Exhibit 2.02
Exhibit 2.02 Agreement and Plan of Reorganization among Registrant, APC
Telecommunications Inc. ("APC"), and the Shareholders of APC.
A G R E E M E N T A N D P L A N O F R E O R G A N I Z A T I O N
This Agreement ("Agreement") is made and entered into on June 12, 1998,
by and among PROPAINT SYSTEMS, INC., a Nevada corporation, as buyer (the
"Company"); ACCESS POWER CANADA, INC., a federally chartered Canadian
corporation, as the acquired company ("Acquired Company" or "APC"); and certain
persons executing this Agreement in their capacity as shareholders of APC (the
"APC Holders").
R E C I T A L S:
A. The APC Holders collectively own of record and beneficially all of
the 8,000,000 issued and outstanding shares of capital stock of APC (the "APC
Shares"): and
B. The APC Holders desire to sell to the Company, and the Company
desires to purchase from the APC Holders, all of the APC Shares, on the terms
and subject to the conditions of this Agreement; and
C. The respective boards of directors of APC and the Company have
approved the execution of this Agreement and performance of the parties'
respective obligations herein.
NOW THEREFORE, for and in consideration of the premises and the mutual
promises and undertakings contained herein, and for other good and valuable
consideration, and subject to the terms and conditions of this Agreement, the
parties hereto agree as follows:
1. THE EXCHANGE.
1.1 Sale and Purchase of the APC Shares. On the terms and subject to
conditions of this Agreement, at the Closing (defined below), the APC Holders
shall sell, transfer, assign, convey and deliver to the Company or the Company's
wholly owned subsidiary, free and clear of all adverse claims, security
interests, liens, claims and encumbrances (other than restrictions under
applicable securities laws or as expressly agreed to
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herein by the Company), and the Company or its subsidiary shall purchase, accept
and acquire all of the 8,000,000 APC Shares from the APC Holders, such purchase
and sale being herein sometimes referred to as the "Exchange." The Company shall
receive good and merchantable title to the APC Shares. It is intended among all
the parties that the Exchange shall constitute a tax free reorganization within
the meaning of Sections 351 and 368(a)(1)(B) of the Internal Revenue Code of
1986, as amended ("Code").
1.2 Issuance of Exchange Shares. In full payment for the APC Shares,
the Company shall ratably issue and deliver to the APC Holders in proportion to
their respective ownership of the APC Shares, an aggregate of
(i) 5,000,000 shares of the Company's common stock, $.001 par
value per share (the "Common Exchange Shares"); and
(ii) 5,000,000 shares of the Company's "Series A, Voting
Convertible Preferred Shares," $.001 par value per share
(the "Preferred Exchange Shares"), the terms,
preferences and designations of which are set forth on
EXHIBIT A to this Agreement.
The Common Exchange Shares and Preferred Exchange Shares are sometimes
collectively referred to in this Agreement as the "Exchange Shares." The
Exchange Shares, which term includes the common shares of the Company into which
the Preferred Exchange Shares may be converted ("Conversion Shares"), will, when
issued, be validly issued, fully paid, and nonassessable; the sale, issuance and
delivery of the Exchange Shares on the terms herein contemplated has been
authorized by all requisite corporate action of the Company; and the Exchange
Shares and Conversion Shares will not be be subject to any preemptive rights,
options or similar rights on the part of any shareholder or creditor of the
Company or any other person. The Exchange Shares shall be issued to the APC
Holders in the respective denominations set forth on SCHEDULE 1.2 to this
Agreement.
1.3 Exchange Shares Not Registered. The Exchange Shares have not been
and will not be registered under the Securities Act of 1933, as amended ("Act"),
or the securities laws of any state or states, in reliance upon exemptions from
the Act's registration requirements and state law registration requirements as
set forth below:
(a) Exchange Shares Issuable to U.S. Persons. Exchange Shares
issuable to APC Holders resident in the U.S. or otherwise defined as "U.S.
Persons" in Regulation S under the Act shall be issued in reliance upon the
exemptions from registration provided by Section 4(2) of the Act and/or Rule 506
of Regulation D under the Act and under analogous state securities laws, on the
grounds that the Exchange does not involve any public offering. The Exchange
Shares issuable to U.S. Persons will be "restricted securities" as that term is
defined in Rule 144(a) of the General Rules and Regulations under the Act and
must be held indefinitely, unless they are subsequently registered under the Act
or an exemption from the Act's registration requirements is available for their
resale. The prior written consent of the Company will be necessary for any
transfer of any or all of the Exchange Shares, unless the shares have been duly
registered under the Act or the transfer is made in accordance with Rule 144 or
other available exemption under the Act. All certificates evidencing the
Exchange
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Shares issued to U.S. Persons shall, unless and until removed in accordance
with law, bear a restrictive legend substantially in the following form:
"The shares represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
and are "restricted securities" as that term is defined in Rule 144
under the Act. These shares may not be offered for sale, sold or
otherwise transferred except pursuant to an effective registration
statement under the Act, or pursuant to an exemption from registration
under the Act."
(b) Exchange Shares Issuable to Non-U.S. Persons. Exchange
Shares issuable to APC Holders who are not resident in the United States of
America or otherwise "U.S. Persons" shall be issued in reliance upon the
exemption from registration provided by Regulation S under the Act, on the
grounds that the issuance and delivery of the Exchange Shares to such persons
does not involve the sale of a security within the meaning of Section 5 of the
Act. The Exchange Shares issuable to non-U.S. Persons will be "restricted
securities" as defined in Rule 902 of Regulation S and may not be resold in the
United States of America or to any U.S. Person during the one (1)-year
"distribution compliance period" following the Closing. Any resales of Exchange
Shares in the United States of America or to a U.S. Person following expiration
of such period must be made pursuant to registration under the Act or pursuant
to an available exemption from the Act's registration requirements. Any hedging
transactions involving Exchange Shares must be conducted in compliance with the
Act. All certificates evidencing the Exchange Shares issued to U.S. Persons
shall, unless and until removed after expiration of the distribution compliance
period, bear a restrictive legend substantially in the following form:
The shares evidenced by this certificate and any underlying common
shares have not been registered under the U.S. Securities Act of 1933
("Act") but have been offered and sold in reliance upon Regulation S
under the Act. Transfer of these securities is prohibited except in
accordance with the provisions of Regulation S, pursuant to
registration under the Act, or pursuant to an exemption from
registration under the Act. Any hedging transactions involving these
shares or any underlying common shares may not be conducted unless in
compliance with the Act.
1.4 Closing. Subject to the conditions precedent set forth herein, the
closing of all transactions herein contemplated ("Closing") shall take place on
or before June 23, 1998, at a place mutually agreed by APC and the Company
("Closing Date"). This Agreement shall be effective and binding when signed by
all parties.
1.5 Assignment of Exchange Shares. If any certificate for Exchange
Shares is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it shall be a condition of
issuance thereof that the certificate so surrendered shall be properly endorsed
and otherwise in proper form for transfer, that such transfer otherwise be
proper and that the person requesting such transfer pay any transfer or other
taxes payable by reason of the issuance of such new certificate in a name other
than that of the registered holder of the certificate surrendered or establish
to the satisfaction of Survivor that such tax has been paid or is not payable.
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1.6 Officers and Directors of the Company. At the Closing, the current
officers and directors of the Company shall resign as necessary and the
appropriate persons shall be elected as the directors and executive officers of
the Company. Immediately following the Closing, the directors and officers of
the Company shall be:
Name Position
---- --------
Xxxxx Xxxx DIRECTOR, President, CEO
Xxx Xxxxx DIRECTOR, Vice President for Operations
Xxxxxxx Xxxxxxx DIRECTOR, Chief Financial Officer
Xxxxxx Xxxxxx DIRECTOR
It is agreed by the parties that Xxxxxx Xxxxxx shall serve on the board of
directors and all committees of the board for a period of three (3) years
following the Closing, and the APC Holders agree that he shall, during such
three-year period, be nominated for election to the board of directors at every
meeting of the shareholders at which directors are elected. The APC Holders
agree to affirmatively vote all of their shares of the Company entitled to vote
in the election of directors in favor of electing Xxxxxx Xxxxxx to the board of
directors in all elections of directors during the three year period, whether
occurring at a shareholder meeting or by written consent or otherwise.
1.7 Further Assurances. APC and the APC Holders agree to execute all
documents and instruments and to take or to cause to be taken all actions which
the Company deems necessary or appropriate to complete the transactions
contemplated by this Agreement, whether before or after the Closing.
2. OTHER AGREEMENTS OF THE PARTIES.
2.1 The Company's Option to Redeem Exchange Shares. For purposes of
this Agreement, APC officers Xxxxxx Xxxxx, Xxxxxxx Xxxxxxx and Xxxxx Xxxx are
defined as the "Executives." The Company shall have the right for a period of
twenty-four (24) months following the Closing (the "Period") to redeem and shall
redeem all Exchange Shares at a price of One Cent (US$.01) per share, held by
any Executive or APC Holder which is an affiliate of an Executive whose
employment with the Company is, during the Period, voluntarily terminated by the
Executive or is involuntarily terminated by the Company for serious cause; and
the Company shall, in the event an Executive's employment with the Company is
involuntarily terminated for cause during the Period, have the right to redeem
and shall redeem only part of the Exchange Shares based upon proration through
the date of termination. Every Executive agrees to this redemption right in
favor of the Company and agrees to execute at the Closing an option in favor of
the Company in the form of EXHIBIT B to this Agreement. The Executives agree
that the terms and duration of the Period are reasonable. This redemption right
shall not apply if termination of an Executive's employment with the Company
occurs due to a merger, stock exchange or consolidation of the Company with, or
sale of the Company or all or substantially all of its assets to, another
company or persons then unaffiliated with the Company.
"Employment with the Company" as used in this Section shall include an
Executive's employment or relationship as an officer, employee, consultant or
adviser with the Company or
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any affiliated company, provided that the Executive renders regular services
averaging in any 90-day period not less than twenty (20) hours per week.
"Employment with the Company" as herein used shall not be affected by an
Executive's transfer of employment among the Company and any one or more
affiliated companies. An Executive's employment with the Company shall not be
deemed terminated by death, by bona fide permanent or temporary disability or
sick leave, by military leave or by leave (e.g., jury duty) required by law or
legal process; except that incarceration for a period exceeding nine months upon
conviction for any crime or for contempt of court will constitute termination of
employment with the Company. The term "affiliated company" means Survivor, any
other wholly or principally owned subsidiary of the Company, and any joint
venture or other business venture in which the Company or an affiliated company
owns at least twenty-five percent (25%) of the equity and net profits interest.
"Serious cause" is defined on SCHEDULE 2.1 to this Agreement. The term "cause"
means any reason for termination by the Company other than serious cause.
The Company is required to redeem Exchange Shares of any Executive
whose employment with the Company terminates during the Period, and this
redemption right shall not be waived, surrendered, forgiven or in any manner
given up by the Company. Any officer or director of the Company who does or
attempts to do so or who fails to vigorously pursue redemption when applicable
shall be liable to the Company. This Section is intended for the protection of
existing shareholders of the Company and persons who become shareholders of the
Company during the Period. The parties expressly agree that all shareholders of
the Company at the time an Executive's employment with the Company terminates
during the Period are and shall be third party beneficiaries of this provision.
Any one or more of such shareholders may bring an action to compel the Company
to redeem Exchange Shares when redemption is required by this Section and/or to
recover on the Company's behalf any damages suffered by failing to redeem
Exchange Shares when required hereunder. A shareholder prevailing in such action
shall be entitled to reimbursement from the Company for costs and reasonable
attorneys' fees incurred in bringing such action(s). Notwithstanding anything to
the contrary contained in this Section, the Company and its officers and
directors shall be excused from pursuing any redemption required by this Section
if redemption is excused by affirmative vote of a majority of the Company's
shareholders other than the Executives, who shall not vote or have the right to
vote on any such proposal. This Section 2.1 shall not constitute an employment
agreement, and no provision of this Section 2.1 shall in and of itself entitle
any Executive to continued employment with the Company.
2.2 Prohibited Recapitalizations. The parties acknowledge that,
following the Closing, the APC Holders when acting as a group will hold the
majority of the Company's voting power. It is expressly agreed among the parties
that during the Period, the Company shall not effect any "prohibited
recapitalization," defined as any reverse split or combination of its common
shares, or any reorganization, recapitalization or other action whatsoever which
has the effect of changing the number of outstanding common shares of the
Company into a smaller number of common shares. Each APC Holder expressly agrees
that, during the Period, he, she or it will not vote for or support any
prohibited recapitalization nor grant a proxy or other voting right to a person
other than an APC Holder to vote at any meeting or act by written consent on a
proposal to effect a prohibited recapitalization, and will affirmatively oppose
any attempt to effect a prohibited recapitalization during the Period unless
approved in a manner permitted by this Agreement. The term prohibited
recapitalization does not include an arm's
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length merger, exchange, consolidation or similar transaction with an entity
then unaffiliated with the Company or any APC Holder.
2.3 Options and Warrants Prohibited. Except for the Permitted Options
defined below, during the Period no stock, nor options, warrants or other rights
to acquire common stock of the Company, nor any instrument exchangeable for or
convertible into common stock or any right to acquire common stock of the
Company, shall be issued, awarded or granted to any Executive. During the second
twelve months of the Period, the Company's board of directors may, if the
Company's consolidated, aggregate revenues from all sources for the first twelve
(12) full months following the Closing equal or exceed C$1,500,000, grant to one
or more of the Executives options to purchase an aggregate of not more than
500,000 shares of the Company's common stock (the "Permitted Options") pursuant
to the Company's 1997 Compensatory Stock Option Plan, on terms determined by the
Company's board of directors; provided, that the price per share shall be the
greater of $1.00 per share or the fair value of the common stock on the date of
grant; "fair value" meaning the highest sale price of the common stock on the
date of award. If the common stock of the Company is split or (with shareholder
approval as herein provided) reverse split during the Period, the number of
shares subject to purchase under Permitted Options and the lowest permissible
exercise price per share as set forth in this Paragraph shall be adjusted
accordingly.
2.4 Excessive Parachute Awards Prohibited. During the Period, no
contract, agreement or understanding of any kind shall be executed or put into
place between the Company or any affiliated company on the one hand, and any
Executive on the other hand, which calls for any excessive parachute award,
whether in the form of money, money equivalents, stock or other property or
thing of value, to be paid to an Executive upon termination of the Executive's
employment with the Company as defined in this Agreement. An excessive parachute
award is one the cash amount or fair value of which exceeds $10,000 at the time
of award, excluding compensation and accrued or deferred compensation already
due at the time of termination.
2.5 Excessive Compensation Prohibited. During the first twelve months
of the Period, no Executive shall receive annual compensation in cash or cash
equivalents or in any other form with a cash value exceeding US$60,000 in
amount, including fees, salaries, bonuses, perquisites and the like, but
excluding commissions, overrides and bonuses on sales payable to sales managers
or persons managing sales functions, in amounts reasonably customary in APC's
industry. In the second twelve months of the Period, annual compensation may be
increased to an amount not exceeding US$100,000, if the Company's consolidated,
aggregate revenues from all sources for the first twelve (12) full months
following the Closing equal or exceed C$1,500,000. Notwithstanding the foregoing
provisions of this Section, the full board of directors may by unanimous vote
award extra compensation in excess of amounts permitted by this Section to an
Executive based on extraordinary effort or results benefitting the Company, in
an amount reasonably commensurate with the effort or results.
2.6 Right to Enforce Provisions. The provisions set forth in Paragraphs
2.2 through 2.5 are intended for the protection of persons who are and during
the Period become shareholders of the Company, and all parties agree that such
provisions and the duration of the Period are reasonable. Prohibited
recapitalizations and other things and acts prohibited in
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Sections 2.2 through 2.5 are referred to in this paragraph as "prohibited acts."
The parties expressly agree that all shareholders of the Company at the time of
the taking of a prohibited act are or shall be third party beneficiaries of such
provisions. Any one or more of such shareholders may bring an injunctive action
to prevent a prohibited act, an action to force the Company to revoke or rescind
a prohibited act as if it had never been effected, an action to recover on the
Company's behalf any damages suffered by effecting the prohibited act, or any
one or more of such actions, or may otherwise judicially enforce such
provisions. Any shareholder prevailing in such injunctive or other action shall
be entitled to reimbursement from the Company and all officers and directors
involved in effecting the prohibited act for costs and reasonable attorneys'
fees incurred in bringing such action(s). Notwithstanding anything contained in
Sections 2.2 through 2.5, however, a prohibited act may be effected during the
Period if (i) approved by the Board of Directors and placed by the Board of
Directors before the Company's shareholders for vote; and (ii) approved in
advance by affirmative vote of a majority of the Company's shareholders other
than the APC Holders, who shall not vote or have the right to vote on approval
of any prohibited act.
2.7 Change of the Company's Name. The parties agree that, as soon as
reasonably possible following the Closing, a special meeting of the Company's
shareholders shall be called for the purpose of voting upon a change of the
Company's name to APC TELECOMMUNICATIONS, INC. The APC Holders agree to vote
their Exchange Shares in favor of the name change.
2.8 The Company and APC to Obtain Financial Statements. The Company and
APC each shall, after the Closing, by July 31, 1998, provide financial
statements; as to the Company, including a balance sheet as of December 31,
1997, and statements of cash flows, operations and changes in stockholders' or
members' equity for the period from inception through December 31, 1997; and as
to APC, including balance sheet and the same statements through June 30, 1998;
in each case, together with all required footnotes and schedules, audited by
certified public accountants who are members of the SEC Practice Section of the
AICPA. Such statements shall be prepared in accordance with Item 310 of
Regulation S-B of the Securities and Exchange Commission and with generally
accepted accounting principles, applied on a consistent basis.
2.9 Franchise and Other Rights Held by APC. APC, as franchisee, has
executed a Master Franchise Agreement with Access Power, Inc., as franchisor,
and such agreement is in full force and effect and is valid and binding upon the
parties in accordance with its terms. An unredacted copy of the Master Franchise
Agreement will be provided to the Company prior to Closing, and the terms of
such agreement shall be reasonably satisfactory to the Company and its counsel.
APC may require that every person having access to such agreement on behalf of
the Company execute a confidentiality agreement prior to reviewing the
agreement.
2.10 Acknowledgment of APC Debt. The parties acknowledge that at the
Closing APC will have outstanding long-term debt in the form of promissory notes
aggregating approximately C$400,000 and a bank loan for equipment that will not
exceed C$250,000.
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3. CAPITALIZATION.
3.1 The Company's Capitalization at Closing. At the Closing, the
Company shall have issued and outstanding common stock and/or options and other
rights to purchase its common stock (the "Standing Options") totalling in the
aggregate not more than 2,000,000 shares of its common stock, including all
shares issued or issuable to settle all debts of the Company, but excluding any
common shares issued as part of the Units (defined below). Other than such
shares and shares underlying options, at the Closing the Company will not
without the prior written consent of APC have issued or outstanding any other
shares of stock, nor any options or other rights to purchase its common stock,
nor any instrument convertible into or exchangeable for its common stock. No
shareholder of the Company will have any preemptive right or similar right to
purchase the Exchange Shares or other stock of the Company.
3.2 Unit Offering. In addition to the 2,000,000 shares or options
outstanding as provided in the preceding paragraph, the Company shall create,
sell and issue 2,000,000 units ("Units") at a price of US$0.05 per Unit. Each
Unit shall consist of (i) one share of common stock, (ii) one Class A common
stock purchase warrant entitling the holder to purchase one share of the
Company's common stock at a price of US$0.10 per share until 5:00 o'clock p.m.
Eastern Time on April 30, 1999; (iii) one Class B common stock purchase warrant
entitling the holder to purchase one share of the Company's common stock at a
price of US$0.14 per share until 5:00 o'clock p.m. Eastern Time on April 30,
1999; and (iv) one Class C common stock purchase warrant entitling the holder to
purchase one share of the Company's common stock at a price of US$0.20 per share
until 5:00 o'clock p.m. Eastern Time on April 30, 1999. Such exercise prices
shall be subject to adjustment for certain corporate events, and the exercise
periods of any warrants may be extended. The Units shall be offered and sold in
reliance upon Rule 504 under the Act, and the Units and the component common
shares and warrants shall not be restricted. The Units may be sold at any time
after the Closing. The Company will use information provided by APC, such as
business plan, financial statements, financial projections and assumptions and
contracts in force, to offer and sell the Units.
4. APC's REPRESENTATIONS AND WARRANTIES. APC hereby represents and
warrants that the following are true and correct as of the date hereof and will
be true and correct through the Closing Date as if made on that date:
(a) Organization and Standing. APC is a federally chartered
corporation duly organized, validly existing and in good standing under the laws
of Canada, with all requisite power and authority to carry on the business in
which it is engaged, to own the properties and assets it owns, and is duly
qualified and licensed to do business and is in good standing in all
jurisdictions where the nature of its business makes such qualification
necessary.
(b) Capitalization. No other shares of capital stock are
authorized or have been issued. All of the 8,000,000 issued and outstanding
shares of capital stock of APC (the APC Shares) have been duly authorized,
validly issued, and are fully paid and nonassessable. APC does not have
outstanding any option, warrant or similar instrument and is not a party to or
bound by any agreement, instrument, arrangement, contract, obligation,
commitment or understanding of any character, whether written or oral, express
or implied, whereby APC is bound to issue shares of its capital stock or any
instrument or right convertible into or exchangeable for shares of its capital
stock, nor relating to the sale, assignment, encumbrance, conveyance, transfer
or delivery of any capital stock of APC of any type or class. APC has
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provided to the Company a certified shareholder list which sets forth the names
and addresses of the APC Holders and the number of APC Shares held by each,
which is the same as reflected on the signature page hereto.
(c) Litigation. There are no claims, actions, suits,
proceedings or investigations pending or threatened against or affecting APC or
any of its properties or assets in any court or by or before any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
other instrumentality, domestic or foreign, or arbitration tribunal or other
forum which, if determined adversely to APC, would materially affect its
business, prospects, properties or financial condition or APC's right to conduct
its business as being conducted or expected to be conducted, except as disclosed
on SCHEDULE 4(c). There are no judgments, decrees, injunctions, writs, orders or
other mandates outstanding to which APC is a party or by which it is bound or
affected, except as disclosed on SCHEDULE 4(c). Copies of material pleadings
shall accompany such schedule.
(d) Estoppel. All statements made in this Agreement, or in any
Exhibit or Schedule hereto, or in any document or certificate executed and
delivered herewith, by APC are true, correct and complete as of the date of this
Agreement and will be so as of the Closing Date. All statements contained in any
certificate made by any official of APC and delivered to the Company shall be
deemed representations and warranties of APC.
(e) Compliance with Laws and Permits. APC has complied in all
material respects with its articles of incorporation and bylaws (each as amended
to date), all applicable laws, regulations and rules, all applicable orders,
judgments, writs, decrees or injunctions of federal, state and municipal
governments or any department, agency or other instrumentality thereof, domestic
or foreign, applicable to its business or properties, and has not done or
omitted to do any act or acts which singly or in the aggregate are in violation
of any of the foregoing. APC has obtained all federal, provincial and municipal
licenses and permits necessary to its properties and operations, is not in
violation of any such license or permit and has not received any notification
that any revocation or limitation thereof is pending or threatened.
(f) No Undisclosed Material Liabilities. APC has not incurred
any liabilities or obligations whatever (whether direct, indirect, accrued,
contingent, absolute, secured or unsecured or otherwise), including liabilities
as guarantor or surety or otherwise for the obligations of others and tax
liabilities due or to become due, except as described in SCHEDULE 4(f). There is
no basis for any material claim against APC's assets which involves an amount in
excess of $10,000, except as disclosed in writing to the Company. APC has no
creditors whose prior consent might be required by law to the Exchange.
(g) Material Transactions and Adverse Changes. Except as has
been disclosed in writing to the Company, APC has not and as of the Closing Date
will not have: (i) suffered any materially adverse change in its assets taken as
a whole; (ii) suffered any damage or destruction in the nature of a casualty
loss to any one or more of its assets, whether or not covered by insurance,
which singly or in the aggregate are materially adverse to the properties or
business of APC; (iii) made any change in any method of accounting or accounting
practice,
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including the revaluation of any of its assets; or (iv) agreed in writing or
otherwise to take any action prohibited in this Section.
(h) Taxes. All income, excise, unemployment, social security,
occupational, franchise, ad valorem and other taxes, duties, assessments or
charges levied, assessed or imposed upon APC by any federal, state or municipal
government or subdivision or instrumentality thereof have been duly paid or
adequately provided for, and all required tax returns or reports concerning any
such items have been duly filed. Adequate reserves have been established for all
income and other tax liabilities, except as otherwise disclosed on SCHEDULE
4(h). APC has not waived any statute of limitations with respect to any tax
liability whatever for any period prior to the date of this Agreement or agreed
to any extension of time with respect to a tax assessment or liability. No
consents have been filed by APC pursuant to Paragraph 341(f) of the Internal
Revenue Code of 1986, as amended.
(i) Contracts. Attached to this Agreement as SCHEDULE 4(i) is
a listing of all contracts to which APC is a party. With respect to each such
contract, except as disclosed in writing to the Company, APC is not in default,
the contract is legal, valid, binding, in full force and effect and enforceable
in accordance with its terms, and the contract will continue after the Closing
to be legal, valid, binding, in full force and effect in accordance with its
terms. Contracts or commitments described in any other Schedule need not be
disclosed in SCHEDULE 4(i).
(j) Indebtedness to and from Affiliates. Except as disclosed
on SCHEDULE 4(j), APC is not indebted to any officer, director, employee or
shareholder thereof as of the date of this Agreement, and no money or property
is owed to APC by any officer, director, employee or shareholder thereof, and
none will be owed as of the Closing Date.
(k) Documents Genuine. All originals and/or copies of APC's
articles of incorporation and bylaws, each as amended to date, and all minutes
of meetings and written consents in lieu of meetings of directors and
shareholders of APC, financial data, and any and all other documents, material,
data, files, or information which have been or will be furnished to the Company,
are and will be true, complete, correct and unmodified originals and/or copies
of such documents, information, data, files or material.
(l) Financial Statements and Records. APC will provide to the
Company its financial statements back to inception, and all such statements
shall fairly present the assets, liabilities and financial condition of APC as
of the respective dates thereof, and all shall have been prepared in conformity
with generally accepted accounting principles, consistently applied during the
periods covered. For purposes of this Agreement, such statements shall include
all notes thereto. APC also will furnish to the Company copies of its other
books, accounts and records.
(m) Employees and Salaries. APC will provide to the Company a
list of all its officers and employees, reflecting the job description and
salary of each person.
(n) Insurance. Attached hereto as SCHEDULE 4(n) is a list of
all insurance policies of APC in effect.
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(o) Authorization and Validity. The execution, delivery and
performance by APC of this Agreement and any other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by APC and all necessary approvals of the
shareholder(s) of APC will have been obtained by the Closing Date. This
Agreement and any other agreement contemplated hereby have been or will be as of
the Closing Date duly executed and delivered by APC and constitutes and will
constitute legal, valid and binding obligations of APC, enforceable against it
in accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies.
(p) Consents; Approvals; Conflict. Except for compliance with
applicable federal and state securities laws, no consent, approval,
authorization or order of any court or governmental agency or other body is
required for the APC Holders to consummate the Exchange. Neither the execution,
delivery, consummation or performance of this Agreement shall conflict with, or
constitute a breach of, and no prior approval is necessary by or under, APC's
articles of incorporation, bylaws or any note, mortgage, indenture, deed of
trust, lease, obligation, or other agreement or instrument to which APC is a
party.
(q) Intellectual Property. Attached to this Agreement as
SCHEDULE 5(q) is a description of all registered trademarks, trademarks,
servicemarks, copyrights, trade names and licenses, owned or held by APC or any
shareholder or affiliate of APC intended to be used in APC's business, and
applications pending therefor. Copies of each such right or application shall be
furnished to the Company. APC has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any patent, trademark,
trade name, servicemark or copyright belonging to any third person, and APC has
never received any charge, complaint, claim, demand or notice alleging any such
interference, infringement or misappropriation. APC owns or holds adequate
licenses or other rights to use all patents, trademarks, trade names,
servicemarks and copyrights used in its business as now conducted, and such use
does not conflict with, infringe upon or violate the rights of any third party
in a manner which might have a materially adverse effect upon APC.
(r) Restrictive Covenants. Prior to the consummation of the
Exchange, APC shall conduct its business in the ordinary and usual course
without unusual commitments and in compliance with all applicable laws, rules,
and regulations. Furthermore, APC will not, without the prior written consent of
the Company, (i) make any changes in its capital structure, (ii) incur any
liability or obligation other than current liabilities incurred in the ordinary
and usual course of business, (iii) incur any material indebtedness for borrowed
money, (iv) make any loans or advances other than in the ordinary and usual
course of business, (v) declare or pay any dividend or make any other
distribution with respect to its capital stock, (vi) issue, sell, or deliver or
purchase or otherwise acquire for value any of its stock or other securities, or
(vii) mortgage, pledge, or subject to encumbrance any of its assets or
properties or sell or transfer any of its assets or properties, except in the
ordinary and usual course of business.
(s) Disclaimer of Further Warranties; Etc. Except as expressly
set forth in this Agreement and the Schedules and Exhibits hereto, the Company
has made no other representation or warranty to APC or any APC Holder in
connection with the Exchange. APC's decision to enter into the Exchange is based
upon its own independent judgment and
11
investigation and not on any representations and warranties of the Company other
than those expressly stated in this Agreement and in the Schedules and Exhibits
hereto.
5. REPRESENTATIONS AND WARRANTIES OF THE APC HOLDERS. The APC Holders
each represent and warrant to the Company that the following are true and
correct as of the date hereof and will be true and correct through the Closing
Date as if made on that date:
(a) Each APC Holder owns of record and beneficially all the
APC Shares respectively shown next to his, her or its name on the signature page
to this Agreement; and his, her or its APC Shares are free and clear of all
liens, claims, rights or other encumbrances whatever and of all options and
similar rights of third persons; and no person has or will have any right in and
to such shares except as are created by force of law under any marital,
community property or similar rights. No third party has or at Closing will have
any right of first refusal, pre-emptive right, option or similar right to
acquire any of the APC Shares except as disclosed to the Company in writing
prior to the Closing.
(b) Each APC Holder has the full right, power and legal
capacity to enter into this Agreement and sell and deliver the APC Shares to the
Company. As to each APC Holder which is a corporation or other entity, all
requisite corporate or equivalent action has been taken necessary to approve the
execution and performance of this Agreement.
(c) Each APC Holder represents and warrants that he, she or it
is not now insolvent and will not be insolvent after selling and delivering the
APC Shares to the Company on the terms of this Agreement, and each APC Holder is
receiving new consideration at least equal to the full and fair value of the APC
Shares being sold.
(d) APC and the APC Holders understand and acknowledge that
the Company is a public shell with no current operations, revenues or assets,
that the Company does not have full-time or professional management, and that
the officers and directors of the Company after the Closing will be the current
officers and directors of APC. Each APC Holder recognizes that the Exchange
Shares are speculative and involve a high degree of risk, and that the prospects
and future success of the Company depend principally upon the APC Holders and
current APC management.
(e) Each APC Holder acknowledges and agrees that he, she or it
or his, her or its representatives have been furnished with substantially the
same kind of information regarding the Company and its business, assets,
financial condition and plan of operation as would be contained in a
registration statement and included prospectus prepared in connection with a
public offering of the Exchange Shares. Each APC Holder further represents that
he, she or it has had an opportunity to ask questions of and receive answers
from the Company regarding the Company and its business, assets, results of
operations, financial condition and plan of operation and the terms and
conditions of the issuance of the Exchange Shares.
(f) In connection with the issuance and delivery of the
Exchange Shares, each APC Holder understands and acknowledges that the Exchange
Shares have not been and will
12
not be registered under the Act or any state laws in reliance upon exemptions
from registration and that such shares will be restricted and subject to
significant restrictions on transfer, as described in Section 1.3 of this
Agreement. Each APC Holder is acquiring the Exchange Shares for his, her or its
own account, and not for the account of any other person and not for
distribution, assignment or resale to others, or for pledge or hypothecation,
and no other person has or is intended to have a direct or indirect ownership or
contractual interest in the Exchange Shares except as may exist or arise under
marital property laws or otherwise by operation of law.
(g) The APC Holder, alone or together with the APC Holder's
adviser(s), has such knowledge and experience in financial, tax and business
matters as to enable APC Holder to utilize the information made available by the
Company, in connection with the Exchange and issuance of the Exchange Shares, to
evaluate the merits and risks of acquiring the Exchange Shares and to make an
informed investment decision with respect thereto.
(h) All information which each APC Holder has provided or will
provide to the Company is or will be correct and complete as of the date
furnished to the Company, and, if there should be any material change in such
information prior to the Closing as to an APC Holder, that APC Holder will
immediately provide the Company with such information.
(i) No APC Holder was solicited by the Company by any form of
general solicitation or general advertising, including but not limited to any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, or
made available over telephone lines by any information service, or any seminar
or meeting whose attendees had been invited by any means of general solicitation
or general advertising.
(j) Except as expressly set forth in this Agreement and the
Schedules and Exhibits hereto, the Company has not made any representation or
warranty to any APC Holder in connection with this Agreement. Each APC Holder's
decision to enter into the Exchange is based upon his, her or its own
independent judgment and investigation and not on any representations and
warranties of the Company other than those expressly stated in this Agreement
and in the Schedules and Exhibits hereto.
(k) To the best of the knowledge of each APC Holder, all of
the representations and warranties of APC set forth in this Agreement are
accurate and true.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Unless specifically
stated otherwise, the Company represents and warrants to the other parties that
the following are true and correct as of the date hereof and will be true and
correct through the Closing Date as if made on that date.
(a) Organization and Good Standing. The Company is and on the
Closing Date will be duly organized, validly existing and in good standing under
the laws of the State of Nevada. The Company has no assets or liabilities and
currently conducts no business in any state.
13
(b) Authorized Capitalization. As provided in its Articles of
Incorporation, the authorized capital stock of the Company consists of
125,000,000 shares, of which 100,000,000 shares, par value $.001 per share, are
designated as common stock, of which 2,000,000 shares, giving effect to shares
issued and the Standing Option, are or will be issued and outstanding; and
25,000,000 shares, par value $.001 per share, are designated as preferred stock,
none of which are issued or outstanding.
(c) Outstanding Options, Warrants or Other Rights. Other than
the Standing Options, the Company does not have outstanding any option, warrant
or similar instrument and is not a party to or bound by any agreement,
instrument, arrangement, contract, obligation, commitment or understanding of
any character, whether written or oral, express or implied, whereby the Company
is bound to issue shares of its capital stock or any instrument or right
convertible into or exchangeable for shares of its capital stock, nor relating
to the sale, assignment, encumbrance, conveyance, transfer or delivery of any
capital stock of the Company of any type or class. The Company shall provide to
APC a list of all holders of the Company's capital stock, the number of shares
held by each and the number of each certificate held, duly certified by the
Secretary of the Company.
(d) Subsidiaries. The Company has and as of the Closing will
have no subsidiaries.
(e) Documents Genuine. All originals and/or copies of the
Company's articles of incorporation and bylaws, each as amended to date, and all
minutes of meetings and written consents in lieu of meetings of shareholders,
directors and committees of directors of the Company, financial data, and any
and all other documents, material, data, files, or information which have been
or will be furnished to APC, are and will be true, complete, correct and
unmodified originals and/or copies of such documents, information, data, files
or material.
(f) Litigation. There are no claims, actions, suits,
proceedings or investigations pending or threatened against or affecting the
Company in any court or by or before any federal, state, municipal or other
governmental department, commission, board, bureau, agency or other
instrumentality, domestic or foreign, or arbitration tribunal or other forum.
There are no judgments, decrees, injunctions, writs, orders or other mandates
outstanding to which the Company is a party or by which it is bound or affected.
(g) Compensation Plans. Except as described below, the Company
has not authorized and does not have in effect any stock option or stock
purchase plan, dividend reinvestment plan or similar plan pursuant to which any
person is entitled to acquire capital stock of the Company or any securities
convertible into or exchangeable for its capital stock. The Company has
delivered to APC a copy of each plan described below. No shares will be awarded
or issued pursuant to either such plan without the prior written authorization
of APC.
(i) The Company has in effect a 1997 Compensatory
Stock Option Plan, covering 1,000,000 shares of the Company's common
stock. No options have been granted or shares issued pursuant to this
plan, and none will be granted or issued prior to Closing.
14
(ii) The Company has in effect a 1997 Employee Stock
Compensation Plan covering 1,500,000 of the Company's common shares,
pursuant to which the Company may award shares of common stock to
persons defined therein as employees. No shares have been awarded
pursuant to such plan or will be awarded prior to Closing.
(h) Authorization and Validity. The execution, delivery and
performance by the Company of this Agreement and any other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by the Company. This Agreement and
any other agreement contemplated hereby have been or will be as of the Closing
Date duly executed and delivered by the Company and constitute and will
constitute legal, valid and binding obligations of the Company, enforceable
against it in accordance with their respective terms, except as may be limited
by applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies.
(i) Financial Statements. The Company will provide to APC the
Company's financial books and records such audited and unaudited financial
statements of the Company, back to inception, as exist and as APC requests. All
such statements shall fairly present the assets, liabilities and financial
condition of the Company as of the respective dates thereof, and all shall have
been prepared in conformity with generally accepted accounting principles,
consistently applied during the periods covered. For purposes of this Agreement,
such statements shall include all notes thereto.
(j) No Undisclosed Material Liabilities. The Company has not
incurred any liabilities or obligations whatever (whether direct, indirect,
accrued, contingent, absolute, secured or unsecured or otherwise), which singly
or in the aggregate are material to it, except as disclosed in the Company's
financial statements or otherwise disclosed in writing to APC.
(k) Taxes. All income, excise, unemployment, social security,
occupational, franchise and other taxes, duties, assessments or charges levied,
assessed or imposed upon the Company by the United States or by any state or
municipal government or subdivision or instrumentality thereof have been duly
paid or adequately provided for, and all required tax returns or reports
concerning any such items have been duly filed or will be so filed.
(l) Indebtedness to or from Affiliates. The Company is not and
will not be indebted to any officer, director, employee or shareholder thereof
as of the Closing Date. No money or property is owed to the Company by any
officer, director, employee or shareholder thereof, and none will be owed as of
the Closing.
(m) Salaries. No person currently receives a salary or other
cash compensation from the Company, and no person will receive a salary or other
cash compensation from the Company prior to Closing.
(n) Insurance. The Company does not now have any insurance
policy in effect and will not obtain any insurance policy prior to Closing.
15
(o) Books, Records and Accounts. Except for the minute book
and accounting and corporate records of the Company furnished to APC, there are
no other books, records or accounts of the Company. APC shall have the right to
review and obtain the records, books and accounts of the Company, all and
sundry.
(p) Estoppel. All statements made herein, or in any Exhibit or
Schedule hereto, or in any document or certificate executed and delivered
herewith by the Company are true, correct and complete as of the date of this
Agreement and will be so as of the Closing. All statements contained in any
certificate made by any officer or director of the Company and delivered to APC
shall be deemed representations and warranties of the Company.
(q) Consents; Approvals; Conflict. No consent, approval,
authorization or order of any court or governmental agency or other body is
required for the Company to execute and perform its obligations under this
Agreement. Neither the execution, delivery, consummation or performance of this
Agreement shall conflict with, constitute a breach of the Company's articles of
incorporation and bylaws, as amended to date, or any note, mortgage, indenture,
deed of trust or other agreement of instrument to which the Company is a party
or by which it is bound nor, to the best of the Company's knowledge and belief,
any existing law, rule, regulation, or any decree of any court or governmental
department, agency, commission, board or bureau, domestic or foreign, having
jurisdiction over the Company.
(r) Restrictive Covenants. Prior to the consummation of the
proposed Exchange, the Company shall not engage in any business or activity
other than attempting to consummate the Exchange and offer and sell the Units.
Furthermore, the Company will not, without the prior written authorization of
APC, (i) make any changes in its capital structure, (ii) incur any liability or
obligation other than current liabilities incurred in the ordinary and usual
course, (iii) declare or pay any dividend or make any other distribution with
respect to its capital stock, (iv) issue, sell, or deliver or purchase or
otherwise acquire for value any of its stock or other securities, (v) make any
investment of a capital nature, or (vi) enter into any contract, agreement, or
other commitment which is material to the Company.
(s) Disclaimer of Further Warranties; Etc. Except as expressly
set forth in this Agreement and the Schedules and Exhibits hereto, APC has made
no other representation or warranty to the Company in connection with the
Exchange. The Company's decision to enter into the Exchange is based upon the
Company's own independent judgment and investigation and not on any
representations and warranties of APC other than those expressly stated in this
Agreement and in the Schedules and Exhibits hereto.
8. CONDITIONS TO OBLIGATIONS OF THE PARTIES; DELIVERIES. All
obligations of the parties under this Agreement are subject to the fulfillment,
prior to the Closing, of all conditions precedent and to performance of all
covenants and agreements and completion of all deliveries contemplated herein,
unless specifically waived in writing by the party entitled to performance or to
demand fulfillment of the covenant or delivery of the documents.
16
8.1 Documents to be Delivered to the Company. At the Closing, the
following documents shall be delivered to the Company by APC or the APC Holders,
as the case may be, which documents shall be satisfactory in form and content to
the Company's counsel:
(a) Certificates executed by the chief executive officer and
the chief financial or accounting officer APC, dated the Closing Date,
certifying that the representations and warranties of APC, contained in this
Agreement and the information set forth in all Schedules and Exhibits of APC
hereto are then true and correct and that APC has complied with all agreements
and conditions required by this Agreement and all related agreements to be
performed or complied with by APC.
(b) A copy of the directors' resolution or the minutes of the
meeting of the directors of APC approving the execution and performance of this
Agreement.
(c) All certificates evidencing the APC Shares, each indorsed
on the reverse side for transfer or accompanied by a signed stock power in form
satisfactory to the Company.
(d) All Schedules, properly filled out, and all Exhibits
called for in this Agreement.
8.2 Documents to be Delivered to APC and the APC Holders. At the
Closing the following documents shall be delivered to APC and the APC Holders by
the Company, which documents shall be satisfactory in form and content to APC's
counsel:
(a) To the APC Holders, certificates evidencing the Exchange
Shares in the proper denominations.
(b) To APC, a certificate executed by the Company dated the
Closing Date, certifying that the representations and warranties of the Company
contained in this Agreement and the information set forth in all Schedules and
Exhibits of the Company are then true and correct and that the Company has
complied with all agreements and conditions required by this Agreement to be
performed or complied with by it.
(c) To APC, a copy of the directors' resolution or the
mintutes of the meeting of the directors of the Company approving the execution
and performance of this Agreement.
(d) All Schedules, properly filled out, and all Exhibits
called for in this Agreement.
8.3 Conditions Precedent. The obligations of the parties under this
Agreement are subject to the satisfaction of the following conditions (in
addition to other conditions and terms of this Agreement), unless waived in
writing, on or prior to the Closing:
(a) Representations and Warranties Correct. The
representations and warranties of every party contained in this Agreement shall
be in all material respects true and correct on and as of the Closing Date as if
made on such date.
17
(b) Compliance. The Company, APC and the APC Holders each
shall have performed all covenants and agreements, satisfied all conditions and
complied with all other terms and provisions of this Agreement to be
respectively performed, satisfied or complied with by it as of the Closing Date.
(c) No Errors or Misrepresentations. The Company shall not
have discovered any material error, misstatement or omission in or failure of
any representation or warranty made by any of the other parties, and APC shall
not have discovered any material error, misstatement or omission in or failure
of any representation or warranty made by the Company.
(d) Due Diligence Examination. The Company shall have
completed a due diligence examination of APC satisfactory to the Company
covering all books, records, contracts and other documents and all financial
affairs of APC. APC shall have completed a due diligence examination of the
Company satisfactory to APC covering all books, records, contracts and other
documents and all financial affairs of the Company.
(e) Legal Matters. All legal matters in connection with this
Agreement and the consummation of all transactions herein contemplated, and all
documents and instruments delivered in connection herewith shall be reasonably
satisfactory in form to each party.
(f) No Litigation or Proceedings. No injunction or restraining
order of any federal or state court is in effect which prevents the purchase of
the Assets or issuance and delivery of the Exchange Shares, and no lawsuit or
other proceeding has been filed by any person by the Closing Date contesting or
attempting to enjoin either action, and no action is taken and no law is passed
after the date of this Agreement which prevents the Exchange.
9. OTHER COVENANTS OF THE PARTIES. The parties agree that, prior to the
Closing:
(a) Effectuation of this Agreement. The parties hereto each
will use their best efforts to cause this Agreement and all related agreements
to become effective, and all transactions herein and therein contemplated to be
consummated, in accordance with its and their terms, to obtain all required
consents, waivers and authorizations of governmental entities and other third
parties, to make all filings and give all notices to those regulatory
authorities or other third parties which may be necessary or reasonably required
in order to effect the transactions contemplated in this Agreement, and to
comply with all federal, local and state laws, rules and regulations as may be
applicable to the contemplated transactions.
(b) Restriction on Action. The parties each agree that he or
it will not do any thing or act prohibited by this Agreement or any related
agreement, or fail to do any thing or act which he or it has undertaken to do in
this Agreement or any related agreement.
(c) Access and Information. To the extent each party deems
necessary for purposes of this Agreement and the transactions contemplated
hereby, APC and the Company each shall permit the other, its counsel,
accountants and other representatives to have full access, upon reasonable
notice and during regular business hours, throughout the period prior
18
to Closing, to its equipment, assets, properties, books and records, and will
cause to be furnished to the requesting party and its representatives during
such period all information it or its representatives may reasonably request.[A
(d) No-Shop Provision. APC and the APC Holders agree that,
from the date hereof until Closing or termination of this Agreement, neither
will take any action, directly or indirectly, to solicit indications of interest
in, or offers for, any transaction similar to the Exchange or any investment
into APC from anyone other than the Company. APC agrees promptly to inform the
Company of any offers or solicitations for a similar transaction, including the
terms thereof, made by any third party, provided, that APC is not obligated to
inform the Company of casual oral offers or solicitations not formally
considered by APC. Violation by APC of any of the requirements of this paragraph
shall constitute a material breach of this Agreement.
(e) Confidentiality. APC and the Company covenant that they
each will not disclose any confidential information of the other party, except
to its officers, directors, attorneys, accountants, and employees involved in
these transactions, and only then on the condition that such individuals not
disclose the information disclosed to them. Notwithstanding the foregoing, the
terms of this Agreement, or of any of the transactions contemplated hereby, may
be disclosed following execution hereof, provided that each party will provide
at least twenty-four hours' notice to the other party prior to making the
initial public announcement regarding the transaction. In addition, either party
may disclose this Agreement or any part hereof to any third party at any time if
required to do so by law, this Agreement or other contractual obligation.
10. INDEMNIFICATION.
10.1 Indemnification by APC. APC agrees to defend, indemnify and hold
the Company, any subsidiary or affiliate thereof, and its respective successors,
officers, directors and controlling persons (the "Indemnified Company Group")
harmless from and against any and all losses, liabilities, damages, costs or
expenses (including reasonable attorney's fees, penalties and interest) payable
to or for the benefit of, or asserted by, any party resulting from, arising out
of, or incurred as a result of (a) the breach of any representation made by APC
or an APC Holder herein or in accordance herewith; (b) the breach of any
warranty or covenant made by APC or an APC Holder herein or in accordance
herewith; or (c) any claim, whether made before or after the date of this
Agreement, or any litigation, proceeding or governmental investigation, whether
commenced before or after the date of this Agreement, arising out of the
business of APC or arising out of any act or occurrence prior to, or any state
of facts existing as of the Closing.
10.2 Indemnification by the Company. The Company agrees to defend,
indemnify and hold APC, any subsidiary or affiliate thereof, and its respective
successors, officers, directors and controlling persons (the "Indemnified APC
Group") harmless from and against any and all losses, liabilities, damages,
costs or expenses (including reasonable attorney's fees, penalties and interest)
payable to or for the benefit of, or asserted by, any party resulting from,
arising out of, or incurred as a result of (a) the breach of any representation
made by the
19
Company herein or in accordance herewith; (b) the breach of any warranty or
covenant made by the Company herein or in accordance herewith; or (c) any claim,
litigation, proceeding or governmental investigation, whether commenced before
or after the date of this Agreement, arising out of any act or occurrence prior
to, or any state of facts existing as of the Closing.
10.3 Survival of Covenants and Warranties. The representations,
warranties, covenants and agreements made by APC on the one hand, and the
Company on the other hand, shall survive the Closing and shall be fully
enforceable at law or in equity against such other party and its successors and
assigns for a period of one year after the Closing Date. Any investigation at
any time made by or on behalf of (or any disclosure to ) any party hereto shall
not diminish in any respect whatsoever its right to rely on the representations
and warranties of the other party hereto.
10.4 Notice of Claims. The Company and APC each agree to give prompt
written notice to the other of any claim against the party giving notice which
might give rise to a claim by it against the other party hereto based upon the
indemnity provisions contained herein, stating the nature and basis of the claim
and the actual or estimated amount thereof; provided, however, that failure to
give such notice will not affect the obligation of the indemnifying party to
provide indemnification in accordance with the provisions of this Paragraph 10
unless, and only to the extent that, such indemnifying party is actually
prejudiced thereby. In the event that any action, suit or proceeding is brought
against any member of the Indemnified APC Group or the Indemnified Company Group
with respect to which any party hereto may have liability under the
indemnification provisions contained herein, the indemnifying party shall have
the right, at its sole cost and expense, to defend such action in the name of or
on behalf of the indemnified party and, in connection with any such action, suit
or proceeding, the parties hereto agree to render to each other such assistance
as may reasonably be required in order to ensure the proper and adequate defense
of any such action, suit or proceeding; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
because of actual or potential differing interests between such indemnified
party and any other party represented by such counsel. Neither party hereto
shall make any settlement of any claim which might give rise to liability of the
other party under the indemnification provisions contained herein without the
written consent of such other party, which consent such other party covenants
shall not be unreasonably withheld.
11. TERMINATION OF THIS AGREEMENT.
11.1 Grounds for Termination. This Agreement shall terminate:
(a) By mutual written consent of the Company and APC;
(b) By APC or the Company, if:
(i) all the conditions precedent to its respective
obligations hereunder have not been satisfied or waived prior to the
Closing Date, as it may be accelerated or extended, or if any APC
Holder refuses to execute this Agreement;
20
(ii) any party shall have defaulted or refused to
perform in any material respect under this Agreement, or if the Company
or APC should have reasonable cause to believe there has been a
material representation concerning, or failure or breach of, any
representation or warranty by the other party, or if it appears that
either APC or the Company has committed any unlawful acts affecting the
other party;
(iii) the transactions contemplated in this Agreement
and related agreements have not been consumated on the Closing Date, as
it may be mutually accelerated or extended, OR
(iv) either the Company or APC shall reasonably
determine that the transactions contemplated in this Agreement have
become inadvisable by reason of the institution or threat by any
federal, state or municipal governmental authorities or by other person
whatever of a formal investigation or of any action, suit or proceeding
of any kind against either or both parties which in one party's
reasonable belief is material in light of the other party's business,
prospects, properties or financial condition;
11.2 Manner of Termination. Any termination of this Agreement (other
than an automatic termination) shall be made in accordance with the above listed
grounds and, if terminated by APC or the Company, shall be accompanied by a copy
of the resolution of the terminating party's board of directors. Written notice
of termination shall be given to the other party as required in this Agreement
as promptly as is practical under the circumstances. Upon a party's receipt of
such termination notice, this Agreement shall terminate and the transactions
herein contemplated shall be abandoned without further action by the parties.
11.3 Survival of Confidentiality Provisions. Upon termination of this
Agreement for any reason, (i) the covenants of the parties concerning the
confidentiality and proprietary nature of all docuemnts and other information
furnished hereunder shall remain in force except as to information which has
otherwise become public knowledge, and (ii) each party shall promptly return all
documents received from the other party in connection with this Agreement. This
Paragraph constitutes a mutual covenant of the parties, and either may
judicially enforce it.
12. MISCELLANEOUS PROVISIONS.
(a) Assignment. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto without the written
consent of the party not seeking assignment, except that the Company may direct
such an assignment to a wholly owned subsidiary corporation. No such assignment
shall relieve the assignor of any obligations created under this Agreement.
21
(b) Parties in Interest; No Third Party Beneficiaries. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the parties and their respective
heirs, legal representatives, successors and assigns. Neither this Agreement nor
any other agreement contemplated hereby shall be deemed to confer upon any
person not a party hereto or thereto any rights or remedies hereunder or
thereunder, except as expressly set forth in this Agreement.
(c) Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
(d) Severability. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Further, in lieu of such illegal, invalid or unenforceable provision,
there shall be added automatically as part of this Agreement a provision as
similar in terms to such illegal, invalid, or unenforceable provision as may be
possible and be legal, valid and enforceable.
(e) Survival of Representations, Warranties and Covenants. The
representations, warranties and covenants of all parties contained herein shall
survive the Closing, and all statements contained in any certificate, exhibit or
other instrument delivered by or on behalf of the Company or APC, as the case
may be, and, notwithstanding any provision in this Agreement to the contrary,
shall survive the Closing.
(f) Interpretation. This Agreement shall be governed by and
construed under the laws of the State of Nevada and shall be interpreted as if
both parties participated equally in its drafting. The captions in this
Agreement are for convenience of reference only and shall not limit or otherwise
affect any of the terms or provisions hereof. Whenever the context requires, the
gender of all words used herein shall include the masculine, feminine and
neuter, and the number of all words shall include the singular and plural. Use
of the words "herein", "hereof", "hereto" and the like in this Agreement shall
be construed as references to this Agreement as a whole and not to any
particular provision in this Agreement, unless otherwise noted.
(g) Notice. Any notice or communication hereunder or in any
agreement entered into in connection with the transactions contemplated hereby
must be in writing and given by depositing the same in the United States mail,
addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, by telefax
22
transmission or by delivery by use of a messenger which regularly retains its
delivery receipts. Such notice shall be deemed received on the date on which it
is delivered to the addressee. For purposes of notice, the addresses of the
parties shall be, if to an APC Holder, sent to APC for forwarding, and:
If to APC: 000 Xxxxxxxxx Xxxxxxxx
Xxxxx Xx. 0
Xxxxxxx, Xxxxxxx X0X 0X0, Xxxxxx
ATTN: Xxxxx Xxxx, President
If to the Company: 00 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Xxxx X. Xxxxxxx Xx., Vice Pres.
(h) No Finders. Each party represents and warrants to the
others and agrees that it has not employed or engaged, and will not employ or
engage, any person as a finder or broker in connection with the transactions
contemplated herein, and that no person is entitled to compensation as a finder
or broker. Each party hereby indemnifies the other parties and holds the other
parties harmless from and against any claims of any third persons claiming to
have acted as a finder or broker in connection with the transactions herein
contemplated, and such indemnity shall include all expenses, costs and damages
arising from or related to such claims, including reasonable attorneys fees.
(i) Expenses. Except as otherwise provided in this letter, the
Company and APC shall bear their own fees and expenses incurred in connection
with the transactions contemplated herein.
(j) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument. Execution and delivery of
this Agreement by exchange of facsimile copies bearing facsimile signature of a
party shall constitute a valid and binding execution and delivery of this
Agreement by such party. Such facsimile copies shall constitute enforceable
original documents.
(k) Prevailing Party Clause. In the event of any litigation or
proceeding arising as a result of the breach of this Agreement or the failure to
perform hereunder, or failure or untruthfulness of any representation or
warranty herein, the party or parties prevailing in such litigation or
proceeding shall be entitled to collect the costs and expenses of bringing or
defending such litigation or proceeding, including reasonable attorneys' fees,
from the party or parties not prevailing.
23
(l) Relationship of the Parties. Nothing in this Agreement is
intended to be construed so as to suggest that the parties hereto are partners
or joint venturers, or that any party or its employees is the employee or agent
of the other. Neither APC nor the Company has any express or implied right or
authority under this Agreement to assume or create any obligations on behalf of
or in the name of the other party to any contract, agreement, arrangement,
understanding or undertaking with any third party.
(m) Exhibits, Schedules, etc. Each Exhibit to this Agreement
shall be initialled by APC and the Company, and and each Schedule shall be
initalled by the party providing it. Any Schedule provided by APC Holders shall
be initialled by all of the APC Holders. If a Schedule does not apply, it must
nonetheless be furnished and marked "not applicable." The information contained
in every Schedule shall be updated as necessary as of a date as close as
possible to the Closing Date and must be accurate and complete as of the Closing
Date. Each party signing this Agreement represents and warrants, to all other
parties, by such signature that he, she or it has carefully read this Agreement
in its entirety and understands the provisions of this Agreement.
(n) No Advice Given. APC and the APC Holders acknowledge and
agree that they have neither asked for nor received any legal or tax advice from
the Company or Xxxx X. Xxxxxxx Xx. or any other person associated with the
Company, in regard to this Agreement or the transactions herein contemplated,
and have instead relied on advice and counsel furnished by their own legal or
other advisers in order to satisfy themselves as to the tax and other legal
implications to them of the Exchange and issuance of the Exchange Shares.
(o) Warranty Regarding Approval of APC Holders. APC represents
and warrants that the APC Holders all have executed documents consenting to the
Exchange and empowering the officers of APC to execute this Agreement and
consummate the Exchange, and that the APC Holders' execution of such documents
constitutes a written consent to the Exchange in lieu of a meeting of the
shareholders of APC, as permitted by governing Canadian law. APC shall at
Closing provide an opinion of Canadian counsel to that effect.
IN WITNESS WHEREOF, all parties have executed this Agreement, and APC
and the Company have initialled every preceding page hereof, as of the dates
respectively indicated below.
ACCESS POWER CANADA, INC. PROPAINT SYSTEMS, INC.
By /s/ Xxx Xxxxx By /s/ Xxxx X. Xxxxxxx Xx.
------------------------------- ---------------------------------
Xxx Xxxxx, Vice President Xxxx X. Xxxxxxx Xx., Vice President
DATED: June 12, 1998 DATED: June 12, 1998
24
SHAREHOLDERS' SIGNATURE PAGE
to Agreement and Plan of Reorganization
MERICO PERSONAL, INC. 1276579 ONTARIO LIMITED (L&T)
1,437,500 Shares 2,000,000 Shares
X /s/ Xxx Xxxxx X /s/ Xxxxx Xxxx
----------------------------- ------------------------------
Xxx Xxxxx, Vice President Xxxxx Xxxx, President
GQ & ASSOCIATES, INC. XXXX XXXXXXX
500,000 Shares 1,000,000 Shares
X /s/ Xxxx Xxxxxxx
----------------------------- -------------------------------
Xxxx Xxxxxxx, President Signature
XXXXXX XXXXXXX
500,000 Shares
X /s/ Xxxxxx Xxxxxxx
----------------------------- -------------------------------
Xxxxxx Xxxxxxx, President Signature
25
EXHIBIT A
to
Agreement and Plan of Reorganization among ProPaint Systems, Inc.,
Access Power Canada, Inc. and certain shareholders of Access Power
Canada, Inc.
Summary of terms and preferences of Series A, Voting Convertible Preferred Stock
of ProPaint Systems, Inc. (the "Company"):
1. Designation and Consideration.
A total of 5,000,000 shares of the Company's authorized but
unissued shares of preferred stock, $.001 par value per share, shall be
designated as the SERIES A, VOTING CONVERTIBLE PREFERRED STOCK (the "Series A
Preferred Stock"). Each share of Series A Preferred Stock shall be issued for
such consideration as the Board may determine (whether cash, property or other
assets). Once duly issued for the consideration herein called for, shares of the
Series A Preferred Stock shall be deemed fully paid and nonassessable.
2. Dividends.
The holders of the shares of Series A Preferred Stock shall
not be entitled to receive any dividends thereon; provided, that, if a dividend
is declared on the common shares of the Company or on any series of preferred
shares ranking equal or junior to the Series A Preferred Stock, then in such
event the holders of the Series A Preferred Stock shall be entitled to receive a
proportional share of such dividend, based upon the proportion of the number of
shares of Series A Preferred Stock then outstanding to the total number of
shares of common and preferred stock entitled to share in such dividend.
3. Redemption.
The shares of Series A Preferred Stock shall not be subject to
redemption.
4. Conversion Right.
4.1 Conversion into Common Stock. Each share of Series A
Preferred Stock may, subject to all terms and conditions of this Section 4 and
subject to adjustment as provided below, at any time after issuance, be
converted at the option of the holder thereof into fully paid, nonassessable
common stock of the Company, $.001 par value per share.
(a) Maximum Conversion Rate. Each share of Series A Preferred
Stock may be converted into three (3) fully paid, nonassessable shares of common
stock of the Company, subject to the following conversion conditions:
(i) one fourth (1/4th) of the shares of Series A
Preferred Stock held may be converted when the
Company and any subsidiaries have on a combined basis
opened a total of three (3) Gateways (defined below)
that are fully functional and capable of immediately
commencing commercial operations, as certified by an
engineer qualified to make such certification;
(ii) one fourth (1/4th) of the shares of Series A
Preferred Stock held may be converted when the
Company and any subsidiaries have on a combined basis
opened a total of six (6) Gateways (defined below),
including the four Gateways required by clause (i)
26
immediately preceding this clause (ii), that are
fully functional and capable of immediately
commencing commercial operations, as certified by
an engineer qualified to make such certification;
The term "Gateway" for purposes of clauses (i) and
(ii) immediately preceding shall mean a telephony
gateway server computer that serves as a bridge
between the Public Switched Telephone Network or
Private Branch Exchanges, on the one hand, and the
Internet on the other hand, and converts analog voice
or data transmissions to digital data packets (or
vice versa); provided, that five (5) of the Gateways
must have capacity to handle twenty-four (24) phone
lines and the Internet access to provide capacity of
not less than Two Hundred Fifty Thousand (250,000)
minutes of talk time per month; and one Gateway must
have capacity to handle twelve (12) phone lines and
the Internet access to provide capacity of not less
than One Hundred Twenty-Five Thousand (125,000)
minutes of talk time per month.
(iii) one fourth (1/4th) of the shares of Series A
Preferred Stock held may be converted when the
Company and all subsidiaries have on a combined basis
achieved an aggregate of Two Million Dollars
(C$2,000,000.00) in bona fide total revenues from all
sources, as reflected on unaudited interim
consolidated financial statements regularly prepared
for the Company and all subsidiaries;
(iv) one fourth (1/4th) of the shares of Series A
Preferred Stock held may be converted when the
Company and all subsidiaries have on a combined basis
achieved an aggregate of Seven Million Dollars
(C$7,000,000.00) in bona fide total revenues from all
sources, including the C$2,000,000 in bona fide total
revenues required by clause (iii) immediately
preceding this clause (iv), as reflected on unaudited
interim consolidated financial statements regularly
prepared for the Company and all subsidiaries;
The four conversion conditions of this Paragraph
4.1(a) need not be satisfied in any particular order,
nor is the satisfaction of any conversion condition
dependent upon the prior satisfaction of any other
conversion condition.
(b) When Conversion Rate Determinable by Board of Directors.
For purposes of this Section 4, the term "Reorganization" includes any merger,
consolidation, share exchange, or other business combination pursuant to which
the Company is not the surviving corporation after the effective date of the
Reorganization, and any sale or lease of all or substantially all of the assets
of the Company, and the term "Reorganization Agreement" shall mean a plan or
agreement with respect to a Reorganization. In the event the Company consummates
a Reorganization, every share of Series A Preferred Stock issued and outstanding
on the Reorganization's effective date shall on such date be converted into the
number and kind of shares or other property that would be received by a person
holding the number of common shares of the Company into which the shares of
Series A Preferred Stock would be convertible on the effective date.
If on a Reorganization's effective date all four of the conversion
conditions set forth in subparagraph 4.1(a) have not been satisfied, then the
immediately following sentence shall apply to the holders of the Series A
Preferred Stock. In regard to any conversion conditions which at the time of
execution of the Reorganization Agreement have not been satisfied, the Board of
Directors shall, prior to such effective date, in good faith determine the
extent to which such remaining conversion conditions have been partially
satisfied. [For example, achieving C$1,000,000 in total revenues would satisfy
one-fifth of the subparagraph 4.1(a)(iii) conversion condition and one-seventh
of subparagraph 4.1(a)(iv) conversion condition, respectively.] The Board of
Directors shall then determine the number of shares of the Company's common
stock into which the shares of Series A Preferred Stock may be converted,
27
which shall be in proportion to the extent the remaining conversion conditions
have then been partially satisfied. The determination of the Board of Directors
in this matter shall be final and binding for all purposes.
(c) Automatic Conversion at Minimum Conversion Rate. On the
fifth (5th) anniversary of the Original Issue Date of the Series A Preferred
Stock, every share of Series A Preferred Stock which has not theretofore
satisfied any of the foregoing conversion conditions in this Section 4 and been
converted to common stock shall, automatically and without any requirement to
satisfy any conversion conditions of this Section 4 and without need of any
further action on the part of holders of Series A Preferred Stock except to
surrender the Series A Preferred Stock certificates to the Company's Secretary
for conversion, be converted into and thereafter represent one half (1/2) of a
share of the common stock of the Company (the "Minimum Conversion Rate").
(d) Other Matters Relating to Conversion. The common shares of
the Company into which shares of Series A Preferred Stock are converted
("Conversion Shares") will not be registered under the Securities Act of 1933,
as amended ("Act"), but shall be issued in reliance upon Section 4(2) of the Act
or Rule 505 or 506 of Regulation D under the Act, or Regulation S under the Act,
or other available exemption from registration under the Act. Conversion shall
be deemed to occur on the date a certificate evidencing shares of Series A
Preferred Stock being converted is presented to the Company or to the Company's
transfer agent and registrar, properly endorsed and accompanied by the proper
fee payable for issuance of the Conversion Shares. Each certificate evidencing
Series A Preferred Shares or Conversion Shares shall be subject to such
restrictions, conditions and limitations, and shall bear such restrictive
legends, if any, as are required by applicable laws, rules and regulations.
4.2 Other Adjustments to Conversion Rates. The conversion
rates set forth in Paragraph 4.1 above will be subject to further adjustment if
the Company is reorganized, merged, consolidated or party to a plan of exchange
with another corporation pursuant to which shareholders of the Company receive
any shares of stock or other securities, or in the event of any sale or other
transfer of all or substantially all of the Company's assets, or in case of any
reclassification of the Common Stock. Holders of shares of the Series A
Preferred Stock shall be entitled, after the occurrence of any such event, to
receive on conversion thereof the kind and amount of shares of stock or other
securities, cash or other property receivable upon such event by a holder of the
number of Common Shares into which the shares of Series A Preferred Stock might
have been converted immediately prior to occurrence of the event. In the event
of a split or combination, the number of Conversion Shares issuable shall be
appropriately adjusted. For purposes of this Paragraph, the term "shareholder"
means a holder of Common Stock.
4.3 No Fractional Shares Issuable. No fractional share of
Common Stock, or scrip or other instrument representing a fractional Common
Share, shall be issued upon conversion of any share of Series A Preferred Stock.
If any such conversion results in a fractional share of Common Stock being
issuable, the Company issue a whole share if the fraction is one half (0.50) or
more, and the converting holder shall forfeit the fraction if less than one half
(0.50).
5. Rights on Liquidation, Dissolution, or Winding Up.
5.1 Payment of Liquidation Preference. In the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the Company,
the holders of shares of Series A Preferred Stock shall be subordinate to all
claims of the Company's creditors and to claims of the holders of every series
of the Company's preferred stock ranking senior upon liquidation to the Series A
Preferred Stock, but otherwise are entitled to receive a liquidation preference
in the amount of $.001 per share, before any payment is made to any holder of
common shares or any series of preferred shares ranking junior to the shares of
Series A Preferred Stock. After the payment of such liquidation preference and
any liquidation preferences payable to holders of any other series of preferred
shares, the holders of the shares of Series A Preferred Stock shall share
ratably with the holders of the Company's common stock and all series of
preferred stock ranking on a parity with or junior to the Series A Preferred
Stock in the Company's assets available for distribution to its shareholders.
28
5.2 Effective Reorganization. Neither the consolidation or
merger of the Company with or into any other company nor the lease, exchange,
sale or transfer of all or substantially all of the Company's assets shall be
deemed to be a liquidation, dissolution or winding up of the Company's affairs,
whether voluntary or otherwise, within the meaning of this Section 5.
6. Voting Rights.
The shares of Series A Preferred Stock shall have the right to
vote in elections of directors and on other matters generally as to which
shareholders of the Company may vote. Each share of Series A Preferred Stock
shall be entitled to cast one (1) vote on every matter placed before
shareholders for consideration. The shares of Series A Preferred Stock shall
vote with the common shares and not as a separate class. Any matter which
requires the approval of the holders of the Series A Preferred Stock shall
require only the affirmative vote of a majority of the votes cast by the holders
of such shares, voting as a separate class, at any lawful meeting of such
holders which commences with a quorum; or if such shares vote by means of
written consent in lieu of a meeting, the concurrence of only a majority of the
holders of the Series A Preferred Stock shall be necessary.
7. Certain Corporate Actions.
The Company shall not amend its articles or certificate of
incorporation without the prior approval of the holders of the Series A
Preferred Stock, voting as a separate class, if such amendment would directly or
indirectly effect any adverse change in any of the rights, preferences or
privileges of, or limitations provided for herein for the benefit of, the
holders of Series A Preferred Stock. Without limiting the generality of the
foregoing, no such amendment may be effected without such approval if such
amendment would:
(a) Reduce the amount payable to the holders of Series A
Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company, or change the seniority of
the liquidation preferences of the holders of Series A Preferred Stock
relative to the rights upon liquidation, dissolution or winding up of
the holders of any other class or series of the Company's shares; or
(b) Cancel or modify the right of holders of Series A
Preferred Stock to convert such shares to Common Shares of the Company,
all as set forth herein.
8. Rank of Series A Preferred Stock.
The shares of the Series A Preferred Stock shall rank junior
to all series of preferred stock of the Company hereafter created, unless such
subsequently created series expressly ranks on a parity with or subordinate to
the Series A Preferred Stock. The Company may issue other shares of another
class or series of preferred stock after the Original Issue D which rank on a
parity with or senior to the Series A Preferred Stock.
9. Status of Certain Shares.
Shares of Series A Preferred Stock which (i) have been
redeemed, converted, exchanged, purchased, retired or surrendered to the
Company, or (ii) have been reacquired in any other manner, or (iii) have not
been sold or issued and which by determination of the Board of Directors shall
not be sold or issued as Series A Preferred Stock, shall have the status of
authorized and unissued preferred shares and may be reissued by the Board of
Directors as shares of Series A Preferred Stock or any other series of preferred
stock. In any such event, the Board of Directors may but shall not required to
file an amendment to the Company's articles of incorporation with the Nevada
Secretary of State to reflect any such fact.
29
10. Tax Matters.
The holders of Series A Preferred Stock shall be solely liable
for and shall pay any and all taxes and other governmental charges, of every
kind, that may be imposed in respect of the issue or delivery of Common Shares
upon redemption or conversion of Series A Preferred Stock. The Company may
withhold certain of such Common Shares in order to satisfy the Company's tax
withholding obligations or take similar steps to ensure that such taxes and
charges are duly paid. If the Company becomes liable for or pays any such taxes
due to acts of a Series A Preferred Stock holder, it may, in order to recoup the
amount of such tax or tax liability:
(i) withhold the amount of such tax or tax liability from any
funds whatever in or coming into the Company's possession and belonging
to such holder, including dividends declared on the Series A Preferred
Stock and payable to such holder; and/or
(ii) cancel and reissue in the Company's name such number of
shares of Series A Preferred Stock, based upon the original issue price
per share, as will equal the amount of the tax paid or tax liability
incurred.
11. No Limit Imposed on Corporate Powers.
Except to the extent expressly set forth herein, the issuance
and existence of the Series A Preferred Stock shall not affect in any way the
right or power of the Company or its shareholders to make or authorize any and
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures or other indebtedness, or the
dissolution or liquidation of the Company, or any sale, exchange or transfer of
all or any part of its assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.
- - - - - END OF EXHIBIT A - - - - -
EXHIBIT B
to
Agreement and Plan of Reorganization among ProPaint Systems, Inc.,
Access Power Canada, Inc., and certain individuals
O P T I O N T O R E D E E M E X C H A N G E S T O C K
Option Agreement dated this June ____, 1998, among the person or entity
executing this Option as "Grantor" and PROPAINT SYSTEMS, INC., a Nevada
corporation and its successors and assigns as the optionee (the "Company"), the
parties agreeing as follows:
SECTION 1. RECITALS.
Grantor and Optionee are parties to that certain Agreement and Plan of
Reorganization dated June 12, 1998 ("Exchange Agreement"), among the Company,
ACCESS POWER CANADA, INC.,
30
a federally chartered Canadian corporation ("Access Power"), and the
shareholders of Access Power, including Grantor, who executed the Exchange
Agreement as a "Shareholder." Upon the completion of the merger contemplated in
the Exchange Agreement ("Exchange"), certain shares of the Series A, Voting
Convertible Preferred Stock of the Company were issued to Grantor in the
aggregate number set forth in Section 2 of this Option (the "Exchange Shares").
Pursuant to Section 2.1 of the Exchange Agreement, the Company has the right to
redeem the Exchange Shares upon the occurrence of certain events. The Exchange
Agreement, together with all exhibits and schedules, is incorporated by
reference into this Option as if fully set forth here.
SECTION 2. EXCHANGE SHARES.
__________________ shares of the Company's common stock and
_______________ shares of Series A, Voting Convertible Preferred Stock of the
Company (the "Preferred Shares"), and all common shares of the Company into
which the Preferred Shares are converted during the Option Period, all of which
shares are collectively referred to in this Option as the "Exchange Shares" and
subject to this Option.
SECTION 3. GRANT OF OPTION.
Grantor hereby grants to the Company, for valuable consideration, the
receipt and sufficiency of which Grantor hereby acknowledges, an option (the
"Option") to purchase the Exchange Shares at a price of One Cent (US$0.01) per
share (the "Exercise Price") commencing on the date of this Option and expiring
on April 30, 2000 (the "Option Period") in the event that, during the Option
Period, Grantor voluntarily terminates his employment with the Company or his
employment with the Company is involuntarily terminated for cause or serious
cause. However, in the event Grantor's employment with the Company is terminated
for cause, then the number of Exchange Shares purchasable by the Company under
this Option shall be prorated, based on the portion of the Option Period then
lapsed. Grantor agrees that the Exercise Price and the duration of the Option
Period are reasonable. This redemption right shall not apply if termination of a
Member's employment with the Company occurs due to a merger, stock exchange or
consolidation of the Company with, or sale of the Company or all or
substantially all of its assets to, another company or persons then unaffiliated
with the Company.
SECTION 4. DEFINITIONS.
The term "employment with the Company" as used in this Option shall
include Grantor's employment or relationship as an officer, employee, consultant
or adviser with the Company or any affiliated company, provided that the Grantor
renders regular services averaging in any 90-day period not less than fifteen
(15) hours per week. "Employment with the Company" as herein used shall not be
affected by Grantor's transfer of employment among the Company and any one or
more affiliated companies. The term "affiliated company" means Survivor, any
other wholly or principally owned subsidiary of the Company, and any joint
venture or other business venture in which the Company or an affiliated company
owns at least twenty-five percent (25%) of the equity and net profits interest.
Grantor's employment with the Company shall not be deemed terminated by death,
by bona fide permanent or temporary disability or sick leave, by military leave
or by leave (e.g., jury duty) required by law or legal process other than
incarceration due to conviction of a felony crime. "Serious cause" as used in
this Option shall have the same meaning as set forth on Schedule 3.1 to the
Exchange Agreement. "Cause" as used in this Option means any reason for
termination other than serious cause.
SECTION 5. EXERCISE, PAYMENT AND DELIVERY OF EXCHANGE SHARES.
The Company may only exercise this Option by written notice to Grantor,
accompanied by payment of the Exercise Price by means of cashier's or bank
check, money order, or certified check. Notice of exercise of this Option may be
made by first class mail, postage prepaid, overnight courier service, telegram
or cable, or by any
31
messenger service which regularly retains its delivery receipts. Exercise shall
be deemed made when notice of exercise and payment of the Exercise Price are
dispatched to Grantor.
Upon due exercise of this Option as provided in this paragraph, all
rights whatever of Grantor in and to the Exchange Shares, including ownership,
voting rights and the right to receive dividends, shall cease and shall belong
to the Company. Upon Grantor's receipt of the Exercise Price, Grantor shall
within five (5) business days deliver to the Company all certificates evidencing
the Exchange Shares (or if the Exchange Shares have been changed or converted
into any other securities, certificates evidencing such other securities), each
endorsed by Grantor with signature medallion guaranteed or accompanied by stock
powers executed by Grantor, each signature being medallion guaranteed. Upon
Grantor's failure to deliver such certificates properly endorsed or accompanied
by signature- guaranteed stock powers, the Company shall have the right to
compel their delivery by judicial action, at the sole cost of Grantor.
SECTION 6. COMBINATIONS, RECAPITALIZATIONS, ETC.
The Exchange Shares are shares of the common stock of the Company as
currently constituted. If, prior to exercise of this Option, the Company shall
one or more times effect any subdivision or consolidation of shares or other
capital readjustment, a stock split or combination of shares (reverse stock
split), or recapitalization or other increase or reduction of the number of
shares of its common stock which has the effect of changing the Exchange Shares
into a different number of shares of the Company, then the shares into which the
Exchange Shares are changed shall be subject to this Option in lieu of the
Exchange Shares.
If the Company is reorganized, merged, consolidated or party to a plan
of exchange with another corporation pursuant to which shareholders of the
Company receive any shares of stock or other securities, there shall be
substituted for the Exchange Shares subject to this Option the appropriate
number of shares of each class of stock or other securities which were
distributed to the Grantor in respect of the Exchange Shares.
SECTION 7. LITIGATION.
In the event of any litigation or proceeding arising as a result of any
alleged breach or violation of this Agreement, Grantor's failure to deliver the
Exchange Shares upon proper exercise of this Option, or the failure of any
representation or warranty herein of Grantor, the party or parties prevailing in
such litigation or proceeding shall be entitled to collect all costs and
expenses thereof, including reasonable attorneys' fees, from the party or
parties therein not prevailing. The parties expressly agree that all
shareholders of the Company at the time Grantor's employment with the Company
terminates during the Option Period are and shall be third party beneficiaries
of this provision, and any one or more of such shareholders may bring an action
to compel the Company to redeem the Exchange Shares if this Option becomes
exercisable during the Option Period.
SECTION 8. MISCELLANEOUS PROVISIONS.
This Option shall terminate only upon due exercise of this Option and
delivery of the Exchange Shares or expiration of the Option Period without such
exercise. This Option is binding on the parties and their respective successors,
assigns, heirs, legatees and legal representatives. Otherwise, neither party may
assign this Option or any obligations or rights hereunder. The transfer agent
and registrar of the Company may rely on a copy of this Option as its authority
for the transfer of the Exchange Shares following exercise and may rely on the
written statement of the Company that this Option has been duly exercised.
Grantor is fully authorized and has all legal right and power to grant and
perform as required under this Option.
32
IN WITNESS WHEREOF, Grantor and the Company have executed this Option
and initialled each preceding page hereof, on the date first above indicated.
GRANTOR: PROPAINT SYSTEMS, INC.
X
-----------------------------
By
-----------------------------
Signature Authorized Officer
Name
-----------------------------
SCHEDULE 4(c)
to
Agreement and Plan of Reorganization
among ProPaint Systems, Inc.,
Access Power Canada, Inc., and certain individuals
LITIGATION INVOLVING ACCESS POWER CANADA, INC.:
NONE
33
