Stock Purchase Agreement - Desert Winds Entertainment Corp., SunnComm Inc.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into on July 1, 2000, by and among DESERT WINDS ENTERTAINMENT CORPORATION, a Nevada corporation ("DESW"), SUNNCOMM, INC., a Nevada corporation ("SCI"), PETER H. JACOBS, STEPHEN F. BURG and JOHN AQUILINO (collectively "Shareholders").
ARTICLE I
RECITALS
1.1_ Present Structure of DESW. DESW is a publicly traded company headquartered in Mesa, Arizona, and is in the business of developing, producing and distributing entertainment and multimedia content through a variety of mediums
1.2_ Present Structure of SCI. SCI is a privately held corporation headquartered in Phoenix, Arizona, and is in the business of developing and licensing technologies for the entertainment and multimedia industries.
1.3_ Structure of Acquisition. The parties have determined that it is in their respective best interests that DESW purchase all of the issued and outstanding capital stock of SCI from Shareholders.
NOW, THEREFORE, the parties agree as follows:
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ARTICLE II
PURCHASE TERMS
2.1 Stock Purchase. At the Closing (as defined in Section 2.3 below), Shareholders shall sell, and DESW shall purchase, all of the issued and outstanding capital stock of SCI (the "SCI Stock") for the consideration set forth in Section 2.2 below.
2.2 Purchase Price. The purchase price for the SCI Stock (the "Purchase Price") shall be 1,000,000 restricted shares of the common stock of DESERT WINDS ENTERTAINMENT CORPORATION. DESW shall have no obligation to either register Shareholders shares of DESW or provide a public or private market for such shares or any shares acquired by virtue of the exercise of any option granted to Shareholders.
2.3 Closing. DESW's purchase of the SCI Stock (the "Closing") shall take place at 2:00 p.m. on or before July 6, 2000 (the "Closing Date") or at such other time, date or place as shall be mutually agreed upon by the parties.
2.4 Delivery of Certificates. At the Closing, Shareholders shall deliver to DESW certificates (duly endorsed for transfer to DESW) for the SCI Stock, free and clear of any liens, security interests or other encumbrances.
2.5 Structure as of the Closing. Effective as of the Closing, SCI shall be a wholly-owned subsidiary of DESW.
2.6 Further Assurances. If, at any time after the date hereof, DESW shall be advised that any further assignments or assurances or any other acts or things are necessary or desirable to vest, perfect, confirm or record, in or to DESW the title to the SCI Stock, Shareholders shall execute and deliver all such assignments, deeds, endorsements and assurances, and do such other reasonable things as may be requested by the Board of Directors of DESW and are necessary or proper to vest, perfect or confirm title to the SCI Stock, and otherwise carry out the purposes of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DESW
DESW hereby represents and warrants to Shareholders as follows:
3.1 Organization and Qualification. DESW is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has the requisite corporate power to carry on its business as now conducted and presently proposed to be conducted.
3.2 Authority Relative to This Agreement. DESW has the requisite corporate power and authority to enter into this Agreement to carry out its obligations hereunder. The execution and delivery of this Agreement by DESW and the consummation by DESW of the transactions contemplated hereby have been duly authorized by the Board of Directors of DESW, and no other corporate proceedings on the part of DESW is necessary to authorize this Agreement and such transactions. This Agreement has been duly executed and delivered by DESW and constitutes a valid and binding obligation of DESW, enforceable in accordance with its terms.
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3.3 Consents and Approvals; No Violation. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby will not violate, conflict with or result in a default under any provision of::
3.3.1 DESW's Articles of Incorporation or Bylaws;
3.3.2 any agreement, arrangement or understanding;
3.3.3 any license, franchise or permit; or
3.3.4 any law, regulation, order, judgment or decree, which would be violated or breached, or in respect of which a right of termination or acceleration or any encumbrance on any of DESW's assets would be created, other than any such breaches or violations that will not, individually or in the aggregate, have a material adverse effect on the business, operations or financial condition of DESW and its subsidiaries, taken as a whole.
Other than in connection with or in compliance with:
3.3.5 the corporation laws of the States of Nevada and Arizona, and
3.3.6 the rules and regulations of the NASD, or
3.3.7 U.S. Securities Laws or Blue Sky Laws, no authorization, consent or approval of, or filing with, any public body, court or authority is necessary on the part of DESW for the consummation by DESW of the transactions contemplated by this Agreement, except for such authorizations, consents, approvals and filings as to which the failure to obtain or make will not, individually or in the aggregate, have a material adverse effect on the business, operations or financial condition of DESW and its subsidiaries, taken as a whole.
3.4 Capitalization of DESW. The authorized equity capitalization of DESW consists of 50,000,000 shares of DESW Common Stock, $.001 par value per share. As of the Closing Date, 30,784,781 shares of DESW Common Stock will be issued and outstanding (all of which shares will be fully paid and nonassessable). Except as otherwise disclosed, there are no options, warrants, conversion privileges or other rights, agreements, arrangements or commitments obligating DESW to issue or sell any shares of capital stock of DESW or securities or obligations of any kind convertible or exchangeable for any shares of capital stock of DESW, nor are there any stock appreciation, phantom or similar rights outstanding based upon the book value or any other attribute of DESW.
3.5 NASD Filings. DESW has previously delivered to Shareholders copies of all reports filed by DESW with the NASD and/or SEC since January 1, 2000, if any, which constitute all reports required to be filed by DESW with the NASD and/or SEC since such date. As of their respective dates, the documents and reports referred to above did not contain any untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of DESW included in such documents and reports were prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects according to generally accepted accounting principles, the financial position of DESW as of the date thereof and the results of its operations and its cash flows for the period then ended, in the case of the unaudited interim financial statements subject to normal year-end audit adjustments and the absence of complete footnote disclosures.
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3.6 Absence of Undisclosed Liabilities. DESW does not have any obligations or liabilities (whether accrued, absolute, contingent, unliquidated or otherwise, whether due or to become due and regardless of when asserted) arising out of transactions heretofore entered into, or any action or inaction, or any state of facts existing, including taxes with respect to or based upon transactions or events heretofore occurring, except:
3.6.1 obligations under contracts or commitments (but not liabilities for breaches thereof);
3.6.2 liabilities or reserves reflected on the consolidated balance sheet dated June 30, 2000 (the "Balance Sheet");
3.6.3 liabilities which have arisen after the date of the Balance Sheet in the ordinary course of business (none of which is an uninsured liability for breach of contract, breach of warranty, tort, infringement, claim or lawsuit);
3.6.4 liabilities otherwise specifically disclosed in the documents and reports described in Section 3.5 hereof; and
3.6.5 liabilities incurred for financings related to this Agreement.
3.7 No Material Adverse Change. Since June 30, 2000, there has been no material adverse change in the assets, financial condition, operating results, customer, distributor, employee or supplier relations or business condition of DESW.
3.8 Compliance With Laws; Permits; Certain Operations. DESW, and its respective officers, directors, agents and employees have complied in all material respects with all applicable laws and regulations which affect the businesses or any owned or leased properties of DESW and to which DESW may be subject, and no claims have been filed against DESW alleging a violation of any such laws of regulations, except as described in the documents and reports identified in Section 3.5 above. DESW has not authorized, given or agreed to give any money, gift or similar benefit (other than incidental gifts of nominal value) to any actual or potential distributor, customer, supplier, governmental employee or any other person in a position to assist or hinder DESW in connection with any actual or proposed transaction. DESW holds all of the material permits, licenses, certificates and other authorizations of foreign, federal, state and local governmental agencies required for the conduct of its business or the ownership or leasing of their respective properties. In particular, but without limiting the generality of the foregoing, DESW has not in any material respect violated, or received a written notice or charge asserting any violation of, any laws pertaining to occupational health or safety or the environment (including rules and regulations thereunder).
3.9 Disclosure. Neither this Agreement nor any of the documents delivered hereunder by DESW contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they were made, not misleading, and there is no fact which has not been disclosed to Shareholders of which any officer or director of DESW is aware which materially affects adversely or could reasonably be anticipated to materially affect the business, including operating results, assets, customer, distributor, supplier or employee relations, or business condition, of DESW.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Shareholders represent and warrant to DESW that:
4.1 Organization and Qualification. SCI is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada and has the requisite corporate power and authority to own and operate its properties and to carry on its business as now conducted and presently proposed to be conducted. The copies of SCI's Articles of Incorporation and Bylaws which have been furnished by SCI to DESW prior to the date of this Agreement reflect all amendments made thereto and are correct and complete. SCI is qualified to do business in every jurisdiction in which the nature of its business or its ownership of property requires it to be qualified, other than where the failure to so qualify will not, individually or in the aggregate, have a material adverse effect on the business, operations or financial condition of SCI.
4.2 Authority Relative to This Agreement. Shareholders have the full power and authority to execute and deliver this Agreement and to carry out its respective obligations hereunder. The execution and delivery of this Agreement by SCI on behalf of Shareholders and the consummation of the transactions contemplated hereby have been duly authorized by Shareholders, and no other proceedings are necessary to authorize this Agreement and such transactions. This Agreement has been duly executed and delivered by Shareholders and constitutes a valid and binding obligation of Shareholders, enforceable against Shareholders in accordance with its terms.
4.3 Consents and Approvals; No Violation. Except as disclosed under the caption "Consents and Approvals" in the disclosure from SCI to DESW of even date herewith (the "Disclosure Letter"), the execution, and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby will not, violate, conflict with or result in a default under any provision of:
4.3.1 SCI's Articles of Incorporation or Bylaws;
4.3.2 any agreement, arrangement or understanding;
4.3.3 any license, franchise or permit; or
4.3.4 any law, regulation, order, judgment or decree, which would be breached or violated, or in respect of which a right of termination or acceleration or any encumbrance on any of SCI's assets would be created, other than any such breaches or violations that will not, individually or in the aggregate, have a material adverse effect on the business, operations or financial condition of SCI. Other than in connection with or in compliance with the corporation laws of the State of Nevada, no authorization, consent or approval of, or filing with, any public body, court or authority is necessary on the part of SCI or Shareholders to allow Shareholders to consummate the transactions contemplated by this Agreement, except for such authorizations, consents, approvals and filings as to which the failure to obtain or make will not, individually or in the aggregate, have a material adverse effect on the business, operations or financial condition of SCI.
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4.4 Capitalization. The authorized equity capitalization of SCI consists of 50,000,000 shares of SCI Common Stock .. As of the date hereof, 100,000 shares of SCI Common Stock are issued and outstanding, all of which shares are:
4.4.1 validly issued, fully paid and non-assessable; and
4.4.2 owned beneficially and of record by Shareholders.
Except as disclosed under the caption "Capitalization" in the Disclosure Letter, there are no options, warrants, conversion privileges or other rights, agreements, arrangements or commitments obligating SCI to issue or sell any shares of capital stock of SCI or securities or obligations of any kind convertible into or exchangeable for any shares of capital stock of SCI, nor are there any stock appreciation, phantom or similar rights outstanding based upon the book value or any other attribute of SCI (collectively, "SCI Options"). Other than as set forth in this Agreement (including the Exhibit hereto), Shareholders are not entitled to any preemptive, registration or other similar rights. At or prior to the Closing, all SCI Options will be repurchased, satisfied or otherwise canceled or terminated without payment of any sum, or the incurrence of any liability for future payment of any sum, by SCI. As of the Closing, DESW will own of record and beneficially the SCI Stock, free and clear of all liens, security interests or other encumbrances, Shareholders agreements or voting trusts, and there will not be outstanding any subscriptions, warrants, options or rights to which any person is or may be entitled to purchase or otherwise acquire any capital stock of SCI.
4.5 No Subsidiaries. SCI does not directly or indirectly have any material investment in any other corporation, partnership, joint venture or other business association or entity, and is not subject to any obligation or requirement to provide for or to make any investment (by loan, capital contribution or otherwise) in any entity.
4.6 Financial Statements. Shareholders have caused to be delivered to DESW the following financial statements of SCI:
4.6.1 audited balance sheets at June 30, 2000; and
4.6.2 audited statements of income, retained earnings and cash flows for the period ending June 30, 2000. The foregoing financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects the financial position of SCI as of the dates thereof and the results of its operations and its cash flows for the periods then ended. SCI's audited balance sheet as of June 30, 2000 and SCI's audited statements of income, retained earnings and cash flows for the period ended June 30, 2000 are hereinafter collectively referred to as the "SCI Financial Statements."
4.7 Absence of Undisclosed Liabilities. SCI does not have any obligations or liabilities (whether accrued, absolute, contingent, unliquidated or otherwise, whether due or to become due and regardless of when asserted) arising out of transactions heretofore entered into, or any action or inaction, or any state of facts existing, including taxes with respect to or based upon transactions or events heretofore occurring, except
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4.7.1 obligations under contracts or commitments described in the Disclosure Letter under the caption "Contracts", or under contracts or commitments which are not required to be disclosed thereunder (but not liabilities for breaches thereof);
4.7.2 liabilities or reserves reflected on the balance sheet included in the SCI Financial Statements;
4.7.3 liabilities which have arisen after the date of the balance sheet included in the SCI Financial Statements in the ordinary course of business (none of which is an uninsured liability for breach of contract, breach of warranty, tort, infringement, claim or lawsuit), and
4.7.4 liabilities otherwise specifically disclosed in this Agreement or in the Disclosure Letter.
4.8 No Material Adverse Change. Since June 1, 2000, there has been no material adverse change in the financial condition, properties, business, operations, results of operations, or customer, distributor, sales representative, employee or supplier relations, of SCI.
4.9 Absence of Certain Developments. Except as set forth under the caption "Developments" in the Disclosure Letter, since June 1, 2000, SCI has not:
4.9.1 Redeemed or purchased, directly or indirectly, any shares of its capital stock, or declared or paid any dividends or distributions with respect to any shares of its capital stock.
4.9.2 Issued or sold any of its equity securities, securities convertible into or exchangeable for its equity securities, warrants, options or other rights to acquire its equity securities, or any bonds or other securities.
4.9.3 Borrowed any amount or incurred or become subject to any material liability, except current liabilities incurred in the ordinary course of business.
4.9.4 Discharged or satisfied any material lien or encumbrance or paid any material liability, other than current liabilities paid in the ordinary course of business.
4.9.5 Mortgaged, pledged or subjected to any lien, charge or other encumbrance, any of its assets with a fair market value in excess of $10,000, except liens for current property taxes not yet due and payable.
4.9.6 Sold, assigned or transferred (including without limitation transfers to any employees, Shareholders or affiliates of SCI) any tangible assets in excess of $10,000, except in the ordinary course of business, or canceled any debts or claims in excess of $10,000.
4.9.7 Sold, assigned or transferred (including without limitation transfers to any employees, Shareholders or affiliates of SCI) any patents, trademarks, trade names, copyrights, trade secrets or other intangible assets, except in the ordinary course of business, or disclosed any proprietary confidential information to any person other than DESW or employees or agents of SCI.
4.9.8 Suffered any extraordinary loss or waived any rights of material value, whether or not in the ordinary course of business or consistent with past practice.
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4.9.9 Taken any other action or entered into any other transaction other than in the ordinary course of business and in accordance with past custom and practice, or entered into any transaction with any Insider (as defined in Section 4.21), in each case involving in excess of $10,000.
4.9.10 Suffered any material theft, damage, destruction or loss of or to any property or properties owned or used by it, whether or not covered by insurance.
4.9.l1 Other than in the ordinary course of business and consistent with past practice, made or granted any bonus or any wage, salary or compensation increase to any director, officer, employee who earns more than $25,000 per year, group of employees or consultant, or made or granted any increase in any employee benefit plan or arrangement, or amended or terminated any existing employee benefit plan or arrangement or adopted any new employee benefit plan or arrangement.
4.9.12 Paid, accrued or agreed to pay in the future any sum under SCI's profitsharing plan.
4.9.13 Made any capital expenditures or commitments therefor that in the aggregate exceeded $50,000.
4.9.14 Made any loans or advances to, or guarantees for the benefit of, any persons that in the aggregate exceeded $10,000.
4.9.15 Made charitable contributions or pledges which in the aggregate exceeded $10,000.
4.10 Title to Properties. SCI owns good and marketable title to each of the tangible properties and tangible assets reflected on the balance sheet included in the SCI Financial Statements or acquired since the date thereof, free and clear of all liens and encumbrances, except for
4.10.1 liens for current taxes not yet due and payable,
4.10.2 liens set forth under the caption "Real Estate" in the Disclosure Letter, and
4.10.3 the properties subject to the leases set forth under the caption "Leases" in the Disclosure Letter.
4.11 Accounts Receivable. SCI's notes and accounts receivable recorded on the balance sheet included in the SCI Financial Statements and those arising since the date thereof are valid receivables and are collectible in accordance with their terms, net of the reserves recorded on such balance sheet or thereafter, subject to no valid counterclaims or setoffs. All reserves for notes and accounts receivable are established in accordance with generally accepted accounting principles applied consistently with prior periods.
4.12 Inventories. Except as set forth under the caption "Inventory" in the Disclosure Letter, the inventories of SCI recorded on the balance sheet included in the SCI Financial Statements, and the inventory created or purchased since the date thereof, consists of a quantity and quality usable and salable in the ordinary course of business, net of the reserves recorded on the balance sheet or thereafter, is not slow-moving as determined in accordance with past practices, obsolete or damaged, and is not defective. All reserves for inventory were established in accordance with generally accepted accounting principles applied consistently with prior periods.
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4.13 Tax Matters. Except as set forth under the caption "Tax Matters" in the Disclosure Letter, SCI has filed all federal, foreign, state, county and local income, excise, property, sales and other tax returns which are required to be filed by it, and all such returns are true and correct in all material respects; all taxes due and payable by SCI have been paid; the liability for taxes on the balance sheet included in the SCI Financial Statements fully reflects SCI's obligations for taxes as of such date, and SCI's provisions for taxes in such balance sheet are sufficient for all accrued and unpaid taxes as of the date of such balance sheet; SCI has paid all taxes due and payable or which it is obligated to withhold from amounts owing to any employee, creditor, independent contractor, Shareholders or other third party; SCI has not waived any statute of limitations in respect of taxes or agreed to any extension of time with respect to a tax assessment or deficiency; the assessment of any additional taxes for periods for which returns have been filed is not expected; and there are no unresolved questions or claims concerning the tax liability of SCI. SCI has not made an election under Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code"). No claim has ever been made by an authority in a jurisdiction where SCI does not file tax returns that it is or may be subject to taxation by that jurisdiction. There are no security interests on any of the assets of SCI that arose in connection with any failure (or alleged failure) to pay any tax. SCI has disclosed on its federal income tax returns all positions taken therein that could give rise to a substantial understatement of federal income tax within the meaning of Code Section 6662.
4.14 Contracts and Commitments.
4.14.1 Except as set forth under the caption "Contracts" in the Disclosure Letter, SCI is not a party to any (i) collective bargaining agreement or contract with any labor union, (ii) bonus, pension, profit sharing, retirement, or other form of deferred compensation plan, (iii) hospitalization insurance or similar plan or practice, whether formal or informal, (iv) contract for the employment of any officer, individual employee, or other person on a full time or consulting basis or relative to severance pay for any such person, (v) agreement or indenture relating to the borrowing of money in excess of $10,000 or to mortgaging, pledging or otherwise placing a lien on any of the assets of SCI, (vi) guaranty of any obligation for borrowed money or otherwise, other than endorsements made for collection, (vii) lease or agreement under which it is lessor of, or permits any third party to hold or operate, any property, real or personal, with aggregate remaining rental payments in excess of $10,000, (viii) contract or group of related contracts with the same party for the purchase of products or services, under which the undelivered balance of such products and services has a purchase price in excess of $25,000, (ix) contract or group of related contracts with the same party for the sale of products or services under which the undelivered balance of such products or services has a sales price in excess of $25,000, (x) other contract or group of related contracts with the same party continuing over a period of more than six months from the date or dates thereof, other than contracts terminable by it on thirty days' or less notice without penalty or involving less than $25,000, (xi) contract which prohibits SCI from freely engaging in business anywhere in the world, (xii) sales representative or distribution agreement, or any other contract relating to the sale or distribution of SCI's products, (xiii) contract, agreement or understanding with any Insider, (xiv) license agreement or other agreement providing for the payment or receipt of royalties or other compensation by or to SCI, or (xv) other agreement material to SCI's business or not entered into in the ordinary course of business.
4.14.2 Except as specifically disclosed under the caption "Contracts" in the Disclosure Letter, (i) to the knowledge of Shareholders, no contract or commitment required to be disclosed under such caption has been breached or canceled by the other party, (ii) since June 1, 2000, no customer or supplier has notified SCI that it will stop or materially decrease the rate of business done with SCI, except for changes in the ordinary course of SCI's business, (iii) SCI has performed in all material respects all obligations required to be performed by it in connection with the contracts or commitments required to be disclosed under such caption and is not in receipt of any written claim of default under any contract or commitment required to be disclosed under such caption, and (iv) SCI has no present expectation or intention of not fully performing any obligation pursuant to any contract or commitment set forth under such caption.
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4.14.3 Prior to the date of this Agreement, DESW has been supplied with a true and correct copy of each written contract or commitment, and a written description of each oral contract or commitment, referred to under the caption "Contracts" in the Disclosure Letter, together with all amendments, waivers or other changes thereto.
4.15 Proprietary Rights.
4.15.1 Except as set forth under the caption "Proprietary Rights" in the Disclosure Letter, there are no patents, patent applications, trademarks, service marks, trade names, corporate names, copyrights, trade secrets or other proprietary rights owned by SCI or necessary to the conduct of SCI's business as now conducted. SCI owns and possesses all rights, titles and interest, or a valid license, in and to the proprietary rights set forth under such caption.
4.15.2 The Disclosure Letter describes under such caption all Proprietary Rights which have been licensed to third parties and those Proprietary Rights which are licensed from third parties. SCI has taken all necessary action to protect the proprietary rights set forth under such caption. SCI has not received any written notice of, nor are Shareholders aware of any facts which indicate a probable likelihood of, any infringement, misappropriation, or conflict from any third party with respect to SCI's proprietary rights; SCI has not infringed, misapprpriated or otherwise conflicted with any proprietary rights of any third parties, nor are Shareholders aware of any infringement, misappropriation or conflict which will occur in the continued operation of SCI; and no written claim by any third party contesting the validity of any proprietary rights listed under such caption has been made, is currently outstanding, or, to the knowledge of Shareholders, is threatened.
4.16 Litigation. Except as set forth under the caption "Litigation" in the Disclosure Letter, there are no actions, suits, proceedings, orders or investigations pending or, to the knowledge of Shareholders, threatened against SCI, at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, and there is no material basis known to Shareholders for any of the foregoing.
4.17 Brokerage. There are no claims for brokerage commissions, finders' fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of SCI or Shareholders.
4.18 Employment Matters. SCI has complied in all material respects with all laws relating to the employment of labor, including provisions thereof relating to wages, hours, equal opportunity, collective bargaining and the payment of social security and other taxes. SCI has no material labor relations problems pending, its labor relations are satisfactory and no key executive employee of SCI and no group of SCI's employees has notified SCI of any plans to terminate his or its employment.
4.19 Employee Benefit Plans.
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4.19.1 With respect to all employees and former employees of SCI, except as set forth under the caption "Employee Benefits" in the Disclosure Letter, SCI does not presently maintain, contribute to or have any liability (including current or potential multi-employer plan withdrawal liability) under any (i) non-qualified deferred compensation or retirement plan or arrangement which is an "employee pension benefit plan" as such term is defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) qualified defined contribution retirement plan or arrangement which is an employee pension benefit plan, (iii) qualified defined benefit pension plan or arrangement which is an employee pension benefit plan, (iv) "multi-employer plan" as such term is defined in Section 3(37) of ERISA, (v) unfunded or funded medical, health or life insurance plan or arrangement for present or future retirees or present or future terminated employees which is an "employee welfare benefit plan" as such term is defined in Section 3(1) of ERISA, (vi) profit-sharing or other similar plan, or (vii) any other employee welfare benefit plan.
4.19.2 With respect to each of the employee benefit plans listed in the Disclosure Letter, Shareholders have furnished to DESW true and complete copies of (i) the plan documents and summary plan description, (ii) the most recent determination letter received from the Internal Revenue Service, 9iii) the latest actuarial valuation, (iv) the latest financial statement, (v) the last Form 5500 Annual Report, and (vi) all related trust agreements, insurance contracts or other funding agreements which implement such employee benefit plan. Neither SCI nor any of its directors, officers, employees or any other "fiduciary", as such term is defined in Section 3(21) of ERISA, has any liability for failure to comply with ERISA or the Code for any action or failure to act in connection with the administration or investment of such plans.
4.19.3 With respect to the insurance contracts or funding agreements which implement any of the employee benefit plans listed in the Disclosure Letter, such insurance contracts or funding agreements are fully insured or the reserves under such contracts are sufficient to pay claims incurred.
4.20 Insurance. The Disclosure Letter, under the caption "Insurance", lists and briefly describes each insurance policy maintained by SCI with respect to its properties and assets and sets forth the date of expiration of each such insurance policy. All of such insurance policies are in full force and effect and SCI is not in default in any material respect with respect to its obligations under any of such insurance policies. The insurance coverage of SCI is customary for corporations of similar size engaged in similar lines of businesses.
4.21 Affiliate Transactions. Except as set forth under the caption "Affiliate Transactions" in the Disclosure Letter, no holder of 5% or more of any class of stock of SCI, officer or director of SCI or, to Shareholder's knowledge, any member of the immediate family of Shareholders, officer or director, or, to Shareholder's knowledge, any entity in which any of such persons owns any beneficial interest (other than a publicly-held corporation whose stock is traded on a national securities exchange or in the over-the-counter market and less than 5% of the stock of which is beneficially owned by any of such persons) (collectively "Insiders"), has any agreement with SCI (other than at-will employment arrangements) or any interest in any property, real, personal or mixed, tangible or intangible, used in or pertaining to the business of SCI. For purposes of the preceding sentence, the members of the immediate family of Shareholders, officer or director consist of the spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law of Shareholders, officer or director.
4.22 Customers and Suppliers. The Disclosure Letter, under the caption "Customers and Suppliers," lists the 10 largest customers and 10 largest suppliers of SCI for 2000, and sets forth opposite the name of each such customer and supplier the approximate percentage of net sales or purchases, as the case may be, attributable to such customer or supplier.
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4.23 Officers and Directors; Bank Accounts. The Disclosure Letter, under the caption "Officers and Directors," lists all officers and directors of SCI, all of SCI's bank accounts, and each authorized signer on such accounts.
4.24 Compliance with Laws; Permits; Certain Operations. SCI and its officers, directors, agents and employees have complied in all material respects with all applicable laws and regulations of foreign, federal, state and local governments and all agencies thereof which affect the businesses or any owned or leased properties of SCI and to which SCI may be subject, and no claims have been filed against SCI alleging a violation of any such laws or regulations, except as set forth in the Disclosure Letter under the caption "Compliance." SCI has not authorized, given or agreed to give any money, gift or similar benefit (other than incidental gifts of articles of nominal value) to any actual or potential distributor, customer, supplier, governmental employee or any other person in a position to assist or hinder SCI in connection with any actual or proposed transaction. SCI holds all of the material permits, licenses, certificates and other authorizations of foreign, federal, state and local governmental agencies required for the conducts of its business or the ownership or leasing of its property. In particular, but without limiting the generality of the foregoing, SCI has not in any material respect violated, or received a written notice or charge asserting any violation of, any laws pertaining to occupational health or safety or the environment (including rules and regulations thereunder).
4.25 Disclosure. Neither this Agreement, nor any other documents delivered hereunder by Shareholders nor the Disclosure Letter contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein, in light of the circumstances in which the were made, not misleading, and there is no fact which has not been disclosed to DESW of which Shareholders are aware which materially affects adversely or could reasonably be anticipated to materially affect adversely the business, including operating results, assets, customer, distributor, supplier or employee relations, and business operations, of SCI.
ARTICLE V
CONDUCT OF BUSINESS PRIOR TO THE CLOSING
5.1 Conduct of Business Prior to the Closing. Prior to the Closing, unless DESW has otherwise consented (such consent shall not be withheld unreasonably), or as otherwise provided herein, Shareholders shall cause SCI to take the following actions:
5.1.1 SCI shall continue to conduct operations in the ordinary and usual course of business, and maintain its facilities in their current condition.
5.1.2 SCI shall refrain from: (A) issuing, selling, pledging, disposing of or encumbering (i) any additional shares of, or any options, warrants, conversion privileges or rights of any kind to acquire any shares of, any of its capital stock, or (ii) any of its assets, except in the ordinary course of business; (B) amending or proposing to amend its Articles of Incorporation or Bylaws; (C) splitting, combining or reclassifying any outstanding shares of SCI's Common Stock, or declaring or paying any dividend or other distribution payable in cash, stock, property or otherwise with respect to shares of SCI's Common Stock; (D) redeeming, purchasing or acquiring or offering to acquire any shares of SCI's Common Stock; (E) acquiring (by merger, exchange, consolidation, acquisition of stock or assets or otherwise) any corporation, partnership, joint venture or other business organization or division or material assets thereof; (F) incurring any indebtedness for borrowed money or issuing any debt securities except the borrowing of working capital in the ordinary course of business and consistent with past practice; (G) making any payment under Promissory Notes to any employee of SCI, or (H) entering into or proposing to enter into or modifying or proposing to modify in any material respect any material agreement, arrangement or understanding with respect to any of the matters set forth in this Section 5.1.2.
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5.1.3 Except in the ordinary course and consistent with past practice, SCI shall refrain from entering into or modifying any employment, severance or similar agreements or arrangements with, or granting any bonuses, salary increases, severance or termination pay to, any officers, directors, employees or consultants.
5.1.4 Except as required by law, SCI shall refrain from adopting or amending any bonus, profit sharing, compensation, stock option, pension, retirement, deferred compensation, employment or other employee benefit plan, trust, fund or group arrangement for the benefit or welfare of any employees or any bonus, profit sharing, compensation, stock option, pension, retirement, deferred compensation, employment or other employee benefit plan, agreement, trust, fund or arrangement for the benefit or welfare of any director.
5.1.5 SCI will use its best efforts to cause its current insurance (or reinsurance) policies not to be canceled or terminated or any of the coverage thereunder to lapse, unless simultaneously with such termination, cancellation or lapse, replacement policies providing coverage substantially equal to the coverage under the canceled, terminated or lapsed policies for substantially similar premiums are in full force and effect.
5.1.6 SCI shall use its reasonable efforts to preserve intact its business organization and goodwill, keep available the services of its officers and employees as a group and maintain satisfactory relationships with suppliers, distributors, customers and others having business relationships with it; confer on a regular and frequent basis with representatives of DESW and report operational matters and the general status of ongoing operations to DESW; refrain from taking any action which would render, or which reasonably may be expected to render, any representation or warranty made by it in this Agreement untrue at, or at any time prior to, the Closing Date; after discovery by SCI, notify DESW of any emergency or other change in the normal course of its business or in the operation of its properties and of any governmental or third party complaints, investigations or hearings known to SCI (or communications indicating that the same may be contemplated) if such emergency, change, complaint, investigation or hearing would be material, individually or in the aggregate, to the business, operations or financial condition of SCI or Shareholder's ability to consummate the transactions contemplated by this Agreement; and notify DESW if any Shareholder discovers that any representation or warranty made by any of them in this Agreement was when made, or has subsequently become, untrue in any material respect.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Additional Agreements. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, including using reasonable efforts to obtain all necessary waivers, consents and approvals and to effect all necessary filings.
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6.2 Notification of Certain Matters. Each party will give prompt written notice to the others of (a) the occurrence or failure to occur of any event, which occurrence or failure has caused, will cause or is likely to cause any representation or warranty on its part contained in this Agreement to be untrue or inaccurate in any material respect at, or at any time prior to, the Closing Date, and (b) any material failure of such party, or any officer, director, shareholder, employee or agent thereof, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder.
6.3 Director and Officer Indemnification; Liability Insurance. DESW agrees that it will cause SCI to maintain in effect, for a period of at least two years following the Closing Date, the rights to indemnification existing as of the Closing Date under SCI's Bylaws in favor of its directors and officers and, for a period of two years following the Closing Date, liability insurance for SCI's officers and directors substantially equivalent to that maintained by DESW for its officers and directors. Any determination required to be made with respect to whether an indemnified party's conduct complies with the standards set forth under the Bylaws or applicable liability insurance policies will be made by independent counsel selected by DESW and reasonably satisfactory to such indemnified party.
6.4 Access to Information; Confidentiality. At all times from the date hereof to the Closing Date: (a) DESW shall afford the officers, employees, accountants, counsel and other representatives of Shareholders access to all of the properties, books, contracts, commitments and records of DESW; and (b) Shareholders shall cause SCI to afford the officers, employees, accountants, counsel and other representatives of DESW access to all of the properties, books, contracts, commitments and records of SCI. Further, at all times from the date hereof to the Closing Date, DESW on the one hand, and Shareholders and SCI on the other hand, shall promptly furnish to the other (i) a copy of each report, schedule, registration statement or other document filed or received by it during such period pursuant to the requirements of applicable securities laws, and (ii) all other information concerning its business, properties and personnel as such other party may reasonably request. Unless otherwise required by law, the parties will hold any such information which is nonpublic in confidence until such time as such information otherwise becomes publicly available through no wrongful act of either party and will not use such information other than to evaluate the other party in conjunction with the transactions contemplated by this Agreement. Additionally, in the event of termination of this Agreement for any reason, each party (x) will promptly return all nonpublic documents obtained from the other party, and (y) will refrain from the use or disclosure of any such confidential information provided hereunder. Subject to the limitations above, in the event of a termination of this Agreement for any reason, nothing in this Section 6.4 will preclude a party from developing or offering products or services competitive with those of the other parties.
ARTICLE VII
CLOSING
7.1 Conditions of Each Party to Effect the Closing. The respective obligations of each party to perform at the Closing shall be subject to the fulfillment at or prior to the Closing of the following conditions:
7.1.1 Shareholders and DESW shall have obtained all consents and approvals necessary to the consummation of this Agreement and the transactions contemplated hereby.
7.1.2 There shall be no action, proceeding or pending or actual litigation to enjoin, restrain or prohibit the consummation of the transactions contemplated by this Agreement.
7.1.3 No party hereto will have terminated this Agreement as permitted herein.
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7.2 Additional Conditions to Obligations of Shareholders. Shareholders' respective obligation to perform at the Closing is also subject satisfaction of the following condition: The representations and warranties of DESW set forth in ARTICLE III will be true and correct in all material respects as of the Closing Date as if made at and as of the Closing Date, and DESW will in all material respects have performed each obligation and agreement and complied with each covenant to be performed and complied with by it hereunder at or prior to the Closing.
7.3 Additional Conditions to Obligations of DESW. DESW's obligations to perform at the Closing are also subject to satisfactions of each of the following conditions:
7.3.1 Each of the representations and warranties of Shareholders contained in this Agreement will be true and correct as of the Closing Date as if made at and as of the Closing Date, and Shareholders will in all material respects have performed each obligation and agreement and complied with each covenant to be performed and complied with by them hereunder at or prior to the Closing.
7.3.2 There will have been no material adverse change in the financial condition, liabilities, operating results, business prospects, assets, or employee, customer, licensor or supplier relations of SCI, and there will have been no damage, destruction or loss, individually or in the aggregate, which materially and adversely affects the properties, assets or business of SCI (whether or not covered by insurance).
ARTICLE VIII
MISCELLANEOUS
8.1 Publicity. All press releases and other public announcements regarding this Agreement and the transactions contemplated hereby will be approved by DESW unless otherwise required by law, in which event each party will use best efforts to enable the other party to review, prior to dissemination, the form and substance of such announcements.
8.2 Entire Agreement; Amendments; Further Assurances. This Agreement, including any documents delivered hereunder or ancillary hereto, constitutes the entire agreement of the parties pertaining to the subject matter hereof and supersedes all prior agreements or understandings of the parties. This Agreement may only be amended by a writing signed by all of the parties hereto, but any party hereto can waive any right, condition or agreement of which it is entitled to avail itself, but any such waiver will apply only to the circumstances involved and only if it is in writing. Each party agrees to execute and deliver any other documents and take any other actions necessary to carry out the terms of this Agreement and to consummate the transactions contemplated herein.
8.3 Successors. Neither this Agreement nor any right, remedy, obligation or liability hereunder may be assigned by any party without the prior written consent of the other parties, except that the rights and obligations of any party who is an individual may pass to his estate upon his death. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective permitted successors and assigns.
8.4 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given upon receipt if delivered personally or if delivered by facsimile (in the latter case, with a copy delivered by first class mail as described below), the next business day if by express mail (overnight delivery) or three days after being sent by registered or certified mail, return receipt requested, postage prepaid:
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If to DESW:
DESERT WINDS ENTERTAINMENT CORPORATION
4710 E. Falcon Drive, Suite 207
Mesa, Arizona 85215
Attention: President
Facsimile: (480) 807-5482
If to SCI: SUNNCOMM, INC.
668 N. 44th Street, Suite 220
Phoenix, Arizona 85008
Attention: President
Facsimile: ________________
or at such other address for a party as shall be specified by notice hereunder.
8.5 Governing Law; Severability. This Agreement shall be governed by and construed in accordance with the laws of the State of Arizona, without regard to conflict of law principles; provided, however, that all matters pertaining exclusively to the corporate governance of a party will be governed by the laws of the state or province of its incorporation. IN the event that any provision hereof is held to be invalid, void or illegal by any court of competent jurisdiction, the same shall be deemed severable from the remainder of this Agreement, the remaining provisions shall be construed to preserve the intent and purposes of this Agreement and the parties will negotiate in good faith to modify the provision, covenant, term or restriction held to be invalid, void or illegal to preserve each party's anticipated benefits under this Agreement.
8.6 Counterparts. This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together shall constitute one and the same instrument.
8.7 Interpretation. This Agreement has been prepared and negotiations in connection herewith have been carried on by the joint efforts of the parties hereto and their respective counsel. This Agreement is to be construed fairly and not strictly for or against any of the parties hereto. The Articles and Section headings contained in this Agreement are for convenience of reference only, and shall not effect the meaning or interpretation of any provision hereof. As used in this Agreement, the masculine, feminine and neuter genders will be deemed to include the others if the context requires.
8.8 Disclosure Generally. No action taken pursuant to this Agreement, including any investigation by or on behalf of any party hereto, shall be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty, covenant, or agreement contained herein. The inclusion of any information in any written disclosure provided hereunder shall not be deemed to be an admission or acknowledgment by a party, in and of itself, that such information is material to or outside of the ordinary course of the business of such party. Any written information provided by DESW hereunder shall be divided into paragraphs corresponding to the sections of this Agreement. DESW's written information shall constitute disclosure for purposes of all other paragraphs thereof.
8.9 Survival of Representations and Warranties. The representations and warranties of the parties shall survive the Closing for a period of 12 months from the Closing Date.
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8.10 Fees and Expenses. The parties shall bear their own fees and expenses in connection with this Agreement.
DESW:
DESERT WINDS ENTERTAINMENT CORPORATION, a Nevada corporation
By:_____\s\__Peter H. Jacobs_____
Peter H. Jacobs
Its: President
SCI:
SUNNCOMM, INC., a Nevada corporation
By:___\s\__John Aquilino___
John Aquilino
Its: Vice President
SHAREHOLDERS:
_____\s\__Peter H. Jacob__
Peter H. Jacobs
______\s\__STEPHEN F. Burg____
STEPHEN F. Burg
_____\s\__John Aquilino______
John Aquilino
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