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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): March 17, 1998
OSAGE SYSTEMS GROUP, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-22808 95-4374983
-------- ------- ----------
(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification No.)
incorporation)
1661 East Camelback Road
Suite 245
Phoenix, AZ 85016
(Address of principal executive office)
Registrant's telephone number, including area code: (602) 274-1299
(Former name or former address, if changed since last report)
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ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS
ACQUISITION OF SOLSOURCE COMPUTER, INC.
On March 17, 1998, Osage Systems Group, Inc. (the "Company") acquired in
an arm's-length transaction Solsource Computers, Inc. ("Solsource") pursuant to
the terms of an Agreement and Plan of Merger by and among the Company (formerly
known as "Pacific Rim Entertainment, Inc."), Solsource Acquisition Corp.,
Solsource Computers, Inc. and the Shareholders of Solsource Computers, Inc.
dated February 27, 1998 (the "Solsource Merger Agreement"). Upon closing, the
Company's wholly-owned subsidiary acquired 100% of the outstanding capital stock
of Solsource in exchange for $1.1 million; payable $200,000 in cash and $900,000
in newly issued common shares priced at $6.00 per share. In addition, the merger
consideration included earn-out incentive shares to be issued if Solsource
achieves certain performance targets. The former president of Solsource, Daniel
J. Vahalla, owned over 98% of the outstanding capital stock of Solsource;
accordingly, a proportionate amount of the merger consideration was paid to Mr.
Vahalla. Pursuant to the terms of the Solsource Merger Agreement, Solsource
Computers, Inc. remains as the surviving corporation.
Solsource is a systems integrator headquartered in Carlsbad, California
with principal sales offices in Northern and Southern California. Within
Solsource there are two operating divisions. A presentation division provides
portable Unix laptops and high end data projection equipment to the mobil
computing marketplace. A systems integration division provides complete
hardware, software and service solutions to address data and network security
problems in large and small commercial organizations. Solsource also provides
specialized services for security audits, firewall penetration testing and
anti-virus protection. It distributes hardware and software products from well
known manufacturers such as Sun Microsystems, Cisco, Microsoft, Netscape,
Checkpoint and Trend Micro. In 1996, Solsource was ranked by Inc. Magazine as
the 21st fastest growing private company in America. Solsource employs
approximately 30 people and during its most recent fiscal year, realized
revenues of $7.3 million.
ACQUISITION OF H.V. JONES, INC.
On March 17, 1998, the Company also completed, in an arm's-length
transaction, the acquisition of H.V. Jones, Inc. pursuant to the terms of an
Agreement and Plan of Merger by and among the Company (formerly known as
"Pacific Rim Entertainment, Inc."), Jones Acquisition Corp. and Hugh V. Jones
("Jones") dated February 27, 1998 ("Jones Merger Agreement"). Upon closing, the
Company's wholly-owned subsidiary acquired 100% of the outstanding capital stock
of Jones from its sole shareholder Hugh V. Jones for a purchase price of
$1,975,000; payable $395,000 in cash and $1.58 million in preferred stock which
converts into common stock during the next four quarters at a conversion rate
equal to the lower of $6.87 or a 33% premium over the average closing price of
the Company's common stock for the ten (10) trading days prior to each date of
conversion. The merger consideration also included additional earn-out incentive
shares to be issued if Jones achieves certain performance targets. Pursuant to
the terms of the Jones Merger Agreement, H.V. Jones, Inc. remains as the
surviving corporation.
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Jones is a complex systems integrator headquartered in Houston, Texas,
with a sales and development office in Austin, Texas. Jones provides proprietary
services and turnkey technology infrastructure solutions in the areas of
business assessment, enterprise resource planning, interoperability, database,
networking and security. A major focus of Jones' services is the enterprise wide
interoperability between Unix and NT environments. This includes: networking,
server platforms, databases and systems management interoperability services.
Another major focus of Jones is providing the complete data center
infrastructure necessary to support enterprise resource planning solutions such
as SAP. Jones' market focus is on the middle market (Fortune 1000-5000) in the
sectors of manufacturing, distribution, medical, telecommunications and general
business. Jones represents hardware and software products from well known
manufacturers such as Hewlett Packard, Sun Microsystems, Microsoft, Netscape,
Silicon Graphics, Oracle, Cisco, Ascend and Digital. Jones employs approximately
20 people and during its most recent fiscal year, realized revenues of $5.6
million.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Acquired Businesses
It is impracticable at the time of the filing of this Current Report
to provide the historical financial information for Solsource and Jones required
by Regulation S-X. Accordingly, the Company will file the required historical
financial statements under cover of an Amendment to this Current Report on Form
8-K as soon as practicable, but in any event, not later than 60 days after the
date on which this Current Report must be filed with the Commission.
(b) Pro Forma Financial Statements of Businesses
It is impracticable at the time of the filing of this Current Report
to provide the pro forma financial information for Solsource and Jones required
by Regulation S-X. Accordingly, the Company will file the required pro forma
financial statements under cover of an Amendment to this Current Report on Form
8-K as soon as practicable, but in any event, not later than 60 days after the
date on which this Current Report must be filed with the Commission.
(c) Exhibits (referenced to Item 601 of Regulation S-K).
2.4 Agreement and Plan of Merger dated February 27, 1998 by and among
Pacific Rim Entertainment, Inc., Solsource Acquisition Corp.,
Solsource Computers, Inc. and the Shareholders of Solsource
Computers, Inc.
2.5 Agreement and Plan of Merger dated February 27, 1998 by and among
Pacific Rim Entertainment, Inc., Jones Acquisition Corp. and H.V.
Jones, Inc.
2.6 Amendment to the Agreement and Plan of Merger dated March 17,
1998 by and among Osage Systems Group, Inc., Jones Acquisition
Corp. and H.V. Jones, Inc.
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2.7 Certificate of Merger of Solsource Computers, Inc. into Solsource
Acquisition Corp.
2.8 Certificate of Merger of H.V. Jones, Inc. into Jones Acquisition
Corp.
3.8 Certificate of Designation, Preferences and Rights of the Series
C Convertible Preferred Stock
4.7 Specimen of Series C Convertible Preferred Stock
10.10 Form of Employment Agreement with John Iorillo
10.11 Employment Agreement of Daniel J. Vahalla
10.12 Employment Agreement of Hugh V. Jones
10.13 Registration Rights Agreement by and among Pacific Rim
Entertainment, Inc. and the Trust of Daniel J. and Mary G.
Vahalla, Gary Gwin, Maureen Gaare and Daniel Grube.
10.14 Registration Rights Agreement by and between Pacific Rim
Entertainment, Inc. and Hugh V. Jones
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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.
Dated: OSAGE SYSTEMS GROUP, INC.
----------------------------
BY:/s/Jack R. Leadbeater
-----------------------
Jack R. Leadbeater
Chief Executive Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page Number in
Number Rule 0-3(b)
(Referenced Sequential
to Item 601 Numbering System
of Reg. S-K) Where Exhibit
Can Be Found
<S> <C> <C>
2.4 Agreement and Plan of Merger dated February
27, 1998 by and among Pacific Rim
Entertainment, Inc., Solsource Acquisition
Corp., Solsource Computers, Inc. and the
Shareholders of Solsource Computers, Inc.
2.5 Agreement and Plan of Merger dated February
27, 1998 by and among Pacific Rim
Entertainment, Inc., Jones Acquisition Corp.
and H.V. Jones, Inc.
2.6 Amendment to the Agreement and Plan of Merger
dated March 17, 1998 by and among Osage
Systems Group, Inc., Jones Acquisition Corp.
and H.V. Jones, Inc.
2.7 Certificate of Merger of Solsource Computers,
Inc. into Solsource Acquisition Corp.
2.8 Certificate of Merger of H.V. Jones, Inc.
into Jones Acquisition Corp.
3.8 Certificate of Designation, Preferences and
Rights of the Series C Convertible Preferred
Stock
4.7 Specimen of Series C Convertible Preferred
Stock
10.10 Form of Employment Agreement with John Iorillo
10.11 Employment Agreement of Daniel J. Vahalla
10.12 Employment Agreement of Hugh V. Jones
10.13 Registration Rights Agreement by and among
Pacific Rim Entertainment, Inc. and the Trust
of Daniel J. and Mary G. Vahalla, Gary Gwin,
Maureen Gaare and Daniel Grube.
</TABLE>
5
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<TABLE>
<S> <C> <C>
10.14 Registration Rights Agreement by and between
Pacific Rim Entertainment, Inc. and Hugh V.
Jones
</TABLE>
6
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EXHIBIT 2.4
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PACIFIC RIM ENTERTAINMENT, INC.
SOLSOURCE ACQUISITION CORP.
SOLSOURCE COMPUTER, INC.
AND
THE SHAREHOLDERS OF
SOLSOURCE COMPUTER, INC.
Dated: February 27, 1998
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TABLE OF CONTENTS
ARTICLE I MERGER OF SOLSOURCE WITH AND INTO SUB AND RELATED
MATTERS.................................................1
1.1 The Merger.............................................................1
1.2 Conversion of Stock....................................................3
1.3 Merger Consideration...................................................3
1.4 Escrow Agreement.......................................................6
1.5 Additional Rights; Taking of Necessary Action; Further Action..........6
1.6 No Further Rights or Transfers.........................................6
ARTICLE II: THE CLOSING.....................................................7
2.1 Closing Date...........................................................7
2.2 Closing Transactions...................................................7
ARTICLE III: CERTAIN CORPORATE ACTION......................................10
3.1 Solsource Corporate Action............................................10
3.2 Acquiror Corporate Action.............................................10
ARTICLE IV: REPRESENTATIONS AND WARRANTIES.................................11
4.1 Representations and Warranties of Solsource and the Principal
Shareholder...............................................................11
4.2 Representations and Warranties of Acquiror and the Sub................24
ARTICLE V: AGREEMENTS OF THE PARTIES.......................................27
5.1 Access to Information.................................................27
5.2 Confidentiality; No Solicitation......................................27
5.3 Interim Operations....................................................29
5.4 Consents..............................................................32
5.5 Filings...............................................................32
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TABLE OF CONTENTS
5.6 All Reasonable Efforts................................................32
5.7 Public Announcements..................................................33
5.8 Notification of Certain Matters.......................................33
5.9 Expenses..............................................................33
5.10 Financial Statements.................................................33
5.11 Options of Acquiror..................................................34
5.12 Documents at Closing.................................................34
5.13 Repayment of Loans...................................................34
5.14 Prohibition on Trading in Acquiror Stock.............................34
5.15 Reservation of Shares................................................35
5.16 Employment Agreement.................................................35
5.17 Acknowledgment of Approvals..........................................35
ARTICLE VI: CONDITIONS TO CONSUMMATION OF THE MERGER.......................35
6.1 Conditions to Obligations of Solsource and the Solsource
Shareholders..........................................................35
6.2 Conditions to Acquiror's and the Sub's Obligations....................37
ARTICLE VII: INDEMNIFICATION...............................................38
7.1 Indemnification.......................................................39
ARTICLE VIII: TERMINATION..................................................40
8.1 Termination...........................................................40
8.2 Notice and Effect of Termination......................................41
8.3 Extension; Waiver.....................................................42
8.4 Amendment and Modification............................................42
ARTICLE IX: MISCELLANEOUS..................................................42
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TABLE OF CONTENTS
9.1 Survival of Representations and Warranties; Remedies..................42
9.2 Notices...............................................................43
9.3 Entire Agreement; Assignment..........................................44
9.4 Binding Effect; Benefit...............................................44
9.5 Headings..............................................................44
9.6 Counterparts..........................................................44
9.7 Governing Law.........................................................44
9.8 Arbitration...........................................................44
9.9 Severability..........................................................45
9.10 Release and Discharge................................................45
9.11 Certain Definitions..................................................45
iii
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EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A - Investment Letter
Exhibit B - Registration Rights Agreement
Exhibit C - Escrow Agreement
SCHEDULES
1.1(c) Officers and Directors of the Surviving Corporation
4.1(a) Articles of Incorporation and Bylaws of Solsource and each
Subsidiary
4.1(c) Consents
4.1(d) Capitalization and Share Ownership (Options of Solsource)
4.1(e) Financial Statements
4.1(f)(i) Location of Leased Property
4.1(f)(ii) Written Notice
4.1(g) No Contingent Liabilities
4.1(h) Litigation
4.1(i) Taxes
4.1(j)(i) Employee Benefit Plan
4.1(j)(ii) Employee Benefit Plan (for which Solsource has obligation to
contribute)
4.1(j)(iv) Material Employment Arrangements,Contracts, etc.
4.1(k) Insurance Coverage
4.1(o) Intellectual Property
4.1(p) Accounts Receivable
4.1(s)(i) Labor Relations; Employees
4.1(s)(ii) List of Employees
4.1(s)(v) Strikes, grievance proceedings, arbitrations, etc.
4.1(s)(vii) Employment and Benefit Arrangements
4.1(t) Suppliers and Clients
4.1(u) Conflicting Interests
4.1(w) Absence of Certain Changes or Events
4.1(x) Product Liability and Warranty Claims
4.2(a) Certificate of Incorporation and Bylaws of Acquiror and Sub
5.13 Vahalla Note
iv
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), is made and entered
into as of February 27, 1998, by and among PACIFIC RIM ENTERTAINMENT, INC., a
Delaware corporation ("Acquiror"), SOLSOURCE ACQUISITION CORP., a Delaware
corporation and wholly-owned subsidiary of Acquiror ("Sub"), SOLSOURCE COMPUTER,
INC., a California corporation ("Solsource"), and THE TRUST OF DANIEL J. AND
MARY G. VAHALLA (the "Principal Shareholder"), GARY GWIN, MAUREEN GARRE, and
DANIEL GRUBE as the sole shareholders of Solsource (collectively the "Solsource
Shareholders").
RECITALS
WHEREAS, Acquiror and Solsource have determined that it is in the best
interests of their respective shareholders for Sub to merge with and into
Solsource upon the terms and subject to the conditions set forth in this
Agreement;
WHEREAS, Acquiror and Solsource intend that the transactions evidenced by
this Agreement shall qualify, to the best extent possible, as a tax-free
reorganization under the applicable provisions of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code") (although the parties recognize
that their intentions are not binding upon the Internal Revenue Service); and
WHEREAS, the respective Boards of Directors of Acquiror and Solsource have
each approved this Agreement and the consummation of the transactions
contemplated hereby and approved the execution and delivery of this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
representations, warranties and agreements contained herein, and for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
MERGER OF SOLSOURCE WITH AND INTO SUB
AND RELATED MATTERS
1.1 THE MERGER.
(a) Upon the terms and conditions of this Agreement, at the
"Effective Time" (as defined herein), the Sub shall be merged with and into
Solsource (the "Merger") in accordance with the provisions of the Delaware
General Corporation Law (the "DGCL") and the California Business Corporation Act
("CGCL") and the separate corporate existence of the Sub shall cease, and
Solsource shall continue as the surviving corporation under the laws of the
State of California (the "Surviving Corporation").
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(b) The Merger shall become effective as of the filing of a
certificate of merger with the Secretary of State of the State of Delaware and
the filing of and receipt of a certificate of merger (the "Certificate of
Merger") with the Secretary of State of the State of California, in accordance
with the provisions of Section 252 of the DGCL and Section 1103 of the CGCL, and
the confirmation by the Certificate of Merger that the Merger is effective as of
such filing date. The date and time when the Merger shall become effective is
referred to herein as the "Effective Time."
(c) At the Effective Time:
(i) Solsource shall continue its existence under the
laws of the State of California as the Surviving Corporation;
(ii) the separate corporate existence of the Sub shall
cease;
(iii) all rights, title and interests to all assets,
whether tangible or intangible and any property or property rights owned by the
Sub shall be allocated to and vested in Solsource as the Surviving Corporation
without reversion or impairment, without further act or deed, and without any
transfer or assignment having occurred, but subject to any existing liens or
other encumbrances thereon, and all liabilities and obligations of the Sub shall
be allocated to Solsource as the Surviving Corporation, which shall be the
primary obligor therefor and, except as otherwise provided by law or contract,
no other party to the Merger, other than Solsource as the Surviving Corporation,
shall be liable therefor;
(iv) the Certificate of Incorporation of the Surviving
Corporation shall be the Certificate of Incorporation of Solsource as in effect
immediately prior to the consummation of the Merger;
(v) Each of Acquiror, Sub and Solsource shall execute
and deliver, and file or cause to be filed with the Secretary of State of the
State of Delaware, a certificate of merger and with the Secretary of State of
the State of California, the Certificate of Merger, with such amendments thereto
as the parties hereto shall deem mutually acceptable.
(vi) the Bylaws of the Surviving Corporation shall be
the Bylaws of Solsource as in effect immediately prior to the consummation of
the Merger, and shall continue in full force and effect until thereafter amended
as provided by law and such Bylaws; and
(vii) the officers and directors of Sub and Solsource
shall resign upon the Effective Time and the officers and directors of the
Surviving Corporation shall consist of those individuals identified on Schedule
1.1(c)(vii), and such persons shall serve in such positions for their respective
terms provided by law or in the bylaws of the Surviving Corporation and until
their respective successors are elected and qualified.
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1.2 CONVERSION OF STOCK.
(a) At the Effective Time:
(i) the shares representing 100% of the issued and
outstanding common stock of Solsource ("Solsource Common Stock") as of the
Closing (other than "Dissenting Shares", as defined herein) shall, by virtue of
the Merger and without any action on the part of any holder thereof, be
converted into and represent the right to receive, and shall be exchangeable for
the merger consideration identified at Section 1.3 hereafter (the "Merger
Consideration);
(ii) each share of capital stock of Solsource held in
treasury as of the Effective Time shall, by virtue of the Merger, be canceled
without payment of any consideration therefor and without any conversion
thereof;
(iii) each share of common stock of the Sub that is
issued and outstanding as of the Effective Time shall be converted into and
become one fully paid and non-assessable share of common stock, par value $.01
per share, of the Surviving Corporation, which shares shall thereafter
constitute all of the issued and outstanding shares of capital stock of the
Surviving Corporation; and
(iv) each share of capital stock of Solsource
outstanding as of the Effective Time, by virtue of the Merger, shall no longer
be outstanding and shall automatically be canceled and retired and shall cease
to exist.
(b) From and after the Effective Time, there shall be no transfers
on the stock transfer books of Solsource of shares of its capital stock (or any
warrants or other rights to acquire any of the same) that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
certificates for shares of Solsource capital stock (or any warrants or other
rights to acquire any of the same) that were outstanding immediately prior to
the Effective Time, they shall be canceled and exchanged for the consideration
to be received therefor in connection with the Merger as provided in this
Agreement.
1.3 MERGER CONSIDERATION.
(a) Subject to the provisions of Section 1.4 hereafter, the
Merger Consideration, consisting of the total purchase price payable to the
Solsource Shareholders in connection with the acquisition by merger of
Solsource, shall be paid or delivered, as the case may be, and shall consist
exclusively of the following:
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(i) at the Closing (as hereafter defined), $200,000 in
cash, cashier's check or by wire transfer to the accounts specified in writing
to Acquiror at least three (3) days prior to the Closing;
(ii) at the Closing, delivery of newly issued shares of
Acquiror's common stock, par value $.01 per share ("Acquiror Common Stock"),
having an aggregate valuation equal to $900,000, with such valuation determined
based on the lesser of (i) the average closing price of Acquiror's common stock
for the ten (10) trading days immediately preceding the three calendar day
period prior to the Closing, or (ii) $6.00 per share; and
(iii) subsequent to Closing, the Solsource Shareholders
may be entitled to receive additional shares of Acquiror Common Stock
("Additional Shares") depending upon the achievement of certain levels of sales
revenue and pre-tax net income of the Surviving Corporation during the one year
period (calculated at the end of the month) immediately following the Closing
(the "Measurement Period") in the manner determined below:
(A) Sales Revenues:
(1) If during the Measurement Period, the
Surviving Corporation generated sales revenues of less than $7,000,000, no
Additional Shares shall be issued pursuant to this subparagraph 1.3(a)(iii)(A).
(2) If during the Measurement Period, the
Surviving Corporation generated sales revenues between $7,000,000 and
$12,000,000, Additional Shares shall be issued having a value equal to the
product of $750,000 and the percentage calculated by dividing the amount by
which the revenues exceeded $7,000,000 by 5,000,000. For example, if sales
revenues of $9,600,000 are achieved, then the Solsource Shareholders shall be
issued such Additional Shares having a value equal to $390,000.
(3) If during the Measurement Period, the
Surviving Corporation generated sales revenues in excess of $12,000,000,
Additional Shares shall be issued having a value equal to the product of
$750,000 and the percentage calculated by dividing the amount of sales revenues
by 12,000,000. For example, if sales revenue of $24,000,000 are achieved, then
the Solsource Shareholders shall be issued such Additional Shares having a value
equal to $1,500,000.
(B) Pre-Tax Net Income:
(1) If during the Measurement Period, the
Surviving Corporation realized pre-tax net income below $300,000, no Additional
Shares shall be issued pursuant to this subparagraph 1.3(a)(iii)(B).
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(2) If during the Measurement Period, the
Surviving Corporation realized pre-tax net income between $300,000 and $700,000,
Additional Shares shall be issued having a value equal to the product of
$250,000 and the percentage calculated by dividing the amount by which the
pre-tax net income realized exceeded $300,000 by 400,000. For example, if
pre-tax net income of $500,000 is realized, then the Solsource Shareholders
shall be issued such Additional Shares having a value equal to $125,000.
(3) If during the Measurement Period, the
Surviving Corporation realized pre-tax net income in excess of $700,000,
Additional Shares shall be issued having a value equal to the product of
$250,000 and the percentage calculated by dividing the amount of pre-tax net
income by 700,000. For example, if pre-tax net income of $1,400,000 is realized,
then the Solsource Shareholders shall be issued such Additional Shares having a
value equal to $500,000.
(b) For purposes of subparagraph (iii)(A) above the term "sales
revenue" shall be defined as gross revenues of the Surviving Corporation less
any and all discounts, allowances and rebates. For the purposes of subparagraph
(iii)(B) above, the term "pre-tax net income" shall be computed on a basis
consistent with past practices and accounting methods of the Surviving
Corporation without reduction for administrative/overhead charges or parent
company allocations, except for direct expenses incurred by Acquiror on behalf
of Surviving Corporation. The "sales revenue" and "pre-tax net income" of the
Surviving Corporation shall be determined within ninety (90) days after the
expiration of the Measurement Period, and at such time the Acquiror shall
deliver such Additional Shares to the Solsource Shareholders, accompanied by a
certificate of Acquiror's Chief Financial Officer attesting to the method by
which the number of Additional Shares were calculated.
(c) The number of Additional Shares to be distributed to the
Solsource Shareholders pursuant to subparagraph 1.3(a)(iii) above shall be
determined by dividing the value of such Additional Shares (as so established)
by the price determined based on the lesser of (i) the average closing price of
Acquiror's common stock for the ten (10) trading days immediately preceding the
three calendar day period prior to the Closing, or (ii) $6.00 per share.
(d) The Merger Consideration shall be allocated among the Solsource
Shareholders in the proportion of their share ownership of the outstanding
common stock of Solsource at the Closing in accordance with the percentages
identified on the signature page hereof.
(e) The shares of Acquiror Common Stock to be delivered at the
Closing, as well as any Additional Shares of Acquiror Common Stock, when and if
delivered, shall be fully paid and non-assessable and shall be free and clear of
all liens, levies and encumbrances except that all of such Acquiror Common Stock
and Additional Shares of Acquiror Common Stock shall be "restricted securities"
pursuant to Rule 144, promulgated under the Securities Act of 1933, as amended
(the "Act").
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(f) No fractional shares of stock shall be issued in the Merger, and
each holder of Solsource Common Stock entitled to receive as part of the Merger
Consideration fractional shares shall receive that number of shares of stock
rounded to the nearest whole number.
1.4 ESCROW AGREEMENT.
(a) At the Closing, Acquiror shall deposit into escrow the
components of the Merger Consideration identified in subparagraph 1.4(b)
hereafter (the "Escrow Consideration"), and the Principal Shareholder shall
deposit into escrow the "Vahalla Note" (as hereafter defined), all of which
shall serve as collateral for the indemnification obligations of the Solsource
Shareholders pursuant to this Agreement. The deposit, maintenance and ultimate
disposition of the Escrow Consideration shall be governed by the terms of an
escrow agreement, the form of which is attached hereto as Exhibit 1.4(a)(the
"Escrow Agreement").
(b) The Escrow Consideration shall consist of:
(i) One Hundred Thousand Dollars ($100,000) of the
Merger Consideration identified at subparagraph 1.3(a)(i)(the "Escrow Cash");
(ii) shares of Acquiror Common Stock having an aggregate
valuation (determined pursuant to Paragraph 1.3(a)(ii)) of $200,000 (the "Escrow
Shares"); and
(iii) the Vahalla Note.
1.5 ADDITIONAL RIGHTS; TAKING OF NECESSARY ACTION; FURTHER ACTION.
Each of Acquiror, Sub, Solsource and Solsource Shareholders,
respectively, shall use their best efforts to take all such action as may be
necessary and appropriate to effectuate the Merger under the CGCL and DGCL as
promptly as possible, including, without limitation, the filing of the
Certificate of Merger consistent with the terms of this Agreement. If at any
time after the Effective Time, any further action is necessary or desirable to
carry out the purposes of this Agreement, the officers of such corporations are
fully authorized in the name of their corporations or otherwise, and
notwithstanding the Merger, to take, and shall take, all lawful and necessary
action.
1.6 NO FURTHER RIGHTS OR TRANSFERS.
At and after the Effective Time, the shares of capital stock of
Solsource outstanding immediately prior to the Effective Time shall cease to
provide the Solsource Shareholders thereof any rights as a shareholder of
Solsource or the Surviving Corporation,
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except for the right to surrender the certificate or certificates representing
such shares and to receive the consideration to be received in the Merger as
provided in this Agreement.
ARTICLE II
THE CLOSING
2.1 CLOSING DATE.
Subject to satisfaction or waiver of all conditions precedent set
forth in Section 6 of this Agreement, the closing of the Merger (the "Closing")
shall take place at the offices of Acquiror, at 1661 E. Camelback Road, Suite
245, Phoenix, Arizona, at 10:00 a.m., local time on the later of: (i) the first
Business Day following the day upon which all appropriate Acquiror corporate
action and Solsource corporate action has been taken in accordance with Section
3 of this Agreement; or (ii) the day on which the last of the conditions
precedent set forth in Section 6 of this Agreement is fulfilled or waived, or
(b) at such other time, date and place as the parties may agree, but in no event
shall such date be later than March 18, 1998, unless such date is extended by
the mutual written agreement of the parties.
2.2 CLOSING TRANSACTIONS.
At the Closing, the following transactions shall occur, all of such
transactions being deemed to occur simultaneously:
(a) Solsource and the Solsource Shareholders will deliver, or shall
cause to be delivered, to the Acquiror and Sub, the following documents and
shall take the following actions:
(i) The Solsource Shareholders (other than Dissenting
Shareholders) shall surrender and deliver to the Sub as the Surviving
Corporation the certificate or certificates representing all of such shares of
Solsource Common Stock;
(ii) The Solsource Shareholders (other than Dissenting
Shareholders) shall, to the extent necessary to comply with applicable federal
and state securities laws, execute and deliver at the Closing a copy of an
Investment Letter in a form to be mutually agreed by the parties at that time
and attached to this Agreement as Exhibit "A" ("Investment Letter");
(iii) Any outstanding shareholder agreements relating to
Solsource Common Stock shall have been terminated and evidence of such
termination satisfactory to Acquiror shall have been delivered to Acquiror;
(iv) Solsource and the Solsource Shareholders shall
execute and deliver, and file or cause to be filed with the Secretary of State
of the State of California, a
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certificate of merger with such amendments thereto as the parties hereto shall
deem mutually acceptable;
(v) A certificate shall be executed by Solsource and the
Solsource Shareholders to the effect that all representations and warranties
made by Solsource and the Solsource Shareholders under this Agreement are true
and correct as of the Closing, as though originally given to Acquiror and Sub on
said date;
(vi) A certificate of good standing shall be delivered by
Solsource and the Principal Shareholder from the Secretary of State of the State
of California, dated at or about the Closing, to the effect that such
corporation is in good standing under the laws of such state;
(vii) An incumbency certificate shall be delivered by
Solsource signed by all of the officers thereof dated at or about the Closing;
(viii) Certified Articles of Incorporation shall be delivered
by Solsource dated at or about the Closing and a copy of the Bylaws of Solsource
certified by the Secretary of Solsource dated at or about the Closing;
(ix) Certified Board and shareholder resolutions shall be
delivered by the Secretary of Solsource dated at or about the Closing
authorizing the transactions contemplated under this Agreement;
(x) The Registration Rights Agreement, the form of which is
attached hereto as Exhibit "B", shall be executed and delivered by the Solsource
Shareholders;
(xi) An employment agreement (the "Employment Agreement")
upon substantially the terms and conditions described in that certain Letter
of Intent between the parties dated December 2, 1997, ("Letter of Intent")
and such other terms as the parties thereto shall mutually agree shall be
executed and delivered by Mr. Daniel Vahalla;
(xii) The Escrow Agreement, as described in Exhibit "C",
shall be executed and delivered by the Principal Shareholder;
(xiii) The Principal Shareholder shall deliver the
Escrow Consideration into escrow pursuant to the terms of the Escrow
Agreement;
(xiv) Each of the officers and directors of Solsource shall
have tendered their resignation in form and substance satisfactory to Acquiror;
(xv) The delivery of an opinion of counsel of Solsource in
form and substance satisfactory to Acquiror and the Sub; and
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(xvi) Each of the parties to this Agreement shall have
otherwise executed whatever documents and agreements, provided whatever consents
or approvals and taken all such actions as are required under this Agreement.
(b) Acquiror and Sub will deliver, or shall cause to be delivered,
to Solsource and the Solsource Shareholders, the following documents and shall
take the following actions:
(i) Acquiror shall deliver or shall cause to be delivered to
the Solsource Shareholders (other than Dissenting Shareholders) a certificate or
certificates representing the number of shares of Acquiror Common Stock as such
holder is entitled to receive in connection with the Merger;
(ii) Acquiror shall deliver or shall cause to be delivered to
the Solsource Shareholders, the cash component of the Merger Consideration to
such location and in such manner as may be designated in writing by the
Solsource Shareholders at least three (3) days prior to Closing;
(iii) Acquiror and the Sub shall execute and deliver, and file
or cause to be filed with the Secretary of the State of Delaware, the
Certificate of Merger with such amendments thereto as the parties hereto shall
deem mutually acceptable;
(iv) Sub shall receive from the Secretary of State of
Delaware a final Certificate of Merger;
(v) A certificate shall be executed by the Acquiror's and
Sub's President to the effect that all representations and warranties of the
Acquiror and Sub under this Agreement are true and correct as of the Closing, as
though originally given to Solsource on said date;
(vi) A certificate of good standing shall be delivered by
Acquiror and Sub from the Secretary of the State of Delaware dated at or about
the Closing that the Acquiror and Sub are in good standing under the laws of
said state;
(vii) An incumbency certificate shall be delivered by Acquiror
and Sub signed by all of the officers thereof dated at or about the Closing;
(viii) Certified Certificates of Incorporation shall be
delivered by Acquiror and Sub dated at or about the Closing, and a copy of the
Bylaws of Acquiror and Sub certified by the Secretary of Acquiror and Sub dated
at or about the Closing;
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(ix) Certified Board resolutions shall be delivered by the
Secretary of the Acquiror and Sub dated at or about the Closing authorizing the
transactions contemplated under this Agreement;
(x) Acquiror will execute and deliver an Employment
Agreement to Mr. Daniel Vahalla upon the terms and conditions as described in
subparagraph 2.2(a)(xi) of this Agreement;
(xi) Acquiror will execute and deliver the Registration Rights
Agreement to the Solsource Shareholders, the form of which is attached hereto as
Exhibit B;
(xii) Each of the officers and directors of the Sub shall have
tendered their resignation in form and substance satisfactory to Solsource and
the Solsource Shareholders;
(xiii) The delivery of an opinion of counsel of Acquiror and
the Sub in form and substance satisfactory to Solsource and the Solsource
Shareholders which shall contain customary representations and opinions; and
(xiv) Each of the parties to this Agreement shall have
otherwise executed whatever documents and agreements, provided whatever consents
or approvals and shall have taken all such actions as are required under this
Agreement.
ARTICLE III
CERTAIN CORPORATE ACTION
3.1 SOLSOURCE CORPORATE ACTION.
Solsource shall cause to occur all corporate action necessary to
effect the Merger and to consummate the other transactions contemplated hereby.
3.2 ACQUIROR CORPORATE ACTION.
Acquiror and the Sub shall cause to occur all corporate action
necessary on behalf of either of them to effect the Merger and to consummate the
other transactions contemplated hereby.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF SOLSOURCE AND THE PRINCIPAL
SHAREHOLDER.
As a material inducement to Acquiror and Sub to execute this
Agreement and consummate the Merger and other transactions contemplated hereby,
Solsource and the Principal Shareholder, jointly and severally, hereby make the
following representations and warranties to Acquiror and Sub. The
representations and warranties are true and correct in all material respects at
this date, and will be true and correct in all material respects on the Closing
as though made on and as of such date.
(a) CORPORATE EXISTENCE AND POWER.
(i) Solsource is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of California, and has
all corporate powers and all governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted, except where the
failure to have any of the foregoing would not have a Material Adverse Effect.
Except as set forth on Schedule 4.1(a), Solsource is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except for those jurisdictions
where the failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect. True, correct and complete copies of
the Articles of Incorporation and Bylaws of Solsource as amended to date are
attached hereto as Schedule 4.1(a) and are made a part hereof. There are
currently no subsidiaries of Solsource.
(b) DUE AUTHORIZATION. This Agreement has been duly authorized,
executed and delivered by Solsource and the Solsource Shareholders and
constitutes a valid and binding agreement of Solsource and the Solsource
Shareholders, enforceable in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, moratorium, and
other similar laws relating to, limiting or affecting the enforcement of
creditors rights generally or by the application of equitable principles. As of
the Closing all corporate action on the part of Solsource required under
applicable law in order to consummate the Merger will have occurred.
(c) NO CONTRAVENTION. The execution and delivery of the Agreement
does not, and the consummation of the transactions contemplated hereby will not:
(i) conflict with or result in any violation of any provision of the Articles of
Incorporation or Bylaws of Solsource; or (ii) conflict with or result in any
violation or default (with or without notice or lapse of time, or both) under,
or give rise to a right of termination, cancellation or acceleration of a right
or obligation or loss under, any loan or credit agreement, note, bond, mortgage,
indenture, lease or
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other agreement, instrument, permit, concession, franchise, license, judgment,
order, decree, or, to the best of their knowledge, statute, law, ordinance, rule
or regulation applicable to Solsource or the Solsource Shareholders or their
properties or assets, or result in the creation or imposition of any mortgage,
lien, pledge, charge or security interest of any kind ("Encumbrance") on any
assets of Solsource, except such as is not reasonably likely to have a Material
Adverse Effect or prevent Solsource or the Solsource Shareholders from
consummating the transactions contemplated by this Agreement. Except as set
forth on Schedule 4.1(c), no consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, is required by or with respect to Solsource in connection with the
execution and delivery of this Agreement by Solsource and the Solsource
Shareholders or the consummation by Solsource and the Solsource Shareholders of
the transactions contemplated hereby, except the filing of the Articles of
Merger.
(d) CAPITALIZATION AND SHARE OWNERSHIP. The authorized capital stock
of Solsource consists solely of Ten Million (10,000,000) shares of common stock,
no par value per share ("Solsource Common Stock"). There are currently 2,028,000
shares of Solsource Common Stock outstanding; of which the Principal Shareholder
owns 1,977,940 shares. The outstanding shares of capital stock of Solsource
have been duly authorized and validly issued and are fully paid and
nonassessable and free of preemptive rights. Except as set forth in this Section
4.1(d) and on Schedule 4.1(d), there are outstanding (A) no shares of capital
stock or other voting securities of Solsource, (B ) no securities of Solsource
convertible into or exchangeable for shares of capital stock or voting
securities of Solsource and (C) no options, warrants or other rights to acquire
from Solsource, and no obligation of Solsource to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of Solsource, and there are no agreements or
commitments to do any of the foregoing. There are no voting trusts or voting
agreements applicable to any capital stock of Solsource. The Solsource Common
Stock to be surrendered in the Merger will be owned of record and beneficially,
by the Solsource Shareholders, free and clear of all liens and encumbrances of
any kind and nature, and have not been sold, pledged, assigned or otherwise
transferred. There are no agreements (other than this Agreement) to sell,
pledge, assign or otherwise transfer such securities.
(e) FINANCIAL STATEMENTS. Solsource shall prepare and deliver to
Acquiror and Sub, no less than ten (10) days prior to Closing, copies of
unaudited financial statements of Solsource for the fiscal years ended January
31, 1998 and January 31, 1997 (collectively, the "Financial Statements"). Such
Financial Statements will have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
reported upon and will fairly present in all material respects the financial
position of Solsource as of the date thereof and the results of operations for
the periods then ended (subject to normal year-end adjustments). The Financial
Statement for the fiscal year ended January 31, 1998 shall reflect liabilities
and indebtedness not to exceed $647,700 (exclusive of accounts payable),
revenues not less than $7,000,000 and stockholders equity (deficit) not to
exceed ($250,000).
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(f) REAL PROPERTIES.
(i) Solsource currently leases real property at those
locations identified on Schedule 4.1(f)(i) hereto pursuant to the true, correct
and complete copies of the lease agreements attached to Schedule 4.1(f)(i).
Solsource owns or leases no other real estate. None of the leasehold interests
held by Solsource is subject to any Encumbrance, except (a) liens for ad valorem
taxes not yet due or being contested in good faith; and (b) contractual or
statutory mechanics or materialmen's liens or other statutory or common law
Encumbrances relating to obligations of Solsource that are not delinquent or are
being contested in good faith. There are no Encumbrances which materially
interfere with the present use of such leasehold interests.
(ii) Except as described on Schedule 4.1(f)(ii) hereto,
Solsource has not received any written notice from any governmental entity
having jurisdiction over Solsource or over any of the real property leased by
Solsource of any violation by Solsource of any law, regulation or ordinance
relating to zoning, environmental matters, local building or fire codes or
similar matters relating to any of the real property leased by Solsource or of
any condemnation or eminent domain proceeding.
(iii) Except such as has not had and is not reasonably likely
to have a Material Adverse Effect, all of the buildings leased by Solsource and
all plumbing, HVAC, electrical, mechanical and similar systems are in good
repair and adequate for their current use, ordinary wear and tear excepted.
(iv) Except as described on Schedule 4.1(f)(iv), Solsource is
not a party to any lease, sublease, lease assignment or other agreement for the
use or occupancy of any of the leasehold premises wherein Solsource is the
landlord, sub-landlord or assignor, whether by name, as successor-in-interest or
otherwise. There are no outstanding agreements with any party to acquire the
leasehold premises or any portion thereof or any interest therein.
(v) All certificates of occupancy and all other licenses,
permits, authorizations, consents, certificates and approvals required by all
governmental authorities having jurisdiction over the leasehold premises
occupied by Solsource have been issued, are fully paid for and are in full force
and effect, will survive the Closing and will not be invalidated, violated or
otherwise adversely affected by the Merger or the other transactions
contemplated by this Agreement.
(g) NO CONTINGENT LIABILITIES. Except as described on Schedule
4.1(g) and as set forth in the Financial Statements, at the Closing, Solsource
shall have no material liabilities, whether related to tax or non-tax matters,
known or unknown, due or not yet due, liquidated or unliquidated, fixed or
contingent, determined or determinable in amount or otherwise and, to the
knowledge of Solsource after due inquiry, there is no existing condition,
situation or set of circumstances which could reasonably be expected to result
in such a liability, except as and to the extent reflected on: (i) the Financial
Statements; (ii) this Agreement or any
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<PAGE> 19
Schedule or Exhibit hereto; or (iii) liabilities incurred since the date of the
Financial Statements solely in the ordinary course of business and as accurately
reflected on the books and records of Solsource; provided, however, that no
liability shall be incurred from and after the date hereof which is in
contravention of any negative covenant contained herein and applicable to
Solsource.
(h) LITIGATION. Except as described on Schedule 4.1(h) hereto there
is no action, suit, investigation or proceeding (or, to the knowledge of
Solsource, any basis therefor) pending against, or to the knowledge of Solsource
threatened, against or affecting Solsource or any of its properties before any
court or arbitrator or any governmental body, agency or official that (i) if
adversely determined against Solsource, would have a Material Adverse Effect or
(ii) in any manner challenges or seeks to prevent, enjoin, alter or materially
delay the Merger or any of the other transactions contemplated by the Agreement.
(i) TAXES. Except as disclosed on Schedule 4.1(i), Solsource has
timely filed all tax returns required to be filed by it, or will timely file
when due all tax returns required to be filed by it between the date hereof and
the Closing. Solsource has paid in a timely fashion or will pay when due in a
timely fashion, all taxes required to be paid in respect of the periods covered
by such returns, and the books and the financial statements of Solsource
reflect, or will reflect, adequate reserves for all taxes payable by Solsource
which have been, or will be, accrued but are not yet due. Solsource is not
delinquent in the payment of any material tax, assessment or governmental
charge. No deficiencies for any taxes have been proposed, asserted or assessed
against Solsource, Solsource and the Solsource Shareholders are not aware of any
facts which would constitute the basis for the proposal or assertion of any such
deficiency and there is no action, suit, proceeding, audit or claim now pending
or threatened against Solsource. All taxes which Solsource is required by law to
withhold and collect have been duly withheld and collected, and have been timely
paid over to the proper authorities to the extent due and payable. For the
purposes of this Agreement, the term "tax" shall include all federal state,
local and foreign income, property, sales, excise and other taxes of any nature
whatsoever. Neither Solsource nor any member of any affiliated or combined group
of which Solsource is or has been a member has granted any extension or waiver
of the limitation period applicable to any tax returns. There are no
Encumbrances for taxes upon the assets of Solsource, except Encumbrances for
current taxes not yet due. There are no tax sharing or tax allocation agreements
to which Solsource is now or ever has been a party. Solsource will not be
required under Section 481(c) of the Internal Revenue Code of 1986, as amended
(the "Code"), to include any material adjustment in taxable income for any
period subsequent to the Merger. Solsource (a) has not been a member of an
affiliated group filing a consolidated federal income tax return (other than a
group the common parent of which was Solsource) and (b) has no liability for the
taxes of any person (other than Solsource) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract or otherwise.
(j) ERISA.
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(i) Schedule 4.1(j)(i) identifies each "employee benefit
plan," as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), that is subject to any provision of ERISA, and
either (i) is maintained, administered or contributed to by Solsource or any
affiliate (as defined below), (ii) covers any employee or former employee of
Solsource or any affiliate or (iii) under which Solsource or any affiliate has
any liability. Copies of such plans and, if applicable, related trust
agreements) and all amendments thereto and any written interpretations thereof
have been furnished to Acquiror, together, if applicable, with (x) the most
recent annual reports (Form 5500 including, if applicable, Schedule B thereto)
prepared in connection with any such plan and (y) the most recent actuarial
valuation report prepared in connection with any such plan. Such plans are
referred to collectively herein as the "Employee Plans." Any Form 5500 for any
plan year of any Employee Plan that has not been filed, but for which the filing
date has passed on the date of this Agreement, shall be filed prior to the date
of the Merger. For purposes of this Section, "affiliate" of any Person means any
other Person which, together with such Person, would be treated as a single
employer for any purpose under Section 414 of the Code.
(ii) Schedule 4.1(j)(ii) identifies all Employee Plans to
which Solsource currently has any obligation to contribute. Solsource is not a
party to any multiemployer plan as defined in Section 4001(a)(3) of ERISA
("Multiemployer Plans"), and neither Solsource nor any affiliate has any
outstanding liability to contribute to any Multiemployer Plan, for delinquent
contributions or for withdrawal liability pursuant to Section 4201 of ERISA.
(iii) There are no Employee Plans that are intended to be
qualified plans under Section 401(a) of the Code, except as may have been shown
and identified as such on the list referred to in subparagraphs (i) or (ii)
above. Each Employee Plan has been maintained in compliance with its terms and
with the requirements prescribed by any and all statutes, orders, rules and
regulations that are applicable to such Plan, other than any failure to comply
that is not reasonably likely to have a Material Adverse Effect.
(iv) Schedule 4.1(j)(iv) identifies each material employment,
severance or other similar contract, arrangement or policy and each plan or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits or
for deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation rights or other forms of incentive compensation or post-retirement
insurance, compensation or benefits that is not an Employee Plan and (A) is
entered into, maintained or contributed to, as the case may be by Solsource or
any of its affiliates or (B) covers any employee or former employee of Solsource
or any of its affiliates or (C) under which Solsource or any affiliate has
liability. Such contracts, plans and arrangements as are described above, copies
of all of which have been furnished previously to Acquiror, are referred to
collectively herein as the "Benefit Arrangements." Each Benefit Arrangement has
been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all
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statutes, orders, rules and regulations that are applicable to such Benefit
Arrangement other than any failure to comply that is not reasonably likely to
have a Material Adverse Effect.
(v) Neither Solsource nor any affiliate has or maintains and
has maintained any Employee Plan or Benefit Arrangement providing
post-retirement health or medical benefits in respect of any active or former
employee of Solsource or any affiliate or former affiliate, except as may be
required pursuant to the provisions of COBRA.
(vi) Solsource is not a party to or subject to any union
contract or any employment contract (other than as set forth on Schedule
4.1(j)(iv) hereto) or arrangement providing for annual future compensation to
any officer, consultant, director or employee in excess of $50,000.
(k) INSURANCE COVERAGE. Schedule 4.1(k) sets forth a list of all
Solsource key-man life insurance policies. Solsource maintains insurance
covering its assets, business, equipment, properties, operations, employees,
officers and directors with such coverage, in such amounts, and with such
deductibles and premiums as are consistent with insurance coverage provided for
other companies of comparable size and in comparable industries. All of such
policies are in full force and effect and all premiums payable have been paid in
full and Solsource is in full compliance with the terms and conditions of such
policies. Solsource has not received any notice from any issuer of such policies
of its intention to cancel or refusal to renew any policy issued by it or of its
intention to renew any such policy based on a material increase in premium rates
other than in the ordinary course of business. None of such policies are subject
to cancellation by virtue of the Merger or the consummation of the other
transactions contemplated by this Agreement. There is no claim by Solsource
pending under any of such policies as to which coverage has been questioned or
denied.
(l) COMPLIANCE WITH LAWS. To the best of its knowledge, Solsource is
not in violation of, and has not violated, any applicable provisions of any
laws, statues, ordinances or regulations, other than as would not be reasonably
likely to have a Material Adverse Effect or constitute a felony. To the best of
its knowledge no such laws, statutes, ordinances or regulations require or are
reasonably expected to require capital expenditures by Solsource that are
reasonably likely to have a Material Adverse Effect. Without limiting the
generality of the foregoing, to the best of its knowledge, Solsource has all
licenses, permits, certificates and authorizations needed or required for the
conduct of Solsource's business as presently conducted and for the use of its
properties and premises occupied by it, except where the failure to obtain a
licenses, permit, certificate or authorization would not have a Material Adverse
Effect.
(m) INVESTMENT BANKING FEES. There is no investment banker, broker,
finder or other similar intermediary which has been retained by, or is
authorized by, Solsource or the Solsource Shareholders to act on its behalf who
might be entitled to any fee or commission from Solsource, the Solsource
Shareholders, Acquiror or the Sub or any of their respective affiliates upon
consummation of the transactions contemplated by this Agreement.
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<PAGE> 22
(n) PERSONAL PROPERTY. Solsource has good and valid title to all of
its personal property, tangible and intangible, reflected on the Financial
Statements and to all other personal property owned by it, free and clear of any
Encumbrance. Solsource is the owner of all of its personal property now located
in or upon its leased premises and of all personal property which is used in the
operation of its business. All such equipment, furniture and fixtures and other
tangible personal property are in good operating condition and repair and do not
require any repairs other than normal routine maintenance to maintain such
property in good operating condition and repair. All inventory as reflected on
the Financial Statements is useable in the ordinary course of business free from
material defects. Solsource owns no motor vehicles.
(o) INTELLECTUAL PROPERTY; INTANGIBLE PROPERTY. The corporate names
of Solsource and the trade names and service marks listed on Schedule 4.1(o) are
the only names and service marks which are used by Solsource in the operation of
its business (the "Names and Service Marks"). Other than the name "Sunburst
Computers, Inc.," Solsource has not done business and has not been known by any
other name other than by its Names and Service Marks. Solsource owns and has the
exclusive right within California, and to its knowledge in the states in which
it operates, to use all intellectual property presently in use by it and
necessary for the operation of its business as now being conducted, which
intellectual property includes, but is not limited to, patents, trademarks,
trade names, service marks, copyrights, trade secrets, customer lists,
inventions, formulas, methods, processes and other proprietary information.
There are no outstanding licenses or consents granting third parties the right
to use any intellectual property owned by Solsource. No royalties or fees are
payable by Solsource to any third party by reason of the use of any of its
intellectual property. Solsource has received no notice of any adversely held
patent, invention, trademark, copyright, service mark or tradename of any
person, or any claims of any other person relating to any of the intellectual
property subject hereto, and there is no reasonable basis for any such charge or
claim. There is no presently known threatened use or encroachment of any such
intellectual property. To the best of its knowledge, the manufacture, sale or
use of any products now or heretofore manufactured or sold by Solsource did not
and does not infringe (nor has any claim been made that any such action
infringes) the intellectual property rights of others.
(p) ACCOUNTS RECEIVABLE. Each of the accounts receivable of
Solsource referred to on the Financial Statements constitutes a valid claim in
the full amount thereof against the debtor charged therewith on the books of
Solsource to which each such account is payable and has been acquired in the
ordinary course of business. Except as set forth in Schedule 4.1(p), each
account receivable is fully collectible to the extent of the face value thereof
(less the amount of the allowance for the doubtful accounts reflected on the
Financial Statements) no later than ninety (90) days after such account
receivable is due. To the best of its knowledge, no account debtor has any valid
setoff, deduction or defense with respect thereto, and no account debtor has
asserted any such setoff, deduction or defense. There are no accounts receivable
which arise pursuant to an agreement with the United States Government or any
agency or instrumentality thereof.
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(q) INVENTORIES. All inventory of Solsource: (i) was acquired and
has been maintained in the ordinary course of the operations of Solsource; (ii)
is of good and merchantable quality; (iii) consists substantially of a quality,
quantity and condition usable, leaseable or saleable in the ordinary course of
the operations of Solsource; and (iv) is valued on the Financial Statements at
the lower of cost (determined on a first in, first out basis) or market value on
a basis consistent with Generally Accepted Accounting Principles.
(r) CONTRACTS, LEASES, AGREEMENTS AND OTHER COMMITMENTS. Solsource
is not a party to or bound by any oral, written or implied contracts,
agreements, leases, powers of attorney, guaranties, surety arrangements or other
commitments excluding equipment and furniture leases entered into in the
ordinary course of business (which do not exceed $100,000 in liabilities or
commitments in the aggregate), except for the following (which are hereinafter
collectively called the "Material Contracts"):
(i) The leases and agreements described on Schedules 4.1(f),
4.1(j)(i) and (ii) and 4.1(s)(i); and
(ii) Agreements involving a maximum possible liability or
obligation on the part of Solsource of less than Twenty-Five Thousand Dollars
($25,000) separately or less than Fifty Thousand Dollars ($50,000) in the
aggregate.
The Material Contracts constitute all of the material agreements and
instruments which are necessary and desirable to operate the business as
currently conducted by Solsource. True, correct and complete copies of each
Material Contract described and listed under subsection 4.1(r)(i) have been made
available to Acquiror within ten (10) business days prior to the date hereof.
The term "Material Contract" excludes purchase orders entered into in the
ordinary course for personality or inventory which may be returned to the vendor
without penalty. All of the Material Contracts are valid, binding and
enforceable against the respective parties thereto in accordance with their
respective terms. Following the Merger, the Surviving Corporation shall become
entitled to all rights of Solsource under such of the Material Contracts as if
the Surviving Corporation were the original party to such Material Contracts.
All parties to all of the Material Contracts have performed all obligations
required to be performed to date under such Material Contracts, and neither
Solsource and, to the best of its knowledge, nor any other party, is in default
or in arrears under the terms thereof, and no condition exists or event has
occurred which, with the giving of notice or lapse of time or both, would
constitute a default thereunder. The consummation of this Agreement and the
Merger will not result in an impairment or termination of any of the rights of
Solsource under any Material Contract. None of the terms or provisions of any
Material Contract materially adversely affects the business, prospects,
financial condition or results of operations of Solsource.
(s) LABOR RELATIONS; EMPLOYEES.
(i) Set forth on Schedule 4.1(s)(i) is a list of:
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(A) All collective bargaining agreements and other
agreements requiring arbitration of employment disputes, and any written
amendments thereto, as well as all arbitration awards decided under any such
agreements, and all oral assurances or modifications, past practices, and/or
arrangements made in relation thereto, to which Solsource is a party or by which
it is bound; and
(B) All employment agreements, and all severance
agreements which have not been fully performed, to which Solsource is a party or
by which it is bound.
(ii) Set forth on Schedule 4.1(s)(ii) is a list of all key
management employees of Solsource, broken down by location, together with their
rate of compensation and title.
(iii) Solsource will deliver to Acquiror true and correct
copies of all of the documents referred to on Schedule 4.1(s)(i) hereof and all
of the personnel policies, employee and/or supervisor handbooks, procedures and
forms of employment applications relating to the employees of Solsource.
(iv) There is no union representing or purporting to represent
any of the employees of Solsource, and Solsource is not subject to or currently
negotiating any collective bargaining agreements with any union representing or
purporting to represent the employees of any of the foregoing.
(v) Except as set forth on Schedule 4.1(s)(v):
(A) There are no strikes, slow downs or other work
stoppages, grievance proceedings, arbitrations, labor disputes or
representation questions pending or, to the best knowledge of Solsource,
threatened;
(B) To the best of its knowledge, Solsource has
complied in all material respects with all laws relating to labor, employment
and employment practices, including without limitation, any provisions thereof
relating to wages, hours and other terms of employment, collective bargaining,
nondiscrimination and the payment of social security, unemployment compensation
and similar taxes, and Solsource is not (1) liable for any arrearages of wages
or any taxes or penalties for failure to comply with any of the foregoing or (2)
delinquent in the payment of any severance, salary, bonus, commission or other
direct or indirect compensation for services performed by any employee to the
date hereof, or any amount required to be reimbursed to any employee or former
employee; and
(C) There are no charges, suits, actions,
administrative proceedings, investigations and/or claims pending or threatened
against Solsource, whether domestic or foreign, before any court, governmental
agency, department, board or instrumentality, or before any arbitrator
(collectively "Actions"), concerning or in any way
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relating to the employees or employment practices of Solsource, including,
without limitation, Actions involving unfair labor practices, wrongful discharge
and/or any other restrictions on the right of Solsource to terminate its
respective employees, employment discrimination, occupational safety and health,
and workers' compensation.
(vi) There are no express or implied agreements, policies,
practices, or procedures, whether written or oral, pursuant to which any
employee of Solsource is not terminable at will and except as required by law,
no employee is entitled to any benefit or to participate in any employee benefit
plan of Solsource following such termination of employment.
(vii) Except as set forth in Schedule 4.1(s)(vii), Solsource
is not a party to any oral or written (A) agreement with any executive officer
or other key employee of Solsource (1) the benefits of which are contingent, or
the terms of which are materially altered, upon the occurrence of a transaction
involving Solsource of the nature of the transactions contemplated by this
Agreement, (2) providing any term of employment or compensation guarantee
extending for a period longer than one year, or (3) providing severance benefits
or other benefits after the termination of employment of such executive officer
or key employee regardless of the reason for such termination of employment; or
(B) agreement or plan which will remain in effect after the Closing, including,
without limitation, any stock option plan, stock appreciation right plan,
restricted stock plan or stock purchase plan, any of the benefits of which will
be increased, or the vesting of benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
(viii) Solsource has not taken any action which requires or,
taken together with the transactions contemplated hereby, would require the
giving of any notice under the Worker Adjustment Retraining and Notification Act
or any comparable state or local law or regulation.
(t) SUPPLIERS AND CUSTOMERS. Set forth on Schedule 4.1(t) is a
list of the five largest customers of Solsource based on the percentage of
revenue represented by those customers for the fiscal year ended January 31,
1997 and as of January 1, 1998 and the five largest customers in terms of volume
of contracts. The relationship of Solsource with its suppliers and customers are
good commercial working relationships and no supplier or customer of Solsource
has canceled, curtailed or otherwise terminated or threatened to cancel or
otherwise terminate, his or its relationship with Solsource. Solsource has no
knowledge, or reason to believe, that the Merger or any other transaction
contemplated hereby would adversely affect any such supplier or customer
relationship.
(u) CONFLICTING INTERESTS. Except as set forth on Schedule
4.1(u), no director, officer, employee or Solsource Shareholder, and no relative
or affiliate of any of the foregoing (i) sells or purchases goods or services
from Solsource or has any pecuniary interest in any supplier or client of any of
the foregoing or in any other business enterprise with which Solsource
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conducts business or with which any of the foregoing is in competition, or (ii)
is indebted to Solsource except for money borrowed and as set forth on the
Financial Statements.
(v) ENVIRONMENTAL PROTECTION. Neither Solsource nor the Solsource
Shareholders have been notified by any governmental authority, agency or third
party, and Solsource and the Solsource Shareholders have no knowledge, of any
violation by Solsource of any Environmental Statute (as defined below). All
registrations by Solsource with, licenses from or permits issued by governmental
agencies pursuant to environmental, health and safety laws are in full force and
effect. The term "Environmental Statutes" means all statutes, ordinances,
regulations, orders and requirements of common law concerning discharges to the
air, soil, surface water or groundwater and concerning the storage, treatment or
disposal of any waste or hazardous substance. There is no hazardous substance at
any premises currently or previously occupied by Solsource. Solsource has not
received any notice or any request for information, notice of claim, demand or
other notification that it may be potentially responsible with respect to any
investigation or clean-up of any threatened or actual release of hazardous
substances. All hazardous wastes and substances have been stored, treated,
disposed of and transported in conformance with all requirements applicable to
such hazardous substances and wastes.
(w) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as and to the
extent set forth on the Financial Statements, to the extent contained in this
Agreement, or as set forth on Schedule 4.1(w), there has not been (i) any
material adverse change in the business, assets, properties, results of
operations, financial condition or prospects of Solsource; (ii) any entry by
Solsource into any material commitment or transaction which is not in the
ordinary course of business; (iii) any change by Solsource in accounting
principles or methods except insofar as may be required by a change in generally
accepted accounting principles; (iv) any declaration, payment or setting aside
for payment of any dividends or other distributions (whether in cash, stock or
property) in respect of capital stock of Solsource or any Subsidiary, or any
direct or indirect redemption, purchase or any other type of acquisition by
Solsource of any shares of its capital stock or any other securities for an
aggregate sum not in excess of $5,000; (v) any agreement by Solsource, whether
in writing or otherwise, to take any action which, if taken prior to the date of
this Agreement, would have made any representation or warranty in this Section
4.1 untrue or incorrect; (vi) any acquisition of the assets of Solsource, other
than in the ordinary course of business and consistent with past practice and
not in excess of $5,000 in the aggregate; or (vii) any execution of any
agreement with any executive officer of Solsource providing for his or her
employment, or any increase in the compensation or in severance or termination
benefits payable or to become payable by Solsource to its officers or key
employees, or any material increase in benefits under any collective bargaining
agreement or in benefits under any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, insurance or other plan or arrangement or
understanding (whether or not legally binding) providing benefits to any present
or former employee of Solsource. Since the date of the Financial Statements,
there has not been and there is not threatened, any material adverse change in
financial condition, business, results of operations or prospects of the
business or any material physical damage or loss to any of the properties or
assets of the business or to the
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premises occupied in connection with the business, whether or not such loss is
covered by insurance.
(x) PRODUCT LIABILITY AND WARRANTY CLAIMS. Except as set forth on
Schedule 4.1(x), there are no liabilities of or claims against Solsource or the
Solsource Shareholders, and no liabilities or claims are threatened against
Solsource or the Solsource Shareholders, with respect to any product liability
(or similar claim) or product warranty (or similar claim) claim that relates to
any product manufactured or sold by Solsource or the Solsource Shareholders in
the operations of Solsource, except for standard warranty and maintenance
obligations made in the ordinary course of the operations of Solsource to
purchasers of its products and services. To the best of its knowledge, there are
no facts or circumstances which might reasonably give rise to any such material
liabilities or claims, except for such standard warranty and maintenance
obligations.
(y) PURCHASE COMMITMENTS AND OUTSTANDING BIDS. All accepted and
unfulfilled orders for the sale of merchandise or services entered into by
Solsource in the operation of its business, and the aggregate of all commitments
for the purchase of merchandise or supplies by Solsource, were made in the
ordinary course of the operations of Solsource. There are no claims against
Solsource or the Solsource Shareholders to return merchandise by reason of
alleged overshipments, defective merchandise or otherwise, or of merchandise in
the hands of customers under an understanding that such merchandise would be
returnable. There is no outstanding bid, proposal, commitment or unfulfilled
order which relates to the operations of Solsource which is or would, if
accepted, reasonably be expected to result in a net loss to Solsource.
(z) PAYMENTS. Neither Solsource nor the Solsource Shareholders has
directly, nor has any current agent, current representative or current employee
of any of them has, directly or indirectly, paid or delivered any fee,
commission or other sum of money or item or property, however characterized, to
any finder, agent, government official or other party, in the United States or
any other country, which is any manner related to the operations of Solsource,
which is, or may be with the passage of time or discovery, illegal under any
federal, state or local law (including, without limitation, the U.S. Foreign
Corrupt Practices Act) or any other country having jurisdiction; and Solsource
and the Solsource Shareholders have not participated, directly or indirectly, in
any boycotts or other similar practices affecting any of its actual or potential
customers and Solsource and the Solsource Shareholders have at all times done
business in an open and ethical manner.
(aa) INVESTMENT INTENT.
(i) Except with respect to the registration rights granted to
the Solsource Shareholders pursuant to the terms of this Agreement, the shares
of Acquiror Common Stock are not being registered under the Act on the basis of
the statutory exemption provided by Section (4)2 thereof, relating to
transactions not involving a public offering, and the Acquiror's
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reliance on the statutory exemption thereof is based in part on the
representations contained in this Agreement;
(ii) The Solsource Shareholders represent (a) that they have,
or as of the Closing, will have reviewed such quarterly, annual and periodic
reports of the Acquiror as have been filed with the Securities and Exchange
Commission (the "Reports") and that they have such knowledge and experience in
financial and business matters that it is capable of utilizing the information
set forth therein, concerning Acquiror to evaluate the risk of investing in the
Acquiror; (b) that they have been advised that the shares of Acquiror Common
Stock to be issued to each of them by the Acquiror will not be registered under
the Act, except as otherwise provided in this Agreement, and accordingly, the
Solsource Shareholders may only be able to sell or otherwise dispose of such
shares in accordance with Rule 144 or except as otherwise provided in this
Agreement; (c) that the shares of Acquiror Common Stock will be held for
investment and not with a view to, or for resale in connection with the public
offering or distribution thereof; (d) that the shares of Acquiror Common Stock
so issued will not be sold without registration thereof under the Act (unless
such shares are subject to registration or in the opinion of counsel to the
Acquiror an exemption from such registration is available), or in violation of
any law; and (e) that the certificate or certificates representing the shares of
Acquiror Common Stock to be issued will be imprinted with a legend in form and
substance substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF AN EXEMPTION
FROM REGISTRATION, UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
BASED ON AN OPINION LETTER OF COUNSEL FOR THE COMPANY OR A NO-ACTION
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION."
and Acquiror is hereby authorized to notify its transfer agent of the
status of the Shares and to take such other action including, but not limited
to, the placing of a "stop-transfer" order on the transfer agent's books and
records to assure compliance with the Act, as amended.
(iii) Solsource and the Solsource Shareholders have, either
upon the date hereof or before the Closing hereunder, been afforded the
opportunity to review and is familiar with the Reports and have based their
decision to invest solely on the information contained therein, and the
information contained within this Agreement and the associated exhibits and
schedules, and have not been furnished with any other literature, prospectus or
other information except as included in the Reports or this Agreement;
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(iv) The Solsource Shareholders are able to bear the economic
risks of an investment in the shares of Acquiror Common Stock and that their
overall commitment to their investments which are not readily marketable is not
disproportionate to their net worth; and
(v) The Solsource Shareholders understand that no federal or
state agency has approved or disapproved the shares of Acquiror Common Stock,
passed upon or endorsed the merits of the transfer of such shares set forth
within this Agreement or made any finding or determination as to the fairness of
such shares for investment.
(bb) STATEMENTS AND OTHER DOCUMENTS NOT MISLEADING. Neither this
Agreement, including all exhibits and schedules and other closing documents, nor
any other financial statement, document or other instrument heretofore or
hereafter furnished by Solsource or the Solsource Shareholders to Acquiror or
Sub in connection with the Merger or the other transactions contemplated hereby,
contains or will contain any untrue statement of any material fact or omit or
will omit to state any material fact required to be stated in order to make such
statement, information, document or other instruments, in light of the
circumstances in which they are made, not misleading. There is no fact known to
Solsource or the Solsource Shareholders which may have a Material Adverse Effect
on the business, prospects, financial condition or results of operations of
Solsource or of any of its properties or assets which has not been set forth in
this Agreement as an exhibit or schedule hereto.
4.2 REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND THE SUB.
As a material inducement to Solsource and the Solsource Shareholders
to execute this Agreement and to consummate the Merger and the other
transactions contemplated hereby, Acquiror and Sub hereby make the following
representations and warranties to Solsource and the Solsource Shareholders.
(a) CORPORATE EXISTENCE AND POWER. Acquiror is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, and the Sub is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware. Each of
Acquiror and the Sub has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted, except where the failure to have any of the foregoing would not have
a Material Adverse Effect. Each of Acquiror and the Sub is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except for those jurisdictions
where the failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect. Acquiror owns all of the issued and
outstanding shares of capital stock of the Sub, and there are no other rights or
obligations of Acquiror or the Sub to issue any other shares of capital stock of
the Sub. The Sub has conducted no business activity other than in connection
with the transactions contemplated by this Agreement. True,
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complete and correct copies of the Articles of Incorporation and Bylaws of
Acquiror as amended to date are attached hereto as Schedule 4.2(a) and are made
a part hereof.
(b) DUE AUTHORIZATION. This Agreement, and as of the Closing the
other agreements described herein to which Acquiror is a party, has been, or as
of the Closing will be, duly authorized, executed and delivered by Acquiror and
the Sub and constitutes, or as of the Closing will constitute, a valid and
binding agreement of Acquiror and the Sub, enforceable in accordance with its
terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, moratorium, and other similar laws relating to, limiting or
affecting the enforcement of creditors rights generally or by the application of
equitable principles. As of the Closing all corporate action on the part of
Acquiror and the Sub required under applicable law in order to consummate the
Merger will have occurred.
(c) NO CONTRAVENTION. The execution and delivery of the
Agreement does not, and the consummation of the transactions contemplated
thereby will not (i) conflict with or result in any violation of any provision
of the Articles of Incorporation or Bylaws of Acquiror or Sub or (ii) conflict
with or result in any violation or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of an right or obligation or to loss or a benefit under, any
provision of the charter or Bylaws of Acquiror or the Sub or any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Acquiror or its
properties or assets. or result in the creation or imposition of any Encumbrance
on any asset of Acquiror, except, only as to clause (ii) above, such as is not
reasonably likely to have a Material Adverse Effect or prevent Acquiror or Sub
from consummating the transactions contemplated by this Agreement. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, is required by or with
respect to Acquiror or the Sub in connection with the execution and delivery of
this Agreement by either of them or the consummation by either of them of the
transactions contemplated hereby, except the filing of the Certificate of Merger
with the Secretary of the State of Delaware.
(d) CAPITALIZATION.
(i) As of the date hereof, the outstanding capital stock of
the Acquiror consists solely of shares of: (A) 5,420,000 shares of common stock,
par value $.01 per share ("Acquiror Common Stock"); (B) 50 shares of Series B
$3.00 Convertible Preferred Stock; (C) 122 shares of Series A $3.00 Convertible
Preferred Stock; and (D) Options to purchase 1,300,000 shares of Acquiror Common
Stock. All outstanding shares of capital stock of Acquiror have been duly
authorized and validly issued and are fully paid and nonassessable and free of
preemptive rights, and upon the issuance of the shares of Acquiror Common Stock
to be issued in the Merger, such shares will be duly authorized, validly issued,
fully paid and nonassessable shares of Acquiror Common Stock.
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(ii) Acquiror has a sufficient number of its authorized but
unissued shares of Acquiror Common Stock to permit it to issue the number of
shares of Acquiror Common Stock due in connection with the Merger and the
related transactions, assuming trading prices of Acquiror's Common Stock remain
at current levels as well as all of Acquiror's other obligations to issue shares
of Acquiror Common Stock upon exercise of any option, warrant or other right to
acquire the same, based upon the same assumption.
(e) SEC FILINGS. As of the Closing, Acquiror shall have filed
all of its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and, to
the knowledge of Acquiror, Current Reports on Form 8-K required pursuant to the
Securities Exchange Act of 1934. The documents referred to in the preceding
sentence shall hereafter be referred to as the "SEC Documents". Upon request
Acquiror will make available to Solsource and the Solsource Shareholders the SEC
Documents.
(f) INVESTMENT BANKING FEES. There is no investment banker,
broker, finder or other similar intermediary which has been retained by, or is
authorized by, either Acquiror or the Sub to act on its behalf who might be
entitled to any fee or commission from Solsource, the Solsource Shareholders,
Acquiror or the Sub or any of their respective affiliates upon consummation of
the transactions contemplated by this Agreement.
(g) STATEMENTS AND OTHER DOCUMENTS NOT MISLEADING. Neither this
Agreement, including all exhibits and schedules and other closing documents, nor
any other financial statement, document or other instrument heretofore or
hereafter furnished by Acquiror or Sub to Solsource and the Solsource
Shareholders in connection with the Merger or the other transactions
contemplated hereby, or any information furnished by Acquiror and Sub taken as a
whole contains or will contain any untrue statement of any material fact or omit
or will omit to state any material fact required to be stated in order to make
such statement, information, document or other instruments, in light of the
circumstances in which they are made, not misleading. There is no fact known to
Acquiror and Sub taken as a whole which may have a Material Adverse Effect on
the business, prospects, financial condition or results of operations of
Acquiror and Sub taken as a whole or of any of its properties or assets which
has not been set forth in this Agreement as an exhibit or schedule hereto.
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ARTICLE V
AGREEMENTS OF THE PARTIES
5.1 ACCESS TO INFORMATION.
At all times prior to the Closing or the earlier termination of this
Agreement in accordance with the provisions of Section 8, and in each case
subject to Section 5.2 below, each of the parties hereto shall provide to the
other parties (and the other parties' authorized representatives) full access
during normal business hours and upon reasonable prior notice to the premises,
properties, books, records, assets, liabilities, operations, contracts,
personnel, financial information and other data and information of or relating
to such party (including without limitation all written proprietary and trade
secret information and documents, and other written information and documents
relating to intellectual property rights and matters), and will cooperate with
the other party in conducting its due diligence investigation of such party.
5.2 CONFIDENTIALITY; NO SOLICITATION.
(a) CONFIDENTIALITY OF SOLSOURCE-RELATED INFORMATION. With respect
to information concerning Solsource that is made available to Acquiror pursuant
to the terms of this Agreement, Acquiror agrees that it shall hold such
information in strict confidence, shall not use such information except for the
sole purpose of evaluating the Merger and related transactions and shall not
disseminate or disclose any of such information other than to its directors,
officers, employees, shareholders, affiliates, agents and representatives who
need to know such information for the sole purpose of evaluating the Merger and
the related transactions (each of whom shall be informed in writing by Acquiror
of the confidential nature of such information and directed by Acquiror in
writing to treat such information confidentially). If this Agreement is
terminated pursuant to the provisions of Section 7, Acquiror shall immediately
return all such information, all copies thereof and all information prepared by
Acquiror based upon the same; provided, however, that one copy of all such
material may be retained by Acquiror's outside legal counsel for purposes only
of resolving any disputes under this Agreement. The above limitations on use,
dissemination and disclosure shall not apply to information that (i) is learned
by Acquiror from a third party entitled to disclose it; (ii) becomes known
publicly other than through Acquiror or any party who received the same through
Acquiror, provided that Acquiror has no knowledge that the disclosing party was
subject to an obligation of confidentiality; (iii) is required by law or court
order to be disclosed by Acquiror; or (iv) is disclosed with the express prior
written consent thereto of Solsource and the Solsource Shareholders. Acquiror
shall undertake all necessary steps to ensure that the secrecy and
confidentiality of such information will be maintained in accordance with the
provisions of this paragraph (a). Notwithstanding anything contained herein to
the contrary, in the event a party is required by court order or subpoena to
disclose information which is otherwise deemed to be confidential or subject to
the confidentiality obligations hereunder, prior to such disclosure, the
disclosing party shall: (i) promptly notify the non-disclosing party and, if
having received a court order or subpoena,
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deliver a copy of the same to the non-disclosing party; (ii) cooperate with the
non-disclosing party, at the expense of the non-disclosing party in, obtaining a
protective or similar order with respect to such information; and (iii) provide
only such of the confidential information as the disclosing party is advised by
its counsel is necessary to strictly comply with such court order or subpoena.
(b) CONFIDENTIALITY OF ACQUIROR-RELATED INFORMATION. With
respect to information concerning Acquiror that is made available to Solsource
and the Solsource Shareholders pursuant to the provisions of this Agreement,
Solsource and the Solsource Shareholders agree that they shall hold such
information in strict confidence, shall not use such information except for the
sole purpose of evaluating the Merger and the related transactions, and shall
not disseminate or disclose any of such information other than to their
directors, officers, employees, shareholders, affiliates, agents and
representatives who need to know such information for the sole purpose of
evaluating the Merger and the related transactions (each of whom shall be
informed in writing by Solsource or the Solsource Shareholders of the
confidential nature of such information and directed by such party in writing to
treat such information confidentially). If this Agreement is terminated pursuant
to the provisions of Section 8, Solsource and the Solsource Shareholders agree
to return immediately all such information, all copies thereof and all
information prepared by either of them based upon the same; provided, however,
that one copy of all such material may be retained by Solsource's outside legal
counsel for purposes only of resolving any disputes under this Agreement. The
above limitations on use, dissemination and disclosure shall not apply to
information that (i) is learned by Solsource or the Solsource Shareholders from
a third party entitled to disclose it; (ii) becomes known publicly other than
through Solsource, the Solsource Shareholders or any party who received the same
through Solsource or the Solsource Shareholders, provided that Solsource or the
Solsource Shareholders have no knowledge that the disclosing party was subject
to an obligation of confidentiality; (iii) is required by law or court order to
be disclosed by Solsource; or (iv) is disclosed with the express prior written
consent thereto of Acquiror. Solsource or the Solsource Shareholders agree to
undertake all necessary steps to ensure that the secrecy and confidentiality of
such information will be maintained in accordance with the provisions of this
paragraph (b). Notwithstanding any thing contained herein to the contrary, in
the event a party is required by court order or subpoena to disclose information
which is otherwise deemed to be confidential or subject to the confidentiality
obligations hereunder, prior to such disclosure, the disclosing party shall: (i)
promptly notify the non-disclosing party and, if having received a court order
or subpoena, deliver a copy of the same to the non-disclosing party; (ii)
cooperate with the non-disclosing party at the expense of the non-disclosing
party in obtaining a protective or similar order with respect to such
information; and (iii) provide only such of the confidential information as the
disclosing party is advised by its counsel is necessary to strictly comply with
such court order or subpoena.
(c) NONDISCLOSURE. Neither Solsource, the Solsource
Shareholders, the Sub or Acquiror shall disclose to the public or to any third
party the existence of this Agreement or the transactions contemplated hereby or
any other material non-public information concerning or relating to the other
party hereto, other than with the express prior written consent of the other
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party hereto, except as may be required by law or court order or to enforce the
rights of such disclosing party under this Agreement, in which event the
contents of any proposed disclosure shall be discussed with the other party
before release; provided, however, that notwithstanding anything to the contrary
contained in this Agreement, any party hereto may disclose this Agreement to any
of its directors, officers, employees, shareholders, affiliates, agents and
representative who need to know such information for the sole purpose of
evaluating the Merger, and to any party whose consent is required in connection
with the Merger or this Agreement. The parties anticipate issuing a mutually
acceptable, joint press release announcing the execution of this Agreement and
the consummation of the Merger.
(d) NO SOLICITATION. In consideration of the substantial
expenditure of time, effort and money to be undertaken by Acquiror in connection
with the transactions contemplated by this Agreement, the Solsource
Shareholders, Solsource or any affiliate thereof will not, prior to the earlier
of the Closing, or sixty (60) days after the termination of this Agreement,
directly or indirectly, through any officer, director, agent or otherwise: (i)
solicit, initiate or encourage the submission of inquiries, proposals or offers
from any person or entity relating to any acquisition or purchase of assets of
or any equity interest in Solsource or any affiliate thereof or any tender offer
(including a self-tender offer), exchange offer, merger, consolidation, business
combination, sale of a substantial amount of assets or sale of securities,
liquidation, dissolution or similar transaction involving Solsource or its
affiliates (a "Transaction Proposal"); (b) enter into or participate in any
discussions or negotiations regarding a Transaction Proposal, or furnish to any
other person or entity any information with respect to the business, properties
or assets of Solsource or its affiliates in connection with a Transaction
Proposal; or (c) otherwise cooperate in any way with, or assist or participate
in, facilitate or encourage any effort or attempt by any other person to do or
seek a Transaction Proposal. Solsource or the Solsource Shareholders shall
promptly notify Acquiror if any such proposal or offer, or any inquiry or
contact with any person or entity with respect thereto is made.
5.3 INTERIM OPERATIONS.
During the period from the date of this Agreement and continuing
until the Closing:
(a) INTERIM OPERATIONS OF SOLSOURCE. Solsource agrees (except as
expressly contemplated by this Agreement, including any Exhibits and Schedules
hereto, or to the extent that Acquiror shall otherwise consent in writing) that
as to Solsource:
(i) Ordinary Course. Solsource shall carry on its business
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such business, use all
reasonable efforts to preserve intact its present business organization, keep
available the services of its present officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it;
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(ii) Dividends; Changes in Stock. Solsource shall not and
shall not propose to (a) declare, set aside or pay any dividend, on, or make
other distributions in respect of, any of its capital stock, (b) split, combine
or reclassify any of its capital stock or issue, authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock (c) redeem, repurchase or otherwise acquire any
shares of its capital stock or (d) otherwise change its capitalization.
(iii) Issuance of Securities. Except as contemplated by this
Agreement, Solsource shall not sell, issue, pledge, authorize or propose the
sale or issuance of, pledge or purchase or propose the purchase of, any shares
of its capital stock of any class or securities convertible into, or rights,
warrants or options to acquire, any such shares or other convertible securities.
(iv) Governing Documents. Solsource shall not amend its
certificate of incorporation or its Bylaws.
(v) No Dispositions. Solsource shall not sell, lease,
pledge, encumber or otherwise dispose of or agree to sell, lease, pledge,
encumber or otherwise dispose of, any of its assets that are material or any
other assets except in the ordinary course of business consistent with prior
practice and in no event amounting in the aggregate to more than $25,000.
(vi) Indebtedness. Solsource shall not incur any
indebtedness for borrowed money or guarantee any such indebtedness or issue or
sell any debt securities of Solsource or guarantee any debt securities of others
other than in the ordinary course of business consistent with prior practice and
in no event amounting in the aggregate to more than $25,000.
(vii) Benefit Plans; Etc. Solsource shall not adopt or amend
in any material respect any collective bargaining agreement or Employee Benefit
Plan (as defined herein).
(viii) Executive Compensation. Solsource shall not grant to
any executive officer any increase in compensation or in severance or
termination pay, or enter into any employment agreement with any executive
officer.
(ix) Acquisitions. Solsource shall not acquire (by merger,
consolidation or acquisition of stock or assets or otherwise) any corporation,
partnership or other business organization or subdivision thereof, or make any
investment by either purchase of stock or securities, contributions to capital ,
property transfer or, except in the ordinary course of business, purchase of any
property or assets, of any other individual or entity.
(x) Tax Elections. Solsource shall not make any material tax
election or settle or compromise any material federal, state, local or foreign
tax liability.
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(xi) Waivers and Releases. Solsource shall not waive,
release, grant or transfer any rights of material value or modify or change in
any material respect any Corporation Agreement other than in the ordinary course
of business and consistent with past practice.
(xii) Other Actions. Solsource shall not enter into any
agreement or arrangement to do any of the foregoing. Solsource shall not take
any action, or fail to take any action, that is reasonably likely to result in
any of the representations and warranties of Solsource set forth in this
Agreement becoming untrue in any material respect.
(b) INTERIM OPERATIONS OF ACQUIROR AND SUB. Acquiror and Sub
jointly and severally agree (except as expressly contemplated by this Agreement,
including any Exhibits and Schedules hereto, or to the extent that Solsource and
the Solsource Shareholders shall otherwise consent in writing or to the extent
required to permit Acquiror to meet its obligations under Section 5) that:
(i) Ordinary Course. Acquiror shall carry on its business in
the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such business, use all
reasonable efforts to preserve intact its present business organization
(provided that such obligation shall not relate to the officers and employees of
Acquiror or any of its subsidiaries including the Sub) and preserve its
relationships with customers, suppliers and others having business dealings with
it. The Sub shall conduct no business activity other than in connection with the
transactions contemplated by this Agreement in connection with the Merger.
(ii) Potential Acquisitions and Issuance of Securities. As
part of its overall business strategy, Acquiror is presently in negotiations
with other companies that may be suitable acquisition targets. Acquiror may,
therefore, make one or more acquisitions prior to the Closing, and in connection
therewith, may be caused to issue additional securities, of whatever nature and
number, in connection with such acquisitions. In addition, Acquiror may also be
caused to issue additional securities, of whatever nature and number, in
connection with certain private placement transactions which may be undertaken
between the date hereof and the Closing.
(iii) Dividends; Changes in Stock. Neither Acquiror nor the
Sub shall (and shall not propose to) (a) declare or pay any dividend, on, or
make other distributions in respect of, any of its capital stock, (b) split,
combine or reclassify any of its capital stock or issue, authorize or propose
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, (c) repurchase or otherwise
acquire any shares of its capital stock or (d) otherwise change its
capitalization.
(iv) No Dispositions. Acquiror shall not sell, lease,
pledge, encumber or otherwise dispose of, or agree to sell, lease, pledge,
encumber or otherwise dispose of, any of
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its assets that are material, or any other assets except in the ordinary course
of business consistent with prior practice.
(v) Benefit Plans, Etc. Neither Acquiror nor the Sub shall
adopt or amend in any material respect any collective bargaining agreement or
Employee Benefit Plan (as defined herein).
(vi) Other Actions. Neither Acquiror nor the Sub shall enter
into any agreement or arrangement to do any of the foregoing. Neither Acquiror
nor the Sub shall take any action, or fail to take any action, that is
reasonably likely to result in any of their representations and warranties set
forth in this Agreement becoming untrue in any material respect.
5.4 CONSENTS.
Acquiror, Sub, Solsource and the Solsource Shareholders shall
cooperate and use their best efforts to obtain, prior to the Closing, all
licenses, permits, consents, approvals, authorizations, qualifications and
orders of governmental authorities and parties to contracts as are necessary for
the consummation of the transactions contemplated by this Agreement; provided,
however, that no loan agreement or contract for borrowed monies shall be repaid
and no contract shall be amended materially to increase the amount payable
thereunder or otherwise to be materially more burdensome in order to obtain any
such consent, approval or authorization without first obtaining the written
approval of the other parties hereto.
5.5 FILINGS.
Acquiror, the Sub, Solsource and the Solsource Shareholders shall,
as promptly as practicable, make any required filing, and any other required
submissions, under any law, statute, order rule or regulation with respect to
the Merger and the related transactions and shall cooperate with each other with
respect to the foregoing. After the Closing, Acquiror shall timely file a
current report on Form 8-K relating to the Merger and the transactions
contemplated hereby.
5.6 ALL REASONABLE EFFORTS.
Subject to the terms and conditions of this Agreement and to the
fiduciary duties and obligations of the boards of directors of the parties
hereto to their respective shareholders, as advised by their counsel, each of
the parties to this Agreement shall use all reasonable efforts to take, or cause
to be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations, or to remove any
injunctions or other impediments or delays, legal or otherwise, as soon as
reasonable practicable, to consummate the Merger and the other transactions
contemplated by this Agreement.
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5.7 PUBLIC ANNOUNCEMENTS.
Acquiror, the Sub, Solsource and the Solsource Shareholders shall
consult with each other before issuing any press release or otherwise making any
public statements with respect to the Merger, this Agreement or the other
transactions contemplated by this Agreement and shall not issue any other press
release or make any other public statement without prior consultation with the
other parties, except as may be required by law or, with respect to Acquiror, by
obligations pursuant to any listing agreement with an national securities
exchange.
5.8 NOTIFICATION OF CERTAIN MATTERS.
Solsource and the Solsource Shareholders shall give prompt notice to
Acquiror, and Acquiror and the Sub shall give prompt notice to Solsource and the
Solsource Shareholders, of (a) the occurrence or non-occurrence of any event,
the occurrence or non-occurrence of which would cause any of its representations
or warranties in this Agreement to be untrue or inaccurate in any material
respect, as to Solsource and the Solsource Shareholders, at or prior to the
Closing, and, as to Acquiror and Sub, as of the Closing and (b) any material
failure of Solsource and the Solsource Shareholders, on the one hand, or
Acquiror or the Sub, on the other hand, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
them under this Agreement; provided, however, the delivery of any notice
pursuant to this Section shall not limit or otherwise affect the remedies
available to the party receiving such notice under this Agreement as expressly
provided in this Agreement.
5.9 EXPENSES.
All costs and expenses incurred in connection with the Agreement and
the transactions contemplated hereby shall be paid by the party incurring such
expenses whether or not the Merger is consummated, provided that, the costs and
expenses of Solsource incurred in connection with the contemplated transactions
shall be borne by the Solsource Shareholders.
5.10 FINANCIAL STATEMENTS.
(a) Within seventy-five (75) days of the Closing, the Surviving
Corporation shall cause to be prepared an audit of the Financial Statements of
Solsource (the "Audited Financial Statements"). The Audited Financial Statements
shall not reflect any material adverse changes from the Financial Statements or
reflect any material contractions in the operations of the business. If the
Stockholders Deficit reflected on the Audited Financial Statements exceeds the
amount reflected on the Financial Statements by more than five (5%) percent,
then the entire amount of the difference between the Stockholders Deficit
reflected on the Audited Financial Statement and the amount reflected on the
Financial Statements (the "Deficiency") shall be applied against, on a dollar
for dollar basis:
(i) first, the Escrow Cash;
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(ii) second, the principal amount of the Vahalla Note (as
hereafter defined); and
(iii) third, the Escrow Shares.
(b) The cost of the Audited Financial Statements shall be borne
by the Acquiror. The Solsource Shareholders shall take all reasonable actions
and provide whatever cooperation is necessary to facilitate the prompt
preparation of the Audited Financial Statements.
5.11 OPTIONS OF ACQUIROR.
(a) Solsource acknowledges that identified on Schedule 4.1(d) are
all of the holders of outstanding options (the "Solsource Options") of
Solsource, and that between the date hereof and the Closing hereunder, Solsource
will take whatever reasonable actions as are necessary to satisfy the "Condition
to Acquiror's and Sub's Obligations" under subparagraph 6.2(h) hereafter.
(b) During the eighteen (18) month period subsequent to the
Closing, Acquiror shall make available for distribution to key employees of
Acquiror (other than Mr. Vahalla), options to purchase 100,000 shares of
Acquiror Common Stock pursuant to the terms of any stock option plans adopted by
Acquiror and made available generally to employees. The options will be granted
by the Board of Directors of Acquiror upon the recommendation of Mr. Valhalla.
5.12 DOCUMENTS AT CLOSING.
Each party to this Agreement agrees to execute and deliver at the
Closing those documents identified in Section 2.2.
5.13 REPAYMENT OF LOANS.
With respect to certain outstanding indebtedness of Solsource,
subject to other applicable provisions contained within this Agreement, Acquiror
agrees to satisfy in full, within the period ending six months from the Closing,
the indebtedness owed to Mr. Daniel Vahalla, exclusive of any accrued interest,
as evidenced by the promissory note (the "Vahalla Note") attached hereto as
Schedule 5.13, which amount does not exceed $47,700.
5.14 PROHIBITION ON TRADING IN ACQUIROR STOCK.
Solsource and the Solsource Shareholders acknowledge that the United
States Securities Laws prohibit any person who has received material non-public
information concerning the matters which are the subject matter of this
Agreement from purchasing or selling
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the securities of the Acquiror, or from communicating such information to any
person under circumstances in which it is reasonably foreseeable that such
person is likely to purchase or sell securities of the Acquiror. Accordingly,
the Solsource Shareholders agree that they will not purchase or sell any
securities of the Acquiror, or communicate such information to any other person
under circumstances in which it is reasonably foreseeable that such person is
likely to purchase or sell securities of the Acquiror, until no earlier than 72
hours following the dissemination of a Current Report on Form 8-K to the SEC
announcing the Closing pursuant to this Agreement provided that the Form 8-K is
timely filed.
5.15 RESERVATION OF SHARES.
As of the Closing, Acquiror shall have authorized and reserved for
issuance sufficient shares of Common Stock to permit the issuance of the shares
of Acquiror Common Stock due in connection with the Merger and the related
transactions, as well as all of Acquiror's other obligations to issue shares of
Acquiror Common Stock upon exercise of any option, warrant or other right to
acquire same; provided, however, such shares shall be set aside based upon
trading prices at prevailing levels.
5.16 EMPLOYMENT AGREEMENT.
After the execution of this Agreement and prior to the Closing, the
Acquiror and Mr. Valhalla shall use all reasonable efforts to negotiate and
agree upon the form of the Employment Agreement, which shall be upon
substantially the terms and conditions described in the Letter of Intent and
such other terms as the parties thereto shall mutually agree.
5.17 ACKNOWLEDGMENT OF APPROVALS.
By virtue of their respective signatures to this Agreement,
Acquiror, Sub, Solsource and the Solsource Shareholders acknowledge their
approval of this Agreement and their consent to the consummation of the
transactions identified herein.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF SOLSOURCE AND THE SOLSOURCE
SHAREHOLDERS.
The obligations of Solsource and the Solsource Shareholders to
consummate the Merger and the other transactions contemplated to be consummated
by it at the Closing are subject to the satisfaction (or waiver by Solsource and
the Solsource Shareholders) at or prior to
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the Closing (or at such other time prior thereto as may be expressly provided in
this Agreement) of each of the following conditions:
(a) The representations and warranties of Acquiror and the Sub set
out in this Agreement shall be true and correct in all material respects at and
as of the time of the Closing as though such representations and warranties were
made at and as of such time.
(b) Each of Acquiror and the Sub shall have complied in a timely
manner and in all material respects with the respective covenants and agreements
set out in this Agreement.
(c) The Merger shall have been approved by Acquiror and Sub in
accordance with the provisions of the DGCL. The Board of Directors of Acquiror
and the Board of Directors of Sub and Acquiror, as sole shareholder of Sub,
shall have approved the execution of this Agreement and the Merger thereby.
(d) Acquiror shall enter into an Employment Agreement with Daniel
Vahalla on mutually acceptable terms and conditions.
(e) Acquiror shall enter into a Registration Rights Agreement the
form of which is attached hereto as Exhibit B.
(f) There shall be delivered to Solsource and the Solsource
Shareholders an officer's certificate of Acquiror and Sub to the effect that all
of the representations and warranties of Acquiror and Sub set forth herein are
true and complete in all material respects as of the Closing, and the Acquiror
and Sub have complied in all material respects with their covenants and
agreements set forth herein that are required to be complied with by the
Closing.
(g) All director, shareholder, lender, lessor and other parties'
consents and approvals, as well as all filings with, and all necessary consents
or approvals of, all federal, state and local governmental authorities and
agencies, as are required under this Agreement, applicable law or any applicable
contract or agreement (other than as contemplated by this Agreement) to complete
the Merger shall have been secured.
(h) No statute, rule, regulation, executive order, decree,
injunction or restraining order shall have been enacted, entered, promulgated or
enforced by any court of competent jurisdiction or governmental authority that
prohibits or restricts the consummation of the Merger or the related
transactions.
(i) Acquiror shall, at its sole discretion, assume or refinance, on
repayment terms satisfactory to Acquiror, the indebtedness which is due and
owing under loans from the Small Business Administration ("SBA Loans"), which,
in the aggregate shall not exceed the lesser of (i) the amount outstanding as of
January 31, 1998 or (ii) $300,000. In the event
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Acquiror elects to refinance the SBA Loans, Acquiror shall use its best efforts
to remove Mr. Daniel Vahalla as guarantor to the SBA Loans.
(j) Acquiror shall satisfy the amount outstanding under a line of
credit identified as the WCMA Account (the "WCMA Account"), in the outstanding
amount up to the lesser of (i) the amount outstanding as of January 31, 1998 or
(ii) $300,000.
(k) Solsource Shareholder shall have received an opinion of counsel
issued by counsel to Acquiror in satisfactory form and content.
6.2 CONDITIONS TO ACQUIROR'S AND THE SUB'S OBLIGATIONS.
The obligations of Acquiror and the Sub to consummate the Merger and
the other transactions contemplated to be consummated by it at the Closing are
subject to the satisfaction (or waiver by Acquiror) at or prior to the Closing
(or at such other time prior thereto as may be expressly provided in this
Agreement) of each of the following conditions:
(a) The Solsource Shareholders shall not have filed with Solsource,
prior to the Solsource shareholder meeting at which a vote is to be taken with
respect to a proposal to approve this Agreement, a written objection to such
proposed action, as required by Section 1301 of the CGCL in order for such
shareholder to perfect the right to dissent from such proposed action.
(b) The representations and warranties of Solsource and the
Solsource Shareholders set out in this Agreement shall be true and correct in
all material respects at and as of the time of the Closing as though such
representations and warranties were made at and as of such time.
(c) Solsource and the Solsource Shareholders shall have complied in
a timely manner and in all material respects with its covenants and agreements
set out in this Agreement.
(d) There shall be delivered to Acquiror and Sub an officer's
certificate of Solsource to the effect that all of the representations and
warranties of Solsource set forth herein are true and complete in all material
respects as of the Closing, and that Solsource has complied in all material
respects with covenants and agreements set forth herein required to be complied
with by the Closing; and there shall be delivered to Acquiror and Sub a
certificate signed by the Principal Shareholder to the effect that the
representations and warranties of the Principal Shareholder set forth herein are
true and correct in all material respects and that the Principal Shareholder has
complied in all material respects with its covenants and agreements set forth
herein required to be complied with by Closing.
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(e) Mr. Daniel Vahalla shall have entered into an Employment
Agreement with Acquiror on mutually acceptable terms and conditions.
(f) The Solsource Shareholders shall have entered into a
Registration Rights Agreements, the form of which is attached hereto as Exhibit
B.
(g) The Principal Shareholder shall have entered into an Escrow
Agreement, the form of which is attached hereto as Exhibit C.
(h) Solsource and the Solsource Shareholders shall deliver
documentation in form and substance satisfactory to Acquiror that all of the
holders of Solsource Options identified on Schedule 4.1(d) have either: (i)
terminated the Solsource Options; or (ii) otherwise released Solsource from any
obligations arising under such Solsource Options; or in the alternative, the
Principal Shareholder shall place an amount of shares necessary to satisfy such
options in escrow pursuant to the Escrow Agreement.
(i) All director, shareholder, lender, lessor and other parties'
consents and approvals, as well as all filings with, and all necessary consents
or approvals of, all federal, state and local governmental authorities and
agencies, as are required under this Agreement, applicable law or any applicable
contract or agreement (other than as contemplated by this Agreement) to complete
the Merger shall have been secured.
(j) No statute, rule, regulation, executive order, decree,
injunction or restraining order shall have been enacted, entered, promulgated or
enforced by any court of competent jurisdiction or governmental authority that
prohibits or restricts the consummation of the Merger or the related
transactions.
(k) The Board of Directors of Solsource and Solsource Shareholders
shall have approved the Merger in accordance with the CGCL.
(l) Acquiror, at its sole discretion, shall assume or refinance, on
repayment terms satisfactory to Acquiror, the indebtedness which is due and
owing under the SBA Loans which, in the aggregate, shall not exceed the lesser
of (i) the amount outstanding as of January 31, 1998 or (ii) $300,000. In any
event Acquiror shall use its best efforts to remove Mr. Daniel Vahalla as
guarantor to the SBA Loans
(m) Acquiror shall have received an opinion of counsel issued by
counsel to Solsource and the Solsource Shareholders in satisfactory form and
content.
ARTICLE VII
INDEMNIFICATION
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7.1 INDEMNIFICATION.
(a) Principal Shareholders. The Principal Shareholder shall
indemnify, defend and hold harmless Acquiror from and against any and all
demands, claims, actions or causes of action, judgments, assessments, losses,
liabilities, damages or penalties and reasonable attorneys' fees and related
disbursements (collectively, "Claims") incurred by Acquiror which arise out of
or result from a misrepresentation, breach of warranty, or breach of any
covenant or agreement of Solsource or the Solsource Shareholders contained
herein or in the Schedules annexed hereto or in any deed, exhibit, closing
certificate, schedule or any ancillary certificates or other documents or
instruments furnished by Solsource or the Solsource Shareholder pursuant hereto
or in connection with the transactions contemplated hereby or thereby.
(b) Acquiror and Sub. Acquiror and Sub shall indemnify, defend and
hold harmless Solsource and the Solsource Shareholders from and against any and
all Claims, as defined at subsection 7.1(a) above, incurred by Solsource and/or
the Solsource Shareholders which arise out of or result from a
misrepresentation, breach of warranty or breach of any covenant of Acquiror and
Sub contained herein or in the Schedules annexed hereto or in any deed, exhibit,
closing certificate, schedule or any ancillary certificates or other documents
or instruments furnished by Acquiror or the Sub pursuant hereto or in connection
with the transactions contemplated hereby or thereby.
(c) Survival. All representations and warranties contained in or
made pursuant to this Agreement or in any agreement, certificate, document or
statement delivered pursuant hereto shall survive the Closing for a period of
two (2) years from the Closing Date, unless otherwise specified in such
agreement, certificate or document; provided, however, that notwithstanding the
foregoing, (i) the representations and warranties set forth in Section 4.1(v)
(relating to environmental matters), Section 4.1(e) (relating to the Financial
Statements), Section 4.1(g) (relating to contingent liabilities) and Section
4.1(i) (relating to taxes) and all covenants and agreements of the parties
relating to the subject matter(s) thereof shall survive the Closing forever.
(d) Methods of Asserting Claims for Indemnification. All
claims for indemnification under this Agreement shall be asserted as follows:
(i) Third Party Claims. In the event that any Claim for which
a party (the "Indemnitee") would be entitled to indemnification under this
Agreement is asserted against or sought to be collected from the Indemnitee by a
third party the Indemnitee shall promptly notify the other party (the
"Indemnitor") of such Claim, specifying the nature thereof, the applicable
provision in this Agreement or other instrument under which the Claim arises,
and the amount or the estimated amount thereof (the "Claim Notice"). The
Indemnitor shall have thirty (30) days (or, if shorter, a period to a date not
less than ten (10) days prior to when a responsive pleading or other document is
required to be filed but in no event less than ten (10) days from delivery or
mailing of the Claim Notice) (the "Notice Period") to notify the Indemnitee (a)
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whether or not it disputes the Claim and (b) if liability hereunder is not
disputed, whether or not it desires to defend the Indemnitee. If the Indemnitor
elects to defend by appropriate proceedings, such proceedings shall be promptly
settled or prosecuted to a final conclusion in such a manner as to avoid any
risk of damage to the Indemnitee; and all costs and expenses of such proceedings
and the amount of any judgment shall be paid by the Indemnitor.
If the Indemnitee desires to participate in, but not control, any
such defense or settlement, it may do so at its sole cost and expense. If the
Indemnitor has disputed the Claim, as provided above, and shall not defend such
Claim, the Indemnitee shall have the right to control the defense or settlement
of such Claim, in its sole discretion, and shall be reimbursed by the Indemnitor
for its reasonable costs and expenses of such defense. Neither Indemnitee nor
Indemnitor shall be liable for any settlement of any Claim without the prior
written consent of the other party.
(ii) Non-Third Party Claims. In the event that the Indemnitee
should have a Claim for indemnification hereunder which does not involve a Claim
being asserted against it or sought to be collected by a third party, the
Indemnitee shall promptly send a Claim Notice with respect to such Claim to the
Indemnitor. If the Indemnitor does not notify the Indemnitee within the Notice
Period that it disputes such Claim, the Indemnitor shall pay the amount thereof
to the Indemnitee. If the Indemnitor disputes the amount of such Claim, the
controversy in question shall be submitted to arbitration pursuant to Section
9.8 hereafter.
(iii) Right of Set-Off. Subject to the terms of the Escrow
Agreement, in the event a Claim arises pursuant to subparagraph 7.1(a), in
addition to any of its other rights under this paragraph 7, Acquiror shall have
the right to apply the amount of the Claim against the amounts identified at
subparagraph 1.4(b); provided, however, that this subparagraph shall not be the
exclusive remedy of Acquiror in the event a Claim arises pursuant to
subparagraph 7.1(a).
(iv) Limitations on Amount. The Principal Shareholder's
liability with respect to matters set forth in subsection 7.1(a) above for
damages shall be limited to the amount of the aggregate Merger Consideration
paid or payable to the Solsource Shareholders in connection with the acquisition
of Solsource. The liability of Acquiror and Sub with respect to matters set
forth in subsection 7.1(b) shall also be limited to the amount of the Merger
Consideration paid or payable to the Solsource Shareholders. However, this
subsection 7.1(d)(iv) shall not apply to any breach of any of the parties
representations and warranties of which the breaching party had knowledge at any
time prior to the date on which such representation and warranty is made or any
intentional breach by a party of any covenant or obligation.
ARTICLE VIII
TERMINATION
8.1 TERMINATION.
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This Agreement may be terminated and the Merger may be abandoned at
any time prior to or at the Closing:
(a) by mutual written consent of the board of directors of
Acquiror, the Sub, Solsource and the Solsource Shareholders;
(b) by any of Acquiror, the Sub, Solsource or the Solsource
Shareholders;
(i) if the Closing shall not have occurred on or before March
18, 1998, unless otherwise extended in writing by all of the parties hereto;
provided, however, that the right to terminate this Agreement under this Section
8.1(b)(i) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before that date; or
(ii) if any court of competent jurisdiction, or any
governmental body, regulatory or administrative agency or commission having
appropriate jurisdiction shall have issued an order, decree or filing or taken
any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and non-appealable.
(c) by Solsource and the Solsource Shareholders if any of the
conditions specified in Section 6.1 have not been met or if satisfaction of such
a condition is or becomes impossible (other than through the failure of
Solsource or the Solsource Shareholders to comply with their respective
obligations under this Agreement) and Solsource and the Solsource Shareholders
have not waived such conditions on or before the Closing; or
(d) by Acquiror and Sub if any of the conditions specified in
Section 6.2 have not been met or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Acquiror or Sub to comply
with their respective obligations under this Agreement) and Acquiror and Sub
have not waived such condition on or before the Closing.
8.2 NOTICE AND EFFECT OF TERMINATION.
In the event of the termination and abandonment of this Agreement
pursuant to Section 8.1, written notice thereof shall forthwith be given to the
other party or parties specifying the provision pursuant to which such
termination is made. In the event of termination pursuant to Section 8.1(a),
8.1(b), Section 8.1(c) in respect of the conditions specified in Sections
6.1(h), and (i), or Section 8.1(d) in respect of the conditions specified in
Sections 6.2(i) and (j), upon termination, this Agreement shall forthwith become
void and all obligations of the parties under this Agreement will terminate
without any liability on the part of any party or its directors, officers or
shareholders and none of the parties shall have any claim or action against any
other party, except that the provisions of this Section 8.2 and Section 5.2, 5.7
and 5.9, shall survive any
41
<PAGE> 47
termination of this Agreement. Notwithstanding the foregoing, if the Agreement
is terminated by a party pursuant to Section 8.1(c) in respect of conditions
specified in Sections 6.1 other than Section 6.1(h) and (i) or pursuant to
Section 8.1(d) in respect of the conditions specified in Section 6.2 other than
Section 6.2(i) and (j), the terminating party's right to pursue all legal
remedies will survive such termination unimpaired. Nothing contained in this
Section 8.2 shall relieve any party from any liability for any breach of this
Agreement other than in the event of a termination pursuant to Section 8.1.
8.3 EXTENSION; WAIVER.
Any time prior to the Closing, the parties may (a) extend the time
for the performance of any of the obligations or other acts of any other party
under or relating to this Agreement; (b) waive any inaccuracies in the
representations or warranties by any other party or (c) waive compliance with
any of the agreements of any other party or with any conditions to its own
obligations. Any agreement on the part of any other party to any such extension
or waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
8.4 AMENDMENT AND MODIFICATION.
This Agreement may be amended, whether before or after the vote of
the Solsource Shareholders or shareholders of Acquiror, by written agreement of
Acquiror, the Sub, Solsource and the Solsource Shareholders; provided, however,
that after the approval, if any, of this Agreement by the Solsource
Shareholders, no such amendment shall reduce or change the consideration to be
received by any Solsource Shareholder in connection with the Merger as set out
in Section 1.3 hereof or shall otherwise adversely affect the rights under this
Agreement of the Solsource Shareholders without the approval of such adversely
affected shareholders. This Agreement may not be amended except by an instrument
in writing signed on behalf of Acquiror, the Sub, Solsource and the Solsource
Shareholders.
ARTICLE IX
MISCELLANEOUS
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; REMEDIES.
All representations, warranties, covenants, and obligations in this
Agreement, the schedules and any other certificate or document delivered
pursuant to this Agreement will survive the Closing. The right to
indemnification, payment of damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any Knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the
42
<PAGE> 48
Closing Date, with respect to the accuracy or inaccuracy of or compliance with,
any such representation, warranty, covenant, or obligation. The waiver of any
condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or obligation, will not affect
the right to indemnification, payment of damages, or other remedy based on such
representations, warranties, covenants, and obligations.
The rights and remedies of the parties to this Agreement are
cumulative, not alternative. In addition to their respective rights to damages
or other remedies they may have, and without limitation thereof, Acquiror and
Sub shall have the right to obtain injunctive relief to restrain any breach or
otherwise to specifically enforce the provisions of this Agreement, it being
agreed by the parties that money damages alone would be inadequate to compensate
Acquiror and Sub for such breach or other failure to perform the obligations of
Solsource and the Solsource Shareholders under this Agreement.
9.2 NOTICES.
All notices requests, demands, waivers and other communications
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been duly given on the date if delivered personally, or
upon the second business day after it shall have been deposited by certified or
registered mail with postage prepaid, or sent by telex, telegram or telecopier,
as follows (or at such other address or facsimile number for a party as shall be
specified by like notice):
(a) if to Solsource, to it at: with a copy to:
Solsource Computer, Inc. Michael J. Kinkelaar, Esquire
2075 Corte del Nogal, Suite D Procopio, Cory, Hargreaves &
Carlsbad, CA 92009 Savitch, LLP
Attn: Dan Vahalla 2100 Union Bank Building
Fax: (760) 929-7810 530 B Street, 21st Floor
San Diego, CA 92101-0398
Fax: (619) 235-0398
and
(b) if to Acquiror or the Sub to it at: with a copy to:
43
<PAGE> 49
Pacific Rim Entertainment, Inc Stephen M. Cohen, Esquire
1661 E. Camelback Road Buchanan Ingersoll, P.C.
Suite 245 Eleven Penn Center, 14th Floor
Phoenix, AZ 85016 Philadelphia, PA 19103
Attn: Jack Leadbeater Fax: (215) 665-8760
Fax: (602) 274-1295
9.3 ENTIRE AGREEMENT; ASSIGNMENT.
This Agreement, including all Exhibits and Schedules hereto,
constitutes the entire Agreement among the parties with respect to its subject
matter and supersedes all prior agreements and understandings, both written and
oral, among the parties or any of them with respect to such subject matter and
shall not be assigned by operation of law or otherwise.
9.4 BINDING EFFECT; BENEFIT.
This Agreement shall inure to the benefit of and be binding upon the
parties and their respective successors and assigns. Nothing in this Agreement
is intended to confer on any person other than the parties to this Agreement or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
9.5 HEADINGS.
The descriptive headings of the sections of this Agreement are
inserted for convenience only, do not constitute a part of this Agreement and
shall not affect in any way the meaning or interpretation of this Agreement.
9.6 COUNTERPARTS.
This Agreement may be executed in two or more counterparts and
delivered via facsimile, each of which shall be deemed to be an original, and
all of which together shall be deemed to be one and the same instrument.
9.7 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without regard to the laws that might
otherwise govern under principles of conflicts of laws applicable thereto.
9.8 ARBITRATION.
44
<PAGE> 50
If a dispute arises as to the interpretation of this Agreement, it
shall be decided finally in an arbitration proceeding conforming to the Rules of
the American Arbitration Association applicable to commercial arbitration then
in effect at the time of the dispute. The arbitration shall take place in
Phoenix, Arizona. The decision of the Arbitrators shall be conclusively binding
upon the parties and final, and such decision shall be enforceable as a judgment
in any court of competent jurisdiction. The parties shall share equally the
costs of the arbitration.
9.9 SEVERABILITY.
If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or other authority to be invalid,
void, unenforceable or against its regulatory policy, the remainder of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
9.10 RELEASE AND DISCHARGE.
By virtue of their execution of this Agreement, as of the Closing
and thereafter, the Solsource Shareholders hereby agree to release, remise and
forever discharge Solsource from and against any and all debts, obligations,
liabilities and amounts owing from Solsource to the Solsource Shareholders prior
to the Closing, and Solsource is not obligated to take any action or make any
payments to third parties on behalf of the Solsource Shareholders.
9.11 CERTAIN DEFINITIONS.
As used herein:
(a) "AFFILIATE" shall have the meanings ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended to date (the "Exchange Act");
(b) "BUSINESS DAY" shall mean any day other than a Saturday, Sunday
or a day on which federally chartered financial institutions are not open for
business in the City of Phoenix, Arizona.
(c) "KNOWLEDGE" shall mean the actual current knowledge of the party
, and/or the executive management of the party to this Agreement, as the case
may be, to whom knowledge is ascribed.
45
<PAGE> 51
(d) "MATERIAL ADVERSE EFFECT" shall mean any adverse effect on the
business, condition (financial or otherwise) or results of operation of the
relevant party and its subsidiaries, if any, which is material to such party and
its subsidiaries, if any, taken as a whole;
(e) "PERSON" means any individual, corporation, partnership,
association, trust or other entity or organization, including a governmental or
political subdivision or any agency or institution thereof; and
(f) "SUBSIDIARY" shall mean, when used with reference to an entity,
any corporation, a majority of the outstanding voting securities of which is
owned directly or indirectly, or a majority of the board of directors of which
may be elected, by such entity.
46
<PAGE> 52
IN WITNESS WHEREOF, Acquiror, the Sub, Solsource and the Solsource
Shareholders have caused this Agreement to be signed by their respective
officers hereunto duly authorized, all as of the date first written above.
Attest: PACIFIC RIM ENTERTAINMENT, INC.,
a Delaware corporation
By: David Olson
---------------------------- By: Jack Leadbeater
---------------------------------
Name:
Title: President
Attest: SOLSOURCE ACQUISITION CORP.,
a Delaware corporation.
By: Jack Leadbeater
---------------------------- By: Jack Leadbeater
---------------------------------
Name:
Title: President
Attest: SOLSOURCE COMPUTERS, INC.,
a California corporation
By: Daniel J. Vahalla
---------------------------- By: Daniel J. Vahalla
---------------------------------
Daniel J. Vahalla
President
SOLSOURCE SHAREHOLDERS:
Witness
Daniel J. Vahalla
- ------------------------------------- --------------------------------------
Name: Signature
--------------------------------
Address: Name: The Trust of Daniel J. and Mary G.
-------------------------------- Vahalla
-------------------------------- Address:
------------------------------------
------------------------------------
Percentage of Ownership:
-------------
47
<PAGE> 53
Witness
Gary Gwin
- ------------------------------------- --------------------------------------
Name: Signature
--------------------------------
Address: Name: Gary Gwin
--------------------------------
Address:
-------------------------------- ------------------------------------
------------------------------------
Percentage of Ownership:
-------------
Witness
Maureen Gaare
- ------------------------------------- --------------------------------------
Name: Signature
--------------------------------
Address: Name: Maureen Gaare
--------------------------------
Address:
-------------------------------- ------------------------------------
------------------------------------
Percentage of Ownership:
-------------
Witness
Daniel Grube
- ------------------------------------- --------------------------------------
Name: Signature
--------------------------------
Address: Name: Daniel Grube
--------------------------------
Address:
-------------------------------- ------------------------------------
------------------------------------
Percentage of Ownership:
-------------
48
<PAGE> 1
EXHIBIT 2.5
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PACIFIC RIM ENTERTAINMENT, INC.
JONES ACQUISITION CORP.
H.V. JONES, INC.
AND
HUGH V. JONES
Dated: February 27, 1998
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I: MERGER OF SUB WITH AND INTO HVJ AND RELATED MATTERS.............1
1.1 The Merger.............................................................1
1.2 Conversion of Stock....................................................2
1.3 Merger Consideration...................................................3
1.4 Escrow Agreement.......................................................6
1.5 Additional Rights; Taking of Necessary Action; Further Action..........6
1.6 No Further Rights or Transfers.........................................6
ARTICLE II: THE CLOSING.....................................................7
2.1 Closing Date...........................................................7
2.2 Closing Transactions...................................................7
ARTICLE III: CERTAIN CORPORATE ACTION......................................10
3.1 HVJ Corporate Action..................................................10
3.2 Acquiror Corporate Action.............................................10
ARTICLE IV: REPRESENTATIONS AND WARRANTIES.................................10
4.1 Representations and Warranties of HVJ and the HVJ Shareholder.........10
4.2 Representations and Warranties of Acquiror and the Sub................22
ARTICLE V: AGREEMENTS OF THE PARTIES.......................................24
5.1 Access to Information.................................................24
5.2 Confidentiality; No Solicitation......................................24
5.3 Interim Operations....................................................26
5.4 Consents..............................................................28
5.5 Filings...............................................................29
5.6 All Reasonable Efforts................................................29
i
<PAGE> 3
TABLE OF CONTENTS
5.7 Public Announcements..................................................29
5.8 Notification of Certain Matters.......................................29
5.9 Expenses..............................................................30
5.10 Financial Statements.................................................30
5.11 Documents at Closing.................................................30
5.12 Prohibition on Trading in Acquiror Stock.............................31
5.13 Acknowledgment of Approvals..........................................31
ARTICLE VI: CONDITIONS TO CONSUMMATION OF THE MERGER.......................31
6.1 Conditions to Obligations of HVJ and the HVJ Shareholder..............31
6.2 Conditions to Acquiror's and the Sub's Obligations....................33
ARTICLE VII: INDEMNIFICATION...............................................34
7.1 Indemnification.......................................................34
ARTICLE VIII: TERMINATION..................................................35
8.1 Termination...........................................................35
8.2 Notice and Effect of Termination......................................36
8.3 Extension; Waiver.....................................................37
8.4 Amendment and Modification............................................37
ARTICLE IX: MISCELLANEOUS..................................................37
9.1 Survival of Representations and Warranties; Remedies..................37
9.2 Notices...............................................................38
9.3 Entire Agreement; Assignment..........................................38
9.4 Binding Effect; Benefit...............................................38
9.5 Headings..............................................................39
ii
<PAGE> 4
TABLE OF CONTENTS
9.6 Counterparts..........................................................39
9.7 Governing Law.........................................................39
9.8 Arbitration...........................................................39
9.9 Severability..........................................................39
9.10 Release and Discharge................................................39
9.11 Certain Definitions..................................................40
iii
<PAGE> 5
EXHIBITS AND SCHEDULES
EXHIBITS
1.1(c)(vi) Officers and Directors of Surviving Corporation
1.3(a)(ii) Certificate of Designation
1.4(a) Escrow Agreement
2.2(a)(ii) Investment Letter
2.2(a)(x) Registration Rights Agreement
SCHEDULES
4.1(a) Articles of Incorporation and Bylaws of HVJ and each Subsidiary
4.1(d) Capitalization and Share Ownership
4.1(e) Financial Statements
4.1(f)(i) Location of Leased Property
4.1(f)(ii) Written Notice
4.1(g) No Contingent Liabilities
4.1(h) Litigation
4.1(i) Taxes
4.1(j)(i) Employee Benefit Plan
4.1(j)(ii) Employee Benefit Plan (for which HVJ has obligation to contribute)
4.1(j)(iv) Material Employment Arrangements, Contracts, etc.
4.1(k) Insurance Coverage
4.1(n) Personal Property
4.1(o) Intellectual Property
4.1(s)(i) Labor Relations; Employees
4.1(s)(ii) List of Employees
4.1(s)(v) Strikes, grievance proceedings, arbitrations, etc.
4.1(t) Suppliers and Clients
4.1(u) Conflicting Interests
4.1(w) Absence of Certain Changes or Events
4.1(x) Product Liability and Warranty Claims
4.2(a) Certificate of Incorporation and Bylaws of Acquiror and Sub
iv
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), is made and entered
into as of February 27, 1998, by and among PACIFIC RIM ENTERTAINMENT, INC., a
Delaware corporation ("Acquiror"), Jones Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Acquiror ("Sub"), H.V. Jones, Inc., a
Texas corporation ("HVJ"), and Hugh V. Jones, as the sole shareholder of HVJ
(the "HVJ Shareholder").
RECITALS
WHEREAS, Acquiror and HVJ have determined that it is in the best interests
of their respective shareholders for Sub to merge with and into HVJ upon the
terms and subject to the conditions set forth in this Agreement; and
WHEREAS, the respective Boards of Directors of Acquiror and HVJ have each
approved this Agreement and the consummation of the transactions contemplated
hereby and approved the execution and delivery of this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
representations, warranties and agreements contained herein, and for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
MERGER OF SUB WITH AND INTO HVJ
AND RELATED MATTERS
1.1 THE MERGER.
(a) Upon the terms and conditions of this Agreement, at the
"Effective Time" (as defined herein), the Sub shall be merged with and into HVJ
(the "Merger") in accordance with the provisions of the Delaware General
Corporation Law (the "DGCL") and the Texas Business Corporation Act ("TBCA") and
the separate corporate existence of the Sub shall cease, and HVJ shall continue
as the surviving corporation under the laws of the State of Texas (the
"Surviving Corporation").
(b) The Merger shall become effective as of the filing of a
certificate of merger with the Secretary of State of the State of Delaware and
the filing of articles of merger and receipt of a certificate of merger (the
"Certificate of Merger") with the Secretary of State of the State of Texas, in
accordance with the provisions of Section 252 of the DGCL and Section 5.06 of
the TBCA, and the confirmation by the Certificate of Merger that the Merger is
effective as of such filing date. The date and time when the Merger shall become
effective is referred to herein as the "Effective Time."
(c) At the Effective Time:
(i) HVJ shall continue its existence under the laws of the State
of Texas as the Surviving Corporation;
<PAGE> 7
(ii) the separate corporate existence of the Sub shall
cease;
(iii) all rights, title and interests to all assets, whether
tangible or intangible and any property or property rights owned by the Sub
shall be allocated to and vested in HVJ as the Surviving Corporation without
reversion or impairment, without further act or deed, and without any transfer
or assignment having occurred, but subject to any existing liens or other
encumbrances thereon, and all liabilities and obligations of the Sub shall be
allocated to HVJ as the Surviving Corporation, which shall be the primary
obligor therefor and, except as otherwise provided by law or contract, no other
party to the Merger, other than HVJ as the Surviving Corporation, shall be
liable therefor;
(iv) the Certificate of Incorporation of HVJ as in effect
immediately prior to the consummation of the Merger shall be the Certificate of
Incorporation of the Surviving Corporation;
(v) Each of Acquiror, Sub and HVJ shall execute and deliver,
and file or cause to be filed with the Secretary of State of the State of
Delaware, a certificate of merger and with the Secretary of State of the State
of Texas, the Certificate of Merger, with such amendments thereto as the parties
hereto shall deem mutually acceptable;
(vi) the Bylaws of HVJ as in effect immediately prior to the
consummation of the Merger shall be the Bylaws of the Surviving Corporation, and
shall continue in full force and effect until thereafter amended as provided by
law and such Bylaws; and
(vii) the officers and directors of Sub and HVJ shall resign
upon the Effective Time and the officers and directors of the Surviving
Corporation shall consist of those individuals identified on Exhibit
1.1(c)(vii), and such persons shall serve in such positions for their respective
terms provided by law or in the bylaws of the Surviving Corporation and until
their respective successors are elected and qualified.
1.2 CONVERSION OF STOCK.
(a) At the Effective Time:
(i) the shares representing 100% of the issued and outstanding
common stock of HVJ ("HVJ Common Stock") shall, by virtue of the Merger and
without any action on the part of any holder thereof, be converted into and
represent the right to receive, and shall be exchangeable for the merger
consideration identified at Section 1.3 hereafter (the "Merger Consideration");
(ii) each share of capital stock of HVJ held in treasury as of
the Effective Time shall, by virtue of the Merger, be canceled without payment
of any consideration therefor and without any conversion thereof;
2
<PAGE> 8
(iii) each share of common stock of the Sub that is issued and
outstanding as of the Effective Time shall be converted into and become one
fully paid and non-assessable share of common stock, par value $.01 per share,
of the Surviving Corporation, which shares shall thereafter constitute all of
the issued and outstanding shares of capital stock of the Surviving Corporation;
and
(iv) each share of capital stock of HVJ outstanding as of the
Effective Time, by virtue of the Merger, shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist.
(b) From and after the Effective Time, there shall be no transfers
on the stock transfer books of HVJ of shares of its capital stock (or any
warrants or other rights to acquire any of the same) that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
certificates for shares of HVJ capital stock (or any warrants or other rights to
acquire any of the same) that were outstanding immediately prior to the
Effective Time, they shall be canceled and exchanged for the consideration to be
received therefor in connection with the Merger as provided in this Agreement.
1.3 MERGER CONSIDERATION.
(a) Subject to the provisions of Section 1.4 hereafter, the Merger
Consideration, consisting of the total purchase price payable to the HVJ
Shareholder in connection with the acquisition by merger of HVJ, shall be paid
or delivered, as the case may be, and shall consist exclusively of the
following:
(i) at the Closing (as hereafter defined), $475,000 in cash,
cashier's check or by wire transfer to the accounts specified in writing to
Acquiror at least three (3) days prior to the Closing;
(ii) at the Closing, delivery of 100 newly issued shares of
Acquiror's preferred stock having a liquidation amount of $1,500,000 ("Acquiror
Preferred Stock"), subject to the terms and conditions set forth within the
Certificate of Designation attached hereto as Exhibit 1.3(a)(ii); and
(iii) subsequent to Closing, the HVJ Shareholder may be
entitled to receive additional shares ("Additional Shares") of Acquiror common
stock, par value $.01 per share ("Acquiror Common Stock") depending upon the
achievement of certain levels of gross profit and net income of the Surviving
Corporation during 1998 and 1999 as determined in the manner set forth below:
(A) Gross Profit for 1998:
(1) If during 1998, the Surviving Corporation
achieves gross profits of less than $1,400,000, no Additional Shares shall be
issued pursuant to this subparagraph 1.3(a)(iii)(A).
3
<PAGE> 9
(2) If during 1998, the Surviving Corporation
achieved gross profits between $1,400,000 and $2,300,000, Additional Shares
shall be issued having a value equal to the product of $1,000,000 and the
percentage calculated by dividing the amount by which the revenues exceeded
$1,400,000 by 900,000. For example, if gross profits of $2,000,000 are achieved,
then the HVJ Shareholder shall be issued such Additional Shares having a value
equal to $666,000.
(3) If during 1998, the Surviving Corporation
achieved gross profits in excess of $2,300,000, only those Additional Shares
having a value equal to $1,000,000 shall be issued.
(B) Net Income for 1998:
(1) If during 1998, the Surviving Corporation
realized net income below $250,000, no Additional Shares shall be issued
pursuant to this subparagraph 1.3(a)(iii)(B).
(2) If during 1998, the Surviving Corporation
realized net income between $250,000 and $400,000, Additional Shares shall be
issued having a value equal to the product of $350,000 and the percentage
calculated by dividing the amount by which the net income realized exceeded
$250,000 by 150,000. For example, if net income of $350,000 is realized, then
the HVJ Shareholder shall be issued such Additional Shares having a value equal
to $233,333.
(3) If during 1998, the Surviving Corporation
realized net income in excess of $400,000, only those Additional Shares having a
value equal to $350,000 shall be issued.
(C) Gross Profit for 1999:
(1) If during 1999, the Surviving Corporation
achieves gross profits of less than $2,300,000, no Additional Shares shall be
issued pursuant to this subparagraph 1.3(a)(iii)(C).
(2) If during 1999, the Surviving Corporation
achieved gross profits between $2,300,000 and $3,200,000, Additional Shares
shall be issued having a value equal to the product of $1,000,000 and the
percentage calculated by dividing the amount by which the revenues exceeded
$2,300,000 by 900,000. For example, if gross profits of $3,000,000 are achieved,
then the HVJ Shareholder shall be issued such Additional Shares having a value
equal to $777,777.
(3) If during 1999, the Surviving Corporation
achieved gross profits in excess of $3,200,000, only those Additional Shares
having a value equal to $1,000,000 shall be issued.
4
<PAGE> 10
(D) Net Income for 1999:
(1) If during 1999, the Surviving Corporation
realized net income below $400,000, no Additional Shares shall be issued
pursuant to this subparagraph 1.3(a)(iii)(D).
(2) If during 1999, the Surviving Corporation
realized net income between $400,000 and $600,000, Additional Shares shall be
issued having a value equal to the product of $350,000 and the percentage
calculated by dividing the amount by which the net income realized exceeded
$400,000 by 200,000. For example, if net income of $500,000 is realized, then
the HVJ Shareholder shall be issued such Additional Shares having a value equal
to $175,000.
(3) If during 1999, the Surviving Corporation
realized net income in excess of $600,000, only those Additional Shares having a
value equal to $350,000 shall be issued.
(b) For purposes of subparagraph (iii)(A) and (iii)(C) above the
term "gross profits" shall be defined as the gross revenues of the Surviving
Corporation less any and all discounts or allowances and less costs of goods
sold (exclusive of internal labor costs). For the purposes of subparagraph
(iii)(B) and (iii)(D) above, the term "net income" shall be computed on a basis
consistent with past practices and accounting methods of the Surviving
Corporation without reduction for administrative/overhead charges or parent
company allocations, except for direct expenses incurred by Acquiror on behalf
of the Surviving Corporation, however, such expenses shall not include any
expenses incurred in connection with the acquisition of HVJ. The "gross profit"
and "net income" of the Surviving Corporation shall be determined within ninety
(90) days after the expiration of each of 1998 and 1999, and at such time the
Acquiror shall deliver such Additional Shares to the HVJ Shareholder,
accompanied by a certificate of Acquiror's Chief Financial Officer attesting to
the method by which the number of Additional Shares were calculated.
(c) The number of Additional Shares to be distributed to the HVJ
Shareholder pursuant to subparagraph 1.3(a)(iii) above shall be determined by
dividing the value of such Additional Shares (as so established) by the price
determined based on the average closing price of Acquiror's common stock for the
ten (10) trading days immediately preceding the date upon which the Additional
Shares are distributed.
(d) The shares of Acquiror Preferred Stock to be delivered at the
Closing, as well as any Additional Shares of Acquiror Common Stock, when and if
delivered, shall be fully paid and non-assessable and shall be free and clear of
all liens, levies and encumbrances except that all of such Acquiror Preferred
Stock, Additional Shares of Acquiror Common Stock and shares of Acquiror Common
Stock issuable upon conversion of the Acquiror Preferred Stock shall be
"restricted securities" pursuant to Rule 144, promulgated under the Securities
Act of 1933, as amended (the "Act").
(e) No fractional shares of stock shall be issued in the Merger, and
the
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HVJ Shareholder shall be entitled to receive as part of the Merger Consideration
that number of shares of stock rounded to the nearest whole number.
1.4 ESCROW AGREEMENT.
(a) At the Closing, Acquiror shall deposit into escrow the
components of the Merger Consideration identified in subparagraph 1.4(b)
hereafter (the "Escrow Consideration") to serve as collateral for the
indemnification obligations of the HVJ Shareholder pursuant to this Agreement.
The deposit, maintenance and ultimate disposition of the Escrow Consideration
shall be governed by the terms of an escrow agreement, the form of which is
attached hereto as Exhibit 1.4(a)(the "Escrow Agreement").
(b) The Escrow Consideration shall consist of:
(i) Two Hundred Thirty Seven Thousand Five Hundred
Dollars ($237,500) of the Merger Consideration identified at subparagraph
1.3(a)(i)(the "Escrow Cash"); and
(ii) 33.33 shares of Acquiror Preferred Stock having a
liquidation amount of $500,000 (the "Escrow Shares"), provided however, that the
Escrow Shares shall constitute those shares of Acquiror Preferred Stock that
shall last convert into Acquiror Common Stock in accordance with the conversion
features contained within the Certificate of Designation of the Acquiror
Preferred Stock. The Escrow Shares shall include those shares of Acquiror Common
Stock which are issued upon conversion, and shall be subject to the terms and
provisions of the Escrow Agreement as though such shares were originally
deposited in escrow upon Closing
1.5 ADDITIONAL RIGHTS; TAKING OF NECESSARY ACTION; FURTHER ACTION.
Each of Acquiror, Sub, HVJ and the HVJ Shareholder, respectively,
shall use their best efforts to take all such action as may be necessary and
appropriate to effectuate the Merger under the TBCA and DGCL as promptly as
possible, including, without limitation, the filing of the Certificate of Merger
consistent with the terms of this Agreement. If at any time after the Effective
Time, any further action is necessary or desirable to carry out the purposes of
this Agreement and to vest in HVJ as the Surviving Corporation full right, title
and possession to all assets, property, rights, privileges, powers and
franchises of Sub, the officers of such corporations are fully authorized in the
name of their corporations or otherwise, and notwithstanding the Merger, to
take, and shall take, all lawful and necessary action.
1.6 NO FURTHER RIGHTS OR TRANSFERS.
At and after the Effective Time, the shares of capital stock of HVJ
outstanding immediately prior to the Effective Time shall cease to provide the
HVJ Shareholder of any rights as a shareholder of HVJ or the Surviving
Corporation, except for the right to surrender the certificate or certificates
representing such shares and to receive the consideration to be received in the
Merger as provided in this Agreement.
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ARTICLE II
THE CLOSING
2.1 CLOSING DATE.
Subject to satisfaction or waiver of all conditions precedent set
forth in Section 6 of this Agreement, the closing of the Merger (the "Closing")
shall take place at the offices of Acquiror, at 1661 E. Camelback Road, Suite
245, Phoenix, Arizona, at 10:00 a.m., local time on the later of: (i) the first
Business Day following the day upon which all appropriate Acquiror corporate
action and HVJ corporate action has been taken in accordance with Section 3 of
this Agreement; or (ii) the day on which the last of the conditions precedent
set forth in Section 6 of this Agreement is fulfilled or waived, or (b) at such
other time, date and place as the parties may agree, but in no event shall such
date be later than March 18, 1998, unless such date is extended by the mutual
written agreement of the parties.
2.2 CLOSING TRANSACTIONS.
At the Closing, the following transactions shall occur, all of such
transactions being deemed to occur simultaneously:
(a) HVJ and the HVJ Shareholder will deliver, or shall cause to be
delivered, to the Acquiror and Sub, the following documents and shall take the
following actions:
(i) The HVJ Shareholder shall surrender and deliver to the Sub
as the Surviving Corporation the certificate or certificates representing all of
such shares of HVJ Common Stock;
(ii) The HVJ Shareholder shall, to the extent necessary to
comply with applicable federal and state securities laws, execute and deliver at
the Closing a copy of an Investment Letter in a form to be mutually agreed by
the parties at that time and attached to this Agreement as Exhibit 2.2(a)(ii)
("Investment Letter");
(iii) HVJ and the HVJ Shareholder shall execute and deliver,
and file or cause to be filed with the Secretary of State of the State of Texas,
articles of merger with such amendments thereto as the parties hereto shall deem
mutually acceptable;
(iv) A certificate shall be executed by HVJ and the HVJ
Shareholder to the effect that all representations and warranties made by HVJ
and the HVJ Shareholder under this Agreement are true and correct as of the
Closing, as though originally given to Acquiror and Sub on said date;
(v) A certificate of good standing shall be delivered by HVJ
from the Secretary of State of the State of Texas, dated at or about the
Closing, to the effect that such corporation is in good standing under the laws
of such state;
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(vi) An incumbency certificate shall be delivered by HVJ
signed by all of the officers thereof dated at or about the Closing;
(vii) Certified Articles of Incorporation shall be delivered
by HVJ dated at or about the Closing and a copy of the Bylaws of HVJ certified
by the Secretary of HVJ dated at or about the Closing;
(viii) Certified Board and shareholder resolutions shall be
delivered by the Secretary of HVJ dated at or about the Closing authorizing the
transactions contemplated under this Agreement;
(ix) The Registration Rights Agreement, the form of which is
attached hereto as Exhibit 2.2(a)(x), shall be executed and delivered by the HVJ
Shareholder;
(x) The HVJ Shareholder will enter into an employment
agreement on terms and conditions mutually satisfactory to Acquiror and the HVJ
Shareholder;
(xi) The Escrow Agreement, as described in Exhibit 1.4(a),
shall be executed and delivered by the HVJ Shareholder;
(xii) The HVJ Shareholder shall deliver the Escrow
Consideration into escrow pursuant to the terms of the Escrow Agreement;
(xiii) Each of the officers and directors of HVJ shall have
tendered their resignation in form and substance satisfactory to Acquiror;
(xiv) HVJ shall receive from the Secretary of State of the
State of Texas a final Certificate of Merger;
(xv) The delivery of an opinion of counsel of HVJ and the
HVJ Shareholder in form and substance satisfactory to Acquiror and the Sub;
and
(xvi) Each of the parties to this Agreement shall have
otherwise executed whatever documents and agreements, provided whatever consents
or approvals and taken all such actions as are required under this Agreement.
(b) Acquiror and Sub will deliver, or shall cause to be delivered,
to HVJ and the HVJ Shareholder, the following documents and shall take the
following actions:
(i) Acquiror shall deliver or shall cause to be delivered to
the HVJ Shareholder a certificate or certificates representing the number of
shares of Acquiror Preferred Stock as such holder is entitled to receive in
connection with the Merger;
(ii) Acquiror shall deliver or shall cause to be delivered to
the HVJ
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<PAGE> 14
Shareholder, the cash component of the Merger Consideration to such location and
in such manner as may be designated in writing by the HVJ Shareholder at least
three (3) days prior to Closing;
(iii) Acquiror and the Sub shall execute and deliver, and file
or cause to be filed with the Secretary of the State of Delaware, the
Certificate of Merger with such amendments thereto as the parties hereto shall
deem mutually acceptable;
(iv) A certificate shall be executed by the Acquiror's and
Sub's President to the effect that all representations and warranties of the
Acquiror and Sub under this Agreement are true and correct as of the Closing, as
though originally given to HVJ on said date;
(v) A certificate of good standing shall be delivered by
Acquiror and Sub from the Secretary of the State of Delaware dated at or about
the Closing that the Acquiror and Sub are in good standing under the laws of
said state;
(vi) An incumbency certificate shall be delivered by Acquiror
and Sub signed by all of the officers thereof dated at or about the Closing;
(vii) Certified Certificates of Incorporation shall be
delivered by Acquiror and Sub dated at or about the Closing, and a copy of the
Bylaws of Acquiror and Sub certified by the Secretary of Acquiror and Sub dated
at or about the Closing;
(viii) Certified Board resolutions shall be delivered by the
Secretary of the Acquiror and Sub dated at or about the Closing authorizing the
transactions contemplated under this Agreement;
(ix) Acquiror will execute and deliver an employment agreement
to the HVJ Shareholder upon terms and conditions mutually satisfactory to
Acquiror and the HVJ Shareholder;
(x) Acquiror will execute and deliver the Registration Rights
Agreement to the HVJ Shareholder, the form of which is attached hereto as
Exhibit 2.2(a)(x);
(xi) Each of the officers and directors of the Sub shall have
tendered their resignation in form and substance satisfactory to HVJ and the HVJ
Shareholder;
(xii) The delivery of an opinion of counsel of Acquiror and
the Sub in form and substance satisfactory to HVJ and the HVJ Shareholder; and
(xiii) Each of the parties to this Agreement shall have
otherwise executed whatever documents and agreements, provided whatever consents
or approvals and shall have taken all such actions as are required under this
Agreement.
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ARTICLE III
CERTAIN CORPORATE ACTION
3.1 HVJ CORPORATE ACTION.
HVJ and the HVJ Shareholder shall cause to occur all corporate
action necessary to effect the Merger and to consummate the other transactions
contemplated hereby.
3.2 ACQUIROR CORPORATE ACTION.
Acquiror and the Sub shall cause to occur all corporate action
necessary on behalf of either of them to effect the Merger and to consummate the
other transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF HVJ AND THE HVJ SHAREHOLDER.
As a material inducement to Acquiror and Sub to execute this
Agreement and consummate the Merger and other transactions contemplated hereby,
HVJ and the HVJ Shareholder, jointly and severally, hereby make the following
representations and warranties to Acquiror and Sub. The representations and
warranties are true and correct in all material respects at this date, and will
be true and correct in all materials on the Closing as though made on and as of
such date.
(a) CORPORATE EXISTENCE AND POWER.
(i) HVJ is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Texas, and has all corporate
powers and all governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted, except where the failure to
have any of the foregoing would not have a Material Adverse Effect. HVJ is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of the property owned or leased by it or
the nature of its activities makes such qualification necessary, except for
those jurisdictions where the failure to be so qualified would not, individually
or in the aggregate, have a Material Adverse Effect. True, correct and complete
copies of the Articles of Incorporation and Bylaws of HVJ as amended to date are
attached hereto as Schedule 4.1(a) and are made a part hereof. There are
currently no subsidiaries of HVJ.
(b) DUE AUTHORIZATION. This Agreement has been duly authorized,
executed and delivered by HVJ and the HVJ Shareholder and constitutes a valid
and binding agreement of HVJ and the HVJ Shareholder, enforceable in accordance
with its terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, moratorium, and other similar laws relating to, limiting
or affecting the enforcement of creditors rights generally or by
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the application of equitable principles. As of the Closing all corporate action
on the part of HVJ required under applicable law in order to consummate the
Merger will have occurred.
(c) NO CONTRAVENTION. The execution and delivery of the Agreement
does not, and the consummation of the transactions contemplated hereby will not:
(i) conflict with or result in any violation of any provision of the Articles of
Incorporation or Bylaws of HVJ; or (ii) conflict with or result in any violation
or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of a right or
obligation or loss under, any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to HVJ or the HVJ Shareholder or their properties or assets, or
result in the creation or imposition of any mortgage, lien, pledge, charge or
security interest of any kind ("Encumbrance") on any assets of HVJ, except such
as is not reasonably likely to have a Material Adverse Effect or prevent HVJ or
the HVJ Shareholder from consummating the transactions contemplated by this
Agreement. No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, is
required by or with respect to HVJ in connection with the execution and delivery
of this Agreement by HVJ and the HVJ Shareholder or the consummation by HVJ and
the HVJ Shareholder of the transactions contemplated hereby, except the filing
of the Articles of Merger.
(d) CAPITALIZATION AND SHARE OWNERSHIP. The authorized capital
stock of HVJ consists solely of One Hundred Thousand (100,000) shares of common
stock, $1.00 par value per share ("HVJ Common Stock"). There are currently 1,000
shares of HVJ Common Stock outstanding, of which the HVJ Shareholder is the sole
record and beneficial owner. The outstanding shares of capital stock of HVJ have
been duly authorized and validly issued and are fully paid and nonassessable and
free of preemptive rights. Except as set forth in this Section 4.1(d) and on
Schedule 4.1(d), there are outstanding (A) no shares of capital stock or other
voting securities of HVJ, (B ) no securities of HVJ convertible into or
exchangeable for shares of capital stock or voting securities of HVJ and (C) no
options, warrants or other rights to acquire from HVJ, and no obligation of HVJ
to issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of HVJ, and there are no
agreements or commitments to do any of the foregoing. There are no voting trusts
or voting agreements applicable to any capital stock of HVJ. The HVJ Common
Stock to be surrendered in the Merger will be owned of record and beneficially,
by the HVJ Shareholder, free and clear of all liens and encumbrances of any kind
and nature, and have not been sold, pledged, assigned or otherwise transferred.
There are no agreements (other than this Agreement) to sell, pledge, assign or
otherwise transfer such securities.
(e) FINANCIAL STATEMENTS. HVJ shall prepare and deliver to
Acquiror and Sub, no less than ten (10) days prior to Closing, copies of
unaudited financial statements of HVJ for the fiscal years ended December 31,
1997 and December 31, 1996 (collectively, the "Financial Statements"). Such
Financial Statements will have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
reported upon and will fairly present in all material respects the financial
position of HVJ as of the date thereof and the results of operations for the
periods then ended (subject to normal year-end adjustments). The Financial
Statement for the fiscal year ended December 31, 1997 shall
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reflect revenues not less than $5,500,000 and gross profits not less than
$1,200,000.
(f) REAL PROPERTIES.
(i) HVJ currently leases real property at those locations
identified on Schedule 4.1(f)(i) hereto pursuant to the true, correct and
complete copies of the lease agreements attached to Schedule 4.1(f)(i). HVJ owns
or leases no other real estate. None of the leasehold interests held by HVJ are
subject to any Encumbrance, except (a) liens for ad valorem taxes not yet due or
being contested in good faith; and (b) contractual or statutory mechanics or
materialmen's liens or other statutory or common law Encumbrances relating to
obligations of HVJ that are not delinquent or are being contested in good faith.
There are no Encumbrances which materially interfere with the present use of
such leasehold interests.
(ii) Except as described on Schedule 4.1(f)(ii) hereto, HVJ
has not received any written notice from any governmental entity having
jurisdiction over HVJ or over any of the real property leased by HVJ of any
violation by HVJ of any law, regulation or ordinance relating to zoning,
environmental matters, local building or fire codes or similar matters relating
to any of the real property leased by HVJ or of any condemnation or eminent
domain proceeding.
(iii) Except such as has not had and is not reasonably likely
to have a Material Adverse Effect, all of the buildings leased by HVJ and all
plumbing, HVAC, electrical, mechanical and similar systems are in good repair
and adequate for their current use, ordinary wear and tear excepted.
(iv) Except as described on Schedule 4.1(f)(iv), HVJ is not a
party to any lease, sublease, lease assignment or other agreement for the use or
occupancy of any of the leasehold premises wherein HVJ is the landlord,
sub-landlord or assignor, whether by name, as successor-in-interest or
otherwise. There are no outstanding agreements with any party to acquire the
leasehold premises or any portion thereof or any interest therein.
(v) All certificates of occupancy and all other licenses,
permits, authorizations, consents, certificates and approvals required by all
governmental authorities having jurisdiction over the leasehold premises
occupied by HVJ have been issued, are fully paid for and are in full force and
effect, will survive the Closing and will not be invalidated, violated or
otherwise adversely affected by the Merger or the other transactions
contemplated by this Agreement.
(g) NO CONTINGENT LIABILITIES. Except as described on Schedule
4.1(g) and as set forth in the Financial Statements, at the Closing, HVJ shall
have no liabilities, whether related to tax or non-tax matters, known or
unknown, due or not yet due, liquidated or unliquidated, fixed or contingent,
determined or determinable in amount or otherwise and, to the knowledge of HVJ
after due inquiry, there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a liability,
except as and to the extent reflected on: (i) the Financial Statements; (ii)
this Agreement or any Schedule or Exhibit hereto; or (iii) liabilities incurred
since the date of the Financial Statements solely in the ordinary course of
business and as accurately reflected on the books and records of HVJ; provided,
however, that no liability shall be incurred from and after the date hereof
which is in contravention of any negative covenant contained herein and
applicable to HVJ.
(h) LITIGATION. Except as described on Schedule 4.1(h) hereto
there is no
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action, suit, investigation or proceeding (or, to the knowledge of HVJ, any
basis therefor) pending against, or to the knowledge of HVJ threatened, against
or affecting HVJ or any of its properties before any court or arbitrator or any
governmental body, agency or official that (i) if adversely determined against
HVJ, would have a Material Adverse Effect or (ii) in any manner challenges or
seeks to prevent, enjoin, alter or materially delay the Merger or any of the
other transactions contemplated by the Agreement.
(i) TAXES. Except as disclosed on Schedule 4.1(i), HVJ has timely
filed all tax returns required to be filed by it, or will timely file when due
all tax returns required to be filed by it between the date hereof and the
Closing. HVJ has paid in a timely fashion or will pay when due in a timely
fashion, all taxes required to be paid in respect of the periods covered by such
returns, and the books and the financial statements of reflect, or will reflect,
adequate reserves for all taxes payable by HVJ which have been, or will be,
accrued but are not yet due. HVJ is not delinquent in the payment of any
material tax, assessment or governmental charge. No deficiencies for any taxes
have been proposed, asserted or assessed against HVJ, HVJ and the HVJ
Shareholder are not aware of any facts which would constitute the basis for the
proposal or assertion of any such deficiency and there is no action, suit,
proceeding, audit or claim now pending or threatened against HVJ. All taxes
which HVJ is required by law to withhold and collect have been duly withheld and
collected, and have been timely paid over to the proper authorities to the
extent due and payable. For the purposes of this Agreement, the term "tax" shall
include all federal state, local and foreign income, property, sales, excise and
other taxes of any nature whatsoever. Neither HVJ nor any member of any
affiliated or combined group of which HVJ is or has been a member has granted
any extension or waiver of the limitation period applicable to any tax returns.
There are no Encumbrances for taxes upon the assets of HVJ, except Encumbrances
for current taxes not yet due. There are no tax sharing or tax allocation
agreements to which HVJ is now or ever has been a party. HVJ will not be
required under Section 481(c) of the Internal Revenue Code of 1986, as amended
(the "Code"), to include any material adjustment in taxable income for any
period subsequent to the Merger. HVJ (a) has not been a member of an affiliated
group filing a consolidated federal income tax return (other than a group the
common parent of which was HVJ) and (b) has no liability for the taxes of any
person (other than HVJ) under Treasury Regulation Section 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or successor,
by contract or otherwise.
(j) ERISA.
(i) Schedule 4.1(j)(i) identifies each "employee benefit
plan," as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), that is subject to any provision of ERISA, and
either (i) is maintained, administered or contributed to by HVJ or any affiliate
(as defined below), (ii) covers any employee or former employee of HVJ or any
affiliate or (iii) under which HVJ or any affiliate has any liability. Copies of
such plans and, if applicable, related trust agreements) and all amendments
thereto and any written interpretations thereof have been furnished to Acquiror,
together, if applicable, with (x) the most recent annual reports (Form 5500
including, if applicable, Schedule B thereto) prepared in connection with any
such plan and (y) the most recent actuarial valuation report prepared in
connection with any such plan. Such plans are referred to collectively herein as
the "Employee Plans." Any Form 5500 for any plan year of any Employee Plan that
has not been filed, but for which the filing date has passed on the date of this
Agreement, shall be filed prior to the date of the Merger. For purposes of this
Section, "affiliate" of any Person means any
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other Person which, together with such Person, would be treated as a single
employer for any purpose under Section 414 of the Code.
(ii) Schedule 4.1(j)(ii) identifies all Employee Plans to
which HVJ currently has any obligation to contribute. HVJ is not a party to any
multiemployer plan as defined in Section 4001(a) (3) of ERISA ("Multiemployer
Plans"), and neither HVJ nor any affiliate has any outstanding liability to
contribute to any Multiemployer Plan, for delinquent contributions or for
withdrawal liability pursuant to Section 4201 of ERISA.
(iii) There are no Employee Plans that are intended to be
qualified plans under Section 401(a) of the Code, except as may have been shown
and identified as such on the list referred to in subparagraphs (i) or (ii)
above. Each Employee Plan has been maintained in compliance with its terms and
with the requirements prescribed by any and all statutes, orders, rules and
regulations that are applicable to such Plan, other than any failure to comply
that is not reasonably likely to have a Material Adverse Effect.
(iv) Schedule 4.1(j)(iv) identifies each material employment,
severance or other similar contract, arrangement or policy and each plan or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits or
for deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation rights or other forms of incentive compensation or post-retirement
insurance, compensation or benefits that is not an Employee Plan and (A) is
entered into, maintained or contributed to, as the case may be by HVJ or any of
its affiliates or (B) covers any employee or former employee of HVJ or any of
its affiliates or (C) under which HVJ or any affiliate has liability. Such
contracts, plans and arrangements as are described above, copies of all of which
have been furnished previously to Acquiror, are referred to collectively herein
as the "Benefit Arrangements." Each Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations that are applicable to such
Benefit Arrangement other than any failure to comply that is not reasonably
likely to have a Material Adverse Effect.
(v) Neither HVJ nor any affiliate has or maintains and has
maintained any Employee Plan or Benefit Arrangement providing post-retirement
health or medical benefits in respect of any active or former employee of HVJ or
any affiliate or former affiliate, except as may be required pursuant to the
provisions of COBRA
(vi) HVJ is not a party to or subject to any union contract or
any employment contract (other than as set forth on Schedule 4.1(j)(iv) hereto)
or arrangement providing for annual future compensation to any officer,
consultant, director or employee in excess of $50,000.
(k) INSURANCE COVERAGE. Schedule 4.1(k) sets forth a list of all
HVJ key-man life insurance policies. HVJ maintains insurance covering its
assets, business, equipment, properties, operations, employees, officers and
directors with such coverage, in such amounts, and with such deductibles and
premiums as are consistent with insurance coverage provided for other companies
of comparable size and in comparable industries. All of such policies are in
full force and effect and all premiums payable have been paid in full and HVJ is
in full compliance with the terms and conditions of such policies. HVJ has not
received any notice from any issuer of such policies of its intention to cancel
or refusal to renew any policy issued by it or of
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its intention to renew any such policy based on a material increase in premium
rates other than in the ordinary course of business. None of such policies are
subject to cancellation by virtue of the Merger or the consummation of the other
transactions contemplated by this Agreement. There is no claim by HVJ pending
under any of such policies as to which coverage has been questioned or denied.
(l) COMPLIANCE WITH LAWS. HVJ is not in violation of, and has not
violated, any applicable provisions of any laws, statues, ordinances or
regulations, other than as would not be reasonably likely to have a Material
Adverse Effect or constitute a felony. No such laws, statutes, ordinances or
regulations require or are reasonably expected to require capital expenditures
by HVJ that are reasonably likely to have a Material Adverse Effect. Without
limiting the generality of the foregoing, HVJ has all licenses, permits,
certificates and authorizations needed or required for the conduct of HVJ's
business as presently conducted and for the use of its properties and premises
occupied by it, except where the failure to obtain a licenses, permit,
certificate or authorization would not have a Material Adverse Effect.
(m) INVESTMENT BANKING FEES. There is no investment banker, broker,
finder or other similar intermediary which has been retained by, or is
authorized by, HVJ or the HVJ Shareholder to act on its behalf who might be
entitled to any fee or commission from HVJ, the HVJ Shareholder, Acquiror or the
Sub or any of their respective affiliates upon consummation of the transactions
contemplated by this Agreement.
(n) PERSONAL PROPERTY. HVJ has good and valid title to all of its
personal property, tangible and intangible, reflected on the Financial
Statements and to all other personal property owned by it, free and clear of any
Encumbrance. Except as set forth on Schedule 4.1(n), HVJ is the owner of all of
the personal property, equipment, furniture and fixtures now located in or upon
its leased premises and of all personal property which is used in the operation
of its business. All such personal property, equipment, furniture and fixtures
and other tangible personal property are in good operating condition and repair
and do not require any repairs other than normal routine maintenance to maintain
such property in good operating condition and repair. All inventory as reflected
on the Financial Statements is useable in the ordinary course of business free
from material defects. HVJ owns no motor vehicles.
(o) INTELLECTUAL PROPERTY; INTANGIBLE PROPERTY. The corporate names
of HVJ and the trade names and service marks listed on Schedule 4.1(o) are the
only names and service marks which are used by HVJ in the operation of its
business (the "Names and Service Marks"). HVJ has not done business and has not
been known by any other name other than by its Names and Service Marks. HVJ owns
and has the exclusive right within Texas, and the states in which it operates,
to use all intellectual property presently in use by it and necessary for the
operation of its business as now being conducted, which intellectual property
includes, but is not limited to, patents, trademarks, trade names, service
marks, copyrights, trade secrets, customer lists, inventions, formulas, methods,
processes and other proprietary information. There are no outstanding licenses
or consents granting third parties the right to use any intellectual property
owned by HVJ. No royalties or fees are payable by HVJ to any third party by
reason of the use of any of its intellectual property. HVJ has received no
notice of any adversely held patent, invention, trademark, copyright, service
mark or tradename of any person, or any claims of any other person relating to
any of the intellectual property subject hereto, and there is no
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reasonable basis for any such charge or claim. There is no presently known
threatened use or encroachment of any such intellectual property. The
manufacture, sale or use of any products now or heretofore manufactured or sold
by HVJ did not and does not infringe (nor has any claim been made that any such
action infringes) the intellectual property rights of others.
(p) ACCOUNTS RECEIVABLE. Each of the accounts receivable of HVJ
referred to on the Financial Statements constitutes a valid claim in the full
amount thereof against the debtor charged therewith on the books of HVJ to which
each such account is payable and has been acquired in the ordinary course of
business. Each account receivable is fully collectible to the extent of the face
value thereof (less the amount of the allowance for the doubtful accounts
reflected on the Financial Statements) no later than ninety (90) days after such
account receivable is due. No account debtor has any valid setoff, deduction or
defense with respect thereto, and no account debtor has asserted any such
setoff, deduction or defense. There are no accounts receivable which arise
pursuant to an agreement with the United States Government or any agency or
instrumentality thereof.
(q) INVENTORIES. All inventory of HVJ: (i) was acquired and has
been maintained in the ordinary course of the operations of HVJ; (ii) is of good
and merchantable quality; (iii) consists substantially of a quality, quantity
and condition usable, leaseable or saleable in the ordinary course of the
operations of HVJ; and (iv) is valued on the Financial Statements at the lower
of cost (determined on a first in, first out basis) or market value on a basis
consistent with Generally Accepted Accounting Principles.
(r) CONTRACTS, LEASES, AGREEMENTS AND OTHER COMMITMENTS. HVJ is
not a party to or bound by any oral, written or implied contracts, agreements,
leases, powers of attorney, guaranties, surety arrangements or other commitments
excluding equipment and furniture leases entered into in the ordinary course of
business (which do not exceed $100,000 in liabilities or commitments in the
aggregate), except for the following (which are hereinafter collectively called
the "Material Contracts"):
(i) The leases and agreements described on Schedules
4.1(f), 4.1(j)(i) and (ii) and 4.1(s)(i); and
(ii) Agreements involving a maximum possible liability or
obligation on the part of HVJ of less than Twenty-Five Thousand Dollars
($25,000) separately or less than Fifty Thousand Dollars ($50,000) in the
aggregate.
The Material Contracts constitute all of the agreements and instruments
which are necessary and desirable to operate the business as currently conducted
by HVJ. True, correct and complete copies of each Material Contract described
and listed under subsection 4.1(r)(i) have been made available to Acquiror
within ten (10) business days prior to the date hereof. The term "Corporation
Agreement" excludes purchase orders entered into in the ordinary course for
personality or inventory which may be returned to the vendor without penalty.
All of the Corporation Agreements are valid, binding and enforceable against the
respective parties thereto in accordance with their respective terms. Following
the Merger, the Surviving Corporation shall become entitled to all rights of HVJ
under such of the Corporation Agreements as if the Surviving Corporation were
the original party to such Corporation Agreements. All parties to
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all of the Corporation Agreements have performed all obligations required to
be performed to date under such Corporation Agreements, and no party is in
default or in arrears under the terms thereof, and no condition exists or event
has occurred which, with the giving of notice or lapse of time or both, would
constitute a default thereunder. The consummation of this Agreement and the
Merger will not result in an impairment or termination of any of the rights of
HVJ under any Corporation Agreement. None of the terms or provisions of any
Corporation Agreement materially adversely affects the business, prospects,
financial condition or results of operations of HVJ.
(s) LABOR RELATIONS; EMPLOYEES.
(i) Set forth on Schedule 4.1(s)(i) is a list of:
(A) All collective bargaining agreements and other
agreements requiring arbitration of employment disputes, and any written
amendments thereto, as well as all arbitration awards decided under any such
agreements, and all oral assurances or modifications, past practices, and/or
arrangements made in relation thereto, to which HVJ is a party or by which it is
bound; and
(B) All employment agreements, and all severance
agreements which have not been fully performed, to which HVJ is a party or by
which it is bound.
(ii) Set forth on Schedule 4.1(s)(ii) is a list of all key
management employees of HVJ, broken down by location, together with their rate
of compensation and title.
(iii) HVJ will deliver to Acquiror true and correct copies
of all of the documents referred to on Schedule 4.1(s)(i) hereof and all of the
personnel policies, employee and/or supervisor handbooks, procedures and forms
of employment applications relating to the employees of HVJ.
(iv) There is no union representing or purporting to
represent any of the employees of HVJ, and HVJ is not subject to or currently
negotiating any collective bargaining agreements with any union representing or
purporting to represent the employees of any of the foregoing.
(v) Except as set forth on Schedule 4.1(s)(v):
(A) There are no strikes, slow downs or other work
stoppages, grievance proceedings, arbitrations, labor disputes or
representation questions pending or, to the best knowledge of HVJ, threatened;
(B) HVJ has complied in all material respects with
all laws relating to labor, employment and employment practices, including
without limitation, any provisions thereof relating to wages, hours and other
terms of employment, collective bargaining, nondiscrimination and the payment of
social security, unemployment compensation and similar taxes, and HVJ is not (1)
liable for any arrearages of wages or any taxes or penalties
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for failure to comply with any of the foregoing or (2) delinquent in the payment
of any severance, salary, bonus, commission or other direct or indirect
compensation for services performed by any employee to the date hereof, or any
amount required to be reimbursed to any employee or former employee; and
(C) There are no charges, suits, actions,
administrative proceedings, investigations and/or claims pending or threatened
against HVJ, whether domestic or foreign, before any court, governmental agency,
department, board or instrumentality, or before any arbitrator (collectively
"Actions"), concerning or in any way relating to the employees or employment
practices of HVJ, including, without limitation, Actions involving unfair labor
practices, wrongful discharge and/or any other restrictions on the right of HVJ
to terminate its respective employees, employment discrimination, occupational
safety and health, and workers' compensation.
(vi) There are no express or implied agreements, policies,
practices, or procedures, whether written or oral, pursuant to which any
employee of HVJ is not terminable at will and except as required by law, no
employee is entitled to any benefit or to participate in any employee benefit
plan of HVJ following such termination of employment.
(vii) HVJ is not a party to any oral or written (A) agreement
with any executive officer or other key employee of HVJ (1) the benefits of
which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving HVJ of the nature of the transactions
contemplated by this Agreement, (2) providing any term of employment or
compensation guarantee extending for a period longer than one year, or (3)
providing severance benefits or other benefits after the termination of
employment of such executive officer or key employee regardless of the reason
for such termination of employment; or (B) agreement or plan which will remain
in effect after the Closing, including, without limitation, any stock option
plan, stock appreciation right plan, restricted stock plan or stock purchase
plan, any of the benefits of which will be increased, or the vesting of benefits
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement.
(viii) HVJ has not taken any action which requires or, taken
together with the transactions contemplated hereby, would require the giving of
any notice under the Worker Adjustment Retraining and Notification Act or any
comparable state or local law or regulation.
(t) SUPPLIERS AND CUSTOMERS. Set forth on Schedule 4.1(t) is a
list of the five largest customers of HVJ based on the percentage of revenue
represented by those customers for the fiscal year ended December 31, 1997 and
the five largest customers in terms of volume of contracts. The relationship of
HVJ with its suppliers and customers are good commercial working relationships
and no supplier or customer of HVJ has canceled, curtailed or otherwise
terminated or threatened to cancel or otherwise terminate, his or its
relationship with HVJ. HVJ has no knowledge, or reason to believe, that the
Merger or any other transaction contemplated hereby would adversely affect any
such supplier or customer relationship.
(u) CONFLICTING INTERESTS. Except as set forth on Schedule 4.1(u),
no
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director, officer, employee or HVJ Shareholder, and no relative or affiliate
of any of the foregoing (i) sells or purchases goods or services from HVJ or has
any pecuniary interest in any supplier or client of any of the foregoing or in
any other business enterprise with which HVJ conducts business or with which any
of the foregoing is in competition, or (ii) is indebted to HVJ except for money
borrowed and as set forth on the Financial Statements.
(v) ENVIRONMENTAL PROTECTION. Neither HVJ nor the HVJ Shareholder
has been notified by any governmental authority, agency or third party, and HVJ
and the HVJ Shareholder has no knowledge, of any violation by HVJ of any
Environmental Statute (as defined below). All registrations by HVJ with,
licenses from or permits issued by governmental agencies pursuant to
environmental, health and safety laws are in full force and effect. The term
"Environmental Statutes" means all statutes, ordinances, regulations, orders and
requirements of common law concerning discharges to the air, soil, surface water
or groundwater and concerning the storage, treatment or disposal of any waste or
hazardous substance. There is no hazardous substance at any premises currently
or previously occupied by HVJ. HVJ has not received any notice or any request
for information, notice of claim, demand or other notification that it may be
potentially responsible with respect to any investigation or clean-up of any
threatened or actual release of hazardous substances. All hazardous wastes and
substances have been stored, treated, disposed of and transported in conformance
with all requirements applicable to such hazardous substances and wastes.
(w) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as and to the
extent set forth on the Financial Statements, to the extent contained in this
Agreement, or as set forth on Schedule 4.1(w), there has not been (i) any
material adverse change in the business, assets, properties, results of
operations, financial condition or prospects of HVJ; (ii) any entry by HVJ into
any material commitment or transaction which is not in the ordinary course of
business; (iii) any change by HVJ in accounting principles or methods except
insofar as may be required by a change in generally accepted accounting
principles; (iv) any declaration, payment or setting aside for payment of any
dividends or other distributions (whether in cash, stock or property) in respect
of capital stock of HVJ or any Subsidiary, or any direct or indirect redemption,
purchase or any other type of acquisition by HVJ of any shares of its capital
stock or any other securities for an aggregate sum not in excess of $5,000; (v)
any agreement by HVJ, whether in writing or otherwise, to take any action which,
if taken prior to the date of this Agreement, would have made any representation
or warranty in this Section 4.1 untrue or incorrect; (vi) any acquisition of the
assets of HVJ other than in the ordinary course of business and consistent with
past practice and not in excess of $5,000 in the aggregate; or (vii) any
execution of any agreement with any executive officer of HVJ providing for his
or her employment, or any increase in the compensation or in severance or
termination benefits payable or to become payable by HVJ to its officers or key
employees, or any material increase in benefits under any collective bargaining
agreement or in benefits under any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, insurance or other plan or arrangement or
understanding (whether or not legally binding) providing benefits to any present
or former employee of HVJ Since the date of the Financial Statements, there has
not been and there is not threatened, any material adverse change in financial
condition, business, results of operations or prospects of the business or any
material physical damage or loss to any of the properties or assets of the
business or to the premises occupied in connection with the
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business, whether or not such loss is covered by insurance.
(x) PRODUCT LIABILITY AND WARRANTY CLAIMS. Except as set forth on
Schedule 4.1(x), there are no liabilities of or claims against HVJ or the HVJ
Shareholder, and, to the best of their knowledge, no liabilities or claims are
threatened against HVJ or the HVJ Shareholder, with respect to any product
liability (or similar claim) or product warranty (or similar claim) claim that
relates to any product manufactured or sold by HVJ or the HVJ Shareholder in the
operations of HVJ, except for standard warranty and maintenance obligations made
in the ordinary course of the operations of HVJ to purchasers of its products
and services. There are no facts or circumstances which might reasonably give
rise to any such material liabilities or claims, except for such standard
warranty and maintenance obligations.
(y) PURCHASE COMMITMENTS AND OUTSTANDING BIDS. All accepted and
unfulfilled orders for the sale of merchandise or services entered into by HVJ
in the operation of its business, and the aggregate of all commitments for the
purchase of merchandise or supplies by HVJ were made in the ordinary course of
the operations of HVJ There are no claims against HVJ or the HVJ Shareholder to
return merchandise by reason of alleged overshipments, defective merchandise or
otherwise, or of merchandise in the hands of customers under an understanding
that such merchandise would be returnable. There is no outstanding bid,
proposal, commitment or unfulfilled order which relates to the operations of HVJ
which is or would, if accepted, reasonably be expected to result in a net loss
to HVJ
(z) PAYMENTS. Neither HVJ nor the HVJ Shareholder has directly,
nor has any current agent, current representative or current employee of any of
them has, directly or indirectly, paid or delivered any fee, commission or other
sum of money or item or property, however characterized, to any finder, agent,
government official or other party, in the United States or any other country,
which is any manner related to the operations of HVJ which is, or may be with
the passage of time or discovery, illegal under any federal, state or local law
(including, without limitation, the U.S. Foreign Corrupt Practices Act) or any
other country having jurisdiction; and HVJ and the HVJ Shareholder have not
participated, directly or indirectly, in any boycotts or other similar practices
affecting any of its actual or potential customers and the HVJ Shareholder has
at all times done business in an open and ethical manner.
(aa) INVESTMENT INTENT.
(i) Except with respect to the registration rights granted
to the HVJ Shareholder pursuant to the terms of this Agreement, the shares of
Acquiror Common Stock are not being registered under the Act on the basis of the
statutory exemption provided by Section (4)2 thereof, relating to transactions
not involving a public offering, and the Acquiror's reliance on the statutory
exemption thereof is based in part on the representations contained in this
Agreement;
(ii) The HVJ Shareholder represents (a) that he has reviewed
such quarterly, annual and periodic reports of the Acquiror as have been filed
with the Securities and Exchange Commission (the "Reports") and that he has such
knowledge and experience in
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financial and business matters that he is capable of utilizing the information
set forth therein, concerning Acquiror to evaluate the risk of investing in the
Acquiror; (b) that he has been advised that the shares of Acquiror Common Stock
to be issued to him by the Acquiror will not be registered under the Act, except
as otherwise provided in this Agreement, and accordingly, the HVJ Shareholder
may only be able to sell or otherwise dispose of such shares in accordance with
Rule 144 or except as otherwise provided in this Agreement; (c) that the shares
of Acquiror Common Stock will be held for investment and not with a view to, or
for resale in connection with the public offering or distribution thereof; (d)
that the shares of Acquiror Common Stock so issued will not be sold without
registration thereof under the Act (unless such shares are subject to
registration or in the opinion of counsel to the Acquiror an exemption from such
registration is available), or in violation of any law; and (e) that the
certificate or certificates representing the shares of Acquiror Preferred Stock,
and the shares of Acquiror Common Stock which may be issued upon conversion of
the Acquiror Preferred Stock, will be imprinted with a legend in form and
substance substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF AN EXEMPTION
FROM REGISTRATION, UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
BASED ON AN OPINION LETTER OF COUNSEL FOR THE COMPANY OR A NO-ACTION
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION."
and Acquiror is hereby authorized to notify its transfer agent of the
status of the Shares and to take such other action including, but not limited
to, the placing of a "stop-transfer" order on the transfer agent's books and
records to assure compliance with the Act, as amended.
(iii) HVJ and the HVJ Shareholder have been afforded the
opportunity to review and is familiar with the Reports and have based their
decision to invest solely on the information contained therein, and the
information contained within this Agreement and the associated exhibits and
schedules, and have not been furnished with any other literature, prospectus or
other information except as included in the Reports or this Agreement;
(iv) The HVJ Shareholder is able to bear the economic risks
of an investment in the shares of Acquiror Common Stock and that his overall
commitment to his investments which are not readily marketable is not
disproportionate to his net worth; and
(v) The HVJ Shareholder understands that no federal or state
agency has approved or disapproved the shares of Acquiror Common Stock, passed
upon or endorsed the merits of the transfer of such shares set forth within this
Agreement or made any finding or determination as to the fairness of such shares
for investment.
(bb) STATEMENTS AND OTHER DOCUMENTS NOT MISLEADING. Neither this
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Agreement, including all exhibits and schedules and other closing documents, nor
any other financial statement, document or other instrument heretofore or
hereafter furnished by HVJ or the HVJ Shareholder to Acquiror or Sub in
connection with the Merger or the other transactions contemplated hereby,
contains or will contain any untrue statement of any material fact or omit or
will omit to state any material fact required to be stated in order to make such
statement, information, document or other instruments, in light of the
circumstances in which they are made, not misleading. There is no fact known to
HVJ or the HVJ Shareholder which may have a Material Adverse Effect on the
business, prospects, financial condition or results of operations of HVJ or of
any of its properties or assets which has not been set forth in this Agreement
as an exhibit or schedule hereto.
4.2 REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND THE SUB.
As a material inducement to HVJ and the HVJ Shareholder to execute
this Agreement and to consummate the Merger and the other transactions
contemplated hereby, Acquiror and Sub hereby make the following representations
and warranties to HVJ and the HVJ Shareholder.
(a) CORPORATE EXISTENCE AND POWER. Acquiror is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and the Sub is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware. Each of Acquiror
and the Sub has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted, except where the failure to have any of the foregoing would not have
a Material Adverse Effect. Each of Acquiror and the Sub is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except for those jurisdictions
where the failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect. Acquiror owns all of the issued and
outstanding shares of capital stock of the Sub, and there are no other rights or
obligations of Acquiror or the Sub to issue any other shares of capital stock of
the Sub. The Sub has conducted no business activity other than in connection
with the transactions contemplated by this Agreement. True, complete and correct
copies of the Articles of Incorporation and Bylaws of Acquiror as amended to
date are attached hereto as Schedule 4.2(a) and are made a part hereof.
(b) DUE AUTHORIZATION. This Agreement has been duly authorized,
executed and delivered by Acquiror and the Sub and constitutes a valid and
binding agreement of Acquiror and the Sub, enforceable in accordance with its
terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, moratorium, and other similar laws relating to, limiting or
affecting the enforcement of creditors rights generally or by the application of
equitable principles. As of the Closing all corporate action on the part of
Acquiror and the Sub required under applicable law in order to consummate the
Merger will have occurred.
(c) NO CONTRAVENTION. The execution and delivery of the Agreement
does not, and the consummation of the transactions contemplated thereby will not
(i) conflict with or result in any violation of any provision of the Articles of
Incorporation or Bylaws of Acquiror or Sub or (ii) conflict with or result in
any violation or default (with or without notice or
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lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of an right or obligation or to loss or a benefit
under, any provision of the charter or Bylaws of Acquiror or the Sub or any loan
or credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Acquiror or its
properties or assets. or result in the creation or imposition of any Encumbrance
on any asset of Acquiror, except, only as to clause (ii) above, such as is not
reasonably likely to have a Material Adverse Effect or prevent Acquiror or Sub
from consummating the transactions contemplated by this Agreement. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, is required by or with
respect to Acquiror or the Sub in connection with the execution and delivery of
this Agreement by either of them or the consummation by either of them of the
transactions contemplated hereby, except the filing of the Certificate of Merger
with the Secretary of the State of Delaware.
(d) CAPITALIZATION.
(i) As of the date hereof, the outstanding capital stock of
the Acquiror consists solely of shares of: (A) 5,420,000 shares of common stock,
par value $.01 per share ("Acquiror Common Stock"); (B) 50 shares of Series B
$3.00 Convertible Preferred Stock; (C) 122 shares of Series A $3.00 Convertible
Preferred Stock; and (D) Options to purchase 1,300,000 shares of Acquiror Common
Stock. All outstanding shares of capital stock of Acquiror have been duly
authorized and validly issued and are fully paid and nonassessable and free of
preemptive rights, and upon the issuance of the shares of Acquiror Common Stock
which may be issued upon conversion of the Acquiror Preferred Stock, such shares
will be duly authorized, validly issued, fully paid and nonassessable shares of
Acquiror Common Stock.
(e) SEC FILINGS. As of the Closing, Acquiror shall have filed all
of its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and, to the
knowledge of Acquiror, Current Reports on Form 8-K required pursuant to the
Securities Exchange Act of 1934. The documents referred to in the preceding
sentence shall hereafter be referred to as the "SEC Documents". Upon request
Acquiror will make available to HVJ and the HVJ Shareholder the SEC Documents.
(f) INVESTMENT BANKING FEES. There is no investment banker,
broker, finder or other similar intermediary which has been retained by, or is
authorized by, either Acquiror or the Sub to act on its behalf who might be
entitled to any fee or commission from HVJ the HVJ Shareholder, Acquiror or the
Sub or any of their respective affiliates upon consummation of the transactions
contemplated by this Agreement.
(g) STATEMENTS AND OTHER DOCUMENTS NOT MISLEADING. Neither this
Agreement, including all exhibits and schedules and other closing documents, nor
any other financial statement, document or other instrument heretofore or
hereafter furnished by Acquiror or Sub to HVJ and the HVJ Shareholder in
connection with the Merger or the other transactions contemplated hereby, or any
information furnished by Acquiror and Sub taken as a whole contains or will
contain any untrue statement of any material fact or omit or will omit to
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state any material fact required to be stated in order to make such statement,
information, document or other instruments, in light of the circumstances in
which they are made, not misleading. There is no fact known to Acquiror and Sub
taken as a whole which may have a Material Adverse Effect on the business,
prospects, financial condition or results of operations of Acquiror and Sub
taken as a whole or of any of its properties or assets which has not been set
forth in this Agreement as an exhibit or schedule hereto.
ARTICLE V
AGREEMENTS OF THE PARTIES
5.1 ACCESS TO INFORMATION.
At all times prior to the Closing or the earlier termination of this
Agreement in accordance with the provisions of Section 8, and in each case
subject to Section 5.2 below, each of the parties hereto shall provide to the
other parties (and the other parties' authorized representatives) full access
during normal business hours and upon reasonable prior notice to the premises,
properties, books, records, assets, liabilities, operations, contracts,
personnel, financial information and other data and information of or relating
to such party (including without limitation all written proprietary and trade
secret information and documents, and other written information and documents
relating to intellectual property rights and matters), and will cooperate with
the other party in conducting its due diligence investigation of such party.
5.2 CONFIDENTIALITY; NO SOLICITATION.
(a) CONFIDENTIALITY OF HVJ RELATED INFORMATION. With respect to
information concerning HVJ that is made available to Acquiror pursuant to the
terms of this Agreement, Acquiror agrees that, except in connection with the
private placement and other securities purchase agreements associated therewith,
it shall hold such information in strict confidence, shall not use such
information except for the sole purpose of evaluating the Merger and related
transactions and shall not disseminate or disclose any of such information other
than to its directors, officers, employees, shareholders, affiliates, agents and
representatives who need to know such information for the sole purpose of
evaluating the Merger and the related transactions (each of whom shall be
informed in writing by Acquiror of the confidential nature of such information
and directed by Acquiror in writing to treat such information confidentially).
If this Agreement is terminated pursuant to the provisions of Section 7,
Acquiror shall immediately return all such information, all copies thereof and
all information, all copies thereof and all information prepared by Acquiror
based upon the same; provided, however, that one copy of all such material may
be retained by Acquiror's outside legal counsel for purposes only of resolving
any disputes under this Agreement. The above limitations on use, dissemination
and disclosure shall not apply to information that (i) is learned by Acquiror
from a third party entitled to disclose it; (ii) become known publicly other
than through Acquiror or any party who received the same through Acquiror,
provided that Acquiror has no knowledge that the disclosing party was subject to
an obligation of confidentiality; (iii) is required by law or court order to be
disclosed by Acquiror; or (iv) is disclosed with the express prior written
consent thereto of HVJ and the HVJ Shareholder. Acquiror shall undertake all
necessary steps to ensure that the
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secrecy and confidentiality of such information will be maintained in accordance
with the provisions of this paragraph (a). Notwithstanding anything contained
herein to the contrary, in the event a party is required by court order or
subpoena to disclose information which is otherwise deemed to be confidential or
subject to the confidentiality obligations hereunder, prior to such disclosure,
the disclosing party shall: (i) promptly notify the non-disclosing party and, if
having received a court order or subpoena, deliver a copy of the same to the
non-disclosing party; (ii) cooperate with the non-disclosing party, at the
expense of the non-disclosing party in obtaining a protective or similar order
with respect to such information; and (iii) provide only such of the
confidential information as the disclosing party is advised by its counsel is
necessary to strictly comply with such court order or subpoena.
(b) CONFIDENTIALITY OF ACQUIROR-RELATED INFORMATION. With respect to
information concerning Acquiror that is made available to HVJ and the HVJ
Shareholder pursuant to the provisions of this Agreement, HVJ and the HVJ
Shareholder agree that they shall hold such information in strict confidence,
shall not use such information except for the sole purpose of evaluating the
Merger and the related transactions and shall not disseminate or disclose any of
such information other than to their directors, officers, employees,
shareholders, affiliates, agents and representatives who need to know such
information for the sole purpose of evaluating the Merger and the related
transactions (each of whom shall be informed in writing by HVJ or the HVJ
Shareholder of the confidential nature of such information and directed by such
party in writing to treat such information confidentially). If this Agreement is
terminated pursuant to the provisions of Section 8, HVJ and the HVJ Shareholder
agree to return immediately all such information, all copies thereof and all
information prepared by either of them based upon the same; provided, however,
that one copy of all such material may be retained by HVJ's outside legal
counsel for purposes only of resolving any disputes under this Agreement. The
above limitations on use, dissemination and disclosure shall not apply to
information that (i) is learned by HVJ or the HVJ Shareholder from a third party
entitled to disclose it; (ii) becomes known publicly other than through HVJ, the
HVJ Shareholder or any party who received the same through HVJ or the HVJ
Shareholder, provided that HVJ or the HVJ Shareholder have no knowledge that the
disclosing party was subject to an obligation of confidentiality; (iii) is
required by law or court order to be disclosed by HVJ or (iv) is disclosed with
the express prior written consent thereto of Acquiror. HVJ or the HVJ
Shareholder agree to undertake all necessary steps to ensure that the secrecy
and confidentiality of such information will be maintained in accordance with
the provisions of this paragraph (b). Notwithstanding any thing contained herein
to the contrary, in the event a party is required by court order or subpoena to
disclose information which is otherwise deemed to be confidential or subject to
the confidentiality obligations hereunder, prior to such disclosure, the
disclosing party shall: (i) promptly notify the non-disclosing party and, if
having received a court order or subpoena, deliver a copy of the same to the
non-disclosing party; (ii) cooperate with the non-disclosing party at the
expense of the non-disclosing party in obtaining a protective or similar order
with respect to such information; and (iii) provide only such of the
confidential information as the disclosing party is advised by its counsel is
necessary to strictly comply with such court order or subpoena.
(c) NONDISCLOSURE. Neither HVJ, the HVJ Shareholder, the Sub or
Acquiror shall disclose to the public or to any third party the existence of
this Agreement or the transactions contemplated hereby or any other material
non-public information concerning
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or relating to the other party hereto, other than with the express prior written
consent of the other party hereto, except as may be required by law or court
order or to enforce the rights of such disclosing party under this Agreement, in
which event the contents of any proposed disclosure shall be discussed with the
other party before release; provided, however, that notwithstanding anything to
the contrary contained in this Agreement, any party hereto may disclose this
Agreement to any of its directors, officers, employees, shareholders,
affiliates, agents and representative who need to know such information for the
sole purpose of evaluating the Merger, and to any party whose consent is
required in connection with the Merger or this Agreement. The parties anticipate
issuing a mutually acceptable, joint press release announcing the execution of
this Agreement and the consummation of the Merger.
(d) NO SOLICITATION. In consideration of the substantial expenditure
of time, effort and money to be undertaken by Acquiror in connection with the
transactions contemplated by this Agreement, the HVJ Shareholder, HVJ or any
affiliate thereof will not, prior to the earlier of the Closing, or ninety (90)
days after the termination of this Agreement, directly or indirectly, through
any officer, director, agent or otherwise: (i) solicit, initiate or encourage
the submission of inquiries, proposals or offers from any person or entity
relating to any acquisition or purchase of assets of or any equity interest in
HVJ or any affiliate thereof or any tender offer (including a self-tender
offer), exchange offer, merger, consolidation, business combination, sale of a
substantial amount of assets or sale of securities, liquidation, dissolution or
similar transaction involving HVJ or its affiliates (a "Transaction Proposal");
(b) enter into or participate in any discussions or negotiations regarding a
Transaction Proposal, or furnish to any other person or entity any information
with respect to the business, properties or assets of HVJ or its affiliates in
connection with a Transaction Proposal; or (c) otherwise cooperate in any way
with, or assist or participate in, facilitate or encourage any effort or attempt
by any other person to do or seek a Transaction Proposal. HVJ or the HVJ
Shareholder shall promptly notify Acquiror if any such proposal or offer, or any
inquiry or contact with any person or entity with respect thereto is made.
5.3 INTERIM OPERATIONS.
During the period from the date of this Agreement and continuing
until the Closing:
(a) INTERIM OPERATIONS OF HVJ. HVJ agrees (except as expressly
contemplated by this Agreement, including any Exhibits and Schedules hereto, or
to the extent that Acquiror shall otherwise consent in writing) that as to HVJ:
(i) Ordinary Course. HVJ shall carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such business, use all
reasonable efforts to preserve intact its present business organization, keep
available the services of its present officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it;
(ii) Dividends; Changes in Stock. HVJ shall not and shall not
propose to (a) declare, set aside or pay any dividend, on, or make other
distributions in respect of, any of its capital stock, (b) split, combine or
reclassify any of its capital stock or issue, authorize or
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propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock (c) redeem, repurchase or otherwise
acquire any shares of its capital stock or (d) otherwise change its
capitalization.
(iii) Issuance of Securities. Except as contemplated by this
Agreement, HVJ shall not sell, issue, pledge, authorize or propose the sale or
issuance of, pledge or purchase or propose the purchase of, any shares of its
capital stock of any class or securities convertible into, or rights, warrants
or options to acquire, any such shares or other convertible securities.
(iv) Governing Documents. HVJ shall not amend its articles of
incorporation or its Bylaws.
(v) No Dispositions. HVJ shall not sell, lease, pledge, encumber
or otherwise dispose of or agree to sell, lease, pledge, encumber or otherwise
dispose of, any of its assets that are material or any other assets except in
the ordinary course of business consistent with prior practice and in no event
amounting in the aggregate to more than $25,000.
(vi) Indebtedness. HVJ shall not incur any indebtedness for
borrowed money or guarantee any such indebtedness or issue or sell any debt
instruments of HVJ or guarantee any debt of others other than in the ordinary
course of business consistent with prior practice and in no event amounting in
the aggregate to more than $25,000 without the prior written consent of
Acquiror.
(vii) Disposition of Personal Property. HVJ shall not dispose of
any of its personal property, equipment, furniture and fixtures now located in
or upon its leased premises or any of its personal property which is used in the
operation of its business.
(viii) Benefit Plans; Etc. HVJ shall not adopt or amend in any
material respect any collective bargaining agreement or Employee Benefit Plan
(as defined herein).
(ix) Executive Compensation. HVJ shall not grant to any
executive officer any increase in compensation or in severance or termination
pay, or enter into any employment agreement with any executive officer.
(x) Acquisitions. HVJ shall not acquire (by merger,
consolidation or acquisition of stock or assets or otherwise) any corporation,
partnership or other business organization or subdivision thereof, or make any
investment by either purchase of stock or securities, contributions to capital ,
property transfer or, except in the ordinary course of business, purchase of any
property or assets, of any other individual or entity.
(xi) Tax Elections. HVJ shall not make any material tax election
or settle or compromise any material federal, state, local or foreign tax
liability.
(xii) Waivers and Releases. HVJ shall not waive, release, grant
or transfer any rights of material value or modify or change in any material
respect any Corporation Agreement other than in the ordinary course of business
and consistent with past practice.
(xiii) Other Actions. HVJ shall not enter into any agreement or
arrangement to do any of the foregoing. HVJ shall not take any action, or fail
to take any action, that is reasonably likely to result in any of the
representations and warranties of HVJ set forth in this Agreement becoming
untrue in any material respect.
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(b) INTERIM OPERATIONS OF ACQUIROR AND SUB. Acquiror and Sub jointly
and severally agree (except as expressly contemplated by this Agreement,
including any Exhibits and Schedules hereto, or to the extent that HVJ and the
HVJ Shareholder shall otherwise consent in writing or to the extent required to
permit Acquiror to meet its obligations under Section 5) that:
(i) Ordinary Course. Acquiror shall carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such business, use all
reasonable efforts to preserve intact its present business organization
(provided that such obligation shall not relate to the officers and employees of
Acquiror or any of its subsidiaries including the Sub) and preserve its
relationships with customers, suppliers and others having business dealings with
it. The Sub shall conduct no business activity other than in connection with the
transactions contemplated by this Agreement in connection with the Merger.
(ii) Potential Acquisitions and Issuance of Securities. As part
of its overall business strategy, Acquiror is presently in negotiations with
other companies that may be suitable acquisition targets. Acquiror may,
therefore, make one or more acquisitions prior to the Closing, and in connection
therewith, may be caused to issue additional securities, of whatever nature and
number, in connection with such acquisitions. In addition, Acquiror may also be
caused to issue additional securities, of whatever nature and number, in
connection with certain private placement transactions which may be undertaken
between the date hereof and the Closing.
(iii) Dividends; Changes in Stock. Neither Acquiror nor the Sub
shall (and shall not propose to) (a) declare or pay any dividend, on, or make
other distributions in respect of, any of its capital stock, (b) split, combine
or reclassify any of its capital stock or issue, authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, (c) repurchase or otherwise acquire any shares
of its capital stock or (d) otherwise change its capitalization.
(iv) No Dispositions. Acquiror shall not sell, lease, pledge,
encumber or otherwise dispose of, or agree to sell, lease, pledge, encumber or
otherwise dispose of, any of its assets that are material, or any other assets
except in the ordinary course of business consistent with prior practice.
(v) Benefit Plans, Etc. Neither Acquiror nor the Sub shall adopt
or amend in any material respect any collective bargaining agreement or Employee
Benefit Plan (as defined herein).
(vi) Other Actions. Neither Acquiror nor the Sub shall enter
into any agreement or arrangement to do any of the foregoing. Neither Acquiror
nor the Sub shall take any action, or fail to take any action, that is
reasonably likely to result in any of their representations and warranties set
forth in this Agreement becoming untrue in any material respect.
5.4 CONSENTS.
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Acquiror, Sub, HVJ and the HVJ Shareholder shall cooperate and use
their best efforts to obtain, prior to the Closing, all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts as are necessary for the consummation of
the transactions contemplated by this Agreement; provided, however, that no loan
agreement or contract for borrowed monies shall be repaid and no contract shall
be amended materially to increase the amount payable thereunder or otherwise to
be materially more burdensome in order to obtain any such consent, approval or
authorization without first obtaining the written approval of the other parties
hereto.
5.5 FILINGS.
Acquiror, the Sub, HVJ and the HVJ Shareholder shall, as promptly as
practicable, make any required filing, and any other required submissions, under
any law, statute, order rule or regulation with respect to the Merger and the
related transactions and shall cooperate with each other with respect to the
foregoing.
5.6 ALL REASONABLE EFFORTS.
Subject to the terms and conditions of this Agreement and to the
fiduciary duties and obligations of the boards of directors of the parties
hereto to their respective shareholders, as advised by their counsel, each of
the parties to this Agreement shall use all reasonable efforts to take, or cause
to be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations, or to remove any
injunctions or other impediments or delays, legal or otherwise, as soon as
reasonable practicable, to consummate the Merger and the other transactions
contemplated by this Agreement.
5.7 PUBLIC ANNOUNCEMENTS.
Acquiror, the Sub, HVJ and the HVJ Shareholder shall consult with
each other before issuing any press release or otherwise making any public
statements with respect to the Merger, this agreement or the other transactions
contemplated by this Agreement and shall not issue any other press release or
make any other public statement without prior consultation with the other
parties, except as may be required by law or, with respect to Acquiror, by
obligations pursuant to any listing agreement with an national securities
exchange.
5.8 NOTIFICATION OF CERTAIN MATTERS.
HVJ and the HVJ Shareholder shall give prompt notice to Acquiror,
and Acquiror and the Sub shall give prompt notice to HVJ and the HVJ
Shareholder, of (a) the occurrence or non-occurrence of any event, the
occurrence or non-occurrence of which would cause any of its representations or
warranties in this Agreement to be untrue or inaccurate in any material respect,
as to HVJ and the HVJ Shareholder, at or prior to the Closing, and, as to
Acquiror and Sub, as of the Closing and (b) any material failure of HVJ and the
HVJ Shareholder, on the one hand, or Acquiror or the Sub, on the other hand, as
the case may be, to comply with or satisfy any
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covenant, condition or agreement to be complied with or satisfied by them under
this Agreement; provided, however, the delivery of any notice pursuant to this
Section shall not limit or otherwise affect the remedies available to the party
receiving such notice under this Agreement as expressly provided in this
Agreement.
5.9 EXPENSES.
All costs and expenses incurred in connection with the Agreement and
the transactions contemplated hereby shall be paid by the party incurring such
expenses whether or not the Merger is consummated, provided that, the costs and
expenses of HVJ incurred in connection with the contemplated transactions shall
be borne by the HVJ Shareholder.
5.10 FINANCIAL STATEMENTS.
(a) Within seventy-five (75) days of the Closing, the Surviving
Corporation shall cause to be prepared an audit of the Financial Statements of
HVJ (the "Audited Financial Statements"). The Audited Financial Statements shall
not reflect any material adverse changes from the Financial Statements or
reflect any material contractions in the operations of the business. If the
stockholder's equity reflected on the Audited Financial Statements is more than
the amount reflected on the Financial Statements, or if the product of dividing
the stockholders equity reflected on the Audited Financial Statements by the
stockholder's equity reflected on the Financial Statements is greater than
Ninety Five Percent (95%), then there shall exist no deficiency. If the product
of dividing the stockholder's equity reflected on the Audited Financial
Statements by the stockholder's equity reflected on the Financial Statements is
less than Ninety Five Percent (95%), then the entire amount of such difference
between the stockholder's equity reflected on each of the Audited Financial
Statements and the Financial Statements shall constitute a deficiency hereunder
(the "Deficiency"), and shall be applied against, on a dollar for dollar basis,:
(i) first, the Escrow Cash; and
(ii) second, the Escrow Shares.
(b) The cost of the Audited Financial Statements shall be borne by
the Acquiror. The HVJ Shareholder shall take all reasonable actions and provide
whatever cooperation is necessary to facilitate the prompt preparation of the
Audited Financial Statements.
5.11 DOCUMENTS AT CLOSING.
Each party to this Agreement agrees to execute and deliver at the
Closing those documents identified in Section 2.2.
5.12 RELEASE AND PAYMENT OF CERTAIN LOANS.
(a) Acquiror agrees to release, remise and forever discharge certain
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indebtedness of the HVJ Shareholder which is owed to HVJ, as reflected on the
Financial Statements of HVJ, which amount shall not exceed $60,000.
(b) Acquiror agrees to use its best efforts to remove the HVJ
Shareholder as guarantor to any of the outstanding indebtedness of the Company
reflected on the Financial Statements, which he may have personally guaranteed.
(c) Each party to this Agreement agrees to take all actions
necessary to satisfy at Closing that promissory note from HVJ to Byron Colby,
(the "Colby Note"); provided however, the amount necessary to satisfy the Colby
Note shall not exceed $63,000.
5.13 PROHIBITION ON TRADING IN ACQUIROR STOCK.
HVJ and the HVJ Shareholder acknowledge that the United States
Securities Laws prohibit any person who has received material non-public
information concerning the matters which are the subject matter of this
Agreement from purchasing or selling the securities of the Acquiror, or from
communicating such information to any person under circumstances in which it is
reasonably foreseeable that such person is likely to purchase or sell securities
of the Acquiror. Accordingly, the HVJ Shareholder agrees that he will not
purchase or sell any securities of the Acquiror, or communicate such information
to any other person under circumstances in which it is reasonably foreseeable
that such person is likely to purchase or sell securities of the Acquiror, until
no earlier than 72 hours following the dissemination of a Current Report on Form
8-K to the SEC announcing the Closing pursuant to this Agreement.
5.14 ACKNOWLEDGMENT OF APPROVALS.
By virtue of their respective signatures to this Agreement,
Acquiror, Sub, HVJ and the HVJ Shareholder acknowledge their approval of this
Agreement and their consent to the consummation of the transactions identified
herein.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF HVJ AND THE HVJ SHAREHOLDER.
The obligations of HVJ and the HVJ Shareholder to consummate the
Merger and the other transactions contemplated to be consummated by it at the
Closing are subject to the satisfaction (or waiver by HVJ and the HVJ
Shareholder) at or prior to the Closing (or at such other time prior thereto as
may be expressly provided in this Agreement) of each of the following
conditions:
(a) The representations and warranties of Acquiror and the Sub set
out in this Agreement shall be true and correct in all material respects at and
as of the time of the
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Closing as though such representations and warranties were made at and as of
such time.
(b) Each of Acquiror and the Sub shall have complied in a timely
manner and in all material respects with the respective covenants and agreements
set out in this Agreement.
(c) The Merger shall have been approved by Acquiror and Sub in
accordance with the provisions of the DGCL. The Board of Directors of Acquiror
and the Board of Directors of Sub and Acquiror, as sole shareholder of Sub,
shall have approved the execution of this Agreement and the Merger thereby.
(d) Acquiror shall enter into an Employment Agreement with the HVJ
Shareholder upon terms and conditions mutually satisfactory to Acquiror and the
HVJ Shareholder.
(e) Acquiror shall enter into a Registration Rights Agreement the
form of which is attached hereto as Exhibit 2.2(a)(x).
(f) There shall be delivered to HVJ and the HVJ Shareholder an
officer's certificate of Acquiror and Sub to the effect that all of the
representations and warranties of Acquiror and Sub set forth herein are true and
complete in all material respects as of the Closing, and the Acquiror and Sub
have complied in all material respects with their covenants and agreements set
forth herein that are required to be complied with by the Closing.
(g) All director, shareholder, lender, lessor and other parties'
consents and approvals, as well as all filings with, and all necessary consents
or approvals of, all federal, state and local governmental authorities and
agencies, as are required under this Agreement, applicable law or any applicable
contract or agreement (other than as contemplated by this Agreement) to complete
the Merger shall have been secured.
(h) No statute, rule, regulation, executive order, decree,
injunction or restraining order shall have been enacted, entered, promulgated or
enforced by any court of competent jurisdiction or governmental authority that
prohibits or restricts the consummation of the Merger or the related
transactions.
(i) Acquiror shall use its best efforts to remove the HVJ
Shareholder as guarantor to any of the outstanding indebtedness of the Company
reflected on the Financial Statements, which he may have personally guaranteed.
(j) Acquiror shall release, remise and forever discharge certain
indebtedness of the HVJ Shareholder which is owed to HVJ, as reflected on the
Financial Statements of HVJ, which amount shall not exceed $60,000.
(k) Acquiror shall satisfy the Colby Note; provided however, the
amount necessary to satisfy the Colby Note shall not exceed $63,000.
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(l) HVJ and the HVJ Shareholder shall have received an opinion of
counsel issued by counsel to Acquiror in satisfactory form and content.
6.2 CONDITIONS TO ACQUIROR'S AND THE SUB'S OBLIGATIONS.
The obligations of Acquiror and the Sub to consummate the Merger and
the other transactions contemplated to be consummated by it at the Closing are
subject to the satisfaction (or waiver by Acquiror) at or prior to the Closing
(or at such other time prior thereto as may be expressly provided in this
Agreement) of each of the following conditions:
(a) The HVJ Shareholder shall not have filed with HVJ, prior to the
HVJ shareholder meeting at which a vote is to be taken with respect to a
proposal to approve this Agreement, a written objection to such proposed action,
as required by Section 5.12 of the TBCA in order for such shareholder to perfect
the right to dissent from such proposed action.
(b) The representations and warranties of HVJ and the HVJ
Shareholder set out in this Agreement shall be true and correct in all material
respects at and as of the time of the Closing as though such representations and
warranties were made at and as of such time.
(c) HVJ and the HVJ Shareholder shall have complied in a timely
manner and in all material respects with its covenants and agreements set out in
this Agreement.
(d) There shall be delivered to Acquiror and Sub an officer's
certificate of HVJ to the effect that all of the representations and warranties
of HVJ set forth herein are true and complete in all material respects as of the
Closing, and that HVJ has complied in all material respects with covenants and
agreements set forth herein required to be complied with by the Closing; and
there shall be delivered to Acquiror and Sub a certificate signed by the HVJ
Shareholder to the effect that the representations and warranties of the HVJ
Shareholder set forth herein are true and correct in all material respects and
that the HVJ Shareholder has complied in all material respects with its
covenants and agreements set forth herein required to be complied with by
Closing.
(e) The HVJ Shareholder shall have entered into an Employment
Agreement upon terms and conditions mutually satisfactory to Acquiror and the
HVJ Shareholder.
(f) The HVJ Shareholder shall have entered into a Registration
Rights Agreement, the form of which is attached hereto as Exhibit 2.2(a)(x).
(g) The HVJ Shareholder shall have entered into an Escrow Agreement,
the form of which is attached hereto as Exhibit 1.4(a).
(h) All director, shareholder, lender, lessor and other parties'
consents and approvals, as well as all filings with, and all necessary consents
or approvals of, all federal, state and local governmental authorities and
agencies, as are required under this Agreement, applicable law or any applicable
contract or agreement (other than as contemplated by this
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Agreement) to complete the Merger shall have been secured.
(i) No statute, rule, regulation, executive order, decree,
injunction or restraining order shall have been enacted, entered, promulgated or
enforced by any court of competent jurisdiction or governmental authority that
prohibits or restricts the consummation of the Merger or the related
transactions.
(j) The Board of Directors of HVJ and the HVJ Shareholder shall have
approved the Merger in accordance with the TBCA.
(k) Any interim period subsequent to the fiscal year ended December
31, 1997 up to the Closing, shall reflect no contraction in HVJ's level of
revenues, income and net worth as determined on a basis consistent with HVJ's
past practices and accounting methods.
(l) Acquiror shall have received an opinion of counsel issued by
counsel to HVJ and the HVJ Shareholder in satisfactory form and content.
ARTICLE VII
INDEMNIFICATION
7.1 INDEMNIFICATION.
(a) HVJ Shareholder. The HVJ Shareholder shall indemnify, defend and
hold harmless Acquiror and Sub from and against any and all demands, claims,
actions or causes of action, judgments, assessments, losses, liabilities,
damages or penalties and reasonable attorneys' fees and related disbursements
(collectively, "Claims") incurred by Acquiror or Sub which arise out of or
result from a misrepresentation, breach of warranty, or breach of any covenant
or agreement of HVJ or the HVJ Shareholder contained herein or in the Schedules
annexed hereto or in any deed, exhibit, closing certificate, schedule or any
ancillary certificates or other documents or instruments furnished by HVJ or the
HVJ Shareholder pursuant hereto or in connection with the transactions
contemplated hereby or thereby.
(b) Acquiror and Sub. Acquiror and Sub shall indemnify, defend and
hold harmless HVJ and the HVJ Shareholder from and against any and all Claims,
as defined at subsection 7.1(a) above, incurred by HVJ and/or the HVJ
Shareholder which arise out of or result from a misrepresentation, breach of
warranty or breach of any covenant of Acquiror and Sub contained herein or in
the Schedules annexed hereto or in any deed, exhibit, closing certificate,
schedule or any ancillary certificates or other documents or instruments
furnished by Acquiror or the Sub pursuant hereto or in connection with the
transactions contemplated hereby or thereby.
(c) Methods of Asserting Claims for Indemnification. All
claims for indemnification under this Agreement shall be asserted as follows:
(i) Third Party Claims. In the event that any Claim for which
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a party (the "Indemnitee") would be entitled to indemnification under this
Agreement is asserted against or sought to be collected from the Indemnitee by a
third party the Indemnitee shall promptly notify the other party (the
"Indemnitor") of such Claim, specifying the nature thereof, the applicable
provision in this Agreement or other instrument under which the Claim arises,
and the amount or the estimated amount thereof (the "Claim Notice"). The
Indemnitor shall have thirty (30) days (or, if shorter, a period to a date not
less than ten (10) days prior to when a responsive pleading or other document is
required to be filed but in no event less than ten (10) days from delivery or
mailing of the Claim Notice) (the "Notice Period") to notify the Indemnitee (a)
whether or not it disputes the Claim and (b) if liability hereunder is not
disputed, whether or not it desires to defend the Indemnitee. If the Indemnitor
elects to defend by appropriate proceedings, such proceedings shall be promptly
settled or prosecuted to a final conclusion in such a manner as to avoid any
risk of damage to the Indemnitee; and all costs and expenses of such proceedings
and the amount of any judgment shall be paid by the Indemnitor.
If the Indemnitee desires to participate in, but not control, any
such defense or settlement, it may do so at its sole cost and expense. If the
Indemnitor has disputed the Claim, as provided above, and shall not defend such
Claim, the Indemnitee shall have the right to control the defense or settlement
of such Claim, in its sole discretion, and shall be reimbursed by the Indemnitor
for its reasonable costs and expenses of such defense.
(ii) Non-Third Party Claims. In the event that the Indemnitee
should have a Claim for indemnification hereunder which does not involve a Claim
being asserted against it or sought to be collected by a third party, the
Indemnitee shall promptly send a Claim Notice with respect to such Claim to the
Indemnitor. If the Indemnitor does not notify the Indemnitee within the Notice
Period that it disputes such Claim, the Indemnitor shall pay the amount thereof
to the Indemnitee. If the Indemnitor disputes the amount of such Claim, the
controversy in question shall be submitted to arbitration pursuant to Section
9.8 hereafter.
(iii) Right of Set-Off. In the event a Claim arises pursuant to
subparagraph 7.1(a), in addition to any of its other rights under this Section
7, Acquiror shall have the right to apply the amount of the Claim against the
amounts identified at subparagraph 1.4(b); provided, however, that this
subparagraph shall not be the exclusive remedy of Acquiror in the event a Claim
arises pursuant to subparagraph 7.1(a).
ARTICLE VIII
TERMINATION
8.1 TERMINATION.
This Agreement may be terminated and the Merger may be abandoned at
any time prior to or at the Closing:
(a) by mutual written consent of the board of directors of
Acquiror, the Sub,
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HVJ and the HVJ Shareholder;
(b) by any of Acquiror, the Sub, HVJ or the HVJ Shareholder;
(i) if the Closing shall not have occurred on or before [MARCH
18, 1998], unless otherwise extended in writing by all of the parties hereto;
provided, however, that the right to terminate this Agreement under this Section
8.1(b)(i) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before that date; or
(ii) if any court of competent jurisdiction, or any governmental
body, regulatory or administrative agency or commission having appropriate
jurisdiction shall have issued an order, decree or filing or taken any other
action restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other action
shall have become final and non-appealable.
(c) by HVJ and the HVJ Shareholder if any of the conditions
specified in Section 6.1 have not been met or if satisfaction of such a
condition is or becomes impossible (other than through the failure of HVJ or the
HVJ Shareholder to comply with their respective obligations under this
Agreement) and HVJ and the HVJ Shareholder have not waived such conditions on or
before the Closing; or
(d) by Acquiror and Sub if any of the conditions specified in
Section 6.2 have not been met or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Acquiror or Sub to comply
with their respective obligations under this Agreement) and Acquiror and Sub
have not waived such condition on or before the Closing.
8.2 NOTICE AND EFFECT OF TERMINATION.
In the event of the termination and abandonment of this Agreement
pursuant to Section 8.1, written notice thereof shall forthwith be given to the
other party or parties specifying the provision pursuant to which such
termination is made. In the event of termination pursuant to Section 8.1(a),
8.1(b), Section 8.1(c) in respect of the conditions specified in Sections
6.1(h), and (i), or Section 8.1(d) in respect of the conditions specified in
Sections 6.2(i) and (j), upon termination, this Agreement shall forthwith become
void and all obligations of the parties under this Agreement will terminate
without any liability on the part of any party or its directors, officers or
shareholders and none of the parties shall have any claim or action against any
other party, except that the provisions of this Section 8.2 and Section 5.2, 5.7
and 5.9, shall survive any termination of this Agreement. Notwithstanding the
foregoing, if the Agreement is terminated by a party pursuant to Section 8.1(c)
in respect of conditions specified in Sections 6.1 other than Section 6.1(h) and
(i) or pursuant to Section 8.1(d) in respect of the conditions specified in
Section 6.2 other than Section 6.2(i) and (j), the terminating party's right to
pursue all legal remedies will survive such termination unimpaired. Nothing
contained in this Section 8.2 shall relieve any party from any liability for any
breach of this Agreement other than in the event of a termination pursuant to
Section 8.1.
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8.3 EXTENSION; WAIVER.
Any time prior to the Closing, the parties may (a) extend the time
for the performance of any of the obligations or other acts of any other party
under or relating to this Agreement; (b) waive any inaccuracies in the
representations or warranties by any other party or (c) waive compliance with
any of the agreements of any other party or with any conditions to its own
obligations. Any agreement on the part of any other party to any such extension
or waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
8.4 AMENDMENT AND MODIFICATION.
This Agreement may be amended, whether before or after the vote of
the HVJ Shareholder or shareholders of Acquiror, by written agreement of
Acquiror, the Sub, HVJ and the HVJ Shareholder; provided, however, that after
the approval, if any, of this Agreement by the HVJ Shareholder, no such
amendment shall reduce or change the consideration to be received by any HVJ
Shareholder in connection with the Merger as set out in Section 1.3 hereof or
shall otherwise adversely affect the rights under this Agreement of the HVJ
Shareholder without the approval of such adversely affected shareholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of Acquiror, the Sub, HVJ and the HVJ Shareholder.
ARTICLE IX
MISCELLANEOUS
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; REMEDIES.
All representations, warranties, covenants, and obligations in this
Agreement, the schedules and any other certificate or document delivered
pursuant to this Agreement will survive the Closing. The right to
indemnification, payment of damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any Knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty,
covenant, or obligation. The waiver of any condition based on the accuracy of
any representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment of
damages, or other remedy based on such representations, warranties, covenants,
and obligations.
The rights and remedies of the parties to this Agreement are
cumulative, not alternative. In addition to their respective rights to damages
or other remedies they may have, and without limitation thereof, Acquiror and
Sub shall have the right to obtain injunctive relief to restrain any breach or
otherwise to specifically enforce the provisions of this Agreement, it being
agreed by the parties that money damages alone would be inadequate to compensate
37
<PAGE> 43
Acquiror and Sub for such breach or other failure to perform the obligations of
HVJ and the HVJ Shareholder under this Agreement.
9.2 NOTICES.
All notices requests, demands, waivers and other communications
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been duly given on the date if delivered personally, or
upon the second business day after it shall have been deposited by certified or
registered mail with postage prepaid, or sent by telex, telegram or telecopier,
as follows (or at such other address or facsimile number for a party as shall be
specified by like notice):
(a) if to HVJ to it at: with a copy to:
H.V. Jones, Inc. Rick Shanks, Esquire
1626 West Sam Houston Richard C. Shanks, P.C.
Parkway North 5900 Memorial, Suite 210
Houston, TX 77043 Houston, TX 77007
Attn: Hugh V. Jones
Fax: (713) 461-6295 Fax: (713) 803-1091
and
(b) if to Acquiror or the Sub to it at: with a copy to:
Pacific Rim Entertainment, Inc. Stephen M. Cohen, Esquire
1661 E. Camelback Road Buchanan Ingersoll, P.C.
Suite 245 Eleven Penn Center, 14th Floor
Phoenix, AZ 85016 Philadelphia, PA 19103
Attn: Jack Leadbeater Fax: (215) 665-8760
Fax: (602) 274-1295
9.3 ENTIRE AGREEMENT; ASSIGNMENT.
This Agreement, including all Exhibits and Schedules hereto,
constitutes the entire Agreement among the parties with respect to its subject
matter and supersedes all prior agreements and understandings, both written and
oral, among the parties or any of them with respect to such subject matter and
shall not be assigned by operation of law or otherwise.
9.4 BINDING EFFECT; BENEFIT.
This Agreement shall inure to the benefit of and be binding upon the
parties and their respective successors and assigns. Nothing in this Agreement
is intended to confer on any person other than the parties to this Agreement or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
38
<PAGE> 44
9.5 HEADINGS.
The descriptive headings of the sections of this Agreement are
inserted for convenience only, do not constitute a part of this Agreement and
shall not affect in any way the meaning or interpretation of this Agreement.
9.6 COUNTERPARTS.
This Agreement may be executed in two or more counterparts and
delivered via facsimile, each of which shall be deemed to be an original, and
all of which together shall be deemed to be one and the same instrument.
9.7 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without regard to the laws that might
otherwise govern under principles of conflicts of laws applicable thereto.
9.8 ARBITRATION.
If a dispute arises as to the interpretation of this Agreement, it
shall be decided finally in an arbitration proceeding conforming to the Rules of
the American Arbitration Association applicable to commercial arbitration then
in effect at the time of the dispute. The arbitration shall take place in
Phoenix, Arizona. The decision of the Arbitrators shall be conclusively binding
upon the parties and final, and such decision shall be enforceable as a judgment
in any court of competent jurisdiction. The parties shall share equally the
costs of the arbitration.
9.9 SEVERABILITY.
If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or other authority to be invalid,
void, unenforceable or against its regulatory policy, the remainder of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
9.10 RELEASE AND DISCHARGE.
By virtue of their execution of this Agreement, as of the Closing
and thereafter, the HVJ Shareholder hereby agrees to release, remise and forever
discharge HVJ from and against any and all debts, obligations, liabilities and
amounts owing from HVJ to the HVJ Shareholder prior to the Closing, and HVJ is
not obligated to take any action or make any payments to third parties on behalf
of the HVJ Shareholder.
39
<PAGE> 45
9.11 CERTAIN DEFINITIONS.
As used herein:
(a) "AFFILIATE" shall have the meanings ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended to date (the "Exchange Act");
(b) "BUSINESS DAY" shall mean any day other than a Saturday, Sunday
or a day on which federally chartered financial institutions are not open for
business in the City of Phoenix, Arizona.
(c) "KNOWLEDGE" shall mean the actual current knowledge of the
executive management of the party to this Agreement to whom knowledge is
ascribed together with the knowledge such executive management should reasonably
be expected to have in the performance of its duties and responsibilities.
(d) "MATERIAL ADVERSE EFFECT" shall mean any adverse effect on the
business, condition (financial or otherwise) or results of operation of the
relevant party and its subsidiaries, if any, which is material to such party and
its subsidiaries, if any, taken as a whole;
(e) "PERSON" means any individual, corporation, partnership,
association, trust or other entity or organization, including a governmental or
political subdivision or any agency or institution thereof; and
(f) "SUBSIDIARY" shall mean, when used with reference to an entity,
any corporation, a majority of the outstanding voting securities of which is
owned directly or indirectly, or a majority of the board of directors of which
may be elected, by such entity.
40
<PAGE> 46
IN WITNESS WHEREOF, Acquiror, the Sub, HVJ and the HVJ Shareholder
have caused this Agreement to be signed by their respective officers hereunto
duly authorized, all as of the date first written above.
Attest: PACIFIC RIM ENTERTAINMENT, INC.
By: David Olson By: Jack Leadbeater
-------------------------------- -----------------------------------
Name:
Title: President
Attest: JONES ACQUISITION CORP.
By: Jack Leadbeater By: Jack Leadbeater
-------------------------------- -----------------------------------
Name:
Title: President
Attest: H.V. JONES, INC.
By: Hugh V. Jones By: Hugh V. Jones
-------------------------------- -----------------------------------
Name:
Title:President
HVJ SHAREHOLDER:
Witness
John Iorillo Hugh V. Jones
---------------------------------- -----------------------------------
Name: Signature
--------------------------------- Name:
Address: Address:
------------------------------ -----------------------------
---------------------------------- -----------------------------------
Percentage of Ownership:
--------------
41
<PAGE> 1
EXHIBIT 2.6
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER (the "Amendment"), is
made and entered into as of March 17, 1998, by and among OSAGE SYSTEMS GROUP,
INC. f/k/a Pacific Rim Entertainment, Inc., a Delaware corporation ("Acquiror"),
Jones Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of
Acquiror ("Sub"), H.V. Jones, Inc., a Texas corporation ("HVJ"), and Hugh V.
Jones, as the sole shareholder of HVJ (the "HVJ Shareholder").
RECITALS
WHEREAS, the parties hereto entered into an Agreement and Plan of Merger
effective as of the date thereof (the "Merger Agreement") pursuant to which Sub
shall merge with and into HVJ (the "Merger");
WHEREAS, the parties hereto desire to amend the Merger Agreement in the
manner set forth herein effective as of the date hereof; and
WHEREAS, any capitalized term used but not defined herein shall have the
meaning ascribed to such term in the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
representations, and agreements contained herein and for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree that the Merger Agreement is hereby amended as
follows:
1. Section 1.3(a)(i) and 1.3(a)(ii) regarding Merger Consideration are
amended in their entirety to read as follows:
(a) Subject to the provisions of Section 1.4 hereafter, the Merger
Consideration, consisting of the total purchase price payable to the HVJ
Shareholder in connection with the acquisition by merger of HVJ, shall be
paid or delivered, as the case may be, and shall consist exclusively of
the following:
(i) at the Closing (as hereafter defined), $395,000 in cash,
cashier's check or by wire transfer to the accounts specified in writing
to Acquiror at least three (3) days prior to the Closing;
(ii) at the Closing, delivery of 105.3 newly issued shares of
Acquiror's preferred stock having a liquidation amount of $1,580,000
("Acquiror Preferred Stock"), subject to the terms and conditions set
forth within the Certificate of Designation attached hereto as Exhibit
1.3(a)(ii); and
<PAGE> 2
2. Section 1.4(b) regarding Escrow Consideration is amended in its
entirety to read as follows:
(b) The Escrow Consideration shall consist of:
(i) One Hundred Fifty Seven Thousand Five Hundred
Dollars ($157,500) of the Merger Consideration identified at
subparagraph 1.3(a)(i)(the "Escrow Cash"); and
(ii) 33.3 shares of Acquiror Preferred Stock having a
liquidation amount of $500,000 (the "Escrow Shares"), provided however,
that the Escrow Shares shall constitute those shares of Acquiror Preferred
Stock that shall last convert into Acquiror Common Stock in accordance
with the conversion features contained within the Certificate of
Designation of the Acquiror Preferred Stock. The Escrow Shares shall
include those shares of Acquiror Common Stock which are issued upon
conversion, and shall be subject to the terms and provisions of the Escrow
Agreement as though such shares were originally deposited in escrow upon
Closing
3. Except as otherwise set forth herein, the terms of the Merger Agreement
shall remain in full force and effect.
4. This Amendment may be executed in two or more counterparts and
delivered via facsimile, each of which shall be deemed to be an original, and
all of which together shall be deemed to be one and the same instrument.
5. This Amendment shall be governed by and construed in accordance with the
laws of Delaware, without regard to the laws that might otherwise govern under
principles of conflicts of laws applicable hereto.
IN WITNESS WHEREOF, Acquiror, Sub, HVJ and the HVJ Shareholder have
caused this Agreement to be signed by their respective officers hereunto duly
authorized, all as of the date first written above.
Attest: OSAGE SYSTEMS GROUP, INC.
By: David Olson By: Jack Leadbeater
--------------------------------- -----------------------------------
Name:
Title: President
<PAGE> 3
Attest: JONES ACQUISITION CORP.
By: Jack Leadbeater By: Jack Leadbeater
------------------------------ ------------------------------------
Name:
Title: President
Attest: H.V. JONES, INC.
By: Hugh V. Jones By: Hugh V. Jones
------------------------------ ------------------------------------
Name:
Title: President
HVJ SHAREHOLDER:
Witness
John Iorillo Hugh V. Jones
- ----------------------------------- ---------------------------------------
Name: Signature
------------------------------
Address: Name:
------------------------------ Address:
--------------------------------
- ----------------------------------
----------------------------------------
Percentage of Ownership:
--------------
<PAGE> 1
EXHIBIT 2.7
CERTIFICATE OF MERGER
OF
SOLSOURCE ACQUISITION CORP.
INTO
SOLSOURCE COMPUTERS, INC.
Solsource Acquisition Corp., a corporation organized and existing under
and by virtue of the General Corporation Law ("GCL") of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger is as follows:
NAME STATE OF INCORPORATION
Solsource Acquisition Corp. Delaware
Solsource Computers, Inc. California
SECOND: That an Agreement and Plan of Merger (the "Agreement") between
the parties to the merger has been approved, adopted, certified, executed and
acknowledged by each of the constituent corporations in accordance with the
requirements of Section 252 of the GCL of the State of Delaware.
THIRD: That the surviving corporation of the merger is Solsource
Computers, Inc.
FOURTH: That the certificate of incorporation of Solsource Computers
Inc. a California corporation, the surviving corporation, shall be the
Certificate of Incorporation of the surviving corporation.
FIFTH: That the executed Agreement is on file at the principal place
of business of the surviving corporation. The address of the principal place of
business of the surviving corporation is 2075 Corte del Nogal, Suite D,
Carlsbad, California, 92009.
SIXTH: That a copy of the Agreement will be furnished by the
surviving corporation, on request and without cost to any stockholder of
any constituent corporation.
SEVENTH: That Solsource Computers, Inc. survives the merger and may be
served with process in the State of Delaware in any proceeding for enforcement
of any obligation of any constituent Delaware corporation as well as for
enforcement of any obligation of the surviving corporation arising from the
merger, including any suit or other proceeding to enforce the right of any
stockholder as determined in appraisal proceedings pursuant to the provisions of
Section 262 of the GCL of Delaware, and it does hereby irrevocably appoint the
Secretary of State of Delaware as its agent to accept service of process in any
such suit or other proceeding. The address to which a copy of such process
<PAGE> 2
shall be mailed by the Secretary of State of Delaware is 2075 Corte del Nogal,
Suite D, Carlsbad, California, 92009 until the surviving corporation shall have
hereafter designated in writing to the said Secretary of State a different
address for such purpose.
EIGHTH: The merger shall become effective upon the filing of
this Certificate of Merger with the State of Delaware.
IN WITNESS WHEREOF, the parties have caused the Certificate to be
signed by Jack Leadbeater, President of Solsource Acquisition Corp. and
Daniel J. Vahalla, President of Solsource Computers, Inc. this ______
day of March, 1998.
SOLSOURCE ACQUISITION CORP.
By: _________________________________
Jack Leadbeater, President
SOLSOURCE COMPUTERS, INC.
By: _________________________________
Daniel J. Vahalla, President
-2-
<PAGE> 1
EXHIBIT 2.8
CERTIFICATE OF MERGER
OF
JONES ACQUISITION CORP.
INTO
H.V. JONES, INC.
Jones Acquisition Corp., a corporation organized and existing under and by
virtue of the General Corporation Law ("GCL") of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger is as follows:
NAME STATE OF INCORPORATION
Jones Acquisition Corp. Delaware
H.V. Jones, Inc. Texas
SECOND: That an Agreement and Plan of Merger (the "Agreement")
between the parties to the merger has been approved, adopted, certified,
executed and acknowledged by each of the constituent corporations in accordance
with the requirements of Section 252 of the GCL of the State of Delaware.
THIRD: That the surviving corporation of the merger is H.V.
Jones, Inc.
FOURTH: That the certificate of incorporation of H.V. Jones, Inc.
a Texas corporation, the surviving corporation, shall be the Certificate
of Incorporation of the surviving corporation.
FIFTH: That the executed Agreement is on file at the principal place
of business of the surviving corporation. The address of the principal place of
business of the surviving corporation is 1626 West Sam Houston Parkway North,
Houston, Texas, 77043.
SIXTH: That a copy of the Agreement will be furnished by the
surviving corporation, on request and without cost to any stockholder of
any constituent corporation.
SEVENTH: That, H.V. Jones, Inc. survives the merger and may be served
with process in the State of Delaware in any proceeding for enforcement of any
obligation of any constituent Delaware corporation as well as for enforcement
of any obligation of the surviving corporation arising from the merger,
including any suit or other proceeding to enforce the right of any stockholder
as determined in appraisal proceedings pursuant to the provisions of Section 262
of GCL of Delaware, and it does hereby irrevocably appoint the Secretary of
State of Delaware as its agent to accept service of process in any such suit or
other proceeding. The address to which a copy of such process shall be mailed by
the Secretary of State of Delaware is 1626 West Sam Houston Parkway North,
Houston,
<PAGE> 2
Texas, 77043 until the surviving corporation shall have hereafter designated in
writing to the said Secretary of State a different address for such purpose.
EIGHTH: The merger shall become effective upon the filing of
this Certificate of Merger with the State of Delaware.
IN WITNESS WHEREOF, the parties have caused the Certificate to be
signed by Jack Leadbeater, President of Jones Acquisition Corp. and Hugh
V. Jones, President of H.V. Jones, Inc. this ______ day of March, 1998.
JONES ACQUISITION CORP.
By: _________________________________
Jack Leadbeater, President
H.V. JONES, INC.
By: _________________________________
Hugh V. Jones, President
- 2 -
<PAGE> 1
EXHIBIT 3.8
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
of
SERIES C Convertible Preferred Stock
of
OSAGE SYSTEMS GROUP, INC.
Pursuant to Section 151(g) of the General Corporation Law
of the State of Delaware
Osage Systems Group, Inc., a Delaware corporation (the "Company"),
certifies that pursuant to the authority contained in its Certificate of
Incorporation, as amended, and in accordance with the provisions of Section
151(g) of the General Corporation Law of the State of Delaware, its Board of
Directors (the "Board of Directors") in an action taken as of February 27, 1998,
has duly adopted the following resolution amending a series of its Preferred
Stock, $.01 par value, designating a segment thereof as Series C Convertible
Preferred Stock:
WHEREAS, the Certificate of Incorporation of the Company presently
authorizes the issuance of 1,000 shares of Preferred Stock, $.01 par value, in
one or more series upon terms and conditions that are to be designated by the
Board of Directors;
WHEREAS, in order to accommodate a business purpose deemed proper by the
Board of Directors to facilitate the acquisition by the Company of H.V. Jones,
Inc. ("HVJ") pursuant to the Agreement and Plan of Merger by and among the
Company and HVJ dated as of February 27, 1998 (the "Merger Agreement"), the
Board of Directors does hereby seek to provide for the designation of a segment
of the Company's Preferred Stock as "Series C Convertible Preferred Stock;" and
WHEREAS, the terms, conditions, voting rights, preferences, limitations
and special rights of the Series C Convertible Preferred Stock in their entirety
are as provided herein.
NOW, THEREFORE, be it:
RESOLVED, that a series of the class of authorized Preferred Stock, $.01
par value, of the Company hereinafter designated "Series C Convertible Preferred
Stock," be hereby created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating and other special rights
of the shares of such series, and the qualifications, limitations or
restrictions thereof are as follows:
<PAGE> 2
Section 1. Designation and Amount.
The shares of such series shall be designated as the "Series C Convertible
Preferred Stock" (the "Series C Convertible Preferred Stock") and the number of
shares initially constituting such series shall be 105.3 which may be issued in
whole or fractional shares.
Section 2. Dividends and Distributions.
(a) The holders of the Series C Convertible Preferred Stock shall
only be entitled to receive, the Board of Directors shall be required to declare
and the Company shall be required to pay, out of funds legally available
therefor, an amount of dividends that would be payable to the holders of the
Series C Convertible Preferred Stock as though then converted if, as and when
any dividends are declared by the Board of Directors on the Common Stock of the
Company. Dividend payments to the holders of the shares of Series C Convertible
Preferred Stock shall be payable in cash by delivery of a check to each entitled
holder's address which is registered with the Secretary of the Company.
(b) The holders of shares of Series C Convertible Preferred Stock
shall not be entitled to receive any dividends or other distributions except as
provided in this Certificate of Designation of Series C Convertible Preferred
Stock.
Section 3. Voting Rights.
Except as required by law, the holders of the Series C Convertible
Preferred Stock, shall have no voting rights and their consent shall not be
required for the taking of any corporate action.
Section 4. Liquidation, Dissolution, Winding Up or Certain Mergers or
Consolidations.
(a) If the Company shall adopt a plan of liquidation or of
dissolution, or commence a voluntary case under the federal bankruptcy laws or
any other applicable state or federal bankruptcy, insolvency or similar law, or
consent to the entry of an order for relief in any involuntary case under such
law or to the appointment of a receiver, liquidator, assignee, custodian,
trustee or sequestrator (or similar official) of the Company or of any
substantial part of its property, or make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts generally as they
become due and on account of such event the Company shall liquidate, dissolve or
wind up, or upon any other liquidation, dissolution or winding up of the
Company, or engage in a merger, plan of reorganization or consolidation in which
the Company is not the surviving corporation, then and in that event, no
distribution shall be made to the holders of shares of Common Stock, unless,
prior thereto, the holders of the Series C Convertible Preferred Stock shall
have first received an amount in cash or equivalent value in securities or other
consideration equal to the "liquidation preferences" thereof. If upon any
liquidation, dissolution, winding up, merger, plan of reorganization or
consolidation, the amount so payable or distributable does not equal or exceed
the "liquidation preferences" of the Series A $3.00 Convertible Preferred Stock,
the Series B $3.00 Convertible Preferred Stock and the Series C
2
<PAGE> 3
Convertible Preferred Stock, then, and in that event, the amount of cash so
payable, and amount of securities or other consideration so distributable, shall
be shared ratably according to the respective "liquidation preferences" due to
the holders of the Series A $3.00 Convertible Preferred Stock, Series B $3.00
Convertible Preferred Stock and the Series C Convertible Preferred Stock. After
payment in full of the "liquidation preferences" owed to the holders of the
Series A $3.00 Convertible Preferred Stock, Series B $3.00 Convertible Preferred
Stock and the Series C Convertible Preferred Stock, the holders of the Common
Stock shall be entitled, to the exclusion of the holders of the Series A $3.00
Convertible Preferred Stock, Series B $3.00 Convertible Preferred Stock and the
Series C Convertible Preferred Stock, to share in all remaining assets of the
Company in accordance with their respective interests. For the purposes hereof,
the term "liquidation preference(s)" shall mean $15,000 per share with respect
to each of the Series C Convertible Preferred Stock, or an aggregate amount of
$1,580,000, assuming no shares thereof had been converted.
(b) Except as provided in subparagraph (a) above, neither the
consolidation, merger or other business combination of the Company with or into
any other person or persons in which the Company is the surviving corporation
nor the sale, lease, exchange or conveyance of all or any part of the property,
assets or business of the Company to a person or persons other than the holders
of the Company's Common Stock, shall be deemed to be a liquidation, dissolution
or winding up of the Company.
Section 5. Conversion.
(a) Subject to the provisions for adjustment hereinafter set
forth, the shares of Series C Convertible Preferred Stock shall be convertible
into fully paid and non-assessable shares of Common Stock in the following
manner:
(i) twenty-five percent (25%) of the first 100 shares of
Series C Convertible Preferred Stock (i.e., those 25 shares with an aggregate
liquidation preference of $375,000) shall automatically, and without any action
or notice on the part of the Company or Holder, convert into Common Stock of the
Company on the last day of each of the three (3) month periods following the
closing of the Merger (the "Closing"); and shall upon such dates of conversion
convert into shares of Common Stock at a conversion rate (the "Conversion Rate")
equal to the lower of: (x) the average of the closing prices of the Company's
Common Stock on the principal exchange, automated quotation system or
over-the-counter market upon which the Company's Common Stock trades, for the
ten (10) trading days prior to the Closing; or (y) a thirty-three percent (33%)
premium over the average of the closing prices of the Company's Common Stock on
the principal exchange, automated quotation system or over-the-counter market
upon which the Company's Common Stock trades, for the ten (10) trading days
prior to the date of each conversion.
(ii) all of the remaining 5.3 shares of Series C Convertible
Preferred Stock (i.e., those 5.3 shares with an aggregate liquidation preference
of $80,000) shall automatically, and without any action or notice on the part of
the Company or Holder, convert into Common Stock of the Company on the last day
of the three (3) month period following the
3
<PAGE> 4
Closing; and shall upon such date of conversion convert into shares of Common
Stock at the Conversion Rate.
(b) The number of shares of Common Stock into which each share of
Series C Convertible Preferred Stock is convertible also shall be subject to
adjustment from time to time as follows:
(i) In case the Company shall at any time or from time to
time declare a dividend, or make a distribution, on the outstanding shares of
Common Stock in shares of Common Stock or subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares or combine or
reclassify the outstanding shares of Common Stock into a smaller number of
shares of Common Stock, and in each case,
(A) the number of shares of Common Stock into which
each share of Series C Convertible Preferred Stock is convertible shall be
adjusted so that the holder of each share thereof shall be entitled to receive,
upon the conversion thereof, the number of shares of Common Stock which the
holder of a share of Series C Convertible Preferred Stock would have been
entitled to receive after the happening of any of the events described above had
such share been converted immediately prior to the happening of such event or
the record date therefor, whichever is earlier; and
(B) an adjustment made pursuant to this clause (i)
shall become effective (I) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such dividend or
distribution, or (II) in the case of any such subdivision, reclassification or
combination, at the close of business on the day upon which such corporate
action becomes effective.
(ii) In case the Company shall be a party to any transaction
(including, without limitation, a merger, consolidation, sale of all or
substantially all of the Company's assets or recapitalization of the Common
Stock and excluding (X) any transaction to which clause (i) of this paragraph
(b) applied, and (Y) a merger or consolidation in which the Company is the
surviving corporation in which the previously outstanding Common Stock shall be
changed into or, pursuant to the operation of law or the terms of the
transaction to which the Company is a party, exchanged for different securities
of the Company or common stock or other securities of another corporation or
interests in a noncorporate entity or other property (including cash) or any
combination of any of the foregoing), then, as a condition of the consummation
of such transaction, in addition to the requirements of paragraph 4(a), lawful
and adequate provision shall be made so that each holder of shares of Series C
Convertible Preferred Stock shall be entitled, upon conversion, to an amount per
share equal to (A) the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or which each
share of Common Stock is changed or exchanged times (B) the number of shares of
Common Stock into which a share of Series C Convertible Preferred Stock is
convertible immediately prior to the consummation of such transaction.
4
<PAGE> 5
(c) In case the Company shall be a party to a transaction
described in subparagraph (b)(ii) above resulting in the change or exchange of
the Company's Common Stock then, from and after the date of announcement of the
pendency of such subparagraph (b)(ii) transaction until the effective date
thereof, each share of Series C Convertible Preferred Stock may be converted, at
the option of the holder thereof, into shares of Common Stock on the terms and
conditions set forth in this Section 5, and if so converted during such period,
such holder shall be entitled to receive such consideration in exchange for such
holder's shares of Common Stock as if such holder had been the holder of such
shares of Common Stock as of the record date for such change or exchange of the
Common Stock.
(d) The holder of any shares of Series C Convertible Preferred
Stock may exercise his right to convert such shares into shares of Common Stock
by surrendering for such purpose to the Company, at the offices of the Company,
at 1661 East Camelback Road, Suite 245, Phoenix, Arizona 85016, or any successor
location, a certificate or certificates representing the shares of Series C
Convertible Preferred Stock to be converted with the form of election to convert
(the "Election to Convert") on the reverse side of the stock certificate
completed and executed as indicated, thereby stating that such holder elects to
convert all or a specified whole number of such shares in accordance with the
provisions of this Section 5 and specifying the name or names in which such
holder wishes the certificate or certificates for shares of Common Stock to be
issued. In case the Election to Convert shall specify a name or names other than
that of such holder, it shall be accompanied by payment of all transfer or other
taxes payable upon the issuance of shares of Common Stock in such name or names
that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of Series C Convertible Preferred Stock pursuant hereto. The
Company will have no responsibility to pay any taxes with respect to the Series
C Convertible Preferred Stock. As promptly as practicable, and in any event
within three Business Days after the surrender of such certificate or
certificates and the receipt of the Election to Convert, and, if applicable,
payment of all transfer or other taxes (or the demonstration to the satisfaction
of the Company that such taxes have been paid), the Company shall deliver or
cause to be delivered (i) certificates representing the number of validly
issued, fully paid and nonassessable full shares of Common stock to which the
holder of shares of Series C Convertible Preferred Stock so converted shall be
entitled and (ii) if less than the full number of shares of Series C Convertible
Preferred Stock evidenced by the surrendered certificate or certificates are
being converted, a new certificate or certificates, of like tenor, for the
number of shares evidenced by such surrendered certificate or certificates less
the number of shares converted. Such conversion shall be deemed to have been
made at the close of business on the date of giving of the Election to Convert
and of such surrender of the certificate or certificates representing the shares
of Series C Convertible Preferred Stock to be converted so that the rights of
the holder thereof as to the shares being converted shall cease except for the
right to receive shares of Common Stock in accordance herewith, and the person
entitled to receive the shares of Common Stock shall be treated for all purposes
as having become the record holder of such shares of Common Stock at such time.
The Company shall not be required to convert, and no surrender of shares of
Series C Convertible Preferred Stock shall be effective for that purpose, while
the transfer books of the Company for the Common Stock are closed for any
purpose (but not for any period in excess of 15 calendar days); but the
surrender of shares of Series C Convertible Preferred Stock for conversion
during any period while such books are so closed
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<PAGE> 6
shall become effective for conversion immediately upon the reopening of such
books, as if the conversion had been made on the date such shares of Series C
Convertible Preferred Stock were surrendered, and at the conversion rate in
effect at the date of such surrender.
(e) In connection with the conversion of any shares of Series C
Convertible Preferred Stock, no fractions of shares of Common Stock shall be
issued, but in lieu thereof the Company shall pay a cash adjustment in respect
of such fractional interest in an amount equal to such fractional interest
multiplied by the Conversion Rate.
Section 6. Reports as to Adjustments.
Whenever the number of shares of Common Stock into which each share of
Series C Convertible Preferred Stock is convertible is adjusted as provided in
Section 5 hereof, the Company shall promptly mail to the holders of record of
the outstanding shares of Series C Convertible Preferred Stock at their
respective addresses as the same shall appear in the Company's stock records a
notice stating that the number of shares of Common Stock into which the shares
of Series C Convertible Preferred Stock are convertible has been adjusted and
setting forth the new number of shares of Common Stock (or describing the new
stock, securities, cash or other property) into which each share of Series C
Convertible Preferred Stock is convertible, as a result of such adjustment, a
brief statement of the facts requiring such adjustment and the computation
thereof, and when such adjustment became effective.
Section 7. Redemption.
The Company shall not have the right to redeem all or any part of the
Series C Convertible Preferred Stock and the Holder shall not have the right to
cause or request such a redemption.
Section 8. Registration Rights.
The holders of the Series C Convertible Preferred Stock shall have the
registration rights as set forth in the Registration Rights Agreement attached
as an Exhibit to the Merger Agreement.
Section 9. Reacquired Shares.
Any shares of Series C Convertible Preferred Stock converted, purchased or
otherwise acquired by the Company in any manner whatsoever shall be retired and
canceled promptly after the acquisition thereof, and, if necessary to provide
for the lawful purchase of such shares, the capital represented by such shares
shall be reduced in accordance with the General Corporation Law of the State of
Delaware. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock, $.01 par value, of the Company and may be
reissued as part of another series of Preferred Stock, $.01 par value, of the
Company.
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<PAGE> 7
Section 10. Certain Definitions.
For the purposes of the Certificate of Designation of Series C Convertible
Preferred Stock which embodies this resolution:
"Business Day" means any day other than a Saturday, Sunday, or a day on
which banking institutions in the State of Delaware are authorized or obligated
by law or executive order to close.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, any day other than a Saturday,
Sunday, or a day on which banking institutions in the State of Delaware are
authorized or obligated by law or executive order to close.
IN WITNESS WHEREOF, the Company has caused this Certificate of Designation
of Series C Convertible Preferred Stock to be duly executed by its President
this _____ day of March, 1998.
OSAGE SYSTEMS GROUP, INC.
By:_______________________________
Jack Leadbeater,
Chief Executive Officer
7
<PAGE> 1
Exhibit 4.7
SEE LEGEND ON REVERSE SIDE
NUMBER [EAGLE ART] SHARES
OSAGE SYSTEMS GROUP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
10,000,000 SHARES COMMON STOCK SERIES A $3.00 CONVERTIBLE
PAR VALUE $.01 PER SHARE PREFERRED STOCK
SERIES B $3.00 CONVERTIBLE PAR VALUE $.01 PER SHARE
PREFERRED STOCK SERIES C $3.00 CONVERTIBLE
PAR VALUE $.01 PER SHARE PREFERRED STOCK
PAR VALUE $.01 PER SHARE
THIS CERTIFIES THAT _____________________________________________________ is the
owner of ______________________________ shares of the SERIES C $3.00 CONVERTIBLE
PREFERRED STOCK of OSAGE SYSTEMS GROUP, INC., fully paid and non-assessable,
transferable only on the books of the Corporation in person or by Attorney upon
surrender of this Certificate properly endorsed.
The corporation will furnish without charge to each stockholder who so
requests, a statement of the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ___________________________________________________________________
day of ____________________________ A.D. 19____.
____________________________________ ____________________________________
SECRETARY/ASSISTANT SECRETARY PRESIDENT
M. BURR KEIM, PHILA.
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This Agreement is made and entered into at Phoenix, Arizona, on the
____ day of January, 1998, by and between Pacific Rim Entertainment, Inc., a
Delaware corporation (hereinafter referred to as "Employer") and John C.
Iorillo, a resident of Maricopa County, Arizona (hereinafter referred to as
"Employee"), whose respective addresses appear below.
IN CONSIDERATION of the mutual promises of the parties, and other
valuable consideration, the parties agree as follows:
1. Term.
The Employer does hereby employ and retain the services of
Employee for a term of one (1) year commencing February 16, 1998 and ending
February 15, 1999 (hereinafter "Initial Term"). The Initial Term shall be
automatically extended and renewed for successive one-year periods (each year
beyond the Initial Term referred to as an "Extended Term") upon such terms and
conditions as are set forth within this Agreement, however, the Agreement may be
terminated by either party hereto provided no less than ninety (90) days notice
is given prior to the scheduled expiration of the Initial Term or Extended Term,
whichever the case may be.
2. Duties.
During the term of employment, Employee shall be employed as
Chief Financial Officer of Employer and shall in that capacity undertake
whatever tasks as shall in good faith be assigned to him by the Employer's Chief
Executive Officer, Chief Operating Officer or by Employer's Board of Directors.
Employee shall devote his full productive time, energies and abilities to the
proper and efficient operation of the business of Employer under and in
accordance with the direction of the Employer's Chief Executive Officer, Chief
Operating Officer and Board of Directors.
3. Compensation.
The full compensation and remuneration of Employee for the
services provided for herein during each year of employment hereunder, shall be
as follows:
a) an annual base salary in the sum of One Hundred
Thousand Dollars ($100,000), payable in monthly installments of Eight Thousand
Three Hundred and Thirty Three Dollars and 33/100 ($8,333.33), which salary if
unpaid for any reason shall accrue cumulatively from month to month plus 10%
interest per annum on the unpaid portion;
b) interim and annual bonuses (of cash, stock and/or
options), if at all, in such amounts and upon such terms and conditions as may
be determined solely within the discretion of the Employer's Board of Directors;
<PAGE> 2
c) an annual cost of living increase of five percent
(5%) of the preceding year's annual base salary; and
d) Common Stock Options (the "Employment Options") to
purchase an aggregate of One Hundred Thousand (100,000) Options at an exercise
price of $5.00, one-half (1/2) of which (50,000 Options) shall be subject to
vesting pursuant to the provisions of section 2.3(i), and one-half (1/2) (50,000
Options) shall be subject to vesting pursuant to the provisions of 2.3(ii) of
that certain Option to Purchase Common Stock of Pacific Rim Entertainment, Inc.
No. 1998-1 ("Option Agreement"), a true copy of which Option Agreement has been
delivered to Employee, and a true copy of which is attached hereto as Exhibit
"A"; and Employee is subject to and agrees to be bound by all of the terms,
conditions and provisions of said Option Agreement as though Employee were named
therein as "Holder", and the issuance of options to Employee is fully
conditioned upon the issuance thereof to the Holder subject to all contingencies
stated in said Option Agreement.
4. Fringe Benefits.
a) Employee shall be entitled, subject to the terms and
conditions of particular plans and programs adopted by the Board of Directors,
to all fringe benefits generally afforded to other senior executives of the
Employer, including but not by way of limitation, the right to participate in
any pension, stock option, retirement, major medical, group health, disability,
accident and life insurance, and other employee benefit programs made generally
available, from time to time, by the Employer.
b) During the term of this Agreement, Employer shall
include Employee and his family in family health insurance coverage provided for
executive level employees of Employer, and shall pay one hundred percent (100%)
of all health insurance premiums.
c) As additional salary, Employer shall reimburse
Employee for Employee's entire monthly premium cost to purchase a disability
insurance policy, if available on terms deemed by Employer to be commercially
reasonable, that shall pay to Employee the sum of $5,000 per month until age
sixty-five (65), in the event of Employee's disability as defined in said
policy.
5. Termination.
Employer shall have the right to terminate this Agreement by
thirty (30) days written notice after which such termination, Employer shall
have no further obligations hereunder other than the payment of accrued base
salary and reimbursement of accrued expenses, upon the occurrence of any of the
following events or circumstances:
a) death of Employee;
b) if Employee is unable, for reasons of illness,
disability or similar causes, to carry out or perform the duties required of him
hereunder continuously for thirty (30) days or intermittently for sixty (60)
days in a calendar year during the term of this Agreement; or
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<PAGE> 3
c) if Employee is terminated for "cause" for any of the
following events: (i) any act or omission perpetrated as the result of gross
negligence or with intent to harm the Employer or Osage or any of its
affiliates, or the business of either; (ii) commission of a felony for which
Employee is convicted by a court of law; (iii) perpetration of a dishonest act
or a common law fraud against the Employer or Osage, or any of its affiliates,
found by a court of law; (iv) the continued refusal to follow the directives of
the Board of Directors Employer or Osage which are made in good faith and not
contrary to law; (v) if Employee has so conducted himself (whether in connection
with his employment or otherwise) in a manner in which it appears, in the sole
discretion of Employer's Board of Directors, Chief Executive Officer or Chief
Operating Officer, that his continued employment under the terms of this
Agreement is no longer in the best interests of the Employer; or (vi) if
Employee has violated or broken any of the covenants or obligations imposed on
Employee by this Agreement.
d) Notwithstanding the above, a termination for "cause"
pursuant to subparagraph 5(c)(v) above may only be effected if pursuant to one
hundred twenty (120) days written notice.
6. Discoveries and Inventions.
Employee, in partial consideration of his employment and
salary to be paid to him, hereby agrees to disclose promptly to Employer, or any
subsidiary, parent, or affiliated company or its nominees, each and every
discovery, improvement and/or invention made, conceived and/or developed by him
whether during working hours or otherwise, during the entire period of his said
employment, which discoveries, improvements and/or inventions are capable of use
in any way in connection with the business of the Employer and for the same
consideration, Employee does hereby grant and convey to Employer or its nominee,
the entire right, title and interest, domestic and foreign, or such lesser
interests as such Employer at its option in any particular case may choose to
accept, in and to each or all of said discoveries, improvements and/or
inventions; and he does further agree to sign all applications for patents or
copyrights, and to execute and deliver all assignments and other documents, and
to perform all acts and do all things necessary to make this Agreement and the
said grant and conveyance effective with respect to particular discoveries,
improvements and/or inventions.
7. Expenses.
Employer agrees to reimburse Employee for all ordinary and
necessary out-of-pocket expenses incurred in connection with his employment
hereunder upon the presentation by Employee, from time to time, of an itemized
account of such expenditures; but only to the extent that such expenses are
deductible to Employer pursuant to the U.S. Internal Revenue Code.
8. Vacation.
Employee shall be entitled each year to a vacation of up to
four (4) weeks, during which time his compensation shall be paid in full.
Employee shall use his best efforts, however, not to schedule any such vacations
at a time when either the Chief Executive Officer or Chief Operating Officer of
Employer is also on vacation or is otherwise out of the office. Furthermore,
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<PAGE> 4
Employee shall not, without the consent of Employer, schedule a vacation of more
than two (2) weeks in any three (3) month period.
9. Confidential Information.
a) Employee acknowledges and agrees that all
confidential information, trade secrets, names of customers, suppliers,
financial, accounting or administrative information, business procedures or
other information or knowledge which is made known to Employee during the course
of his employment by Employer or any of its subsidiaries is confidential and the
property of the Employer;
b) Employee agrees that during the term of his
employment by Employer, and at all times thereafter forever, except in the
ordinary course of fulfilling Employee's assigned duties and obligations,
Employee shall not, without the prior express, written consent of the Employer,
publish, disclose or make known to anyone, or make any use of or authorize,
assist, or enable anyone else to publish or disclose or make use of, any
confidential information or Employer property, including, but not limited to,
trade secrets, names of customers, suppliers, financial, accounting or
administrative information, business procedures or any other information or
knowledge which becomes known to Employee as the result of or during his
employment by the Employer.
10. Other Termination Provisions.
Notwithstanding anything herein contained to the contrary,
Employer may terminate this Agreement upon thirty (30) days' written notice to
Employee upon the happening of any of the following events:
a) the sale by Employer of substantially all of its
assets;
b) a bona fide decision by Employer to terminate its
business and liquidate its assets; or
c) the merger or consolidation of Employer in a
transaction in which the shareholders of Employer receive less than fifty
percent (50%) of the outstanding voting shares of the new or continuing
corporation.
11. Negative Covenant.
For a period of one (1) year following: (i) termination of
this Agreement either due to expiration of the Term, or for any other reason
identified in this Agreement, or (ii) the voluntary resignation of employee,
Employee will not, on his own behalf or as partner, officer, director, employee,
consultant, or stockholder (holding more than ten percent (10%) of the issued
and outstanding stock of any firm or company) of any other business, either
directly or indirectly, solicit any "active customers" of Employer, or any
affiliates or subsidiaries of Employer (for the purposes of this Paragraph 11,
defined in the aggregate as the "Company"), or perform any work, services, or
labor for or on behalf of any firm or company engaged in any business
competitive
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<PAGE> 5
with or similar to the business of the Company in any state or foreign country
where the Company does business. Accordingly, the Company is granted the right
by Employee to apply to any court of competent jurisdiction for one or more
temporary or permanent injunctions enjoining Employee, his agents and employees,
from violating the provisions of this Agreement and/or from continuing to breach
such provisions. For the purposes of this paragraph 11, the term "active
customer" shall mean any current customers of the Company, or any customers of
the Company within the twelve preceding months.
12. Miscellaneous.
a) Entire Agreement. This Agreement embodies the entire
agreement between the parties hereto relative to the subject matter hereof and
shall not be modified, changed or altered in any respect except in writing
signed by both parties to this Agreement.
b) Benefits. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective next of kin,
legatees, administrators, executors, legal representatives, successors and
permitted assigns.
c) Attorneys Fees. In the event either party is required
to obtain the services of any attorney to enforce the provisions of this
Agreement, the prevailing party shall be entitled to its reasonable costs and
attorney's fees including expert witness fees, and costs of investigation.
d) Illegal Contract. In case any provision of this
Agreement shall be held invalid, illegal or unenforceable, in whole or in part,
neither the validity of the remaining part of such provision, nor the validity
of any other provision of this Agreement shall in any way be affected thereby.
e) Waiver. A waiver of any breach of this Agreement, or
of any of the terms or conditions by either party thereto, shall not be deemed a
waiver of any repetition of such breach or in any way affect any other terms or
conditions hereof. No waiver shall be valid or binding unless it shall be in
writing signed by the parties.
f) Binding Effect. This Agreement, when executed by one
duly authorized officer of the corporation, shall bind the corporation and its
successors and assigns.
g) Successors and Assigns. Unless otherwise provided
for, this Agreement shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors in interest and assigns, but in
no event shall any party be relieved of its obligations hereunder without the
express written consent of each other party.
h) Governing Law. This Agreement shall be governed by,
the laws of the State of Arizona. Each party hereby expressly and irrevocably
consents to the jurisdiction of the Arizona courts, and any action hereunder may
be commenced and tried only in a court of competent jurisdiction located in
Maricopa County, Arizona.
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<PAGE> 6
i) Time. Time is of the essence of this Agreement and
each and every provision hereof. Any extension of time granted for the
performance of any duty under this Agreement shall not be considered an
extension of time for the performance of any other duty under this Agreement.
j) Notices. Any notice to any party under this Agreement
shall be in writing, shall be effective on the earlier of (i) the date when
received by such party, or (ii) the date which is three (3) days after mailing
(postage prepaid) by certified or registered mail, return receipt requested, to
the address of such party set forth as follows:
To: EMPLOYER
President
Pacific Rim Entertainment, Inc.
1661 E. Camelback Road, Suite 245
Phoenix, AZ 85016
With a copy to:
Burton M. Bentley, Esq.
7878 N. 16th Street, Suite #110
Phoenix, AZ 85020
To: EMPLOYEE
John C. Iorillo
4512 East Paso Trail
Phoenix, AZ 85024
k) Additional Acts and Documents. Each party hereto
agrees to do all such things and take all such actions, and to make, execute and
deliver such other documents and instruments, as shall be reasonably requested
to carry out the provisions, intent and purpose of this Agreement.
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<PAGE> 7
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement
the day and year first above written.
EMPLOYER:
PACIFIC RIM ENTERTAINMENT, INC.
By: Jack Leadbeater
_______________________________
Its: President
EMPLOYEE:
John Iorillo
___________________________________
John Iorillo
7
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 17th day of March, 1998, by and
between SOLSOURCE COMPUTERS, INC., a California corporation (hereinafter
"Company"), and DANIEL VAHALLA, an individual (hereinafter "Executive").
W I T N E S S E T H:
WHEREAS, on the date hereof, Pacific Rim Entertainment, Inc., a
Delaware public company ("Pac Rim") acquired the Company pursuant to the terms
of an Agreement and Plan of Merger (the "Merger Agreement");
WHEREAS in connection with the Merger Agreement, Executive received the
Merger Consideration identified within Paragraph 1.3 of the Merger Agreement and
Executive agreed to remain employed as the President of the Company upon the
terms and conditions herein contained.
NOW, THEREFORE, in consideration of the mutual premises and covenants
of the parties contained within the Merger Agreement and in this Agreement, the
parties hereto, do hereby agree as follows:
1. Employment and Term.
A. The Company hereby employs Executive and Executive
hereby accepts employment by the Company as its President. Executive agrees to
serve the Company in such capacity, subject to the terms and conditions of this
Agreement, for a term, commencing on the date hereof and expiring three years
from that date of this Agreement (the "Term").
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2. Duties.
A. During the Term, Executive shall use his best efforts
to perform all duties required in furtherance of his position, including without
limitation all such duties as are customarily associated with such position or
as are assigned to him from time to time by the Board of Directors of the
Company.
B. Executive shall diligently and faithfully devote his
entire time, energy, skill, and best efforts to the performance of his duties
under this Agreement. Executive shall conduct himself at all times so as to
advance the best interests of the Company, and shall not undertake or engage in
any other business activity or continue or assume any other business
affiliations which conflict or interfere with the performance of his services
hereunder without the prior written consent of the Chairman of the Board of
Directors of the Company. Executive also agrees that he shall not usurp or
misappropriate, either to himself, or to any other person or entity, any
corporate or other opportunities that would otherwise be available to the
Company.
3. Compensation.
A. The Company shall pay Executive and Executive shall
accept, as his compensation for all services rendered to the Company pursuant
hereto, an annual salary of $100,000, to be paid in accordance with the general
payroll practices of the Company as from time to time in effect. Executive shall
also be entitled, subject to the terms and conditions of particular plans and
programs, to all fringe benefits afforded to other executives of Company in the
discretion of the Board of Directors, including, but not by way of limitation,
the right to participate in any pension, retirement, major medical, group
health, disability, accident and life
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insurance, and other employee benefit programs made generally available, from
time to time, by the Company.
B. Upon achievement of certain performance based
criteria identified on Schedule A, Executive shall receive annual incentive
compensation as identified on Schedule A for the first year of employment.
Bonuses in any subsequent years of employment may be granted to Executive in
accordance with the achievement of certain performance based criteria as shall
be determined by the Company at the beginning of each year.
4. Vacations, Holidays, Sick Days.
A. Executive shall receive three (3) weeks of paid
vacation in each calendar year, to be taken at times which do not unreasonably
interfere with the performance of the Employee's duties hereunder and in no
event shall Executive schedule more than ten (10) consecutive days of vacation
during any three month period without the prior written consent of the Chairman
of the Board of Directors. Vacation pay shall be non-cumulative and to the
extent not taken shall not be compensated.
B. Executive shall be entitled to those holidays and
compensated sick leave days as are allowed for by the policy of the Company.
5. Termination.
A. Executive's employment and rights to compensation
hereunder shall terminate immediately if Executive voluntarily leaves the
employment of the Company, except that the Company shall have the obligation to
pay Executive such portion of his base salary provided for in Section 3 hereof
as may be accrued but unpaid on the date Executive voluntarily
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leaves the employment of the Company. In the event that Executive voluntarily
leaves the employment of the Company, he shall provide at least ninety (90)
days' written notice.
B. The Company may, upon written notice to Executive
giving the reasons therefor, terminate Executive's employment and his rights to
compensation hereunder for cause. As used herein, the term "cause" shall mean
the following: when the Company's results of operations produce "sales revenues"
or "pre-tax net income" less than those amounts identified on Schedule B hereto,
which is incorporated herein by this reference; conviction of Executive for any
felony, fraud, embezzlement or crime of moral turpitude, except for such conduct
relating to corporate activity to the extent that Executive would be entitled to
be indemnified by the Company for charges arising from such conduct; controlled
substance abuse or drug addiction; alcoholism which interferes with or affects
Executive's responsibilities to the Company or which reflects negatively upon
the integrity or reputation of the Company; gross negligence which is materially
injurious to the Company; any violation of any express written directions or any
reasonable written rule or regulation established by the Company's Board of
Directors from time to time, and consistent with industry standards, regarding
the conduct of its business, which violation has not been cured to the Company's
satisfaction within thirty (30) calendar days of the dispatch of written notice
to the Executive of the violation; or any violation by the Executive of any
material term or condition of this Agreement, which violation has not been cured
to the Company's satisfaction within thirty (30) calendar days of the dispatch
of written notice to the Executive of the violation. If Executive is terminated
for cause as provided above, Executive's employment and rights to compensation
hereunder shall terminate immediately upon receipt of
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written notice, except that the Company shall have the obligation to pay
Executive such portion of his base salary as may be accrued but unpaid on the
date his employment is terminated.
C. If Executive's employment is terminated during the
Term hereof for reasons other than those provided in Subsections 5.A. or 5.B.,
above, Executive shall be entitled to his regular compensation for the balance
of the Term, consisting of:
(1) payment of one hundred percent (100%) of
Executive's monthly base salary payable at regular intervals in accordance with
the Company's normal payroll practices; and
(2) continuation of health insurance and fringe
benefits as set forth herein through the remainder of the Term.
During the period in which payments are made to Executive
pursuant to this Section 5.C., Executive shall remain subject to the limitations
identified in Section 6 hereafter.
6. Confidentiality and Related Matters.
A. Acknowledgment of Nature and Value of Confidential
Information:
Executive recognizes and acknowledges: (a) that in the course
of Executive's employment by the Company it will be necessary for Executive to
acquire, in a fiduciary capacity of trust, information which could include, in
whole or in part, but is not limited to: information concerning the Company's
rate schedules; rate quotations; the names, addresses, credit terms and nature
of services provided by the vendors utilized by the Company; the names,
addresses, credit terms and nature of services provided to customers of the
Company; the identity of the Company's suppliers, sales representatives,
shippers or other entities with whom Executive has
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come into contact as a result of his employment with the Company, or which
should otherwise come into his knowledge during the term of this Agreement; the
salaries, skills, education or abilities of the Company's employees; the
Company's sales, sales volume, sales methods and sales proposals; the identities
of the Company's customers and/or prospective customers; the identities of key
purchasing personnel in the employ of customers and prospective customers; the
amounts and/or kinds of customers' purchases from the Company; the Company's
sources of information and supply; the Company's computer programs, system
documentation, special hardware or software, service or product hardware or
software, and related software or hardware development; the Company's manuals,
formulae, processes, methods, machines, compositions, ideas, improvements,
inventions or other information or materials relating to the Company's affairs
(collectively referred to herein as the "Confidential Information"); (b) that
the Confidential Information is the property of the Company and constitutes a
major asset of the Company; (c) that the use, misappropriation or disclosure of
the Confidential Information would constitute a breach of trust and could cause
irreparable injury to the Company; and (d) that it is essential to the
protection of the Company's goodwill and to the maintenance of the Company's
competitive position that the Confidential Information be kept secret and that
Executive neither disclose the Confidential Information to others nor use the
Confidential Information to Executive's own advantage or to the advantage of
others.
B. Acknowledgment of Necessity for Protections of
Company's Business. Executive further recognizes and acknowledges that it is
essential for the proper protection of the business of the Company, particularly
in view of the recent acquisition of the Company by Pac
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Rim, that Executive be restrained: (a) from soliciting or inducing any employee
of the Company to leave the employ of the Company; (b) from hiring or attempting
to hire any employee of the Company; (c) from soliciting the trade of, or
trading with, the customers or suppliers of the Company for any business purpose
other than that of the Company; and (d) from competing against the Company for a
reasonable period of time and within a reasonable geographic area following the
termination or nonrenewal of Executive's employment with the Company, as more
fully addressed in Section 6.F., below.
C. Work Made For Hire. Executive further recognizes and
understands that Executive's duties at the Company may include the preparation
of materials, including without limitation written or graphic materials, and
that any such materials conceived or written by Executive shall be done as "work
made for hire" as defined and used in the Copyright Act of 1976, 17 U.S.C.
Sections 1 et seq. In the event of publication of such materials, Executive
understands that since the work is a "work made for hire", the Company will
solely retain and own all rights in said materials, including right of
copyright.
D. Non-Disclosure of Confidential Information. In
recognition and consideration of the recent acquisition of the Company by Pac
Rim and Executive's employment, compensation and fringe benefits, the
information which the Company will give Executive regarding the Company's
business, the Executive's introduction to the Company's customers and
prospective customers made in the course of Executive's employment with the
Company, and the carefully-guarded methods of doing business which the Company
utilizes and deems crucial to the successful operation of its business,
Executive agrees to hold and safeguard the Confidential
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Information in trust and in a fiduciary capacity for the Company, its successors
and assigns. Executive expressly agrees that he shall not, without the prior
written consent of the Company, misappropriate or disclose or make available to
anyone for use outside the Company's organization at any time, either during
Executive's employment with the Company or subsequent to the termination or
nonrenewal of such employment with the Company, for any reason, including
without limitation termination by the Company for cause or without cause, any of
the Confidential Information, whether or not developed by Executive, except as
required by the Company in the performance of Executive's duties to the Company.
E. Disclosure of Works and Inventions/Assignment of
Patents. In consideration of the promises set forth herein, Executive agrees to
disclose promptly to the Company, or to such person whom the Company may
expressly designate for this specific purpose (its "Designee"), any and all
works, inventions, discoveries and improvements authored, conceived or made by
Executive during the period of employment and related to the business or
activities of the Company, and Executive hereby assigns and agrees to assign all
of Executive's interest in the foregoing to the Company or to its Designee.
Executive agrees that, whenever he is requested to do so by the Company,
Executive shall execute any and all applications, assignments or other
instruments which the Company shall deem necessary to apply for and obtain
Letters Patent or Copyrights of the United States or any foreign country or to
otherwise protect the Company's interest therein. Such obligations shall
continue beyond the termination or nonrenewal of Executive's employment with
respect to any works, inventions, discoveries and/or improvements that are
authored, conceived of, or made by Executive during the period of
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Executive's employment, and shall be binding upon Executive's successors,
assigns, executors, heirs, administrators or other legal representatives.
F. Restrictions on Competition. Executive covenants and
agrees that, for and in consideration of the compensation received hereunder and
the Merger Consideration, the sufficiency and receipt of which is hereby
acknowledged, during the period of Executive's employment hereunder and/or the
period during which payments are made pursuant to Section 5.C. hereof, and for a
period of one (1) year thereafter, Executive shall not, within a 200-mile radius
of any of the places of business of Pac Rim or any of its subsidiaries and
affiliates (including the Company which is a wholly-owned subsidiary of Pac Rim)
engage, directly or indirectly, whether as principal or as agent, officer,
director, employee, consultant, shareholder, or otherwise, alone or in
association with any other person, corporation or other entity, in any
"Competing Business". For purposes of this Agreement, the term "shareholder"
shall exclude any interest owned by Executive in a public company to the extent
the Executive owns less than five percent (5%) of any such company's outstanding
common stock or has an investment in such company of less than $250,000. For the
further purposes of this Agreement, the term "Competing Business", shall mean
any person, corporation or other entity that is engaged in a business that
competes with, or is similar to, the business of the Company at the time of such
termination or nonrenewal; provided, however, in order to be construed as a
"Competing Business", such person, corporation or other entity must be engaging
in a competitive business that acquires at least fifty (50%) percent or more of
its products/services for resale from: (i) Sun Microsystems, Inc. ("SUN") or any
affiliate, predecessors or successors of Sun; or (ii) any
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aggregators, distributors or wholesalers who acquire products from, or are
acting as agents for, Sun, or any affiliates, predecessors or successors of Sun;
or (iii) any manufacturers, aggregators, distributors or wholesalers who at the
time of such termination or nonrenewal, provide the Company with at least fifty
(50%) percent of its products/services for resale.
G. Executive's Abilities. Executive represents that
Executive's experience and capabilities, and the limited provisions of the
immediately-preceding Section 6.F, are such that he will not be prevented from
earning his livelihood in businesses similar to the Company, other than the
"Competing Business," as specifically defined in the immediately preceding
Section 6.F. Executive acknowledges that there are a significant number of
businesses for which his qualifications and experience would render him
qualified for employment that are within the 200 mile radius referred to in
Section 6.F. that do not constitute a "Competing Business" such that his ability
to become employed after the termination or nonrenewal of this Agreement would
not be impaired.
H. Non-Solicitation of Customers and Suppliers.
Executive agrees that during the course of his employment with the Company
(including the period during which payments are made pursuant to Section 5.C.
hereof), and for a period of one (1) year thereafter, he shall not, directly or
indirectly, solicit the trade of, or trade with, any past, present or
prospective customer or supplier of the Company for any business purpose that
competes with the business being undertaken by Pac Rim or any of its
subsidiaries and affiliates (including the Company which is a wholly-owned
subsidiary of Pac Rim).
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I. Non-Solicitation of Employees. Executive agrees that,
during his employment with the Company and for one (1) year following any
termination or nonrenewal of Executive's employment with the Company, including,
without limitation, termination by the Company for cause or without cause,
Executive shall not, directly or indirectly, solicit or induce, or attempt to
solicit or induce, any employee of the Company to leave the Company for any
reason whatsoever, or assist or participate in the hiring of any employee of the
Company to work for another entity.
J. No Prior Agreements. Executive represents and
warrants that Executive is not a party to or otherwise subject to or bound by
the terms of any contract, agreement or understanding which in any manner would
limit or otherwise affect Executive's ability to perform his obligations
hereunder, including without limitation any contract, agreement or understanding
containing terms and provisions similar in any manner to those contained in this
Section 6. Executive further represents and warrants that his employment with
the Company will not under any circumstances require him to disclose or use any
confidential information belonging to prior employers or other persons or
entities, or to engage in any conduct which may potentially interfere with the
contractual, statutory or common-law rights of such other employers, persons or
entities. In the event that Executive knows or learns of any facts whatsoever
which suggest that such interference might arguably occur as the result of any
proposed actions by either Executive or the Company, Executive expressly
promises that he will immediately bring such facts to the Company's attention.
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K. Remedies. In the event of a breach by Executive of
any of the terms of this Agreement, the Company shall be entitled, if it shall
so elect, to institute legal proceedings to obtain damages for any such breach,
or to enforce the specific performance of this Agreement by Executive and to
enjoin Executive from any further violation of this Agreement, and to exercise
such remedies cumulatively or in conjunction with all other rights and remedies
provided by law. Executive acknowledges and agrees that money damages for any
breach by him of any of the provisions of this Agreement may be inadequate to
compensate the Company for the injuries it may suffer as the result of any such
breach, and accordingly that the Company shall be entitled to injunctive relief
against Executive, in addition to money damages, in the event of any such breach
by Executive.
L. Review by Counsel. Executive expressly acknowledges
and represents that Executive has been given a full and fair opportunity to
review this Agreement with an attorney of Executive's choice, and that Executive
has satisfied himself, with or without consulting with counsel, that the terms
and provisions of this Agreement, specifically including, but not limited to,
the restrictive covenant and related provisions of Section 6 hereof, are
reasonable and enforceable.
M. Return of Materials. Upon the termination or
nonrenewal of Executive's employment with the Company for any reason, including
without limitation termination by the Company for cause or without cause, or at
any time upon demand, Executive shall promptly deliver to the Company all
Company property and materials, including without limitation all documents or
other materials constituting, containing, referencing or relating to the
"Confidential
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Information" referred to in this Section 6, and any other Company property of
any nature whatsoever, including without limitation correspondence, computer
disks or other electronically-stored information, drawings, blueprints, manuals,
letters, notes, notebooks, reports, flow-charts, programs, proposals and any
documents concerning the Company's customers, or concerning services, products
or processes provided by or to, or used by, the Company.
N. Company-Created Materials. All material that may be
furnished to the Executive, together with literature, rate schedules, customer
lists, forms, filing systems and any other property, documents or other
materials furnished or made available by the Company to the Executive, shall be
and remain the property of the Company, and shall be returned by the Executive
to the Company upon any termination or nonrenewal of employment or at any time
upon demand.
O. Executive-Created Materials. All material created by
the Executive during the term of his employment with the Company which is
incidental to or related in any way to the Executive's employment, or to the
Company's business, shall be the property of the Company, and shall be delivered
to the Company upon any termination or nonrenewal of Executive's employment or
at any time upon demand.
P. Definitions. For purposes of this Section 6, the
term, "material(s)" shall include, but shall not be limited to, data stored in
computers, voicemail or any other electronic, magnetic, or mechanical storage
device, any passwords, codes or keys required to access all or any portion of
such material, and the "Confidential Information" referred to in Section 6.A.
hereof.
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7. Conflict of Interest.
Executive covenants that, during the Term, he will disclose to
the Company, in writing, any and all interests he may have, whether for profit
or compensation or not, in any venture or activity which could potentially
interfere with his ability to perform under this Agreement or create a conflict
of interest for him with the Company. For purposes of this paragraph 7 only,
"conflict of interest" shall mean ownership of greater than one percent (1%)of,
or $250,000 worth of equity in, another company which conducts business similar
to that undertaken by the Company.
8. Notices.
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, certified or registered mail, return receipt
requested, with postage prepaid, at the following addresses or to such other
address as either party may designate by like notice:
A. If to Executive, to:
Daniel Vahalla
1353 Burgundy Road
Leucadia, CA 92024
B. If to Company, to:
Solsource Computers, Inc.
C/o Osage Computer Group, Inc.
1661 East Camelback Road, Suite 245
Phoenix, AZ 85016
Attn: Mr. Jack Leadbeater
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C. In all cases, copies to:
Buchanan Ingersoll Professional Corporation
11 Penn Center, 14th Floor
1835 Market Street
Philadelphia, Pa. 19103
Attn: Stephen M. Cohen, Esquire
9. Basic Indemnification.
Company shall indemnify and defend Executive and his heirs,
executors and administrators against any costs or expense (including reasonable
attorneys' fees and amounts paid in settlement, if such settlement is approved
by the Company), fine, penalty, judgment and liability reasonably incurred by or
imposed upon Executive in connection with any action, suit or proceeding, civil
or criminal, to which Executive may be made a party or with which Executive
shall be threatened, by reason of Executive's being or having been an Officer,
unless with respect to such matter Executive shall have been adjudicated in any
proceeding not to have acted in good faith or in the reasonable belief that the
action was in the best interests of the Company, or unless such indemnification
is precluded by law, public policy, or in the judgment of the Company's Board of
Directors, such indemnification is being sought as a result of actions of
Executive which were either : (i) grossly negligent; (ii) reflective of
Executive misconduct; (iii) in violation of rules, regulations or laws
applicable to the Company; or (iv) in disregard of Company policies.
10. Additional Provisions.
A. This Agreement, including without limitation its
confidentiality, restrictive covenant and related provisions, shall inure to the
benefit of, and be binding upon, the Company and its successors and assigns and
Executive, his heirs, executors, administrators and legal
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representatives, subject to the provisions of Section 10.F. hereof, which
expressly prohibits the assignment or delegation of any of Executive's personal
rights or obligations hereunder.
B. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof, and cannot be
modified orally. This Agreement supersedes all prior and contemporaneously-made
written or oral agreements between the parties relating to the subject matter
hereof. No modification or waiver of any of the provisions hereof shall be
effective unless set forth in a writing that specifically states that it is
intended to be a modification of this Agreement and that is signed by the
President of the Company.
C. If any provision(s) of this Agreement shall be or
shall become illegal or unenforceable in whole or in part, for any reason
whatsoever, the remaining provisions shall nevertheless be deemed valid, binding
and subsisting, and any invalid or unenforceable provision(s) shall be deemed
modified to the least extent possible so as to make them valid and enforceable
and so as to give the maximum effect allowable by law to the parties' original
intent as expressed by the terms hereof.
D. No failure on the part of the Company to exercise,
and no delay by the Company in exercising, any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise by
the Company of any right, power or remedy hereunder, preclude any other or
further exercise thereof, or the exercise of any other right, power or remedy by
the Company.
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E. "Person" as used herein shall mean a natural person,
joint venture, corporation, partnership, trust, estate, sole proprietorship,
governmental agency or authority or other juridical entity.
F. This is a personal services contract and the rights
and obligations set forth herein may not be assigned or delegated by Executive,
except as otherwise specifically provided in this Agreement with respect to
benefits payable upon Executive's disability or death, without the express,
written consent of the Company.
G. The headings of the several sections of this
Agreement have been inserted for convenience of reference only and shall in no
way be used to restrict, modify, or explain any of the terms or provisions
hereof.
H. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware, without regard to
its, or any other sovereignty's, conflicts of laws principles. The parties agree
that any claims brought pursuant to this Agreement shall be brought in a court
of competent jurisdiction located in Phoenix, Arizona.
I. Tolling Period. The non-competition, non-disclosure
and non-solicitation obligations contained in Section 6 of this Agreement shall
be extended by the length of time during which Executive shall have been in
breach of any of the provisions of such Section 6, regardless of whether the
Company knew or should have known of such breach.
J. Company Violation Not a Defense. In an action by the
Company to enforce any provision of this Agreement, any claims asserted by
Executive against the Company shall not constitute a defense to the Company's
action.
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K. Construction. This Agreement shall be construed
according to the plain meaning of its terms, and not strictly for or against
either party hereto.
L. Counterparts. This Agreement may be executed in
counterparts, and the counterparts, taken together, shall constitute the entire
Agreement. The Agreement may further be executed by facsimile transmission, and
the facsimile signatures may be deemed original signatures for all purposes,
including for purposes of the Best Evidence Rule and all other rules or
doctrines of similar effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
IMPORTANT NOTICE: THIS AGREEMENT RESTRICTS EXECUTIVE'S RIGHTS TO OBTAIN
OTHER EMPLOYMENT FOLLOWING HIS EMPLOYMENT WITH THE COMPANY. BY SIGNING
IT, EXECUTIVE ACKNOWLEDGES THIS FACT, AND FURTHER ACKNOWLEDGES THAT HE
HAS BEEN ADVISED BY THE COMPANY TO READ THE AGREEMENT CAREFULLY, AND/OR
TO CONSULT WITH COUNSEL OF HIS CHOICE CONCERNING THE LEGAL EFFECTS OF
SIGNING THE AGREEMENT, PRIOR TO SIGNING IT.
SOLSOURCE COMPUTERS, INC.
By: Daniel Vahalla
________________________________ Dated:______________________________
Chairman, Board of Directors
DANIEL VAHALLA
By: Daniel Vahalla
________________________________ Dated:______________________________
Daniel Vahalla, as Executive
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WITNESS:
___________________________________
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SCHEDULE "A"
Executive shall be entitled to receive and Company agrees to pay to
Executive, an incentive bonus (the "Incentive Bonus") based upon the
satisfaction in full, or partially, of the following objectives:
1) If during the quarter commencing April 1, 1998 (the "Commencement
Date"), Company completes the development and packaging of a
proprietary service offering(s) for "Network and Data Security" (the
"Proprietary Services") pursuant to applicable guidelines of Pacific
Rim Entertainment, Inc. ("Pac Rim"), Executive shall at the end of such
quarter earn $10,000 of the Incentive Bonus.
2) If prior to the end of the second quarter following the Commencement
Date, the Company has completed the sale and delivery of 16 consulting
engagements based upon the Proprietary Services, Executive shall at the
end of such second quarter earn an aggregate of $10,000 (i.e. $625 per
engagement) of the Incentive Bonus.
3) If prior to the end of the third quarter following the Commencement
Date, Executive has completed the sale and delivery of an additional 6
consulting engagements based upon the Proprietary Services into
geographic territories covered by other Pac Rim offices, Executive
shall at the end of such third quarter earn an aggregate of $5,000
(i.e. $833 per engagement) of the Incentive Bonus.
4) If prior to the end of the third quarter following the Commencement
Date, Executive has completed the sale and delivery of 2 consulting
engagements based upon the Proprietary Services from other Pac Rim
offices into the geographic territory covered by Company, Executive
shall at the end of such third quarter earn an aggregate of $5,000
(i.e. $2,500 per engagement) of the Incentive Bonus.
5) Executive shall earn an Incentive Bonus equal to 5.625% of the
generated service revenues from the sale of the Proprietary Services
during the first year following the Commencement Date. The Incentive
Bonus earned during each month of the year shall be paid to the
Executive in accordance with the established guidelines of the Company
with regard to the payment of commissions.
6) All payments of earned bonuses will be made within forty-five (45) days
at the end of each quarter.
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SCHEDULE "B"
1) During the first year following the Commencement Date (as defined in
Schedule "A"), the Company shall have generated "sales revenues" of
less than $9 million or shall have incurred a net loss.
2) During the second year following the Commencement Date, the Company
shall have during any two (2) consecutive quarters, generated "pre-tax
net income" of less than $150,000.
3) During the third year following the Commencement Date, the Company
shall have during any two (2) consecutive quarters, generated "pre-tax
net income" of less than $250,000.
For the purposes hereof, the terms "sales revenues" and "pre-tax net
income" shall have the meanings ascribed thereto in paragraph 1.3(b) of the
Agreement and Plan of Merger by and among Pacific Rim Entertainment, Inc.,
Solsource Acquisition Corp., Solsource Computers, Inc. and the Shareholders of
Solsource Computers, Inc.
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EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 17th day of March, 1998, by and
between H.V. JONES, INC., a Texas corporation (hereinafter "Company"), and HUGH
V. JONES, an individual (hereinafter "Executive").
W I T N E S S E T H:
WHEREAS, on the date hereof, Osage Systems Group, Inc., a Delaware
public company ("Osage") acquired the Company pursuant to the terms of an
Agreement and Plan of Merger (the "Merger Agreement");
WHEREAS in connection with the Merger Agreement, Executive received the
Merger Consideration identified within Paragraph 1.3 of the Merger Agreement and
Executive agreed to remain employed as the President of the Company upon the
terms and conditions herein contained.
NOW, THEREFORE, in consideration of the mutual premises and covenants
of the parties contained within the Merger Agreement and in this Agreement, the
parties hereto, do hereby agree as follows:
1. Employment and Term.
A. The Company hereby employs Executive and Executive
hereby accepts employment by the Company as its President. Executive agrees to
serve the Company in such capacity, subject to the terms and conditions of this
Agreement, for a term, commencing on the date hereof and expiring three years
from that date of this Agreement (the "Term").
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2. Duties.
A. During the Term, Executive shall use his best efforts
to perform all duties required in furtherance of his position, including without
limitation all such duties as are customarily associated with such position or
as are assigned to him from time to time by the Board of Directors of the
Company.
B. Executive shall diligently and faithfully devote his
entire time, energy, skill, and best efforts to the performance of his duties
under this Agreement. Executive shall conduct himself at all times so as to
advance the best interests of the Company, and shall not undertake or engage in
any other business activity or continue or assume any other business
affiliations which conflict or interfere with the performance of his services
hereunder without the prior written consent of the Chairman of the Board of
Directors of the Company. Executive also agrees that he shall not usurp or
misappropriate, either to himself, or to any other person or entity, any
corporate or other opportunities that would otherwise be available to the
Company.
3. Compensation.
A. The Company shall pay Executive and Executive shall
accept, as his compensation for all services rendered to the Company pursuant
hereto, an annual salary of $100,000, to be paid in accordance with the general
payroll practices of the Company as from time to time in effect. Executive shall
also be entitled, subject to the terms and conditions of particular plans and
programs, to all fringe benefits afforded to other executives of Company in the
discretion of the Board of Directors, including, but not by way of limitation,
the right to participate in any pension, retirement, major medical, group
health, disability, accident and life
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insurance, and other employee benefit programs made generally available, from
time to time, by the Company.
B. Upon achievement of certain performance based
criteria identified on Schedule A, Executive shall receive annual incentive
compensation as identified on Schedule A for the first year of employment.
Bonuses in any subsequent years of employment may be granted to Executive in
accordance with the achievement of certain performance based criteria as shall
be determined by the Company at the beginning of each year.
C. Executive shall be entitled to a monthly automobile
allowance in such amount that is equal to the monthly lease payments as are due
and owing under Executive's current leasing arrangement on his Lexus automobile
(leasing account #___________); however, Executive shall continue to be
responsible for the payment of all insurance and maintenance on the leased
vehicle.
4. Vacations, Holidays, Sick Days.
A. Executive shall receive three (3) weeks of paid
vacation in each calendar year, to be taken at times which do not unreasonably
interfere with the performance of the Employee's duties hereunder and in no
event shall Executive schedule more than ten (10) consecutive days of vacation
during any three month period without the prior written consent of the Chairman
of the Board of Directors. Vacation pay shall be non-cumulative and to the
extent not taken shall not be compensated.
B. Executive shall be entitled to those holidays and
compensated sick leave days as are allowed for by the policy of the Company.
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5. Termination.
A. Executive's employment and rights to compensation
hereunder shall terminate immediately if Executive voluntarily leaves the
employment of the Company, except that the Company shall have the obligation to
pay Executive such portion of his base salary provided for in Section 3 hereof
as may be accrued but unpaid on the date Executive voluntarily leaves the
employment of the Company. In the event that Executive voluntarily leaves the
employment of the Company, he shall provide at least ninety (90) days' written
notice.
B. The Company may, upon written notice to Executive
giving the reasons therefor, terminate Executive's employment and his rights to
compensation hereunder for cause. As used herein, the term "cause" shall mean
the following: when the Company's results of operations produce "sales revenues"
or "pre-tax net income" less than those amounts identified on Schedule B hereto,
which is incorporated herein by this reference; conviction of Executive for any
felony, fraud, embezzlement or crime of moral turpitude, except for such conduct
relating to corporate activity to the extent that Executive would be entitled to
be indemnified by the Company for charges arising from such conduct; controlled
substance abuse or drug addiction; alcoholism which interferes with or affects
Executive's responsibilities to the Company or which reflects negatively upon
the integrity or reputation of the Company; gross negligence which is materially
injurious to the Company; any violation of any express written directions or any
reasonable written rule or regulation established by the Company's Board of
Directors from time to time, and consistent with industry standards, regarding
the conduct of its business, which violation has not been cured to the Company's
satisfaction within thirty (30) calendar days of the
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dispatch of written notice to the Executive of the violation; or any violation
by the Executive of any material term or condition of this Agreement. If
Executive is terminated for cause as provided above, Executive's employment and
rights to compensation hereunder shall terminate immediately upon receipt of
written notice, except that the Company shall have the obligation to pay
Executive such portion of his base salary as may be accrued but unpaid on the
date his employment is terminated.
C. If Executive's employment is terminated during the
Term hereof for reasons other than those provided in Subsections 5.A. or 5.B.,
above, Executive shall be entitled to his regular compensation for the balance
of the Term, consisting of:
(1) payment of one hundred percent (100%) of
Executive's monthly base salary payable at regular intervals in accordance with
the Company's normal payroll practices; and
(2) continuation of health insurance and fringe
benefits as set forth herein through the remainder of the Term.
During the period in which payments are made to Executive
pursuant to this Section 5.C., Executive shall remain subject to the limitations
identified in Section 6 hereafter.
6. Confidentiality and Related Matters.
A. Acknowledgment of Nature and Value of Confidential
Information: Executive recognizes and acknowledges: (a) that in the course of
Executive's employment by the Company it will be necessary for Executive to
acquire, in a fiduciary capacity of trust, information which could include, in
whole or in part, but is not limited to: information
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concerning the Company's rate schedules; rate quotations; the names, addresses,
credit terms and nature of services provided by the vendors utilized by the
Company; the names, addresses, credit terms and nature of services provided to
customers of the Company; the identity of the Company's suppliers, sales
representatives, shippers or other entities with whom Executive has come into
contact as a result of his employment with the Company, or which should
otherwise come into his knowledge during the term of this Agreement; the
salaries, skills, education or abilities of the Company's employees; the
Company's sales, sales volume, sales methods and sales proposals; the identities
of the Company's customers and/or prospective customers; the identities of key
purchasing personnel in the employ of customers and prospective customers; the
amounts and/or kinds of customers' purchases from the Company; the Company's
sources of information and supply; the Company's computer programs, system
documentation, special hardware or software, service or product hardware or
software, and related software or hardware development; the Company's manuals,
formulae, processes, methods, machines, compositions, ideas, improvements,
inventions or other information or materials relating to the Company's affairs
(collectively referred to herein as the "Confidential Information"); (b) that
the Confidential Information is the property of the Company and constitutes a
major asset of the Company; (c) that the use, misappropriation or disclosure of
the Confidential Information would constitute a breach of trust and could cause
irreparable injury to the Company; and (d) that it is essential to the
protection of the Company's goodwill and to the maintenance of the Company's
competitive position that the Confidential Information be kept secret and that
Executive neither
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disclose the Confidential Information to others nor use the Confidential
Information to Executive's own advantage or to the advantage of others.
B. Acknowledgment of Necessity for Protections of
Company's Business. Executive further recognizes and acknowledges that it is
essential for the proper protection of the business of the Company, particularly
in view of the recent acquisition of the Company by Osage, that Executive be
restrained: (a) from soliciting or inducing any employee of the Company to leave
the employ of the Company; (b) from hiring or attempting to hire any employee of
the Company; (c) from soliciting the trade of, or trading with, the customers or
suppliers of the Company for any business purpose other than that of the
Company; and (d) from competing against the Company for a reasonable period of
time and within a reasonable geographic area following the termination or
nonrenewal of Executive's employment with the Company, as more fully addressed
in Section 6.F., below.
C. Work Made For Hire. Executive further recognizes and
understands that Executive's duties at the Company may include the preparation
of materials, including without limitation written or graphic materials, and
that any such materials conceived or written by Executive shall be done as "work
made for hire" as defined and used in the Copyright Act of 1976, 17 U.S.C.
Sections 1 et seq. In the event of publication of such materials, Executive
understands that since the work is a "work made for hire", the Company will
solely retain and own all rights in said materials, including right of
copyright.
D. Non-Disclosure of Confidential Information. In
recognition and consideration of the recent acquisition of the Company by Osage
and Executive's employment,
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<PAGE> 8
compensation and fringe benefits, the information which the Company will give
Executive regarding the Company's business, the Executive's introduction to the
Company's customers and prospective customers made in the course of Executive's
employment with the Company, and the carefully-guarded methods of doing business
which the Company utilizes and deems crucial to the successful operation of its
business, Executive agrees to hold and safeguard the Confidential Information in
trust and in a fiduciary capacity for the Company, its successors and assigns.
Executive expressly agrees that he shall not, without the prior written consent
of the Company, misappropriate or disclose or make available to anyone for use
outside the Company's organization at any time, either during Executive's
employment with the Company or subsequent to the termination or nonrenewal of
such employment with the Company, for any reason, including without limitation
termination by the Company for cause or without cause, any of the Confidential
Information, whether or not developed by Executive, except as required by the
Company in the performance of Executive's duties to the Company.
E. Disclosure of Works and Inventions/Assignment of
Patents. In consideration of the promises set forth herein, Executive agrees to
disclose promptly to the Company, or to such person whom the Company may
expressly designate for this specific purpose (its "Designee"), any and all
works, inventions, discoveries and improvements authored, conceived or made by
Executive during the period of employment and related to the business or
activities of the Company, and Executive hereby assigns and agrees to assign all
of Executive's interest in the foregoing to the Company or to its Designee.
Executive agrees that, whenever he is requested to do so by the Company,
Executive shall execute any and all applications,
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<PAGE> 9
assignments or other instruments which the Company shall deem necessary to apply
for and obtain Letters Patent or Copyrights of the United States or any foreign
country or to otherwise protect the Company's interest therein. Such obligations
shall continue beyond the termination or nonrenewal of Executive's employment
with respect to any works, inventions, discoveries and/or improvements that are
authored, conceived of, or made by Executive during the period of Executive's
employment, and shall be binding upon Executive's successors, assigns,
executors, heirs, administrators or other legal representatives.
F. Restrictions on Competition. Executive covenants and
agrees that, for and in consideration of the compensation received hereunder and
the Merger Consideration, the sufficiency and receipt of which is hereby
acknowledged, during the period of Executive's employment hereunder and/or the
period during which payments are made pursuant to Section 5.C. hereof, and for a
period of one (1) year thereafter, Executive shall not, within a 200-mile radius
of any of the places of business of Osage or any of its subsidiaries and
affiliates (including the Company which is a wholly-owned subsidiary of Osage)
engage, directly or indirectly, whether as principal or as agent, officer,
director, employee, consultant, shareholder, or otherwise, alone or in
association with any other person, corporation or other entity, in any
"Competing Business". For purposes of this Agreement, the term "shareholder"
shall exclude any interest owned by Executive in a public company to the extent
the Executive owns less than five percent (5%) of any such company's outstanding
common stock or has an investment in such company of less than $250,000. For the
further purposes of this Agreement, the term "Competing Business", shall mean
any person, corporation or other entity that is engaged in a
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<PAGE> 10
business that competes with, or is similar to, the business of the Company at
the time of such termination or nonrenewal; provided, however, in order to be
construed as a "Competing Business", such person, corporation or other entity
must be engaging in a competitive business that acquires at least fifty (50%)
percent or more of its products/services for resale from: (i) Sun Microsystems,
Inc. ("SUN") or any affiliate, predecessors or successors of Sun; or (ii) any
aggregators, distributors or wholesalers who acquire products from, or are
acting as agents for, Sun, or any affiliates, predecessors or successors of Sun;
or (iii) any manufacturers, aggregators, distributors or wholesalers who at the
time of such termination or nonrenewal, provide the Company with at least fifty
(50%) percent of its products/services for resale.
G. Executive's Abilities. Executive represents that
Executive's experience and capabilities, and the limited provisions of the
immediately-preceding Section 6.F, are such that he will not be prevented from
earning his livelihood in businesses similar to the Company, other than the
"Competing Business," as specifically defined in the immediately preceding
Section 6.F. Executive acknowledges that there are a significant number of
businesses for which his qualifications and experience would render him
qualified for employment that are within the 200 mile radius referred to in
Section 6.F. that do not constitute a "Competing Business" such that his ability
to become employed after the termination or nonrenewal of this Agreement would
not be impaired.
H. Non-Solicitation of Customers and Suppliers.
Executive agrees that during the course of his employment with the Company
(including the period during which payments are made pursuant to Section 5.C.
hereof), and for a period of one (1) year thereafter,
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<PAGE> 11
he shall not, directly or indirectly, solicit the trade of, or trade with, any
past, present or prospective customer or supplier of the Company for any
business purpose that competes with the business being undertaken by Osage or
any of its subsidiaries and affiliates (including the Company which is a
wholly-owned subsidiary of Osage).
I. Non-Solicitation of Employees. Executive agrees that,
during his employment with the Company and for one (1) year following any
termination or nonrenewal of Executive's employment with the Company, including,
without limitation, termination by the Company for cause or without cause,
Executive shall not, directly or indirectly, solicit or induce, or attempt to
solicit or induce, any employee of the Company to leave the Company for any
reason whatsoever, or assist or participate in the hiring of any employee of the
Company to work for another entity.
J. No Prior Agreements. Executive represents and
warrants that Executive is not a party to or otherwise subject to or bound by
the terms of any contract, agreement or understanding which in any manner would
limit or otherwise affect Executive's ability to perform his obligations
hereunder, including without limitation any contract, agreement or understanding
containing terms and provisions similar in any manner to those contained in this
Section 6. Executive further represents and warrants that his employment with
the Company will not under any circumstances require him to disclose or use any
confidential information belonging to prior employers or other persons or
entities, or to engage in any conduct which may potentially interfere with the
contractual, statutory or common-law rights of such other employers, persons or
entities. In the event that Executive knows or learns of any facts
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<PAGE> 12
whatsoever which suggest that such interference might arguably occur as the
result of any proposed actions by either Executive or the Company, Executive
expressly promises that he will immediately bring such facts to the Company's
attention.
K. Remedies. In the event of a breach by Executive of
any of the terms of this Agreement, the Company shall be entitled, if it shall
so elect, to institute legal proceedings to obtain damages for any such breach,
or to enforce the specific performance of this Agreement by Executive and to
enjoin Executive from any further violation of this Agreement, and to exercise
such remedies cumulatively or in conjunction with all other rights and remedies
provided by law. Executive acknowledges and agrees that money damages for any
breach by him of any of the provisions of this Agreement may be inadequate to
compensate the Company for the injuries it may suffer as the result of any such
breach, and accordingly that the Company shall be entitled to injunctive relief
against Executive, in addition to money damages, in the event of any such breach
by Executive.
L. Review by Counsel. Executive expressly acknowledges
and represents that Executive has been given a full and fair opportunity to
review this Agreement with an attorney of Executive's choice, and that Executive
has satisfied himself, with or without consulting with counsel, that the terms
and provisions of this Agreement, specifically including, but not limited to,
the restrictive covenant and related provisions of Section 6 hereof, are
reasonable and enforceable.
M. Return of Materials. Upon the termination or
nonrenewal of Executive's employment with the Company for any reason, including
without limitation termination by the
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Company for cause or without cause, or at any time upon demand, Executive shall
promptly deliver to the Company all Company property and materials, including
without limitation all documents or other materials constituting, containing,
referencing or relating to the "Confidential Information" referred to in this
Section 6, and any other Company property of any nature whatsoever, including
without limitation correspondence, computer disks or other electronically-stored
information, drawings, blueprints, manuals, letters, notes, notebooks, reports,
flow-charts, programs, proposals and any documents concerning the Company's
customers, or concerning services, products or processes provided by or to, or
used by, the Company.
N. Company-Created Materials. All material that may be
furnished to the Executive, together with literature, rate schedules, customer
lists, forms, filing systems and any other property, documents or other
materials furnished or made available by the Company to the Executive, shall be
and remain the property of the Company, and shall be returned by the Executive
to the Company upon any termination or nonrenewal of employment or at any time
upon demand.
O. Executive-Created Materials. All material created by
the Executive during the term of his employment with the Company which is
incidental to or related in any way to the Executive's employment, or to the
Company's business, shall be the property of the Company, and shall be delivered
to the Company upon any termination or nonrenewal of Executive's employment or
at any time upon demand.
P. Definitions. For purposes of this Section 6, the
term, "material(s)" shall include, but shall not be limited to, data stored in
computers, voicemail or any other electronic,
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<PAGE> 14
magnetic, or mechanical storage device, any passwords, codes or keys required to
access all or any portion of such material, and the "Confidential Information"
referred to in Section 6.A. hereof.
7. Conflict of Interest.
Executive covenants that, during the Term, he will disclose to
the Company, in writing, any and all interests he may have, whether for profit
or compensation or not, in any venture or activity which could potentially
interfere with his ability to perform under this Agreement or create a conflict
of interest for him with the Company. For purposes of this paragraph 7 only,
"conflict of interest" shall mean ownership of greater than five percent (5%)
of, or $300,000 worth of equity in, another company which conducts business
similar to that undertaken by the Company.
8. Notices.
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, certified or registered mail, return receipt
requested, with postage prepaid, at the following addresses or to such other
address as either party may designate by like notice:
A. If to Executive, to:
Hugh V. Jones
[INSERT ADDRESS.]
B. If to Company, to:
H.V. Jones, Inc.
C/o Osage Computer Group, Inc.
1661 East Camelback Road, Suite 245
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<PAGE> 15
Phoenix, AZ 85016
Attn: Mr. Jack Leadbeater
C. In all cases, copies to:
Buchanan Ingersoll Professional Corporation
11 Penn Center, 14th Floor
1835 Market Street
Philadelphia, Pa. 19103
Attn: Stephen M. Cohen, Esquire
9. Basic Indemnification.
Company shall indemnify and defend Executive and his heirs,
executors and administrators against any costs or expense (including reasonable
attorneys' fees and amounts paid in settlement, if such settlement is approved
by the Company), fine, penalty, judgment and liability reasonably incurred by or
imposed upon Executive in connection with any action, suit or proceeding, civil
or criminal, to which Executive may be made a party or with which Executive
shall be threatened, by reason of Executive's being or having been an Officer,
unless with respect to such matter Executive shall have been adjudicated in any
proceeding not to have acted in good faith or in the reasonable belief that the
action was in the best interests of the Company, or unless such indemnification
is precluded by law, public policy, or in the judgment of the Company's Board of
Directors, such indemnification is being sought as a result of actions of
Executive which were either: (i) grossly negligent; (ii) reflective of Executive
misconduct; (iii) in violation of rules, regulations or laws applicable to the
Company; or (iv) in disregard of Company policies.
10. Additional Provisions.
A. This Agreement, including without limitation its
confidentiality, restrictive covenant and related provisions, shall inure to the
benefit of, and be binding upon, the Company
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<PAGE> 16
and its successors and assigns and Executive, his heirs, executors,
administrators and legal representatives, subject to the provisions of Section
10.F. hereof, which expressly prohibits the assignment or delegation of any of
Executive's personal rights or obligations hereunder.
B. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof, and cannot be
modified orally. This Agreement supersedes all prior and contemporaneously-made
written or oral agreements between the parties relating to the subject matter
hereof. No modification or waiver of any of the provisions hereof shall be
effective unless set forth in a writing that specifically states that it is
intended to be a modification of this Agreement and that is signed by the
President of the Company.
C. If any provision(s) of this Agreement shall be or
shall become illegal or unenforceable in whole or in part, for any reason
whatsoever, the remaining provisions shall nevertheless be deemed valid, binding
and subsisting, and any invalid or unenforceable provision(s) shall be deemed
modified to the least extent possible so as to make them valid and enforceable
and so as to give the maximum effect allowable by law to the parties' original
intent as expressed by the terms hereof.
D. No failure on the part of the Company to exercise,
and no delay by the Company in exercising, any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise by
the Company of any right, power or remedy hereunder, preclude any other or
further exercise thereof, or the exercise of any other right, power or remedy by
the Company.
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<PAGE> 17
E. "Person" as used herein shall mean a natural person,
joint venture, corporation, partnership, trust, estate, sole proprietorship,
governmental agency or authority or other juridical entity.
F. This is a personal services contract and the rights
and obligations set forth herein may not be assigned or delegated by Executive,
except as otherwise specifically provided in this Agreement with respect to
benefits payable upon Executive's disability or death, without the express,
written consent of the Company.
G. The headings of the several sections of this
Agreement have been inserted for convenience of reference only and shall in no
way be used to restrict, modify, or explain any of the terms or provisions
hereof.
H. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware, without regard to
its, or any other sovereignty's, conflicts of laws principles. The parties agree
that any claims brought pursuant to this Agreement shall be brought in a court
of competent jurisdiction located in Phoenix, Arizona.
I. Tolling Period. The non-competition, non-disclosure
and non-solicitation obligations contained in Section 6 of this Agreement shall
be extended by the length of time during which Executive shall have been in
breach of any of the provisions of such Section 6, regardless of whether the
Company knew or should have known of such breach.
J. Company Violation Not a Defense. In an action by the
Company to enforce any provision of this Agreement, any claims asserted by
Executive against the Company shall not constitute a defense to the Company's
action.
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<PAGE> 18
K. Construction. This Agreement shall be construed
according to the plain meaning of its terms, and not strictly for or against
either party hereto.
L. Counterparts. This Agreement may be executed in
counterparts, and the counterparts, taken together, shall constitute the entire
Agreement. The Agreement may further be executed by facsimile transmission, and
the facsimile signatures may be deemed original signatures for all purposes,
including for purposes of the Best Evidence Rule and all other rules or
doctrines of similar effect.
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<PAGE> 19
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
IMPORTANT NOTICE: THIS AGREEMENT RESTRICTS EXECUTIVE'S RIGHTS TO OBTAIN
OTHER EMPLOYMENT FOLLOWING HIS EMPLOYMENT WITH THE COMPANY. BY SIGNING
IT, EXECUTIVE ACKNOWLEDGES THIS FACT, AND FURTHER ACKNOWLEDGES THAT HE
HAS BEEN ADVISED BY THE COMPANY TO READ THE AGREEMENT CAREFULLY, AND/OR
TO CONSULT WITH COUNSEL OF HIS CHOICE CONCERNING THE LEGAL EFFECTS OF
SIGNING THE AGREEMENT, PRIOR TO SIGNING IT.
H.V. JONES, INC.
By: Hugh V. Jones
________________________________ Dated:______________________________
Chairman, Board of Directors
HUGH V. JONES
By: Hugh V Jones
________________________________ Dated:______________________________
Hugh V. Jones, as Executive
WITNESS:
___________________________________
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<PAGE> 20
SCHEDULE "A"
Executive shall be entitled to receive and Company agrees to pay to
Executive, an incentive bonus (the "Incentive Bonus") based upon the
satisfaction in full, or partially, of the following objectives:
1) If during the first quarter commencing April 1, 1998 (the "Commencement
Date"), Company completes the development and packaging of a
proprietary service offering(s) for "Systems and Network
Interoperability" (the "Proprietary Services") pursuant to applicable
guidelines of Osage Computer Systems, Inc. ("Osage"), Executive shall
at the end of such quarter earn $10,000 of the Incentive Bonus.
2) If prior to the end of the third quarter following the Commencement
Date, the Company has completed the sale and delivery of 16 consulting
engagements based upon the Proprietary Services, Executive shall at the
end of such third quarter, earn an aggregate of $10,000 (i.e. $625 per
engagement) of the Incentive Bonus.
3) If prior to the end of the third quarter following the Commencement
Date, Executive has completed the sale and delivery of an additional 6
consulting engagements based upon the Proprietary Services into
geographic territories covered by other Osage offices, Executive shall
at the end of such third quarter earn an aggregate of $5,000 (i.e. $833
per engagement) of the Incentive Bonus.
4) If prior to the end of the third quarter following the Commencement
Date, Executive has completed the sale and delivery of 2 consulting
engagements based upon the Proprietary Services from other Osage
offices into the geographic territory covered by Company, Executive
shall at the end of such third quarter earn an aggregate of $5,000
(i.e. $2,500 per engagement) of the Incentive Bonus.
5) Executive shall earn an Incentive Bonus equal to 4.5% of the gross
profits generated on service delivered by the Company during the first
year following the Commencement Date. The Incentive Bonus earned during
each month of the year shall be paid to the Executive in accordance
with the established guidelines of the Company with regard to the
payment of commissions.
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SCHEDULE "B"
1) During the first year following the Commencement Date (as defined in
Schedule "A"), the Company shall have generated "sales revenues" of
less than $6.0 million or shall have incurred a cumulative net loss for
the year.
2) During the second year following the Commencement Date, the Company
shall have during any two (2) consecutive quarters, generated "pre-tax
net income" of less than $100,000.
3) During the third year following the Commencement Date, the Company
shall have during any two (2) consecutive quarters, generated "pre-tax
net income" of less than $150,000.
For the purposes hereof, the terms "sales revenues" and "pre-tax net
income" shall have the meanings ascribed thereto in paragraph 1.3(b) of the
Agreement and Plan of Merger by and among Pacific Rim Entertainment, Inc., Jones
Acquisition Corp., H.V. Jones, Inc. and Hugh V. Jones.
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<PAGE> 1
EXHIBIT 10.13
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is dated as of February 27, 1998 by
and among Pacific Rim Entertainment, Inc., a Delaware corporation (the
"Company") and The Trust of Daniel J. and Mary G. Vahalla, Gary Gwin, Maureen
Gaare and Daniel Grube (collectively the "Holders"), the sole shareholders of
Solsource Computers, Inc., a California corporation ("Acquiree").
W I T N E S S E T H:
WHEREAS, the Company and Holders are parties to an Agreement and Plan
of Merger dated as of February 27, 1998 (the "Merger Agreement") pursuant to
which Acquiree has elected to effectuate a merger with a newly formed subsidiary
of the Company (the "Merger");
WHEREAS, pursuant to the Merger, the Holders are to receive certain
shares of the Company's $.01 par value common stock (the "Common Stock");
WHEREAS, the parties hereto desire to set forth their agreement
concerning the registration under the Securities Act of 1933, as amended, of the
Common Stock issued to the Holders in connection with the Merger.
NOW, THEREFORE, the parties hereto agree as follows:
AGREEMENT
1. Definitions.
(a) "Closing" shall mean that date upon which a closing
of the Merger occurs.
(b) "Company" shall mean Pacific Rim Entertainment, Inc.
(c) "Exchange Act" shall mean the Securities Exchange Act
of 1934.
(d) "Holders" shall mean The Trust of Daniel J. and Mary
G. Vahalla, Gary Gwin, Maureen Gaare and Daniel Grube, the former shareholders
of Solsource Computers, Inc. who have received, and may receive subsequent to
the date hereof, shares of the Company's Common Stock pursuant to the Merger.
(e) "Merger" shall mean the Merger of Solsource
Acquisition Corp., a newly formed, wholly owned subsidiary of the Company, into
Acquiree pursuant to the terms of the Merger Agreement entered into on February
__, 1998.
(f) "Person" means an individual, a partnership (general
or limited), corporation, limited liability company, joint venture, business
trust, cooperative, association or other form of business organization, whether
or not regarded as a legal entity under applicable law, a trust (inter vivos or
testamentary), an estate of a deceased, insane or incompetent person, a
<PAGE> 2
quasi-governmental entity, a government or any agency, authority, political
subdivision or other instrumentality thereof, or any other entity.
(g) "Registration Statement" shall mean the Registration
Statement of the Company filed with the SEC pursuant to the provisions of
Section 2 of this Agreement which covers the resale of the Restricted Stock on
an appropriate form then permitted by the SEC to be used for such registration
and the sales contemplated to be made thereby under the Securities Act, or any
similar rule that may be adopted by the SEC, and all amendments and supplements
to such Registration Statement, including any pre- and post-effective amendments
thereto, in each case including the prospectus contained therein, all exhibits
thereto and all materials incorporated by reference therein.
(h) "Restricted Stock" shall mean all or any shares of
Common Stock or other equity securities of the Company that may be issued to the
Holders pursuant to subparagraphs 1.3(a)(ii) and 1.3(a)(iii) of the Merger
Agreement, and any additional shares of Common Stock or other equity securities
of the Company issued or issuable after the date hereof in respect of any such
securities (or other equity securities issued in respect thereof) by way of a
stock dividend or stock split, in connection with a combination, exchange,
reorganization, recapitalization or reclassification of Company securities, or
pursuant to a merger, division, consolidation or other similar business
transaction or combination involving the Company; provided that: as to any
particular shares of restricted stock, such securities shall cease to constitute
restricted stock (i) when a registration statement with respect to the sale of
such securities shall have become effective under the Securities Act and such
securities shall have been disposed of thereunder, or (ii) when and to the
extent such securities are permitted to be distributed pursuant to Rule 144 (or
any successor provision to such Rule) under the Securities Act or are otherwise
freely transferable to the public without further registration under the
Securities Act.
(i) "Securities Act" shall mean the Securities Act of
1933, as amended, or any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
any relevant time.
(j) "SEC" shall mean the United States Securities and
Exchange Commission.
(k) "Trading Day" shall mean any day on which the New
York Stock Exchange is open for trading.
Capitalized terms used in this Registration Rights Agreement and not
otherwise defined herein shall have the same meaning ascribed thereto in the
Merger Agreement.
2. Shelf Registration.
(a) The Company shall use it best efforts to prepare and
file, not later than the sixtieth (60th) day following the first anniversary of
the Closing of the Merger, a Registration Statement with the SEC and use its
best efforts to, as promptly as possible have such Registration Statement
declared effective for the purpose of facilitating the public resale of fifty
percent (50%) of the Restricted Stock; provided, however, if there are no shares
of Restricted
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<PAGE> 3
Stock issued pursuant to subparagraph 1.3(a)(iii) of the Merger Agreement, then
all shares of Restricted Stock shall only have such registration rights as are
identified at subparagraph 2(b) below.
(b) The Company shall use its best efforts to prepare and
file, not later than the sixtieth (60th) day after the second anniversary of the
Closing of the Merger, a Registration Statement with the SEC and use its best
efforts to, as promptly as possible, have such Registration Statement declared
effective for the purpose of facilitating the public resale of the remaining
Restricted Stock, which was not otherwise registered pursuant to subparagraph
2(a) above.
(c) Notwithstanding anything to the contrary contained
herein, the Company's obligation in subparagraphs 2(a) and 2(b) above shall
extend only to the inclusion of the Restricted Stock in a Registration Statement
filed under the Securities Act. The Company shall have no obligation to assure
the terms and conditions of distribution, to obtain a commitment from an
underwriter relative to the sale of the Restricted Stock or to otherwise assume
any responsibility for the manner, price or terms of the distribution of the
Restricted Stock. Furthermore, the Company shall not be restricted in any manner
from including within the Registration Statement the distribution, issuance or
resale of any of its or any other securities.
(d) Each Holder of Restricted Stock shall not effect any
public sale or distribution (including sales pursuant to Rule 144) of equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the ninety (90) days prior to the
commencement of any primary offering to be undertaken by the Company of shares
of its own common stock (the "Primary Offering"), which may also include other
securities, and ending 180 days after completion of any such Primary Offering,
unless the Company, in the case of a non-underwritten offering, or the managing
underwriter, in the case of an underwritten Primary Offering, otherwise agree.
(e) Except with respect to the shares of Common Stock
permitted to be sold by the Holders pursuant to subparagraphs 2(a) and 2(b)
above, the remainder of the shares of the Company's Common Stock acquired (or to
be acquired) by the Holders pursuant to the Merger may not, without the written
consent of the Company, be subject to any transfer, disposition, sale or
encumbrance for a period of twenty-four (24) months from the Closing of the
Merger.
3. Registration Procedures. Whenever it is obligated to register
any Restricted Stock pursuant to this Agreement, the Company shall:
(a) prepare and file with the Commission a Registration
Statement with respect to the Restricted Stock in the manner set forth at
Paragraph 2 hereof and use its best efforts to cause such Registration Statement
to become effective as promptly as possible and to remain effective for that
period identified in subparagraph 3(g) hereafter;
(b) prepare and file with the Commission such amendments
and supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective for the period specified in subparagraph
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<PAGE> 4
3(g) below and to comply with the provisions of the Securities Act with respect
to the disposition of all Restricted Stock covered by such Registration
Statement in accordance with the Holders' intended method of disposition set
forth in such Registration Statement for such period;
(c) furnish to the Holders and to each underwriter, if
any, such number of copies of the Registration Statement and the prospectus
included therein (including each preliminary prospectus), as such persons may
reasonably request in order to facilitate the public sale or other disposition
of the Restricted Stock covered by such Registration Statement;
(d) use its best efforts to register or qualify the
Restricted Stock covered by such Registration Statement under the securities or
blue sky laws of such jurisdictions as the Holders, or, in the case of an
underwritten public offering, the managing underwriter shall reasonably request;
provided, however, that the Company shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) immediately notify the Holders under such
Registration Statement and each underwriter, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus contained in such
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required or necessary to be
stated therein in order to make the statements contained therein not misleading
in light of the circumstances under which they were made;
(f) make available for inspection by the Holders, any
underwriter participating in any disposition pursuant to such Registration
Statement, and any attorney, accountant or other agent retained by any such
Holders or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by the
Holders, underwriter, attorney, accountant or agent in connection with such
Registration Statement;
(g) for purposes of subparagraphs 3(a) and 3(b) above,
the period of distribution of Restricted Stock shall be deemed to extend until
the earlier of: (A) in an underwritten public offering of all of the Restricted
Stock, the period in which each underwriter has completed the distribution of
all securities purchased by it; (B) in any other registration, the period in
which all shares of Restricted Stock covered thereby shall have been sold; and
(C) a period of two (2) years from the effective date of the first Registration
Statement filed by the Company with the SEC pursuant to this Agreement.
(h) if the Common Stock of the Company is listed on any
securities exchange or automated quotation system, the Company shall use its
best efforts to list (with the listing application being made at the time of the
filing of such Registration Statement or as soon thereafter as is reasonably
practicable) the Restricted Stock covered by such Registration Statement on such
exchange or automated quotation system;
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<PAGE> 5
(i) enter into normal and customary underwriting
arrangements or an underwriting agreement and take all other reasonable and
customary actions if the Holders sell their shares of Restricted Stock pursuant
to an underwriting (however, in no event shall the Company, in connection with
such underwriting, be required to undertake any special audit of a fiscal period
in which an audit is normally not required);
(j) notify the Holders if there are any amendments to the
Registration Statement, any requests by the SEC to supplement or amend the
Registration Statement, or of any threat by the SEC or state securities
commission to undertake a stop order with respect to sales under the
Registration Statement; and
(k) cooperate in the timely removal of any restrictive
legends from the shares of Restricted Stock in connection with the resale of
such shares covered by an effective Registration Statement.
4. Expenses.
(a) For the purposes of this Paragraph (4), the term
"Registration Expenses" shall mean: all expenses incurred by the Company in
complying with paragraph (2) of this Agreement, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel and independent public accountants for the Company, "blue sky" fees,
fees of the National Association of Securities Dealers, Inc. ("NASD"), fees and
expenses of listing shares of Restricted Stock on any securities exchange or
automated quotation system on which the Company's shares are listed and fees of
transfer agents and registrars. The term "Selling Expenses" shall mean: all
underwriting discounts and selling commissions applicable to the sale of
Restricted Stock and all accountable or non-accountable expenses paid to any
underwriter in respect of the sale of Restricted Stock.
(b) Except as otherwise provided herein, the Company will
pay all Registration Expenses in connection with the Registration Statement
filed pursuant to paragraph (2) of this Agreement. All Selling Expenses in
connection with any Registration Statement filed pursuant to paragraph (2) of
this Agreement shall be borne by the participating Holders in proportion to the
number of shares sold by each, or by such persons other than the Company (except
to the extent the Company may be a seller) as they may agree.
5. Obligations of Holders.
(a) In connection with each registration hereunder, each
selling Holder will furnish to the Company in writing such information with
respect to such seller and the securities held by such seller, and the proposed
distribution by him or them as shall be reasonably requested by the Company in
order to assure compliance with federal and applicable state securities laws, as
a condition precedent to including such seller's Restricted Stock in the
Registration Statement. Each selling Holder also shall agree to promptly notify
the Company of any changes in such information included in the Registration
Statement or prospectus as a result of which there is an untrue statement of
material fact or an omission to state any material fact
5
<PAGE> 6
required or necessary to be stated therein in order to make the statements
contained therein not misleading in light of the circumstances then existing.
(b) In connection with each registration pursuant to this
Agreement, the Holders whose shares are included therein will not effect sales
thereof until notified by the Company of the effectiveness of the Registration
Statement, and thereafter will suspend such sales after receipt of telegraphic
or written notice from the Company to suspend sales to permit the Company to
correct or update a Registration Statement or prospectus. At the end of any
period during which the Company is obligated to keep a Registration Statement
current, the Holders included in said Registration Statement shall discontinue
sales of shares pursuant to such Registration Statement upon receipt of notice
from the Company of its intention to remove from registration the shares covered
by such Registration Statement which remain unsold, and such Holders shall
notify the Company of the number of shares registered which remain unsold
immediately upon receipt of such notice from the Company.
6. Information Blackout.
At any time when a Registration Statement effected pursuant to
Paragraph 2 relating to Restricted Stock is effective, upon written notice from
the Company to the Holders that the Company has determined in good faith that
sale of Restricted Stock pursuant to the Registration Statement would require
disclosure of non-public material information, the Holders shall suspend sales
of Restricted Stock pursuant to such Registration Statement until such time as
the Company notifies the Holders that such material information has been
disclosed to the public or has ceased to be material or that sales pursuant to
such Registration Statement may otherwise be resumed.
7. Indemnification.
(a) The Company agrees to indemnify, to the extent
permitted by law, each Holder of Restricted Stock, its officers and directors
and each Person who controls such Holder (within the meaning of the Securities
Act) against all losses, claims, damages, liabilities and expenses joint or
several, to which an Indemnified person may become subject under the Securities
Act or any other statute or at common law, insofar as such liability (or action
in respect thereof) arises out of or is based upon (a) any alleged untrue
statement of material fact contained in any Registration Statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or (b)
any alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or state securities or other blue sky laws
applicable to the Company in connection with such registration, except insofar
as the same are caused by or contained in any information furnished to the
Company by such Holder for use therein or by such Holder's failure to deliver a
copy of the Registration Statement or prospectus or any amendments or
supplements thereto after the Company has furnished such Holder with a
sufficient number of copies of the same.
(b) In connection with any Registration Statement in
which a Holder of Restricted Stock is participating, each such Holder shall
furnish to the Company in writing such
6
<PAGE> 7
information and affidavits as the Company reasonably requests for use in
connection with any such Registration Statement or prospectus and, to the extent
permitted by law, shall indemnify the Company, its directors and officers and
each Person who controls the Company (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities and expenses resulting from any
untrue or alleged untrue statement of material fact contained in the
Registration Statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished by such Holder; provided
that the obligation to indemnify shall be individual, not joint and several, for
each Holder and shall be limited to the net amount of proceeds received by such
Holder from the sale of Restricted Stock pursuant to such Registration
Statement.
(c) Any Person entitled to indemnification hereunder
shall (i) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification (provided that the failure to give
prompt notice shall not impair any Person's right to indemnification hereunder
to the extent such failure has not prejudiced the indemnifying party) and (ii)
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist with respect to such
claim, permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party. If such defense is
assumed, the indemnifying party shall not be subject to any liability for any
settlement made by the indemnified party without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party who is not entitled
to, or elects not to, assume the defense of a claim shall not be obligated to
pay the fees and expenses of more than one counsel for all parties indemnified
by such indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this Agreement
shall remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, director or controlling
Person of such indemnified party and shall survive the transfer of securities.
The Company also agrees to make such provisions, as are reasonably requested by
any indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
8. Miscellaneous Provisions.
(a) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
(b) Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
7
<PAGE> 8
(c) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given without the written consent of the Company and the Holders.
(d) Notices. All communications under this Agreement
shall be sufficiently given if delivered by hand or by overnight courier or
mailed by registered or certified mail, postage prepaid, addressed,
(i) if to the Company, to:
Mr. Jack Leadbeater
Chief Executive Officer
Pacific Rim Entertainment, Inc.
1661 Camelback Road, Suite 245
Phoenix, Arizona 85016
Telephone Number: (602) 241-5782
Telecopy Number: (602) 274-1295
with a copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll, P.C.
Eleven Penn Center
1835 Market Street, 14th Floor
Philadelphia, PA 19103
Telephone Number: (215) 665-3873
Telecopy Number: (215) 665-8760
(ii) if to the Holders, to the address identified
on the books and records of the Company;
with a copy to:
Michael J. Kinkelaar, Esquire
Procopio, Cory, Hargreaves & Savitch LLP
530 B Street, 21st Floor
San Diego, California 92101-4469
Telephone Number (619) 515-3250
Telecopy Number (619-235-0398
or, at such other address as any of the parties shall have furnished in writing
to the other parties hereto.
8
<PAGE> 9
(e) Successors and Assigns; Holders as Beneficiaries.
This Agreement shall inure to the benefit of and be binding upon the parties and
their respective successors and assigns, and the agreements of the Company
herein shall inure to the benefit of the Holders and their respective successors
and assigns.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Entire Agreement; Survival; Termination. This
Agreement is intended by the parties as a final expression of their agreement
and intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
ATTEST: PACIFIC RIM ENTERTAINMENT, INC.
By:_____________________________ By: Jack Leadbeater
___________________________
Name:
Title:
The Trust of Daniel J. and Mary G. Vahalla
Gary Gwin
___________________________________
Gary Gwin
Maureen Gaare
-----------------------------------
Maureen Gaare
Daniel Grube
___________________________________
Daniel Grube
9
<PAGE> 1
EXHIBIT 10.14
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is dated as of February 27, 1998 by
and among Pacific Rim Entertainment, Inc., a Delaware corporation (the
"Company") and Hugh V. Jones (the "Holder"), the sole shareholder of H.V. Jones,
Inc., a Texas corporation ("Acquiree").
W I T N E S S E T H:
WHEREAS, the Company and the Holder are parties to an Agreement and
Plan of Merger dated as of February 27, 1998 (the "Merger Agreement") pursuant
to which Acquiree has elected to effectuate a merger with a newly formed
subsidiary of the Company (the "Merger");
WHEREAS, pursuant to the Merger, the Holder is to receive 105.3 shares
of the Company's Series C Convertible Preferred Stock having an aggregate
liquidation amount of $1,580,000 (the "Preferred Stock");
WHEREAS, the parties hereto desire to set forth their agreement
concerning the registration under the Securities Act of 1933, as amended, of the
Common Stock issued to the Holder in connection with the Merger.
NOW, THEREFORE, the parties hereto agree as follows:
AGREEMENT
1. Definitions.
(a) "Closing" shall mean that date upon which a closing
of the Merger occurs.
(b) "Company" shall mean Pacific Rim Entertainment, Inc.
(c) "Exchange Act" shall mean the Securities Exchange Act
of 1934.
(d) "Holder" shall mean Hugh V. Jones, the sole
shareholder of Acquiree.
(e) "Merger" shall mean the Merger of Jones Acquisition
Corp., a newly formed, wholly owned subsidiary of the Company, into Acquiree
pursuant to the terms of the Merger Agreement.
(f) "Person" means an individual, a partnership (general
or limited), corporation, limited liability company, joint venture, business
trust, cooperative, association or other form of business organization, whether
or not regarded as a legal entity under applicable law, a trust (inter vivos or
testamentary), an estate of a deceased, insane or incompetent person, a
quasi-governmental entity, a government or any agency, authority, political
subdivision or other instrumentality thereof, or any other entity.
(g) "Registration Statement" shall mean a Registration
Statement of the Company filed with the SEC pursuant to the provisions of
Section 2 of this Agreement which
<PAGE> 2
covers the resale of the Restricted Stock on an appropriate form then permitted
by the SEC to be used for such registration and the sales contemplated to be
made thereby under the Securities Act, or any similar rule that may be adopted
by the SEC, and all amendments and supplements to such Registration Statement,
including any pre- and post-effective amendments thereto, in each case including
the prospectus contained therein, all exhibits thereto and all materials
incorporated by reference therein.
(h) "Restricted Stock" shall mean all or any shares of
Common Stock of the Company that may be issued to the Holder upon conversion of
the Preferred Stock, and any additional shares of Common Stock or other equity
securities of the Company issued or issuable in respect of any such Preferred
Stock by way of a stock dividend or stock split, in connection with a
combination, exchange, reorganization, recapitalization or reclassification of
Company securities, or pursuant to a merger, division, consolidation or other
similar business transaction or combination involving the Company; provided
that: as to any particular shares of Restricted Stock, such securities shall
cease to constitute Restricted Stock (i) when a Registration Statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of thereunder, or
(ii) when and to the extent such securities are permitted to be distributed
pursuant to Rule 144 (or any successor provision to such Rule) under the
Securities Act or are otherwise freely transferable to the public without
further registration under the Securities Act.
(i) "Securities Act" shall mean the Securities Act of
1933, as amended, or any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
any relevant time.
(j) "SEC" shall mean the United States Securities and
Exchange Commission.
(k) "Trading Day" shall mean any day on which the New
York Stock Exchange is open for trading.
Capitalized terms used in this Registration Rights Agreement and not
otherwise defined herein shall have the same meaning ascribed thereto in the
Merger Agreement.
2. Shelf Registration.
(a) As soon as practicable, however, no earlier than
ninety (90) days following the Merger, the Company shall use its best efforts to
prepare and file a Registration Statement with the SEC and use its best efforts
to, as promptly as possible, have such Registration Statement declared effective
for the purpose of facilitating the public resale of the Common Stock which may
be issued to the Holder upon the conversion of the Preferred Stock; provided,
however, the public resale of such shares of Common Stock shall be limited to
those sales which realize for the Holder gross sales proceeds not to exceed
$1,000,000 during the twelve (12) month period immediately following Closing and
any shares not otherwise disposed of during this twelve (12) month period shall
not be available for resale until the expiration of the twenty four (24) month
period immediately following Closing.
2
<PAGE> 3
(b) Except with respect to the shares of Common Stock
permitted to be sold by the Holder pursuant to subparagraph 2(a) above, the
remainder of the shares of the Company's Common Stock owned or acquired by the
Holder pursuant to the Merger may not, without the written consent of the
Company, be subject to any transfer, disposition, sale or encumbrance for a
period of the later of: (i) twenty-four (24) months from the Closing, or (ii)
twelve (12) months from the date of receipt of any such Company Common Stock.
(c) Notwithstanding anything to the contrary contained
herein, the Company's obligation in subparagraph 2(a) above shall extend only to
the inclusion of the Restricted Stock in a Registration Statement filed under
the Securities Act. The Company shall have no obligation to assure the terms and
conditions of distribution, to obtain a commitment from an underwriter relative
to the sale of the Restricted Stock or to otherwise assume any responsibility
for the manner, price or terms of the distribution of the Restricted Stock.
Furthermore, the Company shall not be restricted in any manner from including
within the Registration Statement or the distribution, issuance or resale of any
of its or any other securities.
(d) The Holder of Restricted Stock shall not effect any
public sale or distribution (including sales pursuant to Rule 144) of equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the ninety (90) days prior to the
commencement of any underwritten primary offering to be undertaken by the
Company of shares of its own common stock (the "Primary Offering"), which may
also include other securities, and ending 180 days after completion of any such
Primary Offering, unless the managing underwriter of such Primary Offering
otherwise agrees. If, however, the registration or ability to resell any of the
Restricted Stock is delayed by virtue of this subparagraph 2(d), then, and in
that event, the time period identified in subparagraph 2(a) within which Holder
may sell up to $1,000,000 of Restricted Stock, may be extended by a period
equivalent to the delay caused by subparagraph 2(d).
3. Registration Procedures. Whenever it is obligated to register
any Restricted Stock pursuant to this Agreement, the Company shall:
(a) prepare and file with the Commission a Registration
Statement with respect to the Restricted Stock in the manner set forth at
Paragraph 2 hereof and use its best efforts to cause such Registration Statement
to become effective as promptly as possible and to remain effective for that
period necessary to comply with subparagraphs 2(a) and 2(d) herein.
(b) prepare and file with the Commission such amendments
and supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective for the period specified in subparagraph 3(g) below and to comply with
the provisions of the Securities Act with respect to the disposition of all
Restricted Stock covered by such Registration Statement in accordance with the
Holder's intended method of disposition set forth in such Registration Statement
for such period;
(c) furnish to the Holder and to each underwriter, if
any, such number of copies of the Registration Statement and the prospectus
included therein (including each
3
<PAGE> 4
preliminary prospectus), as such persons may reasonably request in order to
facilitate the public sale or other disposition of the Restricted Stock covered
by such Registration Statement;
(d) use its best efforts to register or qualify the
Restricted Stock covered by such Registration Statement under the securities or
blue sky laws of such jurisdictions as the Holder, or, in the case of an
underwritten public offering, the managing underwriter shall reasonably request;
provided, however, that the Company shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) immediately notify the Holder under such Registration
Statement and each underwriter, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus contained in such Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required or necessary to be stated therein in
order to make the statements contained therein not misleading in light of the
circumstances under which they were made;
(f) make available for inspection by the Holder, any
underwriter participating in any disposition pursuant to such Registration
Statement, and any attorney, accountant or other agent retained by the Holder or
any such underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by the
Holder, underwriter, attorney, accountant or agent in connection with such
Registration Statement;
(g) if the Common Stock of the Company is listed on any
securities exchange or automated quotation system, the Company shall use its
best efforts to list (with the listing application being made at the time of the
filing of such Registration Statement or as soon thereafter as is reasonably
practicable) the Restricted Stock covered by such Registration Statement on such
exchange or automated quotation system;
(h) enter into normal and customary underwriting
arrangements or an underwriting agreement and take all other reasonable and
customary actions if the Holder sells his shares of Restricted Stock pursuant to
an underwriting (however, in no event shall the Company, in connection with such
underwriting, be required to undertake any special audit of a fiscal period in
which an audit is normally not required);
(i) notify the Holder if there are any amendments to the
Registration Statement, any requests by the SEC to supplement or amend the
Registration Statement, or of any threat by the SEC or state securities
commission to undertake a stop order with respect to sales under the
Registration Statement; and
(j) cooperate in the timely removal of any restrictive
legends from the shares of Restricted Stock in connection with the resale of
such shares covered by an effective Registration Statement.
4
<PAGE> 5
4. Expenses.
(a) For the purposes of this Paragraph (4), the term
"Registration Expenses" shall mean: all expenses incurred by the Company in
complying with paragraph (2) of this Agreement, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel and independent public accountants for the Company, "blue sky" fees,
fees of the National Association of Securities Dealers, Inc. ("NASD"), fees and
expenses of listing shares of Restricted Stock on any securities exchange or
automated quotation system on which the Company's shares are listed and fees of
transfer agents and registrars. The term "Selling Expenses" shall mean: all
underwriting discounts and selling commissions applicable to the sale of
Restricted Stock and all accountable or non-accountable expenses paid to any
underwriter in respect of the sale of Restricted Stock.
(b) Except as otherwise provided herein, the Company will
pay all Registration Expenses in connection with the Registration Statement
filed pursuant to paragraph (2) of this Agreement. All Selling Expenses in
connection with any Registration Statement filed pursuant to paragraph (2) of
this Agreement shall be borne by the participating Holder in proportion to the
number of shares sold by each, or by such persons other than the Company (except
to the extent the Company may be a seller) as they may agree.
5. Obligations of Holder.
(a) In connection with each registration hereunder, the
selling Holder will furnish to the Company in writing such information with
respect to such seller and the securities held by such seller, and the proposed
distribution by him or them as shall be reasonably requested by the Company in
order to assure compliance with federal and applicable state securities laws, as
a condition precedent to including such seller's Restricted Stock in the
Registration Statement. The selling Holder also shall agree to promptly notify
the Company of any changes in such information included in the Registration
Statement or prospectus as a result of which there is an untrue statement of
material fact or an omission to state any material fact required or necessary to
be stated therein in order to make the statements contained therein not
misleading in light of the circumstances then existing.
(b) In connection with each registration pursuant to this
Agreement, the Holder will not effect sales thereof until notified by the
Company of the effectiveness of the Registration Statement, and thereafter will
suspend such sales after receipt of telegraphic or written notice from the
Company to suspend sales to permit the Company to correct or update a
Registration Statement or prospectus. At the end of any period during which the
Company is obligated to keep a Registration Statement current, the Holder
included in said Registration Statement shall discontinue sales of shares
pursuant to such Registration Statement upon receipt of notice from the Company
of its intention to remove from registration the shares covered by such
Registration Statement which remain unsold, and the Holder shall notify the
Company of the number of shares registered which remain unsold immediately upon
receipt of such notice from the Company.
5
<PAGE> 6
6. Information Blackout.
At any time when a Registration Statement effected pursuant to
Paragraph 2 relating to Restricted Stock is effective, upon written notice from
the Company to the Holder that the Company has determined in good faith that
sale of Restricted Stock pursuant to the Registration Statement would require
disclosure of non-public material information, the Holder shall suspend sales of
Restricted Stock pursuant to such Registration Statement until such time as the
Company notifies the Holder that such material information has been disclosed to
the public or has ceased to be material or that sales pursuant to such
Registration Statement may otherwise be resumed.
7. Indemnification
(a) The Company agrees to indemnify, to the extent
permitted by law, the Holder of Restricted Stock, its officers and directors and
each Person who controls the Holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue statement of material fact contained in any Registration Statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished to the Company by
the Holder for use therein or by the Holder's failure to deliver a copy of the
Registration Statement or prospectus or any amendments or supplements thereto
after the Company has furnished the Holder with a sufficient number of copies of
the same.
(b) In connection with any Registration Statement in
which the Holder of Restricted Stock is participating, the Holder shall furnish
to the Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any such Registration Statement
or prospectus and, to the extent permitted by law, shall indemnify the Company,
its directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the Registration Statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished by the Holder; provided that the obligation to indemnify shall be
limited to the net amount of proceeds received by the Holder from the sale of
Restricted Stock pursuant to such Registration Statement.
(c) Any Person entitled to indemnification hereunder
shall (i) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification (provided that the failure to give
prompt notice shall not impair any Person's right to indemnification hereunder
to the extent such failure has not prejudiced the indemnifying party) and (ii)
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist with respect to such
claim, permit
6
<PAGE> 7
such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party shall not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this Agreement
shall remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, director or controlling
Person of such indemnified party and shall survive the transfer of securities.
The Company also agrees to make such provisions, as are reasonably requested by
any indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
8. Miscellaneous Provisions.
(a) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
(b) Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
(c) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given without the written consent of the Company and the Holder.
(d) Notices. All communications under this Agreement
shall be sufficiently given if delivered by hand or by overnight courier or
mailed by registered or certified mail, postage prepaid, addressed,
(i) if to the Company, to:
Mr. Jack Leadbeater
Chief Executive Officer
Pacific Rim Entertainment, Inc.
1661 East Camelback Road, Suite 245
Phoenix, Arizona 85016
Telephone Number: (602) 241-5782
Telecopy Number: (602) 274-1295
7
<PAGE> 8
with a copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll, P.C.
Eleven Penn Center
1835 Market Street, 14th Floor
Philadelphia, PA 19103
Telephone Number: (215) 665-3873
Telecopy Number: (215) 665-8760
(ii) if to the Holder, to the address identified
on the books and records of the Company.
or, at such other address as any of the parties shall have furnished in writing
to the other parties hereto.
(e) Successors and Assigns; Holder as Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the parties and
their respective successors and assigns, and the agreements of the Company
herein shall inure to the benefit of the Holder and his respective successors
and assigns.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Entire Agreement; Survival; Termination. This
Agreement is intended by the parties as a final expression of their agreement
and intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
PACIFIC RIM ENTERTAINMENT, INC.
By: Jack Leadbeater
________________________________
Name:
Title:
HOLDER:
Hugh V. Jones
___________________________________
Hugh V. Jones
8
