EXHIBIT 1
ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION
This Acquisition Agreement and Plan of Reorganization (herein, together
with all referenced Exhibits, "Agreement") is entered in to as of DECEMBER 30,
2003 (the date of execution of this Agreement), by and between X-Xxx.Xxx, Inc.,
a Colorado corporation ("H-NET") and Donobi, Inc., a Washington corporation
("DONOBI").
This Agreement sets forth the terms and conditions upon which DONOBI will
be acquired by and become a wholly owned subsidiary of H-NET (the
"Acquisition"). DONOBI will exchange all of the issued and outstanding voting
common stock of DONOBI ("DONOBI Shares") for 13,558,750 shares of the voting
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$.001 par value common stock of H-NET ("H-NET Shares").
In consideration of the mutual promises and covenants contained herein,
DONOBI and H-NET agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms (whether used in singular or
plural forms) shall have the following meanings:
"DONOBI Shareholders" shall mean all shareholders of the Common Stock of
Donobi, Inc., as of the Closing Date.
"DONOBI Shares" shall mean the shares of Common Stock of Donobi, Inc., to
be exchanged for shares of H-NET common stock in accordance with the terms and
conditions set forth herein.
"H-NET Shares" shall mean the shares of Common Stock of X-Xxx.Xxx, Inc., to
be exchanged for all of the issued and outstanding shares of Donobi, Inc.,
common stock in accordance with the terms and conditions set forth herein.
"Closing Date" shall mean JANUARY 19, 2004, which is also the date upon
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which the Acquisition shall occur in accordance with the terms and conditions
set forth herein and subject to any changes or modifications of said date which
result from the unforeseen delay in obtaining all necessary shareholder consents
set forth herein.
"Contract" means any written contract, mortgage, deed of trust, bond,
indenture, lease, license, note, franchise, certificate, option, warrant, right,
or other instrument, document or agreement, and any oral obligation, right or
agreement.
"Controlled Group" means all trades or businesses (whether or not
incorporated) under common control that, together with DONOBI, are treated as a
single employer under Section 414(b) or 414(c) of the Code or Section 4001 of
ERISA.
"GAAP" means generally accepted accounting principles, as the term is
defined by the American Institute of Certified Public Accountants under the
first standard of reporting under its generally accepted accounting standards.
"Knowledge"of DONOBI of or with respect to any matter means that any of the
executive officers, directors or managers of DONOBI has, or after due inquiry
and investigation would have, actual awareness or knowledge of such matter, and
"Knowledge" of H-NET of or with respect to any matter means that any of the
executive officers, directors, or senior managers of H-NET has, or after due
inquiry and investigation would have, actual awareness or knowledge of such
matter.
"Legal Requirements" means applicable common law and any statute,
ordinance, code or other law, rule regulation, order, technical or other
standard requirement, judgment or procedure enacted, adopted, promulgated,
applied or followed by any governmental authority, including judgments.
"Lien" means any security agreement, financing statement filed with any
governmental authority, conditional sale statement filed with any governmental
authority, conditional sale or other title retention agreement, any lease
consignment or bailment given for purposes of security, any lien, mortgage,
indenture, pledge, option, encumbrance, adverse interest, constructive trust or
other trust, claim, attachment, exception to or defect in title or other
ownership interest (including but not limited to reservations, rights of entry,
possibilities of reverter, encroachments, casement, rights of way, restrictive
covenants leases and licenses) of any kind, which otherwise constitutes an
interest in or claim against property, whether arising pursuant to any Legal
Requirement, Contract or otherwise.
"Acquisition" shall mean the acquisition by H-NET of the DONOBI Shares in
exchange for the H-NET Shares as further defined herein.
ARTICLE 2
ACQUISITION
Section 2.1 Acquisition Agreement and Plan of Reorganization. An
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Acquisition Agreement and Plan of Reorganization is hereby adopted as follows:
2.1.1. Subject to the terms and conditions hereinafter set forth, on the
Closing Date, and in the manner hereinafter provided, (i) DONOBI's shareholders
shall exchange all of the issued and outstanding DONOBI Shares for the H-NET
Shares in the amounts set forth herein; DONOBI shall continue to exist as a
separate corporate legal entity (wholly owned subsidiary); and H-NET shall be
the parent corporation. The DONOBI shareholders shall receive H-NET Shares
equaling 87.4758% of the issued and outstanding H-NET Shares, thereby obtaining
actual majority control over H-NET. The Acquisition shall be structured as a
pooling of interests and as a tax deferred reorganization as defined under
Section 368(a)(1) of the Internal Revenue Code.
2.1.2. H-NET and DONOBI, respectively, shall take, or cause to be taken,
such action as may be necessary or appropriate in order to effectuate the
transactions contemplated hereby. In the event that after the Closing Date, any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest H-NET or the DONOBI Shareholders with full title to the
securities to be exchanged hereby, the officers and directors of H-NET or
DONOBI, as the case may be, shall take all such necessary action.
Section 2.2 Effective Date of the Acquisition for Accounting Purposes.
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The transactions contemplated by this Agreement shall be effective on the
Closing Date, for accounting purposes and for all other purposes to the extent
permissible by law.
Section 2.3 Consideration and Basis of Exchange of Shares. The manner and
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basis of exchanging the DONOBI Shares for the H-NET Shares shall be as follows:
2.3.1. Restricted Shares. On the Closing Date, the DONOBI Shareholders,
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by and through counsel for DONOBI, shall deliver to H-NET original, written
consents and assignments approving the transaction and executed by a majority of
DONOBI Shareholders sufficient to approve this transaction in accordance with
Washington law; the DONOBI Shareholders shall be issued and will receive, in
exchange for the DONOBI Shares held of record on the Closing Date, an aggregate
of 13,558,750 H-NET Shares. The DONOBI Shareholders, DONOBI, and H-NET agree
that the DONOBI Shares and the H-NET Shares exchanged hereby shall be
"restricted securities" as that term is defined in Rule 144 under the Securities
Act of 1933, as amended (the "1933 Act"), and all certificates issued under this
Agreement shall bear an appropriate legend to such effect. DONOBI will have
received the necessary approval of its Board of Directors and Shareholders for
this transaction.
2.3.2. Share Exchange Terms. DONOBI Shareholders will exchange all of the
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issued and outstanding DONOBI Shares for 13,558,750 newly issued H-NET Shares.
At Closing, DONOBI Shareholders will own 13,558,750 H-NET Shares, which will
equal approximately 87.4758% of the issued and outstanding shares of X-Xxx.Xxx,
Inc., after issuance of shares to the DONOBI shareholders and others as
contemplated herein. DONOBI shall become a wholly owned subsidiary of H-NET,
with the public company being the parent entity. Upon closing or upon action by
the new board of directors and shareholder approval, X-Xxx.Xxx, Inc. will change
its name to Donobi, Inc. DONOBI Shareholders shall receive their pro rata
portion of the H-NET Shares based on the percentage of DONOBI Shares they own on
the Closing Date.
2.3.3. Reverse Split of H-NET Shares. Approved at a shareholder meeting
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which occurred on December 22, 2003, and effective before the Closing Date,
H-Net has reverse split its outstanding common stock by a factor of 32:1,
issuing 1 share of new common stock in exchange for every 32 outstanding shares
held of record by existing H-NET shareholders on December 22, 2003. The parties
agree that there will be no more than 15.5 million shares issued and outstanding
after the reverse split and after the issuance of new H-NET Shares for the
Donobi acquisition as contemplated herein.
2.3.4. Xxxxxxxx Compensation Agreement.
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(A) Xxxxx Xxxxxxxx, current CEO of H-Net, and Xxxxxxxxx Xxxxxxxx, current
Secretary of H-Net, will collectively be paid the balance of their existing
compensation packages from available cash left in H-NET at closing as a buyout
of their employment agreements and any golden parachute payments with H-Net.
The existing compensation packages will be paid in full as a condition to
Closing and will not be a continuing liability of H-NET after the Acquisition.
(B) The post-acquisition public entity will execute, at Closing, a
separate Consulting Agreement with Xxx. Xxxxxxxx for a total value of
$370,500.00. The Consulting Agreement will be paid over time, payable in
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quarterly installments over five (5) successive fiscal quarters, with quarterly
payments to commence on the 90th day after the Closing Date. The periodic
payments will bear interest amortized over the term of the Consulting Agreement
at 9.5% per annum, simple interest.
(C) This compensation package is in addition to and separate from Xx.
Xxxxxxxx' share ownership interest in the post-acquisition public entity, which
share ownership will be 4.99%, as discussed herein. Xx. Xxxxxxxx will retain his
shares in H-NET and be issued additional shares in order to maintain a 4.99%
interest after the Donobi acquisition and based upon a 15.5 million share
capitalization for H-NET. H-NET shares held by Xxxxx Xxxxxxxx (i.e., his 4.99%)
will have registration rights in the anticipated SB-2 registration statement to
be undertaken by the post-acquisition public entity. Based upon this 15.5
million share capitalization structure, Xxxxx Xxxxxxxx will retain all shares
previously held in his name (656,250 shares after the reverse split approved
December 22, 2003) and will receive an additional 117,200 H-NET shares upon
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Closing.
(D) The post-acquisition public entity (newly named DONOBI) will provide
Xxx. Xxxxxxxx with collateral, in the form of a Promissory Note. The amount of
the Promissory Note will be equal to the fee due and owing to Xxx. Xxxxxxxx
(bearing simple interest at 9.5%), and such Note will be used in order to secure
the payment of the monetary consideration set forth above. Said Promissory Note
shall be retired in proportion to the fees paid to Xxx. Xxxxxxxx and shall be
actionable only in the event that the post-acquisition public entity DONOBI
defaults on the Note.
2.3.5. The H-NET Board of Directors will appoint Xxxxxxx Xxxxxx, Xxxxx
Xxxxx, and up to three additional persons designated by DONOBI, as new members
of the post-acquisition public entity's Board of Directors in compliance with
SEC proxy rules.
2.3.6. The Xxxxxxxx shall have the option, in their sole discretion, to
buy all the assets, liabilities and corporate organization of the following
operating subsidiaries of X-Xxx.Xxx, Inc.: X-Xxx.xxx, Inc. and Alphabytes
Computer Corporation (both Canadian corporations) from the combined entity. This
option shall be valid for a period of fifteen (15) days from the Closing Date of
the proposed acquisition transaction, includes both entities jointly and shall
be for a combined purchase price of US$1,000.
2.3.7. At Closing, the post-acquisition public entity shall issue shares
to a third party, ROHAN XXXXX XXXXXX, equal to 0.51% of the issued and
outstanding shares of X-Xxx.Xxx, Inc., after issuance of new shares to the
DONOBI shareholders, based upon a 15.5 million share capitalization for H-NET.
H-NET shares held by Xxxxx Xxxxx Ruberi (i.e., his 0.51%) will have registration
rights in the anticipated SB-2 registration statement to be undertaken by the
post-acquisition public entity. Based upon this 15.5 million share
capitalization structure, Rohan Ruberi will receive 79,050 H-NET shares upon
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Closing. Prior to Closing, H-NET, its management and Rohan Xxxxx Xxxxxx shall
make standard representations and warranties to DONOBI that Xx. Xxxxxx is not an
affiliate of H-NET or its management.
2.3.8 At Closing, DONOBI shall make the following payments in addition to
the other payments set forth herein: $10,000.00 to Xxxxx Xxxxxxxxx, Esq.,
$10,000.00 to Xxxxx Xxxxxxxx, $5,000.00 to Xxxxxx X. Xxxx, Esq.
Section 2.4 Closing. Closing of this Agreement shall be held on or about
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JANUARY 19, 2004 at the offices of DONOBI's counsel in Las Vegas, Nevada, or
such other place as the parties may mutually agree in writing. The parties
shall exchange such other documents and take such other actions as may be
necessary or appropriate for completing the transactions contemplated by the
Agreement.
Section 2.5 Mechanics for Closing Acquisition. The Parties shall
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undertake to complete the necessary conditions to the Acquisition prior to or
concurrent with the Closing, which will occur on or about JANUARY 19, 2004. Upon
the approval by DONOBI's Board of Directors and DONOBI's Shareholders, and upon
approval of H-NET's Board of Directors, as set forth in the opinion letter
provided to DONOBI by Colorado counsel) approving the Donobi Acquisition. In
addition, at Closing, Mr. Ruberu's shares will be delivered to him; the
Consulting Agreement will be executed between the post-acquisition public entity
and Xxx. Xxxxxxxx, and the Promissory Note will be issued to Xxx. Xxxxxxxx
securing payment of said Consulting Agreement.
Section 2.5.1. Ongoing Audit and reporting Obligations. H-NET is subject to
ongoing audit and SEC reporting obligations. H-NET's next fiscal quarter ended
on October 31, 2003, and its quarterly audit must be completed and filed with
the SEC within 45 days of this fiscal quarter's end date. This report was filed
with the SEC on December 12, 2003. Future reporting requirements will be the
responsibility of the post-acquisition public entity.
Section 2.6 Further Assurances. At or after Closing, DONOBI, at the
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request of H-NET, shall promptly execute and deliver, or cause to be delivered,
to H-NET all such documents and instruments, in form and substance satisfactory
to H-NET, as H-NET reasonably may request in order to carry out or evidence the
terms of this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF H-NET
H-NET represents and warrants to DONOBI, as of the date of this Agreement
and as of the Closing, as follows:
Section 3.1 Organization and Qualification of H-NET. H-NET is a
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corporation duly organized, validly existing and in good standing under the
laws of the State of Colorado and has all requisite power and authority to
conduct its business as now conducted and to own or lease and operate the assets
and property now owned or leased or operated by it. H-NET is qualified to
transact business in those jurisdictions wherein its business requires such
action.
Section 3.2 Authority. H-NET has all requisite corporate power and
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authority to execute, deliver and perform this Agreement. The execution,
delivery and performance of this Agreement by H-NET has been duly and validly
executed and delivered by H-NET's Board of Directors and is a valid and binding
obligation of H-NET, enforceable against H-NET in accordance with its terms.
Section 3.3 Ownership and Number of Shares of H-NET Common Stock. The
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shareholders' list attached hereto as Exhibit 3.3 accurately reflects the
currently issued and outstanding shares of H-NET Common Stock currently
outstanding in the shareholder ledger maintained by the company (DONOBI may
obtain a shareholder list from H-NET's transfer agent for a more detailed list
of shareholders). There are not, and will not be at Closing (prior to the
issuance of H-NET shares to the Donobi shareholders and issuance of shares to
Xxxxx Xxxxxxxx and Xxxxx Xxxxxx as contemplated hereinabove), more than
1,125,000 outstanding shares of H-NET Common Stock.
Section 3.4 Subsidiaries. Except as set forth in Exhibit 3.4 hereto,
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H-NET does not control or hold direct or indirect equity interest in, or hold
rights to control or acquire direct or indirect equity interests in, any
corporation.
Section 3.5 No Conflicts; Required Consent. The execution, delivery, and
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performance by H-NET of this Agreement will not: (i) conflict with or violate
any provision of the Articles of Incorporation or Bylaws of H-NET; (ii) violate
any Legal Requirements; (iii) result in the creation or imposition of any Lien
against or upon the H-NET Shares or any of the assets or properties owned or
leased by H-NET; or (iv) require any consent, approval, or authorization of, or
filing of any certificate, notice, application, report or other document with,
any governmental authority or other person.
Section 3.6 Litigation. There is no litigation pending or, to H-NET's
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knowledge, threatened, by or before any governmental authority or private
arbitration tribunal, against H-NET or its operations, except as described in
Exhibit 3.6 attached hereto and incorporated herein by this reference, nor, to
H-NET's knowledge, is there any basis for any such litigation.
Section 3.7 Compliance with Applicable Legal Requirements. Conduct by
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H-NET of its activities as currently conducted does not violate or infringe any
Legal Requirements currently in effect, or, to the knowledge of H-NET, proposed
to become effective; and H-NET has received no notice of any violation by H-NET
of any Legal Requirements applicable to H-NET or its activities as currently
conducted; and H-NET knows of no basis for the allegation of any such violation.
Section 3.8 Financial Statements. H-NET will deliver to DONOBI the
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audited balance sheet and statements of operations of H-NET as of January 31,
2002 and 2003 as well as any other interim periods (including Quarterly Reports
for periods after) as determined by H-NET's auditors. The financial statements
will be prepared in accordance with United States GAAP and present fairly the
financial position of H-NET as of the dates indicated and the results of
operations of H-NET for the periods ended January 31, 2002 and 2003. The cost of
said audits and interim reviewed statements shall be borne by H-NET. The parties
hereto agree that as part of this transaction, H-NET must file a Form 8-K with
the Securities and Exchange Commission that contains audited and pro forma
financial statements of H-NET as well as Donobi, and that failure to file this
report on a timely basis could result in the de-listing of H-NET's stock as well
as the Securities and Exchange Commission taking action against H-NET for its
failure. Therefore, in the preparation of the audits and any interim or pro
forma financial statements, both parties agree that time is of the essence.
Section 3.9 Liabilities. H-NET has no liabilities or obligations, whether
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absolute, accrued, contingent, or otherwise, that are not reflected in the
Balance Sheet or non-delinquent obligations for ordinary and recurring expenses,
including expenses occurring in the ordinary course of business of H-NET since
the date of the Balance Sheet. Attached as Exhibit 3.9 is a list of all
accounts payable of H-NET. At Closing, H-NET and its subsidiaries will have no
existing debt or liabilities.
Section 3.10 Tax Returns and Payments. H-NET has timely paid all taxes,
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including all federal and state payroll taxes that have become due and payable,
whether or not shown on such tax returns. H-NET has not received any notice of,
nor does H-NET have any knowledge of, any deficiency or assessment of proposed
knowledge of, any deficiency or assessment of proposed deficiency or assessment
from any taxing governmental authority. There are no tax audits pending with
respect to H-NET, and there are no outstanding agreements or waivers by or with
respect to H-NET, that extend the statutory period of limitations applicable to
any federal, state, local or foreign tax returns for any period.
Section 3.11 Absence of Certain Changes or Events. Since the date H-Net's
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most recent Quarterly Report to the SEC, there has not occurred:
(a) any material and adverse change in the financial condition or
operations of H-NET, except it will close or sell its operating subsidiaries
effective on the Closing Date;
(b) any damage, destruction or loss to or of any of the material assets of
properties owned or leased by H-NET;
(c) the creation or attachment of any Lien against H-NET;
(d) any waiver, release, discharge, transfer, or cancellation by H-NET of
any rights or claims of material value;
(e) any issuance by H-NET of any securities above the 1,125,000 shares of
common stock it expects to be issued and outstanding as of the Closing Date, or
any merger or consolidation of H-NET with any other Person, or any acquisition
by H-NET of the business of any other Person. (Set forth in Exhibit 3.3 is a
list of shareholders of H-NET setting forth all of the current shareholders of
H-NET, and the number of shares held by each);
(f) any incurrence, assumption or guarantee by H-NET of any indebtedness
or liability;
(g) any declaration, setting aside or payment by H-NET of any dividends
on, or any other distribution with respect to, any H-NET Shares or any
repurchase, redemption, or other acquisition of any H-NET Shares;
(h) (A) any payment of any bonus, profit sharing, pension or similar
payment or arrangement or special compensation to any employee of H-NET, except
in the ordinary course of the administration of H-NET (which the parties agree
expressly includes Anton and Xxxxxxxxx Xxxxxxxx' employment agreements and
golden parachute payments referenced in section 2.3.4(A) above), or (B) any
increase in the compensation payable to any employee of H-NET; or
(i) the entry by H-NET into any Contract to do any of the foregoing.
Section 3.12 Material H-NET Contracts. As of the date of this Agreement,
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H-NET does not have except as discussed in Exhibit 3.12, (i) contracts
evidencing or relating to any liabilities or obligations of H-NET, whether
absolute, accrued, contingent or otherwise, or granting any Person a Lien
against any properties or assets owned or leased by H-NET; (ii) joint venture or
partnership Contracts between H-NET and any other person; (iii) Contracts
limiting the freedom of H-NET to engage in or to compete in any activity, or to
use or disclose any information in its possession; (iv) any guarantees of
indebtedness for any other entity; and (v) any other Contracts to which H-NET is
a party or by which it or the assets or properties owned or leased by it are
bound or affected that are not set forth on other Exhibits hereto. H-NET has
delivered to DONOBI true and complete copies of each of the Material H-NET
Contracts, including any amendments thereto (or, in the case of oral Material
H-NET Contracts, a memorandum of such contract), and all Material H-NET
Contracts are valid, in full force and effect and enforceable in accordance with
its terms against the parties thereto other than H-NET, and H-NET has fulfilled
when due, or has taken all action necessary to enable it to fulfill when due all
of its obligations thereunder; (ii) there has not occurred any default (without
regard to lapse of time, the giving notice, or the election of any person other
then H-NET, or any combination thereof) by H-NET, nor, to the knowledge of
H-NET, has there occurred any default (without regard to lapse of time, the
giving of notice, or the election of H-NET, or any combination thereof) by any
other person, under any of the Material H-NET Contracts; and (iii) neither H-NET
nor, to the knowledge of H-NET, any other person is in arrears in the
performance or satisfaction of its obligation under any of the Material H-NET
Contracts, and no waiver has been granted by any of the parties thereto.
Section 3.13 Real Property. As of the date of this Agreement, H-NET does
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not own any real property.
Section 3.14 Employees. As of the Closing Date, H-NET will have no
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employees.
Section 3.15 Books and Records. All of the books, records and accounts of
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H-NET are in all material respects true and complete, are maintained in
accordance with good business practice and all applicable Legal Requirements,
accurately present and reflect in all material respects all of the transactions
therein described, and are reflected accurately in the Financial Statements.
H-NET has previously delivered to DONOBI true and complete copies of all the
minutes and meetings and all other actions of the Board of Directors and
Resolutions of Shareholders of H-NET since the date of its formation.
Section 3.16 Certain Interests. None of H-NET or its officers or
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directors, directly or indirectly is, or owns any interest in, or controls, or
is an employee, officer or director or partner of or participant in, or
consultant to, any person which is a competitor, supplier or customer of H-NET.
Section 3.17 Bank Accounts. Exhibit 3.17 sets forth all bank accounts,
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brokerage accounts, and safe deposit boxes of any kind maintained by H-NET and,
in each case, identifies the persons that are authorized signatories for, or
which are authorized to have access to, each of them. Prior to Closing, H-Net
will have closed all existing bank accounts and will provide documentation of
such closure to new management.
Section 3.18 Changes in Circumstances. H-NET has no knowledge of (i) any
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current or future condition or state of facts of circumstances which could
reasonably be expected to result in a material and adverse change in the
financial condition of operations of H-NET, or (ii) any Legal Requirements
currently in effect from which H-NET currently is, or any currently proposed
Legal Requirements from which H-NET would be, except by reason of any
"grandfather" clauses of provisions contained therein, but which would be
applicable to DONOBI following closing.
Section 3.19 Accuracy of Information. None of the written information and
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documents which have been or will be furnished by H-NET or any representatives
of H-NET to DONOBI or any of the representatives of DONOBI in connection with
the transactions contemplated by this Agreement contains or will contain, as the
case may be, any untrue statement of a material fact, or omits or will omit to
state a material fact necessary in order to make the statements therein not
misleading in light of the circumstances in which made. To the knowledge of
H-NET, H-NET has disclosed to DONOBI as the purchaser of H-NET Interests all
material information relating to H-NET and its activities as currently
conducted.
Section 3.20 Resignation of Directors and Officers. H-NET shall deliver
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to DONOBI the resignation of all officers and Directors of H-NET and appointment
of new officers and Directors consisting of the current Board of Directors and
officers of DONOBI, concurrent with and effective upon Closing, such that upon
Closing, the officers and directors of the post-acquisition public entity shall
be as follows:
Xxxxxxx X. Xxxxxx, III, Director, President and CEO
Xxxxx Xxxxx, Director and Chief Financial Officer
Such other officers and directors as DONOBI shall designate in Exhibit
3.20.
Section 3.21 Compliance with ERISA. H-NET does not maintain or
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contribute to any Plan other than as set forth in Exhibit 3.21. H-NET and each
member of the Controlled Group have fulfilled their obligations under the
minimum funding standards of ERISA and the Code with respect to each Plan and
are in compliance in all material respects with the applicable provisions of
ERISA and the Code, and have not incurred any liability to the PBGC or a Plan
under Title IV of ERISA; and no "prohibited transaction" or "reportable event"
(as such terms are defined in ERISA) has occurred with respect to any Plan.
Section 3.22 Environmental Matters.
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(a) H-NET has obtained all permits, licenses and other authorizations
which are required under all Environmental Laws, except to the extent failure to
have any such permit, license or authorization would not have a material adverse
effect on the business, financial condition or operations of H-NET. H-NET is in
compliance with the terms and conditions of all such permits, licenses and
authorizations, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Law or in any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder, except to the extent
failure to comply would not have a material adverse effect on the business,
financial condition or operations of H-NET.
(b) No notice, notification, demand, request for information, citation,
summons or order has been issued, no complaint has been filed, no penalty has
been assessed and no investigation or review is pending or threatened by any
governmental or other entity with respect to any alleged failure by H-NET or any
of its Subsidiaries to have any permit, license or authorization required in
connection with the conduct of its business or with respect to any Environmental
Laws, including, without limitation, Environmental Laws relating to the
generation, treatment storage, recycling, transportation, disposal or release of
any Hazardous Materials.
(c) To the best of H-NET's knowledge, no material oral or written
notification of a release of a Hazardous Material has been filed by or on behalf
of H-NET and no property now or previously owned, leased or used by H-NET is
listed or proposed for listing on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, or on any similar state list of sites requiring investigation or
clean-up.
(d) There are no liens or encumbrances arising under or pursuant to any
Environmental Laws on any of the real property or properties owned, leased or
used by H-NET and no governmental actions have been taken or are in process
which could subject any of such properties to such liens or encumbrances or, as
a result of which H-NET would be required to place any notice or restriction
relating to the presence of Hazardous Materials at any property owned by it in
any deed to such property.
(e) Neither H-NET nor, to the best knowledge of H-NET, any previous owner,
tenant, occupant or user of any property owned, leased or used by H-NET has (i)
engaged in or permitted any operations or activities upon or any use or
occupancy of such property, or any portion thereof, for the purpose of or in any
way involving the handling, manufacture, treatment, storage, use, generation,
release, discharge, refining, dumping or disposal (whether legal or illegal,
accidental or intentional) of any Hazardous Materials on, under, in or about
such property, except in compliance with all Environmental Laws, or (ii)
transported any Hazardous Materials to, from or across such property except in
compliance with all Environmental Laws; nor to the best knowledge of H-NET have
any Hazardous Materials migrated from other properties upon, about or beneath
such property, nor, to the best knowledge of H-NET, are any Hazardous Materials
presently constructed, deposited, stored or otherwise located on, under, in or
about such property except in compliance with all Environmental Laws.
Section 3.23 Omitted intentionally.
Section 3.24 Franchises, Patents, Copyrights, Etc. Exhibit 3.24 sets
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forth an accurate and complete list of all franchises, patents, copyrights,
trademarks, trade names, trademark registrations, service names, service marks,
licenses, formulas and applications therefore owned by H-NET or used or required
by H-NET in the operation of its business, title to each of which is, except as
set forth in Exhibit 3.24 hereto, held by H-NET free and clear of all adverse
claims, liens, security agreements, restrictions or other encumbrances. Except
as set forth in Exhibit 3.24, H-NET owns or possesses adequate (and will use its
best efforts to obtain as expediently as possible any additional) licenses or
other rights to use all patents, trademarks, trade names, service marks, trade
secrets or other intangible property rights and know-how necessary to entitle
H-NET to conduct its business as presently being conducted. There is no
infringement action, lawsuit, claim or complaint which asserts that H-NET's
operations violate or infringe the rights or the trade names, trademarks,
trademark registrations, service names, service marks or copyrights of others
with respect to any apparatus or method of H-NET or any adversely held
trademarks, trade names, trademark registrations, service names, service marks
or copyrights, and H-NET is not in any way making use of any confidential
information or trade secrets of any person, except with the consent of such
person. Except as set forth in Exhibit 3.24, H-NET has taken reasonable steps
to protect its proprietary information (except disclosure of source codes
pursuant to licensing agreements) and is the lawful owner of the proprietary
information free and clear of any claim of any third party. H-NET's proprietary
rights are adequate for the conduct of its business substantially as now
conducted without known conflict with any rights of others.
Section 3.25 No Materially Adverse Contracts, Etc. H-NET is not
----------------------------------------
subject to any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation that has or is expected in the future to have
a materially adverse effect on the business, assets or financial condition of
H-NET. H-NET is not a party to any contract or agreement that has or is
expected, in the judgment of H-NET's officers, to have any materially adverse
effect on the business of H-NET.
Section 3.26 Compliance With Other Instruments, Laws, Etc. H-NET is
-------------------------------------------------
not in violation of any provision of its certificate of incorporation, by-laws,
or any agreement or instrument to which it may be subject or by which it or any
of its properties may be bound, or any decree, order, judgment, statute,
license, rule or regulation, in any of the foregoing cases in a manner that
could result in the imposition of substantial penalties or materially and
adversely affect the financial condition, properties or business of H-NET.
Section 3.27 Absence of UCC Financing Statements, Etc. There is no
---------------------------------------------
financing statement, security agreement, chattel mortgage, real estate mortgage
or other document filed or recorded with any filing records, registry, or other
public office, that purports to cover, affect or give notice of any present or
possible future lien on, or security interest in, any Collateral or rights
thereunder.
Section 3.28 Certain Transactions. Except as set forth in Exhibit
---------------------
3.28, none of the officers, trustees, directors, or employees of H-NET is
presently a party to any transaction with H-NET, including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, trustee, director or such employee
or, to the knowledge of H-NET, any corporation, partnership, trust or other
entity in which any officer, trustee, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
Section 3.29 Fees/Commissions. Except as set forth in Exhibit 3.29,
----------------
H-NET has not agreed to pay any finder's fee, commission, origination fee or
other fee or charge to any Person with respect to the transactions contemplated
hereunder.
Section 3.30 Employees. H-NET has no current labor problems or
---------
disputes which have resulted in, or are reasonably believed by H-NET could have,
a material adverse effect on the operations, properties or financial condition
of H-NET.
Section 3.31 Other Representations and Warranties. All representations,
--------------------------------------
warranties, and covenants made by H-NET in connection with this transaction are
true and correct in all material respects, and do not omit to state a material
fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF DONOBI
H-NET represents and warrants to DONOBI, as of the date of this Agreement
and as of Closing, as follows:
Section 4.1 Organization and Qualification of DONOBI. DONOBI is a
--------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the State of Washington, and has all requisite corporate power and
authority to own and lease the properties and assets it currently owns and
leases and to conduct its activities as currently conducted. DONOBI is duly
qualified to do business as a foreign corporation in all jurisdictions in which
the ownership or leasing of the properties and assets owned or leased by it or
the nature of its activities makes such qualification necessary.
Section 4.2 Authority. DONOBI has all requisite corporation and authority
---------
to execute, deliver and perform this Agreement. The execution, delivery, and
performance of this Agreement by DONOBI have been duly and validly authorized by
all necessary action on the part of DONOBI. This Agreement has been duly and
validly executed and delivered by DONOBI and is the valid and binding obligation
of DONOBI, enforceable against DONOBI in accordance with its terms.
Section 4.3 No Conflicts; Required Consents. The execution, delivery and
-------------------------------
performance by DONOBI of this Agreement does not and will not: (i) conflict with
or violate any provisions of the articles of incorporation or bylaws of DONOBI;
(ii) violate any provisions of any Legal Requirements; or (iii) conflict with,
violate result in a breach of, constitute a default under (without regard to
requirements of notice, lapse of time, or elections of other persons, or any
combination thereof) or accelerate or permit the acceleration of the performance
required by, and Contract or Lien to which DONOBI is a party or by which DONOBI
or the assets or properties owned or leased by it are bound or affected; or (iv)
require any consent, approval or authorization, report or other document with,
any Governmental Authority or other person.
Section 4.4. Compliance with Applicable Legal Requirements. Conduct by
-----------------------------------------------
DONOBI of its activities as currently conducted does not violate or infringe any
Legal Requirements currently in effect, or, to the knowledge of DONOBI, proposed
to become effective; and DONOBI has received no notice of any violation by
DONOBI, of any Legal Requirements applicable to DONOBI or its activities as
currently conducted; and DONOBI knows of no basis for the allegation of any such
violation.
Section 4.5 Validity and Ownership and Shareholders of DONOBI. The DONOBI
-------------------------------------------------
Common Stock received by H-NET at Closing in exchange for the H-NET Shares will
be validly issued and outstanding, fully paid and non-assessable. The
Shareholders set forth on Exhibit 4.5 own the DONOBI Shares shown thereon,
beneficially and of record, free and clear of all liens. The DONOBI Shares are
not subject to, or bound or affected by, any proxies, voting agreements, or
other restrictions on the incidents of ownership thereof. There are not, and
will not be at Closing, more than one hundred Shareholders of DONOBI stock, each
of which has approved (or will have approved by the time of Closing) this
Agreement by executing the signature page hereof and tendering said DONOBI
Shares for exchange with H-NET Shares.
Section 4.6 Subsidiaries. DONOBI has no subsidiaries.
------------
Section 4.7 Capitalization of DONOBI. The authorized capital stock of
--------------------------
DONOBI consists of 100 million duly authorized shares of common stock $.001 per
share par value, of which [shares of DONOBI outstanding] are validly issued and
outstanding, fully paid and nonassessable. There are no other authorized or
outstanding subscriptions, options, convertible securities, warrants, calls or
other rights or any kind issued or granted by, or binding upon, DONOBI to
purchase or otherwise acquire any securities of or equity interest in DONOBI.
Section 4.8 Litigation. Except as disclosed in Exhibit 4.8, there is no
----------
litigation pending or, to DONOBI's knowledge, threatened, by or before any
governmental authority or private arbitration tribunal, against DONOBI or its
operations, nor, to DONOBI's knowledge, is there any basis for any such
litigation.
Section 4.9 Financial Statements. DONOBI represents and warrants that its
--------------------
most current financial statements, attached as Exhibit 4.9, represent a true and
accurate statement of the financial condition of DONOBI as of the dates on such
statements, and that they are free from material misstatement or omission.
Section 4.10 Liabilities. Except as disclosed in Exhibit 4.10, DONOBI has
-----------
no liabilities or obligations, whether absolute, accrued, contingent, or
otherwise that have not been disclosed to DONOBI.
Section 4.11 Tax Returns and Payments. Except as disclosed in Exhibit
---------------------------
4.11, DONOBI has filed all federal, state, local and foreign tax returns
required to be filed, and has timely paid all taxes that have become due and
payable, whether or not so shown on any such tax returns. DONOBI has not
received any notice of, nor does DONOBI have any knowledge of, any deficiency or
assessment of proposed knowledge of, any deficiency or assessment of proposed
deficiency or assessment from any taxing governmental authority. There are no
tax audits pending with respect to DONOBI, and there are no outstanding
agreements or waivers by or with respect to DONOBI, that extend the statutory
period of limitations applicable to any federal, state, local or foreign tax
returns for any period. DONOBI makes no representation or warranty concerning
whether or not its net operating loss carryforwards will be available for use by
H-NET following this transaction.
Section 4.12 Books and Records. All of the books, records and accounts of
-----------------
DONOBI are in all material respects true and complete, are maintained in
accordance with good business practice and all applicable Legal Requirements,
accurately present and reflect in all material respects all of the transactions
therein described, and are reflected accurately in the Financial Statements.
DONOBI has previously delivered to H-NET the complete stock record book of
DONOBI and true and complete copies of all the minutes and meetings and all
other corporate actions of the stockholders, Board of Directors and committees
of the Board of Directors of DONOBI since the date of its incorporation.
Section 4.13 Accuracy of Information. None of the written information and
-----------------------
documents which have been or will be furnished by DONOBI or any representatives
of DONOBI to H-NET or any of the representatives of H-NET in connection with the
transactions contemplated by this Agreement contains or will contain, as the
case may be, any untrue statement of a material fact, or omits or will omit to
state a material fact necessary in order to make the statements therein not
misleading in light of the circumstances in which made. To the knowledge of
DONOBI, DONOBI has disclosed to H-NET as the purchaser of DONOBI common stock
all material information relating to DONOBI and its activities.
Section 4.14 Absence of Certain Changes or Events. Since the date DONOBI's
------------------------------------
most recent financial statements as set forth in Section 4.9, there has not
occurred:
(a) any material and adverse change in the financial condition or
operations of DONOBI;
(b) any damage, destruction or loss to or of any of the material assets of
properties owned or leased by DONOBI;
(c) the creation or attachment of any Lien against DONOBI, except in the
ordinary course of business;
(d) any waiver, release, discharge, transfer, or cancellation by DONOBI of
any rights or claims of material value, except in the ordinary course of
business;
(e) any issuance by DONOBI of any securities except as set forth in
Section 4.7, above;
(f) any incurrence, assumption or guarantee by DONOBI of any indebtedness
or liability, except in the ordinary course of business;
(g) any declaration, setting aside or payment by DONOBI of any dividends
on, or any other distribution with respect to, any DONOBI Shares or any
repurchase, redemption, or other acquisition of any DONOBI Shares; or
(h) the entry by DONOBI into any Contract to do any of the foregoing.
Section 4.15 Material DONOBI Contracts. As of the date of this Agreement,
-------------------------
DONOBI does not have except as discussed in Exhibit 4.15, (i) contracts
evidencing or relating to any liabilities or obligations of DONOBI, whether
absolute, accrued, contingent or otherwise, or granting any Person a Lien
against any properties or assets owned or leased by DONOBI; (ii) joint venture
or partnership Contracts between DONOBI and any other person; (iii) Contracts
limiting the freedom of DONOBI to engage in or to compete in any activity, or to
use or disclose any information in its possession; (iv) any guarantees of
indebtedness for any other entity; and (v) any other Contracts to which DONOBI
is a party or by which it or the assets or properties owned or leased by it are
bound or affected that are not set forth on other Exhibits hereto. DONOBI has
delivered to H-NET true and complete copies of each of the Material DONOBI
Contracts, including any amendments thereto (or, in the case of oral Material
DONOBI Contracts, a memorandum of such contract), and all Material DONOBI
Contracts are valid, in full force and effect and enforceable in accordance with
its terms against the parties thereto other than DONOBI, and DONOBI has
fulfilled when due, or has taken all action necessary to enable it to fulfill
when due all of its obligations thereunder; (ii) there has not occurred any
default (without regard to lapse of time, the giving notice, or the election of
any person other then DONOBI, or any combination thereof) by DONOBI, nor, to the
knowledge of DONOBI, has there occurred any default (without regard to lapse of
time, the giving of notice, or the election of DONOBI, or any combination
thereof) by any other person, under any of the Material DONOBI Contracts; and
(iii) neither DONOBI nor, to the knowledge of DONOBI, any other person is in
arrears in the performance or satisfaction of its obligation under any of the
Material DONOBI Contracts, and no waiver has been granted by any of the parties
thereto.
Section 4.16 Employees. As of the Closing Date, DONOBI will have 22
---------
employees.
Section 4.17 Certain Interests. None of DONOBI or its officers or
------------------
directors, directly or indirectly is, or owns any interest in, or controls, or
is an employee, officer or director or partner of or participant in, or
consultant to, any person which is a competitor, supplier or customer of DONOBI.
Section 4.18 Bank Accounts. Exhibit 4.18 sets forth all bank accounts,
--------------
brokerage accounts, and safe deposit boxes of any kind maintained by DONOBI and,
in each case, identifies the persons that are authorized signatories for, or
which are authorized to have access to, each of them.
Section 4.19 Changes in Circumstances. DONOBI has no knowledge of (i) any
------------------------
current or future condition or state of facts or circumstances which could
reasonably be expected to result in a material and adverse change in the
financial condition of operations of DONOBI, or (ii) any Legal Requirements
currently in effect from which DONOBI currently is, or any currently proposed
Legal Requirements from which DONOBI would be, except by reason of any
"grandfather" clauses of provisions contained therein, but which would be
applicable to DONOBI following closing.
Section 4.20 Omitted intentionally.
Section 4.21 Compliance with ERISA. DONOBI does not maintain or contribute
---------------------
to any Plan other than as set forth in Exhibit 4.21. DONOBI and each member of
the Controlled Group have fulfilled their obligations under the minimum funding
standards of ERISA and the Code with respect to each Plan and are in compliance
in all material respects with the applicable provisions of ERISA and the Code,
and have not incurred any liability to the PBGC or a Plan under Title IV of
ERISA; and no "prohibited transaction" or "reportable event" (as such terms are
defined in ERISA) has occurred with respect to any Plan.
Section 4.22 Environmental Matters.
----------------------
(a) DONOBI has obtained all permits, licenses and other authorizations
which are required under all Environmental Laws, except to the extent failure to
have any such permit, license or authorization would not have a material adverse
effect on the business, financial condition or operations of DONOBI. DONOBI is
in compliance with the terms and conditions of all such permits, licenses and
authorizations, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Law or in any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder, except to the extent
failure to comply would not have a material adverse effect on the business,
financial condition or operations of DONOBI.
(b) No notice, notification, demand, request for information, citation,
summons or order has been issued, no complaint has been filed, no penalty has
been assessed and no investigation or review is pending or threatened by any
governmental or other entity with respect to any alleged failure by DONOBI or
any of its Subsidiaries to have any permit, license or authorization required in
connection with the conduct of its business or with respect to any Environmental
Laws, including, without limitation, Environmental Laws relating to the
generation, treatment storage, recycling, transportation, disposal or release of
any Hazardous Materials.
(c) To the best of DONOBI's knowledge, no material oral or written
notification of a release of a Hazardous Material has been filed by or on behalf
of DONOBI and no property now or previously owned, leased or used by DONOBI is
listed or proposed for listing on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, or on any similar state list of sites requiring investigation or
clean-up.
(d) There are no liens or encumbrances arising under or pursuant to any
Environmental Laws on any of the real property or properties owned, leased or
used by DONOBI, and no governmental actions have been taken or are in process
which could subject any of such properties to such liens or encumbrances or, as
a result of which DONOBI would be required to place any notice or restriction
relating to the presence of Hazardous Materials at any property owned by it in
any deed to such property.
(e) Neither DONOBI nor, to the best knowledge of DONOBI, any previous
owner, tenant, occupant or user of any property owned, leased or used by DONOBI
has (i) engaged in or permitted any operations or activities upon or any use or
occupancy of such property, or any portion thereof, for the purpose of or in any
way involving the handling, manufacture, treatment, storage, use, generation,
release, discharge, refining, dumping or disposal (whether legal or illegal,
accidental or intentional) of any Hazardous Materials on, under, in or about
such property, except in compliance with all Environmental Laws, or (ii)
transported any Hazardous Materials to, from or across such property except in
compliance with all Environmental Laws; nor to the best knowledge of DONOBI have
any Hazardous Materials migrated from other properties upon, about or beneath
such property, nor, to the best knowledge of DONOBI, are any Hazardous Materials
presently constructed, deposited, stored or otherwise located on, under, in or
about such property except in compliance with all Environmental Laws.
Section 4.23. Omitted intentionally.
Section 4.24 Franchises, Patents, Copyrights, Etc. Exhibit 4.24 sets forth
------------------------------------
an accurate and complete list of all franchises, patents, copyrights,
trademarks, trade names, trademark registrations, service names, service marks,
licenses, formulas and applications therefore owned by DONOBI or used or
required by DONOBI in the operation of its business, title to each of which is,
except as set forth in Exhibit 4.24 hereto, held by DONOBI free and clear of all
adverse claims, liens, security agreements, restrictions or other encumbrances.
Except as set forth in Exhibit 4.24, DONOBI owns or possesses adequate (and will
use its best efforts to obtain as expediently as possible any additional)
licenses or other rights to use all patents, trademarks, trade names, service
marks, trade secrets or other intangible property rights and know-how necessary
to entitle DONOBI to conduct its business as presently being conducted. There is
no infringement action, lawsuit, claim or complaint which asserts that DONOBI's
operations violate or infringe the rights or the trade names, trademarks,
trademark registrations, service names, service marks or copyrights of others
with respect to any apparatus or method of DONOBI or any adversely held
trademarks, trade names, trademark registrations, service names, service marks
or copyrights, and DONOBI is not in any way making use of any confidential
information or trade secrets of any person, except with the consent of such
person. Except as set forth in Exhibit 4.24, DONOBI has taken reasonable steps
to protect its proprietary information (except disclosure of source codes
pursuant to licensing agreements) and is the lawful owner of the proprietary
information free and clear of any claim of any third party. DONOBI's proprietary
rights are adequate for the conduct of its business substantially as now
conducted without known conflict with any rights of others.
Section 4.25 No Materially Adverse Contracts, Etc. DONOBI is not subject
------------------------------------
to any charter, corporate or other legal restriction, or any judgment, decree,
order, rule or regulation that has or is expected in the future to have a
materially adverse effect on the business, assets or financial condition of
DONOBI. DONOBI is not a party to any contract or agreement that has or is
expected, in the judgment of DONOBI's officers, to have any materially adverse
effect on the business of DONOBI.
Section 4.26 Compliance With Other Instruments, Laws, Etc. DONOBI is not
------------------------------------------------
in violation of any provision of its certificate of incorporation, by-laws, or
any agreement or instrument to which it may be subject or by which it or any of
its properties may be bound, or any decree, order, judgment, statute, license,
rule or regulation, in any of the foregoing cases in a manner that could result
in the imposition of substantial penalties or materially and adversely affect
the financial condition, properties or business of DONOBI.
Section 4.27 Absence of UCC Financing Statements, Etc. Except as set forth
----------------------------------------
in Exhibit 4.28, there is no financing statement, security agreement, chattel
mortgage, real estate mortgage or other document filed or recorded with any
filing records, registry, or other public office, that purports to cover, affect
or give notice of any present or possible future lien on, or security interest
in, any Collateral or rights thereunder.
Section 4.28 Certain Transactions. Except as set forth in Exhibit 4.28,
---------------------
none of the officers, trustees, directors, or employees of DONOBI is presently a
party to any transaction with DONOBI, including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, trustee, director or such employee or, to the knowledge
of DONOBI, any corporation, partnership, trust or other entity in which any
officer, trustee, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
Section 4.29 Fees/Commissions. Except as set forth in Exhibit 4.29, DONOBI
----------------
has not agreed to pay any finder's fee, commission, origination fee or other fee
or charge to any Person with respect to the transactions contemplated hereunder.
Section 4.30 Employees. DONOBI has no current labor problems or disputes
---------
which have resulted in, or are reasonably believed by DONOBI could have, a
material adverse effect on the operations, properties or financial condition of
DONOBI.
Section 4.31 Other Representations and Warranties. All representations,
--------------------------------------
warranties, and covenants made by DONOBI in connection with this transaction are
true and correct in all material respects, and do not omit to state a material
fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading.
ARTICLE 5
COVENANTS OF H-NET AND DONOBI
Section 5.1 Affirmative Covenants of H-NET. Except as DONOBI may
---------------------------------
otherwise consent in writing, between the date of this Agreement and Closing,
H-NET shall:
(a) conduct its business only in the usual, regular and ordinary course
and in accordance with past practices;
(b) (1) duly comply with all applicable Legal Requirements; (2) perform
all of its obligations under all H-NET Contacts without default; and (3)
maintain its books, records, and accounts on a basis consistent with past
practices;
(c) (1) give to DONOBI its counsel, accountants and other representatives
reasonable access during normal business hours to the premises of H-NET, all of
the assets and properties owned or leased by H-NET, H-NET's books and records,
and H-NET's personnel; (2) furnish to DONOBI and such representatives all such
additional documents (certified by an officer of H-NET, if requested), financial
information and other information as H-NET may from time to time reasonably
request and (3) cause H-NET's accountants to permit DONOBI and its accountant(s)
to examine the records and working papers pertaining to H-NET's financial
statements' provided that no investigation by H-NET of its representatives will
affect or limit the scope of any of the representations and warranties of H-NET
herein or in any other related document;
(d) use of best efforts to obtain in writing as promptly as possible all
approvals and consents required to be obtained by H-NET in order to consummate
the transactions contemplated hereby and deliver to DONOBI copies, satisfactory
in form and substance to H-NET, of such approvals and consents;
(e) promptly deliver to DONOBI true and complete copies of all monthly and
quarterly financial statements of H-NET and any reports with respect to the
activities of H-NET which are prepared by or for H-NET at any time from the date
hereof until Closing; and
(f) promptly notify DONOBI of any circumstances, event or action, by H-NET
or otherwise, (A) which, if known at the date of this Agreement, would have been
required to be disclosed in or pursuant to this Agreement, or (B) the existence,
occurrence or taking of which would result in any of the representations and
warranties of H-NET in this Agreement or in any Transaction Documents not being
true and correct in all material respects.
Section 5.2 Negative Covenants of H-NET. Except as DONOBI may otherwise
----------------------------
consent in writing, between the date of this Agreement and Closing, H-NET shall
not:
(a) change the character of its business, except that H-Net plans to close
its operating businesses with the intent of reducing overhead and transitioning
H-NET for purposes of the DONOBI acquisition, without at any time becoming a
blank check company;
(b) incur any liability or obligation or enter into any Contract except,
in each case, in the ordinary course of business consistent with prior practices
and not prohibited by any other provision hereof;
(c) incur, assume or guarantee any indebtedness or liability in respect of
borrowed money;
(d) make any capital expenditure or commitment for capital expenditure
exceeding $5,000 for a single project or $10,000 for all projects, whether or
not in the ordinary course of business, or waive, lease, discharge, transfer or
cancel any rights or claims of material value;
(e) modify, terminate, or abrogate any Material H-NET Contact other than
in the ordinary course of business, or waive, lease, discharge, transfer or
cancel any rights or claims of material value;
(f) create or permit the creation or attachment of any Lien against any of
the assets or properties owned or leased by it;
(g) except as otherwise required by this Agreement, prepay any material
liabilities or obligations;
(h) issue any securities above the amount of 36,000,000 shares of common
stock previously disclosed, or merge or consolidate with any other person or
acquire any of the securities, partnership or joint venture interests, or
business of any other person;
(i) declare, set aside or pay any dividends on, or make any other
distribution with respect to, any of its capital stock, or repurchase, redeem,
or otherwise acquire any of its capital stock; and
(j) enter into any transaction or permit the taking of any action that
would result in any of the representations and warranties in this Agreement not
being true and correct in all material respects at Closing.
Section 5.3 Covenants of DONOBI. Except as H-NET may otherwise agree in
--------------------
writing, between the date of this Agreement and Closing, DONOBI shall:
(a) use it best efforts to obtain in writing as promptly as possible all
approvals and consents required to be obtained by DONOBI in order to consummate
the transaction contemplated hereby and deliver to H-NET copies, satisfactory in
form and substance to H-NET, of such approvals and consents;
(b) promptly notify H-NET of any circumstance, event or action, by DONOBI
or otherwise, (i) which, if known at the date of this Agreement, would have been
required to be disclosed in or pursuant to this Agreement, or (ii) the
existence, occurrence or taking of which would result in any of the
representations and warranties of DONOBI in this Agreement or in any Transaction
Document not being true and correct in all material respects;
(c) undertake all other actions necessary to put into force and effect
this Agreement.
Section 5.4 Joint Undertakings. Each of H-NET and DONOBI shall cooperate
------------------
and exercise commercially reasonable efforts to facilitate the consummation of
the transactions contemplated by this Agreement so as to permit Closing to take
place on the date provided herein and to satisfy the conditions to Closing set
forth in Article 6. Both parties hereto agree that they will use their best
efforts to cause a Form 8-K and an amended Form 8-K, if necessary, to be timely
filed with the Securities and Exchange Commission concerning this transaction,
which Form 8-K (and any amendment if necessary) will require audited financial
statements for DONOBI and pro forma financial information for the companies as
merged.
Section 5.5 Confidentiality.
---------------
(a) Any non-public information that H-NET may obtain from DONOBI in
connection with this Agreement, including but not limited to information
concerning trade secrets, licenses, research projects, costs, profits, markets,
sales, customer lists, strategies, plans for future development and any other
information of a similar nature, shall be deemed confidential and, unless and
until Closing shall occur, H-NET shall not disclose any such information to any
third party (other than its directors, officers and employees and persons whose
knowledge thereof is necessary to facilitate the consummation of the
transactions contemplated hereby) or use such information to the detriment of
DONOBI; provided that (i) H-NET may use and disclose any such information once
it has been publicly disclosed (other than by H-NET in breach of its obligations
under this Section) or which rightfully has come into the possession of H-NET
(other than from DONOBI) and (ii) to the extent that H-NET may become complied
by Legal Requirements to disclose any of such information, H-NET may disclose
such information if it shall have used all reasonable efforts, and shall have
afforded DONOBI the opportunity to obtain an appropriate protective order, or
other satisfactory assurance of confidential treatment for the protective order,
or other satisfactory assurance of confidential treatment, for the information
compelling to be disclosed. In the event of termination of this Agreement, H-NET
shall use all reasonable efforts to cause to be delivered to DONOBI, and retain
no copies of, any documents, work papers and other materials obtained by H-NET
or on its behalf from DONOBI, whether so obtained before or after the execution
hereof.
(b) Any non-public information that DONOBI may obtain from H-NET in
connection with this Agreement, including but not limited to information
concerning trade secrets, licenses, research projects, costs, profits, markets,
sales, customer lists, strategies, plans for future development and any other
information of a similar nature, shall be deemed confidential and, unless and
until Closing shall occur, DONOBI shall not disclose any such information to any
third party (other than its directors, officers and employees, and persons whose
knowledge thereof is necessary to facilitate the consummation of the
transactions contemplated hereby) or use such information to the detriment of
H-NET; provided that (i) DONOBI may use and disclose any such information once
it has been publicly disclosed (other than by DONOBI in breach of obligations
under this Section) or which rightfully has come into the possession of DONOBI
(other than from H-NET) and (ii) to the extent that DONOBI may become complied
by Legal Requirements to disclose any of such information, DONOBI may disclose
such information if it shall have used all reasonable efforts, and shall have
afforded H-NET the opportunity, to obtain an appropriate protective order, or
other satisfactory assurance of confidential treatment, for the information
compelled to be disclosed. In the event of termination of this Agreement,
DONOBI shall use all reasonable efforts to cause to be delivered to H-NET, and
retain no copies of, any documents, work papers and other materials obtained by
DONOBI or on its behalf from H-NET, whether so obtained before or after the
execution hereof.
Section 5.6 Publicity. H-NET and DONOBI shall each consult with and
---------
obtain the consent of the other before issuing any press release or making any
other public disclosure concerning this Agreement or the transactions
contemplated hereby unless, in the reasonable judgment of the disclosing party,
a release or disclosure is required to discharge its disclosure obligations
under applicable legal requirements, in which case it shall in good faith
consult with the other party about the form, content and timing of such release
or disclosure prior to its release of disclosure.
ARTICLE 6
CONDITIONS PRECEDENT
Section 6.1 Conditions to DONOBI's Obligations. The obligations of
----------------------------------
DONOBI to consummate the transactions contemplated by this Agreement are subject
to the following conditions:
(a) Accuracy of Representations. The representations of H-NET in this
Agreement or in any Transaction Document shall be true and accurate in all
material respects at and as of Closing with the same effect as if made at and as
of Closing, except as affected by the transactions contemplated hereby.
(b) Performance of Agreements. H-NET shall have performed all obligations
and agreements and complied with all covenants in this Agreement to be performed
and complied with by it at or before Closing, including delivery of accurate and
complete Exhibits to this Agreement.
(c) Officer's Certificate. DONOBI shall have received a certificate
executed by an executive officer of H-NET, dated as of Closing, reasonably
satisfactory in form and substance to DONOBI certifying that the conditions
stated in subparagraphs (a) and (b) of this Section have been satisfied.
(d) Legal Proceedings. There shall be no Legal Requirement, and no
judgment shall have been entered and not vacated by any governmental authority
of competent jurisdiction and no litigation shall be pending which restrains,
makes illegal or prohibits consummation of the transactions contemplated hereby.
(e) Consents. DONOBI shall have obtained evidence, in form and substance
satisfactory to it, that there have been obtained all consents, approvals and
authorizations required by this Agreement.
(f) Legal Matters Satisfactory to DONOBI's Counsel. All actions,
proceedings, instruments and documents required to carry out the transactions
contemplated by this Agreement or incidental thereto and all related matters
shall be reasonably satisfactory to and approved by DONOBI's counsel, and such
counsel shall have been furnished with such certified copies of actions and
proceedings and such other instruments and documents as it shall have reasonably
requested.
(g) Opinion of Counsel Concerning Organization and Transaction. DONOBI
shall have received from counsel for H-NET, a favorable opinion addressed to
DONOBI and dated as of the Closing Date, satisfactory in form and content to
DONOBI, concerning the organization of H-Net and this transaction. The parties
have agreed that DONOBI, at its own expense, shall retain an attorney licensed
to practice law in the State of Colorado ("Colorado counsel") for the purpose of
rendering an opinion under Colorado Law regarding the organization and
transaction. Said counsel shall be retained for the purpose of rendering this
opinion and shall be engaged as DONOBI's special counsel for this purpose only.
Section 6.2 Conditions to H-NET's Obligations. The obligations of H-NET
---------------------------------
to consummate the transactions contemplated by this Agreement are subject to the
following conditions:
(a) Accuracy of Representations. The representations of DONOBI in this
Agreement or in any Transaction Document shall be true and accurate (in all
material respects) at and as of Closing with the same effect as if they were
made at and as of Closing, except as afforded by the transactions contemplated
hereby.
(b) Performance of Agreements. DONOBI shall have performed all obligations
and agreements and complied with all covenants in this Agreement or in any
Transaction Document to which it is a party to be performed and complied with by
it, at or before Closing, including delivery of accurate and complete Exhibits
to this Agreement.
(c) Officer's Certificate. H-NET shall have received a certificate
executed by an executive officer of DONOBI, dated as of Closing, reasonably
satisfactory in form and substance to H-NET, certifying that the conditions
stated in subparagraphs (a) and (b) of this Section have been satisfied.
(d) Legal Proceedings. There shall be no Legal Requirement, and no
judgment shall have been entered and not created by any governmental authority
of competent jurisdiction and no litigation shall be pending which restrains,
makes illegal or prohibits consummation of the transactions contemplated hereby.
(e) Consents. H-NET shall have obtained evidence, in form and substance
satisfactory to it, that there have been obtained all consents, approvals and
authorizations required by this Agreement.
(f) Legal Matters Satisfactory to H-NET's Counsel. All actions,
proceedings, instruments and documents required to carry out the transactions
contemplated by this Agreement or incidental thereto and all related legal
matters shall be reasonably satisfactory to and approved by H-NET's counsel, and
such counsel shall have been furnished with such copies of actions and
proceedings and such other instruments and documents as it shall have reasonably
requested.
(g) Opinion of Counsel Concerning Organization and Transaction. H-NET
shall have received from counsel for DONOBI a favorable opinion addressed to
H-NET and dated as of the Closing Date, satisfactory in form and content to
H-NET, concerning this transaction under federal securities laws, and the
organization of DONOBI.
ARTICLE 7
INDEMNIFICATION
Section 7.1 Indemnification by DONOBI. From and after Closing, DONOBI's
--------------------------
Shareholders set forth in Exhibit 7, who together with their subsidiaries, other
affiliates, and immediate families, are all the holders of DONOBI Shares (the
DONOBI Shareholders) all jointly and severally indemnify and hold harmless
H-NET, its officers, directors, employees, agents and representatives and any
person claiming by or through any of them, from and against any and all losses
and related expenses arising out of or resulting from:
(a) any representations and warranties of DONOBI in this Agreement not
being true and accurate when made or when required by this Agreement to be true
and accurate; or
(b) any failure by DONOBI to perform any of its covenants, agreements or
obligations in this Agreement.
Section 7.2 Indemnification by H-NET. From and after the Closing, H-NET
-------------------------
shall indemnify and hold harmless DONOBI, its officers, directors, agents and
representatives, and any person claiming by or through any of them as the case
my be, from and against any and all losses and related expenses arising out of
or resulting from:
(a) any representations and warranties of H-NET in this Agreement not
being true and accurate when made or when required by this Agreement to be true
and accurate; or
(b) any failure by H-NET to perform any of its covenants, agreements or
obligations in this Agreement.
(c) all undisclosed liabilities and obligations relating to, or arising
out of activities of H-NET during periods prior to Closing.
Section 7.3 Indemnification of H-Net and its Officers for Reverse Split.
------------------------------------------------------------
H-Net and its officers and directors have performed a 32:1 reverse stock split
which was approved by the H-NET shareholders on December 22, 2003 and will be
effective prior to Closing. DONOBI agrees to bind itself and the
post-acquisition public entity obtained by this Agreement, jointly and
severally, to indemnify, defend, and hold harmless H-Net and its officers and
directors from any liability arising from or relating to the performance of the
reverse stock split approved on December 22, 2003.
Section 7.4 Indemnification Against Third Party Claims. A person claiming
------------------------------------------
a right to indemnification hereunder (the "Indemnitee") shall, promptly after
receiving written notice of any claim or the commencement of any Litigation with
respect to any matter referred to in Sections 7.1, 7.2, or 7.3, give written
notice thereof to the person from whom indemnification is sought (the
"Indemnitor") and thereafter shall take reasonable steps to keep the Indemnitor
informed about such claim. Failure of the Indemnitee to give the Indemnitor
notice as provided herein shall not relieve the Indemnitor of its obligations
hereunder. If any litigation is brought against any Indemnitee, the Indemnitor
shall be entitled to participate in (and at the request of the Indemnitee shall
assume) the defense thereof with counsel satisfactory to Indemnitee at the
Indemnitor's expense. If the Indemnitor, at the Indemnitee's request, shall
assume the defense, any settlement shall, without exception, include
plaintiff/claimant's release of Indemnitee from all liability with respect to
such litigation, in a form satisfactory to the Indemnitee.
Section 7.5 Time and Manner of Certain Claims. The representations and
-----------------------------------
warranties of H-NET and DONOBI in this Agreement shall survive Closing;
provided, however, that neither H-NET nor DONOBI shall have any liability under
Section 7.1 or 7.2, respectively, unless a claim is asserted by the party
seeking indemnification thereunder by written notice to the party from whom
indemnification is sought within three years after Closing, and such party
commences litigation seeking such indemnification within 180 days following the
date of such notice.
Section 7.5 Effect of de minimus Damage on Indemnity by Principal
-------------------------------------------------------------
Shareholders. The Members shall have no indemnity obligations under this
------------
Article 7 unless aggregate amount payable by them under this Article 7 is in
excess of $10,000.
Section 7.6 Tax Effect. In calculating amount payable to an Indemnitee
-----------
hereunder (i) the amount of the indemnified losses shall be reduced by the
amount of any reduction in the Indemnitee's liability for taxes resulting from
the facts or occurrence giving rise to the indemnified losses; and (ii) the
amount of the indemnified losses shall be grossed up by the amount of any
increase in liability for taxes resulting from indemnification with respect
thereto.
ARTICLE 8
TERMINATION
Section 8.1 Termination Events. This Agreement may be terminated and the
------------------
transactions contemplated hereby may be abandoned:
(a) at any time before Closing, by the mutual agreement of H-NET and
DONOBI.
(b) by either H-NET and DONOBI, if the other is in material breach or
default of its respective covenants, agreements or other obligations hereunder
or if any of its representations and warranties herein are not true and accurate
in all material respects when made or when otherwise required by this Agreement
to be true and accurate.
Section 8.2 Effect of Termination. If this Agreement shall be terminated,
---------------------
all obligations of the parties hereunder shall terminate, except for the
obligations set forth in sections 5.5 and 5.6, and 9.1.
ARTICLE 9
MISCELLANEOUS
Section 9.1 Expenses. Each party shall pay its own expenses incurred as a
--------
result of this transaction.
Section 9.1.1 DONOBI, at its own expense, shall obtain an opinion of
counsel from a licensed Colorado attorney, regarding the shareholder notice and
Colorado law requirements for the proposed acquisition transaction.
Section 9.2 Waiver and Modifications. Any provision of this Agreement may
------------------------
be waived at any time by the party entitled to the benefit thereof, upon the
written authority of such party's Board of Directors. Any provision of this
Agreement (including the exhibits) may be modified at any time prior to and
after the vote of either party's Shareholders by agreement in writing approved
by the Board of Directors of each party and executed in the same manner (but not
necessarily by the same persons) as this Agreement, provided that such
modification, after the last vote of either party's Shareholders, shall not be
allowed, if in the judgment of the Board of Directors of either party, it
affects materially and adversely the benefits of either party's Shareholders
under this Agreement. To the extent permitted by law, the powers of the Board
of Directors may be delegated by the Board (or by the Executive Committee to the
extent any matter has been delegated to such Committee by the Board) to any
officer or officers of such party, and any notices, consents or other action
referred to in this Agreement may be given or taken by any officer so
authorized.
Section 9.3 Finder commissions. H-NET and DONOBI each represents and
-------------------
warrants that no broker or finder is entitled to any brokerage or finder's fee
or other commission based on agreements, arrangements or understandings made by
it with respect to the transactions contemplated by this Agreement, other than
as set forth in Exhibit 3.29 or Exhibit 4.29.
Section 9.4 Notices. Any notice request, instruction or other documents
-------
to be given hereunder by any part to another shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid,
if to DONOBI, addressed to:
DONOBI, INC.
Attn: Xxxx Xxxxxx, President and CEO
0000 Xxxxx Xx XX
Xxxxxxxxx, XX 00000
(000) 000-0000 Telephone
(000) 000-0000 Facsimile
e-mail: xxxxxxx@xxxxxx.xxx
with a copy to:
XXXXXX X. XXXX, Attorney at Law
0000 X. Xxxxx Xxxxxx Xxxx.
PMB # 300-137
Xxxxxxxxx, XX 00000
(000) 000-0000 Telephone
(000) 000-0000 Facsimile
e-mail: xxxxxxxx@xxxxx.xxx
if to H-NET, addressed to:
X-XXX.XXX, INC.
Attn: Xxxxx Xxxxxxxx, CEO
00 Xxx Xxxxxx, Xxxxxxxxx,
Xxxxxxx, X0X 0X0, Xxxxxx
(000) 000-0000 Facsimile
e-mail: xxxxxx@x-xxx.xxx
with a copy to:
XXXXXX X. XXXX, Attorney at Law
0000 X. Xxxxx Xxxxxx Xxxx.
PMB # 300-137
Xxxxxxxxx, XX 00000
(000) 000-0000 Telephone
(000) 000-0000 Facsimile
e-mail: xxxxxxxx@xxxxx.xxx
Section 9.5 Abandonment. Once this Agreement has been executed by all
-----------
parties, this Agreement may not be abandoned or terminated except as provided in
Article 8, Termination.
Section 9.6 Entire Agreement. This Agreement represents the entire
----------------
agreement between the parties, and it supercedes and replaces any prior
agreements. Any and all oral or written agreements concerning this transaction
which are not expressed herein shall be deemed null and void.
Section 9.7 Governing Law. This Agreement shall be governed by,
-------------
construed, and enforced in accordance with the laws of the State of Colorado.
Section 9.8 Counterparts. In order to facilitate the filing and recording
------------
of this Agreement, the same may be executed in any number of counterparts, each
of which shall be deemed to be an original. Copies or faxes of signatures shall
be deemed to hold the same force and effect as originals for all purposes.
IN WITNESS WHEREOF, H-NET and DONOBI, by their duly authorized officers,
and the DONOBI Shareholders, have executed and delivered this Agreement
effective as of the date first above written.
X-Xxx.Xxx., Inc.
By: /s/ Xxxxx Xxxxxxxx
-------------------
Xxxxx Xxxxxxxx, President and CEO
Donobi, Inc.
By: /s/ Xxxxxxx X. Xxxxxx, III
---------------------------
Xxxxxxx X. Xxxxxx, III, President and CEO
EXHIBIT LIST