Stock Contribution Exchange Agreement

STOCK CONTRIBUTION EXCHANGE AGREEMENT


This Stock Contribution Exchange Agreement (this "Agreement") is made and entered into as of the 7th day of January, 2002, by and among Corniche Group Incorporated, a Delaware corporation ("Corniche"), Strandtek International, Inc., a Delaware corporation ("Strandtek"), and Jerome Bauman, Jan Arnett, William G. Buckles, Jr., Phil Palm, David Veltman, Greg Veltman, Sheila Duffy, Craig Babcock, Ray Juska, Ron Basar and Mike Barody (collectively, the "Principal Shareholders"), and Preston Whaley and Clifford Chapman (collectively, the "Non-shareholder Loan Holders").


PRELIMINARY STATEMENTS


A. Corniche desires to acquire control of the business operated by Strandtek through the acquisition of substantially all of the common stock of Strandtek, and the Principal Shareholders, Non-shareholder Loan Holders, and Cash Investors (as hereinafter defined) desire to acquire control of Corniche through the transactions contemplated and referenced in this Agreement. The Principal Shareholders own approximately 97% of the outstanding capital stock of Strandtek. The Principal Shareholders and the Non-shareholder Loan Holders (collectively the "Investor Loan Holders") own all of the Non-Institutional Debt Securities owed by Strandtek ("Investor Loans"). Upon satisfaction of the conditions hereinafter specified, the Principal Shareholders have agreed to exchange their Strandtek capital stock for Corniche Common Stock and Corniche Series D Preferred Stock, as more fully provided herein, and the Investor Loan Holders have agreed to exchange the principal amount of, their Investor Loans for Corniche Series C Preferred Stock, as more fully provided herein. Strandtek thereby would become a majority owned subsidiary of Corniche, as more fully provided herein, and upon the simultaneous closing of the Private Placement Transaction (as hereinafter defined) the Principal Shareholders, Non-shareholder Loan Holders and Cash Investors (as hereinafter defined) would control Corniche.


B. The Board of Directors of Strandtek has determined that this Agreement is consistent with and in furtherance of the long-term business strategy of Strandtek and that it is in the best interests of all of the holders of shares of Strandtek's capital stock.


C. The respective Boards of Directors of Corniche and Strandtek have determined that this Agreement, structured in the manner contemplated herein, is desirable and in the best interests of their respective shareholders and, by resolutions duly adopted, have approved and adopted this Agreement.


D. The Parties intend that the contribution and exchange of stock and cash for capital stock of Corniche by the Principal Shareholders, Non-shareholder Loan Holders and Cash Investors shall constitute a nontaxable transfer of property pursuant to Section 351 of the Internal Revenue Code of 1986, as amended (the "Code") and that the stock for stock exchange described above shall constitute a "reorganization" within the meaning of Section 368(a) of the Code.


NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto (collectively, the "Parties" and each a "Party") hereby adopt this Agreement as and for a plan


(the "Plan") under Section 368(a) of the Code, and in order to implement the Plan, the Parties hereby represent, warrant, covenant and agree as follows:


ARTICLE I


DEFINITIONS


1.1 Specific Definitions. For purposes of this Agreement, the following terms shall have the following meanings:


"Affiliate" shall mean, with respect to any entity (the "Subject Entity"), any Person which controls, is controlled by, or is under common control with, the Subject Entity.


"Cash Investors" shall mean those entities and/or individuals providing financing to Corniche pursuant to the Private Placement Transaction.


"Combined Material Adverse Effect" shall mean a material adverse effect on the business, operations, assets or financial condition of Corniche and its Subsidiaries (including Strandtek), taken as a whole.


"Corniche Common Stock" shall mean the common stock, par value $0.001 per share, of Corniche.


"Corniche Disclosure Schedule" shall mean the schedule of disclosures separately delivered by Corniche to Strandtek simultaneously with the execution and delivery of this Agreement and the Supplemental Disclosure Agreement.


"Corniche Material Adverse Effect" shall mean a material adverse effect on the business, operations, assets or financial condition of Corniche and its Subsidiaries (excluding Strandtek), taken as a whole, provided, however, that (x) in no event shall any effect that results from (a) the public announcement or pendency of the transactions contemplated hereby or any actions taken in compliance with this Agreement, or (b) changes affecting the United States economy generally constitute a Corniche Material Adverse Effect and (y) a decrease in the market price of Corniche Common Stock will not constitute a Corniche Material Adverse Effect (except with respect to an effect which, independent of such decrease, would constitute an Corniche Material Adverse Effect).


"Corniche Series C Preferred Stock" shall mean the Series C 7% Convertible Preferred Stock, par value $0.01 per share, of Corniche, consisting of 220,000 shares, carrying "as-if-converted" voting rights with the Corniche Common Stock and a cumulative dividend of 7% per annum times the liquidation preference hereinafter specified, with each share of Series C Preferred Stock being convertible at the holders' option into 100 shares of Corniche Common Stock (i.e., the liquidation preference of $100 hereinafter established divided by a conversion price of $1.00 per share (the "Conversion Price")), and which shall be automatically converted on the same terms if the Market Price (as defined in the Certificate of Designation therefor) of the Corniche Common Stock is equal to or higher than two times the Conversion Price for 20 consecutive Trading Days (as defined in the Certificate of Designation therefor); provided, however, in any such event the other conditions contained in the Certificate of Designation annexed hereto as Appendix 1.1 to any such conversion


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are satisfied, with a liquidation preference of $100 per share and otherwise containing the terms set forth in the Certificate of Designation annexed hereto as Appendix 1.1.


"Corniche Series D Preferred Stock" shall mean the Series D Convertible Preferred Stock, par value $0.01 per share, of Corniche, consisting of 640,000 shares, carrying participating dividends and "as-if-converted" voting rights with the Corniche Common Stock as specified in the Certificate of Designation annexed hereto as Appendix 1.2 (the "Series D Designation"), convertible at the holder's option following satisfaction of certain conditions specified in the Series D Designation into Corniche Common Stock at the ratio of 100 shares of Corniche Common Stock for each share of Corniche Series D Convertible Preferred Stock and convertible at the option of Corniche if certain conditions specified in the Series D Designation are satisfied, and otherwise containing the terms set forth in the Series D Designation.


"DGCL" shall mean the Delaware General Corporation Laws.


"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.


"GAAP" shall mean United States generally accepted accounting principles, consistently applied.


"Liens" shall mean liens, encumbrances, security interests, pledges, title restrictions and other limitations on use, other than restrictions on transfer imposed by federal or state securities laws.


"Non-Institutional Debt Securities" shall mean the Investor Loans identified in Appendix 2.1 attached hereto.


"Person" means any individual, corporation, partnership, limited liability company, business trust, sole proprietorship or other entity.


"Private Placement Transaction" means that certain private placement of Corniche Common Stock to the Cash Investors by which Corniche will raise cash net proceeds to Corniche sufficient to allow Corniche to satisfy the conditions to Closing set forth herein, which Private Placement Transaction shall close simultaneously with the stock exchange transactions contemplated in this Agreement.


"SEC" shall mean the Securities and Exchange Commission.


"Securities Act" shall mean the Securities Act of 1933, as amended.


"Strandtek Capital Stock" shall mean the Strandtek Common Stock.


"Strandtek Common Stock" shall mean the common stock, par value $0.0001 per share, of Strandtek.


"Strandtek Disclosure Schedule" shall mean the schedule of disclosures separately delivered by Strandtek to Corniche simultaneously with the execution and delivery of this Agreement and the Supplemental Disclosure Agreement.


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"Strandtek Material Adverse Effect" shall mean a material adverse effect on the business, operations, assets or financial condition of Strandtek, provided, however, that in no event shall any effect that results from (a) the public announcement or pendency of the transactions contemplated hereby or any actions taken in compliance with this Agreement, or (b) changes affecting the United States economy generally constitute a Strandtek Material Adverse Effect.


"Subsidiary" when used with reference to a Person, shall mean any entity (i) the accounts of which would be consolidated with those of such Person in such Person's financial statements if such financial statements were prepared in accordance with GAAP or (ii) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests or more than 50% of the profits or losses are owned, controlled or held by such Person and/or one or more subsidiaries of such Person; provided, however, notwithstanding the foregoing, that certain entity known as Strandtek West, Inc., a Washington corporation ("Strandtek West") which has been dissolved by the Secretary of State of the State of Washington prior to the draft hereof prior to the date hereof shall not be deemed a "Subsidiary" of Strandtek.


"Supplemental Disclosure Agreement" shall mean the agreement among Strandtek, Corniche, the Principal Shareholders and the Non-shareholder Loan Holders executed this date with respect to the representations and warranties of the Parties to each other.


1.2 Terms Defined in Other Sections. The following terms have the respective meanings ascribed thereto in the following sections of this Agreement:


Term Section
---- -------
Agreement Lead-in
Business Combination Restraints 5.9.6
Cash Amount 5.9.4
Closing 2.2
Closing Date 2.2
Code Recitals
Competing Transaction 5.13
Conversion Price 1.1
Corniche Lead-in
Corniche Business 5.3
Corniche/Strandtek Loan 5.6
Defaulting Party 7.4
Guarantors 5.6
Investor Loan Holders Recitals
Investor Loans Recitals
Key Holders Percentage 2.1
Non-Defaulting Party 7.4
Non-shareholder Loan Holders Lead-in
Note 2.4
Outside Date 7.3.3


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Parties Recitals
Plan Recitals
Premises 5.14
Principal Shareholders Lead-in
Registration Statement 5.4
Series D Designation 1.1
Strandtek Lead-in
Strandtek Parties 7.2


1.3 Interpretation. Unless otherwise indicated to the contrary herein by the context or use thereof: (i) the words, "herein," "hereto," "hereof" and words of similar import refer to this Agreement as a whole and not to any particular Section or paragraph hereof; (ii) words importing the masculine gender shall also include the feminine and neutral genders, and vice versa; (iii) words importing the singular shall also include the plural, and vice versa; and (iv) the word "including" means "including without limitation".


ARTICLE II


THE STOCK EXCHANGE


2.1 Exchange of Stock and Investor Loans. Upon the terms and subject to the conditions of this Agreement, at the Closing, the Principal Shareholders shall sell, assign, and deliver to Corniche in the aggregate 178,030,131 shares of the Strandtek Common Stock constituting at least 97.8% (the "Key Holders Percentage") of the issued and outstanding, and presently issuable capital stock of Strandtek (treating stock options and warrants to purchase Strandtek Common Stock as not being issued and outstanding, or issuable capital stock of Strandtek), in exchange for (a) 640,000 times the Key Holders Percentage shares of the Corniche Series D Preferred Stock and (b) 36,000,000 times the Key Holders Percentage shares of the Corniche Common Stock, as further set forth on Appendix 2.1. The 640,000 amount is subject to further adjustment (up or down) pursuant to Section 2.5 below. Upon the terms and subject to the conditions of this Agreement, at the Closing, the Investor Loan Holders shall sell, assign, and deliver to Corniche the Non-Institutional Debt Securities in the aggregate principal amount of not more than $22,000,000, in exchange for up to 220,000 shares of Corniche Series C Preferred Stock (i.e., 1 share of Corniche Series C Preferred Stock for each $100 of Non-Institutional Debt Securities exchanged), as further set forth on Appendix 2.1. Provided, however, notwithstanding anything contained in this Agreement to the contrary, the Principal Shareholders, Non-shareholder Loan Holders and Cash Investors shall in all events receive as of the Closing at least eighty percent (80%) of the total combined voting power of all classes of stock of Corniche entitled to vote, and Corniche shall not have any other class of stock outstanding as of the Closing.


2.2 Closing Date. On the Closing Date, the Parties shall cause the contribution and exchange of shares and Non-Institutional Debt Securities for the Corniche Common Stock and Preferred Stock to be effected, along with the simultaneous closing on the Private Placement Transaction, such that on the Closing of such transactions, Corniche will own the shares of Strandtek Common Stock constituting at least 97% of the issued and outstanding, and presently issuable capital stock of Strandtek and the Principal Shareholders, Non-shareholder Loan Holders, and Cash


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Investors shall own more than 80% of the total combined voting power of all classes of stock of Corniche entitled to vote. A closing (the "Closing") shall be held at the offices of Lowenstein Sandler PC, 65 Livingston Avenue, Roseland, New Jersey 07068 no later than the Outside Date, provided the conditions set forth in Article VI have been satisfied or waived at or prior to such date. The date on which the Closing takes place shall be mutually agreed to by Strandtek and Corniche and is referred to herein as the "Closing Date"


2.3 Tax Consequences. It is intended that the contribution and exchange of the Strandtek Common Stock, Non-Institutional Debt Securities, and cash in exchange for the Corniche Common Stock and Preferred Stock shall qualify as a non-taxable transfer of property pursuant to the provisions of Section 351 of the Code. It is further contemplated and intended that the exchange of shares shall constitute a "reorganization" within the meaning of Section 368(a) of the Code, and that this Agreement shall constitute a "plan of reorganization" for the purposes of the Code. All parties shall report, file, and treat the transaction contemplated in this Agreement in a manner consistent with this intent for all tax purposes.


2.4 Lost Certificates. In the event that any Certificate for Strandtek Common Stock held by a Principal Shareholder or any note representing an Investor Loan ("Note") held by a Principal Shareholder or Investor Loan Holder shall have been lost, stolen or destroyed, upon Corniche's receipt of an affidavit as to such loss, theft or destruction and as to the ownership of such Certificate or Note by the Person claiming such Certificate or Note to be lost, stolen or destroyed, and the receipt by Corniche of reasonably appropriate and customary indemnification (which shall be in the form of a personal agreement to indemnify but shall not include the posting of a bond or similar security), Corniche shall deliver, in exchange for such lost, stolen or destroyed Certificate or Note, shares of Corniche Common Stock and Series D Preferred Stock or Series C Preferred Stock, as applicable, deliverable in respect thereof as determined in accordance with the provisions of this Agreement.


2.5 Adjustment. The numbers 640,000 and 36,000,000 in Section 2.1 were determined on the assumption that there would be exactly 36 million shares of Corniche Common Stock issued and outstanding at the Closing. The 640,000 number (but not the 36,000,000 number) will be increased or decreased to reflect the entire proportionate adjustment due with respect to the 36,000,000 shares of Corniche Common Stock and 640,000 shares of Corniche Series D Preferred Stock that would occur if both amounts were proportionately increased or decreased to compensate for the effect caused if there are more or less than 36,000,000 shares of Corniche Common Stock issued and outstanding at Closing. Thus, by way of example and not in limitation, if there are 34,000,000 shares of Corniche Common Stock issued and outstanding at the Closing, the number 640,000 in Section 2.1 would be adjusted to 584,444 (computed as follows: (1) total "as if converted" shares of Corniche Common Stock to be issued at closing: ((64,000,000+36,000,000) times (34,000,000/36,000,000)=94,444,444, (2) Decrease in shares of Corniche Series D Preferred to be issued at closing: (a) Total decrease in "as if converted" shares: 100,000,000-94,444,444=5,555,556 "as if converted" shares of Corniche Common Stock; (b) Decrease in Corniche Series D Preferred Shares: 5,555,556/100=55,556 shares). Thus, under the aforementioned example, a total of 584,444 shares of Corniche Series D Preferred Stock and 36,000,000 shares of Corniche Common Stock times the Key Holders Percentage would be issued


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to the Principal Shareholders at Closing. Corniche shall certify to the Strandtek Parties at Closing the number of shares of Corniche Common Stock then issued and outstanding.


ARTICLE III


REPRESENTATIONS AND WARRANTIES


Strandtek, the Principal Shareholders and the Investor Loan Holders, solely as to their individual interests and not jointly, represent and warrant to Corniche, and Corniche represents and warrants to Strandtek, the Principal Shareholders and the Investor Loan Holders, those matters specifically set forth as being represented and warranted by them in the Supplemental Disclosure Agreement being executed simultaneously with this Agreement in the form of Appendix 3.1.


ARTICLE IV


INTENTIONALLY OMITTED


ARTICLE V


COVENANTS OF THE PARTIES


5.1 Further Actions. Strandtek and Corniche agree to use all reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and each of the Parties agree to assist and cooperate with the other Parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable under the circumstances (after taking into effect all such factors as shall reasonably effect timing hereunder), the transactions contemplated by this Agreement, including (a) the obtaining of all other necessary actions or non-actions, waivers, consents, licenses, permits, authorizations, orders and approvals from governmental authorities and the making of all other necessary registrations and filings, (b) the obtaining of all consents, approvals or waivers from third parties related to or required in connection herewith that are necessary to consummate the transactions contemplated by this Agreement, (c) the closing of the Private Placement Transaction simultaneous with the closing of the property contribution and stock exchange transactions contemplated in this Agreement, (d) the taking of all action necessary to ensure that the transactions contemplated hereby and pursuant to the Private Placement Transaction constitute a non-taxable transfer of property pursuant to Section 351 of the Code, (e) the taking of all action necessary to ensure that the stock exchange transactions contemplated hereby constitutes a reorganization within the meaning of Section 368(a)(1)(B) of the Code, and (f) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement. Each of the Principal Shareholders and Investor Loan Holders that is a resident of the State of Florida shall take such actions as are necessary to assure the expiration of any right of rescission of such Person prior to the Closing.


5.2 Indebtedness of Employees and Shareholders. Strandtek will cause any indebtedness in excess of an aggregate of $200,000 owing to it by any of its employees (other than salespersons' normal draw) or by its shareholders (which $200,000 amount will remain outstanding) to be paid in full at or before the Closing. Strandtek will not make any loans to employees or shareholders prior to the Closing that will result in the foregoing sentence being incorrect.


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5.3 Public Announcements. Unless otherwise required by applicable law, the Parties shall not make any press release or other public announcement regarding the transactions contemplated hereby or this Agreement without the prior written consent of Corniche and Strandtek, provided that Corniche and Strandtek may make such announcements that they deem necessary to comply with applicable securities laws, after prior notice to the other Parties of such announcement and a fair opportunity to comment thereon.


5.4 Post-Closing Covenants of Corniche, Strandtek and the Principal Shareholders and Non-shareholder Loan Holders.


5.4.1 [Intentionally Omitted]


5.4.2 Strandtek shall timely provide Corniche with all audited, unaudited and pro forma financial information and other information required by Corniche (a) to timely file a current report on Form 8-K reporting its acquisition of the Strandtek Common Stock and securities from the Principal Shareholders and Non-shareholder Loan Holders, (b) to timely prepare and file its annual report on Form 10-K for its current fiscal year, and (c) to prepare and file a proxy statement with respect to the matters set forth in paragraph 5.4.4 below.


5.4.3 Corniche shall timely provide Strandtek with all audited, unaudited and pro forma financial information as well as all other information required by Strandtek (a) to timely file a current report on Form 8-K reporting Corniche's acquisition of the Strandtek Common Stock from the Principal Shareholders and (b) to timely prepare and file its annual report on Form 10-K for its fiscal year ended September 30, 2001.


5.4.4 Corniche shall, as promptly as practical following the Closing Date and in all cases within 15 days of the Closing Date, (1) schedule an annual or special shareholders meeting of the Corniche shareholders, for the purpose of (a) (i) increasing the authorized common stock of Corniche from 75,000,000 shares to 200,000,000 shares, or (ii) subject to the consent of a majority in number of the Principal Shareholders, effecting a reverse stock split to provide for sufficient authorized Corniche Common Stock to allow conversion of the Series D Preferred Stock and Series C Preferred Stock, and (b) to elect a new board of directors of Corniche. Each Principal Shareholder and Investor Loan Holder agrees to vote in favor of the matter referred to in (a) above at such meeting. Corniche agrees that it shall not issue any shares of Corniche Capital Stock, whether Corniche Common Stock or any series of preferred stock, during the time period subsequent to the Closing and prior to the holding of the aforementioned shareholders meeting and the election of a new board of directors of Corniche, except pursuant to the exercise of outstanding options and warrants.


5.4.5 Within 24 months after the Closing Date, Strandtek and Corniche shall take all action in accordance with the federal securities laws, the DGCL, Strandtek's Certificate of Incorporation, Strandtek's by-laws, Corniche's Certificate of Incorporation and Corniche's by-laws necessary to cause the shareholders of Strandtek other than the Principal Shareholders to receive, in exchange for all remaining Strandtek shares and options and warrants for Strandtek capital stock shares of Corniche Common Stock and options and warrants to acquire shares of Corniche Common Stock, at an exchange rate not less favorable than the exchange rate applicable to the Strandtek Common Stock under Section 2.1.


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5.4.6 Registration Rights. The Principal Shareholders receiving Corniche Common Stock incident to the contribution and exchange transaction contemplated by this Agreement, and the Principal Shareholders and Investor Loan Holders receiving Series C Preferred Stock and Series D Preferred Stock incident to the contribution and exchange transaction contemplated herein will be entitled to demand registration of the Corniche Common Stock issued to them and the Corniche Common Stock issuable upon conversion of the Corniche Series C and Series D Preferred Stock as hereinafter set forth. At any time after the date that is six months following the Closing, the Principal Shareholders and Non-shareholder Loan Holders owning a majority of voting power of the Corniche Common Stock, Series C Preferred Stock and Series D Preferred Stock received at the Closing contemplated in this Agreement may deliver a notice to Corniche demanding the registration of the Corniche Common Stock received by the Principal Shareholders and the Corniche Common Stock underlying the Corniche Series C and Series D Preferred Stock. Upon the receipt of such notice, and to the extent permitted by SEC regulations, Corniche will cause a registration statement (the "Registration Statement") on the appropriate form to be promptly filed with the SEC covering the registration for resale of all of the shares of Corniche Common Stock issued (and issuable upon conversion) to the Principal Shareholders and/or Investor Loan Holders, as ...