EXHIBIT 10.12
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is made and entered into this l2th day of
September, 1996 by and between Dick Xxxxxxxx Xxxxx, (the "Stockholder"), the
sole stockholder of hip Communications, Inc. a British Columbia corporation (the
"Company") and Digital Data Networks, Inc., a Washington corporation, (the
"Buyer"), with reference to the following recitals:
Stockholder owns all of the outstanding capital stock of the Company (the
"Stock") and desires to sell the Stock to the Buyer upon and subject to the
terms and conditions hereinafter set forth; and
Buyer desires to purchase the Stock from Stockholder upon and subject to the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained, it is hereby covenanted and agreed by and among the parties that they
shall carry out the following Stock Purchase Agreement (the "Agreement"):
1. Purchase and Sale of Stock. The Stockholder, in reliance upon the
representations, warranties and covenants of Buyer contained herein and subject
to the terms and conditions of this Agreement, shall sell all of the Stock to
the Buyer for the purchase price set forth below. Buyer, in reliance upon the
representations, warranties and covenants of the Stockholder contained herein
and subject to the terms and conditions of this Agreement, shall purchase the
Stock from Stockholder for the purchase price set forth below.
2. Purchase Price. The purchase price for the purchase of the Stock shall
be 80,000 shares (the "Shares") of Buyer's common stock, no par value (the
"Purchase Price"). The parties agree that the fair market value of the Shares as
of the date of this agreement is $500,000 Canadian. The Purchase Price is based
upon a preliminary audit of the Company's financial statements which reflect,
for the fiscal year ended June 30, 1996, gross revenues of $440,000 and
Stockholder's representation that such gross revenues will not change materially
when the preliminary financial statements are certified by an independent public
accounting firm.
3. The Closing. The Closing of the purchase and sale of the Stock shall
take place at the offices of ProNet Communications, Inc. on or before September
30, 1996, subject to the receipt by Buyer of the certified financial statements
of the Company referred to in Section 4.4. below or at such other time and place
as may be mutually agreed upon by Buyer and Stockholder (the date of Closing
herein being referred to as the "Closing Date").
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At the Closing, Stockholder shall deliver to Buyer, free and clear of all liens,
encumbrances, claims, and other charges thereon of any kind, a certificate for
the Stock, duly endorsed, with signature witnessed, to Buyer. Buyer shall
deliver to Stockholder a due xxxx in the form of Exhibit A attached hereto
representing the Shares until such time as the Buyer's transfer agent is able to
deliver a certificate or certificates representing the Shares. The Buyer shall
deliver to the Stockholder's lawyer the issued Shares within 21 days of the
Closing Date. The Shares win be held in escrow by the Stockholder's lawyers
until the holding period expires. While the shares are in escrow, the
stockholder shall have no right to vote the shares and any dividends paid will
be paid into escrow.
4. Representations and Warranties of the Stockholder. The Stockholder
represents and warrants to Buyer as follows:
4.1. Organization, Standing, Qualification and Capitalization. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of British Columbia, Canada, and has the corporate power to perform its business
as presently conducted and to own and lease the properties used in connection
therewith. A complete and correct copy of the Articles of Incorporation and all
amendments thereto of the Company certified by the Registrar of Companies of the
Province of British Columbia and a complete and correct copy of its By-laws and
all amendments thereto, certified by the secretary of the Company, will be
delivered to Buyer prior to the Closing. The Company is duly qualified to do
business and is in good standing in British Columbia and the conduct of its
business or the ownership of its property does not require such qualification in
any other jurisdiction.
The total authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, no par value per share, of which one share is issued and
outstanding, fully paid and non-assessable. Neither the Company nor the
Stockholder at the Closing will be a party to or be bound by any written or oral
contract or agreement which grants to any person an option or right of first
refusal or other right of any character to acquire at any time, or upon the
happening of any stated event, shares of Common Stock of the Company, whether or
not presently issued or outstanding.
4.2. Stock Ownership. The Stockholder is the lawful owner of record and
beneficially of the Stock, free and clear of all liens, encumbrances, claims and
other charges of every kind, and has full legal power and all authorization
required by law to transfer and deliver the Stock in accordance with this
Agreement.
4.3. Subsidiaries of the Company. The Company owns no shares of any
corporation and has no interest in any partnership, joint venture or other legal
entity.
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4.4. Financial Statements. Stockholder has delivered to Buyer copies of the
following financial statements:
(i) Balance sheet of the Company as of June 30, 1996, in preliminary
audit form.
(ii) Statements of operations of the Company for the fiscal year ended June 30,
1996 in preliminary audit form.
(iii) Stockholder agrees to provide to Buyer, prior to the Closing Date,
certified financial statements of the Company audited by Davidson & Company, or
any other independent public accounting firm acceptable to the Buyer,
experienced in United States Securities and Exchange Commission ("SEC")
accounting practices and generally accepted accounting principles. Such
financial statements shall be in form suitable for filing by Buyer with the SEC
upon consummation of the transaction or readily adaptable therefor. Such
certified financial statements, as finally delivered, are herein referred to as
the "Financial Statements".
(a) Accounts Receivable. The Accounts receivable of the Company set forth
on the Financial Statements are collectible in full in the ordinary course of
business in the aggregate reported amounts less any reserves reflected in the
balance sheet.
(b) Inventory. All inventory of the Company as set forth in the Financial
Statements consisted, and all such inventory as of the Closing Date will
consist, of a quality and quantity usable or salable in the ordinary course of
business of the Company. The value at which inventories were reflected in the
Financial Statements was the lower of cost or replacement market value and with
adequate provision for obsolete material, all in accordance with generally
accepted accounting principles applied on a basis consistent with that of the
prior fiscal year.
(c) Other Assets. The prepaid expenses and other assets of the Company as
shown on the Financial Statements or arising thereafter prior to the Closing
represent amounts which will benefit the Company in future periods. All material
tangible assets owned and used by the Company in its operations are reflected in
the Financial Statements.
(d) Fixed Assets. The fixed assets of the Company are stated at cost on the
Financial Statements. The reserves for depreciation and amortization provided
against these assets have been established in accordance with the notes to the
Financial Statements and are adequate to reduce any idle fixed asset to net
realizable value.
(e) Schedule A & B. The Stockholder will also provide Schedule A (all
patents, patent applications, registered trademarks, registered service marks,
trademark and service xxxx applications, unregistered trademarks and service
marks, copyrights and copyright applications, owned or filed by the Company or
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in which the Company has an interest and the nature of such interest) and
Schedule B (a true and accurate list of the name and location of each bank in
which the Company has an account; each safety deposit box or custody agreement;
and the names of the persons authorized to draw thereon or to withdraw
therefrom) which shall be attached to this Stock Purchase Agreement.
4.5. Title to Properties. The Company has good and marketable title to all
its properties and assets reflected in the Financial Statements, free and clear
of all mortgages, liens, pledges, charges or other encumbrances of any nature
whatsoever, except as disclosed in the Financial Statements; liens for current
taxes not yet due and payable.
4.6. Tax Matters. To the best of the Stockholder's knowledge, the amounts
set up in the Financial Statements as provisions for taxes are sufficient for
the payment of all foreign, Canadian, provincial and local taxes and all
employment and payroll related taxes, including any penalties and interest
thereon, whether disputed or not, of the Company. The Company has duly made all
deposits required by law to be made with respect to employees' withholding
taxes. The Company has duly filed all income, foreign, franchise, excise,
employment and payroll related, real and personal property, sales and gross
receipts tax returns and all other tax returns which were required to be filed
by it, and has paid, or has set up adequate reserves for the payment of all
taxes shown on such returns. To the knowledge of the Stockholder, no agreement
for the extension of time for the assessment of any deficiency or adjustment
with respect to any tax return filed by the Company has been assessed, and
Stockholder knows of no unassessed tax deficiency proposed or threatened against
the Company.
4.7. Insurance. The Company is insured under various policies of fire,
liability and other forms of insurance, which policies are in full force
enforceable in accordance with their terms and provide adequate insurance for
the business of the Company and its assets and properties.
4.8. Patents. Schedule A attached hereto sets forth all patents, patent
applications, registered trademarks, registered service marks, trademark and
service xxxx applications, unregistered trademarks and service marks, copyrights
and copyright applications, owned or filed by the Company or in which the
Company has an interest and the nature of such interest. To the best of the
Stockholder's knowledge,: a) no other patent, trademark or service xxxx,
copyright or license is necessary to permit the business of the Company to be
conducted as it is now conducted; b) no Person, firm or corporation has any
proprietary, financial or other interest in any such patents, patent
applications, registered trademarks, registered service marks, trademark and
service xxxx applications, unregistered trademarks and service marks, copyrights
and copyright application; c) there are no violations by others of any of the
rights of the Company thereunder; d) the Company is not infringing on any
patent, trademark or service xxxx, or copyright or otherwise violating the
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rights, of any third party; e) no proceedings have been instituted or are
pending or, to the knowledge of the Stockholder or the Company, are threatened,
and no claim has been received by the Company, alleging any such violation; f)
the Company is not a party to or bound by any license agreement requiring the
payment by the Company of any royalty payment, except as set forth in
Schedule A.
4.9. Absence of Undisclosed Liabilities. To the best of the Stockholder's
knowledge, there are no liabilities or obligations of the Company either
accrued, absolute, contingent or otherwise, including, but not limited to, any
tax liabilities due to or to become due except as disclosed in the Financial
Statements and those incurred in accordance with past business practice in the
ordinary course of business.
4.10. Bank Accounts and Officers. Schedule B Attached hereto contains a true
and accurate list of the name and location of each bank in which the Company has
an account, each safety deposit box or custody agreement and the names of the
persons authorized to draw thereon or to withdraw therefrom.
4.11. Investment Representations. Stockholder agrees to take the Shares
issued hereunder for investment and not with a view to distribution. Each such
Buyer's share issued will be subject to a resale restriction from the date of
issue pursuant to rule 144 which is currently 2 years (the "Holding Period") and
thereafter may only be sold in compliance with the United States Securities Act
of 1933 and the securities laws of any jurisdiction in which the sale may be
effected. Stockholder acknowledges that the certificate(s) representing the
Shares will be marked with a restrictive legend which states that the Shares may
not be sold or transferred in the absence of an effective registration statement
under the United States Securities Act of 1933, or an opinion of counsel that
registration is not necessary and that a stop transfer order will be placed
against the Shares with the transfer agent of Buyer.
5. Representations and Warranties of Buyer. Buyer represents and warrants
to the Stockholder that:
5.1. Organization, Good Standing and Authority. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Washington, and has full corporate power and authority to own its properties and
assets and to carry on its business as it has been and is conducted. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby are within the corporate power of Buyer and
have been duly authorized by all necessary corporate and other action, including
any necessary approvals of securities regulatory authorities. The Agreement
constitutes the valid
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obligation of the Buyer legally binding upon it in accordance with its terms.
The Shares, when issued, will be validly issued, fully paid and non-assessable.
5.2. Validity of Contemplated Transaction. Neither the execution and
delivery of this Agreement nor the consummation of the transaction contemplated
hereby will violate any agreement to which Buyer is a party or by which it is
bound or any law, order or decree or any provision of its Articles of
Incorporation or By-laws.
6. Covenants of Buyer and Stockholder.
6.1. Consulting Agreement. At the Closing, Stockholder (or assignee) and
Company shall enter into the attached Consulting Agreement.
6.2. Sub-lease and Intellectual Property Agreements. At the Closing,
Stockholder (or assignee) and Company shall enter into the attached Sub-Lease
Agreement and Intellectual Property Transfer and Use Agreement.
6.3. Repayment of Stockholder Loans. Buyer agrees to pay or to cause the
Company to pay to Stockholder certain outstanding loans from Stockholder to the
Company not to exceed $40,000 Canadian. Payment of funds shall be given to
Stockholder within seven (7) business days of closing. The Company will apply
the remaining $7,433.31 of outstanding loans towards rent due from the
Stockholder (or assignee) per the attached Sub-Lease Agreement.
6.4. Covenant Not to Compete. Stockholder agrees that for a period of three
years from the Closing Date, he will not, unless acting as an employee or a
consultant to the Company or Buyer or with Buyer's or the Company's written
consent, directly or indirectly, own manage, operate, join, control, or
participate in the ownership, management operation or control of, or be
connected as an officer, employee, partner or otherwise with any business
engaged in any business which is presently conducted by the Company, namely web
site development and hosting, within any state of the United States or any
Province of the Dominion of Canada in which the Company or Buyer presently
maintains an office or conducts its business, other than owning not more than 5%
of a class of equity securities traded on a national securities exchange in the
United States or Canada. Stockholder agrees that the remedy at law for any
breach of the foregoing will be inadequate and that the Company and Buyer shall
be entitled, among other things, to temporary and permanent injunctive relief
without the necessity of proving actual damage to the Company or Buyer.
6.5. No Negotiations For Sale Of Company. Stockholder agrees, prior to the
Closing or September 30, 1996, whichever is later, that he will not enter into
any negotiations with, or offer to sell the Stock or assets of the Company to
any other person without the prior written consent of Buyer.
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7. Conditions Precedent to Buyer's Obligations. All obligations of Buyer
under this Agreement are subject to the fulfillment, prior to or at the Closing,
of each of the following conditions:
7.1. Representations and Warranties. The Stockholder's representations and
warranties contained in this Agreement shall be true at and as of the time of
Closing as though such representations and warranties were made at and as of
such time (except to the extent they are stated therein to be true as of some
other date).
7.2. Compliance With Agreements. The Stockholder and the Company shall have
performed or complied with all agreements and conditions required by this
Agreement to be performed or complied with by them prior to or at the Closing.
8. Conditions Precedent to Stockholder's Obligations. AJI obligations of
the Stockholder under this Agreement are subject to the fulfillment, prior to or
at the Closing, of each of the following conditions:
8.1. Representations and Warranties. Buyer's representations and warranties
contained in this Agreement shall be true at and as of the time of Closing as
though such representations and warranties were made at and as of such time.
8.2. Compliance With Agreements. Buyer shall have performed and complied
with all agreements and conditions required by this Agreement to be performed or
complied with prior to or at the Closing including execution of the attached
Consulting Agreement, Sub-Lease Agreement, and Intellectual Property Transfer
and Use Agreement.
9. Conditions Precedent to Both Parties Obligations. This agreement is
subject to the approval of the board of directors of the Buyer, to be obtained
on or before September 17'th, 1996.
10. Broker and Finder's Fees. Stockholder and Buyer each represent and
warrant to one another that they have not engaged or dealt with any broker or
finder who would be entitled to a brokerage fee or commission in respect to this
Agreement or the consummation of the transaction contemplated hereby. Each of
the parties hereto shall indemnify and hold harmless the other against all
claims, losses, liabilities or expenses which may be asserted against such other
party as a result of such first party's dealing, arrangements or agreements with
any such broker or person.
11. Expenses. Each party shall bear its own costs and expenses incurred in
connection with the negotiation and consummation of this Agreement and the
transaction contemplated hereby and neither party shall have a claim against the
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other party for contribution to costs and expenses for any reason including
failure to consummate the transaction.
12. British Columbia Law to Govern. This Agreement shall be interpreted in
accordance with the laws of the Province of British Columbia and any action or
claim shall be brought in the appropriate courts of such Province.
13. Notices. All notices, requests and other communications which are
required or permitted hereunder shall be sufficient if given in writing and
delivered personally or by registered mail, postage prepaid, as follows (or to
such other addresses as may be set forth in a notice given in the same manner):
If to Buyer:
Digital Data Networks, Inc.
0000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxx, Chairman
(000) 000-0000
If to Stockholder:
Xxxx X. Xxxxx
204 1420 Arbutus Xx.
Xxxxxxxxx, X.X, Xxxxxx X0X0X0
(000) 000-0000
IN WITNESS WHEREOF, This Agreement has been executed as of the day and year
first above written.
Digital Data Networks, Inc.
By: /s/ Xxxxxx X. Xxxxx
---------------------
Xxxxxx X. Xxxxx, Chairman
By: /s/ Xxxx X. Xxxxx
--------------------
Xxxx X. Xxxxx, Stockholder
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SCHEDULE A
The Company has the trademark "hip webzine" registered in Canada as an online
publication.
SCHEDULE B
The Company has a single chequeing account, numbered 285833 at branch 10 of
Vancouver City Savings and Credit Union, located at Xxxxxx and Xxxxxx in
Xxxxxxxxx, XX, Xxxxxx. The Stockholder is the only signing authority for the
account
From: Xxxx Xxxxx
To: Digital Data Networks, Inc.
RE: Stock Purchase Agreement dated the 12 of September, 1996
We confirm that notwithstanding that the stock purchase agreement has been
signed by all parties, this stock purchase agreement is not to be effective
until such time as Digital Data Networks Inc. has arranged the pay out and has
paid out the loan by Highland Echo Ventures Ltd. Dated for reference May 1, 1996
to Xxxx Xxxxx with a current outstanding balance of $57,494.38 Canadian as of
the 12th day of September, 1996.
Signed
/s/ Xxxx Xxxxx
---------------
Xxxx Xxxxx
acknowledged and agreed to this 12 day of September, 1996
Signed
/s/ Xxxxxx Xxxxx
------------------
Xxxxxx Xxxxx, Chairman
Digital Data Networks Inc.
To: Xxxx Xxxxx
From: Digital Data Networks, Inc.
Re.: Amendments to the Stock Purchase Agreement dated September
12th, 1996 and the Consulting Agreement between hip
Communications Inc. and Xxxx Xxxxx.
This letter confirms three amendments to the Stock Purchase Agreement dated the
12th of September 1996 between Xxxx Xxxxx and Digital Data Networks, Inc. and
two amendments to the Consulting Agreement between hip Communications Inc. and
Xxxx Xxxxx.
1. Purchase Price. The purchase price for the purchase of the Stock (all the
outstanding capital stock of hip Communications Inc.) shall be 30,000 shares of
Digital Data Networks, Inc. common stock, no par value.
2. Registration Rights. Digital Data Networks, Inc. agrees to grant
registration rights to the aforementioned 30,000 shares if and when Digital Data
Networks, Inc. completes a secondary share offering.
3. The Closing as stated in section 3 shall be amended to September 27, 1996
at or before 4:00 pm.
hip Communications agrees to amend the Consulting Agreement between Xxxx Xxxxx
and hip Communications Inc. in the following manner:
1. At Xxxx Xxxxx'x option, the Consulting Agreement may be renewed for
one 3 month term after the initial 6 month term expires.
2. The consulting rate shall be changed to $2,500 per month.
IN WITNESS WHEREOF, This agreement has been executed as of September 25th, 1996.
Digital Data Networks, Inc. Xxxx X. Xxxxx
By: /s/ Xxxxxx X. Xxxxx By: Xxxx X. Xxxxx
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