UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Pursuant to Sections 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 24, 1997
ISO BLOCK PRODUCTS USA, INC.
(Exact name of registrant as specified in charter)
Colorado
(State or other jurisdiction of incorporation or organization)
33-23257-D 84-1026503
(Commission File Number) (I.R.S. Employer Identification Number)
8037 South Datura Street, Littleton, Colorado 80120
(Address of Principal Executive Offices and Zip Code)
(303) 795-9729
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)
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Item 2. Acquisition of Assets.
ISO BLOCK PRODUCTS USA, INC., a Colorado corporation ("Company") is filing
this report in regard to certain acquisitions of other companies, as reported
below. The Company is in the process of bringing current its filings with the
Securities and Exchange Commission. The Company's securities are not quoted,
listed or traded in any securities markets.
The Company entered into an Exchange Agreement and Plan of Reorganization
dated December 27, 1996 ("Exchange Agreement"), with FRANCHISE CONNECTION, INC.,
a Colorado corporation ("Franchise Connection"); and the shareholders of
Franchise Connection. Under the terms of the Exchange Agreement, the Company
agreed to acquire and subsequently has acquired all of the issued and
outstanding shares of capital stock of Franchise Connection (the "Control
Shares"), in exchange for shares of the Company's common stock and preferred
stock. Franchise Connection has developed or acquired the franchise development
rights to certain companies. The Exchange Agreement transactions were
consummated as of January 24, 1997.
Terms of the Exchange Agreement
Pursuant to the Exchange Agreement, the Shareholders sold the Control
Shares respectively owned by them to the Company in exchange for 500,000 shares
of the authorized but unissued shares of the Company's common stock, no par
value, and 1,500,000 shares of the Series 1996 Non-Voting Convertible Preferred
Stock, no par value, of the Company, subject to adjustment as provided below
(collectively, the "Exchange Shares"). The preferred Exchange Shares shall be
convertible into shares of the no-par value common stock of the Company
("Conversion Shares") three (3) years from the date of issuance at the following
conversion rate:
(i) if Franchise Connection has by then sold an aggregate of 150
franchises, consisting of all or any franchises marketed by Franchise
Connection, each preferred Exchange Share will be convertible into one (1)
Conversion Share; or
(ii) if Franchise Connection has by then sold an aggregate of less
than 150 franchises, the number of Conversion Shares into which the
preferred Exchange Shares are convertible will be proportionally reduced.
If Franchise Connection has sold an aggregate of less than 100 franchises
by the third anniversary of the closing under the definitive agreement, then in
addition to the adjustment set forth in paragraph (b)(ii) above, the Company may
at its election demand the surrender and cancellation of and may unilaterally
cancel a percentage of the 500,000 common Exchange Shares equal to the
percentage of the shortfall of franchises sold based on 150 franchises (ex: if
only 75 are sold, then 50% of such shares may be cancelled). The number of
Exchange Shares and Conversion Shares issuable are subject to adjustment for
other reasons provided in the Exchange Agreement.
The Exchange Shares have not been and the Conversion Shares will not be
registered under the Securities Act of 1933, as amended ("Act"), in reliance
upon exemptions from registration provided by Section 4(2) of the Act and under
the securities or blue sky laws of any state or any rules or regulations
promulgated thereunder, on the grounds that the Exchange is a transaction not
involving any public offering. Each shareholder of Franchise Connection
acknowledged and agreed in writing that he or she acquired the Exchange Shares
for his or her own account, with no current intent to resell or make a
distribution of all or any portion thereof, that the Exchange Shares are and the
Conversion Shares will be "restricted securities," as that term is defined in
Rule 144 of the General Rules and Regulations of the Securities and Exchange
Commission ("SEC") under the Act, and that the Exchange Shares and Conversion
Shares must be held indefinitely, unless they are subsequently registered under
the Act or an exemption from such registration requirements is available for
their resale. Each certificate evidencing Exchange Shares bears a customary form
of investment legend restricting transfer of such shares unless the transfer is
made pursuant to registration under the Act or an available exemption from the
registration requirements of the Act.
At the closing under the Exchange Agreement, Johnny M. Wilson was elected
to the Company's board of directors and continues to be a director of Franchise
Connection and Brilliant Marketing! Inc, a wholly owned subsidiary of Franchise
Connection ("BMI"). Mr. Wilson will continue to serve as chief executive and
chief operating officer of Franchise Connection and BMI. Egin Bresnig and Dean
Wicker, officers and directors of the Company, were elected to the board of
directors of Franchise Connection, and Dean Wicker serves as Chairman of the
board of Franchise Connection.
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Prior to the closing under the Exchange Agreement, the Company loaned an
aggregate of $50,000 to Franchise Connection to be used as working capital. All
such funds constituted bridge loans to Franchise Connection, bearing simple
interest at 8% per annum, principal and all interest being repayable in a single
installment within nine months from the dates of advance. As provided in the
Exchange Agreement, such notes and all interest owed will be converted to an
equity investment in Franchise Connection by the Company and serve to increase
the Company's basis in Franchise Connection.
The Company is obligated over the twelve (12) months following the closing
to make available to Franchise Connection an aggregate of an additional
$300,000, subject to adjustment as provided in the Exchange Agreement, to be
advanced monthly. Such funds will be advanced within five days prior to the
month in which needed upon written request of Franchise Connection, which shall
specify the amount needed and general use intended. Such amounts will be loaned
to Franchise Connection on customary commercial terms.
At the closing under the Exchange Agreement, the Company entered into an
Employment Agreement by and among Franchise Connection, BMI and Johnny M. Wilson
for a three year period. Under the terms of the Employment Agreement, Mr. Wilson
will be employed by both BMI and the Franchise Connection as Chief Executive
Officer and President and will serve as Chairman of the board of directors of
both companies. He also will serve in any other capacity as designated by either
company' board of directors. He will not compete with Franchise Connection or
BMI or any franchise project now or later undertaken by Franchise Connection or
BMI or engage in any franchise-related business whatsoever, as consultant,
employee or otherwise, except those operated by Franchise Connection and BMI.
Johnny M. Wilson has 25 years' experience in the franchise industry. He is
an attorney specializing in franchise development. Mr. Wilson has started three
franchise companies with one existing unit and grew two of them to over 250
units in less than four years. The other Company was sold to an outside
investment group after two years. Mr. Wilson served as President, CEO, and
director of PakMail Centers of America from 1984 to 1990 growing the Company
from one unit to 255 units. Mr. Wilson, as a licensed attorney, has served, and
continues to serve, as a legal and franchise consultant to the franchise
industry, He has served as host of Business Radio Network's syndicated show
"Grand Opening" featuring franchise issues. Mr. Wilson has been instrumental in
developing over 20 franchise organizations. He has represented major franchise
companies and conducted national seminars on "Franchising in Today's Market."
Business of Franchise Connection
Franchise Connection was incorporated in Colorado in 1996 with headquarters
in Denver, Colorado. The Company plans to form strategic partnerships with
prospective or existing franchise operations ("Franchisers") under which it will
provide them with marketing and sales services plus business and legal services
in return for an equity interest in, and/or a portion of their royalties. It is
targeting private companies which are seeking to franchise expertise or
financial capacity to successfully engage in franchising. The Company will offer
comprehensive franchise marketing and consulting services to its Franchisers
companies including operations, personnel, management, training, legal and
financial advice. In addition, Franchise Connection will assume total
responsibility for the recruitment of franchisees. This will include national
media advertising, trade show attendance, and other forms of promotion supported
by a commissioned sales staff.
The Company does not intend to limit the identification of a Franchiser
prospects to a particular industry. In the evaluation of a prospective
Franchiser, the Company will generally be guided by a number of factors,
including analysis of a prospect's financial position, the experience of its
management, the product, service and/or concept offered and the identification
of its competitors, as well as its ability to show a profit at the franchisee
level. To date, Franchise Connection has established a strategic partnership
with several companies which will be the initial base franchises. Franchise
Connection receives a franchise sales commission plus has varying interests in
each company ranging from full ownership to a royalty agreement. The initial
base franchises include BMI, a small business marketing and training firm wholly
owned by Franchise Connection which offers a step-by-step, comprehensive,
consistent marketing system that is custom designed for each client; ENCORE
NAILS, a nail salon which offers women a nail covering which is attractive and
durable using a revolutionary, proprietary process; HYDRO-PHYSICS, a pipe
inspection service using video technology to inspect or locate underground water
or sewer pipe breakages; and, FOOT LAB, a full service, compact, self contained,
insole "foot bed" manufacturing station which can produce a foot platform that
is custom shaped to a person's foot.
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Competition. There are many firms engaged in the business of franchising
small companies, and competition is fierce. Franchise Connection believes that
its particular marketing orientation (the marketing of less expensive franchises
of low-entry cost businesses) combined with Johnny Wilson's experience and
background will enable it to thrive.
Employees. Franchise Connection and its subsidiaries currently employ 2
people in full-time positions and employ others as needed. Staff will be added
only as needed, and there is a labor pool or persons with experience in the
business of Franchise Connection available at a reasonable cost.
Facilities
Franchise Connection and Brilliant Marketing! currently occupy office space
located at 4155 East Jewell Avenue, Suite 1001, Denver, Colorado 80222, leased
from unaffiliated third parties.
Beneficial Ownership Following Acquisition
The following table sets forth as of January 24, 1997, the names of persons
who own of record, or were known by the Company to own beneficially, more than
five percent (5%) of its total issued and outstanding common stock and the
beneficial ownership of all such stock as of that date by executive officers and
directors of the Company and all such executive officers and directors as a
group, giving effect to the Agreement and the issuance of common stock
thereunder. Except as otherwise noted, each person listed below is the sole
beneficial owner of the shares and has sole investment and voting power as to
such shares. No person listed below has any option, warrant or other right to
acquire additional securities of the Company, except as may be otherwise noted.
Name and Address Amount & Nature
of Beneficial of Beneficial
Title of Class Owner Ownership
- -------------- ----- ---------
Common Stock *Egin Bresnig 356,500 - 1
no par value 8037 So. Datura Street
Littleton, Colorado 80120
SAME *Dean Wicker 367,500 - 1
5176 East Davis Drive
Littleton, Colorado 80122
SAME *Johnny M. Wilson 462,500 - 2
1885 S. Evanston
Aurora, Colorado 80012
SAME Josef Ratey 490,000 - 3
Albert-Kohler-Str. 23
77883 Ottenhoffen, Germany
SAME John D. Brasher Jr. 365,000 - 1
3773 Cherry Creek North Drive, Suite 615
Denver, Colorado 80209
*All officers and directors 1,186,500
as a group (3 persons)
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1. Includes options to purchase 200,000 shares of common stock pursuant to the
Company's 1993 Compensatory Stock Option Plan.
2. Includes options to purchase 100,000 common shares pursuant to an Employment
Agreement.
3. Mr. Ratey retained 250,000 shares of common stock pursuant to a Settlement
Agreement dated November 22, 1996 and was granted options to purchase 240,000
shares of the common stock of the Company.
Terms of the Series 1996, Non-Voting
Convertible Preferred Stock
The Board of Directors established and authorized for issuance an aggregate
of 1,500,000 shares of Series 1996, Non-Voting Convertible Preferred Stock
("Preferred Shares") without par or stated value. No dividends are payable on
the Preferred Shares, and the Preferred Shares are not redeemable except by the
mutual consent of the Company and the holders of the Preferred Shares.
Subject to adjustment as noted above, each Preferred Share may, at any time
on or after January 24, 2000, be converted into one (1) fully paid and
nonassessable share of the Company's Common Stock. Conversion will be deemed to
occur on the date a certificate or certificates representing the Preferred
Shares being converted are presented to the Company, properly endorsed. No
fractional Common Shares will be issued. Such conversion rate is further subject
to adjustment if the Company is reorganized, merged, consolidated or party to a
plan of exchange with another corporation pursuant to which shareholders of the
Company receive any shares of stock or other securities, or in the event of any
sale or other transfer of all or substantially all of the Company's assets, or
in case of any reclassification of or split or reverse split of the Common
Stock.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of Preferred Shares then outstanding
shall be subordinate to all claims of the Company's creditors and to all claims
of the holders of every other series of the Company's preferred stock then
issued and outstanding (unless such a series is expressly made subordinate to or
of a parity with the Preferred Shares) but otherwise are entitled to share
ratably with the holders of the Company's common stock in the Company's assets
available for distribution to its shareholders.
Holders of Preferred Shares do not have the right to vote in the election
of directors of the Company or, generally, on any other matters upon which
shareholders of the Company may or must vote and shall have only such voting
rights as a class as are conferred by the Colorado Business Corporation Act.
Whenever the Preferred Shares are entitled to vote, each Preferred Share shall
be entitled to one vote.
Item 6. Resignation of Registrant's Director.
Effective November 22, 1996, Josef Ratey resigned as a Director of the
Company pursuant to the terms of a Settlement Agreement among Ratey, the
Company, Helge Seidel, an individual ("Seidel"), and R-S Plus Investment Corp.,
a Florida corporation ("R-S PLUS"). The Settlement Agreement also provided for,
among other things, the cancellation of an aggregate of 1,737,500 of the
2,000,000 common shares of the Company issued to Ratey, Seidel and R-S PLUS in
1994.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements. No financial statements for Franchise Connection
are filed herewith. The Company intends to file the required financial
information as soon as practicable.
(b) Pro Forma Financial Information. No pro forma financial statements are
filed herewith. The Company intends to file the required financial information
as soon as practicable.
(c) Exhibits:
2.1 Exchange Agreement and Plan of Reorganization dated December 27, 1996
among the Company, Franchise Connection, Inc. and the shareholders of
Franchise connection, Inc.
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3.1 Certificate of Amendment to the Articles of Incorporation of the
Company; Resolution of the Board of Directors of the Company
Establishing the Series 1996 Non-Voting Convertible Preferred Stock,
as filed with the Colorado Secretary of State on January 23, 1997.
10.1 Employment Agreement dated December 27, 1996, among the Company,
Franchise Connection, Inc., Brilliant Marketing! Inc. and Johnny M.
Wilson.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report on Form 8-K to be signed on its behalf by
the undersigned, thereunto duly authorized.
DATED: February 13, 1997
ISO BLOCK PRODUCTS USA, INC.
By: /s/ Egin Bresnig
--------------------
Egin Bresnig, President, Chief Exec. Officer
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
to
CURRENT REPORT
on
FORM 8-K
of
Champion Computer Rentals, Inc.
SEC File No. 33-23257-D
7
EXCHANGE AGREEMENT AND
PLAN OF REORGANIZATION
This Exchange Agreement ("Agreement") is made and entered into this
December 27, 1996 by and among ISO BLOCK PRODUCTS USA, INC., a Colorado
corporation ("Purchaser" or "ISO BLOCK"); FRANCHISE CONNECTION, INC., a Colorado
corporation ("Acquired Company" or "Franchise Connection"); and those persons
executing this Agreement in their capacity as Shareholders of Acquired Company
(the "Shareholders").
RECITALS:
WHEREAS, effective on October 16, 1996, Purchaser and Franchise Connection
entered into a letter of intent which expressed the parties' interest in, among
other things, consummating a transaction in which Purchaser would acquire all of
the issued and outstanding common stock of Franchise Connection; and
WHEREAS, Purchaser now desires to acquire all of the issued and outstanding
shares of capital stock of Franchise Connection (the "Control Shares"), in
exchange for shares of Purchaser's common stock; and Franchise Connection has
developed or acquired the franchise development rights to certain companies and
has the opportunity to acquire other rights, and desires to become a wholly
owned subsidiary of ISO Block; and
WHEREAS, the respective boards of directors of Purchaser and Franchise
Connection have approved the execution of this Agreement and performance of
their respective obligations hereunder.
NOW THEREFORE, for and in consideration of the mutual promises and
covenants contained herein, and for other good and valuable consideration, and
subject to the terms and conditions of this Agreement, the parties hereto agree
as follows:
1. THE EXCHANGE.
1.01 Exchange of the Exchange Shares and Control Shares. Subject to and
upon the terms and conditions contained herein, at the closing of the
transactions contemplated in this Agreement ("Closing"):
(a) the Shareholders shall sell, transfer, assign, convey and deliver
the Control Shares respectively owned by them to Purchaser, free and clear
of all adverse claims, security interests, liens, claims and encumbrances
(other than restrictions under applicable securities laws) and Purchaser
shall purchase, accept and acquire the Control Shares from Shareholders,
such transaction being herein sometimes described as the "Exchange"; and
(b) in full payment for the Control Shares, Purchaser shall issue and
deliver to the Shareholders on a ratable basis an aggregate of Five Hundred
Thousand (500,000) shares of the authorized but unissued shares of
Purchaser's common stock, no par value, and One Million Five Hundred
Thousand (1,500,000) shares of the Series 1996 Non-Voting Convertible
Preferred Stock, no par value, of Purchaser, subject to adjustment as
provided below (collectively, the "Exchange Shares"). The preferred
Exchange Shares shall be convertible into shares of the no-par value common
stock of the Company ("Conversion Shares") three (3) years from the date of
issuance at the following conversion rate:
(i) if Franchise Connection has by then sold an aggregate of 150
franchises, consisting of all or any franchises marketed by Franchise
Connection, each preferred Exchange Share will be convertible into one
(1) Conversion Share; or
(ii) if Franchise Connection has by then sold an aggregate of
less than 150 franchises, the number of Conversion Shares into which
the preferred Exchange Shares are convertible will be proportionally
reduced.
(c) If Franchise Connection has sold an aggregate of less than 100
franchises by the third anniversary of the closing under the definitive
agreement, then in addition to the adjustment set forth in in paragraph
(b)(ii) above, Purchaser may at its election demand the surrender and
cancellation of and may unilaterally cancel a percentage of the 500,000
common Exchange Shares equal to the percentage of the shortfall of
franchises sold based on 150 franchises (ex: if only 75 are sold, then 50%
of such shares may be cancelled).
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(d) The number of Conversion Shares issuable upon conversion of the
preferred Exchange Shares will be subject to adjustment if the Company is
reorganized, merged, consolidated or party to a plan of exchange with
another corporation pursuant to which shareholders of the Company receive
any shares of stock or other securities, or in the event of any sale or
other transfer of all or substantially all of the Company's assets, or in
case of any reclassification of Company's common stock. Holders of
preferred Exchange Shares shall be entitled, after the occurrence of any
such event, to receive on conversion thereof the kind and amount of shares
of stock or other securities, cash or other property receivable upon such
event by a holder of the number of Common Shares issuable upon conversion
of the Exchange Warrant immediately prior to occurrence of the event. In
addition, the number of Conversion Shares issuable will be appropriately
adjusted if the Company's common stock is split or combined.
(e) This Agreement shall constitute a plan of reorganization within
the meaning of and is intended to constitute a tax-free exchange under
Section 368(a)(1)(B) and/or Section 351 of the Internal Revenue Code of
1986, as amended ("Code"). Each party hereto has consulted tax counsel or
other advisors of its choice to satisfy itself as to the tax effect to be
given under the Code to the Exchange and other transactions herein
contemplated.
1.02 Other Adjustments in Number of Exchange Shares. The number of Exchange
Shares issuable to the Shareholders shall be subject to further adjustment in
either of the following events:
(a) The parties acknowledge that an aggregate of 2,000,000 shares of
ISO BLOCK outstanding have been issued to and are held by Josef Ratey
and/or R-S Plus Investment Corp., a Florida corporation, and/or Arnold
Stolle, and/or Jan ter Stege and/or Helge Seidel and other German residents
(collectively, the "German Shares"). The Company is required to cancel a
total of 1,737,500 (all but 262,500) of the German Shares, and Purchaser's
Board of Directors has formally authorized the cancellation of such shares,
which are now deemed cancelled on Purchaser's stock book. In this
connection, Purchaser has entered in a Settlement Agreement with R-S Plus
Investment Corp., Josef Ratey and Helge Seidel contemplating the
cancellation of such shares. In the event that for any reason any portion
of the 1,737,500 shares thus cancelled are deemed by final, non-appealable
court order or admission or agreement of Purchaser to be not cancelled,
then in such event the number of Exchange Shares issuable shall be
increased so that the holders of the Franchise Shares acquire the same
percentage of ISO BLOCK as the 2,000,000 unadjusted Exchange Shares would
have constituted had 1,737,500 of the German Shares been cancelled and
rescinded.
(b) If ISO BLOCK declares any common stock dividend or effects any
reverse or forward split prior to closing, the number of Exchange Shares
shall be proportionally increased or decreased, as appropriate.
(c) If less than all of the Franchise Connection Shares are tendered
and conveyed to ISO BLOCK, the number of Exchange Shares issuable (subject
to adjustment, as hereinabove provided) shall be proportionally reduced;
however, in such event, ISO BLOCK shall have the right at its sole election
to rescind this Agreement and not complete the Exchange if any of the
Control Shares are not tendered and exchanged for Exchange Shares.
1.03 Entire Purchase Price. The Exchange Shares constitute the entire
purchase price payable for all of the Control Shares. The Exchange Shares and
Conversion Shares shall not be subject to any preemptive rights, options or
similar rights on the part of any shareholder or creditor of Purchaser or any
other person. Franchise Connection and the Shareholders acknowledge the
sufficiency of the purchase price. Upon consummation of the Exchange, the
Shareholders shall have no further rights in or claims as to Franchise
Connection and shall have only the rights of shareholders of Purchaser and
pursuant to this Agreement.
1.04 Included Assets. At the time of the Closing, Franchise Connection
shall own all of the assets and properties, both tangible and intangible of
every kind and description, owned by it on the effective date of the letter of
intent plus all assets and properties since acquired, excepting properties
disposed of and cash expended solely in the ordinary course of business, without
withdrawal or removal.
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1.05 Breaches and Violations. If and to the extent that the sale and
purchase of the Control Shares is alleged to constitute a breach of any lease,
loan or financing agreement or other contract, license, franchise, permit,
appproval or other property or contractual interest, or a violation of any law,
decree, order, regulation or other governmental edict, Franchise Connection and
the Purchaser shall exercise reasonable efforts at their expense, and Purchaser
will cooperate with them at Purchaser's expense, to obtain any consents and
waivers of third parties and to resolve any such breach or violation.
1.06 Assumption of Ownership and Possession. Purchaser shall at Closing
take ownership, possession and control of Franchise Connection and its books,
records, properties, assets and operations and shall take possession of and
assume control of all of its operations. At such time, all deliveries whatever
shall have been made to Purchaser, including but not limited to all door and
safe keys, safe combinations, filing cabinet and other keys, all ledgers and
journals (both paper and on computer floppy disk), together with all other
things, tangible and intangible, necessary or related to the properties and
business of Franchise Connection and its subsidiaries.
1.07 Continuing Obligation of the Parties. Franchise Connection, Purchaser
and the Shareholders executing this Agreement each agree that, should any thing
required to be done, conveyed or delivered by a party through inadvertence or
otherwise not be done, conveyed or delivered at the Closing, they will each do
such acts remaining to be done and do such other things as shall be necessary to
properly effect the conveyance and delivery of all such things. Officers,
directors and employees of Franchise Connection shall upon Purchaser's request,
at or following the Closing, execute all lawful documents helpful or necessary
to enable the new officers and directors of Franchise Connection to assume
control of Franchise Connection's bank and other accounts.
1.08 Securities not Registered. Franchise Connection and the Shareholders
acknowledge and agree that the Exchange Shares and Conversion Shares have not
been registered under the Securities Act of 1933, as amended ("Act"), in
reliance upon exemptions from registration provided by Section 4(2) of the Act
and under the securities or blue sky laws of any state or any rules or
regulations promulgated thereunder, on the grounds that the Exchange is a
transaction not involving any public offering. Each Shareholder is acquiring the
Exchange Shares for his, her or its own account, with no present intent to
resell or make a distribution of all or any portion thereof. Each Shareholder
acknowledges that the Exchange Shares are and the Conversion Shares will be
"restricted securities," as that term is defined in Rule 144 of the General
Rules and Regulations of the Securities and Exchange Commission ("SEC") under
the Act and understands that the Exchange Shares and Conversion Shares must be
held indefinitely, unless they are subsequently registered under the Act or an
exemption from such registration requirements is available for their resale.
Each Shareholder understands and agrees that the prior written consent of
Purchaser will be necessary for any transfer of any or all of the Exchange
Shares and Conversion Shares unless and until the securities have been duly
registered under the Act or the transfer is made in accordance with Rule 144
under the Act. Purchaser similarly acknowledges that the Control Shares have not
been registered under the Act and are restricted securities.
1.09 Restrictive Legend. The Shareholders each acknowledge and agree that,
unless and until removed in accordance with law, any and all certificates which
are issued evidencing the Exchange Shares and Conversion Shares shall contain a
customary form of investment legend in substantially the following form:
"The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
and are "restricted securities" as that term is defined in Rule 144
under the Act. These shares may not be offered for sale, sold or
otherwise transferred except pursuant to an effective registration
statement under the Act, or pursuant to an exemption from registration
under the Act, the availability of which must be established to the
satisfaction of the Company's counsel."
1.10 Closing. Subject to the conditions precedent set forth herein, the
closing of all transactions herein contemplated ("Closing") shall take place at
the offices of Purchaser's counsel, Brasher & Company, located at 90 Madison
Street, Suite 707, Denver, Colorado 80206, on or before December 15, 1996, at a
time mutually agreed by Franchise Connection and Purchaser, or such earlier or
later date and time mutually agreed to by Franchise Connection and Purchaser
("Closing Date"), of which date the Shareholders shall be given written notice
at least three days in advance of the Closing Date. This Agreement shall be
effective and binding when signed by Purchaser, Franchise Connection and all of
the Shareholders.
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1.11 Assignment of Interest, Rights and Agreements. (a) At the Closing,
Franchise Connection shall own, beneficially and of record, 100% of Brilliant
Marketing, Inc., a Colorado corporation ("BMI"), and thirty percent (30%) of the
total equity interest in Encore Nails, LLC, a Colorado limited liability
company, and one third (1/3rd) of the total equity membership interest in a
Colorado limited liability company to be formed named "Seller's Choice, LLC."
(b) At the Closing, Business Connection, Inc., a Colorado corporation
controlled by Johnny M. Wilson, shall have assigned to Franchise Connection
or to BMI all its rights, contracts and properties, including all rights
and interest in and to the Hydro-Physics, the Encore Nails, Foot Lab and IC
Sunclips franchise projects and related contracts, for no additional
consideration.
1.12 Employment Agreements. Johnny M. Wilson will at Closing enter into an
employment agreement with Purchaser, Franchise Connection and BMI for a three
(3)-year period in the form attached hereto as Exhibit A. He will perform duties
outlined in such employment agreement, to become effective at Closing. If this
Agreement is cancelled or rescinded for any reason, Purchaser may cancel the
employment agreement without further penalty or liability upon at least 30 days'
notice. He shall not compete with Franchise Connection or BMI or any franchise
project now or later undertaken by Franchise Connection or BMI or engage in any
franchise-related business whatsoever, as consultant, employee or otherwise,
except those operated by Franchise Connection and BMI. He shall prepare all
franchise offering circulars for franchises handled by Franchise Connection and
BMI as part of his regular salary.
1.13 Officers and Directors. At the Closing, Johnny Wilson shall be elected
to Purchaser's board of directors and will continue to be a director of
Franchise Connection. Johnny Wilson will serve as chief executive and chief
operating officer of Franchise Connection. Egin Bresnig and Dean Wicker will be
elected to the board of directors of Franchise Connection, and Dean Wicker shall
serve as Chairman of the board of Franchise Connection.
2. ISO BLOCK ADVANCE OF FUNDS. ISO BLOCK has to date advanced an aggregate
of $50,000 to Franchise Connection pursuant to the Letter of Intent, to be used
as working capital. All such funds shall, until consummation of the Exchange at
the Closing, constitute bridge loans to Franchise Connection, bearing simple
interest at 8% per annum, principal and all interest being repayable in a single
installment within nine months from the dates of advance. At the Closing, such
notes and all interest owed shall be converted to an equity investment in
Franchise Connection by ISO BLOCK and shall serve to increase ISO BLOCK's basis
in Franchise Connection.
Commencing at Closing, ISO BLOCK will over the twelve (12) months following
the Closing make available to Franchise Connection an aggregate of an additional
$300,000, subject to adjustment as herein provided, to be advanced monthly. Such
funds will be advanced within five days prior to the month in which needed upon
written request of Franchise Connection, which shall specify the amount needed
and general use intended. Such amounts shall be loaned to Franchise Connection
on customary commercial terms.
3. REPRESENTATIONS AND WARRANTIES OF FRANCHISE CONNECTION. Franchise
Connection hereby represents and warrants to Purchaser that the following are
true and correct as of the date hereof and will be true and correct through the
Closing Date as if made on that date:
(a) Franchise Connection and BMI are corporations duly organized,
validly existing and in good standing under the laws of the State of
Colorado, with all requisite power and authority to carry on the business
in which they are respectively engaged.
(b) There are no claims, actions, suits, proceedings or investigations
of any kind pending or threatened against or affecting Franchise Connection
or BMI or any of their properties, subsidiaries or business anywhere in the
world.
(c) Franchise Connection and BMI have complied in all material
respects with all applicable laws, regulations and rules, applicable to
their business or properties.
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(d) All taxes, assessments and other charges owing by Franchise
Connection or BMI to any taxing authority therein at the time of Closing
shall have been duly paid or shall be deducted from payments due to
Franchise Connection, and all applicable tax returns have been properly
filed.
(e) The execution, delivery and performance by Franchise Connection of
this Agreement and any other agreements contemplated hereby, and the
consummation of the transactions contemplated hereby and thereby, have been
duly authorized by all requisite corporate action of Franchise Connection.
This Agreement and any other agreement contemplated hereby have been or
will be as of the Closing Date duly executed and delivered by Franchise
Connection and constitutes and will constitute legal, valid and binding
obligations of Franchise Connection, enforceable against it in accordance
with their respective terms, except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies.
(f) No consent, approval, authorization or order of any court, or
other agency or authority or any other person whatever is required for
Franchise Connection to execute, deliver or consummate this Agreement.
(g) Capitalization. As of the execution date of this Agreement, the
authorized capital stock of Franchise Connection consists of 1,0000,000
shares of common stock, $.001 par value, all of which (the Control Shares)
have been issued and are outstanding. No shares of preferred stock are
authorized. No other shares of capital stock are authorized or have been
issued. All of the issued and outstanding shares of capital stock of
Franchise Connection have been duly authorized, validly issued, and are
fully paid and nonassessable. Franchise Connection is not a party to or
bound by nor does it or any Shareholder have any knowledge of, any
agreement, instrument, arrangement, contract, obligation, commitment or
understanding of any character, whether written or oral, express or
implied, whereby Franchise Connection is bound to issue shares of its
capital stock or any instrument or right convertible into or exchangeable
for its capital stock, nor relating to the sale, assignment, encumbrance,
conveyance, transfer or delivery of any capital stock of Franchise
Connection of any type or class. Franchise Connection shall provide to
Purchaser a list of all registered holders of Franchise Connection's
capital stock, the number of shares held by each and the number of each
certificate held, duly certified by the Secretary of Franchise Connection.
(h) Outstanding Options, Warrants or Other Rights. Franchise
Connection has no outstanding warrants, options or similar rights, whether
issued pursuant to a benefit or other plan or not, whereby any person may
subscribe for or purchase shares of its capital stock, nor are there any
other securities outstanding which are convertible into or exchangeable for
its capital stock.
(i) Stock or Other Benefit Plans. As of the date of this Agreement and
the Closing, Franchise Connection has not and will not have authorized or
have in effect any stock option plan, employee stock option or stock
purchase plan, dividend reinvestment plan or similar plan pursuant to which
any person is entitled to acquire capital stock of Franchise Connection or
securities convertible into or exchangeable for capital stock of Franchise
Connection.
(j) Pension and Similar Plans. As of the date of this Agreement and
the Closing, Franchise Connection has not and will not have authorized or
have in effect any bonus, deferred compensation, pension, profit-sharing,
retirement or similar plan covering its directors, officers, employees or
other persons whatsoever.
(k) Financial Statements. Prior to the Closing, Franchise Connection
shall have furnished to Purchaser copies of Franchise Connection's
unaudited Balance Sheets, Statements of Income and Expense, Statements of
Cash Flows, Statement of Changes in Financial Position and Statement of
Shareholders' Equity for the year ended December 31, 1995, and the same
financial statements, unaudited, as of September 30, 1996 (collectively,
the "Financial Statements") reflecting the operations and financial
condition of Franchise Connection and all subsidiaries. All such statements
shall fairly present the assets, liabilities and financial condition of
Franchise Connection and all subsidiaries as of the respective dates
thereof, and shall have been prepared in conformity with generally accepted
accounting principles, consistently applied during the periods covered. For
purposes of this Agreement, such statements shall include all notes and
schedules thereto. In addition, Franchise Connection shall provide
Purchaser with such of Franchise Connection's financial information and
books and records as Purchaser shall request.
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(l) No Undisclosed Material Liabilities. Franchise Connection has not
incurred any liabilities or obligations whatever (whether direct, indirect,
accrued, contingent, absolute, secured or unsecured or otherwise),
including liabilities as guarantor or surety or otherwise for the
obligations of others and tax liabilities due or to become due, except as
described in the Financial Statements or otherwise described in writing to
Purchaser.
(m) Material Transactions and Adverse Changes. Except as has been
disclosed in writing to Purchaser or reflected in the Financial Statements,
since December 31, 1995, Franchise Connection has not and as of the Closing
Date will not have (i) suffered any materially adverse change in its
assets, liabilities or financial condition taken as a whole; (ii) suffered
any damage or destruction in the nature of a casualty loss to any one or
more of its properties, whether or not covered by insurance, which singly
or in the aggregate are materially adverse to the properties or business of
Franchise Connection; (iii) purchased or redeemed any of its capital stock,
or authorized or paid any stock dividends, or authorized or paid any cash
dividends or made any distribution of capital or earnings, or authorized or
made any split, combination (reverse split) or other reclassification of or
affecting any of its capital stock; (iv) made any change in any method of
accounting or accounting practice, including the revaluation of any asset;
(v) increased or made any commitment to increase the salary, fees or other
forms of compensation of any employee, officer or director; or (vi) agreed
in writing or otherwise to take any action prohibited described in this
Section.
(n) Contracts. Franchise Connection has provided or will provide to
Purchaser prior to Closing a copy of all contracts to which Franchise
Connection is a party, all contracts entered into by or in the name of
"Business Connection, Inc." and all contracts entered into by or in the
name of Brilliant Marketing, Inc.
(o) Patents, Trademarks, etc. Franchise Connection and its
subsidiaries do not hold any letters patent, have made any patent
applications, do not hold any registered trademarks, servicemarks,
copyrights or licenses, nor registered any trade names, except as disclosed
in writing to Purchaser.
(p) Litigation. There are no claims, actions, suits, proceedings or
investigations pending or threatened against or affecting Franchise
Connection or any subsidiary thereof or any of its or their properties in
any court or by or before any federal, state, municipal or other
governmental department, commission, board, bureau, agency or other
instrumentality, domestic or foreign, or arbitration tribunal or other
forum which, if determined adversely to Franchise Connection, would
materially affect its business, prospects, properties or financial
condition or its or their right to conduct its business as being conducted
or expected to be conducted, except as disclosed in writing to ISO BLOCK.
There are no judgments, decrees, injunctions, writs, orders or other
mandates outstanding to which Franchise Connection or any subsidiary is a
party or by which it is bound or affected, except as disclosed in writing
to ISO BLOCK.
(q) Affiliate Relationships. Franchise Connection and subsidiaries are
not indebted to any officer, director, employee, shareholder or agent
thereof as of the date of this Agreement, and no money or property is owed
to Franchise Connection or any subsidiary thereof by any officer, director,
employee or shareholder thereof, except as disclosed in writing to
Purchaser.
(r) Salaries. Franchise Connection has delivered to Purchaser a true
and correct description of the annual rate of compensation (including
benefits) of all employees of Franchise Connection and every subsidiary.
There is no obligation, commitment or past repetitive historical practice
of Franchise Connection or any subsidiary to pay bonuses, royalties or
other similar compensation designed to reward past performance, create
incentive for future performance or otherwise to any director or officer or
other employee of Franchise Connection or a subsidiary except as disclosed
in writing to Purchaser.
(s) Documents Genuine. All originals and/or copies of Franchise
Connection's and each subsidiary's articles of incorporation and bylaws,
each amended to date, and all minutes of meetings and written consents in
lieu of meetings of shareholders, directors and committees of directors of
Franchise Connection and each subsidiary, financial data, and any and all
other documents, material, data, files, or information which have been or
will be furnished to Purchaser, are and will be true, complete, correct and
unmodified originals and/or copies of such documents, information, data,
files or material.
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(t) Restrictive Covenants. Prior to the consummation of the Exchange,
Franchise Connection and subsidiaries shall conduct its and their business
in the ordinary and usual course without unusual commitments and in
compliance with all applicable laws, rules, and regulations. Furthermore,
Franchise Connection will not, without the prior written consent of
Purchaser, (i) make any changes in its capital structure, (ii) incur any
liability or obligation other than current liabilities incurred in the
ordinary and usual course of business, (iii) incur any indebtedness for
borrowed money, (iv) make any loans or advances other than advances to
employees in the ordinary and usual course of business, (v) declare or pay
any dividend or make any other distribution with respect to its capital
stock, (vi) issue, sell, or deliver or purchase or otherwise acquire for
value any of its stock or other securities, (vii) mortgage, pledge, or
subject to encumbrance any of its assets or properties, (viii) sell or
transfer any of its assets or properties except in the ordinary and usual
course of business, (ix) make any investment of a capital nature, (x) adopt
or amend in any material respect any collective bargaining agreement or
employee benefit plan, or (xi) enter into any contract, agreement, or other
commitment which is material to the business, assets, properties, or
financial position of Franchise Connection.
(u) Law Violations. Franchise Connection has never been convicted in
any criminal proceedings or named subject of a pending criminal proceeding
(excluding minor offenses), nor has it been subject of any order, judgment,
or decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently enjoining it from, or otherwise
limiting the engagement in any type of business practice; or engaging in
any activity in connection with the purchase or sale of any security or
commodity in connection with any violation of federal or state securities
laws.
(v) Access to Information. Franchise Connection agrees to make
available access to any and all corporate and financial files and records
whatever of Franchise Connection and subsidiaries for inspection prior to
Closing.
(w) Disclaimer of Further Warranties. Except as expressly set forth in
this Agreement and the schedules and exhibits hereto, Purchaser has made
not any representation or warranty to Franchise Connection in connection
with this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. The Shareholders
each and severally represent and warrant to Purchaser that the following are
true and correct as of the date hereof and will be true and correct through the
Closing Date as if made on that date:
(a) I have received and carefully reviewed in its entirety information
otherwise provided to me in writing by Purchaser and any other information
from books and records of the Purchaser and have relied on the information
contained therein. I understand that additional information concerning
Purchaser has been made available for inspection by me and my attorney,
accountant or other adviser(s). I and my adviser(s) have had a reasonable
opportunity to ask questions of and receive answers from Purchaser, or a
person or persons acting on its behalf, concerning the Exchange, and all
such questions have been answered to my or their full satisfaction.
(b) I recognize that an investment in the Exchange Shares is
speculative and involves a high degree of risk and that there currently is
no trading market for the Exchange Shares, or Conversion Shares and no
assurance that any such market will develop.
(c) The Shareholders own or record and beneficially the Control Shares
in the respective numbers shown on the signature page to this Agreement,
and the address of each Shareholder has been provided in writing to ISO
BLOCK; the Control Shares are free and clear of all liens, claims, rights
or other encumbrances whatever and of all options and similar rights of
third persons; no person has or will have any right in and to such shares
under except as are created by force of law under any marital, community
property or similar rights; and no person owns or will own any right of
first refusal, pre-emptive right, option or similar right to acquire any of
the Control Shares, in either case except as disclosed to Purchaser in
writing prior to the Closing.
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(d) Each Shareholder has the full right, power and legal capacity to
enter into this Agreement and sell and deliver the Control Shares to
Purchaser on the terms herein. As to each Shareholder which is a
corporation or other entity, all requisite corporate or equivalent action
has been taken necessary to approve the execution and performance of this
Agreement.
(e) Each Shareholder represents and warrants that he, she or it is not
now insolvent and will not be insolvent after selling and delivering the
Control Shares to Purchaser on the terms of this Agreement, and each
Shareholder is receiving new consideration at least equal to the full and
fair value of the Control Shares being sold.
(f) Each Shareholder acknowledges and agrees that he, she or it or
his, her or its representatives have been furnished with substantially the
same kind of information regarding Purchaser and the Exchange Shares and
Purchaser's business, assets, results of operations, and financial
condition as would be contained in a registration statement and included
prospectus prepared in connection with a public offering of the Exchange
Shares under the Act.
(g) The Exchange Shares are being acquired solely for the
Shareholder's own account for investment and not for the account of any
other person and not for distribution, assignment or resale to others, or
for pledge or hypothecation, and no other person has or is intended to have
a direct or indirect ownership or contractual interest in the Exchange
Shares except as may exist or arise under marital property laws or
otherwise by operation of law.
(h) The Shareholder, alone or together with the Shareholders'
adviser(s), possesses such knowledge and experience in financial, tax and
business matters as to enable Shareholder to utilize the information made
available by Purchaser, in connection with the Exchange and issuance of the
Exchange Shares, to evaluate the merits and risks of exchanging the Control
Shares for the Exchange Shares and to make an informed investment decision
with respect thereto.
(i) Each Shareholder realizes that he, she or it will not be able to
sell or dispose of the Exchange Shares unless they have first been
registered under the Act, they are sold in compliance with Rule 144 under
the Act or they are sold or otherwise disposed of in reliance upon another
exemption from registration under the Act. Each Shareholder further
understands that every certificate issued by Purchaser evidencing Exchange
Shares will bear a legend restricting transfer as provided in this
Agreement.
(j) All information which each Shareholder has provided or will
provide to Purchaser is or will be correct and complete as of the date
furnished to Purchaser, and, if there should be any material change in such
information prior to the Closing as to a Shareholder, that Shareholder will
immediately provide Purchaser with such information.
(k) No Shareholder was solicited by Purchaser by any form of general
solicitation or general advertising, including but not limited to (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio,
or made available over telephone lines by any information service, or (ii)
any seminar or meeting whose attendees had been invited by any means of
general solicitation or general advertising.
(l) Except as expressly set forth in this Agreement and the schedules
and exhibits hereto, Purchaser has not made any representation or warranty
to any Shareholder in connection with this Agreement, and Purchaser has
made no communication to any Shareholder that constitutes tax or investment
advice.
(m) To the best of the knowledge of each Shareholder, all of the
representations and warranties of Franchise Connection set forth in this
Agreement are accurate and true.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Unless specifically stated
otherwise in this Agreement, Purchaser represents and warrants to the
Shareholders that the following are true and correct as of the date hereof and
will be true and correct through the Closing Date as if made on that date.
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(a) Exchange Shares Duly Authorized. The Exchange Shares will be, when
issued, validly issued, fully paid and nonassessable, the sale, issuance
and delivery of the Exchange Shares on the terms herein contemplated has
been authorized by all requisite corporate action of Purchaser, and the
Exchange Shares will not be be subject to any preemptive rights, options or
similar rights on the part of any shareholder or creditor of Purchaser or
any other person.
(b) Restricted Securities; Etc. Purchaser acknowledges that the
Control Shares have not been registered pursuant to the Act or any
applicable state securities laws, that the Control Shares will be
characterized as "restricted securities" under the Act, and that under such
laws and applicable regulations the Control Shares cannot be sold or
otherwise disposed of without registration under the Act or an exemption
therefrom. Purchaser acknowledges that all certificates issued to it
respecting the Control Shares will bear an appropriate investment legend.
Purchaser is acquiring the Control Shares for its own account for
investment and not with a view to, or for sale or other disposition in
connection with, any distribution of all or any part thereof, except (i) in
an offering covered by a registration statement filed with the Securities
and Exchange Commission under the Act covering the Control Shares, or (ii)
pursuant to applicable exemption under the Securities Act.
(c) Organization and Good Standing. Purchaser is and on the Closing
Date will be duly organized, validly existing and in good standing under
the laws of the State of Colorado, with all requisite power and authority
to carry on the business in which it is engaged and is duly qualified and
licensed to do business and is in good standing in all jurisdictions where
the nature of its business makes such qualification necessary.
(d) Capitalization. As provided in its Articles of Incorporation, the
authorized capital stock of Purchaser consists of 60,000,000 shares; of
which 50,000,000 shares without par value are designated as common stock,
_________ shares of which have been issued and are outstanding; and of
which 10,000,000 shares without par value are designated as preferred
stock, _________ of which have been issued or are outstanding. The terms,
rights, preferences and privileges of the preferred stock are described in
Purchaser's articles of incorporation, as amended and restated to date,
which have been furnished to the other parties.
(e) Outstanding Options, Warrants or Other Rights. Except as described
to Franchise Connection in writing, Purchaser has no outstanding warrants,
options or similar rights to subscribe for or purchase shares of its
capital stock (nor any securities convertible into or exchangeable for its
capital stock), nor are there any other securities outstanding convertible
into or exchangeable for its common stock, and there are no contracts or
commitments pursuant to which any person may acquire or Purchaser may
become bound to issue any shares of its capital stock.
(f) Litigation. There are no claims, actions, suits, proceedings or
investigations pending or threatened against or affecting Purchaser in any
court or by or before any federal, state, municipal or other governmental
department, commission, board, bureau, agency or other instrumentality,
domestic or foreign, or arbitration tribunal or other forum, except as
disclosed to Franchise Connection in writing. There are no judgments,
decrees, injunctions, writs, orders or other mandates outstanding to which
Purchaser is a party or by which it is bound or affected.
(g) Financial Statements. Purchaser will provide to Franchise
Connection and to any requesting Shareholder Purchaser's audited balance
sheet and the other financial statements of Purchaser for such periods as
the Shareholders reasonably request. All such statements shall fairly
present the assets, liabilities and financial condition of Purchaser as of
the respective dates thereof, and all shall have been prepared in
conformity with generally accepted accounting principles, consistently
applied during the periods covered. For purposes of this Agreement, such
statements shall include all notes thereto.
(h) No Undisclosed Material Liabilities. Purchaser has not incurred
any liabilities or obligations whatever (whether direct, indirect, accrued,
contingent, absolute, secured or unsecured or otherwise), which singly or
in the aggregate are material to its assets, operations or financial
condition, except as reflected in Purchaser's financial statements or
disclosed in writing to Franchise Connection.
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(i) Taxes. All income, excise, unemployment, social security,
occupational, franchise and other taxes, duties, assessments or charges
levied, assessed or imposed upon Purchaser by the United States or by any
state or municipal government or subdivision or instrumentality thereof
have been duly paid or adequately provided for, and all required tax
returns or reports concerning any such items have been duly filed or will
be so filed.
(j) Authorization and Validity. The execution, delivery and
performance by Purchaser of this Agreement and any other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by all requisite corporate
action of Purchaser. This Agreement and any other agreement contemplated
hereby have been or will be as of the Closing Date duly executed and
delivered by Purchaser and constitutes and will constitute legal, valid and
binding obligations of Purchaser, enforceable against it in accordance with
their respective terms, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies. The approval of Purchaser's
shareholders is not necessary for Purchaser's execution and performance of
this Agreement.
(k) Consents; Approvals; Conflict. No consent, approval, authorization
or order of any court or governmental agency or other body is required for
Purchaser to execute and perform its obligations under this Agreement.
Neither the execution, delivery, consummation or performance of this
Agreement shall conflict with, constitute a breach of Purchaser's articles
of incorporation and bylaws, as amended to date, or any note, mortgage,
indenture, deed of trust or other agreement of instrument to which
Purchaser is a party or by which it is bound nor, to the best of
Purchaser's knowledge and belief, any existing law, rule, regulation, or
any decree of any court or governmental department, agency, commission,
board or bureau, domestic or foreign, having jurisdiction over Purchaser.
(l) Disclaimer of Further Warranties. Except as expressly set forth in
this Agreement and the schedules and exhibits hereto, neither Franchise
Connection nor any Shareholder has made any representation or warranty to
Purchaser in connection with this Agreement.
(m) Miscellaneous. The execution and performance of this Agreement and
compliance with the provisions hereof will not violate, with or without
giving notice and/or the passage of time, any provisions of law applicable
to Purchaser. All statements made by Purchaser in this Agreement, or in any
EXHIBIT or SCHEDULE hereto, or in any document or certificate executed and
delivered herewith, are true, correct and complete as of the date of this
Agreement and will be so as of the Closing Date. All copies of documents
provided and to be provided by Purchaser are and shall be true and correct
copies of such documents.
6. CONDITIONS TO OBLIGATIONS OF THE PARTIES; DELIVERIES. All obligations of
the parties under this Agreement are subject to the fulfillment, prior to the
Closing, of all conditions precedent and to performance of all covenants and
agreements and completion of all deliveries contemplated herein, unless
specifically waived in writing by the party entitled to performance or to demand
fulfillment of the covenant or delivery of the documents. Purchaser's
obligations to purchase and pay for the Control Shares are further subject to
the representations and warranties of Franchise Connection and Shareholders
being true and correct at the Closing, and the obligation of the Shareholders to
sell, transfer, assign, convey and deliver the Control Shares is further subject
to the representations and warranties of Purchaser being true and correct at the
Closing.
6.01 Documents to be Delivered to Purchaser. At the Closing, the following
documents shall be delivered to Purchaser by Franchise Connection or the
Shareholders, as the case may be, which documents shall be satisfactory in form
and content to Purchaser's counsel:
(a) Certificates executed by chief financial or accounting officer of
Franchise Connection, dated the Closing Date, certifying that the
representations and warranties of Franchise Connection, contained in this
Agreement and the information set forth in all schedules and exhibits of
Franchise Connection hereto are then true and correct and that Franchise
Connection has complied with all agreements and conditions required by this
Agreement and all related agreements to be performed or complied with by
Franchise Connection; and a legal opinion as to such matters as Purchaser
shall request.
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(b) A shareholder list, reflecting the names, addresses and
shareholdings of the Shareholders and an incumbency certificate naming the
officers and directors of Franchise Connection and specifying the offices
held by each, both duly certified by the Secretary of Franchise Connection.
(c) A copy of the directors' resolution or the minutes of the meeting
of the directors of Franchise Connection approving the execution and
performance of this Agreement.
(d) All schedules, exhibits and other information called for in this
Agreement, properly completed.
(e) Upon receiving delivery of the original certificates evidencing
the Control Shares, Franchise Connection shall cancel such certificates and
issue and deliver to Purchaser one certificate registered in the name of
Purchaser, one evidencing all of the Control Shares purchased hereunder
through such date.
6.02 Documents to be Delivered by the Shareholders. At the Closing, the
Shareholders shall deliver to Franchise Connection, for cancellation, all of the
certificates evidencing the Control Shares, each certificate endorsed by the
Shareholder transferring it, or accompanied by a stock power signed by the
Shareholder transferring it, duly notarized or medallion guaranteed.
6.03 Documents to be Delivered to Franchise Connection and the
Shareholders. At the Closing, the following documents shall be delivered to
Franchise Connection and the Shareholders by Purchaser, which documents shall be
satisfactory in form and content to Franchise Connection's counsel:
(a) To the Shareholders, certificates evidencing the Exchange Shares
in the proper denominations.
(b) To Franchise Connection, a certificate executed by Purchaser dated
the Closing Date, certifying that the representations and warranties of
Purchaser contained in this Agreement are then true and correct and that
Purchaser has complied with all agreements and conditions required by this
Agreement to be performed or complied with by it.
(c) To Franchise Connection, a copy of the directors' resolution or
the minutes of the meeting of the directors of Purchaser approving the
execution and performance of this Agreement.
(d) To Franchise Connection, all schedules and exhibits called for in
this Agreement.
6.04 Conditions Precedent. The obligations of the parties under this
Agreement are subject to the satisfaction of the following conditions (in
addition to other conditions and terms of this Agreement), unless waived in
writing, on or prior to the Closing, in addition to any other conditions
precedent set forth in this Agreement:
(a) Representations and Warranties Correct. The representations and
warranties of every party contained in this Agreement shall be in all
material respects true and correct on and as of the Closing Date as if made
on such date.
(b) Compliance. Purchaser, Franchise Connection and the Shareholders
each shall have performed all covenants and agreements, satisfied all
conditions and complied with all other terms and provisions of this
Agreement to be respectively performed, satisfied or complied with by it as
of the Closing Date.
(c) No Errors or Misrepresentations. Purchaser shall not have
discovered any material error, misstatement or omission in or failure of
any representation or warranty made by Franchise Connection or any
Shareholder, and Franchise Connection shall not have discovered any
material error, misstatement or omission in or failure of any
representation or warranty made by Purchaser.
(d) Due Diligence Examination. Purchaser shall have completed a due
diligence examination of Franchise Connection reasonably satisfactory to
Purchaser covering all books, records, contracts and other documents and
all financial affairs of Franchise Connection. Franchise Connection shall
have completed a due diligence examination of Purchaser reasonably
satisfactory to Franchise Connection covering all books, records, contracts
and other documents and all financial affairs.
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(e) No Material Change. Between the date of this Agreement and the
Closing Date, Franchise Connection shall not have incurred any liabilities
or obligations, direct or contingent, or entered into any material
transactions of the kind contemplated in Section 3(m) except those which
are in the usual and ordinary course of business or previously agreed to by
Purchaser, shall have no material undisclosed liabilities as contemplated
in Section 3(l) hereof, and shall not have done any act or engaged in any
course of conduct prohibited in Section 3(t) without the necessary consent
of the other party.
(f) Legal Matters. All legal matters in connection with this Agreement
and the consummation of all transactions herein contemplated, and all
documents and instruments delivered in connection herewith shall be
reasonably satisfactory in form to each party.
(g) No injunction or restraining order of any federal or state court
is in effect which prevents the purchase of the Control Shares or issuance
and delivery of the Exchange Shares, and no lawsuit or other proceeding has
been filed by any person by the Closing Date contesting or attempting to
enjoin either action, and no action is taken and no law is passed after the
date of this Agreement which prevents the purchase of the Control Shares or
issuance and delivery of the Exchange Shares.
7. ADDITIONAL COVENANTS OF THE PARTIES. The parties agree that, prior to
the Closing:
(a) Effectuation of this Agreement. The parties hereto each will use
their best efforts to cause this Agreement and all related agreements to
become effective, and all transactions herein and therein contemplated to
be consummated, in accordance with its and their terms, to obtain all
required consents, waivers and authorizations of governmental entities and
other third parties, to make all filings and give all notices to those
regulatory authorities or other third parties which may be necessary or
reasonably required in order to effect the transactions contemplated in
this Agreement, and to comply with all federal, local and state laws, rules
and regulations as may be applicable to the contemplated transactions.
(b) Restriction on Action. The parties each agree that he, she or it
will not do any thing or act prohibited by this Agreement or any related
agreement, or fail to do any thing or act which he or it has undertaken to
do in this Agreement or any related agreement.
(c) Stand-Still Agreement. Franchise Connection and Purchaser each
agree not to solicit from any third party an offer or expression of
interest in or with respect to any acquisition, combination or similar
transaction involving the two parties and further agree that each will
promptly inform the other of the existence of any unsolicited such offer or
expression of interest.
(d) As promptly as possible after the Closing, Purchaser shall take
the necessary steps to change its fiscal year end to December 31st.
8. TERMINATION OF THIS AGREEMENT.
8.01 Grounds for Termination. This Agreement shall terminate:
(a) By mutual written consent of Purchaser and Franchise Connection;
(b) By Franchise Connection or Purchaser, if:
(i) all the conditions precedent to its respective obligations
hereunder have not been satisfied or waived prior to the Closing Date,
as it may be accelerated or extended, or if any Shareholders fail or
refuse to execute this Agreement and deliver his, her or its the
Control Shares to Purchaser at Closing as called for herein;
Page 12
<PAGE>
(ii) any party shall have defaulted or refused to perform in any
material respect under this Agreement, or if Purchaser or Franchise
Connection should have reasonable cause to believe there has been a
material representation concerning, or failure or breach of, any
representation or warranty by the other party, or if it appears that
either Franchise Connection or Purchaser has committed any unlawful
acts affecting the other party;
(iii) the transactions contemplated in this Agreement and related
agreements have not been consumated on the Closing Date, as it may be
accelerated or extended, OR
(iv) either Purchaser or Franchise Connection shall reasonably
determine that the transactions contemplated in this Agreement have
become inadvisable by reason of the institution or threat by any
federal, state or municipal governmental authorities or by other
person whatever of a formal investigation or of any action, suit or
proceeding of any kind against either or both parties which in one
party's reasonable belief is material in light of the other party's
business, prospects, properties or financial condition;
8.02 Manner of Termination. Any termination of this Agreement shall be made
in accordance with the above listed grounds and, if terminated by a corporation,
shall be evidenced by written resolution of the terminating party's board of
directors. Written notice of termination shall be given to the other party as
required in this Agreement as promptly as is practical under the circumstances.
Upon a party's receipt of such termination notice, this Agreement shall
terminate and the transactions herein contemplated shall be abandoned without
further action by the parties.
8.03 Survival of Confidentiality Provisions. Upon termination of this
Agreement for any reason, (i) the covenants of the parties concerning the
confidentiality and proprietary nature of all docuemnts and other information
furnished hereunder shall remain in force except as to information which has
otherwise become public knowledge, and (ii) each party shall promptly return all
documents received from the other party in connection with this Agreement. This
Section constitutes a mutual covenant of the parties, and either may judicially
enforce it.
9. NECESSARY INFORMATION. Franchise Connection shall furnish to Purchaser
promptly upon its request all information regarding Franchise Connection and its
business, assets, properties, and financial condition which, in the judgment of
Purchaser, is necessary to enable Purchaser to conduct its due diligence
examination relating to the proposed purchase of the Control Shares. Each of the
parties hereto shall furnish to the others all information concerning such party
required for inclusion in any application or statement to be filed or made by
the other party with or to any governmental agency or other third party in
connection with the proposed sale of the Control Shares.
10. MISCELLANEOUS PROVISIONS. The parties further agree that:
(a) Amendments. This Agreement may be amended, modified, or
supplemented only by instrument in writing executed by all parties.
(b) Assignment. Neither this Agreement nor any right created hereby or
in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto without the
written consent of the parties not seeking assignment, except that
Purchaser may direct that the Control Shares be transferred to a wholly
owned subsidiary corporation of Purchaser. No such assignment shall relieve
the assignor of any obligations created under this Agreement.
(c) Parties in Interest; No Third Party Beneficiaries. Except as
otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the parties and their
respective heirs, legal representatives, successors and assigns. Neither
this Agreement nor any other agreement contemplated hereby shall be deemed
to confer upon any person not a party hereto or thereto any rights or
remedies hereunder or thereunder.
(d) Entire Agreement. This Agreement and the agreements contemplated
hereby constitute the entire agreement of the parties regarding the subject
matter hereof, and supersede all prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
Page 13
<PAGE>
(e) Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its
severance herefrom. Further, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as part of this
Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid and
enforceable.
(f) Survival of Representations, Warranties and Covenants. The
representations, warranties and covenants of all parties contained herein
shall survive the Closing, and all statements contained in any certificate,
exhibit, schedule or other instrument delivered by or on behalf of
Purchaser or Franchise Connection, as the case may be, and, notwithstanding
any provision in this Agreement to the contrary, shall survive the Closing.
(g) Interpretation. This Agreement shall be governed by and construed
under the laws of the State of Colorado. If any action is brought to
enforce or interpret any term of this Agreement, venue shall be in the
District Court of Arapahoe County, State of Colorado. This Agreement shall
be interpreted as if all parties participated equally in its drafting and
preparation.
(h) Captions. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
(i) Gender and Number, etc. Whenever the context requires, the gender
of all words used herein shall include the masculine, feminine and neuter,
and the number of all words shall include the singular and plural. Use of
the words "herein", "hereof", "hereto" and the like in this Agreement shall
be construed as references to this Agreement as a whole and not to any
particular Article, Section or provision in this Agreement, unless
otherwise noted.
(j) Confidentiality, etc. Each party shall keep this Agreement and its
terms confidential, and shall make no press release or public disclosure,
either written or oral, regarding the transactions contemplated by this
Agreement without the prior knowledge and consent of the other parties
hereto; provided that the foregoing shall not prohibit any disclosure (i)
by press release, Form 8-K filing or otherwise that is required by federal
securities laws, and (ii) to attorneys, accountants, investment bankers or
other agents of the parties assisting the parties in connection with the
transactions contemplated by this Agreement. In the event that the
transactions contemplated hereby are not consummated for any reason
whatsoever, the parties hereto agree not to disclose or use any
confidential information they may have concerning the affairs of the other
parties, except for information that is required by law to be disclosed.
(k) Notice. Any notice or communication hereunder or in any agreement
entered into in connection with the transactions contemplated hereby must
be in writing and given by depositing the same in the United States mail,
addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, by telefax transmission or by
delivery by use of a messenger which regularly retains its delivery
receipts. Such notice shall be deemed received on the date on which it is
delivered to the addressee. For purposes of notice, the addresses of the
parties shall be, if to a Shareholder, sent to Franchise Connection for
forwarding, and:
If to ISO BLOCK: If to Franchise Connection:
8037 South Datura Street 4155 East Jewell Avenue, Suite 1001
Littleton, Colorado 80120 Denver, Colorado 80222
Attn: Egin Bresnig, CEO Attn: Johnny M. Wilson, CEO
(l) No Finders. Each party represents and warrants to the others and
agrees that it has not employed or engaged, and will not employ or engage,
any person as a finder or broker in connection with the transactions
contemplated herein, and that no person is entitled to compensation as a
finder or broker. Each party hereby indemnifies the other parties and holds
the other parties harmless from and against any claims of any third persons
claiming to have acted as a finder or broker in connection with the
transactions herein contemplated, and such indemnity shall include all
expenses, costs and damages arising from or related to such claims,
including reasonable attorneys fees.
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<PAGE>
(m) Expenses. Except as may otherwise be expressly provided herein,
each party shall pay its costs and expenses incurred in connection with the
Exchange and any other foregoing proposed transactions. The Purchaser will
pay for any audit of Franchise Connection required, but such amount shall
be deducted from the $300,000 required to be made available by ISO BLOCK.
(n) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument. Execution and
delivery of this Agreement by exchange of facsimile copies bearing
facsimile signature of a party shall constitute a valid and binding
execution and delivery of this Agreement by such party. Such facsimile
copies shall constitute enforceable original documents.
(o) Prevailing Party Clause. In the event of any litigation or
proceeding arising as a result of the breach of this Agreement or the
failure to perform hereunder, or failure or untruthfulness of any
representation or warranty herein, the party or parties prevailing in such
litigation or proceeding shall be entitled to collect the costs and
expenses of bringing or defending such litigation or proceeding, including
reasonable attorneys' fees, from the party or parties not prevailing.
(p) Specific Performance. All parties agree that his, her or its legal
remedy for damages based upon the breach by them of their respective
obligations under this Agreement will be inadequate to the other parties
and that, in addition to any other remedies a party may have, the aggrieved
party shall be entitled to obtain specific performance of this Agreement
and temporary and permanent injunctive relief without the necessity of
proving actual damages.
IN WITNESS WHEREOF, all parties have executed this Agreement, and Franchise
Connection and ISO BLOCK have initialled every preceding page hereof, as of the
dates respectively indicated below.
ISO BLOCK PRODUCTS USA, INC. ("Purchaser")
By: /s/ Egin Bresnig
- --------------------
Egin Bresnig, CEO
DATED: 12-27-96
FRANCHISE CONNECTION, INC. ("Acquired Company")
By: /s/ Johnny M. Wilson
- ------------------------
Johnny M. Wilson, CEO
DATED: 12-27-96
SHAREHOLDERS' SIGNATURE PAGE
By: /s/ Johhny M. Wilson By: /s/ Robert Boulerice
- ------------------------ ------------------------
Johnny M. Wilson - 725,000 Shares Robert Boulerice - 250,000 Shares
By: /s/ Robert Lyman By: /s/ Lisa Sheffield
- -------------------- ----------------------
Robert Lyman - 5,000 Lisa Sheffield - 10,000
By: /s/ Donald E. Israel / Cynthia J. Israel
- --------------------------------------------
Donald E. Israel and Cynthia J. Israel - 10,000
Page 15
ISO BLOCK PRODUCTS USA, INC.
CERTIFICATE OF AMENDMENT
to
ARTICLES OF INCORPORATION
of
ISO BLOCK PRODUCTS USA, INC.
ISO BLOCK PRODUCTS USA, INC., a corporation organized and existing under
and by virtue of the Colorado Business Corporation Act, does hereby certify
that:
A. The name of the corporation is ISO BLOCK PRODUCTS USA, INC.
B. Article THIRD of the corporation's Amended and Restated Articles of
Incorporation permits the Board of Directors to determine from time to time
the designations, preferences, limitations and relative rights of the
preferred shares prior to issuance thereof.
C. The Board of Directors of the corporation have, by the unanimous
written consent of its members, taken pursuant to Section 7-108-122, on
December 5, 1996 duly adopted a resolution setting forth an amendment to
the Articles of Incorporation of the corporation designating and
establishing a series of preferred stock consisting of 1,500,000 preferred
shares known as the "SERIES 1996, NON-VOTING CONVERTIBLE PREFERRED STOCK".
The corporation submits this Certificate of Amendment to its Articles of
Incorporation for the purpose of establishing and designating such series
of preferred stock.
D. A copy of the Resolution of the Board of Directors Establishing a
Series of Shares of Preferred Stock of Iso Block Products USA, Inc., dated
as of December 5, 1996, setting forth the text of the amendment determining
the designations, preferences, limitations and relative rights of the
Series 1996, Non-Voting Convertible Preferred Stock, is attached hereto as
Exhibit A and is herein incorporated by reference as if fully set forth
herein.
E. No shares of the Series 1996, Non-Voting Convertible Preferred
Stock have been issued or will be issued prior to the filing of this
Certififate of Amendment with the Secretary of State of the State of
Colorado. No approval of the corporation's shareholders is necessary in
regard to this amendment.
IN WITNESS WHEREOF, the undersigned haS executed this Certificate of
Amendment as of the below date.
DATED: January 22, 1997
ISO BLOCK PRODUCTS USA, INC.
By: /s/ Egin Bresnig
--------------------
Egin Bresnig, Chief Executive Officer
(SEAL)
<PAGE>
RESOLUTION OF DIRECTORS
ESTABLISHING A SERIES OF SHARES OF PREFERRED STOCK
of
ISO BLOCK PRODUCTS USA, INC.
SERIES 1996, NON-VOTING CONVERTIBLE PREFERRED STOCK
The undersigned, constituting the entire board of directors of ISO BLOCK
PRODUCTS USA, INC., a Colorado corporation ("Company"), hereby take the
following actions by unanimous written consent in lieu of a meeting, as
authorized by Section 7-108-202 of the Colorado Business Corporation Act:
WHEREAS, the Board of Directors of the Company ("Board") desires to
establish and designate a series of shares of Preferred Stock and to fix and
determine the relative rights and preferences thereof in accordance with the
following resolution; and
WHEREAS, the Company, FRANCHISE CONNECTION, INC., a Colorado corporation
("Franchise Connection"), and the shareholders of Franchise Connection, have
entered into that certain Exchange Agreement and Plan of Reorganization dated
December 10, 1996 (the "Exchange Agreement"), pursuant to which the Company has
agreed to acquire all of the issued and outstanding shares of capital stock of
Franchise Connection, and to issue to the Franchise Connection shareholders in
full payment therefor an aggregate of 500,000 shares of the authorized but
unissued shares of the Company's common stock, no par value, and 1,500,000
shares of the Company's Series 1996, Non-Voting Convertible Preferred Stock, no
par value hereby established, subject to certain adjustments; it is therefore
RESOLVED, FIRST, that the Board hereby establishes and designates a series
of Preferred Stock of the Company to consist of 1,500,000 shares, without any
stated or par value per share, and hereby affixes the voting powers,
designation, rights, preferences, privileges and restrictions of the shares of
such series, as follows:
1. Designation and Consideration.
The designation of the series of Preferred Stock created by this
Resolution shall be the "SERIES 1996, NON-VOTING CONVERTIBLE PREFERRED
STOCK", without any stated or par value. Shares of this series are
hereinbelow referred to as the "Series 1996 Preferred Stock." The shares of
Series 1996 Preferred Stock shall be issued solely to the shareholders of
Franchise Connection as part of the Company's acquisition of all of the
issued and outstanding capital stock of Franchise Connection, as called for
in the Exchange Agreement. Once duly issued, shares of the Series 1996
Preferred Stock shall be deemed fully paid and nonassessable.
2. Dividends.
No dividends shall be payable on the Series 1996 Preferred Stock.
<PAGE>
3. Redemption.
The shares of Series 1996 Preferred Stock shall not be subject to
redemption without the consent of the holders thereof.
4. Conversion Right.
4.1 Conversion Rate. Each share of Series 1996 Preferred Stock may,
subject to the terms hereof and subject to adjustment as provided below, at
any time commencing three (3) years after the date of original issuance
(the "First Conversion Date"), be converted at the option of the holder
thereof into one (1) fully paid, nonassessable share of common stock of the
Company, no par value per share. The common shares of the Company into
which shares of Series 1996 Preferred Stock are converted ("conversion
shares") will not be registered under the Securities Act of 1933, as
amended ("Act"), but shall be issued in reliance upon Section 4(2) of the
Act or other available exemption from registration under the Act, on the
grounds that the issuance of the Series 1996 Preferred Shares is a
transaction not involving any public offering. Conversion shall be deemed
to occur on the date a certificate or certificates evidencing shares of
Series 1996 Preferred Stock being converted is presented to the Company or
to the Company's transfer agent and registrar, properly endorsed and
accompanied by the proper fee payable to the transfer agent.
4.2 Performance-Based Adjustments to Conversion Rate. In addition to
any adjustments which may be required by Section 4.3 hereof, the number of
conversion shares issuable upon conversion of any Series 1996 Preferred
Shares shall be subject to adjustment as provided in this paragraph. If
Franchise Connection and its subsidiaries have not by the First Conversion
Date on a combined basis sold an aggregate of at least 150 franchises
marketed by Franchise Connection and any subsidiaries thereof, the number
of conversion shares into which the Series 1996 Preferred Shares are
convertible shall be proportionally reduced. (For example, if by the First
Conversion Date, Franchise Connection and subsidiaries have sold an
aggregate of only 75 franchises, then only 1/2 of one share of the
Company's common stock shall be issuable upon conversion of each share of
Series 1996 Preferred Stock.)
4.3 Other Adjustments to Conversion Rate. The conversion rate set
forth in paragraph 4.1 above will be subject to further adjustment if the
Company is reorganized, merged, consolidated or party to a plan of exchange
with another corporation pursuant to which shareholders of the Company
receive any shares of stock or other securities, or in the event of any
sale or other transfer of all or substantially all of the Company's assets,
or in case of any reclassification of or reverse split or split of the
Common Stock, holders of shares of the Series 1996 Preferred Stock shall be
entitled, after the occurrence of any such event, to receive on conversion
thereof the kind and amount of shares of stock or other securities, cash or
other property receivable upon such event by a holder of the number of
Common Shares into which the shares of Series 1996 Preferred Stock might
have been converted immediately prior to occurrence of the event. For
purposes of this paragraph, the term "shareholder" means a holder of Common
Stock. The conversion rate will be subject to adjustment for any other
reason required by the terms of the Exchange Agreement.
2
<PAGE>
4.4 Common Stock Authorized. By adoption of this Resolution, the Board
hereby specifically authorizes the issuance of an aggregate of 1,500,000
Common Shares upon conversion of the Series 1996 Preferred Stock; provided,
however, that if any adjustment to the conversion rate established in
paragraph 4.1 should require the issuance of a greater number of Common
Shares, then the issuance of such greater number of Common Shares hereby is
authorized.
4.5 No Fractional Shares Issuable. No fractional share of Common
Stock, or scrip or other instrument representing a fractional Common Share,
shall be issued upon conversion of any share of Series 1996 Preferred
Stock. If any such conversion results in a fractional share of Common Stock
being issuable, the Company shall pay to the converting holder an amount,
in cash, equal to the market value of the fractional interest or, if there
is no market value or none is readily ascertainable, then such amount as
the Board determines is reasonable in the circumstances.
5. Rights on Liquidation, Dissolution, or Winding Up.
5.1 Payment of Liquidation Preference. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Company, the
holders of shares of Series 1996 Preferred Stock then outstanding shall be
subordinate to all claims of the Company's creditors and to all claims of
the holders of every other series of the Company's preferred stock then
issued and outstanding (unless such a series is expressly made subordinate
to or of a parity with the Series 1996 Preferred Stock) but otherwise are
entitled to share ratably with the holders of the Company's no par value
common stock in the Company's assets available for distribution to its
shareholders.
5.2 Effective Reorganization. Neither the consolidation or merger of
the Company with or into any other company nor the lease, exchange, sale or
transfer of all or substantially all of the Company's assets shall be
deemed to be a liquidation, dissolution or winding up of the Company's
affairs, whether voluntary or otherwise, within the meaning of this Section
5.
6. Voting Rights.
The shares of the Series 1996 Preferred Stock shall not have the right
to vote in the election of directors of the Company or on any other matters
upon which shareholders of the Company may or must vote, except matters
specifically, directly and adversely affecting their rights as holders of
Series 1996 Preferred Stock and shall have only such voting rights as a
class as are unequivocally conferred in this Resolution, by the Colorado
Business Corporation Act or other controlling corporation law statute. Any
matter which requires the approval of the holders of the Series 1996
Preferred Stock shall require only the affirmative vote of a majority of
the votes cast by the holders of such shares, voting as a separate class,
at any lawful meeting of such holders which commences with a quorum.
Whenever such shares are entitled to vote, each share of Series 1996
Preferred Stock shall be entitled to one vote.
3
<PAGE>
7. Certain Corporate Actions.
The Company shall not amend its articles or certificate of
incorporation without the prior approval of the holders of the Series 1996
Preferred Stock, voting as a separate class, if such amendment would
directly or indirectly effect any adverse change in any of the rights,
preferences or privileges of, or limitations provided for herein for the
benefit of, the holders of Series 1996 Preferred Stock. Without limiting
the generality of the foregoing, no such amendment may be effected without
such approval if such amendment would:
(a) Reduce the amount payable to the holders of Series 1996
Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company, or change the seniority of
the liquidation preferences of the holders of Series 1996 Preferred
Stock relative to the rights upon liquidation, dissolution or winding
up of the holders of any other class or series of the Company's
shares; OR
(b) Cancel or modify the right of holders of Series 1996
Preferred Stock to convert such shares to Common Shares of the
Company, all as set forth in this Resolution.
8. Rank of Series 1996 Preferred Stock.
The shares of the Series 1996 Preferred Stock shall rank junior to all
series of preferred stock of the Company in existence as of this date and
to all series of preferred stock of the Company hereafter created, unless
such subsequently created series expressly ranks on a parity with or
subordinate to the Series 1996 Preferred Stock. The Company may issue other
shares of another class or series of preferred stock after the date of this
Resolution which rank on a parity with or senior to the Series 1996
Preferred Stock.
9. Investment Intent Required.
The shares of Series 1996 Preferred Stock shall not be registered
under the Act but will be offered and sold in reliance upon one or more
exemptions from such registration. Every person acquiring shares of Series
1996 Preferred Stock shall be required to affirmatively set forth his, her
or its intention to acquire such shares for investment purposes only and
intention not to effect any distribution of such shares in the United
States of America. Shares of Series 1996 Preferred Stock may not be
offered, sold or otherwise transferred, pledged or hypothecated unless and
until registered under the Act, or such offer, sale or transfer, pledge or
hypothecation is, in the opinion of Company counsel, exempt from the
registration provisions of the Act. Appropriate representations also may be
required of any holder of Series 1996 Preferred Shares at the time of
requesting conversion of those shares into shares of the Company's common
stock.
4
<PAGE>
10. Tax Matters.
The holders of Series 1996 Preferred Stock shall be solely liable for
and shall pay any and all taxes and other governmental charges, of every
kind, that may be imposed in respect of the issue or delivery of Common
Shares upon redemption or conversion of Series 1996 Preferred Stock. The
Company may withhold certain of such Common Shares in order to satisfy the
Company's tax withholding obligations or take similar steps to ensure that
such taxes and charges are duly paid. If the Company becomes liable for or
pays any such taxes due to acts of a Series 1996 Preferred Stock holder, it
may, in order to recoup the amount of such tax or tax liability:
(i) withhold the amount of such tax or tax liability from any
funds whatever in or coming into the Company's possession and
belonging to such holder, including dividends declared on the Series
1996 Preferred Stock and payable to such holder; and/or
(ii) cancel and reissue in the Company's name such number of
shares of Series 1996 Preferred Stock, based upon the original issue
price per share, as will equal the amount of the tax paid or tax
liability incurred.
IN WITNESS WHEREOF, the undersigned directors have duly approved the
foregoing resolution effective as of December 5, 1996.
By: /s/ Karin Kuhbander
-----------------------
Karin Kuhbander
By: /s/ Egin Bresnig By: /s/ Dean Wicker
-------------------- -------------------
Egin Bresnig Dean Wicker
(SEAL)
5
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into on December 27, 1996, by and among
ISO BLOCK PRODUCTS USA, INC., a Colorado corporation (the "Parent"); FRANCHISE
CONNECTION, INC., a Colorado corporation (the "Company"); BRILLIANT MARKETING,
INC., a Colorado corporation ("BMI"); and JOHNNY M. WILSON, an individual
residing in the State of Colorado (the "Executive").
WHEREAS, BMI is wholly owned by the Company, and the Company in turn is
wholly owned by the Parent; the Executive and other shareholders of the Company
sold all of the issued and outstanding shares of the capital stock of the
Company to Parent in exchange for common and preferred shares of the Parent, all
pursuant to that certain Exchange Agreement and Plan of Reorganization of even
date herewith among Parent, the Company and the shareholders of the Company,
including the Executive (the "Exchange Agreement"), and this Agreement is
entered to as provided for in the Exchange Agreement; and
WHEREAS, the Company desires to establish and market franchises of certain
businesses with which it or BMI now have contractual relations or with which it
or BMI establishes relations in the future; and BMI engages principally in the
business of teaching business how to market their services and products;
WHEREAS, the Executive will occupy positions of high responsibility with
the Parent, the Company and BMI, and it is anticipated that he will continue to
be a significant contributor to the growth and success of all three companies;
and
WHEREAS, the Parent desires to arrange for employment of the Executive in
the capacity of Chief Executive Officer and President of the Company and BMI for
the conduct and operations of thereof, and the Executive desires to accept said
employment on the terms of this Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals of their
respective covenants and commitments herein expressed, the parties hereto agree
as follows:
1. Definitions. When used in this Agreement, the following terms shall
have the respective meanings assigned them below:
"Act" means the Securities Act of 1933, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Parent Group" means the Parent, Company and BMI, not including any
other entities or businesses now or hereafter directly or indirectly,
wholly or partially owned by Parent, but does include any other entities or
businesses now or hereafter established or directly or indirectly, wholly
or partially owned by the Company or BMI.
Page 1
<PAGE>
"SEC" means the U.S. Securities and Exchange Commission.
"Term" means the original term of this Agreement and all renewals,
extensions and replacements thereof.
1. Employment. On the terms and subject to the conditions of this
Agreement, the Company and BMI hereby employ and agree to compensate the
Executive, and the Executive hereby accepts employment by the Company and
BMI. The Parent Group and Executive hereby agree that this Agreement shall
hereinafter govern their relationship and their respective rights and
obligations under this Agreement.
2. Term of Employment. This Agreement will be effective as and from
the date first above written and will, unless otherwise terminated pursuant
to the terms of this Agreement, continue in force for a term of three (3)
years. Upon expiration of the original Term, this Agreement shall be
automatically renewed for three (3) further consecutive terms of ONE year
each on the same terms and conditions contained in this Agreement, unless
the Board of Directors of the Company shall have given to Executive at
least 30 days' written notice of termination prior to the expiration of the
Term or of any subsequent one-year period, unless this Agreement has
otherwise been terminated pursuant to Section 11 hereof.
3. Duties of Executive. Executive will be employed by both BMI and the
Company as Chief Executive Officer and President and shall serve as
Chairman of the board of directors of both companies. As such, the
Executive shall have authority to perform such functions and exercise such
powers and duties as are customary for such positions, subject always to
the control of the Company's Board of Directors. He shall also serve in
such other capacities with the Company, BMI or any related companies as
shall be designated, or to which Executive shall be elected, from time to
time, by the Board of Directors of the Company or the Parent. The Executive
shall not compete with the Company or BMI or any subsequent related
companyt thereof or engage in any franchiserelated business whatsoever, as
consultant, employee or otherwise. The Executive shall prepare all
franchise offering circulars for franchises handled by the Company and BMI
as part of his regular salary, until the crush of business shall, in
Executive's judgment, render such services by him impractical and not
cost-effective.
4. Extent of Services; Right to Name, etc. (a) The Executive shall
devote substantially his full time, attention, knowledge and skill to the
affairs and for the benefit of the Company and BMI and the advancement of
the best interests of the Parent Group, and he shall perform all duties
reasonably assigned to him by the Company's Board of Directors. Executive
may, however, devote such time to his personal investments as shall be
necessary and which do not interfere with the performance of his duties
hereunder.
(b) Executive hereby grants to the Parent Group and all related
companies the non-exclusive right to use his name, picture or other
likeness and biographical material concerning him, in connection with
advertising, promotion and publicizing the Parent Group and such
related companies and its or their activities, so long as this
Agreement is in effect. Such use of Executive's name shall be fair and
not misleading or unflattering.
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5. Compensation and Expenses. As compensation for his services to be
performed hereunder and expenses paid, the Company shall pay and reimburse
the Executive as follows for his services to the Company and BMI and other
services hereunder:
(a) Base Salary. A base annual salary of $72,000.00 for each
year, as hereinafter defined, of his employment. Such base annual
salary, less federal and state withholding taxes and other payroll
taxes and deductions, shall be paid in twenty-four equal bi-monthly
installments on the first and fifteenth days of each and every month
during the Executive's employment. Executive's base annual salary
shall be increased on on each anniversary of the effective date of
this Agreement (December 27) by a percentage equal to the percentage
increased for such year past in the Consumer Price Index, plus one
percent (1%); and if such increase is unknown, then the assumed
increase shall be one percent (1%). The Executive shall serve as a
member of Parent's board of directors from the Closing and, upon the
request of Parent, shall serve as an officer or executive officer of
Parent. The Executive shall not receive any additional compensation
for so acting unless such directorship and officership should involve
significant increase in the duties of or time spent by the Executive.
(b) Pension and Other Plans. In addition to the compensation set
forth in paragraph (a) preceding, the Executive shall be entitled to
participate in any pension and/or profit sharing plan established by
any of the Parent Group and made available generally to senior
executives.
(c) Expenses. Pay or reimburse the Executive for his reasonable
business, travel and entertainment expenses incurred in connection
with his employment in the business of the company.
6. Stock Option.
(a) The Parent hereby grants Executive the option in the form of
Exhibit A hereto (the "Option") to purchase up to One Hundred Thousand
(100,000) common shares of the Company, subject to adjustment as
provided in the Option (the "Option Shares") for a period commencing
on December 27, 1996 and ending on December 26, 1999. Such shares
shall vest quarterly. The Option shall be issued upon the execution
hereof.
(b) The Executive and Parent acknowledge that a major part of the
inducement and consideration for the Parent to enter into the Exchange
Agreement and acquire ownership of the Company is the agreement of the
Executive herein to remain in the employ of the Company and BMI for a
period of three (3) years and to manage the Company and BMI in such a
manner that their revenues and profitability continue to grow.
Therefore, in the event that Executive voluntarily elects to terminate
his employment with the Company on the terms set forth in this
Agreement during the original four-year Term of this Agreement, all
options held by Executive, of every kind and description and
irrespective how or when granted to Executive to purchase common
shares of Parent shall be subject to immediate cancellation by Parent,
at Parent's sole election.
7. Confidentiality. Without the prior written consent of the Parent, the
Executive shall not at any time (whether during or after his employment
hereunder), use for his own benefit or purposes, or for the benefit or purpose
of any other person, firm, partnership, association, corporation or business
organization, entity or enterprise, any trade secrets, information, data,
know-how or knowledge (including, but not limited to, trade secrets,
information, data, know-how or knowledge relating to customers, sales, market
development programs, costs, products, apparatus, equipment, processes, formula,
financing or marketing methods, compositions, designs, plans or employees)
belonging to, or relating to the affairs of, the Parent, the Company or BMI or
any related corporation. However, in the event that this Agreement is cancelled
and that the Exchange Agreement also is unwound and rescinded, then this
confidentiality covenant imposed upon the Executive shall apply only to
information concerning the Parent. This covenant shall survive the termination
of this Agreement and the Exchange Agreement for any reason.
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8. Vacation. During each year within the term hereof, original or extended,
the Executive shall be entitled to vacation with pay as follows: The first year
of this Agreement - two (2) weeks vacation; in year two, increasing to three (3)
weeks; in year three (3) and years thereafter, increasing to four (4) weeks.
Such weeks shall be designated by the Executive. The Executive shall not take
more than three weeks of vacation in any six-month period.
9. Other Insurance. The Parent or Company shall have the right to purchase,
own and be the beneficiary of key-man life insurance, disability insurance or
key executive loss insurance covering the loss or life and/or services of the
Executive. The Executive agrees to cooperate with the Company, and to assist the
Company to the best of his ability in every lawful way, in applying for and
obtaining any such insurance (including providing medical information and taking
medical and physical examinations, for example), upon request.
10. Incapacity of the Executive. If the Executive shall, at any time, be
incapacitated or prevented by physical or mental disability, whether resulting
from accident, illness or otherwise, or any other circumstances beyond his
control from performing his duties under this Agreement satisfactorily for a
consecutive period of at least sixty (60) days, the Company may, by written
notice to the Executive given at any time after such 60-day period and so long
as the incapacity shall continue, discontinue payment in whole or in part of the
compensation provided for herein from such date as may be specified in the
notice until the incapacity of the Executive shall cease. Alternatively, the
Company may terminate the Executive's employment as provided in Section 11
(Termination) hereof.
Otherwise, the said payment shall, notwithstanding the incapacity of the
Executive, continue to be paid to the Executive in accordance with the foregoing
provisions; provided, that if the Executive shall receive any amount during the
time of such incapacity by reason of any disability insurance or any other
insurance plan, senior executive loss or income policy, disability policy or any
other plan or scheme of a like nature funded by the Company or the Parent Group,
the payment above provided may be reduced by a like amount.
11. Termination. (a) This Agreement and the Executive's employment with the
Company and BMI and his compensation therefor shall terminate and cease to
accrue prior to the end of the Term at the sole option of the Parent upon:
(i) the failure by the Executive to observe or perform his
agreements herein contained or the Executive's neglect of the faithful
performance of his duties, provided, however, that if the Executive
shall fail to observe or perform his agreements herein contained, or
neglect the faithful performance of his duties, his employment and
aforesaid compensation shall not terminate or cease unless the Company
gives written notice to the Executive of such failure or neglect and
the Executive does not remedy within thirty (30) days of the date of
said written notice, such failure or neglect as designated by the
Company in said written notice.
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(ii) the Executive's conviction of or plea of guilty or nolo
contendre to a felony crime;
(iii) absence of the Executive from the performance of his duties
hereunder for any reason other than contemplated in Section 10
(Incapacity) hereof for a period in excess of 40 working days total in
any six-month period;
(iv) the total or partial disability of the Executive for an
aggregate period of ninety (90) days or more during any year of the
Term. Total disability shall mean that the Executive is unable to
perform his duties as a result of physical or mental disability,
whether resulting from accident or disease. Partial disability shall
mean that Executive's activity in the performance of his duties is
materially limited as a result of physical or mental disability,
whether resulting from accident or disease. Executive's total or
partial disability, as defined in this subparagraph, may only be
established by the mutual agreement of the Parent and the Executive,
or by the certificate of a physician jointly designated by the Parent
and Executive.
(iv) death of the Executive.
(v) the termination or recission of the Exchange Agreement.
Any such termination pursuant to clauses (i), (ii) and (iii) shall be effective
only if written and dated notice, setting forth the cause and effective date of
termination, is given to the Executive not later than ten (10) days following
the event, transaction or occurrence giving rise to such right of termination,
or, if later, 10 days after the Company first discovers that such event,
transaction or occurrence has taken place.
(b) the Executive may terminate this Agreement prior to the end of the
Term upon sixty (60) days' written and dated notice to the Company and the
Parent setting forth the effective date of such termination.
(c) Upon termination of this Agreement, the Executive shall
immediately resign all offices held with the Parent, the Company, BMI and
all related companies thereof, and the Executive shall not be entitled to
receive any termination or severance payment or compensation for loss of
office or otherwise. If the Executive fails to immediately resign as herein
provided, then in such event the Executive irrevocably appoints the
Secretary of the Company in his name and on his behalf to sign any
resignation confirmation or do anything necessary or requisite to give
effect to such resignation(s).
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(d) On the effective date of termination of this Agreement, the
Executive will deliver to the Company, in a reasonable state of repair, all
property of the Company, BMI and every related company, both real and
personal owned, leased or bailed to the Executive and used by or in the
possession of the Executive.
(e) A continuation of the Executive's employment with the Company
beyond the Term, without an agreement in writing covering such
continuation, shall be deemed an extension of the Term hereof on a
month-to-month basis for the duration of such continuation, provided,
however, that either party hereto may terminate the Executive's employment
by giving the other party thirty (30) days prior written notice thereof
during such continuation.
12. Relationship of the Parties. The Executive will perform his duties as
an employee of the Company and BMI and is not, nor will he be deemed to be, a
joint venturer or partner with the Company or BMI, or the Parent, or any related
company thereof, and nothing in this Agreement will be construed so as to make
him a joint venturer or partner with the Parent, the Company, BMI or any related
company.
13. Assignment, Etc. The Executive may not assign, pledge or encumber in
any way all or any part of his rights, obligations or interest hereunder without
the prior written consent of the Company and the Parent. Neither Parent, the
Company nor BMI shall assign, pledge or encumber in any way its respective
rights, obligations or interest hereunder; however, it shall not constitute an
assignment if Parent, the Company or BMI reorganize or divide, or merge or
consolidate with any other company(ies), or otherwise become a different
company.
14. Miscellaneous Provisions.
(a) Amendments. This Agreement may be amended, modified, or
supplemented only by instrument in writing executed by all parties.
(a) Notices. All notices required to be given under the terms
of this Agreement shall be in writing, shall be effective upon receipt, and
shall be delivered to the addressee in person or mailed by certified mail,
return receipt requested. Such notice shall be deemed received on the date on
which it is delivered to the addressee. For purposes of notice, the addresses of
the parties shall be as follows:
If to ISO BLOCK: If to the Company:
- --------------- ------------------
8037 South Datura Street 4155 East Jewell Avenue, Suite 1001
Littleton, Colorado 80120 Denver, Colorado 80222
Attn: Egin Bresnig, CEO Attn: Johnny M. Wilson, CEO
If to BMI: If to Johnny M. Wilson:
- --------- -----------------------
4155 East Jewell Avenue, Suite 1001 4155 East Jewell Avenue, Suite 1001
Denver, Colorado 80222 Denver, Colorado 80222
Attn: Johnny M. Wilson, CEO Attn: Johnny M. Wilson, CEO
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or such other address as either party shall have designated for notices to be
given to him or it in accordance with this paragraph.
(c) No Waiver Intended. The failure of any member of the Parent Group
at any time or from time to time to require performance of any of the
Executive's obligations shall in no manner affect the Parent's, the
Company's or BMI's right to enforce any provisions of this Agreement at a
subsequent time, and shall not constitute the waiver by the Parent, the
Company or BMI of any right arising out of any breach.
(d) Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties concerning the subject matter hereof and
supersedes all prior agreements, arrangements, and understanding between
the parties hereto. No representation, promise, inducement or statement of
intention has been made by or on behalf of either party which is not set
forth in this Agreement, and the term hereof may not be amended or modified
except by written instrument executed by the parties hereto.
(e) Parties in Interest; No Third Party Beneficiaries. Except as
otherwise provided herein, the terms and conditions of this Agreement shall
be binding on and inure to the benefit of the Executive, his heirs and
administrators, and shall be binding on and inure to the benefit of the
Parent Group and their respective successors and assigns. This Agreement
shall not be deemed to confer upon any person not a party hereto any rights
or remedies hereunder.
(f) Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its
severance herefrom. Further, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as part of this
Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid and
enforceable.
(g) Captions. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
(h) Interpretation. This Agreement shall be governed by and construed
under the laws of the State of Colorado. If any action is brought to
enforce or interpret any term of this Agreement, venue shall be in the
District Court of Arapahoe County, State of Colorado. This Agreement shall
be interpreted as if all parties participated equally in its drafting and
preparation.
(i) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument. Execution and
delivery of this Agreement by exchange of facsimile copies bearing
facsimile signature of a party shall constitute a valid and binding
execution and delivery of this Agreement by such party. Such facsimile
copies shall constitute enforceable original documents.
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(j) Prevailing Party Clause. In the event of any litigation or
proceeding arising as a result of the breach of this Agreement or the
failure to perform hereunder, or failure or untruthfulness of any
representation or warranty herein, the party or parties prevailing in such
litigation or proceeding shall be entitled to collect the costs and
expenses of bringing or defending such litigation or proceeding, including
reasonable attorneys' fees, from the party or parties not prevailing.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written and have initialled every preceding
page of this Agreement.
ISO BLOCK PRODUCTS USA, INC. FRANCHISE CONNECTION, INC.
By: /s/ Egin Bresnig By: /s/ Johnny M. Wilson
- -------------------- ------------------------
Egin Bresnig, CEO Johnny M. Wilson, CEO
BRILLIANT MARKETING, INC. JOHNNY M. WILSON, Individually
By: /s/ Johnny M. Wilson By: /s/ Johnny M. Wilson
- ------------------------ ------------------------
Johnny M. Wilson, CEO Signature
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