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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: May 15, 1996
BROWN DISC PRODUCTS COMPANY, INC.
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(Exact name of registrant as specified in its charter)
Colorado 33-31068 84-1067075
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation File No.) Identification No.)
or organization)
1120-B Elkton Drive, Colorado Springs, Colorado 80907-3568
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(719) 593-1015
(Not applicable)
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(Former name or former address, if changed since last report)
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BROWN DISC PRODUCTS COMPANY, INC.
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
Brown Disc Products Company, Inc. (the "Company") previously
indicated in its last Report on Form 10-QSB for the period ended March
31, 1996 that its management was reassessing the Company's existing
products, services and business strategy. In view of the Company's
operating losses and limited resources, the Report on Form 10-QSB
noted, among other things, that this strategy anticipated the
acquisition of additional assets or business operations in exchange
for a controlling interest in the Company via the issuance of
additional equity securities. It was also noted that any such
transaction was expected to involve substantial dilution to the equity
interests of the Company's stockholders.
PROSPECTIVE CHANGE IN CONTROL
On May 15, 1996 the Company publicly announced it has entered
into an Agreement and Plan of Reorganization (the "Reorganization
Agreement") with Kimbrough Computer Sales Inc. 3SI, Inc. ("3SI") and
certain parties affiliated with 3SI or the Company. As described in
greater detail below in Item 5 of this Report, if transactions
contemplated by the Reorganization Agreement are successfully
completed (as to which there can be no assurance), the changes in
management, issuance of additional common stock in a private placement
financing and issuance thereafter of common stock equivalent to 60% of
the Company's common equity calculated on a fully diluted basis at
closing of the Reorganization Agreement would result in a change in
control of management, voting control and equity ownership of the
Company.
Information concerning the three principal 3SI shareholders who
would receive 60% of the Company's common stock at closing of the
Reorganization Agreement and other terms of the Reorganization
Agreement are discussed in Item 5 below. Consideration that would be
received from the 3SI shareholders in exchange for their acquisition
of control of the Company under the Reorganization Agreement would be
all of their equity interests in 3SI.
Except as set forth in Item 5 of this Report, there are no other
arrangements or understandings among parties to the Reorganization
Agreement with respect to the election of directors or other matters
on which shareholders of the Company are entitled to vote.
ITEM 5. OTHER EVENTS.
AGREEMENT AND PLAN OF REORGANIZATION TO ACQUIRE 3SI
The Company entered into the Reorganization Agreement on May 15,
1996 with Kimbrough Computer Sales Inc. 3SI, Inc., a Colorado
corporation ("3SI"), the three principal shareholders of 3SI (the "3SI
Shareholders"), Ronald H. Cole and BDPC Acquisition Corporation. The
3SI Shareholders include Frank W. Backes, Frederick J. Slack and
Felipe Larry Valdez. Ronald H. Cole is the Chairman of the Board,
President and Chief Executive Officer of the Company. BDPC
Acquisition Corp. ("BDPC Acquisition") will be organized at a future
date under the laws of Colorado as a newly formed subsidiary of the
Company.
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Subject to completion or waiver of various conditions precedent
to closing, the Reorganization Agreement provides that 3SI will merge
into BDPC Acquisition with the result that 3SI will become a wholly-
owned subsidiary of the Company. The consideration to be received by
3SI Shareholders upon completion of the merger and closing of the
Reorganization Agreement will include: (i) $1,200,000 in cash to be
paid by the Company, and (ii) newly-issued common stock of the Company
in an amount equal to 60% of the total shares of Company common stock
then outstanding and reserved for issuance on a fully-diluted basis.
The Company is also obligated at closing to pay approximately
$1,014,000 of 3SI indebtedness incurred in connection with financing
the August 1993 acquisition of ownership in 3SI by the 3SI
Shareholders; such payment may be deemed additional consideration to
be paid at closing that would benefit the 3SI Shareholders.
ADDITIONAL EQUITY FINANCING AND CERTAIN OTHER CONDITIONS
Conditions to closing under the Reorganization Agreement include,
among others, requirements that the Company: (a) pay or make
provision for the payment and settlement of all of the Company's past
due debts and liabilities; and (b) obtain additional common stock
equity financing in an amount adequate to provide at least $3,500,000
in working capital available to the Company at closing after providing
for payment of (i) $1,200,000 at closing to the 3SI Shareholders as
described above, (ii) approximately $1,014,000 of 3SI's indebtedness
to its former owners, (iii) $200,000 in contingent obligations that
will become due to the Company's former President, R. Eugene Rider, as
a result of the financing, (iv) payment or settlement of the Company's
past due debts and liabilities, and (v) costs and expenses of the
private placement financing. The Company's management estimates that
at least $6.6 million in gross proceeds from an offering and sale of
common stock will be required for the Company to satisfy these
requirements. There can be no assurance that the Company will be
successful in efforts to raise additional equity capital.
In order to satisfy this additional financing condition, the
Company plans to offer additional common stock for sale in a private
placement financing transaction within the next 30 days. The amount
and pricing of securities that will be offered in an effort to obtain
this financing has not yet been determined by the Company's Board of
Directors. Based upon the current market price for the Company's
common stock of approximately $4.25 per share, at least 1.6 million
additional shares of common stock will be required to obtain such
financing if the Company's efforts are successful, and the number of
shares required for this purpose may increase beyond that level,
perhaps significantly, based upon market conditions at the time of the
proposed private placement, the price for the Company's securities,
negotiations with prospective private investors, results of
negotiations to settle past due Company liabilities, and other
relevant factors.
Additional conditions to closing of the Reorganization Agreement
include, among others, completion of due diligence investigations by
the respective parties; completion of financial statements of 3SI in a
form required to be filed with a subsequent Report on Form 8-K;
delivery by 3SI to the Company of certain disclosure schedules
required by the Reorganization Agreement; execution of employment
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agreements at closing between the Company and the three 3SI
Shareholders; the absence of any material misrepresentations as to, or
material change in, the business, assets, obligations or financial
condition of the Company or 3SI; and the filing of a certificate of
merger to effect the merger of 3SI into BDPC Acquisition after BDPC
Acquisition has been organized as a wholly-owned subsidiary of the
Company. Any of the foregoing or other conditions to closing may be
waived by the parties to the Agreement. The Company does not
anticipate that approval of the Reorganization Agreement will require
a vote of the Company's shareholders.
VOTING AND MANAGEMENT AGREEMENTS
Ronald H. Cole, the Company's Chief Executive Officer and a
director, has agreed to support the Reorganization Agreement and to
vote all shares of the Company he is entitled to vote in favor of the
transactions provided by that agreement. Mr. Cole currently holds
proxies irrevocable until September 7, 1997 to vote 1,202,410 of the
shares of the Company's common stock owned by R. Eugene Rider and Eva-
Forsberg Rider, 100,000 shares held by a Trustee for the benefit of
Mr. & Mrs. Rider and 62,000 shares of common stock owned by Harry K.
McCreery, a director of the Company. Such shares represent, in the
aggregate, approximately 36.2% of the 3,768,071 shares of voting
common stock currently outstanding. Upon closing of the
Reorganization Agreement, Mr. Cole has agreed to transfer his right to
exercise voting power represented by these irrevocable proxies to the
three principal 3SI Shareholders.
Upon closing of the Reorganization Agreement, Messrs. Mark R.
Lane, Daryl M. Silversparre and David J. Lopes are to resign as
directors of the Company, two incumbent directors (Ronald H. Cole and
Harry K. McCreery) will remain on the Board, and the three principal
3SI shareholders will be elected to the Board and will constitute a
majority of a five-person Board. In addition, all existing executive
officers of the Company will resign and be replaced by the principal
3SI shareholders and their nominees.
OTHER AGREEMENTS
If the closing under the Reorganization Agreement occurs, Ronald
H. Cole and the Company have agreed to cause 3.0 million of the
Company's outstanding Class A common stock purchase warrants and all
1.0 million of the Company's Class B common stock warrants, currently
held by certain members of the Company's Board and their affiliates,
to be exchanged for 808,050 newly-issued shares of the Company's
common stock. [The Class A warrants are exercisable at $0.25 per
share until expiration on September 7, 2000 and the Class B warrants
are exercisable at $0.10 per share until expiration on September 7,
2000; these warrants would be cancelled after the exchange.] The
Company has agreed to grant certain "piggy-back" rights for the
registration of up to 200,000 shares under the Securities Act of 1933
of the 808,050 shares to be issued in exchange for the surrender and
cancellation of 4,000,000 warrants described above.
The Reorganization Agreement also provides that piggy-back
registration rights may be granted at a future date as to the
remaining shares to be issued in exchange for warrants and as to the
shares of common stock to be issued upon closing to the 3SI
Shareholders by mutual agreement among the parties to the agreement.
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Employment agreements for the 3SI Shareholders required at
closing will each be for a term of 3 years, renewable on a year-to-
year basis thereafter except on 60 days' prior notice of intent not to
renew. Base annual salaries for each 3SI Shareholder as an executive
employee of the Company will be $100,000 in the first year, $110,000
in the second year and $120,000 in the third year. Each will be
entitled to participate in benefit programs generally available to all
executive employees of the Company including, without limitation,
health and group life insurance. If employment is terminated
involuntarily without cause (as defined in the employment agreements),
the executive will be entitled to receive severance payments monthly
for the balance of the remaining original terms of his employment
agreement equal to 150% of the base salary otherwise provided by his
employment agreement. Each employment agreement will require that the
executive employee devote his full business time and services to the
affairs of the Company and will contain inventions assignment
provisions in favor of the Company.
INFORMATION AS TO 3SI AND THE 3SI SHAREHOLDERS
The following information relating to 3SI and the 3SI
shareholders have been extracted from certain information provided to
the Company by 3SI and the 3SI Shareholders. Although the Company
does not have any knowledge that would indicate the statements and
summary data contained below are untrue, the Company is still in the
due diligence process of collecting information as to 3SI, and the
Company and its directors take no responsibility for the accuracy of
the following information or any failure to disclose additional facts
that may affect the significance or accuracy of such information.
After closing of transactions contemplated by the Reorganization
Agreement, the Company intends to file an amendment to this Form 8-K
Report to provide more comprehensive information.
Summary of 3SI Business
-----------------------
3SI was founded in 1979 as a Colorado corporation under the name
"Kimbrough Computer Sales" and initially concentrated exclusively on
providing software solutions for Digital Equipment Corporation ("DEC")
minicomputers in the Denver metropolitan area. By the late 1980's,
Kimbrough Computer Sales had become an authorized dealer for IBM,
Compaq and DEC equipment and Novell software. As the trend to replace
mainframe and minicomputers with more cost-effective PC LAN (Personal
Computer Local Area Network) or UNIX-based multiuser systems evolved,
Kimbrough Computer Sales developed expertise in both PC LAN and UNIX-
based networking systems.
In August 1993, Kimbrough Computer Sales was purchased from its
former owners by the 3SI Shareholders and changed its business name
and style to "Kimbrough Solutions, Inc.". Three major changes
inplemented by 3SI Shareholders as new management of 3SI included:
(i) reducing efforts on low margin PC business and significantly
increasing concentration on mid-range systems; (ii) expanding services
to include consulting, in addition to prior product support
activities; and (iii) development of a consulting model for business
solutions which allows 3SI to develop a longer-range associations with
its customers. These changes altered 3SI's primary focus from being
a hardware and network software dealer with value-added product
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support services to a company whose primary focus is computer
consulting and services with product sales as a value-added item.
In October of 1995, 3SI changed its business name and style from
Kimbrough Solutions to 3SI (representing "Solution, System and Service
Integration") to better describe its focus and direction at assisting
customers in the design, develop, and implementation of business
solutions. The current business of 3SI includes design and
development of information technology solutions, such as client/server
systems design and implementation, network design and management,
Internet connection planning, design and implementation, systems
development and integration for UNIX, Windows NT and Windows-based
systems, database design and development, applications development and
anomaly identification and resolution. It is a supplier of over 20
major lines of computer products.
3SI's staff includes personnel qualified as Novell Enterprise
CNEs, Microsoft Certified Professionals, Oracle Masters, TCP/IP and
UNIX professionals. It designs and implements instructional programs
for clients and also offers in-depth educational programs at a fee of
approximately $195 per day specializing in Windows-based applications
such as Windows 3.1, Windows for Workgroups, Windows 95, Microsoft
Office and its components, PerfectOffice and its components, Lotus
SmartSuite and Lotus Notes, Novell system administration, the World
Wide Web ("WWW") and Internet applications. 3SI offers a broad range
of Internet and WWW services and equipment, including evaluation of
network requirements, installation and implementation of World Wide
Web servers and the design and maintenance of WWW pages. 3SI also
supplements a client's existing network resources by offering remote
net management and administration via modem connection. Hardware
services include on-site maintenance, depot repair of PCs and
printers, monitor repair, cable installation and customized service
programs for corporate clients.
3SI's customer base is located primarily in Colorado, Utah and
New Mexico and includes healthcare companies, federal and local
government agencies, prime contractors to federal government agencies,
and general commercial accounts.
The principal offices and facilities of 3SI are located at 6886
South Yosemite Street, Englewood, Colorado 80112, telephone number
(303) 741-9123, where it has approximately 60 employees, and it has a
small office in Colorado Springs, Colorado. During 1995, 3SI also
opened an office in Albuquerque, New Mexico with approximately 20
employees.
Management of 3SI
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The owners of 3SI include Felipe Larry Valdez, Frederick J. Slack
and Frank W. Backes. The following sets forth certain information as
to the 3SI Shareholders and management of 3SI:
Felipe Larry Valdez is Chairman of the Board & Chief Operating
Officer of 3SI. Mr. Valdez has over 25 years of business experience
working in computer technology companies including sixteen years with
Digital Equipment Corporation from October 1997 to August 1993 in a
variety of sales, services and customer support management positions.
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Mr. Valdez holds a BS degree in Business Administration from the
University of Albuquerque and an MBA for the University of Phoenix.
Upon closing of the Reorganization Agreement, Mr. Valdez is to be
elected a director, Chairman of the Board and Chief Operating Officer
of the Company.
Frederick J. Slack serves as the Chief Executive Officer of 3SI.
Mr. Slack has over 17 years of marketing and sales experience in
information technology and was previously employed by Digital
Equipment Corporation from November 1986 to July 1993. Mr. Slack's
experience includes Program Management of several government programs.
He holds a BS from the University of Northern Colorado. Upon closing
of the Reorganization Agreement, Mr. Slack is to be elected a director
and Chief Executive Officer of the Company.
Frank W. Backes is the President of 3SI. Mr. Backes has over 12
years of technical experience in the computer industry. He was a
technical sales consultant for Digital Equipment Corporation from
January 1989 to July 1989, a senior software engineer and systems
analyst for Softech from November 1987 to January 1989 and held
various software programming and engineering positions with Science
Applications International Corp. from June 1982 to November 1987. As a
civilian Lead Engineer and Program Manager, Mr. Backes led the design
and implementation of U.S. Military Command and Control Systems at
NORAD, Peterson Air Force Base and Falcon Air Force Base. While
employed by Digital Equipment Corporation, Mr. Backes focused on
compartmented-mode workstations and secure networks. Mr. Backes holds
an BS degree in Electrical Engineering from the University of
California at San Diego. Upon closing of the Reorganization
Agreement, Mr. Backes is to be elected a director and President of the
Company.
Paul Kaufhold is 3SI's Chief Financial Officer. Mr. Kaufhold
has over ten years experience in finance, operations and management of
emerging, high technology companies. Mr. Kaufhold served as Chief
Financial Officer at CWE, Inc. from 1990 to 1994. While at CWE, Mr.
Kaufhold was responsible for all financing and administrative
functions. Prior to his employment at CWE, Mr. Kaufhold worked at
KPMG Peat Marwick from 1980 to 1990 serving numerous growth companies
in meeting theft audit, accounting and tax needs. Mr. Kaufhold is a
Certified Public Accountant and holds an MBA from the University of
Wisconsin and a BS in Business Administration from Ohio State
University.
Summary Financial Information
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The Company has been advised that historical results of
operations of 3SI for its fiscal years ended December 31, 1994 and
1993 have been reviewed, but not audited, by an independent public
accountant. An audit of 3SI's historical financial statements is
expected to be completed within the next 60 days. Subject to audit
adjustments, if any, the following table summarizes certain unaudited
operating results and financial information as to 3SI for the periods
indicated:
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Kimbrough Computer Sales, Inc. dba 3SI
(Expressed in Thousands, 000 omitted)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1995 1994 1993
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<S> <C> <C> <C>
Statement of
Operations Data:
Net sales .............. $21,774 $17,504 $ 9,574
Gross profit ........... 3,824 2,759 1,770
Selling, general
and administrative
expenses ............. 3,931 2,410 1,738
Other income (expense).. (69) 18 21
Net income (loss)....... (175) 367 53
<CAPTION>
December 31,
---------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Balance Sheet Data:
Current assets ......... $ 4,735 $ 3,019 $ 3,038
Current liabilities..... 4,530 2,297 2,488
------- ------- -------
Working capital ........ 205 722 550
Total assets ........... 5,078 3,124 3,084
Long term debt ......... 99 -- --
Stockholders' equity ... 448 826 596
</TABLE>
Results of operations for 3SI in 1995 compared to 1994 were adversely
affected by an increase in selling and administrative expenses of
approximately 64% primarily due to increasing staff, opening an office
in Albuquerque, New Mexico and increasing the 3SI sales force.
REASONS FOR THE REORGANIZATION AGREEMENT
As previously reported in the Company's prior filings with the
Securities and Exchange Commission, the Company operates in a mature
industry characterized by intense competition and narrow gross profit
margins, and has sustained continuing losses from operations since
inception. The Company has minimal cash resources, negative working
capital, past due secured debt obligations and a deficiency in
stockholders' equity. In view of declining sales trends and gross
margin deterioration, the Company's management has focused its efforts
primarily on the acquisition of another business enterprise in the
computer software and service industry and does not intend to expand
the Company's activities in software duplication and allied services.
In recent months, the Company and 3SI have jointly financed a
business plan for the development of certain proprietary software,
designs and specifications relating to Internet security applications
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developed in part by 3SI. The proposed program is to develop security
solutions for business use of the Internet in cooperation with a
third-party Internet access provider. Development and implementation
of this program will require additional working capital, and a portion
of private placement funds proposed to be raised as a requirement of
closing the Reorganization Agreement will be dedicated to this
purpose.
The Company's management believes that the acquisition of 3SI by
the Company, resulting in the acquisition of 3SI's computer consulting
and services businesses, will be in the best interests of the
Company's stockholders and provides the only viable alternative
currently available to the Company in its efforts to obtain additional
financing necessary to sustain itself as an operating company.
There can be no assurance that transactions contemplated by the
Reorganization Agreement will be successfully completed, and the
closing of the Reorganization Agreement is subject to certain material
conditions including, among others, the various conditions described
above.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED: Upon closing of the
Reorganization Agreement, the Company plans to file a Report on
Form 8-K containing additional information required by Items 1, 2
and 7 of Form 8-K. Financial statements of 3SI for the periods
required by Rule 3.05(b) of Regulation S-X required at that time
are not currently available, and are in the process of being
prepared. If the closing under the Reorganization Agreement
occurs, the Company expects that relevant financial statements of
3SI are expected to be filed as part of that subsequent Form 8-K
Report not later than 60 days after that closing of the proposed
business acquisition.
(b) PRO FORMA FINANCIAL INFORMATION: At the time financial
statements discussed in Item 7(a) above are available to the
Company, the Company plans to file pro forma financial
information relative to the acquired business as part of a
subsequent Form 8-K Report.
(c) EXHIBITS:
Exhibit
Number Description
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2.1 Agreement and Plan of Reorganization dated May 1996
among the Registrant, BDPC Acquisition Corp.,
Kimbrough Computer Sales Inc. 3SI, Inc., Ronald H.
Cole, Frank Backes, Frederick Slack and Felipe Larry
Valdez.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Date: May 24, 1996
BROWN DISC PRODUCTS COMPANY, INC.
(Registrant)
By: /s/ RONALD H. COLE
-----------------------------
Ronald H. Cole, Chairman of the Board,
Chief Executive Officer,
Chief Financial Officer
and Chief Accounting Officer
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement")
entered into as of the ___ day of May, 1996, by and among:
BROWN DISC PRODUCTS COMPANY, INC., a Colorado corporation (herein
called "BDPC"), with its principal office located at 1120-B
Elkton Drive, Colorado Springs, Colorado 80907-3568;
BDPC ACQUISITION CORP., a corporation to be organized by BDPC
under the laws of Colorado as a wholly-owned subsidiary of BDPC
(herein called the "BDPC Subsidiary");
KIMBROUGH COMPUTER SALES INC. 3SI, INC., a Colorado corporation
(herein called "3SI"), with its principal office located at 6886
South Yosemite Street, Englewood, Colorado 80112;
RONALD H. COLE, an individual (herein called "COLE"); and
FRANK BACKES, FREDERICK SLACK and FELIPE LARRY VALDEZ (herein
called the "KSI;3SI SHAREHOLDERS").
R E C I T A L S:
WHEREAS, KSI;3SI is engaged in the marketing and sale of computer
hardware and software products, integrated computer solutions commonly
termed a value-added reseller (the "KSI;3SI Business"); and
WHEREAS, the KSI;3SI Shareholders own all of the issued and
capital stock in KSI;3SI; and
WHEREAS, BDPC is a publicly-held corporation engaged in the
manufacture, packaging and distribution of software media storage
products;
WHEREAS, COLE is the Chairman and Chief Executive Officer of
BDPC;
WHEREAS, BDPC and KSI;3SI have financed a business plan for the
development of certain proprietary software, designs and
specifications relating to Internet applications which has been
disclosed to, and developed in part by, KSI;3SI (the "BDPC Development
Plan"), and KSI;3SI and BDPC desire to jointly implement such BDPC
Business Plan in cooperation with a third party provider of
communications services; and
WHEREAS, the parties accordingly desire to provide for an
agreement and plan of reorganization within the meaning of Section
361(a)(1)(A) and related provisions of the Internal Revenue Code of
1986, as amended, for the statutory merger of KSI;3SI into a
wholly-owned
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subsidiary of BDPC in which the shareholders of KSI;3SI will receive
60% shares of the BPDC common stock in the statutory merger
contemplated by this Agreement all on the terms and subject to the
conditions set forth in this Agreement;
NOW, therefore, in consideration of the premises, the parties
agree as follows:
SECTION 1.CERTAIN DEFINITIONS
The following terms not defined elsewhere in this Agreement shall be
defined to mean as follows:
"Affiliate" means any member of the immediate family of a named party,
or any corporation, partnership, trust or other entity in which any of
the foregoing individuals is a director, officer, partner or trustee
or has an equity interest in excess of 5%. The term "Affiliate" shall
also include any entity which controls, or is controlled by, or is
under common control with, the named party or any of the individuals
or entities described in the preceding sentence.
"KSI;3SI Common Stock" means the common stock of KSI;3SI, as the same
is presently constituted.
"KSI;3SI Interim Financial Statements" shall mean KSI;3SI's unaudited
balance sheet as of March 31, 1996 and its unaudited statements of
operations and cash flows for the interim period then ended since its
last fiscal year.
"BDPC Common Stock" means the common stock of BDPC, no par value, as
the same is presently constituted.
"BDPC Interim Financial Statements" shall mean BDPC's unaudited
balance sheet as of March 31, 1996 and its unaudited statements of
operations, cash flows and changes in shareholders' equity
for the nine month period then ended.
"BDPC Series A Preferred" shall mean 12,613 issued and outstanding
shares of BDPC Series A Preferred Stock, no par value, as the same is
presently constituted.
"BDPC Series B Preferred" shall mean 50,000 issued and outstanding
shares of BDPC 10% Series B Convertible Preferred Stock, no par value,
as the same is presently constituted.
"Code" means the Internal Revenue Code of 1986, as amended, and
applicable rules and regulations promulgated thereunder.
"Colorado Corporation Code" means Title 7 of the Colorado Revised
Statutes 1973, as amended to date.
"GAAP" means generally accepted accounting principles consistently
applied with prior periods.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including quantity).
<PAGE> 3
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations promulgated thereunder.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended, and all rules and regulations promulgated thereunder.
"Security Interest" means any mortgage, pledge, security interest,
encumbrance, charge or other lien of any kind or character, direct or
indirect, whether accrued, absolute, contingent or otherwise, other
than (a) liens for taxes not yet due and payable, (b) liens arising
under worker's compensation, unemployment insurance, social security,
retirement, and similar legislation, and (c) liens securing rental
payments under equipment lease arrangements.
SECTION 2.CLOSING
Subject to the terms and conditions of this Agreement, the
closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of BROWN DISK PRODUCTS
COMPANY, INC., commencing at 10:00 A.M. local time on JUNE 18 1996
(the "Closing Date"), subject to the satisfaction of all conditions
precedent to the obligations of the parties to consummate the
transactions contemplated by this Agreement. The Closing Date may be
adjourned by mutual agreement between BDPC and KSI;3SI to any other
mutually convenient date, but not later than AUGUST 15, 1996.
SECTION 3.THE MERGER
3.1. The Merger. On and subject to the terms and conditions of
this Agreement, at or immediately prior to the Closing Date, KSI;3SI
will merge with and into the BDPC Subsidiary (the "Merger") in
accordance with the provisions of Sections 7-7-101 et seq. of the
Colorado Corporation Code. The effective time and date of the Merger
shall occur when articles of merger conforming to the requirements of
the Colorado Corporation Code (the "Articles of Merger") are executed
in duplicate on behalf of the BDPC Subsidiary, KSI;3SI and BDPC in the
manner provided by Section 7-7-104 of the Colorado Corporation Code
and filed by the Secretary of State of Colorado (the "Effective Date"
or Effective Time"). The BDPC Subsidiary shall be the surviving
corporation in the Merger (the "Surviving Corporation") and the
separate existence of KSI;3SI shall cease from and after the Effective
Time. The Surviving Corporation may, at any time after the Effective
Time, take any action (including executing and delivering any
document) in the name and on behalf of either the BDPC Subsidiary or
KSI;3SI in order to carry out and effectuate the transactions
contemplated by this Agreement.
3.2. Material Terms and Effect of the Merger.
3.2.1. Conversion of Securities; Cash Payment. By virtue of
the Merger and without any other action on the part of the holders of
any of the following securities:
<PAGE> 4
A. all of the issued and outstanding shares of KSI;3SI Common
Stock immediately prior to the Effective Time shall cease to
be issued and outstanding, and each such share of KSI;3SI
Common Stock shall become, and be converted into, a right to
receive a pro rata share 60% the fully diluted issued and
outstanding BDPC Common Stock (the "Merger Consideration").
Each holder of record of KSI;3SI Common Stock immediately
prior to the Effective Time shall receive at Closing that
number of full shares of BDPC Common Stock, representing his
or her pro rata share of the total Merger Consideration;
provided, however, that no fractional shares of BDPC Common
Stock shall be issued in distribution of the Merger
Consideration and, in lieu of fractions, each such
fractional share (after taking into account all shares to
which the holder thereof is entitled) shall be rounded up to
a full share of BDPC Common Stock in lieu of such fractional
interest.
B. each of the 1,000 issued and outstanding shares of common
stock in the BDPC Subsidiary held of record and beneficially
by BDPC immediately prior to the Effective Time shall remain
issued and outstanding and be converted into one (1) share
of common stock in the Surviving Corporation.
C. At Closing, each of the KSI;3SI Shareholders shall receive
$400,000 in cash or certified funds from the proceeds of the
Private Placement pursuant to Section 4.1 hereof.
3.2.2. Articles of Incorporation. The articles of
incorporation of the Surviving Corporation shall be the articles of
incorporation of the BDPC Subsidiary as in effect immediately prior to
the Effective Time, until amended in accordance with applicable law.
3.2.3. Bylaws. The bylaws of the Surviving Corporation shall
be the bylaws of the BDPC Subsidiary as in effect immediately prior to
the Effective Time, until amended in accordance with applicable law.
3.2.4. Directors and Officers. The directors and officers of
the Surviving Corporation and of BDPC as of the Effective Time and the
Closing Date shall be as follows:
<TABLE>
<S> <C>
Executive Officers:
Chief Executive Officer Fred Slack
President Frank Backes
Chairman of the Board and COO Larry Valdez
Directors:
Frank Backes
Frederick Slack
Larry Valdez
Ronald H. Cole
Harry K. McCreery
</TABLE>
<PAGE> 5
3.2.5. Procedure for Conversion. At least ten (10) business
days prior to Closing, KSI;3SI shall provide the BDPC Subsidiary with
a true, correct and complete list of the holders of record of KSI;3SI
Common Stock, the number of shares held by each and their addresses.
At the Closing, BDPC shall have reserved and made available to the
transfer agent for the BDPC Common Stock, i,e, Securities Transfer
Corporation, 16910 Dallas Parkway, Suite 100, Dallas, Texas 75248,
that number of shares of BDPC Common Stock necessary for the Surviving
Corporation to effect the conversion of KSI;3SI Common Stock in
exchange for BDPC Common Stock to be distributed on the Closing Date
to former holders of record of KSI;3SI Common Stock as the same
existed immediately prior to the Effective Time in accordance with the
Merger.
3.2.6. Closing of KSI;3SI Transfer Records. At the
Effective Time, the stock transfer books of KSI;3SI shall be closed
and no further transfers of KSI;3SI Common Stock shall be made on such
stock transfer books.
3.2.7. Equitable Adjustment. If, after the date of this
Agreement and prior to the Closing, there shall be any stock split,
reverse stock split, stock dividend or similar reorganization,
recapitalization, reclassification or other transaction affecting
generally the capital stock of KSI;3SI or BDPC, or any extraordinary
stock dividend paid on or with respect to the BDPC Common Stock, then
appropriate and equitable adjustments shall be made hereunder with
respect to the Merger Consideration so that the aggregate relative
rights and obligations of the parties hereto shall not be adversely
affected by any such action. BDPC agrees that it will take no such
action prior to the Closing hereunder without first obtaining the
prior written consent of KSI;3SI and the KSI;3SI Shareholders.
3.2.8. Necessary Further Action. Subject to the full
satisfaction and performance of all conditions to Closing having
occurred hereunder, BDPC, the BDPC Subsidiary, COLE, KSI;3SI and the
KSI;3SI Shareholders each shall use all reasonable efforts to take all
actions as may be necessary or appropriate in order to effectuate the
Merger in accordance with the terms hereof. If, at any time after the
Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement or to vest the Surviving
Corporation with full right, title and possession to all assets,
property, rights, privileges, immunities and franchises of KSI;3SI,
then the officers and directors of the Surviving Corporation are fully
authorized in the name of KSI;3SI to take all such actions.
SECTION 4.COVENANTS AND AGREEMENTS PRIOR TO CLOSING
4.1. Sale of Additional Equity Capital by BDPC and Satisfaction
of BDPC Liabilities. Prior to the Closing, BDPC shall have (i) paid or
made adequate provision for the payment and settlement of all of
BDPC's known debts and liabilities, and (ii) issued and sold for cash,
in a private placement of its securities, newly issued shares of BDPC
common stock, such that after giving effect to such transactions and
as of the Closing Date:
(a) All of BDPC's past due known debts and liabilities shall have
been fully paid or settled in full;
<PAGE> 6
(b) After giving effect to the payment and settlement of BDPC's past
due debts and liabilities, as aforesaid, and payment of all
offering expenses for the sale of newly issued BDPC shares, the
net cash available to BDPC and the Surviving Corporation at
Closing shall be not less than at least $3,500,000 in cash
available for future working capital to finance continuing
operations of the Surviving Corporation after Closing and other
purposes determined by mutual agreement of BDPC and KSI;3SI net
of $200,000 payable to Riders, and $2,214,365 to finance the
acquisition of KSI;3SI.
The parties acknowledge that in addition to the BDPC private
placement equity financing contemplated above, BDPC may after the
Closing (or prior to Closing, with KSI;3SI's written consent) propose
to file a registration statement with the SEC for the purpose of
effecting a subsequent public offering of BDPC Common Stock after
Closing to obtain additional equity capital. Any such filing will
include, among other requirements, a description of the transactions
contemplated by this Agreement and other information as to BDPC and
KSI;3SI including audited financial statements, all as required by
applicable securities laws. KSI;3SI agrees to cooperate with BDPC
during the term of this Agreement in supplying such information to
BDPC for the purposes of filing a registration statement for a
proposed subsequent public offering of securities by BDPC. The
parties understand there can be no assurance as to the success of any
such proposed public offering. The KSI;3SI Shareholders and Cole
shall have such piggyback registration rights as mutually agreed by
the parties, in the event of such registration.
KSI;3SI and its counsel shall have the right to review any
documents prepared by BDPC and its counsel in connection with this
section 4.1 Sales of Additional Equity Capital by BDPC, but shall not
be liable for the legal sufficiency, content or accuracy of those
documents, and shall be indemnified and held harmless by BDPC and
Cole, pursuant to Section 9.3 hereof, from any claims or liabilities,
including reasonable attorneys' fees, arising out of such sale of
additional capital by BDPC, except for information furnished to BDPC
by KSI;3SI in connection with the offering.
4.2. Authorization by KSI;3SI of the Merger. Prior to the
Closing, KSI;3SI shall have obtained all required authorizations for
approval on behalf of KSI;3SI of the Merger. Such actions will
require: (i) adoption of resolutions by KSI;3SI's board of directors
authorizing the Merger and recommending that such proposals be
submitted to KSI;3SI shareholders; and (ii) the unanimous written
consent of all KSI;3SI shareholders to approve the Merger.
Each of the KSI;3SI Shareholders hereby covenants and
agrees to vote all shares of KSI;3SI Common Stock which he is entitled
to vote in favor of the Merger contemplated by this Agreement.
Notwithstanding such approval, KSI;3SI may refuse to proceed with the
Merger if conditions precedent to its obligations hereunder have not
been fully satisfied prior to the Effective Time.
4.3. Certain Due Diligence and Reporting Matters
(a) Investigation by KSI;3SI. From and after the execution of
this Agreement and during the full term hereof, BDPC and COLE shall
cause BDPC to permit KSI;3SI and its duly authorized representatives
to be provided by BDPC with full access to the properties, books,
records and business operations of BDPC and the BDPC Subsidiary, which
shall include without limitation copies of all contracts and
agreements to which BDPC and the BDPC Subsidiary are a party,
information as to their financial condition and results of operations,
and other records and information which KSI;3SI and its
<PAGE> 7
representatives reasonably deem of significance in an investigation of
the business, assets, rights, liabilities, obligations and prospects
of BDPC. This right of access shall include physical inspection of
properties and assets as well as the review of all pertinent books,
records and corporate documents. KSI;3SI and its representatives,
however, shall not contact or communicate with any vendor to, or
customer or creditor of, BDPC without the prior consent of BDPC's
Chief Executive Officer. BDPC and COLE will each use their best
efforts to cause BDPC's officers and employees to cooperate fully in
said examination and to cause BDPC's independent public accountants
and outside legal counsel to cooperate fully and to make a full and
complete disclosure to KSI;3SI and its representatives of all material
facts regarding the corporate documents, financial records, assets,
obligations, contracts and business operations of BDPC.
(b) Investigation by BDPC. From and after the execution of this
Agreement and during the full term hereof, KSI;3SI and the KSI;3SI
Shareholders shall cause KSI;3SI to permit BDPC and its duly
authorized representatives to be provided by KSI;3SI with full access
to the properties, books, records and business operations of KSI;3SI,
which shall include without limitation copies of all contracts and
agreements to which KSI;3SI is a party, information as to its
financial condition and results of operations, and other records and
information which BDPC and its representatives reasonably deem of
significance in an investigation of the business, assets, rights,
liabilities, obligations and prospects of KSI;3SI. This right of
access shall include physical inspection of properties and assets as
well as the review of all pertinent books, records and corporate
documents. BDPC and its representatives, however, shall not contact
or communicate with any vendor to, or customer or creditor of, BDPC
without the prior consent of KSI;3SI's Chief Executive Officer.
KSI;3SI and the KSI;3SI Shareholders will each use their best efforts
to cause KSI;3SI's officers and employees to cooperate fully in said
examination and to cause KSI;3SI's independent public accountants and
outside legal counsel to cooperate fully and to make a full and
complete disclosure to BDPC and its representatives of all material
facts regarding the corporate documents, financial records, assets,
obligations, contracts and business operations of KSI;3SI.
(c) Confidentiality. In connection with the foregoing
matters, each party hereto has or will be furnishing to the other from
time to time with oral and written information as to its proprietary
products, marketing strategy and business plans, significant portions
of which each of BDPC and KSI;3SI considers to be proprietary and
confidential information (herein called the "Confidential
Information"). Each party acknowledges that "Confidential
Information", as used herein, does not include any information which
(i) was or becomes generally available to the public other than as a
result of an improper disclosure by the other party hereto, or (ii)
was or becomes information available to the other party on a
non-confidential basis from a third party source that is not bound by
a confidentiality obligation to either of the parties hereto.
Each party agrees that Confidential Information will be used
solely for the purpose of evaluating the Merger contemplated by this
Agreement, investigating market information and potential markets, and
for the parties to pursue due diligence and legal disclosure
requirements in connection with proposed financing activities by BDPC,
and will not be used in the business or operations of the party to
which such information has been disclosed or used in any other way,
directly or indirectly, that may detrimental to the interests of the
party that owns such Confidential Information. Confidential
<PAGE> 8
Information may be disclosed to representatives of the party receiving
the same who need to know such Confidential Material for the purposes
described above, it being understood that such representatives shall
be informed of the confidential nature of the Confidential Information
and shall be directed to treat the Confidential Information
confidentially and as proprietary information of the party that owns
the same. Each party shall notify the other as to the identity of
such representatives. If either party receives a request, including
a subpoena or similar legal inquiry, to disclose any of the
Confidential Material, it shall provide the party that owns such
Confidential Information with prompt notice so that the owner may seek
appropriate protective relief.
If the Closing shall fail to occur for any reason, each
party shall promptly deliver and return all copies of Confidential
Information to the party which owns the same, and without retaining
any copy, notes or extracts thereof.
(d) BDPC Current Financials and Cold-Comfort Letter. As
promptly as possible after the execution of this Agreement, and in any
event prior to May 15, 1996, BDPC shall have filed its Quarterly
Report on Form 10-QSB with the Securities and Exchange Commission for
the nine month period ended March 31, 1996. At or prior to the
Closing, KSI;3SI shall have received from a firm of independent public
accountants a so-called "cold-comfort" letter, in form and substance
satisfactory to KSI;3SI, to the effect that based upon a review of the
BDPC Interim Financial Statements and their limited procedures set
forth in such letter, nothing has come to their attention which causes
them to believe that the such BDPC Interim Financial Statements do not
comply in all material respects, or are not presented in conformity,
with GAAP.
(e) KSI;3SI Financials, BDPC Form 8-K Report and Cold-Comfort
Letter. As promptly as possible after the execution of this
Agreement, and in any event within 45 days thereafter, KSI;3SI shall
provide BDPC with current financial statements of KSI;3SI in form and
substance adequate for BDPC to comply with the instructions to Item 7
of Form 8-K required to be filed by BDPC under the Securities Exchange
Act (the "KSI;3SI Financials") and applicable provisions of SEC
Regulation S-X. Prior to Closing, KSI;3SI shall provide BDPC with a
copy of the KSI;3SI Interim Financial Statements. At or prior to the
Closing, BDPC shall have received from a firm of independent public
accountants a so-called "cold-comfort" letter, in form and substance
satisfactory to BDPC, to the effect that based upon a review of the
KSI;3SI Financials and KSI;3SI Interim Financial Statements and their
limited procedures set forth in such letter, nothing has come to their
attention which causes them to believe that the such financial
statements of KSI;3SI do not comply in all material respects, or are
not presented in conformity, with GAAP.
4.4. Employment Agreements. At Closing, the Surviving
Corporation shall enter into written employment agreements with each
of the three KSI;3SI Shareholders providing, among other things, for
the terms and provisions set forth in EXHIBIT A attached to this
Agreement.
4.5. Ordinary Course. Until the Closing occurs or this Agreement
is otherwise terminated, BDPC and KSI;3SI each shall use their best
efforts to preserve, protect and maintain their
<PAGE> 9
respective business operations and to operate the same in the Ordinary
Course of Business. Without limiting the generality of the foregoing,
except with the consent of the other such party hereto, each of BDPC,
the BDPC Subsidiary and KSI;3SI shall:
(a) maintain their separate corporate existence and not commingle
their assets with the assets of any third party;
(b) maintain their properties and assets in good repair, order and
condition, reasonable wear and tear excepted;
(c) maintain and keep in full force and effect all insurance on their
assets and property and all liability and other casualty
insurance presently carried;
(d) preserve intact its reputation and keep available the services of
present executives, employees and agents and preserve the good
will of its suppliers, customers and others with whom it has
business relationships;
(e) maintain its books, accounts and records in accordance with good
business practices;
(f) not solicit, induce or otherwise engage in discussions or
negotiations relating to or proposed to lead to the acquisition,
merger or sale of substantially all of its assets or shares of
capital stock except as contemplated by this Agreement;
(g) not sell or dispose of any material assets or properties, except
in the Ordinary Course of Business;
(h) not declare, set aside or pay any dividend or make any other
distribution with respect to its capital stock;
(i) not authorize for issuance, issue, sell or deliver any additional
shares of its capital stock of any class (except as contemplated
by this Agreement) or any securities or obligations convertible
into shares of its capital stock of any class, or issue or grant
any option, warrant or other right to purchase any shares of
capital stock of any class;
(j) not incur any material obligations or commitments other than in
the Ordinary Course of Business;
(k) not incur or become subject to, nor agree to incur or become
subject to, any debt, obligation or liability, contingent or
otherwise, except current liabilities in the Ordinary Course of
Business and obligations incurred in connection with capital
asset acquisitions consistent in amounts in prior periods;
<PAGE> 10
(l) Not impose or permit any Security Interest to be imposed upon any
of its assets outside the Ordinary Course of Business;
(m) Not make any capital investment in, make any loan to, or acquire
the securities or assets of any other person; and
(n) not grant any salary increases (other than as required by
existing contracts or consistent with past practice), unscheduled
promotions or enter into any new employment or benefit contracts.
4.6. Support of the Merger. Subject to the performance and
satisfaction of conditions precedent to the Closing, COLE and each of
the KSI;3SI Shareholders agree to propose, advocate, support and vote
for the Merger contemplated by Section 3 of this Agreement, and to act
in good faith with a view to completing the transactions contemplated
herein to the best of their ability.
4.7. Notice of Developments. Each party to this Agreement shall
give prompt written notice to the others of any material development
affecting the ability of the parties to consummate the transactions
contemplated by this Agreement.
4.8. Notices and Consents. In the event either of BDPC or
KSI;3SI is required to give any notices to third parties and/or to
obtain any third-party consents to complete the Merger, all such
notices shall have been required and such consents obtained prior to
the Effective Time and the Closing.
4.9. Investment Representation by KSI;3SI Shareholders. Each of
KSI;3SI and the KSI;3SI Shareholders understands that the BDPC Common
Stock constituting the Merger Consideration has not been registered
under the Securities Act and each of the KSI;3SI Shareholders
represents and warrants that he is acquiring such securities at the
Closing hereunder for his own account for investment and not with a
view to the resale or other distribution thereof. Each of the KSI;3SI
Shareholders acknowledges that such securities may not be resold or
transferred unless they have been effectively registered under the
Securities Act or the issuer has received an opinion of counsel
reasonable satisfactory to it to the effect that any such proposed
resale or transfer is exempt from the registration requirements of the
Securities Act. Each of the KSI;3SI Shareholders acknowledges that he
is familiar with the provisions applicable to the resale of
"restricted securities" within the meaning and the limitations of Rule
144 promulgated by the SEC under the Securities Act.
4.10. Other Documents and Conditions to Exchange Closing. At
the Closing, KSI;3SI and BDPC shall deliver to each other all
certificates, instruments and documents referred to in this Agreement
or reasonably requested by their respective counsel as conditions to
Closing. All conditions precedent to the Closing set forth in
Sections 3, 4 and 8 of this Agreement shall have been fully performed
and satisfied, or waived in writing by the parties hereto, at or prior
to the Closing Date.
5. REPRESENTATIONS AND WARRANTIES OF BDPC AND COLE
<PAGE> 11
BDPC and COLE jointly and severally represent and warrant to the
KSI;3SI Shareholders as of the date hereof, and as of the Closing
Date, as follows:
5.1. Authority. BDPC has, and upon its formation the BDPC
Subsidiary will have, all requisite power and authority, without the
consent of any other person, to execute and deliver this Agreement and
the agreements and instruments to be delivered upon the Closing Date
and to carry out the transactions contemplated hereby. This
Agreement, the Merger and the transactions contemplated hereby and
thereby have been duly authorized by the board of directors of BDPC
and, upon its formation, will be duly authorized by the board of
directors of the BDPC Subsidiary and by BDPC as the sole shareholder
of the BDPC Subsidiary.
5.2. Validity. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not
result in the creation of any Security Interest or other lien, charge
or encumbrance of any kind or the acceleration of any indebtedness or
other obligation of BDPC and the BDPC Subsidiary, and are not
prohibited by, do not violate or conflict with any provision of, and
do not constitute a default under or a breach of: (a) the charter
or by-laws of BDPC and the BDPC Subsidiary; (b) any note, bond,
indenture, contract, agreement, permit, license or other instrument to
which BDPC or the BDPC Subsidiary is a party or by which any of its or
their assets are bound (subject, however, to the ability of BDPC to
successfully negotiate a compromise and settlement of its remaining
secured debt obligations as contemplated by Section 4.1 above); (c)
any order, writ, injunction, decree or judgment of any court or
government agency; or (d) any law, rule or regulation applicable to
BDPC.
5.3. Due Organization. BDPC is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Colorado and has full power and authority and all requisite rights,
licenses, permits and franchises to own, lease and operate its assets
and to carry out the business in which it is engaged. BDPC is not
required by its ownership of assets or conduct of its business to be
licensed or qualified to do business as a foreign corporation in
any other jurisdiction. Upon its formation, the BDPC Subsidiary will
be a corporation duly organized, validly existing and in good standing
under the laws of the State of Colorado and will have full power and
authority and all requisite rights, licenses, permits and franchises
to own, lease and operate its assets and to carry out the business in
which it is and intends to be engaged (including the KSI;3SI
Business). The BDPC Subsidiary will not be required by its ownership
of assets or conduct of its business to be licensed or qualified to do
business as a foreign corporation in any other jurisdiction.
5.4. No Other Subsidiaries. Except for the BDPC Subsidiary, BDPC
does not own stock or have any equity investment or other interest in,
does not have the right to acquire any such interest, and does not
control, directly or indirectly, any corporation, association,
partnership, joint venture or other entity, and has not had such an
ownership or control relationship with any other entity during the
three years preceding this Agreement.
5.5. Capitalization. The authorized capital stock of BDPC
consists of 50,000,000 shares of BDPC Common Stock and 50,000,000
shares of preferred stock, no par value. As of the date hereof, there
are 3,768,071 shares of BDPC Common Stock, 12,613 shares of BDPC
Series A Preferred stock
<PAGE> 12
and 50,000 shares of BDPC Series B Preferred stock issued and
outstanding. All of the issued and outstanding shares of BDPC Common
Stock, Series A Preferred and Series B Preferred are duly authorized,
validly issued, fully paid and nonassessable,
were not issued in violation of any preemptive, subscription or other
right of any person to acquire securities of BDPC and constitute in
the aggregate all of the issued and outstanding capital stock of all
classes of BDPC. Except for this Agreement and as disclosed in
SCHEDULE 5.5 attached hereto, there is no outstanding subscription,
option, convertible or exchangeable security, preemptive right,
warrants, call, agreement, arrangement or other right relating to the
capital stock of BDPC or other obligation or commitment of BDPC to
issue or transfer any shares of capital stock. Except as set forth in
SCHEDULE 5.5 attached hereto, there are no voting trusts or other
agreements, arrangements or understandings applicable to the exercise
of voting or any other rights with respect to the capital stock BDPC.
There are no outstanding or authorized stock appreciation, phantom
stock or similar rights with respect to
BDPC or its capital stock.
The authorized capital stock of the BDPC Subsidiary upon its
formation will consist of 1,000 shares of common stock. As of the
Closing, there will be 1,000 shares of such common stock issued and
outstanding, all of which shall be owned of record and beneficially by
BDPC. All such outstanding shares of BDPC Subsidiary common stock
shall be duly authorized, validly issued, fully paid and
nonassessable, shall not be subject to any preemptive, subscription or
other right of any person to acquire securities of the BDPC Subsidiary
and shall constitute in the aggregate all of the issued and
outstanding capital stock of all classes of the BDPC Subsidiary.
Except for this Agreement, there is no outstanding subscription,
option, convertible or exchangeable security, preemptive right,
warrants, call, agreement, arrangement or other right relating to the
capital stock of the BDPC Subsidiary or other obligation or commitment
of the BDPC Subsidiary to issue or transfer any shares of capital
stock. There are no voting trusts or other agreements, arrangements
or understandings applicable to the exercise of voting or any other
rights with respect to the capital stock of the BDPC Subsidiary and
there shall be no outstanding or authorized stock appreciation,
phantom stock or similar rights with respect to the BDPC Subsidiary or
its capital stock.
5.6. Transactions with Affiliates. Since June 30, 1995, there
has not been any dividend declared or paid or other distribution of
assets by BDPC or the BDPC Subsidiary to its shareholders. Except as
disclosed in SCHEDULE 5.6 attached hereto, none of the officers or
directors of BDPC or the BDPC Subsidiary or any of their Affiliates,
directly or indirectly:
A. owns any debt, equity or other interest or investment in any
corporation, association or other entity which is a competitor,
lessor, lessee, customer or supplier of BDPC;
B. has any cause of action or other claim whatsoever against or owes
any amount to, or is owed any amount by, BDPC, except for (i)
reimbursement of business expenses incurred in the Ordinary
Course of Business, and (ii) current payroll, accrued vacation
pay and other rights as an employee of BDPC;
C. has any interest in or owns any property or right used in the
conduct of the business of BDPC;
<PAGE> 13
D. is a party to any contract, lease, agreement, arrangement or
commitment entered into with BDPC or in connection with the BDPC
Business except as contemplated by this Agreement.
5.7. Financial Statements and Related Matters.
A. SEC Reports. BDPC has made all filings with the SEC
that it has been required to make under the Securities Act and the
Securities Exchange Act since June 30, 1993 (all of such filings by
BDPC with the SEC are collectively called the "Public Reports"). Each
of the Public Reports at the time the same was filed with the SEC has
complied with the Securities Act and the Securities Exchange Act in
all material respects. None of the Public Reports, as of their
respective dates, contained any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements made therein, in light of the circumstances under which
they were made, not misleading. BDPC has delivered to KSI;3SI a
correct and complete copy of each of the Public Reports filed by BDPC
with the SEC since June 30, 1993 (together with all material exhibits
thereto and as amended to date).
B. SEC Actions, Investigations, Insider Trading. There
are no pending or threatened SEC actions or investigations, and BDPC
and its officers, directors, and major shareholders and affiliates
have not, to their knowledge, violated any federal or state securities
laws, or SEC regulations, including but not limited to SEC reporting
requirements, disclosure rules, and insider trading rules.
C. Financial Statements and Liabilities. The audited
financial statements of BDPC for the years ended June 30, 1995 and
1994 contained in the Public Reports (the "BDPC Audited Financial
Statements") and the BDPC Interim Financial Statements are and will
be: (i) accurate, correct and complete in all material respects; (ii)
in accordance with the books of account and records of BDPC; (c) fair
presentations of the financial condition and results of operations of
BDPC as of the dates and for the periods indicated therein; and (d)
prepared in accordance with GAAP. Except to the extent reflected on
the balance sheet included in the BDPC Interim Financial Statements,
obligations for trade payables and accrued liabilities incurred since
March 31, 1996 in the Ordinary Course of Business, leases for office
equipment and facilities and disputed claims of its former President,
BDPC does not have any indebtedness, liabilities or obligations of any
nature, whether absolute, accrued, contingent or otherwise as of the
date of this Agreement and the Closing. The BDPC Subsidiary will not
own any assets or have any liabilities of any nature, whether
absolute, accrued, contingent or otherwise as of the Closing.
D. Books and Records. Subject to any inventory
adjustments as of March 31, 1996 that will be reflected in the BDPC
Interim Financial Statements, the books of account, stock records and
other records (financial and otherwise) of BDPC are in all material
respects complete and correct and are maintained in accordance with
good business practices.
E. Interim Change. Except as set forth in SCHEDULE 5.7,
since June 30, 1995, there has not been (a) any material adverse
change in the financial condition, assets, liabilities,
<PAGE> 14
personnel or business of BDPC or in its relationships with suppliers,
customers, distributors, lenders, lessors or others; (b) any damage,
destruction or loss, whether or not covered by insurance, materially
adversely affecting BDPC; (c) any event or condition or series of
events or conditions which could, individually or in the aggregate,
reasonably be expected to have a material adverse effect on BDPC; or
(d) any development which could or will have a material adverse effect
on BDPC.
5.8. Accounts Receivable. All outstanding accounts and notes
receivable reflected on the BDPC Interim Financial Statements and
incurred in the Ordinary Course of Business since March 31, 1996 are,
and as of the Closing Date, will be, due and valid claims against
account debtors for goods or services delivered or rendered,
collectible in full within 120 days of delivery and subject to no
defenses, offsets or counterclaims, except as reserved against in the
BDPC Interim Financial Statements in accordance with GAAP. All
receivables arose in the Ordinary Course of Business, and no
receivables are subject to prior assignment, adverse claims, liens or
security interests except for claims of secured debt reflected on the
BDPC Interim Financial Statements. BDPC has provided sufficient
reserves in the BDPC Interim Financial Statements to cover any
liabilities to customers for discounts, returns, promotional
allowances or otherwise. BDPC has provided sufficient reserves in the
BDPC Interim Financial Statements to cover any refunds, allowances or
returns in respect of products manufactured, processed, distributed,
shipped or sold by or for the account of BDPC on or prior to the
Closing Date.
5.9. Inventory. All inventories reflected on the BDPC Interim
Financial Statements and acquired after March 31, 1996 are (a)
properly valued at the lower of cost or market value on a first-in,
first-out basis in accordance with GAAP; (b) of good and merchantable
quality and contain no material amounts that are not saleable and
usable in the Ordinary Course of Business and meet the current
standards and specifications of its business; (c) in conformity with
warranties customarily given to purchasers of like products; and (d)
at levels adequate and not excessive in relation to the circumstances
of its business and in accordance with past inventory stocking
practices. All inventories disposed of subsequent to March 31, 1996
will be disposed of only in the Ordinary Course of Business and at
prices and under terms that are consistent with the past practices of
BDPC customary in its industry.
5.10. Title to Assets. BDPC is the legal and equitable owner
of all right, title and interest in and has good and marketable title
to all of the assets which it purports to own and which are reflected
on the balance sheet included in the BDPC Interim Financial Statements
and acquired in the Ordinary Course of Business subsequent to March
31, 1996. Except as disclosed in SCHEDULE 5.10, none of the assets
which BDPC purports to own are subject to (a) any material title
defect or objection; (b) any contract of lease, license or sale,
except the sale of inventory in the Ordinary Course of Business; (c)
any Security Interest; (d) any royalty or commission arrangement; or
(e) any materially adverse claim, covenant or restriction. The BDPC
assets are in good operating condition and repair, taken as a whole
(reasonable wear and tear excepted), are suitable for the purposes for
which they are presently being used, and are adequate to meet all
present requirements of the business of BDPC as currently conducted.
BDPC does not own any real property.
<PAGE> 15
5.11. Intellectual Property and Trade Secrets; No Infringement.
A. SCHEDULE 5.11 sets forth an accurate, correct and
complete list and summary description of all patents, trademarks,
trademark rights, trade names, trade styles, trade dress, product
designations, service marks, copyrights and applications for any of
the foregoing utilized in the business of BDPC (the "BDPC Intellectual
Property"). Except as set forth in SCHEDULE 5.11, (i) BDPC owns or
has the exclusive right to use the BDPC Intellectual Property; (ii) no
action, suit, proceeding or investigation is pending or, to the best
knowledge of BDPC is threatened, which alleges that the BDPC
Intellectual Property or its sale of products and services interferes
with, infringes upon, conflicts with or otherwise violates the rights
of others, and none is subject to any outstanding order, decree,
judgment, stipulation or other adverse charge; and (iii) there are no
royalty, commission or similar arrangements, and no licenses,
sublicenses or agreements, pertaining to any of the BDPC Intellectual
Property.
B. All information in the nature of know-how, trade
secrets or proprietary information which provides BDPC with an
advantage over competitors is collectively called the "BDPC Technical
Information". All BDPC Technical Information (i) is owned solely
and exclusively by BDPC; (ii) is adequately documented and in
condition for use by the Surviving Corporation upon consummation of
the Merger; and (iii) has been continuously maintained in confidence
by taking reasonable precautions to protect the secrecy of all BDPC
Technical Information and to prevent disclosure to unauthorized
parties.
5.12. Employees.
A. Employment Contracts. Except as set forth in
SCHEDULE 5.7, there are no agreements, arrangements or understandings,
written or oral, with officers, directors and employees of BDPC
regarding services to be rendered, terms and conditions of employment,
or compensation which are not terminable at will by BDPC.
B. No Extraordinary Benefits. No employee of BDPC is
entitled to receive supplementary retirement benefits or allowances,
whether pursuant to a contractual obligation or otherwise. Since June
30, 1995, BDPC has not (i) paid, or made any accrual or arrangement
for the payment of, bonuses or special compensation of any kind
including any severance or termination pay, to any present or former
officer or employee, (ii) made wage or salary increases except in the
Ordinary Course of Business consistent with prior practice, or (iii)
increased or altered any other benefits or insurance provided to any
employee.
C. Disputes. Except as set forth in SCHEDULE 5.7,
there are no controversies pending or, to the knowledge of BDPC,
threatened involving any group of employees. BDPC has not
<PAGE> 16
suffered or sustained any work stoppage and no such work stoppage is
threatened. No union organizing or election activities involving any
employees of BDPC are in progress or threatened.
D. Compliance. BDPC has complied with all laws, rules
and regulations relating to the employment of labor by BDPC, including
provisions relating to wages, hours, equal opportunity, persons with
disabilities, occupational health and safety, severance, collective
bargaining and the payment of social security and other taxes.
E. Employee Benefit Plans. BDPC is not a party to or
obligated under any "welfare benefit plans" as defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974 ("ERISA"), as
amended, or any employee pension benefit plans, bonus, profit sharing,
deferred compensation, incentive or other compensation plans or
arrangements, or other employee fringe benefit plans, whether funded
or unfunded, qualified or unqualified, whether maintained or
contributed to by BDPC or any other organization which is a member of
a controlled group of organizations for the benefit of any of its
officers, employees or other persons.
5.13. Material Contracts. SCHEDULE 5.13 sets forth an accurate,
correct and complete list of all significant instruments, commitments,
agreements, arrangements and understandings to which BDPC is a party
or by which any of its assets are subject or bound, or pursuant to
which BDPC is a beneficiary (the "BDPC Material Contracts"). SCHEDULE
5.13 includes, without limitation, a list of all (a) real estate
leases; (b) personal property leases involving payments of more than
$10,000 per year; (c) distribution and manufacturers' representation
agreements; (c) agreements or licenses relating to intellectual
property; (d) commitments for capital expenditures or for the purchase
of goods or services in excess of $25,000 except those incurred in the
Ordinary Course of Business; (e) any purchase order or commitment
obligating BDPC to sell or deliver any product or service at a price
which does not cover the cost (including labor, materials and
production overhead); (f) any instrument evidencing indebtedness,
liability for borrowed money, obligations for the deferred purchase
price of property in excess of $25,000 (excluding normal trade
payables), and any instrument guaranteeing any indebtedness,
obligation or liability; (g) any joint venture, partnership or other
agreement involving a sharing of profits; (h) any deed, lease,
easement, agreement or other instrument affecting real property; (i)
any contract with any government agency; (j) any contract with respect
to the discharge, storage or removal of effluent, waste or pollutants;
(k) any license or royalty agreement; (l) any contract to indemnify
any party or to share tax liability of any party; (m) any contract for
the purchase or sale of foreign currency or derivative securities; (n)
any contract containing covenants not to compete in any line of
business or with any person in any geographical area; and (n) any
other commitment which provides for payment or performance having an
aggregate value of $50,000 or more that is not terminable without
payment or penalty.
Accurate, correct and complete copies of all BDPC Material Contracts
will be delivered by BDPC to KSI;3SI within ten days after the
execution of this Agreement. Except as disclosed in SCHEDULE 5.7,
BDPC has complied with all material commitments and obligations on its
part to be performed or observed under each BDPC Material Contract,
and no event has occurred which is or, after the giving of notice or
passage of time, or both, would constitute a default under or a breach
of any BDPC Material Contract.
<PAGE> 17
5.14. Software and Information Systems. BDPC owns all necessary
right, title and interest to all electronic data processing systems,
information systems, computer software programs, program
specifications, procedures, input data, routines, data bases, report
layouts and formats, record file layouts, diagrams, functional
specifications and other related material used in the BDPC Business
(collectively the "BDPC Software"), except for BDPC Software which is
validly licensed to BDPC. All BDPC Software documentation is current,
accurate and sufficient in detail and content to identify and explain
the nature thereof, and to allow its full and proper use by the
Surviving Corporation without reliance on the special knowledge or
memory of third parties.
5.15. Customers, Subcontractors and Suppliers. All contracts
and orders with customers, subcontractors and suppliers were entered
into by or on behalf of BDPC in the Ordinary Course of Business and
will be fully performed within the period contracted for. Since June
30, 1995, there has been no cancellation of backlogged orders in
excess of cancellations previously experienced in the Ordinary Course
of Business. BDPC has no reason to believe that any customer,
subcontractor or supplier will cease to do business with the Surviving
Corporation after, or as a result of, the Merger contemplated hereby,
or that any customer or supplier of BDPC is threatened with bankruptcy
or insolvency. BDPC knows of no fact, condition or event which would
adversely affect the relationship of BDPC with any existing customer
or supplier.
5.16. Licenses and Permits. All material licenses, permits,
accreditations or authorizations required by BDPC for the conduct of
the BDPC Business are valid and in full force and effect and there are
no pending or threatened proceedings which could result in the
termination, revocation, limitation or impairment of any of the same.
5.17. Product Warranty and Product Liability. All products
manufactured, processed, distributed, shipped or sold by BDPC and any
services rendered by BDPC have been in conformity in all material
respects with all applicable contractual commitments and all expressed
or implied warranties. There are no existing claims, liabilities or
obligations arising from or alleged to arise from any injury to person
or property as a result the conduct of the business of BDPC or use of
any product manufactured, processed, distributed, shipped or sold by
BDPC prior to the Closing Date.
5.18. Insurance. BDPC maintains insurance issued under valid
and enforceable policies or binders for the benefit of BDPC, and all
such policies or binders are in full force and effect and are in
amounts and for risks, casualties and contingencies customarily
insured against by enterprises in operations similar to the business
operated by BDPC. There are no pending or asserted claims against any
insurance of BDPC as to which any insurer has denied liability, and
there are no claims under any such insurance that have been
disallowed. No notice of cancellation or nonrenewal with respect to
any insurance has been received by BDPC.
5.19. Environmental Matters. The use and operation by BDPC of
each facility used in the BDPC Business has been, and on the Closing
Date will be, in compliance with all Federal, state and local
environmental and anti-pollution laws and regulations, including the
Resource Conservation and Recovery Act, as amended ("RCRA"), and all
laws and regulations concerning particulate emissions,
<PAGE> 18
hazard communication, surface water pollution, groundwater pollution,
air pollution, solid wastes, hazardous wastes, storage, handling,
treatment, transportation, spills or other releases, and disposal of
any substance, material or waste, and exposure to or notification
regarding any substance, material or waste. There has not been, and
is not occurring, at any facility operated or previously owned or
operated BDPC any improper release or threatened release of any
hazardous substances or petroleum products. BDPC has not applied or
disposed of any hazardous substance in any manner which may require
removal, remedial action or expense at any facility, site, location or
body of water, surface or subsurface. No environmental audits or
assessments or occupational health studies have been undertaken by
BDPC or any government agency with respect to the BDPC Business,
facilities or properties. To the best knowledge to BDPC, there has
not been located on or disposed of on any facility owned or operated
by BDPC during any period of such ownership or operations, or, at any
other time: (a) any asbestos; any material, equipment or structure
constructed of or containing any asbestos; or any product or item made
in whole or in part of asbestos, or (b) any polychlorinated biphenyl;
any compound or material containing any polychlorinated biphenyl; or
any equipment, article or item using, containing, or made up in whole
or in part of any polychlorinated biphenyl.
5.20. Compliance with Law. BDPC and its BDPC Business and
assets conform in all material respects to all applicable statutes,
codes, ordinances, licensing requirements, laws, rules and
regulations. No notice from any governmental body or other person of
any violation of any statute, code, ordinance, law, rule or regulation
or requiring or calling attention to the necessity of any repairs,
installation or alteration in connection with the BDPC Business or
assets of BDPC has been served, and BDPC does not know of any
meritorious basis therefor.
5.21. Taxes.
A. Filings. BDPC has filed all returns, declarations and
reports and all information returns and statements (collectively,
"BDPC Returns") required to be filed or sent with respect to all
federal, state, county, local and other taxes of every kind and
however measured, including income, gross receipts, excise, franchise,
property, value added, import duties, employment, payroll, sales and
use taxes and any additions to tax and any interest or penalties
thereon (collectively, "BDPC Taxes") for any period ending on or
before the Closing Date. As of the time of filing, the BDPC Returns
correctly reflected the income, business, assets, operations,
activities and status of BDPC and any other information required to be
shown thereon. BDPC has paid or made provision for all BDPC Taxes
shown as due and payable on its BDPC Returns required to be filed or
sent prior to the Closing Date. All required BDPC Tax estimates,
deposits, prepayments and similar reports or payments for current and
prior periods have been properly made.
B. Compliance. BDPC has withheld amounts from employees
and others working in the BDPC Business, as required under applicable
law, and has filed all BDPC Returns with respect to employee income
tax withholding and social security and unemployment taxes and paid
such BDPC Taxes in compliance with the tax withholding provisions of
the Code and other applicable laws.
<PAGE> 19
5.22. Legal Proceedings. BDPC is not engaged in or a party to
or threatened with any action, suit, proceeding, complaint, charge,
investigation or arbitration or other method of settling disputes or
disagreements, and except as set forth in SCHEDULE 5.1.7, neither BDPC
nor COLE knows, anticipates or has notice of any reasonable basis for
any such action. BDPC has not received notice of any investigation
threatened or contemplated by any government or regulatory authority,
including those involving the safety of products, the working
conditions of employees, employment practices or policies, or
compliance with environmental regulations. BDPC is not subject to any
judgment, order, writ, injunction or decree of any court or any
government agency or any arbitrator.
5.23. No Brokers. Neither BDPC nor any of its Affiliates has
retained any broker, finder or agent or incurred any liability or
obligation for any brokerage fees, commissions or finders' fees with
respect to this Agreement or the transactions contemplated hereby for
which the Surviving Corporation will be responsible (except that BDPC
anticipates that commissions or finders' fees may be payable prior to
Closing with respect to the private placement of BDPC common stock
contemplated by Section 4.1 of this Agreement).
5.24. Disclosure. The representations and warranties of BDPC
contained in this Agreement and each Schedule, certificate or other
written statements delivered pursuant to this Agreement are each
accurate, correct and complete in all material respects, and do not
contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements and
information contained herein or therein not misleading.
6. REPRESENTATIONS AND WARRANTIES OF KSI;3SI AND KSI;3SI
SHAREHOLDERS
KSI;3SI and the KSI;3SI Shareholders jointly and severally
represent and warrant to BDPC and the Surviving Corporation as of the
date hereof, and as of the Closing Date, as follows:
6.1. Authority. KSI;3SI has all requisite power and authority,
without the consent of any other person, to execute and deliver this
Agreement and the agreements and instruments to be delivered upon the
Closing Date and to carry out the transactions contemplated hereby.
This Agreement, the Merger and the transactions contemplated hereby
and thereby have been duly authorized by the board of directors of
KSI;3SI.
6.2. Validity. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not
result in the creation of any Security Interest or other lien, charge
or encumbrance of any kind or the acceleration of any indebtedness or
other obligation of KSI;3SI and are not prohibited by, do not violate
or conflict with any provision of, and do not constitute a default
under or a breach of (a) the charter or by-laws of KSI;3SI, (b) any
note, bond, indenture, contract, agreement, permit, license or other
instrument to which KSI;3SI is a party or by which any of its assets
are bound, (c) any order, writ, injunction, decree or judgment of any
court or government agency, or (d) any law, rule or regulation
applicable to KSI;3SI.
<PAGE> 20
6.3. Due Organization. KSI;3SI is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Colorado and has full power and authority and all requisite rights,
licenses, permits and franchises to own, lease and operate its assets
and to carry out the business in which it is engaged. KSI;3SI is
licensed or qualified to do business as a foreign corporation in any
other jurisdiction in which its ownership of assets or conduct of the
KSI;3SI Business requires such qualification.
6.4. No Subsidiaries. KSI;3SI does not own stock or have any
equity investment or other interest in, does not have the right to
acquire any such interest, and does not control, directly or
indirectly, any corporation, association, partnership, joint venture
or other entity and has not had such an ownership or control
relationship with any other entity during the three years preceding
this Agreement.
6.5. Capitalization. The authorized capital stock of KSI;3SI
consists of _________ shares of KSI;3SI Common Stock. As of the date
hereof, there are _________ shares of KSI;3SI Common Stock issued and
outstanding. All of the issued and outstanding shares of KSI;3SI
Common Stock are duly authorized, validly issued, fully paid and
nonassessable, were not issued in violation of any preemptive,
subscription or other right of any person to acquire securities of
KSI;3SI and constitute in the aggregate all of the issued and
outstanding capital stock of all classes of KSI;3SI. Except for this
Agreement, there is no outstanding subscription, option, convertible
or exchangeable security, preemptive right, warrants, call, agreement,
arrangement or other right relating to the capital stock of KSI;3SI or
other obligation or commitment of KSI;3SI to issue or transfer any
shares of capital stock. There are no voting trusts or other
agreements, arrangements or understandings applicable to the exercise
of voting or any other rights with respect to the capital stock
KSI;3SI. There are no outstanding or authorized stock appreciation,
phantom stock or similar rights with respect to KSI;3SI or its capital
stock.
Subject only to community property laws, if applicable, the
KSI;3SI Shareholders are the sole record and beneficial owners all of
the issued and outstanding capital stock of KSI;3SI and have good,
marketable and indefeasible title thereto, free and clear of all
claims, Security Interests, liens, pledges, charges, escrows, options,
proxies, rights of first refusal, encumbrance or restriction of any
kind. The KSI;3SI Shareholders will not sell, assign or otherwise
encumber any interest in such shares prior to the Closing hereunder.
6.6. Transactions with Affiliates. Since June 30, 1995, there
has not been any dividend declared or paid or other distribution of
assets by KSI;3SI to its shareholders. Except as disclosed in
SCHEDULE 6.6 attached hereto, none of the officers or directors of
KSI;3SI or any of their Affiliates, directly or indirectly:
A. owns any debt, equity or other interest or
investment in any corporation, association or other entity which is a
competitor, lessor, lessee, customer or supplier of KSI;3SI;
B. has any cause of action or other claim whatsoever
against or owes any amount to, or is owed any amount by, KSI;3SI,
except for (i) reimbursement of business expenses incurred in
<PAGE> 21
the Ordinary Course of Business, and (ii) current payroll, accrued
vacation pay and other rights as an employee of KSI;3SI;
C. has any interest in or owns any property or right
used in the conduct of the business of KSI;3SI;
D. is a party to any contract, lease, agreement,
arrangement or commitment entered into with KSI;3SI or in connection
with the KSI;3SI Business, except as contemplated by this Agreement.
6.7. Financial Statements and Related Matters.
A. Financial Statements and Liabilities. The current
financial statements of KSI;3SI for the years ended December 31, 1995
and 1994 to be furnished by KSI;3SI to BDPC for filing with BDPC's
Report on Form 8-K to the SEC (the "KSI;3SI Financials") and the
KSI;3SI Interim Financial Statements are and will be: (i) accurate,
correct and complete in all material respects; (ii) in accordance with
the books of account and records of KSI;3SI; (c) fair presentations of
the financial condition and results of operations of KSI;3SI as of the
dates and for the periods indicated therein; and (d) prepared in
accordance with GAAP. Except to the extent reflected on the balance
sheet included in the KSI;3SI Interim Financial Statements,
obligations for trade payables and accrued liabilities incurred since
March 31, 1996 in the Ordinary Course of Business, and leases for
office equipment and facilities, KSI;3SI does not have any
indebtedness, liabilities or obligations of any nature, whether
absolute, accrued, contingent or otherwise.
B. Books and Records. The books of account, stock
records and other records (financial and otherwise) of KSI;3SI are in
all material respects complete and correct and are maintained in
accordance with good business practices.
C. Interim Change. Except as set forth in SCHEDULE
6.7, since June 30, 1995, there has not been (a) any material adverse
change in the financial condition, assets, liabilities, personnel or
business of KSI;3SI or in its relationships with suppliers, customers,
distributors, lenders, lessors or others; (b) any damage, destruction
or loss, whether or not covered by insurance, materially adversely
affecting KSI;3SI; (c) any event or condition or series of events or
conditions which could, individually or in the aggregate, reasonably
be expected to have a material adverse effect on KSI;3SI; or (d) any
development which could or will have a material adverse effect on
KSI;3SI.
6.8. Accounts Receivable. All outstanding accounts and notes
receivable reflected on the KSI;3SI Interim Financial Statements and
incurred in the Ordinary Course of Business since March 31, 1996 are,
and as of the Closing Date, will be, due and valid claims against
account debtors for goods or services delivered or rendered,
collectible in full within 120 days of delivery and subject to no
defenses, offsets or counterclaims, except as reserved against in the
KSI;3SI Interim Financial Statements in accordance with GAAP. All
receivables arose in the Ordinary Course of Business, and no
receivables are subject to prior assignment, adverse claims, liens or
security interests. KSI;3SI has provided sufficient reserves in the
KSI;3SI Interim Financial Statements to cover any liabilities to
<PAGE> 22
customers for discounts, returns, promotional allowances or otherwise.
KSI;3SI has provided sufficient reserves in the KSI;3SI Interim
Financial Statements to cover any refunds, allowances or returns in
respect of products manufactured, processed, distributed, shipped or
sold by or for the account of KSI;3SI.
6.9. Inventory. All inventories reflected on the KSI;3SI
Interim Financial Statements and acquired after March 31, 1996 are
(a) properly valued at the lower of cost or market value on a
first-in, first-out basis in accordance with GAAP; (b) of good and
merchantable quality and contain no material amounts that are not
saleable and usable in the Ordinary Course of Business and meet the
current standards and specifications of its business; (c) in
conformity with warranties customarily given to purchasers of like
products; and (d) at levels adequate and not excessive in relation to
the circumstances of its business and in accordance with past
inventory stocking practices. All inventories disposed of subsequent
to March 31, 1996 will be disposed of only in the Ordinary Course of
Business and at prices and under terms that are consistent with the
past practices of KSI;3SI customary in its industry.
6.10. Title to Assets. KSI;3SI is the legal and equitable owner
of all right, title and interest in and has good and marketable title
to all of the assets which it purports to own and which are reflected
on the balance sheet included in the KSI;3SI Interim Financial
Statements and acquired in the Ordinary Course of Business subsequent
to March 31, 1996. Except as disclosed in SCHEDULE 6.10, none of the
assets which KSI;3SI purports to own are subject to (a) any material
title defect or objection; (b) any contract of lease, license or sale,
except the sale of inventory in the Ordinary Course of Business; (c)
any Security Interest; (d) any royalty or commission arrangement; or
(e) any materially adverse claim, covenant or restriction. The
KSI;3SI assets are in good operating condition and repair, taken as a
whole (reasonable wear and tear excepted), are suitable for the
purposes for which they are presently being used, and are adequate to
meet all present requirements of the business of KSI;3SI as currently
conducted. KSI;3SI does not own any real property.
6.11. Intellectual Property and Trade Secrets; No Infringement.
A. SCHEDULE 6.11 sets forth an accurate, correct and
complete list and summary description of all patents, trademarks,
trademark rights, trade names, trade styles, trade dress, product
designations, service marks, copyrights and applications for any of
the foregoing utilized in the business of KSI;3SI (the "KSI;3SI
Intellectual Property"). Except as set forth in SCHEDULE 6.11, (i)
KSI;3SI owns or has the exclusive right to use the KSI;3SI
Intellectual Property; (ii) no action, suit, proceeding or
investigation is pending or, to the best knowledge of KSI;3SI is
threatened, which alleges that the KSI;3SI Intellectual Property or
its sale of products and services interferes with, infringes upon,
conflicts with or otherwise violates the rights of others, and none is
subject to any outstanding order, decree, judgment, stipulation
or other adverse charge; and (iii) there are no royalty, commission or
similar arrangements, and no licenses, sublicenses or agreements,
pertaining to any of the KSI;3SI Intellectual Property.
B. All information in the nature of know-how, trade
secrets or proprietary information which provides KSI;3SI with an
advantage over competitors is collectively called the "KSI;3SI
Technical Information". All KSI;3SI Technical Information (i) is
owned solely and
<PAGE> 23
exclusively by KSI;3SI; (ii) is adequately documented and in condition
for use by the Surviving Corporation upon consummation of the Merger;
and (iii) has been continuously maintained in confidence by taking
reasonable precautions to protect the secrecy
of all KSI;3SI Technical Information and to prevent disclosure to
unauthorized parties.
C. The KSI;3SI Shareholders do not own or possess any
intellectual property rights or technical information useful to the
KSI;3SI Business which have not been assigned and transferred to
KSI;3SI and all of the same currently are included in the KSI;3SI
Intellectual Property and the KSI;3SI Technical Information. All
rights to inventions and technical information developed by the
KSI;3SI Shareholders in the course of their employment by KSI;3SI or
otherwise relating to the KSI;3SI Business as of the Closing Date are
and shall be included in the KSI;3SI Intellectual Property and the
KSI;3SI Technical Information.
6.12. Employees.
A. Employment Contracts. There are no agreements,
arrangements or understandings, written or oral, with officers,
directors and employees of KSI;3SI regarding services to be rendered,
terms and conditions of employment, or compensation which are not
terminable at will by KSI;3SI.
B. No Extraordinary Benefits. No employee of KSI;3SI
is entitled to receive supplementary retirement benefits or
allowances, whether pursuant to a contractual obligation or
otherwise. Since June 30, 1995, KSI;3SI has not (i) paid, or made any
accrual or arrangement for the payment of, bonuses or special
compensation of any kind including any severance or termination pay,
to any present or former officer or employee, (ii) made wage or salary
increases except in the Ordinary Course of Business consistent with
prior practice, or (iii) increased or altered any other benefits or
insurance provided to any employee.
C. Disputes. There are no controversies pending or, to
the knowledge of KSI;3SI, threatened involving any group of employees.
KSI;3SI has not suffered or sustained any work stoppage and no such
work stoppage is threatened. No union organizing or election
activities involving any employees of KSI;3SI are in progress or
threatened.
D. Compliance. KSI;3SI has complied with all laws,
rules and regulations relating to the employment of labor by KSI;3SI,
including provisions relating to wages, hours, equal opportunity,
persons with disabilities, occupational health and safety, severance,
collective bargaining and the payment of social security and other
taxes.
E. Employee Benefit Plans. KSI;3SI is not a party to
or obligated under any "welfare benefit plans" as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974 ("ERISA"),
as amended, or any employee pension benefit plans, bonus, profit
sharing, deferred compensation, incentive or other compensation plans
or arrangements, or other employee fringe benefit plans, whether
funded or unfunded, qualified or unqualified, whether maintained or
contributed to by KSI;3SI or any other organization which is a member
of a controlled group of organizations for the benefit of any of its
officers, employees or other persons.
<PAGE> 24
6.13. Material Contracts. SCHEDULE 6.13 sets forth an accurate,
correct and complete list of all significant instruments, commitments,
agreements, arrangements and understandings to which KSI;3SI is a
party or by which any of its assets are subject or bound, or pursuant
to which KSI;3SI is a beneficiary (the "KSI;3SI Material Contracts").
SCHEDULE 6.13 includes, without limitation, a list of all (a) real
estate leases; (b) personal property leases involving payments of more
than $10,000 per year; (c) distribution and manufacturers'
representation agreements; (c) agreements or licenses relating to
intellectual property; (d) commitments for capital expenditures or for
the purchase of goods or services in excess of $25,000 except those
incurred in the Ordinary Course of Business; (e) any purchase order
or commitment obligating KSI;3SI to sell or deliver any product or
service at a price which does not cover the cost (including labor,
materials and production overhead); (f) any instrument evidencing
indebtedness, liability for borrowed money, obligations for the
deferred purchase price of property in excess of $25,000 (excluding
normal trade payables), and any instrument guaranteeing any
indebtedness, obligation or liability; (g) any joint venture,
partnership or other agreement involving a sharing of profits; (h) any
deed, lease, easement, agreement or other instrument affecting real
property; (i) any contract with any government agency; (j) any
contract with respect to the discharge, storage or removal of
effluent, waste or pollutants; (k) any license or royalty agreement;
(l) any contract to indemnify any party or to share tax liability of
any party; (m) any contract for the purchase or sale of foreign
currency or derivative securities; (n) any contract containing
covenants not to compete in any line of business or with any person in
any geographical area; and (n) any other commitment which provides for
payment or performance having an aggregate value of $50,000 or more
that is not terminable without payment or penalty.
Accurate, correct and complete copies of all BDPC Material Contracts
will be delivered by KSI;3SI to KSI;3SI within ten days after the
execution of this Agreement. KSI;3SI has complied with all material
commitments and obligations on its part to be performed or observed
under each KSI;3SI Material Contract, and no event has occurred which
is or, after the giving of notice or passage of time, or both, would
constitute a default under or a breach of any KSI;3SI Material
Contract.
6.14. Software and Information Systems. KSI;3SI owns all
necessary right, title and interest to all electronic data processing
systems, information systems, computer software programs, program
specifications, procedures, input data, routines, data bases, report
layouts and formats, record file layouts, diagrams, functional
specifications and other related material used in the KSI;3SI Business
(collectively the "KSI;3SI Software"), except for KSI;3SI Software
which is validly licensed to KSI;3SI. All KSI;3SI Software
documentation is current, accurate and sufficient in detail and
content to identify and explain the nature thereof, and to allow its
full and proper use by the Surviving Corporation without reliance on
the special knowledge or memory of third parties.
6.15. Customers, Subcontractors and Suppliers. All contracts
and orders with customers, subcontractors and suppliers were entered
into by or on behalf of KSI;3SI in the Ordinary Course of Business and
will be fully performed within the period contracted for. Except as
disclosed in SCHEDULE 6.7, since June 30, 1995, there has been no
cancellation of backlogged orders in excess of cancellations
previously experienced in the Ordinary Course of Business. KSI;3SI
has no reason to believe that any customer, subcontractor or supplier
will cease to do business with the Surviving Corporation after, or as
a result of, the Merger contemplated hereby, or that any customer or
supplier
<PAGE> 25
of KSI;3SI is threatened with bankruptcy or insolvency. KSI;3SI knows
of no fact, condition or event which would adversely affect the
relationship of KSI;3SI with any existing customer or supplier.
6.16. Licenses and Permits. All material licenses, permits,
accreditations or authorizations required by KSI;3SI for the conduct
of the KSI;3SI Business are valid and in full force and effect and
there are no pending or threatened proceedings which could result in
the termination, revocation, limitation or impairment of any of the
same.
6.17. Product Warranty and Product Liability. All products
manufactured, processed, distributed, shipped or sold by KSI;3SI and
any services rendered by KSI;3SI have been in conformity in all
material respects with all applicable contractual commitments and all
expressed or implied warranties. There are no existing claims,
liabilities or obligations arising from or alleged to arise from any
injury to person or property as a result the conduct of the business
of KSI;3SI or use of any product manufactured, processed, distributed,
shipped or sold by KSI;3SI prior to the Closing Date.
6.18. Insurance. KSI;3SI maintains insurance issued under
valid and enforceable policies or binders for the benefit of KSI;3SI,
and all such policies or binders are in full force and effect and are
in amounts and for risks, casualties and contingencies customarily
insured against by enterprises in operations similar to the business
operated by KSI;3SI. There are no pending or asserted claims against
any insurance of KSI;3SI as to which any insurer has denied liability,
and there are no claims under any such insurance that have been
disallowed. No notice of cancellation or nonrenewal with respect to
any insurance has been received by KSI;3SI.
6.19. Environmental Matters. The use and operation by KSI;3SI
of each facility used in the KSI;3SI Business has been, and on the
Closing Date will be, in compliance with all Federal, state and local
environmental and anti-pollution laws and regulations, including the
Resource Conservation and Recovery Act, as amended ("RCRA"), and all
laws and regulations concerning particulate emissions, hazard
communication, surface water pollution, groundwater pollution, air
pollution, solid wastes, hazardous wastes, storage, handling,
treatment, transportation, spills or other releases, and disposal of
any substance, material or waste, and exposure to or notification
regarding any substance, material or waste. There has not been, and
is not occurring, at any facility operated or previously owned or
operated KSI;3SI any improper release or threatened release of any
hazardous substances or petroleum products. KSI;3SI has not applied
or disposed of any hazardous substance in any manner which may require
removal, remedial action or expense at any facility, site, location or
body of water, surface or subsurface. No environmental audits or
assessments or occupational health studies have been undertaken by
KSI;3SI or any government agency with respect to the KSI;3SI Business,
facilities or properties. To the best knowledge to KSI;3SI, there has
not been located on or disposed of on any facility owned or operated
by KSI;3SI during any period of such ownership or operations, or, at
any other time: (a) any asbestos; any material, equipment or structure
constructed of or containing any asbestos; or any product or item made
in whole or in part of asbestos, or (b) any polychlorinated biphenyl;
any compound or material containing any polychlorinated biphenyl; or
any equipment, article or item using, containing, or made up in whole
or in part of any polychlorinated biphenyl.
<PAGE> 26
6.20. Compliance with Law. KSI;3SI and its KSI;3SI Business and
assets conform in all material respects to all applicable statutes,
codes, ordinances, licensing requirements, laws, rules and
regulations. No notice from any governmental body or other person of
any violation of any statute, code, ordinance, law, rule or regulation
or requiring or calling attention to the necessity of any repairs,
installation or alteration in connection with the KSI;3SI Business or
assets of KSI;3SI has been served, and KSI;3SI does not know of any
meritorious basis therefor.
6.21. Taxes.
A. Filings. KSI;3SI has filed all returns,
declarations and reports and all information returns and statements
(collectively, "KSI;3SI Returns") required to be filed or sent with
respect to all federal, state, county, local and other taxes of every
kind and however measured, including income, gross receipts, excise,
franchise, property, value added, import duties, employment, payroll,
sales and use taxes and any additions to tax and any interest or
penalties thereon (collectively, "KSI;3SI Taxes") for any period
ending on or before the Closing Date. As of the time of filing, the
KSI;3SI Returns correctly reflected the income, business, assets,
operations, activities and status of KSI;3SI and any other information
required to be shown thereon. KSI;3SI has paid or made provision for
all KSI;3SI Taxes shown as due and payable on its KSI;3SI Returns
required to be filed or sent prior to the Closing Date. All required
KSI;3SI Tax estimates, deposits, prepayments and similar reports or
payments for current and prior periods have been properly made.
B. Compliance. KSI;3SI has withheld amounts from
employees and others working in the KSI;3SI Business, as required
under applicable law, and has filed all KSI;3SI Returns with respect
to employee income tax withholding and social security and
unemployment taxes and paid such KSI;3SI Taxes in compliance with the
tax withholding provisions of the Code and other applicable laws.
6.22. Legal Proceedings. KSI;3SI is not engaged in or a party
to or threatened with any action, suit, proceeding, complaint, charge,
investigation or arbitration or other method of settling disputes or
disagreements, and neither KSI;3SI nor the KSI;3SI Shareholders knows,
anticipates or has notice of any reasonable basis for any such action.
KSI;3SI has not received notice of any investigation threatened or
contemplated by any government or regulatory authority, including
those involving the safety of products, the working conditions of
employees, employment practices or policies, or compliance with
environmental regulations. KSI;3SI is not subject to any judgment,
order, writ, injunction or decree of any court or any government
agency or any arbitrator.
6.23. No Brokers. Neither KSI;3SI nor any of its Affiliates
has retained any broker, finder or agent or incurred any liability or
obligation for any brokerage fees, commissions or finders' fees with
respect to this Agreement or the transactions contemplated hereby for
which the Surviving Corporation will be responsible, except as
disclosed in SCHEDULE 6.23.
6.24. Disclosure. The representations and warranties of KSI;3SI
contained in this Agreement and each Schedule, certificate or other
written statements delivered pursuant to this Agreement are each
accurate, correct and complete in all material respects, and do not
contain any untrue statement of a
<PAGE> 27
material fact or omit to state a material fact necessary in order to
make the statements and information contained herein or therein not
misleading.
SECTION 7. CONDITIONS PRECEDENT TO CLOSING
The obligations of each the parties to consummate the
transactions to be performed by it at Closing are subject to
satisfaction of the following conditions precedent:
7.1. Within ten (10) business days after the signing of this
Agreement, KSI;3SI and BDPC shall have entered into a separate
confidentiality agreement, in form satisfactory to counsel for BDPC
and KSI;3SI.
7.2. Prior to the Closing, BDPC shall have furnished sufficient
documentation and bank statements to KSI;3SI to demonstrate that BDPC
has complied with the provisions of Section 4.1 of this Agreement and
that, after giving effect to the payment and settlement of BDPC's
known debts and liabilities, as provided therein, BDPC has sufficient
cash on deposit to satisfy the requirements of Section 4.1 of this
Agreement.
7.3. Prior to the Closing, KSI;3SI and BDPC shall each have
completed to its sole satisfaction, its due diligence investigation of
the other party pursuant to Section 4.3 of this Agreement; and shall
have given written notice to the other party of its desire to proceed
with the transaction.
7.4. The Articles of Merger shall have been prepared, signed and
ready for filing with the Secretary of State of Colorado.
7.5. The representations and warranties of BDPC and COLE set
forth in Section 5 of this Agreement and the Schedules relating
thereto, and the representations and warranties of KSI;3SI and the
KSI;3SI Shareholders set forth in Section 6 of this AGREEMENT and the
Schedules related thereto, shall be true and correct in all respects
at and as of the Closing Date.
7.6. At Closing Date, each of the parties shall have performed
and complied with all of its and his covenants and agreements
hereunder to be performed at or prior to the Closing Date including,
without limitation, all covenants and agreements set forth in Sections
3 and 4 of this Agreement, and including, but not limited to mutually
satisfactory Employment Agreements pursuant to Section 4.4 of this
Agreement.
7.7. At the Closing Date, no action, suit or proceeding shall be
in effect, pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state or local jurisdiction
wherein an unfavorable judgment, order, decree, stipulation,
injunction or charge would (i) prevent consummation of any of the
transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (iii) affect adversely the right of the Surviving
Corporation to operate or control business and assets of BDPC and
KSI;3SI.
<PAGE> 28
7.8. At the Closing, BDPC and KSI;3SI shall have each received from
counsel to respective parties an opinion with respect to the matters set
forth in EXHIBIT B attached hereto, addressed to BDPC and KSI;3SI and dated
as of such date.
7.9. At the Closing Date, all actions to be taken by BDPC and KSI;3SI
in connection with the Merger and the consummation of the transactions
contemplated by this Agreement, and all certificates, opinions, instruments
and other documents required to effect the transactions contemplated by this
Agreement, shall be satisfactory in form and substance to counsel for BDPC
and counsel for KSI;3SI.
7.10 At Closing Cole shall transfer to the KSI;3SI Shareholders his
irrevocable proxies for 1,364,410 shares of BDPC's Common Stock (see
Schedule 5.5).
SECTION 8. SPECIAL COVENANTS.
8.1. Prohibited Transactions; No Solicitation or Use of Contacts.
(a) The parties acknowledge that in addition to a private
placement financing contemplated by Section 4.1 above, BDPC proposes to
effect a subsequent public offering of BDPC securities or other financing
transactions for the purpose of obtaining additional equity capital and to
finance, among other requirements, implementation of the BDPC Development
Plan. Any such offering will include requirements of a description of this
Agreement and the transactions contemplated herein and other information as
to KSI;3SI, BDPC and their proposed plan of operations upon completion of
the Merger, all as required by applicable securities laws. KSI;3SI agrees
to cooperate with BDPC in supplying such information for the purposes of a
subsequent BDPC securities offering.
(b) In consideration of the agreements contained herein, and
in the event the Closing under this Agreement shall not occur for any
reason, other than by reason of the other party not fulfilling any of its
covenants and agreements pursuant to Section 4.1 hereof, and other than by
reason of misrepresentations made by either party or its agents, officers or
employees in connection with this contemplated transaction, KSI;3SI and BDPC
and KSI;3SI and BDPC and their respective Shareholders covenant and agree
that for a period of eighteen (18) months from the date of this Agreement,
(i) neither party nor any of its Affiliates Shareholders will directly or
indirectly use proprietary information contained in the BDPC Development
Plan or seek to implement the same without the prior written consent of the
other party, or pursuant to a written joint venture agreement between
KSI;3SI and BDPC, which either party may withhold or decline for any reason;
and (ii) neither party nor any of its Affiliates or Shareholders will
directly or indirectly solicit a Prohibited Capital Transaction from, or
otherwise contract for the services of, any person or entity introduced to
KSI;3SI by BDPC or vice versa as a prospective source for a public offering
or other financing transaction of securities. For the purposes hereof, a
"Prohibited Capital Transaction" shall mean the participation by KSI;3SI or
BDPC or any of its Affiliates in any issuance, sale or exchange of
securities, the issuance of debt by KSI;3SI, any lease or license
transaction (excluding routine equipment leases), any acquisition, merger,
sale of assets or capital stock, any strategic alliance or partnership, or
the receipt of funding or other consideration by KSI;3SI or BDPC or its
Affiliates not in the Ordinary Course of Business. During the term of this
Agreement, each party shall provide the other with written disclosure of the
identity of all persons and entities claimed to be introduced to the other
party as a prospective source for a public offering or other financing
transaction of BDPC securities. In the event this Agreement is terminated
by any of the parties acting in good faith, or pursuant to its rights to
terminate hereunder, this Section 8.1(b) shall not apply.
<PAGE> 29
8.2. No Solicitation of KSI;3SI Employees. Without the prior
written consent of KSI;3SI, and in the event the Closing under this
Agreement shall not occur for any reason, for a period of eighteen
(18) months from the date of this Agreement, neither BDPC nor any of
its Affiliates or COLE will directly or indirectly solicit for
employment, employ, or otherwise contract for the services of any
person who is now employed (either as an employee or full-time
consultant) by KSI;3SI.
SECTION 9.SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND
INDEMNIFICATION PROVISIONS
9.1. Reliance. All representations, warranties, covenants and
agreements contained in this Agreement or in any document, agreement
or instrument delivered pursuant hereto or thereto shall be deemed to
be material and to have been relied upon by the parties hereto, and
the accuracy thereof shall be a condition precedent to the obligation
of the other parties hereto to consummate the transactions
contemplated by this Agreement.
9.2. Survival of Representations and Warranties After Closing.
(a) The representations and warranties of BDPC and COLE
set forth in Section 5 of this Agreement shall survive the Closing
hereunder.
(b) The Representations of KSI;3SI and the KSI;3SI
Shareholders set forth in Section 6 of this Agreement shall survive
the Closing hereunder.
(c) The provisions of Section 8 of this Agreement shall
remain in effect and shall survive any termination of this Agreement
for the term set forth therein.
9.3. Indemnification to KSI;3SI Shareholders from COLE and BDPC.
(a) The KSI;3SI Shareholders shall be indemnified, held
harmless and reimbursed by COLE and BDPC from and after the Closing
Date, but only if the Closing shall occur, for any and all losses,
liabilities, damages, costs and expenses including, without
limitation, all reasonable attorneys' fees incurred in enforcing the
provisions of this Section 9.3, actually suffered or incurred by the
KSI;3SI Shareholders as a result, and in the amount of (collectively,
the "BDPC Indemnified Obligations"), any and all liabilities, losses,
damages, claims, costs and expenses resulting from misrepresentations
or breaches of any warranties on the part of BDPC and COLE contained
in Section 5 of this Agreement. Such BDPC Indemnified Obligations
shall include, without limitation, any and all liabilities, losses,
damages, costs and expenses of the Surviving Corporation and BDPC
arising as a result of liabilities and obligations of BDPC
attributable to any act or omission prior to the Closing Date, except
for liabilities and losses disclosed in the BDPC Audited Financial
Statements, the BDPC Interim Financial
<PAGE> 30
Statements, the Schedules attached to this Agreement or liabilities
incurred by BDPC in the Ordinary Course of Business of BDPC between
March 31, 1996 and the Closing Date.
9.4. Indemnification to BDPC from KSI;3SI Shareholders
(a) BDPC shall be indemnified, held harmless and
reimbursed by the KSI;3SI Shareholders, jointly and severally, from
and after the Closing Date, but only if the Closing shall occur, for
all of any and all losses, liabilities, damages, costs and expenses
including, without limitation, all reasonable attorneys' fees incurred
in enforcing the provisions of this Section 9.4, actually suffered or
incurred by BDPC as a result, and in the amount of (collectively, the
"KSI;3SI Indemnified Obligations"), any and all liabilities, losses,
damages, claims, costs and expenses resulting from misrepresentations
or breaches of any warranties on the part of KSI;3SI and the KSI;3SI
Shareholders contained in Section 6 of this Agreement. Such KSI;3SI
Indemnified Obligations shall include, without limitation, any and all
liabilities, losses, damages, costs and expenses of BDPC and the
Surviving Corporation arising as a result of liabilities and
obligations of KSI;3SI attributable to any act or omission prior to
the Closing Date, except for liabilities and losses disclosed in the
KSI;3SI Financial Statements, the KSI;3SI Interim Financial
Statements, the Schedules attached to this Agreement or liabilities
incurred by KSI;3SI in the Ordinary Course of Business of KSI;3SI
prior to the Closing Date.
SECTION 10. TERMINATION
Termination of Agreement. The parties may terminate this
Agreement as provided below:
10.1. The parties may mutually agree to terminate this
Agreement by written consent of KSI;3SI and BDPC at any time prior to
the Closing.
10.2. BDPC may terminate this Agreement at any time prior
to the Closing Date by giving written notice to KSI;3SI and each of
the KSI;3SI Shareholders at any time prior to the Closing Date in the
event KSI;3SI is in material breach of any representation, warranty or
covenant on its part contained in this Agreement, has failed or is
unable to perform any material covenant or agreement on KSI;3SI's part
to be performed hereunder, or by reason of the failure of any
condition precedent under Sections 3, 4 and 7 hereof.
10.3. KSI;3SI may terminate this Agreement at any time
prior to the Closing Date by giving written notice to BDPC and COLE at
any time prior to the Closing Date in the event BDPC is in material
breach of any representation, warranty or covenant on its part
contained in this Agreement, has failed or is unable to perform any
material covenant or agreement on BDPC's part to be performed
hereunder, or by reason of the failure of any condition precedent
under Sections 3, 4 and 7 hereof.
10.4. The termination of this Agreement prior to the
Closing Date shall be without cost or liability to any of the parties
hereto, each of which shall bear its own expenses incurred in
connection with the execution and performance of this Agreement prior
to the Closing hereunder.
<PAGE> 31
SECTION 11. MISCELLANEOUS
11.1. Amendments and Waiver. No amendment, waiver or consent
with respect to any provision of this Agreement shall in any event be
effective, unless the same shall be in writing and signed by the
parties hereto, and then such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose
for which given.
11.2. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be delivered in
person or sent by registered or certified mail, postage prepaid and
return receipt requested, commercial overnight courier (such as
Express Mail, Federal Express, etc.) with written verification of
receipt or by facsimile telecopy. A notice shall be deemed given:
(a) when delivered by personal delivery (as evidenced by the receipt);
(b) ten (10) days after deposit in the mail if sent by registered or
certified mail; (c) one (1) business day after having been sent by
commercial overnight courier as evidenced by the written verification
of receipt; or (d) one business day after the date of confirmation if
telecopied, in each event addressed as set forth below:
If to BDPC or COLE: Ronald H. Cole
Brown Disc Products Company, Inc.
1120-B Elkton Drive
Colorado Springs, Colorado 80907-3568
Facsimile number (719) 590-7466
IF TO KSI;3SI or the
KSI;3SI Shareholders: Frank Backes, Frederick Slack
and Larry Valdez
KSI;3SI Inc.
6886 South Yosemite Street
Englewood, Colorado 80112
Facsimile number 303-741-9801
Any party may change its address for receiving notice given by written
notice given to the others named above.
11.3. Expenses. Each party to this Agreement shall pay its own
costs and expenses in connection with the transactions contemplated by
the Agreement.
11.4. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts each of which shall be
deemed an original, but all of which together constitute one and the
same instrument.
11.5. Successors and Assigns. This Agreement shall bind and
inure to the benefit of the parties named herein and their respective
successors and assigns. No party to this Agreement shall be entitled
to assign its rights and duties under this Agreement without the
consent of the other parties.
11.6. Entire Transaction. This Agreement and the documents
referred to herein contain the entire understanding among the parties
with respect to the actions contemplated hereby and supersedes all
other agreements, understandings and undertakings among the parties on
the subject matter hereof.
<PAGE> 32
11.7. Other Rules of Construction. References in this Agreement
to sections, schedules and exhibits are to sections of, and schedules
and exhibits to, this Agreement unless otherwise indicated. Words in
the singular include the plural and in the plural include the similar.
The word "or" is not exclusive. The word "including" shall mean
including, without limitation. The section and other headings
contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
11.8. Announcements. Upon the execution of this Agreement, BDPC
and KSI;3SI shall promptly confer to release an appropriate public
announcement of the proposed Merger contemplated hereby; provided,
that no such announcement shall be released except in the form of a
written statement mutually agreed by both parties.
11.9. No Third-Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any person other than the parties,
the Surviving Corporation and their respective shareholders,
successors and permitted assigns.
11.10. Interpretation. This Agreement shall be interpreted
according to its fair meaning and not for or against either party who
may have drafted provisions hereof.
11.11. Choice of Law. This Agreement shall be deemed to have
been made and executed, and all performance shall be deemed to take
place, within the State of Colorado. All aspects of this AGREEMENT
shall be governed by and interpreted by the laws of the State of
Colorado.
11.12. Binding Arbitration. Any dispute arising out of or
relating to this Agreement or the breach of this Agreement shall be
resolved by binding arbitration pursuant to the Rules of the American
Arbitration Association then in effect. The parties shall have the
right to conduct all discovery permitted by Colorado law in connection
with any such arbitration proceedings, and hereby waive all rights to
trial by jury and rights of appeal.
11.13. Choice of Venue. Any arbitration shall take place in
the City of Colorado Springs, Colorado. Any litigation, including
litigation arising out of or concerning such arbitration, shall
be conducted exclusively in the trial courts of general jurisdiction
the County of El Paso, State of Colorado. All parties hereby consent
to the jurisdiction of such court for all litigation.
12. Reduction of Outstanding Warrants; Piggyback Registration.
BDPC hereby agrees that, as an additional condition precedent to
Closing, it will on or before Closing, cause its total outstanding
warrants for BDPC Common Stock to be reduced to 361,950 warrants, as
follows:
<PAGE> 33
A. 3,000,000 current Class A and all Class B Warrants will
be canceled in exchange for issuance of 808,050 Class A Common Stock.
B. The 351,950 Class C warrants will remain outstanding.
C. Cole and BDPC will have the right, at their election, to
register up to 200,000 shares of the BDPC Common Stock issued pursuant
to the 808,050 shares granted by BDPC, as follows:
Registration Rights. The Company covenants and agrees as follows:
12.1 Definitions. For purposes of this Section 6:
(1) The term "register," "registered," and "registration"
refer to a registration effected by preparing and filing a
registration statement or similar document in compliance
with the Act, and the declaration or ordering of
effectiveness of such registration statement or document;
(2) The term "Securities with Piggyback Rights" means
securities of the Company which are entitled upon request to
be included in a registration effected by the Company
(including a registration statement effected by the Company
for shareholders).
12.2 Company Registration. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a
registration effected by the Company on Form S-8), any of its stock or
securities under the Act, the Company shall, at such time, promptly
give each Holder of the 200,000, written notice of such registration.
Upon the written request of each such Holder given within twenty (20)
days after mailing of such notice by the Company in accordance with
the notice requirements hereof, the Company shall, subject to the
provisions hereof, cause to be registered under the Act all of the
Piggyback Securities, up to the limit of a total 200,000 shares issued
pursuant to the Class A Common Stock warrants.
12.3 Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this
Section that the selling Holders shall furnish to the Company such
information regarding themselves, the Piggyback Securities held by
them, and the intended method of disposition of such securities shall
be required to effect the registration of their Piggyback Securities.
12.4 Expenses of Piggyback Registration. All expenses incurred
in connection with registrations pursuant hereto, including (without
limitation) all registration, filing and qualification fees, printers'
and accounting fees, audit fees, if required, fees and disbursements
of counsel for the Company, and the reasonable fees and disbursements
of one counsel for the selling Holders shall be borne by the Holders
of the 200,000 Piggyback Securities.
<PAGE> 34
12.5 Underwriting ReqUirements. In connection with any offering
involving an underwriting of shares, the Company shall not be required
to include any of the Holders' securities in such underwriting unless
they accept the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it, and then only in such
quantity as will not, in the opinion of the underwriters, jeopardize
the success of the offering by the Company.
12.6 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any
such registration as the result of any controversy that might arise
with respect to the interpretation or implementation of this Section
12.
12.7 Indemnification. In the event any Piggyback Securities are
included in a registration statement under this Section 12:
(1) To the extent permitted by law, the Company and the
Holders of the Piggyback Securities will each indemnify and
hold harmless each other and the officers, directors and
controlling shareholders of the Company and any underwriter
(as defined in the Act), against any losses, claims,
damages, or liabilities (joint of several) to which they may
become subject under the Act, the 1934 Act or other federal
or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or
are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (a) any untrue
statement or alleged untrue statement of a material fact
contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein
or any amendments or supplements thereto, (b) the omission
or alleged omission to state there a material fact required
to be stated therein, or necessary to make the statements
therein not misleading, or (c) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under
the Act, the 1934 Act or any state securities law; and the
indemnifying party will reimburse the party indemnified for
any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss,
claim, damage, liability, or action. The Company shall not
be liable under any of the foregoing circumstances for any
such loss, claim, damage, liability, or action to the extent
that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with
such registration by any such Holder of the Piggyback
Securities.
(2) Promptly after receipt by an indemnified party, under
this Section of notice of the commencement of any action
(including any
<PAGE> 35
governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any
indemnifying party under this Section, notify the
indemnifying party in writing of the commencement thereof
and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly
noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided however, that an
indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing
interests between such indemnified party and any other
represented by such counsel in such proceeding. The failure
to notify an indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its
ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party
under this Section, but the omission so to notify the
indemnifying party will not relieve it of any liability that
it may have to any indemnified party otherwise than under
this Section.
12.8 Assignment of Registration Rights. The rights to cause the
Company to register Piggyback Securities pursuant to this Section may
not be assigned by a Holder of such Piggyback Securities, without the
prior written consent of the Company.
<PAGE>
<PAGE> 36
IN WITNESS WHEREOF, each of the parties hereto has executed or
caused this Agreement to be executed all as of the date first written
above.
<TABLE>
<S> <C>
BROWN DISC PRODUCTS COMPANY, INC.
By: (s) RONALD H. COLE
--------------------------
Ronald H. Cole, Chairman and Chief Executive Officer
KSI;3SI, INC.
By: (s) LARRY VALDEZ
--------------------------
Larry Valdez, President
By: (s) FRANK BACKES
--------------------------
Frank Backes, Vice President
By: (s) FRED SLACK
--------------------------
Fred Slack, Chief Executive Officer
INDIVIDUALS:
(s) RONALD H. COLE
--------------------------
RONALD H. COLE, an individual
(s) FRANK BACKES
--------------------------
FRANK BACKES, an individual
(s) FREDERICK SLACK
--------------------------
FREDERICK SLACK, an individual
(s) LARRY VALDEZ
--------------------------
LARRY VALDEZ, an individual
</TABLE>
