Exhibit 10.1 ACQUISITION AGREEMENT

 

This Agreement dated as of the 26th day of December, 2007 by and among ARTFEST INTERNATIONAL, INC., a Delaware Corporation, with an address at 27758 Santa Margarita Parkway, Suite 281, Mission Viejo, California, 92691 (“International”), those shareholders of International who are listed on Exhibit “A” (Article “Heading”), which is annexed hereto and made part hereof, (the “International Shareholders”),  those shareholders of ART CHANNEL, INC. who are listed on Exhibit “B” (Article “Heading”), which is annexed to, and made a part of, this Agreement (the “Channel Shareholders”), and ART CHANNEL, INC., a Texas Corporation, with an address at 16160 County Road 635, Blue Ridge, Texas, 75424 (“Channel”), which is only a party to this Agreement with respect to Articles “6”, “9”, “11” through “15” and “17” through “21” of this Agreement.

 

WHEREAS, International desires to acquire all of the shares of Channel;

 

WHEREAS, the Channel Shareholders desire to exchange all of their shares of Channel for twenty-eight million (28,000,000) shares of common stock of International of which eight million (8,000,000) shares will be issued at Closing (the “Closing Issuance”), which is hereinafter defined, and an additional twenty million (20,000,000) shares of common stock (the “Second Issuance”) shall be issued as soon as is practicable after the Closing and International files with the Delaware Secretary of State a Certificate of Amendment to the Certificate of Incorporation increasing the authorized shares to one hundred million shares of common stock and two million (2,000,000) shares

of preferred stock (the “Amendment”);

 

 

WHEREAS, International would not enter into this Agreement with the Channel Shareholders unless Channel agreed to make the representations and warranties set forth in Article “6” of this Agreement;

 

WHEREAS, Channel agrees to make the representations and warranties set forth in Article “6” of this Agreement in order to induce International to enter into this Agreement;

 

WHEREAS, the Channel Shareholders and the Board of Directors of International deem it advisable and in the best interests of each corporation and their respective shareholders that International acquires all of the shares of Channel from the Channel Shareholders in order to advance the long-term business interests of Channel and International;

 

WHEREAS, the Boards of Directors of each of Channel and International have adopted, approved and authorized the execution and delivery of this Agreement to implement the acquisition of all of the shares of Channel by International from the Channel Shareholders in compliance with the provisions of the Texas State Corporate Law and the Delaware General Corporation Law with the result that International shall issue shares of International to the Channel shareholders in exchange for one hundred (100%) percent of the issued and outstanding shares of Channel, and Channel shall thereby become a wholly-owned subsidiary of International;

 

WHEREAS, Channel and International intend that the acquisition of all of the shares of Channel by International from the Channel shareholders will qualify as a tax-free reorganization pursuant to Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended;

 

WHEREAS, the Boards of Directors of Channel and International intend to, and shall, have this Agreement and the transactions with respect to this Agreement approved by the shareholders of  Channel and International in accordance with the applicable provisions of the Texas State Corporate Law and the Delaware General Corporation Law; the Channel shareholders shall approve of this Agreement in its entirety, including, but not limited to, Article “6” of this Agreement;

 

 

WHEREAS, as of the date of this Agreement, International has issued and outstanding twenty eight million one hundred ninety thousand six hundred  twenty nine (28,190,629) shares of common stock, par value $0.00001 (the “International Common Stock”);

 

WHEREAS, on the Closing Date International shall issue eight million (8,000,000)  shares of common stock, and shall issue an additional twenty million (20,000,000) shares as soon as it is practicable after the Amendment, of International Common Stock to the Channel Shareholders on a pro rata basis as set forth on Exhibit “B” (Article “3A”), which is annexed to, and made a part of this Agreement, in exchange for all of their shares of common stock of Channel, par value $0.001 per share (the “Channel Common Stock”), after which exchange International shall own one hundred (100%) percent of Channel’s issued and outstanding common stock, and Channel shall thereby become a wholly-owned subsidiary of International.

NOW, THEREFORE, in consideration of the mutual covenants of the parties hereinafter set forth, and for good and valuable consideration, receipt of which is hereby acknowledged,

1.  Recitals.  The parties hereby adopt as part of this Agreement each of the recitals which is set forth above in the WHEREAS clauses, and agree that such recitals shall be binding upon the parties hereto by way of contract and not merely by way of recital or inducement and such WHEREAS clauses are hereby confirmed and ratified as being accurate by each party as to itself, herself  and himself.

 

 

2. Authorized Shares.  International agrees to authorize and implement the Amendment to increase its number of authorized shares as soon as it is practicable, so that there shall be one hundred million (100,000,000) authorized shares, par value $.0001 of International Common Stock, and two million (2,000,000) authorized shares, par value $.001) of International Preferred Stock.

3. Closing Transactions.

 

A. On the Closing Date, subject to, and consistent with, the provisions of this Agreement, International shall issue eight million (8,000,000) shares of common stock to the Channel Shareholders as set forth on Exhibit “B” (Article “3A”), which is annexed to, and made a part of, this Agreement, in exchange for all of the shares of Channel Common Stock; after which exchange International shall own one hundred (100%) percent of Channel’s common stock, and Channel shall thereby become a wholly-owned subsidiary of International.

B. Subject to, and consistent with, the provisions of this Agreement, and in accordance with the relevant provisions of the Texas State Corporate Law and Delaware General Corporation Law, Channel shall become a wholly-owned subsidiary of International through the share exchange set forth in Paragraph “A” of this Article “3” of this Agreement (the “Exchange”).  As soon as practicable on, or subsequent to, the Closing Date, the Articles of Exchange pursuant toArticle 5.02 of the Texas Business Corporation Act shall be duly executed and acknowledged and promptly delivered to the Secretary of State of the State of Texas for filing, as provided in the Texas Business Corporation Act. The Exchange shall become effective upon the time of filing of the Articles of Exchange with the Delaware Secretary of State (such time, the “Effective Time”). Upon the Effective Time, the effect of the Exchange shall be as provided in the applicable provisions of the Texas State Corporate Law and the Delaware General Corporation Law.

C. Voting Agreement.  The shareholders of International owning a majority of the issued and outstanding shares of common stock shall enter into the voting agreement (the “Voting Agreement”) with the Channel Shareholders, in the form annexed hereto and made a part hereof as Exhibit “C” which sets forth that:

i. The Shareholders of International shall authorize and implement the Amendment as soon as is practicable;

 

ii. The Shareholders of International shall authorize the Second Issuance; and

 

iii. After the Closing Issuance until the Second Issuance, the Shareholders of International agree to, in all circumstances in which the Board of Directors of International seek approval of its shareholders either voluntarily or by requirement of law, deliver to the Channel shareholder proxies such that the Channel Shareholders shall have the right to vote forty seven and eight-tenths (47.8%) percent of the total issued and outstanding shares of International.

4.  Post-Closing Obligations.

 

A. Satisfaction of Liabilities. Subject to, and consistent with, the provisions of this Agreement:

 

i. Channel shall utilize its best effort to enter into agreements with all of International’s creditors, except for the secured note owed to the Ditto Family Trust (“DFT”), of which the balance owed as of November 30, 2007 was four hundred fifty –four thousand nine hundred sixty-seven ($454,967) dollars, for the payment of all outstanding loan obligations by International.

 

ii. In consideration for the cancellation of the secured note  held by DFT, Channel shall pay to the DFT an aggregate of five hundred thousand ($500,000) dollars, pursuant to the following schedule:

 

a. twenty five thousand ($25,000) dollars due upon the closing of this Agreement;

 

b. one hundred and twenty five thousand ($125,000) dollars on March 31, 2008; and

c. monthly installments of seven thousand ($7,000) dollars per month until the remaining balance of three hundred fifty thousand ($350,000) dollars is fully satisfied, due upon the first business day of each month, beginning April 1, 2008.

iii. In exchange for the cancellation of International’s indebtedness owed to Mr. Larry Ditto, as soon as practicable subsequent to Closing, International shall issue to Mr. Ditto one millionfive hundred thousand (1,500,000) shares of common stock..

B. Capital.  The management of Channel agrees to use its best efforts subsequent to Closing to introduce to International  sources to provide up to five million ($5,000,000) dollars of working capital to Acquisition; provided, however, that there shall be no consequences if all or a portion of such monies is not raised.

C. Forbearance of Reverse Stock Split  International agrees that, for a period of one hundred eighty (180) days after Closing, International shall not approve or implement a reverse stock split of the Internatontal’s shares of common stock, or engage in any other measures outside of the ordinary course of business in which the intended result is the reduction of the value of shares of common stock, or the substantial dilution of the shares of common stock.

D. Increase in Authorized Shares.  As soon as is practicable after the Closing, and in accordance with the Voting Agreement, International shall authorize and implement the Amendment, increasing the authorized number of shares of common stock to one hundred million (100,000,000), and the number of shares of preferred stock to two million (2,000,000).

 

E. Second Issuance.  Immediately after the implementation of the Amendment, the Board of Directors of International shall resolve to issue to the Channel Shareholders as additional consideration for the Channel shares being exchanged,  the Second Issuance, to be distributed pro-rata to the of Channel Shareholders, based upon his, her or its ownership of Channel immediately prior to the Closing of this Agreement, and each share shall further be duly authorized and validlyissued and free of preemptive rights, with no personal liability attaching to the ownership thereof.

5. Directors and Officers.

 

A. At the Closing, the Board of Directors of International shall appoint two directors, who shall be designated by Channel to serve as the directors of International, to hold office in accordance with the certificate of incorporation and bylaws of the respective entity until their successor is duly elected or appointed and qualified. Larry Ditto, a director of International immediately prior to the Closing, shall remain on the Board of Directors for a period of at least six (6) months, and there after shall serve only if appointed by the Board of Directors and/or stockholders of International, All other directors of International serving immediately prior to the Closing Date shall resign upon the Closing.

B. At the Closing, after the appointment of individuals so designated by Channel as set forth in Paragraph “A” of this Article “5” of this agreement to International’s Board of Directors, International shall appoint the current officers of Channel, to hold office in accordance with the certificate of incorporation and bylaws of International.  The officers of International serving immediately prior to the Closing Date shall resign upon the Closing.

5. Closing Date.  The closing of this transaction (the “Closing”) shall take place at the offices having an address of 15851 Dallas Parkway, Suite 225, Addison, Texas, 75001 at 12:00 PMCentral Standard Time (“CST”) on December 28th, 2007 (the “Closing Date”).

6. Channel and the Channel shareholders’ Joint and Several Representations, Warranties and Covenants.  Channel and the Channel shareholders jointly and severally represent, warrant and covenant to International as follows:

A. Corporate Status.

i. Channel is a corporation duly organized pursuant to the laws of the State of Texas, with all requisite power and authority to carry on its business as presently conducted in all jurisdictions where presently conducted, to enter into this Agreement and to consummate the transactions set forth in this Agreement; and

ii. Copies of (a) the Certificate of Incorporation of Channel, and all amendments thereto, certified by the Secretary of State of the State of Texas, (b) the By-Laws of Channel, as amended, certified by the Secretary of Channel, and (c) a good standing certificate for Channel issued by the Secretary of State of the State of Texas as of a date not more than thirty (30) days prior to the date of this Agreement, are annexed to, and made a part of, this Agreement as Exhibits “D” (Article “6Aii”),  “E” (Article “6Aii”), and “F” (Article “6Aii”), respectively, and are complete and correct as of the date of this Agreement.

B. Authority of Channel.  Channel has the full corporate power and authority toexecute, deliver and perform this Agreement and has taken all corporate action required by law and its organizational documents to authorize the execution and delivery of this Agreement and the consummation of the transactions set forth in this Agreement, and no other corporate action on its part is necessary to authorize and approve this Agreement or to consummate the transactions contemplated hereby.  This Agreement and the consummation by Channel of the transactions set forth in this Agreement have been duly and validly authorized, executed and delivered by the Board of Directors of Channel, and (assuming the valid authorization, execution and delivery of this Agreement by International) this Agreement is valid and binding upon Channel and enforceable against Channel in accordance with its terms (except as the enforceability thereof may be limited by bankruptcy, insolvency, bank moratorium or similar laws affecting creditors' rights generally and laws restricting the availability of equitable remedies, and may be subject to general principles of equity whether or not such enforceability is considered in a proceeding at law or in equity).  A certified resolution of the Board of Directors of Channel and a unanimous consent of the Channel shareholders approving Channel’s entry into this Agreement and consummation of the transactions set forth in this Agreement are annexed to, and made a part of, this Agreement as Exhibits “G” (Article “6B”) and “H” (Article “6B”).

C. Ownership.  Annexed hereto and made a part hereof as Exhibit “I” (Article “6C”), is a schedule of all Channel shareholders and their respective ownership of Channel Common Stock.

D. Compliance with the Law and Other Instruments.  Except as otherwise provided in this Agreement and in the Exhibits annexed to, and made a part of, this Agreement, the businessand operations of Channel have been and are being conducted in all material respects in accordance with all applicable laws, rules and regulations of all authorities which affect Channel or its properties, assets, businesses or prospects.

E. Absence of Conflicts.  The execution and delivery of this Agreement, and the consummation by Channel of the transactions set forth in this Agreement: (i) do not and shall not conflict with or result in a breach of any provision of Channel’s Certificate of Incorporation or By-Laws, (ii) do not and shall not result in any breach of, or constitute a default or cause an acceleration under any arrangement, agreement or other instrument to which Channel is a party to or by which any of its assets are bound, (iii) do not and shall not cause Channel to violate or contravene any provision of law or any governmental rule or regulation, and (iv) will not and shall not result in the imposition of any lien, or encumbrance upon, any property of Channel.  Channel has performed in all material respects all of its obligations which are, as of the date of this Agreement, required to be performed, pursuant to the terms of any such agreement, contract or commitment.

F. Financial Condition.  Except as set forth on the Channel Disclosure Schedule, which is annexed to, and made a part of, this Agreement as Exhibit “H” (Article “7F”) (i) Channel does not have any outstanding indebtedness or other liabilities or obligations of any nature (whether absolute, accrued, contingent or otherwise, and whether due or to become due), (ii) there has not been any material adverse change in Channel’s financial condition, assets, liabilities or business, (iii) there has not been any damage, destruction or loss, whether or not covered by insurance, materially affecting Channel’s properties, assets or business, (iv) Channel has not incurred any indebtedness, liability or other obligation of any nature whatsoever except in the ordinary course of business, and(v) Channel has not made any change in its accounting methods or practices.

G. Environmental Compliance.  Channel is in compliance with all applicable environmental laws.

H. OSHA Compliance.  Channel is in compliance with all applicable federal, state and local laws, rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder and other governmental requirements relating to occupational health and safety including, but not limited to, the Occupational Safety and Health Act of 1970, as amended, and the rules and regulations promulgated thereunder.

I. Taxes.  Channel has timely filed all required federal tax returns for income, franchise, social security, withholding, sales, excise, unemployment insurance, real estate and other taxes, and has paid or made adequate provisions for the payment of all such taxes shown to be due on said returns.

J. Litigation. There are no legal, administrative, arbitration or other proceedings or governmental investigations adversely affecting Channel or its properties, assets or businesses, or with respect to any matter arising out of the conduct of Channel’s business pending or to its knowledge threatened, by or against, any officer or director of Channel in connection with its affairs, whether or not covered by insurance.  Except as set forth on the Channel Disclosure Schedule, which is annexed to, and made a part of, this Agreement as Exhibit “J” (Article “6J”), neither Channel norits officers or directors are subject to any order, writ, injunction or decree of any court, department, agency or instrumentality affecting Channel.  Channel is not presently engaged in any legal action.

K. Contracts.  Except as set forth on the Channel Disclosure Schedule, Channel is not a party to any material contracts.

L. No Approvals.  No approval of any governmental authority is required of Channel in connection with the consummation of the transactions set forth in this Agreement.

M. Broker.  Channel has not had any dealing with respect to this transaction with any business broker, firm or salesman, or any person or corporation, investment banker or financial advisor who is or shall be entitled to any broker's or finder's fee or any other commission or similar fee with respect to the transactions set forth in this Agreement.  Channel represents that it has not dealt with any such person, firm or corporation and agrees to indemnify and hold harmless International from and against any and all claims for brokerage commissions by any person, firm or corporation on the basis of any act or statement alleged to have been made by Channel or its affiliates or agents.

N. Complete Disclosure.  No representation or warranty of Channel which is contained in this Agreement, or in a writing furnished or to be furnished pursuant to this Agreement, to Channel’s knowledge contains or shall contain any untrue statement of a material fact, or omits orshall omit to state any fact which is required to make the statements which are contained herein or therein, in light of the circumstances under which they were made, not materially misleading.  There is no fact relating to the business, affairs, operations, conditions (financial or otherwise) or prospects of Channel which would materially adversely affect same which has not been disclosed to International in this Agreement.

 

O. Securities Laws.  Neither Channel nor, to Channel's knowledge, any director or executive officer thereof, is or has been the subject of any action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty.  There has not been, and to the knowledge of Channel, there is not, pending or contemplated, any investigation by the Securities and Exchange Commission, the Financial Industry Regulatory Authority (FINRA), or other regulatory authority with respect to Channel or, to Channel's knowledge, any current or former director or executive officer of Channel.

7. International’s and International’s Shareholders Representations, Warranties and Covenants.  International and the International Shareholders, jointly and severally, represent, warrant and covenant to Channel and to each of the Channel shareholders as follows:

A. Corporate Status.

i. International is a corporation duly organized, validly existing and in good standing pursuant to the laws of the State of Delaware, with all requisite power and authority to carry on its business as presently conducted in all jurisdictions where presently conducted, to enter into this Agreement and to consummate the transactions set forth in this Agreement; and

ii. copies of (a) the Certificate of Incorporation of International, and all amendments thereto, certified by the Secretary of State of the State of Delaware, (b) the By-Laws of International, as amended, certified by the Secretary of International, and (c) a good standing certificate for International issued by the Secretary of State of the State of Delaware as of a date not more than thirty (30) days prior to the date of this Agreement, are annexed to, and made a part of, this Agreement as Exhibits “K” (Article “7Aii”), “L” (Article “7Aii”) and “M” (Article “7Aii”) respectively, and are complete and correct as of the date of this Agreement.

 

B. Capitalization. Prior to the Amendment required pursuant to Article “4” of this Agreement, International’s authorized capital stock consists of forty million (40,000,000) shares of International Common Stock.  After the Amendment, International’s authorized capital stock shall consist of one hundred million (100,000,000) shares of International Common Stock, and two million (2,000,000) shares of International Preferred Stock.  Except as set forth in this Agreement, there are no subscriptions, options, warrants, rights or other agreements outstanding to acquire from  International shares of stock of International or any other equity security or security convertible into an equity security. Except as  set forth in this Agreement, there are no agreements or commitments to increase, decrease or otherwise alter the authorized capital stock of International.  Except as set forth on the disclosure schedule (the “International Disclosure Schedule”) which is annexed to, and made a part of, this Agreement as Exhibit “N” (Article “7B”), International has not granted any registration rights with respect to any series of International stock outstanding.

C. Authority of International and the International Shareholders.  International and the International Shareholders have the full power and authority to execute, deliver and perform this Agreement and has taken all action required by law and its organizational documents to authorize the execution and delivery of this Agreement and the consummation of the transactions set forth in this Agreement, and no other corporate action on its part is necessary to authorize and approve this Agreement or to consummate the transactions contemplated hereby.  This Agreement and the consummation by International and the International Shareholders of the transactions set forth in this Agreement have been duly and validly authorized, executed, and delivered by the Board of Directors of International, and (assuming the valid authorization, execution and delivery of this Agreement by the Channel shareholders) this Agreement is valid and binding upon International and enforceable against International in accordance with its terms (except as the enforceability thereof may be limited by bankruptcy, insolvency, bank moratorium or similar laws affecting creditors' rights generally and laws restricting the availability of equitable remedies and may be subject to general principles of equity whether or not such enforceability is considered in a proceeding at law or in equity).  A certified resolution of the Board of Directors of International and a consent of the shareholders holding a majority of the votes of International approving International’s entry into this Agreement and consummation of the transactions set forth in this Agreement are annexed to, and made a part of, this Agreement as Exhibits “O” (Article “7C”) and “P” (Article “7C”).

D. Ownership.  The individuals and/or entities set forth on Exhibit “Q” (Article “7D”) which is annexed to, and made a part of, this Agreement, are the shareholders of record of International.

E. Financial Condition.  International has fully disclosed its financial condition including all assets and liabilities on Form 10-QSB for the period ending September 30, 2007 which was filed on November 19, 2007 with the SEC (the “10-QSB).  All liabilities accrued after September 30, 2007 are set forth on the International Disclosure Schedule, which is annexed hereto and made a part hereof as Exhibit “N”.  Channel shall satisfy the obligations owed to the DFT pursuant to the schedule set forth in Subparagraph “ii” of Paragraph “A” of Article “4” of this Agreement, and shall seek to satisfy all other obligations of International pursuant to Subparagraph “i” of Paragraph “A” of Article “4” of this Agreement.  Channel understands that the liabilities of International not owed to the DFT  (the “Liability Balance”) are held by a group of International shareholders which may upon reaching an agreement with International after the Closing shall convert a portion of, or all of the Liability Balance into Common Shares of International at a future date.

 

F. Compliance with the Law and Other Instruments.  The business and operations of International have been and are being conducted in all material respects in accordance with allapplicable laws, rules and regulations of all authorities which affect International or its properties, assets, businesses or prospects.

G. Absence of Conflicts.  The execution and delivery of this Agreement and the issuance of the securities of International, and the consummation by International of the transactions set forth in this Agreement: (i) do not and shall not conflict with or result in a breach of any provision of International’s Certificate of Incorporation or By-Laws, (ii) do not and shall not result in any breach of, or constitute a default or cause an acceleration under any arrangement, agreement or other instrument to which International is a party to or by which any of its assets are bound, (iii) do not and shall not cause International to violate or contravene any provision of law or any governmental rule or regulation, and (iv) will not and shall not result in the imposition of any lien, or encumbrance upon, any property of International.  International has performed in all material respects all of its obligations which are, as of the date of this Agreement, required to be performed, pursuant to the terms of any such agreement, contract or commitment.

H. Environmental Compliance.  International is in compliance with all applicable environmental laws.

I. OSHA Compliance.  International is in compliance with all applicable federal, state and local laws, rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder and other governmental requirements relating to occupational health and safety including, but not limited to, the Occupational Safety and Health Act of 1970, as amended,and the rules and regulations promulgated thereunder.

J. Taxes. International has timely filed all required federal, state, city and local tax returns for income, franchise, social security, withholding, sales, excise, unemployment insurance, real estate and other taxes, and has paid or made adequate provisions for the payment of all such taxes shown to be due on said returns.

K. Litigation. There are no legal, administrative, arbitration, or other proceedings or governmental investigations adversely affecting International or its properties, assets or businesses, or with respect to any matter arising out of the conduct of International’s business pending, or to its knowledge threatened, by or against, any officer or director of International in connection with its affairs, whether or not covered by insurance.  Except as set forth on the International Disclosure Schedule, neither International nor its officers or directors are subject to any order, writ, injunction, or decree of any court, department, agency, or instrumentality, affecting International.  International is not presently engaged in any legal action.

L. Contracts.  Except as set forth on the International Disclosure Schedule, International is not a party to any material contracts.

M. Absence of Changes.  There has not been any material adverse change in, or any event or condition (financial or otherwise) affecting the business, properties, assets, liabilities, historical operations or prospects of International, there are no liabilities or obligations of any nature, whether absolute, contingent or otherwise, whether due or to become due (including, without limitation, liabilities for taxes with respect to or measured by income of International for any period prior to the date of this Agreement or arising out of any transaction of International prior to such date).  There has not been any declaration, setting aside or payment of any dividend or other distribution with respect to International’s securities, or any direct or indirect redemption, purchase or other acquisition of any of International’s securities.  To International’s knowledge, there has not been an assertion against International of any liability of any nature or in any amount not fully reflected or reserved against in the International Disclosure Schedule.

N. No Approvals.  No approval of any governmental authority is required of International in connection with the consummation of the transactions set forth in this Agreement.

O. Broker.  International has not had any dealing with respect to this transaction with any business broker, firm or salesman, or any person or corporation, investment banker or financial advisor who is or shall be entitled to any broker's or finder's fee or any other commission or similar fee with respect to the transactions set forth in this Agreement.  International represents that it has not dealt with any such person, firm or corporation and agrees to indemnify and hold harmless each of the Channel shareholders from and against any and all claims for brokerage commissions by any person, firm or corporation including on the basis of any act or statement alleged to have been made by International or its affiliates or agents.

 

P. Securities Laws.  Neither International nor, to International's knowledge, any director or executive officer thereof, is or has been the subject of any action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty.  There has not been, and to the knowledge of International, there is not, pending or contemplated, any investigation by the Securities and Exchange Commission, the Financial Industry Regulatory Authority (FINRA), or other regulatory authority with respect to International or, to International's knowledge, any current or former director or executive officer of International.

Q. Complete Disclosure.  No representation or warranty of International which is contained in this Agreement, or in a writing furnished or to be furnished pursuant to this Agreement, to International’s knowledge contains or shall contain any untrue statement of a material fact, or omits or shall omit to state any fact which is required to make the statements which are contained herein or therein, in light of the circumstances under which they were made, not materially misleading.  There is no fact relating to the business, affairs, operations, conditions (financial or otherwise) or prospects of International which would materially adversely affect same which has not been disclosed to the Channel shareholders in this Agreement.

R. No Defense.  It shall not be a defense to a suit for damages for any misrepresentation or breach of covenant or warranty that any of the Channel shareholders knew or had reason to know that any covenant, representation or warranty of International in this Agreement or furnished or to be furnished to such Channel Shareholder contained untrue statements.

8. Channel Shareholders’ Representations, Warranties and Covenants.Each of the Channel shareholders, each as to himself or itself, hereby represents and warrants to each of the other parties to this Agreement that the statements contained in this Article “8” of this Agreement are true and correct:

A. Ownership.  He, she or it is the record, beneficial and equitable owner of such number of shares of Channel Common Stock as is set forth opposite his or its name on Exhibit “I” or “Q”.  He or it holds said shares free and clear of all liens, claims or encumbrances, and has the full right and authority to exchange or transfer said shares pursuant to the terms of this Agreement.

B. Absence of Conflicts.  His, she or its execution and delivery of this Agreement, the transfer of his or its shares of Channel Common Stock and the consummation by him or it of the transactions set forth in this Agreement do not and shall not cause him or it to violate or contravene any provision of law or any governmental rule or regulation.

C. No Approvals.  No approval of any governmental authority is required of him , her or it in connection with the consummation of the transactions set forth in this Agreement.

D. Complete Disclosure.  No representation or warranty of him, her or it which is contained in this Agreement, or in a writing furnished or to be furnished pursuant to this Agreement, to his or its knowledge contains or shall contain any untrue statement of a material fact, omits or shall omit to state any fact which is required to make the statements which are contained herein or therein, in light of the circumstances under which they were made, not materially misleading.

E. No Defense.  It shall not be a defense to a suit for damages by another party to this Agreement against him, her or it for any misrepresentation or breach of covenant or warranty that the other party which is suing him or it knew or had reason to know that any covenant, representation or warranty of him, her or it in this Agreement contained untrue statements.

F. Broker.  He, she or it has not had any dealing with respect to this transaction with any business broker, firm or salesman, or any person or corporation, investment banker or financial advisor who is or shall be entitled to any broker's or finder's fee or any other commission or similar fee with respect to the transactions set forth in this Agreement.  Each of the Channel shareholders represents that he or it has not dealt with any such person, firm or corporation and agrees to indemnify and hold harmless International from and against any and all claims for brokerage commissions by any person, firm or corporation on the basis of any act or statement alleged to have been made by him or it or his or its affiliates or agents.

9. Mutual Covenants of All of the Parties Hereto.

A. Best Efforts.  Each of the parties hereto shall use its best efforts to perform or satisfy each covenant or condition to be performed or satisfied by each of them before and after the Closing Date.

 

B. Notice of Developments and Updates.  Each of the parties hereto shall give prompt written notice pursuant to Paragraph “C” of Article “21” of this Agreement to the other parties hereto of any act, event or occurrence which may cause or constitute a breach of any of its own representations and warranties in Articles “6”, “7” or “8” of this Agreement, as the case may be.

C. No Public Announcement.  None of the parties hereto shall, without the prior written approval of all of the Channel shareholders and International, make any press release or other public announcement or communicate with any customer, competitor, or supplier of, or others having business dealings with, either of Channel or International concerning the transactions contemplated by this Agreement, except as and to the extent that such party shall determine such disclosure is required by law (which determination shall be made by such party based upon the advice of its counsel), in which event the other parties hereto shall be advised and the parties shall use their best efforts to cause a mutually agreeable release or announcement to be issued.

D. Exclusivity.   Neither Channel nor International shall, without the prior written approval of (i) in the case of International, all of the Channel shareholders or (ii) in the case of Channel, International, (i) enter into, or (ii) solicit, initiate or encourage any inquiries or proposals that constitute, or could reasonably be expected to lead to, a proposal or offer for, a merger, consolidation, business combination, sale of substantial assets, sale of shares of capital stock (including, but not limited to, by way of a tender offer) or similar transaction involving such party, other than the transactions contemplated by this Agreement.

 

 

10. Conduct of International’s Business Prior to the Closing Date.  Between the date of this Agreement and the Closing Date, International shall carry on its business in the ordinary course and in the same manner as heretofore conducted and shall preserve intact the existing business organization of International, and use its best efforts to preserve International’s relationships, if any, with customers, suppliers and others having business dealings with International, to the end that its goodwill and ongoing business shall not be materially impaired on the Closing Date.  Without the prior written consent of all of the Channel shareholders, International shall not:

A. make any change in its Certificate of Incorporation or By-Laws, except pursuant to the terms and conditions of this Agreement;

B. authorize or issue any capital stock or any rights, warrants, options or convertible securities to acquire such stock, except pursuant to the terms and conditions of this Agreement;

C. take any action or omit to do any act which would cause the representations or warranties of International contained herein to be untrue or incorrect in any material respect;

D. declare or make any payment or distribution to its shareholders (other than payment of compensation for services rendered, if applicable) or purchase or redeem any shares of capital stock, except pursuant to the terms and conditions of this Agreement;

E. commit any act or omit to do any act which would cause a material breach ofany agreement, contract or commitment which is listed in an Exhibit annexed to this Agreement;

F. wind down or transfer its business; or

G. engage in any business activities whatsoever.

11. Conduct of Channel Business Prior to the Closing Date.  Between the date of this Agreement and the Closing Date, Channel shall carry on its business in the ordinary course and in the same manner as heretofore conducted and shall preserve intact the existing business organization of Channel, and use its best efforts to (i) keep available to Channel the services of Channel’s present officers and employees, (ii) preserve Channel’s relationships, if any, with customers, suppliers and others having business dealings with Channel, to the end that its goodwill and ongoing business shall not be materially impaired on the Closing Date.  Without the prior written consent of International, Channel shall not:

A. make any change in the Certificate of Incorporation or By-Laws of Channel;

B. conduct the business of Channel in any manner other than in the ordinary course;

C. authorize or issue any capital stock or any rights, warrants, options or convertible securities to acquire such stock;

D. declare or make any payment or distribution to its shareholders (other than payment of compensation for services rendered, if applicable) or purchase or redeem any shares of capital stock, except pursuant to the terms and conditions of this Agreement;

E. take any action or omit to do any act which would cause the representations or warranties of Channel contained herein to be untrue or incorrect in any material respect;

F. commit any act or omit to do any act which would cause a material breach of any agreement, contract or commitment which is listed in an Exhibit annexed to this Agreement; or

G. commit any other act or omit to do any other act which would have a material adverse effect upon the business, financial condition or earnings of Channel.

12. Nondisclosure of Confidential Information/Non-Circumvent.

A. As used in this Agreement, “Confidential Information” shall mean oral or written information which is directly or indirectly presented to a party, its past, present or future subsidiaries, parents, officers, consultants, directors, shareholders, affiliates, attorneys, employees, agents and its and their respective Immediate Families (as defined below; all of the foregoing are hereinafter collectively referred to as “Agents”) by another party or its Agents, including, but not limited to, information which is developed, conceived or created by the party, or disclosed to the other party or  its Agents or known by or conceived or created by the other party or its Agents during, or after the termination of, this Agreement if disclosed to the other party or its Agents or known by or conceived or created by the other party or its Agents as a result of this Agreement, with respect to the party, its business or any of said party’s products, processes, and other services relating thereto relating to the past or present business or any plans with respect to future business of the party, or relating to the past or present business of a third party or plans with respect to future business of a third party which are disclosed to the party.  Confidential Information includes, but is not limited to, all documentation, hardware and software relating thereto, and information and data in written, graphic and/or machine readable form, products, processes and services, whether or not patentable, trademarkable or copyrightable or otherwise protectable, including, but not limited to, information with respect to discoveries; know-how; ideas; computer programs, source codes and object codes; designs; algorithms; processes and structures; product information; marketing information; price lists; cost information; product contents and formulae; manufacturing and production techniques and methods; research and development information; lists of customers and vendors and other information relating thereto; financial data and information; business plans and processes; documentation with respect to any of the foregoing; and any other information of the party that the party informs the other party or its Agents or the other party or its Agents should know, by virtue of said party’s position or the circumstances in which said party learned such other information, is to be kept confidential including, but not limited to, any information acquired by the other party or its Agents from any sources prior to the commencement of this Agreement.  Confidential Information also includes similar information obtained by the party in confidence from its vendors, licensors, licensees, customers and/or clients.  Confidential Information may or may notbe labeled as confidential.

For purposes of this Agreement, “Immediate Family” shall include the following: (A) any spouse, parent, spouse of a parent, mother-in-law, father-in-law, brother-in-law, sister-in-law, child, spouse of a child, adopted child, spouse of an adopted child, sibling, spouse of a sibling, grandparent, spouse of a grandparent, and any issue or spouse of any of the foregoing, and (B) such child or issue of such child which is born and/or adopted during or after the term of this Agreement and the issue (whether by blood or adoption) of such person; provided, however, that it shall not include any person who was legally adopted after attaining the age of eighteen (18) by any of the persons specified in this Paragraph “A” of this Article “12” of this Agreement or any spouse or issue (whether by blood or adoption) of any such person.  A parent of a specified person shall include an affiliate.

B. Except as required in the performance of a party’s or its Agents’ obligations pursuant to this Agreement, neither said party nor its Agents shall, during, or after the termination of, this Agreement, directly or indirectly, use any Confidential Information or disseminate or disclose any Confidential Information to any person, firm, corporation, association or other entity.  Said Party or its Agents shall take all reasonable measures to protect Confidential Information from any accidental, unauthorized or premature use, disclosure or destruction.  The foregoing prohibition shall not apply to any Confidential Information which: (i) was generally available to the public prior to such disclosure; (ii) becomes publicly available through no act or omission of said party or its Agents (iii) is disclosed as reasonably required in a proceeding to enforce said party’s rights under this Agreement or (iv) is disclosed as required by court order or applicable law; provided, however, that if said party and/or its Agents are legally requested or required by court order or applicable law, including, but not limited to, by oral question, interrogatories, request for information or documents, subpoenas, civil investigative demand or similar process to disclose any Confidential Information, said party and/or its Agents, as the case may be, shall promptly notify the party of such request or requirement so that the party may seek an appropriate protective order; provided further, however; that if such protective order is not obtained, said party and/or its Agents, as the case may be, agree to furnish only that portion of the Confidential Information which they are advised by their respective counsel is legally required.

C. Upon termination of this Agreement for any reason or at any time upon request of a party, the other party and its Agents agree to deliver to the requesting party all materials of any nature which are in the other party’s or its Agents’ possession or control and which are or contain Confidential Information, or which are otherwise the property of the requesting party or any vendor, licensor, licensee, customer or client of the party, including, but not limited to writings, designs, documents, records, data, memoranda, tapes and disks containing software, computer source code listings, routines, file layouts, record layouts, system design information, models, manuals, documentation and notes.  The other party and its Agents shall destroy all written documentation prepared by them for internal purposes based in whole or in part on any Confidential Information and such destruction shall be confirmed to the requesting party in writing by the other party and/or its Agents.

 

D. Upon the consummation of the transaction set forth in this Agreement, all of the Confidential Information shall be deemed to be the property of International.

13. Survival of Representations, Warranties and Covenants.  All covenants, agreements, representations and warranties made in or in connection with this Agreement shall survive the Closing Date hereof, and shall continue in full force and effect, it being understood and agreed that each of such covenants, agreements, representations and warranties is of the essence of this Agreement and the same shall be binding upon and shall inure to the benefit of the parties hereto, and their successors and assigns.

14. Conditions of Closing.

A. Conditions to the Channel shareholders’ Obligation to Close.  The obligation of the Channel shareholders to close the transactions set forth in this Agreement shall be subject to the following conditions:

i. Representations and Warranties of International and the International Shareholders to be True.  To International and the International Shareholders’ knowledge, the representations and warranties of International and International Shareholders set forth in this Agreement shall be true in all material respects on the Closing Date with the same effect as though made at such time, except to the extent waived or affected by the transactions set forth in this Agreement; and International shall have delivered to the Channel shareholders a certificate ofInternational (the “International Certificate”) in the form annexed to, and made a part of, this Agreement as Exhibit “R” (Article “14Ai”), signed by the President of International dated the Closing Date to such effect;

ii. Performance of Obligations of International.  International shall have performed all obligations and complied with all covenants set forth in this Agreement to be performed or complied with in all material respects by it prior to the Closing Date, and International shall have delivered to the Channel shareholders the International Certificate signed by the President of International and dated the Closing Date to such effect;

iii. No Adverse Change.  There shall not have occurred any material adverse change since the date of this Agreement and through the date of the Closing Date in the business, properties, results of operations or business or financial condition of International, and International shall have delivered to the Channel shareholders the International Certificate signed by the President of International and dated the Closing Date to such effect;

iv. Statutory Requirements.  Any statutory requirement for the valid consummation by International of the transactions set forth in this Agreement shall have been fulfilled; any authorizations, consents and approvals of all federal, state and local governmental agencies and authorities required to be obtained, in order to permit consummation by International of the transactions set forth in this Agreement and to permit the business presently carried on by International to continue unimpaired following the Closing Date, shall have been obtained, andInternational shall have delivered to the Channel shareholders the International Certificate signed by the President of International and dated the Closing Date to such effect;

v. No Governmental Proceedings.  No action or proceeding shall have been instituted before a court or other governmental body by any governmental agency or public authority to restrain or prohibit the transactions set forth in this Agreement and International shall have delivered to the Channel shareholders the International Certificate signed by the President of International and dated the Closing Date to such effect;

vi. Consents Under Agreements.  International shall have obtained the consent or approval of each person whose consent or approval shall be required in connection with the transactions set forth in this Agreement and International shall have delivered to the Channel shareholders the International Certificate signed by the President of International and dated the Closing Date to such effect;

vii. Good Standing Certificate.  On the Closing Date, International shall provide the Channel shareholders with a good standing certificate for International issued by the Secretary of State of the State of Delaware, which certificate is complete and correct as of a date within thirty (30) days prior to the Closing Date;

viii. Shareholder Approval.  As soon as it practicable subsequent to the execution of this Agreement, the shareholders of International approve this Agreement and its related transactions in accordance with the applicable provisions of the Delaware Corporations Code, and International shall have delivered to the Channel shareholders a consent of the shareholders of International in the form annexed to, and made a part of, this Agreement as Exhibit “P” (Article “7C”); and

ix. Directors and Officers.  The Board of Directors of International shall have appointed so designated by Channel pursuant to Paragraph “A” of Article “4” of this Agreement, and the directors and officers of International serving immediately prior to the Closing Date shall have resigned pursuant to Paragraphs “A” and “B” of Article “4” of this Agreement, respectively; provided however, that Larry D. Ditto shall remain a member of the Board of Directors for a period of six month subsequent to Closing, and thereafter upon the discretion of Channel and Channel’s shareholders.

x. No Liabilities.  International shall have no liabilities, contractual or other obligations, or business activities, all of which shall have been satisfied, resolved or transferred  except those which have been set forth on the Form 10-QSB, those liabilities set forth in Paragraph “A” of Article “4” or set forth on the International Disclosure Schedule prior to the Closing without any recourse or liability to International.

B. Conditions to International’s Obligation to Close.  The obligation of International to close the transactions set forth in this Agreement shall be subject to the following conditions:

 

i. Representations and Warranties of Channel and the Channel shareholders to be True.  To Channel and the Channel shareholders’ knowledge, the representations and warranties of Channel and the Channel shareholders set forth in this Agreement shall be true in all material respects on the Closing Date with the same effect as though made at such time, except to the extent waived or affected by the transactions set forth in this Agreement; and the Channel shareholders shall have delivered to International a certificate of Channel (the “Channel Certificate”) in the form annexed hereto and made a part hereof as Exhibit “S” (Article “14Bi”), signed by the President of Channel and all of the Channel shareholders and dated the Closing Date to such effect;

ii. Performance of Obligations of Channel and the Channel shareholders.  Channel and each of the Channel shareholders shall have performed all obligations and complied with all covenants set forth in this Agreement to be performed or complied with in all material respects by him or it prior to the Closing Date, and the Channel shareholders shall have delivered to International the Channel Certificate signed by the President of Channel and all of the Channel shareholders and dated the Closing Date to such effect;

iii. No Adverse Change.  There shall not have occurred any material adverse change through the date of the Closing Date in the business, properties, results of operations or business or financial condition of Channel, and Channel shall have delivered to International the Channel Certificate signed by the President of Channel and all of the Channel shareholders and dated the Closing Date to such effect;

 

 

iv. Statutory Requirements.  Any statutory requirement for the valid consummation by Channel and the Channel shareholders of the transactions set forth in this Agreement shall have been fulfilled; any authorizations, consents and approvals of all federal, state and local governmental agencies and authorities required to be obtained, in order to permit consummation by Channel and the Channel shareholders of the transactions set forth in this Agreement and to permit the business presently carried on by Channel to continue unimpaired following the Closing Date, shall have been obtained, and the Channel shareholders shall have delivered to International the Channel Certificate signed by the President of Channel and all of the Channel shareholders and dated the Closing Date to such effect;

v. No Governmental Proceedings.  No action or proceeding shall have been instituted before a court or other governmental body by any governmental agency or public authority to restrain or prohibit the transactions set forth in this Agreement, and the Channel shareholders shall have delivered to International the Channel Certificate signed by the President of Channel and all of the Channel shareholders and dated the Closing Date to such effect;

vi. Consents Under Agreements.  The Channel shareholders shall have obtained the consent or approval of each person whose consent or approval shall be required in connection with the transactions set forth in this Agreement, and the Channel shareholders shall have delivered to International the Channel Certificate signed by the President of Channel and all of the Channel shareholders and dated the Closing Date to such effect; and

 

vii. Shareholder Approval.  The Channel shareholders shall have approved this Agreement and its related transactions pursuant to the applicable provisions of the Texas Business Corporation Act, and the Channel shareholders shall have delivered to International a consent of the Channel shareholders in the form annexed to, and made a part of, this Agreement as Exhibit “H” (Article “6B”).

viii. Good Standing Certificate.  On the Closing Date, the Channel shareholders shall provide International with a status certificate for Channel issued by the Secretary of State of the State of Texas, which certificate is complete and correct as of a date within thirty (30) days prior to the Closing Date;

x. Shareholder Designation. The Channel shareholders irrevocably constitute and appoint Eddie Vakser with full power of substitution and re-substitution, as its and their true and lawful agent, attorney-in-fact and representative, with full power to act for and on behalf of the Shareholders, and each of them, for all purposes pursuant to this Agreement and in connection with the transactions therein as set forth in the form annexed to, and made a part of, this Agreement as Exhibit “W”.

15. Documents, Certificates, etc. to be Delivered at Closing.

A. At the Closing, International shall deliver the following items to the Channel shareholders:

i. the International Certificate (as defined in Subparagraph “i” of Paragraph “A” of Article “14” of this Agreement), signed by the President of International, in the form annexed to, and made a part of, this Agreement as Exhibit “R” (Article “14Ai”);

ii. stock certificates evidencing the Closing Issuance, as defined in the second  “WHEREAS” clause of this Agreement;

iii. a good standing certificate of International, dated within thirty (30) days prior to the Closing Date;

iv. a consent of the shareholders of International, in the form annexed to, and made a part of, this Agreement as Exhibit “P” (Article “7C”).

B. At the Closing, the Channel shareholders shall deliver the following items to International:

i. the Channel Certificate, as defined in Subparagraph “i” of Paragraph “B” of Article “14” of this Agreement, signed by the President of Channel, in the form annexed to, and made a part of, this Agreement as Exhibit “S” (Article “14Bi”);

 

ii. a single stock certificate evidencing all of the issued and outstanding shares of Channel Common Stock; and

iii. a consent of the Channel shareholders, in the form annexed to, and made a part of, this Agreement as Exhibit “H” (Article “6B”).

iv. a good standing certificate of Channel, dated within thirty (30) days prior to the Closing Date.

16. Equitable Relief.

A. International acknowledges that the Channel shareholders shall be irreparably damaged if this Agreement is not consummated.  Therefore, in the event of any breach by International of this Agreement, any of the Channel shareholders shall have the right, at his or its election, to obtain equitable relief including, but not limited to, an order for specific performance of this Agreement or an injunction, without the need to: (i) post a bond or other security, (ii) to prove any actual damage or (iii) to prove that money damages would not provide an adequate remedy.  Resort to such equitable relief, however, shall not be construed to be a waiver of any other rights or remedies which any of the Channel shareholders may have for damages or otherwise.

B. Each of the Channel shareholders acknowledges that International shall be irreparably damaged if this Agreement is not consummated.  Therefore, in the event of any breach byChannel or any of the Channel shareholders of this Agreement, International shall have the right, at its election, to obtain equitable relief including, but not limited to, an order for specific performance of this Agreement or an injunction, without the need to: (i) post a bond or other security, (ii) to prove any actual damage or (iii) to prove that money damages would not provide an adequate remedy.  Resort to such equitable relief, however, shall not be construed to be a waiver of any other rights or remedies which International may have for damages or otherwise.

17. Method of Termination.  This Agreement may be terminated prior to the Closing Date, by any of the following methods:

A. by mutual written consent of International and all of the Channel shareholders, authorized by the Boards of Directors of each of International and Channel;

B. by written notice from (i) International to all of the Channel shareholders, or (ii) all of the Channel shareholders to International, if within ten (10) business days after receipt of such written notice that the Closing Date has passed, the Closing has not occurred; provided, however, that if the Closing shall not have occurred on, or prior to, the Closing Date as a result of any action taken, or failure to act, by any governmental or regulatory authority including, but not limited to, the withholding of, or a delay in, any approval in connection with any aspect of the transactions contemplated hereby, then the Closing Date shall automatically be extended until a date which is a reasonable time subsequent to the date upon which such governmental or regulatory action is resolved which will allow the parties to complete the procedures required to consummate the  transactions contemplated hereby; provided, further, however, that the right to terminate this Agreement pursuant to this Paragraph “B” of this Article “17” of this Agreement shall not be available to any party whose failure to fulfill any obligation pursuant to this Agreement has been the cause of or resulted in the failure of the Closing to occur on or before such date;

C. by International if there is a material breach of any representation or warranty set forth in Article “6” of this Agreement or by any Channel Shareholder in Article “8” of this Agreement or any covenant or agreement to be complied with or performed by Channel or any of the Channel shareholders pursuant to the terms of this Agreement, including, but not limited to, the covenants set forth in Article “9” of this Agreement, or the failure of a condition set forth in Paragraph “B” of Article “14” of this Agreement to be satisfied (and such condition is not waived in writing by International) on or prior to the Closing Date, or the occurrence of any event which results in the failure of a condition set forth in Paragraph “B” of Article “14” of this Agreement to be satisfied on or prior to the Closing Date; provided however, that, International may not terminate this Agreement prior to the Closing Date if Channel or any of the Channel shareholders, as the case may be, has not had an adequate opportunity to cure such failure, pursuant to Article “19” of this Agreement; or

D. by the mutual written consent of all of the Channel shareholders if there is a material breach of any representation or warranty set forth in Article “7” of this Agreement or any covenant or agreement to be complied with or performed by International, including, but not limited to, the covenants set forth in Article “9” of this Agreement, or the failure of a condition set forth in Paragraph “A” of Article “14” of this Agreement to be satisfied (and such condition is not waived in writing by Channel) on or prior to the Closing Date, or the occurrence of any event which results in the failure of a condition set forth in Paragraph “A” of Article “14” of this Agreement to be satisfied on or prior to the Closing Date; provided however, that, the Channel shareholders may not terminate this Agreement by mutual written consent prior to the Closing Date if International has not had an adequate opportunity to cure such failure pursuant to Article “19” of this Agreement.

18. Effect of Termination.  If this Agreement is terminated pursuant to the provisions set forth in Article “17” of this Agreement, this Agreement shall become null and void and shall have no further effect.

19. Cooperation; Notice; Cure.  Subject to compliance with applicable law, from the date of this Agreement until the Closing Date, each of the parties shall confer on a regular and frequent basis with one or more representatives of the other parties to report on the general status of ongoing operations.  Channel or the Channel shareholders, as the case may be, shall promptly provide International or its counsel with copies of any filings any of them made with any governmental entity in connection with this Agreement and the transactions contemplated hereby and thereby.  Each of the parties shall notify the others of, and will use all commercially reasonable efforts to cure before the Closing Date, any event, transaction or circumstance, as soon as practical after it becomes known to such party, that causes or will cause any covenant or agreement of the parties pursuant to this Agreement to be breached or that renders or will render untrue any representation or warranty of the parties contained in this Agreement.  Each of the parties shall also notify the others in writing of, and will use all commercially reasonable efforts to cure, before the Closing Date, any violation or breach, as soon as practical after it becomes known to such party, of any representation, warranty, covenant or agreement made by the parties.  No notice given pursuant to this paragraph shall have any effect on the representations, warranties, covenants or agreements contained in this Agreement for purposes of determining satisfaction of any condition contained herein.

20. Indemnification.

A. Indemnification by International.   In order to induce Channel and the Channel shareholders to enter into and perform this Agreement, International does hereby indemnify, protect, defend and save and hold harmless Channel and each of the Channel shareholders and each of their Agents (the "Indemnified Parties"), from and against any loss resulting to any of them from any material loss, liability, cost, damage, or expense which the Indemnified Parties may suffer, sustain or incur arising out of or due to a breach by International of the representations, warranties and covenants set forth in Article “7” of this Agreement or in any documents delivered pursuant hereto or of a breach by International of any of its obligations pursuant to this Agreement or in any documents delivered pursuant hereto.

B. Indemnification by the Channel shareholders.  In order to induce International to enter into and perform this Agreement, each of the Channel shareholders hereby jointly indemnifies, protects, defends and saves and holds harmless International and each of its Agents (the "Indemnified  Parties"), from and against any loss resulting to any of them from any material loss, liability, cost, damage, or expense which the Indemnified Parties may suffer, sustain or incur arising out of or due to a breach by Channel or such Channel Shareholder of the representations, warranties and covenants set forth in Article “6” of this Agreement or in any documents delivered pursuant hereto or of a breach by Channel or such Channel Shareholder of any of his or its obligations pursuant to this Agreement or in any documents delivered pursuant hereto.

C. Reasonable Costs, Etc.  The indemnification, which is set forth in this Article “20” of this Agreement shall be deemed to include not only the specific liabilities or obligation with respect to which such indemnity is provided, but also all counsel fees, reasonable costs, expenses and expenses of settlement relating thereto, whether or not any such liability or obligation shall have been reduced to judgment.

D. Third Party Claims.  If any demand, claim, action or cause of action, suit, proceeding or investigation (collectively, the “Claim”) is brought against an Indemnified Party for which the Indemnified Party intends to seek indemnity from the other party hereto (the "Indemnifying Party"), then the Indemnified Party within twenty-one (21) days after such Indemnified Party's receipt of the Claim, shall notify the Indemnifying Party pursuant to Paragraph “C” of Article “21” of this Agreement which notice shall contain a reasonably thorough description of the nature and amount of the Claim (the "Claim Notice").  The Indemnifying Party shall have the option to undertake, conduct and control the defense of such claim or demand.  Such option to undertake, conduct and control the defense of such claim or demand shall be exercised by notifyingthe Indemnified Party within ten (10) days after receipt of the Claim Notice pursuant to Paragraph “C” of Article “21” of this Agreement (such notice to control the defense is hereinafter referred to as the “Defense Notice”).  The failure of the Indemnified Party to notify the Indemnifying Party of the Claim shall not relieve the Indemnifying Party from any liability which the Indemnifying Party may have pursuant to this Article “20” of this Agreement except to the extent that such failure to notify the Indemnifying Party prejudices the Indemnifying Party.  The Indemnified Party shall use all reasonable efforts to assist the Indemnifying Party in the vigorous defense of the Claim.  All costs and expenses incurred by the Indemnified Party in defending the Claim shall be paid by the Indemnifying Party.  If, however, the Indemnified Party desires to participate in any such defense or settlement, it may do so at its sole cost and expense (it being understood that the Indemnifying Party shall be entitled to control the defense).  The Indemnified Party shall not settle the Claim.  If the Indemnifying Party does not elect to control the defense of the Claim, within the aforesaid ten (10) day period by proper notice pursuant to Paragraph “C” of Article “21” of this Agreement, then the Indemnified Party shall be entitled to undertake, conduct and control the defense of the Claim (a failure by the Indemnifying Party to send the Defense Notice to the Indemnified Party within the aforesaid ten (10) day period by proper notice pursuant to Paragraph “C” of Article “21” of this Agreement shall be deemed to be an election by the Indemnifying Party not to control the defense of the Claim); provided, however, that the Indemnifying Party shall be entitled, if it so desires, to participate therein (it being understood that in such circumstances, the Indemnified Party shall be entitled to control the defense).  Regardless of which party has undertaken to defend any claim, the Indemnifying Party may, without the prior written consent of the Indemnified Party, settle, compromise or offer to settle or compromise any such claim or demand; provided however, that ifany settlement would result in the imposition of a consent order, injunction or decree which would restrict the future activity or conduct of the Indemnified Party, the consent of the Indemnified Party shall be a condition to any such settlement.  Notwithstanding the foregoing provisions of this Article “20” of this Agreement, as a condition to the Indemnifying Party either having the right to defend the Claim, or having control over settlement as indicated in this Article “20” of this Agreement, the Indemnifying Party shall execute an agreement, in the form annexed hereto and made a part hereof as Exhibit “T” (Article “20D”), acknowledging its liability for indemnification pursuant to this Article “20” of this Agreement.  Whether the Indemnifying Party shall control and assume the defense of the Claim or only participate in the defense or settlement of the Claim, the Indemnified Party shall give the Indemnifying Party and its counsel access, during normal business hours, to all relevant business records and other documents, and shall permit them to consult with its employees and counsel.

21. Miscellaneous.

A. Headings.  Headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

B. Enforceability.  If any provision which is contained in this Agreement, should, for any reason, be held to be invalid or unenforceable in any respect under the laws of any State of the United States, such invalidity or unenforceability shall not affect any other provision of this Agreement and in this Agreement shall be construed as if such invalid or unenforceable provisionhad not been contained herein.

C. Notices.  Any notice or other communication required or permitted hereunder shall be sufficiently given if sent by (i) mail by (a) certified mail, postage prepaid, return receipt requested and (b) first class mail, (ii) overnight delivery with confirmation of delivery or (iii) facsimile transmission with an original mailed by first class mail, postage prepaid, addressed as follows:

If to Channel:	ART CHANNEL INC.
	16160 County Road 635,
	Blue Ridge, Texas, 75424
	Attention: Eddie Vasker, CEO
	Facsimile No.: (208) 955-3056
with a copy to:	Mintz & Fraade, P.C.
	488 Madison Avenue, Suite 1100
	New York, New York 10022
	Attention: Frederick M. Mintz, Esq.
	Facsimile No.: (212) 486-0701
If to International:	ARTFEST INTERNATIONAL, INC.
	27758 Santa Margarita Parkway
	Suite 281
	Mission Viejo, CA 92691
	Attention: Larry Ditto
	Facsimile No.: _____________

 

 

 

 

 

with a copy to:	________________________
	________________________
	________________________
	Attention: _______________
	Facsimile No.: _____________
If to any of the Channel Shareholders:	To the address set forth for said party on Exhibit “A”.
with a copy to:	Mintz & Fraade, P.C.
	488 Madison Avenue, Suite 1100
	New York, New York 10022
	Attention: Frederick M. Mintz, Esq.
	Facsimile No.: (212) 486-0701

or in each case to such other address and facsimile number as shall have last been furnished by like notice.  If all of the methods of notice set forth in this Paragraph “C” of this Article “21” of this Agreement are impossible for any reason, notice shall be in writing and personally delivered to theaforesaid addresses.  Each notice or communication shall be deemed to have been given as of the date so mailed or delivered as the case may be; provided, however, that any notice sent by facsimile shall be deemed to have been given as of the date so sent if a copy thereof is also mailed by first class mail on the date sent by facsimile.  If the date of mailing is not the same as the date of sending by facsimile, then the date of mailing by first class mail shall be deemed to be the date upon which notice is given; provided further, however, that any notice sent by overnight delivery shall be deemed to have been given as of the date of delivery.

D. Governing Law; Disputes.  This Agreement shall in accordance with Section 5-1401 of the General Obligations Law of New York in all respects be construed, governed, applied and enforced under the internal laws of the State of New York without giving effect to the principles of conflicts of laws and be deemed to be an agreement entered into in the State of New York and made pursuant to the laws of the State of New York.  The parties agree that they shall be deemed to have agreed to binding arbitration with respect to the entire subject matter of any and all disputes relating to or arising under this Agreement including, but not limited to, the specific matters or disputes as to which arbitration has been expressly provided for by other provisions of this Agreement and that any such arbitration shall be commenced exclusively in New York, New York.  Any such arbitration shall be by a panel of three arbitrators and pursuant to the commercial rules then existing of the American Arbitration Association in the State of New York, County of New York.  In all arbitrations, judgment upon the arbitration award may be entered in any court having jurisdiction.  The parties specifically designate the courts in the City of New York, State of New York as properly having jurisdiction for any proceeding to confirm and enter judgment upon any such arbitration award.  The parties hereby consent to and submit to the exclusive jurisdiction of the courts of the State of New York in any action or proceeding and submit to personal jurisdiction over each of them by such courts.  The parties hereby waive personal service of any and all process and specifically consent that in any such action or proceeding brought in the courts of the State of New York, any service of process may be effectuated upon any of them by certified mail, return receipt requested, in accordance with Paragraph “C” of this Article “21” of this Agreement.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.

The parties agree, further, that the prevailing party in any such arbitration as determined by the arbitrators shall be entitled to such costs and attorney's fees, if any, in connection with such arbitration as may be awarded by the arbitrators.  In connection with the arbitrators’ determination for the purpose of which party, if any, is the prevailing party, they shall take into account all of the factors and circumstances including, without limitation, the relief sought, and by whom, and the relief, if any, awarded, and to whom.  In addition, and notwithstanding the foregoing sentence, a party shall not be deemed to be the prevailing party in a claim seeking monetary damages, unless the amount of the arbitration award exceeds the amount offered in a legally binding writing by the other party by fifteen percent (15%) or more.  For example, if the party initiating arbitration (“A”) seeks an award of $100,000 plus costs and expenses, the other party (“B”) has offered A $50,000 in a legally binding written offer prior to the commencement of the arbitration proceeding, and the arbitration panel awards any amount less than $57,500 to A, the panel should determine that B has “prevailed”.

 

The arbitration panel shall have no power to award non-monetary or equitable relief of any sort.  It shall also have no power to award (i) damages inconsistent with any applicable agreement between the parties or (ii) punitive damages or any other damages not measured by the prevailing party’s actual damages; and the parties expressly waive their right to obtain such damages in arbitration or in any other forum.  In no event, even if any other portion of these provisions is held invalid or unenforceable, shall the arbitration panel have power to make an award or impose a remedy which could not be made or imposed by a court deciding the matter in the same jurisdiction.

Discovery shall be permitted in connection with the arbitration only to the extent, if any, expressly authorized by the arbitration panel upon a showing of substantial need by the party seeking discovery.

All aspects of the arbitration shall be treated as confidential.  The parties and the arbitration panel may disclose the existence, content or results of the arbitration only as provided in the rules of the American Arbitration Association in New York, New York.  Before making any such disclosure, a party shall give written notice to all other parties and shall afford such parties a reasonable opportunity to protect their interest.

E. Expenses.  Each party to this Agreement shall bear and pay its own costs and expenses incurred in connection with the execution and delivery of this Agreement and the transactions set forth in this Agreement.  International shall bear all legal fees and expenses withrespect to the preparation of this Agreement, and the preparation and filing of the Offering as set forth in Subparagraph “xii” of Paragraph “A” of Article “14” of this Agreement.

F. Construction.  Each of the parties hereto hereby further acknowledges and agrees that (i) each has been advised by counsel during the course of negotiations and (ii) each counsel has had significant input in the development of this Agreement and (iii) this Agreement shall not, therefore, be construed more strictly against any party responsible for its drafting regardless of any presumption or rule requiring construction against the party whose attorney drafted this Agreement.

G. Entire Agreement.  This Agreement and all documents and instruments referred to herein (a) constitute the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and thereof, and (b) are not intended to confer upon any person other than the parties hereto any rights or remedies hereunder.  Each party hereto agrees that, except for the representations and warranties contained in this Agreement, none makes any other representations or warranties, and each hereby disclaims any other representations and warranties made by itself or any of its officers, directors, employees, agents, financial and legal advisors or other representatives, with respect to the execution and delivery of this Agreement or the transactions contemplated hereby, notwithstanding the delivery or disclosure to the other or the other's representatives of any documentation or other information with respect to any one or more of the foregoing.

H. Further Assurances.  The parties agree to execute any and all such other furtherinstruments and documents, and to take any and all such further actions which are reasonably required to effectuate this Agreement and the intents and purposes hereof.

I. Binding Agreement.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, personal representatives, successors and assigns.

J. Non-Waiver.  Except as otherwise expressly provided herein, no waiver of any covenant, condition, or provision of this Agreement shall be deemed to have been made unless expressly in writing and signed by the party against whom such waiver is charged; and (i) the failure of any party to insist in any one or more cases upon the performance of any of the provisions, covenants or conditions of this Agreement or to exercise any option herein contained shall not be construed as a waiver or relinquishment for the future of any such provisions, covenants or conditions, (ii) the acceptance of performance of anything required by this Agreement to be performed with knowledge of the breach or failure of a covenant, condition or provision hereof shall not be deemed a waiver of such breach or failure and (iii) no waiver by any party of one breach by another party shall be construed as a waiver of any other or subsequent breach.

K. Counterparts.  This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

L. Facsimile Signatures.  Any signature which is delivered via facsimile shall be deemed to be an original and have the same force and effect as if such facsimile signature were the original thereof.

M. Modifications.  This Agreement may not be changed, modified, extended, terminated or discharged orally, except by a written agreement specifically referring to this Agreement which is signed by all of the parties to this Agreement.

N. Exhibits.  All Exhibits annexed or attached to this Agreement are incorporated into this Agreement by reference thereto and constitute an integral part of this Agreement.

O. Severability.  The provisions of this Agreement shall be deemed separable.  Therefore, if any part of this Agreement is rendered void, invalid or unenforceable, such rendering shall not affect the validity or enforceability of the remainder of this Agreement; provided, however, that if the part or parts which are void, invalid or unenforceable as aforesaid shall substantially impair the value of this whole Agreement to any party, that party may cancel and terminate this Agreement by giving written notice to the other party.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.

	ART CHANNEL INC.
	By: Eddie Vakser
	Name: Eddie Vasker
	Title:  Chairman, President and CEO
	(ART CHANNEL INC. agrees to be bound by Articles “6”, “9”, “11” through “15” and “17”  through “21” of this Agreement)
	ARTFEST INTERNATIONAL, INC.
	By: Larry Ditto
	Name: Larry Ditto
	Title:
	INTERNATIONAL SHAREHOLDERS
	Larry Ditto
	Name:  Larry Ditto
	Shares:

 

Exhibit A	International Shareholders Parties to this Agreement (Article “Heading”)
Exhibit B	Channel shareholders Parties to this Agreement (Article “Heading”)
Exhibit C	Voting Agreement
Exhibit D	Channel Certificate of Incorporation (Article “6Aii”)
Exhibit E	Channel By-Laws (Article “6Aii”)
Exhibit F	Channel Good Standing Certificate (Article “6Aii”)
Exhibit G	Resolution of Board of Directors of Channel (Article “6B”)
Exhibit H	Unanimous Resolution of the Channel shareholders (Article “6B”)
Exhibit I	List of Shareholders of Channel (Article “6C”)
Exhibit J	Channel Disclosure Schedule (Article “6J”)
Exhibit K	International Certificate of Incorporation (Article “7Aii”)
Exhibit L	International By-Laws (Article “7Aii”)
Exhibit M	International Good Standing Certificate (Article “7Aii”)
Exhibit N	International Disclosure Schedule (Article “7B”)
Exhibit O	Resolution of Board of Directors of International (Article “7C”)
Exhibit P	Resolution of Shareholders of International (Article “7C”)
Exhibit Q	List of Shareholders of International (Article “7D”)
Exhibit R	International Certificate (Article “14Ai”)
Exhibit S	Channel Certificate (Article “14Bi”)
Exhibit T	Indemnification Letter Agreement (Article “20D”)
Exhibit W	Shareholder Designation (Article “14Bx”)

 

 

Name & Address	Shares Held
Larry Ditto	1,000,000
17 Via Belmonte	3.542%
Rancho Santa, CA  92688
Ditto Family Trust	2,000,000
21282 Canea Street	7.085%
Mission Viejo, CA 92692

 

* Additional shareholders to be added at a later date.

 

 

 

 

Deleted from SEC filing due to the confidential nature of the information.