W3 GROUP, INC.
444 MADISON AVENUE, SUITE 1800
NEW YORK, NY 10022
212-750-7878/212-750-2326 FAX
January 19, 2005
Shane Rodgers, CEO
Signal Companies Inc.
9229 West Sunset Blvd
Suite 830
Los Angeles, CA 90069
Re: Proposed Acquisition of Cristina Acquisition Corp. (hereinafter "CAC", or
"Acquiree") from Signal Companies, Inc. (hereinafter "Signal") by W3 Group,
Inc. (hereinafter "W3")
Dear Mr. Rodgers:
It is the understanding of both parties that the following proposed acquisition
is contingent upon an agreement being reached between Signal and Ameristar Group
Incorporated (a shareholder and creditor of "W3 Group") to provide investment
banking services to Signal. It is also understood and agreed upon by W3, Signal
and CAC that the proposed transaction will result in the increase the
capitalization of the resulting combined company and that controlling interest
following the reverse merger will remain in the hands of Signal shareholders or
their designees.
This Letter sets forth the principal terms of the understanding between W3 and
Acquiree concerning the exchange of all the issued and outstanding capital stock
of Acquiree for the issuance of shares of W3's Common Stock in such amount as
shall equal approximately eighty-three (83%) percent of the total issued and
outstanding shares of W3 immediately following completion of such exchange (the
"Exchange Shares"), as set forth herein. This Letter is not a binding contract,
except as to provisions that are expressly stated to be binding upon the parties
hereto, and is subject to execution of a formal Acquisition Agreement (the
"Agreement"). It is agreed that the Agreement shall embody the terms and
conditions set forth herein, as well as such additional terms and provisions as
are usual and customary to agreements of the nature contemplated hereby.
It is hereby understood and acknowledged that certain shareholders will, on
behalf of the Company, pay a "finders fee" of six hundred thousand shares of
their stock, post-reverse split, to the finders as identified by Signal
Companies.
The parties understand and agree as follows:
1. Acquiree is a corporation formed under the laws of Delaware. CAC has been
formed as wholly owned subsidiary of Signal. However, it is agreed that Signal
may designated such other parties as it deems in its best interest to receive
the Exchange Shares, including shareholders of Signal or their designees. The
parties who shall at the Closing be entitled to receive the Exchange Shares,
together with the number of Exchange Shares to be owned by each, are listed on
Schedule A annexed hereto. Not later than the Closing Date Signal shall deliver
to W3 and its counsel all required documentation in connection with any such
distribution or allocation of the Exchange Shares as shall be required by law or
reasonably requested by W3, its counsel or its transfer agent in connection with
the issuance of the Exchange Shares. Except as mutually agreed, Acquiree shall
have no other class of capital stock issued or authorized and there shall exist
no other agreements, options, rights or instruments which would require or
permit Acquiree to issue any additional securities of any class to any person or
entity. None of Acquiree's securities are qualified to trade in any public
market either in the United States or elsewhere.
January 19, 2005
Shane Rodgers
Page 2.
2. W3 was duly incorporated on February 12, 1988 under the laws of the state of
Colorado and changed its domicile to Delaware on May 7, 2003. W3 has authorized
capital stock of 40,000,000 shares of Common Stock, $0.0001 par value, of which
23,264,145 shares are presently issued and outstanding. W3 also has authorized
10,000,000 shares of Preferred Stock, which may be issued in series by order of
the Board of Directors. As of the date hereof, W3 has issued and outstanding the
following securities in addition to its common stock: 1,499,060 shares of Series
B, non-dividend bearing, Convertible Preferred Stock. Each Series B share is
convertible into one-half share of Common Stock. W3 does not presently have any
other class of capital stock issued or authorized.
3. The parties desire and intend to enter into a transaction whereby W3 will
acquire 100% of the issued and outstanding securities of Acquiree in exchange
for the Exchange Shares. At the Closing of the transaction contemplated herein,
W3 will cause to be issued to the designated parties of Acquiree (the
"Shareholders") the Exchange Shares in exchange for all of the issued and
outstanding shares of Acquiree. The Exchange Shares shall be issued to the
Shareholders in conformity to the provisions of Schedule A, which may be amended
by CAC and Signal at any time up to 72 hours before the Closing Date, provided
that any such amendment thereto shall not require the registration of the
Exchange Shares under Section 5 of The Securities Act of 1933, as amended. If
actual certificates are not available W3 shall deliver irrevocable instructions
to its transfer agent to issue the Exchange Shares.
4. The Exchange Shares will be subject to satisfaction of the registration
requirements under the Securities Act of 1933, as amended (the "Act") and
confirmation that the transaction does not otherwise violate the Act or the laws
of any state having jurisdiction over either Acquiree or W3. The Exchange
Shares will be "restricted securities" as that term is defined under the Act and
appropriate legends will be placed upon the certificates representing the
Exchange Shares and appropriate stop transfer instructions shall be placed
against them on the transfer books of W3. Shareholders shall each execute and
deliver to W3 an Investment Letter for the Exchange Shares in form and content
satisfactory to Counsel for W3.
5. This exchange is intended to qualify as a tax-free reorganization under
Section 368 of the Internal Revenue Code.
6. Upon closing Acquiree will become a wholly owned subsidiary of W3. However,
the parties agree that if, following the due diligence investigation of W3 and
of Acquiree's operations (or planned operations), the parties determine that an
alternate form of business combination (such as the merger of Acquiree into W3)
is preferable, Acquiree and Shareholders will proceed with the contemplated
transaction provided such alternate combination does not cause a material
adverse impact to the benefits to Shareholders hereunder.
7. It is expressly understood and agreed that if approval of the Agreement
requires the affirmative consent of shareholders, both Acquiree and W3 shall
obtain such consent prior to the Closing Date. Both Acquiree and W3 will use
their best efforts to have their respective officers and directors to take all
action necessary to secure such consent prior to the Closing Date. Further,
Signal, Acquiree and W3 will use their best efforts to have such officers and
directors hereby irrevocably commit they shall vote any shares of their
respective companies owned by them in favor of the proposed transaction. Failure
to meet this requirement within the next 30 days shall nullify this agreement
and all documents will be returned to the original owner.
8. The parties acknowledge that W3 may be required to make an appropriate
disclosure of the fact and pendency of the present negotiations between Acquiree
and W3 and of the general provisions of this Letter. Such disclosure is, or may,
be required in order to comply with applicable state or federal securities laws.
The parties hereto expressly consent to such disclosure pursuant to the
reasonable direction of W3 and its counsel upon and after consultation with
Acquiree and its counsel regarding the nature and extent of such disclosure.
January 19, 2005
Shane Rodgers
Page 3.
9. The parties understand and agree that the following additional conditions
shall be conditions precedent to be met before a Closing of the transaction
contemplated hereby:
a. Each Party shall deliver to the other Party audited financial statements
for each of the two most recent fiscal years since its inception. Such
financial statements shall be presented in conformity with generally
accepted accounting practices and specifically conforming with the
requirements of Regulation S-K or S-B (as such shall apply to Acquiree)
under the Securities Act of 1934, as amended. In the event that between
the date of this Letter and the Closing Date, as defined in the
Agreement, either Party shall have passed the end of its fiscal year
then the financial statements referred to herein shall be audited
statements for such newly concluded year as well. Each Party shall
authorize its independent accountants and other employees to cooperate
fully with the other Party's employees, accountants and attorneys and
to disclose all information relevant to either the financial statements
provided hereunder or to the due diligence investigation.
b. In the event either Party is not able to deliver the required audited
financial statements by the Closing Date then, the Closing Date shall
be adjourned for a period of time to be mutually agreed upon by the
parties in order to allow completion thereof so that such audited
financial statements may be available at the Closing in order for W3
to comply with the Form 8-K disclosure required to be made upon the
closing of this transaction.
c. Acquiree shall deliver to W3 copies of its Articles of Incorporation
and By-Laws, including all amendments thereto and a certificate of
good standing in its state of incorporation and all other states where
it is required to be authorized to do business. All such certificates
shall be dated within 30 days of the Closing Date.
d. W3 shall deliver to Acquiree, or its counsel, copies of its Articles
of Incorporation and By-Laws, including all amendments thereto and a
certificate of good standing in its jurisdiction of incorporation and
all other states wherein it is required to be authorized to do
business. All such certificates shall be dated within 30 days of the
Closing Date.
e. Such other opinions and documents as may be required by the formal
Agreement contemplated by this Letter.
f. W3 shall effect a reverse split of its common stock on a 1-for-20
basis.
g. Acquiree shall provide evidence of one million five hundred thousand
dollars ($1,500,000) in escrow on or before January 31, 2005. A Formal
Closing of the proposed transaction shall take place as soon thereafter
as possible but no longer than 60 days thereafter unless extended by
the mutual agreement of the parties.
h. Pending the Closing Date, neither W3 nor Acquiree will incur any
indebtedness other than in the ordinary course of business, and will
not commit to any material undertakings, programs or projects without
the prior written consent of the other party.
i. Pending the execution of the Formal Agreement and the consummation of
the transaction, W3 and Acquiree shall each provide to the other and
their designated representatives, full access to their books and
records, including, without limitation, their books or original entry
ledgers, minute books, stockholders' lists, contracts, and all other
documents maintained by them in their business operations and reasonably
requested in connection with their due diligence investigation.
j. CAC shall provide evidence, at the closing, that it owns producing oil
wells. However, the parties understand and agree that a more detailed
statement of the assets and business of CAC shall be set forth in the
final Agreement and the Closing of this transaction shall be subject to
meeting such commitments by CAC prior to Closing.
January 19, 2005
Shane Rodgers
Page 4.
10. Each party hereto shall indemnify and hold harmless the other party at all
times after the date hereof against and in respect to any liability, damage or
deficiency, all actions, suits, proceedings, demands, assessments, judgments,
costs and expenses, including reasonable attorney's fees incident to any of the
foregoing, resulting from any misrepresentation, breach of covenant or warranty
for non-fulfillment of any agreement on the part of such party under this Letter
or the final Agreement contemplated hereby, or from any misrepresentation in or
omission from any certificate furnished or to be furnished to a party hereunder
or under the terms of the final Agreement. Subject to the terms of this Letter
or the final Agreement contemplated between the parties, the defaulting party
shall reimburse the other party on demand for any reasonable payments made by
said party at any time after the date of this Letter or of the Final Agreement
in respect to any liability or claim to which the foregoing indemnity relates,
provided that such payment is made after reasonable notice to the other party to
defend or satisfy the same and such party shall fail to do so.
11. CAC shall agree that the shareholders of the original W3 shares outstanding
immediately prior to the Closing shall be granted Piggyback Registration Rights
in the event that the Company files a registration statement.
12. CAC shall agree and warrant that it shall not effect any further reverse
split of its Common Stock for a period of 24 months after closing without the
approval of the owners of a majority of the share of W3 outstanding immediately
prior to the Closing.
13. Signal hereby agrees that it shall reimburse W3 for its reasonable legal
fees incurred in connection with the transaction contemplated herein.
14. Signal hereby agrees that it, or its designee, shall at the Closing pay to
W3 the sum of $180,000 in order for W3 to meet costs and expenses in connection
with the transaction contemplated herein, including the satisfaction of certain
presently outstanding loans and obligations of W3, with the balance, if any, to
be distributed at the Closing date to the Pre-Closing shareholders of W3 as a
partially liquidating dividend.
In the event that the Agreement is not executed as provided herein, any deposit
paid shall be non-refundable. If the foregoing accurately sets forth our
understanding of the discussions and intentions of the parties, please indicate
the same by dating and executing this letter where indicated below.
Very truly yours,
W3 GROUP, INC.
By: /s/ Robert Gordon
-------------------------------
Robert Gordon, President
ACCEPTED AND CONFIRMED:
CRISTINA ACQUISITON CORP.
By: /s/ Shane Rodgers
-------------------------------
Print Name: Shane Rodgers
Print Title: CEO
ACCEPTED AND CONFIRMED:
SIGNAL COMPANIES, INC.
By: /s/ Shane Rodgers
-------------------------------
Print Name: Shane Rodgers
Print Title: CEO
SCHEDULE A
Shareholders of Cristina Acquisition Corp.
Signal Companies Inc. 100%
9229 West Sunset Blvd., Suite 830
Los Angeles, CA 90069