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AMENDMENT NO. 1 to AGREEMENT AND PLAN OF REORGANIZATION
This AMENDMENT AGREEMENT ("Amendment") executed as of August 2,
1996 is by and among the following parties:
BROWN DISC PRODUCTS COMPANY, INC., a Colorado corporation (herein
called "BDPC");
BROWN DISC ACQUISITION CORP., a Colorado corporation recently
organized by BDPC as a wholly-owned subsidiary of BDPC (herein
called the "BDPC Subsidiary");
KIMBROUGH COMPUTER SALES INC. 3SI, INC., a Colorado corporation
(herein called "KSI;3SI");
RONALD H. COLE, an individual (herein called "COLE"); and
FRANK BACKES, FREDERICK SLACK and FELIPE LARRY VALDEZ (herein
called the "KSI;3SI Shareholders").
R E C I T A L S:
WHEREAS, the parties hereto have entered into that certain
Agreement and Plan of Reorganization dated May 1996 (the
"Reorganization Agreement"); and
WHEREAS, since execution of the Reorganization Agreement, BDPC
has (1) entered into an agreement dated June 7, 1996 with the Small
Business Administration to modify BDPC's payment obligations; (2)
received gross proceeds of $689,750 from the issuance and sale of
275,900 shares of BDPC Common Stock in a private placement; and (3)
certain other changes in BDPC's capitalization have occurred; and (4)
KSI;3SI and NETCOM On-Line Communication Services, Inc. have entered
into an agreement as publicly announced by NETCOM On-Line
Communication Services, Inc.
WHEREAS, Cole and BDPC are not now assured that they can raise
sufficient additional equity capital to satisfy the conditions of
Section 4.1 (a) and (b) of the Reorganization Agreement; and
WHEREAS, the parties desire to amend certain provisions of the
Reorganization Agreement as provided by this Amendment;
NOW, therefore, in consideration of the premises, the parties
agree as follows:
A. Terms defined in the Reorganization Agreement shall have the same
meanings when used in this Amendment as defined in the Reorganization
Agreement, except to that extent any such definition is expressly
modified and amended by this Amendment.
B. The paragraph set forth in Section 2 of the Reorganization
Agreement is amended in its entirety to read as follows:
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"Subject to the terms and conditions of the Reorganization
Agreement, the closing of the transactions contemplated by the
Reorganization Agreement (the "Closing") shall take place at the
offices of BROWN DISK PRODUCTS COMPANY, INC., commencing at 10:00
A.M. local time on September 15, 1996 (the "Closing Date"),
subject to the satisfaction of all conditions precedent to the
obligations of the parties to consummate the transactions
contemplated by the Reorganization Agreement. The Closing Date
may be adjourned by mutual agreement between BDPC and KSI;3SI to
any other mutually convenient date, but not later than September
15, 1996."
C. The two paragraphs comprising subclause A to Section 3.2.1 of the
Reorganization Agreement are hereby amended in their entirety to read
as follows:
"A. all of the issued and outstanding shares of KSI;3SI Common
Stock immediately prior to the Effective Time shall cease to
be issued and outstanding, and each such share of KSI;3SI
Common Stock shall become, and be converted into, a right to
receive a pro rata share of 60% of the fully diluted issued
and outstanding BDPC Common Stock after giving full effect
to completion of the private placement offering of newly-
issued BDPC common stock contemplated by the provisions of
Section 4.1 of this Agreement, and after giving full effect
to all conversions of Preferred Stock and all exercise of
existing warrants with respect to BDPC Common Stock prior to
or after the Closing Date.
Each holder of record of KSI;3SI Common Stock immediately
prior to the Effective Time shall receive at Closing that
number of full shares of BDPC Common Stock, representing his
or her pro rata share of the total of 60% of the fully
diluted BDPC Common Stock as the same may be calculated as
of the Closing Date, and adjusted for any conversions after
the Closing Date. Subsequent to Closing, and upon
completion of the private placement offering of a newly-
issued BDPC common stock contemplated by the provisions of
Section 4.1 of this Agreement in accordance with the terms
of such offering, additional shares of BDPC shall be issued
on a pro rata basis to the holders of record of KSI;3SI
Common Stock to provide for any adjustment necessary to give
those KSI;3SI holders 60% of the fully diluted aggregate
shares of BDPC Common Stock arising as a result of the
issuance and sale by BDPC of newly-issued BDPC common stock
subsequent to Closing hereunder in a private placement
offering as contemplated by the provisions of Section 4.1 or
any conversions of preferred stock or warrants into newly-
issued BDPC Common Stock prior to or subsequent to the
Closing Date; provided, however, that no fractional shares
of BDPC Common Stock shall be issued in distribution of the
Merger Consideration and, in lieu f fractions, each such
fractional share (after taking into account all shares to
which the holder thereof is entitled) shall be rounded up to
a full share of BDPC Common Stock in lieu of such fractional
interest."
D. The first paragraph of Subsection 4.1(b) of the Reorganization
Agreement is hereby amended in its entirety to read as follows:
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"(b) After giving effect to the payment and settlement of BDPC's
past due debts and liabilities, as aforesaid, the net cash
available to BDPC and the Surviving Corporation at Closing
shall be not less than at least $1,250,000 in cash available
for future working capital to finance continuing operations
of the Surviving Corporation after Closing and other
purposes determined by mutual agreement of BDPC and KSI;3SI,
after (i) payment of all offering expenses for the sale of
newly issued BDPC shares, (ii) $165,512.50 remaining to be
paid to the Riders from proceeds of the newly issued BDPC
shares, and (ii) $2,214,365 to finance the acquisition of
KSI;3SI as elsewhere provided by this Agreement.
Notwithstanding the foregoing, the private placement
offering of newly issued shares of BDPC Common Stock shall
continue shall continue in accordance with the terms of such
offering after minimum funds required hereafter have been
received, but not to exceed an aggregate private placement
offering of $5,000,000, and the number of shares of BDPC
Common Stock issuable to the KSI;3SI Shareholders under this
Agreement shall be adjusted after Closing hereunder and upon
the final completion of such private placement offering in
accordance with Section 3.2.1-A of this Agreement so that
such KSI;3SI Shareholders will hold 60% of all BDPC Common
Stock, after giving effect to all transactions provided for
herein, either prior to or subsequent to Closing.
The parties understand and agree that the obligations of
BDPC to the Small Business administration have been
renegotiated and that said indebtedness shall not be
considered a past due debt of BDPC for purposes of this
Agreement except to the extent of payments, if any,
currently due under such negotiated terms."
E. The parties acknowledge that the issuance and sale by BDPC in
June 1996 of 275,900 shares of BDPC Common Stock in a private
placement for gross proceeds to BDPC of $689,750 shall not be deemed a
breach of the provisions of Section 5.5 of the Reorganization
Agreement; provided that all of the proceeds thereof are used to pay
past due debts of BDPC or to fund working capital of the Surviving
Corporation; and further provided that the parties acknowledge KSI;3SI
had no participation in or responsibility for such private placement,
and therefore BDPC and Cole agree to indemnify and hold harmless
KSI;3SI and its shareholders, officer and directors against any and
all liability, including reasonable attorneys fees, arising from such
private placement.
F. Section 6.5 of the Reorganization Agreement is amended to
complete the blanks therein as follows:
"The authorized capital stock of KSI;3SI consists of 50,000
shares of KSI;3SI Common Stock. As of the date hereof,
there are 300 shares of KSI;3SI Common Stock issued and
outstanding and no further shares will be issued prior to
the Closing of the Reorganization."
G. BDPC and Cole acknowledge and consent to the execution of an
agreement between KSI;3SI and NETCOM On-Line Communication Services,
Inc. in the form previously provided by KSI;3SI to BDPC and as
publicly announced by NETCOM On-Line Communication Services, Inc. on
July 15, 1996."
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H. Section 12(A) of the Reorganization Agreement is hereby amended
in its entirety to read as follows:
"(A) 2,391,217 current Class A and 741,379 Class B Warrants
will be cancelled."
I Except as expressly amended herein, the Reorganization Agreement
is hereby confirmed, ratified and approved by the undersigned parties
hereto as of the date of this Amendment, subject to the express
conditions contained in the Reorganization Agreement.
BROWN DISC PRODUCTS COMPANY, INC.
By: /s/ Ronald H. Cole
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Ronald H. Cole, Chairman and Chief Executive Officer
BROWN DISC ACQUISITION CORP.
By: /s/ Ronald H. Cole
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Ronald H. Cole, President and Chief Executive Officer
KIMBROUGH COMPUTER SALES INC. 3SI, INC.
By:
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Larry Valdez, President
By: /s/ Frank Backes
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Frank Backes, Vice President
By: /s/ Fred Slack
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Fred Slack, Chief Executive Officer
INDIVIDUALS:
/s/ Ronald H. Cole
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RONALD H. COLE, an individual
/s/ Frank Backes
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FRANK BACKES, an individual
/s/ Frederick Slack
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FREDERICK SLACK, an individual
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FELIPE LARRY VALDEZ, an individual