Signature
-------------------------------------------
Signature, if held jointly
-15-
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW AND
MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES UNLESS
THE ISSUER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
REASONABLY SATISFACTORY TO THE ISSUER STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT
THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT.
WHITE CLOUD EXPLORATION, INC.
September 3, 1997 50,000 shares
Warrant for the Purchase of Shares of Common Stock
FOR VALUE RECEIVED, White Cloud Exploration, Inc. (the "Company"), a Utah
corporation, hereby certifies that Sands Brothers & Co., Ltd., or its designees
(the "Holder"), is entitled, subject to the provisions of this warrant (the
"Warrant"), to purchase from the Company at any time, or from time to time,
during the period commencing at 9:00 a.m., New York local time on September 3,
1997 and expiring at 5:00 p.m., New York local time, on September 3, 2002,
50,000 fully paid and non-assessable shares of Common Stock, $.001 par value
("Common Stock"), of the Company at an initial price of $.01 per share of Common
Stock.
The term "Common Stock" means the shares of Common Stock $.001 par value,
of the Company as constituted on the date of issuance of the Warrant (the "Base
Date"). The number of shares of Common Stock to be received upon the exercise of
this Warrant may be adjusted from time to time as hereinafter set forth. The
shares of Common Stock deliverable upon such exercise, and as adjusted from time
to time, are hereinafter sometimes referred to as "Warrant Stock." The term the
"Company" means and includes the corporation named above as well as (i) any
immediate or more remote successor corporation resulting from the merger or
consolidation of such corporation (or any immediate or more remote successor
corporation of such corporation) with another corporation, and/or (ii) any
corporation to which such corporation (or any immediate or remote successor
corporation of such corporation) has transferred all or substantially all of its
property or assets as an entirety or substantially as an entirety.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and, in the case of
loss, theft or destruction, of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date.
<PAGE>
The Holder agrees with the Company that this Warrant is issued, and all the
rights hereunder shall be held, subject to all of the conditions, limitations
and provisions set forth herein.
This Warrant is issued in connection with the purchase and sale of the
Warrant and a senior subordinated promissory note of the Company (the "Note") to
the Holder.
1. Exercise of Warrant. This Warrant may be exercised in whole or in part
at any time, or from time to time, during the period commencing at 9:00 a.m.,
New York local time on September 3, 1997 and expiring at 5:00 p.m., New York
local time, on September 3, 2002 (the "Warrant Exercise Term"), or, if such day
is a day on which banking institutions in the City of New York are authorized by
law to close, then on the next succeeding day that shall not be such a day, by
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Warrant Exercise Form
attached hereto duly executed and accompanied by payment (either in cash or by
Company check, payable to the order of the Company) of the Exercise Price for
the number of shares of Common Stock specified in such Form and instruments of
transfer, if appropriate, duly executed by the Holder or his or her duly
authorized attorney. If this Warrant should be exercised in part only, the
Company shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to purchase
the balance of the shares purchasable hereunder. Upon receipt by the Company of
this Warrant, together with the Exercise Price, at its office, or by the stock
transfer agency of the Company at its office, in proper form for exercise, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such shares
of Common Stock shall not then be actually delivered to the Holder. The Company
shall pay any and all documentary stamp or similar issue payable in respect of
the issue or delivery of shares of Common Stock on exercise of this Warrant.
2. Reservation of Shares. The Company will at all times reserve for
issuance and delivery upon exercise of this Warrant all shares of Common Stock
or other shares of capital stock of the Company (and other securities and
property) from time to time receivable upon exercise of this Warrant. All such
shares (and other securities and property) shall be duly authorized and, when
issued upon such exercise, shall be validly issued, fully paid and
non-assessable and free of all preemptive rights.
3. Restrictions upon Transferability of Warrant.
3.1 Restrictions Upon Transferability. Subject to the terms and provisions
of the registration rights provisions contained in Section 7 hereof (such rights
are referred to as the "Registration Rights"), the shares of Common Stock
issuable upon exercise of this Warrant are not presently, and upon their
issuance may not be, registered under the Securities Act of 1933, as amended
(the "Act").
4. Fractional Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant, but the Company shall
issue one additional share of Common Stock in lieu of each fraction of a share
otherwise called for upon any exercise of this Warrant.
2
<PAGE>
5. No Redemption. This Warrant is not redeemable by the Company.
6. Anti-Dilution Provisions.
6.1 Adjustment for Dividends in Other Securities, Property, Etc.;
Reclassification, Etc. In case at any time or from time to time after the Base
Date, the holders of Common Stock (or any other securities at the time
receivable upon the exercise of this Warrant) shall have received, or on or
after the record date fixed for the determination of eligible stockholders,
shall have become entitled to receive without payment thereof: (a) other or
additional securities, or property (other than cash) by way of dividend, (b) any
cash paid or payable except out of earned surplus of the Company at the Base
Date as increased (decreased) by subsequent credits (charges) thereto (other
than credits in respect of any capital or paid-in surplus or surplus created as
a result of a revaluation of property) or (c) other or additional (or fewer)
securities or property (including cash) by way of stock-split, spin-off,
split-up, reclassification, combination of shares or similar corporate
rearrangement (other than in each such case additional shares of Common Stock or
any securities convertible into or exchangeable for Common Stock or any rights
or options to acquire any of the foregoing, adjustments in respect of which
shall be covered by Section 6.2), then, and in each such case, the Holder of
this Warrant, upon the exercise thereof as provided in Section 1, shall be
entitled to receive the amount of securities and property (including cash in the
cases referred to in clauses (b) and (c) above) which such Holder would hold on
the date of such exercise if on the Base Date it had been the holder of record
of the number of shares of Common Stock (as constituted on the Base Date)
subscribed for upon such exercise as provided in Section 1 and had thereafter,
during the period from the Base Date to and including the date of such exercise,
retained such shares and/or all other additional (or fewer) securities and
property (including cash in the cases referred to in clauses (b) and (c) above)
receivable by it as aforesaid during such period, giving effect to all
adjustments called for during such period by Section 6.2.
6.2 Adjustment for Reorganization, Consolidation, Merger, Etc. In case of
any reorganization of the Company (or any other corporation, the securities of
which are at the time receivable on the exercise of this Warrant) after the Base
Date or in case after such date the Company (or any such other corporation)
shall consolidate with or merge into another corporation or convey all or
substantially all of its assets to another corporation, then, and in each such
case, the Holder of this Warrant upon the exercise thereof as provided in
Section 1 at any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to receive, in lieu of
the securities and property receivable upon the exercise of this Warrant prior
to such consummation, the securities and property to which such Holder would
have been entitled upon such consummation if such Holder had exercised this
Warrant immediately prior thereto, all subject to further adjustment as provided
in Section 6.1; in each such case, the terms of this Warrant shall be applicable
to the securities or property receivable upon the exercise of this Warrant after
such consummation.
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6.3 Notices of Record Date, Etc. In case:
(a) the Company shall take a record of the holders of its Common Stock (or
other securities at the time receivable upon the exercise of the Warrant) for
the purpose of entitling them to receive any dividend (other than a cash
dividend payable out of earned surplus) or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities, or to receive any other right; or
(b) of any capital reorganization of the Company (other than a stock split
or reverse stock split), any reclassification of the capital stock of the
Company, any consolidation or merger of the Company with or into another
corporation (other than a merger for purposes of change of domicile) or any
conveyance of all or substantially all of the assets of the Company to another
corporation; or
(c) of any voluntary or involuntary dissolution, liquidation or winding-up
of the Company; then, and in each such case, the Company shall mail or cause to
be mailed to each Holder of the Warrant at the time outstanding a notice
specifying, as the case may be, (i) the date on which a record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the date on which
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up is to take place, and the time, if any,
is to be fixed, as to which the holders of record of Common Stock (or such other
securities at the time receivable upon the exercise of the Warrant) shall be
entitled to exchange their shares of Common Stock (or such other securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up. Such notice shall be mailed at least twenty (20) days prior to the
date therein specified and this Warrant may be exercised prior to said date
during the term of the Warrant no later than five days prior to said date.
. Registration Rights.
7.1. Incidental Registration Rights. At any time commencing on the date of
the issuance of this Warrant, if the Company shall determine to proceed with the
actual preparation and filing of a registration statement under the Securities
Act in connection with the proposed offer and sale of any of its securities by
it or any of its security holders (other than a registration statement on Form
S-4, S-8 or other limited purpose form), the Company will give written notice of
its determination to the holders of the Warrant. Upon the written request from
any of the Holders (the "Responding Holders") within twenty (20) days after
receipt of any such notice from the Company, the Company will, except as herein
provided, cause the shares of Common Stock underlying this, and all like kind
Warrants (the "Warrant Securities") owned by the Responding Holders to be
included in such registration statement, all to the extent requisite to permit
the sale or other disposition by the prospective seller or sellers of the
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Warrant Securities to be so registered; provided, however, that nothing herein
shall prevent the Company from, at any time, abandoning or delaying any
registration. If any registration pursuant to this Section 7.1 shall be
underwritten in whole or in part, the Company shall require that the Warrant
Securities requested for inclusion pursuant to this Section 7.1 be included in
the underwriting on the same terms and conditions as the securities otherwise
being sold through the underwriters.
Notwithstanding the foregoing, if the managing underwriter determines and
advises in writing that the inclusion of all Warrant Securities proposed to be
included in the underwritten public offering, together with any other issued and
outstanding securities proposed to be included therein by holders of securities
other than the Responding Holders, would interfere with the successful marketing
of such securities, then the number of such Warrant Securities that the managing
underwriter believes may be sold in such underwritten public offering shall be
allocated for inclusion in the registration statement in the following order of
priority, subject to any existing contractual rights of the Company: (i) the
securities being offered by the Company, (ii) the number of securities held by
other holders, including Responding Holders, on a pro rata basis, based upon the
number of securities sought to be registered by each such other holder or
Responding Holder. The Warrant Securities that are excluded from the
underwritten public offering shall be withheld from the market by the Responding
Holders for a period, not to exceed 180 days, that the managing underwriter
reasonably determines as necessary in order to effect the underwritten public
offering.
The Company shall pay the expenses described in Section 7.3 for
Registration Statements filed pursuant to this Section 7.1.
7.2. Registration Procedures. If and whenever the Company is required by
the provisions of Section 7.1 to effect the registration of Warrant Securities
under the Securities Act, the Holder shall deliver to the Company such
information that is reasonably needed by the Company to effect the registration
of Warrant Securities and the Company will:
(a) prepare and file with the SEC a registration statement with respect to
such securities, and use its best efforts to cause such registration statement
to become and, with respect to Section 7.1, remain effective for such period as
may be reasonably necessary to effect the sale of such securities, not to exceed
nine months;
(b) prepare and file with the SEC such amendments to such registration
statement and supplements to the prospectus contained therein as may be
necessary to keep such registration statement effective for such period as may
be reasonably necessary to effect the sale of such securities as set forth in
Section 7.2(a) above;
(c) furnish to the holders of Warrant Securities participating in such
registration and to the underwriters of the securities being registered, such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as the holders and such
underwriters may reasonably request in order to facilitate the public offering
of such securities;
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(d) use its best efforts to register or qualify the Warrant Securities
covered by such registration statement under such state securities or blue sky
laws of such jurisdictions as the participating holders may reasonably request
in writing within twenty (20) days following the original filing of such
registration statement, except that the Company shall not for any purpose be
required to execute a general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction wherein it is not so
qualified;
(e) notify the Holders of Warrant Securities participating in such
registration, promptly after it shall receive notice thereof, of the time when
such registration statement has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed;
(f) notify such holders promptly of any request by the SEC for the amending
or supplementing of such registration statement or prospectus or for additional
information;
(g) prepare and file with the SEC, promptly upon the request of the holders
of a majority of the Warrant Securities covered thereby, any amendments or
supplements to such registration statement or prospectus which, in the opinion
of counsel for such holders (and concurred in by counsel for the Company), is
required under the Securities Act or the rules and regulations thereunder in
connection with the distribution of Shares by such Holders;
(h) prepare and promptly file with the SEC and promptly notify the holders
of the filing of such amendment or supplement to such registration statement or
prospectus as may be necessary to correct any statements or omissions if, at any
time when a prospectus relating to such securities is required to be delivered
under the Securities Act, any event shall have occurred as the result of which
any such prospectus or any other prospectus as then in effect would include an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances in which they
were made, not misleading; and
(i) advise the holders, promptly after it shall receive notice or obtain
knowledge thereof, of the issuance of any stop order by the SEC suspending the
effectiveness of such registration statement or the initiation or threatening of
any proceeding for that purpose and promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order should
be issued.
7.3 Expenses.
(a) With respect to an inclusion of Warrant Securities in a registration
statement pursuant to Section 7.1 hereof, all fees, costs and expenses of and
incidental to such registration, inclusion and public offering (as specified in
paragraph (b) below) in connection therewith shall be borne by the Company;
provided, however, that the Holders participating in such registration shall
bear their pro rata share of the underwriting discount and commissions and
transfer taxes, and each holder shall be responsible for the payment of such
holder's legal fees.
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(b) The fees, costs and expenses of registration to be borne by the Company
as provided in Section 7.3(a) above shall include, without limitation, all
registration, filing, and NASD fees, printing expenses, fees and disbursements
of counsel and accountants for the Company, and all legal fees and disbursements
and other expenses of complying with state securities or blue sky laws of any
jurisdiction in which the securities to be offered are to be registered and
qualified. Fees and disbursements of counsel and accountants for the selling
holders not expressly included above shall be borne by such holders.
7.4 Indemnification.
(a) The Company will indemnify and hold harmless each holder of Warrant
Securities which are included in a registration statement pursuant to the
provisions of Section 7.1 hereof, its directors and officers, and any
underwriter (as defined in the Securities Act) for such holder and each person,
if any, who controls such Holder or such underwriter within the meaning of the
Securities Act, from and against, and will reimburse such Holder and each such
underwriter and controlling person with respect to, any and all loss, damage,
liability, cost and expense to which such Holder or any such underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, damages liabilities, costs or expenses are caused by any
untrue statement or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, damage, liability,
cost or expenses arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by such Holder, such underwriter or such controlling
person in writing specifically for use in the preparation thereof.
(b) Each holder of Warrant Securities included in a registration pursuant
to the provisions of Section 7.1 hereof will indemnify and hold harmless the
Company, its directors and officers, any controlling person and any underwriter
thereof from and against, and will reimburse the Company, its directors and
officers, any controlling person and any underwriter thereof with respect to,
any and all loss, damage, liability, cost or expense to which the Company or any
controlling person and/or any underwriter thereof may become subject under the
Securities Act or otherwise, insofar as such losses, damages, liabilities, costs
or expenses are caused by any untrue statement or alleged untrue statement of
any material fact contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein, in
light of the circumstances in which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made in reliance upon
and in strict conformity with written information furnished by or on behalf of
such holder specifically for use in the preparation thereof.
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(c) Promptly after receipt by an indemnified party pursuant to the
provisions of paragraph (a) or (b) of this Section 7.4 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of said paragraph
(a) or (b), promptly notify the indemnifying party of the commencement thereof;
but the omission to so notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than
hereunder. In case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party shall have the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, that if the defendants in any action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or in addition to
those available to the indemnifying party, or if there is a conflict of interest
which would prevent counsel for the indemnifying party from also representing
the indemnified party, the indemnified party or parties shall have the right to
select separate counsel to participate in the defense of such action on behalf
of such indemnified party or parties. After notice from the indemnifying party
to an indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant to the
provisions of said paragraph (a) or (b) for any legal or other expense
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation, unless (i) the indemnified
party shall have employed counsel in accordance with the provisions of the
preceding sentence, (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after the notice of the commencement of the
action or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnified party.
8. Adjustments of Exercise Price and Number of Shares.
8.1 Computation of Adjusted Price. Except as hereinafter provided, in case
the Company shall at any time after the date hereof issue or sell any shares of
Common Stock, including shares held in the Company's treasury and shares of
Common Stock issued upon the exercise of any options, rights or warrants to
subscribe for shares of Common Stock and shares of Common Stock issued upon the
direct or indirect conversion or exchange of securities for shares of Common
Stock, for a consideration per share less than the Exercise Price in effect
immediately prior to the issuance or sale of such shares or without
consideration, then forthwith upon such issuance or sale, the Exercise Price
shall (until another such issuance or sale) be reduced to the price (calculated
to the nearest full cent) equal to the quotient derived by dividing (A) an
amount equal to the sum of (X) the product of (a) the total number of shares of
Common Stock outstanding immediately prior to such issuance or sale, multiplied
by (b) the Exercise Price in effect immediately prior to such issuance or sale,
plus, (Y) the aggregate of the amount of all consideration, if any, received by
the Company upon such issuance or sale, by (B) the total number of shares of
Common Stock outstanding immediately after such issuance or sale; provided,
however, that in no event shall the Exercise Price be adjusted pursuant to this
computation to an amount in excess of the Exercise Price in effect immediately
prior to such computation.
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For the purposes of any computation to be made in accordance with this
Section 8.1, the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price) before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a dividend or other
distribution on any stock of the Company) of shares of Common Stock for a
consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors of the
Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(iv) The reclassification of securities of the Company other than shares of
Common Stock into securities including shares of Common Stock shall be deemed to
involve the issuance of such shares of Common Stock for a consideration other
than cash immediately prior to the close of business on the date fixed for the
determination of security holders entitled to receive such shares, and the value
of the consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (ii) of this Section 8.1.
(v) The number of shares of Common Stock at any one time outstanding shall
include the aggregate number of shares issued or issuable upon the exercise of
options, rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
8.2 Options, Rights, Warrants and Convertible and Exchangeable Securities.
If the Company shall at any time after the date hereof issue options, rights or
warrants to subscribe for shares of Common Stock, or issue any securities
convertible into or exchangeable for shares of Common Stock, (i) for a
consideration per share less than the Exercise Price in effect immediately prior
to the issuance of such options, rights or warrants, or such convertible or
exchangeable securities or (ii) without consideration, the Exercise Price in
effect immediately prior to the issuance of such options, rights or warrants, or
such convertible or exchangeable securities, as the case may be, shall be
reduced to a price determined by making a computation in accordance with the
provisions of Section 8.1 hereof, provided that:
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(a) The aggregate maximum number of shares of Common Stock, as the case may
be, issuable under all the outstanding options, rights or warrants shall be
deemed to be issued and outstanding at the time all the outstanding options,
rights or warrants were issued, and for a consideration equal to the minimum
purchase price per share provided for in the options, rights or warrants at the
time of issuance, plus the consideration (determined in the same manner as
consideration received on the issue or sale of shares in accordance with the
terms of the Warrants), if any, received by the Company for the options, rights
or warrants, and if no minimum price is provided in the options, rights or
warrants, then the consideration shall be equal to zero; provided, however, that
upon the expiration or other termination of the options, rights or warrants, if
any thereof shall not have been exercised, the number of shares of Common Stock
deemed to be issued and outstanding pursuant to this subsection (a) (and for the
purposes of subsection (v) of Section 8.1 hereof) shall be reduced by such
number of shares as to which options, warrants and/or rights shall have expired
or terminated unexercised, and such number of shares shall no longer be deemed
to be issued and outstanding, and the Exercise Price then in effect shall
forthwith be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of shares actually issued
or issuable upon the exercise of those options, rights or warrants as to which
the exercise rights shall not have expired or terminated unexercised.
(b) The aggregate maximum number of shares of Common Stock issuable upon
conversion or exchange of any convertible or exchangeable securities shall be
deemed to be issued and outstanding at the time of issuance of such securities,
and for a consideration equal to the consideration (determined in the same
manner as consideration received on the issue or sale of shares of Common Stock
in accordance with the terms of the Warrants) received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; provided, however, that upon the
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason of redemption or otherwise), the number of shares
deemed to be issued and outstanding pursuant to this subsection (b) (and for the
purpose of subsection (v) of Section 8.1 hereof) shall be reduced by such number
of shares as to which the conversion or exchange rights shall have expired or
terminated unexercised, and such number of shares shall no longer be deemed to
be issued and outstanding and the Exercise Price then in effect shall forthwith
be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued or issuable upon the conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised.
(c) If any change shall occur in the price per share provided for in any of
the options, rights or warrants referred to in subsection (a) of this Section
8.2, or in the price per share at which the securities referred to in subsection
(b) of this Section 8.2 are convertible or exchangeable, the options, rights or
warrants or conversion or exchange rights, as the case may be, shall be deemed
to have expired or terminated on the date when such price change became
effective in respect of shares not theretofore issued pursuant to the exercise
or conversion or exchange thereof, and the Company shall be deemed to have
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issued upon such date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable upon the exercise of such options, rights or warrants or the conversion
or exchange of such convertible or exchangeable securities.
8.3 Excepted Issues and Sales. No adjustments pursuant to this Section 8
shall be made in respect of (i) shares of Common Stock issued upon the exercise
of any option, warrant, convertible debt or other derivative security of the
Company issued and outstanding as of the date of this Warrant, (ii) shares of
Common Stock issuable pursuant to employee stock option plans, or similar
compensation plans, or pursuant to employment, consulting, advisory or other
similar agreements, (iii) shares of Common Stock underlying options and warrants
issued to investment banking firms, financial advisors, placement agents or
underwriters, (iv) shares of Common Stock offered to the public pursuant to a
registration statement under the Securities Act of 1933, as amended and (v)
shares of Common Stock issued pursuant to the acquisition of another corporation
or other entity by the Company by merger, purchase of substantially all of such
other corporation's or entity's assets, or by other reorganization whereby the
Company ends up owning, directly or indirectly, greater than 50% of the voting
power of such corporation or entity.
9. Legend. Upon exercise of any of the Warrants and the issuance of any of
the shares thereunder, all certificates representing shares shall bear on the
face thereof substantially the following legends, insofar as is consistent with
applicable law:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH
SECURITIES UNLESS THE ISSUER RECEIVES AN OPINION OF COUNSEL FOR
THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
ISSUER STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR THAT THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER
THE ACT."
10. Applicable Law. The Warrant is issued under and shall for all purposes
be governed by and construed in accordance with the laws of the State of New
York excluding the choice of law rules thereof.
11. Notices. Notices and other communications to be given to the Holder of
the Warrant evidenced by this certificate shall be deemed to have been
sufficiently given, if delivered or mailed, addressed to the Holder at 90 Park
Avenue, 39th Floor, New York, NY 10016 or at such other address as the Holder or
any successor holder shall have designated by written notice to the Corporation
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as herein provided and if mailed, sent registered or certified mail, postage
prepaid. Notices or other communications to the Company shall be deemed to have
been sufficiently given if delivered by hand or mailed, by registered or
certified mail, postage prepaid, to White Cloud Exploration, Inc., 1050
Seventeenth Street, Denver Colorado 80265, or at such other address as the
Company shall have designated by written notice to such registered owner as
herein provided. Notice by mail shall be deemed to have been given upon
delivery, if delivered personally, five business days after mailing, if mailed,
or one business day after delivery to the courier, if delivered by overnight
courier service.
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IN WITNESS WHEREOF, White Cloud Exploration, Inc. has caused this Warrant
to be signed on its behalf, in its corporate name, by its duly authorized
officer, all as of the day and year first above written.
WHITE CLOUD EXPLORATION, INC.
By:
--------------------------------------------
Authorized Officer
Attest:
By:
--------------------------------------------
Secretary
STATE OF )
) ss.:
COUNTY OF )
On this ______day of ___________ 1997, before me, the undersigned Notary
Public, personally appeared _________________ _________________, who being by me
duly sworn did depose and say that he is (the) (a) ______________ of WHITE CLOUD
EXPLORATION, INC., the entity that executed the foregoing instrument and that he
executed such instrument by order of the Board of Directors, and that he signed
his name by like order.
Notary Public
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WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing ____________ shares of Common Stock of White Cloud
Exploration, Inc. and hereby makes payment at the rate of $ ___ per share, or an
aggregate of $ ________________ in payment therefor.
- ------------------------------ ----------------------------------------
Name of Registered Holder Signature, if held jointly
- ------------------------------ ----------------------------------------
Signature Date
INSTRUCTIONS FOR ISSUANCE OF STOCK
(if other than to the registered Holder of the within Warrant)
Name
-----------------------------------------------------------
(Please typewrite or print in block letters)
Address
-------------------------------------------------------
Social Security or Taxpayer
Identification Number
-----------------------------------------
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ASSIGNMENT FORM
The Holder hereby assigns and transfers unto
Name
----------------------------------------------------------------
(Please typewrite or print in block letters)
Address
-------------------------------------------------------------
the right to purchase Common Stock of White Cloud Exploration, Inc. represented
by this Warrant to the extent of ______________ shares of Common Stock as to
which such right is exercisable and does hereby irrevocably constitute and
appoint ____________________ Attorney, to transfer the same on the books of
White Cloud Exploration, Inc. with full power of substitution in the premises.
Date: ___________________, 199_
-----------------------------------------
Name of Registered Holder
-----------------------------------------
Signature
-----------------------------------------
Signature, if held jointly
15
