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ACQUISITION AGREEMENT
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THIS ACQUISITION AGREEMENT wherein the participants are ALGORHYTHM
TECHNOLOGIES, INC. ("ALGOR") and ADS ADVERTISING CORP. ("ADS").
W I T N E S S E T H:
WHEREAS, ALGOR a) is a Nevada corporation in good standing which is
currently a publicly traded SEC reporting company, traded on the OTC bulletin
board under the symbol ALGOR, and b) ALGOR is a holding company which includes
or will include in its holdings other corporate entities such as ADS, and c)
has 9,603,556 shares presently issued and outstanding; and
WHEREAS, ADS a) is a Florida corporation in good standing and
utilizes a fictitious name "The Xxxxx Agency" and is in the business of creating
and providing advertising and marketing services to parties such as ALGOR, and
b) has 6,500 authorized shares, of which 6,500 shares have been issued; and
WHEREAS, the Board of Directors of ALGOR and the Board of Directors
of ADS deem it advisable that ALGOR acquire ADS as a wholly owned subsidiary of
ALGOR with certain principals of ADS continuing on to head up operations for ADS
for a period of time, subject to employment agreements and other conditions; and
WHEREAS, ADS shall perform certain services for ALGOR; and
WHEREAS, ALGOR has furnished or will furnish ADS with a copy of its
10-K submission for the year 1996 and copies of its 10-Q submission for the
first quarter and the second quarter of 1997. These submissions, to the extent
required, (i) are/shall be in accordance with the books and records of ALGOR;
(ii) do and shall fairly represent the financial condition of ALGOR as of those
dates and the results of its operations as of and for the periods specified, all
prepared in accordance with generally accepted accounting principles; and (iii)
do and shall contain and reflect, in accordance with generally accepted
accounting principles consistently applied, reserves for all liabilities, losses
and costs in excess of expected receipts and all discounts and refunds for
services and products already rendered or sold that are reasonably anticipated
and based on events or circumstances in existence or likely to occur in the
future with respect to any of the contracts or commitments of ALGOR.
Specifically, but not by way of limitation, if customary, the submissions shall
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disclose, in accordance with generally accepted accounting principles, all of
the debts, liabilities, and obligations of any nature (whether absolute,
accrued, contingent or otherwise, and whether due or to become due) of ALGOR at
the Balance Sheet Date, and shall include appropriate reserves for all taxes and
other liabilities accrued or due at that date but not yet payable; and
WHEREAS, ADS has furnished ALGOR with unaudited financial statements
of ADS for the years 1994, 1995 and 1996 and for the first nine months of 1997
and the related statement of income for the first nine months of 1997. These
financial statements (i) are and shall be in accordance with the books and
records of ADS; (ii) do and shall fairly represent the financial condition of
ADS as of those dates and the results of its operations as of and for the
periods specified, all prepared in accordance with generally accepted accounting
principles; (iii) do and shall contain and reflect, in accordance with generally
accepted accounting principles consistently applied, reserves for all
liabilities, losses and costs in excess of expected receipts and all discounts
and refunds for services and products already rendered or sold that are
reasonably anticipated and based on events or circumstances in existence or
likely to occur in the future with respect to any of the contracts or
commitments of ADS, and shall be warranted as true and correct by the
hereinafter named principals of ADS. Specifically, but not by way of limitation,
the Balance Sheet shall disclose, in accordance with generally accepted
accounting principles, all of the debts, liabilities, and obligations of any
nature (whether absolute, accrued, contingent or otherwise, and whether due or
to become due) of ADS at the Balance Sheet Date, and shall include appropriate
reserves for all taxes and other liabilities accrued or due at that date but not
yet payable; and
WHEREAS, all required federal, state and local tax returns of ALGOR
and ADS have been accurately prepared and duly and timely filed, and all
federal, state and local taxes required to be paid with respect to the periods
covered by the returns have been paid including, but not limited to, income,
employment, property, franchise and sales tax. ALGOR and ADS have not been
delinquent in the payment of any tax or assessment; and
WHEREAS, all named parties represent unto the other that they have
authority to enter in to this Agreement; and
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WHEREAS, neither corporate entity is a party to any pending or
threatened litigation and/or legal action, other than claims by the Ft.
Lauderdale Police Department and a party named Xxxx Xxxxxxxx for $25,000.00
against ALGOR, which claims are not in litigation; and
WHEREAS, neither party has consulted with a broker or a finder in
arranging the instant transaction.
NOW, THEREFORE, based upon the statements made hereinabove and the
covenants and conditions set forth hereinbelow, the parties agree and
acknowledge as follows:
1. All of the above statements are true and correct.
2. The parties shall cause the following to simultaneously with
the execution of this Agreement:
(a) All of the stockholders of ADS shall surrender their
shares to the Secretary of ADS, resulting in there being______ shares in the
treasury of ADS.
(b) ALGOR shall demonstrate that it has 2,300,000 shares of
restricted common stock available for issuance to ADS and/or as directed by ADS,
which shares shall be restricted.
(c) ALGOR shall acquire all of the ADS authorized shares in
exchange for such 2,300,000 shares of ALGOR stock to be vested as of execution
hereof, and ALGOR shall own 100% of the stock of ADS.
(d) ALGOR will cause ADS, as a wholly owned subsidiary of
ALGOR, to issue an employment agreement for XXXX XXXXX ("XXXXX") for five years
at a base rate of $100,000.00 annually, with yearly increases of 10% to start
one year from the initial date of employment, with such agreement to also
provide an acceptable compensation package; such employment agreement shall be
otherwise in form as approved by XXXXX and the other directors. Additionally,
ALGOR will also issue a total of 200,000 options (on a one time basis) of common
S-8 stock, at par value, to XXXXX, within 5 working days from the date of
execution of this Agreement; these options will be for a period of two years.
Additionally, XXXXX is to continue to receive a company car comparable to the
1998 Volvo presently leased, telephone and health insurance. Further, XXXXX
shall be President of ADS and shall serve as a President and as a Director on
the Board of ALGOR.
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(e) ALGOR will cause ADS, as a wholly owned subsidiary of
ALGOR, to enter in to an employment agreement with its principal, XXXXXXX XXXX
("XXXX"), for three years at a base rate of $60,000.00 annually, with yearly
increases of 10% to start in the year 1999, with such agreement to also provide
an acceptable stock incentive options package; such employment agreement shall
be otherwise in form as approved by the attorney for ALGOR.
(f) ADS shall rebate to ALGOR fifty percent of any media
commissions as paid by the media in connection with advertising placed for ALGOR
and any of its subsidiaries and Telephonetics International, Inc. and any of its
subsidiaries.
3. The parties recognize that all of the statements made herein
by each party are made as material inducements to the other party to execute
this Agreement and perform obligations under this Agreement.
4. Pending consummation of all of the obligations under this
Agreement, ALGOR and ADS will carry on their business in substantially the same
manner as before and each will use its best efforts to maintain its business
organization intact, to retain its present employees, and to maintain its
relationships with suppliers and other business contacts. Except with the prior
consent in writing of ALGOR, pending consummation of the obligations under this
Agreement, ADS shall not:
(a) Declare, pay any dividend or make any other distribution
on its shares.
(b) Create or issue any indebtedness for borrowed money.
(c) Enter into any transaction other than those involved in
carrying on its ordinary course of business.
5. Except as may be expressly waived in writing by ADS, all of
the obligations of ADS under this Agreement are subject to the satisfaction,
prior to or on the closing/completion of obligations, of each of the following
conditions by ALGOR:
(a) The representations and warranties made by ALGOR to ADS
herein and in any document delivered pursuant to this Agreement shall be deemed
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to have been made again at the time of the exchange and shall then be true and
correct in all material respects. If ALGOR shall have discovered any material
error, misstatement or omission in those representations and warranties on or
before closing, it shall report that discovery immediately to ADS and shall
either correct the error, misstatement, or omission or obtain a written waiver
from ADS. The parties agree to resolve any disputes regarding material error,
misstatement or omission through arbitration following the Rules of the American
Arbitration Association. The results of such arbitration shall be binding upon
the parties.
(b) ALGOR shall have performed and complied with all
agreements and conditions required by this Agreement to be performed and
complied with by it prior to or at closing.
(c) No action or proceeding by any governmental body or
agency shall have been threatened, asserted, or instituted to restrain or
prohibit the carrying out of the transactions contemplated by this Agreement.
(d) All corporate and other proceedings and action taken in
connection with the transactions contemplated by this Agreement and all
certificates, opinions, agreements, instruments, and documents shall be
satisfactory in form and substance to counsel for ADS.
6. Except as may be expressly waived in writing by ALGOR, all of
the obligations of ALGOR under this Agreement are subject to the satisfaction,
prior to or on the closing/completion of obligations, of each of the following
conditions by ADS:
(a) The representations and warranties made by ADS to ALGOR
herein and in any document delivered pursuant to this Agreement shall be deemed
to have been made again at the time of the exchange and shall then be true and
correct in all material respects. If ADS shall have discovered any material
error, misstatement or omission in those representations and warranties on or
before closing, it shall report that discovery immediately to ALGOR and shall
either correct the error, misstatement, or omission or obtain a written waiver
from ALGOR.
(b) ADS shall have performed and complied with all
agreements and conditions required by this Agreement to be performed and
complied with by it prior to or at closing.
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(c) No action or proceeding by any governmental body or
agency shall have been threatened, asserted, or instituted to restrain or
prohibit the carrying out of the transactions contemplated by this Agreement.
(d) All corporate and other proceedings and action taken in
connection with the transactions contemplated by this Agreement and all
certificates, opinions, agreements, instruments, and documents shall be
satisfactory in form and substance to counsel for ALGOR.
(e) ALGOR shall have received (and approved for its purposes
in completing the proposed acquisition) that certain documentation previously
requested from ADS.
Notwithstanding anything stated to the contrary herein, the parties
understand and acknowledge that a line of credit and long-term debt for ADS
exists at the time of this acquisition. It is the understanding and agreement of
ADS and ALGOR that the parties shall terminate and close ADS's lines of credit
no later than sixty (60) days after the closing of this transaction. After the
date of this transaction, all of the net profits and dividends of ADS shall be
applied first to the payment of the credit line and other long-term debt until
paid in full. Further, subject to ADS generating sufficient profits to retire
this debt, ALGOR and its representatives shall indemnify XXXXX and be
responsible to and for all claims related to the credit line account and other
long term debt after the date of this Agreement.
7. The ALGOR stock issued to ADS or as directed by ADS shall be
restricted.
8. The Bylaws of ALGOR, as existing on this date, shall continue
in full force as the Bylaws of ALGOR until altered amended or repealed, as
provided in the Bylaws or as provided by law. Appropriate corporate
documentation in the form of minutes, resolutions, et al, shall be executed
memorializing and authorizing the actions provided for herein.
9. All statements contained in any memorandum, certificate,
letter, document, or other instrument delivered by or on behalf of ADS, ALGOR,
or the stockholders identified in this Agreement shall be deemed representations
and warranties made by the respective parties to each other under this
Agreement. The covenants, representations, and warranties of the parties and the
stockholders shall survive for a period of three years after the Effective Date.
No inspection, examination or audit made on behalf of the parties or the
stockholders shall act as a waiver of any representation or warranty made under
this Agreement.
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10. ADS and ALGOR shall mutually indemnify and hold each other
harmless against and in respect of all damages. Damages, as used in this
paragraph, shall include any claim, action, demand, loss, cost, expense,
liability, penalty and other damage, including without limitation, counsel fees
and other costs and expenses incurred in investigating, in attempting to avoid
damages or to oppose the imposition of damages, or in enforcing this indemnity,
resulting to ALGOR or ADS, as the case may be, from (i) any inaccurate
representation made by or on behalf of the other or its stockholder(s) in or
pursuant to this Agreement; (ii) breach of any of the warranties made by or on
behalf of the other or the stockholder(s), in or pursuant to this Agreement;
(iii) breach or default in the performance by the other of any of the
obligations to be performed by it under this Agreement; or (iv) breach or
default in the performance by the stockholder(s) of any of the obligations to be
performed by them under any agreement delivered to them by the other pursuant to
this Agreement. The defaulting entity shall reimburse the non-defaulting entity
on demand for any payment made or for any loss suffered by the non-defaulting
entity at any time after execution hereof, based on the judgment of any court of
competent jurisdiction or pursuant to a bona fide compromise or settlement of
claims, demands, or actions, in respect of any damages specified by the
foregoing indemnity. The defaulting entity shall satisfy its obligations to the
other by the payment of cash on demand. The defaulting entity shall have the
opportunity to defend any claim, action, or demand asserted against the other
for which the other claims indemnity provided that (i) the defense is conducted
by reputable counsel approved by the non-defaulting entity, which approval shall
not be unreasonably withheld; (ii) the defense is expressly assumed in writing
within ten days after written notice of the claim, action or demand is given to
the stockholder(s); and (iii) counsel for the non-defaulting entity may
participate at all times and in all proceedings (formal and informal) relating
to the defense, compromise, and settlement of the claim, action, or demand, at
the expense of the other. By their signatures hereinbelow, XXXXX guarantees the
obligations of ADS set forth in this paragraph 10.
11. This Agreement may be terminated and the actions contemplated
herein abandoned at any time within 7 days prior to the closing of this
transaction based upon the following:
(a) By mutual consent of the Board of Directors of both
corporate entities.
(b) At the election of the Board of Directors of either
corporate entity if:
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(1) Any material litigation or proceeding shall be
instituted or threatened against the other corporate entity or any of its
assets, that, in the correct opinion of such Board of Directors, renders the
instant transaction inadvisable or undesirable.
(2) Any legislation shall be enacted that materially
renders the proposed transaction inadvisable or undesirable.
(3) Between the date of this Agreement and the
completion of obligations provided for herein there shall have been, in the
opinion of the Board of Directors of either corporation, any materially adverse
change in the business or condition, financial or otherwise, of the other
corporate entity.
(4) Counsel for either corporation shall have
determined, prior to the completion of obligations herein, that (a) the exchange
of stock provided for herein shall result in the requirement of one or more of
the parties to this transaction to pay United States federal income tax as a
result of ordinary or capital gain, or (b) the proposed transaction is in
violation of federal, state and local law.
(c) At the election of the Board of Directors of ALGOR if
without the prior consent in writing of ALGOR, ADS shall have:
(1) Declared or paid a cash dividend on its common
stock or declared or paid any other dividend or made any other distribution on
its shares.
(2) Created or issued any indebtedness for borrowed
money.
(3) Entered into any transaction other than those
involved in carrying on its business in the usual manner. On or before , ALGOR
shall perform all due diligence, and ADS shall perform all obligations referred
to herein and required by each of them prior to closing. Within 7 days of the
date of closing, ALGOR shall advise ADS in writing at the address set forth
herein of its intention to terminate this Agreement. In the event ALGOR does not
terminate this Agreement on the date of closing, the stock which is the subject
of this transaction shall vest and the matter shall be closed. However, the
representations and warranties made herein shall survive as indicated herein.
The cost of all due diligence, investigations including audits,
etc., as ordered by ALGOR, shall be borne exclusively by ALGOR.
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12. Any notice or other communication required or permitted under
this Agreement shall be properly given when deposited with the United States
Postal Service for transmittal by certified or registered mail, postage prepaid,
or when deposited with a public telegraph company for transmittal, charges
prepaid, addressed as follows:
(a) In the case of ADS, to: Xxxx Xxxxx, President, ADS
Advertising Corp., 0000 X.X. 00xx Xxxxxx, Xxxxx 000, Xxxx Xxxxxxxxxx, XX 00000,
or to such other person or address as ADS may from time to time request in
writing.
(b) In the case of ALGOR, to: XXXXX XXXXXXXX, CEO,
Algorhythm Technologies, 0000 X.X. 000xx Xxxxx, Xxxxx Xxxx, XX 00000, or to such
other person or address as ALGOR may from time to time request in writing.
13. Marks and Truppman, P.A./Xxxxxxx X. Xxxxx, Esq. (collectively
"Marks") acts as local counsel for ALGOR and has prepared this Agreement in
accordance with instructions received from BAWARSKY individually and on the part
of ALGOR and XXXXX individually and on the part of ADS, and, therefore, for the
purposes of resolving any ambiguities, if any, both ALGOR and ADS, as well as
their principals, BAWARSKY and XXXXX, respectively, shall be deemed to have
participated in the preparation of all terms and conditions in this Agreement.
Further, ADS and XXXXX are not relying on Marks as their counsel, as they have
and will continue to consult with other counsel. The foregoing provisos shall
also apply to any and all agreements, documentation, consents, minutes, etc.
contemplated by and/or referred to in this Agreement.
14. In the event of litigation arising out of a breach of any of
the terms and/or conditions of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees and court costs, at all trial and
appellate levels, from the nonprevailing party.
15. This Agreement and the exhibits to this Agreement contain the
entire agreement between the parties with respect to the contemplated
transaction. This Agreement may be executed in any number of counterparts, all
of which taken together shall be deemed one original.
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16. The validity, interpretation and performance of this Agreement
shall be governed by, construed and enforced in accordance with the laws of the
State of Florida, and exclusive venue shall be in Broward County, Florida.
IN WITNESS WHEREOF, this Agreement was executed on the dates set
forth after signatures hereinbelow.
ALGORHYTHM TECHNOLOGIES, INC. ADS ADVERTISING CORP. d/b/a THE
XXXXX AGENCY
By s/Xxxxx Xxxxxxxx By s/Xxxx Xxxxx
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XXXXX XXXXXXXX, President XXXX XXXXX, President
Dated: 10/30/97 Dated: 10/30/97
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